<PAGE>
As filed with the Securities and Exchange Commission on December 8, 2000
Registration Nos. 33-61997, 811-7343
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_]
Pre-Effective Amendment No. [_]
[X]
Post-Effective Amendment No. 16
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [_]
[X]
Amendment No. 17
(Check appropriate box or boxes)
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THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
(Exact name of registrant as specified in charter)
GATEWAY CENTER THREE (GC3)
100 MULBERRY STREET
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
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)
[X] on December 8, 2000 pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) 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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<PAGE>
PROSPECTUS DECEMBER 8, 2000
Prudential
Active Balanced Fund
FUND TYPE Stock and bond
OBJECTIVE Income and long-term growth of capital
[GRAPHIC] Build on the Rock
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] Prudential
<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
2 Principal Risks
3 Evaluating Performance
5 Fees and Expenses
7 How the Fund Invests
7 Investment Objective and Policies
11 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
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
36 Telephone Redemptions or Exchanges
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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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."
Normally, we 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 for hedging or to improve the Fund's
returns.
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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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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-size 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 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 often are more volatile than U.S. markets and generally are 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 various derivative
strategies to try to enhance return. The Fund may use hedging techniques to try
to protect its assets. 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
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PRUDENTIAL ACTIVE BALANCED FUND (800) 225-1852
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Risk/Return Summary
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repurchase them in a forward roll 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.
[GRAPH]
Annual Returns* (Class Z shares)
1994 -2.13%
1995 23.10%
1996 11.20%
1997 15.47%
1998 15.96%
1999 10.81%
BEST QUARTER: 13.69% (4th quarter of 1998) WORST QUARTER: -5.20% (3rd quarter of
1998)
* The total return of the Class Z shares from 1-1-00 to 9-30-00 was 3.30%.
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3
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Risk/Return Summary
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AVERAGE ANNUAL RETURNS/1/ (AS OF 12-31-99)
<TABLE>
--------------------------------------------------------------
<CAPTION>
1 YR 5 YRS SINCE INCEPTION
<S> <C> <C> <C>
Class A shares 4.88% N/A 12.52% (since 11-7-96)
Class B shares 4.61% N/A 12.54% (since 11-7-96)
Class C shares 7.51% N/A 12.04% (since 11-7-96)
Class Z shares 10.81% 15.22% 12.22% (since 1-4-93)
S&P 500/2/ 21.03% 28.54% N/A/2/
Lehman Govt./Credit/3/ -2.15% 7.61% N/A/3/
Lipper Average/4/ 3.12% 16.24% 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 Composite Stock Price 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 28.02% for
Class A, Class B and Class C shares and 21.52% for Class Z shares. Source:
Lipper Inc.
3 The Lehman Brothers Government/Credit Bond Index (Lehman Govt./Credit) 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
Govt./Credit returns since the inception of each class are 6.42% for Class
A, Class B and Class C shares and 5.48% for Class Z shares. Source: Lipper
Inc.
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 12.68%
for Class A, Class B and Class C shares and 14.31% for Class Z shares.
Source: Lipper Inc.
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PRUDENTIAL ACTIVE BALANCED FUND (800) 225-1852
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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 on 5% None 1% None
purchases (as a percentage of offering
price)
Maximum deferred sales charge (load) None 5%/2/ 1%/3/ None
(as 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
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</TABLE>
ANNUAL FUND OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS)
<TABLE>
---------------------------------------------------------------------------
<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) fees .30%/4/ 1.00% 1.00% None
+ Other expenses .40% .40% .40% .40%
= Total annual Fund operating expenses 1.35% 2.05% 2.05% 1.05%
- Fee waiver or expense reimbursement .05% None None None
= NET ANNUAL FUND OPERATING EXPENSES 1.30%/4/ 2.05% 2.05% 1.05%
---------------------------------------------------------------------------
</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, 2001, 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:
<TABLE>
<CAPTION>
1 YR 3 YRS 5 YRS 10 YRS
<S> <C> <C> <C> <C>
Class A shares $621 $887 $1,173 $1,985
Class B shares $708 $943 $1,203 $2,097
Class C shares $406 $736 $1,192 $2,455
Class Z shares $107 $334 $ 579 $1,283
</TABLE>
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 $621 $887 $1,173 $1,985
Class B shares $208 $643 $1,103 $2,097
Class C shares $306 $736 $1,192 $2,455
Class Z shares $107 $334 $ 579 $1,283
</TABLE>
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PRUDENTIAL ACTIVE BALANCED FUND (800) 225-1852
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How the Fund Invests
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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 or Ba or B by Moody's Investors Service, Inc. 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 higher-rated
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ASSET ALLOCATION
In managing the Fund's asset allocation, the portfolio managers use a
quantitative model. They manage the stock portion of the Fund's portfolio using
behavioral finance models to select securities they believe to be underpriced,
while maintaining a risk profile like the Standard & Poor's 500 Composite Stock
Price Index. The bond portion of the portfolio is managed by a team of
professionals.
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7
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How the Fund Invests
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obligations. We also may invest in obligations that are not rated, but that we
believe are of comparable quality to these obligations.
We may 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 and in collateralized mortgage
obligations (CMOs) issued by private issuers. 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 CMOs, multi-class pass-through
securities and stripped mortgage-backed securities. A 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
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PRUDENTIAL ACTIVE BALANCED FUND (800) 225-1852
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How the Fund Invests
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security (principal and interest) and break them apart. The resulting
securities may be sold separately and may perform differently.
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.
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.
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
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How the Fund Invests
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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.
DERIVATIVE STRATEGIES
We may use various derivative strategies to try to improve the Fund's returns.
We may use hedging techniques to try to protect the Fund's 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.
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.
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PRUDENTIAL ACTIVE BALANCED FUND [GRAPHIC] (800) 225-1852
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How the Fund Invests
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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.
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. The Fund uses repurchase agreements for cash management purposes only.
MONEY MARKET INSTRUMENTS; 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 for cash management purposes (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
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How the Fund Invests
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investment restrictions that are fundamental policies, which means they cannot
be changed without shareholder approval. For more information
about these restrictions, see the SAI.
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. The
investment types are listed in the order in which they normally will be used by
the portfolio managers. See, too, "Description of the Funds, Their Investments
and Risks" in the SAI.
INVESTMENT TYPE
% OF FUND'S TOTAL RISKS POTENTIAL REWARDS
ASSETS
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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 . Generally,
Fund's economic growth
investments 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 . The Fund's asset
domestic and allocation
international, strategy may
may result in a provide stable
decline in value returns
of the Fund's
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 . High-quality
return may debt obligations
25-60% fluctuate in are generally
response to bond more secure than
market movements stocks since
companies must
. Credit risk--the pay their debts
risk that the before they pay
default of an dividends
issuer would
leave the Fund . Most bonds will
with unpaid rise in value
interest or when interest
principal. The rates fall
lower a bond's
quality, the
higher its . Bonds have
potential generally
volatility outperformed
money market
. Market risk--the instruments over
risk that the the long term,
market value of with less risk
an investment may than stocks
move up or down,
sometimes rapidly
or unpredictably. . Investment-grade
Market risk may bonds have a
affect an lower risk of
industry, a default than
sector, or the junk bonds
market as a whole . Junk bonds offer
higher yields
. Interest rate and higher
risk--the risk potential gains
that the value of than investment-
most bonds will grade bonds
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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13
<PAGE>
--------------------------------------------------------------------------------
How the Fund Invests
--------------------------------------------------------------------------------
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
Up to 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
. Credit risk--the diversification
risk that the than direct
underlying ownership of
mortgages will loans
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
Up to 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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PRUDENTIAL ACTIVE BALANCED FUND [GRAPHIC] (800) 225-1852
14
<PAGE>
--------------------------------------------------------------------------------
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
. Currency risk-- those markets
changing values . May profit from
of foreign changing values
currencies can of foreign
cause losses currencies
. May be less . Opportunities
liquid than U.S. for
stocks and bonds diversification
. Differences in
foreign laws,
accounting
standards, public
information,
custody and
settlement
practices provide
less reliable
information on
foreign
investments and
involve more risk
--------------------------------------------------------------------------------
REVERSE . May magnify . May magnify
REPURCHASE underlying underlying
AGREEMENTS AND investment losses investment gains
FORWARD ROLLS . Investment costs
Up to 30% may exceed
potential
underlying
investment gains
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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
otherwise . One way to
occurred manage the
Fund's
. Derivatives used risk/return
for risk balance is by
management may locking 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
--------------------------------------------------------------------------------
. Limits potential . May preserve the
U.S. GOVERNMENT for capital Fund's assets
SECURITIES appreciation
. See market risk, . Regular interest
credit risk and income
Up to 60% interest rate . Generally more
risk secure than
lower quality
debt securities
and equity
. Not all U.S. securities
government
securities are . Principal and
insured or interest may be
guaranteed by the guaranteed by
U.S. government, the U.S.
but only by the government
issuing agency
--------------------------------------------------------------------------------
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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PRUDENTIAL ACTIVE BALANCED FUND (800) 225-1852
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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, 2000, 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 October 31, 2000, PIFM served as the
manager to all 48 of the Prudential mutual funds, and as manager or
administrator to 21 closed-end investment companies, with aggregate assets of
approximately $74.7 billion.
INVESTMENT ADVISER
The Prudential Investment Corporation, called Prudential Investments, is the
Fund's investment adviser and has served as an investment adviser to investment
companies since 1984. Its address is Prudential Plaza, 751 Broad Street,
Newark, NJ 07102. PIFM has responsibility for all investment advisory services,
supervises Prudential Investments and pays Prudential Investments for its
services.
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 institutional clients
since 1987. He received a B.A. from Rice University and an M.S. and Ph.D. from
Carnegie Mellon University.
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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 12 years. Mr. Stumpp received a B.A. from Boston University
and an M.A. and Ph.D. from Brown University.
Prudential Investments' Fixed Income Liquidity Team, headed by Michael
Lillard, is primarily responsible for overseeing the day-to-day management of
the fixed-income portion of the Fund. The Team uses a bottom-up approach, which
focuses on individual securities, while staying within the guidelines of the
Fixed Income Investment Policy Committee and the Fund's investment restrictions
and policies. In addition, a credit research team of analysts supports the Team
using bottom-up fundamentals, as well as economic and industry trends. Other
sector teams may contribute to securities selection when appropriate.
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.
--------------------------------------------------------------------------------
PRUDENTIAL ACTIVE BALANCED FUND (800) 225-1852
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<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 or tax-deferred plan or account.
Dividends and distributions from the Fund also may be subject to state and
local income taxes.
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 or 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. Capital gains 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
--------------------------------------------------------------------------------
19
<PAGE>
--------------------------------------------------------------------------------
Fund Distributions and Tax Issues
--------------------------------------------------------------------------------
account is with the Transfer Agent. Otherwise, if your account is with a
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 or 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 or 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 or 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 generally 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 taxpayer
identification number and certifications as to your tax status, and you fail to
do this, or if you are otherwise subject to backup withholding, we will
withhold and pay to the U.S. Treasury 31% of your distributions and sale
proceeds. 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
--------------------------------------------------------------------------------
PRUDENTIAL ACTIVE BALANCED FUND [GRAPHIC] (800) 225-1852
20
<PAGE>
--------------------------------------------------------------------------------
Fund Distributions and Tax Issues
--------------------------------------------------------------------------------
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 to reflect the payout, although this
may not be apparent because the value of each share of the Fund also will be
affected by market changes, if any. 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 AND TAX-DEFERRED 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 or 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.
If you sell shares and realize a loss, you will not be permitted to use the
loss to the extent you replace the shares (including pursuant to the
reinvestment of a dividend) within a 61-day period (beginning 30 days before
the sale of the shares). If you acquire shares of the Fund and sell your shares
within 90 days, you may not be allowed to include certain charges incurred in
acquiring the shares for purposes of calculating gain or loss realized upon the
sale of the shares.
-----------------------------------------------------
[GRAPH]
+ $ CAPITAL GAIN
(taxes owed)
RECEIPTS $ OR
FROM SALE
- $ CAPITAL LOSS
(offset against gain)
-----------------------------------------------------
21
<PAGE>
--------------------------------------------------------------------------------
Fund Distributions and Tax Issues
--------------------------------------------------------------------------------
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 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 or tax-deferred plan or account, you or your financial adviser should
keep track of the dates on which you buy and sell--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.
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 (IRS). 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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PRUDENTIAL ACTIVE BALANCED FUND (800) 225-1852
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22
<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 8179
PHILADELPHIA, PA 19101
You may purchase shares by check or wire. We do not accept cash or money
orders. To purchase by wire, call the number above to obtain an application.
After PMFS receives your completed application, you will receive an account
number. 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 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
--------------------------------------------------------------------------------
23
<PAGE>
How to Buy, Sell and
--------------------------------------------------------------------------------
Exchange Shares of the Fund
--------------------------------------------------------------------------------
. 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.
<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 and service 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, 2001, 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 ACTIVE BALANCED FUND [GRAPHIC] (800) 225-1852
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<PAGE>
How to Buy, Sell and
--------------------------------------------------------------------------------
Exchange Shares of the Fund
--------------------------------------------------------------------------------
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 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 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 current
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
--------------------------------------------------------------------------------
25
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How to Buy, Sell and
--------------------------------------------------------------------------------
Exchange Shares of the Fund
--------------------------------------------------------------------------------
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
registered representatives and employees of brokers that have entered into a
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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PRUDENTIAL ACTIVE BALANCED FUND (800) 225-1852
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How to Buy, Sell and
--------------------------------------------------------------------------------
Exchange Shares of the Fund
--------------------------------------------------------------------------------
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, or
. 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, who may require any supporting documents
they consider 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.
--------------------------------------------------------------------------------
27
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How to Buy, Sell and
--------------------------------------------------------------------------------
Exchange Shares of the Fund
--------------------------------------------------------------------------------
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. 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 received 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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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 most national holidays and Good Friday. Because the Fund
may invest in foreign securities, its NAV may change on days when you cannot
buy or sell shares. 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.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
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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 8159
PHILADELPHIA, PA 19101
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. Eligible investors who apply for PruTector coverage after the
initial 6-month enrollment period will need to provide satisfactory evidence of
insurability. This insurance is subject to other restrictions and is not
available in all states.
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Systematic Withdrawal Plan. A systematic withdrawal plan is available that will
provide you with monthly, quarterly, semi-annual or annual redemption 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 8149
PHILADELPHIA, PA 19101
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.
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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. As permitted by the
Commission, this 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 redemption
proceeds payable to or 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
signature guaranteed by an "eligible guarantor institution." An "eligible
guarantor institution" includes any bank, broker-dealer or credit union. 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.
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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.
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 held in joint tenancy,
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 effected through 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
--------------------------------------------------------------------------------
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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.
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 qualified or 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 and account
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
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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.
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 8157
PHILADELPHIA, PA 19101
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 the amount that 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."
--------------------------------------------------------------------------------
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Exchange Shares of the Fund
--------------------------------------------------------------------------------
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.
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 decision may be based upon dollar amount, volume and frequency of
trading. 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.
TELEPHONE REDEMPTIONS OR EXCHANGES
You may redeem or exchange your shares in any amount by calling the Fund at
(800) 225-1852. In order to redeem or exchange your shares by telephone, you
must call the Fund before 4:15 p.m. New York time. You will receive a
redemption or exchange amount based on that day's NAV.
The Fund's Transfer Agent will record your telephone instructions and
request specific account information before redeeming or exchanging shares. The
Fund will not be liable if it follows instructions that it reasonably believes
are made by the shareholder. If the Fund does not follow reasonable procedures,
it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
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In the event of drastic economic or market changes, you may have difficulty
in redeeming or exchanging your shares by telephone. If this occurs, you should
consider redeeming or exchanging your shares by mail or through your broker.
The telephone redemption or exchange privilege may be modified or terminated
at any time. If this occurs, you will receive a written notice from the Fund.
--------------------------------------------------------------------------------
37
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--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------
The financial highlights will help you evaluate the Fund's financial
performance since its inception (or, for Class Z shares, for the five most
recent fiscal years). 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 PricewaterhouseCoopers LLP,
independent accountants, whose report was unqualified.
<TABLE>
<CAPTION>
CLASS A SHARES (FISCAL PERIODS ENDED 9-30)
-------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 2000 1999 1998 1997/1/
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $13.25 $13.29 $14.41 $13.40
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .38 .31 .44 .21/2/
Net realized and unrealized gain (loss) on
investment transactions 1.10 1.69 (.20) 1.97
TOTAL FROM INVESTMENT OPERATIONS 1.48 2.00 .24 2.18
-------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.28) (.30) (.32) (.39)
Distributions from net realized gains (.69) (1.74) (1.04) (.78)
TOTAL DISTRIBUTIONS (.97) (2.04) (1.36) (1.17)
NET ASSET VALUE, END OF PERIOD $13.76 $13.25 $13.29 $14.41
TOTAL RETURN/4/ 11.56% 16.07% 1.93% 17.48%
-------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 2000 1999 1998 1997/1/
<S> <C> <C> <C> <C>
NET ASSETS, END OF PERIOD (000) $16,444 $10,397 $3,218 $990
Average net assets (000) $13,248 $6,918 $2,090 $13,248
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution and service
(12b-1) fees/5/ 1.30% 1.41% 1.28% 1.31%/3/
Expenses, excluding distribution and service
(12b-1) fees 1.05% 1.16% 1.03% 1.06%/3/
Net investment income 2.76% 2.29% 2.72% 2.69%/3/
Portfolio turnover 243% 230% 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 period.
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.
5 The Distributor of the Fund agreed to limit its distribution fees to .25 of
1% of the average daily net assets of the Class A shares.
--------------------------------------------------------------------------------
PRUDENTIAL ACTIVE BALANCED FUND [GRAPHIC] (800) 225-1852
38
<PAGE>
--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------
CLASS B SHARES
The financial highlights were audited by PricewaterhouseCoopers LLP,
independent accountants, whose report was unqualified.
<TABLE>
<CAPTION>
CLASS B SHARES (FISCAL PERIODS ENDED 9-30)
------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 2000 1999 1998 1997/1/
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $13.17 $13.22 $14.34 $13.40
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .27 .19 .27 .19/2/
Net realized and unrealized gain (loss) on
investment transactions 1.11 1.69 (.14) 1.92
TOTAL FROM INVESTMENT OPERATIONS 1.38 1.88 .13 2.11
------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.18) (.19) (.21) (.39)
Distributions from net realized gains (.69) (1.74) (1.04) (.78)
TOTAL DISTRIBUTIONS (.87) (1.93) (1.25) (1.17)
NET ASSET VALUE, END OF PERIOD $13.68 $13.17 $13.22 $14.34
TOTAL RETURN/4/ 10.78% 15.12% 1.10% 16.91%
------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 2000 1999 1998 1997/1/
<S> <C> <C> <C> <C>
NET ASSETS, END OF PERIOD (000) $18,648 $10,979 $3,038 $213
Average net assets (000) $13,794 $7,018 $1,285 $71
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution and
service
(12b-1) fees 2.05% 2.16% 2.03% 2.06%/3/
Expenses, excluding distribution and
service
(12b-1) fees 1.05% 1.16% 1.03% 1.06%/3/
Net investment income 2.01% 1.54% 1.95% 1.94%/3/
Portfolio turnover 243% 230% 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 period.
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.
--------------------------------------------------------------------------------
39
<PAGE>
--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------
CLASS C SHARES
The financial highlights were audited by PricewaterhouseCoopers LLP,
independent accountants, whose report was unqualified.
<TABLE>
<CAPTION>
CLASS C SHARES (FISCAL PERIODS ENDED 9-30)
-----------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 2000 1999 1998 1997/1/
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $13.17 $13.22 $14.34 $13.40
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .27 .19 .48 .13/2/
Net realized and unrealized gain (loss) on
investment transactions 1.11 1.69 (.35) 1.98
TOTAL FROM INVESTMENT OPERATIONS 1.38 1.88 .13 2.11
-----------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.18) (.19) (.21) (.39)
Distributions from net realized gains (.69) (1.74) (1.04) (.78)
TOTAL DISTRIBUTIONS (.87) (1.93) (1.25) (1.17)
NET ASSET VALUE, END OF PERIOD $13.68 $13.17 $13.22 $14.34
TOTAL RETURN/4/ 10.78% 15.12% 1.10% 16.91%
-----------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 2000 1999 1998 1997/1/
<S> <C> <C> <C> <C>
NET ASSETS, END OF PERIOD (000) $2,893 $1,117 $284 $5
Average net assets (000) $1,741 $674 $118 $1
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution and service
(12b-1) fees 2.05% 2.16% 2.03% 2.06%/3/
Expenses, excluding distribution and service
(12b-1) fees 1.05% 1.16% 1.03% 1.06%/3/
Net investment income 2.02% 1.54% 2.04% 1.94%/3/
Portfolio turnover 243% 230% 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 period.
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 four years ended September 30, 2000 were
audited by PricewaterhouseCoopers LLP, independent accountants, and the
financial highlights for the year 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 2000 1999 1998 1997 1996/1/
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
YEAR $13.27 $13.32 $14.45 $13.01 $12.46
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .40 .35 .38 .39/4/ .29/2/
Net realized and unrealized
gain (loss) on investment
transactions 1.12 1.68 (.12) 2.22 .81
TOTAL FROM INVESTMENT
OPERATIONS 1.52 2.03 .26 2.61 1.10
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment
income (.31) (.34) (.35) (.39) (.37)
Distributions from net realized
gains (.69) (1.74) (1.04) (.78) (.18)
TOTAL DISTRIBUTIONS (1.00) (2.08) (1.39) (1.17) (.55)
NET ASSET VALUE, END OF YEAR $13.79 $13.27 $13.32 $14.45 $13.01
TOTAL RETURN/3/ 11.87% 16.32% 2.12% 21.34% 9.11%
--------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA: 2000 1999 1998 1997 1996/1/
<S> <C> <C> <C> <C> <C>
NET ASSETS, END OF YEAR (000) $146,516 $124,250 $161,838 $158,672 $153,588
Average net assets (000) $137,089 $130,052 $177,443 $154,199 $142,026
RATIOS TO AVERAGE NET ASSETS:
Expenses, including
distribution and service (12b-
1) fees 1.05% 1.16% 1.03% 1.06% 1.00%/2/
Expenses, excluding
distribution and service (12b-
1) fees 1.05% 1.16% 1.03% 1.06% 1.00%/2/
Net investment income 2.99% 2.54% 2.99% 2.94% 3.09%/2/
Portfolio turnover 243% 230% 256% 50% 51%
</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 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.
4 Calculated based upon weighted average shares outstanding during the year.
--------------------------------------------------------------------------------
41
<PAGE>
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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 Equity Fund, Inc.
Prudential Index Series Fund
Prudential Stock Index 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 Company Fund, Inc.
Prudential Tax-Managed Funds
Prudential Tax-Managed Equity Fund
Prudential Tax-Managed Small-Cap Fund, Inc.
Prudential 20/20 Focus Fund
Prudential U.S. Emerging Growth Fund, Inc.
Prudential Value Fund
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
Prudential Jennison Growth 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 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 Europe Growth Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Prudential Global Growth Fund
Prudential International Value Fund
Prudential Jennison International Growth Fund
Global Utility Fund, Inc.
Target Funds
International Equity Fund
GLOBAL BOND FUND
Prudential Global Total Return Fund, Inc.
--------------------------------------------------------------------------------
PRUDENTIAL ACTIVE BALANCED FUND (800) 225-1852
[GRAPHIC]
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<PAGE>
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BOND FUNDS
TAXABLE BOND FUNDS
Prudential Government Income Fund, Inc.
Prudential High Yield Fund, Inc.
Prudential High Yield Total Return Fund, Inc.
Prudential Short-Term Corporate Bond Fund, Inc.
Income Portfolio
Prudential Total Return Bond Fund, Inc.
Target Funds
Total Return Bond Fund
TAX-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
New Jersey Series
New York Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
MONEY MARKET FUNDS
TAXABLE MONEY MARKET FUNDS
Cash Accumulation Trust
Liquid Assets Fund
National Money Market Fund
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund, Inc.
Money Market Series
Prudential MoneyMart Assets, Inc.
TAX-FREE MONEY MARKET FUNDS
Prudential Tax-Free Money Fund, Inc.
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
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 FUND
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
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43
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Notes
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(800) 225-1852
PRUDENTIAL ACTIVE BALANCED FUND
[GRAPHIC]
44
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Notes
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45
<PAGE>
FOR MORE INFORMATION
Please read this prospectus before you invest in the Fund and keep it for future
reference. For information or shareholder questions contact
Prudential Mutual Fund Services LLC
P.O. Box 8098
Philadelphia, PA 19101
(800) 225-1852
(732) 482-7555 (Calling from outside the U.S.)
Outside Brokers should contact
Prudential Investment Management
Services LLC
P.O. Box 8310
Philadelphia, PA 19101
(800) 778-8769
Visit Prudential's website 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
MF185A
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 Numbers NASDAQ Symbols
Class A--74437E 883 PIBAX
Class B--74437E 875 PBFBX
Class C--74437E 867 PABCX
Class Z--74437E 859 PABFX
Investment Company Act File No. 811-7343
[GRAPHIC] Printed on Recycled Paper
<PAGE>
PRUDENTIAL JENNISON EQUITY
OPPORTUNITY FUND
(formerly Prudential Jennison Growth & Income Fund)
a series of The Prudential Investment Portfolios, Inc.
--------------------------------------------------------------------------------
SUPPLEMENT DATED DECEMBER 8, 2000
PROSPECTUS DATED DECEMBER 8, 2000
On October 25, 2000, the Board of Directors of The Prudential Investment
Portfolios, Inc. approved the proposal summarized below. The proposal will be
submitted for approval by shareholders of the Prudential Jennison Equity
Opportunity Fund (the Fund) at an Annual Meeting of Shareholders scheduled to
be held on January 17, 2001.
The following information supplements information contained in the Prospectus
of the Fund on pages 1 and 6:
"RISK/RETURN SUMMARY--INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES"--PAGE 1
"HOW THE FUND INVESTS--INVESTMENT OBJECTIVE AND POLICIES" --PAGE 6
The Fund's current investment objective is long-term growth of capital and
income with current income as a secondary objective. If approved by
shareholders, the Fund's investment objective will be changed to long-term
growth of capital.
MF172C3
<PAGE>
PROSPECTUS DECEMBER 8, 2000
FUND TYPE Stock
OBJECTIVE Long-term growth of capital and income; current income is a
secondary objective
Build
on the Rock
Prudential Jennison Equal Opportunity Fund
------------------------------------------
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.
[PRUDENTIAL LOGO]
<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 Other Investments and Strategies
11 Investment Risks
15 How the Fund is Managed
15 Board of Directors
15 Manager
15 Investment Adviser
15 Portfolio Managers
16 Distributor
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
34 Telephone Redemptions or Exchanges
36 Financial Highlights
36 Class A Shares
37 Class B Shares
38 Class C Shares
39 Class Z Shares
40 The Prudential Mutual Fund Family
For More Information (Back Cover)
</TABLE>
--------------------------------------------------------------------------------
PRUDENTIAL JENNISON EQUITY OPPORTUNITY FUND
[GRAPHIC] (800) 225-1852
<PAGE>
--------------------------------------------------------------------------------
Risk/Return Summary
--------------------------------------------------------------------------------
This section highlights key information about the PRUDENTIAL JENNISON EQUITY
OPPORTUNITY FUND (formerly known as 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 at least 65% of our
total assets 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. The Fund
may actively and frequently trade its portfolio securities. While we make every
effort to achieve our objective, we can't guarantee success.
--------------------------------------------------------------------------------
WE ARE OPPORTUNISTIC INVESTORS
In deciding which stocks to buy we emphasize both projected earnings 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.
--------------------------------------------------------------------------------
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 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.
--------------------------------------------------------------------------------
1
<PAGE>
--------------------------------------------------------------------------------
Risk/Return Summary
--------------------------------------------------------------------------------
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.
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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[GRAPHIC] (800) 225-1852
PRUDENTIAL JENNISON EQUITY OPPORTUNITY FUND
2
<PAGE>
--------------------------------------------------------------------------------
Risk/Return Summary
--------------------------------------------------------------------------------
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.
* 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 1-1-00 to 9-30-
00 was 17.47%.
AVERAGE ANNUAL RETURNS/1/ (AS OF 12-31-99)
<TABLE>
<CAPTION>
1 YR SINCE INCEPTION
<S> <C> <C>
Class A shares 13.78% 14.89% (since 11-7-96)
Class B shares 13.93% 15.45% (since 11-7-96)
Class C shares 16.74% 15.55% (since 11-7-96)
Class Z shares 20.09% 17.12% (since 11-7-96)
S&P 500/2/ 21.03% 28.02% (since 11-7-96)
Lipper Average/3/ 7.78% 15.08% (since 11-7-96)
</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 Composite Stock Price 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 each
share class for the one year and since-inception periods in the Lipper Multi-
Cap Value 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.
--------------------------------------------------------------------------------
3
<PAGE>
--------------------------------------------------------------------------------
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."
SHAREHOLDER FEES/1/ (PAID DIRECTLY FROM YOUR INVESTMENT)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Z
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on 5% None 1% None
purchases (as a percentage of offering
price)
Maximum deferred sales charge (load) None 5%/2/ 1%/3/ None
(as 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
-------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS)
<TABLE>
-----------------------------------------------------------------------------
<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 .34% .34% .34% .34%
= Total annual Fund operating expenses 1.24% 1.94% 1.94% .94%
- Fee waiver or expense reimbursement .05% None None None
= NET ANNUAL FUND OPERATING EXPENSES 1.19%/4/ 1.94% 1.94% .94%
-----------------------------------------------------------------------------
</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, 2001, 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 EQUITY OPPORTUNITY 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:
<TABLE>
<CAPTION>
1 YR 3 YRS 5 YRS 10 YRS
<S> <C> <C> <C> <C>
Class A shares $610 $854 $1,117 $1,867
Class B shares $697 $909 $1,147 $1,979
Class C shares $395 $703 $1,137 $2,342
Class Z shares $ 96 $300 $ 520 $1,155
</TABLE>
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 $610 $854 $1,117 $1,867
Class B shares $197 $609 $1,047 $1,979
Class C shares $295 $703 $1,137 $2,342
Class Z shares $ 96 $300 $ 520 $1,155
</TABLE>
--------------------------------------------------------------------------------
5
<PAGE>
--------------------------------------------------------------------------------
How the Fund Invests
--------------------------------------------------------------------------------
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 relatively 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.
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.
--------------------------------------------------------------------------------
OUR OPPORTUNISTIC STYLE
We generally 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 generally will hold approximately 60 to 70 stocks
that we believe are most attractive on a 12 to 18 month horizon.
--------------------------------------------------------------------------------
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[GRAPHIC] (800) 225-1852
PRUDENTIAL JENNISON EQUITY OPPORTUNITY FUND
6
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How the Fund Invests
--------------------------------------------------------------------------------
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
distribution as ordinary income rather than long-term capital gains.
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
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.
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. 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.
--------------------------------------------------------------------------------
7
<PAGE>
--------------------------------------------------------------------------------
How the Fund Invests
--------------------------------------------------------------------------------
FOREIGN SECURITIES
We may invest in FOREIGN SECURITIES, including stocks and other equity-related
securities and fixed-income securities of foreign issuers. 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 or Ba or lower by Moody's
Investors Service, Inc. 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 invest in obligations that
are not rated, but that we believe are of comparable quality to these
obligations.
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.
MONEY MARKET INSTRUMENTS
The Fund 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. 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; and cash (foreign currencies or U.S. dollars).
--------------------------------------------------------------------------------
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PRUDENTIAL JENNISON EQUITY OPPORTUNITY FUND
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<PAGE>
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How the Fund Invests
--------------------------------------------------------------------------------
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. The Fund uses repurchase agreements for cash management purposes only.
