<PAGE>
As filed with the Securities and Exchange Commission on June 26, 1996
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. / /
(Check appropriate box or boxes)
--------------
PRUDENTIAL MONEYMART ASSETS, INC.
(Exact name of registrant as specified in charter)
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 214-1250
S. JANE ROSE, ESQ.
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
(NAME AND ADDRESS OF AGENT FOR SERVICE)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE
DATE OF THE REGISTRATION STATEMENT.
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE ON JULY 26, 1996 PURSUANT
TO RULE 488 OF THE SECURITIES ACT OF 1993, AS AMENDED.
NO FILING FEE IS REQUIRED BECAUSE, PURSUANT TO RULE 24f-2 UNDER THE
INVESTMENT COMPANY ACT OF 1940, REGISTRANT HAS PREVIOUSLY REGISTERED AN
INDEFINITE NUMBER OF SHARES OF COMMON STOCK, PAR VALUE $.10 PER SHARE, PURSUANT
TO A REGISTRATION STATEMENT ON FORM N-1A (FILE NO. 2-55301). THE REGISTRANT
FILED A NOTICE UNDER RULE 24f-2 FOR ITS FISCAL YEAR ENDED DECEMBER 31, 1995 ON
FEBRUARY 27, 1996.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 481(a) UNDER THE SECURITIES ACT OF 1933)
<TABLE>
<CAPTION>
N-14 ITEM NO. PROSPECTUS/PROXY
AND CAPTION STATEMENT CAPTION
- ---------------------------------------------------- ----------------------------------------
<S> <C> <C> <C>
PART A
Item 1. Beginning of Registration Statement and
Outside Front Cover Page of
Prospectus.............................. Cover Page
Item 2. Beginning and Outside Back Cover Page of
Prospectus.............................. Table of Contents
Item 3. Fee Table, Synopsis Information and Risk
Factors................................. Synopsis; Principal Risk Factors
Item 4. Information about the Transaction....... Synopsis; The Proposed Transaction
Item 5. Information about the Registrant........ Synopsis; Special Meeting of MoneyMart
Assets Shareholders; Information about
MoneyMart Assets
Item 6. Information about the Company Being
Acquired................................ Synopsis; Information about the Money
Market Fund
Item 7. Voting Information...................... Synopsis; Voting Information
Item 8. Interest of Certain Persons and
Experts................................. Synopsis; Miscellaneous
Item 9. Additional Information Required for
Reoffering by Persons Deemed to be
Underwriters............................ Not Applicable
PART B
STATEMENT OF ADDITIONAL
INFORMATION CAPTION
----------------------------------------
Item 10. Cover Page.............................. Cover Page
Item 11. Table of Contents....................... Cover Page
Item 12. Additional Information about the
Registrant.............................. Statement of Additional Information of
Prudential MoneyMart Assets, Inc. dated
March 1, 1996; Annual Report to
Shareholders of Prudential MoneyMart
Assets, Inc. for the fiscal year ended
December 31, 1995.
Item 13. Additional Information about the Company
Being Acquired.......................... Not Applicable
Item 14. Financial Statements.................... Financial Statements as noted in the
Statement of Additional Information
PART C
Information required to be included in Part C is set forth under the appropriate item,
so numbered, in Part C of this Registration Statement.
</TABLE>
<PAGE>
PRELIMINARY COPY
THE PRUDENTIAL INSTITUTIONAL FUND
MONEY MARKET FUND
21 PRUDENTIAL PLAZA
751 BROAD STREET
NEWARK, NEW JERSEY 07102-3777
--------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
--------------
To Our Shareholders:
Notice is hereby given that a Special Meeting of Shareholders (Meeting) of
the Money Market Fund (Money Market Fund), a portfolio of The Prudential
Institutional Fund, will be held at 9:00 a.m., eastern time, on September 6,
1996, at Prudential Plaza, 751 Broad Street, Newark, New Jersey 07102-3777, for
the following purposes:
1. To approve an Asset/Stock Exchange Agreement whereby all of the assets
of Money Market Fund will be transferred to Prudential MoneyMart Assets, Inc.
(MoneyMart Assets) in exchange solely for Class Z shares of MoneyMart Assets and
MoneyMart Assets' assumption of all of the liabilities, if any, of Money Market
Fund; and
2. To consider and act upon any other business as may properly come before
the Meeting or any adjournment thereof.
Only holders of shares of Money Market Fund of record at the close of
business on July 12, 1996, are entitled to notice of and to vote at this Meeting
or any adjournment thereof.
S. JANE ROSE
SECRETARY
Dated: July 25, 1996
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE SIGN AND PROMPTLY
RETURN THE ENCLOSED PROXY IN THE ENCLOSED STAMPED SELF-ADDRESSED ENVELOPE.
IN ORDER TO AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION, WE ASK
YOUR COOPERATION IN MAILING IN YOUR PROXY PROMPTLY.
<PAGE>
PRUDENTIAL MONEYMART ASSETS, INC.
PROSPECTUS
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
(800) 225-1852
AND
THE PRUDENTIAL INSTITUTIONAL FUND--MONEY MARKET FUND
PROXY STATEMENT
21 PRUDENTIAL PLAZA
751 BROAD STREET
NEWARK, NEW JERSEY 07102
(800) 225-1852
--------------
The Prudential Institutional Fund (Institutional Fund) is an open-end,
diversified management investment company consisting of seven separate
portfolios, one of which is the Money Market Fund (Money Market Fund).
Prudential MoneyMart Assets, Inc. (MoneyMart Assets) is an open-end, diversified
management investment company. Both Institutional Fund and MoneyMart Assets are
managed by wholly-owned subsidiaries of The Prudential Insurance Company of
America. Institutional Fund is managed by Prudential Institutional Fund
Management, Inc. MoneyMart Assets is managed by Prudential Mutual Fund
Management, Inc. The investment objective of Money Market Fund is to seek to
achieve high current income, preservation of principal and maintenance of
liquidity. The investment objective of MoneyMart Assets is maximum current
income consistent with stability of capital and the maintenance of liquidity.
This Prospectus and Proxy Statement is being furnished to shareholders of
Money Market Fund in connection with the solicitation of proxies by
Institutional Fund's Board for use at a special meeting of Money Market Fund
shareholders to be held on September 6, 1996, at 9:00 a.m., eastern time, and
any adjournment thereof (Meeting). The primary purpose of this Meeting is to
vote on a proposed Asset/Stock Exchange Agreement (the Agreement), whereby
MoneyMart Assets will acquire all of the assets of Money Market Fund and assume
all of the liabilities, if any, of Money Market Fund. If the Agreement is
approved by Money Market Fund's shareholders, all such shareholders will be
issued Class Z shares of MoneyMart Assets in exchange for the shares of Money
Market Fund held by them, and Money Market Fund will be liquidated. Shareholders
of MoneyMart Assets are not being asked to vote on the Agreement.
This Prospectus and Proxy Statement sets forth concisely information about
MoneyMart Assets that prospective investors should know before investing.
Additional information contained in a Statement of Additional Information (SAI),
dated July 25, 1996, forming a part of MoneyMart Assets' Registration Statement
on Form N-14 has been filed with the Securities and Exchange Commission (SEC),
is incorporated herein by reference and is available without charge upon request
to the address or telephone number shown above. This Prospectus and Proxy
Statement is accompanied by the Prospectus of MoneyMart Assets--Class Z Shares,
dated March 1, 1996. The MoneyMart Assets SAI dated March 1, 1996 has been filed
with the SEC and is incorporated by reference herein. The Prospectus for
Institutional Fund, dated February 1, 1996, including a May 30, 1996 Supplement
thereto and the SAI for Institutional Fund dated February 1, 1996 also have been
filed with the SEC and are incorporated by reference herein. MoneyMart Assets'
Prospectus and SAI are available without charge upon written request to
Prudential Mutual Fund Services, Inc., Raritan Plaza One, Edison, New Jersey
08837 or by calling 1(800) 225-1852. The Institutional Fund Prospectus and SAI
are available without charge upon request to Institutional Fund at the address
or toll-free telephone number shown above.
AN INVESTMENT IN EITHER FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT EITHER FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
Investors are advised to read and retain this Prospectus and Proxy Statement
for future reference.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus and Proxy Statement is July 25, 1996.
<PAGE>
PRUDENTIAL MONEYMART ASSETS, INC.
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
THE PRUDENTIAL INSTITUTIONAL FUND--MONEY MARKET FUND
21 PRUDENTIAL PLAZA
751 BROAD STREET
NEWARK, NEW JERSEY 07102-3777
--------------
PROSPECTUS AND PROXY STATEMENT DATED JULY 25, 1996
--------------
SYNOPSIS
The following synopsis is a summary of certain information contained
elsewhere in this Prospectus and Proxy Statement and the Asset/Stock Exchange
Agreement (the Agreement) and is qualified by reference to the more complete
information contained herein as well as in the Prospectus of The Prudential
Institutional Fund (Institutional Fund)--as it relates to the Money Market Fund
series (Money Market Fund)--and the enclosed Prudential MoneyMart Assets, Inc.
(MoneyMart Assets) Prospectus. Shareholders should read the entire Prospectus
and Proxy Statement carefully.
GENERAL
This Prospectus and Proxy Statement is furnished by the Board of Trustees of
Institutional Fund, in connection with the solicitation of proxies for use at a
Special Meeting of Shareholders of Money Market Fund (the Meeting) to be held at
9:00 a.m., eastern time, on September 6, 1996 at Prudential Plaza, 751 Broad
Street, Newark, New Jersey 07102-3777, Institutional Fund's principal executive
office. The purpose of the Meeting is to approve or disapprove the Agreement,
pursuant to which all of the assets of Money Market Fund will be acquired by,
and all of the liabilities of Money Market Fund, if any, will be assumed by,
MoneyMart Assets and to transact such other business as may properly come before
the Meeting or any adjournment thereof. The Agreement is attached to this
Prospectus and Proxy Statement as Appendix A. The transactions contemplated by
the Agreement are described herein and in summary provide that MoneyMart Assets
will acquire the assets, in exchange solely for Class Z shares of common stock
of MoneyMart Assets, and assume all of the liabilities, if any, of Money Market
Fund.
Approval of the Agreement requires the affirmative vote of a majority of
shares of Money Market Fund voted at the Meeting. Approval of the Agreement by
the shareholders of MoneyMart Assets is not required and, the Agreement is not
being submitted for their approval.
THE PROPOSED REORGANIZATION AND LIQUIDATION
The Board of Trustees of Institutional Fund, on behalf of Money Market Fund,
and the Board of Directors of MoneyMart Assets (each a Board) have approved the
Agreement, which provides for the transfer of all of the assets of Money Market
Fund to MoneyMart Assets in exchange solely for Class Z shares of MoneyMart
Assets and the assumption by MoneyMart Assets of all of the liabilities, if any,
of Money Market Fund. If approved by shareholders, and if an order of exemption
(Exemptive Order) from certain provisions of the Investment Company Act of 1940
(the Investment Company Act) is received from
2
<PAGE>
the Securities and Exchange Commission (SEC), Class Z shares of MoneyMart Assets
will be distributed to shareholders of Money Market Fund, and Money Market Fund
will be liquidated. (All of the foregoing transactions are sometimes referred to
herein as the Reorganization). The Reorganization will become effective as soon
as practicable after the Meeting. EACH MONEY MARKET FUND SHAREHOLDER WILL
RECEIVE THE NUMBER OF FULL AND FRACTIONAL CLASS Z SHARES OF MONEYMART ASSETS
(ROUNDED TO THE THIRD DECIMAL PLACE) REPRESENTING AN AMOUNT EQUAL TO THE VALUE
OF SUCH SHAREHOLDER'S SHARES OF MONEY MARKET FUND AS OF THE CLOSING DATE OF THE
REORGANIZATION, WHICH IS EXPECTED TO OCCUR ON OR ABOUT SEPTEMBER 20, 1996 (THE
CLOSING DATE).
For the reasons set forth below under "--Reasons for the Proposed
Reorganization" and "The Proposed Transaction--Reasons for the Reorganization,"
each Board, including those Trustees/Directors who are not "interested persons"
thereof (Independent Trustees/Directors), as that term is defined in the
Investment Company Act, has determined that the Reorganization is in the best
interests of the shareholders of Money Market Fund and MoneyMart Assets (the
Funds) and that the interests of the existing shareholders of each Fund will not
be diluted as a result of the Reorganization. ACCORDINGLY, THE BOARD OF
INSTITUTIONAL FUND RECOMMENDS APPROVAL OF THE PLAN.
REASONS FOR THE PROPOSED REORGANIZATION
The Board of Institutional Fund has concluded, based on information
presented by Money Market Fund's Manager, Prudential Institutional Fund
Management, Inc. (PIFM), that the Reorganization is in the best interests of the
Money Market Fund and its shareholders. The following are among the reasons for
the Reorganization:
- THE PRUDENTIAL INSURANCE COMPANY OF AMERICA (PRUDENTIAL) HAS CONSOLIDATED
ITS ASSET MANAGEMENT BUSINESS INTO ONE UNIT, THE MONEY MANAGEMENT GROUP. The
Money Management Group was formed in November 1995 as part of a major corporate
restructuring initiated by Arthur Ryan, Chairman and Chief Executive Officer of
Prudential. All of Prudential's money management businesses are part of this
group, which will develop products and manage assets for all of Prudential's
fee-based, marketable securities businesses, including mutual funds, annuities,
defined contribution and benefit plans, guaranteed products and retirement
administration.
One goal of the Money Management Group is to present one group of mutual
funds to the marketplace, I.E., a "brand" identity. Another goal is to achieve
cost savings. In light of these goals, the Money Management Group undertook a
broad review of the Prudential Mutual Fund Family to see if any changes were
advisable. The consolidation of certain mutual funds that were substantially
similar appeared consistent with attaining the above stated goals, as well as
beneficial to the funds and shareholders involved.
- THE PROPOSED REORGANIZATION IS SUITABLE FOR MONEY MARKET FUND AND
MONEYMART ASSETS BECAUSE A NUMBER OF SIMILARITIES EXIST BETWEEN MONEY MARKET
FUND AND MONEYMART ASSETS. The Institutional Fund was created in 1992, and the
Money Market Fund commenced investment operations as a portfolio thereof on
January 4, 1993. The Institutional Fund was created to attract institutional
investors inclined to invest in funds without sales charges, 12b-1 fees or
service fees. MoneyMart Assets began offering Class Z shares, which are sold
without sales charges, 12b-1 fees or service fees, on March 1, 1996. Although
prospective purchasers of Class Z shares then were limited to participants in
the PSI 401(k) Plan, an employee benefits plan, sponsored by Prudential
Securities Incorporated (PSI), a wholly owned subsidiary of Prudential, the
MoneyMart Assets Board has authorized an expanded group of prospective
purchasers of Class Z shares,
3
<PAGE>
which includes those who are shareholders of the Money Market Fund. Certain
institutional investors will be able to invest directly in Class Z shares of
MoneyMart Assets and recognize the economies of scale available from the pooling
of assets of two similar portfolios.
- MONEYMART ASSETS HAS A VERY SIMILAR INVESTMENT OBJECTIVE TO THAT OF THE
MONEY MARKET FUND. Each is an open-end, diversified, management investment
company (or portfolio thereof). Each invests in high quality domestic and U.S.
dollar denominated foreign money market instruments maturing in 397 days or
less. Both MoneyMart Assets and the Money Market Fund seek to provide investors
with maximum/high current income consistent with stability of
capital/preservation of principal and the maintenance of liquidity.
The investment adviser for each Fund is The Prudential Investment
Corporation (PIC), a wholly-owned subsidiary of Prudential.
- AFTER IMPLEMENTATION OF THE AGREEMENT, THE FORMER SHAREHOLDERS OF THE
MONEY MARKET FUND AND MONEYMART ASSETS' SHAREHOLDERS SHOULD BENEFIT FROM REDUCED
EXPENSES RESULTING FROM THE COMBINATION OF THE ASSETS OF THE TWO FUNDS. The
proposed transaction would give MoneyMart Assets the opportunity to increase its
assets by acquiring securities consistent with its investment objective and
policies in exchange for the issuance of its Class Z shares. The Board of
Institutional Fund believes that the Reorganization may achieve certain
economies of scale that Money Market Fund cannot realize alone. The Board of
MoneyMart Assets believes that MoneyMart Assets would realize the benefits of a
larger asset base in exchange for its shares, thereby making it more attractive
to retirement plans and other investors.
In addition, the combination of Money Market Fund and MoneyMart Assets would
eliminate certain duplicative expenses, such as Trustees'/Directors' fees and
those incurred in connection with separate audits and the preparation of
separate financial statements for each Fund. The ratios of total expenses to
average net assets for the shares of Money Market Fund were .92% (without
subsidy) and .96% for the fiscal years ended September 30, 1995 and 1994,
respectively. The expense ratios for Money Market Fund's shares are greater than
the ratios of total expenses to average net assets for the Class Z shares of
MoneyMart Assets, estimated at .563% based upon expenses expected to have been
accrued if Class Z shares had been in existence throughout the fiscal year ended
December 31, 1995. See "Fees and Expenses--Expense Ratios" below.
STRUCTURE OF MONEYMART ASSETS AND MONEY MARKET FUND
MoneyMart Assets is authorized to issue fifteen billion shares of common
stock, divided into two classes, designated Class A and Class Z, consisting of
13 billion and 2 billion authorized shares, respectively. Each class of shares
of MoneyMart Assets represents an interest in the same assets of MoneyMart
Assets and is identical in all respects except that (i) Class A shares are
subject to distribution and/or service fees, (ii) Class Z shares are not subject
to any distribution and/or service fees, (iii) each class has exclusive voting
rights with respect to its distribution and service plan, if any, and on any
matter submitted to shareholders that relates solely to its arrangement and has
separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class; (iv) each
class has a different exchange privilege and (v) Class Z shares are currently
offered exclusively for sale to participants in the PSI 401(k) Plan. In
accordance with Money Mart Assets' Articles of Incorporation, its Board may
authorize the creation of additional series of shares, and classes within such
series, with such preferences, privileges, limitations and voting and dividend
rights as the Board may determine. Each share of each class of MoneyMart Assets
is equal as to earnings, assets and voting privileges, except as noted above,
and each class bears the expenses related to the distribution of its shares.
4
<PAGE>
Institutional Fund is authorized to issue an unlimited number of shares of
beneficial interest. Each share issued with respect to Money Market Fund has a
PRO RATA interest in the assets of Money Market Fund and has no interest in the
assets of any other series of Institutional Fund. Money Market Fund bears its
own liabilities and its proportionate share of the general liabilities of
Institutional Fund and is not responsible for the liabilities of any other
series of Institutional Fund. Institutional Fund's Board is empowered by
Institutional Fund's Declaration of Trust and By-Laws to establish additional
series and classes of shares.
The Board of each Fund may increase or decrease the number of authorized
shares of its respective Fund without approval by the shareholders. Shares of
each Fund, when issued, are fully paid, nonassessable, fully transferable and
redeemable at the option of the holder. Shares also are redeemable at the option
of each Fund under certain circumstances. There are no conversion, preemptive or
other subscription rights. In the event of liquidation of either Fund, each
share thereof is entitled to its portion of all of that Fund's assets after all
debt and expenses of that Fund have been paid. Neither Fund's shares have
cumulative voting rights for the election of Directors/Trustees.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of MoneyMart Assets is maximum current income
consistent with stability of capital and the maintenance of liquidity. MoneyMart
Assets seeks to achieve this objective by investing primarily in a portfolio of
money market instruments maturing in thirteen months or less. There can be no
assurance that this objective will be achieved.
The types of instruments utilized in seeking to accomplish this objective
include:
1. U.S. Treasury bills and other obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
2. Obligations (including certificates of deposit and bankers'
acceptances) of (a) banks organized under the laws of the United States or
any state thereof (including foreign branches of such banks) or (b) U.S.
branches of foreign banks or (c) foreign banks and foreign branches thereof;
provided that such banks have, at the time of acquisition by MoneyMart
Assets of such obligations, total assets of not less than $1 billion or its
equivalent. The term "certificates of deposit" includes both Eurodollar
certificates of deposit, for which there is generally a market, and
Eurodollar time deposits, for which there is generally not a market.
"Eurodollars" are U.S. dollars deposited in banks outside the United States;
MoneyMart Assets invests in Eurodollar instruments of foreign and domestic
banks.
3. Commercial paper, variable amount demand master notes, bills, notes
and other obligations issued by a U.S. company, a foreign company or a
foreign government, its agencies or instrumentalities, maturing in thirteen
months or less, denominated in U.S. dollars, and, at the date of investment,
rated at least AA or A-2 by Standard & Poor's Ratings Group (S&P), Aa or
Prime-2 by Moody's Investors Service (Moody's) or AA or Duff 2 by Duff &
Phelps Credit Rating Co. (Duff and Phelps) or, if not rated, issued by an
entity having an outstanding unsecured debt issue rated at least AA or A-2
by S&P, Aa or Prime-2 by Moody's or AA or Duff 2 by Duff and Phelps. If such
obligations are guaranteed or supported by a letter of credit issued by a
bank, such bank (including a foreign bank) must meet the requirements set
forth in the preceding paragraph. If such obligations are guaranteed or
insured by an insurance company or other non-bank entity, such insurance
company or other non-bank entity must represent a credit of high quality, as
determined by the MoneyMart Assets investment adviser under the supervision
of MoneyMart Assets' Board.
5
<PAGE>
In selecting commercial paper and other corporate obligations for investment
by MoneyMart Assets, the investment adviser considers ratings assigned by major
rating services, information concerning the financial history and condition of
the issuer and its revenue and expense prospects. The Board monitors the credit
quality of securities purchased for MoneyMart Assets' portfolio. If commercial
paper or another corporate obligation held by MoneyMart Assets is assigned a
lower rating or ceases to be rated, the investment adviser under the supervision
of the Board will promptly reassess whether that security presents minimal
credit risks and whether MoneyMart Assets should continue to hold the security
in its portfolio. If a portfolio security presents greater than minimal credit
risks or is in default, MoneyMart Assets will dispose of the security as soon as
reasonably practicable unless the Board determines that to do so is not in the
best interests of MoneyMart Assets and its shareholders.
MoneyMart Assets utilizes the amortized cost method of valuation in
accordance with regulations issued by the SEC. Accordingly, MoneyMart Assets
will limit its portfolio investments to those U.S. dollar denominated
instruments which present minimal credit risks and which are of "eligible
quality" as determined by MoneyMart Assets' investment adviser under the
supervision of the Board. "Eligible quality," for this purpose, means (i) a
security rated in one of the two highest rating categories by at least two major
rating agencies assigning a rating to the security or issuer (or, if only one
agency assigned a rating, that agency) or (ii) an unrated security deemed of
comparable quality by MoneyMart Assets' investment adviser under the supervision
of the Board. The purchase by MoneyMart Assets of a security of eligible quality
that is rated by only one rating agency or is unrated must be approved or
ratified by the Board.
As long as MoneyMart Assets utilizes the amortized cost method of valuation,
it will also comply with certain diversification requirements and will invest no
more than 5% of its total assets in "second-tier securities," with no more than
1% of its assets in any one issuer of a second-tier security. A "second-tier
security," for this purpose, is a security of eligible quality that does not
have the highest rating from at least two agencies assigning a rating to that
security or issuer (or, if only one agency assigned a rating, that agency) or an
unrated security that is deemed of comparable quality by MoneyMart Assets'
investment adviser. MoneyMart Assets will also maintain a dollar-weighted
average portfolio maturity of 90 days or less.
MoneyMart Assets may also enter into repurchase agreements; purchase
floating rate and variable rate obligations; and lend its portfolio securities.
In addition, MoneyMart Assets may hold up to 10% of its net assets in illiquid
securities.
Money Market Fund's investment objective is to seek to achieve high current
income, preservation of principal and maintenance of liquidity. To achieve its
objective, the Money Market Fund invests in a diversified portfolio of
high-quality domestic and U.S. dollar-denominated foreign money market
instruments that present minimal credit risks and which, at the time of
acquisition, are eligible securities. Eligible securities include securities or
issuers of securities rated in one of the two highest credit categories for
short-term debt obligations assigned by any two nationally recognized
statistical rating organizations (NRSROs), or by one NRSRO, if only one has
rated the money market securities (Requisite NRSROs) or, if unrated, are of
comparable investment quality. The Money Market Fund will invest at least 95% of
its total assets in eligible securities that are rated within the highest rating
category for short-term debt obligations by the Requisite NRSROs or unrated
securities of comparable investment quality. The Money Market Fund may also
invest up to 50% of the value of its total assets in U.S. dollar-denominated
short-term securities of foreign issuers.
The eligible money market securities in which the Money Market Fund may
invest include: (i) short-term obligations of the U.S. Government, its agencies,
and instrumentalities; (ii) short-term obligations of
6
<PAGE>
banks and savings and loan associations, including certificates of deposit,
banker's acceptances, and time deposits; (iii) short-term corporate obligations,
including notes and bonds with remaining maturities of 397 days or less; (iv)
commercial paper (unsecured promissory notes having maturities of 9 months or
less) issued by corporations and finance companies; (v) repurchase agreements;
and (vi) U.S. dollar-denominated obligations of foreign issuers. Certain of
these money market securities may have adjustable rates of interest with
periodic demand features.
The Money Market Fund will invest in eligible money market securities
maturing in 397 days or less and will maintain a dollar-weighted average
portfolio maturity of 90 days or less. Like MoneyMart Assets, the Money Market
Fund utilizes the amortized cost method of valuation.
In order to invest uncommitted cash balances, maintain liquidity to meet
redemptions, or for additional income, the Money Market Fund may (i) enter into
repurchase agreements, when-issued, delayed-delivery and forward commitment
transactions and (ii) lend its portfolio securities. The Money Market Fund may
also hold up to 10% of the Fund's net assets in illiquid securities.
CERTAIN DIFFERENCES BETWEEN MONEYMART ASSETS AND MONEY MARKET FUND
While there are many similarities between Money Market Fund and MoneyMart
Assets, there are differences as well.
First, although the investment objectives of the Funds are substantially
similar, Money Market Fund seeks high current income and preservation of
principal and MoneyMart Assets seeks maximum current income consistent with
stability of capital; both Funds have as part of their objective the maintenance
of liquidity.
Second, their managers and their management fees are different. The
management fee for Money Market Fund is paid to PIFM and is at the annual rate
of .45 of 1% of Money Market Fund's average daily net assets. The management fee
for MoneyMart Assets is paid to Prudential Mutual Fund Management, Inc. (PMF),
another Prudential affiliate, and, after applicable breakpoints, is currently
being charged at an annual rate of .30 of 1% of MoneyMart Assets' average daily
net assets.
Third, the Money Market Fund may invest up to 50% of the value of its total
assets in U.S. dollar-denominated short-term securities of foreign issuers,
while there is no limit on the percentage of MoneyMart Assets' assets that may
be invested in U.S. dollar-denominated short-term securities of foreign issuers.
Investment in foreign securities involves certain considerations and risks that
are not typically associated with investing in U.S. Government securities and
securities of domestic issuers. See "Principal Risk Factors--Foreign Securities"
below.
Fourth, the Money Market Fund may borrow up to 20% of its total assets for
temporary, extraordinary or emergency purposes and MoneyMart Assets may borrow
up to 10% of its net assets for temporary or emergency purposes.
Fifth, although PIC is the investment adviser of both Funds, the portfolio
manager of each Fund is different. Joseph M. Tully, a managing director and
senior portfolio manager of Prudential Mutual Fund Investment Management, a unit
of PIC, is portfolio manager to MoneyMart Assets and is responsible for the day
to day management of its portfolio. Mr. Tully has managed MoneyMart Assets since
1992. Mr. Tully heads the Money Market Desk, overseeing trading for all $20
billion in Prudential's taxable and tax-exempt money market funds. Mr. Tully
joined PIC in 1987, having previously been employed by Merrill Lynch Asset
Management, Inc. as a portfolio manager and as a senior bank credit analyst.
Prior thereto, he served as an
7
<PAGE>
assistant national bank examiner for the Office of the Comptroller of the
Currency. Thomas J. Piskula, a director of money markets and a senior portfolio
manager of Prudential Global Advisors, a unit of PIC, is portfolio manager to
Money Market Fund and is responsible for the day to day management of its
portfolio. Mr. Piskula has managed the Money Market Fund since early 1995. Mr.
Piskula oversees and supervises the investment of 41 portfolios utilizing all
types of short-term strategies, including futures, asset-backed securities and
mortgages, representing approximately $4.5 billion. Mr. Piskula joined PIC in
1985, having previously been employed by Arthur Andersen & Company as a Senior
Consultant.
FEES AND EXPENSES
MANAGEMENT FEES. PIFM, the manager of Money Market Fund, is compensated,
pursuant to a management agreement with Institutional Fund, at an annual rate of
.45 of 1% of Money Market Fund's average daily net assets. PMF, the manager of
MoneyMart Assets, is compensated, pursuant to a management agreement with
MoneyMart Assets, at an annual rate of .50 of 1% of MoneyMart Assets' average
daily net assets up to $50 million and .30 of 1% of MoneyMart Assets' average
daily net assets in excess of $50 million. For the fiscal year ended September
30, 1995, Money Market Fund paid PIFM management fees of .45 of 1% of Money
Market Fund's average daily net assets. For the fiscal year ended December 31,
1995, MoneyMart Assets paid PMF management fees at an annual rate of .301 of 1%
of MoneyMart Assets' average daily net assets.
Under a subadvisory agreement between PIFM and PIC, PIC provides investment
advisory services for the management of Money Market Fund. Under a subadvisory
agreement between PMF and PIC, PIC provides investment advisory services in
connection with the management of MoneyMart Assets. Each subadvisory agreement
provides that PIFM or PMF, as applicable, will reimburse PIC for its reasonable
costs and expenses in providing investment advisory services. PIFM and PMF
continue to have responsibility for all investment advisory services pursuant to
the management agreements for the Money Market Fund and MoneyMart Assets,
respectively, and supervise PIC's performance of its services.
ADMINISTRATION FEES. Institutional Fund has entered into an administration,
transfer agency and service agreement with PMF, which provides that PMF
furnishes to Money Market Fund such services as Money Market Fund may require in
connection with administration of its business affairs. Under the Administration
Agreement, Institutional Fund pays PMF a monthly fee at an annual rate of .17%
of the average daily net assets of Institutional Fund up to $250 million and
.15% of Institutional Fund's average daily net assets in excess of $250 million.
PMF also provides Money Market Fund with transfer agent and dividend disbursing
services for no additional fee, through its wholly owned subsidiary, Prudential
Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison, New Jersey 08837.
MoneyMart Assets incurs no separate fees for administrative services, but
does use PMFS to furnish transfer agent and dividend disbursing services.
MoneyMart Assets, pursuant to a Transfer Agency and Service Agreement, pays PMFS
an annual fee per shareholder account of $12.00, a new account set-up fee for
each manually established account of $2.00 and a monthly inactive zero balance
account fee per shareholder account of $0.20. (These fees equal an annual rate
of approximately .23% of MoneyMart Assets' average daily net assets). PMFS is
also reimbursed for its out-of-pocket expenses, including but not limited to
postage, stationery, printing, allocable communications expenses and other
costs.
OTHER EXPENSES. Each Fund also pays certain other expenses in connection
with its operation, including accounting, custodian, printing and mailing,
legal, audit and registration expenses. Although the basis for calculating these
fees and expenses is the same for the Money Market Fund and MoneyMart Assets,
the per
8
<PAGE>
share effect on shareholder returns is affected by their relative size.
Combining the Funds will eliminate duplication of certain expenses. For example,
only one annual audit of the combined Fund will be required rather than separate
audits of each Fund as currently required.
DISTRIBUTION FEES. Prudential Retirement Services, Inc. (PRSI), 751 Broad
Street, Newark, New Jersey 07102, an affiliate of PIFM and a corporation
organized under the laws of New Jersey, serves as the distributor of the
Institutional Fund's shares. No distribution or service fees are paid to PRSI by
Money Market Fund. PSI, a wholly-owned subsidiary of Prudential, serves for no
fee as the distributor of Class Z shares of MoneyMart Assets pursuant to a
distribution agreement with MoneyMart Assets.
FEE WAIVERS AND SUBSIDY. PIFM and PMF each may from time to time waive all
or a portion of its management fee and subsidize all or a portion of the
operating expenses of Money Market Fund and MoneyMart Assets, respectively. Fee
waivers and expense subsidies will increase a Fund's yield and total return. Any
fee waiver or subsidy may be terminated at any time without notice, after which
a Fund's expenses will increase and its yield and total return will be reduced.
EXPENSE RATIOS. For its fiscal year ended September 30, 1995, total
expenses stated as a percentage of average net assets of the Money Market Fund
were .92% before reduction of expenses by PIFM and .60% after reduction of
expenses. In the absence of such voluntary agreement (which continues through
September 30, 1996), total expenses stated as a percentage of the Money Market
Fund's average net assets would have been .92% for the fiscal year ended
September 30, 1995, and .86% (annualized) for the six-month period ended March
31, 1996. PIFM has agreed, until September 30, 1996, to bear any expenses that
would cause the ratio of expenses payable by Money Market Fund to exceed .60%.
As noted above, Class Z shares of MoneyMart Assets did not commence being
offered until March 1, 1996. For the fiscal year ended December 31, 1995, total
expenses stated as a percentage of average net assets of the Class A shares of
MoneyMart Assets were .688%; this amount includes an annual distribution and
service fee of .125% of the average daily net assets of the Class A shares, a
fee which is not paid by the Class Z shares.
Each Fund's Shareholder Transaction Expenses are shown below. Note that
Money Market Fund and MoneyMart Assets' Class Z Shareholder Transaction Expenses
are the same. There will not be any shareholder transaction fee payable in
connection with the Reorganization.
<TABLE>
<CAPTION>
MONEYMART ASSETS
MONEY MARKET FUND CLASS Z SHARES
--------------------- -------------------
<S> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load imposed on Purchases (as a percentage of offering
price)................................................................. None None
Maximum Sales Load or Deferred Sales Load imposed on Reinvested
Dividends.............................................................. None None
Deferred Sales Load (as a percentage of original purchase price or
redemption proceeds, whichever is lower)............................... None None
Redemption Fees......................................................... None None
Exchange Fee............................................................ None None
</TABLE>
9
<PAGE>
Set forth below is a comparison of each Fund's operating expenses for, in
the case of Money Market Fund, the fiscal year ended September 30, 1995 and, in
the case of MoneyMart Assets, the fiscal year ended December 31, 1995. The
ratios are also shown on a pro forma (estimated) combined basis, giving effect
to the Reorganization.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES MONEY MONEYMART
(AS A PERCENTAGE OF AVERAGE MARKET ASSETS-- PRO FORMA
NET ASSETS) FUND CLASS Z+ COMBINED
- ------------------------------ -------- ------------- ---------
<S> <C> <C> <C>
Management Fees............... .450% .301% .301%
Administration Fee............ .134 None None
12b-1 Fees.................... None None None
Other Expenses................ .333 .262 .260
-------- ----- ---------
Total Fund Operating Expenses
(After Reduction++).......... .917% .563% .561%
-------- ----- ---------
-------- ----- ---------
<FN>
- ------------------------
+ Class Z shares of MoneyMart Assets commenced being offered on March 1, 1996.
The ratios for Class Z shares are based upon estimates of expenses and assume
that Class Z shares had been in existence during the entire fiscal year ended
December 31, 1995.
++ PIFM has agreed to bear any expenses of the Money Market Fund that would
cause Total Fund Operating Expenses to exceed .60% through the fiscal year
ending September 30, 1996. In the absence of this agreement, Total Fund
Operating Expenses would have been .92% for the fiscal year ended September
30, 1995.
</TABLE>
Set forth below is an example that shows the expenses that an investor in
the combined Fund would pay on a $1,000 investment, based upon the pro forma
ratios set forth above.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of
each time period............................................................ $ 6 $ 18 $ 31 $ 70
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose
of this table is to assist an investor in understanding the various types of
costs and expenses that an investor in the combined Fund will bear, whether
directly or indirectly.
PURCHASES AND REDEMPTIONS
Money Market Fund shares are offered exclusively to retirement programs and
arrangements (Programs) through their plan sponsors, to individual retirement
accounts (IRAs) and to certain institutional investors. Sponsors of a Program or
their agents are referred to as "Program Sponsor(s)", individual employees
participating in a Program are referred to as "Participant(s)," and individual
investors who separate from a Program are referred to as "Continuing
Participant(s)." Endowments, foundations, insurance companies and other
institutional investors are referred to as "Other Institutional Investors." The
term "shareholders" with respect to Money Market Fund refers to each or all of
these categories as well as to IRAs, as appropriate.
Shares of Money Market Fund may be purchased through a Program Sponsor's
recordkeeper or directly from PMFS. There is no minimum initial investment
requirement, and there are no sales charges associated
10
<PAGE>
with the purchase or redemption of Money Market Fund shares. The purchase price
for Money Market Fund shares is the net asset value per share next determined
following acceptance of a purchase order by the Program Sponsor's recordkeeper
or PMFS.
Class Z shares of MoneyMart Assets are currently offered exclusively to
participants in PSI's 401(k) Plan. On or before the Closing Date, Class Z shares
will be available for purchase by (i) pension, profit sharing or other employee
benefit plans qualified under Section 401 of the Internal Revenue Code, deferred
compensation and annuity plans under Sections 457 and 403(b)(7) of the Internal
Revenue Code, and non-qualified plans for which MoneyMart Assets is an available
option (Benefit Plans), provided such plans (in combination with other plans
sponsored by the same employer or group of related employers) have at least $50
million in defined contribution assets or make a single investment in a single
Prudential Mutual Fund of $10 million or more, (ii) investors who make a single
investment in a single Prudential Mutual Fund of $10 million or more in a single
account (or who have $10 million or more invested in shares of the Fund held in
a single account); (iii) participants in the Fund Advisory Program (a mutual
fund allocation program sponsored by Prudential Securities) for which the Fund
is an available option; and (iv) investors who are, or have executed a letter of
intent to become, stockholders of Institutional Fund at the time Money Market
Fund is reorganized or who at that time have exchangeability into Institutional
Fund.
Purchases of Class Z shares of MoneyMart Assets are made through PSI, Pruco
Securities Corporation (Prusec), an affiliated broker/dealer, or directly from
PMFS, at the net asset value per share next determined after receipt of a
purchase order by the Program sponsor's record-keeper, PMFS, Prusec or PSI.
The minimum initial investment for Class Z shares is $10,000,000. All
minimum investment requirements are waived for certain benefit plans and other
eligible investors. There are no sales charges associated with the purchase or
redemption of the MoneyMart Assets' Class Z shares.
Shares of each Fund may be redeemed at any time at the net asset value next
determined after the Program Sponsor's recordkeeper in the case of Money Market
Fund, or PSI or PMFS in the case of MoneyMart Assets, receives the sell order.
No sales charges will be imposed in connection with the Reorganization.
EXCHANGE PRIVILEGES
Shareholders of Money Market Fund have an exchange privilege with other
available funds (depending upon the provisions of the Program) by request
through the Program's recordkeeper at the net asset value next determined after
receipt by PMFS or the Program Sponsor's recordkeeper of an exchange request in
good order. Exchanges of Money Market Fund shares are currently permitted at no
charge, subject to any minimum investment requirements, or any general
limitations of the fund into which an exchange is sought. Currently, there are
no such requirements or limitations.
Shareholders of MoneyMart Assets have an exchange privilege with certain
other Prudential Mutual Funds subject to the minimum investment requirements of
such funds. Class Z shares of MoneyMart Assets may be exchanged for Class Z
shares of another fund on the basis of relative net asset value. No sales charge
will be imposed at the time of exchange.
An exchange of shares of either Fund for shares of another Prudential Mutual
Fund is treated as a redemption of Fund shares and purchase of other Fund shares
for tax purposes. Each Fund's exchange privilege may be modified or terminated
at any time on sixty days' notice.
11
<PAGE>
DIVIDENDS AND OTHER DISTRIBUTIONS
MoneyMart Assets declares daily and pays monthly dividends from net
investment income. Money Market Fund expects to declare daily and pay monthly
dividends from net investment income and make distributions of net capital
gains, if any, monthly. Shareholders of MoneyMart Assets may receive dividends
and other distributions in cash or in additional shares of the Fund.
Shareholders of Money Market Fund receive dividends and other distributions in
additional shares of the Fund. A Money Market Fund shareholder will continue to
receive dividends and distributions in additional shares of MoneyMart Assets
with respect to MoneyMart Assets shares he or she receives pursuant to the
Reorganization.
FEDERAL INCOME TAX CONSEQUENCES OF THE PROPOSED REORGANIZATION
Because of an anticipated redemption or exchange of certain shares of Money
Market Fund held by Prudential in connection with the proposed Reorganization,
it will not constitute a tax-free reorganization and instead will constitute a
taxable sale of assets by Money Market Fund followed by its dissolution.
However, it is the assessment of PIFM/PMF that only minimal (or no) gain or loss
will be recognized to Money Market Fund or its shareholders as a result of the
proposed Reorganization. See "The Proposed Transaction--Federal Income Tax
Considerations."
PRINCIPAL RISK FACTORS
Because the Funds' investment objectives and policies are substantially
similar and because the Funds are managed by the same investment adviser, the
Funds will be subject to similar investment risks. These risks are those
typically associated with investing in a money market fund.
STABLE NET ASSET VALUE
It is anticipated that the net asset value of each Fund will remain constant
at $1.00 per share, although this cannot be assured. In order to maintain such
constant net asset value, each Fund will value its portfolio securities at
amortized cost. While this method provides certainty in valuation, it may result
in periods during which the value of a security in a Fund's portfolio, as
determined by amortized cost, is higher or lower than the price the Fund would
receive if it sold such security.
FOREIGN INVESTMENTS
The Money Market Fund may invest up to 50% of its assets, and MoneyMart
Assets may invest an unlimited amount of its assets, in short-term U.S.
dollar-denominated securities of foreign issuers, which involve additional risks
and considerations not typically associated with investing in U.S. Government
securities and securities of domestic issuers. Investments in obligations of
foreign issuers may be subject to certain risks, including future political and
economic developments, the possible imposition of withholding taxes on interest
income, the seizure or nationalization of foreign deposits and other
restrictions. In addition, there may be less publicly available information
about foreign issuers than about domestic issuers and foreign issuers are
generally not subject to the same accounting, auditing and financial
recordkeeping standards and requirements as domestic issuers. Investment in
foreign securities also involves currency risk, I.E., the risk that shifts in
foreign exchange rates may lessen the dollar value of international investments.
In the event of a default with respect to any foreign debt obligations, it may
be more difficult for the Fund to obtain or enforce a judgment against the
issuer of such securities.
12
<PAGE>
BORROWING
MoneyMart Assets may borrow up to 10% of the value of its net assets for
temporary or emergency purposes. The Money Market Fund may borrow up to 20% of
the value of its total assets for temporary, extraordinary or emergency
purposes. In addition, the Money Market Fund may engage in investment techniques
such as reverse repurchase agreements, forward rolls and dollar rolls to the
extent that the assets dedicated to such techniques combined with the value of
its bank borrowings do not exceed 20% of its net assets.
SPECIAL MEETING OF MONEYMART ASSETS SHAREHOLDERS
It is anticipated that a special shareholder meeting of the MoneyMart Assets
shareholders will be held in October 1996. It is intended that at such meeting
MoneyMart Assets shareholders will consider (i) electing MoneyMart Assets' Board
of Directors (information on the nominated slate of Directors for MoneyMart
Assets is attached hereto as Appendix B); (ii) deleting MoneyMart Assets'
investment restriction No. 10 which addresses investments in securities issued
by seasoned issuers and replacing it with a non-fundamental investment policy;
(iii) amending MoneyMart Assets' Articles of Incorporation to reduce the par
value of the Fund's common stock from $.10 per share to $.001 per share; and
(iv) ratifying the Board of Directors' selection of Deloitte & Touche LLP as
MoneyMart Assets' independent public accountants.
Approval of these proposals by the shareholders of MoneyMart Assets is not a
condition to completion of the Reorganization described in the Agreement. In
addition, there can be no assurance that any or all of these proposals will be
approved by the shareholders of MoneyMart Assets.
THE PROPOSED TRANSACTION
ASSET/STOCK EXCHANGE AGREEMENT
The terms and conditions under which the Reorganization may be consummated
are set forth in the Agreement. Significant provisions of the Agreement are
summarized below; however, this summary is qualified in its entirety by
reference to the Agreement, a copy of which is attached as Appendix A to this
Prospectus and Proxy Statement.
The Agreement contemplates (i) MoneyMart Assets acquiring all of the assets
of Money Market Fund in exchange solely for Class Z shares of MoneyMart Assets
and the assumption by MoneyMart Assets of all of Money Market Fund's
liabilities, if any, as of the Closing Date and (ii) the constructive
distribution on the Closing Date of such Class Z shares to the shareholders of
Money Market Fund.
The assets of Money Market Fund to be acquired by MoneyMart Assets shall
include, without limitation, all cash, cash equivalents, securities, receivables
(including interest receivable) and other property of any kind owned by Money
Market Fund and any deferred or prepaid expenses shown as assets on the books of
Money Market Fund on the Closing Date. MoneyMart Assets will assume from Money
Market Fund all debts, liabilities, obligations and duties of Money Market Fund
of whatever kind or nature; provided, however, that Money Market Fund will
utilize its best efforts, to the extent practicable, to discharge all of its
known debts, liabilities, obligations and duties prior to the Closing Date.
MoneyMart Assets will deliver to Money Market Fund Class Z shares in MoneyMart
Assets, which Money Market Fund will then distribute to its shareholders.
The value of Money Market Fund's assets to be acquired and liabilities to be
assumed by MoneyMart Assets and the net asset value of a Class Z share of
MoneyMart Assets will be determined as of 4:30 p.m.,
13
<PAGE>
New York time, on the Closing Date and will be determined in accordance with the
valuation procedures of the respective Fund's then current Prospectus and
Statement of Additional Information. Securities and other assets and liabilities
for which market quotations are not readily available will be valued at fair
value as determined in good faith under procedures established by the respective
Fund's Board.
As soon as practicable after the Closing Date, Money Market Fund will
distribute PRO RATA to its shareholders of record, determined as of the close of
business on the Closing Date, the Class Z shares of MoneyMart Assets received by
Money Market Fund in exchange for such shareholders' interest in Money Market
Fund evidenced by their shares of Money Market Fund. Such distribution will be
accomplished by opening accounts on the books of MoneyMart Assets in the names
of Money Market Fund shareholders and by transferring thereto Class Z shares of
MoneyMart Assets previously credited to the account of Money Market Fund on
those books. Each shareholder account shall be creditied with the PRO RATA
number of MoneyMart Assets Class Z shares due to the shareholder in whose name
the account is established. Fractional shares of MoneyMart Assets will be
rounded to the third decimal place.
[Accordingly, every shareholder of Money Market Fund will own Class Z shares
of MoneyMart Assets immediately after the Reorganization that, except for
rounding, will be equal to the value of that shareholder's shares of Money
Market Fund immediately prior to the Reorganization. Moreover, because Class Z
shares of MoneyMart Assets will be issued at net asset value in exchange for net
assets of Money Market Fund that, except for rounding, will have a value equal
to the aggregate value of those shares, the net asset value per Class Z share of
MoneyMart Assets will be unchanged. Thus, the Reorganization will not result in
a dilution of the value of any shareholder account.]
Any transfer taxes payable upon issuance of shares of MoneyMart Assets in a
name other than that of the registered holder of the shares on the books of
Money Market Fund as of the time of transfer shall be paid by the person to whom
such shares are to be issued as a condition of such transfer. Any reporting
responsibility of Money Market Fund will continue to be its responsibility up to
and including the Closing Date and such later date on which it is liquidated.
The consummation of the proposed Reorganization is subject to a number of
conditions set forth in the Agreement, some of which may be waived by either
Board. Consumation of the proposed Reorganization also is conditioned upon the
SEC's issuance of the Exemptive Order and certain tax considerations discussed
in the Agreement. The Agreement may be terminated and the proposed
Reorganization abandoned at any time before or after approval by the
shareholders of Money Market Fund, prior to the Closing Date. In addition, the
Agreement may be amended in any mutually agreeable manner, except that no
amendment may be made subsequent to the Meeting of shareholders of Money Market
Fund that would detrimentally affect the value of the MoneyMart Assets shares to
be distributed.
REASONS FOR THE REORGANIZATION AND LIQUIDATION
The Board of Institutional Fund, including a majority of the Independent
Trustees, has determined that the interests of Money Market Fund shareholders
will not be diluted as a result of the proposed Reorganization and that the
proposed Reorganization is in the best interests of the shareholders of Money
Market Fund. In addition, the Board of MoneyMart Assets, including a majority of
the Independent Directors, has determined that the interests of MoneyMart Assets
shareholders will not be diluted as a result of the proposed Reorganization and
that the proposed Reorganization is in the best interests of the shareholders of
MoneyMart Assets.
14
<PAGE>
The reasons for the proposed Reorganization are described above under
"Synopsis--Reasons for the Proposed Reorganization." The Board of each Fund
based its decision to approve the Agreement on an inquiry into a number of
factors, including the following:
(1) the compatibility of the investment objectives, policies and
restrictions of the Funds;
(2) the relative past and current growth in assets and investment
performance and future prospects of the Funds;
(3) the effect of the proposed transaction on the expense ratios of each
Fund;
(4) the costs of the Reorganization, which will be paid for by each Fund
in proportion to its respective net asset levels; and
(5) the potential benefits to the shareholders of each Fund.
If the Agreement is not approved by Money Market Fund shareholders, the
Institutional Fund Board may consider other appropriate action, such as the
liquidation of Money Market Fund or a merger or other business combination with
an investment company other than MoneyMart Assets.
DESCRIPTION OF SECURITIES TO BE ISSUED
Class Z shares of MoneyMart Assets will be issued to Money Market Fund
shareholders at the Closing Date. MoneyMart Assets is authorized to issue 2
billion shares of Class Z common stock, $.10 par value per share. Each Class Z
share represents an equal and proportionate interest in the same assets of
MoneyMart Assets.
FEDERAL INCOME TAX CONSIDERATIONS
PMF/PIFM and Institutional Fund believe that the Reorganization will be
treated for federal income tax purposes as a taxable transaction for the
following reasons. As of March 31, 1996, approximately 26.2 million (or 40%) of
the Fund's outstanding shares were owned by Prudential. It is likely that
Prudential will redeem or exchange all or a significant portion of these shares
either prior to or shortly after the Reorganization. Because of this anticipated
redemption or exchange of at least a significant portion of Money Market Fund's
shares in connection with the Reorganization, PMF/PIFM and Institutional Fund
believe that the Reorganization will not qualify for federal income tax purposes
as a tax-free reorganization and instead will be treated for those purposes as a
taxable sale of assets by Money Market Fund to MoneyMart Assets, followed by the
dissolution of Money Market Fund. Such treatment will have the following
effects:
(1) Money Market Fund's distribution of the MoneyMart Assets shares to
its shareholders will be treated as a distribution in liquidation of Money
Market Fund, and each Money Market Fund shareholder may recognize gain or
loss on that distribution, depending on whether the shareholder's tax basis
for its Money Market Fund shares is less than, is equal to or exceeds the
fair market value of the MoneyMart Assets shares received by the
shareholder;
(2) Gain or loss may be recognized to Money Market Fund on the transfer
to MoneyMart Assets of its assets in exchange for MoneyMart Assets shares
and MoneyMart Assets' assumption of Money Market Fund's liabilities,
depending on whether Money Market Fund's aggregate tax basis for the assets
is less than, is equal to or exceeds the sum of the fair market value of the
MoneyMart Assets shares it receives and the amount of the liabilities
assumed by MoneyMart Assets;
(3) Except to the extent the MoneyMart Assets shares appreciate or
depreciate in value in Money Market Fund's hands prior to distribution
thereof to MoneyMart Assets' shareholders, no gain or loss
15
<PAGE>
will be recognized to Money Market Fund on the subsequent distribution of
the MoneyMart Assets shares to Money Market Fund's shareholders in
constructive exchange for their Money Market Fund shares;
(4) No gain or loss will be recognized to MoneyMart Assets on its
receipt of the transferred assets in exchange for its shares and its
assumption of Money Market Fund's liabilities;
(5) MoneyMart Assets' aggregate tax basis for the transferred assets
will be equal to the sum of the fair market value of the MoneyMart Assets
shares exchanged for the transferred assets plus the amount of the
liabilities assumed by MoneyMart Assets, and MoneyMart Assets' holding
period for those assets will begin on the day after the Closing Date; and
(6) A Money Market Fund shareholder's basis for the MoneyMart Assets
shares to be received by it in the Reorganization will be the fair market
value of those shares on the date of distribution, and its holding period
for those shares will begin on the following day.
Shareholders of Money Market Fund should consult their tax advisers
regarding the effect of the Reorganization in light of their individual
circumstances. Because the foregoing discussion only relates to the federal
income tax consequences of the Reorganization, those shareholders also should
consult their tax advisers as to state and local tax consequences, if any, of
the Reorganization.
CERTAIN COMPARATIVE INFORMATION ABOUT THE FUNDS
ORGANIZATION. MoneyMart Assets is a Maryland corporation, and the rights of
its shareholders are governed by its Articles of Incorporation, its By-Laws and
applicable Maryland law. Institutional Fund is a Delaware business trust, and
the rights of its shareholders are governed by its Declaration of Trust, its By-
Laws and applicable Delaware law.
CAPITALIZATION. Institutional Fund is authorized to issue an unlimited
number of full and fractional shares of beneficial interest, par value $.001 per
share. The Institutional Fund offers one class of shares. MoneyMart Assets is
authorized to issue 15 billion shares of common stock, par value $.10 per share.
MoneyMart Assets' shares currently are divided into two classes, designated
Class A and Class Z with 13 billion Class A shares and 2 billion Class Z shares
authorized. The Board of each Fund may reclassify unissued shares to authorize
additional classes and series of shares having terms and rights determined by
the Board, all without shareholder approval.
SHAREHOLDER MEETINGS AND VOTING RIGHTS. Generally, neither Fund is required
to hold annual meetings of its shareholders. Each Fund is required to call a
meeting of shareholders for the purpose of voting upon the question of removal
of a Trustee/Director when requested in writing to do so by the holders of at
least 10% of the Fund's outstanding shares entitled to vote. In addition, each
Fund is required to call a meeting of shareholders for the purpose of electing
Trustees/Directors if, at any time, less than a majority of the
Trustees/Directors holding office at the time were elected by shareholders.
Shareholders of MoneyMart Assets have the right to vote upon such matters as
may be required by law, the Articles of Incorporation or the Fund's By-Laws or
as the Directors may consider necessary or desirable. MoneyMart Assets
shareholders also vote upon changes in fundamental investment policies or
restrictions.
Shareholders in Institutional Fund are entitled to vote on all matters
submitted to a vote of its shareholders under its Declaration of Trust, which
includes the power to vote (i) for the election or removal of Trustees as
provided in the Declaration of Trust, and (ii) with respect to such additional
matters relating to the Institutional Fund as may be required by applicable law,
the Declaration of Trust, the Fund's By-Laws or
16
<PAGE>
any registration of the Institutional Fund with the SEC (or any successor
agency) or any state, or as the Board may consider necessary or desirable. Each
whole share shall be entitled to one vote as to any matter on which it is
entitled to vote and each fractional share shall be entitled to a proportionate
fractional vote.
MoneyMart Assets' By-Laws provide that a majority of the outstanding shares
shall constitute a quorum for the transaction of business at a shareholders'
meeting. Institutional Fund's Declaration of Trust provides that 40% of the
outstanding shares entitled to vote at a shareholder meeting shall constitute a
quorum for the transaction of business at a shareholders' meeting. Matters
requiring a larger vote by law or under the organization documents for either
Fund are not affected by such quorum requirements.
SHAREHOLDER LIABILITY. Under Maryland law, MoneyMart Assets shareholders
have no personal liability as such for MoneyMart Assets' acts or obligations.
Under Delaware law, Money Market Fund's shareholders similarly have no personal
liability as such for Money Market Fund's acts or obligations.
LIABILITY AND INDEMNIFICATION OF TRUSTEES/DIRECTORS. Generally, under
Institutional Fund's Declaration of Trust and Delaware law, no Trustee or
officer of Institutional Fund shall be liable to the Institutional Fund or its
shareholders for any action or failure to act except solely for his or her own
willful misfeasance, bad faith, gross negligence or reckless disregard of his or
her duties and is not liable for errors of judgment or mistakes of fact or law.
Under MoneyMart Assets' Articles of Incorporation, a Director shall not be
liable to MoneyMart Assets or its shareholders for monetary damages for breach
of fiduciary duty as a Director, except to the extent such exemption from
liability or limitation thereof is not permitted by law, including the
Investment Company Act. Under MoneyMart Assets' By-Laws, a Director shall be
indemnified against judgments, fines, settlements and expenses to the fullest
extent authorized and in the manner permitted by applicable federal and state
law.
Under the Investment Company Act, a Director/Trustee may not be protected
against liability to the Fund and its security holders to which he or she would
otherwise be subject as a result of his willful misfeasance, bad faith or gross
negligence in the performance of his duties, or by reason of reckless disregard
of his obligations and duties. The staff of the SEC interprets the Investment
Company Act to require additional limits on indemnification of
Directors/Trustees and officers.
The foregoing is only a summary of certain differences between Institutional
Fund, its Declaration of Trust, its By-Laws and Delaware law, and MoneyMart
Assets, its Articles of Incorporation, its By-Laws and Maryland law.
PRO FORMA CAPITALIZATION AND RATIOS
The following table shows the capitalization of Money Market Fund and
MoneyMart Assets (Class Z) as of March 31, 1996 and the pro forma combined
capitalization as if the reorganization had occured on that date.
<TABLE>
<CAPTION>
MONEY MONEYMART PRO
MARKET ASSETS--CLASS FORMA
FUND Z COMBINED
-------- ----------- --------
<S> <C> <C> <C>
Net Assets (000)......... $59,930 $ 88,683 $148,613
Net Asset Value per
share................... $1.00 $1.00 $1.00
Shares Outstanding
(000)................... 59,930 88,683 148,613
</TABLE>
17
<PAGE>
The following table shows the ratio of expenses to average net assets and
the ratio of net investment income to average net assets of Money Market Fund
for the fiscal year ended September 30, 1995 and of MoneyMart Assets for the
year ended December 31, 1995. The ratios also are shown on a pro forma combined
basis, assuming the Reorganization occurs on or about September 20, 1996.
<TABLE>
<CAPTION>
MONEY MONEYMART PRO
MARKET ASSETS--CLASS FORMA
FUND Z+ COMBINED
-------- ----------- --------
<S> <C> <C> <C>
Ratio of expenses to
average net assets...... .60% .56% .56%
Ratio of net investment
income to average net
assets.................. 5.37% 5.51% 5.51%
</TABLE>
- ------------------------
+ Class Z shares commenced being offered on March 1, 1996. The ratios for Class
Z shares of MoneyMart Assets are based upon information for the Class A
shares, after eliminating the distribution and service fee.
INFORMATION ABOUT MONEYMART ASSETS
FINANCIAL INFORMATION
For additional condensed financial information for MoneyMart Assets, see
"Financial Highlights" in the MoneyMart Assets Prospectus, which accompanies
this Prospectus and Proxy Statement.
GENERAL
For a discussion of the organization, classification and sub-classification
of MoneyMart Assets, see "General Information" and "Fund Highlights" in the
MoneyMart Assets Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
For a discussion of MoneyMart Assets' investment objective and policies and
risk factors associated with an investment in MoneyMart Assets, see "How the
Fund Invests" in the MoneyMart Assets Prospectus.
BOARD OF DIRECTORS
For a discussion of the responsibilities of MoneyMart Assets' Board, see
"How the Fund is Managed" in the MoneyMart Assets Prospectus.
MANAGER
For a discussion of MoneyMart Assets' Manager and subadviser, see "How the
Fund is Managed-- Manager" in the MoneyMart Assets Prospectus.
MONEYMART ASSETS' SHARES
For a discussion of MoneyMart Assets' shares, including voting rights and
exchange rights, and how the shares may be purchased and redeemed, see "General
Information", "Shareholder Guide" and "How the Fund is Managed" in the MoneyMart
Assets Prospectus.
NET ASSET VALUE
For a discussion of how the net asset value of MoneyMart Assets' Class Z
shares is determined, see "How the Fund Values its Shares" in the MoneyMart
Assets Prospectus.
TAXES, DIVIDENDS AND OTHER DISTRIBUTIONS
For a discussion of MoneyMart Assets' policy with respect to dividends and
other distributions and the tax consequences of an investment in Class Z shares,
see "Taxes, Dividends and Distributions" in the MoneyMart Assets Prospectus.
18
<PAGE>
INFORMATION ABOUT MONEY MARKET FUND
FINANCIAL INFORMATION
For condensed financial information for Money Market Fund, see "Financial
Highlights" in the Institutional Fund Prospectus.
GENERAL
For a discussion of the organization, classification and sub-classification
of Institutional Fund, see "Introduction to the Funds" and "More Facts About the
Company" in the Institutional Fund Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
For a discussion of Money Market Fund's investment objective and policies
and risk factors associated with an investment in Money Market Fund, see "The
Funds" and "Other Investment Practices, Risk Conditions, and Policies of the
Funds" in the Institutional Fund Prospectus.
BOARD OF TRUSTEES
For a discussion of the responsibilities of Institutional Fund's Board, see
"Management of the Company" and "More Facts About the Company" in the
Institutional Fund Prospectus.
MANAGER AND PORTFOLIO MANAGER
For a discussion of Institutional Fund's Manager and subadviser and Money
Market Fund's portfolio manager, see "Management of the Company" in the
Institutional Fund Prospectus.
MONEY MARKET FUND'S SHARES
For a discussion of Money Market Fund's shares, including voting rights and
exchange rights and how the shares may be purchased and redeemed, see "Investors
Guide to Services" and "More Facts About the Company" in the Institutional Fund
Prospectus.
NET ASSET VALUE
For a discussion of how the offering price of Money Market Fund's shares is
determined, see "Other Considerations--Net Asset Value" in the Institutional
Fund Prospectus.
TAXES, DIVIDENDS AND OTHER DISTRIBUTIONS
For a discussion of Money Market Fund's policy with respect to dividends and
distributions and the tax consequences of an investment in its shares, see
"Other Considerations" in the Institutional Fund Prospectus.
MISCELLANEOUS
ADDITIONAL INFORMATION
Each Fund is subject to the informational requirements of the Securities
Exchange Act of 1934, and in accordance therewith files reports and other
information with the SEC. Reports and other information filed by Institutional
Fund can be inspected and copied at the public reference facilities maintained
by the Securities and Exchange Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the SEC's regional offices in New York (7 World
Trade Center, Suite 1300, New York, New York 10048) and Chicago (Citicorp
Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661-2511).
Copies of such material can also be obtained at prescribed rates from the Public
Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C.
20549.
19
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the issuance of MoneyMart Assets
shares as part of the Reorganization will be passed upon by Gardner, Carton &
Douglas, counsel to MoneyMart Assets.
EXPERTS
The audited financial statements of Money Market Fund and MoneyMart Assets,
in the Statement of Additional Information, have been audited by Deloitte &
Touche LLP, independent accountants, to the extent indicated in its reports
thereon which are included in Money Market Fund's and MoneyMart Assets' Annual
Reports to Shareholders for the fiscal years ended September 30, 1995 and
December 31, 1995, respectively. The financial statements audited by Deloitte
&Touche LLP have been incorporated by reference herein or in the Statement of
Additional Information in reliance on its reports given on its authority as
experts in auditing and accounting.
VOTING INFORMATION
Forty percent of the shares of Money Market Fund outstanding on July 12,
1996, represented in person or by proxy, must be present for the transaction of
business at the Meeting. In the event that a quorum is not present at the
Meeting, or if a quorum is present but sufficient votes to approve the proposal
are not received, the persons named as proxies may propose one or more
adjournments of the Meeting to permit further solicitation of Proxies. Any such
adjournment will require the affirmative vote of a majority of those shares
present at the Meeting or represented by proxy. When voting on a proposed
adjournment, the persons named as proxies will vote all shares that they are
entitled to vote for the proposed adjournment, unless directed to disapprove the
proposal, in which case such shares will be voted against the proposed
adjournment. Any questions as to an adjournment of the Meeting will be voted on
by the persons named in the enclosed Proxy in the same manner that the Proxies
are instructed to be voted. In the event that the Meeting is adjourned, the same
procedures will apply at a later Meeting date.
If the accompanying form of Proxy is executed properly and returned, shares
represented by it will be voted at the Meeting in accordance with the
instructions on the Proxy. However, if no instructions are specified on a proxy,
the shares represented thereby will be voted for the proposal. A Proxy may be
revoked at any time prior to the time it is voted by written notice to the
Secretary of Institutional Fund or by attendance at the Meeting. If a Proxy that
is properly executed and returned is accompanied by instructions to withhold
authority to vote (an abstention) or represents a broker "non-vote" (that is, a
Proxy from a broker or nominee indicating that such person has not received
instructions from the beneficial owner or other person entitled to vote shares
on a particular matter with respect to which the broker or nominee does not have
discretionary power), the shares represented thereby, with respect to matters to
be determined by a majority of the votes cast on such matters, will be
considered present for purposes of determining the existence of a quorum for the
transaction of business but, not being cast, will have no effect on the outcome
of such matters.
The close of business on July 12, 1996 has been fixed as the record date for
the determination of shareholders entitled to notice of, and to vote at, the
Meeting. On that date, Money Market Fund had shares outstanding and
entitled to vote. Each outstanding full share of Money Market Fund will be
entitled to one vote at the Meeting, and each fractional share of Money Market
Fund will be entitled to a proportionate fractional part of one vote. As of July
12, 1996, the Trustees and Officers of Institutional Fund, as a group, owned
less than 1% of the outstanding shares of Money Market Fund.
20
<PAGE>
As of July 12, 1996, the beneficial owners, directly or indirectly, of more
than 5% of the outstanding shares of the Money Market Fund were: [ ]
[Describe Prudential's "control" of the Fund]
The Prudential Insurance Company of America owned [ %] as of March 31,
1996.
The expenses of Reorganization and the solicitation of proxies will be borne
by Money Market Fund and MoneyMart Assets in proportion to their respective
assets. The solicitation of proxies will be largely by mail but may include
telephonic, telegraphic or oral communication by regular employees of PIFM and
its affiliates, including PMF. This cost, including specified expenses, also
will be borne by Money Market Fund and MoneyMart Assets in proportion to their
respective assets.
OTHER MATTERS
No business other than as set forth herein is expected to come before the
Meeting, but should any other matter requiring a vote of shareholders of Money
Market Fund arise, including any question as to an adjournment of the Meeting,
the persons named in the enclosed Proxy will vote thereon according to their
best judgment in the interests of Money Market Fund, taking into account all
relevant circumstances.
SHAREHOLDERS' PROPOSALS
Any Money Market Fund shareholder proposal intended to be presented at any
subsequent meeting of the shareholders of Money Market Fund must be received by
Institutional Fund a reasonable time before the Board's solicitation relating to
such meeting is made in order to be included in Money Market Fund's Proxy
Statement and form of Proxy relating to that meeting. In the event that the
Agreement is approved at this Meeting, it is not expected that there will be any
future shareholder meetings of Money Market Fund.
It is the present intent of the Boards of Institutional Fund and MoneyMart
Assets not to hold annual meetings of shareholders unless the election of
Trustees/Directors is required under the Investment Company Act.
S. JANE ROSE
SECRETARY
Dated: July 25, 1996
21
<PAGE>
APPENDIX A
ASSET/STOCK EXCHANGE AGREEMENT
Asset/Stock Exchange Agreement (Agreement) made as of the 24th day of June,
1996, by and between The Prudential Institutional Fund (Institutional Fund) and
Prudential MoneyMart Assets, Inc. (Acquiror Fund) (collectively, the Investment
Companies and each individually, an Investment Company). Institutional Fund is a
Delaware business trust and maintains its principal place of business at 751
Broad Street, Newark, New Jersey 07102. Acquiror Fund is a Maryland corporation
and maintains its principal place of business at One Seaport Plaza, New York,
New York 10292. Shares of Institutional Fund are divided into seven portfolios,
including Money Market Fund (Acquiree Fund). (Acquiror Fund and Acquiree Fund
are sometimes referred to herein as a Fund and collectively as the Funds.)
Acquiror Fund has two classes of shares, Class A and Class Z shares, the latter
being the class into which the assets of Acquiree Fund are proposed to be
transferred.
The transactions provided for herein (collectively Reorganization) will
comprise the transfer of all of the assets of Acquiree Fund in exchange solely
for Class Z shares of Acquiror Fund and Acquiror Fund's assumption of all of
Acquiree Fund's liabilities, if any, and the constructive distribution, after
the Closing Date hereinafter referred to, of such shares of Acquiror Fund to the
shareholders of Acquiree Fund in liquidation of Acquiree Fund as provided
herein, all upon the terms and conditions as hereinafter set forth.
In consideration of the premises and of the covenants and agreements set
forth herein, the parties covenant and agree as follows:
1. TRANSFER OF ASSETS OF ACQUIREE FUND IN EXCHANGE FOR SHARES OF ACQUIROR
FUND AND ASSUMPTION OF LIABILITIES, IF ANY, AND LIQUIDATION OF ACQUIREE FUND.
1.1 Subject to the terms and conditions herein set forth and on the
basis of the representations and warranties contained herein, Acquiree Fund
agrees to sell, assign, transfer and deliver its assets, as set forth in
paragraph 1.2, to Acquiror Fund, and Acquiror Fund agrees (a) to issue and
deliver to Acquiree Fund in exchange therefor the number of Class Z shares
in Acquiror Fund determined by dividing the net asset value of Acquiree Fund
(computed in the manner and as of the time and date set forth in paragraph
2.1) by the net asset value of a Class Z share of Acquiror Fund (computed in
the manner and as of the time and date set forth in paragraph 2.2); and (b)
to assume all of Acquiree Fund's liabilities, if any, as set forth in
paragraph 1.3. Such transactions shall take place at the closing provided
for in paragraph 3 (Closing).
1.2 The assets of Acquiree Fund to be acquired by Acquiror Fund shall
include without limitation all cash, cash equivalents, securities,
receivables (including interest receivable) and other property of any kind
owned by Acquiree Fund and any deferred and prepaid expenses shown as assets
on the books of Acquiree Fund on the closing date provided in paragraph 3.1
(Closing Date).
1.3 Acquiror Fund will assume from Acquiree Fund all debts,
liabilities, obligations and duties of Acquiree Fund of whatever kind or
nature, whether absolute, accrued, contingent or otherwise, whether or not
arising in the ordinary course of business, whether or not determinable as
of the Closing Date, and whether or not specifically referred to in this
Agreement; provided, however, that Acquiree Fund agrees to utilize its best
efforts to discharge all of its known debts, liabilities, obligations and
duties prior to the Closing Date.
A-1
<PAGE>
1.4 On or immediately prior to the Closing Date, Acquiree Fund will
declare and pay to its shareholders of record dividends so that it will have
distributed substantially all (and in any event not less than ninety-eight
percent) of its investment company taxable income (computed without regard
to any deduction for dividends paid) and net tax-exempt interest income, if
any, for all taxable years through its liquidation.
1.5 On a date (Liquidation Date), as soon after the Closing Date as is
conveniently practicable, Acquiree Fund will distribute PRO RATA to its
shareholders of record, determined as of the close of business on the
Closing Date, the shares of Acquiror Fund received by Acquiree Fund pursuant
to paragraph 1.1 in exchange for their interest in Acquiree Fund. Such
distribution will be accomplished by opening accounts on the books of
Acquiror Fund in the names of Acquiree Fund shareholders and transferring
thereto the shares credited to the account of Acquiree Fund on the books of
Acquiror Fund. Each such shareholder account shall be credited with the
respective PRO RATA number of Acquiror Fund shares due the shareholder in
whose name the account is established. Fractional shares of Acquiror Fund
shall be rounded to the third decimal place. Acquiror Fund shall not issue
certificates representing its shares in connection with such distribution.
1.6 Ownership of Acquiror Fund shares will be shown on the books of
Acquiror Fund's transfer agent. Shares of Acquiror Fund will be issued in
the manner described in Acquiror Fund's then-current prospectus and
statement of additional information.
1.7 Any transfer taxes payable upon issuance of shares of Acquiror
Fund in a name other than the registered holder of the shares on the books
of Acquiree Fund as of the time of transfer thereof shall be paid by the
person to whom such shares are to be issued as a condition to the
registration of such transfer.
1.8 Any reporting responsibility with the Securities and Exchange
Commission (SEC) or any state securities commission of Acquiree Fund is and
shall remain the responsibility of Acquiree Fund up to and including the
Liquidation Date.
1.9 All books and records of Acquiree Fund, including all books and
records required to be maintained under the Investment Company Act of 1940
(Investment Company Act) and the rules and regulations thereunder, shall be
available to Acquiror Fund from and after the Closing Date and shall be
turned over to Acquiror Fund on or prior to the Liquidation Date.
1.10 As soon as reasonably practicable after distribution of the
Acquiror Fund shares pursuant to paragraph 1.5, Acquiree Fund shall be
terminated as a series of Institutional Fund and any further actions shall
be taken in connection therewith as required by applicable law.
2. VALUATION
2.1 The value of Acquiree Fund's assets and liabilities to be acquired
and assumed, respectively, by Acquiror Fund shall be the net asset value of
Acquiree Fund computed as of 4:30 p.m., New York time, on the Closing Date
(such time and date being hereinafter called the Valuation Time), using the
valuation procedures set forth in Acquiree Fund's then-current prospectus
and statement of additional information.
2.2 The net asset value of a Class Z share of Acquiror Fund shall be
the net asset value per such share computed as of the Valuation Time, using
the valuation procedures set forth in Acquiror Fund's then-current
prospectus and statement of additional information.
A-2
<PAGE>
2.3 All computations of net asset value shall be made by or under the
direction of Prudential Mutual Fund Management, Inc. (PMF) in accordance
with its regular practice as manager or administrator, as the case may be,
of each Investment Company.
3. CLOSING AND CLOSING DATE
3.1 Except as provided in paragraph 3.3, the date of the closing shall
be September 20, 1996, or such later date as the parties may agree in
writing (Closing Date). All acts taking place at the Closing shall be deemed
to take place simultaneously as of the close of business on the Closing Date
unless otherwise provided. The Closing shall be at the office of Acquiror
Fund or at such other place as the parties may agree.
3.2 State Street Bank and Trust Company (State Street), as custodian
for Acquiree Fund, shall deliver to Acquiror Fund at the Closing a
certificate of an authorized officer of State Street stating that (a)
Acquiree Fund's portfolio securities, cash and any other assets have been
transferred in proper form to Acquiror Fund on the Closing Date and (b) all
necessary taxes, if any, have been paid, or provision for payment has been
made, in conjunction with the transfer of portfolio securities.
3.3 In the event that immediately prior to the Valuation Time (a) the
New York Stock Exchange (NYSE) or other primary exchange is closed to
trading (other than prior to, or following the close of, trading on such
exchange on a regular business day) or trading thereon is restricted or (b)
trading or the reporting of trading on the NYSE or other primary exchange or
elsewhere is disrupted so that accurate appraisal of the value of the net
assets of Acquiree Fund and of the net asset value per Class Z share of
Acquiror Fund is impracticable, the Closing Date shall be postponed until
the first business day after the date when such trading shall have been
fully resumed and such reporting shall have been restored.
3.4 Institutional Fund shall deliver to Acquiror Fund on or prior to
the Liquidation Date the names and addresses of Acquiree Fund's shareholders
and the number of outstanding shares owned by each such shareholder, all as
of the close of business on the Closing Date, certified by the Secretary or
Assistant Secretary of Institutional Fund. Acquiror Fund shall issue and
deliver to Institutional Fund at the Closing a confirmation or other
evidence satisfactory to Institutional Fund that shares of Acquiror Fund
have been or will be credited to Acquiree Fund's account on the books of
Acquiror Fund. At the Closing each party shall deliver to the other such
bills of sale, checks, assignments, share certificates, receipts and other
documents as such other party or its counsel may reasonably request to
effect the transactions contemplated by this Agreement.
3.5 Each Investment Company shall deliver to the other at the Closing
a certificate executed in its name by its President or a Vice President in
form and substance satisfactory to the recipient and dated the Closing Date,
to the effect that the representations and warranties it made in this
Agreement are true and correct at the Closing Date except as they may be
affected by the transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
4.1 Institutional Fund represents and warrants as follows:
4.1.1 Institutional Fund is a business trust duly organized and
validly existing under the laws of the State of Delaware, and Acquiree
Fund has been established in accordance with the terms of Institutional
Fund's Agreement and Declaration of Trust (Declaration of Trust);
A-3
<PAGE>
4.1.2 Institutional Fund is an open-end management investment
company duly registered under the Investment Company Act, and such
registration is in full force and effect;
4.1.3 Institutional Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of any
provision of its Declaration of Trust or By-Laws or of any material
agreement, indenture, instrument, contract, lease or other undertaking to
which Acquiree Fund is a party or by which Acquiree Fund is bound;
4.1.4 All material contracts or other commitments of Acquiree
Fund, or any of its properties or assets, except this Agreement and
investment contracts will be terminated, or provision for discharge of
any liabilities of Acquiree Fund thereunder will be made on or prior to
the Closing Date without either Fund's incurring any liability or penalty
with respect thereto;
4.1.5 No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against Acquiree Fund or any of
its properties or assets, except as previously disclosed in writing to
Acquiror Fund. Institutional Fund knows of no facts that might form the
basis for the institution of such litigation, proceedings or
investigation, and Acquiree Fund is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental
body that materially and adversely affects its business or its ability to
consummate the transactions herein contemplated;
4.1.6 The Portfolio of Investments, Statement of Assets and
Liabilities, Statement of Operations, Statement of Changes in Net Assets,
and Financial Highlights of Acquiree Fund at September 30, 1995 and for
the year then ended (copies of which have been furnished to Acquiror
Fund) have been audited by Deloitte & Touche LLP, independent
accountants, in accordance with generally accepted auditing standards.
Such financial statements are prepared in accordance with generally
accepted accounting principles and present fairly, in all material
respects, the financial condition, results of operations, changes in net
assets and financial highlights of Acquiree Fund as of and for the period
ended on such date, and there are no material known liabilities of
Acquiree Fund (contingent or otherwise) not disclosed therein;
4.1.7 Since September 30, 1995, there has not been any material
adverse change in Acquiree Fund's financial condition, assets,
liabilities or business other than changes occurring in the ordinary
course of business, or any incurrence by Acquiree Fund of indebtedness
maturing more than one year from the date such indebtedness was incurred,
except as otherwise disclosed to and accepted by Acquiror Fund. For the
purposes of this paragraph 4.1.7, a decline in net asset value or a
decrease in the number of shares outstanding shall not constitute a
material adverse change;
4.1.8 At the date hereof and at the Closing Date, all federal and
other tax returns and reports of Acquiree Fund required by law to have
been filed on or before such dates shall have been timely filed, and all
federal and other taxes shown as due on said returns and reports shall
have been paid insofar as due, or provision shall have been made for the
payment thereof, and, to the best of Institutional Fund's knowledge, all
federal or other taxes required to be shown on any such return or report
have been shown on such return or report, no such return is currently
under audit and no assessment has been asserted with respect to such
returns;
4.1.9 Acquiree Fund is a "fund" as defined in section 851(h)(2) of
the Internal Revenue Code of 1986, as amended (Internal Revenue Code);
for each past taxable year since it commenced
A-4
<PAGE>
operations, Acquiree Fund (a) has met the requirements of Subchapter M of
the Internal Revenue Code for qualification and treatment as a regulated
investment company and will meet those requirements for the current
taxable year and (b) has made such distributions as are necessary to
avoid the imposition of federal excise tax or has paid or provided for
the payment of any excise tax imposed; and Acquiree Fund has no earnings
and profits accumulated in any taxable year in which the provisions of
Subchapter M of the Internal Revenue Code did not apply to it. Acquiree
Fund's assets shall be invested at all times through the Closing Date in
a manner that ensures compliance with the foregoing;
4.1.10 All issued and outstanding shares of Acquiree Fund are, and
at the Closing Date will be, duly and validly authorized, issued and
outstanding, fully paid and non-assessable. All issued and outstanding
shares of Acquiree Fund will, at the time of the Closing, be held in the
names of the persons and in the amounts set forth in the list of
shareholders submitted to Acquiror Fund in accordance with the provisions
of paragraph 3.4. Acquiree Fund does not have outstanding any options,
warrants or other rights to subscribe for or purchase any of its shares,
nor is there outstanding any security convertible into any of its shares;
4.1.11 At the Closing Date, Acquiree Fund will have good and
marketable title to its assets to be transferred to Acquiror Fund
pursuant to paragraph 1.1 and full right, power and authority to sell,
assign, transfer and deliver such assets hereunder free of any liens,
claims, charges or other encumbrances, and, upon delivery and payment for
such assets, Acquiror Fund will acquire good and marketable title
thereto;
4.1.12 The execution, delivery and performance of this Agreement
have been duly authorized by the Board of Trustees of Institutional Fund
and by all necessary corporate action, other than shareholder approval,
on the part of Acquiree Fund, and this Agreement constitutes a valid and
binding obligation of Institutional Fund, enforceable in accordance with
its terms, except as the same may be limited by bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws relating
to or affecting creditors' rights and by general principles of equity. At
the Closing Date, the performance of this Agreement shall have been duly
authorized by all necessary action by Acquiree Fund's shareholders;
4.1.13 The information furnished and to be furnished by
Institutional Fund for use in applications for orders, registration
statements, proxy materials and other documents that may be necessary in
connection with the transactions contemplated hereby is and shall be
accurate and complete in all material respects and is in compliance and
shall comply in all material respects with applicable federal securities
and other laws and regulations; and
4.1.14 On the effective date of the registration statement filed
with the SEC by Acquiror Fund on Form N-14 relating to the shares of
Acquiror Fund issuable thereunder, and any supplement or amendment
thereto (Registration Statement), at the time of the meeting of the
shareholders of Acquiree Fund and on the Closing Date, the Proxy
Statement of Institutional Fund and the Prospectus of Acquiror Fund to be
included in the Registration Statement (collectively, Proxy Statement)
(a) will comply in all material respects with the provisions of
the Securities Act of 1933 (1933 Act), the Securities Exchange Act of
1934 (1934 Act) and the Investment Company Act and the rules and
regulations thereunder and
A-5
<PAGE>
(b) will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein in light of
the circumstances under which they were made or necessary to make the
statements therein not misleading; provided, however, that the
representations and warranties in this paragraph 4.1.14 shall not apply
to statements in or omissions from the Proxy Statement made in reliance
upon and in conformity with information furnished by Acquiror Fund for
use therein.
4.2 Acquiror Fund represents and warrants as follows:
4.2.1 Acquiror Fund is a corporation duly organized and validly
existing under the laws of the State of Maryland;
4.2.2 Acquiror Fund is an open-end management investment company
duly registered under the Investment Company Act, and such registration
is in full force and effect;
4.2.3 Acquiror Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of any
provision of its Articles of Incorporation or By-Laws or of any material
agreement, indenture, instrument, contract, lease or other undertaking to
which Acquiror Fund is a party or by which Acquiror Fund is bound;
4.2.4 No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against Acquiror Fund or any of
its properties or assets, except as previously disclosed in writing to
Institutional Fund. Acquiror Fund knows of no facts that might form the
basis for the institution of such litigation, proceedings or
investigation, and Acquiror Fund is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental
body that materially and adversely affects its business or its ability to
consummate the transactions herein contemplated;
4.2.5 The Portfolio of Investments, Statement of Assets and
Liabilities, Statement of Operations, Statement of Changes in Net Assets,
and Financial Highlights of Acquiror Fund at December 31, 1995 and for
the fiscal year then ended (copies of which have been furnished to
Institutional Fund) have been audited by Deloitte & Touche LLP,
independent accountants, in accordance with generally accepted auditing
standards. Such financial statements are prepared in accordance with
generally accepted accounting principles and present fairly, in all
material respects, the financial condition, results of operations,
changes in net assets and financial highlights of Acquiror Fund as of and
for the period ended on such date, and there are no material known
liabilities of Acquiror Fund (contingent or otherwise) not disclosed
therein;
4.2.6 Since December 31, 1995, there has not been any material
adverse change in Acquiror Fund's financial condition, assets,
liabilities or business other than changes occurring in the ordinary
course of business, or any incurrence by Acquiror Fund of indebtedness
maturing more than one year from the date such indebtedness was incurred,
except as otherwise disclosed to and accepted by Institutional Fund. For
the purposes of this paragraph 4.2.6, a decline in net asset value or a
decrease in the number of shares outstanding shall not constitute a
material adverse change;
4.2.7 At the date hereof and at the Closing Date, all federal and
other tax returns and reports of Acquiror Fund required by law to have
been filed on or before such dates shall have been timely filed, and all
federal and other taxes shown as due on said returns and reports shall
have been paid insofar as due, or provision shall have been made for the
payment thereof, and, to the
A-6
<PAGE>
best of Acquiror Fund's knowledge, all federal or other taxes required to
be shown on any such return or report are shown on such return or report,
no such return is currently under audit and no assessment has been
asserted with respect to such returns;
4.2.8 For each past taxable year since it commenced operations,
Acquiror Fund (a) has met the requirements of Subchapter M of the
Internal Revenue Code for qualification and treatment as a regulated
investment company and will meet those requirements for the current
taxable year and (b) has made such distributions as are necessary to
avoid the imposition of federal excise tax or has paid or provided for
the payment of any excise tax imposed; and Acquiror Fund has no earnings
and profits accumulated in any taxable year in which the provisions of
Subchapter M of the Internal Revenue Code did not apply to it. Acquiror
Fund's assets shall be invested at all times through the Closing Date in
a manner that ensures compliance with the foregoing;
4.2.9 All issued and outstanding shares of Acquiror Fund are, and
at the Closing Date will be, duly and validly authorized, issued and
outstanding, fully paid and non-assessable. Except as contemplated by
this Agreement, Acquiror Fund does not have outstanding any options,
warrants or other rights to subscribe for or purchase any of its shares,
nor is there outstanding any security convertible into any of its shares;
4.2.10 The execution, delivery and performance of this Agreement
have been duly authorized by the Board of Directors of Acquiror Fund and
by all necessary corporate action on the part of Acquiror Fund, and this
Agreement constitutes a valid and binding obligation of Acquiror Fund,
enforceable in accordance with its terms, except as the same may be
limited by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws relating to or affecting creditors' rights
and by general principles of equity;
4.2.11 The shares of Acquiror Fund to be issued and delivered to
Acquiree Fund pursuant to this Agreement will, at the Closing Date, have
been duly authorized and, when issued and delivered as provided in this
Agreement, will be duly and validly issued and outstanding shares of
Acquiror Fund, fully paid and non-assessable;
4.2.12 The information furnished and to be furnished by Acquiror
Fund for use in applications for orders, registration statements, proxy
materials and other documents that may be necessary in connection with
the transactions contemplated hereby is and shall be accurate and
complete in all material respects and is in compliance and shall comply
in all material respects with applicable federal securities and other
laws and regulations; and
4.2.13 On the effective date of the Registration Statement, at the
time of the meeting of the shareholders of Acquiree Fund and on the
Closing Date, the Proxy Statement (a) will comply in all material
respects with the provisions of the 1933 Act, the 1934 Act and the
Investment Company Act and the rules and regulations thereunder and (b)
will not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein in light of the
circumstances under which they were made or necessary to make the
statements therein not misleading; provided, however, that the
representations and warranties in this paragraph 4.2.13 shall not apply
to statements in or omissions from the Proxy Statement made in reliance
upon and in conformity with information furnished by Institutional Fund
for use therein.
A-7
<PAGE>
5. COVENANTS
5.1 Each Investment Company covenants to operate its respective Fund's
business in the ordinary course between the date hereof and the Closing
Date, it being understood that the ordinary course of business will include
declaring and paying customary dividends and such changes in operations as
are contemplated by the normal operations of the Funds, except as may
otherwise be required by paragraph 1.4 hereof.
5.2 Institutional Fund covenants to call a meeting of Acquiree Fund's
shareholders to consider and act upon this Agreement and to take all other
action necessary to obtain approval of the transactions contemplated hereby
(including the determinations of its Trustees as set forth under the
Investment Company Act).
5.3 Institutional Fund covenants that Acquiror Fund shares to be
received by Acquiree Fund in accordance herewith are not being acquired for
the purpose of making any distribution thereof other than in accordance with
the terms of this Agreement.
5.4 Institutional Fund covenants that it will assist Acquiror Fund in
obtaining such information as Acquiror Fund reasonably requests concerning
the beneficial ownership of Acquiree Fund's shares.
5.5 Subject to the provisions of this Agreement, each Investment
Company will take, or cause to be taken, all action, and will do, or cause
to be done, all things, reasonably necessary, proper or advisable to
consummate and make effective the transactions contemplated by this
Agreement.
5.6 Institutional Fund covenants to prepare the Proxy Statement in
compliance with the 1934 Act, the Investment Company Act and the rules and
regulations under each such act.
5.7 Institutional Fund covenants that it will, from time to time, as
and when requested by Acquiror Fund, execute and deliver or cause to be
executed and delivered all such assignments and other instruments, and will
take or cause to be taken such further action, as Acquiror Fund may deem
necessary or desirable in order to vest in and confirm to Acquiror Fund
title to and possession of all the assets of Acquiree Fund to be sold,
assigned, transferred and delivered hereunder and otherwise to carry out the
intent and purpose of this Agreement.
5.8 Acquiror Fund covenants to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the Investment
Company Act (including the determinations of its Directors as set forth
thereunder) and such of the state Blue Sky or securities laws as it may deem
appropriate in order to continue its operations after the Closing Date.
5.9 Acquiror Fund covenants that it will, from time to time, as and
when requested by Institutional Fund, execute and deliver or cause to be
executed and delivered all such assignments and other instruments, and will
take and cause to be taken such further action, as Institutional Fund may
deem necessary or desirable in order to (a) vest in and confirm to
Institutional Fund (on behalf of Acquiree Fund) title to and possession of
all the shares of Acquiror Fund to be transferred to Acquiree Fund pursuant
to this Agreement and (b) assume all of Acquiree Fund's liabilities in
accordance with this Agreement.
A-8
<PAGE>
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF INSTITUTIONAL FUND
The obligations of Institutional Fund to consummate the transactions
provided for herein shall be subject to the performance by Acquiror Fund of all
the obligations to be performed by it hereunder on or before the Closing Date
and the following further conditions:
6.1 All representations and warranties of Acquiror Fund contained in
this Agreement shall be true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force
and effect as if made on and as of the Closing Date.
6.2 Acquiror Fund shall have delivered to Institutional Fund on the
Closing Date a certificate executed in its name by the President or a Vice
President of Acquiror Fund, in form and substance satisfactory to
Institutional Fund and dated as of the Closing Date, to the effect that the
representations and warranties of Acquiror Fund in this Agreement are true
and correct at and as of the Closing Date, except as they may be affected by
the transactions contemplated by this Agreement, and as to such other
matters as Institutional Fund shall reasonably request.
6.3 Institutional Fund shall have received on the Closing Date a
favorable opinion from Gardner, Carton & Douglas, counsel to Acquiror Fund,
dated as of the Closing Date, to the effect that:
6.3.1 Acquiror Fund is a corporation duly organized and validly
existing under the laws of the State of Maryland, with power under its
Articles of Incorporation to own all of its properties and assets and, to
the knowledge of such counsel, to carry on its business as presently
conducted;
6.3.2 This Agreement has been duly authorized, executed and
delivered by Acquiror Fund and, assuming due authorization, execution and
delivery of this Agreement by Institutional Fund, is a valid and binding
obligation of Acquiror Fund enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles (regardless
of whether enforcement is sought in a proceeding at law or in equity),
and further subject to the qualifications set forth in the next
succeeding sentence. Such counsel may state that they express no opinion
as to the validity or enforceability of any provision regarding choice of
New York law to govern this Agreement;
6.3.3 The shares of Acquiror Fund to be distributed to Acquiree
Fund shareholders under this Agreement, assuming their due authorization
and delivery as contemplated by this Agreement, will be validly issued
and outstanding and fully paid and non-assessable, and no shareholder of
Acquiror Fund has any pre-emptive right to subscribe therefor or purchase
such shares;
6.3.4 The execution and delivery of this Agreement did not, and
the performance by Acquiror Fund of its obligations hereunder will not,
(a) violate Acquiror Fund's Articles of Incorporation or By-Laws or (b)
result in a default or a breach of (i) the Management Agreement dated May
2, 1988 between Acquiror Fund and PMF, (ii) the Custodian Agreement dated
July 25, 1990 between Acquiror Fund and State Street Bank, (iii) the
Restated Distribution Agreement dated May 9, 1996 between Acquiror Fund
and Prudential Securities Incorporated and (iv) the Transfer Agency and
Service Agreement dated January 1, 1990 between Acquiror Fund and
Prudential Mutual Fund Services, Inc.; provided, however, that such
counsel may state that they express no opinion with respect to federal or
state securities laws, other antifraud laws and fraudulent transfer laws;
provided further that insofar as performance by Acquiror Fund of its
A-9
<PAGE>
obligations under this Agreement is concerned, such counsel may state
that they express no opinion as to bankruptcy, insolvency,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity
principles;
6.3.5 To the knowledge of such counsel (without any independent
inquiry or investigation), no consent, approval, authorization, filing or
order of any court or governmental authority is required for the
consummation by Acquiror Fund of the transactions contemplated herein,
except such as have been obtained under the 1933 Act, the 1934 Act and
the Investment Company Act and such as may be required under state Blue
Sky or securities laws;
6.3.6 Acquiror Fund has been registered with the SEC as an
investment company, and, to the knowledge of such counsel, no order has
been issued or proceeding instituted to suspend such registration; and
6.3.7 To the knowledge of such counsel (without any independent
inquiry or investigation), (a) no material litigation or administration
proceeding or investigation of or before any court or governmental body
is presently pending or threatened against Acquiror Fund or any of its
properties or assets, and (b) Acquiror Fund is not a party to or subject
to the provision of any order, decree or judgment of any court or
governmental body that materially and adversely affects its business,
except as otherwise disclosed.
In rendering such opinion, such counsel may state that insofar as such
opinion involves factual matters, they have relied, to the extent they deem
proper, upon certificates of officers of Acquiror Fund and certificates of
public officials. As to matters of Maryland law, such counsel may rely upon
opinions of Maryland counsel reasonably satisfactory to Institutional Fund, in
which case the opinion shall state that both such counsel and Institutional Fund
are justified in so relying. In rendering such opinion, such counsel also may
(a) make assumptions regarding the authenticity, genuineness and/or conformity
of documents and copies thereof without independent verification thereof, (b)
limit such opinion to applicable federal and state law and (c) define the word
"knowledge" and related terms to mean the knowledge of attorneys then with such
firm who have devoted substantive attention to matters directly related to this
Agreement and the Reorganization.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUIROR FUND
The obligations of Acquiror Fund to complete the transactions provided for
herein shall be subject to the performance by Institutional Fund of all the
obligations to be performed by it hereunder on or before the Closing Date and
the following further conditions:
7.1 All representations and warranties of Institutional Fund contained
in this Agreement shall be true and correct in all material respects as of
the date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force
and effect as if made on and as of the Closing Date.
