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THE PRUDENTIAL INSTITUTIONAL FUND
MONEY MARKET FUND
PRUDENTIAL PLAZA
751 BROAD STREET
NEWARK, NEW JERSEY 07102-3777
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
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To Our Shareholders:
Notice is hereby given that a Special Meeting of Shareholders (Meeting) of
Money Market Fund (Money Market Fund), a portfolio of The Prudential
Institutional Fund, will be held at 9:00 a.m., eastern time, on September 6,
1996, at Prudential Plaza, 751 Broad Street, Newark, New Jersey 07102-3777, for
the following purposes:
1. To approve an Asset/Stock Exchange Agreement whereby all of the
assets of Money Market Fund will be transferred to Prudential MoneyMart
Assets, Inc. (MoneyMart Assets) in exchange solely for Class Z shares of
MoneyMart Assets and MoneyMart Assets' assumption of all of the
liabilities, if any, of Money Market Fund; and
2. To consider and act upon any other business as may properly come
before the Meeting or any adjournment thereof.
Only holders of shares of beneficial interest in Money Market Fund of record
at the close of business on July 12, 1996, are entitled to notice of and to vote
at this Meeting or any adjournment thereof.
S. JANE ROSE
SECRETARY
Dated: July 31, 1996
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE SIGN AND PROMPTLY
RETURN THE ENCLOSED PROXY IN THE ENCLOSED STAMPED SELF-ADDRESSED ENVELOPE.
IN ORDER TO AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION, WE ASK
YOUR COOPERATION IN MAILING IN YOUR PROXY PROMPTLY.
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PRUDENTIAL MONEYMART ASSETS, INC.
PROSPECTUS
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292-1025
(800) 225-1852
AND
THE PRUDENTIAL INSTITUTIONAL FUND--MONEY MARKET FUND
PROXY STATEMENT
PRUDENTIAL PLAZA
751 BROAD STREET
NEWARK, NEW JERSEY 07102-3777
(800) 225-1852
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The Prudential Institutional Fund (Institutional Fund) is an open-end,
diversified management investment company consisting of seven portfolios, one of
which is Money Market Fund (Money Market Fund). Prudential MoneyMart Assets,
Inc. (MoneyMart Assets) is an open-end, diversified management investment
company. Both Institutional Fund and MoneyMart Assets are managed by indirect,
wholly owned subsidiaries of The Prudential Insurance Company of America.
Institutional Fund is managed by Prudential Institutional Fund Management, Inc.
MoneyMart Assets is managed by Prudential Mutual Fund Management, Inc. The
investment objective of Money Market Fund is to seek to achieve high current
income, preservation of principal and maintenance of liquidity. The investment
objective of MoneyMart Assets is maximum current income consistent with
stability of capital and the maintenance of liquidity.
This Prospectus and Proxy Statement is being furnished to shareholders of
Money Market Fund in connection with the solicitation of proxies by
Institutional Fund's Board of Trustees for use at a special meeting of Money
Market Fund shareholders to be held on September 6, 1996, at 9:00 a.m., eastern
time, and at any adjournment thereof (Meeting). The primary purpose of the
Meeting is to vote on a proposed Asset/Stock Exchange Agreement (Agreement),
whereby MoneyMart Assets will acquire all of the assets of Money Market Fund and
assume all of the liabilities, if any, of Money Market Fund. If the Agreement is
approved by Money Market Fund's shareholders, and if an order of exemption from
certain provisions of the Investment Company Act of 1940 is received from the
Securities and Exchange Commission (SEC), all such shareholders will be issued
Class Z shares of MoneyMart Assets in exchange for the shares of Money Market
Fund held by them, and Money Market Fund will be terminated. Shareholders of
MoneyMart Assets are not being asked to vote on the Agreement.
This Prospectus and Proxy Statement sets forth concisely information about
MoneyMart Assets that prospective investors should know before investing.
Additional information contained in a Statement of Additional Information (SAI),
dated July 31, 1996, relating to the Agreement and including financial
statements, has been filed with the SEC, is incorporated herein by reference and
is available without charge upon request to the address or phone number shown
above for MoneyMart Assets. This Prospectus and Proxy Statement is accompanied
by the Prospectus of MoneyMart Assets--Class Z Shares, dated March 1, 1996. The
MoneyMart Assets SAI, dated March 1, 1996, has been filed with the SEC and is
incorporated by reference herein. A Prospectus for Institutional Fund, dated
February 1, 1996, including a May 30, 1996 Supplement thereto, and an SAI for
Institutional Fund dated February 1, 1996, also have been filed with the SEC and
are incorporated by reference herein. The MoneyMart Assets SAI is available
without charge upon request to MoneyMart Assets at the address or toll-free
phone number shown above. The Institutional Fund Prospectus and SAI are
available without charge upon request to Institutional Fund at the address or
toll-free phone number shown above.
AN INVESTMENT IN EITHER FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT EITHER FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
Investors are advised to read and retain this Prospectus and Proxy Statement
for future reference.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus and Proxy Statement is July 31, 1996.
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PRUDENTIAL MONEYMART ASSETS, INC.
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292-1025
THE PRUDENTIAL INSTITUTIONAL FUND--MONEY MARKET FUND
PRUDENTIAL PLAZA
751 BROAD STREET
NEWARK, NEW JERSEY 07102-3777
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PROSPECTUS AND PROXY STATEMENT DATED JULY 31, 1996
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SYNOPSIS
The following synopsis is a summary of certain information contained
elsewhere in this Prospectus and Proxy Statement and the Asset/Stock Exchange
Agreement (Agreement) and is qualified by reference to the more complete
information contained herein as well as in each of The Prudential Institutional
Fund (Institutional Fund)--Money Market Fund (Money Market Fund) Prospectus and
the enclosed Prudential MoneyMart Assets, Inc. (MoneyMart Assets) Prospectus.
(Money Market Fund and MoneyMart Assets sometimes are referred to herein
individually as a Fund and collectively as the Funds.) Shareholders should read
this entire Prospectus and Proxy Statement carefully.
GENERAL
This Prospectus and Proxy Statement is furnished by the Board of Trustees of
Institutional Fund in connection with the solicitation of proxies for use at a
Special Meeting of Shareholders of Money Market Fund (Meeting) to be held at
9:00 a.m., eastern time, on September 6, 1996 at Prudential Plaza, 751 Broad
Street, Newark, New Jersey 07102-3777, Institutional Fund's principal executive
office. The purpose of the Meeting is to approve or disapprove the Agreement,
pursuant to which all of the assets of Money Market Fund will be acquired by,
and all of the liabilities of Money Market Fund, if any, will be assumed by,
MoneyMart Assets, and to transact such other business as may properly come
before the Meeting or any adjournment thereof. The Agreement is attached to this
Prospectus and Proxy Statement as Appendix A. The transactions contemplated by
the Agreement are described herein and in summary provide that MoneyMart Assets
will acquire all of Money Market Fund's assets in exchange solely for Class Z
shares of MoneyMart Assets, and MoneyMart Assets' assumption of all of the
liabilities, if any, of Money Market Fund. The Class Z shares of MoneyMart
Assets thereafter will be distributed to the former shareholders of Money Market
Fund, and Money Market Fund will be terminated.
Approval of the Agreement requires the affirmative vote of a majority of
shares of Money Market Fund voted at the Meeting, provided a quorum is present.
Approval of the Agreement by the shareholders of MoneyMart Assets is not
required, and the Agreement is not being submitted for their approval.
THE PROPOSED REORGANIZATION AND LIQUIDATION
The Board of Trustees of Institutional Fund, on behalf of Money Market Fund,
and the Board of Directors of MoneyMart Assets (each, a Board) have approved the
Agreement, which provides for the transfer of all of the assets of Money Market
Fund to MoneyMart Assets in exchange solely for Class Z
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shares of MoneyMart Assets and the assumption by MoneyMart Assets of all of the
liabilities, if any, of Money Market Fund. If the Agreement is approved by Money
Market Fund shareholders, and if an order of exemption (Exemptive Order) from
certain provisions of the Investment Company Act of 1940 (Investment Company
Act) is received from the Securities and Exchange Commission (SEC), Class Z
shares of MoneyMart Assets will be distributed to shareholders of Money Market
Fund, and Money Market Fund will be terminated. (All of the foregoing
transactions are sometimes referred to herein as the Reorganization.) It is
expected that the Reorganization will become effective on or about September 20,
1996 (Closing Date). IF THE REORGANIZATION IS CONSUMMATED, EACH MONEY MARKET
FUND SHAREHOLDER WILL RECEIVE THE NUMBER OF FULL AND FRACTIONAL CLASS Z SHARES
OF MONEYMART ASSETS (ROUNDED TO THE THIRD DECIMAL PLACE) HAVING A VALUE EQUAL TO
THE VALUE OF SUCH SHAREHOLDER'S SHARES OF MONEY MARKET FUND AS OF THE CLOSING
DATE.
For the reasons set forth below under "--Reasons for the Proposed
Reorganization" and "The Proposed Transaction--Reasons for the Reorganization,"
the Board of Institutional Fund, including those Trustees who are not
"interested persons" (as that term is defined in the Investment Company Act) of
Institutional Fund or MoneyMart Assets (Independent Trustees), has determined
that the Reorganization is in the best interests of Money Market Fund and that
the interests of the existing shareholders of Money Market Fund will not be
diluted as a result of the Reorganization. The Board of MoneyMart Assets,
including those Directors who are not interested persons of Institutional Fund
or MoneyMart Assets (Independent Directors), similarly has determined that the
Reorganization is in the best interests of MoneyMart Assets and that the
interests of existing shareholders of MoneyMart Assets will not be diluted as a
result of the Reorganization. ACCORDINGLY, THE BOARD OF INSTITUTIONAL FUND
RECOMMENDS APPROVAL OF THE AGREEMENT.
REASONS FOR THE PROPOSED REORGANIZATION
The Board of Institutional Fund has concluded, based on information
presented by Money Market Fund's manager, Prudential Institutional Fund
Management, Inc. (PIFM), that the Reorganization is in the best interests of
Money Market Fund and its shareholders. The following are among the reasons for
the Reorganization:
- THE PRUDENTIAL INSURANCE COMPANY OF AMERICA (PRUDENTIAL) HAS CONSOLIDATED
ITS ASSET MANAGEMENT BUSINESS INTO ONE UNIT, THE MONEY MANAGEMENT GROUP. The
Money Management Group was formed in November 1995 as part of a major corporate
restructuring initiated by Arthur Ryan, Chairman and Chief Executive Officer of
Prudential. All of Prudential's money management businesses are part of this
group, which will develop products and manage assets for all of Prudential's
fee-based, marketable securities businesses, including mutual funds, annuities,
defined contribution and benefit plans, guaranteed products and retirement
administration.
One goal of The Money Management Group is to present one group of mutual
funds to the marketplace, I.E., a "brand" identity. Another goal is to achieve
cost savings. In light of these goals, The Money Management Group undertook a
broad review of the Prudential mutual fund family to see if any changes were
advisable. The consolidation of certain mutual funds that were substantially
similar appeared consistent with attaining the above stated goals, as well as
beneficial to the funds and shareholders involved.
- THE PROPOSED REORGANIZATION IS SUITABLE FOR EACH FUND BECAUSE A NUMBER OF
SIMILARITIES EXIST BETWEEN THEM. Each is an open-end, diversified management
investment company (or portfolio thereof). Each invests in high quality domestic
and U.S. dollar denominated foreign money market instruments maturing in 397
days or less. Both MoneyMart Assets and Money Market Fund seek to provide
investors
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with maximum/high current income consistent with stability of
capital/preservation of principal and the maintenance of liquidity. The
investment adviser for each Fund is The Prudential Investment Corporation (PIC),
a wholly owned subsidiary of Prudential.
Institutional Fund was created in 1992 to attract institutional investors
inclined to invest in mutual funds without sales charges, 12b-1 fees or service
fees, and Money Market Fund commenced investment operations as a portfolio
thereof on January 4, 1993. MoneyMart Assets began offering Class Z shares,
which are sold without sales charges, 12b-1 fees or service fees, on March 1,
1996. Although prospective purchasers of Class Z shares currently are limited to
participants in the PSI 401(k) Plan, an employee benefit plan sponsored by
Prudential Securities Incorporated (PSI), a wholly owned subsidiary of
Prudential, the MoneyMart Assets Board has authorized an expanded group of
prospective purchasers of Class Z shares, which includes those who are
shareholders of Money Market Fund. Certain institutional investors will be able
to invest directly in Class Z shares of MoneyMart Assets and realize the
economies of scale available from the pooling of assets of two similar
portfolios.
- AFTER IMPLEMENTATION OF THE AGREEMENT, THE FORMER SHAREHOLDERS OF MONEY
MARKET FUND AND THE SHAREHOLDERS OF MONEYMART ASSETS SHOULD BENEFIT FROM REDUCED
EXPENSES RESULTING FROM THE COMBINATION OF THE ASSETS OF THE TWO FUNDS. The
Reorganization would give MoneyMart Assets the opportunity to increase its
assets by acquiring securities consistent with its investment objective and
policies in exchange for the issuance of its Class Z shares. The Board of
Institutional Fund believes that the Reorganization may achieve certain
economies of scale that Money Market Fund cannot realize alone. The MoneyMart
Assets Board believes that MoneyMart Assets would realize the benefits of a
larger asset base in exchange for its shares, thereby making it more attractive
to retirement plans and other investors. In addition, the combination of Money
Market Fund and MoneyMart Assets would eliminate certain duplicative expenses,
such as Trustees'/ Directors' fees and those incurred in connection with
separate audits and the preparation of separate financial statements for each
Fund.
Although each Fund currently incurs different expenses, Prudential Mutual
Fund Management, Inc. (PMF) believes that if the proposed Reorganization is
consummated, the ratio of total operating expenses to average daily net assets
of MoneyMart Assets Class Z shares will be lower than the ratio currently
incurred by Money Market Fund without considering the effect of a subsidy of
Money Market Fund's operating expenses by PIFM. PIFM has agreed, until September
30, 1996, to bear any expenses that would cause the ratio of expenses to average
daily net assets of Money Market Fund to exceed .60%. This subsidy may be
terminated by PIFM at any time without notice and there can no assurance that
such subsidy will continue after September 30, 1996. In addition, if the
Reorganization is consummated, PMF has no intention to continue this expense
limitation after the Closing Date.
The ratios for Money Market Fund for the fiscal years ended September 30,
1995 and 1994, were .92% and .96%, respectively (without subsidy), and were each
.60% (with subsidy). These ratios for Money Market Fund's shares without subsidy
are greater than the ratios of total expenses to average net assets for the
Class Z shares of MoneyMart Assets, which is estimated at .563% based upon
expenses estimated to have been accrued if Class Z shares had been in existence
throughout the fiscal year ended December 31, 1995. See "Fees and
Expenses--Expense Ratios, Fee Waivers and Subsidy" below.
STRUCTURE OF MONEYMART ASSETS AND MONEY MARKET FUND
Institutional Fund is authorized to issue an unlimited number of shares of
beneficial interest. Each Money Market Fund share issued has a PRO RATA interest
in the assets of Money Market Fund and has no interest in the assets of any
other series of Institutional Fund. Money Market Fund bears its own liabilities
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and its proportional share of the general liabilities of Institutional Fund and
is not responsible for the liabilities of any other series of Institutional
Fund. Institutional Fund's Board is empowered by Institutional Fund's
Declaration of Trust and By-Laws to establish additional series and classes of
shares.
MoneyMart Assets is authorized to issue fifteen billion shares of common
stock, divided into two classes, designated Class A and Class Z, consisting of
13 billion and 2 billion authorized shares, respectively. Each class of shares
represents an interest in the same assets of MoneyMart Assets and is identical
in all respects except that (i) Class A shares are subject to distribution
and/or service fees, (ii) Class Z shares are not subject to any distribution
and/or service fees, (iii) each class has exclusive voting rights with respect
to its distribution and service plan, if any, and on any matter submitted to
shareholders that relates solely to its distribution arrangements 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 (iv) each
class has a different exchange privilege and (v) Class Z shares currently are
offered exclusively for sale to participants in the PSI 401(k) Plan. In
accordance with Money Mart Assets' Articles of Incorporation and Institutional
Fund's Declaration of Trust, each Board may authorize the creation of additional
series of shares, and classes within such series, with such preferences,
privileges, limitations and voting and dividend rights as the Board may
determine. Each share of each class of MoneyMart Assets is equal as to earnings,
assets and voting privileges, except as noted above, and each class bears the
expenses related to the distribution of its shares.
The Boards of Institutional Fund and MoneyMart Assets may increase or
decrease the number of authorized shares without shareholder approval. Shares of
each Fund, when issued, are fully paid, nonassessable, fully transferable and
redeemable at the option of the holder. Shares also are redeemable at the option
of each Fund under certain circumstances. There are no conversion, preemptive or
other subscription rights. In the event of liquidation of either Fund, each
share thereof is entitled to its portion of all of that Fund's assets after its
debt and expenses have been paid. Neither Fund's shares have cumulative voting
rights for the election of Directors/Trustees.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of MoneyMart Assets is maximum current income
consistent with stability of capital and the maintenance of liquidity. MoneyMart
Assets seeks to achieve this objective by investing primarily in a portfolio of
money market instruments maturing in thirteen months or less. There can be no
assurance that this objective will be achieved.
The types of instruments utilized in seeking to accomplish this objective
include:
1. U.S. Treasury bills and other obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
2. Obligations (including certificates of deposit and bankers'
acceptances) of (a) banks organized under the laws of the United States or
any state thereof (including foreign branches of such banks) or (b) U.S.
branches of foreign banks or (c) foreign banks and foreign branches thereof;
provided that such banks have, at the time of acquisition by MoneyMart
Assets of such obligations, total assets of not less than $1 billion or its
equivalent. The term "certificates of deposit" includes both Eurodollar
certificates of deposit, for which there is generally a market, and
Eurodollar time deposits, for which there is generally not a market.
"Eurodollars" are U.S. dollars deposited in banks outside the United States;
MoneyMart Assets invests in Eurodollar instruments of foreign and domestic
banks.
3. Commercial paper, variable amount demand master notes, bills, notes
and other obligations issued by a U.S. company, a foreign company or a
foreign government, its agencies or instrumentalities,
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maturing in thirteen months or less, denominated in U.S. dollars, and, at
the date of investment, rated at least AA or A-2 by Standard & Poor's
Ratings Services (S&P), a division of the McGraw Hill Companies, Aa or
Prime-2 by Moody's Investors Service, Inc. (Moody's) or AA or Duff 2 by Duff
& Phelps Credit Rating Co. (Duff and Phelps) or, if not rated, issued by an
entity having an outstanding unsecured debt issue rated at least AA or A-2
by S&P, Aa or Prime-2 by Moody's or AA or Duff 2 by Duff and Phelps. If such
obligations are guaranteed or supported by a letter of credit issued by a
bank, such bank (including a foreign bank) must meet the requirements set
forth in the preceding paragraph. If such obligations are guaranteed or
insured by an insurance company or other non-bank entity, such insurance
company or other non-bank entity must represent a credit of high quality, as
determined by the MoneyMart Assets investment adviser under the supervision
of MoneyMart Assets' Board.
In selecting commercial paper and other corporate obligations for investment
by MoneyMart Assets, the investment adviser considers ratings assigned by major
rating services, information concerning the financial history and condition of
the issuer and its revenue and expense prospects. The Board monitors the credit
quality of securities purchased for MoneyMart Assets' portfolio. If commercial
paper or another corporate obligation held by MoneyMart Assets is assigned a
lower rating or ceases to be rated, the investment adviser under the supervision
of the Board will promptly reassess whether that security presents minimal
credit risks and whether MoneyMart Assets should continue to hold the security
in its portfolio. If a portfolio security presents greater than minimal credit
risks or is in default, MoneyMart Assets will dispose of the security as soon as
reasonably practicable unless the Board determines that to do so is not in the
best interests of MoneyMart Assets and its shareholders.
MoneyMart Assets values portfolio securities at amortized cost in accordance
with Rule 2a-7 under the Investment Company Act. Accordingly, MoneyMart Assets
will limit its portfolio investments to those U.S. dollar denominated
instruments which present minimal credit risks and which are of "eligible
quality" as determined by MoneyMart Assets' investment adviser under the
supervision of the Board. "Eligible quality," for this purpose, means (i) a
security rated in one of the two highest rating categories by at least two major
rating agencies assigning a rating to the security or issuer (or, if only one
agency assigned a rating, that agency) or (ii) an unrated security deemed of
comparable quality by MoneyMart Assets' investment adviser under the supervision
of the Board. The purchase by MoneyMart Assets of a security of eligible quality
that is rated by only one rating agency or is unrated must be approved or
ratified by the Board.
As long as MoneyMart Assets utilizes the amortized cost method of valuation,
it also will comply with certain diversification requirements and will invest no
more than 5% of its total assets in "second-tier securities," with no more than
1% of its assets in any one issuer of a second-tier security. A "second-tier
security," for this purpose, is a security of eligible quality that does not
have the highest rating from at least two agencies assigning a rating to that
security or issuer (or, if only one agency assigned a rating, that agency) or an
unrated security that is deemed of comparable quality by MoneyMart Assets'
investment adviser. MoneyMart Assets also will maintain a dollar-weighted
average portfolio maturity of 90 days or less.
MoneyMart Assets also may enter into repurchase agreements; purchase
floating rate and variable rate obligations; and lend its portfolio securities.
In addition, MoneyMart Assets may hold up to 10% of its net assets in illiquid
securities.
Money Market Fund's investment objective is to seek to achieve high current
income, preservation of principal and maintenance of liquidity. To achieve its
objective, Money Market Fund invests in a diversified portfolio of high-quality
domestic and U.S. dollar-denominated foreign money market instruments that
present minimal credit risks and which, at the time of acquisition, are eligible
securities. Eligible securities
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include securities or issuers of securities rated in one of the two highest
credit categories for short-term debt obligations assigned by any two nationally
recognized statistical rating organizations (NRSROs), or by one NRSRO, if only
one has rated the money market securities (Requisite NRSROs) or, if unrated, are
of comparable investment quality. Money Market Fund will invest at least 95% of
its total assets in eligible securities that are rated within the highest rating
category for short-term debt obligations by the Requisite NRSROs or unrated
securities of comparable investment quality. Money Market Fund also may invest
up to 50% of the value of its total assets in U.S. dollar-denominated short-term
securities of foreign issuers.
The eligible money market securities in which Money Market Fund may invest
include: (i) short-term obligations of the U.S. Government, its agencies, and
instrumentalities; (ii) short-term obligations of banks and savings and loan
associations, including certificates of deposit, banker's acceptances, and time
deposits; (iii) short-term corporate obligations, including notes and bonds with
remaining maturities of 397 days or less; (iv) commercial paper (unsecured
promissory notes having maturities of 9 months or less) issued by corporations
and finance companies; (v) repurchase agreements; and (vi) U.S.
dollar-denominated obligations of foreign issuers. Certain of these money market
securities may have adjustable rates of interest with periodic demand features.
Money Market Fund will invest in eligible money market securities maturing
in 397 days or less and will maintain a dollar-weighted average portfolio
maturity of 90 days or less. Like MoneyMart Assets, Money Market Fund utilizes
the amortized cost method of valuation.
In order to invest uncommitted cash balances, maintain liquidity to meet
redemptions, or for additional income, Money Market Fund may (i) enter into
repurchase agreements, when-issued, delayed-delivery and forward commitment
transactions and (ii) lend its portfolio securities. Money Market Fund also may
hold up to 10% of the Fund's net assets in illiquid securities.
CERTAIN DIFFERENCES BETWEEN MONEYMART ASSETS AND MONEY MARKET FUND
While both Funds are similar in many respects, a number of differences
between them exist as well.
First, although the investment objectives of the Funds are substantially
similar, Money Market Fund seeks high current income and preservation of
principal and MoneyMart Assets seeks maximum current income consistent with
stability of capital; both Funds have as part of their objective the maintenance
of liquidity.
Second, their managers and their management fees are different. PIFM, whose
principal business address is 30 Scranton Office Park, Moosic, Pennsylvania
18507-1789, is the manager of Money Market Fund. PIFM was incorporated in May
1992 under the laws of the Commonwealth of Pennsylvania and is an indirect,
wholly owned subsidiary of Prudential. Money Market Fund pays PIFM a management
fee at the annual rate of .45 of 1% of Money Market Fund's average daily net
assets. PMF, whose principal business address is One Seaport Plaza, New York,
New York 10292-1025, is the manager of MoneyMart Assets. PMF was incorporated in
May 1987 under the laws of the State of Delaware and also is an indirect, wholly
owned subsidiary of Prudential. As of June 30, 1996, PMF served as the manager
or administrator to 60 investment companies, with aggregate assets of
approximately $52 billion. If the Reorganization is consummated, Money Market
Fund's assets will be transferred to MoneyMart Assets and will be managed by
PMF. MoneyMart Assets pays PMF a management fee at, after applicable
breakpoints, an annual rate of .30 of 1% of MoneyMart Assets' average daily net
assets.
Third, Money Market Fund may invest up to 50% of the value of its total
assets in U.S. dollar-denominated short-term securities of foreign issuers,
while there is no limit on the percentage of MoneyMart
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Assets' assets that may be invested in U.S. dollar-denominated short-term
securities of foreign issuers. Investment in foreign securities involves certain
considerations and risks that are not typically associated with investing in
U.S. Government securities and securities of domestic issuers. See "Principal
Risk Factors--Foreign Investments" below.
Fourth, Money Market Fund may borrow up to 20% of its total assets for
temporary, extraordinary or emergency purposes and MoneyMart Assets may borrow
up to 10% of its net assets for temporary or emergency purposes.
Fifth, although PIC is the investment adviser of both Funds, the portfolio
manager of each Fund is different. Joseph M. Tully, a managing director and
senior portfolio manager of Prudential Mutual Fund Investment Management, a unit
of PIC, is portfolio manager to MoneyMart Assets and is responsible for the
day-to-day management of its portfolio. Mr. Tully has managed MoneyMart Assets
since 1992. Mr. Tully heads the Money Market Desk, overseeing trading for all
$20 billion in Prudential's taxable and tax-exempt money market funds. Mr. Tully
joined PIC in 1987, having previously been employed by Merrill Lynch Asset
Management, Inc. as a portfolio manager and as a senior bank credit analyst.
Prior thereto, he served as an assistant national bank examiner for the Office
of the Comptroller of the Currency.
Thomas J. Piskula, a director of money markets and a senior portfolio
manager of Prudential Global Advisors, a unit of PIC, is portfolio manager to
Money Market Fund and is responsible for the day-to-day management of its
portfolio. Mr. Piskula has managed the Money Market Fund since early 1995. Mr.
Piskula oversees and supervises the investment of 41 portfolios, totalling
approximately $4.5 billion, utilizing all types of short-term strategies,
including futures, asset-backed securities and mortgages. Mr. Piskula joined PIC
in 1985, having previously been employed by Arthur Andersen & Company as a
Senior Consultant.
FEES AND EXPENSES
MANAGEMENT FEES. PIFM, the manager of Money Market Fund, is compensated
pursuant to a management agreement with Institutional Fund, at an annual rate of
.45 of 1% of Money Market Fund's average daily net assets. PMF, the manager of
MoneyMart Assets, is compensated pursuant to a management agreement with
MoneyMart Assets, at an annual rate of .50 of 1% of MoneyMart Assets' average
daily net assets up to $50 million and .30 of 1% of MoneyMart Assets' average
daily net assets in excess of $50 million. For the fiscal year ended September
30, 1995, Money Market Fund paid PIFM management fees at an annual rate of .45
of 1% of its average daily net assets. For the fiscal year ended December 31,
1995, MoneyMart Assets paid PMF management fees at an annual rate of .301 of 1%
of MoneyMart Assets' average daily net assets.
Under a subadvisory agreement between PIFM and PIC, PIC provides investment
subadvisory services for the management of Money Market Fund. Under a
subadvisory agreement between PMF and PIC, PIC provides investment subadvisory
services for the management of MoneyMart Assets. Each subadvisory agreement
provides that PIFM or PMF, as applicable, will reimburse PIC for its reasonable
costs and expenses in providing investment subadvisory services. PIFM and PMF
continue to have responsibility for all investment advisory services pursuant to
their respective management agreements and supervise PIC's performance of its
services.
DISTRIBUTION FEES. Prudential Retirement Services, Inc. (PRSI), 751 Broad
Street, Newark, New Jersey 07102, an affiliate of PIFM and a corporation
organized under the laws of the State of New Jersey, serves as the distributor
of Money Market Fund's shares. No distribution or service fees are paid to PRSI
by Money Market Fund.
8
<PAGE>
PSI, One Seaport Plaza, New York, New York 10292, serves as the distributor
of Class Z shares of MoneyMart Assets. PSI is a corporation organized under the
laws of the State of Delaware. No distribution or service fees are paid to PSI
by MoneyMart Assets' Class Z shares.
ADMINISTRATION FEES. Institutional Fund has entered into an administration,
transfer agency and service agreement (Administration Agreement) with PMF, which
provides that PMF will furnish to Money Market Fund such services as Money
Market Fund may require in connection with administration of its business
affairs. Under the Administration Agreement, Institutional Fund pays PMF a
monthly fee at an annual rate of .17% of the average daily net assets of
Institutional Fund up to $250 million and .15% of Institutional Fund's average
daily net assets in excess of $250 million. PMF also provides Money Market Fund
with transfer agent and dividend disbursing services for no additional fee
through its wholly owned subsidiary, Prudential Mutual Fund Services, Inc.
(PMFS), Raritan Plaza One, Edison, New Jersey 08837.
MoneyMart Assets incurs no separate fees for administrative services, but
does use PMFS to furnish transfer agent and dividend disbursing services.
MoneyMart Assets, pursuant to a Transfer Agency and Service Agreement, pays PMFS
an annual fee per shareholder account of $12.00, 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 $0.20. PMFS also is reimbursed for its
out-of-pocket expenses, including postage, stationery, printing, allocable
communications expenses and other costs. (During the fiscal year ended December
31, 1995, these fees and expenses represented an annual rate of approximately
.23% of MoneyMart Assets' average daily net assets.) Existing shareholders of
Money Market Fund will not be subject to the $2.00 manual establishment fee with
respect to any account established in connection with the Reorganization.
OTHER EXPENSES. Each Fund also pays certain other expenses in connection
with its operation, including accounting, custodian, reports to shareholders,
legal, audit and share registration expenses. Although the basis for calculating
these fees and expenses is the same for Money Market Fund and MoneyMart Assets,
the per share effect on shareholder returns is affected by their relative size.
Combining the Funds will eliminate duplication of certain expenses. For example,
only one annual audit of the combined Funds will be required rather than
separate audits of each Fund as currently required.
EXPENSE RATIOS, FEE WAIVERS AND SUBSIDY. PIFM and PMF each 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 Money Market Fund and MoneyMart Assets,
respectively. Fee waivers and expense subsidies may increase a Fund's yield and
total return. Any fee waiver or subsidy may be terminated at any time without
notice, after which a Fund's expenses may increase and its yield and total
return may be reduced. It is not anticipated that MoneyMart Assets' expenses
will be subject to any fee waiver or subsidy in the near future.
For its fiscal year ended September 30, 1995, total expenses stated as a
percentage of average net assets of Money Market Fund were .92% before reduction
of expenses by PIFM and .60% after reduction of expenses. For the six-month
period ended March 31, 1996, Money Market Fund's total expenses as a percentage
of average net assets would have been .86% (annualized). PIFM has agreed, until
September 30, 1996, to bear any expenses that would cause the ratio of expenses
payable by Money Market Fund to exceed .60%. Expenses paid or assumed by PIFM
are subject to recoupment by PIFM in later years, provided that (a) no
recoupment will be made, in any year, if it would result in Money Market Fund's
expense ratio exceeding .60%, (b) no recoupment will be made after December 31,
1996, and (c) no recoupment will be made after the Closing Date, if the
Reorganization is consummated.
9
<PAGE>
MoneyMart Assets commenced offering Class Z shares on March 1, 1996. For the
fiscal year ended December 31, 1995, total expenses stated as a percentage of
average net assets of the Class A shares of MoneyMart Assets were .688%; this
amount includes an annual distribution and service fee of .125% of the average
daily net assets of the Class A shares, a fee which is not paid by the Class Z
shares.
Each Fund's shareholder transaction expenses are shown below. Note that
Money Market Fund and MoneyMart Assets Class Z shareholder transaction expenses
are the same. THERE WILL NOT BE ANY SHAREHOLDER TRANSACTION FEE PAYABLE IN
CONNECTION WITH THE REORGANIZATION.
<TABLE>
<CAPTION>
MONEYMART ASSETS
MONEY MARKET FUND CLASS Z SHARES
--------------------- -------------------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load imposed on Purchases (as a percentage of offering
price)................................................................. None None
Maximum Sales Load or Deferred Sales Load imposed on Reinvested
Dividends.............................................................. None None
Deferred Sales Load (as a percentage of original purchase price or
redemption proceeds, whichever is lower)............................... None None
Redemption Fees......................................................... None None
Exchange Fee............................................................ None None
</TABLE>
Set forth below is a comparison of each Fund's operating expenses that, in
the case of Money Market Fund, are for the fiscal year ended September 30, 1995,
and in the case of MoneyMart Assets Class Z shares, are for the fiscal year
ended December 31, 1995. The ratios also are shown on a pro forma (estimated)
combined basis, giving effect to the Reorganization.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES MONEY MONEYMART
(AS A PERCENTAGE OF AVERAGE MARKET ASSETS PRO FORMA
NET ASSETS) FUND CLASS Z+ COMBINED
- ------------------------------ -------- ------------- ---------
<S> <C> <C> <C>
Management Fees............... .450% .301% .301%
Administration Fee............ .134 None None
12b-1 Fees.................... None None None
Other Expenses (Before
Reduction)................... .333 .262 .260
-------- ----- ---------
Total Fund Operating Expenses
(Before Reduction)........... .917% .563% .561%
-------- ----- ---------
-------- ----- ---------
Total Fund Operating Expenses
(After Reduction)............ .600%++
--------
--------
<FN>
- ------------------------------
+ MoneyMart Assets commenced offering Class Z shares on March 1, 1996. The
ratios for Class Z shares are based upon estimates of expenses expected to
have been incurred if Class Z shares had been in existence throughout the
fiscal year ended December 31, 1995.
++ In the interest of limiting the expenses of Money Market Fund, PIFM has
agreed, until September 30, 1996, to bear any expenses that would cause the
ratio of expenses payable by Money Market Fund to exceed .60%. If the
Reorganization is consummated, PMF will not continue this expense limitation
after the Closing Date. Expenses paid or assumed by PIFM are subject to
recoupment by PIFM in later years, provided that (a) no recoupment will be
made, in any year, if it would result in Money Market Fund's expense ratio
exceeding .60%, (b) no recoupment will be made after December 31, 1996 and
(c) no recoupment will be made after the Closing Date, if the Reorganization
is consummated.
</TABLE>
Set forth below is an example that shows the expenses that an investor in
the combined Fund would pay on a $1,000 investment, based upon the pro forma
ratios set forth above.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of
each time period............................................................ $ 6 $ 18 $ 31 $ 70
</TABLE>
10
<PAGE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose
of this table is to assist an investor in understanding the various types of
costs and expenses that an investor in the combined Fund will bear, whether
directly or indirectly.
PURCHASES AND REDEMPTIONS
Money Market Fund shares are offered exclusively to retirement programs and
arrangements (Programs) through their plan sponsors, to individual retirement
accounts (IRAs) and to certain institutional investors. Sponsors of a Program or
their agents are referred to as "Program Sponsor(s)," individual employees
participating in a Program are referred to as "Participant(s)," and individual
investors who separate from a Program are referred to as "Continuing
Participant(s)." Endowments, foundations, insurance companies and other
institutional investors are referred to as "Other Institutional Investors." The
term "shareholders" with respect to Money Market Fund refers to each or all of
these categories as well as to IRAs, as appropriate.
Shares of Money Market Fund may be purchased through a Program Sponsor's
recordkeeper or directly from PMFS. There is no minimum initial investment
requirement, and there are no sales charges associated with the purchase or
redemption of Money Market Fund shares. The purchase price for Money Market Fund
shares is the net asset value per share next determined following acceptance of
a purchase order by the Program Sponsor's recordkeeper or PMFS.
Class Z shares of MoneyMart Assets currently are offered exclusively to
Participants in PSI's 401(k) Plan. On or before the Closing Date, Class Z shares
will be made available through PSI, Pruco Securities Corporation (Prusec), an
affiliated broker/dealer, or directly from PMFS, at the net asset value per
share next determined after receipt of a purchase order by PMFS or PSI. Class Z
shares are available for purchase by (i) pension, profit sharing or other
employee benefit plans qualified under section 401 of the Internal Revenue Code
of 1986, as amended (Internal Revenue Code), deferred compensation and annuity
plans under sections 457 and 403(b)(7) of the Internal Revenue Code, and
non-qualified plans for which MoneyMart Assets is an available option (Benefit
Plans), provided such plans (in combination with other plans sponsored by the
same employer or group of related employers) have at least $50 million in
defined contribution assets; (ii) participants (other than Benefit Plans and
IRAs) in any fee-based program sponsored by PSI that includes mutual funds as
investment options and for which MoneyMart Assets is an available option; and
(iii) investors who are, or have executed a letter of intent to become,
shareholders of any series of Institutional Fund on or before the Closing Date
or who on that date have investments in certain products for which Institutional
Fund provides exchangeability. After a Benefit Plan qualifies to purchase Class
Z shares, all subsequent purchases will be for Class Z shares. There are no
sales charges associated with the purchase or redemption of the MoneyMart Assets
Class Z shares.
Shares of each Fund may be redeemed at any time at the net asset value next
determined after the Program Sponsor's recordkeeper in the case of Money Market
Fund, or PSI or PMFS in the case of MoneyMart Assets, receives the redemption
request in proper form. No sales charges will be imposed in connection with the
Reorganization.
EXCHANGE PRIVILEGES
Shareholders of Money Market Fund have an exchange privilege with other
available funds (depending upon the provisions of the Program) by request
through the Program's recordkeeper at the net asset value next determined after
receipt by PMFS or the Program Sponsor's recordkeeper of an exchange request in
11
<PAGE>
good order. Exchanges of Money Market Fund shares currently are permitted at no
charge, subject to any minimum investment requirements or any general
limitations of the fund into which an exchange is sought. Currently, there are
no such requirements or limitations.
Class Z shareholders of MoneyMart Assets have an exchange privilege with
Class Z shares of certain other mutual funds for which PMF serves as manager or
administrator (Prudential Mutual Funds) subject to the minimum investment
requirements of such funds. Class Z shares of MoneyMart Assets may be exchanged
for Class Z shares of another Prudential Mutual Fund on the basis of relative
net asset value. No sales charge will be imposed at the time of exchange.
An exchange of shares of either Fund for shares of another Prudential Mutual
Fund is treated as a redemption of Fund shares and purchase of the other fund's
shares for tax purposes. Each Fund's exchange privilege may be modified or
terminated at any time on sixty days' notice.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund declares daily and pays monthly dividends from net investment
income and, in the case of Money Market Fund, net short-term capital gains.
Shareholders of MoneyMart Assets may receive dividends and other distributions
in cash or in additional shares of the Fund. Shareholders of Money Market Fund
receive dividends and other distributions in additional shares of the Fund. A
Money Market Fund shareholder will continue to receive dividends and
distributions in additional shares of MoneyMart Assets with respect to MoneyMart
Assets shares he or she receives pursuant to the Reorganization.
FEDERAL INCOME TAX CONSEQUENCES OF THE PROPOSED REORGANIZATION
Because of an anticipated redemption or exchange of certain shares of Money
Market Fund held by Prudential in connection with the proposed Reorganization,
it will not constitute a tax-free reorganization and instead will constitute a
taxable sale of assets by Money Market Fund followed by its dissolution.
However, it is the assessment of PIFM/PMF that only minimal (or no) gain or loss
will be recognized to Money Market Fund or its shareholders as a result of the
proposed Reorganization. See "The Proposed Transaction--Federal Income Tax
Considerations" below.
PRINCIPAL RISK FACTORS
Because the Funds' investment objectives and policies are substantially
similar and because the Funds are managed by the same investment adviser, the
Funds will be subject to similar investment risks. These risks are those
typically associated with investing in a money market fund. AN INVESTMENT IN
EITHER FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT AND THERE
CAN BE NO ASSURANCE THAT EITHER FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE.
STABLE NET ASSET VALUE
It is anticipated that the net asset value of each Fund will remain constant
at $1.00 per share, although this cannot be assured. In order to maintain such
constant net asset value, each Fund will value its portfolio securities at
amortized cost. While this method provides certainty in valuation, it may result
in periods during which the value of a security in a Fund's portfolio, as
determined by amortized cost, is higher or lower than the price the Fund would
receive if it sold such security.
FOREIGN INVESTMENTS
Money Market Fund may invest up to 50% of its assets, and MoneyMart Assets
may invest an unlimited amount of its assets, in short-term U.S.
dollar-denominated securities of foreign issuers, which involve
12
<PAGE>
additional risks and considerations not typically associated with investing in
U.S. Government securities and securities of domestic issuers. Investments in
obligations of foreign issuers may be subject to certain risks, including future
political and economic developments, the possible imposition of withholding
taxes on interest income, the seizure or nationalization of foreign deposits and
other restrictions. In addition, there may be less publicly available
information about foreign issuers than about domestic issuers and foreign
issuers generally are not subject to the same accounting, auditing and financial
recordkeeping standards and requirements as domestic issuers. Investment in
foreign securities also involves currency risk, I.E., the risk that shifts in
foreign exchange rates may lessen the dollar value of international investments.
In the event of a default with respect to any foreign debt obligations, it may
be more difficult for a Fund to obtain or enforce a judgment against the issuer
of such securities.
BORROWING
MoneyMart Assets may borrow up to 10% of the value of its net assets for
temporary or emergency purposes. Money Market Fund may borrow up to 20% of the
value of its total assets for temporary, extraordinary or emergency purposes. In
addition, Money Market Fund may engage in investment techniques such as reverse
repurchase agreements, forward rolls and dollar rolls to the extent that the
assets dedicated to such techniques combined with the value of its bank
borrowings do not exceed 20% of its net assets. Borrowing creates an opportunity
for increased net income but at the same time, creates risks, including the fact
that leverage may exaggerate rate of change in the yield on a Fund.
ANNUAL MEETING OF MONEYMART ASSETS SHAREHOLDERS
It is anticipated that an annual meeting of MoneyMart Assets shareholders
will be held in October 1996. It is intended that at such meeting MoneyMart
Assets shareholders will consider: (i) electing MoneyMart Assets' Board
(information on the nominated slate of Directors for MoneyMart Assets is
attached hereto as Appendix B); (ii) changing MoneyMart Assets' fundamental
investment restriction No. 10, which addresses investments in securities issued
by unseasoned issuers, to a non-fundamental investment policy; (iii) amending
MoneyMart Assets' Articles of Incorporation to reduce the par value of its
common stock from $.10 per share to $.001 per share; and (iv) ratifying the
Board's selection of Deloitte & Touche LLP as MoneyMart Assets' independent
public accountants.
Approval of these proposals by the shareholders of MoneyMart Assets is not a
condition to completion of the Reorganization. Only MoneyMart Assets'
shareholders of record on August 9, 1996, will be entitled to vote on the above
proposals. There can be no assurance that any or all of these proposals will be
approved by the shareholders of MoneyMart Assets.
THE PROPOSED TRANSACTION
ASSET/STOCK EXCHANGE AGREEMENT
The terms and conditions under which the Reorganization may be consummated
are set forth in the Agreement. Significant provisions of the Agreement are
summarized below; however, this summary is qualified in its entirety by
reference to the Agreement, a copy of which is attached as Appendix A to this
Prospectus and Proxy Statement.
The Agreement contemplates (i) MoneyMart Assets acquiring all of the assets
of Money Market Fund in exchange solely for Class Z shares of MoneyMart Assets
and the assumption by MoneyMart Assets of all
13
<PAGE>
of Money Market Fund's liabilities, if any, as of the Closing Date, (ii) the
constructive distribution on the Closing Date of such Class Z shares to the
shareholders of Money Market Fund and (iii) the termination of Money Market
Fund.
The assets of Money Market Fund to be acquired by MoneyMart Assets shall
include, without limitation, all cash, cash equivalents, securities, receivables
(including interest and dividends receivable) and other property of any kind
owned by Money Market Fund and any deferred or prepaid expenses shown as assets
on the books of Money Market Fund on the Closing Date. MoneyMart Assets will
assume from Money Market Fund all debts, liabilities, obligations and duties of
Money Market Fund of whatever kind or nature; provided, however, that Money
Market Fund will utilize its best efforts, to the extent practicable, to
discharge all of its known debts, liabilities, obligations and duties prior to
the Closing Date. MoneyMart Assets will deliver to Money Market Fund Class Z
shares of MoneyMart Assets, which Money Market Fund will then distribute to its
shareholders.
The value of Money Market Fund's assets to be acquired and the amount of its
liabilities to be assumed by MoneyMart Assets and the net asset value of a Class
Z share of MoneyMart Assets will be determined as of 4:30 p.m., New York time,
on the Closing Date in accordance with the valuation procedures specified in the
respective Fund's then-current Prospectus and Statement of Additional
Information. Securities and other assets and liabilities for which market
quotations are not readily available will be valued at fair value as determined
in good faith under procedures established by Institutional Fund's and MoneyMart
Assets' respective Boards.
As soon as practicable after the Closing Date, Money Market Fund will
distribute PRO RATA to its shareholders of record, determined as of the close of
business on the Closing Date, the Class Z shares of MoneyMart Assets received by
Money Market Fund in exchange for such shareholders' shares of Money Market
Fund. Such distribution will be accomplished by opening accounts on the books of
MoneyMart Assets in the names of Money Market Fund shareholders and by
transferring thereto Class Z shares of MoneyMart Assets previously credited to
the account of Money Market Fund on those books. Each shareholder account shall
be credited with the respective PRO RATA number of MoneyMart Assets Class Z
shares due to the shareholder in whose name the account is established.
Fractional shares of MoneyMart Assets will be rounded to the third decimal
place.
Accordingly, every shareholder of Money Market Fund will own Class Z shares
of MoneyMart Assets immediately after the Reorganization that, except for
rounding, will have a total value equal to the value of that shareholder's
shares of Money Market Fund immediately prior to the Reorganization. Moreover,
because Class Z shares of MoneyMart Assets will be issued at net asset value in
exchange for net assets of Money Market Fund that, except for rounding, will
have a value equal to the aggregate value of those shares, the net asset value
per Class Z share of MoneyMart Assets will be unchanged. Thus, the
Reorganization will not result in a dilution of the value of any shareholder
account. However, as a result of the Reorganization, the percentage of ownership
interest of each former Money Market Fund shareholder in the combined Fund will
be no less than such shareholder's current percentage of ownership in Money
Market Fund because, while the shareholder will have the same dollar amount
invested initially in MoneyMart Assets that it had invested in Money Market
Fund, its investment will represent a smaller percentage of the combined net
assets of the two Funds.