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 our investment objective, but can help to preserve the
Fund's assets when the equity markets are unstable.
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
the 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.
DERIVATIVE STRATEGIES
We may use various derivative strategies to try to improve the Fund's returns.
We may use hedging techniques to try to protect the Fund's 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
--------------------------------------------------------------------------------
9
<PAGE>
--------------------------------------------------------------------------------
How the Fund Invests
--------------------------------------------------------------------------------
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 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 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 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.
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 for cash management purposes (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.
--------------------------------------------------------------------------------
[GRAPHIC] (800) 225-1852
PRUDENTIAL JENNISON EQUITY OPPORTUNITY FUND
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<PAGE>
--------------------------------------------------------------------------------
How the Fund Invests
--------------------------------------------------------------------------------
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. The
investment types are listed in the order in which they normally will be used by
the portfolio managers. See, too, "Description of the Funds, Their Investments
and Risks" in the SAI.
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 other
GROWTH PROSPECTS investments over
the long term
. The equity
markets could go
down, resulting
in a decline in
value of the
Fund's
investments
At least 65%
. Generally,
economic growth
means higher
corporate
profits, which
lead to an
increase in
stock prices,
known as capital
appreciation
. Companies that
pay dividends may
not do so if they
don't have
profits or
adequate cash
flow
. May be a source
of dividend
income
. Changes in
economic or
political
conditions, both
domestic and
interna- tional,
may result in a
decline in value
of the Fund's
investments
--------------------------------------------------------------------------------
SHORT SALES . May magnify . May magnify
underlying underlying
investment losses investment gains
Up to 25% of net . Investment costs
assets; usually may exceed
less than 10% potential
underlying
investment gains
------------------------------------------------------------------
--------------------------------------------------------------------------------
11
<PAGE>
--------------------------------------------------------------------------------
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
may not be as and invest in
stable as in the companies
U.S. operating in
those markets
Up to 20%; usu-
ally less than
10%
. Currency risk--
changing values
of foreign
currencies can
cause losses
. May profit from
changing values
of foreign
currencies
. May be less
liquid than U.S. . Opportunities
stocks and bonds for
diversification
. Differences in
foreign laws,
accounting
standards, public
information,
custody and
settlement
practices provide
less reliable
information on
foreign
investments and
involve more risk
--------------------------------------------------------------------------------
DERIVATIVES . Derivatives such . The Fund could
as futures, make money and
options and protect against
Percentage foreign currency losses if the
varies; usually forward contracts investment
less than 10% 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
occurred . One way to
manage the
. Derivatives used Fund's
for risk risk/return
management may balance is by
not have the locking in the
intended effects value of an
and may result in investment ahead
losses or missed of time
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
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PRUDENTIAL JENNISON EQUITY OPPORTUNITY FUND
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12
<PAGE>
--------------------------------------------------------------------------------
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 . High-quality
return may debt obligations
fluctuate in are generally
response to bond more secure than
market movements stocks since
companies must
pay their debts
before they pay
dividends
Up to 30%;
usually less than
1%
. Credit risk--the
risk that the
default of an
issuer would
leave the Fund . Most bonds will
with unpaid rise in value
interest or when interest
principal. The rates fall
lower a bond's
quality, the
higher its . Bonds have
potential generally
volatility outperformed
money market
. Market risk -- instruments over
the risk that the long term,
the market value with less risk
of an investment than stocks
may move up or
down, sometimes
rapidly or . Investment-grade
unpredictably. bonds have a
Market risk may lower risk of
affect an default than
industry, a junk bonds
sector, or the . Junk bonds offer
market as a whole higher yields
and higher
. Interest rate potential gains
risk--the risk than investment-
that the value of grade bonds
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
--------------------------------------------------------------------------------
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13
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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
credit risk and income
Up to 30%; interest rate . Generally more
usually less than risk secure than
5% 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
and market risk
Up to 100% on a
temporary basis;
usually less than
5%
--------------------------------------------------------------------------------
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 . May be difficult
assets; usually to sell at the
less than 5% time or price
desired
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PRUDENTIAL JENNISON EQUITY OPPORTUNITY FUND [GRAPHIC] (800) 225-1852
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<PAGE>
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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, 2000, 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 October 31, 2000, PIFM served as the
manager to all 48 of the Prudential mutual funds, and as manager or
administrator to 21 closed-end investment companies, with aggregate assets of
approximately $74.7 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, supervises Jennison and pays Jennison for
its services. As of September 30, 2000, Jennison managed approximately $86.2
billion in assets. Jennison has served as an investment adviser to investment
companies since 1990.
PORTFOLIO MANAGERS
BRADLEY GOLDBERG, CFA, has been a portfolio manager for the Fund since its
inception and is responsible for the day-to-day management of the Fund. Mr.
Goldberg, who has been with Jennison since 1974, is an Executive Vice President
of Jennison. 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.
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15
<PAGE>
--------------------------------------------------------------------------------
How the Fund is Managed
--------------------------------------------------------------------------------
MARK C. DEFRANCO and BRIAN M. GILLOTT assist Bradley Goldberg in managing
the Fund. Mr. DeFranco has served as a portfolio manager for the Fund since May
2000. Mr. DeFranco, a vice president, joined Jennison in 1998 with over 12
years of experience in the investment industry, including positions at Pomboy
Capital (1995 to 1998) as an equity analyst and portfolio manager and Comstock
Partners, where he was an equity analyst. Mr. DeFranco received a B.A. from
Bates College and an M.B.A. from Columbia University Graduate School of
Business.
Brian M. Gillott has served as a portfolio manager of the Fund since May
2000. Mr. Gillott, a vice president, joined Jennison in 1998. Previously, Mr.
Gillott was an equity analyst with Soros Fund Management (1997 to 1998) and
with Goldman Sachs & Co. (1995 to 1997). Mr. Gillott received a B.S. with
honors from Penn State 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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PRUDENTIAL JENNISON EQUITY OPPORTUNITY FUND
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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 or tax-deferred plan or account.
Dividends and distributions from the Fund also may be subject to state and
local income taxes.
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 or 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 share-holders--
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. Capital gains 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
--------------------------------------------------------------------------------
17
<PAGE>
--------------------------------------------------------------------------------
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 or 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 or 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 or 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 generally 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 taxpayer
identification number and certifications as to your tax status, and you fail to
do this, or if you are otherwise subject to backup withholding, we will
withhold and pay to the U.S. Treasury 31% of your distributions and sale
proceeds. 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 shares one day and
soon thereafter received a distribution. That is not so
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PRUDENTIAL JENNISON EQUITY OPPORTUNITY FUND
[GRAPHIC] (800) 225-1852
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<PAGE>
--------------------------------------------------------------------------------
Fund Distributions and Tax Issues
--------------------------------------------------------------------------------
----------------------------------------
[GRAPH]
+$ Capital Gain
(taxes owed)
Receipts
from Sale $ OR
-$ Capital Loss
(offset against gain)
----------------------------------------
because when dividends are paid out, the value of each share of the Fund
decreases by the amount of the dividend to reflect the payout, although this
may not be apparent because the value of each share of the Fund also will be
affected by market changes, if any. 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 AND TAX-DEFERRED 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 or 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.
If you sell shares and realize a loss, you will not be permitted to use the
loss to the extent you replace the shares (including pursuant to the
reinvestment of a dividend) within a 61-day period (beginning 30 days before
the sale of the shares). If you acquire shares of the Fund and sell your shares
within 90 days, you may not be allowed to include certain charges incurred in
acquiring the shares for purposes of calculating gain or loss realized upon the
sale of the shares.
Exchanging your shares of the Fund for the shares of another Prudential
mutual fund is considered a sale for tax purposes. In other
--------------------------------------------------------------------------------
19
<PAGE>
--------------------------------------------------------------------------------
Fund Distributions and Tax Issues
--------------------------------------------------------------------------------
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 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 or tax-deferred plan or account, you or your financial adviser should
keep track of the dates on which you buy and sell--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.
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 (IRS). 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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PRUDENTIAL JENNISON EQUITY OPPORTUNITY FUND
[GRAPHIC] (800) 225-1852
20
<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 8179
PHILADELPHIA, PA 19101
You may purchase shares by check or wire. We do not accept cash or money
orders. To purchase by wire, call the number above to obtain an application.
After PMFS receives your completed application, you will receive an account
number. 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 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
--------------------------------------------------------------------------------
21
<PAGE>
How to Buy, Sell and
--------------------------------------------------------------------------------
Exchange Shares of the Fund
--------------------------------------------------------------------------------
. 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.
<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 and service 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, 2001, 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 EQUITY OPPORTUNITY FUND
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<PAGE>
How to Buy, Sell and
--------------------------------------------------------------------------------
Exchange Shares of the Fund
--------------------------------------------------------------------------------
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 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 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 current
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
--------------------------------------------------------------------------------
23
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How to Buy, Sell and
--------------------------------------------------------------------------------
Exchange Shares of the Fund
--------------------------------------------------------------------------------
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
registered representatives and employees of brokers that have entered into a
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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PRUDENTIAL JENNISON EQUITY OPPORTUNITY FUND
[GRAPHIC] (800) 225-1852
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How to Buy, Sell and
--------------------------------------------------------------------------------
Exchange Shares of the Fund
--------------------------------------------------------------------------------
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, or
. 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, who may require any supporting documents
they consider 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.
--------------------------------------------------------------------------------
25
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How to Buy, Sell and
--------------------------------------------------------------------------------
Exchange Shares of the Fund
--------------------------------------------------------------------------------
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. 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 received 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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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 most national holidays and Good Friday. Because the Fund
may invest in foreign securities, its NAV may change on days when you cannot
buy or sell shares. 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.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
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 8159
PHILADELPHIA, PA 19101
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. Eligible investors who apply for PruTector coverage after the
initial 6-month enrollment period will need to
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provide satisfactory evidence of insurability. This insurance is subject to
other restrictions and is not available in all states.
Systematic Withdrawal Plan. A systematic withdrawal plan is available that will
provide you with monthly, quarterly, semi-annual or annual redemption 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 8149
PHILADELPHIA, PA 19101
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.
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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. As permitted by the
Commission, this 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 redemption
proceeds payable to or 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
signature guaranteed by an "eligible guarantor institution." An "eligible
guarantor institution" includes any bank, broker-dealer or credit union. 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
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representing the cost of shares held for the longest period of time within the
applicable CDSC period.
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 held in joint tenancy,
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 effected through 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 qualified or 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 and account
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
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request to be signed and sent by the plan administrator or trustee. For
additional information, see the SAI.
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 8157
PHILADELPHIA, PA 19101
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 the amount that 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."
--------------------------------------------------------------------------------
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Exchange Shares of the Fund
--------------------------------------------------------------------------------
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.
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 decision may be based upon dollar amount, volume and frequency of
trading. 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.
TELEPHONE REDEMPTIONS OR EXCHANGES
You may redeem or exchange your shares in any amount by calling the Fund at
(800) 225-1852. In order to redeem or exchange your shares by telephone, you
must call the Fund before 4:15 p.m. New York time. You will receive a
redemption or exchange amount based on that day's NAV.
The Fund's Transfer Agent will record your telephone instructions and
request specific account information before redeeming or exchanging shares. The
Fund will not be liable if it follows instructions that it reasonably believes
are made by the shareholder. If the Fund does not
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follow reasonable procedures, it may be liable for losses due to unauthorized
or fraudulent telephone instructions.
In the event of drastic economic or market changes, you may have difficulty
in redeeming or exchanging your shares by telephone. If this occurs, you should
consider redeeming or exchanging your shares by mail or through your broker.
The telephone redemption or exchange privilege may be modified or terminated
at any time. If this occurs, you will receive a written notice from the Fund.
--------------------------------------------------------------------------------
35
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--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------
The financial highlights will help you evaluate the Fund's financial
performance since its inception. 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 PricewaterhouseCoopers LLP,
independent accountants, whose report was unqualified.
<TABLE>
<CAPTION>
CLASS A SHARES (FISCAL PERIODS ENDED 9-30)
------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 2000 1999 1998 1997/1/
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.76 $10.98 $12.89 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .04 .07 .15 .09
Net realized and unrealized gain (loss) on
investment transactions 3.38 2.68 (1.32) 2.87
TOTAL FROM INVESTMENT OPERATIONS 3.42 2.75 (1.17) 2.96
------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income -- (.06) (.12) (.07)
Distributions from net realized gains (1.36) (.91) (.62) --
TOTAL DISTRIBUTIONS (1.36) (.97) (.74) (.07)
NET ASSET VALUE, END OF PERIOD $14.82 $12.76 $10.98 $12.89
TOTAL RETURN/2/ 29.23% 26.00% (9.40)% 29.72%
------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 2000 1999 1998 1997/1/
<S> <C> <C> <C> <C>
NET ASSETS, END OF PERIOD (000) $66,117 $37,158 $31,339 $34,846
Average net assets (000) $43,741 $35,815 $35,145 $27,008
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution and
service (12b-1) fees/4/ 1.19% 1.30% 1.31% 1.58%/3/
Expenses, excluding distribution and
service (12b-1) fees .94% 1.05% 1.06% 1.33%/3/
Net investment income .64% .54% 1.20% .90%/3/
Portfolio turnover 145% 111% 99% 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.
4 The Distributor of the Fund agreed to limit its distribution fees to .25 of
1% of the average daily net assets of the Class A shares.
--------------------------------------------------------------------------------
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Financial Highlights
--------------------------------------------------------------------------------
CLASS B SHARES
The financial highlights were audited by PricewaterhouseCoopers LLP,
independent accountants, whose report was unqualified.
<TABLE>
<CAPTION>
CLASS B SHARES (FISCAL PERIODS ENDED 9-30)
-----------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 2000 1999 1998 1997/1/
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.68 $10.96 $12.86 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (.02) (.03) .06 .02
Net realized and unrealized gain (loss)
on investment transactions 3.31 2.67 (1.31) 2.86
TOTAL FROM INVESTMENT OPERATIONS 3.29 2.64 (1.25) 2.88
-----------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income -- (.01) (.03) (.02)
Distributions from net realized gains (1.36) (.91) (.62) --
TOTAL DISTRIBUTIONS (1.36) (.92) (.65) (.02)
NET ASSET VALUE, END OF PERIOD $14.61 $12.68 $10.96 $12.86
TOTAL RETURN/2/ 28.31% 24.98% (10.01)% 28.83%
-----------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 2000 1999 1998 1997/1/
<S> <C> <C> <C> <C>
NET ASSETS, END OF PERIOD (000) $108,440 $92,032 $84,751 $87,558
Average net assets (000) $96,325 $94,904 $93,465 $62,575
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution and
service (12b-1) fees 1.94% 2.05% 2.06% 2.33%/3/
Expenses, excluding distribution and
service (12b-1) fees .94% 1.05% 1.06% 1.33%/3/
Net investment income (.12)% (.20)% .46% .15%/3/
Portfolio turnover 145% 111% 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.
--------------------------------------------------------------------------------
37
<PAGE>
--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------
CLASS C SHARES
The financial highlights were audited by PricewaterhouseCoopers LLP,
independent accountants, whose report was unqualified.
<TABLE>
<CAPTION>
CLASS C SHARES (FISCAL PERIODS ENDED 9-30)
---------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 2000 1999 1998 1997/1/
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.68 $10.96 $12.86 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (.01) (.02) .06 .02
Net realized and unrealized gain (loss)
on investment transactions 3.30 2.66 (1.31) 2.86
TOTAL FROM INVESTMENT OPERATIONS 3.29 2.64 (1.25) 2.88
---------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income -- (.01) (.03) (.02)
Distributions from net realized gains (1.36) (.91) (.62) --
TOTAL DISTRIBUTIONS (1.36) (.92) (.65) (.02)
NET ASSET VALUE, END OF PERIOD $14.61 $12.68 $10.96 $12.86
TOTAL RETURN/2/ 28.31% 24.98% (10.01)% 28.83%
---------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 2000 1999 1998 1997/1/
<S> <C> <C> <C> <C>
NET ASSETS, END OF PERIOD (000) $13,457 $7,636 $7,124 $7,111
Average net assets (000) $9,977 $7,702 $7,734 $5,631
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution and
service (12b-1) fees 1.94% 2.05% 2.06% 2.33%/3/
Expenses, excluding distribution and
service (12b-1) fees .94% 1.05% 1.06% 1.33%/3/
Net investment income (.10)% (.19)% .46% .15%/3/
Portfolio turnover 145% 111% 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.
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Financial Highlights
--------------------------------------------------------------------------------
CLASS Z SHARES
The financial highlights were audited by PricewaterhouseCoopers LLP,
independent accountants, whose report was unqualified.
<TABLE>
<CAPTION>
CLASS Z SHARES (FISCAL PERIODS ENDED 9-30)
-------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 2000 1999 1998 1997/1/
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.80 $11.00 $12.93 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .04 .09 .17 .10
Net realized and unrealized gain (loss)
on investment transactions 3.44 2.69 (1.33) 2.92
TOTAL FROM INVESTMENT OPERATIONS 3.48 2.78 (1.16) 3.02
-------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income -- (.07) (.15) (.09)
Distributions from net realized gains (1.36) (.91) (.62) --
TOTAL DISTRIBUTIONS (1.36) (.98) (.77) (.09)
NET ASSET VALUE, END OF PERIOD $14.92 $12.80 $11.00 $12.93
TOTAL RETURN/2/ 29.64% 26.31% (9.31)% 30.30%
-------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 2000 1999 1998 1997/1/
<S> <C> <C> <C> <C>
NET ASSETS, END OF PERIOD (000) $17,092 $4,263 $1,836 $609
Average net assets (000) $8,446 $3,088 $1,374 $227
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution and
service (12b-1) fees .94% 1.05% 1.06% 1.33%/3/
Expenses, excluding distribution and service
(12b-1) fees .94% 1.05% 1.06% 1.33%/3/
Net investment income .96% .76% 1.54% 1.15%/3/
Portfolio turnover 145% 111% 99% 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.
--------------------------------------------------------------------------------
39
<PAGE>
--------------------------------------------------------------------------------
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 Equity Fund, Inc.
Prudential Index Series Fund
Prudential Stock Index 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 Company Fund, Inc.
Prudential Tax-Managed Funds
Prudential Tax-Managed Equity Fund
Prudential Tax-Managed Small-Cap Fund, Inc.
Prudential 20/20 Focus Fund
Prudential U.S. Emerging Growth Fund, Inc.
Prudential Value Fund
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
Prudential Jennison Growth 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 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 Europe Growth Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Prudential Global Growth Fund
Prudential International Value Fund
Prudential Jennison International Growth Fund
Global Utility Fund, Inc.
Target Funds
International Equity Fund
GLOBAL BOND FUND
Prudential Global Total Return Fund, Inc.
--------------------------------------------------------------------------------
PRUDENTIAL JENNISON EQUITY OPPORTUNITY FUND
[GRAPHIC] (800) 225-1852
40
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
BOND FUNDS
TAXABLE BOND FUNDS
Prudential Government Income Fund, Inc.
Prudential High Yield Fund, Inc.
Prudential High Yield Total Return Fund, Inc.
Prudential Short-Term Corporate Bond Fund, Inc.
Income Portfolio
Prudential Total Return Bond Fund, Inc.
Target Funds
Total Return Bond Fund
TAX-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
New Jersey Series
New York Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
MONEY MARKET FUNDS
TAXABLE MONEY MARKET FUNDS
Cash Accumulation Trust
Liquid Assets Fund
National Money Market Fund
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund, Inc.
Money Market Series
Prudential MoneyMart Assets, Inc.
TAX-FREE MONEY MARKET FUNDS
Prudential Tax-Free Money Fund, Inc.
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
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 FUND
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
--------------------------------------------------------------------------------
41
<PAGE>
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--------------------------------------------------------------------------------
Notes
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[GRAPHIC] (800) 225-1852
PRUDENTIAL JENNISON EQUITY OPPORTUNITY FUND
42
<PAGE>
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--------------------------------------------------------------------------------
Notes
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43
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Notes
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[GRAPHIC] (800) 225-1852
PRUDENTIAL JENNISON EQUITY OPPORTUNITY FUND
44
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Notes
--------------------------------------------------------------------------------
45
<PAGE>
FOR MORE INFORMATION
Please read this prospectus before you invest in the Fund and keep it for future
reference. For information or shareholder questions contact:
Prudential Mutual Fund Services LLC
P.O. Box 8098
Philadelphia, PA 19101
(800) 225-1852
(732) 482-7555 (Calling from outside the U.S.)
Outside Brokers should contact:
Prudential Investment Management
Services LLC
P.O. Box 8310
Philadelphia, PA 19101
(800) 778-8769
Visit Prudential's website 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
MF172A
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 Numbers: Quotron Symbols:
Class A--74437E 503 PJIAX
Class B--74437E 602 PJIBX
Class C--74437E 701 PJGCX
Class Z--74437E 800 PJGZX
Investment Company Act File No. 811-5055
[LOGO] Printed on Recycled Paper
<PAGE>
PROSPECTUS DECEMBER 4, 2000
Prudential Jennison Growth Fund
(Class I Shares)
FUND TYPE Stock
OBJECTIVE Long-term growth of capital
Build on the Rock
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] Prudential
<PAGE>
--------------------------------------------------------------------------------
Risk/Return Summary
--------------------------------------------------------------------------------
Prudential Jennison Growth Fund ("the Fund") is a series of The Prudential
Investment Portfolios, Inc. ("the Company"). Class I shares are offered
exclusively for sale to a limited group of investors. Only Class I shares are
offered through this prospectus. The Fund also offers Class A, Class B, Class
C, and Class Z shares through the attached prospectus, dated December 8, 2000,
which is a part of this prospectus.
FEES AND EXPENSES
These tables show the fees and expenses that you may pay if you buy and hold
Class I shares of the Fund.
Shareholder Fees/1/ (paid directly from your investment)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS I
<S> <C>
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) None
Maximum deferred sales charge (load)
(as a percentage of the lower of original purchase price or
sales proceeds) None
Maximum sales charge (load) imposed on reinvested dividends
and other distributions None
Redemption fees None
Exchange fee None
----------------------------------------------------------------------
</TABLE>
Annual Fund Operating Expenses (deducted from Fund assets)
<TABLE>
--------------------------------------------------
<CAPTION>
CLASS I
<S> <C>
Management fees .58%
+ Distribution and service (12b-1) fees None
+ Other expenses .05%
= Total annual Fund operating expenses .63%
--------------------------------------------------
</TABLE>
1 Your broker may charge you a separate or additional fee for purchases and
sales of shares.
--------------------------------------------------------------------------------
1
<PAGE>
--------------------------------------------------------------------------------
Risk/Return Summary
--------------------------------------------------------------------------------
Example
This example is intended to help you compare the cost of investing in Class I
shares of 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. Although your actual costs may
be higher or lower, based on these assumptions, your costs would be:
<TABLE>
<CAPTION>
1 YR 3 YRS 5 YRS 10 YRS
<S> <C> <C> <C> <C>
Class I $64 $202 $351 $786
</TABLE>
--------------------------------------------------------------------------------
[GRAPHIC]
Prudential Jennison Growth Fund (800) 225-1852
2
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
The following information supplements "How the Fund is Managed--Distributor" in
the attached Prospectus:
Prudential Investment Management Services LLC serves as Distributor of the
Class I shares and incurs the expenses of distributing the Fund's Class I
shares under a Distribution Agreement, none of which is paid for by the Fund.
The following information supplements "How to Buy, Sell and Exchange Shares of
the Fund--How to Buy Shares" in the attached Prospectus:
Step 2: Choose a Share Class
Qualifying for Class I Shares
Class I shares of the Fund are available for purchase only by certain group
retirement plans and other institutional investors if they meet the required
minimum for amount of assets and other requirements. For more information about
these requirements, call Prudential at (866) 338-3100.
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
finder's fee for Class I shares from their own resources based on a percentage
of the net asset value (NAV) of shares sold or otherwise.
Step 3: Understanding the Price You'll Pay
For Class I shares, you will pay the NAV next determined after we receive your
order to purchase. Your broker may charge you a separate or additional fee for
purchases of shares.
The following information supplements "How to Buy, Sell and Exchange Shares of
the Fund--How to Exchange Your Shares" in the attached Prospectus:
You may not exchange Class I shares for shares of other Prudential
mutual funds.
--------------------------------------------------------------------------------
3
<PAGE>
FOR MORE INFORMATION
Please read this prospectus before you invest in the Fund and keep it for future
reference. For information or shareholder questions contact
Visit Prudential's website 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
MF168I
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 Number NASDAQ Symbol
Class I-- --
Investment Company Act File No. 811-07343
[GRAPHIC] Printed on Recycled Paper
<PAGE>
PROSPECTUS DECEMBER 8, 2000
Prudential
Jennison Growth Fund
FUND TYPE Stock
OBJECTIVE Long-term growth of capital
Build
on the Rock
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.
[PRUDENTIAL LOGO]
<PAGE>
--------------------------------------------------------------------------------
Table of Contents
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
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 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
18 Fund Distributions and Tax Issues
18 Distributions
19 Tax Issues
20 If You Sell or Exchange Your Shares
22 How to Buy, Sell and Exchange Shares of the Fund
22 How to Buy Shares
30 How to Sell Your Shares
34 How to Exchange Your Shares
35 Telephone Redemptions or Exchanges
36 Financial Highlights
36 Class A Shares
37 Class B Shares
38 Class C Shares
39 Class Z Shares
40 The Prudential Mutual Fund Family
For More Information (Back Cover)
</TABLE>
--------------------------------------------------------------------------------
PRUDENTIAL JENNISON GROWTH FUND [GRAPHIC] (800) 225-1852
<PAGE>
--------------------------------------------------------------------------------
Risk/Return Summary
--------------------------------------------------------------------------------
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.
While we make every effort to achieve our objective, we can't guarantee
success.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
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.
Securities that the Fund invests in have historically been more volatile than
the Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index) and may
present above-average risks. This means that when stock prices decline
--------------------------------------------------------------------------------
1
<PAGE>
--------------------------------------------------------------------------------
Risk/Return Summary
--------------------------------------------------------------------------------
overall, the Fund may decline more than the S&P 500 Index. In addition,
different parts of a market can react differently to adverse issuer, market,
regulatory, political and economic developments.
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.
--------------------------------------------------------------------------------
PRUDENTIAL JENNISON GROWTH FUND [GRAPHIC] (800) 225-1852
2
<PAGE>
--------------------------------------------------------------------------------
Risk/Return Summary
--------------------------------------------------------------------------------
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]
Annual Returns* (Class A shares)
1996 14.33%
1997 31.26%
1998 37.75%
1999 41.60%
BEST QUARTER 30.12% (4th quarter of 1998)
WORST QUARTER -12.27% (3rd quarter of 1998)
* 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 1-1-00 to 9-30-
00 was -1.02%.
AVERAGE ANNUAL RETURNS/1/ (AS OF 12-31-99)
<TABLE>
--------------------------------------------------
<CAPTION>
1 YR SINCE INCEPTION
<S> <C> <C>
Class A shares 34.52% 27.80% (since 11-2-95)
Class B shares 35.53% 28.32% (since 11-2-95)
Class C shares 38.13% 28.12% (since 11-2-95)
Class Z shares 41.94% 32.72% (since 4-15-96)
S&P 500 Index/2/ 21.03% N/A/2/
Lipper Average/3/ 38.09% N/A/3/
--------------------------------------------------
</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 Composite Stock Price Index (S&P 500 Index)--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 27.06% for Class A,
Class B and Class C shares and 21.73% for Class Z shares. Source: Lipper Inc.
3 The Lipper Average is based on the average return of all mutual funds in the
Lipper Large-Cap Growth 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
28.37% for Class A, Class B and Class C shares and 29.00% for Class Z shares.
Source: Lipper Inc.
--------------------------------------------------------------------------------
3
<PAGE>
--------------------------------------------------------------------------------
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 offered through this
prospectus--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)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Z
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on 5% None 1% None
purchases (as a percentage of offering
price)
Maximum deferred sales charge (load) (as a None 5%/2/ 1%/3/ None
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
-------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS)
<TABLE>
-----------------------------------------------------------------------------
<CAPTION>
CLASS A CLASS B CLASS C CLASS Z
<S> <C> <C> <C> <C>
Management fees .58% .58% .58% .58%
+ Distribution and service (12b-1) fees .30%/4/ 1.00% 1.00% None
+ Other expenses .16% .16% .16% .16%
= Total annual Fund operating expenses 1.04% 1.74% 1.74% .74%
- Fee waiver .05% None None None
= NET ANNUAL FUND OPERATING EXPENSES .99%/4/ 1.74% 1.74% .74%
-----------------------------------------------------------------------------
</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, 2001, 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 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:
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 YR 3 YRS 5 YRS 10 YRS
<S> <C> <C> <C> <C>
Class A shares $591 $795 $1,015 $1,648
Class B shares $677 $848 $1,044 $1,760
Class C shares $375 $643 $1,034 $2,131
Class Z shares $ 76 $237 $ 411 $ 918
------------------------------------------
</TABLE>
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 $591 $795 $1,015 $1,648
Class B shares $177 $548 $ 944 $1,760
Class C shares $275 $643 $1,034 $2,131
Class Z shares $ 76 $237 $ 411 $ 918
------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
5
<PAGE>
--------------------------------------------------------------------------------
How the Fund Invests
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
OUR GROWTH STYLE
Our portfolio managers invest in medium to 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.
--------------------------------------------------------------------------------
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 identifying 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 has reached
an intermediate-term price
--------------------------------------------------------------------------------
PRUDENTIAL JENNISON GROWTH FUND (800) 225-1852
[GRAPHIC]
6
<PAGE>
--------------------------------------------------------------------------------
How the Fund Invests
--------------------------------------------------------------------------------
objective and its outlook no longer seems sufficiently promising; a relatively
more attractive stock emerges; or the stock has experienced adverse price
movement.
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 in equity-related securities of companies that are
undergoing changes in management or product or changes in 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 not
widely known and are favorably valued.
FOREIGN EQUITY SECURITIES
We may invest in foreign equity securities. We do not consider ADRs and other
similar receipts or shares to be foreign securities.
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
the short sale and the date when
--------------------------------------------------------------------------------
7
<PAGE>
--------------------------------------------------------------------------------
How the Fund Invests
--------------------------------------------------------------------------------
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.
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. 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 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 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 (MBS strips). MBS strips take
the pieces of a debt security (principal and interest) and break them apart.
The resulting securities may be sold separately and may perform differently.
OTHER FIXED-INCOME SECURITIES
The Fund may invest in fixed-income securities rated investment-grade (Baa or
higher by Moody's Investors Service, Inc. or BBB or higher by
--------------------------------------------------------------------------------
PRUDENTIAL JENNISON GROWTH FUND [GRAPHIC] (800) 225-1852
8
<PAGE>
--------------------------------------------------------------------------------
How the Fund Invests
--------------------------------------------------------------------------------
Standard & Poor's Ratings Group, or the equivalent rating by another rating
service) for capital appreciation purposes. These include corporate debt and
other debt obligations of U.S. and foreign issuers. We also may invest in
obligations that are not rated, but that we believe are of comparable quality
to these obligations.
MONEY MARKET INSTRUMENTS
The Fund 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 equity-related
securities. 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; and cash (foreign
currencies or U.S. dollars).
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. The Fund uses repurchase agreements for cash management purposes only.
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 our investment objective, but can help to preserve the
Fund's assets when the equity markets are unstable.
DERIVATIVE STRATEGIES
We may use various derivative strategies to try to improve the Fund's returns.
We may use hedging techniques to try to protect the Fund's assets. We cannot
guarantee that these strategies will work, that the instruments necessary to
implement these strategies will be available, or that the Fund
--------------------------------------------------------------------------------
9
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How the Fund Invests
--------------------------------------------------------------------------------
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.
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 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. 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 about these strategies, see the SAI, "Description of
the Funds, Their Investments and Risks--Risk Management and Return Enhancement
Strategies."