7.2 Institutional Fund shall have delivered to Acquiror Fund on the
Closing Date a statement of Acquiree Fund's assets and liabilities, which
statement shall be prepared in accordance with generally accepted accounting
principles consistently applied, together with a list of Acquiree Fund's
portfolio securities showing the adjusted tax bases of such securities by
lot, as of the Closing Date, certified by the Treasurer of Institutional
Fund.
A-10
<PAGE>
7.3 Institutional Fund shall have delivered to Acquiror Fund on the
Closing Date a certificate executed in its name by the President or a Vice
President of Institutional Fund, in form and substance satisfactory to
Acquiror Fund and dated as of the Closing Date, to the effect that the
representations and warranties of Institutional Fund made in this Agreement
are true and correct at and as of the Closing Date except as they may be
affected by the transactions contemplated by this Agreement, and as to such
other matters as Acquiror Fund shall reasonably request.
7.4 On or immediately prior to the Closing Date, Acquiree Fund shall
have declared and paid to its shareholders of record one or more dividends
so that it will have distributed substantially all (and in any event not
less than ninety-eight percent) of its investment company taxable income
(computed without regard to any deduction for dividends paid) and net
tax-exempt interest income, if any, for all taxable years through its
liquidation.
7.5 Acquiror Fund shall have received on the Closing Date a favorable
opinion from Kirkpatrick & Lockhart LLP, counsel to Institutional Fund,
dated as of the Closing Date, to the effect that:
7.5.1 Institutional Fund is a business trust duly organized and
validly existing under the laws of the State of Delaware, with power
under its Declaration of Trust to own all of its properties and assets
and, to the knowledge of such counsel, to carry on its business as
presently conducted, and Acquiree Fund has been duly established in
accordance with the terms of Institutional Fund's Declaration of Trust;
7.5.2 This Agreement has been duly authorized, executed and
delivered by Institutional Fund and, assuming due authorization,
execution and delivery of this Agreement by Acquiror Fund, is a valid and
binding obligation of Institutional Fund enforceable in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity
principles (regardless of whether enforcement is sought in a proceeding
at law or in equity), and further subject to the qualifications set forth
in the next succeeding sentence. Such counsel may state that they express
no opinion as to the validity or enforceability of any provision
regarding choice of New York law to govern this Agreement;
7.5.3 The execution and delivery of this Agreement did not, and
the performance by Institutional Fund of its obligations hereunder will
not, (a) violate Institutional Fund's Declaration of Trust or By-Laws or
(b) result in a default or a breach of (i) the Management Agreement dated
October 30, 1992 between Institutional Fund and Prudential Institutional
Fund Management, Inc., (ii) the Custodian Agreement dated October 30,
1992 between Institutional Fund and State Street Bank, (iii) the
Distribution Agreement with respect to Acquiree Fund dated May 1, 1993
between Institutional Fund and Prudential Retirement Services, Inc. and
(iv) the Administration, Transfer Agency and Service Agreement dated
October 30, 1992 between Institutional Fund and PMF; provided, however,
that such counsel may state that they express no opinion with respect to
federal or state securities laws, other antifraud laws and fraudulent
transfer laws; provided further that insofar as performance by
Institutional Fund of its obligations under this Agreement is concerned,
such counsel may state that they express no opinion as to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors' rights
and to general equity principles;
A-11
<PAGE>
7.5.4 All regulatory consents, authorizations and approvals
required to be obtained by Institutional Fund under the federal laws of
the United States, the laws of the State of New York and Chapter 38 of
the Delaware Code for the consummation of the transactions contemplated
by this Agreement have been obtained;
7.5.5 Such counsel knows of no litigation or any governmental
proceeding instituted or threatened against Acquiree Fund that would be
required to be disclosed in the Registration Statement and is not so
disclosed;
7.5.6 Institutional Fund has been registered with the SEC as an
investment company, and, to the knowledge of such counsel, no order has
been issued or proceeding instituted to suspend such registration; and
7.5.7 To the knowledge of such counsel (without any independent
inquiry or investigation), (a) no material litigation or administration
proceeding or investigation of or before any court or governmental body
is presently pending or threatened against Institutional Fund (with
respect to Acquiree Fund) or any of its properties or assets
distributable or allocable to Acquiree Fund, and (b) Institutional Fund
is not a party to or subject to the provision of any order, decree or
judgment of any court or governmental body that materially and adversely
affects its business, except as otherwise disclosed.
In rendering such opinion, such counsel may state that insofar as such
opinion involves factual matters, they have relied, to the extent they deem
proper, upon certificates of officers of Institutional Fund and certificates of
public officials. As to matters of Delaware law, such counsel may rely upon
opinions of Delaware counsel reasonably satisfactory to Acquiror Fund, in which
case the opinion shall state that both such counsel and Acquiror Fund are
justified in so relying. In rendering such opinion, such counsel also may (a)
make assumptions regarding the authenticity, genuineness and/or conformity of
documents and copies thereof without independent verification thereof, (b) limit
such opinion to applicable federal and state law and (c) define the word
"knowledge" and related terms to mean the knowledge of attorneys then with such
firm who have devoted substantive attention to matters directly related to this
Agreement and the Reorganization.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE INVESTMENT COMPANIES
The obligations of each Investment Company hereunder are subject to the
further conditions that on or before the Closing Date:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of (a) the Trustees of Institutional
Fund and the Directors of Acquiror Fund as to the determinations set forth
in Rule 17a-8(a) under the Investment Company Act, (b) the Directors of
Acquiror Fund as to the assumption by Acquiror Fund of the liabilities of
Acquiree Fund and (c) the holders of the outstanding shares of Acquiree Fund
in accordance with the provisions of Institutional Fund's Declaration of
Trust, and certified copies of the resolutions evidencing such approvals
shall have been delivered to Acquiror Fund.
8.2 Any proposed change to Acquiror Fund's operations that may be
approved by the Directors of Acquiror Fund subsequent to the date of this
Agreement but in connection with and as a condition to implementing the
transactions contemplated by this Agreement, for which the approval of
Acquiror Fund's shareholders is required pursuant to the Investment Company
Act or otherwise, shall have been approved by the requisite vote of the
holders of the outstanding shares of Acquiror Fund in accordance
A-12
<PAGE>
with the Investment Company Act and the provisions of the Declaration of
Trust of Acquiror Fund, and certified copies of the resolution evidencing
such approval shall have been delivered to Institutional Fund.
8.3 On the Closing Date no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with,
this Agreement or the transactions contemplated herein.
8.4 All consents of other parties and all consents, orders and permits
of federal, state and local regulatory authorities (including those of the
SEC and of state Blue Sky or securities authorities, including "no-action"
positions of such authorities) deemed necessary by either Investment Company
to permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to obtain
any such consent, order or permit would not involve a risk of a material
adverse effect on the assets or properties of either Fund, provided that
either party hereto may for itself waive any part of this condition.
8.5 The Registration Statement shall have become effective under the
1933 Act, and no stop orders suspending the effectiveness thereof shall have
been issued, and to the best knowledge of the parties hereto, no
investigation or proceeding under the 1933 Act for that purpose shall have
been instituted or be pending, threatened or contemplated. In addition, the
SEC shall not have issued an unfavorable report with respect to the
Reorganization under section 25(b) of the Investment Company Act nor
instituted any proceedings seeking to enjoin consummation of the
transactions contemplated hereby under section 25(c) of the Investment
Company Act.
8.6 The Investment Companies shall have received on or before the
Closing Date an opinion of Kirkpatrick & Lockhart LLP, satisfactory to each
Investment Company, as to the federal income tax treatment of the
Reorganization. In rendering such opinion, such counsel may rely as to
factual matters, exclusively and without independent verification, on the
representations made in this Agreement (or in separate letters addressed to
such counsel) and the certificates delivered pursuant to paragraph 3.5.
9. FINDER'S FEES AND EXPENSES
9.1 Each Investment Company represents and warrants to the other that
there are no finder's fees payable in connection with the transactions
provided for herein.
9.2 The expenses incurred in connection with the entering into and
carrying out of the provisions of this Agreement shall be allocated to the
Funds PRO RATA in a fair and equitable manner in proportion to their
respective assets.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 This Agreement constitutes the entire agreement between the
Investment Companies.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection
herewith shall survive the consummation of the transactions contemplated
hereunder.
A-13
<PAGE>
11. TERMINATION
Either Investment Company may at its option terminate this Agreement at or
prior to the Closing Date because of:
11.1 A material breach by the other of any representation, warranty or
covenant contained herein to be performed at or prior to the Closing Date;
or
11.2 A condition herein expressed to be precedent to the obligations of
either party not having been met and it reasonably appearing that it will
not or cannot be met; or
11.3 A mutual written agreement of the Investment Companies.
In the event of any such termination, there shall be no liability for
damages on the part of either Investment Company (other than the liability of
the Funds to pay their allocated expenses pursuant to paragraph 9.2) or any
Director, Trustee or officer of either Investment Company.
12. AMENDMENT
This Agreement may be amended, modified or supplemented only in writing by
the parties; provided, however, that following the Acquiree Fund's shareholders'
meeting called by Institutional Fund pursuant to paragraph 5.2, no such
amendment may have the effect of changing the provisions for determining the
number of shares of Acquiror Fund to be distributed to Acquiree Fund
shareholders under this Agreement to the detriment of such shareholders without
their further approval.
13. NOTICES
Any notice, report, demand or other communication to either party required
or permitted by any provision of this Agreement shall be in writing and shall be
given by hand delivery, or prepaid certified mail or overnight service,
addressed to such party c/o Prudential Mutual Fund Management, Inc., One Seaport
Plaza, New York, New York 10292, Attention: S. Jane Rose.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT
14.1 The paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each
of which will be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance
with the laws of the State of New York; provided that, in the case of any
conflict between such laws and the federal securities laws, the latter shall
govern.
14.4 This Agreement shall bind and inure to the benefit of the parties
and their respective successors and assigns, and no assignment or transfer
hereof or of any rights or obligations hereunder shall be made by either
party without the written consent of the other party. Nothing herein
expressed or implied is intended or shall be construed to confer upon or
give any person, firm or corporation other than the parties and their
respective successors and assigns any rights or remedies under or by reason
of this Agreement.
A-14
<PAGE>
15. POSTPONEMENT OF CLOSING
15.1 If the difference between the net asset values per share of the
Funds equals or exceeds $.0025 at the time of Closing (or such earlier or
later day and time as the parties may agree to and set forth in writing
signed by their duly authorized officers), as computed by using the market
values of the Funds' respective assets in accordance with the policies and
procedures established by the Investment Companies (or as otherwise mutually
determined by their respective Trustees/Directors), either Investment
Company may postpone the Closing until such time as such per share net asset
value difference is less than $.0025.
15.2 If, as of the Closing, PMF reasonably determines that consummation
of the Reorganization will result in recognition to Acquiree Fund for
federal income tax purposes of gain or loss of $.0010 or more per share, the
Closing shall be postponed until the first date on which, as of 12:00 noon,
PMF shall determine that such recognition of gain or loss will be less that
$.0010 per share, in which event such date shall be the Closing Date, unless
the parties otherwise agree.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed by its President or Vice President.
THE PRUDENTIAL INSTITUTIONAL FUND,
on behalf of its series,
Money Market Fund
By: /s/ MARGUERITE E.H. MORRISON
------------------------------------
Marguerite E.H. Morrison
Assistant Secretary
PRUDENTIAL MONEYMART ASSETS, INC.
By: /s/ RICHARD A. REDEKER
------------------------------------
Richard A. Redeker
President
A-15
<PAGE>
APPENDIX B
PRUDENTIAL MONEYMART ASSETS, INC.
NOMINATED SLATE OF DIRECTORS
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE DURING PAST FIVE YEARS
- ---------------------------------- ------------------------------------------------------------------------------
<S> <C>
Edward D. Beach (71) President and Director of BMC Fund, Inc., a closed-end investment company;
c/o Prudential Mutual Fund prior thereto Vice Chairman of Broyhill Furniture Industries, Inc.; Certified
Management, Inc. Public Accountant; Secretary and Treasurer of Broyhill Family Foundation,
One Seaport Plaza Inc.; Member of the Board of Trustees of Mars Hill College; President,
New York, NY Treasurer and Director of First Financial Fund, Inc. and The High Yield Plus
Fund, Inc.; President and Director of Global Utility Fund, Inc.
Stephen C. Eyre (73) Executive Director, The John A. Hartford Foundation, Inc. (charitable
c/o Prudential Mutual Fund foundation) (since May 1985); Director of Faircom, Inc.
Management, Inc.
One Seaport Plaza
New York, NY
Delayne Dedrick Gold (57) Marketing and Management Consultant
c/o Prudential Mutual Fund
Management, Inc.
One Seaport Plaza
New York, NY
Don G. Hoff (60) Chairman and Chief Executive Officer of Intertec, Inc. (Investments) since
c/o Prudential Mutual Fund 1980; Director of Innovative Capital Management, Inc., The Asia Pacific Fund,
Management, Inc. Inc. and The Greater China Fund, Inc.
One Seaport Plaza
New York, NY
Robert E. LaBlanc (61) President of Robert E. LaBlanc Associates, Inc. (telecommunications) since
c/o Prudential Mutual Fund 1981; Director of Storage Technology Corporation, TIE/ communications, Inc.
Management, Inc. and Tribune Company; Trustee of Manhattan College.
One Seaport Plaza
New York, NY
</TABLE>
B-1
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE DURING PAST FIVE YEARS
- ---------------------------------- ------------------------------------------------------------------------------
<S> <C>
*Richard A. Redeker (52) President, Chief Executive Officer and Director (since October 1993), PMF;
One Seaport Plaza Executive Vice President, Director and Member of Operating Committee (since
New York, NY October 1993), Prudential Securities; Director (since October 1993) of
Prudential Securities Group, Inc. (PSG); Executive Vice President (since
January 1994), The Prudential Investment Corporation; Director (since January
1994), Prudential Mutual Fund Distributors, Inc. (PMFD) and Prudential Mutual
Fund Services, Inc. (PMFS); formerly Senior Executive Vice President and
Director of Kemper Financial Services, Inc. (September 1978-September 1993);
President and Director of The High Yield Income Fund, Inc.
Robin B. Smith (56) President (since September 1981) and Chief Executive Officer (since January
c/o Prudential Mutual Fund 1988) of Publishers Clearing House; Director of BellSouth Corporation, The
Management, Inc. Omni-com Group, Inc., Spring Industries, Inc., Texaco Inc., First Financial
One Seaport Plaza Fund, Inc., The High Yield Income Fund, Inc. and The High Yield Plus Fund,
New York, NY Inc.
Stephen Stoneburn (52) President, Argus Integrated Media, Inc. (since June 1995); formerly Senior
c/o Prudential Mutual Fund Vice President and Managing Director, Cowles Business Media (January
Management, Inc. 1993-1995); Senior Vice President (January 1991-1992) and Publishing Vice
One Seaport Plaza President (May 1989-December 1990) of Gralla Publications a division of
New York, NY United Newspapers, U.K.; formerly Senior Vice President of Fairchild
Publications, Inc.
Nancy H. Teeters (65) Economist; formerly Vice President and Chief Economist (March 1986-June 1990)
c/o Prudential Mutual Fund of International Business Machines Corporation; Director of Inland Steel
Management, Inc. Corporation (since July 1991), Global Utility Fund, Inc. and First Financial
One Seaport Plaza Fund, Inc.
New York, NY
10292
</TABLE>
- ------------------------
* "Interested" director, as defined in the Investment Company Act, by virtue of
his affiliation with Prudential Securities and PMF.
B-2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SYNOPSIS................................................................................................... 2
General................................................................................................ 2
The Proposed Reorganization and Liquidation............................................................ 2
Reasons for the Proposed Reorganization................................................................ 3
Structure of MoneyMart Assets and Money Market Fund.................................................... 4
Investment Objectives and Policies..................................................................... 5
Certain Differences Between MoneyMart Assets and Money Market Fund..................................... 7
Fees and Expenses...................................................................................... 8
Management Fees.................................................................................... 8
Administration Fees................................................................................ 8
Other Expenses..................................................................................... 8
Distribution....................................................................................... 9
Fee Waivers and Subsidy............................................................................ 9
Expense Ratios..................................................................................... 9
Purchases and Redemptions.............................................................................. 10
Exchange Privileges.................................................................................... 11
Dividends and Other Distributions...................................................................... 12
Federal Income Tax Consequences of the Reorganization.................................................. 12
PRINCIPAL RISK FACTORS..................................................................................... 12
Stable Net Asset Value................................................................................. 12
Foreign Investments.................................................................................... 12
Borrowing.............................................................................................. 13
SPECIAL MEETING OF MONEYMART ASSETS SHAREHOLDERS........................................................... 13
THE PROPOSED TRANSACTION................................................................................... 13
Asset/Stock Exchange Agreement......................................................................... 13
Reasons for the Reorganization and Liquidation......................................................... 14
Description of Securities to be Issued................................................................. 15
Tax Considerations..................................................................................... 15
Certain Comparative Information About the Funds........................................................ 16
Capitalization..................................................................................... 16
Shareholder Meetings and Voting Rights............................................................. 16
Pro Forma Capitalization and Ratios.................................................................... 17
INFORMATION ABOUT MONEYMART ASSETS......................................................................... 18
INFORMATION ABOUT MONEY MARKET FUND........................................................................ 19
MISCELLANEOUS.............................................................................................. 19
VOTING INFORMATION......................................................................................... 20
OTHER MATTERS.............................................................................................. 21
SHAREHOLDERS' PROPOSALS.................................................................................... 21
APPENDIX A--Asset/Stock Exchange Agreement................................................................. A-1
APPENDIX B--Nominated Slate of Directors................................................................... B-1
TABLE OF CONTENTS
ENCLOSURES
Prospectus of MoneyMart Assets Class Z Shares dated March 1, 1996.
</TABLE>
<PAGE>
PRUDENTIAL MONEYMART ASSETS, INC.
ONE SEAPORT PLAZA
199 WATER STREET
NEW YORK, NEW YORK 10292
(800) 225-1852
STATEMENT OF ADDITIONAL INFORMATION
DATED JULY 25, 1996
ACQUISITION OF ASSETS OF
THE MONEY MARKET FUND OF
THE PRUDENTIAL INSTITUTIONAL FUND
------------------------
BY AND IN EXCHANGE FOR CLASS Z SHARES OF
PRUDENTIAL MONEYMART ASSETS, INC.
21 PRUDENTIAL PLAZA
751 BROAD STREET
NEWARK, NEW JERSEY 07102-3777
(800) 225-1852
This Statement of Additional Information relates specifically to the
proposed transfer of all the assets and the assumption of all the liabilities,
if any, of the Money Market Fund (Money Market Fund), a series of The Prudential
Institutional Fund (the Institutional Fund) by Prudential MoneyMart Assets, Inc.
(MoneyMart Assets). This Statement of Additional Information consists of this
cover page and the following described documents, each of which is attached
hereto and incorporated herein by reference:
1. The Statement of Additional Information of the MoneyMart Assets dated
March 1, 1996, as supplemented by a supplement dated April 22, 1996;
2. Pages 1, 39, 40, 41, 42, 43, 44, 46, 50, 51, 52, 53, 54, 55, 56, 57 and
58 of the Annual Report to Shareholders of the Institutional Fund for the
fiscal year ended September 30, 1995 relating to Money Market Fund; and
3. Pages 1, 2, 34, 35, 36, 37, 38, 40, 44, 45, 46, 47, 48, 49, 50 and 51 of
the Semi-Annual Report to Shareholders of the Institutional Fund for the
six months ended March 31, 1996 relating to Money Market Fund.
The Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus and Proxy Statement dated July 22, 1996
relating to the above referenced matter. A copy of the Prospectus and Proxy
Statement may be obtained from MoneyMart Assets without charge by writing or
calling Prudential MoneyMart Assets, Inc. at the address or telephone number
listed above for MoneyMart Assets.
1
<PAGE>
PRUDENTIAL
MONEYMART ASSETS, INC.
Statement of Additional Information
Dated March 1, 1996
Prudential MoneyMart Assets, Inc. (the Fund) is an open-end, diversified,
management investment company whose investment objective is maximum current
income consistent with stability of capital and maintenance of liquidity. The
Fund pursues this objective by investing primarily in a portfolio of short-term
money market instruments maturing within thirteen months of the date of
acquisition. There can be no assurance that the Fund's investment objective will
be achieved. See "Investment Objective and Policies." The Fund's address is One
Seaport Plaza, New York, New York 10292, and its telephone number is (800)
225-1852.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus, dated March 1, 1996, a copy of
which may be obtained from the Fund upon request at the address noted above.
TABLE OF CONTENTS
CROSS-
REFERENCE
TO PAGE IN
PAGE PROSPECTUS
---- ----------
General Information and History ............................ B-2 13
Investment Objective and Policies .......................... B-2 6
Investment Restrictions .................................... B-3 9
Suitability for Investors .................................. B-4 --
Calculation of Yield ....................................... B-5 6
Directors and Officers ..................................... B-5 9
Manager .................................................... B-8 9
Distributor ................................................ B-10 10
Purchase and Redemption of Fund Shares ..................... B-12 14
Shareholder Investment Account ............................. B-13 20
Dividends .................................................. B-15 12
Net Asset Value ............................................ B-16 12
Portfolio Transactions ..................................... B-16 11
Taxes ...................................................... B-17 12
Custodian, Transfer and Dividend
Disbursing Agent and Independent Accountants .............. B-18 11
Financial Statements ....................................... B-19 --
Independent Auditors' Report ............................... B-28 --
Appendix A--Description of Ratings ......................... A-1 --
- -------------------------------------------------------------------------------
MF108B
<PAGE>
GENERAL INFORMATION AND HISTORY
Effective March 1, 1996, the Fund's name changed from "Prudential-Bache
MoneyMart Assets Inc." to "Prudential MoneyMart Assets, Inc."
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is maximum current income consistent with
stability of capital and maintenance of liquidity. This objective is pursued by
investing primarily in a portfolio of money market instruments maturing in
thirteen months or less.
FLOATING RATE AND VARIABLE RATE SECURITIES
The Fund may purchase floating rate and variable rate securities.
Investments in floating or variable rate securities normally will involve
securities which provide that the rate of interest is set as a spread to a
designated base rate, such as rates on Treasury bills, and, in some cases, that
the purchaser can demand payment of the obligation at specified intervals or
after a specified notice period (in each case a period of less than thirteen
months) at par plus accrued interest, which amount may be more or less than the
amount paid for them. Variable rate securities provide for a specified periodic
adjustment in the interest rate, while floating rate securities have an interest
rate which changes whenever there is a change in the designated base interest
rate.
PUTS. The Fund may purchase instruments of the types described in its
Prospectus under "How the Fund Invests--Investment Objective and Policies"
together with the right to resell the instruments at an agreed-upon price or
yield within a specified period prior to the maturity date of the instruments.
Such a right to resell is commonly known as a "put," and the aggregate price
which the Fund pays for instruments with puts may be higher than the price which
otherwise would be paid for the instruments. Consistent with the Fund's
investment objective and applicable rules issued by the Securities and Exchange
Commission (SEC) and subject to the supervision of the Board of Directors, the
purpose of this practice is to permit the Fund to be fully invested while
preserving the necessary liquidity to meet unusually large redemptions and to
purchase at a later date securities other than those subject to the put. Puts
may be exercised prior to the expiration date in order to fund obligations to
purchase other securities or to meet redemption requests. These obligations may
arise during periods in which proceeds from sales of Fund shares and from recent
sales of portfolio securities are insufficient to meet such obligations or when
the funds available are otherwise allocated for investment. In addition, puts
may be exercised prior to the expiration date in the event the Fund's investment
adviser revises its evaluation of the creditworthiness of the issuer of the
underlying security. In determining whether to exercise puts prior to their
expiration date and in selecting which puts to exercise in such circumstances,
the Fund's investment adviser considers, among other things, the amount of cash
available to the Fund, the expiration dates of the available puts, any future
commitments for securities purchases, the yield, quality and maturity dates of
the underlying securities, alternative investment opportunities and the
desirability of retaining the underlying securities in the Fund's portfolio.
The Fund values instruments which are subject to puts at amortized cost; no
value is assigned to the put. The cost of the put, if any, is carried as an
unrealized loss from the time of purchase until it is exercised or expires.
Since the value of the put is dependent on the ability of the put writer to
meet its obligation to repurchase, the Fund's policy is to enter into put
transactions only with such brokers, dealers or financial institutions which
present minimal credit risks. There is a credit risk associated with the
purchase of puts in that the broker, dealer or financial institution might
default on its obligation to repurchase an underlying security. In the event
such a default should occur, the Fund is unable to predict whether all or any
portion of any loss sustained could subsequently be recovered from the broker,
dealer or financial institution.
The Fund will invest no more than 5% of its total assets in securities
issued by or subject to puts from the same institution. For purposes of this
limitation, unconditional puts or guarantees with respect to a security will not
be deemed to be issued by the institution providing the guarantee or put if the
value of all securities held by the Fund and issued or guaranteed by the issuer
providing the guarantee or put are limited to 10% of the Fund's total assets.
REPURCHASE AGREEMENTS. The Fund participates in a joint repurchase account
with other investment companies managed by Prudential Mutual Fund Management,
Inc. pursuant to an order of the SEC. On a daily basis, any uninvested cash
balances of the Fund may be aggregated with those of such investment companies
and invested in one or more repurchase agreements. Each fund participates in the
income earned or accrued in the joint account based on the percentage of its
investment. In connection with transactions in repurchase agreements with U.S.
financial institutions, it is the Fund's policy that its custodian or designated
subcustodians, as the case may be, under triparty repurchase agreements, take
possession of the underlying collateral securities, the value of which equals or
exceeds the resale price of the agreement. If the seller defaults and the value
of the collateral declines or if bankruptcy proceedings are commenced with
respect to the seller of the security, realization of the collateral by the Fund
may be delayed or limited.
ILLIQUID SECURITIES. The Fund may not hold more than 10% of its net assets
in illiquid securities, including securities that are illiquid by virtue of the
absence of a readily available market or legal or contractual restrictions on
resale and repurchase agree-
B-2
<PAGE>
ments which have a maturity of longer than seven days. Historically,
illiquid securities have included securities subject to contractual or legal
restrictions on resale because they have not been registered under the
Securities Act of 1933, as amended (Securities Act), securities which are
otherwise not readily marketable and repurchase agreements having a maturity of
longer than seven days. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. A mutual fund might also have to register such restricted securities
in order to dispose of them resulting in additional expense and delay. Adverse
market conditions could impede such a public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
Rule 144A of the Securities Act allows for a broader institutional trading
market for securities otherwise subject to restriction on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the Securities Act for resales of certain securities to qualified
institutional buyers. The investment adviser anticipates that the market for
certain restricted securities such as institutional commercial paper and foreign
securities will expand further as a result of this new regulation and the
development of automated systems for the trading, clearance and settlement of
unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc.
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and commercial paper for which there is a readily available
market will not be deemed to be illiquid. The investment adviser will monitor
the liquidity of such restricted securities subject to the supervision of the
Board of Directors. In reaching liquidity decisions, the investment adviser will
consider, INTER ALIA, the following factors: (1) the frequency of trades and
quotes for the security; (2) the number of dealers wishing to purchase or sell
the security and the number of other potential purchasers; (3) dealer
undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades (E.G., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer). In addition, in order for commercial paper that is issued in
reliance on Section 4(2) of the Securities Act to be considered liquid, (i) it
must be rated in one of the two highest rating categories by at least two
nationally recognized statistical rating organizations (NRSRO), or if only one
NRSRO rates the securities, by that NRSRO, or, if unrated, be of comparable
quality in the view of the investment adviser; and (ii) it must not be "traded
flat" (I.E., without accrued interest) or in default as to principal or
interest. Repurchase agreements subject to demand are deemed to have a maturity
equal to the notice period.
INVESTMENT RESTRICTIONS
The Fund invests primarily in money market instruments maturing in thirteen
months or less. In connection with its investment objective and policies as set
forth in the Prospectus, the Fund has adopted the following investment
restrictions, none of which may be changed without the approval of the holders
of a majority of the Fund's outstanding voting securities. A "majority of the
Fund's outstanding voting securities," when used in this Statement of Additional
Information, means the lesser of (i) 67% of the voting shares represented at a
meeting at which more than 50% of the outstanding voting shares are present in
person or represented by proxy or (ii) more than 50% of the outstanding voting
shares.
The Fund may not engage in any of the practices described in paragraphs
1-13 below:
1. Purchase common stock or other voting securities, preferred stock,
warrants or other equity securities.
2. Purchase any securities (other than obligations of the U.S. Government,
its agencies and instrumentalities) if as a result 25% or more of the value of
the Fund's total assets (determined at the time of investment) would be invested
in the securities of one or more issuers conducting their principal business
activities in the same industry, provided that there is no limitation with
respect to money market instruments of domestic banks, U.S. branches of foreign
banks that are subject to the same regulations as U.S. banks and foreign
branches of domestic banks (provided that the domestic bank is unconditionally
liable in the event of the failure of the foreign branch to make payment on its
instruments for any reason).
3. Purchase the securities of any one issuer, other than the U.S.
Government or its agencies and instrumentalities, if more than 5% of the value
of the Fund's total assets would be invested in securities of such issuer.
B-3
<PAGE>
4. Make cash loans except through the purchase of debt obligations and the
entry into repurchase agreements permitted under "Investment Objective and
Policies." The Fund may also engage in the practice of lending its securities
only against fully comparable collateral. See paragraph 13 below.
5. Borrow money, except from banks for temporary or emergency purposes and
then only in amounts up to 10% of the value of the Fund's net assets. This
borrowing provision is included solely to facilitate the orderly sale of
portfolio securities to accommodate abnormally heavy redemption requests, if
they should occur, or to permit the Fund to obtain short-term credits necessary
for the settlement of transactions, and is not for investment purposes. Interest
paid on borrowings is not available for investment by the Fund. Secured
temporary borrowings may take the form of reverse repurchase agreements,
pursuant to which the Fund would sell portfolio securities for cash and
simultaneously agree to repurchase them at a specified date for the same amount
of cash plus an interest component. The SEC has issued a release requiring, in
effect, that the Fund maintain, in a segregated account with State Street Bank
and Trust Company (State Street), liquid assets equal in value to the amount
owed.
6. Mortgage, pledge or hypothecate any assets, except in an amount up to
15% of the value of the Fund's net assets, but only to secure borrowings for
temporary or emergency purposes as described in paragraph 5 above.
7. Purchase or sell real estate, real estate investment trust securities,
commodities or commodity contracts, or oil and gas interests.
8. Act as an underwriter of securities.
9. Purchase securities on margin, except for the use of short-term credit
necessary for clearance of purchases or sales of portfolio securities, or make
short sales of securities or maintain a short position.
10. Purchase securities, other than obligations of the U.S. Government, its
agencies or instrumentalities, of any issuer having a record, together with
predecessors, of less than three years of continuous operations if, immediately
after such purchase, more than 5% of the Fund's total assets would be invested
in such securities.
11. Make investments for the purpose of exercising control or management.
12. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization.
13. The Fund may lend its portfolio securities if such loans are secured
continuously by collateral in cash maintained on a daily basis at an amount at
least equal at all times to the market value of the securities loaned. The Fund
must maintain the right to call such loans and to obtain the securities loaned
at any time on five days' notice. During the existence of a loan, the Fund
continues to receive the equivalent of the interest paid by the issuer on the
securities loaned and also has the right to receive the interest on investment
of the cash collateral in short-term money market instruments. If the management
of the Fund determines to make securities loans, the value of the securities
loaned will not exceed 10% of the value of the Fund's total assets.
Whenever any fundamental investment policy or investment restriction states
a maximum percentage of the Fund's assets, it is intended that if the percentage
limitation is met at the time the action is taken, a later change in percentage
resulting from changing total or net asset values will not be considered a
violation of such policy. However, in the event that the Fund's asset coverage
for borrowings falls below 300%, the Fund will take prompt action to reduce its
borrowings, as required by applicable law.
In order to comply with certain state "blue sky" restrictions, the Fund
will not as a matter of operating policy invest in securities of issuers which
are restricted as to disposition, if more than 15% of its total assets would be
invested in such securities (this restriction shall not apply to mortgage-backed
securities, asset backed securities or obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities).
SUITABILITY FOR INVESTORS
The Fund is designed primarily to provide a convenient means of investing
short-term funds where the direct purchase of money market instruments may be
impractical, uneconomical or undesirable.
Money market instruments such as those to be purchased by the Fund are
generally available only in denominations of $100,000 or more. Frequently,
higher yields may be obtained by the purchase of instruments in blocks or
denominations of $1,000,000, $5,000,000 or more. As compared with direct
purchase, an investment in the Fund permits participation in such money market
instruments while affording the advantage of diversification and a high degree
of liquidity. Further, the Fund relieves the investor of most investment
decisions and bookkeeping problems associated with the direct purchase of money
market instruments, such as making numerous buy and sell decisions, scheduling
maturities, reinvesting income, providing for safekeeping and investing in round
lots.
B-4
<PAGE>
Although the Fund provides the advantage of diversification, there is still
an inherent market risk due to the nature of the investment. If interest rates
decline, then yield to shareholders will also decline. If there are unusually
heavy redemption requests because of changes in interest rates or for any other
reason, the Fund may have to sell a portion of its investment portfolio at a
time when it may be disadvantageous to do so. The Fund believes that its
borrowing provision for abnormally heavy redemption requests would help to
mitigate any adverse effects and would make the sale of its portfolio securities
unlikely. When a shareholder redeems shares, it is possible that the redemption
proceeds will be less than the amount invested.
The Fund has developed special procedures to assist banks and other
institutions choosing to establish multiple accounts. Banks should consult their
legal advisers regarding state and federal laws applicable to the purchase of
Fund shares for fiduciary accounts.
CALCULATION OF YIELD
The Fund will prepare a current quotation of yield from time to time. The
yield quoted will be the simple annualized yield for an identified seven
calendar day period. The yield calculation will be based on a hypothetical
account having a balance of exactly one share at the beginning of the seven-day
period. The base period return will be the change in the value of the
hypothetical account during the seven-day period, including dividends declared
on any shares purchased with dividends on the share but excluding any capital
changes. The yield will vary as interest rates and other conditions affecting
money market instruments change. Yield also depends on the quality, length of
maturity and type of instruments in the Fund's portfolio, and its operating
expenses. The Fund may also prepare an effective annual yield computed by
compounding the unannualized seven-day period return as follows: by adding 1 to
the unannualized seven-day period return, raising the sum to a power equal to
365 divided by 7, and subtracting 1 from the result.
The Fund's yield fluctuates, and an annualized yield quotation is not a
representation by the Fund as to what an investment in the Fund will actually
yield for any given period. Actual yields will depend upon not only changes in
interest rates generally during the period in which the investment in the Fund
is held, but also on any realized or unrealized gains and losses and changes in
the Fund's expenses.
DIRECTORS AND OFFICERS
Directors and officers of the Fund, together with information as to their
principal business occupations during the last five years, are shown below.
POSITION PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- --------------------- --------- ----------------------
Delayne Dedrick Gold (57) Director Marketing and Management Consultant.
c/o Prudential
Mutual Fund
Management, Inc.
One Seaport Plaza
New York, New York 10292
*Harry A. Jacobs, Jr. (74) Director Senior Director (since January 1986)
One Seaport Plaza of Prudential Securities Incorporated
New York, New York 10292 (Prudential Securities); formerly,
Interim Chairman and Chief Executive
Officer (June 1993-October 1993) of
Prudential Mutual Fund Management,
Inc. (PMF); Chairman of the Board of
Prudential Securities Inc.
(1982-1985); Chairman of the Board
and Chief Executive Officer of Bache
Group Inc. (1977-1982); Director of
The First Australia Fund, Inc. and
The First Australia Prime Income
Fund, Inc.; Trustee of The Trudeau
Institute.
Thomas A. Owens, Jr. (73) Director Consultant.
c/o Prudential
Mutual Fund Management, Inc.
One Seaport Plaza
New York, New York 10292
B-5
<PAGE>
POSITION PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- --------------------- --------- ----------------------
*Richard A. Redeker (52) Director President, Chief Executive Officer and
One Seaport Plaza Director (since October 1993) of PMF;
New York, New York Executive Vice President, Director
10292 and Member of Operating Committee
(since October 1993), Prudential
Securities; Director (since October
1993) of Prudential Securities Group,
Inc. (PSG); Executive Vice President
(since July 1994), The Prudential
Investment Corporation (PIC); Director
(since January 1994), Prudential Mutual
Fund Distributors, Inc. (PMFD);
Director (since January 1994),
Prudential Mutual Fund Services, Inc.
(PMFS); formerly Senior Executive
Vice President and Director of Kemper
Financial Services, Inc. (September
1978-September 1993); Director of The
High Yield Income Fund, Inc.
Sidney M. Spielvogel (70) Director Managing Director, Corporate Capital
c/o Prudential Mutual Fund Consultants, Inc. (since April 1994);
Management, Inc. formerly Vice President (January
One Seaport Plaza 1992-March 1994) of Reich & Co., Inc.;
New York, New York prior thereto Vice President (March
10292 1988-January 1992) of Josephthal & Co.
Inc.; formerly Managing Director,
Corporate Finance (January 1986-January
1988) of Prudential Securities; prior
thereto, Senior Vice President (more
than five years) of Prudential
Securities; Director of Supreme
Equipment & Systems Corporation (until
July 1993).
Nancy H. Teeters (65) Director Economist; formerly Vice President and
c/o Prudential Mutual Fund Chief Economist (March 1986-June 1990)
Management, Inc. of International Business Machines
One Seaport Plaza Corporation; Director of Inland Steel
New York, New York Corporation (since July 1991), Global
10292 Utility Fund, Inc. and First Financial
Fund, Inc.
Robert H. Wellington (73) Director Retired Chairman and Chief Executive
c/o Prudential Mutual Fund Officer, AMSTED Industries,
Management, Inc. Incorporated (diversified manufacturer
One Seaport Plaza of railroad, construction and
New York, New York 10292 industrial products).
Robert F. Gunia (49) Vice Chief Administrative Officer (since
One Seaport Plaza President July 1990), Director (since January
New York, New York 10292 1989), Executive Vice President,
Treasurer and Chief Financial Officer
(since June 1987) of PMF; Senior Vice
President (since March 1987) of
Prudential Securities; Executive Vice
President, Treasurer, Comptroller and
Director, PMFD (since March 1991);
Director, PMFS (since June 1987);
Vice President and Director of The
Asia Pacific Fund, Inc. (since May
1989).
S. Jane Rose (50) Secretary Senior Vice President and Senior
One Seaport Plaza Counsel of PMF; Senior Vice President
New York, New York and Senior Counsel (since July 1992)
of Prudential Securities; formerly
Vice President and Associate General
Counsel of Prudential Securities.
Grace Torres (36) Treasurer First Vice President (since March
One Seaport Plaza and 1994), PMF; First Vice President of
New York, New York Principal Prudential Securities (since March
10292 Financial 1994); prior thereto, Vice President,
and Bankers Trust Corporation.
Accounting
Officer
B-6
<PAGE>
POSITION PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- --------------------- --------- ----------------------
Stephen M. Ungerman (42) Assistant First Vice President of PMF (since
One Seaport Plaza Treasurer February 1993); prior thereto, Senior
New York, New York Tax Manager of Price Waterhouse
10292 (1981-January 1993)
Deborah A. Docs (38) Assistant Vice President and Associate General
One Seaport Plaza Secretary Counsel (since January 1993) of PMF;
New York, New York Vice President and Associate General
10292 Counsel (since January 1993) of
Prudential Securities; previously
Associate Vice President (January
1990-December 1992) and Assistant
General Counsel (November 1991-
December 1992) of PMF.
- ----------------
* "Interested" Director, as defined in the Investment Company Act of 1940, as
amended (Investment Company Act), by reason of his affiliation with Prudential
Securities or PMF.
Directors and officers of the Fund are also trustees, directors and
officers of some or all of the other investment companies distributed by
Prudential Securities.
The officers conduct and supervise the daily business operations of the
Fund, while the Directors, in addition to their functions set forth under
"Manager" and "Distributor," review such actions and decide on general policy.
The Board of Directors has adopted a retirement policy which calls for the
retirement of Directors on December 31 of the year in which they reach the age
of 72, except that retirement is being phased in for Directors who were age 68
or older as of December 31, 1993.
The Board of Directors has nominated a new slate of Directors for the Fund
which will be submitted to shareholders at a special meeting scheduled to be
held in or about October 1996.
Directors may receive their Directors' fees pursuant to a deferred fee
agreement with the Fund. Under the terms of the agreement, the Fund accrues
daily the amount of such Director's fees in installments which accrue interest
at a rate equivalent to the prevailing rate applicable to 90-day U.S. Treasury
Bills at the beginning of each calendar quarter or, pursuant to an SEC exemptive
order, at the daily rate of return of the Fund (the Fund rate). Payment of the
interest so accrued is also deferred and accruals become payable at the option
of the Director. The Fund's obligation to make payments of deferred Directors'
fees, together with interest thereon, is a general obligation of the Fund.
Each Director who is not an affiliated person of PMF or PIC currently
receives $10,000 as an annual Director's fee, plus expenses, and $1,000 plus
expenses for service on each Board committee.
The following table sets forth the aggregate compensation paid by the Fund
for the fiscal year ended December 31, 1995 to the Directors who are not
affiliated with the Manager and the aggregate compensation paid to such
Directors for service on the Fund's Board and the Boards of any other investment
companies managed by Prudential Mutual Fund Management, Inc. (Fund Complex) for
the calendar year ended December 31, 1995.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM FUND
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL AND FUND
COMPENSATION AS PART OF FUND BENEFITS UPON COMPLEX PAID
NAME AND POSITION FROM FUND EXPENSES RETIREMENT TO DIRECTORS
----------------- ------------ ---------------- ---------------- ------------
<S> <C> <C> <C> <C>
Delayne Dedrick Gold--Director $12,000 None N/A $183,250(24/45)
Thomas A. Owens, Jr.--Director $12,000 None N/A $ 87,000(12/13)*
Sidney M. Spielvogel--Director $12,000 None N/A $ 12,000(1/1)*
Nancy Hays Teeters--Director $12,000 None N/A $107,500(13/31)*
Robert H. Wellington--Director $12,000 None N/A $ 19,000(3/3)*
- -------------
</TABLE>
* Indicates number of funds/portfolios in Fund Complex (including the Fund) to
which aggregate compensation relates.
B-7
<PAGE>
As of February 9, 1996, the Directors and officers of the Fund, as a group,
beneficially owned less than one percent of the outstanding shares of Common
Stock of the Fund.
As of February 9, 1996, Prudential Securities held, solely of record on
behalf of other persons, 7,233,874,341 shares of the Fund's Common Stock,
representing approximately 95% of the shares then outstanding. Prudential
Securities had the sole power to vote 83,574,172 shares held as of February 12,
1996 for the benefit of participating employees of Prudential Securities in the
Prudential Securities 401(k) Plan, representing about 1% of the shares then
outstanding.
MANAGER
The manager of the Fund is Prudential Mutual Fund Management, Inc. (PMF or
the Manager), One Seaport Plaza, New York, New York 10292. PMF serves as manager
to all of the other investment companies that, together with the Fund, comprise
the Prudential Mutual Funds. See "How the Fund is Managed--Manager" in the
Prospectus. As of January 31, 1996, PMF managed and/or administered open-end and
closed-end management investment companies with assets of approximately $52
billion. According to the Investment Company Institute, as of December 31, 1995,
the Prudential Mutual Funds were the 13th largest family of mutual funds in the
United States.
PMF is a subsidiary of Prudential Securities Incorporated and The
Prudential Insurance Company of America (Prudential). PMF has three wholly-owned
subsidiaries: Prudential Mutual Fund Distributors, Inc., Prudential Mutual
Services, Inc. (PMFS or the Transfer Agent) and Prudential Mutual Fund
Investment Management, Inc. PMFS serves as the transfer agent for the Prudential
Mutual Funds and, in addition, provides customer service, recordkeeping and
management and administration services to qualified plans.
Pursuant to the Management Agreement with the Fund (the Management
Agreement), PMF, subject to the supervision of the Fund's Board of Directors and
in conformity with the stated policies of the Fund, manages both the investment
operations of the Fund and the composition of the Fund's portfolio, including
the purchase, retention, disposition and loan of securities and other assets. In
connection therewith, PMF is obligated to keep certain books and records of the
Fund. PMF also administers the Fund's corporate affairs and, in connection
therewith, furnishes the Fund with office facilities, together with those
ordinary clerical and bookkeeping services which are not being furnished by
State Street Bank and Trust Company, the Fund's custodian (the Custodian), and
PMFS, the Fund's transfer and dividend disbursing agent. The management services
of PMF for the Fund are not exclusive under the terms of the Management
Agreement and PMF is free to, and does, render management services to others.
For its services, PMF receives, pursuant to the Management Agreement with
the Fund, a fee at an annual rate of .50 of 1% of the Fund's average daily net
assets up to $50 million and .30 of 1% of the Fund's average daily net assets in
excess of $50 million. The fee is computed daily and payable monthly. The
Management Agreement also provides that in the event the expenses of the Fund
(including the fees of the Manager, but excluding interest, taxes, brokerage
commissions, distribution fees and litigation and indemnification expenses and
other extraordinary expenses not incurred in the ordinary course of the Fund's
business) for any fiscal year exceed the lowest applicable annual expense
limitation established and enforced pursuant to the statutes or regulations of
any jurisdiction in which shares of the Fund are then qualified for offer and
sale, the Manager will reduce its fee by the amount of such excess. Expenses in
excess of the total compensation payable to PMF will be paid by PMF. Any such
reductions of payments are subject to readjustment during the year. No such
reductions were required during the fiscal year ended December 31, 1995.
Currently, the Fund believes that the most restrictive expense limitation of
state securities commissions is 2 1/2% of the Fund's average daily net assets up
to $30 million, 2% of the next $70 million of such assets and 1 1/2% of such
assets in excess of $100 million.
In connection with its management of the corporate affairs of the Fund, PMF
bears the following expenses:
(a) the salaries and expenses of all personnel of the Fund and the
Manager, except the fees and expenses of Directors who are not affiliated
persons of the Manager or the Fund's investment adviser;
(b) all expenses incurred by the Manager or by the Fund in connection
with managing the ordinary course of the Fund's business, other than those
assumed by the Fund, as described below; and
(c) the costs and expenses payable to PIC pursuant to the subadvisory
agreement between PMF and PIC (the Subadvisory Agreement).
B-8
<PAGE>
Under the terms of the Management Agreement, the Fund is responsible for
the payment of the following expenses, including (a) the fees payable to the
Manager, (b) the fees and expenses of Directors who are not affiliated with PMF
or the Fund's investment adviser, (c) the fees and certain expenses of the
Fund's Custodian and Transfer and Dividend Disbursing Agent, including the cost
of providing records to the Manager in connection with its obligation of
maintaining required records of the Fund and of pricing the Fund's shares, (d)
the fees and charges of the Fund's legal counsel and independent accountants,
(e) brokerage commissions and any issue or transfer taxes chargeable to the Fund
in connection with its securities transactions, (f) all taxes and corporate fees
payable by the Fund to governmental agencies, (g) the fees of any trade
association of which the Fund is a member, (h) the cost of stock certificates
representing shares of the Fund, (i) the cost of fidelity and liability
insurance, (j) the fees and expenses involved in registering and maintaining
registration of the Fund and of its shares with the SEC and registering the Fund
as a broker or dealer and qualifying its shares under state securities laws,
including the preparation and printing of the Fund's registration statements and
prospectuses for such purposes, (k) allocable communications expenses with
respect to investor services and all expenses of shareholders' and Directors'
meetings and of preparing, printing and mailing reports, proxy statements and
prospectuses to shareholders, (l) litigation and indemnification expenses and
other extraordinary expenses not incurred in the ordinary course of the Fund's
business, and (m) distribution expenses.
The Management Agreement also provides that PMF will not be liable for any
error of judgment or for any loss suffered by the Fund in connection with the
matters to which the Management Agreement relates, except a loss resulting from
a breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith, gross
negligence or reckless disregard of duty. The Management Agreement provides that
it will terminate automatically if assigned, and that it may be terminated
without penalty by either party upon not more than 60 days' nor less than 30
days' written notice. The Management Agreement provides that it will continue in
effect for a period of more than two years from the date of execution only so
long as such continuance is specifically approved at least annually in
accordance with the requirements of the Investment Company Act.
The Management Agreement was last approved by the Board of Directors of the
Fund, including a majority of the Directors who are not parties to such contract
or interested persons of such parties (as defined in the Investment Company
Act), on May 10, 1995, and was approved by shareholders of the Fund on April 27,
1988.
For the fiscal years ended December 31, 1995, 1994 and 1993, PMF received
management fees of $20,840,442, $21,320,747, and $23,332,701, respectively.
PMF has entered into the Subadvisory Agreement with PIC, a wholly-owned
subsidiary of Prudential. The Subadvisory Agreement provides that PIC furnish
investment advisory services in connection with the management of the Fund. In
connection therewith, PIC is obligated to keep certain books and records of the
Fund. PMF continues to have responsibility for all investment advisory services
pursuant to the Management Agreement and supervises PIC's performance of such
services. PIC is reimbursed by PMF for the reasonable costs and expenses
incurred by PIC in furnishing those services. Investment advisory services are
provided to the Fund by a unit at PIC, known as Prudential Mutual Fund
Investment Management.
The Subadviser maintains a corporate credit unit which provides credit
analysis and research on taxable fixed-income securities including money market
instruments. The portfolio manager consults routinely with the credit unit in
managing the Fund's portfolio. The credit unit staff, including 7 credit
analysts, reviews on an ongoing basis commercial paper issuers, commercial
banks, non-bank financial institutions and issuers of other taxable fixed-income
obligations. Credit analysts have broad access to research and financial
reports, data retrieval services and industry analysts. They maintain
relationships with the management of corporate issuers and from time to time
visit companies in whose securities the Fund may invest.
The Subadvisory Agreement was last approved by the Board of Directors,
including a majority of the Directors who are not parties to such contract or
interested persons of such parties, as defined in the Investment Company Act, on
May 10, 1995, and was approved by shareholders of the Fund on April 27, 1988.
The Subadvisory Agreement provides that it will terminate in the event of
its assignment (as defined in the Investment Company Act) or upon the
termination of the Management Agreement. The Subadvisory Agreement may be
terminated by the Fund, PMF or PIC upon not less than 30 days' or more than 60
days' written notice. The Subadvisory Agreement provides that it will continue
in effect for a period of more than two years from its execution only so long as
such continuance is specifically approved by the Board of Directors at least
annually in accordance with the requirements of the Investment Company Act.
The Manager and Subadviser are subsidiaries of Prudential, which is one of
the largest diversified financial services institutions in the world and, based
on total assets, the largest insurance company in North America as of December
31, 1994. Its primary business is to offer a full range of products and services
in three areas: insurance, investments and home ownership for individuals and
families; health-care management and other benefit programs for employees of
companies and members of groups; and asset management for institutional clients
and their associates. Prudential (together with its subsidiaries) employs nearly
100,000 persons worldwide and maintains a sales force of approximately 19,000
agents, 3,400 insurance brokers and
B-9
<PAGE>
6,000 financial advisers. It insures or provides other financial services to
more than 50 million people worldwide--to more than one of every five people in
the United States. Prudential is a major issuer of annuities, including variable
annuities. Prudential seeks to develop innovative products and services to meet
consumer needs in each of its business areas. As of December 31, 1994,
Prudential through its subsidiaries provided automobile insurance for more than
1.8 million cars and insured more than 1.5 million homes. For the year ended
December 31, 1994, The Prudential Bank, a subsidiary of Prudential, served
940,000 customers in 50 states providing credit card services and loans totaling
more than $1.2 billion. Assets held by PSI for its clients totaled approximately
$150 billion at December 31, 1994. During 1994, over 28,000 new customer
accounts were opened each month at PSI. The Prudential Real Estate Affiliates,
the fourth largest real estate brokerage network in the United States, has more
than 34,000 brokers and agents and more than 1,100 offices in the United States.
Based on data for the period from January 1, 1995 to September 30, 1995 for
the Prudential Mutual Funds, on an average day, there are approximately $80
million in common stock transactions, over $150 million in bond transactions and
over $3.1 billion in money market transactions. In 1994, the Prudential Mutual
Funds effected more than 40,000 trades in money market securities and held on
average $20 billion of money market securities. Based on complex-wide data for
the period from January 1, 1995 to September 30, 1995, on an average day, over
7,000 shareholders telephoned PMFS, the Transfer Agent of the Prudential Mutual
Funds, on the Prudential Mutual Funds' toll-free number. On an annual basis,
that represents approximately 1.8 million telephone calls answered.
From time to time, there may be media coverage of portfolio managers and
other investment professionals associated with the Manager and the Subadviser in
national and regional publications, on television and other media. Additionally,
individual mutual fund portfolios are frequently cited in surveys conducted by
national and regional publications and media organizations such as THE WALL
STREET JOURNAL, THE NEW YORK TIMES, BARRON'S and USA TODAY.
DISTRIBUTOR
Prudential Securities Incorporated (Prudential Securities or PSI), One
Seaport Plaza, New York, New York 10292, acts as the distributor of the Fund's
Class A shares. Prior to January 2, 1996, Prudential Mutual Fund Distributors,
Inc. (PMFD), acted as distributor of the Fund's shares. Prudential Securities
also serves as the distributor of the Fund's Class Z shares, and incurs the
expenses of distributing the Fund's Class Z shares under a Distribution
Agreement with the Fund, none of which is reimbursed by or paid for by the Fund.
Prudential Securities is engaged in the securities underwriting and
securities and commodities brokerage business and is a member of the New York
Stock Exchange, other major securities and commodities exchanges and the NASD.
Prudential Securities is also engaged in the investment advisory business.
Prudential Securities is a wholly-owned subsidiary of Prudential Securities
Group Inc., which is an indirect, wholly-owned subsidiary of Prudential. The
services it provides to the Fund are discussed in the Fund's Prospectus. See
"How the Fund is Managed--Distributor."
PLAN OF DISTRIBUTION
See "How the Fund is Managed--Distributor" in the Prospectus.
Under the Fund's Plan of Distribution and the Distribution Agreement for
the Class A shares with PSI, the Fund pays PSI, as distributor, a distribution
fee of up to 0.125% of the average daily net assets of the Class A shares of the
Fund, computed daily and payable monthly, to reimburse PMFD for distribution
expenses.
For the fiscal year ended December 31, 1995, PMFD incurred distribution
expenses in the aggregate of $8,643,150, all of which was recovered through the
distribution fee paid by the Fund.
It is estimated that of this amount, 0.8% ($72,662) was spent on printing
and mailing of prospectuses to other than current shareholders and 99.2%
($8,570,488) on the aggregate of (i) account servicing fee credits to Prudential
Securities branch offices for payments of account servicing fees to account
executives (97.6% or $8,433,538) and (ii) an allocation of overhead and other
branch office distribution-related expenses (1.6% or $136,950). The term
"overhead and other branch office distribution-related expenses" represents (a)
the expenses of operating branch offices of Prudential Securities and Pruco
Securities Corporation (Prusec), affiliated broker-dealers, in connection with
the sale of Fund shares, including lease costs, the salaries and employee
benefits of operations and sales support personnel, utility costs,
communications costs and the costs of stationery and supplies, (b) the costs of
client sales seminars, (c) travel expenses of mutual fund sales coordinators to
promote the sale of Fund shares and (d) other incidental expenses relating to
branch promotion of Fund sales. No interest or carrying charges are included as
part of the Fund's distribution expenses.
B-10
<PAGE>
Pursuant to Rule 12b-1 under the Investment Company Act, the Plan of
Distribution was last approved by the Board of Directors, including a majority
of the Directors who are not interested persons of the Fund and who have no
direct or indirect financial interest in the operation of the Plan or in any
agreement related to the Plan (the Rule 12b-1 Directors), cast in person at a
meeting called for the purpose of voting on the Plan, on May 10, 1995. The Plan
of Distribution was approved by a majority of the Fund's outstanding voting
securities on April 27, 1988.
The Plan continues in effect from year to year, provided that each such
continuance is approved at least annually by a vote of the Board of Directors,
including a majority of the Rule 12b-1 Directors, cast in person at a meeting
called for the purpose of voting on such continuance. The Plan may be terminated
at any time, without penalty, by the vote of a majority of the Rule 12b-1
Directors or by the vote of the holders of a majority of the outstanding Class A
voting securities of the Fund on not more than 30 days' written notice to any
other party to the Plan. The Plan may not be amended to increase materially the
amounts to be spent by the Fund thereunder without shareholder approval, and all
material amendments are required to be approved by the Board of Directors in the
manner described above. The Plan will automatically terminate in the event of
its assignment.
Pursuant to the Plan, the Directors will review at least quarterly a
written report of the distribution expenses incurred on behalf of the Fund by
the Distributor. The report includes an itemization of the distribution expenses
and the purpose of such expenditures. In addition, as long as the Plan remains
in effect, the selection and nomination of Directors shall be committed to the
Rule 12b-1 Directors.
Pursuant to each Distribution Agreement, the Fund has agreed to indemnify
PSI to the extent permitted by applicable law against certain liabilities under
the Securities Act of 1933, as amended. The Distribution Agreement for the Class
A shares was last approved by the Board of Directors, including a majority of
the Rule 12b-1 Directors, on May 10, 1995. On November 3, 1995, the Board of
Directors approved the transfer of the Distribution Agreement for Class A shares
with PMFD to Prudential Securities. The Distribution Agreement for the Class Z
shares was approved by the Board of Directors, including a majority of the Rule
12b-1 Directors, on November 3, 1995.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators in 51 jurisdictions and the NASD to resolve
allegations that PSI sold interests in more than 700 limited partnerships (and a
limited number of other types of securities) from January 1, 1980 through
December 31, 1990, in violation of securities laws to persons for whom such
securities were not suitable in light of the individuals' financial condition or
investment objectives. It was also alleged that the safety, potential returns
and liquidity of the investments had been misrepresented. The limited
partnerships principally involved real estate, oil and gas producing properties
and aircraft leasing ventures. The SEC Order (i) included findings that PSI's
conduct violated the federal securities laws and that an order issued by the SEC
in 1986 requiring PSI to adopt, implement and maintain certain supervisory
procedures had not been complied with; (ii) directed PSI to cease and desist
from violating the federal securities laws and imposed a $10 million civil
penalty; and (iii) required PSI to adopt certain remedial measures including the
establishment of a Compliance Committee of its Board of Directors. Pursuant to
the terms of the SEC settlement, PSI established a settlement fund in the amount
of $330,000,000 and procedures, overseen by a court approved Claims
Administrator, to resolve legitimate claims for compensatory damages by
purchasers of the partnership interests. PSI has agreed to provide additional
funds, if necessary, for that purpose. PSI's settlement with the state
securities regulators included an agreement to pay a penalty of $500,000 per
jurisdiction. PSI consented to a censure and to the payment of a $5,000,000 fine
in settling the NASD action. In settling the above referenced matters, PSI
neither admitted nor denied the allegations asserted against it.
On January 18, 1994, PSI agreed to the entry of a Final Consent Order and a
Parallel Consent Order by the Texas Securities Commissioner. The firm also
entered into a related agreement with the Texas Securities Commissioner. The
allegations were that the firm had engaged in improper sales practices and other
improper conduct resulting in pecuniary losses and other harm to investors
residing in Texas with respect to purchases and sales of limited partnership
interests during the period of January 1, 1980 through December 31, 1990.
Without admitting or denying the allegations, PSI consented to a reprimand,
agreed to cease and desist from future violations, and to provide voluntary
donations to the State of Texas in the aggregate amount of $1,500,000. The firm
agreed to suspend the creation of new customer accounts, the general
solicitation of new accounts, and the offer for sale of securities in or from
PSI's North Dallas office to new customers during a period of twenty consecutive
business days, and agreed that its other Texas offices would be subject to the
same restrictions for a period of five consecutive business days. PSI also
agreed to institute training programs for its securities salesmen in Texas.
On October 27, 1994, Prudential Securities Group, Inc. and PSI entered into
agreements with the United States Attorney deferring prosecution (provided PSI
complies with the terms of the agreement for three years) for any alleged
criminal activity related to the sale of certain limited partnership programs
from 1983 to 1990. In connection with these agreements, PSI agreed to add the
sum of $330,000,000 to the Fund established by the SEC and executed a
stipulation providing for a reversion of such funds to the United States Postal
Inspection Service. PSI further agreed to obtain a mutually acceptable outside
director to sit on the Board of Directors of PSG and the Compliance Committee of
PSI. The new director will also serve as an independent
B-11
<PAGE>
"ombudsman" whom PSI employees can call anonymously with complaints about ethics
and compliance. Prudential Securities shall report any allegations or instances
of criminal conduct and material improprieties to the new director. The new
director will submit compliance reports which shall identify all such
allegations or instances of criminal conduct and material improprieties every
three months for a three-year period.
PURCHASE AND REDEMPTION OF FUND SHARES
PURCHASE OF SHARES
The Fund reserves the right to reject any initial or subsequent purchase
order (including an exchange) and the right to limit investments in the Fund
solely to existing or past shareholders of the Fund.
REOPENING AN ACCOUNT
Subject to the minimum investment restrictions, an investor may reopen an
account, without filing a new application form, at any time during the calendar
year the account is closed, provided that the information on the old form is
still applicable.
REDEMPTION OF SHARES
Investors who purchase Class A shares directly from Prudential Mutual Fund
Services, Inc. (PMFS or the Transfer Agent) may use the following procedures:
CHECK REDEMPTION. At a shareholder's request, State Street Bank and Trust
Company (State Street) will establish a personal checking account for the
shareholder. Checks drawn on this account can be made payable to the order of
any person in any amount equal to or greater than $500. The payee of the check
may cash or deposit it like any other check drawn on a bank. When such a check
is presented to State Street for payment, State Street presents the check to the
Fund as authority to redeem a sufficient number of shares in a shareholder's
account in the Fund to cover the amount of the check. This enables the
shareholder to continue earning daily dividends until the check is cleared.
Canceled checks are returned to the shareholder by State Street.
Shareholders are subject to State Street's rules and regulations governing
checking accounts, including the right of State Street not to honor checks in
amounts exceeding the value of the shareholder's account at the time the check
is presented for payment.
Shares for which certificates have been issued are not available for
redemption to cover checks. A shareholder should be certain that adequate shares
for which certificates have not been issued are in his or her account to cover
the amount of the check. See "Shareholder Guide--How to Sell Your Shares" in the
Prospectus. Since the dollar value of an account is constantly changing, it is
not possible for a shareholder to determine in advance the total value of his or
her account so as to write a check for the redemption of the entire account.
The Fund reserves the right to assess a service charge, payable to State
Street, to establish a checking account and to order checks. State Street, PMFS
and the Fund have reserved the right to modify this checking account privilege
or to place a charge for each check presented for payment for any individual
account or for all accounts in the future.
The Fund, PMFS or State Street may terminate Check Redemption at any time
upon 30 days' notice to participating shareholders. To receive further
information, contact Prudential Mutual Fund Services, Inc., Attention:
Redemption Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010, or
telephone (800) 225-1852 (toll-free). Check Redemption is not available to
investors for whom Prudential Securities has purchased shares.
EXPEDITED REDEMPTION. In order to use Expedited Redemption, a shareholder
may so designate at the time the initial application form is filed or at a later
date. Once the Expedited Redemption authorization form has been completed, the
signature(s) on the authorization form guaranteed as set forth below and the
form returned to PMFS, requests for redemption may be made by telegraph, letter
or telephone. A signature guarantee is not required under Expedited Redemption
once the authorization form is properly completed and returned. The Expedited
Redemption privilege may be used only to redeem shares in an amount of $200 or
more, except that, if an account for which Expedited Redemption is requested has
a net asset value of less than $200, the entire account must be redeemed. The
proceeds of redeemed shares in the amount of $1,000 or more are transmitted by
wire to the shareholder's account at a domestic commercial bank which is a
member of the Federal Reserve System. Proceeds of less than $1,000 are forwarded
by check to the shareholder's designated bank account. See "Shareholder
Guide--How to Sell Your Shares" in the Prospectus.
B-12
<PAGE>
To request Expedited Redemption by telephone, a shareholder should call
PMFS at (800) 225-1852. Calls must be received by PMFS before 4:30 P.M., New
York time, in order for the redemption to be effective on that day. Requests by
letter should be addressed to Prudential Mutual Fund Services, Inc., Attention:
Account Maintenance, P.O. Box 15015, New Brunswick, New Jersey 08906-5015.
In order to change the name of the commercial bank or account designated to
receive redemption proceeds, it is necessary to execute a new Expedited
Redemption authorization form and submit it to PMFS at the address set forth
above. Each signature must be guaranteed by an "eligible guarantor institution,"
which includes any bank, broker, dealer or credit union. The Transfer Agent
reserves the right to request additional information from, and make reasonable
inquiries of, any eligible guarantor institution. Guarantees must be signed by
an authorized signatory of the eligible guarantor institution, and "Signature
Guaranteed" should appear with the signature. For clients of Pruco Securities
Corporation (Prusec) signature guarantees may be obtained from the agency or
office manager of most Prudential Insurance and Financial Services or Preferred
Services offices. PMFS may request further documentation from corporations,
executors, administrators, trustees or guardians.
REGULAR REDEMPTION. Shareholders may redeem their shares by sending to
Prudential Mutual Fund Services, Inc., Attention: Redemption Services, P.O. Box
15010, New Brunswick, New Jersey 08906-5010, a written request, accompanied by
duly endorsed stock certificates, if issued. In this case, all stock
certificates and all written requests for redemption must be endorsed by the
shareholder with the signature guaranteed, as described above. PMFS may request
further documentation from corporations, executors, administrators, trustees or
guardians. Regular redemption is made by check mailed to the shareholder's
address.
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of shares of the Fund, a Shareholder Investment
Account is established for each investor under which a record of the shares held
is maintained by the Transfer Agent. If a stock certificate is desired, it must
be requested in writing for each transaction. Certificates are issued only for
full shares and may be redeposited in the account at any time. There is no
charge to the investor for issuance of a certificate. Whenever a transaction
takes place in the Shareholder Investment Account, the shareholder will be
mailed a statement showing the transaction and the status of such account.
PROCEDURE FOR MULTIPLE ACCOUNTS
Special procedures have been designed for banks and other institutions that
wish to open multiple accounts. An institution may open a single master account
by filing an Application and Order Form with PMFS, signed by personnel
authorized to act for the institution. Individual sub-accounts may be opened at
the time the master account is opened by listing them, or they may be added at a
later date by written advice or by filing forms supplied by PMFS. Procedures are
available to identify sub-accounts by name and number within the master account
name. The investment minimums described in the Prospectus under "Shareholder
Guide--How to Buy Shares of the Fund" are applicable to the aggregate amounts
invested by a group, and not to the amount credited to each sub-account.
PMFS provides each institution with a written confirmation for each
transaction in a sub-account and, on a monthly basis, with a statement which
sets forth for each master account its share balance and income earned for the
month. In addition, each institution receives a statement for each individual
account setting forth transactions in the sub-account for the year-to-date, the
total number of shares owned as of the dividend payment date and the dividends
paid for the current month, as well as for the year-to-date. For further
information on the sub-accounting system and procedures, contact PMFS.
EXCHANGE PRIVILEGE
The Fund makes available to its shareholders the privilege of exchanging
their shares for shares of certain other Prudential Mutual Funds, including one
or more specified money market funds, subject in each case to the minimum
investment requirements of such funds. Class A shares of such other Prudential
Mutual Funds may also be exchanged for shares of the Fund. All exchanges are
made on the basis of relative net asset value next determined after receipt of
an order in proper form and any applicable sales charge. An exchange will be
treated as a redemption and purchase for tax purposes. Shares may be exchanged
for shares of another fund only if shares of such fund may legally be sold under
applicable state laws.
It is contemplated that the exchange privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.
B-13
<PAGE>
Shareholders of the Fund may exchange their Class A shares for Class A
shares of the Prudential Mutual Funds and shares of the money market funds
specified below.
The following other money market funds participate in the Class A Exchange
Privilege:
Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury Money Market Series)
Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachusetts Money Market Series)
(New Jersey Money Market Series)
(New York Money Market Series)
Prudential Tax-Free Money Fund, Inc.
Shareholders of the Fund may not exchange their shares for Class B or Class
C shares of the Prudential Mutual Funds or shares of Prudential Special Money
Market Fund, a money market fund, except that shares acquired prior to January
22, 1990 subject to a contingent deferred sales charge can be exchanged for
Class B shares.
Additional details about the Exchange Privilege and prospectuses for each
of the Prudential Mutual Funds are available from the Fund's Transfer Agent,
Prudential Securities or Prusec. The Exchange Privilege may be modified,
terminated or suspended on sixty days' notice, and any fund, including the Fund,
or the Distributor, has the right to reject any exchange application relating to
such fund's shares.
Class Z shares may be exchanged for Class Z shares of the funds listed
below which participate in the PSI 401(k) Plan. No fee or sales load will be
imposed upon the exchange.
Prudential Allocation Fund
(Balanced Portfolio)
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Global Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
(Money Market Series)
Prudential Growth Opportunity Fund, Inc.
Prudential High Yield Fund, Inc.
Prudential Jennison Fund, Inc.
(expected to be available later in 1996)
Prudential Multi-Sector Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential Utility Fund, Inc.
AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP)
Under ASAP, an investor may arrange to have a fixed amount automatically
invested in Class A shares of the Fund monthly by authorizing his or her bank
account or Prudential Securities Account (including a Command Account) to be
debited to invest specified dollar amounts in shares of the Fund. The investor's
bank must be a member of the Automatic Clearing House System. Stock certificates
are not issued to ASAP participants.
Further details about this program and an application form are available
from the Transfer Agent, Prudential Securities or Prusec.
SYSTEMATIC WITHDRAWAL PLAN
A systematic withdrawal plan is available for holders of Class A shares
through Prudential Securities or the Transfer Agent. Such withdrawal plan
provides for monthly or quarterly checks in any amount, except as provided
below, up to the value of the shares in the shareholder's account.
B-14
<PAGE>
In the case of shares held through the Transfer Agent (i) a $10,000 minimum
account value applies, (ii) withdrawals may not be for less than $100 and (iii)
the shareholder must elect to have all dividends and/or distributions
automatically reinvested in additional full and fractional shares at net asset
value on shares held under this plan.
Prudential Securities and the Transfer Agent act as agents for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment. The systematic withdrawal plan may be
terminated at any time, and the Distributor reserves the right to initiate a fee
of up to $5 per withdrawal, upon 30 days' written notice to the shareholder.
Withdrawal payments should not be considered as dividends, yield or income.
If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted. Furthermore, each withdrawal constitutes a
redemption of shares, and any gain or loss realized must be recognized for
federal income tax purposes. Each shareholder should consult his or her own tax
adviser with regard to the tax consequences of the systematic withdrawal plan,
particularly if used in connection with a retirement plan.
TAX-DEFERRED RETIREMENT PLANS
Various tax-deferred retirement plans, including a 401(k) plan,
self-directed individual retirement accounts and "tax-deferred accounts" under
Section 403(b)(7) of the Internal Revenue Code are available through the
Distributor. These plans are for use by both self-employed individuals and
corporate employers. These plans permit either self-direction of accounts by
participants, or a pooled account arrangement. Information regarding the
establishment of these plans, the administration, custodial fees and other
details are available from Prudential Securities or the Transfer Agent.
Investors who are considering the adoption of such a plan should consult
with their own legal counsel or tax adviser with respect to the establishment
and maintenance of any such plan.
TAX-DEFERRED RETIREMENT ACCOUNTS
INDIVIDUAL RETIREMENT ACCOUNTS. An individual retirement account (IRA)
permits the deferral of federal income tax on income earned in the account until
the earnings are withdrawn. The following chart represents a comparison of the
earnings in a personal savings account with those in an IRA, assuming a $2,000
annual contribution, an 8% rate of return and a 39.6% federal income tax bracket
and shows how much more retirement income can accumulate within an IRA as
opposed to a taxable individual savings account.
TAX-DEFERRED COMPOUNDING(1)
<TABLE>
<CAPTION>
CONTRIBUTIONS PERSONAL
MADE OVER: SAVINGS IRA
------------- --------- --------
<S> <C> <C>
10 years $ 26,165 $ 31,291
15 years 44,675 58,649
20 years 68,109 98,846
25 years 97,780 157,909
30 years 135,346 244,692
- ----------
</TABLE>
(1)The chart is for illustrative purposes only and does not
represent the performance of the Fund or any specific investment. It shows
taxable versus tax-deferred compounding for the periods and on the terms
indicated. Earnings in the IRA account will be subject to tax when withdrawn
from the account.
DIVIDENDS
The Fund's net income is declared as dividends daily and is automatically
reinvested monthly in additional shares of the Fund unless the shareholder
elects in writing not less than five full business days prior to the payable
date to receive such distribution in cash. The Fund endeavors to maintain its
net asset value at $1.00 per share. As a result of a significant expense or
realized loss, it is possible that the Fund's net asset value may fall below
$1.00 per share. Should the Fund incur or anticipate any unusual or unexpected
significant expense or loss which would disproportionately affect the Fund's
income for a particular period, the Board of Directors at that time would
consider whether to adhere to the present dividend policy described in the
Prospectus or to revise it in light of the then prevailing circumstances in
order to ameliorate to the extent possible the disproportionate effect of such
expense or loss on then existing shareholders. Such expenses or losses may
nevertheless result in a shareholder's receiving no dividends for the period
during which he or she held shares of the Fund and in his or her receiving a
price per share upon redemption lower than that which he or she paid.
B-15
<PAGE>
Dividends derived from investment income received by the Fund on portfolio
securities, together with distributions of any net short-term capital gains, are
taxable to the shareholders as ordinary income. Distributions of net long-term
capital gains are taxed to the shareholders at capital gains rates regardless of
the length of their holding period of Fund shares. However, the Fund's portfolio
generally will be managed in such a way as not to realize any net long-term
capital gains. Dividends and distributions are taxable to shareholders even if
reinvested in additional shares.
NET ASSET VALUE
The Fund uses the amortized cost method of valuation to determine the value
of its portfolio securities. In that regard, the Fund's Board of Directors has
determined to maintain a dollar-weighted average portfolio maturity of 90 days
or less, to purchase only instruments having remaining maturities of thirteen
months or less, and to invest only in securities determined by the Manager or
the Subadviser, under the direction of the Board of Directors, to be of minimal
credit risk and of eligible quality. Subject to the Fund's compliance with the
conditions of applicable rules promulgated by the SEC relating to the amortized
cost method of valuation, the remaining maturity of an instrument held by the
Fund that is subject to a put is deemed to be the period remaining until the
principal amount can be recovered through demand or, in the case of a variable
rate instrument, the next interest reset date, if longer. The value assigned to
the put is zero. The Board of Directors also has established procedures designed
to stabilize, to the extent reasonably possible, the Fund's price per share as
computed for the purpose of sales and redemptions at $1.00. Such procedures will
include review of the Fund's portfolio holdings by the Board, at such intervals
as deemed appropriate, to determine whether the Fund's net asset value
calculated by using available market quotations deviates from $1.00 per share
based on amortized cost. The extent of any deviation will be examined by the
Board, and if such deviation exceeds 1/2 of 1%, the Board will promptly
consider what action, if any, will be initiated. In the event the Board of
Directors determines that a deviation exists which may result in material
dilution or other unfair results to investors or existing shareholders, the
Board will take such corrective action as it regards necessary and appropriate,
including the sale of portfolio instruments prior to maturity to realize gains
or losses, the shortening of average portfolio maturity, the withholding of
dividends or the establishment of net asset value per share by using available
market quotations.
PORTFOLIO TRANSACTIONS
The Manager is responsible for decisions to buy and sell securities for the
Fund, the selection of brokers and dealers to effect the transactions and the
negotiation of brokerage commissions, if any. For purposes of this section the
term "Manager" includes the Subadviser. The Fund does not normally incur any
brokerage commission expense on such transactions. In the market for money
market instruments, securities are generally traded on a "net" basis, with
dealers acting as principal for their own accounts without a stated commission,
although the price of the security usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price which includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. On occasion, certain money market
instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid.
In placing orders for portfolio securities of the Fund, the Manager is
required to give primary consideration to obtaining the most favorable price and
efficient execution. This means that the Manager will seek to execute each
transaction at a price and commission, if any, which provide the most favorable
total cost or proceeds reasonably attainable under the circumstances. While the
Manager generally seeks reasonably competitive spreads or commissions, the Fund
will not necessarily be paying the lowest spread or commission available. Within
the framework of this policy, the Manager may consider research and investment
services provided by brokers or dealers who effect or are parties to portfolio
transactions of the Fund, the Manager or the Manager's other clients. Such
research and investment services are those which brokerage houses customarily
provide to institutional investors and include statistical and economic data and
research reports on particular companies and industries. Such services are used
by the Manager in connection with all of its investment activities, and some of
such services obtained in connection with the execution of transactions for the
Fund may be used in managing other investment accounts. Conversely, brokers
furnishing such services may be selected for the execution of transactions of
such other accounts, whose aggregate assets are far larger than those of the
Fund, and the services furnished by such brokers may be used by the Manager in
providing investment management for the Fund. While such services are useful and
important in supplementing its own research and facilities, the Manager believes
that the value of such services is not determinable and does not significantly
reduce expenses. The Fund does not reduce the fee it pays to the Manager by any
amount that may be attributed to the value of such services. The Fund will not
effect any securities transactions with or through Prudential Securities as
broker or dealer. The Fund paid no brokerage commissions for the fiscal years
ended December 31, 1995, 1994 and 1993.
B-16
<PAGE>
TAXES
FEDERAL
The Fund has elected to qualify, and intends to remain qualified, as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the Internal Revenue Code). This relieves the Fund (but not
its shareholders) from paying federal income tax on income which is distributed
to shareholders and permits net capital gains of the Fund (I.E., the excess of
net long-term capital gains over net short-term capital losses) to be treated as
long-term capital gains of the shareholders, regardless of how long shareholders
have held their shares in the Fund.
Qualification of the Fund as a regulated investment company requires, among
other things, that (a) at least 90% of the Fund's annual gross income (without
reduction for losses from the sale or other disposition of securities) be
derived from dividends, interest, payments with respect to securities loans and
gains from the sale or other disposition of securities or options thereon or
foreign currencies, or other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its business of
investing in such securities or currencies; (b) the Fund derives less than 30%
of its gross income from gains (without reduction for losses) from the sale or
other disposition of securities, options thereon, futures contracts, options
thereon, forward contracts and foreign currencies held for less than three
months (except for foreign currencies directly related to the Fund's business of
investing in securities); (c) the Fund diversify its holdings so that, at the
end of each quarter of the taxable year, (i) at least 50% of the market value of
its assets is represented by cash, U.S. Government securities and other
securities limited in respect of any one issuer to an amount not greater than 5%
of the market value of the assets of the Fund and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its assets
is invested in the securities of any one issuer (other than U.S. Government
securities) and (d) the Fund distribute to its shareholders at least 90% of its
net investment income and net short-term gains (I.E., the excess of net
short-term capital gains over net long-term capital losses) in each year.
Gains or losses on sales of securities by the Fund will be treated as
long-term capital gains or losses if the securities have been held by it for
more than one year. Other gains or losses on the sale of securities will be
short-term capital gains or losses. In addition, debt securities acquired by the
Fund may be subject to original issue discount and market discount rules.
The Fund is required to distribute 98% of its ordinary income in the same
calendar year in which it is earned. The Fund is also required to distribute
during the calendar year 98% of the capital gain net income it earned during the
twelve months ending on October 31 of such calendar year, as well as all
undistributed ordinary income and undistributed capital gain net income from the
prior year or the twelve-month period ending on October 31 of such prior year,
respectively. To the extent it does not meet these distribution requirements,
the Fund will be subject to a non-deductible 4% excise tax on the undistributed
amount. The Fund intends to distribute its income and capital gains in the
manner necessary to avoid imposition of the 4% excise tax. For purposes of this
excise tax, income on which the Fund pays income tax is treated as distributed.
Distributions of net investment income and net short-term gains will be
taxable to the shareholder at ordinary income rates regardless of whether the
shareholder receives such distributions in additional shares or cash.
Distributions of net capital gains (i.e., the excess of net long-term capital
gains over net short-term capital losses), if any, are taxable as long-term
capital gains regardless of how long the investor has held his or her shares.
However, if a shareholder holds shares in the Fund for not more than six months,
then any loss recognized on the sale of such shares will be treated as long-term
capital loss to the extent of any distribution on the shares which was treated
as long-term capital gain. Because none of the Fund's net income is anticipated
to arise from dividends on common or preferred stock, none of its distributions
to shareholders will be eligible for the dividends received deduction for
corporations under the Internal Revenue Code. Shareholders will be notified
annually by the Fund as to the federal tax status of distributions made by the
Fund.
Any gain or loss realized upon a sale or redemption of shares by a
shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held more than one year and
otherwise as short-term capital gain or loss. Any such loss, however, although
otherwise treated as a short-term capital loss, will be treated as long-term
capital loss to the extent of any net long-term capital gain distributions
received by the shareholder, if the shares have been held for six months or
less.
A shareholder may realize a gain or loss on the redemption of his or her
shares depending upon the net asset value when redeemed. The Fund, however,
intends to maintain a constant net asset value.
In general, tax-exempt shareholders will not be required to pay taxes on
amounts distributed to them. If such shareholders incurred debt in order to
acquire or hold their shares in the Fund, amounts distributed to them may be
subject to the unrelated business income tax.
B-17
<PAGE>
STATE AND LOCAL
Under the laws of certain states, distributions of net income may be
taxable to shareholders as income even though a portion of such distributions
may be derived from interest on U.S. Government obligations which, if realized
directly, would be exempt from state income taxes. Shareholders are advised to
consult their tax advisers concerning the application of state and local taxes.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
AND INDEPENDENT ACCOUNTANTS
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities and
cash, and in that capacity maintains certain financial and accounting books and
records pursuant to an agreement with the Fund.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison,
New Jersey 08818, serves as Transfer and Dividend Disbursing Agent and in those
capacities maintains certain books and records for the Fund. PMFS is a
wholly-owned subsidiary of PMF. PMFS provides customary transfer agency services
to the Fund, including the handling of shareholder communications, the
processing of shareholder transactions, the maintenance of shareholder account
records, payment of dividends and distributions and related functions. For these
services, PMFS receives an annual fee per shareholder account, a new account
set-up fee for each manually established account and a monthly inactive zero
balance account fee per shareholder account. PMFS is also reimbursed for its
out-of-pocket expense, including but not limited to postage, stationery,
printing, allocable communications expenses and other costs. For the fiscal year
ended December 31, 1995, the Fund incurred fees of approximately $15,231,600 for
such services. As of December 31, 1995, approximately $1,269,000 of such fees
were due to PMFS.
Deloitte & Touche LLP, Two World Financial Center, New York, New York
10281, serves as the Fund's independent public accountants and, in that
capacity, audits the Fund's annual financial statements.
B-18
<PAGE>
PORTFOLIO OF INVESTMENTS AS OF DECEMBER 31, 1995 PRUDENTIAL MONEYMART ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) DESCRIPTION VALUE (NOTE 1)
<C> <S> <C>
- --------------------------------------------------------------------------------
BANK NOTES -- 3.0%
Bank of America Illinois
$19,000 5.79%, 1/16/96 $ 18,999,922
Bank One Indianapolis, NA
35,000 7.18%, 2/5/96 35,013,135
First Union National Bank of North
Carolina
100,000 5.80%, 1/31/96 100,000,000
50,000 5.78%, 2/9/96 50,000,000
NationsBank of Texas, NA
10,000 7.30%, 1/26/96 10,002,845
--------------
Total Bank Notes
(amortized cost $214,015,902) 214,015,902
--------------
- --------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT - EURODOLLAR--4.0%
Abbey National Treasury Services
Plc.
52,000 5.80%, 1/22/96 52,000,299
Bayerische Hypotheken-und
Wechsel-Bank
24,000 5.78%, 1/16/96 23,999,554
179,000 5.83%, 1/16/96 179,001,470
25,000 5.81%, 1/29/96 25,000,156
Landesbank Hessen-Thuringen
Girozentrale
6,000 5.79%, 2/15/96 5,999,832
Lloyds Bank Plc.
5,000 5.75%, 1/22/96 4,999,757
--------------
Total Certificates of Deposit -
Eurodollar
(amortized cost $291,001,068) 291,001,068
--------------
- --------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT - YANKEE--16.9%
Bank Of Montreal
20,000 5.80%, 1/22/96 20,000,000
100,000 5.80%, 1/23/96 100,000,000
Bank of Nova Scotia
15,000 5.77%, 2/1/96 14,999,604
Banque Nationale De Paris
15,000 5.78%, 1/22/96 14,999,778
114,000 5.80%, 2/2/96 114,000,000
45,000 7.07%, 2/20/96 45,024,146
21,000 6.95%, 2/21/96 21,008,292
Commerzbank
8,000 7.32%, 1/24/96 8,003,322
30,000 7.04%, 2/16/96 30,014,780
National Westminster Bank Plc.
190,000 5.81%, 1/12/96 190,000,000
99,000 5.80%, 1/31/96 99,000,000
Societe Generale
350,000 5.80%, 2/1/96 350,000,000
Swiss Bank Corp.
211,000 5.75%, 3/20/96 211,000,000
--------------
Total Certificates of Deposit -
Yankee
(amortized cost $1,218,049,922) 1,218,049,922
--------------
- --------------------------------------------------------------------------------
COMMERCIAL PAPER--51.9%
A. H. Robins Co., Inc.
7,465 5.75%, 1/25/96 7,436,384
9,500 5.80%, 1/26/96 9,461,736
18,100 5.67%, 2/14/96 17,974,567
American Express Credit Corp.
5,000 5.82%, 2/2/96 4,974,133
12,000 5.67%, 2/13/96 11,918,730
20,000 5.59%, 3/15/96 19,770,189
American Home Products Corp.
54,000 5.80%, 1/18/96 53,852,100
73,500 5.80%, 1/19/96 73,286,850
17,000 5.68%, 3/7/96 16,822,973
American Honda Finance Corp.
25,000 5.85%, 1/12/96 24,955,312
17,500 5.85%, 1/22/96 17,440,281
4,026 5.85%, 1/24/96 4,010,953
11,850 5.83%, 1/26/96 11,802,024
9,500 5.80%, 1/30/96 9,455,614
5,000 5.845%, 1/30/96 4,976,458
7,000 5.75%, 2/13/96 6,951,924
Aristar, Inc.
5,000 5.80%, 1/19/96 4,985,500
7,434 5.90%, 1/24/96 7,405,978
10,000 5.80%, 2/1/96 9,950,056
5,000 5.77%, 2/5/96 4,971,951
8,000 5.80%, 2/16/96 7,940,711
Associates Corp. of North America
75,000 5.71%, 2/1/96 74,631,229
85,000 5.71%, 2/2/96 84,568,578
50,000 5.68%, 2/12/96 49,668,666
10,000 5.68%, 2/13/96 9,932,155
Bank Of Montreal
168,000 5.72%, 1/29/96 167,252,587
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3
B-19
<PAGE>
PORTFOLIO OF INVESTMENTS AS OF DECEMBER 31, 1995 PRUDENTIAL MONEYMART ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) DESCRIPTION VALUE (NOTE 1)
<C> <S> <C>
- --------------------------------------------------------------------------------
COMMERCIAL PAPER (CONT'D.)
Bradford & Bingley Building Society
$17,000 5.74%, 1/17/96 $ 16,956,631
24,000 5.73%, 1/23/96 23,915,960
Caterpillar Financial Services Corp.
19,000 5.66%, 2/21/96 18,847,652
24,000 5.67%, 2/27/96 23,784,540
Chase Manhattan Corp.
59,000 5.67%, 2/12/96 58,609,715
CIT Group Holdings, Inc.
54,705 5.67%, 2/5/96 54,403,439
50,000 5.68%, 2/6/96 49,716,000
86,000 5.68%, 2/7/96 85,497,951
Corporate Receivables Corp.
27,000 5.75%, 1/16/96 26,935,312
23,000 5.67%, 2/27/96 22,793,517
11,000 5.625%, 2/28/96 10,900,313
Countrywide Funding Corp.
39,000 5.83%, 1/16/96 38,905,263
13,760 6.00%, 1/18/96 13,721,013
18,955 5.87%, 1/22/96 18,890,095
8,818 6.00%, 1/22/96 8,787,137
37,155 5.87%, 1/23/96 37,021,717
Dean Witter, Discover & Co.
42,000 5.70%, 2/8/96 41,747,300
36,000 5.70%, 2/14/96 35,749,200
Enterprise Funding Corp.
11,000 5.75%, 1/19/96 10,968,375
Falcon Asset Securitization Corp.
13,000 5.75%, 1/19/96 12,962,625
Finova Capital Corp.
24,000 5.95%, 1/2/96 23,996,033
60,600 5.97%, 1/5/96 60,559,802
49,300 5.97%, 1/8/96 49,242,771
37,605 6.00%, 1/12/96 37,536,057
First Union Corp.
68,000 5.71%, 2/9/96 67,579,363
Fleet Mortgage Group
10,000 5.80%, 1/16/96 9,975,833
39,000 5.80%, 1/24/96 38,855,484
Ford Motor Credit Corp.
193,000 5.75%, 1/22/96 192,352,646
57,000 5.71%, 2/1/96 56,719,734
65,000 5.67%, 2/13/96 64,559,787
General Electric Capital Corp.
66,000 5.66%, 2/8/96 65,605,687
62,000 5.58%, 4/8/96 61,058,220
123,000 5.58%, 4/9/96 121,112,565
General Motors Acceptance Corp.
12,000 5.73%, 2/6/96 11,931,240
264,000 5.75%, 2/20/96 261,891,667
GTE Corp.
17,000 5.87%, 1/19/96 16,950,105
15,635 5.95%, 1/23/96 15,578,150
15,000 5.95%, 1/29/96 14,930,583
42,000 5.95%, 1/31/96 41,791,750
Hanson Finance (U.K.) Plc.
40,000 5.70%, 1/25/96 39,848,000
15,000 5.715%, 1/26/96 14,940,469
35,000 5.70%, 1/31/96 34,833,750
49,435 5.65%, 2/28/96 48,985,004
Heller Financial Services, Inc.
39,000 5.90%, 1/11/96 38,936,083
Hertz Corp.
20,000 5.71%, 2/5/96 19,888,972
Honeywell, Inc.
14,500 5.77%, 1/9/96 14,481,408
Merrill Lynch & Co., Inc.
36,000 5.72%, 1/31/96 35,828,400
11,000 5.76%, 1/31/96 10,947,200
140,000 5.64%, 2/29/96 138,705,933
28,000 5.60%, 3/29/96 27,616,711
Morgan Stanley Group, Inc.
89,500 5.72%, 1/12/96 89,343,574
NYNEX Corp.
29,000 5.82%, 1/10/96 28,957,805
18,000 5.82%, 1/16/96 17,956,350
15,000 5.80%, 1/19/96 14,956,500
21,500 5.75%, 2/1/96 21,393,545
PHH Corp.
19,052 5.83%, 1/23/96 18,984,122
10,000 5.85%, 1/25/96 9,961,000
PNC Funding Corp.
26,000 5.73%, 2/8/96 25,842,743
26,000 5.71%, 3/1/96 25,752,567
</TABLE>
- --------------------------------------------------------------------------------
4 See Notes to Financial Statements.
B-20
<PAGE>
PORTFOLIO OF INVESTMENTS AS OF DECEMBER 31, 1995 PRUDENTIAL MONEYMART ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) DESCRIPTION VALUE (NOTE 1)
<C> <S> <C>
- --------------------------------------------------------------------------------
COMMERCIAL PAPER (CONT'D.)
Preferred Receivables Funding
Corp.
$58,000 5.85%, 1/16/96 $ 57,858,625
45,000 5.85%, 1/17/96 44,883,000
33,375 5.65%, 2/6/96 33,186,431
35,000 5.68%, 2/8/96 34,790,156
Riverwoods Funding Corp.
14,000 5.70%, 2/6/96 13,920,200
5,000 5.71%, 2/7/96 4,970,657
25,000 5.72%, 2/8/96 24,849,056
10,000 5.70%, 2/14/96 9,930,333
Sears Roebuck Acceptance Corp.
28,000 5.70%, 2/6/96 27,840,400
25,000 5.72%, 2/12/96 24,833,166
38,000 5.72%, 2/23/96 37,679,998
Sherwood Medical Co.
19,500 5.80%, 1/26/96 19,421,458
Smith Barney, Inc.
4,000 5.74%, 1/30/96 3,981,505
50,000 5.74%, 1/31/96 49,760,833
Special Purpose Accounts
Receivable Co.
20,000 5.77%, 1/19/96 19,942,300
27,000 5.78%, 1/24/96 26,900,295
USL Capital Corp.
6,125 5.75%, 1/19/96 6,107,391
17,700 5.73%, 1/25/96 17,632,386
WCP Funding, Inc.
11,000 5.75%, 1/24/96 10,959,590
11,190 5.75%, 1/25/96 11,147,105
13,000 5.70%, 2/16/96 12,905,317
7,000 5.65%, 2/28/96 6,936,281
Whirlpool Financial Corp.
5,000 5.80%, 1/23/96 4,982,278
7,000 5.80%, 1/29/96 6,968,422
15,000 5.80%, 1/30/96 14,929,917
--------------
Total Commercial Paper
(amortized cost $3,745,216,108) 3,745,216,108
--------------
- --------------------------------------------------------------------------------
MEDIUM - TERM OBLIGATIONS--1.8%
Associates Corp. of North America
7,000 8.80%, 3/1/96 7,025,730
AT & T Capital Corp.
$5,000 6.27%, 7/5/96 $ 5,005,984
Bayerische Hypotheken-und
Weschel-Bank
29,000 6.376%, 4/24/96 28,993,496
CIT Group Holdings, Inc.
5,000 4.75%, 3/15/96 4,988,617
Ford Motor Credit Corp.
5,000 5.15%, 3/18/96 4,986,442
6,000 5.00%, 3/25/96 5,980,385
4,000 9.00%, 7/26/96 4,066,971
General Motors Acceptance Corp.
