<PAGE>
As filed with the Securities and Exchange Commission on January 20, 1999
Securities Act Registration Statement No. 2-91889
Investment Company Act Registration No. 811-4060
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 / /
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 26 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 27 /X/
(Check appropriate box or boxes)
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CASH ACCUMULATION TRUST
(Exact name of registrant as specified in charter)
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(Address of Principal Executive Offices) (Zip Code)
------------------------
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (973) 367-3028
ROBERT C. ROSSELOT, ESQ.
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(Name and Address of Agent for Service of Process)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the effective
date of the Registration Statement.
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE
(CHECK APPROPRIATE BOX):
/ / immediately upon filing pursuant to paragraph (b)
/X/ on (January 20, 1999) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485.
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
/X/ this post-effective amendment designates a new
effective date for a previously filed
post-effective amendment.
Titles of Securities Being Registered ... Shares of beneficial interest, par
value .00001 per share.
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<PAGE>
FUND TYPE:
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Money market
INVESTMENT OBJECTIVE:
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Current income to the extent
consistent with preservation of
capital and liquidity
[ICON]
CASH
ACCUMULATION
TRUST
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NATIONAL MONEY MARKET FUND
PROSPECTUS: JANUARY 20, 1999
As with all mutual funds, the Securities and
Exchange Commission has not approved the Fund
shares, nor has the SEC determined that this
prospectus is complete or accurate. It is a
criminal offense to state otherwise. [LOGO]
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<S> <C>
1 RISK/RETURN SUMMARY
1 Investment Objective and Principal Strategies
1 Principal Risks
2 Evaluating Performance
3 Fees and Expenses
4 HOW THE FUND INVESTS
4 Investment Objective and Policies
5 Other Investments
6 Additional Strategies
7 Investment Risks
9 HOW THE FUND IS MANAGED
9 Manager
9 Investment Advisor
9 Distributor
9 Year 2000 Readiness Disclosure
11 FUND DISTRIBUTIONS AND TAX ISSUES
11 Distributions
11 Tax Issues
13 HOW TO BUY AND SELL SHARES OF THE FUND
13 How to Buy Shares
15 How to Sell Your Shares
17 FINANCIAL HIGHLIGHTS
18 THE PRUDENTIAL MUTUAL FUND FAMILY
FOR MORE INFORMATION (Back Cover)
</TABLE>
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NATIONAL MONEY MARKET FUND [LOGO] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY
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This section highlights key information about the NATIONAL MONEY MARKET FUND,
which we refer to as "the Fund." Additional information follows this summary.
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
Our investment objective is CURRENT INCOME to the extent CONSISTENT WITH THE
PRESERVATION OF CAPITAL AND LIQUIDITY. To achieve this objective, we invest
primarily in commercial paper, asset-backed securities, obligations of financial
institutions and other high-quality money market instruments that mature in 13
months or less. While we make every effort to achieve our objective and maintain
a net asset value of $1 per share, we can't guarantee success. To date, the
Fund's net asset value has never deviated from $1 per share.
PRINCIPAL RISKS
Although we try to invest wisely, all investments involve risk. The money market
securities in which the Fund invests are generally subject to the risk that the
issuer may be unable to make principal and interest payments when they are due,
as well as the risk that either the securities could lose value because of
interest rate changes or that investors could lose confidence in the ability of
issuers in general to pay back debt. The Fund's investments in foreign
securities involve certain additional risks. For example, foreign banks and
companies generally are not subject to regulatory requirements comparable to
those applicable to U.S. banks and companies. In addition, political
developments and changes in currency rates may adversely affect the value of the
Fund's foreign securities. In all cases, however, we invest only in U.S.
dollar-denominated securities. Although investments in mutual funds involve
risk, investing in money market portfolios like the Fund is generally less risky
than investing in other types of funds. This is because the Fund invests only in
high-quality securities that mature in 13 months or less. Also, the Fund limits
the average maturity of the portfolio to 90 days or less. To satisfy the average
maturity and maximum maturity requirements, securities with demand features
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MONEY MARKET FUNDS
Money market funds--which hold high-quality short-term debt obligations--
provide investors with a lower risk, highly liquid investment option. These
funds attempt to maintain a net asset value of $1 per share, although there can
be no guarantee that they will always be able to do so.
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1
<PAGE>
RISK/RETURN SUMMARY
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are treated as maturing on the date that the Fund can demand repayment of the
security.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the Fund seeks to preserve the value of your investment at $1
per share, it is possible to lose money by investing in the Fund.
EVALUATING PERFORMANCE
A number of factors--including risk--affect how the Fund performs. The following
bar chart and table show the Fund's performance over the last year. Previous
periods during which the Fund was advised by another investment advisor are not
shown. They demonstrate the risk of investing in the Fund and how returns can
change. Past performance does not mean that the Fund will achieve similar
results in the future. For current yield information, you can call us at
(800) 225-1852.
ANNUAL RETURNS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1998 5.07%
BEST QUARTER: 1.29% (4th quarter of 1998)
WORST QUARTER: 1.15% (1st quarter of 1998)
</TABLE>
AVERAGE ANNUAL RETURNS (AS OF 12-31-98)
<TABLE>
<CAPTION>
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1 YR SINCE INCEPTION
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<S> <C> <C>
Fund Shares(1) 5.07% 5.41% (since 12-22-97)
Lipper Average(2) 4.84% N/A
7-Day Yield (as of December 31,
1998)(1) 4.72% N/A
</TABLE>
1 THE FUND'S RETURNS AND YIELD ARE AFTER DEDUCTION OF EXPENSES.
2 THE LIPPER FUNDS AVERAGE IS BASED UPON THE AVERAGE RETURN OF ALL MUTUAL
FUNDS IN THE U.S. TAXABLE MONEY MARKET FUNDS CATEGORY.
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2 NATIONAL MONEY MARKET FUND [LOGO] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY
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FEES AND EXPENSES
These tables show the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES (PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<S> <C>
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- ----------------------------------------------------------
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) None
Maximum deferred sales charge (load)
(as a percentage of the lower of original
purchase price or sale proceeds) None
Maximum sales charge (load) imposed on
reinvested dividends and other distributions None
Redemption fees None
Exchange fee None
</TABLE>
ANNUAL FUND OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS)
<TABLE>
<S> <C>
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Management fees .39%
+ Distribution (12b-1) fees .10%
+ Other expenses .13%
= TOTAL ANNUAL FUND OPERATING EXPENSES .62%
</TABLE>
EXAMPLE
This example will help you compare the cost of investing in the Fund with the
cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions, your costs would be:
<TABLE>
<CAPTION>
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1 YR 3 YRS 5 YRS 10 YRS
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<S> <C> <C> <C> <C>
Fund shares $63 $199 $346 $774
</TABLE>
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3
<PAGE>
HOW THE FUND INVESTS
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INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is CURRENT INCOME to the extent CONSISTENT WITH
PRESERVATION OF CAPITAL AND LIQUIDITY. While we make every effort to achieve our
objective, we can't guarantee success.
The Fund invests in high-quality money market instruments to try to provide
investors with current income while maintaining a stable net asset value of $1
per share. We manage the Fund to comply with specific rules designed for money
market mutual funds. We will purchase obligations such as commercial paper,
asset-backed securities, certificates of deposit, time deposits of banks,
bankers' acceptances, bank notes, funding agreements and other obligations of
both banks and corporations. These obligations must be rated in one of the two
highest rating categories by at least two nationally recognized statistical
rating organizations (NRSROs), such as Moody's Investors Service (rated at least
Prime-2), Standard & Poor's Ratings Group (rated at least A-2) and Fitch IBCA
(rated at least F2) or, if unrated, of comparable quality. We may also purchase
securities of the U.S. Government and its agencies. All securities that we
purchase will be denominated in U.S. dollars.
COMMERCIAL PAPER is short-term debt obligations of banks, corporations and
other borrowers. The obligations are usually issued by financially strong
businesses and often include a line of credit to protect purchasers of the
obligations. An ASSET-BACKED SECURITY is a loan or note that pays interest based
upon the cash flow of a pool of assets, such as mortgages, loans and credit card
receivables. CERTIFICATES OF DEPOSIT, TIME DEPOSITS, BANKERS' ACCEPTANCES and
BANK NOTES are obligations issued by or through a bank. These instruments depend
upon the strength of the bank involved in the borrowing to give investors
comfort that the borrowing will be repaid when promised. FUNDING AGREEMENTS are
contracts issued by insurance companies that guarantee a return of principal,
plus some amount of interest. When purchased by money market funds, funding
agreements will typically be short-term and provide an adjustable rate of
interest.
DEBT OBLIGATIONS in general, including those listed above and any others
that we may purchase, are basically written promises to repay a debt. Among the
various types of debt securities we may purchase, the terms of repayment may
vary, as may the commitment of other parties to honor the obligations of the
issuer of the security. We may purchase securities that include DEMAND FEATURES,
which allow us to demand
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4 NATIONAL MONEY MARKET FUND [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------
repayment of a debt obligation before the obligation is due or "matures." This
means that we can purchase longer-term securities because of the expectation
that we can demand repayment of the obligation at an agreed-upon price within a
relatively short period of time. This procedure follows the rules applicable to
money market funds. We will not purchase an instrument that allows us to resell
a security, known as a "PUT," separately from the security to which it relates.
The securities that we may purchase may change over time as new types of
money market instruments are developed. We will purchase these new instruments,
however, only if their characteristics and features follow the rules governing
the operation of money market funds.
For more information about this Fund and its investments, see "Investment
Risks" and the Statement of Additional Information, "Descriptions of the Funds,
their Investments and Risks." The Statement of Additional Information--which we
refer to as the SAI--contains additional information about the Fund. To obtain a
copy, see the back cover of this prospectus.
The Fund's investment objective is a fundamental policy that cannot be
changed without shareholder approval. The Board of Cash Accumulation Trust can
change investment policies that are not fundamental.
OTHER INVESTMENTS
The Fund may also invest in DEBT OBLIGATIONS ISSUED BY THE U.S. TREASURY.
