PRUDENTIAL MONEYMART ASSETS, INC.
Statement of Additional Information
Dated February 28, 1997
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
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, and
its telephone number is (800) 225-1852.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus, dated February 28, 1997, a copy
of which may be obtained from the Fund upon request at the address or telephone
number noted above.
TABLE OF CONTENTS
CROSS-REFERENCE
TO PAGE IN
PAGE PROSPECTUS
---- ----------
General Information and History B-2 15
Investment Objective and Policies B-2 7
Investment Restrictions B-3 10
Suitability for Investors B-4 --
Calculation of Yield B-5 7
Directors and Officers B-5 10
Manager B-8 10
Distributor B-10 11
Purchase and Redemption of Fund Shares B-11 15
Shareholder Investment Account B-13 23
Dividends B-15 13
Net Asset Value B-15 13
Portfolio Transactions B-15 12
Taxes B-16 13
Custodian, Transfer and Dividend Disbursing Agent
and Independent Accountants B-17 12
Financial Statements B-18 --
Independent Auditors' Report B-27 --
Appendix A--Description of Ratings A-1 --
Appendix B--Information Relating to The Prudential B-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 LLC
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 under triparty repurchase agreements, as the case may be, 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.
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 (1) WITH FUND DURING PAST FIVE YEARS
- ------------------------- --------- ----------------------
Edward D. Beach (72) Director President and Director of BMC Fund,
Inc., a closed-end investment company;
prior thereto, Vice Chairman of
Broyhill Furniture Industries, Inc.;
Certified Public Accountant; Secretary
and Treasurer of Broyhill Family
Foundation, Inc.; Chairman of the
Board of Trustees of Mars Hill
College; President, Treasurer and
Director of First Financial Fund,
Inc. and The High Yield Plus Fund,
Inc.; Director of The High Yield
Income Fund, Inc.
Stephen C. Eyre (74) Director Executive Director of The John A.
Hartford Foundation, Inc. (charitable
foundation) (since May 1985); Director
of Faircom, Inc.; Trustee Emeritus of
Pace University.
Delayne Dedrick Gold (58) Director Marketing and Management Consultant;
Director of The High Yield Income
Fund, Inc.
* Robert F. Gunia (50) Director Comptroller, Prudential Investments
(since May 1996); Senior Vice
President (since March 1987) of
Prudential Securities Incorporated
(Prudential Securities); Executive
Vice President and Treasurer
(since December 1996) of PMF,
and formerly Chief Administrative
Officer (July 1990-September 1996),
Director (January 1989-September
1996), Executive Vice President,
Treasurer and Chief Financial Officer
(June 1987-September 1996) of PMF;
Vice President and Director of
The Asia Pacific Fund, Inc. (since May
1989); Director of The High Yield
Income Fund, Inc.
B-5
<PAGE>
POSITION PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE (1) WITH FUND DURING PAST FIVE YEARS
- ------------------------- --------- ----------------------
Don G. Hoff (61) Director Chairman and Chief Executive Officer of
Intertec, Inc. (investments) since
1980; Chairman and CEO of EHS, Inc.:
Director of Innovative Capital
Management, Inc. and The Greater China
Fund, Inc.; Chairman and Director of
The Asia Pacific Fund, Inc.
Robert E. LaBlanc (62) Director President of Robert E. LaBlanc
Associates, Inc. (telecommunications)
since 1981; formerly General Partner
at Salomon Brothers; formerly
Vice-Chairman of Continental Telecom;
Director of Storage Technology
Corporation, Titan Corporation and
Tribune Company; Trustee of Manhattan
College.
* Mendel A. Melzer, Director Chief Investment Officer (since
CFA, ChFC, CLU (35) September 1996), formerly Chief
751 Broad Street Financial Officer (November
Newark, NJ 07102 1995-October 1996) of Prudential
Investments; formerly Senior Vice
President and Chief Financial Officer
of Prudential Preferred Financial
Services (April 1993-November 1995);
Managing Director of Prudential
Investment Advisors (April 1991-April
1993); Senior Vice President of
Prudential Capital Corporation (July
1989-April 1991); Chairman and
Director of Prudential Series Fund,
Inc; Director of The High Yield
Income Fund, Inc.
* Richard A. Redeker (53) President Employee of Prudential Investments;
751 Broad Street and formerly President, Chief Executive
Newark, NJ 07102 Director Officer and Director (October
1993-September 1996) of PMF; formerly
Executive Vice President, Director and
Member of the Operating Committee
(1993-September 1996), Prudential
Securities; formerly Director (October
1993-September 1996) of Prudential
Securities Group, Inc.; formerly
Senior Executive Vice President and
Director of Kemper Financial Services,
Inc. (September 1978-September 1993);
President and Director of The High
Income Yield Fund, Inc.
Robin B. Smith (57) Director Chairman (since August 1996) and Chief
Executive Officer (since January
1988), formerly President (September
1981-August 1996) of Publishers
Clearing House; Director of BellSouth
Corporation, The Omnicom Group, Inc.,
Texaco Inc., Springs Industries Inc.
and Kmart Corporation.
Stephen Stoneburn (53) Director President and Chief Executive Officer of
Quadrant Media Corp. (a publishing
company) (since June 1996); formerly
President of Argus Integrated Media,
Inc. (June 1995-June 1996); formerly
Senior Vice President and Managing
Director, Cowles Business Media
(January 1993-1995); prior thereto,
Senior Vice President (January
1991-1992) and Publishing Vice
President (May 1989-December 1990) of
Gralla Publications (a division of
United Newspapers, U.K.); formerly
Senior Vice President of Fairchild
Publications, Inc.
