<PAGE>
As filed with the Securities and Exchange Commission on September 29, 2000
Registration Nos. 33-61997, 811-7343
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_]
Pre-Effective Amendment No. [_]
[X]
Post-Effective Amendment No. 13
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [_]
[X]
Amendment No. 14
(Check appropriate box or boxes)
------------
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)
[_] on (date) pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[X] on November 29, 2000 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>
Explanatory Note
This Post-Effective Amendment No. 13 to the Registration Statement of The
Prudential Investment Portfolios, Inc. (File No. 33-61997) is not intended to
amend the Prospectuses of Prudential Active Balanced Fund and Prudential
Jennison Equity Opportunity Fund (formerly known as Prudential Jennison Growth
& Income Fund), each dated December 2, 1999, other series of the Registrant.
<PAGE>
PROSPECTUS NOVEMBER 29, 2000
Prudential Jennison Growth Fund
(Class I Shares)
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FUND TYPE Stock
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OBJECTIVE 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 OF PRUDENTIAL]
<PAGE>
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Risk/Return Summary
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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 November 29, 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 .60%
+ Distribution and service (12b-1) fees None
+ Other expenses [.03%]
= Total annual Fund operating expenses [.63%]
--------------------------------------------------
</TABLE>
1 Your broker may charge you a separate or additional fee for purchases and
sales of shares.
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1
<PAGE>
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Risk/Return Summary
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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 -- -- -- --
</TABLE>
--------------------------------------------------------------------------------
[GRAPHIC]
Prudential Jennison Growth Fund (800) 225-1852
2
<PAGE>
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--------------------------------------------------------------------------------
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 (800) 353-2847.
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:
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
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 Quotron Symbol:
Class I:-- --
Investment Company Act File No. 811-07343
MF 131A
[LOGO] Printed on Recycled Paper
<PAGE>
PROSPECTUS NOVEMBER 29, 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.
[LOGO] Prudential
<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
8 Other Investments and Strategies
12 Investment Risks
16 How the Fund is Managed
16 Board of Directors
16 Manager
16 Investment Adviser
16 Portfolio Managers
17 Distributor
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 Exchanges or Redemptions
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
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WE'RE GROWTH INVESTORS
In deciding which stocks to buy, we use what is known as a growth investment
style. This means we invest in stocks we believe could experience superior
sales or earnings growth, or high returns on equity and assets.
--------------------------------------------------------------------------------
This section highlights key information about the PRUDENTIAL JENNISON GROWTH
FUND, which we refer to as "the Fund." The Fund is a series of The Prudential
Investment Portfolios, Inc. ("the Company"). Additional information follows
this summary.
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
Our investment objective is LONG-TERM GROWTH OF CAPITAL. This means we seek
investments whose price will increase over several years. We normally invest at
least 65% of total assets in equity-related securities of companies that exceed
$1 billion in market capitalization and that we believe have above-average
growth prospects. These companies are generally considered medium- to large-
capitalization companies. They tend to have a unique market niche, a strong new
product profile or superior management. Equity-related securities in which the
Fund primarily invests are common stocks, nonconvertible preferred stocks and
convertible securities. We consider selling or reducing a stock position when,
in the opinion of the investment adviser, the stock has experienced a
fundamental disappointment in earnings; it has reached an intermediate-term
price objective and its outlook no longer seems sufficiently promising; a
relatively more attractive stock emerges; or the stock has experienced adverse
price movement.
We can invest up to 20% of the Fund's assets in foreign equity securities.
We can invest in investment-grade fixed-income securities, including mortgage-
related securities, and in U.S. government obligations. We also may engage in
short sales and may use derivatives for hedging or to improve the Fund's
returns. While we make every effort to achieve our objective, we can't
guarantee success.
PRINCIPAL RISKS
Although we try to invest wisely, all investments involve risk. Since the Fund
invests primarily in equity-related securities, there is the risk that the
price of a particular stock we own could go down, or the value of the equity
markets or a sector of them could go down. Stock markets are volatile.
--------------------------------------------------------------------------------
1
<PAGE>
--------------------------------------------------------------------------------
Risk/Return Summary
--------------------------------------------------------------------------------
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 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.
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 invests in debt obligations which have credit, market and interest
rate risks. Credit risk is the possibility that an issuer of a debt obligation
fails to pay the Fund interest or repay principal. Market risk, which may
affect an industry, a sector or the entire market, is the possibility that the
market value of an investment may move up or down and that its movement may
occur quickly or unpredictably. Interest rate risk refers to the fact that the
value of most bonds will fall when interest rates rise. The longer the maturity
and the lower the credit quality of a bond, the more likely its value will
decline.
Some of our investment strategies--such as using derivatives and leverage--
also involve above-average risks. The Fund may use risk management techniques
to try to preserve assets or enhance return. Derivatives may not fully offset
the underlying positions and this could result in losses to the Fund that would
not otherwise have occurred. Leverage risk is the risk associated with
investments or trading strategies (such as short sales) that relatively small
market movements may result in large changes in the value of an investment.
Like any mutual fund, an investment in the Fund could lose value and you
could lose money. For more detailed information about the risks associated with
the Fund, see "How the Fund Invests--Investment Risks."
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
--------------------------------------------------------------------------------
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%
BEST QUARTER %( quarter of 199 )
WORST QUARTER %( quarter of 199 )
* 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 %.
AVERAGE ANNUAL RETURNS/1/ (AS OF 12-31-99)
<TABLE>
--------------------------------------------------
<CAPTION>
1 YR SINCE INCEPTION
<S> <C> <C>
Class A shares % % (since 11-2-95)
Class B shares % % (since 11-2-95)
Class C shares % % (since 11-2-95)
Class Z shares % % (since 4-15-96)
S&P 500 Index/2/ % N/A/2/
Lipper Average/3/ % 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 % for Class A,
Class B and Class C shares and % 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
% for Class A, Class B and Class C shares and % 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 .60% .60% .60% .60%
+ Distribution and service (12b-1) fees .30%/4/ 1.00% 1.00% None
+ Other expenses % % % %
= Total annual Fund operating expenses % % % %
- Fee waiver .05% None None None
= NET ANNUAL FUND OPERATING EXPENSES %/4/ % % %
-----------------------------------------------------------------------------
</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 $ $ $ $
Class B shares $ $ $ $
Class C shares $ $ $ $
Class Z shares $ $ $ $
------------------------------------------
</TABLE>
You would pay the following expenses on the same investment if you did not sell
your shares:
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 YR 3 YRS 5 YRS 10 YRS
<S> <C> <C> <C> <C>
Class A shares $ $ $ $
Class B shares $ $ $ $
Class C shares $ $ $ $
Class Z shares $ $ $ $
------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
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 [GRAPHIC] (800) 225-1852
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.
DERIVATIVE STRATEGIES
We may use various derivative strategies to try to improve the Fund's returns
or protect its assets. We cannot guarantee that these strategies will work,
that the instruments necessary to implement these strategies will be available,
or that the Fund will not lose money. Derivatives--such as futures, options,
foreign currency forward contracts and options on futures--involve costs and
can be volatile. With derivatives, the investment adviser tries to predict
whether the underlying investment--a security, market index, currency, interest
rate or some other benchmark--will go up or down at some future date. We may
use derivatives to try to reduce risk or to increase return consistent with the
Fund's overall investment objective. The investment adviser will consider other
factors (such as cost) in deciding whether to employ any particular strategy or
use any particular instrument. Any derivatives we use may not match the Fund's
underlying holdings.
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.
--------------------------------------------------------------------------------
7
<PAGE>
--------------------------------------------------------------------------------
How the Fund Invests
--------------------------------------------------------------------------------
For more information, see "Investment Risks" and the Statement of Additional
Information, "Description of the Funds, Their Investments and Risks." The
Statement of Additional Information--which we refer to as the SAI--contains
additional information about the Fund. To obtain a copy, see the back cover
page of this prospectus.
The Fund's investment objective is a fundamental policy that cannot be
changed without shareholder approval. The Board can change investment policies
that are not fundamental.
OTHER INVESTMENTS AND STRATEGIES
In addition to the principal strategies, we also may use the following
investment strategies to try to increase the Fund's returns or protect its
assets if market conditions warrant.
OTHER EQUITY-RELATED SECURITIES
The Fund may invest up to 35% of its total assets in equity-related securities
of companies that are undergoing changes in management or product 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 up to 20% of the Fund's total assets in foreign equity
securities. For purposes of the 20% limit, we do not consider ADRs and other
similar receipts or shares to be foreign securities.
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
--------------------------------------------------------------------------------
PRUDENTIAL JENNISON GROWTH FUND [GRAPHIC] (800) 225-1852
8
<PAGE>
--------------------------------------------------------------------------------
How the Fund Invests
--------------------------------------------------------------------------------
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.
The values of mortgage-backed securities vary with changes in market
interest rates and yields. Such values are particularly sensitive to changes in
prepayments of the underlying mortgages. For example, during periods of falling
interest rates, prepayments tend to increase as homeowners and others refinance
their higher-rate mortgages. These prepayments reduce
--------------------------------------------------------------------------------
9
<PAGE>
--------------------------------------------------------------------------------
How the Fund Invests
--------------------------------------------------------------------------------
the anticipated duration of the mortgage-related securities. Conversely, during
periods of rising interest rates, prepayments can be expected to decline, which
has the effect of extending the anticipated duration at the same time that the
value of the securities declines. MBS strips tend to be even more highly
sensitive to changes in prepayment and interest rates than mortgage-related
securities and CMOs generally.
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 Standard & Poor's
Ratings Group, or the equivalent rating by another rating service). 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.
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. Repurchase agreements are used for cash management purposes.
MONEY MARKET INVESTMENTS
In response to adverse market, economic or political conditions, we may
temporarily invest up to 100% of the Fund's assets in high-quality foreign or
domestic MONEY MARKET INSTRUMENTS. Money market instruments include the
commercial paper of corporations; certificates of deposit, bankers' acceptances
and other obligations of domestic and foreign banks; nonconvertible debt
securities (corporate and government); short-term obligations issued or
guaranteed by the U.S. government or its agencies or instrumentalities; and
cash (foreign currencies or U.S. dollars). Investing heavily in these
securities limits our ability to achieve our investment objective, but can help
to preserve the Fund's assets when the equity markets are unstable.
The Fund also may temporarily hold cash or invest in high-quality foreign or
domestic money market instruments pending investment of proceeds from new sales
of Fund shares or to meet ordinary daily cash
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PRUDENTIAL JENNISON GROWTH FUND [GRAPHIC] (800) 225-1852
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How the Fund Invests
--------------------------------------------------------------------------------
needs subject to the policy of normally investing at least 65% of the Fund's
assets in equity-related securities. Money market instruments are used for cash
management purposes only.
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.
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11
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--------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------
. Individual stocks . Historically,
EQUITY-RELATED could lose value stocks have
SECURITIES OF outperformed
MEDIUM- TO LARGE- . The equity other
CAP COMPANIES markets could go investments over
down, resulting the long term
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 . Foreign markets, . Investors can
SECURITIES economies and participate in
political systems foreign markets
may not be as and companies
stable as in the operating in
U.S. those markets
Up to 20%
. May profit from
changing values
of foreign
. Currency risk-- currencies
changing values
of foreign
currencies can . Opportunities
cause losses for
diversification
. May be less
liquid than U.S.
stocks and bonds
. Differences in
foreign laws,
accounting
standards, public
information,
custody and
settlement
practices provide
less reliable
information on
foreign
investments and
involve more risk
--------------------------------------------------------------------------------
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PRUDENTIAL JENNISON GROWTH FUND [GRAPHIC] (800) 225-1852
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How the Fund Invests
--------------------------------------------------------------------------------
INVESTMENT TYPE (CONT'D)
% OF FUND'S TOTAL RISKS POTENTIAL REWARDS
ASSETS
--------------------------------------------------------------------------------
DERIVATIVES . Derivatives such . The Fund could
as futures, make money and
options and protect against
foreign currency losses if the
forward contracts investment
that are used for analysis proves
hedging purposes correct
may not fully
offset the
underlying
positions and
this could result
in losses to the
Fund that would
not have
otherwise
occurred
Percentage varies
. Derivatives that
involve leverage
could generate
substantial
gains at low
cost
. One way to
manage the
Fund's
risk/return
. Derivatives used balance is by
for risk locking in the
management may value of an
not have the investment ahead
intended effects of time
and may result in
losses or missed
opportunities
. The other party
to a derivatives
contract could
default
. Derivatives that
involve leverage
could magnify
losses
. Certain types of
derivatives
involve costs to
the Fund that can
reduce returns
--------------------------------------------------------------------------------
SHORT SALES . May magnify . May magnify
underlying underlying
investment losses investment gains
Up to 25% of net
assets . Investment costs
may exceed
potential
underlying
investment gains
--------------------------------------------------------------------------------
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13
<PAGE>
--------------------------------------------------------------------------------
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%
. 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
--------------------------------------------------------------------------------
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 35% prepaid partially guarantees
or completely, interest and
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 . May preserve the
SECURITIES . Not all U.S. Fund's assets
government . Regular interest
Up to 35% securities are income
insured or . Generally more
guaranteed by the secure than
U.S. government, lower-quality
but only by the debt securities
issuing agency 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
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
15
<PAGE>
--------------------------------------------------------------------------------
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 % 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 of the Prudential mutual funds, and as manager or
administrator to 22 closed-end investment companies, with aggregate assets of
approximately $ billion.
INVESTMENT ADVISER
Jennison Associates LLC (Jennison) is the Fund's investment adviser. Its
address is 466 Lexington Avenue, New York, NY 10017. PIFM has responsibility
for all investment advisory services, supervises Jennison and pays Jennison for
its services. As of October 31, 2000, Jennison managed approximately $
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.
--------------------------------------------------------------------------------
17
<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 tax in the state where you live.
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 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
<PAGE>
--------------------------------------------------------------------------------
Fund Distributions and Tax Issues
--------------------------------------------------------------------------------
----------------------------------------
CAPITAL GAIN
+$ (taxes owed)
RECEIPTS
FROM $ OR
SALE
-$ CAPITAL LOSS
(offset against gain)
----------------------------------------
shares one day and soon thereafter received a distribution. That is not so
because when dividends are paid out, the value of each share of the Fund
decreases by the amount of the dividend to reflect the payout, although this
may not be apparent because the value of each share of the Fund also will be
affected by the 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 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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<PAGE>
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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. 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 15020
NEW BRUNSWICK, NJ 08906-5020
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. For additional information about purchasing shares of the Fund, see the
back cover page of this prospectus. We have the right to reject any purchase
order (including an exchange into the Fund) or suspend or modify the Fund's
sale of its shares.
STEP 2: CHOOSE A SHARE CLASS
Individual investors can choose among Class A, Class B, Class C and Class Z
shares of the Fund, although Class Z shares are available only to a limited
group of investors.
Multiple share classes let you choose a cost structure that better meets
your needs. With Class A shares, you pay the sales charge at the time of
purchase, but the operating expenses each year are lower than the expenses of
Class B and Class C shares. With Class B shares, you only pay a sales charge if
you sell your shares within six years (that is why it is called a Contingent
Deferred Sales Charge or CDSC), but the operating expenses each year are higher
than 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.
--------------------------------------------------------------------------------
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 you how the sales
charge decreases as the amount of your investment increases.
<TABLE>
<CAPTION>
SALES CHARGE AS % SALES CHARGE AS % DEALER
AMOUNT OF PURCHASE OF OFFERING PRICE OF AMOUNT INVESTED REALLOWANCE
<S> <C> <C> <C>
Less than $25,000 5.00% 5.26% 4.75%
$25,000 to $49,999 4.50% 4.71% 4.25%
$50,000 to $99,999 4.00% 4.17% 3.75%
$100,000 to $249,999 3.25% 3.36% 3.00%
$250,000 to $499,999 2.50% 2.56% 2.40%
$500,000 to $999,999 2.00% 2.04% 1.90%
$1 million and above* None None None
</TABLE>
* If you invest $1 million or more, you can buy only Class A shares, unless you
qualify to buy Class Z shares.
To satisfy the purchase amounts above, you can:
. Invest with an eligible group of related investors
. Buy 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
--------------------------------------------------------------------------------
PRUDENTIAL JENNISON GROWTH FUND [GRAPHIC] (800) 225-1852
24
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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.
--------------------------------------------------------------------------------
25
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How to Buy, Sell and
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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 purchased with reinvested
dividends and other distributions. Since the 12b-1 fees for Class A shares are
lower than for Class B shares, converting to Class A shares lowers your Fund
expenses.
When we do the conversion, you will get fewer Class A shares than the number
of converted Class B shares if the price of the Class A shares is higher than
the price of Class B shares. The total dollar value will be the same, so you
will not have lost any money by getting fewer Class A shares. We do the
conversions quarterly, not on the anniversary date of your purchase. For more
information, see the SAI, "Purchase, Redemption and Pricing of Fund Shares--
Conversion Feature--Class B Shares."
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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 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
invests in foreign securities, its NAV can 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.
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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 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 to 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
<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 $ $14.44 $15.39 $10.97 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss)/4/ (.08) (.04) (.03) (.03)
Net realized and unrealized
gain on investment
transactions 6.23 .40 4.45 1.00
TOTAL FROM INVESTMENT
OPERATIONS 6.15 .36 4.42 .97
----------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from net
realized gains (.54) (1.31) -- --
NET ASSET VALUE, END OF
PERIOD $ $20.05 $14.44 $15.39 $10.97
TOTAL RETURN/2/ % 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) $ $911,467 $446,996 $145,022 $85,440
Average net assets (000) $ $748,315 $251,118 $105,982 $70,667
RATIOS TO AVERAGE NET
ASSETS:
Expenses, including
distribution fees/5/ % 1.05% 1.08% 1.09% 1.23%/3/
Expenses, excluding
distribution fees % .80% .83% .84% .98%/3/
Net investment income
(loss) % (.44)% (.26)% (.25)% (.37)%/3/
Portfolio turnover % 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 weighted 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
<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 $ $14.11 $15.18 $10.89 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (loss)/4/ (.22) (.15) (.12) (.10)
Net realized and unrealized
gain on investment transactions 6.08 .39 4.41 .99
TOTAL FROM INVESTMENT
OPERATIONS 5.86 .24 4.29 .89
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from net realized
gains (.54) (1.31) -- --
NET ASSET VALUE, END OF PERIOD $ $19.43 $14.11 $15.18 $10.89
TOTAL RETURN/2/ % 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) $ $1,506,839 $708,463 $419,405 $231,541
Average net assets (000) $ $1,236,825 $557,823 $299,476 $162,412
RATIOS TO AVERAGE NET ASSETS:
Expenses, including
distribution fees % 1.80% 1.83% 1.84% 1.98%/3/
Expenses, excluding
distribution fees % .80% .83% .84% .98%/3/
Net investment income (loss) % (1.19)% (1.01)% (1.00)% (1.12)%/3/
Portfolio turnover % 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 weighted average shares outstanding during the period.
--------------------------------------------------------------------------------
37
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Financial Highlights
--------------------------------------------------------------------------------
CLASS C SHARES
<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 $ $14.11 $15.18 $10.89 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss)/4/ (.22) (.15) (.12) (.10)
Net realized and unrealized
gain on investment
transactions 6.08 .39 4.41 .99
TOTAL FROM INVESTMENT
OPERATIONS 5.86 .24 4.29 .89
----------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from net
realized gains (.54) (1.31) -- --
NET ASSET VALUE, END OF
PERIOD $ $19.43 $14.11 $15.18 $10.89
TOTAL RETURN/2/ % 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) $ $141,770 $45,126 $25,134 $15,281
Average net assets (000) $ $98,033 $35,337 $18,248 $12,550
RATIOS TO AVERAGE NET
ASSETS:
Expenses, including
distribution fees % 1.80% 1.83% 1.84% 1.98%/3/
Expenses, excluding
distribution fees % .80% .83% .84% .98%/3/
Net investment income (loss) % (1.20)% (1.01)% (1.00)% (1.12)%/3/
Portfolio turnover % 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 weighted average shares outstanding during the period.
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CLASS Z SHARES
<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 $ $14.53 $15.45 $10.98 $10.32
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss)/4/ (.04) -- -- (.02)
Net realized and
unrealized gain on
investment transactions 6.29 .39 4.47 .68
TOTAL FROM INVESTMENT
OPERATIONS 6.25 .39 4.47 .66
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from net
realized gains (.54) (1.31) -- --
NET ASSET VALUE, END OF
PERIOD $ $20.24 $14.53 $15.45 $10.98
TOTAL RETURN/2/ % 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) $ $1,893,457 $1,021,903 $609,869 $362,416
Average net assets (000) $ $1,596,809 $810,296 $455,684 $26,829
RATIOS TO AVERAGE NET
ASSETS:
Expenses, including
distribution fees % .80% .83% .84% .98%/3/
Expenses, excluding
distribution fees % .80% .83% .84% .98%/3/
Net investment income
(loss) % (.19)% (.01)% -- (.12)%/3/
Portfolio turnover % 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 weighted average shares outstanding during the period.
--------------------------------------------------------------------------------
39
<PAGE>
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.
--------------------------------------------------------------------------------
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 Growth Fund
Prudential Jennison Equity Opportunity 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
--------------------------------------------------------------------------------
PRUDENTIAL JENNISON GROWTH FUND [GRAPHIC] (800) 225-1852
40
<PAGE>
--------------------------------------------------------------------------------
The Prudential Mutual Fund Family
--------------------------------------------------------------------------------
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 FUNDS
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
<TABLE>
<CAPTION>
<S> <C>
Please read this prospectus before you You can also obtain copies of Fund
invest in the Fund and keep it for future documents from the Securities and
reference. For information or shareholder Exchange Commission as follows:
questions contact: BY MAIL:
Prudential Mutual Fund Services LLC Securities and Exchange Commission
P.O. Box 8098 Public Reference Section
Philadelphia, PA 19101 Washington, DC 20549-0102
(800) 225-1852 BY ELECTRONIC REQUEST:
(732) 482-7555 (if calling from outside the U.S.) [email protected]
(The SEC charges a fee to copy
Outside Brokers should contact: documents.)
Prudential Investment Management IN PERSON:
Services LLC Public Reference Room in Washington, DC
P.O. Box 8310 (For hours of operation, call
Philadelphia, PA 19101 1-202-942-8090)
(800) 778-8769 VIA THE INTERNET:
on the EDGAR Database at
Visit Prudential's Website at: http://www.sec.gov
http://www.prudential.com
CUSIP Numbers Quotron Symbols
Additional information about the Fund can Class A--74437E107 PJFAX
be obtained without charge and can be Class B--74437E206 PJFBX
found in the following documents: Class C--74437E305 PJFCX
Statement of Additional Information (SAI) Class Z--74437E404 PJFZX
(incorporated by reference into this
prospectus) Investment Company Act File No. 811-07343
Annual Report
(contains a discussion of the market
conditions and investment strategies that
significantly affected the Fund's
performance)
Semi-Annual Report
MF168A [LOGO] Printed on Recycled Paper
</TABLE>
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Statement of Additional Information
dated November 29, 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 November 29,
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-34
Capital Shares, Other Securities and Organization.......................... B-36
Purchase, Redemption and Pricing of Fund Shares............................ B-37
Shareholder Investment Account............................................. B-47
Net Asset Value............................................................ B-51
Taxes, Dividends and Distributions......................................... B-52
Performance Information.................................................... B-55
Financial Statements....................................................... B-58
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 June 1, 1998, the Company changed its name to The Prudential
Investment Portfolios, Inc., in connection with the replacement of Prudential
Jennison Active Balanced Fund's investment adviser and Prudential Jennison
Active Balanced Fund's name was changed to Prudential Active Balanced Fund
(Active Balanced Fund). On May 23, 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
(a) Classification. The Company is an open-end, diversified, management
investment company consisting of three series. Each series operates as a
separate fund with its own investment objectives and policies.
(b) and (c) Investment Strategies, Policies and Risks. The investment
objective of the Active Balanced Fund is to seek income and long-term growth
of capital by investing in a portfolio of equity, fixed-income and money
market securities which is actively managed to capitalize on opportunities
created by perceived misvaluation. The investment objective of the Growth Fund
is long-term growth of capital. The Growth Fund seeks to achieve this
objective by investing primarily in equity securities (common stock, preferred
stock and securities convertible into common stock) of established companies
with above-average growth prospects. Current income, if any, is incidental.
Under normal market conditions, the Growth Fund intends to invest at least 65%
of its total assets in equity securities of companies that exceed $1 billion
in market capitalization. The primary investment objective of the 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.
B-5
<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 fixed-income portion of its portfolio 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
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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.
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<PAGE>
Risk Factors and Special Considerations of Investing in Euro-Denominated
Securities
On January 1, 1999, 11 of the 15 member states of the European Monetary
Union introduced the "euro" as a common currency. During a three-year
transitional period, the euro will coexist with each 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.
B-10
<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.
B-12
<PAGE>
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
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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. 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.
(d) Temporary Defensive Strategy and Short-Term Investments
When adverse market or economic conditions dictate a defensive strategy,
each Fund may temporarily invest without limit in high quality money market
instruments, including commercial paper of corporations, foreign government
securities, certificates of deposit, bankers' acceptances and other
obligations of domestic and foreign banks, non-convertible debt securities
(corporate and government), obligations issued or guaranteed by the U.S.
government, its agencies or its instrumentalities, repurchase agreements and
cash (foreign currencies or U.S. dollars). Money market instruments typically
have a maturity of one year or less as measured from the date of purchase.
Each Fund also may temporarily hold cash or invest in high quality foreign
or domestic money market instruments pending investment of proceeds from new
sales of Fund shares or to meet ordinary daily cash needs.
(e) Portfolio Turnover
As a result of the investment policies described above, each Fund may engage
in a substantial number of portfolio transactions, but neither the Growth
Fund's nor the Equity Opportunity Fund's portfolio turnover rate is expected
to exceed 100%, and the Active Balanced Fund's portfolio turnover rate is not
expected to exceed 200%. The portfolio turnover rate generally is the
percentage computed by dividing the lesser of portfolio purchases or sales
(excluding all securities, including options, whose maturities or expiration
date at acquisition were one year or less) by the monthly average value of the
portfolio. High portfolio turnover (100% or more) involves correspondingly
greater brokerage commissions and other transaction costs, which are borne
directly by a Fund. In addition, high portfolio turnover may also mean that a
proportionately greater amount of distributions to shareholders will be taxed
as ordinary income rather than long-term capital gains compared to investment
companies with lower portfolio turnover. See "Brokerage Allocation and Other
Practices" and "Taxes, Dividends and Distributions."
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies. Fundamental policies
are those that cannot be changed without the approval of the holders of a
majority of a Fund's outstanding voting securities. A "majority of the Fund's
outstanding voting securities," when used in this Statement of Additional
Information, means with respect to each Fund, the lesser of (1) 67% of the
shares represented at a meeting at which more than 50% of the outstanding
voting shares are present in person or represented by proxy or (2) more than
50% of the outstanding voting shares.
Growth Fund and 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 F. 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 and Executive Vice President and Chief
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); President and Chief Executive
Officer (since August 2000) of Central
Newspapers Inc.; formerly Vice Chairman (March
1984-May 2000) of Gannett Co., Inc.; Director
of Continental Airlines, Inc., Gannet 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. Vice 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.
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.
*John R. Strangfeld (46) President and Chief Executive Officer, Chairman, President and
Director Director (since January 1990) of The Prudential
Investment Corporation, Executive Vice
President (since February 1998); Prudential
Global Asset Management Group of Prudential,
and Chairman (since August 1989), Pricoa
Capital Group; formerly various positions to
Chief Executive Officer (November 1994-December
1998), Private Asset Management Group of
Prudential and Senior Vice President (January
1986-August 1989), Prudential Capital Group, a
unit of Prudential.
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; and 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 Vice President and Associate General Counsel
Secretary (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.
</TABLE>
----------
* "Interested" Director as defined in the Investment Company Act, by reason of
his 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 Company currently pays each of its Directors who is not an
affiliated person of PIFM, PI or Jennison annual compensation of $2,500, in
addition to certain out-of-pocket expenses. The amount of annual compensation
paid to each Director may change as a result of the introduction of additional
funds on the Boards of which the Director will be asked to serve.
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.
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 $4,000 $142,500(43/70)*
Fenster, Saul K.(/3/)--Direc-
tor -- $ 35,000 (5/21)*
Gold, Delayne D.--Director $4,000 $144,500(43/70)*
Gunia, Robert F.(/1/)--Direc-
tor -- --
McCorkindale, Douglas
H.(/2/)--Director $4,000 $ 80,000(24/49)*
McDonald, Jr., W. Scott(/3/)--
Director -- $ 35,000 (5/21)*
Mooney, Thomas T.(/2/)--Direc-
tor $4,000 $129,500(35/75)*
Munn, Stephen P.--Director $4,000 $ 62,250(29/53)*
Odenath, Jr., David R.(/1/)--
Director -- --
Redeker, Richard A.--Director $4,000 $ 95,000(29/53)*
Smith, Robin B.(/2/)--Director $4,000 $ 96,000(32/44)*
Strangfeld, John R.(/1/)--
President and Director -- --
Weil, III, Louis A.--Director $4,000 $ 96,000(29/53)*
Whitehead, Clay T.--Director $4,000 $ 77,000(38/66)*
</TABLE>
----------
* Indicates number of funds/portfolios in Fund Complex (including the
Company) to which aggregate compensation relates.
B-26
<PAGE>
(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 $97,916,
$135,102 and $156,498 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 September 1, 2000, the Directors and officers of the Company, as a
group, owned less than 1% of the outstanding shares of each Fund.
As of September 1, 2000, the following shareholders owned 5% of the
outstanding shares of any class of the Active Balanced Fund: Prudential Trust
Company, FBO PRU-DC Trust Accounts, Attn: John Surdy, 30 Scranton Office Park,
Moosic, PA 18507, held 280,222 Class A shares (24% of the outstanding Class A
shares); The Prudential Insurance Company, Derivatives Management Company,
Group C, Attn: Linda Bitondo, 2 Gateway Center, 10th Floor, Newark, NJ 07102,
held 176,284 Class A shares (19% of the outstanding Class A shares);
Prudential Trust Company, FBO PRU-DC Trust Accounts, Attn: John Surdy,
30 Scranton Office Park, Moosic, PA 18507, held 15,166 Class C shares (8% 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 4,136,838 Class Z shares (39% 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 6,468,825 Class Z shares (61% of
the outstanding Class Z shares).
As of September 1, 2000, Prudential Securities was the record holder for
other beneficial owners of 169,544 Class A shares (or 14% of the outstanding
Class A shares), 381,750 Class B shares (or 29% of the outstanding Class B
shares), 109,852 Class C shares (or 56% of the outstanding Class C shares),
and 22,530 Class Z shares (or .22% 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 September 1, 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 4,029,636 Class A shares (57% 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 52,160,272 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 39,277,065 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 12,495,739 Class Z shares (10% of the
outstanding Class Z shares).
As of September 1, 2000, Prudential Securities was the record holder for
other beneficial owners of 35,743,277 Class A shares (or 51% of the
outstanding Class A shares), 61,686,714 Class B shares (or 63% of the
outstanding Class B shares), 9,946,577 Class C shares (or 81% of the
outstanding Class C shares), and 3,717,156 Class Z shares (or 3% 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 September 1, 2000, the following shareholders owned 5% of the
outstanding shares of any class of the Equity Opportunity Fund: Pru Defined
Contributions, FBO PRU-DC-NON-TRUST ACCOUNTS, Attn: John Surdy, 30 Scranton
Office Park, Moosic, PA 18507, held 526,104 Class A shares (13% 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 209,809 Class Z shares (22% 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 234,429 Class Z shares (24% of
the outstanding Class Z shares).