Any transfer taxes payable upon issuance of shares of MoneyMart Assets in a
name other than that of the registered holder of the shares on the books of
Money Market Fund as of the time of transfer shall be paid by the person to whom
such shares are to be issued as a condition of such transfer. Any reporting
responsibility of Money Market Fund will continue to be its responsibility up to
and including the Closing Date and such later date on which it is terminated.
14
<PAGE>
The consummation of the Reorganization is subject to a number of conditions
set forth in the Agreement, some of which may be waived by either Board.
Consummation of the Reorganization also is conditioned upon the SEC's issuance
of the Exemptive Order and certain tax considerations discussed in the
Agreement. The Agreement may be terminated and the Reorganization abandoned at
any time, prior to the Closing Date, before or after approval by the
shareholders of Money Market Fund. In addition, the Agreement may be amended in
any mutually agreeable manner, except that subsequent to the Meeting no
amendment may be made that would detrimentally affect the value of MoneyMart
Assets shares to be distributed.
REASONS FOR THE REORGANIZATION
The Board of Institutional Fund, including a majority of its Independent
Trustees, has determined that the interests of Money Market Fund shareholders
will not be diluted as a result of the proposed Reorganization and that the
proposed Reorganization is in the best interests of Money Market Fund. In
addition, the Board of MoneyMart Assets, including a majority of its Independent
Directors, has determined that the interests of MoneyMart Assets shareholders
will not be diluted as a result of the proposed Reorganization and that the
proposed Reorganization is in the best interests of MoneyMart Assets.
The reasons for the proposed Reorganization are summarized above under
"Synopsis--Reasons for the Proposed Reorganization." The Boards of Institutional
Fund and MoneyMart Assets based their decision to approve the Agreement on an
inquiry into a number of factors, including the following:
(1) the compatibility of the investment objectives, policies and
restrictions of the Funds;
(2) the relative past and current growth in assets and investment
performance and future prospects of each Fund;
(3) the anticipated effect of the Reorganization on the expense ratios
of each Fund;
(4) the costs of the Reorganization, which will be paid for by each Fund
in proportion to its respective net asset level; and
(5) the potential benefits to the shareholders of each Fund.
If the Agreement is not approved by Money Market Fund shareholders, the
Institutional Fund Board may consider other appropriate action, such as the
liquidation of Money Market Fund or a merger or other business combination with
an investment company other than MoneyMart Assets.
DESCRIPTION OF SECURITIES TO BE ISSUED
Class Z shares of MoneyMart Assets will be issued to Money Market Fund
shareholders on the Closing Date. MoneyMart Assets is authorized to issue 2
billion shares of Class Z common stock, $.10 par value per share. Each Class Z
share represents an equal and proportionate interest in the same assets of
MoneyMart Assets. For further discussion of MoneyMart Assets Class Z shares, see
"Synopsis -- Structure of MoneyMart Assets and Money Market Fund" above.
FEDERAL INCOME TAX CONSIDERATIONS
PMF/PIFM and Institutional Fund believe that the Reorganization will be
treated for federal income tax purposes as a taxable transaction for the
following reasons. As of March 31, 1996, approximately 26.2 million (or 40%) of
Money Market Fund's outstanding shares were owned by Prudential. It is likely
that Prudential will redeem or exchange all or a significant portion of these
shares either prior to or shortly after the Reorganization. Because of this
anticipated redemption or exchange of at least a significant portion of
15
<PAGE>
Money Market Fund's shares in connection with the Reorganization, PMF/PIFM and
Institutional Fund believe that the Reorganization will not qualify for federal
income tax purposes as a tax-free reorganization and instead will be treated for
those purposes as a taxable sale of assets by Money Market Fund to MoneyMart
Assets, followed by the dissolution of Money Market Fund. Such treatment will
have the following effects:
(1) Money Market Fund's distribution of MoneyMart Assets Class Z shares
to its shareholders will be treated as a distribution in liquidation of
Money Market Fund, and each Money Market Fund shareholder may recognize gain
or loss on that distribution, depending on whether the shareholder's tax
basis for its Money Market Fund shares is less than, is equal to or exceeds
the fair market value of the MoneyMart Assets Class Z shares received by the
shareholder (Internal Revenue Code sections 331(a) and 1001);
(2) Gain or loss may be recognized to Money Market Fund on the transfer
to MoneyMart Assets of its assets in exchange for MoneyMart Assets Class Z
shares and MoneyMart Assets' assumption of Money Market Fund's liabilities,
depending on whether Money Market Fund's aggregate tax basis for the assets
is less than, is equal to or exceeds the sum of the fair market value of the
MoneyMart Assets Class Z shares it receives and the amount of the
liabilities assumed by MoneyMart Assets (Internal Revenue Code section
1001);
(3) Except to the extent the MoneyMart Assets Class Z shares appreciate
or depreciate in value in Money Market Fund's hands prior to distribution
thereof to Money Market Fund's shareholders, no gain or loss will be
recognized to Money Market Fund on the subsequent distribution of the
MoneyMart Assets Class Z shares to Money Market Fund's shareholders in
constructive exchange for their Money Market Fund shares (Internal Revenue
Code section 336(a));
(4) No gain or loss will be recognized to MoneyMart Assets on its
receipt of the transferred assets in exchange for its shares and its
assumption of Money Market Fund's liabilities (Internal Revenue Code section
1032(a));
(5) MoneyMart Assets' aggregate tax basis for the transferred assets
will be equal to the sum of the fair market value of the MoneyMart Assets
Class Z shares exchanged for the transferred assets plus the amount of the
liabilities assumed by MoneyMart Assets, and MoneyMart Assets' holding
period for those assets will begin on the day after the Closing Date
(Internal Revenue Code sections 1012 and 1223); and
(6) A Money Market Fund shareholder's basis for the MoneyMart Assets
Class Z shares to be received by it in the Reorganization will be the fair
market value of those shares on the date of distribution, and its holding
period for those shares will begin on the following day (Internal Revenue
Code sections 1012 and 1223).
Shareholders of Money Market Fund should consult their tax advisers
regarding the effect of the Reorganization in light of their individual
circumstances. Because the foregoing discussion only relates to the federal
income tax consequences of the Reorganization, those shareholders also should
consult their tax advisers as to state and local tax consequences, if any, of
the Reorganization.
16
<PAGE>
CERTAIN COMPARATIVE INFORMATION ABOUT MONEYMART ASSETS AND INSTITUTIONAL FUND
ORGANIZATION. MoneyMart Assets is a Maryland corporation, and the rights of
its shareholders are governed by its Articles of Incorporation, its By-Laws and
applicable Maryland law. Institutional Fund is a Delaware business trust, and
the rights of its shareholders are governed by its Declaration of Trust, its By-
Laws and applicable Delaware law.
CAPITALIZATION. MoneyMart Assets is authorized to issue 15 billion shares
of common stock, par value $.10 per share. MoneyMart Assets' shares currently
are divided into two classes, designated Class A and Class Z, with 13 billion
Class A shares and 2 billion Class Z shares authorized. Institutional Fund's
Declaration of Trust authorizes the Board to issue an unlimited number of full
and fractional shares of beneficial interest, par value $.001 per share. Money
Market Fund offers one class of shares.
In addition, the Board of Institutional Fund and MoneyMart Assets may
reclassify unissued shares to authorize additional classes and series of shares
having terms and rights determined by the respective Board, without shareholder
approval.
SHAREHOLDER MEETINGS AND VOTING RIGHTS. Generally, neither Fund is required
to hold annual meetings of its shareholders. Each Fund is required to call a
meeting of shareholders for the purpose of voting upon the question of removal
of a Trustee/Director when requested in writing to do so by the holders of at
least 10% of the Fund's outstanding shares entitled to vote. In addition, each
Fund is required to call a meeting of shareholders for the purpose of electing
Trustees/Directors if, at any time, less than a majority of the
Trustees/Directors holding office at the time was elected by shareholders.
Shareholders of Institutional Fund are entitled to vote on all matters
submitted to a vote of its shareholders under its Declaration of Trust, which
includes the power to vote (i) for the election or removal of Trustees as
provided in the Declaration of Trust, and (ii) with respect to such additional
matters relating to Institutional Fund as may be required by applicable law, the
Declaration of Trust, its By-Laws or any registration of Institutional Fund with
the SEC (or any successor agency) or any state, or as the Board may consider
necessary or desirable. Each whole share is entitled to one vote as to any
matter on which it is entitled to vote and each fractional share is entitled to
a proportionate fractional vote.
Shareholders of MoneyMart Assets are entitled to vote upon such matters as
may be required by law, the Articles of Incorporation or its By-Laws or as the
Board may consider necessary or desirable. MoneyMart Assets' shareholders also
vote upon changes in fundamental investment policies or restrictions.
MoneyMart Assets' By-Laws provide that a majority of the outstanding shares
shall constitute a quorum for the transaction of business at a shareholders'
meeting. Institutional Fund's Declaration of Trust states that, except when a
larger quorum is required by applicable law, by Institutional Fund's By-Laws or
by the Declaration of Trust, forty percent (40%) of the shares entitled to vote
at a shareholder meeting shall constitute a quorum for the transaction of
business at a shareholders' meeting.
SHAREHOLDER LIABILITY. Under Maryland law, shareholders of MoneyMart Assets
have no personal liability for MoneyMart Assets' acts or obligations. Under
Delaware law, Money Market Fund's shareholders similarly have no personal
liability as such for Money Market Fund's acts or obligations.
LIABILITY AND INDEMNIFICATION OF TRUSTEES/DIRECTORS. Under MoneyMart
Assets' Articles of Incorporation and Maryland law, a Director or officer of the
Fund is not liable to MoneyMart Assets or its shareholders for monetary damages
for breach of fiduciary duty as a Director or officer, except to the extent such
exemption from liability or limitation thereof is not permitted by law,
including the Investment
17
<PAGE>
Company Act. Under MoneyMart Assets' By-Laws, a Director shall be indemnified
against judgments, fines, settlements and expenses to the fullest extent
authorized and in the manner permitted by applicable federal and state law.
Generally, under Institutional Fund's Declaration of Trust and Delaware law, no
Trustee or officer of Institutional Fund shall be liable to the Money Market
Fund or its shareholders for any action or failure to act except solely for his
or her own bad faith, willful misfeasance, gross negligence or reckless
disregard of his or her duties and is not liable for errors of judgment or
mistakes.
Under the Investment Company Act, a Director/Trustee may not be protected
against liability to a Fund and its security holders to which he or she would
otherwise be subject as a result of his or her willful misfeasance, bad faith or
gross negligence in the performance of his or her duties, or by reason of
reckless disregard of his or her obligations and duties. The staff of the SEC
interprets the Investment Company Act to require additional limits on
indemnification of Directors/Trustees and officers.
The foregoing is only a summary of certain differences between Institutional
Fund, its Declaration of Trust, its By-Laws and Delaware law, and MoneyMart
Assets, its Articles of Incorporation, its By-Laws and Maryland law.
PRO FORMA CAPITALIZATION AND RATIOS
The following table shows the capitalization of Money Market Fund and
MoneyMart Assets (Class Z) as of March 31, 1996 and the pro forma combined
capitalization of both Funds as if the Reorganization had occured on that date.
<TABLE>
<CAPTION>
MONEY
MARKET MONEYMART PRO FORMA
FUND ASSETS--CLASS Z* COMBINED
-------- ---------------- ---------
<S> <C> <C> <C>
Net Assets (000)........................ $59,930 $ 88,683 $148,613
Net Asset Value per share............... $1.00 $1.00 $1.00
Shares Outstanding (000)................ 59,930 88,683 148,613
</TABLE>
- ------------------------------
* Class Z shares commenced being offered on March 1, 1996.
The following table shows the ratio of expenses to average net assets and
the ratio of net investment income to average net assets of Money Market Fund
for the fiscal year ended September 30, 1995, and of MoneyMart Assets for the
year ended December 31, 1995. The ratios also are shown on a pro forma combined
basis, assuming the Reorganization occurs on or about September 20, 1996.
<TABLE>
<CAPTION>
MONEY PRO
MARKET MONEYMART FORMA
FUND ASSETS--CLASS Z(a) COMBINED
-------- ------------------ --------
<S> <C> <C> <C>
Ratio of expenses to average net assets
(b).................................... .60% .56% .56%
Ratio of net investment income to
average net assets..................... 5.37% 5.51% 5.51%
</TABLE>
- ------------------------------
(a) Class Z shares commenced being offered on March 1, 1996. The ratios for
Class Z shares of MoneyMart Assets are based upon information for the Class
A shares, after eliminating the distribution and service fee.
(b) Through a period scheduled to end on September 30, 1996, PIFM voluntarily
reimburses Money Market Fund for any expenses in excess of .60% of average
net assets. Absent such reimbursement, the ratio of expenses to average net
assets would be .92%. If the Reorganization is consummated, PMF will not
continue this expense limitation after the Closing Date.
INFORMATION ABOUT MONEYMART ASSETS
FINANCIAL INFORMATION
For condensed financial information for MoneyMart Assets, see "Financial
Highlights" in the MoneyMart Assets Prospectus, which accompanies this
Prospectus and Proxy Statement.
18
<PAGE>
GENERAL
For a discussion of the organization, classification and sub-classification
of MoneyMart Assets, see "General Information" and "Fund Highlights" in the
MoneyMart Assets Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
For a discussion of MoneyMart Assets' investment objective and policies and
of risk factors associated with an investment in MoneyMart Assets, see "How the
Fund Invests" in the MoneyMart Assets Prospectus.
BOARD OF DIRECTORS
For a discussion of the responsibilities of MoneyMart Assets' Board, see
"How the Fund is Managed" in the MoneyMart Assets Prospectus. See Appendix B for
information on the nominated slate of Directors to be presented to MoneyMart
Assets' shareholders at an annual meeting anticipated to be held in October
1996.
MANAGER
For a discussion of MoneyMart Assets' manager and subadviser, see "How the
Fund is Managed-- Manager" in the MoneyMart Assets Prospectus.
MONEYMART ASSETS SHARES
For a discussion of MoneyMart Assets Class Z shares, including voting rights
and exchange rights, and how the shares may be purchased and redeemed, see
"General Information," "Shareholder Guide" and "How the Fund is Managed" in the
MoneyMart Assets Prospectus.
NET ASSET VALUE
For a discussion of how the offering price of MoneyMart Assets Class Z
shares is determined, see "How the Fund Values its Shares" in the MoneyMart
Assets Prospectus.
TAXES, DIVIDENDS AND OTHER DISTRIBUTIONS
For a discussion of MoneyMart Assets' policy with respect to dividends and
other distributions and the tax consequences of an investment in Class Z shares,
see "Taxes, Dividends and Distributions" in the MoneyMart Assets Prospectus.
19
<PAGE>
INFORMATION ABOUT MONEY MARKET FUND
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
Unless indicated otherwise, the following financial highlights have been
audited by Deloitte & Touche LLP, independent accountants, whose report thereon
was unqualified. This information is derived from and should be read in
conjunction with the financial statements and notes thereto, which appear in the
Statement of Additional Information. The following financial highlights contain
selected data for a share of beneficial interest outstanding, total return,
ratios to average net assets and other supplemental data for the periods
indicated.
<TABLE>
<CAPTION>
JANUARY 4,
SIX MONTHS YEAR ENDED SEPTEMBER 1993(a)
ENDED 30, THROUGH
MARCH 31, 1996 -------------------- SEPTEMBER 30,
(UNAUDITED) 1995 1994 1993
--------------- --------- --------- -----------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- --------- --------- -------
Net investment income and net realized gains(b)............ .03 .05 .03 .02
Dividends from net investment income....................... (.03) (.05) (.03) (.02)
------- --------- --------- -------
Net asset value, end of period............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- --------- --------- -------
------- --------- --------- -------
TOTAL RETURN(D):........................................... 2.64% 5.47% 3.32% 2.08%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............................ $ 59,930 $ 58,054 $ 46,331 $ 30,235
Average net assets (000)................................... $ 58,739 $ 52,446 $ 38,170 $ 25,296
RATIOS TO AVERAGE NET ASSETS:(B)
Expenses................................................. .60%(c) .60% .60% .60%(c)
Net investment income.................................... 5.24%(c) 5.37% 3.34% 2.73%(c)
</TABLE>
- ------------------------------
(a) Commencement of investment operations.
(b) Net of expense subsidy.
(c) Annualized.
(d) Total returns are calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and include reinvestment
of dividends and distributions. Total returns for periods of less than a
full year are not annualized. Total returns include the effect of expense
subsidies.
GENERAL
For a discussion of the organization, classification and sub-classification
of Institutional Fund, see "Introduction to the Funds" and "More Facts About the
Company" in the Institutional Fund Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
For a discussion of Money Market Fund's investment objective and policies
and of risk factors associated with an investment in Money Market Fund, see "The
Funds" and "Other Investment Practices, Risk Considerations, and Policies of the
Funds" in the Institutional Fund Prospectus.
BOARD OF TRUSTEES
For a discussion of the responsibilities of Institutional Fund's Board, see
"Management of the Company" and "More Facts About the Company" in the
Institutional Fund Prospectus.
20
<PAGE>
MANAGER
For a discussion of Institutional Fund's manager and subadviser, see
"Management of the Company" in the Institutional Fund Prospectus.
MONEY MARKET FUND SHARES
For a discussion of Money Market Fund shares, including voting rights and
exchange rights and how the shares may be purchased and redeemed, see "Investors
Guide to Services" and "More Facts About the Company" in the Institutional Fund
Prospectus.
NET ASSET VALUE
For a discussion of how the offering price of Money Market Fund shares is
determined, see "Other Considerations--Net Asset Value" in the Institutional
Fund Prospectus.
TAXES, DIVIDENDS AND OTHER DISTRIBUTIONS
For a discussion of Money Market Fund's policy with respect to dividends and
distributions and the tax consequences of an investment in its shares, see
"Other Considerations" in the Institutional Fund Prospectus.
MISCELLANEOUS
ADDITIONAL INFORMATION
Institutional Fund and MoneyMart Assets are subject to the informational
requirements of the Securities Exchange Act of 1934 and in accordance therewith
file reports and other information with the SEC. Reports and other information
filed by Institutional Fund and MoneyMart Assets can be inspected and copied at
the public reference facilities maintained by the SEC at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the SEC's regional offices in New
York (7 World Trade Center, Suite 1300, New York, New York 10048) and Chicago
(Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois
60661-2511). Copies of such material also can be obtained at prescribed rates
from the Public Reference Branch, Office of Consumer Affairs and Information
Services, Securities and Exchange Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549.
LEGAL MATTERS
Certain legal matters in connection with the issuance of MoneyMart Assets
Class Z shares as part of the Reorganization will be passed upon by Gardner,
Carton & Douglas, counsel to MoneyMart Assets.
EXPERTS
The audited financial statements of Money Market Fund and MoneyMart Assets,
incorporated by reference herein or in the Statement of Additional Information,
have been audited by Deloitte & Touche LLP, independent accountants, to the
extent indicated in its reports thereon which are included in Institutional
Fund's and MoneyMart Assets' Annual Reports to Shareholders for the fiscal years
ended September 30, 1995 and December 31, 1995, respectively. The financial
statements audited by Deloitte &Touche LLP have been incorporated by reference
herein or in the Statement of Additional Information in reliance on its reports
given as experts in auditing and accounting.
VOTING INFORMATION
Forty percent of the shares of Money Market Fund outstanding on July 12,
1996, represented in person or by proxy, must be present for the transaction of
business at the Meeting. In the event that a quorum is not present at the
Meeting, or if a quorum is present but sufficient votes to approve the proposal
are not
21
<PAGE>
received, the persons named as proxies may propose one or more adjournments of
the Meeting to permit further solicitation of Proxies. Any such adjournment will
require the affirmative vote of a majority of those shares present at the
Meeting or represented by proxy. When voting on a proposed adjournment, the
persons named as proxies will vote all shares that they are entitled to vote for
the proposed adjournment, unless directed to disapprove the proposal, in which
case such shares will be voted against the proposed adjournment. Any questions
as to an adjournment of the Meeting will be voted on by the persons named in the
enclosed Proxy in the same manner that the Proxies are instructed to be voted.
In the event that the Meeting is adjourned, the same procedures will apply at a
later Meeting date.
If the accompanying form of Proxy is executed properly and returned, shares
represented by it will be voted at the Meeting in accordance with the
instructions on the Proxy. However, if no instructions are specified on a proxy,
the shares represented thereby will be voted for the proposal. A Proxy may be
revoked at any time prior to the time it is voted by written notice to the
Secretary of Institutional Fund or by attendance at the Meeting. If a Proxy that
is properly executed and returned is accompanied by instructions to withhold
authority to vote (an abstention) or represents a broker "non-vote" (that is, a
Proxy from a broker or nominee indicating that such person has not received
instructions from the beneficial owner or other person entitled to vote shares
on a particular matter with respect to which the broker or nominee does not have
discretionary power), the shares represented thereby, with respect to matters to
be determined by a majority of the votes cast on such matters, will be
considered present at the Meeting for purposes of determining the existence of a
quorum for the transaction of business but, not being cast, will have no effect
on the outcome of such matters.
The close of business on July 12, 1996 has been fixed as the record date for
the determination of shareholders entitled to notice of, and to vote at, the
Meeting. On that date, Money Market Fund had 62,114,890 shares outstanding and
entitled to vote. Each outstanding full share of Money Market Fund will be
entitled to one vote at the Meeting, and each outstanding fractional share of
Money Market Fund will be entitled to a proportionate fractional part of one
vote. As of July 12, 1996, the Trustees and officers of Institutional Fund, as a
group, owned less than 1% of the outstanding shares of Money Market Fund and the
Directors and officers of MoneyMart Assets, as a group, owned less than 1% of
MoneyMart Assets' outstanding shares. As of July 12, 1996, no shareholder owned
beneficially or of record 5% or more of MoneyMart Assets' outstanding shares and
the following shareholders owned beneficially or of record 5% or more of Money
Market Fund's outstanding shares: The Prudential Insurance Company of America,
30 Scranton Office Park, Moosic, PA 18507-1789 owned 28,897,301 shares
(approximately 47% of the outstanding shares); and Rite Aid Employee Investment
Opportunity Plan, Rite Aid Corporation, 30 Hunter Lane, Camp Hill, PA 17011
owned 3,163,969 shares (approximately 5% of the outstanding shares). Prudential
intends to vote any shares for which it has direct voting authority FOR the
proposed Reorganization.
The expenses of Reorganization and the solicitation of proxies will be borne
by Money Market Fund and MoneyMart Assets in proportion to their respective
assets. The solicitation of proxies will be largely by mail but may include
telephonic, telegraphic or oral communication by regular employees of PIFM and
its affiliates, including PMF. This cost, including specified expenses, also
will be borne by Money Market Fund and MoneyMart Assets in proportion to their
respective assets.
22
<PAGE>
OTHER MATTERS
No business other than as set forth herein is expected to come before the
Meeting, but should any other matter requiring a vote of shareholders of Money
Market Fund arise, including any question as to an adjournment of the Meeting,
the persons named in the enclosed Proxy will vote thereon according to their
best judgment in the interests of Money Market Fund, taking into account all
relevant circumstances.
SHAREHOLDERS' PROPOSALS
Any Money Market Fund shareholder proposal intended to be presented at any
subsequent meeting of the shareholders of Money Market Fund must be received by
Institutional Fund a reasonable time before the Board's solicitation relating to
such meeting is made in order to be included in Money Market Fund's Proxy
Statement and form of Proxy relating to that meeting. In the event that the
Agreement is approved at this Meeting, it is not expected that there will be any
future shareholder meetings of Money Market Fund.
It is the present intent of the Boards of Institutional Fund and MoneyMart
Assets not to hold annual meetings of shareholders unless the election of
Trustees/Directors is required under the Investment Company Act nor to hold
special meetings of shareholders unless required by the Investment Company Act
or state law.
S. JANE ROSE
SECRETARY
Dated: July 31, 1996
23
<PAGE>
APPENDIX A
ASSET/STOCK EXCHANGE AGREEMENT
Asset/Stock Exchange Agreement (Agreement) made as of the 24th day of June,
1996, by and between The Prudential Institutional Fund (Institutional Fund) and
Prudential MoneyMart Assets, Inc. (Acquiror Fund) (collectively, the Investment
Companies and each individually, an Investment Company). Institutional Fund is a
Delaware business trust and maintains its principal place of business at 751
Broad Street, Newark, New Jersey 07102. Acquiror Fund is a Maryland corporation
and maintains its principal place of business at One Seaport Plaza, New York,
New York 10292. Shares of Institutional Fund are divided into seven portfolios,
including Money Market Fund (Acquiree Fund). (Acquiror Fund and Acquiree Fund
are sometimes referred to herein as a Fund and collectively as the Funds.)
Acquiror Fund has two classes of shares, Class A and Class Z shares, the latter
being the class into which the assets of Acquiree Fund are proposed to be
transferred.
The transactions provided for herein (collectively Reorganization) will
comprise the transfer of all of the assets of Acquiree Fund in exchange solely
for Class Z shares of Acquiror Fund and Acquiror Fund's assumption of all of
Acquiree Fund's liabilities, if any, and the constructive distribution, after
the Closing Date hereinafter referred to, of such shares of Acquiror Fund to the
shareholders of Acquiree Fund in liquidation of Acquiree Fund as provided
herein, all upon the terms and conditions as hereinafter set forth.
In consideration of the premises and of the covenants and agreements set
forth herein, the parties covenant and agree as follows:
1. TRANSFER OF ASSETS OF ACQUIREE FUND IN EXCHANGE FOR SHARES OF ACQUIROR
FUND AND ASSUMPTION OF LIABILITIES, IF ANY, AND LIQUIDATION OF ACQUIREE FUND.
1.1 Subject to the terms and conditions herein set forth and on the
basis of the representations and warranties contained herein, Acquiree Fund
agrees to sell, assign, transfer and deliver its assets, as set forth in
paragraph 1.2, to Acquiror Fund, and Acquiror Fund agrees (a) to issue and
deliver to Acquiree Fund in exchange therefor the number of Class Z shares
in Acquiror Fund determined by dividing the net asset value of Acquiree Fund
(computed in the manner and as of the time and date set forth in paragraph
2.1) by the net asset value of a Class Z share of Acquiror Fund (computed in
the manner and as of the time and date set forth in paragraph 2.2); and (b)
to assume all of Acquiree Fund's liabilities, if any, as set forth in
paragraph 1.3. Such transactions shall take place at the closing provided
for in paragraph 3 (Closing).
1.2 The assets of Acquiree Fund to be acquired by Acquiror Fund shall
include without limitation all cash, cash equivalents, securities,
receivables (including interest and dividends receivable) and other property
of any kind owned by Acquiree Fund and any deferred and prepaid expenses
shown as assets on the books of Acquiree Fund on the closing date provided
in paragraph 3.1 (Closing Date).
1.3 Acquiror Fund will assume from Acquiree Fund all debts,
liabilities, obligations and duties of Acquiree Fund of whatever kind or
nature, whether absolute, accrued, contingent or otherwise, whether or not
arising in the ordinary course of business, whether or not determinable as
of the Closing Date, and whether or not specifically referred to in this
Agreement; provided, however, that Acquiree Fund agrees to utilize its best
efforts to discharge all of its known debts, liabilities, obligations and
duties prior to the Closing Date.
A-1
<PAGE>
1.4 On or immediately prior to the Closing Date, Acquiree Fund will
declare and pay to its shareholders of record dividends so that it will have
distributed substantially all (and in any event not less than ninety-eight
percent) of its investment company taxable income (computed without regard
to any deduction for dividends paid) and net tax-exempt interest income, if
any, for all taxable years through its liquidation.
1.5 On a date (Liquidation Date), as soon after the Closing Date as is
conveniently practicable, Acquiree Fund will distribute PRO RATA to its
shareholders of record, determined as of the close of business on the
Closing Date, the shares of Acquiror Fund received by Acquiree Fund pursuant
to paragraph 1.1 in exchange for their interest in Acquiree Fund. Such
distribution will be accomplished by opening accounts on the books of
Acquiror Fund in the names of Acquiree Fund shareholders and transferring
thereto the shares credited to the account of Acquiree Fund on the books of
Acquiror Fund. Each such shareholder account shall be credited with the
respective PRO RATA number of Acquiror Fund shares due the shareholder in
whose name the account is established. Fractional shares of Acquiror Fund
shall be rounded to the third decimal place. Acquiror Fund shall not issue
certificates representing its shares in connection with such distribution.
1.6 Ownership of Acquiror Fund shares will be shown on the books of
Acquiror Fund's transfer agent. Shares of Acquiror Fund will be issued in
the manner described in Acquiror Fund's then-current prospectus and
statement of additional information.
1.7 Any transfer taxes payable upon issuance of shares of Acquiror
Fund in a name other than the registered holder of the shares on the books
of Acquiree Fund as of the time of transfer thereof shall be paid by the
person to whom such shares are to be issued as a condition to the
registration of such transfer.
1.8 Any reporting responsibility with the Securities and Exchange
Commission (SEC) or any state securities commission of Acquiree Fund is and
shall remain the responsibility of Acquiree Fund up to and including the
Liquidation Date.
1.9 All books and records of Acquiree Fund, including all books and
records required to be maintained under the Investment Company Act of 1940
(Investment Company Act) and the rules and regulations thereunder, shall be
available to Acquiror Fund from and after the Closing Date and shall be
turned over to Acquiror Fund on or prior to the Liquidation Date.
1.10 As soon as reasonably practicable after distribution of the
Acquiror Fund shares pursuant to paragraph 1.5, Acquiree Fund shall be
terminated as a series of Institutional Fund and any further actions shall
be taken in connection therewith as required by applicable law.
2. VALUATION
2.1 The value of Acquiree Fund's assets and liabilities to be acquired
and assumed, respectively, by Acquiror Fund shall be the net asset value of
Acquiree Fund computed as of 4:30 p.m., New York time, on the Closing Date
(such time and date being hereinafter called the Valuation Time), using the
valuation procedures set forth in Acquiree Fund's then-current prospectus
and statement of additional information.
2.2 The net asset value of a Class Z share of Acquiror Fund shall be
the net asset value per such share computed as of the Valuation Time, using
the valuation procedures set forth in Acquiror Fund's then-current
prospectus and statement of additional information.
A-2
<PAGE>
2.3 All computations of net asset value shall be made by or under the
direction of Prudential Mutual Fund Management, Inc. (PMF) in accordance
with its regular practice as manager or administrator, as the case may be,
of each Investment Company.
3. CLOSING AND CLOSING DATE
3.1 Except as provided in paragraph 3.3, the date of the closing shall
be September 20, 1996, or such later date as the parties may agree in
writing (Closing Date). All acts taking place at the Closing shall be deemed
to take place simultaneously as of the close of business on the Closing Date
unless otherwise provided. The Closing shall be at the office of Acquiror
Fund or at such other place as the parties may agree.
3.2 State Street Bank and Trust Company (State Street), as custodian
for Acquiree Fund, shall deliver to Acquiror Fund at the Closing a
certificate of an authorized officer of State Street stating that (a)
Acquiree Fund's portfolio securities, cash and any other assets have been
transferred in proper form to Acquiror Fund on the Closing Date and (b) all
necessary taxes, if any, have been paid, or provision for payment has been
made, in conjunction with the transfer of portfolio securities.
3.3 In the event that immediately prior to the Valuation Time (a) the
New York Stock Exchange (NYSE) or other primary exchange is closed to
trading (other than prior to, or following the close of, trading on such
exchange on a regular business day) or trading thereon is restricted or (b)
trading or the reporting of trading on the NYSE or other primary exchange or
elsewhere is disrupted so that accurate appraisal of the value of the net
assets of Acquiree Fund and of the net asset value per Class Z share of
Acquiror Fund is impracticable, the Closing Date shall be postponed until
the first business day after the date when such trading shall have been
fully resumed and such reporting shall have been restored.
3.4 Institutional Fund shall deliver to Acquiror Fund on or prior to
the Liquidation Date the names and addresses of Acquiree Fund's shareholders
and the number of outstanding shares owned by each such shareholder, all as
of the close of business on the Closing Date, certified by the Secretary or
Assistant Secretary of Institutional Fund. Acquiror Fund shall issue and
deliver to Institutional Fund at the Closing a confirmation or other
evidence satisfactory to Institutional Fund that shares of Acquiror Fund
have been or will be credited to Acquiree Fund's account on the books of
Acquiror Fund. At the Closing each party shall deliver to the other such
bills of sale, checks, assignments, share certificates, receipts and other
documents as such other party or its counsel may reasonably request to
effect the transactions contemplated by this Agreement.
3.5 Each Investment Company shall deliver to the other at the Closing
a certificate executed in its name by its President or a Vice President in
form and substance satisfactory to the recipient and dated the Closing Date,
to the effect that the representations and warranties it made in this
Agreement are true and correct at the Closing Date except as they may be
affected by the transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
4.1 Institutional Fund represents and warrants as follows:
4.1.1 Institutional Fund is a business trust duly organized and
validly existing under the laws of the State of Delaware, and Acquiree
Fund has been established in accordance with the terms of Institutional
Fund's Agreement and Declaration of Trust (Declaration of Trust);
A-3
<PAGE>
4.1.2 Institutional Fund is an open-end management investment
company duly registered under the Investment Company Act, and such
registration is in full force and effect;
4.1.3 Institutional Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of any
provision of its Declaration of Trust or By-Laws or of any material
agreement, indenture, instrument, contract, lease or other undertaking to
which Acquiree Fund is a party or by which Acquiree Fund is bound;
4.1.4 All material contracts or other commitments of Acquiree
Fund, or any of its properties or assets, except this Agreement and
investment contracts (including options, futures and forward contracts)
will be terminated, or provision for discharge of any liabilities of
Acquiree Fund thereunder will be made on or prior to the Closing Date
without either Fund's incurring any liability or penalty with respect
thereto;
4.1.5 No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against Acquiree Fund or any of
its properties or assets, except as previously disclosed in writing to
Acquiror Fund. Institutional Fund knows of no facts that might form the
basis for the institution of such litigation, proceedings or
investigation, and Acquiree Fund is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental
body that materially and adversely affects its business or its ability to
consummate the transactions herein contemplated;
4.1.6 The Portfolio of Investments, Statement of Assets and
Liabilities, Statement of Operations, Statement of Changes in Net Assets,
and Financial Highlights of Acquiree Fund at September 30, 1995 and for
the year then ended (copies of which have been furnished to Acquiror
Fund) have been audited by Deloitte & Touche LLP, independent
accountants, in accordance with generally accepted auditing standards.
Such financial statements are prepared in accordance with generally
accepted accounting principles and present fairly, in all material
respects, the financial condition, results of operations, changes in net
assets and financial highlights of Acquiree Fund as of and for the period
ended on such date, and there are no material known liabilities of
Acquiree Fund (contingent or otherwise) not disclosed therein;
4.1.7 Since September 30, 1995, there has not been any material
adverse change in Acquiree Fund's financial condition, assets,
liabilities or business other than changes occurring in the ordinary
course of business, or any incurrence by Acquiree Fund of indebtedness
maturing more than one year from the date such indebtedness was incurred,
except as otherwise disclosed to and accepted by Acquiror Fund. For the
purposes of this paragraph 4.1.7, a decline in net asset value or a
decrease in the number of shares outstanding shall not constitute a
material adverse change;
4.1.8 At the date hereof and at the Closing Date, all federal and
other tax returns and reports of Acquiree Fund required by law to have
been filed on or before such dates shall have been timely filed, and all
federal and other taxes shown as due on said returns and reports shall
have been paid insofar as due, or provision shall have been made for the
payment thereof, and, to the best of Institutional Fund's knowledge, all
federal or other taxes required to be shown on any such return or report
have been shown on such return or report, no such return is currently
under audit and no assessment has been asserted with respect to such
returns;
A-4
<PAGE>
4.1.9 Acquiree Fund is a "fund" as defined in section 851(h)(2) of
the Internal Revenue Code of 1986, as amended (Internal Revenue Code);
for each past taxable year since it commenced operations, Acquiree Fund
(a) has met the requirements of Subchapter M of the Internal Revenue Code
for qualification and treatment as a regulated investment company and
will meet those requirements for the current taxable year and (b) has
made such distributions as are necessary to avoid the imposition of
federal excise tax or has paid or provided for the payment of any excise
tax imposed; and Acquiree Fund has no earnings and profits accumulated in
any taxable year in which the provisions of Subchapter M of the Internal
Revenue Code did not apply to it. Acquiree Fund's assets shall be
invested at all times through the Closing Date in a manner that ensures
compliance with the foregoing;
4.1.10 All issued and outstanding shares of Acquiree Fund are, and
at the Closing Date will be, duly and validly authorized, issued and
outstanding, fully paid and non-assessable. All issued and outstanding
shares of Acquiree Fund will, at the time of the Closing, be held in the
names of the persons and in the amounts set forth in the list of
shareholders submitted to Acquiror Fund in accordance with the provisions
of paragraph 3.4. Acquiree Fund does not have outstanding any options,
warrants or other rights to subscribe for or purchase any of its shares,
nor is there outstanding any security convertible into any of its shares;
4.1.11 At the Closing Date, Acquiree Fund will have good and
marketable title to its assets to be transferred to Acquiror Fund
pursuant to paragraph 1.1 and full right, power and authority to sell,
assign, transfer and deliver such assets hereunder free of any liens,
claims, charges or other encumbrances, and, upon delivery and payment for
such assets, Acquiror Fund will acquire good and marketable title
thereto;
4.1.12 The execution, delivery and performance of this Agreement
have been duly authorized by the Board of Trustees of Institutional Fund
and by all necessary corporate action, other than shareholder approval,
on the part of Acquiree Fund, and this Agreement constitutes a valid and
binding obligation of Institutional Fund, enforceable in accordance with
its terms, except as the same may be limited by bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws relating
to or affecting creditors' rights and by general principles of equity. At
the Closing Date, the performance of this Agreement shall have been duly
authorized by all necessary action by Acquiree Fund's shareholders;
4.1.13 The information furnished and to be furnished by
Institutional Fund for use in applications for orders, registration
statements, proxy materials and other documents that may be necessary in
connection with the transactions contemplated hereby is and shall be
accurate and complete in all material respects and is in compliance and
shall comply in all material respects with applicable federal securities
and other laws and regulations; and
4.1.14 On the effective date of the registration statement filed
with the SEC by Acquiror Fund on Form N-14 relating to the shares of
Acquiror Fund issuable thereunder, and any supplement or amendment
thereto (Registration Statement), at the time of the meeting of the
shareholders of Acquiree Fund and on the Closing Date, the Proxy
Statement of Institutional Fund and the Prospectus of Acquiror Fund to be
included in the Registration Statement (collectively, Proxy Statement)
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(a) will comply in all material respects with the provisions of
the Securities Act of 1933 (1933 Act), the Securities Exchange Act of
1934 (1934 Act) and the Investment Company Act and the rules and
regulations thereunder and
(b) will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein in light of
the circumstances under which they were made or necessary to make the
statements therein not misleading; provided, however, that the
representations and warranties in this paragraph 4.1.14 shall not apply
to statements in or omissions from the Proxy Statement made in reliance
upon and in conformity with information furnished by Acquiror Fund for
use therein.
4.2 Acquiror Fund represents and warrants as follows:
4.2.1 Acquiror Fund is a corporation duly organized and validly
existing under the laws of the State of Maryland;
4.2.2 Acquiror Fund is an open-end management investment company
duly registered under the Investment Company Act, and such registration
is in full force and effect;
4.2.3 Acquiror Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of any
provision of its Articles of Incorporation or By-Laws or of any material
agreement, indenture, instrument, contract, lease or other undertaking to
which Acquiror Fund is a party or by which Acquiror Fund is bound;
4.2.4 No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against Acquiror Fund or any of
its properties or assets, except as previously disclosed in writing to
Institutional Fund. Acquiror Fund knows of no facts that might form the
basis for the institution of such litigation, proceedings or
investigation, and Acquiror Fund is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental
body that materially and adversely affects its business or its ability to
consummate the transactions herein contemplated;
4.2.5 The Portfolio of Investments, Statement of Assets and
Liabilities, Statement of Operations, Statement of Changes in Net Assets,
and Financial Highlights of Acquiror Fund at December 31, 1995 and for
the fiscal year then ended (copies of which have been furnished to
Institutional Fund) have been audited by Deloitte & Touche LLP,
independent accountants, in accordance with generally accepted auditing
standards. Such financial statements are prepared in accordance with
generally accepted accounting principles and present fairly, in all
material respects, the financial condition, results of operations,
changes in net assets and financial highlights of Acquiror Fund as of and
for the period ended on such date, and there are no material known
liabilities of Acquiror Fund (contingent or otherwise) not disclosed
therein;
4.2.6 Since December 31, 1995, there has not been any material
adverse change in Acquiror Fund's financial condition, assets,
liabilities or business other than changes occurring in the ordinary
course of business, or any incurrence by Acquiror Fund of indebtedness
maturing more than one year from the date such indebtedness was incurred,
except as otherwise disclosed to and accepted by Institutional Fund. For
the purposes of this paragraph 4.2.6, a decline in net asset value or a
decrease in the number of shares outstanding shall not constitute a
material adverse change;
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4.2.7 At the date hereof and at the Closing Date, all federal and
other tax returns and reports of Acquiror Fund required by law to have
been filed on or before such dates shall have been timely filed, and all
federal and other taxes shown as due on said returns and reports shall
have been paid insofar as due, or provision shall have been made for the
payment thereof, and, to the best of Acquiror Fund's knowledge, all
federal or other taxes required to be shown on any such return or report
are shown on such return or report, no such return is currently under
audit and no assessment has been asserted with respect to such returns;
4.2.8 For each past taxable year since it commenced operations,
Acquiror Fund (a) has met the requirements of Subchapter M of the
Internal Revenue Code for qualification and treatment as a regulated
investment company and will meet those requirements for the current
taxable year and (b) has made such distributions as are necessary to
avoid the imposition of federal excise tax or has paid or provided for
the payment of any excise tax imposed; and Acquiror Fund has no earnings
and profits accumulated in any taxable year in which the provisions of
Subchapter M of the Internal Revenue Code did not apply to it. Acquiror
Fund's assets shall be invested at all times through the Closing Date in
a manner that ensures compliance with the foregoing;
4.2.9 All issued and outstanding shares of Acquiror Fund are, and
at the Closing Date will be, duly and validly authorized, issued and
outstanding, fully paid and non-assessable. Except as contemplated by
this Agreement, Acquiror Fund does not have outstanding any options,
warrants or other rights to subscribe for or purchase any of its shares,
nor is there outstanding any security convertible into any of its shares;
4.2.10 The execution, delivery and performance of this Agreement
have been duly authorized by the Board of Directors of Acquiror Fund and
by all necessary corporate action on the part of Acquiror Fund, and this
Agreement constitutes a valid and binding obligation of Acquiror Fund,
enforceable in accordance with its terms, except as the same may be
limited by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws relating to or affecting creditors' rights
and by general principles of equity;
4.2.11 The shares of Acquiror Fund to be issued and delivered to
Acquiree Fund pursuant to this Agreement will, at the Closing Date, have
been duly authorized and, when issued and delivered as provided in this
Agreement, will be duly and validly issued and outstanding shares of
Acquiror Fund, fully paid and non-assessable;
4.2.12 The information furnished and to be furnished by Acquiror
Fund for use in applications for orders, registration statements, proxy
materials and other documents that may be necessary in connection with
the transactions contemplated hereby is and shall be accurate and
complete in all material respects and is in compliance and shall comply
in all material respects with applicable federal securities and other
laws and regulations; and
4.2.13 On the effective date of the Registration Statement, at the
time of the meeting of the shareholders of Acquiree Fund and on the
Closing Date, the Proxy Statement (a) will comply in all material
respects with the provisions of the 1933 Act, the 1934 Act and the
Investment Company Act and the rules and regulations thereunder and (b)
will not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein in light of the
circumstances under which they were made or necessary to make the
statements therein not misleading;
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provided, however, that the representations and warranties in this
paragraph 4.2.13 shall not apply to statements in or omissions from the
Proxy Statement made in reliance upon and in conformity with information
furnished by Institutional Fund for use therein.
5. COVENANTS
5.1 Each Investment Company covenants to operate its respective Fund's
business in the ordinary course between the date hereof and the Closing
Date, it being understood that the ordinary course of business will include
declaring and paying customary dividends and such changes in operations as
are contemplated by the normal operations of the Funds, except as may
otherwise be required by paragraph 1.4 hereof.
5.2 Institutional Fund covenants to call a meeting of Acquiree Fund's
shareholders to consider and act upon this Agreement and to take all other
action necessary to obtain approval of the transactions contemplated hereby
(including the determinations of its Trustees as set forth under the
Investment Company Act).
5.3 Institutional Fund covenants that Acquiror Fund shares to be
received by Acquiree Fund in accordance herewith are not being acquired for
the purpose of making any distribution thereof other than in accordance with
the terms of this Agreement.
5.4 Institutional Fund covenants that it will assist Acquiror Fund in
obtaining such information as Acquiror Fund reasonably requests concerning
the beneficial ownership of Acquiree Fund's shares.
5.5 Subject to the provisions of this Agreement, each Investment
Company will take, or cause to be taken, all action, and will do, or cause
to be done, all things, reasonably necessary, proper or advisable to
consummate and make effective the transactions contemplated by this
Agreement.
5.6 Institutional Fund covenants to prepare the Proxy Statement in
compliance with the 1934 Act, the Investment Company Act and the rules and
regulations under each such act.
5.7 Institutional Fund covenants that it will, from time to time, as
and when requested by Acquiror Fund, execute and deliver or cause to be
executed and delivered all such assignments and other instruments, and will
take or cause to be taken such further action, as Acquiror Fund may deem
necessary or desirable in order to vest in and confirm to Acquiror Fund
title to and possession of all the assets of Acquiree Fund to be sold,
assigned, transferred and delivered hereunder and otherwise to carry out the
intent and purpose of this Agreement.
5.8 Acquiror Fund covenants to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the Investment
Company Act (including the determinations of its Directors as set forth
thereunder) and such of the state Blue Sky or securities laws as it may deem
appropriate in order to continue its operations after the Closing Date.
5.9 Acquiror Fund covenants that it will, from time to time, as and
when requested by Institutional Fund, execute and deliver or cause to be
executed and delivered all such assignments and other instruments, and will
take and cause to be taken such further action, as Institutional Fund may
deem necessary or desirable in order to (a) vest in and confirm to
Institutional Fund (on behalf of Acquiree Fund) title to and possession of
all the shares of Acquiror Fund to be transferred to Acquiree Fund pursuant
to this Agreement and (b) assume all of Acquiree Fund's liabilities in
accordance with this Agreement.
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6. CONDITIONS PRECEDENT TO OBLIGATIONS OF INSTITUTIONAL FUND
The obligations of Institutional Fund to consummate the transactions
provided for herein shall be subject to the performance by Acquiror Fund of all
the obligations to be performed by it hereunder on or before the Closing Date
and the following further conditions:
6.1 All representations and warranties of Acquiror Fund contained in
this Agreement shall be true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force
and effect as if made on and as of the Closing Date.