Treasury securities have varying interest rates and maturities, but they are all
backed by the full faith and credit of the U.S. Government.
The U.S. Treasury sometimes "strips" Treasury debt obligations into their
component parts: the Treasury's obligation to make periodic interest payments
and its obligation to repay the amount borrowed. These STRIPPED SECURITIES are
sold to investors separately. Stripped securities do not make periodic interest
payments. They are usually sold at a discount and then redeemed for their face
value on their maturity dates. These securities increase in value when interest
rates fall and lose value when interest rates rise. However, the value of
stripped securities generally fluctuates more in response to interest rate
movements than the value of traditional bonds. The Fund may try to earn money by
buying stripped securities at a discount and either selling them after they
increase in value or holding them until they mature.
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5
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------
The Fund may also invest in other DEBT OBLIGATIONS ISSUED OR GUARANTEED BY
THE U.S. GOVERNMENT and government-related entities. Some of these debt
securities are backed by the full faith and credit of the U.S. Government, like
obligations of the Government National Mortgage Association (GNMA or "Ginnie
Mae"). Debt securities issued by other government entities, like obligations of
the Federal National Mortgage Association (FNMA or "Fannie Mae") and the Student
Loan Marketing Association (SLMA or "Sallie Mae"), are not backed by the full
faith and credit of the U.S. Government. However, these issuers have the right
to borrow from the U.S. Treasury to meet their obligations. In contrast, the
debt securities of other issuers, like the Farm Credit System, depend entirely
upon their own resources to repay their debt.
The Fund may also use REPURCHASE AGREEMENTS, where a party agrees to sell a
security to the Fund and then repurchase it at an agreed-upon price at a stated
time. This creates a fixed return for the Fund.
ADDITIONAL STRATEGIES
The Fund may use REVERSE REPURCHASE AGREEMENTS where we borrow money on a
temporary basis by selling a security with an obligation to repurchase it at an
agreed-upon price at a stated time.
The Fund may also purchase money market obligations under a FIRM COMMITMENT
AGREEMENT. When the Fund makes this type of purchase, the price and interest
rate are fixed at the time of purchase, but delivery and payment for the
obligations take place at a later time. The Fund does not earn interest income
until the date the obligations are delivered.
The Fund may purchase FLOATING RATE and VARIABLE RATE securities. These
securities pay interest at rates that change periodically to reflect changes in
market interest rates. Because these securities adjust the interest they pay,
they may be beneficial when interest rates are rising because of the additional
return the Fund will receive, and they may be detrimental when interest rates
are falling because of the reduction in interest payments to the Fund.
The Fund also follows certain policies when it BORROWS MONEY (the Fund can
borrow up to 10% of the value of its total assets); LENDS ITS SECURITIES to
others; and holds ILLIQUID SECURITIES (the Fund may hold up to 10% of its net
assets in illiquid securities, including securities with legal or contractual
restrictions, those without a readily available market and repurchase
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6 NATIONAL MONEY MARKET FUND [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------
agreements with maturities longer than seven days). The Fund is subject to
certain investment restrictions that are fundamental policies, which means they
cannot be changed without shareholder approval. For more information about these
restrictions, see the SAI.
INVESTMENT RISKS
As noted, all investments involve risk, and investing in the Fund is no
exception.
The Fund's investments in money market instruments involve both CREDIT
RISK--the possibility that the issuer will default, and MARKET RISK--the risk
that an instrument will lose value because interest rates change or investors
lose confidence in the ability of issuers in general to pay back debt. To limit
these risks, we invest only in high-quality securities with short maturities of
no more than 13 months.
Foreign securities and foreign markets involve additional risk. Foreign laws
and accounting standards typically are not as strict as they are in the U.S.
Foreign fixed-income and currency markets may be less stable than U.S. markets.
Changes in the exchange rates of foreign currencies can affect the value of
foreign assets. There is a risk that foreign companies and governments, just as
is the case in the U.S., will not be prepared to handle issues that will arise
when we reach the year 2000 if their computer systems cannot differentiate the
year 2000 from the year 1900.
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7
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------
This chart outlines the key risks and potential rewards of the Fund's
principal investments. See, too, "Description of the Funds, their Investments
and Risks" in the SAI.
INVESTMENT TYPE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
- --------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------
HIGH-QUALITY MONEY -- Credit risk--the risk -- Regular interest
MARKET OBLIGATIONS that default of an income
OF ALL TYPES issuer would leave -- Generally more secure
the Fund with unpaid than stock since
UP TO 100% interest or companies must pay
principal their debts before
-- Market risk--the risk they pay dividends
that bonds and other
debt instruments may
lose value because
interest rates
change or there is a
lack of confidence
in a group of
borrowers or an
industry
- --------------------------------------------------------------------------------
MONEY MARKET -- Foreign markets, -- Investors may realize
OBLIGATIONS OF economies and higher returns based
FOREIGN ISSUERS political systems upon higher interest
(DOLLAR-DENOMINATED) may not be as stable rates paid on
as in the U.S. foreign investments
UP TO 100% -- Differences in -- Opportunities for
foreign laws, diversification
accounting standards
and public
information
-- Year 2000 conversion
may be more of a
problem for some
foreign issuers
- --------------------------------------------------------------------------------
ILLIQUID SECURITIES -- May be difficult to -- May offer a more
value precisely attractive yield or
UP TO 10% OF NET -- May be difficult to greater potential
ASSETS sell at the time or for growth than more
price desired widely traded
securities
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</TABLE>
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8 NATIONAL MONEY MARKET FUND [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND IS MANAGED
- -------------------------------------
MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM)
GATEWAY CENTER THREE, 100 MULBERRY STREET
NEWARK, NJ 07102-4077
Under a management agreement with the Fund, PIFM manages the Fund's
investment operations and administers its business affairs. For the fiscal year
ended September 30, 1998, the Fund paid PIFM and PIMCO Advisors L.P., as
predecessor manager, management fees of .39% of the Fund's average net assets.
As of November 30, 1998, PIFM served as the Manager to all 46 of the
Prudential Mutual Funds, and as Manager or administrator to 22 closed-end
investment companies, with aggregate assets of approximately $69 billion.
INVESTMENT ADVISOR
The Prudential Investment Corporation, called Prudential Investments, is the
Fund's investment advisor. Its address is Prudential Plaza, 751 Broad Street,
Newark, NJ 07102. PIFM has responsibility for all investment advisory services,
supervises Prudential Investments and reimburses Prudential Investments for its
reasonable costs and expenses.
DISTRIBUTOR
Prudential Investment Management Services LLC (PIMS) distributes the Fund's
shares under a Distribution Agreement with the Fund. The Fund has a Distribution
and Service Plan under Rule 12b-1 of the Investment Company Act. Under the Plan
and the Distribution Agreement, PIMS pays the expenses of distributing the
Fund's shares and provides certain shareholder support services. The Fund
reimburses PIMS for its distribution services. These fees-- known as 12b-1
fees--are shown in the "Fees and Expenses" table.
YEAR 2000 READINESS DISCLOSURE
The services provided to the Fund and the shareholders by the Manager, the
Distributor, the Transfer Agent and the Custodian depend on the smooth
functioning of their computer systems and those of outside service providers.
Many computer software systems in use today cannot distinguish the year 2000
from the year 1900 because of the way dates are encoded
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9
<PAGE>
HOW THE FUND IS MANAGED
- ------------------------------------------------
and calculated. Such event could have a negative impact on handling securities
trades, payments of interest and dividends, pricing and account services. The
Manager, the Distributor, the Transfer Agent and the Custodian have advised the
Fund that they have been actively working on necessary changes to their computer
systems to prepare for the year 2000. The Fund and its Board receive and have
received since early 1998 satisfactory quarterly reports from the principal
service providers as to their preparations for year 2000 readiness, although
there can be no assurance that the service providers (or other securities market
participants) will successfully complete the necessary changes in a timely
manner or that there will be no adverse impact on the Fund. Moreover, the Fund
at this time has not considered retaining alternative service providers or
directly undertaken efforts to achieve year 2000 readiness, the latter of which
would involve substantial expenses without an assurance of success.
Additionally, issuers of securities generally as well as those purchased by
the Fund may confront year 2000 compliance issues which, if material and not
resolved, could have an adverse impact on securities markets and/or a specific
issuer's performance and result in a decline in the value of the securities held
by the Fund.
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10 NATIONAL MONEY MARKET FUND [LOGO] (800) 225-1852
<PAGE>
FUND DISTRIBUTIONS
AND TAX ISSUES
- -------------------------------------
Investors who buy shares of the Fund should be aware of some important tax
issues. For example, the Fund distributes DIVIDENDS and CAPITAL GAINS, if any,
to shareholders. These distributions are subject to taxes, unless you hold your
shares in a 401(k) plan, an Individual Retirement Account (IRA), or some other
qualified tax-deferred plan or account.
The following briefly discusses some of the important federal tax issues you
should be aware of, but is not meant to be tax advice. For tax advice, please
speak with your tax advisor.
DISTRIBUTIONS
The Fund distributes DIVIDENDS of any net investment income to shareholders
every month. The dividends you receive from the Fund will be taxed as ordinary
income, whether or not they are reinvested in the Fund.
Although the Fund is not likely to realize capital gains because of the
types of securities we purchase, any realized net CAPITAL GAINS will be paid to
shareholders--typically once a year. Capital gains are generated when the Fund
sells its assets for a profit.
For your convenience, Fund distributions of dividends and capital gains are
AUTOMATICALLY REINVESTED in the Fund. If you ask us to pay the distributions in
cash, we will send you a check. Either way, the distributions are subject to
taxes, unless your shares are held in a qualified tax-deferred plan or account.
For more information about automatic reinvestment and other shareholder
services, see "Step 3: Additional Shareholder Services" in the next section.
TAX ISSUES
FORM 1099
Every year, you will receive a Form 1099, which reports the amount of dividends
and capital gains we distributed to you during the prior year. If you own shares
of the Fund as part of a qualified tax-deferred plan or account, your taxes are
deferred, so you will not receive a Form 1099. However, you will receive a Form
1099 when you take any distributions from your qualified tax-deferred plan or
account.