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 for cash management purposes (the Fund can lend up to 30% of
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PRUDENTIAL JENNISON GROWTH FUND [GRAPHIC] (800) 225-1852
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How the Fund Invests
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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
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How the Fund Invests
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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. The
investment types are listed in the order in which they normally will be used by
the portfolio managers. 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
SECURITIES OF . Individual stocks . Historically,
MEDIUM- TO LARGE- could lose value stocks have
CAP COMPANIES > outperformed
other
. The equity investments over
markets could go the long term
down, resulting
in a decline in
value of the
Fund's
investments
At least 65%
. Generally,
economic growth
means higher
corporate
profits, which
. Changes in eco- lead to an
nomic or politi- increase in
cal conditions, stock prices,
both domestic and known as capital
international, appreciation
may result in a
decline in value
of the Fund's in-
vestments
--------------------------------------------------------------------------------
FOREIGN
SECURITIES . Foreign markets,
economies and . Investors can
political systems participate in
may not be as foreign markets
stable as in the and invest in
U.S. companies
operating in
those markets
Up to 20%;
usually less than
10%
. Currency risk--
changing values
of foreign . May profit from
currencies can changing values
cause losses of foreign
currencies
. May be less
liquid than U.S. . Opportunities
stocks and bonds for
diversification
. Differences in
foreign laws,
accounting
standards, public
information,
custody and
settlement
practices provide
less reliable
information on
foreign
investments and
involve more risk
--------------------------------------------------------------------------------
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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
SHORT SALES . May magnify . May magnify
underlying underlying
investment losses investment gains
Up to 25% of net
assets; usually . Investment costs
less than 10% may exceed
potential
underlying
investment gains
--------------------------------------------------------------------------------
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 var-
ies; usually less
than 10%
. Derivatives that
involve leverage
could generate
substantial
gains at low
cost
. One way to
manage the
Fund's
risk/return
balance is by
. Derivatives used locking 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
--------------------------------------------------------------------------------
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13
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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 . High-quality
return may debt obligations
fluctuate in are generally
response to bond more secure than
market movements stocks since
companies must
pay their debts
before they pay
dividends
Up to 35%; usu-
ally less than 1%
. Credit risk--the
risk that the
default of an
issuer would . Most bonds will
leave the Fund rise in value
with unpaid when interest
interest or rates fall
principal. The
lower a bond's . Bonds have
quality, the generally
higher its outperformed
potential money market
volatility instruments over
the long term,
. Market risk--the with less risk
risk that the than stocks
market value of
an investment may
move up or down,
sometimes rapidly . Investment-grade
or unpredictably. bonds have a
Market risk may lower risk of
affect an default than
industry, a junk bonds
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
Up to 35%; usu- or completely, interest and
ally less than 1% generally during principal
periods of payments on
falling interest certain
rates, which securities
could adversely . May benefit from
affect yield to security
maturity and interest in real
could require the estate
Fund to reinvest collateral
in lower-yielding . Pass-through
securities instruments
provide greater
diversification
than direct
ownership of
. Credit risk--the loans
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
--------------------------------------------------------------------------------
U.S. GOVERNMENT . Not all U.S. . May preserve the
SECURITIES government Fund's assets
securities are . Regular interest
insured or income
Up to 35%; usu- guaranteed by the . Generally more
ally less than 1% U.S. government, secure than
but only by the lower-quality
issuing agency debt securities
and equity
securities
. Limits potential
for capital
appreciation
. See market risk, . Principal and
credit risk and interest may be
interest rate guaranteed by
risk the U.S.
government
--------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------
MONEY MARKET . Limits potential . May preserve the
INSTRUMENTS for capital Fund's assets
appreciation
Up to 100% on a . See credit risk
temporary basis and market risk
--------------------------------------------------------------------------------
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How the Fund is Managed
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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, 2000, the Fund paid PIFM management fees of .58% of the
Fund's average net assets.
PIFM and its 4 predecessors have served as manager or administrator to
investment companies since 1987. As of October 31, 2000, PIFM served as the
manager to all 48 of the Prudential mutual funds, and as manager or
administrator to 21 closed-end investment companies, with aggregate assets of
approximately $74.7 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, supervises Jennison and pays Jennison for
its services. As of September 30, 2000, Jennison managed approximately $86.2
billion in assets. Jennison has served as an investment adviser to investment
companies since 1990.
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 and has managed equity portfolios for investment companies since 1990. He
is a founding member, Director, President and Chief Investment Officer of
Jennison. Mr. Segalas received his B.A. from Princeton University and is a
member of the New York Society of Security Analysts.
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PRUDENTIAL JENNISON GROWTH FUND [GRAPHIC] (800) 225-1852
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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 her B.B.A.
from the University of Wisconsin and her M.B.A. from Harvard Business School.
MICHAEL A. DEL BALSO has been a portfolio manager of the Fund since May 2000.
He is a Director and Executive Vice President of Jennison, where he has been
part of the investment team since 1972. Mr. Del Balso is also Jennison's
Director of Equity Research. Mr. Del Balso received his B.A. from Yale
University and his M.B.A. from Columbia University. He 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 offered through this prospectus other
than Class Z. These fees--known as 12b-1 fees--are shown in the "Fees and
Expenses" tables.
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17
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--------------------------------------------------------------------------------
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 or tax-deferred plan or account.
Dividends and distributions from the Fund also may be subject to state and
local income taxes.
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 or 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 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. Capital gains 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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PRUDENTIAL JENNISON GROWTH FUND [GRAPHIC] (800) 225-1852
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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 or 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 or 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 or 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 generally 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 taxpayer
identification number and certifications as to your tax status, and you fail to
do this, or if you are otherwise subject to backup withholding, we will
withhold and pay to the U.S. Treasury 31% of your distributions and sale
proceeds. 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
--------------------------------------------------------------------------------
19
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Fund Distributions and Tax Issues
--------------------------------------------------------------------------------
----------------------------------------
CAPITAL GAIN
+$ (taxes owed)
RECEIPTS
FROM SALE OR
-$ 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 to reflect the payout, although this
may not be apparent because the value of each share of the Fund also will be
affected by market changes, if any. 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 AND TAX-DEFERRED 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 or 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.
If you sell shares and realize a loss, you will not be permitted to use the
loss to the extent you replace the shares (including pursuant to the
reinvestment of a dividend) within a 61-day period (beginning 30 days before
the sale of the shares). If you acquire shares of the Fund and sell your shares
within 90 days, you may not be allowed to include certain charges incurred in
acquiring the shares for purposes of calculating gain or loss realized upon the
sale of the shares.
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PRUDENTIAL JENNISON GROWTH FUND [GRAPHIC] (800) 225-1852
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Fund Distributions and Tax Issues
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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 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 or tax-deferred plan or account, you or your financial adviser should
keep track of the dates on which you buy and sell--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.
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 (IRS). 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.
--------------------------------------------------------------------------------
21
<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 8179
PHILADELPHIA, PA 19101
You may purchase shares by check or wire. We do not accept cash or money
orders. To purchase by wire, call the number above to obtain an application.
After PMFS receives your completed application, you will receive an account
number. 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 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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PRUDENTIAL JENNISON GROWTH FUND [GRAPHIC] (800) 225-1852
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How to Buy, Sell and
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Exchange Shares of the Fund
--------------------------------------------------------------------------------
. 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 and service 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, 2001, 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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23
<PAGE>
How to Buy, Sell and
--------------------------------------------------------------------------------
Exchange Shares of the Fund
--------------------------------------------------------------------------------
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 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 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 current
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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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
registered representatives and employees of brokers that have entered into a
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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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, or
. 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, who may require any supporting documents
they consider 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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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. 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 received 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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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 most national holidays and Good Friday. Because the Fund
may invest in foreign securities, its NAV may change on days when you cannot
buy or sell shares. 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.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
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 8159
PHILADELPHIA, PA 19101
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. Eligible investors who apply for PruTector coverage after the
initial 6-month enrollment period will need to provide satisfactory evidence of
insurability. This insurance is subject to other restrictions and is not
available in all states.
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Systematic Withdrawal Plan. A systematic withdrawal plan is available that will
provide you with monthly, quarterly, semi-annual or annual redemption 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 8149
PHILADELPHIA, PA 19101
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. As
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permitted by the Commission, this 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 redemption
proceeds payable to or 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
signature guaranteed by an "eligible guarantor institution." An "eligible
guarantor institution" includes any bank, broker-dealer or credit union. 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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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 held in joint tenancy,
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 effected through 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 Prudential and its
affiliates. For more information, call Prudential at (800) 353-2847.
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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 qualified or 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 and account
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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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 8157
PHILADELPHIA, PA 19101
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 the amount that 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 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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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 decision may be based upon dollar amount, volume and frequency of
trading. 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.
TELEPHONE REDEMPTIONS OR EXCHANGES
You may redeem or exchange your shares in any amount by calling the Fund at
(800) 225-1852. In order to redeem or exchange your shares by telephone, you
must call the Fund before 4:15 p.m. New York time. You will receive a
redemption or exchange amount based on that day's NAV.
The Fund's Transfer Agent will record your telephone instructions and
request specific account information before redeeming or exchanging shares. The
Fund will not be liable if it follows instructions that it reasonably believes
are made by the shareholder. If the Fund does not follow reasonable procedures,
it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
In the event of drastic economic or market changes, you may have difficulty
in redeeming or exchanging your shares by telephone. If this occurs, you should
consider redeeming or exchanging your shares by mail or through your broker.
The telephone redemption or exchange procedure may be modified or terminated
at any time. If this occurs, you will receive a written notice from the Fund.
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--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------
The financial highlights will help you evaluate the Fund's financial
performance since its inception. 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 for the four years ended September 30, 2000 were
audited by PricewaterhouseCoopers LLP, 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 2000 1999 1998 1997 1996/1/
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $20.05 $14.44 $15.39 $10.97 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss)/4/ (0.09) (.08) (.04) (.03) (.03)
Net realized and unrealized
gain on investment
transactions 5.42 6.23 .40 4.45 1.00
TOTAL FROM INVESTMENT
OPERATIONS 5.33 6.15 .36 4.42 .97
-------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from net
realized gains (1.18) (.54) (1.31) -- --
NET ASSET VALUE, END OF
PERIOD $24.20 $20.05 $14.44 $15.39 $10.97
TOTAL RETURN/2/ 27.02% 43.58% 3.02% 40.29% 9.70%
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 2000 1999 1998 1997 1996/1/
<S> <C> <C> <C> <C> <C>
NET ASSETS, END OF PERIOD
(000) $1,745,454 $911,467 $446,996 $145,022 $85,440
Average net assets (000) $1,489,790 $748,315 $251,118 $105,982 $70,667
RATIOS TO AVERAGE NET
ASSETS:
Expenses, including
distribution and service
(12b-1) fees/5/ .99% 1.05% 1.08% 1.09% 1.23%/3/
Expenses, excluding
distribution and service
(12b-1) fees .74% .80% .83% .84% .98%/3/
Net investment income
(loss) (.35)% (.44)% (.26)% (.25)% (.37)%/3/
Portfolio turnover 83% 56% 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 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 year reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than one year are not
annualized.
3 Annualized.
4 Calculated based on average shares outstanding during the period.
5 The Distributor of the Fund agreed to limit its distribution fees to .25 of
1% of the average daily net assets of the Class A shares.
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Financial Highlights
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CLASS B SHARES
The financial highlights for the four years ended September 30, 2000 were
audited by PricewaterhouseCoopers LLP, 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 2000 1999 1998 1997 1996/1/
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $19.43 $14.11 $15.18 $10.89 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss)/4/ (.26) (.22) (.15) (.12) (.10)
Net realized and
unrealized gain on
investment transactions 5.24 6.08 .39 4.41 .99
TOTAL FROM INVESTMENT
OPERATIONS 4.98 5.86 .24 4.29 .89
-------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from net
realized gains (1.18) (.54) (1.31) -- --
NET ASSET VALUE, END OF
PERIOD $23.23 $19.43 $14.11 $15.18 $10.89
TOTAL RETURN/2/ 26.04% 42.51% 2.21% 39.39% 8.90%
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 2000 1999 1998 1997 1996/1/
<S> <C> <C> <C> <C> <C>
NET ASSETS, END OF PERIOD
(000) $2,216,911 $1,506,839 $708,463 $419,405 $231,541
Average net assets (000) $2,158,641 $1,236,825 $557,823 $299,476 $162,412
RATIOS TO AVERAGE NET
ASSETS:
Expenses, including
distribution and service
(12b-1) fees 1.74% 1.80% 1.83% 1.84% 1.98%/3/
Expenses, excluding
distribution and service
(12b-1) fees .74% .80% .83% .84% .98%/3/
Net investment income
(loss) (1.10)% (1.19)% (1.01)% (1.00)% (1.12)%/3/
Portfolio turnover 83% 56% 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 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 year reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than one year are not
annualized.
3 Annualized.
4 Calculated based on average shares outstanding during the period.
--------------------------------------------------------------------------------
37
<PAGE>
--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------
CLASS C SHARES
The financial highlights for the four years ended September 30, 2000 were
audited by PricewaterhouseCoopers LLP, 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 C SHARES (FISCAL PERIODS ENDED 9-30)
PER SHARE OPERATING
PERFORMANCE 2000 1999 1998 1997 1996/1/
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $19.43 $14.11 $15.18 $10.89 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss)/4/ (.26) (.22) (.15) (.12) (.10)
Net realized and unrealized
gain on investment
transactions 5.24 6.08 .39 4.41 .99
TOTAL FROM INVESTMENT
OPERATIONS 4.98 5.86 .24 4.29 .89
----------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from net
realized gains (1.18) (.54) (1.31) -- --
NET ASSET VALUE, END OF
PERIOD $23.23 $19.43 $14.11 $15.18 $10.89
TOTAL RETURN/2/ 26.04% 42.51% 2.21% 39.39% 8.90%
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 2000 1999 1998 1997 1996/1/
<S> <C> <C> <C> <C> <C>
NET ASSETS, END OF PERIOD
(000) $291,542 $141,770 $45,126 $25,134 $15,281
Average net assets (000) $242,939 $98,033 $35,337 $18,248 $12,550
RATIOS TO AVERAGE NET
ASSETS:
Expenses, including
distribution and service
(12b-1) fees 1.74% 1.80% 1.83% 1.84% 1.98%/3/
Expenses, excluding
distribution and service
(12b-1) fees .74% .80% .83% .84% .98%/3/
Net investment income
(loss) (1.10)% (1.20)% (1.01)% (1.00)% (1.12)%/3/
Portfolio turnover 83% 56% 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 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 year reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than one year are not
annualized.
3 Annualized.
4 Calculated based on average shares outstanding during the period.
--------------------------------------------------------------------------------
PRUDENTIAL JENNISON GROWTH FUND [GRAPHIC] (800) 225-1852
38
<PAGE>
--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------
CLASS Z SHARES
The financial highlights for the four years ended September 30, 2000 were
audited by PricewaterhouseCoopers LLP, 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 PERIODS ENDED 9-30)
PER SHARE OPERATING PERFORMANCE 2000 1999 1998 1997 1996/1/
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $20.24 $14.53 $15.45 $10.98 $10.32
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (loss)/4/ (.02) (.04) -- -- (.02)
Net realized and unrealized gain
on investment transactions 5.46 6.29 .39 4.47 .68
TOTAL FROM INVESTMENT OPERATIONS 5.44 6.25 .39 4.47 .66
-----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from net realized
gains (1.18) (.54) (1.31) -- --
NET ASSET VALUE, END OF PERIOD $24.50 $20.24 $14.53 $15.45 $10.98
TOTAL RETURN/2/ 27.39% 43.94% 3.22% 40.71% 6.40%
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 2000 1999 1998 1997 1996/1/
<S> <C> <C> <C> <C> <C>
NET ASSETS, END OF PERIOD (000) $2,962,816 $1,893,457 $1,021,903 $609,869 $362,416
Average net assets (000) $2,733,194 $1,596,809 $810,296 $455,684 $26,829
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution
and service (12b-1) fees .74% .80% .83% .84% .98%/3/
Expenses, excluding distribution
and service (12b-1) fees .74% .80% .83% .84% .98%/3/
Net investment income (loss) (.10)% (.19)% (.01)% -- (.12)%/3/
Portfolio turnover 83% 56% 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 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 year reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than one year are not
annualized.
3 Annualized.
4 Calculated based on average shares outstanding during the period.
--------------------------------------------------------------------------------
39
<PAGE>
--------------------------------------------------------------------------------
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 Equity Fund, Inc.
Prudential Index Series Fund
Prudential Stock Index 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 Company Fund, Inc.
Prudential Tax-Managed Funds
Prudential Tax-Managed Equity Fund
Prudential Tax-Managed Small-Cap Fund, Inc.
Prudential 20/20 Focus Fund
Prudential U.S. Emerging Growth Fund, Inc.
Prudential Value Fund
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
Prudential Jennison Growth 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 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 Europe Growth Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Prudential Global Growth Fund
Prudential International Value Fund
Prudential Jennison International Growth Fund
Global Utility Fund, Inc.
Target Funds
International Equity Fund
GLOBAL BOND FUND
Prudential Global Total Return Fund, Inc.
--------------------------------------------------------------------------------
PRUDENTIAL JENNISON GROWTH FUND [GRAPHIC] (800) 225-1852
40
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
BOND FUNDS
TAXABLE BOND FUNDS
Prudential Government Income Fund, Inc.
Prudential High Yield Fund, Inc.
Prudential High Yield Total Return Fund, Inc.
Prudential Short-Term Corporate Bond Fund, Inc.
Income Portfolio
Prudential Total Return Bond Fund, Inc.
Target Funds
Total Return Bond Fund
TAX-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
New Jersey Series
New York Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
MONEY MARKET FUNDS
TAXABLE MONEY MARKET FUNDS
Cash Accumulation Trust
Liquid Assets Fund
National Money Market Fund
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund, Inc.
Money Market Series
Prudential MoneyMart Assets, Inc.
TAX-FREE MONEY MARKET FUNDS
Prudential Tax-Free Money Fund, Inc.
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
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 FUND
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
--------------------------------------------------------------------------------
41
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Notes
--------------------------------------------------------------------------------
PRUDENTIAL JENNISON GROWTH FUND [GRAPHIC] (800) 225-1852
42
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Notes
--------------------------------------------------------------------------------
43
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Notes
--------------------------------------------------------------------------------
PRUDENTIAL JENNISON GROWTH FUND [GRAPHIC] (800) 225-1852
44
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Notes
--------------------------------------------------------------------------------
45
<PAGE>
FOR MORE INFORMATION
Please read this prospectus before you invest in the Fund and keep it for future
reference. For information or shareholder questions contact
Prudential Mutual Fund Services LLC
P.O. Box 8098
Philadelphia, PA 19101
(800) 225-1852
(732) 482-7555 (Calling from outside the U.S.)
Outside Brokers should contact
Prudential Investment Management
Services LLC
P.O. Box 8310
Philadelphia, PA 19101
(800) 778-8769
Visit Prudential's website 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
MF168A
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 Numbers NASDAQ Symbols
Class A--74437E107 PJFAX
Class B--74437E206 PJFBX
Class C--74437E305 PJFCX
Class Z--74437E404 PJFZX
Investment Company Act File No. 811-07343
[LOGO] Printed on Recycled Paper
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Statement of Additional Information
dated December 8, 2000
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 Equity Opportunity Fund
(Equity Opportunity 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 Equity Opportunity Fund is long-term
growth of capital and income, with current income as a secondary objective.
The Equity Opportunity 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 Equity Opportunity Fund's Prospectus, each dated December 8,
2000, 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-21
Management of the Company.................................................. B-24
Control Persons and Principal Holders of Securities........................ B-27
Investment Advisory and Other Services..................................... B-28
Brokerage Allocation and Other Practices................................... B-35
Capital Shares, Other Securities and Organization.......................... B-37
Purchase, Redemption and Pricing of Fund Shares............................ B-38
Shareholder Investment Account............................................. B-48
Net Asset Value............................................................ B-52
Taxes, Dividends and Distributions......................................... B-53
Performance Information.................................................... B-56
Financial Statements....................................................... B-59
Description of Security Ratings............................................ A-1
Appendix I--General Investment Information................................. I-1
Appendix II--Historical Performance Data................................... II-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 May 29, 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). On May 30, 2000, the Growth & Income Fund changed its
name to the Prudential Jennison Equity Opportunity Fund (Equity Opportunity
Fund).
DESCRIPTION OF THE FUNDS, THEIR INVESTMENTS AND RISKS
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.
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 Equity Opportunity
Fund is long-term growth of capital and income, with current income as a
secondary objective. The Equity Opportunity 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 principal and non-principal
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 Equity Opportunity 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 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.
B-2
<PAGE>
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 Equity
Opportunity 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 Equity Opportunity 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 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.
B-3
<PAGE>
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 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
B-4
<PAGE>
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 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.
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<PAGE>
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 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."
B-6
<PAGE>
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.
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 Equity Opportunity 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 Fund's total assets in non-investment grade
fixed-income securities. The Equity Opportunity 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.
B-7
<PAGE>
Foreign 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).
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.
B-8
<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 member state's national
currency. By July 1, 2002, the euro is expected to become the sole legal
tender of the member states. During the transition period, each Fund will
treat the euro as a separate currency from the national currency of any member
state.
The adoption by the member states of the euro will eliminate the substantial
currency risk among member states and will likely affect the investment
process and considerations of a Fund's investment adviser. To the extent a
Fund holds non-U.S. dollar-denominated securities, including those denominated
in the euro, the Fund will still be subject to currency risk due to
fluctuations in those currencies as compared to the U.S. dollar.
The medium- to long-term impact of the introduction of the euro in member
states cannot be determined with certainty at this time. In addition to the
effects described above, it is likely that more general long-term
ramifications can be expected, such as changes in economic environment and
changes in behavior of investors, all of which will impact a Fund's
investments.
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.
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
B-9
<PAGE>
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.
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.
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<PAGE>
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.
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."
B-11
<PAGE>
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 Equity Opportunity 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.
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.
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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 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.
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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.
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 Equity Opportunity 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.
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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.
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 indexes, 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 indexes.
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 indexes, 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
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computing such 5%. The above restriction does not apply to the purchase or
sale of futures contracts and related options for bona fide hedging purposes,
within the meaning of regulations of the Commodity Futures Trading Commission.
Neither Growth Fund nor Equity Opportunity 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 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
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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 Equity Opportunity 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 Equity Opportunity 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.
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 investment adviser. In the event of
a default or bankruptcy by a seller, a Fund will promptly seek to liquidate
the collateral. To the
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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 investment adviser. 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
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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 Equity Opportunity 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 Equity Opportunity 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 Equity Opportunity
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.
Illiquid Securities
Each Fund may hold up to 15% of its net assets in illiquid securities. If a
Fund were to exceed this limit, the investment adviser would take prompt
action to reduce the Fund's holdings in illiquid securities to no more than
15% of its net assets, as required by applicable law. Illiquid securities
include 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
B-19
<PAGE>
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.
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 and shares of exchange-
traded funds. 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
B-20
<PAGE>
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.
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.
Portfolio Turnover
As a result of the investment policies described above, each Fund may engage
in a substantial number of portfolio transactions. The Growth Fund's portfolio
turnover rate is not expected to exceed 100%, and neither the Active Balanced
Fund's nor the Equity Opportunity Fund's portfolio turnover rate is 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 Equity Opportunity 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, foreign currency forward contracts
B-21
<PAGE>
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 indexes and, with respect to Equity Opportunity Fund, futures
contracts on debt securities, and foreign currency forward contracts are not
deemed to be commodities or commodity contracts.)
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
"Description of the Funds, Their Investments and Risks--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:
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. 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.
B-22
<PAGE>
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.
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, and foreign
currency forward 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.
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-23
<PAGE>
MANAGEMENT OF THE COMPANY
<TABLE>
<CAPTION>
Name and Address ** Position with
(Age) Company Principal Occupations During Past 5 Years
------------------- ------------- -----------------------------------------
<S> <C> <C>
Saul K. Fenster (67) Director President (since December 1978) of New Jersey
Institute of Technology; Commissioner (since
1998) of the Middle States Association,
Commission on Higher Education; member (since
1985) of the New Jersey Commission on Science
and Technology; formerly a director or trustee
(1987-1999) of the New Jersey State Chamber of
Commerce, the Society of Manufacturing
Engineering Education Foundation, the Research
and Development Council of New Jersey,
Prosperity New Jersey, Inc., the Edison
Partnership, National Action Council of
Minorities in Engineering and IDT Corporation.
Delayne Dedrick Gold Director Marketing and Management Consultant.
(63)
*Robert F. Gunia (53) Vice President Executive Vice President and Chief
and Director Administrative Officer (since June 1999) of
Prudential Investments; Executive Vice
President and Treasurer (since December 1996)
of Prudential Investments Fund Management LLC
(PIFM); President (since April 1999) of
Prudential Investment Management Services LLC
(PIMS); formerly Corporate Vice President
(September 1997-March 1999) of The Prudential
Insurance Company of America (Prudential);
Senior Vice President (March 1987-May 1999) of
Prudential Securities Incorporated (Prudential
Securities); and 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.
Douglas H. McCorkindale Director Chairman (since June 2000) and President (since
(61) September 1997) of Gannett Co. Inc. (publishing
and media); formerly Vice Chairman (March 1984-
May 2000) of Gannett Co. Inc.; Director of
Continental Airlines, Inc., Gannett Co. Inc.
and Global Crossing Ltd.
W. Scott McDonald, Jr. Director Vice President (since 1997) of Kaludis
(63) Consulting Group, Inc., a Sallie Mae company
serving higher education; formerly Principal
(1995-1997) of Scott McDonald & Associates;
Chief Operating Officer (1991-1995) of
Fairleigh Dickinson University and Executive
Vice President and Chief Operating Officer
(1975-1991) of Drew University; Interim
President (1988-1990), Drew University; and a
founding director of School, College and
University Underwriters Ltd.
Thomas T. Mooney (58) Director President of the Greater Rochester Metro Chamber
of Commerce; former Rochester City Manager;
former Deputy Monroe County Executive; Trustee
of Center for Governmental Research, Inc.;
Director of Blue Cross of Rochester, Monroe
County Water Authority and Executive Service
Corps of Rochester.
Stephen P. Munn (58) 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).
*David R. Odenath, Jr. President and Officer in Charge, President, Chief Executive
(43) Director Officer and Chief Operating Officer (since June
1999), PIFM; Senior Vice President (since June
1999), Prudential; formerly Senior Vice
President (August 1993-May 1999), PaineWebber
Group, Inc.
</TABLE>
B-24
<PAGE>
<TABLE>
<CAPTION>
Name and Address ** Position with
(Age) Company Principal Occupations During Past 5 Years
------------------- ------------- -----------------------------------------
<S> <C> <C>
Richard A. Redeker (57) Director Formerly President, Chief Executive Officer and
Director (October 1993-September 1996),
Prudential Mutual Fund Management, Inc.,
Executive Vice President, Director and Member
of the Operating Committee (October 1993-
September 1996), Prudential Securities,
Director (October 1993-September 1996) of
Prudential Securities Group, Inc., Executive
Vice President (January 1994-September 1996),
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.
*Judy A. Rice (52) Director Executive Vice President (since 1999) of
Prudential Investments; Executive Vice
President (since 1999) of PIFM; formerly
various positions to Senior Vice President
(1992-1999) of Prudential Securities; various
positions to Managing Director (1975-1992) of
Shearson Lehman Advisors; Governor of the Money
Management Institute and member of the
Prudential Securities Operating Council and the
National Association for Variable Annuities.
Robin B. Smith (60) Director Chairman and Chief Executive Officer (since
August 1996), 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.
Louis A. Weil, III (59) Director Formerly Chairman (January 1999-July 2000),
President and Chief Executive Officer (January
1996-July 2000) and Director (September 1991-
July 2000) of Central Newspapers, Inc.;
Chairman of the Board (January 1996-July 2000),
Publisher and Chief Executive Officer (August
1991-December 1995) of Phoenix Newspapers,
Inc.; Publisher (May 1989-March 1991), of Time
Magazine; President, Publisher & Chief
Executive Officer of The Detroit News (February
1986-August 1989) and member of the Advisory
Board, Chase Manhattan Bank-Westchester.
Clay T. Whitehead (62) Director President of National Exchange Inc. (new
business development firm) (since May 1983).
Grace C. Torres (41) Treasurer and First Vice President (since December 1996) of
Principal PIFM; First Vice President (since March 1993)
Financial and of Prudential Securities; formerly First Vice
Accounting President (March 1994-September 1996) of
Officer Prudential Mutual Fund Management, Inc.
Marguerite E.H. Morrison Secretary Department Vice President and Chief Legal
(44) Officer (since August 2000) of the Mutual Funds
Law Division of Prudential; formerly Vice
President and Associate General Counsel
(December 1996-July 2000) of PIFM; Vice
President and Associate General Counsel of
Prudential Securities and Vice President and
Associate General Counsel (June 1991-September
1996) of Prudential Mutual Fund Management,
Inc.
</TABLE>
B-25
<PAGE>
<TABLE>
<S> <C> <C>
William V. Healey (47) Assistant Secretary Vice President and Associate General Counsel
(since August 1998) of Prudential and Chief
Legal Officer of Prudential Investments, a
business unit of Prudential; Director, ICI
Mutual Insurance Company (since June 1999);
formerly Associate General Counsel of The
Dreyfus Corporation (Dreyfus), a subsidiary of
Mellon Bank, N.A. (Mellon Bank), and an officer
and/or director of various affiliates of Mellon
Bank and Dreyfus.
Jonathan D. Shain (42) Assistant Secretary Assistant General Counsel (since July 1998) of
Prudential; formerly, Attorney with Fleet Bank,
N.A. (January 1997-July 1998) and Associate
Counsel (August 1994-January 1997) of New York
Life Insurance Company.
</TABLE>
----------
* "Interested" Director as defined in the Investment Company Act, by reason of
an affiliation with Prudential, PIMS 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 amount of annual compensation paid to each Director who is not
affiliated with the Manager may change as a result of the introduction of
additional funds on the Boards of which the Director will be asked to serve.
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 or, pursuant to a
Commission exemptive order, at the daily rate of return of any Prudential
mutual fund. 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.
B-26
<PAGE>
The following table sets forth aggregate compensation paid by the Company to
the Directors for the fiscal year ended September 30, 2000 and the aggregate
compensation paid to such Directors for service on the Company's board and the
boards of other investment companies managed by PIFM (Fund Complex) for the
calendar year ended December 31, 1999.
Compensation Table
<TABLE>
<CAPTION>
Aggregate Total 1999 Compensation
Compensation Paid to Board Members
Name and Position From Company From Company and Fund Complex(/2/)
----------------- ------------ ----------------------------------
<S> <C> <C>
Beach, Edward D.(/4/)--Former
Director $ 3,225 $142,500(43/70)*
Fenster, Saul K.(/3/)--Direc-
tor $ 1,117 $ 35,000 (5/21)*
Gold, Delayne D.--Director $12,575 $144,500(43/70)*
Gunia, Robert F.(/1/)--Direc-
tor -- --
McCorkindale, Douglas
H.(/2/)--Director $12,575 $ 80,000(24/49)*
McDonald, Jr., W. Scott(/3/)--
Director $ 1,117 $ 35,000 (5/21)*
Mooney, Thomas T.(/2/)--Direc-
tor $12,575 $129,500(35/75)*
Munn, Stephen P.--Director $13,575 $ 62,250(19/53)*
Odenath, Jr., David R.(/1/)--
Director -- --
Redeker, Richard A.--Director $12,575 $ 95,000(29/53)*
Rice, Judy A.--Director -- --
Smith, Robin B.(/2/)--Director $12,575 $ 96,000(32/44)*
Weil, III, Louis A.--Director $12,575 $ 96,000(29/53)*
Whitehead, Clay T.--Director $14,500 $ 77,000(38/66)*
</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, 1999, including amounts deferred at the election
of Directors under the funds' deferred compensation plans. Including
accrued interest, total deferred compensation amounted to approximately
$97,915, $135,101 and $156,477 for Messrs. McCorkindale and Mooney and
Ms. Smith, respectively.