6.2 Acquiror Fund shall have delivered to Institutional Fund on the
Closing Date a certificate executed in its name by the President or a Vice
President of Acquiror Fund, in form and substance satisfactory to
Institutional Fund and dated as of the Closing Date, to the effect that the
representations and warranties of Acquiror Fund in this Agreement are true
and correct at and as of the Closing Date, except as they may be affected by
the transactions contemplated by this Agreement, and as to such other
matters as Institutional Fund shall reasonably request.
6.3 Institutional Fund shall have received on the Closing Date a
favorable opinion from Gardner, Carton & Douglas, counsel to Acquiror Fund,
dated as of the Closing Date, to the effect that:
6.3.1 Acquiror Fund is a corporation duly organized and validly
existing under the laws of the State of Maryland, with power under its
Articles of Incorporation to own all of its properties and assets and, to
the knowledge of such counsel, to carry on its business as presently
conducted;
6.3.2 This Agreement has been duly authorized, executed and
delivered by Acquiror Fund and, assuming due authorization, execution and
delivery of this Agreement by Institutional Fund, is a valid and binding
obligation of Acquiror Fund enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles (regardless
of whether enforcement is sought in a proceeding at law or in equity),
and further subject to the qualifications set forth in the next
succeeding sentence. Such counsel may state that they express no opinion
as to the validity or enforceability of any provision regarding choice of
New York law to govern this Agreement;
6.3.3 The shares of Acquiror Fund to be distributed to Acquiree
Fund shareholders under this Agreement, assuming their due authorization
and delivery as contemplated by this Agreement, will be validly issued
and outstanding and fully paid and non-assessable, and no shareholder of
Acquiror Fund has any pre-emptive right to subscribe therefor or purchase
such shares;
6.3.4 The execution and delivery of this Agreement did not, and
the performance by Acquiror Fund of its obligations hereunder will not,
(a) violate Acquiror Fund's Articles of Incorporation or By-Laws or (b)
result in a default or a breach of (i) the Management Agreement dated May
2, 1988 between Acquiror Fund and PMF, (ii) the Custodian Agreement dated
July 25, 1990 between Acquiror Fund and State Street, (iii) the Restated
Distribution Agreement dated May 9, 1996 between Acquiror Fund and
Prudential Securities Incorporated and (iv) the Transfer Agency and
Service Agreement dated January 1, 1990 between Acquiror Fund and
Prudential Mutual Fund Services, Inc.; provided, however, that such
counsel may state that they express no opinion with respect to federal or
state securities laws, other antifraud laws and fraudulent transfer laws;
provided further that insofar as performance by Acquiror Fund of its
obligations under this
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Agreement is concerned, such counsel may state that they express no
opinion as to bankruptcy, insolvency, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors'
rights and to general equity principles;
6.3.5 To the knowledge of such counsel (without any independent
inquiry or investigation), no consent, approval, authorization, filing or
order of any court or governmental authority is required for the
consummation by Acquiror Fund of the transactions contemplated herein,
except such as have been obtained under the 1933 Act, the 1934 Act and
the Investment Company Act and such as may be required under state Blue
Sky or securities laws;
6.3.6 Acquiror Fund has been registered with the SEC as an
investment company, and, to the knowledge of such counsel, no order has
been issued or proceeding instituted to suspend such registration; and
6.3.7 To the knowledge of such counsel (without any independent
inquiry or investigation), (a) no material litigation or administration
proceeding or investigation of or before any court or governmental body
is presently pending or threatened against Acquiror Fund or any of its
properties or assets, and (b) Acquiror Fund is not a party to or subject
to the provision of any order, decree or judgment of any court or
governmental body that materially and adversely affects its business,
except as otherwise disclosed.
In rendering such opinion, such counsel may state that insofar as such
opinion involves factual matters, they have relied, to the extent they deem
proper, upon certificates of officers of Acquiror Fund and certificates of
public officials. As to matters of Maryland law, such counsel may rely upon
opinions of Maryland counsel reasonably satisfactory to Institutional Fund, in
which case the opinion shall state that both such counsel and Institutional Fund
are justified in so relying. In rendering such opinion, such counsel also may
(a) make assumptions regarding the authenticity, genuineness and/or conformity
of documents and copies thereof without independent verification thereof, (b)
limit such opinion to applicable federal and state law and (c) define the word
"knowledge" and related terms to mean the knowledge of attorneys then with such
firm who have devoted substantive attention to matters directly related to this
Agreement and the Reorganization.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUIROR FUND
The obligations of Acquiror Fund to complete the transactions provided for
herein shall be subject to the performance by Institutional Fund of all the
obligations to be performed by it hereunder on or before the Closing Date and
the following further conditions:
7.1 All representations and warranties of Institutional Fund contained
in this Agreement shall be true and correct in all material respects as of
the date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force
and effect as if made on and as of the Closing Date.
7.2 Institutional Fund shall have delivered to Acquiror Fund on the
Closing Date a statement of Acquiree Fund's assets and liabilities, which
statement shall be prepared in accordance with generally accepted accounting
principles consistently applied, together with a list of Acquiree Fund's
portfolio securities showing the adjusted tax bases of such securities by
lot, as of the Closing Date, certified by the Treasurer of Institutional
Fund.
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7.3 Institutional Fund shall have delivered to Acquiror Fund on the
Closing Date a certificate executed in its name by the President or a Vice
President of Institutional Fund, in form and substance satisfactory to
Acquiror Fund and dated as of the Closing Date, to the effect that the
representations and warranties of Institutional Fund made in this Agreement
are true and correct at and as of the Closing Date except as they may be
affected by the transactions contemplated by this Agreement, and as to such
other matters as Acquiror Fund shall reasonably request.
7.4 On or immediately prior to the Closing Date, Acquiree Fund shall
have declared and paid to its shareholders of record one or more dividends
so that it will have distributed substantially all (and in any event not
less than ninety-eight percent) of its investment company taxable income
(computed without regard to any deduction for dividends paid) and net
tax-exempt interest income, if any, for all taxable years through its
liquidation.
7.5 Acquiror Fund shall have received on the Closing Date a favorable
opinion from Kirkpatrick & Lockhart LLP, counsel to Institutional Fund,
dated as of the Closing Date, to the effect that:
7.5.1 Institutional Fund is a business trust duly organized and
validly existing under the laws of the State of Delaware, with power
under its Declaration of Trust to own all of its properties and assets
and, to the knowledge of such counsel, to carry on its business as
presently conducted, and Acquiree Fund has been duly established in
accordance with the terms of Institutional Fund's Declaration of Trust;
7.5.2 This Agreement has been duly authorized, executed and
delivered by Institutional Fund and, assuming due authorization,
execution and delivery of this Agreement by Acquiror Fund, is a valid and
binding obligation of Institutional Fund enforceable in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity
principles (regardless of whether enforcement is sought in a proceeding
at law or in equity), and further subject to the qualifications set forth
in the next succeeding sentence. Such counsel may state that they express
no opinion as to the validity or enforceability of any provision
regarding choice of New York law to govern this Agreement;
7.5.3 The execution and delivery of this Agreement did not, and
the performance by Institutional Fund of its obligations hereunder will
not, (a) violate Institutional Fund's Declaration of Trust or By-Laws or
(b) result in a default or a breach of (i) the Management Agreement dated
October 30, 1992 between Institutional Fund and Prudential Institutional
Fund Management, Inc., (ii) the Custodian Agreement dated October 30,
1992 between Institutional Fund and State Street, (iii) the Distribution
Agreement with respect to Acquiree Fund dated May 1, 1993 between
Institutional Fund and Prudential Retirement Services, Inc. and (iv) the
Administration, Transfer Agency and Service Agreement dated October 30,
1992 between Institutional Fund and PMF; provided, however, that such
counsel may state that they express no opinion with respect to federal or
state securities laws, other antifraud laws and fraudulent transfer laws;
provided further that insofar as performance by Institutional Fund of its
obligations under this Agreement is concerned, such counsel may state
that they express no opinion as to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles;
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7.5.4 All regulatory consents, authorizations and approvals
required to be obtained by Institutional Fund under the federal laws of
the United States, the laws of the State of New York and Chapter 38 of
the Delaware Code for the consummation of the transactions contemplated
by this Agreement have been obtained;
7.5.5 Such counsel knows of no litigation or any governmental
proceeding instituted or threatened against Acquiree Fund that would be
required to be disclosed in the Registration Statement and is not so
disclosed;
7.5.6 Institutional Fund has been registered with the SEC as an
investment company, and, to the knowledge of such counsel, no order has
been issued or proceeding instituted to suspend such registration; and
7.5.7 To the knowledge of such counsel (without any independent
inquiry or investigation), (a) no material litigation or administration
proceeding or investigation of or before any court or governmental body
is presently pending or threatened against Institutional Fund (with
respect to Acquiree Fund) or any of its properties or assets
distributable or allocable to Acquiree Fund, and (b) Institutional Fund
is not a party to or subject to the provision of any order, decree or
judgment of any court or governmental body that materially and adversely
affects its business, except as otherwise disclosed.
In rendering such opinion, such counsel may state that insofar as such
opinion involves factual matters, they have relied, to the extent they deem
proper, upon certificates of officers of Institutional Fund and certificates of
public officials. As to matters of Delaware law, such counsel may rely upon
opinions of Delaware counsel reasonably satisfactory to Acquiror Fund, in which
case the opinion shall state that both such counsel and Acquiror Fund are
justified in so relying. In rendering such opinion, such counsel also may (a)
make assumptions regarding the authenticity, genuineness and/or conformity of
documents and copies thereof without independent verification thereof, (b) limit
such opinion to applicable federal and state law and (c) define the word
"knowledge" and related terms to mean the knowledge of attorneys then with such
firm who have devoted substantive attention to matters directly related to this
Agreement and the Reorganization.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE INVESTMENT COMPANIES
The obligations of each Investment Company hereunder are subject to the
further conditions that on or before the Closing Date:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of (a) the Trustees of Institutional
Fund and the Directors of Acquiror Fund as to the determinations set forth
in Rule 17a-8(a) under the Investment Company Act, (b) the Directors of
Acquiror Fund as to the assumption by Acquiror Fund of the liabilities of
Acquiree Fund and (c) the holders of the outstanding shares of Acquiree Fund
in accordance with the provisions of Institutional Fund's Declaration of
Trust, and certified copies of the resolutions evidencing such approvals
shall have been delivered to Acquiror Fund.
8.2 Any proposed change to Acquiror Fund's operations that may be
approved by the Directors of Acquiror Fund subsequent to the date of this
Agreement but in connection with and as a condition to implementing the
transactions contemplated by this Agreement, for which the approval of
Acquiror Fund's shareholders is required pursuant to the Investment Company
Act or otherwise, shall have been approved by the requisite vote of the
holders of the outstanding shares of Acquiror Fund in accordance
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with the Investment Company Act and the provisions of the Declaration of
Trust of Acquiror Fund, and certified copies of the resolution evidencing
such approval shall have been delivered to Institutional Fund.
8.3 On the Closing Date no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with,
this Agreement or the transactions contemplated herein.
8.4 All consents of other parties and all consents, orders and permits
of federal, state and local regulatory authorities (including those of the
SEC and of state Blue Sky or securities authorities, including "no-action"
positions of such authorities) deemed necessary by either Investment Company
to permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to obtain
any such consent, order or permit would not involve a risk of a material
adverse effect on the assets or properties of either Fund, provided that
either party hereto may for itself waive any part of this condition.
8.5 The Registration Statement shall have become effective under the
1933 Act, and no stop orders suspending the effectiveness thereof shall have
been issued, and to the best knowledge of the parties hereto, no
investigation or proceeding under the 1933 Act for that purpose shall have
been instituted or be pending, threatened or contemplated. In addition, the
SEC shall not have issued an unfavorable report with respect to the
Reorganization under section 25(b) of the Investment Company Act nor
instituted any proceedings seeking to enjoin consummation of the
transactions contemplated hereby under section 25(c) of the Investment
Company Act.
8.6 The Investment Companies shall have received on or before the
Closing Date an opinion of Kirkpatrick & Lockhart LLP, satisfactory to each
Investment Company, as to the federal income tax treatment of the
Reorganization. In rendering such opinion, such counsel may rely as to
factual matters, exclusively and without independent verification, on the
representations made in this Agreement (or in separate letters addressed to
such counsel) and the certificates delivered pursuant to paragraph 3.5.
9. FINDER'S FEES AND EXPENSES
9.1 Each Investment Company represents and warrants to the other that
there are no finder's fees payable in connection with the transactions
provided for herein.
9.2 The expenses incurred in connection with the entering into and
carrying out of the provisions of this Agreement shall be allocated to the
Funds PRO RATA in a fair and equitable manner in proportion to their
respective assets.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 This Agreement constitutes the entire agreement between the
Investment Companies.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection
herewith shall survive the consummation of the transactions contemplated
hereunder.
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11. TERMINATION
Either Investment Company may at its option terminate this Agreement at or
prior to the Closing Date because of:
11.1 A material breach by the other of any representation, warranty or
covenant contained herein to be performed at or prior to the Closing Date;
or
11.2 A condition herein expressed to be precedent to the obligations of
either party not having been met and it reasonably appearing that it will
not or cannot be met; or
11.3 A mutual written agreement of the Investment Companies.
In the event of any such termination, there shall be no liability for
damages on the part of either Investment Company (other than the liability of
the Funds to pay their allocated expenses pursuant to paragraph 9.2) or any
Director, Trustee or officer of either Investment Company.
12. AMENDMENT
This Agreement may be amended, modified or supplemented only in writing by
the parties; provided, however, that following the Acquiree Fund's shareholders'
meeting called by Institutional Fund pursuant to paragraph 5.2, no such
amendment may have the effect of changing the provisions for determining the
number of shares of Acquiror Fund to be distributed to Acquiree Fund
shareholders under this Agreement to the detriment of such shareholders without
their further approval.
13. NOTICES
Any notice, report, demand or other communication to either party required
or permitted by any provision of this Agreement shall be in writing and shall be
given by hand delivery, or prepaid certified mail or overnight service,
addressed to such party c/o Prudential Mutual Fund Management, Inc., One Seaport
Plaza, New York, New York 10292, Attention: S. Jane Rose.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT
14.1 The paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each
of which will be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance
with the laws of the State of New York; provided that, in the case of any
conflict between such laws and the federal securities laws, the latter shall
govern.
14.4 This Agreement shall bind and inure to the benefit of the parties
and their respective successors and assigns, and no assignment or transfer
hereof or of any rights or obligations hereunder shall be made by either
party without the written consent of the other party. Nothing herein
expressed or implied is intended or shall be construed to confer upon or
give any person, firm or corporation other than the parties and their
respective successors and assigns any rights or remedies under or by reason
of this Agreement.
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15. POSTPONEMENT OF CLOSING
15.1 If the difference between the net asset values per share of the
Funds equals or exceeds $.0025 at the time of Closing (or such earlier or
later day and time as the parties may agree to and set forth in writing
signed by their duly authorized officers), as computed by using the market
values of the Funds' respective assets in accordance with the policies and
procedures established by the Investment Companies (or as otherwise mutually
determined by their respective Trustees/Directors), either Investment
Company may postpone the Closing until such time as such per share net asset
value difference is less than $.0025.
15.2 If, as of the Closing, PMF reasonably determines that consummation
of the Reorganization will result in recognition to Acquiree Fund for
federal income tax purposes of gain or loss of $.0010 or more per share, the
Closing shall be postponed until the first date on which, as of 12:00 noon,
PMF shall determine that such recognition of gain or loss will be less that
$.0010 per share, in which event such date shall be the Closing Date, unless
the parties otherwise agree.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed by its President or Vice President.
THE PRUDENTIAL INSTITUTIONAL FUND,
on behalf of its series,
Money Market Fund
By: /s/ MARK R. FETTING
------------------------------------
Mark R. Fetting
President
PRUDENTIAL MONEYMART ASSETS, INC.
By: /s/ RICHARD A. REDEKER
------------------------------------
Richard A. Redeker
President
A-15
<PAGE>
APPENDIX B
PRUDENTIAL MONEYMART ASSETS, INC.
NOMINATED SLATE OF DIRECTORS
(AS OF JULY 31, 1996)
The following is information about the nominated slate of Directors to be
presented to MoneyMart Assets' shareholders at an annual meeting anticipated to
be held in October 1996. For information on Prudential MoneyMart Assets, Inc.'s
current Directors, see the Prudential MoneyMart Assets, Inc. Statement of
Additional Information, which may be obtained by calling (800) 225-1852.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE DURING PAST FIVE YEARS
- ---------------------------------- ------------------------------------------------------------------------------
<S> <C>
Edward D. Beach (71) President and Director of BMC Fund, Inc., a closed-end investment company;
c/o Prudential Mutual Fund prior thereto Vice Chairman of Broyhill Furniture Industries, Inc.; Certified
Management, Inc. Public Accountant; Secretary and Treasurer of Broyhill Family Foundation,
One Seaport Plaza Inc.; Member of the Board of Trustees of Mars Hill College; President,
New York, NY Treasurer and Director of First Financial Fund, Inc. and The High Yield Plus
Fund, Inc.
Stephen C. Eyre (73) Executive Director, The John A. Hartford Foundation, Inc. (charitable
c/o Prudential Mutual Fund foundation) (since May 1985); Director of Faircom, Inc.; Munich American
Management, Inc. Reinsurance Company and Munich Management Corporation.
One Seaport Plaza
New York, NY
Delayne Dedrick Gold (58) Marketing and Management Consultant.
c/o Prudential Mutual Fund
Management, Inc.
One Seaport Plaza
New York, NY
Don G. Hoff (60) Chairman and Chief Executive Officer of Intertec, Inc. (investments) since
c/o Prudential Mutual Fund 1980; Director of Innovative Capital Management, Inc., The Asia Pacific Fund,
Management, Inc. Inc. and The Greater China Fund, Inc.
One Seaport Plaza
New York, NY
Robert E. LaBlanc (62) President of Robert E. LaBlanc Associates, Inc. (telecommunications) since
c/o Prudential Mutual Fund 1981; Director of Contel Cellular, Inc., M/A-Com, Inc., Storage Technology
Management, Inc. Corporation, TIE/communications, Inc. and Tribune Company; Trustee of
One Seaport Plaza Manhattan College.
New York, NY
</TABLE>
B-1
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE DURING PAST FIVE YEARS
- ---------------------------------- ------------------------------------------------------------------------------
<S> <C>
*Richard A. Redeker (53) President, Chief Executive Officer and Director (since October 1993),
One Seaport Plaza Prudential Mutual Fund Management, Inc.; Executive Director and Member of
New York, NY Operating Committee (since October 1993), Prudential Securities Incorporated;
Director (since October 1993) of Prudential Securities Group, Inc.; Executive
Vice President (since July 1994), The Prudential Investment Corporation;
Director (since January 1994), Prudential Mutual Fund Distributors, Inc. and
Prudential Mutual Fund Services, Inc.; formerly Senior Executive Vice
President and Director (September 1978-September 1993) of Kemper Financial
Services, Inc.; and Director of The High Yield Income Fund, Inc.
Robin B. Smith (56) President (since September 1981) and Chief Executive Officer (since January
c/o Prudential Mutual Fund 1988) of Publishers Clearing House; Director of BellSouth Corporation, The
Management, Inc. Omnicom Group, Inc., Spring Industries, Inc., Texaco Inc., First Financial
One Seaport Plaza Fund, Inc., The High Yield Income Fund, Inc. and The High Yield Plus Fund,
New York, NY Inc.
Stephen Stoneburn (53) President, Argus Integrated Media, Inc. (since June 1995); formerly Senior
c/o Prudential Mutual Fund Vice President and Managing Director (January 1993-1995), Cowles Business
Management, Inc. Media; prior thereto Senior Vice President (January 1991-1992) and Publishing
One Seaport Plaza Vice President (May 1989-December 1990) of Gralla Publications, a division of
New York, NY United Newspapers, U.K.; formerly Senior Vice President of Fairchild
Publications, Inc.
Nancy H. Teeters (66) Economist; formerly Vice President and Chief Economist (March 1986-June 1990)
c/o Prudential Mutual Fund of International Business Machines Corporation; Director of Inland Steel
Management, Inc. Corporation (since July 1991) and First Financial Fund, Inc.
One Seaport Plaza
New York, NY
</TABLE>
- ------------------------
* "Interested" director, as defined in the Investment Company Act of 1940, by
reason of his affiliation with Prudential Securities Incorporated or
Prudential Mutual Fund Management, Inc.
The above Nominees are also trustees, directors and officers of some or all of
the other investment companies distributed by Prudential Securities
Incorporated.
B-2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SYNOPSIS................................................................................................... 2
General................................................................................................ 2
The Proposed Reorganization and Liquidation............................................................ 2
Reasons for the Proposed Reorganization................................................................ 3
Structure of MoneyMart Assets and Money Market Fund.................................................... 4
Investment Objectives and Policies..................................................................... 5
Certain Differences Between MoneyMart Assets and Money Market Fund..................................... 7
Fees and Expenses...................................................................................... 8
Management Fees.................................................................................... 8
Distribution Fees.................................................................................. 8
Administration Fees................................................................................ 9
Other Expenses..................................................................................... 9
Expense Ratios, Fee Waivers and Subsidy............................................................ 9
Purchases and Redemptions.............................................................................. 11
Exchange Privileges.................................................................................... 11
Dividends and Other Distributions...................................................................... 12
Federal Income Tax Consequences of the Proposed Reorganization......................................... 12
PRINCIPAL RISK FACTORS..................................................................................... 12
Stable Net Asset Value................................................................................. 12
Foreign Investments.................................................................................... 12
Borrowing.............................................................................................. 13
ANNUAL MEETING OF MONEYMART ASSETS SHAREHOLDERS............................................................ 13
THE PROPOSED TRANSACTION................................................................................... 13
Asset/Stock Exchange Agreement......................................................................... 13
Reasons for the Reorganization......................................................................... 15
Description of Securities to be Issued................................................................. 15
Federal Income Tax Considerations...................................................................... 15
Certain Comparative Information About MoneyMart Assets and Institutional Fund.......................... 17
Organization....................................................................................... 17
Capitalization..................................................................................... 17
Shareholder Meetings and Voting Rights............................................................. 17
Shareholder Liability.............................................................................. 17
Liability and Indemnification of Trustees/Directors................................................ 17
Pro Forma Capitalization and Ratios.................................................................... 18
INFORMATION ABOUT MONEYMART ASSETS......................................................................... 18
INFORMATION ABOUT MONEY MARKET FUND........................................................................ 20
MISCELLANEOUS.............................................................................................. 21
Additional Information................................................................................. 21
Legal Matters.......................................................................................... 21
Experts................................................................................................ 21
VOTING INFORMATION......................................................................................... 21
OTHER MATTERS.............................................................................................. 23
SHAREHOLDERS' PROPOSALS.................................................................................... 23
APPENDIX A--Asset/Stock Exchange Agreement................................................................. A-1
APPENDIX B--Nominated Slate of Directors--MoneyMart Assets................................................. B-1
TABLE OF CONTENTS
ENCLOSURE
Prospectus of MoneyMart Assets--Class Z Shares dated March 1, 1996.
</TABLE>
<PAGE>
[LETTERHEAD]
August 5, 1996
Dear Plan Participant:
As announced in early June, one of the first significant actions following
the formation of the Prudential Money Management Group was the approval by the
Board of Trustees of The Prudential Institutional Fund (PIF) to combine the
seven institutional series of funds with the broader Prudential Mutual Fund
(PMF) family. Pending approval of the Board's action, as shown in the chart
below, the four largest PIF funds will continue with the same investment
objectives and portfolio managers. The three smaller funds will be combined with
similar, but not identical, PMF funds.
<TABLE>
<CAPTION>
CURRENT FUND NEW FUND INVESTMENT PORTFOLIO MANAGERS
OBJECTIVE
<S> <C> <C> <C>
International Stock Fund International Stock Series Same Peter Spano
Class Z (no change)
Growth Stock Fund Prudential Jennison Fund Same David Poiesz
Class Z (no change)
Stock Index Fund Stock Index Fund Same John Moschberger
Class Z (no change)
Active Balanced Fund Active Balanced Fund Same Bradley Goldberg
Class Z (no change)
Balanced Fund Prudential Allocation Fund Similar Gregory Goldberg
Balanced Portfolio Class Z
Income Fund Prudential Government Income Fund Similar Barbara Kenworthy
Class Z
Money Market Fund Prudential MoneyMart Assets Similar Joseph Tully
Class Z
</TABLE>
As a shareholder, you are being asked to consider the action taken by the
Board. ENCLOSED IS A COMBINED PROXY/PROSPECTUS STATEMENT DISCUSSING THE RELEVANT
FUND CONSOLIDATION IN DETAIL AND THE REASONS WHY THE BOARD BELIEVES THE
CONSOLIDATION IS IN THE BEST INTEREST OF THE SHAREHOLDERS. ALSO ENCLOSED IS THE
BALLOT CARD FOR USE IN VOTING YOUR SHARES. PLEASE INDICATE YOUR VOTE AND RETURN
IT IN THE ENVELOPE PROVIDED.
As noted on the front of the proxy, a Special Meeting of Shareholders will
be held on September 6, 1996 to approve the consolidation changes. If approved,
the changes for your particular funds will appear on your quarterly statement
following the Shareholder Meeting. No further action will be required on your
part. If you have questions regarding the consolidation, please contact any
member of your Prudential service team at 1-800-458-6333. Your Prudential team
remains committed to providing quality retirement services to help you achieve
financial security.
Sincerely,
/s/ Mark R. Fetting
Enclosures
<PAGE>
[LETTERHEAD]
August 5, 1996
Dear Pru-DC Client:
As announced in early June, one of the first significant actions following
the formation of the Prudential Money Management Group was the approval by the
Board of Trustees of The Prudential Institutional Fund (PIF) to combine the
seven institutional series of funds with the broader Prudential Mutual Fund
(PMF) family. Pending approval of the Board's action, as shown in the chart
below, the four largest PIF funds will continue with the same investment
objectives and portfolio managers. The three smaller funds will be combined with
similar, but not identical, PMF funds.
<TABLE>
<CAPTION>
CURRENT FUND NEW FUND INVESTMENT PORTFOLIO MANAGERS
OBJECTIVE
<S> <C> <C> <C>
International Stock Fund International Stock Series Same Peter Spano
Class Z (no change)
Growth Stock Fund Prudential Jennison Fund Same David Poiesz
Class Z (no change)
Stock Index Fund Stock Index Fund Same John Moschberger
Class Z (no change)
Active Balanced Fund Active Balanced Fund Same Bradley Goldberg
Class Z (no change)
Balanced Fund Prudential Allocation Fund Similar Gregory Goldberg
Balanced Portfolio Class Z
Income Fund Prudential Government Income Fund Similar Barbara Kenworthy
Class Z
Money Market Fund Prudential MoneyMart Assets Similar Joseph Tully
Class Z
</TABLE>
As a shareholder, you are being asked to consider the action taken by the
Board. ENCLOSED IS A COMBINED PROXY/PROSPECTUS STATEMENT DISCUSSING THE RELEVANT
FUND CONSOLIDATION IN DETAIL AND THE REASONS WHY THE BOARD BELIEVES THE
CONSOLIDATION IS IN THE BEST INTEREST OF THE SHAREHOLDERS. ALSO ENCLOSED IS THE
BALLOT CARD FOR USE IN VOTING YOUR SHARES. PLEASE INDICATE YOUR VOTE AND RETURN
IT IN THE ENVELOPE PROVIDED.
As noted on the front of the proxy, a Special Meeting of Shareholders will
be held on September 6, 1996 to approve the consolidation changes. If approved,
the changes for your particular funds will appear on your quarterly statement
following the Shareholder Meeting. No further action will be required on your
part. If you have questions regarding the consolidation, please contact any
member of your Prudential service team. We remain committed to providing quality
retirement services to help you achieve financial security.
Sincerely,
/s/ Mark R. Fetting
Enclosures
<PAGE>
[LETTERHEAD]
August 5, 1996
Dear Pru-DC Client:
As announced in early June, one of the first significant actions following
the formation of the Prudential Money Management Group was the approval by the
Board of Trustees of The Prudential Institutional Fund (PIF) to combine the
seven institutional series of funds with the broader Prudential Mutual Fund
(PMF) family. Pending approval of the Board's action, as shown in the chart
below, the four largest PIF funds will continue with the same investment
objectives and portfolio managers. The three smaller funds will be combined with
similar, but not identical, PMF funds.
<TABLE>
<CAPTION>
CURRENT FUND NEW FUND INVESTMENT PORTFOLIO
OBJECTIVE MANAGERS
<S> <C> <C> <C>
International Stock Fund International Stock Series Same Peter Spano
Class Z (no change)
Growth Stock Fund Prudential Jennison Fund Same David Poiesz
Class Z (no change)
Stock Index Fund Stock Index Fund Same John Moschberger
Class Z (no change)
Active Balanced Fund Active Balanced Fund Same Bradley Goldberg
Class Z (no change)
Balanced Fund Prudential Allocation Fund Similar Gregory Goldberg
Balanced Portfolio Class Z
Income Fund Prudential Government Income Fund Similar Barbara Kenworthy
Class Z
Money Market Fund Prudential MoneyMart Assets Similar Joseph Tully
Class Z
</TABLE>
As a shareholder, you are being asked to consider the action taken by the
Board. ENCLOSED IS A COMBINED PROXY/PROSPECTUS STATEMENT DISCUSSING THE RELEVANT
FUND CONSOLIDATION IN DETAIL AND THE REASONS WHY THE BOARD BELIEVES THE
CONSOLIDATION IS IN THE BEST INTEREST OF THE SHAREHOLDERS. ALSO ENCLOSED IS THE
BALLOT CARD FOR USE IN VOTING YOUR SHARES. PLEASE INDICATE YOUR VOTE AND RETURN
IT IN THE ENVELOPE PROVIDED.
As noted on the front of the proxy, a Special Meeting of Shareholders will
be held on September 6, 1996 to approve the consolidation changes. If approved,
the changes will appear on quarterly statements following the Shareholder
Meeting. No further action will be required on your part. If you have questions
regarding the consolidation, please contact any member of your Prudential
service team. We remain committed to providing quality retirement services to
help you and your participants achieve financial security.
Sincerely,
/s/ Mark R. Fetting
Enclosures
<PAGE>
[LETTERHEAD]
August 5, 1996
Dear Plan Participant:
As announced in early June, one of the first significant actions following
the formation of the Prudential Money Management Group was the approval by the
Board of Trustees of The Prudential Institutional Fund (PIF) to combine the
seven institutional series of funds with the broader Prudential Mutual Fund
(PMF) family. Pending approval of the Board's action, as shown in the chart
below, the four largest PIF funds will continue with the same investment
objectives and portfolio managers. The three smaller funds will be combined with
similar, but not identical, PMF funds.
<TABLE>
<CAPTION>
CURRENT FUND NEW FUND INVESTMENT PORTFOLIO MANAGERS
OBJECTIVE
<S> <C> <C> <C>
International Stock Fund International Stock Series Same Peter Spano
Class Z (no change)
Growth Stock Fund Prudential Jennison Fund Same David Poiesz
Class Z (no change)
Stock Index Fund Stock Index Fund Same John Moschberger
Class Z (no change)
Active Balanced Fund Active Balanced Fund Same Bradley Goldberg
Class Z (no change)
Balanced Fund Prudential Allocation Fund Similar Gregory Goldberg
Balanced Portfolio Class Z
Income Fund Prudential Government Income Fund Similar Barbara Kenworthy
Class Z
Money Market Fund Prudential MoneyMart Assets Similar Joseph Tully
Class Z
</TABLE>
As a shareholder, you are being asked to consider the action taken by the
Board. ENCLOSED IS A COMBINED PROXY/PROSPECTUS STATEMENT DISCUSSING THE RELEVANT
FUND CONSOLIDATION IN DETAIL AND THE REASONS WHY THE BOARD BELIEVES THE
CONSOLIDATION IS IN THE BEST INTEREST OF THE SHAREHOLDERS. ALSO ENCLOSED IS THE
BALLOT CARD FOR USE IN VOTING YOUR SHARES. PLEASE INDICATE YOUR VOTE AND RETURN
IT IN THE ENVELOPE PROVIDED.
As noted on the front of the proxy, a Special Meeting of Shareholders will
be held on September 6, 1996 to approve the consolidation changes. If approved,
the changes for your particular funds will appear on your quarterly statement
following the Shareholder Meeting. No further action will be required on your
part. If you have questions regarding the consolidation, please contact any
member of your Prudential service team at 1-800-562-8838. Your Prudential team
remains committed to providing quality retirement services to help you achieve
financial security.
Sincerely,
/s/ Mark R. Fetting
Enclosures
<PAGE>
[LETTERHEAD]
August 5, 1996
Dear Plan Participant:
As announced in early June, one of the first significant actions following
the formation of the Prudential Money Management Group was the approval by the
Board of Trustees of The Prudential Institutional Fund (PIF) to combine each of
the series of fund with the broader Prudential Mutual Fund (PMF) family. Pending
approval of the Board's action, as shown in the chart below, the four largest
PIF funds will continue with the same investment objectives and portfolio
managers. The remaining funds will be combined with similar, but not identical,
PMF funds.
<TABLE>
<CAPTION>
CURRENT FUND NEW FUND INVESTMENT PORTFOLIO MANAGERS
OBJECTIVE
<S> <C> <C> <C>
International Stock Fund International Stock Series Same Peter Spano
Class Z (no change)
Growth Stock Fund Prudential Jennison Fund Same David Poiesz
Class Z (no change)
Stock Index Fund Stock Index Fund Same John Moschberger
Class Z (no change)
Active Balanced Fund Active Balanced Fund Same Bradley Goldberg
Class Z (no change)
Balanced Fund Prudential Allocation Fund Similar Gregory Goldberg
Balanced Portfolio Class Z
Income Fund Prudential Government Income Fund Similar Barbara Kenworthy
Class Z
</TABLE>
As a shareholder, you are being asked to consider the action taken by the
Board. ENCLOSED IS A COMBINED PROXY/PROSPECTUS STATEMENT DISCUSSING THE RELEVANT
FUND CONSOLIDATION IN DETAIL AND THE REASONS WHY THE BOARD BELIEVES THE
CONSOLIDATION IS IN THE BEST INTEREST OF THE SHAREHOLDERS. ALSO ENCLOSED IS THE
BALLOT CARD FOR USE IN VOTING YOUR SHARES. PLEASE INDICATE YOUR VOTE AND RETURN
IT IN THE ENVELOPE PROVIDED.
As noted on the front of the proxy, a Special Meeting of Shareholders will
be held on September 6, 1996 to approve the consolidation changes. If approved,
the changes for your particular funds will appear on your quarterly statement
following the Shareholder Meeting. No further action will be required on your
part. If you have questions regarding the consolidation, please contact any
member of your Prudential service team at 1-800-458-6333. Your Prudential team
remains committed to providing quality retirement services to help you achieve
financial security.
Sincerely,
/s/ Mark R. Fetting
Enclosures
<PAGE>
PRUDENTIAL MONEYMART ASSETS, INC.
(CLASS Z SHARES)
- --------------------------------------------------------------------------------
Prospectus dated March 1, 1996
- --------------------------------------------------------------------------------
Prudential MoneyMart Assets, Inc. (the Fund), is an open-end, diversified,
management investment company, or mutual fund. Its investment objective is
maximum current income consistent with stability of capital and the maintenance
of liquidity. The Fund seeks to achieve this objective by investing primarily in
a portfolio of money market instruments maturing in thirteen months or less.
There can be no assurance that the Fund's investment objective will be achieved.
See "How the Fund Invests--Investment Objective and Policies."
The Fund's address is One Seaport Plaza, New York, New York 10292, and its
telephone number is (800) 225-1852.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE. SEE "HOW THE FUND VALUES ITS
SHARES."
- --------------------------------------------------------------------------------
Class Z shares are offered exclusively for sale to participants in the PSI
401(k) Plan, an employee benefit plan sponsored by Prudential Securities
Incorporated (the PSI 401(k) Plan or the Plan). Only Class Z shares are offered
through this Prospectus. The Fund also offers Class A shares through the
attached Prospectus dated March 1, 1996 (the Retail Class Prospectus), which is
a part hereof.
- --------------------------------------------------------------------------------
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Additional information
about the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated March 1, 1996, which information is
incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Fund at the
address or telephone number noted above.
- --------------------------------------------------------------------------------
INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES CLASS Z SHARES
--------------
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) ............................... None
Maximum Sales Load or Deferred Sales Load Imposed on Reinvested
Dividends ......................................................... None
Deferred Sales Load (as a percentage of original purchase price
or redemption proceeds, whichever is lower) ....................... None
Redemption Fees .................................................... None
Exchange Fee ....................................................... None
ANNUAL FUND OPERATING EXPENSES* CLASS Z SHARES
--------------
(as a percentage of average net assets)
Management Fees ................................................... .301%
12b-1 Fees ........................................................ None
Other Expenses .................................................... .262%
-----
Total Fund Operating Expenses ..................................... .563%
=====
1 3 5 10
EXAMPLE YEAR YEARS YEARS YEARS
---- ----- ----- -----
You would pay the following expenses on
a $1,000 investment, assuming: (1) 5% annual
return and (2) redemption at the end of each
time period:
Class Z ........................ ............ $6 $18 $31 $71
The above example is based on expenses expected to have been incurred if Class Z
shares had been in existence throughout the fiscal year ended December 31, 1995.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The purpose of this table is to assist investors in understanding the various
costs and expenses that an investor in Class Z shares of the Fund will bear,
whether directly or indirectly. For more complete descriptions of the various
costs and expenses, see "How the Fund is Managed." "Other Expenses" includes
operating expenses of the Fund, such as Directors' and professional fees,
registration fees, reports to shareholders and transfer agency and custodian
fees.
- ----------
* Estimated based on expenses expected to have been incurred if Class Z shares
had been in existence throughout the fiscal year ended December 31, 1995.
2
<PAGE>
THE FOLLOWING INFORMATION SUPPLEMENTS "HOW THE FUND IS MANAGED--DISTRIBUTOR" IN
THE RETAIL CLASS PROSPECTUS:
Prudential Securities serves as the Distributor of Class Z shares and
incurs the expenses of distributing the Fund's Class Z shares under a
Distribution Agreement with the Fund, none of which is reimbursed by or paid for
by the Fund.
THE FOLLOWING INFORMATION SUPPLEMENTS "TAXES, DIVIDENDS AND
DISTRIBUTIONS--TAXATION OF SHAREHOLDERS" IN THE RETAIL CLASS PROSPECTUS:
As a qualified plan, the PSI 401(k) Plan generally pays no federal income
tax. Individual participants in the Plan should consult Plan documents and their
own tax advisers for information on the tax consequences associated with
participating in the PSI 401(k) Plan.
THE FOLLOWING INFORMATION SUPPLEMENTS "SHAREHOLDER GUIDE--HOW TO BUY SHARES OF
THE FUND" AND "SHAREHOLDER GUIDE--HOW TO SELL YOUR SHARES" IN THE RETAIL CLASS
PROSPECTUS:
Class Z shares of the Fund are offered exclusively for sale to participants
in the PSI 401(k) Plan. Such shares may be purchased or redeemed only by the
Plan on behalf of individual Plan participants at NAV without any sales or
redemption charge. Class Z shares are not subject to any minimum investment
requirements. The Plan purchases and redeems shares to implement the investment
choices of individual Plan participants with respect to contributions in the
Plan. All purchases through the Plan will be for Class Z shares. Effective as of
March 1, 1996, Fund shares held through the PSI 401(k) Plan on behalf of
participants will be automatically exchanged for Class Z shares. Individual Plan
participants should contact the Prudential Securities Benefits Department for
information on making or changing investment choices. The Prudential Securities
Benefits Department is located at One Seaport Plaza, 33rd Floor, New York, New
York 10292 and may be reached by calling (212) 214-7194.
THE FOLLOWING INFORMATION SUPPLEMENTS "SHAREHOLDER GUIDE--HOW TO EXCHANGE YOUR
SHARES" IN THE RETAIL CLASS PROSPECTUS:
Class Z shareholders of the Fund may exchange their Class Z shares for
Class Z shares of certain other Prudential Mutual Funds on the basis of relative
net asset value. You should contact the Prudential Securities Benefits
Department about how to exchange your Class Z shares. See "How to Buy Shares of
the Fund" above. Participants who wish to transfer their Class Z shares out of
the PSI 401(k) Plan following separation from service (i.e., voluntary or
involuntary termination of employment or retirement) will have their Class Z
shares exchanged for Class A shares at net asset value.
THE INFORMATION ABOVE ALSO SUPPLEMENTS THE INFORMATION UNDER "FUND HIGHLIGHTS"
IN THE RETAIL CLASS PROSPECTUS AS APPROPRIATE.
3
<PAGE>
PRUDENTIAL MONEYMART ASSETS, INC.
- --------------------------------------------------------------------------------
Prospectus dated March 1, 1996
- --------------------------------------------------------------------------------
Prudential MoneyMart Assets, Inc. (the Fund), is an open-end, diversified,
management investment company, or mutual fund. Its investment objective is
maximum current income consistent with stability of capital and the maintenance
of liquidity. The Fund seeks to achieve this objective by investing primarily in
a portfolio of money market instruments maturing in thirteen months or less.
There can be no assurance that the Fund's investment objective will be achieved.
See "How the Fund Invests--Investment Objective and Policies."
The Fund's address is One Seaport Plaza, New York, New York 10292, and its
telephone number is (800) 225-1852.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE. SEE "HOW THE FUND VALUES ITS
SHARES."
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Additional information
about the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated March 1, 1996, which information is
incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Fund at the
address or telephone number noted above.
- --------------------------------------------------------------------------------
INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
FUND HIGHLIGHTS
The following summary is intended to highlight certain information
contained in this Prospectus and is qualified in its entirety by the more
detailed information appearing elsewhere herein.
WHAT IS PRUDENTIAL MONEYMART ASSETS, INC.?
Prudential MoneyMart Assets, Inc. is a mutual fund. A mutual fund pools the
resources of investors by selling its shares to the public and investing the
proceeds of such sale in a portfolio of securities designed to achieve its
investment objective. Technically, the Fund is an open-end, diversified,
management investment company.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is maximum current income consistent with
stability of capital and the maintenance of liquidity. The Fund invests
primarily in a portfolio of money market instruments maturing in thirteen months
or less. There can be no assurance that the Fund's investment objective will be
achieved. See "How the Fund Invests--Investment Objective and Policies" at page
6.
RISK FACTORS AND SPECIAL CHARACTERISTICS
It is anticipated that the net asset value (NAV) of the Fund will remain
constant at $1.00 per share, although this cannot be assured. In order to
maintain such constant net asset value, the Fund will value its portfolio
securities at amortized cost. While this method provides certainty in valuation,
it may result in periods during which the value of a security in the Fund's
portfolio, as determined by amortized cost, is higher or lower than the price
the Fund would receive if it sold such security. See "How the Fund Values its
Shares" at page 12.
WHO MANAGES THE FUND?
Prudential Mutual Fund Management, Inc. (PMF or the Manager) is the Manager
of the Fund and is compensated for its services at an annual rate of .50 of 1%
of the Fund's average daily net assets up to $50 million and .30 of 1% of the
Fund's average daily net assets in excess of $50 million. As of January 31,
1996, PMF served as manager or administrator to 60 investment companies,
including 38 mutual funds, with aggregate assets of approximately $52 billion.
The Prudential Investment Corporation (PIC or the Subadviser) furnishes
investment advisory services in connection with the management of the Fund under
a Subadvisory Agreement with PMF. See "How the Fund is Managed--Manager" at page
9.
WHO DISTRIBUTES THE FUND'S SHARES?
Prudential Securities Incorporated (Prudential Securities or PSI), a major
securities underwriter and securities and commodities broker, acts as the
Distributor of the Fund's shares. The Fund reimburses PSI for expenses related
to the distribution of the Fund's Class A shares at an annual rate of up to .125
of 1% of the average daily net assets of the Class A shares of the Fund. See
"How the Fund is Managed--Distributor" at page 10.
2
<PAGE>
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment is $1,000. The minimum subsequent investment
is $100. Prudential Securities reserves the right to impose a higher minimum
subsequent amount from time to time as it may deem appropriate. There is no
minimum investment requirement for certain retirement and employee savings plans
or custodial accounts for the benefit of minors. For purchases made through the
Automatic Savings Accumulation Plan, the minimum initial and subsequent
investment is $50. See "Shareholder Guide--How to Buy Shares of the Fund" at
page 14 and "Shareholder Guide--Shareholder Services" at page 20.
HOW DO I PURCHASE SHARES?
You may purchase Class A shares of the Fund through Prudential Securities,
Pruco Securities Corporation (Prusec) or directly from the Fund through its
transfer agent, Prudential Mutual Fund Services, Inc. (PMFS or the Transfer
Agent), at the NAV next determined after receipt of your purchase order by the
Transfer Agent or Prudential Securities. In addition, PSI has instituted
procedures pursuant to which, upon enrollment by a Prudential Securities client,
Prudential Securities will make automatic investments of free credit cash
balances of $1,000 or more ($1.00 for IRAs and Benefit Plans) (Eligible Cash
Balances) held in such client's account in Class A shares of the Fund
(Autosweep). See "How the Fund Values its Shares" at page 12 and "Shareholder
Guide--How to Buy Shares of the Fund" at page 14.
HOW DO I SELL MY SHARES?
You may redeem Class A shares of the Fund at any time at the NAV next
determined after Prudential Securities or the Transfer Agent receives your sell
order. See "Shareholder Guide--How to Sell Your Shares" at page 17.
HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?
The Fund expects to declare daily and pay monthly dividends of net
investment income. Dividends will be automatically reinvested in additional
Class A shares of the Fund at NAV unless you request that they be paid to you in
cash. See "Taxes, Dividends and Distributions" at page 12.
3
<PAGE>
FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases ............................ None
Maximum Sales Load Imposed on Reinvested Dividends ................. None
Deferred Sales Load ................................................ None
Redemption Fees .................................................... None
Exchange Fee ....................................................... None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .................................................... .301%
12b-1 Fees ......................................................... .125%
Other Expenses ..................................................... .262%
-----
Total Fund Operating Expenses ...................................... .688%
=====
1 3 5 10
EXAMPLE YEAR YEARS YEARS YEARS
---- ----- ----- -----
You would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual
return and (2) redemption at the end of
each time period: ............................. $7 $22 $38 $86
The above example is based on data for the Fund's fiscal year ended December 31,
1995. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The purpose of the table is to assist an investor in understanding the various
costs and expenses that an investor in the Fund will bear, whether directly or
indirectly. For more complete descriptions of the various costs and expenses,
see "How the Fund is Managed." "Other Expenses" includes operating expenses of
the Fund, such as Directors' and professional fees, registration fees, reports
to shareholders and transfer agency and custodian fees.
4
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR INDICATED)
The following financial highlights, with respect to the five-year period
ended December 31, 1995, for the Class A shares have been audited by Deloitte &
Touche LLP, independent accountants, whose report thereon was unqualified. This
information should be read in conjunction with the financial statements and
notes thereto, which appear in the Statement of Additional Information. The
following financial highlights contain selected data for a share of capital
stock outstanding, total return, ratios to average net assets and other
supplemental data for the years indicated. This information is based on data
contained in the financial statements. Further performance information is
contained in the annual report which may be obtained without charge. See
"Shareholder Guide -- Shareholder Services -- Reports to Shareholders."