11,000 5.975%, 2/21/96 11,000,490
4,640 6.75%, 5/17/96 4,648,945
4,275 8.80%, 7/8/96 4,335,108
6,000 8.625%, 7/15/96 6,079,911
9,630 8.25%, 8/1/96 9,748,578
Westdeusche Landesbank
Girozentrale
33,300 6.85%, 3/1/96 33,308,482
--------------
Total Medium - Term Obligations
(amortized cost $130,169,139) 130,169,139
--------------
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Joint Repurchase Agreement
Account,
144 5.85%, 1/2/96, (Note 4)
(amortized cost $144,000) 144,000
--------------
- --------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS--3.7%
Federal Home Loan Bank
48,000 6.05%, 6/13/96 48,012,629
Federal Home Loan Mortgage Corp.
63,000 5.645%, 8/15/96 62,900,753
Federal National Mortgage
Association
49,000 5.71%, 6/10/96 48,937,841
109,000 5.8125%, 10/4/96 108,896,882
--------------
Total U.S. Government & Agency
Obligations
(amortized cost $268,748,105) 268,748,105
--------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5
B-21
<PAGE>
PORTFOLIO OF INVESTMENTS AS OF DECEMBER 31, 1995 PRUDENTIAL MONEYMART ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) DESCRIPTION VALUE (NOTE 1)
<C> <S> <C>
- --------------------------------------------------------------------------------
VARIABLE RATE INSTRUMENTS+--17.3%
American Express Centurion Bank
$5,000 5.9375%, 2/16/96 $ 4,999,874
Federal National Mortgage
Association
133,000 5.755%, 9/27/96 133,000,000
Goldman, Sachs Group, L.P.
350,000 5.8125%, 5/24/96 350,000,000
General Motors Acceptance Corp.
55,500 5.70%, 1/22/96 55,477,717
Lehman Brothers Holdings, Inc.
80,500 6.1422%, 1/2/96 80,500,000
Merrill Lynch & Co., Inc.
112,000 5.9375%, 1/10/96 111,974,837
Money Market Auto Loan Trust
49,080 6.085%, 4/15/96 49,080,221
Morgan Stanley Group, Inc.
55,000 6.0625%, 1/16/96 55,000,000
10,000 6.19737%, 1/17/96 10,000,000
95,000 6.0703%, 2/15/96 95,000,000
SMM Trust,
Notes 1995-O
50,000 5.9375%, 1/16/96 49,995,461
Notes 1995-Q
252,000 5.9375%, 1/16/96 251,975,898
--------------
Total Variable Rate Instruments
(amortized cost $1,247,004,008) 1,247,004,008
--------------
TOTAL INVESTMENTS--98.5%
(amortized cost $7,114,348,252*) $7,114,348,252
Other assets in excess of
liabilities--1.5% 107,309,711
--------------
Net Assets--100% $7,221,657,963
--------------
--------------
</TABLE>
- ---------------
* The cost of securities for federal income tax purposes is substantially the
same as for financial reporting purposes.
+ The maturity date presented for these instruments is the later of the next
date on which the security can be redeemed at par or the next date on which
the rate of interest is adjusted.
The industry classification of portfolio holdings and other assets in excess of
liabilities shown as a percentage of net assets as of December 31, 1995 was as
follows:
<TABLE>
<CAPTION>
<S> <C>
Commercial Banks....................................................... 28.4%
Security Brokers & Dealers............................................. 15.7
Short-Term Business Credit............................................. 15.2
Personal Credit Institutions........................................... 10.5
Asset Backed Securities................................................ 10.4
U.S. Government & Agency Obligations................................... 5.6
Pharmaceuticals........................................................ 2.7
Telephone & Communications............................................. 2.5
Mortgage Banks......................................................... 2.3
Tobacco................................................................ 1.9
Bank Holding Companies - Domestic...................................... 1.7
Automotive Rental & Leasing............................................ 0.7
Household Appliances................................................... 0.4
Computer Rental and Leasing............................................ 0.3
Regulating Controls.................................................... 0.2
------
98.5
Other assets in excess of liabilities.................................. 1.5
------
100.0%
------
------
</TABLE>
- --------------------------------------------------------------------------------
6 See Notes to Financial Statements.
B-22
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES PRUDENTIAL MONEYMART ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS DECEMBER 31, 1995
-----------------
<S> <C>
Investments, at amortized cost which approximates value....... $7,114,348,252
Cash.......................................................... 8,727
Receivable for Fund shares sold............................... 208,986,615
Interest receivable........................................... 37,719,030
Deferred expenses and other assets............................ 208,464
--------------
Total assets............................................... 7,361,271,088
--------------
LIABILITIES
Payable for Fund shares
reacquired.................................................... 131,662,607
Dividends payable............................................. 3,558,462
Accrued expenses.............................................. 2,110,544
Management fee payable........................................ 1,855,219
Distribution fee payable...................................... 426,293
--------------
Total liabilities.......................................... 139,613,125
--------------
NET ASSETS.................................................... $7,221,657,963
--------------
--------------
Net assets were comprised of:
Common stock, at par ($.10 par value; 15 billion
shares authorized for issuance)............................ $ 722,165,796
Paid-in capital in excess of par........................... 6,499,492,167
--------------
Net assets at December 31, 1995............................... $7,221,657,963
--------------
--------------
Net asset value, offering price and redemption price
per share ($7,221,657,963 / 7,221,657,963 shares
of common stock issued and outstanding).................... $1.00
-----
-----
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7
B-23
<PAGE>
PRUDENTIAL MONEYMART ASSETS
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
NET INVESTMENT INCOME DECEMBER 31, 1995
-----------------
<S> <C>
Income
Interest................................................... $ 419,430,742
-------------
Expenses
Management fee............................................. 20,840,442
Distribution fee........................................... 8,643,150
Transfer agent's fees and expenses......................... 15,942,000
Reports to shareholders.................................... 966,000
Registration fees.......................................... 545,000
Custodian's fees and expenses.............................. 276,000
Insurance expense.......................................... 158,000
Directors' fees and expenses............................... 80,000
Audit fees and expenses.................................... 37,000
Legal fees and expenses.................................... 33,000
Miscellaneous.............................................. 54,354
------------
Total expenses.......................................... 47,574,946
------------
Net investment income......................................... 371,855,796
NET REALIZED GAIN ON INVESTMENTS
Net realized gain on investment
transactions............................................... 516,705
------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS..................................... $ 372,372,501
------------
------------
</TABLE>
PRUDENTIAL MONEYMART ASSETS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
INCREASE (DECREASE) -----------------------------------
IN NET ASSETS 1995 1994
---------------- ----------------
<S> <C> <C>
Operations
Net investment income.................. $ 371,855,796 $ 258,277,123
Net realized gain on
investment
transactions........................ 516,705 147,440
---------------- ----------------
Net increase in net
assets resulting
from operations..................... 372,372,501 258,424,563
---------------- ----------------
Dividends and distributions
to shareholders........................ (372,372,501) (258,424,563)
---------------- ----------------
Fund share transactions
(at $1 per share)
Proceeds from shares
subscribed.......................... 29,233,009,828 26,869,523,481
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions....................... 354,506,489 245,955,917
Cost of shares
reacquired.......................... (28,910,738,397) (27,889,232,548)
---------------- ----------------
Net increase (decrease)
in net assets from
Fund share
transactions........................ 676,777,920 (773,753,150)
---------------- ----------------
Total increase (decrease)................. 676,777,920 (773,753,150)
NET ASSETS
Beginning of year......................... 6,544,880,043 7,318,633,193
---------------- ----------------
End of year............................... $ 7,221,657,963 $ 6,544,880,043
---------------- ----------------
---------------- ----------------
</TABLE>
- --------------------------------------------------------------------------------
8 See Notes to Financial Statements.
B-24
<PAGE>
NOTES TO FINANCIAL STATEMENTS PRUDENTIAL MONEYMART ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Prudential-Bache MoneyMart Assets Inc., doing business as Prudential MoneyMart
Assets (the "Fund"), is registered under the Investment Company Act of 1940 as
a diversified, open-end management investment company. The Fund invests
primarily in a portfolio of money market instruments maturing in thirteen months
or less whose ratings are within the two highest rating categories by a
nationally recognized statistical rating organization or, if not rated, are of
comparable quality. The ability of the issuers of the securities held by the
Fund to meet their obligations may be affected by economic developments in a
specific industry or region.
- --------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
SECURITIES VALUATIONS: Portfolio securities are valued at amortized cost, which
approximates market value. The amortized cost method involves valuing a security
at its cost on the date of purchase and thereafter assuming a constant
amortization to maturity of the difference between the principal amount due at
maturity and cost.
In connection with transactions in repurchase agreements with U.S. financial
institutions, it is the Fund's policy that its custodian or designated
subcustodians, as the case may be under triparty repurchase agreements, take
possession of the underlying collateral securities, the value of which exceeds
the principal amount of the repurchase transaction including accrued interest.
If the seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
SECURITIES TRANSACTIONS AND NET INVESTMENT INCOME: Security transactions are
recorded on the trade date. Realized gains and losses on sales of investments
are calculated on the identified cost basis. Interest income is recorded on the
accrual basis. The cost of portfolio securities for federal income tax purposes
is substantially the same as for financial reporting purposes. Expenses are
recorded on the accrual basis which may require the use of certain estimates by
management.
FEDERAL INCOME TAXES: It is the Fund's policy to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable net income to its shareholders.
Therefore, no federal income tax provision is required.
DIVIDENDS AND DISTRIBUTIONS: All of the Fund's net investment income and net
realized gains or losses, if any, are declared as dividends daily to the
shareholders of record at the time of such declaration. Net investment income
of the Fund consists of interest accrued and discount earned less estimated
expenses applicable to the dividend period. Payment of dividends is made
monthly.
- ------------------------------------------------------------
NOTE 2. MANAGEMENT AND DISTRIBUTION AGREEMENTS
The Fund has a management agreement with Prudential Mutual Fund Management, Inc.
("PMF"). Pursuant to this agreement, PMF has responsibility for all investment
advisory services and supervises the subadviser's performance of such services.
PMF has entered into a subadvisory agreement with The Prudential Investment
Corporation ("PIC"); PIC furnishes investment advisory services in connection
with the management of the Fund. PMF pays for the cost of the subadviser's
services, the compensation of officers of the Fund, occupancy and certain
clerical and bookkeeping costs of the Fund. The Fund bears all other costs and
expenses.
The management fee paid PMF is computed daily and payable monthly, at an annual
rate of .50 of 1% of the Fund's average monthly net assets up to $50 million and
.30 of 1% of the Fund's average monthly net assets in excess of $50 million.
The Fund had a distribution agreement with Prudential Mutual Fund Distributors,
Inc. ("PMFD"), which acted as the distributor of the Fund through January 1,
1996. Effective January 2, 1996, Prudential Securities Incorporated ("PSI")
became the distributor of the Fund and is serving the Fund under the same terms
and conditions as under the arrangement with PMFD. The Fund reimbursed PMFD for
distributing and servicing the Fund's shares pursuant to the plan of
distribution at an annual rate of .125 of 1% of the Fund's average daily net
assets. The distribution fee is accrued daily and payable monthly.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
- --------------------------------------------------------------------------------
NOTE 3. OTHER TRANSACTIONS WITH AFFILIATES
Prudential Mutual Fund Services, Inc. ("PMFS"), a wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During the year ended December 31,
1995, the Fund incurred fees of approximately $15,231,600 for the services of
PMFS. As of December 31, 1995, approximately
- --------------------------------------------------------------------------------
9
B-25
<PAGE>
NOTES TO FINANCIAL STATEMENTS PRUDENTIAL MONEYMART ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$1,269,000 of such fees were due to PMFS. Transfer agent fees and expenses in
the Statement of Operations include certain out-of-pocket expenses paid to
non-affiliates.
- --------------------------------------------------------------------------------
NOTE 4. JOINT REPURCHASE AGREEMENT ACCOUNT
The Fund, along with other affiliated registered investment companies, transfers
uninvested cash balances into a single joint account, the daily aggregate
balance of which is invested in one or more repurchase agreements collateralized
by U.S. Treasury or Federal agency obligations. As of December 31, 1995, the
Fund has a 0.01% undivided interest in the joint account. The undivided interest
for the Fund represents $144,000 in the principal amount. As of such date, each
repurchase agreement in the joint account and the collateral therefore were as
follows:
Bear, Stearns & Co. Inc., 5.80%, in the principal amount of $262,000,000,
repurchase price $262,168,844, due 1/2/96. The value of the collateral including
accrued interest is $267,947,172.
BT Securities Corp., 5.75%, in the principal amount of $61,765,000, repurchase
price $61,804,461, due 1/2/96. The value of the collateral including accrued
interest is $63,059,883.
Goldman, Sachs & Co., 5.90%, in the principal amount of $365,000,000, repurchase
price $365,239,278, due 1/2/96. The value of the collateral including accrued
interest is $372,300,053.
Morgan Stanley & Co., Inc., 5.89%, in the principal amount of $103,000,000,
repurchase price $103,067,408, due 1/2/96. The value of the collateral including
accrued interest is $105,192,608.
Smith Barney, Inc., 5.83%, in the principal amount of $365,000,000, repurchase
price $365,236,439, due 1/2/96. The value of the collateral including accrued
interest is $372,300,416.
- -------------------------------------------------------------------------------
10
B-26
<PAGE>
FINANCIAL HIGHLIGHTS PRUDENTIAL MONEYMART ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year...................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Net investment income and net realized gains............ .054 .037 .027 .035 .058
Dividends and distributions to shareholders............. (.054) (.037) (.027) (.035) (.058)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year............................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
TOTAL RETURN(a)......................................... 5.51% 3.72% 2.70% 3.59% 5.95%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)........................... $7,221,658 $6,544,880 $7,318,633 $6,703,281 $7,138,159
Average net assets (000)................................ $6,914,520 $7,071,381 $7,742,989 $7,116,739 $7,763,251
Ratios to average net assets:
Expenses, including distribution fee.................. .69% .71% .71% .66% .68%
Expenses, excluding distribution fee.................. .56% .58% .58% .54% .56%
Net investment income................................. 5.38% 3.65% 2.63% 3.43% 5.72%
</TABLE>
- ---------------
(a) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each year reported and includes reinvestment
of dividends and distributions.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 11
B-27
<PAGE>
INDEPENDENT AUDITORS' REPORT PRUDENTIAL MONEYMART ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
Prudential MoneyMart Assets
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Prudential MoneyMart Assets, as of December 31,
1995, the related statements of operations for the year then ended and of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
December 31, 1995 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Prudential MoneyMart
Assets as of December 31, 1995, the results of its operations, the changes in
its net assets, and its financial highlights for the respective stated periods
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
February 6, 1996
- -------------------------------------------------------------------------------
12
B-28
<PAGE>
APPENDIX A
DESCRIPTION OF RATINGS
BOND RATINGS
MOODY'S INVESTORS SERVICE--Bonds which are rated Aaa are judged to be of
the best quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues. Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than Aaa securities. Bonds
which are rated A possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future. Moody's
applies numerical modifiers "1", "2" and "3" in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier "1" indicates that the company ranks in the higher end of its generic
rating category; the modifier "2" indicates a mid-range ranking; and the
modifier "3" indicates that the company ranks in the lower end of its generic
rating category.
STANDARD & POOR'S RATINGS GROUP--Debt rated AAA has the highest rating
assigned by Standard & Poor's. Capacity to pay interest and repay principal is
extremely strong. Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in small degree.
Debt rated A has a strong capacity to pay interest and repay principal although
it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
DUFF AND PHELPS CREDIT RATING CO.--The following summarizes the ratings
used by Duff & Phelps for long-term debt:
"AAA": Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.
"AA+", "AA" or "AA-": High credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A+", "A" or "A-": Protection factors are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
COMMERCIAL PAPER RATINGS
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity not
exceeding one year. Issuers rated "Prime-1" or "P-1" (or supporting
institutions) have a superior ability for repayment of senior short-term debt
obligations. Issuers rated "Prime-2" or "P-2" (or supporting institutions) have
a strong ability for repayment of senior short-term debt obligations. Issuers
rated "Prime-3" or "P-3" (or supporting institutions) have an acceptable ability
for repayment of senior short-term obligations.
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market. The
designation A-1 indicates that the degree of safety regarding timely payment is
strong. A "+" designation is applied to those issues rated A-1 which possess
extremely strong safety characteristics. Capacity for timely payment on issues
with the designation A-2 is satisfactory. However, the relative degree of safety
is not as high as for issues designated A-1. Issues carrying the designation A-3
have adequate capacity for timely payment. They are however, somewhat more
vulnerable to the adverse effects of changes in circumstances than obligations
carrying the higher designations.
The following summarizes the ratings used by Duff & Phelps for short-term
debt, which apply to all obligations with maturities of under one year,
including commercial paper.
Duff 1+: Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to alternative sources of
funds, is outstanding and safety is just below risk-free U.S. Treasury
short-term obligations.
A-1
<PAGE>
Duff 1: Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk factors are
minor.
Duff 1-: High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
Duff 2: Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
Duff 3: Satisfactory liquidity and other protection factors qualify issue
as to investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payments is expected.
A-2
<PAGE>
PRUDENTIAL MUTUAL FUNDS
Supplement dated April 22, 1996
The following information supplements the Statement of Additional
Information of each of the Funds listed below.
APPENDIX - Information relating to The Prudential
Set forth below is information relating to The Prudential Insurance Company
of America (Prudential) and its subsidiaries as well as information relating to
the Prudential Mutual Funds. See ``Management of the Fund--Manager'' in the
Prospectus. The data will be used in sales materials relating to the Prudential
Mutual Funds. Unless otherwise indicated, the information is as of December 31,
1995 and is subject to change thereafter. All information relies on data
provided by The Prudential Investment Corporation (PIC) or from other sources
believed by the Manager to be reliable. Such information has not been verified
by the Fund.
Information about Prudential
The Manager and PIC1 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,
1995. 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 more
than 92,000 persons worldwide, and maintains a sales force of approximately
13,000 agents and 5,600 financial advisors. Prudential is a major issuer of
annuities, including variable annuities. Prudential seeks to develop innovative
products and services to meet consumer needs in each of its business areas.
Prudential uses the rock of Gibraltar as its symbol. The Prudential rock is a
recognized brand name throughout the world.
Insurance. Prudential has been engaged in the insurance business since 1875.
It insures or provides financial services to more than 50 million people
worldwide--one of every five people in the United States. Long one of the
largest issuers of individual life insurance, the Prudential has 19 million life
insurance policies in force today with a face value of $1 trillion. Prudential
has the largest capital base ($11.4 billion) of any life insurance company in
the United States. The Prudential provides auto insurance for more than 1.7
million cars and insures more than 1.4 million homes.
Money Management. The Prudential is one of the largest pension fund managers
in the country, providing pension services to 1 in 3 Fortune 500 firms. It
manages $36 billion of individual retirement plan assets, such as 401(k) plans.
In July 1995, Institutional Investor ranked Prudential the third largest
institutional money manager of the 300 largest money management organizations in
the United States as of December 31, 1994. As of December 31, 1995, Prudential
had more than $314 billion in assets under management. Prudential's Money
Management Group (of which Prudential Mutual Funds is a key part) manages over
$190 billion in assets of institutions and individuals.
Real Estate. 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.2
- ------------------
1 Prudential Mutual Fund Investment Management, a unit of PIC, serves as the
Subadviser to substantially all of the Prudential Mutual Funds. Wellington
Management Company serves as the subadviser to Global Utility Fund, Inc.,
Nicholas-Applegate Capital Management as subadviser to Nicholas-Applegate Fund,
Inc., Jennison Associates Capital Corp. as the subadviser to Prudential Jennison
Fund, Inc. and BlackRock Financial Management, Inc. as subadviser to The
BlackRock Government Income Trust. There are multiple subadvisers for The Target
Portfolio Trust.
2 As of December 31, 1994.
1
<PAGE>
Healthcare. Over two decades ago, the Prudential introduced the first
federally-funded, for-profit HMO in the country. Today, almost 5 million
Americans receive healthcare from a Prudential managed care membership.
Financial Services. The Prudential Bank, a wholly-owned subsidiary of the
Prudential, has nearly $3 billion in assets and serves nearly 1.5 million
customers across 50 states.
Information about the Prudential Mutual Funds
Prudential Mutual Fund Management is one of the sixteenth largest mutual
fund companies in the country, with over 2.5 million shareholders invested in
more than 50 mutual fund portfolios and variable annuities with more than 3.7
million shareholder accounts.
The Prudential Mutual Funds have over 30 portfolio managers who manage over
$55 billion in mutual fund and variable annuity assets. Some of Prudential's
portfolio managers have over 20 years of experience managing investment
portfolios.
From time to time, there may be media coverage of portfolio managers and
other investment professionals associated with the Manager and the Subadviser in
national and regional publications, on television and in other media.
Additionally, individual mutual fund portfolios are frequently cited in surveys
conducted by national and regional publications and media organizations such as
The Wall Street Journal, The New York Times, Barron's and USA Today.
Equity Funds. Forbes magazine listed Prudential Equity Fund among twenty
mutual funds on its Honor Roll in its mutual fund issue of August 28, 1995.
Honorees are chosen annually among mutual funds (excluding sector funds) which
are open to new investors and have had the same management for at least five
years. Forbes considers, among other criteria, the total return of a mutual fund
in both bull and bear markets as well as a fund's risk profile. Prudential
Equity Fund is managed with a ``value'' investment style by PIC. In 1995,
Prudential Securities introduced Prudential Jennison Fund, a growth-style equity
fund managed by Jennison Associates Capital Corp., a premier institutional
equity manager and a subsidiary of Prudential.
High Yield Funds. Investing in high yield bonds is a complex and research
intensive pursuit. A separate team of high yield bond analysts monitor the 167
issues held in the Prudential High Yield Fund (currently the largest fund of its
kind in the country) along with 100 or so other high yield bonds, which may be
considered for purchase.3 Non-investment grade bonds, also known as junk bonds
or high yield bonds, are subject to a greater risk of loss of principal and
interest including default risk than higher-rated bonds. Prudential high yield
portfolio managers and analysts meet face-to-face with almost every bond issuer
in the High Yield Fund's portfolio annually, and have additional telephone
contact throughout the year.
Prudential's portfolio managers are supported by a large and sophisticated
research organization. Fourteen investment grade bond analysts monitor the
financial viability of approximately 1,750 different bond issuers in the
investment grade corporate and municipal bond markets--from IBM to small
municipalities, such as Rockaway Township, New Jersey. These analysts consider
among other things sinking fund provisions and interest coverage ratios.
Prudential's portfolio managers and analysts receive research services from
almost 200 brokers and market service vendors. They also receive nearly 100
trade publications and newspapers--from Pulp and Paper Forecaster to Women's
Wear Daily--to keep them informed of the industries they follow.
Prudential Mutual Funds' traders scan over 100 computer monitors to collect
detailed information on which to trade. From natural gas prices in the Rocky
Mountains to the results of local municipal elections, a Prudential portfolio
manager or trader is able to monitor it if it's important to a Prudential mutual
fund.
Prudential Mutual Funds trade approximately $31 billion in U.S. and foreign
government securities a year. PIC seeks information from government policy
makers. In 1995, Prudential's portfolio managers met with several senior U.S.
and foreign government officials, on issues ranging from economic conditions in
foreign countries to the viability of index-linked securities in the United
States.
- ------------------
3 As of December 31, 1995. The number of bonds and the size of the Fund are
subject to change.
2
<PAGE>
Prudential Mutual Funds' portfolio managers and analysts met with over 1,200
companies in 1995, often with the Chief Executive Officer (CEO) or Chief
Financial Officer (CFO). They also attended over 250 industry conferences.
Prudential Mutual Fund global equity managers conducted many of their visits
overseas, often holding private meetings with a company in a foreign language
(our global equity managers speak 7 different languages, including Mandarin
Chinese).
Trading Data.4 On an average day, Prudential Mutual Funds' U.S. and foreign
equity trading desks traded $77 million in securities representing over 3.8
million shares with nearly 200 different firms. Prudential Mutual Funds' bond
trading desks traded $157 million in government and corporate bonds on an
average day. That represents more in daily trading than most bond funds tracked
by Lipper even have in assets.5 Prudential Mutual Funds' money market desk
traded $3.2 billion in money market securities on an average day, or over $800
billion a year. They made a trade every 3 minutes of every trading day. 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.6
Based on complex-wide data, on an average day, over 7,250 shareholders
telephoned Prudential Mutual Fund Services, Inc., 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.
Information about Prudential Securities
Prudential Securities is the fifth largest retail brokerage firm in the
United States with approximately 5,600 financial advisors. It offers to its
clients a wide range of products, including Prudential Mutual Funds and
annuities. As of December 31, 1995, assets held by Prudential Securities for its
clients approximated $168 billion. During 1994, over 28,000 new customer
accounts were opened each month at PSI.7
Prudential Securities has a two-year Financial Advisor training program plus
advanced education programs, including Prudential Securities ``university,''
which provides advanced education in a wide array of investment areas.
Prudential Securities is the only Wall Street firm to have its own in-house
Certified Financial Planner (CFP) program. In the December 1995 issue of
Registered Rep, an industry publication, Prudential Securities' Financial
Advisor training programs received a grade of A-(compared to an industry average
of B+).
In 1995, Prudential Securities' equity research team ranked 8th in
Institutional Investor magazine's 1995 ``All America Research Team'' survey.
Five Prudential Securities' analysts were ranked as first-team finishers.8
In addition to training, Prudential Securities provides its financial
advisors with access to firm economists and market analysts. It has also
developed proprietary tools for use by financial advisors, including the
Financial ArchitectSM, a state-of-the-art asset allocation software program
which helps Financial Advisors to
- ------------------
4 Trading data represents average daily transactions for portfolios of the
Prudential Mutual Funds for which PIC serves as the subadviser, portfolios of
the Prudential Series Fund and institutional and non-US accounts managed by
Prudential Mutual Fund Investment Management, a division of PIC, for the year
ended December 31, 1995.
5Based on 669 funds in Lipper Analytical Services categories of Short U.S.
Treasury, Short U.S. Government, Intermediate U.S. Treasury, Intermediate U.S.
Government, Short Investment Grade Debt, Intermediate Investment Grade Debt,
General U.S. Treasury, General U.S. Government and Mortgage funds.
6 As of December 31, 1994.
7 As of December 31, 1994.
8 In 1995, Institutional Investor magazine surveyed more than 700
institutional money managers, chief investment officers and research directors,
asking them to evaluate analysts in approximately 80 industry sectors. Scores
were produced by taking the number of votes awarded to an individual analyst and
weighting them based on the size of the voting institution. In total, the
magazine sent its survey to more than 2,000 institutions, including a group of
European and Asian institutions. This survey is conducted annually.
3
<PAGE>
evaluate a client's objectives and overall financial plan, and a comprehensive
mutual fund information and analysis system that compares different mutual
funds.
For more complete information about any of the Prudential Mutual Funds,
including charges and expenses, call your Prudential Securities financial
adviser or Pruco/Prudential representative for a free prospectus. Read it
carefully before you invest or send money.
Listed below are the names of the Prudential Mutual Funds and the dates of
the Statements of Additional Information to which this supplement relates.
<TABLE>
<CAPTION>
Name of Fund Statement Date
<S> <C>
The BlackRock Government Income Trust August 31, 1995
Command Government Fund August 31, 1995
Command Money Fund
Command Tax-Free Money Fund
Global Utility Fund, Inc. November 29, 1995
Nicholas-Applegate Fund, Inc. March 4, 1996
The Global Government Plus Fund, Inc. January 15, 1996
The Global Total Return Fund, Inc. January 15, 1996
Prudential Allocation Fund September 29, 1995
Prudential California Municipal Fund November 1, 1995
Prudential Diversified Bond Fund, Inc. January 3, 1995
(As supplemented on June 20, 1995)
Prudential Equity Fund, Inc. March 1, 1996
Prudential Equity Income Fund January 2, 1996
Prudential Europe Growth Fund, Inc. June 30, 1995
Prudential Global Fund, Inc. January 2, 1996
Prudential Global Genesis Fund, Inc. July 31, 1995
Prudential Global Limited Maturity Fund, Inc. February 26, 1996
Prudential Global Natural Resources Fund, Inc. July 31, 1995
Prudential Government Income Fund, Inc. May 1, 1995
Prudential Government Securities Trust January 29, 1996
Prudential Growth Opportunity Fund, Inc. November 29, 1995
Prudential High Yield Fund, Inc. March 1, 1996
Prudential Intermediate Global Income Fund, Inc. March 1, 1996
Prudential Institutional Liquidity Portfolio, Inc. May 30, 1995
Prudential MoneyMart Assets, Inc. March 1, 1996
Prudential Mortgage Income Fund, Inc. August 25, 1995
Prudential Multi-Sector Fund, Inc. June 30, 1995
Prudential Municipal Bond Fund June 30, 1995
Prudential Municipal Series Fund November 1, 1995
Prudential National Municipals Fund, Inc. February 29, 1996
Prudential Pacific Growth Fund, Inc. January 2, 1996
Prudential Special Money Market Fund, Inc. August 29, 1995
Prudential Structured Maturity Fund, Inc. March 1, 1996
Prudential Tax-Free Money Fund, Inc. February 29, 1996
Prudential Utility Fund, Inc. March 1, 1996
The Target Portfolio Trust March 3, 1995
</TABLE>
MF960C-2
<PAGE>
THE PRUDENTIAL LETTER TO
(LOGO) INSTITUTIONAL SHAREHOLDERS
FUND
November 16, 1995
We are pleased to provide you with the Annual Report of The Prudential
Institutional Fund for the year ended September 30, 1995. The period was
generally characterized by bullish financial markets which, along with strong
cash flow from shareholders and retirement plan participants, resulted in
significant increases in the size of many of the Fund's portfolios. Total net
assets grew to $784.9 million at September 30, 1995 from $493.1 million at
September 30, 1994. The Fund has seven portfolios, each with a distinct
investment objective designed to allow shareholders the opportunity to select
various options to match different goals and risk tolerances.
Economy
Gross Domestic Product grew at a rate of 3.3% this fiscal year, compared to
4.4% the last fiscal year. The Fed ended its relentless pattern of rate
increases (six hikes during 1994) and cut short-term interest rates .25% in
July, 1995. The economy appears to be moving ahead at a reasonable pace, albeit
at one that's slower than 1994.
Leading indicators have been trending sideways --housing and auto sales
remain high but are off earlier peaks and employment remains relatively stable.
Restrained growth in both wages and consumer prices have kept inflation under
control. Although inflation isn't a problem, moderate economic growth led the
Fed to shelve any plans for further interest rate cuts.
Market Review
Returns for the U.S. stock and bond markets were lackluster toward the end of
1994. By the first quarter of 1995, the financial markets welcomed slower
economic growth and the S&P 500 Index returned nearly 10% --one of the best
quarters on record. Despite turmoil in the foreign exchange markets, bonds
rallied steadily throughout the first quarter. The surprisingly strong 1995
rally in stocks and bonds continued right through the third quarter. By the end
of September, 1995, the S&P 500 Index was up 29.7% for the fiscal year, while
the Lehman Government/Corporate Bond Index was up 14.3%.
Foreign stocks, as measured by the Morgan Stanley Europe, Australia and Far
East Index (EAFE), gained 5.8%. This relative performance is a reversal from
fiscal 1994 when the EAFE index outperformed both the S&P 500 Index and Lehman
index returns.
Fund Performance
As a result of the strength in the financial markets, each of the Fund's
portfolios achieved absolute positive returns for the year. For the most part,
comparable benchmarks proved difficult to surpass. Since each portfolio's
inception, returns have been very positive and compare satisfactorily versus the
benchmarks. This performance information along with comments from each
portfolio's adviser and portfolio holdings may be found on the following pages.
Summary
While we do not expect gains of this magnitude to be repeated in the near
future, we believe that investors who stick with a disciplined approach to
investing their retirement savings should be rewarded over the long term. We
look forward to continuing to meet the retirement and investment needs of our
shareholders.
Sincerely,
Mark R. Fetting
President
1
<PAGE>
THE PRUDENTIAL MONEY MARKET FUND
(LOGO) INSTITUTIONAL
FUND
OBJECTIVE: Seeks to achieve high current income, preservation of principal and
maintenance of liquidity.
INVESTMENT APPROACH: The Fund invests in U.S. dollar-denominated money market
instruments, including commercial paper and bank obligations such as
certificates of deposits and banker's acceptance notes from domestic and foreign
issuers. The Fund will maintain a dollar-weighted average portfolio maturity of
90 days or less and purchase only instruments maturing in 13 months or less,
which have been determined to present minimal credit risks. The Fund's yield
will fluctuate, and the Fund seeks to maintain a net asset value of $1.00 per
share for purchases and redemptions.
ADVISER: Prudential Global Advisors is a business unit of The Prudential
Investment Corporation which specializes in domestic and international fixed
income management. PGA currently manages approximately $22 billion in fixed
income accounts, including $2 billion in money market accounts.
ADVISER'S COMMENTS: In 1994 and early 1995 the Federal Reserve raised
short-term interest rates aggressively to control an inflationary economic
growth rate. Between February 1994 and February 1995 the Fed raised the Federal
Funds target rate from 3.0% to 6.0%. Shortly after the February 1995 rate hike,
the economy decelerated as consumers slowed the rate of spending. As the economy
slowed, inflation fears dissipated. A lower inflation environment allowed the
Fed to lower the target rate from 6.00% to 5.75% on July 6, 1995.
The Fund invested in relatively short maturity securities as the Fed tightened
their monetary stance during 1994. This allowed the Fund to incorporate higher
rates as the Federal Reserve pushed short-term interest rates higher. The
average maturity rose temporarily late in 1994 as the Fund exploited seasonal
interest rate patterns. In the Spring of 1995, economic growth slowed,
and interest rates began to decline. Securities
with longer-dated maturities were selected for the Fund, and the average
maturity increased correspondingly. The average maturity reached 65 days during
the summer, a maximum for the past 12 months. In general, a shorter average
maturity allows the Fund to incorporate new rates more quickly, while a longer
average maturity allows the Fund to hang on to higher rates for a longer time.
Recently, a modest rebound in economic activity has raised uncertainties about
the future direction of short-term interest rates. The Fund ended the quarter
with an average maturity of 50 days, relatively neutral to the competition.
We have continued to maintain a high quality portfolio. At the end of September,
all the portfolio's investments were rated in the highest category by at least
two nationally recognized rating agencies, or if unrated, deemed to be of
equivalent quality.
PERFORMANCE RESULTS:
As of September 30, 1995, the current seven-day yield was 5.47%. The net asset
value remained at $1.00 per share.
An investment in the Fund is neither insured nor guaranteed by the U.S.
Government and there can be no assurance that the Fund will be able to maintain
a stable net asset value of $1.00 per share. The Manager is currently limiting
the expenses of the Fund. Without this reduction, the seven-day yield would have
been 5.15%.
39
<PAGE>
THE PRUDENTIAL MONEY MARKET FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
BANK HOLDING PAPER--4.8%
Bank of New York, Inc.,
5.87%, 10/27/95
$ 2,800 (amortized cost $2,788,129)...... $ 2,788,129
------------
COMMERCIAL PAPER -
DOMESTIC--36.6%
Aristar, Inc.,
2,000 5.80%, 10/17/95.................. 1,994,844
800 5.82%, 10/19/95.................. 797,672
Caterpillar Financial Services
N.V.,
489 5.67%, 11/21/95.................. 485,072
Chrysler Financial Corp.,
400 5.85%, 10/27/95.................. 398,310
Countrywide Funding Corp.,
2,050 5.80%, 10/31/95.................. 2,040,092
Dayton Hudson Corp.,
2,800 5.78%, 10/25/95.................. 2,789,211
Finova Capital Corp.,
2,100 5.83%, 10/11/95.................. 2,096,599
735 5.90%, 11/2/95................... 731,145
Honeywell, Inc.,
470 5.80%, 11/13/95.................. 466,744
IBM Credit Corp.,
1,300 5.80%, 10/16/95.................. 1,296,858
ITT Corp.,
2,100 5.83%, 10/3/95................... 2,099,320
349 5.85%, 10/4/95................... 348,830
Nike Inc.,
988 6.75%, 10/2/95................... 987,815
Nynex Corp.,
2,800 6.80%, 10/2/95................... 2,799,471
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
- -------------------------------------------------------------
<C> <S> <C>
Public Service Elec. & Gas Co.,
$ 1,150 5.78%, 10/17/95.................. $ 1,147,046
Smith Barney, Inc.,
770 5.75%, 10/18/95.................. 767,909
------------
Total commercial paper - domestic
(amortized cost $21,246,938)..... 21,246,938
------------
CORPORATE BONDS--12.6%
Associates Corp. of North
America,
500 6.00%, 12/1/95................... 500,058
400 4.50%, 2/15/96................... 397,922
1,000 8.80%, 3/1/96.................... 1,008,706
Ford Motor Credit Corp.,
1,000 8.25%, 5/15/96................... 1,013,983
600 8.875%, 8/1/96................... 613,532
General Electric Co.,
840 7.875%, 5/1/96................... 849,202
General Motors Acceptance Corp.,
100 8.75%, 2/1/96.................... 100,850
Household Finance Corp.,
900 9.375%, 2/15/96.................. 908,981
International Lease Finance
Corp.,
430 6.875%, 12/15/95................. 430,568
375 6.625%, 6/1/96................... 376,208
NationsBank Corp.,
500 5.375%, 12/1/95.................. 499,554
Transamerica Finance Corp.,
600 8.55%, 6/15/96................... 610,567
------------
Total corporate bonds
(amortized cost $7,310,131)...... 7,310,131
------------
</TABLE>
See Notes to Financial Statements.
40
<PAGE>
THE PRUDENTIAL MONEY MARKET FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
DEPOSIT NOTES--2.6%
Society National Bank Cleveland,
$ 1,000 6.70%, 4/15/96................... $ 1,004,941
500 6.00%, 4/25/96................... 498,649
------------
Total deposit notes
(amortized cost $1,503,590)...... 1,503,590
------------
VARIABLE RATE OBLIGATIONS(a)--28.5%
American Express Centurion Bank,
1,000 6.26%, 10/2/95................... 1,000,245
Bank One Columbus N.A.,
2,700 6.08%, 10/2/95................... 2,698,150
FCC National Bank,
1,400 6.15%, 10/2/95................... 1,399,944
Ford Motor Credit Corp.,
200 6.14%, 12/18/95.................. 200,233
Goldman Sachs Group, L.P.,
2,700 6.00%, 10/30/95.................. 2,700,000
IBM Credit Corp.,
1,500 5.615%, 10/16/95................. 1,499,775
John Deere Capital Corp.,
1,000 6.095%, 10/23/95................. 1,001,783
John Deere Owner Trust,
1,460 5.8125%, 10/16/95................ 1,460,089
Key Bank New York,
1,400 6.49%, 10/2/95................... 1,398,953
Lehman Brothers, Inc.,
1,000 6.11%, 10/24/95.................. 1,000,000
Merrill Lynch & Co., Inc.,
500 5.885%, 10/2/95.................. 500,000
Money Market Auto Loan Trust,
700 6.005%, 10/16/95................. 700,000
Morgan Stanley Group, Inc.,
1,000 6.00%, 11/15/95.................. 1,000,000
------------
Total variable rate obligations
(amortized cost $16,559,172)..... 16,559,172
------------
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
- -------------------------------------------------------------
LOAN PARTICIPATIONS--4.8%
Engelhard Corp.,
$ 800 6.20%, 10/2/95................... $ 800,000
General Electric Capital Corp.,
2,000 6.00%, 10/2/95................... 2,000,000
------------
Total loan participations
(amortized cost $2,800,000)...... 2,800,000
------------
MEDIUM-TERM OBLIGATIONS--9.1%
Associates Corp. of North
America,
100 4.68%, 3/29/96................... 99,143
Deere & Co.,
1,000 8.47%, 3/18/96................... 1,011,224
Ford Motor Credit Corp.,
1,000 5.15%, 3/15/96................... 993,295
General Motors Acceptance Corp.,
2,100 4.80%, 11/15/95.................. 2,095,777
570 4.75%, 2/14/96................... 567,268
International Lease Finance
Corp.,
500 5.00%, 5/28/96................... 496,536
------------
Total medium-term obligations
(amortized cost $5,263,243)...... 5,263,243
------------
Total Investments--99.0%
(amortized cost
$57,471,203(b))................ 57,471,203
Other assets in excess of
liabilities--1.0%.............. 582,874
------------
Net Assets--100%................. $ 58,054,077
------------
------------
</TABLE>
- ---------------
(a) For purposes of amortized cost valuation, the maturity
date of these instruments is considered to be the next
date on which the security can be redeemed at par or the
next date on which the rate of interest is adjusted.
(b) The cost of securities for federal income tax purposes is
substantially the same as for financial reporting
purposes.
See Notes to Financial Statements.
41
<PAGE>
THE PRUDENTIAL MONEY MARKET FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
The industry classification of portfolio holdings and other net
assets shown as a percentage of net assets as of September 30,
1995 were as follows:
<TABLE>
<S> <C>
Personal Credit Institutions.......... 20.1%
Business Credit (Finance)............. 11.6
Bank Holding Co....................... 10.3
Security Brokers & Dealers............ 10.3
Commercial Banks...................... 9.1
Financial Services.................... 9.0
Telecommunications.................... 4.8
Variety Store......................... 4.8
Asset Backed.......................... 3.7
Mortgage Bankers...................... 3.5
Farm Machinery........................ 3.5
Equip. Rental & Leasing............... 2.2
Electric Services..................... 2.0
Footwear.............................. 1.7
Chemicals-Specialty................... 1.4
Regulating Controls................... 1.0
Other assets in excess of liabilities 1.0
-----
100.0%
-----
-----
</TABLE>
See Notes to Financial Statements.
42
<PAGE>
THE PRUDENTIAL STATEMENT OF ASSETS
(LOGO) INSTITUTIONAL AND LIABILITIES
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
GROWTH STOCK INTERNATIONAL ACTIVE MONEY
STOCK INDEX STOCK BALANCED BALANCED INCOME MARKET
FUND FUND FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C> <C>
------------ ------------ ------------- ------------ ----------- ----------- -----------
Assets
Investments, at value
(a)...................... $222,374,363 $ 96,471,101 $137,331,985 $133,506,023 $80,988,828 $57,633,152 $57,471,203
Cash....................... -- -- 184 417 872 897 440
Foreign currency, at value
(cost $153,643).......... -- -- 153,891 -- -- -- --
Receivable for investments
sold..................... 1,199,509 5,941,403 -- 176,030 1,133,257 -- --
Interest and dividends
receivable............... 162,987 206,021 404,440 641,767 685,304 563,134 386,072
Receivable for Fund shares
sold..................... 789,547 361,069 323,593 191,349 207,730 58,336 227,193
Due from Manager........... -- 1,754 -- -- -- 4,635 --
Deferred expenses and other
assets................... 29,670 32,252 29,485 30,735 28,919 31,988 30,486
------------ ------------ ------------- ------------ ----------- ----------- -----------
Total assets........... 224,556,076 103,013,600 138,243,578 134,546,321 83,044,910 58,292,142 58,115,394
------------ ------------ ------------- ------------ ----------- ----------- -----------
Liabilities
Payable for investments
purchased................ 2,555,583 872,222 987,689 1,013,369 667,995 5,934,375 --
Payable for Fund shares
reacquired............... 1,286,353 85,455 314,389 46,984 155,532 11,863 34,386
Accrued expenses........... 77,378 70,888 148,784 51,045 44,922 42,870 16,633
Due to broker-variation
margin................... -- 29,670 -- -- -- -- --
Management fee payable..... 107,403 -- 92,756 68,472 57,582 -- 3,953
Administration fee
payable.................. 23,965 10,799 14,738 14,564 8,933 5,667 6,345
------------ ------------ ------------- ------------ ----------- ----------- -----------
Total liabilities...... 4,050,682 1,069,034 1,558,356 1,194,434 934,964 5,994,775 61,317
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net Assets................. $220,505,394 $101,944,566 $136,685,222 $133,351,887 $82,109,946 $52,297,367 $58,054,077
------------ ------------ ------------- ------------ ----------- ----------- -----------
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net assets were comprised
of:
Shares of beneficial
interest, at par......... $ 13,604 $ 7,169 $ 8,964 $ 10,703 $ 6,576 $ 5,238 $ 58,054
Paid-in capital in excess
of par................... 169,441,843 80,650,936 121,007,773 116,928,121 71,932,999 52,130,203 57,996,023
------------ ------------ ------------- ------------ ----------- ----------- -----------
169,455,447 80,658,105 121,016,737 116,938,824 71,939,575 52,135,441 58,054,077
Undistributed net
investment income........ -- 1,562,991 1,582,613 2,883,961 1,706,435 -- --
Accumulated net realized
gain (loss) on
investments.............. (3,016,003) 4,001,988 (3,235,336 ) 1,414,649 2,082,012 (732,600) --
Net unrealized appreciation
(depreciation) on
investments and foreign
currencies............... 54,065,950 15,721,482 17,321,208 12,114,453 6,381,924 894,526 --
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net assets, September 30,
1995..................... $220,505,394 $101,944,566 $136,685,222 $133,351,887 $82,109,946 $52,297,367 $58,054,077
------------ ------------ ------------- ------------ ----------- ----------- -----------
------------ ------------ ------------- ------------ ----------- ----------- -----------
Shares of beneficial
interest issued and
outstanding.............. 13,604,202 7,168,801 8,964,457 10,703,173 6,575,791 5,237,904 58,054,077
------------ ------------ ------------- ------------ ----------- ----------- -----------
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net asset value per
share.................... $ 16.21 $ 14.22 $ 15.25 $ 12.46 $ 12.49 $ 9.98 $ 1.00
------------ ------------ ------------- ------------ ----------- ----------- -----------
------------ ------------ ------------- ------------ ----------- ----------- -----------
(a) Identified cost........ $168,308,413 $ 80,942,844 $120,016,426 $121,391,570 $74,606,904 $56,738,626 $57,471,203
</TABLE>
See Notes to Financial Statements.
43
<PAGE>
THE PRUDENTIAL STATEMENT OF
(LOGO) INSTITUTIONAL OPERATIONS
FUND YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
GROWTH STOCK INTERNATIONAL ACTIVE MONEY
STOCK INDEX STOCK BALANCED BALANCED INCOME MARKET
FUND FUND FUND FUND FUND FUND FUND
------------ ------------ ------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Investment Income
Income
Interest................. $ 198,002 $ 637,099 $ 499,812 $ 3,847,389 $ 2,407,512 $ 3,187,231 $ 3,128,647
Dividends (a)............ 1,190,186 1,623,115 3,287,355 896,599 560,304 -- --
------------ ------------ ------------- ------------ ----------- ----------- -----------
Total income........... 1,388,188 2,260,214 3,787,167 4,743,988 2,967,816 3,187,231 3,128,647
------------ ------------ ------------- ------------ ----------- ----------- -----------
Expenses
Management fee........... 1,049,893 286,843 1,367,665 733,748 496,395 231,931 236,009
Administration fee....... 201,075 96,138 159,439 140,527 95,069 62,187 70,311
Custodian's fees and
expenses................. 88,000 124,000 280,000 74,000 72,000 65,000 73,000
Registration fees........ 63,000 35,000 32,000 60,000 23,000 25,000 30,000
Transfer agent's fees and
expenses............... 36,092 17,256 28,618 25,224 17,064 11,162 12,621
Reports to
shareholders............. 25,000 25,000 25,000 13,000 25,000 13,000 13,000
Amortization of
organization
expenses............... 13,385 13,385 13,385 13,213 13,385 13,049 13,213
Legal fees............... 11,000 11,000 15,000 11,000 11,000 11,000 11,000
Audit fee................ 12,000 11,000 15,000 12,000 11,000 11,000 9,000
Trustees' fees........... 8,572 8,572 8,572 8,572 8,572 8,572 8,572
Miscellaneous............ 6,056 4,525 5,856 5,244 4,762 4,256 4,382
------------ ------------ ------------- ------------ ----------- ----------- -----------
Total expenses......... 1,514,073 632,719 1,950,535 1,096,528 777,247 456,157 481,108
Expense subsidy (Note
2)..................... (14,225) (202,456) (47,700) (48,317) (68,112) (131,453) (166,428)
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net expenses............... 1,499,848 430,263 1,902,835 1,048,211 709,135 324,704 314,680
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net investment income
(loss)................... (111,660) 1,829,951 1,884,332 3,695,777 2,258,681 2,862,527 2,813,967
------------ ------------ ------------- ------------ ----------- ----------- -----------
Realized and Unrealized
Gain (Loss) on Investment
and Foreign Currency
Transactions
Net realized gain (loss)
on:
Securities............... 820,651 1,869,439 (2,892,161) 1,585,229 2,197,085 92,951 --
Futures transactions..... -- 2,175,415 -- -- -- -- --
Foreign currency
transactions............. (5,798) -- (192,785) -- (1,009) -- --
------------ ------------ ------------- ------------ ----------- ----------- -----------
814,853 4,044,854 (3,084,946) 1,585,229 2,196,076 92,951 --
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net change in unrealized
appreciation
(depreciation) on:
Securities and foreign
currencies............... 47,538,274 13,632,300 9,333,213 12,809,504 6,413,335 2,865,097 --
Financial futures
contracts................ -- 282,600 -- -- -- -- --
------------ ------------ ------------- ------------ ----------- ----------- -----------
47,538,274 13,914,900 9,333,213 12,809,504 6,413,335 2,865,097 --
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net gain on investments and
foreign currencies....... 48,353,127 17,959,754 6,248,267 14,394,733 8,609,411 2,958,048 --
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net Increase in Net Assets
Resulting from
Operations................. $ 48,241,467 $ 19,789,705 $8,132,599 $ 18,090,510 $10,868,092 $ 5,820,575 $ 2,813,967
------------ ------------ ------------- ------------ ----------- ----------- -----------
------------ ------------ ------------- ------------ ----------- ----------- -----------
(a)Net of foreign withholding taxes of $26,902, $11,248, $461,615, $3,187, $10,097, respectively.
</TABLE>
See Notes to Financial Statements.
44
<PAGE>
THE PRUDENTIAL STATEMENT OF CHANGES
(LOGO) INSTITUTIONAL IN NET ASSETS
FUND
<TABLE>
<CAPTION>
MONEY
BALANCED INCOME MARKET
FUND FUND FUND
------------------------------- ------------------------------- -------------------------------
Year Ended September 30, Year Ended September 30, Year Ended September 30,
------------------------------- ------------------------------- -------------------------------
1995 1994 1995 1994 1995 1994
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in
Net Assets
Operations
Net investment
income............... $ 2,258,681 $ 1,261,344 $ 2,862,527 $ 1,982,080 $ 2,813,967 $ 1,276,052
Net realized gain
(loss) on investments
and foreign currency
transactions......... 2,196,076 163,359 92,951 (826,533) -- 1,550
Net change in
unrealized
appreciation
(depreciation) on
investments and
foreign currencies... 6,413,335 (1,878,445) 2,865,097 (2,659,530) -- --
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease)
in net assets
resulting from
operations........... 10,868,092 (453,742) 5,820,575 (1,503,983) 2,813,967 1,277,602
------------- ------------- ------------- ------------- ------------- -------------
Net equalization
credits................ -- 721,188 -- -- -- --
------------- ------------- ------------- ------------- ------------- -------------
Dividends and
distributions
Dividends to
shareholders from net
investment income.... (1,529,788) (604,065) (2,862,527) (1,982,080) (2,813,967) (1,277,602)
------------- ------------- ------------- ------------- ------------- -------------
Distributions to
shareholders from net
realized gains....... (269,963) (735,383) -- (137,236) -- --
------------- ------------- ------------- ------------- ------------- -------------
Fund share transactions
Net proceeds from
shares sold.......... 26,091,264 42,441,610 11,549,255 15,768,473 55,919,976 32,311,167
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions........ 1,799,751 1,339,448 2,862,527 2,119,316 2,813,967 1,277,602
Cost of shares
redeemed............. (19,161,993) (6,059,058) (6,473,780) (7,878,160) (47,010,598) (17,493,001)
------------- ------------- ------------- ------------- ------------- -------------
Net increase in net
assets from Fund
share transactions... 8,729,022 37,722,000 7,938,002 10,009,629 11,723,345 16,095,768
------------- ------------- ------------- ------------- ------------- -------------
Net increase............ 17,797,363 36,649,998 10,896,050 6,386,330 11,723,345 16,095,768
Net Assets
Beginning of year...... 64,312,583 27,662,585 41,401,317 35,014,987 46,330,732 30,234,964
------------- ------------- ------------- ------------- ------------- -------------
End of year............ $ 82,109,946 $64,312,583 $52,297,367 $41,401,317 $ 58,054,077 $46,330,732
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
See Notes to Financial Statements.
46
<PAGE>
THE PRUDENTIAL FINANCIAL HIGHLIGHTS
(LOGO) INSTITUTIONAL
FUND
<TABLE>
<CAPTION>
MONEY
MARKET
FUND
-----------------------------------------------------
January 4,
1993(a)
Year Ended September 30, Through
------------------------------- September 30,
1995 1994 1993
--------- ------------- -------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 1.00 $ 1.00 $ 1.00
Net investment income and net realized
gains(b)..................................... .05 .03 .02
Dividends from net investment income.......... (.05) (.03) (.02)
--------- ------------- -------------
Net asset value, end of period................ $ 1.00 $ 1.00 $ 1.00
--------- ------------- -------------
--------- ------------- -------------
TOTAL RETURN(d)............................... 5.47% 3.32% 2.08%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $58,054 $46,331 $30,235
Average net assets (000)...................... $52,446 $38,170 $25,296
Ratios to average net assets: (b)
Expenses..................................... .60% .60% .60%(c)
Net investment income........................ 5.37% 3.34% 2.73%(c)
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) Net of expense subsidy.
(c) Annualized.
(d) Total return is calculated assuming a purchase of shares on the first
day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total return for periods
of less than a full year are not annualized. Total return includes
the effect of expense subsidies.
See Notes to Financial Statements.
50
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND
The Prudential Institutional Fund (the ``Company'') is registered under the
Investment Company Act of 1940 as an open-end, diversified management investment
company. The Company was established as a Delaware business trust on May 11,
1992 and consists of seven separate funds (Fund or Funds): Growth Stock Fund,
Stock Index Fund, International Stock Fund, Active Balanced Fund, Balanced Fund,
Income Fund and Money Market Fund. The Company had no operations until July 7,
1992 when 10,000 shares of beneficial interest (2,500 shares each of Growth
Stock Fund, Stock Index Fund, International Stock Fund and Balanced Fund) were
sold for $100,000 to Prudential Institutional Fund Management, Inc. (``PIFM'').
Investment operations commenced on: November 5, 1992 for the Growth Stock Fund,
Stock Index Fund, International Stock Fund and Balanced Fund; January 4, 1993
for the Active Balanced Fund and Money Market Fund; and March 1, 1993 for the
Income Fund.
The Funds' investment objectives are as follows: Growth Stock Fund--long-term
growth of capital through investment primarily in equity securities of
established companies with above-average growth prospects; Stock Index
Fund--investment results that correspond to the price and yield performance of
Standard & Poor's 500 Composite Stock Price Index; International Stock
Fund--long-term growth of capital through investment in equity securities of
foreign issues with income as a secondary objective; Active Balanced Fund--total
returns approaching equity returns, while accepting less risk than an all-equity
portfolio, through an actively-managed portfolio of equity securities, fixed
income securities and money market instruments; Balanced Fund--long-term total
return consistent with moderate portfolio risk; Income Fund--a high level of
income over the longer term while providing reasonable safety of principal; and
Money Market Fund--high current income, preservation of principal and
maintenance of liquidity, while maintaining a $1.00 net asset value per share.
The ability of issuers of debt securities, other than those issued or
guaranteed by the U.S. Government, held by the Funds to meet their obligations
may be affected by economic developments in a specific industry, region, or
country.
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund.
Securities Valuations: Securities, including options, warrants, futures
contracts and options thereon, for which the primary market is on a national
securities exchange, commodities exchange or board of trade and NASDAQ national
market equity securities are valued at the last sale price on such exchange or
board of trade on the date of valuation or, if there was no sale on such day, at
the average of readily available closing bid and asked prices on such day.
Securities, that are actively traded in the over-the-counter market,
including listed securities for which the primary market is believed to be
over-the-counter, shall be valued at the average of the most recently quoted bid
and asked prices provided by a principal market maker or dealer.
U.S. Government securities for which market quotations are available shall be
valued at a price provided by an independent broker/dealer or pricing service.
Securities for which reliable market quotations are not available or for
which the pricing agent or principal market maker does not provide a valuation
or provides a valuation that, in the judgment of one of the subadvisers, does
not represent fair value, shall be valued at fair value as determined under
procedures established by the Trustees.
Quotations of foreign securities in a foreign currency shall be converted to
U.S. dollar equivalents at the current rate obtained from a recognized bank or
dealer. Forward currency
51
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND
exchange contracts shall be valued at the current cost of covering or offsetting
such contracts.
Securities held by the Money Market Fund are valued at amortized cost, which
approximates market value. The amortized cost method involves valuing a security
at its cost on the date of purchase and thereafter assuming a constant
amortization to maturity of the difference between the principal amount due at
maturity and cost. Short-term securities held by the other Funds which mature in
more than 60 days are valued at current market quotations and those which mature
in 60 days or less are valued at amortized cost. In the event that a Subadviser
determines that amortized cost does not represent fair value for certain
short-term securities with remaining maturities of 60 days or less, such
securities will be valued at market value.
In connection with transactions in repurchase agreements, it is the Company's
policy that its custodian or designated subcustodians, as the case may be under
triparty repurchase agreements, take possession of the underlying collateral
securities, the value of which exceeds the principal amount of the repurchase
transaction, including accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to ensure the adequacy of the collateral. If
the seller defaults, and the value of the collateral declines or, if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Company may be delayed or limited.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date and interest income is recorded on the accrual basis.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Fund is required to pledge to the broker an amount of cash and/or other
assets equal to a certain percentage of the contract amount. This amount is
known as the ``initial margin.'' Subsequent payments, known as ``variation
margin,'' are made or received by the Fund each day, depending on the daily
fluctuations in the value of the underlying security. Such variation margin is
recorded for financial statement purposes on a daily basis as unrealized gain or
loss. When the contract expires or is closed, the gain or loss is realized and
is presented in the statement of operations as net realized gain (loss) on
financial futures contracts.
The Funds invest in financial futures contracts in order to hedge their
existing portfolio securities, or securities the Funds intend to purchase,
against fluctuations in value. Under a variety of circumstances, a Fund may not
achieve the anticipated benefits of the financial futures contracts and may
realized a loss. The use of futures transactions involves the risk of imperfect
correlation in movements in the price of futures contracts and the underlying
assets.
Dollar Rolls: The Fund may enter into dollar rolls in which the Fund sells
securities for delivery in the current month and simultaneously contracts to
repurchase somewhat similar securities on a specified future date. During the
roll period, the Fund forgoes principal and interest paid on the securities. The
Fund is compensated by the interest earned on the cash proceeds of the initial
sale and by the lower repurchase price at the future date.
Foreign Currency Translation: The books and records of the Funds are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:
(i) market value of investment securities, other assets and liabilities--at
the closing rates of exchange.
(ii) purchases and sales of investment securities, income and expenses--at
the rate of exchange
52
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND
prevailing on the respective dates of such transactions.
Although the net assets of the Funds are presented at the foreign exchange
rates and market values at the close of the fiscal year, the Funds do not
isolate that portion of the results of operations arising as a result of changes
in the foreign exchange rates from the fluctuations arising from changes in the
market prices of securities held at the end of the fiscal year. Similarly, the
Funds do not isolate the effect of changes in foreign exchange rates from the
fluctuations arising from changes in the market prices of long-term portfolio
securities sold during the fiscal year. Accordingly, these realized foreign
currency gains (losses) are included in the reported net realized gains (losses)
on investment transactions.
Net realized losses on foreign currency transactions represent net foreign
exchange losses from holding of foreign currencies, currency gains or losses
realized between the trade and settlement dates of securities transactions, and
the difference between the amounts of dividends and foreign taxes recorded on
the Funds' books and the U.S. dollar equivalent amounts actually received or
paid. Net currency gains and losses from valuing foreign currency denominated
assets and liabilities at year end exchange rates are reflected as a component
of net unrealized appreciation/
depreciation on securities and foreign currencies.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin as a result of,
among other factors, the level of governmental supervision and regulation of
foreign securities markets and the possibility of political or economic
instability.
Equalization: During the fiscal year ended September 30, 1995, the Funds
(except for the Income and Money Market Funds) discontinued the accounting
practice of equalization. Equalization is a practice whereby a portion of the
proceeds from sales and costs of repurchases of capital shares, equivalent on a
per-share basis to the amount of distributable net investment income on the date
of the transaction, is credited or charged to undistributed net investment
income. The following balances of undistributed net investment income at
September 30, 1994, resulting from equalization were transferred to paid-in
capital in excess of par for each of the respective Funds:
Growth Stock Fund $ 90,444
Stock Index Fund 398,227
International Stock Fund 881,462
Active Balanced Fund 788,116
Balanced Fund 899,912
Such reclassifications have no effect on net assets, results of operations,
or net asset value per share of the Funds.
Dividends and Distributions: Dividends and distributions of each Fund are
declared in cash and automatically reinvested in additional shares of the Fund.
The Income Fund and Money Market Fund will declare dividends of their net
investment income and, for the Money Market Fund, net capital gain (loss), daily
and distribute such dividends monthly. Each other Fund will declare and
distribute a dividend of its net investment income, if any, at least annually.
Except for the Money Market Fund, each Fund will declare and distribute its net
capital gains, if any, at least annually. Distributions of income dividends and
capital gains distributions of each Fund are made on the payment date and
reinvested at the per share net asset value as of the record date or such other
date as the Board may determine. On the ``ex-dividend'' date, the net asset
value per share excludes the dividend (i.e., is reduced by the amount of the
distribution).
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
53
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND
Taxes: It is the Funds' policy to continue to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable net income to its shareholders. Therefore, no
federal income tax provision is required.
Withholding taxes on foreign dividends have been provided for in accordance
with the Funds' understanding of the applicable country's tax rules and rates.
Reclassification of Capital Accounts: The Company accounts for and reports
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants' Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment Companies.
For the year ended September 30, 1995, the application of this statement
affected undistributed net investment income (``UNI''), accumulated net realized
gain (loss) on investments (``G/L'') and paid-in capital in excess of par
(``PIC'') by the following amounts:
<TABLE>
<CAPTION>
UNI G/L PIC
--------- -------- ---------
<S> <C> <C> <C>
Growth Stock Fund $ 141,451 $ 5,798 $(147,249)
International Stock Fund (81,325) 81,325 --
Active Balanced Fund (107,185) 107,185 --
Balanced Fund (112,634) 112,634 --
</TABLE>
Net investment income, net realized gains and net assets were not affected by
this change.
Deferred Organizational Expenses: Approxi-
mately $450,000 of costs were incurred in connection with the organization and
initial registration of the Company and have been deferred and are being
amortized ratably over the period of benefit not to exceed 60 months from the
date each of the Funds' commenced investment operations.
Note 2. Agreements
The Company has entered into a management agreement with PIFM. Pursuant to
this agreement, PIFM has responsibility for all investment advisory services and
supervises the subadviser's performance of such services. PIFM is an indirect,
wholly-owned subsidiary of The Prudential Insurance Company of America
(Prudential).
PIFM has entered into subadvisory agreements with The Prudential Investment
Corporation (``PIC''), Jennison Associates Capital Corp. (``Jennison'') and
Mercator Asset Management, Inc. (``Mercator''), each a wholly-owned subsidiary
of Prudential. Each subadviser will furnish investment advisory services in
connection with the management of the various Funds. Jennison serves as
subadviser to the Growth Stock Fund and the Active Balanced Fund. PIC serves as
subadviser to the Balanced Fund, the Stock Index Fund, the Income Fund and the
Money Market Fund. Mercator serves as subadviser to the International Stock
Fund. PIFM will pay for the costs and expenses attributable to the subadvisory
agreements and the salaries and expenses of all personnel of the Company except
for fees and expenses of unaffiliated Trustees. The Funds will bear all other
costs and expenses.
Each Fund will pay PIFM a fee for its services provided to the Fund. The fees
are computed daily and payable monthly at the annual rates specified below of
the value of each Funds' average daily net assets:
Fund Management Fee
- -------------------------- ---------------
Growth Stock Fund .70%
Stock Index Fund .40
International Stock Fund 1.15
Active Balanced Fund .70
Balanced Fund .70
Income Fund .50
Money Market Fund .45
PIFM has voluntarily agreed to subsidize a portion of the operating expenses
of the Funds until September 30, 1996. Such expenses may be recovered by PIFM
through December 31, 1996 so long as the total expense ratios do not exceed
54
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND
certain predetermined levels set forth in the Company's prospectus. For the year
ended September 30, 1995, PIFM subsidized the following amounts:
<TABLE>
<CAPTION>
Percentage
of Average Amount per
Fund Net Assets Share
- ------------------------- ------------- ------------------
<S> <C> <C>
Growth Stock Fund .01% $ .001
Stock Index Fund .28 .025
International Stock Fund .04 .002
Active Balanced Fund .05 .004
Balanced Fund .10 .005
Income Fund .28 .027
Money Market Fund .32 .001
</TABLE>
The Company has entered into an administration agreement with Prudential
Mutual Fund Management, Inc. (``PMF''), an indirect wholly-owned subsidiary of
Prudential. The administration fee paid PMF will be computed daily and payable
monthly, at an annual rate of .17% of the Company's daily net assets up to $250
million and .15% of the Company's average daily net assets in excess of $250
million. PMF will furnish to the Company such services as the Company may
require in connection with the administration of the Company's business affairs.
PMF will also provide certain transfer agent services through its wholly-owned
subsidiary, Prudential Mutual Fund Services, Inc. (``PMFS''). For such services,
PMFS will be paid .03% of the Company's daily net assets up to $250 million and
.02% of the Company's average daily net assets in excess of $250 million from
the administration fee paid to PMF.
Note 3. Other Transactions with Affiliates
For the year ended September 30, 1995, Prudential Securities Incorporated, an
affiliate of PIFM, earned approximately $1,000 in brokerage commissions from
portfolio transactions executed on behalf of the Balanced Fund.
Note 4. Portfolio Securities
Purchases and sales of portfolio securities, excluding short-term
investments, for the year ended September 30, 1995 were as follows:
<TABLE>
<CAPTION>
Fund Purchases Sales
- ---------------------------- ------------ -----------
<S> <C> <C>
Growth Stock Fund $166,285,606 $94,901,288
Stock Index Fund 31,191,257 6,793,307
International Stock Fund 51,878,167 22,058,837
Active Balanced Fund 55,254,010 24,449,598
Balanced Fund 51,413,549 41,017,407
Income Fund 72,942,188 62,818,679
</TABLE>
On September 30, 1995, the Stock Index Fund purchased 62 financial futures
contracts on the S&P 500 Index expiring December, 1995. The cost of such
contracts was $18,040,975. The value of such contracts on September 30, 1995 was
$18,234,200, thereby resulting in an unrealized gain of $193,225.
The federal income tax basis and unrealized appreciation/depreciation of the
Fund's investments as of September 30, 1995 were as follows:
<TABLE>
<CAPTION>
Net Unrealized
Appreciation/
Depreciation
-------------- Gross Unrealized
Fund Basis Appreciation Depreciation
- ------------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Growth Stock Fund $168,492,267 $ 53,882,096 $55,631,552 $1,749,456
Stock Index Fund 80,984,245 15,486,856 16,243,442 756,586
International Stock
Fund 120,016,426 17,315,559 19,620,167 2,304,608
Active Balanced
Fund 121,485,163 12,020,860 12,744,154 723,294
Balanced Fund 74,648,132 6,340,696 6,845,882 505,186
Income Fund 56,738,626 894,526 1,086,048 191,522
</TABLE>
The following Funds elected to treat net losses incurred in the eleven month
period ended September 30, 1994 as having occurred in the current fiscal year:
<TABLE>
<CAPTION>
Capital Currency
---------- --------
<S> <C> <C>
Growth Stock Fund $3,796,000 --
International Stock Fund -- $186,000
Income Fund 828,000 --
</TABLE>
55
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND
The following Funds will elect to treat net losses incurred in the eleven
month period ended September 30, 1995 as having been incurred in the following
fiscal year:
<TABLE>
<CAPTION>
Capital Currency
---------- --------
<S> <C> <C>
Growth Stock Fund -- $ 4,000
International Stock Fund $3,066,000 169,000
Balanced Fund -- 1,000
</TABLE>
For federal income tax purposes, the following Funds have a capital loss
carryforward as of September 30, 1995 which expires in 2003:
Growth Stock Fund $2,825,300
Income Fund 723,300
The average monthly balance of dollar rolls outstanding during the year ended
September 30, 1995 for the Income Fund was approximately $4,142,000. The amount
of dollar rolls outstanding at September 30, 1995 was $5,940,665, which was
10.2% of total assets.
Note 5. Joint Repurchase Agreement Account
The Company, along with other affiliated registered investment companies,
transfers uninvested cash balances into a single joint account, the daily
aggregate balance of which is invested in one or more repurchase agreements
collateralized by U.S. Treasury or federal agency obligations. At September 30,
1995, the Company had a 9.01% undivided interest, in the aggregate, in the
repurchase agreements in the joint account which represented $65,929,000 in
principal amount, in the aggregate, as follows:
<TABLE>
<CAPTION>
Percentage Principal
Company Interest Amount
- ---------------------------- ---------- -----------
<S> <C> <C>
Growth Stock Fund .66% $ 4,819,000
Stock Index Fund 1.71 12,494,000
International Stock Fund 1.12 8,175,000
Active Balanced Fund 3.50 25,625,000
Balanced Fund 1.00 7,338,000
Income Fund 1.02 7,478,000
</TABLE>
As of such date, each repurchase agreement in the joint account and the
collateral therefor was as follows:
Bear, Stearns & Co., Inc., 6.375%, in the principal amount of $225,000,000,
repurchase price $225,119,531, due 10/2/95. The value of the collateral
including accrued interest was $229,660,959.
BT Securities Corp., 6.10%, in the principal amount of $56,863,000,
repurchase price $56,891,905, due 10/2/95. The value of the collateral including
accrued interest was $58,082,904.
Goldman, Sachs & Co., 6.45%, in the principal amount of $225,000,000,
repurchase price $225,120,938, due 10/2/95. The value of the collateral
including accrued interest was $229,500,013.
Smith Barney, Inc., 6.43%, in the principal amount of $225,000,000,
repurchase price $225,120,563, due 10/2/95. The value of the collateral
including accrued interest was $229,500,366.
Note 6. Capital
Each Fund has authorized an unlimited number of shares of beneficial interest
at $.001 par value per share.
Transactions in shares of beneficial interest during the years ended
September 30, 1995 and 1994 were as follows:
Year ended September 30, 1995:
<TABLE>
<CAPTION>
Shares
Issued in
Reinvestment Increase
Shares of Dividends/ Shares in Shares
Fund Sold Distributions Redeemed Outstanding
- ----------------------- ---------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Growth Stock Fund 9,932,496 4,078 (5,248,506) 4,688,068
Stock Index Fund 4,340,797 107,238 (1,725,892) 2,722,143
International Stock
Fund 6,497,880 228,737 (4,691,305) 2,035,312
Active Balanced Fund 4,883,689 242,395 (1,856,069) 3,270,015
Balanced Fund 2,303,919 168,832 (1,702,980) 769,771
Income Fund 1,204,925 296,456 (675,384) 825,997
Money Market Fund 55,919,976 2,813,967 (47,010,598) 11,723,345
</TABLE>
56
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND
Year ended September 30, 1994:
<TABLE>
<CAPTION>
Shares
Issued in
Reinvestment Increase
Shares of Dividends/ Shares in Shares
Fund Sold Distributions Redeemed Outstanding
- ---------------------- ---------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Growth Stock Fund 6,739,890 14,450 (1,804,735) 4,949,605
Stock Index Fund 2,697,792 52,328 (744,579) 2,005,541
International Stock
Fund 6,022,403 42,326 (1,702,734) 4,361,995
Active Balanced Fund 5,244,905 81,781 (1,404,380) 3,922,306
Balanced Fund 3,900,150 118,117 (556,779) 3,461,488
Income Fund 1,613,971 216,368 (809,032) 1,021,307
Money Market Fund 32,311,167 1,277,602 (17,493,001) 16,095,768
</TABLE>
Of the shares outstanding at September 30, 1995, PIFM and affiliates owned
the following shares:
<TABLE>
<CAPTION>
Fund Shares
- -------------------------- ----------
<S> <C>
Growth Stock Fund 4,724,608
Stock Index Fund 3,429,256
International Stock Fund 4,962,191
Active Balanced Fund 2,396,951
Balanced Fund 3,356,418
Income Fund 2,889,945
Money Market Fund 27,811,405
</TABLE>
57
<PAGE>
THE PRUDENTIAL INDEPENDENT
(LOGO) INSTITUTIONAL AUDITORS' REPORT
FUND
The Shareholders and Trustees of
The Prudential Institutional Fund:
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of The Prudential Institutional Fund
(consisting of the Growth Stock Fund, Stock Index Fund, International Stock
Fund, Active Balanced Fund, Balanced Fund, Income Fund and Money Market Fund),
as of September 30, 1995, the related statements of operations for the year then
ended and of changes in net assets for each of the two years in the period then
ended, and the financial highlights for the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
September 30, 1995, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of each of the
respective portfolios constituting The Prudential Institutional Fund as of
September 30, 1995, the results of their operations, the changes in their net
assets, and the financial highlights for the periods presented in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
November 16, 1995
58
<PAGE>
THE PRUDENTIAL FEDERAL INCOME
(LOGO) INSTITUTIONAL TAX INFORMATION
FUND
As required by the Internal Revenue Code, we wish to advise you as to the
federal tax status of dividends and distributions paid by the Funds during their
fiscal year ended September 30, 1995.
Detailed below, please find the aggregate dividends and distributions, per
share, paid by each Fund during the fiscal year ended September 30, 1995 as well
as the corporate dividend received deduction percentage:
<TABLE>
<CAPTION>
Ordinary Dividends* Long-Term Total Corporate
------------------------- Capital Dividends Dividend
Short-Term Gains and Received
Fund Income Capital Gains Distributions Distributions Deduction
- ------------------------------------------ ------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Growth Stock Fund $.005 -- -- $.005 100%
Stock Index Fund .215 $.025 $.010 .250 87
International Stock Fund .107 .060 .258 .425 --
Active Balanced Fund .290 .010 .025 .325 23
Balanced Fund .255 .005 .040 .300 24
Income Fund .594 -- -- .594 --
Money Market Fund .053 -- -- .053 --
</TABLE>
* For federal income tax purposes, ordinary income dividends and short-term
capital gains distributions are taxable as ordinary income. Long-term capital
gains distributions are taxable as capital gains income.
59
<PAGE>
THE PRUDENTIAL SUPPLEMENTAL
(LOGO) INSTITUTIONAL PROXY INFORMATION
FUND
A Special Meeting of Shareholders of The Prudential Institutional Fund,
International Stock Fund (the ``Fund'') was held on Thursday, November 16, 1995
at the offices of The Prudential Insurance Company of America, Prudential Plaza,
751 Broad Street, Newark, New Jersey. The meeting was held for the following
purposes:
(1) To approve a new Subadvisory Agreement between Prudential Institutional Fund
Management, Inc. and Mercator Asset Management, L.P. on behalf of the Fund.
(2) To transact such other business as may properly come before the meeting or
any adjournments thereof.
The results of the proxy solicitation on the above matters were as follows:
Votes for Votes against Abstentions
---------- -------------- ------------
Mercator Asset
(1) Management, L.P. 5,678,306 124,086 31,474
(2) There was no other business voted upon at the Special Meeting of
Shareholders.
60
<PAGE>
THE PRUDENTIAL LETTER TO
(LOGO) INSTITUTIONAL SHAREHOLDERS
FUND
May 20, 1996
We are pleased to provide you with the Semi-Annual Report of The Prudential
Institutional Fund for the six months ended March 31, 1996. A combination of
continued gains in the equity markets, albeit with more volatility, along with
strong cash flow from shareholders and retirement plan participants, resulted in
significant increases in the size of many of the Fund's portfolios. Total net
assets grew to $957.9 million at March 31, 1996 from $784.9 million at September
30, 1995. The Fund has seven portfolios, each with a distinct investment
objective designed to allow investors the opportunity to select various options
to match different goals and risk tolerances.
Economy
The U.S. economy is growing sluggishly, on the order of 2% per year and
inflation is restrained at just under 3% per year. At the outset of 1996, the
focus of most commentators was on the deceleration of growth at the end of 1995
and the potentially debilitating effects of adverse weather conditions in early
1996. The prevailing fear was that the U.S. was slipping into or possibly
already in the midst of a recession. Sentiment has shifted dramatically and
market commentators are now talking about the ``growth scare'' that is pushing
interest rates higher. The focal point for this shift in sentiment about the
economy was Fed Chairman Greenspan's February statement to Congress on the state
of the economy. Subsequent employment reports that were much better than
expected added to the new sentiment that ``strong'' underlying economic growth
of 2% or more would force interest rates higher.
Market Review
The February shift in sentiment about the economy led to a dramatic shift in
the U.S. stock and bond markets. At that point, the S&P 500 was at its all-time
high of 661 and the yield on 30-year U.S. Treasuries was about 6.0%. Greenspan's
statement can essentially serve as the demarcation point to end the 1995 stock
and bond rallies. From that point until the end of March, long-term treasury
yields rose about 70 basis points to 6.7% and the S&P 500 fluctuated in the 640
to 660 range, ending the period at 645. For the six month period as a whole,
stocks gained nearly 12%, while bonds returned about 2.4% as measured by the
Lehman Aggregate Index.
Foreign stocks, as represented by the Morgan Stanley Europe, Australia and
Far East Index (EAFE) moved in roughly the same pattern as the U.S. stock market
during this six month period but the gain in foreign stocks was a more modest
7%.
Fund Performance
As a result of the continued strength in the financial markets, each of the
Fund's portfolios achieved absolute positive returns for the six month period.
Since each portfolio's inception, returns have been very positive and compare
satisfactorily versus the benchmarks. This performance information and portfolio
holdings along with comments from each portfolio's adviser may be found on the
following pages.
1
<PAGE>
THE PRUDENTIAL LETTER TO
(LOGO) INSTITUTIONAL SHAREHOLDERS
FUND
Summary
The economy and markets are in an uncertain period characterized by
heightened volatility. This underscores our belief that investors need to focus
on the longer-term and continue to exercise a disciplined approach to investing
their retirement savings. We look forward to continuing to provide you with the
investment options and services you need to help you accomplish your goals.
Sincerely,
Mark R. Fetting
President
2
<PAGE>
THE PRUDENTIAL MONEY MARKET FUND
(LOGO) INSTITUTIONAL
FUND
OBJECTIVE: Seeks to achieve high current income,
preservation of principal and maintenance of
liquidity.
INVESTMENT APPROACH: The Fund invests in
U.S. dollar-denominated money market
instruments, including commercial paper and bank
obligations such as certificates of deposits and
banker's acceptance notes from domestic and
foreign issuers. The Fund will maintain a
dollar-weighted average portfolio maturity of 90
days or less and purchase only instruments
maturing in 13 months or less, which have been
determined to present minimal credit risks. The
Fund's yield will fluctuate, and the Fund seeks to
maintain a net asset value of $1.00 per share for
purchases and redemptions.
ADVISER: Prudential Global Advisors is a
business unit of The Prudential Investment
Corporation which specializes in domestic and
international fixed income management. PGA
currently manages approximately $23 billion in
fixed income accounts, including over $2.5 billion in
money market accounts.
ADVISER'S COMMENTS: Over the last six months,
money market yields have trended slightly lower.
In response, your Fund has been invested in
securities with somewhat longer maturities. These
investments increase the average maturity of the
Fund. Over the last six months, the Fund
maintained a longer average maturity than other
money market funds. In general, a shorter average
maturity allows the Fund to incorporate new rates
more quickly, while a longer average maturity
allows the Fund to hang on to higher rates for a
longer time.
Short-term interest rates are primarily influenced by
the Federal Reserve's Open Market Committee
(FOMC). Over the past six months, the FOMC has
engineered two decreases of the target level of the
Federal Funds rate, the rate that large banks lend to
one another overnight. The Federal Funds rate was
changed in two quarter-point moves from 5.75% to
the current rate of 5.25%. In Congressional
testimony, Fed Chairman Greenspan characterized
the second of these moves as ``insurance'' against
the possibility of recession.
The Fed was reacting to an undesirable slow rate of
economic growth during 1995. Economists disagree
about to what extent slow growth has been due to
temporary factors that will disappear over time.
Some of the temporary factors are: unintended
inventory accumulation that occurred when exports
to Mexico collapsed, the decrease in government
spending particularly during the government
shutdowns, and the severe winter weather. If
temporary factors are the biggest restraint, then
growth could be expected to increase in the future
and interest rates may rise again. If the restraints on
growth are more fundamental, the Fed will have to
lower rates further to re-stimulate the economy. We
will be watching upcoming economic data closely,
trying to ascertain the future growth trend.
We have continued to maintain a high quality
portfolio. At the end of March, all the portfolio's
investments were rated high quality by at least two
or more nationally recognized rating agencies, or if
unrated, deemed to be of equivalent quality.
PERFORMANCE RESULTS:
As of March 31, 1996, the current seven-day yield
was 4.90%. The net asset value remained at $1.00
per share.
An investment in the Fund is neither insured or guaranteed by the
U.S. Government and there can be no assurance that the Fund will be
able to maintain a stable net asset value of $1.00 per share. The
Manager is currently limiting the expenses of the Fund. Without
this reduction, the seven-day yield would have been 4.58%.
34
<PAGE>
THE PRUDENTIAL MONEY MARKET FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
BEARER DEPOSIT NOTES -
YANKEE--0.9%
Grand Metropolitan Investment Corp.,
8.125%, 8/15/96
$ 555 (amortized cost $560,141)...... $ 560,141
------------
COMMERCIAL PAPER--39.7%
American Home Products Corp.,
2,000 5.40%, 5/1/96.................... 1,991,000
Aristar, Inc.,
960 5.36%, 4/12/96................... 958,428
2,000 5.22%, 4/15/96................... 1,995,940
Countrywide Funding Corp.,
1,704 5.39%, 5/3/96.................... 1,695,836
1,300 5.47%, 5/8/96.................... 1,292,691
Duracell, Inc.,
1,382 5.60%, 4/1/96.................... 1,382,000
Enterprise Funding Corp.,
1,224 5.42%, 5/1/96.................... 1,218,472
Finova Capital Corp.,
2,961 5.25%, 4/26/96................... 2,950,205
First Data Corp.,
3,000 5.43%, 4/2/96.................... 2,999,548
General Motors Acceptance Corp.,
200 5.40%, 4/4/96.................... 199,910
Household International Inc.,
800 5.24%, 4/2/96.................... 799,884
Lehman Brothers, Inc.,
399 5.60%, 4/1/96.................... 399,000
Nynex Corp.,
2,980 5.30%, 4/8/96.................... 2,976,929
Whirlpool Financial Corp.,
820 5.20%, 4/26/96................... 817,039
2,100 5.43%, 5/10/96................... 2,087,645
------------
Total commercial paper
(amortized cost $23,764,527)..... 23,764,527
------------
Principal
Amount Value
(000) Description (Note 1)
- -------------------------------------------------------------
DEPOSIT NOTES--2.5%
Society National Bank Cleveland,
$ 1,000 6.70%, 4/15/96................... $ 1,000,351
500 6.00%, 4/25/96................... 499,843
------------
Total deposit notes
(amortized cost $1,500,194)...... 1,500,194
------------
LOAN PARTICIPATION--3.3%
Morgan Stanley Group Inc.,
5.60%, 4/3/96
2,000 (amortized cost $2,000,000).... 2,000,000
------------
MEDIUM-TERM OBLIGATIONS--19.6%
Associates Corp. of North America,
250 4.48%, 10/15/96.................. 248,249
Ford Motor Credit Corp.,
1,120 8.25%, 5/15/96................... 1,123,125
600 8.875%, 8/1/96................... 605,413
215 5.625%, 3/3/97................... 214,779
General Electric Co.,
840 7.875%, 5/1/96................... 841,296
Household Finance Corp.,
1,250 7.80%, 11/1/96................... 1,264,227
International Lease Finance
Corp.,
500 5.00%, 5/28/96................... 499,177
375 6.625%, 6/1/96................... 375,302
Norwest Corporation,
500 4.93%, 11/15/96.................. 497,245
400 7.875%, 1/30/97.................. 408,349
PHH Corporation,
2,200 8.00%, 1/1/97.................... 2,243,194
Potomac Electric Power Co.,
500 6.25%, 5/28/96................... 500,772
Sears Roebuck Acceptance Corp.,
1,635 8.55%, 8/1/96.................... 1,648,508
100 8.99%, 9/27/96................... 101,614
590 7.48%, 2/19/97................... 600,916
</TABLE>
See Notes to Financial Statements.
35
<PAGE>
THE PRUDENTIAL MONEY MARKET FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
MEDIUM-TERM OBLIGATIONS, cont'd.
Transamerica Finance Corp.,
$ 600 8.55%, 6/15/96................... $ 603,072
------------
Total medium-term obligations
(amortized cost $11,775,238)..... 11,775,238
------------
VARIABLE RATE OBLIGATIONS(a)--33.5%
American Express Centurion Bank,
1,900 5.349%, 4/16/96.................. 1,899,785
1,000 5.379%, 4/17/96.................. 999,991
Bank One Columbus N.A.,
2,700 5.34%, 4/1/96.................... 2,699,126
Caterpillar Financial Services
N.V.,
350 5.47%, 5/29/96................... 350,414
Fleet National Bank,
1,300 5.625%, 4/30/96.................. 1,300,262
Ford Motor Credit Corp.,
200 5.692%, 6/17/96.................. 200,069
350 5.40%, 2/18/97................... 350,344
General Motors Acceptance Corp.,
2,000 5.51%, 4/1/96.................... 1,999,970
350 5.622%, 6/18/96.................. 350,367
Goldman Sachs Group, L.P.,
2,700 5.438%, 4/29/96.................. 2,700,000
Household Finance Corp.,
1,700 5.34%, 4/1/96.................... 1,699,714
John Deere Capital Corp.,
1,000 5.767%, 4/22/96.................. 1,000,677
Key Bank New York,
1,400 5.33%, 4/1/96.................... 1,399,515
Lehman Brothers, Inc.,
2,000 5.509%, 4/1/96................... 2,000,000
Money Market Auto Loan Trust,
100 5.575%, 4/15/96.................. 100,000
Principal
Amount Value
(000) Description (Note 1)
- -------------------------------------------------------------
Morgan Stanley Group, Inc.,
$ 1,000 5.375%, 5/15/96.................. $ 1,000,000
------------
Total variable rate obligations
(amortized cost $20,050,234)..... 20,050,234
------------
U.S. GOVERNMENT AGENCY OBLIGATION--0.7%
Federal Home Loan Banks,
4.36%, 4/25/96
400 (amortized cost $399,668)...... 399,668
------------
Total investments--100.2%
(amortized cost
$60,050,002(b))................ 60,050,002
Liabilities in excess of other
assets--(0.2%)................. (119,819)
------------
Net Assets--100%................. $ 59,930,183
------------
------------
</TABLE>
- ---------------
(a) For purposes of amortized cost valuation, the maturity date of these
instruments is considered to be the next date on which the security can be
redeemed at par or the next date on which the rate of interest is adjusted.
(b) The cost of securities for federal income tax purposes is substantially the
same as for financial reporting purposes.
The industry classification of portfolio holdings and other net assets shown as
a percentage of net assets as of March 31, 1996 were as follows:
<TABLE>
<S> <C>
Personal Credit Institutions.............. 18.7%
Commercial Banks.......................... 16.4
Security Brokers & Dealers................ 13.5
Business Credit (Finance)................. 12.1
Information Services...................... 5.0
Mortgage Bankers.......................... 5.0
Phone Communication....................... 5.0
Household Appliances...................... 4.8
Auto Rental & Leasing..................... 3.8
Pharmaceutical............................ 3.3
Misc. Electric, Equipment, Supply......... 2.3
Asset Backed.............................. 2.2
Bank Holding Co........................... 1.5
Equipment Rental & Leasing................ 1.5
Electric & Equipment, Computer............ 1.4
Financial Services........................ 1.3
Food & Kindred Products................... 0.9
Electric Services......................... 0.8
Federal Credit............................ 0.7
Liabilities in excess of other assets..... (0.2)
-----
100.0%
-----
-----
</TABLE>
See Notes to Financial Statements.
36
<PAGE>
THE PRUDENTIAL STATEMENT OF ASSETS
(LOGO) INSTITUTIONAL AND LIABILITIES
FUND MARCH 31, 1996
<TABLE>
<CAPTION>
GROWTH STOCK INTERNATIONAL ACTIVE MONEY
STOCK INDEX STOCK BALANCED BALANCED INCOME MARKET
FUND FUND FUND FUND FUND FUND FUND
------------ ------------ ------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Investments, at value
(a)...................... $288,473,390 $147,528,594 $163,631,126 $141,973,548 $99,302,946 $64,948,809 $60,050,002
Cash....................... 571 -- 365 3,578 2,454 344 664
Foreign currency, at value
(cost $120,455).......... -- -- 120,201 -- -- -- --
Receivable for investments
sold..................... 1,843,811 110,805 -- 159,396 222,356 -- --
Interest and dividends
receivable............... 244,056 237,503 486,827 694,471 662,192 679,143 423,064
Receivable for Fund shares
sold..................... 836,874 419,537 507,136 469,950 397,983 60,429 47,347
Deferred expenses and other
assets................... 22,618 21,921 22,047 23,402 21,788 25,157 23,503
------------ ------------ ------------- ------------ ----------- ----------- -----------
Total assets........... 291,421,320 148,318,360 164,767,702 143,324,345 100,609,719 65,713,882 60,544,580
------------ ------------ ------------- ------------ ----------- ----------- -----------
Liabilities
Payable for investments
purchased................ 1,894,523 780,201 1,838,999 505,568 555,826 8,346,485 387,225
Payable for Fund shares
reacquired............... 379,951 350,236 440,038 2,721 151,391 6,891 195,043
Accrued expenses........... 59,193 56,018 104,667 27,875 33,386 17,866 17,517
Due to broker - variation
margin................... -- 29,750 -- -- -- -- --
Management fee payable..... 184,161 1,164 159,906 84,218 54,094 10,568 7,913
Administration fee
payable.................. 32,006 16,314 17,912 15,912 10,987 6,426 6,699
------------ ------------ ------------- ------------ ----------- ----------- -----------
Total liabilities...... 2,549,834 1,233,683 2,561,522 636,294 805,684 8,388,236 614,397
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net Assets................. $288,871,486 $147,084,677 $162,206,180 $142,688,051 $99,804,035 $57,325,646 $59,930,183
------------ ------------ ------------- ------------ ----------- ----------- -----------
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net assets were comprised
of:
Shares of beneficial
interest, at par......... $ 16,906 $ 9,836 $ 10,275 $ 11,342 $ 7,936 $ 5,781 $ 59,930
Paid-in capital in excess
of par................... 223,817,874 119,565,666 140,973,229 124,739,121 88,818,388 57,616,118 59,870,253
------------ ------------ ------------- ------------ ----------- ----------- -----------
223,834,780 119,575,502 140,983,504 124,750,463 88,826,324 57,621,899 59,930,183
Undistributed net
investment income
(loss)................... (362,804) 536,299 183,078 1,026,586 671,956 -- --
Accumulated net realized
gain (loss) on
investments.............. 2,165,314 596,539 (364,666 ) 3,304,353 1,284,654 (179,120) --
Net unrealized appreciation
(depreciation) on
investments and foreign
currencies............... 63,234,196 26,376,337 21,404,264 13,606,649 9,021,101 (117,133) --
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net assets, March 31,
1996..................... $288,871,486 $147,084,677 $162,206,180 $142,688,051 $99,804,035 $57,325,646 $59,930,183
------------ ------------ ------------- ------------ ----------- ----------- -----------
------------ ------------ ------------- ------------ ----------- ----------- -----------
Shares of beneficial
interest issued and
outstanding.............. 16,906,186 9,835,809 10,275,205 11,341,527 7,936,350 5,780,560 59,930,183
------------ ------------ ------------- ------------ ----------- ----------- -----------
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net asset value per
share.................... $ 17.09 $ 14.95 $ 15.79 $ 12.58 $ 12.58 $ 9.92 $ 1.00
------------ ------------ ------------- ------------ ----------- ----------- -----------
------------ ------------ ------------- ------------ ----------- ----------- -----------
(a) Identified cost........ $225,239,430 $121,196,832 $142,221,274 $128,366,899 $90,281,845 $65,065,943 $60,050,002
</TABLE>
See Notes to Financial Statements.
