PRUDENTIAL INVESTMENT PORTFOLIOS INC, 485APOS, 1999-09-29

PRUDENTIAL INVESTMENT PORTFOLIOS INC
485APOS, 1999-09-29

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As filed with the Securities and Exchange Commission on September 29, 1999

Registration Nos. 33-61997, 811-7343
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [_]

Pre-Effective Amendment No. [_]

Post-Effective Amendment No. 10 [X]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [_]

Amendment No. 11
(Check appropriate box or boxes) [X]

The Prudential Investment Portfolios, Inc.
(Exact name of registrant as specified in charter)

GATEWAY CENTER THREE (GC3)
100 MULBERRY STREET, 9TH FLOOR
NEWARK, NEW JERSEY 07102-4077
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (973) 367-7525

MARGUERITE E. H. MORRISON, ESQ.
GATEWAY CENTER THREE (GC3)
100 MULBERRY STREET, 9TH FLOOR
NEWARK, NEW JERSEY 07102-4077
(Name and Address of Agent for Service)

Approximate date of proposed public offering: As soon as practicable after
the effective date of the Registration Statement.

It is proposed that this filing will become effective
(check appropriate box):

[_] Immediately upon filing pursuant to paragraph (b)

[_] on (date) pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)

[X] on November 29, 1999 pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

Title of Securities Being Registered. . . Shares of common stock, par value
$.001 per share.

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FUND TYPE:
_________________________________
Stock and bond

INVESTMENT OBJECTIVE:
_________________________________
Income and long-term
growth of capital

Prudential
Active Balanced Fund
[LOGO OF PRUDENTIAL INVESTMENTS APPEARS HERE]

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PROSPECTUS: NOVEMBER , 1999

As with all mutual funds, the
Securities and Exchange
Commission has not approved or
disapproved the Fund's shares,
nor has the SEC determined that
this prospectus is complete or
accurate. It is a criminal
offense to state otherwise.
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Table of Contents
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<TABLE>
<C> <S>
1 Risk/Return Summary
1 Investment Objective and Principal Strategies
2 Principal Risks
3 Evaluating Performance
5 Fees and Expenses

7 How the Fund Invests
7 Investment Objective and Policies
9 Derivative Strategies
10 Other Investments and Strategies
12 Investment Risks

17 How the Fund is Managed
17 Board of Directors
17 Manager
17 Investment Adviser
17 Portfolio Managers
18 Distributor
18 Year 2000 Readiness Disclosure

20 Fund Distributions and Tax Issues
20 Distributions
21 Tax Issues
22 If You Sell or Exchange Your Shares

24 How to Buy, Sell and Exchange Shares of the Fund
24 How to Buy Shares
32 How to Sell Your Shares
36 How to Exchange Your Shares

38 Financial Highlights
38 Class A Shares
39 Class B Shares
40 Class C Shares
41 Class Z Shares

42 The Prudential Mutual Fund Family

For More Information (Back Cover)
</TABLE>
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PRUDENTIAL ACTIVE BALANCED FUND [GRAPHIC] (800) 225-1852
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Risk/Return Summary
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WE'RE EQUITY INVESTORS
In deciding which equity investments to buy for the equity portfolio, we look
for common stocks, preferred stocks or other equity-related securities of
companies that are expected to provide higher total returns (yield plus
appreciation) than the average stock.

WE ALSO INVEST IN DEBT INSTRUMENTS
We use a team approach to find debt obligations. Issuers of bonds and other
debt instruments pay a fixed or variable rate of interest and must repay the
amount borrowed at maturity.

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This section highlights key information about the PRUDENTIAL ACTIVE BALANCED
FUND, which we refer to as "the Fund." The Fund is a series of The Prudential
Investment Portfolios, Inc. (the Company). Additional information follows this
summary.

INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
Our 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. While we make every effort to achieve our
objective, we can't guarantee success.
Normally the Fund will invest 40% to 75% of its assets in equity-related
securities. Equity-related securities in which the Fund primarily invests are
common stocks, nonconvertible preferred stocks and convertible securities.
Under normal circumstances, we will invest 25% to 60% of total assets in
investment-grade fixed-income securities.
We may invest up to 20% of our assets in fixed-income securities rated lower
than investment grade. These are known as "junk bonds."
We normally also may invest from 0% to 35% of Fund assets in money market
instruments, which include the commercial paper of U.S. and non-U.S.
corporations, short-term obligations of U.S. and foreign banks and short-term
obligations guaranteed by the U.S. government or its agencies.
We can invest up to 35% of the Fund's assets in foreign equity and debt
securities. Up to 30% of the Fund's assets may be used in investment techniques
involving leverage, such as dollar rolls, forward rolls and reverse repurchase
agreements. We also may use derivatives.

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1
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Risk/Return Summary
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PRINCIPAL RISKS
Although we try to invest wisely, all investments involve risk. Since the Fund
invests in equity-related securities, there is the risk that the price of a
particular stock we own could go down, or the value of the equity markets or a
sector of them could go down. Stock markets are volatile. Generally, the stock
prices of large and medium-sized companies are more stable than the stock
prices of small companies. The Fund's equity holdings can vary significantly
from broad market indexes, and performance of the Fund can deviate from the
performance of such indexes.
The Fund's uses an asset allocation strategy. Although the Fund's investment
adviser believes that this will add value over the long term, it is possible
that we will emphasize an asset category that is out of favor.
The Fund invests in debt obligations which have credit, market and interest
rate risks. Credit risk is the possibility that an issuer of a debt obligation
fails to pay the Fund interest or repay principal. Market risk, which may
affect an industry, a sector or the entire market, is the possibility that the
market value of an investment may move up or down and that its movement may
occur quickly or unpredictably. Interest rate risk refers to the fact that the
value of most bonds will fall when interest rates rise. The longer the maturity
and the lower the credit quality of a bond, the more likely its value will
decline. Debt securities rated below investment grade-- also known as "junk"
bonds--have a higher risk of default and tend to be less liquid.
Since the Fund invests in foreign securities, there are additional risks.
Foreign markets are often more volatile than U.S. markets and are generally not
subject to regulatory requirements comparable to those of U.S. issuers. Changes
in currency exchange rates can reduce or increase market performance.
The Fund may actively and frequently trade its portfolio securities. High
portfolio turnover results in higher transaction costs and can affect the
Fund's performance and have adverse tax consequences.
Some of our investment strategies--such as using leverage or derivatives--
also involve above-average risks. The Fund may use risk management techniques
to try to preserve assets or enhance return. Derivatives may not fully offset
the underlying positions and this could result in losses to the Fund that would
not otherwise have occurred. If the Fund sells securities and agrees to
repurchase them in a forward roll

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2
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Risk/Return Summary
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transaction or a reverse repurchase agreement, there is a risk that the market
value of any securities purchased with proceeds of the initial sale will
decline below the repurchase price the Fund has agreed to pay. This would cause
the net asset value of the Fund's shares to decrease faster than would
otherwise be the case, and is the speculative characteristic known as
"leverage."
Like any mutual fund, an investment in the Fund could lose value and you
could lose money. For more detailed information about the risks associated with
the Fund, see "How the Fund Invests--Investment Risks."
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.

EVALUATING PERFORMANCE
A number of factors--including risk--can affect how the Fund performs. The
following bar chart shows the Fund's performance for each full calendar year of
operation. The bar chart and table below demonstrate the risk of investing in
the Fund by showing how returns can change from year to year and by showing how
the Fund's average annual total returns compare with a stock index, a bond
index and a group of similar mutual funds. Past performance does not mean that
the Fund will achieve similar results in the future.

(Prudential Active Balanced Fund, Class Z Annual Returns Bar Chart)

* The total return of the Class Z shares from 1-1-99 to 9-30-99 was %.

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3
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Risk/Return Summary
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AVERAGE ANNUAL RETURNS/1/ (AS OF 12-31-98)
<TABLE>
<CAPTION>
- -----------------------------------------------------

1 YR 5 YRS SINCE INCEPTION
<S> <C> <C> <C>
Class A shares (since 11-7-96)
Class B shares (since 11-7-96)
Class C shares (since 11-7-96)
Class Z shares (since 1-4-93)
S&P 500/2/ 8.60% N/A/2/
Lehman Govt./Corp./3/ 1.60% N/A/3/
Lipper Average/4/ 19.99% N/A/4/
</TABLE>

1 The Fund's returns are after deduction of sales charges and expenses.
Without the distribution and service (12b-1) fee waiver for Class A shares,
the returns would have been lower.
2 The Standard & Poor's 500 Stock Index (S&P 500)--an unmanaged index of 500
stocks of large U.S. companies--gives a broad look at how stock prices have
performed. These returns do not include the effect of any sales charges or
operating expenses of a mutual fund. These returns would be lower if they
included the effect of sales charges and operating expenses. S&P 500 returns
since the inception of each class are % for Class A, Class B and Class C
shares and % for Class Z shares. Source: Lipper Inc.
3 The Lehman Brothers Government/Corporate Bond Index is a weighted index of
public, fixed-rate, nonconvertible domestic corporate debt securities rated
at least investment grade and public obligations of the U.S. Treasury. These
returns do not include the effect of any sales charges or operating expenses
of a mutual fund. These returns would be lower if they included the effect
of sales charges and operating expenses. Lehman Brothers Govt./Corp. Bond
Index returns since the inception of each class are % for Class A, Class B
and Class C shares and % for Class Z shares. Source:
4 The Lipper Average is based on the average return of all mutual funds in the
Lipper Balanced Fund category and does not include the effect of any sales
charges. Again, these returns would be lower if they included the effect of
sales charges. Lipper returns since the inception of each class are % for
Class A, Class B and Class C shares and % for Class Z shares. Source:
Lipper Inc.

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PRUDENTIAL ACTIVE BALANCED FUND (800) 225-1852
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4
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Risk/Return Summary
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FEES AND EXPENSES
These tables show the sales charges, fees and expenses that you may pay if
you buy and hold shares of each share class of the Fund--Class A, B, C and Z.
Each share class has different sales charges--known as loads--and expenses,
but represents an investment in the same fund. Class Z shares are available
only to a limited group of investors. For more information about which share
class may be right for you, see "How to Buy, Sell and Exchange Shares of the
Fund."

SHAREHOLDER FEES/1/ (PAID DIRECTLY FROM YOUR INVESTMENT)
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<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Z
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed 5% None 1% None
on purchases (as a percentage of
offering price)
Maximum deferred sales charge None 5%/2/ 1%/3/ None
(load) (as a percentage of the
lower of original purchase price or
sale proceeds)
Maximum sales charge (load) imposed None None None None
on reinvested dividends and other
distributions
Redemption fees None None None None
Exchange fee None None None None

ANNUAL FUND OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS)
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<CAPTION>
CLASS A CLASS B CLASS C CLASS Z
<S> <C> <C> <C> <C>
Management fees .65% .65% .65% .65%
+ Distribution and service (12b-1) .30%/4/ 1.00% 1.00% None
fees
+ Other expenses % % % %
= Total annual Fund operating % % % %
expenses
- Fee waiver or expense .05% None None None
reimbursement
= NET ANNUAL FUND OPERATING %/4/ % % %
EXPENSES
</TABLE>

1 Your broker may charge you a separate or additional fee for purchases and
sales of shares.
2 The Contingent Deferred Sales Charge (CDSC) for Class B shares decreases by
1% annually to 1% in the fifth and sixth years and 0% in the seventh year.
Class B shares convert to Class A shares approximately seven years after
purchase.
3 The CDSC for Class C shares is 1% for shares redeemed within 18 months of
purchase.
4 For the fiscal year ending September 30, 2000, the Distributor of the Fund
has contractually agreed to reduce its distribution and service (12b-1) fees
for Class A shares to .25 of 1% of the average daily net assets of the Class
A shares.

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5
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Risk/Return Summary
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EXAMPLE
This example will help you compare the fees and expenses of the Fund's
different share classes and the cost of investing in the Fund with the cost of
investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same, except for the Distributor's
reduction of distribution and service (12b-1) fees for Class A shares during
the first year. Although your actual costs may be higher or lower, based on
these assumptions, your costs would be:

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<TABLE>
<CAPTION>
1 3 5 10
YR YRS YRS YRS
<S> <C> <C> <C> <C>
Class A shares $ $ $ $
Class B shares $ $ $ $
Class C shares $ $ $ $
Class Z shares $ $ $ $
</TABLE>

You would pay the following expenses on the same investment if you did not sell
your shares:

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PRUDENTIAL ACTIVE BALANCED FUND (800) 225-1852
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How the Fund Invests
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[to come]

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INVESTMENT OBJECTIVE AND POLICIES
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. While we make every effort to achieve our objective, we
can't guarantee success.
In pursuing our objective, we normally invest in a wide variety of equity-
related securities, debt securities and money market instruments. The Fund's
investments will be actively shifted among these asset classes in order to
capitalize on valuation opportunities and to maximize the Fund's total return.
In addition to common stocks, nonconvertible preferred stocks and convertible
securities, equity-related securities include American Depositary Receipts
(ADRs); warrants and rights that can be exercised to obtain stock; investments
in various types of business ventures, including partnerships and joint
ventures; real estate investment trusts (REITs) and similar securities.
Convertible securities are securities--like bonds, corporate notes and preferred
stocks--that we can convert into the company's common stock or some other equity
security. We may buy common stocks of companies of every size--small-, medium-
and large-capitalization.
Debt obligations include corporate and noncorporate obligations, such as
U.S. government securities. The weighted average maturity of the debt
securities held by the Fund will normally be between 3 and 30 years. We can
invest up to 20% of total assets in debt obligations rated BB or B by Standard
& Poor's Ratings Group (S&P) or Ba or B by Moody's Investors Service, Inc.
(Moody's) or the equivalent rating by another major rating service. These
lower-rated obligations--also known as "junk bonds"--have a higher risk of
default and tend to be less liquid and more volatile than

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7
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How the Fund Invests
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higher-rated obligations. We also may invest in obligations that are not rated,
but that we believe are of comparable quality to these obligations.
We may also invest in money market instruments, which include the commercial
paper of corporations, certificates of deposit, bankers' acceptances and other
obligations of domestic and foreign banks, nonconvertible debt securities
(corporate and government), short-term obligations issued or guaranteed by the
U.S. government or its agencies or instrumentalities, repurchase agreements and
cash (foreign currencies or U.S. dollars). Generally, money market instruments
provide a fixed rate of return, but provide less opportunity for capital
appreciation than stocks.

U.S. GOVERNMENT SECURITIES
The Fund may invest in securities issued or guaranteed by the U.S. government
or by an agency or instrumentality of the U.S. government. Not all U.S.
government securities are backed by the full faith and credit of the United
States, which means that payment of principal and interest are guaranteed, but
market value is not. Some are supported only by the credit of the issuing
agency and depend entirely on their own resources to repay their debt.

MORTGAGE-RELATED SECURITIES
We may invest in mortgage-related securities issued or guaranteed by U.S.
governmental entities or private entities. These securities are usually pass-
through instruments that pay investors a share of all interest and principal
payments from an underlying pool of fixed or adjustable rate mortgages.
Mortgage-related securities include collateralized mortgage obligations,
multi-class pass-through securities and stripped mortgage-backed securities. A
COLLATERALIZED MORTGAGE OBLIGATION (CMO) is a security backed by an underlying
portfolio of mortgages or mortgage-backed securities that may be issued or
guaranteed by a bank or by U.S. governmental entities. A MULTI-CLASS PASS-
THROUGH SECURITY is an equity interest in a trust composed of underlying
mortgage assets. Payments of principal and interest on the mortgage assets and
any reinvestment income thereon provide the funds to pay debt service on the
CMO or to make scheduled distributions on the multi-class pass-through
security. A STRIPPED MORTGAGE-BACKED SECURITY (MBS STRIP) may be issued by U.S.
governmental entities or by private institutions. MBS strips take the pieces of
a debt security (principal and

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How the Fund Invests
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interest) and break them apart. The resulting securities may be sold separately
and may perform differently.
The values of mortgage-backed securities vary with changes in market
interest rates and yields. Such values are particularly sensitive to changes in
prepayments of the underlying mortgages. For example, during periods of falling
interest rates, prepayments tend to increase as homeowners and others refinance
their higher-rate mortgages. These prepayments reduce the anticipated duration
of the mortgage-related securities. Conversely, during periods of rising
interest rates, prepayments can be expected to decline, which has the effect of
extending the anticipated duration at the same time that the value of the
securities declines. MBS strips tend to be even more highly sensitive to
changes in prepayment and interest rates than mortgage-related securities and
CMOs generally.

ASSET-BACKED SECURITIES
We may also invest in asset-backed debt securities. An asset-backed security is
another type of pass-through instrument that pays interest based upon the cash
flow of an underlying pool of assets, such as automobile loans and credit card
receivables. Unlike mortgage-related securities, asset-backed securities are
usually not collateralized, which means that if the borrower does not repay the
amount loaned when due, the Fund could suffer a loss.

FOREIGN SECURITIES
We may invest up to 15% of the Fund's total assets in foreign equity securities
and up to 20% of its total assets in fixed-income securities of foreign
issuers. For purposes of the 15% limit, we do not consider ADRs and other
similar receipts or shares to be foreign securities.

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9
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How the Fund Invests
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index, currency, interest rate or some other benchmark--will go up or down at
some future date. We may use derivatives to try to reduce risk or to increase
return consistent with the Fund's overall investment objective.
The investment adviser will consider other factors (such as cost) in deciding
whether to employ any particular strategy or use any particular instrument. Any
derivatives we use may not match the Fund's underlying holdings.

Options. The Fund may purchase and sell put and call options on equity
securities, stock indexes and foreign currencies traded on U.S. or foreign
securities exchanges or in the over-the-counter market. An option is the right
to buy or sell securities or currencies in exchange for a premium. The Fund
will sell only covered options.

FUTURES CONTRACTS AND RELATED OPTIONS Foreign Currency Forward Contracts. The
Fund may purchase and sell futures contracts on securities, securities indexes,
interest rate indexes and foreign currencies, and related options on such
futures. A futures contract is an agreement to buy or sell a set quantity of an
underlying product at a future date, or to make or receive a cash payment based
on the value of a securities index. The Fund also may enter into foreign
currency forward contracts to protect the value of its assets against future
changes in the level of foreign exchange rates. A foreign currency forward
contract is an obligation to buy or sell a given currency on a future date at a
set price.
For more information, see "Investment Risks" and the Statement of Additional
Information, "Description of the Funds, Their Investments and Risks." The
Statement of Additional Information--which we refer to as the SAI--contains
additional information about the Fund. To obtain a copy, see the back cover
page of this prospectus.
The Fund's investment objective is a fundamental policy that cannot be
changed without shareholder approval. The Board can change investment policies
that are not fundamental.

OTHER INVESTMENTS AND STRATEGIES
In addition to the principal strategies, we may also use the following
investment strategies to try to increase the Fund's returns or protect its
assets if market conditions warrant.

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How the Fund Invests
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REPURCHASE AGREEMENTS
The Fund may also use REPURCHASE AGREEMENTS, where a party agrees to sell a
security to the Fund and then repurchase it at an agreed-upon price at a stated
time. This creates a fixed return for the Fund and is in effect a loan by the
Fund.

REVERSE REPURCHASE AGREEMENTS AND FORWARD ROLLS
The Fund may enter into REVERSE REPURCHASE AGREEMENTS and FORWARD ROLLS. When
the Fund enters into a reverse repurchase agreement, the Fund borrows money on
a temporary basis by selling a security with an obligation to repurchase it at
an agreed-upon price and time.
When the Fund enters into a dollar roll, the Fund sells securities to be
delivered in the current month and repurchases the same or substantially
similar (same type and coupon) securities to be delivered on a specified future
date by the same party. The Fund is paid the difference between the current
sales price and the forward price for the future purchase as well as the
interest earned on the cash proceeds of the initial sale.

TEMPORARY DEFENSIVE INVESTMENTS
In response to adverse market, economic or political conditions, we may
temporarily invest up to 100% of the Fund's assets in high-quality foreign or
domestic money market instruments. Investing heavily in these securities limits
our ability to achieve capital appreciation, but can help to preserve the
Fund's assets when the equity markets are unstable.
The Fund also may temporarily hold cash or invest in high-quality foreign or
domestic money market instruments pending investment of proceeds from new sales
of Fund shares or to meet ordinary daily cash needs.

ADDITIONAL STRATEGIES
The Fund also follows certain policies when it BORROWS MONEY (the Fund can
borrow up to 30% of the value of its total assets); LENDS ITS SECURITIES to
others (the Fund can lend up to 30% of the value of its total assets including
collateral received in the transaction); and HOLDS ILLIQUID SECURITIES (the
Fund may hold up to 15% of its net assets in illiquid securities, including
securities with legal or contractual restrictions on resale, those without a
readily available market and repurchase agreements with

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How the Fund Invests
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maturities longer than seven days). The Fund is subject to certain investment
restrictions that are fundamental policies, which means they cannot be changed
without shareholder approval. For more information about these restrictions,
see the SAI.

PORTFOLIO TURNOVER
As a result of the strategies described above, the Fund may have an annual
portfolio turnover rate of over 100%. Portfolio turnover is generally the
percentage found by dividing the lesser of portfolio purchases or sales by the
monthly average value of the portfolio. High portfolio turnover (100% or more)
results in higher brokerage commissions and other transaction costs and can
affect the Fund's performance. It also can result in a greater amount of
distributions as ordinary income rather than long-term capital gains.

INVESTMENT RISKS
As noted, all investments involve risk, and investing in the Fund is no
exception. Since the Fund's holdings can vary significantly from broad market
indexes, performance of the Fund can deviate from performance of the indexes.
This chart outlines the key risks and potential rewards of the Fund's principal
investments and certain other non-principal investments the Fund may make. See,
too, "Description of the Funds, Their Investments and Risks" in the SAI.

INVESTMENT TYPE
% OF FUND'S TOTAL RISKS POTENTIAL REWARDS
ASSETS

EQUITY-RELATED . Individual stocks . Historically,
SECURITIES could lose value stocks have
. The equity outperformed
40-75% markets could go other
down, resulting investments over
in a decline in the long term
value of the
Fund's . Generally,
investments economic growth
means higher
. Companies that corporate
pay dividends may profits, which
not do so if they lead to an
don't have increase in
profits or stock prices,
adequate cash known as capital
flow appreciation

. Changes in . May be a source
economic or of dividend
political income
conditions, both
domestic and . The Fund's asset
international, allocation
may result in a strategy may
decline in value provide stable
of the Fund's returns
investments

. The Fund may
invest the bulk
of its assets in
an asset category
that is out
of favor, which
could result in
losses if stock
prices fall

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How the Fund Invests
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INVESTMENT TYPE (CONT'D)
% OF FUND'S TOTAL RISKS POTENTIAL REWARDS
ASSETS

FIXED-INCOME . The Fund's . Regular interest
OBLIGATIONS holdings, share income
price and total . Generally, more
return may secure than
25-60% fluctuate in stocks since
response to bond companies must
market movements pay their debts
before they pay
dividends
. Credit risk--the
risk that the . Most bonds will
default of an rise in value
issuer would when interest
leave the Fund rates fall
with unpaid
interest or
principal. The . Bonds have
lower a bond's generally
quality, the outperformed
higher its money market
potential instruments over
volatility the long term,
with less risk
. Market risk--the than stocks
risk that the
market value of
an investment may . Investment-grade
move up or down, bonds have a
sometimes rapidly lower risk of
or unpredictably. default
Market risk may
affect an . Junk bonds offer
industry, a higher yields
sector, or the and higher
market as a whole potential gains
. Interest rate
risk--the risk
that the value of
most bonds will
fall when
interest rates
rise. The longer
a bond's maturity
and the lower its
credit quality,
the more its
value typically
falls. It can
lead to price
volatility
. Junk bonds have a
higher risk of
default, tend to
be less liquid
and may be more
difficult to
value

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How the Fund Invests
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INVESTMENT TYPE (CONT'D)
% OF FUND'S TOTAL RISKS POTENTIAL REWARDS
ASSETS

MORTGAGE-RELATED . Prepayment risk-- . Regular interest
SECURITIES the risk that the income
underlying . The U.S.
mortgage may be government
25-60% pre- paid guarantees
partially or interest and
completely, principal
generally during payments on
periods of certain
falling interest securities
rates, which . May benefit from
could adversely security
affect yield to interest in real
maturity and estate
could require the collateral
Fund to reinvest . Pass-through
in lower-yielding instruments
securities provide greater
diversification
than direct
ownership of
loans
. Credit risk--the
risk that the
underlying
mortgages will
not be paid by
debtors or by
credit insurers
or guarantors of
such instruments.
Some mortgage
securities are
unsecured or
secured by lower-
rated insurers or
guarantors and
thus may involve
greater risk
. See market risk
and interest rate
risk

- --------------------------------------------------------------------------------

ASSET-BACKED . See prepayment . Regular interest
SECURITIES risk income

25-60% . The security . Prepayment risk
interest in the is generally
underlying lower than with
collateral may mortgage-related
not be as great securities
as with mortgage-
related . Pass-through
securities instruments
provide greater
. Credit risk--the diversification
risk that the than direct
underlying ownership of
receivables will loans
not be paid by
debtors or by
credit insurers
or guarantors of
such instruments.
Some asset-backed
securities are
unsecured or
secured by lower-
rated insurers or
guarantors and
thus may involve
greater risk
. See market risk
and interest rate
risk
- --------------------------------------------------------------------------------

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How the Fund Invests
- --------------------------------------------------------------------------------

INVESTMENT TYPE (CONT'D)
% OF FUND'S TOTAL RISKS POTENTIAL REWARDS
ASSETS

FOREIGN . Foreign markets, . Investors can
SECURITIES economies and participate in
political systems foreign markets
Up to 35% may not be as and invest in
stable as in the companies
U.S. operating in
those markets
. Currency risk-- . Changing values
changing values of foreign
of foreign currencies
currencies can . Opportunities
cause losses for
diversification
. May be less
liquid than U.S.
stocks and bonds
. Differences in
foreign laws,
accounting
standards, public
information,
custody and
settlement
practices provide
less reliable
information on
foreign
investments and
involve more risk
. Year 2000
conversion may be
more of a problem
for some foreign
issuers

- --------------------------------------------------------------------------------

REVERSE . May magnify . May magnify
REPURCHASE underlying underlying
AGREEMENTS AND investment losses investment gains
FORWARD ROLLS

. Investment costs
may exceed
Up to 30% potential
underlying
investment gains

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15
<PAGE>

- --------------------------------------------------------------------------------
How the Fund Invests
- --------------------------------------------------------------------------------

INVESTMENT TYPE (CONT'D)
% OF FUND'S TOTAL RISKS POTENTIAL REWARDS
ASSETS

DERIVATIVES . Derivatives such . The Fund could
as futures, make money and
Percentage varies options and protect against
foreign currency losses if the
forward contracts investment
that are used for analysis proves
hedging purposes correct
may not fully . Derivatives that
offset the involve leverage
underlying could generate
positions and substantial
this could result gains at low
in losses to the cost
Fund that would
not have . One way to
otherwise manage the
occurred Fund's
risk/return
. Derivatives used balance is to
for risk lock in the
management may value of an
not have the investment ahead
intended effects of time
and may result in
losses or missed
opportunities
. The other party
to a derivatives
contract could
default
. Derivatives that
involve leverage
could magnify
losses
. Certain types of
derivatives
involve costs to
the Fund that can
reduce returns

- --------------------------------------------------------------------------------

. Limits potential . May preserve the
U.S. GOVERNMENT for capital Fund's assets
SECURITIES appreciation
. See market risk, . Regular interest
25-60% credit risk and income
interest rate . Generally more
risk secure than
lower quality
debt securities
. Not all U.S. and equity
government securities
securities are
insured by the . Principal and
U.S. government, interest may be
but only by the guaranteed by
issuing agency the U.S.
government

- --------------------------------------------------------------------------------

MONEY MARKET . Limits potential . May preserve the
INSTRUMENTS for capital Fund's assets
appreciation
. See credit risk
Up to 35% under and market risk
normal
circumstances
Up to 100%
temporarily

- --------------------------------------------------------------------------------

ILLIQUID . May be difficult . May offer a more
SECURITIES to value attractive yield
precisely or potential for
Up to 15% of net growth than more
assets . May be difficult widely traded
to sell at the securities
time or price
desired

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How the Fund is Managed
- --------------------------------------------------------------------------------

BOARD OF DIRECTORS
The Company's Board of Directors oversees the actions of the Manager,
Investment Adviser and Distributor and decides on general policies. The Board
also oversees the Company's officers, who conduct and supervise the daily
business operations of the Fund.

MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM)
GATEWAY CENTER THREE, 100 MULBERRY STREET
NEWARK, NJ 07102-4077

Under a management agreement with the Fund, PIFM manages the Fund's
investment operations and administers its business affairs. PIFM also is
responsible for supervising the Fund's investment adviser. For the fiscal year
ended September 30, 1999, the Fund paid PIFM management fees of .65% of the
Fund's average net assets.
PIFM and its predecessors have served as manager or administrator to
investment companies since 1987. As of September 30, 1999, PIFM served as the
Manager to all of the Prudential mutual funds, and as Manager or
administrator to closed-end investment companies, with aggregate assets of
approximately $ billion.

INVESTMENT ADVISER
The Prudential Investment Corporation, called Prudential Investments, is the
Fund's investment adviser. Its address is Prudential Plaza, 751 Broad Street,
Newark, NJ 07102. PIFM has responsibility for all investment advisory services,
supervises Prudential Investments and reimburses Prudential Investments for its
reasonable costs and expenses.

PORTFOLIO MANAGERS
JAMES SCOTT, PH.D., is a Senior Managing Director of Prudential Investments
Quantitative Management, a unit of Prudential Investments. He has been a
portfolio manager for the Fund since June 1998. Mr. Scott has managed balanced
and equity portfolios for Prudential's pension plans and several institutional
clients since 1987. Mr. Scott has 23 years of investment experience. He
received a from and a Ph.D. from .

- --------------------------------------------------------------------------------

17
<PAGE>

- --------------------------------------------------------------------------------
How the Fund is Managed
- --------------------------------------------------------------------------------

MARK STUMPP, PH.D., is a Senior Managing Director of Prudential Investments.
He also has been a portfolio manager for the Fund since June 1998. He chairs
the Quantitative Management Group's Investment Policy Committee and is
responsible for its model portfolio. Mr. Stumpp developed and oversees the
methodology underlying the group's actively managed equity portfolios. Mr.
Stumpp has managed mutual fund portfolios since 1995 and has managed investment
portfolios for over 11 years. Mr. Stumpp received a B.A. from Boston University
and an M.A. and Ph.D. from Brown University.
MARTIN LAWLOR is a Managing Director of Prudential Investments. He has been a
portfolio manager for the Fund since June 1998 and is responsible for the
fixed-income portion of the Fund. Mr. Lawlor joined Prudential in 1976. [Prior
portfolio manager experience?] Mr. Lawlor earned a B.A. from and an M.B.A.
from University.

DISTRIBUTOR
Prudential Investment Management Services LLC (PIMS) distributes the Fund's
shares under a Distribution Agreement with the Fund. The Fund has Distribution
and Service Plans under Rule 12b-1 of the Investment Company Act. Under the
Plans and the Distribution Agreement, PIMS pays the expenses of distributing
the Fund's Class A, B, C and Z shares and provides certain shareholder support
services. The Fund pays distribution and other fees to PIMS as compensation for
its services for each class of shares other than Class Z. These fees--known as
12b-1 fees--are shown in the "Fees and Expenses" tables.

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- --------------------------------------------------------------------------------
How the Fund is Managed
- --------------------------------------------------------------------------------

received since early 1998, satisfactory quarterly reports from the principal
service providers as to their preparations for year 2000 readiness, although
there can be no assurance that the service providers (or other securities
market participants) will successfully complete the necessary changes in a
timely manner. Moreover, the Fund at this time has not considered retaining
alternative service providers or directly undertaken efforts to achieve year
2000 readiness, the latter of which would involve substantial expenses without
an assurance of success.
Additionally, issuers of securities generally, as well as those purchased by
the Fund, may confront year 2000 compliance issues which, if material and not
resolved, could have an adverse impact on securities markets and/ or a specific
issuer's performance and could result in a decline in the value of the
securities held by the Fund.

- --------------------------------------------------------------------------------

19
<PAGE>

- --------------------------------------------------------------------------------
Fund Distributions and Tax Issues
- --------------------------------------------------------------------------------

Investors who buy shares of the Fund should be aware of some important tax
issues. For example, the Fund distributes DIVIDENDS of ordinary income and any
realized net CAPITAL GAINS to shareholders. These distributions are subject to
taxes, unless you hold your shares in a 401(k) plan, an Individual Retirement
Account (IRA), or some other qualified tax-deferred plan or account.
Also, if you sell shares of the Fund for a profit, you may have to pay
capital gains taxes on the amount of your profit, again unless you hold your
shares in a qualified tax-deferred plan or account.
The following briefly discusses some of the important federal tax issues you
should be aware of, but is not meant to be tax advice. For tax advice, please
speak with your tax adviser.

DISTRIBUTIONS
The Fund distributes DIVIDENDS of any net investment income to shareholders
typically once a year. For example, if the Fund owns ACME Corp. stock and the
stock pays a dividend, the Fund will pay out a portion of this dividend to its
shareholders, assuming the Fund's income is more than its costs and expenses.
The dividends you receive from the Fund will be taxed as ordinary income
whether or not they are reinvested in the Fund.
The Fund also distributes realized net CAPITAL GAINS to shareholders--
typically once a year--which are generated when the Fund sells its assets for a
profit. For example, if the Fund bought 100 shares of ACME Corp. stock for a
total of $1,000 and more than one year later sold the shares for a total of
$1,500, the Fund has net long-term capital gains of $500, which it will pass on
to shareholders (assuming the Fund's total gains are greater than any losses it
may have). Capital gains are taxed differently depending on how long the Fund
holds the security--if a security is held more than one year before it is sold,
LONG-TERM capital gains are taxed at the rate of 20%, but if the security is
held one year or less, SHORT-TERM capital gains are taxed at ordinary income
rates of up to 39.6%. Different rates apply to corporate shareholders.
For your convenience, Fund distributions of dividends and capital gains are
AUTOMATICALLY REINVESTED in the Fund without any sales charge. If you ask us to
pay the distributions in cash, we will send you a check if your account is with
the Transfer Agent. Otherwise, if your account is with a

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- --------------------------------------------------------------------------------
Fund Distributions and Tax Issues
- --------------------------------------------------------------------------------

broker, you will receive a credit to your account. Either way, the
distributions may be subject to taxes, unless your shares are held in a
qualified tax-deferred plan or account. For more information about automatic
reinvestment and other shareholder services, see "Step 4: Additional
Shareholder Services" in the next section.

TAX ISSUES
FORM 1099
Every year, you will receive a Form 1099, which reports the amount of dividends
and capital gains we distributed to you during the prior year. If you own
shares of the Fund as part of a qualified tax-deferred plan or account, your
taxes are deferred, so you will not receive a Form 1099. However, you will
receive a Form 1099 when you take any distributions from your qualified tax-
deferred plan or account.
Fund distributions are generally taxable to you in the calendar year they
are received, except when we declare certain dividends in the fourth quarter
and actually pay them in January of the following year. In such cases, the
dividends are treated as if they were paid on December 31 of the prior year.
Corporate shareholders are eligible for the 70% dividends- received deduction
for certain dividends.

WITHHOLDING TAXES
If federal tax law requires you to provide the Fund with your tax
identification number and certifications as to your tax status, and you fail to
do this, we will withhold and pay to the U.S. Treasury 31% of your
distributions and sale proceeds. If you are subject to backup withholding, we
will withhold and pay to the U.S. Treasury 31% of your distributions. Dividends
of net investment income and short-term capital gains paid to a nonresident
foreign shareholder generally will be subject to a U.S. withholding tax of 30%.
This rate may be lower, depending on any tax treaty the U.S. may have with the
shareholder's country.

IF YOU PURCHASE JUST BEFORE RECORD DATE
If you buy shares of the Fund just before the record date (the date that
determines who receives the distribution), that distribution will be paid to
you. As explained above, the distribution may be subject to income or capital
gains taxes. You may think you've done well since you bought

- --------------------------------------------------------------------------------

21
<PAGE>

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Fund Distributions and Tax Issues
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

CAPITAL GAIN
+$ (taxes owed)
RECEIPTS
FROM $ OR
SALE
-$ CAPITAL LOSS
(offset against gain)

- --------------------------------------------------------------------------------

shares one day and soon thereafter received a distribution. That is not so
because when dividends are paid out, the value of each share of the Fund
decreases by the amount of the dividend and the market changes (if any) to
reflect the payout. The distribution you receive makes up for the decrease in
share value. However, the timing of your purchase does mean that part of your
investment came back to you as taxable income.

QUALIFIED RETIREMENT PLANS
Retirement plans and accounts allow you to defer paying taxes on investment
income and capital gains. Contributions to these plans may also be tax
deductible, although distributions from these plans generally are taxable. In
the case of Roth IRA accounts, contributions are not tax deductible, but
distributions from the plan may be tax-free. Please contact your financial
adviser for information on a variety of Prudential mutual funds that are
suitable for retirement plans offered by Prudential.

IF YOU SELL OR EXCHANGE YOUR SHARES
If you sell any shares of the Fund for a profit, you have REALIZED A CAPITAL
GAIN, which is subject to tax unless you hold shares in a qualified tax-deferred
plan or account. The amount of tax you pay depends on how long you owned your
shares. If you sell shares of the Fund for a loss, you may have a capital loss,
which you may use to offset certain capital gains you have.
Exchanging your shares of the Fund for the shares of another Prudential
mutual fund is considered a sale for tax purposes. In other words, it's a
"taxable event." Therefore, if the shares you exchanged have increased in value
since you purchased them, you have capital gains, which are subject to the
taxes described above.
Any gain or loss you may have from selling or exchanging Fund shares will
not be reported on the Form 1099; however, proceeds from the sale or exchange
will be reported on Form 1099-B. Therefore, unless you hold your shares in a
qualified tax-deferred plan or account, you or your financial adviser should
keep track of the dates on which you buy and sell--or

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Fund Distributions and Tax Issues
- --------------------------------------------------------------------------------

exchange--Fund shares, as well as the amount of any gain or loss on each
transaction. For tax advice, please see your tax adviser.

AUTOMATIC CONVERSION OF CLASS B SHARES
We have obtained a legal opinion that the conversion of Class B shares into
Class A shares--which happens automatically approximately seven years after
purchase--is not a "taxable event" because it does not involve an actual sale
of your Class B shares. This opinion, however, is not binding on the Internal
Revenue Service. For more information about the automatic conversion of Class B
shares, see "Class B Shares Convert to Class A Shares After Approximately Seven
Years" in the next section.

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23
<PAGE>

How to Buy, Sell and
- --------------------------------------------------------------------------------
Exchange Shares of the Fund
- --------------------------------------------------------------------------------

HOW TO BUY SHARES
STEP 1: OPEN AN ACCOUNT
If you don't have an account with us or a securities firm that is permitted to
buy or sell shares of the Fund for you, call Prudential Mutual Fund Services
LLC (PMFS) at (800) 225-1852, or contact:

PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: INVESTMENT SERVICES
P.O. BOX 15020
NEW BRUNSWICK, NJ 08906-5020

To purchase by wire, call the number above to obtain an application. After
PMFS receives your completed application, you will receive an account number.
For additional information about purchasing shares of the Fund, see the back
cover page of this prospectus. We have the right to reject any purchase order
(including an exchange into the Fund) or suspend or modify the Fund's sale of
its shares.

STEP 2: CHOOSE A SHARE CLASS
Individual investors can choose among Class A, Class B, Class C and Class Z
shares of the Fund, although Class Z shares are available only to a limited
group of investors.
Multiple share classes let you choose a cost structure that better meets
your needs. With Class A shares, you pay the sales charge at the time of
purchase, but the operating expenses each year are lower than the expenses of
Class B and Class C shares. With Class B shares, you only pay a sales charge if
you sell your shares within six years (that is why it is called a Contingent
Deferred Sales Charge or CDSC), but the operating expenses each year are higher
than the Class A share expenses. With Class C shares, you pay a 1% front-end
sales charge and a 1% CDSC if you sell within 18 months of purchase, but the
operating expenses are also higher than the expenses for Class A shares.
When choosing a share class, you should consider the following:
. The amount of your investment
. The length of time you expect to hold the shares and the impact of
varying distribution fees

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<PAGE>

. The different sales charges that apply to each share class-- Class A's
front-end sales charge vs. Class B's CDSC vs. Class C's low front-end
sales charge and low CDSC
. Whether you qualify for any reduction or waiver of sales charges
. The fact that Class B shares automatically convert to Class A shares
approximately seven years after purchase
. Whether you qualify to purchase Class Z shares.
See "How to Sell Your Shares" for a description of the impact of CDSCs.

Share Class Comparison. Use this chart to help you compare the Fund's different
share classes. The discussion following this chart will tell you whether you
are entitled to a reduction or waiver of any sales charges.

1 The minimum investment requirements do not apply to certain retirement and
employee savings plans and custodial accounts for minors. The minimum
initial and subsequent investment for purchases made through the Automatic
Investment Plan is $50. For more information, see "Additional Shareholder
Services--Automatic Investment Plan."
2 For more information about the CDSC and how it is calculated, see "How to
Sell Your Shares-- Contingent Deferred Sales Charge (CDSC)." Class C shares
bought before November 2, 1998, have a 1% CDSC if sold within one year.
3 These distribution fees are paid from the Fund's assets on a continuous
basis. Over time, the fees will increase the cost of your investment and may
cost you more than paying other types of sales charges. The service fee for
Class A, Class B and Class C shares is .25 of 1%. The distribution fee for
Class A shares is limited to .30 of 1% (including the .25 of 1% service fee)
and is .75 of 1% for Class B and Class C shares. For the fiscal year ending
September 30, 2000, the Distributor of the Fund has contractually agreed to
reduce its distribution and service (12b-1) fees for Class A shares to .25
of 1% of the average daily net assets of the Class A Shares.

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25
<PAGE>

REDUCING OR WAIVING CLASS A'S INITIAL SALES CHARGE
The following describes the different ways investors can reduce or avoid paying
Class A's initial sales charge.

Increase the Amount of Your Investment. You can reduce Class A's sales charge
by increasing the amount of your investment. This table shows you how the sales
charge decreases as the amount of your investment increases.

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SALES CHARGE AS % SALES CHARGE AS % DEALER
AMOUNT OF PURCHASE OF OFFERING PRICE OF AMOUNT INVESTED REALLOWANCE
<S> <C> <C> <C>
Less than $25,000 5.00% 5.26% 4.75%
$25,000 to $49,999 4.50% 4.71% 4.25%
$50,000 to $99,999 4.00% 4.17% 3.75%
$100,000 to $249,999 3.25% 3.36% 3.00%
$250,000 to $499,999 2.50% 2.56% 2.40%
$500,000 to $999,999 2.00% 2.04% 1.90%
$1 million and above* None None None
</TABLE>

* If you invest $1 million or more, you can buy only Class A shares, unless
you qualify to buy Class Z shares.

To satisfy the purchase amounts above, you can:
. Invest with an eligible group of related investors
. Buy the Class A shares of two or more Prudential mutual funds at the same
time
. Use your RIGHTS OF ACCUMULATION, which allow you to combine the value of
Prudential mutual fund shares you already own with the value of the
shares you are purchasing for purposes of determining the applicable
sales charge (note: you must notify the Transfer Agent if you qualify for
Rights of Accumulation)
. Sign a LETTER OF INTENT, stating in writing that you or an eligible group
of related investors will purchase a certain amount of shares in the Fund
and other Prudential mutual funds within 13 months.

The Distributor may reallow Class A's sales charge to dealers.

Benefit Plans. Certain group retirement and savings plans may purchase Class A
shares without the initial sales charge if they meet the required

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<PAGE>

minimum for amount of assets, average account balance or number of eligible
employees. For more information about these requirements, call Prudential at
(800) 353-2847.

Mutual Fund Programs. The initial sales charge will be waived for investors in
certain programs sponsored by broker-dealers, investment advisers and financial
planners who have agreements with Prudential Investments Advisory Group
relating to:
. Mutual fund "wrap" or asset allocation programs, where the sponsor places
Fund trades and charges its clients a management, consulting or other fee
for its services, or
. Mutual fund "supermarket" programs where the sponsor links its clients'
accounts to a master account in the sponsor's name and the sponsor
charges a fee for its services.

Broker-dealers, investment advisers or financial planners sponsoring these
mutual fund programs may offer their clients more than one class of shares in
the Fund in connection with different pricing options for their programs.
Investors should consider carefully any separate transaction and other fees
charged by these programs in connection with investing in each available share
class before selecting a share class.

Other Types of Investors. Other investors pay no sales charge, including
certain officers, employees or agents of Prudential and its affiliates, the
Prudential mutual funds, the subadvisers of the Prudential mutual funds and
real estate brokerage companies affiliated with The Prudential Real Estate
Affiliates, Inc., and clients of brokers that have entered into a selected
dealer agreement with the Distributor. To qualify for a reduction or waiver of
the sales charge, you must notify the Transfer Agent or your broker at the time
of purchase. For more information, see the SAI, "Purchase, Redemption and
Pricing of Fund Shares--Reduction and Waiver of Initial Sales Charge--Class A
Shares."

WAIVING CLASS C'S INITIAL SALES CHARGE
Benefit Plans. Certain group retirement plans may purchase Class C shares
without the initial sales charge. For more information, call Prudential at
(800) 353-2847.

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27
<PAGE>

Investment of Redemption Proceeds from Other Investment Companies. The initial
sales charge will be waived for purchases of Class C shares if the purchase is
made with money from the redemption of shares of any unaffiliated investment
company, as long as the shares were not held in an account at Prudential
Securities Incorporated (Prudential Securities) or one of its affiliates. Such
purchases must be made within 60 days of the redemption. To qualify for this
waiver, you must do one of the following:
. Purchase your shares through an account at Prudential Securities
. Purchase your shares through an ADVANTAGE Account or an Investor Account
with Pruco Securities Corporation
. Purchase your shares through another broker.

This waiver is not available to investors who purchase shares directly from
the Transfer Agent. If you are entitled to the waiver, you must notify either
the Transfer Agent or your broker. The Transfer Agent may require any
supporting documents it considers appropriate.

QUALIFYING FOR CLASS Z SHARES
Benefit Plans. Certain group retirement plans may purchase Class Z shares if
they meet the required minimum for amount of assets, average account balance or
number of eligible employees. For more information about these requirements,
call Prudential at (800) 353-2847.

Mutual Fund Programs. Class Z shares also can be purchased by participants in
any fee-based program or trust program sponsored by Prudential or an affiliate
that includes the Fund as an available option. Class Z shares also can be
purchased by investors in certain programs sponsored by broker-dealers,
investment advisers and financial planners who have agreements with Prudential
Investments Advisory Group relating to:
. Mutual fund "wrap" or asset allocation programs where the sponsor places
Fund trades, links its clients' accounts to a master account in the
sponsor's name and charges its clients a management, consulting or other
fee for its services, or
. Mutual fund "supermarket" programs, where the sponsor links its clients'
accounts to a master account in the sponsor's name and the sponsor
charges a fee for its services.

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Other Types of Investors. Class Z shares also can be purchased by any of the
following:
. Certain participants in the MEDLEY Program (group variable annuity
contracts) sponsored by Prudential for whom Class Z shares of the
Prudential mutual funds are an available option;
. Current and former Directors/Trustees of the Prudential mutual funds
(including the Company); and
. Prudential, with an investment of $10 million or more.

In connection with the sale of shares, the Manager, the Distributor or one
of their affiliates may pay brokers, financial advisers and other persons a
commission of up to 4% of the purchase price for Class B shares, up to 2% of
the purchase price for Class C shares and a finder's fee for Class A or Class Z
shares from their own resources based on a percentage of the net asset value of
shares sold or otherwise.

CLASS B SHARES CONVERT TO CLASS A SHARES AFTER APPROXIMATELY SEVEN YEARS
If you buy Class B shares and hold them for approximately seven years, we will
automatically convert them into Class A shares without charge. At that time, we
will also convert any Class B shares that you purchased with reinvested
dividends and other distributions. Since the 12b-1 fees for Class A shares are
lower than for Class B shares, converting to Class A shares lowers your Fund
expenses.
When we do the conversion, you will get fewer Class A shares than the number
of converted Class B shares if the price of the Class A shares is higher than
the price of Class B shares. The total dollar value will be the same, so you
will not have lost any money by getting fewer Class A shares. We do the
conversions quarterly, not on the anniversary date of your purchase. For more
information, see the SAI, "Purchase, Redemption and Pricing of Fund Shares--
Conversion Feature--Class B Shares."

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29
<PAGE>

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MUTUAL FUND SHARES
The NAV of mutual fund shares changes every day because the value of a fund's
portfolio changes constantly. For example, if Fund XYZ holds ACME Corp. stock
in its portfolio and the price of ACME stock goes up while the value of the
fund's other holdings remains the same and expenses don't change, the NAV of
Fund XYZ will increase.

- --------------------------------------------------------------------------------

STEP 3: UNDERSTANDING THE PRICE YOU'LL PAY
The price you pay for each share of the Fund is based on the share value. The
share value of a mutual fund--known as the NET ASSET VALUE or NAV--is
determined by a simple calculation: it's the total value of the Fund (assets
minus liabilities) divided by the total number of shares outstanding. For
example, if the value of the investments held by Fund XYZ (minus its
liabilities) is $1,000 and there are 100 shares of Fund XYZ owned by
shareholders, the price of one share of the fund--or the NAV--is $10 ($1,000
divided by 100). Portfolio securities are valued based upon market quotations
or, if not readily available, at fair value as determined in good faith under
procedures established by the Company's Board. Most national newspapers report
the NAVs of most mutual funds, which allows investors to check the price of
mutual funds daily.
We determine the NAV of our shares once each business day at 4:15 p.m. New
York Time on days that the New York Stock Exchange (NYSE) is open for trading.
The NYSE is closed on national holidays and Good Friday. We do not determine
the NAV on days when we have not received any orders to purchase, sell or
exchange Fund shares, or when changes in the value of the Fund's portfolio do
not materially affect the NAV.

WHAT PRICE WILL YOU PAY FOR SHARES OF THE FUND?
For Class A and Class C shares, you'll pay the public offering price, which is
the NAV next determined after we receive your order to purchase, plus an
initial sales charge (unless you're entitled to a waiver). For Class B and
Class Z shares, you will pay the NAV next determined after we receive your
order to purchase (remember, there are no up-front sales charges for these
share classes). Your broker may charge you a separate or additional fee for
purchases of shares.

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STEP 4: ADDITIONAL SHAREHOLDER SERVICES
As a Fund shareholder, you can take advantage of the following services and
privileges:

Automatic Reinvestment. As we explained in the "Fund Distributions and Tax
Issues" section, the Fund pays out--or distributes--its net investment income
and capital gains to all shareholders. For your convenience, we will
automatically reinvest your distributions in the Fund at NAV without any sales
charge. If you want your distributions paid in cash, you can indicate this
preference on your application, notify your broker or notify the Transfer Agent
in writing (at the address below) at least five business days before the date
we determine who receives dividends.

PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: ACCOUNT MAINTENANCE
P.O. BOX 15015
NEW BRUNSWICK, NJ 08906-5015

Automatic Investment Plan. You can make regular purchases of the Fund for as
little as $50 by having the funds automatically withdrawn from your bank or
brokerage account at specified intervals.

Retirement Plan Services. Prudential offers a wide variety of retirement plans
for individuals and institutions, including large and small businesses. For
information on IRAs, including Roth IRAs or SEP IRAs for a one-person business,
please contact your financial adviser. If you are interested in opening a
401(k) or other company-sponsored retirement plan (SIMPLES, SEP plans, Keoghs,
403(b) plans, pension and profit-sharing plans), your financial adviser will
help you determine which retirement plan best meets your needs. Complete
instructions about how to establish and maintain your plan and how to open
accounts for you and your employees will be included in the retirement plan kit
you receive in the mail.

The PruTector Program. Optional group term life insurance--which protects the
value of your Prudential mutual fund investment for your beneficiaries against
market declines--is available to investors who purchase their shares through
Prudential. This insurance is subject to various restrictions and charges, and
is not available in all states.

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<PAGE>

Systematic Withdrawal Plan. A systematic withdrawal plan is available that will
provide you with monthly or quarterly checks. Remember, the sale of Class B and
Class C shares may be subject to a CDSC.

Reports to Shareholders. Every year we will send you an annual report (along
with an updated prospectus) and a semi-annual report, which contain important
financial information about the Fund. To reduce Fund expenses, we will send one
annual shareholder report, one semi-annual shareholder report and one annual
prospectus per household, unless you instruct us or your broker otherwise.

HOW TO SELL YOUR SHARES
You can sell your shares of the Fund for cash (in the form of a check) at any
time, subject to certain restrictions.
When you sell shares of the Fund--also known as redeeming your shares--the
price you will receive will be the NAV next determined after the Transfer
Agent, the Distributor or your broker receives your order to sell. If your
broker holds your shares, your broker must receive your order to sell by 4:15
p.m. New York Time to process the sale on that day. Otherwise contact:

PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: REDEMPTION SERVICES
P.O. BOX 15010
NEW BRUNSWICK, NJ 08906-5010

Generally, we will pay you for the shares that you sell within seven days
after the Transfer Agent, the Distributor or your broker receives your sell
order. If you hold shares through a broker, payment will be credited to your
account. If you are selling shares you recently purchased with a check, we may
delay sending you the proceeds until your check clears, which can take up to 10
days from the purchase date. You can avoid delay if you purchase shares by
wire, certified check or cashier's check. Your broker may charge you a separate
or additional fee for sales of shares.

RESTRICTIONS ON SALES
There are certain times when you may not be able to sell shares of the Fund, or
when we may delay paying you the proceeds from a sale. This

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may happen during unusual market conditions or emergencies when the Fund can't
determine the value of its assets or sell its holdings. For more information,
see the SAI, "Purchase, Redemption and Pricing of Fund Shares--Sale of Shares."
If you are selling more than $100,000 of shares, you want the check sent to
someone or some place that is not in our records or you are a business or a
trust and you hold your shares directly with the Transfer Agent, you will need
to have the signature on your sell order guaranteed by a financial institution.
For more information, see the SAI, "Purchase, Redemption and Pricing of Fund
Shares--Sale of Shares--Signature Guarantee."

CONTINGENT DEFERRED SALES CHARGE (CDSC)
If you sell Class B shares within six years of purchase or Class C shares
within 18 months of purchase (one year for Class C shares purchased before
November 2, 1998), you will have to pay a CDSC. To keep the CDSC as low as
possible, we will sell amounts representing shares in the following order:
. Amounts representing shares you purchased with reinvested dividends and
distributions
. Amounts representing the increase in NAV above the total amount of
payments for shares made during the past six years for Class B shares and
18 months for Class C shares (one year for Class C shares purchased
before November 2, 1998)
. Amounts representing the cost of shares held beyond the CDSC period (six
years for Class B shares and 18 months for Class C shares).

Since shares that fall into any of the categories listed above are not
subject to the CDSC, selling them first helps you to avoid--or at least
minimize--the CDSC.
Having sold the exempt shares first, if there are any remaining shares that
are subject to the CDSC, we will apply the CDSC to amounts representing the
cost of shares held for the longest period of time within the applicable CDSC
period.

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<PAGE>

As we noted before in the "Share Class Comparison" chart, the CDSC for Class
B shares is 5% in the first year, 4% in the second, 3% in the third, 2% in the
fourth and 1% in the fifth and sixth years. The rate decreases on the first day
of the month following the anniversary date of your purchase, not on the
anniversary date itself. The CDSC is 1% for Class C shares-- which is applied
to shares sold within 18 months of purchase (one year for Class C shares
purchased before November 2, 1998). For both Class B and Class C shares, the
CDSC is calculated based on the lesser of the original purchase price or the
redemption proceeds. For purposes of determining how long you've held your
shares, all purchases during the month are grouped together and considered to
have been made on the last day of the month.
The holding period for purposes of determining the applicable CDSC will be
calculated from the first day of the month after initial purchase, excluding
any time shares were held in a money market fund.

WAIVER OF THE CDSC--CLASS B SHARES
The CDSC will be waived if the Class B shares are sold:
. After a shareholder is deceased or disabled (or, in the case of a trust
account, the death or disability of the grantor). This waiver applies to
individual shareholders, as well as shares owned in joint tenancy (with
rights of survivorship), provided the shares were purchased before the
death or disability
. To provide for certain distributions--made without IRS penalty-- from a
tax-deferred retirement plan, IRA or Section 403(b) custodial account
. On certain sales from a Systematic Withdrawal Plan.

For more information on the above and other waivers, see the SAI, "Purchase,
Redemption and Pricing of Fund Shares--Waiver of Contingent Deferred Sales
Charge--Class B Shares."

WAIVER OF THE CDSC--CLASS C SHARES
Benefit Plans. The CDSC will be waived for redemptions by certain group
retirement plans for which Prudential or brokers not affiliated with Prudential
provide administrative or recordkeeping services. The CDSC also will be waived
for certain redemptions by benefit plans sponsored by

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Prudential and its affiliates. For more information, call Prudential at
(800) 353-2847.

REDEMPTION IN KIND
If the sales of Fund shares you make during any 90-day period reach the lesser
of $250,000 or 1% of the value of the Fund's net assets, we can then give you
securities from the Fund's portfolio instead of cash. If you want to sell the
securities for cash, you would have to pay the costs charged by a broker.

SMALL ACCOUNTS
If you make a sale that reduces your account value to less than $500, we may
sell the rest of your shares (without charging any CDSC) and close your
account. We would do this to minimize the Fund's expenses paid by other
shareholders. We will give you 60 days' notice, during which time you can
purchase additional shares to avoid this action. This involuntary sale does not
apply to shareholders who own their shares as part of a 401(k) plan, an IRA or
some other tax-deferred plan or account.

90-DAY REPURCHASE PRIVILEGE
After you redeem your shares, you have a 90-day period during which you may
reinvest any of the redemption proceeds in shares of the same Fund without
paying an initial sales charge. Also, if you paid a CDSC when you redeemed your
shares, we will credit your new account with the appropriate number of shares
to reflect the amount of the CDSC you paid. In order to take advantage of this
one-time privilege, you must notify the Transfer Agent or your broker at the
time of the repurchase. See the SAI, "Purchase, Redemption and Pricing of Fund
Shares--Sale of Shares."

RETIREMENT PLANS
To sell shares and receive a distribution from a retirement account, call your
broker or the Transfer Agent for a distribution request form. There are special
distribution and income tax withholding requirements for distributions from
retirement plans and you must submit a withholding form with your request to
avoid delay. If your retirement plan account is held for you by your employer
or plan trustee, you must arrange for the distribution request to be signed and
sent by the plan administrator or trustee. For additional information, see the
SAI.

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35
<PAGE>

HOW TO EXCHANGE YOUR SHARES
You can exchange your shares of the Fund for shares of the same class in
certain other Prudential mutual funds--including certain money market funds--if
you satisfy the minimum investment requirements. For example, you can exchange
Class A shares of the Fund for Class A shares of another Prudential mutual
fund, but you can't exchange Class A shares for Class B, Class C or Class Z
shares. Class B and Class C shares may not be exchanged into money market funds
other than Prudential Special Money Market Fund, Inc. After an exchange, at
redemption the CDSC will be calculated from the first day of the month after
initial purchase, excluding any time shares were held in a money market fund.
We may change the terms of the exchange privilege after giving you 60 days'
notice.
If you hold shares through a broker, you must exchange shares through your
broker. Otherwise contact:

PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: EXCHANGE PROCESSING
P.O. BOX 15010
NEW BRUNSWICK, NJ 08906-5010

There is no sales charge for such exchanges. However, if you exchange--and
then sell--Class B shares within approximately six years of your original
purchase or Class C shares within 18 months of your original purchase, you must
still pay the applicable CDSC. If you have exchanged Class B or Class C shares
into a money market fund, the time you hold the shares in the money market
account will not be counted in calculating the required holding period for CDSC
liability.
Remember, as we explained in the section entitled "Fund Distributions and
Tax Issues--If You Sell or Exchange Your Shares," exchanging shares is
considered a sale for tax purposes. Therefore, if the shares you exchange are
worth more than you paid for them, you may have to pay capital gains tax. For
additional information about exchanging shares, see the SAI, "Shareholder
Investment Account--Exchange Privilege."
If you own Class B or Class C shares and qualify to purchase Class A shares
without paying an initial sales charge, we will automatically exchange your
Class B or Class C shares which are not subject to a CDSC for Class A shares.
We make such exchanges on a quarterly basis if you

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qualify for this exchange privilege. We have obtained a legal opinion that this
exchange is not a "taxable event" for federal income tax purposes. This opinion
is not binding on the IRS.

FREQUENT TRADING
Frequent trading of Fund shares in response to short-term fluctuations in the
market--also known as "market timing"--may make it very difficult to manage the
Fund's investments. When market timing occurs, the Fund may have to sell
portfolio securities to have the cash necessary to redeem the market timer's
shares. This can happen at a time when it is not advantageous to sell any
securities, so the Fund's performance may be hurt. When large dollar amounts
are involved, market timing can also make it difficult to use long-term
investment strategies because we cannot predict how much cash the Fund will
have to invest. When, in our opinion, such activity would have a disruptive
effect on portfolio management, the Fund reserves the right to refuse purchase
orders and exchanges into the Fund by any person, group or commonly controlled
account. The Fund may notify a market timer of rejection of an exchange or
purchase order after the day the order is placed. If the Fund allows a market
timer to trade Fund shares, it may require the market timer to enter into a
written agreement to follow certain procedures and limitations.

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37
<PAGE>

- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------

The financial highlights will help you evaluate the Fund's financial
performance. The TOTAL RETURN in each chart represents the rate that a
shareholder earned on an investment in that share class of the Fund, assuming
reinvestment of all dividends and other distributions. The information is for
each share class for the periods indicated.
Review each chart with the financial statements and report of independent
accountants, which appear in the annual report and the SAI and are available
upon request. Additional performance information for each share class is
contained in the annual report, which you can receive at no charge.

CLASS A SHARES
The financial highlights were audited by , independent accountants,
whose report was unqualified.

<TABLE>
<CAPTION>
CLASS A SHARES (FISCAL PERIODS ENDED 9-30)
- -----------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1999 1998 1997/1/
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $14.41 $13.40
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .44 .21/2/
Net realized and unrealized gain (loss) on investment
transactions (.20) 1.97
TOTAL FROM INVESTMENT OPERATIONS .24 2.18
- -----------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.32) (.39)
Distributions from net realized gains (1.04) (.78)
TOTAL DISTRIBUTIONS (1.36) (1.17)
NET ASSET VALUE, END OF PERIOD $13.29 $14.41
TOTAL RETURN/4/ 1.93% 17.48%
- -----------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 1999 1998 1997/1/
<S> <C> <C> <C>
NET ASSETS, END OF PERIOD (000) $3,218 $990
Average net assets (000) $2,090 $100
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution fees 1.28% 1.31%/3/
Expenses, excluding distribution fees 1.03% 1.06%/3/
Net investment income 2.72% 2.69%/3/
Portfolio turnover 256% 50%
</TABLE>
- --------------------------------------------------------------------------------
1 On 11-7-96, Prudential Active Balanced Fund, a series of Prudential Dryden
Fund, first offered its Class A shares. Its assets and liabilities were
acquired by the Fund, Class A shares for Class A shares, on 1-23-98.
Immediately prior to this transfer, the Fund had no assets. The Fund is the
accounting survivor to Prudential Active Balanced Fund and, as such,
financial data is shown from 11-7-96.
2 Calculated based upon weighted average shares outstanding during the year.
3 Annualized.
4 Total return assumes reinvestment of dividends and any other distributions,
but does not include the effect of sales charges. It is calculated assuming
shares are purchased on the first day and sold on the last day of each period
reported. Total returns for periods of less than one year are not annualized.

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- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------

CLASS B SHARES
The financial highlights were audited by , independent accountants,
whose report was unqualified.

<TABLE>
<CAPTION>
CLASS B SHARES (FISCAL PERIODS ENDED 9-30)
- -----------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1999 1998 1997/1/
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $14.34 $13.40
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .27 .19/2/
Net realized and unrealized gain (loss) on investment
transactions (.14) 1.92
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/4/ 1.10% 16.91%
- -----------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 1999 1998 1997/1/
<S> <C> <C> <C>
NET ASSETS, END OF PERIOD (000) $3,038 $213
Average net assets (000) $1,285 $71
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution fees 2.03% 2.06%/3/
Expenses, excluding distribution fees 1.03% 1.06%/3/
Net investment income 1.95% 1.94%/3/
Portfolio turnover 256% 50%
</TABLE>
- --------------------------------------------------------------------------------

1 On 11-7-96, Prudential Active Balanced Fund, a series of Prudential Dryden
Fund, first offered its Class B shares. Its assets and liabilities were
acquired by the Fund, Class B shares for Class B shares, on 1-23-98.
Immediately prior to the transfer, the Fund had no assets. The Fund is the
accounting survivor to Prudential Active Balanced Fund and, as such,
financial data is shown from 11-7-96.
2 Calculated based upon weighted average shares outstanding during the year.
3 Annualized.
4 Total return assumes reinvestment of dividends and any other distributions,
but does not include the effect of sales charges. It is calculated assuming
shares are purchased on the first day and sold on the last day of each period
reported. Total returns for periods of less than one year are not annualized.

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39
<PAGE>

- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------

CLASS C SHARES
The financial highlights were audited by , independent accountants,
whose report was unqualified.

<TABLE>
<CAPTION>
CLASS C SHARES (FISCAL PERIODS ENDED 9-30)
- ----------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1999 1998 1997/1/
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ $14.34 $13.40
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .48 .13
Net realized and unrealized gain (loss) 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/4/ 1.10% 16.91%
- ----------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 1999 1998 1997/1/
<S> <C> <C> <C>
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%/3/
Expenses, excluding distribution fees 1.03% 1.06%/3/
Net investment income 2.04% 1.94%/3/
Portfolio turnover 256% 50%
</TABLE>
- --------------------------------------------------------------------------------

1 On 11-7-96, Prudential Active Balanced Fund, a series of Prudential Dryden
Fund, first offered its Class C shares. Its assets and liabilities were
acquired by the Fund, Class C shares for Class C shares, on 1-23-98.
Immediately prior to this transfer, the Fund had no assets. The Fund is the
accounting survivor to Prudential Active Balanced Fund and, as such,
financial data is shown from 11-7-96.
2 Calculated based upon weighted average shares outstanding during the year.
3 Annualized.
4 Total return assumes reinvestment of dividends and any other distributions,
but does not include the effect of sales charges. It is calculated assuming
shares are purchased on the first day and sold on the last day of each period
reported. Total returns for periods of less than one year are not annualized.

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- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------

CLASS Z SHARES
The financial highlights for the three years ended September 30, 1999 were
audited by , independent accountants, and the financial highlights for
the two years ended September 30, 1996 were audited by other independent
auditors, whose reports were unqualified.

<TABLE>
<CAPTION>
CLASS Z SHARES (FISCAL YEARS ENDED 9-30)
- ------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1999 1998 1997 1996 1995/1/
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $14.45 $13.01 $12.46 $10.92
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .38 .39/5/ .29/2/ .33/2/
Net realized and unrealized gain
(loss) on investment transactions (.12) 2.22 .81 1.54
Total from investment operations .26 2.61 1.10 1.87
- ------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment
income (.35) (.39) (.37) (.29)
Dividends from net realized income (1.04) (.78) (.18) (.04)
TOTAL DISTRIBUTIONS (1.39) (1.17) (.55) (.33)
NET ASSET VALUE, END OF YEAR $13.32 $14.45 $13.01 $12.46
TOTAL RETURN/4/ 2.12% 21.34% 9.11% 17.66%
- ------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA: 1999 1998 1997 1996 1995/1/
<S> <C> <C> <C> <C> <C>
NET ASSETS, END OF YEAR (000) $161,838 $158,672 $153,588 $133,352
Average net assets (000) $177,443 $154,199 $142,026 $104,821
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution
fees 1.03% 1.06% 1.00%/2/ 1.00%/2/
Expenses, excluding distribution
fees 1.03% 1.06% 1.00%/2/ 1.00%/2/
Net investment income 2.99% 2.94% 3.09%/2/ 3.53%/2/
Portfolio turnover rate 256% 50% 51% 30%
</TABLE>
- --------------------------------------------------------------------------------

1 Prudential Active Balanced Fund, a series of Prudential Dryden Fund, had its
assets and liabilities acquired by the Fund, Class Z shares for Class Z
shares, on 1-23-98. Immediately prior to this transfer, the Fund had no
assets. The Fund is the accounting survivor to Prudential Active Balanced
Fund and, as such, financial data is shown for Prudential Active Balanced
Fund.
2 Net of expense subsidy.
3 Annualized.
4 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
other distributions. Total return includes the effect of expense subsidies
where applicable.
5 Calculated based upon weighted average shares outstanding during the year.