<TABLE>
<CAPTION>
CLASS A SHARES(B)
---------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991
---------- ---------- ---------- ----------- ----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year ..... $1.000 $1.000 $1.000 $1.000 $1.000
Net investment income and net
realized gains ........................ .054 .037 .027 .035 .058
Dividends and distributions ............ (.054) (.037) (.027) (.035) (.058)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ........... $1.000 $1.000 $1.000 $1.000 $1.000
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
TOTAL RETURN(A): ....................... 5.51% 3.72% 2.70% 3.59% 5.95%
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) .......... $7,221,658 $6,544,880 $7,318,633 $6,703,281 $7,138,159
Average net assets (000) ............... $6,914,520 $7,071,381 $7,742,989 $7,116,739 $7,763,251
Ratios to average net assets:
Expenses, including distribution fee ... .69% .71% .71% .66% .68%
Expenses, excluding distribution fee ... .56% .58% .58% .54% .56%
Net investment income .................. 5.38% 3.65% 2.63% 3.43% 5.72%
<CAPTION>
1990 1989 1988 1987 1986
---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year ..... $1.000 $1.000 $1.000 $1.000 $1.000
Net investment income and net
realized gains ........................ .077 .086 .069 .061 .063
Dividends and distributions ............ (.077) (.086) (.069) (.061) (.063)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ........... $1.000 $1.000 $1.000 $1.000 $1.000
========== ========== ========== ========== ==========
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
TOTAL RETURN(A): ....................... 8.00% 8.96% 7.11% 6.33% 6.48%
========== ========== ========== ========== ==========
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) .......... $7,411,932 $8,168,972 $5,240,662 $4,620,542 $3,875,978
Average net assets (000) ............... $8,262,329 $6,947,060 $5,139,264 $4,412,175 $3,846,982
Ratios to average net assets:
Expenses, including distribution fee ... .73% .69% .71% .69% .64%
Expenses, excluding distribution fee ... .60% .57% .58% .57% .52%
Net investment income .................. 7.62% 8.57% 6.98% 6.06% 6.22%
</TABLE>
- ----------
(a) 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.
(b) Effective March 1, 1996, the shares were designated as Class A shares.
5
<PAGE>
CALCULATION OF YIELD
THE FUND CALCULATES ITS "CURRENT YIELD" based on the net change, exclusive
of realized and unrealized gains or losses, in the value of a hypothetical
account over a seven calendar day base period. THE FUND ALSO CALCULATES ITS
"EFFECTIVE ANNUAL YIELD" assuming weekly compounding. The following is an
example of the current and effective annual yield calculations as of December
31, 1995:
Value of hypothetical account at end of period .......... $1.001003580
Value of hypothetical account at beginning of period .... 1.000000000
------------
Base period return ...................................... $ .001003580
------------
------------
CURRENT YIELD (0.001003580 (times) (365/7)) ............. 5.23%
EFFECTIVE ANNUAL YIELD, assuming weekly compounding ..... 5.36%
THE YIELD WILL FLUCTUATE FROM TIME TO TIME AND DOES NOT INDICATE FUTURE
PERFORMANCE.
The weighted average life to maturity of the Fund's portfolio on December
31, 1995 was 48 days.
Yield is computed in accordance with a standardized formula described in
the Statement of Additional Information. In addition, comparative performance
information may be used from time to time in advertising or marketing the Fund's
shares, including data from Lipper Analytical Services, Inc., Morningstar
Publications, Inc., IBC/Donoghue's Money Fund Report, The Bank Rate Monitor,
other industry publications, business periodicals and market indices.
HOW THE FUND INVESTS
INVESTMENT OBJECTIVE AND POLICIES
THE INVESTMENT OBJECTIVE OF THE FUND IS MAXIMUM CURRENT INCOME CONSISTENT
WITH STABILITY OF CAPITAL AND THE MAINTENANCE OF LIQUIDITY. THE FUND INVESTS
PRIMARILY IN A PORTFOLIO OF MONEY MARKET INSTRUMENTS MATURING IN THIRTEEN MONTHS
OR LESS. THERE CAN BE NO ASSURANCE THAT THIS OBJECTIVE WILL BE ACHIEVED.
THE FUND'S INVESTMENT OBJECTIVE IS A FUNDAMENTAL POLICY AND, THEREFORE, MAY
NOT BE CHANGED WITHOUT THE APPROVAL OF THE HOLDERS OF A MAJORITY OF THE FUND'S
OUTSTANDING VOTING SECURITIES, AS DEFINED IN THE INVESTMENT COMPANY ACT OF 1940,
AS AMENDED (THE INVESTMENT COMPANY ACT). POLICIES THAT ARE NOT FUNDAMENTAL MAY
BE MODIFIED BY THE FUND'S BOARD OF DIRECTORS.
The types of instruments utilized in seeking to accomplish this objective
include:
1. U.S. Treasury bills and other obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
2. Obligations (including certificates of deposit and bankers' acceptances)
of (a) banks organized under the laws of the United States or any state thereof
(including foreign branches of such banks) or (b) U.S. branches of foreign banks
or (c) foreign banks and foreign branches thereof; provided that such banks
have, at the time of acquisition by the Fund of such obligations, total assets
of not less than $1 billion or its equivalent. The term "certificates of
deposit" includes both Eurodollar certificates of deposit, for which there is
generally a market, and Eurodollar time deposits, for which
6
<PAGE>
there is generally not a market. "Eurodollars" are U.S. dollars deposited in
banks outside the United States; the Fund invests in Eurodollar instruments of
foreign and domestic banks.
3. Commercial paper, variable amount demand master notes, bills, notes and
other obligations issued by a U.S. company, a foreign company or a foreign
government, its agencies or instrumentalities, maturing in thirteen months or
less, denominated in U.S. dollars, and, at the date of investment, rated at
least AA or A-2 by Standard & Poor's Ratings Group (S&P), Aa or Prime-2 by
Moody's Investors Service (Moody's) or AA or Duff 2 by Duff & Phelps Credit
Rating Co. (Duff and Phelps) or, if not rated, issued by an entity having an
outstanding unsecured debt issue rated at least AA or A-2 by S&P, Aa or Prime-2
by Moody's or AA or Duff 2 by Duff and Phelps. If such obligations are
guaranteed or supported by a letter of credit issued by a bank, such bank
(including a foreign bank) must meet the requirements set forth in the preceding
paragraph. If such obligations are guaranteed or insured by an insurance company
or other non-bank entity, such insurance company or other non-bank entity must
represent a credit of high quality, as determined by the Fund's investment
adviser under the supervision of the Fund's Board of Directors.
In selecting commercial paper and other corporate obligations for
investment by the Fund, the investment adviser considers ratings assigned by
major rating services, information concerning the financial history and
condition of the issuer and its revenue and expense prospects. The Board of
Directors monitors the credit quality of securities purchased for the Fund's
portfolio. If commercial paper or another corporate obligation held by the Fund
is assigned a lower rating or ceases to be rated, the investment adviser under
the supervision of the Board of Directors will promptly reassess whether that
security presents minimal credit risks and whether the Fund should continue to
hold the security in its portfolio. If a portfolio security presents greater
than minimal credit risks or is in default, the Fund will dispose of the
security as soon as reasonably practicable unless the Board of Directors
determines that to do so is not in the best interests of the Fund and its
shareholders.
The Fund utilizes the amortized cost method of valuation in accordance with
regulations issued by the Securities and Exchange Commission (SEC). See "How the
Fund Values its Shares." Accordingly, the Fund will limit its portfolio
investments to those U.S. dollar denominated instruments which present minimal
credit risks and which are of "eligible quality" as determined by the Fund's
investment adviser under the supervision of the Board of Directors. "Eligible
quality," for this purpose, means (i) a security rated in one of the two highest
rating categories by at least two major rating agencies assigning a rating to
the security or issuer (or, if only one agency assigned a rating, that agency)
or (ii) an unrated security deemed of comparable quality by the Fund's
investment adviser under the supervision of the Board of Directors. The purchase
by the Fund of a security of eligible quality that is rated by only one rating
agency or is unrated must be approved or ratified by the Board of Directors.
As long as the Fund utilizes the amortized cost method of valuation, it
will also comply with certain diversification requirements and will invest no
more than 5% of its total assets in "second-tier securities," with no more than
1% of its assets in any one issuer of a second-tier security. A "second-tier
security," for this purpose, is a security of eligible quality that does not
have the highest rating from at least two agencies assigning a rating to that
security or issuer (or, if only one agency assigned a rating, that agency) or an
unrated security that is deemed of comparable quality by the Fund's investment
adviser. The Fund will also maintain a dollar-weighted average portfolio
maturity of ninety days or less.
OTHER INVESTMENTS AND POLICIES
REPURCHASE AGREEMENTS
The Fund will enter into repurchase agreements whereby the seller of a
security agrees to repurchase that security from the Fund at a mutually
agreed-upon time and price. The period of maturity is usually quite short,
possibly overnight or a few days, although it may extend over a number of
months. The resale price is in excess of the purchase price,
7
<PAGE>
reflecting an agreed-upon rate of return effective for the period of time the
Fund's money is invested in the repurchase agreement. The Fund's repurchase
agreements will at all times be fully collateralized in an amount at least equal
to the resale price. The instruments held as collateral are valued daily, and if
the value of the instruments declines, the Fund will require additional
collateral. If the seller defaults and the value of the collateral securing the
repurchase agreement declines, the Fund may incur a loss. The Fund participates
in a joint repurchase account with other investment companies managed by
Prudential Mutual Fund Management, Inc. pursuant to an order of the SEC.
LIQUIDITY PUTS
The Fund also may purchase instruments of the types described above
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.
Such a right to resell is commonly known as a "put," and the aggregate price
that the Fund pays for instruments with a put may be higher than the price that
otherwise would be paid for the instruments.
FLOATING RATE AND VARIABLE RATE SECURITIES
The Fund may purchase "floating rate" and "variable rate" obligations. The
interest rates on such obligations fluctuate generally with changes in market
interest rates, and in some cases the Fund is able to demand repayment of the
principal amount of such obligations at par plus accrued interest. For
additional information concerning variable rate and floating rate obligations,
see "Investment Objective and Policies" in the Statement of Additional
Information.
SECURITIES LENDING
The Fund may lend its portfolio securities to brokers or dealers, banks or
other recognized institutional borrowers of securities, provided that the
borrower at all times maintains cash collateral in an amount equal to at least
100% of the market value of the securities loaned. During the time portfolio
securities are on loan, the borrower will pay the Fund an amount equivalent to
any interest paid on such securities and the Fund may invest the cash collateral
and earn additional income. As a matter of fundamental policy, the Fund cannot
lend more than 10% of the value of its total assets.
RISKS OF INVESTING IN FOREIGN SECURITIES
The portfolio may contain obligations of foreign banks and foreign branches
of foreign banks, U.S. branches of foreign banks and foreign branches of U.S.
banks, as well as commercial paper, bills, notes and other obligations issued in
the United States by foreign issuers, including foreign governments, their
agencies and instrumentalities. Accordingly, an investment in the Fund involves
certain additional risks. These risks include future political and economic
developments in the country of the issuer, the possible imposition of
withholding taxes on interest income payable on such obligations held by the
Fund, the possible seizure or nationalization of foreign deposits and the
possible establishment of exchange controls or other foreign governmental laws
or restrictions which might affect adversely the payment of principal and
interest on such obligations held by the Fund. In addition, there may be less
publicly available information about a foreign issuer than about a domestic one,
and foreign issuers may not be subject to the same accounting, auditing and
financial recordkeeping standards and requirements as domestic issuers.
Securities issued by foreign issuers may be subject to greater fluctuations in
price than securities issued by U.S. entities. Finally, in the event of a
default with respect to any such foreign debt obligations, it may be more
difficult for the Fund to obtain or to enforce a judgment against the issuers of
such securities.
ILLIQUID SECURITIES
The Fund may hold up to 10% of its net assets in illiquid securities,
including securities with legal or contractual restrictions on resale
(restricted securities), securities that are not readily marketable in
securities markets either within
8
<PAGE>
or outside of the United States, privately placed commercial paper and
repurchase agreements which have a maturity of longer than seven days.
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933, as amended (the Securities Act), and privately placed
commercial paper that have a readily available market are not considered
illiquid for purposes of this limitation. Investing in Rule 144A securities
could, however, have the effect of increasing the level of Fund illiquidity to
the extent that qualified institutional buyers become, for a limited time,
uninterested in purchasing these securities. The Fund intends to comply with any
applicable state blue sky laws restricting the Fund's investments in illiquid
securities. See "Investment Restrictions" in the Statement of Additional
Information. The investment adviser will monitor the liquidity of such
restricted securities under the supervision of the Board of Directors.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the applicable notice period.
OTHER CONSIDERATIONS
Although the Fund provides the advantage of diversification, there is still
an inherent market risk due to the nature of the investment. If interest rates
decline, then yield to shareholders will also decline. If there are unusually
heavy redemption requests because of changes in interest rates or for any other
reason, the Fund may have to sell a portion of its investment portfolio at a
time when it may be disadvantageous to do so. The Fund believes that its
borrowing provision for abnormally heavy redemption requests would help to
mitigate any adverse effects and would make the sale of its portfolio securities
unlikely. When a shareholder redeems shares, it is possible that the redemption
proceeds will be less than the amount invested.
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company Act.
See "Investment Restrictions" in the Statement of Additional Information.
HOW THE FUND IS MANAGED
THE FUND HAS A BOARD OF DIRECTORS WHICH, IN ADDITION TO OVERSEEING THE
ACTIONS OF THE FUND'S MANAGER, SUBADVISER AND DISTRIBUTOR, AS SET FORTH BELOW,
DECIDES UPON MATTERS OF GENERAL POLICY. THE FUND'S MANAGER CONDUCTS AND
SUPERVISES THE DAILY BUSINESS OPERATIONS OF THE FUND. THE FUND'S SUBADVISER
FURNISHES DAILY INVESTMENT ADVISORY SERVICES.
For the year ended December 31, 1995, the total expenses of the Fund's
Class A shares as a percentage of average net assets were .69%. See "Financial
Highlights."
MANAGER
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC. (PMF OR THE MANAGER), ONE SEAPORT
PLAZA, NEW YORK, NEW YORK 10292, IS THE MANAGER OF THE FUND AND IS COMPENSATED
FOR ITS SERVICES AT AN ANNUAL RATE OF .50 OF 1% OF THE FUND'S AVERAGE DAILY NET
ASSETS UP TO $50 MILLION AND .30 OF 1% OF THE FUND'S AVERAGE DAILY NET ASSETS IN
EXCESS OF $50 MILLION. PMF was incorporated in May 1987 under the laws of the
State of Delaware. For the fiscal year ended December 31, 1995, the Fund paid a
management fee of .301% of the Fund's average net assets. See "Manager" in the
Statement of Additional Information.
9
<PAGE>
As of January 31, 1996, PMF served as the manager to 37 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 22 closed-end investment companies with aggregate assets of
approximately $52 billion.
UNDER THE MANAGEMENT AGREEMENT WITH THE FUND, PMF MANAGES THE INVESTMENT
OPERATIONS OF THE FUND AND ALSO ADMINISTERS THE FUND'S CORPORATE AFFAIRS. See
"Manager" in the Statement of Additional Information.
UNDER A SUBADVISORY AGREEMENT BETWEEN PMF AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC OR THE SUBADVISER), PIC FURNISHES INVESTMENT ADVISORY SERVICES
IN CONNECTION WITH THE MANAGEMENT OF THE FUND AND IS REIMBURSED BY PMF FOR ITS
REASONABLE COSTS AND EXPENSES INCURRED IN PROVIDING SUCH SERVICES. Under the
Management Agreement, PMF continues to have responsibility for all investment
advisory services and supervises PIC's performance of such services.
PMF and PIC are wholly-owned subsidiaries of The Prudential Insurance
Company of America (Prudential), a major diversified insurance and financial
services company.
DISTRIBUTOR
PRUDENTIAL SECURITIES INCORPORATED (PRUDENTIAL SECURITIES OR PSI), ONE
SEAPORT PLAZA, NEW YORK, NEW YORK 10292, IS A CORPORATION ORGANIZED UNDER THE
LAWS OF THE STATE OF DELAWARE AND SERVES AS THE DISTRIBUTOR OF THE FUND. IT IS
AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF PRUDENTIAL.
UNDER A DISTRIBUTION AND SERVICE PLAN (THE PLAN) ADOPTED BY THE FUND UNDER
RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT AND A DISTRIBUTION AGREEMENT (THE
DISTRIBUTION AGREEMENT), PRUDENTIAL SECURITIES (ALSO, THE DISTRIBUTOR) INCURS
THE EXPENSES OF DISTRIBUTING CLASS A SHARES OF THE FUND. These expenses include
account servicing fees paid to, or on account of, financial advisers of
Prudential Securities and representatives of Pruco Securities Corporation
(Prusec), an affiliated broker-dealer, account servicing fees paid to, or on
account of, other broker-dealers or financial institutions (other than national
banks) 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 Prudential Securities and Prusec associated
with the sale of the Class A shares of the Fund, including lease, utility,
communications and sales promotion expenses. The State of Texas requires that
shares of the Fund may be sold in that state only by dealers or other financial
institutions which are registered there as broker-dealers.
UNDER THE PLAN, THE FUND REIMBURSES THE DISTRIBUTOR FOR ITS
DISTRIBUTION-RELATED EXPENSES WITH RESPECT TO CLASS A SHARES OF THE FUND AT AN
ANNUAL RATE OF UP TO .125 OF 1% OF THE AVERAGE DAILY NET ASSETS OF THE FUND'S
CLASS A SHARES. Account servicing fees are paid based on the average balance of
Fund shares held in accounts of customers of financial advisers. The entire
distribution fee may be used to pay account servicing fees. For the fiscal year
ended December 31, 1995, the Fund paid a distribution fee equal on an annual
basis to .125 of 1% of the average daily net assets of the Fund's Class A
shares. The Fund records all payments made under the Plan as expenses in the
calculation of its net investment income.
The Plan provides that it shall continue in effect from year to year
provided that each such continuance is approved annually by a majority vote of
the Board of Directors, including a majority of the Directors who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the operation of the Plan or in any agreement related to the Plan.
The Directors are provided with and review quarterly reports of expenditures
under the Plan.
In addition to distribution and service fees paid by the Class A shares of
the Fund under the Plan, the Manager (or one of its affiliates) may make
payments out of its own resources to dealers and other persons which distribute
Class A shares of the Fund. Such payments may be calculated by reference to the
net asset value of shares sold by such persons or otherwise.
10
<PAGE>
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators (with the exception of the Texas Securities
Commissioner, who joined the settlement on January 18, 1994) and the National
Association of Securities Dealers, Inc. (the NASD) to resolve allegations that
from 1980 through 1990 PSI sold certain limited partnership interests in
violation of securities laws to persons for whom such securities were not
suitable and misrepresented the safety, potential returns and liquidity of these
investments. Without admitting or denying the allegations asserted against it,
PSI consented to the entry of an SEC Administrative Order which stated that
PSI's conduct violated the federal securities laws, directed PSI to cease and
desist from violating the federal securities laws, pay civil penalties, and
adopt certain remedial measures to address the violations.
Pursuant to the terms of the SEC settlement, PSI agreed to the imposition
of a $10,000,000 civil penalty, established a settlement fund in the amount of
$330,000,000 and procedures to resolve legitimate claims for compensatory
damages by purchasers of the partnership interests. PSI has agreed to provide
additional funds, if necessary, for the purpose of the settlement fund. PSI's
settlement with the state securities regulators included an agreement to pay a
penalty of $500,000 per jurisdiction. PSI consented to a censure and to the
payment of a $5,000,000 fine in settling the NASD action.
In October 1994, a criminal complaint was filed with the United States
Magistrate for the Southern District of New York alleging that PSI committed
fraud in connection with the sale of certain limited partnership interests in
violation of federal securities laws. An agreement was simultaneously filed to
defer prosecution of these charges for a period of three years from the signing
of the agreement, provided that PSI complies with the terms of the agreement.
If, upon completion of the three year period, PSI has complied with the terms of
the agreement, no prosecution will be instituted by the United States for the
offenses charged in the complaint. If on the other hand, during the course of
the three year period, PSI violates the terms of the agreement, the U.S.
Attorney can then elect to pursue these charges. Under the terms of the
agreement, PSI agreed, among other things, to pay an additional $330,000,000
into the fund established by the SEC to pay restitution to investors who
purchased certain PSI limited partnership interests.
For more detailed information concerning the foregoing matters, see
"Distributor" in the Statement of Additional Information, a copy of which may be
obtained at no cost by calling 1-800-225-1852.
The Fund is not affected by PSI's financial condition and is an entirely
separate legal entity from PSI, which has no beneficial ownership therein and
the Fund's assets, which are held by State Street Bank and Trust Company, an
independent custodian, are separate and distinct from PSI.
PORTFOLIO TRANSACTIONS
Prudential Securities may act as a broker for the Fund, provided that the
commissions, fees or other remuneration it receives are fair and reasonable. See
"Portfolio Transactions" in the Statement of Additional Information.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities and
cash and, in that capacity, maintains certain financial and accounting books and
records pursuant to an agreement with the Fund. Its mailing address is P.O. Box
1713, Boston, Massachusetts 02105.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison,
New Jersey 08837, serves as Transfer Agent and Dividend Disbursing Agent and, in
those capacities, maintains certain books and records for the Fund. PMFS is a
wholly-owned subsidiary of PMF. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.
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HOW THE FUND VALUES ITS SHARES
THE NET ASSET VALUE PER SHARE, OR NAV, OF THE FUND'S CLASS A SHARES, IS
DETERMINED BY SUBTRACTING ITS LIABILITIES FROM THE VALUE OF ITS ASSETS AND
DIVIDING THE REMAINDER BY THE NUMBER OF OUTSTANDING CLASS A SHARES. THE BOARD OF
DIRECTORS HAS FIXED THE SPECIFIC TIME OF DAY FOR THE COMPUTATION OF THE FUND'S
NAV TO BE AS OF 4:30 P.M., NEW YORK TIME, IMMEDIATELY AFTER THE DECLARATION OF
DIVIDENDS.
The Fund will compute its NAV once daily on days that 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 the Fund's portfolio securities do not materially affect the net asset value.
The New York Stock Exchange is closed on the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
The Fund determines the value of its portfolio securities by the amortized
cost method. This method involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium regardless of impact of fluctuating interest rates on the market value
of the instrument. While this method provides certainty in valuation, it may
result in periods during which the value of a security in the Fund's portfolio
as determined by amortized cost, is higher or lower than the price the Fund
would receive if it sold such security. During these periods, the yield to a
shareholder may differ somewhat from that which could be obtained from a similar
fund which marks its portfolio securities to the market each day. For example,
during periods of declining interest rates, if the use of the amortized cost
method resulted in a lower value of the Fund's portfolio on a given day, a
prospective investor in the Fund would be able to obtain a somewhat higher yield
and existing shareholders would receive correspondingly less income. The
converse would apply during periods of rising interest rates. The Board of
Directors has established procedures designed to stabilize, to the extent
reasonably possible, the NAV of the shares of the Fund at $1.00 per share. See
"Net Asset Value" in the Statement of Additional Information.
TAXES, DIVIDENDS AND DISTRIBUTIONS
TAXATION OF THE FUND
THE FUND HAS ELECTED TO QUALIFY AND INTENDS TO REMAIN QUALIFIED AS A
REGULATED INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
(THE INTERNAL REVENUE CODE). ACCORDINGLY, THE FUND WILL NOT BE SUBJECT TO
FEDERAL INCOME TAXES ON ITS NET INVESTMENT INCOME AND CAPITAL GAINS, IF ANY,
THAT IT DISTRIBUTES TO SHAREHOLDERS.
TAXATION OF SHAREHOLDERS
All dividends out of net investment income, together with distributions of
net short-term gains (I.E., the excess of net short-term capital gains over net
long-term capital losses), will be taxable as ordinary income to the
shareholders whether or not reinvested. The Fund does not expect to realize
long-term capital gains or losses. In general, tax-exempt shareholders will not
be required to pay taxes on amounts distributed to them.
The Internal Revenue Code imposes a 4% nondeductible excise tax to the
extent the Fund does not meet certain minimum distribution requirements by the
end of each calendar year. For this purpose, dividends declared in October,
November or December and paid in the following January will be treated as having
been paid by the Fund and received by shareholders in such prior year. Under
this rule, a shareholder may be taxed in one year on dividends or distributions
actually received in January of the following year.
Shareholders are advised to consult their own tax advisers regarding
specific questions as to federal, state or local taxes. See "Taxes" in the
Statement of Additional Information.
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WITHHOLDING TAXES
Under the Internal Revenue Code, the Fund is required to withhold and remit
to the U.S. Treasury 31% of dividends, capital gain income and redemption
proceeds on the accounts of those shareholders who fail to furnish their tax
identification numbers on IRS Form W-9 (or IRS Form W-8 in the case of certain
foreign shareholders) with the required certifications regarding the
shareholder's status under the federal income tax law. However, dividends of net
investment income and short-term capital gains paid to a foreign shareholder
will generally be subject to U.S. withholding tax at the rate of 30% (or lower
treaty rate).
DIVIDENDS AND DISTRIBUTIONS
All of the Fund's net income is declared as dividends daily to the
shareholders of record at the time of such declaration. Unless otherwise
requested by the shareholder, such dividends are automatically invested monthly
in additional Fund shares at net asset value. Shareholders may receive cash
payments from the Fund equal to the dividends earned during the month by
completing the appropriate section on the application form or by notifying PMFS
at least five business days prior to the payable date. Cash distributions are
paid by check within five business days after the dividend payment date. In the
event that all of a shareholder's shares are redeemed on a date other than the
monthly dividend payment date, the proceeds of such redemption will equal the
net asset value of the shares redeemed plus the amount of all dividends declared
through the date of redemption. BECAUSE DECLARED DIVIDENDS REMAIN INVESTED BY
THE FUND UNTIL THE DIVIDEND PAYMENT DATE OF EACH MONTH IN THE SAME MANNER AS
FUNDS INVESTED IN SHARES, THE FOREGOING PROCEDURE RESULTS IN INCOME TO
SHAREHOLDERS IN SUBSTANTIALLY THE SAME AMOUNTS AS IF DIVIDENDS WERE REINVESTED
IN SHARES ON A DAILY BASIS.
The Fund's net income for dividend purposes is determined immediately prior
to the calculation of net asset value at 4:30 P.M., New York time. Thus, a
shareholder begins to earn dividends on the first business day after his or her
order becomes effective and continues to earn dividends through the day on which
his or her shares are redeemed. Net income of the Fund consists of interest
accrued and discount earned less the estimated expenses of the Fund and all
realized gains and losses on the portfolio securities of the Fund. Net income
earned on Saturdays, Sundays and holidays is accrued in calculating the dividend
on the previous business day. Accordingly, a shareholder who redeems his or her
shares effective as of 4:30 P.M., New York time, on a Friday earns a dividend
which reflects the income earned by the Fund on the following Saturday and
Sunday. On the other hand, an investor whose purchase order is effective as of
4:30 P.M., New York time, on a Friday does not begin earning dividends until the
following business day.
GENERAL INFORMATION
DESCRIPTION OF SHARES
THE FUND WAS INCORPORATED IN MARYLAND ON DECEMBER 22, 1975. Effective March
1, 1996, the Fund's name changed from Prudential-Bache MoneyMart Assets Inc. to
Prudential MoneyMart Assets, Inc., and the shares outstanding prior to such date
were designated as Class A shares. The Fund is authorized to offer 15 billion
shares of common stock, $.10 par value per share, currently divided into two
classes of shares, designated Class A and Class Z shares, consisting of 13
billion and 2 billion authorized shares, respectively. Each class represents an
interest in the same assets of the Fund and is identical in all respects except
that (i) Class A shares are subject to distribution and/or service fees, (ii)
Class Z shares are not subject to any distribution and/or service fees, (iii)
each class has exclusive voting rights with respect to its distribution and
service plan, if any, and on any other 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, (iv) each class has a different exchange
privilege, and (v) Class Z shares are
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offered exclusively for sale to participants in the PSI 401(k) Plan, an employee
benefit plan sponsored by Prudential Securities. In accordance with the Fund's
Articles of Incorporation, the Board of 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 Board of Directors
may determine. Currently, the Fund is offering two classes, designated Class A
and Class Z shares.
THE FUND DOES NOT INTEND TO HOLD ANNUAL MEETINGS OF SHAREHOLDERS UNLESS
OTHERWISE REQUIRED BY LAW. THE FUND WILL NOT BE REQUIRED TO HOLD ANNUAL MEETINGS
OF SHAREHOLDERS UNLESS, FOR EXAMPLE, THE ELECTION OF DIRECTORS IS REQUIRED TO BE
ACTED ON BY SHAREHOLDERS UNDER THE INVESTMENT COMPANY ACT. SHAREHOLDERS HAVE
CERTAIN RIGHTS, INCLUDING THE RIGHT TO CALL A MEETING UPON A VOTE OF 10% OF THE
FUND'S OUTSTANDING SHARES FOR THE PURPOSE OF VOTING ON THE REMOVAL OF ONE OR
MORE DIRECTORS OR TO TRANSACT ANY OTHER BUSINESS.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which
has been incorporated by reference herein, does not contain all the information
set forth in the Registration Statement filed by the Fund with the SEC under the
Securities Act of 1933. Copies of the Registration Statement may be obtained at
a reasonable charge from the SEC or may be examined, without charge, at the
office of the SEC in Washington, D.C.
SHAREHOLDER GUIDE
HOW TO BUY SHARES OF THE FUND
YOU MAY PURCHASE CLASS A SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES,
PRUSEC, OR DIRECTLY FROM THE FUND THROUGH ITS TRANSFER AGENT, PRUDENTIAL MUTUAL
FUND SERVICES, INC. (PMFS OR THE TRANSFER AGENT), ATTENTION: INVESTMENT
SERVICES, P.O. BOX 15020, NEW BRUNSWICK, NEW JERSEY 08906-5020. The minimum
initial investment is $1,000. The minimum subsequent investment is $100.
Prudential Securities reserves the right to impose a higher minimum subsequent
amount from time to time as it may deem appropriate. All minimum investment
requirements are waived for certain retirement and employee savings plans and
custodial accounts for the benefit of minors. For purchases made through the
Automatic Savings Accumulation Plan, the minimum initial and subsequent
investment is $50. See "Shareholder Services" below.
CLASS A SHARES OF THE FUND ARE SOLD, WITHOUT A SALES CHARGE, AT THE NAV
NEXT DETERMINED AFTER RECEIPT AND ACCEPTANCE BY PMFS OF A PURCHASE ORDER AND
PAYMENT IN PROPER FORM (I.E., A CHECK OR FEDERAL FUNDS WIRED TO STATE STREET
BANK AND TRUST COMPANY (STATE STREET), THE FUND'S CUSTODIAN). See "How the Fund
Values its Shares." When payment is received by PMFS prior to 4:30 P.M., New
York time, in proper form, a share purchase order will be entered at the price
determined as of 4:30 P.M., New York time, on that day, and the shares purchased
will begin to earn dividends on the business day following such investment. See
"Taxes, Dividends and Distributions."
Application forms can be obtained from PMFS, Prudential Securities or
Prusec. If a stock certificate is desired, it must be requested in writing for
each transaction. Certificates are issued only for full shares. Shareholders who
hold their shares through Prudential Securities will not receive stock
certificates. Shareholders cannot utilize Expedited Redemption or Check
Redemption or have a Systematic Withdrawal Plan if they have been issued
certificates.
The Fund reserves the right, in its discretion, to reject any purchase
order (including an exchange into the Fund) or to suspend or modify the
continuous offering of its shares. See "How to Sell Your Shares" below.
Your dealer is responsible for forwarding payment promptly to the Fund. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the third business day following the investment.
Transactions in Fund shares may be subject to postage and other charges
imposed by your dealer.
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PURCHASES THROUGH PRUDENTIAL SECURITIES
If you have an account with Prudential Securities (or open such an
account), you may ask Prudential Securities to purchase Class A shares of the
Fund on your behalf. On the business day following confirmation that a free
credit balance (i.e., immediately available funds) exists in your account,
Prudential Securities, at your request, will effect a purchase order for Class A
shares of the Fund in an amount up to such balance at the NAV determined on that
day. Funds held by Prudential Securities on behalf of its clients in the form of
free credit balances are delivered to the Fund by Prudential Securities and
begin earning dividends the second business day after receipt of the order by
Prudential Securities. Accordingly, Prudential Securities will have the use of
such free credit balances during this period.
Class A shares of the Fund purchased by Prudential Securities on behalf of
its clients will be held by Prudential Securities as record holder. Prudential
Securities will therefore receive statements and dividends directly from the
Fund and will in turn provide investors with Prudential Securities account
statements reflecting purchases, redemptions and dividend payments. Although
Prudential Securities clients who purchase shares of the Fund through Prudential
Securities may not redeem shares of the Fund by check, Prudential Securities
provides its clients with alternative forms of immediate access to monies
invested in shares of the Fund.
Prudential Securities clients wishing additional information concerning
investment in Fund shares made through Prudential Securities should call their
Prudential Securities financial adviser.
AUTOMATIC INVESTMENT. Prudential Securities has advised the Fund that it
has instituted procedures pursuant to which, upon enrollment by a Prudential
Securities client, Prudential Securities will make automatic investments of free
credit cash balances of $1,000 or more ($1.00 for IRAs and Benefit Plans)
(Eligible Credit Balances) held in such client's account in Class A shares of
the Fund (Autosweep). Under these procedures, for accounts other than IRA and
Benefit Plans, an order to purchase shares of the Fund is placed (i) in the case
of Eligible Credit Balances resulting from the proceeds of a securities sale, at
the opening of business on the day following the settlement of the securities
sale, and (ii) in the case of Eligible Credit Balances resulting from a
non-trade related credit (E.G., receipt of a dividend or interest payment,
maturity of a bond or a cash payment into the securities account), at the
opening of business semi-monthly. For IRAs and Benefit Plans, orders will be
placed by Prudential Securities (i) on the settlement date of the securities
sale, in the case of Eligible Credit Balances resulting from the proceeds of a
securities sale and (ii) on the business day after receipt by Prudential
Securities of the non-trade related credit, in the case of Eligible Credit
Balances resulting from a non-trade related credit. Each time an order is placed
under these procedures resulting from the settlement of a securities sale, any
non-trade related credit in the client's account will also be automatically
invested. For the purposes of Autosweep, "Benefit Plans" include (i) employee
benefit plans as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974 (ERISA) other than governmental plans as defined in Section
3(32) of ERISA and church plans as defined in Section 3(33) of ERISA, (ii)
pension, profit-sharing or other employee benefit plans qualified under Section
401 of the Internal Revenue Code and (iii) deferred compensation and annuity
plans under Section 457 or 403(b)(7) of the Internal Revenue Code. "IRAs" are
Individual Retirement Accounts as defined in Section 408(a) of the Internal
Revenue Code. All shares purchased pursuant to these procedures will begin
earning dividends on the business day after the order is placed. Prudential
Securities will have the use of Eligible Credit Balances until monies are
delivered to the Fund.
SELF-DIRECTED INVESTMENT. Prudential Securities clients not electing
Autosweep may continue to place orders for the purchase of Fund shares through
Prudential Securities, subject to minimum initial and subsequent investment
requirements as described above.
A Prudential Securities client who has not elected Autosweep (Automatic
Investment) and who does not place a purchase order promptly after funds are
credited to his or her Prudential Securities account will have a free credit
balance with Prudential Securities and will not begin earning dividends on
shares of the Fund until the second business day after receipt of the order by
Prudential Securities from the client. Accordingly, Prudential Securities will
have the use of such free credit balances during this period.
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PURCHASES THROUGH PRUSEC
You may purchase Class A shares of the Fund by placing an order with your
Prusec representative accompanied by payment for the purchase price of such
shares and, in the case of a new account, a completed application form. You
should also submit an IRS Form W-9. The Prusec representative will then forward
these items to the Transfer Agent. See "Purchase by Mail" below.
PURCHASE BY WIRE
For an initial purchase of Class A shares of the Fund by wire, you must
first telephone PMFS at (800) 225-1852 (toll-free) to receive an account number.
The following information will be requested: your name, address, tax
identification number, dividend distribution election, amount being wired and
wiring bank. Instructions should then be given by you to your bank to transfer
funds by wire to State Street Bank and Trust Company (State Street), Boston,
Massachusetts, Custody and Shareholder Services Division, Attention: Prudential
MoneyMart Assets, Inc., specifying on the wire the account number assigned by
PMFS and your name.
If you arrange for receipt by State Street of Federal Funds prior to the
calculation of NAV (4:30 P.M., New York time), on a business day, you may
purchase shares of the Fund as of that day and receive dividends commencing on
the next business day. See "Net Asset Value" in the Statement of Additional
Information.
In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential MoneyMart Assets,
Inc. 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.
PURCHASE BY MAIL
Purchase orders for which remittance is to be made by check or money order
may be submitted directly by mail to Prudential Mutual Fund Services, Inc.,
Attention: Investment Services, P.O. Box 15020, New Brunswick, New Jersey
08906-5020, together with payment of the purchase price of such shares and, in
the case of a new account, a completed application form. You should also submit
an IRS Form W-9. If PMFS receives an order to purchase Class A shares of the
Fund and payment in proper form prior to 4:30 P.M., New York time, the purchase
order will be effective on that day and you will begin earning dividends on the
following business day. See "Taxes, Dividends and Distributions." Checks should
be made payable to Prudential MoneyMart Assets, Inc. Certified checks are not
necessary, but checks must be drawn on a bank located in the United States.
There are restrictions on the redemption of shares purchased by check while the
funds are being collected. See "How to Sell Your Shares" below.
THE PRUDENTIAL ADVANTAGE ACCOUNT PROGRAM
Class A shares of the Fund are offered to participants in the Prudential
Advantage Account Program (the Advantage Account Program), a financial services
program available to clients of Prusec. Investors participating in the Advantage
Account Program may select the Fund as their primary investment vehicle. Such
investors will have free credit cash balances of $1.00 or more in their
Securities Account (Available Cash) (a component of the Advantage Account
Program carried through Prudential Securities) automatically invested in Class A
shares of the Fund. Specifically, an order to purchase Class A shares of the
Fund is placed (i) in the case of Available Cash resulting from the proceeds of
securities sales, on the settlement date of the securities sale, and (ii) in the
case of Available Cash resulting from non-trade related credits (I.E., receipt
of dividends and interest payments, or a cash payment by the participant into
his or her Securities Account), on the business day after receipt by Prudential
Securities of the non-trade related credit.
All shares purchased pursuant to these automatic purchase procedures will
begin earning dividends on the business day after the order is placed.
Prudential Securities will arrange for investment in Class A shares of the Fund
at 4:30 P.M.
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<PAGE>
on the day the order is placed and cause payment to be made in Federal Funds
for the shares prior to 4:30 P.M. on the next business day. Prudential
Securities will have the use of free credit cash balances until delivery to the
Fund.
Redemptions will be automatically effected by Prudential Securities to
satisfy debit balances in a Securities Account created by activity therein or
arising under the Advantage Account Program, such as those incurred by use of
the Visa(R) Account, including Visa purchases, cash advances and Visa Account
checks. Each Advantage Account Program Securities Account will be automatically
scanned for debits each business day as of the close of business on that day and
after application of any free credit cash balances in the account to such
debits, a sufficient number of shares of the Fund (if selected as the Primary
Fund) and, if necessary, shares of other Advantage Account Funds owned by the
Advantage Account Program participant which have not been selected as his or her
Primary Fund or shares of a participant's money market funds managed by PMF
which are not primary Advantage Account funds will be redeemed as of that
business day to satisfy any remaining debits in the Securities Account. Shares
may not be purchased until all debits, overdrafts and other requirements in the
Securities Account are satisfied.
Advantage Account Program charges and expenses are not reflected in the
table of Fund Expenses. See "Fund Expenses."
For information on participation in the Advantage Account Program,
investors should telephone (800) 235-7637 (toll-free).
HOW TO SELL YOUR SHARES
YOU CAN REDEEM YOUR SHARES AT ANY TIME FOR CASH AT THE NAV PER SHARE NEXT
DETERMINED AFTER THE REDEMPTION REQUEST IS RECEIVED IN PROPER FORM BY THE
TRANSFER AGENT OR PRUDENTIAL SECURITIES. SEE "HOW THE FUND VALUES ITS SHARES."
Shares for which a redemption request is received by PMFS prior to 4:30
P.M., New York time, are entitled to a dividend on the day on which the request
is received. By pre-authorizing Expedited Redemption, you may arrange to have
payment for redeemed shares made in Federal Funds wired to your bank, normally
on the next bank business day following the date of receipt of the redemption
instructions. Should you redeem all of your shares, you will receive the amount
of all dividends declared for the month-to-date on those shares. See "Taxes,
Dividends and Distributions."
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, Inc., Attention: Redemption
Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to
a person other than the record owner, (c) are to be sent to an address other
than the address on the Transfer Agent's records or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the redemption
request 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.
NORMALLY, THE FUND MAKES PAYMENT ON THE NEXT BUSINESS DAY FOR ALL SHARES
REDEEMED, BUT IN ANY EVENT, PAYMENT WILL BE MADE WITHIN SEVEN DAYS AFTER RECEIPT
BY PMFS OF STOCK CERTIFICATES AND/OR OF A REDEMPTION REQUEST IN PROPER FORM.
However, the Fund may suspend the right of redemption or postpone the date of
payment (a) for any periods during which the New York Stock Exchange is closed
(other than for customary weekend or holiday closings), (b) for any periods when
trading in the markets which the Fund normally utilizes is closed or restricted
or an emergency exists as determined by the SEC so that disposal of the Fund's
investments or determination of its net asset value is not reasonably
practicable or (c) for such other periods as the SEC may permit for protection
of the Fund's shareholders.
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PAYMENT FOR REDEMPTION OF RECENTLY PURCHASED SHARES WILL BE DELAYED UNTIL
THE FUND OR ITS TRANSFER AGENT HAS BEEN ADVISED THAT THE PURCHASE CHECK HAS BEEN
HONORED, UP TO 10 CALENDAR DAYS FROM THE TIME OF RECEIPT OF THE PURCHASE CHECK
BY THE TRANSFER AGENT. SUCH DELAY MAY BE AVOIDED BY PURCHASING SHARES BY WIRE OR
BY CERTIFIED OR OFFICIAL BANK CHECKS. THE FUND MAKES NO CHARGE FOR REDEMPTION.
REDEMPTION OF SHARES PURCHASED THROUGH PRUDENTIAL SECURITIES
Prudential Securities clients for whom Prudential Securities has purchased
Class A shares of the Fund may have these shares redeemed only by instructing
their Prudential Securities financial adviser orally or in writing.
Prudential Securities has advised the Fund that it has established
procedures pursuant to which shares of the Fund held by a Prudential Securities
client having a deficiency in his or her Prudential Securities account will be
redeemed automatically to the extent of that deficiency to the nearest highest
dollar, unless the client notifies Prudential Securities to the contrary. The
amount of the redemption will be the lesser of (a) the total net asset value of
Fund shares held in the client's Prudential Securities account or (b) the
deficiency in the client's Prudential Securities account at the close of
business on the date such deficiency is due. Accordingly, a Prudential
Securities client utilizing this automatic redemption procedure and who wishes
to pay for a securities transaction or satisfy any other debit balance in his or
her account other than through such automatic redemption procedure must do so
not later than the day of settlement for such securities transaction or the date
the debit balance is incurred. Prudential Securities clients who have elected to
utilize Autosweep will not be entitled to dividends declared on the date of
redemption.
REDEMPTION OF SHARES PURCHASED THROUGH PMFS
If you purchase Class A shares of the Fund through PMFS, you may use Check
Redemption, Expedited Redemption or Regular Redemption. Prudential Securities
clients for whom Prudential Securities has purchased shares may not use such
services.
REGULAR REDEMPTION. You may redeem your shares by sending a written
request, accompanied by duly endorsed stock certificates, if issued, to
Prudential Mutual Fund Services, Inc., Attention: Redemption Services, P.O. Box
15010, New Brunswick, New Jersey 08906-5010. In this case, all stock
certificates and certain written requests for redemption must be endorsed by the
shareholder with signature guaranteed, as described above. Regular redemption is
made by check sent to the shareholder's address.
EXPEDITED REDEMPTION. By pre-authorizing Expedited Redemption, you may
arrange to have payment for redeemed shares made in Federal Funds wired to your
bank, normally on the next business day following redemption. In order to use
Expedited Redemption, you may so designate at the time the initial investment is
made or at a later date. Once an Expedited Redemption authorization form has
been completed, the signature on the authorization form guaranteed as set forth
above and the form returned to Prudential Mutual Fund Services, Inc., Attention:
Account Maintenance, P.O. Box 15015, New Brunswick, New Jersey 08906-5015,
requests for redemption may be made by telegraph, letter or telephone. To
request Expedited Redemption by telephone, you should call PMFS at (800)
225-1852. Calls must be received by PMFS before 4:30 P.M., New York time, to
permit redemption as of such date. Requests by letter should be addressed to
Prudential Mutual Fund Services, Inc., at the address set forth above.
A signature guarantee is not required under Expedited Redemption once the
authorization form is properly completed and returned. The Expedited Redemption
privilege may be used only to redeem shares in an amount of $200 or more, except
that, if an account for which Expedited Redemption is requested has an NAV of
less than $200, the entire account must be redeemed. The proceeds of redeemed
shares in the amount of $1,000 or more are transmitted by wire to your account
at a domestic commercial bank which is a member of the Federal Reserve System.
Proceeds of less than $1,000 are forwarded by check to your designated bank
account.
DURING PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS, EXPEDITED
REDEMPTION MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD REDEEM SHARES BY MAIL AS
DESCRIBED ABOVE.
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CHECK REDEMPTION. At your request, State Street will establish a personal
checking account for you. Checks drawn on this account can be made payable to
the order of any person in any amount greater than $500. When such check is
presented to State Street for payment, State Street presents the check to the
Fund as authority to redeem a sufficient number of Class A shares of the Fund in
the shareholder's account to cover the amount of the check. If insufficient
shares are in the account, or if the purchase was made by check within 10
calendar days, the check will be returned marked "insufficient funds." Checks in
an amount less than $500 will not be honored. Shares for which certificates have
been issued cannot be redeemed by check. PMFS reserves the right to impose a
service charge to establish a checking account and order checks.
INVOLUNTARY REDEMPTION. Because of the relatively high cost of maintaining
an account, the Fund reserves the right to redeem, upon 60 days' written notice,
an account which is reduced by a shareholder to an NAV of $500 or less due to
redemption. You may avoid such redemption by increasing the NAV of your account
to an amount in excess of $500.
REDEMPTION IN KIND. If the Board of Directors determines that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make payment wholly or partially in cash, the Fund may pay the redemption price
in whole or in part by a distribution in kind of securities from the portfolio
of the Fund, in lieu of cash, in conformity with the applicable rules of the
SEC. Securities will be readily marketable and will be valued in the same manner
as in a regular redemption. See "How the Fund Values its Shares." If your shares
are redeemed in kind, you will incur brokerage costs in converting the assets
into cash. The 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 one percent of the net asset value of
the Fund during any 90-day period for any one shareholder.