Nancy H. Teeters (66) Director Economist; formerly Vice President and
Chief Economist (March 1986-June 1990)
of International Business Machines
Corporation; formerly Member of the
Board of Governors of the Horace
Rackham School of Graduate Studies of
the University of Michigan; Director
of Inland Steel Corporation (since
July 1991) and First Financial Fund,
Inc.
B-6
<PAGE>
POSITION PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE (1) WITH FUND DURING PAST FIVE YEARS
- ------------------------- --------- ----------------------
Susan C. Cote (42) Vice Executive Vice President and Chief
President Financial Officer of PMF (since May
1996); formerly Chief Operating
Officer and Managing Director of
Prudential Investments (March 1995-May
1996) and formerly Senior Vice
President-Fund Administration
(September 1983-February 1995) of PMF.
Thomas A. Early (42) Vice Executive Vice President, Secretary and
President General Counsel of PMF (since December
1996); Vice President and General
Counsel of Prudential Retirement
Services (since March 1994); Senior
Vice President and Assistant
Secretary of Prudential Mutual Fund
Services LLC (PMFS) (since December
1996); formerly Associate General
Counsel and Chief Financial Services
Officer, Frank Russell Company
(1988-1994).
S. Jane Rose (51) Secretary Senior Vice President and Senior Counsel
of PMF; Senior Vice President and
Senior Counsel of Prudential
Securities (since July 1992); formerly
Vice President and Associate General
Counsel of Prudential Securities.
Ellyn C. Vogin (36) Assistant Vice President and Associate General
Secretary Counsel of Prudential Securities and
PMF (since March 1995); prior thereto,
associated with the law firm of
Fulbright & Jaworski LLP.
Grace C. Torres (38) Treasurer First Vice President (since March 1994)
and of PMF; First Vice President (since
Principal March 1994) of Prudential Securities;
Financial Vice President of Bankers Trust (July
and 1989-March 1994).
Accounting
Officer
Stephen M. Ungerman (44) Assistant First Vice President (since February
Treasurer 1993) of PMF; Tax Director of
Prudential Investments and the Private
Asset Group of The Prudential
Insurance Company of America
(Prudential) (since March 1996);
Assistant Treasurer of PMFS (since
December 1996); prior thereto, Senior
Tax Manager of Price Waterhouse LLP
(1981-January 1993).
- ----------
(1) Unless otherwise noted, the address for each of the above persons is c/o
Prudential Mutual Fund Management LLC, Gateway Center Three, 100 Mulberry
Street, Newark, New Jersey 07102-4077.
* "Interested" Director, as defined in the Investment Company Act of 1940,
as amended (Investment Company Act), by reason of his affiliation with
Prudential, 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. Under this phase-in provision, Messrs. Beach
and Eyre are scheduled to retire on December 31, 1998 and 1999, respectively.
Pursuant to the Management Agreement with the Fund, the Manager pays all
compensation of officers and employees of the Fund as well as the fees and
expenses of all Directors of the Fund who are affiliated persons of the Manager.
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.
B-7
<PAGE>
Each Director who is not an affiliated person of PMF or The Prudential
Investment Corporation, doing business as Prudential Investments (PI),
currently receives $7,000 as an annual Director's fee, plus expenses.
The following table sets forth the aggregate compensation paid by the Fund
for the fiscal year ended December 31, 1996 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 LLC (Fund Complex) for
the calendar year ended December 31, 1996. In October 1996, shareholders elected
a new Board of Directors. Below is listed all Directors who have served the Fund
during its most recent fiscal year, as well as the new Directors who took office
after the shareholder meeting in October.
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 (2)
----------------- --------- -------- ---------- ----------------
<S> <C> <C> <C> <C>
Edward D. Beach--Director -- None N/A $166,000(21/39)*
Stephen C. Eyre--Director -- None N/A $ 34,250(4/5)*
Delayne D. Gold--Director $12,000 None N/A $175,308(21/42)*
Robert F. Gunia (1)--Director -- None N/A --
Don G. Hoff--Director -- None N/A $ 50,042(5/7)*
Harry A. Jacobs, Jr. (1)--Former Director -- None N/A --
Robert F. LaBlanc--Director -- None N/A $ 34,542(4/6)*
Mendel A. Melzer (1)--Director -- None N/A --
Sidney M. Spielvogel--Former Director $12,000 None N/A $ 12,000(1/1)*
Thomas A. Owens, Jr.--Former Director $12,000 None N/A $ 86,333(9/11)*
Richard A. Redeker (1)--Director -- None N/A --
Robin B. Smith--Director -- None N/A $109,294(11/20)*
Stephen Stoneburn--Director -- None N/A $ 30,375(4/6)*
Nancy H. Teeters--Director $12,000 None N/A $103,583(11/28)*
Robert H. Wellington--Former Director $12,000 None N/A $ 24,375(2/2)*
</TABLE>
- ----------
* Indicates number of funds/portfolios in Fund Complex (including the Fund)
to which aggregate compensation relates.
(1) Robert F. Gunia, Mendel A. Melzer and Richard A. Redeker, who are
interested Directors, do not receive compensation from the Fund or any fund
in the Fund Complex. Harry A. Jacobs, Jr., a former interested Director,
also did not receive compensation from the Fund or any fund in the Fund
Complex.