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- --------------------------------------------------------------------------------
The Prudential Mutual Fund Family
- --------------------------------------------------------------------------------

TARGET FUNDS
Large Capitalization Growth Fund
Large Capitalization Value Fund
Small Capitalization Growth Fund
Small Capitalization Value Fund
ASSET ALLOCATION/BALANCED FUNDS
Prudential Balanced Fund
Prudential Diversified Funds
Conservative Growth Fund
Moderate Growth Fund
High Growth Fund
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced Fund

GLOBAL FUNDS
GLOBAL STOCK FUNDS
Prudential Developing Markets Fund
Prudential Developing Markets Equity Fund
Prudential Latin America Equity Fund
Prudential Europe Growth Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Index Series Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series
Global Utility Fund, Inc.

TARGET FUNDS
International Equity Fund

GLOBAL BOND FUNDS
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Global Total Return Fund, Inc.
Prudential Intermediate Global Income Fund, Inc.

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<PAGE>

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Prudential International Bond Fund, Inc.

BOND FUNDS
TAXABLE BOND FUNDS
Prudential Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential High Yield Total Return Fund, Inc.
Prudential Index Series Fund
Prudential Bond Market Index Fund
Prudential Structured Maturity Fund, Inc.
Income Portfolio
Target Funds
Total Return Bond Fund

MONEY MARKET FUNDS
TAXABLE MONEY MARKET FUNDS
Cash Accumulation Trust
Liquid Assets Fund
National Money Market Fund
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund, Inc.
Money Market Series
Prudential MoneyMart Assets, Inc.

TAX-FREE MONEY MARKET FUNDS
Prudential Tax-Free Money Fund, Inc.
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series

COMMAND FUNDS
Command Money Fund
Command Government Fund
Command Tax-Free Fund

INSTITUTIONAL MONEY MARKET FUNDS
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series

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43
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FOR MORE INFORMATION
________________________________________________________________

Please read this prospectus before you invest in the Fund and keep it for fu-
ture reference. For information or shareholder questions contact:

PRUDENTIAL MUTUAL FUND SERVICES LLC
P.O. BOX 15005
NEW BRUNSWICK, NJ 08906-5005
(800) 225-1852
(732) 417-7555
(if calling from outside the U.S.)
- --------------------------------------------------------------------------------
Outside Brokers Should Contact:
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
P.O. BOX 15035
NEW BRUNSWICK, NJ 08906-5035
(800) 778-8769
- --------------------------------------------------------------------------------
Visit Prudential's Web Site At:
HTTP://WWW.PRUDENTIAL.COM
- --------------------------------------------------------------------------------
Additional information about the Fund can be obtained without charge and can be
found in the following documents:

STATEMENT OF ADDITIONAL INFORMATION (SAI)
(incorporated by reference into this prospectus)

ANNUAL REPORT
(contains a discussion of the market conditions and investment strategies
that significantly affected the Fund's performance)

SEMI-ANNUAL REPORT

You can also obtain copies of Fund documents from the Securities and Exchange
Commission as follows:

By Mail:
Securities and Exchange Commission
Public Reference Section
Washington, DC 20549-0102

By Electronic Request:
[email protected]
(The SEC charges a fee to copy documents.)

In Person:
Public Reference Room in Washington, DC
(For hours of operation, call 1-202-942-8090)

Via the Internet:
on the EDGAR Database at
http://www.sec.gov
- --------------------------------------------------------------------------------
CUSIP AND TRADING SYMBOLS:
CLASS A: 74437E 883
CLASS B: 74437E 875
CLASS C: 74437E 867
CLASS Z: 74437E 859

Investment Company Act File No:
811-7343

Printed on Recycled Paper
[RECYCLE LOGO APPEARS HERE]

MF185A
<PAGE>

FUND TYPE:
---------------------------------
Stock

INVESTMENT OBJECTIVE:
---------------------------------
Long-term growth of capital

Prudential
Jennison Growth
Fund
[LOGO OF PRUDENTIAL INVESTMENTS APPEARS HERE]

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PROSPECTUS: NOVEMBER , 1999

As with all mutual funds, the
Securities and Exchange
Commission has not approved or
disapproved the Fund's
shares, nor has the SEC
determined that this prospectus
is complete or accurate. It is a
criminal offense to
state otherwise.

[LOGO OF PRUDENTIAL APPEARS HERE]

<PAGE>

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Table of Contents
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<TABLE>
<C> <S>
1 Risk/Return Summary
1 Investment Objective and Principal Strategies
1 Principal Risks
3 Evaluating Performance
4 Fees and Expenses
6 How the Fund Invests
6 Investment Objective and Policies
7 Derivative Strategies
8 Other Investments and Strategies
12 Investment Risks
16 How the Fund is Managed
16 Board of Directors
16 Manager
16 Investment Adviser
16 Portfolio Managers
17 Distributor
17 Year 2000 Readiness Disclosure
19 Fund Distributions and Tax Issues
19 Distributions
20 Tax Issues
21 If You Sell or Exchange Your Shares
23 How to Buy, Sell and Exchange Shares of the Fund
23 How to Buy Shares
31 How to Sell Your Shares
35 How to Exchange Your Shares
37 Financial Highlights
37 Class A Shares
38 Class B Shares
39 Class C Shares
40 Class Z Shares
41 The Prudential Mutual Fund Family
For More Information (Back Cover)
</TABLE>
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PRUDENTIAL JENNISON GROWTH FUND [GRAPHIC] (800) 225-1852
<PAGE>

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Risk/Return Summary
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WE'RE GROWTH INVESTORS
In deciding which stocks to buy, we use what is known as a growth investment
style. This means we invest in stocks we believe could experience superior
sales or earnings growth, or high returns on equity and assets.

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This section highlights key information about the PRUDENTIAL JENNISON GROWTH
FUND, which we refer to as "the Fund." The Fund is a series of The Prudential
Investment Portfolios, Inc. (the Company). Additional information follows this
summary.

INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
Our investment objective is LONG-TERM GROWTH OF CAPITAL. This means we seek
investments whose price will increase over several years. We normally invest at
least 65% of total assets in equity-related securities of companies that exceed
$1 billion in market capitalization and that we believe have above-average
growth prospects. These companies are generally considered medium to large
capitalization companies; they tend to have a unique market niche, a strong new
product profile or superior management. Equity-related securities in which the
Fund primarily invests are common stocks, nonconvertible preferred stocks and
convertible securities. We consider selling or reducing a stock position when,
in the opinion of the investment adviser, the stock has experienced a
fundamental disappointment in earnings; it has reached an intermediate-term
price objective and its outlook no longer seems sufficiently promising; a
relatively more attractive stock emerges; or the stock has experienced adverse
price movement.
We can invest up to 20% of the Fund's assets in foreign equity securities.
We can invest in investment-grade fixed-income securities, including mortgage-
related securities, and in U.S. government obligations. We also may use
derivatives. While we make every effort to achieve our objective, we can't
guarantee success.

PRINCIPAL RISKS
Although we try to invest wisely, all investments involve risk. Since the Fund
invests primarily in equity-related securities, there is the risk that the
price of a particular stock we own could go down, or the value of the equity
markets or a sector of them could go down. Stock markets are volatile.

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1
<PAGE>

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Risk/Return Summary
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Securities that the Fund invests in have historically been more volatile than
the Standard & Poor's 500 Stock Price Index (S&P 500 Index) and may present
above average risks. This means that when stock prices decline overall, the
Fund may decline more than the S&P 500 Index. The Fund's holdings can vary
significantly from broad market indexes, and performance of the Fund can
deviate from the performance of such indexes. In addition, different parts of a
market can react differently to adverse issuer, market, regulatory, political
and economic developments.
Since the Fund invests in foreign securities, there are additional risks.
Foreign markets are often more volatile than U.S. markets and are generally not
subject to regulatory requirements comparable to those of U.S. issuers. Changes
in currency exchange rates can reduce or increase market performance.
The Fund invests in debt obligations which have credit, market and interest
rate risks. Credit risk is the possibility that an issuer of a debt obligation
fails to pay the Fund interest or repay principal. Market risk, which may
affect an industry, a sector or the entire market, is the possibility that the
market value of an investment may move up or down and that its movement may
occur quickly or unpredictably. Interest rate risk refers to the fact that the
value of most bonds will fall when interest rates rise. The longer the maturity
and the lower the credit quality of a bond, the more likely its value will
decline.
Some of our investment strategies--such as using derivatives--also involve
above-average risks. The Fund may use risk management techniques to try to
preserve assets or enhance return. Derivatives may not fully offset the
underlying positions and this could result in losses to the Fund that would not
otherwise have occurred.
Like any mutual fund, an investment in the Fund could lose value and you
could lose money. For more detailed information about the risks associated with
the Fund, see "How the Fund Invests--Investment Risks."
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.

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PRUDENTIAL JENNISON GROWTH FUND (800) 225-1852
[GRAPHIC]

2
<PAGE>

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Risk/Return Summary
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EVALUATING PERFORMANCE
A number of factors--including risk--can affect how the Fund performs. The
following bar chart shows the Fund's performance for each full calendar year of
operation. The bar chart and table below demonstrate the risk of investing in
the Fund by showing how returns can change from year to year and by showing how
the Fund's average annual total returns compare with a stock index and a group
of similar mutual funds. Past performance does not mean that the Fund will
achieve similar results in the future.

[GRAPH APPEARS HERE]
* These annual returns do not include sales charges. If the sales charges were
included, the annual returns would be lower than those shown. Without the
distribution and service (12b-1) fee waiver, the annual returns would have
been lower, too. The total return of the Class A shares from 1-1-99 to 9-30-
99 was %.

AVERAGE ANNUAL RETURNS/1/ (AS OF 12-31-98)
<TABLE>
- ------------------------------------------------
<CAPTION>
1 YR 5 YRS SINCE INCEPTION
<S> <C> <C> <C>
Class A shares (since 11-2-95)
Class B shares (since 11-2-95)
Class C shares (since 11-2-95)
Class Z shares (since 4-15-96)
S&P 500/2/ 8.60% N/A/2/
Lipper Average/3/ % N/A/3/
</TABLE>

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3
<PAGE>

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Risk/Return Summary
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FEES AND EXPENSES
These tables show the sales charges, fees and expenses that you may pay if you
buy and hold shares of each share class of the Fund--Class A, B, C and Z. Each
share class has different sales charges--known as loads--and expenses, but
represents an investment in the same fund. Class Z shares are available only to
a limited group of investors. For more information about which share class may
be right for you, see "How to Buy, Sell and Exchange Shares of the Fund."

Maximum deferred sales charge (load) (as None 5%/2/ 1%/3/ None
a percentage of the lower of original
purchase price or sale proceeds)

Maximum sales charge (load) imposed on None None None None
reinvested dividends and other
distributions

Redemption fees None None None None

Exchange fee None None None None

ANNUAL FUND OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS)
- ------------------------------------------------------------------------------
<CAPTION>
CLASS A CLASS B CLASS C CLASS Z
<S> <C> <C> <C> <C>
Management fees .60% .60% .60% .60%
+ Distribution and service (12b-1) fees .30%/4/ 1.00% 1.00% None
+ Other expenses % % % %
= Total annual Fund operating expenses % % % %
- Fee Waiver or expense reimbursement .05% None None None
= NET ANNUAL FUND OPERATING EXPENSES %/4/ % % %
</TABLE>

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PRUDENTIAL JENNISON GROWTH FUND (800) 225-1852
[GRAPHIC]

4
<PAGE>

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Risk/Return Summary
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<TABLE>
<CAPTION>
1 YR 3 YRS 5 YRS 10 YRS
<S> <C> <C> <C> <C>
Class A shares $ $ $ $
Class B shares $ $ $ $
Class C shares $ $ $ $
Class Z shares $ $ $ $
</TABLE>

You would pay the following expenses on the same investment if you did not sell
your shares:

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5
<PAGE>

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How the Fund Invests
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OUR GROWTH STYLE
Our portfolio managers invest in large companies experiencing some or all of
the following: above-average revenue and earnings per share growth, strong
market position, improving profitability and distinctive attributes such as
unique marketing ability, strong research and development and productive new
product flow, and financial strength. Such companies generally trade at high
prices relative to their current earnings.

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INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is LONG-TERM GROWTH OF CAPITAL. This means we
seek investments whose price will increase over several years. While we make
every effort to achieve our objective, we can't guarantee success.
In pursuing our objective, we normally invest at least 65% of the Fund's
total assets in equity-related securities of companies that exceed $1 billion
in market capitalization and that we believe have above-average growth
prospects. These companies are generally medium to large capitalization
companies. The Fund's investment adviser follows a highly disciplined
investment selection and management process of indentifying companies that show
superior absolute and relative earnings growth and also are attractively
valued. Earnings predictability and confidence in earnings forecasts are
important parts of the selection process. Securities in which the Fund invests
have historically been more volatile than the S&P 500 Index. Also, companies
that have an earnings growth rate higher than that of the average S&P 500
company tend to reinvest their earnings rather than distribute them, so the
Fund is not likely to receive significant dividend income on its portfolio
securities.
In addition to common stocks, nonconvertible
preferred stocks and convertible securities,
equity-related securities in which the Fund
invests include American Depositary Receipts
(ADRs); warrants and rights that can be
exercised to obtain stock; investments in
various types of business ventures, including
partnerships and joint ventures; real estate
investment trusts (REITs) and similar
securities. Convertible securities are
securities--like bonds, corporate notes and
preferred stocks--that we can convert into the
company's common stock or some other equity
security. We consider selling or
reducing a stock position when, in the opinion of the investment adviser, the
stock has experienced a fundamental disappointment in earnings; it

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PRUDENTIAL JENNISON GROWTH FUND (800) 225-1852
[GRAPHIC]

6
<PAGE>

- --------------------------------------------------------------------------------
How the Fund Invests
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has reached an intermediate-term price objective and its outlook no longer
seems sufficiently promising; a relatively more attractive stock emerges; or
the stock has experienced adverse price movement.

DERIVATIVE STRATEGIES
We may use various derivative strategies to try to improve the Fund's returns
or protect its assets. We cannot guarantee that these strategies will work,
that the instruments necessary to implement these strategies will be available,
or that the Fund will not lose money. Derivatives--such as futures, options and
options on futures--involve costs and can be volatile. With derivatives, the
investment adviser tries to predict whether the underlying investment--a
security, market index, currency, interest rate or some other benchmark--will
go up or down at some future date. We may use derivatives to try to reduce risk
or to increase return consistent with the Fund's overall investment objective.
The investment adviser will consider other factors (such as cost) in deciding
whether to employ any particular strategy or use any particular instrument. Any
derivatives we use may not match the Fund's underlying holdings.

Options. The Fund may purchase and sell put and call options on equity
securities, stock indexes and foreign currencies traded on U.S. or foreign
securities exchanges or on the over-the-counter market. An option is the right
to buy or sell securities or currencies in exchange for a premium. The Fund
will sell only covered options.

Futures Contracts and Related Options Foreign Currency Forward Contracts. The
Fund may purchase and sell stock index futures contracts and related options on
stock index futures. The Fund also may purchase and sell futures contracts on
foreign currencies and related options on foreign currency futures contracts. A
futures contract is an agreement to buy or sell a set quantity of an underlying
product at a future date, or to make or receive a cash payment based on the
value of a securities index. The Fund also may enter into foreign currency
forward contracts to protect the value of its assets against future changes in
the level of foreign exchange rates.

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7
<PAGE>

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How the Fund Invests
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A foreign currency forward contract is an obligation to buy or sell a given
currency on a future date at a set price.
For more information, see "Investment Risks" and the Statement of Additional
Information, "Description of the Funds, Their Investments and Risks." The
Statement of Additional Information--which we refer to as the SAI--contains
additional information about the Fund. To obtain a copy, see the back cover
page of this prospectus.
The Fund's investment objective is a fundamental policy that cannot be
changed without shareholder approval. The Board can change investment policies
that are not fundamental.

OTHER INVESTMENTS AND STRATEGIES
In addition to the principal strategies, we also may use the following
investment strategies to try to increase the Fund's returns or protect its
assets if market conditions warrant.

OTHER EQUITY-RELATED SECURITIES
The Fund may invest up to 35% of its total assets in equity-related securities
of companies that are undergoing changes in management or product and marketing
dynamics that have not yet been reflected in reported earnings (but are
expected to affect earnings in the intermediate term). These securities often
are unknown and favorably valued.

FOREIGN SECURITIES
We may invest up to 20% of the Fund's total assets in foreign equity
securities. For purposes of the 20% limit, we do not consider ADRs and other
similar receipts or shares to be foreign securities.

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PRUDENTIAL JENNISON GROWTH FUND [GRAPHIC] (800) 225-1852

8
<PAGE>

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How the Fund Invests
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security increases between the time of the short sale and the date when the
Fund replaces the borrowed security. The Fund may also make SHORT SALES
"AGAINST THE BOX." In a short sale against the box, at the time of sale, the
Fund owns or has the right to acquire the identical security at no additional
cost. When selling short against the box, the Fund gives up the opportunity for
capital appreciation in the security.

U.S. GOVERNMENT SECURITIES
The Fund may invest in securities issued or guaranteed by the U.S. Treasury or
by an agency or instrumentality of the U.S. government. Not all U.S. government
securities are backed by the full faith and credit of the United States, which
means that payment of principal and interest are guaranteed, but market value
is not. Some are supported only by the credit of the issuing agency and depend
entirely on their own resources to repay their debt.

MORTGAGE-RELATED SECURITIES
We may invest in mortgage-related securities issued or guaranteed by U.S.
governmental entities. These securities are usually pass-through instruments
that pay investors a share of all interest and principal payments from an
underlying pool of fixed or adjustable rate mortgages.
Mortgage-related securities include mortgage-backed securities,
collateralized mortgage obligations and multi-class pass-through securities. A
COLLATERALIZED MORTGAGE OBLIGATION (CMO) is a security backed by an underlying
portfolio of mortgages or mortgage-backed securities that may be issued or
guaranteed by U.S. governmental entities. A MULTI-CLASS PASS-THROUGH SECURITY
is an equity interest in a trust composed of underlying mortgage assets.
Payments of principal and interest on the mortgage assets and any reinvestment
income thereon provide the funds to pay debt service on the CMO or to make
scheduled distributions on the multi-class pass-through security. The Fund also
may invest in stripped mortgage-backed securities.
The values of mortgage-backed securities vary with changes in market
interest rates and yields. Such values are particularly sensitive to changes in
prepayments of the underlying mortgages. For example, during periods of falling
interest rates, prepayments tend to increase as homeowners and others refinance
their higher-rate mortgages. These prepayments reduce

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9
<PAGE>

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How the Fund Invests
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the anticipated duration of the mortgage-related securities. Conversely, during
periods of rising interest rates, prepayments can be expected to decline, which
was the effect of extending the anticipated duration at the same time that the
value of the securities declines.

OTHER FIXED-INCOME SECURITIES
The Fund may invest in fixed-income securities rated investment-grade (Aaa, Aa,
A or Baa by Moody's Investors Service, Inc. or AAA, AA, A or BBB by Standard &
Poor's Ratings Group, or the equivalent rating by another rating service). We
also may invest in obligations that are not rated, but that we believe are of
comparable quality to these obligations.

TEMPORARY DEFENSIVE INVESTMENTS
In response to adverse market, economic or political conditions, we may
temporarily invest up to 100% of the Fund's assets in high-quality foreign or
domestic MONEY MARKET INSTRUMENTS. Money market instruments include the
commercial paper of corporations, certificates of deposit, bankers' acceptances
and other obligations of domestic and foreign banks, nonconvertible debt
securities (corporate and government), short-term obligations issued or
guaranteed by the U.S. government or its agencies or instrumentalities,
repurchase agreements and cash (foreign currencies or U.S. dollars). Investing
heavily in these securities limits our ability to achieve our investment
objective, but can help to preserve the Fund's assets when the equity markets
are unstable.
The Fund may also temporarily hold cash or invest in high-quality foreign or
domestic money market instruments pending investment of proceeds from new sales
of Fund shares or to meet ordinary daily cash needs subject to the policy of
normally investing at least 65% of the Fund's assets in equity-related
securities.

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PRUDENTIAL JENNISON GROWTH FUND [GRAPHIC] (800) 225-1852

10
<PAGE>

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How the Fund Invests
- --------------------------------------------------------------------------------

ADDITIONAL STRATEGIES
The Fund also follows certain policies when it BORROWS MONEY (the Fund can
borrow up to 20% of the value of its total assets); LENDS ITS SECURITIES to
others (the Fund can lend up to 30% of the value of its total assets including
collateral received in the transaction); and HOLDS ILLIQUID SECURITIES (the
Fund may hold up to 15% of its net assets in illiquid securities, including
securities with legal or contractual restrictions on resale, those without a
readily available market and repurchase agreements with maturities longer than
seven days). The Fund is subject to certain investment restrictions that are
fundamental policies, which means they cannot be changed without shareholder
approval. For more information about these restrictions, see the SAI.

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11
<PAGE>

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How the Fund Invests
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INVESTMENT TYPE
% OF FUND'S TOTAL RISKS POTENTIAL REWARDS
ASSETS

EQUITY-RELATED . Individual stocks . Historically,
SECURITIES could lose value stocks have
outperformed
other
investments over
the long term

. The equity
At least 65% markets could go
down, resulting . Generally,
in a decline in economic growth
value of the means higher
Fund's corporate
investments profits, which
lead to an
. Changes in increase in
economic or stock prices,
political known as capital
conditions, both appreciation
domestic and
international,
may result in a
decline in value
of the Fund's
investments

- --------------------------------------------------------------------------------

FOREIGN . Foreign markets, . Investors can
SECURITIES economies and participate in
political systems foreign markets
may not be as and companies
stable as in the operating in
U.S. those markets

Up to 20%
. Changing values
of foreign
. Currency risk-- currencies
changing values
of foreign
currencies can . Opportunities
cause losses for
diversification
. May be less
liquid than U.S.
stocks and bonds
. Differences in
foreign laws,
accounting
standards, public
information,
custody and
settlement
practices provide
less reliable
information on
foreign
investments and
involve more risk
. Year 2000
conversion may be
more of a problem
for some foreign
issuers

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PRUDENTIAL JENNISON GROWTH FUND [GRAPHIC] (800) 225-1852

<PAGE>

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How the Fund Invests
- --------------------------------------------------------------------------------

INVESTMENT TYPE (CONT'D)
% OF FUND'S TOTAL RISKS POTENTIAL REWARDS
ASSETS

DERIVATIVES . Derivatives such . The Fund could
as futures, make money and
options and protect against
foreign currency losses if the
forward contracts investment
that are used for analysis proves
hedging purposes correct
may not fully
offset the
underlying
positions and
this could result
in losses to the
Fund that would
not have
otherwise
occurred

Percentage varies
. Derivatives that
involve leverage
could generate
substantial
gains at low
cost
. One way to
manage the
Fund's
risk/return
balance is to
. Derivatives used lock in the
for risk value of an
management may investment ahead
not have the of time
intended effects
and may result in
losses or missed
opportunities
. The other party
to a derivatives
contract could
default
. Derivatives that
involve leverage
could magnify
losses
. Certain types of
derivatives
involve costs to
the Fund that can
reduce returns

- --------------------------------------------------------------------------------

SHORT SALES . May magnify . May magnify
underlying underlying
investment losses investment gains

Up to 25% of net
assets . Investment costs
may exceed
potential
underlying
investment gains

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<PAGE>

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How the Fund Invests
- --------------------------------------------------------------------------------

INVESTMENT TYPE (CONT'D)
% OF FUND'S TOTAL RISKS POTENTIAL REWARDS
ASSETS

FIXED-INCOME . The Fund's . Regular interest
OBLIGATIONS holdings, share income
price and total . Generally, more
return may secure than
fluctuate in stocks since
response to bond companies must
market movements pay their debts
before they pay
dividends

Up to 35%
. Credit risk--the
risk that the . Most bonds will
default of an rise in value
issuer would when interest
leave the Fund rates fall
with unpaid
interest or . Bonds have
principal. The generally
lower a bond's outperformed
quality, the money market
higher its instruments over
potential the long term,
volatility with less risk
than stocks
. Market risk--the
risk that the
market value of
an investment may . Investment-grade
move up or down, bonds have a
sometimes rapidly lower risk of
or unpredictably. default
Market risk may
affect an
industry, a
sector, or the
market as a whole
. Interest rate
risk--the risk
that the value of
most bonds will
fall when
interest rates
rise. The longer
a bond's maturity
and the lower its
credit quality,
the more its
value typically
falls. It can
lead to price
volatility

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PRUDENTIAL JENNISON GROWTH FUND [GRAPHIC] (800) 225-1852

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How the Fund Invests
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INVESTMENT TYPE (CONT'D)
% OF FUND'S TOTAL RISKS POTENTIAL REWARDS
ASSETS

MORTGAGE-RELATED . Prepayment risk-- . Regular interest
SECURITIES the risk that the income
underlying . The U.S.
mortgage may be government
prepaid partially guarantees
or completely, interest and
generally during principal
periods of payments on
falling interest certain
rates, which securities
could adversely
affect yield to
maturity and
could require the
Fund to reinvest
in lower-yielding
securities

Up to 35%
. May benefit from
security
interest in real
estate
collateral
. Pass-through
instruments
provide greater
diversification
than direct
ownership of
loans
. Credit risk--the
risk that the
underlying
mortgages will
not be paid by
debtors or by
credit insurers
or guarantors of
such instruments.
Some mortgage
securities are
unsecured or
secured by lower-
rated insurers or
guarantors and
thus may involve
greater risk
. See market risk
and interest rate
risk

- --------------------------------------------------------------------------------

. Not all are . May preserve the
U.S. GOVERNMENT insured or Fund's assets
SECURITIES guaranteed by the
government but
only by the
issuing agency

. Principal and
Up to 35% . Limits potential interest may be
for capital guaranteed by
appreciation the U.S.
government
. See interest rate
risk

- --------------------------------------------------------------------------------

ILLIQUID . May be difficult . May offer a more
SECURITIES to value attractive yield
precisely or potential for
growth than more
widely traded
securities

Up to 15% of net
assets . May be difficult
to sell at the
time or price
desired

- --------------------------------------------------------------------------------

MONEY MARKET . Limits potential . May preserve the
INSTRUMENTS for capital Fund's assets
appreciation

. See credit risk
Up to 100% on a and market risk
temporary basis

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15
<PAGE>

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How the Fund is Managed
- --------------------------------------------------------------------------------

MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM)
GATEWAY CENTER THREE, 100 MULBERRY STREET
NEWARK, NJ 07102-4077

Under a management agreement with the Fund, PIFM manages the Fund's
investment operations and administers its business affairs. PIFM also is
responsible for supervising the Fund's investment adviser. For the fiscal year
ended September 30, 1999, the Fund paid PIFM management fees of .60% of the
Fund's average net assets.
PIFM and its predecessors have served as manager or administrator to
investment companies since 1987. As of September 30, 1999, PIFM served as the
Manager to all of the Prudential mutual funds, and as Manager or
administrator to closed-end investment companies, with aggregate assets of
approximately $ billion.

INVESTMENT ADVISER
Jennison Associates LLC (Jennison) is the Fund's investment adviser. Its
address is 466 Lexington Avenue, New York, NY 10017. PIFM has responsibility
for all investment advisory services and supervises Jennison. PIFM pays
Jennison at an annual rate of .30 of 1% of the average daily net assets of the
portion of the Fund that it manages up to $300 million and .25 of 1% of the
average daily net assets over $300 million. As of September 30, 1999, Jennison
managed approximately $ billion in assets.

PORTFOLIO MANAGERS
SPIROS "SIG" SEGALAS has served as a portfolio manager of the Fund since
February 1999. Mr. Segalas has been in the investment business for over 35
years. He is a founding member, Director, President and Chief Investment
Officer of Jennison. Mr. Segalas received a B.A. from Princeton University and
is a member of the New York Society of Security Analysts.

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How the Fund is Managed
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KATHLEEN MCCARRAGHER, Director and Executive Vice President of Jennison, is
also Jennison's Growth Equity Investment Strategist. She has been a portfolio
manager of the Fund since February 1999. She joined Jennison in 1998 after a
17-year investment career, including positions at Weiss, Peck & Greer (1992 to
1998) as a portfolio manager and State Street Research and Management Co.,
where she was a member of the Investment Committee. She received a B.B.A. from
the University of Wisconsin and an M.B.A. from Harvard Business School.

JAMES N. KANNRY, CFA, has been a portfolio manager of the Fund since February
1999. He is a Director and Executive Vice President of Jennison, where he has
been part of the investment team since 1972. Mr. Kannry received his B.A. from
City College of New York and an M.B.A. from New York University. He holds a
Chartered Financial Analyst designation and is a member of the New York Society
of Security Analysts.

DISTRIBUTOR
Prudential Investment Management Services LLC (PIMS) distributes the Fund's
shares under a Distribution Agreement with the Fund. The Fund has Distribution
and Service Plans under Rule 12b-1 of the Investment Company Act. Under the
Plans and the Distribution Agreement, PIMS pays the expenses of distributing
the Fund's Class A, B, C and Z shares and provides certain shareholder support
services. The Fund pays distribution and other fees to PIMS as compensation for
its services for each Class of shares other than Class Z. These fees--known as
12b-1 fees--are shown in the "Fees and Expenses" tables.

- --------------------------------------------------------------------------------

17
<PAGE>

- --------------------------------------------------------------------------------
How the Fund is Managed
- --------------------------------------------------------------------------------

Transfer Agent and the Custodian have advised the Fund that they have been
actively working on necessary changes to their computer systems to prepare for
the year 2000. The Company and its Board receive, and have received since early
1998, satisfactory quarterly reports from the principal service providers as to
their preparations for year 2000 readiness, although there can be no assurance
that the service providers (or other securities market participants) will
successfully complete the necessary changes in a timely manner. Moreover, the
Fund at this time has not considered retaining alternative service providers or
directly undertaken efforts to achieve year 2000 readiness, the latter of which
would involve substantial expenses without an assurance of success.
Additionally, issuers of securities generally, as well as those purchased by
the Fund, may confront year 2000 compliance issues which, if material and not
resolved, could have an adverse impact on securities markets and/ or a specific
issuer's performance and could result in a decline in the value of the
securities held by the Fund.

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PRUDENTIAL JENNISON GROWTH FUND [GRAPHIC] (800) 225-1852

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<PAGE>

- --------------------------------------------------------------------------------
Fund Distributions and Tax Issues
- --------------------------------------------------------------------------------

DISTRIBUTIONS
The Fund distributes DIVIDENDS of any net investment income to shareholders
typically twice a year. For example, if the Fund owns ACME Corp. stock and the
stock pays a dividend, the Fund will pay out a portion of this dividend to its
shareholders, assuming the Fund's income is more than its costs and expenses.
The dividends you receive from the Fund will be taxed as ordinary income
whether or not they are reinvested in the Fund.
The Fund also distributes realized net CAPITAL GAINS to shareholders--
typically once a year--which are generated when the Fund sells its assets for a
profit. For example, if the Fund bought 100 shares of ACME Corp. stock for a
total of $1,000 and more than one year later sold the shares for a total of
$1,500, the Fund has net long-term capital gains of $500, which it will pass on
to shareholders (assuming the Fund's total gains are greater than any losses it
may have). Capital gains are taxed differently depending on how long the Fund
holds the security--if a security is held more than one year before it is sold,
LONG-TERM capital gains are taxed at the rate of 20%, but if the security is
held one year or less, SHORT-TERM capital gains are taxed at ordinary income
rates of up to 39.6%. Different rates apply to corporate shareholders.
For your convenience, Fund distributions of dividends and capital gains are
AUTOMATICALLY REINVESTED in the Fund without any sales charge. If you ask us to
pay the distributions in cash, we will send you a check if your account is with
the Transfer Agent. Otherwise, if your account is with a

- --------------------------------------------------------------------------------

19
<PAGE>

- --------------------------------------------------------------------------------
Fund Distributions and Tax Issues
- --------------------------------------------------------------------------------

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PRUDENTIAL JENNISON GROWTH FUND [GRAPHIC] (800) 225-1852

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<PAGE>

- --------------------------------------------------------------------------------
Fund Distributions and Tax Issues
- --------------------------------------------------------------------------------

- ----------------------------------------

CAPITAL GAIN
+$ (taxes owed)
RECEIPTS
FROM $ OR
SALE
-$ CAPITAL LOSS
(offset against gain)

- ----------------------------------------

IF YOU SELL OR EXCHANGE YOUR SHARES
If you sell any shares of the Fund for a profit, you have REALIZED A CAPITAL
GAIN, which is subject to tax unless you hold shares in a qualified tax-
deferred plan or account. The amount of tax you pay depends on how long you
owned your shares. If you sell shares of the Fund for a loss, you may have a
capital loss, which you may use to offset certain capital gains you have.
Exchanging your shares of the Fund for the shares of another Prudential
mutual fund is considered a sale for tax purposes. In other words, it's a
"taxable event." Therefore, if the shares you exchanged have increased in value
since you purchased them, you have capital gains, which are subject to the
taxes described above.
Any gain or loss you may have from selling or exchanging Fund shares will
not be reported on the Form 1099; however, proceeds from the sale or exchange
will be reported on Form 1099-B. Therefore, unless you hold your shares in a
qualified tax-deferred plan or account, you or your financial adviser should
keep track of the dates on which you buy and sell

- --------------------------------------------------------------------------------

21
<PAGE>

- --------------------------------------------------------------------------------
Fund Distributions and Tax Issues
- --------------------------------------------------------------------------------

- --or exchange--Fund shares, as well as the amount of any gain or loss on each
transaction. For tax advice, please see your tax adviser.

- --------------------------------------------------------------------------------

PRUDENTIAL JENNISON GROWTH FUND [GRAPHIC] (800) 225-1852

22
<PAGE>

PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: INVESTMENT SERVICES
P.O. BOX 15020
NEW BRUNSWICK, NJ 08906-5020

STEP 2: CHOOSE A SHARE CLASS
Individual investors can choose among Class A, Class B, Class C and Class Z
shares of the Fund, although Class Z shares are available only to a limited
group of investors.
Multiple share Classes let you choose a cost structure that better meets
your needs. With Class A shares, you pay the sales charge at the time of
purchase, but the operating expenses each year are lower than the expenses of
Class B and Class C shares. With Class B shares, you only pay a sales charge if
you sell your shares within six years (that is why it is called a Contingent
Deferred Sales Charge or CDSC), but the operating expenses each year are higher
than the Class A share expenses. With Class C shares, you pay a 1% front-end
sales charge and a 1% CDSC if you sell within 18 months of purchase, but the
operating expenses are also higher than the expenses for Class A shares.
When choosing a share class, you should consider the following:
. The amount of your investment
. The length of time you expect to hold the shares and the impact of
varying distribution fees
. The different sales charges that apply to each share class--Class A's
front-end sales charge vs. Class B's CDSC vs. Class C's low front-end
sales charge and low CDSC

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23
<PAGE>

. Whether you qualify for any reduction or waiver of sales charges
. The fact that Class B shares automatically convert to Class A shares
approximately seven years after purchase
. Whether you qualify to purchase Class Z shares.
See "How to Sell Your Shares" for a description of the impact of CDSCs.

Share Class Comparison. Use this chart to help you compare the Fund's different
share Classes. The discussion following this chart will tell you whether you
are entitled to a reduction or waiver of any sales charges.

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Z
<S> <C> <C> <C> <C>
Minimum purchase $1,000 $1,000 $2,500 None
amount/1/
Minimum amount for $100 $100 $100 None
subsequent purchases/1/
Maximum initial 5% of the public None 1% of the public None
sales charge offering price offering price
Contingent Deferred None If sold during: 1% on sales None
Sales Charge Year 1 5% made within
(CDSC)/2/ Year 2 4% 18 months of
Year 3 3% purchase/2/
Year 4 2%
Years 5/6 1%
Year 7 0%
Annual distribution and .30 of 1%; 1% 1% None
service (12b-1) fees (.25 of 1%
shown as a percentage of currently)
average net assets/3/
</TABLE>
1 The minimum investment requirements do not apply to certain retirement and
employee savings plans and custodial accounts for minors. The minimum initial
and subsequent investment for purchases made through the Automatic Investment
Plan is $50. For more information, see "Additional Shareholder Services--
Automatic Investment Plan."
2 For more information about the CDSC and how it is calculated, see "How to
Sell Your Shares--Contingent Deferred Sales Charge (CDSC)." Class C shares
bought before November 2, 1998, have a 1% CDSC if sold within one year.
3 These distribution fees are paid from the Fund's assets on a continuous
basis. Over time, the fees will increase the cost of your investment and may
cost you more than paying other types of sales charges. The service fee for
Class A, Class B and Class C shares is .25 of 1%. The distribution fee for
Class A shares is limited to .30 of 1% (including the .25 of 1% service fee)
and is .75 of 1% for Class B and Class C shares. For the fiscal year ending
September 30, 2000, the Distributor of the Fund has contractually agreed to
reduce its distribution and service (12b-1) fees for Class A shares to .25 of
1% of the average daily net assets of the Class A shares.

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PRUDENTIAL JENNISON GROWTH FUND [GRAPHIC] (800) 225-1852

24
<PAGE>

REDUCING OR WAIVING CLASS A'S INITIAL SALES CHARGE
The following describes the different ways investors can reduce or avoid paying
Class A's initial sales charge.

* If you invest $1 million or more, you can buy only Class A shares, unless you
qualify to buy Class Z shares.

The Distributor may reallow Class A's sales charge to dealers.

Benefit Plans. Certain group retirement and savings plans may purchase Class A
shares without the initial sales charge if they meet the required

- --------------------------------------------------------------------------------

25
<PAGE>

minimum for amount of assets, average account balance or number of eligible
employees. For more information about these requirements, call Prudential at
(800) 353-2847.

Other Types of Investors. Other investors pay no sales charge, including
certain officers, employees or agents of Prudential and its affiliates, the
Prudential mutual funds, the subadvisers of the Prudential mutual funds and
real estate brokerage companies affiliated with The Prudential Real Estate
Affiliates, Inc. and clients of brokers that have entered into a selected
dealer agreement with the Distributor. To qualify for a reduction or waiver of
the sales charge, you must notify the Transfer Agent or your broker at the time
of purchase. For more information, see the SAI, "Purchase, Redemption and
Pricing of Fund Shares--Reduction and Waiver of Initial Sales Charge-- Class A
Shares."

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PRUDENTIAL JENNISON GROWTH FUND (800) 225-1852
[GRAPHIC]

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27
<PAGE>

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PRUDENTIAL JENNISON GROWTH FUND (800) 225-1852
[GRAPHIC]

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- --------------------------------------------------------------------------------

STEP 3: UNDERSTANDING THE PRICE YOU'LL PAY
The price you pay for each share of the Fund is based on the share value. The
share value of a mutual fund--known as the NET ASSET VALUE or NAV--is
determined by a simple calculation: it's the total value of the Fund (assets
minus liabilities) divided by the total number of shares outstanding.
For example, if the value of the investments held by Fund XYZ (minus its
liabilities) is $1,000 and there are 100 shares of Fund XYZ owned by
shareholders, the price of one share of the fund--or the NAV--is $10 ($1,000
divided by 100). Portfolio securities are valued based upon market quotations
or, if not readily available, at fair value as determined in good faith under
procedures established by the Company's Board. Most national newspapers report
the NAVs of most mutual funds, which allows investors to check the price of
mutual funds daily.
We determine the NAV of our shares once each business day at 4:15 p.m. New
York Time on days that the New York Stock Exchange (NYSE) is open for trading.
The NYSE is closed on national holidays and Good Friday. We do not determine
the NAV on days when we have not received any orders to purchase, sell or
exchange Fund shares, or when changes in the value of the Fund's portfolio do
not materially affect the NAV.

- --------------------------------------------------------------------------------

29
<PAGE>

STEP 4: ADDITIONAL SHAREHOLDER SERVICES
As a Fund shareholder, you can take advantage of the following services and
privileges:

PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: ACCOUNT MAINTENANCE
P.O. BOX 15015
NEW BRUNSWICK, NJ 08906-5015

Automatic Investment Plan. You can make regular purchases of the Fund for as
little as $50 by having the funds automatically withdrawn from your bank or
brokerage account at specified intervals.

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PRUDENTIAL JENNISON GROWTH FUND (800) 225-1852
[GRAPHIC]

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<PAGE>

PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: REDEMPTION SERVICES
P.O. BOX 15010
NEW BRUNSWICK, NJ 08906-5010

RESTRICTIONS ON SALES
There are certain times when you may not be able to sell shares of the Fund, or
when we may delay paying you the proceeds from a sale. This

- --------------------------------------------------------------------------------

31
<PAGE>

CONTINGENT DEFERRED SALES CHARGE (CDSC)

If you sell Class B shares within six years of purchase or Class C shares
within 18 months of purchase (one year for Class C shares purchased before
November 2, 1998), you will have to pay a CDSC. To keep the CDSC as low as
possible, we will sell amounts representing shares in the following order:
. Amounts representing shares you purchased with reinvested dividends and
distributions
. Amounts representing the increase in NAV above the total amount of
payments for shares made during the past six years for Class B shares and
18 months for Class C shares (one year for Class C shares purchased
before November 2, 1998)
. Amounts representing the cost of shares held beyond the CDSC period (six
years for Class B shares and 18 months for Class C shares).

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PRUDENTIAL JENNISON GROWTH FUND (800) 225-1852
[GRAPHIC]

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<PAGE>

WAIVER OF THE CDSC--CLASS B SHARES
The CDSC will be waived if the Class B shares are sold:
. After a shareholder is deceased or disabled (or, in the case of a trust
account, the death or disability of the grantor). This waiver applies to
individual shareholders, as well as shares owned in joint tenancy (with
rights of survivorship), provided the shares were purchased before the
death or disability
. To provide for certain distributions--made without IRS penalty--from a
tax-deferred retirement plan, IRA or Section 403(b) custodial account
. On certain sales from a Systematic Withdrawal Plan.

For more information on the above and other waivers, see the SAI, "Purchase,
Redemption and Pricing of Fund Shares--Waiver of Contingent Deferred Sales
Charge--Class B Shares."

- --------------------------------------------------------------------------------

33
<PAGE>

Prudential and its affiliates. For more information, call Prudential at (800)
353-2847.

- --------------------------------------------------------------------------------

PRUDENTIAL JENNISON GROWTH FUND (800) 225-1852
[GRAPHIC]

34
<PAGE>

request to be signed and sent by the plan administrator or trustee. For
additional information, see the SAI.

PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: EXCHANGE PROCESSING
P.O.BOX 15010
NEW BRUNSWICK, NJ 08906-5010

There is no sales charge for such exchanges. However, if you exchange --and
then sell--Class B shares within approximately six years of your original
purchase or Class C shares within 18 months of your original purchase, you must
still pay the applicable CDSC. If you have exchanged Class B or Class C shares
into a money market fund, the time you hold the shares in the money market
account will not be counted in calculating the required holding period for CDSC
liability.
Remember, as we explained in the section entitled "Fund Distributions and
Tax Issues--If You Sell or Exchange Your Shares," exchanging shares is
considered a sale for tax purposes. Therefore, if the shares you exchange are
worth more than you paid for them, you may have to pay capital gains tax. For
additional information about exchanging shares, see the SAI, "Shareholder
Investment Account--Exchange Privilege."

- --------------------------------------------------------------------------------

35
<PAGE>

If you own Class B or Class C shares and qualify to purchase Class A shares
without paying an initial sales charge, we will automatically exchange your
Class B or Class C shares which are not subject to a CDSC for Class A shares.
We make such exchanges on a quarterly basis if you qualify for this exchange
privilege. We have obtained a legal opinion that this exchange is not a
"taxable event" for federal income tax purposes. This opinion is not binding on
the IRS.

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PRUDENTIAL JENNISON GROWTH FUND (800) 225-1852
[GRAPHIC]

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<PAGE>

- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------

CLASS A SHARES
The financial highlights for the three years ended September 30, 1999 were
audited by , independent accountants, and the financial highlights for
the period from November 2, 1995 through September 30, 1996 were audited by
other independent auditors, whose reports were unqualified.

<TABLE>
<CAPTION>
CLASS A SHARES (FISCAL PERIODS ENDED 9-30)
- ---------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1999 1998 1997 1996/1/
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $14.44 $15.39 $10.97 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)/4/ (.04) (.03) (.03)
Net realized and unrealized gain on
investment transactions .40 4.45 1.00
TOTAL FROM INVESTMENT OPERATIONS .36 4.42 .97
- ---------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from net realized gains (1.31) -- --
TOTAL DISTRIBUTIONS -- -- --
NET ASSET VALUE, END OF PERIOD $14.44 $15.39 $10.97
TOTAL RETURN/2/ 3.02% 40.29% 9.70%
- ---------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 1999 1998 1997 1996/1/
<S> <C> <C> <C> <C>
NET ASSETS, END OF PERIOD (000) $ $446,996 $145,022 $85,440
Average net assets (000) $251,118 $105,982 $70,667
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution fees 1.08% 1.09% 1.23%/3/
Expenses, excluding distribution fees .83% .84% .98%/3/
Net investment income (loss) (.26)% (.25)% (.37)%/3/
Portfolio turnover 58% 63% 42%
</TABLE>
- --------------------------------------------------------------------------------
1 Information shown is for the period 11-2-95 (when Class A shares were first
offered) through 9-30-96.
2 Total return assumes reinvestment of dividends and any other distributions,
but does not include the effect of sales charges. It is calculated assuming
shares are purchased on the first day and sold on the last day of each
period reported. Total returns for periods of less than one year are not
annualized.
3 Annualized.
4 Calculated based on weighted average shares outstanding during the period.

- --------------------------------------------------------------------------------

37
<PAGE>

- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------

CLASS B SHARES
The financial highlights for the three years ended September 30, 1999 were
audited by , independent accountants, and the financial highlights for
the period from November 2, 1995 through September 30, 1996 were audited by
other independent auditors, whose reports were unqualified.

<TABLE>
<CAPTION>
CLASS B SHARES (FISCAL PERIODS ENDED 9-30)
- ----------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1999 1998 1997 1996/1/
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $14.11 $15.18 $10.89 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)/4/ (.15) (.12) (.10)
Net realized and unrealized gain on
investment transactions .39 4.41 .99
TOTAL FROM INVESTMENT OPERATIONS .24 4.29 .89
- ----------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from net realized gains
TOTAL DISTRIBUTIONS (1.31) -- --
NET ASSET VALUE, END OF PERIOD $14.11 $15.18 $10.89
TOTAL RETURN/2/ 2.21% 39.39% 8.90%
- ----------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 1999 1998 1997 1996/1/
<S> <C> <C> <C> <C>
NET ASSETS, END OF PERIOD (000) $ $708,463 $419,405 $231,541
Average net assets (000) $557,823 $299,476 $162,412
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution fees 1.83% 1.84% 1.98%/3/
Expenses, excluding distribution fees .83% .84% .98%/3/
Net investment income (loss) (1.01)% (1.00)% (1.12)%/3/
Portfolio turnover 58% 63% 42%
</TABLE>
- --------------------------------------------------------------------------------
1 Information shown is for the period 11-2-95 (when Class B shares were first
offered) through 9-30-96.
2 Total return assumes reinvestment of dividends and any other distributions,
but does not include the effect of sales charges. It is calculated assuming
shares are purchased on the first day and sold on the last day of each
period reported. Total returns for periods of less than one year are not
annualized.
3 Annualized.
4 Calculated based on weighted average shares outstanding during the period.

- --------------------------------------------------------------------------------

PRUDENTIAL JENNISON GROWTH FUND [GRAPHIC] (800) 225-1852

38
<PAGE>

- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------

CLASS C SHARES
The financial highlights for the three years ended September 30, 1999 were
audited by , independent accountants, highlights for the period from
November 2, 1995 through September 30, 1996 were audited by other independent
auditors, whose reports were unqualified.

<TABLE>
<CAPTION>
CLASS C SHARES (FISCAL PERIODS ENDED 9-30)
- --------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1999 1998 1997 1996/1/
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $14.11 $15.18 $10.89 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)/4/ (.15) (.12) (.10)
Net realized and unrealized gain on
investment transactions .39 4.41 .99
TOTAL FROM INVESTMENT OPERATIONS .24 4.29 .89
- --------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from net realized gains
TOTAL DISTRIBUTIONS (1.31) -- --
NET ASSET VALUE, END OF PERIOD $14.11 $15.18 $10.89
TOTAL RETURN/2/ 2.21% 39.39% 8.90%
- --------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 1999 1998 1997 1996/1/
<S> <C> <C> <C> <C>
NET ASSETS, END OF PERIOD (000) $45,126 $25,134 $15,281
Average net assets (000) $35,337 $18,248 $12,550
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution fees 1.83% 1.84% 1.98%/3/
Expenses, excluding distribution fees .83% .84% .98%/3/
Net investment income (loss) (1.01)% (1.00)% (1.12)%/3/
Portfolio turnover 58% 63% 42%
</TABLE>
- --------------------------------------------------------------------------------
1 Information shown is for the period 11-2-95 (when Class C shares were first
offered) through 9-30-96.
2 Total return assumes reinvestment of dividends and any other distributions,
but does not include the effect of sales charges. It is calculated assuming
shares are purchased on the first day and sold on the last day of each
period reported. Total returns for periods of less than one year are not
annualized.
3Annualized.
4Calculated based on weighted average shares outstanding during the period.

- --------------------------------------------------------------------------------

39
<PAGE>

- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------

CLASS Z SHARES
The financial highlights for the three years ended September 30, 1999 were
audited by , independent accountants, and the financial highlights for
the period from April 15, 1996 through September 30, 1996 were audited by other
independent auditors, whose reports were unqualified.

<TABLE>
<CAPTION>
CLASS Z SHARES (FISCAL PERIOD ENDED 9-30)
- -------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1999 1998 1997 1996/1/
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $14.53 $15.45 $10.98 $10.32
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)/4/ -- -- (.02)
Net realized and unrealized gain on
investment transactions .39 4.47 .68
TOTAL FROM INVESTMENT OPERATIONS .39 4.47 .66
- -------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from net realized gains
TOTAL DISTRIBUTIONS (1.31) -- --
NET ASSET VALUE, END OF PERIOD $14.53 $15.45 $10.98
TOTAL RETURN/2/ 3.22% 40.71% 6.40%
- -------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 1999/1/ 1998/1/ 1997/1/ 1996/1/
<S> <C> <C> <C> <C>
NET ASSETS, END OF PERIOD (000) $1,021,903 $609,869 $362,416
Average net assets (000) $810,296 $455,684 $26,829
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution fees .83% .84% .98%/3/
Expenses, excluding distribution fees .83% .84% .98%/3/
Net investment income (loss) (.01)% -- (.12)%/3/
Portfolio turnover 58% 63% 42%
</TABLE>
- --------------------------------------------------------------------------------
1 Information shown is for the period 4-15-96 (when Class Z shares were first
offered) through 9-30-96.
2 Total return assumes reinvestment of dividends and any other distributions,
but does not include the effect of sales charges. It is calculated assuming
shares are purchased on the first day and sold on the last day of each
period reported. Total returns for periods of less than one year are not
annualized.
3 Annualized.
4 Calculated based on weighted average shares outstanding during the period.

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PRUDENTIAL JENNISON GROWTH FUND (800) 225-1852
[GRAPHIC]

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- --------------------------------------------------------------------------------
The Prudential Mutual Fund Family
- --------------------------------------------------------------------------------

Prudential offers a broad range of mutual funds designed to meet your
individual needs. For information about these funds, contact your financial
adviser or call us at (800) 225-1852. Please read the prospectus carefully
before you invest or send money.
STOCK FUNDS
Prudential Distressed Securities Fund, Inc.
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Index Series Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
The Prudential Investment Portfolios, Inc.
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Mid-Cap Value Fund
Prudential Real Estate Securities Fund
Prudential Sector Funds, Inc.
Prudential Financial Services Fund
Prudential Health Sciences Fund
Prudential Technology Fund
Prudential Utility Fund
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Tax-Managed Equity Fund
Prudential 20/20 Focus Fund
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund

TARGET FUNDS
Large Capitalization Growth Fund
Large Capitalization Value Fund
Small Capitalization Growth Fund
Small Capitalization Value Fund

ASSET ALLOCATION/BALANCED FUNDS
Prudential Balanced Fund
Prudential Diversified Funds
Conservative Growth Fund
Moderate Growth Fund
High Growth Fund
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced Fund

GLOBAL FUNDS

GLOBAL STOCK FUNDS
Prudential Developing Markets Fund
Prudential Developing Markets Equity Fund
Prudential Latin America Equity Fund
Prudential Europe Growth Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Index Series Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series
Global Utility Fund, Inc.

TARGET FUNDS
International Equity Fund

GLOBAL BOND FUNDS
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Global Total Return Fund, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential International Bond Fund, Inc.

- --------------------------------------------------------------------------------

41
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

TARGET FUNDS
Total Return Bond Fund

TAX-EXEMPT BOND FUNDS
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Income Series
Insured Series
Prudential Municipal Series Fund
Florida Series
Massachusetts Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
MONEY MARKET FUNDS
TAXABLE MONEY MARKET FUNDS
Cash Accumulation Trust
Liquid Assets Fund
National Money Market Fund
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund, Inc.
Money Market Series
Prudential MoneyMart Assets, Inc.

COMMAND FUNDS
Command Money Fund
Command Government Fund
Command Tax-Free Fund

INSTITUTIONAL MONEY MARKET FUNDS
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series

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PRUDENTIAL JENNISON GROWTH FUND (800) 225-1852
[GRAPHIC]

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<PAGE>

FOR MORE INFORMATION
- --------------------------------------------------------------------------------

Please read this prospectus before you invest in the Fund and keep it for fu-
ture reference. For information or shareholder questions contact:

STATEMENT OF ADDITIONAL INFORMATION (SAI)
(incorporated by reference into this prospectus)

ANNUAL REPORT
(contains a discussion of the market conditions and investment strategies
that significantly affected the Fund's performance)

SEMI-ANNUAL REPORT

You can also obtain copies of Fund documents from the Securities and Exchange
Commission as follows:

By Mail:
Securities and Exchange Commission
Public Reference Section
Washington, DC 20549-0102

By Electronic Request:
[email protected]
(The SEC charges a fee to copy documents.)

In Person:
Public Reference Room in Washington, DC
(For hours of operation, call 1-202-942-8090)

Via the Internet:
on the EDGAR Database at
http://www.sec.gov
- --------------------------------------------------------------------------------
CUSIP AND TRADING SYMBOLS :
CLASS A: 74437E 10 7
CLASS B: 74437E 20 6
CLASS C: 74437E 30 5
CLASS Z: 74437E 40 4

Investment Company Act File No:
811-07343

Printed on Recycled Paper
[RECYCLE LOGO APPEARS HERE]

MF172A
<PAGE>

FUND TYPE:
---------------------------------
Stock

INVESTMENT OBJECTIVE:
---------------------------------
Long-term growth of capital
and income; current income
is a secondary objective

Prudential Jennison
Growth & Income Fund
[LOGO OF PRUDENTIAL INVESTMENTS APPEARS HERE]

- --------------------------------------------------------------------------------
P R O S P E C T U S : N O V E M B E R , 1 9 9 9

As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the Fund's shares, nor has the SEC determined that this
prospectus is complete or accurate. It is a criminal offense to state
otherwise.

[LOGO OF PRUDENTIAL APPEARS HERE]

<PAGE>

- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------

<TABLE>
<C> <S>
1 Risk/Return Summary
1 Investment Objective and Principal Strategies
1 Principal Risks
3 Evaluating Performance
4 Fees and Expenses

6 How the Fund Invests

6 Investment Objective and Policies
7 Derivative Strategies
8 Other Investments and Strategies
10 Investment Risks

15 How the Fund is Managed

15 Board of Directors
15 Manager
15 Investment Adviser
15 Portfolio Manager
16 Distributor
16 Year 2000 Readiness Disclosure

17 Fund Distributions and Tax Issues

17 Distributions
18 Tax Issues
19 If You Sell or Exchange Your Shares

21 How to Buy, Sell and Exchange Shares of the Fund

21 How to Buy Shares
29 How to Sell Your Shares
33 How to Exchange Your Shares

35 Financial Highlights

35 Class A Shares
36 Class B Shares
37 Class C Shares
38 Class Z Shares

39 The Prudential Mutual Fund Family

For More Information (Back Cover)
</TABLE>
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PRUDENTIAL JENNISON GROWTH & INCOME FUND
[GRAPHIC] (800) 225-1852
<PAGE>

- --------------------------------------------------------------------------------
Risk/Return Summary
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
WE ARE OPPORTUNISTIC INVESTORS
In deciding which stocks to buy we emphasize both projected earning growth and
attractive valuations. This means characteristics of the stocks we own (growth
or value and mid cap or larger cap) can change depending on where we believe
the best trade off between earnings growth and attractive valuation may be at
any given time.

- --------------------------------------------------------------------------------
This section highlights key information about the PRUDENTIAL JENNISON GROWTH &
INCOME FUND, which we refer to as "the Fund." The Fund is a series of The
Prudential Investment Portfolios, Inc. (the Company). Additional information
follows this summary.

INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
Our investment objective is LONG-TERM GROWTH OF CAPITAL AND INCOME WITH CURRENT
INCOME AS A SECONDARY OBJECTIVE. We invest mainly in common
stocks of established companies whose growth prospects we believe are under-
appreciated by the market. Our approach is to identify stocks that have good
fundamental prospects but that are selling at what in our opinion is a
depressed valuation level relative to those prospects. We also attempt to
moderate equity risk from time to time by holding cash reserves and engaging in
short sales. Although our major focus is on the U.S. equity market, we have the
ability to buy stocks of foreign companies. Also, although the Fund is mostly
invested in equity securities, we have the ability to invest in equity-related
securities such as nonconvertible preferred stocks and convertible securities
in fixed-income securities. The Fund also can use derivative securities in
implementing its strategy. While we make every effort to achieve our objective,
we can't guarantee success.
We can invest up to 20% of the Fund's assets in foreign equity and debt
securities. We can invest up to 30% of the Fund's assets in fixed-income
securities, including corporate and other debt obligations such as U.S.
government securities. Up to 10% of our fixed-income investments may be rated
lower than investment grade (called "junk bonds").

PRINCIPAL RISKS
Although we try to invest wisely, all investments involve risk. Since the Fund
invests mainly in equity-related securities, there is the risk that the price
of a particular stock we own could go down, or the value of the equity markets
or a sector of them could go down. Stock markets are volatile. The success of
the Fund depends greatly on the investment adviser's ability to

- --------------------------------------------------------------------------------
1
<PAGE>

- --------------------------------------------------------------------------------
Risk/Return Summary
- --------------------------------------------------------------------------------

identify companies whose growth prospects are underappreciated by the market.
These holdings may be somewhat more volatile than the overall market. The
Fund's holdings can vary significantly from broad market indexes, and
performance of the Fund can deviate from the performance of such indexes.
Additionally, although current income is a secondary objective, there is no
guarantee that the Fund's holdings will pay any dividend income.
The Fund invests in debt obligations which have credit, market and interest
rate risks. Credit risk is the possibility that an issuer of a debt obligation
fails to pay the Fund interest or repay principal. Market risk, which may
affect an industry, a sector or the entire market, is the possibility that the
market value of an investment may move up or down and that its movement may
occur quickly or unpredictably. Interest rate risk refers to the fact that the
value of most bonds will fall when interest rates rise. The longer the maturity
and the lower the credit quality of a bond, the more likely its value will
decline. Debt securities rated below investment grade--also known as "junk"
bonds--have a higher risk of default and tend to be less liquid than higher-
rated debt securities.
Since the Fund may invest in foreign securities, there are additional risks.
Foreign markets are often more volatile than U.S. markets and are generally not
subject to regulatory requirements comparable to those of U.S. issuers. Changes
in currency exchange rates can reduce or increase market performance.
Some of our investment strategies--such as using derivatives and leverage--
also involve risk. The Fund may use risk management techniques to try to
preserve assets or enhance return. These strategies may present above-average
risks. Derivatives may not fully offset the underlying positions and this could
result in losses to the Fund that would not otherwise have occurred. Leverage
risk is the risk associated with investments or trading strategies (such as
short sales) that relatively small market movements may result in large changes
in the value of an investment.
Like any mutual fund, an investment in the Fund could lose value and you
could lose money. For more detailed information about the risks associated with
the Fund, see "How the Fund Invests--Investment Risks."
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.

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PRUDENTIAL JENNISON GROWTH & INCOME FUND
[GRAPHIC] (800) 225-1852

2
<PAGE>

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Risk/Return Summary
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EVALUATING PERFORMANCE
A number of factors--including risk--can affect how the Fund performs. The
following bar chart shows the Fund's performance for each full calendar year of
operation. The bar chart and table below demonstrate the risk of investing in
the Fund by showing how returns can change from year to year and by showing how
the Fund's average annual total returns compare with a stock index and a group
of similar mutual funds. Past performance does not mean that the Fund will
achieve similar results in the future.

[GRAPH APPEARS HERE]

* These annual returns do not include sales charges. If the sales charges were
included, the annual returns would be lower than those shown. Without the
distribution and service (12b-1) fee waiver, the annual returns would have
been lower, too. The total return of the Class A shares from 1-1-99 to 9-30-
99 was %.

AVERAGE ANNUAL RETURNS/1/ (AS OF 12-31-98)
<TABLE>
- -------------------------------------------
<CAPTION>
1 YR SINCE INCEPTION
<S> <C> <C>
Class A shares (since 11-7-96)
Class B shares (since 11-7-96)
Class C shares (since 11-7-96)
Class Z shares (since 11-7-96)
S&P 500/2/ 8.60% %
Lipper Average/3/ 19.99% %
</TABLE>
1 The Fund's returns are after deduction of sales charges and expenses. Without
the distribution and service (12b-1) fee waiver for Class A shares, the
returns would have been lower.
2 The Standard & Poor's 500 Stock Index (S&P 500)--an unmanaged index of 500
stocks of large U.S. companies--gives a broad look at how stock prices have
performed. These returns do not include the effect of any sales charges or
operating expenses of a mutual fund. These returns would be lower if they
included the effect of sales charges and operating expenses. Source: Lipper
Inc.
3 The Lipper Average is based on the average return of all mutual funds in the
Lipper Growth and Income Fund category and does not include the effect of any
sales charges. Again, these returns would be lower if they included the
effect of sales charges. Source: Lipper Inc.

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3
<PAGE>

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Risk/Return Summary
- --------------------------------------------------------------------------------

FEES AND EXPENSES
These tables show the sales charges, fees and expenses that you may pay if you
buy and hold shares of each share class of the Fund--Class A, B, C and Z. Each
share class has different sales charges--known as loads--and expenses, but
represents an investment in the same fund. Class Z shares are available only
to a limited group of investors. For more information about which share class
may be right for you, see "How to Buy, Sell and Exchange Shares of the Fund."

Maximum deferred sales charge None 5%/2/ 1%/3/ None
(load) (as a percentage of the
lower of original purchase price or
sale proceeds)

Maximum sales charge (load) imposed None None None None
on reinvested dividends and other
distributions

Redemption fees None None None None

Exchange fee None None None None

ANNUAL FUND OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS)
- -------------------------------------------------------------------------------
<CAPTION>
CLASS A CLASS B CLASS C CLASS Z
<S> <C> <C> <C> <C>
Management fees .60% .60% .60% .60%
+ Distribution and service (12b-1) .30%/4/
fees 1.00% 1.00% None
+ Other expenses % % % %
= Total annual Fund operating % % % %
expenses
- Fee waiver or expense .05%
reimbursement None None None
= NET ANNUAL FUND OPERATING %/4/ % % %
EXPENSES
</TABLE>

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PRUDENTIAL JENNISON GROWTH & INCOME FUND
[GRAPHIC] (800) 225-1852

4
<PAGE>

- --------------------------------------------------------------------------------
Risk/Return Summary
- --------------------------------------------------------------------------------

EXAMPLE
This example will help you compare the fees and expenses of the Fund's
different share classes and the cost of investing in the Fund with the cost of
investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same, except for the Distributor's
reduction of distribution and service (12b-1) fees for Class A Shares during
the first year. Although your actual costs may be higher or lower, based on
these assumptions, your costs would be:

You would pay the following expenses on the same investment if you did not sell
your shares:

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 YR 3 YRS 5 YRS 10 YRS
<S> <C> <C> <C> <C>
Class A shares $ $ $ 1$
Class B shares $ $ $ $
Class C shares $ $ $ $
Class Z shares $ $ $ $
</TABLE>

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5
<PAGE>

- --------------------------------------------------------------------------------
How the Fund Invests
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

OUR OPPORTUNISTIC STYLE
We invest in mid-size and large companies that have what we believe are a
superior trade-off between good earnings growth prospects and attractive
valuation levels. The Fund will generally hold approximately 60 to 70 stocks
that we believe are most attractive on a 12-18 month horizon.

- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is LONG-TERM GROWTH OF CAPITAL AND INCOME.
CURRENT INCOME IS A SECONDARY OBJECTIVE. This means we seek investments that we
believe will appreciate in value over time as our primary aim as well as pay
the Fund dividends and other income. While we make every effort to achieve our
objective, we can't guarantee success.
In pursuing our objective, we normally invest mostly in common stocks of
established companies whose growth prospects are, in our opinion,
underappreciated by the market. These may include companies that are currently
experiencing relative poor earnings results but we believe are about to
experience a positive change in the fundamental outlook due to important
changes in management philosophy, new products, industry conditions, etc. Also
in identifying attractive stocks relative to our strategy, we look for
companies that may be delivering good current earnings growth, but the market
has not yet appreciated that growth.
Our strategy is to invest in companies that have the most attractive trade-
off between good earnings growth prospects and low valuation characteristics.
We want to be opportunistic in being able to identify stocks that best fit our
criteria. This may weight the portfolio more towards either growth stocks or
value stocks depending on the market environment. Similarly, the portfolio may
emphasize different market capitalization areas depending on market conditions.
At any given time we will have a mix in the portfolio between small, medium or
larger capitalization companies, but the concentration of the portfolio toward
one end of the capitalization spectrum can change depending on market
conditions.
Also, although current income is a secondary objective, some of our holdings
may pay little or no dividend income.
In addition to buying common stocks, we may invest in other equity-related
securities. These include nonconvertible preferred stock, warrants and rights
that can be exercised to obtain stock, investments in various types of business
ventures, including partnerships and joint ventures, real estate investment
trusts, American Depositary Receipts (ADRs) and similar securities.

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PRUDENTIAL JENNISON GROWTH & INCOME FUND
[GRAPHIC] (800) 225-1852

6
<PAGE>

- --------------------------------------------------------------------------------
How the Fund Invests
- --------------------------------------------------------------------------------

We also may buy convertible securities. These are securities--like bonds,
corporate notes and preferred stock--that we can convert into the company's
common stock or some other equity security.
Generally, we consider selling a security when, in the opinion of the
investment adviser, it no longer has the risk/reward characteristics to make it
an attractive holding given our opportunistic strategy.

DERIVATIVE STRATEGIES
We may use various derivative strategies to try to improve the Fund's returns
or protect its assets. We cannot guarantee that these strategies will work,
that the instruments necessary to implement these strategies will be available
or that the Fund will not lose money. Derivatives--such as futures, options,
foreign currency forward contracts and options on futures--involve costs and
can be volatile. With derivatives, the investment adviser tries to predict
whether the underlying investment--a security, market index, currency, interest
rate or some other benchmark--will go up or down at some future date. We may
use derivatives to try to reduce risk or to increase return consistent with the
Fund's overall investment objective. The investment adviser will consider other
factors (such as cost) in deciding whether to employ any particular strategy or
use any particular instrument. Any derivatives we use may not match the Fund's
underlying holdings.