37
<PAGE>
THE PRUDENTIAL STATEMENT OF
(LOGO) INSTITUTIONAL OPERATIONS
FUND SIX MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
GROWTH STOCK INTERNATIONAL ACTIVE MONEY
STOCK INDEX STOCK BALANCED BALANCED INCOME MARKET
FUND FUND FUND FUND FUND FUND FUND
------------ ------------ ------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Investment Income
Income
Interest................. $ 142,475 $ 222,810 $ 299,227 $ 2,194,088 $ 1,500,344 $ 1,839,465 $ 1,716,542
Dividends (a)............ 835,346 1,295,809 1,257,014 610,799 246,391 -- --
------------ ------------ ------------- ------------ ----------- ----------- -----------
Total income........... 977,821 1,518,619 1,556,241 2,804,887 1,746,735 1,839,465 1,716,542
------------ ------------ ------------- ------------ ----------- ----------- -----------
Expenses
Management fee........... 885,234 242,455 828,186 482,513 312,574 139,295 132,163
Administration fee....... 168,078 80,560 95,715 91,614 59,348 37,027 38,798
Custodian's fees and
expenses................. 46,000 68,000 138,000 38,000 34,000 30,000 29,000
Registration fees........ 34,000 20,000 17,000 28,000 12,000 14,000 11,000
Transfer agent's fees and
expenses............... 28,969 13,885 16,497 15,790 10,229 6,382 6,964
Reports to
shareholders............. 15,000 15,000 15,000 7,500 15,000 7,500 7,500
Legal fees............... 7,500 7,500 7,500 7,500 7,500 7,500 7,500
Amortization of
organization
expenses............... 6,693 6,693 6,693 6,606 6,693 6,525 6,606
Audit fee................ 6,000 5,000 7,500 6,000 5,000 5,000 4,500
Trustees' fees........... 6,000 6,000 6,000 6,000 6,000 6,000 6,000
Miscellaneous............ 1,762 769 1,337 919 753 790 1,188
------------ ------------ ------------- ------------ ----------- ----------- -----------
Total expenses......... 1,205,236 465,862 1,139,428 690,442 469,097 260,019 251,219
Expense recovery
(subsidy) (Note 2)..... 59,383 (102,179) 12,836 (1,136) (22,563) (65,010) (75,031)
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net expenses............... 1,264,619 363,683 1,152,264 689,306 446,534 195,009 176,188
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net investment income
(loss)................... (286,798) 1,154,936 403,977 2,115,581 1,300,201 1,644,456 1,540,354
------------ ------------ ------------- ------------ ----------- ----------- -----------
Realized and Unrealized
Gain (Loss) on Investment
and Foreign Currency
Transactions
Net realized gain (loss) on:
Securities
transactions............. 5,181,317 329,077 2,870,670 3,822,493 1,674,656 553,480 774
Financial futures
contracts................ -- 706,645 -- -- -- -- --
Foreign currency
transactions............. (76,006) -- (63,741 ) -- -- -- --
------------ ------------ ------------- ------------ ----------- ----------- -----------
5,105,311 1,035,722 2,806,929 3,822,493 1,674,656 553,480 774
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net change in unrealized
appreciation
(depreciation) on:
Securities and foreign
currencies............... 9,168,246 10,803,505 4,083,056 1,492,196 2,639,177 (1,011,659) --
Financial futures
contracts................ -- (148,650) -- -- -- -- --
------------ ------------ ------------- ------------ ----------- ----------- -----------
9,168,246 10,654,855 4,083,056 1,492,196 2,639,177 (1,011,659) --
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net gain (loss) on
investments and foreign
currencies............... 14,273,557 11,690,577 6,889,985 5,314,689 4,313,833 (458,179) 774
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net Increase in Net Assets
Resulting from
Operations................. $ 13,986,759 $ 12,845,513 $7,293,962 $ 7,430,270 $ 5,614,034 $ 1,186,277 $ 1,541,128
------------ ------------ ------------- ------------ ----------- ----------- -----------
------------ ------------ ------------- ------------ ----------- ----------- -----------
(a) Net of foreign withholding taxes of $17,997, $1,988, $160,696, $1,168 and $4,070, respectively.
</TABLE>
See Notes to Financial Statements.
38
<PAGE>
THE PRUDENTIAL STATEMENT OF CHANGES
(LOGO) INSTITUTIONAL IN NET ASSETS
FUND (UNAUDITED)
<TABLE>
<CAPTION>
MONEY
BALANCED INCOME MARKET
FUND FUND FUND
------------------------------ ----------------------------- ------------------------------
Six Months Year Six Months Year Six Months Year
Ended Ended Ended Ended Ended Ended
March 31, September 30, March 31, September 30, March 31, September 30,
1996 1995 1996 1995 1996 1995
------------ ------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in
Net Assets
Operations
Net investment
income............... $ 1,300,201 $ 2,258,681 $ 1,644,456 $ 2,862,527 $ 1,540,354 $ 2,813,967
Net realized gain on
investments and
foreign currency
transactions......... 1,674,656 2,196,076 553,480 92,951 774 --
Net change in
unrealized
appreciation
(depreciation) on
investments and
foreign currencies... 2,639,177 6,413,335 (1,011,659) 2,865,097 -- --
------------ ------------- ----------- ------------- ------------ -------------
Net increase in net
assets resulting from
operations........... 5,614,034 10,868,092 1,186,277 5,820,575 1,541,128 2,813,967
------------ ------------- ----------- ------------- ------------ -------------
Dividends and
distributions
Dividends to
shareholders from net
investment income.... (2,334,680) (1,529,788) (1,644,456) (2,862,527) (1,541,128) (2,813,967)
Distributions to
shareholders from net
realized gains....... (2,472,014) (269,963) -- -- -- --
------------ ------------- ----------- ------------- ------------ -------------
Total dividends and
distributions........ (4,806,694) (1,799,751) (1,644,456) (2,862,527) (1,541,128) (2,813,967)
------------ ------------- ----------- ------------- ------------ -------------
Fund share transactions
Net proceeds from
shares sold.......... 21,877,936 26,091,264 7,888,653 11,549,255 22,399,365 55,919,976
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions........ 4,806,694 1,799,751 1,644,456 2,862,527 1,541,128 2,813,967
Cost of shares
redeemed............. (9,797,881) (19,161,993) (4,046,651) (6,473,780) (22,064,387) (47,010,598)
------------ ------------- ----------- ------------- ------------ -------------
Net increase in net
assets from Fund
share transactions... 16,886,749 8,729,022 5,486,458 7,938,002 1,876,106 11,723,345
------------ ------------- ----------- ------------- ------------ -------------
Net increase............ 17,694,089 17,797,363 5,028,279 10,896,050 1,876,106 11,723,345
Net Assets
Beginning of period.... 82,109,946 64,312,583 52,297,367 41,401,317 58,054,077 46,330,732
------------ ------------- ----------- ------------- ------------ -------------
End of period.......... $ 99,804,035 $82,109,946 $57,325,646 $52,297,367 $ 59,930,183 $58,054,077
------------ ------------- ----------- ------------- ------------ -------------
------------ ------------- ----------- ------------- ------------ -------------
</TABLE>
See Notes to Financial Statements.
40
<PAGE>
THE PRUDENTIAL FINANCIAL HIGHLIGHTS
(LOGO) INSTITUTIONAL (UNAUDITED)
FUND
<TABLE>
<CAPTION>
MONEY
MARKET
FUND
--------------------------------------------------------------------
January 4,
Six Months 1993(a)
Ended Year Ended September 30, Through
March 31, --------------------------- September 30,
1996 1995 1994 1993
---------- --------- --------- -------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income and
net realized gains(b)...... .03 .05 .03 .02
Dividends from net
investment income.......... (.03) (.05) (.03) (.02)
---------- --------- --------- ----------
Net asset value, end of
period..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- --------- --------- ----------
---------- --------- --------- ----------
TOTAL RETURN(d)............. 2.64% 5.47% 3.32% 2.08%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of period
(000)...................... $ 59,930 $58,054 $46,331 $30,235
Average net assets (000).... $ 58,739 $52,446 $38,170 $25,296
Ratios to average
net assets: (b)
Expenses................... .60%(c) .60% .60% .60%(c)
Net investment income...... 5.24%(c) 5.37% 3.34% 2.73%(c)
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) Net of expense subsidy.
(c) Annualized.
(d) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total return for periods of
less than a full year are not annualized. Total return includes the effect
of expense subsidies.
See Notes to Financial Statements.
44
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND (UNAUDITED)
The Prudential Institutional Fund (the ``Company'') is registered under the
Investment Company Act of 1940 as an open-end, diversified management investment
company. The Company was established as a Delaware business trust on May 11,
1992 and consists of seven separate funds (Fund or Funds): Growth Stock Fund,
Stock Index Fund, International Stock Fund, Active Balanced Fund, Balanced Fund,
Income Fund and Money Market Fund. The Company had no operations until July 7,
1992 when 10,000 shares of beneficial interest (2,500 shares each of Growth
Stock Fund, Stock Index Fund, International Stock Fund and Balanced Fund) were
sold for $100,000 to Prudential Institutional Fund Management, Inc. (``PIFM'').
Investment operations commenced on: November 5, 1992 for the Growth Stock Fund,
Stock Index Fund, International Stock Fund and Balanced Fund; January 4, 1993
for the Active Balanced Fund and Money Market Fund; and March 1, 1993 for the
Income Fund.
The Funds' investment objectives are as follows: Growth Stock Fund--long-term
growth of capital through investment primarily in equity securities of
established companies with above-average growth prospects; Stock Index
Fund--investment results that correspond to the price and yield performance of
Standard & Poor's 500 Composite Stock Price Index; International Stock
Fund--long-term growth of capital through investment in equity securities of
foreign issues with income as a secondary objective; Active Balanced Fund--total
returns approaching equity returns, while accepting less risk than an all-equity
portfolio, through an actively-managed portfolio of equity securities, fixed
income securities and money market instruments; Balanced Fund--long-term total
return consistent with moderate portfolio risk; Income Fund--a high level of
income over the longer term while providing reasonable safety of principal; and
Money Market Fund--high current income, preservation of principal and
maintenance of liquidity, while maintaining a $1.00 net asset value per share.
The ability of issuers of debt securities, other than those issued or
guaranteed by the U.S. Government, held by the Funds to meet their obligations
may be affected by economic developments in a specific industry, region, or
country.
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund.
Securities Valuations: Securities, including options, warrants, futures
contracts and options thereon, for which the primary market is on a national
securities exchange, commodities exchange or board of trade and NASDAQ national
market equity securities are valued at the last sale price on such exchange or
board of trade on the date of valuation or, if there was no sale on such day, at
the average of readily available closing bid and asked prices on such day.
Securities, that are actively traded in the over-the-counter market,
including listed securities for which the primary market is believed to be
over-the-counter, shall be valued at the average of the most recently quoted bid
and asked prices provided by a principal market maker or dealer.
U.S. Government securities for which market quotations are available shall be
valued at a price provided by an independent broker/dealer or pricing service.
Securities for which reliable market quotations are not available or for
which the pricing agent or principal market maker does not provide a valuation
or provides a valuation that, in the judgment of one of the subadvisers, does
not represent fair value, shall be valued at fair value as determined under
procedures established by the Trustees.
Quotations of foreign securities in a foreign currency shall be converted to
U.S. dollar equivalents at the current rate obtained from a
45
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND (UNAUDITED)
recognized bank or dealer. Forward currency exchange contracts shall be valued
at the current cost of covering or offsetting such contracts.
Securities held by the Money Market Fund are valued at amortized cost, which
approximates market value. The amortized cost method involves valuing a security
at its cost on the date of purchase and thereafter assuming a constant
amortization to maturity of the difference between the principal amount due at
maturity and cost. Short-term securities held by the other Funds which mature in
more than 60 days are valued at current market quotations and those which mature
in 60 days or less are valued at amortized cost. In the event that a Subadviser
determines that amortized cost does not represent fair value for certain
short-term securities with remaining maturities of 60 days or less, such
securities will be valued at market value.
In connection with transactions in repurchase agreements, it is the Company's
policy that its custodian or designated subcustodians, as the case may be under
triparty repurchase agreements, take possession of the underlying collateral
securities, the value of which exceeds the principal amount of the repurchase
transaction, including accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to ensure the adequacy of the collateral. If
the seller defaults, and the value of the collateral declines or, if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Company may be delayed or limited.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date and interest income is recorded on the accrual basis. Expenses
are recorded on the accrual basis which may require the use of certain estimates
by management.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Fund is required to pledge to the broker an amount of cash and/or other
assets equal to a certain percentage of the contract amount. This amount is
known as the ``initial margin.'' Subsequent payments, known as ``variation
margin,'' are made or received by the Fund each day, depending on the daily
fluctuations in the value of the underlying security. Such variation margin is
recorded for financial statement purposes on a daily basis as unrealized gain or
loss. When the contract expires or is closed, the gain or loss is realized and
is presented in the statement of operations as net realized gain (loss) on
financial futures contracts.
The Funds invest in financial futures contracts in order to hedge their
existing portfolio securities, or securities the Funds intend to purchase,
against fluctuations in value. Under a variety of circumstances, a Fund may not
achieve the anticipated benefits of the financial futures contracts and may
realized a loss. The use of futures transactions involves the risk of imperfect
correlation in movements in the price of futures contracts and the underlying
assets.
Dollar Rolls: The Fund may enter into dollar rolls in which the Fund sells
securities for delivery in the current month and simultaneously contracts to
repurchase somewhat similar securities on a specified future date. During the
roll period, the Fund forgoes principal and interest paid on the securities. The
Fund is compensated by the interest earned on the cash proceeds of the initial
sale and by the lower repurchase price at the future date.
Foreign Currency Translation: The books and records of the Funds are
maintained in U.S. dollars.
46
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND (UNAUDITED)
Foreign currency amounts are translated into U.S. dollars on the following
basis:
(i) market value of investment securities, other assets and liabilities--at
the closing rates of exchange.
(ii) purchases and sales of investment securities, income and expenses--at
the rate of exchange prevailing on the respective dates of such transactions.
Although the net assets of the Funds are presented at the foreign exchange
rates and market values at the close of the fiscal period, the Funds do not
isolate that portion of the results of operations arising as a result of changes
in the foreign exchange rates from the fluctuations arising from changes in the
market prices of securities held at the end of the fiscal period. Similarly, the
Funds do not isolate the effect of changes in foreign exchange rates from the
fluctuations arising from changes in the market prices of long-term portfolio
securities sold during the fiscal period. Accordingly, these realized foreign
currency gains (losses) are included in the reported net realized gains (losses)
on investment transactions.
Net realized losses on foreign currency transactions represent net foreign
exchange losses from holding of foreign currencies, currency gains or losses
realized between the trade and settlement dates of securities transactions, and
the difference between the amounts of dividends and foreign taxes recorded on
the Funds' books and the U.S. dollar equivalent amounts actually received or
paid. Net currency gains and losses from valuing foreign currency denominated
assets and liabilities at period end exchange rates are reflected as a component
of net unrealized appreciation/
depreciation on securities and foreign currencies.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin as a result of,
among other factors, the level of governmental supervision and regulation of
foreign securities markets and the possibility of political or economic
instability.
Dividends and Distributions: Dividends and distributions of each Fund are
declared in cash and automatically reinvested in additional shares of the Fund.
The Income Fund and Money Market Fund will declare dividends of their net
investment income and, for the Money Market Fund, net capital gain (loss), daily
and distribute such dividends monthly. Each other Fund will declare and
distribute a dividend of its net investment income, if any, at least annually.
Except for the Money Market Fund, each Fund will declare and distribute its net
capital gains, if any, at least annually. Distributions of income dividends and
capital gains distributions of each Fund are made on the payment date and
reinvested at the per share net asset value as of the record date or such other
date as the Board may determine. On the ``ex-dividend'' date, the net asset
value per share excludes the dividend (i.e., is reduced by the amount of the
distribution).
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
Taxes: It is the Funds' policy to continue to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable net income to its shareholders. Therefore, no
federal income tax provision is required.
Withholding taxes on foreign dividends have been provided for in accordance
with the Funds' understanding of the applicable country's tax rules and rates.
Reclassification of Capital Accounts: The Company accounts for and reports
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants' Statement
47
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND (UNAUDITED)
of Position 93-2: Determination, Disclosure, and Financial Statement
Presentation of Income, Capital Gain, and Return of Capital Distributions by
Investment Companies.
For the six months ended March 31, 1996, the application of this statement
affected undistributed net investment income (``UNI'') and accumulated net
realized gain (loss) on investments (``G/L'') by the following amounts:
<TABLE>
<CAPTION>
UNI G/L
-------- -------
<S> <C> <C>
Growth Stock Fund $(76,006) $76,006
International Stock Fund (63,741) 63,741
</TABLE>
Net investment income, net realized gains and net assets were not affected by
this change.
Deferred Organizational Expenses: Approxi-
mately $450,000 of costs were incurred in connection with the organization and
initial registration of the Company and have been deferred and are being
amortized ratably over the period of benefit not to exceed 60 months from the
date each of the Funds' commenced investment operations.
Note 2. Agreements
The Company has entered into a management agreement with PIFM. Pursuant to
this agreement, PIFM has responsibility for all investment advisory services and
supervises the subadviser's performance of such services. PIFM is an indirect,
wholly-owned subsidiary of The Prudential Insurance Company of America
(Prudential).
PIFM has entered into subadvisory agreements with The Prudential Investment
Corporation (``PIC''), Jennison Associates Capital Corp. (``Jennison'') and
Mercator Asset Management, L.P. (``Mercator''). PIC and Jennison are
wholly-owned subsidiaries of Prudential. Each subadviser will furnish investment
advisory services in connection with the management of the various Funds.
Jennison serves as subadviser to the Growth Stock Fund and the Active Balanced
Fund. PIC serves as subadviser to the Balanced Fund, the Stock Index Fund, the
Income Fund and the Money Market Fund. Mercator serves as subadviser to the
International Stock Fund. PIFM will pay for the costs and expenses attributable
to the subadvisory agreements and the salaries and expenses of all personnel of
the Company except for fees and expenses of unaffiliated Trustees. The Funds
will bear all other costs and expenses.
Each Fund will pay PIFM a fee for its services provided to the Fund. The fees
are computed daily and payable monthly at the annual rates specified below of
the value of each Funds' average daily net assets:
<TABLE>
<CAPTION>
Fund Management Fee
- -------------------------- ---------------
<S> <C>
Growth Stock Fund .70%
Stock Index Fund .40
International Stock Fund 1.15
Active Balanced Fund .70
Balanced Fund .70
Income Fund .50
Money Market Fund .45
</TABLE>
PIFM has voluntarily agreed to subsidize a portion of the operating expenses
of the Funds until September 30, 1996. Such expenses may be recovered by PIFM
through December 31, 1996 so long as the total expense ratios do not exceed
certain predetermined levels set forth in the Company's prospectus. For the six
months ended March 31, 1996, PIFM subsidized the following amounts:
<TABLE>
<CAPTION>
Percentage
of Average Amount per
Fund Net Assets Share
- --------------------------- ------------- ------------------
<S> <C> <C>
Stock Index Fund .17% $ .011
Active Balanced Fund .002 .0001
Balanced Fund .05 .003
Income Fund .23 .011
Money Market Fund .25 .001
</TABLE>
48
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND (UNAUDITED)
PIFM also recovered the following amounts of operating expenses it previously
subsidized for the six months ended March 31, 1996:
<TABLE>
<CAPTION>
Percentage
of Average Amount per
Net Assets Share
------------- ------------------
<S> <C> <C>
Growth Stock Fund .05% $ .004
International Stock Fund .02 .001
</TABLE>
The Company has entered into an administration agreement with Prudential
Mutual Fund Management, Inc. (``PMF''), an indirect wholly-owned subsidiary of
Prudential. The administration fee paid PMF will be computed daily and payable
monthly, at an annual rate of .17% of the Company's daily net assets up to $250
million and .15% of the Company's average daily net assets in excess of $250
million. PMF will furnish to the Company such services as the Company may
require in connection with the administration of the Company's business affairs.
PMF will also provide certain transfer agent services through its wholly-owned
subsidiary, Prudential Mutual Fund Services, Inc. (``PMFS''). For such services,
PMFS will be paid .03% of the Company's daily net assets up to $250 million and
.02% of the Company's average daily net assets in excess of $250 million from
the administration fee paid to PMF.
Note 3. Portfolio Securities
Purchases and sales of portfolio securities, excluding short-term
investments, for the six months ended March 31, 1996 were as follows:
<TABLE>
<CAPTION>
Fund Purchases Sales
- ---------------------------- ------------ -----------
<S> <C> <C>
Growth Stock Fund $125,001,676 $72,554,977
Stock Index Fund 47,804,297 948,671
International Stock Fund 28,187,107 11,866,927
Active Balanced Fund 28,778,511 23,901,019
Balanced Fund 40,800,913 29,694,202
Income Fund 30,157,486 28,424,962
</TABLE>
On March 31, 1996, the Stock Index Fund purchased 17 financial futures
contracts on the S&P 500 Index expiring June, 1996. The cost of such contracts
was $5,491,050. The value of such contracts on March 31, 1996 was $5,535,625,
thereby resulting in an unrealized gain of $44,575.
The federal income tax basis and unrealized appreciation/depreciation of the
Fund's investments as of March 31, 1996 were as follows:
<TABLE>
<CAPTION>
Net Unrealized
Appreciation/
(Depreciation)
--------------- Gross Unrealized
Fund Basis Appreciation Depreciation
- ------------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Growth Stock Fund $225,390,343 $63,083,047 $66,420,094 $3,337,047
Stock Index Fund 121,241,374 26,287,220 27,491,663 1,204,443
International
Stock Fund 142,221,274 21,409,852 25,461,090 4,051,238
Active Balanced
Fund 128,545,569 13,427,979 13,990,099 562,120
Balanced Fund 90,294,873 9,008,073 9,842,011 833,938
Income Fund 65,076,580 (127,771) 544,801 672,572
</TABLE>
The following Funds elected to treat net losses incurred in the eleven month
period ended September 30, 1995 as having occurred in the current fiscal year:
<TABLE>
<CAPTION>
Capital Currency
---------- --------
<S> <C> <C>
Growth Stock Fund -- $ 4,000
International Stock Fund $3,066,000 169,000
Balanced Fund -- 1,000
</TABLE>
For federal income tax purposes, the following Funds have a capital loss
carryforward as of September 30, 1995 which expires in 2003:
<TABLE>
<S> <C>
Growth Stock Fund $2,825,300
Income Fund 723,300
</TABLE>
The average monthly balance of dollar rolls outstanding during the six months
ended March 31, 1996 for the Income Fund was approximately $6,397,000. The
maximum amount of dollar rolls outstanding at any month-end during the six
months ended March 31, 1996 was $6,991,530 as of January 31, 1996 which was
10.8% of total assets. The amount of dollar rolls outstanding at March 31, 1996,
was $6,723,720, which was 10.2% of total assets.
49
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND (UNAUDITED)
Note 4. Joint Repurchase Agreement Account
The Company, along with other affiliated registered investment companies,
transfers uninvested cash balances into a single joint account, the daily
aggregate balance of which is invested in one or more repurchase agreements
collateralized by U.S. Treasury or federal agency obligations. At March 31,
1996, the Company had a 4.60% undivided interest, in the aggregate, in the
repurchase agreements in the joint account which represented $67,021,000 in
principal amount, in the aggregate, as follows:
<TABLE>
<CAPTION>
Percentage Principal
Company Interest Amount
- ---------------------------- ---------- -----------
<S> <C> <C>
Growth Stock Fund .28% $ 4,122,000
Stock Index Fund .41 5,929,000
International Stock Fund .77 11,189,000
Active Balanced Fund 1.64 23,888,000
Balanced Fund .71 10,344,000
Income Fund .79 11,549,000
</TABLE>
As of such date, each repurchase agreement in the joint account and the
collateral therefor was as follows:
Bear, Stearns & Co., Inc., 5.30%, in the principal amount of $387,000,000,
repurchase price $387,170,925, due 4/1/96. The value of the collateral including
accrued interest was $395,137,122.
CS First Boston Corp., 5.50%, in the principal amount of $150,000,000,
repurchase price $150,068,750, due 4/1/96. The value of the collateral including
accrued interest was $153,001,819.
Goldman Sachs & Co., 5.40%, in the principal amount of $463,000,000,
repurchase price $463,208,350, due 4/1/96. The value of the collateral including
accrued interest was $472,260,747.
Nomura Securities, Inc., 5.375%, in the principal amount of $100,000,000,
repurchase price $100,044,792, due 4/1/96. The value of the collateral including
accrued interest was $102,398,695.
Smith Barney, Inc., 5.284%, in the principal amount of $355,886,000,
repurchase price $356,042,708, due 4/1/96. The value of the collateral including
accrued interest was $363,004,234.
Note 5. Capital
Each Fund has authorized an unlimited number of shares of beneficial interest
at $.001 par value per share.
Transactions in shares of beneficial interest during the six months ended
March 31, 1996 and the year ended September 30, 1995 were as follows:
Six months ended March 31, 1996:
<TABLE>
<CAPTION>
Shares
Issued in
Reinvestment Increase
Shares of Dividends/ Shares in Shares
Fund Sold Distributions Redeemed Outstanding
- ---------------------- ---------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Growth Stock Fund 8,107,640 -- (4,805,656) 3,301,984
Stock Index Fund 3,893,782 467,712 (1,694,486) 2,667,008
International Stock
Fund 3,795,911 116,606 (2,601,769) 1,310,748
Active Balanced Fund 1,438,229 483,285 (1,283,160) 638,354
Balanced Fund 1,748,784 395,938 (784,163) 1,360,559
Income Fund 780,386 162,743 (400,473) 542,656
Money Market Fund 22,399,365 1,541,128 (22,064,387) 1,876,106
</TABLE>
Year ended September 30, 1995:
<TABLE>
<CAPTION>
Shares
Issued in
Reinvestment Increase
Shares of Dividends/ Shares in Shares
Fund Sold Distributions Redeemed Outstanding
- ----------------------- ---------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Growth Stock Fund 9,932,496 4,078 (5,248,506) 4,688,068
Stock Index Fund 4,340,797 107,238 (1,725,892) 2,722,143
International Stock
Fund 6,497,880 228,737 (4,691,305) 2,035,312
Active Balanced Fund 4,883,689 242,395 (1,856,069) 3,270,015
Balanced Fund 2,303,919 168,832 (1,702,980) 769,771
Income Fund 1,204,925 296,456 (675,384) 825,997
Money Market Fund 55,919,976 2,813,967 (47,010,598) 11,723,345
</TABLE>
50
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND (UNAUDITED)
Of the shares outstanding at March 31, 1996, PIFM and affiliates owned the
following shares:
<TABLE>
<CAPTION>
Fund Shares
- -------------------------- ----------
<S> <C>
Growth Stock Fund 5,800,387
Stock Index Fund 4,642,203
International Stock Fund 5,647,337
Active Balanced Fund 2,485,468
Balanced Fund 3,883,087
Income Fund 2,975,746
Money Market Fund 28,544,777
</TABLE>
Note 6. Proposed Reorganization
On May 17, 1996, the Trustees of the Fund approved an Agreement and a Plan of
Reorganization (the ``Plan of Reorganization'') for the Fund. Under the Plan of
Reorganization, substantially all of the assets and liabilities of the Growth
Stock Fund, Balanced Fund, Income Fund and Money Market Fund will be transferred
at net asset value for equivalent value Class Z shares of Prudential Jennison
Fund, Inc., Prudential Allocation Fund (Balanced Portfolio), Prudential
Government Income Fund, Inc. and Prudential MoneyMart Assets, Inc.,
respectively. These Funds will then cease operations. Stock Index Fund and
Active Balanced Fund will remain with The Prudential Institutional Fund (to be
renamed the Prudential Dryden Fund) as Class Z shares. Active Balanced Fund will
begin offering Classes A, B and C shares and Stock Index Fund will offer Class A
shares. International Stock Fund will join the Prudential Global Fund as a
separate series of a newly named Prudential World Fund. The existing
shareholders will become Class Z shareholders and the Fund will also begin
offering Classes A, B and C shares. The successor funds will be managed by PMF,
PMFS will provide transfer agency services and Prudential Securities
Incorporated, a wholly-owned subsidiary of Prudential, will act as distributor.
The Plan of Reorganization requires the approval of shareholders of the Fund
to become effective. A proxy will be mailed to shareholders of the Fund for
shareholder meetings in the fall of 1996. If the Plan of Reorganization is
approved, it is expected that the reorganizations will take place shortly after
the meetings. All funds involved will share pro rata in the costs of the
reorganizations.
51
<PAGE>
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION.
As permitted by Section 17(h) and (i) of the Investment Company Act of 1940
(the 1940 Act) and pursuant to Article X of the Registrant's By-Laws (Exhibit 2
to the Registration Statement) and Section 2-418 of the Maryland General
Corporation Law, officers, Directors, employees and agents of the Registrant
will not be liable to the Registrant, any shareholder, officer, director,
employee, agent or other person for any action or failure to act, except for bad
faith, willful misfeasance, gross negligence or reckless disregard of duties,
and those individuals may be indemnified against liabilities in connection with
the Registrant, subject to the same exceptions. As permitted by Section 17(i) of
the 1940 Act, pursuant to Section 9 of the Distribution Agreement (Exhibit 7 to
the Registration Statement), the Distributor of the Registrant may be
indemnified against liabilities which it may incur, except liabilities arising
from bad faith, gross negligence, willful misfeasance or reckless disregard of
duties.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (Securities Act) may be permitted to Directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
1940 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Director, officer, or controlling
person of the Registrant in connection with the successful defense of any
action, suit or proceeding) is asserted against the Registrant by such Director,
officer or controlling person in connection with the shares being registered,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the 1940 Act and will be governed by the final adjudication of such
issue.
The Registrant maintains an insurance policy insuring its officers and
Directors against liabilities, and certain costs of defending claims against
such officers and Directors, to the extent such officers and Directors are not
found to have committed conduct constituting willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of indemnification
payments to officers and Directors under certain circumstances.
Section 8 of the Management Agreement (Exhibit 6(a) to the Registration
Statement) and Section 4 of the Subadvisory Agreement (Exhibit 6(b) to the
Registration Statement) limit the liability of Prudential Mutual Fund
Management, Inc. (PMF) and The Prudential Investment Corporation (PIC),
respectively, to liabilities arising from willful misfeasance, bad faith or
gross negligence in the performance of their respective duties or from reckless
disregard by them of their respective obligations and duties under the
agreements.
The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws and the Distribution Agreement in a manner consistent
with Release No. 11330 of the Securities and Exchange Commission under the 1940
Act so long as the interpretation of Section 17(h) and 17(i) of such Act remain
in effect and are consistently applied.
ITEM 16. EXHIBITS.
1. (a) Articles of Incorporation of the Registrant. Incorporated by reference
to Exhibit No. 1(a) to Post-Effective Amendment No. 32 to the Registration
Statement on Form N-1A filed via EDGAR on February 29, 1996 (File No.
2-55301).
(b) Articles Supplementary. Incorporated by reference to Exhibit No. 1(b) to
Post-Effective Amendment No. 32 to the Registration Statement on Form N-1A
filed via EDGAR on February 29, 1996 (File No. 2-55301).
(c) Articles of Amendment. Incorporated by reference to Exhibit No. 1(c) to
Post-Effective Amendment No. 32 to the Registration Statement on Form N-1A
filed via EDGAR on February 29, 1996 (File No. 2-55301).
2. By-Laws of the Registrant. Incorporated by reference to Exhibit No. 2 to
Post-Effective Amendment No. 29 to the Registration Statement on Form N-1A
filed via EDGAR on February 24, 1995 (File No. 2-55301).
4. Asset/Stock Exchange Agreement, filed herewith as Appendix A to the
Prospectus and Proxy Statement.*
5. Instruments defining rights of shareholders. Incorporated by reference to
Exhibits 1 and 2.
C-1
<PAGE>
6. (a) Management Agreement between the Registrant and Prudential Mutual Fund
Management, Inc. Incorporated by reference to Exhibit No. 5(a) to
Post-Effective Amendment No. 23 to the Registration Statement on Form N-1A
filed on May 1, 1989 (File No. 2-55301).
(b) Subadvisory Agreement between Prudential Mutual Fund Management, Inc.
and The Prudential Investment Corporation. Incorporated by reference to
Exhibit No. 5(b) to Post-Effective Amendment No. 23 to the Registration
Statement on Form N-1A filed on May 1, 1989 (File No. 2-55301).
7. Restated Distribution Agreement for Class A and Class Z shares.*
9. Custodian Contract between the Registrant and State Street Bank and Trust
Company. Incorporated by reference to Exhibit No. 8 to Post-Effective
Amendment No. 25 to the Registration Statement on Form N-1A filed on April
12, 1991 (File No. 2-55301).
10. (a) Plan of Distribution. Incorporated by reference to Exhibit No. 15 to
Post-Effective Amendment No. 23 to the Registration Statement on Form N-1A
filed on May 1, 1989 (File No. 2-55301).
(b) Distribution and Service Plan between the Registrant and Prudential
Mutual Fund Distributors, Inc. Incorporated by reference to Exhibit No.
15(b) to Post-Effective Amendment No. 28 to the Registration Statement on
Form N-1A filed on February 17, 1994 (File No. 2-55301).
(c) Rule 18f-3 Plan. Incorporated by reference to Exhibit No. 18 to
Post-Effective Amendment No. 30 to the Registration Statement on Form N-1A
filed via EDGAR on October 31, 1995 (File No. 2-55301).
11. Opinion and Consent of Counsel.*
12. Tax Opinion of Counsel.*
14. Consent of Independent Accountants.*
17. (a) Proxy.*
(b) Copy of Registrant's declaration pursuant to Rule 24f-2 under the 1940
Act.*
(c) Prospectus of the Registrant (Class Z Shares) dated March 1, 1996.*
(d) Annual report to shareholders of The Prudential Institutional Fund for
the fiscal year ended September 30, 1995, as it relates to the Money Market
Fund filed herewith in the Registrant's Statement of Additional
Information.*
(e) Semi-Annual report to shareholders of The Prudential Institutional Fund
for the six-months ended March 31, 1996, as it relates to the Money Market
Fund filed herewith in the Registrant's Statement of Information.*
(f) Statement of Additional Information of the Registrant dated March 1,
1996, as supplemented, filed herewith in the Registrant's Statement of
Additional Information.*
(g) Annual report to shareholders of the Registrant for the fiscal year
ended December 31, 1995, filed herewith in the Registrant's Statement of
Additional Information.*
(h) Prospectus dated February 1, 1996 of The Prudential Institutional Fund,
as supplemented.*
(i) Statement of Additional Information dated February 1, 1996 of The
Prudential Institutional Fund.*
- ------------------------
* Filed herewith.
ITEM 17. UNDERTAKINGS.
(1) The undersigned registrant agrees that prior to any public reoffering of
the securities registered through the use of a prospectus which is a part of
this registration statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act, the
reoffering prospectus will contain the information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The undersigned registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
C-2
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has
been signed on behalf of the Registrant in the City of New York, and State of
New York, on the 21st day of June, 1996.
PRUDENTIAL MONEYMART ASSETS, INC.
By: /s/ Richard A. Redeker
------------------------------------------------------
(RICHARD A. REDEKER, PRESIDENT)
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ ---------------------------------------- ------------------
<S> <C> <C>
/s/ Richard A. Redeker President and Director June 21, 1996
- ------------------------------
RICHARD A. REDEKER
/s/ Delayne D. Gold Director June 21, 1996
- ------------------------------
DELAYNE D. GOLD
/s/ Harry A. Jacobs, Jr. Director June 21, 1996
- ------------------------------
HARRY A. JACOBS, JR.
/s/ Thomas A. Owens, Jr. Director June 21, 1996
- ------------------------------
THOMAS A. OWENS, JR.
/s/ Sidney M. Spielvogel Director June 21, 1996
- ------------------------------
SIDNEY M. SPIELVOGEL
/s/ Nancy Hays Teeters Director June 21, 1996
- ------------------------------
NANCY HAYS TEETERS
/s/ Robert H. Wellington Director June 21, 1996
- ------------------------------
ROBERT H. WELLINGTON
/s/ Grace Torres Principal Financial and Accounting June 21, 1996
- ------------------------------ Officer
GRACE TORRES
</TABLE>
C-3
<PAGE>
EXHIBIT INDEX
EXHIBIT PAGE NO.
NUMBER
1. (a) Articles of Incorporation of the Registrant. Incorporated by
reference to Exhibit No. 1(a) to Post-Effective Amendment No. 32 to
the Registration Statement on Form N-1A filed via EDGAR on February
29, 1996 (File No. 2-55301).
(b) Articles Supplementary. Incorporated by reference to Exhibit No.
1(b) to Post-Effective Amendment No. 32 to the Registration Statement
on Form N-1A filed via EDGAR on February 29, 1996 (File No. 2-55301).
(c) Articles of Amendment. Incorporated by reference to Exhibit No.
1(c) to Post-Effective Amendment No. 32 to the Registration Statement
on Form N-1A filed via EDGAR on February 29, 1996 (File No. 2-55301).
2. By-Laws of the Registrant. Incorporated by reference to Exhibit No.
2 to Post-Effective Amendment No. 29 to the Registration Statement on
Form N-1A filed via EDGAR on February 24, 1995 (File No. 2-55301).
4. Asset/Stock Exchange Agreement, filed herewith as Appendix A to the
Prospectus and Proxy Statement.*
5. Instruments defining rights of shareholders. Incorporated by
reference to Exhibits 1 and 2.
6. (a) Management Agreement between the Registrant and Prudential
Mutual Fund Management, Inc. Incorporated by reference to Exhibit No.
5(a) to Post-Effective Amendment No. 23 to the Registration Statement
on Form N-1A filed on May 1, 1989 (File No. 2-55301).
(b) Subadvisory Agreement between Prudential Mutual Fund Management,
Inc. and The Prudential Investment Corporation. Incorporated by
reference to Exhibit No. 5(b) to Post-Effective Amendment No. 23 to
the Registration Statement on Form N-1A filed on May 1, 1989 (File
No. 2-55301).
7. Restated Distribution Agreement for Class A and Class Z shares.*
9. Custodian Contract between the Registrant and State Street Bank and
Trust Company. Incorporated by reference to Exhibit No. 8 to
Post-Effective Amendment No. 25 to the Registration Statement on Form
N-1A filed on April 12, 1991 (File No. 2-55301).
10. (a) Plan of Distribution. Incorporated by reference to Exhibit No.
15 to Post-Effective Amendment No. 23 to the Registration Statement
on Form N-1A filed on May 1, 1989 (File No. 2-55301).
(b) Distribution and Service Plan between the Registrant and
Prudential Mutual Fund Distributors, Inc. Incorporated by reference
to Exhibit No. 15(b) to Post-Effective Amendment No. 28 to the
Registration Statement on Form N-1A filed on February 17, 1994 (File
No. 2-55301).
(c) Rule 18f-3 Plan. Incorporated by reference to Exhibit No. 18 to
Post-Effective Amendment No. 30 to the Registration Statement on Form
N-1A filed via EDGAR on October 31, 1995 (File No. 2-55301).
11. Opinion and Consent of Counsel.*
12. Tax Opinion of Counsel.*
14. Consent of Independent Accountants.*
17. (a) Proxy.*
(b) Copy of Registrant's declaration pursuant to Rule 24f-2 under
the 1940 Act.*
(c) Prospectus of the Registrant (Class Z Shares) dated March 1,
1996.*
(d) Annual report to shareholders of The Prudential Institutional
Fund for the fiscal year ended September 30, 1995, as it relates to
the Money Market Fund filed herewith in the Registrant's Statement of
Additional Information.*
(e) Semi-Annual report to shareholders of The Prudential
Institutional Fund for the six-months ended March 31, 1996, as it
relates to the Money Market Fund filed herewith in the Registrant's
Statement of Information.*
(f) Statement of Additional Information of the Registrant dated
March 1, 1996, as supplemented, filed herewith in the Registrant's
Statement of Additional Information.*
(g) Annual report to shareholders of the Registrant for the fiscal
year ended December 31, 1995, filed herewith in the Registrant's
Statement of Additional Information.*
(h) Prospectus dated February 1, 1996 of The Prudential
Institutional Fund, as supplemented.*
(i) Statement of Additional Information dated February 1, 1996 of
The Prudential Institutional Fund.*
--------------------------------
* Filed herewith.
<PAGE>
EXHIBIT 7
PRUDENTIAL MONEYMART ASSETS, INC.
DISTRIBUTION AGREEMENT
Agreement made as of May 9, 1996, between Prudential MoneyMart Assets,
Inc., a Maryland corporation (the Fund), and Prudential Securities
Incorporated, a Delaware corporation (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the Investment Company Act), as a diversified, open-end,
management investment company and it is in the interest of the Fund to offer its
shares for sale continuously;
WHEREAS, the shares of the Fund may be divided into classes and/or
series (all such shares being referred to herein as Shares) and the Fund
currently is authorized to offer Class A and Class Z Shares;
WHEREAS, the Distributor is a broker-dealer registered under the
Securities Exchange Act of 1934, as amended, and is engaged in the business of
selling shares of registered investment companies either directly or through
other broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other, with respect to the continuous offering of the Fund's Shares
from and after the date hereof in order to promote the growth of the Fund and
facilitate the distribution of its Shares; and
WHEREAS, upon approval by the holders of the respective classes and/or
series of Shares of the Fund it is contemplated that the Fund will adopt a plan
(or plans) of distribution pursuant to Rule 12b-1 under the Investment Company
Act with respect to certain of its classes and/or series of Shares (the Plans)
authorizing payments by the Fund to the Distributor with respect to the
distribution of such classes and/or series of Shares and the maintenance of
related shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. APPOINTMENT OF THE DISTRIBUTOR
The Fund hereby appoints the Distributor as the principal underwriter
and distributor of the Shares of the Fund to sell Shares to the public on behalf
of the Fund and the Distributor hereby accepts such appointment and agrees to
act hereunder. The
<PAGE>
Fund hereby agrees during the term of this Agreement to sell Shares of the Fund
through the Distributor on the terms and conditions set forth below.
Section 2. EXCLUSIVE NATURE OF DUTIES
The Distributor shall be the exclusive representative of the Fund to
act as principal underwriter and distributor of the Fund's Shares, except that:
2.1 The exclusive rights granted to the Distributor to sell Shares of
the Fund shall not apply to Shares of the Fund issued in connection with the
merger or consolidation of any other investment company or personal holding
company with the Fund or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding shares of any such company by
the Fund.
2.2 Such exclusive rights shall not apply to Shares issued by the
Fund pursuant to reinvestment of dividends or capital gains distributions or
through the exercise of any conversion feature or exchange privilege.
2.3 Such exclusive rights shall not apply to Shares issued by the
Fund pursuant to the reinstatement privilege afforded redeeming shareholders.
2.4 Such exclusive rights shall not apply to purchases made through
the Fund's transfer and dividend disbursing agent in the manner set forth in the
currently effective Prospectus of the Fund. The term "Prospectus" shall mean
the Prospectus and Statement of Additional Information included as part of the
Fund's Registration Statement, as such Prospectus and Statement of Additional
Information may be amended or supplemented from time to time, and the term
"Registration Statement" shall mean the Registration Statement filed by the Fund
with the Securities and Exchange Commission and effective under the Securities
Act of 1933, as amended (Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. PURCHASE OF SHARES FROM THE FUND
3.1 The Distributor shall have the right to buy from the Fund on
behalf of investors the Shares needed, but not more than the Shares needed
(except for clerical errors in transmission) to fill unconditional orders for
Shares placed with the Distributor by investors or registered and qualified
securities dealers and other financial institutions (selected dealers).
3.2 The Shares shall be sold by the Distributor on behalf of the Fund
and delivered by the Distributor or selected
2
<PAGE>
dealers, as described in Section 6.4 hereof, to investors at the offering price
as set forth in the Prospectus.
3.3 The Fund shall have the right to suspend the sale of any or all
classes and/or series of its Shares at times when redemption is suspended
pursuant to the conditions in Section 4.3 hereof or at such other times as may
be determined by the Board of Directors. The Fund shall also have the right to
suspend the sale of any or all classes and/or series of its Shares if a banking
moratorium shall have been declared by federal or New York authorities.
3.4 The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Shares received by
the Distributor. Any order may be rejected by the Fund; provided, however, that
the Fund will not arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of Shares. The Fund (or its agent) will confirm
orders upon their receipt, will make appropriate book entries and upon receipt
by the Fund (or its agent) of payment therefor, will deliver deposit receipts
for such Shares pursuant to the instructions of the Distributor. Payment shall
be made to the Fund in New York Clearing House funds or federal funds. The
Distributor agrees to cause such payment and such instructions to be delivered
promptly to the Fund (or its agent).
Section 4. REPURCHASE OR REDEMPTION OF SHARES BY THE FUND
4.1 Any of the outstanding Shares may be tendered for redemption at
any time, and the Fund agrees to repurchase or redeem the Shares so tendered in
accordance with its Articles of Incorporation as amended from time to time, and
in accordance with the applicable provisions of the Prospectus. The price to be
paid to redeem or repurchase the Shares shall be equal to the net asset value
determined as set forth in the Prospectus. All payments by the Fund hereunder
shall be made in the manner set forth in Section 4.2 below.
4.2 The Fund shall pay the total amount of the redemption price as
defined in the above paragraph pursuant to the instructions of the Distributor
on or before the seventh day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of Shares shall be
paid by the Fund as follows: (i) in the case of Shares subject to a contingent
deferred sales charge, any applicable contingent deferred sales charge shall be
paid to the Distributor, and the balance shall be paid to or for the account of
the redeeming shareholder, in each case in accordance with applicable provisions
of the Prospectus; and (ii) in the case of all other Shares, proceeds shall be
paid to or for the account of the redeeming shareholder, in each case in
accordance with applicable provisions of the Prospectus.
3
<PAGE>
4.3 Redemption of any class and/or series of Shares or payment may
be suspended at times when the New York Stock Exchange is closed for other than
customary weekends and holidays, when trading on said Exchange is restricted,
when an emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or during any
other period when the Securities and Exchange Commission, by order, so permits.
Section 5. DUTIES OF THE FUND
5.1 Subject to the possible suspension of the sale of Shares as
provided herein, the Fund agrees to sell its Shares so long as it has Shares of
the respective class and/or series available.
5.2 The Fund shall furnish the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Shares, and this shall
include one certified copy, upon request by the Distributor, of all financial
statements prepared for the Fund by independent public accountants. The Fund
shall make available to the Distributor such number of copies of its Prospectus
and annual and interim reports as the Distributor shall reasonably request.
5.3 The Fund shall take, from time to time, but subject to the
necessary approval of the Board of Directors and the shareholders, all necessary
action to fix the number of authorized Shares and such steps as may be necessary
to register the same under the Securities Act, to the end that there will be
available for sale such number of Shares as the Distributor reasonably may
expect to sell. The Fund agrees to file from time to time such amendments,
reports and other documents as may be necessary in order that there will be no
untrue statement of a material fact in the Registration Statement, or necessary
in order that there will be no omission to state a material fact in the
Registration Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to qualify and maintain the
qualification of any appropriate number of its Shares for sales under the
securities laws of such states as the Distributor and the Fund may approve;
provided that the Fund shall not be required to amend its Articles of
Incorporation or By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its Shares in any
state from the terms set forth in its Registration Statement, to qualify as a
foreign corporation in any state or to consent to service of process in any
state other than with respect to claims arising out of the offering of its
Shares. Any such qualification
4
<PAGE>
may be withheld, terminated or withdrawn by the Fund at any time in its
discretion. As provided in Section 9 hereof, the expense of qualification and
maintenance of qualification shall be borne by the Fund. The Distributor shall
furnish such information and other material relating to its affairs and
activities as may be required by the Fund in connection with such
qualifications.
Section 6. DUTIES OF THE DISTRIBUTOR
6.1 The Distributor shall devote reasonable time and effort to effect
sales of Shares, but shall not be obligated to sell any specific number of
Shares. Sales of the Shares shall be on the terms described in the Prospectus.
The Distributor may enter into like arrangements with other investment
companies. The Distributor shall compensate the selected dealers as set forth
in the Prospectus.
6.2 In selling the Shares, the Distributor shall use its best efforts
in all respects duly to conform with the requirements of all federal and state
laws relating to the sale of such securities. Neither the Distributor nor any
selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales literature approved by
appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales and the
cancellation of unsettled transactions, as may be necessary to comply with the
requirements of the National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into selected
dealer agreements with registered and qualified securities dealers and other
financial institutions of its choice for the sale of Shares, provided that the
Fund shall approve the forms of such agreements. Within the United States, the
Distributor shall offer and sell Shares only to such selected dealers as are
members in good standing of the NASD. Shares sold to selected dealers shall be
for resale by such dealers only at the offering price determined as set forth in
the Prospectus.
Section 7. PAYMENTS TO THE DISTRIBUTOR
7.1 With respect to classes and/or series of Shares which impose a
front-end sales charge, the Distributor shall receive and may retain any portion
of any front-end sales charge which is imposed on such sales and not reallocated
to selected dealers as set forth in the Prospectus, subject to the limitations
of Article III, Section 26 of the NASD Rules of Fair Practice.
5
<PAGE>
Payment of these amounts to the Distributor is not contingent upon the adoption
or continuation of any applicable Plans.
7.2 With respect to classes and/or series of Shares which impose a
contingent deferred sales charge, the Distributor shall receive and may retain
any contingent deferred sales charge which is imposed on such sales as set forth
in the Prospectus, subject to the limitations of Article III, Section 26 of the
NASD Rules of Fair Practice. Payment of these amounts to the Distributor is not
contingent upon the adoption or continuation of any Plan.
Section 8. PAYMENT OF THE DISTRIBUTOR UNDER THE PLAN
8.1 The Fund shall pay to the Distributor as compensation for
services under any Plans adopted by the Fund and this Agreement a distribution
and service fee with respect to the Fund's classes and/or series of Shares as
described in each of the Fund's respective Plans and this Agreement.
8.2 So long as a Plan or any amendment thereto is in effect, the
Distributor shall inform the Board of Directors of the commissions and account
servicing fees with respect to the relevant class and/or series of Shares to be
paid by the Distributor to account executives of the Distributor and to
broker-dealers and financial institutions which have dealer agreements with the
Distributor. So long as a Plan (or any amendment thereto) is in effect, at the
request of the Board of Directors or any agent or representative of the Fund,
the Distributor shall provide such additional information as may reasonably be
requested concerning the activities of the Distributor hereunder and the costs
incurred in performing such activities with respect to the relevant class and/or
series of Shares.
Section 9. ALLOCATION OF EXPENSES
The Fund shall bear all costs and expenses of the continuous offering
of its Shares (except for those costs and expenses borne by the Distributor
pursuant to a Plan and subject to the requirements of Rule 12b-1 under the
Investment Company Act), including fees and disbursements of its counsel and
auditors, in connection with the preparation and filing of any required
Registration Statements and/or Prospectuses under the Investment Company Act or
the Securities Act, and all amendments and supplements thereto, and preparing
and mailing annual and periodic reports and proxy materials to shareholders
(including but not limited to the expense of setting in type any such
Registration Statements, Prospectuses, annual or periodic reports or proxy
materials). The Fund shall also bear the cost of expenses of qualification of
the Shares for sale, and, if necessary or advisable in connection therewith, of
qualifying the Fund as a broker or dealer, in such states of the United States
or other
6
<PAGE>
jurisdictions as shall be selected by the Fund and the Distributor pursuant to
Section 5.4 hereof and the cost and expense payable to each such state for
continuing qualification therein until the Fund decides to discontinue such
qualification pursuant to Section 5.4 hereof. As set forth in Section 8 above,
the Fund shall also bear the expenses it assumes pursuant to any Plan, so long
as such Plan is in effect.
Section 10. INDEMNIFICATION
10.1 The Fund agrees to indemnify, defend and hold the Distributor,
its officers and directors and any person who controls the Distributor within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
reasonable counsel fees incurred in connection therewith) which the Distributor,
its officers, directors or any such controlling person may incur under the
Securities Act, or under common law or otherwise, arising out of or based upon
any untrue statement of a material fact contained in the Registration Statement
or Prospectus or arising out of or based upon any alleged omission to state a
material fact required to be stated in either thereof or necessary to make the
statements in either thereof not misleading, except insofar as such claims,
demands, liabilities or expenses arise out of or are based upon any such untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with information furnished in writing by the Distributor
to the Fund for use in the Registration Statement or Prospectus; provided,
however, that this indemnity agreement shall not inure to the benefit of any
such officer, director, trustee or controlling person unless a court of
competent jurisdiction shall determine in a final decision on the merits, that
the person to be indemnified was not liable by reason of willful misfeasance,
bad faith or gross negligence in the performance of its duties, or by reason of
its reckless disregard of its obligations under this Agreement (disabling
conduct), or, in the absence of such a decision, a reasonable determination,
based upon a review of the facts, that the indemnified person was not liable by
reason of disabling conduct, by (a) a vote of a majority of a quorum of
directors or trustees who are neither "interested persons" of the Fund as
defined in Section 2(a)(19) of the Investment Company Act nor parties to the
proceeding, or (b) an independent legal counsel in a written opinion. The Fund's
agreement to indemnify the Distributor, its officers and directors or trustees
and any such controlling person as aforesaid is expressly conditioned upon the
Fund's being promptly notified of any action brought against the Distributor,
its officers or directors or trustees, or any such controlling person, such
notification to be given by letter or telegram addressed to the Fund at its
principal business office. The Fund agrees promptly to notify the Distributor
of the commencement of any litigation or proceedings against it or any of
7
<PAGE>
its officers or directors in connection with the issue and sale of any Shares.
10.2 The Distributor agrees to indemnify, defend and hold the Fund,
its officers and Directors and any person who controls the Fund, if any, within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending against such claims, demands or liabilities
and any reasonable counsel fees incurred in connection therewith) which the
Fund, its officers and Directors or any such controlling person may incur under
the Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Fund, its Directors or officers or
such controlling person resulting from such claims or demands shall arise out of
or be based upon any alleged untrue statement of a material fact contained in
information furnished in writing by the Distributor to the Fund for use in the
Registration Statement or Prospectus or shall arise out of or be based upon any
alleged omission to state a material fact in connection with such information
required to be stated in the Registration Statement or Prospectus or necessary
to make such information not misleading. The Distributor's agreement to
indemnify the Fund, its officers and Directors and any such controlling person
as aforesaid, is expressly conditioned upon the Distributor's being promptly
notified of any action brought against the Fund, its officers and Directors or
any such controlling person, such notification being given to the Distributor at
its principal business office.
Section 11. DURATION AND TERMINATION OF THIS AGREEMENT
11.1 This Agreement shall become effective as of the date first above
written and shall remain in force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of Directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the applicable class and/or
series of the Fund, and (b) by the vote of a majority of those Directors who
are not parties to this Agreement or interested persons of any such parties and
who have no direct or indirect financial interest in this Agreement or in the
operation of any of the Fund's Plans or in any agreement related thereto
(Independent Directors), cast in person at a meeting called for the purpose of
voting upon such approval.
11.2 This Agreement may be terminated at any time, without the payment
of any penalty, by a majority of the Independent Directors or by vote of a
majority of the outstanding voting securities of the applicable class and/or
series of the Fund, or by the Distributor, on sixty (60) days' written notice
to the other party. This Agreement shall automatically terminate in the event
of its assignment.
8
<PAGE>
11.3 The terms "affiliated person," "assignment," "interested person"
and "vote of a majority of the outstanding
voting securities", when used in this Agreement, shall have the respective
meanings specified in the Investment Company Act.
Section 12. AMENDMENTS TO THIS AGREEMENT
This Agreement may be amended by the parties only if such amendment is
specifically approved by (a) the Board of Directors of the Fund, or by the vote
of a majority of the outstanding voting securities of the applicable class
and/or series of the Fund, and (b) by the vote of a majority of the Independent
Directors cast in person at a meeting called for the purpose of voting on such
amendment.
Section 13. SEPARATE AGREEMENT AS TO CLASSES AND/OR SERIES
The amendment or termination of this Agreement with respect to any
class and/or series shall not result in the amendment or termination of this
Agreement with respect to any other class and/or series unless explicitly so
provided.
Section 14. GOVERNING LAW
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New York as at the time in effect and
the applicable provisions of the Investment Company Act. To the extent that the
applicable law of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the Investment Company Act, the
latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year above written.
Prudential Securities Incorporated
By: /s/ Robert F. Gunia
------------------------
Robert F. Gunia
Senior Vice President
Prudential MoneyMart Assets, Inc.
By: /s/ Richard A. Redeker
------------------------
Richard A. Redeker
President
9
<PAGE>
GARDNER, CARTON & DOUGLAS
SUITE 3400 - QUAKER TOWER
321 NORTH CLARK STREET
CHICAGO, ILLINOIS 60610-4795
(312) 644-3000
TELECOPIER: (312) 644-3381
June 20, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Prudential MoneyMart Assets, Inc.
Shares of Common Stock, $0.10 par value per share
-------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel for Prudential MoneyMart Assets, Inc., a Maryland
corporation (the "Fund"), in connection with its filing of a Registration
Statement on Form N-14 (the "Registration Statement"). The Registration
Statement registers Class Z shares of Common Stock, $.10 par value per share, of
the Fund.
We have examined all instruments, documents and records which, in our
opinion, were necessary of examination for the purpose of rendering this
opinion. Based upon such examination, we are of the opinion that the above-
described shares of Common Stock will be, if and when issued by the Fund in the
manner and upon the terms set forth in the Registration Statement, validly
authorized and issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Gardner, Carton & Douglas
GARDNER, CARTON & DOUGLAS
<PAGE>
June 24, 1996
The Prudential Institutional Fund
21 Prudential Plaza
751 Broad Street
Newark, NJ 07102-3777
Prudential MoneyMart Assets, Inc.
One Seaport Plaza
New York, NY 10292
Ladies and Gentlemen:
The Prudential Institutional Fund ("Institutional Fund"), on behalf of
Money Market Fund, a segregated portfolio of assets ("series") thereof
("Target"), and Prudential MoneyMart Assets, Inc. ("Acquiring Fund"),(1) have
requested our opinion as to certain federal income tax consequences of the
proposed acquisition of Target by Acquiring Fund pursuant to an Asset/Stock
Exchange Agreement between them dated as of June 24, 1996 ("Agreement"). A copy
of the Agreement is attached as an appendix to the Prospectus and Proxy
Statement to be furnished in connection with the solicitation of proxies by
Institutional Fund's board of trustees for use at a special meeting of Target
shareholders to be held on September 6, 1996 ("Proxy"), included in the
registration statement on Form N-14 to be filed with the Securities and Exchange
Commission ("SEC") on or about the date hereof ("Registration Statement").
In rendering this opinion, we have examined (1) the Funds' currently
effective prospectuses and statements of additional information, (2) the Proxy,
(3) the Agreement, and (4) such other documents as we have deemed necessary or
appropriate for the purposes hereof. As to various matters of fact material to
this opinion, we have relied, exclusively and without independent verification,
on statements of responsible officers of each Investment Company and the
representations made in the Agreement (as contemplated in paragraph 8.6 thereof)
(collectively "Representations").
- -----------------------------------
1/ Target and Acquiring Fund are sometimes referred to herein individually as a
"Fund" and collectively as the "Funds," and Institutional Fund and Acquiring
Fund are sometimes referred to herein individually as an "Investment Company."
<PAGE>
The Prudential Institutional Fund
Prudential MoneyMart Assets, Inc.
June 24, 1996
Page 2
FACTS
Institutional Fund is a business trust organized under the laws of the
State of Delaware; Target is a series thereof. Acquiring Fund is a corporation
organized under the laws of the State of Maryland. Each Investment Company is
registered with the SEC as an open-end management investment company under the
Investment Company Act of 1940, as amended.
Acquiring Fund's shares of common stock are divided into two classes,
designated Class A and Class Z shares; only the Class Z shares ("Acquiring Fund
Shares") are involved in the Acquisition (defined below). Target offers for
sale only one class of shares of beneficial interest ("Target Shares").
The Agreement provides in relevant part for the following transactions
(collectively "Acquisition"):
(1) The acquisition by Acquiring Fund of all cash, cash
equivalents, securities, receivables (including interest receivable),
and other property of any kind owned by Target and any deferred and
prepaid expenses shown as assets on Target's books on the closing date
of the Acquisition ("Closing Date") (collectively "Assets"), in
exchange solely for
(a) the number of Acquiring Fund Shares determined by
dividing the net asset value of Target by the net asset
value of an Acquiring Fund Share, and
(b) Acquiring Fund's assumption of all of Target's
debts, liabilities, obligations, and duties of whatever kind
or nature, whether absolute, accrued, contingent, or
otherwise, whether or not arising in the ordinary course of
business, whether or not determinable as of the Closing
Date, and whether or not specifically referred to in the
Agreement (collectively "Liabilities") (Target having agreed
in the Agreement to utilize its best efforts to discharge
all of its known Liabilities prior to the Closing Date),
(2) The constructive distribution of such Acquiring Fund Shares
to Target's shareholders of record, determined as of the close of
business on the Closing Date ("Shareholders"), constructively in
exchange for their Target Shares ("Distribution"), and
<PAGE>
The Prudential Institutional Fund
Prudential MoneyMart Assets, Inc.
June 24, 1996
Page 3
(3) The subsequent liquidation of Target.
The Distribution will be accomplished by transferring the Acquiring Fund
Shares then credited to Target's account on Acquiring Fund's share transfer
records to accounts on those records established in the Shareholders' names,
with each Shareholder's account being credited with the respective PRO RATA
number of full and fractional (rounded to three decimal places) Acquiring Fund
Shares due such Shareholder.
As of March 31, 1996, approximately 26.2 million (or 47%) of the
outstanding Target Shares were owned by The Prudential Insurance Company of
America or an affiliate thereof ("Prudential"). It is likely that Prudential
will redeem or exchange all or a significant portion of those shares either
prior to or shortly after the Acquisition. If Prudential did so, the
Acquisition would fail to qualify as a tax-free reorganization under section
368(a)(1)(C) of the Internal Revenue Code of 1986, as amended ("Code")
("C reorganization") for the following reason. An acquisition will qualify as a
C reorganization only if, among other things, the acquiring corporation acquires
"substantially all" of the transferor corporation's properties. For purposes of
issuing private letter rulings, the Internal Revenue Service ("Service")
considers the transfer of at least 70% of the transferor's gross assets, and at
least 90% of its net assets, held immediately before the reorganization to
satisfy the "substantially all" requirement. Rev. Proc. 77-37, 1977-2 C.B. 568.
We assume, for purposes of this opinion, that Prudential will redeem or exchange
a sufficient number of Target Shares to cause the Acquisition to fail to satisfy
this standard and, thus, to fail to qualify as a C reorganization.
OPINION
Based on the facts set forth above, and conditioned on (1) the
Representations being true, and the assumption stated above being correct, on
the Closing Date and (2) the Acquisition being consummated in accordance with
the Agreement, our opinion is as follows:
1. Acquiring Fund's acquisition of the Assets in exchange for
Acquiring Fund Shares and Acquiring Fund's assumption of the
Liabilities will constitute a taxable sale of the Assets by Target to
Acquiring Fund;
2. The Distribution will be treated as a distribution in
liquidation of Target, and each Shareholder may recognize gain or loss
on the Distribution, depending on whether the Shareholder's tax basis
for its Target Shares is less than, is equal to, or exceeds the fair
market value of the Acquiring Fund Shares received by the Shareholder;
<PAGE>
The Prudential Institutional Fund
Prudential MoneyMart Assets, Inc.
June 24, 1996
Page 4
3. Gain or loss may be recognized to Target on the transfer to
Acquiring Fund of the Assets in exchange for Acquiring Fund Shares and
Acquiring Fund's assumption of the Liabilities, depending on whether
Target's aggregate tax basis for the Assets is less than, is equal to,
or exceeds the sum of the fair market value of the Acquiring Fund
Shares received by Target and the amount of the Liabilities assumed by
Acquiring Fund;
4. Except to the extent the Acquiring Fund Shares appreciate or
depreciate in value in Target's hands prior to distribution thereof to
the Shareholders, no gain or loss will be recognized to Target on the
Distribution;
5. No gain or loss will be recognized to Acquiring Fund on its
receipt of the Assets in exchange for Acquiring Fund Shares and its
assumption of the Liabilities;
6. Acquiring Fund's aggregate tax basis for the Assets will be
equal to the sum of the fair market value of the Acquiring Fund Shares
exchanged therefor plus the amount of the Liabilities assumed by
Acquiring Fund, and Acquiring Fund's holding period for the Assets
will begin on the day after the Closing Date;
7. A Shareholder's basis for the Acquiring Fund Shares to be
received by it pursuant to the Acquisition will be the fair market
value of those shares on the date of the Distribution, and its holding
period for those shares will begin on the following day; and
8. The portion of the Distribution that is properly chargeable
to earnings and profits accumulated after February 28, 1913, shall be
treated as a dividend for purposes of computing Target's dividends
paid deduction, and, if Target completely liquidates within 24 months
after the date of the Agreement, any distribution within such period
(including the Distribution) pursuant to the Agreement, to the extent
of Target's earnings and profits (computed without regard to capital
losses) for the taxable year in which such distribution is made, shall
be so treated.
The foregoing opinion (1) is based on, and is conditioned on the continued
applicability of, the provisions of the Code and the regulations promulgated
thereunder, judicial decisions, and rulings and other pronouncements of the
Service in existence on the date hereof and (2) is applicable only to the extent
each Fund is solvent. We express no opinion about the tax treatment of the
transactions described herein if either Fund is insolvent.
We hereby consent to this opinion accompanying the Registration Statement.
<PAGE>
The Prudential Institutional Fund
Prudential MoneyMart Assets, Inc.
June 24, 1996
Page 5
Very truly yours,
KIRKPATRICK & LOCKHART LLP
By: /s/ Theodore L. Press
-------------------------------------
Theodore L. Press
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement on Form N-14 of Prudential
MoneyMart Assets, Inc. of our reports on the financial statements of Prudential
MoneyMart Assets, Inc. dated February 6, 1996 and The Prudential Institutional
Fund dated November 16, 1995 (the "Portfolios"), which are incorporated by
reference in and are a part of such Registration Statement, and to the
references to us under the headings "Financial Highlights" in the Prospectus of
each of the Portfolios, which are incorporated by reference in and/or are a part
of such Registration Statement, and "Custodian, Transfer and Dividend Disbursing
Agent and Independent Accountants" in the Statement of Additional Information of
each of the Portfolios, which are incorporated by reference in and/or are a part
of such Registration Statement.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
New York, New York
June 21, 1996
<PAGE>
PROXY
THE PRUDENTIAL INSTITUTIONAL FUND--MONEY MARKET FUND
21 PRUDENTIAL PLAZA
751 BROAD STREET
NEWARK, NEW JERSEY 07102-3777
THIS PROXY IS SOLICITED ON BEHALF OF THE TRUSTEES
The undersigned hereby appoints S. Jane Rose, Marguerite E.H. Morrison and
Eugene S. Stark as Proxies, each with the power of substitution, and hereby
authorizes each of them to represent and to vote, as designated below, all the
shares of The Prudential Institutional Fund--Money Market Fund, held of record
by the undersigned on July 12, 1996, at the Special Meeting of Shareholders to
be held on September 6, 1996, or any adjournment thereof.
The Trustees recommend a vote "FOR" the following proposal.
1. Approval of the Asset/Stock Exchange Agreement
/ / APPROVE / / DISAPPROVE / / ABSTAIN
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Meeting.
(OVER)
<PAGE>
(CONTINUED FROM OTHER SIDE)
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE.
This proxy when executed will be voted in the manner described herein by the
undersigned shareholder. If executed and no direction is made, this proxy will
be voted FOR Proposal 1.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign.
When signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by president or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
Dated ,1996
-----------------------------------------
-----------------------------------------
Signature
-----------------------------------------
Signature if held jointly
<PAGE>
As filed with the Securities and Exchange Commission on March 2, 1978
---------------------------------------------------------------------
Registration No. 2-55301
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
POST-EFFECTIVE AMENDMENT NO. 7
TO
FORM S-5
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------
MONEYMART ASSETS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
100 GOLD STREET
NEW YORK, NEW YORK 10038
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
-----------------
Approximate date of proposed sale to public: As soon as practicable after
the registration statement becomes effective.
-----------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Proposed Proposed
maximum maximum
offering aggregate Amount of
Title of each class of Amount being price offering registration
securities being registered registered per unit price fee
- --------------------------------------------------------------------------------
Common stock ($.10 par value) 131,133,471* $1.00* $131,133,471* $600*
shares
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* Pursuant to Rule 457(c) under the Securities Act of 1933 and Rule 24e-2
under the Investment Company Act of 1940, an additional 131,133,471 shares
are being registered by this Post-Effective Amendment No. 7, hereby
increasing the proposed maximum aggregate offering price from $302,925,342
to $434,058,813. The required registration fee, in the amount of $100 is
being paid with this Post-Effective Amendment No. 7. The total number of
shares redeemed during the preceding fiscal year ended December 31, 1977,
amounted to 130,633,471. Those shares are being utilized in full to reduce
the registration fee applicable to the number of shares registered with
this filing.
In addition to the 131,133,471 shares being registered herewith, Registrant
hereby elects, pursuant to Rule 24f-2 under the Investment Company Act of
1940, to register an indefinite additional number of such shares. In
accordance with Rule 24f-2, an additional registration fee, in the amount
of $500, is being paid herewith, thereby making the total registration fee
being paid with this Post-Effective Amendment No.7 equal to $600.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PRUDENTIAL MONEYMART ASSETS, INC.
(CLASS Z SHARES)
- --------------------------------------------------------------------------------
Prospectus dated March 1, 1996
- --------------------------------------------------------------------------------
Prudential MoneyMart Assets, Inc. (the Fund), is an open-end, diversified,
management investment company, or mutual fund. Its investment objective is
maximum current income consistent with stability of capital and the maintenance
of liquidity. The Fund seeks to achieve this objective by investing primarily in
a portfolio of money market instruments maturing in thirteen months or less.
There can be no assurance that the Fund's investment objective will be achieved.
See "How the Fund Invests--Investment Objective and Policies."
The Fund's address is One Seaport Plaza, New York, New York 10292, and its
telephone number is (800) 225-1852.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE. SEE "HOW THE FUND VALUES ITS
SHARES."
- --------------------------------------------------------------------------------
Class Z shares are offered exclusively for sale to participants in the PSI
401(k) Plan, an employee benefit plan sponsored by Prudential Securities
Incorporated (the PSI 401(k) Plan or the Plan). Only Class Z shares are offered
through this Prospectus. The Fund also offers Class A shares through the
attached Prospectus dated March 1, 1996 (the Retail Class Prospectus), which is
a part hereof.
- --------------------------------------------------------------------------------
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Additional information
about the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated March 1, 1996, which information is
incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Fund at the
address or telephone number noted above.
- --------------------------------------------------------------------------------
INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES CLASS Z SHARES
--------------
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) ............................... None
Maximum Sales Load or Deferred Sales Load Imposed on Reinvested
Dividends ......................................................... None
Deferred Sales Load (as a percentage of original purchase price
or redemption proceeds, whichever is lower) ....................... None
Redemption Fees .................................................... None
Exchange Fee ....................................................... None
ANNUAL FUND OPERATING EXPENSES* CLASS Z SHARES
--------------
(as a percentage of average net assets)
Management Fees ................................................... .301%
12b-1 Fees ........................................................ None
Other Expenses .................................................... .262%
-----
Total Fund Operating Expenses ..................................... .563%
=====
1 3 5 10
EXAMPLE YEAR YEARS YEARS YEARS
---- ----- ----- -----
You would pay the following expenses on
a $1,000 investment, assuming: (1) 5% annual
return and (2) redemption at the end of each
time period:
Class Z ........................ ............ $6 $18 $31 $71
The above example is based on expenses expected to have been incurred if Class Z
shares had been in existence throughout the fiscal year ended December 31, 1995.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The purpose of this table is to assist investors in understanding the various
costs and expenses that an investor in Class Z shares of the Fund will bear,
whether directly or indirectly. For more complete descriptions of the various
costs and expenses, see "How the Fund is Managed." "Other Expenses" includes
operating expenses of the Fund, such as Directors' and professional fees,
registration fees, reports to shareholders and transfer agency and custodian
fees.
- ----------
* Estimated based on expenses expected to have been incurred if Class Z shares
had been in existence throughout the fiscal year ended December 31, 1995.
2
<PAGE>
THE FOLLOWING INFORMATION SUPPLEMENTS "HOW THE FUND IS MANAGED--DISTRIBUTOR" IN
THE RETAIL CLASS PROSPECTUS:
Prudential Securities serves as the Distributor of Class Z shares and
incurs the expenses of distributing the Fund's Class Z shares under a
Distribution Agreement with the Fund, none of which is reimbursed by or paid for
by the Fund.
THE FOLLOWING INFORMATION SUPPLEMENTS "TAXES, DIVIDENDS AND
DISTRIBUTIONS--TAXATION OF SHAREHOLDERS" IN THE RETAIL CLASS PROSPECTUS:
As a qualified plan, the PSI 401(k) Plan generally pays no federal income
tax. Individual participants in the Plan should consult Plan documents and their
own tax advisers for information on the tax consequences associated with
participating in the PSI 401(k) Plan.
THE FOLLOWING INFORMATION SUPPLEMENTS "SHAREHOLDER GUIDE--HOW TO BUY SHARES OF
THE FUND" AND "SHAREHOLDER GUIDE--HOW TO SELL YOUR SHARES" IN THE RETAIL CLASS
PROSPECTUS:
Class Z shares of the Fund are offered exclusively for sale to participants
in the PSI 401(k) Plan. Such shares may be purchased or redeemed only by the
Plan on behalf of individual Plan participants at NAV without any sales or
redemption charge. Class Z shares are not subject to any minimum investment
requirements. The Plan purchases and redeems shares to implement the investment
choices of individual Plan participants with respect to contributions in the
Plan. All purchases through the Plan will be for Class Z shares. Effective as of
March 1, 1996, Fund shares held through the PSI 401(k) Plan on behalf of
participants will be automatically exchanged for Class Z shares. Individual Plan
participants should contact the Prudential Securities Benefits Department for
information on making or changing investment choices. The Prudential Securities
Benefits Department is located at One Seaport Plaza, 33rd Floor, New York, New
York 10292 and may be reached by calling (212) 214-7194.
THE FOLLOWING INFORMATION SUPPLEMENTS "SHAREHOLDER GUIDE--HOW TO EXCHANGE YOUR
SHARES" IN THE RETAIL CLASS PROSPECTUS:
Class Z shareholders of the Fund may exchange their Class Z shares for
Class Z shares of certain other Prudential Mutual Funds on the basis of relative
net asset value. You should contact the Prudential Securities Benefits
Department about how to exchange your Class Z shares. See "How to Buy Shares of
the Fund" above. Participants who wish to transfer their Class Z shares out of
the PSI 401(k) Plan following separation from service (i.e., voluntary or
involuntary termination of employment or retirement) will have their Class Z
shares exchanged for Class A shares at net asset value.
THE INFORMATION ABOVE ALSO SUPPLEMENTS THE INFORMATION UNDER "FUND HIGHLIGHTS"
IN THE RETAIL CLASS PROSPECTUS AS APPROPRIATE.
3
<PAGE>
PRUDENTIAL MONEYMART ASSETS, INC.
- --------------------------------------------------------------------------------
Prospectus dated March 1, 1996
- --------------------------------------------------------------------------------
Prudential MoneyMart Assets, Inc. (the Fund), is an open-end, diversified,
management investment company, or mutual fund. Its investment objective is
maximum current income consistent with stability of capital and the maintenance
of liquidity. The Fund seeks to achieve this objective by investing primarily in
a portfolio of money market instruments maturing in thirteen months or less.
There can be no assurance that the Fund's investment objective will be achieved.
See "How the Fund Invests--Investment Objective and Policies."
The Fund's address is One Seaport Plaza, New York, New York 10292, and its
telephone number is (800) 225-1852.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE. SEE "HOW THE FUND VALUES ITS
SHARES."
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Additional information
about the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated March 1, 1996, which information is
incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Fund at the
address or telephone number noted above.
- --------------------------------------------------------------------------------
INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
FUND HIGHLIGHTS
The following summary is intended to highlight certain information
contained in this Prospectus and is qualified in its entirety by the more
detailed information appearing elsewhere herein.
WHAT IS PRUDENTIAL MONEYMART ASSETS, INC.?
Prudential MoneyMart Assets, Inc. is a mutual fund. A mutual fund pools the
resources of investors by selling its shares to the public and investing the
proceeds of such sale in a portfolio of securities designed to achieve its
investment objective. Technically, the Fund is an open-end, diversified,
management investment company.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is maximum current income consistent with
stability of capital and the maintenance of liquidity. The Fund invests
primarily in a portfolio of money market instruments maturing in thirteen months
or less. There can be no assurance that the Fund's investment objective will be
achieved. See "How the Fund Invests--Investment Objective and Policies" at page
6.
RISK FACTORS AND SPECIAL CHARACTERISTICS
It is anticipated that the net asset value (NAV) of the Fund will remain
constant at $1.00 per share, although this cannot be assured. In order to
maintain such constant net asset value, the Fund will value its portfolio
securities at amortized cost. While this method provides certainty in valuation,
it may result in periods during which the value of a security in the Fund's
portfolio, as determined by amortized cost, is higher or lower than the price
the Fund would receive if it sold such security. See "How the Fund Values its
Shares" at page 12.
WHO MANAGES THE FUND?
Prudential Mutual Fund Management, Inc. (PMF or the Manager) is the Manager
of the Fund and is compensated for its services at an annual rate of .50 of 1%
of the Fund's average daily net assets up to $50 million and .30 of 1% of the
Fund's average daily net assets in excess of $50 million. As of January 31,
1996, PMF served as manager or administrator to 60 investment companies,
including 38 mutual funds, with aggregate assets of approximately $52 billion.
The Prudential Investment Corporation (PIC or the Subadviser) furnishes
investment advisory services in connection with the management of the Fund under
a Subadvisory Agreement with PMF. See "How the Fund is Managed--Manager" at page
9.
WHO DISTRIBUTES THE FUND'S SHARES?
Prudential Securities Incorporated (Prudential Securities or PSI), a major
securities underwriter and securities and commodities broker, acts as the
Distributor of the Fund's shares. The Fund reimburses PSI for expenses related
to the distribution of the Fund's Class A shares at an annual rate of up to .125
of 1% of the average daily net assets of the Class A shares of the Fund. See
"How the Fund is Managed--Distributor" at page 10.
2
<PAGE>
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment is $1,000. The minimum subsequent investment
is $100. Prudential Securities reserves the right to impose a higher minimum
subsequent amount from time to time as it may deem appropriate. There is no
minimum investment requirement for certain retirement and employee savings plans
or custodial accounts for the benefit of minors. For purchases made through the
Automatic Savings Accumulation Plan, the minimum initial and subsequent
investment is $50. See "Shareholder Guide--How to Buy Shares of the Fund" at
page 14 and "Shareholder Guide--Shareholder Services" at page 20.
HOW DO I PURCHASE SHARES?
You may purchase Class A shares of the Fund through Prudential Securities,
Pruco Securities Corporation (Prusec) or directly from the Fund through its
transfer agent, Prudential Mutual Fund Services, Inc. (PMFS or the Transfer
Agent), at the NAV next determined after receipt of your purchase order by the
Transfer Agent or Prudential Securities. In addition, PSI has instituted
procedures pursuant to which, upon enrollment by a Prudential Securities client,
Prudential Securities will make automatic investments of free credit cash
balances of $1,000 or more ($1.00 for IRAs and Benefit Plans) (Eligible Cash
Balances) held in such client's account in Class A shares of the Fund
(Autosweep). See "How the Fund Values its Shares" at page 12 and "Shareholder
Guide--How to Buy Shares of the Fund" at page 14.
HOW DO I SELL MY SHARES?
You may redeem Class A shares of the Fund at any time at the NAV next
determined after Prudential Securities or the Transfer Agent receives your sell
order. See "Shareholder Guide--How to Sell Your Shares" at page 17.
HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?
The Fund expects to declare daily and pay monthly dividends of net
investment income. Dividends will be automatically reinvested in additional
Class A shares of the Fund at NAV unless you request that they be paid to you in
cash. See "Taxes, Dividends and Distributions" at page 12.
3
<PAGE>
FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases ............................ None
Maximum Sales Load Imposed on Reinvested Dividends ................. None
Deferred Sales Load ................................................ None
Redemption Fees .................................................... None
Exchange Fee ....................................................... None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .................................................... .301%
12b-1 Fees ......................................................... .125%
Other Expenses ..................................................... .262%
-----
Total Fund Operating Expenses ...................................... .688%
=====
1 3 5 10
EXAMPLE YEAR YEARS YEARS YEARS
---- ----- ----- -----
You would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual
return and (2) redemption at the end of
each time period: ............................. $7 $22 $38 $86
The above example is based on data for the Fund's fiscal year ended December 31,
1995. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The purpose of the table is to assist an investor in understanding the various
costs and expenses that an investor in the Fund will bear, whether directly or
indirectly. For more complete descriptions of the various costs and expenses,
see "How the Fund is Managed." "Other Expenses" includes operating expenses of
the Fund, such as Directors' and professional fees, registration fees, reports
to shareholders and transfer agency and custodian fees.
4
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR INDICATED)
The following financial highlights, with respect to the five-year period
ended December 31, 1995, for the Class A shares have been audited by Deloitte &
Touche LLP, independent accountants, whose report thereon was unqualified. This
information should be read in conjunction with the financial statements and
notes thereto, which appear in the Statement of Additional Information. The
following financial highlights contain selected data for a share of capital
stock outstanding, total return, ratios to average net assets and other
supplemental data for the years indicated. This information is based on data
contained in the financial statements. Further performance information is
contained in the annual report which may be obtained without charge. See
"Shareholder Guide -- Shareholder Services -- Reports to Shareholders."
<TABLE>
<CAPTION>
CLASS A SHARES(B)
---------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991
---------- ---------- ---------- ----------- ----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year ..... $1.000 $1.000 $1.000 $1.000 $1.000
Net investment income and net
realized gains ........................ .054 .037 .027 .035 .058
Dividends and distributions ............ (.054) (.037) (.027) (.035) (.058)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ........... $1.000 $1.000 $1.000 $1.000 $1.000
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
TOTAL RETURN(A): ....................... 5.51% 3.72% 2.70% 3.59% 5.95%
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) .......... $7,221,658 $6,544,880 $7,318,633 $6,703,281 $7,138,159
Average net assets (000) ............... $6,914,520 $7,071,381 $7,742,989 $7,116,739 $7,763,251
Ratios to average net assets:
Expenses, including distribution fee ... .69% .71% .71% .66% .68%
Expenses, excluding distribution fee ... .56% .58% .58% .54% .56%
Net investment income .................. 5.38% 3.65% 2.63% 3.43% 5.72%
<CAPTION>
1990 1989 1988 1987 1986
---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year ..... $1.000 $1.000 $1.000 $1.000 $1.000
Net investment income and net
realized gains ........................ .077 .086 .069 .061 .063
Dividends and distributions ............ (.077) (.086) (.069) (.061) (.063)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ........... $1.000 $1.000 $1.000 $1.000 $1.000
========== ========== ========== ========== ==========
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
TOTAL RETURN(A): ....................... 8.00% 8.96% 7.11% 6.33% 6.48%
========== ========== ========== ========== ==========
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) .......... $7,411,932 $8,168,972 $5,240,662 $4,620,542 $3,875,978
Average net assets (000) ............... $8,262,329 $6,947,060 $5,139,264 $4,412,175 $3,846,982
Ratios to average net assets:
Expenses, including distribution fee ... .73% .69% .71% .69% .64%
Expenses, excluding distribution fee ... .60% .57% .58% .57% .52%
Net investment income .................. 7.62% 8.57% 6.98% 6.06% 6.22%
</TABLE>
- ----------
(a) Total return is calculated assuming a purchase of shares on the first
day and a sale on the last day of each year reported and includes
reinvestment of dividends and distributions.
(b) Effective March 1, 1996, the shares were designated as Class A shares.
5
<PAGE>
CALCULATION OF YIELD
THE FUND CALCULATES ITS "CURRENT YIELD" based on the net change, exclusive
of realized and unrealized gains or losses, in the value of a hypothetical
account over a seven calendar day base period. THE FUND ALSO CALCULATES ITS
"EFFECTIVE ANNUAL YIELD" assuming weekly compounding. The following is an
example of the current and effective annual yield calculations as of December
31, 1995:
Value of hypothetical account at end of period .......... $1.001003580
Value of hypothetical account at beginning of period .... 1.000000000
------------
Base period return ...................................... $ .001003580
------------
------------
CURRENT YIELD (0.001003580 (times) (365/7)) ............. 5.23%
EFFECTIVE ANNUAL YIELD, assuming weekly compounding ..... 5.36%
THE YIELD WILL FLUCTUATE FROM TIME TO TIME AND DOES NOT INDICATE FUTURE
PERFORMANCE.
The weighted average life to maturity of the Fund's portfolio on December
31, 1995 was 48 days.
Yield is computed in accordance with a standardized formula described in
the Statement of Additional Information. In addition, comparative performance
information may be used from time to time in advertising or marketing the Fund's
shares, including data from Lipper Analytical Services, Inc., Morningstar
Publications, Inc., IBC/Donoghue's Money Fund Report, The Bank Rate Monitor,
other industry publications, business periodicals and market indices.
HOW THE FUND INVESTS
INVESTMENT OBJECTIVE AND POLICIES
THE INVESTMENT OBJECTIVE OF THE FUND IS MAXIMUM CURRENT INCOME CONSISTENT
WITH STABILITY OF CAPITAL AND THE MAINTENANCE OF LIQUIDITY. THE FUND INVESTS
PRIMARILY IN A PORTFOLIO OF MONEY MARKET INSTRUMENTS MATURING IN THIRTEEN MONTHS
OR LESS. THERE CAN BE NO ASSURANCE THAT THIS OBJECTIVE WILL BE ACHIEVED.
THE FUND'S INVESTMENT OBJECTIVE IS A FUNDAMENTAL POLICY AND, THEREFORE, MAY
NOT BE CHANGED WITHOUT THE APPROVAL OF THE HOLDERS OF A MAJORITY OF THE FUND'S
OUTSTANDING VOTING SECURITIES, AS DEFINED IN THE INVESTMENT COMPANY ACT OF 1940,
AS AMENDED (THE INVESTMENT COMPANY ACT). POLICIES THAT ARE NOT FUNDAMENTAL MAY
BE MODIFIED BY THE FUND'S BOARD OF DIRECTORS.
The types of instruments utilized in seeking to accomplish this objective
include:
1. U.S. Treasury bills and other obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
2. Obligations (including certificates of deposit and bankers' acceptances)
of (a) banks organized under the laws of the United States or any state thereof
(including foreign branches of such banks) or (b) U.S. branches of foreign banks
or (c) foreign banks and foreign branches thereof; provided that such banks
have, at the time of acquisition by the Fund of such obligations, total assets
of not less than $1 billion or its equivalent. The term "certificates of
deposit" includes both Eurodollar certificates of deposit, for which there is
generally a market, and Eurodollar time deposits, for which
6
<PAGE>
there is generally not a market. "Eurodollars" are U.S. dollars deposited in
banks outside the United States; the Fund invests in Eurodollar instruments of
foreign and domestic banks.
3. Commercial paper, variable amount demand master notes, bills, notes and
other obligations issued by a U.S. company, a foreign company or a foreign
government, its agencies or instrumentalities, maturing in thirteen months or
less, denominated in U.S. dollars, and, at the date of investment, rated at
least AA or A-2 by Standard & Poor's Ratings Group (S&P), Aa or Prime-2 by
Moody's Investors Service (Moody's) or AA or Duff 2 by Duff & Phelps Credit
Rating Co. (Duff and Phelps) or, if not rated, issued by an entity having an
outstanding unsecured debt issue rated at least AA or A-2 by S&P, Aa or Prime-2
by Moody's or AA or Duff 2 by Duff and Phelps. If such obligations are
guaranteed or supported by a letter of credit issued by a bank, such bank
(including a foreign bank) must meet the requirements set forth in the preceding
paragraph. If such obligations are guaranteed or insured by an insurance company
or other non-bank entity, such insurance company or other non-bank entity must
represent a credit of high quality, as determined by the Fund's investment
adviser under the supervision of the Fund's Board of Directors.
In selecting commercial paper and other corporate obligations for
investment by the Fund, the investment adviser considers ratings assigned by
major rating services, information concerning the financial history and
condition of the issuer and its revenue and expense prospects. The Board of
Directors monitors the credit quality of securities purchased for the Fund's
portfolio. If commercial paper or another corporate obligation held by the Fund
is assigned a lower rating or ceases to be rated, the investment adviser under
the supervision of the Board of Directors will promptly reassess whether that
security presents minimal credit risks and whether the Fund should continue to
hold the security in its portfolio. If a portfolio security presents greater
than minimal credit risks or is in default, the Fund will dispose of the
security as soon as reasonably practicable unless the Board of Directors
determines that to do so is not in the best interests of the Fund and its
shareholders.
The Fund utilizes the amortized cost method of valuation in accordance with
regulations issued by the Securities and Exchange Commission (SEC). See "How the
Fund Values its Shares." Accordingly, the Fund will limit its portfolio
investments to those U.S. dollar denominated instruments which present minimal
credit risks and which are of "eligible quality" as determined by the Fund's
investment adviser under the supervision of the Board of Directors. "Eligible
quality," for this purpose, means (i) a security rated in one of the two highest
rating categories by at least two major rating agencies assigning a rating to
the security or issuer (or, if only one agency assigned a rating, that agency)
or (ii) an unrated security deemed of comparable quality by the Fund's
investment adviser under the supervision of the Board of Directors. The purchase
by the Fund of a security of eligible quality that is rated by only one rating
agency or is unrated must be approved or ratified by the Board of Directors.
As long as the Fund utilizes the amortized cost method of valuation, it
will also comply with certain diversification requirements and will invest no
more than 5% of its total assets in "second-tier securities," with no more than
1% of its assets in any one issuer of a second-tier security. A "second-tier
security," for this purpose, is a security of eligible quality that does not
have the highest rating from at least two agencies assigning a rating to that
security or issuer (or, if only one agency assigned a rating, that agency) or an
unrated security that is deemed of comparable quality by the Fund's investment
adviser. The Fund will also maintain a dollar-weighted average portfolio
maturity of ninety days or less.
OTHER INVESTMENTS AND POLICIES
REPURCHASE AGREEMENTS
The Fund will enter into repurchase agreements whereby the seller of a
security agrees to repurchase that security from the Fund at a mutually
agreed-upon time and price. The period of maturity is usually quite short,
possibly overnight or a few days, although it may extend over a number of
months. The resale price is in excess of the purchase price,
7
<PAGE>
reflecting an agreed-upon rate of return effective for the period of time the
Fund's money is invested in the repurchase agreement. The Fund's repurchase
agreements will at all times be fully collateralized in an amount at least equal
to the resale price. The instruments held as collateral are valued daily, and if
the value of the instruments declines, the Fund will require additional
collateral. If the seller defaults and the value of the collateral securing the
repurchase agreement declines, the Fund may incur a loss. The Fund participates
in a joint repurchase account with other investment companies managed by
Prudential Mutual Fund Management, Inc. pursuant to an order of the SEC.
LIQUIDITY PUTS
The Fund also may purchase instruments of the types described above
together with the right to resell the instruments at an agreed-upon price or
yield within a specified period prior to the maturity date of the instruments.
Such a right to resell is commonly known as a "put," and the aggregate price
that the Fund pays for instruments with a put may be higher than the price that
otherwise would be paid for the instruments.
FLOATING RATE AND VARIABLE RATE SECURITIES
The Fund may purchase "floating rate" and "variable rate" obligations. The
interest rates on such obligations fluctuate generally with changes in market
interest rates, and in some cases the Fund is able to demand repayment of the
principal amount of such obligations at par plus accrued interest. For
additional information concerning variable rate and floating rate obligations,
see "Investment Objective and Policies" in the Statement of Additional
Information.
SECURITIES LENDING
The Fund may lend its portfolio securities to brokers or dealers, banks or
other recognized institutional borrowers of securities, provided that the
borrower at all times maintains cash collateral in an amount equal to at least
100% of the market value of the securities loaned. During the time portfolio
securities are on loan, the borrower will pay the Fund an amount equivalent to
any interest paid on such securities and the Fund may invest the cash collateral
and earn additional income. As a matter of fundamental policy, the Fund cannot
lend more than 10% of the value of its total assets.
RISKS OF INVESTING IN FOREIGN SECURITIES
The portfolio may contain obligations of foreign banks and foreign branches
of foreign banks, U.S. branches of foreign banks and foreign branches of U.S.
banks, as well as commercial paper, bills, notes and other obligations issued in
the United States by foreign issuers, including foreign governments, their
agencies and instrumentalities. Accordingly, an investment in the Fund involves
certain additional risks. These risks include future political and economic
developments in the country of the issuer, the possible imposition of
withholding taxes on interest income payable on such obligations held by the
Fund, the possible seizure or nationalization of foreign deposits and the
possible establishment of exchange controls or other foreign governmental laws
or restrictions which might affect adversely the payment of principal and
interest on such obligations held by the Fund. In addition, there may be less
publicly available information about a foreign issuer than about a domestic one,
and foreign issuers may not be subject to the same accounting, auditing and
financial recordkeeping standards and requirements as domestic issuers.
Securities issued by foreign issuers may be subject to greater fluctuations in
price than securities issued by U.S. entities. Finally, in the event of a
default with respect to any such foreign debt obligations, it may be more
difficult for the Fund to obtain or to enforce a judgment against the issuers of
such securities.
ILLIQUID SECURITIES
The Fund may hold up to 10% of its net assets in illiquid securities,
including securities with legal or contractual restrictions on resale
(restricted securities), securities that are not readily marketable in
securities markets either within
8
<PAGE>
or outside of the United States, privately placed commercial paper and
repurchase agreements which have a maturity of longer than seven days.
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933, as amended (the Securities Act), and privately placed
commercial paper that have a readily available market are not considered
illiquid for purposes of this limitation. Investing in Rule 144A securities
could, however, have the effect of increasing the level of Fund illiquidity to
the extent that qualified institutional buyers become, for a limited time,
uninterested in purchasing these securities. The Fund intends to comply with any
applicable state blue sky laws restricting the Fund's investments in illiquid
securities. See "Investment Restrictions" in the Statement of Additional
Information. The investment adviser will monitor the liquidity of such
restricted securities under the supervision of the Board of Directors.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the applicable notice period.
OTHER CONSIDERATIONS
Although the Fund provides the advantage of diversification, there is still
an inherent market risk due to the nature of the investment. If interest rates
decline, then yield to shareholders will also decline. If there are unusually
heavy redemption requests because of changes in interest rates or for any other
reason, the Fund may have to sell a portion of its investment portfolio at a
time when it may be disadvantageous to do so. The Fund believes that its
borrowing provision for abnormally heavy redemption requests would help to
mitigate any adverse effects and would make the sale of its portfolio securities
unlikely. When a shareholder redeems shares, it is possible that the redemption
proceeds will be less than the amount invested.
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company Act.
See "Investment Restrictions" in the Statement of Additional Information.
HOW THE FUND IS MANAGED
THE FUND HAS A BOARD OF DIRECTORS WHICH, IN ADDITION TO OVERSEEING THE
ACTIONS OF THE FUND'S MANAGER, SUBADVISER AND DISTRIBUTOR, AS SET FORTH BELOW,
DECIDES UPON MATTERS OF GENERAL POLICY. THE FUND'S MANAGER CONDUCTS AND
SUPERVISES THE DAILY BUSINESS OPERATIONS OF THE FUND. THE FUND'S SUBADVISER
FURNISHES DAILY INVESTMENT ADVISORY SERVICES.
For the year ended December 31, 1995, the total expenses of the Fund's
Class A shares as a percentage of average net assets were .69%. See "Financial
Highlights."
MANAGER
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC. (PMF OR THE MANAGER), ONE SEAPORT
PLAZA, NEW YORK, NEW YORK 10292, IS THE MANAGER OF THE FUND AND IS COMPENSATED
FOR ITS SERVICES AT AN ANNUAL RATE OF .50 OF 1% OF THE FUND'S AVERAGE DAILY NET
ASSETS UP TO $50 MILLION AND .30 OF 1% OF THE FUND'S AVERAGE DAILY NET ASSETS IN
EXCESS OF $50 MILLION. PMF was incorporated in May 1987 under the laws of the
State of Delaware. For the fiscal year ended December 31, 1995, the Fund paid a
management fee of .301% of the Fund's average net assets. See "Manager" in the
Statement of Additional Information.