(3) Messrs. Fenster and McDonald joined the Board in August 2000.
(4) Mr. Beach retired on December 31, 1999.
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 10, 2000, the Directors and officers of the Company, as a
group, owned less than 1% of the outstanding shares of each Fund.
As of November 10, 2000, the following shareholders owned 5% of the
outstanding shares of any class of the Active Balanced Fund: Prudential Trust
Company, FBO EKNOWLEDGE CONCEPTS, 5115 Park Center Avenue, Dublin, OH 43017,
held 185,087 Class C shares (16% of the outstanding Class C shares); Pru
Defined Contributions, Svcs FBO PRU-DC, Qualified Clients, Attn: John Surdy,
30 Scranton Office Park, Moosic, PA 18507, held 3,610,376 Class Z shares (32%
of the outstanding Class Z shares) and Prudential Trust Company, FBO PRU-DC
Clients, Attn: John Surdy, 30 Scranton Office Park, Moosic, PA 18507, held
6,946,116 Class Z shares (62% of the outstanding Class Z shares).
B-27
<PAGE>
As of November 10, 2000, Prudential Securities was the record holder for
other beneficial owners of 276,937 Class A shares (or 0.67% of the outstanding
Class A shares), 476,070 Class B shares (or 1.9% of the outstanding Class B
shares), 146,681 Class C shares (or 13% of the outstanding Class C shares),
and 19,459 Class Z shares (or 0.17% 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.
As of November 10, 2000, the following shareholders owned 5% of the
outstanding shares of any class of the Growth Fund: Prudential Trust Company,
FBO PRU-DC Trust Accounts, Attn: John Surdy, 30 Scranton Office Park, Moosic,
PA 18507, held 4,135,668 Class A shares (5.71% of the outstanding Class A
shares); Prudential Trust Company, FBO Prudential Employee Saving Plan, Attn:
Leann Vannuzzi, 30 Ed Preate Dr. Scranton, PA 18507, held 51,773,237 Class Z
shares (43% of the outstanding Class Z shares); Prudential Trust Company, FBO
PRU-DC Trust Accounts, Attn: John Surdy, 30 Scranton Office Park, Moosic, PA
18507, held 39,405,237 Class Z shares (33% of the outstanding Class Z shares)
and Boston Safe Deposit & Trust, As Trustee K-Mart PRT S, Core Account, 1
Cabot Road, Medford, MA 02155, held 12,475,680 Class Z shares (10.4% of the
outstanding Class Z shares).
As of November 10, 2000, Prudential Securities was the record holder for
other beneficial owners of 35,976,300 Class A shares (or 50% of the
outstanding Class A shares), 59,412,349 Class B shares (or 62% of the
outstanding Class B shares), 10,102,992 Class C shares (or 79% of the
outstanding Class C shares), and 4,023,164 Class Z shares (or 0.03% 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 10, 2000, the following shareholders owned 5% of the
outstanding shares of any class of the Equity Opportunity Fund: Pru Trust
Company, FBO PRU-DC-TRUST ACCOUNTS, New Business Account, Attn: John Surdy, 30
Scranton Office Park, Moosic, PA 18507, held 654,766 Class A shares (14% of
the outstanding Class A shares); Pru Defined Contributions Svcs, FBO PRU-DC-
NON-TRUST ACCOUNTS, Attn: John Surdy, 30 Scranton Office Park, Moosic, PA
18507, held 304,469 Class Z shares (21% of the outstanding Class Z shares) and
Prudential Trust Company, FBO PRU-DC Trust Accounts, Attn: John Surdy, 30
Scranton Office Park, Moosic, PA 18507, held 314,901 Class Z shares (21% of
the outstanding Class Z shares).
As of November 10, 2000, Prudential Securities was the record holder for
other beneficial owners of 2,305,337 Class A shares (or 49% of the outstanding
Class A shares), 4,811,379 Class B shares (or 64% of the outstanding Class B
shares), 804,056 Class C shares (or 84% of the outstanding Class C shares),
and 697,749 Class Z shares (or 48% of the outstanding Class Z shares) of
Equity Opportunity 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.
See "How the Fund is Managed--Manager" in each Prospectus. As of October 31,
2000, PIFM managed and/or administered open-end and closed-end management
investment companies with assets of approximately $74.7 billion. According to
the Investment Company Institute, as of June 30, 2000, the Prudential mutual
funds were the 22nd largest family of mutual funds in the United States.
PIFM is a wholly-owned subsidiary of PIFM HoldCo, Inc., which is a wholly-
owned subsidiary of Prudential Asset Management Holding Company, which is a
wholly-owned subsidiary of Prudential. Prudential Mutual Fund Services LLC
(PMFS or the Transfer Agent), an affiliate of PIFM, serves as the transfer
agent and dividend distribution 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
B-28
<PAGE>
has hired The Prudential Investment Corporation, doing business as Prudential
Investments (PI), to provide subadvisory services to the Active Balanced Fund
and Jennison Associates LLC (Jennison) to provide subadvisory services to the
Growth Fund and Equity Opportunity Fund. 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 received, pursuant to the Management Agreements,
until January 1, 2000, a fee at an annual rate of .60 of 1% of each of Growth
Fund's and Equity Opportunity 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. Effective January 1,
2000, PIFM receives a management fee from the Growth Fund at an annual rate of
.60% of the Fund's average net assets up to $300 million, .575% of the Fund's
average net assets from $300 million to $5 billion and .55% of the Fund's
average net assets over $5 billion. Also effective January 1, 2000, PIFM
receives a management fee from the Equity Opportunity Fund at an annual rate
of .60% of the Fund's average net assets up to $300 million and .575% of the
Fund's average net assets over $300 million. Effective November 10, 2000, PIFM
receives a management fee from Active Balanced Fund at an annual rate of .65%
of the Fund's average net assets up to $1 billion and .60% of the Fund's
average net assets over $1 billion. 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.
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 Equity Opportunity Fund, the fees
payable to Jennison pursuant to a Subadvisory Agreement between PIFM and
Jennison and, with respect to Active Balanced Fund, the fees 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 with PIFM or the
Funds' subadvisers, (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.
B-29
<PAGE>
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 (as defined in the Investment Company Act), 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 Equity Opportunity 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 at an annual rate of .30 of 1% of Growth Fund's and Equity
Opportunity 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 was
reimbursed by PIFM for the reasonable costs and expenses incurred by PI in
furnishing investment advisory services to Active Balanced Fund. Effective
January 1, 2000, PI is reimbursed by PIFM at an annual rate of .325 of 1% of
Active Balanced Fund's average daily net assets (representing approximately
half of the compensation received from the Fund by PIFM).
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 Equity Opportunity Fund management fees of
$826,308, of which $413,154 was paid to Jennison. 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 $22,079,891, of which
$9,349,954 was paid to Jennison, PIFM received from the Equity Opportunity
Fund management fees of $849,053, of which $424,526 was paid to Jennison and
PIFM received from the Active Balanced Fund management fees of $940,298. For
the fiscal year ended September 30, 2000, PIFM received management fees from
the Growth Fund, Equity Opportunity Fund and Active Balanced Fund in the
amounts of $38,074,482, $950,935 and $1,078,167, respectively, of which
$16,711,410 and $646,193 was paid to Jennison with respect to Growth Fund and
Equity Opportunity Fund, respectively.
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, 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.
PI's Fixed Income Group manages more than $116 billion for Prudential's
retail investors, institutional investors and policyholders. Senior Managing
Directors James J. Sullivan and Jack W. Gaston head the Group, which is
organized into teams specializing in different market sectors. Top-down, broad
investment decisions are made by the Fixed Income Policy Committee, whereas
bottom-up security selection is made by the sector teams.
Mr. Sullivan has overall responsibility for overseeing portfolio management
and credit research. Prior to joining PI in 1998, he was a managing director
in Prudential's Capital Management Group, where he oversaw portfolio
management and credit research for Prudential's General Account and subsidiary
fixed-income portfolios. He has more than 16 years of experience in risk
management, arbitrage trading and corporate bond investing.
B-30
<PAGE>
Mr. Gaston has overall responsibility for overseeing quantitative research
and risk management. Prior to this appointment in 1999, he was a senior
managing director of the Capital Management Group where he was responsible for
the investment performance and risk management for Prudential's General
Account and subsidiary fixed-income portfolios. He has more than 20 years of
experience in investment management, including extensive experience applying
quantitative techniques to portfolio management.
The Fixed Income Investment Policy Committee is comprised of key senior
investment managers. Members include seven sector team leaders, the chief
investment strategist and the head of risk management. The Committee uses a
top-down approach to investment strategy, asset allocation and general risk
management, identifying sectors in which to invest.
The Fixed Income Liquidity Team, headed by Michael Lillard, is primarily
responsible for overseeing the day-to-day management of the fixed-income
portion of the Active Balanced Fund. This Team uses a bottom-up approach,
which focuses on individual securities, while staying within the guidelines of
the Fixed Income Investment Policy Committee and the Active Balanced Fund's
Investment restrictions and policies. In addition, a credit research team of
analysis supports the Team using bottom-up fundamentals, as well as economic
and industry trends. Other sector teams may contribute to securities selection
when appropriate, as noted below:
Corporate
Assets Under Management: $47.3 billion as of December 31, 1999.
Team Leader: Steven Kellner. General Investment Experience: 13 years.
Portfolio Managers: 8. Average General Investment Experience: 13 years, which
includes team members with mutual fund experience.
Sector: U.S. investment-grade corporate securities.
Investment Strategy: Focus is on identifying spread, credit quality and
liquidity tends to capitalize on changing opportunities in the market.
Ultimately, they seek the highest expected return with the least risk.
High Yield
Assets Under Management: $9.4 billion as of December 31, 1999.
Team Leader: Casey Walsh. General Investment Experience: 17 years.
Portfolio Managers: 7. Average General Investment Experience: 17 years, which
includes team members with significant mutual fund experience.
Sector: Below-investment-grade corporate securities.
Investment Strategy: Focus is generally on bonds with high total return
potential, given existing risk parameters. They also seek securities with high
current income, as appropriate. The Team uses a relative value approach.
Emerging Markets
Assets Under Management: $1.9 billion as of December 31, 1999.
Team Leader: David Bessey. General Investment Experience: 10 years.
Portfolio Managers: 3. Average General Investment Experience: 9 years, which
includes team members with mutual fund experience.
Sector: Government and corporate securities issued by developing markets and
countries.
Investment Strategy: Focus is on a fundamental investment approach that uses a
strong technical and value overlay to make country selections.
Money Markets
Assets Under Management: $36 billion as of December 31, 1999.
Team Leader: Joseph Tully. General Investment Experience: 16 years.
B-31
<PAGE>
Portfolio Managers: 9. Average General Investment Experience: 10 years, which
includes team members with significant mutual fund experience.
Sector: High-quality short-term securities, including both taxable and tax-
exempt instruments.
Investment Strategy: Focus is on safety of principal, liquidity and controlled
risk.
Principal Underwriter, Distributor and Rule 12b-1 Plans
Prudential Investment Management Services LLC (PIMS or the Distributor),
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, acts
as the distributor of the shares of the Company. See "How the Fund is
Managed--Distributor" in each Prospectus.
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 and
Class I shares of the Growth Fund 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.
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, 2001 and contractually limited its distribution-related fees for
the fiscal year ended September 30, 2000 to .25 of 1% of the average daily net
assets of each Fund's Class A shares.
For the fiscal year ended September 30, 2000, the Growth Fund paid total
distribution fees of $3,724,474 to PIMS under the Class A Plan. For the fiscal
year ended September 30, 2000, the Equity Opportunity Fund paid total
distribution fees of $109,351 to PIMS under the Class A Plan. For the fiscal
year ended September 30, 2000, the Active Balanced Fund paid total
distribution fees of $33,119 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 $2,999,400 and
$91,300, respectively, in initial sales charges with respect to the sale of
Class A shares of the Growth Fund and Equity Opportunity Fund, respectively,
and PIMS received approximately $44,300 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
B-32
<PAGE>
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.
Class B Plan. For the fiscal year ended September 30, 2000, PIMS received
$21,586,408, $963,250 and $137,941 on behalf of the Growth Fund, Equity
Opportunity Fund and Active Balanced Fund, respectively, under the Class B
Plan. For the fiscal year ended September 30, 2000, PIMS spent approximately
the following amounts on behalf of each such Fund.
<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 $30,191 $8,160,792 $9,431,826 $5,733,171 $23,355,980
Equity Opportunity $10,623 $ 296,122 $ 233,673 $ 147,330 $ 687,748
Active Balanced $ 8,167 $ 49,122 $ 139,669 $ 188,856 $ 385,814
"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.
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, 2000, PIMS received approximately $3,052,100,
$233,300 and $34,000 in contingent deferred sales charges attributable to
Class B shares of the Growth Fund, Equity Opportunity Fund and Active Balanced
Fund, respectively.
Class C Plan. For the fiscal year ended September 30, 2000, PIMS received
$2,429,395, $99,773 and $17,413 on behalf of the Growth Fund, Equity
Opportunity Fund and Active Balanced Fund, respectively, under the Class C
Plan. For the fiscal year ended September 30, 2000, PIMS spent approximately
the following amounts on behalf of each such Fund.
<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 $ 3,146 $1,978,944 $ 668,731 $ 60,523 $ 2,711,344
Equity Opportunity $ 1,020 $ 93,376 $ 22,069 $ 838 $ 117,303
Active Balanced $ 938 $ 10,118 $ 9,463 $ 1,577 $ 22,096
</TABLE>
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,
2000, PIMS received approximately $134,700, $4,400 and $2,500 in contingent
deferred sales charges attributable to Class C shares of the Growth Fund,
Equity Opportunity Fund and Active Balanced Fund, respectively. For the fiscal
year ended September 30, 2000, the Distributor also received approximately
$1,155,800, $36,900 and $11,100 in initial sales charges in connection with
the sale of Class C shares of the Growth Fund, Equity Opportunity 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.
B-33
<PAGE>
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.
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 the Funds (including Class Z and Class I 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.
Other Service Providers
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), 194 Wood Avenue South, Iselin,
New Jersey 08830, 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.
B-34
<PAGE>
PricewaterhouseCoopers LLP, 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.
Codes of Ethics
The Board of Directors of the Company has adopted a Code of Ethics. In
addition, the Manager, each Subadviser and the Distributor have each adopted a
Code of Ethics (the Codes). The Codes permit personnel subject to the Codes to
invest in securities, including securities that may be purchased or held by a
Fund. However, the protective provisions of the Codes prohibit certain
investments and limit such personnel from making investments during periods
when a Fund is making such investments. The Codes are on public file with, and
are available from, the Commission.
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 each 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 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 best 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.
B-35
<PAGE>
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.
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, 2000:
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
September 30, 2000 September 30, 1999 September 30, 1998
-------------------------------- -------------------------------- --------------------------------
Active Equity Active Equity Active Equity
Balanced Growth Opportunity Balanced Growth Opportunity Balanced Growth Opportunity
-------- ---------- ----------- -------- ---------- ----------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total brokerage
commissions paid by
the Funds............. $81,680 $6,407,714 $925,771 $77,497 $3,797,681 $596,107 $225,669 $1,776,771 $396,571
Total brokerage
commissions paid to
Prudential Securities.. -- $541,200 $26,500 -- $391,685 $43,115 -- $16,922 $205
Percentage of total
brokerage commissions
paid to Prudential
Securities............ -- 8.45% 2.86% -- 10.31% 7.23% -- 0.96% .05%
</TABLE>
Of the total brokerage commissions paid during the fiscal year ended
September 30, 2000, $0, $1,338,877 and $221,311.25 (or 0%, 20.9% and 22.77%)
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 Equity Opportunity 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.
B-36
<PAGE>
Each Fund is required to disclose its holdings of securities of its regular
brokers and dealers (as defined under Rule 10b-1 of the Investment Company
Act) and their parents at September 30, 2000. As of September 30, 2000, each
Fund held the following debt securities in the amounts indicated:
<TABLE>
<CAPTION>
Equity Opportunity
------------------
<S> <C>
American Express Corp. $ 7,750,000
<CAPTION>
Growth
------
<S> <C>
American Express Corp. $145,000,000
Ford Motor Credit $ 77,885,000
IBM Credit $100,000,000
<CAPTION>
Active Balanced
---------------
<S> <C>
Bear Stearns & Co., Inc. $300,162,750
Credit Suisse First Boston Corp. $200,109,000
Goldman Sachs Group & Co. $ 702,870
Lehman Brothers Inc. $ 234,732
Merrill Lynch, Pierce, Fenner & Smith Inc. $ 497,101
Salomon Smith Barney Inc. $ 98,042,670
UBS Warburg $300,163,000
</TABLE>
CAPITAL SHARES, OTHER SECURITIES AND ORGANIZATION
The Company is authorized to issue 3.25 billion shares of common stock,
$.001 par value per share divided into three series (the Funds). Active
Balanced Fund and Equity Opportunity Fund may each issue 1 billion shares.
Growth Fund may issue 1.25 billion shares. Active Balanced Fund and Equity
Opportunity Fund are each divided into four classes, designated Class A, Class
B, Class C and Class Z, consisting of 250 million authorized shares per class.
Growth Fund is divided into five classes, designated Class A, Class B, Class
C, Class Z and Class I, 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 and Class I shares of Growth Fund, 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 and Class I shares of Growth Fund 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 as described in the Prospectuses, 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 and Class I shares of Growth Fund, 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 and Class I shareholders of Growth
Fund, 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
B-37
<PAGE>
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
fundamental investment policies related thereto.
The Directors have the power to alter the number of Directors, 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.
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 and Class I shares of Growth Fund are offered to a
limited group of investors at NAV without any sales charges.
Each class of shares represents an interest in the same assets of the Fund
and is identical in all respects except that (i) each class is subject to
different sales charges and distribution and/or service fees (except for Class
Z shares and Class I shares of Growth Fund, which are not subject to any sales
charge or distribution and/or service fee), which may affect performance; (ii)
each class has exclusive voting rights on any matter submitted to shareholders
that relates solely to its arrangement and has separate voting rights on any
matter submitted to shareholders in which the interests of one class differ
from the interests of any other class; (iii) each class has a different
exchange privilege; (iv) only Class B shares have a conversion feature and (v)
Class Z shares and Class I shares of Growth Fund are offered exclusively for
sale to a limited group of investors.
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, fund and class elections, 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: The Prudential Investment
Portfolios, Inc., specifying on the wire the account number assigned by PMFS
and your name and identifying the Fund and the class in which you are
investing (Class A, Class B, Class C, Class Z or Class I 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 a Fund 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 Equity
Opportunity Fund, Class A, Class B, Class C, Class Z or Class I 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.
B-38
<PAGE>
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.
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 and
Class I shares are sold at NAV. Using the NAV at September 30, 2000, the
maximum offering price of the Funds' shares is as follows:
<TABLE>
<CAPTION>
Active Equity
Balanced Opportunity
Fund Growth Fund Fund
-------- ----------- -----------
<S> <C> <C> <C>
Class A
Net asset value and redemption price per Class
A share...................................... $13.76 $24.20 $14.82
Maximum sales charge (5% of offering price)... .72 1.27 .78
------ ------ ------
Maximum offering price to public.............. $14.48 $25.47 $15.60
====== ====== ======
Class B
Net asset value, offering price and redemption
price per Class B share*..................... $13.68 $23.23 $14.61
====== ====== ======
Class C
Net asset value and redemption price per Class
C share*..................................... $13.68 $23.23 $14.61
Sales charge (1% of offering price)........... .14 .23 .15
------ ------ ------
Offering price to public...................... $13.82 $23.46 $14.76
====== ====== ======
Class Z
Net asset value, offering price and redemption
price per Class Z share...................... $13.79 $24.50 $14.92
====== ====== ======
Class I
Net asset value, offering price and redemption
price per Class I share**.................... N/A $ -- N/A
====== ====== ======
</TABLE>
--------
* Class B and Class C shares are subject to a contingent deferred sales
charge on certain redemptions.
** Class I shares of Growth Fund were not available on September 30, 2000.
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.
B-39
<PAGE>
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.
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.
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, without
the initial sales charge, 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,
. Members of the Board of Directors of Prudential,
. Real estate brokers, agents and employees of real estate brokerage
companies affiliated with The Prudential Real Estate Affiliates who
maintain an account at Prudential Securities, Prusec or with the
Transfer Agent,
. 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-40
<PAGE>
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.
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 no longer qualify to purchase Class A
shares at NAV by entering into a Letter of Intent.
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
investor. 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 investor's cost, can be applied to the fulfillment of
the Letter of Intent goal.
B-41
<PAGE>
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 satisfied within the thirteen-month period, the investor 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. If the goal is exceeded in an amount which qualifies for a lower
sales charge, a price adjustment is made by refunding to the investor the
amount of excess sales charge, if any, paid during the thirteen-month period.
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. Letters of Intent
are not available to individual participants in any retirement or group plans.
Class B Shares
The offering price of Class B shares is the NAV next determined following
receipt of an order in proper form by the Transfer Agent, your broker or the
Distributor. 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.
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.
B-42
<PAGE>
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 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 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.
Class I Shares
Certain group retirement plans and other institutional investors may
purchase Class I shares of the Growth Fund if they meet the required minimum
for amount of assets and other requirements. For more information about these
requirements, call Prudential at (800) 353-2847.
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. Rights of accumulation may be applied across the classes
of shares of the Prudential mutual funds. The value of shares held directly
with the Transfer Agent and through your broker will not be 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.
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
B-43
<PAGE>
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 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 8149, Philadelphia, Pennsylvania 19101, 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
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 the same 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
B-44
<PAGE>
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.
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.
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<PAGE>
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, 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.
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 (a copy of the
result in death or to be of long-con- trust agreement identifying the
tinued and indefinite duration. grantor will be required as well)) is
permanently disabled. The letter must
also 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.
B-46
<PAGE>
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 sales
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 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, Class Z
and Class I 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-47
<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 at net asset value per
share. 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 dividends or distributions in cash may subsequently
reinvest any such dividend or distribution at NAV by returning the check or
the proceeds to the Transfer Agent within 30 days after the payment date. Such
reinvestment will be made at the NAV per share next determined after receipt
of the check by the Transfer Agent. Shares purchased with reinvested dividends
and/or distributions will not be subject to any CDSC upon redemption.
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 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 8157, Philadelphia, PA
19101.
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-48
<PAGE>
Class A. Shareholders of a Fund may exchange their Class A shares for shares
of certain other Prudential mutual funds 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
(New Jersey Money Market Series)
(New York 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 first day of the
month after 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.
Class Z. Class Z shares may be exchanged for Class Z shares of other
Prudential mutual funds.
Class I. Class I shares of the Growth Fund may not be exchanged for shares
of any 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
B-49
<PAGE>
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 are 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/)
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.
B-50
<PAGE>
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, quarterly, semi-annual or annual
redemption 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 systematic 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 systematic 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 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 tax-deferred 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.
B-51
<PAGE>
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.
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 indexes) 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) 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 more than one principal market maker that use information with respect to
transactions in bonds, quotations from bond dealers, agency ratings, market
transactions in
B-52
<PAGE>
comparable securities and various relationships between securities in
determining value. U.S. government securities for which market quotations are
available shall be valued at a price provided by an independent pricing agent
or primary dealer. 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 more than one principal market maker. Options on
stock and stock indexes traded on an exchange, futures contracts and options
on futures contracts are valued at their last sales prices as of the close of
trading on the applicable exchange or board of trade or, if there was no sale
on the applicable 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 or at the last bid price in the absence of an asked price. 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 more than one
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 or Class I shares
because Class Z and Class I shares are not subject to any distribution 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 is qualified as, intends to remain qualified as and has elected to
be treated 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 under the Internal
Revenue Code 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);
B-53
<PAGE>
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.
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.
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 which may, among other
things, require a Fund to defer recognition of losses. In addition, debt
securities acquired by a Fund may be subject to original issue discount and
market discount rules which, respectively, may cause a Fund to accrue income
in advance of the receipt of cash with respect to interest or cause gains to
be treated as ordinary income.
Certain futures contracts and certain listed options (referred to as Section
1256 contracts) held by a Fund will be required to be "marked to market" for
federal income tax purposes; that is, treated as having been sold at their
fair market value on the last day of a Fund's taxable year. Except with
respect to certain foreign currency forward 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 indexes 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 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 or
losses, 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, thereby 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.
B-54
<PAGE>
Any dividends or distributions paid shortly after a purchase by an investor
may have the effect of reducing the per share NAV 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. In addition, dividends and capital gains
distributions may all be subject to state and local 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 distributions 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. 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.
Dividends received by corporate shareholders are generally 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 their 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.
Shareholders are advised to consult their own tax advisers with respect to
the federal, state, and local tax consequences resulting from their investment
in a Fund.
B-55
<PAGE>
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, Class Z and Class I 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).
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, 2000.
<TABLE>
<CAPTION>
Fund Class 1 Yr. 5 Yr. Since Inception
---- ------- ------ ----- ----------------
<S> <C> <C> <C> <C> <C>
Growth Class A 20.67% N/A 22.84% (11/2/95)
Class B 21.04% N/A 23.11% (11/2/95)
Class C 23.78% N/A 22.95% (11/2/95)
Class Z 27.39% N/A 26.30% (4/15/96)
Equity Opportunity Class A 22.76% N/A 16.58% (11/7/96)
Class B 23.31% N/A 16.93% (11/7/96)
Class C 26.02% N/A 16.95% (11/7/96)
Class Z 29.64% N/A 18.46% (11/7/96)
Active Balanced Class A 5.98% N/A 10.45% (11/7/96)
Class B 5.73% N/A 10.73% (11/7/96)
Class C 8.67% N/A 10.82% (11/7/96)
Class Z 11.87% 11.96% 11.44% (01/4/93)
</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, 2000
would have been 27.39%, 24.57% and 22.25%, respectively. In addition, the
aggregate total returns for such periods would have been 27.39%, 200.01% and
389.02%, 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, Class Z and Class I shares.
B-56
<PAGE>
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).
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, 2000.
<TABLE>
<CAPTION>
Fund Class 1 Yr. 5 Yr. Since Inception
---- ------- ------ ----- -----------------
<S> <C> <C> <C> <C> <C>
Growth Class A 27.02% N/A 189.15% (11/2/95)
Class B 26.04% N/A 178.69% (11/2/95)
Class C 26.04% N/A 173.69% (11/2/95)
Class Z 27.39% N/A 183.34% (4/15/96)
Equity Opportunity Class A 29.23% N/A 91.34% (11/7/96)
Class B 28.31% N/A 85.91% (11/7/96)
Class C 28.31% N/A 85.91% (11/7/96)
Class Z 29.64% N/A 93.49% (11/7/96)
Active Balanced Class A 11.56% N/A 55.16% (11/7/96)
Class B 10.78% N/A 50.75% (11/7/96)
Class C 10.78% N/A 50.75% (11/7/96)
Class Z 11.87% 75.94% 131.20% (01/4/93)
</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.
Advertising. Advertising materials for a Fund may include biographical
information relating to its portfolio manager(s), and may include or refer to
commentary by the Fund's manager(s) concerning investment style, investment
discipline, asset growth, current or past business experience, business
capabilities, political, economic or financial conditions and other matters of
general interest to investors. Advertising materials for a Fund also may
include mention of The Prudential Insurance Company of America, its affiliates
and subsidiaries, and reference the assets, products and services of those
entities.
From time to time, advertising materials for a Fund may include information
concerning retirement and investing for retirement, may refer to the
approximate number of Fund shareholders and may refer to Lipper rankings or
Morningstar ratings, other related analysis supporting those ratings, other
industry publications, business periodicals and market indexes. In addition,
advertising materials may reference studies or analyses performed by the
Manager or its affiliates. Advertising materials for sector funds, funds that
focus on market capitalizations, index funds and international/global funds
may discuss the potential benefits and risks of that investment style.
Advertising materials for fixed-income funds may discuss the benefits and
risks of investing in the bond market including discussions of credit quality,
duration and maturity.