B-27
<PAGE>
As of September 1, 2000, Prudential Securities was the record holder for
other beneficial owners of 2,131,360 Class A shares (or 52% of the outstanding
Class A shares), 4,750,976 Class B shares (or 64% of the outstanding Class B
shares), 734,425 Class C shares (or 83% of the outstanding Class C shares),
and 511,663 Class Z shares (or 53% 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 $72 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.
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 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 May 2, 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-28
<PAGE>
(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.
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 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. The Active Balanced Fund was
not a series of the Company during the fiscal year ended September 30, 1997.
For the period January 23, 1998 through September 30, 1998, PIFM received from
the Active Balanced Fund management fees of $788,381. For the fiscal year
ended September 30, 1999, PIFM received from the Growth Fund management fees
of $22,079,891, of which $9,349,954 was paid to Jennison, PIFM received from
the Equity Opportunity Fund management
B-29
<PAGE>
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 $ ,
$ and $ , 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.
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.
B-30
<PAGE>
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.
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.
(b) 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
B-31
<PAGE>
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 $ to PIMS under the Class A Plan. For the fiscal year
ended September 30, 2000, the Equity Opportunity Fund paid total distribution
fees of $ to PIMS under the Class A Plan. For the fiscal year ended
September 30, 2000, the Active Balanced Fund paid total distribution fees of
$ to PIMS under the Class A Plan. These amounts were primarily expended
for the payment of account servicing fees to financial advisers and other
persons who sell Class A shares of the applicable Fund. In addition, for the
same period, PIMS received approximately $ and $ , respectively, in
initial sales charges with respect to the sale of Class A shares of the Growth
Fund and Equity Opportunity Fund, respectively, and PIMS received
approximately $ in initial sales charges with respect to the sale of Class
A shares of the Active Balanced Fund.
Class B and Class C Plans. Under each Fund's Class B and Class C Plans, the
Fund pays the Distributor for its distribution-related activities with respect
to Class B and Class C shares at an annual rate of up to 1% of the average
daily net assets of each of the Class B and Class C shares. The Class B Plan
provides that (1) up to .25 of 1% of the average daily net assets of the Class
B shares may be paid as a service fee and (2) up to .75 of 1% (not including
the service fee) of the average daily net assets of the Class B shares (asset-
based sales charge) may be paid for distribution-related expenses with respect
to the Class B shares. The Class C Plan provides that (1) up to .25 of 1% of
the average daily net assets of the Class C shares may be paid as a service
fee and (2) up to .75 of 1% of the average daily net assets of the Class C
shares may be paid for distribution-related expenses with respect to Class C
shares. The service fee (.25 of 1% of average daily net assets) is used to pay
for personal service and/or the maintenance of shareholder accounts. The
Distributor also receives contingent deferred sales charges from certain
redeeming shareholders and, with respect to Class C shares, an initial sales
charge.
Class B Plan. For the fiscal year ended September 30, 2000, PIMS received
$ , $ and $ 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 $ $ $ $ $
Equity
Opportunity $ $ $ $ $
Active
Balanced $ $ $ $ $
</TABLE>
"Overhead" costs represents (a) the expenses of operating Prudential
Securities' and Pruco Securities Corporation's (Prusec's) branch offices in
connection with the sale of Fund shares, including lease costs, the salaries
and employee benefits of operations and sales support personnel, utility
costs, communications costs and costs of stationery and supplies, (b) the cost
of client sales seminars, (c) expenses of mutual fund sales coordinators to
promote the sale of Fund shares and (d) other incidental expenses relating to
branch promotion of Fund shares.
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 $ , $
and $ in contingent deferred sales charges attributable to Class B shares
of the Growth Fund, Equity Opportunity Fund and Active Balanced Fund,
respectively.
B-32
<PAGE>
Class C Plan. For the fiscal year ended September 30, 2000, PIMS received
$ , $ and $ 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.
<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 $ $ $ $ $
Equity
Opportunity $ $ $ $ $
Active
Balanced $ $ $ $ $
</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 $ , $ and $ 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 $ ,
$ and $ 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.
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.
B-33
<PAGE>
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.
(c) 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.
, 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.
B-34
<PAGE>
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.
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.
B-35
<PAGE>
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.................. $77,497 $3,797,681 $596,107 $225,669 $1,776,771 $396,571
Total brokerage
commissions paid to
Prudential Securities.. -- $391,685 $43,115 -- $16,922 $205
Percentage of total
brokerage commissions
paid to Prudential
Securities............. -- 10.31% 7.23% -- 0.96% .05%
</TABLE>
Of the total brokerage commissions paid during the fiscal year ended
September 30, 2000, $ , $ and $ (or %, % and %) was paid to firms
which provide research, statistical or other services to PIFM or affiliates on
behalf of the Active Balanced Fund, the Growth Fund and the 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.
Each Fund is required to disclose its holdings of securities or its regular
brokers and dealers (as defined under Rule 10b-1 of the Investment Company
Act) and their parents at September 30, 2000. As of September 30, 2000, the
Growth Fund held debt securities of the following: in the amount of
$ ; and the Active Balanced Fund held debt securities of the following:
in the amount of
$ , $ , $ , $ , $ and $ , respectively.
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, 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
B-36
<PAGE>
shareholders under the Investment Company Act. Shareholders have certain
rights, including the right to call a meeting upon the vote of 10% of the
Company's outstanding shares for the purpose of voting on the removal of one
or more Directors or to transact any other business.
Under the Articles of Incorporation, the Directors may authorize the
creation of additional series of shares (the proceeds of which would be
invested in separate, independently managed portfolios with distinct
investment objectives and policies and share purchase, redemption and net
asset value procedures) with such preferences, privileges, limitations and
voting and dividend rights as the Directors may determine. All consideration
received by the Company for shares of any additional series, and all assets in
which such consideration is invested, would belong to that series (subject
only to the rights of creditors of that series) and would be subject to the
liabilities related thereto. Under the Investment Company Act, shareholders of
any additional series of shares would normally have to approve the adoption of
any advisory contract relating to such series and of any changes in the
fundamental investment policies related thereto.
The Directors have the power to alter the number and the terms of office of
the Directors and they may at any time lengthen their own terms or make their
terms of unlimited duration and appoint their own successors, provided that
always at least a majority of the Directors have been elected by the
shareholders of the Company. The voting rights of shareholders are not
cumulative, so that holders of more than 50 percent of the shares voting can
if they choose, elect all Directors being selected, while the holders of the
remaining shares would be unable to elect any Director.
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-37
<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...................................... $ $ $
Maximum sales charge (5% of offering price)...
----- ----- -----
Maximum offering price to public.............. $ $ $
===== ===== =====
Class B
Net asset value, offering price and redemption
price per Class B share*..................... $ $ $
===== ===== =====
Class C
Net asset value and redemption price per Class
C share*..................................... $ $ $
Sales charge (1% of offering price)...........
----- ----- -----
Offering price to public...................... $ $ $
===== ===== =====
Class Z
Net asset value, offering price and redemption
price per Class Z share...................... $ $ $
===== ===== =====
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.
B-38
<PAGE>
If you intend to hold your investment for longer than 5 years, you should
consider purchasing Class A shares over either Class B or Class C shares. This
is because the maximum sales charge plus the cumulative annual distribution-
related fee on Class A shares would be less than those of the Class B and
Class C shares.
If you qualify for a reduced sales charge on Class A shares, it may be more
advantageous for you to purchase Class A shares over either Class B or Class C
shares regardless of how long you intend to hold your investment. However,
unlike Class B shares, you would not have all of your money invested initially
because the sales charge on Class A shares is deducted at the time of
purchase.
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
B-39
<PAGE>
. 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).
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
B-40
<PAGE>
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.
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-41
<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 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.
B-42
<PAGE>
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 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.
B-43
<PAGE>
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.
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.
B-44
<PAGE>
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.
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.
B-45
<PAGE>
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-46
<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-47
<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-48
<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-49
<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-50
<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) and U.S. government securities that are actively traded in
the over-the-counter market, including listed securities for which the primary
market is believed by the Manager in consultation with the investment adviser
to be over-the-counter, are valued on the basis of valuations provided by an
independent pricing agent or
B-51
<PAGE>
principal market maker which uses information with respect to transactions in
bonds, quotations from bond dealers, agency ratings, market transactions in
comparable securities and various relationships between securities in
determining value. Convertible debt securities that are actively traded in the
over-the-counter market, including listed securities for which the primary
market is believed by the Manager in consultation with the Subadviser to be
over-the-counter, are valued at the mean between the last reported bid and
asked prices provided by principal market makers. Options on stock and stock
indexes traded on an exchange are valued at the mean between the most recently
quoted bid and asked prices on the respective exchange and futures contracts
and options thereon are valued at their last sales prices as of the close of
trading on the applicable commodities exchange or board of trade or, if there
was no sale on the applicable commodities exchange or board of trade on such
day, at the mean between the most recently quoted bid and asked prices on such
exchange or board of trade. Should an extraordinary event, which is likely to
affect the value of the security, occur after the close of an exchange on
which a portfolio security is traded, such security will be valued at fair
value considering factors determined in good faith by the investment adviser
under procedures established by and under the general supervision of the Board
of Directors.
Securities or other assets for which reliable market quotations are not
readily available, or for which the pricing agent or principal market maker
does not provide a valuation or methodology or provides a valuation or
methodology that, in the judgment of the Manager or the investment adviser (or
Valuation Committee or Board of Directors), does not represent fair value, are
valued by the Valuation Committee or Board of Directors in consultation with
the Manager or the Subadviser, including its portfolio managers, traders and
its research and credit analysts, on the basis of the following factors: cost
of the security, transactions in comparable securities, relationships among
various securities and such other factors as may be determined by the Manager,
the investment adviser, Board of Directors or Valuation Committee to
materially affect the value of the security. Short-term debt securities are
valued at cost, with interest accrued or discount amortized to the date of
maturity, if their original maturity was 60 days or less, unless this is
determined by the Board of Directors not to represent fair value. Short-term
securities with remaining maturities of more than 60 days, for which market
quotations are readily available, are valued at their current market
quotations as supplied by an independent pricing agent or principal market
maker.
Although the legal rights of each class of shares are substantially
identical, the different expenses borne by each class will result in different
NAVs. The NAV of Class B and Class C shares will generally be lower than the
NAV of Class A or Class Z shares as a result of the larger distribution-
related fee to which Class B and Class C shares are subject and the NAV of
Class A shares will generally be lower than that of Class Z 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-52
<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.
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.
Special rules apply to most options on stock indices, futures contracts and
options thereon, and forward foreign currency exchange contracts in which a
Fund may invest. These investments will generally constitute Section 1256
contracts and will be required to be "marked to market" for federal income tax
purposes at the end of a Fund's taxable year; that is, treated as having been
sold at market value. Except with respect to certain 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 indices will be capital gain or loss and will be long-
term or short-term depending upon the holding period of the option. In
addition, positions which are part of a straddle will be subject to certain
wash sale, short sale and constructive sale provisions of the Internal Revenue
Code. In the case of a straddle, a Fund may be required to defer the
recognition of losses on positions it holds to the extent of any unrecognized
gain on offsetting positions held by the Fund. The conversion transaction
rules may apply to certain transactions to treat all or a portion of the gain
thereon as ordinary income rather than as capital gain.
Gains or losses attributable to fluctuations in exchange rates which occur
between the time a Fund accrues interest or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time
the Fund actually collects such receivables or pays such liabilities are
treated as ordinary income or ordinary loss. Similarly, gains or losses on
foreign currency forward contracts or dispositions of debt securities
denominated in a foreign currency attributable to fluctuations in the value of
the foreign currency between the date of acquisition of the security and the
date of disposition also are treated as ordinary gain or loss. These gains,
referred to under the Internal Revenue Code as "Section 988" gains or losses,
increase or decrease the amount of a Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income, rather
than increasing or decreasing the amount of the Fund's net capital gain. If
Section 988 losses exceed other investment company taxable income during a
taxable year, a Fund would not be able to make any ordinary dividend
distributions, or distributions made before the losses were realized would be
recharacterized as a return of capital to shareholders, rather than as an
ordinary dividend, reducing each shareholder's basis in his or her Fund
shares.
Shareholders electing to receive dividends and distributions in the form of
additional shares will have a cost basis for federal income tax purposes in
each share so received equal to the NAV of a share of the relevant Fund on the
reinvestment date.
Each Fund is required to distribute 98% of its ordinary income in the same
calendar year in which it is earned. Each Fund also is required to distribute
during the calendar year 98% of the capital gain net income it earned during
the 12 months ending on October 31 of such calendar year, as well as all
undistributed ordinary income and undistributed capital gain net income from
the prior year or the twelve-month period ending on October 31 of such prior
year, respectively. To the extent it does not meet these distribution
requirements, a Fund will be subject to a non-deductible 4% excise tax on the
undistributed amount. For purposes of this excise tax, income on which a Fund
pays income tax is treated as distributed.
B-53
<PAGE>
Any dividends or distributions paid shortly after a purchase by an investor
may have the effect of reducing the per share net asset value of the
investor's shares by the per share amount of the dividends or distributions.
Furthermore, such dividends or distributions, although in effect a return of
capital, are subject to federal income taxes. Therefore, prior to purchasing
shares of a Fund, the investor should carefully consider the impact of
dividends or capital gains distributions which are expected to be or have been
announced.
Any loss realized on a sale, redemption or exchange of shares of a Fund by a
shareholder will be disallowed to the extent the shares are replaced within
the 61-day period beginning 30 days before the disposition of shares. Shares
purchased pursuant to the reinvestment of a dividend will constitute a
replacement of shares.
A shareholder who acquires shares of a Fund and sells or otherwise disposes
of such shares within 90 days of acquisition may not be allowed to include
certain sales charges incurred in acquiring such shares for purposes of
calculating gain or loss realized upon a sale or exchange of shares of such
Fund.
Dividends of net investment income and distributions of net short-term
capital gains paid to a shareholder (including a shareholder acting as a
nominee or fiduciary) who is a nonresident alien individual, a foreign
corporation or a foreign partnership (foreign shareholder) are subject to a
30% (or lower treaty rate) withholding tax upon the gross amount of the
dividends unless the dividends are effectively connected with a U.S. trade or
business conducted by the foreign shareholder. Capital gain dividends paid to
a foreign shareholder are generally not subject to withholding tax. A foreign
shareholder will, however, be required to pay U.S. income tax on any dividends
and capital gain distributions which are effectively connected with a U.S.
trade or business of the foreign shareholder.
Dividends received by corporate shareholders are eligible for a dividends-
received deduction of 70% to the extent a Fund's income is derived from
qualified dividends received by the Fund from domestic corporations. Dividends
attributable to foreign corporations, interest income, capital and currency
gain, gain or loss from Section 1256 contracts (described above), and income
from certain other sources will not constitute qualified dividends. Individual
shareholders are not eligible for the dividends-received deduction.
Income received by a Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Income tax
treaties between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine in advance the effective
rate of foreign tax to which a Fund will be subject, since the amount of the
Fund's assets to be invested in various countries will vary. The Funds do not
expect to meet the requirements of the Internal Revenue Code for "passing-
through" to 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.
Dividends and distributions also may be subject to state and local taxes.
Foreign shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund.
B-54
<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 % N/A % (11/2/95)
Class B % N/A % (11/2/95)
Class C % N/A % (11/2/95)
Class Z % N/A % (4/15/96)
Equity Opportunity Class A % N/A % (11/7/96)
Class B % N/A % (11/7/96)
Class C % N/A % (11/7/96)
Class Z % N/A % (11/7/96)
Active Balanced Class A % N/A % (11/7/96)
Class B % N/A % (11/7/96)
Class C % N/A % (11/7/96)
Class Z % % % (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 %, % and %, respectively. In addition, the aggregate
total returns for such periods would have been %, % and %, respectively.
On or about January 23, 1998, the assets and liabilities of Prudential
Jennison Active Balanced Fund were transferred to the Active Balanced Fund, in
exchange solely for shares of Active Balanced Fund (the Conversion). The
investment objectives and policies of Prudential Jennison Active Balanced Fund
and Active Balanced Fund were virtually identical and each fund had the same
Manager through September 30, 1999, although the Fund's investment adviser
changed from Jennison to PIC on June 1, 1998.
Aggregate Total Return. A Fund may also advertise its aggregate total
return. Aggregate total return is determined separately for Class A, Class B,
Class C, Class Z and Class I shares.
B-55
<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>
1 5 Since
Fund Class Yr. Yr. Inception
---- ------- --- --- ------------
<S> <C> <C> <C> <C>
Growth Class A % N/A %(11/2/95)
Class B % N/A %(11/2/95)
Class C % N/A %(11/2/95)
Class Z % N/A %(4/15/96)
Equity Opportunity Class A % N/A %(11/7/96)
Class B % N/A %(11/7/96)
Class C % N/A %(11/7/96)
Class Z % N/A %(11/7/96)
Active Balanced Class A % N/A %(11/7/96)
Class B % N/A %(11/7/96)
Class C % N/A %(11/7/96)
Class Z % % %(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-56
<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-57
<PAGE>
Portfolio of Investments as THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
of September 30, 1999 PRUDENTIAL ACTIVE BALANCED FUND
----------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
----------------------------------------------------------------
LONG-TERM INVESTMENTS--73.3%
COMMON STOCKS--44.7%
----------------------------------------------------------------
Aerospace/Defense--0.9%
5,900 Allied Signal, Inc. $ 353,631
5,500 Boeing Co. 234,438
3,600 General Dynamics Corp. 224,775
1,600 Lockheed Martin Corp. 52,300
3,000 Raytheon Co. 148,875
5,200 United Technologies Corp. 308,425
-------------
1,322,444
------------------------------------------------------------
Airlines--0.5%
2,500 Alaska Air Group, Inc. (a) 101,719
5,900 America West Holdings Corp. 102,144
3,300 AMR Corp. 179,850
4,500 Delta Airlines, Inc. 218,250
1,350 Southwest Airlines Co. 20,503
1,800 UAL Corp. (a) 117,562
-------------
740,028
------------------------------------------------------------
Appliances--0.1%
5,700 Maytag Corp. 189,881
------------------------------------------------------------
Automobiles & Trucks--0.9%
4,500 Arvin Industries, Inc. 139,219
12,900 Ford Motor Co. 647,419
3,600 General Motors Corp. 226,575
6,900 PACCAR, Inc. 351,037
-------------
1,364,250
------------------------------------------------------------
Advertising
1,000 Interpublic Group of Companies, Inc. 41,125
------------------------------------------------------------
Automotive Parts--0.2%
7,000 TRW, Inc. 348,250
------------------------------------------------------------
Banking--1.7%
5,994 Bank One Corp. 208,666
4,620 Charter One Financial, Inc. 106,838
3,900 Chase Manhattan Corp. 293,962
1,400 Dime Bancorp, Inc. 24,500
6,200 First Union Corp. 220,487
836 Firstar Corp. $ 21,423
11,400 Fleet Financial Group, Inc. 417,525
13,900 Hibernia Corp. 161,587
3,500 Huntington Bancshares, Inc. 92,969
13,600 KeyCorp 351,050
1,500 Pacific Century Financial Corp. 30,656
3,900 PNC Bank Corp. 205,481
3,200 Regions Financial Corp. 96,000
3,000 Suntrust Banks, Inc. 197,250
1,000 U.S. Bancorp 30,188
-------------
2,458,582
------------------------------------------------------------
Beverages--0.6%
2,600 Anheuser-Busch Companies, Inc. 182,162
7,900 Coca-Cola Co. 379,694
8,500 PepsiCo, Inc. 257,125
-------------
818,981
------------------------------------------------------------
Building & Construction
1,600 Masco Corp. 49,600
------------------------------------------------------------
Business Services--0.2%
4,400 Omnicom Group, Inc. 348,425
------------------------------------------------------------
Chemicals--0.3%
500 Air Products & Chemicals, Inc. 14,531
1,100 Dow Chemical Co. 124,987
100 E.I. Du Pont de Nemours & Co. 6,088
1,100 Octel Corp. (a) 12,375
400 Praxair, Inc. 18,400
11,000 Schulman (A.), Inc. 190,437
300 Union Carbide Corp. 17,044
800 Waters Corp. (a) 48,450
-------------
432,312
------------------------------------------------------------
Computer Services--0.2%
2,500 Electronic Data Systems Corp. 132,344
2,000 First Data Corp. 87,750
1,000 Unisys Corp. (a) 45,125
-------------
265,219
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
of September 30, 1999 PRUDENTIAL ACTIVE BALANCED FUND
-----------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
-----------------------------------------------------------------
Computer Software & Services--5.5%
800 Adobe Systems, Inc. $ 90,800
6,500 America Online, Inc. (a) 676,000
7,200 BMC Software Inc. (a) 515,250
6,200 Citrix Systems, Inc. (a) 384,012
10,300 Computer Associates International,
Inc. 630,875
600 Compuware Corp. (a) 15,638
2,950 Comverse Technology, Inc. (a) 278,222
4,500 DST Systems, Inc. (a) 255,937
10,100 EMC Corp. 721,519
30,900 Microsoft Corp. (a) 2,798,381
12,400 Oracle Systems Corp. (a) 564,200
300 Siebel Systems, Inc. (a) 19,988
7,900 Sun Microsystems, Inc. (a) 734,700
9,400 Teradyne, Inc. (a) 331,350
-------------
8,016,872
------------------------------------------------------------
Computer Systems/Peripherals--1.5%
3,400 Apple Computer, Inc. (a) 215,262
4,200 Dell Computer Corp. (a) 175,613
4,000 Hewlett-Packard Co. 368,000
11,300 International Business Machines Corp. 1,371,537
-------------
2,130,412
------------------------------------------------------------
Cosmetics/Toiletries--0.1%
3,000 Colgate-Palmolive Co. 137,250
------------------------------------------------------------
Distribution/ Wholesalers--0.1%
900 Costco Wholesale Corp. 64,800
------------------------------------------------------------
Diversfied Consumer Products--0.9%
9,800 Procter & Gamble Co. 918,750
1,000 Ralston-Purina Group 27,812
5,717 Unilever NV 389,471
-------------
1,336,033
------------------------------------------------------------
Diversified Operations--1.6%
20,300 General Electric Co. 2,406,819
------------------------------------------------------------
Diversified Manufacturing--0.5%
1,000 Corning Inc. 68,562
3,900 Eaton Corp. 336,619
3,800 Harsco Corp. 104,975
1,200 Illinois Tool Works Inc. $ 89,475
600 PPG Industries, Inc. 36,000
500 Textron, Inc. 38,688
3,400 Trinity Industries, Inc. 104,975
-------------
779,294
------------------------------------------------------------
Electrical Utilities--1.5%
200 American Electric Power Co., Inc. 6,825
5,500 Central & South West Corp. 116,187
2,600 Consolidated Edison, Inc. 107,900
2,200 Dominion Resources, Inc. 99,275
3,300 DTE Energy Co. 119,212
3,400 Duke Energy Corp. 187,425
12,400 Entergy Corp. 358,825
7,200 Florida Progress Corp. 333,000
7,500 GPU, Inc. 244,687
2,696 PP & L Resources, Inc. 72,961
15,000 Public Service Company of New Mexico 273,750
2,500 Public Service Enterprise Group Inc. 96,563
6,100 Southern Co. 157,075
-------------
2,173,685
------------------------------------------------------------
Electrical Services--0.1%
5,900 Edison International 143,444
------------------------------------------------------------
Electronic Components--1.8%
2,200 Emerson Electric Co. 139,012
18,300 Intel Corp. 1,359,919
5,500 KLA-Tencor Corp. (a) 357,500
3,400 Motorola, Inc. 299,200
6,300 Solectron Corp. (a) 452,419
700 Xilinx, Inc. (a) 45,872
-------------
2,653,922
------------------------------------------------------------
Financial Services--4.2%
500 Allmerica Financial Corp. 23,813
5,800 AMBAC Financial Group, Inc. 274,775
3,300 American Express Co. 444,262
9,060 BankAmerica Corp. 504,529
8,600 Bear Stearns Companies, Inc. 330,563
7,900 Charles Schwab Corp. 266,131
19,425 Citigroup Inc. 854,700
6,800 Countrywide Credit Industries, Inc. 219,300
5,700 Federal Home Loan Mortgage Corp. 296,400
7,400 Federal National Mortgage Assoc. 463,887
3,800 Golden West Financial Corp. 373,350
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
of September 30, 1999 PRUDENTIAL ACTIVE BALANCED FUND
------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
------------------------------------------------------------------
Financial Services (cont'd.)
1,900 Lehman Brothers Holdings, Inc. $ 110,794
3,900 MBNA Corp. 88,969
700 Merrill Lynch & Co., Inc. 47,031
3,600 Morgan (J.P.) & Co., Inc. 411,300
4,800 Morgan Stanley, Dean Witter & Co. 428,100
3,600 PaineWebber Group, Inc. 130,500
4,700 Providian Financial Corp. 372,181
3,400 SLM Holding Corp. 146,200
700 The PMI Group, Inc. 28,613
9,300 Wells Fargo Co. 368,512
-------------
6,183,910
------------------------------------------------------------
Food Distribution
1,000 SYSCO Corp. 35,063
------------------------------------------------------------
Foods--0.6%
10,914 Archer-Daniels Midland Co. 133,014
6,700 ConAgra, Inc. 151,169
2,700 General Mills, Inc. 219,037
1,500 H.J. Heinz Co. 64,500
1,600 Kellogg Co. 59,900
300 Nabisco Group Holdings Corp. 4,500
4,200 Sara Lee Corp. 98,438
3,400 Suiza Foods Corp. (a) 127,500
-------------
858,058
------------------------------------------------------------
Health Care Services--0.1%
700 American Home Products Corp. 29,050
1,900 United Healthcare Corp. 92,506
-------------
121,556
------------------------------------------------------------
Home Furnishings--0.1%
4,000 Springs Industries, Inc. 135,750
------------------------------------------------------------
Hospital Management
2,200 Columbia/HCA Healthcare Corp. 46,613
------------------------------------------------------------
Hotels & Leisure
600 Marriott International, Inc. 19,613
------------------------------------------------------------
Human Resources--0.1%
7,000 Kelly Services, Inc. 210,875
Insurance--1.4%
14,400 Allstate Corp. $ 359,100
10,800 American International Group, Inc. 938,925
2,000 CIGNA Corp. 155,500
2,700 Hartford Financial Services Group 110,362
1,200 Marsh & McLennan Cos., Inc. 82,200
12,900 Old Republic International Corp. 186,244
4,000 SAFECO Corp. 112,000
2,600 Torchmark Corp. 67,275
-------------
2,011,606
------------------------------------------------------------
Leisure & Tourism--0.1%
3,200 Carnival Corp. 139,200
------------------------------------------------------------
Machinery & Equipment--0.3%
2,900 Caterpillar, Inc. 158,956
700 Deere & Co. 27,081
600 Dover Corp. 24,525
500 Ingersoll-Rand Co. 27,469
8,800 MagneTek, Inc. (a) 78,650
700 Rockwell International Corp. 36,750
2,400 Tecumseh Products Co. 120,300
-------------
473,731
------------------------------------------------------------
Measuring & Control Instruments
500 Honeywell Inc. 55,657
100 Johnson Controls, Inc. 6,631
-------------
62,288
------------------------------------------------------------
Media & Communications--0.5%
1,300 Gannett Co., Inc. 89,944
600 McGraw-Hill Companies, Inc. 29,025
3,800 Time Warner Inc. 230,850
5,100 Univision Communications Inc. (a) 415,012
-------------
764,831
------------------------------------------------------------
Medical Products & Services--1.6%
1,300 Baxter International Inc. 78,325
4,700 Johnson & Johnson Co. 431,812
13,800 Schering-Plough Corp. 602,025
8,500 Tyco International Ltd. 877,625
6,100 Warner-Lambert Co. 404,888
-------------
2,394,675
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. 5
<PAGE>
Portfolio of Investments as THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
of September 30, 1999 PRUDENTIAL ACTIVE BALANCED FUND
-------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
-------------------------------------------------------------------
Medical Technology--0.6%
9,600 Abbott Laboratories $ 352,800
5,000 Amgen, Inc. (a) 407,500
700 Biogen, Inc.(a) 55,169
900 Genzyme Corp. 40,556
500 VISX, Inc. (a) 39,547
-------------
895,572
-------------------------------------------------------------------
Metals Processing--0.1%
3,100 Precision Castparts Corp. 94,550
-------------------------------------------------------------------
Networking--1.0%
21,300 Cisco Systems, Inc. (a) 1,460,381
-------------------------------------------------------------------
Office Equipment & Supplies--0.1%
1,100 Pitney Bowes Inc. 67,031
-------------------------------------------------------------------
Oil & Gas Equipment & Services--0.1%
3,600 Enron Corp. 148,500
-------------------------------------------------------------------
Oil & Gas Exploration/Production--1.2%
2,300 Atlantic Richfield Co. 203,837
4,800 Coastal Corp. 196,500
1,000 Kerr-McGee Corp. 55,063
2,000 Phillips Petroleum Co. 97,500
16,500 Royal Dutch Petroleum Co. 974,531
3,100 Texaco, Inc. 195,688
2,800 USX - Marathon Group 81,900
-------------
1,805,019
-------------------------------------------------------------------
Oil & Gas Services--1.1%
3,800 Amerada Hess Corp. 232,750
4,400 Chevron Corp. 390,500
8,800 Exxon Corp. 668,250
2,600 Mobil Corp. 261,950
-------------
1,553,450
-------------------------------------------------------------------
Paper & Packaging
500 Fort James Corp. 13,344
-------------------------------------------------------------------
Paper & Forest Products--0.4%
100 Champion International Corp. 5,137
5,200 Georgia-Pacific Group 210,600
1,900 International Paper Co. 91,319
800 Weyerhaeuser Co. 46,100
3,800 Willamette Industries, Inc. 163,875
-------------
517,031
Pharmaceuticals--1.8%
900 Allergan, Inc. $ 99,000
13,000 Bristol-Myers Squibb Co. 877,500
700 Eli Lilly & Co. 44,800
17,000 Merck & Co., Inc. 1,101,813
13,900 Pfizer, Inc. 499,531
-------------
2,622,644
-------------------------------------------------------------------
Photography--0.1%
1,600 Eastman Kodak Co. 120,700
-------------------------------------------------------------------
Precious Metals
700 Barrick Gold Corp. 15,225
-------------------------------------------------------------------
Printing & Publishing--0.4%
2,100 Knight-Ridder, Inc. 115,237
3,600 Lexmark International Group, Inc. (a) 289,800
900 New York Times Co. 33,750
2,800 Tribune Co. 139,300
-------------
578,087
-------------------------------------------------------------------
Railroads--0.1%
5,800 Canadian National Railway Co. 175,813
-------------------------------------------------------------------
Retail--3.6%
7,200 Abercrombie & Fitch Co. (a) 245,250
1,800 Bed Bath & Beyond Inc. (a) 62,888
2,600 Best Buy Co., Inc. (a) 161,362
10,800 Circuit City Stores-Circuit City Group 455,625
1,700 CVS Corp. 69,381
2,200 Dayton-Hudson Corp. 132,138
5,000 Federated Department Stores, Inc. (a) 218,437
10,975 Gap, Inc. 351,200
12,800 Home Depot, Inc. 878,400
16,700 Kmart Corp.(a) 195,181
4,300 Kohl's Corp. (a) 284,337
1,300 May Department Stores Co. 47,369
6,700 McDonald's Corp. 288,100
2,500 Safeway Inc. (a) 95,156
1,600 Sears, Roebuck & Co. 50,200
1,000 TJX Companies, Inc. 28,063
200 Tricon Global Restaurants, Inc. (a) 8,188
31,700 Wal-Mart Stores, Inc. 1,507,731
5,000 Walgreen Co. 126,875
100 Winn-Dixie Stores, Inc. 2,969
-------------
5,208,850
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. 6
<PAGE>
Portfolio of Investments as THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
of September 30, 1999 PRUDENTIAL ACTIVE BALANCED FUND
--------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
--------------------------------------------------------------------
Steel & Metals--0.1%
5,700 Carpenter Technology Corp. $ 139,650
--------------------------------------------------------------------
Telecommunication Services--2.9%
8,900 Ameritech Corp. 597,969
22,350 AT&T Corp. 972,225
8,500 Bell Atlantic Corp. 572,156
4,800 BellSouth Corp. 216,000
750 CenturyTel, Inc. 30,469
820 Global Crossing Ltd. (a) 21,730
8,100 GTE Corp. 622,687
5,875 MCI WorldCom, Inc. (a) 422,266
11,600 SBC Communications, Inc. 592,325
4,000 Sprint Corp. 217,000
-------------
4,264,827
--------------------------------------------------------------------
Telecommunications Equipment--1.9%
400 General Instrument Corp. (a) 19,250
13,700 Lucent Technologies, Inc. 888,787
15,800 Nortel Networks Corp. 805,800
3,000 QUALCOMM, Inc. (a) 567,563
7,600 Tellabs, Inc. (a) 432,725
-------------
2,714,125
-------------------------------------------------------------------
Textile-Apparel Manufacturing--0.2%
25,300 Burlington Industries, Inc. (a) 112,269
11,300 Unifi, Inc. (a) 124,300
-------------
236,569
-------------------------------------------------------------------
Tobacco--0.6%
18,800 Philip Morris Co., Inc. 642,725
4,100 Universal Corp. 107,113
5,900 UST, Inc. 178,106
-------------
927,944
-------------------------------------------------------------------
Transportation/Trucking/Shipping--0.2%
2,000 Arnold Industries, Inc. 25,250
7,700 Burlington Northern, Inc. 211,750
1,200 FDX Corp. (a) $ 46,500
100 Kansas City Southern Industries, Inc. 4,644
1,000 Union Pacific Corp. 48,062
-------------
336,206
Total common stocks
(cost $57,888,147) 65,574,915
-------------
-------------------------------------------------------------------
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000)
------------------------------------------------------------
DEBT OBLIGATIONS--28.6%
CORPORATE BONDS--14.0%
------------------------------------------------------------
Aerospace/Defense--1.3%
A1 $ 700(d) Boeing Inc., Deb.