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11
<PAGE>
FUND DISTRIBUTIONS
AND TAX ISSUES
- ------------------------------------------------
Fund distributions are generally taxable to you in the year they are
received, except when we declare certain dividends in December of a calendar
year and actually pay them in January of the following year. In such cases, the
dividends are treated as if they were paid on December 31 of the prior year.
WITHHOLDING TAXES
If federal tax law requires you to provide the Fund with your tax identification
number and certifications as to your tax status, and you fail to do this, we
will withhold and pay to the U.S. Treasury 31% of your distributions and sale
proceeds. If you are subject to backup withholding, we will withhold and pay to
the U.S. Treasury 31% of your distributions. Dividends of net investment income
and short-term capital gains paid to a nonresident foreign shareholder generally
will be subject to a U.S. withholding tax of 30%. This rate may be lower,
depending on any tax treaty the U.S. may have with the shareholder's country.
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12 NATIONAL MONEY MARKET FUND [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY AND
SELL SHARES OF THE FUND
- -------------------------------------
HOW TO BUY SHARES
STEP 1: OPEN AN ACCOUNT
Shares of the Fund are available only to clients of Prudential Securities
Incorporated that participate in any of the following managed account programs:
-- Prudential Investments Individually Managed Accounts
-- Prudential Securities Portfolio Management (PSPM)
-- Quantum Portfolio Management (Quantum)
-- Managed Assets Consulting Services (MACS)
-- Managed Assets Consulting Services--Custom Services (MACS-- CS)
-- Prudential Securities Investment Supervisory Group
Eligibility to participate in any of these programs is within the discretion
of Prudential Securities. You should contact a Prudential Securities Financial
Advisor for more information. We have the right to reject any purchase order or
suspend or modify the sale of Fund shares.
AUTOMATIC PURCHASE (AUTOSWEEP). Shares of the Fund can only be purchased through
automatic investment procedures (the Autosweep program). The Autosweep program
allows you to designate a money market fund as your primary money sweep fund. If
you do not designate a primary money sweep fund, the Fund will automatically be
your primary money sweep fund. You have the option to change your primary money
sweep fund at any time by notifying your Prudential Securities Financial
Advisor.
When your Prudential Securities account has a credit balance (that is,
immediately available funds), Prudential Securities will purchase shares of the
Fund equal to that amount. This will occur on the business day following the
existence of a credit balance. Prudential Securities may use and retain the
benefit of credit balances in your account until Fund shares are purchased (that
is, until the next business day).
Credit balances of $1 or more in your account will automatically be invested
in shares of the Fund. Where your credit balance results from a sale of
securities, the available cash will be invested in the Fund on settlement date.
Where your credit balance results from any other transaction (that is, receipt
of a dividend or interest payment, maturity of a bond or your own cash payment
to your securities account), the available
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13
<PAGE>
HOW TO BUY AND
SELL SHARES OF THE FUND
- ------------------------------------------------
cash will be invested in the Fund on the first business day after it is received
by Prudential Securities. All available cash in your account, regardless of its
source, will automatically be invested.
You will begin earning dividends on your shares purchased through Autosweep
on the day the order is placed. Prudential Securities will purchase shares of
the Fund at 4:30 p.m. New York Time on the business day the order is placed and
payment for the shares will be made by 4:30 p.m. New York Time on the next
business day.
Your investment in the Fund will be held in the name of Prudential
Securities. Prudential Securities will receive all statements and dividends from
the Fund and will, in turn, send you account statements showing your purchases,
sales and dividends.
STEP 2: UNDERSTANDING THE PRICE YOU'LL PAY
When you invest in a mutual fund, you buy shares of the Fund. Shares of a money
market fund, like the Fund, are priced differently than shares of common stock
and other securities.
The share value of a mutual fund--known as the NET ASSET VALUE or NAV--is
determined by a simple calculation: it's the total value of the Fund (assets
minus liabilities) divided by the total number of shares outstanding. In
determining NAV, the Fund values its securities using the amortized cost method.
The Fund seeks to maintain a NAV of $1.
We determine the NAV of our shares once each business day at 4:30 p.m. New
York Time on days that the New York Stock Exchange is open for trading. We do
not determine NAV on days when we have not received any orders to purchase or
sell Fund shares, or when changes in the value of the Fund's portfolio do not
materially affect the NAV.
STEP 3: ADDITIONAL SHAREHOLDER SERVICES
As a Fund shareholder, you can take advantage of the following services and
privileges:
AUTOMATIC REINVESTMENT. As we explained in the Fund Distributions and Tax Issues
section, the Fund pays out--or distributes--its net investment income and
capital gains to all shareholders. For your convenience, we will automatically
reinvest your distributions in the Fund at NAV. If you want your distributions
paid in cash, you can indicate this preference on your
- -------------------------------------------------------------------
14 NATIONAL MONEY MARKET FUND [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY AND
SELL SHARES OF THE FUND
- ------------------------------------------------
application, or notify your Prudential Securities Financial Advisor at least
five business days before the date we determine who receives dividends.
REPORTS TO SHAREHOLDERS. Every year we will send you an annual report (along
with an updated prospectus) and a semi-annual report, which contain important
financial information about the Fund. To reduce Fund expenses, we will send one
annual shareholder report, one semi-annual shareholder report and one annual
prospectus per household, unless you instruct us otherwise.
HOW TO SELL YOUR SHARES
You can sell your shares of the Fund for cash (in the form of a check) at any
time, subject to certain restrictions.
When you sell shares of the Fund--also known as redeeming your shares--the
price you will receive will be the NAV next determined after we receive your
order to sell. Prudential Securities must receive your order to sell by 4:30
p.m. New York Time to process the sale on that day.
Generally, we will pay you for the shares that you sell within seven days
after we receive your sell order.
RESTRICTIONS ON SALES
There are certain times when you may not be able to sell shares of the Fund, or
when we may delay paying you the proceeds from a sale. This may happen during
unusual market conditions or emergencies when the Fund can't determine the value
of its assets or sell its holdings. For more information, see the SAI, "Purchase
and Redemption of Fund Shares--Sale of Shares."
REDEMPTION IN KIND
If the sales of Fund shares you make during any 90-day period reach the lesser
of $250,000 or 1% of the value of the Fund's net assets, we can then give you
securities from the Fund's portfolio instead of cash. If you want to sell the
securities for cash, you would have to pay the costs charged by a broker.
- --------------------------------------------------------------------------------
15
<PAGE>
HOW TO BUY AND
SELL SHARES OF THE FUND
- ------------------------------------------------
AUTOMATIC REDEMPTION FOR AUTOSWEEP
Your Fund shares will be automatically redeemed to cover any deficit in your
Prudential Securities account. The amount redeemed will be the nearest dollar
amount necessary to cover the deficit.
The amount of the redemption will be the lesser of the total value of Fund
shares held in your Prudential Securities account or the deficit in your
Prudential Securities account. If you want to pay for a securities transaction
in your account other than through this procedure, you must deposit sufficient
cash in your securities account BEFORE THE SETTLEMENT DATE. If you want to pay
any other deficit in your securities account other than through this procedure,
you must deposit sufficient cash in your securities account BEFORE YOU INCUR THE
DEFICIT.
Redemptions are automatically made by Prudential Securities, to the nearest
dollar, on each day to satisfy deficits from securities transactions or to honor
your redemption requests. Your account will be automatically scanned for
deficits each day and, if there is insufficient cash in your account, we will
redeem an appropriate number of shares of the Fund at the next determined NAV to
satisfy any remaining deficit. You are entitled to any dividend declared on the
redeemed shares through the day before the redemption is made. Dividends
declared on the redemption date will be retained by Prudential Securities, which
has advanced monies to satisfy deficits in your account.
- -------------------------------------------------------------------
16 NATIONAL MONEY MARKET FUND [LOGO] (800) 225-1852
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------
The financial highlights will help you evaluate the Fund's financial
performance. The TOTAL RETURN in the chart represents the rate that a
shareholder earned on an investment in the Fund, assuming reinvestment of all
dividends and other distributions. The information is for shares of the Fund for
the periods indicated.
Review this chart with the financial statements and report of independent
accountants which appear in the annual report and the SAI and are available upon
request. Additional performance information is contained in the annual report,
which you can receive at no charge.
The financial highlights for the two years ended September 30, 1998 were
audited by PricewaterhouseCoopers LLP, independent accountants, and the
financial highlights for the three years ended September 30, 1996 were audited
by other independent auditors. Their reports were unqualified.
NATIONAL MONEY MARKET FUND (FISCAL YEAR ENDED 9-30-98)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income and net
realized gains .05 .05 .05 .05 .03
Dividends and distributions to
shareholders (.05) (.05) (.05) (.05) (.03)
Net asset value, end of year $1.00 $1.00 $1.00 $1.00 $1.00
TOTAL RETURN(1) 5.2% 5.0% 5.0% 5.2% 3.2%
- ------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000) $507,288 $702,003 $652,327 $685,228 $823,343
RATIOS TO AVERAGE NET ASSETS:
Net investment income 5.05% 4.89% 4.86% 5.15% 3.20%
Expenses .62% .65% .69% .69% .61%
</TABLE>
1 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. IT IS
CALCULATED ASSUMING SHARES ARE PURCHASED ON THE FIRST DAY AND SOLD ON THE
LAST DAY OF EACH YEAR REPORTED.
- --------------------------------------------------------------------------------
17
<PAGE>
[This page has been left blank intentionally.]
- -------------------------------------------------------------------
18 NATIONAL MONEY MARKET FUND [LOGO] (800) 225-1852
<PAGE>
[This page has been left blank intentionally.]
- --------------------------------------------------------------------------------
19
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
- -------------------------------------
Prudential offers a broad range of mutual funds designed to meet your individual
needs. For information about these funds, contact your financial advisor or call
us at (800) 225-1852. Read the prospectus carefully before you invest or send
money.
STOCK FUNDS
PRUDENTIAL DISTRESSED SECURITIES FUND, INC.