9
<PAGE>
As of January 31, 1996, PMF served as the manager to 37 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 22 closed-end investment companies with aggregate assets of
approximately $52 billion.
UNDER THE MANAGEMENT AGREEMENT WITH THE FUND, PMF MANAGES THE INVESTMENT
OPERATIONS OF THE FUND AND ALSO ADMINISTERS THE FUND'S CORPORATE AFFAIRS. See
"Manager" in the Statement of Additional Information.
UNDER A SUBADVISORY AGREEMENT BETWEEN PMF AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC OR THE SUBADVISER), PIC FURNISHES INVESTMENT ADVISORY SERVICES
IN CONNECTION WITH THE MANAGEMENT OF THE FUND AND IS REIMBURSED BY PMF FOR ITS
REASONABLE COSTS AND EXPENSES INCURRED IN PROVIDING SUCH SERVICES. Under the
Management Agreement, PMF continues to have responsibility for all investment
advisory services and supervises PIC's performance of such services.
PMF and PIC are wholly-owned subsidiaries of The Prudential Insurance
Company of America (Prudential), a major diversified insurance and financial
services company.
DISTRIBUTOR
PRUDENTIAL SECURITIES INCORPORATED (PRUDENTIAL SECURITIES OR PSI), ONE
SEAPORT PLAZA, NEW YORK, NEW YORK 10292, IS A CORPORATION ORGANIZED UNDER THE
LAWS OF THE STATE OF DELAWARE AND SERVES AS THE DISTRIBUTOR OF THE FUND. IT IS
AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF PRUDENTIAL.
UNDER A DISTRIBUTION AND SERVICE PLAN (THE PLAN) ADOPTED BY THE FUND UNDER
RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT AND A DISTRIBUTION AGREEMENT (THE
DISTRIBUTION AGREEMENT), PRUDENTIAL SECURITIES (ALSO, THE DISTRIBUTOR) INCURS
THE EXPENSES OF DISTRIBUTING CLASS A SHARES OF THE FUND. These expenses include
account servicing fees paid to, or on account of, financial advisers of
Prudential Securities and representatives of Pruco Securities Corporation
(Prusec), an affiliated broker-dealer, account servicing fees paid to, or on
account of, other broker-dealers or financial institutions (other than national
banks) which have entered into agreements with the Distributor, advertising
expenses, the cost of printing and mailing prospectuses to potential investors
and indirect and overhead costs of Prudential Securities and Prusec associated
with the sale of the Class A shares of the Fund, including lease, utility,
communications and sales promotion expenses. The State of Texas requires that
shares of the Fund may be sold in that state only by dealers or other financial
institutions which are registered there as broker-dealers.
UNDER THE PLAN, THE FUND REIMBURSES THE DISTRIBUTOR FOR ITS
DISTRIBUTION-RELATED EXPENSES WITH RESPECT TO CLASS A SHARES OF THE FUND AT AN
ANNUAL RATE OF UP TO .125 OF 1% OF THE AVERAGE DAILY NET ASSETS OF THE FUND'S
CLASS A SHARES. Account servicing fees are paid based on the average balance of
Fund shares held in accounts of customers of financial advisers. The entire
distribution fee may be used to pay account servicing fees. For the fiscal year
ended December 31, 1995, the Fund paid a distribution fee equal on an annual
basis to .125 of 1% of the average daily net assets of the Fund's Class A
shares. The Fund records all payments made under the Plan as expenses in the
calculation of its net investment income.
The Plan provides that it shall continue in effect from year to year
provided that each such continuance is approved annually by a majority vote of
the Board of Directors, including a majority of the Directors who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the operation of the Plan or in any agreement related to the Plan.
The Directors are provided with and review quarterly reports of expenditures
under the Plan.
In addition to distribution and service fees paid by the Class A shares of
the Fund under the Plan, the Manager (or one of its affiliates) may make
payments out of its own resources to dealers and other persons which distribute
Class A shares of the Fund. Such payments may be calculated by reference to the
net asset value of shares sold by such persons or otherwise.
10
<PAGE>
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators (with the exception of the Texas Securities
Commissioner, who joined the settlement on January 18, 1994) and the National
Association of Securities Dealers, Inc. (the NASD) to resolve allegations that
from 1980 through 1990 PSI sold certain limited partnership interests in
violation of securities laws to persons for whom such securities were not
suitable and misrepresented the safety, potential returns and liquidity of these
investments. Without admitting or denying the allegations asserted against it,
PSI consented to the entry of an SEC Administrative Order which stated that
PSI's conduct violated the federal securities laws, directed PSI to cease and
desist from violating the federal securities laws, pay civil penalties, and
adopt certain remedial measures to address the violations.
Pursuant to the terms of the SEC settlement, PSI agreed to the imposition
of a $10,000,000 civil penalty, established a settlement fund in the amount of
$330,000,000 and procedures to resolve legitimate claims for compensatory
damages by purchasers of the partnership interests. PSI has agreed to provide
additional funds, if necessary, for the purpose of the settlement fund. PSI's
settlement with the state securities regulators included an agreement to pay a
penalty of $500,000 per jurisdiction. PSI consented to a censure and to the
payment of a $5,000,000 fine in settling the NASD action.
In October 1994, a criminal complaint was filed with the United States
Magistrate for the Southern District of New York alleging that PSI committed
fraud in connection with the sale of certain limited partnership interests in
violation of federal securities laws. An agreement was simultaneously filed to
defer prosecution of these charges for a period of three years from the signing
of the agreement, provided that PSI complies with the terms of the agreement.
If, upon completion of the three year period, PSI has complied with the terms of
the agreement, no prosecution will be instituted by the United States for the
offenses charged in the complaint. If on the other hand, during the course of
the three year period, PSI violates the terms of the agreement, the U.S.
Attorney can then elect to pursue these charges. Under the terms of the
agreement, PSI agreed, among other things, to pay an additional $330,000,000
into the fund established by the SEC to pay restitution to investors who
purchased certain PSI limited partnership interests.
For more detailed information concerning the foregoing matters, see
"Distributor" in the Statement of Additional Information, a copy of which may be
obtained at no cost by calling 1-800-225-1852.
The Fund is not affected by PSI's financial condition and is an entirely
separate legal entity from PSI, which has no beneficial ownership therein and
the Fund's assets, which are held by State Street Bank and Trust Company, an
independent custodian, are separate and distinct from PSI.
PORTFOLIO TRANSACTIONS
Prudential Securities may act as a broker for the Fund, provided that the
commissions, fees or other remuneration it receives are fair and reasonable. See
"Portfolio Transactions" in the Statement of Additional Information.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities and
cash and, in that capacity, maintains certain financial and accounting books and
records pursuant to an agreement with the Fund. Its mailing address is P.O. Box
1713, Boston, Massachusetts 02105.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison,
New Jersey 08837, serves as Transfer Agent and Dividend Disbursing Agent and, in
those capacities, maintains certain books and records for the Fund. PMFS is a
wholly-owned subsidiary of PMF. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.
11
<PAGE>
HOW THE FUND VALUES ITS SHARES
THE NET ASSET VALUE PER SHARE, OR NAV, OF THE FUND'S CLASS A SHARES, IS
DETERMINED BY SUBTRACTING ITS LIABILITIES FROM THE VALUE OF ITS ASSETS AND
DIVIDING THE REMAINDER BY THE NUMBER OF OUTSTANDING CLASS A SHARES. THE BOARD OF
DIRECTORS HAS FIXED THE SPECIFIC TIME OF DAY FOR THE COMPUTATION OF THE FUND'S
NAV TO BE AS OF 4:30 P.M., NEW YORK TIME, IMMEDIATELY AFTER THE DECLARATION OF
DIVIDENDS.
The Fund will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase, sell
or redeem Fund shares have been received or days on which changes in the value
of the Fund's portfolio securities do not materially affect the net asset value.
The New York Stock Exchange is closed on the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
The Fund determines the value of its portfolio securities by the amortized
cost method. This method involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium regardless of impact of fluctuating interest rates on the market value
of the instrument. While this method provides certainty in valuation, it may
result in periods during which the value of a security in the Fund's portfolio
as determined by amortized cost, is higher or lower than the price the Fund
would receive if it sold such security. During these periods, the yield to a
shareholder may differ somewhat from that which could be obtained from a similar
fund which marks its portfolio securities to the market each day. For example,
during periods of declining interest rates, if the use of the amortized cost
method resulted in a lower value of the Fund's portfolio on a given day, a
prospective investor in the Fund would be able to obtain a somewhat higher yield
and existing shareholders would receive correspondingly less income. The
converse would apply during periods of rising interest rates. The Board of
Directors has established procedures designed to stabilize, to the extent
reasonably possible, the NAV of the shares of the Fund at $1.00 per share. See
"Net Asset Value" in the Statement of Additional Information.
TAXES, DIVIDENDS AND DISTRIBUTIONS
TAXATION OF THE FUND
THE FUND HAS ELECTED TO QUALIFY AND INTENDS TO REMAIN QUALIFIED AS A
REGULATED INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
(THE INTERNAL REVENUE CODE). ACCORDINGLY, THE FUND WILL NOT BE SUBJECT TO
FEDERAL INCOME TAXES ON ITS NET INVESTMENT INCOME AND CAPITAL GAINS, IF ANY,
THAT IT DISTRIBUTES TO SHAREHOLDERS.
TAXATION OF SHAREHOLDERS
All dividends out of net investment income, together with distributions of
net short-term gains (I.E., the excess of net short-term capital gains over net
long-term capital losses), will be taxable as ordinary income to the
shareholders whether or not reinvested. The Fund does not expect to realize
long-term capital gains or losses. In general, tax-exempt shareholders will not
be required to pay taxes on amounts distributed to them.
The Internal Revenue Code imposes a 4% nondeductible excise tax to the
extent the Fund does not meet certain minimum distribution requirements by the
end of each calendar year. For this purpose, dividends declared in October,
November or December and paid in the following January will be treated as having
been paid by the Fund and received by shareholders in such prior year. Under
this rule, a shareholder may be taxed in one year on dividends or distributions
actually received in January of the following year.
Shareholders are advised to consult their own tax advisers regarding
specific questions as to federal, state or local taxes. See "Taxes" in the
Statement of Additional Information.
12
<PAGE>
WITHHOLDING TAXES
Under the Internal Revenue Code, the Fund is required to withhold and remit
to the U.S. Treasury 31% of dividends, capital gain income and redemption
proceeds on the accounts of those shareholders who fail to furnish their tax
identification numbers on IRS Form W-9 (or IRS Form W-8 in the case of certain
foreign shareholders) with the required certifications regarding the
shareholder's status under the federal income tax law. However, dividends of net
investment income and short-term capital gains paid to a foreign shareholder
will generally be subject to U.S. withholding tax at the rate of 30% (or lower
treaty rate).
DIVIDENDS AND DISTRIBUTIONS
All of the Fund's net income is declared as dividends daily to the
shareholders of record at the time of such declaration. Unless otherwise
requested by the shareholder, such dividends are automatically invested monthly
in additional Fund shares at net asset value. Shareholders may receive cash
payments from the Fund equal to the dividends earned during the month by
completing the appropriate section on the application form or by notifying PMFS
at least five business days prior to the payable date. Cash distributions are
paid by check within five business days after the dividend payment date. In the
event that all of a shareholder's shares are redeemed on a date other than the
monthly dividend payment date, the proceeds of such redemption will equal the
net asset value of the shares redeemed plus the amount of all dividends declared
through the date of redemption. BECAUSE DECLARED DIVIDENDS REMAIN INVESTED BY
THE FUND UNTIL THE DIVIDEND PAYMENT DATE OF EACH MONTH IN THE SAME MANNER AS
FUNDS INVESTED IN SHARES, THE FOREGOING PROCEDURE RESULTS IN INCOME TO
SHAREHOLDERS IN SUBSTANTIALLY THE SAME AMOUNTS AS IF DIVIDENDS WERE REINVESTED
IN SHARES ON A DAILY BASIS.
The Fund's net income for dividend purposes is determined immediately prior
to the calculation of net asset value at 4:30 P.M., New York time. Thus, a
shareholder begins to earn dividends on the first business day after his or her
order becomes effective and continues to earn dividends through the day on which
his or her shares are redeemed. Net income of the Fund consists of interest
accrued and discount earned less the estimated expenses of the Fund and all
realized gains and losses on the portfolio securities of the Fund. Net income
earned on Saturdays, Sundays and holidays is accrued in calculating the dividend
on the previous business day. Accordingly, a shareholder who redeems his or her
shares effective as of 4:30 P.M., New York time, on a Friday earns a dividend
which reflects the income earned by the Fund on the following Saturday and
Sunday. On the other hand, an investor whose purchase order is effective as of
4:30 P.M., New York time, on a Friday does not begin earning dividends until the
following business day.
GENERAL INFORMATION
DESCRIPTION OF SHARES
THE FUND WAS INCORPORATED IN MARYLAND ON DECEMBER 22, 1975. Effective March
1, 1996, the Fund's name changed from Prudential-Bache MoneyMart Assets Inc. to
Prudential MoneyMart Assets, Inc., and the shares outstanding prior to such date
were designated as Class A shares. The Fund is authorized to offer 15 billion
shares of common stock, $.10 par value per share, currently divided into two
classes of shares, designated Class A and Class Z shares, consisting of 13
billion and 2 billion authorized shares, respectively. Each class represents an
interest in the same assets of the Fund and is identical in all respects except
that (i) Class A shares are subject to distribution and/or service fees, (ii)
Class Z shares are not subject to any distribution and/or service fees, (iii)
each class has exclusive voting rights with respect to its distribution and
service plan, if any, and on any other matter submitted to shareholders that
relates solely to its arrangement and has separate voting rights on any matter
submitted to shareholders in which the interests of one class differ from the
interests of any other class, (iv) each class has a different exchange
privilege, and (v) Class Z shares are
13
<PAGE>
offered exclusively for sale to participants in the PSI 401(k) Plan, an employee
benefit plan sponsored by Prudential Securities. In accordance with the Fund's
Articles of Incorporation, the Board of Directors may authorize the creation of
additional series and classes within such series, with such preferences,
privileges, limitations and voting and dividend rights as the Board of Directors
may determine. Currently, the Fund is offering two classes, designated Class A
and Class Z shares.
THE FUND DOES NOT INTEND TO HOLD ANNUAL MEETINGS OF SHAREHOLDERS UNLESS
OTHERWISE REQUIRED BY LAW. THE FUND WILL NOT BE REQUIRED TO HOLD ANNUAL MEETINGS
OF SHAREHOLDERS UNLESS, FOR EXAMPLE, THE ELECTION OF DIRECTORS IS REQUIRED TO BE
ACTED ON BY SHAREHOLDERS UNDER THE INVESTMENT COMPANY ACT. SHAREHOLDERS HAVE
CERTAIN RIGHTS, INCLUDING THE RIGHT TO CALL A MEETING UPON A VOTE OF 10% OF THE
FUND'S OUTSTANDING SHARES FOR THE PURPOSE OF VOTING ON THE REMOVAL OF ONE OR
MORE DIRECTORS OR TO TRANSACT ANY OTHER BUSINESS.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which
has been incorporated by reference herein, does not contain all the information
set forth in the Registration Statement filed by the Fund with the SEC under the
Securities Act of 1933. Copies of the Registration Statement may be obtained at
a reasonable charge from the SEC or may be examined, without charge, at the
office of the SEC in Washington, D.C.
SHAREHOLDER GUIDE
HOW TO BUY SHARES OF THE FUND
YOU MAY PURCHASE CLASS A SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES,
PRUSEC, OR DIRECTLY FROM THE FUND THROUGH ITS TRANSFER AGENT, PRUDENTIAL MUTUAL
FUND SERVICES, INC. (PMFS OR THE TRANSFER AGENT), ATTENTION: INVESTMENT
SERVICES, P.O. BOX 15020, NEW BRUNSWICK, NEW JERSEY 08906-5020. The minimum
initial investment is $1,000. The minimum subsequent investment is $100.
Prudential Securities reserves the right to impose a higher minimum subsequent
amount from time to time as it may deem appropriate. All minimum investment
requirements are waived for certain retirement and employee savings plans and
custodial accounts for the benefit of minors. For purchases made through the
Automatic Savings Accumulation Plan, the minimum initial and subsequent
investment is $50. See "Shareholder Services" below.
CLASS A SHARES OF THE FUND ARE SOLD, WITHOUT A SALES CHARGE, AT THE NAV
NEXT DETERMINED AFTER RECEIPT AND ACCEPTANCE BY PMFS OF A PURCHASE ORDER AND
PAYMENT IN PROPER FORM (I.E., A CHECK OR FEDERAL FUNDS WIRED TO STATE STREET
BANK AND TRUST COMPANY (STATE STREET), THE FUND'S CUSTODIAN). See "How the Fund
Values its Shares." When payment is received by PMFS prior to 4:30 P.M., New
York time, in proper form, a share purchase order will be entered at the price
determined as of 4:30 P.M., New York time, on that day, and the shares purchased
will begin to earn dividends on the business day following such investment. See
"Taxes, Dividends and Distributions."
Application forms can be obtained from PMFS, Prudential Securities or
Prusec. If a stock certificate is desired, it must be requested in writing for
each transaction. Certificates are issued only for full shares. Shareholders who
hold their shares through Prudential Securities will not receive stock
certificates. Shareholders cannot utilize Expedited Redemption or Check
Redemption or have a Systematic Withdrawal Plan if they have been issued
certificates.
The Fund reserves the right, in its discretion, to reject any purchase
order (including an exchange into the Fund) or to suspend or modify the
continuous offering of its shares. See "How to Sell Your Shares" below.
Your dealer is responsible for forwarding payment promptly to the Fund. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the third business day following the investment.
Transactions in Fund shares may be subject to postage and other charges
imposed by your dealer.
14
<PAGE>
PURCHASES THROUGH PRUDENTIAL SECURITIES
If you have an account with Prudential Securities (or open such an
account), you may ask Prudential Securities to purchase Class A shares of the
Fund on your behalf. On the business day following confirmation that a free
credit balance (i.e., immediately available funds) exists in your account,
Prudential Securities, at your request, will effect a purchase order for Class A
shares of the Fund in an amount up to such balance at the NAV determined on that
day. Funds held by Prudential Securities on behalf of its clients in the form of
free credit balances are delivered to the Fund by Prudential Securities and
begin earning dividends the second business day after receipt of the order by
Prudential Securities. Accordingly, Prudential Securities will have the use of
such free credit balances during this period.
Class A shares of the Fund purchased by Prudential Securities on behalf of
its clients will be held by Prudential Securities as record holder. Prudential
Securities will therefore receive statements and dividends directly from the
Fund and will in turn provide investors with Prudential Securities account
statements reflecting purchases, redemptions and dividend payments. Although
Prudential Securities clients who purchase shares of the Fund through Prudential
Securities may not redeem shares of the Fund by check, Prudential Securities
provides its clients with alternative forms of immediate access to monies
invested in shares of the Fund.
Prudential Securities clients wishing additional information concerning
investment in Fund shares made through Prudential Securities should call their
Prudential Securities financial adviser.
AUTOMATIC INVESTMENT. Prudential Securities has advised the Fund that it
has instituted procedures pursuant to which, upon enrollment by a Prudential
Securities client, Prudential Securities will make automatic investments of free
credit cash balances of $1,000 or more ($1.00 for IRAs and Benefit Plans)
(Eligible Credit Balances) held in such client's account in Class A shares of
the Fund (Autosweep). Under these procedures, for accounts other than IRA and
Benefit Plans, an order to purchase shares of the Fund is placed (i) in the case
of Eligible Credit Balances resulting from the proceeds of a securities sale, at
the opening of business on the day following the settlement of the securities
sale, and (ii) in the case of Eligible Credit Balances resulting from a
non-trade related credit (E.G., receipt of a dividend or interest payment,
maturity of a bond or a cash payment into the securities account), at the
opening of business semi-monthly. For IRAs and Benefit Plans, orders will be
placed by Prudential Securities (i) on the settlement date of the securities
sale, in the case of Eligible Credit Balances resulting from the proceeds of a
securities sale and (ii) on the business day after receipt by Prudential
Securities of the non-trade related credit, in the case of Eligible Credit
Balances resulting from a non-trade related credit. Each time an order is placed
under these procedures resulting from the settlement of a securities sale, any
non-trade related credit in the client's account will also be automatically
invested. For the purposes of Autosweep, "Benefit Plans" include (i) employee
benefit plans as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974 (ERISA) other than governmental plans as defined in Section
3(32) of ERISA and church plans as defined in Section 3(33) of ERISA, (ii)
pension, profit-sharing or other employee benefit plans qualified under Section
401 of the Internal Revenue Code and (iii) deferred compensation and annuity
plans under Section 457 or 403(b)(7) of the Internal Revenue Code. "IRAs" are
Individual Retirement Accounts as defined in Section 408(a) of the Internal
Revenue Code. All shares purchased pursuant to these procedures will begin
earning dividends on the business day after the order is placed. Prudential
Securities will have the use of Eligible Credit Balances until monies are
delivered to the Fund.
SELF-DIRECTED INVESTMENT. Prudential Securities clients not electing
Autosweep may continue to place orders for the purchase of Fund shares through
Prudential Securities, subject to minimum initial and subsequent investment
requirements as described above.
A Prudential Securities client who has not elected Autosweep (Automatic
Investment) and who does not place a purchase order promptly after funds are
credited to his or her Prudential Securities account will have a free credit
balance with Prudential Securities and will not begin earning dividends on
shares of the Fund until the second business day after receipt of the order by
Prudential Securities from the client. Accordingly, Prudential Securities will
have the use of such free credit balances during this period.
15
<PAGE>
PURCHASES THROUGH PRUSEC
You may purchase Class A shares of the Fund by placing an order with your
Prusec representative accompanied by payment for the purchase price of such
shares and, in the case of a new account, a completed application form. You
should also submit an IRS Form W-9. The Prusec representative will then forward
these items to the Transfer Agent. See "Purchase by Mail" below.
PURCHASE BY WIRE
For an initial purchase of Class A shares of the Fund by wire, you must
first telephone PMFS at (800) 225-1852 (toll-free) to receive an account number.
The following information will be requested: your name, address, tax
identification number, dividend distribution election, amount being wired and
wiring bank. Instructions should then be given by you to your bank to transfer
funds by wire to State Street Bank and Trust Company (State Street), Boston,
Massachusetts, Custody and Shareholder Services Division, Attention: Prudential
MoneyMart Assets, Inc., specifying on the wire the account number assigned by
PMFS and your name.
If you arrange for receipt by State Street of Federal Funds prior to the
calculation of NAV (4:30 P.M., New York time), on a business day, you may
purchase shares of the Fund as of that day and receive dividends commencing on
the next business day. See "Net Asset Value" in the Statement of Additional
Information.
In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential MoneyMart Assets,
Inc. and your name and individual account number. It is not necessary to call
PMFS to make subsequent purchase orders utilizing Federal Funds. The minimum
amount which may be invested by wire is $1,000.
PURCHASE BY MAIL
Purchase orders for which remittance is to be made by check or money order
may be submitted directly by mail to Prudential Mutual Fund Services, Inc.,
Attention: Investment Services, P.O. Box 15020, New Brunswick, New Jersey
08906-5020, together with payment of the purchase price of such shares and, in
the case of a new account, a completed application form. You should also submit
an IRS Form W-9. If PMFS receives an order to purchase Class A shares of the
Fund and payment in proper form prior to 4:30 P.M., New York time, the purchase
order will be effective on that day and you will begin earning dividends on the
following business day. See "Taxes, Dividends and Distributions." Checks should
be made payable to Prudential MoneyMart Assets, Inc. Certified checks are not
necessary, but checks must be drawn on a bank located in the United States.
There are restrictions on the redemption of shares purchased by check while the
funds are being collected. See "How to Sell Your Shares" below.
THE PRUDENTIAL ADVANTAGE ACCOUNT PROGRAM
Class A shares of the Fund are offered to participants in the Prudential
Advantage Account Program (the Advantage Account Program), a financial services
program available to clients of Prusec. Investors participating in the Advantage
Account Program may select the Fund as their primary investment vehicle. Such
investors will have free credit cash balances of $1.00 or more in their
Securities Account (Available Cash) (a component of the Advantage Account
Program carried through Prudential Securities) automatically invested in Class A
shares of the Fund. Specifically, an order to purchase Class A shares of the
Fund is placed (i) in the case of Available Cash resulting from the proceeds of
securities sales, on the settlement date of the securities sale, and (ii) in the
case of Available Cash resulting from non-trade related credits (I.E., receipt
of dividends and interest payments, or a cash payment by the participant into
his or her Securities Account), on the business day after receipt by Prudential
Securities of the non-trade related credit.
All shares purchased pursuant to these automatic purchase procedures will
begin earning dividends on the business day after the order is placed.
Prudential Securities will arrange for investment in Class A shares of the Fund
at 4:30 P.M.
16
<PAGE>
on the day the order is placed and cause payment to be made in Federal Funds
for the shares prior to 4:30 P.M. on the next business day. Prudential
Securities will have the use of free credit cash balances until delivery to the
Fund.
Redemptions will be automatically effected by Prudential Securities to
satisfy debit balances in a Securities Account created by activity therein or
arising under the Advantage Account Program, such as those incurred by use of
the Visa(R) Account, including Visa purchases, cash advances and Visa Account
checks. Each Advantage Account Program Securities Account will be automatically
scanned for debits each business day as of the close of business on that day and
after application of any free credit cash balances in the account to such
debits, a sufficient number of shares of the Fund (if selected as the Primary
Fund) and, if necessary, shares of other Advantage Account Funds owned by the
Advantage Account Program participant which have not been selected as his or her
Primary Fund or shares of a participant's money market funds managed by PMF
which are not primary Advantage Account funds will be redeemed as of that
business day to satisfy any remaining debits in the Securities Account. Shares
may not be purchased until all debits, overdrafts and other requirements in the
Securities Account are satisfied.
Advantage Account Program charges and expenses are not reflected in the
table of Fund Expenses. See "Fund Expenses."
For information on participation in the Advantage Account Program,
investors should telephone (800) 235-7637 (toll-free).
HOW TO SELL YOUR SHARES
YOU CAN REDEEM YOUR SHARES AT ANY TIME FOR CASH AT THE NAV PER SHARE NEXT
DETERMINED AFTER THE REDEMPTION REQUEST IS RECEIVED IN PROPER FORM BY THE
TRANSFER AGENT OR PRUDENTIAL SECURITIES. SEE "HOW THE FUND VALUES ITS SHARES."
Shares for which a redemption request is received by PMFS prior to 4:30
P.M., New York time, are entitled to a dividend on the day on which the request
is received. By pre-authorizing Expedited Redemption, you may arrange to have
payment for redeemed shares made in Federal Funds wired to your bank, normally
on the next bank business day following the date of receipt of the redemption
instructions. Should you redeem all of your shares, you will receive the amount
of all dividends declared for the month-to-date on those shares. See "Taxes,
Dividends and Distributions."
If redemption is requested by a corporation, partnership, trust or
fiduciary, written evidence of authority acceptable to the Transfer Agent must
be submitted before such request will be accepted. All correspondence and
documents concerning redemptions should be sent to the Fund in care of its
Transfer Agent, Prudential Mutual Fund Services, Inc., Attention: Redemption
Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to
a person other than the record owner, (c) are to be sent to an address other
than the address on the Transfer Agent's records or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the redemption
request must be guaranteed by an "eligible guarantor institution." An "eligible
guarantor institution" includes any bank, broker, dealer or credit union. The
Transfer Agent reserves the right to request additional information from, and
make reasonable inquiries of, any eligible guarantor institution. For clients of
Prusec, a signature guarantee may be obtained from the agency or office manager
of most Prudential Insurance and Financial Services or Preferred Services
offices.
NORMALLY, THE FUND MAKES PAYMENT ON THE NEXT BUSINESS DAY FOR ALL SHARES
REDEEMED, BUT IN ANY EVENT, PAYMENT WILL BE MADE WITHIN SEVEN DAYS AFTER RECEIPT
BY PMFS OF STOCK CERTIFICATES AND/OR OF A REDEMPTION REQUEST IN PROPER FORM.
However, the Fund may suspend the right of redemption or postpone the date of
payment (a) for any periods during which the New York Stock Exchange is closed
(other than for customary weekend or holiday closings), (b) for any periods when
trading in the markets which the Fund normally utilizes is closed or restricted
or an emergency exists as determined by the SEC so that disposal of the Fund's
investments or determination of its net asset value is not reasonably
practicable or (c) for such other periods as the SEC may permit for protection
of the Fund's shareholders.
17
<PAGE>
PAYMENT FOR REDEMPTION OF RECENTLY PURCHASED SHARES WILL BE DELAYED UNTIL
THE FUND OR ITS TRANSFER AGENT HAS BEEN ADVISED THAT THE PURCHASE CHECK HAS BEEN
HONORED, UP TO 10 CALENDAR DAYS FROM THE TIME OF RECEIPT OF THE PURCHASE CHECK
BY THE TRANSFER AGENT. SUCH DELAY MAY BE AVOIDED BY PURCHASING SHARES BY WIRE OR
BY CERTIFIED OR OFFICIAL BANK CHECKS. THE FUND MAKES NO CHARGE FOR REDEMPTION.
REDEMPTION OF SHARES PURCHASED THROUGH PRUDENTIAL SECURITIES
Prudential Securities clients for whom Prudential Securities has purchased
Class A shares of the Fund may have these shares redeemed only by instructing
their Prudential Securities financial adviser orally or in writing.
Prudential Securities has advised the Fund that it has established
procedures pursuant to which shares of the Fund held by a Prudential Securities
client having a deficiency in his or her Prudential Securities account will be
redeemed automatically to the extent of that deficiency to the nearest highest
dollar, unless the client notifies Prudential Securities to the contrary. The
amount of the redemption will be the lesser of (a) the total net asset value of
Fund shares held in the client's Prudential Securities account or (b) the
deficiency in the client's Prudential Securities account at the close of
business on the date such deficiency is due. Accordingly, a Prudential
Securities client utilizing this automatic redemption procedure and who wishes
to pay for a securities transaction or satisfy any other debit balance in his or
her account other than through such automatic redemption procedure must do so
not later than the day of settlement for such securities transaction or the date
the debit balance is incurred. Prudential Securities clients who have elected to
utilize Autosweep will not be entitled to dividends declared on the date of
redemption.
REDEMPTION OF SHARES PURCHASED THROUGH PMFS
If you purchase Class A shares of the Fund through PMFS, you may use Check
Redemption, Expedited Redemption or Regular Redemption. Prudential Securities
clients for whom Prudential Securities has purchased shares may not use such
services.
REGULAR REDEMPTION. You may redeem your shares by sending a written
request, accompanied by duly endorsed stock certificates, if issued, to
Prudential Mutual Fund Services, Inc., Attention: Redemption Services, P.O. Box
15010, New Brunswick, New Jersey 08906-5010. In this case, all stock
certificates and certain written requests for redemption must be endorsed by the
shareholder with signature guaranteed, as described above. Regular redemption is
made by check sent to the shareholder's address.
EXPEDITED REDEMPTION. By pre-authorizing Expedited Redemption, you may
arrange to have payment for redeemed shares made in Federal Funds wired to your
bank, normally on the next business day following redemption. In order to use
Expedited Redemption, you may so designate at the time the initial investment is
made or at a later date. Once an Expedited Redemption authorization form has
been completed, the signature on the authorization form guaranteed as set forth
above and the form returned to Prudential Mutual Fund Services, Inc., Attention:
Account Maintenance, P.O. Box 15015, New Brunswick, New Jersey 08906-5015,
requests for redemption may be made by telegraph, letter or telephone. To
request Expedited Redemption by telephone, you should call PMFS at (800)
225-1852. Calls must be received by PMFS before 4:30 P.M., New York time, to
permit redemption as of such date. Requests by letter should be addressed to
Prudential Mutual Fund Services, Inc., at the address set forth above.
A signature guarantee is not required under Expedited Redemption once the
authorization form is properly completed and returned. The Expedited Redemption
privilege may be used only to redeem shares in an amount of $200 or more, except
that, if an account for which Expedited Redemption is requested has an NAV of
less than $200, the entire account must be redeemed. The proceeds of redeemed
shares in the amount of $1,000 or more are transmitted by wire to your account
at a domestic commercial bank which is a member of the Federal Reserve System.
Proceeds of less than $1,000 are forwarded by check to your designated bank
account.
DURING PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS, EXPEDITED
REDEMPTION MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD REDEEM SHARES BY MAIL AS
DESCRIBED ABOVE.
18
<PAGE>
CHECK REDEMPTION. At your request, State Street will establish a personal
checking account for you. Checks drawn on this account can be made payable to
the order of any person in any amount greater than $500. When such check is
presented to State Street for payment, State Street presents the check to the
Fund as authority to redeem a sufficient number of Class A shares of the Fund in
the shareholder's account to cover the amount of the check. If insufficient
shares are in the account, or if the purchase was made by check within 10
calendar days, the check will be returned marked "insufficient funds." Checks in
an amount less than $500 will not be honored. Shares for which certificates have
been issued cannot be redeemed by check. PMFS reserves the right to impose a
service charge to establish a checking account and order checks.
INVOLUNTARY REDEMPTION. Because of the relatively high cost of maintaining
an account, the Fund reserves the right to redeem, upon 60 days' written notice,
an account which is reduced by a shareholder to an NAV of $500 or less due to
redemption. You may avoid such redemption by increasing the NAV of your account
to an amount in excess of $500.
REDEMPTION IN KIND. If the Board of Directors determines that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make payment wholly or partially in cash, the Fund may pay the redemption price
in whole or in part by a distribution in kind of securities from the portfolio
of the Fund, in lieu of cash, in conformity with the applicable rules of the
SEC. Securities will be readily marketable and will be valued in the same manner
as in a regular redemption. See "How the Fund Values its Shares." If your shares
are redeemed in kind, you will incur brokerage costs in converting the assets
into cash. The Fund, however, has elected to be governed by Rule 18f-1 under the
Investment Company Act under which the Fund is obligated to redeem shares solely
in cash up to the lesser of $250,000 or one percent of the net asset value of
the Fund during any 90-day period for any one shareholder.
90-DAY REPURCHASE PRIVILEGE. If you redeem your shares and have not
previously exercised the repurchase privilege, you may reinvest any portion or
all of the proceeds of such redemption in shares of the Fund at the NAV next
determined after the order is received, which must be within 90 days after the
date of the redemption. You will receive pro rata credit for any contingent
deferred sales charge paid in connection with the redemption. You must notify
the Fund's Transfer Agent, either directly or through Prudential Securities or
Prusec, at the time the repurchase privilege is exercised, that you are entitled
to credit for any contingent deferred sales charge you previously paid. Exercise
of the repurchase privilege will not affect the federal income tax treatment of
any gain realized upon the redemption. If the redemption resulted in a loss,
some or all of the loss, depending on the amount reinvested, will not be allowed
for federal income tax purposes.
CLASS B AND CLASS C PURCHASE PRIVILEGE. You may direct that the proceeds of
a redemption of Fund shares be invested in Class B shares or Class C shares of
any Prudential Mutual Fund by calling your Prudential Securities financial
adviser or the Transfer Agent at (800) 225-1852. The transaction will be
effected on the basis of the relative NAV.
HOW TO EXCHANGE YOUR SHARES
AS A SHAREHOLDER OF THE FUND, YOU HAVE AN EXCHANGE PRIVILEGE (THE EXCHANGE
PRIVILEGE) WITH CERTAIN OTHER PRUDENTIAL MUTUAL FUNDS, INCLUDING ONE OR MORE
SPECIFIED MONEY MARKET FUNDS AND FUNDS SOLD WITH AN INITIAL SALES CHARGE,
SUBJECT TO THE MINIMUM INVESTMENT REQUIREMENTS OF SUCH FUNDS. You may exchange
your Class A shares for Class A shares of the other Prudential Mutual Funds on
the basis of relative NAV, plus the applicable sales charge. No additional sales
charge is imposed in connection with subsequent exchanges. You may not exchange
your shares for Class B shares of the Prudential Mutual Funds, except that
shares acquired prior to January 22, 1990 subject to a contingent deferred sales
charge can be exchanged for Class B shares. See "How to Sell Your Shares--Class
B and Class C Purchase Privilege" above and "Shareholder Investment
Account--Exchange Privilege" in the Statement of Additional Information. An
exchange will be treated as a redemption and purchase for tax purposes. You may
not exchange your shares for Class C shares of the Prudential Mutual Funds.
19
<PAGE>
IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE THE TELEPHONE
EXCHANGE PRIVILEGE ON YOUR INITIAL APPLICATION FORM OR BY WRITTEN NOTICE TO THE
TRANSFER AGENT AND HOLD SHARES IN NON-CERTIFICATE FORM. Thereafter, you may call
the Fund at (800) 225-1852 to execute a telephone exchange of shares weekdays,
except holidays, between the hours of 8:00 A.M. and 6:00 P.M., New York time.
For your protection and to prevent fraudulent exchanges, your telephone call
will be recorded and you will be asked to provide your personal identification
number. A written confirmation of the exchange transaction will be sent to you.
NEITHER THE FUND NOR ITS AGENTS WILL BE LIABLE FOR ANY LOSS, LIABILITY OR COST
WHICH RESULTS FROM ACTING UPON INSTRUCTIONS REASONABLY BELIEVED TO BE GENUINE
UNDER THE FOREGOING PROCEDURES. (The Fund or its agents could be subject to
liability if they fail to employ reasonable procedures.) All exchanges will be
made on the basis of the relative NAV of the two funds next determined after the
request is received in good order. The Exchange Privilege is available only in
states where the exchange may legally be made.
IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.
IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON
THE FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services, Inc., Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
IN PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS, THE TELEPHONE EXCHANGE
OF SHARES MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD MAKE EXCHANGES BY MAIL BY
WRITING TO PRUDENTIAL MUTUAL FUND SERVICES, INC., AT THE ADDRESS NOTED ABOVE.
The Exchange Privilege may be modified or terminated at any time on 60
days' notice to shareholders.
SHAREHOLDER SERVICES
In addition to the Exchange Privilege, as a shareholder in the Fund, you
can take advantage of the following additional services and privileges:
-- AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS. For your
convenience, all dividends and distributions are automatically reinvested in
full and fractional Class A shares of the Fund at NAV. You may direct the
Transfer Agent in writing not less than 5 full business days prior to the record
date to have subsequent dividends and/or distributions sent in cash rather than
reinvested. If you hold shares through Prudential Securities, you should contact
your financial adviser.
-- AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP). Under ASAP you may make
regular purchases of Class A shares of the Fund in amounts as little as $50 via
an automatic charge to a bank account or Prudential Securities account
(including a Command Account). For additional information about this service,
you may contact your Prudential Securities financial adviser, Prusec
representative or the Transfer Agent directly.
-- TAX-DEFERRED RETIREMENT PLANS. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue Code
are available through the Distributor. These plans are for use by both
self-employed individuals and corporate employers. These plans permit either
self-direction of accounts by participants, or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from Prudential Securities or the
Transfer Agent. If you are considering adopting such a plan, you should consult
with your own legal or tax adviser with respect to the establishment and
maintenance of such a plan.
-- SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available
for shareholders which provides for monthly or quarterly checks. For additional
information about the service, you may contact your Prudential Securities
financial adviser, Prusec representative or the Transfer Agent directly.
20
<PAGE>
-- MULTIPLE ACCOUNTS. Special procedures have been designed for banks and
other institutions that wish to open multiple accounts. An institution may open
a single master account by filing an application form with the Transfer Agent,
Attention: Customer Service, P.O. Box 15005, New Brunswick, New Jersey 08906,
signed by personnel authorized to act for the institution. Individual
sub-accounts may be opened at the time the master account is opened by listing
them on the application form, or they may be added at a later date by written
advice or by filing forms supplied by the Fund. Procedures are available to
identify sub-accounts by name and number within the master account name. The
investment minimums set forth above are applicable to the aggregate amounts
invested by a group and not to the amount credited to each sub-account.
-- PURCHASE BY HOLDERS OF PRUDENTIAL SECURITIES UNIT TRUSTS. Holders of
Prudential sponsored Unit Trusts may elect to have monthly distributions paid by
such Unit Trusts reinvested in Class A shares of the Fund without compliance
with the investment minimums described under "How to Buy Shares of the Fund."
-- REPORTS TO SHAREHOLDERS. The Fund will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses, the Fund will provide one annual and semi-annual shareholder report
and annual prospectus per household. You may request additional copies of such
reports by calling (800) 225-1852 or by writing to the Fund at One Seaport
Plaza, New York, New York 10292.
-- SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Fund at One
Seaport Plaza, New York, New York 10292, or by telephone, at (800) 225-1852
(toll free) or, from outside the U.S.A., at (908) 417-7555 (collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
21
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
Prudential Mutual Fund Management offers a broad range of mutual funds
designed to meet your individual needs. We welcome you to review the investment
options available through our family of funds. For more information on the
Prudential Mutual Funds, including charges and expenses, contact your Prudential
Securities financial adviser or Prusec representative or telephone the Fund at
(800) 225-1852 for a free prospectus. Read the prospectus carefully before you
invest or send money.
TAXABLE BOND FUNDS
Prudential Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Mortgage Income Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
The BlackRock Government Income Trust
TAX-EXEMPT BOND FUNDS
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Intermediate Series
Prudential Municipal Series Fund
Florida Series
Hawaii Income Series
Maryland Series
Massachusetts Series
Michigan Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
GLOBAL FUNDS
Prudential Europe Growth Fund, Inc.
Prudential Global Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Global Natural Resources Fund, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Global Utility Fund, Inc.
The Global Government Plus Fund, Inc.
The Global Total Return Fund, Inc.
EQUITY FUNDS
Prudential Allocation Fund
Balanced Portfolio
Strategy Portfolio
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Growth Opportunity Fund, Inc.
Prudential Jennison Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
MONEY MARKET FUNDS
- -- TAXABLE MONEY MARKET FUNDS
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund, Inc.
Money Market Series
Prudential MoneyMart Assets, Inc.
- -- TAX-FREE MONEY MARKET FUNDS
Prudential Tax-Free Money Fund, Inc.
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
- -- COMMAND FUNDS
Command Money Fund
Command Government Fund
Command Tax-Free Fund
- -- INSTITUTIONAL MONEY MARKET FUNDS
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
A-1
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained herein, and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. This Prospectus does not
constitute an offer by the Fund or by the Distributor to sell or a solicitation
of any offer to buy any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer in such jurisdiction.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
----
FUND HIGHLIGHTS ....................................................... 2
Risk Factors and Special Characteristics ............................. 2
FUND EXPENSES ......................................................... 4
FINANCIAL HIGHLIGHTS .................................................. 5
CALCULATION OF YIELD .................................................. 6
HOW THE FUND INVESTS .................................................. 6
Investment Objective and Policies ................................... 6
Other Investments and Policies ...................................... 7
Investment Restrictions ............................................. 9
HOW THE FUND IS MANAGED ............................................... 9
Manager ............................................................. 9
Distributor ......................................................... 10
Portfolio Transactions .............................................. 11
Custodian and Transfer and Dividend
Disbursing Agent .................................................... 11
HOW THE FUND VALUES ITS SHARES ........................................ 12
TAXES, DIVIDENDS AND DISTRIBUTIONS .................................... 12
GENERAL INFORMATION ................................................... 13
Description of Shares ............................................... 13
Additional Information .............................................. 14
SHAREHOLDER GUIDE ..................................................... 14
How to Buy Shares of the Fund ....................................... 14
How to Sell Your Shares ............................................. 17
How to Exchange Your Shares ......................................... 19
Shareholder Services .................................................. 20
PRUDENTIAL MUTUAL FUND FAMILY ......................................... A-1
- ------------------------------------------------------------------------------
MF 108A 430230J
CUSIP No.: 74435H-1-2
- ------------------------------------------------------------------------------
Prudential
MoneyMart
Assets, Inc.
PROSPECTUS
MARCH 1, 1996
Prudential Mutual Funds
BUILDING YOUR FUTURE
ON OUR STRENGTH
<PAGE>
- --------------------------------------------------------------------------------
THE PRUDENTIAL INSTITUTIONAL FUND
ThePRUDENTIAL[LOGO] Prospectus dated February 1, 1996
- --------------------------------------------------------------------------------
The Prudential Institutional Fund is a no-load mutual fund that is designed
to provide a range of investment alternatives for certain retirement programs
and arrangements and other institutional investors. The Prudential Institutional
Fund consists of the following seven investment funds:
GROWTH STOCK FUND seeks to achieve long-term growth of capital through
investment primarily in equity securities of established companies with
above-average growth prospects.
STOCK INDEX FUND seeks to provide investment results that correspond to the
price and yield performance of Standard & Poor's 500 Composite Stock Price
Index.
INTERNATIONAL STOCK FUND seeks to achieve long-term growth of capital through
investment in equity securities of foreign issuers. Income is a secondary
objective.
ACTIVE BALANCED FUND seeks to achieve total returns approaching equity returns,
while accepting less risk than an all-equity portfolio, through an
actively-managed portfolio of equity securities, fixed income securities and
money market instruments.
BALANCED FUND seeks to realize long-term total return consistent with moderate
portfolio risk.
INCOME FUND seeks to achieve a high level of income over the longer term while
providing reasonable safety of capital.
MONEY MARKET FUND seeks to achieve high current income, preservation of
principal and maintenance of liquidity, while striving to maintain a $1.00 net
asset value per share.
INVESTMENTS IN THE MONEY MARKET FUND (OR IN ANY OTHER FUND) ARE NEITHER
INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT
THE MONEY MARKET FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00
PER SHARE.
PROSPECTIVE INVESTORS SHOULD NOTE THAT ALL OF THE FUNDS RESERVE THE RIGHT
TO BORROW MONEY FOR TEMPORARY AND EXTRAORDINARY PURPOSES AND (EXCEPT FOR THE
MONEY MARKET FUND) IN ORDER TO TAKE ADVANTAGE OF INVESTMENT OPPORTUNITIES, WHICH
MAY BE CONSIDERED SPECULATIVE DUE TO THE INCREASED COSTS AND EXPENSES INVOLVED.
The Prudential Institutional Fund is designed to meet the needs of
retirement program sponsors, program participants, individual retirement
accounts and certain institutional investors who seek the expertise, service,
and commitment to quality that organizations within The Prudential family of
investment service companies can provide. The Prudential affiliates provide
experienced investment management, investor services, recordkeeping, and
administrative services to The Prudential Institutional Fund.
----------
This Prospectus gives you information about The Prudential Institutional
Fund that you should be aware of before investing. Additional information about
The Prudential Institutional Fund has been filed with the Securities and
Exchange Commission in a Statement of Additional Information, dated February 1,
1996, which information is incorporated herein by reference and is available,
without charge, upon written request to The Prudential Institutional Fund, 21
Prudential Plaza, 751 Broad Street, Newark, New Jersey 07102-3777.
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
Introduction to the Funds ...................... 1
Expense Information ............................ 2
Financial Highlights ........................... 3
The Funds ...................................... 6
Risk Factors and Investment Practices and
Policies of the Fund .......................... 9
Management of the Company ...................... 10
Investors Guide to Services .................... 12
Other Considerations ........................... 13
Performance and Yield Information .............. 15
Other Investment Practices, Risk Conditions,
and Policies of the Funds ..................... 15
More Facts About the Company ................... 22
<PAGE>
INTRODUCTION TO THE FUNDS
The Company. The Prudential Institutional Fund (the "Company") is a no-load,
open-end diversified management investment company, commonly known as a mutual
fund. The Company is organized as a Delaware business trust.
The Funds. The Company is comprised of seven investment portfolios (the
"Funds"), each of which is diversified. Each Fund has its own investment
objectives and policies, which are summarized below and described in detail
beginning on page 6.
The Advisers. Each Fund is managed by a registered investment adviser
("Adviser") that is a direct or indirect subsidiary of, or is otherwise
affiliated with, The Prudential Insurance Company of America ("The Prudential").
The Advisers operate under the supervision of Prudential Institutional Fund
Management, Inc., the Company's investment manager ("Manager").
Opening an Account. The Administrator of your retirement plan or your employee
benefits office can provide you with detailed information on how to participate
in your plan and how to select a Fund as an investment option.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name of Fund Investment Objective Invests Primarily in Investment Adviser
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Stock Fund Seeks to achieve long-term A diversified portfolio of equity Jennison Associates Capital
growth of capital securities of established companies Corp. ("Jennison")
with above average growth prospects
- ------------------------------------------------------------------------------------------------------------------------------------
Stock Index Fund Seeks to provide investment A diversified portfolio of equity The Prudential
results that correspond to the securities, which as a group is Investment Corporation
price and yield performance of designed to approximate the price ( "PIC ")
Standard & Poor's 500 Composite and yield performance of the S&P 500
Stock Price Index Index
("S&P 500 Index")
- ------------------------------------------------------------------------------------------------------------------------------------
International Stock Fund Seeks to achieve long-term A diversified portfolio of equity Mercator Asset
growth of capital; income is a securities of foreign issuers Management, L.P.
secondary objective ("Mercator")
- ------------------------------------------------------------------------------------------------------------------------------------
Active Balanced Fund Seeks to achieve total returns An actively-managed portfolio of Jennison
approaching equity returns, equity securities, fixed income
while accepting less risk than securities and money market
an all-equity portfolio instruments
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced Fund Seeks to achieve long-term A diversified portfolio that PIC
total return consistent with allocates its assets among equity
moderate portfolio risk securities, fixed income securities
and money market instruments
- ------------------------------------------------------------------------------------------------------------------------------------
Income Fund Seeks to achieve a high level Debt securities, including corporate PIC
of income over the longer term debt obligations, mortgage-backed
while providing reasonable and asset-backed securities, U.S.
safety of capital Government obligations, and U.S.
dollar-denominated debt securities
of foreign issuers
- ------------------------------------------------------------------------------------------------------------------------------------
Money Market Fund Seeks to achieve high current A diversified portfolio of PIC
income, preservation of high-quality domestic and U.S.
principal and maintenance of dollar-denominated foreign money
liquidity, while striving to market instruments that present
maintain a $1.00 net asset minimal credit risks
value per share
</TABLE>
Each Fund may be expected to have different investment results and different
market and financial risks, which are described in detail beginning on page 5.
Since shares of a Fund represent an interest in an investment in securities with
fluctuating market prices, the net asset value per share of each Fund, other
than the Money Market Fund, and the value of a shareholder's holdings will vary
as the aggregate value of a Fund's portfolio securities increases or decreases.
It is anticipated that shares of the Money Market Fund will be purchased,
redeemed or exchanged at a net asset value of $1.00 per share, although there
can be no assurance that the Fund will be able to maintain a constant net asset
value per share. For information on how to purchase and redeem shares, or to
exchange the shares of one Fund for shares of another Fund, please refer to
pages 11-12.
The dividends paid by each Fund will vary proportionally to the income
received from its investments and the expenses incurred by the Fund. Dividends
and other distributions of each Fund are declared in cash and automatically
reinvested in additional shares of the Fund. While shareholders may not elect to
receive dividends and other distributions in cash, the same effect may be
achieved at any time by redeeming shares of the Fund.
The investment objectives of each Fund set forth above are fundamental and
may not be changed without a vote of the shareholders of that Fund. However, the
investment policies and practices of each Fund, unless otherwise specifically
stated, are not fundamental. There can be no assurance that a Fund will achieve
its investment objective.
The Prudential Institutional Fund Prospectus 1
<PAGE>
EXPENSE INFORMATION
The following table, including the examples below, is included to assist your
understanding of the various costs and expenses that an investor will incur
directly and indirectly as a shareholder in each of the Funds based upon each
Fund's annual operating expenses. The fees and expenses set forth below for the
Funds are based on data for the Fund's fiscal year ended September 30, 1995. The
example should not be considered a representation of past or future performance.
Actual fees and expenses for each of the Funds for the current year may be
greater or less than those stated below.
<TABLE>
<CAPTION>
Shareholder Growth Stock International Active Money
Transaction Stock Index Stock Balanced Balanced Income Market
Expenses Fund Fund Fund Fund Fund Fund Fund
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales Load Imposed on Purchase None None None None None None None
Sales Load Imposed on Reinvested Dividends None None None None None None None
Deferred Sales Load Imposed on Redemptions None None None None None None None
Redemption Fee None None None None None None None
Exchange Fee None None None None None None None
Annual Operating Expenses (as a percentage of average daily net assets)
- --------------------------------------------------------------------------------------------------------------------------
Management Fees (Before Reduction) .70% .40% 1.15% .70% .70% .50% .45%
Distribution Expenses None None None None None None None
Other Expenses (Before Reduction) .31% .48% .49% .35% .40% .48% .47%
Total Operating Expenses (Before Reduction) 1.01% .88% 1.64% 1.05% 1.10% .98% .92%
Total Operating Expenses (After Reduction)<F1> 1.00% .60% 1.60% 1.00% 1.00% .70% .60%
- ----------
<FN>
<F1> In the interest of limiting the expenses of the Funds, the Manager has
agreed, until September 30, 1996, to bear any expenses that would cause the
ratio of expenses payable by each Fund to average daily net assets ("Fund
Operating Expenses") to exceed the Fund's Total Operating Expenses (After
Reduction) as specified above. Expenses paid or assumed under this
agreement are subject to recoupment by the Manager from the relevant Fund
in later years, provided that (a) no recoupment will be made, in any year,
if it would result in the Fund's expense ratio for a year exceeding the
estimated Total Operating Expenses (After Reduction) and (b) no recoupment
will be made after December 31, 1996. Each Fund's organizational expenses
will be charged to that Fund over a period not to exceed 60 months.
</FN>
</TABLE>
Examples: An investor in each Fund would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2) redemption at the end of each
future time period*:
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Growth Stock Fund $10 $32 $55 $122
- --------------------------------------------------------------------------------
Stock Index Fund $ 6 $19 $33 $ 75
- --------------------------------------------------------------------------------
International Stock Fund $16 $50 $87 $190
- --------------------------------------------------------------------------------
Active Balanced Fund $10 $32 $55 $122
- --------------------------------------------------------------------------------
Balanced Fund $10 $32 $55 $122
- --------------------------------------------------------------------------------
Income Fund $ 7 $22 $39 $ 87
- --------------------------------------------------------------------------------
Money Market Fund $ 6 $19 $33 $ 75
- ----------
* There are no charges imposed upon redemption.
The above examples should not be considered to be a representation of past or
future expenses for each Fund. Actual expenses may be greater or less than those
shown above. Similarly, the annual rate of return assumed in the above examples
is not an estimate or guarantee of future investment performance, but is
included for illustrative purposes only.
2 The Prudential Institutional Fund Prospectus
<PAGE>
FINANCIAL HIGHLIGHTS (for a share outstanding throughout the indicated period)
The following financial highlights have been audited by Deloitte & Touche LLP,
independent accountants, whose report thereon was unqualified. This information
is derived from and should be read in conjunction with the financial statements
and notes thereto, which appear in the Statement of Additional Information. The
following financial highlights contain selected data for a share of beneficial
interest outstanding, total return, ratios to average net assets and other
supplemental data for the periods indicated.
<TABLE>
<CAPTION>
Growth Stock Fund Stock Index Fund
---------------------------------------- --------------------------------
November 5, November 5,
Year Ended 1992(a) Year Ended 1992(a)
September 30, Through September 30, Through
------------------ September ----------------- September
1995 1994 30, 1993 1995 1994 30, 1993
-------- -------- ------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period ........... $ 12.00 $ 12.10 $ 10.00 $ 11.27 $ 11.12 $10.00
-------- -------- ------- -------- ------- ------
Income from investment
operations:
Net investment income(b) ....................... -- -- .04 .23 .26 .23
Net realized and unrealized gain
(loss) on investment and foreign
currency transactions ......................... 4.22 (.06) 2.08 2.97 .11 .94
-------- -------- ------- -------- ------- ------
Total from investment
operations .................................. 4.22 (.06) 2.12 3.20 .37 1.17
-------- -------- ------- -------- ------- ------
Less distributions:
Dividends from net investment income ........... (.01) (.01) (.02) (.22) (.18) (.05)
Distributions from net realized gains .......... -- (.03) -- (.03) (.04) --
-------- -------- ------- -------- ------- ------
Total distributions ............................ (.01) (.04) (.02) (.25) (.22) (.05)
-------- -------- ------- -------- ------- ------
Net asset value, end of period ................. $ 16.21 $ 12.00 $ 12.10 $ 14.22 $ 11.27 $11.12
======== ======== ======= ======== ======= ======
TOTAL RETURN(d): ............................... 35.14% (0.50)% 21.22% 29.02% 3.33% 11.73%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ................ $220,505 $106,956 $47,998 $101,945 $50,119 $27,142
Average net assets (000) ....................... $149,985 $ 71,449 $17,592 $ 71,711 $38,098 $18,807
Ratios to average net assets(b):
Expenses ...................................... 1.00% 1.00% 1.00%(c) .60% .60 .60%(c)
Net investment income (loss) .................. (.07)% .04% .31%(c) 2.55% 2.34% 2.41%(c)
Portfolio turnover rate ........................ 64% 65% 84% 11% 2% 1%
</TABLE>
- ----------
(a) Commencement of investment operations.
(b) Net of expense subsidy.
(c) Annualized.
(d) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes
reinvestment of dividends and other distributions. Total return for periods
of less than a full year are not annualized. Total return includes the
effect of expense subsidies.
3 The Prudential Institutional Fund Prospectus
<PAGE>
FINANCIAL HIGHLIGHTS (for a share outstanding throughout the indicated period)
The following financial highlights have been audited by Deloitte & Touche LLP,
independent accountants, whose report thereon was unqualified. This information
is derived from and should be read in conjunction with the financial statements
and notes thereto, which appear in the Statement of Additional Information. The
following financial highlights contain selected data for a share of beneficial
interest outstanding, total return, ratios to average net assets and other
supplemental data for the periods indicated.
<TABLE>
<CAPTION>
International Stock Fund Active Balanced Fund
---------------------------------------- --------------------------------
November 5, January 4,
Year Ended 1992(a) Year Ended 1993(a)
September 30, Through September 30, Through
------------------ September --------------------- September
1995 1994 30, 1993 1995 1994 30, 1993
-------- -------- ------ -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period ........ $ 14.84 $ 12.35 $ 10.00 $ 10.92 $ 11.05 $ 10.00
-------- -------- ------- -------- ------- -------
Income from investment
operations:
Net investment income(b) .................... .18 .13 .16 .33 .24 .21
Net realized and unrealized gain
(loss) on investment and foreign
currency transactions ...................... .66 2.54 2.21 1.54 (.12) .84
-------- -------- ------- -------- ------- -------
Total from investment
operations ............................... .84 2.67 2.37 1.87 .12 1.05
-------- -------- ------- -------- ------- -------
Less distributions:
Dividends from net investment income ........ (.10) (.03) (.02) (.29) (.14) --
Distributions from net realized gains ....... (.33) (.15) -- (.04) (.11) --
-------- -------- ------- -------- ------- -------
Total distributions ......................... (.43) (.18) (.02) (.33) (.25) --
-------- -------- ------- -------- ------- -------
Net asset value, end of period .............. $ 15.25 $ 14.84 $ 12.35 $ 12.46 $ 10.92 $ 11.05
======== ======== ======= ======== ======= =======
TOTAL RETURN(d) ............................. 5.95% 21.71% 23.74% 17.66% 1.07% 10.50%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ............. $136,685 $102,824 $31,708 $133,352 $81,176 $38,786
Average net assets (000) .................... $118,927 $ 68,476 $14,491 $104,821 $58,992 $12,815
Ratios to average net assets:(b) ............
Expenses ................................... 1.60% 1.60% 1.60%(c) 1.00% 1.00% 1.00%(c)
Net investment income ...................... 1.58% 1.08% 1.44%(c) 3.53% 3.06% 2.68%(c)
Portfolio turnover rate ..................... 20% 21% 15% 30% 40% 47%
</TABLE>
- ----------
(a) Commencement of investment operations.
(b) Net of expense subsidy.
(c) Annualized.
(d) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes
reinvestment of dividends and other distributions. Total return for periods
of less than a full year are not annualized. Total return includes the
effect of expense subsidies.
The Prudential Institutional Fund Prospectus 4
<PAGE>
FINANCIAL HIGHLIGHTS (for a share outstanding throughout the indicated period)
The following financial highlights have been audited by Deloitte & Touche LLP,
independent accountants, whose report thereon was unqualified. This information
is derived from and should be read in conjunction with the financial statements
and notes thereto, which appear in the Statement of Additional Information. The
following financial highlights contain selected data for a share of beneficial
interest outstanding, total return, ratios to average net assets and other
supplemental data for the periods indicated.
<TABLE>
<CAPTION>
Balanced Fund Income Fund Money Market Fund
----------------------------- --------------------------- ----------------------------
November 5, March 1, January 4,
Year Ended 1992(a) Year Ended 1993(a) Year Ended 1993(a)
September 30, Through September 30, Through Sepember 30, Through
---------------- September --------------- September --------------- September
1995 1994 30, 1993 1995 1994 30, 1993 1995 1994 30, 1993
------- ------- --------- ------- ------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period ........ $ 11.08 $ 11.80 $ 10.00 $ 9.38 $ 10.33 $ 10.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- ------- ------- -------
Income from investment
operations:
Net investment income(b) .... .18 .31 .31 .59 .52 .27 .05 .03 .02
Net realized and unrealized
gain (loss) on investment
and foreign currency
transactions ............... 1.53 (.52) 1.54 .60 (.91) .33 -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations ............... 1.71 (.21) 1.85 1.19 (.39) .60 .05 .03 .02
------- ------- ------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment income .......... (.25) (.23) (.05) (.59) (.52) (.27) (.05) (.03) (.02)
Distributions from net
realized gains ............. (.05) (.28) -- -- (.04) -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions ......... (.30) (.51) (.05) (.59) (.56) (.27) (.05) (.03) (.02)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value,
end of period .............. $ 12.49 $ 11.08 $ 11.80 $ 9.98 $ 9.38 $ 10.33 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN(d) ............. 15.90% (1.88)% 18.58% 13.11% (3.91)% 6.11% 5.47% 3.32% 2.08%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000) ............... $82,110 $64,313 $27,663 $52,297 $41,401 $35,015 $58,054 $46,331 $30,235
Average net assets (000) .... $70,914 $44,048 $17,401 $46,386 $37,802 $25,626 $52,446 $38,170 $25,296
Ratios to average
net assets:(b)
Expenses .................. 1.00% 1.00% 1.00%(c) .70% .70% .70%(c) .60% .60% .60%(c)
Net investment income ..... 3.19% 2.86% 3.16%(c) 6.17% 5.24% 4.62%(c) 5.37% 3.34% 2.73%(c)
Portfolio turnover rate ..... 65% 52% 74% 145% 83% 93% -- -- --
</TABLE>
- ----------
(a) Commencement of investment operations.
(b) Net of expense subsidy.
(c) Annualized.
(d) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes
reinvestment of dividends and other distributions. Total return for periods
of less than a full year are not annualized. Total return includes the
effect of expense subsidies.
5 The Prudential Institutional Fund Prospectus
<PAGE>
================================================================================
THE FUNDS
Growth Stock Fund. The objective of the Growth Stock Fund is to achieve
long-term growth of capital through investment primarily in equity securities of
established companies with above-average growth prospects. Current income, if
any, is incidental to this objective.
Under normal market conditions, at least 65% of the value of the total assets of
the Fund will be invested in common stocks and preferred stocks of companies
that exceed $1 billion in market capitalization. Stocks will be selected on a
company-by-company basis primarily through use of fundamental analysis.
Jennison, the Adviser for the Fund, looks for companies that have demonstrated
growth in earnings and sales, high returns on equity and assets, or other strong
financial characteristics, and, in the judgment of Jennison, are attractively
valued. These companies tend to have a unique market niche, a strong new product
profile or superior management.
The Fund also may invest up to 35% of its total assets in: (i) common stocks,
preferred stocks and other equity-related securities of companies that are
undergoing changes in management or product and marketing dynamics that have not
yet been reflected in reported earnings but that are expected to impact earnings
in the intermediate term--these securities often lack investor recognition and
are often favorably valued, (ii) other equity-related securities; (iii) with
respect to a maximum of 20% of its total assets, common stocks, preferred stocks
and other equity-related securities of foreign issuers; (iv) fixed income
securities and mortgage-backed securities rated Baa or higher by Moody's
Investor Services ("Moody's") or BBB or higher by Standard & Poor's Ratings
Services or another nationally rated statistical rating organization ("NRSRO")
or, if not rated, determined by the adviser to be of comparable quality to
securities so rated ("investment grade"); and (v) obligations issued or
guaranteed by the U.S. Government, its agencies and instrumentalities.
The effort to achieve superior investment return necessarily involves a risk of
exposure to declining values. Securities in which the Fund primarily may invest
have historically been more volatile than the S&P 500 Index. Accordingly, during
periods when stock prices decline generally, it can be expected that the value
of the Fund may decline more than the market indices. However, on a long-term
basis, Jennison anticipates that the investment return of the Fund should exceed
that of the market indices.
In order to invest uncommitted cash balances, maintain liquidity to meet
redemptions, or for hedging or incidental income purposes, the Fund may: (i)
enter into repurchase agreements, when-issued, delayed-delivery and forward
commitment transactions; (ii) lend its portfolio securities; (iii) purchase and
sell put and call options on securities and stock indices; and (iv) purchase and
sell futures contracts on stock indices and options thereon.
Stock Index Fund. The Stock Index Fund seeks to provide investment results that
correspond to the price and yield performance of the S&P 500 Index. The S&P 500
Index is an unmanaged, market-weighted index of 500 stocks selected by Standard
& Poor's Corporation ("S&P") on the basis of their market size, liquidity and
industry group representation. Inclusion in the S&P 500 Index in no way implies
an opinion by S&P as to a stock's attractiveness as an investment. The S&P 500
Index, composed of stocks representing more than 70% of the total market value
of all publicly traded U.S. common stocks, is widely regarded as representative
of the performance of the U.S. stock market as a whole. "Standard & Poor's(R)",
"S&P(R)", "S&P 500(R)", "Standard & Poor's 500", and "500" are trademarks of
McGraw-Hill, Inc. and have been licensed for use by The Prudential Insurance
Company of America and its affiliates and subsidiaries. The Fund is not
sponsored, endorsed, sold or promoted by S&P and S&P makes no representation
regarding the advisability of investing in the Fund. See "The Funds--Stock Index
Fund" in the Statement of Additional Information regarding certain additional
disclaimers and limitations of liability on behalf of S&P.
Traditional methods of security analysis will not be used in connection with the
management of this Fund by PIC, the Adviser for the Fund, in making investment
decisions. Instead, PIC will use a passive, indexing approach. To achieve its
investment objective, the Fund will purchase equity securities that as a group
reflect the price and yield performance of the S&P 500 Index. The Fund intends
to purchase all 500 stocks included in the S&P 500 Index in approximately the
same proportions as they are represented in the S&P 500 Index. In addition, from
time to time adjustments may be made in the Fund's holdings due to changes in
the composition of the S&P 500 Index or due to receipt of distributions of
securities of companies spun off from S&P 500 companies. The Fund will not adopt
a temporary defensive investment posture in times of generally declining market
conditions, and investors in the Fund, therefore, will bear the risk of such
market conditions.
PIC believes that this investment approach will provide an effective method of
tracking the performance of the S&P 500 Index. Nevertheless, PIC does not expect
that the Fund's performance will precisely correspond to the performance of the
S&P 500 Index. The Fund will attempt to achieve a correlation between its
performance and that of the S&P 500 Index of at least 0.95, without taking into
account expenses. A correlation of 1.00 would indicate perfect correlation,
which would be achieved when the Fund's net asset value, including the value of
its dividends and capital gains distributions, increases or decreases in exact
proportion to changes in the S&P 500 Index. PIC will, of course, attempt to
minimize any tracking differential (i.e., the statistical measure of the
difference between the investment results of the Fund and those of the S&P 500
Index). Tracking will be monitored at least on a monthly basis. All tracking
maintenance activities will be reviewed regularly to determine whether any
changes in policies or techniques are necessary. However, in addition to
potential tracking differences, brokerage and other transaction costs, as well
as other Fund expenses, may cause the Fund's return to be lower than the return
of the S&P 500 Index. Consequently, there can be no assurance as to how closely
the Fund's performance will correspond to the performance of the S&P 500 Index.
The Fund intends that at least 80% of the value of its total assets will be
invested in securities included in the S&P 500 Index. The Fund may invest the
balance of its assets in: (i) other equity-related securities; (ii) obligations
issued or guaranteed by the U.S. Government, its agencies and instrumentalities;
(iii) put and call options on securities and stock indices; and (iv) futures
contracts on stock indices and options thereon.
6 The Prudential Institutional Fund Prospectus
<PAGE>
Options, futures contracts, and options on futures contracts are used, if at
all, primarily to invest uncommitted cash balances, to maintain liquidity to
meet redemptions, to facilitate tracking, to reduce transaction costs or to
hedge the Fund's portfolio.
In order to invest uncommitted cash balances, maintain liquidity to meet
redemptions, or for incidental return enhancement purposes, the Fund may also:
(i)enter into repurchase agreements, when-issued, delayed-delivery and forward
commitment transactions; and (ii) lend its portfolio securities.
International Stock Fund. The International Stock Fund seeks to achieve
long-term growth of capital through investment in equity securities of foreign
companies. Income is a secondary objective. The Fund will, under normal
circumstances, invest at least 65% of the value of its total assets in common
stocks and preferred stocks of issuers located in at least three foreign
countries. The Fund will invest primarily in seasoned companies (i.e., companies
with an established operating record of 3 years or greater) that are
incorporated, organized, or that do business primarily outside the United
States. The Fund will invest in securities of such foreign issuers through
direct market purchases on foreign stock exchanges and established
over-the-counter markets as well as through the purchase of American Depository
Receipts ("ADRs"), European Depository Receipts ("EDRs") or other similar
securities.
The Fund intends to broadly diversify its holdings among issuers located in
developed and developing countries having national financial markets. Mercator,
the Adviser for the Fund, believes that broad diversification provides a prudent
means of reducing volatility while permitting the Fund to take advantage of the
potentially different movements of major equity markets. While the Fund may
invest anywhere outside the United States, it expects that most of its
investments will be made in securities of issuers located in developed countries
in North America, Western Europe, and the Pacific Basin. In allocating the
Fund's investments among different countries and geographic regions, Mercator
will consider such factors as relative economic growth, expected levels of
inflation, government policies affecting business conditions, and market trends
throughout the world. In selecting companies within those countries and
geographic regions, Mercator seeks to identify those companies that are best
positioned and managed to benefit from the factors listed above.
Investing in securities of foreign issuers generally involves greater risks than
investing in the securities of domestic companies. These risks are often
heightened for investments in emerging or developing countries. The Fund does
not currently expect to invest 25% or more of its net assets in any one country.
For temporary defensive purposes, the Fund may invest up to 100% of its assets
in common stocks, preferred stocks and other equity-related securities of U.S.
issuers.
The Fund may invest up to 35% of the value of its total assets in: (i) other
equity-related securities of foreign issuers; (ii) common stocks, preferred
stocks and other equity-related securities of U.S. issuers; (iii) investment
grade debt securities of domestic and foreign corporations, governments,
governmental entities, and supranational entities (such as the Asian Development
Bank, the European Coal and Steel Community, the European Economic Community,
and the International Bank for Reconstruction and Development (the "World
Bank")); and (iv) invest in high-quality domestic money market instruments and
short-term fixed income securities. The Fund's use of money market instruments
and short-term debt securities generally will reflect Mercator's overall measure
of optimism relating to the global equity markets, and the Fund will use such
securities to reduce downside volatility during uncertain or declining market
conditions.
In order to invest uncommitted cash balances, maintain liquidity to meet
redemptions, or for hedging or incidental return enhancement purposes, the Fund
may: (i) enter into repurchase agreements, when-issued, delayed-delivery and
forward commitment transactions; (ii) lend its portfolio securities; and (iii)
purchase and sell put and call options on any securities in which it may invest
and options on any securities index based on securities in which the Fund may
invest. In order to attempt to reduce risks associated with currency
fluctuations, the Fund may (i) purchase and sell currency spot contracts; (ii)
purchase and sell currency futures contracts and currency forward contracts; and
(iii) purchase and sell put and call options on currencies and on foreign
currency futures contracts.
Active Balanced Fund. The objective of this Fund is to seek to achieve total
returns approaching equity returns, while accepting less risk than an all-equity
portfolio, through an actively-managed portfolio of equity securities, fixed
income securities, and money market instruments.
Jennison, the Adviser to the Fund, uses the following ranges as the normal
operating parameters for the securities to be purchased by the Fund: (i) 40-75%
of the total assets of the Fund will be invested in common stocks, preferred
stocks and other equity-related securities; (ii) 25-60% of the total assets of
the Fund will be invested in investment grade fixed income securities; and (iii)
0-35% of the total assets of the Fund will be invested in money market
instruments. Within these parameters, at least 25% of the Fund's total assets
will be invested in fixed income senior securities.
Unlike the Balanced Fund discussed below, the Active Balanced Fund's investments
will actively be shifted among these asset classes in order to capitalize on
intermediate term (i.e., 12 to 18 months) valuation opportunities and to
maximize the Fund's total investment return. The equity component of this Fund
will be invested in the common stocks, preferred stocks and other equity-related
securities of companies that are expected to generate superior earnings growth
or are attractively valued. The fixed income component of this Fund will be
invested primarily in fixed income securities rated "A" or better by Moody's or
S&P or, if not rated, determined by Jennison to be of comparable quality to
securities so rated. However, the Fund also may invest up to 20% of the fixed
income portion of its portfolio in securities rated Baa/BBB (or the equivalent
rating of another NRSRO) or, if not rated, determined by Jennison to be of
comparable quality to securities so rated. The weighted average maturity of the
fixed income component of the Fund will normally be between 5 and 25 years.
Under normal market conditions at least 65% of the value of the Fund's total
assets will be invested according to the above allocations. Within these
allocations, the Fund's assets may be invested as follows: (i) up to 15% of the
Fund's total assets, in common stocks, preferred stocks and other equity-related
securities of foreign issuers; (ii) up to 20% of the Fund's total assets, in
investment grade fixed income securities of foreign issuers; (iii) in
mort-
The Prudential Institutional Fund Prospectus 7
<PAGE>
gage-backed securities; (iv) in custodial receipts and asset-backed securities;
and (v) in obligations issued or guaranteed by the U.S. Government, its agencies
and instrumentalities.
In order to invest uncommitted cash balances, to maintain liquidity to meet
redemptions, or for hedging or incidental return enhancement, the Fund may: (i)
enter into repurchase agreements, when-issued, delayed-delivery and forward
commitment transactions; (ii) lend its portfolio securities; (iii) purchase and
sell put and call options on securities, stock indices and interest rate
indices; (iv) purchase and sell futures contracts on stock indices and interest
rate indices and options thereon and (v) purchase and sell futures contracts on
securities.
The Fund also may: (i) purchase and sell currency spot contracts; (ii) purchase
and sell currency futures contracts and currency forward contracts; and (iii)
purchase and sell put and call options on currencies and on foreign currency
futures contracts in each case to attempt to reduce risks associated with
currency fluctuations.
Balanced Fund. The Balanced Fund seeks to realize long-term total return
consistent with moderate portfolio risk. To achieve its objective, the Balanced
Fund will allocate at least 65% of its total assets among (i) common stocks,
preferred stocks and other equity-related securities (including ADRs); (ii)
investment grade fixed income securities with a weighted average maturity of 10
years or less, and (iii) high-quality money market instruments and other
short-term investment grade debt securities.
PIC will adjust the mix of investments among these three asset categories to
capitalize on perceived variations in the potential for return resulting from
the interaction of changing economic and financial market conditions, taking
into consideration the risks associated with each type of security. PIC uses the
following ranges as the normal operating parameters for each type of security to
be purchased for the Fund: (i) 25-50% of the Fund's total assets will be
invested in common stocks, preferred stocks and other equity-related securities
(including ADRs); (ii) 30-60% of the Fund's total assets will be invested in
investment grade fixed income securities with a weighted average maturity of 10
years or less; and (iii) 0-45% of the Fund's total assets will be invested in
money market instruments. Within these parameters, at least 25% of the Fund's
total assets will be invested in fixed income senior securities. The equity
portion of the Fund will be invested using an approach that combines a value
orientation to stock valuations with an in-depth analysis of individual
companies. Stock prices will be evaluated relative to a company's profitability,
estimated earnings growth, quality of management and other factors such as
underlying asset value and the presence of problems that are believed to be
temporary. While the majority of the Fund's holdings are expected to be in
larger, well-established companies, the Fund also may invest in the equity
securities of smaller companies. Adjustments to the investment mix of the
Balanced Fund normally will be made in a gradual manner over a period of time,
depending on market and economic conditions.
The Fund also may invest up to 35% of the value of its total assets in:
(i) common stocks, preferred stocks and other equity-related securities of
foreign issuers not traded in the U.S. or denominated in U.S. dollars;
(ii) investment grade fixed income securities of foreign issuers;
(iii) mortgage-backed securities; (iv) custodial receipts and asset-backed
securities; and (v) obligations issued or guaranteed by the U.S. Government, its
agencies and instrumentalities.
In order to invest uncommitted cash balances, to maintain liquidity to meet
redemptions, or for hedging or incidental return enhancement purposes, the Fund
may: (i) purchase and sell put and call options on securities, stock indices and
interest rate indices; (ii) purchase and sell futures contracts on securities,
stock indices and interest rate indices, and (iii) enter into interest rate swap
transactions.
In order to invest uncommitted cash balances, maintain liquidity to meet
redemptions, or for incidental return enhancement, the Fund may also: (i) enter
into repurchase agreements, when-issued, delayed-delivery and forward commitment
transactions; and (ii) lend its portfolio securities. With respect to the equity
component of the Fund's total assets, the Fund also may: (i) purchase and sell
currency spot contracts; (ii) purchase and sell currency futures contracts and
currency forward contracts; and (iii) purchase and sell put and call options on
currencies and on foreign currency futures contracts in each case to attempt to
reduce risks associated with currency fluctuations.
Income Fund. The Income Fund seeks a high level of income over the longer term
while providing reasonable safety of capital by investing in securities with a
low level of default risk, with the effect of seeking preservation of capital.
To achieve its objective, the Fund will invest, under normal circumstances, at
least 65% of the value of its total assets in fixed income securities. Such
securities include: (i) corporate debt obligations; (ii) mortgage-backed
securities; (iii) custodial receipts and asset-backed securities; (iv) U.S.
Government obligations (such as U.S. Treasury bills, notes and bonds), and
securities issued by its agencies or its instrumentalities; and (v) U.S.
dollar-denominated investment grade fixed income securities of foreign issuers.
The Fund will invest primarily in fixed income securities rated "A" or better by
Moody's or S&P (or the equivalent rating of another NRSRO) or, if not rated,
determined by PIC to be of comparable quality to securities so rated. However,
the Fund may also invest up to 20% of its portfolio in securities rated Baa/BBB
or above (or the equivalent rating of another NRSRO) or, if not rated,
determined by PIC to be of comparable quality to securities so rated.
The Fund has no maturity restrictions. However, PIC anticipates that the
securities in which the Fund will invest will primarily be intermediate to
long-term debt securities having an average maturity of between 5 and 20 years.
Movements in interest rates typically have a greater effect on the price of
longer-term bonds than shorter-term bonds. Normally, the value of the Fund's
investments will vary inversely with changes in interest rates. As interest
rates rise, the value of the Fund's investments will tend to decline and, as
interest rates fall, the value of the Fund's investments will tend to increase.
8 The Prudential Institutional Fund Prospectus
<PAGE>
In order to invest uncommitted cash balances, to maintain liquidity to meet
redemptions, or for hedging or incidental yield enhancement purposes, the Fund
may also: (i) purchase and sell put and call options on securities and interest
rate indices; (ii) purchase and sell futures contracts on securities, securities
indices and interest rate indices; and (iii) enter into interest rate swap
transactions, caps, collars and floors. To facilitate the Fund's investment
program, the Fund may also purchase and sell non-U.S. dollar denominated
investment grade fixed income securities of foreign issuers.
In order to invest uncommitted cash balances, maintain liquidity to meet
redemptions, or for additional income, the Fund may also: (i) enter into
repurchase agreements, when-issued, delayed-delivery and forward commitment
transactions; and (ii) lend its portfolio securities.
Money Market Fund. The Money Market Fund seeks to achieve high current income,
preservation of principal, and maintenance of liquidity. To achieve its
objectives, the Fund will invest in a diversified portfolio of high-quality
domestic and U.S. dollar-denominated foreign money market instruments that
present minimal credit risks and which, at the time of acquisition, are eligible
securities. Eligible securities include securities or issuers of securities
rated in one of the two highest credit categories for short-term debt
obligations assigned by any two NRSROs, or by one NRSRO, if only one has rated
the money market securities ("Requisite NRSROs") or, if unrated, are of
comparable investment quality. The Money Market Fund will invest at least 95% of
its total assets in eligible securities that are rated within the highest rating
category for short-term debt obligations by the Requisite NRSROs or unrated
securities of comparable investment quality. The Fund may also invest up to 50%
of the value of its total assets in U.S. dollar-denominated short-term
securities of foreign issuers.
The eligible money market securities in which the Fund may invest include: (i)
short-term obligations of the U.S. Government, its agencies, and
instrumentalities; (ii) short-term obligations of banks and savings and loan
associations, including certificates of deposit, banker's acceptances, and time
deposits; (iii) short-term corporate obligations, including notes and bonds with
remaining maturities of 397 days or less; (iv) commercial paper (unsecured
promissory notes having maturities of 9 months or less) issued by corporations
and finance companies; (v) repurchase agreements; and (vi) U.S.
dollar-denominated obligations of foreign issuers. Certain of these money market
securities may have adjustable rates of interest with periodic demand features.
The Fund will invest in eligible money market securities maturing in 397 days or
less and will maintain a dollar-weighted average portfolio maturity of 90 days
or less. These practices are designed to minimize any price fluctuation in the
Fund's portfolio securities. The Fund seeks to maintain a constant net asset
value of $1.00 per share, although in certain circumstances this may not be
possible.
PIC will actively manage the Fund, adjusting the composition of investments and
the average maturity of the Fund's portfolio according to its outlook for
short-term interest rates. During periods of rising interest rates, a shorter
average maturity may be expected, while a longer maturity may be more
appropriate when interest rates are falling.
In order to invest uncommitted cash balances, maintain liquidity to meet
redemptions, or for additional income, the Fund may (i) enter into repurchase
agreements, when-issued, delayed-delivery and forward commitment transactions
and (ii) lend its portfolio securities.
Risk Factors and Investment Practices and Policies of the Funds. As discussed
above under the section entitled "The Funds", an investment in each Fund is
subject to certain risks as a result of the particular investment practices and
policies followed by the Fund. For a fuller description of the types of
securities in which each of the Funds may invest, the investment techniques each
Fund may employ and the risks associated with these investments and techniques,
see the section entitled "Other Investment Practices, Risk Conditions and
Policies of the Funds" below and "Other Investment Practices, Risk Conditions
and Policies of the Funds" in the Statement of Additional Information.
The Prudential Institutional Fund Prospectus 9
<PAGE>
================================================================================
MANAGEMENT OF THE COMPANY
The Manager. Prudential Institutional Fund Management, Inc. (the "Manager") 30
Scranton Office Park, Moosic, Pennsylvania, 18507-1789 is the Manager of the
Company. The Manager is an indirect wholly-owned subsidiary of The Prudential,
one of the largest diversified insurance and financial services institutions in
the world. The Manager was incorporated on May 6, 1992 under the laws of the
Commonwealth of Pennsylvania. See "The Manager and Advisers" in the Statement of
Additional Information.
Subject to the supervision and direction of the Company's Trustees (the
"Trustees"), the Manager provides a continuous investment program for the
Company, monitors each Adviser's investment performance, and evaluates and
recommends whether each Adviser's contract should be renewed, modified, or
terminated. The Manager also supervises all matters relating to the Company's
operations and business affairs and may provide certain of the special
processing services described below.
Each Fund pays the Manager a fee for its services provided to the Fund that is
computed daily and paid monthly. For the year ended September 30, 1995, the
Manager was paid a management fee at the annual rate specified below, expressed
as a percentage of the Fund's average daily net assets:
Management Fee
Fund (Before Reduction)
- -----------------------------------------------------------
Growth Stock Fund .70%
- -----------------------------------------------------------
Stock Index Fund .40%
- -----------------------------------------------------------
International Stock Fund 1.15%*
- -----------------------------------------------------------
Active Balanced Fund .70%
- -----------------------------------------------------------
Balanced Fund .70%
- -----------------------------------------------------------
Income Fund .50%
- -----------------------------------------------------------
Money Market Fund .45%
- -----------------------------------------------------------
- ----------
* The Management Fee paid by the International Stock Fund is higher than that
charged to most investment companies.
The Manager may hereafter agree, from time to time, to further waive or modify
any waiver of its management fee and subsidize certain operating expenses of a
Fund.
The Advisers. The Manager has entered into Sub-Advisory Agreements (the
"Advisory Agreements") with PIC, Jennison and Mercator under which each
furnishes investment advisory services in connection with the management of the
various Funds. The Manager (not the Funds) compensates each Adviser for its
services. Under the Advisory Agreements, each Adviser, subject to the
supervision of the Manager and the Trustees, is responsible for managing the
assets of the respective Funds in accordance with their investment objectives,
investment programs, and policies. Each Adviser determines what securities and
other instruments are purchased and sold for its respective Fund and is
responsible for obtaining and evaluating financial data relevant to each Fund.
The Prudential Investment Corporation, 751 Broad Street, Newark, New Jersey
07102, serves as Adviser to the Stock Index Fund, the Balanced Fund, the Income
Fund, and the Money Market Fund. PIC also invests available cash balances for
all of the Funds which it may do through a joint repurchase agreement account.
The Manager reimburses PIC for the reasonable costs and expenses it incurs in
providing services to the Funds.
Prudential Diversified Investment Strategies (PDI Strategies), a unit of PIC, is
responsible for the asset allocation and overall management of the Balanced Fund
and for the day-to-day management of the Stock Index Fund. PDI Strategies
employs a team approach to the management of the Balanced Fund and has managed
the portfolio of the Fund since its commencement. Roger E. Ford, a Managing
Director of PIC, has had responsibility for the day-to-day portfolio management
of the equity portion of the Balanced Fund portfolio since February, 1995. Mr.
Ford has been employed by PIC as a portfolio manager since 1972. Kay T. Willcox,
Managing Director and Senior Portfolio Manager of Prudential Global Advisors, a
unit of PIC, has had responsibility for the day-to-day portfolio management of
the bond portion of the Balanced Fund since February, 1995. Ms. Willcox has been
a portfolio manager at PIC since 1987.
Prudential Global Advisors is also responsible for the day-to-day management of
the Income Fund and Money Market Fund. With respect to the Income Fund, Ms.
Willcox is responsible for the day-to-day portfolio management and has managed
the Income Fund since November, 1993.
PIC, a wholly-owned subsidiary of The Prudential, is a registered investment
adviser and a New Jersey corporation. PIC serves as adviser to institutional
investors, including The Prudential, and various other mutual funds.
Jennison Associates Capital Corp., 466 Lexington Avenue, New York, New York
10017, serves as Adviser to the Growth Stock Fund and the Active Balanced Fund.
The Manager compensates Jennison for its services at the annual rate of 0.30 of
1% of the Fund's average daily net assets.
David Poiesz, a Director and Senior Vice President of Jennison, is responsible
for the day-to-day portfolio management of the Growth Stock Fund. Mr. Poiesz has
managed the portfolio of the Growth Stock Fund since its inception in November,
1992. Mr. Poiesz joined Jennison in 1983 and has been an equity portfolio
manager since 1991.
Bradley L. Goldberg, a Director and Executive Vice President of Jennison, is
responsible for the day-to-day portfolio management of the Active Balanced Fund.
Mr. Goldberg has managed the portfolio of the Active Balanced Fund since its
inception in January 1993 and has been employed as an equity manager with
Jennison since 1974.
Jennison, a wholly-owned subsidiary of The Prudential, is a registered
investment adviser and a New York corporation with $29 billion in assets under
management, as of December 31, 1995. Jennison serves as adviser to various
institutional investors and other mutual funds.
Mercator Asset Management, L.P., 2400 East Commercial Boulevard, Fort
Lauderdale, Florida 33308, serves as Adviser to the International Stock Fund.
The Manager compensates Mercator for its services at an annual rate of 0.75 of
1% of the Fund's average daily net assets up to $50 million, 0.60 of 1% of the
Fund's average daily net assets between $50 million and $300 million and 0.45 of
1% of average daily net assets in excess of $300 million.
Peter F. Spano is responsible for the day-to-day management of the portfolio of
the International Stock Fund. Mr. Spano has managed the portfolio of
10 The Prudential Institutional Fund Prospectus
<PAGE>
the International Stock Fund since its inception in November, 1992 and has been
employed as a portfolio manager with Mercator since its founding in 1984.
Mercator is a registered investment adviser and a Delaware limited partnership
with $1.8 billion in assets under management as of December 31, 1995. Mercator's
general partners are four Florida corporations: JZT Corp., KXB Corp., TXB Corp.,
and MXW Corp. Mercator's limited partner is The Prudential Asset Management
Company, Inc., a wholly-owned indirect subsidiary of The Prudential. John G.
Thompson, Peter F. Spano, Kenneth B. Brown, and Michael A. Williams are the sole
shareholders of JZT Corp., PXS Corp., KXB Corp. and MXW Corp., respectively. The
address of each of the general partners is 2400 East Commercial Blvd., Suite
810, Fort Lauderdale, Florida 33308. Mercator serves as adviser to various
institutional investors and mutual funds.
The Administrator, Transfer Agent and Dividend Disbursing Agent. The Company has
entered into an administration, transfer agency and service agreement (the
"Administration Agreement"), with Prudential Mutual Fund Management, Inc.
("PMF"), One Seaport Plaza, New York, New York, 10292, which provides that PMF,
a Delaware corporation and an indirect wholly-owned subsidiary of The
Prudential, furnishes to the Company such services as the Company may require in
connection with administration of the Company's business affairs. Under the
Administration Agreement, the Company pays PMF a monthly fee at an annual rate
of .17% of the average daily net assets of the Company up to $250 million and
.15% of the Company's average daily net assets in excess of $250 million. PMF
also provides the Company with transfer agent and dividend disbursing services
for no additional fee, through its wholly-owned subsidiary, Prudential Mutual
Fund Services, Inc. ("PMFS" or "Transfer Agent"), Raritan Plaza One, Edison, New
Jersey 08837. Its mailing address is P.O. Box 15005, New Brunswick, New Jersey
08906-5005. PMF reimburses PMFS for certain of the out-of-pocket expenses PMFS
incurs in providing these services and the Company reimburses PMF for those
out-of-pocket expenses.
The Distributor. Prudential Retirement Services, Inc. (the "Distributor"), 751
Broad Street, Newark, New Jersey 07102, an affiliate of the Manager and a
corporation organized under the laws of New Jersey, has entered into a
Distribution Agreement (the "Distribution Agreement") with the Company pursuant
to which it serves as the Distributor of the Company's shares. Potential
investors may be introduced to the Distributor, and persons who introduce
investors may be compensated by the Distributor for such introductions.
The Prudential Institutional Fund Prospectus 11
<PAGE>
================================================================================
INVESTORS GUIDE TO SERVICES
Investment in the Company and Special Processing. As an institutional fund,
shares are offered exclusively to retirement programs and arrangements
("Programs") through their plan sponsors, to Individual Retirement Accounts
("IRAs") and to certain institutional investors. Sponsors of a Program or their
agents are referred to as "Program Sponsor(s)" or "Program Administrator(s)" and
individual employees participating in a Program are referred to as
"Participant(s)," and individual investors who separate from a program are
referred to as "Continuing Participant(s)." Endowments, foundations, insurance
companies and other institutional investors are referred to as "Other
Institutional Investors". The term "shareholders" refers to each or all of these
categories as well as to IRAs, as appropriate.
Investments by Participants are made through their Program Sponsor's
recordkeeper, who is responsible for transmitting all orders for the purchase,
redemption or exchange of Company shares. The availability of each Fund and the
procedures for investing depend upon the provisions of the Program and whether
the Program Sponsor has contracted with the Company or the Transfer Agent for
special processing services, including subaccounting. Continuing Participants,
Other Institutional Investors and IRA investors must arrange for services
through Prudential Institutional Fund Management, Inc., the Manager, by
contacting them at 30 Scranton Office Park, Moosic, PA 18507-1789. The following
services are offered specifically to sponsors of qualified retirement programs.
Purchasing Shares. Shares of a Fund may be purchased through a Program Sponsor's
recordkeeper or directly from the Transfer Agent. The purchase price for shares
of a Fund will be the net asset value per share next determined following
acceptance of a purchase order by the Program Sponsor's recordkeeper or PMFS. In
order for a purchase order to be accepted, it must include the information
necessary to determine the proper share allocation for each Participant. In
addition, the Manager may determine, at its own discretion, to require the
Program Sponsor's recordkeeper to deliver to PMFS the funds for initial
investment prior to accepting any purchase order. Plans should determine, prior
to investing in the Funds, whether the Manager will require the delivery of
funds for the initial investment prior to accepting a purchase order. The
Company reserves the right to reject any purchase order (including an exchange
order) or to suspend or modify the continuous offering of its shares.
The Program Sponsor and its recordkeeper and PMFS are responsible for forwarding
payment promptly to the Company. Except where funds are received prior to the
opening of the account, the Company reserves the right to cancel any purchase
order for which payment has not been received by the fifth business day
following the investment. On behalf of the Company, the Manager, in its sole
discretion, may require assurances from the Program Sponsor and its recordkeeper
concerning timely payment of funds and payment of damages for failure to deliver
funds and purchase orders on a timely basis.
The Company also may determine to accept eligible securities as payment for a
Program's initial investment in a Fund. Eligible securities include any security
that a Fund has authority to purchase, consistent with its investment
restrictions and operating policies as set forth in this Prospectus and the
Statement of Additional Information, and that the Company otherwise agrees to
accept. Acceptance of such securities is at the absolute discretion of the
Company, and the Company may refuse to accept any securities at any time.
Eligible securities are valued using the same methods the Fund uses to value its
portfolio securities, except that applicable stock transfer taxes, if any, may
reduce the amount exchanged. The exchange of securities by the investor pursuant
to this offer will constitute a taxable transaction and may result in a gain or
a loss for federal income tax purposes.