B-57
<PAGE>
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/)
[GRAPH]
Performance Comparisons of Different Types of Investments
Over The Long Term (12/31/1925-12/31/1999)
11.4% Common Stocks
5.1% Long-Term Gov't Bonds
3.1% Inflation
------------
(/1/)Source: Ibbotson Associates. All rights reserved, Common stock returns
are based on the Standard & Poor's 500 Composite Stock Price 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-58
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Portfolio of Investments as of September 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS 75.5%
Common Stocks 50.2%
-------------------------------------------------------------------------------------
Aerospace/Defense 0.5%
900 B.F. Goodrich Co. $ 35,269
5,100 General Dynamics Corp. 320,344
7,200 Boeing Co. 453,600
2,800 Titan Corp. 46,200
--------------
855,413
-------------------------------------------------------------------------------------
Airlines 0.6%
15,700 AMR Corp. 513,194
5,750 Southwest Airlines Co. 139,437
9,500 UAL Corp.(a) 399,000
--------------
1,051,631
-------------------------------------------------------------------------------------
Aluminum 0.1%
7,900 Alcan Aluminum Ltd. 228,606
-------------------------------------------------------------------------------------
Audio/Visual
1,200 Polycom, Inc.(a) 80,362
-------------------------------------------------------------------------------------
Automobiles & Trucks 0.5%
11,669 Ford Motor Co. 295,372
3,200 General Motors Corp. 208,000
29,600 Visteon Corp. 447,700
--------------
951,072
-------------------------------------------------------------------------------------
Banking 1.0%
6,600 Bank of New York Co., Inc. 370,012
9,650 Chase Manhattan Corp. 445,709
4,600 Fifth Third Bancorp 247,825
12,000 Firstar Corp. 268,500
2,300 PNC Bank Corp. 149,500
2,400 Suntrust Banks, Inc. 119,550
5,500 U.S. Bancorp 125,125
1,300 Wachovia Corp. 73,694
--------------
1,799,915
----------
See Notes to Financial Statements B-59
</TABLE>
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Portfolio of Investments as of September 30, 2000 Cont'd.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C>
Beverages 0.8%
8,400 Anheuser-Busch Companies, Inc. $ 355,425
7,700 Coca-Cola Co. 424,462
15,200 PepsiCo, Inc. 699,200
--------------
1,479,087
-------------------------------------------------------------------------------------
Building & Construction 0.5%
10,400 Armstrong Holdings, Inc. 124,150
7,400 Centex Corp. 237,725
15,000 Pulte Corp. 495,000
--------------
856,875
-------------------------------------------------------------------------------------
Business Services 0.1%
1,300 Omnicom Group, Inc. 94,819
-------------------------------------------------------------------------------------
Chemicals 0.3%
11,200 Air Products & Chemicals, Inc. 403,200
3,300 Ashland Inc. 111,169
2,900 Dow Chemical Co. 72,319
5,600 Schulman (A.), Inc. 61,600
--------------
648,288
-------------------------------------------------------------------------------------
Commercial Services 0.2%
5,000 Paychex, Inc. 262,500
2,200 Quanta Services, Inc.(a) 60,500
--------------
323,000
-------------------------------------------------------------------------------------
Computer Services 0.7%
4,500 Automatic Data Processing, Inc. 300,937
3,400 Electronic Data Systems Corp. 141,100
3,100 First Data Corp. 121,094
2,100 Fiserv, Inc.(a) 125,738
5,600 MarchFirst, Inc.(a) 87,850
2,900 Network Appliance, Inc.(a) 369,387
4,600 Network Associates, Inc.(a) 104,075
--------------
1,250,181
</TABLE>
----------
B-60 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Portfolio of Investments as of September 30, 2000 Cont'd.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C>
Computer Software & Services 6.4%
1,400 Adobe Systems, Inc. $ 217,350
18,600 America Online, Inc.(a) 999,750
52,200 Cisco Systems, Inc.(a) 2,884,050
16,600 EMC Corp.(a) 1,645,475
5,900 Intuit, Inc.(a) 336,300
31,100 Microsoft Corp.(a) 1,875,719
1,000 NVIDIA Corp.(a) 81,875
22,100 Oracle Systems Corp.(a) 1,740,375
12,200 Sun Microsystems, Inc.(a) 1,424,350
1,400 Teradyne, Inc.(a) 49,000
3,700 VERITAS Software Corp.(a) 525,400
--------------
11,779,644
-------------------------------------------------------------------------------------
Computer Systems/Peripherals 1.6%
3,000 Apple Computer, Inc.(a) 77,250
6,600 Dell Computer Corp.(a) 203,362
9,700 Gateway, Inc.(a) 453,475
7,600 Hewlett-Packard Co. 737,200
13,300 International Business Machines Corp. 1,496,250
--------------
2,967,537
-------------------------------------------------------------------------------------
Cosmetics/Toiletries 0.4%
1,100 Avon Products, Inc. 44,963
7,900 Colgate-Palmolive Co. 372,880
5,300 Kimberly-Clark Corp. 295,806
--------------
713,649
-------------------------------------------------------------------------------------
Distribution/Wholesalers 0.1%
2,400 BJ's Wholesale Club, Inc.(a) 81,900
2,100 Tech Data Corp.(a) 89,775
--------------
171,675
-------------------------------------------------------------------------------------
Diversified Consumer Products 0.2%
900 Procter & Gamble Co. 60,300
5,717 Unilever NV 275,845
--------------
336,145
</TABLE>
----------
See Notes to Financial Statements B-61
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Portfolio of Investments as of September 30, 2000 Cont'd.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C>
Diversified Operations 2.7%
73,900 General Electric Co. $ 4,263,106
7,400 JDS Uniphase Corp.(a) 700,687
--------------
4,963,793
-------------------------------------------------------------------------------------
Diversified Manufacturing 0.6%
5,300 Cooper Industries, Inc. 186,825
7,437 Honeywell International Inc. 264,943
3,000 Illinois Tool Works Inc. 167,625
2,300 Minnesota Mining & Manufacturing Co. 209,587
18,800 National Service Industries, Inc. 367,775
--------------
1,196,755
-------------------------------------------------------------------------------------
Electrical Utilities 1.6%
1,860 American Electric Power Co., Inc. 72,773
3,500 Calpine Corp.(a) 365,312
2,700 Consolidated Edison, Inc. 92,137
600 Dominion Resources, Inc. 34,838
2,800 DTE Energy Co. 107,100
2,800 Duke Energy Corp. 240,100
4,400 Florida Progress Corp. 232,925
19,900 PG&E Corp. 481,331
15,900 PPL Corp. 663,825
2,100 Public Service Company of New Mexico 54,338
9,200 Reliant Energy, Inc. 427,800
4,800 Southern Co. 155,700
--------------
2,928,179
-------------------------------------------------------------------------------------
Electronic Components 4.3%
3,100 Advanced Micro Devices, Inc.(a) 73,238
11,600 Agilent Technologies, Inc.(a) 567,675
4,000 Altera Corp.(a) 191,000
2,900 Analog Devices, Inc.(a) 239,431
11,800 Applied Materials, Inc.(a) 699,887
4,000 Emerson Electric Co. 268,000
</TABLE>
----------
B-62 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Portfolio of Investments as of September 30, 2000 Cont'd.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C>
50,200 Intel Corp. $ 2,086,437
4,800 Jabil Circuit, Inc.(a) 272,400
9,300 KLA-Tencor Corp.(a) 383,044
900 Linear Technology Corp. 58,275
4,800 Maxim Integrated Products, Inc.(a) 386,100
4,400 Micron Technology, Inc. 202,400
9,300 Novellus Systems, Inc.(a) 433,031
4,200 Semtech Corp.(a) 181,125
10,200 Texas Instruments, Inc. 481,312
1,700 TriQuint Semiconductor, Inc.(a) 61,944
1,500 Microchip Technology, Inc.(a) 49,594
2,300 Molex, Inc. 125,206
2,090 Motorola, Inc. 59,043
5,800 Sanmina Corp.(a) 543,025
4,900 Sawtek, Inc.(a) 188,727
1,300 SCI Systems, Inc.(a) 53,300
3,100 Xilinx, Inc.(a) 265,438
--------------
7,869,632
-------------------------------------------------------------------------------------
Entertainment 0.4%
18,600 Walt Disney Co. 711,450
-------------------------------------------------------------------------------------
Financial Services 5.6%
12,000 American Express Co. 729,000
500 Apollo Group Ltd.(a) 19,937
9,800 Associates First Capital Corp. 372,400
2,760 BankAmerica Corp. 144,555
35,366 Citigroup, Inc. 1,911,974
8,200 Federal Home Loan Mortgage Corp. 443,313
9,700 Federal National Mortgage Assoc. 693,550
9,800 FleetBoston Financial Corp. 382,200
100 Franklin Resources, Inc. 4,443
3,100 Northern Trust Corp. 275,513
8,800 Golden West Financial Corp. 471,900
6,000 Household International Corp. 339,750
4,400 Lehman Brothers Holdings, Inc. 650,100
20,100 MBNA Corp. 773,850
5,000 Mellon Financial Corp. 231,875
</TABLE>
----------
See Notes to Financial Statements B-63
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Portfolio of Investments as of September 30, 2000 Cont'd.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C>
7,600 Merrill Lynch & Co., Inc. $ 501,600
4,600 Morgan (J.P.) & Co., Inc. 751,525
9,600 Morgan Stanley, Dean Witter & Co. 877,800
5,400 Providian Financial Corp. 685,800
500 Union Planters Corp. 16,531
2,300 Wells Fargo Co. 105,656
--------------
10,383,272
-------------------------------------------------------------------------------------
Food Distribution 0.1%
3,600 SYSCO Corp. 166,725
---
-------------------------------------------------------------------------------------
Foods 0.3%
1 Archer-Daniels-Midland Co. 6
500 Bestfoods 36,375
3,800 Campbell Soup Co. 98,325
7,100 ConAgra, Inc. 142,444
4,000 H.J. Heinz Co. 148,250
9,600 Sara Lee Corp. 195,000
--------------
620,400
-------------------------------------------------------------------------------------
Health Care Services 0.1%
2,000 UnitedHealth Corp. 197,500
-------------------------------------------------------------------------------------
Home Furnishings 0.2%
10,300 Springs Industries, Inc. 290,331
-------------------------------------------------------------------------------------
Human Resources 0.1%
2,700 Robert Half International, Inc.(a) 93,656
-------------------------------------------------------------------------------------
Insurance 1.6%
5,800 Allstate Corp. 201,550
1,000 American General Corp. 78,000
14,000 American International Group, Inc. 1,339,625
1,200 Chubb Corp. 94,950
11,500 Cincinnati Financial Corp. 408,250
700 Hartford Financial Services Group 51,056
7,200 Jefferson-Pilot Corp. 488,700
2,500 Marsh & McLennan Cos., Inc. 331,875
--------------
2,994,006
</TABLE>
----------
B-64 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Portfolio of Investments as of September 30, 2000 Cont'd.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C>
Internet Software & Services 0.4%
1,200 Avocent Corp.(a) $ 66,150
4,800 Yahoo!, Inc.(a) 436,800
1,800 Macromedia, Inc.(a) 145,462
--------------
648,412
-------------------------------------------------------------------------------------
Leisure & Tourism 0.1%
9,900 Carnival Corp. 243,788
-------------------------------------------------------------------------------------
Machinery & Equipment 0.4%
700 Caterpillar, Inc. 23,625
7,900 Deere & Co. 262,675
11,800 Tecumseh Products Co. 494,125
--------------
780,425
-------------------------------------------------------------------------------------
Media & Communications 0.9%
2,200 McGraw-Hill Companies, Inc. 139,837
5,300 Seagram Co., Ltd. 304,419
11,100 Time Warner, Inc. 868,575
5,400 Tribune Co. 235,575
4,000 Viacom, Inc.(a) 234,000
--------------
1,782,406
-------------------------------------------------------------------------------------
Medical Products & Services 4.1%
1,600 Allergan, Inc. 135,100
1,200 Bausch & Lomb, Inc. 46,725
2,300 Biomet, Inc. 80,500
18,900 Bristol Myers Squibb Co. 1,079,663
11,600 Eli Lilly & Co. 941,050
3,100 Forest Laboratories, Inc.(a) 355,531
12,800 Johnson & Johnson Co. 1,202,400
20,300 Merck & Co., Inc. 1,511,081
4,000 PE Corp.-PE Biosystems Group(a) 466,000
37,050 Pfizer, Inc. 1,664,934
1,000 Schering-Plough Corp. 46,500
1,900 Tyco International Ltd. 98,563
--------------
7,628,047
</TABLE>
----------
See Notes to Financial Statements B-65
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Portfolio of Investments as of September 30, 2000 Cont'd.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C>
Medical Technology 0.7%
2,200 Abbott Laboratories $ 104,638
10,900 Amgen, Inc.(a) 761,127
15,800 VISX, Inc.(a) 425,612
--------------
1,291,377
-------------------------------------------------------------------------------------
Metals-Nonferrous 0.1%
8,200 Alcoa, Inc. 207,563
-------------------------------------------------------------------------------------
Motorcycles 0.2%
7,400 Harley-Davidson, Inc. 354,275
-------------------------------------------------------------------------------------
Oil & Gas Equipment & Services 2.2%
5,700 Baker Hughes, Inc. 211,613
3,900 BJ Services Co. 238,387
2,700 El Paso Energy Corp. 166,388
24,532 Exxon Mobil Corp. 2,186,414
11,800 KeySpan Corp. 473,475
2,300 Nabors Industries, Inc.(a) 120,520
1,300 Schlumberger, Ltd. 107,006
1,400 Sempra Energy 29,138
3,400 Smith International, Inc.(a) 277,312
5,900 Williams Companies, Inc. 249,275
--------------
4,059,528
-------------------------------------------------------------------------------------
Oil & Gas Exploration/Production 2.1%
3,200 Anadarko Petroleum Corp. 212,672
4,400 Chevron Corp. 375,100
2,400 Coastal Corp. 177,900
2,800 Conoco, Inc. 75,425
3,400 Global Marine, Inc.(a) 104,975
9,800 Phillips Petroleum Co. 614,950
22,000 Royal Dutch Petroleum Co. 1,318,625
11,400 Texaco, Inc. 598,500
14,400 USX - Marathon Group 408,600
--------------
3,886,747
</TABLE>
----------
B-66 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Portfolio of Investments as of September 30, 2000 Cont'd.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C>
Paper & Forest Products 0.2%
1,770 International Paper Co. $ 50,777
19,600 Louisiana-Pacific Corp. 180,075
2,800 Weyerhaeuser Co. 113,050
--------------
343,902
-------------------------------------------------------------------------------------
Photography
1,400 Eastman Kodak Co. 57,225
-------------------------------------------------------------------------------------
Retail 2.6%
4,500 Abercrombie & Fitch Co.(a) 85,781
22,700 Bed Bath & Beyond, Inc.(a) 553,667
8,300 Best Buy Co., Inc.(a) 528,087
4,100 CDW Computer Centers, Inc.(a) 282,900
15,700 Consolidated Stores Corp.(a) 211,950
2,300 Federated Department Stores, Inc.(a) 60,088
7,300 Home Depot, Inc. 387,356
4,200 Kohl's Corp.(a) 242,288
300 Liz Claiborne, Inc. 11,550
6,600 Nike, Inc. 264,413
2,300 RadioShack Corp. 148,638
4,800 Safeway, Inc.(a) 224,100
10,800 Sears, Roebuck & Co. 350,136
2,700 Toys 'R' Us, Inc.(a) 43,875
22,900 Wal-Mart Stores, Inc. 1,102,062
9,100 Walgreen Co. 345,231
--------------
4,842,122
-------------------------------------------------------------------------------------
Steel & Metals 0.1%
4,700 Nucor Corp. 141,588
-------------------------------------------------------------------------------------
Telecommunication Equipment 1.4%
3,900 ADTRAN, Inc.(a) 165,933
12,500 Lucent Technologies, Inc. 382,031
24,600 Nortel Networks Corp. 1,465,237
1,500 Scientific- Atlanta, Inc. 95,438
11,300 Tellabs, Inc.(a) 539,575
--------------
2,648,214
</TABLE>
----------
See Notes to Financial Statements B-67
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Portfolio of Investments as of September 30, 2000 Cont'd.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C>
Telecommunication Services 2.7%
39,250 AT&T Corp. $ 1,152,969
18,700 BellSouth Corp. 752,675
2,600 CenturyTel., Inc. 70,850
6,400 Qwest Communications International, Inc.(a) 307,600
26,012 SBC Communications, Inc. 1,300,600
21,892 Verizon Communications 1,060,394
7,912 WorldCom, Inc.(a) 240,327
--------------
4,885,415
-------------------------------------------------------------------------------------
Tobacco 0.3%
17,500 Philip Morris Co., Inc. 515,156
-------------------------------------------------------------------------------------
Transportation/Trucking/Shipping 0.1%
3,200 FedEx Corp.(a) 141,888
2,900 Union Pacific Corp. 112,738
--------------
254,626
-------------------------------------------------------------------------------------
Waste Management
1,700 Waste Management, Inc. 29,644
--------------
Total common stocks (cost $79,106,298) 92,604,058
--------------
</TABLE>
CORPORATE BONDS 12.3%
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Aerospace/Defense 1.0%
Boeing Inc., Deb.,
A1 $ 700(d) 8.10%, 11/15/06 737,730
Northrop Grumman Corp., Deb.,
Baa3 700(d) 7.75%, 3/1/16 671,636
Raytheon Co., Note,
Baa2 500(d) 6.30%, 3/15/05 476,395
--------------
1,885,761
</TABLE>
----------
B-68 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Portfolio of Investments as of September 30, 2000 Cont'd.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
------------------------------------------------------------------------------------------
Agricultural Products 0.3%
<C> <C> <S> <C>
Monsanto Co., Note,
A1 $ 500(d) 5.75%, 12/1/05 $ 476,300
-------------------------------------------------------------------------------------
Airlines 0.1%
Delta Airlines, Inc., Note,
Baa3 230(d) 8.30%, 12/15/29 207,881
-------------------------------------------------------------------------------------
Asset Backed Securities 1.3%
Citibank Credit Card Master
Trust I, Class A,
Aaa 500(d) 5.875%, 3/10/11 465,000
Citibank Credit Card Master
Trust, Cl. A,
Aaa 1,500(d) 6.05%, 1/15/10 1,421,715
MBNA Master Credit Card
Trust, Ser. C, Cl. A,
Aaa 500(d) 6.45%, 2/15/08 494,530
--------------
2,381,245
-------------------------------------------------------------------------------------
Banking 1.9%
BankAmerica Corp., MTN,
Aa2 1,000(d) 7.125%, 5/12/05 1,001,330
Bank One Corp., Note,
Aa3 500(d) 6.875%, 8/1/06 488,585
Chase Manhattan Bank, Sub. Note,
A1 1,000(d) 7.00%, 6/1/05 994,480
First Union Corp.,
A2 350(d) 6.40%, 4/1/08 327,099
First Union National Bank, Note,
A1 240(d) 7.875%, 2/15/10 243,826
First Union-Lehman Brothers Bank
of America
Ser. 98-C2,
Aaa 400(d) 6.56%, 11/18/08 385,259
Keycorp Capital
A1 100(d) 7.75%, 7/15/29 86,585
--------------
3,527,164
</TABLE>
----------
See Notes to Financial Statements B-69
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Portfolio of Investments as of September 30, 2000 Cont'd.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Beverages 0.1%
Coca Cola Enterprises Inc., Note,
A2 $ 150(d) 7.125%, 9/30/09 $ 146,835
-------------------------------------------------------------------------------------
Building & Construction 0.4%
Hanson Overseas BV, Sr. Note,
Baa1 800(d) 6.75%, 9/15/05 773,848
-------------------------------------------------------------------------------------
Computers 0.2%
Hewlett Packard Co., Note,
Aa2 350(d) 7.15%, 6/15/05 354,746
-------------------------------------------------------------------------------------
Consulting 0.2%
Comdisco, Inc., Note,
Baa1 400(d) 5.95%, 4/30/02 377,652
-------------------------------------------------------------------------------------
Financial Services 2.8%
Associates Corp. North America,
Sr. Note,
A1 350(d) 5.75%, 11/1/03 339,346
BCH Cayman Islands Ltd., Sub Note,
A1 160 7.70%, 7/15/06 160,429
Ford Motor Credit Co., Note,
A2 800(d) 7.375%, 10/28/09 781,616
Ford Motor Credit Corp., Deb.,
Note,
A2 285 7.40%, 11/1/46 252,823
General Motors Acceptance Corp.,
Sr. Note,
A2 570(d) 6.75%, 2/7/02 567,338
General Motors Acceptance Corp.,
Note,
A2 250(d) 7.75%, 1/19/10 252,497
Goldman, Sachs Group LP, Note,
A1 700(d) 7.25%, 10/1/05 702,870
Heller Financial, Inc., Note,
A3 400(d) 6.00%, 3/19/04 385,116
Lehman Brothers Holdings, Inc.,
Notes,
A3 240(d) 6.625%, 4/1/04 234,732
</TABLE>
----------
B-70 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Portfolio of Investments as of September 30, 2000 Cont'd.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Morgan Stanley Dean Witter, Note,
Aa3 $ 400 7.75%, 6/15/05 $ 411,604
PaineWebber Group, Inc.,
Baa1 500(d) 7.625%, 12/1/09 504,635
Santander Finance Issuances, Note,
A1 520(d) 6.80%, 7/15/05 508,810
--------------
5,101,816
-------------------------------------------------------------------------------------
Foods 0.3%
Kroger Co., Sr. Note,
Baa3 250(d) 7.80%, 8/15/07 249,435
Safeway Inc., Note,
Baa2 250(d) 6.05%, 11/15/03 242,352
--------------
491,787
-------------------------------------------------------------------------------------
Foreign Government Bonds 0.2%
Comunidad Autonoma De Andalucia,
Note,
Aa3 120 7.25%, 10/1/29 116,604
-------------------------------------------------------------------------------------
Insurance 0.1%
Aon Corp., Sr. Note,
A3 130 8.65%, 5/15/05 136,547
-------------------------------------------------------------------------------------
Media & Entertainment 0.5%
News America Holdings, Inc., Deb.,
Baa3 300(d) 9.25%, 2/1/13 328,341
Time Warner, Inc., Sr. Note,
Baa3 600(d) 9.125%, 1/15/13 673,122
--------------
1,001,463
-------------------------------------------------------------------------------------
Medical Products & Services 0.2%
Tyco International Group, Note,
Baa1 400(d) 6.375%, 6/15/05 388,564
-------------------------------------------------------------------------------------
Oil & Gas Exploration/Production 0.7%
Atlantic Richfield Co., Deb.,
Aa2 700(d) 10.875%, 7/15/05 819,560
</TABLE>
----------
See Notes to Financial Statements B-71
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Portfolio of Investments as of September 30, 2000 Cont'd.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Duke Energy Field Services Corp.,
Note,
Baa2 $ 200 7.50%, 8/16/05 $ 201,556
Occidental Petroleum Corp., Sr.
Note,
Baa3 200(d) 7.65%, 2/15/06 202,652
--------------
1,223,768
-------------------------------------------------------------------------------------
Oil & Gas Services
Amerada Hess Corp., Note,
Baa1 50(d) 7.875%, 10/1/29 49,875
-------------------------------------------------------------------------------------
Paper & Forest Products 0.1%
International Paper Co., Note,
Baa1 150 8.00%, 7/8/03 153,012
-------------------------------------------------------------------------------------
Retail 0.1%
Target Corp., Note,
A2 200 7.50%, 8/15/10 199,678
-------------------------------------------------------------------------------------
Telecommunication Services 0.9%
Deutsche Telekom
International Guaranteed,
Aa2 350 8.00%, 6/15/10 359,422
GTE Corp.,
A2 220(d) 6.36%, 4/15/06, Deb. 210,355
A2 210(d) 7.51%, 4/1/09, Note 210,767
Telefonica Europe BV, Note,
A2 300 7.75%, 9/15/10 301,206
Sprint Capital Corp., Note,
Baa1 370(d) 6.90%, 5/1/19 325,600
United States West Communications,
Inc., Note,
A2 430 7.625%, 6/9/03 435,323
WorldCom Inc., Note
A3 125(d) 8.25%, 5/15/10 132,744
--------------
1,975,417
</TABLE>
----------
B-72 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Portfolio of Investments as of September 30, 2000 Cont'd.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Utilities 0.9%
Duke Energy Corp., Note,
A1 $ 350 7.125%, 9/3/02 $ 351,190
Hydro-Quebec, Deb. (Canada),
A2 300 8.00%, 2/1/13 317,697
Southern California Edison Co.,
Note,
A2 1,000(d) 6.50%, 6/1/01 995,620
--------------
1,664,507
--------------
Total corporate bonds
(cost $23,205,320) 22,634,470
--------------
-------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS 0.4%
Commercial Mortgage Asset Trust,
Series 1999 C2 Class A1,
Aaa 190 7.285%, 12/17/07 191,403
Federal National Mortgage
Association,
Remic, Series 1993 Cl55K,
Aaa 600 6.50%, 5/25/08 584,250
--------------
Total collateralized mortgage
obligations (cost $781,576) 775,653
--------------
-------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY MORTGAGE PASS-THROUGH OBLIGATIONS 9.8%
Federal National Mortgage Assoc.,
Aaa 2,644 7.00%, 3/1/08 2,646,694
Aaa 1,500(c) 7.50%, 11/1/15 1,510,770
Aaa 400 8.00%, 12/1/23 408,440
Aaa 561 6.50%, 5/1/24 541,753
Aaa 511 8.50%, 10/1/24 524,666
Aaa 292 8.50%, 2/1/28 299,766
Aaa 5,000 6.50%, 10/1/30 4,798,950
Aaa 3,100(c) 7.50%, 10/1/30 3,092,870
Government National Mortgage
Assoc.,
Aaa 4 8.00%, 7/15/22 3,980
Aaa 6 8.00%, 8/15/22 5,668
Aaa 1,440 8.00%, 12/15/22 1,471,958
</TABLE>
----------
See Notes to Financial Statements B-73
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Portfolio of Investments as of September 30, 2000 Cont'd.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Aaa $ 1,675(c) 7.00%, 6/15/24 $ 1,656,082
Aaa 1,158 8.00%, 6/15/25 1,180,541
--------------
Total U.S. government agency
mortgage pass-through obligations
(cost $18,047,323) 18,142,138
--------------
-------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES 2.8%
Federal Farm Credit Bank,
Aaa 500(d) 6.75%, 9/3/02 501,740
United States Treasury Bonds,
Aaa 870(d) 8.75%, 5/15/20 1,128,416
255 8.00%, 11/15/21 311,419
Aaa 2,670(d) 6.50%, 11/15/26 2,821,015
United States Treasury Notes,
Aaa 25(d) 6.50%, 2/28/02 25,106
Aaa 246 6.00%, 8/15/09 247,230
70(d) 5.75%, 8/15/10 69,716
125(d) 6.50%, 2/15/10 130,254
--------------
Total U.S. government securities
(cost $5,236,820) 5,234,896
--------------
Total long-term investments
(cost $126,377,337) 139,391,215
--------------
SHORT-TERM INVESTMENTS 30.7%
-------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES 6.8%
United States Treasury Bills,
2,000(b) 5.98%, 12/21/00 1,973,090
Federal Home Loan Bank, Discount
Notes,
7,819 6.25%, 10/2/00 7,817,643
2,791 6.28%, 10/2/00 2,790,513
--------------
Total U.S. government securities
(cost $12,581,246, Note 4) 12,581,246
--------------
-------------------------------------------------------------------------------------
COMMERCIAL PAPER 6.6%
Comcast Cable, Inc.,
5,700 6.75%, 11/2/00 5,665,800
Keyspan Corp.,
744 6.75%, 10/20/00 741,349
</TABLE>
----------
B-74 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Portfolio of Investments as of September 30, 2000 Cont'd.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Exelon Corp.,
$ 904 6.95%, 10/2/00 $ 903,825
TRW, Inc.,
1,000 6.72%, 11/13/00 991,973
4,000 6.73%, 11/27/00 3,957,377
--------------
Total commercial paper
(cost $12,260,325) 12,260,324
--------------
-------------------------------------------------------------------------------------
CORPORATE BONDS 0.3%
Financial Services
Merrill Lynch & Co., MTN,
6.02%, 5/11/01
Aa3 500(d) (cost $501,556) 497,010
--------------
REPURCHASE AGREEMENT 17.0%
Joint Repurchase Agreement
Account,
6.50%, 10/2/00
31,282 (cost $31,282,000, Note 5) 31,282,000
--------------
Total short-term investments
(cost $56,625,137) 56,620,580
--------------
Total Investments 106.2%
(cost $183,002,464, Note 4) 196,011,795
Liabilities in excess of other
assets--(6.2%) (11,510,935)
--------------
Net Assets 100% $ 184,500,860
==============
</TABLE>
----------------------------------
(a) Non-income producing security.
(b) All or partial amount of security is segregated as initial margin for
financial futures transactions.
(c) Mortgage dollar roll, see Note 1 and Note 4.
(d) Pledged as collateral for dollar rolls.
MTN--Medium Term Note.
The Fund's current Prospectus contains a description of Moody's and Standard &
Poor's ratings.
----------
See Notes to Financial Statements B-75
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Statement of Assets and Liabilities (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, 2000
<S> <C>
----------------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $151,720,464) $164,729,795
Repurchase agreement (cost $31,282,000) 31,282,000
Cash 4,515
Receivable for investments sold 6,934,979
Dividends and interest receivable 724,110
Receivable for Series shares sold 383,353
Other assets 5,208
------------------
Total assets 204,063,960
------------------
LIABILITIES
Payable for investments purchased 17,970,380
Payable for Series shares reacquired 977,474
Due to broker - variation margin 305,909
Accrued expenses and other liabilities 188,365
Management fee payable 99,999
Distribution fee payable 20,973
------------------
Total liabilities 19,563,100
------------------
NET ASSETS $184,500,860
==================
Net assets were comprised of:
Common stock, at par $ 13,394
Paid-in capital in excess of par 162,191,848
------------------
162,205,242
Undistributed net investment income 3,913,675
Accumulated net realized gain on investments 6,423,910
Net unrealized appreciation/depreciation on investments 11,958,033
------------------
Net assets, September 30, 2000 $184,500,860
==================
</TABLE>
----------
B-76 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Statement of Assets and Liabilities Cont'd.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, 2000
----------------------------------------------------------------------------------------
<S> <C>
Class A:
Net asset value and redemption price per share
($16,444,230 / 1,194,824 shares of common stock
issued and outstanding) $13.76
Maximum sales charge (5% of offering price) .72
------------------
Maximum offering price to public $14.48
Class B:
Net asset value, offering price and redemption price per
share ($18,647,557 / 1,362,877 shares of common stock
issued and outstanding) $13.68
Class C:
Net asset value and redemption price per share
($2,893,435 / 211,476 shares of common stock issued
and outstanding) $13.68
Sales charge (1% of offering price) .14
------------------
Offering price to public $13.82
Class Z:
Net asset value, offering price and redemption price per
share ($146,515,638 / 10,624,603 shares of common stock
issued and outstanding) $13.79
</TABLE>
----------
See Notes to Financial Statements B-77
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Statement of Operations
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year
Ended
September 30, 2000
<S> <C>
----------------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Interest $ 5,769,352
Dividends (net of foreign withholding taxes of $3,726) 938,001
------------------
Total income 6,707,353
------------------
Expenses
Management fee 1,078,167
Distribution fee--Class A 33,119
Distribution fee--Class B 137,941
Distribution fee--Class C 17,413
Transfer agent's fees and expenses 257,000
Reports to shareholders 147,000
Custodian's fees and expenses 130,000
Registration fees 50,000
Legal fees and expenses 40,000
Audit fee 21,000
Directors' fees and expenses 11,000
Miscellaneous 5,682
------------------
Total expenses 1,928,322
------------------
Net investment income 4,779,031
------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on:
Investment transactions 4,143,616
Financial futures contracts 2,731,436
------------------
6,875,052
------------------
Net change in unrealized appreciation/depreciation on:
Investments 6,279,897
Financial futures contracts (776,702)
------------------
5,503,195
------------------
Net gain on investments 12,378,247
------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 17,157,278
==================
</TABLE>
----------
B-78 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Statement of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------
2000 1999
------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income $ 4,779,031 $ 3,573,191
Net realized gain on investments 6,875,052 9,924,830
Net change in unrealized
appreciation/depreciation on
investments 5,503,195 9,882,582
------------------ ------------------
Net increase in net assets resulting
from operations 17,157,278 23,380,603
------------------ ------------------
Dividends and distributions (Note 1)
Dividends from net investment income
Class A (218,395) (74,318)
Class B (155,300) (52,406)
Class C (17,058) (4,693)
Class Z (2,869,829) (4,048,216)
------------------ ------------------
(3,260,582) (4,179,633)
------------------ ------------------
Distributions to shareholders from net
realized gains on investments
Class A (538,187) (438,657)
Class B (595,317) (480,842)
Class C (65,387) (43,068)
Class Z (6,387,685) (21,035,473)
------------------ ------------------
(7,586,576) (21,998,040)
------------------ ------------------
Series share transactions (net of share
conversion) (Note 6)
Net proceeds from shares sold 65,706,175 69,542,543
Net asset value of shares issued to
shareholders in reinvestment of
dividends and distributions 10,820,733 26,157,302
Cost of shares reacquired (45,079,160) (114,537,650)
------------------ ------------------
Net increase (decrease) in net assets
from Series share transactions 31,447,748 (18,837,805)
------------------ ------------------
Total increase (decrease) 37,757,868 (21,634,875)
NET ASSETS
Beginning of year 146,742,992 168,377,867
------------------ ------------------
End of year(a) $184,500,860 $ 146,742,992
================== ==================
------------------------------
(a) Includes undistributed net investment
income of $ 3,913,675 $ 2,395,226
------------------ ------------------
</TABLE>
----------
See Notes to Financial Statements B-79
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Notes to Financial Statements
--------------------------------------------------------------------------------
Prudential Active Balanced 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' investment objective is to seek income and long-term growth of
capital. It invests 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
Fund and the Series in the preparation of its financial statements.
Securities Valuation: Securities listed on a securities exchange and
NASDAQ (other than options on securities and indices) are valued at the last
sale 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 last 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 more than one principal market maker. Futures
contracts and options thereon traded on a commodities exchange or board of trade
are valued at the last sale 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
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
----------
B-80
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Notes to Financial Statements Cont'd.
--------------------------------------------------------------------------------
amortized to the date of maturity, unless the Board of Directors determines that
such valuation does not represent fair value.
All securities are valued as of 4:15 p.m., New York time.
In connection with transactions in repurchase agreements, it is the
Series' 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 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.
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 prevailing interest rates or
market conditions. 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 the risk of imperfect
correlation in movements in the price of futures contracts, interest rates and
the underlying hedged assets.
Dollar Rolls: The Series enters into mortgage dollar rolls in which the
Series 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 Series forgoes principal and interest paid on the securities.
The Series 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 Series maintains a segregated
----------
B-81
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Notes to Financial Statements Cont'd.
--------------------------------------------------------------------------------
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: The Series 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.
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 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.
Note 2. Agreements
The Fund has a management agreement for the Series 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'). The subadvisory
agreement provides that PIC will furnish investment advisory services in
connection with the management of the Series. In connection therewith, PIC is
obligated to keep certain books and records of the Series. PIFM continues to
have responsibility for all investment advisory services pursuant to the
management agreement and supervises PIC's performance of such services. PIFM
pays for the services of PIC, the compensation of officers of the Fund,
----------
B-82
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Notes to Financial Statements Cont'd.