PRUDENTIAL EMERGING GROWTH FUND, INC.
PRUDENTIAL EQUITY FUND, INC.
PRUDENTIAL EQUITY INCOME FUND
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL SMALL-CAP INDEX FUND
PRUDENTIAL STOCK INDEX FUND
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH FUND
PRUDENTIAL JENNISON GROWTH & INCOME FUND
PRUDENTIAL MID-CAP VALUE FUND
PRUDENTIAL REAL ESTATE SECURITIES FUND
PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
PRUDENTIAL SMALL COMPANY VALUE FUND, INC.
PRUDENTIAL 20/20 FOCUS FUND
PRUDENTIAL UTILITY FUND, INC.
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
ASSET ALLOCATION/BALANCED FUNDS
PRUDENTIAL BALANCED FUND
PRUDENTIAL DIVERSIFIED FUNDS
CONSERVATIVE GROWTH FUND
MODERATE GROWTH FUND
HIGH GROWTH FUND
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL ACTIVE BALANCED FUND
GLOBAL FUNDS
GLOBAL STOCK FUNDS
PRUDENTIAL DEVELOPING MARKETS FUND
PRUDENTIAL DEVELOPING MARKETS EQUITY FUND
PRUDENTIAL LATIN AMERICA EQUITY FUND
PRUDENTIAL EUROPE GROWTH FUND, INC.
PRUDENTIAL GLOBAL GENESIS FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL EUROPE INDEX FUND
PRUDENTIAL PACIFIC INDEX FUND
PRUDENTIAL NATURAL RESOURCES
FUND, INC.
PRUDENTIAL PACIFIC GROWTH FUND, INC.
PRUDENTIAL WORLD FUND, INC.
GLOBAL SERIES
INTERNATIONAL STOCK SERIES
GLOBAL UTILITY FUND, INC.
GLOBAL BOND FUNDS
PRUDENTIAL GLOBAL LIMITED MATURITY
FUND, INC.
LIMITED MATURITY PORTFOLIO
PRUDENTIAL INTERMEDIATE GLOBAL
INCOME FUND, INC.
PRUDENTIAL INTERNATIONAL BOND
FUND, INC.
THE GLOBAL TOTAL RETURN FUND, INC.
- -------------------------------------------------------------------
20 NATIONAL MONEY MARKET FUND [LOGO] (800) 225-1852
<PAGE>
- -------------------------------------
BOND FUNDS
TAXABLE BOND FUNDS
PRUDENTIAL DIVERSIFIED BOND FUND, INC.
PRUDENTIAL GOVERNMENT INCOME FUND, INC.
PRUDENTIAL GOVERNMENT SECURITIES TRUST
SHORT-INTERMEDIATE TERM SERIES
PRUDENTIAL HIGH YIELD FUND, INC.
PRUDENTIAL HIGH YIELD TOTAL RETURN FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL BOND MARKET INDEX FUND
PRUDENTIAL STRUCTURED MATURITY
FUND, INC.
INCOME PORTFOLIO
TAX-EXEMPT BOND FUNDS
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA SERIES
CALIFORNIA INCOME SERIES
PRUDENTIAL MUNICIPAL BOND FUND
HIGH INCOME SERIES
INSURED SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
MASSACHUSETTS SERIES
NEW JERSEY SERIES
NEW YORK SERIES
NORTH CAROLINA SERIES
OHIO SERIES
PENNSYLVANIA SERIES
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
MONEY MARKET FUNDS
TAXABLE MONEY MARKET FUNDS
CASH ACCUMULATION TRUST
LIQUID ASSETS FUND
NATIONAL MONEY MARKET FUND
PRUDENTIAL GOVERNMENT SECURITIES TRUST
MONEY MARKET SERIES
U.S. TREASURY MONEY MARKET SERIES
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
MONEY MARKET SERIES
PRUDENTIAL MONEYMART ASSETS, INC.
TAX-FREE MONEY MARKET FUNDS
PRUDENTIAL TAX-FREE MONEY FUND, INC.
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA MONEY MARKET SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
CONNECTICUT MONEY MARKET SERIES
MASSACHUSETTS MONEY MARKET SERIES
NEW JERSEY MONEY MARKET SERIES
NEW YORK MONEY MARKET SERIES
COMMAND FUNDS
COMMAND MONEY FUND
COMMAND GOVERNMENT FUND
COMMAND TAX-FREE FUND
INSTITUTIONAL MONEY MARKET FUNDS
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
- --------------------------------------------------------------------------------
21
<PAGE>
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
Please read this prospectus before you invest in the Fund and keep it for future
reference. For information or shareholder questions contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
P.O. BOX 15005
NEW BRUNSWICK, NJ 08906-5005
(800) 225-1852
(732) 417-7555
(if calling from outside the U.S.)
- --------------------------------
Outside Brokers Should Contact:
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
P.O. BOX 15035
NEW BRUNSWICK, NJ 08906-5035
(800) 778-8769
- ------------------------------------
Visit Prudential's Web Site At:
http://www.prudential.com
- --------------------------------
Additional information about the Fund can be obtained without charge and can be
found in the following documents:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
(incorporated by reference into this prospectus)
ANNUAL REPORT
SEMI-ANNUAL REPORT
You can also obtain copies of Fund documents from the Securities and Exchange
Commission as follows:
By Mail:
Securities and Exchange Commission
Public Reference Section
Washington, DC 20549-6009
(The SEC charges a fee to copy documents.)
In Person:
Public Reference Room in
Washington, DC
(For hours of operation, call 1(800) SEC-0330)
Via the Internet:
http://www.sec.gov
- --------------------------------
CUSIP Number:
147541106
Investment Company Act File No:
811-4060
MF178A [LOGO] Printed on Recycled Paper
<PAGE>
FUND TYPE:
- -------------------------------------
Money market
INVESTMENT OBJECTIVE:
- -------------------------------------
Current income to the extent
consistent with preservation of
capital and liquidity
[ICON]
CASH
ACCUMULATION
TRUST
- ---------------------------------------------------------------
LIQUID ASSETS FUND
PROSPECTUS: JANUARY 20, 1999
As with all mutual funds, the Securities and
Exchange Commission has not approved the Fund
shares, nor has the SEC determined that this
prospectus is complete or accurate. It is a
criminal offense to state otherwise. [LOGO]
<PAGE>
TABLE OF CONTENTS
- -------------------------------------
<TABLE>
<S> <C>
1 RISK/RETURN SUMMARY
1 Investment Objective and Principal Strategies
1 Principal Risks
2 Evaluating Performance
3 Fees and Expenses
4 HOW THE FUND INVESTS
4 Investment Objective and Policies
5 Other Investments
6 Additional Strategies
7 Investment Risks
9 HOW THE FUND IS MANAGED
9 Manager
9 Investment Advisor
9 Distributor
9 Year 2000 Readiness Disclosure
11 FUND DISTRIBUTIONS AND TAX ISSUES
11 Distributions
11 Tax Issues
13 HOW TO BUY AND SELL SHARES OF THE FUND
13 How to Buy Shares
15 How to Sell Your Shares
17 FINANCIAL HIGHLIGHTS
18 THE PRUDENTIAL MUTUAL FUND FAMILY
FOR MORE INFORMATION (Back Cover)
</TABLE>
- -------------------------------------------------------------------
LIQUID ASSETS FUND [LOGO] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY
- -------------------------------------
This section highlights key information about the LIQUID ASSETS FUND, which we
refer to as "the Fund." Additional information follows this summary.
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
Our investment objective is CURRENT INCOME to the extent CONSISTENT WITH
PRESERVATION OF CAPITAL AND LIQUIDITY. To achieve this objective we invest
primarily in commercial paper, asset-backed securities, obligations of financial
institutions and other high-quality money market instruments that mature in 13
months or less. While we make every effort to achieve our objective and maintain
a net asset value of $1 per share, we can't guarantee success. To date, the
Fund's net asset value has never deviated from $1 per share.
PRINCIPAL RISKS
Although we try to invest wisely, all investments involve risk. The money market
securities in which the Fund invests are generally subject to the risk that the
issuer may be unable to make principal and interest payments when they are due,
as well as the risk that either the securities could lose value because of
interest rate changes or that investors could lose confidence in the ability of
issuers in general to pay back debt. The Fund's investments in foreign
securities involve certain additional risks. For example, foreign banks and
companies generally are not subject to regulatory requirements comparable to
those applicable to U.S. banks and companies. In addition, political
developments and changes in currency rates may adversely affect the value of the
Fund's foreign securities. In all cases, however, we invest only in U.S.
dollar-denominated securities. Although investments in mutual funds involve
risk, investing in money market portfolios like the Fund are generally less
risky than investments in other types of funds. This is because the Fund may
only invest in high-quality securities that mature in 13 months or less. Also,
the Fund limits the average maturity of the portfolio to 90 days or less. To
satisfy the average maturity and maximum maturity requirements, features are
treated as
- -------------------------------------------------------------------
MONEY MARKET FUNDS
Money market funds--which hold high-quality short-term debt obligations--
provide investors with a lower risk, highly liquid investment option. These
funds attempt to maintain a net asset value of $1 per share, although there can
be no guarantee that they will always be able to do so.
- -------------------------------------------------------------------
- --------------------------------------------------------------------------------
1
<PAGE>
RISK/RETURN SUMMARY
- ------------------------------------------------
maturing on the date that the Fund can demand repayment of the security.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the Fund seeks to preserve the value of your investment at $1
per share, it is possible to lose money by investing in the Fund.
EVALUATING PERFORMANCE
A number of factors--including risk--affect how the Fund performs. The
following bar chart and table show the Fund's performance over the last year.
They demonstrate the risk of investing in the Fund and how returns can change.
Past performance does not mean that the Fund will achieve similar results in the
future. For current yield information, you can call us at (800) 225-1852.