8.10%, 11/15/2006 739,410
Baa3 700(d) Northrop Grumman Corp.,
Deb.
7.75%, 3/1/2016 679,000
Baa1 500(d) Raytheon Co., Note
6.30%, 3/15/2005 482,145
------------
1,900,555
-------------------------------------------------------------------
Airlines--0.2%
Baa3 225 Delta Air Lines, Inc.,
Deb.
9.75%, 5/15/2021 255,460
-------------------------------------------------------------------
Asset Backed Securities--1.6%
Aaa 500 Citibank Credit Card
Master Trust I, Class A
5.875%, 3/10/2011 459,685
Aaa 1,500(d) Citibank Credit Card
Master Trust, Cl. A
6.05%, 1/15/2010 1,406,250
Aaa 500(d) MBNA Master Credit Card
Trust, Ser. C, Cl. A
6.45%, 2/15/2008 494,060
------------
2,359,995
-------------------------------------------------------------------
Automobiles & Trucks--0.1%
A1 150(d) Ford Motor Co., Deb.
6.50%, 8/1/2018 135,130
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. 7
<PAGE>
Portfolio of Investments as THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
of September 30, 1999 PRUDENTIAL ACTIVE BALANCED FUND
------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
<C> <C> <S> <C>
-------------------------------------------------------------------
Banking--2.1%
Aa2 $ 1,000(d) BankAmerica Corp., MTN
7.125%, 5/12/2005 $ 1,003,050
Aa3 1,000(d) Chase Manhattan Bank,
Sub. Note
7.00%, 6/1/2005 997,300
A1 500(d) Citicorp, Sub. Note
7.125%, 9/1/2005 501,600
Deutsche Bank, Deb.
A1 160 6.70%, 12/13/2006 154,640
A1 280(d) 7.50%, 4/25/2009 281,532
Aa3 150 National Westminster Bank
PLC, Sub. Note
7.375%, 10/1/2009 149,824
------------
3,087,946
-------------------------------------------------------------------
Beverages--0.1%
A2 100 Coca Cola Enterprises
Inc., Note
7.125%, 9/30/2009 99,667
-------------------------------------------------------------------
Building & Construction--0.5%
A3 800(d) Hanson Overseas BV, Sr.
Note
6.75%, 9/15/2005 786,088
-------------------------------------------------------------------
Consulting--0.3%
Baa1 400(d) Comdisco, Inc., Note
5.95%, 4/30/2002 387,656
-------------------------------------------------------------------
Financial Services--4.3%
Aa3 750(d) Associates Corp. North
America, Sr. Note
6.75%, 7/15/2001 754,635
A1 160 BCH Cayman Islands Ltd.,
Sub Note
7.70%, 7/15/2006 160,758
A2 1,000(d) Bear, Stearns & Co. Inc.,
Sr. Note
8.75%, 3/15/2004 1,064,270
A1 285(d) Ford Motor Credit Corp.,
Deb.
7.40%, 11/1/2046 272,460
A2 $ 570(d) General Motors Acceptance
Corp., Sr. Note
6.75%, 2/7/2002 $ 573,568
A1 700(d) Goldman, Sachs Group LP,
Note
7.25%, 10/1/2005 703,157
A3 400(d) Heller Financial Inc.,
Note
6.00%, 3/19/2004 383,520
A1 400(d) International Lease
Finance Corp., Note
6.00%, 5/15/2002 395,156
A1 100 Keycorp Capital III,
Capital Securities,
7.75%, 7/15/2029 95,399
Lehman Brothers Holdings,
Inc., Notes
A3 240(d) 6.625%, 4/1/2004 231,912
A3 130(d) 6.625%, 2/5/2006 124,595
Aa3 500(d) Merrill Lynch & Co., MTN
6.02%, 5/11/2001 497,430
A1 520(d) Santander Finance
Issuances, Note
6.80%, 7/15/2005 507,848
Baa1 600(d) US West Capital Funding
Inc., Note
6.125%, 7/15/2002 586,668
------------
6,351,376
-------------------------------------------------------------------
Foreign Government Bonds--0.1%
Aa3 120 Comunidad Autonoma De
Andalucia, Note
7.25%, 10/1/2029 118,416
-------------------------------------------------------------------
Leisure--0.1%
Baa1 175 Marriott International
Inc.,
Ser. C, Note
7.875%, 9/15/2009 174,661
-------------------------------------------------------------------
Media & Communications--0.7%
Baa3 300(d) News America Holdings,
Inc., Deb.
9.25%, 2/1/2013 330,555
Baa3 600(d) Time Warner, Inc., Sr.
Note
9.125%, 1/15/2013 673,560
------------
1,004,115
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. 8
<PAGE>
Portfolio of Investments as THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
of September 30, 1999 PRUDENTIAL ACTIVE BALANCED FUND
------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
<C> <C> <S> <C>
-------------------------------------------------------------------
Medical Products & Services--0.2%
Baa1 $ 400(d) Tyco International Group,
Note
6.375%, 6/15/2005 $ 386,508
-------------------------------------------------------------------
Oil & Gas Exploration/Production--0.6%
A2 700(d) Atlantic Richfield Co.,
Deb.
10.875%, 7/15/2005 837,445
-------------------------------------------------------------------
Oil & Gas Services
Baa1 50 Amerada Hess Corp., Note
7.875%, 10/1/2029 49,377
-------------------------------------------------------------------
Railroads
Baa3 50 Union Pacific Corp., Sr.
Note
7.375%, 9/15/2009 49,775
-------------------------------------------------------------------
Retail--0.4%
A3 565(d) Penney (J.C.) Co., Inc.,
MTN
7.05%, 5/23/2005 543,728
-------------------------------------------------------------------
Telecommunication Services--0.5%
GTE Corp.,
Baa1 220(d) 6.36%, 4/15/2006, Deb. 210,989
Baa1 210(d) 7.51%, 4/1/2009, Note 216,027
Baa1 330(d) Sprint Capital Corp., Note
6.875%, 11/15/2028 299,158
------------
726,174
-------------------------------------------------------------------
Utilities--0.9%
A2 300(d) Hydro Quebec, Deb.
(Canada)
7.50%, 4/1/2016 301,311
A2 1,000(d) Southern California Edison
Co., Note
6.50%, 6/1/2001 1,000,170
------------
1,301,481
Total corporate bonds
(cost $21,457,973) 20,555,553
------------
COLLATERALIZED MORTGAGE OBLIGATIONS--0.6%
Aaa $ 400 First Union-Lehman
Brothers Bank., Ser.
1998
6.56%, 11/18/2008 $ 382,003
Aaa 500 LB Commercial Conduit
Mortgage Trust, Ser. C,
Class A
6.48%, 1/18/2008 472,856
------------
Total collateralized
mortgage obligations
(cost $915,860) 854,859
------------
-------------------------------------------------------------------
U.S. GOVERNMENT AGENCY MORTGAGE PASS-THROUGH OBLIGATIONS--10.8%
Aaa 1,000(c) Federal Home Loan Mortgage
Corp.,
7.00%, 12/1/2029 983,120
Federal National Mortgage
Assoc.,
Aaa 2,100(c) 6.50%, 12/1/2014 2,060,625
Aaa 1,000(c) 7.50%, 12/1/2014 1,015,000
Aaa 620 8.50%, 10/1/2024 641,604
Aaa 132(e) 9.50%, 7/1/2025 140
Aaa 361 8.50%, 2/1/2028 373,676
Aaa 4,000(c) 6.50%, 12/1/2029 3,835,000
Aaa 2,000(c) 7.00%, 12/1/2029 1,965,000
Aaa 2,500(c) 7.50%, 12/1/2029 2,507,025
Government National
Mortgage Assoc.,
Aaa 1,500(c) 7.00%, 12/15/2029 1,471,395
Aaa 1,000(c) 8.00%, 12/15/2029 1,021,870
------------
Total U.S. government
agency mortgage
pass-through obligations
(cost $15,803,931) 15,874,455
------------
-------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES--3.2%
United States Treasury
Bonds,
Aaa 55(d) 5.25%, 11/15/2028 47,670
Aaa 715 5.25%, 2/15/2029 625,739
United States Treasury
Notes,
Aaa 400 6.00%, 8/15/2004 403,876
Aaa 1,140(d) 7.50%, 2/15/2005 1,218,375
Aaa 890 6.00%, 8/15/2009 897,227
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. 9
<PAGE>
Portfolio of Investments as THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
of September 30, 1999 PRUDENTIAL ACTIVE BALANCED FUND
-------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
<C> <C> <S> <C>
----------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES (cont'd.)
United States Treasury
Stripped Interest,
NR $ 2,765 Zero Coupon, 2/15/2010 $ 1,435,643
------------
Total U.S. government
securities
(cost $4,693,178) 4,628,530
------------
Total debt obligations
(cost $42,870,942) 41,913,397
------------
Total long-term
investments
(cost $100,759,089) 107,488,312
------------
-------------------------------------------------------------------
SHORT-TERM INVESTMENTS--36.6%
-------------------------------------------------------------------
COMMERCIAL PAPER--10.9%
Bombardier Capital Inc.,
P-2 3,288 5.80%, 10/1/1999 3,288,000
Centric Capital Corp.,
P-1 1,600 5.45%, 10/5/1999 1,599,031
Conagra, Inc.,
P-1 3,600 5.49%, 10/29/1999 3,584,628
Dayton Hudson Corp., Deb.
P-2 1,000 5.55%, 10/15/1999 997,841
Delaware Funding Corp.,
P-1 2,603 5.40%, 11/15/1999 2,585,430
Rohm & Haas Co.,
P-2 4,000 5.60%, 10/6/1999 3,996,889
------------
Total commercial paper
(cost $16,051,819) 16,051,819
------------
-------------------------------------------------------------------
CORPORATE BONDS--0.2%
-------------------------------------------------------------------
Health Care Services
A2 365(d) American Home Products
Corp., Note
7.70%, 2/15/2000
(cost $367,534) 367,745
------------
-------------------------------------------------------------------
U.S. GOVERNMENT AGENCY MORTGAGE PASS-THROUGH OBLIGATIONS--3.5%
Aaa 5,106 Federal Home Loan Mortgage
Discount Notes
5.20%, 10/1/1999
(cost $5,106,000) 5,106,000
------------
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <C> <S> <C>
----------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES--0.7%
United States Treasury
Bills,
$ 100(b) 4.55%, 12/16/1999 $ 99,040
1,000(b) 4.615%, 12/16/1999 990,257
------------
Total U.S. government
securities
(cost $1,089,297) 1,089,297
------------
-------------------------------------------------------------------
REPURCHASE AGREEMENT--21.3%
31,201 Joint Repurchase Agreement
Account
5.22%, 10/1/1999
(cost $31,201,000; Note
5) 31,201,000
------------
Total short-term
investments
(cost $53,815,650) 53,815,861
------------
-------------------------------------------------------------------
Total Investments--109.9%
(cost $154,574,739; Note
4) 161,304,173
Liabilities in excess of
other
assets--(9.9%) (14,561,181)
------------
Net Assets--100% $146,742,992
------------
------------
</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) All or partial principal amount pledged as collateral for mortgage dollar
rolls.
(e) Figures are actual and not rounded to the nearest thousand.
MTN--Medium Term Note.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a description of
Moody's and Standard & Poor's ratings.
--------------------------------------------------------------------------------
See Notes to Financial Statements. 10
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Statement of Assets and Liabilities PRUDENTIAL ACTIVE BALANCED FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets September 30, 1999
<S> <C>
Investments, at value (cost $123,373,739).............................................................. $ 130,103,173
Repurchase agreement (cost $31,201,000)................................................................ 31,201,000
Cash................................................................................................... 10,681
Receivable for investments sold........................................................................ 9,754,014
Receivable for Series shares sold...................................................................... 834,456
Dividends and interest receivable...................................................................... 502,037
Due from broker-variation margin....................................................................... 261,660
Other assets........................................................................................... 5,706
------------------
Total assets....................................................................................... 172,672,727
------------------
Liabilities
Payable for investments purchased...................................................................... 24,759,123
Payable for Series shares reacquired................................................................... 893,055
Accrued expenses....................................................................................... 186,596
Management fee payable................................................................................. 79,004
Distribution fee payable............................................................................... 11,957
------------------
Total liabilities.................................................................................. 25,929,735
------------------
Net Assets............................................................................................. $ 146,742,992
------------------
------------------
Net assets were comprised of:
Common stock, at par................................................................................ $ 11,066
Paid-in capital in excess of par.................................................................... 130,746,428
------------------
130,757,494
Undistributed net investment income................................................................. 2,395,226
Accumulated net realized gain on investments........................................................ 7,135,434
Net unrealized appreciation on investments.......................................................... 6,454,838
------------------
Net assets, September 30, 1999......................................................................... $ 146,742,992
------------------
------------------
Class A:
Net asset value and redemption price per share
($10,396,956 / 784,592 shares of common stock issued and outstanding)............................ $13.25
Maximum sales charge (5% of offering price)......................................................... .70
------------------
Maximum offering price to public.................................................................... $13.95
Class B:
Net asset value, offering price and redemption price per share
($10,979,133 / 833,370 shares of common stock issued and outstanding)............................ $13.17
Class C:
Net asset value and redemption price per share
($1,116,852 / 84,777 shares of common stock issued and outstanding).............................. $13.17
Sales charge (1% of offering price)................................................................. .13
------------------
Offering price to public............................................................................ $13.30
Class Z:
Net asset value, offering price and redemption price per share
($124,250,051 / 9,363,638 shares of common stock issued and outstanding)......................... $13.27
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. 11
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL ACTIVE BALANCED FUND
Statement of Operations
------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income September 30, 1999
<S> <C>
Income
Interest.............................. $ 4,361,548
Dividends (net of foreign withholding
taxes
of $13,694)........................ 977,951
------------------
Total income......................... 5,339,499
------------------
Expenses
Management fee........................ 940,298
Distribution fee--Class A............. 17,294
Distribution fee--Class B............. 70,178
Distribution fee--Class C............. 6,737
Transfer agent's fees and expenses.... 260,000
Reports to shareholders............... 165,000
Custodian's fees and expenses......... 140,000
Registration fees..................... 110,000
Legal fees and expenses............... 25,000
Audit fee and expenses................ 20,000
Directors' fees and expenses.......... 7,500
Miscellaneous......................... 4,301
------------------
Total expenses....................... 1,766,308
------------------
Net investment income.................... 3,573,191
------------------
Realized and Unrealized Gain
on Investments
Net realized gain on:
Investment transactions............... 5,565,895
Financial futures contracts........... 4,358,935
------------------
9,924,830
------------------
Net change in unrealized appreciation (depreciation) on:
Investments........................... 10,871,412
Financial futures contracts........... (988,830)
------------------
9,882,582
------------------
Net gain on investments.................. 19,807,412
------------------
Net Increase in Net Assets
Resulting from Operations................ $ 23,380,603
------------------
------------------
</TABLE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL ACTIVE BALANCED FUND
Statement of Changes in Net Assets
----------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended September 30,
in Net Assets 1999 1998
<S> <C> <C>
Operations
Net investment income.......... $ 3,573,191 $ 5,391,746
Net realized gain on
investments................. 9,924,830 26,438,362
Net change in unrealized
appreciation (depreciation)
on investments.............. 9,882,582 (28,216,192)
------------ ------------
Net increase in net assets
resulting from operations... 23,380,603 3,613,916
------------ ------------
Dividends and distributions (Note
1)
Dividends from net investment
income
Class A..................... (74,318) (24,889)
Class B..................... (52,406) (4,933)
Class C..................... (4,693) (273)
Class Z..................... (4,048,216) (4,664,569)
------------ ------------
(4,179,633) (4,694,664)
------------ ------------
Distributions from net realized
gains
Class A..................... (438,657) (82,174)
Class B..................... (480,842) (24,906)
Class C..................... (43,068) (1,378)
Class Z..................... (21,035,473) (13,860,433)
------------ ------------
(21,998,040) (13,968,891)
------------ ------------
Series share transactions (net of
share conversion) (Note 6)
Net proceeds from shares
sold........................ 69,542,543 105,305,809
Net asset value of shares
issued to shareholders in
reinvestment of dividends
and distributions........... 26,157,302 18,663,277
Cost of shares reacquired...... (114,537,650) (100,421,933)
------------ ------------
Net increase (decrease) in net
assets from Series share
transactions................ (18,837,805) 23,547,153
------------ ------------
Total increase (decrease)......... (21,634,875) 8,497,514
Net Assets
Beginning of year................. 168,377,867 159,880,353
------------ ------------
End of year(a).................... $146,742,992 $168,377,867
------------ ------------
------------ ------------
---------------
(a) Includes undistributed net
investment income of.......... $ 2,395,226 $ 3,863,980
------------ ------------
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. 12
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Notes to Financial Statements PRUDENTIAL ACTIVE BALANCED FUND
--------------------------------------------------------------------------------
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 bid price on such day in the absence of an asked price. Securities that are
actively traded in the over-the-counter market, including listed securities for
which the primary market is believed by the Manager, in consultation with the
Subadviser, to be over-the-counter, are valued by an independent pricing agent
or principal market maker. 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 judgement of the Manager and Subadviser, able to produce prices which
are representative of market value.
Short-term securities which mature in more than 60 days, for which market
quotations are readily available, are valued at current market quotations as
provided by an independent pricing agent or principal market maker. Short-term
securities which mature in 60 days or less are valued at cost with interest
accrued or discount amortized to the date of maturity, unless the Board of
Directors determines that such variation does not represent fair value.
All securities are valued as of 4:15 p.m., New York time.
In connection with transactions in repurchase agreements, it is the 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 account, the dollar value of
which is at least equal to its obligations in respect of dollar rolls.
--------------------------------------------------------------------------------
13
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Notes to Financial Statements PRUDENTIAL ACTIVE BALANCED FUND
--------------------------------------------------------------------------------
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.
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. The effect of applying
this statement was to decrease undistributed net investment income by $862,312,
decrease accumulated net realized gain on investments by $4,358,827, and
increase paid-in capital by $5,221,139 for redemptions utilized as distributions
for federal income tax purposes during the year ended September 30, 1999. Net
investment income, net realized gains and net assets were not affected by this
change.
------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential Investments Fund Management
LLC ('PIFM'). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadvisor's performance of such
services. PIFM has entered into a subadvisory agreement with The Prudential
Investment Corporation ('PIC'); PIC furnishes investment advisory services in
connection with the management of the Series. PIFM pays for the service of PIC,
the compensation of officers of the Fund, occupancy and certain clerical and
bookkeeping costs of the Fund. The Fund bears all other costs and expenses.
The management fee paid PIFM is computed daily and payable monthly at an annual
rate of .65 of 1% of the Series' average daily net assets.
The Fund has a distribution agreement with Prudential Investment Management
Services LLC ('PIMS'), which acts as the distributor of the Class A, Class B,
Class C and Class Z shares. The Fund compensates PIMS for distributing and
servicing the 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, 1999.
PIMS has advised the Series that it received approximately $60,400 and $6,600 in
front-end sales charges resulting from sales of Class A shares and Class C
shares, respectively, during the year ended September 30, 1999. From these fees,
PIMS paid such sales charges to affiliated broker-dealers, which in turn paid
commissions to salespersons and incurred other distribution costs.
PIMS has advised the Series that for the year ended September 30, 1999, it
received approximately $27,500 and $700 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').
As of March 11, 1999, the Fund, along with other affiliated registered
investment companies (the 'Funds'), entered into a syndicated credit agreement
('SCA') with an unaffiliated lender. The maximum commitment under the SCA is $1
billion. Interest on any borrowings will be at market rates. The Funds pay a
commitment fee at an annual rate of .065 of 1% on the unused portion of the
credit facility, which is accrued and paid quarterly on a pro rata basis by the
Funds. The SCA expires on March 9, 2000. Prior to March 11, 1999, the Funds had
a credit agreement with a maximum commitment of $200,000,000. The commitment fee
was .055 of 1% on the unused portion of the credit facility. The Fund did not
borrow any amounts pursuant to either agreement during the year
--------------------------------------------------------------------------------
14
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Notes to Financial Statements PRUDENTIAL ACTIVE BALANCED FUND
--------------------------------------------------------------------------------
ended September 30, 1999. The purpose of the agreements is to serve as an
alternative source of funding for capital share redemptions.
------------------------------------------------------------
Note 3. Other Transactions With Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the year ended September 30, 1999,
the Series incurred fees of approximately $233,400 for the services of PMFS. As
of September 30, 1999, approximately $16,900 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, 1999 were $264,840,951 and $310,274,690,
respectively.
The average monthly balance of dollar rolls outstanding during the year ended
September 30, 1999 was approximately $15,856,258. The value of dollar rolls
outstanding at September 30, 1999 was $14,859,035 (principal $15,100,000), which
was 8.6% of total assets.
The cost basis of investments for federal income tax purposes as of September
30, 1999 was $154,670,010 and, accordingly, net unrealized appreciation of
investments for federal income tax purposes was $6,634,163 (gross unrealized
appreciation--$11,505,180, gross unrealized depreciation--$4,871,017).
During the year ended September 30, 1999, the Series entered into financial
futures contracts. Details of open contracts at September 30, 1999 are as
follows:
<TABLE>
<CAPTION>
Value at Value at Unrealized
Number of Expiration September 30, Trade Appreciation/
Contracts Type Date 1999 Date (Depreciation)
----------- ---------------- ------------ ------------- ----------- --------------
<C> <S> <C> <C> <C> <C>
Long Position:
17 U.S. T-Bond Dec. 99 $ 1,936,938 $ 1,947,297 $ (10,359)
42 S&P Bond Dec. 99 13,631,094 13,977,675 (346,581)
155 U.S. T-Note Dec. 99 16,812,656 16,730,312 82,344
--------------
$ (274,596)
--------------
--------------
</TABLE>
------------------------------------------------------------
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, 1999, the Series had a 4.9% undivided interest in repurchase agreements in
the joint account. The undivided interest for the Series represented $32,201,000
in principal amount. As of such date, each repurchase agreement in the joint
account and the value of the collateral therefore was as follows:
Warburg Dillon Read LLC, 5.32%, in the principal amount of $190,000,000,
repurchase price of $190,028,077, due 10/1/99. The value of the collateral
including accrued interest was $193,802,299.
Bear, Stearns & Co. Inc., 5.32%, in the principal amount of $190,000,000,
repurchase price of $190,028,077, due 10/1/99. The value of the collateral
including accrued interest was $194,200,266.
Morgan (J.P.) Securities, Inc., 5.25%, in the principal amount of $190,000,000,
repurchase price $190,027,708, due 10/1/99. The value of the collateral
including accrued interest was $193,800,121.
Goldman, Sachs & Co., 4.75%, in the principal amount of $88,875,000, repurchase
price $88,886,726, due 10/1/99. The value of the collateral including accrued
interest was $90,653,200.
------------------------------------------------------------
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 on
the period of time the shares are held. Prior to November 2, 1998, Class C
shares were sold with a contingent deferred sales charge of 1% during the first
year. Effective November 2, 1998, Class C shares are sold with a front-end sales
charge of 1% and a contingent deferred sales charge of 1% during the first 18
months. Class B shares will automatically convert to Class A shares on a
quarterly basis approximately seven years after purchase. A special exchange
privilege is also available for shareholders who qualify to purchase Class A
shares at net asset value. Class Z shares are not subject to any sales or
redemption charge and are offered exclusively for sale to a limited group of
investors.
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.
--------------------------------------------------------------------------------
15
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Notes to Financial Statements PRUDENTIAL ACTIVE BALANCED FUND
--------------------------------------------------------------------------------
Transactions in shares of common stocks were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
----------------------------------- ---------- ------------
<S> <C> <C>
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 in shares outstanding
before conversion................ 542,192 7,115,104
Shares issued upon conversion
from Class B..................... 236 3,120
---------- ------------
Net increase in shares
outstanding...................... 542,428 $ 7,118,224
---------- ------------
---------- ------------
Year ended September 30, 1998:
Shares sold........................ 324,143 $ 4,450,999
Shares issued in reinvestment of
dividends and distributions...... 8,312 107,053
Shares reacquired.................. (159,004) (2,196,936)
---------- ------------
Net increase in shares
outstanding...................... 173,451 $ 2,361,116
---------- ------------
---------- ------------
<CAPTION>
Class B
-----------------------------------
<S> <C> <C>
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 in shares outstanding
before conversion................ 603,830 7,980,192
Shares reacquired upon conversion
into
Class A.......................... (236) (3,120)
---------- ------------
Net increase in shares
outstanding...................... 603,594 $ 7,977,072
---------- ------------
---------- ------------
Year ended September 30, 1998:
Shares sold........................ 224,444 $ 3,091,278
Shares issued in reinvestment of
dividends and distributions...... 2,309 29,757
Shares reacquired.................. (11,806) (161,521)
---------- ------------
Net increase in shares
outstanding...................... 214,947 $ 2,959,514
---------- ------------
---------- ------------
<CAPTION>
Class C Shares Amount
----------------------------------- ---------- ------------
<S> <C> <C>
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 in shares
outstanding...................... 63,307 $ 829,938
---------- ------------
---------- ------------
Year ended September 30, 1998:
Shares sold........................ 22,836 $ 314,699
Shares issued in reinvestment of
dividends and distributions...... 127 1,642
Shares reacquired.................. (1,859) (25,489)
---------- ------------
Net increase in shares
outstanding...................... 21,104 $ 290,852
---------- ------------
---------- ------------
<CAPTION>
Class Z
-----------------------------------
<S> <C> <C>
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 decrease in shares
outstanding...................... (2,790,244) $(34,763,039)
---------- ------------
---------- ------------
Year ended September 30, 1998:
Shares sold........................ 6,947,226 $ 97,448,833
Shares issued in reinvestment of
dividends and distributions...... 1,437,147 18,524,825
Shares reacquired.................. (7,211,135) (98,037,987)
---------- ------------
Net increase in shares
outstanding...................... 1,173,238 $ 17,935,671
---------- ------------
---------- ------------
</TABLE>
--------------------------------------------------------------------------------
16
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Financial Highlights PRUDENTIAL ACTIVE BALANCED FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B
------------------------------------ ------------------------------------
November 7, November 7,
Year Ended 1996(a) Year Ended 1996(a)
September 30, Through September 30, Through
------------------ September 30, ------------------ September 30,
1999 1998 1997 1999 1998 1997
------- ------ ------------- ------- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................... $ 13.29 $14.41 $ 13.40 $ 13.22 $14.34 $ 13.40
------- ------ ----- ------- ------ -----
Income from investment operations:
Net investment income............. .31 .44 .21(b) .19 .27 .19(b)
Net realized and unrealized gain
(loss) on investment
transactions................... 1.69 (.20) 1.97 1.69 (.14) 1.92
------- ------ ----- ------- ------ -----
Total from investment
operations.................. 2.00 .24 2.18 1.88 .13 2.11
------- ------ ----- ------- ------ -----
Less distributions:
Dividends from net investment
income......................... (.30) (.32) (.39) (.19) (.21) (.39)
Distributions from net realized
gains.......................... (1.74) (1.04) (.78) (1.74) (1.04) (.78)
------- ------ ----- ------- ------ -----
Total distributions............ (2.04) (1.36) (1.17) (1.93) (1.25) (1.17)
------- ------ ----- ------- ------ -----
Net asset value, end of period.... $ 13.25 $13.29 $ 14.41 $ 13.17 $13.22 $ 14.34
------- ------ ----- ------- ------ -----
------- ------ ----- ------- ------ -----
TOTAL RETURN(d):.................. 16.07% 1.93% 17.48% 15.12% 1.10% 16.91%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)... $10,397 $3,218 $ 990 $10,979 $3,038 $ 213
Average net assets (000).......... $ 6,918 $2,090 $ 100 $ 7,018 $1,285 $ 71
Ratios to average net assets:
Expenses, including
distribution fees........... 1.41% 1.28% 1.31%(c) 2.16% 2.03% 2.06%(c)
Expenses, excluding
distribution fees........... 1.16% 1.03% 1.06%(c) 1.16% 1.03% 1.06%(c)
Net investment income.......... 2.29% 2.72% 2.69%(c) 1.54% 1.95% 1.94%(c)
Portfolio turnover rate........... 230% 256% 50% 230% 256% 50%
</TABLE>
---------------
(a) Commencement of offering of Class A and 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 return for periods of less than a full year are not
annualized.