--------------------------------------------------------------------------------
occupancy and certain clerical and bookkeeping costs of the Series. The Series
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 Series' average daily net assets.
Effective January 1, 2000, the subadvisory fee paid to PIC by PIFM is
computed daily and payable monthly at an annual rate of .325 of 1% of the
average daily net assets of the Series. Prior to January 1, 2000, PIC was
reimbursed by PIFM for reasonable costs and expenses incurred in furnishing
investment advisory services. The change in the subadvisory fee structure has no
impact on the management fee charged to the Series.
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 Series' 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 Series.
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 the average daily net
assets of the Class A, B and C shares, respectively, for the year ended
September 30, 2000.
PIMS has advised the Series that it received approximately $44,300 and
$11,100 in front-end sales charges resulting from sales of Class A shares and
Class C shares, respectively, during the year ended September 30, 2000. 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 year ended September 30, 2000, it
received approximately $34,000 and $2,500 in contingent deferred sales charges
imposed upon certain redemptions by Class B and Class C shareholders,
respectively.
PIC, PIFM and PIMS are wholly owned subsidiaries of The Prudential
Insurance Company of America ('Prudential').
The Fund, along with other affiliated registered investment companies (the
'Funds'), entered into a syndicated credit agreement ('SCA') with an
unaffiliated lender. The maximum commitment under the SCA is $1 billion.
Interest on any such borrowings will be at market rates. The purpose of the
agreement is to serve as an
----------
B-83
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Notes to Financial Statements Cont'd.
--------------------------------------------------------------------------------
alternative source of funding for capital share redemptions. The Funds pay a
commitment fee at an annual rate of .080 of 1% of the unused portion of the
credit facility. The commitment fee is accrued and paid quarterly on a pro rata
basis by the Funds. The expiration date of the SCA is March 9, 2001. Prior to
March 9, 2000, the commitment fee was .065 of 1% of the unused portion of the
credit facility. The Series did not borrow any amounts pursuant to the SCA
during the year ended September 30, 2000.
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, 2000,
the Series incurred fees of approximately $248,600 for the services of PMFS. As
of September 30, 2000, approximately $19,000 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 other than short-term investments,
for the year ended September 30, 2000 were $318,616,990 and $296,659,744,
respectively.
The average monthly balance of dollar rolls outstanding during the year
ended September 30, 2000 was approximately $13,584,568. The value of dollar
rolls outstanding at September 30, 2000 was $6,086,825 (principal $6,067,578),
which was 3.0% of total assets.
The cost basis of investments for federal income tax purposes as of
September 30, 2000 was $183,093,681 and, accordingly, net unrealized
appreciation of investments for federal income tax purposes was $12,918,114
(gross unrealized appreciation--$18,743,711, gross unrealized
depreciation--$5,825,597).
During the year ended September 30, 2000, the Series entered into
financial futures contracts. Details of open contracts at September 30, 2000 are
as follows:
Unrealized
Number of Expiration Appreciation/
Contracts Type Date (Depreciation)
--------------- ----------- ---------- --------------
Long Positions:
U.S. 10 Yr.
31 Note Dec. 00 15,500
58 S&P 500 Dec. 00 (1,159,275)
U.S. 5 Yr.
133 Note Dec. 00 92,477
--------------
$ (1,051,298)
==============
----------
B-84
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Notes to Financial Statements Cont'd.
--------------------------------------------------------------------------------
Note 5. Joint Repurchase Agreement Account
The Series, 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 September
30, 2000, the Series had a 2.7% undivided interest in repurchase agreements in
the joint account. The undivided interest for the Series represented $31,282,000
in principal amount. As of such date, each repurchase agreement in the joint
account and the value of the collateral therefor was as follows:
Bear, Stearns & Co., Inc., 6.51%, in the principal amount of $300,000,000,
repurchase price $300,162,750, due 10/2/00. The value of the collateral
including accrued interest was $307,686,775.
Chase Securities, Inc., 6.45%, in the principal amount of $264,084,000,
repurchase price $264,225,945, due 10/2/00. The value of the collateral
including accrued interest was $269,373,200.
Credit Suisse First Boston Corp., 6.55%, in the principal amount of
$200,000,000, repurchase price $200,109,000, due 10/2/00. The value of the
collateral including accrued interest was $206,853,792.
Salomon Smith Barney, Inc., 6.45%, in the principal amount of $97,990,000,
repurchase price $98,042,670, due 10/2/00. The value of the collateral including
accrued interest was $102,042,316.
UBS Warburg, 6.52%, in the principal amount of $300,000,000, repurchase
price $300,163,000, due 10/2/00. The value of the collateral including accrued
interest was $306,002,065.
Note 6. 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 upon
the period of time the shares are held. Class C shares are sold with a front-end
sales charge of 1% and a contingent deferred sales charge of 1% during the first
18 months. Class B shares will automatically convert to Class A shares on a
quarterly basis approximately seven years after purchase. A special exchange
privilege is also available for shareholders who qualify to purchase Class A
shares at net asset value.
----------
B-85
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Notes to Financial Statements Cont'd.
--------------------------------------------------------------------------------
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 $.001 par value of common stock of the Fund
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, 2000:
Shares sold 581,989 $ 7,862,230
Shares issued in reinvestment of dividends and
distributions 57,495 751,456
Shares reacquired (258,444) (3,501,479)
---------- ------------
Net increase (decrease) in shares outstanding before
conversion 381,040 5,112,207
Shares issued upon conversion from Class B 29,192 395,759
---------- ------------
Net increase (decrease) in shares outstanding 410,232 $ 5,507,966
========== ============
Year ended September 30, 1999:
Shares sold 806,345 $ 10,710,045
Shares issued in reinvestment of dividends and
distributions 41,285 510,287
Shares reacquired (305,438) (4,105,228)
---------- ------------
Net increase (decrease) in shares outstanding before
conversion 542,192 7,115,104
Shares issued upon conversion from Class B 236 3,120
---------- ------------
Net increase (decrease) in shares outstanding 542,428 $ 7,118,224
========== ============
Class B
-------
Year ended September 30, 2000:
Shares sold 779,526 $ 10,543,588
Shares issued in reinvestment of dividends and
distributions 56,023 732,778
Shares reacquired (276,767) (3,704,451)
---------- ------------
Net increase (decrease) in shares outstanding before
conversion 558,782 7,571,915
Shares reacquired upon conversion into Class A (29,275) (395,759)
---------- ------------
Net increase (decrease) in shares outstanding 529,507 $ 7,176,156
========== ============
Year ended September 30, 1999:
Shares sold 652,713 $ 8,665,383
Shares issued in reinvestment of dividends and
distributions 41,783 516,862
Shares reacquired (90,666) (1,202,053)
---------- ------------
Net increase (decrease) in shares outstanding before
conversion 603,830 7,980,192
Shares reacquired upon conversion into Class A (236) (3,120)
---------- ------------
Net increase (decrease) in shares outstanding 603,594 $ 7,977,072
========== ============
</TABLE>
----------
B-86
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Notes to Financial Statements Cont'd.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C Shares Amount
------- ---------- ------------
<S> <C> <C>
Year ended September 30, 2000:
Shares sold 163,480 $ 2,216,590
Shares issued in reinvestment of dividends and
distributions 6,048 79,112
Shares reacquired (42,829) (575,747)
---------- ------------
Net increase (decrease) in shares outstanding 126,699 $ 1,719,955
========== ============
Year ended September 30, 1999:
Shares sold 98,943 $ 1,301,393
Shares issued in reinvestment of dividends and
distributions 3,860 47,750
Shares reacquired (39,496) (519,205)
---------- ------------
Net increase (decrease) in shares outstanding 63,307 $ 829,938
========== ============
<CAPTION>
Class Z
-------
<S> <C> <C>
Year ended September 30, 2000:
Shares sold 3,323,493 $ 45,083,767
Shares issued in reinvestment of dividends and
distributions 708,293 9,257,387
Shares reacquired (2,770,821) (37,297,483)
---------- ------------
Net increase (decrease) in shares outstanding 1,260,965 $ 17,043,671
========== ============
Year ended September 30, 1999:
Shares sold 3,692,823 $ 48,865,722
Shares issued in reinvestment of dividends and
distributions 2,032,131 25,082,403
Shares reacquired (8,515,198) (108,711,164)
---------- ------------
Net increase (decrease) in shares outstanding (2,790,244) $(34,763,039)
========== ============
</TABLE>
----------
B-87
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Notes to Financial Statements Cont'd.
--------------------------------------------------------------------------------
Note 7. Acquisition of Prudential Balanced Fund
On November 10, 2000, Prudential Active Balanced Fund acquired all the net
assets of Prudential Balanced Fund pursuant to a plan of reorganization approved
by Prudential Balanced Fund shareholders on October 27, 2000. The acquisition
was accomplished by a tax-free exchange of the following shares:
Prudential Balanced Prudential Active
Fund Shares Balanced Fund
Redeemed Shares Issued Value
------------------- ----------------- ------------
Class A 43,724,218 39,781,013 $498,463,933
Class B 26,064,125 23,649,238 296,140,946
Class C 1,014,216 920,247 11,522,018
Class Z 10,247,005 9,315,459 116,834,540
Prudential Balanced Fund net assets at that date ($922,961,437), including
$46,678,039 of unrealized appreciation, were combined with those of Prudential
Active Balanced Fund. The aggregate net assets of Prudential Active Balanced
Fund and Prudential Balanced Fund immediately before the acquisition were
$172,990,345 and $922,961,437, respectively. Effective November 10, 2000, the
reorganization date, PIFM receives a management fee from Prudential Active
Balanced Fund at an annual rate of .65 of 1% of the Series' average net assets
up to $1 billion and .60 of 1% of the Series' average net assets over $1
billion.
----------
B-88
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Financial
Highlights
------------
B-89
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
------------------
Year Ended
September 30, 2000
----------------------------------------------------------------------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 13.25
--------
Income from investment operations:
Net investment income .38
Net realized and unrealized gain (loss) on investment
transactions 1.10
--------
Total from investment operations 1.48
--------
Less distributions:
Dividends from net investment income (.28)
Distributions from net realized gains (.69)
--------
Total distributions (.97)
--------
Net asset value, end of period $ 13.76
========
TOTAL RETURN(d): 11.56%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 16,444
Average net assets (000) $ 13,248
Ratios to average net assets:
Expenses, including distribution fees and service
(12b-1) fees 1.30%
Expenses, excluding distribution fees and service
(12b-1) fees 1.05%
Net investment income 2.76%
Portfolio turnover rate 243%
</TABLE>
------------------------------
(a) Commencement of offering of Class A shares.
(b) Calculated based upon weighted average shares outstanding during the period.
(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 returns for less than one year are not annualized.
----------
B-90 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Financial Highlights Cont'd.
--------------------------------------------------------------------------------
Class A
-------------------------------------------------------------------------------
Year Ended September 30, November 7, 1996(a)
------------------------------------------ through September 30,
1999 1998 1997
-------------------------------------------------------------------------------
$ 13.29 $14.41 $13.40
.31 .44 .21(b)
1.69 (.20) 1.97
-------- ------- -------
2.00 .24 2.18
-------- ------- -------
(.30) (.32) (.39)
(1.74) (1.04) (.78)
-------- ------- -------
(2.04) (1.36) (1.17)
-------- ------- -------
$ 13.25 $13.29 $14.41
======== ======= =======
16.07% 1.93% 17.48%
$ 10,397 $3,218 $ 990
$ 6,918 $2,090 $ 100
1.41% 1.28% 1.31%(c)
1.16% 1.03% 1.06%(c)
2.29% 2.72% 2.69%(c)
230% 256% 50%
----------
See Notes to Financial Statements B-91
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Financial Highlights Cont'd.
--------------------------------------------------------------------------------
Class B
------------------
Year Ended
September 30, 2000
-------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 13.17
--------
Income from investment operations:
Net investment income .27
Net realized and unrealized gain (loss) on investment
transactions 1.11
--------
Total from investment operations 1.38
--------
Less distributions:
Dividends from net investment income (.18)
Distributions from net realized gains (.69)
--------
Total distributions (.87)
--------
Net asset value, end of period $ 13.68
========
TOTAL RETURN(d): 10.78%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 18,648
Average net assets (000) $ 13,794
Ratios to average net assets:
Expenses, including distribution fees and service
(12b-1) fees 2.05%
Expenses, excluding distribution fees and service
(12b-1) fees 1.05%
Net investment income 2.01%
Portfolio turnover rate 243%
------------------------------
(a) Commencement of offering of Class B shares.
(b) Calculated based upon weighted average shares outstanding during the period.
(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 returns for less than one year are not annualized.
----------
B-92 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Financial Highlights Cont'd.
--------------------------------------------------------------------------------
Class B
-------------------------------------------------------------------------------
[CAPTION]
Year Ended September 30, November 7, 1996(a)
------------------------------------------ through September 30,
1999 1998 1997
-------------------------------------------------------------------------------
$ 13.22 $14.34 $13.40
-------- ------- -------
.19 .27 .19(b)
1.69 (.14) 1.92
-------- ------- -------
1.88 .13 2.11
-------- ------- -------
(.19) (.21) (.39)
(1.74) (1.04) (.78)
-------- ------- -------
(1.93) (1.25) (1.17)
-------- ------- -------
$ 13.17 $13.22 $14.34
======== ======= =======
15.12% 1.10% 16.91%
$ 10,979 $3,038 $ 213
$ 7,018 $1,285 $ 71
2.16% 2.03% 2.06%(c)
1.16% 1.03% 1.06%(c)
1.54% 1.95% 1.94%(c)
230% 256% 50%
----------
See Notes to Financial Statements B-93
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Financial Highlights Cont'd.
--------------------------------------------------------------------------------
Class C
------------------
Year Ended
September 30, 2000
-------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 13.17
--------
Income from investment operations:
Net investment income .27
Net realized and unrealized gain (loss) on investment
transactions 1.11
--------
Total from investment operations 1.38
--------
Less distributions:
Dividends from net investment income (.18)
Distributions from net realized gains (.69)
--------
Total distributions (.87)
--------
Net asset value, end of period $ 13.68
========
TOTAL RETURN(d): 10.78%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 2,893
Average net assets (000) $ 1,741
Ratios to average net assets:
Expenses, including distribution fees and service
(12b-1) fees 2.05%
Expenses, excluding distribution fees and service
(12b-1) fees 1.05%
Net investment income 2.02%
Portfolio turnover rate 243%
------------------------------
(a) Commencement of offering of Class C shares.
(b) Calculated based upon weighted average shares outstanding during the period.
(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 returns for less than one year are not annualized.
----------
B-94 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Financial Highlights Cont'd.
--------------------------------------------------------------------------------
Class C
--------------------------------------------------------------------------------
Year Ended September 30, November 7, 1996(a)
------------------------ through September 30,
1999 1998 1997
--------------------------------------------------------------------------------
$ 13.22 $14.34 $13.40
-------- ------- -------
.19 .48 .13(b)
1.69 (.35) 1.98
-------- ------- -------
1.88 .13 2.11
-------- ------- -------
(.19) (.21) (.39)
(1.74) (1.04) (.78)
-------- ------- -------
(1.93) (1.25) (1.17)
-------- ------- -------
$ 13.17 $13.22 $14.34
======== ======= =======
15.12% 1.10% 16.91%
$ 1,117 $ 284 $ 5
$ 674 $ 118 $ 1
2.16% 2.03% 2.06%(c)
1.16% 1.03% 1.06%(c)
1.54% 2.04% 1.94%(c)
230% 256% 50%
----------
See Notes to Financial Statements B-95
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Financial Highlights Cont'd.
--------------------------------------------------------------------------------
Class Z
------------------
Year Ended
September 30, 2000
--------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 13.27
----------
Income from investment operations:
Net investment income .40
Net realized and unrealized gain (loss) on investment
transactions 1.12
----------
Total from investment operations 1.52
----------
Less distributions:
Dividends from net investment income (.31)
Distributions from net realized gains (.69)
----------
Total distributions (1.00)
----------
Net asset value, end of year $ 13.79
==========
TOTAL RETURN(d): 11.87%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) $146,516
Average net assets (000) $137,089
Ratios to average net assets:
Expenses, including distribution fees and service
(12b-1) fees 1.05%
Expenses, excluding distribution fees and service
(12b-1) fees 1.05%
Net investment income 2.99%
Portfolio turnover rate 243%
------------------------------
(a) Net of expense subsidy.
(b) Calculated based upon weighted average shares outstanding during the period.
(c) Annualized.
(d) 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 less than one year are not
annualized.
----------
B-96 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Financial Highlights Cont'd.
--------------------------------------------------------------------------------
Class Z
--------------------------------------------------------------------------------
Year Ended September 30,
--------------------------------------------------------------------------------
1999 1998 1997 1996
--------------------------------------------------------------------------------
$ 13.32 $ 14.45 $ 13.01 $ 12.46
---------------- ---------------- ---------------- ----------------
.35 .38 .39(b) .29(a)
1.68 (.12) 2.22 .81
---------------- ---------------- ---------------- ----------------
2.03 .26 2.61 1.10
---------------- ---------------- ---------------- ----------------
(.34) (.35) (.39) (.37)
(1.74) (1.04) (.78) (.18)
---------------- ---------------- ---------------- ----------------
(2.08) (1.39) (1.17) (.55)
---------------- ---------------- ---------------- ----------------
$ 13.27 $ 13.32 $ 14.45 $ 13.01
---------------- ---------------- ---------------- ----------------
16.32% 2.12% 21.34% 9.11%
$124,250 $161,838 $158,672 $153,588
$130,052 $177,443 $154,199 $142,026
1.16% 1.03% 1.06% 1.00%(a)
1.16% 1.03% 1.06% 1.00%(a)
2.54% 2.99% 2.94% 3.09%(a)
230% 256% 50% 51%
----------
See Notes to Financial Statements B-97
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund
--------------------------------------------------------------------------------
Report of Independent Accountants Cont'd.
--------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
The Prudential Investment Portfolios, Inc.--Prudential Active Balanced Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Prudential Investment
Portfolios, Inc.--Prudential Active Balanced Fund (the 'Fund,' one of the
portfolios constituting The Prudential Investment Portfolios, Inc.) at September
30, 2000, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended and the
financial highlights for each of the four years in the period then ended, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as 'financial statements') are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at September 30, 2000 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion. The accompanying financial highlights for the year ended September
30, 1996 were audited by other independent accountants, whose opinion dated
November 13, 1996 was unqualified.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
November 22, 2000
----------
B-98
<PAGE>
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
--------------------------------------------------------------------------------
Portfolio of Investments as of September 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C>
LONG-TERM INVESTMENTS 90.7%
Common Stocks
-------------------------------------------------------------------------------------
Aerospace/Defense 5.5%
93,300 General Motors Corp., Class H $ 3,468,894
88,300 Litton Industries, Inc.(a) 3,945,906
61,700 The Boeing Co. 3,887,100
--------------
11,301,900
-------------------------------------------------------------------------------------
Airlines 1.5%
97,200 AMR Corp. 3,177,225
-------------------------------------------------------------------------------------
Aluminum 0.8%
64,732 Alcoa, Inc. 1,638,529
-------------------------------------------------------------------------------------
Apparel 0.8%
103,600 Polo Ralph Lauren Corp.(a) 1,670,550
-------------------------------------------------------------------------------------
Auto & Truck 1.7%
122,500 Lear Corp.(a) 2,518,906
21,900 TRW, Inc. 889,688
--------------
3,408,594
-------------------------------------------------------------------------------------
Banking 4.3%
42,000 Chase Manhattan Corp. 1,939,875
121,300 FleetBoston Financial Corp. 4,730,700
94,200 U.S. Bancorp 2,143,050
--------------
8,813,625
-------------------------------------------------------------------------------------
Chemicals 7.5%
209,526 Crompton Corp. 1,650,017
77,500 Cytec Industries, Inc.(a) 2,591,406
189,500 Engelhard Corp. 3,079,375
45,700 FMC Corp.(a) 3,064,757
63,300 Minerals Technologies, Inc. 2,911,800
191,200 Solutia, Inc. 2,174,900
--------------
15,472,255
-------------------------------------------------------------------------------------
Computers & Business Equipment 1.6%
120,800 Diebold, Inc. 3,208,750
</TABLE>
--------
See Notes to Financial Statements B-99
<PAGE>
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
--------------------------------------------------------------------------------
Portfolio of Investments as of September 30, 2000 Cont'd.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C>
Containers & Packaging 1.5%
274,200 Pactiv Corp.(a) $ 3,067,613
-------------------------------------------------------------------------------------
Drugs & Health Care 1.3%
46,300 American Home Products Corp. 2,618,844
-------------------------------------------------------------------------------------
Electronic Components 2.0%
51,300 Gentex Corp.(a) 1,282,500
90,500 Rockwell International Corp. 2,737,625
--------------
4,020,125
-------------------------------------------------------------------------------------
Energy 2.7%
222,000 Pall Corp. 4,426,125
36,500 Southern Energy, Inc.(a) 1,145,187
--------------
5,571,312
-------------------------------------------------------------------------------------
Financial Services 0.6%
25,300 USA Education, Inc. 1,219,144
-------------------------------------------------------------------------------------
Health Care Services 4.9%
193,800 Caremark Rx, Inc.(a) 2,180,250
80,500 Columbia/HCA Healthcare Corp. 2,988,562
137,100 Health Management Associates, Inc.(a) 2,853,394
242,100 Healthsouth Corp.(a) 1,967,063
--------------
9,989,269
-------------------------------------------------------------------------------------
Hotels 1.4%
256,608 Hilton Hotels Corp. 2,967,030
-------------------------------------------------------------------------------------
Human Resources 1.4%
87,300 Manpower, Inc. 2,788,144
-------------------------------------------------------------------------------------
Industrial Technology/Instruments 1.7%
70,100 Millipore Corp. 3,395,469
-------------------------------------------------------------------------------------
Insurance 16.8%
27,300 American General Corp. 2,129,400
95,600 Aon Corp. 3,752,300
24,800 CIGNA Corp. 2,589,120
</TABLE>
----------
B-100 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
--------------------------------------------------------------------------------
Portfolio of Investments as of September 30, 2000 Cont'd.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C>
72,300 CNA Financial Corp.(a) $ 2,765,475
152,400 John Hancock Financial Services(a) 4,095,750
32,100 Lincoln National Corp. 1,544,812
52,700 SAFECO Corp. 1,436,075
173,200 The Allstate Corp. 6,018,700
62,000 The Hartford Financial Services Group, Inc. 4,522,125
77,400 XL Capital, Ltd. 5,688,900
--------------
34,542,657
-------------------------------------------------------------------------------------
Medical Technology 1.4%
48,900 Aviron(a) 2,851,481
-------------------------------------------------------------------------------------
Mining 1.2%
145,000 Newmont Mining Corp. 2,465,000
-------------------------------------------------------------------------------------
Oil Services 3.6%
90,500 Diamond Offshore Drilling, Inc. 3,710,500
105,200 Unocal Corp. 3,728,025
--------------
7,438,525
-------------------------------------------------------------------------------------
Paint & Related Products 0.8%
67,200 Valspar Corp. 1,544,928
-------------------------------------------------------------------------------------
Paper & Forest Products 3.4%
127,600 Boise Cascade Corp. 3,389,375
43,800 Bowater, Inc. 2,033,962
40,300 Temple-Inland, Inc. 1,526,362
--------------
6,949,699
-------------------------------------------------------------------------------------
Petroleum 5.9%
60,800 Burlington Resources, Inc. 2,238,200
226,300 Conoco, Inc. 5,912,087
135,700 USX - Marathon Group 3,850,488
--------------
12,000,775
-------------------------------------------------------------------------------------
Publishing 3.9%
57,000 Knight-Ridder, Inc. 2,896,312
35,100 New York Times Co., Class A 1,379,869
86,800 Tribune Co. 3,786,650
--------------
8,062,831
</TABLE>
----------
See Notes to Financial Statements B-101
<PAGE>
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
--------------------------------------------------------------------------------
Portfolio of Investments as of September 30, 2000 Cont'd.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C>
Retail 2.9%
59,500 AutoZone, Inc.(a) $ 1,349,906
63,700 Federated Department Stores, Inc.(a) 1,664,163
151,000 Kmart Corp. 906,000
213,900 Saks, Inc.(a) 2,112,262
--------------
6,032,331
-------------------------------------------------------------------------------------
Semiconductors 2.0%
49,200 International Rectifier Corp.(a) 2,487,675
42,400 National Semiconductor Corp.(a) 1,706,600
--------------
4,194,275
-------------------------------------------------------------------------------------
Steel & Metals 0.7%
93,100 USX-U.S. Steel Group 1,413,956
-------------------------------------------------------------------------------------
Telecommunications 2.3%
42,800 Cable & Wireless PLC (ADR) 1,821,675
50,800 Global Crossing, Ltd.(a) 1,574,800
40,000 Millicom International Cellular SA(a) 1,422,500
--------------
4,818,975
-------------------------------------------------------------------------------------
Transportation 4.6%
48,800 Egl, Inc.(a) 1,476,200
90,200 Federal Express Corp.(a) 3,999,468
135,400 Sabre Group Holdings, Inc.(a) 3,918,138
--------------
9,393,806
--------------
Total long-term investments (cost $167,004,699) 186,037,617
--------------
</TABLE>
----------
B-102 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
--------------------------------------------------------------------------------
Portfolio of Investments as of September 30, 2000 Cont'd.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000) Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <C> <S> <C>
SHORT-TERM INVESTMENTS 7.3%
COMMERCIAL PAPER
Chevron USA, Inc.
P-1 $ 5,120 6.55%, 10/2/00 $ 5,120,000
American Express Co.
P-1 9,750 6.60%, 10/2/00 9,750,000
--------------
Total short-term investments
(cost $14,870,000) 14,870,000
--------------
Total investments before short
sales 98.0%
(cost $181,874,699; Note 4) 200,907,617
--------------
COMMON STOCKS SOLD SHORT(a) (2.8%)
</TABLE>
<TABLE>
<CAPTION>
Shares Description
------------------------------------------------------------------------------------------
<C> <S> <C>
Computer Software & Services (1.1%)
(29,500) Oracle Systems Corp.
(proceeds $2,263,322) (2,323,125)
-------------------------------------------------------------------------------------
Technology (1.7%)
(38,500) Nasdaq-100 Shares Trust
Unit Series 1 (proceeds $3,730,227) (3,414,469)
--------------
Total common stocks sold short
(proceeds at cost $5,993,549) (5,737,594)
--------------
Total investments, net of short sales 95.2%
(cost $175,881,150) 195,170,023
Other assets in excess of liabilities 4.8% 9,935,625
--------------
Net Assets 100% $ 205,105,648
==============
</TABLE>
------------------------------
(a) Non-income producing securities.
ADR--American Depository Receipt
PLC--Public Limited Company
SA--Societe Anonyme (French Corporation)
----------
See Notes to Financial Statements B-103
<PAGE>
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
--------------------------------------------------------------------------------
Statement of Assets and Liabilities
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, 2000
<S> <C>
----------------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $181,874,699) $ 200,907,617
Due from broker for securities sold short 359,164
Receivable for investments sold 10,141,406
Deposits for securities sold short 6,743,712
Receivable for Series shares sold 1,513,800
Dividends and interest receivable 170,901
Deferred expenses and other assets 16,652
------------------
Total assets 219,853,252
------------------
LIABILITIES
Payable to Custodian 1,701
Investments sold short, at value (proceeds $5,993,549) 5,737,594
Payable for investments purchased 8,259,028
Payable for Series shares reacquired 374,363
Accrued expenses and other liabilities 165,268
Distribution fees payable 111,915
Management fee payable 97,735
------------------
Total liabilities 14,747,604
------------------
NET ASSETS $ 205,105,648
==================
Net assets were comprised of:
Common stock, at par $ 13,948
Paid-in capital in excess of par 163,091,019
------------------
163,104,967
Undistributed net investment income 190,283
Accumulated net realized gain on investments 22,521,525
Net unrealized appreciation on investments 19,288,873
------------------
Net assets, September 30, 2000 $ 205,105,648
==================
</TABLE>
----------
B-104 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
--------------------------------------------------------------------------------
Statement of Assets and Liabilities Cont'd.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, 2000
----------------------------------------------------------------------------------------
<S> <C>
Class A:
Net asset value and redemption price per share
($66,117,280 / 4,460,138 shares of common stock issued
and outstanding) $14.82
Maximum sales charge (5% of offering price) .78
------------------
Maximum offering price to public $15.60
------------------
------------------
Class B:
Net asset value, offering price and redemption price per
share ($108,439,797 / 7,421,472 shares of common stock
issued and outstanding) $14.61
==================
Class C:
Net asset value and redemption price per share
($13,456,555 / 920,958 shares of common stock issued
and outstanding) $14.61
Sales charge (1% of offering price) .15
------------------
Offering price to public $14.76
==================
Class Z:
Net asset value, offering price and redemption price per
share ($17,092,016 / 1,145,502 shares of common stock
issued and outstanding) $14.92
==================
</TABLE>
----------
See Notes to Financial Statements B-105
<PAGE>
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
--------------------------------------------------------------------------------
Statement of Operations
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year
Ended
September 30, 2000
<S> <C>
----------------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Dividends (net of foreign withholding taxes of
$10,332) $ 2,003,924
Interest 892,570
---------------------
Total income 2,896,494
---------------------
Expenses
Management fee 950,935
Distribution fee--Class A 109,351
Distribution fee--Class B 963,250
Distribution fee--Class C 99,773
Transfer agent's fees and expenses 245,000
Custodian's fees and expenses 110,000
Reports to shareholders 100,000
Registration fees 39,000
Audit fees 20,000
Legal fees and expenses 15,000
Directors' fees and expenses 7,500
Miscellaneous 778
---------------------
Total expenses 2,660,587
---------------------
Net investment income 235,907
---------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on:
Investment transactions 31,550,136
Short sales (2,408,056)
Options 149,842
---------------------
29,291,922
---------------------
Net change in unrealized appreciation/depreciation on:
Investments 11,176,348
Short sales (603,885)
---------------------
10,572,463
---------------------
Net gain on investments 39,864,385
---------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $40,100,292
=====================
</TABLE>
----------
B-106 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
--------------------------------------------------------------------------------
Statement of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Year
Ended Ended
September 30, 2000 September 30, 1999
<S> <C> <C>
------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income $ 235,907 $ 12,304
Net realized gain on investment
transactions 29,291,922 16,757,829
Net change in unrealized appreciation/
depreciation on investments 10,572,463 13,528,215
------------------ ------------------
Net increase in net assets resulting
from operations 40,100,292 30,298,348
------------------ ------------------
Dividends and distributions (Note 1)
Dividends from net investment income
Class A -- (153,895)
Class B -- (76,687)
Class C -- (6,448)
Class Z -- (12,628)
------------------ ------------------
-- (249,658)
------------------ ------------------
Distributions from net realized
capital gains
Class A (3,956,469) (2,540,009)
Class B (9,827,462) (6,978,474)
Class C (885,234) (586,830)
Class Z (473,196) (164,167)
------------------ ------------------
(15,142,361) (10,269,480)
------------------ ------------------
Series share transactions (net of share
conversions) (Note 5)
Net proceeds from shares sold 94,271,423 39,742,571
Net asset value of shares issued to
shareholders in reinvestment of
dividends and distributions 14,348,742 10,032,426
Cost of shares reacquired (69,560,800) (53,515,736)
------------------ ------------------
Net increase (decrease) in net assets
from Series share transactions 39,059,365 (3,740,739)
------------------ ------------------
Total increase 64,017,296 16,038,471
NET ASSETS
Beginning of year 141,088,352 125,049,881
------------------ ------------------
End of year(a) $205,105,648 $141,088,352
================== ==================
------------------------------
(a) Includes undistributed net investment
income of $ 190,283 $ --
------------------ ------------------
</TABLE>
----------
See Notes to Financial Statements B-107
<PAGE>
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
--------------------------------------------------------------------------------
Notes to Financial Statements
--------------------------------------------------------------------------------
Prudential Jennison Equity Opportunity Fund, formerly 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.