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 Fund at the NAV next
determined after the order is received, which must be within 90 days after the
date of the redemption. You will receive pro rata credit for any contingent
deferred sales charge paid in connection with the redemption. You must notify
the Fund's Transfer Agent, either directly or through Prudential Securities or
Prusec, at the time the repurchase privilege is exercised, that you are entitled
to credit for any contingent deferred sales charge you previously paid. Exercise
of the repurchase privilege will not affect the federal income tax treatment of
any gain realized upon the redemption. If the redemption resulted in a loss,
some or all of the loss, depending on the amount reinvested, will not be allowed
for federal income tax purposes.
CLASS B AND CLASS C PURCHASE PRIVILEGE. You may direct that the proceeds of
a redemption of Fund shares be invested in Class B shares or Class C shares of
any Prudential Mutual Fund by calling your Prudential Securities financial
adviser or the Transfer Agent at (800) 225-1852. The transaction will be
effected on the basis of the relative NAV.
HOW TO EXCHANGE YOUR SHARES
AS A SHAREHOLDER OF THE FUND, YOU HAVE AN EXCHANGE PRIVILEGE (THE EXCHANGE
PRIVILEGE) WITH CERTAIN OTHER PRUDENTIAL MUTUAL FUNDS, INCLUDING ONE OR MORE
SPECIFIED MONEY MARKET FUNDS AND FUNDS SOLD WITH AN INITIAL SALES CHARGE,
SUBJECT TO THE MINIMUM INVESTMENT REQUIREMENTS OF SUCH FUNDS. You may exchange
your Class A shares for Class A shares of the other Prudential Mutual Funds on
the basis of relative NAV, plus the applicable sales charge. No additional sales
charge is imposed in connection with subsequent exchanges. You may not exchange
your shares for Class B shares of the Prudential Mutual Funds, except that
shares acquired prior to January 22, 1990 subject to a contingent deferred sales
charge can be exchanged for Class B shares. See "How to Sell Your Shares--Class
B and Class C Purchase Privilege" above and "Shareholder Investment
Account--Exchange Privilege" in the Statement of Additional Information. An
exchange will be treated as a redemption and purchase for tax purposes. You may
not exchange your shares for Class C shares of the Prudential Mutual Funds.
19
<PAGE>
IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE THE TELEPHONE
EXCHANGE PRIVILEGE 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 Fund at (800) 225-1852 to execute a telephone exchange of shares 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 FUND 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. (The Fund or its agents could be subject to
liability if they fail to employ reasonable 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. The Exchange Privilege is available only in
states where the exchange may legally be made.
IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.
IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON
THE FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services, Inc., Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
IN PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS, THE TELEPHONE EXCHANGE
OF SHARES MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD MAKE EXCHANGES BY MAIL BY
WRITING TO PRUDENTIAL MUTUAL FUND SERVICES, INC., AT THE ADDRESS NOTED ABOVE.
The Exchange Privilege may be modified or terminated at any time on 60
days' notice to shareholders.
SHAREHOLDER SERVICES
In addition to the Exchange Privilege, as a shareholder in the Fund, you
can take advantage of the following additional services and privileges:
-- AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS. For your
convenience, all dividends and distributions are automatically reinvested in
full and fractional Class A shares of the Fund at NAV. You may direct the
Transfer Agent in writing not less than 5 full business days prior to the record
date to have subsequent dividends and/or distributions sent in cash rather than
reinvested. If you hold shares through Prudential Securities, you should contact
your financial adviser.
-- AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP). Under ASAP you may make
regular purchases of Class A shares of the Fund in amounts as little as $50 via
an automatic charge to a bank account or Prudential Securities account
(including a Command Account). For additional information about this service,
you may contact your Prudential Securities financial adviser, Prusec
representative or the Transfer Agent directly.
-- TAX-DEFERRED RETIREMENT PLANS. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered 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, the administration,
custodial fees and other details is available from Prudential Securities or the
Transfer Agent. If you are considering adopting such a plan, you should consult
with your own legal or tax adviser with respect to the establishment and
maintenance of such a plan.
-- SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available
for shareholders which provides for monthly or quarterly checks. For additional
information about the service, you may contact your Prudential Securities
financial adviser, Prusec representative or the Transfer Agent directly.
20
<PAGE>
-- MULTIPLE ACCOUNTS. Special procedures have been designed for banks and
other institutions that wish to open multiple accounts. An institution may open
a single master account by filing an application form with the Transfer Agent,
Attention: Customer Service, P.O. Box 15005, New Brunswick, New Jersey 08906,
signed by personnel authorized to act for the institution. Individual
sub-accounts may be opened at the time the master account is opened by listing
them on the application form, or they may be added at a later date by written
advice or by filing forms supplied by the Fund. Procedures are available to
identify sub-accounts by name and number within the master account name. The
investment minimums set forth above are applicable to the aggregate amounts
invested by a group and not to the amount credited to each sub-account.
-- PURCHASE BY HOLDERS OF PRUDENTIAL SECURITIES UNIT TRUSTS. Holders of
Prudential sponsored Unit Trusts may elect to have monthly distributions paid by
such Unit Trusts reinvested in Class A shares of the Fund without compliance
with the investment minimums described under "How to Buy Shares of the Fund."
-- REPORTS TO SHAREHOLDERS. The Fund will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses, the Fund will provide one annual and semi-annual shareholder report
and annual prospectus per household. You may request additional copies of such
reports by calling (800) 225-1852 or by writing to the Fund at One Seaport
Plaza, New York, New York 10292.
-- SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Fund at One
Seaport Plaza, New York, New York 10292, or by telephone, at (800) 225-1852
(toll free) or, from outside the U.S.A., at (908) 417-7555 (collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
21
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
Prudential Mutual Fund Management offers a broad range of mutual funds
designed to meet your individual needs. We welcome you to review the investment
options available through our family of funds. For more information on the
Prudential Mutual Funds, including charges and expenses, contact your Prudential
Securities financial adviser or Prusec representative or telephone the Fund at
(800) 225-1852 for a free prospectus. Read the prospectus carefully before you
invest or send money.
TAXABLE BOND FUNDS
Prudential Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Mortgage Income Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
The BlackRock Government Income Trust
TAX-EXEMPT BOND FUNDS
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Intermediate Series
Prudential Municipal Series Fund
Florida Series
Hawaii Income Series
Maryland Series
Massachusetts Series
Michigan Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
GLOBAL FUNDS
Prudential Europe Growth Fund, Inc.
Prudential Global Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Global Natural Resources Fund, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Global Utility Fund, Inc.
The Global Government Plus Fund, Inc.
The Global Total Return Fund, Inc.
EQUITY FUNDS
Prudential Allocation Fund
Balanced Portfolio
Strategy Portfolio
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Growth Opportunity Fund, Inc.
Prudential Jennison Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
MONEY MARKET FUNDS
- -- TAXABLE MONEY MARKET FUNDS
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund, Inc.
Money Market Series
Prudential MoneyMart Assets, Inc.
- -- TAX-FREE MONEY MARKET FUNDS
Prudential Tax-Free Money Fund, Inc.
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
- -- COMMAND FUNDS
Command Money Fund
Command Government Fund
Command Tax-Free Fund
- -- INSTITUTIONAL MONEY MARKET FUNDS
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
A-1
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained herein, and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. This Prospectus does not
constitute an offer by the Fund or by the Distributor to sell or a solicitation
of any offer to buy any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer in such jurisdiction.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
----
FUND HIGHLIGHTS ....................................................... 2
Risk Factors and Special Characteristics ............................. 2
FUND EXPENSES ......................................................... 4
FINANCIAL HIGHLIGHTS .................................................. 5
CALCULATION OF YIELD .................................................. 6
HOW THE FUND INVESTS .................................................. 6
Investment Objective and Policies ................................... 6
Other Investments and Policies ...................................... 7
Investment Restrictions ............................................. 9
HOW THE FUND IS MANAGED ............................................... 9
Manager ............................................................. 9
Distributor ......................................................... 10
Portfolio Transactions .............................................. 11
Custodian and Transfer and Dividend
Disbursing Agent .................................................... 11
HOW THE FUND VALUES ITS SHARES ........................................ 12
TAXES, DIVIDENDS AND DISTRIBUTIONS .................................... 12
GENERAL INFORMATION ................................................... 13
Description of Shares ............................................... 13
Additional Information .............................................. 14
SHAREHOLDER GUIDE ..................................................... 14
How to Buy Shares of the Fund ....................................... 14
How to Sell Your Shares ............................................. 17
How to Exchange Your Shares ......................................... 19
Shareholder Services .................................................. 20
PRUDENTIAL MUTUAL FUND FAMILY ......................................... A-1
- ------------------------------------------------------------------------------
MF 108A 430230J
CUSIP No.: 74435H-10-2
- ------------------------------------------------------------------------------
Prudential
MoneyMart
Assets, Inc.
PROSPECTUS
MARCH 1, 1996
Prudential Mutual Funds
BUILDING YOUR FUTURE
ON OUR STRENGTH
<PAGE>
THE PRUDENTIAL INSTITUTIONAL FUND
MONEY MARKET FUND
21 PRUDENTIAL PLAZA
751 BROAD STREET
NEWARK, NEW JERSEY 07102-3777
THIS PROXY IS SOLICITED ON BEHALF OF THE TRUSTEES
The undersigned hereby appoints S. Jane Rose, Marguerite E. H. Morrison and
Eugene S. Stark as Proxies, each with the power of substitution, and hereby
authorizes each of them to represent and to vote, as designated below, all the
shares of The Prudential Institutional Fund--Money Market Fund, held of record
by the undersigned on July 12, 1996, at the Special Meeting of Shareholders to
be held on September 6, 1996 or any adjournment thereof.
Please indicate your voting instructions on the reverse and sign and return this
proxy as indicated.
<PAGE>
Please indicate your vote by an "X" in the appropriate box below.
The Board of Trustees recommends a vote "FOR" the following proposal
1. Approval of the Agreement and Plan of Reorganization and Liquidation.
FOR / / AGAINST / / ABSTAIN / /
2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
Please mark, sign, date, and return the proxy card promptly, using the
enclosed envelope.
This proxy when executed will be voted in the manner described herein by
the undersigned shareholder. If executed and no direction is made, this proxy
will be voted FOR Proposal 1.
This proxy will not be voted unless it is dated and signed exactly as instructed
below.
-----------------------------------
Signature
-----------------------------------
Signature
Date , 1996
------------------------
If shares are held jointly, each shareholder named should sign. If the shares
are held in trust, the Trustee should sign his or her name and indicate that
he or she is signing as Trustee. If the share holder is a corporation, the
President or Vice President should sign in his or her own name, indicating
title. If the shareholder is a partnership, a partner should sign in his or
her own name, indicating that he or she is a "Partner."
<PAGE>
PRUDENTIAL MONEYMART ASSETS, INC.
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292-1025
(800) 225-1852
STATEMENT OF ADDITIONAL INFORMATION
DATED JULY 31, 1996
ACQUISITION OF ASSETS OF
THE PRUDENTIAL INSTITUTIONAL FUND -- MONEY MARKET FUND
PRUDENTIAL PLAZA
751 BROAD STREET
NEWARK, NEW JERSEY 07102-3777
(800) 225-1852
------------------------
BY AND IN EXCHANGE FOR CLASS Z SHARES OF
PRUDENTIAL MONEYMART ASSETS, INC.
This Statement of Additional Information specifically relates to the
proposed transfer of all of the assets and the assumption of all of the
liabilities, if any, of Money Market Fund (Money Market Fund), a portfolio of
The Prudential Institutional Fund (Institutional Fund), by Prudential MoneyMart
Assets, Inc. (MoneyMart Assets). This Statement of Additional Information
consists of this cover page and the following described documents, each of which
is attached hereto and incorporated herein by reference:
1. The Statement of Additional Information of MoneyMart Assets dated March
1, 1996, as supplemented by a supplement dated April 22, 1996;
2. Pages 1, 39, 40, 41, 42, 43, 44, 46, 50, 51, 52, 53, 54, 55, 56, 57, 58
and 59 of the Annual Report to Shareholders of the Institutional Fund
relating to Money Market Fund for the fiscal year ended September 30,
1995; and
3. Pages 1, 2, 34, 35, 36, 37, 38, 40, 44, 45, 46, 47, 48, 49, 50 and 51 of
the Semi-Annual Report to Shareholders of the Institutional Fund
relating to Money Market Fund for the six months ended March 31, 1996.
This Statement of Additional Information is not a prospectus and should be
read only in conjunction with the Prospectus and Proxy Statement dated July 31,
1996, relating to the above-referenced matter. A copy of the Prospectus and
Proxy Statement may be obtained from MoneyMart Assets without charge by writing
or calling MoneyMart Assets at the address or phone number listed above.
1
<PAGE>
PRUDENTIAL
MONEYMART ASSETS, INC.
Statement of Additional Information
Dated March 1, 1996
Prudential MoneyMart Assets, Inc. (the Fund) is an open-end, diversified,
management investment company whose investment objective is maximum current
income consistent with stability of capital and maintenance of liquidity. The
Fund pursues this objective by investing primarily in a portfolio of short-term
money market instruments maturing within thirteen months of the date of
acquisition. There can be no assurance that the Fund's investment objective will
be achieved. See "Investment Objective and Policies." The Fund's address is One
Seaport Plaza, New York, New York 10292, and its telephone number is (800)
225-1852.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus, dated March 1, 1996, a copy of
which may be obtained from the Fund upon request at the address noted above.
TABLE OF CONTENTS
CROSS-
REFERENCE
TO PAGE IN
PAGE PROSPECTUS
---- ----------
General Information and History ............................ B-2 13
Investment Objective and Policies .......................... B-2 6
Investment Restrictions .................................... B-3 9
Suitability for Investors .................................. B-4 --
Calculation of Yield ....................................... B-5 6
Directors and Officers ..................................... B-5 9
Manager .................................................... B-8 9
Distributor ................................................ B-10 10
Purchase and Redemption of Fund Shares ..................... B-12 14
Shareholder Investment Account ............................. B-13 20
Dividends .................................................. B-15 12
Net Asset Value ............................................ B-16 12
Portfolio Transactions ..................................... B-16 11
Taxes ...................................................... B-17 12
Custodian, Transfer and Dividend
Disbursing Agent and Independent Accountants .............. B-18 11
Financial Statements ....................................... B-19 --
Independent Auditors' Report ............................... B-28 --
Appendix A--Description of Ratings ......................... A-1 --
- -------------------------------------------------------------------------------
MF108B
<PAGE>
GENERAL INFORMATION AND HISTORY
Effective March 1, 1996, the Fund's name changed from "Prudential-Bache
MoneyMart Assets Inc." to "Prudential MoneyMart Assets, Inc."
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is maximum current income consistent with
stability of capital and maintenance of liquidity. This objective is pursued by
investing primarily in a portfolio of money market instruments maturing in
thirteen months or less.
FLOATING RATE AND VARIABLE RATE SECURITIES
The Fund may purchase floating rate and variable rate securities.
Investments in floating or variable rate securities normally will involve
securities which provide that the rate of interest is set as a spread to a
designated base rate, such as rates on Treasury bills, and, in some cases, that
the purchaser can demand payment of the obligation at specified intervals or
after a specified notice period (in each case a period of less than thirteen
months) at par plus accrued interest, which amount may be more or less than the
amount paid for them. Variable rate securities provide for a specified periodic
adjustment in the interest rate, while floating rate securities have an interest
rate which changes whenever there is a change in the designated base interest
rate.
PUTS. The Fund may purchase instruments of the types described in its
Prospectus under "How the Fund Invests--Investment Objective and Policies"
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.
Such a right to resell is commonly known as a "put," and the aggregate price
which the Fund pays for instruments with puts may be higher than the price which
otherwise would be paid for the instruments. Consistent with the Fund's
investment objective and applicable rules issued by the Securities and Exchange
Commission (SEC) and subject to the supervision of the Board of Directors, the
purpose of this practice is to permit the Fund to be fully invested while
preserving the necessary liquidity to meet unusually large redemptions and to
purchase at a later date securities other than those subject to the put. Puts
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 Fund's investment
adviser revises its evaluation of the creditworthiness of the issuer of the
underlying security. In determining whether to exercise puts prior to their
expiration date and in selecting which puts to exercise in such circumstances,
the Fund's investment adviser considers, among other things, the amount of cash
available to the Fund, the expiration dates of the available puts, 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's portfolio.
The Fund values instruments which are subject to puts at amortized cost; no
value is assigned to the put. The cost of the put, if any, is carried as an
unrealized loss from the time of purchase until it is exercised or expires.
Since the value of the put is dependent on the ability of the put writer to
meet its obligation to repurchase, the Fund's policy is to enter into put
transactions only with such brokers, dealers or financial institutions which
present minimal credit risks. There is a credit risk associated with the
purchase of puts in that the broker, dealer or financial institution might
default on its obligation to repurchase an underlying security. In the event
such a default should occur, the Fund is unable to predict whether all or any
portion of any loss sustained could subsequently be recovered from the broker,
dealer or financial institution.
The Fund will invest no more than 5% of its total assets in securities
issued by or subject to puts from the same institution. For purposes of this
limitation, unconditional puts or guarantees with respect to a security will not
be deemed to be issued by the institution providing the guarantee or put if the
value of all securities held by the Fund and issued or guaranteed by the issuer
providing the guarantee or put are limited to 10% of the Fund's total assets.
REPURCHASE AGREEMENTS. The Fund participates in a joint repurchase account
with other investment companies managed by Prudential Mutual Fund Management,
Inc. pursuant to an order of the SEC. 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. In connection with transactions in repurchase agreements with U.S.
financial institutions, it is the Fund's policy that its custodian or designated
subcustodians, as the case may be, under triparty repurchase agreements, take
possession of the underlying collateral securities, the value of which equals or
exceeds the resale price of the agreement. 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.
ILLIQUID SECURITIES. The Fund may not hold more than 10% of its net assets
in illiquid securities, including securities that are illiquid by virtue of the
absence of a readily available market or legal or contractual restrictions on
resale and repurchase agree-
B-2
<PAGE>
ments which have a maturity of longer than seven days. 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 which are
otherwise not readily marketable and repurchase agreements having a maturity of
longer than seven days. Securities which 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 might also have to register such restricted securities
in order 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 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 of 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 new 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.
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and commercial paper for which there is a readily available
market will not be deemed to be illiquid. The 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, INTER ALIA, 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 (E.G., 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, (i) 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 (ii) it must not be "traded
flat" (I.E., without accrued interest) or in default as to principal or
interest. Repurchase agreements subject to demand are deemed to have a maturity
equal to the notice period.
INVESTMENT RESTRICTIONS
The Fund invests primarily in money market instruments maturing in thirteen
months or less. In connection with its investment objective and policies as set
forth in the Prospectus, the Fund has adopted the following investment
restrictions, none of which may be changed without the approval of the holders
of a majority of the Fund's outstanding voting securities. A "majority of the
Fund's outstanding voting securities," when used in this Statement of Additional
Information, means the lesser of (i) 67% of the voting shares represented at a
meeting at which more than 50% of the outstanding voting shares are present in
person or represented by proxy or (ii) more than 50% of the outstanding voting
shares.
The Fund may not engage in any of the practices described in paragraphs
1-13 below:
1. Purchase common stock or other voting securities, preferred stock,
warrants or other equity securities.
2. Purchase any securities (other than obligations of the U.S. Government,
its agencies and instrumentalities) if as a result 25% or more of the value of
the Fund's total assets (determined at the time of investment) would be invested
in the securities of one or more issuers conducting their principal business
activities in the same industry, provided that there is no limitation with
respect to money market instruments of domestic banks, U.S. branches of foreign
banks that are subject to the same regulations as U.S. banks and foreign
branches of domestic banks (provided that the domestic bank is unconditionally
liable in the event of the failure of the foreign branch to make payment on its
instruments for any reason).
3. Purchase the securities of any one issuer, other than the U.S.
Government or its agencies and instrumentalities, if more than 5% of the value
of the Fund's total assets would be invested in securities of such issuer.
B-3
<PAGE>
4. Make cash loans except through the purchase of debt obligations and the
entry into repurchase agreements permitted under "Investment Objective and
Policies." The Fund may also engage in the practice of lending its securities
only against fully comparable collateral. See paragraph 13 below.
5. Borrow money, except from banks for temporary or emergency purposes and
then only in amounts up to 10% of the value of the Fund's net assets. This
borrowing provision is included solely to facilitate the orderly sale of
portfolio securities to accommodate abnormally heavy redemption requests, if
they should occur, or to permit the Fund to obtain short-term credits necessary
for the settlement of transactions, and is not for investment purposes. Interest
paid on borrowings is not available for investment by the Fund. Secured
temporary borrowings may take the form of reverse repurchase agreements,
pursuant to which the Fund would sell portfolio securities for cash and
simultaneously agree to repurchase them at a specified date for the same amount
of cash plus an interest component. The SEC has issued a release requiring, in
effect, that the Fund maintain, in a segregated account with State Street Bank
and Trust Company (State Street), liquid assets equal in value to the amount
owed.
6. Mortgage, pledge or hypothecate any assets, except in an amount up to
15% of the value of the Fund's net assets, but only to secure borrowings for
temporary or emergency purposes as described in paragraph 5 above.
7. Purchase or sell real estate, real estate investment trust securities,
commodities or commodity contracts, or oil and gas interests.
8. Act as an underwriter of securities.
9. Purchase securities on margin, except for the use of short-term credit
necessary for clearance of purchases or sales of portfolio securities, or make
short sales of securities or maintain a short position.
10. Purchase securities, other than obligations of the U.S. Government, its
agencies or instrumentalities, of any issuer having a record, together with
predecessors, of less than three years of continuous operations if, immediately
after such purchase, more than 5% of the Fund's total assets would be invested
in such securities.
11. Make investments for the purpose of exercising control or management.
12. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization.
13. The Fund may lend its portfolio securities if such loans are secured
continuously by collateral in cash maintained on a daily basis at an amount at
least equal at all times to the market value of the securities loaned. The Fund
must maintain the right to call such loans and to obtain the securities loaned
at any time on five days' notice. During the existence of a loan, the Fund
continues to receive the equivalent of the interest paid by the issuer on the
securities loaned and also has the right to receive the interest on investment
of the cash collateral in short-term money market instruments. If the management
of the Fund determines to make securities loans, the value of the securities
loaned will not exceed 10% of the value of the Fund's total assets.
Whenever any fundamental investment policy or investment restriction states
a maximum percentage of the Fund's assets, it is intended that if the percentage
limitation is met at the time the action is taken, 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 the Fund's asset coverage
for borrowings falls below 300%, the Fund will take prompt action to reduce its
borrowings, as required by applicable law.
In order to comply with certain state "blue sky" restrictions, the Fund
will not as a matter of operating policy invest in securities of issuers which
are restricted as to disposition, if more than 15% of its total assets would be
invested in such securities (this restriction shall not apply to mortgage-backed
securities, asset backed securities or obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities).
SUITABILITY FOR INVESTORS
The Fund is designed primarily to provide a convenient means of investing
short-term funds where the direct purchase of money market instruments may be
impractical, uneconomical or undesirable.
Money market instruments such as those to be purchased by the Fund are
generally available only in denominations of $100,000 or more. Frequently,
higher yields may be obtained by the purchase of instruments in blocks or
denominations of $1,000,000, $5,000,000 or more. As compared with direct
purchase, an investment in the Fund permits participation in such money market
instruments while affording the advantage of diversification and a high degree
of liquidity. Further, the Fund relieves the investor of most investment
decisions and bookkeeping problems associated with the direct purchase of money
market instruments, such as making numerous buy and sell decisions, scheduling
maturities, reinvesting income, providing for safekeeping and investing in round
lots.
B-4
<PAGE>
Although the Fund provides the advantage of diversification, there is still
an inherent market risk due to the nature of the investment. If interest rates
decline, then yield to shareholders will also decline. If there are unusually
heavy redemption requests because of changes in interest rates or for any other
reason, the Fund may have to sell a portion of its investment portfolio at a
time when it may be disadvantageous to do so. The Fund believes that its
borrowing provision for abnormally heavy redemption requests would help to
mitigate any adverse effects and would make the sale of its portfolio securities
unlikely. When a shareholder redeems shares, it is possible that the redemption
proceeds will be less than the amount invested.
The Fund has developed special procedures to assist banks and other
institutions choosing to establish multiple accounts. Banks should consult their
legal advisers regarding state and federal laws applicable to the purchase of
Fund shares for fiduciary accounts.
CALCULATION OF YIELD
The Fund will prepare a current quotation of yield from time to time. The
yield quoted will be the simple annualized yield for an identified seven
calendar day period. The yield calculation will be based on a hypothetical
account having a balance of exactly one share at the beginning of the seven-day
period. The base period return will be the change in the value of the
hypothetical account during the seven-day period, including dividends declared
on any shares purchased with dividends on the share but excluding any capital
changes. The yield will vary as interest rates and other conditions affecting
money market instruments change. Yield also depends on the quality, length of
maturity and type of instruments in the Fund's portfolio, and its operating
expenses. The Fund may also prepare an effective annual yield computed by
compounding the unannualized seven-day period return as follows: by adding 1 to
the unannualized seven-day period return, raising the sum to a power equal to
365 divided by 7, and subtracting 1 from the result.
The Fund's yield fluctuates, and an annualized yield quotation is not a
representation by the Fund as to what an investment in the Fund will actually
yield for any given period. Actual yields will depend upon not only changes in
interest rates generally during the period in which the investment in the Fund
is held, but also on any realized or unrealized gains and losses and changes in
the Fund's expenses.
DIRECTORS AND OFFICERS
Directors and officers of the Fund, together with information as to their
principal business occupations during the last five years, are shown below.
POSITION PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- --------------------- --------- ----------------------
Delayne Dedrick Gold (57) Director Marketing and Management Consultant.
c/o Prudential
Mutual Fund
Management, Inc.
One Seaport Plaza
New York, New York 10292
*Harry A. Jacobs, Jr. (74) Director Senior Director (since January 1986)
One Seaport Plaza of Prudential Securities Incorporated
New York, New York 10292 (Prudential Securities); formerly,
Interim Chairman and Chief Executive
Officer (June 1993-October 1993) of
Prudential Mutual Fund Management,
Inc. (PMF); Chairman of the Board of
Prudential Securities Inc.
(1982-1985); Chairman of the Board
and Chief Executive Officer of Bache
Group Inc. (1977-1982); Director of
The First Australia Fund, Inc. and
The First Australia Prime Income
Fund, Inc.; Trustee of The Trudeau
Institute.
Thomas A. Owens, Jr. (73) Director Consultant.
c/o Prudential
Mutual Fund Management, Inc.
One Seaport Plaza
New York, New York 10292
B-5
<PAGE>
POSITION PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- --------------------- --------- ----------------------
*Richard A. Redeker (52) Director President, Chief Executive Officer and
One Seaport Plaza Director (since October 1993) of PMF;
New York, New York Executive Vice President, Director
10292 and Member of Operating Committee
(since October 1993), Prudential
Securities; Director (since October
1993) of Prudential Securities Group,
Inc. (PSG); Executive Vice President
(since July 1994), The Prudential
Investment Corporation (PIC); Director
(since January 1994), Prudential Mutual
Fund Distributors, Inc. (PMFD);
Director (since January 1994),
Prudential Mutual Fund Services, Inc.
(PMFS); formerly Senior Executive
Vice President and Director of Kemper
Financial Services, Inc. (September
1978-September 1993); Director of The
High Yield Income Fund, Inc.
Sidney M. Spielvogel (70) Director Managing Director, Corporate Capital
c/o Prudential Mutual Fund Consultants, Inc. (since April 1994);
Management, Inc. formerly Vice President (January
One Seaport Plaza 1992-March 1994) of Reich & Co., Inc.;
New York, New York prior thereto Vice President (March
10292 1988-January 1992) of Josephthal & Co.
Inc.; formerly Managing Director,
Corporate Finance (January 1986-January
1988) of Prudential Securities; prior
thereto, Senior Vice President (more
than five years) of Prudential
Securities; Director of Supreme
Equipment & Systems Corporation (until
July 1993).
Nancy H. Teeters (65) Director Economist; formerly Vice President and
c/o Prudential Mutual Fund Chief Economist (March 1986-June 1990)
Management, Inc. of International Business Machines
One Seaport Plaza Corporation; Director of Inland Steel
New York, New York Corporation (since July 1991), Global
10292 Utility Fund, Inc. and First Financial
Fund, Inc.
Robert H. Wellington (73) Director Retired Chairman and Chief Executive
c/o Prudential Mutual Fund Officer, AMSTED Industries,
Management, Inc. Incorporated (diversified manufacturer
One Seaport Plaza of railroad, construction and
New York, New York 10292 industrial products).
Robert F. Gunia (49) Vice Chief Administrative Officer (since
One Seaport Plaza President July 1990), Director (since January
New York, New York 10292 1989), Executive Vice President,
Treasurer and Chief Financial Officer
(since June 1987) of PMF; Senior Vice
President (since March 1987) of
Prudential Securities; Executive Vice
President, Treasurer, Comptroller and
Director, PMFD (since March 1991);
Director, PMFS (since June 1987);
Vice President and Director of The
Asia Pacific Fund, Inc. (since May
1989).
S. Jane Rose (50) Secretary Senior Vice President and Senior
One Seaport Plaza Counsel of PMF; Senior Vice President
New York, New York and Senior Counsel (since July 1992)
of Prudential Securities; formerly
Vice President and Associate General
Counsel of Prudential Securities.
Grace Torres (36) Treasurer First Vice President (since March
One Seaport Plaza and 1994), PMF; First Vice President of
New York, New York Principal Prudential Securities (since March
10292 Financial 1994); prior thereto, Vice President,
and Bankers Trust Corporation.
Accounting
Officer
B-6
<PAGE>
POSITION PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- --------------------- --------- ----------------------
Stephen M. Ungerman (42) Assistant First Vice President of PMF (since
One Seaport Plaza Treasurer February 1993); prior thereto, Senior
New York, New York Tax Manager of Price Waterhouse
10292 (1981-January 1993)
Deborah A. Docs (38) Assistant Vice President and Associate General
One Seaport Plaza Secretary Counsel (since January 1993) of PMF;
New York, New York Vice President and Associate General
10292 Counsel (since January 1993) of
Prudential Securities; previously
Associate Vice President (January
1990-December 1992) and Assistant
General Counsel (November 1991-
December 1992) of PMF.
- ----------------
* "Interested" Director, as defined in the Investment Company Act of 1940, as
amended (Investment Company Act), by reason of his affiliation with Prudential
Securities or PMF.
Directors and officers of the Fund are also trustees, directors and
officers of some or all of the other investment companies distributed by
Prudential Securities.
The officers conduct and supervise the daily business operations of the
Fund, while the Directors, in addition to their functions set forth under
"Manager" and "Distributor," review such actions and decide on general policy.
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 72, except that retirement is being phased in for Directors who were age 68
or older as of December 31, 1993.
The Board of Directors has nominated a new slate of Directors for the Fund
which will be submitted to shareholders at a special meeting scheduled to be
held in or about October 1996.
Directors may receive their Directors' fees pursuant to a deferred fee
agreement with the Fund. Under the terms of the agreement, the Fund accrues
daily the amount of such Director's 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 an SEC exemptive
order, at the daily rate of return of the Fund (the Fund rate). Payment of the
interest so accrued is also deferred and accruals become payable at the option
of the Director. The Fund's obligation to make payments of deferred Directors'
fees, together with interest thereon, is a general obligation of the Fund.
Each Director who is not an affiliated person of PMF or PIC currently
receives $10,000 as an annual Director's fee, plus expenses, and $1,000 plus
expenses for service on each Board committee.
The following table sets forth the aggregate compensation paid by the Fund
for the fiscal year ended December 31, 1995 to the Directors who are not
affiliated with the Manager and the aggregate compensation paid to such
Directors for service on the Fund's Board and the Boards of any other investment
companies managed by Prudential Mutual Fund Management, Inc. (Fund Complex) for
the calendar year ended December 31, 1995.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM FUND
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL AND FUND
COMPENSATION AS PART OF FUND BENEFITS UPON COMPLEX PAID
NAME AND POSITION FROM FUND EXPENSES RETIREMENT TO DIRECTORS
----------------- ------------ ---------------- ---------------- ------------
<S> <C> <C> <C> <C>
Delayne Dedrick Gold--Director $12,000 None N/A $183,250(24/45)*
Thomas A. Owens, Jr.--Director $12,000 None N/A $ 87,000(12/13)*
Sidney M. Spielvogel--Director $12,000 None N/A $ 12,000(1/1)*
Nancy Hays Teeters--Director $12,000 None N/A $107,500(13/31)*
Robert H. Wellington--Director $12,000 None N/A $ 19,000(3/3)*
- -------------
</TABLE>
* Indicates number of funds/portfolios in Fund Complex (including the Fund) to
which aggregate compensation relates.
B-7
<PAGE>
As of February 9, 1996, the Directors and officers of the Fund, as a group,
beneficially owned less than one percent of the outstanding shares of Common
Stock of the Fund.
As of February 9, 1996, Prudential Securities held, solely of record on
behalf of other persons, 7,233,874,341 shares of the Fund's Common Stock,
representing approximately 95% of the shares then outstanding. Prudential
Securities had the sole power to vote 83,574,172 shares held as of February 12,
1996 for the benefit of participating employees of Prudential Securities in the
Prudential Securities 401(k) Plan, representing about 1% of the shares then
outstanding.
MANAGER
The manager of the Fund is Prudential Mutual Fund Management, Inc. (PMF or
the Manager), One Seaport Plaza, New York, New York 10292. PMF serves as manager
to all of the other investment companies that, together with the Fund, comprise
the Prudential Mutual Funds. See "How the Fund is Managed--Manager" in the
Prospectus. As of January 31, 1996, PMF managed and/or administered open-end and
closed-end management investment companies with assets of approximately $52
billion. According to the Investment Company Institute, as of December 31, 1995,
the Prudential Mutual Funds were the 13th largest family of mutual funds in the
United States.
PMF is a subsidiary of Prudential Securities Incorporated and The
Prudential Insurance Company of America (Prudential). PMF has three wholly-owned
subsidiaries: Prudential Mutual Fund Distributors, Inc., Prudential Mutual
Services, Inc. (PMFS or the Transfer Agent) and Prudential Mutual Fund
Investment Management, Inc. PMFS serves as the transfer agent for the Prudential
Mutual Funds and, in addition, provides customer service, recordkeeping and
management and administration services to qualified plans.
Pursuant to the Management Agreement with the Fund (the Management
Agreement), PMF, subject to the supervision of the Fund's Board of Directors and
in conformity with the stated policies of the Fund, manages both the investment
operations of the Fund and the composition of the Fund's portfolio, including
the purchase, retention, disposition and loan of securities and other assets. In
connection therewith, PMF is obligated to keep certain books and records of the
Fund. PMF also administers the Fund's corporate affairs and, in connection
therewith, furnishes the Fund with office facilities, together with those
ordinary clerical and bookkeeping services which are not being furnished by
State Street Bank and Trust Company, the Fund's custodian (the Custodian), and
PMFS, the Fund's transfer and dividend disbursing agent. The management services
of PMF for the Fund are not exclusive under the terms of the Management
Agreement and PMF is free to, and does, render management services to others.
For its services, PMF receives, pursuant to the Management Agreement with
the Fund, a fee at an annual rate of .50 of 1% of the Fund's average daily net
assets up to $50 million and .30 of 1% of the Fund's average daily net assets in
excess of $50 million. The fee is computed daily and payable monthly. The
Management Agreement also provides that in the event the expenses of the Fund
(including the fees of the Manager, 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 shares of the Fund are then qualified for offer and
sale, the Manager will reduce its fee by the amount of such excess. Expenses in
excess of the total compensation payable to PMF will be paid by PMF. Any such
reductions of payments are subject to readjustment during the year. No such
reductions were required during the fiscal year ended December 31, 1995.
Currently, the Fund believes that the most restrictive expense limitation of
state securities commissions is 2 1/2% of the Fund's average daily net assets up
to $30 million, 2% of the next $70 million of such assets and 1 1/2% of such
assets in excess of $100 million.
In connection with its management of the corporate affairs of the Fund, PMF
bears the following expenses:
(a) the salaries and expenses of all personnel of the Fund and the
Manager, except the fees and expenses of Directors who are not affiliated
persons of the Manager or the Fund's investment adviser;
(b) all expenses incurred by the Manager or by the Fund in connection
with managing the ordinary course of the Fund's business, other than those
assumed by the Fund, as described below; and
(c) the costs and expenses payable to PIC pursuant to the subadvisory
agreement between PMF and PIC (the Subadvisory Agreement).
B-8
<PAGE>
Under the terms of the Management Agreement, the Fund is responsible for
the payment of the following expenses, including (a) the fees payable to the
Manager, (b) the fees and expenses of Directors who are not affiliated with PMF
or the Fund's investment adviser, (c) the fees and certain expenses of the
Fund's Custodian and Transfer and Dividend Disbursing Agent, including the cost
of providing records to the Manager in connection with its obligation of
maintaining required records of the Fund and of pricing the Fund's shares, (d)
the fees and charges of the Fund's legal counsel and independent accountants,
(e) brokerage commissions and any issue or transfer taxes chargeable to the Fund
in connection with its securities transactions, (f) all taxes and corporate fees
payable by the Fund to governmental agencies, (g) the fees of any trade
association of which the Fund is a member, (h) the cost of stock certificates
representing shares of the Fund, (i) the cost of fidelity and liability
insurance, (j) the fees and expenses involved in registering and maintaining
registration of the Fund and of its shares with the SEC and registering the Fund
as a broker or dealer and qualifying its shares under state securities laws,
including the preparation and printing of the Fund's registration statements and
prospectuses for such purposes, (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, (l) litigation and indemnification expenses and
other extraordinary expenses not incurred in the ordinary course of the Fund's
business, and (m) distribution expenses.
The Management Agreement also provides that PMF will not be liable for any
error of judgment or for any loss suffered by the Fund in connection with the
matters to which the Management Agreement relates, except a loss resulting from
a breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith, gross
negligence or reckless disregard of duty. The Management Agreement provides that
it will terminate automatically if assigned, and that it may be terminated
without penalty by either party upon not more than 60 days' nor less than 30
days' written notice. The Management Agreement provides that it 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
accordance with the requirements of the Investment Company Act.
The Management Agreement was last approved by the Board of Directors of the
Fund, including a majority of the Directors who are not parties to such contract
or interested persons of such parties (as defined in the Investment Company
Act), on May 10, 1995, and was approved by shareholders of the Fund on April 27,
1988.
For the fiscal years ended December 31, 1995, 1994 and 1993, PMF received
management fees of $20,840,442, $21,320,747, and $23,332,701, respectively.
PMF has entered into the Subadvisory Agreement with PIC, a wholly-owned
subsidiary of Prudential. The Subadvisory Agreement provides that PIC furnish
investment advisory services in connection with the management of the Fund. In
connection therewith, PIC is obligated to keep certain books and records of the
Fund. PMF continues to have responsibility for all investment advisory services
pursuant to the Management Agreement and supervises PIC's performance of such
services. PIC is reimbursed by PMF for the reasonable costs and expenses
incurred by PIC in furnishing those services. Investment advisory services are
provided to the Fund by a unit at PIC, known as Prudential Mutual Fund
Investment Management.
The Subadviser maintains a corporate credit unit which provides credit
analysis and research on taxable fixed-income securities including money market
instruments. The portfolio manager consults routinely with the credit unit in
managing the Fund's portfolio. The credit unit staff, including 7 credit
analysts, reviews on an ongoing basis commercial paper issuers, commercial
banks, non-bank financial institutions and issuers of other taxable fixed-income
obligations. Credit analysts have broad access to research and financial
reports, data retrieval services and industry analysts. They maintain
relationships with the management of corporate issuers and from time to time
visit companies in whose securities the Fund may invest.
The Subadvisory Agreement was last approved by the Board of Directors,
including a majority of the Directors who are not parties to such contract or
interested persons of such parties, as defined in the Investment Company Act, on
May 10, 1995, and was approved by shareholders of the Fund on April 27, 1988.
The 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 Management Agreement. The Subadvisory Agreement may be
terminated by the Fund, PMF or PIC upon not less than 30 days' or more than 60
days' written notice. The 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 by the Board of Directors at least
annually in accordance with the requirements of the Investment Company Act.
The Manager and Subadviser are subsidiaries of Prudential, which is one of
the largest diversified financial services institutions in the world and, based
on total assets, the largest insurance company in North America as of December
31, 1994. Its primary business is to offer a full range of products and services
in three areas: insurance, investments and home ownership for individuals and
families; health-care management and other benefit programs for employees of
companies and members of groups; and asset management for institutional clients
and their associates. Prudential (together with its subsidiaries) employs nearly
100,000 persons worldwide and maintains a sales force of approximately 19,000
agents, 3,400 insurance brokers and
B-9
<PAGE>
6,000 financial advisers. It insures or provides other financial services to
more than 50 million people worldwide--to more than one of every five people in
the United States. Prudential is a major issuer of annuities, including variable
annuities. Prudential seeks to develop innovative products and services to meet
consumer needs in each of its business areas. As of December 31, 1994,
Prudential through its subsidiaries provided automobile insurance for more than
1.8 million cars and insured more than 1.5 million homes. For the year ended
December 31, 1994, The Prudential Bank, a subsidiary of Prudential, served
940,000 customers in 50 states providing credit card services and loans totaling
more than $1.2 billion. Assets held by PSI for its clients totaled approximately
$150 billion at December 31, 1994. During 1994, over 28,000 new customer
accounts were opened each month at PSI. The Prudential Real Estate Affiliates,
the fourth largest real estate brokerage network in the United States, has more
than 34,000 brokers and agents and more than 1,100 offices in the United States.
Based on data for the period from January 1, 1995 to September 30, 1995 for
the Prudential Mutual Funds, on an average day, there are approximately $80
million in common stock transactions, over $150 million in bond transactions and
over $3.1 billion in money market transactions. In 1994, the Prudential Mutual
Funds effected more than 40,000 trades in money market securities and held on
average $20 billion of money market securities. Based on complex-wide data for
the period from January 1, 1995 to September 30, 1995, on an average day, over
7,000 shareholders telephoned PMFS, the Transfer Agent of the Prudential Mutual
Funds, on the Prudential Mutual Funds' toll-free number. On an annual basis,
that represents approximately 1.8 million telephone calls answered.
From time to time, there may be media coverage of portfolio managers and
other investment professionals associated with the Manager and the Subadviser in
national and regional publications, on television and other media. Additionally,
individual mutual fund portfolios are frequently cited in surveys conducted by
national and regional publications and media organizations such as THE WALL
STREET JOURNAL, THE NEW YORK TIMES, BARRON'S and USA TODAY.
DISTRIBUTOR
Prudential Securities Incorporated (Prudential Securities or PSI), One
Seaport Plaza, New York, New York 10292, acts as the distributor of the Fund's
Class A shares. Prior to January 2, 1996, Prudential Mutual Fund Distributors,
Inc. (PMFD), acted as distributor of the Fund's shares. Prudential Securities
also serves as the distributor of the Fund's Class Z shares, and incurs the
expenses of distributing the Fund's Class Z shares under a Distribution
Agreement with the Fund, none of which is reimbursed by or paid for by the Fund.
Prudential Securities is engaged in the securities underwriting and
securities and commodities brokerage business and is a member of the New York
Stock Exchange, other major securities and commodities exchanges and the NASD.
Prudential Securities is also engaged in the investment advisory business.
Prudential Securities is a wholly-owned subsidiary of Prudential Securities
Group Inc., which is an indirect, wholly-owned subsidiary of Prudential. The
services it provides to the Fund are discussed in the Fund's Prospectus. See
"How the Fund is Managed--Distributor."
PLAN OF DISTRIBUTION
See "How the Fund is Managed--Distributor" in the Prospectus.
Under the Fund's Plan of Distribution and the Distribution Agreement for
the Class A shares with PSI, the Fund pays PSI, as distributor, a distribution
fee of up to 0.125% of the average daily net assets of the Class A shares of the
Fund, computed daily and payable monthly, to reimburse PMFD for distribution
expenses.
For the fiscal year ended December 31, 1995, PMFD incurred distribution
expenses in the aggregate of $8,643,150, all of which was recovered through the
distribution fee paid by the Fund.
It is estimated that of this amount, 0.8% ($72,662) was spent on printing
and mailing of prospectuses to other than current shareholders and 99.2%
($8,570,488) on the aggregate of (i) account servicing fee credits to Prudential
Securities branch offices for payments of account servicing fees to account
executives (97.6% or $8,433,538) and (ii) an allocation of overhead and other
branch office distribution-related expenses (1.6% or $136,950). The term
"overhead and other branch office distribution-related expenses" represents (a)
the expenses of operating branch offices of Prudential Securities and Pruco
Securities Corporation (Prusec), affiliated broker-dealers, 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 the costs of stationery and supplies, (b) the costs of
client sales seminars, (c) travel expenses of mutual fund sales coordinators to
promote the sale of Fund shares and (d) other incidental expenses relating to
branch promotion of Fund sales. No interest or carrying charges are included as
part of the Fund's distribution expenses.
B-10
<PAGE>
Pursuant to Rule 12b-1 under the Investment Company Act, the Plan of
Distribution was last approved by the Board of Directors, including a majority
of the Directors who are not interested persons of the Fund and who have no
direct or indirect financial interest in the operation of the Plan or in any
agreement related to the Plan (the Rule 12b-1 Directors), cast in person at a
meeting called for the purpose of voting on the Plan, on May 10, 1995. The Plan
of Distribution was approved by a majority of the Fund's outstanding voting
securities on April 27, 1988.
The Plan continues 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 of the Rule 12b-1 Directors, cast in person at a meeting
called for the purpose of voting on such continuance. The 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 Class A
voting securities of the Fund on not more 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 by the Fund thereunder without shareholder approval, and all
material amendments are required to be approved by the Board of Directors in the
manner described above. The Plan will automatically terminate in the event of
its assignment.
Pursuant to the Plan, the Directors will review at least quarterly a
written report of the distribution expenses incurred on behalf of the Fund by
the Distributor. The report includes an itemization of the distribution expenses
and the purpose of such expenditures. In addition, as long as the Plan remains
in effect, the selection and nomination of Directors shall be committed to the
Rule 12b-1 Directors.