--------------------------------------------------------------------------------
See Notes to Financial Statements. 17
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Financial Highlights PRUDENTIAL ACTIVE BALANCED FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C Class Z
----------------------------------- -----------------------------------------------
November 7,
Year Ended 1996(e)
September 30, Through Year Ended September 30,
----------------- September 30, -----------------------------------------------
1999 1998 1997 1999 1998 1997 1996
------ ------ ------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................... $13.22 $14.34 $ 13.40 $ 13.32 $ 14.45 $ 13.01 $ 12.46
------ ------ ----- -------- -------- -------- --------
Income from investment operations:
Net investment income............. .19 .48 .13(b) .35 .38 .39(b) .29(a)
Net realized and unrealized gain
(loss) on investment
transactions................... 1.69 (.35) 1.98 1.68 (.12) 2.22 .81
------ ------ ----- -------- -------- -------- --------
Total from investment
operations.................. 1.88 .13 2.11 2.03 .26 2.61 1.10
------ ------ ----- -------- -------- -------- --------
Less distributions:
Dividends from net investment
income......................... (.19) (.21) (.39) (.34) (.35) (.39) (.37)
Distributions from net realized
gains.......................... (1.74) (1.04) (.78) (1.74) (1.04) (.78) (.18)
------ ------ ----- -------- -------- -------- --------
Total distributions............ (1.93) (1.25) (1.17) (2.08) (1.39) (1.17) (.55)
------ ------ ----- -------- -------- -------- --------
Net asset value, end of period.... $13.17 $13.22 $ 14.34 $ 13.27 $ 13.32 $ 14.45 $ 13.01
------ ------ ----- -------- -------- -------- --------
------ ------ ----- -------- -------- -------- --------
TOTAL RETURN(d):.................. 15.12% 1.10% 16.91% 16.32% 2.12% 21.34% 9.11%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)... $1,117 $ 284 $ 5 $124,250 $161,838 $158,672 $153,588
Average net assets (000).......... $ 674 $ 118 $ 1 $130,052 $177,443 $154,199 $142,026
Ratios to average net assets:
Expenses, including
distribution fees........... 2.16% 2.03% 2.06%(c) 1.16% 1.03% 1.06% 1.00%(a)
Expenses, excluding
distribution fees........... 1.16% 1.03% 1.06%(c) 1.16% 1.03% 1.06% 1.00%(a)
Net investment income.......... 1.54% 2.04% 1.94%(c) 2.54% 2.99% 2.94% 3.09%(a)
Portfolio turnover rate........... 230% 256% 50% 230% 256% 50% 51%
<CAPTION>
1995
--------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................... $ 10.92
--------
Income from investment operations:
Net investment income............. .33(a)
Net realized and unrealized gain
(loss) on investment
transactions................... 1.54
--------
Total from investment
operations.................. 1.87
--------
Less distributions:
Dividends from net investment
income......................... (.29)
Distributions from net realized
gains.......................... (.04)
--------
Total distributions............ (.33)
--------
Net asset value, end of period.... $ 12.46
--------
--------
TOTAL RETURN(d):.................. 17.66%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)... $133,352
Average net assets (000).......... $104,821
Ratios to average net assets:
Expenses, including
distribution fees........... 1.00(a)
Expenses, excluding
distribution fees........... 1.00(a)
Net investment income.......... 3.53(a)
Portfolio turnover rate........... 30%
</TABLE>
---------------
(a) Net of expense subsidy.
(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 return for periods of less than a full year are not
annualized.
(e) Commencement of offering of Class C shares.
--------------------------------------------------------------------------------
See Notes to Financial Statements. 18
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Report of Independant Accountants PRUDENTIAL ACTIVE BALANCED FUND
--------------------------------------------------------------------------------
The Shareholders and Board of Directors of
The Prudential Investment Portfolios, Inc.--Prudential Active Balanced Fund
November 17, 1999
--------------------------------------------------------------------------------
See Notes to Financial Statements. 19
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active
Balanced Fund
Portfolio of Investments as of March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS 75.6%
Common Stocks 48.5%
-------------------------------------------------------------------------------------
<C> <S> <C> <C>
Aerospace/Defense 0.4%
3,600 General Dynamics Corp. $ 179,100
2,237 Honeywell International, Inc. 117,862
1,600 Lockheed Martin Corp. 32,700
7,500 Raytheon Co. 133,125
5,500 The Boeing Co. 208,656
--------------
671,443
-------------------------------------------------------------------------------------
Airlines 0.4%
5,600 America West Holdings Corp. 86,800
2,400 AMR Corp.(a) 76,500
2,700 Delta Airlines, Inc. 143,775
1,350 Southwest Airlines Co. 28,097
4,900 UAL Corp.(a) 293,387
--------------
628,559
-------------------------------------------------------------------------------------
Automobiles & Trucks 1.0%
9,700 Arvin Industries, Inc. 219,462
3,500 Delphi Automotive Systems Corp. 56,000
13,300 Ford Motor Co. 610,969
8,100 General Motors Corp. 670,781
400 PACCAR, Inc. 20,000
--------------
1,577,212
-------------------------------------------------------------------------------------
Advertising
1,000 Interpublic Group of Companies, Inc. 47,250
-------------------------------------------------------------------------------------
Automotive Parts 0.2%
5,200 TRW, Inc. 304,200
-------------------------------------------------------------------------------------
Banking 1.1%
5,994 Bank One Corp. 206,044
4,300 Chase Manhattan Corp. 374,906
</TABLE>
See Notes to Financial Statements 5
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active
Balanced Fund
Portfolio of Investments as of March 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
12,900 Dime Bancorp, Inc. $ 238,650
6,200 First Union Corp. 230,950
3,200 Huntington Bancshares, Inc. 71,600
13,600 KeyCorp. 258,400
2,700 PNC Bank Corp. 121,669
2,900 Regions Financial Corp. 66,156
2,600 Suntrust Banks, Inc. 150,150
--------------
1,718,525
-------------------------------------------------------------------------------------
Beverages 0.6%
2,600 Anheuser-Busch Companies, Inc. 161,850
7,900 Coca-Cola Co. 370,806
11,600 PepsiCo, Inc. 400,925
--------------
933,581
-------------------------------------------------------------------------------------
Building & Construction 0.3%
10,500 Centex Corp. 250,031
11,500 Pulte Corp. 240,063
--------------
490,094
-------------------------------------------------------------------------------------
Business Services 0.2%
2,700 Kelly Services, Inc. 64,631
2,800 Omnicom Group, Inc. 261,625
1,734 Sabre Group Holdings, Inc.(a) 64,063
--------------
390,319
-------------------------------------------------------------------------------------
Chemicals 0.2%
1,100 Dow Chemical Co. 125,400
400 Praxair, Inc. 16,650
7,100 Schulman (A.), Inc. 94,075
300 Union Carbide Corp. 17,494
--------------
253,619
-------------------------------------------------------------------------------------
Commercial Services
600 Paychex, Inc. 31,425
</TABLE>
6 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active
Balanced Fund
Portfolio of Investments as of March 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
Computer Services 0.9%
<C> <S> <C> <C>
1,900 Automatic Data Processing, Inc. $ 91,675
2,500 Electronic Data Systems Corp. 160,469
1,000 Network Appliance, Inc.(a) 82,750
1,000 Unisys Corp.(a) 25,500
3,450 VERITAS Software Corp.(a) 451,950
3,800 Yahoo, Inc.(a) 651,225
--------------
1,463,569
-------------------------------------------------------------------------------------
Computer Software & Services 8.0%
1,400 Adobe Systems, Inc. 155,838
13,000 America Online, Inc.(a) 874,250
42,600 Cisco Systems, Inc.(a) 3,293,512
10,300 Computer Associates International, Inc. 609,631
2,050 Comverse Technology, Inc.(a) 387,450
3,200 DST Systems, Inc.(a) 207,800
5,700 EMC Corp.(a) 712,500
31,300 Microsoft Corp.(a) 3,325,625
21,800 Oracle Systems Corp.(a) 1,701,763
600 Siebel Systems, Inc.(a) 71,663
12,600 Sun Microsystems, Inc.(a) 1,180,659
6,100 Teradyne, Inc.(a) 501,725
--------------
13,022,416
-------------------------------------------------------------------------------------
Computer Systems/Peripherals 1.8%
2,500 Apple Computer, Inc.(a) 339,531
4,800 Dell Computer Corp.(a) 258,900
7,300 Hewlett-Packard Co. 967,706
11,300 International Business Machines Corp. 1,333,400
100 Seagate Technology, Inc.(a) 6,025
--------------
2,905,562
-------------------------------------------------------------------------------------
Cosmetics/Toiletries 0.2%
3,000 Colgate-Palmolive Co. 169,125
2,300 Kimberly-Clark Corp. 128,800
--------------
297,925
</TABLE>
See Notes to Financial Statements 7
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active
Balanced Fund
Portfolio of Investments as of March 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
Distribution/Wholesalers 0.1%
<C> <S> <C> <C>
1,800 Costco Wholesale Corp. $ 94,613
-------------------------------------------------------------------------------------
Diversfied Consumer Products 0.3%
4,500 Procter & Gamble Co. 253,125
5,717 Unilever NV 275,131
--------------
528,256
-------------------------------------------------------------------------------------
Diversified Operations 1.9%
20,300 General Electric Co. 3,150,306
-------------------------------------------------------------------------------------
Diversified Manufacturing 0.4%
1,100 Corning, Inc. 213,400
2,600 Eaton Corp. 202,800
1,200 Illinois Tool Works, Inc. 66,300
1,400 Minnesota Mining & Manufacturing Co. 123,987
500 Textron, Inc. 30,438
4,200 Trinity Industries, Inc. 99,487
--------------
736,412
-------------------------------------------------------------------------------------
Electrical Utilities 1.5%
200 American Electric Power Co., Inc. 5,963
8,200 Central & South West Corp. 139,912
2,600 Consolidated Edison, Inc. 75,400
5,600 DTE Energy Co. 162,400
3,400 Duke Energy Corp. 178,500
5,900 Edison International 97,719
7,900 Entergy Corp. 159,481
7,700 FirstEnergy Corp. 158,813
4,200 Florida Progress Corp. 192,675
4,400 FPL Group, Inc. 202,675
9,600 PG&E Corp. 201,600
15,000 Public Service Company of New Mexico 236,250
2,500 Public Service Enterprise Group, Inc. 74,062
17,300 Reliant Energy, Inc. 405,469
5,700 Texas Utilities Co. 169,219
--------------
2,460,138
</TABLE>
8 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active
Balanced Fund
Portfolio of Investments as of March 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
Electronic Components 4.3%
<C> <S> <C> <C>
7,400 Altera Corp.(a) $ 660,450
1,000 Analog Devices, Inc.(a) 80,563
6,300 Atmel Corp.(a) 325,238
2,200 Emerson Electric Co. 116,325
22,600 Intel Corp. 2,981,787
2,200 Jabil Circuit, Inc.(a) 95,150
6,700 KLA-Tencor Corp.(a) 564,475
1,000 Micron Technology, Inc.(a) 126,000
3,630 Motorola, Inc. 516,821
1,800 Novellus Systems, Inc.(a) 101,025
4,400 Sanmina Corp.(a) 297,275
12,600 Solectron Corp.(a) 504,787
3,400 Texas Instruments, Inc. 544,000
1,400 Xilinx, Inc.(a) 115,938
--------------
7,029,834
-------------------------------------------------------------------------------------
Financial Services 4.5%
3,900 Allmerica Financial Corp. 198,900
3,300 American Express Co. 491,494
6,000 Astoria Financial Corp. 170,250
9,360 BankAmerica Corp. 490,815
10,430 Bear Stearns Companies, Inc. 475,869
7,900 Charles Schwab Corp. 448,819
19,425 Citigroup, Inc. 1,152,145
2,900 Countrywide Credit Industries, Inc. 79,025
5,100 Federal Home Loan Mortgage Corp. 225,356
7,400 Federal National Mortgage Association 417,637
15,900 Fleet Boston Financial Corp. 580,350
5,000 Golden West Financial Corp. 155,937
2,400 Lehman Brothers Holdings, Inc. 232,800
3,900 MBNA Corp. 99,450
700 Merrill Lynch & Co., Inc. 73,500
9,200 Morgan Stanley, Dean Witter & Co. 750,375
9,000 PaineWebber Group, Inc. 396,000
5,400 Providian Financial Corp. 467,775
3,400 SLM Holding Corp. 113,263
9,300 Wells Fargo Co. 380,719
--------------
7,400,479
</TABLE>
See Notes to Financial Statements 9
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active
Balanced Fund
Portfolio of Investments as of March 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
Food Distribution
<C> <S> <C> <C>
1,000 SYSCO Corp. $ 35,688
-------------------------------------------------------------------------------------
Foods 0.6%
10,914 Archer-Daniels Midland Co. 113,233
500 Bestfoods 23,406
6,700 ConAgra, Inc. 121,437
5,400 General Mills, Inc. 195,412
1,500 H.J. Heinz Co. 52,313
19,800 Ibp, Inc. 311,850
1,600 Kellogg Co. 41,000
600 Quaker Oats Co. 36,375
4,200 Sara Lee Corp. 75,600
--------------
970,626
-------------------------------------------------------------------------------------
Health Care Services 0.1%
2,200 Columbia/HCA Healthcare Corp. 55,688
1,900 United Healthcare Corp. 113,288
--------------
168,976
-------------------------------------------------------------------------------------
Home Furnishings 0.1%
2,400 Springs Industries, Inc. 91,200
-------------------------------------------------------------------------------------
Insurance 1.4%
900 Aetna, Inc. 50,119
6,600 Allstate Corp. 157,163
10,400 American International Group, Inc. 1,138,800
25,800 Conseco, Inc. 295,087
2,200 Hartford Financial Services Group 116,050
14,800 Old Republic International Corp. 203,500
11,100 St. Paul Companies, Inc. 378,787
--------------
2,339,506
-------------------------------------------------------------------------------------
Leisure 0.1%
4,400 Carnival Corp. 109,175
2,500 Marriott International, Inc. 78,750
--------------
187,925
</TABLE>
10 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active
Balanced Fund
Portfolio of Investments as of March 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
Machinery & Equipment 0.6%
<C> <S> <C> <C>
8,600 Applied Materials, Inc.(a) $ 810,550
700 Deere & Co. 26,600
600 Dover Corp. 28,725
500 Ingersoll-Rand Co. 22,125
700 Rockwell International Corp. 29,269
--------------
917,269
-------------------------------------------------------------------------------------
Measuring & Control Instrument 0.1%
4,100 Johnson Controls, Inc. 221,656
-------------------------------------------------------------------------------------
Media & Entertainment 1.1%
1,000 Dow Jones & Co., Inc. 71,812
1,400 Gannett Co., Inc. 98,525
1,100 Hispanic Broadcasting Corp.(a) 124,575
600 McGraw-Hill Companies, Inc. 27,300
10,700 Time Warner, Inc. 1,070,000
11,200 Walt Disney Co. 463,400
--------------
1,855,612
-------------------------------------------------------------------------------------
Medical Products & Services 1.7%
1,300 Baxter International, Inc. 81,494
5,900 Cardinal Health, Inc. 270,662
6,700 Johnson & Johnson Co. 469,419
100 Medtronic, Inc. 5,144
13,800 Schering-Plough Corp. 507,150
17,000 Tyco International, Ltd. 847,875
6,600 Warner-Lambert Co. 643,500
--------------
2,825,244
-------------------------------------------------------------------------------------
Medical Technology 0.6%
9,600 Abbott Laboratories 337,800
9,900 Amgen, Inc.(a) 607,612
700 Biogen, Inc.(a) 48,913
--------------
994,325
-------------------------------------------------------------------------------------
Metals Processing 0.2%
8,800 Precision Castparts Corp. 321,200
</TABLE>
See Notes to Financial Statements 11
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active
Balanced Fund
Portfolio of Investments as of March 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
Office Equipment & Supplies
<C> <S> <C> <C>
1,100 Pitney Bowes, Inc. $ 49,156
-------------------------------------------------------------------------------------
Oil & Gas Exploration/Production 1.7%
11,500 Apache Corp. 572,125
2,300 Atlantic Richfield Co. 195,500
4,800 Coastal Corp. 220,800
15,532 Exxon Mobil Corp. 1,208,584
7,300 Royal Dutch Petroleum Co. 420,206
3,100 Texaco, Inc. 166,237
2,800 USX - Marathon Group 72,975
--------------
2,856,427
-------------------------------------------------------------------------------------
Oil & Gas Services 0.4%
2,500 Amerada Hess Corp. 161,562
4,400 Chevron Corp. 406,725
1,600 Schlumberger, Ltd. 122,400
1,400 Sempra Energy 23,450
--------------
714,137
-------------------------------------------------------------------------------------
Paper & Forest Products 0.3%
100 Champion International Corp. 5,325
1,900 International Paper Co. 81,225
18,100 Louisiana-Pacific Corp. 251,137
3,800 Willamette Industries, Inc. 152,475
--------------
490,162
-------------------------------------------------------------------------------------
Pharmaceuticals 2.0%
1,800 Allergan, Inc. 90,000
13,200 Bristol Myers Squibb Co. 762,300
7,300 Eli Lilly & Co. 459,900
16,800 Merck & Co., Inc. 1,043,700
27,300 Pfizer, Inc. 998,156
--------------
3,354,056
</TABLE>
12 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active
Balanced Fund
Portfolio of Investments as of March 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
Photography 0.1%
<C> <S> <C> <C>
1,600 Eastman Kodak Co. $ 86,900
-------------------------------------------------------------------------------------
Precious Metals
700 Barrick Gold Corp. 10,981
-------------------------------------------------------------------------------------
Printing & Publishing 0.2%
2,100 Knight-Ridder, Inc. 106,969
900 New York Times Co. 38,644
2,800 Tribune Co. 102,375
--------------
247,988
-------------------------------------------------------------------------------------
Railroads 0.1%
3,800 Canadian National Railway Co. 101,413
-------------------------------------------------------------------------------------
Retail 3.9%
2,400 Abercrombie & Fitch Co.(a) 38,400
10,800 Circuit City Stores-Circut City Group 657,450
1,700 CVS Corp. 63,856
5,000 Federated Department Stores, Inc.(a) 208,750
10,475 Gap, Inc. 521,786
18,300 Home Depot, Inc. 1,180,350
16,700 Kmart Corp.(a) 161,781
4,200 Kohl's Corp.(a) 430,500
1,800 Lowes Companies, Inc. 105,075
1,300 May Department Stores Co. 37,050
7,000 McDonald's Corp. 262,937
2,500 Safeway Inc.(a) 113,125
7,000 Sears, Roebuck & Co. 216,125
11,100 Staples, Inc.(a) 222,000
3,400 Starbucks Corp. 152,362
2,200 Target Corp. 164,450
1,000 TJX Companies, Inc. 22,188
1,800 Tricon Global Restaurants, Inc.(a) 55,913
30,000 Wal-Mart Stores, Inc. 1,665,000
5,000 Walgreen Co. 128,750
--------------
6,407,848
</TABLE>
See Notes to Financial Statements 13
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active
Balanced Fund
Portfolio of Investments as of March 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
Telecommunication Services 2.4%
<C> <S> <C> <C>
22,350 AT&T Corp. $ 1,257,187
9,400 Bell Atlantic Corp. 574,575
3,400 BellSouth Corp. 159,800
750 CenturyTel, Inc. 27,844
5,400 GTE Corp. 383,400
8,812 MCI WorldCom, Inc.(a) 399,294
20,912 SBC Communications, Inc. 878,304
4,700 Sprint Corp. 296,100
--------------
3,976,504
-------------------------------------------------------------------------------------
Telecommunications Equipment 1.9%
13,400 ADC Telecommunications, Inc.(a) 721,925
12,800 Lucent Technologies, Inc. 777,600
6,900 Nortel Networks Corp. 869,400
4,700 QUALCOMM, Inc.(a) 701,769
900 Tellabs, Inc.(a) 56,686
--------------
3,127,380
-------------------------------------------------------------------------------------
Textile-Apparel Manufacturing
500 Jones Apparel Group, Inc.(a) 15,938
-------------------------------------------------------------------------------------
Tobacco 0.3%
18,000 Philip Morris Co., Inc. 380,250
4,300 UST, Inc. 67,188
--------------
447,438
-------------------------------------------------------------------------------------
Transportation/Trucking/Shipping 0.3%
17,700 Burlington Northern, Inc. 391,612
1,200 Fedex Corp. 46,800
100 Kansas City Southern Industries, Inc. 8,594
1,000 Union Pacific Corp. 39,125
--------------
486,131
--------------
Total common stocks (cost $60,103,770) 79,437,423
--------------
</TABLE>
14 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active
Balanced Fund
Portfolio of Investments as of March 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000) Description Value (Note 1)
-----------------------------------------------------------------------------------------
DEBT OBLIGATIONS 27.1%
CORPORATE BONDS 13.7%
-------------------------------------------------------------------------------------
Aerospace/Defense 1.1%
<C> <C> <S> <C> <C>
Boeing Inc., Deb.,
8.10%, 11/15/06 $ 731,941
A1 $ 700(e)
Northrop Grumman Corp., Deb.,
7.75%, 3/1/16 667,499
Baa3 700(e)
Raytheon Co., Note,
6.30%, 3/15/05 466,020
Baa2 500(e)
--------------
1,865,460
-------------------------------------------------------------------------------------
Agricultural Products 0.3%
Monsanto Company, Note,
5.75%, 12/1/05 471,350
A1 500
-------------------------------------------------------------------------------------
Airlines 0.1%
Delta Air Lines Inc. Deb., Note,
8.30%, 12/15/29 213,838
Baa3 230(e)
-----------------------------------------------------------------------------------
Asset Backed Securities 1.4%
Citibank Credit Card Master Trust
I,
Class A,
5.875%, 3/10/11 463,590
Aaa 500(e)
Citibank Credit Card Master Trust,
Cl. A,
6.05%, 1/15/10 1,382,340
Aaa 1,500(e)
MBNA Master Credit Card Trust, Ser.
C, Cl. A,
6.45%, 2/15/08 482,810
Aaa 500(e)
--------------
2,328,740
-------------------------------------------------------------------------------------
Banking 2.4%
BankAmerica Corp., MTN,
7.125%, 5/12/05 981,090
Aa2 1,000(e)
Barclays Bank Plc, Note,
7.40%, 12/15/09 391,168
Aa3 400(e)
Chemical Bank, Sub. Note,
7.00%, 6/1/05 979,800
Aa3 1,000(e)
</TABLE>
See Notes to Financial Statements 15
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active
Balanced Fund
Portfolio of Investments as of March 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000) Description Value (Note 1)
-----------------------------------------------------------------------------------------
<C> <C> <S> <C> <C>
Citicorp, Sub. Note,
7.125%, 9/1/05 $ 494,440
A1 $ 500(e)
First Union-Lehman Brothers Bank.,
Ser. 98,
6.56%, 11/18/08 381,517
Aaa 400(e)
Keycorp Capital III, Capital
Securities,
7.75%, 7/15/29 92,138
A1 100(e)
National Westminster Bank PLC,
Sub. Note
7.375%, 10/1/09 536,387
Aa3 550
--------------
3,856,540
-------------------------------------------------------------------------------------
Building & Construction 0.5%
Hanson Overseas BV, Sr. Note,
6.75%, 9/15/05 764,480
A3 800(e)
-------------------------------------------------------------------------------------
Commercial Paper 1.1%
Bank One Corp., Note,
6.875%, 8/1/06 478,405
Aa3 500(e)
Bank Tokyo Mitsubishi Ltd
Global Sr Sub Note
8.40%, 4/15/10 253,125
A3 250
General Motors Acceptance
Corporation, Note,
7.75%, 1/19/10 252,307
A2 250(e)
Hydro-Quebec
8.00%, 2/1/13 315,783
A2 300
PaineWebber Group, Inc.
7.625%, 12/1/09 490,820
Baa1 500(e)
--------------
1,790,440
-------------------------------------------------------------------------------------
Consulting 0.2%
Comdisco, Inc., Note,
5.95%, 4/30/02 385,968
Baa1 400(e)
-------------------------------------------------------------------------------------
Financial Services 3.8%
Associates Corporation of North
America, Senior Note,
5.75%, 11/1/03 334,047
Aa3 350
</TABLE>
16 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active
Balanced Fund
Portfolio of Investments as of March 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000) Description Value (Note 1)
-----------------------------------------------------------------------------------------
<C> <C> <S> <C> <C>
BCH Cayman Islands Ltd., Sub Note,
7.70%, 7/15/06 $ 159,376
A1 $ 160
Bear, Stearns & Co. Inc., Sr. Note,
8.75%, 3/15/04 1,038,120
A2 1,000(e)
Ford Motor Credit Co.,
7.375%, 10/28/09 783,728
A1 800(e)
Ford Motor Credit Corp., Deb.,
7.40%, 11/1/46 268,920
A1 285
General Motors Acceptance Corp.,
Sr. Note,
6.75%, 2/7/02 563,143
A2 570(e)
Goldman, Sachs Group LP, Note,
7.25%, 10/1/05 692,216
A1 700(e)
Heller Financial Inc., Note,
6.00%, 3/19/04 378,272
A3 400(e)
Lehman Brothers Holdings, Inc.,
Notes,
A3 240(e) 6.625%, 4/1/04 231,000
A3 130(e) 6.625%, 2/5/06 124,144
Merrill Lynch & Co., MTN,
6.02%, 5/11/01 493,705
Aa3 500(e)
Santander Finance Issuances, Note,
6.80%, 7/15/05 500,453
A1 520(e)
US West Capital Funding Inc., Note,
6.125%, 7/15/02 584,082
Baa1 600(e)
--------------
6,151,206
-------------------------------------------------------------------------------------
Foreign Government Bonds 0.1%
Comunidad Autonoma De Andalucia,
Note,
7.25%, 10/1/29 115,764
Aa3 120
-------------------------------------------------------------------------------------
Leisure 0.1%
Marriott International Inc., Ser.
C, Note,
7.875%, 9/15/09 171,073
Baa1 175(e)
-------------------------------------------------------------------------------------
Media & Entertainment 0.6%
News America Holdings, Inc., Deb.,
9.25%, 2/1/13 328,569
Baa3 300(e)
</TABLE>
See Notes to Financial Statements 17
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active
Balanced Fund
Portfolio of Investments as of March 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000) Description Value (Note 1)
-----------------------------------------------------------------------------------------
<C> <C> <S> <C> <C>
Time Warner, Inc., Sr. Note,
9.125%, 1/15/13 $ 666,792
Baa3 $ 600(e)
--------------
995,361
-------------------------------------------------------------------------------------
Medical Products & Services 0.2%
Tyco International Group, Note,
6.375%, 6/15/05 375,188
Baa1 400(e)
-------------------------------------------------------------------------------------
Oil & Gas Exploration/Production 0.6%
Atlantic Richfield Co., Deb.,
10.875%, 7/15/05 810,173
A2 700(e)
Occidental Petroleum Corporation,
Senior Note,
7.65%, 2/15/06 196,610
Baa3 200
--------------
1,006,783
-------------------------------------------------------------------------------------
Oil & Gas Services
Amerada Hess Corp., Note,
7.875%, 10/1/29 48,478
Baa1 50(e)
-------------------------------------------------------------------------------------
Retail 0.1%
Wal Mart Stores Incorporated Note,
6.875%, 8/10/09 145,932
Aa2 150
-------------------------------------------------------------------------------------
Telecommunication Services 0.4%
GTE Corp.,
Baa1 220(e) 6.36%, 4/15/06, Deb. 207,238
7.51%, 4/1/09, Note 209,078
Baa1 210(e)
Sprint Capital Corp., Note,
6.875%, 11/15/28 295,934
Baa1 330(e)
--------------
712,250
-------------------------------------------------------------------------------------
Utilities 0.6%
Southern California Edison Co.,
Note,
6.50%, 6/1/01 992,360
A2 1,000(e)
--------------
Total U.S. corporate bonds
(cost $23,434,454) 22,391,211
--------------
</TABLE>
18 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active
Balanced Fund
Portfolio of Investments as of March 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000) Description Value (Note 1)
-----------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS 0.5%
<C> <C> <S> <C> <C>
Commercial Mortgage Asset Trust
Series 1999 C2 Class A1,
7.285%, 12/17/07 $ 193,030
Aaa $ 195
Federal National Mortgage
Association Remic,
Series 1993 Cl55K,
6.50%, 5/25/08 580,500
Aaa 600
--------------
Total collateralized mortgage
obligations (cost $787,156) 773,530
--------------
-----------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY MORTGAGE PASS-THROUGH OBLIGATIONS 9.5%
Federal Home Loan Mortgage Corp.,
7.00%, 12/1/99 1,923,740
Aaa 2,000(c)
Federal National Mortgage Assoc.,
Aaa 558 8.50%, 10/1/24 569,430
Aaa 0(d) 9.50%, 7/1/25 139
Aaa 319 8.50%, 2/1/28 325,236
Aaa 5,600(c) 7.50%, 12/1/99 5,503,736
Aaa 3,500(c) 6.50%, 12/1/99 3,281,250
Aaa 1,600(c) 6.50%, 12/1/99 1,540,496
Government National Mortgage
Assoc.,
Aaa 1,500(c) 7.00%, 12/15/99 1,453,125
Aaa 1,000(c) 8.00%, 12/15/99 1,011,250
--------------
Total U.S. government agency
mortgage pass-through obligations
(cost $15,552,052) 15,608,402
--------------
-------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY STRIPPED SECURITIES 1.4%
Federal National Mortgage Assoc.,
8.00%, 12/1/23 440,485
Aaa 437
Federal National Mortgage Assoc.,
7.00%, 12/1/99 1,767,924
Aaa 1,800(c)
--------------
2,208,409
--------------
Total U.S. government agency
stripped security (cost
$2,204,317) 2,208,409
--------------
</TABLE>
See Notes to Financial Statements 19
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active
Balanced Fund
Portfolio of Investments as of March 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000) Description Value (Note 1)
-----------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES 2.0%
<C> <C> <S> <C> <C>
United States Treasury Notes,
Aaa $ 200(e) 6.00%, 8/15/04 $ 197,282
Aaa 270(e) 7.50%, 2/15/05 282,318
Aaa 351(e) 6.00%, 8/15/09 346,556
United States Treasury Bonds,
6.125%, 8/15/29 1,065,085
Aaa 1,045(e)
United States Treasury Notes,
6.50%, 2/28/02 549,741
Aaa 550
132(e) 6.50%, 2/15/10 136,620
Aaa
United States Treasury Stripped
Interest,
Zero Coupon, 11/15/21 713,154
Aaa 2,600
--------------
Total U.S. government securities
(cost $3,212,071) 3,290,756
--------------
Total debt obligations (cost
$45,190,050) 44,272,308
--------------
Total long-term investments
(cost $105,293,820) 123,709,731
--------------
SHORT-TERM INVESTMENTS 34.1%
-------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES 3.8%
United States Treasury Bills.