Futures Contracts and Related Options
Foreign Currency Forward Contracts. The Fund may purchase and sell stock index
futures contracts and related options on stock index futures. The Fund may
purchase and sell futures contracts on foreign currencies and related options
on foreign currency futures contracts. The Fund also may purchase futures
contracts on debt securities and aggregates of debt securities. A futures
contract is an agreement to buy or sell a set quantity of an underlying product
at a future date, or to make or receive a cash payment based on the value of a
securities index. The Fund also may enter into foreign currency forward
contracts to protect the value of its assets

- --------------------------------------------------------------------------------

7
<PAGE>

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How the Fund Invests
- --------------------------------------------------------------------------------

against future changes in the level of foreign exchange rates. A foreign
currency forward contract is an obligation to buy or sell a given currency on a
future date at a set price.
For more information, see "Investment Risks" and the Statement of Additional
Information, "Description of the Funds, Their Investments and Risks." The
Statement of Additional Information--which we refer to as the SAI--contains
additional information about the Fund. To obtain a copy, see the back cover
page of this prospectus.
The Fund's investment objective is a fundamental policy that cannot be
changed without shareholder approval. The Board can change investment policies
that are not fundamental.

OTHER EQUITY-RELATED SECURITIES
In addition to the common stocks of companies whose growth prospects the
investment adviser believes to be underappreciated by the market, the Fund may
invest up to 35% of its total assets in other equity-related securities.

FOREIGN SECURITIES
We may invest up to 20% of the Fund's total assets in FOREIGN SECURITIES,
including stocks and other equity-related securities and fixed-income
securities of foreign issuers. For purposes of the 20% limit, we do not
consider ADRs and other similar receipts or shares to be foreign securities.

FIXED-INCOME SECURITIES
The Fund may invest up to 30% of its assets in fixed-income obligations,
including corporate and noncorporate obligations such as U.S. government
securities. We can invest up to 10% of total assets in debt obligations rated
BB or lower by Standard & Poor's Ratings Group (S&P) or Ba or lower by Moody's
Investors Service, Inc. (Moody's). These lower-rated obligations-- also known
as "junk bonds"--have a higher risk of default and tend to be less liquid and
more volatile than higher-rated obligations. We also may

- --------------------------------------------------------------------------------

PRUDENTIAL JENNISON GROWTH & INCOME FUND
[GRAPHIC] (800) 225-1852

8
<PAGE>

- --------------------------------------------------------------------------------
How the Fund Invests
- --------------------------------------------------------------------------------

invest in obligations that are not rated, but that we believe are of comparable
quality to these obligations.

SHORT SALES
The Fund may make SHORT SALES of a security. This means that the Fund may sell
a security that it does not own when we think the value of the security will
decline. The Fund generally borrows the security to deliver to the buyer in a
short sale. The Fund must then buy the security at its market price when the
borrowed security must be returned to the lender. Short sales involve costs and
risk. The Fund must pay the lender interest on the security it borrows, and the
Fund will lose money if the price of the security increases between the time of
short sale and the date when the Fund replaces the borrowed security. The Fund
also may make SHORT SALES "AGAINST THE BOX." In a short sale against the box,
at the time of sale, the Fund owns or has the right to acquire the identical
security at no additional cost. When selling short against the box, the Fund
gives up the opportunity for capital appreciation in the security.

REPURCHASE AGREEMENTS
The Fund also may use REPURCHASE AGREEMENTS, where a party agrees to sell a
security to the Fund and then repurchase it at an agreed-upon price at a stated
time. This creates a fixed return for the Fund and is in effect a loan by the
Fund.

- --------------------------------------------------------------------------------

9
<PAGE>

- --------------------------------------------------------------------------------
How the Fund Invests
- --------------------------------------------------------------------------------

the commercial paper of corporations, certificates of deposit, bankers'
acceptances and other obligations of domestic and foreign banks, nonconvertible
debt securities (corporate and government), short-term obligations issued or
guaranteed by the U.S. government or its agencies or instrumentalities,
repurchase agreements and cash (foreign currencies or U.S. dollars). Investing
heavily in these securities limits our ability to achieve our investment
objective, but can help to preserve the Fund's assets when the equity markets
are unstable.
The Fund also may temporarily hold cash or invest in high-quality foreign or
domestic money market instruments pending investment of proceeds from new sales
of Fund shares or to meet ordinary daily cash needs subject to the policy of
normally investing at least 65% of the Fund's assets in common stocks.

- --------------------------------------------------------------------------------

PRUDENTIAL JENNISON GROWTH & INCOME FUND
[GRAPHIC] (800) 225-1852

10
<PAGE>

- --------------------------------------------------------------------------------
How the Fund Invests
- --------------------------------------------------------------------------------

INVESTMENT TYPE
% OF FUND'S TOTAL RISKS POTENTIAL REWARDS
ASSETS

COMMON STOCK OF . Individual stocks . Historically,
ESTABLISHED could lose value stocks have
COMPANIES WITH outperformed
UNDERAPPRECIATED . The equity other
GROWTH PROSPECTS markets could go investments over
down, resulting the long term
At least 65% in a decline in
value of the . Generally,
Fund's economic growth
investments means higher
corporate
. Companies that profits, which
pay dividends may lead to an
not do so if they increase in
don't have stock prices,
profits or known as capital
adequate cash appreciation
flow
. May be a source
. Changes in of dividend
economic or income
political
conditions, both
domestic and
international,
may result in a
decline in value
of the Fund's
investments

- --------------------------------------------------------------------------------

FOREIGN . Foreign markets, . Investors can
SECURITIES economies and participate in
political systems foreign markets
may not be as and invest in
stable as in the companies
U.S. operating in
those markets

Up to 20%
. Currency risk-- . May profit from
changing values changing values
of foreign of foreign
currencies can currencies
cause losses
. Opportunities
. May be less for
liquid than U.S. diversification
stocks and bonds
. Differences in
foreign laws,
accounting
standards, public
information,
custody and
settlement
practices provide
less reliable
information on
foreign
investments and
involve more risk
. Year 2000
conversion may be
more of a problem
for some foreign
issuers

- --------------------------------------------------------------------------------

SHORT SALES . May magnify . May magnify
underlying underlying
investment losses investment gains

Up to 25%
. Investment costs
may exceed
potential
underlying
investment gains

- --------------------------------------------------------------------------------

11
<PAGE>

- --------------------------------------------------------------------------------
How the Fund Invests
- --------------------------------------------------------------------------------

INVESTMENT TYPE (CONT'D)
% OF FUND'S TOTAL RISKS POTENTIAL REWARDS
ASSETS
- --------------------------------------------------------------------------------

DERIVATIVES . Derivatives such . The Fund could
as futures, make money and
Percentage varies options and protect against
foreign currency losses if the
forward contracts investment
that are used for analysis proves
hedging purposes correct
may not fully
offset the . Derivatives that
underlying involve leverage
positions and could generate
this could result substantial
in losses to the gains at low
Fund that would cost
not have
otherwise . One way to
occurred manage the
Fund's
. Derivatives used risk/return
for risk balance is to
management may lock in the
not have the value of an
intended effects investment ahead
and may result in of time
losses or missed
opportunities

. The other party
to a derivatives
contract could
default

. Derivatives that
involve leverage
could magnify
losses

. Certain types of
derivatives
involve costs to
the Fund that can
reduce returns

- --------------------------------------------------------------------------------

12 PRUDENTIAL JENNISON GROWTH & INCOME FUND [GRAPHIC] (800) 225-1852

<PAGE>

- --------------------------------------------------------------------------------
How the Fund Invests
- --------------------------------------------------------------------------------

INVESTMENT TYPE (CONT'D)
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS

FIXED-INCOME . The Fund's . Regular interest
OBLIGATIONS holdings, share income
price and total . Generally, more
Up to 30% return may secure than
fluctuate in stocks since
response to bond companies must
market movements pay their debts
before they pay
. Credit risk--the dividends
risk that the
default of an . Most bonds will
issuer would rise in value
leave the Fund when interest
with unpaid rates fall
interest or
principal. The . Bonds have
lower a bond's generally
quality, the outperformed
higher its money market
potential instruments over
volatility the long term,
with less risk
. Market risk -- than stocks
the risk that
the market value . Investment-grade
of an investment bonds have a
may move up or lower risk of
down, sometimes default
rapidly or
unpredictably. . Junk bonds offer
Market risk may higher yields
affect an and higher
industry, a potential gains
sector, or the
market as a whole

. Interest rate
risk--the risk
that the value of
most bonds will
fall when
interest rates
rise. The longer
a bond's maturity
and the lower its
credit quality,
the more its
value typically
falls. It can
lead to price
volatility,
particularly for
junk bonds

. Junk bonds have a
higher risk of
default, tend to
be less liquid
and may be more
difficult to
value

- --------------------------------------------------------------------------------

13
<PAGE>

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How the Fund Invests
- --------------------------------------------------------------------------------

INVESTMENT TYPE (CONT'D)
% OF FUND'S TOTAL RISKS POTENTIAL REWARDS
ASSETS

- --------------------------------------------------------------------------------

U.S. GOVERNMENT . Limits potential . May preserve the
SECURITIES for capital Fund's assets
appreciation

. See market risk, . Regular interest
Up to 30% credit risk and income
interest rate . Generally more
risk secure than
lower quality
debt securities
. Not all U.S. and equity
government securities
securities are
insured by the . Principal and
U.S. government, interest may be
but only by the guaranteed by
issuing agency the U.S.
government

- --------------------------------------------------------------------------------

MONEY MARKET . Limits potential . May preserve the
INSTRUMENTS for capital Fund's assets
appreciation

. See credit risk
Up to 100% on a and market risk
temporary basis

- --------------------------------------------------------------------------------

ILLIQUID . May be difficult . May offer a more
SECURITIES to value attractive yield
precisely or potential for
growth than more
widely traded
securities

Up to 15% of net
assets . May be difficult
to sell at the
time or price
desired
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

PRUDENTIAL JENNISON GROWTH & INCOME FUND
[GRAPHIC] (800) 225-1852

14
<PAGE>

- --------------------------------------------------------------------------------
How the Fund is Managed
- --------------------------------------------------------------------------------

BOARD OF DIRECTORS
The Fund's Board of Directors oversees the actions of the Manager, Investment
Adviser and Distributor and decides on general policies. The Board also
oversees the Fund's officers, who conduct and supervise the daily business
operations of the Fund.

MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM)
GATEWAY CENTER THREE, 100 MULBERRY STREET
NEWARK, NJ 07102-4077

Under a management agreement with the Fund, PIFM manages the Fund's
investment operations and administers its business affairs. PIFM also is
responsible for supervising the Fund's investment adviser. For the fiscal year
ended September 30, 1999, the Fund paid PIFM management fees of .60% of the
Fund's average net assets.
PIFM and its predecessors have served as manager or administrator to
investment companies since 1987. As of August 31, 1999, PIFM served as the
Manager to all of the Prudential mutual funds, and as Manager or
administrator to closed-end investment companies, with aggregate assets of
approximately $ billion.

INVESTMENT ADVISER
Jennison Associates LLC (Jennison) is the Fund's investment adviser. Its
address is 466 Lexington Avenue, New York, New York 10017. PIFM has
responsibility for all investment advisory services and supervises Jennison.
PIFM pays Jennison at an annual rate of .30 of 1% of the Fund's average daily
net assets up to $300 million and .25 of 1% of the average daily net assets
over $300 million. As of September 30, 1999, Jennison managed approximately $
billion in assets.

PORTFOLIO MANAGER
BRADLEY GOLDBERG, CFA, has been the portfolio manager for the Fund since its
inception and is responsible for the day-to-day management of the Fund. Mr.
Goldberg is an Executive Vice President and Director of Jennison. Mr. Goldberg
joined Jennison in 1974 as a portfolio manager. He earned a B.S. from the
University of Illinois and an M.B.A. from New York University. He holds a
Chartered Financial Analyst (CFA) designation.

- --------------------------------------------------------------------------------

15
<PAGE>

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How the Fund is Managed
- --------------------------------------------------------------------------------

YEAR 2000 READINESS DISCLOSURE
The services provided to the Fund and the shareholders by the Manager, the
Distributor, the Transfer Agent and the Custodian depend on the smooth
functioning of their computer systems and those of outside service providers.
Many computer software systems in use today cannot distinguish the year 2000
from the year 1900 because of the way dates are encoded and calculated. Such an
event could have a negative impact on handling securities trades, payments of
interest and dividends, pricing and account services. Although, at this time,
there can be no assurance that there will be no adverse impact on the Fund, the
Manager, the Distributor, the Transfer Agent and the Custodian have advised the
Fund that they have been actively working on necessary changes to their
computer systems to prepare for the year 2000. The Company and its Board
receive, and have received since early 1998, satisfactory quarterly reports
from the principal service providers as to their preparations for year 2000
readiness, although there can be no assurance that the service providers (or
other securities market participants) will successfully complete the necessary
changes in a timely manner. Moreover, the Fund at this time has not considered
retaining alternative service providers or directly undertaken efforts to
achieve year 2000 readiness, the latter of which would involve substantial
expenses without an assurance of success.
Additionally, issuers of securities generally, as well as those purchased by
the Fund, may confront year 2000 compliance issues which, if material and not
resolved, could have an adverse impact on securities markets and/ or a specific
issuer's performance and could result in a decline in the value of the
securities held by the Fund.

- --------------------------------------------------------------------------------

PRUDENTIAL JENNISON GROWTH & INCOME FUND
[GRAPHIC] (800) 225-1852

16
<PAGE>

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Fund Distributions and Tax Issues
- --------------------------------------------------------------------------------

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17
<PAGE>

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Fund Distributions and Tax Issues
- --------------------------------------------------------------------------------

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PRUDENTIAL JENNISON GROWTH & INCOME FUND
[GRAPHIC] (800) 225-1852

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<PAGE>

- --------------------------------------------------------------------------------
Fund Distributions and Tax Issues
- --------------------------------------------------------------------------------

- ----------------------------------------

CAPITAL GAIN
+$ (taxes owed)
RECEIPTS
FROM $ OR
SALE
-$ CAPITAL LOSS
(offset against gain)

- ----------------------------------------

IF YOU SELL OR EXCHANGE YOUR SHARES
If you sell any shares of the Fund for a profit, you have REALIZED A CAPITAL
GAIN, which is subject to tax unless you hold shares in a qualified tax-
deferred plan or account. The amount of tax you pay depends on how long you
owned your shares. If you
sell shares of the Fund for a loss, you may have a capital loss, which you may
use to offset certain capital gains you have.
Exchanging your shares of the Fund for the shares of another Prudential
mutual fund is considered a sale for tax purposes. In other words, it's a
"taxable event." Therefore, if the shares you exchanged have increased in value
since you purchased them, you have capital gains, which are subject to the
taxes described above.
Any gain or loss you may have from selling or exchanging Fund shares will
not be reported on the Form 1099; however, proceeds from the sale or exchange
will be reported on Form 1099-B. Therefore, unless you hold your shares in a
qualified tax-deferred plan or account, you or your financial adviser should
keep track of the dates on which you buy and sell

- --------------------------------------------------------------------------------

19
<PAGE>

- --------------------------------------------------------------------------------
Fund Distributions and Tax Issues
- --------------------------------------------------------------------------------

- --or exchange--Fund shares, as well as the amount of any gain or loss on each
transaction. For tax advice, please see your tax adviser.

- --------------------------------------------------------------------------------

PRUDENTIAL JENNISON GROWTH & INCOME FUND
[GRAPHIC] (800) 225-1852

20
<PAGE>

PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: INVESTMENT SERVICES
P.O. BOX 15020
NEW BRUNSWICK, NJ 08906-5020

- --------------------------------------------------------------------------------

21
<PAGE>

. The different sales charges that apply to each share class--Class A's
front-end sales charge vs. Class B's CDSC vs. Class C's low front-end
sales charge and low CDSC
. Whether you qualify for any reduction or waiver of sales charges
. The fact that Class B shares automatically convert to Class A shares
approximately seven years after purchase
. Whether you qualify to purchase Class Z shares.
See "How to Sell Your Shares" for a description of the impact of CDSCs.

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Z

<S> <C> <C> <C> <C>
Minimum purchase $1,000 $1,000 $2,500 None
amount/1/

Minimum amount for $100 $100 $100 None
subsequent purchases/1/

Maximum initial 5% of the public None 1% of the public None
sales charge offering price offering price

Contingent Deferred None If sold during: 1% on sales None
Sales Charge Year 1 5% made within
(CDSC)/2/ Year 2 4% 18 months of
Year 3 3% purchase/2/
Year 4 2%
Years 5/6 1%
Year 7 0%
Annual distribution and .30 of 1% 1% 1% None
service (12b-1) fees (.25 of 1%
shown as a percentage of currently)
average net assets/3/
</TABLE>
1 The minimum investment requirements do not apply to certain retirement and
employee savings plans and custodial accounts for minors. The minimum initial
and subsequent investment for purchases made through the Automatic Investment
Plan is $50. For more information, see "Additional Shareholder Services--
Automatic Investment Plan."
2 For more information about the CDSC and how it is calculated, see "How to
Sell Your Shares-- Contingent Deferred Sales Charge (CDSC)." Class C shares
bought before November 2, 1998, have a 1% CDSC if sold within one year.
3 These distribution fees are paid from the Fund's assets on a continuous
basis. Over time, the fees will increase the cost of your investment and may
cost you more than paying other types of sales charges. The service fee for
Class A, Class B and Class C shares is .25 of 1%. The distribution fee for
Class A shares is limited to .30 of 1% (including the .25 of 1% service fee)
and is .75 of 1% for Class B and Class C shares. For the fiscal year ending
September 30, 2000, the Distributor of the Fund has contractually agreed to
reduce its distribution and service (12b-1) fees for Class A shares to .25 of
1% of the average daily net assets of the Class A shares.

- --------------------------------------------------------------------------------

PRUDENTIAL JENNISON GROWTH & INCOME FUND
[GRAPHIC] (800) 225-1852

22
<PAGE>

REDUCING OR WAIVING CLASS A'S INITIAL SALES CHARGE
The following describes the different ways investors can reduce or avoid paying
Class A's initial sales charge.

* If you invest $1 million or more, you can buy only Class A shares, unless you
qualify to buy Class Z shares.

The Distributor may reallow Class A's sales charge to dealers.

Benefit Plans. Certain group retirement and savings plans may purchase Class A
shares without the initial sales charge if they meet the required

- --------------------------------------------------------------------------------

23
<PAGE>

minimum for amount of assets, average account balance or number of eligible
employees. For more information about these requirements, call Prudential at
(800) 353-2847.

Mutual Fund Programs. The initial sales charge will be waived for investors in
certain programs sponsored by broker-dealers, investment advisers and financial
planners who have agreements with Prudential Investments Advisory Group
relating to:
. Mutual fund "wrap" or asset allocation programs, where the sponsor places
Fund trades and charges its clients a management, consulting or other fee
for its services; or
. Mutual fund "supermarket" programs where the sponsor links its clients'
accounts to a master account in the sponsor's name and the sponsor
charges a fee for its services.

Other Types of Investors. Other investors pay no sales charge, including
certain officers, employees or agents of Prudential and its affiliates, the
Prudential mutual funds, the subadvisers of the Prudential mutual funds and
real estate brokerage companies affiliated with The Prudential Real Estate
Affiliates, Inc. and clients of brokers that have entered into a selected
dealer agreement with the Distributor. To qualify for a reduction or waiver of
the sales charge, you must notify the Transfer Agent or your broker at the time
of purchase. For more information, see the SAI, "Purchase, Redemption and
Pricing of Fund Shares--Reduction and Waiver of Initial Sales Charge--Class A
Shares."

- --------------------------------------------------------------------------------

PRUDENTIAL JENNISON GROWTH & INCOME FUND
[GRAPHIC] (800) 225-1852

24
<PAGE>

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25
<PAGE>

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PRUDENTIAL JENNISON GROWTH & INCOME FUND
[GRAPHIC] (800) 225-1852

26
<PAGE>

- --------------------------------------------------------------------------------

STEP 3: UNDERSTANDING THE PRICE YOU'LL PAY
The price you pay for each share of the Fund is based on the share value.
The share value of a mutual fund--known as the NET ASSET VALUE or NAV--is
determined by a simple calculation: it's the total value of the Fund (assets
minus liabilities) divided by the total number of shares outstanding.
For example, if the value of the investments held by Fund XYZ (minus its
liabilities) is $1,000 and there are 100 shares of Fund XYZ owned by
shareholders, the price of one share of the fund--or the NAV--is $10 ($1,000
divided by 100). Portfolio securities are valued based upon market quotations
or, if not readily available, at fair value as determined in good faith under
procedures established by the Fund's Board. Most national newspapers report the
NAVs of most mutual funds, which allows investors to check the price of mutual
funds daily.
We determine the NAV of our shares once each business day at 4:15 p.m. New
York Time on days that the New York Stock Exchange (NYSE) is open for trading.
The NYSE is closed on national holidays and Good Friday. We do not determine
the NAV on days when we have not received any orders to purchase, sell or
exchange Fund shares, or when changes in the value of the Fund's portfolio do
not materially affect the NAV.

- --------------------------------------------------------------------------------

27
<PAGE>

STEP 4: ADDITIONAL SHAREHOLDER SERVICES
As a Fund shareholder, you can take advantage of the following services and
privileges:

PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: ACCOUNT MAINTENANCE
P.O. BOX 15015
NEW BRUNSWICK, NJ 08906-5015

Automatic Investment Plan. You can make regular purchases of the Fund for as
little as $50 by having the funds automatically withdrawn from your bank or
brokerage account at specified intervals.

- --------------------------------------------------------------------------------

PRUDENTIAL JENNISON GROWTH & INCOME FUND
[GRAPHIC] (800) 225-1852

28
<PAGE>

PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: REDEMPTION SERVICES
P.O. BOX 15010
NEW BRUNSWICK, NJ 08906-5010

RESTRICTIONS ON SALES
There are certain times when you may not be able to sell shares of the Fund, or
when we may delay paying you the proceeds from a sale. This
- --------------------------------------------------------------------------------

29
<PAGE>

- --------------------------------------------------------------------------------

PRUDENTIAL JENNISON GROWTH & INCOME FUND
[GRAPHIC] (800) 225-1852

30
<PAGE>

2% in the fourth and 1% in the fifth and sixth years. The rate decreases on the
first day of the month following the anniversary date of your purchase, not on
the anniversary date itself. The CDSC is 1% for Class C shares-- which is
applied to shares sold within 18 months of purchase (one year for Class C
shares purchased before November 2, 1998). For both Class B and Class C shares,
the CDSC is calculated based on the lesser of the original purchase price or
the redemption proceeds. For purposes of determining how long you've held your
shares, all purchases during the month are grouped together and considered to
have been made on the last day of the month.
The holding period for purposes of determining the applicable CDSC will be
calculated from the first day of the month after initial purchase, excluding
any time shares were held in a money market fund.

For more information on the above and other waivers, see the SAI, "Purchase,
Redemption and Pricing of Fund Shares--Waiver of Contingent Deferred Sales
Charge--Class B Shares."

- --------------------------------------------------------------------------------

31
<PAGE>

- --------------------------------------------------------------------------------

PRUDENTIAL JENNISON GROWTH & INCOME FUND
[GRAPHIC] (800) 225-1852

32
<PAGE>

PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: EXCHANGE PROCESSING
P.O. BOX 15010
NEW BRUNSWICK, NJ 08906-5010

- --------------------------------------------------------------------------------

33
<PAGE>

qualify for this exchange privilege. We have obtained a legal opinion that this
exchange is not a "taxable event" for federal income tax purposes. This opinion
is not binding on the IRS.

- --------------------------------------------------------------------------------

PRUDENTIAL JENNISON GROWTH & INCOME FUND
[GRAPHIC] (800) 225-1852

34
<PAGE>

- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------

CLASS A SHARES
The financial highlights were audited by , independent accountants,
whose report was unqualified.

<TABLE>
<CAPTION>
CLASS A SHARES (FISCAL PERIODS ENDED 9-30)
- ------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1999 1998 1997/1/
<S> <C> <C> <C>
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/2/ (9.40)% 29.72%
- ------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 1999 1998 1997/1/
<S> <C> <C> <C>
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%/3/
Expenses, excluding distribution fees 1.06% 1.33%/3/
Net investment income 1.20% .90%/3/
Portfolio turnover 97% 55%
</TABLE>
- --------------------------------------------------------------------------------
1 Information shown is for the period 11-7-96 (when Class A shares were first
offered) through 9-30-97.
2 Total return assumes reinvestment of dividends and any other distributions,
but does not include the effect of sales charges. It is calculated assuming
shares are purchased on the first day and sold on the last day of each
period reported. Total returns for periods of less than one year are not
annualized.
3 Annualized.

- --------------------------------------------------------------------------------

35
<PAGE>

- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------

CLASS B SHARES
The financial highlights were audited by , independent accountants,
whose report was unqualified.

<TABLE>
<CAPTION>
CLASS B SHARES (FISCAL PERIODS ENDED 9-30)
- -------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1999 1998 1997/1/
<S> <C> <C> <C>
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/2/ (10.01)% 28.83%
- -------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 1999 1998 1997/1/
<S> <C> <C> <C>
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%/3/
Expenses, excluding distribution fees 1.06% 1.33%/3/
Net investment income .46% .15%/3/
Portfolio turnover 99% 55%
</TABLE>
- --------------------------------------------------------------------------------
1 Information shown is for the period 11-7-96 (when Class B shares were first
offered) through 9-30-97.
2 Total return assumes reinvestment of dividends and any other distributions,
but does not include the effect of sales charges. It is calculated assuming
shares are purchased on the first day and sold on the last day of each
period reported. Total returns for periods of less than one year are not
annualized.
3 Annualized.

- --------------------------------------------------------------------------------

PRUDENTIAL JENNISON GROWTH & INCOME FUND (800) 225-1852
[GRAPHIC]

36
<PAGE>

- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------

CLASS C SHARES
The financial highlights were audited by , independent accountants,
whose report was unqualified.

<TABLE>
<CAPTION>
CLASS C SHARES (FISCAL PERIODS ENDED 9-30)
- -------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1999 1998 1997/1/
<S> <C> <C> <C>
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/2/ (10.01)% 28.83%
- -------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 1999 1998 1997/1/
<S> <C> <C> <C>
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%/3/
Expenses, excluding distribution fees 1.06% 1.33%/3/
Net investment income .46% .15%/3/
Portfolio turnover 99% 55%
</TABLE>
- --------------------------------------------------------------------------------
1 Information shown is for the period 11-7-96 (when Class C shares were first
offered) through 9-30-97.
2 Total return assumes reinvestment of dividends and any other distributions,
but does not include the effect of sales charges. It is calculated assuming
shares are purchased on the first day and sold on the last day of each
period reported. Total returns for periods of less than one year are not
annualized.
3 Annualized.

- --------------------------------------------------------------------------------

37
<PAGE>

- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------

CLASS Z SHARES
The financial highlights were audited by , independent accountants,
whose report was unqualified.

<TABLE>
<CAPTION>
CLASS Z SHARES (FISCAL PERIODS ENDED 9-30)
- -------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1999 1998 1997/1/
<S> <C> <C> <C>
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 on investment
and foreign currency transactions (.62) --
TOTAL DISTRIBUTIONS (.77) (.09)
NET ASSET VALUE, END OF PERIOD $11.00 $12.93
TOTAL RETURN/2/ (9.31)% 30.30%
- -------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 1999/1/ 1998/1/ 1997/1/
<S> <C> <C> <C>
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%/3/
Expenses, excluding distribution fees 1.06% 1.33%/3/
Net investment income 1.54% 1.15%/3/
Portfolio turnover 97% 55%
</TABLE>
- --------------------------------------------------------------------------------
1 Information shown is for the period 11-7-96 (when Class Z shares were first
offered) through 9-30-97.
2 Total return assumes reinvestment of dividends and any other distributions,
but does not include the effect of sales charges. It is calculated assuming
shares are purchased on the first day and sold on the last day of each
period reported. Total returns for periods of less than one year are not
annualized.
3 Annualized.

- --------------------------------------------------------------------------------

PRUDENTIAL JENNISON GROWTH & INCOME FUND (800) 225-1852
[GRAPHIC]

38
<PAGE>

- --------------------------------------------------------------------------------
The Prudential Mutual Fund Family
- --------------------------------------------------------------------------------

STOCK FUNDS
Prudential Distressed Securities Fund, Inc.
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Index Series Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
The Prudential Investment Portfolios, Inc.
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Mid-Cap Value Fund
Prudential Real Estate Securities Fund
Prudential Sector Funds, Inc.
Prudential Financial Services Fund
Prudential Health Sciences Fund
Prudential Technology Fund
Prudential Utility Fund
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Tax-Managed Equity Fund
Prudential 20/20 Focus Fund
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
TARGET FUNDS
Large Capitalization Growth Fund
Large Capitalization Value Fund
Small Capitalization Growth Fund
Small Capitalization Value Fund
ASSET ALLOCATION/BALANCED FUNDS
Prudential Balanced Fund
Prudential Diversified Funds
Conservative Growth Fund
Moderate Growth Fund
High Growth Fund
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced Fund

TARGET FUNDS
International Equity Fund

GLOBAL BOND FUNDS
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Global Total Return Fund, Inc.

- --------------------------------------------------------------------------------

39
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Prudential Intermediate Global Income Fund, Inc.
Prudential International Bond Fund, Inc.

TARGET FUNDS
Total Return Bond Fund

COMMAND FUNDS
Command Money Fund
Command Government Fund
Command Tax-Free Fund

INSTITUTIONAL MONEY MARKET FUNDS
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series

- --------------------------------------------------------------------------------

PRUDENTIAL JENNISON GROWTH & INCOME FUND (800) 225-1852
[GRAPHIC]

40
<PAGE>

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- --------------------------------------------------------------------------------

[This page has been left blank intentionally.]

- --------------------------------------------------------------------------------

41
<PAGE>

FOR MORE INFORMATION
----------------------------------------------------------------

Please read this prospectus before you invest in the Fund and keep it for fu-
ture reference. For information or shareholder questions contact:

STATEMENT OF ADDITIONAL INFORMATION (SAI)
(incorporated by reference into this prospectus)

ANNUAL REPORT
(contains a discussion of the market conditions and investment strategies
that significantly affected the Fund's performance)

SEMI-ANNUAL REPORT

You can also obtain copies of Fund documents from the Securities and Exchange
Commission as follows:

By Mail:
Securities and Exchange Commission
Public Reference Section
Washington, DC 20549-0102
By Electronic Request:
[email protected]
(The SEC charges a fee to copy documents.)

In Person:
Public Reference Room in Washington, DC
(For hours of operation, call
1-202-942-8090)

Via the Internet:
on the EDGAR Database at
http://www.sec.gov
- --------------------------------------------------------------------------------
CUSIP and trading symbols:
Class A: 74437E 50 3
Class B: 74437E 60 2
Class C: 74437E 70 1
Class Z: 74437E 80 0

Investment Company Act File No:
811-5055

Printed on Recycled Paper
[RECYCLE LOGO APPEARS HERE]

MF172A
<PAGE>

THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.

Statement of Additional Information dated November , 1999

The Prudential Investment Portfolios, Inc. (the Company) is an open-end,
diversified, management investment company consisting of three series:
Prudential Active Balanced Fund (Active Balanced Fund), Prudential Jennison
Growth Fund (Growth Fund) and Prudential Jennison Growth & Income Fund (Growth
& Income Fund) (each a Fund and collectively the Funds).

The investment objective of Active Balanced Fund is to seek income and long-
term growth of capital by investing in a portfolio of equity-related, fixed-
income and money market securities which is actively managed to capitalize on
opportunities created by perceived misvaluation.

The investment objective of Growth Fund is long-term growth of capital. The
Growth Fund seeks to achieve this objective by investing primarily in equity
securities (common stock, preferred stock and securities convertible into
common stock) of established companies with above-average growth prospects.
Current income, if any, is incidental. Under normal market conditions, the
Growth Fund intends to invest at least 65% of its total assets in equity
securities of companies that exceed $1 billion in market capitalization.

The primary investment objective of Growth & Income Fund is long-term growth
of capital and income, with current income as a secondary objective. The
Growth & Income Fund seeks to achieve this objective by investing primarily in
common stocks of established companies with growth prospects believed to be
underappreciated by the market.

Each Fund may also engage in various derivative transactions, such as using
options on stocks, stock indexes and foreign currencies, entering into foreign
currency exchange contracts and the purchase and sale of futures contracts on
stock indexes and options thereon to hedge its portfolio and to attempt to
enhance return.

There can be no assurance that the Funds' investment objectives will be
achieved. See "Description of the Funds, Their Investments and Risks."

The Company's address is Gateway Center Three, 100 Mulberry Street, Newark,
New Jersey 07102-4077, and its telephone number is (800) 225-1852.

This Statement of Additional Information is not a prospectus and should be
read in conjunction with Active Balanced Fund's Prospectus, Growth Fund's
Prospectus and Growth & Income Fund's Prospectus, each dated November , 1999,
copies of which may be obtained from the Company upon request.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
-----
<S> <C>
Company History........................................................... B-2
Description of the Funds, Their Investments and Risks..................... B-2
Investment Restrictions................................................... B-24
Management of the Company................................................. B-27
Control Persons and Principal Holders of Securities....................... B-30
Investment Advisory and Other Services.................................... B-31
Brokerage Allocation and Other Practices.................................. B-36
Capital Shares, Other Securities and Organization......................... B-39
Purchase, Redemption and Pricing of Fund Shares........................... B-40
Shareholder Investment Account............................................ B-51
Net Asset Value........................................................... B-56
Taxes, Dividends and Distributions........................................ B-57
Performance Information................................................... B-59
Financial Statements...................................................... B-
Report of Independent Accountants......................................... B-
Description of Security Ratings........................................... A-1
Appendix I--General Investment Information................................ I-1
Appendix II--Historical Performance Data.................................. II-1
Appendix III--Information Relating to Prudential.......................... III-1
</TABLE>

MF172B
<PAGE>

COMPANY HISTORY

The Company changed its name from Prudential Jennison Fund, Inc. to
Prudential Jennison Series Fund, Inc., effective on September 10, 1996, in
connection with the offering of a second series, Prudential Jennison Growth &
Income Fund (Growth & Income Fund). The existing series of the Company was
redesignated Prudential Jennison Growth Fund (Growth Fund). On August 27,
1997, the Company added a third series, Prudential Jennison Active Balanced
Fund. Prudential Jennison Active Balanced Fund did not commence operations
until January 23, 1998, when it acquired the assets of Prudential Active
Balanced Fund, a series of Prudential Index Series Fund (formerly Prudential
Dryden Fund). On June 1, 1998, the Company changed its name to The Prudential
Investment Portfolios, Inc., in connection with the replacement of Prudential
Jennison Active Balanced Fund's investment adviser and Prudential Jennison
Active Balanced Fund's name was changed to Prudential Active Balanced Fund
(Active Balanced Fund).

DESCRIPTION OF THE FUNDS, THEIR INVESTMENTS AND RISKS

(a) Classification. The Company is an open-end, diversified, management
investment company consisting of three series. Each series operates as a
separate fund with its own investment objectives and policies.

(b) and (c) Investment Strategies, Policies and Risks. The investment
objective of the Active Balanced Fund 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. The investment objective of the Growth Fund
is long-term growth of capital. The Growth Fund seeks to achieve this
objective by investing primarily in equity securities (common stock, preferred
stock and securities convertible into common stock) of established companies
with above-average growth prospects. Current income, if any, is incidental.
Under normal market conditions, the Growth Fund intends to invest at least 65%
of its total assets in equity securities of companies that exceed $1 billion
in market capitalization. The primary investment objective of the Growth &
Income Fund is long-term growth of capital and income, with current income as
a secondary objective. The Growth & Income Fund seeks to achieve its
objectives by investing primarily in common stocks of established companies
with growth prospects believed to be underappreciated by the market. While the
principal investment policies and strategies for seeking to achieve a Fund's
objective are described in its Prospectus, a Fund may from time to time also
use the securities, instruments, policies and strategies described below in
trying to achieve its objective. A Fund may not succeed in achieving its
objective and you could lose money.

The terms "investment adviser" and "Subadviser" refer, in the case of Growth
Fund and Growth & Income Fund, to Jennison Associates LLC (Jennison), and in
the case of Active Balanced Fund, to The Prudential Investment Corporation,
doing business as Prudential Investments (PI). See "Management of the Company"
below.

Equity-Related Securities

Each Fund may invest in equity-related securities. Equity-related securities
include common stocks, preferred stocks, securities convertible or
exchangeable for common stocks or preferred stocks, equity investments in
partnerships, joint ventures, other forms of non-corporate investments,
American Depositary Receipts (ADRs) and American Depositary Shares (ADSs), and
warrants and rights exercisable for equity securities.

ADRs and ADSs are U.S. dollar-denominated certificates or shares issued by a
U.S. bank or trust company and represent the right to receive securities of a
foreign issuer deposited in a domestic bank or foreign branch of a U.S. bank
and traded on a U.S. exchange or in an over-the-counter market. Generally,
ADRs and ADSs are in registered form. There are no fees imposed on the
purchase or sale of ADRs when purchased from the issuing bank or trust company
in the initial underwriting, although the issuing bank or trust company may
impose charges for the collection of dividends and the conversion of ADRs

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or ADSs into the underlying securities. Investment in ADRs and ADSs has
certain advantages over direct investment in the underlying foreign securities
since: (1) ADRs and ADSs are U.S. dollar-denominated investments that are
registered domestically, easily transferable, and for which market quotations
are readily available; and (2) issuers whose securities are represented by
ADRs or ADSs are usually subject to comparable auditing, accounting and
financial reporting standards as domestic issuers.

A convertible security is a bond, debenture, corporate note, preferred stock
or other similar security that may be converted at a stated price within a
specified period of time into a certain quantity of the common stock or other
equity securities of the same or a different issuer. A warrant or right
entitles the holder to purchase equity securities at a specific price for a
specific period of time. Convertible securities are senior to common stocks in
a corporation's capital structure, but are usually subordinated to similar
nonconvertible securities. While providing a fixed income stream (generally
higher in yield than the income derivable from a common stock but lower than
that afforded by a similar nonconvertible security), a convertible security
also affords an investor the opportunity, through its conversion feature, to
participate in the capital appreciation dependent upon a market price advance
in the convertible security's underlying common stock.

In general, the market value of a convertible security is at least the higher
of its "investment value" (that is, its value as a fixed-income security) or
its "conversion value" (that is, its value upon conversion into its underlying
common stock). A convertible security tends to increase in market value when
interest rates decline and tends to decrease in value when interest rates
rise. However, the price of a convertible security is also influenced by the
market value of the security's underlying stock. The price of a convertible
security tends to increase as the market value of the underlying stock rises,
whereas it tends to decrease as the market value of the underlying stock
declines. While no securities investment is without some risk, investments in
convertible securities generally entail less risk than investments in the
common stock of the same issuer. In recent years, convertible securities have
been developed which combine higher or lower current income with options and
other features. Each Fund may invest in these types of convertible securities.

The Growth Fund may invest in convertible securities which are rated
investment grade or in unrated securities of comparable quality. The Growth &
Income Fund may invest in convertible securities which are rated below
investment grade or in unrated securities of comparable quality. The Active
Balanced Fund may invest in convertible securities which are rated below
investment grade or in unrated securities of comparable quality.

U.S. Government Securities

U.S. Treasury Securities. Each Fund is permitted to invest in U.S. Treasury
securities, including bills, notes, bonds and other debt securities issued by
the U.S. Treasury. These instruments are direct obligations of the U.S.
Government and, as such, are backed by the "full faith and credit" of the
United States. They differ primarily in their interest rates, the lengths of
their maturities and the dates of their issuances.

Securities Issued or Guaranteed by U.S. Government Agencies and
Instrumentalities. Each Fund may invest in securities issued by agencies of
the U.S. Government or instrumentalities of the U.S. Government except that
the Growth & Income Fund does not intend to invest in mortgage-related
securities. These obligations, including those which are guaranteed by federal
agencies or instrumentalities, may or may not be backed by the full faith and
credit of the United States. Obligations of the Government National Mortgage
Association (GNMA), the Farmers Home Administration and the Small Business
Administration are backed by the full faith and credit of the United States.
In the case of securities not backed by the full faith and credit of the
United States, a Fund must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment and may not be able to
assert a claim against the United States if the agency or instrumentality does
not meet its commitments. Securities in which a Fund may invest which are not
backed by the full faith

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and credit of the United States include obligations such as those issued by
the Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation
(FHLMC), the Federal National Mortgage Association, the Student Loan Marketing
Association, Resolution Funding Corporation and the Tennessee Valley
Authority, each of which has the right to borrow from the U.S. Treasury to
meet its obligations, and obligations of the Farm Credit System, the
obligations of which may be satisfied only by the individual credit of the
issuing agency. FHLMC investments may include collateralized mortgage
obligations.

Obligations issued or guaranteed as to principal and interest by the U.S.
Government may be acquired by a Fund in the form of custodial receipts that
evidence ownership of future interest payments, principal payments or both on
certain U.S. Treasury notes or bonds. Such notes and bonds are held in custody
by a bank on behalf of the owners. These custodial receipts are commonly
referred to as Treasury strips.

Mortgage-Related Securities

The Active Balanced Fund and the Growth Fund may invest in mortgage-backed
securities, including those which represent undivided ownership interests in
pools of mortgages, issued by the U.S. Government or an issuing agency or
instrumentality which guarantees the payment of interest on and principal of
these securities. However, the guarantees do not extend to the yield or value
of the securities nor do the guarantees extend to the yield or value of a
Fund's shares. The Active Balanced Fund also may invest in mortgage-backed
securities issued by private entities. Mortgage-backed securities are in most
cases "pass-through" instruments, through which the holders receive a share of
all interest and principal payments from the mortgages underlying the
securities, net of certain fees. Because the prepayment characteristics of the
underlying mortgages vary, it is not possible to predict accurately the
average life of a particular issue of pass-through certificates. Mortgage-
backed securities are often subject to more rapid repayment than their
maturity date would indicate as a result of the pass-through of prepayments of
principal on the underlying mortgage obligations. During periods of declining
interest rates, prepayment of mortgages underlying mortgage-backed securities
can be expected to accelerate. A Fund's ability to invest in high-yielding
mortgage-backed securities will be adversely affected to the extent that
prepayments of mortgages must be reinvested in securities which have lower
yields than the prepaid mortgages. Moreover, prepayments of mortgages which
underlie securities purchased at a premium could result in capital losses.
During periods of rising interest rates, the rate of prepayment of mortgages
underlying mortgage-backed securities can be expected to decline, extending
the projected average maturity of the mortgage-backed securities. This
maturity extension risk may effectively change a security which was considered
short- or intermediate-term at the time of purchase into a long-term security.
Long-term securities generally fluctuate more widely in response to changes in
interest rates than short- or intermediate-term securities.

The Active Balanced Fund and the Growth Fund may invest in both adjustable
rate mortgage securities (ARMs), which are pass-through mortgage securities
collateralized by adjustable rate mortgages, and fixed-rate mortgage
securities (FRMs), which are collateralized by fixed-rate mortgages.

Private mortgage-backed securities in which the Active Balanced Fund may
invest represent pass-through pools consisting principally of conventional
residential mortgage loans created by non-governmental issuers, such as
commercial banks, savings and loan associations and private mortgage insurance
companies.

The Active Balanced Fund expects that private and governmental entities may
create mortgage loan pools offering pass-through investments in addition to
those described above. The mortgages underlying these securities may be
alternative mortgage instruments, that is, mortgage instruments whose
principal or interest payments may vary or whose terms to maturity may be
shorter than previously was customary. As new types of mortgage-backed
securities are developed and offered to investors, the Active Balanced Fund,
consistent with its investment objective and policies, will consider making
investments in those new types of securities.

The average maturity of pass-through pools of mortgage-related securities
varies with the maturities of the underlying mortgage instruments. In
addition, a pool's stated maturity may be shortened by unscheduled payments on
the underlying

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mortgages. Factors affecting mortgage prepayments include the level of
interest rates, general economic and social conditions, the location of the
mortgaged property and age of the mortgage. Because prepayment rates of
individual pools vary widely, it is not possible to predict accurately the
average life of a particular pool. Common practice is to assume that
prepayments will result in an average life ranging from two to ten years for
pools of fixed rate 30-year mortgages. Pools of mortgages with other
maturities or different characteristics will have varying average life
assumptions.

Because prepayments of principal generally occur when interest rates are
declining, it is likely that a Fund will have to reinvest the proceeds of
prepayments at lower interest rates than those at which the assets were
previously invested. If this occurs, the Fund's yield will correspondingly
decline. Thus, mortgage-related securities may have less potential for capital
appreciation in periods of falling interest rates than other fixed income
securities of comparable maturity, although these securities may have a
comparable risk of decline in market value in periods of rising interest
rates. To the extent that a Fund purchases mortgage-related securities at a
premium, unscheduled prepayments, which are made at par, will result in a loss
equal to any unamortized premium.

Government stripped mortgage-related interest only (IOs) and principal only
(POs) securities in which the Growth Fund and Active Balanced Fund may invest
are currently traded in an over-the-counter market maintained by several large
investment banking firms. There can be no assurance that a Fund will be able
to effect a trade of IOs or POs at a time when it wishes to do so. A Fund will
acquire IOs and POs only if, in the opinion of the Fund's Subadviser, a
secondary market for the securities exists at the time of acquisition, or is
subsequently expected. Each Fund will treat IOs and POs that are not U.S.
Government securities as illiquid and will limit its investments in these
securities, together with other illiquid investments, in order not to hold
more than 15% of its net assets in illiquid securities. With respect to IOs
and POs that are issued by the U.S. Government, the Subadviser, subject to the
supervision of the Board of Directors, may determine that such securities are
liquid, if it determines the securities can be disposed of promptly in the
ordinary course of business at a value reasonably close to that used in the
calculation of net asset value per share.

Investment in IOs and POs involves the risks normally associated with
investing in government and government agency mortgage-related securities. In
addition, the yields on IOs and POs are extremely sensitive to the prepayment
experience on the mortgage loans underlying the certificates collateralizing
the securities. If a decline in the level of prevailing interest rates results
in a rate of principal prepayments higher than anticipated, distributions of
principal will be accelerated, thereby reducing the yield to maturity on IOs
and increasing the yield to maturity on POs. Sufficiently high prepayment
rates could result in the Fund not fully recovering its initial investment in
an IO.

Collateralized Mortgage Obligations

The Growth Fund and Active Balanced Fund also may invest in, among other
things, parallel pay Collateralized Mortgage Obligations (CMOs), and Planned
Amortization Class CMOs (PAC Bonds). Parallel pay CMOs are structured to
provide payments of principal on each payment date to more than one class.
These simultaneous payments are taken into account in calculating the stated
maturity date or final distribution date of each class, which, as with other
CMO structures, must be retired by its stated maturity date or final
distribution date but may be retired earlier. PAC Bonds generally require
payments of a specified amount of principal on each payment date. PAC Bonds
always are parallel pay CMOs with the required principal payment on such
securities having the highest priority after interest has been paid to all
classes.

In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche," is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the underlying mortgage assets may cause the
CMOs to be retired substantially earlier than their stated maturities or final
distribution dates. Interest is paid or accrues on all classes of the CMOs on
a monthly, quarterly or semi-annual basis. The principal of and interest on
the underlying mortgage assets may be allocated among the several classes of a
CMO series in a number of different ways. Generally, the purpose of the
allocation of the cash flow of a CMO to the various

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<PAGE>

classes is to obtain a more predictable cash flow to the individual tranches
than exists with the underlying collateral of the CMO. As a general rule, the
more predictable the cash flow is on a CMO tranche, the lower the anticipated
yield will be on that tranche at the time of issuance relative to prevailing
market yields on mortgage-backed securities.

In reliance on Securities and Exchange Commission (Commission) rules and
orders, a Fund's investments in certain qualifying CMOs, including CMOs that
have elected to be treated as Real Estate Mortgage Investment Conduits
(REMICs ), are not subject to the limitations of the Investment Company Act of
1940, as amended (Investment Company Act) on acquiring interests in other
investment companies. In order to be able to rely on the Commission's
interpretation, the CMOs and REMICs must be unmanaged, fixed-asset issuers
that (i) invest primarily in mortgage-backed securities, (ii) do not issue
redeemable securities, (iii) operate under general exemptive orders exempting
them from all provisions of the Investment Company Act, and (iv) are not
registered or regulated under the Investment Company Act as investment
companies. To the extent that a Fund selects CMOs or REMICs that do not meet
the above requirements, the Fund may not invest more than 10% of its assets in
all such entities and may not acquire more than 3% of the voting securities of
any single such entity.

Asset-Backed Securities

The Active Balanced Fund may invest in asset-backed securities that represent
either fractional interests or participations in pools of leases, retail
installment loans or revolving credit receivables held by a trust or limited
purpose finance subsidiary. Such asset-backed securities may be secured by the
underlying assets (such as certificates for automobile receivables) or may be
unsecured (such as credit card receivable securities). Depending on the
structure of the asset-backed security, monthly or quarterly payments of
principal and interest or interest only are passed through or paid through to
certificate holders. Asset-backed securities may be guaranteed up to certain
amounts by guarantees, insurance or letters of credit issued by a financial
institution affiliated or unaffiliated with the originator of the pool.

Underlying automobile sales contracts and credit card receivables are, of
course, subject to prepayment (although to a lesser degree than mortgage pass-
through securities), which may shorten the securities' weighted average life
and reduce their overall return to certificate holders. On the other hand,
asset-backed securities may present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities often do not have the
benefit of a security interest in the related collateral. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, some of
which may reduce the ability to obtain full payment. In the case of automobile
receivables, the security interests in the underlying automobiles are often
not transferred when the pool is created, with the resulting possibility that
the collateral could be resold.

Unlike traditional fixed-income securities, interest and principal payments
on asset-backed securities are made more frequently, usually monthly, and
principal may be prepaid at any time. As a result, if the Fund purchases such
a security at a premium, a prepayment rate that is faster than expected will
reduce yield to maturity, while a prepayment rate that is slower than expected
will have the opposite effect of increasing yield to maturity. Alternatively,
if the Fund purchases these securities at a discount, faster than expected
prepayments will increase, while slower than expected prepayments will reduce
yield to maturity. Certificate holders may also experience delays in payment
if the full amounts due on underlying loans, leases or receivables are not
realized because of unanticipated legal or administrative costs of enforcing
the contracts or because of depreciation or damage to the collateral (usually
automobiles) securing certain contracts, or other factors. If consistent with
its investment objective and policies, the Fund may invest in other asset-
backed securities that may be developed in the future.

Types of Credit Enhancement. Mortgage-backed securities and asset-backed
securities are often backed by a pool of assets representing the obligations
of a number of different parties. To lessen the effect of failures by obligors
on underlying assets to make payments, those securities may contain elements
of credit support, which fall into two categories: (i) liquidity

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<PAGE>

protection and (ii) protection against losses resulting from ultimate default
by an obligor on the underlying assets. Liquidity protection refers to the
provision of advances, generally by the entity administering the pool of
assets, to ensure that the receipt of payments on the underlying pool occurs
in a timely fashion. Protection against losses resulting from default ensures
ultimate payment of the obligations on at least a portion of the assets in the
pool. This protection may be provided through guarantees, insurance policies
or letters of credit obtained by the issuer or sponsor from third parties,
through various means of structuring the transaction or through a combination
of such approaches. The Fund will not pay any fees for credit support,
although the existence of credit support may increase the price of a security.

Custodial Receipts

The Active Balanced Fund may acquire custodial receipts or certificates, such
as CATS, TIGRs and FICO Strips, underwritten by securities dealers or banks,
that evidence ownership of future interest payments, principal payments or
both on certain notes or bonds issued by the U.S. Government, its agencies or
instrumentalities. The underwriters of these certificates or receipts purchase
a U.S. Government security and deposit the security in an irrevocable trust or
custodial account with a custodian bank, which then issues receipts or
certificates that evidence ownership of the periodic unmatured coupon payments
and the final principal payment on the U.S. Government security. Custodial
receipts evidencing specific coupon or principal payments have the same
general attributes as zero coupon U.S. Government securities.

There are a number of risks associated with investments in custodial
receipts. Although typically under the terms of a custodial receipt, the Fund
is authorized to assert its rights directly against the issuer of the
underlying obligation, the Fund may be required to assert through the
custodian bank such rights as may exist against the underlying issuer. Thus,
if the underlying issuer fails to pay principal and/or interest when due, the
Fund may be subject to delays, expenses and risks that are greater than those
that would have been involved if the Fund had purchased a direct obligation of
the issuer. In addition, if the trust or custodial account in which the
underlying security has been deposited is determined to be an association
taxable as a corporation, instead of a non-taxable entity, the yield on the
underlying security would be reduced in respect of any taxes paid.

Liquidity Puts

The Active Balanced Fund may purchase instruments together with the right to
resell the instruments at an agreed-upon price or yield, within a specified
period prior to the maturity date of the instruments. This instrument is
commonly known as a "put bond" or a "tender option bond."

Consistent with its investment objective, the Active Balanced Fund may
purchase a put so that it will be fully invested in securities while
preserving the necessary liquidity to purchase securities on a when-issued
basis, to meet unusually large redemptions and to purchase at a later date
securities other than those subject to the put. The Fund will generally
exercise the puts or tender options on their expiration date when the exercise
price is higher than the current market price for the related fixed income
security. Puts or tender options may be exercised prior to the expiration date
in order to fund obligations to purchase other securities or to meet
redemption requests. These obligations may arise during periods in which
proceeds from sales of Fund shares and from recent sales of portfolio
securities are insufficient to meet such obligations or when the funds
available are otherwise allocated for investment. In addition, puts may be
exercised prior to the expiration date in the event the Subadviser for the
Fund revises its evaluation of the creditworthiness of the issuer of the
underlying security. In determining whether to exercise puts or tender options
prior to their expiration date and in selecting which puts or tender options
to exercise in such circumstances, the Fund's Subadviser considers, among
other things, the amount of cash available to the Fund, the expiration dates
of the available puts or tender options, any future commitments for securities
purchases, the yield, quality and maturity dates of the underlying securities,
alternative investment opportunities and the desirability of retaining the
underlying securities in the Fund.

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<PAGE>

These instruments are not deemed to be "put options" for purposes of the
Active Balanced Fund's investment restriction.

Lower-Rated and Unrated Debt Securities

The Active Balanced Fund and the Growth & Income Fund may invest, to a
limited extent, in lower-rated and unrated debt securities. Non-investment
grade fixed-income securities are rated lower than Baa (or the equivalent
rating or, if not rated, determined by the Subadviser to be of comparable
quality to securities so rated) and are commonly referred to as high risk or
high yield securities or "junk" bonds. High yield securities are generally
riskier than higher quality securities and are subject to more credit risk,
including risk of default, and the prices of such securities are more volatile
than higher quality securities. Such securities may also have less liquidity
than higher quality securities. The Active Balanced Fund is not authorized to
invest in excess of 20% of the fixed-income portion of its portfolio in non-
investment grade fixed-income securities. The Growth & Income Fund may not
invest more than 10% of its net assets in non-investment grade fixed-income
securities.

Fixed-income securities are subject to the risk of an issuer's inability to
meet principal and interest payments on the obligations (credit risk) and may
also be subject to price volatility due to such factors as interest rate
sensitivity, market perception of the creditworthiness of the issuer and
general market liquidity (market risk). Lower rated or unrated (that is, high
yield or high risk) securities are more likely to react to developments
affecting market and credit risk than are more highly rated securities, which
react primarily to movements in the general level of interest rates. An
investment adviser considers both credit risk and market risk in making
investment decisions for a Fund.

Under adverse economic conditions, there is a risk that highly leveraged
issuers may be unable to service their debt obligations or to repay their
obligations upon maturity. In addition, the secondary market for high yield
securities, which is concentrated in relatively few market makers, may not be
as liquid as the secondary market for more highly rated securities and, from
time to time, it may be more difficult to value high yield securities than
more highly rated securities. Under adverse market or economic conditions, the
secondary market for high yield securities could contract further, independent
of any specific adverse changes in the condition of a particular issuer. As a
result, the investment adviser could find it more difficult to sell these
securities or may be able to sell the securities only at prices lower than if
such securities were widely traded. Prices realized upon the sale of such
lower rated or unrated securities, under these circumstances, may be less than
the prices used in calculating a Fund's net asset value.

Lower-rated fixed-income securities present risks based on payment
expectations. If an issuer calls the obligation for redemption, the Fund may
have to replace the security with a lower-yielding security, resulting in a
decreased return for investors. Also, as the principal value of fixed-income
securities moves inversely with movements in interest rates, in the event of
rising interest rates, the value of the securities held by the Fund may
decline proportionately more than a fund consisting of higher-rated
securities. Investments in zero coupon bonds may be more speculative and
subject to greater fluctuations in value due to changes in interest rates than
bonds that pay interest currently. If a Fund experiences unexpected net
redemptions, it may be forced to sell its higher-rated bonds, resulting in a
decline in the overall credit quality of the securities held by the Fund and
increasing the exposure of the Fund to the risks of lower-rated securities.

Foreign Debt Securities

Each Fund is permitted to invest in foreign corporate and government
securities. "Foreign government securities" include debt securities issued or
guaranteed, as to payment of principal and interest, by governments, quasi-
governmental entities, governmental agencies, supranational entities and other
governmental entities (collectively, Government Entities) of foreign countries
denominated in the currencies of such countries or in U.S. dollars (including
debt securities of a Government Entity in any such country denominated in the
currency of another such country).

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A "supranational entity" is an entity constituted by the national governments
of several countries to promote economic development. Examples of such
supranational entities include, among others, the World Bank (International
Bank for Reconstruction and Development), the European Investment Bank and the
Asian Development Bank. Debt securities of "quasi-governmental entities" are
issued by entities owned by a national, state or equivalent government or are
obligations of a political unit that are not backed by the national
government's "full faith and credit" and general taxing powers. Examples of
quasi-government issuers include, among others, the Province of Ontario and
the City of Stockholm.

Risk Factors and Special Considerations of Investing in Foreign Securities

Foreign securities involve certain risks, which should be considered
carefully by an investor in any Fund. These risks include political or
economic instability in the country of the issuer, the difficulty of
predicting international trade patterns, the possible imposition of exchange
controls and the risk of currency fluctuations. Such securities may be subject
to greater fluctuations in price than securities issued by U.S. corporations
or issued or guaranteed by the U.S. Government, its instrumentalities or
agencies. In addition, there may be less publicly available information about
a foreign company than about a domestic company. Foreign companies generally
are not subject to uniform accounting, auditing and financial reporting
standards comparable to those applicable to domestic companies. There is
generally less government regulation of securities exchanges, brokers and
listed companies abroad than in the United States and there is a possibility
of expropriation, confiscatory taxation or diplomatic developments which could
affect investment.

Additional costs could be incurred in connection with the Funds'
international investment activities. Foreign brokerage commissions are
generally higher than U.S. brokerage commissions. Increased custodian costs as
well as administrative difficulties (such as the applicability of foreign laws
to foreign custodians in various circumstances) may be associated with the
maintenance of assets in foreign jurisdictions.

If the security is denominated in a foreign currency, it will be affected by
changes in currency exchange rates and in exchange control regulations, and
costs will be incurred in connection with conversions between currencies. A
change in the value of any such currency against the U.S. dollar will result
in a corresponding change in the U.S. dollar value of the Funds' securities
denominated in that currency. Such changes also will affect the Funds' income
and distributions to shareholders. In addition, although a Fund will receive
income in such currencies, the Fund will be required to compute and distribute
its income in U.S. dollars. Therefore, if the exchange rate for any such
currency declines after a Fund's income has been accrued and translated into
U.S. dollars, the Fund could be required to liquidate portfolio securities to
make such distributions, particularly in instances in which the amount of
income the Fund is required to distribute is not immediately reduced by the
decline in such currency. Similarly, if an exchange rate declines between the
time a Fund incurs expenses in U.S. dollars and the time such expenses are
paid, the amount of such currency required to be converted into U.S. dollars
in order to pay such expenses in U.S. dollars will be greater than the
equivalent amount in any such currency of such expenses at the time they were
incurred. A Fund may, but need not, enter into foreign currency forward
contracts, options on foreign currencies and futures contracts on foreign
currencies and related options, for hedging purposes, including: locking-in
the U.S. dollar price of the purchase or sale of securities denominated in a
foreign currency; locking-in the U.S. dollar equivalent of dividends to be
paid on such securities which are held by the Fund; and protecting the U.S.
dollar value of such securities which are held by the Fund.

Shareholders should be aware that investing in the equity markets of
developing countries involves exposure to economies that are generally less
diverse and mature, and to political systems which can be expected to have
less stability, than those of developed countries. Historical experience
indicates that the markets of developing countries have been more volatile
than the markets of developed countries. The risks associated with investments
in foreign securities, described above, may be greater with respect to
investments in developing countries.

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<PAGE>

Risk Factors and Special Considerations of Investing in Euro-Denominated
Securities

On January 1, 1999, 11 of the 15 member states of the European Monetary Union
introduced the "euro" as a common currency. During a three-year transitional
period, the euro will coexist with each participating state's currency and, on
July 1, 2002, the euro is expected to become the sole currency of the
participating states. During the transition period, the Fund will treat the
euro as a separate currency from that of any participating state.

The conversion may adversely affect a Fund if the euro does not take effect
as planned; if a participating state withdraws from the European Monetary
Union; or if the computing, accounting and trading systems used by the Fund's
service providers, or by entities with which the Fund or its service providers
do business, are not capable of recognizing the euro as a distinct currency at
the time of, and following, euro conversion. In addition, the conversion could
cause markets to become more volatile.

The overall effect of the transition of member states' currencies to the euro
is not known at this time. It is likely that more general short- and long-term
ramifications can be expected, such as changes in the economic environment and
change in the behavior of investors, which would affect a Fund's investments
and its net asset value. In addition, although U.S. Treasury regulations
generally provide that the euro conversion will not, in itself, cause a U.S.
taxpayer to realize gain or loss, other changes that may occur at the time of
the conversion, such as accrual periods, holiday conventions, indexes, and
other features may require the realization of a gain or loss by the Fund as
determined under existing tax law.

The Funds' Manager has taken steps: (1) that it believes will reasonably
address euro-related changes to enable each Fund and its service providers to
process transactions accurately and completely with minimal disruption to
business activities and (2) to obtain reasonable assurances that appropriate
steps have been taken by the Funds' other service providers to address the
conversion. No Fund has borne any expenses relating to these actions.

Risk Management and Return Enhancement Strategies

Each Fund also may engage in various portfolio strategies, including using
derivatives, to reduce certain risks of its investments and to attempt to
enhance return. A Fund, and thus its investors, may lose money if the Fund is
unsuccessful in its use of these strategies. These strategies currently
include the use of options, foreign currency forward contracts and futures
contracts and options thereon. The Active Balanced Fund also may purchase and
sell currency spot contracts. A Fund's ability to use these strategies may be
limited by market conditions, regulatory limits and tax considerations and
there can be no assurance that any of these strategies will succeed. The
investment advisers do not intend to buy all of these instruments or use all
of these strategies to the full extent permitted unless it is believed that
doing so will help a Fund achieve its objectives. New financial products and
risk management techniques continue to be developed and a Fund may use these
new investments and techniques to the extent consistent with its investment
objectives and policies.

Options on Securities

Each Fund may purchase and write (that is, sell) put and call options on
securities that are traded on U.S. or foreign securities exchanges or that are
traded in the over-the-counter markets. A call option is a short-term contract
pursuant to which the purchaser, in return for a premium paid, has the right
to buy the security underlying the option at a specified exercise price at any
time during the term of the option. The writer of the call option, who
receives the premium, has the obligation, upon exercise of the option, to
deliver the underlying security against payment of the exercise price. A put
option is a similar contract which gives the purchaser, in return for a
premium, the right to sell the underlying security at a specified price during
the term of the option. The writer of the put, who receives the premium, has
the obligation to buy the underlying security upon exercise at the exercise
price. A Fund will generally write put options when its investment adviser
desires to invest in the underlying security. The premium paid by the
purchaser of an option will reflect, among other things, the relationship of
the exercise price to the market price and volatility of the underlying
security, the remaining term of the option, supply and demand and interest
rates.

B-10
<PAGE>

A call option written by a Fund is "covered" if the Fund owns the security
underlying the option or has an absolute and immediate right to acquire that
security without additional cash consideration (or for additional cash
consideration held in a segregated account by its Custodian) upon conversion
or exchange of other securities held in its portfolio. A call option is also
covered if the Fund holds on a share-for-share basis a call on the same
security as the call written where the exercise price of the call held is
equal to or less than the exercise price of the call written. A Fund may also
write a call option or write a put option if it maintains cash or other liquid
assets with a value equal to the exercise price in a segregated account with
its Custodian. A Fund may also write a put option if it holds on a share-for-
share basis a put on the same security as the put written where the exercise
price of the put held is equal to or greater than the exercise price of the
put written.

If the writer of an option wishes to terminate the obligation, he or she may
effect a "closing purchase transaction." This is accomplished by buying an
option of the same series as the option previously written. The effect of the
purchase is that the writer's position will be cancelled by the clearing
corporation. However, a writer may not effect a closing purchase transaction
after he or she had been notified of the exercise of an option. Similarly, an
investor who is the holder of an option may liquidate his or her position by
effecting a "closing sale transaction." This is accomplished by selling an
option of the same series as the option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can be
effected. To secure the obligation to deliver the underlying security in the
case of a call option, the writer of the option is generally required to
pledge for the benefit of the broker the underlying security or other assets
in accordance with the rules of the relevant exchange or clearinghouse, such
as The Options Clearing Corporation (OCC), an institution created to interpose
itself between buyers and sellers of options in the United States.
Technically, the clearinghouse assumes the other side of every purchase and
sale transaction on an exchange and, by doing so, guarantees the transaction.

A Fund will realize a profit from a closing transaction if the price of the
transaction is less than the premium received from writing the option or is
more than the premium paid to purchase the option; a Fund will realize a loss
from a closing transaction if the price of the transaction is more than the
premium received from writing the option or is less than the premium paid to
purchase the option. Because increases in the market price of a call option
will generally reflect increases in the market price of the underlying
security, any loss resulting from the repurchase of a call option may be
offset in whole or in part if the Fund holds the underlying security by
appreciation of the underlying security owned by the Fund.

A Fund may also purchase a "protective put," that is, a put option acquired
for the purpose of protecting a portfolio security from a decline in market
value. In exchange for the premium paid for the put option, the Fund acquires
the right to sell the underlying security at the exercise price of the put
regardless of the extent to which the underlying security declines in value.
The loss to the Fund is limited to the premium paid for, and transaction costs
in connection with, the put plus the initial excess, if any, of the market
price of the underlying security over the exercise price. However, if the
market price of the security underlying the put rises, the profit the Fund
realizes on the sale of the security will be reduced by the premium paid for
the put option less any amount (net of transaction costs) for which the put
may be sold. Similar principles apply to the purchase of puts on stock
indexes, as described below.

Options on Securities Indexes

In addition to options on securities, each Fund may also purchase and sell
put and call options on securities indexes traded on U.S. or foreign
securities exchanges or traded in the over-the-counter markets. Options on
securities indexes are similar to options on securities except that, rather
than the right to take or make delivery of a security at a specified price, an
option on a securities index gives the holder the right to receive, upon
exercise of the option, an amount of cash if the closing level of the
securities index upon which the option is based is greater than, in the case
of a call, or less than, in the case of a put, the exercise price of the
option. This amount of cash is equal to such difference between the closing
price of the index and the exercise price of the option expressed in dollars
times a specified multiple (the multiplier). The writer of the option is
obligated, in return for the premium received, to make delivery of this
amount. All settlements on options on indexes are in cash, and gain or loss
depends on price movements in the securities market generally (or in a
particular industry or segment of the market) rather than price movements in
individual securities.

B-11
<PAGE>

The multiplier for an index option performs a function similar to the unit of
trading for a stock option. It determines the total dollar value per contract
of each point in the difference between the exercise price of an option and
the current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indexes may have
different multipliers. Because exercises of index options are settled in cash,
a call writer cannot determine the amount of its settlement obligations in
advance and, unlike call writing on specific stocks, cannot provide in advance
for, or cover, its potential settlement obligations by acquiring and holding
the underlying securities. In addition, unless a Fund has other liquid assets
that are sufficient to satisfy the exercise of a call, the Fund would be
required to liquidate portfolio securities or borrow in order to satisfy the
exercise.