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 or
NASDAQ (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 Prudential Investments
Fund Management LLC ('PIFM'), in consultation with Jennison Associates LLC
('Jennison'), 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 sale
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
----------
B-108
<PAGE>
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
--------------------------------------------------------------------------------
Notes to Financial Statements Cont'd.
--------------------------------------------------------------------------------
independent pricing agent, which is, in the judgment of the Manager and the
Subadviser, able to produce prices which are representative of market value.
Short-term securities which mature in more than 60 days, for which market
quotations are readily available, are valued at current market quotations as
provided by an independent pricing agent or principal market maker. Short-term
securities which mature in 60 days or less are valued at cost with interest
accrued or discount amortized to the date of maturity, unless the Board of
Directors determines that such valuation does not represent fair value.
All securities are valued as of 4:15 p.m., New York time.
Securities Transactions and Net Investment Income: Securities
transactions are recorded on the trade date. Realized gains or losses on sales
of securities are calculated on the identified cost basis. Dividend income is
recorded on the ex-dividend date; interest income is recorded on the accrual
basis and is net of discount accretion and premium amortization. Expenses are
recorded on the accrual basis which may require the use of certain estimates by
management.
Net investment income, other than distribution fees, and realized and
unrealized gains or losses are allocated daily to each class of shares based
upon the relative proportion of net assets of each class at the beginning of the
day.
Short Sales: The Series may sell a security it does not own in
anticipation of a decline in the market value of that security (short sale).
When the Series makes a short sale, it must borrow the security sold short and
deliver it to the broker-dealer through which it made the short sale. The
proceeds received from the short sale are maintained as collateral for its
obligation to deliver the security upon conclusion of the sale. In addition, the
Series may have to make additional subsequent deposits with the broker equal to
the change in the market value of the security sold short. The Series may have
to pay a fee to borrow the particular security and may be obligated to remit any
payments received on such borrowed securities. A gain, limited to the price at
which the Series sold the security short, or a loss, unlimited in magnitude,
will be recognized upon the termination of a short sale if the market price at
termination is less than or greater than, respectively, the proceeds originally
received.
Dividends and Distributions: The Series expects to pay dividends of net
investment income, if any, semi-annually and to make distributions of any net
capital gains at least annually. Dividends and distributions are recorded on the
ex-dividend date. Income distributions and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles.
----------
B-109
<PAGE>
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
--------------------------------------------------------------------------------
Notes to Financial Statements Cont'd.
--------------------------------------------------------------------------------
Options: The Fund may either purchase or write options in order to
hedge against adverse market movements or fluctuations in value caused by
changes in prevailing interest rates or foreign currency exchange rates with
respect to securities or currencies which the Fund currently owns or intends to
purchase. When the Fund purchases an option, it pays a premium and an amount
equal to that premium is recorded as an investment. When the Fund writes an
option, it receives a premium and an amount equal to that premium is recorded as
a liability. The investment or liability is adjusted daily to reflect the
current market value of the option. If an option expires unexercised, the Fund
realizes a gain or loss to the extent of the premium received or paid. If an
option is exercised, the premium received or paid is an adjustment to the
proceeds from the sale or the cost basis of the purchase in determining whether
the Fund has realized a gain or loss. The difference between the premium and the
amount received or paid on effecting a closing purchase or sale transaction is
also treated as a realized gain or loss. Gain or loss on purchased options is
included in net realized gain (loss) on investment transactions. Gain or loss on
written options is presented separately as net realized gain (loss) on written
option transactions.
The Fund, as writer of an option, has no control over whether the
underlying securities or currencies may be sold (called) or purchased (put). As
a result, the Fund bears the market risk of an unfavorable change in the price
of the security or currency underlying the written option. The Fund, as
purchaser of an option, bears the risk of the potential inability of the
counterparties to meet the terms of their contracts.
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 and interest are provided in
accordance with the Fund's understanding of the applicable country's tax rules
and rates.
Reclassification of Capital Accounts: The Fund accounts and reports for
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants, Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment Companies. The effect of applying
this statement was to decrease undistributed net investment income by $45,624,
decrease accumulated net realized gain on investments by $5,664,998 and increase
paid-in capital by $5,710,622 due to the Fund treating redemptions as
distributions for federal income tax purposes during the year ended September
30, 2000. Net investment income, net realized gains and net assets were not
affected by this change.
----------
B-110
<PAGE>
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
--------------------------------------------------------------------------------
Notes to Financial Statements Cont'd.
--------------------------------------------------------------------------------
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
Series. Under the subadvisory agreement, Jennison, subject to the supervision of
PIFM, is responsible for managing the assets of the Series in accordance with
its investment objectives and policies.
The management fee paid PIFM is computed daily and payable monthly, at an
annual rate of .60 of 1% of the average daily net assets of the Series. PIFM
pays Jennison a subadvisory fee at an annual rate of .30 of 1% of the average
daily net assets of the Series up to and including $300 million and .25 of 1% of
such assets in excess of $300 million. PIFM also pays the cost of compensation
of officers and employees of the Fund, occupancy and certain clerical and
bookkeeping costs of the Fund. The Fund bears all other costs and expenses.
The Fund 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 Series' 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 Series.
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 year ended
September 30, 2000.
PIMS has advised the Series that it received approximately $91,300 and
$36,900 in front-end sales charges resulting from sales of Class A and C shares,
respectively, during the year ended September 30, 2000. 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 year ended September 30, 2000, it
received approximately $233,300 and $4,400 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 ('Prudential').
----------
B-111
<PAGE>
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
--------------------------------------------------------------------------------
Notes to Financial Statements Cont'd.
--------------------------------------------------------------------------------
The Fund, along with other affiliated registered investment companies (the
'Funds'), entered into a syndicated credit agreement ('SCA') with an
unaffiliated lender. The maximum commitment under the SCA is $1 billion.
Interest on any such borrowings will be at market rates. The purpose of the
agreement is to serve as an alternative source of funding for capital share
redemptions. The Funds pay a commitment fee of .080 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 expiration date of the SCA is March 9, 2001.
Prior to March 9, 2000, the commitment fee was .065 of 1% on the unused portion
of the credit facility. The Fund did not borrow any amounts pursuant to the SCA
during the year ended September 30, 2000.
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, 2000,
the Series incurred fees of approximately $212,800 for the services of PMFS. As
of September 30, 2000, approximately $19,500 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, 2000, Prudential Securities Incorporated
('PSI'), which is an indirect, wholly owned subsidiary of Prudential, earned
approximately $26,500 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, 2000 were $236,331,970 and $211,457,341,
respectively.
Transactions in options written during the year ended September 30, 2000
were as follows:
<TABLE>
<CAPTION>
Number of Premiums
Contracts Received
--------- --------
<S> <C> <C>
Options outstanding at September 30, 1999 -- --
Options written 1,115 $161,587
Options expired (305) (98,207)
Options closed (810) (63,380)
--------- --------
Options outstanding at September 30, 2000 -- $ --
</TABLE>
----------
B-112
<PAGE>
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
--------------------------------------------------------------------------------
Notes to Financial Statements Cont'd.
--------------------------------------------------------------------------------
The cost basis of the investments for federal income tax purposes at
September 30, 2000 is substantially the same for financial reporting purposes
and, accordingly, net unrealized appreciation of investments for federal income
tax purposes was $17,624,068 (gross unrealized appreciation--$27,232,153; gross
unrealized depreciation--$9,608,085).
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. 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 of the Fund
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, 2000:
Shares sold 3,735,739 $ 50,527,448
Shares issued in reinvestment of distributions 311,591 3,774,762
Shares reacquired (2,771,744) (36,327,739)
---------- ------------
Net increase (decrease) in shares outstanding before
conversion 1,275,586 17,974,471
Shares issued upon conversion from Class B 273,305 3,692,627
---------- ------------
Net increase (decrease) in shares outstanding 1,548,891 $ 21,667,098
========== ============
Year ended September 30, 1999:
Shares sold 923,437 $ 11,737,931
Shares issued in reinvestment of dividends and
distributions 226,178 2,592,003
Shares reacquired (1,265,737) (15,677,893)
---------- ------------
Net increase (decrease) in shares outstanding before
conversion (116,122) (1,347,959)
Shares issued upon conversion from Class B 174,209 2,193,555
---------- ------------
Net increase (decrease) in shares outstanding 58,087 $ 845,596
========== ============
</TABLE>
----------
B-113
<PAGE>
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
--------------------------------------------------------------------------------
Notes to Financial Statements Cont'd.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Shares Amount
------- ---------- ------------
Year ended September 30, 2000:
<S> <C> <C>
Shares sold 1,738,564 $ 22,527,841
Shares issued in reinvestment of distributions 769,364 9,243,065
Shares reacquired (2,065,428) (25,875,475)
---------- ------------
Net increase (decrease) in shares outstanding before
conversion 442,500 5,895,431
Shares reacquired upon conversion from Class A (276,531) (3,692,627)
---------- ------------
Net increase (decrease) in shares outstanding 165,969 $ 2,202,804
========== ============
Year ended September 30, 1999:
Shares sold 1,447,677 $ 18,020,614
Shares issued in reinvestment of dividends and
distributions 583,173 6,683,169
Shares reacquired (2,334,384) (28,622,257)
---------- ------------
Net increase (decrease) in shares outstanding before
conversion (303,534) (3,918,474)
Shares reacquired upon conversion from Class A (174,767) (2,193,555)
---------- ------------
Net increase (decrease) in shares outstanding (478,301) $ (6,112,029)
========== ============
Class C
-------
Year ended September 30, 2000:
Shares sold 458,926 $ 5,963,960
Shares issued in reinvestment of distributions 72,279 868,408
Shares reacquired (212,204) (2,676,372)
---------- ------------
Net increase (decrease) in shares outstanding 319,001 $ 4,155,996
========== ============
Year ended September 30, 1999:
Shares sold 199,958 $ 2,519,215
Shares issued in reinvestment of dividends and
distributions 51,069 585,254
Shares reacquired (299,144) (3,644,790)
---------- ------------
Net increase (decrease) in shares outstanding (48,117) $ (540,321)
========== ============
Class Z
-------
Year ended September 30, 2000:
Shares sold 1,133,274 $ 15,252,174
Shares issued in reinvestment of distributions 38,006 462,507
Shares reacquired (358,742) (4,681,214)
---------- ------------
Net increase (decrease) in shares outstanding 812,538 $ 11,033,467
========== ============
Year ended September 30, 1999:
Shares sold 570,577 $ 7,464,811
Shares issued in reinvestment of dividends and
distributions 14,995 172,000
Shares reacquired (419,436) (5,570,796)
---------- ------------
Net increase (decrease) in shares outstanding 166,136 $ 2,066,015
========== ============
</TABLE>
--------
B-114
<PAGE>
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
--------------------------------------------------------------------------------
Portfolio of Investments as of September 30, 2000
--------------------------------------------------------------------------------
Financial
Highlights
--------
B-115
<PAGE>
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------
Class A
------------------
Year Ended
September 30, 2000
--------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 12.76
--------
Income from investment operations
Net investment income .04
Net realized and unrealized gain (loss) on investment
transactions 3.38
--------
Total from investment operations 3.42
--------
Less distributions
Dividends from net investment income --
Distributions from net realized gains (1.36)
--------
Total distributions (1.36)
--------
Net asset value, end of year $ 14.82
========
TOTAL RETURN(c) 29.23%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000) $ 66,117
Average net assets (000) $ 43,741
Ratios to average net assets:
Expenses, including distribution and service (12b-1)
fees 1.19%
Expenses, excluding distribution and service (12b-1)
fees .94%
Net investment income .64%
Class A, B, C and Z shares:
Portfolio turnover rate 145%
------------------------------
(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.
----------
B-116 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
--------------------------------------------------------------------------------
Financial Highlights Cont'd.
--------------------------------------------------------------------------------
Class A
--------------------------------------------------------------------------------
Year Ended September 30,
------------------------------------------ November 7, 1996(a)
1999 1998 Through September 30, 1997
--------------------------------------------------------------------------------
$ 10.98 $ 12.89 $ 10.00
-------- -------- --------
.07 .15 .09
2.68 (1.32) 2.87
-------- -------- --------
2.75 (1.17) 2.96
-------- -------- --------
(.06) (.12) (.07)
(.91) (.62) --
-------- -------- --------
(.97) (.74) (.07)
-------- -------- --------
$ 12.76 $ 10.98 $ 12.89
-------- -------- --------
26.00% (9.40)% 29.72%
$ 37,158 $ 31,339 $ 34,846
$ 35,815 $ 35,145 $ 27,008
1.30% 1.31% 1.58%(b)
1.05% 1.06% 1.33%(b)
.54% 1.20% .90%(b)
111% 99% 55%
----------
See Notes to Financial Statements B-117
<PAGE>
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
--------------------------------------------------------------------------------
Financial Highlights Cont'd.
--------------------------------------------------------------------------------
Class B
------------------
Year Ended
September 30, 2000
--------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 12.68
----------
Income from investment operations
Net investment income (loss) (.02)
Net realized and unrealized gain (loss) on investment
transactions 3.31
----------
Total from investment operations 3.29
----------
Less distributions
Dividends from net investment income --
Distributions from net realized gains (1.36)
----------
Total distributions (1.36)
----------
Net asset value, end of year $ 14.61
==========
TOTAL RETURN(c) 28.31%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000) $108,440
Average net assets (000) $ 96,325
Ratios to average net assets:
Expenses, including distribution and service (12b-1) fees 1.94%
Expenses, excluding distribution and service (12b-1) fees .94%
Net investment income (.12)%
------------------------------
(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.
----------
B-118 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
--------------------------------------------------------------------------------
Financial Highlights Cont'd.
--------------------------------------------------------------------------------
Class B
--------------------------------------------------------------------------------
Year Ended September 30,
------------------------------------------ November 7, 1996(a)
1999 1998 through September 30, 1997
--------------------------------------------------------------------------------
$ 10.96 $ 12.86 $ 10.00
-------- -------- --------
(.03) .06 .02
2.67 (1.31) 2.86
-------- -------- --------
2.64 (1.25) 2.88
-------- -------- --------
(.01) (.03) (.02)
(.91) (.62) --
-------- -------- --------
(.92) (.65) (.02)
-------- -------- --------
$ 12.68 $ 10.96 $ 12.86
======== ======== ========
24.98% (10.01)% 28.83%
$ 92,032 $ 84,751 $ 87,558
$ 94,904 $ 93,465 $ 62,575
2.05% 2.06% 2.33%(b)
1.05% 1.06% 1.33%(b)
(.20)% .46% .15%(b)
----------
See Notes to Financial Statements B-119
<PAGE>
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
--------------------------------------------------------------------------------
Financial Highlights Cont'd.
--------------------------------------------------------------------------------
Class C
------------------
Year Ended
September 30, 2000
--------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 12.68
--------
Income from investment operations
Net investment income (loss) (.01)
Net realized and unrealized gain (loss) on investment
transactions 3.30
--------
Total from investment operations 3.29
--------
Less distributions
Dividends from net investment income --
Distributions from net realized gains (1.36)
--------
Total distributions (1.36)
--------
Net asset value, end of year $ 14.61
========
TOTAL RETURN(c) 28.31%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000) $ 13,457
Average net assets (000) $ 9,977
Ratios to average net assets:
Expenses, including distribution and service (12b-1)
fees 1.94%
Expenses, excluding distribution and service (12b-1)
fees .94%
Net investment income (.10)%
Portfolio turnover rate
------------------------------
(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.
----------
B-120 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
--------------------------------------------------------------------------------
Financial Highlights Cont'd.
--------------------------------------------------------------------------------
Class C
--------------------------------------------------------------------------------
Year Ended September 30,
------------------------------------------ November 7, 1996(a)
1999 1998 through September 30, 1997
--------------------------------------------------------------------------------
$10.96 $12.86 $10.00
------- ------- -------
(.02) .06 .02
2.66 (1.31) 2.86
------- ------- -------
2.64 (1.25) 2.88
------- ------- -------
(.01) (.03) (.02)
(.91) (.62) --
------- ------- -------
(.92) (.65) (.02)
------- ------- -------
$12.68 $10.96 $12.86
======= ======= =======
24.98% (10.01)% 28.83%
$7,636 $7,124 $7,111
$7,702 $7,734 $5,631
2.05% 2.06% 2.33%(b)
1.05% 1.06% 1.33%(b)
(.19)% .46% .15%(b)
111% 99% 55%
----------
See Notes to Financial Statements B-121
<PAGE>
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
--------------------------------------------------------------------------------
Financial Highlights Cont'd.
--------------------------------------------------------------------------------
Class Z
------------------
Year Ended
September 30, 2000
--------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 12.80
--------
Income from investment operations
Net investment income .04
Net realized and unrealized gain (loss) on investment
transactions 3.44
--------
Total from investment operations 3.48
--------
Less distributions
Dividends from net investment income --
Distributions from net realized gains (1.36)
--------
Total distributions (1.36)
--------
Net asset value, end of period $ 14.92
========
TOTAL RETURN(c) 29.64%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $ 17,092
Average net assets (000) $ 8,446
Ratios to average net assets:
Expenses, including distribution and service (12b-1)
fees .94%
Expenses, excluding distribution and service (12b-1)
fees .94%
Net investment income .96%
------------------------------
(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.
----------
B-122 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
--------------------------------------------------------------------------------
Financial Highlights Cont'd.
--------------------------------------------------------------------------------
Class Z
--------------------------------------------------------------------------------
Year Ended September 30,
------------------------------------------ November 7, 1996(a)
1999 1998 through September 30, 1997
--------------------------------------------------------------------------------
$11.00 12.93 $10.00
------- ------- -------
.09 .17 .10
2.69 (1.33) 2.92
------- ------- -------
2.78 (1.16) 3.02
------- ------- -------
(.07) (.15) (.09)
(.91) (.62) --
------- ------- -------
(.98) (.77) (.09)
------- ------- -------
$12.80 $11.00 $12.93
======= ======= =======
26.31% (9.31)% 30.30%
$4,263 $1,836 $ 609
$3,088 $1,374 $ 227
1.05% 1.06% 1.33%(b)
1.05% 1.06% 1.33%(b)
.76% 1.54% 1.15%(b)
----------
See Notes to Financial Statements B-123
<PAGE>
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
--------------------------------------------------------------------------------
Report of Independent Accountants
--------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
The Prudential Investment Portfolios, Inc.--
Prudential Jennison Equity Opportunity Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Prudential Investment
Portfolios, Inc.--Prudential Jennison Equity Opportunity Fund (the 'Fund', one
of the portfolios constituting The Prudential Investment Portfolios, Inc.)
(formerly Prudential Jennison Growth & Income Fund) at September 30, 2000, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended and the financial highlights
for each of the periods presented, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
and financial highlights (hereafter referred to as 'financial statements') are
the responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
September 30, 2000 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
November 22, 2000
----------
B-124
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth Fund
--------------------------------------------------------------------------------
Portfolio of Investments as of September 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS 95.0%
Common Stocks
-------------------------------------------------------------------------------------
Aerospace 0.5%
579,700 Boeing Co. $ 36,521,100
-------------------------------------------------------------------------------------
Banks & Financial Services 14.1%
3,064,200 American Express Co. 186,150,150
1,998,000 Chase Manhattan Corp. 92,282,625
5,295,033 Citigroup, Inc. 286,262,722
1,250,300 Goldman Sachs Group, Inc. 142,456,056
1,607,200 Merrill Lynch & Co., Inc. 106,075,200
2,199,180 Morgan Stanley Dean Witter & Co. 201,087,521
----------------
1,014,314,274
-------------------------------------------------------------------------------------
Biotechnology 0.9%
2,092,800 Serono SA (ADR)(Switzerland)(a) 63,307,200
-------------------------------------------------------------------------------------
Computer Systems/Peripherals 7.0%
4,031,900 Compaq Computer Corp. 111,199,802
1,453,100 EMC Corp.(a) 144,038,538
1,489,400 Hewlett-Packard Co. 144,471,800
921,300 Sun Microsystems, Inc.(a) 107,561,775
----------------
507,271,915
-------------------------------------------------------------------------------------
Diversified Manufacturing 3.5%
4,360,500 General Electric Co. 251,546,344
-------------------------------------------------------------------------------------
EDP Software & Services 0.8%
421,550 VERITAS Software Corp.(a) 59,860,100
-------------------------------------------------------------------------------------
Electronic Components 5.7%
1,311,200 ASM Lithography Holding NV(a) 42,368,150
290,700 Broadcom Corp. 70,858,125
2,760,000 Intel Corp. 114,712,500
883,600 JDS Uniphase Corp.(a) 83,665,875
2,045,100 Texas Instruments, Inc. 96,503,156
----------------
408,107,806
</TABLE>
---------
B-125 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth Fund
--------------------------------------------------------------------------------
Portfolio of Investments as of September 30, 2000 Cont'd.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C>
Household & Personal Care Products 0.3%
538,000 Estee Lauder Co., Inc. $ 19,704,250
-------------------------------------------------------------------------------------
Industrial Technology/Instruments 0.9%
1,146,100 Applied Materials, Inc.(a) 67,978,056
-------------------------------------------------------------------------------------
Insurance 2.1%
1,593,125 American International Group, Inc. 152,442,148
-------------------------------------------------------------------------------------
Media & Entertainment 9.0%
5,858,700 AT&T Corp. - Liberty Media Group(a) 105,456,600
603,200 Clear Channel Communications, Inc.(a) 34,080,800
889,900 Omnicom Group, Inc. 64,907,081
1,213,400 Time Warner, Inc. 94,948,550
1,802,800 Univision Communications, Inc.(a) 67,379,650
328,400 Verisign, Inc.(a) 66,521,525
3,740,666 Viacom, Inc.(a) 218,828,961
----------------
652,123,167
-------------------------------------------------------------------------------------
Networking 5.2%
4,081,400 Cisco Systems, Inc.(a) 225,497,350
308,900 Juniper Networks, Inc.(a) 67,629,794
1,520,000 Metromedia Fiber Network, Inc. 36,955,000
374,400 Network Appliance, Inc.(a) 47,689,200
----------------
377,771,344
-------------------------------------------------------------------------------------
Oil Services 2.0%
1,776,300 Schlumberger Ltd. 146,211,694
-------------------------------------------------------------------------------------
Pharmaceuticals 12.3%
2,767,200 American Home Products Corp. 156,519,750
1,608,600 Amgen, Inc.(a) 112,325,522
514,500 Genentech, Inc.(a) 95,536,219
1,687,500 Lilly (Eli) & Co. 136,898,437
5,264,525 Pfizer, Inc. 236,574,592
2,316,768 Pharmacia & Upjohn, Inc. 139,440,474
151,600 Schering-Plough Corp. 7,049,400
----------------
884,344,394
</TABLE>
---------
See Notes to Financial Statements B-126
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth Fund
--------------------------------------------------------------------------------
Portfolio of Investments as of September 30, 2000 Cont'd.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C>
Retail 9.2%
5,397,150 Home Depot, Inc. $ 286,386,272
2,731,600 Kohl's Corp.(a) 157,579,175
2,256,400 Tiffany & Co. 87,012,425
2,819,700 Wal-Mart Stores, Inc. 135,698,062
----------------
666,675,934
-------------------------------------------------------------------------------------
Telecommunications 11.1%
1,069,650 Allegiance Telecom, Inc.(a) 39,844,462
4,152,400 Global Crossing Ltd. 128,724,400
471,300 Level 3 Communications, Inc.(a) 36,349,013
2,021,200 Nextel Communications, Inc.(a) 94,491,100
1,222,100 NEXTLINK Communications, Inc.(a) 43,002,644
1,608,487 NTL, Inc.(a)(b) 74,493,054
4,091,100 Qwest Communications International, Inc.(a) 196,628,494
5,041,186 Vodafone AirTouch PLC (ADR)(United Kingdom)(a) 186,523,882
----------------
800,057,049
-------------------------------------------------------------------------------------
Telecommunications Equipment 10.4%
474,000 Applied Micro Circuits Corp.(a) 98,147,625
403,100 Corning, Inc. 119,720,700
3,342,700 Ericsson (L.M.) Telephone Co., Inc. (ADR)(Sweden) 49,513,744
2,855,200 General Motors Corp. 'H' 106,156,336
1,811,800 Motorola, Inc. 51,183,350
5,245,800 Nokia Corp. (ADR)(Finland) 208,848,412
1,915,000 Nortel Networks Corp. 114,062,188
----------------
747,632,355
----------------
Total long-term investments (cost $5,368,476,671) 6,855,869,130
----------------
</TABLE>
---------
B-127 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth Fund
--------------------------------------------------------------------------------
Portfolio of Investments as of September 30, 2000 Cont'd.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
-----------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 4.5%
Commercial Paper
$ 145,000 American Express Credit Corp.
6.53%, 10/2/00 $ 145,000,000
77,885 Ford Motor Credit Corp.
6.00%, 10/2/00 77,885,000
100,000 IBM Credit Corp.
6.62%, 10/2/00 100,000,000
----------------
Total short-term investments
(cost $322,885,000) 322,885,000
----------------
Total Investments (cost $5,691,361,671; Note
4) 99.5% 7,178,754,130
Other assets in excess of liabilities 0.5% 37,968,873
----------------
Net Assets 100% $ 7,216,723,003
================
</TABLE>
--------------------------------------------------------------------------------
(a) Non-income producing security.
(b) Portion of securities on loan with an aggregate market value of $36,998,657;
received securities as collateral with an aggregate market value of
$37,062,262.
ADR--American Depository Receipt.
NV--Naamkee Vennootnchap (Dutch Corporation).
PLC--Public Limited Company (British Corporation).
SA--Sociedad Anomia (Spanish Corporation) or Societe Anonyme (French
Corporation).
---------
See Notes to Financial Statements B-128
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth Fund
--------------------------------------------------------------------------------
Statement of Assets and Liabilities
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, 2000
----------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments, at value (cost $5,691,361,671) $ 7,178,754,130
Cash 13,433
Receivable for investments sold 164,848,069
Receivable for Series shares sold 16,518,678
Dividends and interest receivable 1,870,209
Deferred expenses and other assets 104,364
Receivable for securities lending income 11,929
--------------------
Total assets 7,362,120,812
--------------------
LIABILITIES
Payable for investments purchased 76,555,837
Payable for Series shares reacquired 61,660,228
Management fee payable 3,518,173
Distribution fees payable 2,538,500
Accrued expenses and other liabilities 1,111,875
Securities lending rebate payable 13,196
--------------------
Total liabilities 145,397,809
--------------------
NET ASSETS $ 7,216,723,003
====================
Net assets were comprised of:
Common stock, at par $ 301,061
Paid-in capital in excess of par 5,154,586,492
--------------------
5,154,887,553
Accumulated net realized gain on investments 574,442,991
Net unrealized appreciation on investments 1,487,392,459
--------------------
Net assets, September 30, 2000 $ 7,216,723,003
====================
</TABLE>
---------
B-129 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth Fund
--------------------------------------------------------------------------------
Statement of Assets and Liabilities Cont'd.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, 2000
----------------------------------------------------------------------------------------
<S> <C>
Class A:
Net asset value and redemption price per share
($1,745,454,335 / 72,138,339 shares of common stock
issued and outstanding) $24.20
Maximum sales charge (5% of offering price) 1.27
------
Maximum offering price to public $25.47
======
Class B:
Net asset value, offering price and redemption price per
share ($2,216,911,129 / 95,423,808 shares of common
stock issued and outstanding) $23.23
======
Class C:
Net asset value and redemption price per share
($291,541,579 / 12,548,885 shares of common stock
issued and outstanding) $23.23
Sales charge (1% of offering price) .23
------
Offering price to public $23.46
======
Class Z:
Net asset value, offering price and redemption price per
share ($2,962,815,960 / 120,949,491 shares of common
stock issued and outstanding) $24.50
======
</TABLE>
---------
See Notes to Financial Statements B-130
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth Fund
--------------------------------------------------------------------------------
Statement of Operations
--------------------------------------------------------------------------------
Year
Ended
September 30, 2000
--------------------------------------------------------------------------------
NET INVESTMENT LOSS
Income
Dividends (net of foreign withholding taxes of $349,543) $ 23,873,500
Interest 13,847,640
Income from securities loaned, net 4,653,109
---------------
Total income 42,374,249
---------------
Expenses
Management fee 38,074,482
Distribution fee--Class A 3,724,474
Distribution fee--Class B 21,586,408
Distribution fee--Class C 2,429,395
Transfer agent's fees and expenses 8,630,000
Registration fees 830,000
Reports to shareholders 775,000
Custodian's fees and expenses 230,000
Directors' fees and expenses 145,000
Insurance expense 65,000
Legal fees and expenses 65,000
Audit fee 20,000
Amortization of deferred organization expenses 3,225
Miscellaneous 98,216
---------------
Total expenses 76,676,200
---------------
Net investment loss (34,301,951)
---------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investment transactions 743,200,290
Net change in unrealized appreciation/depreciation on
investments 460,985,846
--------------
Net gain on investments 1,204,186,136
--------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,169,884,185
==============
---------
B-131 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth Fund
--------------------------------------------------------------------------------
Statement of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Year
Ended Ended
September 30, 2000 September 30, 1999
<S> <C> <C>
------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment loss $ (34,301,951) $ (22,210,880)
Net realized gain on investments 743,200,290 201,324,080
Net change in unrealized
appreciation/depreciation of
investments 460,985,846 828,202,820
------------------ ------------------
Net increase in net assets resulting
from operations 1,169,884,185 1,007,316,020
------------------ ------------------
Distributions from net realized capital
gains (Note 1)
Class A (56,726,162) (17,349,525)
Class B (94,312,745) (27,545,469)
Class C (9,330,766) (1,752,623)
Class Z (112,764,183) (38,052,986)
------------------ ------------------
(273,133,856) (84,700,603)
------------------ ------------------
Series share transactions (net of
conversion)
(Note 5)
Net proceeds from shares sold 4,839,587,838 2,794,924,604
Net asset value of shares issued in
reinvestment of distributions 267,626,458 83,061,464
Cost of shares reacquired (3,240,774,223) (1,569,556,414)
------------------ ------------------
Net increase in net assets from Series
share transactions 1,866,440,073 1,308,429,654
------------------ ------------------
Total increase 2,763,190,402 2,231,045,071
NET ASSETS
Beginning of year 4,453,532,601 2,222,487,530
------------------ ------------------
End of year $7,216,723,003 $4,453,532,601
================== ==================
</TABLE>
---------
See Notes to Financial Statements B-132
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth Fund
--------------------------------------------------------------------------------
Notes to Financial Statements
--------------------------------------------------------------------------------
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' or 'Manager'). Investment operations 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 sale 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
last 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 (Jennison Associates LLC 'Jennison'), 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
---------
B-133
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth Fund
--------------------------------------------------------------------------------
Notes to Financial Statements Cont'd.
--------------------------------------------------------------------------------
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 Lending: The Fund may lend securities to broker-dealers. The
loans are secured by collateral at least equal at all times to the market value
of the securities loaned. Loans are subject to termination at the option of the
borrower or the Fund. Upon termination of the loan, the borrower will return to
the lender securities identical to the loaned securities. The Fund may bear the
risk of delay in recovery of, or even loss of rights in, the securities loaned
should the borrower of the securities fail financially. The Fund receives
compensation, net of any rebate, for lending its securities in the form of fees
or it retains a portion of interest on the investment of any cash received as
collateral. The Fund also continues to receive interest and dividends on the
securities loaned and any gain or loss in the market price of the securities
loaned that may occur during the term of the loan. Prudential Securities
Incorporated ('PSI') is the securities lending agent for the Fund. For the year
ended September 30, 2000, PSI has been compensated approximately $1,551,100 for
these services.