Pursuant to each Distribution Agreement, the Fund has agreed to indemnify
PSI to the extent permitted by applicable law against certain liabilities under
the Securities Act of 1933, as amended. The Distribution Agreement for the Class
A shares was last approved by the Board of Directors, including a majority of
the Rule 12b-1 Directors, on May 10, 1995. On November 3, 1995, the Board of
Directors approved the transfer of the Distribution Agreement for Class A shares
with PMFD to Prudential Securities. The Distribution Agreement for the Class Z
shares was approved by the Board of Directors, including a majority of the Rule
12b-1 Directors, on November 3, 1995.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators in 51 jurisdictions and the NASD to resolve
allegations that PSI sold interests in more than 700 limited partnerships (and a
limited number of other types of securities) from January 1, 1980 through
December 31, 1990, in violation of securities laws to persons for whom such
securities were not suitable in light of the individuals' financial condition or
investment objectives. It was also alleged that the safety, potential returns
and liquidity of the investments had been misrepresented. The limited
partnerships principally involved real estate, oil and gas producing properties
and aircraft leasing ventures. The SEC Order (i) included findings that PSI's
conduct violated the federal securities laws and that an order issued by the SEC
in 1986 requiring PSI to adopt, implement and maintain certain supervisory
procedures had not been complied with; (ii) directed PSI to cease and desist
from violating the federal securities laws and imposed a $10 million civil
penalty; and (iii) required PSI to adopt certain remedial measures including the
establishment of a Compliance Committee of its Board of Directors. Pursuant to
the terms of the SEC settlement, PSI established a settlement fund in the amount
of $330,000,000 and procedures, overseen by a court approved Claims
Administrator, to resolve legitimate claims for compensatory damages by
purchasers of the partnership interests. PSI has agreed to provide additional
funds, if necessary, for that purpose. PSI's settlement with the state
securities regulators included an agreement to pay a penalty of $500,000 per
jurisdiction. PSI consented to a censure and to the payment of a $5,000,000 fine
in settling the NASD action. In settling the above referenced matters, PSI
neither admitted nor denied the allegations asserted against it.
On January 18, 1994, PSI agreed to the entry of a Final Consent Order and a
Parallel Consent Order by the Texas Securities Commissioner. The firm also
entered into a related agreement with the Texas Securities Commissioner. The
allegations were that the firm had engaged in improper sales practices and other
improper conduct resulting in pecuniary losses and other harm to investors
residing in Texas with respect to purchases and sales of limited partnership
interests during the period of January 1, 1980 through December 31, 1990.
Without admitting or denying the allegations, PSI consented to a reprimand,
agreed to cease and desist from future violations, and to provide voluntary
donations to the State of Texas in the aggregate amount of $1,500,000. The firm
agreed to suspend the creation of new customer accounts, the general
solicitation of new accounts, and the offer for sale of securities in or from
PSI's North Dallas office to new customers during a period of twenty consecutive
business days, and agreed that its other Texas offices would be subject to the
same restrictions for a period of five consecutive business days. PSI also
agreed to institute training programs for its securities salesmen in Texas.
On October 27, 1994, Prudential Securities Group, Inc. and PSI entered into
agreements with the United States Attorney deferring prosecution (provided PSI
complies with the terms of the agreement for three years) for any alleged
criminal activity related to the sale of certain limited partnership programs
from 1983 to 1990. In connection with these agreements, PSI agreed to add the
sum of $330,000,000 to the Fund established by the SEC and executed a
stipulation providing for a reversion of such funds to the United States Postal
Inspection Service. PSI further agreed to obtain a mutually acceptable outside
director to sit on the Board of Directors of PSG and the Compliance Committee of
PSI. The new director will also serve as an independent
B-11
<PAGE>
"ombudsman" whom PSI employees can call anonymously with complaints about ethics
and compliance. Prudential Securities shall report any allegations or instances
of criminal conduct and material improprieties to the new director. The new
director will submit compliance reports which shall identify all such
allegations or instances of criminal conduct and material improprieties every
three months for a three-year period.
PURCHASE AND REDEMPTION OF FUND SHARES
PURCHASE OF SHARES
The Fund reserves the right to reject any initial or subsequent purchase
order (including an exchange) and the right to limit investments in the Fund
solely to existing or past shareholders of the Fund.
REOPENING AN ACCOUNT
Subject to the minimum investment restrictions, an investor may reopen an
account, without filing a new application form, at any time during the calendar
year the account is closed, provided that the information on the old form is
still applicable.
REDEMPTION OF SHARES
Investors who purchase Class A shares directly from Prudential Mutual Fund
Services, Inc. (PMFS or the Transfer Agent) may use the following procedures:
CHECK REDEMPTION. At a shareholder's request, State Street Bank and Trust
Company (State Street) will establish a personal checking account for the
shareholder. Checks drawn on this account can be made payable to the order of
any person in any amount equal to or greater than $500. The payee of the check
may cash or deposit it like any other check drawn on a bank. When such a check
is presented to State Street for payment, State Street presents the check to the
Fund as authority to redeem a sufficient number of shares in a shareholder's
account in the Fund to cover the amount of the check. This enables the
shareholder to continue earning daily dividends until the check is cleared.
Canceled checks are returned to the shareholder by State Street.
Shareholders are subject to State Street's rules and regulations governing
checking accounts, including the right of State Street not to honor checks in
amounts exceeding the value of the shareholder's account at the time the check
is presented for payment.
Shares for which certificates have been issued are not available for
redemption to cover checks. A shareholder should be certain that adequate shares
for which certificates have not been issued are in his or her account to cover
the amount of the check. See "Shareholder Guide--How to Sell Your Shares" in the
Prospectus. Since the dollar value of an account is constantly changing, it is
not possible for a shareholder to determine in advance the total value of his or
her account so as to write a check for the redemption of the entire account.
The Fund reserves the right to assess a service charge, payable to State
Street, to establish a checking account and to order checks. State Street, PMFS
and the Fund have reserved the right to modify this checking account privilege
or to place a charge for each check presented for payment for any individual
account or for all accounts in the future.
The Fund, PMFS or State Street may terminate Check Redemption at any time
upon 30 days' notice to participating shareholders. To receive further
information, contact Prudential Mutual Fund Services, Inc., Attention:
Redemption Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010, or
telephone (800) 225-1852 (toll-free). Check Redemption is not available to
investors for whom Prudential Securities has purchased shares.
EXPEDITED REDEMPTION. In order to use Expedited Redemption, a shareholder
may so designate at the time the initial application form is filed or at a later
date. Once the Expedited Redemption authorization form has been completed, the
signature(s) on the authorization form guaranteed as set forth below and the
form returned to PMFS, requests for redemption may be made by telegraph, letter
or telephone. A signature guarantee is not required under Expedited Redemption
once the authorization form is properly completed and returned. The Expedited
Redemption privilege may be used only to redeem shares in an amount of $200 or
more, except that, if an account for which Expedited Redemption is requested has
a net asset value of less than $200, the entire account must be redeemed. The
proceeds of redeemed shares in the amount of $1,000 or more are transmitted by
wire to the shareholder's account at a domestic commercial bank which is a
member of the Federal Reserve System. Proceeds of less than $1,000 are forwarded
by check to the shareholder's designated bank account. See "Shareholder
Guide--How to Sell Your Shares" in the Prospectus.
B-12
<PAGE>
To request Expedited Redemption by telephone, a shareholder should call
PMFS at (800) 225-1852. Calls must be received by PMFS before 4:30 P.M., New
York time, in order for the redemption to be effective on that day. Requests by
letter should be addressed to Prudential Mutual Fund Services, Inc., Attention:
Account Maintenance, P.O. Box 15015, New Brunswick, New Jersey 08906-5015.
In order to change the name of the commercial bank or account designated to
receive redemption proceeds, it is necessary to execute a new Expedited
Redemption authorization form and submit it to PMFS at the address set forth
above. Each signature must be guaranteed by an "eligible guarantor institution,"
which 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. Guarantees must be signed by
an authorized signatory of the eligible guarantor institution, and "Signature
Guaranteed" should appear with the signature. For clients of Pruco Securities
Corporation (Prusec) signature guarantees may be obtained from the agency or
office manager of most Prudential Insurance and Financial Services or Preferred
Services offices. PMFS may request further documentation from corporations,
executors, administrators, trustees or guardians.
REGULAR REDEMPTION. Shareholders may redeem their shares by sending to
Prudential Mutual Fund Services, Inc., Attention: Redemption Services, P.O. Box
15010, New Brunswick, New Jersey 08906-5010, a written request, accompanied by
duly endorsed stock certificates, if issued. In this case, all stock
certificates and all written requests for redemption must be endorsed by the
shareholder with the signature guaranteed, as described above. PMFS may request
further documentation from corporations, executors, administrators, trustees or
guardians. Regular redemption is made by check mailed to the shareholder's
address.
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of shares of the Fund, 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. Whenever a transaction
takes place in the Shareholder Investment Account, the shareholder will be
mailed a statement showing the transaction and the status of such account.
PROCEDURE FOR MULTIPLE ACCOUNTS
Special procedures have been designed for banks and other institutions that
wish to open multiple accounts. An institution may open a single master account
by filing an Application and Order Form with PMFS, signed by personnel
authorized to act for the institution. Individual sub-accounts may be opened at
the time the master account is opened by listing them, or they may be added at a
later date by written advice or by filing forms supplied by PMFS. Procedures are
available to identify sub-accounts by name and number within the master account
name. The investment minimums described in the Prospectus under "Shareholder
Guide--How to Buy Shares of the Fund" are applicable to the aggregate amounts
invested by a group, and not to the amount credited to each sub-account.
PMFS provides each institution with a written confirmation for each
transaction in a sub-account and, on a monthly basis, with a statement which
sets forth for each master account its share balance and income earned for the
month. In addition, each institution receives a statement for each individual
account setting forth transactions in the sub-account for the year-to-date, the
total number of shares owned as of the dividend payment date and the dividends
paid for the current month, as well as for the year-to-date. For further
information on the sub-accounting system and procedures, contact PMFS.
EXCHANGE PRIVILEGE
The Fund makes available to its shareholders the privilege of exchanging
their shares 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. Class A shares of such other Prudential
Mutual Funds may also be exchanged for shares of the Fund. All exchanges are
made on the basis of relative net asset value next determined after receipt of
an order in proper form and any applicable sales charge. An exchange will be
treated as a redemption and purchase for tax purposes. Shares may be exchanged
for shares of another fund only if shares of such fund may legally be sold under
applicable state laws.
It is contemplated that the exchange privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.
B-13
<PAGE>
Shareholders of the Fund may exchange their Class A shares for Class A
shares of the Prudential Mutual Funds and shares of the money market funds
specified below.
The following other money market funds participate in the Class A Exchange
Privilege:
Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury Money Market Series)
Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachusetts Money Market Series)
(New Jersey Money Market Series)
(New York Money Market Series)
Prudential Tax-Free Money Fund, Inc.
Shareholders of the Fund may not exchange their shares for Class B or Class
C shares of the Prudential Mutual Funds or shares of Prudential Special Money
Market Fund, a money market fund, except that shares acquired prior to January
22, 1990 subject to a contingent deferred sales charge can be exchanged for
Class B shares.
Additional details about the Exchange Privilege and prospectuses for each
of the Prudential Mutual Funds are available from the Fund's Transfer Agent,
Prudential Securities or Prusec. The Exchange Privilege may be modified,
terminated or suspended on sixty days' notice, and any fund, including the Fund,
or the Distributor, has the right to reject any exchange application relating to
such fund's shares.
Class Z shares may be exchanged for Class Z shares of the funds listed
below which participate in the PSI 401(k) Plan. No fee or sales load will be
imposed upon the exchange.
Prudential Allocation Fund
(Balanced Portfolio)
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Global Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
(Money Market Series)
Prudential Growth Opportunity Fund, Inc.
Prudential High Yield Fund, Inc.
Prudential Jennison Fund, Inc.
(expected to be available later in 1996)
Prudential Multi-Sector Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential Utility Fund, Inc.
AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP)
Under ASAP, an investor may arrange to have a fixed amount automatically
invested in Class A shares of the Fund monthly by authorizing his or her bank
account or Prudential Securities Account (including a Command Account) to be
debited to invest specified dollar amounts in shares of the Fund. The investor's
bank must be a member of the Automatic Clearing House System. Stock certificates
are not issued to ASAP participants.
Further details about this program and an application form are available
from the Transfer Agent, Prudential Securities or Prusec.
SYSTEMATIC WITHDRAWAL PLAN
A systematic withdrawal plan is available for holders of Class A shares
through Prudential Securities or the Transfer Agent. Such withdrawal plan
provides for monthly or quarterly checks in any amount, except as provided
below, up to the value of the shares in the shareholder's account.
B-14
<PAGE>
In the case of shares held through the Transfer Agent (i) a $10,000 minimum
account value applies, (ii) withdrawals may not be for less than $100 and (iii)
the shareholder must elect to have all dividends and/or distributions
automatically reinvested in additional full and fractional shares at net asset
value on shares held under this plan.
Prudential Securities and the Transfer Agent act as agents for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment. The systematic withdrawal plan may be
terminated at any time, and the Distributor reserves the right to initiate a fee
of up to $5 per withdrawal, upon 30 days' written notice to the shareholder.
Withdrawal payments should not be considered as dividends, yield or income.
If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted. Furthermore, each withdrawal constitutes a
redemption of shares, and any gain or loss realized must be recognized for
federal income tax purposes. Each shareholder should consult his or her own tax
adviser with regard to the tax consequences of the systematic withdrawal 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, the administration, custodial fees and other
details are available from Prudential Securities or the Transfer Agent.
Investors who are considering the adoption of such a plan should consult
with their own legal counsel or tax adviser with respect to the establishment
and maintenance of any such plan.
TAX-DEFERRED RETIREMENT ACCOUNTS
INDIVIDUAL RETIREMENT ACCOUNTS. An individual retirement account (IRA)
permits the deferral of federal income tax on income earned in the account until
the earnings are withdrawn. The following chart represents a comparison of the
earnings in a personal savings account with those in an IRA, assuming a $2,000
annual contribution, an 8% rate of return and a 39.6% federal income tax bracket
and shows how much more retirement income can accumulate within an IRA as
opposed to a taxable individual savings account.
TAX-DEFERRED COMPOUNDING(1)
<TABLE>
<CAPTION>
CONTRIBUTIONS PERSONAL
MADE OVER: SAVINGS IRA
------------- --------- --------
<S> <C> <C>
10 years $ 26,165 $ 31,291
15 years 44,675 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 the Fund or any specific investment. It shows
taxable versus tax-deferred compounding for the periods and on the terms
indicated. Earnings in the IRA account will be subject to tax when withdrawn
from the account.
DIVIDENDS
The Fund's net income is declared as dividends daily and is automatically
reinvested monthly in additional shares of the Fund unless the shareholder
elects in writing not less than five full business days prior to the payable
date to receive such distribution in cash. The Fund endeavors to maintain its
net asset value at $1.00 per share. As a result of a significant expense or
realized loss, it is possible that the Fund's net asset value may fall below
$1.00 per share. Should the Fund incur or anticipate any unusual or unexpected
significant expense or loss which would disproportionately affect the Fund's
income for a particular period, the Board of Directors at that time would
consider whether to adhere to the present dividend policy described in the
Prospectus or to revise it in light of the then prevailing circumstances in
order to ameliorate to the extent possible the disproportionate effect of such
expense or loss on then existing shareholders. Such expenses or losses may
nevertheless result in a shareholder's receiving no dividends for the period
during which he or she held shares of the Fund and in his or her receiving a
price per share upon redemption lower than that which he or she paid.
B-15
<PAGE>
Dividends derived from investment income received by the Fund on portfolio
securities, together with distributions of any net short-term capital gains, are
taxable to the shareholders as ordinary income. Distributions of net long-term
capital gains are taxed to the shareholders at capital gains rates regardless of
the length of their holding period of Fund shares. However, the Fund's portfolio
generally will be managed in such a way as not to realize any net long-term
capital gains. Dividends and distributions are taxable to shareholders even if
reinvested in additional shares.
NET ASSET VALUE
The Fund uses the amortized cost method of valuation to determine the value
of its portfolio securities. In that regard, the Fund's Board of Directors has
determined to maintain a dollar-weighted average portfolio maturity of 90 days
or less, to purchase only instruments having remaining maturities of thirteen
months or less, and to invest only in securities determined by the Manager or
the Subadviser, under the direction of the Board of Directors, to be of minimal
credit risk and of eligible quality. Subject to the Fund's compliance with the
conditions of applicable rules promulgated by the SEC relating to the amortized
cost method of valuation, the remaining maturity of an instrument held by the
Fund that is subject to a put is deemed to be the period remaining until the
principal amount can be recovered through demand or, in the case of a variable
rate instrument, the next interest reset date, if longer. The value assigned to
the put is zero. The Board of Directors also has established procedures designed
to stabilize, to the extent reasonably possible, the Fund's price per share as
computed for the purpose of sales and redemptions at $1.00. Such procedures will
include review of the Fund's portfolio holdings by the Board, at such intervals
as deemed appropriate, to determine whether the Fund's net asset value
calculated by using available market quotations deviates from $1.00 per share
based on amortized cost. The extent of any deviation will be examined by the
Board, and if such deviation exceeds 1/2 of 1%, the Board will promptly
consider what action, if any, will be initiated. In the event the Board of
Directors determines that a deviation exists which may result in material
dilution or other unfair results to investors or existing shareholders, the
Board will take such corrective action as it regards necessary and appropriate,
including the sale of portfolio instruments prior to maturity to realize gains
or losses, the shortening of average portfolio maturity, the withholding of
dividends or the establishment of net asset value per share by using available
market quotations.
PORTFOLIO TRANSACTIONS
The Manager is responsible for decisions to buy and sell securities for the
Fund, the selection of brokers and dealers to effect the transactions and the
negotiation of brokerage commissions, if any. For purposes of this section the
term "Manager" includes the Subadviser. The Fund does not normally incur any
brokerage commission expense on such transactions. In the market for money
market instruments, 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 may be purchased directly from an issuer, in which case no
commissions or discounts are paid.
In placing orders for portfolio securities of the Fund, the Manager is
required to give primary consideration to obtaining the most favorable price and
efficient execution. This means that the Manager will seek to execute each
transaction at a price and commission, if any, which provide the most favorable
total cost or proceeds reasonably attainable under the circumstances. While the
Manager generally seeks reasonably competitive spreads or commissions, the Fund
will not necessarily be paying the lowest spread or commission available. Within
the framework of this policy, the Manager may consider research and investment
services provided by brokers or dealers who effect or are parties to portfolio
transactions of the Fund, the Manager or the Manager's other clients. Such
research and investment services are those which brokerage houses customarily
provide to institutional investors and include statistical and economic data and
research reports on particular companies and industries. Such services are used
by the Manager in connection with all of its investment activities, and some of
such services obtained in connection with the execution of transactions for the
Fund may be used in managing other investment accounts. Conversely, brokers
furnishing such services may be selected for the execution of transactions of
such other accounts, whose aggregate assets are far larger than those of the
Fund, and the services furnished by such brokers may be used by the Manager in
providing investment management for the Fund. While such services are useful and
important in supplementing its own research and facilities, the Manager believes
that the value of such services is not determinable and does not significantly
reduce expenses. The Fund does not reduce the fee it pays to the Manager by any
amount that may be attributed to the value of such services. The Fund will not
effect any securities transactions with or through Prudential Securities as
broker or dealer. The Fund paid no brokerage commissions for the fiscal years
ended December 31, 1995, 1994 and 1993.
B-16
<PAGE>
TAXES
FEDERAL
The Fund has elected to qualify, and intends to remain qualified, as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the Internal Revenue Code). This relieves the Fund (but not
its shareholders) from paying federal income tax on income which is distributed
to shareholders and permits net capital gains of the Fund (I.E., 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.
Qualification of the Fund as a regulated investment company requires, among
other things, that (a) at least 90% of the Fund's annual gross income (without
reduction for losses from the sale or other disposition of securities) be
derived from dividends, interest, 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 derives less than 30%
of its gross income from gains (without reduction for losses) from the sale or
other disposition of securities, options thereon, futures contracts, options
thereon, forward contracts and foreign currencies held for less than three
months (except for foreign currencies directly related to the Fund's business of
investing in securities); (c) the Fund diversify its holdings so that, at the
end of each quarter of the taxable year, (i) at least 50% of the market value of
its 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 market value of the assets of the Fund and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its assets
is invested in the securities of any one issuer (other than U.S. Government
securities) and (d) the Fund distribute to its shareholders at least 90% of its
net investment income and net short-term gains (I.E., 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 the Fund will be treated as
long-term capital gains or losses if the securities have been held by it for
more than one year. Other gains or losses on the sale of securities will be
short-term capital gains or losses. In addition, debt securities acquired by the
Fund may be subject to original issue discount and market discount rules.
The Fund is required to distribute 98% of its ordinary income in the same
calendar year in which it is earned. The Fund is also required to distribute
during the calendar year 98% of the capital gain net income it earned during the
twelve 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,
the Fund will be subject to a non-deductible 4% excise tax on the undistributed
amount. The Fund intends to distribute its income and capital gains in the
manner necessary to avoid imposition of the 4% excise tax. For purposes of this
excise tax, income on which the Fund pays income tax is treated as distributed.
Distributions of net investment income and net short-term gains will be
taxable to the shareholder at ordinary income rates regardless of whether the
shareholder receives such distributions in additional shares or cash.
Distributions of net capital gains (i.e., the excess of net long-term capital
gains over net short-term capital losses), if any, are taxable as long-term
capital gains regardless of how long the investor has held his or her shares.
However, if a shareholder holds shares in the Fund for not more than six months,
then any loss recognized on the sale of such shares will be treated as long-term
capital loss to the extent of any distribution on the shares which was treated
as long-term capital gain. Because none of the Fund's net income is anticipated
to arise from dividends on common or preferred stock, none of its distributions
to shareholders will be eligible for the dividends received deduction for
corporations under the Internal Revenue Code. Shareholders will be notified
annually by the Fund as to the federal tax status of distributions made by the
Fund.
Any gain or loss realized upon a sale or redemption of shares by a
shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held more than one year and
otherwise as short-term capital gain or loss. Any such loss, however, although
otherwise treated as a short-term capital loss, will be treated as long-term
capital loss to the extent of any net long-term capital gain distributions
received by the shareholder, if the shares have been held for six months or
less.
A shareholder may realize a gain or loss on the redemption of his or her
shares depending upon the net asset value when redeemed. The Fund, however,
intends to maintain a constant net asset value.
In general, tax-exempt shareholders will not be required to pay taxes on
amounts distributed to them. If such shareholders incurred debt in order to
acquire or hold their shares in the Fund, amounts distributed to them may be
subject to the unrelated business income tax.
B-17
<PAGE>
STATE AND LOCAL
Under the laws of certain states, distributions of net income may be
taxable to shareholders as income even though a portion of such distributions
may be derived from interest on U.S. Government obligations which, if realized
directly, would be exempt from state income taxes. Shareholders are advised to
consult their tax advisers concerning the application of state and local taxes.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
AND INDEPENDENT ACCOUNTANTS
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities and
cash, and in that capacity maintains certain financial and accounting books and
records pursuant to an agreement with the Fund.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison,
New Jersey 08818, serves as Transfer and Dividend Disbursing Agent and in those
capacities maintains certain books and records for the Fund. PMFS is a
wholly-owned subsidiary of PMF. PMFS provides customary transfer agency services
to the 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, a new account
set-up fee for each manually established account and a monthly inactive zero
balance account fee per shareholder account. PMFS is also reimbursed for its
out-of-pocket expense, including but not limited to postage, stationery,
printing, allocable communications expenses and other costs. For the fiscal year
ended December 31, 1995, the Fund incurred fees of approximately $15,231,600 for
such services. As of December 31, 1995, approximately $1,269,000 of such fees
were due to PMFS.
Deloitte & Touche LLP, Two World Financial Center, New York, New York
10281, serves as the Fund's independent public accountants and, in that
capacity, audits the Fund's annual financial statements.
B-18
<PAGE>
PORTFOLIO OF INVESTMENTS AS OF DECEMBER 31, 1995 PRUDENTIAL MONEYMART ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) DESCRIPTION VALUE (NOTE 1)
<C> <S> <C>
- --------------------------------------------------------------------------------
BANK NOTES -- 3.0%
Bank of America Illinois
$19,000 5.79%, 1/16/96 $ 18,999,922
Bank One Indianapolis, NA
35,000 7.18%, 2/5/96 35,013,135
First Union National Bank of North
Carolina
100,000 5.80%, 1/31/96 100,000,000
50,000 5.78%, 2/9/96 50,000,000
NationsBank of Texas, NA
10,000 7.30%, 1/26/96 10,002,845
--------------
Total Bank Notes
(amortized cost $214,015,902) 214,015,902
--------------
- --------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT - EURODOLLAR--4.0%
Abbey National Treasury Services
Plc.
52,000 5.80%, 1/22/96 52,000,299
Bayerische Hypotheken-und
Wechsel-Bank
24,000 5.78%, 1/16/96 23,999,554
179,000 5.83%, 1/16/96 179,001,470
25,000 5.81%, 1/29/96 25,000,156
Landesbank Hessen-Thuringen
Girozentrale
6,000 5.79%, 2/15/96 5,999,832
Lloyds Bank Plc.
5,000 5.75%, 1/22/96 4,999,757
--------------
Total Certificates of Deposit -
Eurodollar
(amortized cost $291,001,068) 291,001,068
--------------
- --------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT - YANKEE--16.9%
Bank Of Montreal
20,000 5.80%, 1/22/96 20,000,000
100,000 5.80%, 1/23/96 100,000,000
Bank of Nova Scotia
15,000 5.77%, 2/1/96 14,999,604
Banque Nationale De Paris
15,000 5.78%, 1/22/96 14,999,778
114,000 5.80%, 2/2/96 114,000,000
45,000 7.07%, 2/20/96 45,024,146
21,000 6.95%, 2/21/96 21,008,292
Commerzbank
8,000 7.32%, 1/24/96 8,003,322
30,000 7.04%, 2/16/96 30,014,780
National Westminster Bank Plc.
190,000 5.81%, 1/12/96 190,000,000
99,000 5.80%, 1/31/96 99,000,000
Societe Generale
350,000 5.80%, 2/1/96 350,000,000
Swiss Bank Corp.
211,000 5.75%, 3/20/96 211,000,000
--------------
Total Certificates of Deposit -
Yankee
(amortized cost $1,218,049,922) 1,218,049,922
--------------
- --------------------------------------------------------------------------------
COMMERCIAL PAPER--51.9%
A. H. Robins Co., Inc.
7,465 5.75%, 1/25/96 7,436,384
9,500 5.80%, 1/26/96 9,461,736
18,100 5.67%, 2/14/96 17,974,567
American Express Credit Corp.
5,000 5.82%, 2/2/96 4,974,133
12,000 5.67%, 2/13/96 11,918,730
20,000 5.59%, 3/15/96 19,770,189
American Home Products Corp.
54,000 5.80%, 1/18/96 53,852,100
73,500 5.80%, 1/19/96 73,286,850
17,000 5.68%, 3/7/96 16,822,973
American Honda Finance Corp.
25,000 5.85%, 1/12/96 24,955,312
17,500 5.85%, 1/22/96 17,440,281
4,026 5.85%, 1/24/96 4,010,953
11,850 5.83%, 1/26/96 11,802,024
9,500 5.80%, 1/30/96 9,455,614
5,000 5.845%, 1/30/96 4,976,458
7,000 5.75%, 2/13/96 6,951,924
Aristar, Inc.
5,000 5.80%, 1/19/96 4,985,500
7,434 5.90%, 1/24/96 7,405,978
10,000 5.80%, 2/1/96 9,950,056
5,000 5.77%, 2/5/96 4,971,951
8,000 5.80%, 2/16/96 7,940,711
Associates Corp. of North America
75,000 5.71%, 2/1/96 74,631,229
85,000 5.71%, 2/2/96 84,568,578
50,000 5.68%, 2/12/96 49,668,666
10,000 5.68%, 2/13/96 9,932,155
Bank Of Montreal
168,000 5.72%, 1/29/96 167,252,587
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3
B-19
<PAGE>
PORTFOLIO OF INVESTMENTS AS OF DECEMBER 31, 1995 PRUDENTIAL MONEYMART ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) DESCRIPTION VALUE (NOTE 1)
<C> <S> <C>
- --------------------------------------------------------------------------------
COMMERCIAL PAPER (CONT'D.)
Bradford & Bingley Building Society
$17,000 5.74%, 1/17/96 $ 16,956,631
24,000 5.73%, 1/23/96 23,915,960
Caterpillar Financial Services Corp.
19,000 5.66%, 2/21/96 18,847,652
24,000 5.67%, 2/27/96 23,784,540
Chase Manhattan Corp.
59,000 5.67%, 2/12/96 58,609,715
CIT Group Holdings, Inc.
54,705 5.67%, 2/5/96 54,403,439
50,000 5.68%, 2/6/96 49,716,000
86,000 5.68%, 2/7/96 85,497,951
Corporate Receivables Corp.
27,000 5.75%, 1/16/96 26,935,312
23,000 5.67%, 2/27/96 22,793,517
11,000 5.625%, 2/28/96 10,900,313
Countrywide Funding Corp.
39,000 5.83%, 1/16/96 38,905,263
13,760 6.00%, 1/18/96 13,721,013
18,955 5.87%, 1/22/96 18,890,095
8,818 6.00%, 1/22/96 8,787,137
37,155 5.87%, 1/23/96 37,021,717
Dean Witter, Discover & Co.
42,000 5.70%, 2/8/96 41,747,300
36,000 5.70%, 2/14/96 35,749,200
Enterprise Funding Corp.
11,000 5.75%, 1/19/96 10,968,375
Falcon Asset Securitization Corp.
13,000 5.75%, 1/19/96 12,962,625
Finova Capital Corp.
24,000 5.95%, 1/2/96 23,996,033
60,600 5.97%, 1/5/96 60,559,802
49,300 5.97%, 1/8/96 49,242,771
37,605 6.00%, 1/12/96 37,536,057
First Union Corp.
68,000 5.71%, 2/9/96 67,579,363
Fleet Mortgage Group
10,000 5.80%, 1/16/96 9,975,833
39,000 5.80%, 1/24/96 38,855,484
Ford Motor Credit Corp.
193,000 5.75%, 1/22/96 192,352,646
57,000 5.71%, 2/1/96 56,719,734
65,000 5.67%, 2/13/96 64,559,787
General Electric Capital Corp.
66,000 5.66%, 2/8/96 65,605,687
62,000 5.58%, 4/8/96 61,058,220
123,000 5.58%, 4/9/96 121,112,565
General Motors Acceptance Corp.
12,000 5.73%, 2/6/96 11,931,240
264,000 5.75%, 2/20/96 261,891,667
GTE Corp.
17,000 5.87%, 1/19/96 16,950,105
15,635 5.95%, 1/23/96 15,578,150
15,000 5.95%, 1/29/96 14,930,583
42,000 5.95%, 1/31/96 41,791,750
Hanson Finance (U.K.) Plc.
40,000 5.70%, 1/25/96 39,848,000
15,000 5.715%, 1/26/96 14,940,469
35,000 5.70%, 1/31/96 34,833,750
49,435 5.65%, 2/28/96 48,985,004
Heller Financial Services, Inc.
39,000 5.90%, 1/11/96 38,936,083
Hertz Corp.
20,000 5.71%, 2/5/96 19,888,972
Honeywell, Inc.
14,500 5.77%, 1/9/96 14,481,408
Merrill Lynch & Co., Inc.
36,000 5.72%, 1/31/96 35,828,400
11,000 5.76%, 1/31/96 10,947,200
140,000 5.64%, 2/29/96 138,705,933
28,000 5.60%, 3/29/96 27,616,711
Morgan Stanley Group, Inc.
89,500 5.72%, 1/12/96 89,343,574
NYNEX Corp.
29,000 5.82%, 1/10/96 28,957,805
18,000 5.82%, 1/16/96 17,956,350
15,000 5.80%, 1/19/96 14,956,500
21,500 5.75%, 2/1/96 21,393,545
PHH Corp.
19,052 5.83%, 1/23/96 18,984,122
10,000 5.85%, 1/25/96 9,961,000
PNC Funding Corp.
26,000 5.73%, 2/8/96 25,842,743
26,000 5.71%, 3/1/96 25,752,567
</TABLE>
- --------------------------------------------------------------------------------
4 See Notes to Financial Statements.
B-20
<PAGE>
PORTFOLIO OF INVESTMENTS AS OF DECEMBER 31, 1995 PRUDENTIAL MONEYMART ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) DESCRIPTION VALUE (NOTE 1)
<C> <S> <C>
- --------------------------------------------------------------------------------
COMMERCIAL PAPER (CONT'D.)
Preferred Receivables Funding
Corp.
$58,000 5.85%, 1/16/96 $ 57,858,625
45,000 5.85%, 1/17/96 44,883,000
33,375 5.65%, 2/6/96 33,186,431
35,000 5.68%, 2/8/96 34,790,156
Riverwoods Funding Corp.
14,000 5.70%, 2/6/96 13,920,200
5,000 5.71%, 2/7/96 4,970,657
25,000 5.72%, 2/8/96 24,849,056
10,000 5.70%, 2/14/96 9,930,333
Sears Roebuck Acceptance Corp.
28,000 5.70%, 2/6/96 27,840,400
25,000 5.72%, 2/12/96 24,833,166
38,000 5.72%, 2/23/96 37,679,998
Sherwood Medical Co.
19,500 5.80%, 1/26/96 19,421,458
Smith Barney, Inc.
4,000 5.74%, 1/30/96 3,981,505
50,000 5.74%, 1/31/96 49,760,833
Special Purpose Accounts
Receivable Co.
20,000 5.77%, 1/19/96 19,942,300
27,000 5.78%, 1/24/96 26,900,295
USL Capital Corp.
6,125 5.75%, 1/19/96 6,107,391
17,700 5.73%, 1/25/96 17,632,386
WCP Funding, Inc.
11,000 5.75%, 1/24/96 10,959,590
11,190 5.75%, 1/25/96 11,147,105
13,000 5.70%, 2/16/96 12,905,317
7,000 5.65%, 2/28/96 6,936,281
Whirlpool Financial Corp.
5,000 5.80%, 1/23/96 4,982,278
7,000 5.80%, 1/29/96 6,968,422
15,000 5.80%, 1/30/96 14,929,917
--------------
Total Commercial Paper
(amortized cost $3,745,216,108) 3,745,216,108
--------------
- --------------------------------------------------------------------------------
MEDIUM - TERM OBLIGATIONS--1.8%
Associates Corp. of North America
7,000 8.80%, 3/1/96 7,025,730
AT & T Capital Corp.
$5,000 6.27%, 7/5/96 $ 5,005,984
Bayerische Hypotheken-und
Weschel-Bank
29,000 6.376%, 4/24/96 28,993,496
CIT Group Holdings, Inc.
5,000 4.75%, 3/15/96 4,988,617
Ford Motor Credit Corp.
5,000 5.15%, 3/18/96 4,986,442
6,000 5.00%, 3/25/96 5,980,385
4,000 9.00%, 7/26/96 4,066,971
General Motors Acceptance Corp.
11,000 5.975%, 2/21/96 11,000,490
4,640 6.75%, 5/17/96 4,648,945
4,275 8.80%, 7/8/96 4,335,108
6,000 8.625%, 7/15/96 6,079,911
9,630 8.25%, 8/1/96 9,748,578
Westdeusche Landesbank
Girozentrale
33,300 6.85%, 3/1/96 33,308,482
--------------
Total Medium - Term Obligations
(amortized cost $130,169,139) 130,169,139
--------------
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Joint Repurchase Agreement
Account,
144 5.85%, 1/2/96, (Note 4)
(amortized cost $144,000) 144,000
--------------
- --------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS--3.7%
Federal Home Loan Bank
48,000 6.05%, 6/13/96 48,012,629
Federal Home Loan Mortgage Corp.
63,000 5.645%, 8/15/96 62,900,753
Federal National Mortgage
Association
49,000 5.71%, 6/10/96 48,937,841
109,000 5.8125%, 10/4/96 108,896,882
--------------
Total U.S. Government & Agency
Obligations
(amortized cost $268,748,105) 268,748,105
--------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5
B-21
<PAGE>
PORTFOLIO OF INVESTMENTS AS OF DECEMBER 31, 1995 PRUDENTIAL MONEYMART ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) DESCRIPTION VALUE (NOTE 1)
<C> <S> <C>
- --------------------------------------------------------------------------------
VARIABLE RATE INSTRUMENTS+--17.3%
American Express Centurion Bank
$5,000 5.9375%, 2/16/96 $ 4,999,874
Federal National Mortgage
Association
133,000 5.755%, 9/27/96 133,000,000
Goldman, Sachs Group, L.P.
350,000 5.8125%, 5/24/96 350,000,000
General Motors Acceptance Corp.
55,500 5.70%, 1/22/96 55,477,717
Lehman Brothers Holdings, Inc.
80,500 6.1422%, 1/2/96 80,500,000
Merrill Lynch & Co., Inc.
112,000 5.9375%, 1/10/96 111,974,837
Money Market Auto Loan Trust
49,080 6.085%, 4/15/96 49,080,221
Morgan Stanley Group, Inc.
55,000 6.0625%, 1/16/96 55,000,000
10,000 6.19737%, 1/17/96 10,000,000
95,000 6.0703%, 2/15/96 95,000,000
SMM Trust,
Notes 1995-O
50,000 5.9375%, 1/16/96 49,995,461
Notes 1995-Q
252,000 5.9375%, 1/16/96 251,975,898
--------------
Total Variable Rate Instruments
(amortized cost $1,247,004,008) 1,247,004,008
--------------
TOTAL INVESTMENTS--98.5%
(amortized cost $7,114,348,252*) $7,114,348,252
Other assets in excess of
liabilities--1.5% 107,309,711
--------------
Net Assets--100% $7,221,657,963
--------------
--------------
</TABLE>
- ---------------
* The cost of securities for federal income tax purposes is substantially the
same as for financial reporting purposes.
+ The maturity date presented for these instruments is the later of the next
date on which the security can be redeemed at par or the next date on which
the rate of interest is adjusted.
The industry classification of portfolio holdings and other assets in excess of
liabilities shown as a percentage of net assets as of December 31, 1995 was as
follows:
<TABLE>
<CAPTION>
<S> <C>
Commercial Banks....................................................... 28.4%
Security Brokers & Dealers............................................. 15.7
Short-Term Business Credit............................................. 15.2
Personal Credit Institutions........................................... 10.5
Asset Backed Securities................................................ 10.4
U.S. Government & Agency Obligations................................... 5.6
Pharmaceuticals........................................................ 2.7
Telephone & Communications............................................. 2.5
Mortgage Banks......................................................... 2.3
Tobacco................................................................ 1.9
Bank Holding Companies - Domestic...................................... 1.7
Automotive Rental & Leasing............................................ 0.7
Household Appliances................................................... 0.4
Computer Rental and Leasing............................................ 0.3
Regulating Controls.................................................... 0.2
------
98.5
Other assets in excess of liabilities.................................. 1.5
------
100.0%
------
------
</TABLE>
- --------------------------------------------------------------------------------
6 See Notes to Financial Statements.
B-22
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES PRUDENTIAL MONEYMART ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS DECEMBER 31, 1995
-----------------
<S> <C>
Investments, at amortized cost which approximates value....... $7,114,348,252
Cash.......................................................... 8,727
Receivable for Fund shares sold............................... 208,986,615
Interest receivable........................................... 37,719,030
Deferred expenses and other assets............................ 208,464
--------------
Total assets............................................... 7,361,271,088
--------------
LIABILITIES
Payable for Fund shares
reacquired.................................................... 131,662,607
Dividends payable............................................. 3,558,462
Accrued expenses.............................................. 2,110,544
Management fee payable........................................ 1,855,219
Distribution fee payable...................................... 426,293
--------------
Total liabilities.......................................... 139,613,125
--------------
NET ASSETS.................................................... $7,221,657,963
--------------
--------------
Net assets were comprised of:
Common stock, at par ($.10 par value; 15 billion
shares authorized for issuance)............................ $ 722,165,796
Paid-in capital in excess of par........................... 6,499,492,167
--------------
Net assets at December 31, 1995............................... $7,221,657,963
--------------
--------------
Net asset value, offering price and redemption price
per share ($7,221,657,963 / 7,221,657,963 shares
of common stock issued and outstanding).................... $1.00
-----
-----
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7
B-23
<PAGE>
PRUDENTIAL MONEYMART ASSETS
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
NET INVESTMENT INCOME DECEMBER 31, 1995
-----------------
<S> <C>
Income
Interest................................................... $ 419,430,742
-------------
Expenses
Management fee............................................. 20,840,442
Distribution fee........................................... 8,643,150
Transfer agent's fees and expenses......................... 15,942,000
Reports to shareholders.................................... 966,000
Registration fees.......................................... 545,000
Custodian's fees and expenses.............................. 276,000
Insurance expense.......................................... 158,000
Directors' fees and expenses............................... 80,000
Audit fees and expenses.................................... 37,000
Legal fees and expenses.................................... 33,000
Miscellaneous.............................................. 54,354
------------
Total expenses.......................................... 47,574,946
------------
Net investment income......................................... 371,855,796
NET REALIZED GAIN ON INVESTMENTS
Net realized gain on investment
transactions............................................... 516,705
------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS..................................... $ 372,372,501
------------
------------
</TABLE>
PRUDENTIAL MONEYMART ASSETS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
INCREASE (DECREASE) -----------------------------------
IN NET ASSETS 1995 1994
---------------- ----------------
<S> <C> <C>
Operations
Net investment income.................. $ 371,855,796 $ 258,277,123
Net realized gain on
investment
transactions........................ 516,705 147,440
---------------- ----------------
Net increase in net
assets resulting
from operations..................... 372,372,501 258,424,563
---------------- ----------------
Dividends and distributions
to shareholders........................ (372,372,501) (258,424,563)
---------------- ----------------
Fund share transactions
(at $1 per share)
Proceeds from shares
subscribed.......................... 29,233,009,828 26,869,523,481
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions....................... 354,506,489 245,955,917
Cost of shares
reacquired.......................... (28,910,738,397) (27,889,232,548)
---------------- ----------------
Net increase (decrease)
in net assets from
Fund share
transactions........................ 676,777,920 (773,753,150)
---------------- ----------------
Total increase (decrease)................. 676,777,920 (773,753,150)
NET ASSETS
Beginning of year......................... 6,544,880,043 7,318,633,193
---------------- ----------------
End of year............................... $ 7,221,657,963 $ 6,544,880,043
---------------- ----------------
---------------- ----------------
</TABLE>
- --------------------------------------------------------------------------------
8 See Notes to Financial Statements.
B-24
<PAGE>
NOTES TO FINANCIAL STATEMENTS PRUDENTIAL MONEYMART ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Prudential-Bache MoneyMart Assets Inc., doing business as Prudential MoneyMart
Assets (the "Fund"), is registered under the Investment Company Act of 1940 as
a diversified, open-end management investment company. The Fund invests
primarily in a portfolio of money market instruments maturing in thirteen months
or less whose ratings are within the two highest rating categories by a
nationally recognized statistical rating organization or, if not rated, are of
comparable quality. The ability of the issuers of the securities held by the
Fund to meet their obligations may be affected by economic developments in a
specific industry or region.
- --------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
SECURITIES VALUATIONS: Portfolio securities are valued at amortized cost, which
approximates market value. The amortized cost method involves valuing a security
at its cost on the date of purchase and thereafter assuming a constant
amortization to maturity of the difference between the principal amount due at
maturity and cost.
In connection with transactions in repurchase agreements with U.S. financial
institutions, it is the Fund's policy that its custodian or designated
subcustodians, as the case may be under triparty repurchase agreements, take
possession of the underlying collateral securities, the value of which exceeds
the principal amount of the repurchase transaction including accrued interest.
If the seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
SECURITIES TRANSACTIONS AND NET INVESTMENT INCOME: Security transactions are
recorded on the trade date. Realized gains and losses on sales of investments
are calculated on the identified cost basis. Interest income is recorded on the
accrual basis. The cost of portfolio securities for federal income tax purposes
is substantially the same as for financial reporting purposes. Expenses are
recorded on the accrual basis which may require the use of certain estimates by
management.
FEDERAL INCOME TAXES: It is the Fund's policy to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable net income to its shareholders.
Therefore, no federal income tax provision is required.
DIVIDENDS AND DISTRIBUTIONS: All of the Fund's net investment income and net
realized gains or losses, if any, are declared as dividends daily to the
shareholders of record at the time of such declaration. Net investment income
of the Fund consists of interest accrued and discount earned less estimated
expenses applicable to the dividend period. Payment of dividends is made
monthly.
- ------------------------------------------------------------
NOTE 2. MANAGEMENT AND DISTRIBUTION AGREEMENTS
The Fund has a management agreement with Prudential Mutual Fund Management, Inc.
("PMF"). Pursuant to this agreement, PMF has responsibility for all investment
advisory services and supervises the subadviser's performance of such services.
PMF has entered into a subadvisory agreement with The Prudential Investment
Corporation ("PIC"); PIC furnishes investment advisory services in connection
with the management of the Fund. PMF pays for the cost of the subadviser's
services, the compensation of officers of the Fund, occupancy and certain
clerical and bookkeeping costs of the Fund. The Fund bears all other costs and
expenses.
The management fee paid PMF is computed daily and payable monthly, at an annual
rate of .50 of 1% of the Fund's average monthly net assets up to $50 million and
.30 of 1% of the Fund's average monthly net assets in excess of $50 million.
The Fund had a distribution agreement with Prudential Mutual Fund Distributors,
Inc. ("PMFD"), which acted as the distributor of the Fund through January 1,
1996. Effective January 2, 1996, Prudential Securities Incorporated ("PSI")
became the distributor of the Fund and is serving the Fund under the same terms
and conditions as under the arrangement with PMFD. The Fund reimbursed PMFD for
distributing and servicing the Fund's shares pursuant to the plan of
distribution at an annual rate of .125 of 1% of the Fund's average daily net
assets. The distribution fee is accrued daily and payable monthly.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
- --------------------------------------------------------------------------------
NOTE 3. OTHER TRANSACTIONS WITH AFFILIATES
Prudential Mutual Fund Services, Inc. ("PMFS"), a wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During the year ended December 31,
1995, the Fund incurred fees of approximately $15,231,600 for the services of
PMFS. As of December 31, 1995, approximately
- --------------------------------------------------------------------------------
9
B-25
<PAGE>
NOTES TO FINANCIAL STATEMENTS PRUDENTIAL MONEYMART ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$1,269,000 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
non-affiliates.
- --------------------------------------------------------------------------------
NOTE 4. JOINT REPURCHASE AGREEMENT ACCOUNT
The Fund, along with other affiliated registered investment companies, transfers
uninvested cash balances into a single joint account, the daily aggregate
balance of which is invested in one or more repurchase agreements collateralized
by U.S. Treasury or Federal agency obligations. As of December 31, 1995, the
Fund has a 0.01% undivided interest in the joint account. The undivided interest
for the Fund represents $144,000 in the principal amount. As of such date, each
repurchase agreement in the joint account and the collateral therefore were as
follows:
Bear, Stearns & Co. Inc., 5.80%, in the principal amount of $262,000,000,
repurchase price $262,168,844, due 1/2/96. The value of the collateral including
accrued interest is $267,947,172.
BT Securities Corp., 5.75%, in the principal amount of $61,765,000, repurchase
price $61,804,461, due 1/2/96. The value of the collateral including accrued
interest is $63,059,883.
Goldman, Sachs & Co., 5.90%, in the principal amount of $365,000,000, repurchase
price $365,239,278, due 1/2/96. The value of the collateral including accrued
interest is $372,300,053.