(2) Total compensation from all of the funds in the Fund Complex for the
calendar year ended December 31, 1996, including amounts deferred at the
election of Directors under the funds' Deferred Compensation Plans.
Including accrued interest, total deferred compensation amounted to
$109,294 for Robin B. Smith. Currently, Ms. Smith has agreed to defer some
of her fees at the T-bill rate and other fees at the Fund rate.
As of February 14, 1997, 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 14, 1997, Prudential Securities held, solely of record on
behalf of other persons, 7,114,467,161 Class A shares of the Fund's Common
Stock, representing approximately 95% of the Class A shares then outstanding. In
the event of any meetings of shareholders, Prudential Securities will forward,
or cause the forwarding of, proxy materials to the beneficial owners for which
it is the record holder.
MANAGER
The manager of the Fund is Prudential Mutual Fund Management LLC (PMF or
the Manager), Gateway Center Three, 100 Mulberry Street, Newark, New Jersey
07102-4077. 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, 1997, PMF managed
and/or administered open-end and closed-end management investment companies with
assets of approximately $55.8 billion. According to the Investment Company
Institute, as of December 31, 1996, the Prudential Mutual Funds were the 15th
largest family of mutual funds in the United States.
B-8
<PAGE>
PMF is a subsidiary of Prudential Securities Incorporated and The
Prudential Insurance Company of America (Prudential). Prudential Mutual Fund
Services LLC (PMFS or the Transfer Agent) is a wholly-owned subsidiary of PMF
and 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 a management agreement (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, 1996. Currently, the Fund believes that there are no such expense
limitations.
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 PI, pursuant to the subadvisory
agreement between PMF and PI (the Subadvisory Agreement).
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.
For the fiscal years ended December 31, 1996, 1995 and 1994, PMF received
management fees of $22,378,655, $20,840,442 and $21,320,747, respectively.
B-9
<PAGE>
PMF has entered into the Subadvisory Agreement with PI, a wholly-owned
subsidiary of Prudential. The Subadvisory Agreement provides that PI furnish
investment advisory services in connection with the management of the Fund. In
connection therewith, PI 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 PI's performance of such
services. PI is reimbursed by PMF for the reasonable costs and expenses
incurred by PI in furnishing those services.
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 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 PI 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.
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 Class A 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. See "How the Fund is Managed--Distributor" in the Prospectus.
PLAN OF DISTRIBUTION
Under the Fund's Plan of Distribution and the Distribution Agreement for
the Class A shares, 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 PSI for distribution expenses.
See "How the Fund is Managed--Distributor" in the Prospectus.
For the fiscal year ended December 31, 1996, PSI incurred distribution
expenses in the aggregate of $9,157,529, all of which was recovered through the
distribution fee paid by the Class A shares of the Fund.
It is estimated that of this amount, 0.02% ($1,580) was spent on printing
and mailing of prospectuses to other than current shareholders and 99.98%
($9,155,949) on the aggregate of (i) account servicing fee credits to Prudential
Securities branch offices for payments of account servicing fees to account
executives (88.60% or $8,113,586) and (ii) an allocation of overhead and other
branch office distribution-related expenses (11.38% or $1,042,363). 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), an affiliated broker-dealer, 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.
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 Directors who are not interested persons of the Fund
and who have no direct or indirect financial interest in the Plan or in any
agreement relating to the Plan (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
B-10
<PAGE>
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 the 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.
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 serves as an independent "ombudsman" whom PSI employees
can call anonymously with complaints about ethics and compliance. Prudential
Securities reports any allegations or instances of criminal conduct and material
improprieties to the new director. The new director submits compliance reports
which identify all such allegations or instances of criminal conduct and
material improprieties every three months and will continue to do so 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.
B-11
<PAGE>
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 LLC (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 LLC, 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.
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 LLC, 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 LLC, Attention: Redemption Services, P.O. Box
15010, New Brunswick, New Jersey 08906-5010, a written request, accompanied by
duly endorsed
B-12
<PAGE>
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.
CLASS A. 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.
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.
B-13
<PAGE>
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, Inc., except that shares acquired prior to January 22, 1990
subject to a contingent deferred sales charge can be exchanged for Class B
shares.
CLASS Z. Class Z shares may be exchanged for Class Z shares of other
Prudential Mutual Funds.
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.
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.
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.
B-14
<PAGE>
TAX-DEFERRED COMPOUNDING(1)
CONTRIBUTIONS PERSONAL
MADE OVER: SAVINGS IRA
---------- ------- ---
10 years $ 26,165 $ 31,291
15 years 44,675 58,649
20 years 68,109 98,846
25 years 97,780 157,909
30 years 135,346 244,692
- ----------
(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.
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
B-15
<PAGE>
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, 1996, 1995 and 1994.
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.
B-16
<PAGE>
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.
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 LLC (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, 1996, the Fund incurred fees of approximately $16,867,000 for
such services.
Deloitte & Touche LLP, Two World Financial Center, New York, New York
10281, served as the Fund's independent public accountants for the fiscal year
ended December 31, 1996 and, in that capacity, audited the Fund's annual
financial statements. Price Waterhouse LLP, 1177 Avenue of the Americas, New
York, New York 10036, currently serves as the Fund's independent public
accountants and, in that capacity, will audit the Fund's financial
statements for the fiscal year ending December 31, 1997.