Redemptions. Requests to redeem shares where the proceeds are not immediately
invested in shares of another Fund (see the section entitled "Exchange
Privilege" below) must be made in writing (or by such other means as agreed upon
in advance by the Program Sponsor's recordkeeper and the Program Administrator)
to the Program Sponsor's recordkeeper. Requests for the redemption of shares are
considered received when all required information and any necessary signatures
have been provided. The Company generally will redeem for cash all full and
fractional shares. The redemption price is the net asset value per share next
determined after receipt by the Company of proper notice of redemption. The
payment of redemption proceeds will be made by check (or at the discretion of
the Program Recordkeeper, by electronic credit to the Participant's account at a
financial institution). Unless extraordinary circumstances exist, the payment of
proceeds will be made within seven days of the receipt of the request for
redemption. The Company has reserved the right to redeem shares in excess of
$250,000 or 1% of the net asset value of each Fund during any 90-day period for
any one shareholder by "distribution in kind" of securities (instead of cash)
from such Funds. The Company does not intend to exercise this right except in
special circumstances when it determines that it is in the interest of the
Company and its shareholders. Redemption in kind is not as liquid as cash
redemption. If redemption is made in kind, shareholders receiving portfolio
instruments and selling them before their maturity could receive less than the
redemption value of their securities and the redeeming shareholder will incur
transaction costs from disposing of such securities. The right of redemption may
be suspended under unusual circumstances, as permitted by law. If shares to be
redeemed were purchased with clearing house funds, the Company reserves the
right to delay payment until it is reasonably sure the funds have been credited
to its account. If shares were purchased by personal, corporate, or U.S.
government check, proceeds may be delayed until the check has been honored, but
in no event more than 15 calendar days from the date of receipt of the check.
This procedure does not apply to shares purchased by wire payment. Prior to the
time the redemption is effective, dividends on such shares will accrue and be
payable, and you will be entitled to exercise all other rights of beneficial
ownership.
Exchange Privilege. Shares of each Fund may be exchanged for shares of any other
available Fund (depending upon the provisions of the Program) by written,
facsimile, telecopy, telephone or electronic exchange request through the
Program's recordkeeper at the net asset value next determined after receipt by
the Transfer Agent or the Program Sponsor's recordkeeper of an exchange request
in good order. Exchanges are
12 The Prudential Institutional Fund Prospectus
<PAGE>
currently permitted at no charge, subject to any minimum investment
requirements, or any general limitations of the Fund into which an exchange is
sought. Currently, there are no such requirements or limitations. The exchange
privilege may be modified or withdrawn by the Company upon 60 days' notice to
shareholders.
Signatures. When a Program provides that redemption may only be made by written
request, the signature on a written redemption request must be exactly as shown
on the enrollment form. In addition to a Program Participant's signature, a
written request must include all other signatures required by the Program and
federal law.
Telephone Requests. Certain Programs may allow participants to effect exchanges
and other Fund transactions by telephone and telecopy. If the Program offers
such telephone and telecopy privileges, each Program participant will
automatically receive such privileges unless he or she declines those privileges
on a form that will be supplied by the Program Sponsor or Program Recordkeeper.
For the participant's protection and to prevent fraudulent exchanges, telephone
calls will be recorded and the participant will be asked to provide his or her
personal identification number or other identifying information. A written
confirmation of an exchange transaction will be sent to the participant. Neither
the Funds nor their agents will be liable for any loss, liability or cost which
results from acting upon instructions reasonably believed to be genuine under
the foregoing procedures. (The Fund or its agents could be subject to liability
if they fail to employ reasonable procedures.) All exchanges will be made on the
basis of the relative net asset value of the two Funds next determined after the
request is received in good order. Telephone and telecopy privileges are
available only if the Program Sponsor has so elected and only in states where
these privileges may legally be offered. The safeguards discussed above that are
employed by each Fund are designed to minimize unauthorized exercise of these
privileges. During time of extraordinary economic or market changes, telephone
privileges or telecopied instructions may be difficult to implement.
Other Services
-- Reinvestment of Distributions. Income dividends and capital gain
distributions with respect to a particular Fund are declared in cash and
automatically reinvested in additional shares of that Fund. Shares of each
Fund, including shares received as dividends and other distributions, may
be redeemed for cash at any time. See "Investors Guide to Services" below
for a further description of share redemptions.
-- Systematic Withdrawal Plan. A Systematic Withdrawal Plan may be established
by a Program Administrator subject to the requirements of its Program,
federal tax laws, and the Company's applicable procedures. The
shareholder's interest in each Fund designated for systematic withdrawals
or in other programs for which the Manager or its affiliates act as
investment manager, must have a minimum value of $5,000 when the Systematic
Withdrawal Plan begins, unless used for the purpose of satisfying minimum
distribution rules. The proceeds from scheduled redemption of shares are
forwarded to the shareholder on a monthly, quarterly, semi-annual or annual
basis. Payments are in equal dollar amounts and must be at least $250. A
fee may be charged for accommodating wire transfer requests. For the
protection of shareholders and the Company, wiring instructions must be on
file prior to executing any request for the wire transfer of systematic
withdrawal proceeds. A shareholder may change the bank account previously
designated by written request, including appropriate signature guarantees,
a copy of any applicable corporate resolution or other relevant
documentation.
- --------------------------------------------------------------------------------
FURTHER INFORMATION REGARDING THESE SERVICES MAY BE OBTAINED FROM A SERVICE
REPRESENTATIVE. EACH OF THESE SERVICES IS SUBJECT TO THE REQUIREMENTS AND
LIMITATIONS OF THE PROGRAM AND MAY HAVE TAX CONSEQUENCES THAT DEPEND ON THE
INDIVIDUAL TAX STATUS OF THE RECIPIENT.
================================================================================
OTHER CONSIDERATIONS
Net Asset Value. The net asset value for each Fund is determined by subtracting
from the value of all securities, cash and other assets of each Fund, the amount
of its liabilities (including accrued expenses and dividends payable), and
dividing the result by the number of outstanding shares of that Fund. For
valuation purposes, quotations of foreign securities in a foreign currency are
converted to U.S. dollar equivalents. The Trustees have fixed the specific time
of day for the computation of the net asset value of all the Funds (except the
Money Market Fund) to be as of 4:15 p.m., New York time. The Money Market Fund
calculates net asset value as of 4:30 p.m., New York time.
Fund securities and other assets are valued based on market quotations, or, if
not readily available, at fair market value as determined in good faith under
procedures established by the Company's Trustees. See "Other Considerations--Net
Asset Value" in the Statement of Additional Information.
Each Fund computes its net asset value once daily on business days. Business
days are days when the NYSE is open for trading except on days on which no
orders to purchase, sell, or redeem shares have been received by the Company or
days on which changes in the value of the Company's portfolio securities do not
affect net asset value. The NYSE is closed on the following holidays: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
The Money Market Fund determines the value of its portfolio securities by the
amortized cost method. This method involves valuing an instrument at its cost
and thereafter assuming a constant amortization to maturity of any discount or
premium regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Money Market Fund would receive if it sold
the instrument. During these periods, the yield to an existing shareholder may
differ somewhat from that which could be obtained if the Fund marked its
portfolio securities to market each day. The Trustees have established
procedures designed to stabilize, to the extent reasonably possible, the net
asset value of the shares of the Money
The Prudential Institutional Fund Prospectus 13
<PAGE>
Market Fund at $1.00 per share. The Money Market Fund seeks to maintain a $1.00
share price at all times although there can be no assurance that the Fund will
do so. To achieve this, the Money Market Fund purchases only securities with
remaining maturities of thirteen months or less and limits the dollar-weighted
average maturity of its portfolio to 90 days or less. The Money Market Fund
cannot guarantee a $1.00 share price, but the Fund's maturity standards and
investments solely in high quality money market instruments minimize any price
decreases or increases.
Portfolio Transactions. It is expected that Prudential Securities Incorporated
("PSI"), a registered broker-dealer, which is an indirect wholly-owned
subsidiary of The Prudential, may act as broker for the Company, in conformity
with the securities laws and rules thereunder. In order for PSI to effect any
portfolio transactions for the Company on an exchange or board of trade, the
commissions received by PSI must be reasonable and fair compared to the
commissions paid to other brokers in connection with comparable transactions
involving similar securities or futures being purchased or sold on an exchange
or board of trade during a comparable period of time. This standard would allow
PSI to receive no more than the remuneration which would be expected to be
received by an unaffiliated broker or futures commission merchant in a
commensurate arm's-length transaction. The Trustees have approved procedures for
evaluating the reasonableness of commissions paid to PSI and periodically
reviews these procedures.
Distributions. Dividends and other distributions of each Fund are declared in
cash and automatically reinvested in additional shares of the Fund. While
shareholders may not elect to receive dividends and other distributions in cash,
the same effect may be achieved at any time by redeeming shares of the Fund. The
Income Fund and Money Market Fund expect to declare dividends of their net
investment income and, for the Money Market Fund, net short-term capital gains,
and losses, daily and to distribute such dividends monthly. Each other Fund
expects to declare and distribute a dividend of its net investment income, if
any, at least annually. Except for the Money Market Fund, each Fund expects to
declare and distribute its net capital gains (the excess of net long-term
capital gain over net short-term capital loss) and net short-term capital gain,
if any, at least annually. Distributions of income dividends and capital gains
distributions of each Fund are made on the payment date and reinvested at the
per share net asset value as of the record date or such other date as the Board
may determine. On the "ex-dividend" date, the net asset value per share excludes
the dividend (i.e., is reduced by the amount of the distribution).
Taxes. The following discussion is only a brief summary of some of the important
tax considerations affecting the Company, its Funds and its shareholders. For
further tax-related information see "Other Considerations--Taxes" in the
Statement of Additional Information. No attempt is made to present a detailed
explanation of all federal, state, and local income tax considerations, and this
discussion (as well as that in the Statement of Additional Information) is not
intended as a substitute for careful tax planning. Accordingly, investors are
urged to consult their own tax advisors with specific reference to their own tax
situation.
Tax Consequences to the Funds. Each Fund is treated as a separate entity for
federal income tax purposes, and thus the provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), applicable to regulated investment
companies generally are applied to each Fund separately, rather than to the
Company as a whole. Each Fund has elected to qualify and intends to remain
qualified as a regulated investment company under the Code. If so qualified,
each Fund is not subject to federal income taxes with respect to net investment
income and net realized capital gains, if any, that are distributed to its
shareholders, provided that the Fund distributes each year at least 90% of its
net investment income, (including net short term capital gains), and meets
certain other requirements set forth in the Code. Each Fund would be subject to
a 4% nondeductible excise tax on such Fund's taxable income to the extent such
Fund did not meet certain distribution requirements by the end of each calendar
year. Each Fund intends to make sufficient distributions to avoid application
of this excise tax.
Tax Consequences to the Shareholders. The Company's present intention is to
offer the Funds to qualified retirement programs, Continuing Participants, and
Other Institutional Investors.
Distributions from a qualified retirement program or other non-qualified
arrangements to a Participant or beneficiary will be subject to the provisions
in the Code and Treasury Regulations relating to taxation of such distributions.
Because the effect of these rules varies greatly with individual situations,
potential investors are urged to consult their own tax advisors.
Certain investments of the Funds, such as Passive Foreign Investment Companies
and zero coupon instruments involve special tax issues. The Statement of
Additional Information contains a general discussion of these matters.
Tax Consequences to Non-Exempt Shareholders.
Dividends from a Fund's investment company taxable income (consisting generally
of net investment income, net short-term capital gain and, when applicable, net
gains from foreign currency transactions) are taxable to its shareholders that
are not tax-exempt entities as ordinary income to the extent of the Fund's
earnings and profits. Distributions of a Fund's net capital gains, when
designated as such, are taxable to those shareholders as long-term capital
gains, regardless of the length of time they held their shares.
A portion of the dividends paid by a Fund, even though reinvested in additional
Fund shares, may be eligible for the dividends-received deduction allowed to
corporations. The eligible portion may not exceed the aggregate dividends
received by the Fund from U.S. corporations. However, dividends received by a
corporate shareholder and deducted by it pursuant to the dividends-received
deduction are subject indirectly to the alternative minimum tax. No dividends
paid by the Income Fund or the Money Market Fund, and only an insignificant part
of the dividends paid by the International Stock Fund, are expected to be
eligible for this deduction.
14 The Prudential Institutional Fund Prospectus
<PAGE>
A redemption of Fund shares will result in taxable gain or loss to a non-exempt
shareholder, depending on whether the redemption proceeds are more or less than
its adjusted basis for the redeemed shares. An exchange of Fund shares for
shares of any other fund generally will have similar tax consequences.
================================================================================
PERFORMANCE AND YIELD
INFORMATION
Money Market Fund. From time to time quotations of the Money Market Fund's
"yield" and "effective yield" may be included in marketing material and
communications to shareholders. Both yield figures are based on historical
earnings and are not intended to indicate future performance. The "yield" of the
Fund refers to the net income generated by an investment in the Fund over a
specified seven-day period. This income is then "annualized." That is, the
amount of income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is expressed similarly but, when annualized,
the income earned by an investment in the Fund is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment. "Yield" and "effective yield"
for the Fund will vary based on changes in market conditions, the level of
interest rates and the level of the Fund expenses.
From time to time, the average annual total return or cumulative total return of
the Fund may also be included in marketing material and communications to
shareholders. The average annual total return will be calculated as described
below.
Other Funds. From time to time a Fund, other than the Money Market Fund, may
publish its 30-day yield, average annual total return and/or its cumulative
total return in its marketing material and communications to shareholders. The
yield of a Fund will be calculated by dividing the net investment income per
share during a recent 30-day period by the maximum offering price (i.e., net
asset value) per share of the Fund on the last day of the period. The results
are compounded on a bond equivalent (semi-annual) basis and then annualized. A
Fund's average annual total return is determined by computing the annual
percentage change in value of $1,000 invested at the maximum public offering
price (i.e., net asset value) for specified periods ending with the most recent
calendar quarter, assuming reinvestment of all dividends and distributions at
net asset value.
Investors should note that the investment results of a Fund will fluctuate over
time, and any presentation of a Fund's yield or average annual total return for
any prior period should not be considered as a representation of what an
investment may earn or what an investor's yield or total return may be in any
future period. Because the method of calculating yield differs from the methods
used for other accounting purposes, a Fund's yield may not equal the
distributions to shareholders or the income reported in a Fund's financial
statements. See "Performance and Yield Information" in the Statement of
Additional Information for additional performance and yield information. The
Fund also may publish other measurements of return including calculating return
that is not annualized; provided, however, that any non-standardized measures of
return will be accompanied by the standard return required by the Securities and
Exchange Commission ("SEC").
Performance Information. Comparative performance information may be used from
time to time in advertising the Company's shares, including, but not limited to,
data from Lipper Analytical Services, Inc., the Standard & Poor's 500 Index, the
Salomon Brothers Broad Investment Grade Bond Index, the Dow Jones Industrial
Average, the Donoghue Money Market Averages, Morningstar, Inc., the Salomon
Brothers 1-3 years Treasury Index, the Morgan Stanley EAFE Index, the Lehman
Brothers Aggregate Index or Government/Corporate Index and other commonly used
indices or industry publications. The Fund's annual report to Shareholders for
its fiscal year ended September 30, 1995 contains additional performance
information and may be obtained by prospective investors without cost.
================================================================================
OTHER INVESTMENT PRACTICES,
RISK CONDITIONS, AND POLICIES
OF THE FUNDS
The investment objective(s) of each Fund are fundamental. Fundamental
objectives, policies and restrictions may be changed only with the approval of a
"majority of the outstanding voting securities" of that Fund. Each Fund's
investment program, unless otherwise specified, is not fundamental and may be
changed by the Board without shareholder approval. A "majority of the
outstanding voting securities" means the lesser of (i) 67% of the shares
represented at a meeting at which more than 50% of the outstanding shares are
present in person or represented by proxy or (ii) more than 50% of the
outstanding shares. Each Fund's investment program is subject to further
restrictions as described in the Statement of Additional Information.
Each Fund may hold a portion of its assets in money market instruments in
amounts designed to pay expenses, to meet anticipated redemptions, pending
investments or to margin its purchases and sales of futures contracts in
accordance with its objectives and policies. These instruments may be purchased
on a forward commitment, when-issued or delayed-delivery basis. In addition,
each Fund (except for the Stock Index Fund and the Money Market Fund) may for
temporary defensive purposes invest, without limitation, in high-quality money
market instruments. Each Fund, except the Money Market Fund, may also purchase
non-investment grade fixed income securities and retain investment grade fixed
income securities that have been downgraded to non-investment grade provided
that no more than 5% of the Fund's net assets is invested in non-ivestment grade
fixed income securities, which are considered to be high risk securities, i.e.
"junk" bonds. See "Fixed Income Securities" below and "Other Investment
Practices, Risk Conditions, and Policies of the Funds--Fixed Income Securities"
in the Statement of Additional Information for a fuller description of
thesesecurities.
Each Fund, consistent with its investment objective, may invest in one or more
of the types of securities described below and may utilize a variety of
The Prudential Fund Prospectus 15
<PAGE>
the investment techniques described below. These securities and investment
techniques are more fully described in the Statement of Additional Information.
U.S. Government Securities. Each Fund may invest in fixed income securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
Obligations of the U.S. Government consist of various types of marketable
securities issued by the U.S. Treasury, i.e., bills, notes and bonds, and are
direct obligations of the U.S. Government. Obligations of agencies and
instrumentalities of the U.S. Government are not direct obligations of the U.S.
Government and are either: (i) guaranteed by the U.S. Treasury (e.g., Government
National Mortgage Association ("GNMA") mortgage-backed securities); (ii)
supported by the issuing agency's or instrumentality's right to borrow from the
U.S. Treasury at the discretion of the U.S. Treasury (e.g., Federal National
Mortgage Association ("FNMA") Discount Notes); or (iii) supported by only the
issuing agency's or instrumentality's credit (e.g., each of the Federal Home
Loan Banks).
Repurchase Agreements. Each Fund may enter into repurchase agreements, whereby
the seller of a security agrees to repurchase that security from the Fund at a
mutually agreed-upon time and price. The period of maturity is usually quite
short, possibly overnight or a few days, although it may extend over a number of
months. The resale price is in excess of the purchase price, reflecting an
agreed-upon rate of return effective for the period of time the Fund's money is
invested in the security. The Fund's repurchase agreements will at all times be
fully collateralized in an amount at least equal to the purchase price,
including accrued interest earned on the underlying securities. The instruments
held as collateral are valued daily, and if the value of the instruments
declines, the Fund will require additional collateral. For the Money Market
Fund, the underlying security must either be a U.S. Government security or a
security rated in the highest rating category by the requisite NRSROs and must
be determined to present minimal credit risks. In the event of bankruptcy or
default of certain sellers of repurchase agreements, the Funds could experience
costs and delays in liquidating the underlying security held as collateral and
might incur a loss if such collateral declines in value during this period. Each
Fund may participate in a joint repurchase account managed by PIC.
Equity-Related Securities. Each Fund (except for the Income Fund and the Money
Market Fund) may invest in equity-related securities. Equity-related securities
are common stock, preferred stock, rights, warrants and debt securities or
preferred stock which are convertible or exchangeable for common stock or
preferred stock.
Fixed Income Securities. Fixed income securities are considered high-quality if
they are rated at least AA/Aa by S&P or by Moody's or an equivalent rating by
any NRSRO or, if unrated, are determined to be of comparable investment quality
by the Adviser. High-quality fixed income securities are considered to have a
very strong capacity to pay principal and interest. Fixed income securities are
considered medium quality if they are rated, for example, at least BBB/Baa by
S&P or by Moody's or an equivalent rating by any NRSRO or, if not rated, are
determined to be of comparable investment quality by the Adviser. Medium quality
fixed income securities are regarded as having an adequate capacity to pay
principal and interest. Securities rated in the lowest category of investment
grade debt have speculative characteristics and changes in economic conditions
or other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade bonds.
Investment grade fixed income securities are securities rated BBB or better by
S&P or Baa or better by Moody's (or an equivalent rating by any NRSRO) or, if
not rated, are deemed by the Adviser to be of comparable investment quality.
Non-investment grade securities are rated lower than BBB/Baa (or an equivalent
rating by any NRSRO) or, if not rated, are deemed by the Adviser to be of
comparable investment quality and are commonly referred to as high risk or high
yield securities, i.e. "junk" bonds. High yield securities are generally riskier
than higher quality securities and are subject to more credit risk, including
risk of default, and are more volatile than higher quality securities. In
addition, such securities may have less liquidity and experience more price
fluctuation than higher quality securities. See the discussion of corporate bond
ratings in "Description of S&P, Moodys and Duff & Phelps Ratings" in the
Appendix to the Statement of Additional Information.
The maturity of debt securities may be considered long (ten plus years),
intermediate (three to ten years) or short term (three years or less). In
general, the principal values of longer-term securities fluctuate more widely in
response to changes in interest rates than those of shorter-term securities,
providing greater opportunity for capital gain or risk of capital loss. A
decline in interest rates usually produces an increase in the value of debt
securities, while an increase in interest rates generally reduces their value.
Convertible Securities, Warrants and Rights. A convertible security is a bond,
debenture, corporate note, preferred stock or other similar security that may be
converted into or exchanged for a prescribed amount of common stock or other
equity security of the same or a different issuer within a particular period of
time at a specified price or formula. A warrant or right entitles the holder to
purchase equity securities at a specific price for a specific period of time.
Securities of Foreign Issuers. The International Stock Fund intends to invest
primarily in securities of foreign issuers. In addition, the other Funds may
invest a portion of their assets in fixed income securities and equity
securities of foreign issuers (denominated in either U.S. or foreign currency).
The Money Market Fund may only invest in U.S. dollar-denominated securities of
foreign issuers.
Foreign securities involve certain unique risks. These risks include political
or economic instability in the country of issue, the difficulty of predicting
international trade patterns, the possible imposition of exchange controls and
the risk of currency fluctuations. Such securities may be subject to greater
fluctuations in price than securities issued by U.S. corporations or issued or
guaranteed by the U.S. Government, its agencies or instrumentalities. In
addition, there may be less publicly available information about a foreign
company than about a domestic company. Foreign companies generally are not
subject to uniform accounting, auditing, and financial reporting standards
comparable to those applicable to domestic companies.
16 The Prudential Institutional Fund Prospectus
<PAGE>
Dividends paid by foreign companies may be subject to withholding and other
foreign taxes that may decrease the net return on such investments as compared
to dividends and interest paid by the U.S. Government or by domestic companies.
There is generally less government regulation of securities exchanges, brokers
and listed companies abroad than in the United States, and, with respect to
certain foreign countries, there is a possibility of expropriation, confiscatory
taxation, or diplomatic developments which could affect investment in those
countries. Finally, in the event of a default of any such foreign fixed income
obligations, it may be more difficult for the Fund to obtain or to enforce a
judgment against the issuers of such securities. If the security is foreign
currency denominated, it may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations, and costs may be incurred in
connection with conversions between currencies.
Investments in emerging and less developed countries involve exposure to
economic structures that are generally less diverse and mature than in the U.S.
or other developed countries. A developing country can be considered to be a
country which is in the initial stages of its industrialization cycle.
Historically, markets of developing countries have been more volatile than the
markets of developed countries.
With respect to equity securities, each Fund (except for the Money Market Fund)
may purchase ADRs. ADRs are U.S. dollar-denominated certificates issued by a
United States bank or trust company and represent the right to receive
securities of a foreign issuer deposited in a domestic bank or foreign branch of
a United States bank and traded on a United States exchange or in an
over-the-counter market. Generally, ADRs are in registered form. There are no
fees imposed on the purchase or sale of ADRs when purchased from the issuing
bank or trust company in the initial underwriting, although the issuing bank or
trust company may impose charges for the collection of dividends and the
conversion of ADRs into the underlying securities. Investment in ADRs has
certain advantages over direct investment in the underlying foreign securities
since: (i) ADRs are U.S. dollar-denominated investments that are registered
domestically, easily transferable, and for which market quotations are readily
available; and (ii) issuers whose securities are represented by ADRs are usually
subject to comparable auditing, accounting, and financial reporting standards as
domestic issuers.
Segregated Accounts. Each Fund will establish a segregated account with its
Custodian in which it will maintain cash, U.S. Government securities or other
liquid high-grade debt obligations equal in value to its obligations in respect
of potentially leveraged transactions including, forward contracts, when-issued
and delayed-delivery securities, repurchase and reverse repurchase agreements,
forward rolls, dollar rolls, futures contracts, written options, options on
futures contracts (unless otherwise covered) and interest rate swaps. The assets
deposited in the segregated account will be marked-to-market daily.
Forward Rolls, Dollar Rolls and Reverse Repurchase Agreements. The Income Fund
and the Balanced Fund may each commit up to 33 1/3% of the value of its total
assets to investment techniques such as dollar rolls, forward rolls and reverse
repurchase agreements. The Growth Stock Fund, Stock Index Fund, International
Stock Fund, Active Balanced Fund and Money Market Fund may each commit up to 20%
of their net assets to these techniques. A forward roll is a transaction in
which a Fund sells a security to a financial institution, such as a bank or
broker-dealer, and simultaneously agrees to repurchase the same or similar
security from the institution at a later date at an agreed upon price. With
respect to mortgage-related securities, such transactions are often called
"dollar rolls." In dollar roll transactions, the mortgage-related securities
that are repurchased will bear the same coupon rate as those sold, but generally
will be collateralized by different pools of mortgages with different prepayment
histories than those sold. During the roll period, the Fund forgoes principal
and interest paid on the securities and is compensated by the difference between
the current sales price and the forward price for the future purchase as well as
by interest earned on the cash proceeds of the initial sale. A "covered roll" is
a specific type of dollar roll for which there is an offsetting cash position or
a cash equivalent security position which matures on or before the forward
settlement date of the dollar roll transaction.
Reverse repurchase agreements involve sales by a Fund of portfolio securities to
a financial institution concurrently with an agreement by that Fund to
repurchase the same securities at a later date at a fixed price. During the
reverse repurchase agreement period, the Fund continues to receive principal and
interest payments on these securities.
Reverse repurchase agreements, forward rolls and dollar rolls involve the risk
that the market value of the securities purchased by the Fund with the proceeds
of the initial sale may decline below the price of the securities the Fund has
sold but is obligated to repurchase under the agreement. In the event the buyer
of securities under a reverse repurchase agreement, forward roll or dollar roll
files for bankruptcy or becomes insolvent, the Fund's use of the proceeds of the
agreement may be restricted pending a determination by the other party, or its
trustee or receiver, whether to enforce the Fund's obligations to repurchase the
securities. The Staff of the SEC has taken the position that reverse repurchase
agreements, forward rolls and dollar rolls are to be treated as borrowings for
purposes of the percentage limitations discussed in the section entitled
"Borrowings" below. The Company expects that under normal conditions most of the
borrowings of the Funds will consist of such investment techniques rather than
bank borrowings. See "Other Investment Practices, Risk Conditions, and Policies
of the Funds--Borrowings" below.
When-Issued and Delayed-Delivery Securities.
Each Fund may purchase securities on a when-issued or delayed-delivery basis.
When a Fund purchases securities on a when-issued or delayed-delivery basis, the
price of such securities is fixed at the time of the commitment, but delivery
and payment for the securities may take place up to 120 days
The Prudential Institutional Fund Prospectus 17
<PAGE>
after the date of the commitment to purchase. With respect to up to 5% of their
respective net assets, the Income Fund and the Balanced Fund may each purchase
securities to be delivered and paid for up to six months after the date of the
commitment to purchase. The securities so purchased are subject to market
fluctuation, and no interest accrues to the purchaser during this period.
When-issued and delayed-delivery securities involve a risk of loss if the value
of the security to be purchased declines prior to the settlement date or
increases in value and there is a failure to deliver the security.
Custodial Receipts. The Income Fund, the Balanced Fund and the Active Balanced
Fund may each acquire custodial receipts or certificates, such as CATS, TIGRs
and FIC Strips, underwritten by securities dealers or banks, that evidence
ownership of future interest payments, principal payments or both on certain
notes or bonds issued by the U.S. Government, its agencies, authorities or
instrumentalities. The underwriters of these certificates or receipts generally
purchase a U.S. Government security and deposit the security in an irrevocable
trust or custodial account with a custodian bank, which then issues receipts or
certificates that evidence ownership of the periodic unmatured coupon payments
and the final principal payment on the U.S. Government security. Custodial
receipts evidencing specific coupon or principal payments have the same general
attributes as zero coupon U.S. Government securities but are not U.S.
Government Securities and therefore are neither insured nor guaranteed by the
U.S. Government.
Mortgage-Backed Securities. Mortgage-backed securities represent interests in
pools of mortgages. Principal and interest payments made on the mortgages in the
pools are passed through to the holder of such securities. Payment of principal
and interest on some mortgage-backed securities (but not the market value of the
securities themselves) may be guaranteed by the full faith and credit of the
U.S. Government, or guaranteed by agencies or instrumentalities of the U.S.
Government. Mortgage-backed securities created by non-governmental issuers (such
as commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers, and other secondary market issuers) may be
supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance, and letters of credit, which may be
issued by governmental entities, private insurers, or the mortgage poolers.
Mortgage-backed securities include collateralized mortgage obligations (CMOs),
which are obligations fully collateralized by the portfolio of mortgaged or
mortgage-related securities. Payments of principal and interest on the mortgages
are passed through to the holders of the CMO as they are received, although
certain classes of CMOs have priority over others for receipt of mortgage
pre-payments. Typically, CMOs are collateralized by GNMA, FNMA or FHLMC
Certificates, but also may be collateralized by whole loans or private mortgage
pass-through securities (such collateral is referred to below as "Underlying
Assets").
CMOs may be issued by agencies or instrumentalities of the U.S. Government, or
by private originators of, or investors in, mortgage loans, including depository
institutions, mortgage banks, investment banks and special-purpose subsidiaries
of the foregoing. The issuer of a series of CMOs may elect to be treated as a
Real Estate Mortgage Investment Conduit ("REMIC").
In a CMO, a series of bonds or certificates is issued in multiple classes. Each
class of a CMO, often referred to as a "tranche," is issued at a specific fixed
or floating coupon rate and has a stated maturity or final distribution date.
Principal prepayments on the Underlying Assets may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrues on all classes of CMOs on a monthly, quarterly or
semi-annual basis. The principal of and interest on the Underlying Assets may be
allocated among the several classes of a CMO series in a number of different
ways. Generally, the purpose of the allocation of the cash flow of a CMO to the
various classes is to obtain a more predictable cash flow to the individual
tranches than exists with the underlying collateral of the CMO. As a general
rule, the more predictable the cash flow on a CMO tranche, the lower the
anticipated yield will be on that tranche at the time of issuance compared to
prevailing market yields on mortgage-backed securities.
Unscheduled or early repayment of principal on mortgage pass-through securities
(arising from prepayments of principal due to the sale of the underlying
property, refinancing, or foreclosure, net of fees and costs which may be
incurred) may expose the Fund to a lower rate of return upon reinvestment of
principal. Like other fixed income securities, when interest rates rise, the
value of a mortgage-related security generally will decline; however, when
interest rates are declining, the value of mortgage-related securities with
prepayment features may not increase as much as other fixed-income securities.
Asset-Backed Securities. The Balanced Fund, the Active Balanced Fund and the
Income Fund may purchase asset-backed securities that represent either
fractional interests or participations in pools of leases, retail installment
loans, or revolving credit receivables held by a trust or limited purpose
finance subsidiary. Such asset-backed securities may be secured by the
underlying assets (such as certificates for automobile receivables or may be
unsecured (such as credit card receivable securities). Depending on the
structure of the asset-backed security, monthly or quarterly payments of
principal and interest or interest only are passed-through or paid through to
certificate holders. Asset-backed securities may be guaranteed up to certain
amounts by guarantees, insurance, or letters of credit issued by a financial
institution affiliated or unaffiliated with the originator of the pool.
Underlying automobile sales contracts and credit card receivables are, of
course, subject to prepayment (although to a lesser degree than mortgage
pass-through securities), which may shorten the securities' weighted average
life and reduce their overall return to certificate holders. On the other hand,
asset-backed securities may present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities often do not have the
benefit of a security interest in the related collateral. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, some of which
may reduce the ability to obtain full payment. In the case of automo-
18 The Prudential Institutional Fund Prospectus
<PAGE>
bile receivables, the security interests in the underlying automobiles are often
not transferred when the pool is created, with the resulting possibility that
the collateral could be resold.
Unlike traditional fixed income securities, interest and principal payments on
asset-backed securities are made more frequently, usually monthly, and principal
may be prepaid at any time. As a result, if a Fund purchases such a security at
a premium, a prepayment rate that is faster than expected will reduce yield to
maturity, while a prepayment rate that is slower than expected will have the
opposite effect of increasing yield to maturity. Alternatively, if a Fund
purchases these securities at a discount, faster than expected prepayments will
increase, while slower than expected prepayments will reduce, yield to maturity.
Certificate holders may also experience delays in payment if the full amounts
due on underlying loans, leases, or receivables are not realized because of
unanticipated legal or administrative costs of enforcing the contracts or
because of depreciation or damage to the collateral (usually automobiles)
securing certain contracts, or other factors. If consistent with its investment
objective and policies, the Balanced Fund, the Active Balanced Fund and the
Income Fund may invest in other asset-backed securities that may be developed in
the future.
Types of Credit Enhancement. Mortgage-backed securities and asset-backed
securities are often backed by a pool of assets representing the obligations of
a number of different parties. To lessen the effect of failures by obligors on
underlying assets to make payments, those securities may contain elements of
credit support, which fall into two categories: (i) liquidity protection and
(ii) protection against losses resulting from ultimate default by an obligor on
the underlying assets. Liquidity protection refers to the provision of advances,
generally by the entity administering the pool of assets, to ensure that the
receipt of payments on the underlying pool occurs in a timely fashion.
Protection against losses resulting from default ensures ultimate payment of the
obligations on at least a portion of the assets in the pool. This protection may
be provided through guarantees, insurance policies or letters of credit obtained
by the issuer or sponsor from third parties, through various means of
structuring the transaction or through a combination of such approaches. The
Funds will not pay any fees for credit support, although the existence of credit
support may increase the price of a security.
Liquidity Puts. Each Fund may purchase instruments together with the right to
resell the instruments at an agreed-upon price or yield, within a specified
period prior to the maturity date of the instruments. This instrument is
commonly known as a "liquidity put" or a "tender option bond." However, the
Growth Stock Fund and Stock Index Fund will only use such instruments in
connection with the cash or cash equivalent portion of their portfolio.
Illiquid Securities. The Growth Stock Fund, Stock Index Fund, International
Stock Fund, Active Balanced Fund, Balanced Fund and the Money Market Fund may
each hold up to 10% of their net assets in illiquid securities and the Income
Fund may hold up to 15% of its net assets in illiquid securities. Illiquid
securities include repurchase agreements which have a maturity of longer than
seven days, securities with legal or contractual restrictions on resale
(restricted securities) and securities that are not readily marketable in
securities markets either within or outside of the United States. Restricted
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933, as amended (the Securities Act) and privately placed commercial paper that
have a readily available market are not considered illiquid for purposes of this
limitation. The Fund intends to comply with any applicable state blue sky laws
restricting the Fund's investments in illiquid securities. See "Investment
Restrictions" in the Statement of Additional Information. The Fund's investment
in Rule 144A securities could have the effect of increasing illiquidity to the
extent that qualified institutional buyers become, for a time, uninterested in
purchasing Rule 144A securities. The Funds' Advisers will monitor the liquidity
of such restricted securities under the supervision of the Manager and the
Trustees. Repurchase agreements subject to demand are deemed to have a maturity
equal to the applicable notice period.
The staff of the SEC has taken the position that purchased OTC options and the
assets used as "cover" for written OTC options are illiquid securities unless
the Fund and the counterparty have provided for the Fund, at the Fund's
election, to unwind the over-the-counter option. The exercise of such an option
ordinarily would involve the payment by the Fund of an amount designed to
reflect the counterparty's economic loss from an early termination, but does
allow the Fund to treat the assets used as "cover" as "liquid." The Fund will
also treat non-U.S. Government IOs and POs as illiquid so long as the staff of
the SEC maintains its position that such securities are illiquid.
Securities Lending. Each Fund may lend its portfolio securities to brokers or
dealers, banks, or other recognized institutional borrowers of securities,
provided that the borrower at all times maintains collateral in an amount equal
to at least 100% of the market value of the securities loaned. During the time
Fund securities are on loan, the borrower will pay the Fund an amount equivalent
to any dividend or interest paid on such securities and the Fund may invest any
cash collateral it receives and earn additional income, or it may receive an
agreed-upon amount of interest income from the borrower. In these transactions,
there are risks of delay in recovery and in some cases even loss of rights in
the collateral should the borrower of the securities fail financially. Each Fund
(except the Money Market Fund) may lend up to 30% of the value of its total
assets. The Money Market Fund may lend up to 10% of the value of its total
assets.
Borrowings. Each Fund may borrow from banks or through forward rolls, dollar
rolls or reverse repurchase agreements an amount equal to no more than 20%
(except for the Balanced Fund, the Income Fund and the Money Market Fund) of the
value of its total assets to take advantage of investment opportunities, for
temporary, extraordinary, or emergency purposes or for the clearance of
transactions and may pledge up to 20% of the value of its total assets to secure
these borrowings. The Balanced Fund and the Income Fund may borrow from banks up
to 20% of the value of their respective total assets for the same purposes and
may pledge up to 20% of the value of their respective total assets to secure
such borrowings. In addition, the Balanced Fund and the Income Fund may engage
in investment techniques such as reverse repurchase agreements, forward rolls
and dollar rolls to the extent that their respective assets dedicated to such
techniques
The Prudential Institutional Fund Prospectus 19
<PAGE>
combined with the respective values of their bank borrowings do not exceed
33 1/3% of their respective total assets. Such investment techniques are deemed
"borrowings" by the SEC because the SEC considers these techniques to involve
the use of leverage. When a Fund enters into one of these transactions, it
places in a segregated account an amount equal to the Fund's obligations in that
transaction. If a Fund's asset coverage for borrowings falls below 300%, the
Fund will take prompt action to reduce its borrowings. See "Segregated Accounts"
above. If a Fund borrows to invest in securities, any investment gains made on
the securities in excess of interest paid on the borrowing will cause the net
asset value of the shares to rise faster than would otherwise be the case. On
the other hand, if the investment performance of the additional securities
purchased fails to cover their cost (including any interest paid on the money
borrowed) to the Fund, the net asset value of the Fund's shares will decrease
faster than would otherwise be the case. This is the speculative characteristic
known as leverage. The Money Market Fund may borrow an amount equal to no more
than 20% of the value of its total assets only for temporary, extraordinary or
emergency purposes.
Options on Securities and Securities Indices. Each Fund (other than the Money
Market Fund) may purchase and sell put and call options on any securities in
which it may invest or options on any securities index based on securities in
which the Fund may invest. Each Fund is also authorized to enter into closing
purchase and sale transactions in order to realize gains or minimize losses on
options sold or purchased by the Fund.
A Fund would normally purchase call options to attempt to hedge against an
increase in the market value of the type of securities in which the Fund may
invest. The purchase of a call option would entitle a Fund, in return for the
premium paid, to purchase specified securities at a specified price, upon
exercise of the option, during the option period. A Fund would ordinarily
realize a gain if, during the option period, the value of such securities
exceeds the sum of the exercise price, the premium paid and transaction costs;
otherwise, the Fund would realize a loss on the purchase of the call option. A
Fund may also write a put option, which can serve as a limited long hedge
because increases in value of the hedged investment would be offset to the
extent of the premium received for writing the option. However, if the security
depreciates to a price lower than the exercise price of the put option, it can
be expected that the option will be exercised and the Fund will be obligated to
buy the security at more than its market value.
A Fund would normally purchase put options to hedge against a decline in the
market value of securities in its portfolio ("protective puts"). The purchase of
a put option would entitle a Fund, in exchange for the premium paid, to sell
specified securities at a specified price, upon exercise of the option, during
the option period. Gains and losses on the purchase of protective puts would
tend to be offset by countervailing changes in the value of underlying Fund
securities. A Fund would ordinarily realize a gain if, during the option period,
the value of the underlying securities decreases below the exercise price
sufficiently to cover the premium and transaction costs; otherwise, the Fund
would realize a loss on the purchase of the put option. A Fund may also write a
call option, which can serve as a limited short hedge because decreases in value
of the hedged investment would be offset to the extent of the premium received
for writing the option. However, if the security appreciates to a price higher
than the exercise price of the call option, it can be expected that the option
will be exercised and the Fund will be obligated to sell the security at less
than its market value.
A Fund may purchase and sell put and call options on securities indices for
hedging against a decline in the value of the securities owned by the Fund or
against an increase in the market value of the type of securities in which the
Fund may invest. Securities index options are designed to reflect price
fluctuations in a group of securities or segment of the securities market rather
than price fluctuations in a single security. Options on securities indices are
similar to options on securities, except that the exercise of securities index
options requires cash payments and does not involve the actual purchase or sale
of securities. A Fund purchasing or selling securities index options is subject
to the risk that the value of its portfolio securities may not change as much as
or more than the index because a Fund's investments generally will not match the
composition of the index. See "Other Considerations--Taxes" and "Other
Investment Practices, Risk Conditions, and Policies of the Funds" in the
Statement of Additional Information.
Futures Contracts and Options on Futures Contracts. The Balanced Fund, the
Active Balanced Fund and the Income Fund may enter into futures contracts on
securities, securities indices and interest rate indices. The Stock Index Fund
may enter into futures contracts on securities indices. The International Stock
Fund, the Balanced Fund and the Active Balanced Fund may also enter into
currency futures contracts and options thereon. The Growth Stock Fund, the Stock
Index Fund and the Active Balanced Fund may also purchase and sell options on
futures contracts on stock indices, and the Active Balanced Fund may also
purchase and sell options on futures contracts on interest rate indices. Each
Fund (except for the Money Market Fund) may enter into other types of futures
contracts when they become available, provided they correspond to securities
held by the relevant Fund. However, a Fund might not employ any of these
instruments.
To the extent that a Fund enters into futures contracts, options on futures
contracts, or options on foreign currencies traded on a Commodity Futures
Trading Commission (CFTC)-regulated exchange, in each case other than for bona
fide hedging purposes (as defined by the CFTC), the aggregate initial margin and
premiums required to establish those positions (excluding the amount by which
options are "in-the-money") will not exceed 5% of the liquidation value of the
Fund's portfolio, after taking into account unrealized profits and unrealized
losses on any contracts the Fund has entered into. In general, a call option on
a futures contract is "in-the-money" if the value of the underlying futures
contract exceeds the strike, i.e., exercise, price of the call; a put option on
a futures contract is "in-the-money" if the value of the underlying futures
contract is exceeded by the strike price of the put. This limitation does not
limit the percentage of a Fund's assets at risk to 5%. These transactions
involve brokerage costs, require margin deposits and require the Fund to
segregate assets to cover such contracts and options. In addition, a Fund's
activities in futures contracts and options thereon may be limited by the
requirements of the Inter-
20 The Prudential Institutional Fund Prospectus
<PAGE>
nal Revenue Code for qualification as a regulated investment company. See "Other
Considerations--Taxes" and "Other Investment Practices, Risk Conditions, and
Policies of the Funds" in the Statement of Additional Information.
Foreign Currency Forward Contracts, Options and Futures Transactions. The
International Stock Fund, the Balanced Fund and the Active Balanced Fund may
purchase and sell foreign currency forward contracts, futures contracts on
foreign currency, and options on futures contracts on foreign currency to
protect against the effect of adverse changes on foreign currencies. In addition
to the limitations on such practices described below, the Fund's ability to
engage in such practices may be limited by tax considerations. See "Other
Considerations--Taxes" and "Other Investment Practices, Risk Conditions, and
Policies of the Funds" in the Statement of Additional Information.
A forward foreign currency exchange contract involves an obligation to purchase
or sell a specific currency at a future date, at a price set at the time of the
contract. These contracts are traded in the market conducted directly between
currency traders (typically large commercial banks) and their customers. See
"Other Investment Practices, Risk Conditions, and Policies of the Funds--Foreign
Currency Forward Contracts, Options and Futures Transactions" in the Statement
of Additional Information.
When a Fund invests in foreign securities, it may enter into forward contracts
in several circumstances to protect the value of its assets. A Fund may not use
forward contracts, options on foreign currencies, futures contracts on foreign
currencies and options on such contracts in order to generate income, although
the use of such contracts may incidentally generate income. However, a Fund's
dealings in forward contracts will be limited to hedging involving either
specific transactions or portfolio positions. When a Fund enters into a contract
for the purchase or sale of a security denominated in a foreign currency, or
when a Fund anticipates the receipt in a foreign currency of dividends or
interest payments on a security that it holds, the Fund may desire to "lock in"
the U.S. dollar price of the security or the U.S. dollar equivalent of such
dividend or interest payment, as the case may be. By entering into a forward
contract for a fixed amount of dollars for the purchase or sale of the amount of
foreign currency involved in the underlying transaction, a Fund could protect
itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the subject foreign currency during the
period between the date on which the security is purchased or sold, or on which
the dividend or interest payment is declared, and the date on which such
payments are made or received. Additionally, when the Adviser believes that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, the Fund may enter into a forward contract, for a fixed
amount of dollars, to sell the amount of foreign currency approximating the
value of some or all of the securities of the Fund denominated in such foreign
currency. Further a Fund may enter into a forward contract in one foreign
currency to hedge against the decline or increase in value of another foreign
currency.
A Fund's successful use of foreign currency forward contracts, options on
foreign currencies, futures contracts on foreign currencies and options on such
contracts depends upon the Adviser's ability to predict the direction of the
market and political conditions, which requires different skills and techniques
than predicting changes in the securities markets generally.
Risks of Investing in Options and Futures.
Participation in the options or futures markets involves investment risks and
transaction costs to which the Funds would not be subject absent the use of
these strategies. If an Adviser's prediction of movements in the direction of
the securities or currency markets or interest rates is inaccurate, the adverse
consequences to a Fund may leave the Fund in a worse position than if such
strategies were not used. Risks inherent in the use of options and futures
include (i) dependence on the Adviser's ability to predict correctly movements
in the direction of interest rates, securities prices and currency markets; (ii)
imperfect correlation, or even no correlation, between the price of options,
futures and options thereon and movements in the prices of the assets being
hedged; (iii) the fact that skills needed to use these strategies are different
from those needed to select portfolio securities; (iv) the possible absence of a
liquid secondary market for any particular instrument at any time; (v) the
possible need to defer closing out certain hedged positions to avoid adverse tax
consequences; (vi) the fact that, while hedging strategies can reduce the risk
of loss, they can also reduce the opportunity for gain, or even result in
losses, by offsetting favorable price movements in hedged investments; and (vii)
the possible inability of a Fund to purchase or sell a portfolio security at a
time when it would otherwise be favorable for it to do so, or the possible need
for a Fund to sell a security at a disadvantageous time, due to the need for the
Fund to maintain "cover" or to segregate securities in connection with hedging
transactions.
See "Other Considerations--Taxes" and "Other Investment Practices, Risk
Conditions, and Policies of the Funds" in the Statement of Additional
Information.
Interest Rate Swap Transactions. The Balanced Fund and the Income Fund may enter
into interest rate swaps. Interest rate swaps involve the exchange by a Fund
with another party of their respective commitments to pay or receive interest,
for example, an exchange of floating rate payments for fixed rate payments. The
Funds expect to enter into these transactions primarily to preserve a return or
spread on a particular investment or portion of their portfolios or to protect
against any increase in the price of securities the Funds anticipate purchasing
at a later date. See "Other Investment Practices, Risk Conditions, and Policies
of the Funds--Other Investment Techniques" in the Statement of Additional
Information. The Income Fund will usually enter into interest rate swaps on a
net basis, i.e., the two payment streams are netted out, with the Fund receiving
or paying, as the case may be, only the net amount of the two payments. The
Balanced Fund may only enter into interest rate swaps on a net basis. The risk
of loss with respect to interest rate swaps entered into on a net basis is
limited to the net amount of interest payments that a Fund is contractually
obligated to make. The net amount of the excess, if any, of the Fund's
obligations over its entitlements with respect to each interest rate swap will
The Prudential Institutional Fund Prospectus 21
<PAGE>
be accrued on a daily basis and an amount of cash or liquid high-grade debt
securities having an aggregate net asset value at least equal to the accrued
excess will be maintained in a segregated account by the Custodian. To the
extent that the Income Fund enters into interest rate swaps on other than a net
basis, the amount maintained in the segregated account will be the full amount
of the Fund's obligations, if any, with respect to such interest rate swaps,
accrued on a daily basis.
The use of interest rate swaps may involve investment techniques and risks
different from those associated with ordinary portfolio transactions. If a
Fund's Adviser is incorrect in its forecast of market values, interest rates and
other applicable factors, the investment performance of the Fund would diminish
compared to what it would have been if this investment technique had not been
used.
================================================================================
MORE FACTS ABOUT THE COMPANY
Organization and Capitalization. The Company was established as a Delaware
business trust on May 11, 1992. The Trustees are responsible for the overall
management and supervision of its affairs. The Manager conducts and supervises
the daily business operations of the Company. The Company is authorized to issue
unlimited shares of beneficial interest, $0.001 par value per share. Each share
issued with respect to a Fund has a pro-rata interest in the assets of that Fund
and has no interest in the assets of any other Fund. Each Fund bears its own
liabilities and its proportionate share of the general liabilities of the
Company and is not responsible for the liabilities of any other Fund. The Board
is empowered by the Company's Declaration of Trust and By-laws to establish
additional series and classes of shares. As of December 31, 1995, each of the
following entities owned more than 25% of the outstanding voting securities of
each of the portfolios indicated: Growth Stock Fund, Stock Index Fund and
International Stock Fund--Prudential Employee Savings Plan; Balanced Fund--PAMCO
VCA OA Account and Prudential Employee Savings Plan; Income Fund and Money
Market Fund--The Prudential Insurance Company of America.
Portfolio Turnover. Although no Fund purchases securities with a view to rapid
turnover, there are no limitations on the length of time that securities must be
held by any Fund and a Fund's annual portfolio turnover rate may vary
significantly from year to year. A portfolio turnover rate in excess of 100% may
exceed that of other investment companies with similar objectives. A higher
portfolio turnover rate may involve correspondingly greater transaction costs,
which would be borne directly by the Funds, as well as additional realized gains
and/or losses to shareholders.
Meetings and Voting Rights. The Company does not intend to hold annual
shareholder meetings. Shareholders have certain rights, as set forth in the
Agreement and Declaration of Trust, including the right to call a meeting of
shareholders for the purpose of voting on the removal of one or more Trustees.
Such removal may be effected upon the action of two-thirds of the outstanding
shares of the Company.
Shareholders are entitled to one vote per share. Shares of a Fund will be voted
only with respect to that Fund except for the election of Trustees and
ratification of independent accountants. Approval by the shareholders of one
Fund is effective as to that Fund. Shares have noncumulative voting rights, do
not have preemptive or subscription rights, and are transferable. Pursuant to
the Investment Company Act of 1940, as amended, shareholders of each Fund are
required to approve the adoption of any investment advisory agreement relating
to such Fund and of any changes in fundamental investment restrictions or
policies of the Fund.
Certificates. In the interest of economy and efficiency, the Company does not
issue stock certificates. Shareholders of uncertificated shares have the same
ownership rights as if certificates had been issued.
Shareholder Communications. Shareholders of the Company will receive annual
financial statements examined by the Company's independent accountants as well
as unaudited semi-annual financial statements. Each report will show the
investments owned by the Company and their respective market values thereof, and
will provide other financial information. Shareholders with inquiries regarding
the Company and individual accounts should contact the Manager at (800)
824-7513.
Custodian. The Company's Custodian is State Street Bank and Trust Company, P.O.
Box 1713, Boston, Massachusetts 02105.
Additional Information. This Prospectus, including the State- ment of Additional
Information which has been incorporated by reference herein, does not contain
all the information set forth in the Registration Statement filed by the Company
with the SEC under the Securities Act of 1933. Copies of the Registration
Statement may be obtained from the Commission or may be examined at the office
of the Commission in Washington, D.C.
22 The Prudential Institutional Fund Prospectus
<PAGE>
The Prudential Institutional Fund
21 Prudential Plaza
751 Broad Street
Newark, NJ 07102-3777
---------------
Bulk Rate
U.S. Postage
PAID
Permit No. 2145
Newark, N.J.
---------------
ThePRUDENTIAL[LOGO]
PIF 02-01-95
<PAGE>
PROSPECTUS SUPPLEMENT
THE PRUDENTIAL INSTITUTIONAL FUND
Supplement dated May 30, 1996 to
Prospectus dated February 1, 1996
To better serve its customers, Prudential has formed a business division
called the Money Management Group that consolidates within one unit Prudential's
various money management businesses. Following the formation of the Money
Management Group, management of The Prudential Institutional Fund (the Fund)
recommended, and on May 17, 1996 the Fund's Board of Trustees approved, plans
whereby the seven institutional series of the Fund (the Series) will become part
of the Prudential Mutual Funds (PMF). The PMF Funds are a broad retail and
institutional fund family that provides economies of scale normally associated
with large fund families. The four largest Series will continue with the same
investment objectives and portfolio managers. The three smallest Series will be
combined with PMF Funds having similar but not identical investment objectives.
The Board's actions are contingent upon shareholder approval. Proxy
statements will be sent to shareholders of the relevant Series in or about late
July discussing the consolidation in detail and the reasons why the manager and
the Board believe the consolidation is in the best interests of the shareholders
of the Fund. The information below describes the nature of the consolidation
with respect to each Series of the Fund.
FOR SHAREHOLDERS OF THE GROWTH STOCK FUND, BALANCED FUND, INCOME FUND, MONEY
MARKET FUND AND INTERNATIONAL STOCK FUND:
The Board of Trustees of the Fund recently approved plans of reorganization
whereby assets of the five Series listed below would be exchanged for Class Z
shares (which have no sales or distribution fees) of PMF Funds as follows:
-- Growth Stock Fund assets in exchange for shares of Prudential Jennison
Fund, Inc.
-- Balanced Fund assets in exchange for shares of the Balanced Portfolio
of Prudential Allocation Fund
-- Income Fund assets in exchange for shares of Prudential Government
Income Fund, Inc.
-- Money Market Fund assets in exchange for shares of Prudential
MoneyMart Assets, Inc.
-- International Stock Fund assets in exchange for shares of the newly
created International Stock Series of Prudential Global Fund, Inc.
Each reorganization is subject to approval by the shareholders of the
relevant Series at a Special Meeting of Shareholders scheduled for September 6,
1996. If the reorganizations are approved by shareholders, each Series' assets
would be combined with the assets of the respective PMF Fund on or about
September 20, 1996. At that time, the shareholders of the Series will receive a
number of full and fractional Class Z shares of the applicable PMF Fund
corresponding to the value of the shareholder's investment in the Series.
FOR SHAREHOLDERS OF THE ACTIVE BALANCED FUND AND STOCK INDEX FUND:
To make the Active Balanced Fund and Stock Index Fund part of the PMF
Funds, the Board of Trustees of the Fund recently approved a new manager,
distributor and transfer agent for the Trust and new subadvisory agreements
between the Fund's manager and subadvisers as detailed below. Specifically, the
Board of Trustees approved agreements necessary to:
-- Engage Prudential Mutual Fund Management, Inc. (PMF) as manager of the
Fund to replace Prudential Institutional Fund Management, Inc. (PIFM).
-- Engage Prudential Securities Incorporated (PSI) to replace Prudential
Retirement Services, Inc. as distributor of the Fund's shares.
-- Engage Prudential Mutual Fund Services, Inc. (PMFS) to replace PMF as
the Fund's transfer agent.
-- Continue to engage Jennison Associates Capital Corp. (Jennison) as
subadviser to the Active Balanced Fund and The Prudential Investment
Corporation (PIC) as subadviser to the Stock Index Fund.
PMF, PSI, PMFS, Jennison and PIC each are wholly-owned subsidiaries of The
Prudential Insurance Company of America.
Each of the agreements is subject to approval by the shareholders of the
relevant Series at a Special Meeting of Shareholders scheduled for October 8,
1996.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 1, 1996
THE PRUDENTIAL INSTITUTIONAL FUND
Prudential Plaza
751 Broad Street
Newark, New Jersey 07102-3777
This Statement of Additional Information supplements the information
contained in the current Prospectus (the "Prospectus") of The Prudential
Institutional Fund (the "Company"), dated February 1, 1996, and should be read
in conjunction with the Prospectus. The Prospectus may be obtained by contacting
your Program Administrator or by writing the Company at the address listed
above. This Statement of Additional Information, although not in itself a
prospectus, is incorporated by reference into the Prospectus in its entirety.
TABLE OF CONTENTS
For ease of reference, the section headings used in this Statement of
Additional Information, where applicable, are identical to those used in the
Prospectus.
<TABLE>
<CAPTION>
Page
<S> <C>
THE FUNDS.................................................................................. B-2
Stock Index Fund........................................................................... B-2
Money Market Fund.......................................................................... B-2
MANAGEMENT OF THE COMPANY.................................................................. B-3
The Manager and Advisers................................................................... B-3
The Administrator.......................................................................... B-5
The Distributor............................................................................ B-5
Counsel and Auditors....................................................................... B-5
THE TRUSTEES and OFFICERS.................................................................. B-5
OTHER CONSIDERATIONS....................................................................... B-9
Net Asset Value............................................................................ B-9
Portfolio Transactions..................................................................... B-10
Taxes...................................................................................... B-11
PERFORMANCE AND YIELD INFORMATION.......................................................... B-14
Calculation of Money Market Fund Yield..................................................... B-14
Calculation of Fund Performance............................................................ B-14
Yield (except Money Market Fund)........................................................... B-14
Average Annual Total Return................................................................ B-14
Aggregate Total Return..................................................................... B-15
OTHER INVESTMENT PRACTICES, RISK CONDITIONS AND POLICIES OF THE FUNDS...................... B-15
U.S. Government Securities................................................................. B-15
Repurchase Agreements and Reverse Repurchase Agreements.................................... B-15
Fixed Income Securities.................................................................... B-16
When-Issued and Delayed Delivery Securities................................................ B-17
Forward Rolls and Dollar Rolls............................................................. B-17
Mortgage-Related Securities................................................................ B-17
Collateralized Mortgage Obligations........................................................ B-18
Asset-Backed Securities.................................................................... B-18
Custodial Receipts......................................................................... B-18
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Securities Lending......................................................................... B-19
Borrowing.................................................................................. B-19
Securities of Foreign Issuers.............................................................. B-19
Liquidity Puts............................................................................. B-19
Special Risks of Strategies Involving Options, Futures Contracts and Forward Contracts..... B-20
Options on Securities and Securities Indices............................................... B-20
Futures Contracts and Options on Futures Contracts......................................... B-21
Foreign Currency Forward Contracts, Options and Futures Transactions....................... B-22
Foreign Currency Strategies--Special Considerations........................................ B-23
Covered Forward Currency Contracts, Future Contracts and Options........................... B-23
Illiquid Securities........................................................................ B-24
Other Investment Techniques................................................................ B-24
INVESTMENT RESTRICTIONS.................................................................... B-25
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT.......................................... B-26
FINANCIAL STATEMENTS....................................................................... B-27
INDEPENDENT AUDITORS' REPORT............................................................... B-70
APPENDIX--DESCRIPTION OF S&P, MOODY'S AND DUFF & PHELPS RATINGS............................ A-1
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
THE FUNDS
The Prospectus discusses the investment objectives of the following funds
and the policies to be employed to achieve those objectives.
- Growth Stock Fund
- Stock Index Fund
- International Stock Fund
- Active Balanced Fund
- Balanced Fund
- Income Fund
- Money Market Fund
(collectively the "Funds")
Supplemental information is set out below concerning the types of
securities and other instruments in which the Funds may invest, the investment
policies and strategies that the Funds may utilize and certain risks attendant
to those investments, policies and strategies.
Stock Index Fund
If net cash outflows from the Stock Index Fund are anticipated, the Stock
Index Fund may sell stocks (in proportion to their weighting in the Standard &
Poor's 500 Composite Stock Price Index ("S&P 500 Index") in amounts in excess
of those needed to satisfy the cash outflows and hold the balance of the
proceeds in short-term investments if such a transaction appears, taking into
account transaction costs, to be more efficient than selling only the amount of
stocks needed to meet the cash requirements. The Stock Index Fund will not
increase its holdings of cash in anticipation of any decline in the value of the
S&P 500 Index or of the stock markets generally. If the Stock Index Fund does
hold un-hedged short-term investments as a result of the patterns of cash flows
to and from the Fund, such holdings may cause its performance to differ from
that of the S&P 500 Index.
THE "FUND" IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY STANDARD &
POOR'S CORPORATION ("S&P"). S&P MAKES NO REPRESENTATION OR WARRANTY, EXPRESS
OR IMPLIED, TO THE SHAREHOLDERS OF THE FUND OR ANY MEMBER OF THE PUBLIC
REGARDING THE ADVISABILITY OF INVESTING IN SECURITIES GENERALLY OR IN THE FUND
PARTICULARLY OR THE ABILITY OF THE S&P 500 INDEX TO TRACK GENERAL STOCK MARKET
PERFORMANCE. S&P'S ONLY RELATIONSHIP TO THE MANAGER AND ITS AFFILIATES IS THE
LICENSING OF CERTAIN TRADEMARKS AND TRADE NAMES OF S&P AND OF THE S&P 500 INDEX
WHICH IS DETERMINED, COMPOSED AND CALCULATED BY S&P WITHOUT REGARD TO THE
MANAGER OR THE FUND. S&P HAS NO OBLIGATION TO TAKE THE NEEDS OF THE MANAGER OR
THE SHAREHOLDERS INTO CONSIDERATION IN DETERMINING, COMPOSING OR CALCULATING THE
S&P 500 INDEX. S&P IS NOT RESPONSIBLE FOR AND HAS NOT PARTICIPATED IN THE
DETERMINATION OF THE PRICES AND AMOUNT OF THE FUND OR THE TIMING OF THE ISSUANCE
OR SALE OF THE SHARES OF THE FUND. S&P HAS NO OBLIGATION OR LIABILITY IN
CONNECTION WITH THE ADMINISTRATION, MARKETING OR TRADING OF THE FUND.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500
INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR
IMPLIED AS TO THE RESULTS TO BE OBTAINED BY MANAGER, SHAREHOLDERS, OR ANY OTHER
PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN.
S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY
OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL,
PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
Money Market Fund
The Money Market Fund may also, consistent with the provisions of Rule 2a-7
of the Investment Company Act of 1940, as amended (the "1940 Act"), invest in
securities with a face maturity of more than 397 days, provided that either the
security is a variable or floating rate U.S. Government security, or it is a
floating or variable rate security with certain demand or interest rate reset
features.
The Money Market Fund uses the amortized cost method of valuing its
investments, which facilitates the maintenance of the Fund's per share net asset
value at $1.00. The amortized cost method, which is used to value all of the
Fund's securities, involves initially valuing a security at its cost and
thereafter amortizing to maturity any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument.
The extent of deviation between the Money Market Fund's net asset value
based upon available market quotations or market equivalents and $1.00 per share
based on amortized cost will be examined periodically by the Trustees. If such
deviation exceeds 1/2 of
B-2
<PAGE>
1%, the Trustees will promptly consider what action, if any, will be initiated.
In the event the Trustees determine that a deviation exists that may result in
material dilution or other unfair results to investors or existing shareholders,
they will cause the Money Market Fund to take such corrective action as they
regard to be necessary and appropriate to eliminate or reduce to the extent
reasonably practicable such dilution or unfair results. Such action may include
the sale of Money Market Fund instruments prior to maturity to realize capital
gains or losses or to shorten average portfolio maturity; withholding part or
all of dividends or payment of distributions from capital or capital gains;
redemptions of shares in kind; or establishing a net asset value per share by
using available market quotations or equivalents. In addition, in order to
stabilize the net asset value per share at $1.00, the Trustees have the
authority (i) to reduce or increase the number of shares outstanding on a pro
rata basis, and (ii) to offset each shareholder's pro rata portion of the
deviation between the net asset value per share and $1.00 from the shareholder's
accrued dividend account or from future dividends.
MANAGEMENT OF THE COMPANY
The Manager and Advisers
The Manager of the Company is Prudential Institutional Fund Management,
Inc.("PIFM" or the "Manager"), whose principal business address is 30
Scranton Office Park, Moosic, Pennsylvania 18507-1789.
Pursuant to an agreement with the Company and the Manager, subject to the
supervision of the Company's Trustees and in conformity with the stated policies
of the Company, manages both the investment operations of the Company and the
composition of the Company's Funds, including the purchase, retention,
disposition and loan of securities, and other instruments held by the Funds (the
"Management Agreement"). In connection therewith, the Manager is obligated to
keep certain books and records of the Company. The management services of the
Manager for the Company are not exclusive under the terms of the Management
Agreement and the Manager is free to, and does, render management services to
others.
The Manager has agreed, until September 30, 1996, to bear any expenses,
including management fees, which would cause the ratio of expenses payable by
each Fund to average daily net assets to exceed the estimated Total Operating
Expenses (After Reduction) for each Fund specified in the expense table at the
beginning of the Prospectus. The fees are computed daily and payable monthly.
The Management Agreement also provides that, in the event the expenses of the
Company (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 Company's business) for any fiscal year exceed the lowest applicable annual
expense limitation established and enforced pursuant to the statutes or
regulations of any jurisdiction in which the Company's shares are qualified for
offer and sale, the compensation due to the Manager will be reduced by the
amount of such excess. Reductions in excess of the total compensation payable to
the Manager will be paid by the Manager to the relevant Fund. Currently, the
Company believes that the most restrictive expense limitation of state
securities commissions is 2 1/2% of the Company'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. The Company reserves the right to waive any
and all fees or a portion thereof at its discretion. Such waiver is subject to
later reimbursement by the applicable Fund for a period up to and including
December 31, 1996.
In connection with its management of the business affairs of the Company,
the Manager bears the following expenses:
(i) the salaries and expenses of all of its and the Company's personnel
except the fees and expenses of Trustees who are not affiliated persons of the
Manager or the Funds' Advisers;
(ii) all expenses incurred by the Manager or by the Company in connection
with managing the ordinary course of the Company's business, other than those
assumed by the Company as described below; and
(iii) the costs and expenses or fees payable to The Prudential Investment
Corporation ("PIC"), Jennison Associates Capital Corp. ("Jennison") and
Mercator Asset Management, L.P. ("Mercator") (collectively, the "Advisers")
pursuant to the subadvisory agreements between the Manager and the Advisers
(collectively, the "Advisory Agreements").
Under the terms of the Management Agreement, the Company is responsible for
the payment of the following expenses: (i) the fees payable to the Manager, (ii)
the fees and expenses of Trustees who are not affiliated persons of the Manager
or the Funds' Advisers, (iii) the fees and certain expenses of the Custodian and
Transfer and Dividend Disbursing Agent, including the cost of providing records
to the Manager and Plan Administrator in connection with its obligation of
maintaining required records of the Company, pricing the Funds' shares and the
cashiering function, (iv) the charges and expenses of legal counsel and
independent accountants for the Company, (v) brokerage commissions and any issue
or transfer taxes chargeable to the Company in connection with its securities
and futures transactions, (vi) all taxes and corporate fees payable by the
Company to governmental agencies, (vii) the fees of any trade associations of
which the Company may be a member, (viii) the cost of stock certificates
representing shares of Funds of the Company, if any, (ix) the cost of fidelity
and liability insurance, (x) the fees and expenses involved in registering and
maintaining registration of the Company and of its shares with the Securities
and Exchange Commission ("SEC"), registering the Company and qualifying its
shares under state securities laws, including the preparation and printing of
the Company's registration statements and prospectuses for such purposes,
B-3
<PAGE>
(xi) licensing fees, if any, (xii) allocable communications expenses with
respect to investor services and all expenses of shareholders' and Trustees'
meetings and of preparing, printing and mailing reports, proxy statements and
prospectuses to shareholders in the amount necessary for distribution to the
shareholders, (xiii) fees of the Administrator, and (xiv) litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of the Company's business.
The Management Agreement provides that the Manager will not be liable for
any error of judgment or for any loss suffered by the Company in connection with
the matters to which the Management Agreement relates, except a loss resulting
from willful misfeasance, bad faith, gross negligence or reckless disregard of
duty. The Management Agreement provides that it will terminate automatically in
the event of its assignment (as defined in the 1940 Act, and that it may be
terminated without penalty by either party upon not more than 60 days' nor less
than 30 days' written notice. The Management Agreement will continue in effect
for a period of more than two years from the date of execution only so long as
such continuance is specifically approved at least annually in conformity with
the 1940 Act. The Management Agreement was last approved by the Trustees of the
Company, including all of the Trustees who are not parties to the contract or
interested persons of any such party as defined in the 1940 Act on November 16,
1995 and by the sole shareholder of the Company on October 12, 1992. The Manager
received, before any reduction due to the subsidy by the Manager of certain
expenses of the Fund, the following management fees from each Fund, expressed
both as a dollar amount and as a percentage of each Fund's average daily net
assets:
<TABLE>
<CAPTION>
Year ended Year ended Period ended
September 30, 1995 September 30, 1994 September 30, 1993
-------------------- ------------------ ------------------
Fund Amount Rate Amount Rate Amount Rate
------------ ----------- ---- --------- ---- --------- ----
<S> <C> <C> <C> <C> <C> <C>
Growth Stock $1,049,893 .70% $500,141 .70% $111,337 .70%
Stock Index 286,843 .40 152,392 .40 68,014 .40
International
Stock 1,367,665 1.15 787,473 1.15 150,665 1.15
Active
Balanced 733,748 .70 412,941 .70 66,355 .70
Balanced 496,395 .70 308,338 .70 110,128 .70
Income 231,931 .50 189,009 .50 75,122 .50
Money Market 236,009 .45 171,766 .45 84,206 .45
</TABLE>
During the same period the Manager subsidized certain expenses of the Fund. See
"Expense Information" and "Management of the Company--The Manager" in the
Prospectus.
The Manager has entered into Advisory Agreements with the "Advisers". The
Advisory Agreements provide that the Advisers furnish investment advisory
services in connection with the management of their respective Funds. For their
services as Advisers, Jennison and Mercator are each paid a portion of the fee
the Manager receives from each Fund. PIC is reimbursed by the Manager for the
reasonable costs and expenses incurred in furnishing its services. In connection
therewith, the Advisers are obligated to keep certain books and records of the
respective Funds to which they provide advisory services. The Manager continues
to have responsibility for all investment advisory services to all the Funds
pursuant to the Management Agreement and supervises the Advisers' performance of
such services.
Jennison advises the Growth Stock Fund and Active Balanced Fund. Founded in
1969 and acquired by The Prudential in 1985, Jennison is known for its highly
skilled investment team that has worked together for many years. Dedicated to
achieving superior investment results for institutional investors, Jennison
currently has $29 billion in assets under management, including more than $15
billion in investments managed with a "growth stock" orientation and $1.6
billion in actively managed balanced assets.
Mercator advises the International Stock Fund. Dedicated to global and
international common stock investing, Mercator was initially founded in 1984 by
senior professionals formerly associated with Templeton Investment Counsel as
Mercator Asset Management, Inc. ("Mercator, Inc."). On November 30, 1995
Mercator, a limited partnership organized under the laws of the State of
Delaware, assumed the investment advisory business of Mercator, Inc. Mercator
currently manages $1.8 billion for institutional clients.
PIC advises the Stock Index, Balanced, Income and Money Market Funds
through various of its specialized investment units discussed below.
Prudential Diversified Investment Strategies (PDI) manages the Stock Index
Fund and Balanced Fund. PDI is dedicated to equity index and balanced fund
investing for institutional clients. Founded in 1975, PDI is among the oldest
quantitatively-oriented balanced managers in the country. PDI currently manages
close to $21 billion in balanced and indexed assets.
Prudential Global Advisors (PGA) manages the Income Fund. PGA focuses on
fixed income investing. PGA is a recognized leader in asset/liability management
and other structured bond portfolios. PGA currently manages over $17 billion in
domestic fixed income assets.
B-4
<PAGE>
PGA also manages the Money Market Fund. PGA focuses on managing
institutional money market accounts and, as of December 31, 1995, manages
approximately $4 billion in short-term money market assets.
The Advisory Agreements, except the Advisory Agreement with Mercator, were
last approved by the Trustees, including a majority of the Trustees who are not
interested persons of the Company and who have no direct or indirect financial
interest in the Advisory Agreements, on November 16, 1995, and by the sole
shareholder of the Company on October 12, 1992. The Advisory Agreement with
Mercator was approved by the Trustees on October 2, 1995 and by the shareholders
of the International Stock Fund on November 16, 1995.
Each Advisory Agreement provides that it will terminate in the event of its
assignment (as defined in the 1940 Act) or upon the termination of the
Management Agreement. Each Advisory Agreement may be terminated by the Company,
the Manager or the relevant Adviser upon not more than 60 days', nor less than
30 days', written notice. Each Advisory Agreement provides that it will continue
in effect for a period of more than two years from its execution only so long as
such continuance is specifically approved at least annually in accordance with
the requirements of the 1940 Act.
The Administrator
The Company has entered into an Agreement with Prudential Mutual Fund
Management, Inc. ("PMF"), an affiliate of the Manager, which provides that PMF
will administer the Company's business affairs and, in connection therewith,
furnish the Company with office facilities, together with those ordinary
clerical and bookkeeping services which are not being furnished by State Street
Bank and Trust Company, the Company's Custodian (The "Administration
Agreement"). PMF will also act as the Company's Transfer and Dividend
Disbursing Agent for no additional fee through its wholly-owned subsidiary,
Prudential Mutual Fund Services, Inc. ("PMFS"), P.O. Box 15005, New Brunswick,
New Jersey 08906. Under the Administration Agreement, the Company will pay PMF a
monthly fee at an annual rate of .17% of the Company's average daily net assets
up to $250 million and .15% of the Company's average daily net assets in excess
of $250 million. PMF will reimburse PMFS for certain of the out-of-pocket
expenses PMFS may incur in providing the transfer agency and dividend disbursing
services and the Company will reimburse PMF for these out-of-pocket expenses.
For the years ended September 30, 1995 and 1994, and period from November 5,
1992 (commencement of operations) to September 30, 1993 the Administrator
received $972,783, $489,154 and $178,445, respectively, under the Administration
Agreement.
The Distributor
Prudential Retirement Services, Inc. ("PRSI") serves as the Distributor
of the Company's shares. The Company's distribution agreement with PRSI (the
"Distribution Agreement") has been approved by the Trustees, including a
majority of the Trustees who are not interested persons of the Company and who
have no direct or indirect financial interest in the Distribution Agreement, on
November 16, 1995. Potential investors may be introduced to the Distributor and
persons who introduce investors may be compensated for such introductions.
Counsel and Auditors
Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W., Washington,
D.C. 20036-1800, serves as counsel to the Company. Deloitte & Touche, LLP, 2
World Financial Center, New York, NY 10281-1438, independent accountants, serve
as auditors of the Company.
THE TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
Position with Principal Occupations
Name, Address and Age Company During Past Five Years
- ---------------------- -------------- --------------------------------------------------------
<S> <C> <C>
Mark R. Fetting* (41) President and Chairman of the Board, President and Chief Operating
30 Scranton Office Trustee Officer, Prudential Institutional Fund Management,
Park Inc. (May, 1992 to date); Managing Director, The
Moosic, PA 18507-1789 Prudential Investment Corporation (October, 1991 to
date); Chairman of the Board, President and Chief
Executive Officer, Prudential Retirement Services,
Inc. (January 1993 to date); President of Prudential
Defined Contribution Services (April 1992 to date).
David A. Finley (63) Trustee Director, Executive Vice President, and Chief Financial
17 Bedford Center Road Officer, Broadway & Seymour Inc. (since January 1996);
Bedford Hills, NY Director of Legent Corp.; formerly Consultant (January
10507 1990 to January 1996).
</TABLE>
B-5
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupations
Name, Address and Age Company During Past Five Years
- ---------------------- -------------- --------------------------------------------------------
<S> <C> <C>
William E. Fruhan, Trustee Professor, Harvard Graduate School of Business
Jr.(52) Administration (1979 to date).
Harvard Business
School
Boston, MA 02163
August G. Olsen (66) Trustee Pensions and Investments Consultant, August G. Olsen
417 W. Hawthorne Ct. Consulting (1992 to date); Corporate Pension Fund
Lake Bluff, IL 60044 Officer and Investment Manager, Abbott Laboratories
(1987 to 1992).
Herbert G. Stolzer Trustee Retired. Formerly Executive Committee Member, Board of
(70) Directors,Member and Assistant to the Chairman of the
19 Yorktown Road Board of Directors, Johnson & Johnson (August 1987 to
East Brunswick, NJ January 1991).
08816
Thomas A. Early (41) Vice President Vice President and Secretary of Prudential Institutional
30 Scranton Office Fund Management, Inc. and Prudential Retirement
Park Services, Inc. (since July 1994); Vice President and
Moosic, PA 18507-1789 General Counsel, Prudential Defined Contribution
Services (since April 1994); Formerly Associate
General Counsel and Chief Financial Services Counsel
for Frank Russell & Company (April 1988-April 1994).
Robert F. Gunia (49) Vice President Chief Administrative Officer (since July 1990), Director
One Seaport Plaza (since January 1989), Executive Vice President,
New York, NY 10292 Treasurer and Chief Financial Officer (since June
1987) of Prudential Mutual Fund Management, Inc.
("PMF"), Senior Vice President (since March 1987) of
Prudential Securities Incorporated ("Prudential
Securities"); Executive Vice President, Treasurer,
Comptroller and Director (since March 1991),
Prudential Mutual Fund Distributors, Inc.; Director
(since June 1987), PMFS; Vice President and Director
of The Asia Pacific Fund, Inc. (since May 1989) and
Director of Nicholas Applegate Fund, Inc. (since
February 1992).
Walter E. Watkins, Jr. Vice President Vice President, Prudential Institutional Fund
(43) Management, Inc., (since April 1993) and Prudential
30 Scranton Office Retirement Services, Inc. (since March 1994); Director
Park of Mutual Fund Administration, Prudential Defined
Moosic, PA 18507-1789 Contribution Services (since November 1992). Formerly,
financial reporting consultant (August 1991-September
1992).
Eugene S. Stark (37) Treasurer First Vice President (since January 1990) of PMF; First
One Seaport Plaza Vice President (since January 1992) of Prudential
New York, NY 10292 Securities.
S. Jane Rose (49) Secretary Senior Vice President (since January 1991) and Senior
One Seaport Plaza Counsel (since June 1987) of PMF; Senior Vice
New York, NY 10292 President and Senior Counsel of Prudential Securities
(since July 1992); formerly Vice President and
Associate General Counsel of Prudential Securities.
Marguerite E.H. Assistant Vice President and Associate General Counsel (since June
Morrison (39) Secretary 1991) of PMF; Vice President and Associate General
One Seaport Plaza Counsel of Prudential Securities.
New York, NY 10292
- ---------------
* "Interested" Trustee, as defined in the 1940 Act, by reason of his affiliation with the Manager,
the Distributor or a Subadviser.
</TABLE>
B-6
<PAGE>
As of January 12, 1996, the Trustees and officers of the Fund, as a group
owned beneficially less than 1% of the stock of the Company. As of January 23,
1996, each of the following entities owned more than 5% of the outstanding
voting securities of each of the portfolios indicated:
<TABLE>
<CAPTION>
Portfolio Shares
- ------------------------- -----------------
<S> <C> <C>
Growth Stock Fund PAMCO VCA OA Account 943,399 (6%)
30 Scranton Office Park
Moosic, PA 18507-1774
Prudential Employee Savings Plan 4,378,426 (28.1%)
71 Hanover Road
Florham Park, NJ 07932-1502
Rite Aid Employee Investment
Opportunity Plan 1,913,760 (12.2%)
Rite Aid Corporation
30 Hunter Lane
Camp Hill, PA 17011
Stock Index Fund PAMCO VCA OA Account 1,619,698 (19%)
30 Scranton Office Park
Moosic, PA 18507-1774
Prudential Employee Savings Plan 2,460,902 (28.8%)
71 Hanover Road
Florham Park, NJ 07932-1502
Eden Brewery Thrift Savings Plan and
Fort Worth Brewery Thrift Savings Plan
Miller Brewing Company 533,960 (6.2%)
3939 West Highland Blvd.
Milwaukee, WI 53201-0482
International Stock Fund Prudential Employee Savings Plan 4,017,916 (41.8%)
71 Hanover Road
Florham Park, NJ 07932-1502
PAMCO VCA OA Account 1,235,510 (12.8%)
30 Scranton Office Park
Moosic, PA 18507-1774
Deferred Compensation Plan for
Employees of The Metropolitan
Transportation Authority, its
Subsidiaries and Affiliates and
Thrift Plan for Employees of The
Metropolitan Transportation Authority,
its Subsidiaries and Affiliates 543,152 (5.6%)
347 Madison Ave.
New York, NY 10017
Rite Aid Employee Investment
Opportunity Plan 572,074 (5.9%)
30 Hunter Lane
Camp Hill, PA 17011
Balanced Fund PAMCO VCA OA Account 1,840,795 (25.1%)
30 Scranton Office Park
Moosic, PA 18507-1774
Prudential Employee Saving Plan 1,911,531 (26%)
71 Hanover Road
Florham Park, NJ 07932-1502
</TABLE>
B-7
<PAGE>
<TABLE>
<CAPTION>
Portfolio Shares
- ------------------------- -----------------
<S> <C> <C>
Seibels, Bruce & Company 414,964 (5.6%)
Employees' Profit Sharing and
Savings Plan
1501 Lady Street
Columbia, SC 29202
Active Balanced Fund PAMCO VCA OA Account 1,575,825 (14%)
30 Scranton Office Park
Moosic, PA 18507-1774
Dobson Park Industries Inc. and Affiliates
Savings Plan and
Dobson Park Industries Inc. and Affiliates
Cash Balance Pension Plan
Dobson Technologies, Inc. 776,559 (6.9%)
c/o IRD Mechanalysis
6150 Huntley Road
Columbus, OH 43229
Rite Aid Employee Investment
Opportunity Plan 1,027,817 (9.1%)
Rite Aid Corporation
30 Hunter Lane
Camp Hill, PA 17011
Thompson & Knight Savings Plan and
Thompson & Knight Retirement Plan 1,196,886 (10.6%)
300 First City Center
1700 Pacific Ave.
Dallas, TX 75201
Income Fund Prudential Insurance Company 2,932,815 (52.7%)
of America
30 Scranton Office Park
Moosic, PA 18507-1789
Rite Aid Employee Investment
Opportunity Plan 738,345 (13.3%)
Rite Aid Corporation
30 Hunter Lane
Camp Hill, PA 17011
Money Market Fund Prudential Insurance Company 28,188,209
of America (48.4%)
30 Scranton Office Park
Moosic, PA 18507-1789
</TABLE>
The Prudential Insurance Company of America is a mutual life insurance
company incorporated in 1873 under the laws of the state of New Jersey. The
Prudential Employee Savings Plan is a defined contribution retirement plan. The
PAMCO VCA OA Account is a portion of The Prudential Variable Contract Investment
Fund, a separate account, established in 1962, of The Prudential Insurance
Company of America.
The interested trustees serve without compensation. The following table
sets forth the aggregate compensation paid by the Company to the Trustees who
are not affiliated with the Manager for the fiscal year ended September 30, 1995
and the aggregate compensation paid to such Trustees for service on the
Company's board and that of all other funds managed by Prudential Institutional
Fund Management, Inc. (Fund Complex) for the fiscal year ended September 30,
1995.
B-8
<PAGE>
<TABLE>
<CAPTION>
Compensation Table
- --------------------------------------------------------------------------------------------------------
Pension or Total
Retirement Compensation
Benefits Accrued Estimated from Company
Aggregate As Part of Annual and Fund
Compensation Company Benefits Upon Complex Paid
Name and Position From Company Expenses Retirement to Trustees
- ------------------------------ ------------- ----------------- -------------- -------------
<S> <C> <C> <C> <C>
David A. Finley--Trustee 15,$000 NONE N/A 15$,000(1/7)**
William E. Fruhan,
Jr.--Trustee 15,000 NONE N/A 15,000(1/7)**
August G. Olsen*--Trustee 15,000 NONE N/A 15,000(1/7)**
Herbert G. Stolzer*--Trustee 15,000 NONE N/A 15,000(1/7)**
* All of the compensation from the Company for the fiscal year ended September 30, 1995 represents
deferred compensation. Aggregate compensation from the Company and the Fund Complex for the fiscal
year ended September 30, 1995, including accrued income and appreciation, amounted to approximately
$18,339 for Mr. Olsen and approximately $21,792 for Mr. Stolzer.
**Indicates number of Funds/portfolios in Fund Complex to which aggregate compensation relates.
</TABLE>
OTHER CONSIDERATIONS
Net Asset Value
Portfolio securities of each Fund, except the Money Market Fund, are
generally valued as follows: (1) Securities for which the primary market is on
an exchange are valued at the last sale price on such exchange on the day of
valuation or, if there was no sale on such day, at the average of readily
available closing bid and asked prices on such day; (2) Securities that are
actively traded in the over-the-counter ("OTC") market, including listed
securities for which the primary market is believed to be over-the-counter, are
valued at the average of the most recently quoted bid and asked prices provided
by a principal market maker; (3) Securities issued in private placements are
valued at the mean between the bid and asked prices provided by primary market
dealers or, if no primary dealers are able to provide a market value, at fair
value determined by a valuation committee of Trustees (the "Valuation
Committee"); (4) U.S. Government securities for which market quotations are
available are valued at a price provided by an independent broker/dealer or
pricing service; (5) Short-term debt securities, including bonds, notes,
debentures and other debt securities, and money market instruments such as
certificates of deposit, commercial paper, bankers' acceptances and obligations
of domestic and foreign banks, with remaining maturities of more than 60 days
for which reliable market quotations are readily available, are valued at
current market quotations as provided by an independent broker/dealer or pricing
service; (6) Short-term investments with remaining maturities of 60 days or less
are valued at cost with interest accrued or discount amortized to the date of
maturity, unless the Trustees determine that such valuation does not represent
fair value; (7) Options on securities that are listed on an exchange are valued
at the last sales price at the close of trading on such exchange or, if there
was no sale on the applicable options exchange on such day, at the average of
the quoted bid and asked prices as of the close of such exchange; (8) Futures
contracts and options thereon traded on a commodities exchange or board of trade
are valued at the last sale price at the close of trading on such exchange or
board of trade or, if there was no sale on the applicable commodities exchange
or board of trade on such day, at the average of quoted bid and asked prices as
of the close of such exchange or board of trade; (9) Quotations of foreign
securities in a foreign currency shall be converted to U.S. dollar equivalents
at the current rate obtained from a recognized bank or dealer; (10) Forward
currency exchange contracts are valued at the current cost of covering or
offsetting such contracts; (11) OTC options are valued at the mean between bid
and asked prices provided by a dealer, with additional prices obtained for
comparison, monthly and as indicated by monitoring of the underlying securities;
(12) Securities for which market quotations are not available, other than
private placements, are valued at a price supplied by a pricing agent approved
by the Trustees; (13) Securities for which reliable market quotations are not
available or for which the pricing agent or principal market maker does not
provide a valuation or provides a valuation that, in the judgment of the
applicable Adviser, does not represent fair value, are valued by the Valuation
Committee on the basis of cost of the security, transactions in comparable
securities, relationships among various securities and other factors determined
by the Adviser to materially affect the value of the security. The Company may
engage pricing services to obtain any prices.
The Trustees have determined that in the best interests of shareholders the
best method currently available for valuing the Money Market Fund's securities
is amortized cost. The Trustees continuously review this method of valuation to
assure that the Money Market Fund's securities are valued at their fair value,
as determined by the Trustees in good faith. The Trustees are obligated, as a
particular responsibility within the overall duty of care owed to shareholders,
to establish procedures reasonably designed, taking into account current market
conditions and the Money Market Fund's investment objective, to stabilize the
net asset value per share as computed for the purpose of distribution and
redemption at $1.00 per share. The Trustees' procedures include periodically
monitoring, as appropriate and at such intervals as are reasonable in light of
current market conditions, the relationship between the amortized cost value per
share and a net asset value per share based upon available indications of market
value.
B-9
<PAGE>
While the amortized cost method provides certainty in valuation, it may
result in periods during which value, as determined by amortized cost, is higher
or lower than the price the Money Market Fund would receive if it sold the
instrument. During periods of declining interest rates, the quoted yield on
shares of the Money Market Fund may tend to be higher than a like computation
made by a fund with identical investments utilizing a method of valuation based
upon market prices and estimates of market prices for all of its portfolio
instruments. Thus, if the use of amortized cost by the Money Market Fund
resulted in a lower aggregate portfolio value on a particular day, a prospective
investor in the Money Market Fund would be able to obtain a somewhat higher
yield if he or she purchased shares of the Money Market Fund on that day, than
would result from investment in a fund utilizing solely market values, and
existing investors in the Money Market Fund would receive less investment
income. The converse would apply in a period of rising interest rates.
Portfolio securities traded on more than one U.S. national securities
exchange or foreign securities exchange are valued at the last sale price on the
business day as of which such value is being determined at the close of the
exchange representing the principal market for such securities. The value of all
assets and liabilities expressed in foreign currencies will be converted into
U.S. dollar values at the current rate obtained from a recognized bank or
dealer. If such quotations are not available, the rate of exchange will be
determined in good faith by or under procedures established by the Trustees of
the Company.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
on each business day in New York (i.e., a day on which the New York Stock
Exchange ("NYSE") is open for trading). In addition, European or Far Eastern
securities trading generally or in a particular country or countries may not
take place on all business days in New York. Furthermore, trading takes place in
Japanese markets on certain Saturdays and in various foreign markets on days
which are not business days in New York and on which the Funds' net asset values
are not calculated. Such calculation does not take place contemporaneously with
the determination of the prices of the majority of the portfolio securities used
in such calculation. Events affecting the values of portfolio securities that
occur between the time their prices are determined and the close of the regular
trading on the NYSE will not be reflected in the Fund's calculation of net asset
values unless, pursuant to procedures adopted by the Trustees, the Adviser deems
that the particular event would materially affect net asset value, in which case
an adjustment will be made.
The proceeds received by each Fund for each issue or sale of its shares,
and all net investment income, realized and unrealized gain and proceeds
thereof, subject only to the rights of creditors, will be specifically allocated
to such Fund and constitute the underlying assets of that Fund. The underlying
assets of each Fund will be segregated on the books of account, and will be
charged with the liabilities in respect to such Fund and with a share of the
general liabilities of the Company. Expenses with respect to any two or more
Funds are to be allocated in proportion to the net asset values of the
respective Funds except where allocations of direct expenses can otherwise be
fairly made.
Portfolio Transactions
Decisions to buy and sell assets for a Fund are made by the Fund's Adviser,
subject to the overall review of the Manager and the Trustees. Although
investment decisions for the Funds are made independently from those of the
other accounts managed by an Adviser, investments of the type that the Funds may
make also may be made for those other accounts. When a Fund and one or more
other accounts managed by an Adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the Adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
a Fund or the size of the position obtained or disposed of by a Fund.
Transactions on U.S. stock exchanges and some foreign stock exchanges
involve the payment of negotiated brokerage commissions. On exchanges on which
commissions are negotiated, the cost of transactions may vary among different
brokers. On most foreign exchanges, commissions are generally fixed. No stated
commission is generally applicable to securities traded in U.S. over-the-counter
markets, but the prices of those securities includes commissions or mark-ups.
The cost of securities purchased from underwriters includes an underwriting
commission or concession and the prices at which securities are purchased from
and sold to dealers include a dealer's mark-up or mark-down. U.S. Government
securities generally are purchased from underwriters or dealers, although
certain newly-issued U.S. Government securities may be purchased directly from
the U.S. Treasury or from the issuing agency or instrumentality.
In selecting brokers or dealers to execute securities transactions on
behalf of a Fund, its Adviser seeks the best overall terms available. The Funds
have no obligation to do business with any broker-dealer or group of
broker-dealers in executing transactions in securities. In placing orders, the
Advisers are subject to the Company's policy to seek the most favorable price
and efficient execution taking into account such factors as price (including the
applicable commission or dealer spread), size, type, and difficulty of the
transaction, and the firm's general execution and operating facilities. In
assessing the best overall terms available for any transaction, the Adviser will
consider the factors that it deems relevant, including the breadth of the market
in the security, the price of the security, the financial condition and
execution capability of the broker or dealer and the reasonableness of the
commission, if any, for the specific transaction and on a continuing basis. In
addition, the Advisers, subject to seeking best price and execution, are
authorized to cause a Fund to pay broker-dealers that furnish brokerage and
research services (as defined by Section 28(e) of the Securities and Exchange
Act
B-10
<PAGE>
of 1934, as amended (the "1934 Act") a higher commission than another
broker-dealer that does not furnish such brokerage and research services might
charge. The Advisers must regard such higher commissions as reasonable in
relation to the brokerage and research services provided, viewed in terms of
each Adviser's responsibilities to the Fund or other accounts, if any, as to
which it exercises investment discretion. The fees under the Management
Agreement and the Advisory Agreements, respectively, are not reduced by reason
of a Fund's Adviser receiving brokerage and research services. The Trustees of
the Company will periodically review the commissions paid by a Fund to determine
if the commissions paid over representative periods of time were reasonable in
relation to the benefits inuring to the Fund. Over-the-counter purchases and
sales by a Fund are transacted directly with principal market makers except in
those cases in which better prices and executions may be obtained elsewhere.
To the extent consistent with applicable provisions of the 1940 Act and the
rules and exemptions adopted by the SEC under the 1940 Act, the Trustees have
determined that transactions for a Fund may be executed through Prudential
Securities Incorporated ("Prudential Securities" or "PSI") and other
affiliated broker-dealers if, in the judgment of the Adviser, the use of an
affiliated broker-dealer is likely to result in price and execution at least as
favorable as those of other qualified broker-dealers, and if, in the
transaction, the affiliated broker-dealer charges the Fund a fair and reasonable
rate. Furthermore, the Trustees of the Company, including a majority of the
Trustees who are not "interested" Trustees, have adopted procedures which are
reasonably designed to provide that any commissions, fees or other remuneration
paid to PSI are consistent with the foregoing standard. In accordance with
Section 11(a) 1934 Act, Prudential Securities may not retain compensation for
effecting transactions on a national securities exchange for the Fund unless the
Fund has expressly authorized the retention of such compensation in a written
contract executed by the Fund and Prudential Securities. Section 11(a) provides
that Prudential Securities must furnish to the Fund at least annually a
statement setting forth the total amount of all compensation retained by
Prudential Securities from transactions effected for the Fund during the
applicable period. Brokerage transactions with PSI also are subject to such
fiduciary standards as may be imposed by applicable law.
The Funds may use PSI and other affiliated broker-dealers as a futures
commission merchant in connection with entering into futures contracts and
options on futures contracts if, in the judgment of a Fund's Adviser, the
affiliated broker-dealer charges the Fund a fair and reasonable rate. This
standard would allow PSI to receive no more than the remuneration which would be
expected to be received by an unaffiliated broker in a commensurate arm's-length
transaction.