350(b) 5.63%, 6/22/00 345,512
950(b) 5.6725%, 6/22/00 937,725
Federal Home Loan Bank
Discount Notes,
6.05%, 4/3/00 4,890,356
4,892
--------------
Total U.S. government securities
(cost $6,173,593) 6,173,593
--------------
</TABLE>
20 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active
Balanced Fund
Portfolio of Investments as of March 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000) Description Value (Note 1)
-----------------------------------------------------------------------------------------
COMMERCIAL PAPER 11.4%
<C> <C> <S> <C> <C>
Centric Capital Corp.,
6.08%, 5/19/00 $ 3,471,626
P-1 $ 3,500
Cox Enterprises Inc.,
6.20%, 4/26/00 2,987,083
P-2 3,000
General Electric Capital Services
Inc.,
6.07%, 5/18/00 3,968,301
P-1 4,000
Johnson Controls, Inc.,
6.33%, 4/3/00 3,744,683
P-1 3,746
Old Line Funding Corp.,
6.05%, 5/15/00 4,466,725
P-1 4,500
--------------
Total commercial paper
(cost $18,638,418) 18,638,418
--------------
-------------------------------------------------------------------------------------
REPURCHASE AGREEMENT 18.9%
31,014,000 Joint Repurchase Agreement Account,
6.15%, 4/3/00 (cost $31,014,000,
Note 5) 31,014,000
--------------
Total short-term investments
(cost $55,826,011) 55,826,011
--------------
Total Investments 109.7%
(cost $161,119,831) 179,535,742
Liabilities in excess of other
assets (9.7%) (15,891,444)
--------------
Net Assets 100% $ 163,644,298
--------------
--------------
</TABLE>
--------------------------------------------------------------------------------
(a) Non-income producing security.
(b) All or partial amount of security is segregated as collateral for financial
futures transactions.
(c) Mortgage dollar roll, see Note 1 and Note 4.
(d) Figures are actual, not rounded to the nearest thousand.
(e) Pledged as collateral for dollar rolls.
MTN--Medium Term Note.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a description of
Moody's and Standard & Poor's ratings.
See Notes to Financial Statements 21
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active
Balanced Fund
Statement of Assets and Liabilities (Unaudited)
<TABLE>
<CAPTION>
March 31, 2000
<S> <C> <C>
---------------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $130,105,844) $ 148,521,743
Repurchase agreement (cost $31,014,000) 31,014,000
Cash 312
Dividends and interest receivable 578,816
Receivable for Fund shares sold 312,258
Receivable for investments sold 279,799
Due from broker-variation margin 145,988
Other assets 4,770
--------------
Total assets 180,857,686
--------------
LIABILITIES
Payable for investments purchased 16,746,649
Payable for Fund shares reacquired 203,601
Accrued expenses and other liabilities 161,343
Management fee payable 87,034
Distribution fee payable 14,761
--------------
Total liabilities 17,213,388
--------------
NET ASSETS $ 163,644,298
--------------
--------------
Net assets were comprised of:
Common stock, at par $ 11,873
Paid-in capital in excess of par 141,308,908
--------------
141,320,781
Undistributed net investment income 1,200,937
Accumulated net realized gain on investments 977,217
Net unrealized appreciation on investments 20,145,363
--------------
Net assets, March 31, 2000 $ 163,644,298
--------------
--------------
</TABLE>
22 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active
Balanced Fund
Statement of Assets and Liabilities (Unaudited) Cont'd.
<TABLE>
<CAPTION>
March 31, 2000
---------------------------------------------------------------------------------------
<S> <C> <C>
Class A:
Net asset value and redemption price per share
($12,840,607 / 932,986 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
($13,221,126 / 961,681 shares of common stock issued and
outstanding) $13.75
Class C:
Net asset value and redemption price per share
($1,646,547 / 119,774 shares of common stock issued and
outstanding) $13.75
Sales charge (1% of offering price) .14
--------------
Offering price to public $13.89
Class Z:
Net asset value, offering price and redemption price per
share
($135,936,018 / 9,858,229 shares of common stock issued
and outstanding) $13.79
</TABLE>
See Notes to Financial Statements 23
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active
Balanced Fund
Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
March 31, 2000
<S> <C> <C>
----------------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Interest $ 2,546,354
Dividends (net of foreign withholding taxes of $658) 446,648
-----------------
Total income 2,993,002
-----------------
Expenses
Management fee 498,745
Distribution fee--Class A 14,200
Distribution fee--Class B 59,787
Distribution fee--Class C 6,860
Transfer agent's fees and expenses 138,000
Reports to shareholders 70,000
Custodian's fees and expenses 69,000
Registration fees 45,000
Legal fees and expenses 10,000
Audit fee and expenses 10,000
Directors' fees and expenses 4,000
Miscellaneous 1,118
-----------------
Total expenses 926,710
-----------------
Net investment income 2,066,292
-----------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain (loss) on:
Investment transactions 1,467,737
Financial futures contracts (39,379)
-----------------
1,428,358
-----------------
Net change in unrealized appreciation on:
Investments 11,686,465
Financial futures contracts 2,004,060
-----------------
13,690,525
-----------------
Net gain on investments 15,118,883
-----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 17,185,175
-----------------
-----------------
</TABLE>
24 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active
Balanced Fund
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
March 31, 2000 September 31, 1999
<S> <C> <C> <C>
-----------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income $ 2,066,292 $ 3,573,191
Net realized gain on investments 1,428,358 9,924,830
Net change in unrealized appreciation on
investments 13,690,525 9,882,582
-------------- ------------------
Net increase in net assets resulting from
operations 17,185,175 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 (2,869,828) (4,048,216)
-------------- ------------------
(3,260,581) (4,179,633)
-------------- ------------------
Distributions from net realized gains
Class A (538,187) (438,657)
Class B (595,317) (480,842)
Class C (65,388) (43,068)
Class Z (6,387,683) (21,035,473)
-------------- ------------------
(7,586,575) (21,998,040)
-------------- ------------------
Series share transactions (net of share
conversion) (Note 6)
Net proceeds from shares sold 23,663,309 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 (23,920,755) (114,537,650)
-------------- ------------------
Net increase (decrease) in net assets
from Series share transactions 10,563,287 (18,837,805)
-------------- ------------------
Total increase (decrease) 16,901,306 (21,634,875)
NET ASSETS
Beginning of period 146,742,992 168,377,867
-------------- ------------------
End of period(a) $163,644,298 $146,742,992
-------------- ------------------
-------------- ------------------
------------------------------
(a) Includes undistributed net investment
income of $ 1,200,937 $ 2,395,226
-------------- ------------------
</TABLE>
See Notes to Financial Statements 25
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active
Balanced Fund
Notes to Financial Statements (Unaudited)
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 bid price on such day in the absence of an asked price. Securities
that are actively traded in the over-the-counter market, including listed
securities for which the primary market is believed by the Manager, in
consultation with the Subadviser, to be over-the-counter, are valued by an
independent pricing agent or principal market maker. 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 judgement of the Manager and
Subadviser, able to produce prices which are representative of market value.
Short-term securities which mature in more than 60 days, for which market
quotations are readily available, are valued at current market quotations as
provided by an independent pricing agent or principal market maker. Short-term
securities which mature in 60 days or less are valued at cost with interest
accrued or discount
26
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active
Balanced Fund
Notes to Financial Statements (Unaudited) Cont'd.
amortized to the date of maturity, unless the Board of Directors determines that
such variation does not represent fair value.
All securities are valued as of 4:15 p.m., New York time.
In connection with transactions in repurchase agreements, it is the
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
27
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active
Balanced Fund
Notes to Financial Statements (Unaudited) 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 with Prudential Investments Fund Management
LLC ('PIFM'). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadvisor's performance of such
services. PIFM has entered into a subadvisory agreement with The Prudential
Investment Corporation ('PIC'); PIC furnishes investment advisory services in
connection with the management of the Series. PIFM pays for the services of PIC,
the cost of compensation of officers of the Fund, occupancy and certain clerical
and bookkeeping costs of the Fund. The Fund bears all other costs and expenses.
The management fee paid PIFM is computed daily and payable monthly at an
annual rate of .65 of 1% of the Series' average daily net assets.
The Fund has a distribution agreement with Prudential Investment
Management Services LLC ('PIMS'), which acts as the distributor of the Class A,
Class B, Class C and Class Z shares. The Fund compensates PIMS for distributing
and servicing the
28
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active
Balanced Fund
Notes to Financial Statements (Unaudited) Cont'd.
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 six months ended
March 31, 2000.
PIMS has advised the Series that it received approximately $16,299 and
$4,395 in front-end sales charges resulting from sales of Class A shares and
Class C shares, respectively, during the six months ended March 31, 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 six months ended March 31, 2000,
it received approximately $21,244 and $853 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 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
Fund did not borrow any amounts pursuant to the SCA during the year ended March
31, 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 six months ended March 31, 2000,
the Series incurred fees of approximately $133,300 for the services of PMFS. As
of March 31, 2000, approximately $19,100 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.
29
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active
Balanced Fund
Notes to Financial Statements (Unaudited) Cont'd.
Note 4. Portfolio Securities
Purchases and sales of investment securities other than short-term investments,
for the six months ended March 31, 2000 were $133,343,053 and $130,609,063,
respectively.
The average monthly balance of dollar rolls outstanding during the six
months ended March 31, 2000 was approximately $1,149,061. The value of dollar
rolls outstanding at March 31, 2000 was $16,481,521 (principal $16,393,687),
which was 9.1% of total assets.
The cost basis of investments for federal income tax purposes as of March
31, 2000 was $161,436,773 and, accordingly, net unrealized appreciation of
investments for federal income tax purposes was $18,098,969 (gross unrealized
appreciation--$24,570,567, gross unrealized depreciation--$6,471,598).
During the six months ended March 31, 2000, the Series entered into
financial futures contracts. Details of open contracts at March 31, 2000 are as
follows:
<TABLE>
<CAPTION>
Value at Value at Unrealized
Number of Expiration March 31, Trade Appreciation/
Contracts Type Date 2000 Date (Depreciation)
--------------------- ----------- ---------- ----------- ----------- --------------
<C> <S> <C> <C> <C> <C>
Long Position:
U.S. 10yr
28 T-Note Jun. 00 $ 2,746,188 $ 2,676,805 $ 69,383
42 S&P 500 Jun. 00 15,910,650 14,468,475 1,442,175
U.S. 5yr
164 T-Note Jun. 00 16,154,000 15,936,094 217,906
--------------
$1,729,464
--------------
--------------
</TABLE>
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 March 31,
2000, the Series had a 4.7% undivided interest in repurchase agreements in the
joint account. The undivided interest for the Series represented $31,014,000 in
principal amount. As of such date,
30
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active
Balanced Fund
Notes to Financial Statements (Unaudited) Cont'd.
each repurchase agreement in the joint account and the value of the collateral
therefore was as follows:
Bear, Stearns & Co. Inc., 6.10%, in the principal amount of $120,000,000,
repurchase price of $120,061,000, due 4/3/00. The value of the collateral
including accrued interest was $123,642,827.
Credit Suisse First Boston Corp., 6.10%, in the principal amount of
$130,000,000, repurchase price of $130,066,083, due 4/3/00. The value of the
collateral including accrued interest was $134,450,258.
Greenwich Capital Markets, Inc., 6.15%, in the principal amount of
$100,000,000, repurchase price of $100,051,250, due 4/3/00. The value of the
collateral including accrued interest was $102,005,200.
Goldman, Sachs & Co., 6.09%, in the principal amount of $100,000,000,
repurchase price of $100,050,750, due 4/3/00. The value of the collateral
including accrued interest was $102,000,425.
Merrill Lynch, Pierce, Fenner & Smith, Inc., 6.25%, in the principal
amount of $207,289,000, repurchase price of $207,396,963, due 4/3/00. The value
of the collateral including accrued interest was $211,435,308.
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 on
the period of time the shares are held. Class C shares are sold with a front-end
sales charge of 1% and a contingent deferred sales charge of 1% during the first
18 months. Class B shares will automatically convert to Class A shares on a
quarterly basis approximately seven years after purchase. A special exchange
privilege is also available for shareholders who qualify to purchase Class A
shares at net asset value. Class Z shares are not subject to any sales or
redemption charge and are offered exclusively for sale to a limited group of
investors.
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
31
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active
Balanced Fund
Notes to Financial Statements (Unaudited) Cont'd.
Class A, Class B, Class C and Class Z, each of which consists of 250 million
authorized shares.
Transactions in shares of common stocks were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
---------------------------------------------------------- ---------- ------------
<S> <C> <C>
Six months ended March 31, 2000:
Shares sold 196,715 $ 2,594,785
Shares issued in reinvestment of dividends and
distributions 57,495 751,456
Shares reacquired (109,229) (1,440,019)
---------- ------------
Net increase in shares outstanding before conversion 144,981 1,906,222
Shares issued upon conversion from Class B 3,413 44,738
---------- ------------
Net increase in shares outstanding 148,394 $ 1,950,960
---------- ------------
---------- ------------
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 in shares outstanding before conversion 542,192 7,115,104
Shares issued upon conversion from Class B 236 3,120
---------- ------------
Net increase in shares outstanding 542,428 $ 7,118,224
---------- ------------
---------- ------------
<CAPTION>
Class B
----------------------------------------------------------
<S> <C> <C>
Six months ended March 31, 2000:
Shares sold 262,998 $ 3,473,991
Shares issued in reinvestment of dividends and
distributions 56,023 732,778
Shares reacquired (187,290) (2,470,666)
---------- ------------
Net increase in shares outstanding before conversion 131,731 1,736,103
Shares reacquired upon conversion into Class A (3,420) (44,738)
---------- ------------
Net increase in shares outstanding 128,311 $ 1,691,365
---------- ------------
---------- ------------
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 in shares outstanding before conversion 603,830 7,980,192
Shares reacquired upon conversion into Class A (236) (3,120)
---------- ------------
Net increase in shares outstanding 603,594 $ 7,977,072
---------- ------------
---------- ------------
</TABLE>
32
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active
Balanced Fund
Notes to Financial Statements (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class C Shares Amount
---------------------------------------------------------- ---------- ------------
Six months ended March 31, 2000:
<S> <C> <C>
Shares sold 51,469 $ 679,021
Shares issued in reinvestment of dividends and
distributions 6,048 79,112
Shares reacquired (22,520) (297,822)
---------- ------------
Net increase in shares outstanding 34,997 $ 460,311
---------- ------------
---------- ------------
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 in shares outstanding 63,307 $ 829,938
---------- ------------
---------- ------------
<CAPTION>
Class Z
----------------------------------------------------------
<S> <C> <C>
Six months ended March 31, 2000:
Shares sold 1,277,760 $ 16,915,512
Shares issued in reinvestment of dividends and
distributions 708,293 9,257,387
Shares reacquired (1,491,462) (19,712,248)
---------- ------------
Net increase in shares outstanding 494,591 $ 6,460,651
---------- ------------
---------- ------------
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 decrease in shares outstanding (2,790,244) $(34,763,039)
---------- ------------
---------- ------------
</TABLE>
33
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active
Balanced Fund
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
Class A
----------------
Six Months Ended
March 31, 2000
----------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 13.25
--------
Income from investment operations:
Net investment income .19
Net realized and unrealized gain (loss) on investment
transactions 2.01
--------
Total from investment operations 2.20
--------
Less distributions:
Dividends from net investment income (.28)
Distributions from net realized gains (.69)
--------
Total distributions (.97)
--------
Net asset value, end of period $ 14.48
--------
--------
TOTAL RETURN(d): 11.72%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 12,841
Average net assets (000) $ 11,360
Ratios to average net assets:
Expenses, including distribution fees 1.35%(c)
Expenses, excluding distribution fees 1.10%(c)
Net investment income 2.55%(c)
Portfolio turnover rate 112%
</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 return for periods of less than a full year are not
annualized.
34 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active
Balanced Fund
Financial Highlights (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------------------------------
Year Ended September 30, November 7, 1996(a)
------------------------------------------ through September 30,
1999 1998 1997
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 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%
</TABLE>
See Notes to Financial Statements 35
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active
Balanced Fund
Financial Highlights (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class B
----------------
Six Months Ended
March 31, 2000
----------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 13.17
--------
Income from investment operations:
Net investment income .13
Net realized and unrealized gain (loss) on investment
transactions 1.32
--------
Total from investment operations 1.45
--------
Less distributions:
Dividends from net investment income (.18)
Distributions from net realized gains (.69)
--------
Total distributions (.87)
--------
Net asset value, end of period $ 13.75
--------
--------
TOTAL RETURN(d): 11.35%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 13,221
Average net assets (000) $ 11,957
Ratios to average net assets:
Expenses, including distribution fees 2.10%(c)
Expenses, excluding distribution fees 1.10%(c)
Net investment income 1.80%(c)
Portfolio turnover rate 112%
</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 return for periods of less than a full year are not
annualized.
36 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active
Balanced Fund
Financial Highlights (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class B
---------------------------------------------------------------------------------------
Year Ended September 30, November 7, 1996(a)
------------------------------------------ through September 30,
1999 1998 1997
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 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%
</TABLE>
See Notes to Financial Statements 37
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active
Balanced Fund
Financial Highlights (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class C
----------------
Six Months Ended
March 31, 2000
----------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 13.17
--------
Income from investment operations:
Net investment income .14
Net realized and unrealized gain (loss) on investment
transactions 1.45
--------
Total from investment operations 1.59
--------
Less distributions:
Dividends from net investment income (.18)
Distributions from net realized gains (.69)
--------
Total distributions (.87)
--------
Net asset value, end of period $ 13.89
--------
--------
TOTAL RETURN(d): 11.35%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 1,647
Average net assets (000) $ 1,372
Ratios to average net assets:
Expenses, including distribution fees 2.10%(c)
Expenses, excluding distribution fees 1.10%(c)
Net investment income 1.81%(c)
Portfolio turnover rate 112%
</TABLE>
------------------------------
(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 return for periods of less than a full year are not
annualized.
38 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active
Balanced Fund
Financial Highlights (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class C
---------------------------------------------------------------------------------------
Year Ended September 30, November 7, 1996(a)
------------------------------------------ through September 30,
1999 1998 1997
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 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%
</TABLE>
See Notes to Financial Statements 39
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active
Balanced Fund
Financial Highlights (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class Z
----------------
Six Months Ended
March 31, 2000
----------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 13.27
----------------
Income from investment operations:
Net investment income .19
Net realized and unrealized gain (loss) on investment
transactions 1.33
----------------
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 period $ 13.79
----------------
----------------
TOTAL RETURN(d): 11.87%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $135,936
Average net assets (000) $128,771
Ratios to average net assets:
Expenses, including distribution fees 1.10%(c)
Expenses, excluding distribution fees 1.10%(c)
Net investment income 2.80%(c)
Portfolio turnover rate 112%
</TABLE>
------------------------------
(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 return for periods of less than a full
year are not annualized.
40 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Active
Balanced Fund
Financial Highlights (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class Z
----------------------------------------------------------------------------------------------------------
Year Ended September 30,
----------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 13.32 $ 14.45 $ 13.01 $ 12.46 $ 10.92
---------------- ---------------- ---------------- ---------------- ----------------
.35 .38 .39(b) .29(a) .33(a)
1.68 (.12) 2.22 .81 1.54
---------------- ---------------- ---------------- ---------------- ----------------
2.03 .26 2.61 1.10 1.87
---------------- ---------------- ---------------- ---------------- ----------------
(.34) (.35) (.39) (.37) (.29)
(1.74) (1.04) (.78) (.18) (.04)
---------------- ---------------- ---------------- ---------------- ----------------
(2.08) (1.39) (1.17) (.55) (.33)
---------------- ---------------- ---------------- ---------------- ----------------
$ 13.27 $ 13.32 $ 14.45 $ 13.01 $ 12.46
---------------- ---------------- ---------------- ---------------- ----------------
16.32% 2.12% 21.34% 9.11% 17.66%
$124,250 $161,838 $158,672 $153,588 $133,352
$130,052 $177,443 $154,199 $142,026 $104,821
1.16% 1.03% 1.06% 1.00%(a) 1.00%(a)
1.16% 1.03% 1.06% 1.00%(a) 1.00%(a)
2.54% 2.99% 2.94% 3.09%(a) 3.53%(a)
230% 256% 50% 51% 30%
</TABLE>
See Notes to Financial Statements 41
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Portfolio of Investments as
of September 30, 1999 PRUDENTIAL JENNISON GROWTH FUND
------------------------------------------------------------
------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
---------------------------------------------------------------
LONG-TERM INVESTMENTS--97.7%
COMMON STOCKS--97.7%
---------------------------------------------------------------
Banks & Financial Services--9.3%
1,709,100 Chase Manhattan Corp. $ 128,823,412
3,056,225 Citigroup, Inc. 134,473,900
1,623,300 MBNA Corp. 37,031,531
830,190 Morgan Stanley Dean Witter 74,042,571
928,566 Mutual Risk Management, Ltd. 11,374,934
848,100 Schwab (Charles) Corp. 28,570,369
--------------
414,316,717
------------------------------------------------------------
Computer Systems/Peripherals--9.6%
2,270,800 Dell Computer Corp.(a) 94,947,825
1,173,000 EMC Corp.(a) 83,796,188
940,700 Hewlett-Packard Co. 86,544,400
1,018,500 International Business Machines
Corp. 123,620,437
428,600 Sun Microsystems, Inc.(a) 39,859,800
--------------
428,768,650
------------------------------------------------------------
Diversified Manufacturing--6.6%
866,400 AlliedSignal, Inc. 51,929,850
1,235,200 General Electric Co. 146,448,400
907,400 Tyco International Ltd. 93,689,050
--------------
292,067,300
------------------------------------------------------------
EDP Software & Services--6.4%
450,700 America Online, Inc.(a) 46,872,800
326,400 Equant NV (ADR) (Netherlands)(a) 26,560,800
2,326,600 Microsoft Corp.(a) 210,702,712
--------------
284,136,312
------------------------------------------------------------
Electronic Components--7.7%
886,000 Altera Corp.(a) 38,430,250
1,631,500 Intel Corp. 121,240,844
207,200 JDS Uniphase Corp.(a) 23,581,950
1,967,600 Texas Instruments, Inc. 161,835,100
--------------
345,088,144
Household & Personal Care Products--0.9%
970,100 Estee Lauder Co., Inc. $ 37,894,531
------------------------------------------------------------
Industrial Technology/Instruments--3.0%
820,400 Applied Materials, Inc.(a) 63,734,825
678,700 KLA-Tencor Corp.(a) 44,115,500
803,900 Symbol Technologies, Inc. 27,031,138
--------------
134,881,463
------------------------------------------------------------
Insurance--2.8%
1,442,350 American International Group,
Inc. 125,394,303
------------------------------------------------------------
Media & Communications--9.3%
1,516,800 AT&T Corp. - Liberty Media
Group(a) 56,311,200
2,986,800 CBS Corp.(a) 138,139,500
1,220,800 Clear Channel Communications,
Inc.(a) 97,511,400
929,300 Omnicom Group, Inc. 73,588,944
609,400 Univision Communications Inc.(a) 49,589,925
--------------
415,140,969
------------------------------------------------------------
Networking--4.3%
2,463,100 Cisco Systems, Inc.(a) 168,876,294
115,300 Juniper Networks, Inc.(a) 20,991,807
--------------
189,868,101
------------------------------------------------------------
Pharmaceuticals--12.4%
1,897,000 American Home Products Corp. 78,725,500
550,400 Amgen, Inc.(a) 44,857,600
927,200 Bristol-Myers Squibb Co. 62,586,000
139,500 Genentech, Inc.(a) 20,410,594
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. 3
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Portfolio of Investments as
of September 30, 1999 PRUDENTIAL JENNISON GROWTH FUND
------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
----------------------------------------------------------------
Pharmaceuticals (cont'd.)
1,235,100 Glaxo Wellcome PLC (ADR)
(United Kingdom) $ 64,225,200
901,200 Johnson & Johnson 82,797,750
2,064,700 Schering-Plough Corp. 90,072,537
1,638,000 Warner-Lambert Co. 108,722,250
--------------
552,397,431
------------------------------------------------------------
Restaurants--1.6%
1,643,500 McDonald's Corp. 70,670,500
------------------------------------------------------------
Retail--9.3%
400,600 Abercrombie & Fitch Co.(a) 13,645,438
1,920,287 Gap, Inc. 61,449,184
2,122,000 Home Depot, Inc. 145,622,250
1,104,900 Kohl's Corp.(a) 73,061,512
1,543,600 Staples, Inc.(a) 33,669,775
657,300 Tiffany & Co. 39,396,919
973,800 Wal-Mart Stores, Inc. 46,316,362
--------------
413,161,440
------------------------------------------------------------
Telecommunications--9.1%
614,400 Allegiance Telecom, Inc.(a) 32,332,800
445,400 Level 3 Communications, Inc.(a) 23,258,231
2,030,500 MCI WorldCom, Inc.(a) 145,942,187
519,100 NEXTLINK Communications, Inc.(a) 26,912,091
412,100 NTL, Inc.(a) 39,600,234
1,598,200 Qwest Communications
International, Inc.(a) 47,246,788
377,050 Vodafone AirTouch PLC (ADR)
(United Kingdom)(a) 89,643,638
--------------
404,935,969
Telecommunications Equipment--5.4%
928,560 Lucent Technologies, Inc. $ 60,240,330
518,300 Motorola, Inc. 45,610,400
779,600 Nokia Corp. (ADR)(Finland) 70,017,825
1,151,000 Tellabs, Inc.(a) 65,535,062
--------------
241,403,617
--------------
Total long-term investments
(cost $3,323,718,834) 4,350,125,447
--------------
Principal
Amount
(000)
SHORT-TERM INVESTMENTS--2.7%
Commercial Paper--2.7%
$119,847 American Express Credit Corp.
5.57%, 10/1/99
(cost $119,847,000) 119,847,000
--------------
------------------------------------------------------------
Total Investments--100.4%
(cost $3,443,565,834; Note 4) 4,469,972,447
Liabilities in excess of other
assets--(0.4%) (16,439,846)
--------------
Net Assets--100% $4,453,532,601
--------------
--------------
</TABLE>
---------------
(a) Non-income producing security.
ADR--American Depository Receipt.
--------------------------------------------------------------------------------
See Notes to Financial Statements. 4
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Statement of Assets and Liabilities PRUDENTIAL JENNISON GROWTH FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets September 30, 1999
<S> <C>
Investments, at value (cost $3,443,565,834)............................................................ $4,469,972,447
Receivable for Series shares sold...................................................................... 14,624,693
Receivable for investments sold........................................................................ 12,892,040
Dividends and interest receivable...................................................................... 1,779,009
Deferred expenses and other assets..................................................................... 94,428
------------------
Total assets........................................................................................ 4,499,362,617
------------------
Liabilities
Bank overdraft......................................................................................... 494,680
Payable for investments purchased...................................................................... 32,478,586
Payable for Series shares reacquired................................................................... 8,763,607
Management fee payable................................................................................. 2,244,165
Distribution fees payable.............................................................................. 1,574,451
Accrued expenses and other liabilities................................................................. 231,730
Foreign withholding taxes payable...................................................................... 42,797
------------------
Total liabilities................................................................................... 45,830,016
------------------
Net Assets............................................................................................. $4,453,532,601
------------------
------------------
Net assets were comprised of:
Common stock, at par................................................................................ $ 223,837
Paid-in capital in excess of par.................................................................... 3,228,228,646
------------------
3,228,452,483
Accumulated net realized gain on investments........................................................ 198,673,505
Net unrealized appreciation on investments.......................................................... 1,026,406,613
------------------
Net assets, September 30, 1999......................................................................... $4,453,532,601
------------------
------------------
Class A:
Net asset value and redemption price per share
($911,466,742 / 45,453,887 shares of common stock issued and outstanding)........................ $20.05
Maximum sales charge (5% of offering price)......................................................... 1.06
------------------
Maximum offering price to public.................................................................... $21.11
------------------
------------------
Class B:
Net asset value, offering price and redemption price per share
($1,506,838,758 / 77,542,364 shares of common stock issued and outstanding)...................... $19.43
------------------
------------------
Class C:
Net asset value and redemption price per share
($141,769,655 / 7,295,397 shares of common stock issued and outstanding)......................... $19.43
Sales charge (1% of offering price)................................................................. .20
------------------
Offering price to public............................................................................ $19.63
------------------
------------------
Class Z:
Net asset value, offering price and redemption price per share
($1,893,457,446 / 93,545,646 shares of common stock issued and outstanding)...................... $20.24
------------------
------------------
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. 5
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH FUND
Statement of Operations
------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income (Loss) September 30, 1999
<S> <C>
Income
Dividends (net of foreign withholding
taxes of $95,578).................. $ 18,615,326
Interest.............................. 3,968,260
------------------
Total income....................... 22,583,586
------------------
Expenses
Management fee........................ 22,079,891
Distribution fee--Class A............. 1,870,788
Distribution fee--Class B............. 12,368,254
Distribution fee--Class C............. 980,326
Transfer agent's fees and expenses.... 6,273,000
Reports to shareholders............... 470,000
Registration fees..................... 434,000
Custodian's fees and expenses......... 160,000
Legal fees and expenses............... 65,000
Amortization of deferred organization
expenses........................... 37,967
Audit fee and expenses................ 20,000
Insurance expense..................... 11,000
Directors' fees and expenses.......... 7,500
Miscellaneous......................... 16,740
------------------
Total expenses..................... 44,794,466
------------------
Net investment loss...................... (22,210,880)
------------------
Realized and Unrealized Gain
on Investments
Net realized gain on:
Investment transactions............... 201,079,990
Financial futures contracts........... 244,090
------------------
201,324,080
Net change in unrealized appreciation on
investments........................... 828,202,820
------------------
Net gain on investments.................. 1,029,526,900
------------------
Net Increase in Net Assets
Resulting from Operations................ $1,007,316,020
------------------
------------------
</TABLE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH FUND
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Increase (Decrease) in Year Ended September 30,
Net Assets 1999 1998
<S> <C> <C>
Operations
Net investment loss......... $ (22,210,880) $ (6,754,609)
Net realized gain on
investments.............. 201,324,080 131,020,013
Net change in unrealized
appreciation
(depreciation) of
investments.............. 828,202,820 (190,394,651)
-------------- --------------
Net increase (decrease) in
net assets resulting from
operations............... 1,007,316,020 (66,129,247)
-------------- --------------
Distributions from net realized
capital gains (Note 1)
Class A..................... (17,349,525) (12,677,688)
Class B..................... (27,545,469) (37,861,226)
Class C..................... (1,752,623) (2,330,817)
Class Z..................... (38,052,986) (55,817,957)
-------------- --------------
(84,700,603) (108,687,688)
-------------- --------------
Series share transactions (net
of conversion) (Note 5)
Net proceeds from shares
sold..................... 2,794,924,604 1,822,040,223
Net asset value of shares
issued in reinvestment of
distributions............ 83,061,464 106,812,422
Cost of shares reacquired... (1,569,556,414) (730,978,040)
-------------- --------------
Net increase in net assets
from Series share
transactions............. 1,308,429,654 1,197,874,605
-------------- --------------
Total increase................. 2,231,045,071 1,023,057,670
Net Assets
Beginning of year.............. 2,222,487,530 1,199,429,860
-------------- --------------
End of year.................... $4,453,532,601 $2,222,487,530
-------------- --------------
-------------- --------------
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. 6
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Notes to Financial Statements PRUDENTIAL JENNISON GROWTH FUND
--------------------------------------------------------------------------------
Prudential Jennison Growth Fund (the 'Series') is a separately managed series of
The Prudential Investment Portfolios, Inc. (the 'Fund'). The Fund was
incorporated in Maryland on August 10, 1995 and is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The Series had no significant operations other than the issuance of
3,334 shares of Class A and 3,333 shares of Class B and Class C common stock for
$100,000 on September 13, 1995 to Prudential Investments Fund Management LLC
('PIFM'). Investment operations of the Series commenced on November 2, 1995.
The Series' investment objective is to achieve long-term growth of capital. It
invests primarily in equity securities (common stock, preferred stock and
securities convertible into common stock) of established companies with
above-average growth prospects.