Because the value of an index option depends upon movements in the level of
the index rather than the price of a particular security, whether a Fund will
realize a gain or loss on the purchase or sale of an option on an index
depends upon movements in the level of security prices in the market generally
or in an industry or market segment rather than movements in the price of a
particular security. Accordingly, successful use by a Fund of options on
indexes would be subject to the investment adviser's ability to predict
correctly movements in the direction of the securities market generally or of
a particular industry. This requires different skills and techniques than
predicting changes in the price of individual stocks.

Risks of Transactions in Options

An option position may be closed out only on an exchange, board of trade or
other trading facility which provides a secondary market for an option of the
same series. Although a Fund will generally purchase or write only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option, or at any particular time, and for some options no
secondary market on an exchange or otherwise may exist. In such event it might
not be possible to effect closing transactions in particular options, with the
result that the Fund would have to exercise its options in order to realize
any profit and would incur brokerage commissions upon the exercise of call
options and upon the subsequent disposition of underlying securities acquired
through the exercise of call options or upon the purchase of underlying
securities for the exercise of put options. If a Fund as a covered call option
writer is unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying security until the option
expires or it delivers the underlying security upon exercise.

Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the
facilities of an exchange or a clearing corporation may not at all times be
adequate to handle current trading volume; or (vi) one or more exchanges
could, for economic or other reasons, decide or be compelled at some future
date to discontinue the trading of options (or a particular class or series of
options), in which event the secondary market on that exchange (or in the
class or series of options) would cease to exist, although outstanding options
on that exchange that had been issued by a clearing corporation as a result of
trades on that exchange would continue to be exercisable in accordance with
their terms. There is no assurance that higher than anticipated trading
activity or other unforeseen events might not, at times, render certain of the
facilities of any of the clearing corporations inadequate, and thereby result
in the institution by an exchange of special procedures which may interfere
with the timely execution of customers' orders. Each Fund intends to purchase
and sell only those options which are cleared by clearinghouses whose
facilities are considered to be adequate to handle the volume of options
transactions.

Risks of Options on Indexes

A Fund's purchase and sale of options on indexes will be subject to risks
described above under "Risks of Transactions in Options." In addition, the
distinctive characteristics of options on indexes create certain risks that
are not present with stock options.

B-12
<PAGE>

Index prices may be distorted if trading of certain stocks included in the
index is interrupted. Trading in the index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number
of stocks included in the index. If this occurred, a Fund would not be able to
close out options which it had purchased or written and, if restrictions on
exercise were imposed, may be unable to exercise an option it holds, which
could result in substantial losses to the Fund. It is the policy of each Fund
to purchase or write options only on indexes which include a number of stocks
sufficient to minimize the likelihood of a trading halt in the index.

The ability to establish and close out positions on such options will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop in all index option contracts. A
Fund will not purchase or sell any index option contract unless and until, in
the investment adviser's opinion, the market for such options has developed
sufficiently that the risk in connection with such transactions is not
substantially greater than the risk in connection with options on securities
in the index.

Special Risks of Writing Calls on Indexes

Because exercises of index options are settled in cash, a call writer such as
a Fund cannot determine the amount of its settlement obligations in advance
and, unlike call writing on specific stocks, cannot provide in advance for, or
cover, its potential settlement obligations by acquiring and holding the
underlying securities. However, a Fund will write call options on indexes only
under the circumstances described below under "Limitations on Purchase and
Sale of Stock Options, Options on Stock Indexes and Foreign Currencies and
Futures Contracts and Related Options."

Price movements in a Fund's portfolio probably will not correlate precisely
with movements in the level of the index and, therefore, a Fund bears the risk
that the price of the securities held by the Fund may not increase as much as
the index. In such event, the Fund would bear a loss on the call which is not
completely offset by movements in the price of the Fund's portfolio. It is
also possible that the index may rise when a Fund's portfolio of stocks does
not rise. If this occurred, the Fund would experience a loss on the call which
is not offset by an increase in the value of its portfolio and might also
experience a loss in its portfolio. However, because the value of a
diversified portfolio will, over time, tend to move in the same direction as
the market, movements in the value of a Fund in the opposite direction as the
market would be likely to occur for only a short period or to a small degree.

Unless a Fund has other liquid assets which are sufficient to satisfy the
exercise of a call, the Fund would be required to liquidate portfolio
securities in order to satisfy the exercise. Because an exercise must be
settled within hours after receiving the notice of exercise, if a Fund fails
to anticipate an exercise, it may have to borrow from a bank (in the case of
Growth Fund and Growth & Income Fund, in amounts not exceeding 20% of the
Fund's total assets and in the case of Active Balanced Fund, in amounts not
exceeding 30% of the Fund's total assets) pending settlement of the sale of
securities in its portfolio and would incur interest charges thereon.

When a Fund has written a call, there is also a risk that the market may
decline between the time the Fund has a call exercised against it, at a price
which is fixed as of the closing level of the index on the date of exercise,
and the time the Fund is able to sell stocks in its portfolio. As with stock
options, a Fund will not learn that an index option has been exercised until
the day following the exercise date but, unlike a call on stock where a Fund
would be able to deliver the underlying securities in settlement, a Fund may
have to sell part of its investment portfolio in order to make settlement in
cash, and the
price of such investments might decline before they can be sold. This timing
risk makes certain strategies involving more than one option substantially
more risky with index options than with stock options. For example, even if an
index call which a Fund has written is "covered" by an index call held by the
Fund with the same strike price, the Fund will bear the risk that the level of
the index may decline between the close of trading on the date the exercise
notice is filed with the clearing corporation and the close of trading on the
date the Fund exercises the call it holds or the time the Fund sells the call
which, in either case, would occur no earlier than the day following the day
the exercise notice was filed.

B-13
<PAGE>

If a Fund holds an index option and exercises it before final determination
of the closing index value for that day, it runs the risk that the level of
the underlying index may change before closing. If such a change causes the
exercised option to fall out-of-the-money, the Fund will be required to pay
the difference between the closing index value and the exercise price of the
option (times the applicable multiplier) to the assigned writer. Although a
Fund may be able to minimize this risk by withholding exercise instructions
until just before the daily cutoff time or by selling rather than exercising
an option when the index level is close to the exercise price, it may not be
possible to eliminate this risk entirely because the cutoff times for index
options may be earlier than those fixed for other types of options and may
occur before definitive closing index values are announced.

Risks Related to Foreign Currency Forward Contracts

Each Fund may enter into foreign currency forward contracts in several
circumstances. When a Fund enters into a contract for the purchase or sale of
a security denominated in a foreign currency, or when a Fund anticipates the
receipt in a foreign currency of dividends or interest payments on a security
which it holds, the Fund may desire to "lock-in" the U.S. dollar price of the
security or the U.S. dollar equivalent of such dividend or interest payment,
as the case may be. By entering into a forward contract for a fixed amount of
dollars, for the purchase or sale of the amount of foreign currency involved
in the underlying transactions, a Fund may be able to protect itself against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the foreign currency during the period between the date on
which the security is purchased or sold, or on which the dividend or interest
payment is declared, and the date on which such payments are made or received.

Additionally, when the investment adviser believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, a Fund may enter into a forward contract for a fixed amount of
dollars, to sell the amount of foreign currency approximating the value of
some or all of the Fund's portfolio securities denominated in such foreign
currency. The precise matching of the forward contract amounts and the value
of the securities involved will not generally be possible since the future
value of securities in foreign currencies will change as a consequence of
market movements in the value of those securities between the date on which
the forward contract is entered into and the date it matures. The projection
of short-term currency market movement is extremely difficult, and the
successful execution of a short-term hedging strategy is highly uncertain. If
a Fund enters into a hedging transaction as described above, the transaction
will be "covered" by the position being hedged, or the Fund's Custodian will
segregate cash or other liquid assets in an amount equal to the value of the
Fund's total assets committed to the consummation of forward foreign currency
exchange contracts (less the value of the covering positions, if any). The
assets segregated will be marked-to-market daily, and if the value of the
assets segregated declines, additional cash or other liquid assets will be
placed in the account so that the value of the account will, at all times,
equal the amount of the Fund's net commitments with respect to such contracts.

A Fund generally will not enter into a forward contract with a term of
greater than one year. At the maturity of a forward contract, a Fund may
either sell the portfolio security and make delivery of the foreign currency,
or it may retain the security and terminate its contractual obligation to
deliver the foreign currency by purchasing an "offsetting" contract with the
same currency trader obligating it to purchase, on the same maturity date, the
same amount of the foreign currency.

It is impossible to forecast with absolute precision the market value of a
particular portfolio security at the expiration of the forward contract.
Accordingly, if a decision is made to sell the security and make delivery of
the foreign currency and if the market value of the security is less than the
amount of foreign currency that a Fund is obligated to deliver, then it would
be necessary for the Fund to purchase additional foreign currency on the spot
market (and bear the expense of such purchase).

If a Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. Should forward contract prices
decline during the period

B-14
<PAGE>

between a Fund's entering into a forward contract for the sale of a foreign
currency and the date it enters into an offsetting contract for the purchase
of the foreign currency, the Fund will realize a gain to the extent that the
price of the currency it has agreed to sell exceeds the price of the currency
it has agreed to purchase. Should forward contract prices increase, the Fund
will suffer a loss to the extent that the price of the currency it has agreed
to purchase exceeds the price of the currency it has agreed to sell.

Each Fund's dealing in foreign currency forward contracts will generally be
limited to the transactions described above. Of course, a Fund is not required
to enter into such transactions with regard to its foreign currency-
denominated securities. It also should be recognized that this method of
protecting the value of a Fund's portfolio securities against a decline in the
value of a currency does not eliminate fluctuations in the underlying prices
of the securities which are unrelated to exchange rates. Additionally,
although such contracts tend to minimize the risk of loss due to a decline in
the value of the hedged currency, at the same time they tend to limit any
potential gain which might result should the value of such currency increase.

Although a Fund values its assets daily in terms of U.S. dollars, it does not
intend physically to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. It will do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference (the spread) between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign
currency to a Fund at one rate, while offering a lesser rate of exchange
should the Fund desire to resell that currency to the dealer.

Foreign Currency Strategies--Special Considerations

The Active Balanced Fund may use options on foreign currencies, futures on
foreign currencies, options on futures contracts on foreign currencies and
forward currency contracts, to hedge against movements in the values of the
foreign currencies in which the Fund's securities are denominated. Such
currency hedges can protect against price movements in a security that the
Fund owns or intends to acquire that are attributable to changes in the value
of the currency in which it is denominated. Such hedges do not, however,
protect against price movements in the securities that are attributable to
other causes.

The Fund might seek to hedge against changes in the value of a particular
currency when no futures contract, forward contract or option involving that
currency is available or one of such contracts is more expensive than certain
other contracts. In such cases, the Fund may hedge against price movements in
that currency by entering into a contract on another currency or basket of
currencies, the values of which the Fund's Subadviser believes will have a
positive correlation to the value of the currency being hedged. The risk that
movements in the price of the contract will not correlate perfectly with
movements in the price of the currency being hedged is magnified when this
strategy is used.

The value of futures contracts, options on futures contracts, forward
contracts and options on foreign currencies depends on the value of the
underlying currency relative to the U.S. dollar. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of futures contracts, forward
contracts or options, a Fund could be disadvantaged by dealing in the odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.

There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirements that quotations available through
dealers or other market sources be firm or revised on a timely basis.
Quotation information generally is representative of very large transactions
in the interbank market and thus might not reflect odd-lot transactions where
rates might be less favorable. The interbank market in foreign currencies is a
global, round-the-clock market. To the extent the U.S. options or futures
markets are closed while the markets for the underlying currencies remain
open, significant price and rate movements might take place in the underlying
markets that cannot be reflected in the markets for the futures contracts or
options until they reopen.

B-15
<PAGE>

Settlement of futures contracts, forward contracts and options involving
foreign currencies might be required to take place with in the country issuing
the underlying currency. Thus, the Fund might be required to accept or make
delivery of the underlying foreign currency in accordance with any U.S. or
foreign regulations regarding the maintenance of foreign banking arrangements
by U.S. residents and might by required to pay any fees, taxes and charges
associated with such delivery assessed in the issuing country.

Futures Contracts

As a purchaser of a futures contract, a Fund incurs an obligation to take
delivery of a specified amount of the obligation underlying the futures
contract at a specified time in the future for a specified price. As a seller
of a futures contract, a Fund incurs an obligation to deliver the specified
amount of the underlying obligation at a specified time in return for an
agreed upon price. The Growth & Income Fund may purchase futures contracts on
debt securities, including U.S. Government securities, aggregates of debt
securities, stock indexes and foreign currencies. The Growth Fund may purchase
futures contracts on stock indexes and foreign currencies. The Active Balanced
Fund may purchase futures contracts on securities, foreign currencies, stock
indexes and interest rate indexes and options thereon.

A Fund will purchase or sell futures contracts for the purpose of hedging its
portfolio (or anticipated portfolio) securities against changes in prevailing
interest rates. If the investment adviser anticipates that interest rates may
rise and, concomitantly, the price of the Fund's portfolio securities may
fall, a Fund may sell a futures contract. If declining interest rates are
anticipated, a Fund may purchase a futures contract to protect against a
potential increase in the price of securities the Fund intends to purchase.
Subsequently, appropriate securities may be purchased by a Fund in an orderly
fashion; as securities are purchased, corresponding futures positions would be
terminated by offsetting sales of contracts. In addition, futures contracts
will be bought or sold in order to close out a short or long position in a
corresponding futures contract.

Although most futures contracts call for actual delivery or acceptance of
securities or cash, the contracts usually are closed out before the settlement
date without the making or taking of delivery. A futures contract sale is
closed out by effecting a futures contract purchase for the same aggregate
amount of the specific type of security and the same delivery date. If the
sale price exceeds the offsetting purchase price, the seller would be paid the
difference and would realize a gain. If the offsetting purchase price exceeds
the sale price, the seller would pay the difference and would realize a loss.
Similarly, a futures contract purchase is closed out by effecting a futures
contract sale for the same aggregate amount of the specific type of security
(or currency) and the same delivery date. If the offsetting sale price exceeds
the purchase price, the purchaser would realize a gain, whereas if the
purchase price exceeds the offsetting sale price, the purchaser would realize
a loss. There is no assurance that a Fund will be able to enter into a closing
transaction.

When a Fund enters into a futures contract it is initially required to
deposit with its Custodian, in a segregated account in the name of the broker
performing the transaction, an "initial margin" of cash or other liquid assets
equal to approximately 2-3% of the contract amount. Initial margin
requirements are established by the exchanges on which futures contracts trade
and may, from time to time, change. In addition, brokers may establish margin
deposit requirements in excess of those required by the exchanges.

Initial margin in futures transactions is different from margin in securities
transactions in that initial margin does not involve the borrowing of funds by
a brokers' client but is, rather, a good faith deposit on a futures contract
which will be returned to a Fund upon the proper termination of the futures
contract. The margin deposits made are marked-to-market daily and a Fund may
be required to make subsequent deposits into the segregated account,
maintained at its Custodian for that purpose, of cash or other liquid assets,
called "variation margin," in the name of the broker, which are reflective of
price fluctuations in the futures contract.

B-16
<PAGE>

Risks of Transactions in Futures Contracts

There are several risks in connection with the use of futures contracts as a
hedging device. In the case of futures contracts on securities indices, the
correlation between the price of the futures contract and the movements in the
index may not be perfect. Therefore, a correct forecast of market trends by
the investment adviser may still not result in a successful hedging
transaction.

Although a Fund will purchase or sell futures contracts only on exchanges
where there appears to be an adequate secondary market, there is no assurance
that a liquid secondary market on an exchange will exist for any particular
contract or at any particular time. Accordingly, there can be no assurance
that it will be possible, at any particular time, to close a futures position.
In the event a Fund could not close a futures position and the value of such
position declined, the Fund would be required to continue to make daily cash
payments of variation margin. Currently, index futures contracts are available
on various U.S. and foreign securities indices.

Successful use of futures contracts by a Fund is also subject to the ability
of the Fund's investment adviser to predict correctly movements in the
direction of markets and other factors affecting the securities market
generally. If a Fund has insufficient cash to meet daily variation margin
requirements, it may need to sell securities to meet such requirements. Such
sales of securities may be, but will not necessarily be, at increased prices
which reflect the rising market. A Fund may have to sell securities at a time
when it is disadvantageous to do so.

The hours of trading of futures contracts may not conform to the hours during
which a Fund may trade the underlying securities. To the extent that the
futures markets close before the securities markets, significant price and
rate movements can take place in the securities markets that cannot be
reflected in the futures markets.

Options on Futures Contracts

An option on a futures contract gives the purchaser the right, but not the
obligation, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option exercise period. The writer of
the option is required upon exercise to assume an offsetting futures position
(a short position if the option is a call and a long position if the option is
a put). Upon exercise of the option, the assumption of offsetting futures
positions by the writer and holder of the option will be accompanied by
delivery of the accumulated cash balance in the writer's futures margin
account which represents the amount by which the market price of the futures
contract, at exercise, exceeds, in the case of a call, or is less than, in the
case of a put, the exercise price of the option on the futures contract. With
respect to stock indices, options are traded on futures contracts for various
U.S. and foreign stock indexes, including the S&P 500 Stock Index and the NYSE
Composite Index.

The holder or writer of an option may terminate its position by selling or
purchasing an option of the same series. There is no guarantee that such
closing transactions can be effected.

Limitations on Purchase and Sale of Stock Options, Options on Stock Indexes
and Foreign Currencies and Futures Contracts and Related Options

Each Fund may write put and call options on stocks only if they are covered
as described above, and such options must remain covered so long as the Fund
is obligated as a writer. A Fund will write put options on stock indexes and
foreign currencies only if they are covered by segregating with the Fund's
Custodian an amount of cash or other liquid assets equal to the aggregate
exercise price of the puts. A Fund will not enter into futures contracts or
related options if the aggregate initial margin and premiums exceed 5% of the
market value of such Fund's total assets, taking into account unrealized
profits and losses on such contracts, provided, however, that in the case of
an option that is in-the-money, the in-the-money amount may be excluded in
computing such 5%. The above restriction does not apply to the purchase or
sale of futures contracts

B-17
<PAGE>

and related options for bona fide hedging purposes, within the meaning of
regulations of the Commodity Futures Trading Commission. Neither Growth Fund
nor Growth & Income Fund intends to purchase options on equity securities or
securities indexes if the aggregate premiums paid for such outstanding options
would exceed 10% of the Fund's total assets.

Except as described below, a Fund will write call options on indexes only if
on such date it holds a portfolio of stocks at least equal to the value of the
index times the multiplier times the number of contracts. When a Fund writes a
call option on a broadly-based stock market index, the Fund will segregate
with its Custodian, or pledge to a broker as collateral for the option, cash
or other liquid assets substantially replicating the movement of the index, in
the judgment of the Fund's investment adviser, with a market value at the time
the option is written of not less than 100% of the current index value times
the multiplier times the number of contracts.

If a Fund has written an option on an industry or market segment index, it
will segregate with its Custodian, or pledge to a broker as collateral for the
option, at least ten "qualified securities," all of which are stocks of
issuers in such industry or market segment, and that, in the judgment of the
investment adviser, substantially replicate the movement of the index with a
market value at the time the option is written of not less than 100% of the
current index value times the multiplier times the number of contracts. Such
stocks will include stocks which represent at least 50% of the weighting of
the industry or market segment index and will represent at least 50% of the
Fund's holdings in that industry or market segment. No individual security
will represent more than 15% of the amount so segregated or pledged in the
case of broadly-based stock market index options or 25% of such amount in the
case of industry or market segment index options. If at the close of business
on any day the market value of such qualified securities so segregated or
pledged falls below 100% of the current index value times the multiplier times
the number of contracts, the Fund will segregate or pledge an amount in cash
or other liquid assets equal in value to the difference. In addition, when a
Fund writes a call on an index which is in-the-money at the time the call is
written, the Fund will segregate with its Custodian or pledge to the broker as
collateral cash or other liquid assets equal in value to the amount by which
the call is in-the-money times the multiplier times the number of contracts.
Any amount segregated pursuant to the foregoing sentence may be applied to the
Fund's obligation to segregate additional amounts in the event that the market
value of the qualified securities falls below 100% of the current index value
times the multiplier times the number of contracts. A "qualified security" is
an equity security which is listed on a national securities exchange or listed
on NASDAQ against which the Fund has not written a stock call option and which
has not been hedged by the Fund by the sale of stock index futures. However,
if a Fund holds a call on the same index as the call written where the
exercise price of the call held is equal to or less than the exercise price of
the call written or greater than the exercise price of the call written if the
difference is segregated by the Fund in cash or other liquid assets with its
Custodian, it will not be subject to the requirements described in this
paragraph.

Position Limits. Transactions by a Fund in futures contracts and options will
be subject to limitations, if any, established by each of the exchanges,
boards of trade or other trading facilities (including NASDAQ) governing the
maximum number of options in each class which may be written or purchased by a
single investor or group of investors acting in concert, regardless of whether
the options are written on the same or different exchanges, boards of trade or
other trading facilities or are held or written in one or more accounts or
through one or more brokers. Thus, the number of futures contracts and options
which a Fund may write or purchase may be affected by the futures contracts
and options written or purchased by other investment advisory clients of the
investment adviser. An exchange, board of trade or other trading facility may
order the liquidations of positions found to be in excess of these limits, and
it may impose certain other sanctions.

Risks of Risk Management and Return Enhancement Strategies

Participation in the options or futures markets and in currency exchange
transactions involves investment risks and transaction costs to which the
Funds would not be subject absent the use of these strategies. A Fund, and
thus its investors, may lose money through any unsuccessful use of these
strategies. If the investment adviser's predictions of movements in

B-18
<PAGE>

the direction of the securities, foreign currency or interest rate markets are
inaccurate, the adverse consequences to a Fund may leave the Fund in a worse
position than if such strategies were not used. Risks inherent in the use of
options, foreign currency and futures contracts and options on futures
contracts include (1) dependence on the investment adviser's ability to
predict correctly movements in the direction of interest rates, securities
prices and currency markets; (2) imperfect correlation between the price of
options and futures contracts and options thereon and movements in the prices
of the securities or currencies being hedged; (3) the fact that skills needed
to use these strategies are different from those needed to select portfolio
securities; (4) the possible absence of a liquid secondary market for any
particular instrument at any time; (5) the risk that the counterparty may be
unable to complete the transaction and (6) the possible inability of a Fund to
purchase or sell a portfolio security at a time that otherwise would be
favorable for it to do so, or the possible need for a Fund to sell a portfolio
security at a disadvantageous time, due to the need for the Fund to maintain
"cover" or to segregate liquid assets in connection with hedging transactions.
See "Taxes, Dividends and Distributions."

The Funds will generally purchase options and futures on an exchange only if
there appears to be a liquid secondary market for such options or futures; the
Funds will generally purchase OTC options only if management believes that the
other party to the options will continue to make a market for such options.
However, there can be no assurance that a liquid secondary market will
continue to exist or that the other party will continue to make a market.
Thus, it may not be possible to close out an option or futures transaction.
The inability to close out options and futures positions also could have an
adverse impact on a Fund's ability to effectively hedge its portfolio. There
is also the risk of loss by a Fund of margin deposits or collateral in the
event of bankruptcy of a broker with whom the Fund has an open position in an
option, a futures contract or related option.

Short Sales

The Growth Fund and Growth & Income Fund may make short sales of securities
or maintain a short position, provided that at all times when a short position
is open the Fund owns an equal amount of such securities or securities
convertible into or exchangeable, without payment of any further
consideration, for an equal amount of the securities of the same issuer as the
securities sold short (a short sale against-the-box), and that not more than
25% of the Fund's net assets (determined at the time of the short sale) may be
subject to such sales. The Active Balanced Fund may make short sales against-
the-box, provided no more than 25% of the Fund's net assets (determined at the
time of the short sale against-the-box) may be subject to such sales.

The Growth Fund and Growth & Income Fund may sell a security it does not own
in anticipation of a decline in the market value of that security (short
sales). To complete such a transaction, the Fund must borrow the security to
make delivery to the buyer. The Fund then is obligated to replace the security
borrowed by purchasing it at market price at the time of replacement. The
price at such time may be more or less than the price at which the security
was sold by the Fund. Until the security is replaced, the Fund is required to
pay to the lender any dividends or interest which accrue during the period of
the loan. To borrow the security, the Fund also may be required to pay a
premium, which would increase the cost of the security sold. The proceeds of
the short sale will be retained by the broker, to the extent necessary to meet
margin requirements, until the short position is closed out. Until the Fund
replaces a borrowed security, the Fund will segregate with its Custodian cash
or other liquid assets at such a level that (i) the amount segregated plus the
amount deposited with the broker as collateral will equal the current value of
the security sold short and (ii) the amount segregated plus the amount
deposited with the broker as collateral will not be less than the market value
of the security at the time it was sold short. The Fund will incur a loss as a
result of the short sale if the price of the security increases between the
date of the short sale and the date on which the Fund replaces the borrowed
security. The Fund will realize a gain if the security declines in price
between those dates. This result is the opposite of what one would expect from
a cash purchase of a long position in a security. The amount of any gain will
be decreased, and the amount of any loss increased, by the amount of any
premium, dividends or interest the Fund may be required to pay in connection
with a short sale. No more than 25% of the Fund's net assets will be, when
added together: (i) deposited as collateral for the obligation to replace
securities borrowed to effect short sales; and (ii) segregated in connection
with short sales.

B-19
<PAGE>

Repurchase Agreements

Each Fund may enter into repurchase agreements whereby the seller of the
security agrees to repurchase that security from the Fund at a mutually
agreed-upon time and price. The repurchase date usually is within a day or two
of the original purchase, although it may extend over a number of months. The
Fund's repurchase agreements will at all times be fully collateralized in an
amount at least equal to the resale price. In the event of a default or
bankruptcy by a seller, the Fund will promptly seek to liquidate the
collateral. To the extent that the proceeds from any sale of such collateral
upon a default in the obligation to repurchase are less than the repurchase
price, the Fund will suffer a loss.

A Fund will enter into repurchase transactions only with parties meeting
creditworthiness standards approved by the Company's Board of Directors. The
investment adviser will monitor the creditworthiness of such parties under the
general supervision of the Board of Directors of the Company. In the event of
a default or bankruptcy by a seller, a Fund will promptly seek to liquidate
the collateral. To the extent that the proceeds from any sale of such
collateral upon a default in the obligation to repurchase are less than the
repurchase price, the Fund will suffer a loss.

Active Balanced Fund participates in a joint repurchase account with other
investment companies managed by Prudential Investments Fund Management LLC
pursuant to an order of the Commission. On a daily basis, any uninvested cash
balances of the Fund may be aggregated with those of such investment companies
and invested in one or more repurchase agreements. Each fund participates in
the income earned or accrued in the joint account based on the percentage of
its investment.

Forward Rolls, Dollar Rolls and Reverse Repurchase Agreements

The Active Balanced Fund may commit up to 30% of the value of its total
assets to investment techniques such as dollar rolls, forward rolls and
reverse repurchase agreements. A forward roll is a transaction in which the
Fund sells a security to a financial institution, such as a bank or broker-
dealer, and simultaneously agrees to repurchase the same or similar security
from the institution at a later date at an agreed upon price. With respect to
mortgage-related securities, such transactions are often called "dollar
rolls." In dollar roll transactions, the mortgage-related securities that are
repurchased will bear the same coupon rate as those sold, but generally will
be collateralized by different pools of mortgages with different prepayment
histories than those sold. During the roll period, the Fund forgoes principal
and interest paid on the securities and is compensated by the difference
between the current sales price and the forward price for the future purchase
as well as by interest earned on the cash proceeds of the initial sale. A
"covered roll" is a specific type of dollar roll for which there is an
offsetting cash position or a cash equivalent security position which matures
on or before the forward settlement date of the dollar roll transaction.

Reverse repurchase agreements involve sales by the Fund of portfolio
securities to a financial institution concurrently with an agreement by the
Fund to repurchase the same securities at a later date at a fixed price.
During the reverse repurchase agreement period, the Fund continues to receive
principal and interest payments on these securities.

Reverse repurchase agreements, forward rolls and dollar rolls involve the
risk that the market value of the securities purchased by the Fund with the
proceeds of the initial sale may decline below the price of the securities the
Fund has sold but is obligated to repurchase under the agreement. In the event
the buyer of securities under a reverse repurchase agreement, forward roll or
dollar roll files for bankruptcy or becomes insolvent, the Fund's use of the
proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Fund's
obligations to repurchase the securities. The staff of the Commission has
taken the position that reverse repurchase agreements, forward rolls and
dollar rolls are to be treated as borrowings. The Company expects that under
normal conditions most of the borrowings of the Fund will consist of such
investment techniques rather than bank borrowings.

The Active Balanced Fund may enter into reverse repurchase agreements with
banks and securities dealers which meet the creditworthiness standards
established by the Company's Board of Directors. The investment adviser will
monitor the

B-20
<PAGE>

continued creditworthiness of these parties, subject to the oversight of the
Company's Board of Directors. Reverse repurchase agreements involve the risk
that the market value of the securities retained in lieu of sale by the Active
Balanced Fund may decline below the price of the securities the Fund has sold
but is obligated to repurchase.

Lending of Securities

Consistent with applicable regulatory requirements, a Fund may lend its
portfolio securities to brokers, dealers and financial institutions, provided
that outstanding loans do not exceed in the aggregate 30% of the value of the
Fund's total assets and provided that such loans are callable at any time by
the Fund and are at all times secured by cash or other liquid assets or an
irrevocable letter of credit in favor of the Fund equal to at least 100% of
the market value, determined daily, of the loaned securities. The advantage of
such loans is that the Fund continues to receive payments in lieu of the
interest and dividends on the loaned securities, while at the same time
earning interest either directly from the borrower or on the collateral which
will be invested in short-term obligations.

A loan may be terminated by a Fund at any time. If the borrower fails to
maintain the requisite amount of collateral, the loan automatically
terminates, and the Fund could use the collateral to replace the securities
while holding the borrower liable for any excess of replacement cost over
collateral. As with any extensions of credit, there are risks of delay in
recovery and in some cases loss of rights in the collateral should the
borrower of the securities fail financially. However, these loans of portfolio
securities will only be made to firms determined to be creditworthy pursuant
to procedures approved by the Board of Directors. On termination of the loan,
the borrower is required to return the securities to the Fund, and any gain or
loss in the market price during the loan would inure to the Fund.

Since voting or consent rights that accompany loaned securities pass to the
borrower, a Fund will follow the policy of calling the loan, in whole or in
part as may be appropriate, to permit the exercise of such rights if the
matters involved would have a material effect on the Fund's investment in the
securities that are the subject of the loan. A Fund will pay reasonable
finders', administrative and custodial fees in connection with a loan of its
securities or may share the interest earned on collateral with the borrower.

Borrowing

Active Balanced Fund may borrow an amount equal to no more than 30% of the
value of its total assets and Growth Fund and Growth & Income Fund may each
borrow an amount equal to no more than 20% of the value of their respective
total assets (calculated at the time of the borrowing) from banks for
temporary, extraordinary or emergency purposes or for the clearance of
transactions. The Active Balanced Fund also may borrow through forward rolls,
dollar rolls or through reverse repurchase agreements, and also to take
advantage of investment opportunities. Active Balanced Fund may pledge up to
30% of its total assets and Growth Fund and Growth & Income Fund may each
pledge up to 20% of their respective total assets to secure these borrowings.
If a Fund's asset coverage for borrowings falls below 300%, the Fund will take
prompt action to reduce its borrowings. If the 300% asset coverage should
decline as a result of market fluctuations or other reasons, the Fund may be
required to sell portfolio securities to reduce the debt and restore the 300%
asset coverage, even though it may be disadvantageous from an investment
standpoint to sell securities at that time. Growth Fund and Growth & Income
Fund will not purchase portfolio securities when borrowings exceed 5% of the
value of their respective total assets.

Borrowing for investment purposes is generally known as "leveraging."
Leveraging exaggerates the effect on net asset value of any increase or
decrease in the market value of a Fund's portfolio. Money borrowed for
leveraging will be subject to interest costs which may or may not be recovered
by appreciation of the securities purchased and may exceed the income from the
securities purchased. In addition, a Fund may be required to maintain minimum
average balances in connection with such borrowing or pay a commitment fee to
maintain a line of credit which would increase the cost of borrowing over the
stated interest rate.

B-21
<PAGE>

Illiquid Securities

Each Fund may hold up to 15% of its net assets in illiquid securities,
including repurchase agreements that have a maturity of longer than seven
days, securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable in securities
markets (either within or outside of the United States). Repurchase agreements
subject to demand are deemed to have a maturity equal to the applicable notice
period.

Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (Securities Act),
securities that are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities that have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have
an adverse effect on the marketability of portfolio securities and a mutual
fund might be unable to dispose of restricted or other illiquid securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions within seven days. A mutual fund also might have to
register such restricted securities to dispose of them, resulting in
additional expense and delay. Adverse market conditions could impede such a
public offering of securities.

In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities, convertible securities and corporate bonds and notes.
Institutional investors depend on an efficient institutional market in which
the unregistered security can be readily resold or on an issuer's ability to
honor a demand for repayment. The fact that there are contractual or legal
restrictions on resale to the general public or to certain institutions may
not be indicative of the liquidity of such investments.

Rule 144A under the Securities Act allows for a broader institutional trading
market for securities otherwise subject to restriction on resale to the
general public. Rule 144A establishes a "safe harbor" from the registration
requirements of the Securities Act for resales of certain securities to
qualified institutional buyers. The investment adviser anticipates that the
market for certain restricted securities such as institutional commercial
paper and foreign securities will expand further as a result of this
regulation and the development of automated systems for the trading, clearance
and settlement of unregistered securities of domestic and foreign issuers,
such as the PORTAL System sponsored by the National Association of Securities
Dealers, Inc. (NASD).

Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and privately placed commercial paper for which there is a
readily available market are treated as liquid only when deemed liquid under
procedures established by the Board of Directors. The Funds' investments in
Rule 144A securities could have the effect of increasing illiquidity to the
extent that qualified institutional buyers become, for a limited time,
uninterested in purchasing Rule 144A securities. Each investment adviser will
monitor the liquidity of such restricted securities subject to the supervision
of the Board of Directors. In reaching liquidity decisions, the investment
adviser will consider, among others, the following factors: (1) the frequency
of trades and quotes for the security; (2) the number of dealers wishing to
purchase or sell the security and the number of other potential purchasers;
(3) dealer undertakings to make a market in the security; and (4) the nature
of the security and the nature of the marketplace trades (for example, the
time needed to dispose of the security, the method of soliciting offers and
the mechanics of the transfer). In addition, in order for commercial paper
that is issued in reliance on Section 4(2) of the Securities Act to be
considered liquid, (a) it must be rated in one of the two highest rating
categories by at least two nationally recognized statistical rating
organizations (NRSRO), or if only one NRSRO rates the securities, by that
NRSRO, or, if unrated, be of comparable quality in the view of the investment
adviser; and (b) it must not be "traded flat" (that is, without accrued
interest) or in default as to principal or interest.

B-22
<PAGE>

The staff of the Commission has taken the position, which the Funds will
follow, that purchased over-the-counter (OTC) options and the assets used as
"cover" for written OTC options are illiquid securities unless the Fund and
the counterparty have provided for the Fund, at the Fund's election, to unwind
the OTC option. The exercise of such an option would ordinarily involve the
payment by the Fund of an amount designed to reflect the counterparty's
economic loss from an early termination, but does allow the Fund to treat the
securities used as "cover" as liquid.

Securities of Other Investment Companies

Each Fund may invest up to 10% of its total assets in securities of other
investment companies. Generally, a Fund does not intend to invest more than 5%
of its total assets in such securities. If a Fund does invest in securities of
other investment companies, shareholders of the Fund may be subject to
duplicate management and advisory fees. In addition, the Active Balanced Fund
may purchase shares of affiliated investment companies. See "Investment
Restrictions" below.

Segregated Assets

Each Fund segregates with its Custodian, State Street Bank and Trust Company,
cash, U.S. government securities, equity securities (including foreign
securities), debt securities or other liquid, unencumbered assets equal in
value to its obligations in respect of potentially leveraged transactions.
These include forward contracts, when-issued and delayed delivery securities,
futures contracts, written options and options on futures contracts (unless
otherwise covered). If collateralized or otherwise covered, in accordance with
Commission guidelines, these will not be deemed to be senior securities. The
assets segregated will be marked-to-market daily.

When-Issued and Delayed Delivery Securities

Each Fund may purchase or sell securities on when-issued or delayed delivery
basis. When-issued or delayed delivery transactions arise when securities are
purchased or sold by a Fund with payment and delivery taking place as much as
a month or more in the future in order to secure what is considered to be an
advantageous price and yield to the Fund at the time of entering into the
transaction. The Fund's Custodian will segregate cash or other liquid assets
having a value equal to or greater than the Fund's purchase commitments. The
securities so purchased are subject to market fluctuation and no interest
accrues to the purchaser during the period between purchase and settlement. At
the time of delivery of the securities the value may be more or less than the
purchase price and an increase in the percentage of the Fund's assets
committed to the purchase of securities on a when-issued or delayed delivery
basis may increase the volatility of the Fund's net asset value.

(d) Temporary Defensive Strategy and Short-Term Investments

When adverse market or economic conditions dictate a defensive strategy, each
Fund may temporarily invest without limit in high quality money market
instruments, including commercial paper of corporations, foreign government
securities, certificates of deposit, bankers' acceptances and other
obligations of domestic and foreign banks, non-convertible debt securities
(corporate and government), obligations issued or guaranteed by the U.S.
Government, its agencies or its instrumentalities, repurchase agreements and
cash (foreign currencies or U.S. dollars). Money market instruments typically
have a maturity of one year or less as measured from the date of purchase.

Each Fund also may temporarily hold cash or invest in high quality foreign or
domestic money market instruments pending investment of proceeds from new
sales of Fund shares or to meet ordinary daily cash needs.

(e) Portfolio Turnover

As a result of the investment policies described above, each Fund may engage
in a substantial number of portfolio transactions, but neither the Growth
Fund's nor the Growth & Income Fund's portfolio turnover rate is expected to
exceed

B-23
<PAGE>

100%, and the Active Balanced Fund's portfolio turnover rate is not expected
to exceed 200%. The portfolio turnover rate generally is the percentage
computed by dividing the lesser of portfolio purchases or sales (excluding all
securities, including options, whose maturities or expiration date at
acquisition were one year or less) by the monthly average value of the
portfolio. High portfolio turnover (100% or more) involves correspondingly
greater brokerage commissions and other transaction costs, which are borne
directly by a Fund. In addition, high portfolio turnover may also mean that a
proportionately greater amount of distributions to shareholders will be taxed
as ordinary income rather than long-term capital gains compared to investment
companies with lower portfolio turnover. See "Brokerage Allocation and Other
Practices" and "Taxes, Dividends and Distributions."

INVESTMENT RESTRICTIONS

The following restrictions are fundamental policies. Fundamental policies are
those that cannot be changed without the approval of the holders of a majority
of a Fund's outstanding voting securities. A "majority of the Fund's
outstanding voting securities," when used in this Statement of Additional
Information, means with respect to each Fund, the lesser of (1) 67% of the
shares represented at a meeting at which more than 50% of the outstanding
voting shares are present in person or represented by proxy or (2) more than
50% of the outstanding voting shares.

Growth Fund and Growth & Income Fund may not:

1. Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of transactions); provided that
the deposit or payment by the Fund of initial or maintenance margin in
connection with futures or options is not considered the purchase of a
security on margin.

2. Make short sales of securities or maintain a short position if, when added
together, more than 25% of the value of the Fund's net assets would be (i)
deposited as collateral for the obligation to replace securities borrowed to
effect short sales and (ii) allocated to segregated accounts in connection
with short sales. Short sales "against-the-box" are not subject to this
limitation.

3. Issue senior securities, borrow money or pledge its assets, except that
the Fund may borrow from banks up to 20% of the value of its total assets
(calculated when the loan is made) for temporary, extraordinary or emergency
purposes or for the clearance of transactions. The Fund may pledge up to 20%
of the value of its total assets to secure such borrowings. For purposes of
this restriction, the purchase or sale of securities on a when-issued or
delayed delivery basis, forward foreign currency exchange contracts and
collateral arrangements relating thereto, and collateral arrangements with
respect to futures contracts and options thereon and with respect to the
writing of options and obligations of the Fund to Directors pursuant to
deferred compensation arrangements are not deemed to be a pledge of assets or
the issuance of a senior security.

4. Purchase any security (other than obligations of the U.S. Government, its
agencies or instrumentalities) if as a result: (i) with respect to 75% of the
Fund's total assets, more than 5% of the Fund's total assets (determined at
the time of investment) would then be invested in securities of a single
issuer, or (ii) 25% or more of the Fund's total assets (determined at the time
of the investment) would be invested in a single industry.

5. Buy or sell real estate or interests in real estate, except that the Fund
may purchase and sell securities which are secured by real estate, securities
of companies which invest or deal in real estate and publicly traded
securities of real estate investment trusts. The Fund may not purchase
interests in real estate limited partnerships which are not readily
marketable.

6. Buy or sell commodities or commodity contracts, except that the Fund may
purchase and sell financial futures contracts and options thereon. (For
purposes of this restriction, futures contracts on currencies and on
securities indices and, with respect to Growth & Income Fund, futures
contracts on debt securities, and forward foreign currency exchange contracts
are not deemed to be commodities or commodity contracts.)

B-24
<PAGE>

7. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter
under certain federal securities laws. Neither Fund has adopted a fundamental
investment policy with respect to investments in restricted securities. See
"Investment Objectives and Policies--Illiquid Securities."

8. Make investments for the purpose of exercising control or management.

9. Invest in securities of other investment companies, except by purchases in
the open market involving only customary brokerage commissions and as a result
of which the Fund will not hold more than 3% of the outstanding voting
securities of any one investment company, will not have invested more than 5%
of its total assets in any one investment company and will not have invested
more than 10% of its total assets (determined at the time of investment) in
such securities of one or more investment companies, or except as part of a
merger, consolidation or other acquisition.

10. Invest in interests in oil, gas or other mineral exploration or
development programs, except that the Fund may invest in the securities of
companies which invest in or sponsor such programs.

11. Make loans, except through (i) repurchase agreements and (ii) loans of
portfolio securities limited to 30% of the Fund's total assets.

12. Purchase more than 10% of all outstanding voting securities of any one
issuer.

Active Balanced Fund may not:

2. Make short sales of securities. Short sales "against-the-box" are not
subject to this limitation.

3. Issue senior securities, borrow money or pledge its assets, except that
the Fund may borrow from banks or through forward rolls, dollar rolls or
reverse repurchase agreements in an amount up to 30% of the value of its total
assets (calculated when the loan is made) to take advantage of investment
opportunities, for temporary, extraordinary or emergency purposes or for the
clearance of transactions. The Fund may pledge up to 30% of the value of its
total assets to secure such borrowings. The purchase or sale of securities on
a when-issued or delayed delivery basis, forward foreign currency exchange
contracts and collateral arrangements relating thereto, and collateral
arrangements with respect to futures contracts and options thereon and with
respect to the writing of options and obligations of the Fund to Directors
pursuant to deferred compensation arrangements are not deemed to be a pledge
of assets subject to this restriction.

4. Purchase any security (other than obligations of the U.S. Government, its
agencies or instrumentalities) if as a result; (i) with respect to 75% of the
Fund's total assets, more than 5% of the Fund's total assets (determined at
the time of investment) would then be invested in securities of a single
issuer, or (ii) 25% or more of the Fund's total assets (determined at the time
of investment) would be invested in a single industry.

6. Buy or sell commodities or commodity contracts, except that the Fund may
purchase and sell financial futures contracts and options thereon, and forward
foreign currency exchange contracts.

7. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, if may be deemed to be an underwriter
under certain federal securities laws.

B-25
<PAGE>

8. Make investments for the purpose of exercising control or management.

9. Invest in securities of other investment companies, except: (i) purchases
in the open market involving only customary brokerage commissions and as a
result of which the Fund will not hold more than 3% of the outstanding voting
securities of any one investment company, will not have invested more than 5%
of its total assets in any one investment company and will not have invested
more than 10% of its total assets (determined at the time of investment) in
such securities of one or more investment companies, (ii) as part of a merger,
consolidation or other acquisition, or (iii) purchases of affiliated
investment company shares pursuant to and subject to such limits as the
Commission may impose by rule or order.

10. Make loans, except through (i) repurchase agreements and (ii) loans of
portfolio securities limited to 30% of the Fund's total assets.

11. Purchase more than 10% of all outstanding voting securities of any one
issuer.

Whenever any fundamental investment policy or investment restriction states a
maximum percentage of a Fund's assets, it is intended that if the percentage
limitation is met at the time the investment is made, a later change in
percentage resulting from changing total or net asset values will not be
considered a violation of such policy. However, in the event that a Fund's
asset coverage for borrowings falls below 300%, the Fund will take prompt
action to reduce its borrowings, as required by applicable law.

B-26
<PAGE>

MANAGEMENT OF THE COMPANY

<TABLE>
<CAPTION>
Name and Address ** Position with
(Age) Company Principal Occupations During Past 5 Years
------------------- ------------- -----------------------------------------
<S> <C> <C>
Edward D. Beach (74) Director President and Director of BMC Fund, Inc., a
closed-end investment company; formerly, Vice
Chairman of Broyhill Furniture Industries,
Inc.; Certified Public Accountant; Secretary
and Treasurer of Broyhill Family Foundation,
Inc.; Member of the Board of Trustees of Mars
Hill College; Director of The High Yield
Income Fund, Inc.; Director or Trustee of 44
funds within the Prudential Mutual Funds.
Delayne Dedrick Gold Director Marketing and Management Consultant; Director of
(60) The High Yield Income Fund, Inc.; Director or
Trustee of 44 funds within the Prudential
Mutual Funds.
*Robert F. Gunia (52) Vice President Vice President (since September 1997) of The
and Director Prudential Insurance Company of America
(Prudential); Executive Vice President and
Treasurer (since December 1996) of Prudential
Investments Fund Management LLC (PIFM); Senior
Vice President (since March 1987) of
Prudential Securities Incorporated (Prudential
Securities); formerly Chief Administrative
Officer (July 1990-September 1996), Director
(January 1989-September 1996) and Executive
Vice President, Treasurer and Chief Financial
Officer (June 1987-September 1996) of
Prudential Mutual Fund Management, Inc.; Vice
President and Director of The Asia Pacific
Fund, Inc. (since May 1989); Director of The
High Yield Income Fund, Inc.; Director or
Trustee of 44 funds within the Prudential
Mutual Funds.
Douglas H. McCorkindale Director Vice Chairman (since March 1984) and President
(59) (since September 1997) of Gannett Co. Inc.
(publishing and media); Director of Gannett
Co. Inc., Frontier Corporation and Continental
Airlines, Inc.; Director or Trustee of 23
funds within the Prudential Mutual Funds.
Thomas T. Mooney (57) Director President of the Greater Rochester Metro Chamber
of Commerce; former Rochester City Manager;
Trustee of Center for Governmental Research,
Inc.; Director of Blue Cross of Rochester,
Monroe County Water Authority, Rochester Jobs,
Inc., Executive Service Corps of Rochester,
Monroe County Industrial Development
Corporation and Northeast Midwest Institute;
President, Director and Treasurer of First
Financial Fund, Inc. and The High Yield Plus
Fund, Inc.; Director or Trustee of 33 other
funds within the Prudential Mutual Funds.
</TABLE>

B-27
<PAGE>

<TABLE>
<CAPTION>
Name and Address **
(Age) Position with Company Principal Occupations During Past 5 Years
------------------- --------------------- -----------------------------------------
<S> <C> <C>
Stephen P. Munn (56) Director Chairman (since January 1994), Director and
President (since 1988) and Chief Executive
Officer (1988-December 1993) of Carlisle
Companies Incorporated (manufacturer of
industrial products); Director or Trustee of
18 funds within the Prudential Mutual Funds.
*David R. Odenath, Jr. Director Officer in Charge, President, Chief Executive
(42) Officer and Chief Operating Officer (since
June 1999), PIFM; Senior Vice President (since
June 1999), Prudential; Senior Vice President
(August 1993-May 1999), PaineWebber Inc.
Richard A. Redeker (56) Director Formerly President, Chief Executive Officer and
Director (October 1993-September 1996) of
Prudential Mutual Fund Management, Inc.,
Executive Vice President, Director and Member
of the Operating Committee (1993-September
1996), Prudential Securities, Director
(October 1993-September 1996) of Prudential
Securities Group, Inc., Executive Vice
President (January 1994-September 1996), The
Prudential Investment Corporation, Director
(January 1994-September 1996), Prudential
Mutual Fund Distributors, Inc. and Prudential
Mutual Fund Services, Inc., and Senior
Executive Vice President and Director
(September 1978-September 1993) of Kemper
Financial Services, Inc.; Director or Trustee
of 30 funds within the Prudential Mutual
Funds.
Robin B. Smith (59) Director Chairman and Chief Executive Officer (since
August 1996) of Publishers Clearing House,
formerly President and Chief Executive Officer
(January 1988-August 1996) and President and
Chief Operating Officer (September 1981-
December 1988) of Publishers Clearing House;
Director of BellSouth Corporation, Texaco
Inc., Springs Industries Inc. and Kmart
Corporation; Director or Trustee of 32 funds
within the Prudential Mutual Funds.
*John R. Strangfeld, Jr. President and Director Chief Executive Office, Chairman, President and
(45) Director (since January 1990) of The
Prudential Investment Corporation, Executive
Vice President (since February 1998),
Prudential Global Asset Management Group of
Prudential, and Chairman (since August 1989),
Pricoa Capital Group; formerly various
positions to Chief Executive Officer (November
1994-December 1998), Private Asset Management
Group of Prudential and Senior Vice President
(January 1986-August 1989), Prudential Capital
Group, a unit of The Prudential Insurance
Company of America (Prudential); President and
Director or Trustee of 44 funds within the
Prudential Mutual Funds.
</TABLE>

B-28
<PAGE>

<TABLE>
<CAPTION>
Name and Address ** Position with
(Age) Company Principal Occupations During Past 5 Years
------------------- ------------- -----------------------------------------
<S> <C> <C>
Louis A. Weil, III (58) Director Chairman (since January 1999), President and
Chief Executive Officer (since January 1996)
and Director (since September 1991) of Central
Newspapers, Inc.; Chairman of the Board (since
January 1996), Publisher and Chief Executive
Officer (August 1991-December 1995) of Phoenix
Newspapers, Inc.; formerly Publisher of Time
Magazine (May 1989-March 1991), President,
Publisher & CEO of The Detroit News (February
1986-August 1989) and member of the Advisory
Board, Chase Manhattan Bank-Westchester;
Director or Trustee of 30 funds within the
Prudential Mutual Funds.
Clay T. Whitehead (60) Director President (since May 1983) of National Exchange
Inc. (new business development firm); Director
or Trustee of 18 funds within the Prudential
Mutual Funds.
Grace C. Torres (39) Treasurer and First Vice President (since December 1996) of
Principal Financial PIFM; First Vice President (since March 1993)
and Accounting of Prudential Securities; formerly First Vice
Officer President (March 1994-September 1996) of
Prudential Mutual Fund Management, Inc.
Marguerite E.H. Morrison Secretary Vice President (since December 1996) of PIFM;
(43) Vice President and Associate General Counsel
(since September 1987) of Prudential
Securities; formerly Vice President and
Associate General Counsel (June 1991-September
1996) of Prudential Mutual Fund Management,
Inc.
Stephen M. Ungerman (45) Assistant Treasurer Tax Director (since March 1996) of Prudential
Investments; formerly First Vice President of
Prudential Mutual Fund Management, Inc.
(February 1993-September 1996).
</TABLE>

- -------

* "Interested" Director, as defined in the Investment Company Act, by reason
of his affiliation with Prudential, Prudential Securities or PIFM.

** The address of the Directors and officers is c/o Prudential Investments
Fund Management LLC, Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102-4077.

The Company has Directors who, in addition to overseeing the actions of the
Company's Manager, Subadvisers and Distributor, decide upon matters of general
policy. The Directors also review the actions of the Company's officers who
conduct and supervise the daily business operations of the Company.

Pursuant to each Management Agreement with the Company, the Manager pays all
compensation of officers and employees of the Company as well as the fees and
expenses of all Directors of the Company who are affiliated persons of the
Manager. The Company currently pays each of its Directors who is not an
affiliated person of PIFM, PI or Jennison annual compensation of $2,500, in
addition to certain out-of-pocket expenses. The amount of annual compensation
paid to each Director may change as a result of the introduction of additional
funds on the Boards of which the Director will be asked to serve.

B-29
<PAGE>

Directors may receive their Directors' fees pursuant to a deferred fee
agreement with the Company. Under the terms of the agreement, the Company
accrues daily the amount of Directors' fees in installments which accrue
interest at a rate equivalent to the prevailing rate applicable to 90-day U.S.
Treasury bills at the beginning of each calendar quarter (the T-bill rate) or,
pursuant to a Commission exemptive order, at the daily rate of return of a
Fund (the Fund rate). Payment of the interest so accrued is also deferred and
accruals become payable at the option of the Director. The Company's
obligation to make payments of deferred Directors' fees, together with
interest thereon, is a general obligation of the Company.

The Board of Directors has adopted a retirement policy which calls for the
retirement of Directors on December 31 of the year in which they reach the age
of 75. Mr. Beach is scheduled to retire on December 31, 1999.

The following table sets forth aggregate compensation paid by the Company to
the Directors for the fiscal year ended September 30, 1999 and the aggregate
compensation paid to such Directors for service on the Fund's board and the
boards of other investment companies managed by PIFM (Fund Complex) for the
calendar year ended December 31, 1998.

Compensation Table
<TABLE>
<CAPTION>
Total 1998
Compensation
Paid to Board
Members
Aggregate From Company and
Compensation Fund
Name and Position From Company Complex(/2/)
- ----------------- ------------ ----------------
<S> <C> <C>
Beach, Edward D.--Director $ $135,000(44/71)*
Gold, Delayne D.--Director $ $135,000(44/71)*
Gunia, Robert F.(/1/)--Director $ -- $ --
McCorkindale, Douglas H.(/2/)--Director $ $ 70,000(23/40)*
Mooney, Thomas T.(/2/)--Director $ $115,000(35/70)*
Munn, Stephen P.--Director $ $ 45,000(18/24)*
Odenath, David R.(/1/)--Director $ -- $ --
Redeker, Richard A.--Director $ $ --
Smith, Robin B.(/2/)--Director $ $ 90,000(32/41)*
Strangfeld, Jr., John R.(/1/)--President and Di-
rector $ -- $ --
Weil, III, Louis A.--Director $ $ 90,000(30/54)*
Whitehead, Clay T.--Director $ $ 45,000(18/24)*
</TABLE>
- -------
* Indicates number of funds/portfolios in Fund Complex (including the Company)
to which aggregate compensation relates.
(1) Directors who are "interested" do not receive compensation from the Fund
Complex (including the Company).

(2) Total compensation from all the funds in the Fund Complex for the calendar
year ended December 31, 1998, including amounts deferred at the election
of Directors under the funds' deferred compensation plans. Including
accrued interest, total deferred compensation amounted to $71,145,
$119,740 and $116,225 for Messrs. McCorkindale and Mooney and Ms. Smith,
respectively. Currently, Ms. Smith has agreed to defer her fees at the
Fund rate.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

Directors of the Company are eligible to purchase Class Z shares of each
Fund, which are sold without either an initial sales charge or contingent
deferred sales charge to a limited group of investors.

As of November , 1999, the Directors and officers of the Company, as a
group, owned less than 1% of the outstanding shares of each Fund.

As of November , 1999, Prudential Securities was the record holder for other
beneficial owners of Class A shares (or % of the outstanding Class A
shares), Class B shares (or % of the outstanding Class B shares),
Class C shares (or % of the outstanding Class C shares), and Class Z
shares (or % of the outstanding Class Z shares) of Active Balanced Fund. In
the event of any meetings of shareholders, Prudential Securities will forward,
or cause the forwarding of, proxy materials to the beneficial owners for which
it is the record holder.

B-30
<PAGE>

As of November , 1999, Prudential Securities was the record holder for other
beneficial owners of Class A shares (or % of the outstanding Class A
shares), Class B shares (or % of the outstanding Class B shares),
Class C shares (or % of the outstanding Class C shares), and Class Z
shares (or % of the outstanding Class Z shares) of Growth Fund. In the event
of any meetings of shareholders, Prudential Securities will forward, or cause
the forwarding of, proxy materials to the beneficial owners for which it is
the record holder.

As of November , 1999, Prudential Securities was the record holder for other
beneficial owners of Class A shares (or % of the outstanding Class A
shares), Class B shares (or % of the outstanding Class B shares),
Class C shares (or % of the outstanding Class C shares), and Class Z
shares (or % of the outstanding Class Z shares) of Growth & Income Fund. In
the event of any meetings of shareholders, Prudential Securities will forward,
or cause the forwarding of, proxy materials to the beneficial owners for which
it is the record holder.

INVESTMENT ADVISORY AND OTHER SERVICES

(a) Manager and Investment Advisers

The manager of the Company is Prudential Investments Fund Management LLC
(PIFM or the Manager), Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102-4077. PIFM serves as manager to all of the other investment
companies that, together with the Funds, comprise the Prudential Mutual Funds.
As of , 1999, PIFM managed and/or administered open-end and closed-end
management investment companies with assets of approximately $ billion.
According to the Investment Company Institute, as of , 1999, the
Prudential Mutual Funds were the largest family of mutual funds in the
United States.

PIFM is a subsidiary of Prudential Securities and The Prudential Insurance
Company of America (Prudential). Prudential Mutual Fund Services LLC (PMFS or
the Transfer Agent), a wholly owned subsidiary of PIFM, serves as the transfer
agent for the Prudential Mutual Funds and, in addition, provides customer
service, recordkeeping and management and administration services to qualified
plans.

Pursuant to each Management Agreement with the Company (the Management
Agreements), PIFM, subject to the supervision of the Company's Board of
Directors and in conformity with the stated policies of each Fund, manages
both the investment operations of each Fund and the composition of each Fund's
portfolio, including the purchase, retention, disposition and loan of
securities and other assets. In connection therewith, PIFM is obligated to
keep certain books and records of the Company. PIFM also administers the
Company's corporate affairs and, in connection therewith, furnishes the
Company with office facilities, together with those ordinary clerical and
bookkeeping services which are not being furnished by State Street Bank and
Trust Company, the Funds' custodian (the Custodian), and PMFS, the Funds'
transfer and dividend disbursing agent. The management services of PIFM for
the Funds are not exclusive under the terms of the Management Agreements and
PIFM is free to, and does, render management services to others.

For its services, PIFM receives, pursuant to the Management Agreements, a fee
at an annual rate of .60 of 1% of each of Growth Fund's and Growth & Income
Fund's average daily net assets and a fee at an annual rate of .65 of 1% of
the Active Balanced Fund's average daily net assets. Each fee is computed
daily and payable monthly. The Management Agreements also provide that, in the
event the expenses of a Fund (including the fees of PIFM, but excluding
interest, taxes, brokerage commissions, distribution fees and litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of the Fund's business) for any fiscal year exceed the lowest
applicable annual expense limitation established and enforced pursuant to the
statutes or regulations of any jurisdiction in which the Fund's shares are
qualified for offer and sale, the compensation due to PIFM will be reduced by
the amount of such excess. No jurisdiction currently limits a Fund's expenses.

B-31
<PAGE>

In connection with its management of the corporate affairs of the Company,
PIFM bears the following expenses:

(a) the salaries and expenses of all personnel of the Company and the
Manager, except the fees and expenses of Directors who are not affiliated
persons of PIFM or the Company's investment advisers;

(b) all expenses incurred by PIFM or by the Company in connection with
managing the ordinary course of a Fund's business, other than those assumed by
a Fund as described below; and

(c) with respect to Growth Fund and Growth & Income Fund, the fees payable to
Jennison pursuant to a Subadvisory Agreement between PIFM and Jennison and,
with respect to Active Balanced Fund, the costs and expenses payable to PI
pursuant to a Subadvisory Agreement between PIFM and PI (collectively, the
Subadvisory Agreements).

Under the terms of each Management Agreement, the Company is responsible for
the payment of the following expenses: (a) the fees payable to the Manager,
(b) the fees and expenses of Directors who are not affiliated persons of the
Manager or the Company's investment adviser, (c) the fees and certain expenses
of the Custodian and Transfer Agent, including the cost of providing records
to the Manager in connection with its obligation of maintaining required
records of each Fund and of pricing each Fund's shares, (d) the charges and
expenses of legal counsel and independent accountants for the Company, (e)
brokerage commissions and any issue or transfer taxes chargeable to the
Company in connection with its securities transactions, (f) all taxes and
corporate fees payable by the Company to governmental agencies, (g) the fees
of any trade associations of which the Company may be a member, (h) the cost
of stock certificates representing shares of the Company, (i) the cost of
fidelity and liability insurance, (j) certain organization expenses of the
Company and the fees and expenses involved in registering and maintaining
registration of the Company and of its shares with the Commission, including
the preparation and printing of each Fund's registration statements and
prospectuses for such purposes and paying the fees and expenses of notice
filings made in accordance with state securities laws, (k) allocable
communications expenses with respect to investor services and all expenses of
shareholders' and Directors' meetings and of preparing, printing and mailing
reports, proxy statements and prospectuses to shareholders in the amount
necessary for distribution to the shareholders, (l) litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of the Company's business and (m) distribution fees.

Each Management Agreement provides that PIFM will not be liable for any error
of judgment or for any loss suffered by a Fund in connection with the matters
to which the Management Agreement relates, except a loss resulting from
willful misfeasance, bad faith, gross negligence or reckless disregard of
duty. Each Management Agreement provides that it will terminate automatically
if assigned, and that it may be terminated without penalty by either party
upon not more than 60 days' nor less than 30 days' written notice. Each
Management Agreement will continue in effect for a period of more than two
years from the date of execution only so long as such continuance is
specifically approved at least annually in conformity with the Investment
Company Act.

PIFM has entered into a Subadvisory Agreement with Jennison, a wholly-owned
subsidiary of Prudential, and a Subadvisory Agreement with PI, also a wholly-
owned subsidiary of Prudential. Under the Subadvisory Agreements, Jennison
will furnish investment advisory services in connection with the management of
the Growth Fund and Growth & Income Fund and PI will furnish investment
advisory services in connection with the management of the Active Balanced
Fund, respectively. In connection therewith, Jennison and PI are obligated to
keep certain books and records of each Fund for which they serve as investment
adviser. Under each Subadvisory Agreement, Jennison and PI, respectively,
subject to the supervision of PIFM, are responsible for managing the assets of
each Fund for which they serve as investment adviser in accordance with such
Fund's investment objectives, investment program and policies. Jennison and PI
determine what securities and other instruments are purchased and sold for
each such Fund and are responsible for obtaining and evaluating financial data
relevant to such Fund. PIFM continues to have responsibility for all
investment advisory services pursuant to each Management Agreement. Under its
Subadvisory Agreement with Jennison, PIFM compensates Jennison for its
services

B-32
<PAGE>

at an annual rate of .30 of 1% of Growth Fund's and Growth & Income Fund's
respective average daily net assets up to and including $300 million and .25
of 1% of those Fund's respective average daily net assets in excess of $300
million. Under its Subadvisory Agreement with PIFM, PI is reimbursed by PIFM
for the reasonable costs and expenses incurred by PI in furnishing investment
advisory services.

For the fiscal year ended September 30, 1997, PIFM received from the Growth
Fund management fees of $5,276,337, of which $2,348,474 was paid to Jennison,
and PIFM received from the Growth & Income Fund management fees of $513,032,
of which $256,516 was paid to Jennison. For the fiscal year ended September
30, 1998, PIFM received from the Growth Fund management fees of $9,927,436, of
which $4,286,432 was paid to Jennison, and PIFM received from the Growth &
Income Fund management fees of $826,308, of which $413,154 was paid to
Jennison. The Active Balanced Fund was not a series of the Company during the
fiscal year ended September 30, 1997. For the period January 23, 1998 through
September 30, 1998, PIFM received from the Active Balanced Fund management
fees of $788,381. For the fiscal year ended September 30, 1999, PIFM received
from the Growth Fund management fees of $ , of which $ was paid to
Jennison, PIFM received from the Growth & Income Fund management fees of $ ,
of which $ was paid to Jennison and PIFM received from the Active Balanced
Fund management fees of $ .

Each Subadvisory Agreement provides that it will terminate in the event of
its assignment (as defined in the Investment Company Act) or upon the
termination of the applicable Management Agreement. Each Subadvisory Agreement
may be terminated by the Company, PIFM or Jennison or PI, respectively, upon
not more than 60 days', nor less than 30 days', written notice. Each
Subadvisory Agreement provides that it will continue in effect for a period of
more than two years from its execution only so long as such continuance is
specifically approved at least annually in accordance with the requirements of
the Investment Company Act.

(b) Principal Underwriter, Distributor and Rule 12b-1 Plans

Prudential Investment Management Services LLC (the Distributor), Gateway
Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, acts as the
distributor of the Class A, Class B, Class C and Class Z shares of the
Company. PIMS is a subsidiary of Prudential.

Pursuant to separate Distribution and Service Plans (the Class A Plan, the
Class B Plan and the Class C Plan, collectively, the Plans) adopted by the
Company under Rule 12b-1 under the Investment Company Act and a distribution
agreement (the Distribution Agreement), the Distributor incurs the expenses of
distributing the Company's Class A, Class B and Class C shares. The
Distributor also incurs the expenses of distributing the Class Z shares under
the Distribution Agreement with the Company, none of which are reimbursed by
or paid for by any Fund.

The expenses incurred under the Plans include commissions and account
servicing fees paid to, or on account of, brokers or financial institutions
which have entered into agreements with the Distributor, advertising expenses,
the cost of printing and mailing prospectuses to potential investors and
indirect and overhead costs of the Distributor associated with the sale of
Fund shares, including lease, utility, communications and sales promotion
expenses.

Under its Plans, a Fund is obligated to pay distribution and/or service fees
to the Distributor as compensation for its distribution and service
activities, not as reimbursement for specific expenses incurred. If the
Distributor's expenses exceed its distribution and service fees, the Fund will
not be obligated to pay any additional expenses. If the Distributor's expenses
are less than such distribution and service fees, it will retain its full fees
and realize a profit.

The distribution and/or service fees may also be used by the Distributor to
compensate on a continuing basis brokers in consideration for the
distribution, marketing, administrative and other services and activities
provided by brokers with respect to the promotion of the sale of a Fund's
shares and the maintenance of related shareholder accounts.

B-33
<PAGE>

Class A Plan. Under each Fund's Class A Plan, the Fund may pay the
Distributor for its distribution-related activities with respect to Class A
shares at an annual rate of up to .30 of 1% of the average daily net assets of
the Class A shares. The Class A Plan provides that (1) up to .25 of 1% of the
average daily net assets of the Class A shares may be used to pay for personal
service and/or the maintenance of shareholder accounts (service fee) and (2)
total distribution fees (including the service fee of .25 of 1%) may not
exceed .30 of 1%. The Distributor has contractually agreed to limit its
distribution-related fees payable under each Class A Plan to .25 of 1% of the
average daily net assets of the Class A shares for the fiscal year ending
September 30, 2000 and voluntarily limited its distribution-related fees for
the fiscal year ended September 30, 1999 to .25 of 1% of the average daily net
assets of each Fund's Class A shares.

For the fiscal year ended September 30, 1999, the Growth Fund paid total
distribution fees of $ to PIMS under the Class A Plan. For the fiscal year
ended September 30, 1999, the Growth & Income Fund paid total distribution
fees of $ to PIMS under the Class A Plan. These amounts were primarily
expended for the payment of account servicing fees to financial advisers and
other persons who sell Class A shares of the applicable Fund. In addition, for
the same period, PIMS received approximately $ and $ , respectively, in
initial sales charges with respect to the sale of Class A shares of the Growth
Fund and Growth & Income Fund, respectively.

For the fiscal year ended September 30, 1999, the Active Balanced Fund paid
total distribution fees of $ to PIMS under the Class A Plan. These amounts
were primarily expended for the payment of account servicing fees to financial
advisers and other persons who sell Class A shares. In addition, for the same
period, PIMS received approximately $ in initial sales charges with respect
to the sale of Class A shares of the Active Balanced Fund.