The Company does not market its shares through intermediary brokers or
dealers; therefore, it is not the Company's practice to allocate brokerage or
principal business on the basis of sales of its shares which may be made through
such firms. However, the Advisers may place portfolio orders with qualified
broker-dealers who recommend the Company to clients, and may, when a number of
brokers and dealers can provide best price and execution on a particular
transaction, consider such recommendations by a broker or dealer in selecting
among broker-dealers.
Transactions in options and futures by a Fund will be subject to
limitations established by each of the exchanges and boards of trade governing
the maximum position which may be written or held by a single investor or group
of investors acting in concert, regardless of whether the options and futures
are written or held on the same or different exchanges or are written or held in
one or more accounts or though one or more brokers. Thus, the number of options
and futures which a Fund may write or hold may be affected by options and
futures written or held by the Adviser and other investment advisory clients of
the Adviser. An exchange or board of trade may order the liquidation of
positions found to be in excess of these limits, and it may impose certain other
sanctions.
The Funds will not purchase any security, including U.S. Government
securities, during the existence of any underwriting or selling group relating
thereto of which PSI is a member, except to the extent permitted by SEC rules.
During the years ended September 30, 1995 and 1994 and the period from
November 5, 1992 (commencement of operations) through September 30, 1993, the
Company paid $965, $3,247 and $1,528, respectively in brokerage commissions to
Prudential Securities.
Taxes
The following is a brief summary of some of the more important tax
considerations affecting the Company, the Funds and their shareholders. No
attempt is made to present a detailed explanation of all federal, state, local,
and foreign income tax considerations. Neither this discussion nor the tax
discussion in the Prospectus is intended to substitute for careful individual
tax planning. Accordingly, potential investors are urged to consult their own
tax advisers with specific reference to their own tax situation.
Tax Consequences to the Funds
As a separate entity for federal tax purposes, each Fund intends to
continue to qualify separately for tax treatment as a regulated investment
company ("RIC") under subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). If so qualified, each Fund will not be subject to
federal income tax with respect to its net investment income and net realized
capital gains, if any, that are distributed to its shareholders. In order to
qualify for treatment as a RIC, each Fund will have to meet income
diversification, distribution,
B-11
<PAGE>
and certain other requirements set forth in the Code. If, in any year, a Fund
should fail to qualify under the Code for tax treatment as a RIC, the Fund would
incur a regular federal corporate income tax on its taxable income, if any, for
that year.
The following Funds will elect to treat net losses incurred in the eleven
month period ended September 30, 1995 as having been incurred in the following
fiscal year:
<TABLE>
<CAPTION>
Capital Currency
----------- ---------
<S> <C> <C>
Growth Stock Fund -- $4,000
International Fund $3,066,000 $169,000
Balanced Fund -- $1,000
</TABLE>
For federal income tax purposes, the following Funds have a capital loss
carryforward as of September 30, 1995 which expires in 2003:
<TABLE>
<S> <C>
Growth Stock Fund $2,825,300
Income Fund $723,300
</TABLE>
Income and Diversification Requirements. The income tests require each Fund
to derive (i) at least 90% of its gross income in each taxable year from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of stock, securities, or foreign currencies, or
other income (including gains from options, futures, or forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies ("Income Requirement") and (ii) less than 30% of its gross income
in each taxable year from the sale or other disposition of (A) stock or
securities held for less than three months, (B) options, futures, or forward
contracts (other than those on foreign currencies) held for less than three
months, and (C) foreign currencies (or options, futures, or forward contracts on
foreign currencies) held for less than three months but only if such currencies
(or options, futures, or forward contracts) are not directly related to the
Fund's principal business of investing in stock or securities (or options or
futures with respect to stock or securities) ("Short-Short Limitation"). Each
Fund also must diversify its holdings so that, at the end of each quarter of its
taxable year, (i) at least 50% of the value of the Fund's total assets is
represented by cash and cash items, U.S. Government securities, securities of
other RICs, and other securities, with such other securities limited, in respect
of any one issuer, to an amount not greater in value than 5% of the Fund's total
assets and not more than 10% of the outstanding voting securities, and (ii) not
more than 25% of the value of its total assets is invested in the securities of
any one issuer (other than U.S. Government securities or the securities of other
RICs).
Distribution Requirement. Each Fund must distribute (or be deemed to have
distributed) 90% or more of its investment company taxable income (generally
consisting of net investment income, net short-term capital gain, and net gains
from certain foreign currency transactions) for each taxable year. Each Fund
also must meet certain other distribution requirements to avoid a 4%
nondeductible excise tax (these requirements are collectively referred to below
as the "RIC distribution requirements").
Zero Coupon Securities and Original Issue Discount. The Funds may invest in
zero coupon securities and other securities issued with original issue discount.
Such securities generate current income subject to the distribution requirements
without providing cash available for distribution. The Funds do not anticipate
that such investments will adversely affect their ability to meet the RIC
distribution requirements.
Foreign Investments. If the International Stock Fund or any other Fund
purchases shares in certain foreign corporations called "passive foreign
investment companies" ("PFICs"), the Fund may be subject to U.S. federal
income tax on a portion of any "excess distribution" or gain from the
disposition of such shares even if such income is distributed as a dividend by
the Fund to its shareholders. Because a credit for this tax could not be passed
through to shareholders, the tax effectively would reduce the Fund's economic
return from its PFIC investment. Additional charges in the nature of interest
may be imposed on a PFIC investor in respect of deferred taxes arising from such
distributions or gains. If a Fund were to invest in a PFIC and elected to treat
the PFIC as a "qualified electing fund" under the Code, then in lieu of the
foregoing tax and interest, the Fund might be required to include in income each
year a portion of the ordinary earnings and net capital gains of the qualified
electing fund, even if not distributed to the Fund, and such amounts would be
subject to the RIC distribution requirements. Management of the Company will
consider these potential tax consequences in evaluating whether to invest in a
PFIC.
Net investment income or capital gains earned by the Funds investing in
foreign securities may be subject to foreign income taxes withheld at the
source. The United States has entered into tax treaties with many foreign
countries that entitle the Funds to a reduced rate of tax or exemption from tax
on this related income and gains. It is impossible to determine the effective
rate of foreign tax in advance since the amount and the countries in which the
Funds' assets will be invested are not known. The Funds intend to operate so as
to qualify for treaty-reduced rates of tax where applicable.
Currency Fluctuations--Section 988 Gains and Losses. Gains or losses
attributable to fluctuations in exchange rates between the time a Fund accrues
dividends, interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time a Fund actually
collects such receivables or pays such liabilities, generally will be treated as
ordinary income or loss.
B-12
<PAGE>
Similarly, gains or losses on the disposition of foreign currencies or debt
securities held by a Fund denominated in a foreign currency, if any, to the
extent attributable to fluctuations in exchange rates between the acquisition
and disposition dates, generally will also be treated as ordinary income or
loss. These gains and losses are referred to under the Code as "Section 988"
gains and losses.
Furthermore, foreign currency gains and losses attributable to certain
forward contracts, futures contracts that are not "regulated futures
contracts," equity options and unlisted non-equity options also will be treated
as Section 988 gains and losses. (In certain circumstances, however, the Company
may elect capital gain or loss treatment for such transactions.) Section 988
gains and losses will increase or decrease the amount of the Company's
investment company taxable income available for distribution. The Company does
not anticipate that any Section 988 gains and losses the Funds may realize will
adversely affect the ability of any Fund to qualify as a RIC under the Code.
Option and Futures Transactions. The use of hedging strategies, such as
writing (selling) and purchasing options and futures contracts and entering into
forward contracts, involves complex rules that will determine for income tax
purposes the character and timing of recognition of the gains and losses each
Fund realizes in connection therewith. Income from foreign currencies (except
certain gains therefrom that may be excluded by future regulations), and income
from transactions in options, futures, and forward contracts derived by a Fund
with respect to its business of investing in stock, securities, or foreign
currencies, will qualify as permissible income under the Income Requirement.
However, income from the disposition of options and futures contracts (other
than those on foreign currencies) will be subject to the Short-Short Limitation
if they are held for less than three months. Income from the disposition of
foreign currencies, and options, futures, and forward contracts thereon, that
are not directly related to the Fund's principal business of investing in stock
or securities (or options and futures with respect thereto) also will be subject
to the Short-Short Limitation if they are held for less than three months.
If a Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease
in value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
Short-Short Limitation. Thus, only the net gain (if any) from the designated
hedge will be included in gross income for purposes of that limitation. Each
Fund will consider whether it should seek to qualify for this treatment for its
hedging transactions. To the extent a Fund does not so qualify, it may be forced
to defer the closing out of certain options, futures, and forward contracts
beyond the time when it otherwise would be advantageous to do so, in order for
the Fund to qualify as a RIC.
Under Section 1256 of the Code, gain or loss on certain options, futures
contracts, options on futures contracts ("Section 1256 contracts"), other than
Section 1256 contracts that are part of a "mixed straddle" with respect to
which a Fund has made an election not to have the following rules apply, will be
treated as 60% long-term and 40% short-term capital gain or loss ("blended gain
or loss"). In addition, Section 1256 contracts held by a Fund at the end of
each taxable year will be required to be treated as sold at fair market value on
the last day of such taxable year for federal income tax purposes and the
resulting gain or loss will be treated as blended gain or loss and will affect
the amount of distributions required to be made by a Fund in order to satisfy
the RIC distribution requirements.
Offsetting positions held by a Fund involving certain futures and options
transactions may be considered to constitute "straddles" which are subject to
special rules under the Code. Under these rules, depending on different
elections which may be made by the Company, the amount, timing and character of
gain and loss realized by the Company and its shareholders may be affected.
Tax Consequences to Shareholders
Ordinarily, distributions of a RIC's investment company taxable income
would be taxable to shareholders as ordinary income to the extent of the
earnings and profits of the RIC. To the extent that a distribution exceeds the
RIC's earnings and profits, it would be treated as a nontaxable return of
capital to the extent of the shareholder's tax basis in the shares of the RIC.
Distributions of net capital gain ordinarily would be taxable as long-term
capital gains. The rules discussed in this paragraph generally would apply
regardless of the length of time a shareholder holds the shares of the RIC.
The Company's present intention is to offer shares of the Funds primarily
to qualified retirement plans and other tax-exempt investors to whom the
foregoing rules do not apply. The Funds intend to satisfy the RIC distribution
requirements by distributions in the form of additional shares to its
shareholders. However, shareholders may redeem their shares, including shares
received as dividends or distributions, at any time for cash. Distributions are
generally not taxable to the participants in the shareholder plans.
Distributions from a qualified retirement plan to a participant or beneficiary
are subject to special rules. Because the effect of these rules varies greatly
with individual situations, potential investors are urged to consult their own
tax advisers.
Tax Consequences to Non-Exempt Shareholders. Dividends and other
distributions declared by a Fund in October, November or December of any year
and payable to shareholders of record on a date in any of those months are
deemed to have been paid by the Fund and received by the shareholders on
December 31 of that year if the distributions are paid by the Fund during the
following January. Accordingly, those distributions will be taxed to
shareholders that are not tax-exempt entities for the year in which that
December 31 falls.
B-13
<PAGE>
If shares of a Fund are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital loss
to the extent of any capital gain distributions received on those shares.
Non-exempt investors also should be aware that if shares are purchased shortly
before the record date for a dividend or other distribution, the purchaser will
receive some portion of the purchase price back as a taxable distribution.
PERFORMANCE AND YIELD INFORMATION
From time to time, the Company may quote a Fund's yield or total return in
advertisements or in advertisements, sales literature, reports and other
communications to shareholders.
Calculation of Money Market Fund Yield
The Money Market Fund will prepare a current quotation of yield daily. 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 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 shares, but excluding any capital changes. The
yield will vary as interest rates and market conditions change. Yield also
depends on the quality, length of maturity and type of instruments in the Money
Market Fund, 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 seven-day current yield and effective yield as of September 30, 1995 was
5.47% and 5.63% respectively.
Calculation of Fund Performance
Yield (except Money Market Fund)
The Income Fund's 30-day yield is calculated according to a formula
prescribed by the Securities and Exchange Commission ("SEC"), expressed as
follows:
YIELD = 2 [ ( a - b +1)6 - 1]
cd
Where: a=dividends and interest earned during the period.
b=expenses accrued for the period.
c=the average daily number of shares outstanding during the period that
were entitled to receive dividends.
d=the maximum offering price per share on the last day of the period.
For the purpose of determining the interest earned (variable "a" in the
formula) on debt obligations that were purchased by a Fund at a discount or
premium, the formula generally calls for amortization of the discount or
premium; the amortization schedule will be adjusted monthly to reflect changes
in the market values of the debt obligations.
Investors should recognize that, in periods of declining interest rates, a
Fund's yield will tend to be somewhat higher than prevailing market rates and,
in periods of rising interest rates, will tend to be somewhat lower. In
addition, when interest rates are falling, the inflow of net new money to a Fund
from the continuous sale of its shares will likely be invested in instruments
producing lower yields than the balance of its portfolio of securities, thereby
reducing the current yield of the Fund. In periods of rising interest rates the
opposite can be expected to occur. The yield for the 30-day period ended
September 30, 1995 for the Income Fund was 6.11%.
Average Annual Total Return
A Fund's "average annual total return" is computed according to a formula
prescribed by the SEC, expressed as follows:
P ( 1+T ) n = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value ("ERV") at the end of a 1-, 5-or 10-year
period (or fractional portion thereof) of a hypothetical $1,000
investment made at the beginning of a 1-, 5-or 10-year period
assuming reinvestment of all dividends and distributions and the
effect of the maximum annual fee for participation in the Company.
The ERV assumes complete redemption of the hypothetical investment at the
end of the measuring period. A Fund's net investment income changes in response
to fluctuations in interest rates and the expenses of the Fund. The Average
Annual Total Return for the year ended September 30, 1995 and for the period
from commencement of each Fund's operations (November 5, 1992 for the Growth
Stock
B-14
<PAGE>
Fund, Stock Index Fund, International Stock Fund and Balanced Fund and March 1,
1993 for the Income Fund and January 4, 1993 for the Active Balanced Fund and
Money Market Fund) through September 30, 1995 was: Growth Stock, 35.14% and
18.34%, respectively; Stock Index, 29.02% and 14.72%, respectively;
International Stock, 5.95% and 17.48%, respectively; Active Balanced, 17.66% and
10.49%, respectively; Balanced, 15.90% and 10.85%, respectively; Income, 13.11%
and 5.68%; and Money Market, 5.48% and 3.97%, respectively. These amounts are
computed by assuming a hypothetical initial payment of $1,000. It was then
assumed that all of the dividends and distributions paid by the Fund over the
relevant time period were reinvested. It was then assumed that at the end of the
time period, the entire amount was redeemed.
Aggregate Total Return
A Fund's aggregate total return represents the cumulative change in the
value of an investment in the Fund for the specified period and is computed by
the following formula:
ERV - P
-------
P
Where: P = a hypothetical initial payment of $1,000.
ERV = Ending Redeemable Value at the end of a 1-, 5-or 10-year period (or
fractional portion thereof) of a hypothetical $1,000 investment made
at the beginning of the 1-, 5-or 10-year period assuming
reinvestment of all dividends and distributions and the effect of
the maximum annual fee for participation in the Company.
The ERV assumes complete redemption of the hypothetical investment at the
end of the measuring period.
A Fund's net investment income changes in response to fluctuations in
interest rates and the expenses of the Fund. Consequently, the given performance
quotations should not be considered as representative of the Fund's performance
for any specified period in the future.
A Fund's performance will vary from time to time depending upon market
conditions, the composition of its portfolio and its operating expenses.
Consequently, any given performance quotation should not be considered
representative of a Fund's performance for any specified period in the future.
In addition, because performance will fluctuate, it may not provide a basis for
comparing an investment in the Fund with certain bank deposits or other
investments that pay a fixed yield for a stated period of time. Investors
comparing a Fund's performance with that of other mutual funds should give
consideration to the quality and maturity of the respective investment
companies' portfolio securities. The aggregate total return for the period from
commencement of each Fund's operations through September 30, 1995 was: Growth
Stock, 63.00%; Stock Index, 48.96% International Stock, 59.57%; Active Balanced,
31.40%; Balanced 34.84%; Income, 15.35%; and Money Market, 11.24%.
OTHER INVESTMENT PRACTICES, RISK CONDITIONS, AND POLICIES OF THE FUNDS
U.S. Government Securities
Securities issued or guaranteed by the U.S. Government or one of its
agencies, authorities or instrumentalities in which the Funds may invest include
debt obligations of varying maturities issued by the U.S. Treasury or issued or
guaranteed by an agency or instrumentality of the U.S. Government, including the
Federal Housing Administration, Farmers Home Administration, Export-Import Bank
of the U.S., Small Business Administration, Government National Mortgage
Association ("GNMA"), General Services Administration, Central Bank for
Cooperatives, Federal Farm Credit Banks, Federal Home Loan Banks, Federal Home
Loan Mortgage Corporation ("FHLMC"), Federal Intermediate Credit Banks,
Federal Land Banks, Federal National Mortgage Association ("FNMA"), Maritime
Administration, Tennessee Valley Authority, District of Columbia Armory Board,
Student Loan Marketing Association and Resolution Trust Corporation. Direct
obligations of the U.S. Treasury include a variety of securities that differ in
their interest rates, maturities and dates of issuance. Because the U.S.
Government is not obligated by law to provide support to an instrumentality that
it sponsors, a Fund will invest in obligations issued by an instrumentality of
the U.S. Government only if the Fund's Adviser determines that the
instrumentality's credit risk does not render its securities unsuitable for
investment by the Fund. For further information, see "Mortgage-Related
Securities" below.
Repurchase Agreements and Reverse Repurchase Agreements
Each Fund may enter into repurchase and reverse repurchase agreements with
banks and securities dealers which meet the creditworthiness standards
established by the Company's Trustees ("Qualified Institutions"). The Adviser
will monitor the continued creditworthiness of Qualified Institutions, subject
to the oversight of the Company's Trustees. The resale price of the securities
purchased reflects the purchase price plus an agreed upon market rate of
interest which is unrelated to the coupon rate or date of maturity of the
purchased security. The Fund receives collateral equal to the repurchase price
plus accrued interest, which is
B-15
<PAGE>
marked-to-market daily. These agreements permit the Fund to keep all its assets
earning interest while retaining "overnight" flexibility to pursue investments
of a longer-term nature.
The use of repurchase agreements and reverse repurchase agreements involve
certain risks. For example, if the seller of securities under a repurchase
agreement defaults on its obligation to repurchase the underlying securities, as
a result of its bankruptcy or otherwise, the Fund will seek to dispose of such
securities, which action could involve costs or delays. If the seller becomes
insolvent and subject to liquidation or reorganization under applicable
bankruptcy or other laws, the Fund's ability to dispose of the underlying
securities may be restricted. Finally, it is possible that the Fund may not be
able to substantiate its interest in the underlying securities. To minimize this
risk, the securities underlying the agreement will be held by the Custodian at
all times in an amount at least equal to the repurchase price, including accrued
interest. If the counterparty fails to resell or repurchase the securities, the
Fund may suffer a loss to the extent proceeds from the sale of the underlying
collateral are less than the repurchase price. Reverse repurchase agreements
involve the risk that the market value of the securities retained in lieu of
sale by the Fund may decline below the price of the securities the Fund has sold
but is obligated to repurchase.
Fixed Income Securities
In general, the ratings of Moody's Investors Service ("Moody's"),
Standard & Poor's Ratings Services ("S&P Ratings"), Duff and Phelps, Inc.
("Duff & Phelps") and other nationally recognized statistical rating
organizations ("NRSROs") represent the opinions of those organizations as to
the quality of debt obligations that they rate. These ratings are relative and
subjective, are not absolute standards of quality and do not evaluate the market
risk of securities. These ratings will be among the initial criteria used for
the selection of portfolio securities. Among the factors that the rating
agencies consider are the long-term ability of the issuer to pay principal and
interest and general economic trends.
Subsequent to its purchase by a Fund, an issue of debt obligations may
cease to be rated or its rating may be reduced below the minimum required for
purchase by the Fund. Neither event will require the sale of the debt obligation
by the Fund, but the Fund's Adviser will consider the event in its determination
of whether the Fund should continue to hold the obligation. In addition, to the
extent that the ratings change as a result of changes in rating organizations or
their rating systems or owing to a corporate restructuring of Moody's, S&P
Ratings, Duff & Phelps or other NRSRO, the Fund will attempt to use comparable
ratings as standards for its investments in accordance with its investment
objectives and policies. The Appendix to this Statement of Additional
Information contains further information concerning the ratings of Moody's, S&P
Ratings and Duff & Phelps and their significance.
All Funds, except the Money Market Fund and the Stock Index Fund may
invest, to a limited extent, in medium, lower-rated and unrated debt securities.
Debt securities rated in the lowest category of investment grade debt (i.e., Baa
by Moody's or BBB by S&P Ratings) may have speculative characteristics, and
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity to make principal and interest payments than is the case
with higher grade bonds.
Non-investment grade fixed income securities are rated lower than Baa/BBB
(or the equivalent rating or, if not rated, determined by the relevant Adviser
to be of comparable quality to securities so rated) and are commonly referred to
as high risk or high yield securities or "junk" bonds. High yield securities
are generally riskier than higher quality securities and are subject to more
credit risk, including risk of default, and the prices of such securities are
more volatile than higher quality securities. Such securities may also have less
liquidity than higher quality securities. None of the Funds is authorized to
invest in excess of 5% of its net assets in non-investment grade fixed income
securities.
The markets in which medium and lower-rated securities (or unrated
securities that are equivalent to medium and lower-rated securities) are traded
are generally more limited than those in which higher-rated securities are
traded. The existence of limited markets may make it more difficult for the
Funds to obtain accurate market quotations for purposes of valuing its portfolio
and calculating its net asset value. Moreover, the lack of liquid trading market
may restrict the availability of debt securities for a Fund to purchase and may
also have the effect of limiting the ability of a Fund to sell debt securities
at their fair value either to meet redemption requests or to respond to changes
in the economy or the financial markets.
Lower-rated fixed income securities present risks based on payment
expectations. If an issuer calls the obligation for redemption, a Fund may have
to replace the security with a lower-yielding security, resulting in a decreased
return for investors. Also, as the principal value of fixed income securities
moves inversely with movements in interest rates, in the event of rising
interest rates, the value of the securities held by a Fund may decline
proportionately more than a Fund consisting of higher-rated securities.
Investments in zero coupon bonds may be more speculative and subject to greater
fluctuations in value due to changes in interest rates than bonds that pay
interest currently. If a Fund experiences unexpected net redemptions, it may be
forced to sell its higher-rated bonds, resulting in a decline in the overall
credit quality of the securities held by the Fund and increasing the exposure of
the Fund to the risks of lower-rated securities.
B-16
<PAGE>
When-Issued and Delayed Delivery Securities
To secure prices deemed advantageous at a particular time, each Fund may
purchase securities on a when-issued or delayed delivery basis, in which case
delivery of the securities occurs beyond the normal settlement period; payment
for or delivery of the securities would be made at the same time or prior to the
reciprocal delivery or payment by the other party to the transaction. A Fund
will enter into when-issued or delayed delivery transactions for the purpose of
acquiring securities and not for the purpose of leverage. When-issued securities
purchased by a Fund may include securities purchased on a "when, as and if
issued" basis under which the issuance of the securities depends on the
occurrence of a subsequent event, such as approval of a merger, corporate
reorganization or debt restructuring.
Securities purchased on a when-issued or delayed delivery basis may expose
a Fund to risk because the securities may experience fluctuations in value prior
to their actual delivery. A Fund does not accrue income with respect to a
when-issued or delayed-delivery security prior to its stated delivery date.
Purchasing securities on a when-issued or delayed delivery basis may involve the
additional risk that the yield available in the market when the delivery takes
place may be higher than that obtained in the transaction itself.
Forward Rolls and Dollar Rolls
Forward roll and dollar roll transactions involve the risk that the market
value of the securities sold by a Fund may decline below the repurchase price of
those securities. At the time the Fund enters into a forward roll transaction,
it will place in a segregated account with its Custodian cash, U.S. Government
securities and other liquid high grade debt securities having a value equal to
the repurchase price (including accrued interest) and will subsequently mark the
account to market.
Mortgage-Related Securities
Mortgage-backed securities may be classified as private, governmental or
government related, depending on the issuer or guarantor. Private
mortgage-backed securities represent pass-through pools consisting principally
of conventional residential mortgage loans created by non-governmental issuers,
such as commercial banks, savings and loan associations and private mortgage
insurance companies. Governmental mortgage-backed securities are backed by the
full faith and credit of the United States. GNMA, the principal U.S. guarantor
of such securities, is a wholly-owned corporate instrumentality of the United
States within the Department of Housing and Urban Development. Pass-through
securities issued by FNMA are guaranteed as to timely payment of principal and
interest by FNMA, which guarantee is not backed by the full faith and credit of
the U.S. Government. FHLMC is a corporate instrumentality of the United States,
the stock of which is owned by the Federal Home Loan Banks. Participation
certificates representing interests in mortgages from FHLMC's national portfolio
are guaranteed as to the timely payment of interest and ultimate, but generally
not timely collection of principal by FHLMC. The obligations of the FHLMC under
its guarantee are obligations solely of FHLMC and are not backed by the full
faith and credit of the U.S. Government.
The Funds expect that private and governmental entities may create mortgage
loan pools offering pass-through investments in addition to those described
above. The mortgages underlying these securities may be alternative mortgage
instruments, that is, mortgage instruments whose principal or interest payments
may vary or whose terms to maturity may be shorter than previously customary. As
new types of mortgage-backed securities are developed and offered to investors,
the Funds, consistent with their respective investment objectives and policies,
will consider making investments in those new types of securities.
The Funds may also invest in pass-through securities backed by adjustable
rate mortgages that have been issued by GNMA, FNMA and FHLMC or private issuers.
These securities bear interest at a rate that is adjusted monthly, quarterly or
annually. The prepayment experience of the mortgages underlying these securities
may vary from that for fixed rate mortgages.
The average maturity of pass-through pools of mortgage-related securities
varies with the maturities of the underlying mortgage instruments. In addition,
a pool's stated maturity may be shortened by unscheduled payments on the
underlying mortgages. Factors affecting mortgage prepayments include the level
of interest rates, general economic and social conditions, the location of the
mortgaged property and age of the mortgage. Because prepayment rates of
individual pools vary widely, it is not possible to predict accurately the
average life of a particular pool. Common practice is to assume that prepayments
will result in an average life ranging from two to ten years for pools of fixed
rate 30-year mortgages. Pools of mortgages with other maturities or different
characteristics will have varying average life assumptions.
Because prepayments of principal generally occur when interest rates are
declining, it is likely that a Fund will have to reinvest the proceeds of
prepayments at lower interest rates than those at which the assets were
previously invested. If this occurs, a Fund's yield will correspondingly
decline. Thus, mortgage-related securities may have less potential for capital
appreciation in periods of falling interest rates than other fixed-income
securities of comparable maturity, although these securities may have a
comparable risk of decline in market value in periods of rising interest rates.
To the extent that a Fund purchases mortgage-related securities at a premium,
unscheduled prepayments, which are made at par, will result in a loss equal to
any unamortized premium.
B-17
<PAGE>
Government stripped mortgage-related interest-only ("IOs") and principal
only ("POs") securities are currently traded in an over-the-counter market
maintained by several large investment banking firms. There can be no assurance
that a Fund will be able to effect a trade of IOs or POs at a time when it
wishes to do so. The Funds will acquire IOs and POs only if, in the opinion of
the Fund's Adviser, a secondary market for the securities exists at the time of
acquisition, or is subsequently expected. A Fund will treat IOs and POs that are
not U.S. Government securities as illiquid and will limit its investments in
these securities, together with other illiquid investments, in order not to hold
more than 15% (10% in the case of the Money Market Fund) of its net assets in
illiquid securities. With respect to IOs and POs that are issued by the U.S.
Government, the Advisers, subject to the supervision of the Trustees, may
determine that such securities are liquid, if they determine the securities can
be disposed of promptly in the ordinary course of business at a value reasonably
close to that used in the calculation of net asset value per share.
Investing in IOs and POs involves the risks normally associated with
investing in government and government agency mortgage-related securities. In
addition, the yields on IOs and POs are extremely sensitive to the prepayment
experience on the mortgage loans underlying the certificates collateralizing the
securities. If a decline in the level of prevailing interest rates results in a
rate of principal prepayments higher than anticipated, distributions of
principal will be accelerated, thereby reducing the yield to maturity on IOs and
increasing the yield to maturity on POs. Sufficiently high prepayment rates
could result in a Fund not fully recovering its initial investment in an IO.
Mortgage-related securities may not be readily marketable. To the extent
any of these securities are not readily marketable in the judgment of the Fund's
Adviser, the investment restriction limiting a Fund's investment in illiquid
instruments will apply.
Collateralized Mortgage Obligations
The Funds also may invest in, among other things, parallel pay CMOs and
Planned Amortization Class CMOs (PAC Bonds). Parallel pay CMOs are structured to
provide payments of principal on each payment date to more than one class. These
simultaneous payments are taken into account in calculating the stated maturity
date or final distribution date of each class, which, as with other CMO
structures, must be retired by its stated maturity date or final distribution
date but may be retired earlier. PAC Bonds generally require payments of a
specified amount of principal on each payment date. PAC Bonds always are
parallel pay CMOs with the required principal payment on such securities having
the highest priority after interest has been paid to all classes.
In reliance on SEC rules and orders, the Funds' investments in certain
qualifying CMOs, including CMOs that have elected to be treated as Real Estate
Mortgage Investment Conduits (REMICs), are not subject to the 1940 Act's
limitation on acquiring interests in other investment companies. In order to be
able to rely on the SEC's interpretation, the CMOs and REMICs must be unmanaged,
fixed-asset issuers that (i) invest primarily in mortgage-backed securities,
(ii) do not issue redeemable securities, (iii) operate under general exemptive
orders exempting them from all provisions of the 1940 Act, and (iv) are not
registered or regulated under the 1940 Act as investment companies. To the
extent that a Fund selects CMOs or REMICs that do not meet the above
requirements, the Fund may not invest more than 10% of its assets in all such
entities and may not acquire more than 3% of the voting securities of any single
such entity.
Asset-Backed Securities
The value of these securities may change because of changes in the market's
perception of the creditworthiness of the servicing agent for the pool, the
originator of the pool, or the financial institution providing credit support
enhancement for the pool.
Custodial Receipts
Each Fund, other than the Growth Stock Fund, the Stock Index Fund, the
International Fund and the Money Market Fund, may acquire custodial receipts or
certificates, such as CATS, TIGRs and FICO Strips, underwritten by securities
dealers or banks, that evidence ownership of future interest payments, principal
payments or both on certain notes or bonds issued by the U.S. Government, its
agencies, authorities or instrumentalities. The underwriters of these
certificates or receipts purchase a U.S. Government security and deposit the
security in an irrevocable trust or custodial account with a custodian bank,
which then issues receipts or certificates that evidence ownership of the
periodic unmatured coupon payments and the final principal payment on the U.S.
Government security. Custodial receipts evidencing specific coupon or principal
payments have the same general attributes as zero coupon U.S. Government
securities.
There are a number of risks associated with investments in custodial
receipts. Although, typically, under the terms of a custodial receipt, a Fund is
authorized to assert its rights directly against the issuer of the underlying
obligation, the Fund may be required to assert through the custodian bank such
rights as may exist against the underlying issuer. Thus, in the event the
underlying issuer fails to pay principal and/or interest when due, a Fund may be
subject to delays, expenses and risks that are greater than those that would
have been involved if the Fund had purchased a direct obligation of the issuer.
In addition, in the event that the trust or custodial account in which the
underlying security has been deposited is determined to be an association
taxable as a corporation, instead of a non-taxable entity, the yield on the
underlying security would be reduced in respect of any taxes paid.
B-18
<PAGE>
Securities Lending
A Fund will enter into securities lending transactions only with Qualified
Institutions. A Fund will comply with the following conditions whenever it lends
securities: (i) the Fund must receive at least 100% cash collateral or
equivalent securities from the borrower; (ii) the value of the loan is
"marked-to-market" on a daily basis; (iii) the Fund must be able to terminate
the loan at any time; (iv) the Fund must receive reasonable interest on the
loan, as well as any dividends, interest or other distributions on the loaned
securities and any increase in market value; (v) the Fund may pay only
reasonable custodian fees in connection with the loan; and (vi) voting rights on
the loaned securities may pass to the borrower except that, if a material event
adversely affecting the investment in the loaned securities occurs, the Fund
must terminate the loan and regain the right to vote the securities. A Fund may
pay reasonable finders', administrative and custodial fees in connection with a
loan of its securities. In these transactions, there are risks of delay in
recovery and in some cases even of loss of rights in the collateral should the
borrower of the securities fail financially.
Borrowing
Each Fund (except for the Money Market Fund) may borrow from time to time,
at its Adviser's discretion, to take advantage of investment opportunities, when
yields on available investments exceed interest rates and other expenses of
related borrowing, or when, in the Adviser's opinion, unusual market conditions
otherwise make it advantageous for the Fund to increase its investment capacity.
A Fund will only borrow when there is an expectation that it will benefit the
Fund after taking into account considerations such as interest income and
possible losses upon liquidation. Borrowing by a Fund creates an opportunity for
increased net income but, at the same time, creates risks, including the fact
that leverage may exaggerate changes in the net asset value of Fund shares and
in the yield on the Fund. A Fund may also borrow for temporary, extraordinary or
emergency purposes and for the clearance of transactions.
Securities of Foreign Issuers
The value of a Fund's foreign investments may be significantly affected by
changes in currency exchange rates. The dollar value of a foreign security
generally decreases when the value of the dollar rises against the foreign
currency in which the security is denominated and tends to increase when the
value of the dollar falls against such currency. In addition, the value of a
Fund's assets may be affected by losses and other expenses incurred in
converting between various currencies in order to purchase and sell foreign
securities and by currency restrictions and exchange control regulation.
The economies of many of the countries in which the Stock Index Fund and
other Funds may invest are not as developed as the economy of the U.S. and may
be subject to significantly different forces. Political or social instability,
expropriation or confiscatory taxation, and limitations on the removal of funds
or other assets, could also adversely affect the value of investments.
Foreign companies are generally not subject to the regulatory controls
imposed on U.S. issuers and, in general, there is less publicly available
information about foreign securities than is available about domestic
securities. Many foreign companies are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to domestic companies. Income from foreign
securities owned by a Fund may be reduced by a withholding tax at the source
which would reduce dividend income payable to shareholders.
Brokerage commission rates in foreign countries, which are generally fixed
rather than subject to negotiation as in the U.S. are likely to be higher. The
securities markets in many of the countries in which a Fund may invest will have
substantially less trading volume than the principal U.S. markets. As a result,
the securities of some companies in these countries may be less liquid and more
volatile than comparable U.S. securities. There is generally less government
regulation and supervision of foreign stock exchanges, brokers and issuers which
may make it difficult to enforce contractual obligations.
Liquidity Puts
Each Fund, other than the Growth Stock Fund and the Stock Index Fund, may
purchase instruments together with the right to resell the instruments at an
agreed-upon price or yield, within a specified period prior to the maturity date
of the instruments. This instrument is commonly known as a "put bond" or a
"tender option bond."
Consistent with each Fund's investment objective, a Fund may purchase a put
so that it will be fully invested in securities while preserving the necessary
liquidity to purchase securities on a when-issued basis, to meet unusually large
redemptions and to purchase at a later date securities other than those subject
to the put. A Fund will generally exercise the puts or tender options on their
expiration date when the exercise price is higher than the current market price
for the related fixed income security. Puts or tender options may be exercised
prior to the expiration date in order to fund obligations to purchase other
securities or to meet redemption requests. These obligations may arise during
periods in which proceeds from sales of Fund shares and from recent sales of
portfolio securities are insufficient to meet such obligations or when the funds
available are otherwise allocated for investment. In addition, puts may be
exercised prior to the expiration date in the event the Adviser for the Fund
revises its evaluation of the creditworthiness of the issuer of the underlying
security. In determining whether to exercise puts or tender options prior to
their expiration date and in selecting which puts or
B-19
<PAGE>
tender options to exercise in such circumstances, the Fund's Adviser considers,
among other things, the amount of cash available to the Fund, the expiration
dates of the available puts or tender options, any future commitments for
securities purchases, the yield, quality and maturity dates of the underlying
securities, alternative investment opportunities and the desirability of
retaining the underlying securities in the Fund.
These instruments are not deemed to be "put options" for purposes of any
Fund's investment restriction.
Special Risks of Strategies Involving Options, Futures Contracts and Forward
Contracts
The use of options, futures contracts and forward currency contracts
(collectively, "Instruments") involves special considerations and risks, as
described below. Risks pertaining to particular hedging strategies are described
in the sections that follow.
(1) Successful use of most Instruments depends upon an Adviser's ability to
predict movements in the overall securities and currency markets, and interest
rates, which requires different skills than predicting changes in the prices of
individual securities. While the Advisers are experienced in the use of
Instruments, there can be no assurance that any particular strategy adopted will
succeed.
(2) There might be imperfect correlation, or even no correlation, between
price movements of an Instrument and price movements of the investments being
hedged. For example, if the value of an Instrument used in a short hedge
increased by less than the decline in value of the hedged investment, the hedge
would not be fully successful. Such a lack of correlation might occur due to
factors unrelated to the value of the investments being hedged, such as
speculative or other pressures on the markets in which Instruments are traded.
The effectiveness of hedges using Instruments on indices will depend on the
degree of correlation between price movements in the index and price movements
in the investments being hedged.
(3) Hedging strategies, if successful, can reduce risk of loss by wholly or
partially offsetting the negative effect of unfavorable price movements in the
investments being hedged. However, hedging strategies can also reduce
opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. For example, if a Fund entered into a short
hedge because its Adviser projected a decline in the price of a security in the
Fund's portfolio, and the price of that security increased instead, the gain
from that increase might be wholly or partially offset by a decline in the price
of the hedging instrument. Moreover, if the price of the hedging instrument
declined by more than the increase in the price of the security, the Fund could
suffer a loss. In either such case, the Fund would have been in a better
position had it not hedged at all.
(4) As described below, a Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in Instruments involving obligations to third parties (i.e.
Instruments other than purchased options). If a Fund were unable to close out
its positions in such Instruments, it might be required to continue to maintain
such assets or accounts or make such payments until the position expired or
matured. The requirements might impair the Fund's ability to sell a portfolio
security or make an investment at a time when it would otherwise be favorable to
do so, or require that the Fund sell a portfolio security at a disadvantageous
time. A Fund's ability to close out a position in an Instrument prior to
expiration or maturity depends on the existence of a liquid secondary market or,
in the absence of such a market, the ability and willingness of the other party
to the transaction ("contra party") to enter into a transaction closing out
the position. Therefore, there is no assurance that any hedging position can be
closed out at a time and price that is favorable to a Fund.
Options on Securities and Securities Indices
A number of risk factors are associated with options transactions. There is
no assurance that a liquid secondary market on an options exchange will exist
for any particular option, at any particular time. If a Fund is unable to effect
a closing purchase transaction with respect to covered options it has written, a
Fund will not be able to sell the underlying securities or dispose of assets
held in a segregated account until the options expire or are exercised.
Similarly, if a Fund is unable to effect a closing sale transaction with respect
to options it has purchased, it would have to exercise the options in order to
realize any profit and may incur transaction costs upon the purchase or sale of
underlying securities. The ability to terminate over-the-counter ("OTC")
option positions is more limited than the ability to terminate exchange-traded
option positions because a Fund would have to negotiate directly with a contra
party. In addition, with OTC options, there is a risk that the contra party in
such transactions will not fulfill its obligations.
A Fund pays brokerage commissions or spreads in connection with its options
transactions, as well as for purchases and sales of underlying securities. The
writing of options could result in significant increases in a Fund's turnover
rate. A Fund's transactions in options may be limited by the requirements of the
Internal Revenue Code for qualification as a regulated investment company.
The risks of investment in index options may be greater than options on
securities. Because index options are settled in cash, when a Fund writes a call
option on an index it cannot provide in advance for its potential settlement
obligations by acquiring and holding the underlying securities. A Fund can
offset some of the risk of writing a call index option position by holding a
diversified portfolio of securities similar to those on which the underlying
index is based. However, the Fund cannot, as a practical matter, acquire and
hold a
B-20
<PAGE>
portfolio containing exactly the same securities as underlie the index and, as a
result, bears a risk that the value of the securities held will vary from the
value of the index.
Even if a Fund could assemble a securities portfolio that exactly
reproduced the composition of the underlying index, it still would not be fully
covered from a risk standpoint because of the "timing risk" inherent in
writing index options. When an index option is exercised, the amount of cash
that the holder is entitled to receive is determined by the difference between
the exercise price and the closing index level on the date when the option is
exercised. As with other kinds of options, the Fund as the call writer will not
know that it has been assigned until the next business day at the earliest. The
time lag between exercise and notice of assignment poses no risk for the writer
of a covered call on a specific underlying security, such as a common stock,
because there the writer's obligation is to deliver the underlying security, not
to pay its value as of a fixed time in the past. So long as the writer already
owns the underlying security, it can satisfy its settlement obligations by
simply delivering it, and the risk that its value may have declined since the
exercise date is borne by the exercising holder. In contrast, even if the writer
of an index call holds securities that exactly match the composition of the
underlying index, it will not be able to satisfy its assignment obligations by
delivering those securities against payment of the exercise price. Instead, it
will be required to pay cash in an amount based on the closing index value on
the exercise date; and by the time it learns that it has been assigned, the
index may have declined, with a corresponding decline in the value of its
securities portfolio. This "timing risk" is an inherent limitation on the
ability of index call writers to cover their risk exposure by holding securities
positions.
If a Fund has purchased an index option and exercises it before the closing
index value for that day it available, it runs the risk that the level of the
underlying index may subsequently change. If such a change causes the exercised
option to fall out-of-the-money, the Fund will be required to pay the difference
between the closing index value and the exercise price of the option (times the
applicable multiplier) to the assigned writer.
A Fund will not purchase put options or call options if, after any such
purchase, the aggregate premiums paid for such options would exceed 20% of the
Fund's net assets. The aggregate value of the obligations underlying put options
will not exceed 25% of a Fund's net assets.
Futures Contracts and Options on Futures Contracts
A futures contract on securities or currency is an agreement to buy and
sell securities or currency at a specified price at a designated date. Futures
contracts and options thereon may be entered into for hedging purposes and for
the other purposes described in the Funds' Prospectus. A Fund may enter into
futures contracts in order to hedge against changes in interest rates, stock
market prices or currency exchange rates.
The purchase of futures or call options thereon can serve as a long hedge,
and the sale of futures or the purchase of put options thereon can serve as a
short hedge. Writing call options on futures contracts can serve as a limited
short hedge, and writing put options on futures contracts can serve as a limited
long hedge.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract, a Fund is required to deposit "initial
margin," consisting of cash, U.S. government securities or other liquid,
high-grade debt securities, in an amount generally equal to 10% or less of the
contract value. Margin must also be deposited when writing a call or put option
on a futures contract, in accordance with applicable exchange rules. Unlike
margin in securities transactions, initial margin does not represent a
borrowing, but rather is in the nature of a performance bond or good-faith
deposit that is returned to the Fund at the termination of the transaction if
all contractual obligations have been satisfied. Under certain circumstances,
such as periods of high volatility, a Fund may be required by an exchange to
increase the level of its initial margin payment.
Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking to market." Variation margin does not involve borrowing, but rather
represents a daily settlement of a Fund's obligations to or from a futures
broker. When a Fund purchases an option on a future, the premium paid plus
transaction costs are all that is at risk. In contrast, when a Fund purchases or
sells a futures contract or writes a call or put option thereon, it is subject
to daily variation margin calls that could be substantial in the event of
adverse price movements. If the Fund has insufficient cash to meet daily
variation margin requirements, it might need to sell securities at a time when
such sales are disadvantageous.
Purchasers and sellers of futures contracts and options on futures can
enter into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, an instrument identical to the
instrument purchased or sold. Positions in futures and options on futures may be
closed only on an exchange or board of trade that provides a secondary market.
Each Fund intends to enter into futures and options on futures transactions only
on exchanges or boards of trade where there appears to be a liquid secondary
market. However, there can be no assurance that such a market will exist for a
particular contract at a particular time.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a future or option on a futures contract can
vary from the previous day's settlement price; once that limit is reached, no
trades may be made that day at a price
B-21
<PAGE>
beyond the limit. Daily price limits do not limit potential losses because
prices could move to the daily limit for several consecutive days with little or
no trading, thereby preventing liquidation of unfavorable positions.
If a Fund were unable to liquidate a futures or option on a futures
contract position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The Fund would
continue to be subject to market risk with respect to the position. In addition,
except in the case of purchased options, the Fund would continue to be required
to make daily variation margin payments and might be required to maintain the
position being hedged by the future or option or to maintain cash or securities
in a segregated account.
Certain characteristics of the futures market might increase the risk that
movements in the prices of futures contracts or options on futures contracts
might not correlate perfectly with movements in the prices of the investments
being hedged. For example, all participants in the futures and options on
futures contracts markets are subject to daily variation margin calls and might
be compelled to liquidate futures or options on futures contract positions whose
prices are moving unfavorably to avoid being subject to further calls. These
liquidations could increase price volatility of the instruments and distort the
normal price relationship between the futures or options and the investments
being hedged. Also, because initial margin deposit requirements in the futures
market are less onerous than margin requirements in the securities markets,
there might be increased participation by speculators in the futures markets.
This participation also might cause temporary price distortions. In addition,
activities of large traders in both the futures and securities markets involving
arbitrage, "program trading" and other investment strategies might result in
temporary price distortions.
Foreign Currency Forward Contracts, Options and Futures Transactions
There is no limitation on the value of forward contracts into which a Fund
may enter. However, a Fund's transactions in forward contracts will be limited
to hedging involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of a forward contract with respect
to specific receivables or payables of the Fund generally arising in connection
with the purchase or sale of its securities and accruals of interest or
dividends receivable and Fund expenses. Position hedging is the sale of a
foreign currency with respect to security positions denominated or quoted in
that currency. A Fund may not position hedge with respect to a particular
currency for an amount greater than the aggregate market value (determined at
the time of making any sale of a forward contract) of securities, denominated or
quoted in, or currently convertible into, such currency. A forward contract
generally has no deposit requirements, and no commissions are charged for such
trades.
A Fund may enter into a forward contract to hedge against risk in the
following circumstances: (i) during the time period when a Fund contracts for
the purchase or sale of a security denominated in a foreign currency, or (ii)
when a Fund anticipates the receipt in a foreign currency of dividends or
interest payments on a security which it holds. By entering into a forward
contract for a fixed amount of dollars for the purchase or sale of the amount of
foreign currency involved in the underlying transaction, a Fund will be able to
protect itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the subject foreign currency during the
period between the date on which the security is purchased or sold, or on which
the dividend or interest payment is declared, and the date on which such
payments are made or received. Additionally, when a Fund's Adviser believes that
the currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, the Fund may enter into a forward contract, for a fixed
amount of dollars, to sell the amount of foreign currency approximating the
value of some or all of the securities of the Fund denominated in such foreign
currency. Further, a Fund may enter into a forward contract in one foreign
currency, or basket of currencies, to hedge against the decline or increase in
value in another foreign currency. Use of a different currency or basket of
currencies magnifies the risk that movements in the price of the forward
contract will not correlate or will correlate unfavorably with the foreign
currency being hedged.
Forward currency contracts (i) are traded in an interbank market conducted
directly between currency traders (typically commercial banks or other financial
institutions) and their customers, (ii) generally have no deposit requirements
and (iii) are typically consummated without payment of any commissions. Failure
by a Fund's contra party to make or take delivery of the underlying currency at
the maturity of the forward contract would result in the loss to the Fund of any
expected benefit of the transaction.
As is the case with futures contracts, purchasers and sellers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures, by selling or purchasing, respectively, an
instrument identical to the instrument purchased or sold. Secondary markets
generally do not exist for forward currency contracts, with the result that
closing transactions generally can be made for forward currency contracts only
by negotiating directly with the contra party. Thus, there can be no assurance
that a Fund will in fact be able to close out a forward currency contract at a
favorable price prior to maturity. In addition, in the event of insolvency of
the contra party, a Fund might be unable to close out a forward currency
contract at any time prior to maturity. In either event, the Fund would continue
to be subject to market risk with respect to the position, and would continue to
be required to maintain a position in the securities or currencies that are the
subject of the hedge or to maintain cash or securities in a segregated account.
A Fund may purchase and write put and call options on foreign currencies
traded on securities exchanges or boards of trade (foreign and domestic) and OTC
options for hedging purposes in a manner similar to that in which forward
foreign currency exchange contracts
B-22
<PAGE>
and futures contracts on foreign currencies will be employed. Options on foreign
currencies are similar to options on securities, except that a Fund has the
right to take or make delivery of a specified amount of foreign currency, rather
than securities.
Generally, the OTC foreign currency options used by a Fund are
European-style options. This means that the option is only exercisable
immediately prior to its expiration. This is in contrast to American-style
options, which are exercisable at any time prior to the expiration date of the
option.
If a Fund's Adviser anticipates purchasing a foreign security and also
anticipates a rise in the value of such foreign currency (thereby increasing the
cost of such security), the Fund may purchase call options or write put options
on the foreign currency. A Fund could also enter into a long forward contract or
a long futures contract on such currency, or purchase a call option, or write a
put option, on a currency futures contract. The use of such instruments could
offset, at least partially, the effects of the adverse movements of the exchange
rates.
Foreign Currency Strategies--Special Considerations
A Fund may use options on foreign currencies, futures on foreign
currencies, options on futures on foreign currencies and forward currency
contracts, to hedge against movements in the values of the foreign currencies in
which the Fund's securities are denominated. Such currency hedges can protect
against price movements in a security that the Fund owns or intends to acquire
that are attributable to changes in the value of the currency in which it is
denominated. Such hedges do not, however, protect against price movements in the
securities that are attributable to other causes.
A Fund might seek to hedge against changes in the value of a particular
currency when no futures contract, forward contract or option involving that
currency is available or one of such contracts is more expensive than certain
other contracts. In such cases, the Fund may hedge against price movements in
that currency by entering into a contract on another currency or basket of
currencies, the values of which the Fund's Adviser believes will have a positive
correlation to the value of the currency being hedged. The risk that movements
in the price of the contract will not correlate perfectly with movements in the
price of the currency being hedged is magnified when this strategy is used.
The value of futures contracts, options on futures contracts, forward
contracts and options on foreign currencies depends on the value of the
underlying currency relative to the U.S. dollar. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of futures contracts, forward
contracts or options, a Fund could be disadvantaged by dealing in the odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirements that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or futures markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements might take place in the underlying markets that cannot
be reflected in the markets for the futures contracts or options until they
reopen.
Settlement of futures contracts, forward contracts and options involving
foreign currencies might be required to take place within the country issuing
the underlying currency. Thus, a Fund might be required to accept or make
delivery of the underlying foreign currency in accordance with any U.S. or
foreign regulations regarding the maintenance of foreign banking arrangements by
U.S. residents and might be required to pay any fees, taxes and charges
associated with such delivery assessed in the issuing country.
Covered Forward Currency Contracts, Futures Contracts and Options
Transactions using forward currency contracts, futures contracts and
options (other than options that a Fund has purchased) expose the Fund to an
obligation to another party. A Fund will not enter into any such transactions
unless it owns either (1) an offsetting ("covered") position in securities,
currencies, or other options, forward currency contracts or futures contracts,
or (2) liquid assets with a value sufficient at all times to cover its potential
obligations not covered as provided in (1) above. Each Fund will comply with SEC
guidelines regarding cover for these instruments and, if the guidelines so
require, set aside cash, U.S. government securities or other liquid, high-grade
debt securities in a segregated account with its Custodian in the prescribed
amount.
Assets used as cover or held in a segregated account cannot be sold while
the position in the corresponding forward currency contract, futures contract or
option is open, unless they are replaced with similar assets. As a result, the
commitment of a large portion of a Fund's assets to cover or segregated accounts
could impede portfolio management or the Fund's ability to meet redemption
requests or other current obligations.
B-23
<PAGE>
Illiquid Securities
The Growth Stock Fund, International Stock Fund, Stock Index Fund, Active
Balanced Fund, Balanced Fund and the Money Market Fund may each hold up to 10%
of their net assets in illiquid securities. The Income Fund may hold up to 15%
of its net assets in illiquid securities. Illiquid securities include repurchase
agreements which have a maturity of longer than seven days and securities that
are illiquid by virtue of the absence of a readily available market or legal or
contractual restrictions on resale. 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
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 NASD.
Restricted securities eligible for resale pursuant to Rule 144A and
commercial paper for which there is a readily available market will not be
deemed illiquid. The Advisers will monitor the liquidity of such restricted
securities, subject to the supervision of the Trustees. In reaching liquidity
decisions, Advisers will consider, among other things, 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.
Other Investment Techniques
In order to protect the value of the Funds from interest rate fluctuations,
the Balanced Fund and the Income Fund may enter into interest rate swaps. The
Funds intend to enter into these transactions primarily to preserve a return or
spread on a particular investment or portion of its portfolio or to protect
against any increase in the price of securities the Fund anticipates purchasing
at a later date. In addition, the Income Fund may, engage in the purchase or
sale of interest rate caps, floors and collars. The purchase of an interest rate
cap entitles the purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payments of interest on a
contractually-based principal amount from the party selling such interest rate
cap. The purchase of an interest rate floor entitles the purchaser, to the
extent that a specified index falls below a predetermined interest rate, to
receive payments of interest on a contractually-based principal amount from the
party selling such interest rate floor.
A Fund may enter into interest rate swaps, caps and floors, on either an
asset-based or liability-based basis, depending on whether it is hedging its
assets or its liabilities. The Income Fund will usually enter into interest rate
swaps on a net basis, i.e., the two payment streams are netted out, with the
Fund receiving or paying, as the case may be, only the net amount of the two
payments. Inasmuch as these techniques are entered into for good faith hedging
purposes, the Manager and each Adviser believe such obligations do not
constitute senior securities and, accordingly, will not treat them as being
subject to a Fund's borrowing restrictions. When a Fund enters into interest
rate swaps on a net basis, the net amount of the excess, if any, of the Fund's
obligations over its entitlements with respect to each interest rate swap will
be accrued on a daily basis and an amount of cash or liquid securities having an
aggregate net asset value at
B-24
<PAGE>
least equal to the accrued excess will be maintained in a segregated account by
the Custodian. To the extent that a Fund enters into an interest rate swap other
than on a net basis, or sells caps or floors, the amount maintained in the
segregated account will be the full amount of the Fund's obligations. When a
Fund enters into interest rate swaps on other than a net basis, the entire
amount of the Fund's obligations, if any, with respect to such interest rate
swaps will be treated as illiquid. To the extent that a Fund enters into
interest rate swaps on a net basis, the net amount of the excess, if any, of the
Fund's obligations over its entitlements with respect to each interest rate swap
will be treated as illiquid. If there is a default by the other party to such a
transaction, the Fund will have contractual remedies pursuant to the agreements
related to the transaction.
Each Fund may take advantage of opportunities in the area of options and
futures contracts and any other derivative instruments that are not presently
contemplated for use by such Fund or that are not currently available but that
may be developed, to the extent such opportunities are both consistent with its
investment objective and legally permissible for the Fund. Before entering into
such transactions or making any such investment, the Fund will provide
appropriate disclosure in its prospectus.
INVESTMENT RESTRICTIONS
The investment restrictions listed below have been adopted by the Company
as fundamental policies of the Funds, except as otherwise indicated. Under the
1940 Act, a fundamental policy of a Fund may not be changed without the vote of
a majority of the outstanding voting securities of the Fund. As defined in the
1940 Act, a "majority of a Fund's outstanding voting securities" means the
lesser of (i) 67% of the shares represented at a meeting at which more than 50%
of the outstanding shares are present in person or represented by proxy or (ii)
more than 50% of the outstanding shares. For purposes of the following
limitations: (i) all percentage limitations apply immediately after a purchase
or initial investment; and (ii) any subsequent change in any applicable
percentage resulting from market fluctuations does not require elimination of
any asset from Fund.
A Fund may not:
1. Purchase any security if, as a result, with respect to 75% of the Fund's
total assets, more than 5% of the value of its total assets (determined at the
time of investment) would then be invested in the securities of any one issuer.
2. Purchase a security if more than 10% of the outstanding voting
securities of any one issuer would be held by the Fund.
3. Purchase a security if, as a result, 25% or more of the value of its
total assets (determined at the time of investment) would be invested in
securities of one or more issuers having their principal business activities in
the same industry. This restriction does not apply to obligations issued or
guaranteed by the United States Government, its agencies or instrumentalities
and, in the case of the Money Market Fund, to the securities of domestic banks
(including all banks which are organized under the laws of the United States or
a state (as defined in the 1940 Act) and U.S. branches of foreign banks that are
subject to the same regulations as U.S. banks.
4. Purchase or sell real estate or interests therein (including limited
partnership interests), although a Fund may purchase securities of issuers which
engage in real estate operations and securities which are secured by real estate
or interests therein.
5. Purchase or sell commodities or commodity futures contracts, except that
all Funds (other than the Money Market Fund) may purchase and sell financial
futures contracts and options thereon and that forward contracts are not deemed
to be commodities or commodity futures contracts.
6. Purchase oil, gas or other mineral leases, rights or royalty contracts
or exploration or development programs, except that a Fund may invest in the
securities of companies which operate, invest in or sponsor such programs.
7. Issue senior securities, borrow money or pledge its assets, except that
each Fund may borrow from banks or through forward rolls, dollar rolls or
reverse repurchase agreements up to 20% (except for the Balanced Fund, the
Income Fund and the Money Market Fund) of the value of its total assets to take
advantage of investment opportunities, for temporary, extraordinary or emergency
purposes, or for the clearance of transactions and may pledge up to 20% of the
value of its total assets to secure such borrowings. The Balanced Fund and the
Income Fund may borrow from banks up to 20% of the value of their respective
total assets for the same purposes and may pledge up to 20% of the value of
their respective total assets to secure such borrowings. In addition, the
Balanced Fund and the Income Fund may engage in investment techniques such as
reverse repurchase agreements, forward rolls and dollar rolls to the extent that
their respective assets dedicated to such techniques combined with the
respective values of their bank borrowings do not exceed 33 1/3% of their
respective total assets. The Money Market Fund may borrow an amount equal to no
more than 20% of the value of its total assets only for temporary, extraordinary
or emergency purposes. For purposes of this restriction, the purchase or sale of
securities on a "when-issued" or delayed-delivery basis; the purchase and sale
of options, financial futures contracts and options thereon; the entry into
repurchase agreements and collateral and margin arrangements with respect to any
of the foregoing, will not be deemed to be a pledge of assets nor the issuance
of senior securities.
B-25
<PAGE>
8. Make loans except by the purchase of fixed income securities in which a
Fund may invest consistently with its investment objective and policies or by
use of reverse repurchase and repurchase agreements, forward rolls, dollar rolls
and securities lending arrangements.
9. Make short sales of securities.
10. Purchase securities on margin, except for such short-term loans as are
necessary for the clearance of purchases of portfolio securities. (For the
purpose of this restriction, the deposit or payment by any Fund of initial or
maintenance margin in connection with financial futures contracts is not
considered the purchase of a security on margin.)
11. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter under
certain federal securities laws. The Fund has no limit with respect to
investments in restricted securities.
The Funds will not as a matter of operating policy:
1. Invest in oil, gas and mineral leases or development programs.
2. Purchase a security if, as a result, more than 15% of its total assets
would be invested in securities which are restricted as to disposition. This
restriction shall not apply to mortgage-backed securities or obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities.
3. Purchase or retain the securities of any issuer if any officer or
Trustee of the Company or the Company's Manager or any Adviser owns more than
1/2 of 1% of the outstanding securities of such issuer, and such officers and/or
Trustees, who own more than 1/2 of 1% own in the aggregate more than 5% of the
outstanding securities of such issuer.
4. Purchase warrants if, as a result, the Company would then have more than
5% of its assets (determined at the time of investment) invested in warrants.
Warrants will be valued at the lower of cost or market and investment in
warrants which are not listed on the NYSE or American Stock Exchange or a major
foreign exchange will be limited to 2% of the Company's total assets (determined
at the time of investment). For purposes of this limitation, warrants acquired
in units or attached to securities are deemed to be without value.
5. Purchase securities of other investment companies except in compliance
with the 1940 Act and applicable state law.
6. Invest in companies for the purpose of exercising control or management
of any other issuer, except in connection with a merger, consolidation,
acquisition or reorganization.
7. Invest more than 15% of its total assets in securities of unseasoned
issuers, including their predecessors, which have been in operation for less
than three years.
Whenever any fundamental investment policy or investment restriction states
a maximum percentage of a Fund's assets, it is intended that if the percentage
limitation is met at the time the investment is made, a later change in
percentage resulting from changing total or net asset values will not be
considered a violation of such policy. However, in the event that a Fund's asset
coverage for borrowings falls below 300%, the Fund will take prompt action to
reduce its borrowings, as required by applicable law.
In order to comply with the rules and regulations of certain State
securities commissions, the Funds have agreed (i) that over-the-counter options
transactions shall be entered into only when such options are not available on a
national securities exchange, and (ii) broker-dealers with whom the Fund shall
enter into such transaction shall have a minimum net worth, at the time of the
transaction is entered into, of $20 million. In addition, the Fund will only buy
and sell puts and calls on securities, stock index futures, or financial futures
or options on financial futures, if such options are written by other persons,
and if;
i) the aggregate premiums paid on all such options which are held at any
time do not exceed 20% of the Fund's total net assets; and
ii) the aggregate margin deposits required on all such futures or options
thereon held at any time do not exceed 5% of the Fund's total assets.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Company's portfolio securities
and cash and, in that capacity, maintains certain financial and accounting books
and records pursuant to an agreement with the Company.
PMF serves as the Transfer Agent and Dividend Disbursing Agent of the
Company through its wholly-owned subsidiary, Prudential Mutual Fund Services,
Inc., Raritan Plaza One, Edison, New Jersey 08837. PMFS provides customary
transfer agency services to the Company, 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. PMFS is also reimbursed for its out-of-pocket expenses, including,
but not limited to, postage, stationery, printing, allocable communications
expenses and other costs.
B-26
<PAGE>
THE PRUDENTIAL GROWTH STOCK FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS
Common Stocks--98.7%
Aerospace/Defense--2.4%
78,200 Boeing Co.......................... $ 5,337,150
-----------
Airlines--1.9%
56,900 AMR Corp.(a)....................... 4,103,913
-----------
Beverages--3.0%
49,500 Coca-Cola Co....................... 3,415,500
61,000 PepsiCo Inc........................ 3,111,000
-----------
6,526,500
-----------
Commercial Services--1.4%
90,850 CUC International, Inc.(a)......... 3,168,394
-----------
Computer Software & Services--14.3%
55,400 America Online Inc................. 3,808,750
78,300 AutoDesk, Inc...................... 3,425,625
85,300 Cisco Systems, Inc.(a)............. 5,885,700
Computer Associates International,
72,150 Inc.............................. 3,048,337
36,400 Macromedia Inc..................... 2,079,350
52,900 Microsoft Corp.(a)................. 4,787,450
64,600 SAP AG (ADR) (Germany)............. 3,544,925
62,300 Silicon Graphics Inc.(a)........... 2,141,563
87,400 Symbol Technologies, Inc.(a)....... 2,895,125
-----------
31,616,825
-----------
Cosmetics & Soaps--1.7%
79,300 Gillette Co........................ 3,776,663
-----------
Drugs & Medical Supplies--7.4%
109,000 Astra AB Class A (Sweden).......... 3,904,135
44,900 Lilly (Eli) & Co................... 4,035,388
62,900 Merck & Co., Inc................... 3,522,400
<CAPTION>
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
Smith Kline Beecham PLC (ADR)
94,300 (United Kingdom)................. $ 4,773,937
-----------
16,235,860
-----------
Electronics--11.1%
104,400 Hewlett-Packard Co................. 8,704,350
131,500 Intel Corp......................... 7,906,437
102,000 Motorola, Inc...................... 7,790,250
-----------
24,401,037
-----------
Financial Services--7.3%
43,900 Federal National Mortgage Assn..... 4,543,650
35,900 First Financial Mgmt. Corp......... 3,504,737
27,200 Morgan Stanley Group, Inc.......... 2,614,600
61,500 Mutual Risk Management, Ltd........ 2,429,250
61,800 The PMI Group Inc.................. 2,927,775
-----------
16,020,012
-----------
Health Care Services--0.6%
53,800 Value Health, Inc.(a).............. 1,425,700
-----------
Hospital Management--1.9%
86,100 United Healthcare Corp............. 4,208,138
-----------
Insurance--1.1%
American International Group,
29,450 Inc.............................. 2,503,250
-----------
Leisure--3.8%
94,300 Disney (Walt) Co................... 5,410,462
99,600 Harrahs Entertainment Inc.(a)...... 2,913,300
-----------
8,323,762
-----------
Lodging--0.8%
75,300 Promus Cos., Inc.(a)............... 1,713,075
-----------
Machinery--1.2%
78,300 Harnischfeger Industries, Inc...... 2,613,263
-----------
</TABLE>
See Notes to Financial Statements.
B-27
<PAGE>
THE PRUDENTIAL GROWTH STOCK FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Media--7.1%
Clear Channel Communications,
44,400 Inc.(a).......................... $ 3,363,300
News Corp. Ltd. (ADR)
120,100 (Australia)...................... 2,642,200
48,900 Omnicom Group...................... 3,184,613
Reuters Holdings PLC (ADR)
70,100 (United Kingdom)................. 3,706,537
43,800 Scholastic Corp.(a)................ 2,748,450
-----------
15,645,100
-----------
Miscellaneous Basic Industry--4.2%
36,000 Applied Materials, Inc.(a)......... 3,681,000
62,400 Cerner Corp.(a).................... 2,137,200
27,300 ITT Corp........................... 3,385,200
-----------
9,203,400
-----------
Miscellaneous Consumer Growth--0.9%
29,900 Eastman Kodak Co................... 1,771,575
7,000 Luxottica Group (ADR) (Italy)...... 342,125
-----------
2,113,700
-----------
Office Equipment & Supplies--1.3%
58,000 Compaq Computer Corp.(a)........... 2,805,750
-----------
Railroads--1.1%
37,800 Union Pacific Corp................. 2,504,250
-----------
Restaurants--2.5%
Lone Star Steakhouse & Saloon,
69,400 Inc.(a).......................... 2,845,400
68,000 McDonald's Corp.................... 2,601,000
-----------
5,446,400
-----------
Retail--4.6%
122,300 AutoZone, Inc.(a).................. 3,118,650
85,350 Dollar General Corp................ 2,507,156
55,533 Home Depot, Inc.................... 2,214,379
46,400 Kohls Corp. (a).................... 2,407,000
-----------
10,247,185
-----------
<CAPTION>
Value
Shares Description (Note 1)
- ------------------------------------------------------------
Technology--10.8%
74,600 Adobe Systems, Inc................. $ 3,860,550
37,800 Broderbund Software Inc............ 2,877,525
34,233 Chiron Corp.(a).................... 3,098,086
35,700 Cirrus Logic, Inc.(a).............. 2,043,825
59,500 Intuit Inc......................... 2,796,500
123,900 LSI Logic Corp.(a)................. 7,155,225
101,800 Pyxis Corp.(a)..................... 1,972,375
-----------
23,804,086
-----------
Telecommunications--4.8%
74,700 Nokia Corp. (ADR) (Finland)........ 5,210,325
46,800 Tellabs, Inc.(a)................... 1,971,450
Vodafone Group PLC (ADR)
82,100 (United Kingdom)................. 3,366,100
-----------
10,547,875
-----------
Transportation--1.5%
Wisconsin Central Transportation
48,900 Corp.(a)......................... 3,264,075
-----------
Total common stocks
(cost $163,489,413)................ 217,555,363
-----------
Principal
Amount
(000) SHORT-TERM INVESTMENT
- --------
Repurchase Agreement--2.2%
$ 4,819 Joint Repurchase Agreement Account,
6.39%, 10/2/95 (Note 5)
(cost $4,819,000)................ 4,819,000
-----------
Total Investments--100.9%
(cost $168,308,413; Note 4)........ 222,374,363
Liabilities in excess of other
assets--(0.9%)................... (1,868,969)
-----------
Net Assets--100%................... $220,505,394
-----------
-----------
</TABLE>
- ---------------
(a) Non-income producing security.
ADR--American Depository Receipt.
See Notes to Financial Statements.
B-28
<PAGE>
THE PRUDENTIAL STOCK INDEX FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS
Common Stocks and Equivalents--81.7%
Aerospace/Defense--1.7%
5,400 Allied-Signal, Inc................. $ 238,275
6,600 Boeing Co.......................... 450,450
1,200 General Dynamics Corp.............. 65,850
3,830 Lockheed Corp...................... 257,089
1,700 Loral Corp......................... 96,900
2,200 McDonnell Douglas Corp............. 182,050
1,000 Northrop Corp...................... 60,875
2,400 Raytheon Co........................ 204,000
4,200 Rockwell International Corp........ 198,450
-----------
1,753,939
-----------
Airlines--0.3%
1,450 AMR Corp.(a)....................... 104,581
1,000 Delta Airlines, Inc................ 69,250
2,700 Southwest Airlines Co.............. 68,175
1,200 USAir Group Inc.(a)................ 13,800
-----------
255,806
-----------
Aluminum--0.4%
4,400 Alcan Aluminum Ltd................. 142,450
3,400 Aluminum Co. of America............ 179,775
1,250 Reynolds Metals Co................. 72,188
-----------
394,413
-----------
Automobiles & Trucks--2.0%
7,400 Chrysler Corp...................... 392,200
800 Cummins Engine, Inc................ 30,800
2,000 Dana Corp.......................... 57,750
1,200 Echlin Inc......................... 42,900
20,700 Ford Motor Co...................... 644,287
14,400 General Motors Corp................ 675,000
2,400 Genuine Parts Co................... 96,300
800 Johnson Controls, Inc.............. 50,600
<CAPTION>
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
1,420 Navistar International Corp.(a).... $ 17,040
1,200 Safety Kleen Corp.................. 17,550
-----------
2,024,427
-----------
Banking--5.1%
7,637 Banc One Corp...................... 278,750
2,200 Bank of Boston Corp................ 104,775
3,700 Bank of New York Co., Inc.......... 172,050
7,200 BankAmerica Corp................... 431,100
1,500 Bankers Trust NY Corp.............. 105,375
1,900 Barnett Banks, Inc................. 107,588
2,500 Boatmen's Bancshares............... 92,500
3,400 Chase Manhattan Corp............... 207,825
4,900 Chemical Banking Corp.............. 298,287
7,700 Citicorp........................... 544,775
2,700 CoreStates Financial Corp.......... 98,888
1,700 First Chicago Corp................. 116,662
1,500 First Fidelity Bancorp, Inc........ 101,250
1,500 First Interstate Bank Corp......... 151,125
3,300 First Union Corp................... 168,300
2,700 Fleet Financial Group, Inc......... 101,925
1,100 Golden West Financial Corp......... 55,550
2,700 Great Western Financial Corp....... 64,125
2,300 H.F. Ahmanson & Co................. 58,363
4,400 KeyCorp............................ 150,700
2,825 Mellon Bank Corp................... 126,066
3,600 Morgan (J.P.) & Co., Inc........... 278,550
2,900 National City Corp................. 89,538
5,300 NationsBank Corp................... 356,425
3,000 NBD Bancorp, Inc................... 114,750
6,200 Norwest Corp....................... 203,050
4,400 PNC Financial Corp................. 122,650
1,100 Republic New York Corp............. 64,350
2,400 Shawmut National Corp.............. 80,700
2,200 Suntrust Banks, Inc................ 145,475
1,800 U.S. Bancorp....................... 50,850
900 Wells Fargo & Co................... 167,062
-----------
5,209,379
-----------
</TABLE>
See Notes to Financial Statements.
B-29
<PAGE>
THE PRUDENTIAL STOCK INDEX FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Beverages--3.0%
800 Adolph Coors Co.................... $ 14,500
4,900 Anheuser Busch Cos., Inc........... 305,637
1,200 Brown-Forman Corp.................. 46,650
24,400 Coca-Cola Co....................... 1,683,600
15,200 PepsiCo Inc........................ 775,200
7,200 Seagram Co., Ltd................... 258,300
-----------
3,083,887
-----------
Chemicals--2.1%
2,200 Air Products & Chemicals, Inc...... 114,675
550 Albemarle Corp..................... 10,313
5,200 Dow Chemical Co.................... 387,400
10,700 duPont (E.I.) de Nemours & Co...... 735,625
1,600 Eastman Chemical Co................ 102,400
1,800 Grace (W.R.) & Co.................. 120,150
2,200 Hercules, Inc...................... 127,600
2,300 Monsanto Co........................ 231,725
1,300 Nalco Chemical Co.................. 44,362
1,300 Rohm & Haas Co..................... 78,487
1,000 Sigma-Aldrich...................... 48,500
2,600 Union Carbide Corp................. 103,350
-----------
2,104,587
-----------
Chemical-Specialty--0.4%
2,625 Engelhard Corp..................... 66,609
400 First Mississippi Corp............. 15,950
1,300 Great Lakes Chemical Corp.......... 87,913
2,800 Morton International, Inc.......... 86,800
2,600 Praxair, Inc....................... 69,550
900 Raychem Corp....................... 40,500
-----------
367,322
-----------
Commercial Services--0.2%
3,350 CUC International, Inc.(a)......... 116,831
1,500 Deluxe Corp........................ 49,687
600 Harland (John H.) Co............... 13,275
1,900 Moore Corp. Ltd.................... 38,238
<CAPTION>
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
800 Ogden Corp......................... $ 18,800
-----------
236,831
-----------
Computer Software & Services--3.0%
900 AutoDesk, Inc...................... 39,375
2,800 Automatic Data Processing, Inc..... 190,750
1,400 Cabletron Systems, Inc.(a)......... 92,225
900 Ceridian Corp.(a).................. 39,937
5,200 Cisco Systems, Inc.(a)............. 358,800
Computer Associates International,
4,600 Inc.............................. 194,350
1,050 Computer Sciences Corp.(a)......... 67,594
1,000 Intergraph Corp.(a)................ 12,125
4,000 Micron Technology Inc.............. 318,000
11,300 Microsoft Corp.(a)................. 1,022,650
6,900 Novell, Inc.(a).................... 125,925
8,350 Oracle Systems Corp.(a)............ 320,431
3,000 Silicon Graphics Inc.(a)........... 103,125
1,800 Sun Microsystems Inc.(a)........... 113,400
1,900 Tandem Computers Inc.(a)........... 23,275
-----------
3,021,962
-----------
Construction--0.1%
1,600 Fluor Corp......................... 89,600
700 Foster Wheeler Corp................ 24,762
600 Kaufman & Broad Home Corp.......... 7,575
500 Pulte Corp......................... 14,188
-----------
136,125
-----------
Consumer Goods--0.5%
600 Centex Corp........................ 17,400
600 Fleetwood Enterprises, Inc......... 11,925
3,100 Lowes Companies, Inc............... 93,000
3,200 Masco Corp......................... 88,000
2,200 Maytag Corp........................ 38,500
1,000 Owens-Corning Fiberglas Corp.(a)... 44,625
Pioneer Hi Bred International,
1,600 Inc.............................. 73,600
</TABLE>
See Notes to Financial Statements.
B-30
<PAGE>
THE PRUDENTIAL STOCK INDEX FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Consumer Goods, cont'd.
900 Stanley Works...................... $ 39,038
1,500 Whirlpool Corp..................... 86,625
-----------
492,713
-----------
Containers--0.1%
600 Ball Corp.......................... 17,775
900 Bemis, Inc......................... 24,863
1,700 Crown Cork & Seal, Inc.(a)......... 65,875
-----------
108,513
-----------
Cosmetics & Soaps--1.9%
500 Alberto Culver Co.................. 15,250
1,350 Avon Products, Inc................. 96,863
1,000 Clorox Co.......................... 71,375
2,800 Colgate-Palmolive Co............... 186,550
8,600 Gillette Co........................ 409,575
International Flavors & Fragrances
2,150 Inc.............................. 103,737
13,300 Procter & Gamble Co................ 1,024,100
-----------
1,907,450
-----------
Diversified Gas--0.1%
2,100 Coastal Corp....................... 70,613
400 Eastern Enterprises, Inc........... 12,850
1,400 Enserch Corp....................... 23,100
1,000 NICOR Inc.......................... 27,250
500 Oneok Inc.......................... 11,625
-----------
145,438
-----------
Drugs & Medical Supplies--7.1%
15,300 Abbott Laboratories................ 652,162
1,600 ALZA Corp.(a)...................... 36,800
6,000 American Home Products Corp........ 509,250
5,100 Amgen, Inc.(a)..................... 254,362
1,000 Bard (C.R.), Inc................... 30,500
1,100 Bausch & Lomb, Inc................. 45,513
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
5,300 Baxter International Inc........... $ 217,962
1,300 Becton Dickinson & Co.............. 81,738
2,300 Biomet, Inc.(a).................... 39,675
2,900 Boston Scientific Corp.(a)......... 123,613
9,850 Bristol-Myers Squibb Co............ 717,819
12,500 Johnson & Johnson Co............... 926,562
5,700 Lilly (Eli) & Co................... 512,287
4,500 Medtronic, Inc..................... 241,875
23,900 Merck & Co., Inc................... 1,338,400
12,200 Pfizer Inc......................... 651,175
7,200 Schering-Plough Corp............... 370,800
900 St. Jude Medical, Inc.(a).......... 56,925
1,100 United States Surgical Corp........ 29,425
3,300 Upjohn Co.......................... 147,263
2,600 Warner Lambert Co.................. 247,650
-----------
7,231,756
-----------
Electronics--4.0%
2,000 Advanced Micro Devices, Inc.(a).... 58,250
2,500 Amdahl Corp.(a).................... 24,063
4,184 AMP Inc............................ 161,084
2,400 Apple Computer, Inc................ 89,400
400 Cray Research, Inc.(a)............. 8,850
400 Data General Corp.(a).............. 4,150
2,800 Digital Equipment Corp.(a)......... 127,750
1,100 EG&G, Inc.......................... 21,450
4,300 Emerson Electric Co................ 307,450
800 Harris Corp........................ 43,900
9,900 Hewlett-Packard Co................. 825,412
15,900 Intel Corp......................... 955,987
11,400 Motorola, Inc...................... 870,675
2,300 National Semiconductors Corp.(a)... 63,538
800 Perkin Elmer Corp.................. 28,500
1,300 Tandy Corp......................... 78,975
600 Tektronix, Inc..................... 35,400
3,700 Texas Instruments Inc.............. 295,537
350 Thomas & Betts Corp................ 22,619
900 Zenith Electronics Corp.(a)........ 7,763
-----------
4,030,753
-----------
</TABLE>
See Notes to Financial Statements.
B-31
<PAGE>
THE PRUDENTIAL STOCK INDEX FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Financial Services--2.4%
9,400 American Express Co................ $ 417,125
1,000 Beneficial Corp.................... 52,250
2,000 Block (H&R), Inc................... 76,000
3,258 Dean Witter Discover & Co.......... 183,262
3,500 Federal Home Loan Mortgage Corp.... 241,937
5,350 Federal National Mortgage Assn..... 553,725
2,300 First Data Corp.................... 142,600
1,900 Household International Corp....... 117,800
2,850 MBNA Corp.......................... 118,631
3,400 Merrill Lynch & Co., Inc........... 212,500
1,500 Morgan Stanley Group, Inc.......... 144,188
2,100 Salomon, Inc....................... 80,325
1,350 Transamerica Corp.................. 96,188
-----------
2,436,531
-----------
Food & Beverage--2.3%
10,596 Archer-Daniels-Midland Co.......... 162,910
4,800 Campbell Soup Co................... 241,200
4,700 ConAgra, Inc....................... 186,237
2,900 CPC International, Inc............. 191,400
700 Fleming Cos., Inc.................. 16,800
3,050 General Mills, Inc................. 170,038
1,200 Giant Foods, Inc................... 37,650
4,700 Heinz (H.J.) Co.................... 215,025
1,500 Hershey Foods Corp................. 96,563
4,250 Kellogg Co......................... 307,594
2,600 Quaker Oats Co..................... 86,125
2,000 Ralston Purina Co.................. 115,750
9,200 Sara Lee Corp...................... 273,700
3,500 Sysco Corp......................... 95,375
2,300 Wrigley (W.M.) Junior Co........... 116,150
-----------
2,312,517
-----------
Forest Products--1.5%
900 Boise Cascade Corp................. 36,338
1,900 Champion International Corp........ 102,362
160 Crown Vantage Inc.(a).............. 3,560
900 Federal Paper Board, Inc........... 34,538
1,750 Georgia Pacific Corp............... 153,125
<CAPTION>
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
4,900 International Paper Co............. $ 205,800
1,600 James River Corp................... 51,200
3,100 Kimberly Clark Corp................ 208,087
2,100 Louisiana Pacific Corp............. 50,663
1,000 Mead Corp.......................... 58,625
600 Potlatch Corp...................... 24,525
2,900 Scott Paper Co..................... 140,650
1,900 Stone Container Corp............... 36,100
1,100 Temple Inland Inc.................. 58,575
1,300 Union Camp Corp.................... 74,912
1,300 Westvaco Corp...................... 59,313
3,900 Weyerhaeuser Co.................... 177,937
1,000 Willamette Industries, Inc......... 66,750
-----------
1,543,060
-----------
Gas Pipelines--0.5%
3,018 Cinergy Corp....................... 84,127
1,000 Columbia Gas System, Inc.(a)....... 38,625
1,800 Consolidated Natural Gas Co........ 72,675
4,900 Enron Corp......................... 164,150
2,300 Noram Energy Corp.................. 18,112
2,900 Panhandle Eastern Corp............. 79,025
700 Peoples Energy Corp................ 19,250
2,000 Williams Cos., Inc................. 78,000
-----------
553,964
-----------
Hospital Management--0.9%
1,900 Beverly Enterprises, Inc.(a)....... 26,125
8,552 Columbia Healthcare Corp........... 415,841
700 Community Psychiatric Centers...... 8,225
1,200 Manor Care, Inc.................... 40,800
1,800 Service Corp. International........ 70,425
500 Shared Medical Systems Corp........ 20,750
4,000 Tenet Healthcare Corp.(a).......... 69,500
3,000 U.S. HealthCare Inc................ 106,125
3,300 United Healthcare Corp............. 161,287
-----------
919,078
-----------
Housing Construction
700 Armstrong World Industries......... 38,850
-----------
</TABLE>
See Notes to Financial Statements.
B-32
<PAGE>
THE PRUDENTIAL STOCK INDEX FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Insurance--3.1%
2,200 Aetna Life & Casualty Co........... $ 161,425
Alexander & Alexander Services,
800 Inc.............................. 19,400
8,574 Allstate Corp...................... 303,305
4,000 American General Corp.............. 149,500
American International Group,
9,212 Inc.............................. 783,020
1,650 Chubb Corp......................... 158,400
1,450 CIGNA Corp......................... 150,981
1,600 General Re Corp.................... 241,600
950 Jefferson-Pilot Corp............... 61,038
1,800 Lincoln National Corp.............. 84,825
1,400 Marsh & McLennan Cos............... 123,025
1,900 Providian Corp..................... 78,850
1,200 SAFECO Corp........................ 78,750
1,600 St. Paul Companies, Inc............ 93,400
1,450 Torchmark Corp..................... 61,081
6,131 Travelers, Inc..................... 325,709
1,400 UNUM Corp.......................... 73,850
2,300 USF&G Corp......................... 44,563
750 USLIFE Corp........................ 21,938
3,300 Wachovia Corp...................... 142,312
-----------
3,156,972
-----------
Leisure--0.9%
1,100 Bally Entertainment Group(a)....... 11,963
2,000 Brunswick Corp..................... 40,500
10,100 Disney (Walt) Co................... 579,487
400 Handleman Co....................... 3,550
1,900 Harrahs Entertainment Inc.(a)...... 55,575
1,800 Hasbro, Inc........................ 56,025
700 King World Productions, Inc.(a).... 25,637
4,250 Mattel, Inc........................ 124,844
300 Outboard Marine Corp............... 6,450
-----------
904,031
-----------
Lodging--0.1%
900 Hilton Hotels Corp................. 57,488
2,400 Marriott International, Inc........ 89,700
-----------
147,188
-----------
<CAPTION>
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
Machinery--0.9%
600 Briggs & Stratton Corp............. $ 24,150
3,800 Caterpillar Inc.................... 216,125
700 Cincinnati Milacron, Inc........... 22,050
2,000 Cooper Industries, Inc............. 70,500
1,700 Deere & Co......................... 138,337
2,200 Dover Corp......................... 84,150
1,600 Eaton Corp......................... 84,800
700 Giddings & Lewis, Inc.............. 12,206
1,000 Harnischfeger Industries, Inc...... 33,375
2,100 Ingersoll Rand Co.................. 78,750
802 PACCAR Inc......................... 37,494
1,450 Parker Hannifin Corp............... 55,100
800 Snap-On Tools Corp................. 30,400
600 Timken Co.......................... 25,575
800 Varity Corp.(a).................... 35,600
-----------
948,612
-----------
Media--2.1%
3,000 Capital Cities/ABC, Inc............ 352,875
1,220 CBS, Inc........................... 97,447
4,550 Comcast Corp....................... 91,000
3,000 Donnelley (R.R.) & Sons, Co........ 117,000
1,800 Dow Jones & Co., Inc............... 66,375
3,300 Dun & Bradstreet Corp.............. 190,987
2,750 Gannett, Inc....................... 150,219
1,500 Interpublic Group Cos., Inc........ 59,625
950 Knight-Ridder, Inc................. 55,694
1,000 McGraw Hill, Inc................... 81,750
600 Meredith Corp...................... 23,850
1,700 New York Times Co.................. 46,538
7,500 Time Warner, Inc................... 298,125
2,100 Times Mirror Co.................... 60,375
1,300 Tribune Co......................... 86,288
6,939 Viacom Inc.(a)..................... 345,215
-----------
2,123,363
-----------
Mineral Resources--0.8%
800 ASARCO Inc......................... 25,200
Barrick Gold Corp. (ADR)
6,900 (Canada)......................... 178,537
</TABLE>
See Notes to Financial Statements.
B-33
<PAGE>
THE PRUDENTIAL STOCK INDEX FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Mineral Resources, cont'd.
1,850 Cyprus Minerals Co................. $ 52,031
2,400 Echo Bay Mines, Ltd................ 26,100
Freeport-McMoRan Copper & Gold
3,800 Inc.............................. 97,375
2,500 Homestake Mining Co................ 42,500
2,300 INCO, Ltd.......................... 78,775
1,698 Newmont Mining Corp................ 72,165
1,300 Phelps-Dodge Corp.................. 81,413
800 Pittston Minerals Group............ 21,700
4,600 Placer Dome, Inc................... 120,750
2,240 Santa Fe Pacific Gold Corp......... 28,280
-----------
824,826
-----------
Miscellaneous Basic Industry--4.4%
1,700 Applied Materials, Inc.(a)......... 173,825
Bassett Furniture Industries,
225 Inc.............................. 5,653
4,100 Browning Ferris Industries, Inc.... 124,537
600 Crane Co........................... 20,700
1,300 Ecolab, Inc........................ 35,913
750 FMC Corp.(a)....................... 57,000
32,800 General Electric Co................ 2,091,000
1,000 General Signal Corp................ 29,250
1,000 Grainger (W.W.) Inc................ 60,375
2,300 Illinois Tool Works, Inc........... 135,412
2,300 ITT Corp........................... 285,200
1,100 Loews Corp......................... 160,050
1,500 Mallinckrodt Group Inc............. 59,438
900 Millipore Corp..................... 33,750
400 Morrison Knudsen Corp.............. 3,100
150 NACCO Industries, Inc.............. 8,906
2,033 Pall Corp.......................... 47,267
3,900 PPG Industries, Inc................ 181,350
1,127 Teledyne, Inc...................... 30,212
1,600 Textron, Inc....................... 109,200
600 Trinova Corp....................... 20,250
1,200 TRW Inc............................ 89,250
1,500 Tyco International Ltd............. 94,500
2,400 United Technologies Corp........... 212,100
7,500 Westinghouse Electric Corp......... 112,500
9,300 WMX Technologies, Inc.............. 265,050
Value
Shares Description (Note 1)
- ------------------------------------------------------------
100 Zurn Industries, Inc............... $ 2,538
-----------
4,448,326
-----------
Miscellaneous Consumer Growth--1.8%
1,300 Allergan, Inc...................... 43,388
1,400 American Greetings Corp............ 42,700
1,600 Black & Decker Corp................ 54,600
4,500 Corning, Inc....................... 128,812
1,900 Dial Corp.......................... 47,025
6,600 Eastman Kodak Co................... 391,050
700 Jostens, Inc....................... 16,450
Minnesota Mining & Manufacturing
8,100 Co............................... 457,650
800 Polaroid Corp...................... 31,800
1,300 Premark International Inc.......... 66,137
3,000 Rubbermaid, Inc.................... 82,875
3,100 Unilever N.V....................... 403,000
2,000 Whitman Corp....................... 41,250
-----------
1,806,737
-----------
Office Equipment & Supplies--1.9%
1,100 Alco Standard Corp................. 93,225
1,000 Avery Dennison Corp................ 42,000
5,100 Compaq Computer Corp.(a)........... 246,712
2,500 Honeywell, Inc..................... 107,188
International Business Machines
11,000 Corp............................. 1,038,125
2,900 Pitney Bowes, Inc.................. 121,800
3,500 Unisys Corp.(a).................... 27,563
2,150 Xerox Corp......................... 288,906
-----------
1,965,519
-----------
Petroleum--6.7%
1,800 Amerada Hess Corp.................. 87,525
9,600 Amoco Corp......................... 615,600
1,100 Ashland Oil, Inc................... 36,713
3,150 Atlantic Richfield Co.............. 338,231
2,400 Burlington Resources Inc........... 93,000
12,600 Chevron Corp....................... 612,675
24,050 Exxon Corp......................... 1,737,612
</TABLE>
See Notes to Financial Statements.
B-34
<PAGE>
THE PRUDENTIAL STOCK INDEX FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Petroleum, cont'd.
1,000 Kerr McGee Corp.................... $ 55,500
700 Louisiana Land & Exploration Co.... 24,938
7,700 Mobil Corp......................... 767,112
6,300 Occidental Petroleum Corp.......... 138,600
900 Pennzoil Co........................ 39,488
5,100 Phillips Petroleum Co.............. 165,750
Royal Dutch Petroleum Co. (ADR)
10,400 (Netherlands).................... 1,276,600
Santa Fe Energy Resources,
1,700 Inc.(a).......................... 16,150
1,500 Sun Co., Inc....................... 38,625
3,500 Tenneco, Inc....................... 161,875
5,000 Texaco, Inc........................ 323,125
4,800 Unocal Corp........................ 136,800
5,600 USX Marathon Corp.................. 110,600
1,100 Western Atlas, Inc.(a)............. 52,112
-----------
6,828,631
-----------
Petroleum Services--0.6%
2,600 Baker Hughes Inc................... 52,975
3,400 Dresser Industries, Inc............ 81,175
2,200 Halliburton Co..................... 91,850
500 Helmerich & Payne, Inc............. 14,063
1,000 McDermott International, Inc....... 19,750
1,900 Oryx Energy Co.(a)................. 24,700
1,400 Rowan Cos., Inc.(a)................ 10,500
4,700 Schlumberger, Ltd.................. 306,675
1,600 Sonat Inc.......................... 51,200
-----------
652,888
-----------
Railroads--0.8%
1,765 Burlington Northern Inc............ 127,975
1,500 Consolidated Rail Corp............. 103,125
2,000 CSX Corp........................... 168,250
2,500 Norfolk Southern Corp.............. 186,875
4,000 Union Pacific Corp................. 265,000
-----------
851,225
-----------
Restaurants--0.6%
3,150 Darden Restaurants Inc............. 36,225
Value
Shares Description (Note 1)
- ------------------------------------------------------------
400 Luby's Cafeterias, Inc............. $ 8,600
13,400 McDonald's Corp.................... 512,550
Ryan's Family Steak Houses,
900 Inc.(a).......................... 7,088
700 Shoney's Inc.(a)................... 7,700
2,100 Wendy's International, Inc......... 44,362
-----------
616,525
-----------
Retail--4.3%
4,900 Albertsons, Inc.................... 167,212
2,800 American Stores Co................. 79,450
300 Brown Group, Inc................... 5,513
39 Bruno's, Inc....................... 444
1,700 Charming Shoppes, Inc.............. 7,650
1,900 Circuit City Stores, Inc........... 60,087
1,400 Dayton Hudson Corp................. 106,225
2,200 Dillard Department Stores, Inc..... 70,125
2,800 Gap, Inc........................... 100,800
Great Atlantic & Pacific Tea
700 Inc.............................. 19,600
1,300 Harcourt General, Inc.............. 54,438
9,266 Home Depot, Inc.................... 369,482
8,800 K mart Corp........................ 127,600
2,400 Kroger Co.(a)...................... 81,900
7,000 Limited, Inc....................... 133,000
1,500 Liz Claiborne, Inc................. 37,875
400 Longs Drug Stores Corp............. 16,600
4,800 May Department Stores Co........... 210,000
2,000 Melville Corp...................... 69,000
700 Mercantile Stores, Inc............. 31,500
3,200 Newell Co.......................... 79,200
1,400 NIKE, Inc.......................... 155,575
1,600 Nordstrom, Inc..................... 66,800
4,400 Penney (J.C.), Inc................. 218,350
1,200 Pep Boys - Manny, Moe & Jack....... 32,550
3,752 Price Costco, Inc.(a).............. 64,253
1,600 Reebok International, Ltd.......... 55,000
1,500 Rite-Aid Corp...................... 42,000
7,500 Sears Roebuck & Co................. 276,562
1,600 Sherwin Williams Co................ 56,000
1,100 Stride Rite Corp................... 12,513
1,400 Supervalue, Inc.................... 41,125
1,400 TJX Companies, Inc................. 16,625
</TABLE>
See Notes to Financial Statements.
B-35
<PAGE>
THE PRUDENTIAL STOCK INDEX FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Retail, cont'd.