Morgan Stanley & Co., Inc., 5.89%, in the principal amount of $103,000,000,
repurchase price $103,067,408, due 1/2/96. The value of the collateral including
accrued interest is $105,192,608.
Smith Barney, Inc., 5.83%, in the principal amount of $365,000,000, repurchase
price $365,236,439, due 1/2/96. The value of the collateral including accrued
interest is $372,300,416.
- -------------------------------------------------------------------------------
10
B-26
<PAGE>
FINANCIAL HIGHLIGHTS PRUDENTIAL MONEYMART ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year...................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Net investment income and net realized gains............ .054 .037 .027 .035 .058
Dividends and distributions to shareholders............. (.054) (.037) (.027) (.035) (.058)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year............................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
TOTAL RETURN(a)......................................... 5.51% 3.72% 2.70% 3.59% 5.95%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)........................... $7,221,658 $6,544,880 $7,318,633 $6,703,281 $7,138,159
Average net assets (000)................................ $6,914,520 $7,071,381 $7,742,989 $7,116,739 $7,763,251
Ratios to average net assets:
Expenses, including distribution fee.................. .69% .71% .71% .66% .68%
Expenses, excluding distribution fee.................. .56% .58% .58% .54% .56%
Net investment income................................. 5.38% 3.65% 2.63% 3.43% 5.72%
</TABLE>
- ---------------
(a) 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.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 11
B-27
<PAGE>
INDEPENDENT AUDITORS' REPORT PRUDENTIAL MONEYMART ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
Prudential MoneyMart Assets
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Prudential MoneyMart Assets, as of December 31,
1995, the related statements of operations for the year then ended and of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
December 31, 1995 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Prudential MoneyMart
Assets as of December 31, 1995, the results of its operations, the changes in
its net assets, and its financial highlights for the respective stated periods
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
February 6, 1996
- -------------------------------------------------------------------------------
12
B-28
<PAGE>
APPENDIX A
DESCRIPTION OF RATINGS
BOND RATINGS
MOODY'S INVESTORS SERVICE--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. 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 Aaa securities. 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. Moody's
applies numerical modifiers "1", "2" and "3" in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier "1" indicates that the company ranks in the higher end of its generic
rating category; the modifier "2" indicates a mid-range ranking; and the
modifier "3" indicates that the company ranks in the lower end of its generic
rating category.
STANDARD & POOR'S RATINGS GROUP--Debt rated AAA has the highest rating
assigned by Standard & Poor's. Capacity to pay interest and repay principal is
extremely strong. Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in small degree.
Debt rated A has a strong capacity to pay interest and repay principal although
it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
DUFF AND PHELPS CREDIT RATING CO.--The following summarizes the ratings
used by Duff & Phelps for long-term debt:
"AAA": Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.
"AA+", "AA" or "AA-": High credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A+", "A" or "A-": Protection factors are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
COMMERCIAL PAPER RATINGS
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity not
exceeding one year. Issuers rated "Prime-1" or "P-1" (or supporting
institutions) have a superior ability for repayment of senior short-term debt
obligations. Issuers rated "Prime-2" or "P-2" (or supporting institutions) have
a strong ability for repayment of senior short-term debt obligations. Issuers
rated "Prime-3" or "P-3" (or supporting institutions) have an acceptable ability
for repayment of senior short-term obligations.
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market. The
designation A-1 indicates that the degree of safety regarding timely payment is
strong. A "+" designation is applied to those issues rated A-1 which possess
extremely strong safety characteristics. Capacity for timely payment on issues
with the designation A-2 is satisfactory. However, the relative degree of safety
is not as high as for issues designated A-1. Issues carrying the designation A-3
have adequate capacity for timely payment. They are however, somewhat more
vulnerable to the adverse effects of changes in circumstances than obligations
carrying the higher designations.
The following summarizes the ratings used by Duff & Phelps for short-term
debt, which apply to all obligations with maturities of under one year,
including commercial paper.
Duff 1+: Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to alternative sources of
funds, is outstanding and safety is just below risk-free U.S. Treasury
short-term obligations.
A-1
<PAGE>
Duff 1: Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk factors are
minor.
Duff 1-: High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
Duff 2: Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
Duff 3: Satisfactory liquidity and other protection factors qualify issue
as to investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payments is expected.
A-2
<PAGE>
THE PRUDENTIAL LETTER TO
(LOGO) INSTITUTIONAL SHAREHOLDERS
FUND
November 16, 1995
We are pleased to provide you with the Annual Report of The Prudential
Institutional Fund for the year ended September 30, 1995. The period was
generally characterized by bullish financial markets which, along with strong
cash flow from shareholders and retirement plan participants, resulted in
significant increases in the size of many of the Fund's portfolios. Total net
assets grew to $784.9 million at September 30, 1995 from $493.1 million at
September 30, 1994. The Fund has seven portfolios, each with a distinct
investment objective designed to allow shareholders the opportunity to select
various options to match different goals and risk tolerances.
Economy
Gross Domestic Product grew at a rate of 3.3% this fiscal year, compared to
4.4% the last fiscal year. The Fed ended its relentless pattern of rate
increases (six hikes during 1994) and cut short-term interest rates .25% in
July, 1995. The economy appears to be moving ahead at a reasonable pace, albeit
at one that's slower than 1994.
Leading indicators have been trending sideways --housing and auto sales
remain high but are off earlier peaks and employment remains relatively stable.
Restrained growth in both wages and consumer prices have kept inflation under
control. Although inflation isn't a problem, moderate economic growth led the
Fed to shelve any plans for further interest rate cuts.
Market Review
Returns for the U.S. stock and bond markets were lackluster toward the end of
1994. By the first quarter of 1995, the financial markets welcomed slower
economic growth and the S&P 500 Index returned nearly 10% --one of the best
quarters on record. Despite turmoil in the foreign exchange markets, bonds
rallied steadily throughout the first quarter. The surprisingly strong 1995
rally in stocks and bonds continued right through the third quarter. By the end
of September, 1995, the S&P 500 Index was up 29.7% for the fiscal year, while
the Lehman Government/Corporate Bond Index was up 14.3%.
Foreign stocks, as measured by the Morgan Stanley Europe, Australia and Far
East Index (EAFE), gained 5.8%. This relative performance is a reversal from
fiscal 1994 when the EAFE index outperformed both the S&P 500 Index and Lehman
index returns.
Fund Performance
As a result of the strength in the financial markets, each of the Fund's
portfolios achieved absolute positive returns for the year. For the most part,
comparable benchmarks proved difficult to surpass. Since each portfolio's
inception, returns have been very positive and compare satisfactorily versus the
benchmarks. This performance information along with comments from each
portfolio's adviser and portfolio holdings may be found on the following pages.
Summary
While we do not expect gains of this magnitude to be repeated in the near
future, we believe that investors who stick with a disciplined approach to
investing their retirement savings should be rewarded over the long term. We
look forward to continuing to meet the retirement and investment needs of our
shareholders.
Sincerely,
Mark R. Fetting
President
1
<PAGE>
THE PRUDENTIAL MONEY MARKET FUND
(LOGO) INSTITUTIONAL
FUND
OBJECTIVE: Seeks to achieve high current income, preservation of principal and
maintenance of liquidity.
INVESTMENT APPROACH: The Fund invests in U.S. dollar-denominated money market
instruments, including commercial paper and bank obligations such as
certificates of deposits and banker's acceptance notes from domestic and foreign
issuers. The Fund will maintain a dollar-weighted average portfolio maturity of
90 days or less and purchase only instruments maturing in 13 months or less,
which have been determined to present minimal credit risks. The Fund's yield
will fluctuate, and the Fund seeks to maintain a net asset value of $1.00 per
share for purchases and redemptions.
ADVISER: Prudential Global Advisors is a business unit of The Prudential
Investment Corporation which specializes in domestic and international fixed
income management. PGA currently manages approximately $22 billion in fixed
income accounts, including $2 billion in money market accounts.
ADVISER'S COMMENTS: In 1994 and early 1995 the Federal Reserve raised
short-term interest rates aggressively to control an inflationary economic
growth rate. Between February 1994 and February 1995 the Fed raised the Federal
Funds target rate from 3.0% to 6.0%. Shortly after the February 1995 rate hike,
the economy decelerated as consumers slowed the rate of spending. As the economy
slowed, inflation fears dissipated. A lower inflation environment allowed the
Fed to lower the target rate from 6.00% to 5.75% on July 6, 1995.
The Fund invested in relatively short maturity securities as the Fed tightened
their monetary stance during 1994. This allowed the Fund to incorporate higher
rates as the Federal Reserve pushed short-term interest rates higher. The
average maturity rose temporarily late in 1994 as the Fund exploited seasonal
interest rate patterns. In the Spring of 1995, economic growth slowed,
and interest rates began to decline. Securities
with longer-dated maturities were selected for the Fund, and the average
maturity increased correspondingly. The average maturity reached 65 days during
the summer, a maximum for the past 12 months. In general, a shorter average
maturity allows the Fund to incorporate new rates more quickly, while a longer
average maturity allows the Fund to hang on to higher rates for a longer time.
Recently, a modest rebound in economic activity has raised uncertainties about
the future direction of short-term interest rates. The Fund ended the quarter
with an average maturity of 50 days, relatively neutral to the competition.
We have continued to maintain a high quality portfolio. At the end of September,
all the portfolio's investments were rated in the highest category by at least
two nationally recognized rating agencies, or if unrated, deemed to be of
equivalent quality.
PERFORMANCE RESULTS:
As of September 30, 1995, the current seven-day yield was 5.47%. The net asset
value remained at $1.00 per share.
An investment in the Fund is neither insured nor guaranteed by the U.S.
Government and there can be no assurance that the Fund will be able to maintain
a stable net asset value of $1.00 per share. The Manager is currently limiting
the expenses of the Fund. Without this reduction, the seven-day yield would have
been 5.15%.
39
<PAGE>
THE PRUDENTIAL MONEY MARKET FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
BANK HOLDING PAPER--4.8%
Bank of New York, Inc.,
5.87%, 10/27/95
$ 2,800 (amortized cost $2,788,129)...... $ 2,788,129
------------
COMMERCIAL PAPER -
DOMESTIC--36.6%
Aristar, Inc.,
2,000 5.80%, 10/17/95.................. 1,994,844
800 5.82%, 10/19/95.................. 797,672
Caterpillar Financial Services
N.V.,
489 5.67%, 11/21/95.................. 485,072
Chrysler Financial Corp.,
400 5.85%, 10/27/95.................. 398,310
Countrywide Funding Corp.,
2,050 5.80%, 10/31/95.................. 2,040,092
Dayton Hudson Corp.,
2,800 5.78%, 10/25/95.................. 2,789,211
Finova Capital Corp.,
2,100 5.83%, 10/11/95.................. 2,096,599
735 5.90%, 11/2/95................... 731,145
Honeywell, Inc.,
470 5.80%, 11/13/95.................. 466,744
IBM Credit Corp.,
1,300 5.80%, 10/16/95.................. 1,296,858
ITT Corp.,
2,100 5.83%, 10/3/95................... 2,099,320
349 5.85%, 10/4/95................... 348,830
Nike Inc.,
988 6.75%, 10/2/95................... 987,815
Nynex Corp.,
2,800 6.80%, 10/2/95................... 2,799,471
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
- -------------------------------------------------------------
<C> <S> <C>
Public Service Elec. & Gas Co.,
$ 1,150 5.78%, 10/17/95.................. $ 1,147,046
Smith Barney, Inc.,
770 5.75%, 10/18/95.................. 767,909
------------
Total commercial paper - domestic
(amortized cost $21,246,938)..... 21,246,938
------------
CORPORATE BONDS--12.6%
Associates Corp. of North
America,
500 6.00%, 12/1/95................... 500,058
400 4.50%, 2/15/96................... 397,922
1,000 8.80%, 3/1/96.................... 1,008,706
Ford Motor Credit Corp.,
1,000 8.25%, 5/15/96................... 1,013,983
600 8.875%, 8/1/96................... 613,532
General Electric Co.,
840 7.875%, 5/1/96................... 849,202
General Motors Acceptance Corp.,
100 8.75%, 2/1/96.................... 100,850
Household Finance Corp.,
900 9.375%, 2/15/96.................. 908,981
International Lease Finance
Corp.,
430 6.875%, 12/15/95................. 430,568
375 6.625%, 6/1/96................... 376,208
NationsBank Corp.,
500 5.375%, 12/1/95.................. 499,554
Transamerica Finance Corp.,
600 8.55%, 6/15/96................... 610,567
------------
Total corporate bonds
(amortized cost $7,310,131)...... 7,310,131
------------
</TABLE>
See Notes to Financial Statements.
40
<PAGE>
THE PRUDENTIAL MONEY MARKET FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
DEPOSIT NOTES--2.6%
Society National Bank Cleveland,
$ 1,000 6.70%, 4/15/96................... $ 1,004,941
500 6.00%, 4/25/96................... 498,649
------------
Total deposit notes
(amortized cost $1,503,590)...... 1,503,590
------------
VARIABLE RATE OBLIGATIONS(a)--28.5%
American Express Centurion Bank,
1,000 6.26%, 10/2/95................... 1,000,245
Bank One Columbus N.A.,
2,700 6.08%, 10/2/95................... 2,698,150
FCC National Bank,
1,400 6.15%, 10/2/95................... 1,399,944
Ford Motor Credit Corp.,
200 6.14%, 12/18/95.................. 200,233
Goldman Sachs Group, L.P.,
2,700 6.00%, 10/30/95.................. 2,700,000
IBM Credit Corp.,
1,500 5.615%, 10/16/95................. 1,499,775
John Deere Capital Corp.,
1,000 6.095%, 10/23/95................. 1,001,783
John Deere Owner Trust,
1,460 5.8125%, 10/16/95................ 1,460,089
Key Bank New York,
1,400 6.49%, 10/2/95................... 1,398,953
Lehman Brothers, Inc.,
1,000 6.11%, 10/24/95.................. 1,000,000
Merrill Lynch & Co., Inc.,
500 5.885%, 10/2/95.................. 500,000
Money Market Auto Loan Trust,
700 6.005%, 10/16/95................. 700,000
Morgan Stanley Group, Inc.,
1,000 6.00%, 11/15/95.................. 1,000,000
------------
Total variable rate obligations
(amortized cost $16,559,172)..... 16,559,172
------------
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
- -------------------------------------------------------------
LOAN PARTICIPATIONS--4.8%
Engelhard Corp.,
$ 800 6.20%, 10/2/95................... $ 800,000
General Electric Capital Corp.,
2,000 6.00%, 10/2/95................... 2,000,000
------------
Total loan participations
(amortized cost $2,800,000)...... 2,800,000
------------
MEDIUM-TERM OBLIGATIONS--9.1%
Associates Corp. of North
America,
100 4.68%, 3/29/96................... 99,143
Deere & Co.,
1,000 8.47%, 3/18/96................... 1,011,224
Ford Motor Credit Corp.,
1,000 5.15%, 3/15/96................... 993,295
General Motors Acceptance Corp.,
2,100 4.80%, 11/15/95.................. 2,095,777
570 4.75%, 2/14/96................... 567,268
International Lease Finance
Corp.,
500 5.00%, 5/28/96................... 496,536
------------
Total medium-term obligations
(amortized cost $5,263,243)...... 5,263,243
------------
Total Investments--99.0%
(amortized cost
$57,471,203(b))................ 57,471,203
Other assets in excess of
liabilities--1.0%.............. 582,874
------------
Net Assets--100%................. $ 58,054,077
------------
------------
</TABLE>
- ---------------
(a) For purposes of amortized cost valuation, the maturity
date of these instruments is considered to be the next
date on which the security can be redeemed at par or the
next date on which the rate of interest is adjusted.
(b) The cost of securities for federal income tax purposes is
substantially the same as for financial reporting
purposes.
See Notes to Financial Statements.
41
<PAGE>
THE PRUDENTIAL MONEY MARKET FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
The industry classification of portfolio holdings and other net
assets shown as a percentage of net assets as of September 30,
1995 were as follows:
<TABLE>
<S> <C>
Personal Credit Institutions.......... 20.1%
Business Credit (Finance)............. 11.6
Bank Holding Co....................... 10.3
Security Brokers & Dealers............ 10.3
Commercial Banks...................... 9.1
Financial Services.................... 9.0
Telecommunications.................... 4.8
Variety Store......................... 4.8
Asset Backed.......................... 3.7
Mortgage Bankers...................... 3.5
Farm Machinery........................ 3.5
Equip. Rental & Leasing............... 2.2
Electric Services..................... 2.0
Footwear.............................. 1.7
Chemicals-Specialty................... 1.4
Regulating Controls................... 1.0
Other assets in excess of liabilities 1.0
-----
100.0%
-----
-----
</TABLE>
See Notes to Financial Statements.
42
<PAGE>
THE PRUDENTIAL STATEMENT OF ASSETS
(LOGO) INSTITUTIONAL AND LIABILITIES
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
GROWTH STOCK INTERNATIONAL ACTIVE MONEY
STOCK INDEX STOCK BALANCED BALANCED INCOME MARKET
FUND FUND FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C> <C>
------------ ------------ ------------- ------------ ----------- ----------- -----------
Assets
Investments, at value
(a)...................... $222,374,363 $ 96,471,101 $137,331,985 $133,506,023 $80,988,828 $57,633,152 $57,471,203
Cash....................... -- -- 184 417 872 897 440
Foreign currency, at value
(cost $153,643).......... -- -- 153,891 -- -- -- --
Receivable for investments
sold..................... 1,199,509 5,941,403 -- 176,030 1,133,257 -- --
Interest and dividends
receivable............... 162,987 206,021 404,440 641,767 685,304 563,134 386,072
Receivable for Fund shares
sold..................... 789,547 361,069 323,593 191,349 207,730 58,336 227,193
Due from Manager........... -- 1,754 -- -- -- 4,635 --
Deferred expenses and other
assets................... 29,670 32,252 29,485 30,735 28,919 31,988 30,486
------------ ------------ ------------- ------------ ----------- ----------- -----------
Total assets........... 224,556,076 103,013,600 138,243,578 134,546,321 83,044,910 58,292,142 58,115,394
------------ ------------ ------------- ------------ ----------- ----------- -----------
Liabilities
Payable for investments
purchased................ 2,555,583 872,222 987,689 1,013,369 667,995 5,934,375 --
Payable for Fund shares
reacquired............... 1,286,353 85,455 314,389 46,984 155,532 11,863 34,386
Accrued expenses........... 77,378 70,888 148,784 51,045 44,922 42,870 16,633
Due to broker-variation
margin................... -- 29,670 -- -- -- -- --
Management fee payable..... 107,403 -- 92,756 68,472 57,582 -- 3,953
Administration fee
payable.................. 23,965 10,799 14,738 14,564 8,933 5,667 6,345
------------ ------------ ------------- ------------ ----------- ----------- -----------
Total liabilities...... 4,050,682 1,069,034 1,558,356 1,194,434 934,964 5,994,775 61,317
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net Assets................. $220,505,394 $101,944,566 $136,685,222 $133,351,887 $82,109,946 $52,297,367 $58,054,077
------------ ------------ ------------- ------------ ----------- ----------- -----------
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net assets were comprised
of:
Shares of beneficial
interest, at par......... $ 13,604 $ 7,169 $ 8,964 $ 10,703 $ 6,576 $ 5,238 $ 58,054
Paid-in capital in excess
of par................... 169,441,843 80,650,936 121,007,773 116,928,121 71,932,999 52,130,203 57,996,023
------------ ------------ ------------- ------------ ----------- ----------- -----------
169,455,447 80,658,105 121,016,737 116,938,824 71,939,575 52,135,441 58,054,077
Undistributed net
investment income........ -- 1,562,991 1,582,613 2,883,961 1,706,435 -- --
Accumulated net realized
gain (loss) on
investments.............. (3,016,003) 4,001,988 (3,235,336 ) 1,414,649 2,082,012 (732,600) --
Net unrealized appreciation
(depreciation) on
investments and foreign
currencies............... 54,065,950 15,721,482 17,321,208 12,114,453 6,381,924 894,526 --
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net assets, September 30,
1995..................... $220,505,394 $101,944,566 $136,685,222 $133,351,887 $82,109,946 $52,297,367 $58,054,077
------------ ------------ ------------- ------------ ----------- ----------- -----------
------------ ------------ ------------- ------------ ----------- ----------- -----------
Shares of beneficial
interest issued and
outstanding.............. 13,604,202 7,168,801 8,964,457 10,703,173 6,575,791 5,237,904 58,054,077
------------ ------------ ------------- ------------ ----------- ----------- -----------
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net asset value per
share.................... $ 16.21 $ 14.22 $ 15.25 $ 12.46 $ 12.49 $ 9.98 $ 1.00
------------ ------------ ------------- ------------ ----------- ----------- -----------
------------ ------------ ------------- ------------ ----------- ----------- -----------
(a) Identified cost........ $168,308,413 $ 80,942,844 $120,016,426 $121,391,570 $74,606,904 $56,738,626 $57,471,203
</TABLE>
See Notes to Financial Statements.
43
<PAGE>
THE PRUDENTIAL STATEMENT OF
(LOGO) INSTITUTIONAL OPERATIONS
FUND YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
GROWTH STOCK INTERNATIONAL ACTIVE MONEY
STOCK INDEX STOCK BALANCED BALANCED INCOME MARKET
FUND FUND FUND FUND FUND FUND FUND
------------ ------------ ------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Investment Income
Income
Interest................. $ 198,002 $ 637,099 $ 499,812 $ 3,847,389 $ 2,407,512 $ 3,187,231 $ 3,128,647
Dividends (a)............ 1,190,186 1,623,115 3,287,355 896,599 560,304 -- --
------------ ------------ ------------- ------------ ----------- ----------- -----------
Total income........... 1,388,188 2,260,214 3,787,167 4,743,988 2,967,816 3,187,231 3,128,647
------------ ------------ ------------- ------------ ----------- ----------- -----------
Expenses
Management fee........... 1,049,893 286,843 1,367,665 733,748 496,395 231,931 236,009
Administration fee....... 201,075 96,138 159,439 140,527 95,069 62,187 70,311
Custodian's fees and
expenses................. 88,000 124,000 280,000 74,000 72,000 65,000 73,000
Registration fees........ 63,000 35,000 32,000 60,000 23,000 25,000 30,000
Transfer agent's fees and
expenses............... 36,092 17,256 28,618 25,224 17,064 11,162 12,621
Reports to
shareholders............. 25,000 25,000 25,000 13,000 25,000 13,000 13,000
Amortization of
organization
expenses............... 13,385 13,385 13,385 13,213 13,385 13,049 13,213
Legal fees............... 11,000 11,000 15,000 11,000 11,000 11,000 11,000
Audit fee................ 12,000 11,000 15,000 12,000 11,000 11,000 9,000
Trustees' fees........... 8,572 8,572 8,572 8,572 8,572 8,572 8,572
Miscellaneous............ 6,056 4,525 5,856 5,244 4,762 4,256 4,382
------------ ------------ ------------- ------------ ----------- ----------- -----------
Total expenses......... 1,514,073 632,719 1,950,535 1,096,528 777,247 456,157 481,108
Expense subsidy (Note
2)..................... (14,225) (202,456) (47,700) (48,317) (68,112) (131,453) (166,428)
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net expenses............... 1,499,848 430,263 1,902,835 1,048,211 709,135 324,704 314,680
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net investment income
(loss)................... (111,660) 1,829,951 1,884,332 3,695,777 2,258,681 2,862,527 2,813,967
------------ ------------ ------------- ------------ ----------- ----------- -----------
Realized and Unrealized
Gain (Loss) on Investment
and Foreign Currency
Transactions
Net realized gain (loss)
on:
Securities............... 820,651 1,869,439 (2,892,161) 1,585,229 2,197,085 92,951 --
Futures transactions..... -- 2,175,415 -- -- -- -- --
Foreign currency
transactions............. (5,798) -- (192,785) -- (1,009) -- --
------------ ------------ ------------- ------------ ----------- ----------- -----------
814,853 4,044,854 (3,084,946) 1,585,229 2,196,076 92,951 --
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net change in unrealized
appreciation
(depreciation) on:
Securities and foreign
currencies............... 47,538,274 13,632,300 9,333,213 12,809,504 6,413,335 2,865,097 --
Financial futures
contracts................ -- 282,600 -- -- -- -- --
------------ ------------ ------------- ------------ ----------- ----------- -----------
47,538,274 13,914,900 9,333,213 12,809,504 6,413,335 2,865,097 --
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net gain on investments and
foreign currencies....... 48,353,127 17,959,754 6,248,267 14,394,733 8,609,411 2,958,048 --
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net Increase in Net Assets
Resulting from
Operations................. $ 48,241,467 $ 19,789,705 $8,132,599 $ 18,090,510 $10,868,092 $ 5,820,575 $ 2,813,967
------------ ------------ ------------- ------------ ----------- ----------- -----------
------------ ------------ ------------- ------------ ----------- ----------- -----------
(a)Net of foreign withholding taxes of $26,902, $11,248, $461,615, $3,187, $10,097, respectively.
</TABLE>
See Notes to Financial Statements.
44
<PAGE>
THE PRUDENTIAL STATEMENT OF CHANGES
(LOGO) INSTITUTIONAL IN NET ASSETS
FUND
<TABLE>
<CAPTION>
MONEY
BALANCED INCOME MARKET
FUND FUND FUND
------------------------------- ------------------------------- -------------------------------
Year Ended September 30, Year Ended September 30, Year Ended September 30,
------------------------------- ------------------------------- -------------------------------
1995 1994 1995 1994 1995 1994
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in
Net Assets
Operations
Net investment
income............... $ 2,258,681 $ 1,261,344 $ 2,862,527 $ 1,982,080 $ 2,813,967 $ 1,276,052
Net realized gain
(loss) on investments
and foreign currency
transactions......... 2,196,076 163,359 92,951 (826,533) -- 1,550
Net change in
unrealized
appreciation
(depreciation) on
investments and
foreign currencies... 6,413,335 (1,878,445) 2,865,097 (2,659,530) -- --
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease)
in net assets
resulting from
operations........... 10,868,092 (453,742) 5,820,575 (1,503,983) 2,813,967 1,277,602
------------- ------------- ------------- ------------- ------------- -------------
Net equalization
credits................ -- 721,188 -- -- -- --
------------- ------------- ------------- ------------- ------------- -------------
Dividends and
distributions
Dividends to
shareholders from net
investment income.... (1,529,788) (604,065) (2,862,527) (1,982,080) (2,813,967) (1,277,602)
------------- ------------- ------------- ------------- ------------- -------------
Distributions to
shareholders from net
realized gains....... (269,963) (735,383) -- (137,236) -- --
------------- ------------- ------------- ------------- ------------- -------------
Fund share transactions
Net proceeds from
shares sold.......... 26,091,264 42,441,610 11,549,255 15,768,473 55,919,976 32,311,167
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions........ 1,799,751 1,339,448 2,862,527 2,119,316 2,813,967 1,277,602
Cost of shares
redeemed............. (19,161,993) (6,059,058) (6,473,780) (7,878,160) (47,010,598) (17,493,001)
------------- ------------- ------------- ------------- ------------- -------------
Net increase in net
assets from Fund
share transactions... 8,729,022 37,722,000 7,938,002 10,009,629 11,723,345 16,095,768
------------- ------------- ------------- ------------- ------------- -------------
Net increase............ 17,797,363 36,649,998 10,896,050 6,386,330 11,723,345 16,095,768
Net Assets
Beginning of year...... 64,312,583 27,662,585 41,401,317 35,014,987 46,330,732 30,234,964
------------- ------------- ------------- ------------- ------------- -------------
End of year............ $ 82,109,946 $64,312,583 $52,297,367 $41,401,317 $ 58,054,077 $46,330,732
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
See Notes to Financial Statements.
46
<PAGE>
THE PRUDENTIAL FINANCIAL HIGHLIGHTS
(LOGO) INSTITUTIONAL
FUND
<TABLE>
<CAPTION>
MONEY
MARKET
FUND
-----------------------------------------------------
January 4,
1993(a)
Year Ended September 30, Through
------------------------------- September 30,
1995 1994 1993
--------- ------------- -------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 1.00 $ 1.00 $ 1.00
Net investment income and net realized
gains(b)..................................... .05 .03 .02
Dividends from net investment income.......... (.05) (.03) (.02)
--------- ------------- -------------
Net asset value, end of period................ $ 1.00 $ 1.00 $ 1.00
--------- ------------- -------------
--------- ------------- -------------
TOTAL RETURN(d)............................... 5.47% 3.32% 2.08%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $58,054 $46,331 $30,235
Average net assets (000)...................... $52,446 $38,170 $25,296
Ratios to average net assets: (b)
Expenses..................................... .60% .60% .60%(c)
Net investment income........................ 5.37% 3.34% 2.73%(c)
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) Net of expense subsidy.
(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. Total return includes
the effect of expense subsidies.
See Notes to Financial Statements.
50
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND
The Prudential Institutional Fund (the ``Company'') is registered under the
Investment Company Act of 1940 as an open-end, diversified management investment
company. The Company was established as a Delaware business trust on May 11,
1992 and consists of seven separate funds (Fund or Funds): Growth Stock Fund,
Stock Index Fund, International Stock Fund, Active Balanced Fund, Balanced Fund,
Income Fund and Money Market Fund. The Company had no operations until July 7,
1992 when 10,000 shares of beneficial interest (2,500 shares each of Growth
Stock Fund, Stock Index Fund, International Stock Fund and Balanced Fund) were
sold for $100,000 to Prudential Institutional Fund Management, Inc. (``PIFM'').
Investment operations commenced on: November 5, 1992 for the Growth Stock Fund,
Stock Index Fund, International Stock Fund and Balanced Fund; January 4, 1993
for the Active Balanced Fund and Money Market Fund; and March 1, 1993 for the
Income Fund.
The Funds' investment objectives are as follows: Growth Stock Fund--long-term
growth of capital through investment primarily in equity securities of
established companies with above-average growth prospects; Stock Index
Fund--investment results that correspond to the price and yield performance of
Standard & Poor's 500 Composite Stock Price Index; International Stock
Fund--long-term growth of capital through investment in equity securities of
foreign issues with income as a secondary objective; Active Balanced Fund--total
returns approaching equity returns, while accepting less risk than an all-equity
portfolio, through an actively-managed portfolio of equity securities, fixed
income securities and money market instruments; Balanced Fund--long-term total
return consistent with moderate portfolio risk; Income Fund--a high level of
income over the longer term while providing reasonable safety of principal; and
Money Market Fund--high current income, preservation of principal and
maintenance of liquidity, while maintaining a $1.00 net asset value per share.
The ability of issuers of debt securities, other than those issued or
guaranteed by the U.S. Government, held by the Funds to meet their obligations
may be affected by economic developments in a specific industry, region, or
country.
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund.
Securities Valuations: Securities, including options, warrants, futures
contracts and options thereon, for which the primary market is on a national
securities exchange, commodities exchange or board of trade and NASDAQ national
market equity securities are valued at the last sale price on such exchange or
board of trade on the date of valuation or, if there was no sale on such day, at
the average of readily available closing bid and asked prices on such day.
Securities, that are actively traded in the over-the-counter market,
including listed securities for which the primary market is believed to be
over-the-counter, shall be valued at the average of the most recently quoted bid
and asked prices provided by a principal market maker or dealer.
U.S. Government securities for which market quotations are available shall be
valued at a price provided by an independent broker/dealer or pricing service.
Securities for which reliable market quotations are not available or for
which the pricing agent or principal market maker does not provide a valuation
or provides a valuation that, in the judgment of one of the subadvisers, does
not represent fair value, shall be valued at fair value as determined under
procedures established by the Trustees.
Quotations of foreign securities in a foreign currency shall be converted to
U.S. dollar equivalents at the current rate obtained from a recognized bank or
dealer. Forward currency
51
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND
exchange contracts shall be valued at the current cost of covering or offsetting
such contracts.
Securities held by the Money Market Fund are valued at amortized cost, which
approximates market value. The amortized cost method involves valuing a security
at its cost on the date of purchase and thereafter assuming a constant
amortization to maturity of the difference between the principal amount due at
maturity and cost. Short-term securities held by the other Funds which mature in
more than 60 days are valued at current market quotations and those which mature
in 60 days or less are valued at amortized cost. In the event that a Subadviser
determines that amortized cost does not represent fair value for certain
short-term securities with remaining maturities of 60 days or less, such
securities will be valued at market value.
In connection with transactions in repurchase agreements, it is the Company's
policy that its custodian or designated subcustodians, as the case may be under
triparty repurchase agreements, 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 Company may be delayed or limited.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and 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.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Fund is required to pledge to the broker an amount of cash and/or other
assets equal to a certain percentage of the contract amount. This amount is
known as the ``initial margin.'' Subsequent payments, known as ``variation
margin,'' are made or received by the Fund each day, depending on the daily
fluctuations in the value of the underlying security. 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 Funds invest in financial futures contracts in order to hedge their
existing portfolio securities, or securities the Funds intend to purchase,
against fluctuations in value. Under a variety of circumstances, a Fund may not
achieve the anticipated benefits of the financial futures contracts and may
realized a loss. The use of futures transactions involves the risk of imperfect
correlation in movements in the price of futures contracts and the underlying
assets.
Dollar Rolls: The Fund may enter into dollar rolls in which the Fund sells
securities for delivery in the current month and simultaneously contracts to
repurchase somewhat similar securities on a specified future date. During the
roll period, the Fund forgoes principal and interest paid on the securities. The
Fund is compensated by the interest earned on the cash proceeds of the initial
sale and by the lower repurchase price at the future date.
Foreign Currency Translation: The books and records of the Funds are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:
(i) market value of investment securities, other assets and liabilities--at
the closing rates of exchange.
(ii) purchases and sales of investment securities, income and expenses--at
the rate of exchange
52
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND
prevailing on the respective dates of such transactions.
Although the net assets of the Funds are presented at the foreign exchange
rates and market values at the close of the fiscal year, the Funds do not
isolate that portion of the results of operations arising as a result of changes
in the foreign exchange rates from the fluctuations arising from changes in the
market prices of securities held at the end of the fiscal year. Similarly, the
Funds do not isolate the effect of changes in foreign exchange rates from the
fluctuations arising from changes in the market prices of long-term portfolio
securities sold during the fiscal year. Accordingly, these realized foreign
currency gains (losses) are included in the reported net realized gains (losses)
on investment transactions.
Net realized losses on foreign currency transactions represent net foreign
exchange losses from holding of foreign currencies, currency gains or losses
realized between the trade and settlement dates of securities transactions, and
the difference between the amounts of dividends and foreign taxes recorded on
the Funds' books and the U.S. dollar equivalent amounts actually received or
paid. Net currency gains and losses from valuing foreign currency denominated
assets and liabilities at year end exchange rates are reflected as a component
of net unrealized appreciation/
depreciation on securities and foreign currencies.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin as a result of,
among other factors, the level of governmental supervision and regulation of
foreign securities markets and the possibility of political or economic
instability.
Equalization: During the fiscal year ended September 30, 1995, the Funds
(except for the Income and Money Market Funds) discontinued the accounting
practice of equalization. Equalization is a practice whereby a portion of the
proceeds from sales and costs of repurchases of capital shares, equivalent on a
per-share basis to the amount of distributable net investment income on the date
of the transaction, is credited or charged to undistributed net investment
income. The following balances of undistributed net investment income at
September 30, 1994, resulting from equalization were transferred to paid-in
capital in excess of par for each of the respective Funds:
Growth Stock Fund $ 90,444
Stock Index Fund 398,227
International Stock Fund 881,462
Active Balanced Fund 788,116
Balanced Fund 899,912
Such reclassifications have no effect on net assets, results of operations,
or net asset value per share of the Funds.
Dividends and Distributions: Dividends and distributions of each Fund are
declared in cash and automatically reinvested in additional shares of the Fund.
The Income Fund and Money Market Fund will declare dividends of their net
investment income and, for the Money Market Fund, net capital gain (loss), daily
and distribute such dividends monthly. Each other Fund will declare and
distribute a dividend of its net investment income, if any, at least annually.
Except for the Money Market Fund, each Fund will declare and distribute its net
capital gains, if any, at least annually. Distributions of income dividends and
capital gains distributions of each Fund are made on the payment date and
reinvested at the per share net asset value as of the record date or such other
date as the Board may determine. On the ``ex-dividend'' date, the net asset
value per share excludes the dividend (i.e., is reduced by the amount of the
distribution).
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
53
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND
Taxes: It is the Funds' 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 Funds' understanding of the applicable country's tax rules and rates.
Reclassification of Capital Accounts: The Company accounts for and reports
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, 1995, the application of this statement
affected undistributed net investment income (``UNI''), accumulated net realized
gain (loss) on investments (``G/L'') and paid-in capital in excess of par
(``PIC'') by the following amounts:
<TABLE>
<CAPTION>
UNI G/L PIC
--------- -------- ---------
<S> <C> <C> <C>
Growth Stock Fund $ 141,451 $ 5,798 $(147,249)
International Stock Fund (81,325) 81,325 --
Active Balanced Fund (107,185) 107,185 --
Balanced Fund (112,634) 112,634 --
</TABLE>
Net investment income, net realized gains and net assets were not affected by
this change.
Deferred Organizational Expenses: Approxi-
mately $450,000 of costs were incurred in connection with the organization and
initial registration of the Company and have been deferred and are being
amortized ratably over the period of benefit not to exceed 60 months from the
date each of the Funds' commenced investment operations.
Note 2. Agreements
The Company has entered into a management agreement with PIFM. Pursuant to
this agreement, PIFM has responsibility for all investment advisory services and
supervises the subadviser's performance of such services. PIFM is an indirect,
wholly-owned subsidiary of The Prudential Insurance Company of America
(Prudential).
PIFM has entered into subadvisory agreements with The Prudential Investment
Corporation (``PIC''), Jennison Associates Capital Corp. (``Jennison'') and
Mercator Asset Management, Inc. (``Mercator''), each a wholly-owned subsidiary
of Prudential. Each subadviser will furnish investment advisory services in
connection with the management of the various Funds. Jennison serves as
subadviser to the Growth Stock Fund and the Active Balanced Fund. PIC serves as
subadviser to the Balanced Fund, the Stock Index Fund, the Income Fund and the
Money Market Fund. Mercator serves as subadviser to the International Stock
Fund. PIFM will pay for the costs and expenses attributable to the subadvisory
agreements and the salaries and expenses of all personnel of the Company except
for fees and expenses of unaffiliated Trustees. The Funds will bear all other
costs and expenses.
Each Fund will pay PIFM a fee for its services provided to the Fund. The fees
are computed daily and payable monthly at the annual rates specified below of
the value of each Funds' average daily net assets:
Fund Management Fee
- -------------------------- ---------------
Growth Stock Fund .70%
Stock Index Fund .40
International Stock Fund 1.15
Active Balanced Fund .70
Balanced Fund .70
Income Fund .50
Money Market Fund .45
PIFM has voluntarily agreed to subsidize a portion of the operating expenses
of the Funds until September 30, 1996. Such expenses may be recovered by PIFM
through December 31, 1996 so long as the total expense ratios do not exceed
54
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND
certain predetermined levels set forth in the Company's prospectus. For the year
ended September 30, 1995, PIFM subsidized the following amounts:
<TABLE>
<CAPTION>
Percentage
of Average Amount per
Fund Net Assets Share
- ------------------------- ------------- ------------------
<S> <C> <C>
Growth Stock Fund .01% $ .001
Stock Index Fund .28 .025
International Stock Fund .04 .002
Active Balanced Fund .05 .004
Balanced Fund .10 .005
Income Fund .28 .027
Money Market Fund .32 .001
</TABLE>
The Company has entered into an administration agreement with Prudential
Mutual Fund Management, Inc. (``PMF''), an indirect wholly-owned subsidiary of
Prudential. The administration fee paid PMF will be computed daily and payable
monthly, at an annual rate of .17% of the Company's daily net assets up to $250
million and .15% of the Company's average daily net assets in excess of $250
million. PMF will furnish to the Company such services as the Company may
require in connection with the administration of the Company's business affairs.
PMF will also provide certain transfer agent services through its wholly-owned
subsidiary, Prudential Mutual Fund Services, Inc. (``PMFS''). For such services,
PMFS will be paid .03% of the Company's daily net assets up to $250 million and
.02% of the Company's average daily net assets in excess of $250 million from
the administration fee paid to PMF.
Note 3. Other Transactions with Affiliates
For the year ended September 30, 1995, Prudential Securities Incorporated, an
affiliate of PIFM, earned approximately $1,000 in brokerage commissions from
portfolio transactions executed on behalf of the Balanced Fund.
Note 4. Portfolio Securities
Purchases and sales of portfolio securities, excluding short-term
investments, for the year ended September 30, 1995 were as follows:
<TABLE>
<CAPTION>
Fund Purchases Sales
- ---------------------------- ------------ -----------
<S> <C> <C>
Growth Stock Fund $166,285,606 $94,901,288
Stock Index Fund 31,191,257 6,793,307
International Stock Fund 51,878,167 22,058,837
Active Balanced Fund 55,254,010 24,449,598
Balanced Fund 51,413,549 41,017,407
Income Fund 72,942,188 62,818,679
</TABLE>
On September 30, 1995, the Stock Index Fund purchased 62 financial futures
contracts on the S&P 500 Index expiring December, 1995. The cost of such
contracts was $18,040,975. The value of such contracts on September 30, 1995 was
$18,234,200, thereby resulting in an unrealized gain of $193,225.
The federal income tax basis and unrealized appreciation/depreciation of the
Fund's investments as of September 30, 1995 were as follows:
<TABLE>
<CAPTION>
Net Unrealized
Appreciation/
Depreciation
-------------- Gross Unrealized
Fund Basis Appreciation Depreciation
- ------------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Growth Stock Fund $168,492,267 $ 53,882,096 $55,631,552 $1,749,456
Stock Index Fund 80,984,245 15,486,856 16,243,442 756,586
International Stock
Fund 120,016,426 17,315,559 19,620,167 2,304,608
Active Balanced
Fund 121,485,163 12,020,860 12,744,154 723,294
Balanced Fund 74,648,132 6,340,696 6,845,882 505,186
Income Fund 56,738,626 894,526 1,086,048 191,522
</TABLE>
The following Funds elected to treat net losses incurred in the eleven month
period ended September 30, 1994 as having occurred in the current fiscal year:
<TABLE>
<CAPTION>
Capital Currency
---------- --------
<S> <C> <C>
Growth Stock Fund $3,796,000 --
International Stock Fund -- $186,000
Income Fund 828,000 --
</TABLE>
55
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND
The following Funds will elect to treat net losses incurred in the eleven
month period ended September 30, 1995 as having been incurred in the following
fiscal year:
<TABLE>
<CAPTION>
Capital Currency
---------- --------
<S> <C> <C>
Growth Stock Fund -- $ 4,000
International Stock Fund $3,066,000 169,000
Balanced Fund -- 1,000
</TABLE>
For federal income tax purposes, the following Funds have a capital loss
carryforward as of September 30, 1995 which expires in 2003:
Growth Stock Fund $2,825,300
Income Fund 723,300
The average monthly balance of dollar rolls outstanding during the year ended
September 30, 1995 for the Income Fund was approximately $4,142,000. The amount
of dollar rolls outstanding at September 30, 1995 was $5,940,665, which was
10.2% of total assets.
Note 5. Joint Repurchase Agreement Account
The Company, along with other affiliated registered investment companies,
transfers uninvested cash balances into a single joint account, the daily
aggregate balance of which is invested in one or more repurchase agreements
collateralized by U.S. Treasury or federal agency obligations. At September 30,
1995, the Company had a 9.01% undivided interest, in the aggregate, in the
repurchase agreements in the joint account which represented $65,929,000 in
principal amount, in the aggregate, as follows:
<TABLE>
<CAPTION>
Percentage Principal
Company Interest Amount
- ---------------------------- ---------- -----------
<S> <C> <C>
Growth Stock Fund .66% $ 4,819,000
Stock Index Fund 1.71 12,494,000
International Stock Fund 1.12 8,175,000
Active Balanced Fund 3.50 25,625,000
Balanced Fund 1.00 7,338,000
Income Fund 1.02 7,478,000
</TABLE>
As of such date, each repurchase agreement in the joint account and the
collateral therefor was as follows:
Bear, Stearns & Co., Inc., 6.375%, in the principal amount of $225,000,000,
repurchase price $225,119,531, due 10/2/95. The value of the collateral
including accrued interest was $229,660,959.
BT Securities Corp., 6.10%, in the principal amount of $56,863,000,
repurchase price $56,891,905, due 10/2/95. The value of the collateral including
accrued interest was $58,082,904.
Goldman, Sachs & Co., 6.45%, in the principal amount of $225,000,000,
repurchase price $225,120,938, due 10/2/95. The value of the collateral
including accrued interest was $229,500,013.
Smith Barney, Inc., 6.43%, in the principal amount of $225,000,000,
repurchase price $225,120,563, due 10/2/95. The value of the collateral
including accrued interest was $229,500,366.
Note 6. Capital
Each Fund has authorized an unlimited number of shares of beneficial interest
at $.001 par value per share.
Transactions in shares of beneficial interest during the years ended
September 30, 1995 and 1994 were as follows:
Year ended September 30, 1995:
<TABLE>
<CAPTION>
Shares
Issued in
Reinvestment Increase
Shares of Dividends/ Shares in Shares
Fund Sold Distributions Redeemed Outstanding
- ----------------------- ---------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Growth Stock Fund 9,932,496 4,078 (5,248,506) 4,688,068
Stock Index Fund 4,340,797 107,238 (1,725,892) 2,722,143
International Stock
Fund 6,497,880 228,737 (4,691,305) 2,035,312
Active Balanced Fund 4,883,689 242,395 (1,856,069) 3,270,015
Balanced Fund 2,303,919 168,832 (1,702,980) 769,771
Income Fund 1,204,925 296,456 (675,384) 825,997
Money Market Fund 55,919,976 2,813,967 (47,010,598) 11,723,345
</TABLE>
56
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND
Year ended September 30, 1994:
<TABLE>
<CAPTION>
Shares
Issued in
Reinvestment Increase
Shares of Dividends/ Shares in Shares
Fund Sold Distributions Redeemed Outstanding
- ---------------------- ---------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Growth Stock Fund 6,739,890 14,450 (1,804,735) 4,949,605
Stock Index Fund 2,697,792 52,328 (744,579) 2,005,541
International Stock
Fund 6,022,403 42,326 (1,702,734) 4,361,995
Active Balanced Fund 5,244,905 81,781 (1,404,380) 3,922,306
Balanced Fund 3,900,150 118,117 (556,779) 3,461,488
Income Fund 1,613,971 216,368 (809,032) 1,021,307
Money Market Fund 32,311,167 1,277,602 (17,493,001) 16,095,768
</TABLE>
Of the shares outstanding at September 30, 1995, PIFM and affiliates owned
the following shares:
<TABLE>
<CAPTION>
Fund Shares
- -------------------------- ----------
<S> <C>
Growth Stock Fund 4,724,608
Stock Index Fund 3,429,256
International Stock Fund 4,962,191
Active Balanced Fund 2,396,951
Balanced Fund 3,356,418
Income Fund 2,889,945
Money Market Fund 27,811,405
</TABLE>
57
<PAGE>
THE PRUDENTIAL INDEPENDENT
(LOGO) INSTITUTIONAL AUDITORS' REPORT
FUND
The Shareholders and Trustees of
The Prudential Institutional Fund:
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of The Prudential Institutional Fund
(consisting of the Growth Stock Fund, Stock Index Fund, International Stock
Fund, Active Balanced Fund, Balanced Fund, Income Fund and Money Market Fund),
as of September 30, 1995, the related statements of operations for the year then
ended and of changes in net assets for each of the two years in the period then
ended, and the financial highlights for the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
September 30, 1995, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of each of the
respective portfolios constituting The Prudential Institutional Fund as of
September 30, 1995, the results of their operations, the changes in their net
assets, and the financial highlights for the periods presented in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
November 16, 1995
58
<PAGE>
THE PRUDENTIAL FEDERAL INCOME
(LOGO) INSTITUTIONAL TAX INFORMATION
FUND
As required by the Internal Revenue Code, we wish to advise you as to the
federal tax status of dividends and distributions paid by the Funds during their
fiscal year ended September 30, 1995.