------------------------------------------------------------
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Series in the preparation of its financial statements.
Securities Valuation: Securities listed on a securities exchange 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 bid price on such day in the absence of an asked price. Securities that are
actively traded in the over-the-counter market, including listed securities for
which the primary market is believed by the Manager, in consultation with the
Subadviser, to be over-the-counter, are valued by an independent pricing agent
or principal market maker. 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 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 (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.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of debt securities or
commodities at a set price for delivery on a future date. Upon entering into a
financial futures contract, the 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.
Dividends and Distributions: The Series expects to pay dividends of net
investment income, if any, semi-annually and to make distributions of any
--------------------------------------------------------------------------------
7
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Notes to Financial Statements PRUDENTIAL JENNISON GROWTH FUND
--------------------------------------------------------------------------------
net capital gains at least annually. Dividends and distributions are recorded on
the ex-dividend date. Income distributions and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles.
Taxes: It is the Series' policy to continue to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable net income to its shareholders. Therefore, no
federal income tax provision is required.
Withholding taxes on foreign dividends have been provided for in accordance with
the Series' understanding of the applicable country's tax rules and rates.
Deferred Organization Expenses: Approximately $200,000 of expenses were incurred
in connection with the organization of the Series. 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, 1999, the Series reclassified current net operating losses and
redemptions utilized as distributions for federal income tax purposes by
decreasing accumulated net investment loss by $22,210,880, decreasing
accumulated net realized gain on investments by $18,041,231 and decreasing
paid-in capital by $4,169,649. Net investment income, net realized gains and net
assets were not affected by this change.
------------------------------------------------------------
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 objective and policies.
The management fee paid PIFM will be computed daily and payable monthly, at an
annual rate of .60 of 1% of the average daily net assets of the Series. PIFM
pays Jennison a subadvisory fee at an annual rate of .30 of 1% of the average
daily net assets of the Series up to and including $300 million and .25 of 1% of
such assets in excess of $300 million. PIFM also pays the cost of compensation
of officers and employees of the Fund, occupancy and certain clerical and
bookkeeping costs of the Fund. The Fund bears all other costs and expenses.
The Fund 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 fiscal year ended
September 30, 1999.
PIMS has advised the Series that it received approximately $2,331,800 and
$629,300 in front-end sales charges resulting from sales of Class A and Class C
shares, respectively, during the fiscal year ended September 30, 1999. From
these fees, PIMS paid such sales charges to affiliated broker-dealers, which in
turn paid commissions to salespersons and incurred other distribution costs.
PIMS has advised the Series that for the fiscal year ended September 30, 1999,
it received approximately $2,013,100 and $46,500 in contingent deferred sales
charges imposed upon certain redemptions by Class B and C shareholders,
respectively.
PIFM, PIMS and Jennison are wholly owned subsidiaries of The Prudential
Insurance Company of America ('Prudential').
As of March 11, 1999, 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 borrowings will be at market rates. The Funds pay a
commitment fee at an annual rate of .065 of 1% on the unused portion of the
credit facility, which is accrued and paid quarterly on a pro rata basis by the
Funds. The SCA expires on March 9, 2000. Prior to March 11, 1999, the Funds had
a credit agreement with a maximum commitment of $200,000,000. The commitment fee
was .055 of 1% on the unused portion of the credit facility. The Fund
--------------------------------------------------------------------------------
8
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Notes to Financial Statements PRUDENTIAL JENNISON GROWTH FUND
--------------------------------------------------------------------------------
did not borrow any amounts pursuant to either agreement during the year ended
September 30, 1999. The purpose of the agreements is to serve as an alternative
source of funding for capital share redemptions.
------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the fiscal year ended September 30,
1999, the Series incurred fees of approximately $6,215,000 for the services of
PMFS. As of September 30, 1999, approximately $543,000 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 fiscal year ended September 30, 1999, Prudential Securities
Incorporated, which is an indirect, wholly owned subsidiary of Prudential,
earned approximately $391,700 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 fiscal year ended September 30, 1999 were $3,187,479,690 and
$2,011,088,170, respectively.
The cost of investments for federal income tax purposes at September 30, 1999,
was $3,446,231,745 and, accordingly, net unrealized appreciation of investments
for federal income tax purposes was $1,023,740,702 (gross unrealized
appreciation--$1,085,425,006; gross unrealized depreciation--$61,684,304).
------------------------------------------------------------
Note 5. Capital
The Series offers Class A, Class B, Class C and Class Z shares. Class A shares
are sold with a front-end sales charge of up to 5%. Class B shares are sold with
a contingent deferred sales charge which declines from 5% to zero depending on
the period of time the shares are held. Class B shares automatically convert to
Class A shares on a quarterly basis approximately seven years after purchase. A
special exchange privilege is also available for shareholders who qualified to
purchase Class A shares at net asset value. Class C shares are sold with a
front-end sales charge of 1% and a contingent deferred sales charge of 1% during
the first 18 months. Prior to November 2, 1998, Class C shares were sold with a
contingent deferred sales charge of 1% during the first year. Class Z shares are
not subject to any sales or redemption charge and are offered for sale to a
limited group of investors.
There are 3 billion shares of $.001 par value common stock 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, 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 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 in shares
outstanding................... 14,490,696 $ 273,725,580
------------- --------------
------------- --------------
Year ended September 30, 1998:
Shares sold..................... 14,958,226 $ 229,811,039
Shares issued due to merger of
Prudential Multi-Sector
Fund.......................... 15,525,419 255,703,652
Shares issued in reinvestment of
distributions................. 913,659 12,215,617
Shares reacquired............... (10,632,449) (163,008,985)
------------- --------------
Net increase in shares
outstanding before
conversion.................... 20,764,855 334,721,323
Shares issued upon conversion
from
Class B....................... 777,059 11,419,782
------------- --------------
Net increase in shares
outstanding................... 21,541,914 $ 346,141,105
------------- --------------
------------- --------------
<CAPTION>
Class B
--------------------------------
<S> <C> <C>
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 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 in shares
outstanding................... 27,323,787 $ 509,294,100
------------- --------------
------------- --------------
</TABLE>
--------------------------------------------------------------------------------
9
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Notes to Financial Statements PRUDENTIAL JENNISON GROWTH FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Shares Amount
-------------------------------- ------------- --------------
Year ended September 30, 1998:
<S> <C> <C>
Shares sold..................... 22,754,015 $ 342,894,551
Shares issued due to merger of
Prudential Multi-Sector
Fund.......................... 7,486,124 120,751,178
Shares issued in reinvestment of
distributions................. 2,776,715 36,513,797
Shares reacquired............... (9,639,289) (143,137,800)
------------- --------------
Net increase in shares
outstanding before
conversion.................... 23,377,565 357,021,726
Shares reacquired upon
conversion
into Class A.................. (793,565) (11,419,782)
------------- --------------
Net increase in shares
outstanding................... 22,584,000 $ 345,601,944
------------- --------------
------------- --------------
<CAPTION>
Class C
--------------------------------
<S> <C> <C>
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 in shares
outstanding................... 4,096,673 $ 77,820,539
------------- --------------
------------- --------------
Year ended September 30, 1998:
Shares sold..................... 1,687,844 $ 25,645,005
Shares issued due to merger of
Prudential Multi-Sector
Fund.......................... 260,502 4,201,896
Shares issued in reinvestment of
distributions................. 172,793 2,272,229
Shares reacquired............... (578,482) (8,683,902)
------------- --------------
Net increase in shares
outstanding................... 1,542,657 $ 23,435,228
------------- --------------
------------- --------------
<CAPTION>
Class Z
--------------------------------
<S> <C> <C>
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 in shares
outstanding................... 23,224,333 $ 447,589,436
------------- --------------
------------- --------------
Year ended September 30, 1998:
Shares sold..................... 52,992,987 $ 825,209,682
Shares issued due to merger of
Prudential Multi-Sector
Fund.......................... 1,075,632 17,823,220
Shares issued in reinvestment of
distributions................. 4,155,680 55,810,779
Shares reacquired............... (27,380,773) (416,147,353)
------------- --------------
Net increase in shares
outstanding................... 30,843,526 $ 482,696,328
------------- --------------
------------- --------------
</TABLE>
--------------------------------------------------------------------------------
10
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Financial Highlights PRUDENTIAL JENNISON GROWTH FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B
---------------------------------------------------- ------------------------------------
November 2,
Year Ended 1995(a) Year Ended
September 30, Through September 30,
---------------------------------- September 30, ------------------------------------
1999 1998 1997 1996 1999 1998 1997
-------- -------- -------- ------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period......................... $ 14.44 $ 15.39 $ 10.97 $ 10.00 $ 14.11 $ 15.18 $ 10.89
-------- -------- -------- ------ ---------- -------- --------
Income from investment operations
Net investment income (loss)(c)... (.08) (.04) (.03) (.03) (.22) (.15) (.12)
Net realized and unrealized gain
on investment transactions..... 6.23 .40 4.45 1.00 6.08 .39 4.41
-------- -------- -------- ------ ---------- -------- --------
Total from investment
operations.................. 6.15 .36 4.42 .97 5.86 .24 4.29
-------- -------- -------- ------ ---------- -------- --------
Less distributions
Distributions from net realized
gains.......................... (.54) (1.31) -- -- (.54) (1.31) --
-------- -------- -------- ------ ---------- -------- --------
Net asset value, end of period.... $ 20.05 $ 14.44 $ 15.39 $ 10.97 $ 19.43 $ 14.11 $ 15.18
-------- -------- -------- ------ ---------- -------- --------
-------- -------- -------- ------ ---------- -------- --------
TOTAL RETURN(b)................... 43.58% 3.02% 40.29% 9.70% 42.51% 2.21% 39.39%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)... $911,467 $446,996 $145,022 $85,440 $1,506,839 $708,463 $419,405
Average net assets (000).......... $748,315 $251,118 $105,982 $70,667 $1,236,825 $557,823 $299,476
Ratios to average net assets:
Expenses, including
distribution fees........... 1.05% 1.08% 1.09% 1.23%(d) 1.80% 1.83% 1.84%
Expenses, excluding
distribution fees........... .80% .83% .84% .98%(d) .80% .83% .84%
Net investment income (loss)... (.44)% (.26)% (.25)% (.37)%(d) (1.19)% (1.01)% (1.00)%
For Class A, B, C and Z shares:
Portfolio turnover rate........ 56% 58% 63% 42% 56% 58% 63%
<CAPTION>
November 2,
1995(a)
Through
September 30,
1996
-------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period......................... $ 10.00
-------------
Income from investment operations
Net investment income (loss)(c)... (.10)
Net realized and unrealized gain
on investment transactions..... .99
-------------
Total from investment
operations.................. .89
-------------
Less distributions
Distributions from net realized
gains.......................... --
-------------
Net asset value, end of period.... $ 10.89
-------------
-------------
TOTAL RETURN(b)................... 8.90%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)... $ 231,541
Average net assets (000).......... $ 162,412
Ratios to average net assets:
Expenses, including
distribution fees........... 1.98%(d)
Expenses, excluding
distribution fees........... .98%(d)
Net investment income (loss)... (1.12)%(d)
For Class A, B, C and Z shares:
Portfolio turnover rate........ 42%
</TABLE>
---------------
(a) Commencement of investment operations.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(c) Calculated based upon weighted average shares outstanding during the period.
(d) Annualized.
--------------------------------------------------------------------------------
See Notes to Financial Statements. 11
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Financial Highlights PRUDENTIAL JENNISON GROWTH FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C Class Z
-------------------------------------------------- --------------------------------------
November 2,
Year Ended 1995(a) Year Ended
September 30, Through September 30,
-------------------------------- September 30, --------------------------------------
1999 1998 1997 1996 1999 1998 1997
-------- ------- ------- ------------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period......................... $ 14.11 $ 15.18 $ 10.89 $ 10.00 $ 14.53 $ 15.45 $ 10.98
-------- ------- ------- ------ ---------- ---------- --------
Income from investment operations
Net investment income (loss)(c)... (.22) (.15) (.12) (.10) (.04) -- --
Net realized and unrealized gain
on investment transactions..... 6.08 .39 4.41 .99 6.29 .39 4.47
-------- ------- ------- ------ ---------- ---------- --------
Total from investment
operations.................. 5.86 .24 4.29 .89 6.25 .39 4.47
-------- ------- ------- ------ ---------- ---------- --------
Less distributions
Distributions from net realized
gains....................... (.54) (1.31) -- -- (.54) (1.31) --
-------- ------- ------- ------ ---------- ---------- --------
Net asset value, end of period.... $ 19.43 $ 14.11 $ 15.18 $ 10.89 $ 20.24 $ 14.53 $ 15.45
-------- ------- ------- ------ ---------- ---------- --------
-------- ------- ------- ------ ---------- ---------- --------
TOTAL RETURN(b)................... 42.51% 2.21% 39.39% 8.90% 43.94% 3.22% 40.71%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)... $141,770 $45,126 $25,134 $15,281 $1,893,457 $1,021,903 $609,869
Average net assets (000).......... $ 98,033 $35,337 $18,248 $12,550 $1,596,809 $ 810,296 $455,684
Ratios to average net assets:
Expenses, including
distribution fees........... 1.80% 1.83% 1.84% 1.98%(d) .80% .83% .84%
Expenses, excluding
distribution fees........... .80% .83% .84% .98%(d) .80% .83% .84%
Net investment income (loss)... (1.20)% (1.01)% (1.00)% (1.12)%(d) (.19)% (.01)% --
<CAPTION>
April 15,
1996(a)
Through
September 30,
1996
-------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period......................... $ 10.32
-------------
Income from investment operations
Net investment income (loss)(c)... (.02)
Net realized and unrealized gain
on investment transactions..... .68
-------------
Total from investment
operations.................. .66
-------------
Less distributions
Distributions from net realized
gains....................... --
-------------
Net asset value, end of period.... $ 10.98
-------------
-------------
TOTAL RETURN(b)................... 6.40%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)... $ 362,416
Average net assets (000).......... $ 26,829
Ratios to average net assets:
Expenses, including
distribution fees........... .98%(d)
Expenses, excluding
distribution fees........... .98%(d)
Net investment income (loss)... (.12)%(d)
</TABLE>
---------------
(a) Commencement of investment operations.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(c) Calculated based upon weighted average shares outstanding during the period.
(d) Annualized.
--------------------------------------------------------------------------------
See Notes to Financial Statements. 12
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Report of Independent Accountants PRUDENTIAL JENNISON GROWTH FUND
--------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
The Prudential Investment Portfolios, Inc.--Prudential Jennison Growth Fund
November 17, 1999
--------------------------------------------------------------------------------
13
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison
Growth Fund
Portfolio of Investments as of March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C> <C>
------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS 97.4%
Common Stocks 97.4%
-------------------------------------------------------------------------------------
Banks & Financial Services 8.5%
735,300 American Express Co. $ 109,513,744
1,016,700 Chase Manhattan Corp. 88,643,531
4,052,425 Citigroup, Inc. 240,359,458
404,400 Merrill Lynch & Co., Inc. 42,462,000
2,008,180 Morgan Stanley Dean Witter 163,792,181
----------------
644,770,914
-------------------------------------------------------------------------------------
Computer Systems/Peripherals 8.9%
2,061,300 Dell Computer Corp.(a) 111,181,369
1,017,700 EMC Corp.(a) 127,212,500
1,686,500 Hewlett-Packard Co. 223,566,656
698,100 International Business Machines Corp. 82,375,800
1,386,900 Sun Microsystems, Inc.(a) 129,956,864
----------------
674,293,189
-------------------------------------------------------------------------------------
Diversified Manufacturing 2.2%
1,043,700 General Electric Co. 161,969,194
-------------------------------------------------------------------------------------
EDP Software & Services 7.6%
1,551,000 America Online, Inc.(a) 104,304,750
752,300 Equant NV (ADR) (Netherlands)(a) 63,992,519
3,287,000 Microsoft Corp.(a) 349,243,750
434,750 VERITAS Software Corp.(a) 56,952,250
----------------
574,493,269
-------------------------------------------------------------------------------------
Electronic Components 8.0%
335,200 Broadcom Corp. 81,411,700
2,057,800 Intel Corp. 271,500,987
614,600 JDS Uniphase Corp.(a) 74,097,713
1,200 Lexmark International Group, Inc.(a) 126,900
1,200 STMicroelectronics NV (Netherlands) 224,625
1,134,300 Texas Instruments, Inc. 181,488,000
----------------
608,849,925
</TABLE>
8 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison
Growth Fund
Portfolio of Investments as of March 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Household & Personal Care Products 0.8%
1,212,600 Estee Lauder Co., Inc. $ 60,705,788
-------------------------------------------------------------------------------------
Industrial Technology/Instruments 2.6%
1,370,000 Applied Materials, Inc.(a) 129,122,500
830,800 KLA-Tencor Corp.(a) 69,994,900
----------------
199,117,400
-------------------------------------------------------------------------------------
Insurance 2.1%
1,415,250 American International Group, Inc. 154,969,875
-------------------------------------------------------------------------------------
Media & Communications 9.3%
2,244,000 AT&T Corp. - Liberty Media Group(a) 132,957,000
2,970,800 CBS Corp.(a) 168,221,550
1,439,000 Clear Channel Communications, Inc.(a) 99,380,937
965,600 Omnicom Group, Inc. 90,223,250
1,075,800 Time Warner, Inc. 107,580,000
740,000 Univision Communications, Inc.(a) 83,620,000
168,700 Verisign, Inc.(a) 25,220,650
----------------
707,203,387
-------------------------------------------------------------------------------------
Networking 6.3%
4,261,400 Cisco Systems, Inc.(a) 329,459,487
256,000 Juniper Networks, Inc.(a) 67,472,000
850,200 Metromedia Fiber Network, Inc. 82,256,850
----------------
479,188,337
-------------------------------------------------------------------------------------
Pharmaceuticals 10.0%
2,444,900 American Home Products Corp. 131,107,763
1,485,600 Amgen, Inc.(a) 91,178,700
2,067,200 Bristol-Myers Squibb Co. 119,380,800
482,300 Genentech, Inc.(a) 73,309,600
1,427,300 Glaxo Wellcome PLC (ADR) (United Kingdom) 81,802,131
1,377,200 Pharmacia & Upjohn, Inc. 81,599,100
1,874,400 Warner-Lambert Co. 182,754,000
----------------
761,132,094
</TABLE>
See Notes to Financial Statements 9
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison
Growth Fund
Portfolio of Investments as of March 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Retail 9.3%
2,366,387 Gap, Inc. $ 117,875,652
3,743,150 Home Depot, Inc. 241,433,175
1,485,800 Kohl's Corp.(a) 152,294,500
996,300 Tiffany & Co. 83,315,588
2,025,100 Wal-Mart Stores, Inc. 112,393,050
----------------
707,311,965
-------------------------------------------------------------------------------------
Telecommunications 13.0%
1,058,950 Allegiance Telecom, Inc.(a) 85,377,844
692,300 Level 3 Communications, Inc.(a) 73,210,725
684,300 Nextel Communications, Inc.(a) 101,447,475
640,700 NEXTLINK Communications, Inc.(a) 79,246,581
1,640,287 NTL, Inc.(a) 152,239,137
4,250,700 Qwest Communications International, Inc.(a) 206,158,950
5,230,686 Vodafone AirTouch PLC (ADR)(United Kingdom)(a) 290,629,991
----------------
988,310,703
-------------------------------------------------------------------------------------
Telecommunications Equipment 8.8%
283,200 Applied Micro Circuits Corp.(a) 42,497,700
336,200 Corning, Inc. 65,222,800
1,020,400 Ericsson (L.M.) Telephone Co., Inc. (ADR) (Sweden) 95,726,275
247,000 General Motors Corp. 'H' 30,751,500
846,200 Motorola, Inc. 120,477,725
1,177,400 Nokia Corp. (ADR)(Finland) 255,790,150
299,000 QUALCOMM, Inc.(a) 44,644,438
61,900 Sycamore Networks, Inc.(a) 7,985,100
----------------
663,095,688
----------------
Total long-term investments (cost $4,648,924,739) 7,385,411,728
----------------
</TABLE>
10 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison
Growth Fund
Portfolio of Investments as of March 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C> <C>
-----------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 1.9%
Commercial Paper 1.9%
American Express Credit Corp.
$ 149,281 6.20%, 4/3/00
(cost $149,281,000) $ 149,281,000
----------------
Total Investments 99.3% (cost $4,798,205,739;
Note 4) 7,534,692,728
Other assets in excess of liabilities 0.7% 50,071,321
----------------
Net Assets 100% $ 7,584,764,049
----------------
----------------
</TABLE>
--------------------------------------------------------------------------------
(a) Non-income producing security.
ADR--American Depository Receipt.
See Notes to Financial Statements 11
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison
Growth Fund
Statement of Assets and Liabilities (Unaudited)
<TABLE>
<CAPTION>
March 31, 2000
<S> <C> <C>
---------------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $4,798,205,739) $ 7,534,692,728
Cash 319,259
Receivable for Series shares sold 74,719,427
Receivable for investments sold 49,450,346
Dividends and interest receivable 3,680,922
Deferred expenses and other assets 80,947
----------------
Total assets 7,662,943,629
----------------
LIABILITIES
Payable for investments purchased 60,466,050
Payable for Series shares reacquired 11,254,774
Management fee payable 3,505,009
Distribution fees payable 2,620,185
Withholding taxes payable 230,828
Accrued expenses and other liabilities 102,734
----------------
Total liabilities 78,179,580
----------------
NET ASSETS $ 7,584,764,049
----------------
----------------
Net assets were comprised of:
Common stock, at par $ 278,391
Paid-in capital in excess of par 4,516,340,430
----------------
4,516,618,821
Net investment loss (17,119,448)
Accumulated net realized gain on investments 348,777,687
Net unrealized appreciation on investments 2,736,486,989
----------------
Net assets, March 31, 2000 $ 7,584,764,049
----------------
----------------
</TABLE>
12 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison
Growth Fund
Statement of Assets and Liabilities (Unaudited) Cont'd.
<TABLE>
<CAPTION>
March 31, 2000
---------------------------------------------------------------------------------------
<S> <C> <C>
Class A:
Net asset value and redemption price per share
($1,721,836,782 / 62,629,794 shares of common stock
issued and outstanding) $27.49
Maximum sales charge (5% of offering price) 1.45
----------------
Maximum offering price to public $28.94
----------------
----------------
Class B:
Net asset value, offering price and redemption price per
share ($2,480,157,441 / 93,598,826 shares of common
stock issued and outstanding) $26.50
----------------
----------------
Class C:
Net asset value and redemption price per share
($279,065,573 / 10,531,706 shares of common stock issued
and outstanding) $26.50
Sales charge (1% of offering price) .27
----------------
Offering price to public $26.77
----------------
----------------
Class Z:
Net asset value, offering price and redemption price per
share ($3,103,704,253 / 111,630,285 shares of common
stock issued and outstanding) $27.80
----------------
----------------
</TABLE>
See Notes to Financial Statements 13
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison
Growth Fund
Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
March 31, 2000
<S> <C> <C>
--------------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Dividends (net of foreign withholding taxes of $257,871) $ 11,551,411
Interest 5,732,433
--------------
Total income 17,283,844
--------------
Expenses
Management fee 17,216,358
Distribution fee--Class A 1,594,098
Distribution fee--Class B 9,895,511
Distribution fee--Class C 1,023,086
Transfer agent's fees and expenses 3,770,000
Registration fees 489,000
Reports to shareholders 173,000
Custodian's fees and expenses 90,000
Directors' fees and expenses 47,000
Insurance expense 35,000
Legal fees and expenses 27,000
Audit fee and expenses 10,000
Amortization of deferred organization expenses 3,225
Miscellaneous 30,014
--------------
Total expenses 34,403,292
--------------
Net investment loss (17,119,448)
--------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investment transactions 423,238,037
Net change in unrealized appreciation on investments 1,710,080,376
--------------
Net gain on investments 2,133,318,413
--------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,116,198,965
--------------
--------------
</TABLE>
14 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison
Growth Fund
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
March 31, 2000 September 30, 1999
<S> <C> <C> <C>
----------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment loss $ (17,119,448) $ (22,210,880)
Net realized gain on investments 423,238,037 201,324,080
Net change in unrealized appreciation of
investments 1,710,080,376 828,202,820
-------------- ------------------
Net increase in net assets resulting
from operations 2,116,198,965 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 (9,330,765) (1,752,623)
Class Z (112,764,183) (38,052,986)
-------------- ------------------
(273,133,855) (84,700,603)
-------------- ------------------
Series share transactions (net of
conversion)
(Note 5)
Net proceeds from shares sold 2,484,254,391 2,794,924,604
Net asset value of shares issued in
reinvestment of distributions 267,626,458 83,061,464
Cost of shares reacquired (1,463,714,511) (1,569,556,414)
-------------- ------------------
Net increase in net assets from Series
share transactions 1,288,166,338 1,308,429,654
-------------- ------------------
Total increase 3,131,231,448 2,231,045,071
NET ASSETS
Beginning of period 4,453,532,601 2,222,487,530
-------------- ------------------
End of period $7,584,764,049 $4,453,532,601
-------------- ------------------
-------------- ------------------
</TABLE>
See Notes to Financial Statements 15
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison
Growth Fund
Notes to Financial Statements (Unaudited)
Prudential Jennison Growth Fund (the 'Series') is a separately managed
series of The Prudential Investment Portfolios, Inc. (the 'Fund'). The Fund was
incorporated in Maryland on August 10, 1995 and is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The Series had no significant operations other than the issuance of
3,334 shares of Class A and 3,333 shares of Class B and Class C common stock for
$100,000 on September 13, 1995 to Prudential Investments Fund Management LLC
('PIFM'). Investment operations commenced on November 2, 1995.
The Series' investment objective is to achieve long-term growth of
capital. It invests primarily in equity securities (common stock, preferred
stock and securities convertible into common stock) of established companies
with above-average growth prospects.
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Series in the preparation of its financial statements.
Securities Valuation: Securities listed on a securities exchange (other
than options on securities and indices) are valued at the last sales price on
such exchange or system on the day of valuation, or, if there was no sale on
such day, at the mean between the last bid and asked prices on such day or at
the bid price on such day in the absence of an asked price. Securities that are
actively traded in the over-the-counter market, including listed securities for
which the primary market is believed by the Manager, in consultation with the
Subadviser, to be over-the-counter, are valued by an independent pricing agent
or principal market maker. Convertible debt securities that are actively traded
in the over-the-counter market, including listed securities for which the
primary market is believed by the Manager and the Subadviser to be
over-the-counter, are valued at the mean between the last reported bid and asked
prices provided by a principal market maker. Options on securities and indices
traded on an exchange are valued at the mean between the most recently quoted
bid and asked prices on such exchange. Futures contracts and options thereon
traded on a commodities exchange or board of trade are valued at the last sales
price at the close of trading on such exchange or board of trade or, if there
was no sale on the applicable commodities exchange or board of trade on such
day, at the mean between the most recently quoted bid and asked prices on such
exchange or board of trade. Securities for which market quotations are not
readily available, other than private placements, are valued at a price supplied
by an independent pricing agent, which is, in the opinion of such pricing agent,
representative of the market value of such securities as of the time of
determination of net asset value, or using a methodology
16
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison
Growth Fund
Notes to Financial Statements (Unaudited) Cont'd.
developed by an independent pricing agent, which is, in the judgment of the
Manager and the Subadviser, able to produce prices which are representative of
market value.
Short-term securities which mature in more than 60 days, for which market
quotations are readily available, are valued at current market quotations as
provided by an independent pricing agent or principal market maker. Short-term
securities which mature in 60 days or less are valued at cost with interest
accrued or discount amortizied to the date of maturity, unless the Board of
Directors determines that such valuation does not represent fair value.
All securities are valued as of 4:15 p.m., New York time.
Securities Transactions and Net Investment Income: Securities
transactions are recorded on the trade date. Realized gains or losses on sales
of securities are calculated on the identified cost basis. Dividend income is
recorded on the ex-dividend date; interest income is recorded on the accrual
basis and is net of discount accretion and premium amortization. Expenses are
recorded on the accrual basis which may require the use of certain estimates by
management.
Net investment income (loss), other than distribution fees, and realized
and unrealized gains or losses are allocated daily to each class of shares based
upon the relative proportion of net assets of each class at the beginning of the
day.
Dividends and Distributions: The Series expects to pay dividends of net
investment income, if any, semi-annually and to make distributions of any net
capital gains at least annually. Dividends and distributions are recorded on the
ex-dividend date. Income distributions and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles.
Taxes: It is the Series' policy to continue to meet the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable net income to its shareholders. Therefore, no
federal income tax provision is required.
Withholding taxes on foreign dividends have been provided for in
accordance with the Series' understanding of the applicable country's tax rules
and rates.
Deferred Organization Expenses: Approximately $200,000 of expenses were
incurred in connection with the organization of the Fund. These costs have been
deferred and are being amortized ratably over a period of sixty months from the
date the Series commenced investment operations.
17
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison
Growth Fund
Notes to Financial Statements (Unaudited) 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
Fund. Under the subadvisory agreement, Jennison, subject to the supervision of
PIFM, is responsible for managing the assets of the Series in accordance with
its investment objectives and policies.
The management fee paid PIFM will be computed daily and payable monthly,
at an annual rate of .60 of 1% of the average daily net assets of the Series.
PIFM pays Jennison a subadvisory fee at an annual rate of .30 of 1% of the
average daily net assets of the Series up to and including $300 million and .25
of 1% of such assets in excess of $300 million. PIFM also pays the cost of
compensation of officers and employees of the Fund, occupancy and certain
clerical and bookkeeping costs of the Fund. The Fund bears all other costs and
expenses.
The Fund has a distribution agreement with Prudential Investment
Management Services LLC ('PIMS'), which acts as the distributor of the Fund. The
Fund compensates PIMS for distributing and servicing the Fund's Class A, Class
B, Class C and Class Z shares, pursuant to plans of distribution, (the 'Class A,
B and C Plans'), regardless of expenses actually incurred by them. The
distribution fees are accrued daily and payable monthly. No distribution or
service fees are paid to PIMS as distributor of the Class Z shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensates PIMS for
distribution-related activities at an annual rate of up to .30 of 1%, 1% and 1%
of the average daily net assets of the Class A, B and C shares, respectively.
Such expenses under the plans were .25 of 1%, 1% and 1% of the average daily net
assets of the Class A, B and C shares, respectively, for the six months ended
March 31, 2000.
PIMS has advised the Series that it received approximately $1,601,000 and
$637,000 in front-end sales charges resulting from sales of Class A and Class C
shares during the six months ended March 31, 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 six months ended March 31, 2000,
it received approximately $1,490,000 and $57,000 in contingent deferred sales
18
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison
Growth Fund
Notes to Financial Statements (Unaudited) Cont'd.
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 Fund did not borrow any amounts pursuant to the SCA
during the six months ended March 31, 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 six months ended March 31, 2000,
the Series incurred fees of approximately $3,499,000 for the services of PMFS.
As of March 31, 2000, approximately $665,000 of such fees were due to PMFS.
Transfer agent fees and expenses in the Statement of Operations include certain
out-of-pocket expenses paid to nonaffiliates.
For the six months ended March 31, 2000, Prudential Securities
Incorporated ('PSI'), which is an indirect, wholly owned subsidiary of
Prudential, earned approximately $298,600 in brokerage commissions from
portfolio transactions executed on behalf of the Series.