Class B and Class C Plans. Under each Fund's Class B and Class C Plans, the
Fund pays the Distributor for its distribution-related activities with respect
to Class B and Class C shares at an annual rate of up to 1% of the average
daily net assets of each of the Class B and Class C shares. The Class B Plan
provides that (1) up to .25 of 1% of the average daily net assets of the Class
B shares may be paid as a service fee and (2) up to .75 of 1% (not including
the service fee) of the average daily net assets of the Class B shares (asset-
based sales charge) may be paid for distribution-related expenses with respect
to the Class B shares. The Class C Plan provides that (1) up to .25 of 1% of
the average daily net assets of the Class C shares may be paid as a service
fee and (2) up to .75 of 1% of the average daily net assets of the Class C
shares may be paid for distribution-related expenses with respect to Class C
shares. The service fee (.25 of 1% of average daily net assets) is used to pay
for personal service and/or the maintenance of shareholder accounts. The
Distributor also receives contingent deferred sales charges from certain
redeeming shareholders and, with respect to Class C shares, an initial sales
charge.

<TABLE>
<CAPTION>
Approximate
Compensation to Total
Prusec for Amount
Commission Commission Spent by
Payments to Payments to Distributor
Financial Representatives and on behalf of
Fund Printing Advisers Overhead Costs Other Expenses Fund
- --------- -------- ----------- -------------- ------------------- ------------
<S> <C> <C> <C> <C> <C>
Growth $ $ $ $ $
Growth &
Income $ $ $ $ $
Active
Balanced $ $ $ $ $
</TABLE>

"Overhead" costs represents (a) the expenses of operating Prudential
Securities' and Pruco Securities Corporation's (Prusec's) branch offices in
connection with the sale of Fund shares, including lease costs, the salaries
and employee benefits of operations and sales support personnel, utility
costs, communications costs and costs of stationery and supplies, (b) the cost
of client sales seminars, (c) expenses of mutual fund sales coordinators to
promote the sale of Fund shares and (d) other incidental expenses relating to
branch promotion of Fund shares.

B-34
<PAGE>

The Distributor also receives the proceeds of contingent deferred sales
charges paid by investors upon certain redemptions of Class B shares. For the
fiscal year ended September 30, 1999, PIMS received approximately $ , $
and $ in contingent deferred sales charges attributable to Class B shares of
the Growth Fund, Growth & Income Fund and Active Balanced Fund, respectively.

Class C Plan. For the fiscal year ended September 30, 1999, PIMS received
$ , $ and $ on behalf of the Growth Fund, Growth & Income Fund and
Active Balanced Fund, respectively, under the Class C Plan. For the fiscal
year ended September 30, 1999, PIMS spent approximately the following amounts
on behalf of each such Fund.

The Distributor also receives an initial sales charge and the proceeds of
contingent deferred sales charges paid by holders of Class C shares upon
certain redemptions of Class C shares. For the fiscal year ended September 30,
1999, PIMS received approximately $ , $ and $ in contingent deferred
sales charges attributable to Class C shares of the Growth Fund, Growth &
Income Fund and Active Balanced Fund, respectively. For the fiscal year ended
September 30, 1999, the Distributor also received approximately $ , $ and
$ in initial sales charges in connection with the sale of Class C shares of
the Growth Fund, Growth & Income Fund and Active Balanced Fund, respectively.

Distribution expenses attributable to the sale of Class A, Class B and Class
C shares of a Fund are allocated to each such class based upon the ratio of
sales of each such class to the sales of Class A, Class B and Class C shares
of the Fund other than expenses allocable to a particular class. The
distribution fee and sales charge of one class will not be used to subsidize
the sale of another class.

The Class A, Class B and Class C Plans will continue in effect from year to
year, provided that each such continuance is approved at least annually by a
vote of the Board of Directors, including a majority vote of the Directors who
are not interested persons of the Company and who have no direct or indirect
financial interest in the Class A, Class B and Class C Plans or in any
agreement related to the Plans (the Rule 12b-1 Directors), cast in person at a
meeting called for the purpose of voting on such continuance. A Plan may be
terminated at any time, without penalty, by the vote of a majority of the Rule
12b-1 Directors or by the vote of the holders of a majority of the outstanding
shares of the applicable class of the Fund on not more than 60 days', nor less
than 30 days', written notice to any other party to the Plan. The Plan may not
be amended to increase materially the amounts to be spent for the services
described therein without approval by the shareholders of the applicable
class, and all material amendments are required to be approved by the Board of
Directors in the manner described above. Each Plan will automatically
terminate in the event of its assignment. A Fund will not be obligated to pay
expenses incurred under any Plan if it is terminated or not continued.

Pursuant to each Plan, the Board of Directors will review at least quarterly
a written report of the distribution expenses incurred on behalf of each class
of shares of a Fund by the Distributor. The report will include an itemization
of the distribution expenses and the purposes of such expenditures. In
addition, as long as the Plans remain in effect, the selection and nomination
of Rule 12b-1 Directors shall be committed to the Rule 12b-1 Directors.

Pursuant to the Distribution Agreement, the Company has agreed to indemnify
the Distributor to the extent permitted by applicable law against certain
liabilities under the federal securities laws.

B-35
<PAGE>

In addition to distribution and service fees paid by each Fund under the
Class A, Class B and Class C Plans, the Manager (or one of its affiliates) may
make payments to dealers (including Prudential Securities) and other persons
who distribute shares of Funds (including Class Z shares). Such payments may
be calculated by reference to the net asset value of shares sold by such
persons or otherwise.

Fee Waivers/Subsidies

PIFM may from time to time waive all or a portion of its management fee and
subsidize all or a portion of the operating expenses of a Fund. In addition,
the Distributor has contractually agreed to waive a portion of its
distribution fees for the Class A shares as described above. Fee waivers and
subsidies will increase a Fund's total return.

NASD Maximum Sales Charge Rule

Pursuant to rules of the NASD, the Distributor is required to limit aggregate
initial sales charges, deferred sales charges and asset-based sales charges to
6.25% of total gross sales of each class of shares. In the case of Class B
shares, interest charges equal to the prime rate plus one percent per annum
may be added to the 6.25% limitation. Sales from the reinvestment of dividends
and distributions are not required to be included in the calculation of the
6.25% limitation. The annual asset-based sales charge of a Fund may not exceed
.75 of 1% per class. The 6.25% limitation applies to each class of a Fund
rather than on a per shareholder basis. If aggregate sales charges were to
exceed 6.25% of total gross sales of any class, all sales charges on shares of
that class would be suspended.

State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the portfolio securities of each
Fund and cash and in that capacity maintains certain financial and accounting
books and records pursuant to an agreement with the Company. Subcustodians
provide custodial services for each Fund's foreign assets held outside the
United States.

Prudential Mutual Fund Services LLC (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as the Transfer and Dividend Disbursing Agent of each
Fund. PMFS is a wholly-owned subsidiary of PIFM. PMFS provides customary
transfer agency services to each Fund, including the handling of shareholder
communications, the processing of shareholder transactions, the maintenance of
shareholder account records, payment of dividends and distributions and
related functions. For these services, PMFS receives an annual fee per
shareholder account of $10.00, a new account set-up fee for each manually
established account of $2.00 and a monthly inactive zero balance account fee
per shareholder account of $.20. PMFS is also reimbursed for its out-of-pocket
expenses, including but not limited to postage, stationery, printing,
allocable communication expenses and other costs.

[Independent Accountants], 1177 Avenue of the Americas, New York, New York
10036, serves as the Company's independent accountants, and in that capacity
audits the annual financial statements of each Fund.

BROKERAGE ALLOCATION AND OTHER PRACTICES

The Manager is responsible for decisions to buy and sell securities, futures
and options on securities and futures for the Company, the selection of
brokers, dealers and futures commission merchants to effect the transactions
and the negotiation of brokerage commissions, if any. The term "Manager" as
used in this section includes the Subadviser. Broker-dealers may receive
negotiated brokerage commissions on Fund portfolio transactions, including
options and the purchase and sale of underlying securities upon the exercise
of options. On foreign securities exchanges, commissions may be fixed. Orders
may

B-36
<PAGE>

be directed to any broker or futures commission merchant including, to the
extent and in the manner permitted by applicable law, Prudential Securities
and its affiliates.

In the over-the-counter markets, securities are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission, although the price of the security usually includes a profit to
the dealer. In underwritten offerings, securities are purchased at a fixed
price which includes an amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount. On occasion, certain
money market instruments and U.S. Government agency securities may be
purchased directly from the issuer, in which case no commissions or discounts
are paid. A Fund will not deal with Prudential Securities or any affiliate in
any transaction in which Prudential Securities (or any affiliate) acts as
principal, except in accordance with rules of the Commission. Thus, it will
not deal in the over-the-counter market with Prudential Securities or any
affiliate acting as market maker, and it will not execute a negotiated trade
with Prudential Securities or any affiliate if execution involves Prudential
Securities' acting as principal with respect to any part of a Fund's order.

In placing orders for portfolio securities of a Fund, the Manager's
overriding objective is to obtain the possible combination of favorable price
and efficient execution. The Manager seeks to effect each transaction at a
price and commission that provides the most favorable total cost or proceeds
reasonably attainable in the circumstances. The factors that the Manager may
consider in selecting a particular broker, dealer or futures commission
merchant (firms) are the Manager's knowledge of negotiated commission rates
currently available and other current transaction costs; the nature of the
portfolio transaction; the size of the transaction; the desired timing of the
trade; the activity existing and expected in the market for the particular
transaction; confidentiality; the execution, clearance and settlement
capabilities of the firms; the availability of research and research related
services provided through such firms; the Manager's knowledge of the financial
stability of the firms; the Manager's knowledge of actual or apparent
operational problems of firms; and the amount of capital, if any, that would
be contributed by firms executing the transaction. Given these factors, a Fund
may pay transaction costs in excess of that which another firm might have
charged for effecting the same transaction.

When the Manager selects a firm that executes orders or is a party to
portfolio transactions, relevant factors taken into consideration are whether
that firm has furnished research and research products and/or services, such
as research reports, research compilations, statistical and economic data,
computer data bases, quotation equipment and services, research oriented
computer software, hardware and services, reports concerning the performance
of accounts, valuations of securities; investment related periodicals,
investment seminars and other economic services and consultants. Such services
are used in connection with some or all of the Manager's investment
activities; some of such services, obtained in connection with the execution
of transactions for one investment account, may be used in managing other
accounts, and not all of these services may be used in connection with a Fund.

The Manager maintains an internal allocation procedure to identify those
firms who have provided it with research and research related products and/or
services, and the amount that was provided, and to endeavor to direct
sufficient commissions to them to ensure the continued receipt of those
services that the Manager believes provides a benefit to a Fund and its other
clients. The Manager makes a good faith determination that the research and/or
service is reasonable in light of the type of service provided and the price
and execution of the related portfolio transactions.

When the Manager deems the purchase or sale of equities to be in the best
interests of a Fund or its other clients, including Prudential, the Manager
may, but is under no obligation to, aggregate the transactions in order to
obtain the most favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the transactions, as well as the
expenses incurred in the transaction, will be made by the Manager in the
manner it considers to be most equitable and consistent with its fiduciary
obligations to its clients.

B-37
<PAGE>

The allocation or orders among firms and the commission rates paid are
reviewed periodically by the Company's Board of Directors. Portfolio
securities may not be purchased from any underwriting or selling syndicate of
which Prudential Securities or any affiliate, during the existence of the
syndicate, is a principal underwriter (as defined in the Investment Company
Act), except in accordance with rules of the Commission. This limitation, in
the opinion of the Company, will not significantly affect a Fund's ability to
pursue its present investment objective. However, in the future in other
circumstances, a Fund may be at a disadvantage because of this limitation in
comparison to other funds with similar objectives but not subject to such
limitations.

Subject to the above considerations, Prudential Securities (or any affiliate)
may act as a securities broker or futures commission merchant for the Company.
In order for Prudential Securities (or any affiliate) to effect any portfolio
transactions for a Fund, the commissions, fees or other remuneration received
by Prudential Securities (or any affiliate) must be reasonable and fair
compared to the commissions, fees or other remuneration paid to other firms or
futures commission merchants in connection with comparable transactions
involving similar securities or futures being purchased or sold on an exchange
during a comparable period of time. This standard would allow Prudential
Securities (or any affiliate) to receive no more than the remuneration which
would be expected to be received by an unaffiliated firm or futures commission
merchant in a commensurate arm's-length transaction. Furthermore, the Board of
Directors of the Company, including a majority of the Directors who are not
"interested" persons, has adopted procedures which are reasonably designed to
provide that any commissions, fees or other remuneration paid to Prudential
Securities (or any affiliate) are consistent with the foregoing standard. In
accordance with Section 11(a) of the Securities Exchange Act of 1934, as
amended, Prudential Securities may not retain compensation for effecting
transactions on a national securities exchange for a Fund unless the Fund has
expressly authorized the retention of such compensation. Prudential Securities
must furnish to a Fund at least annually a statement setting forth the total
amount of all compensation retained by Prudential Securities from transactions
effected for the Fund during the applicable period. Brokerage and futures
transactions with Prudential Securities also are subject to such fiduciary
standards as may be imposed by applicable law.

The table below sets forth information concerning payment of commissions by
the Funds, including the amount of such commissions paid to Prudential
Securities, for the three years ended September 30, 1999:

<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
September 30, 1999 September 30, 1998 September 30, 1997
---------------------- ------------------------------ -----------------------------
Growth
Active & Active Growth & Active Growth &
Balanced Growth Income Balanced Growth Income Balanced Growth Income
-------- ------ ------ -------- ---------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total brokerage commis-
sions paid by the
Funds.................. $-- $-- $-- $225,669 $1,776,771 $396,571 -- $1,135,470 $298,280
Total brokerage
commissions paid to
Prudential Securities.. $-- $-- $-- $ 0 $ 16,922 $ 205 -- $ 50,605 $ 13,935
Percentage of total bro-
kerage commissions
paid to Prudential Se-
curities............... -- % -- % -- % 0% 0.96% .05% -- 4.4% 4.67%
</TABLE>

Of the total brokerage commissions paid during the fiscal year ended
September 30, 1999, $ , $ and $ (or %, % and %) was paid to
firms which provide research, statistical or other services to PIFM or
affiliates on behalf of the Active Balanced Fund, the Growth Fund and the
Growth & Income Fund, respectively. PIFM has not separately identified a
portion of such brokerage commissions as applicable to the provision of such
research, statistical or other services.

Each Fund is required to disclose its holdings of securities or its regular
brokers and dealers (as defined under Rule 10b-1 of the Investment Company
Act) and their parents at September 30, 1999. As of September 30, 1999, the
Growth Fund held debt securities of the following: ; the Growth & Income
Fund held debt securities of the following: ; and the Active Balanced Fund
held debt securities of the following: .

B-38
<PAGE>

CAPITAL SHARES, OTHER SECURITIES AND ORGANIZATION

The Company is authorized to issue 3 billion shares of common stock, $.001
par value per share divided into three series (the Funds), and each Fund may
issue 1 billion shares. Each Fund is divided into four classes, designated
Class A, Class B, Class C and Class Z shares, consisting of 250 million
authorized shares per class. With respect to each Fund, each class of shares
represents an interest in the same assets of the Fund and is identical in all
respects except that (1) each class is subject to different sales charges and
distribution and/or service fees (except for Class Z shares, which are not
subject to any sales charges and distribution and/or service fees), which may
affect performance, (2) each class has exclusive voting rights on any matter
submitted to shareholders in which the interests of one class differ from the
interests of any other class, (3) each class has a different exchange
privilege, (4) only Class B shares have a conversion feature and (5) Class Z
shares are offered exclusively for sale to a limited group of investors. In
accordance with the Company's Articles of Incorporation, the Directors may
authorize the creation of additional series and classes within such series,
with such preferences, privileges, limitations and voting and dividend rights
as the Directors may determine. The voting rights of the shareholders of a
series or class can be modified only by the majority vote of shareholders of
that series or class.

Shares of each Fund, when issued, are fully paid, nonassessable, fully
transferable and redeemable at the option of the holder. Shares are also
redeemable at the option of the Fund under certain circumstances. Each share
of each class is equal as to earnings, assets and voting privileges, except as
noted above, and each class of shares (with the exception of Class Z shares,
which are not subject to any distribution or service fees) bears the expenses
related to the distribution of its shares. Except for the conversion feature
applicable to the Class B shares, there are no conversion, preemptive or other
subscription rights. In the event of liquidation, each share of a Fund is
entitled to its portion of all of the Fund's assets after all debt and
expenses of the Fund have been paid. Since Class B and Class C shares
generally bear higher distribution expenses than Class A shares, the
liquidation proceeds to shareholders of those classes are likely to be lower
than to Class A shareholders and to Class Z shareholders, whose shares are not
subject to any distribution and/or service fees.

The Company does not intend to hold annual meetings of shareholders unless
otherwise required by law. The Company will not be required to hold meetings
of shareholders unless, for example, the election of Directors is required to
be acted on by shareholders under the Investment Company Act. Shareholders
have certain rights, including the right to call a meeting upon the vote of
10% of the Company's outstanding shares for the purpose of voting on the
removal of one or more Directors or to transact any other business.

Under the Articles of Incorporation, the Directors may authorize the creation
of additional series of shares (the proceeds of which would be invested in
separate, independently managed portfolios with distinct investment objectives
and policies and share purchase, redemption and net asset value procedures)
with such preferences, privileges, limitations and voting and dividend rights
as the Directors may determine. All consideration received by the Company for
shares of any additional series, and all assets in which such consideration is
invested, would belong to that series (subject only to the rights of creditors
of that series) and would be subject to the liabilities related thereto. Under
the Investment Company Act, shareholders of any additional series of shares
would normally have to approve the adoption of any advisory contract relating
to such series and of any changes in the investment policies related thereto.

The Directors have the power to alter the number and the terms of office of
the Directors and they may at any time lengthen their own terms or make their
terms of unlimited duration and appoint their own successors, provided that
always at least a majority of the Directors have been elected by the
shareholders of the Company. The voting rights of shareholders are not
cumulative, so that holders of more than 50 percent of the shares voting can
if they choose, elect all Directors being selected, while the holders of the
remaining shares would be unable to elect any Director.

B-39
<PAGE>

PURCHASE, REDEMPTION AND PRICING OF FUND SHARES

Shares of each Fund may be purchased at a price equal to the next determined
net asset value (NAV) per share plus a sales charge which, at the election of
the investor, may be imposed either (1) at the time of purchase (Class A or
Class C shares) or (2) on a deferred basis (Class B or Class C shares). Class
Z shares of each Fund are offered to a limited group of investors at NAV
without any sales charges.

Purchase by Wire

For an initial purchase of shares of the Company by wire, you must complete
an application and telephone PMFS to receive an account number at (800) 225-
1852 (toll-free). The following information will be requested: your name,
address, tax identification number, class election, dividend distribution
election, amount being wired and wiring bank. Instructions should then be
given by you to your bank to transfer funds by wire to State Street Bank and
Trust Company (State Street), Boston, Massachusetts, Custody and Shareholder
Services Division, Attention: Prudential Fund, specifying on the wire the
account number assigned by PMFS and your name and identifying the class in
which you are eligible to invest (Class A, Class B, Class C or Class Z
shares).

If you arrange for receipt by State Street of Federal Funds prior to the
calculation of NAV (4:15 P.M., New York time) on a business day, you may
purchase shares of the Company as of that day.

In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Active Balanced
Fund, Prudential Jennison Growth Fund or Prudential Jennison Growth & Income
Fund, Class A, Class B, Class C or Class Z shares and your name and individual
account number. It is not necessary to call PMFS to make subsequent purchase
orders utilizing Federal Funds. The minimum amount which may be invested by
wire is $1,000.

Issuance of Fund Shares for Securities

Transactions involving the issuance of Fund shares for securities (rather
than cash) will be limited to (1) reorganizations, (2) statutory mergers, or
(3) other acquisitions of portfolio securities that (a) meet the investment
objective and policies of the applicable Fund, (b) are liquid and not subject
to restrictions on resale, (c) have a value that is readily ascertainable via
listing on or trading in a recognized United States or international exchange
or market, and (d) are approved by the investment adviser.

B-40
<PAGE>

Specimen Price Make-up

Under the current distribution arrangements between the Company and the
Distributor, Class A shares are sold with a maximum sales charge of 5%, Class
C* shares are sold with a sales charge of 1% and Class B* and Class Z shares
are sold at NAV. Using the NAV at September 30, 1999, the maximum offering
price of the Funds' shares is as follows:

<TABLE>
<CAPTION>
Active Growth
Balanced & Income
Fund Growth Fund Fund
-------- ----------- --------
<S> <C> <C> <C>
Class A
Net asset value and redemption price per Class A
share........................................... $ $ $
Maximum sales charge (5% of offering price)......
---- ---- ----
Maximum offering price........................... $ $ $
==== ==== ====
Class B
Net asset value, redemption price and offering
price to public per Class B share*.............. $ $ $
==== ==== ====
Class C
Net asset value and redemption price to public
per Class C share*.............................. $ $ $
Sales charge (1% of offering price)..............
Offering price to public.........................
---- ---- ----
$ $ $
==== ==== ====
Class Z
Net asset value, offering price and redemption
price per Class Z share......................... $ $ $
==== ==== ====
</TABLE>
- -------

* Class B and Class C shares are subject to a contingent deferred sales
charge on certain redemptions.

Selecting a Purchase Alternative

The following is provided to assist you in determining which method of
purchase best suits your individual circumstances and is based on current fees
and expenses being charged to a Fund:

If you intend to hold your investment in a Fund for less than 4 years and do
not qualify for a reduced sales charge on Class A shares, since Class A shares
are subject to an initial sales charge of 5% and Class B shares are subject to
a CDSC of 5% which declines to zero over a 6 year period, you should consider
purchasing Class C shares over either Class A or Class B shares.

If you intend to hold your investment for longer than 4 years, but less than
5 years, and do not qualify for a reduced sales charge on Class A shares, you
should consider purchasing Class B or Class C shares over Class A shares. This
is because the initial sales charge plus the cumulative annual distribution-
related fee on Class A shares would exceed those of the Class B and Class C
shares if you redeem your investment during this time period. In addition,
more of your money would be invested initially in the case of Class C shares,
because of the relatively low initial sales charge, and all of your money
would be invested initially in the case of Class B shares, which are sold at
NAV.

If you intend to hold your investment for longer than 5 years, you should
consider purchasing Class A shares over either Class B or Class C shares. This
is because the maximum sales charge plus the cumulative annual distribution-
related fee on Class A shares would be less than those of the Class B and
Class C shares.

If you qualify for a reduced sales charge on Class A shares, it may be more
advantageous for you to purchase Class A shares over either Class B or Class C
shares regardless of how long you intend to hold your investment. However,
unlike Class B shares, you would not have all of your money invested initially
because the sales charge on Class A shares is deducted at the time of
purchase.

B-41
<PAGE>

If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class B or Class C shares, you would have to hold your investment for
more than 6 years in the case of Class B shares and for more than 5 years in
the case of Class C shares for the higher cumulative annual distribution-
related fee on those shares plus, in the case of Class C shares, the 1%
initial sales charge to exceed the initial sales charge plus the cumulative
annual distribution-related fees on Class A shares. This does not take into
account the time value of money, which further reduces the impact of the
higher Class B or Class C distribution-related fee on the investment,
fluctuations in NAV, the effect of the return on the investment over this
period of time or redemptions when the CDSC is applicable.

[Dealer reallowance]

Reduction and Waiver of Initial Sales Charge--Class A Shares

Benefit Plans. Certain group retirement and savings plans may purchase Class
A shares without the initial sales charge if they meet the required minimum
for amount of assets, average account balance or number of eligible employees.
For more information about these requirements, call Prudential at (800) 353-
2847.

Other Waivers. In addition, Class A shares may be purchased at NAV, through
the Distributor or the Transfer Agent, by:

. officers of the Prudential Mutual Funds (including the Company),

. employees of the Distributor, Prudential Securities, PIFM and their
subsidiaries and members of the families of such persons who maintain an
"employee related" account at Prudential Securities or the Transfer
Agent,

. employees of subadvisers of the Prudential Mutual Funds provided that
purchases at NAV are permitted by such person's employer,

. Prudential, employees and special agents of Prudential and its
subsidiaries and all persons who have retired directly from active
service with Prudential or one of its subsidiaries,

. registered representatives and employees of brokers who have entered into
a selected dealer agreement with the Distributor provided that purchases
at NAV are permitted by such person's employer,

. investors who have a business relationship with a financial adviser who
joined Prudential Securities from another investment firm, provided that
(1) the purchase is made within 180 days of the commencement of the
financial adviser's employment at Prudential Securities, or within one
year in the case of Benefit Plans, (2) the purchase is made with proceeds
of a redemption of shares of any open-end non-money market fund sponsored
by the financial adviser's previous employer (other than a fund which
imposes a distribution or service fee of .25 of 1% or less) and (3) the
financial adviser served as the client's broker on the previous purchase,

. investors in Individual Retirement Accounts, provided the purchase is
made in a directed rollover to such Individual Retirement Account or with
the proceeds of a tax-free rollover of assets from a Benefit Plan for
which Prudential provides administrative or recordkeeping services and
further provided that such purchase is made within 60 days of receipt of
the Benefit Plan distribution,

. orders placed by broker-dealers, investment advisers or financial
planners who have entered into an agreement with the Distributor, who
place trades for their own accounts or the accounts of their clients and
who charge a management, consulting or other fee for their services (for
example, mutual fund "wrap" or asset allocation programs), and

. orders placed by clients of broker-dealers, investment advisers or
financial planners who place trades for customer accounts if the accounts
are linked to the master account of such broker-dealer, investment
adviser or financial planner and the broker-dealer, investment adviser or
financial planner charges the clients a separate fee for its services
(for example, mutual fund "supermarket programs").

B-42
<PAGE>

Class A shares also may be purchased at NAV by members of the Board of
Directors of The Prudential Insurance Company of America.

Broker-dealers, investment advisers or financial planners sponsoring fee-
based programs (such as mutual fund "wrap" or asset allocation programs and
mutual fund "supermarket" programs) may offer their clients more than one
class of shares in a Fund in connection with different pricing options for
their programs. Investors should consider carefully any separate transaction
and other fees charged by these programs in connection with investing in each
available share class before selecting a share class.

For an investor to obtain any reduction or waiver of the initial sales
charges, at the time of the sale either the Transfer Agent must be notified
directly by the investor or the Distributor must be notified by the broker
facilitating the transaction that the sale qualifies for the reduced or waived
sales charge. The reduction or waiver will be granted subject to confirmation
of your entitlement. No initial sales charges are imposed upon Class A shares
acquired upon the reinvestment of dividends and distributions.

Combined Purchase and Cumulative Purchase Privilege. If an investor or
eligible group of related investors purchases Class A shares of a Fund
concurrently with Class A shares of other Prudential Mutual Funds, the
purchases may be combined to take advantage of the reduced sales charges
applicable to larger purchases.

An eligible group of related Fund investors includes any combination of the
following:

. an individual,

. the individual's spouse, their children and their parents,

. the individual's and spouse's Individual Retirement Account (IRA),

. any company controlled by the individual (a person, entity or group that
holds 25% or more of the outstanding voting securities of a company will
be deemed to control the company, and a partnership will be deemed to be
controlled by each of its general partners),

. a trust created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children,

. a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account
created by the individual or the individual's spouse, and

. one or more employee benefit plans of a company controlled by an
individual.

Also, an eligible group of related Fund investors may include an employer (or
group of related employers) and one or more retirement or group plans of such
employer or employers (an employer controlling, controlled by or under common
control with another employer is deemed related to that employer).

The Transfer Agent, the Distributor or your broker must be notified at the
time of purchase that the investor is entitled to a reduced sales charge. The
reduced sales charge will be granted subject to confirmation of the investor's
holdings. The Combined Purchase and Cumulative Purchase Privilege does not
apply to individual participants in any retirement or group plans.

Rights of Accumulation. Reduced sales charges also are available through
Rights of Accumulation, under which an investor or an eligible group of
related investors, as described above under "Combined Purchase and Cumulative
Purchase Privilege," may aggregate the value of their existing holdings of
shares of a Fund and shares of other Prudential Mutual Funds (excluding money
market funds other than those acquired pursuant to the exchange privilege) to
determine the reduced sales charge. The value of shares held directly with the
Transfer Agent and through your broker will not be

B-43
<PAGE>

aggregated to determine the reduced sales charge. The value of existing
holdings for purposes of determining the reduced sales charge is calculated
using the maximum offering price (NAV plus maximum sales charge) as of the
previous business day.

The Distributor or the Transfer Agent must be notified at the time of
purchase that the investor is entitled to a reduced sales charge. The reduced
sales charges will be granted subject to confirmation of the investor's
holdings. Rights of Accumulation are not available to individual participants
in any retirement or group plans.

Letters of Intent. Reduced sales charges are available to investors (or an
eligible group of related investors) who enter into a written Letter of Intent
providing for the purchase, within a thirteen-month period, of shares of a
Fund and shares of other Prudential Mutual Funds (Investment Letter of
Intent). Retirement and group plans are not eligible to purchase Class A
shares at NAV by entering into a Letter of Intent. Letters of Intent are not
available to individual participants in any retirement or group plans.

For purposes of the Investment Letter of Intent, all shares of a Fund and
shares of other Prudential Mutual Funds (excluding money market funds other
than those acquired pursuant to the exchange privilege) which were previously
purchased and are still owned are also included in determining the applicable
reduction. However, the value of shares held directly with the Transfer Agent
or its affiliates and your broker will not be aggregated to determine the
reduced sales charge.

An Investment Letter of Intent permits a purchaser to establish a total
investment goal to be achieved by any number of investments over a thirteen-
month period. Each investment made during the period will receive the reduced
sales charge applicable to the amount represented by the goal, as if it were a
single investment. Escrowed Class A shares totaling 5% of the dollar amount of
the Letter of Intent will be held by the Transfer Agent in the name of the
purchaser. The effective date of an Investment Letter of Intent may be back-
dated up to 90 days, in order that any investments made during this 90-day
period, valued at the purchaser's cost, can be applied to the fulfillment of
the Letter of Intent goal.

The Investment Letter of Intent does not obligate the investor to purchase,
nor the Company to sell, the indicated amount. In the event the Letter of
Intent goal is not achieved within the thirteen-month period, the purchaser is
required to pay the difference between the sales charge otherwise applicable
to the purchases made during this period and sales charges actually paid. Such
payment may be made directly to the Distributor or, if not paid, the
Distributor will liquidate sufficient escrowed shares to obtain such
difference. Investors electing to purchase Class A shares of a Fund pursuant
to a Letter of Intent should carefully read such Letter of Intent.

The Distributor must be notified at the time of purchase that the investor is
entitled to a reduced sales charge. The reduced sales charges will be granted
subject to confirmation of the investor's holdings.

Class B Shares

The offering price of Class B shares for investors choosing one of the
deferred sales charge alternatives is the NAV next determined following
receipt of an order in proper form by the Transfer Agent, your broker or the
Distributor. Although there is no sales charge imposed at the time of
purchase, redemptions of Class B shares may be subject to a CDSC. See "Sale of
Shares--Contingent Deferred Sales Charge" below.

The Distributor will pay, from its own resources, sales commissions of up to
4% of the purchase price of Class B shares to brokers, financial advisers and
other persons who sell Class B shares at the time of sale. This facilitates
the ability of a Fund to sell the Class B shares without an initial sales
charge being deducted at the time of purchase. The Distributor anticipates
that it will recoup its advancement of sales commissions from the combination
of the CDSC and the distribution fee.

B-44
<PAGE>

Class C Shares

The offering price of Class C shares is the next determined NAV plus a 1%
sales charge. In connection with the sale of Class C shares, the Distributor
will pay, from its own resources, brokers, financial advisers and other
persons which distribute Class C shares a sales commission of up to 2% of the
purchase price at the time of the sale.

Waiver of Initial Sales Charge--Class C Shares

Benefit Plans. Certain group retirement plans may purchase Class C shares
without the initial sales charge. For more information, call Prudential at
(800) 353-2847.

Investment of Redemption Proceeds from Other Investment Companies. Investors
may purchase Class C shares at NAV, without the initial sales charge, with the
proceeds from the redemption of shares of any unaffiliated registered
investment company which were not held through an account with any Prudential
affiliate. Such purchases must be made within 60 days of the redemption.
Investors eligible for this waiver include: (1) investors purchasing shares
through an account at Prudential Securities; (2) investors purchasing shares
through an ADVANTAGE Account or an Investor Account with Prusec; and (3)
investors purchasing shares through other brokers. This waiver is not
available to investors who purchase shares directly from the Transfer Agent.
You must notify the Transfer Agent directly or through your broker if you are
entitled to this waiver and provide the Transfer Agent with such supporting
documents as it may deem appropriate.

Class Z Shares

Benefit Plans. Certain group retirement plans may purchase Class Z shares if
they meet the required minimum for amount of assets, average account balance
or number of eligible employees. For more information about these
requirements, call Prudential at (800) 353-2847.

Mutual Fund Programs. Class Z shares can also be purchased by participants in
any fee-based program or trust program sponsored by Prudential or an affiliate
that includes a Fund as an available option. Class Z shares can also be
purchased by investors in certain programs sponsored by broker-dealers,
investment advisers and financial planners who have agreements with Prudential
Investments Advisory Group relating to:

. Mutual fund "wrap" or asset allocation programs, where the sponsor places
Fund trades, links its clients' accounts to a master account in the
sponsor's name and charges its clients a management, consulting or other
fee for its services; or

. Mutual fund "supermarket" programs, where the sponsor links its clients'
accounts to a master account in the sponsor's name and the sponsor charges
a fee for its services.

Broker-dealers, investment advisers or financial planners sponsoring these
mutual fund programs may offer their clients more than one class of shares in
a Fund in connection with different pricing options for their programs.
Investors should consider carefully any separate transaction and other fees
charged by these programs in connection with investing in each available share
class before selecting a share class.

Other Types of Investors. Class Z shares also are available for purchase by
the following categories of investors:

. Certain participants in the MEDLEY Program (group variable annuity
contracts) sponsored by Prudential for whom Class Z shares of the
Prudential mutual funds are an available investment option;

. Current and former Directors/Trustees of the Prudential mutual funds
(including the Company); and

. Prudential, with an investment of $10 million or more.

B-45
<PAGE>

In connection with the sale of Class Z shares, the Manager, the Distributor
or one of their affiliates may pay brokers, financial advisers and other
persons which distribute shares a finder's fee, from its own resources, based
on a percentage of the net asset value of shares sold by such persons.

Sale of Shares

You can redeem your shares at any time for cash at the NAV next determined
after the redemption request is received in proper form (in accordance with
procedures established by the Transfer Agent in connection with investors'
accounts) by the Transfer Agent, the Distributor or your broker. In certain
cases, however, redemption proceeds will be reduced by the amount of any
applicable CDSC, as described below. See "Contingent Deferred Sales Charge"
below. If you are redeeming your shares through a broker, your broker must
receive your sell order before the Fund computes its NAV for that day (that
is, 4:15 P.M., New York time) in order to receive that day's NAV. Your broker
will be responsible for furnishing all necessary documentation to the
Distributor and may charge you for its services in connection with redeeming
shares of a Fund.

If you hold shares of a Fund through Prudential Securities, you must redeem
your shares through Prudential Securities. Please contact your Prudential
Securities financial adviser.

If you hold shares in non-certificate form, a written request for redemption
signed by you exactly as the account is registered is required. If you hold
certificates, the certificates, signed in the Name(s) shown on the face of the
certificates, must be received by the Transfer Agent, the Distributor or your
broker in order for the redemption request to be processed. If redemption is
requested by a corporation, partnership, trust or fiduciary, written evidence
of authority acceptable to the Transfer Agent must be submitted before such
request will be accepted. All correspondence and documents concerning
redemptions should be sent to the Fund in care of its Transfer Agent,
Prudential Mutual Fund Services LLC, Attention: Redemption Services, P.O. Box
15010, New Brunswick, New Jersey 08906-5010, the Distributor or to your
broker.

Signature Guarantee. If the proceeds of the redemption (1) exceed $50,000,
(2) are to be paid to a person other than the record owner, (3) are to be sent
to an address other than the address on the Transfer Agent's records, or (4)
are to be paid to a corporation, partnership, trust or fiduciary, and your
shares are held directly with the Transfer Agent, the signature(s) on the
redemption request and on the certificates, if any, or stock power must be
guaranteed by an "eligible guarantor institution." An "eligible guarantor
institution" includes any bank, broker, dealer or credit union. The Transfer
Agent reserves the right to request additional information from, and make
reasonable inquiries of, any eligible guarantor institution. For clients of
Prusec, a signature guarantee may be obtained from the agency or office
manager of most Prudential Insurance and Financial Services or Preferred
Services offices. In the case of redemptions from a PruArray Plan, if the
proceeds of the redemption are invested in another investment option of the
plan in the name of the record holder and at the same address as reflected in
the Transfer Agent's records, a signature guarantee is not required.

Payment for shares presented for redemption will be made by check within
seven days after receipt by the Transfer Agent, the Distributor or your broker
of the certificate and/or written request, except as indicated below. If you
hold shares through a broker, payment for shares presented for redemption will
be credited to your account at your broker, unless you indicate otherwise.
Such payment may be postponed or the right of redemption suspended at times
(1) when the New York Stock Exchange is closed for other than customary
weekends and holidays, (2) when trading on such Exchange is restricted, (3)
when an emergency exists as a result of which disposal by a Fund of securities
owned by it is not reasonably practicable for the Fund fairly to determine the
value of its net assets, or (4) during any other period when the Commission,
by order, so permits; provided that applicable rules and regulations of the
Commission shall govern as to whether the conditions prescribed in (2), (3) or
(4) exist.

Redemption in Kind. If the Board of Directors determines that it would be
detrimental to the best interests of the remaining shareholders of a Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price
in whole or in part by a distribution in kind of securities from the
investment portfolio of the Fund, in lieu of cash, in conformity with

B-46
<PAGE>

applicable rules of the Commission. Securities will be readily marketable and
will be valued in the same manner as in a regular redemption. If your shares
are redeemed in kind, you would incur transaction costs in converting the
assets into cash. Each Fund, however, has elected to be governed by Rule 18f-1
under the Investment Company Act, under which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the NAV of the
Fund during any 90-day period for any one shareholder.

Involuntary Redemption. In order to reduce expenses of a Fund, the Board of
Directors may redeem all of the shares of any shareholder, other than a
shareholder which is an IRA or other tax-deferred retirement plan, whose
account has a net asset value of less than $500 due to a redemption. The Fund
will give such shareholders 60 days' prior written notice in which to purchase
sufficient additional shares to avoid such redemption. No CDSC will be imposed
on any such involuntary redemption.

90-day Repurchase Privilege. If you redeem your shares and have not
previously exercised the repurchase privilege, you may reinvest any portion or
all of the proceeds of such redemption in shares of a Fund at the NAV next
determined after the order is received, which must be within 90 days after the
date of the redemption. Any CDSC paid in connection with such redemption will
be credited (in shares) to your account. (If less than a full repurchase is
made, the credit will be on a pro rata basis.) You must notify the Transfer
Agent, either directly or through the Distributor or your broker, at the time
the repurchase privilege is exercised to adjust your account for the CDSC you
previously paid. Thereafter, any redemptions will be subject to the CDSC
applicable at the time of the redemption. See "Contingent Deferred Sales
Charge" below. Exercise of the repurchase privilege will generally not affect
federal tax treatment of any gain realized upon redemption. However, if the
redemption was made within a 30 day period of the repurchase and if the
redemption resulted in a loss, some or all of the loss, depending on the
amount reinvested, may not be allowed for federal income tax purposes.

Contingent Deferred Sales Charge

Redemptions of Class B shares will be subject to a contingent deferred sales
charge or CDSC declining from 5% to zero over a six-year period. Class C
shares redeemed within 18 months of purchase (one year in the case of shares
purchased before November 2, 1998) will be subject to a 1% CDSC. The CDSC will
be deducted from the redemption proceeds and reduce the amount paid to you.
The CDSC will be imposed on any redemption by you which reduces the current
value of your Class B or Class C shares to an amount which is lower than the
amount of all payments by you for shares during the preceding six years, in
the case of Class B shares, and 18 months, in the case of Class C shares (one
year for Class C shares purchased before November 2, 1998). A CDSC will be
applied on the lesser of the original purchase price or the current value of
the shares being redeemed. Increases in the value of your shares or shares
acquired through reinvestment of dividends or distributions are not subject to
a CDSC. The amount of any CDSC will be paid to and retained by the
Distributor.

The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments
during a month will be aggregated and deemed to have been made on the last day
of the month. The CDSC will be calculated from the first day of the month
after the initial purchase, excluding the time shares were held in a money
market fund.

B-47
<PAGE>

The following table sets forth the rates of the CDSC applicable to redemption
of Class B shares:

<TABLE>
<CAPTION>
Contingent Deferred Sales
Charge as a Percentage
Year Since Purchase of Dollars invested or
Payment Made Redemption Proceeds
------------------- -------------------------
<S> <C>
First........................................... 5.0%
Second.......................................... 4.0%
Third........................................... 3.0%
Fourth.......................................... 2.0%
Fifth........................................... 1.0%
Sixth........................................... 1.0%
Seventh......................................... None
</TABLE>

In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results in the lowest possible rate. It will be
assumed that the redemption is made first of amounts representing shares
acquired pursuant to the reinvestment of dividends and distributions; then of
amounts representing the increase in NAV above the total amount of payments
for the purchase of Class B shares made during the preceding six years and 18
months for Class C shares (one year for Class C shares bought before November
2, 1998); then of amounts representing the cost of shares held beyond the
applicable CDSC period; and finally, of amounts representing the cost of
shares held for the longest period of time within the applicable CDSC period.

For example, assume you purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase you decide to
redeem $500 of your investment. Assuming at the time of the redemption the NAV
had appreciated to $12 per share, the value of your Class B shares would be
$1,260 (105 shares at $12 per share). The CDSC would not be applied to the
value of the reinvested dividend shares and the amount which represents
appreciation ($260). Therefore, $240 of the $500 redemption proceeds ($500
minus $260) would be charged at a rate of 4% (the applicable rate in the
second year after purchase) for total CDSC of $9.60.

For federal income tax purposes, the amount of the CDSC will reduce the gain,
or increase the loss, as the case may be, on the amount recognized on the
redemption of shares.

Waiver of Contingent Deferred Sales Charge--Class B Shares. The CDSC will be
waived in the case of a redemption following the death or disability of a
shareholder or, in the case of a trust account, following the death or
disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint
tenancy (with rights of survivorship), at the time of death or initial
determination of disability, provided that the shares were purchased prior to
death or disability.

The CDSC also will be waived in the case of a total or partial redemption in
connection with certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or Section 403(b)
custodial account. For more information, call Prudential at (800) 353-2847.

Finally, the CDSC will be waived to the extent that the proceeds from shares
redeemed are invested in Prudential Mutual Funds, The Guaranteed Investment
Account, the Guaranteed Insulated Separate Account or units of The Stable
Value Fund.

Systematic Withdrawal Plan. The CDSC will be waived (or reduced) on certain
redemptions from a Systematic Withdrawal Plan. On an annual basis, up to 12%
of the total dollar amount subject to the CDSC may be redeemed without charge.
The Transfer Agent will calculate the total amount available for this waiver
annually on the anniversary date of your purchase. The CDSC will be waived (or
reduced) on redemptions until this threshold 12% is reached.

B-48
<PAGE>

In addition, the CDSC will be waived on redemptions of shares held by
Directors of the Company.

You must notify the Company's Transfer Agent either directly or through your
broker at the time of redemption, that you are entitled to waiver of the CDSC
and provide the Transfer Agent with such supporting documentation as it may
deem appropriate. The waiver will be granted subject to confirmation of your
entitlement. In connection with these waivers, the Transfer Agent will require
you to submit the supporting documentation set forth below.

<TABLE>
<C> <S>
Category of Waiver Required Documentation
Death A copy of the shareholder's death
certificate or, in the case of a
trust, a copy of the grantor's death
certificate, plus a copy of the trust
agreement identifying the grantor.
Disability--An individual will be con- A copy of the Social Security
sidered disabled if he or she is un- Administration award letter or a
able to engage in any substantial letter from a physician on the
gainful activity by reason of any med- physician's letterhead stating that
ically determinable physical or mental the shareholder (or, in the case of a
impairment which can be expected to trust, the grantor) is permanently
result in death or to be of long-con- disabled. The letter must also
tinued and indefinite duration. indicate the date of disability.
Distribution from an IRA or 403(b) A copy of the distribution form from
Custodial the custodial firm indicating (i) the
Account date of birth of the shareholder and
(ii) that the shareholder is over age
59 and is taking a normal
distribution--signed by the
shareholder.
Distribution from Retirement Plan A letter signed by the plan
administrator/trustee indicating the
reason for the distribution.
Excess Contributions A letter from the shareholder (for an
IRA) or the plan administrator/trustee
on company letterhead indicating the
amount of the excess and whether or
not taxes have been paid.
</TABLE>

The Transfer Agent reserves the right to request such additional documents as
it may deem appropriate.

Waiver of Contingent Deferred Sales Charge--Class C Shares

Benefit Plans. The CDSC will be waived for redemptions by certain group
retirement plans for which Prudential or brokers not affiliated with
Prudential provide administrative or recordkeeping services. The CDSC also
will be waived for certain redemptions by benefit plans sponsored by
Prudential and its affiliates. For more information, call Prudential at (800)
353-2847.

Conversion Feature--Class B Shares

Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. Conversions will be effected
at relative net asset value without the imposition of any additional charge.

Since the Company tracks amounts paid rather than the number of shares bought
on each purchase of Class B shares, the number of Class B shares eligible to
convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will
be determined on each conversion date in accordance with the following
formula: (1) the ratio of (a) the amounts paid for Class B shares purchased at
least seven

B-49
<PAGE>

years prior to the conversion date to (b) the total amount paid for all Class
B shares purchased and then held in your account (2) multiplied by the total
number of Class B shares purchased and then held in your account. Each time
any Eligible Shares in your account convert to Class A shares, all shares or
amounts representing Class B shares then in your account that were acquired
through the automatic reinvestment of dividends and other distributions will
convert to Class A shares.

For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different NAVs per share, the number of Eligible Shares
calculated as described above will generally be either more or less than the
number of shares actually purchased approximately seven years before such
conversion date. For example, if 100 shares were initially purchased at $10
per share (for a total of $1,000) and a second purchase of 100 shares was
subsequently made at $11 per share (for a total of $1,100), 95.24 shares would
convert approximately seven years from the initial purchase (that is, $1,000
divided by $2,100 (47.62%), multiplied by 200 shares equals 95.24 shares). The
Manager reserves the right to modify the formula for determining the number of
Eligible Shares in the future as it deems appropriate on notice to
shareholders.

Since annual distribution-related fees are lower for Class A shares than
Class B shares, the per share NAV of the Class A shares may be higher than
that of the Class B shares at the time of conversion. Thus, although the
aggregate dollar value will be the same, you may receive fewer Class A shares
than Class B shares converted.

For purposes of calculating the applicable holding period for conversions,
all payments for Class B shares during a month will be deemed to have been
made on the last day of the month, or for Class B shares acquired through
exchange, or a series of exchanges, on the last day of the month in which the
original payment for purchases of such Class B shares was made. For Class B
shares previously exchanged for shares of a money market fund, the time period
during which such shares were held in the money market fund will be excluded.
For example, Class B shares held in a money market fund for one year would not
convert to Class A shares until approximately eight years from purchase. For
purposes of measuring the time period during which shares are held in a money
market fund, exchanges will be deemed to have been made on the last day of the
month. Class B shares acquired through exchange will convert to Class A shares
after expiration of the conversion period applicable to the original purchase
of such shares.

The conversion feature may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service (1) that the
dividends and other distributions paid on Class A, Class B, Class C and Class
Z shares will not constitute "preferential dividends" under the Internal
Revenue Code and (2) that the conversion of shares does not constitute a
taxable event. The conversion of Class B shares into Class A shares may be
suspended if such opinions or rulings are no longer available. If conversions
are suspended, Class B shares of each Fund will continue to be subject,
possibly indefinitely, to their higher annual distribution and service fee.

B-50
<PAGE>

SHAREHOLDER INVESTMENT ACCOUNT

Upon the initial purchase of Fund shares, a Shareholder Investment Account is
established for each investor under which a record of the shares held is
maintained by the Transfer Agent. If a stock certificate is desired, it must
be requested in writing for each transaction. Certificates are issued only for
full shares and may be redeposited in the Account at any time. There is no
charge to the investor for issuance of a certificate. Each Fund makes
available to its shareholders the following privileges and plans.

Automatic Reinvestment of Dividends and Distributions. For the convenience of
investors, all dividends and distributions are automatically reinvested in
full and fractional shares of the applicable Fund. An investor may direct the
Transfer Agent in writing not less than five full business days prior to the
record date to have subsequent dividends or distributions sent in cash rather
than reinvested. In the case of recently purchased shares for which
registration instructions have not been received on the record date, cash
payment will be made directly to the broker. Any shareholder who receives a
cash payment representing a dividend or distribution may reinvest such
dividend or distribution at net asset value by returning the check or the
proceeds to the Transfer Agent within 30 days after the payment date. Such
investment will be made at the NAV per share next determined after receipt of
the check or proceeds by the Transfer Agent. Such shareholders will receive
credit for any CDSC paid in connection with the amount of proceeds being
invested.

Exchange Privilege. The Company makes available to its shareholders the
exchange privilege. The Company makes available to its shareholders the
privilege of exchanging their shares of a Fund for shares of certain other
Prudential Mutual Funds, including one or more specified money market funds,
subject in each case to the minimum investment requirements of such funds.
Shares of such other Prudential Mutual Funds may also be exchanged for shares
of a Fund. All exchanges are made on the basis of the relative NAV next
determined after receipt of an order in proper form. An exchange will be
treated as a redemption and purchase for tax purposes. For retirement and
group plans having a limited menu of Prudential Mutual Funds, the exchange
privilege is available for those funds eligible for investment in the
particular program.

It is contemplated that the exchange privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.

In order to exchange shares by telephone, you must authorize telephone
exchanges on your initial application form or by written notice to the
Transfer Agent and hold shares in non-certificate form. Thereafter, you may
call the Company at (800) 225-1852 to execute a telephone exchange of shares,
on weekdays, except holidays, between the hours of 8:00 A.M. and 6:00 P.M.,
New York time. For your protection and to prevent fraudulent exchanges, your
telephone call will be recorded and you will be asked to provide your personal
identification number. A written confirmation of the exchange transaction will
be sent to you. Neither the Company nor its agents will be liable for any
loss, liability or cost which results from acting upon instructions reasonably
believed to be genuine under the foregoing procedures. All exchanges will be
made on the basis of the relative NAV of the two funds next determined after
the request is received in good order.

If you hold shares through Prudential Securities, you must exchange your
shares by contacting your Prudential Securities financial adviser.

If you hold certificates, the certificates, signed in the name(s) shown on
the face of the certificates, must be returned in order for the shares to be
exchanged.

You may also exchange shares by mail by writing to Prudential Mutual Fund
Services LLC, Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.

In periods of severe market or economic conditions the telephone exchange of
shares may be difficult to implement and you should make exchanges by mail by
writing to Prudential Mutual Fund Services LLC, at the address noted above.

B-51
<PAGE>

Class A. Shareholders of a Fund may exchange their Class A shares for shares
of certain other Prudential Mutual Funds, shares of Prudential Government
Securities Trust (Short-Intermediate Term Series) and shares of the money
market funds specified below. No fee or sales load will be imposed upon the
exchange. Shareholders of money market funds who acquired such shares upon
exchange of Class A shares may use the exchange privilege only to acquire
Class A shares of the Prudential Mutual Funds participating in the exchange
privilege.

The following money market funds participate in the Class A exchange
privilege:

Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury Money Market Series)
Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachusetts Money Market Series)
(New York Money Market Series)
(New Jersey Money Market Series)

Prudential MoneyMart Assets, Inc. (Class A shares)

Prudential Tax-Free Money Fund, Inc.

Class B and Class C. Shareholders of a Fund may exchange their Class B and
Class C shares of such Fund for Class B and Class C shares, respectively, of
certain other Prudential Mutual Funds and shares of Prudential Special Money
Market Fund, Inc., a money market fund. No CDSC will be payable upon such
exchange, but a CDSC may be payable upon the redemption of the Class B and
Class C shares acquired as a result of the exchange. The applicable sales
charge will be that imposed by the fund in which shares were initially
purchased and the purchase date will be deemed to be the date of the initial
purchase, rather than the date of the exchange.

Class B and Class C shares of a Fund may also be exchanged for shares of
Prudential Special Money Market Fund, Inc. without imposition of any CDSC at
the time of exchange. Upon subsequent redemption from such money market fund
or after re-exchange into a Fund, such shares will be subject to the CDSC
calculated without regard to the time such shares were held in the money
market fund. In order to minimize the period of time in which shares are
subject to a CDSC, shares exchanged out of the money market fund will be
exchanged on the basis of their remaining holding periods, with the longest
remaining holding periods being transferred first. In measuring the time
period shares are held in a money market fund and "tolled" for purposes of
calculating the CDSC holding period, exchanges are deemed to have been made on
the last day of the month. Thus, if shares are exchanged into a Fund from a
money market fund during the month (and are held in the Fund at the end of the
month), the entire month will be included in the CDSC holding period.
Conversely, if shares are exchanged into a money market fund prior to the last
day of the month (and are held in the money market fund on the last day of the
month), the entire month will be excluded from the CDSC holding period. For
purposes of calculating the seven year holding period applicable to the Class
B conversion feature, the time period during which Class B shares were held in
a money market fund will be excluded.

At any time after acquiring shares of other funds participating in the Class
B or Class C exchange privilege, a shareholder may again exchange those shares
(and any reinvested dividends and distributions) for Class B or Class C shares
of the Fund, respectively, without subjecting such shares to any CDSC. Shares
of any fund participating in the Class B or Class C exchange privilege that
were acquired through reinvestment of dividends or distributions may be
exchanged for Class B or Class C shares of other funds, respectively, without
being subject to any CDSC.

B-52
<PAGE>

Class Z. Class Z shares may be exchanged for Class Z shares of other
Prudential Mutual Funds.

Special Exchange Privileges. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV and for
shareholders who qualify to purchase Class Z shares. Under this exchange
privilege, amounts representing any Class B and Class C shares which are not
subject to a CDSC held in such a shareholder's account will be automatically
exchanged for Class A shares for shareholders who qualify to purchase Class A
shares at NAV on a quarterly basis, unless the shareholder elects otherwise.

Shareholders who qualify to purchase Class Z shares will have their Class B
and Class C shares which are not subject to a CDSC and their Class A shares
exchanged for Class Z shares on a quarterly basis. Eligibility for this
exchange privilege will be calculated on the business day prior to the date of
the exchange. Amounts representing Class B or Class C shares which are not
subject to a CDSC include the following: (1) amounts representing Class B or
Class C shares acquired pursuant to the automatic reinvestment of dividends
and distributions, (2) amounts representing the increase in the NAV above the
total amount of payments for the purchase of Class B or Class C shares and (3)
amounts representing Class B or Class C shares held beyond the applicable CDSC
period. Class B and Class C shareholders must notify the Transfer Agent either
directly or through Prudential Securities, Prusec or another broker that they
are eligible for this special exchange privilege.

Participants in any fee-based program for which a Fund is an available option
will have their Class A shares, if any, exchanged for Class Z shares when they
elect to have those assets become a part of the fee-based program. Upon
leaving the program (whether voluntarily or not), such Class Z shares (and, to
the extent provided for in the program, Class Z shares acquired through
participation in the program) will be exchanged for Class A shares at NAV.
Similarly, participants in Prudential Securities' 401(k) Plan for which a
Fund's Class Z shares is an available option and who wish to transfer their
Class Z shares out of the Prudential Securities 401(k) Plan following
separation from service (that is, voluntary or involuntary termination of
employment or retirement) will have their Class Z shares exchanged for Class A
shares at NAV.

Additional details about the exchange privilege and prospectuses for each of
the Prudential Mutual Funds are available from the Funds' Transfer Agent, the
Distributor or your broker. The exchange privilege may be modified, terminated
or suspended on 60 days' notice, and any Fund, including each of these Funds,
or the Distributor, has the right to reject any exchange application relating
to such Fund's shares.

Dollar Cost Averaging

Dollar cost averaging is a method of accumulating shares by investing a fixed
amount of dollars in shares at set intervals. An investor buys more shares
when the price is low and fewer shares when the price is high. The average
cost per share is lower than it would be if a constant number of shares were
bought at set intervals.

Dollar cost averaging may be used, for example, to plan for retirement, to
save for a major expenditure, such as the purchase of a home, or to finance a
college education. The cost of a year's education at a four-year college today
averages around $14,000 at a private college and around $6,000 at a public
university. Assuming these costs increase at a rate of 7% a year, as has been
projected, for the freshman class of 2011, the cost of four years at a private
college could reach $210,000 and over $90,000 at a public university.(/1/)

B-53
<PAGE>

The following chart shows how much you would need in monthly investments to
achieve specified lump sums to finance your investment goals.(/2/)

<TABLE>
<CAPTION>
Period of
Monthly Investments $100,000 $150,000 $200,000 $250,000
------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
25 Years........ $ 105 $ 158 $ 210 $ 263
20 Years........ 170 255 340 424
15 Years........ 289 433 578 722
10 Years........ 547 820 1,093 1,366
5 Years......... 1,361 2,041 2,721 3,402
</TABLE>
- -------
(/1/) Source information concerning the costs of education at public and
private universities is available from The College Board Annual Survey
of Colleges, 1993. Average costs for private institutions include
tuition, fees, room and board for the 1993-1994 academic year.
(/2/) The chart assumes an effective rate of return of 8% (assuming monthly
compounding). This example is for illustrative purposes only and is not
intended to reflect the performance of an investment in shares of a
Fund. The investment return and principal value of an investment will
fluctuate so that an investor's shares when redeemed may be worth more
or less than their original cost.

See "Automatic Investment Plan."

Automatic Investment Plan (AIP). Under AIP, an investor may arrange to have a
fixed amount automatically invested in shares of a Fund monthly by authorizing
his or her bank account or brokerage account (including a Prudential
Securities Command Account) to be debited to invest specified dollar amounts
in shares of a Fund. The investor's bank must be a member of the Automatic
Clearing House System. Stock certificates are not issued to AIP participants.

Further information about this program and an application form can be
obtained from the Transfer Agent, the Distributor or your broker.

Systematic Withdrawal Plan. A systematic withdrawal plan is available to
shareholders through the Transfer Agent, the Distributor or your broker. Such
withdrawal plan provides for monthly or quarterly checks in any amount, except
as provided below, up to the value of the shares in the shareholder's account.
Withdrawals of Class B or Class C shares may be subject to a CDSC.

In the case of shares held through the Transfer Agent (1) a $10,000 minimum
account value applies, (2) withdrawals may not be for less than $100 and (3)
the shareholder must elect to have all dividends and/or distributions
automatically reinvested in additional full and fractional shares at NAV on
shares held under this plan.

The Transfer Agent, the Distributor or your broker acts as an agent for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment. The systematic withdrawal plan may
be terminated at any time, and the Distributor reserves the right to initiate
a fee of up to $5 per withdrawal, upon 30 days' written notice to the
shareholder.

Withdrawal payments should not be considered as dividends, yield or income.
If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.

Furthermore, each withdrawal constitutes a redemption of shares, and any gain
or loss realized must be recognized for federal income tax purposes. In
addition, withdrawals made concurrently with purchases of additional shares
are inadvisable because of the sales charges applicable to (1) the purchase of
Class A shares and (2) the redemption of Class B and Class C

B-54
<PAGE>

shares. Each shareholder should consult his or her own tax adviser with regard
to the tax consequences of the plan, particularly if used in connection with a
retirement plan.

Tax-Deferred Retirement Plans. Various qualified retirement plans, including
a 401(k) plan, self-directed individual retirement accounts and "tax-deferred
accounts" under Section 403(b)(7) of the Internal Revenue Code are available
through the Distributor. These plans are for use by both self-employed
individuals and corporate employers. These plans permit either self-direction
of accounts by participants, or a pooled account arrangement. Information
regarding the establishment of these plans, and the administration, custodial
fees an other details are available from the Distributor or the Transfer
Agent.

Investors who are considering the adoption of such a plan should consult with
their own legal counsel or tax adviser with respect to the establishment and
maintenance of any such plan.

Tax-Deferred Retirement Accounts

Individual Retirement Accounts. An individual retirement account (IRA)
permits the deferral of federal income tax on income earned in the account
until the earnings are withdrawn. The following chart represents a comparison
of the earnings in a personal savings account with those in an IRA, assuming a
$2,000 annual contribution, an 8% rate of return and a 39.6% federal income
tax bracket and shows how much more retirement income can accumulate within an
IRA as opposed to a taxable individual savings account.

Tax-Deferred Compounding(/1/)

<TABLE>
<CAPTION>
Contributions Personal
Made Over: Savings IRA
------------- -------- --------
<S> <C> <C>
10 years.......................... $ 26,165 $ 31,291
15 years.......................... 44,676 58,649
20 years.......................... 68,109 98,846
25 years.......................... 97,780 157,909
30 years.......................... 135,346 244,692
</TABLE>
- -------
(/1/) The chart is for illustrative purposes only and does not represent the
performance of a Fund or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated.
Earnings in a traditional IRA account will be subject to tax when
withdrawn from the account. Distributions from a Roth IRA which meet the
conditions required under the Internal Revenue Code will not be subject to
tax upon withdrawal from the account.

Mutual Fund Programs

From time to time, a Fund or the Company may be included in a mutual fund
program with other Prudential Mutual Funds. Under such a program, a group of
portfolios will be selected and thereafter marketed collectively. Typically,
these programs are created with an investment theme, such as, to seek greater
diversification, protection from interest rate movements or access to
different management styles. In the event such a program is instituted, there
may be a minimum investment requirement for the program as a whole. A Fund may
waive or reduce the minimum initial investment requirements in connection with
such a program.

The mutual funds in the program may be purchased individually or as part of a
program. If investors elect to purchase the individual mutual funds that
constitute the program in an investment ratio different from that offered by
the program, the standard minimum investment requirements for the individual
mutual funds will apply.

B-55
<PAGE>

NET ASSET VALUE

Each Fund will compute its NAV at 4:15 P.M., New York Time, on each day the
New York Stock Exchange is open for trading except on days on which no orders
to purchase, sell or redeem Fund shares have been received or days on which
changes in the value of a Fund's portfolio securities do not affect NAV. In
the event the New York Stock Exchange closes early on any business day, the
NAV of a Fund's shares shall be determined at a time between such closing and
4:15 P.M., New York Time. The New York Stock Exchange is closed on the
following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.

A Fund's net asset value per share or NAV is determined by subtracting its
liabilities from the value of its assets and dividing the remainder by the
number of shares outstanding. Under the Investment Company Act, the Board of
Directors is responsible for determining in good faith the fair value of
securities of the Company. In accordance with procedures adopted by the
Company's Board of Directors, the value of investments listed on a securities
exchange and NASDAQ National Market System securities (other than options on
stock and stock indices) are valued at the last sales price on such exchange
system on the day of valuation, or, if there was no sale on such day, 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. Corporate bonds (other than convertible
debt securities) and U.S. Government 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 investment adviser
to be over-the-counter, are valued on the basis of valuations provided by an
independent pricing agent or principal market maker which uses information
with respect to transactions in bonds, quotations from bond dealers, agency
ratings, market transactions in comparable securities and various
relationships between securities in determining value. 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 in
consultation with the Subadviser to be over-the-counter, are valued at the
mean between the last reported bid and asked prices provided by principal
market makers. Options on stock and stock indexes traded on an exchange are
valued at the mean between the most recently quoted bid and asked prices on
the respective exchange and futures contracts and options thereon are valued
at their last sales prices as of the close of trading on the applicable
commodities 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. Should an extraordinary event, which is likely to affect the
value of the security, occur after the close of an exchange on which a
portfolio security is traded, such security will be valued at fair value
considering factors determined in good faith by the investment adviser under
procedures established by and under the general supervision of the Board of
Directors.

Securities or other assets for which reliable market quotations are not
readily available, or for which the pricing agent or principal market maker
does not provide a valuation or methodology or provides a valuation or
methodology that, in the judgment of the Manager or the investment adviser (or
Valuation Committee or Board of Directors), does not represent fair value, are
valued by the Valuation Committee or Board of Directors in consultation with
the Manager or the Subadviser, including its portfolio managers, traders and
its research and credit analysts, on the basis of the following factors: cost
of the security, transactions in comparable securities, relationships among
various securities and such other factors as may be determined by the Manager,
the investment adviser, Board of Directors or Valuation Committee to
materially affect the value of the security. Short-term debt securities are
valued at cost, with interest accrued or discount amortized to the date of
maturity, if their original maturity was 60 days or less, unless this is
determined by the Board of Directors not to represent fair value. Short-term
securities with remaining maturities of more than 60 days, for which market
quotations are readily available, are valued at their current market
quotations as supplied by an independent pricing agent or principal market
maker.

Although the legal rights of each class of shares are substantially
identical, the different expenses borne by each class will result in different
NAVs. The NAV of Class B and Class C shares will generally be lower than the
NAV of Class A or Class Z shares as a result of the larger distribution-
related fee to which Class B and Class C shares are subject and the NAV of
Class A shares will generally be lower than that of Class Z shares because
Class Z shares are not subject to any distribution

B-56
<PAGE>

or service fee. It is expected, however, that the NAV per share of each class
will tend to converge immediately after the recording of dividends, if any,
which will differ by approximately the amount of the distribution and/or
service fee expense accrual differential among the classes.

TAXES, DIVIDENDS AND DISTRIBUTIONS

Each Fund has elected to qualify and intends to remain qualified as a
regulated investment company under Subchapter M of the Internal Revenue Code.
This relieves the Fund (but not its shareholders) from paying federal income
tax on income and capital gains which are distributed to shareholders, and
permits net capital gains of the Fund (that is, the excess of net long-term
capital gains over net short-term capital losses) to be treated as long-term
capital gains of the shareholders, regardless of how long shareholders have
held their shares in the Fund. Net capital gains of a Fund which are available
for distribution to shareholders will be computed by taking into account any
capital loss carryforward of the Fund.

Qualification of a Fund as a regulated investment company requires, among
other things, that (a) the Fund derive at least 90% of its annual gross income
(without reduction for losses from the sale or other disposition of securities
or foreign currencies) be derived from interest, dividends, payments with
respect to securities loans, and gains from the sale or other disposition of
securities or options thereon or foreign currencies, or other income
(including but not limited to gains from options, futures or forward
contracts) derived with respect to its business of investing in such
securities or currencies; (b) the Fund diversify its holdings so that, at the
end of each quarter of the taxable year (1) at least 50% of the value of the
Fund's assets is represented by cash, U.S. Government securities and other
securities limited in respect of any one issuer to an amount not greater than
5% of the value of the Fund's assets and 10% of the outstanding voting
securities of such issuer, and (2) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other than U.S.
Government securities); and (c) the Fund distribute to its shareholders at
least 90% of its net investment income and net short-term capital gains (that
is, the excess of net short-term capital gains over net long-term capital
losses) in each year.

Gains or losses on sales of securities by a Fund will be treated as long-term
capital gains or losses if the securities have been held by it for more than
one year except in certain cases where the Fund acquires a put or writes a
call thereon or otherwise holds an offsetting position with respect to the
securities. Other gains or losses on the sale of securities will be short-term
capital gains or losses. Gains and losses on the sale, lapse or other
termination of options on securities will be treated as gains and losses from
the sale of securities. If an option written by a Fund on securities lapses or
is terminated through a closing transaction, such as a repurchase by the Fund
of the option from its holder, the Fund will generally realize short-term
capital gain or loss. If securities are sold by a Fund pursuant to the
exercise of a call option written by it, the Fund will include the premium
received in the sale proceeds of the securities delivered in determining the
amount of gain or loss on the sale. Certain of a Fund's transactions may be
subject to wash sale, short sale, constructive sale, anti-conversion and
straddle provisions of the Internal Revenue Code. In addition, debt securities
acquired by a Fund may be subject to original issue discount and market
discount rules.

Special rules apply to most options on stock indices, futures contracts and
options thereon, and forward foreign currency exchange contracts in which a
Fund may invest. These investments will generally constitute Section 1256
contracts and will be required to be "marked to market" for federal income tax
purposes at the end of a Fund's taxable year; that is, treated as having been
sold at market value. Except with respect to certain forward foreign currency
exchange contracts, 60% of any gain or loss recognized on these "deemed sales"
and on actual dispositions will be treated as long-term capital gain or loss,
and the remainder will be treated as short-term capital gain or loss.