ANNUAL RETURNS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1998 5.52%
BEST QUARTER: 1.41% (4th quarter of 1998)
WORST QUARTER: 1.24% (1st quarter of 1998)
</TABLE>
AVERAGE ANNUAL RETURNS (AS OF 12-31-98)
<TABLE>
<CAPTION>
- ------------------------------------------------------------
1 YR SINCE INCEPTION
- ------------------------------------------------------------
<S> <C> <C>
5.56% (since)
Fund Shares(1) 5.52% 12-22-97
Lipper Average(2) 4.84% N/A
7-Day Yield (as of December
31, 1998)(1) 5.18% N/A
</TABLE>
1. THE FUND'S RETURNS AND YIELD ARE AFTER DEDUCTION OF EXPENSES.
2. THE LIPPER FUNDS AVERAGE IS BASED UPON THE AVERAGE RETURN OF ALL MUTUAL
FUNDS IN THE U.S. TAXABLE MONEY MARKET FUNDS CATEGORY.
- -------------------------------------------------------------------
2 LIQUID ASSETS FUND [LOGO] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY
- ------------------------------------------------
FEES AND EXPENSES
These tables show the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES (PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<S> <C>
- ----------------------------------------------------------
- ----------------------------------------------------------
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) None
Maximum deferred sales charge (load) (as a
percentage of the lower of original purchase
price or sale proceeds) None
Maximum sales charge (load) imposed on
reinvested dividends and other distributions None
Redemption fees None
Exchange fee None
</TABLE>
ANNUAL FUND OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS)
<TABLE>
<S> <C>
- ----------------------------------------------------------
- ----------------------------------------------------------
Management fees .07%(1)
+ Distribution and service (12b-1) fees None
+ Other expenses .14%
= Total annual Fund operating expenses .21%(1)
</TABLE>
1 THE FEES PAID BY THE FUND TO THE MANAGER AND THE FUND'S OTHER AFFILIATED
SERVICE PROVIDERS ARE LIMITED TO REIMBURSEMENT FOR DIRECT COSTS, EXCLUDING
ANY PROFIT OR OVERHEAD, PURSUANT TO AGREEMENTS WITH THE FUND. MANAGEMENT
FEES AND TOTAL ANNUAL FUND OPERATING EXPENSES REFLECT THESE FEES FOR THE
FUND'S FISCAL YEAR ENDED SEPTEMBER 30, 1998.
EXAMPLE
This example will help you compare the cost of investing in the Fund with the
cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions, your costs would be:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
1 YR 3 YRS 5 YRS 10 YRS
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Fund shares $22 $68 $118 $268
</TABLE>
- --------------------------------------------------------------------------------
3
<PAGE>
HOW THE FUND INVESTS
- -------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is CURRENT INCOME to the extent CONSISTENT WITH
PRESERVATION OF CAPITAL AND LIQUIDITY. While we make every effort to achieve our
objective, we can't guarantee success.
The Fund invests in high-quality money market instruments to try to provide
investors with current income while maintaining a stable net asset value of $1
per share. We manage the Fund to comply with specific rules designed for money
market mutual funds. We will purchase obligations such as commercial paper,
asset-backed securities, certificates of deposit, time deposits of banks,
bankers' acceptances, bank notes, funding agreements and other obligations of
both banks and corporations. These obligations must be rated in one of the two
highest rating categories by at least two nationally recognized statistical
rating organizations (NRSROs), such as Moody's Investors Service (rated at least
Prime-2), Standard & Poor's Ratings Group (rated at least A-2) and Fitch IBCA
(rated at least F2) or, if unrated, of comparable quality. We may also purchase
securities of the U.S. Government and its agencies. All securities that we
purchase will be denominated in U.S. dollars.
COMMERCIAL PAPER is short-term debt obligations of banks, corporations and
other borrowers. The obligations are usually issued by financially strong
businesses and often include a line of credit to protect purchasers of the
obligations. An ASSET-BACKED SECURITY is a loan or note that pays interest based
upon the cash flow of a pool of assets, such as mortgages, loans and credit card
receivables. CERTIFICATES OF DEPOSIT, TIME DEPOSITS, BANKERS' ACCEPTANCES and
BANK NOTES are obligations issued by or through a bank. These instruments depend
upon the strength of the bank involved in the borrowing to give investors
comfort that the borrowing will be repaid when promised. FUNDING AGREEMENTS are
contracts issued by insurance companies that guarantee a return of principal,
plus some amount of interest. When purchased by money market funds, funding
agreements will typically be short-term and provide an adjustable rate of
interest.
DEBT OBLIGATIONS in general, including those listed above and any others
that we may purchase, are basically written promises to repay a debt. Among the
various types of debt securities we may purchase, the terms of repayment may
vary, as may the commitment of other parties to honor the obligations of the
issuer of the security. We may purchase securities that include DEMAND FEATURES,
which allow us to demand
- -------------------------------------------------------------------
4 LIQUID ASSETS FUND [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------
repayment of a debt obligation before the obligation is due or "matures." This
means that we can purchase longer-term securities because of the expectation
that we can demand repayment of the obligation at an agreed-upon price within a
relatively short period of time. This procedure follows the rules applicable to
money market funds.
The securities that we may purchase may change over time as new types of
money market instruments are developed. We will purchase these new instruments,
however, only if their characteristics and features follow the rules governing
the operation of money market funds.
Any of the money market instruments that the Fund may purchase may be
accompanied with the right to resell the instrument prior to the instrument's
maturity. In addition, we may separately purchase rights to resell these
instruments. These rights are referred to as "PUTS." The purchase of instruments
with puts allows the Fund to sell the security when the investment advisor
believes it is appropriate to do so to honor redemption requests or to buy more
attractive securities.
For more information about this Fund and its investments, see "Investment
Risks" and the Statement of Additional Information, "Description of the Funds,
their Investments and Risks." The Statement of Additional Information--which we
refer to as the SAI--contains additional information about the Fund. To obtain a
copy, see the back cover of this prospectus.
The Fund's investment objective is a fundamental policy that cannot be
changed without shareholder approval. The Board of Cash Accumulation Trust can
change investment policies that are not fundamental.
OTHER INVESTMENTS
The Fund may also invest in DEBT OBLIGATIONS ISSUED BY THE U.S. TREASURY.
Treasury securities have varying interest rates and maturities, but they are all
backed by the full faith and credit of the U.S. Government.
The U.S. Treasury sometimes "strips" Treasury debt obligations into their
component parts: the Treasury's obligation to make periodic interest payments
and its obligation to repay the amount borrowed. These STRIPPED SECURITIES are
sold to investors separately. Stripped securities do not make periodic interest
payments. They are usually sold at a discount and then redeemed for their face
value on their maturity dates. These securities increase in value when interest
rates fall and lose value when interest rates
- --------------------------------------------------------------------------------
5
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------
rise. However, the value of stripped securities generally fluctuates more in
response to interest rate movements than the value of traditional bonds. The
Fund may try to earn money by buying stripped securities at a discount and
either selling them after they increase in value or holding them until they
mature.
The Fund may also invest in other DEBT OBLIGATIONS ISSUED OR GUARANTEED BY
THE U.S. GOVERNMENT and government-related entities. Some of these debt
securities are backed by the full faith and credit of the U.S. Government, like
obligations of the Government National Mortgage Association (GNMA or "Ginnie
Mae"). Debt securities issued by other government entities, like obligations of
the Federal National Mortgage Association (FNMA or "Fannie Mae") and the Student
Loan Marketing Association (SLMA or "Sallie Mae"), are not backed by the full
faith and credit of the U.S. Government. However, these issuers have the right
to borrow from the U.S. Treasury to meet their obligations. In contrast, the
debt securities of other issuers, like the Farm Credit System, depend entirely
upon their own resources to repay their debt.
The Fund may also use REPURCHASE AGREEMENTS, where a party agrees to sell a
security to the Fund and then repurchase it at an agreed-upon price at a stated
time. This creates a fixed return for the Fund.
ADDITIONAL STRATEGIES
The Fund may use REVERSE REPURCHASE AGREEMENTS where we borrow money on a
temporary basis by selling a security with an obligation to repurchase it at an
agreed-upon price at a stated time.
The Fund may also purchase money market obligations on a "WHEN-ISSUED" or
"DELAYED-DELIVERY" basis. When the Fund makes this type of purchase, the price
and interest rate are fixed at the time of purchase, but delivery and payment
for the obligations take place at a later time. The Fund does not earn interest
income until the date the obligations are delivered.
The Fund may purchase FLOATING RATE and VARIABLE RATE securities. These
securities pay interest at rates that change periodically to reflect changes in
market interest rates. Because these securities adjust the interest they pay,
they may be beneficial when interest rates are rising because of the additional
return the Fund will receive, and they may be detrimental when interest rates
are falling because of the reduction in interest payments
- -------------------------------------------------------------------
6 LIQUID ASSETS FUND [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------
to the Fund.
The Fund also follows certain policies when it BORROWS MONEY (the Fund can
borrow up to 33 1/3% of the value of its total assets); LENDS ITS SECURITIES to
others (the Fund may lend up to 33 1/3% of the value of its total assets,
including collateral received in the transaction); and holds ILLIQUID SECURITIES
(the Fund may hold up to 10% of its net assets in illiquid securities, including
securities with legal or contractual restrictions, those without a readily
available market and repurchase agreements with maturities longer than seven
days). The Fund is subject to certain investment restrictions that are
fundamental policies, which means they cannot be changed without shareholder
approval. For more information about these restrictions, see the SAI.
INVESTMENT RISKS
As noted, all investments involve risk, and investing in the Fund is no
exception.
The Fund's investments in money market instruments involve both CREDIT
RISK--the possibility that the issuer will default, and MARKET RISK--the risk
that an instrument will lose value because interest rates change or investors
lose confidence in the ability of issuers in general to pay back debt. To limit
these risks, we invest only in high-quality securities with short maturities of
no more than 13 months.
Foreign securities and foreign markets involve additional risk. Foreign laws
and accounting standards typically are not as strict as they are in the U.S.
Foreign fixed-income and currency markets may be less stable than U.S. markets.
Changes in the exchange rates of foreign currencies can affect the value of
foreign assets. There is a risk that foreign companies and governments, just as
is the case in the U.S., will not be prepared to handle issues that will arise
when we reach the year 2000 if their computer systems cannot differentiate the
year 2000 from the year 1900.