B-17
<PAGE>
PORTFOLIO OF INVESTMENTS AS OF
DECEMBER 31, 1996 PRUDENTIAL MONEYMART ASSETS, INC.
================================================================================
PRINCIPAL
AMOUNT
(000) DESCRIPTION VALUE (NOTE 1)
- --------------------------------------------------------------------------------
BANK NOTES--5.4%
American Express Centurion Bank+
$14,000 5.53%, 1/9/97 $ 13,998,922
10,000 5.60%, 1/13/97 10,000,014
28,000 5.58%, 1/14/97 27,999,021
26,000 5.58%, 1/15/97 25,998,518
20,000 5.60%, 1/21/97 19,999,181
Bank One Columbus+
460 5.58%, 1/2/97 459,756
FCC National Bank
46,000 5.77%, 4/15/97 45,992,463
First Bank National Association+
25,000 5.52%, 1/15/97 24,985,961
Keybank National Association+
1,700 5.58%, 1/2/97 1,699,401
Morgan Guaranty Trust Co.+
21,000 5.375%, 2/14/97 20,986,704
PNC Bank N.A.+
13,250 5.56%, 1/21/97 13,248,593
Seattle First National Bank
195,000 5.80%, 5/9/97 194,960,733
--------------
400,329,267
- --------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT - EURODOLLAR--6.6%
Abbey National Treasury Services
PLC
192,000 5.41%, 1/30/97 192,003,717
24,000 5.36%, 2/12/97 23,998,635
100,000 5.38%, 2/14/97 100,000,819
62,000 5.42%, 5/27/97 61,989,220
Banco Bilbao Vizcaya S.A.
13,000 5.41%, 3/5/97 13,000,224
Banque Nationale De Paris
25,000 5.40%, 1/22/97 25,000,049
Bayerische Hypotheken und
Weschel Bank
15,000 5.36%, 2/12/97 14,999,147
National Bank of Canada
8,000 5.42%, 3/10/97 8,000,286
National Westminster Bank PLC
35,000 5.48%, 4/8/97 35,003,195
Westdeutshe Landesbank
Girozentrale
4,000 5.58%, 4/2/97 4,001,248
Westpac Banking Corp.
$16,000 5.38%, 2/7/97 15,999,293
--------------
493,995,833
- --------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT - YANKEE--22.8%
Bank of Montreal
130,000 5.39%, 1/22/97 130,000,000
Bank of Nova Scotia
10,000 5.39%, 3/4/97 10,000,000
Banque Nationale De Paris
219,000 5.38%, 2/18/97 219,000,000
15,000 5.44%, 3/17/97 14,999,692
111,000 5.58%, 4/2/97 110,969,737
Barclays Bank PLC
25,000 5.37%, 2/3/97 25,000,000
57,000 5.37%, 2/5/97 57,000,000
Bayerische Hypotheken und
Wechsel Bank
9,000 5.375%, 2/18/97 9,000,050
54,000 5.39%, 2/28/97 54,000,000
39,000 5.39%, 3/3/97 38,999,895
Bayerische Landesbank Girozentrale
83,417 5.37%, 2/3/97 83,416,121
Canadian Imperial Bank of Commerce
90,000 5.41%, 1/31/97 90,000,000
Deutsche Bank
80,000 5.53%, 4/2/97 79,939,042
100,000 5.80%, 5/13/97 100,000,000
Landesbank Hessen-Thuringen
Girozentrale
110,000 5.70%, 4/29/97 109,951,055
National Westminster Bank PLC
28,158 5.50%, 1/6/97 28,157,343
164,000 5.39%, 2/14/97 163,999,840
National Bank of Canada
42,235 5.44%, 3/10/97 42,235,000
Societe Generale North America,
Inc.
335,000 5.37%, 2/20/97 335,000,000
1,000 5.78%, 4/11/97 999,824
--------------
1,702,667,599
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-18
<PAGE>
PORTFOLIO OF INVESTMENTS AS OF
DECEMBER 31, 1996 PRUDENTIAL MONEYMART ASSETS, INC.
================================================================================
PRINCIPAL
AMOUNT
(000) DESCRIPTION VALUE (NOTE 1)
- --------------------------------------------------------------------------------
COMMERCIAL PAPER--44.8%
Abbey National North America Corp.
$5,000 5.33%, 4/8/97 $ 4,928,193
Aetna Life & Casualty Co.
29,000 5.42%, 3/17/97 28,672,542
American Brands, Inc.
10,000 5.34%, 2/12/97 9,937,700
7,000 5.34%, 3/12/97 6,927,317
American Express Credit Corp.
19,000 5.31%, 3/3/97 18,829,048
American General Finance Corp.
25,000 5.40%, 1/13/97 24,955,000
Aristar, Inc.
13,000 5.37%, 1/17/97 12,968,973
5,885 5.40%, 1/28/97 5,861,166
Associates Corp. of North America
75,000 5.32%, 1/31/97 74,667,500
73,401 5.35%, 3/26/97 72,484,711
100,000 5.35%, 3/31/97 98,677,361
Bank of Montreal
250,000 5.42%, 1/8/97 249,736,431
Bank of Nova Scotia
200,000 5.32%, 3/4/97 198,167,556
Barton Capital Corp.
5,000 5.37%, 1/10/97 4,993,288
7,349 5.39%, 1/17/97 7,331,395
13,900 5.35%, 2/27/97 13,782,255
BHF Finance, Inc.