5,300 Toys 'R' Us Inc.(a)................ $ 143,100
44,400 Wal-Mart Stores, Inc............... 1,104,450
4,800 Walgreen Co........................ 134,400
1,500 Winn-Dixie Stores, Inc............. 89,437
2,600 Woolworth Corp..................... 40,950
-----------
4,377,391
-----------
Rubber--0.2%
1,700 Cooper Tire & Rubber............... 41,225
500 Goodrich (B.F.) Co................. 32,938
2,900 Goodyear Tire & Rubber Co.......... 114,187
-----------
188,350
-----------
Steel--0.2%
1,900 Armco Inc.(a)...................... 12,350
1,800 Bethlehem Steel Corp.(a)........... 25,425
1,000 Inland Steel Industries, Inc....... 22,750
1,700 Nucor Corp......................... 76,075
1,500 USX Corp. - U.S. Steel Group....... 46,500
1,850 Worthington Industries, Inc........ 33,994
-----------
217,094
-----------
Telecommunications--1.3%
3,700 ALLTEL Corp........................ 110,538
750 Andrew Corp.(a).................... 45,844
2,200 DSC Communications Corp.(a)........ 130,350
13,000 MCI Communications Corp............ 338,812
4,900 Northern Telecom Ltd............... 174,562
1,500 Scientific Atlanta, Inc............ 25,313
6,800 Sprint Corp........................ 238,000
12,500 Tele Communications, Inc.(a)....... 218,750
1,700 Tellabs, Inc.(a)................... 71,613
-----------
1,353,782
-----------
Textiles--0.2%
1,500 Fruit of the Loom, Inc.(a)......... 30,938
National Service Industries,
1,000 Inc.............................. 29,250
700 Russell Corp....................... 17,850
<CAPTION>
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
400 Springs Industries, Inc............ $ 15,700
1,200 VF Corp............................ 61,200
-----------
154,938
-----------
Tobacco--1.6%
3,700 American Brands Inc................ 156,325
16,250 Philip Morris Cos., Inc............ 1,356,875
3,800 UST, Inc........................... 108,775
-----------
1,621,975
-----------
Trucking & Shipping--0.2%
900 Consolidated Freightways, Inc...... 22,275
1,100 Federal Express Corp.(a)........... 91,300
5,600 Laidlaw Inc........................ 49,000
800 Roadway Services, Inc.............. 39,800
1,400 Ryder System, Inc.................. 35,525
400 Yellow Corp........................ 5,500
-----------
243,400
-----------
Utility-Communications--6.6%
9,600 AirTouch Communications(a)......... 294,000
10,700 Ameritech Corp..................... 557,737
30,700 AT&T Corp.......................... 2,018,525
8,500 Bell Atlantic Corp................. 521,687
9,600 BellSouth Corp..................... 702,000
18,700 GTE Corp........................... 733,975
8,300 NYNEX Corp......................... 396,325
8,200 Pacific Telesis Group.............. 252,150
11,800 SBC Communications Inc............. 649,000
9,100 U.S. West, Inc..................... 428,838
4,200 Unicom Corp........................ 127,050
-----------
6,681,287
-----------
Utility-Electric--2.8%
3,600 American Electric Power, Inc....... 130,950
2,700 Baltimore Gas & Electric Co........ 69,863
3,000 Carolina Power & Light Co.......... 100,875
</TABLE>
See Notes to Financial Statements.
B-36
<PAGE>
THE PRUDENTIAL STOCK INDEX FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Utility - Electric, cont'd.
3,600 Central & South West Corp.......... $ 91,800
4,500 Consolidated Edison Co............. 136,687
2,800 Detroit Edison Co.................. 90,300
3,400 Dominion Resources, Inc............ 127,925
4,000 Duke Power Co...................... 173,500
4,300 Entergy Corp....................... 112,337
3,600 FPL Group, Inc..................... 147,150
2,200 General Public Utilities Corp...... 68,475
2,500 Houston Industries, Inc............ 110,312
2,800 Niagara Mohawk Power Corp.......... 36,750
1,300 Northern States Power Co........... 58,988
3,000 Ohio Edison Co..................... 68,250
1,700 Pacific Enterprises................ 42,713
8,200 Pacific Gas & Electric Co.......... 244,975
5,400 Pacificorp......................... 102,600
4,300 PECO Energy Co..................... 123,087
4,700 Public Service Enterprise Group.... 139,825
8,700 SCE Corp........................... 154,425
12,800 Southern Co........................ 302,400
4,400 Texas Utilities Co................. 153,450
2,000 Union Electric Co.................. 74,750
-----------
2,862,387
-----------
Total common stocks
(cost $67,756,491)................. 83,284,748
-----------
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
SHORT-TERM INVESTMENTS--12.9%
U. S. Government--0.7%
United States Treasury Bills
$ 550(b) 5.31%, 12/14/95................... $ 544,003
150(b) 5.41%, 12/14/95................... 148,350
-----------
692,353
-----------
Repurchase Agreement--12.2%
12,494 Joint Repurchase Agreement
Account,
6.39%, 10/2/95 (Note 5)........... 12,494,000
-----------
Total short-term investments
(cost $13,186,353)................ 13,186,353
-----------
Total Investments--94.6%
(cost $80,942,844; Note 4)........ 96,471,101
Other assets in excess of
liabilities--5.4%............... 5,473,465
-----------
Net Assets--100%.................. $101,944,566
-----------
-----------
</TABLE>
--------
(a) Non-income producing security.
(b) Pledged as initial margin on futures contracts.
ADR--American Depository Receipt.
See Notes to Financial Statements.
B-37
<PAGE>
THE PRUDENTIAL INTERNATIONAL STOCK FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
LONG-TERM INVESTMENTS
Common Stocks--94.5%
Argentina--2.3%
35,000 Telecom Argentina (ADR) ......... $ 1,465,625
(Utilities)
95,000 YPF Sociedad Anonima (ADR) ...... 1,710,000
(Oil & Gas) -----------
3,175,625
-----------
Australia--7.3%
800,000 CSR, Ltd. ....................... 2,662,008
(Multi-Industry)
540,000 Mayne Nickless Ltd. ............. 2,560,519
(Multi-Industry)
270,000 National Australia Bank Ltd. .... 2,389,001
(Commercial Banking)
900,000 Pioneer International Ltd. ...... 2,382,195
(Building Materials & -----------
Components)
9,993,723
-----------
Canada--4.6%
100,000 Bank of Nova Scotia ............. 2,104,675
(Commercial Banking)
Canadian Tire Corp., Ltd.,
210,000 Class A ......................... 2,366,362
(Automotive Parts)
145,000 MacMillan Bloedel Ltd. .......... 1,782,455
(Forestry & Paper) -----------
6,253,492
-----------
<CAPTION>
Value
Shares Description (Note 1)
- -------------------------------------------------------------
<C> <S> <C>
Finland--2.5%
140,000 Enso-Gutzeit Oy, Class R ........ $ 1,186,316
(Forestry & Paper)
124,000 Outokumpu Oy .................... 2,205,966
(Metals - Non Ferrous) -----------
3,392,282
-----------
France--5.7%
12,000 Chargeurs S.A. .................. 2,484,523
(Multi-Industry)
30,075 Christian Dior S.A. ............. 2,734,923
(Textiles & Apparel)
19,000 Peugeot S.A. .................... 2,595,555
(Automobile Manufacturing) -----------
7,815,001
-----------
Germany--1.7%
7,000 Volkswagen A.G. ................. 2,272,059
(Automobile Manufacturing) -----------
Italy--0.7%
890,000 Bca Fideuram S.P.A. ............. 992,565
(Financial Services) -----------
Japan--5.9%
263,000 Hitachi Ltd. .................... 2,857,545
(Electrical Equipment)
165,000 Matsushita Electric Industrial 2,523,139
Co., Ltd. .
(Electrical Equipment)
51,000 Sony Corp. ...................... 2,637,223
(Electronics) -----------
8,017,907
-----------
</TABLE>
See Notes to Financial Statements.
B-38
<PAGE>
THE PRUDENTIAL INTERNATIONAL STOCK FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
Netherlands--11.3%
20,000 AKZO N.V. ....................... $ 2,400,650
(Chemicals)
30,000 Gamma Holding N.V. .............. 1,349,663
(Textiles & Apparel)
52,000 Internationale - Nederlanden Groep 3,018,495
N.V. .
(Insurance)
77,000 KLM Royal Dutch Airlines ........ 2,699,138
(Airline/Military Technology)
65,000 Knp Bt (kon) Nv ................. 1,929,205
(Forestry & Paper)
84,000 Pakhoed Holdings N.V. ........... 2,461,635
(Energy Equipment & Services)
63,000 Stork N.V. ...................... 1,574,606
(Machinery & Engineering) -----------
15,433,392
-----------
New Zealand--3.6%
700,000 Fisher & Paykel Industries Ltd. 2,165,471
...............................
(Consumer Durable Goods)
1,320,000 Lion Nathan Ltd. ................ 2,762,851
(Beverages & Tobacco) -----------
4,928,322
-----------
Norway--7.5%
195,000 Aker A.S. ....................... 2,827,438
(Multi-Industry)
101,000 Hafslund Nycomed A.S. ........... 2,623,168
(Health & Personal Care)
65,000 Orkla A.S. ...................... 2,899,936
(Food & Household Products)
127,900 Unitor Shipping Service, A.S. ... 1,956,405
(Business & Public Services) -----------
10,306,947
-----------
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
South Korea--7.4%
85,000 Korea Zinc ...................... $ 2,135,512
(Metals - Non Ferrous)
30,575 Lucky Development Co. ........... 704,475
(Construction & Housing)
4,500 Pohang Iron & Steel Co., Ltd. ... 388,375
(Metals - Steel)
13,134 Samsung Electronics Co., Ltd. ... 2,829,572
(Manufacturing)
2,599 Samsung Electronics Co., Ltd., new
shares.......................... 556,542
(Manufacturing)
35,000 Sam Yang Co. .................... 1,298,490
(Misc. Materials & Commodities)
60,020 Tong Yang Cement Corp. .......... 2,117,342
(Construction & Housing) -----------
10,030,308
-----------
Spain--5.9%
87,000 Banco Bilbao Vizcaya ............ 2,678,116
(Commercial Banking)
21,000 Banco de Andalucia .............. 2,726,963
(Commercial Banking)
355,000 Iberdrola ....................... 2,685,974
(Utilities) -----------
8,091,053
-----------
Sweden--7.5%
47,000 Electrolux AB ................... 2,245,708
(Appliances)
95,000 Pharmacia AB .................... 2,854,971
(Commercial Banking)
132,000 SKF International AB ............ 2,910,967
(Consumer Goods)
</TABLE>
See Notes to Financial Statements.
B-39
<PAGE>
THE PRUDENTIAL INTERNATIONAL STOCK FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
Sweden, cont'd.
90,000 Volvo AB ........................ $ 2,205,278
(Automobile Manufacturing) -----------
10,216,924
-----------
Switzerland--11.0%
4,100 Ciba-Geigy Ltd. ................. 3,284,256
(Chemicals)
3,500 Hero ............................ 1,680,363
(Food & Household Products)
11,000 Merkur Holding AG ............... 2,531,142
(Merchandising)
4,000 SMH-Swiss Corp. for
Microelectronics and Watchmaking
Industries Ltd.................. 2,595,156
(Electronics)
4,500 Sulzer Brothers Ltd. ............ 2,608,131
(Machinery & Engineering)
8,500 Zurich Insurance Co. ............ 2,382,353
(Insurance) -----------
15,081,401
-----------
United Kingdom--9.6%
270,076 Allied-Domecq PLC ............... 2,293,666
(Beverages & Tobacco)
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
445,000 Lloyds Abbey Life PLC ........... $ 3,173,557
(Insurance)
210,000 National Westminster Bank PLC ... 2,105,613
(Commercial Banking)
385,000 Takare .......................... 1,363,888
(Commercial Banking)
470,000 Tesco PLC ....................... 2,319,116
(Food & Household Products)
196,000 Whitbread PLC ................... 1,900,144
(Beverages & Tobacco) -----------
13,155,984
-----------
Total common stocks
(cost $111,841,426)............... 129,156,985
-----------
Principal
Amount
(000) SHORT-TERM INVESTMENT
- ----------
Repurchase Agreement--6.0%
$ 8,175 Joint Repurchase Agreement
Account,
6.39%, 10/2/95 (Note 5)
(cost $8,175,000)................. 8,175,000
-----------
Total Investments--100.5%
(cost $120,016,426; Note 4)....... 137,331,985
Liabilities in excess of other
assets--(0.5%).................. (646,763)
-----------
Net Assets--100%.................. $136,685,222
-----------
-----------
</TABLE>
- ---------------
ADR--American Depository Receipt.
See Notes to Financial Statements.
B-40
<PAGE>
THE PRUDENTIAL ACTIVE BALANCED FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--80.9%
Common Stocks--47.3%
Aerospace/Defense--0.5%
10,500 Boeing Co.......................... $ 716,625
-----------
Airlines--1.4%
12,100 Delta Airlines, Inc................ 837,925
6,300 UAL Corp........................... 1,076,513
-----------
1,914,438
-----------
Automobiles & Trucks--1.8%
51,600 General Motors Corp................ 2,418,750
-----------
Banking--2.8%
38,400 Boatmen's Bancshares............... 1,420,800
9,300 Chemical Banking Corp.............. 566,138
17,800 Fleet Financial Group, Inc......... 671,950
102,300 Hibernia Corp...................... 1,035,787
-----------
3,694,675
-----------
Capital Goods--0.7%
20,900 Duracell International, Inc........ 937,888
-----------
Chemicals--0.8%
41,600 Dexter Corp........................ 1,060,800
-----------
Commercial Services--1.5%
19,850 CUC International, Inc.(a)......... 692,269
30,900 York International Corp............ 1,301,662
-----------
1,993,931
-----------
Computer Software & Services--0.4%
6,800 Novell, Inc.(a).................... 124,100
13,700 Symbol Technologies, Inc.(a)....... 453,812
-----------
577,912
-----------
<CAPTION>
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
Diversified Gas--0.3%
10,300 Coastal Corp....................... $ 346,338
-----------
Drugs & Medical Supplies--0.9%
Smith Kline Beecham PLC (ADR)
17,700 (United Kingdom)................. 896,063
19,600 Vertex Pharmaceuticals, Inc........ 367,500
-----------
1,263,563
-----------
Electronics--3.1%
22,000 Hewlett-Packard Co................. 1,834,250
22,700 Intel Corp......................... 1,364,837
24,700 International Rectifier Corp.(a)... 994,175
-----------
4,193,262
-----------
Financial Services--0.5%
13,000 The PMI Group Inc.................. 615,875
-----------
Forest Products--0.9%
13,900 Georgia Pacific Corp............... 1,216,250
-----------
Insurance--2.8%
8,000 Aetna Life & Casualty Co........... 587,000
30,700 CIGNA Corp......................... 3,196,637
-----------
3,783,637
-----------
Leisure--0.6%
37,200 Brunswick Corp..................... 753,300
-----------
Lodging--1.2%
24,500 Hilton Hotels Corp................. 1,564,938
-----------
Machinery--0.6%
23,547 Harnischfeger Industries, Inc...... 785,881
-----------
Media--5.5%
17,700 Dow Jones & Co., Inc............... 652,688
</TABLE>
See Notes to Financial Statements.
B-41
<PAGE>
THE PRUDENTIAL ACTIVE BALANCED FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Media, cont'd.
13,800 Dun & Bradstreet Corp.............. $ 798,675
11,900 McGraw-Hill, Inc................... 972,825
News Corp. Ltd. (ADR)
35,400 (Australia)...................... 778,800
71,800 New York Times Co.................. 1,965,525
10,300 Omnicom Group...................... 670,787
8,100 Scholastic Corp.(a)................ 508,275
14,700 Tribune Co......................... 975,712
-----------
7,323,287
-----------
Mineral Resources--1.5%
47,974 Newmont Mining Corp................ 2,038,895
-----------
Miscellaneous Basic Industry--6.4%
62,900 Avalon Properties, Inc............. 1,281,587
20,200 Champion International Corp........ 1,088,275
11,200 ITT Corp........................... 1,388,800
26,400 Mead Corp.......................... 1,547,700
25,300 Reynolds Metals Co................. 1,461,075
8,500 United Technologies Corp........... 751,188
40,000 Wellman Inc........................ 980,000
-----------
8,498,625
-----------
Miscellaneous Consumer Growth--0.4%
8,600 Eastman Kodak Co................... 509,550
-----------
Office Equipment & Supplies--2.0%
41,200 Apple Computer, Inc................ 1,534,700
9,300 Compaq Computer Corp.(a)........... 449,887
5,000 Xerox Corp......................... 671,875
-----------
2,656,462
-----------
Petroleum--0.5%
15,700 Tenneco, Inc....................... 726,125
-----------
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Petroleum Services--1.4%
18,500 Anadarko Petroleum Corp............ $ 876,438
43,400 Dresser Industries, Inc............ 1,036,175
-----------
1,912,613
-----------
Railroads--1.4%
10,901 Southern Pacific Rail Corp.(a)..... 264,349
24,400 Union Pacific Corp................. 1,616,500
-----------
1,880,849
-----------
Retail--1.5%
9,800 Harcourt General, Inc.............. 410,375
84,000 Limited, Inc....................... 1,596,000
-----------
2,006,375
-----------
Steel--0.3%
12,300 USX Corp. - U.S. Steel Group....... 381,300
-----------
Technology--1.8%
19,700 Adobe Systems, Inc................. 1,019,475
8,605 Chiron Corp.(a).................... 778,753
30,600 Pyxis Corp.(a)..................... 592,875
-----------
2,391,103
-----------
Telecommunications--2.8%
78,300 MCI Communications Corp............ 2,040,694
17,300 QUALCOMM Inc.(a)................... 793,637
Vodafone Group PLC (ADR) (United
20,600 Kingdom)......................... 844,600
-----------
3,678,931
-----------
Trucking & Shipping--1.0%
50,700 Ryder System, Inc.................. 1,286,513
-----------
Total common stocks
(cost $52,575,805)................. 63,128,691
-----------
</TABLE>
See Notes to Financial Statements.
B-42
<PAGE>
THE PRUDENTIAL ACTIVE BALANCED FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
DEBT OBLIGATIONS--33.6%
U. S. Government Securities
United States Treasury Notes,
$ 3,015 8.875%, 11/15/98................. $ 3,263,255
5,510 7.50%, 11/15/01.................. 5,900,879
17,435 6.25%, 2/15/03................... 17,532,985
14,750 5.75%, 8/15/03................... 14,351,308
United States Treasury Bonds,
3,230 7.875%, 2/15/21.................. 3,703,905
------------
Total debt obligations
(cost $43,190,765)............... 44,752,332
------------
Total long-term investments
(cost $95,766,570)............... 107,881,023
------------
SHORT-TERM INVESTMENTS
Repurchase Agreement--19.2%
25,625 Joint Repurchase Agreement Account,
6.39%, 10/2/95 (Note 5)
(cost $25,625,000)............. 25,625,000
------------
Total Investments--100.1%
(cost $121,391,570; Note 4)...... 133,506,023
Liabilities in excess of other
assets--(0.1%)................. (154,136)
------------
Net Assets--100%................. $133,351,887
------------
------------
</TABLE>
- ---------------
(a) Non-income producing security.
ADR--American Depository Receipt.
See Notes to Financial Statements.
B-43
<PAGE>
THE PRUDENTIAL BALANCED FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--89.7%
Common Stocks--45.7%
Aerospace/Defense--0.5%
15,100 Martin Marietta Corp............... $ 296,338
2,100 Rockwell International Corp........ 99,225
-----------
395,563
-----------
Automobiles & Trucks--1.3%
4,700 Allied Signal Automotive, Inc...... 207,387
5,000 Danaher Corp....................... 163,750
General Motors Corp.
4,000 Class E............................ 182,000
10,000 Class H............................ 410,000
3,700 Modine Manufacturing Co............ 105,450
-----------
1,068,587
-----------
Banking--2.8%
7,400 Bank of Boston Corp................ 352,425
16,800 Bank of New York, Inc.............. 781,200
1,900 First Chicago Corp................. 130,387
2,700 First Interstate Bank Corp......... 272,025
23,600 Norwest Corp....................... 772,900
-----------
2,308,937
-----------
Building Materials & Components--0.3%
9,000 USG Corp.(a)....................... 252,000
-----------
Capital Goods--0.6%
Fisher Scientific International,
15,000 Inc.............................. 485,625
-----------
Chemicals--3.9%
7,000 Agrium, Inc........................ 256,845
2,000 Air Products & Chemicals, Inc...... 104,250
10,400 Cytec Industries, Inc.(a).......... 601,900
<CAPTION>
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
8,000 duPont (E.I.) de Nemours & Co...... $ 550,000
3,000 Eastman Chemical Co................ 192,000
9,000 Grace (W.R.) & Co.................. 600,750
Imperial Chemical Inds. (ADR)
8,000 (United Kingdom)................. 406,000
6,600 Olin Corp.......................... 453,750
-----------
3,165,495
-----------
Chemical-Specialty--1.0%
7,500 Hanna (M.A.) Co.................... 197,812
10,600 Mississippi Chemical Corp.......... 222,600
3,100 OM Group, Inc...................... 94,163
36,100 Uniroyal Chemical Corp.(a)......... 324,900
-----------
839,475
-----------
Commercial Services--0.6%
11,000 York International Corp............ 463,375
-----------
Computer Software & Services--0.5%
6,000 Automatic Data Processing, Inc..... 408,750
-----------
Construction--0.5%
32,000 Giant Cement Holding Inc.(a)....... 388,000
-----------
Consumer Goods--1.6%
13,000 Ethan Allen Interiors, Inc.(a)..... 279,500
13,000 Libbey, Inc........................ 310,375
16,000 Owens Corning Fiberglas Corp.(a)... 714,000
-----------
1,303,875
-----------
Drugs & Medical Supplies--1.8%
10,100 Baxter International Inc........... 415,362
8,000 Schering-Plough Corp............... 412,000
30,000 Whitman Corp....................... 618,750
-----------
1,446,112
-----------
</TABLE>
See Notes to Financial Statements.
B-44
<PAGE>
THE PRUDENTIAL BALANCED FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Electrical Equipment--0.9%
14,000 Anixter International Inc.(a)...... $ 579,250
6,800 UCAR International Inc.(a)......... 185,300
-----------
764,550
-----------
Electronics--1.0%
6,000 Emerson Electric Co................ 429,000
7,200 Oak Industries, Inc.(a)............ 216,900
2,500 Sundstrand Corp.................... 161,875
-----------
807,775
-----------
Financial Services--1.6%
12,400 Dean Witter Discover & Co.......... 697,500
10,500 Equitable Companies, Inc........... 388,500
4,700 Finova Group, Inc.................. 209,150
-----------
1,295,150
-----------
Food & Beverage--0.1%
4,000 Sbarro, Inc........................ 92,000
-----------
Forest Products--0.4%
7,000 Pentair, Inc....................... 315,000
-----------
Freight Transportation--0.3%
9,000 Pittston Services Group............ 244,125
-----------
Furniture
1,900 INTERCO Inc.(a).................... 14,963
-----------
Gas Pipelines--1.9%
19,400 Cabot Oil & Gas Corp............... 264,325
12,900 Enron Corp......................... 280,575
15,700 Mesa, Inc.(a)...................... 74,575
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
11,000 Parker & Parsley Petroleum Co...... $ 220,000
6,700 Seagull Energy Corp.(a)............ 135,675
20,000 Total S.A. (ADR) (France).......... 602,500
-----------
1,577,650
-----------
Health Care--0.3%
10,000 Quorum Health Group(a)............. 226,250
-----------
Hospital Management--1.3%
10,400 Columbia Healthcare Corp........... 505,700
33,000 Tenet Healthcare Corp.(a).......... 573,375
-----------
1,079,075
-----------
Insurance--3.7%
7,300 Emphesys Financial Group, Inc...... 271,013
7,000 John Alden Financial Corp.......... 158,375
3,900 NAC Re Corp........................ 141,375
9,700 National Re Corp................... 343,137
16,000 Penncorp Financial Group, Inc...... 382,000
Reinsurance Group of America,
17,200 Inc.............................. 606,300
15,000 TIG Holdings, Inc.................. 403,125
6,000 Travelers, Inc..................... 318,750
28,900 Western National Corp.............. 397,375
-----------
3,021,450
-----------
Machinery--1.5%
Gardner Denver Machinery,
26,000 Inc.(a).......................... 442,000
10,000 IDEX Corp.......................... 357,500
17,100 United Dominion Inds............... 412,537
-----------
1,212,037
-----------
Manufacturing--0.2%
4,500 Parker-Hannifin Corp............... 171,000
-----------
</TABLE>
See Notes to Financial Statements.
B-45
<PAGE>
THE PRUDENTIAL BALANCED FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Media--2.2%
10,000 Comcast Corp....................... $ 198,750
14,900 Cox Communications, Inc.(a)........ 301,725
9,400 Gannett, Inc....................... 513,475
News Corp. Ltd. (ADR)
6,000 (Australia)...................... 119,250
10,000 Time Warner, Inc................... 397,500
9,437 Times Mirror Co.................... 271,314
-----------
1,802,014
-----------
Medical Technology--0.3%
8,200 Guidant Corp....................... 239,850
-----------
Mineral Resources--0.5%
23,500 INDRESCO, Inc.(a).................. 420,063
-----------
Miscellaneous Basic Industry--4.5%
21,100 ADT Ltd.(a)........................ 290,125
15,600 Belden, Inc........................ 409,500
6,900 Crane Co........................... 238,050
19,500 Ferro Corp......................... 485,062
7,000 FMC Corp.(a)....................... 532,000
9,000 Illinois Tool Works, Inc........... 529,875
17,960 Mark IV Industries, Inc............ 399,610
10,000 Tyco International Ltd............. 630,000
2,500 United Technologies Corp........... 220,938
-----------
3,735,160
-----------
Office Equipment & Supplies--0.6%
12,100 Honeywell, Inc..................... 518,788
-----------
Oil & Gas-Equipment & Services--0.8%
20,700 Frontier Corp...................... 551,138
5,400 Vintage Petroleum, Inc............. 113,400
-----------
664,538
-----------
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Petroleum--1.2%
30,000 Cross Timbers Oil Co............... $ 427,500
18,000 Occidental Petroleum Corp.......... 396,000
Santa Fe Energy Resources,
15,000 Inc.(a).......................... 142,500
-----------
966,000
-----------
Petroleum Services--0.5%
33,300 Oryx Energy Co..................... 432,900
-----------
Publishing--0.3%
17,000 American Publishing Co., Class A... 212,500
-----------
Railroads--1.5%
6,400 Burlington Northern Inc............ 464,000
8,900 Illinois Central Corp.............. 348,212
7,000 Union Pacific Corp................. 463,750
-----------
1,275,962
-----------
Restaurants--0.1%
4,300 Shoney's Inc.(a)................... 47,300
-----------
Retail--1.4%
50,000 Best Products, Inc.(a)............. 425,000
12,000 Dillard Department Stores, Inc..... 382,500
4,900 Eckerd Corp.(a).................... 196,000
4,100 Harcourt General, Inc.............. 171,687
-----------
1,175,187
-----------
Rubber--0.4%
9,000 Goodyear Tire & Rubber Co.......... 354,375
-----------
Steel--0.1%
3,000 Carpenter Technology Corp.......... 117,375
-----------
</TABLE>
See Notes to Financial Statements.
B-46
<PAGE>
THE PRUDENTIAL BALANCED FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Technology--0.8%
14,500 Coltec Inds., Inc.(a).............. $ 174,000
10,400 Litton Industries Inc.(a).......... 452,400
-----------
626,400
-----------
Telecommunications--1.5%
20,900 MCI Communications Corp............ 544,706
36,500 Tele Communications, Inc.(a)....... 706,275
-----------
1,250,981
-----------
Utility-Communications--0.4%
9,100 AirTouch Communications(a)......... 278,688
600 WorldCom Inc.(a)................... 19,275
-----------
297,963
-----------
Total common stocks
(cost $31,721,047)................. 37,484,175
-----------
Principal
Amount
(000) DEBT OBLIGATIONS--44.0%
- --------
Asset Backed Securities--0.5%
Standard Credit Card Master Trust
I,
Series 1995 Class - A1
$ 400 8.25%, 1/7/07 (cost $444,938)...... 438,872
-----------
Corporate Bonds--7.2%
African Development Bank,
400 7.70%, 7/15/02..................... 424,732
(Banking)
American General Finance Corp.,
400 7.25%, 5/15/05..................... 412,132
(Financial Services)
Comdisco Inc.,
300 6.50%, 6/15/00..................... 296,730
(Commercial Services)
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Consolidated Edison Co., Inc.,
$ 300 6.625%, 2/1/02.................... $ 299,175
(Utilities)
Detroit Edison Co.,
350 6.34%, 3/15/00.................... 346,038
(Utilities)
Federal Express Corp.,
350 10.00%, 9/1/98.................... 381,836
(Shipping)
Ford Motor Credit Co.,
400 9.375%, 12/15/97.................. 424,116
(Financial Services)
General Electric Capital Corp.,
400 8.75%, 11/26/96................... 411,024
(Financial Services)
General Motors Acceptance Corp.,
400 9.625%, 5/15/00................... 447,896
(Financial Services)
Greyhound Financial Corp.,
100 8.50%, 5/1/98..................... 104,629
(Financial Services)
Hanson PLC.,
400 7.375%, 1/15/03................... 413,828
(Industrial) (United Kingdom)
International Lease Finance Corp.,
200 5.50%, 4/1/97..................... 197,634
(Financial Services)
Lehman Brothers, Inc.,
200 7.125%, 7/15/02................... 198,082
(Financial Services)
Norwest Corp.,
300 7.125%, 4/1/00.................... 307,899
(Banking)
Salomon, Inc.,
200 8.64%, 2/27/98.................... 207,340
(Financial Services)
</TABLE>
See Notes to Financial Statements.
B-47
<PAGE>
THE PRUDENTIAL BALANCED FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
Corporate Bonds, cont'd.
Sears Roebuck & Co.,
$ 100 9.48%, 7/24/01.................... $ 113,359
(Retail)
Sears Roebuck Acceptance Corp.,
300 6.75%, 9/15/05.................... 297,726
(Financial Services)
Texas Utilities Co.,
300 6.375%, 8/1/97.................... 299,787
(Utilities)
Union Oil Co.,
300 7.75%, 4/20/05.................... 316,758
-----------
(Petroleum)
Total corporate bonds
(cost $5,852,940)................. 5,900,721
-----------
U. S. Government Securities--36.3%
United States Treasury Bonds,
1,600 10.75%, 8/15/05................... 2,120,256
6,300 11.25%, 2/15/15................... 9,473,625
United States Treasury Notes,
3,700 6.00%, 11/30/97................... 3,709,250
400 5.625%, 1/31/98................... 397,688
4,325 9.00%, 5/15/98.................... 4,644,661
5,500 6.375%, 1/15/99................... 5,565,285
2,000 7.50%, 10/31/99................... 2,105,940
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
United States Treasury Notes,
$ 150 7.75%, 11/30/99................... $ 159,421
1,100 6.375%, 8/15/02................... 1,116,324
500 7.25%, 8/15/04.................... 534,610
-----------
Total U. S. Government Securities
(cost $29,249,979).............. 29,827,060
-----------
Total debt obligations
(cost $35,547,857).............. 36,166,653
-----------
Total long-term investments
(cost $67,268,904).............. 73,650,828
-----------
SHORT-TERM INVESTMENT
Repurchase Agreement--8.9%
7,338 Joint Repurchase Agreement
Account,
6.39%, 10/2/95 (Note 5)
(cost $7,338,000)............... 7,338,000
-----------
Total Investments--98.6%
(cost $74,606,904; Note 4)........ 80,988,828
Other assets in excess of
liabilities--1.4%................. 1,121,118
-----------
Net Assets--100%.................. $82,109,946
-----------
-----------
</TABLE>
- ---------------
(a) Non-income producing security.
ADR--American Depository Receipt.
See Notes to Financial Statements.
B-48
<PAGE>
THE PRUDENTIAL INCOME FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
LONG-TERM INVESTMENTS--95.9%
Asset Backed Securities--4.0%
Nationsbank Credit Card Trust,
$ 500 Series 1995-1, 6.45%, 4/15/03.... $ 501,875
Prime Credit Card
500 Series 1995-1, 6.75%, 11/15/05... 500,000
Standard Credit Card Trust,
500 Series 1994-4, 8.25%, 11/07/03... 541,090
500 Series 1995-1, 8.25%, 1/07/07.... 548,590
------------
Total asset backed securities
(cost $2,084,823)................ 2,091,555
------------
Corporate Bonds--23.9%
African Development Bank,
500 7.75%, 12/15/01.................. 529,150
(Financial Services)
American General Finance Corp.,
500 7.25%, 5/15/05................... 515,165
(Financial Services)
Associates Corp. of North
America,
(Financial Services)
500 6.625%, 6/15/05.................. 493,845
400 7.25%, 5/15/98................... 409,296
Columbia Healthcare Corp,
500 7.58%, 9/15/25................... 512,500
(Hospital Management)
Comdisco Inc.,
500 6.50%, 6/15/00................... 494,550
(Commercial Services)
Detroit Edison Co.,
500 6.34%, 3/15/00................... 494,340
(Utilities)
Digital Equipment Corp.,
250 7.125%, 10/15/02................. 243,505
(Electronics)
Dresdner Bank AG,
500 7.25%, 9/15/15................... 501,040
(Banking) (Germany)
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
- -------------------------------------------------------------
<C> <S> <C>
Equity Lord Realty Corp.,
$ 300 10.50%, 12/30/97................. $ 316,875
(Real Estate)
Federal Express Corp.,
500 10.00%, 9/01/98.................. 545,480
(Shipping)
General Electric Capital Corp.,
500 7.95%, 2/02/98................... 518,360
(Financial Services)
General Motors Acceptance Corp.,
350 8.00%, 4/10/97................... 358,981
(Financial Services)
Grand Metropolitan Investment
Corp.,
800 Zero Coupon, 1/06/04............. 454,656
(Financial Services) (United Kingdom)
Household Finance Corp.,
1,000 6.375%, 6/30/00.................. 993,560
(Financial Services)
Hydro Quebec,
500 8.00%, 2/01/13................... 525,450
(Utilities) (Canada)
IC Industries Financial Corp.,
705 8.00%, 7/01/96................... 714,166
(Financial Services)
Intermediate American Development
Bank,
435 8.50%, 3/15/11................... 501,046
(Banking)
International Lease Finance
Corp.,
300 5.50%, 4/01/97................... 296,451
(Financial Services)
Lehman Brothers Holdings, Inc.,
400 7.625%, 7/15/99.................. 409,120
(Financial Services)
Petroliam Nasional Berhad,
500 7.75%, 8/15/15................... 511,100
(Petroleum)
</TABLE>
See Notes to Financial Statements.
B-49
<PAGE>
THE PRUDENTIAL INCOME FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
Corporate Bonds, cont'd.
Salomon, Inc.,
$ 400 8.64%, 2/27/98................... $ 414,680
(Financial Services)
Sears Roebuck Acceptance Corp.,
500 6.75%, 9/15/05................... 496,210
(Financial Services)
SunAmerica, Inc.,
275 6.58%, 1/15/02................... 270,281
(Insurance)
Tenneco Credit Corp.,
400 10.125%, 12/01/97................ 428,396
(Financial Services)
Time Warner Inc.,
300 9.15%, 2/01/23................... 325,533
(Media)
Union Bank Finland, Ltd.,
250 5.25%, 6/15/96................... 247,670
------------
(Banking) (Finland)
Total corporate bonds
(cost $12,342,321)............... 12,521,406
------------
Foreign Government Obligations--1.9%
New Zealand Government Bond,
500 10.50%, 7/16/00.................. 541,721
Province of Quebec,
400 9.00%, 5/08/01................... 438,952
------------
Total foreign government
obligations
(cost $1,015,099)................ 980,673
------------
U.S. Government and Agency Securities--66.1%
Federal Home Loan Mortgage Corp.,
802 7.00%, 7/01/08................... 804,823
500 7.00%, 8/15/23................... 486,405
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
Federal National Mortgage Assn.,
$ 500 6.50%, 2/25/24................... $ 463,905
1,000(a) 6.50%, 15 yr..................... 986,250
1,000(a) 6.50%, 30 yr..................... 964,370
2,268 7.00%, 9/25/23 - 7/01/24......... 2,236,387
2,000(a) 7.50%, 30 yr..................... 2,012,500
1,444 8.00%, 9/01/09 - 7/01/24......... 1,478,962
1,493 9.50%, 1/01/25 - 3/01/25......... 1,577,843
Government National Mortgage
Assn.,
843 7.00%, 2/15/09................... 849,303
2,441(b) 7.00%, 30 yr..................... 2,413,594
697 7.50%, 12/15/22 - 7/15/23........ 707,019
1,261 9.00%, 9/15/19 - 7/15/21......... 1,336,782
Tennessee Valley Authority,
600 7.25%, 7/15/43................... 590,646
United States Treasury Bonds,
200 7.625%, 2/15/25.................. 226,468
450 9.00%, 11/15/18.................. 573,327
200 9.25%, 2/15/16................... 257,406
1,000 10.75%, 8/15/05.................. 1,325,160
1,350 12.00%, 8/15/13.................. 1,986,403
United States Treasury Notes,
3,350 5.25%, 7/31/98................... 3,292,414
650 5.625%, 1/31/98.................. 646,243
1,500 5.75%, 10/31/97.................. 1,496,955
500 5.875%, 3/31/99.................. 498,670
600 6.25%, 2/15/03................... 603,372
150 6.375%, 8/15/02.................. 152,226
2,400 6.375%, 1/15/99.................. 2,428,488
2,100 8.625%, 8/15/97.................. 2,202,375
United States Treasury Strips,
1,500 Zero Coupon, 2/15/08............. 676,680
2,000 Zero Coupon, 8/15/08............. 870,400
700 Zero Coupon, 8/15/11............. 244,657
500 Zero Coupon, 11/15/11............ 171,485
------------
Total U.S. government and
agency securities
(cost $33,818,383)............... 34,561,518
------------
</TABLE>
See Notes to Financial Statements.
B-50
<PAGE>
THE PRUDENTIAL INCOME FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
- -------------------------------------------------------------
<C> <S> <C>
Total long-term investments
(cost $49,260,626)............... $ 50,155,152
------------
SHORT-TERM INVESTMENT
Repurchase Agreement--14.3%
Joint Repurchase Agreement
$ 7,478 Account,
6.39%, 10/2/95 (Note 5)
(cost $7,478,000)................ 7,478,000
------------
Total Investments--110.2%
(cost $56,738,626; Note 4)....... 57,633,152
Liabilities in excess of other
assets--(10.2%).................. (5,335,785)
------------
Net Assets--100%................. $ 52,297,367
------------
------------
</TABLE>
- ---------------
(a) Mortgage dollar roll, see Note 1.
(b) $2,000,000 of principal amount is a mortgage dollar roll, see Note 1.
See Notes to Financial Statements.
B-51
<PAGE>
THE PRUDENTIAL MONEY MARKET FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
BANK HOLDING PAPER--4.8%
Bank of New York, Inc.,
5.87%, 10/27/95
$ 2,800 (amortized cost $2,788,129)...... $ 2,788,129
------------
COMMERCIAL PAPER -
DOMESTIC--36.6%
Aristar, Inc.,
2,000 5.80%, 10/17/95.................. 1,994,844
800 5.82%, 10/19/95.................. 797,672
Caterpillar Financial Services
N.V.,
489 5.67%, 11/21/95.................. 485,072
Chrysler Financial Corp.,
400 5.85%, 10/27/95.................. 398,310
Countrywide Funding Corp.,
2,050 5.80%, 10/31/95.................. 2,040,092
Dayton Hudson Corp.,
2,800 5.78%, 10/25/95.................. 2,789,211
Finova Capital Corp.,
2,100 5.83%, 10/11/95.................. 2,096,599
735 5.90%, 11/2/95................... 731,145
Honeywell, Inc.,
470 5.80%, 11/13/95.................. 466,744
IBM Credit Corp.,
1,300 5.80%, 10/16/95.................. 1,296,858
ITT Corp.,
2,100 5.83%, 10/3/95................... 2,099,320
349 5.85%, 10/4/95................... 348,830
Nike Inc.,
988 6.75%, 10/2/95................... 987,815
Nynex Corp.,
2,800 6.80%, 10/2/95................... 2,799,471
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
- -------------------------------------------------------------
<C> <S> <C>
Public Service Elec. & Gas Co.,
$ 1,150 5.78%, 10/17/95.................. $ 1,147,046
Smith Barney, Inc.,
770 5.75%, 10/18/95.................. 767,909
------------
Total commercial paper - domestic
(amortized cost $21,246,938)..... 21,246,938
------------
CORPORATE BONDS--12.6%
Associates Corp. of North
America,
500 6.00%, 12/1/95................... 500,058
400 4.50%, 2/15/96................... 397,922
1,000 8.80%, 3/1/96.................... 1,008,706
Ford Motor Credit Corp.,
1,000 8.25%, 5/15/96................... 1,013,983
600 8.875%, 8/1/96................... 613,532
General Electric Co.,
840 7.875%, 5/1/96................... 849,202
General Motors Acceptance Corp.,
100 8.75%, 2/1/96.................... 100,850
Household Finance Corp.,
900 9.375%, 2/15/96.................. 908,981
International Lease Finance
Corp.,
430 6.875%, 12/15/95................. 430,568
375 6.625%, 6/1/96................... 376,208
NationsBank Corp.,
500 5.375%, 12/1/95.................. 499,554
Transamerica Finance Corp.,
600 8.55%, 6/15/96................... 610,567
------------
Total corporate bonds
(amortized cost $7,310,131)...... 7,310,131
------------
</TABLE>
See Notes to Financial Statements.
B-52
<PAGE>
THE PRUDENTIAL MONEY MARKET FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
DEPOSIT NOTES--2.6%
Society National Bank Cleveland,
$ 1,000 6.70%, 4/15/96................... $ 1,004,941
500 6.00%, 4/25/96................... 498,649
------------
Total deposit notes
(amortized cost $1,503,590)...... 1,503,590
------------
VARIABLE RATE OBLIGATIONS(a)--28.5%
American Express Centurion Bank,
1,000 6.26%, 10/2/95................... 1,000,245
Bank One Columbus N.A.,
2,700 6.08%, 10/2/95................... 2,698,150
FCC National Bank,
1,400 6.15%, 10/2/95................... 1,399,944
Ford Motor Credit Corp.,
200 6.14%, 12/18/95.................. 200,233
Goldman Sachs Group, L.P.,
2,700 6.00%, 10/30/95.................. 2,700,000
IBM Credit Corp.,
1,500 5.615%, 10/16/95................. 1,499,775
John Deere Capital Corp.,
1,000 6.095%, 10/23/95................. 1,001,783
John Deere Owner Trust,
1,460 5.8125%, 10/16/95................ 1,460,089
Key Bank New York,
1,400 6.49%, 10/2/95................... 1,398,953
Lehman Brothers, Inc.,
1,000 6.11%, 10/24/95.................. 1,000,000
Merrill Lynch & Co., Inc.,
500 5.885%, 10/2/95.................. 500,000
Money Market Auto Loan Trust,
700 6.005%, 10/16/95................. 700,000
Morgan Stanley Group, Inc.,
1,000 6.00%, 11/15/95.................. 1,000,000
------------
Total variable rate obligations
(amortized cost $16,559,172)..... 16,559,172
------------
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
LOAN PARTICIPATIONS--4.8%
Engelhard Corp.,
$ 800 6.20%, 10/2/95................... $ 800,000
General Electric Capital Corp.,
2,000 6.00%, 10/2/95................... 2,000,000
------------
Total loan participations
(amortized cost $2,800,000)...... 2,800,000
------------
MEDIUM-TERM OBLIGATIONS--9.1%
Associates Corp. of North
America,
100 4.68%, 3/29/96................... 99,143
Deere & Co.,
1,000 8.47%, 3/18/96................... 1,011,224
Ford Motor Credit Corp.,
1,000 5.15%, 3/15/96................... 993,295
General Motors Acceptance Corp.,
2,100 4.80%, 11/15/95.................. 2,095,777
570 4.75%, 2/14/96................... 567,268
International Lease Finance
Corp.,
500 5.00%, 5/28/96................... 496,536
------------
Total medium-term obligations
(amortized cost $5,263,243)...... 5,263,243
------------
Total Investments--99.0%
(amortized cost
$57,471,203(b))................ 57,471,203
Other assets in excess of
liabilities--1.0%.............. 582,874
------------
Net Assets--100%................. $ 58,054,077
------------
------------
</TABLE>
- ---------------
(a) For purposes of amortized cost valuation, the maturity
date of these instruments is considered to be the next
date on which the security can be redeemed at par or the
next date on which the rate of interest is adjusted.
(b) The cost of securities for federal income tax purposes is
substantially the same as for financial reporting
purposes.
See Notes to Financial Statements.
B-53
<PAGE>
THE PRUDENTIAL MONEY MARKET FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
The industry classification of portfolio holdings and other net
assets shown as a percentage of net assets as of September 30,
1995 were as follows:
<TABLE>
<S> <C>
Personal Credit Institutions.......... 20.1%
Business Credit (Finance)............. 11.6
Bank Holding Co....................... 10.3
Security Brokers & Dealers............ 10.3
Commercial Banks...................... 9.1
Financial Services.................... 9.0
Telecommunications.................... 4.8
Variety Store......................... 4.8
Asset Backed.......................... 3.7
Mortgage Bankers...................... 3.5
Farm Machinery........................ 3.5
Equip. Rental & Leasing............... 2.2
Electric Services..................... 2.0
Footwear.............................. 1.7
Chemicals-Specialty................... 1.4
Regulating Controls................... 1.0
Other assets in excess of liabilities 1.0
-----
100.0%
-----
-----
</TABLE>
See Notes to Financial Statements.
B-54
<PAGE>
THE PRUDENTIAL STATEMENT OF ASSETS
(LOGO) INSTITUTIONAL AND LIABILITIES
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
GROWTH STOCK INTERNATIONAL ACTIVE MONEY
STOCK INDEX STOCK BALANCED BALANCED INCOME MARKET
FUND FUND FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C> <C>
------------ ------------ ------------- ------------ ----------- ----------- -----------
Assets
Investments, at value
(a)...................... $222,374,363 $ 96,471,101 $137,331,985 $133,506,023 $80,988,828 $57,633,152 $57,471,203
Cash....................... -- -- 184 417 872 897 440
Foreign currency, at value
(cost $153,643).......... -- -- 153,891 -- -- -- --
Receivable for investments
sold..................... 1,199,509 5,941,403 -- 176,030 1,133,257 -- --
Interest and dividends
receivable............... 162,987 206,021 404,440 641,767 685,304 563,134 386,072
Receivable for Fund shares
sold..................... 789,547 361,069 323,593 191,349 207,730 58,336 227,193
Due from Manager........... -- 1,754 -- -- -- 4,635 --
Deferred expenses and other
assets................... 29,670 32,252 29,485 30,735 28,919 31,988 30,486
------------ ------------ ------------- ------------ ----------- ----------- -----------
Total assets........... 224,556,076 103,013,600 138,243,578 134,546,321 83,044,910 58,292,142 58,115,394
------------ ------------ ------------- ------------ ----------- ----------- -----------
Liabilities
Payable for investments
purchased................ 2,555,583 872,222 987,689 1,013,369 667,995 5,934,375 --
Payable for Fund shares
reacquired............... 1,286,353 85,455 314,389 46,984 155,532 11,863 34,386
Accrued expenses........... 77,378 70,888 148,784 51,045 44,922 42,870 16,633
Due to broker-variation
margin................... -- 29,670 -- -- -- -- --
Management fee payable..... 107,403 -- 92,756 68,472 57,582 -- 3,953
Administration fee
payable.................. 23,965 10,799 14,738 14,564 8,933 5,667 6,345
------------ ------------ ------------- ------------ ----------- ----------- -----------
Total liabilities...... 4,050,682 1,069,034 1,558,356 1,194,434 934,964 5,994,775 61,317
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net Assets................. $220,505,394 $101,944,566 $136,685,222 $133,351,887 $82,109,946 $52,297,367 $58,054,077
------------ ------------ ------------- ------------ ----------- ----------- -----------
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net assets were comprised
of:
Shares of beneficial
interest, at par......... $ 13,604 $ 7,169 $ 8,964 $ 10,703 $ 6,576 $ 5,238 $ 58,054
Paid-in capital in excess
of par................... 169,441,843 80,650,936 121,007,773 116,928,121 71,932,999 52,130,203 57,996,023
------------ ------------ ------------- ------------ ----------- ----------- -----------
169,455,447 80,658,105 121,016,737 116,938,824 71,939,575 52,135,441 58,054,077
Undistributed net
investment income........ -- 1,562,991 1,582,613 2,883,961 1,706,435 -- --
Accumulated net realized
gain (loss) on
investments.............. (3,016,003) 4,001,988 (3,235,336 ) 1,414,649 2,082,012 (732,600) --
Net unrealized appreciation
(depreciation) on
investments and foreign
currencies............... 54,065,950 15,721,482 17,321,208 12,114,453 6,381,924 894,526 --
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net assets, September 30,
1995..................... $220,505,394 $101,944,566 $136,685,222 $133,351,887 $82,109,946 $52,297,367 $58,054,077
------------ ------------ ------------- ------------ ----------- ----------- -----------
------------ ------------ ------------- ------------ ----------- ----------- -----------
Shares of beneficial
interest issued and
outstanding.............. 13,604,202 7,168,801 8,964,457 10,703,173 6,575,791 5,237,904 58,054,077
------------ ------------ ------------- ------------ ----------- ----------- -----------
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net asset value per
share.................... $ 16.21 $ 14.22 $ 15.25 $ 12.46 $ 12.49 $ 9.98 $ 1.00
------------ ------------ ------------- ------------ ----------- ----------- -----------
------------ ------------ ------------- ------------ ----------- ----------- -----------
(a) Identified cost........ $168,308,413 $ 80,942,844 $120,016,426 $121,391,570 $74,606,904 $56,738,626 $57,471,203
</TABLE>
See Notes to Financial Statements.
B-55
<PAGE>
THE PRUDENTIAL STATEMENT OF
(LOGO) INSTITUTIONAL OPERATIONS
FUND YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
GROWTH STOCK INTERNATIONAL ACTIVE MONEY
STOCK INDEX STOCK BALANCED BALANCED INCOME MARKET
FUND FUND FUND FUND FUND FUND FUND
------------ ------------ ------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Investment Income
Income
Interest................. $ 198,002 $ 637,099 $ 499,812 $ 3,847,389 $ 2,407,512 $ 3,187,231 $ 3,128,647
Dividends (a)............ 1,190,186 1,623,115 3,287,355 896,599 560,304 -- --
------------ ------------ ------------- ------------ ----------- ----------- -----------
Total income........... 1,388,188 2,260,214 3,787,167 4,743,988 2,967,816 3,187,231 3,128,647
------------ ------------ ------------- ------------ ----------- ----------- -----------
Expenses
Management fee........... 1,049,893 286,843 1,367,665 733,748 496,395 231,931 236,009
Administration fee....... 201,075 96,138 159,439 140,527 95,069 62,187 70,311
Custodian's fees and
expenses................. 88,000 124,000 280,000 74,000 72,000 65,000 73,000
Registration fees........ 63,000 35,000 32,000 60,000 23,000 25,000 30,000
Transfer agent's fees and
expenses............... 36,092 17,256 28,618 25,224 17,064 11,162 12,621
Reports to
shareholders............. 25,000 25,000 25,000 13,000 25,000 13,000 13,000
Amortization of
organization
expenses............... 13,385 13,385 13,385 13,213 13,385 13,049 13,213
Legal fees............... 11,000 11,000 15,000 11,000 11,000 11,000 11,000
Audit fee................ 12,000 11,000 15,000 12,000 11,000 11,000 9,000
Trustees' fees........... 8,572 8,572 8,572 8,572 8,572 8,572 8,572
Miscellaneous............ 6,056 4,525 5,856 5,244 4,762 4,256 4,382
------------ ------------ ------------- ------------ ----------- ----------- -----------
Total expenses......... 1,514,073 632,719 1,950,535 1,096,528 777,247 456,157 481,108
Expense subsidy (Note
2)..................... (14,225) (202,456) (47,700) (48,317) (68,112) (131,453) (166,428)
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net expenses............... 1,499,848 430,263 1,902,835 1,048,211 709,135 324,704 314,680
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net investment income
(loss)................... (111,660) 1,829,951 1,884,332 3,695,777 2,258,681 2,862,527 2,813,967
------------ ------------ ------------- ------------ ----------- ----------- -----------
Realized and Unrealized
Gain (Loss) on Investment
and Foreign Currency
Transactions
Net realized gain (loss)
on:
Securities............... 820,651 1,869,439 (2,892,161) 1,585,229 2,197,085 92,951 --
Futures transactions..... -- 2,175,415 -- -- -- -- --
Foreign currency
transactions............. (5,798) -- (192,785) -- (1,009) -- --
------------ ------------ ------------- ------------ ----------- ----------- -----------
814,853 4,044,854 (3,084,946) 1,585,229 2,196,076 92,951 --
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net change in unrealized
appreciation
(depreciation) on:
Securities and foreign
currencies............... 47,538,274 13,632,300 9,333,213 12,809,504 6,413,335 2,865,097 --
Financial futures
contracts................ -- 282,600 -- -- -- -- --
------------ ------------ ------------- ------------ ----------- ----------- -----------
47,538,274 13,914,900 9,333,213 12,809,504 6,413,335 2,865,097 --
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net gain on investments and
foreign currencies....... 48,353,127 17,959,754 6,248,267 14,394,733 8,609,411 2,958,048 --
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net Increase in Net Assets
Resulting from
Operations................. $ 48,241,467 $ 19,789,705 $8,132,599 $ 18,090,510 $10,868,092 $ 5,820,575 $ 2,813,967
------------ ------------ ------------- ------------ ----------- ----------- -----------
------------ ------------ ------------- ------------ ----------- ----------- -----------
(a)Net of foreign withholding taxes of $26,902, $11,248, $461,615, $3,187, $10,097, respectively.
</TABLE>
See Notes to Financial Statements.
B-56
<PAGE>
THE PRUDENTIAL STATEMENT OF CHANGES
(LOGO) INSTITUTIONAL IN NET ASSETS
FUND
<TABLE>
<CAPTION>
GROWTH STOCK INTERNATIONAL
STOCK INDEX STOCK
FUND FUND FUND
--------------------------- ---------------------------- -------------------------
Year Ended September 30, Year Ended September 30, Year Ended September 30,
--------------------------- ---------------------------- -------------------------
1995 1994 1995 1994 1995
------------ ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Increase (Decrease) in
Net Assets
Operations
Net investment income
(loss)............... $(111,660) $25,287 $1,829,951 $892,321 $1,884,332
Net realized gain
(loss) on investments
and foreign currency
transactions......... 814,853 (3,778,648) 4,044,854 186,406 (3,084,946)
Net change in
unrealized
appreciation
(depreciation) on
investments and
foreign currencies... 47,538,274 3,531,929 13,914,900 380,870 9,333,213
------------ ------------- ------------- ------------- ------------
Net increase (decrease)
in net assets
resulting from
operations........... 48,241,467 (221,432) 19,789,705 1,459,597 8,132,599
------------ ------------- ------------- ------------- ------------
Net equalization
credits................. -- 44,776 -- 289,937 --
------------ ------------- ------------- ------------- ------------
Dividends and
distributions
Dividends to
shareholders from net
investment income.... (48,781) (43,709) (1,015,394) (481,228) (750,797)
------------ ------------- ------------ -------------- ------------
Distributions to
shareholders from net
realized gains....... -- (131,129) (165,297) (106,939) (2,440,090)
------------ ------------- ------------ -------------- ------------
Fund share transactions
Net proceeds from
shares sold.......... 138,943,130 80,605,272 52,960,096 29,356,230 93,624,206
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions........ 48,781 174,838 1,180,691 588,167 3,190,887
Cost of shares
redeemed............. (73,635,171) (21,470,653) (20,924,559) (8,128,767) (67,895,915)
------------ ------------- ------------- ------------- ------------
Net increase in net
assets from Fund
share transactions... 65,356,740 59,309,457 33,216,228 21,815,630 28,919,178
------------ ------------- ------------ ------------- ------------
Net increase............ 113,549,426 58,957,963 51,825,242 22,976,997 33,860,890
Net Assets
Beginning of year...... 106,955,968 47,998,005 50,119,324 27,142,327 102,824,332
------------ ------------- ------------ ------------- ------------
End of year...... ...... $220,505,394 $106,955,968 $101,944,566 $50,119,324 $136,685,222
------------ ------------- ------------ ------------- ------------
------------ ------------- ------------ ------------- ------------
<CAPTION>
INTERNATIONAL ACTIVE
STOCK BALANCED
FUND FUND
--------------------------- ----------------------------
Year Ended September 30, Year Ended September 30,
--------------------------- ----------------------------
1994 1995 1994
------------ ------------- ------------
<S> <C> <C> <C>
Increase (Decrease) in
Net Assets
Operations
Net investment income
(loss)............... $ 736,785 $ 3,695,777 $ 1,805,400
Net realized gain
(loss) on investments
and foreign currency
transactions........ . 2,235,681 1,585,229 119,065
Net change in
unrealized
appreciation
(depreciation) on
investments and
foreign currencies... 5,701,535 12,809,504 (1,395,057)
------------- ------------- -------------
Net increase (decrease)
in net assets
resulting from
operations......... .. 8,674,001 18,090,510 529,408
------------- ------------- -------------
Net equalization
credits................. 695,692 -- 296,744
------------- ------------- -------------
Dividends and
distributions
Dividends to
shareholders from net
investment incom e.... (98,619) (2,260,245) (503,768)
------------- ------------- -------------
Distributions to
shareholders from net
realized gains....... (493,097) (272,788) (395,817)
------------- ------------- -------------
Fund share transactions
Net proceeds from
shares sold.......... 86,220,384 54,908,716 56,588,609
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions........ 591,716 2,533,033 899,585
Cost of shares
redeemed............. (24,473,332) (20,823,769) (15,023,860)
------------- ------------- --------------
Net increase in net
assets from Fund
share transactions... 62,338,768 36,617,980 42,464,334
------------- ------------- --------------
Net increase............ 71,116,745 52,175,457 42,390,901
Net Assets
Beginning of year...... 31,707,587 81,176,430 38,785,529
------------- ------------- --------------
End of year............ $ 102,824,332 $ 133,351,887 $81,176,430
------------- ------------- --------------
------------- ------------- --------------
</TABLE>
See Notes to Financial Statements.
B-57
<PAGE>
THE PRUDENTIAL STATEMENT OF CHANGES
(LOGO) INSTITUTIONAL IN NET ASSETS
FUND
<TABLE>
<CAPTION>
MONEY
BALANCED INCOME MARKET
FUND FUND FUND
------------------------------- ------------------------------- -------------------------------
Year Ended September 30, Year Ended September 30, Year Ended September 30,
------------------------------- ------------------------------- -------------------------------
1995 1994 1995 1994 1995 1994
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in
Net Assets
Operations
Net investment
income............... $ 2,258,681 $ 1,261,344 $ 2,862,527 $ 1,982,080 $ 2,813,967 $ 1,276,052
Net realized gain
(loss) on investments
and foreign currency
transactions......... 2,196,076 163,359 92,951 (826,533) -- 1,550
Net change in
unrealized
appreciation
(depreciation) on
investments and
foreign currencies... 6,413,335 (1,878,445) 2,865,097 (2,659,530) -- --
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease)
in net assets
resulting from
operations........... 10,868,092 (453,742) 5,820,575 (1,503,983) 2,813,967 1,277,602
------------- ------------- ------------- ------------- ------------- -------------
Net equalization
credits................ -- 721,188 -- -- -- --
------------- ------------- ------------- ------------- ------------- -------------
Dividends and
distributions
Dividends to
shareholders from net
investment income.... (1,529,788) (604,065) (2,862,527) (1,982,080) (2,813,967) (1,277,602)
------------- ------------- ------------- ------------- ------------- -------------
Distributions to
shareholders from net
realized gains....... (269,963) (735,383) -- (137,236) -- --
------------- ------------- ------------- ------------- ------------- -------------
Fund share transactions
Net proceeds from
shares sold.......... 26,091,264 42,441,610 11,549,255 15,768,473 55,919,976 32,311,167
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions........ 1,799,751 1,339,448 2,862,527 2,119,316 2,813,967 1,277,602
Cost of shares
redeemed............. (19,161,993) (6,059,058) (6,473,780) (7,878,160) (47,010,598) (17,493,001)
------------- ------------- ------------- ------------- ------------- -------------
Net increase in net
assets from Fund
share transactions... 8,729,022 37,722,000 7,938,002 10,009,629 11,723,345 16,095,768
------------- ------------- ------------- ------------- ------------- -------------
Net increase............ 17,797,363 36,649,998 10,896,050 6,386,330 11,723,345 16,095,768
Net Assets
Beginning of year...... 64,312,583 27,662,585 41,401,317 35,014,987 46,330,732 30,234,964
------------- ------------- ------------- ------------- ------------- -------------
End of year............ $ 82,109,946 $64,312,583 $52,297,367 $41,401,317 $ 58,054,077 $46,330,732
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
See Notes to Financial Statements.
B-58
<PAGE>
THE PRUDENTIAL FINANCIAL HIGHLIGHTS
(LOGO) INSTITUTIONAL
FUND
<TABLE>
<CAPTION>
GROWTH STOCK
STOCK INDEX
FUND FUND
---------------------------------------------- ---------
November 5, Year Ended
1992(a) September
Year Ended September 30, Through 30,
---------------------------- September 30, ---------
1995 1994 1993 1995
--------- ------------- ------------- ---------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 12.00 $ 12.10 $ 10.00 $ 11.27
--------- ------------- ------------- ---------
Income from investment operations:
Net investment income(b)...................... -- -- .04 .23
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions................................. 4.22 (.06) 2.08 2.97
--------- ------------- ------------- ---------
Total from investment operations............. 4.22 (.06) 2.12 3.20
--------- ------------- ------------- ---------
Less distributions:
Dividends from net investment income.......... (.01) (.01) (.02) (.22)
Distributions from net realized gains......... -- (.03) -- (.03)
--------- ------------- ------------- ---------
Total distributions........................... (.01) (.04) (.02) (.25)
--------- ------------- ------------- ---------
Net asset value, end of period................ $ 16.21 $ 12.00 $ 12.10 $ 14.22
--------- ------------- ------------- ---------
--------- ------------- ------------- ---------
TOTAL RETURN(d)............................... 35.14% (0.50)% 21.22% 29.02%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $ 220,505 $ 106,956 $47,998 $ 101,945
Average net assets (000)...................... $ 149,985 $ 71,449 $17,592 $ 71,711
Ratios to average net assets: (b)
Expenses..................................... 1.00% 1.00% 1.00%(c) .60%
Net investment income........................ (.07)% .04% .31%(c) 2.55%
Portfolio turnover rate....................... 64% 65% 84% 11%
<CAPTION>
STOCK
INDEX
FUND
--------------------------------
November 5,
1992(a)
Year Ended Through
September 30, September 30,
1994 1993
------------- -------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 11.12 $ 10.00
------------- -------------
Income from investment operations:
Net investment income(b)...................... .26 .23
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions................................. .11 .94
------------- -------------
Total from investment operations............. .37 1.17
------------- -------------
Less distributions:
Dividends from net investment income.......... (.18) (.05)
Distributions from net realized gains......... (.04) --
------------- -------------
Total distributions........................... (.22) (.05)
------------- -------------
Net asset value, end of period................ $ 11.27 $ 11.12
------------- -------------
------------- -------------
TOTAL RETURN(d)............................... 3.33% 11.73%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $50,119 $27,142
Average net assets (000)...................... $38,098 $18,807
Ratios to average net assets: (b)
Expenses..................................... .60% .60%(c)
Net investment income........................ 2.34% 2.41%(c)
Portfolio turnover rate....................... 2% 1%
- ---------------
(a) Commencement of investment operations.
(b) Net of expense subsidy.
(c) Annualized.
(d) Total return is calculated assuming a purchase of shares on the first day and a sale on the last day of each period reported
and includes reinvestment of dividends and distributions. Total return for periods of less than a full year are not
annualized. Total return includes the effect of expense subsidies.
</TABLE>
See Notes to Financial Statements.
B-59
<PAGE>
THE PRUDENTIAL FINANCIAL HIGHLIGHTS
(LOGO) INSTITUTIONAL
FUND
<TABLE>
<CAPTION>
ACTIVE
BALANCED
INTERNATIONAL FUND
STOCK ---------
FUND
---------------------------------------------- Year
November 5, Ended
1992(a) September
Year Ended September 30, Through 30,
---------------------------- September 30, ---------
1995 1994 1993 1995
--------- ------------- ------------- ---------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 14.84 $ 12.35 $ 10.00 $ 10.92
--------- ------------- ------------- ---------
Income from investment operations:
Net investment income(b)...................... .18 .13 .16 .33
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions................................. .66 2.54 2.21 1.54
--------- ------------- ------------- ---------
Total from investment operations............. .84 2.67 2.37 1.87
--------- ------------- ------------- ---------
Less distributions:
Dividends from net investment income.......... (.10) (.03) (.02) (.29)
Distributions from net realized gains......... (.33) (.15) -- (.04)
--------- ------------- ------------- ---------
Total distributions........................... (.43) (.18) (.02) (.33)
--------- ------------- ------------- ---------
Net asset value, end of period................ $ 15.25 $ 14.84 $ 12.35 $ 12.46
--------- ------------- ------------- ---------
--------- ------------- ------------- ---------
TOTAL RETURN(d)............................... 5.95% 21.71% 23.74% 17.66%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $ 136,685 $ 102,824 $31,708 $ 133,352
Average net assets (000)...................... $ 118,927 $ 68,476 $14,491 $ 104,821
Ratios to average net assets:(b)
Expenses..................................... 1.60% 1.60% 1.60%(c) 1.00%
Net investment income........................ 1.58% 1.08% 1.44%(c) 3.53%
Portfolio turnover rate....................... 20% 21% 15% 30%
<CAPTION>
ACTIVE
BALANCE
FUND
--------------------------------
January 4,
1993(a)
Year Ended Through
September 30, September 30,
1994 1993
------------- -------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 11.05 $ 10.00
------------- -------------
Income from investment operations:
Net investment income(b)...................... .24 .21
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions................................. (.12) .84
------------- -------------
Total from investment operations............. .12 1.05
------------- -------------
Less distributions:
Dividends from net investment income.......... (.14) --
Distributions from net realized gains......... (.11) --
------------- -------------
Total distributions........................... (.25) --
------------- -------------
Net asset value, end of period................ $ 10.92 $ 11.05
------------- -------------
------------- -------------
TOTAL RETURN(d)............................... 1.07% 10.50%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $81,176 $38,786
Average net assets (000)...................... $58,992 $12,815
Ratios to average net assets:(b)
Expenses..................................... 1.00% 1.00%(c)
Net investment income........................ 3.06% 2.68%(c)
Portfolio turnover rate....................... 40% 47%
- ---------------
(a) Commencement of investment operations.
(b) Net of expense subsidy.
(c) Annualized.
(d) Total return is calculated assuming a purchase of shares on the first day and a sale on the last day of each period reported
and includes reinvestment of dividends and distributions. Total return for periods of less than a full year are not
annualized. Total return includes the effect of expense subsidies.
</TABLE>
See Notes to Financial Statements.
B-60
<PAGE>
THE PRUDENTIAL FINANCIAL HIGHLIGHTS
(LOGO) INSTITUTIONAL
FUND
<TABLE>
<CAPTION>
BALANCED INCOME
FUND FUND
---------------------------------------------- ---------
November 5,
1992(a) Year Ended
Year Ended September 30, Through September 30,
---------------------------- September 30, ---------
1995 1994 1993 1995
--------- ------------- ------------- ---------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 11.08 $ 11.80 $ 10.00 $ 9.38
--------- ------------- ------------- ---------
Income from investment operations:
Net investment income(b)...................... .18 .31 .31 .59
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions................................. 1.53 (.52) 1.54 .60
--------- ------------- ------------- ---------
Total from investment operations............. 1.71 (.21) 1.85 1.19
--------- ------------- ------------- ---------
Less distributions:
Dividends from net investment income.......... (.25) (.23) (.05) (.59)
Distributions from net realized gains......... (.05) (.28) -- --
--------- ------------- ------------- ---------
Total distributions........................... (.30) (.51) (.05) (.59)
--------- ------------- ------------- ---------
Net asset value, end of period................ $ 12.49 $ 11.08 $ 11.80 $ 9.98
--------- ------------- ------------- ---------
--------- ------------- ------------- ---------
TOTAL RETURN(d)............................... 15.90% (1.88)% 18.58% 13.11%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $82,110 $64,313 $27,663 $52,297
Average net assets (000)...................... $70,914 $44,048 $17,401 $46,386
Ratios to average net assets: (b)
Expenses..................................... 1.00% 1.00% 1.00%(c) .70%
Net investment income........................ 3.19% 2.86% 3.16%(c) 6.17%
Portfolio turnover rate....................... 65% 52% 74% 145%
<CAPTION>
INCOME
FUND
--------------------------------
March 1,
1993(a)
Year Ended Through
September 30, September 30,
1994 1993
------------- -------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 10.33 $ 10.00
------------- -------------
Income from investment operations:
Net investment income(b)...................... .52 .27
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions................................. (.91) .33
------------- -------------
Total from investment operations............. (.39) .60
------------- -------------
Less distributions:
Dividends from net investment income.......... (.52) (.27)
Distributions from net realized gains......... (.04) --
------------- -------------
Total distributions........................... (.56) (.27)
------------- -------------
Net asset value, end of period................ $ 9.38 $ 10.33
------------- -------------
------------- -------------
TOTAL RETURN(d)............................... (3.91)% 6.11%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $41,401 $35,015
Average net assets (000)...................... $37,802 $25,626
Ratios to average net assets: (b)
Expenses..................................... .70% .70%(c)
Net investment income........................ 5.24% 4.62%(c)
Portfolio turnover rate....................... 83% 93%
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) Net of expense subsidy.
(c) Annualized.
(d) Total return is calculated assuming a purchase of shares on the first
day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total return for periods
of less than a full year are not annualized. Total return includes the
effect of expense subsidies.
See Notes to Financial Statements.
B-61
<PAGE>
THE PRUDENTIAL FINANCIAL HIGHLIGHTS
(LOGO) INSTITUTIONAL
FUND
<TABLE>
<CAPTION>
MONEY
MARKET
FUND
-----------------------------------------------------
January 4,
1993(a)
Year Ended September 30, Through
------------------------------- September 30,
1995 1994 1993
--------- ------------- -------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 1.00 $ 1.00 $ 1.00
Net investment income and net realized
gains(b)..................................... .05 .03 .02
Dividends from net investment income.......... (.05) (.03) (.02)
--------- ------------- -------------
Net asset value, end of period................ $ 1.00 $ 1.00 $ 1.00
--------- ------------- -------------
--------- ------------- -------------
TOTAL RETURN(d)............................... 5.47% 3.32% 2.08%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $58,054 $46,331 $30,235
Average net assets (000)...................... $52,446 $38,170 $25,296
Ratios to average net assets: (b)
Expenses..................................... .60% .60% .60%(c)
Net investment income........................ 5.37% 3.34% 2.73%(c)
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) Net of expense subsidy.
(c) Annualized.
(d) Total return is calculated assuming a purchase of shares on the first
day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total return for periods
of less than a full year are not annualized. Total return includes
the effect of expense subsidies.
See Notes to Financial Statements.
B-62
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND
The Prudential Institutional Fund (the "Company") is registered under the
Investment Company Act of 1940 as an open-end, diversified management investment
company. The Company was established as a Delaware business trust on May 11,
1992 and consists of seven separate funds (Fund or Funds): Growth Stock Fund,
Stock Index Fund, International Stock Fund, Active Balanced Fund, Balanced Fund,
Income Fund and Money Market Fund. The Company had no operations until July 7,
1992 when 10,000 shares of beneficial interest (2,500 shares each of Growth
Stock Fund, Stock Index Fund, International Stock Fund and Balanced Fund) were
sold for $100,000 to Prudential Institutional Fund Management, Inc. ("PIFM").
Investment operations commenced on: November 5, 1992 for the Growth Stock Fund,
Stock Index Fund, International Stock Fund and Balanced Fund; January 4, 1993
for the Active Balanced Fund and Money Market Fund; and March 1, 1993 for the
Income Fund.
The Funds' investment objectives are as follows: Growth Stock Fund--long-term
growth of capital through investment primarily in equity securities of
established companies with above-average growth prospects; Stock Index
Fund--investment results that correspond to the price and yield performance of
Standard & Poor's 500 Composite Stock Price Index; International Stock
Fund--long-term growth of capital through investment in equity securities of
foreign issues with income as a secondary objective; Active Balanced Fund--total
returns approaching equity returns, while accepting less risk than an all-equity
portfolio, through an actively-managed portfolio of equity securities, fixed
income securities and money market instruments; Balanced Fund--long-term total
return consistent with moderate portfolio risk; Income Fund--a high level of
income over the longer term while providing reasonable safety of principal; and
Money Market Fund--high current income, preservation of principal and
maintenance of liquidity, while maintaining a $1.00 net asset value per share.
The ability of issuers of debt securities, other than those issued or
guaranteed by the U.S. Government, held by the Funds to meet their obligations
may be affected by economic developments in a specific industry, region, or
country.
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund.
Securities Valuations: Securities, including options, warrants, futures
contracts and options thereon, for which the primary market is on a national
securities exchange, commodities exchange or board of trade and NASDAQ national
market equity securities are valued at the last sale price on such exchange or
board of trade on the date of valuation or, if there was no sale on such day, at
the average of readily available closing bid and asked prices on such day.
Securities, that are actively traded in the over-the-counter market,
including listed securities for which the primary market is believed to be
over-the-counter, shall be valued at the average of the most recently quoted bid
and asked prices provided by a principal market maker or dealer.
U.S. Government securities for which market quotations are available shall be
valued at a price provided by an independent broker/dealer or pricing service.
Securities for which reliable market quotations are not available or for
which the pricing agent or principal market maker does not provide a valuation
or provides a valuation that, in the judgment of one of the subadvisers, does
not represent fair value, shall be valued at fair value as determined under
procedures established by the Trustees.
Quotations of foreign securities in a foreign currency shall be converted to
U.S. dollar equivalents at the current rate obtained from a recognized bank or
dealer. Forward currency
B-63
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND
exchange contracts shall be valued at the current cost of covering or offsetting
such contracts.
Securities held by the Money Market Fund are valued at amortized cost, which
approximates market value. The amortized cost method involves valuing a security
at its cost on the date of purchase and thereafter assuming a constant
amortization to maturity of the difference between the principal amount due at
maturity and cost. Short-term securities held by the other Funds which mature in
more than 60 days are valued at current market quotations and those which mature
in 60 days or less are valued at amortized cost. In the event that a Subadviser
determines that amortized cost does not represent fair value for certain
short-term securities with remaining maturities of 60 days or less, such
securities will be valued at market value.
In connection with transactions in repurchase agreements, it is the Company's
policy that its custodian or designated subcustodians, as the case may be under
triparty repurchase agreements, take possession of the underlying collateral
securities, the value of which exceeds the principal amount of the repurchase
transaction, including accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to ensure the adequacy of the collateral. If
the seller defaults, and the value of the collateral declines or, if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Company may be delayed or limited.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date and interest income is recorded on the accrual basis.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Fund is required to pledge to the broker an amount of cash and/or other
assets equal to a certain percentage of the contract amount. This amount is
known as the "initial margin." Subsequent payments, known as "variation
margin," are made or received by the Fund each day, depending on the daily
fluctuations in the value of the underlying security. Such variation margin is
recorded for financial statement purposes on a daily basis as unrealized gain or
loss. When the contract expires or is closed, the gain or loss is realized and
is presented in the statement of operations as net realized gain (loss) on
financial futures contracts.
The Funds invest in financial futures contracts in order to hedge their
existing portfolio securities, or securities the Funds intend to purchase,
against fluctuations in value. Under a variety of circumstances, a Fund may not
achieve the anticipated benefits of the financial futures contracts and may
realized a loss. The use of futures transactions involves the risk of imperfect
correlation in movements in the price of futures contracts and the underlying
assets.
Dollar Rolls: The Fund may enter into dollar rolls in which the Fund sells
securities for delivery in the current month and simultaneously contracts to
repurchase somewhat similar securities on a specified future date. During the
roll period, the Fund forgoes principal and interest paid on the securities. The
Fund is compensated by the interest earned on the cash proceeds of the initial
sale and by the lower repurchase price at the future date.
Foreign Currency Translation: The books and records of the Funds are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:
(i) market value of investment securities, other assets and liabilities--at
the closing rates of exchange.
(ii) purchases and sales of investment securities, income and expenses--at
the rate of exchange
B-64
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND
prevailing on the respective dates of such transactions.
Although the net assets of the Funds are presented at the foreign exchange
rates and market values at the close of the fiscal year, the Funds do not
isolate that portion of the results of operations arising as a result of changes
in the foreign exchange rates from the fluctuations arising from changes in the
market prices of securities held at the end of the fiscal year. Similarly, the
Funds do not isolate the effect of changes in foreign exchange rates from the
fluctuations arising from changes in the market prices of long-term portfolio
securities sold during the fiscal year. Accordingly, these realized foreign
currency gains (losses) are included in the reported net realized gains (losses)
on investment transactions.
Net realized losses on foreign currency transactions represent net foreign
exchange losses from holding of foreign currencies, currency gains or losses
realized between the trade and settlement dates of securities transactions, and
the difference between the amounts of dividends and foreign taxes recorded on
the Funds' books and the U.S. dollar equivalent amounts actually received or
paid. Net currency gains and losses from valuing foreign currency denominated
assets and liabilities at year end exchange rates are reflected as a component
of net unrealized appreciation/depreciation on securities and foreign
currencies.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin as a result of,
among other factors, the level of governmental supervision and regulation of
foreign securities markets and the possibility of political or economic
instability.
Equalization: During the fiscal year ended September 30, 1995, the Funds
(except for the Income and Money Market Funds) discontinued the accounting
practice of equalization. Equalization is a practice whereby a portion of the
proceeds from sales and costs of repurchases of capital shares, equivalent on a
per-share basis to the amount of distributable net investment income on the date
of the transaction, is credited or charged to undistributed net investment
income. The following balances of undistributed net investment income at
September 30, 1994, resulting from equalization were transferred to paid-in
capital in excess of par for each of the respective Funds:
Growth Stock Fund $ 90,444
Stock Index Fund 398,227
International Stock Fund 881,462
Active Balanced Fund 788,116
Balanced Fund 899,912
Such reclassifications have no effect on net assets, results of operations,
or net asset value per share of the Funds.
Dividends and Distributions: Dividends and distributions of each Fund are
declared in cash and automatically reinvested in additional shares of the Fund.
The Income Fund and Money Market Fund will declare dividends of their net
investment income and, for the Money Market Fund, net capital gain (loss), daily
and distribute such dividends monthly. Each other Fund will declare and
distribute a dividend of its net investment income, if any, at least annually.
Except for the Money Market Fund, each Fund will declare and distribute its net
capital gains, if any, at least annually. Distributions of income dividends and
capital gains distributions of each Fund are made on the payment date and
reinvested at the per share net asset value as of the record date or such other
date as the Board may determine. On the "ex-dividend" date, the net asset
value per share excludes the dividend (i.e., is reduced by the amount of the
distribution).
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
B-65
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND
Taxes: It is the Funds' policy to continue to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable net income to its shareholders. Therefore, no
federal income tax provision is required.
Withholding taxes on foreign dividends have been provided for in accordance
with the Funds' understanding of the applicable country's tax rules and rates.
Reclassification of Capital Accounts: The Company accounts for and reports
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants' Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment Companies.
For the year ended September 30, 1995, the application of this statement
affected undistributed net investment income ("UNI"), accumulated net realized
gain (loss) on investments ("G/L") and paid-in capital in excess of par
("PIC") by the following amounts:
<TABLE>
<CAPTION>
UNI G/L PIC
--------- -------- ---------
<S> <C> <C> <C>
Growth Stock Fund $ 141,451 $ 5,798 $(147,249)
International Stock Fund (81,325) 81,325 --
Active Balanced Fund (107,185) 107,185 --
Balanced Fund (112,634) 112,634 --
</TABLE>
Net investment income, net realized gains and net assets were not affected by
this change.
Deferred Organizational Expenses: Approxi-
mately $450,000 of costs were incurred in connection with the organization and
initial registration of the Company and have been deferred and are being
amortized ratably over the period of benefit not to exceed 60 months from the
date each of the Funds' commenced investment operations.
Note 2. Agreements
The Company has entered into a management agreement with PIFM. Pursuant to
this agreement, PIFM has responsibility for all investment advisory services and
supervises the subadviser's performance of such services. PIFM is an indirect,
wholly-owned subsidiary of The Prudential Insurance Company of America
(Prudential).
PIFM has entered into subadvisory agreements with The Prudential Investment
Corporation ("PIC"), Jennison Associates Capital Corp. ("Jennison") and
Mercator Asset Management, Inc. ("Mercator"), each a wholly-owned subsidiary
of Prudential. Each subadviser will furnish investment advisory services in
connection with the management of the various Funds. Jennison serves as
subadviser to the Growth Stock Fund and the Active Balanced Fund. PIC serves as
subadviser to the Balanced Fund, the Stock Index Fund, the Income Fund and the
Money Market Fund. Mercator serves as subadviser to the International Stock
Fund. PIFM will pay for the costs and expenses attributable to the subadvisory
agreements and the salaries and expenses of all personnel of the Company except
for fees and expenses of unaffiliated Trustees. The Funds will bear all other
costs and expenses.
Each Fund will pay PIFM a fee for its services provided to the Fund. The fees
are computed daily and payable monthly at the annual rates specified below of
the value of each Funds' average daily net assets:
Fund Management Fee
- -------------------------- ---------------
Growth Stock Fund .70%
Stock Index Fund .40
International Stock Fund 1.15
Active Balanced Fund .70
Balanced Fund .70
Income Fund .50
Money Market Fund .45
PIFM has voluntarily agreed to subsidize a portion of the operating expenses
of the Funds until September 30, 1996. Such expenses may be recovered by PIFM
through December 31, 1996 so
B-66
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND
long as the total expense ratios do not exceed certain predetermined levels set
forth in the Company's prospectus. For the year ended September 30, 1995, PIFM
subsidized the following amounts:
<TABLE>
<CAPTION>
Percentage
of Average Amount per
Fund Net Assets Share
- ------------------------- ------------- ------------------
<S> <C> <C>
Growth Stock Fund .01% $ .001
Stock Index Fund .28 .025
International Stock Fund .04 .002
Active Balanced Fund .05 .004
Balanced Fund .10 .005
Income Fund .28 .027
Money Market Fund .32 .001
</TABLE>
The Company has entered into an administration agreement with Prudential
Mutual Fund Management, Inc. ("PMF"), an indirect wholly-owned subsidiary of
Prudential. The administration fee paid PMF will be computed daily and payable
monthly, at an annual rate of .17% of the Company's daily net assets up to $250
million and .15% of the Company's average daily net assets in excess of $250
million. PMF will furnish to the Company such services as the Company may
require in connection with the administration of the Company's business affairs.
PMF will also provide certain transfer agent services through its wholly-owned
subsidiary, Prudential Mutual Fund Services, Inc. ("PMFS"). For such services,
PMFS will be paid .03% of the Company's daily net assets up to $250 million and
.02% of the Company's average daily net assets in excess of $250 million from
the administration fee paid to PMF.
Note 3. Other Transactions with Affiliates
For the year ended September 30, 1995, Prudential Securities Incorporated, an
affiliate of PIFM, earned approximately $1,000 in brokerage commissions from
portfolio transactions executed on behalf of the Balanced Fund.
Note 4. Portfolio Securities
Purchases and sales of portfolio securities, excluding short-term
investments, for the year ended September 30, 1995 were as follows:
<TABLE>
<CAPTION>
Fund Purchases Sales
- ---------------------------- ------------ -----------
<S> <C> <C>
Growth Stock Fund $166,285,606 $94,901,288
Stock Index Fund 31,191,257 6,793,307
International Stock Fund 51,878,167 22,058,837
Active Balanced Fund 55,254,010 24,449,598
Balanced Fund 51,413,549 41,017,407
Income Fund 72,942,188 62,818,679
</TABLE>
On September 30, 1995, the Stock Index Fund purchased 62 financial futures
contracts on the S&P 500 Index expiring December, 1995. The cost of such
contracts was $18,040,975. The value of such contracts on September 30, 1995 was
$18,234,200, thereby resulting in an unrealized gain of $193,225.
The federal income tax basis and unrealized appreciation/depreciation of the
Fund's investments as of September 30, 1995 were as follows:
<TABLE>
<CAPTION>
Net Unrealized
Appreciation/ Gross Unrealized
Fund Basis Depreciation Appreciation Depreciation
- ------------------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
Growth Stock Fund $168,492,267 $ 53,882,096 $55,631,552 $1,749,456
Stock Index Fund 80,984,245 15,486,856 16,243,442 756,586
International Stock
Fund 120,016,426 17,315,559 19,620,167 2,304,608
Active Balanced
Fund 121,485,163 12,020,860 12,744,154 723,294
Balanced Fund 74,648,132 6,340,696 6,845,882 505,186
Income Fund 56,738,626 894,526 1,086,048 191,522
</TABLE>
The following Funds elected to treat net losses incurred in the eleven month
period ended September 30, 1994 as having occurred in the current fiscal year:
<TABLE>
<CAPTION>
Capital Currency
---------- --------
<S> <C> <C>
Growth Stock Fund $3,796,000 --
International Stock Fund -- $186,000
Income Fund 828,000 --
</TABLE>
B-67
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND
The following Funds will elect to treat net losses incurred in the eleven
month period ended September 30, 1995 as having been incurred in the following
fiscal year:
<TABLE>
<CAPTION>
Capital Currency
---------- --------
<S> <C> <C>
Growth Stock Fund -- $ 4,000
International Stock Fund $3,066,000 169,000
Balanced Fund -- 1,000
</TABLE>
For federal income tax purposes, the following Funds have a capital loss
carryforward as of September 30, 1995 which expires in 2003:
Growth Stock Fund $2,825,300
Income Fund 723,300
The average monthly balance of dollar rolls outstanding during the year ended
September 30, 1995 for the Income Fund was approximately $4,142,000. The amount
of dollar rolls outstanding at September 30, 1995 was $5,940,665, which was
10.2% of total assets.
Note 5. Joint Repurchase Agreement Account
The Company, along with other affiliated registered investment companies,
transfers uninvested cash balances into a single joint account, the daily
aggregate balance of which is invested in one or more repurchase agreements
collateralized by U.S. Treasury or federal agency obligations. At September 30,
1995, the Company had a 9.01% undivided interest, in the aggregate, in the
repurchase agreements in the joint account which represented $65,929,000 in
principal amount, in the aggregate, as follows:
<TABLE>
<CAPTION>
Percentage Principal
Company Interest Amount
- ---------------------------- ---------- -----------
<S> <C> <C>
Growth Stock Fund .66% $ 4,819,000
Stock Index Fund 1.71 12,494,000
International Stock Fund 1.12 8,175,000
Active Balanced Fund 3.50 25,625,000
Balanced Fund 1.00 7,338,000
Income Fund 1.02 7,478,000
</TABLE>
As of such date, each repurchase agreement in the joint account and the
collateral therefor was as follows:
Bear, Stearns & Co., Inc., 6.375%, in the principal amount of $225,000,000,
repurchase price $225,119,531, due 10/2/95. The value of the collateral
including accrued interest was $229,660,959.
BT Securities Corp., 6.10%, in the principal amount of $56,863,000,
repurchase price $56,891,905, due 10/2/95. The value of the collateral including
accrued interest was $58,082,904.
Goldman, Sachs & Co., 6.45%, in the principal amount of $225,000,000,
repurchase price $225,120,938, due 10/2/95. The value of the collateral
including accrued interest was $229,500,013.
Smith Barney, Inc., 6.43%, in the principal amount of $225,000,000,
repurchase price $225,120,563, due 10/2/95. The value of the collateral
including accrued interest was $229,500,366.
Note 6. Capital
Each Fund has authorized an unlimited number of shares of beneficial interest
at $.001 par value per share.
Transactions in shares of beneficial interest during the years ended
September 30, 1995 and 1994 were as follows:
Year ended September 30, 1995:
<TABLE>
<CAPTION>
Shares
Issued in
Reinvestment Increase
Shares of Dividends/ Shares in Shares
Fund Sold Distributions Redeemed Outstanding
- ----------------------- ---------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Growth Stock Fund 9,932,496 4,078 (5,248,506) 4,688,068
Stock Index Fund 4,340,797 107,238 (1,725,892) 2,722,143
International Stock
Fund 6,497,880 228,737 (4,691,305) 2,035,312
Active Balanced Fund 4,883,689 242,395 (1,856,069) 3,270,015
Balanced Fund 2,303,919 168,832 (1,702,980) 769,771
Income Fund 1,204,925 296,456 (675,384) 825,997
Money Market Fund 55,919,976 2,813,967 (47,010,598) 11,723,345
</TABLE>
B-68
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND
Year ended September 30, 1994:
<TABLE>
<CAPTION>
Shares
Issued in
Reinvestment Increase
Shares of Dividends/ Shares in Shares
Fund Sold Distributions Redeemed Outstanding
- ---------------------- ---------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Growth Stock Fund 6,739,890 14,450 (1,804,735) 4,949,605
Stock Index Fund 2,697,792 52,328 (744,579) 2,005,541
International Stock
Fund 6,022,403 42,326 (1,702,734) 4,361,995
Active Balanced Fund 5,244,905 81,781 (1,404,380) 3,922,306
Balanced Fund 3,900,150 118,117 (556,779) 3,461,488
Income Fund 1,613,971 216,368 (809,032) 1,021,307
Money Market Fund 32,311,167 1,277,602 (17,493,001) 16,095,768
</TABLE>
Of the shares outstanding at September 30, 1995, PIFM and affiliates owned
the following shares:
<TABLE>
<CAPTION>
Fund Shares
- -------------------------- ----------
<S> <C>
Growth Stock Fund 4,724,608
Stock Index Fund 3,429,256
International Stock Fund 4,962,191
Active Balanced Fund 2,396,951
Balanced Fund 3,356,418
Income Fund 2,889,945
Money Market Fund 27,811,405
</TABLE>
B-69
<PAGE>
THE PRUDENTIAL INDEPENDENT
(LOGO) INSTITUTIONAL AUDITORS' REPORT
FUND
The Shareholders and Trustees of
The Prudential Institutional Fund:
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of The Prudential Institutional Fund
(consisting of the Growth Stock Fund, Stock Index Fund, International Stock
Fund, Active Balanced Fund, Balanced Fund, Income Fund and Money Market Fund),
as of September 30, 1995, the related statements of operations for the year then
ended and of changes in net assets for each of the two years in the period then
ended, and the financial highlights for the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
September 30, 1995, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of each of the
respective portfolios constituting The Prudential Institutional Fund as of
September 30, 1995, the results of their operations, the changes in their net
assets, and the financial highlights for the periods presented in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
November 16, 1995
B-70
<PAGE>
APPENDIX
DESCRIPTION OF S&P, MOODY'S AND DUFF & PHELPS RATINGS
Description of S&P Corporate Bond Ratings:
AAA - Bonds rated AAA have the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.
AA - Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
BB, B, CCC, CC, C - Bonds rated BB, B, CCC, CC, or C are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
represents the lowest degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
Description of Moody's Corporate Bond Ratings:
Aaa - Bonds rated Aaa are judged to be the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edge." 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 these issues.
Aa - Bonds 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 in Aaa securities.
A - Bonds 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 sometime in the future.
Baa - Bonds rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds rated Ba are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate and thereby not well-safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds rated Caa are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C - Bonds rated C are the lowest rated class of bonds, and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 in the Aa and A rating
categories. The modifier 1 indicates that the security 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 issue ranks in the lower end of its
generic rating category.
A-1
<PAGE>
Description of Duff & Phelps Bond Ratings:
AAA - Bonds rated AAA by Duff & Phelps are considered to be of the highest
credit quality. The risk factors are negligible, being only slightly more than
for risk-free U.S. Treasury debt.
AA+, AA, AA--Bonds rated AA+, AA or AA-are considered to be of high credit
quality. Protection factors are strong. Risk is modest but may vary slightly
from time to time because of economic conditions.
A+, A, A--Bonds rated A+, A or A-have protection factors which are average
but adequate; however, risk factors are more variable and greater in periods of
economic stress.
BBB+, BBB, BBB--Bonds rated BBB+, BBB or BBB-have below average protection
factors but are still considered sufficient for prudent investment. These bonds
demonstrate considerable variability in risk during economic cycles.
BB+, BB, BB--Bonds rated BB+, BB, or BB-are below investment grade but are
still deemed likely to meet obligations when due. Present or prospective
financial protection factors fluctuate according to industry conditions or
company fortunes. Overall quality may move up or down frequently within this
category.
B+, B, B--Bonds rated B+, B, or B-are below investment grade and possess
the risk that obligations will not be met when due. Financial protection factors
will fluctuate widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade.
CCC - Bonds rated CCC are well below investment grade securities.
Considerable uncertainty exists as to timely payment of principal, interest or
preferred dividends. Protection factors are narrow and risk can be substantial
with unfavorable economic/industry conditions, and/or with unfavorable company
developments.
DD - Bonds rated DD are defaulted debt obligations. The issuer failed to
meet scheduled principal and/or interest payments.
Description of S&P Commercial Paper Ratings:
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted A-1+.
Capacity for timely payment on commercial paper rated A-2 is strong, but the
relative degree of safety is not as high as for issues designated A-1.
Description of Moody's Commercial Paper Ratings:
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics of
issuers rated Prime-1 but to a lesser degree. Earnings trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternative liquidity is maintained.
Description of Duff & Phelps Commercial Paper Ratings:
Duff & Phelps commercial paper ratings are divided into three categories,
ranging from "1" for the highest quality obligations to "3" for the lowest.
No ratings are issued for companies whose paper is not deemed investment grade.
Issues assigned the Duff 1 rating are considered top grade. This category is
further divided into three gradations as follows: Duff 1 plus--highest certainty
of timely payment, short-term liquidity, including internal operating factors
and/or ready access to alternative sources of funds, is clearly outstanding and
safety is just below risk-free U.S. Treasury short-term obligations; Duff
1--very high certainty or timely payment, liquidity factors are excellent and
supported by strong fundamental protection factors, risk factors are minor; Duff
1 minus-high certainty of timely payment, liquidity factors are strong and
supported by good fundamental protection factors, risk factors are very small.
Issues rated Duff 2 represent a good certainty of timely payment; liquidity
factors and company fundamentals are sound; although ongoing internal funds
needs may enlarge total financing requirements, access to capital markets is
good; risk factors are small. Duff 3 represents a satisfactory grade;
satisfactory liquidity and other protection factors qualify issue as to
investment grade; risk factors are larger and subject to more variation;
nevertheless timely payment is expected.
A-2