- --------------------------------------------------------------------------------
7
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------
This chart outlines the key risks and potential rewards of the Fund's
principal investments. See, too, "Description of the Funds, their Investments
and Risks" in the SAI.
INVESTMENT TYPE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
- -----------------------------------------------------------------------------------
<S> <C> <C>
- ------------------------------------------------------------------------------------
HIGH-QUALITY MONEY -- Credit risk--the risk that -- Regular interest income
MARKET OBLIGATIONS default of an issuer would -- Generally more secure than stock
OF ALL TYPES leave the Fund with unpaid since companies must pay their
interest or principal debts before they pay dividends
UP TO 100% -- Market risk--the risk that bonds
and other debt instruments may
lose value because interest
rates change or there is a lack
of confidence in a group of
borrowers or an industry
- ------------------------------------------------------------------------------------
MONEY MARKET -- Foreign markets, economies and -- Investors may realize higher
OBLIGATIONS OF political systems may not be as returns based upon higher
FOREIGN ISSUERS stable as in the U.S. interest rates paid on foreign
(DOLLAR-DENOMINATED) -- Differences in foreign laws, investments
accounting standards and public -- Opportunities for
UP TO 100% information diversification
-- Year 2000 conversion may be more
of a problem for some foreign
issuers
- ------------------------------------------------------------------------------------
ILLIQUID SECURITIES -- May be difficult to value -- May offer a more attractive
precisely yield or greater potential for
UP TO 10% OF NET -- May be difficult to sell at the growth than more widely traded
ASSETS time or price desired securities
- ------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------
8 LIQUID ASSETS FUND [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND IS MANAGED
- -------------------------------------
MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM)
GATEWAY CENTER THREE, 100 MULBERRY STREET
NEWARK, NJ 07102-4077
Under a management agreement with the Fund, PIFM manages the Fund's
investment operations and administers its business affairs. For the fiscal
period ended September 30, 1998, the Fund paid PIFM management fees of .07% of
the Fund's average net assets.
As of November 30, 1998, PIFM served as the Manager to all 46 of the
Prudential Mutual Funds, and as Manager or administrator to 22 closed-end
investment companies, with aggregate assets of approximately $69 billion.
INVESTMENT ADVISOR
The Prudential Investment Corporation, called Prudential Investments, is the
Fund's investment advisor. Its address is Prudential Plaza, 751 Broad Street,
Newark, NJ 07102. PIFM has responsibility for all investment advisory services,
supervises Prudential Investments and reimburses Prudential Investments for its
reasonable costs and expenses.
DISTRIBUTOR
Prudential Investment Management Services LLC (PIMS) distributes the Fund's
shares under a Distribution Agreement with the Fund. PIMS does not receive any
compensation from the Fund for distributing its shares.
YEAR 2000 READINESS DISCLOSURE
The services provided to the Fund and the shareholders by the Manager, the
Distributor, the Transfer Agent and the Custodian depend on the smooth
functioning of their computer systems and those of outside service providers.
Many computer software systems in use today cannot distinguish the year 2000
from the year 1900 because of the way dates are encoded and calculated. Such
event could have a negative impact on handling securities trades, payments of
interest and dividends, pricing and account services. The Manager, the
Distributor, the Transfer Agent and the Custodian have advised the Fund that
they have been actively working on necessary changes to their computer systems
to prepare for the year 2000.
- --------------------------------------------------------------------------------
9
<PAGE>
HOW THE FUND IS MANAGED
- ------------------------------------------------
The Fund and its Board receive and have received since early 1998 satisfactory
quarterly reports from the principal service providers as to their preparations
for year 2000 readiness, although there can be no assurance that the service
providers (or other securities market participants) will successfully complete
the necessary changes in a timely manner or that there will be no adverse impact
on the Fund. Moreover, the Fund at this time has not considered retaining
alternative service providers or directly undertaken efforts to achieve year
2000 readiness, the latter of which would involve substantial expenses without
an assurance of success.
Additionally, issuers of securities generally as well as those purchased by
the Fund may confront year 2000 compliance issues which, if material and not
resolved, could have an adverse impact on securities markets and/ or a specific
issuer's performance and result in a decline in the value of the securities held
by the Fund.
- -------------------------------------------------------------------
10 LIQUID ASSETS FUND [LOGO] (800) 225-1852
<PAGE>
FUND DISTRIBUTIONS
AND TAX ISSUES
- -------------------------------------
Investors who buy shares of the Fund should be aware of some important tax
issues. For example, the Fund distributes DIVIDENDS and CAPITAL GAINS, if any,
to shareholders. These distributions are subject to taxes, unless you hold your
shares in a 401(k) plan, an Individual Retirement Account (IRA), or some other
qualified tax-deferred plan or account.
The following briefly discusses some of the important federal tax issues you
should be aware of, but is not meant to be tax advice. For tax advice, please
speak with your tax advisor.
DISTRIBUTIONS
The Fund distributes DIVIDENDS of any net investment income to shareholders
every month. The dividends you receive from the Fund will be taxed as ordinary
income, whether or not they are reinvested in the Fund.
Although the Fund is not likely to realize capital gains because of the
types of securities we purchase, any realized net CAPITAL GAINS will be paid to
shareholders--typically once a year. Capital gains are generated when the Fund
sells its assets for a profit.
For your convenience, Fund distributions of dividends and capital gains are
AUTOMATICALLY REINVESTED in the Fund. If you ask us to pay the distributions in
cash, we will send you a check. Either way, the distributions are subject to
taxes, again unless your shares are held in a qualified tax-deferred plan or
account. For more information about automatic reinvestment and other shareholder
services, see "Step 3: Additional Shareholder Services" in the next section.
TAX ISSUES
FORM 1099
Every year, you will receive a Form 1099, which reports the amount of dividends
and capital gains we distributed to you during the prior year. If you own shares
of the Fund as part of a qualified tax-deferred plan or account, your taxes are
deferred, so you will not receive a Form 1099. However, you will receive a Form
1099 when you take any distributions from your qualified tax-deferred plan or
account.
Fund distributions are generally taxable in the year they are received,
except when we declare certain dividends in December of a calendar year and
actually pay them in January of the following year. In such cases, the dividends
are treated as if they were paid on December 31 of the prior year.
- --------------------------------------------------------------------------------
11
<PAGE>
FUND DISTRIBUTIONS
AND TAX ISSUES
- ------------------------------------------------
WITHHOLDING TAXES
If federal tax law requires you to provide the Fund with your tax identification
number and certifications as to your tax status, and you fail to do this, we
will withhold and pay to the U.S. Treasury 31% of your distributions and sale
proceeds. If you are subject to backup withholding, we will withhold and pay to
the U.S. Treasury 31% of your distributions. Dividends of net investment income
and short-term capital gains paid to a nonresident foreign shareholder generally
will be subject to a U.S. withholding tax of 30%. This rate may be lower,
depending on any tax treaty the U.S. may have with the shareholder's country.
- -------------------------------------------------------------------
12 LIQUID ASSETS FUND [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY AND
SELL SHARES OF THE FUND
- -------------------------------------
HOW TO BUY SHARES
STEP 1: OPEN AN ACCOUNT
Shares of the Fund are available to investment advisory clients of Prudential
Securities Incorporated that participate in any of the following managed account
programs:
-- Prudential Investments Individually Managed Accounts
-- Prudential Securities Portfolio Management (PSPM)
-- Quantum Portfolio Management (Quantum)
-- Managed Assets Consulting Services (MACS)
-- Managed Assets Consulting Services - Custom Services (MACS-CS)
-- Prudential Securities Investment Supervisory Group
To participate in any of these programs, you must be an Eligible Benefit
Plan. Eligible Benefit Plans are:
-- employee benefit plans as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974 (ERISA) other than government
plans as defined in Section 3(32) of ERISA and church plans as
defined in Section 3(33) of ERISA;
-- pension, profit-sharing or other employee benefit plans qualified
under Section 401 of the Internal Revenue Code of 1986, as amended
(the Internal Revenue Code);
-- deferred compensation and annuity plans under Section 457 or
403(b)(7) of the Internal Revenue Code; and
-- Individual Retirement Accounts (IRAs) as defined in Section 408(a) of
the Internal Revenue Code.
Eligibility to participate in any of these programs is within the discretion
of Prudential Securities. You should contact a Prudential Securities Financial
Advisor for more information. We have the right to reject any purchase order or
suspend or modify the sale of Fund shares.
AUTOMATIC PURCHASE (AUTOSWEEP). Shares of the Fund can only be purchased through
automatic investment procedures (the Autosweep program). The Autosweep program
allows you to designate a money market fund as your primary money sweep fund. If
you do not designate a
- --------------------------------------------------------------------------------
13
<PAGE>
HOW TO BUY AND
SELL SHARES OF THE FUND
- ------------------------------------------------
primary money sweep fund, the Fund will automatically be your primary money
sweep fund. You have the option to change your primary money sweep fund at any
time by notifying your Prudential Securities Financial Advisor.
When your Prudential Securities account has a credit balance (that is,
immediately available funds), Prudential Securities will purchase shares of the
Fund equal to that amount. This will occur on the business day following the
existence of a credit balance. Prudential Securities may use and retain the
benefit of credit balances in your account until Fund shares are purchased (that
is, until the next business day).
Credit balances of $1 or more in your account will automatically be invested
in shares of the Fund. Where your credit balance results from a sale of
securities, the available cash will be invested in the Fund on settlement date.
Where your credit balance results from any other transaction (that is, receipt
of a dividend or interest payment, maturity of a bond or your own cash payment
to your securities account), the available cash will be invested in the Fund on
the first business day after it is received by Prudential Securities. All
available cash in your account, regardless of its source, will automatically be
invested.
You will begin earning dividends on your shares purchased through Autosweep
on the day the order is placed. Prudential Securities will purchase shares of
the Fund at 4:30 p.m. New York Time on the business day the order is placed and
payment for the shares will be made by 4:30 p.m. New York Time on the next
business day.