Detailed below, please find the aggregate dividends and distributions, per
share, paid by each Fund during the fiscal year ended September 30, 1995 as well
as the corporate dividend received deduction percentage:
<TABLE>
<CAPTION>
Ordinary Dividends* Long-Term Total Corporate
------------------------- Capital Dividends Dividend
Short-Term Gains and Received
Fund Income Capital Gains Distributions Distributions Deduction
- ------------------------------------------ ------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Growth Stock Fund $.005 -- -- $.005 100%
Stock Index Fund .215 $.025 $.010 .250 87
International Stock Fund .107 .060 .258 .425 --
Active Balanced Fund .290 .010 .025 .325 23
Balanced Fund .255 .005 .040 .300 24
Income Fund .594 -- -- .594 --
Money Market Fund .053 -- -- .053 --
</TABLE>
* For federal income tax purposes, ordinary income dividends and short-term
capital gains distributions are taxable as ordinary income. Long-term capital
gains distributions are taxable as capital gains income.
59
<PAGE>
THE PRUDENTIAL LETTER TO
(LOGO) INSTITUTIONAL SHAREHOLDERS
FUND
May 20, 1996
We are pleased to provide you with the Semi-Annual Report of The Prudential
Institutional Fund for the six months ended March 31, 1996. A combination of
continued gains in the equity markets, albeit with more volatility, along with
strong cash flow from shareholders and retirement plan participants, resulted in
significant increases in the size of many of the Fund's portfolios. Total net
assets grew to $957.9 million at March 31, 1996 from $784.9 million at September
30, 1995. The Fund has seven portfolios, each with a distinct investment
objective designed to allow investors the opportunity to select various options
to match different goals and risk tolerances.
Economy
The U.S. economy is growing sluggishly, on the order of 2% per year and
inflation is restrained at just under 3% per year. At the outset of 1996, the
focus of most commentators was on the deceleration of growth at the end of 1995
and the potentially debilitating effects of adverse weather conditions in early
1996. The prevailing fear was that the U.S. was slipping into or possibly
already in the midst of a recession. Sentiment has shifted dramatically and
market commentators are now talking about the ``growth scare'' that is pushing
interest rates higher. The focal point for this shift in sentiment about the
economy was Fed Chairman Greenspan's February statement to Congress on the state
of the economy. Subsequent employment reports that were much better than
expected added to the new sentiment that ``strong'' underlying economic growth
of 2% or more would force interest rates higher.
Market Review
The February shift in sentiment about the economy led to a dramatic shift in
the U.S. stock and bond markets. At that point, the S&P 500 was at its all-time
high of 661 and the yield on 30-year U.S. Treasuries was about 6.0%. Greenspan's
statement can essentially serve as the demarcation point to end the 1995 stock
and bond rallies. From that point until the end of March, long-term treasury
yields rose about 70 basis points to 6.7% and the S&P 500 fluctuated in the 640
to 660 range, ending the period at 645. For the six month period as a whole,
stocks gained nearly 12%, while bonds returned about 2.4% as measured by the
Lehman Aggregate Index.
Foreign stocks, as represented by the Morgan Stanley Europe, Australia and
Far East Index (EAFE) moved in roughly the same pattern as the U.S. stock market
during this six month period but the gain in foreign stocks was a more modest
7%.
Fund Performance
As a result of the continued strength in the financial markets, each of the
Fund's portfolios achieved absolute positive returns for the six month period.
Since each portfolio's inception, returns have been very positive and compare
satisfactorily versus the benchmarks. This performance information and portfolio
holdings along with comments from each portfolio's adviser may be found on the
following pages.
1
<PAGE>
THE PRUDENTIAL LETTER TO
(LOGO) INSTITUTIONAL SHAREHOLDERS
FUND
Summary
The economy and markets are in an uncertain period characterized by
heightened volatility. This underscores our belief that investors need to focus
on the longer-term and continue to exercise a disciplined approach to investing
their retirement savings. We look forward to continuing to provide you with the
investment options and services you need to help you accomplish your goals.
Sincerely,
Mark R. Fetting
President
2
<PAGE>
THE PRUDENTIAL MONEY MARKET FUND
(LOGO) INSTITUTIONAL
FUND
OBJECTIVE: Seeks to achieve high current income,
preservation of principal and maintenance of
liquidity.
INVESTMENT APPROACH: The Fund invests in
U.S. dollar-denominated money market
instruments, including commercial paper and bank
obligations such as certificates of deposits and
banker's acceptance notes from domestic and
foreign issuers. The Fund will maintain a
dollar-weighted average portfolio maturity of 90
days or less and purchase only instruments
maturing in 13 months or less, which have been
determined to present minimal credit risks. The
Fund's yield will fluctuate, and the Fund seeks to
maintain a net asset value of $1.00 per share for
purchases and redemptions.
ADVISER: Prudential Global Advisors is a
business unit of The Prudential Investment
Corporation which specializes in domestic and
international fixed income management. PGA
currently manages approximately $23 billion in
fixed income accounts, including over $2.5 billion in
money market accounts.
ADVISER'S COMMENTS: Over the last six months,
money market yields have trended slightly lower.
In response, your Fund has been invested in
securities with somewhat longer maturities. These
investments increase the average maturity of the
Fund. Over the last six months, the Fund
maintained a longer average maturity than other
money market funds. In general, a shorter average
maturity allows the Fund to incorporate new rates
more quickly, while a longer average maturity
allows the Fund to hang on to higher rates for a
longer time.
Short-term interest rates are primarily influenced by
the Federal Reserve's Open Market Committee
(FOMC). Over the past six months, the FOMC has
engineered two decreases of the target level of the
Federal Funds rate, the rate that large banks lend to
one another overnight. The Federal Funds rate was
changed in two quarter-point moves from 5.75% to
the current rate of 5.25%. In Congressional
testimony, Fed Chairman Greenspan characterized
the second of these moves as ``insurance'' against
the possibility of recession.
The Fed was reacting to an undesirable slow rate of
economic growth during 1995. Economists disagree
about to what extent slow growth has been due to
temporary factors that will disappear over time.
Some of the temporary factors are: unintended
inventory accumulation that occurred when exports
to Mexico collapsed, the decrease in government
spending particularly during the government
shutdowns, and the severe winter weather. If
temporary factors are the biggest restraint, then
growth could be expected to increase in the future
and interest rates may rise again. If the restraints on
growth are more fundamental, the Fed will have to
lower rates further to re-stimulate the economy. We
will be watching upcoming economic data closely,
trying to ascertain the future growth trend.
We have continued to maintain a high quality
portfolio. At the end of March, all the portfolio's
investments were rated high quality by at least two
or more nationally recognized rating agencies, or if
unrated, deemed to be of equivalent quality.
PERFORMANCE RESULTS:
As of March 31, 1996, the current seven-day yield
was 4.90%. The net asset value remained at $1.00
per share.
An investment in the Fund is neither insured or guaranteed by the
U.S. Government and there can be no assurance that the Fund will be
able to maintain a stable net asset value of $1.00 per share. The
Manager is currently limiting the expenses of the Fund. Without
this reduction, the seven-day yield would have been 4.58%.
34
<PAGE>
THE PRUDENTIAL MONEY MARKET FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
BEARER DEPOSIT NOTES -
YANKEE--0.9%
Grand Metropolitan Investment Corp.,
8.125%, 8/15/96
$ 555 (amortized cost $560,141)...... $ 560,141
------------
COMMERCIAL PAPER--39.7%
American Home Products Corp.,
2,000 5.40%, 5/1/96.................... 1,991,000
Aristar, Inc.,
960 5.36%, 4/12/96................... 958,428
2,000 5.22%, 4/15/96................... 1,995,940
Countrywide Funding Corp.,
1,704 5.39%, 5/3/96.................... 1,695,836
1,300 5.47%, 5/8/96.................... 1,292,691
Duracell, Inc.,
1,382 5.60%, 4/1/96.................... 1,382,000
Enterprise Funding Corp.,
1,224 5.42%, 5/1/96.................... 1,218,472
Finova Capital Corp.,
2,961 5.25%, 4/26/96................... 2,950,205
First Data Corp.,
3,000 5.43%, 4/2/96.................... 2,999,548
General Motors Acceptance Corp.,
200 5.40%, 4/4/96.................... 199,910
Household International Inc.,
800 5.24%, 4/2/96.................... 799,884
Lehman Brothers, Inc.,
399 5.60%, 4/1/96.................... 399,000
Nynex Corp.,
2,980 5.30%, 4/8/96.................... 2,976,929
Whirlpool Financial Corp.,
820 5.20%, 4/26/96................... 817,039
2,100 5.43%, 5/10/96................... 2,087,645
------------
Total commercial paper
(amortized cost $23,764,527)..... 23,764,527
------------
Principal
Amount Value
(000) Description (Note 1)
- -------------------------------------------------------------
DEPOSIT NOTES--2.5%
Society National Bank Cleveland,
$ 1,000 6.70%, 4/15/96................... $ 1,000,351
500 6.00%, 4/25/96................... 499,843
------------
Total deposit notes
(amortized cost $1,500,194)...... 1,500,194
------------
LOAN PARTICIPATION--3.3%
Morgan Stanley Group Inc.,
5.60%, 4/3/96
2,000 (amortized cost $2,000,000).... 2,000,000
------------
MEDIUM-TERM OBLIGATIONS--19.6%
Associates Corp. of North America,
250 4.48%, 10/15/96.................. 248,249
Ford Motor Credit Corp.,
1,120 8.25%, 5/15/96................... 1,123,125
600 8.875%, 8/1/96................... 605,413
215 5.625%, 3/3/97................... 214,779
General Electric Co.,
840 7.875%, 5/1/96................... 841,296
Household Finance Corp.,
1,250 7.80%, 11/1/96................... 1,264,227
International Lease Finance
Corp.,
500 5.00%, 5/28/96................... 499,177
375 6.625%, 6/1/96................... 375,302
Norwest Corporation,
500 4.93%, 11/15/96.................. 497,245
400 7.875%, 1/30/97.................. 408,349
PHH Corporation,
2,200 8.00%, 1/1/97.................... 2,243,194
Potomac Electric Power Co.,
500 6.25%, 5/28/96................... 500,772
Sears Roebuck Acceptance Corp.,
1,635 8.55%, 8/1/96.................... 1,648,508
100 8.99%, 9/27/96................... 101,614
590 7.48%, 2/19/97................... 600,916
</TABLE>
See Notes to Financial Statements.
35
<PAGE>
THE PRUDENTIAL MONEY MARKET FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
MEDIUM-TERM OBLIGATIONS, cont'd.
Transamerica Finance Corp.,
$ 600 8.55%, 6/15/96................... $ 603,072
------------
Total medium-term obligations
(amortized cost $11,775,238)..... 11,775,238
------------
VARIABLE RATE OBLIGATIONS(a)--33.5%
American Express Centurion Bank,
1,900 5.349%, 4/16/96.................. 1,899,785
1,000 5.379%, 4/17/96.................. 999,991
Bank One Columbus N.A.,
2,700 5.34%, 4/1/96.................... 2,699,126
Caterpillar Financial Services
N.V.,
350 5.47%, 5/29/96................... 350,414
Fleet National Bank,
1,300 5.625%, 4/30/96.................. 1,300,262
Ford Motor Credit Corp.,
200 5.692%, 6/17/96.................. 200,069
350 5.40%, 2/18/97................... 350,344
General Motors Acceptance Corp.,
2,000 5.51%, 4/1/96.................... 1,999,970
350 5.622%, 6/18/96.................. 350,367
Goldman Sachs Group, L.P.,
2,700 5.438%, 4/29/96.................. 2,700,000
Household Finance Corp.,
1,700 5.34%, 4/1/96.................... 1,699,714
John Deere Capital Corp.,
1,000 5.767%, 4/22/96.................. 1,000,677
Key Bank New York,
1,400 5.33%, 4/1/96.................... 1,399,515
Lehman Brothers, Inc.,
2,000 5.509%, 4/1/96................... 2,000,000
Money Market Auto Loan Trust,
100 5.575%, 4/15/96.................. 100,000
Principal
Amount Value
(000) Description (Note 1)
- -------------------------------------------------------------
Morgan Stanley Group, Inc.,
$ 1,000 5.375%, 5/15/96.................. $ 1,000,000
------------
Total variable rate obligations
(amortized cost $20,050,234)..... 20,050,234
------------
U.S. GOVERNMENT AGENCY OBLIGATION--0.7%
Federal Home Loan Banks,
4.36%, 4/25/96
400 (amortized cost $399,668)...... 399,668
------------
Total investments--100.2%
(amortized cost
$60,050,002(b))................ 60,050,002
Liabilities in excess of other
assets--(0.2%)................. (119,819)
------------
Net Assets--100%................. $ 59,930,183
------------
------------
</TABLE>
- ---------------
(a) For purposes of amortized cost valuation, the maturity date of these
instruments is considered to be the next date on which the security can be
redeemed at par or the next date on which the rate of interest is adjusted.
(b) The cost of securities for federal income tax purposes is substantially the
same as for financial reporting purposes.
The industry classification of portfolio holdings and other net assets shown as
a percentage of net assets as of March 31, 1996 were as follows:
<TABLE>
<S> <C>
Personal Credit Institutions.............. 18.7%
Commercial Banks.......................... 16.4
Security Brokers & Dealers................ 13.5
Business Credit (Finance)................. 12.1
Information Services...................... 5.0
Mortgage Bankers.......................... 5.0
Phone Communication....................... 5.0
Household Appliances...................... 4.8
Auto Rental & Leasing..................... 3.8
Pharmaceutical............................ 3.3
Misc. Electric, Equipment, Supply......... 2.3
Asset Backed.............................. 2.2
Bank Holding Co........................... 1.5
Equipment Rental & Leasing................ 1.5
Electric & Equipment, Computer............ 1.4
Financial Services........................ 1.3
Food & Kindred Products................... 0.9
Electric Services......................... 0.8
Federal Credit............................ 0.7
Liabilities in excess of other assets..... (0.2)
-----
100.0%
-----
-----
</TABLE>
See Notes to Financial Statements.
36
<PAGE>
THE PRUDENTIAL STATEMENT OF ASSETS
(LOGO) INSTITUTIONAL AND LIABILITIES
FUND MARCH 31, 1996
<TABLE>
<CAPTION>
GROWTH STOCK INTERNATIONAL ACTIVE MONEY
STOCK INDEX STOCK BALANCED BALANCED INCOME MARKET
FUND FUND FUND FUND FUND FUND FUND
------------ ------------ ------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Investments, at value
(a)...................... $288,473,390 $147,528,594 $163,631,126 $141,973,548 $99,302,946 $64,948,809 $60,050,002
Cash....................... 571 -- 365 3,578 2,454 344 664
Foreign currency, at value
(cost $120,455).......... -- -- 120,201 -- -- -- --
Receivable for investments
sold..................... 1,843,811 110,805 -- 159,396 222,356 -- --
Interest and dividends
receivable............... 244,056 237,503 486,827 694,471 662,192 679,143 423,064
Receivable for Fund shares
sold..................... 836,874 419,537 507,136 469,950 397,983 60,429 47,347
Deferred expenses and other
assets................... 22,618 21,921 22,047 23,402 21,788 25,157 23,503
------------ ------------ ------------- ------------ ----------- ----------- -----------
Total assets........... 291,421,320 148,318,360 164,767,702 143,324,345 100,609,719 65,713,882 60,544,580
------------ ------------ ------------- ------------ ----------- ----------- -----------
Liabilities
Payable for investments
purchased................ 1,894,523 780,201 1,838,999 505,568 555,826 8,346,485 387,225
Payable for Fund shares
reacquired............... 379,951 350,236 440,038 2,721 151,391 6,891 195,043
Accrued expenses........... 59,193 56,018 104,667 27,875 33,386 17,866 17,517
Due to broker - variation
margin................... -- 29,750 -- -- -- -- --
Management fee payable..... 184,161 1,164 159,906 84,218 54,094 10,568 7,913
Administration fee
payable.................. 32,006 16,314 17,912 15,912 10,987 6,426 6,699
------------ ------------ ------------- ------------ ----------- ----------- -----------
Total liabilities...... 2,549,834 1,233,683 2,561,522 636,294 805,684 8,388,236 614,397
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net Assets................. $288,871,486 $147,084,677 $162,206,180 $142,688,051 $99,804,035 $57,325,646 $59,930,183
------------ ------------ ------------- ------------ ----------- ----------- -----------
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net assets were comprised
of:
Shares of beneficial
interest, at par......... $ 16,906 $ 9,836 $ 10,275 $ 11,342 $ 7,936 $ 5,781 $ 59,930
Paid-in capital in excess
of par................... 223,817,874 119,565,666 140,973,229 124,739,121 88,818,388 57,616,118 59,870,253
------------ ------------ ------------- ------------ ----------- ----------- -----------
223,834,780 119,575,502 140,983,504 124,750,463 88,826,324 57,621,899 59,930,183
Undistributed net
investment income
(loss)................... (362,804) 536,299 183,078 1,026,586 671,956 -- --
Accumulated net realized
gain (loss) on
investments.............. 2,165,314 596,539 (364,666 ) 3,304,353 1,284,654 (179,120) --
Net unrealized appreciation
(depreciation) on
investments and foreign
currencies............... 63,234,196 26,376,337 21,404,264 13,606,649 9,021,101 (117,133) --
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net assets, March 31,
1996..................... $288,871,486 $147,084,677 $162,206,180 $142,688,051 $99,804,035 $57,325,646 $59,930,183
------------ ------------ ------------- ------------ ----------- ----------- -----------
------------ ------------ ------------- ------------ ----------- ----------- -----------
Shares of beneficial
interest issued and
outstanding.............. 16,906,186 9,835,809 10,275,205 11,341,527 7,936,350 5,780,560 59,930,183
------------ ------------ ------------- ------------ ----------- ----------- -----------
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net asset value per
share.................... $ 17.09 $ 14.95 $ 15.79 $ 12.58 $ 12.58 $ 9.92 $ 1.00
------------ ------------ ------------- ------------ ----------- ----------- -----------
------------ ------------ ------------- ------------ ----------- ----------- -----------
(a) Identified cost........ $225,239,430 $121,196,832 $142,221,274 $128,366,899 $90,281,845 $65,065,943 $60,050,002
</TABLE>
See Notes to Financial Statements.
37
<PAGE>
THE PRUDENTIAL STATEMENT OF
(LOGO) INSTITUTIONAL OPERATIONS
FUND SIX MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
GROWTH STOCK INTERNATIONAL ACTIVE MONEY
STOCK INDEX STOCK BALANCED BALANCED INCOME MARKET
FUND FUND FUND FUND FUND FUND FUND
------------ ------------ ------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Investment Income
Income
Interest................. $ 142,475 $ 222,810 $ 299,227 $ 2,194,088 $ 1,500,344 $ 1,839,465 $ 1,716,542
Dividends (a)............ 835,346 1,295,809 1,257,014 610,799 246,391 -- --
------------ ------------ ------------- ------------ ----------- ----------- -----------
Total income........... 977,821 1,518,619 1,556,241 2,804,887 1,746,735 1,839,465 1,716,542
------------ ------------ ------------- ------------ ----------- ----------- -----------
Expenses
Management fee........... 885,234 242,455 828,186 482,513 312,574 139,295 132,163
Administration fee....... 168,078 80,560 95,715 91,614 59,348 37,027 38,798
Custodian's fees and
expenses................. 46,000 68,000 138,000 38,000 34,000 30,000 29,000
Registration fees........ 34,000 20,000 17,000 28,000 12,000 14,000 11,000
Transfer agent's fees and
expenses............... 28,969 13,885 16,497 15,790 10,229 6,382 6,964
Reports to
shareholders............. 15,000 15,000 15,000 7,500 15,000 7,500 7,500
Legal fees............... 7,500 7,500 7,500 7,500 7,500 7,500 7,500
Amortization of
organization
expenses............... 6,693 6,693 6,693 6,606 6,693 6,525 6,606
Audit fee................ 6,000 5,000 7,500 6,000 5,000 5,000 4,500
Trustees' fees........... 6,000 6,000 6,000 6,000 6,000 6,000 6,000
Miscellaneous............ 1,762 769 1,337 919 753 790 1,188
------------ ------------ ------------- ------------ ----------- ----------- -----------
Total expenses......... 1,205,236 465,862 1,139,428 690,442 469,097 260,019 251,219
Expense recovery
(subsidy) (Note 2)..... 59,383 (102,179) 12,836 (1,136) (22,563) (65,010) (75,031)
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net expenses............... 1,264,619 363,683 1,152,264 689,306 446,534 195,009 176,188
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net investment income
(loss)................... (286,798) 1,154,936 403,977 2,115,581 1,300,201 1,644,456 1,540,354
------------ ------------ ------------- ------------ ----------- ----------- -----------
Realized and Unrealized
Gain (Loss) on Investment
and Foreign Currency
Transactions
Net realized gain (loss) on:
Securities
transactions............. 5,181,317 329,077 2,870,670 3,822,493 1,674,656 553,480 774
Financial futures
contracts................ -- 706,645 -- -- -- -- --
Foreign currency
transactions............. (76,006) -- (63,741 ) -- -- -- --
------------ ------------ ------------- ------------ ----------- ----------- -----------
5,105,311 1,035,722 2,806,929 3,822,493 1,674,656 553,480 774
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net change in unrealized
appreciation
(depreciation) on:
Securities and foreign
currencies............... 9,168,246 10,803,505 4,083,056 1,492,196 2,639,177 (1,011,659) --
Financial futures
contracts................ -- (148,650) -- -- -- -- --
------------ ------------ ------------- ------------ ----------- ----------- -----------
9,168,246 10,654,855 4,083,056 1,492,196 2,639,177 (1,011,659) --
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net gain (loss) on
investments and foreign
currencies............... 14,273,557 11,690,577 6,889,985 5,314,689 4,313,833 (458,179) 774
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net Increase in Net Assets
Resulting from
Operations................. $ 13,986,759 $ 12,845,513 $7,293,962 $ 7,430,270 $ 5,614,034 $ 1,186,277 $ 1,541,128
------------ ------------ ------------- ------------ ----------- ----------- -----------
------------ ------------ ------------- ------------ ----------- ----------- -----------
(a) Net of foreign withholding taxes of $17,997, $1,988, $160,696, $1,168 and $4,070, respectively.
</TABLE>
See Notes to Financial Statements.
38
<PAGE>
THE PRUDENTIAL STATEMENT OF CHANGES
(LOGO) INSTITUTIONAL IN NET ASSETS
FUND (UNAUDITED)
<TABLE>
<CAPTION>
MONEY
BALANCED INCOME MARKET
FUND FUND FUND
------------------------------ ----------------------------- ------------------------------
Six Months Year Six Months Year Six Months Year
Ended Ended Ended Ended Ended Ended
March 31, September 30, March 31, September 30, March 31, September 30,
1996 1995 1996 1995 1996 1995
------------ ------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in
Net Assets
Operations
Net investment
income............... $ 1,300,201 $ 2,258,681 $ 1,644,456 $ 2,862,527 $ 1,540,354 $ 2,813,967
Net realized gain on
investments and
foreign currency
transactions......... 1,674,656 2,196,076 553,480 92,951 774 --
Net change in
unrealized
appreciation
(depreciation) on
investments and
foreign currencies... 2,639,177 6,413,335 (1,011,659) 2,865,097 -- --
------------ ------------- ----------- ------------- ------------ -------------
Net increase in net
assets resulting from
operations........... 5,614,034 10,868,092 1,186,277 5,820,575 1,541,128 2,813,967
------------ ------------- ----------- ------------- ------------ -------------
Dividends and
distributions
Dividends to
shareholders from net
investment income.... (2,334,680) (1,529,788) (1,644,456) (2,862,527) (1,541,128) (2,813,967)
Distributions to
shareholders from net
realized gains....... (2,472,014) (269,963) -- -- -- --
------------ ------------- ----------- ------------- ------------ -------------
Total dividends and
distributions........ (4,806,694) (1,799,751) (1,644,456) (2,862,527) (1,541,128) (2,813,967)
------------ ------------- ----------- ------------- ------------ -------------
Fund share transactions
Net proceeds from
shares sold.......... 21,877,936 26,091,264 7,888,653 11,549,255 22,399,365 55,919,976
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions........ 4,806,694 1,799,751 1,644,456 2,862,527 1,541,128 2,813,967
Cost of shares
redeemed............. (9,797,881) (19,161,993) (4,046,651) (6,473,780) (22,064,387) (47,010,598)
------------ ------------- ----------- ------------- ------------ -------------
Net increase in net
assets from Fund
share transactions... 16,886,749 8,729,022 5,486,458 7,938,002 1,876,106 11,723,345
------------ ------------- ----------- ------------- ------------ -------------
Net increase............ 17,694,089 17,797,363 5,028,279 10,896,050 1,876,106 11,723,345
Net Assets
Beginning of period.... 82,109,946 64,312,583 52,297,367 41,401,317 58,054,077 46,330,732
------------ ------------- ----------- ------------- ------------ -------------
End of period.......... $ 99,804,035 $82,109,946 $57,325,646 $52,297,367 $ 59,930,183 $58,054,077
------------ ------------- ----------- ------------- ------------ -------------
------------ ------------- ----------- ------------- ------------ -------------
</TABLE>
See Notes to Financial Statements.
40
<PAGE>
THE PRUDENTIAL FINANCIAL HIGHLIGHTS
(LOGO) INSTITUTIONAL (UNAUDITED)
FUND
<TABLE>
<CAPTION>
MONEY
MARKET
FUND
--------------------------------------------------------------------
January 4,
Six Months 1993(a)
Ended Year Ended September 30, Through
March 31, --------------------------- September 30,
1996 1995 1994 1993
---------- --------- --------- -------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income and
net realized gains(b)...... .03 .05 .03 .02
Dividends from net
investment income.......... (.03) (.05) (.03) (.02)
---------- --------- --------- ----------
Net asset value, end of
period..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- --------- --------- ----------
---------- --------- --------- ----------
TOTAL RETURN(d)............. 2.64% 5.47% 3.32% 2.08%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of period
(000)...................... $ 59,930 $58,054 $46,331 $30,235
Average net assets (000).... $ 58,739 $52,446 $38,170 $25,296
Ratios to average
net assets: (b)
Expenses................... .60%(c) .60% .60% .60%(c)
Net investment income...... 5.24%(c) 5.37% 3.34% 2.73%(c)
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) Net of expense subsidy.
(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. Total return includes the effect
of expense subsidies.
See Notes to Financial Statements.
44
<PAGE>
THE PRUDENTIAL INSTITUTIONAL FUND
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
The Prudential Institutional Fund (the "Company") is registered under the
Investment Company Act of 1940 as an open-end, diversified management investment
company. The Company was established as a Delaware business trust on May 11,
1992 and consists of seven separate funds (Fund or Funds): Growth Stock Fund,
Stock Index Fund, International Stock Fund, Active Balanced Fund, Balanced Fund,
Income Fund and Money Market Fund. The Company had no operations until July 7,
1992 when 10,000 shares of beneficial interest (2,500 shares each of Growth
Stock Fund, Stock Index Fund, International Stock Fund and Balanced Fund) were
sold for $100,000 to Prudential Institutional Fund Management, Inc. ("PIFM").
Investment operations commenced on: November 5, 1992 for the Growth Stock Fund,
Stock Index Fund, International Stock Fund and Balanced Fund; January 4, 1993
for the Active Balanced Fund and Money Market Fund; and March 1, 1993 for the
Income Fund.
The Funds' investment objectives are as follows: Growth Stock Fund --
long-term growth of capital through investment primarily in equity securities of
established companies with above-average growth prospects; Stock Index Fund --
investment results that correspond to the price and yield performance of
Standard & Poor's 500 Composite Stock Price Index; International Stock Fund --
long-term growth of capital through investment in equity securities of foreign
issues with income as a secondary objective; Active Balanced Fund -- total
returns approaching equity returns, while accepting less risk than an all-equity
portfolio, through an actively-managed portfolio of equity securities, fixed
income securities and money market instruments; Balanced Fund -- long-term total
return consistent with moderate portfolio risk; Income Fund -- a high level of
income over the longer term while providing reasonable safety of principal; and
Money Market Fund -- high current income, preservation of principal and
maintenance of liquidity, while maintaining a $1.00 net asset value per share.
The ability of issuers of debt securities, other than those issued or
guaranteed by the U.S. Government, held by the Funds to meet their obligations
may be affected by economic developments in a specific industry, region, or
country.
NOTE 1. ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
fund.
SECURITIES VALUATIONS: Securities, including options, warrants, futures
contracts and options thereon, for which the primary market is on a national
securities exchange, commodities exchange or board of trade and NASDAQ national
market equity securities are valued at the last sale price on such exchange or
board of trade on the date of valuation or, if there was no sale on such day, at
the average of readily available closing bid and asked prices on such day.
Securities, that are actively traded in the over-the-counter market, including
listed securities for which the primary market is believed to be over-the-
counter, shall be valued at the average of the most recently quoted bid and
asked prices provided by a principal market maker or dealer.
U.S. Government securities for which market quotations are available shall be
valued at a price provided by an independent broker/dealer or pricing service.
Securities for which reliable market quotations are not available or for which
the pricing agent or principal market maker does not provide a valuation or
provides a valuation that, in the judgment of one of the subadvisers, does not
represent fair value, shall be valued at fair value as determined under
procedures established by the Trustees.
Quotations of foreign securities in a foreign currency shall be converted to
U.S. dollar equivalents at the current rate obtained from a
45
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND (UNAUDITED)
recognized bank or dealer. Forward currency exchange contracts shall be valued
at the current cost of covering or offsetting such contracts.
Securities held by the Money Market Fund are valued at amortized cost, which
approximates market value. The amortized cost method involves valuing a security
at its cost on the date of purchase and thereafter assuming a constant
amortization to maturity of the difference between the principal amount due at
maturity and cost. Short-term securities held by the other Funds which mature in
more than 60 days are valued at current market quotations and those which mature
in 60 days or less are valued at amortized cost. In the event that a Subadviser
determines that amortized cost does not represent fair value for certain
short-term securities with remaining maturities of 60 days or less, such
securities will be valued at market value.
In connection with transactions in repurchase agreements, it is the Company's
policy that its custodian or designated subcustodians, as the case may be under
triparty repurchase agreements, 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 Company may be delayed or limited.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and 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.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Fund is required to pledge to the broker an amount of cash and/or other
assets equal to a certain percentage of the contract amount. This amount is
known as the ``initial margin.'' Subsequent payments, known as ``variation
margin,'' are made or received by the Fund each day, depending on the daily
fluctuations in the value of the underlying security. 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 Funds invest in financial futures contracts in order to hedge their
existing portfolio securities, or securities the Funds intend to purchase,
against fluctuations in value. Under a variety of circumstances, a Fund may not
achieve the anticipated benefits of the financial futures contracts and may
realized a loss. The use of futures transactions involves the risk of imperfect
correlation in movements in the price of futures contracts and the underlying
assets.
Dollar Rolls: The Fund may enter into dollar rolls in which the Fund sells
securities for delivery in the current month and simultaneously contracts to
repurchase somewhat similar securities on a specified future date. During the
roll period, the Fund forgoes principal and interest paid on the securities. The
Fund is compensated by the interest earned on the cash proceeds of the initial
sale and by the lower repurchase price at the future date.
Foreign Currency Translation: The books and records of the Funds are
maintained in U.S. dollars.
46
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND (UNAUDITED)
Foreign currency amounts are translated into U.S. dollars on the following
basis:
(i) market value of investment securities, other assets and liabilities--at
the closing rates of exchange.
(ii) purchases and sales of investment securities, income and expenses--at
the rate of exchange prevailing on the respective dates of such transactions.
Although the net assets of the Funds are presented at the foreign exchange
rates and market values at the close of the fiscal period, the Funds do not
isolate that portion of the results of operations arising as a result of changes
in the foreign exchange rates from the fluctuations arising from changes in the
market prices of securities held at the end of the fiscal period. Similarly, the
Funds do not isolate the effect of changes in foreign exchange rates from the
fluctuations arising from changes in the market prices of long-term portfolio
securities sold during the fiscal period. Accordingly, these realized foreign
currency gains (losses) are included in the reported net realized gains (losses)
on investment transactions.
Net realized losses on foreign currency transactions represent net foreign
exchange losses from holding of foreign currencies, currency gains or losses
realized between the trade and settlement dates of securities transactions, and
the difference between the amounts of dividends and foreign taxes recorded on
the Funds' books and the U.S. dollar equivalent amounts actually received or
paid. Net currency gains and losses from valuing foreign currency denominated
assets and liabilities at period end exchange rates are reflected as a component
of net unrealized appreciation/
depreciation on securities and foreign currencies.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin as a result of,
among other factors, the level of governmental supervision and regulation of
foreign securities markets and the possibility of political or economic
instability.
Dividends and Distributions: Dividends and distributions of each Fund are
declared in cash and automatically reinvested in additional shares of the Fund.
The Income Fund and Money Market Fund will declare dividends of their net
investment income and, for the Money Market Fund, net capital gain (loss), daily
and distribute such dividends monthly. Each other Fund will declare and
distribute a dividend of its net investment income, if any, at least annually.
Except for the Money Market Fund, each Fund will declare and distribute its net
capital gains, if any, at least annually. Distributions of income dividends and
capital gains distributions of each Fund are made on the payment date and
reinvested at the per share net asset value as of the record date or such other
date as the Board may determine. On the ``ex-dividend'' date, the net asset
value per share excludes the dividend (i.e., is reduced by the amount of the
distribution).
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 Funds' 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 Funds' understanding of the applicable country's tax rules and rates.
Reclassification of Capital Accounts: The Company accounts for and reports
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants' Statement
47
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND (UNAUDITED)
of Position 93-2: Determination, Disclosure, and Financial Statement
Presentation of Income, Capital Gain, and Return of Capital Distributions by
Investment Companies.
For the six months ended March 31, 1996, the application of this statement
affected undistributed net investment income (``UNI'') and accumulated net
realized gain (loss) on investments (``G/L'') by the following amounts:
<TABLE>
<CAPTION>
UNI G/L
-------- -------
<S> <C> <C>
Growth Stock Fund $(76,006) $76,006
International Stock Fund (63,741) 63,741
</TABLE>
Net investment income, net realized gains and net assets were not affected by
this change.
Deferred Organizational Expenses: Approxi-
mately $450,000 of costs were incurred in connection with the organization and
initial registration of the Company and have been deferred and are being
amortized ratably over the period of benefit not to exceed 60 months from the
date each of the Funds' commenced investment operations.
Note 2. Agreements
The Company has entered into a management agreement with PIFM. Pursuant to
this agreement, PIFM has responsibility for all investment advisory services and
supervises the subadviser's performance of such services. PIFM is an indirect,
wholly-owned subsidiary of The Prudential Insurance Company of America
(Prudential).
PIFM has entered into subadvisory agreements with The Prudential Investment
Corporation (``PIC''), Jennison Associates Capital Corp. (``Jennison'') and
Mercator Asset Management, L.P. (``Mercator''). PIC and Jennison are
wholly-owned subsidiaries of Prudential. Each subadviser will furnish investment
advisory services in connection with the management of the various Funds.
Jennison serves as subadviser to the Growth Stock Fund and the Active Balanced
Fund. PIC serves as subadviser to the Balanced Fund, the Stock Index Fund, the
Income Fund and the Money Market Fund. Mercator serves as subadviser to the
International Stock Fund. PIFM will pay for the costs and expenses attributable
to the subadvisory agreements and the salaries and expenses of all personnel of
the Company except for fees and expenses of unaffiliated Trustees. The Funds
will bear all other costs and expenses.
Each Fund will pay PIFM a fee for its services provided to the Fund. The fees
are computed daily and payable monthly at the annual rates specified below of
the value of each Funds' average daily net assets:
<TABLE>
<CAPTION>
Fund Management Fee
- -------------------------- ---------------
<S> <C>
Growth Stock Fund .70%
Stock Index Fund .40
International Stock Fund 1.15
Active Balanced Fund .70
Balanced Fund .70
Income Fund .50
Money Market Fund .45
</TABLE>
PIFM has voluntarily agreed to subsidize a portion of the operating expenses
of the Funds until September 30, 1996. Such expenses may be recovered by PIFM
through December 31, 1996 so long as the total expense ratios do not exceed
certain predetermined levels set forth in the Company's prospectus. For the six
months ended March 31, 1996, PIFM subsidized the following amounts:
<TABLE>
<CAPTION>
Percentage
of Average Amount per
Fund Net Assets Share
- --------------------------- ------------- ------------------
<S> <C> <C>
Stock Index Fund .17% $ .011
Active Balanced Fund .002 .0001
Balanced Fund .05 .003
Income Fund .23 .011
Money Market Fund .25 .001
</TABLE>
48
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND (UNAUDITED)
PIFM also recovered the following amounts of operating expenses it previously
subsidized for the six months ended March 31, 1996:
<TABLE>
<CAPTION>
Percentage
of Average Amount per
Net Assets Share
------------- ------------------
<S> <C> <C>
Growth Stock Fund .05% $ .004
International Stock Fund .02 .001
</TABLE>
The Company has entered into an administration agreement with Prudential
Mutual Fund Management, Inc. (``PMF''), an indirect wholly-owned subsidiary of
Prudential. The administration fee paid PMF will be computed daily and payable
monthly, at an annual rate of .17% of the Company's daily net assets up to $250
million and .15% of the Company's average daily net assets in excess of $250
million. PMF will furnish to the Company such services as the Company may
require in connection with the administration of the Company's business affairs.
PMF will also provide certain transfer agent services through its wholly-owned
subsidiary, Prudential Mutual Fund Services, Inc. (``PMFS''). For such services,
PMFS will be paid .03% of the Company's daily net assets up to $250 million and
.02% of the Company's average daily net assets in excess of $250 million from
the administration fee paid to PMF.
Note 3. Portfolio Securities
Purchases and sales of portfolio securities, excluding short-term
investments, for the six months ended March 31, 1996 were as follows:
<TABLE>
<CAPTION>
Fund Purchases Sales
- ---------------------------- ------------ -----------
<S> <C> <C>
Growth Stock Fund $125,001,676 $72,554,977
Stock Index Fund 47,804,297 948,671
International Stock Fund 28,187,107 11,866,927
Active Balanced Fund 28,778,511 23,901,019
Balanced Fund 40,800,913 29,694,202
Income Fund 30,157,486 28,424,962
</TABLE>
On March 31, 1996, the Stock Index Fund purchased 17 financial futures
contracts on the S&P 500 Index expiring June, 1996. The cost of such contracts
was $5,491,050. The value of such contracts on March 31, 1996 was $5,535,625,
thereby resulting in an unrealized gain of $44,575.
The federal income tax basis and unrealized appreciation/depreciation of the
Fund's investments as of March 31, 1996 were as follows:
<TABLE>
<CAPTION>
Net Unrealized
Appreciation/
(Depreciation)
--------------- Gross Unrealized
Fund Basis Appreciation Depreciation
- ------------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Growth Stock Fund $225,390,343 $63,083,047 $66,420,094 $3,337,047
Stock Index Fund 121,241,374 26,287,220 27,491,663 1,204,443
International
Stock Fund 142,221,274 21,409,852 25,461,090 4,051,238
Active Balanced
Fund 128,545,569 13,427,979 13,990,099 562,120
Balanced Fund 90,294,873 9,008,073 9,842,011 833,938
Income Fund 65,076,580 (127,771) 544,801 672,572
</TABLE>
The following Funds elected to treat net losses incurred in the eleven month
period ended September 30, 1995 as having occurred in the current fiscal year:
<TABLE>
<CAPTION>
Capital Currency
---------- --------
<S> <C> <C>
Growth Stock Fund -- $ 4,000
International Stock Fund $3,066,000 169,000
Balanced Fund -- 1,000
</TABLE>
For federal income tax purposes, the following Funds have a capital loss
carryforward as of September 30, 1995 which expires in 2003:
<TABLE>
<S> <C>
Growth Stock Fund $2,825,300
Income Fund 723,300
</TABLE>
The average monthly balance of dollar rolls outstanding during the six months
ended March 31, 1996 for the Income Fund was approximately $6,397,000. The
maximum amount of dollar rolls outstanding at any month-end during the six
months ended March 31, 1996 was $6,991,530 as of January 31, 1996 which was
10.8% of total assets. The amount of dollar rolls outstanding at March 31, 1996,
was $6,723,720, which was 10.2% of total assets.
49
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND (UNAUDITED)
Note 4. Joint Repurchase Agreement Account
The Company, along with other affiliated registered investment companies,
transfers uninvested cash balances into a single joint account, the daily
aggregate balance of which is invested in one or more repurchase agreements
collateralized by U.S. Treasury or federal agency obligations. At March 31,
1996, the Company had a 4.60% undivided interest, in the aggregate, in the
repurchase agreements in the joint account which represented $67,021,000 in
principal amount, in the aggregate, as follows:
<TABLE>
<CAPTION>
Percentage Principal
Company Interest Amount
- ---------------------------- ---------- -----------
<S> <C> <C>
Growth Stock Fund .28% $ 4,122,000
Stock Index Fund .41 5,929,000
International Stock Fund .77 11,189,000
Active Balanced Fund 1.64 23,888,000
Balanced Fund .71 10,344,000
Income Fund .79 11,549,000
</TABLE>
As of such date, each repurchase agreement in the joint account and the
collateral therefor was as follows:
Bear, Stearns & Co., Inc., 5.30%, in the principal amount of $387,000,000,
repurchase price $387,170,925, due 4/1/96. The value of the collateral including
accrued interest was $395,137,122.
CS First Boston Corp., 5.50%, in the principal amount of $150,000,000,
repurchase price $150,068,750, due 4/1/96. The value of the collateral including
accrued interest was $153,001,819.
Goldman Sachs & Co., 5.40%, in the principal amount of $463,000,000,
repurchase price $463,208,350, due 4/1/96. The value of the collateral including
accrued interest was $472,260,747.
Nomura Securities, Inc., 5.375%, in the principal amount of $100,000,000,
repurchase price $100,044,792, due 4/1/96. The value of the collateral including
accrued interest was $102,398,695.
Smith Barney, Inc., 5.284%, in the principal amount of $355,886,000,
repurchase price $356,042,708, due 4/1/96. The value of the collateral including
accrued interest was $363,004,234.
Note 5. Capital
Each Fund has authorized an unlimited number of shares of beneficial interest
at $.001 par value per share.
Transactions in shares of beneficial interest during the six months ended
March 31, 1996 and the year ended September 30, 1995 were as follows:
Six months ended March 31, 1996:
<TABLE>
<CAPTION>
Shares
Issued in
Reinvestment Increase
Shares of Dividends/ Shares in Shares
Fund Sold Distributions Redeemed Outstanding
- ---------------------- ---------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Growth Stock Fund 8,107,640 -- (4,805,656) 3,301,984
Stock Index Fund 3,893,782 467,712 (1,694,486) 2,667,008
International Stock
Fund 3,795,911 116,606 (2,601,769) 1,310,748
Active Balanced Fund 1,438,229 483,285 (1,283,160) 638,354
Balanced Fund 1,748,784 395,938 (784,163) 1,360,559
Income Fund 780,386 162,743 (400,473) 542,656
Money Market Fund 22,399,365 1,541,128 (22,064,387) 1,876,106
</TABLE>
Year ended September 30, 1995:
<TABLE>
<CAPTION>
Shares
Issued in
Reinvestment Increase
Shares of Dividends/ Shares in Shares
Fund Sold Distributions Redeemed Outstanding
- ----------------------- ---------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Growth Stock Fund 9,932,496 4,078 (5,248,506) 4,688,068
Stock Index Fund 4,340,797 107,238 (1,725,892) 2,722,143
International Stock
Fund 6,497,880 228,737 (4,691,305) 2,035,312
Active Balanced Fund 4,883,689 242,395 (1,856,069) 3,270,015
Balanced Fund 2,303,919 168,832 (1,702,980) 769,771
Income Fund 1,204,925 296,456 (675,384) 825,997
Money Market Fund 55,919,976 2,813,967 (47,010,598) 11,723,345
</TABLE>
50
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND (UNAUDITED)
Of the shares outstanding at March 31, 1996, PIFM and affiliates owned the
following shares:
<TABLE>
<CAPTION>
Fund Shares
- -------------------------- ----------
<S> <C>
Growth Stock Fund 5,800,387
Stock Index Fund 4,642,203
International Stock Fund 5,647,337
Active Balanced Fund 2,485,468
Balanced Fund 3,883,087
Income Fund 2,975,746
Money Market Fund 28,544,777
</TABLE>
Note 6. Proposed Reorganization
On May 17, 1996, the Trustees of the Fund approved an Agreement and a Plan of
Reorganization (the ``Plan of Reorganization'') for the Fund. Under the Plan of
Reorganization, substantially all of the assets and liabilities of the Growth
Stock Fund, Balanced Fund, Income Fund and Money Market Fund will be transferred
at net asset value for equivalent value Class Z shares of Prudential Jennison
Fund, Inc., Prudential Allocation Fund (Balanced Portfolio), Prudential
Government Income Fund, Inc. and Prudential MoneyMart Assets, Inc.,
respectively. These Funds will then cease operations. Stock Index Fund and
Active Balanced Fund will remain with The Prudential Institutional Fund (to be
renamed the Prudential Dryden Fund) as Class Z shares. Active Balanced Fund will
begin offering Classes A, B and C shares and Stock Index Fund will offer Class A
shares. International Stock Fund will join the Prudential Global Fund as a
separate series of a newly named Prudential World Fund. The existing
shareholders will become Class Z shareholders and the Fund will also begin
offering Classes A, B and C shares. The successor funds will be managed by PMF,
PMFS will provide transfer agency services and Prudential Securities
Incorporated, a wholly-owned subsidiary of Prudential, will act as distributor.
The Plan of Reorganization requires the approval of shareholders of the Fund
to become effective. A proxy will be mailed to shareholders of the Fund for
shareholder meetings in the fall of 1996. If the Plan of Reorganization is
approved, it is expected that the reorganizations will take place shortly after
the meetings. All funds involved will share pro rata in the costs of the
reorganizations.
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