Gain or loss on the sale, lapse or other termination of options on stock and
on narrowly-based stock indices will be capital gain or loss and will be long-
term or short-term depending upon the holding period of the option. In
addition, positions which are part of a straddle will be subject to certain
wash sale, short sale and constructive sale provisions of the

B-57
<PAGE>

Internal Revenue Code. In the case of a straddle, a Fund may be required to
defer the recognition of losses on positions it holds to the extent of any
unrecognized gain on offsetting positions held by the Fund. The conversion
transaction rules may apply to certain transactions to treat all or a portion
of the gain thereon as ordinary income rather than as capital gain.

Gains or losses attributable to fluctuations in exchange rates which occur
between the time a Fund accrues interest or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time
the Fund actually collects such receivables or pays such liabilities are
treated as ordinary income or ordinary loss. Similarly, gains or losses on
foreign currency forward contracts or dispositions of debt securities
denominated in a foreign currency attributable to fluctuations in the value of
the foreign currency between the date of acquisition of the security and the
date of disposition also are treated as ordinary gain or loss. These gains,
referred to under the Internal Revenue Code as "Section 988" gains or losses,
increase or decrease the amount of a Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income, rather
than increasing or decreasing the amount of the Fund's net capital gain. If
Section 988 losses exceed other investment company taxable income during a
taxable year, a Fund would not be able to make any ordinary dividend
distributions, or distributions made before the losses were realized would be
recharacterized as a return of capital to shareholders, rather than as an
ordinary dividend, reducing each shareholder's basis in his or her Fund
shares.

Shareholders electing to receive dividends and distributions in the form of
additional shares will have a cost basis for federal income tax purposes in
each share so received equal to the NAV of a share of the relevant Fund on the
reinvestment date.

Each Fund is required to distribute 98% of its ordinary income in the same
calendar year in which it is earned. Each Fund also is required to distribute
during the calendar year 98% of the capital gain net income it earned during
the 12 months ending on October 31 of such calendar year, as well as all
undistributed ordinary income and undistributed capital gain net income from
the prior year or the twelve-month period ending on October 31 of such prior
year, respectively. To the extent it does not meet these distribution
requirements, a Fund will be subject to a non-deductible 4% excise tax on the
undistributed amount. For purposes of this excise tax, income on which a Fund
pays income tax is treated as distributed.

Any dividends or distributions paid shortly after a purchase by an investor
may have the effect of reducing the per share net asset value of the
investor's shares by the per share amount of the dividends or distributions.
Furthermore, such dividends or distributions, although in effect a return of
capital, are subject to federal income taxes. Therefore, prior to purchasing
shares of a Fund, the investor should carefully consider the impact of
dividends or capital gains distributions, which are expected to be or have
been announced.

Any loss realized on a sale, redemption or exchange of shares of a Fund by a
shareholder will be disallowed to the extent the shares are replaced within
the 61-day period (beginning 30 days before the disposition of shares). Shares
purchased pursuant to the reinvestment of a dividend will constitute a
replacement of shares.

A shareholder who acquires shares of a Fund and sells or otherwise disposes
of such shares within 90 days of acquisition may not be allowed to include
certain sales charges incurred in acquiring such shares for purposes of
calculating gain or loss realized upon a sale or exchange of shares of such
Fund.

Dividends of net investment income and distributions of net short-term
capital gains paid to a shareholder (including a shareholder acting as a
nominee or fiduciary) who is a nonresident alien individual, a foreign
corporation or a foreign partnership (foreign shareholder) are subject to a
30% (or lower treaty rate) withholding tax upon the gross amount of the
dividends unless the dividends are effectively connected with a U.S. trade or
business conducted by the foreign shareholder. Capital gain dividends paid to
a foreign shareholder are generally not subject to withholding tax. A foreign
shareholder will, however, be required to pay U.S. income tax on any dividends
and capital gain distributions which are effectively connected with a U.S.
trade or business of the foreign shareholder.

B-58
<PAGE>

Dividends received by corporate shareholders are eligible for a dividends-
received deduction of 70% to the extent a Fund's income is derived from
qualified dividends received by the Fund from domestic corporations. Dividends
attributable to foreign corporations, interest income, capital and currency
gain, gain or loss from Section 1256 contracts (described above), and income
from certain other sources will not constitute qualified dividends. Individual
shareholders are not eligible for the dividends-received deduction.

Income received by a Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Income tax
treaties between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine in advance the effective
rate of foreign tax to which a Fund will be subject, since the amount of the
Fund's assets to be invested in various countries will vary. The Funds do not
expect to meet the requirements of the Internal Revenue Code for "passing-
through" to its shareholders any foreign income taxes paid.

A Fund may, from time to time, invest in Passive Foreign Investment Companies
(PFICs). A PFIC is a foreign corporation that, in general, meets either of the
following tests: (1) at least 75% of its gross income is passive or (2) an
average of at least 50% of its assets produce, or are held for the production
of, passive income. If the Fund acquires and holds stock in a PFIC beyond the
end of the year of its acquisition, the Fund will be subject to federal income
tax on a portion of any "excess distribution" received on the stock or on any
gain from disposition of the stock (collectively, PFIC income), plus interest
thereon, even if the Fund distributes the PFIC income as a taxable dividend to
its shareholders. The balance of the PFIC income will be included in the
Fund's investment company taxable income and, accordingly, will not be taxable
to it to the extent that income is distributed to its shareholders. The Fund
may make a "mark-to-market" election with respect to any marketable stock it
holds of a PFIC. If the election is in effect, at the end of the Fund's
taxable year, the Fund will recognize the amount of gains, if any, as ordinary
income with respect to PFIC stock. No loss will be recognized on PFIC stock,
except to the extent of gains recognized in prior years. Alternatively, the
Fund, if it meets certain requirements, may elect to treat any PFIC in which
it invests as a "qualified electing fund," in which case, in lieu of the
foregoing tax and interest obligation, the Fund will be required to include in
income each year its pro rata share of the qualified electing fund's annual
ordinary earnings and net capital gain, even if they are not distributed to
the Fund; those amounts would be subject to the distribution requirements
applicable to the Fund described above. Dividends and distributions also may
be subject to state and local taxes.

Foreign shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund.

PERFORMANCE INFORMATION

Average Annual Total Return. A Fund may from time to time advertise its
average annual total return. Average annual total return is determined
separately for Class A, Class B, Class C and Class Z shares.

Average annual total return is computed according to the following formula:

P ( 1 + T )n = ERV

Where:P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 or 10 year periods at the end of the 1, 5 or
10 year periods (or fractional portion thereof).

B-59
<PAGE>

Average annual total return takes into account any applicable initial or
deferred sales charges but does not take into account any federal or state
income taxes that may be payable upon redemption.

Below are the average annual total returns for each Fund's share classes for
the periods ended September 30, 1999.

<TABLE>
<CAPTION>
Since
Fund Class 1 Yr. 5 Yr. Inception
---- ------- ----- ----- -----------
<S> <C> <C> <C> <C>
Growth........................................ Class A % N/A % (11/2/95)
Class B % N/A % (11/2/95)
Class C % N/A % (11/2/95)
Class Z % N/A % (4/15/96)
Growth & Income............................... Class A % N/A % (11/7/96)
Class B % N/A % (11/7/96)
Class C % N/A % (11/7/96)
Class Z % N/A % (11/7/96)
Active Balanced............................... Class A % N/A % (11/7/96)
Class B % N/A % (11/7/96)
Class C % N/A % (11/7/96)
Class Z % % % (1/4/93)
</TABLE>

On September 20, 1996, the assets and liabilities of Growth Stock Fund (a
series of Prudential Index Series Fund, formerly Prudential Dryden Fund, and
formerly The Prudential Institutional Fund) were transferred to the Growth
Fund in exchange solely for Class Z shares of the Growth Fund (the
Reorganization). The investment objectives and policies of the Growth Stock
Fund were substantially similar to those of Growth Fund and both funds had the
same investment adviser. Accordingly, if you purchased shares of Growth Stock
Fund at its inception on November 5, 1992, owned such shares through September
20, 1996 (thereby participating in the Reorganization), and continued to own
Class Z shares received in the Reorganization through September 30, 1999, your
average annual total returns (after fees and expenses) for the one and five
year and since inception (November 5, 1992) periods ended September 30, 1999
would have been %, % and %, respectively. In addition, the aggregate
total returns for such periods would have been %, % and %,
respectively.

On or about January 23, 1998, the assets and liabilities of Prudential
Jennison Active Balanced Fund were transferred to the Active Balanced Fund, in
exchange solely for shares of Active Balanced Fund (the Conversion). The
investment objectives and policies of Prudential Jennison Active Balanced Fund
and Active Balanced Fund were virtually identical and each fund had the same
Manager through September 30, 1999, although the Fund's investment adviser
changed from Jennison to PIC on June 1, 1998.

Aggregate Total Return. A Fund may also advertise its aggregate total return.
Aggregate total return is determined separately for Class A, Class B, Class C
and Class Z shares.

Aggregate total return represents the cumulative change in the value of an
investment in a Fund and is computed according to the following formula:

ERV - P
-----
P

Where: P = a hypothetical initial payment of $1,000.
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 or 10 year periods at the end of the 1, 5 or
10 year periods (or fractional portion thereof).

B-60
<PAGE>

Aggregate total return does not take into account any federal or state income
taxes that may be payable upon redemption or any applicable initial or
contingent deferred sales charges.

Below are the aggregate total returns for each Fund's share classes for the
periods ended September 30, 1999.

<TABLE>
<CAPTION>
1 5 Since
Fund Class Yr. Yr. Inception
---- ------- ---- --- -------------
<S> <C> <C> <C> <C>
Growth Class A % N/A %(11/2/95)
Class B % N/A %(11/2/95)
Class C % N/A %(11/2/95)
Class Z % N/A %(4/15/96)
Growth & Income Class A % N/A %(11/7/96)
Class B % N/A %(11/7/96)
Class C % N/A %(11/7/96)
Class Z % N/A %(11/7/96)
Active Balanced Class A % N/A %(11/7/96)
Class B % N/A %(11/7/96)
Class C % N/A %(11/7/96)
Class Z % % %(1/4/93)
</TABLE>

The Company may include comparative performance information in advertising or
marketing a Fund's shares. Such performance information may include data from
Lipper, Inc., Morningstar Publications, Inc. and other industry publications,
business periodicals and market indexes.

Set forth below is a chart which compares the performance of different types
of investments over the long term and the rate of inflation.(1)

- -----------

(1) Source: Ibbotson Associates. All rights reserved, Common stock returns are
based on the Standard & Poor's 500 Stock Index, a market-weighted, unmanaged
index of 500 common stocks in a variety of industry sectors. It is a commonly
used indicator of broad stock price movements. This chart is for illustrative
purposes only and is not intended to represent the performance of any
particular investment or fund. Investors cannot invest directly in an index.
Past performance is not a guarantee of future results.

B-61
<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)

- --------------------------------------------------------------
<S> <C> <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.
See Notes to Financial Statements.

B-62
<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)
<S> <C> <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.
See Notes to Financial Statements.

B-63
<PAGE>

<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<S> <C> <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.
See Notes to Financial Statements.

B-64
<PAGE>

<TABLE>
<CAPTION>
Portfolio of Investments as of THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.*
September 30, 1998 PRUDENTIAL ACTIVE BALANCED FUND
- ------------------------------------------------------------------------------

Shares Description Value (Note 1)
- ------------------------------------------------------------------
<S> <C> <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 Equipment & Services--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.
See Notes to Financial Statements.

B-65
<PAGE>

Shares Description Value (Note 1)
- ------------------------------------------------------------------
<S> <C> <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.
See Notes to Financial Statements.

B-66
<PAGE>

Moody's Principal
Rating Amount Description Value (Note 1)
(Unaudited) (000)

- ------------------------------------------------------------------
<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

Note
A1 600 (b) 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.
See Notes to Financial Statements.

B-67
<PAGE>

<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 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.
See Notes to Financial Statements.

B-68
<PAGE>

THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.*
PRUDENTIAL ACTIVE BALANCED FUND
Portfolio of Investments as of September 30, 1998
- --------------------------------------------------------------------------------

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.
See Notes to Financial Statements.

B-69
<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.
See Notes to Financial Statements.

B-70
<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.
See Notes to Financial Statements.

B-71
<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

- --------------------------------------------------------------------------------

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.

- --------------------------------------------------------------------------------

B-72
<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

- --------------------------------------------------------------------------------

B-73
<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.
- --------------------------------------------------------------------------------

B-74
<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
========== ============
Class B
- -------
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
========== ============
Class 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
========== ============
Class Z
- -------
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.

- --------------------------------------------------------------------------------

B-75
<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.
- --------------------------------------------------------------------------------

B-76
<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
-------------------------------
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............. $ 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.
See Notes to Financial Statements.

B-77
<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.
See Notes to Financial Statements.

B-78
<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

New York, New York
November 20, 1998

- --------------------------------------------------------------------------------
*See Note 7.
See Notes to Financial Statements.

B-79
<PAGE>

Portfolio of Investments as of THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
September 30, 1998 PRUDENTIAL JENNISON GROWTH FUND
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Shares Description Value (Note 1)
- --------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--96.7%
COMMON STOCKS--96.7%
- --------------------------------------------------------------------------------
Banks & Financial Services--12.1%
<S> <C> <C>
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.

B-80
<PAGE>

<TABLE>
<CAPTION>
Shares Description Value (Note 1)
- --------------------------------------------------------------------------------
<S> <C> <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%

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.

B-81
<PAGE>

THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Statement of Assets and Liabilities PRUDENTIAL JENNISON GROWTH FUND
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
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.

B-82
<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.

B-83
<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.
- --------------------------------------------------------------------------------

B-84
<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.
- --------------------------------------------------------------------------------

B-85
<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>
- --------------------------------------------------------------------------------

B-86
<PAGE>

THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Notes to Financial Statements PRUDENTIAL JENNISON GROWTH FUND
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Class C
- -------
Year ended September 30, 1998:
<S> <C> <C>
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
=========== =============

Class Z Shares Amount
- ------- ----------- -------------
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.

- --------------------------------------------------------------------------------
B-87
<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>
Class B
------------------------------
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.

B-88
<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>
Class Z
-------------------------------
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>

- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-89
<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

New York, New York
November 20, 1998

- --------------------------------------------------------------------------------
B-90
<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)

- ----------------------------------------------------------------
<S> <C> <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.

B-91
<PAGE>

<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<S> <C> <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.

B-92
<PAGE>

<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<S> <C> <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%
- ---------------------------------------------------------------

Moody's Principal
Rating Amount
(Unaudited) (000)
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%)

- ---------------------------------------------------------------
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.

B-93
<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.

B-94
<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.

B-95
<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.

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
- --------------------------------------------------------------------------------

B-96
<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.

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.

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.

B-97
<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.

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
========== =============
Class B
- -------
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>

- --------------------------------------------------------------------------------

B-98
<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
=========== ==============
Class 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
=========== ==============
Class Z
- -------
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
=========== ==============
</TABLE>

__________________
* Commencement of investment operations.

B-99
<PAGE>

THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH &
Financial Highlights INCOME FUND
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Class A Class B
------------------------------------- -------------------------------------
November 7, 1996(a) November 7, 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......... $ 12.89 $ 10.00 $ 12.86 $ 10.00
------- -------- ------- -------
Income from investment operations
Net investment income........................ .15 .09 .06 .02
Net realized and unrealized gain (loss)
on investment transactions.................. (1.32) 2.87 (1.31) 2.86
------- -------- ------- -------
Total from investment operations.......... (1.17) 2.96 (1.25) 2.88
------- -------- ------- -------
Less distributions
Dividends from net investment income......... (.12) (.07) (.03) (.02)
Distributions from net realized gains........ (.62) -- (.62) --
------- -------- ------- -------
Total distributions....................... (.74) (.07) (.65) (.02)
------- -------- ------- -------
Net asset value, end of period............... $ 10.98 $ 12.89 $ 10.96 $ 12.86
======= ======== ======= =======
TOTAL RETURN(c).............................. (9.40)% 29.72% (10.01)% 28.83%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000).............. $31,339 $ 34,846 $84,751 $87,558
Average net assets (000)..................... $35,145 $ 27,008 $93,465 $62,575
Ratios to average net assets:
Expenses, including distribution fees..... 1.31% 1.58%(b) 2.06% 2.33%(b)
Expenses, excluding distribution fees..... 1.06% 1.33%(b) 1.06% 1.33%(b)
Net investment income..................... 1.20% .90%(b) .46% .15%(b)
Portfolio turnover rate...................... 99% 55% 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.

B-100
<PAGE>

THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH &
Financial Highlights INCOME FUND
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Class C
--------------------------------------
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...................................... $ 12.86 $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
-------------------------------------
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...................................... $ 12.93 $ 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>

- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-101
<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

New York, New York
November 20, 1998
- --------------------------------------------------------------------------------

B-102
<PAGE>

Portfolio of Investments as of THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
March 31, 1999 (Unaudited) PRUDENTIAL ACTIVE BALANCED FUND
- --------------------------------------------------------------------------------

Shares Description Value (Note 1)

- -----------------------------------------------------------------

LONG-TERM INVESTMENTS--68.5%
COMMON STOCKS--48.1%

- -----------------------------------------------------------------
Aerospace/Defense--0.7%

7,300 Allied Signal, Inc. $ 359,069
3,000 Raytheon Co. 175,875
3,200 United Technologies Corp. 433,400
------------
968,344

- -----------------------------------------------------------------
Airlines--0.2%

1,100 Alaska Air Group, Inc.(a) 52,250
4,500 AMR Corp.(a) 263,531
700 Southwest Airlines Co. 21,175
------------
336,956

- -----------------------------------------------------------------
Aluminum--0.2%

5,000 Alcoa Inc. 205,938

- -----------------------------------------------------------------
Apparel

3,000 Fruit of the Loom, Inc.(a) 31,125

- -----------------------------------------------------------------
Automobiles & Trucks--0.9%

4,500 Arvin Industries, Inc. 151,594
3,300 DaimlerChrysler AG(a) 283,181
13,300 Ford Motor Co. 754,775
1,200 PACCAR, Inc. 49,425
------------
1,238,975

- -----------------------------------------------------------------
Banking--2.2%

5,994 Bank One Corp. 330,045
1,400 Bankers Trust NY Corp. 123,550
1,600 Chase Manhattan Corp. 130,100
6,200 First Union Corp. 331,313
10,500 Fleet Financial Group, Inc. 395,062
13,900 Hibernia Corp. 182,438
10,000 Huntington Bancshares, Inc. 309,375
13,000 Keycorp 394,062
400 Mercantile Bancorporation, Inc. 19,000
4,400 National City Corp. 292,050

- -----------------------------------------------------------------

- -----------------------------------------------------------------
10,400 Regions Financial Corp. $ 360,100
3,100 Suntrust Banks, Inc. 192,975
-------------
3,060,070

- -----------------------------------------------------------------
Beverages--0.4%

7,900 Coca-Cola Co. 484,862
1,300 Coca-Cola Enterprises Inc. 39,325
-------------
524,187

- -----------------------------------------------------------------
Building & Construction

1,600 Masco Corp. 45,200

- -----------------------------------------------------------------
Business Services--0.4%

5,700 Omnicom Group, Inc. 455,644
2,000 Ryder System, Inc. 55,250
-------------
510,894

- -----------------------------------------------------------------
Cellular Communications

600 AirTouch Communications, Inc.(a) 57,975

- -----------------------------------------------------------------
Chemicals--0.2%

100 E.I. Du Pont De Nemours & Co. 5,806
18,800 Schulman (A.), Inc. 256,150
-------------
261,956

- -----------------------------------------------------------------
Commercial Services--0.3%

7,500 Paychex, Inc. 355,781

- -----------------------------------------------------------------
Computer Software & Services--5.7%

800 Adobe Systems, Inc. 45,400
7,600 America Online, Inc.(a) 1,109,600
10,700 BMC Software Inc.(a) 396,569
3,700 Comverse Technology, Inc.(a) 314,500
1,200 Electronic Arts, Inc.(a) 57,000
5,900 EMC Corp.(a) 753,725
2,000 Gateway 2000, Inc.(a) 137,125
2,700 Intuit Inc.(a) 274,725

- -----------------------------------------------------------------
See Notes to Financial Statements.

B-103
<PAGE>

Shares Description Value (Note 1)

- -----------------------------------------------------------------
Computer Software & Services (cont'd.)

35,000 Microsoft Corp.(a) $ 3,136,875
17,300 Oracle Systems Corp.(a) 456,287
300 Siebel Systems, Inc.(a) 14,250
4,900 Sterling Software, Inc.(a) 116,375
5,300 Sun Microsystems, Inc.(a) 662,169
7,500 SunGuard Data Systems Inc.(a) 300,000
-------------
7,774,600

- -----------------------------------------------------------------
Computer Systems/Peripherals--1.2%

4,300 Dell Computer Corp.(a) 175,763
2,500 Hewlett-Packard Co. 169,531
4,700 International Business Machines Corp. 833,075
1,800 Linear Technology Corp. 92,250
11,600 Seagate Technology, Inc.(a) 342,925
-------------
1,613,544

- -----------------------------------------------------------------
Containers--0.1%

4,400 Owens-Illinois Holdings Corp.(a) 110,000

- -----------------------------------------------------------------
Diversified Consumer Products--1.6%

7,300 Baltimore Gas & Electric Co. 185,237
11,000 Fortune Brands, Inc. 425,563
11,500 Procter & Gamble Co. 1,126,281
7,300 Unilever NV 484,994
-------------
2,222,075

- -----------------------------------------------------------------
Diversified Operations--1.7%

20,300 General Electric Co. 2,245,687

- -----------------------------------------------------------------
Diversified Manufacturing--0.3%

7,000 Harsco Corp. 176,313
9,400 Tenneco, Inc. 262,612
-------------
438,925

- -----------------------------------------------------------------

- -----------------------------------------------------------------
Electrical Utilities--1.5%

200 American Electric Power Co., Inc. $ 7,938
3,900 Consolidated Edison, Inc. 176,719
2,800 Dominion Resources, Inc. 103,425
12,900 Entergy Corp. 354,750
7,600 Florida Progress Corp. 286,900
7,500 GPU, Inc. 279,844
1,700 Hawaiian Electric Industries Inc. 59,606
4,896 PP & L Resources, Inc. 121,176
18,600 Public Service Company of New Mexico 316,200
3,100 Public Service Enterprise Group Inc. 118,381
11,700 Southern Co. 272,756
-------------
2,097,695

- -----------------------------------------------------------------
Electronic Components--1.5%

400 Arrow Electronics, Inc.(a) 6,000
13,100 Intel Corp. 1,560,538
4,500 KLA-Tencor Corp.(a) 218,531
6,400 Micron Technology, Inc.(a) 308,800
-------------
2,093,869

- -----------------------------------------------------------------
Financial Services--4.4%

5,200 American Express Co. 611,000
600 Associates First Capital Corp. 27,000
3,760 BankAmerica Corp. 265,550
2,800 Bear Stearns Companies, Inc. 125,125
6,650 Citigroup Inc. 424,769
9,400 Countrywide Credit Industries, Inc. 352,500
9,700 Federal Home Loan Mortgage Corp. 554,112
10,600 Federal National Mortgage Assoc. 734,050
800 Golden West Financial Corp. 76,400
6,200 Lehman Brothers Holdings, Inc. 370,450
500 Merrill Lynch & Co., Inc. 44,219
3,800 Morgan (J.P.) & Co., Inc. 468,825
3,100 Morgan Stanley, Dean Witter & Co. 309,806
3,800 Providian Financial Corp. 418,000
6,350 Schwab (Charles) Corp. 610,394
6,372 Washington Mutual, Inc. 260,456
9,300 Wells Fargo Co. 326,081
-------------
5,978,737

- -----------------------------------------------------------------
See Notes to Financial Statements.

B-104
<PAGE>

Shares Description Value (Note 1)

- -----------------------------------------------------------------
Foods--0.6%

10,395 Archer-Daniels Midland Co. $ 152,677
1,100 Bestfoods 51,700
6,700 ConAgra, Inc. 171,269
4,000 General Mills, Inc. 302,250
1,100 Hershey Foods Corp. 61,600
1,500 Sara Lee Corp. 37,125
------------
776,621

- -----------------------------------------------------------------
Health Care Services

700 American Home Products Corp. 45,675

- -----------------------------------------------------------------
Home Furnishings--0.3%

5,700 Newell Rubbermaid Inc. 270,750
5,200 Springs Industries, Inc. 140,725
------------
411,475

- -----------------------------------------------------------------
Human Resources--0.2%

8,500 Kelly Services, Inc. 235,875

- -----------------------------------------------------------------
Insurance--2.4%

13,600 Allstate Corp. 504,050
10,400 American International Group, Inc. 1,254,500
4,800 CIGNA Corp. 402,300
5,900 Hartford Financial Services Group 335,194
1,200 Marsh & McLennan Cos., Inc. 89,025
16,500 Old Republic International Corp. 301,125
600 Progressive Corp. 86,100
2,600 Torchmark Corp. 82,225
2,600 Transamerica Corp. 184,600
------------
3,239,119

- -----------------------------------------------------------------
Machinery & Equipment--0.5%

7,500 Applied Materials, Inc.(a) 462,656
2,900 Caterpillar, Inc. 133,219
3,100 Kennametal Inc. 54,250
8,800 MagneTek, Inc.(a) 73,700
------------
723,825

- -----------------------------------------------------------------
Media & Communications--0.5%
1,000 Gannett Co., Inc. 63,000

- -----------------------------------------------------------------
2,300 Time Warner Inc. $ 163,444
15,700 Walt Disney Co. 488,662
------------
715,106

- -----------------------------------------------------------------
Medical Devices--0.3%

7,000 Guidant Corp.(a) 423,500

- -----------------------------------------------------------------
Medical Products & Services--1.9%

12,500 Bergen Brunswig Corp. 250,000
2,900 Johnson & Johnson Co. 271,694
14,900 Schering Plough Corp. 824,156
8,500 Tyco International Ltd. 609,875
8,800 Warner-Lambert Co. 582,450
------------
2,538,175

- -----------------------------------------------------------------
Medical Technology--0.6%

3,900 Abbott Laboratories 182,569
7,600 Amgen, Inc.(a) 569,050
------------
751,619

- -----------------------------------------------------------------
Metals

100 Alcan Aluminum Ltd. 2,581

- -----------------------------------------------------------------
Miscellaneous/Diversified--0.4%

4,100 Harley-Davidson Inc. 235,750
22,900 Service Corp. International 326,325
------------
562,075

- -----------------------------------------------------------------
Miscellaneous Industrial--0.3%

3,200 Clorox Co. 375,000

- -----------------------------------------------------------------
Networking--0.7%

8,100 Cisco Systems, Inc.(a) 887,456

- -----------------------------------------------------------------
Oil & Gas Equipment & Services--0.1%

600 Enron Corp. 38,550
1,600 Tidewater, Inc. 41,400
------------
79,950

- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-105
<PAGE>

<TABLE>
<CAPTION>
Shares Description Value (Note 1)
- ------------------------------------------------------------------
<S> <C> <C>
Oil & Gas Exploration/Production--1.1%

9,500 Coastal Corp. $ 313,500
1,200 MCN Energy Group Inc.. 19,275
16,500 Royal Dutch Petroleum Co. 858,000
6,200 Texaco, Inc. 351,850
------------
1,542,625

- ------------------------------------------------------------------
Oil & Gas Services--1.0%

4,400 Amerada Hess Corp. 221,375
1,100 Chevron Corp. 97,281
2,700 Consolidated Natural Gas Co. 131,456
8,500 Exxon Corp. 599,781
8,800 KeySpan Energy 221,100
1,400 Mobil Corp. 123,200
------------
1,394,193

- ------------------------------------------------------------------
Pharmaceuticals--2.2%

16,400 Bristol Myers Squibb Co. 1,054,725
1,300 Eli Lilly & Co. 110,337
14,800 Merck & Co., Inc. 1,186,775
4,500 Pfizer, Inc. 624,375
------------
2,976,212

- ------------------------------------------------------------------
Printing & Publishing--0.3%

1,800 Lexmark International Group, Inc.(a) 201,150
900 New York Times Co. 25,650
1,400 Tribune Co. 91,613
100 Washington Post Company 52,150
------------
370,563

- ------------------------------------------------------------------
Retail--4.4%

3,800 Abercrombie & Fitch Co.(a) 349,600
2,600 Best Buy Co., Inc.(a) 135,200
5,400 Circuit City Stores-Circut City Group 413,775
700 Dayton-Hudson Corp. 46,638
2,400 Dollar Tree Stores, Inc.(a) 74,250
3,800 Federated Department Stores, Inc.(a) 152,475
8,450 Gap, Inc. $ 568,791
14,400 Home Depot, Inc. 896,400
4,700 Kohl's Corp.(a) 333,113
7,500 Lowes Companies, Inc. 453,750
9,000 McDonald's Corp. 407,812
3,400 Penney (J.C.) Co., Inc. 137,700
11,200 Staples, Inc.(a) 368,200
17,400 Wal-Mart Stores, Inc. 1,604,062
------------
5,941,766

- ------------------------------------------------------------------
Steel & Metals--0.2%

3,900 AK Steel Holding Corp. 87,994
8,100 Carpenter Technology Corp. 210,094
------------
298,088

- ------------------------------------------------------------------
Telecommunication Services--3.9%

11,800 Ameritech Corp. 682,925
14,900 AT&T Corp. 1,189,206
14,600 Bell Atlantic Corp. 754,637
18,800 BellSouth Corp. 753,175
500 Century Telephone Enterprises, Inc. 35,125
11,400 GTE Corp. 689,700
5,875 MCI WorldCom, Inc.(a) 520,305
3,000 SBC Communications, Inc. 141,375
6,200 Sprint Corp. 608,375
------------
5,374,823

- ------------------------------------------------------------------
Telecommunications Equipment--1.3%

7,600 ADC Telecommunications, Inc.(a) 362,425
11,400 Lucent Technologies, Inc. 1,228,350
2,400 Tellabs, Inc.(a) 234,600
------------
1,825,375

- ------------------------------------------------------------------
Textile-Apparel Manufacturing--0.3%

28,400 Burlington Industries, Inc.(a) 188,150
15,600 Unifi, Inc.(a) 198,900
------------
387,050
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-106
<PAGE>

<TABLE>
<CAPTION>
Shares Description Value (Note 1)
- ------------------------------------------------------------------
<S> <C> <C>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Tobacco--0.7%

18,800 Philip Morris Co., Inc. $ 661,525
9,500 UST, Inc. 248,187
------------
909,712

- ------------------------------------------------------------------
Transportation--0.1%

8,600 Wisconsin Central Transportation
Corp.(a) 113,950

- ------------------------------------------------------------------
Transportation/Trucking/Shipping--0.3%

8,000 Burlington Northern, Inc. 263,000
4,700 CSX Corp. 183,006
------------
446,006
Total common stocks
(cost $56,683,842) 65,520,948
------------

- ------------------------------------------------------------------

Principal
Moody's Amount
Rating (000)

- ------------------------------------------------------------------

DEBT OBLIGATIONS--20.4%
CORPORATE BONDS--16.1%

- ------------------------------------------------------------------
Aerospace/Defense--1.5%

A1 $ 700 Boeing Inc., Deb.
8.10%, 11/15/06 779,436
Baa3 700 Northrop Grumman Corp.,
Deb.
7.75%, 3/1/16 739,039
Baa1 500 Raytheon Co. Note
6.30%, 3/15/05 503,555
------------
2,022,030

- ------------------------------------------------------------------
Airlines--0.2%

Baa3 225 Delta AirLines, Inc., Deb.
9.75%, 5/15/21 279,851

- ------------------------------------------------------------------
Asset Backed Securities--1.5%

Aaa 1,500 Citibank Credit Card
Master Trust, Cl. A
6.05%, 1/15/10 1,481,250
Aaa 500 MBNA Master Credit Card
Trust, Ser. C, Cl. A
6.45%, 2/15/08 510,625
------------
1,991,875

- ------------------------------------------------------------------
Automotive--0.4%

A1 $ 530 Ford Motor Co. (Del.),
Bond
6.50%, 8/1/18 $ 513,416

- ------------------------------------------------------------------
Banking--2.3%

Aa2 1,000 BankAmerica Corp., MTN
7.125%, 5/12/05 1,045,830
Aa3 1,000 Chemical Bank, Sub. Note
7.00%, 6/1/05 1,036,210
A1 500 Citicorp, Sub. Note
7.125%, 9/1/05 520,640
Aa2 560 Deutsche Bank, Sub. Note
7.50%, 4/25/09 599,155
------------
3,201,835

- ------------------------------------------------------------------
Beverages--0.2%

Coca-Cola Enterprises Inc., Deb.
A3 50 8.50%, 2/1/22 59,191
A3 205 6.75%, 9/15/28 201,749
------------
260,940

- ------------------------------------------------------------------
Building & Construction--0.6%

A3 800 Hanson Overseas BV, Sr.
Note
6.75%, 9/15/05 822,432

- ------------------------------------------------------------------
Financial Services--4.7%

Aa3 750 Associates Corp. North
America, Sr. Note
6.75%, 7/15/01 767,648
A2 1,000 Bear, Stearns & Co. Inc.,
Sr. Note
8.75%, 3/15/04 1,104,530
A1 285 Ford Motor Credit Corp.,
Deb.
7.40%, 11/1/46 297,546
A2 570 General Motors Acceptance
Corp., Sr. Note
6.75%, 2/7/02 583,976
A1 700 Goldman, Sachs Group LP,
Note
7.25%, 10/1/05 728,217
A3 400 Heller Financial Inc.,
Note
6.00%, 3/19/04 396,484
</TABLE>

- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-107
<PAGE>

<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000) Description Value (Note 1)
- ------------------------------------------------------------------
<S> <C> <C> <C>
Financial Services (cont'd.)

A1 $ 400 International Lease
Finance Corp., Note
6.00%, 5/15/02 $ 401,784
Lehman Brothers Holdings,
Inc., Notes
Baa1 300 6.625%, 4/1/04 299,355
Baa1 85 6.625%, 2/5/06 83,951
Aa3 500 Merrill Lynch & Co., MTN
6.02%, 5/11/01 504,295
Santander Finance
Issuances, Notes
A1 520 6.80%, 7/15/05 532,449
A1 170 7.00%, 4/1/06 173,859
A3 600 US West Capital Funding
Inc., Note
6.125%, 7/15/02 606,258
------------
6,480,352

- ------------------------------------------------------------------
Media & Communications--1.1%

Baa3 600 News America Holdings,
Inc., Deb.
9.25%, 2/1/13 724,944
Baa3 600 Time Warner, Inc., Sr.
Note
9.125%, 1/15/13 733,128
------------
1,458,072

- ------------------------------------------------------------------
Medical Products & Services--0.3%

Baa1 400 Tyco International Group,
Note
6.375%, 6/15/05 402,424

- ------------------------------------------------------------------
Oil & Gas Exploration/Production--0.6%

A2 700 Atlantic Richfield Co.,
Deb.
10.875%, 7/15/05 878,024

- ------------------------------------------------------------------
Retail--0.4%

A2 565 Penney (J.C.) Co., Inc.,
MTN
7.05%, 5/23/05 577,758

- ------------------------------------------------------------------
Telecommunication Services--1.0%

A1 500 AT&T Corp., Note
6.00%, 3/15/09 496,760
GTE Corp., Deb.
Baa1 $ 220 6.36%, 4/15/06 $ 222,552
Baa1 210 7.51%, 4/1/09 230,288
Baa1 430 Sprint Capital Corp., Note
6.875%, 11/15/28 424,582
------------
1,374,182

- ------------------------------------------------------------------
Telecommunications Equipment--0.3%

A2 400 Lucent Technologies, Inc.,
Deb.
6.45%, 3/15/29 389,140

- ------------------------------------------------------------------
Utilities--1.0%

A2 300 Hydro Quebec, Deb.
(Canada)
7.50%, 4/1/16 327,312
A2 1,000 Southern California Edison
Co., Note
6.50%, 6/1/01 1,018,100
------------
1,345,412
Total corporate bonds
(cost $22,059,442) 21,997,743
------------

- ------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES--4.3%
- ------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS--0.7%

Aaa 400 First Union-Lehman
Brothers Bank, Ser. 1998
6.56%, 11/18/08 405,091
Aaa 500 LB Commercial Conduit
Mortgage Trust, Ser. C,
Class A
6.48%, 1/18/08 503,486
------------
Total collateralized
mortgage obligations
(cost $916,573) 908,577
------------

- ------------------------------------------------------------------
U.S. GOVERNMENT AGENCY MORTGAGE PASS-THROUGH OBLIGATIONS--1.3%

Federal National Mortgage Assoc.,
785 8.50%, 10/1/24 823,728
449 9.50%, 7/1/25 479,484
470 8.50%, 2/1/28 493,978
------------
Total U.S. government
agency mortgage
pass-through obligations
(cost $1,790,588) 1,797,190
------------
</TABLE>

- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-108
<PAGE>

Portfolio of Investments as of THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC
March 31, 1999 (Unaudited) PRUDENTIAL ACTIVE BALANCED FUND
- ----------------------------------------------------------------------------

<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000) Description Value (Note 1)
<S> <C> <C> <C>
- ------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--2.3%
United States Treasury
Bond,
$ 550 7.875%, 2/15/21 $ 680,883
United States Treasury
Notes,
1,950 7.50%, 2/15/05 2,161,751
275 6.50%, 8/15/05 291,585
------------
Total U.S. government
obligations
(cost $3,141,371) 3,134,219
------------
Total U.S. government
securities
(cost $5,848,532) 5,839,986
------------
Total debt obligations
(cost $27,907,974) 27,837,729
------------
Total long-term
investments
(cost $84,591,816) 93,358,677
------------
- ------------------------------------------------------------------
SHORT-TERM INVESTMENTS--43.4%
- ------------------------------------------------------------------
COMMERCIAL PAPER--11.3%
General Electric Capital
Corp.,
P-1 4,000 5.12%, 4/1/99 4,000,000
GTE Funding, Inc.,
P-1 3,000 5.00%, 4/7/99 2,997,500
Salomon Smith Barney
Holdings, Inc.,
P-1 3,000 4.89%, 4/8/99 2,997,147
Societe Generale Cayman,
NR 1,426 5.125%, 4/1/99 1,426,000
Windmill Funding Corp.,
P-1 3,993 4.88%, 4/19/99 3,983,257
------------
Total commercial paper
(cost $15,403,904) 15,403,904
------------
- ------------------------------------------------------------------
CORPORATE BONDS--0.3%
- ------------------------------------------------------------------
Health Care Services

A2 365 American Home Products
Corp., Note
7.70%, 2/15/00
(cost $370,888) 372,614
------------
- ------------------------------------------------------------------
U.S. GOVERNMENT AGENCY MORTGAGE PASS-THROUGH
OBLIGATIONS--10.8%

$ 2,500(c) 7.50%, 12/1/99 $ 2,568,750
5,500(c) 6.50%, 12/1/99 5,474,205
3,500(c) 7.00%, 12/1/99 3,548,125
2,000(c) 6.50%, 12/1/99 2,018,120
Government National
Mortgage Assoc.,
1,000(c) 8.00%, 12/15/99 1,041,870
------------
Total U.S. government
agency mortgage
pass-through obligations
(cost $14,631,719) 14,651,070
------------
- ------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--0.7%

United States Treasury
Bills,
1,000(b) Zero Coupon, 6/17/99
(cost $990,590) 990,632
------------
- ------------------------------------------------------------------
REPURCHASE AGREEMENT--20.3%

27,714 Joint Repurchase Agreement
Account
4.911%, 4/1/99
(cost $27,714,000; Note
5) 27,714,000
------------
Total short-term
investments
(cost $59,111,101) 59,132,220
------------
- ------------------------------------------------------------------
Total Investments--111.9%
(cost $143,702,917; Note
4) 152,490,897
Liabilities in excess of
other assets--(11.9%) (16,220,503)
------------
Net Assets--100% $136,270,394
------------
------------
</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 $990,632 segregated at
3/31/99
(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 Notes to Financial Statements.

B-109
<PAGE>

Statement of Assets and THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Liabilities (Unaudited) PRUDENTIAL ACTIVE BALANCED FUND
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Assets March 31, 1999
----------------
<S> <C>
Investments, at value (cost $143,702,917).................................................................. $ 124,776,897
Repurchase Agreement....................................................................................... 27,714,000
Receivable for investments sold............................................................................ 14,740,578
Dividends and interest receivable.......................................................................... 517,775
Receivable for Fund shares sold............................................................................ 314,518
Deferred expenses.......................................................................................... 2,326
-------------
Total assets........................................................................................... 168,066,094
-------------
Liabilities
Bank overdraft............................................................................................. 1,432,293
Payable for investments purchased.......................................................................... 29,447,674
Payable for Fund shares reacquired......................................................................... 634,510
Due to broker-variation margin............................................................................. 149,294
Management fee payable..................................................................................... 74,311
Accrued expenses........................................................................................... 50,166
Distribution fee payable................................................................................... 7,452
-------------
Total liabilities...................................................................................... 31,795,700
-------------
Net Assets................................................................................................. $ 136,270,394
=============

Net assets were comprised of:
Common stock, at par.................................................................................... $ 10,318
Paid-in capital in excess of par........................................................................ 115,548,090
-------------
115,558,408
Undistributed net investment income..................................................................... 1,418,108
Accumulated net realized gain on investments............................................................ 10,400,791
Net unrealized appreciation on investments.............................................................. 8,893,087
-------------
Net assets, March 31, 1999................................................................................. $ 136,270,394
=============

Class A:
Net asset value and redemption price per share
($7,167,303 / 542,528 shares of common stock issued and outstanding)................................. $13.21
Maximum sales charge (5% of offering price)............................................................. .70
------
Maximum offering price to public........................................................................ $13.91
======
Class B:
Net asset value, offering price and redemption price per share
($7,021,744 / 532,644 shares of common stock issued and outstanding)................................. $13.18
======
Class C:
Net asset value and redemption price per share
($664,620 / 50,415 shares of common stock issued and outstanding).................................... $13.18
Maximum sales charge (1% of offering price)............................................................. .13
------
Maximum offering price to public........................................................................ $13.31
======
Class Z:
Net asset value, offering price and redemption price per share
($121,416,727 / 9,193,136 shares of common stock issued and outstanding)............................. $13.21
======
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-110
<PAGE>

THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL ACTIVE BALANCED FUND
Statement of Operations (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Six Months
Ended

Net Investment Income March 31, 1999
--------------
<S> <C>
Income
Interest.................................... $ 2,108,844
Dividends (net of foreign withholding taxes
of $107)................................. 467,512
--------------
Total income............................... 2,576,356
--------------
Expenses
Management fee.............................. 469,560
Distribution fee--Class A................... 5,626
Distribution fee--Class B................... 22,891
Distribution fee--Class C................... 2,490
Transfer agent's fees and expenses.......... 140,000
Registration fees........................... 64,000
Reports to shareholders..................... 62,000
Custodian's fees and expenses............... 50,000
Legal fees and expenses..................... 12,000
Audit fee and expenses...................... 10,000
Directors' fees............................. 3,000
Miscellaneous............................... 1,028
--------------
Total expenses............................. 842,595
--------------
Net investment income.......................... 1,733,761
--------------
Realized and Unrealized Gain (Loss)
on Investments
Net realized gain on:
Investment transactions..................... 4,514,816
Financial futures contracts................. 4,316,544
--------------
8,831,360
Net change in unrealized appreciation
(depreciation) on:
Investments................................. 12,929,959
Financial futures contracts................. (609,128)
--------------
12,320,831
Net gain on investments........................ 21,152,191
--------------
Net Increase in Net Assets
Resulting from Operations...................... $ 22,885,952
==============
</TABLE>

THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL ACTIVE BALANCED FUND
Statement of Changes in Net Assets (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) March 31, September 30,
in Net Assets 1999 1998
------------- -------------
<S> <C> <C>
Operations
Net investment income.................... $ 1,733,761 $ 5,391,746
Net realized gain on investments......... 8,831,360 26,438,362
Net change in unrealized
appreciation (depreciation)
on investments........................ 12,320,831 (28,216,192)
------------- -------------
Net increase in net assets resulting
from operations....................... 22,885,952 3,613,916
------------- -------------
Dividends and distributions (Note 1)
Dividends to shareholders from
net investment income
Class A............................... (74,318) (24,889)
Class B............................... (52,406) (4,933)
Class C............................... (4,693) (273)
Class Z............................... (4,048,216) (4,664,569)
------------- -------------
(4,179,633) (4,694,664)
------------- -------------
Distributions to shareholders
from net realized gains
Class A............................... (438,657) (82,174)
Class B............................... (480,842) (24,906)
Class C............................... (43,068) (1,378)
Class Z............................... (21,035,473) (13,860,433)
------------- -------------
(21,998,040) (13,968,891)
------------- -------------
Fund share transactions (net of
share conversion) (Note 6)
Net proceeds from shares sold............ 40,278,946 105,305,809
Net asset value of shares
issued to shareholders in
reinvestment of dividends
and distributions..................... 26,171,714 18,663,277
Cost of shares reacquired................ (95,266,412) (100,421,933)
------------- -------------
Net increase (decrease) in net
assets from Fund share
transactions.......................... (28,815,752) 23,547,153
------------- -------------
Total increase (decrease)................... (32,107,473) 8,497,514
Net Assets
Beginning of period......................... 168,377,867 159,880,353
------------- -------------
End of period(a)............................ $ 136,270,394 $ 168,377,867
============= =============
- ---------------
(a) Includes undistributed net
investment income of.................... $ 1,418,108 $ 3,863,980
------------- -------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-111
<PAGE>

Notes to Financial Statements THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
(Unaudited) PRUDENTIAL ACTIVE BALANCED FUND
- --------------------------------------------------------------------------------

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.

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.

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 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
- --------------------------------------------------------------------------------

B-112
<PAGE>

Notes to Financial Statements THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
(Unaudited) PRUDENTIAL ACTIVE BALANCED FUND
- --------------------------------------------------------------------------------

imperfect correlation in movements in the price of futures contracts, interest
rates and the underlying hedged assets.

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.

Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.

Withholding taxes on foreign dividends have been provided for in accordance with
the Fund's understanding of the applicable country's tax rules and rates.

Note 2. Agreements

The Fund has a management agreement with Prudential Investments Fund Management
LLC ("PIFM"). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PIFM has entered into a subadvisory agreement with The Prudential
Investment Corporation ("PIC"); PIC furnishes investment advisory services in
connection with the management of the Fund. PIFM pays for the service of PIC,
the compensation of officers of the Fund, occupancy and certain clerical and
bookkeeping costs of the Fund. The Fund bears all other costs and expenses.

The management fee paid PIFM is computed daily and payable monthly at an annual
rate of .65 of 1% of the Fund's average daily net assets.

The Fund has a distribution agreement with Prudential Investment Management
Services LLC ("PIMS"), which acts as the distributor of the Class A, Class B,
Class C and Class Z shares. The Fund compensates PIMS for distributing and
servicing the Fund's Class A, Class B and Class C shares, pursuant to plans of
distribution (the "Class A, B and C Plans"), regardless of expenses actually
incurred. The distribution fees are accrued daily and payable monthly. No
distribution or service fees were 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 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 six months ended
March 31, 1999.

PIMS has advised the Fund that it received approximately $21,000 in front-end
sales charges resulting from sales of Class A shares and after November 2, 1998
Class C shares during the six months ended March 31, 1999. From these fees, PIMS
paid such sales charges to affiliated broker-dealers, which in turn paid
commissions to salespersons and incurred other distribution costs.

PIMS has advised the Fund that for the six months ended March 31, 1999, it
received approximately $49,900 and $30 in contingent deferred sales charges
imposed upon certain redemptions by Class B and Class C shareholders,
respectively.

PIC, PIFM and PIMS are indirect, wholly owned subsidiaries of The Prudential
Insurance Company of America.
- --------------------------------------------------------------------------------

B-113
<PAGE>

THE PRUDENTIAL INVESTMENT PORTFOLIOS,
Notes to Financial Statements (Unaudited) INC. PRUDENTIAL ACTIVE BALANCED FUND
- --------------------------------------------------------------------------------

As of March 11, 1999, the Fund, along with other affiliated registered
investment companies (the "Funds"), entered into a syndicated credit agreement
("SCA") with an unaffiliated lender. The maximum commitment under the SCA is $1
billion. The Funds pay a commitment fee at an annual rate of .065 of 1% on the
unused portion of the credit facility, which is accrued and paid quarterly on a
pro rata basis by the Funds. The SCA expires on March 9, 2000. Prior to March
11, 1999, the Funds had a credit agreement with a maximum commitment of
$200,000,000. The commitment fee was .055 of 1% on the unused portion of the
credit facility. The Fund did not borrow any amounts pursuant to either
agreement during the six months ended March 31, 1999. The purpose of the
agreements are to serve as an alternative source of funding for capital share
redemptions.

- --------------------------------------------------------------------------------
Note 3. Other Transactions With Affiliates

Prudential Mutual Fund Services LLC ("PMFS"), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the six months ended March 31, 1999,
the Fund incurred fees of approximately $134,600 for the services of PMFS. As of
March 31, 1999, approximately $15,700 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 investment securities of the Fund, other than short-term
investments, for the six months ended March 31, 1999 were $143,583,192 and
$189,765,713, respectively, which includes purchases and sales of U.S.
government obligations of $11,230,781 and $12,934,273, respectively.

The average balance of dollar rolls outstanding during the six months ended
March 31, 1999 was approximately $1,723,100. The amount of dollar rolls
outstanding at March 31, 1999 was $14,686,016 (principal $14,500,000), which was
8.7% of total assets.

The cost basis of investments for federal income tax purposes as of March 31,
1999 was $143,805,156 and accordingly, net unrealized depreciation of
investments for federal income tax purposes was $8,661,874 (gross unrealized
appreciation--$11,837,254, gross unrealized depreciation--$3,175,380).

During the six months ended March 31, 1999, the Fund entered into financial
futures contracts. Details of open contracts at March 31, 1999 are as follows:

<TABLE>
<CAPTION>
Value at Value at Unrealized
Number of Expiration March 31, Trade Appreciation/
Contracts Type Date 1999 Date (Depreciation)
- ----------- ---------------- ------------ ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Long Position:
4 S&P 500 June 99 $ 5,173,200 $ 5,132,688 $ 40,512
59 U.S. T-Bond June 99 7,113,188 7,105,000 8,188
132 U.S. T-Bond June 99 14,709,750 14,653,344 56,406
--------------
$ 105,106
==============
</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 repurchase agreements collateralized
by U.S. Government or federal agency obligations. At March 31, 1999, the Fund
had a 5.0% undivided interest in repurchase agreements in the joint account. The
undivided interest for the Fund represented $27,714,000 in principal amount. As
of such date, each repurchase agreement in the joint account and the value of
the collateral therefore was as follows:

Bear, Stearns & Co., Inc., 4.92%, in the principal amount of $170,000,000,
repurchase price $170,023,233, due 4/1/99. The value of the collateral including
accrued interest was $174,282,442.

Salomon Smith Barney, Inc., 4.90%, in the principal amount of $170,000,000,
repurchase price $170,023,139, due 4/1/99. The value of the collateral including
accrued interest was $174,947,170.

Morgan Stanley Dean Witter, 4.90%, in the principal amount of $170,000,000,
repurchase price $170,023,139, due 4/1/99. The value of the collateral including
accrued interest was $173,474,773.

Warburg Dillon Read LLC, 4.97%, in the principal amount of $44,773,000,
repurchase price $44,779,181, due 4/1/99. The value of the collateral including
accrued interest was $45,668,747.

- --------------------------------------------------------------------------------
Note 6. Capital

- --------------------------------------------------------------------------------
B-114
<PAGE>

THE PRUDENTIAL INVESTMENT PORTFOLIOS,
Notes to Financial Statements (Unaudited) INC. PRUDENTIAL ACTIVE BALANCED FUND
- --------------------------------------------------------------------------------

C shares are sold with a front-end sales charge of 1% and a contingent deferred
sales charge of 1% during the first 18 months. Class B shares will automatically
convert to Class A shares on a quarterly basis approximately seven years after
purchase. A special exchange privilege is also available for shareholders who
qualify to purchase Class A shares at net asset value. Class Z shares are not
subject to any sales or redemption charge and are offered exclusively for sale
to a limited group of investors.

Transactions in shares of common stocks were as follows:

<TABLE>
<CAPTION>
Class A Shares Amount
- ------- ---------- ------------
<S> <C> <C>
Six months ended March 31, 1999:
Shares sold........................ 400,034 $ 5,264,099
Shares issued in reinvestment of
dividends and distributions...... 41,285 510,288
Shares reacquired.................. (141,180) (1,879,038)
---------- ------------
Net increase in shares outstanding
before conversion................ 300,139 3,895,349
Shares issued upon conversion
from Class B..................... 225 2,972
---------- ------------
Net increase in shares
outstanding...................... 300,364 $ 3,898,321
========== ============
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
========== ============
<CAPTION>
Class B
- -------
Six months ended March 31, 1999:
Shares sold........................ 285,173 $ 3,747,938
Shares issued in reinvestment of
dividends and distributions...... 41,784 516,862
Shares reacquired.................. (23,864) (309,791)
---------- ------------
Net increase in shares outstanding
before conversion................ 303,093 3,955,009
Shares reacquired upon conversion
into Class A..................... (225) (2,972)
---------- ------------
Net increase in shares
outstanding...................... 302,868 $ 3,952,037
========== ============

<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
========== ============

<CAPTION>
Class C
- -------
Six months ended March 31, 1999:
Shares sold........................ 48,683 $ 628,350
Shares issued in reinvestment of
dividends and distributions...... 3,860 47,750
Shares reacquired.................. (23,598) (306,619)
---------- ------------
Net increase in shares
outstanding...................... 28,945 $ 369,481
========== ============
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
========== ============
<CAPTION>
Class Z
- -------
Six months ended March 31, 1999:
Shares sold........................ 2,338,927 $ 30,638,559
Shares issued in reinvestment of
dividends and distributions...... 2,032,131 25,096,814
Shares reacquired.................. (7,331,804) (92,770,964)
---------- ------------
Net decrease in shares
outstanding...................... (2,960,746) $(37,035,591)
========== ============
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
========== ============
</TABLE>

- --------------------------------------------------------------------------------
B-115
<PAGE>

THE PRUDENTIAL INVESTMENT PORTFOLIOS,
Financial Highlights (Unaudited) INC. PRUDENTIAL ACTIVE BALANCED FUND
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Class A Class B
---------------------------------------------- ----------------------------
November 7,
Six Months 1996(a) Six Months
Ended Year Ended Through Ended Year Ended
March 31, September 30, September 30, March 31, September 30,
1999 1998 1997 1999 1998
---------- ------------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................... $13.29 $ 14.41 $ 13.40 $13.22 $ 14.34
----- ----- ----- ----- -----
Income from investment operations:
Net investment income............. .17 .44 .21(b) .10 .27
Net realized and unrealized gain
(loss) on investment
transactions................... 1.79 (.20) 1.97 1.79 (.14)
----- ----- ----- ----- -----
Total from investment
operations.................. 1.96 .24 2.18 1.89 .13
----- ----- ----- ----- -----
Less distributions:
Dividends from net investment
income......................... (.30) (.32) (.39) (.19) (.21)
Distributions from net realized
gains.......................... (1.74) (1.04) (.78) (1.74) (1.04)
----- ----- ----- ----- -----
Total distributions............ (2.04) (1.36) (1.17) (1.93) (1.25)
----- ----- ----- ----- -----
Net asset value, end of period.... $13.21 $ 13.29 $ 14.41 $13.18 $ 13.22
====== ======= ======= ====== =======

TOTAL RETURN(d)................... 15.72% 1.93% 17.48% 15.21% 1.10%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)... $7,167 $ 3,218 $ 990 $7,022 $ 3,038
Average net assets (000).......... $4,513 $ 2,090 $ 100 $4,591 $ 1,285
Ratios to average net assets:
Expenses, including
distribution fees........... 1.37%(c) 1.28% 1.31%(c) 2.12%(c) 2.03%
Expenses, excluding
distribution fees........... 1.12%(c) 1.03% 1.06%(c) 1.12%(c) 1.03%
Net investment income.......... 2.19%(c) 2.72% 2.69%(c) 1.43%(c) 1.95%
Portfolio turnover rate........ 119% 256% 50% 119% 256%

<CAPTION>
November 7,
1996(a)
Through
September 30,
1997
-------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................... $ 13.40
-----
Income from investment operations:
Net investment income............. .19(b)
Net realized and unrealized gain
(loss) on investment
transactions................... 1.92
-----
Total from investment
operations.................. 2.11
-----
Less distributions:
Dividends from net investment
income......................... (.39)
Distributions from net realized
gains.......................... (.78)
-----
Total distributions............ (1.17)
-----
Net asset value, end of period.... $ 14.34
=======

TOTAL RETURN(d)................... 16.91%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)... $ 213
Average net assets (000).......... $ 71
Ratios to average net assets:
Expenses, including
distribution fees........... 2.06%(c)
Expenses, excluding
distribution fees........... 1.06%(c)
Net investment income.......... 1.94%(c)
Portfolio turnover rate........ 50%
</TABLE>

- ---------------
(a) Commencement of offering of Class A and B 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.

- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-116
<PAGE>

THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Financial Highlights (Unaudited) PRUDENTIAL ACTIVE BALANCED FUND
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Class C
----------------------------------------------
November 7,
Six Months 1996(e)
Ended Year Ended Through
March 31, September 30, September 30,
1999 1998 1997
---------- ------------- -------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................. $13.22 $ 14.34 $ 13.40
------ ------- -------
Income from investment operations:
Net investment income................. .11 .48 .13(b)
Net realized and unrealized gain
(loss) on investment
transactions....................... 1.78 (.35) 1.98
------ ------- -------
Total from investment
operations...................... 1.89 .13 2.11
------ ------- -------
Less distributions:
Dividends from net investment
income............................. (.19) (.21) (.39)
Distributions from net realized
gains.............................. (1.74) (1.04) (.78)
------ ------- -------
Total distributions............... (1.93) (1.25) (1.17)
------ ------- -------
Net asset value, end of period........ $13.18 $ 13.22 $ 14.34
====== ======= =======
TOTAL RETURN(d)....................... 15.21% 1.10% 16.91%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)....... $ 664 $ 284 $ 5
Average net assets (000).............. $ 499 $ 118 $ 1
Ratios to average net assets:
Expenses, including
distribution fees............... 2.12%(c) 2.03% 2.06%(c)
Expenses, excluding
distribution fees............... 1.12%(c) 1.03% 1.06%(c)
Net investment income............. 1.39%(c) 2.04% 1.94%(c)
Portfolio turnover rate........... 119% 256% 50%

Class Z
----------------------------------------------------------------------
Six Months
Ended
March 31, Year Ended September 30,
--------------------------------------------------------
1999 1998 1997 1996 1995 1994
---------- -------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................. $ 13.32 $ 14.45 $ 13.01 $ 12.46 $ 10.92 $ 11.05
-------- -------- -------- -------- -------- -------
Income from investment operations:
Net investment income................. .17 .38 .39(b) .29(a) .33(a) .24(a)
Net realized and unrealized gain
(loss) on investment
transactions....................... 1.80 (.12) 2.22 .81 1.54 (.12)
-------- -------- -------- -------- -------- -------
Total from investment
operations...................... 1.97 .26 2.61 1.10 1.87 .12
-------- -------- -------- -------- -------- -------
Less distributions:
Dividends from net investment
income............................. (.34) (.35) (.39) (.37) (.29) (.14)
Distributions from net realized
gains.............................. (1.74) (1.04) (.78) (.18) (.04) (.11)
-------- -------- -------- -------- -------- -------
Total distributions............... (2.08) (1.39) (1.17) (.55) (.33) (.25)
-------- -------- -------- -------- -------- -------
Net asset value, end of period........ $ 13.21 $ 13.32 $ 14.45 $ 13.01 $ 12.46 $ 10.92
======== ======== ======== ======== ======== =======
TOTAL RETURN(d)....................... 15.80% 2.12% 21.34% 9.11% 17.66% 1.07%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)....... $121,417 $161,838 $158,672 $153,588 $133,352 $81,176
Average net assets (000).............. $135,274 $177,443 $154,199 $142,026 $104,821 $58,992
Ratios to average net assets:
Expenses, including
distribution fees............... 1.12%(c) 1.03% 1.06% 1.00%(a) 1.00%(a) 1.00(a)
Expenses, excluding
distribution fees............... 1.12%(c) 1.03% 1.06% 1.00%(a) 1.00%(a) 1.00(a)
Net investment income............. 2.44%(c) 2.99% 2.94% 3.09%(a) 3.53%(a) 3.06(a)
Portfolio turnover rate........... 119% 256% 50% 51% 30% 40%
</TABLE>

- ---------------

(a) Net of expense subsidy.
(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.
(e) Commencement of offering of Class C shares.

- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-117
<PAGE>

Portfolio of Investments as of THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
March 31, 1999 (Unaudited) PRUDENTIAL JENNISON GROWTH FUND

- ---------------------------------------------------------------

Shares Description Value (Note 1)

- ---------------------------------------------------------------
LONG-TERM INVESTMENTS--98.3%
COMMON STOCKS--98.3%

- ---------------------------------------------------------------
Banks & Financial Services--14.2%

1,207,300 Associates First Capital Corp. $ 54,328,500
1,476,200 Chase Manhattan Corp. 120,033,512
2,124,750 Citigroup, Inc. 135,718,406
2,420,975 MBNA Corp. 57,800,778
907,490 Morgan Stanley Dean Witter 90,692,282
653,950 Schwab (Charles) Corp. 62,860,944
1,146,500 Washington Mutual, Inc. 46,863,188
--------------
568,297,610

- ---------------------------------------------------------------
Business Services--3.4%

900,500 Omnicom Group, Inc. 71,983,719
1,171,500 Xerox Corp. 62,528,812
--------------
134,512,531

- ---------------------------------------------------------------
Computer Systems/Peripherals--5.9%

1,485,000 Dell Computer Corp.(a) 60,699,375
160,100 EMC Corp.(a) 20,452,775
825,400 Hewlett-Packard Co. 55,972,437
565,900 International Business Machines
Corp. 100,305,775
--------------
237,430,362

- ---------------------------------------------------------------
Diversified Operations--3.0%

1,090,500 General Electric Co. 120,636,563

- ---------------------------------------------------------------
EDP Software & Services--8.9%

219,100 America Online, Inc. 31,988,600
1,422,800 Cadence Design Systems, Inc.(a) 36,637,100
501,700 Intuit, Inc.(a) 51,047,975
1,732,600 Microsoft Corp.(a) 155,284,275
1,711,750 Oracle Systems Corp.(a) 45,147,406
1,310,000 Rational Software Corp.(a) 35,124,375
--------------
355,229,731

- ---------------------------------------------------------------
Electronic Components--6.1%

666,800 Altera Corp. $ 39,674,600
844,300 Intel Corp. 100,577,237
1,055,200 Texas Instruments, Inc. 104,728,600
--------------
244,980,437

- ---------------------------------------------------------------
Health Care Services--1.0%

598,868 Mckesson Hboc, Inc. 39,525,288

- ---------------------------------------------------------------
Hotels--0.8%

891,100 Promus Hotel Corp.(a) 32,413,763

- ---------------------------------------------------------------
Household & Personal Care Products--1.9%

421,600 Estee Lauder Co., Inc. 39,841,200
642,500 Gillette Co. 38,188,594
--------------
78,029,794

- ---------------------------------------------------------------
Industrial Technology/Instruments--4.1%

1,264,200 Applied Materials, Inc.(a) 77,985,337
788,400 KLA Tencor Corp.(a) 38,286,675
1,070,200 Symbol Technologies, Inc. 48,159,000
--------------
164,431,012

- ---------------------------------------------------------------
Insurance--4.4%

1,703,400 ACE, Ltd. 53,124,787
675,700 American International Group, Inc. 81,506,312
1,052,666 Mutual Risk Management, Ltd. 40,264,475
--------------
174,895,574

- ---------------------------------------------------------------
See Notes to Financial Statements.

B-118
<PAGE>

Portfolio of Investments as of THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
March 31, 1999 (Unaudited) PRUDENTIAL JENNISON GROWTH FUND
- -------------------------------------------------------------------------------

Shares Description Value (Note 1)

- ---------------------------------------------------------------
Media--5.7%

2,851,900 CBS Corp. $ 116,749,656
1,195,800 Clear Channel Communications,
Inc.(a) 80,193,338
1,253,600 Infinity Broadcasting Corp. 32,280,200
--------------
229,223,194

- ---------------------------------------------------------------
Networking--4.5%

326,000 3Com Corp.(a) 7,599,875
246,400 Ascend Communications, Inc.(a) 20,620,600
1,174,450 Cisco Systems, Inc.(a) 128,675,678
326,400 Equant N V (ADR) (Netherlands) 24,561,600
--------------
181,457,753

- ---------------------------------------------------------------
Pharmaceuticals--12.5%

1,335,500 American Home Products Corp. 87,141,375
648,900 Eli Lilly & Co. 55,075,387
918,100 Merck & Co., Inc. 73,620,144
496,800 Pfizer, Inc. 68,931,000
645,300 Pharmacia & Upjohn, Inc. 40,250,587
1,718,400 Schering Plough Corp. 95,049,000
1,214,500 Warner-Lambert Co. 80,384,719
--------------
500,425,212

- ---------------------------------------------------------------
Restaurants--2.1%

1,900,400 McDonald's Corp. 86,111,875

- ---------------------------------------------------------------
Retail--9.7%

481,712 Abercrombie & Fitch Co.(a) 44,317,504
742,500 CVS Corp. 35,268,750
923,025 Gap, Inc. 62,131,120
1,498,300 Home Depot, Inc. 93,269,175
1,010,100 Kohl's Corp.(a) 71,590,838
1,792,250 Staples, Inc.(a) 58,920,219
240,400 Wal-Mart Stores, Inc. 22,161,875
--------------
387,659,481

- ---------------------------------------------------------------
Telecommunications--8.3%

707,100 AirTouch Communications, Inc.(a) 68,323,538
315,000 Level 3 Communications, Inc. 22,935,938
1,998,600 MCI WorldCom, Inc. $ 177,001,012
916,200 Qwest Communications
International, Inc.(a) 66,052,294
--------------
334,312,782

- ---------------------------------------------------------------
Telecommunications Equipment--1.8%

330,800 Nokia Corp. (ADR)(Finland) 51,522,100
229,600 Tellabs, Inc.(a) 22,443,400
--------------
73,965,500
--------------
Total long-term investments
(cost $2,742,217,637) 3,943,565,462
--------------

Principal
Moody's Amount
Rating (000)

SHORT-TERM INVESTMENTS--1.8%
Commercial Paper--1.1%

P-1 $ 43,787 Ford Motor Credit Co.,
4.71%, 4/1/99
(cost $43,787,000) 43,787,000

- ---------------------------------------------------------------------
U.S. Government Securities--0.7%

30,000 United States Treasury
Bills,
4.53%, 4/1/99
(cost $29,988,659) 29,988,659
--------------
Total short-term
investments
(cost $73,775,659) 73,775,659
--------------

- ---------------------------------------------------------------------
Total Investments--100.1%

(cost $2,815,993,296;
Note 4) 4,017,341,121
Liabilities in excess of
other assets--(0.1%) (5,477,341)
--------------
Net Assets--100% $4,011,863,780
==============

- ---------------
(a) Non-income producing security.
ADR--American Depository Receipt.

- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-119
<PAGE>

Statement of Assets and Liabilities THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
(Unaudited) PRUDENTIAL JENNISON GROWTH FUND
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Assets March 31, 1999
----------------
<S> <C>
Investments, at value (cost $2,815,993,296)................................................................ $4,017,341,121
Cash....................................................................................................... 182,998
Receivable for investments sold............................................................................ 27,285,109
Receivable for Series shares sold.......................................................................... 23,180,710
Dividends and interest receivable.......................................................................... 1,898,258
Deferred expenses and other assets......................................................................... 83,386
--------------
Total assets............................................................................................ 4,069,971,582
--------------
Liabilities
Payable for investments purchased.......................................................................... 39,665,451
Payable for Series shares reacquired....................................................................... 14,643,620
Management fee payable..................................................................................... 1,958,784
Distribution fees payable.................................................................................. 1,355,956
Accrued expenses and other liabilities..................................................................... 430,219
Withholding taxes payable.................................................................................. 53,772
--------------
Total liabilities....................................................................................... 58,107,802
--------------
Net Assets................................................................................................. $4,011,863,780
==============

Net assets were comprised of:
Common stock, at par.................................................................................... $ 201,120
Paid-in capital in excess of par........................................................................ 2,769,659,001
--------------
2,769,860,121
Net investment loss..................................................................................... (8,486,823)
Accumulated net realized gain on investments............................................................ 49,153,998
Net unrealized appreciation on investments.............................................................. 1,201,336,484
--------------
Net assets, March 31, 1999................................................................................. $4,011,863,780
==============

Class A:
Net asset value and redemption price per share
($815,283,089 / 40,592,430 shares of common stock issued and outstanding)............................ $20.08
Maximum sales charge (5% of offering price)............................................................. 1.06
------
Maximum offering price to public........................................................................ $21.14
======

Class B:
Net asset value, offering price and redemption price per share
($1,375,387,671 / 70,391,161 shares of common stock issued and outstanding).......................... $19.54
======

Class C:
Net asset value and redemption price per share
($106,747,608 / 5,462,946 shares of common stock issued and outstanding)............................. $19.54
Sales charge (1% of offering price)..................................................................... .20
------
Offering price to public................................................................................ $19.74
======

Class Z:
Net asset value, offering price and redemption price per share
($1,714,445,412 / 84,673,116 shares of common stock issued and outstanding).......................... $20.25
======
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-120
<PAGE>

THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH FUND
Statement of Operations (Unaudited)
- ------------------------------------------------------------

<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income (Loss) March 31, 1999
--------------
<S> <C>
Income
Dividends (net of foreign withholding
taxes of $55,228)..................... $ 8,198,234
Interest................................. 2,203,505
--------------
Total income.......................... 10,401,739
--------------
Expenses
Management fee........................... 9,063,083
Distribution fee--Class A................ 774,535
Distribution fee--Class B................ 4,929,603
Distribution fee--Class C................ 338,895
Transfer agent's fees and expenses....... 3,060,000
Registration fees........................ 275,000
Reports to shareholders.................. 273,000
Custodian's fees and expenses............ 77,000
Legal fees and expenses.................. 28,000
Insurance expense........................ 26,000
Amortization of deferred organization
expenses.............................. 18,932
Audit fee and expenses................... 10,000
Directors' fees and expenses............. 3,750
Miscellaneous............................ 10,764
--------------
Total expenses........................ 18,888,562
--------------
Net investment loss......................... (8,486,823)
--------------
Realized and Unrealized Gain
on Investments
Net realized gain on investment
transactions............................. 33,763,341
Net change in unrealized appreciation on
investments.............................. 1,003,132,691
--------------
Net gain on investments..................... 1,036,896,032
--------------
Net Increase in Net Assets
Resulting from Operations................... $1,028,409,209
==============
</TABLE>

THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH FUND
Statement of Changes in Net Assets (Unaudited)
- ------------------------------------------------------------

<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) March 31, September 30,
in Net Assets 1999 1998
-------------- --------------
<S> <C> <C>
Operations
Net investment loss......... $ (8,486,823) $ (6,754,609)
Net realized gain on
investments.............. 33,763,341 131,020,013
Net change in unrealized
appreciation of
investments.............. 1,003,132,691 (190,394,651)
-------------- --------------
Net increase (decrease) in
net assets resulting from
operations............... 1,028,409,209 (66,129,247)
-------------- --------------
Distributions from net realized
capital gains (Note 1)
Class A..................... (17,349,524) (12,677,688)
Class B..................... (27,545,469) (37,861,226)
Class C..................... (1,752,623) (2,330,817)
Class Z..................... (38,052,986) (55,817,957)
-------------- --------------
(84,700,602) (108,687,688)
-------------- --------------
Series share transactions (net
of conversion) (Note 5)
Net proceeds from shares
sold..................... 1,414,992,614 1,822,040,223
Net asset value of shares
issued in reinvestment of
distributions............ 83,061,464 106,812,422
Cost of shares reacquired... (652,386,435) (730,978,040)
-------------- --------------
Net increase in net assets
from Series share
transactions............. 845,667,643 1,197,874,605
-------------- --------------
Total increase................. 1,789,376,250 1,023,057,670
Net Assets
Beginning of period............ 2,222,487,530 1,199,429,860
-------------- --------------
End of period.................. $4,011,863,780 $2,222,487,530
============== ==============
</TABLE>

- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-121
<PAGE>

Notes to Financial Statements THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
(Unaudited) PRUDENTIAL JENNISON GROWTH FUND
- --------------------------------------------------------------------------------

Prudential Jennison Growth Fund (the "Series") is a separately managed series of
The Prudential Investment Portfolios, 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 commenced on November 2, 1995.

- -------------------------------------------------------------------------------
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.

Withholding taxes on foreign dividends have been provided for in accordance with
the Series' understanding of the applicable country's tax rules and rates.

- --------------------------------------------------------------------------------

B-122
<PAGE>

THE PRUDENTIAL INVESTMENT PORTFOLIOS,
Notes to Financial Statements (Unaudited) INC. PRUDENTIAL JENNISON GROWTH FUND
- --------------------------------------------------------------------------------

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 Fund has a distribution agreement with Prudential Investment Management
Services LLC ("PIMS"), which acts as the distributor of the Fund. The Fund
compensates PIMS for distributing and servicing the Fund's Class A, Class B,
Class C and Class Z 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 PIMS as distributor of the Class Z shares of the Fund.

Pursuant to the Class A, B and C Plans, the Fund compensates PIMS for
distribution-related activities at an annual rate of up to .30 of 1%, 1% and 1%
of the average daily net assets of the Class A, B and C shares, respectively.
Such expenses under the plans were .25 of 1%, 1% and 1% of the average daily net
assets of the Class A, B and C shares, respectively, for the six months ended
March 31, 1999.

PIMS has advised the Series that it received approximately $1,108,900 and
$275,900 in front-end sales charges resulting from sales of Class A and Class C
shares during the six months ended March 31, 1999. From these fees, PIMS paid
such sales charges to affiliated broker-dealers, which in turn paid commissions
to salespersons and incurred other distribution costs.

PIMS has advised the Series that for the six months ended March 31, 1999, it
received approximately $810,000 and $16,800 in contingent deferred sales charges
imposed upon certain redemptions by Class B and C shareholders, respectively.

PIFM, PIMS and Jennison are indirect, wholly owned subsidiaries of The
Prudential Insurance Company of America ("Prudential").

As of March 11, 1999, the Fund along with other unaffiliated registered
investment companies (the "Funds"), entered into a syndicated agreement ("SCA")
with an unaffiliated lender. The maximum commitment under the SCA is $1 billion.
The Funds pay a commitment fee at an annual rate of .065 of 1% on the unused
portion of the credit facility, which is accrued and paid quarterly on a pro
rata basis by the Funds. The SCA expires on March 10, 2000. Prior to March 11,
1999, the Funds had a credit agreement with a maximum commitment of
$200,000,000. The commitment fee was .055 of 1% on the unused portion of the
credit facility. The Fund did not borrow any amounts pursuant to either
agreement during the six months ended March 31, 1999. The purpose of the
agreements is to serve as an alternative source of funding for capital share
redemptions.

- --------------------------------------------------------------------------------
Note 3. Other Transactions with Affiliates

Prudential Mutual Fund Services LLC ("PMFS"), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the six months ended March 31, 1999,
the Series incurred fees of approximately $3,009,000 for the services of PMFS.
As of March 31, 1999, approximately $512,000 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 six months ended March 31, 1999, Prudential Securities Incorporated
('PSI'), which is an indirect, wholly owned subsidiary of Prudential, earned
approximately $306,900 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 six months ended March 31, 1999 were $1,460,346,570 and $703,170,408,
respectively.

The cost of investments for federal income tax purposes at March 31, 1999, was
$2,819,908,629 and, accordingly, net unrealized appreciation of investments for
federal income tax purposes was $1,197,432,492 (gross unrealized
appreciation--$1,222,174,623; gross unrealized depreciation--$24,742,131).

- --------------------------------------------------------------------------------
B-123
<PAGE>

THE PRUDENTIAL INVESTMENT PORTFOLIOS,
Notes to Financial Statements (Unaudited) INC. PRUDENTIAL JENNISON GROWTH FUND
- --------------------------------------------------------------------------------

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. 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. Prior to November 2, 1998, Class C shares were sold with a
contingent deferred sales charge of 1% during the first year. 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 March 31, 1999, 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>
Six months ended March 31, 1999:
Shares sold........................ 14,933,539 $ 267,827,154
Shares issued in reinvestment of
distributions.................... 1,032,752 16,627,307
Shares reacquired.................. (7,553,664) (134,977,145)
----------- -------------
Net increase in shares outstanding
before conversion................ 8,412,627 149,477,316
Shares issued upon conversion from
Class B.......................... 1,216,612 22,546,440
----------- -------------
Net increase in shares
outstanding...................... 9,629,239 $ 172,023,756
=========== =============

Year ended September 30, 1998:
Shares sold........................ 14,958,226 $ 229,811,039
Shares issued due to merger of
Prudential Multi-Sector Fund,
Inc.............................. 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
=========== =============

<CAPTION>
Class B Shares Amount
- ------- ----------- -------------
<S> <C> <C>
Six months ended March 31, 1999:
Shares sold........................ 26,268,648 $ 472,740,111
Shares issued in reinvestment of
distributions.................... 1,698,149 26,677,924
Shares reacquired.................. (6,545,002) (111,277,688)
----------- -------------
Net increase in shares outstanding
before conversion................ 21,421,795 388,140,347
Shares reacquired upon conversion
into Class A..................... (1,249,211) (22,546,440)
----------- -------------
Net increase in shares
outstanding...................... 20,172,584 $ 365,593,907
=========== =============

Year ended September 30, 1998:
Shares sold........................ 22,754,015 $ 342,894,551
Shares issued due to merger of
Prudential Multi-Sector Fund,
Inc.............................. 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
=========== =============
<CAPTION>
Class C
- --------
Six months ended March 31, 1999:
Shares sold........................ 3,235,959 $ 58,601,958
Shares issued in reinvestment of
distributions.................... 108,868 1,710,321
Shares reacquired.................. (1,080,605) (18,911,056)
----------- -------------
Net increase in shares
outstanding...................... 2,264,222 $ 41,401,223
=========== =============

Year ended September 30, 1998:
Shares sold........................ 1,687,844 $ 25,645,005
Shares issued due to merger of
Prudential Multi-Sector Fund,
Inc.............................. 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
=========== =============
</TABLE>

- --------------------------------------------------------------------------------
B-124
<PAGE>

THE PRUDENTIAL INVESTMENT PORTFOLIOS,
Notes to Financial Statements (Unaudited) INC. PRUDENTIAL JENNISON GROWTH FUND
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Class Z Shares Amount
- ------- ----------- -------------
<S> <C> <C>
Six months ended March 31, 1999:
Shares sold........................ 33,868,732 $ 615,823,391
Shares issued in reinvestment of
distributions.................... 2,345,617 38,045,912
Shares reacquired.................. (21,862,546) (387,220,546)
----------- -------------
Net increase in shares
outstanding...................... 14,351,803 $ 266,648,757
=========== =============
Year ended September 30, 1998:
Shares sold........................ 52,992,987 $ 825,209,682
Shares issued due to merger of
Prudential Multi-Sector Fund,
Inc.............................. 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
=========== =============
</TABLE>

- --------------------------------------------------------------------------------
B-125
<PAGE>

THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Financial Highlights (Unaudited) PRUDENTIAL JENNISON GROWTH FUND
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Class A Class B
----------------------------------------------------- ------------------------------------
Six November 2,
Months Year Ended 1995(a) Six Months Year Ended
Ended September 30, Through Ended September 30,
March 31, --------------------- September 30, March 31, -------------------
1999 1998 1997 1996 1999 1998 1997
--------- -------- -------- ------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period......................... $ 14.44 $ 15.39 $ 10.97 $ 10.00 $ 14.11 $ 15.18 $ 10.89
--------- -------- -------- ------- ---------- -------- --------
Income from investment operations
Net investment income (loss)(c)... (.04) (.04) (.03) (.03) (.10) (.15) (.12)
Net realized and unrealized gain
on investment transactions.... 6.22 .40 4.45 1.00 6.07 .39 4.41
--------- -------- -------- ------- ---------- -------- --------
Total from investment
operations.................. 6.18 .36 4.42 .97 5.97 .24 4.29
--------- -------- -------- ------- ---------- -------- --------
Less distributions
Distributions from net realized
gains.......................... (.54) (1.31) -- -- (.54) (1.31) --
--------- -------- -------- ------- ---------- -------- --------
Net asset value, end of period.... $ 20.08 $ 14.44 $ 15.39 $ 10.97 $ 19.54 $ 14.11 $ 15.18
======== ======== ======== ======= ========== ======== ========
TOTAL RETURN(b)................... 43.72% 3.02% 40.29% 9.70% 43.24% 2.21% 39.39%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)... $815,283 $446,996 $145,022 $85,440 $1,375,388 $708,463 $419,405
Average net assets (000).......... $621,330 $251,118 $105,982 $70,667 $ 988,629 $557,823 $299,476
Ratios to average net assets:
Expenses, including
distribution fees........... 1.10%(d) 1.08% 1.09% 1.23%(d) 1.85%(d) 1.83% 1.84%
Expenses, excluding
distribution fees........... .85%(d) .83% .84% .98%(d) .85%(d) .83% .84%
Net investment income (loss).. (.41)%(d) (.26)% (.25)% (.37)%(d) (1.16)%(d) (1.01)% (1.00)%
For Class A, B, C and Z shares:
Portfolio turnover rate....... 23% 58% 63% 42% 23% 58% 63%

<CAPTION>
Class B
--------------
November 2,
1995(a)
Through
September 30,
1996
-------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period......................... $ 10.00
-------------
Income from investment operations
Net investment income (loss)(c)... (.10)
Net realized and unrealized gain
on investment transactions..... .99
-------------
Total from investment
operations.................. .89
-------------
Less distributions
Distributions from net realized
gains.......................... --
-------------
Net asset value, end of period.... $ 10.89
=============
TOTAL RETURN(b)................... 8.90%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)... $ 231,541
Average net assets (000).......... $ 162,412
Ratios to average net assets:
Expenses, including
distribution fees........... 1.98%(d)
Expenses, excluding
distribution fees........... .98%(d)
Net investment income (loss).. (1.12)%(d)
For Class A, B, C and Z shares:
Portfolio turnover rate....... 42%
</TABLE>

- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-126
<PAGE>

THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Financial Highlights (Unaudited) PRUDENTIAL JENNISON GROWTH FUND
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Class C Class Z
--------------------------------------------------- --------------------------------------
Six November 2,
Months Year Ended 1995(a) Six Months Year Ended
Ended September 30, Through Ended September 30,
March 31, ------------------- September 30, March 31, ----------------------
1999 1998 1997 1996 1999 1998 1997
--------- ------- ------- ------------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period........................ $ 14.11 $ 15.18 $ 10.89 $ 10.00 $ 14.53 $ 15.45 $ 10.98
--------- ------- ------- ------- ---------- ---------- --------
Income from investment operations
Net investment income (loss)(c)... (.10) (.15) (.12) (.10) (.01) -- --
Net realized and unrealized gain
on investment transactions.... 6.07 .39 4.41 .99 6.27 .39 4.47
--------- ------- ------- ------- ---------- ---------- --------
Total from investment
operations.................. 5.97 .24 4.29 .89 6.26 .39 4.47
--------- ------- ------- ------- ---------- ---------- --------
Less distributions
Distributions from net realized
gains....................... (.54) (1.31) -- -- (.54) (1.31) --
--------- ------- ------- ------- ---------- ---------- --------
Net asset value, end of period.... $ 19.54 $ 14.11 $ 15.18 $ 10.89 $ 20.25 $ 14.53 $ 15.45
======== ======= ======= ======= ========== ========== ========

TOTAL RETURN(b)................... 43.24% 2.21% 39.39% 8.90% 44.01% 3.22% 40.71%
RATIOS/SUPPLEMENTAL DATA

Net assets, end of period (000)... $106,748 $45,126 $25,134 $15,281 $1,714,445 $1,021,903 $609,869
Average net assets (000).......... $ 67,965 $35,337 $18,248 $12,550 $1,351,403 $ 810,296 $455,684
Ratios to average net assets:
Expenses, including
distribution fees.......... 1.85%(d) 1.83% 1.84% 1.98%(d) .85%(d) .83% .84%
Expenses, excluding
distribution fees........... .85%(d) .83% .84% .98%(d) .85%(d) .83% .84%
Net investment income (loss).. (1.16)%(d) (1.01)% (1.00)% (1.12)%(d) (.16)%(d) (.01)% --

<CAPTION>
Class Z
-------------
April 15,
1996(a)
Through
September 30,
1996
-------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period........................ $ 10.32
-------------
Income from investment operations
Net investment income (loss)(c)... (.02)
Net realized and unrealized gain
on investment transactions.... .68
-------------
Total from investment
operations.................. .66
-------------
Less distributions
Distributions from net realized
gains....................... --
-------------
Net asset value, end of period.... $ 10.98
=============

TOTAL RETURN(b)................... 6.40%
RATIOS/SUPPLEMENTAL DATA

Net assets, end of period (000)... $ 362,416
Average net assets (000).......... $ 26,829
Ratios to average net assets:
Expenses, including
distribution fees........... .98%(d)
Expenses, excluding
distribution fees........... .98%(d)
Net investment income (loss)... (.12)%(d)
</TABLE>

- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-127
<PAGE>

THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Portfolio of Investments as of PRUDENTIAL JENNISON GROWTH &
March 31, 1999 (Unaudited) INCOME FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<S> <C> <C>
- ---------------------------------------------------------------

LONG-TERM INVESTMENTS--96.9%
COMMON STOCKS--96.9%

- ---------------------------------------------------------------
Aerospace/Defense--5.7%

40,300 Lockheed Martin Corp. $ 1,518,806
71,740 Raytheon Co. 4,142,985
57,600 The B.F. Goodrich Co. 1,976,400
------------
7,638,191

- ---------------------------------------------------------------
Airlines--1.9%

44,400 AMR Corp. 2,600,175

- ---------------------------------------------------------------
Aluminum--1.4%

27,600 Alcoa, Inc. 1,136,775
14,700 Reynolds Metals Co. 710,194
------------
1,846,969
- ---------------------------------------------------------------
Apparel--1.4%

95,800 Polo Ralph Lauren Corp.(a) 1,904,025

- ---------------------------------------------------------------
Banking--6.6%

46,900 Chase Manhattan Corp. 3,813,556
49,300 Fleet Financial Group, Inc. 1,854,913
167,400 Hibernia Corp., Class A 2,197,125
8,000 J.P. Morgan & Co., Inc. 987,000
------------
8,852,594

- ---------------------------------------------------------------
Business Services--7.2%

36,200 3Com Corp.(a) 843,913
133,400 Convergys Corp.(a) 2,284,475
49,300 Hertz Corp. 2,637,550
64,900 Ogden Corp. 1,561,656
81,400 Ryder System, Inc. 2,248,675
------------
9,576,269

- ---------------------------------------------------------------
Chemicals--6.7%

70,100 Crompton & Knowles Corp. $ 1,104,075
76,100 Cytec Industries, Inc.(a) 1,697,981
91,800 Dexter Corp. 2,891,700
87,800 IMC Global, Inc. 1,794,413
119,400 W.R. Grace & Co.(a) 1,447,725
------------
8,935,894

- ---------------------------------------------------------------
Computer Systems/Peripherals--1.6%

13,600 Hewlett-Packard Co. 922,250
25,825 Symbol Technologies, Inc.(a) 1,162,125
------------
2,084,375

- ---------------------------------------------------------------
Consumer Products--1.7%
48,400 Kimberly-Clark Corp. 2,320,175

- ---------------------------------------------------------------
Diversified Manufacturing--1.2%

72,500 Raychem Corp. 1,635,781

- ---------------------------------------------------------------
EDP Software & Services--3.1%

40,500 Autodesk, Inc. 1,637,719
59,900 Cadence Design Systems, Inc.(a) 1,542,425
153,700 Intergraph Corp.(a) 1,037,475
------------
4,217,619

- ---------------------------------------------------------------
Foods--1.4%

61,100 Dole Food Co., Inc. 1,817,725

- ---------------------------------------------------------------
Hotels--2.4%

125,400 Hilton Hotels Corp. 1,763,437
39,100 Promus Hotel Corp.(a) 1,422,263
------------
3,185,700
</TABLE>

- ---------------------------------------------------------------
See Notes to Financial Statements.

B-128
<PAGE>

<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<S> <C> <C>
- ---------------------------------------------------------------
Industrial Technology/Instruments--1.6%

89,600 Millipore Corp. $ 2,161,600

- ---------------------------------------------------------------
Insurance--4.5%

50,200 CIGNA Corp. 4,207,388
32,800 NAC Re Corp. 1,760,950
------------
5,968,338

- ---------------------------------------------------------------
Media--3.6%

97,400 CBS Corp. 3,987,313
19,705 Chris-Craft Industries, Inc.(a) 899,037
------------
4,886,350

- ---------------------------------------------------------------
Motor Vehicles & Equipment--3.4%

52,000 General Motors Corp., Class H 4,517,500

- ---------------------------------------------------------------
Oil Services--3.3%

54,200 McDermott International, Inc. 1,371,938
83,200 Unocal Corp. 3,062,800
------------
4,434,738

- ---------------------------------------------------------------
Paper & Forest Products--8.5%

75,500 Boise Cascade Corp.(a) 2,434,875
63,500 Champion International Corp. 2,607,469
200,054 Smurfit-Stone Container Corp.(a) 3,863,543
39,900 Temple-Inland, Inc. 2,503,725
------------
11,409,612

- ---------------------------------------------------------------
Petroleum--3.4%

17,900 Anadarko Petroleum Corp. 675,725
36,700 Burlington Resources, Inc. 1,465,706
31,600 Tosco Corp. 784,075
61,700 USX - Marathon Group 1,696,750
------------
4,622,256

- ---------------------------------------------------------------
Pharmaceuticals--1.2%

61,500 Vertex Pharmaceuticals, Inc.(a) $ 1,552,875

- ---------------------------------------------------------------
Photography/Image Technology--0.4%

28,400 Polaroid Corp. 569,775

- ---------------------------------------------------------------
Publishing--4.8%

102,900 New York Times Co., Class A 2,932,650
53,000 Tribune Co. 3,468,187
------------
6,400,837

- ---------------------------------------------------------------
Real Estate Investment Trust--0.7%

77,971 Meditrust Corp.-Paired Stock 969,764

- ---------------------------------------------------------------
Retail--10.0%

83,400 AutoZone, Inc.(a) 2,533,275
85,400 Boise Cascade Office Products
Corp.(a) 950,075
64,500 Sears, Roebuck & Co. 2,914,593
43,900 Tandy Corp. 2,801,369
105,000 The Limited, Inc. 4,160,625
------------
13,359,937

- ---------------------------------------------------------------
Savings & Loan--0.8%

26,550 Washington Mutual, Inc. 1,085,231

- ---------------------------------------------------------------
Semiconductors--1.6%

121,200 International Rectifier Corp.(a) 848,400
144,800 National Semiconductor Corp.(a) 1,348,450
------------
2,196,850

- ---------------------------------------------------------------
Shipbuilding--0.9%

37,100 Newport News Shipbuilding, Inc. 1,175,606
</TABLE>

- ---------------------------------------------------------------
See Notes to Financial Statements.

B-129
<PAGE>

<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<S> <C> <C>
- ---------------------------------------------------------------
Steel & Metals--1.1%

64,600 USX-U.S. Steel Group, Inc. $ 1,518,100

- ---------------------------------------------------------------
Telecommunications--0.9%

86,800 Loral Space & Communications,
Ltd.(a) 1,253,175

- ---------------------------------------------------------------
Transportation--0.6%

43,500 Knightsbridge Tankers Ltd. 750,375

- ---------------------------------------------------------------
Trucking--2.4%

50,300 CNF Transportation, Inc. 1,901,969
34,100 Dana Corp. 1,295,800
-------------
3,197,769

- ---------------------------------------------------------------
Waste Management--0.9%

27,800 Waste Management, Inc. 1,233,625
-------------
Total long-term investments
(cost $117,967,062) 129,879,805
-------------

<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Value (Note 1)
<S> <C> <C>
- ------------------------------------------------------------
SHORT-TERM INVESTMENTS--3.1%
- ------------------------------------------------------------

COMMERCIAL PAPER--3.0%
P-1 $ 4,043 Ford Motor Credit Corp.,
4.71%, 4/1/99
(cost $4,043,000) $ 4,043,000
--------------
U.S. GOVERNMENT SECURITIES--0.1%
United States Treasury Bills,
125 4.49%, 4/15/99
(cost $124,787) 124,493
--------------
Total short-term investments
(cost $4,167,787) 4,167,493
--------------
Total Investments--100.0%
(cost $122,134,849; Note 4) 134,047,298
Other assets in excess of
liabilities 61,302
--------------
Net Assets--100% $ 134,108,600
==============
</TABLE>
- ---------------

(a) Non-income producing securities.

- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-130
<PAGE>

THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH & INCOME FUND
Statement of Assets and Liabilities (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Assets March 31, 1999
--------------
<S> <C>
Investments, at value (cost $122,134,849)................................................ $134,047,298
Receivable for investments sold.......................................................... 936,273
Receivable for Series shares sold........................................................ 287,219
Dividends and interest receivable........................................................ 183,040
------------
Total assets.......................................................................... 135,453,830
------------
Liabilities
Bank overdraft........................................................................... 3,689
Payable for Series shares reacquired..................................................... 597,361
Payable for investments purchased........................................................ 487,238
Accrued expenses......................................................................... 96,255
Distribution fees payable................................................................ 91,382
Management fee payable................................................................... 69,305
------------
Total liabilities..................................................................... 1,345,230
------------
Net Assets............................................................................... $134,108,600
============
Net assets were comprised of:
Common stock, at par.................................................................. $ 11,210
Paid-in capital in excess of par...................................................... 118,132,290
------------
118,143,500
Undistributed net investment income................................................... 192,581
Accumulated net realized gain on investments.......................................... 3,860,070
Net unrealized appreciation on investments............................................ 11,912,449
------------
Net assets, March 31, 1999............................................................... $134,108,600
============
Class A:
Net asset value and redemption price per share
($33,911,927 / 2,829,896 shares of common stock issued and outstanding)............ $ 11.98
Maximum sales charge (5% of offering price)........................................... .63
------------
Maximum offering price to public...................................................... $ 12.61
============
Class B:
Net asset value, offering price and redemption price per share
($89,970,816 / 7,525,773 shares of common stock issued and outstanding)............ $ 11.96
============
Class C:
Net asset value and redemption price per share
($7,007,856 / 586,185 shares of common stock issued and outstanding)............... $ 11.96
Sales charge (1% of offering price)................................................... .12
------------
Offering price to public.............................................................. $ 12.08
============
Class Z:
Net asset value, offering price and redemption price per share
($3,218,001 / 267,979 shares of common stock issued and outstanding)............... $ 12.01
============
</TABLE>

- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-131
<PAGE>

THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH &
INCOME FUND
Statement of Operations (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income March 31, 1999
--------------
<S> <C>
Income
Dividends................................... $ 1,022,808
Interest.................................... 460,028
------------
Total income............................. 1,482,836
------------
Expenses
Distribution fee--Class A................... 41,807
Distribution fee--Class B................... 459,270
Distribution fee--Class C................... 38,227
Management fee.............................. 406,057
Reports to shareholders..................... 135,000
Transfer agent's fees and expenses.......... 102,000
Custodian's fees and expenses............... 57,000
Dividends on securities sold short.......... 27,518
Registration fees........................... 25,000
Legal fees and expenses..................... 22,000
Audit fees and expenses..................... 10,000
Directors' fees............................. 3,750
Miscellaneous............................... 3,687
------------
Total expenses........................... 1,331,316
------------
Net investment income.......................... 151,520
------------
Realized and Unrealized Gain (Loss)
on Investments
Net realized gain (loss) on:
Investment transactions..................... 5,720,682
Financial futures contracts................. (115,040)
Short sales................................. (389,500)
------------
5,216,142
------------
Net change in unrealized
appreciation/depreciation on:
Investments................................. 18,388,690
Short sales................................. (1,664,436)
------------
16,724,254
------------
Net gain on investments........................ 21,940,396
------------
Net Increase in Net Assets Resulting from
Operations..................................... $ 22,091,916
============
</TABLE>

THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH &
INCOME FUND
Statement of Changes in Net Assets (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) March 31, September 30,
In Net Assets 1999 1998
------------ -------------
<S> <C> <C>
Operations
Net investment income........................ $ 151,520 $ 908,928
Net realized gain on investment
transactions.............................. 5,216,142 10,777,238
Net change in unrealized
appreciation/depreciation on
investments............................... 16,724,254 (25,848,538)
------------ -------------
Net increase (decrease) in net assets
resulting from operations................. 22,091,916 (14,162,372)
------------ -------------
Dividends and distributions (Note 1)
Dividends from net investment income
Class A................................... (153,895) (350,759)
Class B................................... (76,687) (267,306)
Class C................................... (6,448) (22,287)
Class Z................................... (12,628) (17,381)
------------ -------------
(249,658) (657,733)
------------ -------------
Distributions from net realized
capital gains
Class A................................... (2,540,009) (1,652,658)
Class B................................... (6,978,507) (4,349,846)
Class C................................... (586,830) (352,855)
Class Z................................... (164,166) (39,211)
------------ -------------
(10,269,512) (6,394,570)
------------ -------------
Series share transactions (net of
share conversions) (Note 5)
Net proceeds from shares sold................ 17,882,784 49,851,743
Net asset value of shares issued to
shareholders in reinvestment of
dividends and distributions............... 10,032,426 6,672,687
Cost of shares reacquired.................... (30,429,237) (40,383,538)
------------ -------------
Net increase (decrease) in net assets
from Fund share transactions.............. (2,514,027) 16,140,892
------------ -------------
Total increase (decrease)....................... 9,058,719 (5,073,783)
Net Assets
Beginning of period............................. 125,049,881 130,123,664
------------ -------------
End of period(a)................................ $134,108,600 $ 125,049,881
============ =============

- ---------------
(a) Includes undistributed net
investment income of........................ $ 192,581 $ 290,719
============ =============
</TABLE>

- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-132
<PAGE>

Notes to Financial Statements THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
(Unaudited) PRUDENTIAL JENNISON GROWTH & INCOME FUND
- --------------------------------------------------------------------------------

Prudential Jennison Growth & Income Fund (the "Series") is a separately managed
series of The Prudential Investment Portfolios, 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.

- --------------------------------------------------------------------------------
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.

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.

- --------------------------------------------------------------------------------

B-133
<PAGE>

THE PRUDENTIAL INVESTMENT PORTFOLOIS, INC.
Notes to Financial Statements PRUDENTIAL JENNISON GROWTH &
(Unaudited) INCOME FUND
- --------------------------------------------------------------------------------

the risk of imperfect correlation in movements in the price of futures
contracts, interest rates and the underlying hedged assets.

- --------------------------------------------------------------------------------

Note 2. Agreements

The Fund has a distribution agreement with Prudential Investment Management
Services LLC ("PIMS") which acts as the distributor of the Fund. The Fund
compensates PIMS for distributing and servicing the Fund's Class A, Class B and
Class C shares, pursuant to plans of distribution (the "Class A, B and C
Plans"), regardless of expenses actually incurred by them. The distribution fees
are accrued daily and payable monthly. No distribution or service fees are paid
to PIMS as distributor of the Class Z shares of the Fund.

Pursuant to the Class A, B and C Plans, the Series compensates PIMS for
distribution-related activities at an annual rate of up to .30 of 1%, 1% and 1%
of the average daily net assets of the Class A, B and C shares, respectively.
Such expenses under the Plans were .25 of 1%, 1% and 1% of average daily net
assets of the Class A, B and C shares, respectively, for the six months ended
March 31, 1999.

PIMS has advised the Series that it received approximately $36,900 and $4,000 in
front-end sales charges resulting from sales of Class A and C shares,
respectively, during the six months ended March 31, 1999. From these fees PIMS
paid such sales charges to affiliated broker-dealers, which in turn paid
commissions to salespersons and incurred other distribution costs.

PIMS has advised the Series that for the six months ended March 31, 1999, it
received approximately $162,600 and $500 in contingent deferred sales charges
imposed upon certain redemptions by Class B and C shareholders, respectively.

PIFM, PIMS and Jennison are wholly owned subsidiaries of The Prudential
Insurance Company of America.

As of March 11, 1999, the Fund, along with other affiliated registered
investment companies (the "Funds"), entered into a syndicated credit agreement
("SCA") with an unaffiliated lender. The maximum commitment under the SCA is $1
billion. The Funds pay a commitment fee at an annual rate of .065 of 1% on the
unused portion of the credit facility, which is accrued and paid quarterly on a
pro rata basis by the Funds. The SCA expires on March 9, 2000. Prior to March
11, 1999, the Funds had a credit agreement with a maximum commitment of
$200,000,000. The commitment fee was .055 of 1% on the unused portion of the
credit facility. The Fund did not borrow any amounts pursuant to either
agreement during the six months ended March
- --------------------------------------------------------------------------------
B-134
<PAGE>

THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Notes to Financial Statements PRUDENTIAL JENNISON GROWTH &
(Unaudited) INCOME FUND
- --------------------------------------------------------------------------------

31, 1999. The purpose of the agreements are to serve as an alternative source of
funding for capital share redemptions.

- --------------------------------------------------------------------------------

Note 3. Other Transactions with Affiliates

Prudential Mutual Fund Services LLC ("PMFS"), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the six months ended March 31, 1999,
the Series incurred fees of approximately $92,800 for the services of PMFS. As
of March 31, 1999, approximately $15,700 of such fees were due to PMFS. Transfer
agent fees and expenses in the Statement of Operations include certain out-of-
pocket expenses paid to nonaffiliates.

For the six months ended March 31, 1999, Prudential Securities Incorporated
("PSI") earned approximately $22,800 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 six months ended March 31, 1999 were $70,957,397 and $71,743,939,
respectively.

The United States federal income tax cost basis of the Series investments as of
March 31, 1999 was substantially the same as for financial reporting purposes
and, accordingly, net unrealized depreciation of investments for federal income
tax purposes was $11,912,449 (gross unrealized appreciation-$18,186,350; gross
unrealized depreciation--$6,273,901).

- --------------------------------------------------------------------------------

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. 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. Prior to November 2, 1998, Class C shares were sold
with a contingent deferred sales charge of 1% during the first year. Class Z
shares are not subject to any sales or redemption charge and are offered
exclusively for sale to a limited group of investors.

Transactions in shares of common stock were as follows:

<TABLE>
<CAPTION>
Class A Shares Amount
- ------- ---------- -----------
<S> <C> <C>
Six months ended March 31, 1999:
Shares sold........................... 440,462 $ 5,197,025
Shares issued in reinvestment of
dividends and distributions......... 226,178 2,592,004
Shares reacquired..................... (784,757) (9,231,630)
---------- -----------
Net decrease in shares outstanding
before conversion................... (118,117) (1,442,601)
Shares issued upon conversion from
Class B............................. 94,853 1,114,489
---------- -----------
Net decrease in shares outstanding.... (23,264) $ (328,112)
========== ===========
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
========== ===========

Class B
- -------
Six months ended March 31, 1999:
Shares sold........................... 816,328 $ 9,573,721
Shares issued in reinvestment of
dividends and distributions......... 583,174 6,683,168
Shares reacquired..................... (1,512,524) (17,743,265)
---------- -----------
Net increase in shares outstanding
before conversion................... (113,022) (1,486,376)
Shares reacquired upon conversion from
Class A............................. (95,009) (1,114,489)
---------- -----------
Net decrease in shares outstanding.... (208,031) $(2,600,865)
========== ===========
</TABLE>

- --------------------------------------------------------------------------------

B-135
<PAGE>

<TABLE>
<CAPTION>
Class B Shares Amount
- ------- ---------- -----------
<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
========== ===========

Class C
- -------
Six months ended March 31, 1999:
Shares sold........................... 85,658 $ 992,884
Shares issued in reinvestment of
dividends and distributions......... 51,069 585,254
Shares reacquired..................... (200,616) (2,362,559)
---------- -----------
Net decrease in shares outstanding.... (63,889) $ (784,421)
========== ===========

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
========== ===========

Class Z
- -------
Six months ended March 31, 1999:
Shares sold........................... 179,248 $ 2,119,154
Shares issued in reinvestment of
dividends and distributions......... 14,996 172,000
Shares reacquired..................... (93,093) (1,091,783)
---------- -----------
Net increase in shares outstanding.... 101,151 $ 1,199,371
========== ===========

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
========== ===========
</TABLE>

- --------------------------------------------------------------------------------

B-136
<PAGE>

THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH &
Financial Highlights (Unaudited) INCOME FUND
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Class A
-------------------------------------------------
Six November 7,
Months 1996(a)
Ended Year Ended Through
March 31, September 30, September 30,
1999 1998 1997
------------ ------------- ------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.......... $ 10.98 $ 12.89 $ 10.00
------------ ------------- ------------
Income from investment operations
Net investment income......................... .05 .15 .09
Net realized and unrealized gain (loss) on
investment transactions.................... 1.92 (1.32) 2.87
------------ ------------- ------------
Total from investment operations........... 1.97 (1.17) 2.96
------------ ------------- ------------
Less distributions
Dividends from net investment income.......... (.06) (.12) (.07)
Distributions from net realized gains......... (.91) (.62) --
------------ ------------- ------------
Total distributions........................ (.97) (.74) (.07)
------------ ------------- ------------
Net asset value, end of period................ $ 11.98 $ 10.98 $ 12.89
============ ============= ============
TOTAL RETURN(c)............................... 18.29% (9.40)% 29.72%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)............... $ 33,912 $ 31,339 $ 34,846
Average net assets (000)...................... $ 33,537 $ 35,145 $ 27,008
Ratios to average net assets:
Expenses, including distribution fees...... 1.42%(b) 1.31% 1.58%(b)
Expenses, excluding distribution fees...... 1.17%(b) 1.06% 1.33%(b)
Net investment income...................... .76%(b) 1.20% .90%(b)
Portfolio turnover rate....................... 59% 99% 55%

<CAPTION>
Class B
--------------------------------------------------
Six November 7,
Months 1996(a)
Ended Year Ended Through
March 31, September 30, September 30,
1999 1998 1997
------------ ------------- ------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.......... $ 10.96 $ 12.86 $ 10.00
------------ ------------- ------------
Income from investment operations
Net investment income......................... --(d) .06 .02
Net realized and unrealized gain (loss) on
investment transactions.................... 1.92 (1.31) 2.86
------------ ------------- ------------
Total from investment operations........... 1.92 (1.25) 2.88
------------ ------------- ------------
Less distributions
Dividends from net investment income.......... (.01) (.03) (.02)
Distributions from net realized gains......... (.91) (.62) --
------------ ------------- ------------
Total distributions........................ (.92) (.65) (.02)
------------ ------------- ------------
Net asset value, end of period................ $ 11.96 $ 10.96 $ 12.86
============ ============= ============
TOTAL RETURN(c)............................... 17.88% (10.01)% 28.83%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)............... $ 89,971 $ 84,751 $ 87,558
Average net assets (000)...................... $ 92,106 $ 93,465 $ 62,575
Ratios to average net assets:
Expenses, including distribution fees...... 2.17%(b) 2.06% 2.33%(b)
Expenses, excluding distribution fees...... 1.17%(b) 1.06% 1.33%(b)
Net investment income...................... .02%(b) .46% .15%(b)
Portfolio turnover rate....................... 59% 99% 55%
</TABLE>

- --------------------------------------------------------------------------------
See Notes to Financial Statements.

137
<PAGE>

THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH &
Financial Highlights (Unaudited) INCOME FUND
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Class C
--------------------------------------------------
Six November 7,
Months 1996(a)
Ended Year Ended Through
March 31, September 30, September 30,
1999 1998 1997
------------ ------------- ------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.......... $ 10.96 $ 12.86 $ 10.00
------------ ------------- ------------
Income from investment operations
Net investment income......................... --(d) .06 .02
Net realized and unrealized gain (loss) on
investment transactions.................... 1.92 (1.31) 2.86
------------ ------------- ------------
Total from investment operations........... 1.92 (1.25) 2.88
------------ ------------- ------------
Less distributions
Dividends from net investment income.......... (.01) (.03) (.02)
Distributions from net realized gains......... (.91) (.62) --
------------ ------------- ------------
Total distributions........................ (.92) (.65) (.02)
------------ ------------- ------------
Net asset value, end of period................ $ 11.96 $ 10.96 $ 12.86
============ ============= ============
TOTAL RETURN(c)............................... 17.88% (10.01)% 28.83%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)............... $ 7,008 $ 7,124 $ 7,111
Average net assets (000)...................... $ 7,666 $ 7,734 $ 5,631
Ratios to average net assets:
Expenses, including distribution fees...... 2.17%(b) 2.06% 2.33%(b)
Expenses, excluding distribution fees...... 1.17%(b) 1.06% 1.33%(b)
Net investment income...................... .03%(b) .46% .15%(b)
Portfolio turnover rate....................... 59% 99% 55%

Class Z
--------------------------------------------------
Six November 7,
Months 1996(a)
Ended Year Ended Through
March 31, September 30, September 30,
1999 1998 1997
------------ ------------- ------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.......... $ 11.00 $ 12.93 $ 10.00
------------ ------------- ------------
Income from investment operations
Net investment income......................... .06 .17 .10
Net realized and unrealized gain (loss) on
investment transactions.................... 1.93 (1.33) 2.92
------------ ------------- ------------
Total from investment operations........... 1.99 (1.16) 3.02
------------ ------------- ------------
Less distributions
Dividends from net investment income.......... (.07) (.15) (.09)
Distributions from net realized gains......... (.91) (.62) --
------------ ------------- ------------
Total distributions........................ (.98) (.77) (.09)
------------ ------------- ------------
Net asset value, end of period................ $ 12.01 $ 11.00 $ 12.93
============ ============= ============
TOTAL RETURN(c)............................... 18.51% (9.31)% 30.30%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)............... $ 3,218 $ 1,836 $ 609
Average net assets (000)...................... $ 2,414 $ 1,374 $ 227
Ratios to average net assets:
Expenses, including distribution fees...... 1.17%(b) 1.06% 1.33%(b)
Expenses, excluding distribution fees...... 1.17%(b) 1.06% 1.33%(b)
Net investment income...................... .97%(b) 1.54% 1.15%(b)
Portfolio turnover rate....................... 59% 99% 55%
</TABLE>

- --------------------------------------------------------------------------------
See Notes to Financial Statements.

138
<PAGE>

DESCRIPTION OF SECURITY RATINGS

MOODY'S INVESTORS SERVICE, INC.

Debt Ratings

Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.

Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than the Aaa
securities.

A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment some time in the
future.

Baa: Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present, but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.

Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.

Ca: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.

C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.

Short-Term Ratings

Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted.

PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:

. Leading market positions in well-established industries.

. High rates of return on funds employed.

. Conservative capitalization structure with moderate reliance on debt and
ample asset protection.

. Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

. Well-established access to a range of financial markets and assured
sources of alternate liquidity.

A-1
<PAGE>

PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This normally
will be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.

STANDARD & POOR'S RATINGS GROUP

Debt Ratings

AAA: An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.

AA: An obligation rated AA differs from the highest rated obligations only
in small degree. The obligor's capacity to meet its financial commitment on
the obligation is very strong.

A: An obligation rated A is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.

BBB: An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.

BB, B, CCC, CC and C: Obligations rated BB, B, CCC, CC and C are regarded as
having significant speculative characteristics. BB indicates the least degree
of speculation and C the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.

Commercial Paper Ratings

S&P's commercial paper ratings are current assessments of the likelihood of
timely payment of debt considered short-term in the relevant market.

A-1: This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.

A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.

DUFF & PHELPS CREDIT RATING CO.

Long-Term Debt and Preferred Stock Ratings

AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.

AA+ AA, AA-: High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.

A+, A, A-: Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.

BBB+, BBB, BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.

BB+, BB, BB-: Below investment grade but deemed likely to meet obligations
when due. Present or prospective financial protection factors fluctuate
according to industry conditions or company fortunes. Overall quality may move
up or down frequently within this category.

B+, B, B-: Below investment grade and possessing risk that obligations will
not be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or
into a higher or lower rating grade.

A-2
<PAGE>

CCC: Well below investment-grade securities. Considerable uncertainty exists
as to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.

Short-Term Debt Ratings

D- 1 +: Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of funds, is
outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations.

D- 1: Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.

D- 1-: High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.

D- 2: Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.

FITCH IBCA, INC.

Long-Term Ratings

AAA Highest credit quality. "AAA" ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong capacity
for timely payment of financial commitments. This capacity is highly unlikely
to be adversely affected by foreseeable events.

AA Very high credit quality. "AA" ratings denote a very low expectation of
credit risk. They indicate very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.

A High credit quality. "A" ratings denote a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered strong.
This capacity may, nevertheless, be more vulnerable to change in circumstances
or in economic conditions than is the case for higher ratings.

BBB Good credit quality. "BBB" ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and
in economic conditions are more likely to impair this capacity. This is the
lowest investment-grade category.

BB Speculative. "BB" ratings indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change over
time; however, business or financial alternatives may be available to allow
financial commitments to be met. Securities rated in this category are not
investment grade.

B Highly speculative. "B" ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent
upon a sustained, favorable business and economic environment.

CCC, CC, C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A "CC" rating indicates that default of
some kind appears probable. "C" ratings signal imminent default.

DDD, DD, D Default. The ratings of obligations in this category are based on
their prospects for achieving partial or full recovery in a reorganization or
liquidation of the obligor. While expected recovery values are highly
speculative and cannot be estimated with any precision, the following serve as
general guidelines. "DDD" obligations have the highest potential for recovery,
around 90%-100% of outstanding amounts and accrued interest. "DD" indicates
potential recoveries in the range of 50%-90%, and "D" the lowest recovery
potential, i.e., below 50%.

Entities rated in this category have defaulted on some or all of their
obligations. Entities rated "DDD" have the highest prospect for resumption of
performance or continued operation with or without a formal reorganization
process. Entities rated "DD" and "D" are generally undergoing a formal
reorganization or liquidation process; those rated "DD" are likely to satisfy
a higher portion of their outstanding obligations, while entities rated "D"
have a poor prospect for repaying all obligations.

A-3
<PAGE>

APPENDIX I--GENERAL INVESTMENT INFORMATION

The following terms are used in mutual fund investing.

Asset Allocation

Asset allocation is a technique for reducing risk, providing balance. Asset
allocation among different types of securities within an overall investment
portfolio helps to reduce risk and to potentially provide stable returns,
while enabling investors to work toward their financial goal(s). Asset
allocation is also a strategy to gain exposure to better performing asset
classes while maintaining investment in other asset classes.

Diversification

Diversification is a time-honored technique for reducing risk, providing
"balance" to an overall portfolio and potentially achieving more stable
returns. Owning a portfolio of securities mitigates the individual risks (and
returns) of any one security. Additionally, diversification among types of
securities reduces the risks (and general returns) of any one type of
security.

Duration

Debt securities have varying levels of sensitivity to interest rates. As
interest rates fluctuate, the value of a bond (or a bond portfolio) will
increase or decrease. Longer term bonds are generally more sensitive to
changes in interest rates. When interest rates fall, bond prices generally
rise. Conversely, when interest rates rise, bond prices generally fall.

Duration is an approximation of the price sensitivity of a bond (or a bond
portfolio) to interest rate changes. It measures the weighted average maturity
of a bond's (or a bond portfolio's) cash flows, that is, principal and
interest rate payments. Duration is expressed as a measure of time in years--
the longer the duration of a bond (or a bond portfolio), the greater the
impact of interest rate changes on the bond's (or the bond portfolio's) price.
Duration differs from effective maturity in that duration takes into account
call provisions, coupon rates and other factors. Duration measures interest
rate risk only and not other risks, such as credit risk and, in the case of
non-U.S. dollar denominated securities, currency risk. Effective maturity
measures the final maturity dates of a bond (or a bond portfolio).

Market Timing

Market timing--buying securities when prices are low and selling them when
prices are relatively higher--may not work for many investors because it is
impossible to predict with certainty how the price of a security will
fluctuate. However, owning a security for a long period of time may help
investors offset short-term price volatility and realize positive returns.

Power of Compounding

Over time, the compounding of returns can significantly impact investment
returns. Compounding is the effect of continuous investment on long-term
investment results, by which the proceeds of capital appreciation (and income
distributions, if elected) are reinvested to contribute to the overall growth
of assets. The long-term investment results of compounding may be greater than
that of an equivalent initial investment in which the proceeds of capital
appreciation and income distributions are taken in cash.

Standard Deviation

Standard deviation is an absolute (non-relative) measure of volatility which,
for a mutual fund, depicts how widely the returns varied over a certain period
of time. When a fund has a high standard deviation, its range of performance
has been very wide, implying greater volatility potential. Standard deviation
is only one of several measures of a fund's volatility.

I-1
<PAGE>

APPENDIX II--HISTORICAL PERFORMANCE DATA

The historical performance data contained in this Appendix relies on data
obtained from statistical services, reports and other services believed by the
Manager to be reliable. The information has not been independently verified by
the Manager.

This chart shows the long-term performance of various asset classes and the
rate of inflation.

Source: Stocks, Bonds, Bills and Inflation 1998 Yearbook, Ibbotson Associates.
All rights reserved. This chart is for illustrative purposes only and is not
indicative of the past, present, or future performances of any asset class or
any Prudential Mutual Fund.

Generally, stock returns are due to capital appreciation and the reinvestment
of any gains. Bond returns are due to reinvesting interest. Also, stock prices
usually are more volatile than bond prices over the long-term. Small stock
returns for 1926-1980 are those of stocks comprising the 5th quintile of the
New York Stock Exchange. Thereafter, returns are those of the Dimensional Fund
Advisors (DFA) Small Company Fund. Common stock returns are based on the S&P
Composite Index, a market-weighted, unmanaged index 500 stocks (currently) in
a variety of industries. It is often used as a broad measure of stock market
performance.

Long-term government bond returns are represented by a portfolio that contains
only one bond with a maturity of roughly 20 years. Treasury bill returns are
for a one-month bill. Treasuries are guaranteed by the government as to the
timely payment of principal and interest; equities are not. Inflation is
measured by the consumer price index (CPI).

II-1
<PAGE>

Set forth below is historical performance data relating to various sectors of
the fixed-income securities markets. The chart shows the historical total
returns of U.S. Treasury bonds, U.S. mortgage securities, U.S. corporate bonds,
U.S. high yield bonds and world government bonds on an annual basis from 1988
through 1998. The total returns of the indices include accrued interest, plus
the price changes (gains or losses) of the underlying securities during the
period mentioned. The data is provided to illustrate the varying historical
total returns and investors should not consider this performance data as an
indication of the future performance of the Fund or of any sector in which the
Fund invests.

All information relies on data obtained from statistical services, reports and
other services believed by the Manager to be reliable. Such information has not
been verified. The figures do not reflect the operating expenses and fees of a
mutual fund. See "Risk/Return Summary--Fees and Expenses" in each Prospectus.
The net effect of the deduction of the operating expenses of a mutual fund on
these historical total returns, including the compounded effect over time,
could be substantial.

Historical Total Returns of Different Bond Market Sectors

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Year 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
Treasury
Bonds/1/ 7.0% 14.4% 8.5% 15.3% 7.2% 10.7% (3.4)% 18.4% 2.7% 9.6% 10.0%
- ------------------------------------------------------------------------------------------------------------
U.S. Government
Mortgage
Securities/2/ 8.7% 15.4% 10.7% 15.7% 7.0% 6.8% (1.6)% 16.8% 5.4% 9.5% 7.0%
- ------------------------------------------------------------------------------------------------------------
U.S. Investment
Grade
Corporate Bonds/3/ 9.2% 14.1% 7.1% 18.5% 8.7% 12.2% (3.9)% 22.3% 3.3% 10.2% 8.6%
- ------------------------------------------------------------------------------------------------------------
U.S. High Yield
Bonds/4/ 12.5% 0.8% (9.6)% 46.2% 15.8% 17.1% (1.0)% 19.2% 11.4% 12.8% 1.6%
- ------------------------------------------------------------------------------------------------------------
World Government
Bonds/5/ 2.3% (3.4)% 15.3% 16.2% 4.8% 15.1% 6.0% 19.6% 4.1% (4.3)% 5.3%
- ------------------------------------------------------------------------------------------------------------
Difference between
highest and lowest 10.2 18.8 24.9 30.9 11.0 10.3 9.9 5.5 8.7 17.1 8.4
returns percent
- ------------------------------------------------------------------------------------------------------------
</TABLE>
- -------
/1/Lehman Brothers Treasury Bond Index is an unmanaged index made up of over
150 public issues of the U.S. Treasury having maturities of at least one year.

/2/Lehman Brothers Mortgage-Backed Securities Index is an unmanaged index that
includes over 600 15-and 30-year fixed-rate mortgage-backed securities of the
Government National Mortgage Association (GNMA), Federal National Mortgage
Association (FNMA), and the Federal Home Loan Mortgage Corporation (FHLMC).

/3/Lehman Brothers Corporate Bond Index includes over 3,000 public fixed-rate,
nonconvertible investment-grade bonds. All bonds are U.S. dollar-denominated
issues and include debt issued or guaranteed by foreign sovereign governments,
municipalities, governmental agencies or international agencies. All bonds in
the index have maturities of at least one year. Source: Lipper, Inc.

/4/Lehman Brothers High Yield Bond Index is an unmanaged index comprising over
750 public, fixed-rate, nonconvertible bonds that are rated Ba1 or lower by
Moody's Investors Service (or rated BB+ or lower by Standard & Poor's or Fitch
Investors Service). All bonds in the index have maturities of at least one
year.

/5/Salomon Smith Barney World Government Index (Non U.S.) includes over 800
bonds issued by various foreign governments or agencies, excluding those in the
U.S., but including those in Japan, Germany, France, the U.K., Canada, Italy,
Australia, Belgium, Denmark, the Netherlands, Spain, Sweden, and Austria. All
bonds in the index have maturities of at least one year.

II-2
<PAGE>

This chart shows the growth of a
This chart illustrates the hypothetical $10,000 investment
performance of major world stock made in the stocks representing
markets for the period from the S&P 500 stock index with and
December 31, 1985 through without reinvested dividends.
December 31, 1998. It does not
represent the performance of any
Prudential Mutual Fund.

Average Annual Total Returns of Major
World Stock Markets (12/31/85 - 12/31/98)
(in U.S. dollars)

Belgium 22.7%
Spain 22.5%
The Netherlands 20.8%
Sweden 19.9%
Switzerland 18.3%
USA 18.1% [LINE GRAPH]
Hong Kong 17.8%
France 17.4% Capital Appreciation and Reinvesting
UK 16.7% Dividends - $391,707
Germany 13.4% Capital Appreciation only - $133,525
Austria 8.9% (1969-1998)
Japan 6.5%

Source: Lipper Inc. All rights
reserved. This chart is used for
Source: Morgan Stanley Capital illustrative purposes only and is
International (MSCI) and Lipper not intended to represent the
Inc. as of 12/31/98. Used with past, present or future
permission. Morgan Stanley performance of any Prudential
Country indices are unmanaged Mutual Fund. Common stock total
indices which include those return is based on the Standard &
stocks making up the largest two- Poor's 500 Stock Index, a market-
thirds of each country's total value-weighted index made up of
stock market capitalization. 500 of the largest stocks in the
Returns reflect the reinvestment U.S. based upon their stock
of all distributions. This chart market value. Investors cannot
is for illustrative purposes only invest directly in indices.
and is not indicative of the
past, present or future
performance of any specific
investment. Investors cannot
invest directly in stock indices.

[PIE CHART]

World Stock Market Capitalization by Region
World Total: $15.8 Trillion

U.S. 51.0%
Europe 34.7%
Pacific Basin 12.5%
Canada 1.8%

Source: Morgan Stanley Capital
International, December 31, 1998.
Used with permission. This chart
represents the capitalization of
major world stock markets as measured
by the Morgan Stanley Capital
International (MSCI) World Index. The
total market capitalization is based
on the value of approximately 1577
companies in 22 countries
(representing approximately 60% of
the aggregate market value of the
stock exchanges). This chart is for
illustrative purposes only and does
not represent the allocation of any
Prudential Mutual Fund.

II-3
<PAGE>

The chart below shows the historical volatility of general interest rates as
measured by the long U.S. Treasury Bond.

[LINE GRAPH]

- -------

Source: Ibbotson Associates. All rights reserved. The chart illustrates the
historical yield of the long-term U.S. Treasury Bond from 1926-1998. Yields
represent that of an annually renewed one-bond portfolio with a remaining
maturity of approximately 20 years. This chart is for illustrative purposes
and should not be construed to represent the yields of any Prudential Mutual
Fund.

II-4
<PAGE>

APPENDIX III--INFORMATION RELATING TO PRUDENTIAL

Set forth below is information relating to The Prudential Insurance Company
of America (Prudential) and its subsidiaries as well as information relating
to the Prudential Mutual Funds. See "How the Fund is Managed--Manager" in each
Prospectus. The data will be used in sales materials relating to the
Prudential Mutual Funds. Unless otherwise indicated, the information is as of
December 31, 1997 and is subject to change thereafter. All information relies
on data provided by The Prudential Investment Corporation (PIC) or from other
sources believed by the Manager to be reliable. Such information has not been
verified by either Fund.

Information about Prudential

The Manager and PIC/1/ are subsidiaries of Prudential, which is one of the
largest diversified financial services institutions in the world and, based on
total assets, the largest insurance company in North America as of December
31, 1997. Principal products and services include life and health insurance,
other healthcare products, property and casualty insurance, securities
brokerage, asset management, investment advisory services and real estate
brokerage. Prudential (together with its subsidiaries) employs more than
81,000 persons worldwide, and maintains a sales force of approximately 11,500
agents and nearly 6,500 domestic and international financial advisors.
Prudential is a major issuer of annuities, including variable annuities.
Prudential seeks to develop innovative products and services to meet consumer
needs in each of its business areas. Prudential uses the Rock of Gibraltar as
its symbol. The Prudential rock is a recognized brand name throughout the
world.

Insurance. Prudential has been engaged in the insurance business since 1875.
It insures or provides financial services to nearly 40 million people
worldwide. Long one of the largest issuers of life insurance, Prudential has
25 million life insurance policies in force today with a face value of almost
$1 trillion. Prudential has the largest capital base ($12.1 billion) of any
life insurance company in the United States. The Prudential provides auto
insurance for more than 1.5 million cars and insures more than 1.2 million
homes.

Money Management. Prudential is one of the largest pension fund managers in
the country, providing pension services to 1 in 3 Fortune 500 firms. It
manages $36 billion of individual retirement plan assets, such as 401(k)
plans. As of December 31, 1997, Prudential had more than $370 billion in
assets under management. Prudential Investments, a business group of The
Prudential, (of which Prudential Mutual Funds is a key part) manages over $211
billion in assets of institutions and individuals. In Institutional Investor,
July 1998, Prudential was ranked eighth in terms of total assets under
management as of December 31, 1997.

Real Estate. The Prudential Real Estate Affiliates is one of the leading real
estate, residential and commercial brokerage networks in North America and has
more than 37,000 real estate brokers with over 1,400 offices across the United
States./2/

Financial Services. The Prudential Savings Bank FSB, a wholly-owned
subsidiary of Prudential, has over $1 billion in assets and serves nearly 1.5
million customers across 50 states.

- -------

/1/PIC serves as the subadviser to substantially all of the Prudential Mutual
Funds. Wellington Management Company serves as the subadviser to Global
Utility Fund, Inc., Nicholas-Applegate Capital Management as the subadviser to
Nicholas-Applegate Fund, Inc., Jennison Associates LLC as one of the
subadvisers to Prudential Diversified Funds, Prudential 20/20 Focus Fund,
Prudential Sector Funds, Inc., The Prudential Series Fund, Inc. and The
Prudential Investment Portfolios, Inc. and Mercator Asset Management LP as the
subadviser to International Stock Series, a portfolio of Prudential World
Fund, Inc. There are multiple subadvisers for The Target Portfolio Trust and
Target Funds.
/2/As of December 31, 1996.

III-1
<PAGE>

Information about the Prudential Mutual Funds

As of November 30, 1998, Prudential Investments Fund Management is the 18th
largest mutual fund company in the country, with over 2.5 million shareholders
invested in more than 50 mutual fund portfolios and variable annuities with
more than 3.7 million shareholder accounts.

The Prudential Mutual Funds have over 30 portfolio managers who manage over
$55 billion in mutual fund and variable annuity assets. Some of Prudential's
portfolio managers have over 20 years of experience managing investment
portfolios.

From time to time, there may be media coverage of portfolio managers and
other investment professionals associated with the Manager and the Subadviser
in national and regional publications, on television and in other media.
Additionally, individual mutual fund portfolios are frequently cited in
surveys conducted by national and regional publications and media
organizations such as The Wall Street Journal, The New York Times, Barron's
and USA Today.

Equity Funds. Prudential Equity Fund is managed with a "value" investment
style by PIC. In 1995, Prudential Securities introduced Prudential Jennison
Growth Fund, a growth-style equity fund managed by Jennison Associates LLC, a
premier institutional equity manager and a subsidiary of Prudential.

High Yield Funds. Investing in high yield bonds is a complex and research
intensive pursuit. A separate team of high yield bond analysts monitors
approximately 200 issues held in the Prudential High Yield Fund (currently the
largest fund of its kind in the country) along with 100 or so other high yield
bonds, which may be considered for purchase./3/ Non-investment grade bonds,
also known as junk bonds or high yield bonds, are subject to a greater risk of
loss of principal and interest including default risk than higher-rated bonds.
Prudential high yield portfolio managers and analysts meet face-to-face with
almost every bond issuer in the High Yield Fund's portfolio annually, and have
additional telephone contact throughout the year.

Prudential's portfolio managers are supported by a large and sophisticated
research organization. Investment grade bond analysts monitor the financial
viability of different bond issuers in the investment grade corporate and
municipal bond markets--from IBM to small municipalities, such as Rockaway
Township, New Jersey. These analysts consider among other things sinking fund
provisions and interest coverage ratios.

Prudential's portfolio managers and analysts receive research services from
almost 200 brokers and market service vendors. They also receive nearly 100
trade publications and newspapers--from Pulp and Paper Forecaster to Women's
Wear Daily--to keep them informed of the industries they follow.

Prudential Mutual Funds' traders scan over 100 computer monitors to collect
detailed information on which to trade. From natural gas prices in the Rocky
Mountains to the results of local municipal elections, a Prudential portfolio
manager or trader is able to monitor it if it's important to a Prudential
Mutual Fund.

Prudential Mutual Funds trades billions in U.S. and foreign government
securities a year. PIC seeks information from government policy makers.
Prudential's portfolio managers have met with several senior U.S. and foreign
government officials, on issues ranging from economic conditions in foreign
countries to the viability of index-linked securities in the United States.

- -------

/3/As of December 31, 1997. The number of bonds and the size of the Fund are
subject to change.

III-2
<PAGE>

Information about Prudential Securities

Prudential Securities is the fifth largest retail brokerage firm in the
United States with approximately 6,000 financial advisors. It offers to its
clients a wide range of products, including Prudential Mutual Funds and
Annuities. As of December 31, 1998, assets held by Prudential Securities for
its clients approximated $268 billion. During 1998, over 31,000 new customer
accounts were opened each month at Prudential Securities./4/

Prudential Securities has a two-year Financial Advisor training program plus
advanced education programs, including Prudential Securities "university,"
which provides advanced education in a wide array of investment and financial
planning areas.

In addition to training, Prudential Securities provides its financial
advisors with access to firm economists and market analysts. It has also
developed proprietary tools for use by financial advisors, including the
Financial Architect SM, a state-of-the-art asset allocation software program
which helps Financial Advisors to evaluate a client's objectives and overall
financial plan, and a comprehensive mutual fund information and analysis
system that compares different mutual funds.

For more complete information about any of the Prudential Mutual Funds,
including charges and expenses, call your Prudential Securities financial
adviser or Pruco/Prudential representative for a free prospectus. Read it
carefully before you invest or send money.
- -------

/4/ As of December 31, 1998.

III-3
<PAGE>

PART C

OTHER INFORMATION

Item 23. Exhibits.

(a) (1) Amended and Restated Articles of Incorporation, incorporated by
reference to Exhibit 1(c) to Post-Effective Amendment No. 1 to the
Registration Statement on Form N-1A (File No. 33-61997) filed via
EDGAR on February 14, 1996.

(2) Articles Supplementary, incorporated by reference to Exhibit 1(b)
to Post-Effective Amendment No. 4 to the Registration Statement on
Form N-1A (File No. 33-61997) filed via EDGAR on December 6, 1996.

(3) Amendment of Articles of Incorporation, incorporated by reference
to Exhibit 1(c) to Post-Effective Amendment No. 4 to the Registration
Statement on Form N-1A (File No. 33-61997) filed via EDGAR on
December 6, 1996.

(4) Articles Supplementary, incorporated by reference to Exhibit 1(d)
to the Registration Statement on Form N-14 (File No. 333-38087) filed
via EDGAR on October 17, 1997.

(5) Articles of Amendment, incorporated by reference to Exhibit 1(e)
to Post-Effective Amendment No. 8 to the Registration Statement on
Form N-1A (File No. 33-61997) filed via EDGAR on June 11, 1998.

(6) Articles Supplementary, incorporated by reference to Exhibit 1(f)
to Post-Effective Amendment No. 9 to the Registration Statement on
Form N-1A (File No. 33-61997) filed via EDGAR on November 27, 1998.

(b) By-Laws, incorporated by reference to Exhibit 2 to the Registration
Statement on Form N-1A (File No. 33-61997) filed via EDGAR on August
22, 1995.

(c) Instruments defining rights of shareholders, incorporated by
reference to Exhibit 4 to the Registration Statement on Form N-1A
(File No. 33-61997) filed via EDGAR on August 22, 1995.

(d) (1) Management Agreement between the Registrant and Prudential
Mutual Fund Management, Inc., incorporated by reference to Exhibit
5(a) to Post-Effective Amendment No. 1 to the Registration Statement
on Form N-1A (File No. 33-61997) filed via EDGAR on February 14,
1996.

(2) Subadvisory Agreement between Prudential Mutual Fund Management,
Inc. and Jennison Associates Capital Corp., now known as Jennison
Associates LLC, incorporated by reference to Exhibit 5(b) to Post-
Effective Amendment No. 1 to the Registration Statement on Form N-1A
(File No. 33-61997) filed via EDGAR on February 14, 1996.

(3) Management Agreement between the Registrant and Prudential
Investments Fund Management LLC with respect to Prudential Active
Balanced Fund, incorporated by reference to Exhibit 5(c) to Post-
Effective Amendment No. 9 to the Registration Statement on Form N-1A
(File No. 33-61997) filed via EDGAR on November 27, 1998.

(4) Subadvisory Agreement between the Registrant and The Prudential
Investment Corporation with respect to Prudential Active Balanced
Fund, incorporated by reference to Exhibit 5(d) to Post-Effective
Amendment No. 9 to the Registration Statement on Form N-1A (File No.
33-61997) filed via EDGAR on November 27, 1998.

(e) (1) Distribution Agreement between the Registrant and Prudential
Investment Management Services LLC, incorporated by reference to
Exhibit 6(a) to Post-Effective Amendment No. 9 to the Registration
Statement on Form N-1A (File No. 33-61997) filed via EDGAR on
November 27, 1998.

C-1
<PAGE>

(2) Form of Selected Dealer Agreement, incorporated by reference to
Exhibit 6(d) to Post-Effective Amendment No. 8 to the Registration
Statement on Form N-1A (File No. 33-61997) filed via EDGAR on
June 11, 1998.

(g) (1) Custodian Contract between the Registrant and State Street Bank
and Trust Company, incorporated by reference to Exhibit 9 to the
Registration Statement on Form N-14 (File No. 333-6755) filed via
EDGAR on June 25, 1996.