38,000 5.31%, 1/30/97 37,837,455
Bradford & Bingley Building
Society
50,000 5.37%, 2/12/97 49,690,833
29,000 5.31%, 2/21/97 28,781,848
Canadian Imperial Holding, Inc.
180,000 5.34%, 2/4/97 179,092,030
Caterpillar, Inc.
24,000 5.35%, 5/16/97 23,518,500
35,000 5.35%, 6/16/97 34,136,569
Cheltenham & Gloucester Building
Society
57,000 5.32%, 1/22/97 56,823,110
Ciba-Geigy Corp.
11,100 5.75%, 2/6/97 11,036,175
CIT Group Holdings, Inc.
$52,000 5.35%, 3/31/97 51,312,228
Coca-Cola Enterprises, Inc.
25,000 5.35%, 1/31/97 24,888,542
Corporate Receivables Corp.
8,000 5.35%, 2/13/97 7,948,878
27,000 5.40%, 2/20/97 26,797,500
Countrywide Home Loan, Inc.
20,000 5.35%, 1/21/97 19,940,556
CXC, Inc.
15,000 5.31%, 2/18/97 14,893,800
Duracell, Inc.
80,326 6.75%, 1/2/97 80,310,939
Enterprise Funding Corp.
10,000 5.48%, 1/10/97 9,986,300
18,234 5.47%, 1/16/97 18,192,442
9,264 5.35%, 1/28/97 9,226,828
15,722 5.34%, 2/18/97 15,610,059
5,000 5.34%, 2/24/97 4,959,950
6,219 5.34%, 3/6/97 6,159,961
15,448 5.34%, 3/18/97 15,273,850
Finova Capital Corp.
5,000 5.55%, 1/13/97 4,990,750
First Data Corp.
8,383 5.40%, 3/25/97 8,278,632
General Electric Capital Corp.
94,000 5.40%, 1/13/97 93,830,800
79,000 5.31%, 1/16/97 78,825,213
135,000 5.31%, 1/17/97 134,681,400
49,000 5.44%, 2/24/97 48,600,160
23,000 5.44%, 2/25/97 22,808,844
General Motors Acceptance Corp.
292,000 5.39%, 3/31/97 288,109,019
25,088 5.50%, 4/7/97 24,720,043
Golden Peanut Co.
4,000 5.33%, 2/18/97 3,971,573
GTE Corp.
15,110 5.50%, 1/14/97 15,079,990
37,000 5.50%, 1/21/97 36,886,944
Halifax Building Society
5,000 5.32%, 3/13/97 4,947,539
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-19
<PAGE>
PORTFOLIO OF INVESTMENTS AS OF
DECEMBER 31, 1996 PRUDENTIAL MONEYMART ASSETS, INC.
================================================================================
PRINCIPAL
AMOUNT
(000) DESCRIPTION VALUE (NOTE 1)
- --------------------------------------------------------------------------------
COMMERCIAL PAPER (CONT'D.)
Heller Financial Services, Inc.
$12,000 5.57%, 1/13/97 $ 11,977,720
17,000 5.57%, 1/14/97 16,965,806
36,000 5.75%, 1/16/97 35,913,750
21,000 5.80%, 1/21/97 20,932,333
ITT Hartford Group, Inc.
3,053 5.45%, 1/23/97 3,042,832
19,000 5.32%, 2/18/97 18,865,227
Johnson Controls, Inc.
62,000 5.39%, 1/24/97 61,786,496
Merrill Lynch & Co., Inc.
50,000 5.32%, 1/21/97 49,852,222
34,000 5.32%, 1/24/97 33,884,438
46,000 5.33%, 1/24/97 45,843,357
140,000 5.35%, 1/29/97 139,417,444
48,500 5.31%, 2/27/97 48,092,236
Mitsubishi International Corp.
24,000 5.45%, 1/15/97 23,949,133
10,000 5.35%, 3/4/97 9,907,861
Morgan Stanley Group, Inc.
114,000 5.32%, 1/29/97 113,528,293
Nationwide Building Society
50,000 5.31%, 2/19/97 49,638,625
6,000 5.38%, 2/26/97 5,949,833
NYNEX Corp.
36,000 5.71%, 1/13/97 35,931,480
19,000 5.41%, 2/13/97 18,877,223
PNC Funding Corp.
13,000 5.36%, 1/22/97 12,959,353
Preferred Receivables Funding
Corp.
20,000 5.45%, 1/14/97 19,960,639
33,950 5.32%, 2/3/97 33,784,437
7,350 5.32%, 2/6/97 7,310,898
31,000 5.37%, 3/20/97 30,639,315
Rank Xerox Capital (Europe) PLC
6,636 5.35%, 1/21/97 6,616,276
Sears Roebuck Acceptance Corp.
50,000 5.47%, 2/25/97 49,582,153
Triple A One Funding Corp.
44,000 5.67%, 1/27/97 43,819,820
12,276 5.41%, 2/13/97 12,196,673
8,982 5.40%, 2/14/97 8,922,719
Union Pacific Resources Group
$6,000 5.63%, 1/27/97 5,975,603
WCP Funding, Inc.