Your investment in the Fund will be held in the name of Prudential
Securities. Prudential Securities will receive all statements and dividends from
the Fund and will, in turn, send you account statements showing your purchases,
sales and dividends.
STEP 2: UNDERSTANDING THE PRICE YOU'LL PAY
When you invest in a mutual fund, you buy shares of the Fund. Shares of a money
market fund, like the Fund, are priced differently than shares of common stock
and other securities.
The share value of a mutual fund--known as the NET ASSET VALUE or NAV--is
determined by a simple calculation: it's the total value of the Fund (assets
minus liabilities) divided by the total number of shares outstanding. In
determining NAV, the Fund values its securities using the amortized cost
- -------------------------------------------------------------------
14 LIQUID ASSETS FUND [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY AND
SELL SHARES OF THE FUND
- ------------------------------------------------
method. The Fund seeks to maintain a NAV of $1.
We determine the NAV of our shares once each business day at 4:30 p.m. New
York Time on days that the New York Stock Exchange is open for trading. We do
not determine NAV on days when we have not received any orders to purchase or
sell Fund shares, or when changes in the value of the Fund's portfolio do not
materially affect the NAV.
STEP 3: ADDITIONAL SHAREHOLDER SERVICES
As a Fund shareholder, you can take advantage of the following services and
privileges:
AUTOMATIC REINVESTMENT. As we explained in the Fund Distributions and Tax Issues
section, the Fund pays out--or distributes--its net investment income and
capital gains to all shareholders. For your convenience, we will automatically
reinvest your distributions in the Fund at NAV. If you want your distributions
paid in cash, you can indicate this preference on your application, or notify
your Prudential Securities Financial Advisor at least five business days before
the date we determine who receives dividends.
REPORTS TO SHAREHOLDERS. Every year we will send you an annual report (along
with an updated prospectus) and a semi-annual report, which contain important
financial information about the Fund. To reduce Fund expenses, we will send one
annual shareholder report, one semi-annual shareholder report and one annual
prospectus per household, unless you instruct us otherwise.
HOW TO SELL YOUR SHARES
You can sell your shares of the Fund for cash (in the form of a check) at any
time, subject to certain restrictions.
When you sell shares of the Fund--also known as redeeming your shares--the
price you will receive will be the NAV next determined after we receive your
order to sell. Prudential Securities must receive your order to sell by 4:30
p.m. New York Time to process the sale on that day.
Generally, we will pay you for the shares that you sell within seven days
after we receive your sell order.
- --------------------------------------------------------------------------------
15
<PAGE>
HOW TO BUY AND
SELL SHARES OF THE FUND
- ------------------------------------------------
RESTRICTIONS ON SALES
There are certain times when you may not be able to sell shares of the Fund, or
when we may delay paying you the proceeds from a sale. This may happen during
unusual market conditions or emergencies when the Fund can't determine the value
of its assets or sell its holdings. For more information, see the SAI, "Purchase
and Redemption of Fund Shares--Sale of Shares."
REDEMPTION IN KIND
If the sales of Fund shares you make during any 90-day period reach the lesser
of $250,000 or 1% of the value of the Fund's net assets, we can then give you
securities from the Fund's portfolio instead of cash. If you want to sell the
securities for cash, you would have to pay the costs charged by a broker.
AUTOMATIC REDEMPTION FOR AUTOSWEEP
Your Fund shares will be automatically redeemed to cover any deficit in your
Prudential Securities account. The amount redeemed will be the nearest dollar
amount necessary to cover the deficit.
The amount of the redemption will be the lesser of the total value of Fund
shares held in your Prudential Securities account or the deficit in your
Prudential Securities account. If you want to pay for a securities transaction
in your account other than through this procedure, you must deposit sufficient
cash in your securities account BEFORE THE SETTLEMENT DATE. If you want to pay
any other deficit in your securities account other than through this procedure,
you must deposit sufficient cash in your securities account BEFORE YOU INCUR THE
DEFICIT.
Redemptions are automatically made by Prudential Securities, to the nearest
dollar, on each day to satisfy deficits from securities transactions or to honor
your redemption requests. Your account will be automatically scanned for
deficits each day and, if there is insufficient cash in your account, we will
redeem an appropriate number of shares of the Fund at the next determined NAV to
satisfy any remaining deficit. You are entitled to any dividend declared on the
redeemed shares through the day before the redemption is made. Dividends
declared on the redemption date will be retained by Prudential Securities, which
has advanced monies to satisfy deficits in your account.
- -------------------------------------------------------------------
16 LIQUID ASSETS FUND [LOGO] (800) 225-1852
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------
The financial highlights will help you evaluate the Fund's financial
performance. The TOTAL RETURN in the chart represents the rate that a
shareholder earned on an investment in the Fund, assuming reinvestment of all
dividends and other distributions. The information is for shares of the Fund for
the periods indicated.
Review this chart with the financial statements and report of independent
accountants which appear in the annual report and the SAI and are available upon
request. Additional performance information is contained in the annual report,
which you can receive at no charge.
The financial highlights for the period ended September 30, 1998 were
audited by PricewaterhouseCoopers LLP, independent accountants. Their report was
unqualified.
LIQUID ASSETS FUND (FISCAL PERIOD ENDED 9-30-98)
<TABLE>
<CAPTION>
- -----------------------------------------------
PER SHARE OPERATING PERFORMANCE 1998
- -----------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD (12-22-97) $1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income and net
realized gains .04
Dividends and distributions to
shareholders (.04)
Net asset value, end of year $1.00
TOTAL RETURN(1) 4.52%
- -----------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1998
- -----------------------------------------------
NET ASSETS, END OF PERIOD (000) $441,944
RATIOS TO AVERAGE NET ASSETS:
Net investment income 5.53%(2)
Expenses .21%(2)
</TABLE>
1. TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. IT IS
CALCULATED ASSUMING SHARES ARE PURCHASED ON THE FIRST DAY AND SOLD ON THE
LAST DAY OF EACH PERIOD REPORTED. TOTAL RETURN FOR PERIODS OF LESS THAN A
FULL YEAR ARE NOT ANNUALIZED.
2. ANNUALIZED
- --------------------------------------------------------------------------------
17
<PAGE>
[This page has been left blank intentionally.]
- -------------------------------------------------------------------
18 LIQUID ASSETS FUND [LOGO] (800) 225-1852
<PAGE>
[This page has been left blank intentionally.]
- --------------------------------------------------------------------------------
19
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
- -------------------------------------
Prudential offers a broad range of mutual funds designed to meet your individual
needs. For information about these funds, contact your financial advisor or call
us at (800) 225-1852. Read the prospectus carefully before you invest or send
money.
STOCK FUNDS
PRUDENTIAL DISTRESSED SECURITIES
FUND, INC.
PRUDENTIAL EMERGING GROWTH FUND, INC.
PRUDENTIAL EQUITY FUND, INC.
PRUDENTIAL EQUITY INCOME FUND
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL SMALL-CAP INDEX FUND
PRUDENTIAL STOCK INDEX FUND
THE PRUDENTIAL INVESTMENT
PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH FUND
PRUDENTIAL JENNISON GROWTH
& INCOME FUND
PRUDENTIAL MID-CAP VALUE FUND
PRUDENTIAL REAL ESTATE SECURITIES FUND
PRUDENTIAL SMALL-CAP QUANTUM
FUND, INC.
PRUDENTIAL SMALL COMPANY VALUE
FUND, INC.
PRUDENTIAL 20/20 FOCUS FUND
PRUDENTIAL UTILITY FUND, INC.
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH
EQUITY FUND
ASSET ALLOCATION/BALANCED FUNDS
PRUDENTIAL BALANCED FUND
PRUDENTIAL DIVERSIFIED FUNDS
CONSERVATIVE GROWTH FUND
MODERATE GROWTH FUND
HIGH GROWTH FUND
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL ACTIVE BALANCED FUND
GLOBAL FUNDS
GLOBAL STOCK FUNDS
PRUDENTIAL DEVELOPING MARKETS FUND
PRUDENTIAL DEVELOPING MARKETS
EQUITY FUND
PRUDENTIAL LATIN AMERICA EQUITY FUND
PRUDENTIAL EUROPE GROWTH FUND, INC.
PRUDENTIAL GLOBAL GENESIS FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL EUROPE INDEX FUND
PRUDENTIAL PACIFIC INDEX FUND
PRUDENTIAL NATURAL RESOURCES
FUND, INC.
PRUDENTIAL PACIFIC GROWTH FUND, INC.
PRUDENTIAL WORLD FUND, INC.
GLOBAL SERIES
INTERNATIONAL STOCK SERIES
GLOBAL UTILITY FUND, INC.
GLOBAL BOND FUNDS
PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
LIMITED MATURITY PORTFOLIO
PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC.
PRUDENTIAL INTERNATIONAL BOND
FUND, INC.
THE GLOBAL TOTAL RETURN FUND, INC.
- -------------------------------------------------------------------
20 LIQUID ASSETS FUND [LOGO] (800) 225-1852
<PAGE>
- -------------------------------------
BOND FUNDS
TAXABLE BOND FUNDS
PRUDENTIAL DIVERSIFIED BOND FUND, INC.
PRUDENTIAL GOVERNMENT INCOME
FUND, INC.
PRUDENTIAL GOVERNMENT SECURITIES TRUST
SHORT-INTERMEDIATE TERM SERIES
PRUDENTIAL HIGH YIELD FUND, INC.
PRUDENTIAL HIGH YIELD TOTAL RETURN FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL BOND MARKET INDEX FUND
PRUDENTIAL STRUCTURED MATURITY
FUND, INC.
INCOME PORTFOLIO
TAX-EXEMPT BOND FUNDS
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA SERIES
CALIFORNIA INCOME SERIES
PRUDENTIAL MUNICIPAL BOND FUND
HIGH INCOME SERIES
INSURED SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
MASSACHUSETTS SERIES
NEW JERSEY SERIES
NEW YORK SERIES
NORTH CAROLINA SERIES
OHIO SERIES
PENNSYLVANIA SERIES
PRUDENTIAL NATIONAL MUNICIPALS
FUND, INC.