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
---------
B-134
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth Fund
--------------------------------------------------------------------------------
Notes to Financial Statements Cont'd.
--------------------------------------------------------------------------------
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.
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, 2000, the Series reclassified current net operating losses and
redemptions utilized as distributions for federal income tax purposes by
decreasing accumulated net investment loss by $34,301,951, decreasing
accumulated net realized gain on investments by $94,296,948 and increasing
paid-in capital by $59,994,997. Net investment income, net realized gains and
net assets were not affected by this change.
Note 2. Agreements
The Fund has a management agreement for the Series 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 Series. 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 objective and policies.
Effective January 1, 2000, the management fee paid PIFM is computed daily
and payable monthly, at an annual rate of .60% of the Series' average daily net
assets up to $300 million, .575% of the next $4.7 billion and .55% of the
Series' average daily net assets in excess of $5 billion. Until January 1, 2000,
the management fee was payable at an annual rate of .60% of the Series' average
daily net assets. 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
---------
B-135
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth Fund
--------------------------------------------------------------------------------
Notes to Financial Statements Cont'd.
--------------------------------------------------------------------------------
employees of the Fund, occupancy and certain clerical and bookkeeping costs of
the Fund. The Series bears all other costs and expenses.
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 Series' 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 Series.
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 the average daily net
assets of the Class A, B and C shares, respectively, for the year ended
September 30, 2000.
PIMS has advised the Series that it received approximately $2,999,400 and
$1,155,800 in front-end sales charges resulting from sales of Class A and Class
C shares during the year ended September 30, 2000. 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 year ended September 30, 2000, it
received approximately $3,052,100 and $134,700 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 ('Prudential').
The Fund, along with other unaffiliated registered investment companies
(the 'Funds'), entered into a syndicated credit agreement ('SCA') with an
unaffiliated lender. The maximum commitment under the SCA is $1 billion.
Interest on any such borrowings will be at market rates. The purpose of the
agreement is to serve as an alternative source of funding for capital share
redemptions. The Funds pay a commitment fee of .080 of 1% of the unused portion
of the credit facility. The commitment fee is accrued and paid quarterly on a
pro rata basis by the Funds. The expiration date of the SCA is March 9, 2001.
Prior to March 9, 2000, the commitment fee was .065 of 1% of the unused portion
of the credit facility. The Series did not borrow any amounts pursuant to the
SCA during the year ended September 30, 2000.
---------
B-136
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth Fund
--------------------------------------------------------------------------------
Notes to Financial Statements Cont'd.
--------------------------------------------------------------------------------
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, 2000,
the Series incurred fees of approximately $7,502,000 for the services of PMFS.
As of September 30, 2000, approximately $644,000 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, 2000, Prudential Securities Incorporated
('PSI'), which is an indirect, wholly owned subsidiary of Prudential, earned
approximately $541,200 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, 2000 were $6,545,894,575 and $5,244,305,253,
respectively.
The cost of investments for federal income tax purposes at September 30,
2000, was $5,725,586,461 and, accordingly, net unrealized appreciation of
investments for federal income tax purposes was $1,453,167,669 (gross unrealized
appreciation--$1,670,446,898; gross unrealized depreciation--$217,279,229).
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. 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.
---------
B-137
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth Fund
--------------------------------------------------------------------------------
Notes to Financial Statements Cont'd.
--------------------------------------------------------------------------------
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
------- ----------- ---------------
<S> <C> <C>
Year ended September 30, 2000:
Shares sold 81,700,801 $ 2,021,000,138
Shares issued in reinvestment of distributions 2,447,380 54,576,570
Shares reacquired (65,143,859) (1,617,762,148)
----------- ---------------
Net increase (decrease) in shares outstanding before
conversion 19,004,322 457,814,560
Shares issued upon conversion from Class B 7,680,130 195,263,218
----------- ---------------
Net increase (decrease) in shares outstanding 26,684,452 $ 653,077,778
=========== ===============
Year ended September 30, 1999:
Shares sold 34,344,966 $ 662,914,500
Shares issued in reinvestment of distributions 1,032,752 16,627,307
Shares reacquired (23,547,037) (457,441,788)
----------- ---------------
Net increase (decrease) in shares outstanding before
conversion 11,830,681 222,100,019
Shares issued upon conversion from Class B 2,660,015 51,625,561
----------- ---------------
Net increase (decrease) in shares outstanding 14,490,696 $ 273,725,580
=========== ===============
Class B
-------
Year ended September 30, 2000:
Shares sold 37,569,694 $ 888,985,755
Shares issued in reinvestment of distributions 4,234,039 91,243,545
Shares reacquired (15,944,289) (376,561,661)
----------- ---------------
Net increase (decrease) in shares outstanding before
conversion 25,859,444 603,667,639
Shares reacquired upon conversion into Class A (7,978,000) (195,263,218)
----------- ---------------
Net increase (decrease) in shares outstanding 17,881,444 $ 408,404,421
=========== ===============
Year ended September 30, 1999:
Shares sold 42,766,896 $ 799,643,630
Shares issued in reinvestment of distributions 1,698,149 26,677,924
Shares reacquired (14,404,393) (265,401,893)
----------- ---------------
Net increase (decrease) in shares outstanding before
conversion 30,060,652 560,919,661
Shares reacquired upon conversion into Class A (2,736,865) (51,625,561)
----------- ---------------
Net increase (decrease) in shares outstanding 27,323,787 $ 509,294,100
=========== ===============
</TABLE>
---------
B-138
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth Fund
--------------------------------------------------------------------------------
Notes to Financial Statements Cont'd.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C Shares Amount
------- ----------- ---------------
Year ended September 30, 2000:
<S> <C> <C>
Shares sold 7,259,799 $ 172,301,711
Shares issued in reinvestment of distributions 422,563 9,106,236
Shares reacquired (2,428,874) (57,879,720)
----------- ---------------
Net increase (decrease) in shares outstanding 5,253,488 $ 123,528,227
=========== ===============
Year ended September 30, 1999:
Shares sold 6,235,444 $ 117,953,942
Shares issued in reinvestment of distributions 108,868 1,710,322
Shares reacquired (2,247,639) (41,843,724)
----------- ---------------
Net increase (decrease) in shares outstanding 4,096,673 $ 77,820,540
=========== ===============
Class Z
-------
Year ended September 30, 2000:
Shares sold 70,468,867 $ 1,757,300,234
Shares issued in reinvestment of distributions 5,002,224 112,700,107
Shares reacquired (48,067,246) (1,188,570,694)
----------- ---------------
Net increase (decrease) in shares outstanding 27,403,845 $ 681,429,647
=========== ===============
Year ended September 30, 1999:
Shares sold 63,109,118 $ 1,214,412,532
Shares issued in reinvestment of distributions 2,345,617 38,045,912
Shares reacquired (42,230,402) (804,869,008)
----------- ---------------
Net increase (decrease) in shares outstanding 23,224,333 $ 447,589,436
=========== ===============
</TABLE>
---------
B-139
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth Fund
Financial
Highlights
--------
B-140
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth Fund
--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------
Class A
------------------
Year Ended
September 30, 2000
--------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 20.05
------------
Income from investment operations
Net investment income (loss)(c) (0.09)
Net realized and unrealized gain on investment transactions 5.42
------------
Total from investment operations 5.33
------------
Less distributions
Distributions from net realized gains (1.18)
------------
Net asset value, end of period $ 24.20
============
TOTAL RETURN(b) 27.02%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $1,745,454
Average net assets (000) $1,489,790
Ratios to average net assets:
Expenses, including distribution and service (12b-1)
fees .99%
Expenses, excluding distribution and service (12b-1)
fees .74%
Net investment income (loss) (.35)%
For Class A, B, C and Z shares:
Portfolio turnover rate 83%
------------------------------
(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 average shares outstanding during the period.
(d) Annualized.
---------
B-141 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth Fund
--------------------------------------------------------------------------------
Financial Highlights Cont'd.
--------------------------------------------------------------------------------
Class A
--------------------------------------------------------------------------------
Year Ended September 30, November 2, 1995(a)
---------------------------------------------------------- through September 30,
1999 1998 1997 1996
--------------------------------------------------------------------------------
$ 14.44 $ 15.39 $ 10.97 $ 10.00
---------------- ---------------- ---------------- --------
(.08) (.04) (.03) (.03)
6.23 .40 4.45 1.00
---------------- ---------------- ---------------- --------
6.15 .36 4.42 .97
---------------- ---------------- ---------------- --------
(.54) (1.31) -- --
---------------- ---------------- ---------------- --------
$ 20.05 $ 14.44 $ 15.39 $ 10.97
================ ================ ================ ========
43.58% 3.02% 40.29% 9.70%
$911,467 $446,996 $145,022 $85,440
$748,315 $251,118 $105,982 $70,667
1.05% 1.08% 1.09% 1.23%(d)
.80% .83% .84% .98%(d)
(.44)% (.26)% (.25)% (.37)%(d)
56% 58% 63% 42%
---------
See Notes to Financial Statements B-142
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth Fund
--------------------------------------------------------------------------------
Financial Highlights Cont'd.
--------------------------------------------------------------------------------
Class B
------------------
Year Ended
September 30, 2000
--------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 19.43
-------------
Income from investment operations
Net investment income (loss)(c) (.26)
Net realized and unrealized gain on investment transactions 5.24
-------------
Total from investment operations 4.98
-------------
Less distributions
Distributions from net realized gains (1.18)
-------------
Net asset value, end of period $ 23.23
=============
TOTAL RETURN(b) 26.04%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $2,216,911
Average net assets (000) $2,158,641
Ratios to average net assets:
Expenses, including distribution and service (12b-1)
fees 1.74%
Expenses, excluding distribution and service (12b-1)
fees .74%
Net investment income (loss) (1.10)%
------------------------------
(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 average shares outstanding during the period.
(d) Annualized.
---------
B-143 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth Fund
--------------------------------------------------------------------------------
Financial Highlights Cont'd.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
-----------------------------------------------------------------------------------------------
Year Ended September 30,
---------------------------------------------------------- November 2, 1995(a)
1999 1998 1997 through September 30, 1996
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 14.11 $ 15.18 $ 10.89 $ 10.00
---------------- ---------------- ---------------- ----------
(.22) (.15) (.12) (.10)
6.08 .39 4.41 .99
---------------- ---------------- ---------------- ----------
5.86 .24 4.29 .89
---------------- ---------------- ---------------- ----------
(.54) (1.31) -- --
---------------- ---------------- ---------------- ----------
$ 19.43 $ 14.11 $ 15.18 $ 10.89
---------------- ---------------- ---------------- ----------
---------------- ---------------- ---------------- ----------
42.51% 2.21% 39.39% 8.90%
$1,506,839 $708,463 $419,405 $231,541
$1,236,825 $557,823 $299,476 $162,412
1.80% 1.83% 1.84% 1.98%(d)
.80% .83% .84% .98%(d)
(1.19)% (1.01)% (1.00)% (1.12)%(d)
</TABLE>
---------
See Notes to Financial Statements B-144
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth Fund
--------------------------------------------------------------------------------
Financial Highlights Cont'd.
--------------------------------------------------------------------------------
Class C
------------------
Year Ended
September 30, 2000
--------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 19.43
-------------
Income from investment operations
Net investment income (loss)(c) (.26)
Net realized and unrealized gain on investment transactions 5.24
-------------
Total from investment operations 4.98
-------------
Less distributions
Distributions from net realized gains (1.18)
-------------
Net asset value, end of period $ 23.23
=============
TOTAL RETURN(b) 26.04%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $ 291,542
Average net assets (000) $ 242,939
Ratios to average net assets:
Expenses, including distribution and service (12b-1)
fees 1.74%
Expenses, excluding distribution and service (12b-1)
fees .74%
Net investment income (loss) (1.10)%
------------------------------
(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 average shares outstanding during the period.
(d) Annualized.
---------
B-145 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth Fund
--------------------------------------------------------------------------------
Financial Highlights Cont'd.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
-----------------------------------------------------------------------------------------------
Year Ended September 30,
---------------------------------------------------------- November 2, 1995(a)
1999 1998 1997 through September 30, 1996
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 14.11 $ 15.18 $ 10.89 $ 10.00
---------------- ---------------- ---------------- ----------
(.22) (.15) (.12) (.10)
6.08 .39 4.41 .99
---------------- ---------------- ---------------- ----------
5.86 .24 4.29 .89
---------------- ---------------- ---------------- ----------
(.54) (1.31) -- --
---------------- ---------------- ---------------- ----------
$ 19.43 $ 14.11 $ 15.18 $ 10.89
================ ================ ================ ==========
42.51% 2.21% 39.39% 8.90%
$141,770 $ 45,126 $ 25,134 $ 15,281
$ 98,033 $ 35,337 $ 18,248 $ 12,550
1.80% 1.83% 1.84% 1.98%(d)
.80% .83% .84% .98%(d)
(1.20)% (1.01)% (1.00)% (1.12)%(d)
</TABLE>
---------
See Notes to Financial Statements B-146
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth Fund
--------------------------------------------------------------------------------
Financial Highlights Cont'd.
--------------------------------------------------------------------------------
Class Z
------------------
Year Ended
September 30, 2000
--------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 20.24
-------------
Income from investment operations
Net investment income (loss)(c) (.02)
Net realized and unrealized gain on investment transactions 5.46
-------------
Total from investment operations 5.44
-------------
Less distributions
Distributions from net realized gains (1.18)
-------------
Net asset value, end of period $ 24.50
=============
TOTAL RETURN(b) 27.39%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $2,962,816
Average net assets (000) $2,733,194
Ratios to average net assets:
Expenses, including distribution and service (12b-1)
fees .74%
Expenses, excluding distribution and service (12b-1)
fees .74%
Net investment income (loss) (.10)%
------------------------------
(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 average shares outstanding during the period.
(d) Annualized.
---------
B-147 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth Fund
--------------------------------------------------------------------------------
Financial Highlights Cont'd.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class Z
------------------------------------------------------------------------------------------
Year Ended September 30, April 15, 1996(a)
---------------------------------------------------------- through September 30,
1999 1998 1997 1996
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 14.53 $ 15.45 $ 10.98 $ 10.32
---------------- ---------------- ---------------- ----------
(.04) -- -- (.02)
6.29 .39 4.47 .68
---------------- ---------------- ---------------- ----------
6.25 .39 4.47 .66
---------------- ---------------- ---------------- ----------
(.54) (1.31) -- --
---------------- ---------------- ---------------- ----------
$ 20.24 $ 14.53 $ 15.45 $ 10.98
================ ================ ================ ==========
43.94% 3.22% 40.71% 6.40%
$1,893,457 $1,021,903 $609,869 $ 362,416
$1,596,809 $ 810,296 $455,684 $ 26,829
.80% .83% .84% .98%(d)
.80% .83% .84% .98%(d)
(.19)% (.01)% -- (.12)%(d)
</TABLE>
---------
See Notes to Financial Statements B-148
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth Fund
--------------------------------------------------------------------------------
Report of Independent Accountants
--------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
The Prudential Investment Portfolios, Inc.--Prudential Jennison Growth Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Prudential Investment
Portfolios, Inc.--Prudential Jennison Growth Fund (the 'Fund', one of the
portfolios constituting The Prudential Investment Portfolios, Inc.) at September
30, 2000, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended and the
financial highlights for each of the four years in the period then ended, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as 'financial statements') are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at September 30, 2000 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion. The accompanying financial highlights for the period ended
September 30, 1996 were audited by other independent accountants, whose opinion
dated November 4,1996 was unqualified.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
November 22, 2000
---------
B-149
<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,
(that is, 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.
Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a
rating in the lower end of that generic rating category.
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: An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B: An obligation rated B is more vulnerable to nonpayment than obligations
rated BB, but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet
its financial commitment on the obligation.
CCC: An obligation rated CCC is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC: An obligation rated CC is currently highly vulnerable to nonpayment.
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. AND FITCH IBCA, INC.
Long-Term Debt and Preferred Stock 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-2
<PAGE>
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 changes 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.
Short-Term Debt Ratings
F1: Highest credit quality. Indicates the best capacity for timely payment
of financial commitments; may have an added "+" to denote any exceptionally
strong credit feature.
F2: Good credit quality. A satisfactory capacity for timely payment of
financial commitments, but the margin of safety is not as great as in the case
of the higher ratings.
F3: Fair credit quality. The capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.
B: Speculative. Minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
C: High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business
and economic environment.
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.
[GRAPH]
Value of $1.00 invested on 1/1/1926 through 12/31/1999
Small Stocks $6,640.79
Common Stocks $2,845.63
Long-Term Bonds $ 40.22
Treasury Bills $ 15.64
Inflation $ 9.40
Source: Ibbotson Associates. Used with permission. 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
500 Composite Stock Price 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 1989 through 1999. The total
returns of the indexes 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.
[GRAPH]
Historical Total Returns of Different Bond Market Sectors
Difference
U.S. between
U.S U.S. Investment highest
Government Government Grade U.S. World and lowest
Treasury Mortgage Corporate High Yield Government returns
Bonds/1/ Securities/2/ Bonds/3/ Bonds/4/ Bonds/5/ percent
1989 14.4% 15.4% 14.1% 0.8% (3.4)% 18.8%
1990 8.5% 10.7% 7.1% (9.6)% 15.3% 24.9%
1991 15.3% 15.7% 18.5% 46.2% 16.2% 30.9%
1992 7.2% 7.0% 8.7% 15.8% 4.8% 11.0%
1993 10.7% 6.8% 12.2% 17.1% 15.1% 10.3%
1994 (3.4)% (1.6)% (3.9)% (1.0)% 6.0% 9.9%
1995 18.4% 16.8% 22.3% 19.2% 19.6% 5.5%
1996 2.7% 5.4% 3.3% 11.4% 4.1% 8.7%
1997 9.6% 9.5% 10.2% 12.8% (4.3)% 17.1%
1998 10.0% 7.0% 8.6% 1.6% 5.3% 8.4%
1999 -2.56% 1.86% -1.96% 2.39% -5.07% 7.46%
-------
/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 illustrates the This chart shows the growth of a
performance of major world stock hypothetical $10,000 investment
markets for the period from made in the stocks representing the
December 31, 1985 through December S&P 500 stock index with and
31, 1999. It does not represent the without reinvested dividends.
performance of any Prudential
mutual fund. Capital Appreciation and
Reinvesting Dividends--$474.094
Capital Appreciation Only--$159,597
(1969-1999)
[GRAPH]
Average Annual Total Returns of Major World Stock Markets
(12/31/1985 - 12/31/1999) (in U.S. dollars)
Sweden 22.70%
Hong Kong 20.37%
Spain 20.11%
Netherland 18.63%
Belgium 18.41%
France 17.69%
USA 17.39%
U.K. 16.41%
Europe 16.28%
Switzerland 15.58%
Sing/Mlysia 15.07%
Denmark 14.72%
Germany 13.29%
Australia 11.68%
Italy 11.39%
Canada 11.10%
Japan 9.59%
Norway 8.91%
Austria 7.09%
Source: Lipper Inc. All rights
reserved. This chart is used for
current illustrative purposes only
and is not intended to represent
the past, present or future
performance of any Prudential
mutual fund. Common stock total
return is based on the Standard &
Poor's 500 Composite Stock Price
Index, a market-value-weighted
index made up of 500 of the largest
stocks in the U.S. based upon their
stock market value. Investors
cannot invest directly in indexes.
Source: Morgan Stanley Capital
International (MSCI) and Lipper
Inc. as of 12/31/99. Used with
permission. Morgan Stanley Country
indexes are unmanaged indexes which
include those stocks making up the
largest two-thirds of each
country's total stock market
capitalization. Returns reflect the
reinvestment of all distributions.
This chart is for illustrative
purposes only and is not indicative
of the past, present or future
performance of any specific
investment. Investors cannot invest
directly in stock indexes.
[GRAPH]
World Stock Market Capitalization by Region
World Total: 20.7 Trillion
U.S. 49.0%
Europe 32.5%
Pacific Basin 16.4%
Canada 2.1%
Source: Morgan Stanley Capital
International, December 31, 1999. 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.
[Long Term U.S. Treasury Bond Yield in Persent (1926-1999)
[LINE GRAPH]
------------------------------------------
Source: Ibbotson Associates. All rights reserved. The chart illustrates the
historical yield of the long-term U.S. Treasury Bond from 1926-1999. 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>
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.
(7) Articles of Amendment, incorporated by reference to Exhibit
(1)(g) to the Registration Statement on Form N-14 (File No. 333-
41790) filed via EDGAR on July 20, 2000.
(8) Articles of Amendment.*
(b) Amended and Restated Bylaws, incorporated by reference to Exhibit 2
to the Registration Statement on Form N-14 (File No. 333-41790)
filed via EDGAR on July 20, 2000.
(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) Amended and Restated Management Agreement between the
Registrant and Prudential Investments Fund Management LLC,
incorporated by reference to Exhibit 6(a) to the Registration
Statement on Form N-14 (File No. 333-41790) filed via EDGAR on July
20, 2000.
(2) Subadvisory Agreement between Prudential Mutual Fund
Management, Inc. and Jennison Associates Capital Corp., with
respect to Prudential Jennison Growth Fund and Prudential Jennison
Growth & Income Fund, 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) Amended and Restated Management Agreement between the
Registrant and Prudential Investments Fund Management LLC with
respect to Prudential Active Balanced Fund.*
(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. 8 to the Registration Statement on Form N-1A (File
No. 33-61997) filed via EDGAR on June 11, 1998.
(5) Amendment to Subadvisory Agreement between Prudential
Investments Fund Management LLC and The Prudential Investment
Corporation with respect to Prudential Active Balanced Fund,
incorporated by reference to Exhibit 6(e) to the Registration
Statement on Form N-14 (File No. 333-41790) filed via EDGAR on July
20, 2000.
(6) Amended and Restated Management Agreement between the
Registrant and Prudential Investments Fund Management LLC with
respect to Prudential Jennison Growth & Income Fund, incorporated
by reference to Exhibit 6(f) to the Registration Statement on Form
N-14 (File No. 333-41790) filed via EDGAR on July 20, 2000.
C-1
<PAGE>
(e) (1) Amended and Restated Distribution Agreement between the
Registrant and Prudential Investment Management Services LLC.*
(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, incorporated by reference to
Exhibit (g)(2) to Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A (File No. 33-61997) filed via
EDGAR on September 29, 1999.
(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, incorporated by
reference to Exhibit (h)(2) to Post-Effective Amendment No. 10 to
the Registration Statement on Form N-1A (File No. 33-61997) filed
via EDGAR on September 29, 1999.
(i) Opinion and consent of Counsel.*
(j) Consent of Independent Accountants.*
(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.
(n) Amended and Restated Rule 18f-3 Plan.*
(p) (1) Amended Code of Ethics of the Registrant.*
(2) Amended Code of Ethics of The Prudential Investment
Corporation, Prudential Investments Fund Management LLC and
Prudential Investment Management Services LLC.*
(3) Code of Ethics of Jennison Associates LLC, incorporated by
reference to Exhibit (p)(3) to Post-Effective Amendment No. 13 to
the Registration Statement on Form N-1A (File No. 33-61997) filed
via EDGAR on September 29, 2000.
----------
* Filed herewith.
Item 24. Persons Controlled by or under Common Control with the Fund.
None.
C-2
<PAGE>
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)(1) 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.
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), (3) and (6) 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);
C-3
<PAGE>
(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.
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. President, Chief President, Chief Executive Officer
Executive Officer and Chief Operating Officer, PIFM;
and Chief Operating Senior Vice President, The
Officer Prudential 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; Senior
Vice President, Chief Legal Officer
and Secretary, PIMS
Theodore F. Kilkuskie Executive Vice Executive Vice President, PIFM
President
Stephen Pelletier Executive Vice Executive Vice President, PIFM
President
Judy A. Rice Executive Vice Executive Vice President, PIFM
President
Ajay Sawhney 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 of 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) The Prudential Investment Corporation (PIC)
See "How the Fund is Managed--Investment Adviser" in the Prospectus of
Prudential Active Balanced Fund constituting part of 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.
C-4
<PAGE>
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
---------------- ----------------- ---------------------
<S> <C> <C>
John R. Strangfeld Chairman of the Board, Chief Executive Officer, Prudential
President, Chief Securities, Inc., Executive Vice President,
Executive Officer Prudential; President, Prudential Global
and Director Asset Management Group, Prudential;
Chairman of the Board, President, Chief
Executive Officer and Director, PIC
Bernard Winograd Senior Vice President Chief Executive Officer, Prudential Real
and Director Estate Investors (PREI); 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, Global Utility Fund, Inc., Nicholas-
Applegate Fund, Inc. (Nicholas-Applegate Growth Equity Fund), Prudential
California Municipal Fund, Prudential Diversified Funds, Prudential Equity
Fund, Inc., Prudential Europe Growth Fund, Inc., Prudential Global Genesis
Fund, Inc., Prudential Global Total Return 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 International Bond Fund, Inc., 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 Short-Term Corporate Bond Fund,
Inc., Prudential Small Company Fund, Inc., Prudential Special Money Market
Fund, Inc., Prudential Tax-Free Money Fund, Inc., Prudential Tax-Managed
Funds, Prudential Tax-Managed Small-Cap Fund, Inc., Prudential Total Return
Bond Fund, Inc., Prudential 20/20 Focus Fund, Prudential U.S. Emerging Growth
Fund, Inc., Prudential Value Fund, Prudential World Fund, Inc., The Prudential
Investment Portfolios, Inc., Strategic Partners Series, Target Funds and The
Target Portfolio Trust.
PIMS is also distributor of the following unit investment trusts: Separate
Accounts: Prudential's Gibraltar Fund, Inc., The Prudential Variable Contract
Account-2, The Prudential Variable Contract Account-10, The Prudential
Variable Contract Account-11, The Prudential Variable Contract Account-24, The
Prudential Variable Contract GI-2, The Prudential Discovery Select Group
Variable Contract Account, The Pruco Life Flexible Premium Variable Annuity
Account, The Pruco Life of New Jersey Flexible Premium Variable Annuity
Account, The Prudential Individual Variable Contract Account and The
Prudential Qualified Individual Variable Contract Account.
(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
213 Washington Street
Newark, NJ 07102
William V. Healey....... Senior Vice President, Secretary and Chief Assistant Secretary
Legal Officer
John R. Strangfeld...... Advisory Board Member None
</TABLE>
----------
(/1/) The address of each person named is Gateway Center 3, 100 Mulberry Street,
Newark, New Jersey 07102-4077 unless otherwise noted.
(c) Registrant has no principal underwriter who is not an affiliated person
of the Registrant.
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,
New York 10017, the Registrant and PIC, Gateway Center Three, 100 Mulberry
Street, Newark, New Jersey 07102-4077 and Prudential Mutual Fund Services LLC,
194 Wood Avenue South, Iselin, New Jersey 08830. 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 Fund certifies that it meets all of the requirements for
effectiveness of this Post-Effective Amendment to the Registration Statement
pursuant to Rule 485(b) under the Securities Act and has duly caused this
Post-Effective 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 8th day of December, 2000.
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
/s/ David R. Odenath, Jr.
-----------------------------------
(David R. Odenath, 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>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Grace C. Torres Treasurer and Principal Financial December 8, 2000
--------------------------------- and Accounting Officer
Grace C. Torres
/s/ Saul K. Fenster Director December 8, 2000
---------------------------------
Saul K. Fenster
/s/ Delayne Dedrick Gold Director December 8, 2000
---------------------------------
Delayne Dedrick Gold
/s/ Robert F. Gunia Director December 8, 2000
---------------------------------
Robert F. Gunia
/s/ Douglas H. McCorkindale Director December 8, 2000
---------------------------------
Douglas H. McCorkindale
/s/ W. Scott McDonald, Jr. Director December 8, 2000
---------------------------------
W. Scott McDonald, Jr.
/s/ Thomas T. Mooney Director December 8, 2000
---------------------------------
Thomas T. Mooney
/s/ Stephen P. Munn Director December 8, 2000
---------------------------------
Stephen P. Munn
/s/ David R. Odenath, Jr. President and Director December 8, 2000
---------------------------------
David R. Odenath, Jr.
/s/ Richard A. Redeker Director December 8, 2000
---------------------------------
Richard A. Redeker
/s/ Judy A. Rice Director December 8, 2000
---------------------------------
Judy A. Rice
/s/ Robin B. Smith Director December 8, 2000
---------------------------------
Robin B. Smith
/s/ Louis A. Weil, III Director December 8, 2000
---------------------------------
Louis A. Weil, III
/s/ Clay T. Whitehead Director December 8, 2000
---------------------------------
Clay T. Whitehead
</TABLE>
C-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<C> <S>
(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.
(a)(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.
(a)(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.
(a)(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.
(a)(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.
(a)(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.
(a)(7) Articles of Amendment, incorporated by reference to Exhibit
(1)(g) to the Registration Statement on Form N-14 (File No.
333-41790) filed via EDGAR on July 20, 2000.
(a)(8) Articles of Amendment.*
(b) Amended and Restated By-Laws, incorporated by reference to
Exhibit 2 to the Registration Statement on Form N-14 (File No.
333-41790) filed via EDGAR on July 20, 2000.
(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) Amended and Restated Management Agreement between the
Registrant and Prudential Investments Fund Management, LLC,
incorporated by reference to Exhibit 6(a) to the Registration
Statement on Form N-14 (File No. 333-41790) filed via EDGAR on
July 20, 2000.
(d)(2) Subadvisory Agreement between Prudential Mutual Fund
Management, Inc. and Jennison Associates Capital Corp., with
respect to Prudential Jennison Growth Fund and Prudential
Jennison Growth & Income Fund, 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.
(d)(3) Amended and Restated Management Agreement between the
Registrant and Prudential Investments Fund Management LLC with
respect to Prudential Active Balanced Fund.*
(d)(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. 8 to the Registration Statement on
Form N-1A (File No. 33-61997) filed via EDGAR on June 11, 1998.
(d)(5) Amendment to Subadvisory Agreement between Prudential
Investments Fund Management LLC and The Prudential Investment
Corporation with respect to Prudential Active Balanced Fund,
incorporated by reference to Exhibit 6(e) to the Registration
Statement on Form N-14 (File No. 333-41790) filed via EDGAR on
July 20, 2000.
(d)(6) Amended and Restated Management Agreement between the
Registrant and Prudential Investments Fund Management LLC with
respect to Prudential Jennison Growth & Income Fund,
incorporated by reference to Exhibit 6(f) to the Registration
Statement on Form N-14 (File No. 333-41790) filed via EDGAR on
July 20, 2000.
(e)(1) Amended and Restated Distribution Agreement between the
Registrant and Prudential Investment Management Services LLC.*
(e)(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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<C> <S>
(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.
(g)(2) Amendment to Custodian Contract, incorporated by reference to
Exhibit (g)(2) to Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A (File No. 33-61997) filed
via EDGAR on September 29, 1999.
(g)(3) 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.
(h)(2) Amendment to Transfer Agency Agreement, incorporated by
reference to Exhibit (h)(2) to Post-Effective Amendment No. 10
to the Registration Statement on Form N-1A (File No. 33-61997)
filed via EDGAR on September 29, 1999.
(i) Opinion and Consent of Counsel.*
(j) Consent of Independent Accountants.*
(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.
(m)(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.
(m)(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.
(n) Amended and Restated Rule 18f-3 Plan.*
(p)(1) Amended Code of Ethics of the Registrant.*
(p)(2) Amended Code of Ethics of The Prudential Investment
Corporation, Prudential Investments Fund Management LLC and
Prudential Investment Management Services LLC.*
(p)(3) Code of Ethics of Jennison Associates LLC, incorporated by
reference to Exhibit (p)(3) to Post-Effective Amendment No. 13
to the Registration Statement on Form N-1A (File No. 33-61997)
filed via EDGAR on September 29, 2000.
</TABLE>
----------
*Filed herewith.