22,000 5.45%, 1/10/97 21,970,025
21,000 5.40%, 2/20/97 20,842,500
--------------
3,344,006,416
- --------------------------------------------------------------------------------
OTHER CORPORATE OBLIGATIONS--17.7%
Beneficial Corp.+
35,000 5.63%, 1/10/97 35,011,647
77,000 5.47%, 3/10/97 76,993,034
Capita Equipment Receivable Trust
192,304 5.60%, 10/15/97 192,304,304
Ford Motor Credit Corp.+
525 5.90%, 2/5/97 525,650
350 5.65%, 2/18/97 350,051
100 5.69%, 2/27/97 100,043
515 5.63%, 3/3/97 514,852
General Motors Acceptance Corp.+
2,140 5.71%, 1/2/97 2,139,848
650 7.40%, 1/14/97 650,355
29,000 5.52%, 2/3/97 28,999,676
15,000 5.52%, 2/21/97 14,999,865
16,000 5.65%, 3/3/97 16,008,619
350 5.74%, 3/18/97 350,080
Goldman, Sachs Group, L.P.+
370,700 5.63%, 2/19/97 370,700,000
Merrill Lynch & Co., Inc.+
53,000 5.53%, 1/2/97 52,988,425
Morgan Stanley Group, Inc.+
55,000 5.69%, 1/15/97 55,000,000
96,000 5.64%, 2/18/97 96,000,000
Nations Bank Auto Owner Trust
18,958 5.78%, 8/15/97 18,957,218
Nationsbank Corp.
6,000 7.50%, 2/15/97 6,012,322
Norwest Corp.
400 7.88%, 1/30/97 400,797
Sears Roebuck Acceptance Corp.
590 7.48%, 2/19/97 591,651
700 7.72%, 2/27/97 701,988
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-20
<PAGE>
PORTFOLIO OF INVESTMENTS AS OF
DECEMBER 31, 1996 PRUDENTIAL MONEYMART ASSETS, INC.
================================================================================
PRINCIPAL
AMOUNT
(000) DESCRIPTION VALUE (NOTE 1)
- --------------------------------------------------------------------------------
OTHER CORPORATE OBLIGATIONS (CONT'D.)
Short Term Repacked Asset Trust+
$100,000 6.01%, 1/15/97 $ 99,979,593
SMM Trust
252,000 5.61%, 1/8/97 251,999,548
--------------
1,322,279,566
- --------------------------------------------------------------------------------
TIME DEPOSIT - EURODOLLAR--0.6%
Canadian Imperial Holding, Inc.
42,088 6.75%, 1/2/97 42,088,000
- --------------------------------------------------------------------------------
U. S. GOVERNMENT AGENCY & INSTRUMENTALITY OBLIGATIONS -
NON-DISCOUNT--1.3%
Federal National Mortgage
Association
97,000 5.48%, 4/24/97 96,907,063
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS--99.2%
(amortized cost $7,402,273,744*) 7,402,273,744
Other assets in excess of
liabilities--0.8% 62,160,970
--------------
Net Assets--100% $7,464,434,714
==============
- ---------------
* 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, 1996 was as
follows:
Commercial Banks..................................... 50.5%
Security Brokers & Dealers........................... 13.5
Asset Backed Securities.............................. 8.9
Short-Term Business Credit........................... 7.9
Personal Credit Institutions......................... 5.4
Leasing.............................................. 5.0
Telephone & Communications........................... 1.4
Federal Credit Agencies.............................. 1.3
Miscellaneous Electric Equipment & Supplies.......... 1.1
Construction Machines & Equipments................... 0.8
Regulating Controls.................................. 0.8
Commodity Trading Firms.............................. 0.5
Accidental & Health Insurance........................ 0.4
Beverages............................................ 0.3
Fire & Marine Casualty Insurance..................... 0.3
Mortgage Banks....................................... 0.3
Tobacco.............................................. 0.2
Bank Holding Companies--Domestic..................... 0.1
Computer Rental & Leasing............................ 0.1
Crude Petroleum & Natural Gas........................ 0.1
Food Products........................................ 0.1
Pharmaceuticals...................................... 0.1
Photographic Equipment............................... 0.1
-----
99.2
Other assets in excess of liabilities................ 0.8
-----
100.0%
=====
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-21
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES PRUDENTIAL MONEYMART ASSETS, INC.
================================================================================
ASSETS DECEMBER 31, 1996
--------------
Investments, at amortized cost which approximates
market value ............................................... $7,402,273,744
Cash ......................................................... 12,891,606
Receivable for Fund shares sold .............................. 239,852,499
Interest receivable .......................................... 45,598,971
Deferred expenses and other assets ........................... 198,258
--------------
Total assets .............................................. 7,700,815,078
--------------
LIABILITIES
Payable for Fund shares reacquired ........................... 229,455,085
Accrued expenses ............................................. 3,199,470
Management fee payable ....................................... 1,852,534
Dividends payable ............................................ 1,448,682
Distribution fee payable ..................................... 424,593
--------------
Total liabilities ......................................... 236,380,364
--------------
NET ASSETS ................................................... $7,464,434,714
==============
Net assets were comprised of:
Common Stock, at par ($.001 par value; 15 billion
shares authorized for issuance) ......................... $ 7,464,435
Paid-in capital in excess of par .......................... 7,456,970,279
--------------
Net assets, December 31, 1996 ................................ $7,464,434,714
==============
Class A:
Net asset value, offering price and redemption
price per share ($7,315,222,887 / 7,315,222,887
shares of common stock issued and outstanding) ............ $ 1.00
==============
Class Z:
Net asset value, offering price and redemption
price per share ($149,211,827 / 149,211,827 shares
of common stock issued and outstanding) ................... $ 1.00
==============
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-22
<PAGE>
PRUDENTIAL MONEYMART ASSETS, INC.