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the six months ended March 31, 2000 were $3,111,018,659 and $2,210,150,266,
respectively.
The cost of investments for federal income tax purposes at March 31, 2000,
was $4,808,742,634 and, accordingly, net unrealized appreciation of investments
for federal income tax purposes was $2,725,950,094 (gross unrealized
appreciation--$2,751,383,575; gross unrealized depreciation--$25,433,481).
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
19
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison
Growth Fund
Notes to Financial Statements (Unaudited) Cont'd.
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. Of the shares outstanding at March 31, 2000, PIFM
owned 10,000 shares of the Series.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
------------------------------------------------------ ----------- ---------------
<S> <C> <C>
Six months ended March 31, 2000:
Shares sold 35,740,298 $ 860,644,514
Shares issued in reinvestment of distributions 2,447,380 54,576,570
Shares reacquired (23,156,354) (558,788,480)
----------- ---------------
Net increase in shares outstanding before conversion 15,031,324 356,432,604
Shares issued upon conversion from Class B 2,144,583 54,679,427
----------- ---------------
Net increase in shares outstanding 17,175,907 $ 411,112,031
----------- ---------------
----------- ---------------
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 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 in shares outstanding 14,490,696 $ 273,725,580
----------- ---------------
----------- ---------------
</TABLE>
20
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison
Growth Fund
Notes to Financial Statements (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class B Shares Amount
------------------------------------------------------ ----------- ---------------
Six months ended March 31, 2000:
<S> <C> <C>
Shares sold 23,304,930 $ 541,699,659
Shares issued in reinvestment of distributions 4,234,039 91,243,545
Shares reacquired (9,259,958) (214,200,101)
----------- ---------------
Net increase in shares outstanding before conversion 18,279,011 418,743,103
Shares reacquired upon conversion into Class A (2,222,549) (54,679,427)
----------- ---------------
Net increase in shares outstanding 16,056,462 $ 364,063,676
----------- ---------------
----------- ---------------
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 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 in shares outstanding 27,323,787 $ 509,294,100
----------- ---------------
----------- ---------------
<CAPTION>
Class C
------------------------------------------------------
<S> <C> <C>
Six months ended March 31, 2000:
Shares sold 4,052,329 $ 94,018,748
Shares issued in reinvestment of distributions 422,563 9,106,236
Shares reacquired (1,238,583) (28,898,775)
----------- ---------------
Net increase in shares outstanding 3,236,309 $ 74,226,209
----------- ---------------
----------- ---------------
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 in shares outstanding 4,096,673 $ 77,820,540
----------- ---------------
----------- ---------------
<CAPTION>
Class Z
------------------------------------------------------
<S> <C> <C>
Six months ended March 31, 2000:
Shares sold 40,507,642 $ 987,891,470
Shares issued in reinvestment of distributions 5,002,224 112,700,107
Shares reacquired (27,425,227) (661,827,155)
----------- ---------------
Net increase in shares outstanding 18,084,639 $ 438,764,422
----------- ---------------
----------- ---------------
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 in shares outstanding 23,224,333 $ 447,589,436
----------- ---------------
----------- ---------------
</TABLE>
21
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison
Growth Fund
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
Class A
----------------
Six Months Ended
March 31, 2000
----------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 20.05
----------------
Income from investment operations
Net investment income (loss)(c) (.05)
Net realized and unrealized gain on investment transactions 8.67
----------------
Total from investment operations 8.62
----------------
Less distributions
Distributions from net realized gains (1.18)
----------------
Net asset value, end of period $ 27.49
----------------
----------------
TOTAL RETURN(b) 44.29%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $1,721,837
Average net assets (000) $1,275,278
Ratios to average net assets:
Expenses, including distribution fees .99%(d)
Expenses, excluding distribution fees .74%(d)
Net investment income (loss) (.41)%(d)
For Class A, B, C and Z shares:
Portfolio turnover rate 39%
</TABLE>
------------------------------
(a) Commencement of investment operations.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(c) Calculated based upon weighted average shares outstanding during the period.
(d) Annualized.
22 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison
Growth Fund
Financial Highlights (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class A
------------------------------------------------------------------------------------------
Year Ended September 30, November 2, 1995(a)
---------------------------------------------------------- through September 30,
1999 1998 1997 1996
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 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) -- --
---------------- ---------------- ---------------- --------
$ 20.25 $ 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%
</TABLE>
See Notes to Financial Statements 23
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison
Growth Fund
Financial Highlights (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class B
----------------
Six Months Ended
March 31, 2000
----------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 19.43
----------------
Income from investment operations
Net investment income (loss)(c) (.13)
Net realized and unrealized gain on investment transactions 8.38
----------------
Total from investment operations 8.25
----------------
Less distributions
Distributions from net realized gains (1.18)
----------------
Net asset value, end of period $ 26.50
----------------
----------------
TOTAL RETURN(b) 43.73%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $2,480,157
Average net assets (000) $1,979,102
Ratios to average net assets:
Expenses, including distribution fees 1.74%(d)
Expenses, excluding distribution fees .74%(d)
Net investment income (loss) (1.16)%(d)
</TABLE>
------------------------------
(a) Commencement of investment operations.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(c) Calculated based upon weighted average shares outstanding during the period.
(d) Annualized.
24 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison
Growth Fund
Financial Highlights (Unaudited) 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> <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 25
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison
Growth Fund
Financial Highlights (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class C
----------------
Six Months Ended
March 31, 2000
----------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 19.43
----------------
Income from investment operations
Net investment income (loss)(c) (.13)
Net realized and unrealized gain on investment transactions 8.38
----------------
Total from investment operations 8.25
----------------
Less distributions
Distributions from net realized gains (1.18)
----------------
Net asset value, end of period $ 26.50
----------------
----------------
TOTAL RETURN(b) 43.73%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $ 279,066
Average net assets (000) $ 204,617
Ratios to average net assets:
Expenses, including distribution fees 1.74%(d)
Expenses, excluding distribution fees .74%(d)
Net investment income (loss) (1.16)%(d)
</TABLE>
------------------------------
(a) Commencement of investment operations.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(c) Calculated based upon weighted average shares outstanding during the period.
(d) Annualized.
26 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison
Growth Fund
Financial Highlights (Unaudited) 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> <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 27
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison
Growth Fund
Financial Highlights (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class Z
----------------
Six Months Ended
March 31, 2000
----------------------------------------------------------------------------------------
<S> <C> <C>
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 8.76
----------------
Total from investment operations 8.74
----------------
Less distributions
Distributions from net realized gains (1.18)
----------------
Net asset value, end of period $ 27.80
----------------
----------------
TOTAL RETURN(b) 44.55%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $3,103,704
Average net assets (000) $2,446,267
Ratios to average net assets:
Expenses, including distribution fees .74%(d)
Expenses, excluding distribution fees .74%(d)
Net investment income (loss) (.16)%(d)
</TABLE>
------------------------------
(a) Commencement of investment operations.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(c) Calculated based upon weighted average shares outstanding during the period.
(d) Annualized.
28 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison
Growth Fund
Financial Highlights (Unaudited) 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> <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 29
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Portfolio of Investments as PRUDENTIAL JENNISON GROWTH &
of September 30, 1999 INCOME FUND
------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
-----------------------------------------------------------------
LONG-TERM INVESTMENTS--84.1%
COMMON STOCKS--84.1%
-----------------------------------------------------------------
Aerospace/Defense--3.3%
57,240 Raytheon Co. $ 2,776,140
66,000 The B.F. Goodrich Co. 1,914,000
------------
4,690,140
------------------------------------------------------------
Airlines--1.7%
45,000 AMR Corp. 2,452,500
------------------------------------------------------------
Aluminum--3.1%
70,200 Alcan Aluminum Ltd. 2,193,750
36,600 Reynolds Metals Co. 2,209,725
------------
4,403,475
------------------------------------------------------------
Apparel--1.5%
120,700 Polo Ralph Lauren Corp.(a) 2,165,056
------------------------------------------------------------
Banking--4.0%
33,500 Chase Manhattan Corp. 2,525,062
49,300 Fleet Financial Group, Inc. 1,805,613
112,800 Hibernia Corp., Class A 1,311,300
------------
5,641,975
------------------------------------------------------------
Business Services--3.7%
105,900 Convergys Corp.(a) 2,098,144
51,300 Hertz Corp. 2,257,200
40,900 Ryder System, Inc. 833,338
------------
5,188,682
------------------------------------------------------------
Chemicals--5.0%
79,000 Cytec Industries, Inc.(a) 1,896,000
55,400 Dexter Corp. 2,067,113
82,400 IMC Global, Inc. 1,199,950
118,000 W.R. Grace & Co.(a) 1,895,375
------------
7,058,438
Computer Systems/Peripherals--0.7%
10,300 Hewlett-Packard Co. $ 947,600
------------------------------------------------------------
Data Processing & Reproduction--0.8%
134,800 Informix Corp.(a) 1,069,975
------------------------------------------------------------
Drugs & Health Care--1.8%
60,700 American Home Products Corp. 2,519,050
------------------------------------------------------------
EDP Software & Services--0.4%
104,600 Intergraph Corp.(a) 588,375
------------------------------------------------------------
Foods--1.4%
26,300 Dole Food Co., Inc. 499,700
68,300 SUPERVALU, Inc. 1,489,794
------------
1,989,494
------------------------------------------------------------
Hotels--2.7%
158,900 Hilton Hotels Corp. 1,569,137
70,700 Promus Hotel Corp.(a) 2,302,169
------------
3,871,306
------------------------------------------------------------
Human Resources--1.9%
93,000 Manpower, Inc. 2,708,625
------------------------------------------------------------
Industrial Technology/Instruments--1.5%
54,900 Millipore Corp. 2,062,181
------------------------------------------------------------
Insurance--3.6%
20,600 CIGNA Corp. 1,601,650
64,800 The Allstate Corp. 1,615,950
61,000 Travelers Property Casualty Corp. 1,799,500
------------
5,017,100
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. 3
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Portfolio of Investments as PRUDENTIAL JENNISON GROWTH &
of September 30, 1999 INCOME FUND
------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
-----------------------------------------------------------------
Media--3.1%
54,600 CBS Corp. $ 2,525,250
31,904 Chris-Craft Industries, Inc.(a) 1,790,612
------------
4,315,862
------------------------------------------------------------
Motor Vehicles & Equipment--4.1%
26,800 Dana Corp. 994,950
37,300 General Motors Corp, Class H 2,135,425
41,400 General Motors Corp. 2,605,613
------------
5,735,988
------------------------------------------------------------
Oil Services--3.0%
54,200 McDermott International, Inc. 1,097,550
83,200 Unocal Corp. 3,083,600
------------
4,181,150
------------------------------------------------------------
Paper & Forest Products--6.1%
169,500 Abitibi-Consolidated, Inc. 2,044,594
68,600 Boise Cascade Corp. 2,499,612
36,600 Champion International Corp. 1,880,325
104,054 Smurfit-Stone Container Corp.(a) 2,250,168
------------
8,674,699
------------------------------------------------------------
Petroleum--6.1%
66,900 Anadarko Petroleum Corp. 2,044,631
59,000 Burlington Resources, Inc. 2,168,250
89,600 Tosco Corp. 2,262,400
73,400 USX - Marathon Group 2,146,950
------------
8,622,231
------------------------------------------------------------
Pharmaceuticals--1.3%
60,900 Vertex Pharmaceuticals, Inc.(a) 1,891,706
------------------------------------------------------------
Photography/Image Technology--0.8%
42,900 Polaroid Corp. 1,115,400
Publishing--3.6%
83,300 New York Times Co., Class A $ 3,123,750
38,900 Tribune Co. 1,935,275
------------
5,059,025
------------------------------------------------------------
Retail--5.5%
84,100 AutoZone, Inc.(a) 2,360,056
101,900 Boise Cascade Office Products
Corp.(a) 1,108,163
209,100 Kmart Corp.(a) 2,443,856
48,609 The Limited, Inc. 1,859,294
------------
7,771,369
------------------------------------------------------------
Semiconductors--2.9%
121,200 International Rectifier Corp.(a) 1,848,300
71,500 National Semiconductor Corp.(a) 2,180,750
------------
4,029,050
------------------------------------------------------------
Specialty Chemicals--3.2%
173,026 CK Witco Corp. 2,519,691
112,400 Engelhard Corp. 2,044,275
------------
4,563,966
------------------------------------------------------------
Steel & Metals--3.8%
32,800 AK Steel Holding Corp. 598,600
51,700 Nucor Corp. 2,462,213
90,200 USX-U.S. Steel Group 2,322,650
------------
5,383,463
------------------------------------------------------------
Telecommunications--1.8%
149,900 Loral Space & Communications Ltd.(a) 2,576,406
------------------------------------------------------------
Transportation--1.7%
54,100 Airborne Freight Corp. 1,139,481
33,100 CNF Transportation, Inc. 1,232,975
------------
2,372,456
------------
Total long-term investments
(cost $110,807,284) 118,666,743
------------
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. 4
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Portfolio of Investments as PRUDENTIAL JENNISON GROWTH &
of September 30, 1999 INCOME FUND
------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
<C> <C> <S> <C>
--------------------------------------------------------------------
SHORT-TERM INVESTMENTS--15.9%
---------------------------------------------------
COMMERCIAL PAPER--9.1%
P-1 $6,855 American Express Co.,
5.57%, 10/1/99 $ 6,855,000
P-1 6,000 Chevron USA, Inc.,
5.30%, 10/1/99 6,000,000
--------------
Total commercial paper
(cost $12,855,000) 12,855,000
U.S. GOVERNMENT SECURITIES--6.8%
9,615(b) United States Treasury
Bills,
4.77%, 11/12/99
(cost $9,564,202) 9,555,413
--------------
Total short-term
investments
(cost $22,419,202) 22,410,413
--------------
Total investments before
short sales--100.0%
(cost $133,226,486; Note 4) 141,077,156
--------------
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
-----------------------------------------------------------------
COMMON STOCKS SOLD SHORT(a)--(6.4%)
-----------------------------------------------------------------
Aerospace/Defense--(0.4%)
(9,700) United Technologies Corp. $ (575,331)
-----------------------------------------------------------------
Beverages--(1.1%)
(31,600) Coca-Cola Co. (1,518,775)
-----------------------------------------------------------------
Cosmetics/Toiletries--(0.6%)
(26,400) The Gillette Co. (895,950)
-----------------------------------------------------------------
Financial Services--(2.4%)
(9,200) Federal National Mortgage Assoc. (576,725)
(23,100) Nasdaq-100 Shares Trust (2,780,662)
------------
(3,357,387)
-----------------------------------------------------------------
Retail--(1.9%)
(34,200) Circuit City Stores-Circuit City
Group (1,442,813)
(21,400) Dayton Hudson Corp. (1,285,338)
------------
(2,728,151)
------------
Total common stocks sold short
(proceeds at cost $9,941,334) (9,075,594)
------------
Total investments, net of short sales--93.6%
(cost $123,285,152) 132,001,562
Other assets in excess of
liabilities--6.4% 9,086,790
------------
Net Assets--100% $141,088,352
------------
------------
</TABLE>
---------------
(a) Non-income producing securities.
(b) $9,555,413 of principal amount pledged as collateral for short sales.
--------------------------------------------------------------------------------
See Notes to Financial Statements. 5
<PAGE>
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH &
Statement of Assets and Liabilities INCOME FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets September 30, 1999
<S> <C>
Investments, at value (cost $133,226,486)............................................................... $141,077,156
Cash.................................................................................................... 645
Receivables for securities sold short................................................................... 9,941,334
Receivable for investments sold......................................................................... 3,596,014
Receivable for Series shares sold....................................................................... 251,042
Dividends and interest receivable....................................................................... 138,187
Other assets............................................................................................ 1,342
------------------
Total assets......................................................................................... 155,005,720
------------------
Liabilities
Investments sold short, at value (proceeds $9,941,334).................................................. 9,075,594
Payable for investments purchased....................................................................... 3,420,501
Due to broker for securities sold short................................................................. 947,727
Payable for Series shares reacquired.................................................................... 162,134
Accrued expenses........................................................................................ 146,357
Distribution fees payable............................................................................... 93,034
Management fee payable.................................................................................. 72,021
------------------
Total liabilities.................................................................................... 13,917,368
------------------
Net Assets.............................................................................................. $141,088,352
------------------
------------------
Net assets were comprised of:
Common stock, at par................................................................................. $ 11,102
Paid-in capital in excess of par..................................................................... 118,323,878
------------------
118,334,980
Accumulated net realized gain on investments......................................................... 14,036,962
Net unrealized appreciation on investments........................................................... 8,716,410
------------------
Net assets, September 30, 1999.......................................................................... $141,088,352
------------------
------------------
Class A:
Net asset value and redemption price per share
($37,157,842 / 2,911,247 shares of common stock issued and outstanding)........................... $12.76
Maximum sales charge (5% of offering price).......................................................... .67
------------------
Maximum offering price to public..................................................................... $13.43
------------------
------------------
Class B:
Net asset value, offering price and redemption price per share
($92,031,782 / 7,255,503 shares of common stock issued and outstanding)........................... $12.68
------------------
------------------
Class C:
Net asset value and redemption price per share
($7,635,741 / 601,957 shares of common stock issued and outstanding).............................. $12.68
Sales charge (1% of offering price).................................................................. .13
------------------
Offering price to public............................................................................. $12.81
------------------
------------------
Class Z:
Net asset value, offering price and redemption price per share
($4,262,987 / 332,964 shares of common stock issued and outstanding).............................. $12.80
------------------
------------------
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. 6
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH &
INCOME FUND
Statement of Operations
------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income September 30, 1999
<S> <C>
Income
Dividends (net of foreign withholding
taxes of $4,304)................... $ 1,844,883
Interest.............................. 767,804
------------------
Total income....................... 2,612,687
------------------
Expenses
Distribution fee--Class A............. 89,537
Distribution fee--Class B............. 949,035
Distribution fee--Class C............. 77,020
Management fee........................ 849,053
Transfer agent's fees and expenses.... 217,000
Reports to shareholders............... 151,000
Custodian's fees and expenses......... 110,000
Registration fees..................... 57,000
Legal fees and expenses............... 39,000
Dividends on securities sold short.... 27,759
Audit fees and expenses............... 20,000
Directors' fees and expenses.......... 7,500
Miscellaneous......................... 6,479
------------------
Total expenses..................... 2,600,383
------------------
Net investment income.................... 12,304
------------------
Realized and Unrealized Gain (Loss)
on Investments
Net realized gain (loss) on:
Investment transactions............... 16,896,114
Financial futures transactions........ (255,928)
Short sales........................... 117,643
------------------
16,757,829
------------------
Net change in unrealized
appreciation/depreciation on:
Investments........................... 14,326,911
Short sales........................... (798,696)
------------------
13,528,215
------------------
Net gain on investments.................. 30,286,044
------------------
Net Increase in Net Assets Resulting from
Operations............................... $ 30,298,348
------------------
------------------
</TABLE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH &
INCOME FUND
Statement of Changes in Net Assets
------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended September 30,
in Net Assets 1999 1998
<S> <C> <C>
Operations
Net investment income.......... $ 12,304 $ 908,928
Net realized gain on investment
transactions................ 16,757,829 10,777,238
Net change in unrealized
appreciation/depreciation on
investments................. 13,528,215 (25,848,538)
------------- -------------
Net increase (decrease) in net
assets resulting from
operations.................. 30,298,348 (14,162,372)
------------- -------------
Dividends and distributions (Note
1)
Dividends from net investment income
Class A..................... (153,895) (350,759)
Class B..................... (76,687) (267,306)
Class C..................... (6,448) (22,287)
Class Z..................... (12,628) (17,381)
------------- -------------
(249,658) (657,733)
------------- -------------
Distributions from net realized
capital gains
Class A..................... (2,540,009) (1,652,658)
Class B..................... (6,978,474) (4,349,846)
Class C..................... (586,830) (352,855)
Class Z..................... (164,167) (39,211)
------------- -------------
(10,269,480) (6,394,570)
------------- -------------
Series share transactions (Note 5)
Net proceeds from shares
sold........................ 39,742,571 49,851,743
Net asset value of shares
issued to shareholders in
reinvestment of dividends
and distributions........... 10,032,426 6,672,687
Cost of shares reacquired...... (53,515,736) (40,383,538)
------------- -------------
Net increase (decrease) in net
assets from Series share
transactions................ (3,740,739) 16,140,892
------------- -------------
Total increase (decrease)......... 16,038,471 (5,073,783)
Net Assets
Beginning of period............... 125,049,881 130,123,664
------------- -------------
End of period(a).................. $ 141,088,352 $ 125,049,881
------------- -------------
------------- -------------
---------------
(a) Includes undistributed net
investment income of.......... $ -- $ 290,719
------------- -------------
------------- -------------
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements. 7
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH &
Notes to Financial Statements INCOME FUND
--------------------------------------------------------------------------------
Prudential Jennison Growth & Income Fund (the 'Series') is a separately managed
series of The Prudential Investment Portfolios, Inc. (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 the Manager, in
consultation with the Subadviser, to be over-the-counter, are valued by an
independent pricing agent or principal market maker. Convertible debt securities
that are actively traded in the over-the-counter market, including listed
securities for which the primary market is believed by the Manager and the
Subadviser to be over-the-counter, are valued at the mean between the last
reported bid and asked prices provided by a principal market maker. Options on
securities and indices traded on an exchange are valued at the mean between the
most recently quoted bid and asked prices on such exchange. Futures contracts
and options thereon traded on a commodities exchange or board of trade are
valued at the last 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
the Subadviser, able to produce prices which are representative of market value.
Short-term securities which mature in more than 60 days, for which market
quotations are readily available, are valued at current market quotations as
provided by an independent pricing agent or principal market maker. Short-term
securities which mature in 60 days or less are valued at cost with interest
accrued or discount amortized to the date of maturity, unless the Board of
Directors determines that such valuation does not represent fair value.
All securities are valued as of 4:15 p.m., New York time.
Securities Transactions and Net Investment Income: Securities transactions are
recorded on the trade date. Realized gains or losses on sales of securities are
calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date; interest income is recorded on the accrual basis and is net of
discount accretion and premium amortization. Expenses are recorded on the
accrual basis which may require the use of certain estimates by management.
Net investment income, other than distribution fees, and realized and unrealized
gains or losses are allocated daily to each class of shares based upon the
relative proportion of net assets of each class at the beginning of the day.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities or commodities at
a set price for delivery on a future date. Upon entering into a financial
futures contract, the Series is required to pledge to the broker an amount of
cash and/or other assets equal to a certain percentage of the contract amount.
This amount is known as the 'initial margin.' Subsequent payments, known as
'variation margin,' are made or received by the Series each day, depending on
the daily fluctuations in the value of the underlying security or commodity.
Such variation margin is recorded for financial statement purposes on a daily
basis as unrealized gain or loss. When the contract expires or is closed, the
gain or loss is realized and is presented in the Statement of Operations as net
realized gain (loss) on financial futures contracts.
The Series invests in financial futures contracts in order to hedge its existing
portfolio securities, or securities the Series intends to purchase, against
fluctuations in value caused by changes in market conditions or prevailing
interest rates. Should interest rates move unexpectedly, the
--------------------------------------------------------------------------------
8
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH &
Notes to Financial Statements INCOME FUND
--------------------------------------------------------------------------------
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.
Short Sales: The Series may sell a security it does not own in anticipation of a
decline in the market value of that security (short sale). When the Series makes
a short sale, it must borrow the security sold short and deliver it to the
broker-dealer through which it made the short sale. The proceeds received from
the short sale are maintained as collateral for its obligation to deliver the
security upon conclusion of the sale. In addition, the Series may have to make
additional subsequent deposits with the broker equal to the change in the market
value of the security sold short. The Series may have to pay a fee to borrow the
particular security and may be obligated to remit any payments received on such
borrowed securities. A gain, limited to the price at which the Series sold the
security short, or a loss, unlimited in magnitude, will be recognized upon the
termination of a short sale if the market price at termination is less than or
greater than, respectively, the proceeds originally received.
Dividends and Distributions: The Series expects to pay dividends of net
investment income, if any, semi-annually and to make distributions of any net
capital gains at least annually. Dividends and distributions are recorded on the
ex-dividend date. Income distributions and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles.
Taxes: It is the Series' policy to continue to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable net income to its shareholders. Therefore, no
federal income tax provision is required.
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 $53,365,
decrease accumulated net realized gain on investments by $1,364,827 and increase
paid-in capital by $1,418,192 due to the Fund treating redemptions as
distributions for federal income tax purposes during the year ended September
30, 1999. Net investment income, net realized gains and net assets were not
affected by this change.
Note 2. Agreements
The Fund has a management agreement with Prudential Investments Fund Management
LLC ('PIFM'). Pursuant to a subadvisory agreement between PIFM and Jennison
Associates LLC ('Jennison'), Jennison furnishes investment advisory services in
connection with the management of the 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, 1999.
PIMS has advised the Series that it received approximately $72,600 and $15,300
in front-end sales charges resulting from sales of Class A and C shares,
respectively, during the year ended September 30, 1999. From these fees PIMS
paid such sales charges to affiliated broker-dealers, which in turn paid
commissions to salespersons and incurred other distribution costs.
PIMS has advised the Series that for the year ended September 30, 1999, it
received approximately $294,400 and $900 in contingent deferred sales
--------------------------------------------------------------------------------
9
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH &
Notes to Financial Statements INCOME FUND
--------------------------------------------------------------------------------
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').
As of March 11, 1999, the Fund, along with other affiliated registered
investment companies (the 'Funds'), entered into a syndicated credit agreement
('SCA') with an unaffiliated lender. The maximum commitment under the SCA is $1
billion. Interest on any borrowings will be at market rates. The Funds pay a
commitment fee at an annual rate of .065 of 1% on the unused portion of the
credit facility, which is accrued and paid quarterly on a pro rata basis by the
Funds. The SCA expires on March 9, 2000. Prior to March 11, 1999, the Funds had
a credit agreement with a maximum commitment of $200,000,000. The commitment fee
was .055 of 1% on the unused portion of the credit facility. The Fund did not
borrow any amounts pursuant to either agreement during the year ended September
30, 1999. The purpose of the agreements is to serve as an alternative source of
funding for capital share redemptions.
------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the year ended September 30, 1999,
the Series incurred fees of approximately $187,600 for the services of PMFS. As
of September 30, 1999, approximately $15,900 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, 1999, Prudential Securities Incorporated
('PSI'), which is an indirect, wholly owned subsidiary of Prudential, earned
approximately $43,100 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, 1999 were $142,344,623 and $161,701,363,
respectively.
The cost basis of the investments for federal income tax purposes at September
30, 1999 was $134,317,080 and, accordingly, net unrealized appreciation of
investments for federal income tax purposes was $6,760,076 (gross unrealized
appreciation-$15,275,883; gross unrealized depreciation--$8,515,807).
------------------------------------------------------------
Note 5. Capital
The Series offers Class A, Class B, Class C and Class Z shares. Class A shares
are sold with a front-end sales charge of up to 5%. Class B shares are sold with
a contingent deferred sales charge which declines from 5% to zero depending on
the period of time the shares are held. Class B shares will automatically
convert to Class A shares on a quarterly basis approximately seven years after
purchase. A special exchange privilege is also available for shareholders who
qualified to purchase Class A shares at net asset value. Class C shares are sold
with a front-end sales charge of 1% and a contingent deferred sales charge of 1%
during the first 18 months. Prior to November 2, 1998, Class C shares were sold
with a contingent deferred sales charge of 1% during the first year. Class Z
shares are not subject to any sales or redemption charge and are offered
exclusively for sale to a limited group of investors.
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, 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 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 in shares outstanding... 58,087 $ 845,596
---------- ------------
---------- ------------
Year ended September 30, 1998:
Shares sold.......................... 1,121,704 $ 13,786,056
Shares issued in reinvestment of
dividends and distributions........ 162,663 1,913,429
Shares reacquired.................... (1,213,010) (14,774,385)
---------- ------------
Net increase in shares outstanding
before conversion.................. 71,357 925,100
Shares issued upon conversion from
Class B............................ 77,566 935,576
---------- ------------
Net increase in shares outstanding... 148,923 $ 1,860,676
---------- ------------
---------- ------------
</TABLE>
--------------------------------------------------------------------------------
10
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH &
Notes to Financial Statements INCOME FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Shares Amount
------- ---------- ------------
<S> <C> <C>
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 decrease in shares outstanding
before conversion.................. (303,534) (3,918,474)
Shares reacquired upon conversion
from
Class A............................ (174,767) (2,193,555)
---------- ------------
Net decrease in shares outstanding... (478,301) $ (6,112,029)
---------- ------------
---------- ------------
Year ended September 30, 1998:
Shares sold.......................... 2,383,930 $ 29,462,184
Shares issued in reinvestment of
dividends and distributions........ 369,244 4,332,243
Shares reacquired.................... (1,750,224) (21,297,211)
---------- ------------
Net increase in shares outstanding
before conversion.................. 1,002,950 12,497,216
Shares reacquired upon conversion
from
Class A............................ (77,755) (935,576)
---------- ------------
Net increase in shares outstanding... 925,195 $ 11,561,640
---------- ------------
---------- ------------
<CAPTION>
Class C
-------
<S> <C> <C>
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 decrease in shares outstanding... (48,117) $ (540,321)
---------- ------------
---------- ------------
Year ended September 30, 1998:
Shares sold.......................... 217,879 $ 2,701,940
Shares issued in reinvestment of
dividends and distributions........ 31,625 371,055
Shares reacquired.................... (152,419) (1,873,645)
---------- ------------
Net increase in shares outstanding... 97,085 $ 1,199,350
---------- ------------
---------- ------------
<CAPTION>
Class Z Shares Amount
------- ---------- ------------
<S> <C> <C>
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 in shares outstanding... 166,136 $ 2,066,015
---------- ------------
---------- ------------
Year ended September 30, 1998:
Shares sold.......................... 309,216 $ 3,901,563
Shares issued in reinvestment of
dividends
and distributions.................. 4,713 55,960
Shares reacquired.................... (194,189) (2,438,297)
---------- ------------
Net increase in shares outstanding... 119,740 $ 1,519,226
---------- ------------
---------- ------------
</TABLE>
--------------------------------------------------------------------------------
11
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH &
Financial Highlights INCOME FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B
-------------------------------------------------------- -------------
November 7,
1996(a) Year Ended
Year Ended September 30, Through September 30,
------------------------------- September 30, -------------
1999 1998 1997 1999
------------- ------------- -------------------- -------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.......... $ 10.98 $ 12.89 $ 10.00 $ 10.96
------ ------ ------ ------
Income from investment operations
Net investment income......................... .07 .15 .09 (.03)
Net realized and unrealized gain (loss) on
investment transactions.................... 2.68 (1.32) 2.87 2.67
------ ------ ------ ------
Total from investment operations........... 2.75 (1.17) 2.96 2.64
------ ------ ------ ------
Less distributions
Dividends from net investment income.......... (.06) (.12) (.07) (.01)
Distributions from net realized gains......... (.91) (.62) -- (.91)
------ ------ ------ ------
Total distributions........................ (.97) (.74) (.07) (.92)
------ ------ ------ ------
Net asset value, end of period................ $ 12.76 $ 10.98 $ 12.89 $ 12.68
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN(c)............................... 26.00% (9.40)% 29.72% 24.98%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)............... $37,158 $31,339 $ 34,846 $92,032
Average net assets (000)...................... $35,815 $35,145 $ 27,008 $94,904
Ratios to average net assets:
Expenses, including distribution fees...... 1.30% 1.31% 1.58%(b) 2.05%
Expenses, excluding distribution fees...... 1.05% 1.06% 1.33%(b) 1.05%
Net investment income...................... .54% 1.20% .90%(b) (.20)%
Portfolio turnover rate....................... 111% 99% 55% 111%
<CAPTION>
November 7,
1996(a)
Through
September 30,
1998 1997
------------- -------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.......... $ 12.86 $ 10.00
------ ------
Income from investment operations
Net investment income......................... .06 .02
Net realized and unrealized gain (loss) on
investment transactions.................... (1.31) 2.86
------ ------
Total from investment operations........... (1.25) 2.88
------ ------
Less distributions
Dividends from net investment income.......... (.03) (.02)
Distributions from net realized gains......... (.62) --
------ ------
Total distributions........................ (.65) (.02)
------ ------
Net asset value, end of period................ $ 10.96 $ 12.86
------ ------
------ ------
TOTAL RETURN(c)............................... (10.01)% 28.83%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)............... $84,751 $87,558
Average net assets (000)...................... $93,465 $62,575
Ratios to average net assets:
Expenses, including distribution fees...... 2.06% 2.33%(b)
Expenses, excluding distribution fees...... 1.06% 1.33%(b)
Net investment income...................... .46% .15%(b)
Portfolio turnover rate....................... 99% 55%
</TABLE>
---------------
(a) Commencement of investment operations.