(2) Amendment to Custodian Contract.*

(h) (1) Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services, Inc., incorporated by reference to
Exhibit 13(a) to the Registration Statement on Form N-14 (File No.
333-6755) filed via EDGAR on June 25, 1996.

(2) Amendment to Transfer Agency Agreement.*

(i) Opinion and consent of Counsel.*

(l) Purchase Agreement, incorporated by reference to Exhibit 13 to Post-
Effective Amendment No. 1 to the Registration Statement on Form N-1A
(File No. 33-61997) filed via EDGAR on February 14, 1996.

(m) (1) Amended and Restated Distribution and Service Plan for Class A
Shares, incorporated by reference to Exhibit 15(a) to Post-Effective
Amendment No. 8 to the Registration Statement on Form N-1A (File No.
33-61997) filed via EDGAR on June 11, 1998.

(2) Amended and Restated Distribution and Service Plan for Class B
Shares, incorporated by reference to Exhibit 15(b) to Post-Effective
Amendment No. 8 to the Registration Statement on Form N-1A (File No.
33-61997) filed via EDGAR on June 11, 1998.

(3) Amended and Restated Distribution and Service Plan for Class C
Shares, incorporated by reference to Exhibit 15(c) to Post-Effective
Amendment No. 8 to the Registration Statement on Form N-1A (File No.
33-61997) filed via EDGAR on June 11, 1998.

(o) Amended and Restated Rule 18f-3 Plan, incorporated by reference to
Exhibit 18 to Post-Effective Amendment No. 9 to the Registration
Statement on Form N-1A (File No. 33-61997) filed via EDGAR on
November 27, 1998.
- -------
* Filed herewith

Item 24. Persons Controlled by or under Common Control with the Fund.

None.

Item 25. Indemnification.

As permitted by Section 17(h) and (i) of the Investment Company Act of 1940,
as amended, (the 1940 Act) and pursuant to Article VI of the Company's By-Laws
(Exhibit b to the Registration Statement), officers, directors, employees and
agents of the Registrant will not be liable to the Registrant, any
shareholder, officer, director, employee, agent or other person for any action
or failure to act, except for bad faith, willful misfeasance, gross negligence
or reckless disregard of duties, and those individuals may be indemnified
against liabilities in connection with the Registrant, subject to the same
exceptions. Section 2-418 of the Maryland General Corporation Law permits
indemnification of directors who acted in good faith and reasonably believed
that the conduct was in the best interests of the Registrant. As permitted by
Section 17(i) of the 1940 Act, pursuant to Section 10 of the Distribution
Agreement (Exhibit e to the Registration Statement), Prudential Investment
Management Services LLC may be indemnified against liabilities which it may
incur, except liabilities arising from bad faith, gross negligence, willful
misfeasance or reckless disregard of duties.

C-2
<PAGE>

Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (Securities Act), may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing provisions
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the 1940 Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer, or controlling person of the Registrant in connection with the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such director, officer or controlling person in connection with
the shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the 1940 Act and will be governed
by the final adjudication of such issue.

The Registrant has purchased an insurance policy insuring its officers and
directors against liabilities, and certain costs of defending claims against
such officers and directors, to the extent such officers and directors are not
found to have committed conduct constituting willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of
indemnification payments to officers and directors under certain
circumstances.

Section 9 of each Management Agreement (Exhibits d(1) and (3) to the
Registration Statement) and Section 4 of each Subadvisory Agreement (Exhibits
d(2) and (4) to the Registration Statement) limit the liability of Prudential
Investments Fund Management LLC (PIFM), Jennison Associates LLC (Jennison) and
The Prudential Investment Corporation, respectively, to liabilities arising
from willful misfeasance, bad faith or gross negligence in the performance of
their respective duties or from reckless disregard by them of their respective
obligations and duties under the agreements.

The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws and the Distribution Agreement in a manner
consistent with Release No. 11330 of the Securities and Exchange Commission
under the 1940 Act so long as the interpretation of Section 17(h) and (i) of
such Act remain in effect and are consistently applied.

Under Section 17(h) of the 1940 Act, it is the position of the staff of the
Securities and Exchange Commission that if there is neither a court
determination on the merits that the defendant is not liable nor a court
determination that the defendant was not guilty of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of one's office, no indemnification will be permitted unless an
independent legal counsel (not including a counsel who does work for either
the Registrant, its investment adviser, its principal underwriter or persons
affiliated with these persons) determines, based upon a review of the facts,
that the person in question was not guilty of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct
of his office.

Under its Articles of Incorporation, the Registrant may advance funds to
provide for indemnification. Pursuant to the Securities and Exchange
Commission staff's position on Section 17(h) advances will be limited in the
following respect:

(1) Any advances must be limited to amounts used, or to be used, for the
preparation and/or presentation of a defense to the action (including cost
connected with preparation of a settlement);

(2) Any advances must be accompanied by a written promise by, or on behalf
of, the recipient to repay that amount of the advance which exceeds the amount
to which it is ultimately determined that he is entitled to receive from the
Registrant by reason of indemnification;

(3) Such promise must be secured by a surety bond or other suitable
insurance; and

(4) Such surety bond or other insurance must be paid for by the recipient of
such advance.

C-3
<PAGE>

Item 26. Business and other Connections of Investment Adviser.

(a) Prudential Investments Fund Management LLC (PIFM)

See "How the Fund is Managed--Manager" in the Prospectuses constituting Part
A of this Registration Statement and "Investment Advisory and other Services"
in the Statement of Additional Information constituting Part B of this
Registration Statement.

The business and other connections of the officers of PIFM are listed in
Schedules A and D of Form ADV of PIFM as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-31104).

The business and other connections of PIFM's directors and principal
executive officers are set forth below. Except as otherwise indicated, the
address of each person is Gateway Center Three, Newark, New Jersey 07102-4077.

<TABLE>
<CAPTION>
Name and Address Position with PIFM Principal Occupations
---------------- ------------------ ---------------------
<C> <C> <S>
David R. Odenath, Jr. Officer in Charge, Officer in Charge, President, Chief
President, Chief Executive Officer and Chief
Executive Officer Operating Officer, PIFM; Senior
and Chief Operating Vice President, The Prudential
Officer Insurance Company of America
(Prudential)
Robert F. Gunia Executive Vice Executive Vice President and Chief
President and Chief Administrative Officer, PIFM; Vice
Administrative President, Prudential; President,
Officer Prudential Investment Management
Services LLC (PIMS)
William V. Healey Executive Vice Executive Vice President, Chief
President, Chief Legal Officer and Secretary, PIFM;
Legal Officer and Vice President and Associate
Secretary General Counsel, Prudential;
Executive Vice President, Chief
Legal Officer and Secretary,
Prudential Mutual Fund Services
LLC; Senior Vice President, Chief
Legal Officer and Secretary, PIMS
Brian W. Henderson Executive Vice Executive Vice President, PIFM;
President Senior Vice President and Chief
Operating Officer, PIMS
Stephen Pelletier Executive Vice Executive Vice President, PIFM
President
Judy A. Rice Executive Vice Executive Vice President, PIFM
President
Lynn M. Waldvogel Executive Vice Executive Vice President, PIFM
President
</TABLE>

(b) Jennison Associates LLC.

See "How the Fund is Managed--Investment Adviser" in the Prospectuses
constituting Part A of this Registration Statement and "Investment Advisory
and other Services" in the Statement of Additional Information constituting
Part B of this Registration Statement.

The business and other connections of Jennison directors and executive
officers are listed in its Form ADV as currently on file with the Securities
and Exchange Commission (File No. 801-5608), the text of which is hereby
incorporated by reference.

C-4
<PAGE>

See "How the Fund is Managed--Investment Adviser" in the Prospectus of
Prudential Active Balanced Fund constituting Part A of this Registration
Statement and "Investment Advisory and other Services" in the Statement of
Additional Information constituting Part B of this Registration Statement.

The business and other connections of PIC's directors and executive officers
are as set forth below. The address of each person is Prudential Plaza,
Newark, New Jersey 07102.

<TABLE>
<CAPTION>
Name and Address Position with PIC Principal Occupations
---------------- ----------------- ---------------------
<C> <C> <S>
Jeffrey Hiller Client Compliance Officer Chief Compliance
Officer,
Prudential Private Asset
Management
John R. Strangfeld, Jr. President of Private
Asset Management Group
of Prudential;
Senior Vice President,
Chairman of the Board, Prudential; Chairman of
President, Chief the Board, President,
Executive Officer and Chief Executive Officer
Director and Director, PIC
Bernard Winograd Senior Vice President and Director Chief Executive Officer,
Prudential Real Estate
Investors; Senior Vice
President and Director,
PIC
</TABLE>

Item 27. Principal Underwriters.

(a) Prudential Investment Management Services LLC (PIMS)

PIMS is distributor for Cash Accumulation Trust, Command Money Fund, Command
Government Fund, Command Tax-Free Fund, The Global Total Return Fund, Inc.,
Global Utility Fund, Inc., Nicholas-Applegate Fund, Inc. (Nicholas-Applegate
Growth Equity Fund), Prudential Balanced Fund, Prudential California Municipal
Fund, Prudential Distressed Securities Fund, Inc., Prudential Diversified Bond
Fund, Inc., Prudential Diversified Funds, Prudential Emerging Growth Fund,
Inc., Prudential Equity Fund, Inc., Prudential Equity Income Fund, Prudential
Europe Growth Fund, Inc., Prudential Global Genesis Fund, Inc., Prudential
Global Limited Maturity Fund, Inc., Prudential Government Income Fund, Inc.,
Prudential Government Securities Trust, Prudential High Yield Fund, Inc.,
Prudential High Yield Total Return Fund, Inc., Prudential Index Series Fund,
Prudential Institutional Liquidity Portfolio, Inc., Prudential Intermediate
Global Income Fund, Inc., Prudential International Bond Fund, Inc., Prudential
Mid-Cap Value Fund, Prudential MoneyMart Assets, Inc., Prudential Municipal
Bond Fund, Prudential Municipal Series Fund, Prudential National Municipals
Fund, Inc., Prudential Natural Resources Fund, Inc., Prudential Pacific Growth
Fund, Inc., Prudential Real Estate Securities Fund, Prudential Sector Funds,
Inc., Prudential Small-Cap Quantum Fund, Inc., Prudential Small Company Value
Fund, Inc., Prudential Special Money Market Fund, Inc., Prudential Structured
Maturity Fund, Inc., Prudential Tax-Free Money Fund, Inc., Prudential Tax-
Managed Equity Fund, Prudential 20/20 Focus Fund, Prudential World Fund, Inc.,
The Prudential Investment Portfolios, Inc., The Target Portfolio Trust and
Target Funds.

(b) Information concerning the directors and officers of PIMS is set forth
below:

<TABLE>
<CAPTION>
Positions and Positions and
Offices with Offices with
Name/1/ Underwriter Registrant
- ------- ------------- ---------------------------
<S> <C> <C>
Margaret Deverell....... Vice President and Chief Financial Officer None
Robert F. Gunia......... President Vice President and Director
Kevin Frawley........... Senior Vice President and Compliance Officer None
William V. Healey....... Senior Vice President, Secretary and Chief Legal Officer None
Brian Henderson......... Senior Vice President and Chief Operating Officer None
John R. Strangfeld,
Jr. ................... Advisory Board Member President and Director
</TABLE>
- -------

/1/The address of each person named is 751 Broad Street, Newark, New Jersey
07102-4077 unless otherwise noted.

C-5
<PAGE>

Item 28. Location of Accounts and Records.

All accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the Rules thereunder are maintained at the offices
of State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts, 02171, Jennison Associates LLC, 466 Lexington Avenue, New York,
N.Y. 10017, the Registrant, Gateway Center Three, 100 Mulberry Street, Newark,
New Jersey 07102-4077 and Prudential Mutual Fund Services LLC, Raritan
Plaza One, Edison, New Jersey. Documents required by Rules 31a-1(b)(5), (6),
(7), (9), (10) and (11), 31a-1(f) and Rules 31a-1(b)(4) and (11) and 31a-1(d)
will be kept at Gateway Center Three, 100 Mulberry Street, Newark, New Jersey
07102-4077 and the remaining accounts, books and other documents required by
such other pertinent provisions of Section 31(a) and the Rules promulgated
thereunder will be kept by State Street Bank and Trust Company and Prudential
Mutual Fund Services LLC.

Item 29. Management Services.

Other than as set forth under the captions "How the Fund is Managed--
Manager," "How the Fund is Managed--Investment Adviser" and "How the Fund is
Managed--Distributor" in the Prospectuses and the caption Investment Advisory
and other Services in the Statement of Additional Information, constituting
Parts A and B, respectively, of this Post-Effective Amendment to the
Registration Statement, Registrant is not a party to any management-related
service contract.

Item 30. Undertakings.

Not applicable.

C-6
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act and the Investment
Company Act, the Company has duly caused this Amendment to the Registration
Statement to be signed on its behalf by the undersigned, duly authorized, in
the City of Newark, and State of New Jersey, on the 29th day of September,
1999.

THE PRUDENTIAL INVESTMENT PORTFOLIOS,
INC.

/s/ John R. Strangfeld, Jr.
By______________________________________

John R. Strangfeld, Jr.
President

Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.

<TABLE>
<S> <C>
Signature Title
Date

/s / Grace C. Torres Treasurer and September 29,
- ----------------------------------- Principal 1999
Grace C. Torres Financial and
Accounting
Officer

/s/ Edward D. Beach Director September 29,
- ----------------------------------- 1999
Edward D. Beach

/s/ Delayne Dedrick Gold Director September 29,
- ----------------------------------- 1999
Delayne Dedrick Gold

/s/ Robert F. Gunia Director September 29,
- ----------------------------------- 1999
Robert F. Gunia

/s/ Douglas H. McCorkindale Director September 29,
- ----------------------------------- 1999
Douglas H. McCorkindale

/s/ Thomas T. Mooney Director September 29,
- ----------------------------------- 1999
Thomas T. Mooney
</TABLE>

C-7
<PAGE>

Signatures Title Date

/s/ Stephen P. Munn Director
- ------------------------------------ September 29,
Stephen P. Munn 1999

/s/ David R. Odenath, Jr. Director September 29,
- ------------------------------------ 1999
David R. Odenath, Jr.

/s/ Richard A. Redeker Director
- ------------------------------------ September 29,
Richard A. Redeker 1999

/s/ Robin B. Smith Director
- ------------------------------------ September 29,
Robin B. Smith 1999

President and
/s/ John R. Strangfeld, Jr. Director September 29,
- ------------------------------------ 1999
John R. Strangfeld, Jr.

/s/ Louis A. Weil, III Director
- ------------------------------------ September 29,
Louis A. Weil, III 1999

/s/ Clay T. Whitehead Director
- ------------------------------------ September 29,
Clay T. Whitehead 1999

C-8
<PAGE>

EXHIBIT INDEX

Exhibits.

(2) Articles Supplementary, incorporated by reference to Exhibit 1(b) to
Post-Effective Amendment No. 4 to the Registration Statement on Form N-1A
(File No. 33-61997) filed via EDGAR on December 6, 1996.

(3) Amendment of Articles of Incorporation, incorporated by reference to
Exhibit 1(c) to Post-Effective Amendment No. 4 to the Registration
Statement on Form N-1A (File No. 33-61997) filed via EDGAR on December 6,
1996.

(4) Articles Supplementary, incorporated by reference to Exhibit 1(d) to
the Registration Statement on Form N-14 (File No. 333-38087) filed via
EDGAR on October 17, 1997.

(5) Articles of Amendment, incorporated by reference to Exhibit 1(e) to
Post-Effective Amendment No. 8 to the Registration Statement on Form N-1A
(File No. 33-61997) filed via EDGAR on June 11, 1998.

(6) Articles Supplementary, incorporated by reference to Exhibit 1(f) to
Post-Effective Amendment No. 9 to the Registration Statement on Form N-1A
(File No. 33-61997) filed via EDGAR on November 27, 1998.

(b) By-Laws, incorporated by reference to Exhibit 2 to the Registration
Statement on Form N-1A (File No. 33-61997) filed via EDGAR on August 22,
1995.

(c) Instruments defining rights of shareholders, incorporated by reference to
Exhibit 4 to the Registration Statement on Form N-1A (File No. 33-61997)
filed via EDGAR on August 22, 1995.

(d) (1) Management Agreement between the Registrant and Prudential Mutual Fund
Management, Inc., incorporated by reference to Exhibit 5(a) to Post-
Effective Amendment No. 1 to the Registration Statement on Form N-1A (File
No. 33-61997) filed via EDGAR on February 14, 1996.

(2) Subadvisory Agreement between Prudential Mutual Fund Management, Inc.
and Jennison Associates Capital Corp., now known as Jennison Associates
LLC, incorporated by reference to Exhibit 5(b) to Post-Effective Amendment
No. 1 to the Registration Statement on Form N-1A (File No. 33-61997) filed
via EDGAR on February 14, 1996.

(3) Management Agreement between the Registrant and Prudential Investments
Fund Management LLC with respect to Prudential Active Balanced Fund,
incorporated by reference to Exhibit 5(c) to Post-Effective Amendment No. 9
to the Registration Statement on Form N-1A (File No. 33-61997) filed via
EDGAR on November 27, 1998.

(4) Subadvisory Agreement between the Registrant and The Prudential
Investment Corporation with respect to Prudential Active Balanced Fund,
incorporated by reference to Exhibit 5(d) to Post-Effective Amendment No. 9
to the Registration Statement on Form N-1A (File No. 33-61997) filed via
EDGAR on November 27, 1998.

(e) (1) Distribution Agreement between the Registrant and Prudential
Investment Management Services LLC, incorporated by reference to Exhibit
6(a) to Post-Effective Amendment No. 9 to the Registration Statement on
Form N-1A (File No. 33-61997) filed via EDGAR on November 27, 1998.

(2) Form of Selected Dealer Agreement, incorporated by reference to Exhibit
6(d) to Post-Effective Amendment No. 8 to the Registration Statement on
Form N-1A (File No. 33-61997) filed via EDGAR on June 11, 1998.
<PAGE>

(g) (1) Custodian Contract between the Registrant and State Street Bank and
Trust Company, incorporated by reference to Exhibit 9 to the Registration
Statement on Form N-14 (File No. 333-6755) filed via EDGAR on June 25,
1996.

(2) Amendment to Custodian Contract.*

(2) Amendment to Transfer Agency Agreement.*

(i) Opinion and Consent of Counsel.*

(l) Purchase Agreement, incorporated by reference to Exhibit 13 to Post-
Effective Amendment No. 1 to the Registration Statement on Form N-1A (File
No. 33-61997) filed via EDGAR on February 14, 1996.

(m) (1) Amended and Restated Distribution and Service Plan for Class A Shares,
incorporated by reference to Exhibit 15(a) to Post-Effective Amendment No.
8 to the Registration Statement on Form N-1A (File No. 33-61997) filed via
EDGAR on June 11, 1998.

(2) Amended and Restated Distribution and Service Plan for Class B Shares,
incorporated by reference to Exhibit 15(b) to Post-Effective Amendment No.
8 to the Registration Statement on Form N-1A (File No. 33-61997) filed via
EDGAR on June 11, 1998.

(3) Amended and Restated Distribution and Service Plan for Class C Shares,
incorporated by reference to Exhibit 15(c) to Post-Effective Amendment No.
8 to the Registration Statement on Form N-1A (File No. 33-61997) filed via
EDGAR on June 11, 1998.

(o) Amended and Restated Rule 18f-3 Plan, incorporated by reference to Exhibit
18 to Post-Effective Amendment No. 9 to the Registration Statement on Form
N-1A (File No. 33-61997) filed via EDGAR on November 27, 1998.
- -------
* Filed herewith

<PAGE>

EXHIBIT 99.(g)(2)

AMENDMENT TO CUSTODIAN CONTRACT/AGREEMENT

This Amendment to the respective Custodian Contract/Agreement is made as of
February 22, 1999 by and between each of the funds listed on Schedule D
(including any series thereof, each, a "Fund") and State Street Bank and Trust
Company (the "Custodian"). Capitalized terms used in this Amendment without
definition shall have the respective meanings given to such terms in the
Custodian Contract/Agreement referred to below.

WHEREAS, each Fund and the Custodian have entered into a Custodian
Contract/Agreement dated as of the dates set forth on Schedule D (each contract,
as amended, a "Contract"); and

WHEREAS, each Fund and the Custodian desire to amend certain provisions of
the Contract to reflect revisions to Rule 17f-5 ("Rule 17f-5") promulgated under
the Investment Company Act of 1940, as amended (the "1940 Act"); and

WHEREAS, each Fund and the Custodian desire to amend and restate certain
other provisions of the Contract relating to the custody of assets of each of
the Funds held outside of the United States.

NOW THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements hereinafter contained, the parties hereby agree to amend the
Contract, to add the following new provisions which supersede the provisions in
the existing contracts relating to the custody of assets of the Funds outside
the United States.

3. The Custodian as Foreign Custody Manager.
----------------------------------------

3.1. Definitions.
-----------

Capitalized terms in this Article 3 shall have the following meanings:

"Country Risk" means all factors reasonably related to the systemic risk of
holding Foreign Assets in a particular country including, but not limited to,
such country's political environment; economic and financial infrastructure;
systemic custody and securities settlement practices; and laws and regulations
applicable to the safekeeping and recovery of Foreign Assets held in custody in
that country.

"Eligible Foreign Custodian" has the meaning set forth in section (a)(1) of Rule
17f-5, including a majority-owned or indirect subsidiary of a U.S. Bank (as
defined in Rule 17f-5), a bank holding company meeting the requirements of an
Eligible Foreign Custodian (as set forth in Rule 17f-5 or by other appropriate
action of the U.S. Securities and Exchange Commission (the "SEC")), or a foreign
branch of a Bank (as defined in Section 2(a)(5) of the 1940 Act) meeting the
requirements of a custodian under Section 17(f) of the 1940 Act, except that the
term does not include Mandatory Securities Depositories.

1
<PAGE>

"Foreign Assets" means any of the Funds' investments (including foreign
currencies) for which the primary market is outside the United States and such
cash and cash equivalents as are reasonably necessary to effect the Funds'
transactions in such investments.

"Foreign Custody Manager" has the meaning set forth in section (a)(2) of Rule
17f-5.

"Mandatory Securities Depository" means a foreign securities depository or
clearing agency that, either as a legal or practical matter, must be used if the
Fund determines to place Foreign Assets in a country outside the United States
(i) because required by law or regulation; (ii) because securities cannot be
withdrawn from such foreign securities depository or clearing agency; or (iii)
because maintaining or effecting trades in securities outside the foreign
securities depository or clearing agency is not consistent with systemic
custodial or market practices.

3.2. Delegation to the Custodian as Foreign Custody Manager.
------------------------------------------------------

Each Fund, by resolution adopted by its Board of Trustees/Directors (the
"Board"), hereby delegates to the Custodian subject to Section (b) of Rule 17f-
5, the responsibilities set forth in this Article 3 with respect to Foreign
Assets of the Fund held outside the United States, and the Custodian hereby
accepts such delegation, as Foreign Custody Manager with respect to the Funds.

3.3. Countries Covered.
-----------------

The Foreign Custody Manager shall be responsible for performing the delegated
responsibilities defined below only with respect to the countries and custody
arrangements for each such country listed on Schedule A to this Contract, which
list of countries may be amended from time to time by the Fund with the
agreement of the Foreign Custody Manager. The Foreign Custody Manager shall
list on Schedule A the Eligible Foreign Custodians selected by the Foreign
Custody Manager to maintain the assets of the Funds which list of Eligible
Foreign Custodians may be amended from time to time in the sole discretion of
the Foreign Custody Manager. Mandatory Securities Depositories are listed on
Schedule B to this Contract, which Schedule B may be amended from time to time
by the Foreign Custody Manager upon reasonable notice to the Fund. The Foreign
Custody Manager will provide amended versions of Schedules A and B in accordance
with Section 3.7 of this Article 3.

Upon the receipt by the Foreign Custody Manager of Proper Instructions to open
an account or to place or maintain Foreign Assets in a country listed on
Schedule A, and the fulfillment by a Fund of the applicable account opening
requirements for such country, the Foreign Custody Manager shall be deemed to
have been delegated by that Fund's Board responsibility as Foreign Custody
Manager with respect to that country and to have accepted such delegation.
Execution of this Amendment by the Fund shall be deemed to be a Proper
Instruction to open an account, or to place or maintain Foreign Assets, in each
country listed on Schedule A in which the Custodian has previously placed or
currently maintains Foreign Assets pursuant to the terms of the Contract.

2
<PAGE>

Following the receipt of Proper Instructions directing the Foreign Custody
Manager to close the account of a Fund with the Eligible Foreign Custodian
selected by the Foreign Custody Manager in a designated country, the delegation
by that Fund's Board to the Custodian as Foreign Custody Manager for that
country shall be deemed to have been withdrawn and the Custodian shall
immediately cease to be the Foreign Custody Manager of the Fund with respect to
that country.

The Foreign Custody Manager may withdraw its acceptance of delegated
responsibilities with respect to a designated country upon written notice to the
Fund. Thirty days (or such longer period as to which the parties agree in
writing) after receipt of any such notice by the Fund, the Custodian shall have
no further responsibility as Foreign Custody Manager to the Fund with respect to
the country as to which the Custodian's acceptance of delegation is withdrawn.

3.4. Scope of Delegated Responsibilities.
-----------------------------------

3.4.1. Selection of Eligible Foreign Custodians.
----------------------------------------

Subject to the provisions of this Article 3, the Fund's Foreign Custody Manager
may place and maintain the Foreign Assets in the care of the Eligible Foreign
Custodian selected by the Foreign Custody Manager in each country listed on
Schedule A, as amended from time to time.

In performing its delegated responsibilities as Foreign Custody Manager to place
or maintain Foreign Assets with an Eligible Foreign Custodian, the Foreign
Custody Manager shall determine that the Foreign Assets will be subject to
reasonable care, based on the standards applicable to custodians in the country
in which the Foreign Assets will be held by that Eligible Foreign Custodian,
after considering all factors relevant to the safekeeping of such assets,
including, without limitation the factors specified in Rule 17f-5(c)(1).

3.4.2. Contracts With Eligible Foreign Custodians.
------------------------------------------

The Foreign Custody Manager shall determine that the contract (or the rules or
established practices or procedures in the case of an Eligible Foreign Custodian
that is a foreign securities depository or clearing agency) governing the
foreign custody arrangements with each Eligible Foreign Custodian selected by
the Foreign Custody Manager will satisfy the requirements of Rule 17f-5(c)(2).

3.4.3. Monitoring.
----------

In each case in which the Foreign Custody Manager maintains Foreign Assets with
an Eligible Foreign Custodian selected by the Foreign Custody Manager, the
Foreign Custody Manager shall establish a system to monitor (i) the
appropriateness of maintaining the Foreign Assets with such Eligible Foreign
Custodian and (ii) the contract governing the custody arrangements established
by the Foreign Custody Manager with the Eligible Foreign Custodian (or the rules
or established practices and procedures in the case of an Eligible Foreign
Custodian selected by the Foreign Custody Manager which is a foreign securities
depository or clearing agency that is not a

3
<PAGE>

Mandatory Securities Depository). The Foreign Custody Manager shall provide the
Board at least annually with information as to the factors used in such
monitoring system. If the Foreign Custody Manager determines that the custody
arrangements with an Eligible Foreign Custodian it has selected are no longer
appropriate, the Foreign Custody Manager shall notify the Board in accordance
with Section 3.7 hereunder and withdraw the Foreign Assets from such Eligible
Foreign Custodian as soon as reasonably practicable.

3.5. Guidelines for the Exercise of Delegated Authority.
--------------------------------------------------

For purposes of this Article 3, the Foreign Custody Manager shall have no
responsibility for Country Risk as is incurred by placing and maintaining the
Foreign Assets in each country for which the Custodian is serving as Foreign
Custody Manager of the Portfolios. The Fund and the Custodian each expressly
acknowledge that the Foreign Custody Manager shall not be delegated any
responsibilities under this Article 3 with respect to Mandatory Securities
Depositories.

3.6. Standard of Care as Foreign Custody Manager of a Portfolio.
----------------------------------------------------------

In performing the responsibilities delegated to it, the Foreign Custody Manager
agrees to exercise reasonable care, prudence and diligence such as a person
having responsibility for the safekeeping of assets of management investment
companies registered under the 1940 Act would exercise.

3.7. Reporting Requirements.
----------------------

The Foreign Custody Manager shall report the placement of Foreign Assets with an
Eligible Foreign Custodian, the withdrawal of the Foreign Assets from an
Eligible Foreign Custodian and the placement of such Foreign Assets with another
Eligible Foreign Custodian by providing to the Board amended Schedules A or B at
the end of the calendar quarter in which an amendment to either Schedule has
occurred. The Foreign Custody Manager shall make written reports notifying the
Board of any other material change in the foreign custody arrangements of the
Funds described in this Article 3 promptly after the occurrence of the material
change.

3.8. Representations with Respect to Rule 17f-5.
------------------------------------------

The Foreign Custody Manager represents to the Fund that it is a U.S. Bank as
defined in section (a)(7) of Rule 17f-5.

3.9. Effective Date and Termination of the Custodian as Foreign Custody Manager.
--------------------------------------------------------------------------

The Board's delegation to the Custodian as Foreign Custody Manager of the Funds
shall be effective as of the date hereof and shall remain in effect until
terminated at any time, without penalty, by written notice from the terminating
party to the non-terminating party. Termination will become effective sixty
(60) days after receipt by the non-terminating party of such notice. The
provisions of Section 3.3 hereof shall govern the delegation to and termination
of the Custodian as Foreign Custody Manager of the Funds with respect to
designated countries.

4
<PAGE>

3.10. Most Favored Client.
-------------------

If at any time prior to termination of this Amendment, the Custodian, as a
matter of standard business practice, accepts delegation as Foreign Custody
Manager for its U.S. mutual fund clients on terms of materially greater benefit
to the Funds than set forth in this Amendment, the Custodian hereby agrees to
negotiate with the Funds in good faith with respect thereto.

4. Duties of the Custodian with Respect to Property of the Funds held
------------------------------------------------------------------
Outside the United States.
-------------------------

4.1 Definitions.
-----------

Capitalized terms in this Article 4 shall have the following meanings:

"Foreign Securities System" means either a clearing agency or a securities
depository listed on Schedule A hereto or a Mandatory Securities Depository
listed on Schedule B hereto.

"Foreign Sub-Custodian" means a foreign banking institution (including a foreign
branch of the Custodian or another Bank (as defined in Section 2(a)(5) of the
1940 Act)) serving as an Eligible Foreign Custodian.

4.2. Holding Securities.
------------------

The Custodian shall identify on its books as belonging to the Funds the foreign
securities held by each Foreign Sub-Custodian or Foreign Securities System. The
Custodian may hold foreign securities for all of its customers, including the
Funds, with any Foreign Sub-Custodian in an account that is identified as
belonging to the Custodian for the benefit of its customers, provided however,
----------------
that (i) the records of the Custodian with respect to foreign securities of the
Funds which are maintained in such account shall identify those securities as
belonging to the Funds and (ii), to the extent permitted and customary in the
market in which the account is maintained, the Custodian shall require that
securities so held by the Foreign Sub-Custodian be held separately from any
assets of such Foreign Sub-Custodian or of other customers of such Foreign Sub-
Custodian.

4.3. Foreign Securities Systems.
--------------------------

Foreign securities shall be maintained in a Foreign Securities System in a
designated country only through arrangements implemented by the Foreign Sub-
Custodian in such country pursuant to the terms of this Contract.

4.4. Transactions in Foreign Custody Account.
---------------------------------------

4.4.1. Delivery of Foreign Assets.
--------------------------

5
<PAGE>

The Custodian or a Foreign Sub-Custodian shall release and deliver foreign
securities of the Funds held by such Foreign Sub-Custodian, or in a Foreign
Securities System account, only upon receipt of Proper Instructions, which may
be continuing instructions when deemed appropriate by the parties, and only in
the following cases:

(i) upon the sale of such foreign securities for the Fund in accordance
with customary market practice in the country where such foreign
securities are held or traded, including, without limitation: (A)
delivery against expectation of receiving later payment; or (B) in the
case of a sale effected through a Foreign Securities System, in
accordance with the rules governing the operation of the Foreign
Securities System;

(ii) in connection with any repurchase agreement related to foreign
securities;

(iii) to the depository agent in connection with tender or other similar
offers for foreign securities of the Portfolios;

(iv) to the issuer thereof or its agent when such foreign securities are
called, redeemed, retired or otherwise become payable;

(v) to the issuer thereof, or its agent, for transfer into the name of the
Custodian (or the name of the respective Foreign Sub-Custodian or of
any nominee of the Custodian or such Foreign Sub-Custodian) or for
exchange for a different number of bonds, certificates or other
evidence representing the same aggregate face amount or number of
units;

(vi) to brokers, clearing banks or other clearing agents for examination or
trade execution in accordance with reasonable market custom; provided
--------
that in any such case the Foreign Sub-Custodian shall have no
responsibility or liability for any loss arising from the delivery of
such securities prior to receiving payment for such securities except
as may arise from the Foreign Sub-Custodian's own negligence or
willful misconduct;

(vii) for exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of the
securities of the issuer of such securities, or pursuant to provisions
for conversion contained in such securities, or pursuant to any
deposit agreement;

(viii) in the case of warrants, rights or similar foreign securities, the
surrender thereof in the exercise of such warrants, rights or similar
securities or the surrender of interim receipts or temporary
securities for definitive securities;

(ix) for delivery as security in connection with any borrowing by the Funds
requiring a

6
<PAGE>

pledge of assets by the Funds;

(x) in connection with trading in options and futures contracts, including
delivery as original margin and variation margin;

(xi) in connection with the lending of foreign securities; and

(xii) for any other proper purpose, but only upon receipt of Proper
--- ----
Instructions specifying the foreign securities to be delivered,
setting forth the purpose for which such delivery is to be made,
declaring such purpose to be a proper trust\corporate purpose, and
naming the person or persons to whom delivery of such securities shall
be made.

4.4.2. Payment of Fund Monies.
----------------------

Upon receipt of Proper Instructions, which may be continuing instructions when
deemed appropriate by the parties, the Custodian shall pay out, or direct the
respective Foreign Sub-Custodian or the respective Foreign Securities System to
pay out, monies of a Fund in the following cases only:

(i) upon the purchase of foreign securities for the Fund, unless otherwise
directed by Proper Instructions, in accordance with reasonable market
settlement practice in the country where such foreign securities are
held or traded, including, without limitation, (A) delivering money to
the seller thereof or to a dealer therefor (or an agent for such
seller or dealer) against expectation of receiving later delivery of
such foreign securities; or (B) in the case of a purchase effected
through a Foreign Securities System, in accordance with the rules
governing the operation of such Foreign Securities System;

(ii) in connection with the conversion, exchange or surrender of foreign
securities of the Fund;

(iii) for the payment of any expense or liability of the Fund, including
but not limited to the following payments: interest, taxes,
investment advisory fees, transfer agency fees, fees under this
Contract, legal fees, accounting fees, and other operating expenses;

(iv) for the purchase or sale of foreign exchange or foreign exchange
contracts for the Fund, including transactions executed with or
through the Custodian or its Foreign Sub-Custodians;

(v) in connection with trading in options and futures contracts, including
delivery as original margin and variation margin;

7
<PAGE>

(vi) for payment of part or all of the dividends received in respect of
securities sold short;

(vii) in connection with the borrowing or lending of foreign securities;
and

(viii) for any other proper purpose, but only upon receipt of Proper
--- ----
Instructions specifying the amount of such payment, setting forth the
purpose for which such payment is to be made, declaring such purpose
to be a proper trust\corporate purpose, and naming the person or
persons to whom such payment is to be made.

4.4.3. Market Conditions; Market Information.
-------------------------------------

Notwithstanding any provision of this Contract to the contrary, settlement and
payment for Foreign Assets received for the account of the Funds and delivery of
Foreign Assets maintained for the account of the Funds may be effected in
accordance with the customary established securities trading or processing
practices and procedures in the country or market in which the transaction
occurs generally accepted by Institutional Clients, including, without
limitation, delivering Foreign Assets to the purchaser thereof or to a dealer
therefor (or an agent for such purchaser or dealer) with the expectation of
receiving later payment for such Foreign Assets from such purchaser or dealer.

For purposes of this Agreement, the term "Institutional Clients" means U.S.
registered investment companies or major U.S. commercial banks, insurance
companies, pension funds or substantially similar institutions which, as a part
of their ordinary business operations, purchase or sell securities and make use
of global custody services.

The Custodian shall provide to the Board information with respect to material
changes in the custody and settlement practices in countries in which the
Custodian employs a Foreign Sub-Custodian. The Custodian shall provide, without
limitation, information relating to Foreign Securities Systems and other
information described in Schedule C. The Custodian may revise Schedule C from
time to time, provided that no such revision shall result in the Board being
provided with substantively less information than had previously been provided
hereunder and provided further that the Custodian shall in any event provide to
the Board at least annually the following information and opinions with respect
to the Board approved countries listed on Schedule A:

(i) legal opinions relating to whether local law restricts with respect
to U.S. registered mutual funds (a) access of a fund's independent
public accountants to books and records of a Foreign Sub-Custodian or
Foreign Securities System, (b) a fund's ability to recover in the
event of bankruptcy or insolvency of a Foreign Sub-Custodian or
Foreign Securities System, (c) a fund's ability to recover in the
event of a loss by a Foreign Sub-Custodian or Foreign Securities
System, and (d) the ability of a foreign investor to convert cash and
cash equivalents to U.S. dollars;

8
<PAGE>

(ii) summary of information regarding Foreign Securities Systems; and

(iii) country profile information containing market practice for (a)
delivery versus payment, (b) settlement method, (c) currency
restrictions, (d) buy-in practices, (e) foreign ownership limits, and
(f) unique market arrangements.

4.5. Registration of Foreign Securities.
----------------------------------

The foreign securities maintained in the custody of a Foreign Sub-Custodian
(other than bearer securities) shall be registered in the name of the applicable
series or in the name of the Custodian or in the name of any Foreign Sub-
Custodian or in the name of any nominee of the foregoing, and the Fund agrees to
hold any such nominee harmless from any liability as a holder of record of such
foreign securities, except to the extent that the Fund incurs loss or damage due
to failure of such nominee to meet its standard of care set forth in the
Contract. The Custodian or a Foreign Sub-Custodian shall not be obligated to
accept securities on behalf of a Fund under the terms of this Contract unless
the form of such securities and the manner in which they are delivered are in
accordance with reasonable market practice.

4.6. Bank Accounts.
-------------

The Custodian shall identify on its books as belonging to the Fund cash
(including cash denominated in foreign currencies) deposited with the Custodian.
Where the Custodian is unable to maintain, or market practice does not
facilitate the maintenance of, cash on the books of the Custodian, a bank
account or bank accounts opened and maintained outside the United States on
behalf of a Fund with a Foreign Sub-Custodian shall be subject only to draft or
order by the Custodian or such Foreign Sub-Custodian, acting pursuant to the
terms of this Contract to hold cash received by or from or for the account of
the Portfolio.

4.7. Collection of Income.
--------------------

The Custodian shall use reasonable commercial efforts to collect all income and
other payments with respect to the Foreign Assets held hereunder to which the
Funds shall be entitled and shall credit such income, as collected, to the
applicable Fund. In the event that extraordinary measures are required to
collect such income, the Fund and the Custodian shall consult as to such
measures and as to the compensation and expenses of the Custodian relating to
such measures.

4.8. Shareholder Rights.
------------------

With respect to the foreign securities held pursuant to this Article 4, the
Custodian will use reasonable commercial efforts to facilitate the exercise of
voting and other shareholder rights, subject always to the laws, regulations and
practical constraints that may exist in the country where such securities are
issued. The Fund acknowledges that local conditions, including lack of

9
<PAGE>

regulation, onerous procedural obligations, lack of notice and other factors may
have the effect of severely limiting the ability of the Fund to exercise
shareholder rights.

4.9. Communications Relating to Foreign Securities.
---------------------------------------------

The Custodian shall transmit promptly to the Fund written information
(including, without limitation, pendency of calls and maturities of foreign
securities and expirations of rights in connection therewith) received by the
Custodian via the Foreign Sub-Custodians from issuers of the foreign securities
being held for the account of the Funds. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Fund written information so
received by the Custodian from issuers of the foreign securities whose tender or
exchange is sought or from the party (or its agents) making the tender or
exchange offer. Subject to the standard of care to which the Custodian is held
under this Agreement, the Custodian shall not be liable for any untimely
exercise of any tender, exchange or other right or power in connection with
foreign securities or other property of the Funds at any time held by it unless
(i) the Custodian or the respective Foreign Sub-Custodian is in actual
possession of such foreign securities or property and (ii) the Custodian
receives Proper Instructions with regard to the exercise of any such right or
power, and both (i) and (ii) occur at least three business days prior to the
date on which the Custodian is to take action to exercise such right or power.

4.10. Liability of Foreign Sub-Custodians and Foreign Securities Systems.
------------------------------------------------------------------

Each agreement pursuant to which the Custodian employs a Foreign Sub-Custodian
shall, to the extent possible, require the Foreign Sub-Custodian to exercise
reasonable care in the performance of its duties and, to the extent possible, to
indemnify, and hold harmless, the Custodian from and against any loss, damage,
cost, expense, liability or claim arising out of or in connection with the
Foreign Sub-Custodian's performance of such obligations. At each Fund's
election, a Fund shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a Foreign Sub-Custodian as a
consequence of any such loss, damage, cost, expense, liability or claim if and
to the extent that a Fund and any applicable series have not been made whole for
any such loss, damage, cost, expense, liability or claim.

4.11. Tax Law.
-------

Except to the extent that imposition of any tax liability arises from the
Custodian's failure to perform in accordance with the terms of this Section 4.11
or from the failure of any Foreign Sub-Custodian to perform in accordance with
the terms of the applicable subcustody agreement, the Custodian shall have no
responsibility or liability for any obligations now or hereafter imposed on a
Fund, a series thereof or the Custodian as custodian of the Fund by the tax law
of the United States or of any state or political subdivision thereof. It shall
be the responsibility of each Fund to notify the Custodian of the obligations
imposed on the Fund or the Custodian as custodian of the Fund by the tax law of
countries other than those mentioned in the above sentence, including
responsibility for withholding and other taxes, assessments or other
governmental charges, certifications and governmental reporting. The sole
responsibility of the Custodian with regard to

10
<PAGE>

such tax law shall be to use reasonable efforts to assist the Fund with respect
to any claim for exemption or refund under the tax law of countries for which
the Fund has provided such information.

4.12. Liability of Custodian.
----------------------

Except as may arise from the Custodian's own negligence or willful misconduct or
the negligence or willful misconduct of a Sub-Custodian, the Custodian shall be
without liability to a Fund for any loss, liability, claim or expense resulting
from or caused by anything which is (A) part of Country Risk or (B) part of the
"prevailing country risk" of the Fund, as such term is used in SEC Release Nos.
IC-22658; IS-1080 (May 12, 1997) or as such term or other similar terms are now
or in the future interpreted by the SEC or by the staff of the Division of
Investment Management of the SEC.

The Custodian shall be liable for the acts or omissions of a Foreign Sub-
Custodian to the same extent as set forth with respect to sub-custodians
generally in the Contract and, regardless of whether assets are maintained in
the custody of a Foreign Sub-Custodian or a Foreign Securities System, the
Custodian shall not be liable for any loss, damage, cost, expense, liability or
claim resulting from nationalization, expropriation, currency restrictions, or
acts of war or terrorism, or any other loss where the Sub-Custodian has
otherwise acted with reasonable care.

III. Except as specifically superseded or modified herein, the terms and
provisions of the Contract shall continue to apply with full force and
effect. In the event of any conflict between the terms of the Contract
prior to this Amendment and this Amendment, the terms of this Amendment
shall prevail. If the Custodian is delegated the responsibilities of
Foreign Custody Manager pursuant to the terms of Article 3 hereof, in the
event of any conflict between the provisions of Articles 3 and 4 hereof,
the provisions of Article 3 shall prevail.

11
<PAGE>

IN WITNESS WHEREOF, each of the parties has caused this Amendment to be
executed in its name and behalf by its duly authorized representative as of the
date first above written.

WITNESSED BY: STATE STREET BANK AND TRUST
COMPANY

/s/Marc L. Parsons By: /s/Ronald E. Logue
- ------------------ ------------------
Marc L. Parsons Ronald E. Logue
Associate Counsel Executive Vice President

Cash Accumulation Trust
Command Government Fund
Command Money Fund
Command Tax-Free Fund
Global Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Prudential 20/20 Focus Fund
Prudential Balanced Fund
Prudential California Municipal Fund
Prudential Developing Markets Fund
Prudential Distressed Securities Fund, Inc.
Prudential Diversified Bond Fund, Inc.
Prudential Diversified Funds
Prudential Index Series Fund
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Europe Growth Fund
Prudential Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Prudential High Yield Fund, Inc.
Prudential High Yield Total Return Fund, Inc.
Prudential Institutional Liquidity Portfolio, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential International Bond Fund, Inc.
The Prudential Investment Portfolios Fund, Inc.
Prudential Mid-Cap Value Fund
Prudential MoneyMart Assets, Inc.

12
<PAGE>

Prudential Mortgage Income Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Municipal Bond Fund
Prudential Municipal Series Fund
Prudential National Municipals Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential Real Estate Securities Fund
Prudential Small Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Special Money Market Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Prudential Tax-Free Money Fund, Inc.
Prudential Tax-Managed Equity Fund
Prudential Utility Fund, Inc.
Prudential World Fund, Inc.
The Global Total Return Fund, Inc.
The Target Portfolio Trust
The Asia Pacific Fund, Inc.
The High Yield Income Fund, Inc.

Witnessed By:

By: /s/S. Jane Rose By: /s/Grace Torres
--------------- ---------------

Grace Torres
Treasurer

First Financial Fund, Inc.
The High Yield Plus Fund, Inc.

Witnessed By:

By: /s/Stephanie L. Bourque By: /s/Arthur J. Brown
----------------------- ------------------
Arthur J. Brown

13
<PAGE>

STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES

Country Subcustodian Non-Mandatory Depositories

Argentina Citibank, N.A. --

Australia Westpac Banking Corporation --

Austria Erste Bank der Oesterreichischen --
Sparkassen AG

Bahrain British Bank of the Middle East --
(as delegate of The Hongkong and
Shanghai Banking Corporation Limited)

Bangladesh Standard Chartered Bank --

Belgium Generale de Banque --

Bermuda The Bank of Bermuda Limited --

Bolivia Banco Boliviano Americano S.A. --

Botswana Barclays Bank of Botswana Limited --

Brazil Citibank, N.A. --

Bulgaria ING Bank N.V. --

Canada Canada Trustco Mortgage Company --

Chile Citibank, N.A. Deposito Central de
Valores S.A.

People's The Hongkong and Shanghai --
Republic Banking Corporation Limited,
of China Shanghai and Shenzhen branches

Colombia Cititrust Colombia S.A. --
Sociedad Fiduciaria

14
<PAGE>

STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES

Country Subcustodian Non-Mandatory Depositories

Costa Rica Banco BCT S.A. --

Croatia Privredna Banka Zagreb d.d --

Cyprus Barclays Bank Plc. --
Cyprus Offshore Banking Unit

Czech Republic Ceskoslovenska Obchodni --
Banka, A.S.

Denmark Den Danske Bank --

Ecuador Citibank, N.A. --

Egypt National Bank of Egypt --

Estonia Hansabank --

Finland Merita Bank Limited --

France Banque Paribas --

Germany Dresdner Bank AG --

Ghana Barclays Bank of Ghana Limited --

Greece National Bank of Greece S.A. The Bank of Greece,
System for Monitoring
Transactions in
Securities in Book-Entry
Form

Hong Kong Standard Chartered Bank --

Hungary Citibank Budapest Rt. --

Iceland Icebank Ltd.

15
<PAGE>

STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES

Country Subcustodian Non-Mandatory Depositories

India Deutsche Bank AG --

The Hongkong and Shanghai
Banking Corporation Limited

Indonesia Standard Chartered Bank --

Ireland Bank of Ireland --

Israel Bank Hapoalim B.M. --

Italy Banque Paribas --

Ivory Coast Societe Generale de Banques --
en Cote d'Ivoire

Jamaica Scotiabank Jamaica Trust and Merchant --
Bank Ltd.

Japan The Daiwa Bank, Limited Japan Securities
Depository Center

The Fuji Bank, Limited

Jordan British Bank of the Middle East --
(as delegate of The Hongkong and
Shanghai Banking Corporation Limited)

Kenya Barclays Bank of Kenya Limited --

Republic of The Hongkong and Shanghai Banking
Korea Corporation Limited

Latvia JSC Hansabank-Latvija --

Lebanon British Bank of the Middle East
(as delegate of The Hongkong and
Shanghai Banking Corporation Limited)

16
<PAGE>

STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES

Country Subcustodian Non-Mandatory Depositories

Lithuania Vilniaus Bankas AB --

Malaysia Standard Chartered Bank --
Malaysia Berhad

Mauritius The Hongkong and Shanghai --
Banking Corporation Limited

Mexico Citibank Mexico, S.A. --

Morocco Banque Commerciale du Maroc --

Namibia (via) Standard Bank of South Africa --

The Netherlands MeesPierson N.V. --

New Zealand ANZ Banking Group --
(New Zealand) Limited

Norway Christiania Bank og --
Kreditkasse

Oman British Bank of the Middle East --
(as delegate of The Hongkong and
Shanghai Banking Corporation Limited)

Pakistan Deutsche Bank AG --

Peru Citibank, N.A. --

Philippines Standard Chartered Bank --

Poland Citibank (Poland) S.A. --
Bank Polska Kasa Opieki S.A.

Portugal Banco Comercial Portugues --

17
<PAGE>

STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES

Country Subcustodian Non-Mandatory Depositories

Romania ING Bank N.V. --

Russia Credit Suisse First Boston AO, Moscow --
(as delegate of Credit Suisse
First Boston, Zurich)

Singapore The Development Bank --
of Singapore Limited

Slovak Republic Ceskoslovenska Obchodni Banka, A.S. --

Slovenia Bank Austria d.d. Ljubljana --

South Africa Standard Bank of South Africa Limited --

Spain Banco Santander, S.A. --

Sri Lanka The Hongkong and Shanghai --
Banking Corporation Limited

Swaziland Standard Bank Swaziland Limited --

Sweden Skandinaviska Enskilda Banken --

Switzerland UBS AG --

Taiwan - R.O.C. Central Trust of China --

Thailand Standard Chartered Bank --

Trinidad
& Tobago Republic Bank Limited --

Tunisia Banque Internationale Arabe de Tunisie --

Turkey Citibank, N.A. --
Ottoman Bank

18
<PAGE>

STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES

Country Subcustodian Non-Mandatory Depositories

Ukraine ING Bank, Ukraine --

United Kingdom State Street Bank and Trust Company, --
London Branch

Uruguay Citibank, N.A. --

Venezuela Citibank, N.A. --

Zambia Barclays Bank of Zambia Limited --

Zimbabwe Barclays Bank of Zimbabwe Limited --

Euroclear (The Euroclear System)/State Street London Limited

Cedel, S.A. (Cedel Bank, societe anonyme)/State Street London Limited

INTERSETTLE (for EASDAQ Securities)

* The global custody network approved by each fund is set forth below on
Schedules A-1 and A-2.

19
<PAGE>

Schedule A-1

Prudential Mutual Funds
State Street Global Custody Network

<TABLE>
<CAPTION>
Country Funds
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Argentina Mexico Global Utility Fund, Inc.
Australia Morocco Prudential 20/20 Focus Fund
Austria Netherlands Prudential Balanced Fund
Bangladesh/+/ New Zealand Prudential Equity Fund, Inc.
Belgium Norway Prudential Equity Income Fund
Brazil Pakistan Prudential Developing Markets Fund
Canada Peru Prudential Diversified Bond Fund, Inc.
Chile Philippines Prudential Distressed Securities Fund, Inc.
China Poland Prudential Diversified Funds
Columbia Portugal Prudential Emerging Growth Fund, Inc.
Cyprus Russia Prudential Global Genesis Fund, Inc.
Czech Republic Singapore Prudential Global Limited Maturity Fund, Inc.
Denmark Slovak Republic Prudential Index Series Fund
Ecuador South Africa Prudential Intermediate Global Income Fund, Inc.
Egypt Spain Prudential International Bond Fund, Inc.,
Finland Sri Lanka Prudential Mid-Cap Value Fund
France Sweden Prudential Natural Resources Fund, Inc.
Germany Switzerland Prudential Pacific Growth Fund, Inc.
Ghana Taiwan Prudential Real Estate Securities Fund
Greece Thailand Prudential Small-Cap Quantum Fund, Inc.
Hong Kong Turkey Prudential Small Company Value Fund, Inc.
Hungary Transnational Prudential Tax-Managed Equity Fund
India United Kingdom Prudential Utility Fund, Inc.
Indonesia Uruguay Prudential World Fund, Inc.
Ireland Venezuela The Prudential Investment Portfolios Fund, Inc.
Israel The Target Portfolio Trust
Italy The Global Total Return Fund, Inc.
Ivory Coast
Japan
Jordan
Kenya
Korea
Lebanon
Malaysia

- -----------------------------------------------------------------------------------------
+ Countries marked by a dagger have been approved only for The Target Portfolio Trust.
</TABLE>
<PAGE>

Schedule A-2

Prudential Mutual Funds
State Street Global Custody Network

Country Funds

- -----------------------------------------------------------------------------------------
<S> <C>
United Kingdom Cash Accumulation Trust
Command Government Fund
Command Money Fund
Prudential Government Income Fund, Inc.
Prudential High Yield Fund, Inc.
Prudential High Yield Income Fund, Inc.
Prudential Institutional Liquidity Portfolio, Inc.
Prudential MoneyMart Assets, Inc.
Prudential Special Money Market Fund, Inc.
Prudential Structured Maturity Fund, Inc.
</TABLE>
<PAGE>

SCHEDULE B
STATE STREET
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES

Country Mandatory Depositories

Argentina Caja de Valores S.A.

Australia Austraclear Limited

Reserve Bank Information and
Transfer System

Austria Oesterreichische Kontrollbank AG
(Wertpapiersammelbank Division)

Belgium Caisse Interprofessionnelle de Depot et
de Virement de Titres S.A.

Banque Nationale de Belgique

Brazil Companhia Brasileira de Liquidacao e
Custodia (CBLC)

Bolsa de Valores de Rio de Janeiro
All SSB clients presently use CBLC

Central de Custodia e de Liquidacao
Financeira de Titulos

Canada The Canadian Depository
for Securities Limited

People's Republic Shanghai Securities Central Clearing
of China and Registration Corporation

Shenzhen Securities Central Clearing
Co., Ltd.

Croatia

Czech Republic Stredisko cennych papiru

Czech National Bank

Denmark Vaerdipapircentralen
(the Danish Securities Center)

* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>

SCHEDULE B
STATE STREET
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES

Country Mandatory Depositories

Egypt Misr Company for Clearing, Settlement,
and Central Depository

Finland The Finnish Central Securities
Depository

France Societe Interprofessionnelle
pour la Compensation des
Valeurs Mobilieres (SICOVAM)

Germany Deutsche Borse Clearing AG

Greece The Central Securities Depository
(Apothetirion Titlon AE)

Hong Kong The Central Clearing and
Settlement System

Central Money Markets Unit

Hungary The Central Depository and Clearing
House (Budapest) Ltd. (KELER)
[Mandatory for Gov't Bonds only;
SSB does not use for other securities]

India The National Securities Depository Limited

Indonesia Bank Indonesia

Ireland Central Bank of Ireland
Securities Settlement Office

Israel The Tel Aviv Stock Exchange Clearing
House Ltd.

Bank of Israel

Italy Monte Titoli S.p.A.

Banca d'Italia

* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>

SCHEDULE B
STATE STREET
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES

Country Mandatory Depositories

Japan Bank of Japan Net System

Kenya Central Bank of Kenya

Republic of Korea Korea Securities Depository Corporation

Lebanon The Custodian and Clearing Center of
Financial Instruments for Lebanon
and the Middle East (MIDCLEAR) S.A.L.

The Central Bank of Lebanon

Malaysia The Malaysian Central Depository Sdn. Bhd.

Bank Negara Malaysia,
Scripless Securities Trading and Safekeeping
System

Mexico S.D. INDEVAL, S.A. de C.V.
(Instituto para el Deposito de
Valores)

Morocco Maroclear

The Netherlands Nederlands Centraal Instituut voor
Giraal Effectenverkeer B.V. (NECIGEF)

De Nederlandsche Bank N.V.

New Zealand New Zealand Central Securities
Depository Limited

Norway Verdipapirsentralen (the Norwegian
Registry of Securities)

Pakistan Central Depository Company of Pakistan
Limited

* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>

SCHEDULE B
STATE STREET
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES

Country Mandatory Depositories

Peru Caja de Valores y Liquidaciones S.A.
(CAVALI)

Philippines The Philippines Central Depository, Inc.

The Registry of Scripless Securities
(ROSS) of the Bureau of the Treasury

Poland The National Depository of Securities
(Krajowy Depozyt Papierow Wartosciowych)

Central Treasury Bills Registrar

Portugal Central de Valores Mobiliarios (Central)

Romania National Securities Clearing, Settlement and
Depository Co.

Bucharest Stock Exchange Registry Division

Singapore The Central Depository (Pte)
Limited

Monetary Authority of Singapore

Slovak Republic Stredisko Cennych Papierov

National Bank of Slovakia

South Africa The Central Depository Limited

Spain Servicio de Compensacion y
Liquidacion de Valores, S.A.

Banco de Espana,
Central de Anotaciones en Cuenta

Sri Lanka Central Depository System
(Pvt) Limited

* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>

SCHEDULE B
STATE STREET
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES

Country Mandatory Depositories

Sweden Vardepapperscentralen AB
(the Swedish Central Securities Depository)

Switzerland Schweizerische Effekten - Giro AG

Taiwan - R.O.C. The Taiwan Securities Central
Depository Co., Ltd.

Thailand Thailand Securities Depository
Company Limited

Turkey Takas ve Saklama Bankasi A.S.
(TAKASBANK)

Central Bank of Turkey

United Kingdom The Bank of England,
The Central Gilts Office and
The Central Moneymarkets Office

Uruguay Central Bank of Uruguay

Venezuela Central Bank of Venezuela

* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>

SCHEDULE C

MARKET INFORMATION

Publication/Type of Information Brief Description
- ------------------------------- -----------------
<S> <C>
(Frequency)

The Guide to Custody in World Markets An overview of safekeeping and
- -------------------------------------
settlement practices and
(annually) procedures in each market in which State
Street Bank and Trust Company offers
custodial services.

Global Custody Network Review Information relating to the operating history
- -----------------------------
and structure of
(annually) depositories and subcustodians located in the markets
in which State Street Bank and Trust Company offers
custodial services, including transnational
depositories.

Global Legal Survey With respect to each market in which State Street Bank
- -------------------
and
(annually) Trust Company offers custodial services, opinions
relating to whether local law restricts (i) access of a
fund's independent public accountants to books and
records of a Foreign Sub-Custodian or Foreign
Securities System, (ii) the Fund's ability to recover
in the event of bankruptcy or insolvency of a Foreign
Sub-Custodian or Foreign Securities System, (iii) the
Fund's ability to recover in the event of a loss by a
Foreign Sub-Custodian or Foreign Securities System, and
(iv) the ability of a foreign investor to convert cash
and cash equivalents to U.S. dollars.

Subcustodian Agreements Copies of the subcustodian contracts State Street Bank
- -----------------------
and
(annually) Trust Company has entered into with each subcustodian
in the markets in which State Street Bank and Trust
Company offers subcustody services to its US mutual
fund clients.

Network Bulletins (weekly): Developments of interest to investors in the
markets in which State Street Bank and Trust Company
offers custodial services.

Foreign Custody Advisories With respect to markets in which State Street Bank
and Trust
(as necessary): Company offers custodial services which exhibit special
custody risks, developments which may impact State
Street's ability to deliver expected levels of service.

</TABLE>
<PAGE>

SCHEDULE D

LIST OF FUNDS,CONTRACTS AND AGREEMENTS

<TABLE>
<CAPTION>
Fund Name Execution Date
- --------- --------------
<S> <C>

Cash Accumulation Trust December 12, 1997

Command Government Fund July 1, 1990

Command Money Fund July 1, 1990

Command Tax-Free Fund July 1, 1990

The Global Total Return Fund, Inc. September 5, 1990
(formerly The Global Yield Fund, Inc.)

Prudential 20/20 Focus Fund April 14, 1998

Prudential California Municipal Fund August 1, 1990

Prudential Developing Markets Fund June 1, 1998

Prudential Distressed Securities Fund, Inc. February 8, 1996

Prudential Diversified Bond Fund, Inc. January 3, 1995

Prudential Diversified Funds September 2, 1998

Prudential Emerging Growth Fund, Inc. October 21, 1996

Prudential Equity Fund, Inc. August 1, 1990

Prudential Global Limited Maturity Fund, Inc. October 25, 1990
(formerly Prudential Short-Term Global
Income Fund, Inc.)

Prudential Government Income Fund, Inc. July 31, 1990
(formerly Prudential Government Plus Fund)

Prudential Government Securities Trust July 26, 1990

Prudential High Yield Fund, Inc. July 26, 1990

Prudential High Yield Total Return Fund, Inc. May 30, 1997

Prudential International Bond Fund, Inc. January 16, 1996
(formerly The Global Government Plus Fund, Inc.)

The Prudential Investment Portfolios Fund, Inc. October 27, 1995
(formerly Prudential Jennison Series Fund, Inc.)

Prudential Mid-Cap Value Fund April 14, 1998

</TABLE>
<PAGE>

<TABLE>
<S> <C>
Prudential MoneyMart Assets, Inc. July 25, 1990

Prudential Mortgage Income Fund, Inc. August 1, 1990
(formerly Prudential GNMA Fund, Inc.)

Prudential Multi-Sector Fund, Inc. June 1, 1990

Prudential Municipal Series Fund August 1, 1990

Prudential National Municipals Fund, Inc. July 26, 1990

Prudential Pacific Growth Fund, Inc. July 16, 1992

Prudential Real Estate Securities Fund February 18, 1998

Prudential Small Cap Quantum Fund, Inc. August 1, 1997

Prudential Small Company Value Fund, Inc. July 26, 1990
(formerly Prudential Growth Opportunity Fund, Inc.)

Prudential Special Money Market Fund, Inc. January 12, 1990

Prudential Structured Maturity Fund, Inc. July 25, 1989

Prudential Tax-Free Money Fund, Inc. July 26, 1990

Prudential Utility Fund, Inc. June 6, 1990

Prudential World Fund, Inc. June 7, 1990
(formerly Prudential Global Fund, Inc.)

The Target Portfolio Trust November 9, 1992

Global Utility Fund, Inc. December 21, 1989

Nicholas-Applegate Fund, Inc. April 10, 1987

Prudential Balanced Fund September 4, 1987

Prudential Equity Income Fund January 6, 1987

Prudential Global Genesis Fund, Inc. October 21, 1987

Prudential Institutional Liquidity Portfolio, Inc. November 20, 1987

Prudential Intermediate Global Income Fund, Inc. May 19, 1988

Prudential Municipal Bond Fund August 25, 1987

Prudential Natural Resources Fund, Inc. September 18, 1987

Prudential Tax-Managed Equity Fund December 8, 1998

The Asia Pacific Fund April 24, 1987
</TABLE>
<PAGE>

<TABLE>

<S> <C>
Duff & Phelps Utilities Tax-Free Income Fund, Inc. November 21, 1991

First Financial Fund, Inc. May 1, 1986

The High Yield Income Fund, Inc. November 6, 1987

The High Yield Plus Fund, Inc. March 15, 1988

</TABLE>

<PAGE>

EXHIBIT 99.(h)(2)

AMENDMENT TO TRANSFER AGENCY AND SERVICE AGREEMENT

THIS AMENDMENT to the Transfer Agency and Service Agreement by and between
The Prudential Investment Portfolios, Inc.(the "Fund") and Prudential Mutual
Fund Services LLC (successor to Prudential Mutual Fund Services,
Inc.)("PMFS") is entered into as of August 24, 1999.

WHEREAS, the Fund and PMFS have entered into a Transfer Agency and Service
Agreement (the "Agreement") pursuant to which PMFS serves as transfer agent,
dividend disbursing agent and shareholder servicing agent for the Fund; and

WHEREAS, the Fund and PMFS desire to amend the Agreement to confirm the
Fund's agreement to pay transfer agency account fees and expenses for
beneficial owners holding shares through omnibus accounts maintained by The
Prudential Insurance Company of America, its subsidiaries or affiliates.

NOW, THEREFORE, for and in consideration of the continuation of the
Agreement, and other good and valuable consideration, Article 8 of the
Agreement is amended by adding the following Section:

8.04 PMFS may enter into agreements with Prudential or any
subsidiary or affiliate of Prudential whereby PMFS will maintain an
omnibus account and the Fund will reimburse PMFS for amounts paid by
PMFS to Prudential, or such subsidiary or affiliate, in an amount not in
excess of the annual maintenance fee for each beneficial shareholder
account and transactional fees and expenses with respect to such
beneficial shareholder account as if each beneficial shareholder account
were maintained by PMFS on the Fund's records, subject to the fee
schedule attached hereto as Schedule A. Prudential, its subsidiary or
affiliate, as the case may be, shall maintain records relating to each
beneficial shareholder account that underlies the omnibus account
maintained by PMFS.
<PAGE>

IN WITNESS WHEROF, the parties hereto have caused this Amendment to be
executed in their names and on their behalf by and through their duly
authorized officers, as of the day and year first above written.

THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC. ATTEST:

By: /s/ Robert F. Gunia By: /s/ Marguerite E. H. Morrison
___________________ _____________________________

Vice President Secretary

PRUDENTIAL MUTUAL FUND SERVICES LLC

ATTEST:

By: /s/ Brian W. Henderson By: /s/ William V. Healey
______________________ _________________________

President Secretary

T:ROSSELOT:PMFS.amendment.doc

<PAGE>
EXHIBIT 99.(i)

PIPER & MARBURY
L.L.P.

CHARLES CENTER SOUTH
36 SOUTH CHARLES STREET WASHINGTON
Baltimore, Maryland 21201-3018 NEW YORK
410-539-2530 PHILADELPHIA
FAX: 410-539-0489 EASTON
RESTON

September 27, 1999

The Prudential Investment Portfolios, Inc.
Gateway Center Three
100 Mulberry Street
Newark, New Jersey 07102-4077

Re: Registration Statement on Form N-1A
-----------------------------------

Ladies and Gentlemen:

We have acted as special Maryland counsel to The Prudential Investment
Portfolios, Inc. (the "Fund") in connection with the registration by the Fund of
up to 3,000,000,000 shares of its Common Stock divided into three series, and
each series divided into four classes, designated Class A, Class B, Class C and
Class Z, par value $.001 per share (the "Shares"), pursuant to a registration
statement on Form N-1A, as amended (the "Registration Statement") under the
Securities Act of 1933, as amended.

In this capacity, we have examined the Fund's charter and by-laws, the
proceedings of the Board of Directors of the Fund authorizing the issuance of
the Shares in accordance with the Registration Statement, and such other
statutes, certificates, instruments and documents relating to the Fund and
matters of law as we have deemed necessary to the issuance of this opinion. In
such examination, we have assumed, without independent investigation, the
genuineness of all signatures, the conformity of final documents in all material
respects to the versions thereof submitted to us in draft form, the authenticity
of all documents submitted to us as originals, and the conformity with originals
of all documents submitted to us as copies. As to factual matters, we have
relied on an officer's certificate and have not independently verified the
matters stated therein.

Based upon the foregoing, and limited in all respects to applicable
Maryland law, we are of the opinion and advise you that:
<PAGE>

PIPER & MARBURY
L.L.P.
The Prudential Investment Portfolios, Inc.
September 27, 1999
Page 2

1. The Fund has been duly incorporated and is validly existing as a
corporation under the laws of the State of Maryland.

2. The Shares to be issued by the Fund pursuant to the Registration
Statement have been duly authorized and, when issued as contemplated in the
Registration Statement in an amount not to exceed the number of Shares
authorized by the charter but unissued, will be validly issued, fully paid and
nonassessable.

We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not thereby admit that we
are within the category of persons whose consent is required under Section 7 of
the 1933 Act or the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.

Very truly yours,

/s/ Piper & Marbury L.L.P.