STATEMENT OF OPERATIONS
================================================================================
YEAR ENDED
NET INVESTMENT INCOME DECEMBER 31, 1996
-----------------
Income
Interest.............................. $ 411,058,692
-----------------
Expenses
Management fee........................ 22,378,655
Distribution fee--Class A............. 9,157,529
Transfer agent's fees and expenses.... 16,867,000
Reports to shareholders............... 3,314,000
Registration fees..................... 510,000
Custodian's fees and expenses......... 216,000
Insurance expenses.................... 135,000
Legal fees and expenses............... 83,000
Director's fees and expenses.......... 64,000
Audit fees and expenses............... 37,000
Miscellaneous......................... 55,921
-----------------
Total expenses..................... 52,818,105
-----------------
Net investment income.................... 358,240,587
NET REALIZED GAIN ON INVESTMENTS
Net realized gain on investment
transactions.......................... 390,335
-----------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS................ $ 358,630,922
=================
PRUDENTIAL MONEYMART ASSETS, INC.
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
INCREASE (DECREASE) YEAR ENDED DECEMBER 31,
IN NET ASSETS ------------------------------------
1996 1995
---------------- ----------------
Operations
Net investment income... $ 358,240,587 $ 371,855,796
Net realized gain on
investment
transactions......... 390,335 516,705
---------------- ----------------
Net increase in net
assets resulting from
operations........... 358,630,922 372,372,501
---------------- ----------------
Dividends and distributions
to shareholders (Note 1)
Class A.............. (353,704,755) (372,372,501)
Class Z.............. (4,926,167) --
---------------- ----------------
(358,630,922) (372,372,501)
---------------- ----------------
Fund share transactions
(Notes 4 & 5)
Proceeds from shares
sold................. 31,398,251,715 29,233,009,828
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions........ 344,952,119 354,506,489
Cost of shares
reacquired........... (31,500,427,083) (28,910,738,397)
---------------- ----------------
Net increase in net
assets from Fund
share transactions... 242,776,751 676,777,920
---------------- ----------------
Total increase............. 242,776,751 676,777,920
NET ASSETS
Beginning of year.......... 7,221,657,963 6,544,880,043
---------------- ----------------
End of year................ $ 7,464,434,714 $ 7,221,657,963
================ ================
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-23
<PAGE>
NOTES TO FINANCIAL STATEMENTS PRUDENTIAL MONEYMART ASSETS, INC.
================================================================================
Prudential MoneyMart Assets, Inc. (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 generally accepted 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. AGREEMENTS
The Fund has a management agreement with Prudential Mutual Fund Management LLC
("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 has a distribution agreement with Prudential Securities Incorporated
("PSI"), which acts as the distributor of the Class A and Class Z shares of
the Fund. The Fund reimburses PSI for distributing and servicing the Fund's
Class A shares pursuant to the plan of distribution at an annual rate of .125 of
1% of the average daily net assets of the Class A shares. The Class A
distribution fee is accrued daily and payable monthly. No distribution or
service fees are paid to PSI as distributor of the Class Z shares of the Fund.
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 LLC ("PMFS"), a wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During the year ended December 31,
1996, the Fund incurred fees of approximately $15,392,300 for the services of
PMFS. As of December 31, 1996, approximately $1,284,400 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.
- --------------------------------------------------------------------------------
B-24
<PAGE>
NOTES TO FINANCIAL STATEMENTS PRUDENTIAL MONEYMART ASSETS, INC.
================================================================================
- --------------------------------------------------------------------------------
NOTE 4. CAPITAL
The Fund currently offers Class A and Class Z shares. Effective March 1, 1996,
the Fund commenced offering Class Z shares. Class Z shares are not subject to
any sales charge and are offered exclusively for sale to a limited group of
investors.
The Fund has authorized 15 billion shares of common stock, $.001 par value per
share, divided into 13 billion authorized Class A shares and 2 billion
authorized Class Z shares.
Transactions in shares of common stock (at $1 per share) were as follows:
SHARES
AND
DOLLAR
CLASS A AMOUNT
- ------- ---------------
Year ended December 31, 1996:
Shares sold................................. 31,034,483,075
Shares issued in reinvestment of dividends
and distributions......................... 340,215,223
Shares reacquired........................... (31,281,133,374)
---------------
Net increase in shares outstanding.......... 93,564,924
===============
Year ended December 31, 1995:
Shares sold................................. 29,233,009,828
Shares issued in reinvestment of dividends
and distributions......................... 354,506,489
Shares reacquired........................... (28,910,738,397)
---------------
Net increase in shares outstanding.......... 676,777,920
===============
Class Z
- -------
March 1, 1996* through December 31, 1996:
Shares sold................................. 301,984,043
Shares issued due to merger (Note 5)........ 61,784,597
Shares issued in reinvestment of dividends
and distributions......................... 4,736,896
Shares reacquired........................... (219,293,709)
---------------
Net increase in shares outstanding.......... 149,211,827
===============
- ---------------
* Commencement of offering of Class Z shares.