(b) Annualized.
(c) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
--------------------------------------------------------------------------------
See Notes to Financial Statements. 12
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH &
Financial Highlights INCOME FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C Class Z
-------------------------------------------------------- -------------
November 7,
1996(a) Year Ended
Year Ended September 30, Through September 30,
------------------------------- September 30, -------------
1999 1998 1997 1999
------------- ------------- -------------------- -------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.......... $ 10.96 $ 12.86 $10.00 $ 11.00
----- ----- ----- -----
Income from investment operations
Net investment income......................... (.02) .06 .02 .09
Net realized and unrealized gain (loss) on
investment transactions.................... 2.66 (1.31) 2.86 2.69
----- ----- ----- -----
Total from investment operations........... 2.64 (1.25) 2.88 2.78
----- ----- ----- -----
Less distributions
Dividends from net investment income.......... (.01) (.03) (.02) (.07)
Distributions from net realized gains......... (.91) (.62) -- (.91)
----- ----- ----- -----
Total distributions........................ (.92) (.65) (.02) (.98)
----- ----- ----- -----
Net asset value, end of period................ $ 12.68 $ 10.96 $12.86 $ 12.80
----- ----- ----- -----
----- ----- ----- -----
TOTAL RETURN(c)............................... 24.98% (10.01)% 28.83% 26.31%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)............... $ 7,636 $ 7,124 $7,111 $ 4,263
Average net assets (000)...................... $ 7,702 $ 7,734 $5,631 $ 3,088
Ratios to average net assets:
Expenses, including distribution fees...... 2.05% 2.06% 2.33%(b) 1.05%
Expenses, excluding distribution fees...... 1.05% 1.06% 1.33%(b) 1.05%
Net investment income...................... (.19)% .46% .15%(b) .76%
Portfolio turnover rate....................... 111% 99% 55% 111%
<CAPTION>
November 7,
1996(a)
Through
September 30,
1998 1997
------------- -------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.......... $ 12.93 $ 10.00
----- -----
Income from investment operations
Net investment income......................... .17 .10
Net realized and unrealized gain (loss) on
investment transactions.................... (1.33) 2.92
----- -----
Total from investment operations........... (1.16) 3.02
----- -----
Less distributions
Dividends from net investment income.......... (.15) (.09)
Distributions from net realized gains......... (.62) --
----- -----
Total distributions........................ (.77) (.09)
----- -----
Net asset value, end of period................ $ 11.00 $ 12.93
----- -----
----- -----
TOTAL RETURN(c)............................... (9.31)% 30.30%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)............... $ 1,836 $ 609
Average net assets (000)...................... $ 1,374 $ 227
Ratios to average net assets:
Expenses, including distribution fees...... 1.06% 1.33%(b)
Expenses, excluding distribution fees...... 1.06% 1.33%(b)
Net investment income...................... 1.54% 1.15%(b)
Portfolio turnover rate....................... 99% 55%
</TABLE>
---------------
(a) Commencement of investment operations.
(b) Annualized.
(c) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
--------------------------------------------------------------------------------
See Notes to Financial Statements. 13
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH &
Report of Independent Accountants INCOME FUND
--------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
The Prudential Investment Portfolios, Inc.--
Prudential Jennison Growth & Income Fund:
November 17, 1999
--------------------------------------------------------------------------------
14
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth &
Income Fund
Portfolio of Investments as of March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C> <C>
------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS 94.4%
Common Stocks
-------------------------------------------------------------------------------------
Aerospace/Defense 6.0%
66,000 Litton Industries, Inc.(a) $ 2,916,375
95,900 Raytheon Co. 1,702,225
82,700 The B.F. Goodrich Co. 2,372,456
58,500 The Boeing Co. 2,219,344
--------------
9,210,400
-------------------------------------------------------------------------------------
Airlines 1.0%
49,200 AMR Corp. 1,568,250
-------------------------------------------------------------------------------------
Aluminum 2.4%
51,100 Alcan Aluminum, Ltd. 1,731,012
28,200 Reynolds Metals Co. 1,885,875
--------------
3,616,887
-------------------------------------------------------------------------------------
Apparel 1.5%
120,700 Polo Ralph Lauren Corp.(a) 2,255,581
-------------------------------------------------------------------------------------
Banking 3.0%
25,200 Chase Manhattan Corp. 2,197,125
63,200 FleetBoston Financial Corp. 2,306,800
--------------
4,503,925
-------------------------------------------------------------------------------------
Business Services 2.3%
75,700 Hertz Corp. 2,578,531
40,900 Ryder System, Inc. 927,919
--------------
3,506,450
Chemicals 4.2%
78,000 Cytec Industries, Inc.(a) 2,388,750
74,600 Dexter Corp. 3,953,800
--------------
6,342,550
-------------------------------------------------------------------------------------
Computers 2.0%
108,400 Diebold, Inc. 2,981,000
</TABLE>
See Notes to Financial Statements 9
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth &
Income Fund
Portfolio of Investments as of March 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Containers & Packaging 1.4%
249,300 Pactiv Corp.(a) $ 2,181,375
-------------------------------------------------------------------------------------
Data Processing & Reproduction 1.6%
145,400 Informix Corp.(a) 2,462,712
-------------------------------------------------------------------------------------
Drugs & Health Care 2.0%
5,900 ALZA Corp.(a) 221,619
52,000 American Home Products Corp. 2,788,500
--------------
3,010,119
-------------------------------------------------------------------------------------
Electronic Components 1.2%
51,100 Gentex Corp.(a) 1,893,894
-------------------------------------------------------------------------------------
Foods 0.5%
41,200 SUPERVALU, Inc. 780,225
-------------------------------------------------------------------------------------
Health Care Services 3.9%
117,000 Columbia/HCA Healthcare Corp. 2,961,562
209,900 Health Management Associates, Inc.(a) 2,991,075
--------------
5,952,637
-------------------------------------------------------------------------------------
Hotels 1.1%
223,908 Hilton Hotels Corp. 1,735,287
-------------------------------------------------------------------------------------
Human Resources 3.4%
77,900 Manpower, Inc. 2,765,450
50,900 Robert Half International, Inc.(a) 2,414,569
--------------
5,180,019
-------------------------------------------------------------------------------------
Industrial Technology/Instruments 2.5%
68,500 Millipore Corp. 3,865,969
-------------------------------------------------------------------------------------
Insurance 11.0%
43,500 CIGNA Corp. 3,295,125
91,200 John Hancock Financial Services(a) 1,647,300
120,200 The Allstate Corp. 2,862,263
88,800 The Hartford Financial Services Group, Inc. 4,684,200
77,300 XL Capital, Ltd. 4,280,487
--------------
16,769,375
</TABLE>
10 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth &
Income Fund
Portfolio of Investments as of March 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Media 1.3%
34,600 CBS Corp. $ 1,959,225
-------------------------------------------------------------------------------------
Medical Technology 0.8%
71,600 IMS Health, Inc. 1,212,725
-------------------------------------------------------------------------------------
Mining 1.4%
94,500 Newmont Mining Corp. 2,120,344
-------------------------------------------------------------------------------------
Motor Vehicles & Equipment 5.8%
58,800 Dana Corp. 1,657,425
63,400 General Motors Corp. 5,250,312
74,600 Snap-On, Inc. 1,953,587
--------------
8,861,324
-------------------------------------------------------------------------------------
Oil Services 3.9%
65,900 Diamond Offshore Drilling, Inc. 2,631,881
34,400 Triton Energy Corp.(a) 1,206,150
69,500 Unocal Corp. 2,067,625
--------------
5,905,656
-------------------------------------------------------------------------------------
Paper & Forest Products 5.6%
101,500 Boise Cascade Corp. 3,527,125
49,600 Bowater, Inc. 2,647,400
43,800 Champion International Corp. 2,332,350
--------------
8,506,875
-------------------------------------------------------------------------------------
Petroleum 6.8%
68,400 Anadarko Petroleum Corp. 2,646,225
69,500 Burlington Resources, Inc. 2,571,500
102,500 Tosco Corp. 3,119,844
80,400 USX - Marathon Group 2,095,425
--------------
10,432,994
-------------------------------------------------------------------------------------
Pharmaceuticals 0.7%
24,300 Vertex Pharmaceuticals, Inc.(a) 1,137,544
-------------------------------------------------------------------------------------
Photography/Image Technology 1.1%
73,400 Polaroid Corp. 1,743,250
</TABLE>
See Notes to Financial Statements 11
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth &
Income Fund
Portfolio of Investments as of March 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Publishing 4.1%
52,600 Knight-Ridder, Inc. $ 2,679,313
49,100 New York Times Co., Class A 2,108,231
38,900 Tribune Co. 1,422,281
--------------
6,209,825
-------------------------------------------------------------------------------------
Retail 4.2%
89,500 AutoZone, Inc.(a) 2,483,625
188,700 Kmart Corp.(a) 1,828,031
148,700 Saks, Inc.(a) 2,156,150
--------------
6,467,806
-------------------------------------------------------------------------------------
Semiconductors 2.2%
66,500 International Rectifier Corp.(a) 2,535,313
13,700 National Semiconductor Corp.(a) 830,563
--------------
3,365,876
-------------------------------------------------------------------------------------
Specialty Chemicals 2.3%
157,926 CK Witco Corp. 1,608,871
123,300 Engelhard Corp. 1,864,913
--------------
3,473,784
-------------------------------------------------------------------------------------
Steel & Metals 2.5%
155,200 USX-U.S. Steel Group 3,880,000
-------------------------------------------------------------------------------------
Telecommunications 0.7%
22,200 Panamsat Corp.(a) 1,089,188
--------------
Total long-term investments (cost $126,030,223) 144,183,071
--------------
</TABLE>
12 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth &
Income Fund
Portfolio of Investments as of March 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000) Description Value (Note 1)
-------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 6.3%
COMMERCIAL PAPER 2.0%
-------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C>
American Express Co.,
P-1 $ 3,110 6.20%, 4/3/00 (cost $3,110,000) $ 3,110,000
--------------
U.S. GOVERNMENT SECURITIES 4.3%
United States Treasury Bills
2,620(b) 5.22%, 4/6/00 2,615,897
3,465(b) 5.22%, 6/22/00 3,420,019
500(b) 5.67%, 6/22/00 493,509
--------------
Total U.S. government securities
(cost $6,529,689) 6,529,425
--------------
Total short-term investments
(cost $9,639,689) 9,639,425
--------------
Total investments before short
sales 100.7%
(cost $135,669,912; Note 4) 153,822,496
--------------
-------------------------------------------------------------------------------------------
COMMON STOCKS SOLD SHORT(a) (4.0%)
<CAPTION>
Shares Description
<C> <S> <C> <C>
------------------------------------------------------------------------------------------
Computer Systems/Peripherals (0.6%)
(12,000) Oracle Systems Corp. (936,750)
-------------------------------------------------------------------------------------
Electrical Power (0.7%)
(14,200) The AES Corp. (1,118,250)
-------------------------------------------------------------------------------------
Restaurants (0.8%)
(27,300) Starbucks Corp. (1,223,381)
-------------------------------------------------------------------------------------
Financial Services (1.9%)
(26,200) Nasdaq-100 Shares Trust
Unit Series 1 (2,872,175)
--------------
Total common stocks sold short
(proceeds at cost $5,698,505) (6,150,556)
--------------
Total investments, net of short sales 96.7%
(cost $129,971,407) 147,671,940
Other assets in excess of liabilities 3.3% 4,998,689
--------------
Net Assets 100% $ 152,670,629
--------------
--------------
</TABLE>
--------------------------------------------------------------------------------
(a) Non-income producing securities.
(b) $6,585,000 of principal amount pledged as collateral for short sales.
See Notes to Financial Statements 13
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth &
Income Fund
Statement of Assets and Liabilities (Unaudited)
<TABLE>
<CAPTION>
March 31, 2000
<S> <C> <C>
---------------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $135,669,912) $ 153,822,496
Cash 25,139
Receivable for investments sold 14,718,312
Due from broker for securities sold short 1,597,535
Receivable for Series shares sold 497,479
Dividends and interest receivable 83,012
Receivable for securities sold short 20,220
Deferred expenses and other assets 879
--------------
Total assets 170,765,072
--------------
LIABILITIES
Investments sold short, at value (proceeds $5,698,505) 6,150,556
Payable for investments purchased 10,741,572
Payable for Series shares reacquired 894,372
Accrued expenses and other liabilities 180,789
Distribution fees payable 90,842
Management fee payable 36,312
--------------
Total liabilities 18,094,443
--------------
NET ASSETS $ 152,670,629
--------------
--------------
Net assets were comprised of:
Common stock, at par $ 11,792
Paid-in capital in excess of par 126,719,637
--------------
126,731,429
Net operating loss (109,882)
Accumulated net realized gain on investments 8,348,549
Net unrealized appreciation on investments 17,700,533
--------------
Net assets, March 31, 2000 $ 152,670,629
--------------
--------------
</TABLE>
14 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth &
Income Fund
Statement of Assets and Liabilities (Unaudited) Cont'd.
<TABLE>
<CAPTION>
March 31, 2000
---------------------------------------------------------------------------------------
<S> <C> <C>
Class A:
Net asset value and redemption price per share ($41,389,801 /
3,174,082 shares of common stock issued and outstanding) $13.04
Maximum sales charge (5% of offering price) 0.69
--------------
Maximum offering price to public $13.73
--------------
--------------
Class B:
Net asset value, offering price and redemption price per
share ($94,092,338 / 7,294,431 shares of common stock
issued and outstanding) $12.90
--------------
--------------
Class C:
Net asset value and redemption price per share ($9,718,012 /
753,474 shares of common stock issued and outstanding) $12.90
Sales charge (1% of offering price) 0.13
--------------
Offering price to public $13.03
--------------
--------------
Class Z:
Net asset value, offering price and redemption price per
share ($7,470,478 / 569,809 shares of common stock issued
and outstanding) $13.11
--------------
--------------
</TABLE>
See Notes to Financial Statements 15
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth &
Income Fund
Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
March 31, 2000
<S> <C> <C>
----------------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Dividends (net of foreign withholding taxes of $5,833) $ 801,527
Interest 351,602
-----------------
Total income 1,153,129
-----------------
Expenses
Management fee 431,423
Distribution fee--Class A 48,108
Distribution fee--Class B 458,081
Distribution fee--Class C 42,513
Transfer agent's fees and expenses 109,000
Reports to shareholders 71,000
Custodian's fees and expenses 55,000
Registration fees 20,000
Legal fees and expenses 14,000
Audit fees and expenses 10,000
Directors' fees and expenses 3,800
Miscellaneous 86
-----------------
Total expenses 1,263,011
-----------------
Net investment income (loss) $ (109,882)
-----------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on:
Investment transactions 9,254,792
Options 149,842
-----------------
9,404,634
-----------------
Net change in unrealized appreciation/depreciation on
investments 8,984,123
-----------------
Net gain on investments 18,388,757
-----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $18,278,875
-----------------
-----------------
</TABLE>
16 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth &
Income Fund
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
March 31, 2000 September 30, 1999
<S> <C> <C> <C>
-----------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income (loss) $ (109,882) $ 12,304
Net realized gain on investment
transactions 9,404,634 16,757,829
Net change in unrealized
appreciation/depreciation on
investments 8,984,123 13,528,215
-------------- ------------------
Net increase in net assets resulting from
operations 18,278,875 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 (3,943,242) (2,540,009)
Class B (9,797,850) (6,978,474)
Class C (882,006) (586,830)
Class Z (469,949) (164,167)
-------------- ------------------
(15,093,047) (10,269,480)
-------------- ------------------
Series share transactions (net of share
conversions) (Note 5)
Net proceeds from shares sold 32,844,097 39,742,571
Net asset value of shares issued to
shareholders in reinvestment of
dividends and distributions 14,301,652 10,032,426
Cost of shares reacquired (38,749,300) (53,515,736)
-------------- ------------------
Net increase (decrease) in net assets
from Series share transactions 8,396,449 (3,740,739)
-------------- ------------------
Total increase 11,582,277 16,038,471
NET ASSETS
Beginning of period 141,088,352 125,049,881
-------------- ------------------
End of period $152,670,629 $141,088,352
-------------- ------------------
-------------- ------------------
</TABLE>
See Notes to Financial Statements 17
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth &
Income Fund
Notes to Financial Statements (Unaudited)
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 the Manager, in
consultation with the Subadviser, to be over-the-counter, are valued by an
independent pricing agent or principal market maker. Convertible debt securities
that are actively traded in the over-the-counter market, including listed
securities for which the primary market is believed by the Manager and the
Subadviser to be over-the-counter, are valued at the mean between the last
reported bid and asked prices provided by a principal market maker. Options on
securities and indices traded on an exchange are valued at the mean between the
most recently quoted bid and asked prices on such exchange. Futures contracts
and options thereon traded on a commodities exchange or board of trade are
valued at the last 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
18
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth &
Income Fund
Notes to Financial Statements (Unaudited) 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.
19
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth &
Income Fund
Notes to Financial Statements (Unaudited) Cont'd.
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.
Note 2. Agreements
The Fund has a management agreement with Prudential Investments Fund Management
LLC ('PIFM'). Pursuant to a subadvisory agreement between PIFM and Jennison
Associates LLC ('Jennison'), Jennison furnishes investment advisory services in
connection with the management of the 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 six months ended
March 31, 2000.
PIMS has advised the Series that it received approximately $40,900 and
$17,100 in front-end sales charges resulting from sales of Class A and C shares,
respectively, during the six months ended March 31, 2000. From these fees PIMS
20
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth &
Income Fund
Notes to Financial Statements (Unaudited) Cont'd.
paid such sales charges to affiliated broker-dealers, which in turn paid
commissions to salespersons and incurred other distribution costs.
PIMS has advised the Series that for the six months ended March 31, 2000,
it received approximately $138,800 and $1,100 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 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 six months ended March 31, 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 six months ended March 31, 2000,
the Series incurred fees of approximately $101,300 for the services of PMFS. As
of March 31, 2000, approximately $17,100 of such fees were due to PMFS. Transfer
agent fees and expenses in the Statement of Operations include certain
out-of-pocket expenses paid to nonaffiliates.
For the six months ended March 31, 2000, Prudential Securities
Incorporated ('PSI'), which is an indirect, wholly owned subsidiary of
Prudential, earned approximately $14,200 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 six months ended March 31, 2000 were $101,756,553 and $97,818,604,
respectively.
The cost basis of the investments for federal income tax purposes at March
31, 2000 is substantially the same for financial reporting purposes and,
accordingly, net unrealized appreciation of investments for federal income tax
purposes was
21
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth &
Income Fund
Notes to Financial Statements (Unaudited) Cont'd.
$17,700,533 (gross unrealized appreciation-$24,845,988; gross unrealized
depreciation--$7,145,455).
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>
Six months ended March 31, 2000:
Shares sold 1,279,498 $ 15,590,754
Shares issued in reinvestment of distributions 310,660 3,762,090
Shares reacquired (1,399,174) (17,066,163)
---------- ------------
Net increase in shares outstanding before conversion 190,984 2,286,681
Shares issued upon conversion from Class B 71,851 849,361
---------- ------------
Net increase in shares outstanding 262,835 $ 3,136,042
---------- ------------
---------- ------------
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 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 in shares outstanding 58,087 $ 845,596
---------- ------------
---------- ------------
</TABLE>
22
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth &
Income Fund
Notes to Financial Statements (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class B Shares Amount
---------------------------------------------------------- ---------- ------------
Six months ended March 31, 2000:
<S> <C> <C>
Shares sold 814,591 $ 9,853,432
Shares issued in reinvestment of distributions 767,278 9,215,013
Shares reacquired (1,470,417) (17,708,330)
---------- ------------
Net increase in shares outstanding before conversion 111,452 1,360,115
Shares reacquired upon conversion from Class A (72,524) (849,361)
---------- ------------
Net increase in shares outstanding 38,928 $ 510,754
---------- ------------
---------- ------------
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 decrease in shares outstanding before conversion (303,534) (3,918,474)
Shares reacquired upon conversion from Class A (174,767) (2,193,555)
---------- ------------
Net decrease in shares outstanding (478,301) (6,112,029)
---------- ------------
---------- ------------
<CAPTION>
Class C
----------------------------------------------------------
<S> <C> <C>
Six months ended March 31, 2000:
Shares sold 205,155 $ 2,489,579
Shares issued in reinvestment of distributions 72,045 865,263
Shares reacquired (125,683) (1,497,401)
---------- ------------
Net increase in shares outstanding 151,517 $ 1,857,441
---------- ------------
---------- ------------
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 decrease in shares outstanding (48,117) $ (540,321)
---------- ------------
---------- ------------
<CAPTION>
Class Z
----------------------------------------------------------
<S> <C> <C>
Six months ended March 31, 2000:
Shares sold 399,235 $ 4,910,332
Shares issued in reinvestment of distributions 37,770 459,286
Shares reacquired (200,160) (2,477,406)
---------- ------------
Net increase in shares outstanding 236,845 $ 2,892,212
---------- ------------
---------- ------------
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 in shares outstanding 166,136 $ 2,066,015
---------- ------------
---------- ------------
</TABLE>
23
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth &
Income Fund
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
Class A
----------------
Six Months Ended
March 31, 2000
----------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 12.76
----------------
Income from investment operations
Net investment income .02(d)
Net realized and unrealized gain (loss) on investment
transactions 1.62
----------------
Total from investment operations 1.64
----------------
Less distributions
Dividends from net investment income --
Distributions from net realized gains (1.36)
----------------
Total distributions (1.36)
----------------
Net asset value, end of period $ 13.04
----------------
----------------
TOTAL RETURN(c) 13.58%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $ 41,390
Average net assets (000) $ 38,486
Ratios to average net assets:
Expenses, including distribution fees 1.25%(b)
Expenses, excluding distribution fees 1.00%(b)
Net investment income .74%(b)
Portfolio turnover rate 76%
</TABLE>
------------------------------
(a) Commencement of investment operations.
(b) Annualized.
(c) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(d) Calculated based upon weighted average shares outstanding during the period.
24 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth &
Income Fund
Financial Highlights (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------------------------------
Year Ended September 30,
------------------------------------------ November 7, 1996(a)
1999 1998 Through September 30, 1997
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 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%
</TABLE>
See Notes to Financial Statements 25
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth &
Income Fund
Financial Highlights (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class B
----------------
Six Months Ended
March 31, 2000
----------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 12.68
--------
Income from investment operations
Net investment income (loss) (.02)(d)
Net realized and unrealized gain (loss) on investment
transactions 1.60
--------
Total from investment operations 1.58
--------
Less distributions
Dividends from net investment income --
Distributions from net realized gains (1.36)
--------
Total distributions (1.36)
--------
Net asset value, end of period $ 12.90
--------
--------
TOTAL RETURN(c) 13.17%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $ 94,093
Average net assets (000) $ 91,616
Ratios to average net assets:
Expenses, including distribution fees 2.00%(b)
Expenses, excluding distribution fees 1.00%(b)
Net investment income (.80)%(b)
</TABLE>
------------------------------
(a) Commencement of investment operations.
(b) Annualized.
(c) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(d) Calculated based upon weighted average shares outstanding during the period.
26 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth &
Income Fund
Financial Highlights (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class B
---------------------------------------------------------------------------------------
Year Ended September 30,
------------------------------------------ November 7, 1996(a)
1999 1998 through September 30, 1997
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 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)
</TABLE>
See Notes to Financial Statements 27
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth &
Income Fund
Financial Highlights (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class C
----------------
Six Months Ended
March 31, 2000
----------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 12.68
--------
Income from investment operations
Net investment income (loss) (.02)(d)
Net realized and unrealized gain (loss) on investment
transactions 1.60
--------
Total from investment operations 1.58
--------
Less distributions
Dividends from net investment income --
Distributions from net realized gains (1.36)
--------
Total distributions (1.36)
--------
Net asset value, end of period $ 12.90
--------
--------
TOTAL RETURN(c) 13.17%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $ 9,718
Average net assets (000) $ 8,503
Ratios to average net assets:
Expenses, including distribution fees 2.00%(b)
Expenses, excluding distribution fees 1.00%(b)
Net investment income (.76)%(b)
Portfolio turnover rate
</TABLE>
------------------------------
(a) Commencement of investment operations.
(b) Annualized.
(c) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(d) Calculated based upon weighted average shares outstanding during the period.
28 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth &
Income Fund
Financial Highlights (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class C
---------------------------------------------------------------------------------------
Year Ended September 30,
------------------------------------------ November 7, 1996(a)
1999 1998 through September 30, 1997
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
$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%
</TABLE>
See Notes to Financial Statements 29
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth &
Income Fund
Financial Highlights (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class Z
----------------
Six Months Ended
March 31, 2000
----------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 12.80
--------
Income from investment operations
Net investment income .04(d)
Net realized and unrealized gain (loss) on investment
transactions 1.63
--------
Total from investment operations 1.67
--------
Less distributions
Dividends from net investment income --
Distributions from net realized gains (1.36)
--------
Total distributions (1.36)
--------
Net asset value, end of period $ 13.11
--------
--------
TOTAL RETURN(c) 13.88%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $ 7,470
Average net assets (000) $ 5,203
Ratios to average net assets:
Expenses, including distribution fees 1.00%(b)
Expenses, excluding distribution fees 1.00%(b)
Net investment income 1.30%(b)
</TABLE>
------------------------------
(a) Commencement of investment operations.
(b) Annualized.
(c) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(d) Calculated based upon weighted average shares outstanding during the period.
30 See Notes to Financial Statements
<PAGE>
The Prudential Investment Portfolios, Inc. Prudential Jennison Growth &
Income Fund
Financial Highlights (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class Z
---------------------------------------------------------------------------------------
Year Ended September 30,
------------------------------------------ November 7, 1996(d)
1999 1998 through September 30, 1997
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
$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)
</TABLE>
See Notes to Financial Statements 31
<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
Bonds1 Securities2 Bonds3 Bonds4 Bonds5 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 shows the growth of a
This chart illustrates the hypothetical $10,000 investment
performance of major world stock made in the stocks representing the
markets for the period from S&P 500 stock index with and
December 31, 1985 through December without reinvested dividends.
31, 1999. It does not represent the
performance of any Prudential Capital Appreciation and
mutual fund. Reinvesting Dividends--$474,094
Capital Appreciation Only--$159,597
(1969-1999)
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 indices.
[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: Morgan Stanley Capital
International (MSCI) and Lipper
Inc. as of 12/31/98. 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.
[CHART APPEARS HERE]
------------------------------------------
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, incorporated by reference to
Exhibit 6(c) to the Registration Statement on Form N-14 (File No.
333-41790) filed via EDGAR on July 20, 2000.
(4) Subadvisory Agreement between the Registrant and The Prudential
Investment Corporation with respect to Prudential Active Balanced
Fund, incorporated by reference to Exhibit 5(d) to Post-Effective
Amendment No. 9 to the Registration Statement on Form N-1A (File No.
33-61997) filed via EDGAR on November 27, 1998.
(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) (1) Opinion and consent of Counsel, incorporated by reference to
Exhibit (i) 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.
(2) 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) Code of Ethics of the Registrant.*
(2) 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.*
----------
* Filed herewith.
** To be filed by amendment.
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
Stephen Pelletier Executive Vice Executive Vice President, PIFM
President
Judy A. Rice Executive Vice Executive Vice President, PIFM
President
Lynn M. Waldvogel Executive Vice Executive Vice President, PIFM
President
</TABLE>
(b) Jennison Associates LLC.
See "How the Fund is Managed--Investment Adviser" in the Prospectuses
constituting part 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, Senior Vice President, Prudential;
President, Chief President, Prudential Global Asset
Executive Officer Management Group, Prudential; Chairman of
and Director 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
Balanced 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 Small Company Fund, Inc., Prudential Special Money Market Fund,
Inc., Prudential Structured Maturity 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
Senior Vice President, Secretary and Chief
William V. Healey....... Legal Officer Assistant Secretary
John R. Strangfeld...... Advisory Board Member President and Director
</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, 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 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 28th day of
September, 2000.
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
/s/ John R. Strangfeld
-----------------------------------
(John R. Strangfeld, 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 September 28, 2000
--------------------------------- and Accounting Officer
Grace C. Torres
/s/ Saul K. Fenster Director September 28, 2000
---------------------------------
Saul K. Fenster
/s/ Delayne Dedrick Gold Director September 28, 2000
---------------------------------
Delayne Dedrick Gold
/s/ Robert F. Gunia Director September 28, 2000
---------------------------------
Robert F. Gunia
/s/ Douglas H. McCorkindale Director September 28, 2000
---------------------------------
Douglas H. McCorkindale
/s/ W. Scott McDonald, Jr. Director September 28, 2000
---------------------------------
W. Scott McDonald, Jr.
/s/ Thomas T. Mooney Director September 28, 2000
---------------------------------
Thomas T. Mooney
/s/ Stephen P. Munn Director September 28, 2000
---------------------------------
Stephen P. Munn
/s/ David R. Odenath, Jr. Director September 28, 2000
---------------------------------
David R. Odenath, Jr.
/s/ Richard A. Redeker Director September 28, 2000
---------------------------------
Richard A. Redeker
/s/ Robin B. Smith Director September 28, 2000
---------------------------------
Robin B. Smith
/s/ John R. Strangfeld President and Director September 28, 2000
---------------------------------
John R. Strangfeld
/s/ Louis A. Weil, III Director September 28, 2000
---------------------------------
Louis A. Weil, III
/s/ Clay T. Whitehead Director September 28, 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, incorporated by
reference to Exhibit 6(c) to the Registration Statement on Form
N-14 (File No. 333-41790) filed via EDGAR on July 20, 2000.
(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. 9 to the Registration Statement on
Form N-1A (File No. 33-61997) filed via EDGAR on November 27,
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.
(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)(1) Opinion and Consent of Counsel, incorporated by reference to
Exhibit (i) 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)(2) 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) Code of Ethics of the Registrant.*
(p)(2) 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.*
</TABLE>
----------
*Filed herewith.
**To be filed by amendment.
