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
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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) One Secretary Senior Vice President and Senior
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.
<TABLE>
COMPENSATION 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)*
- -------------
* Indicates number of funds/portfolios in Fund Complex (including the Fund) to
which aggregate compensation relates.
</TABLE>
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).
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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
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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.
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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
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<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.
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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.
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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.
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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(superior1)
Contributions Personal
Made Over: Savings Ira
------------- --------- --------
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
- ----------
(superior1)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.
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>
- -------------------------------------------------------------------------------
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.
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 InstrumentsD--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.
D 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>
<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>
- -------------------------------------------------------------------------------
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.
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>
- --------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
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.
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
- -------------------------------------------------------------------------------
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