- --------------------------------------------------------------------------------
NOTE 5. ACQUISITION OF THE PRUDENTIAL INSTITUTIONAL FUND--MONEY MARKET FUND
On September 20, 1996, the Fund acquired all of the net assets of The Prudential
Institutional Fund--Money Market Fund ("Money Market Fund") in exchange for
Class Z shares of the Fund pursuant to a plan of reorganization approved by
Money Market Fund shareholders on September 6, 1996. The acquisition was
accomplished by a taxable exchange of 61,784,597 Class Z shares of the Fund
(valued at $61,784,597) for 61,784,597 shares of Money Market Fund outstanding
on September 20, 1996. This transaction did not create any adverse tax
consequences to the investors. The aggregate net assets of the Fund and Money
Market Fund immediately before the acquisition were $7,271,008,382 and
$61,784,597, respectively, thereby resulting in combined net assets of
$7,332,787,979 immediately after the reorganization.
- --------------------------------------------------------------------------------
B-25
<PAGE>
FINANCIAL HIGHLIGHTS PRUDENTIAL MONEYMART ASSETS, INC.
================================================================================
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
---------- ---------- ---------- ---------- ----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Net investment income and net realized gains.............. .048 .054 .037 .027 .035
Dividends and distributions to shareholders............... (.048) (.054) (.037) (.027) (.035)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period............................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
========== ========== ========== ========== ==========
TOTAL RETURN(a)........................................... 4.97% 5.51% 3.72% 2.70% 3.59%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........................... $7,315,223 $7,221,658 $6,544,880 $7,318,633 $6,703,281
Average net assets (000).................................. $7,326,023 $6,914,520 $7,071,381 $7,742,989 $7,116,739
Ratios to average net assets:
Expenses, including distribution fee................... .71% .69% .71% .71% .66%
Expenses, excluding distribution fee................... .59% .56% .58% .58% .54%
Net investment income.................................. 4.83% 5.38% 3.65% 2.63% 3.43%
</TABLE>
Class Z
-------
March 1,
Through
December 31,
1996
------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......................... $ 1.000
Net investment income and net realized gains................. .040
Dividends and distributions to shareholders.................. (.040)
------------
Net asset value, end of period............................... $ 1.000
============
TOTAL RETURN(a).............................................. 4.12%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............................. $149,212
Average net assets (000)..................................... $121,135
Ratios to average net assets:
Expenses, including distribution fee...................... .59%(c)
Expenses, excluding distribution fee...................... .59%(c)
Net investment income..................................... 4.86%(c)
- ---------------
(a) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes reinvestment
of dividends and distributions. Total returns for less than a full year are
not annualized.
(b) Commencement of offering of Class Z shares.
(c) Annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-26
<PAGE>
INDEPENDENT AUDITORS' REPORT PRUDENTIAL MONEYMART ASSETS, INC.
================================================================================
The Shareholders and Board of Directors
Prudential MoneyMart Assets, Inc.
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Prudential MoneyMart Assets, Inc., as of
December 31, 1996, 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, 1996 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, Inc. as of December 31, 1996, 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 4, 1997
- --------------------------------------------------------------------------------
B-27
<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 S&P. 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 supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Issuers
rated "Prime-2" (or supporting institutions) have a strong ability for repayment
of senior short-term debt obligations. Issuers rated "Prime-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.
D-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>
D-1: Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk factors are
minor.
D-1-: High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
D-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.
D-3: 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
<PAGE>
APPENDIX B
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 "How the Fund is Managed 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 (PlC) 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 PlC are subsidiaries of Prudential, which is one of the
largest diversfied 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 1996, Institutional Investor ranked Prudential the fifth largest
institutional money manager of the 300 largest money management organizations in
the United States as of December 31,1995. As of December 31,1995, Prudential had
more than $314 billion in assets under management. Prudential Investments, a
business group of Prudential (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)
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 seventeen 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.
- ----------
(1) Prudential Investments, a business group 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 the subadviser to Nicholas Applegate Fund,
Inc., Jennison Associates Capital Corp. as the subadviser to Prudential
Jennison Series Fund, Inc. and Prudential Active Balanced Fund, a
portfolio of Prudential Dryden Fund and Mercator Asset Management L.P. as
the subadviser to International Stock Series a portfolio of Prudential
World 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.
B-1
<PAGE>
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 PlC. In 1995,
Prudential Securities introduced Prudential Jennison Growth 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. PlC 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.
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 Funds' 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)
- ----------
(3) As of December 31,1995. The number of bonds and the size of the Fund are
subject to change.
(4) Trading data represents average daily transactions for portfolios of the
Prudential Mutual Funds for which PlC serves as the subadviser, portfolios
of the Prudential Series Fund and institutional and non U.S. accounts
managed by Prudential Mutual Fund Investment Management, a division of PIC,
for the year ended December 31, 1995.
(5) Based 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.
B-2
<PAGE>
Based on complex wide data, on an average day, over 7,250 shareholders
telephoned Prudential Mutual Fund Services LLC, 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 Amerlca 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 proprletary tools for use by financial advisors, Including the
Financial Architect, a state-of-the-art asset allocation software program which
helps Financial Advisors to 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.
- ----------
(7) As of December 31, 1994.
(8) On an annual basis, Institutional Investor magazine surveys more than 700
institutional money managers, chief investment officers and research
directors, asking them to evaluate analysts In 76 industry sectors. Scores
are produced by taking the number of votes awarded to an individual
analyst and weighing them based on the size of the voting institution. In
total, the magazine sends its survey to approximately 2,000 institutions
and a group of European and Asian institutions.
B-3