MONEY MARKET FUNDS
TAXABLE MONEY MARKET FUNDS
CASH ACCUMULATION TRUST
LIQUID ASSETS FUND
NATIONAL MONEY MARKET FUND
PRUDENTIAL GOVERNMENT SECURITIES TRUST
MONEY MARKET SERIES
U.S. TREASURY MONEY MARKET SERIES
PRUDENTIAL SPECIAL MONEY MARKET
FUND, INC.
MONEY MARKET SERIES
PRUDENTIAL MONEYMART ASSETS, INC.
TAX-FREE MONEY MARKET FUNDS
PRUDENTIAL TAX-FREE MONEY FUND, INC.
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA MONEY MARKET SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
CONNECTICUT MONEY MARKET SERIES
MASSACHUSETTS MONEY MARKET SERIES
NEW JERSEY MONEY MARKET SERIES
NEW YORK MONEY MARKET SERIES
COMMAND FUNDS
COMMAND MONEY FUND
COMMAND GOVERNMENT FUND
COMMAND TAX-FREE FUND
INSTITUTIONAL MONEY MARKET FUNDS
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
- --------------------------------------------------------------------------------
21
<PAGE>
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
Please read this prospectus before you invest in the Fund and keep it for future
reference. For information or shareholder questions contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
P.O. BOX 15005
NEW BRUNSWICK, NJ 08906-5005
(800) 225-1852
(732) 417-7555
(if calling from outside the U.S.)
- --------------------------------
Outside Brokers Should Contact:
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
P.O. BOX 15035
NEW BRUNSWICK, NJ 08906-5035
(800) 778-8769
- ------------------------------------
Visit Prudential's Web Site At:
http://www.prudential.com
- --------------------------------
Additional information about the Fund can be obtained without charge and can be
found in the following documents:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
(incorporated by reference into this prospectus)
ANNUAL REPORT
SEMI-ANNUAL REPORT
You can also obtain copies of Fund documents from the Securities and Exchange
Commission as follows:
By Mail:
Securities and Exchange Commission
Public Reference Section
Washington, DC 20549-6009
(The SEC charges a fee to copy documents.)
In Person:
Public Reference Room in
Washington, DC
(For hours of operation, call 1(800) SEC-0330)
Via the Internet:
http://www.sec.gov
- --------------------------------
CUSIP Number:
147541502
Investment Company Act File No:
811-4060
MF175A [LOGO] Printed on Recycled Paper
<PAGE>
CASH ACCUMULATION TRUST
STATEMENT OF ADDITIONAL INFORMATION
DATED JANUARY 20, 1999
Cash Accumulation Trust (the Trust), an open-end, diversified, management
investment company is offered in two series: National Money Market Fund (NMMF)
and Liquid Assets Fund (LAF) (each a Fund and collectively, the Funds). Each
series operates as a separate fund with identical investment objectives and
similar policies designed to meet its investment goals. The investment objective
of each of NMMF and LAF is current income to the extent consistent with
preservation of capital and liquidity. There can be no assurance that either
Fund's investment objective will be achieved. See "How the Fund Invests" in the
applicable Prospectus and "Description of the Funds, their Investments and
Risks."
The Trust'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 sets forth information about each
of the Funds. This Statement of Additional Information is not a prospectus and
should be read in conjunction with the NMMF Prospectus or the LAF Prospectus,
each dated January 20, 1999, copies of which may be obtained from the Trust upon
request.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Trust History............................................... B-2
Description of the Funds, their Investments and Risks....... B-2
Investment Restrictions..................................... B-5
Management of the Trust..................................... B-9
Control Persons and Principal Holders of Securities......... B-12
Investment Advisory and Other Services...................... B-13
Brokerage Allocation and Other Practices.................... B-16
Securities and Organization................................. B-17
Purchase and Redemption of Fund Shares...................... B-18
Net Asset Value............................................. B-18
Taxes, Dividends and Distributions.......................... B-19
Calculation of Yield........................................ B-21
Financial Statements........................................ B-22
Reports of Independent Accountants.......................... --
Appendix I-Description of Security Ratings.................. I-1
Appendix II-Information Relating to Prudential.............. II-1
</TABLE>
- --------------------------------------------------------------------------------
MF175B
<PAGE>
TRUST HISTORY
The Trust was organized under the laws of Massachusetts on April 27, 1984 as
an unincorporated business trust, a form of organization that is commonly
referred to as a Massachusetts business trust.
DESCRIPTION OF THE FUNDS, THEIR INVESTMENTS AND RISKS
(a)CLASSIFICATION. The Trust is a diversified open-end management investment
company.
(b)INVESTMENT STRATEGIES AND RISKS.
Each Fund's investment objective is current income to the extent consistent
with preservation of capital and liquidity. While the principal investment
policies and strategies for seeking to achieve this objective are described in
each Fund's Prospectus, a Fund may from time to time also utilize the
securities, instruments, policies and strategies described below in seeking to
achieve its objective. A Fund may not be successful in achieving its objective
and you can lose money.
OBLIGATIONS ISSUED OR GUARANTEED BY THE U.S. GOVERNMENT, ITS AGENCIES AND
INSTRUMENTALITIES
Obligations issued or guaranteed as to principal and interest by the U.S.
Government may be acquired by a Fund in the form of custodial receipts that
evidence ownership of future interest payments, principal payments or both on
certain United States Treasury notes or bonds. Such notes and bonds are held in
custody by a bank on behalf of the owners. These custodial receipts are known by
various names, including "Treasury Receipts," "Treasury Investment Growth
Receipts" (TIGRs) and "Certificates of Accrual on Treasury Securities" (CATS).
Neither Fund intends to purchase TIGRs or CATS during the coming year.
FLOATING RATE AND VARIABLE RATE SECURITIES
Each 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 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.
DEMAND FEATURES AND GUARANTEES
LAF may purchase demand features and guarantees. A demand feature supporting
a money market fund instrument can be relied upon in a number of respects.
First, the demand feature can be relied upon to SHORTEN THE MATURITY of the
underlying instrument. Second, the demand feature, if unconditional, can be used
to EVALUATE THE CREDIT QUALITY of the underlying security. This means that the
credit quality of the underlying security can be based solely on the credit
quality of the unconditional demand feature supporting that security.
A GUARANTEE is a form of unconditional credit support that may include bond
insurance, a letter of credit, and an unconditional demand feature. A money
market fund holding a security subject to a guarantee may determine the credit
quality of the underlying security solely on the basis of the credit quality of
the supporting guarantee.
LAF can only invest 10% of its total assets in securities directly issued
by, or supported by, a demand feature provider or guarantor. Investment Company
Act Rule 2a-7 provides a more stringent limit on demand features and guarantees
that are "second tier securities" under the Rule; that is, those securities that
are rated in the second highest category by a specified number of rating
organizations. Specifically, Rule 2a-7 provides that a money market fund cannot
invest more than 5% of its total assets in securities directly issued or
supported by second tier demand features or guarantees that are issued by the
same entity.
LENDING OF SECURITIES
Consistent with applicable regulatory requirements, NMMF may lend its
portfolio securities to broker-dealers and LAF may lend its portfolio to
brokers, dealers and financial institutions, provided that outstanding loans for
each Fund do not exceed in the aggregate 33 1/3% of the value of its respective
total assets and, provided that such loans are callable at any time by either
Fund and are at all times secured by cash or U.S. Government securities that is
equal to at least the market value, determined daily, of the loaned securities.
The advantage of such loans is that the Fund continues to receive payments in
lieu of the interest on the
B-2
<PAGE>
loaned securities, while at the same time earning interest either directly from
the borrower or on the cash collateral which will be invested in short-term
obligations. Any voting rights, or rights to consent, relating to the securities
loaned pass to the borrower. However, if a material event affecting the
investment occurs, such loans will be called so securities may be voted by the
Fund (or Funds).
A loan may be terminated by the borrower on one business day's notice or by
a Fund at any time. If the borrower fails to maintain the requisite amount of
collateral, the loan automatically terminates, and the Fund could use the
collateral to replace the securities while holding the borrower liable for any
excess of replacement cost over collateral. As with any extensions of credit,
there are risks of delay in recovery and in some cases loss of rights in the
collateral should the borrower of the securities fail financially. However,
these loans of portfolio securities will only be made to firms determined to be
creditworthy pursuant to procedures approved by the Board of Trustees of the
Trust. On termination of the loan, the borrower is required to return the
securities to the Fund, and any gain or loss in the market price during the loan
would inure to that Fund.
Each Fund will pay reasonable finders', administrative and custodial fees in
connection with a loan of its securities or may share the interest earned on
collateral with the borrower.
ILLIQUID SECURITIES
Each Fund may not hold more than 10% of its respective 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 agreements 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
securities.
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 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 under procedures established by the
Board of Trustees. The investment adviser will monitor the liquidity of such
restricted securities subject to the supervision of the Board of Trustees. 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.
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Each Fund's investment in Rule 144A securities could have the effect of
increasing the Fund's illiquidity to the extent that qualified institutional
buyers become uninterested for a time in purchasing these securities.
SECURITIES OF OTHER INVESTMENT COMPANIES
Each Fund may invest up to 10% of its total assets in securities of other
money market funds registered under the Investment Company Act. Generally, each
Fund does not intend to invest more than 5% of its total assets in such
securities. To the extent that a Fund invests in securities of other registered
investment companies, shareholders of the Fund may be subject to duplicate
management and advisory fees.
BORROWING
NMMF may borrow from banks (including through entering into reverse
repurchase agreements) up to and including 10% of the value of its total assets
taken at cost for temporary or emergency purposes. NMMF may pledge up to and
including 10% of its net assets to secure such borrowings. LAF may borrow
(including through entering reverse repurchase agreements) up to 33 1/3% of the
value of its total assets (computed at the time the loan is made) from banks for
temporary, extraordinary or emergency purposes. LAF may pledge up to 33 1/3% of
its total assets to secure such borrowings. A Fund will not purchase portfolio
securities if its borrowings (other than permissible securities loans) exceed 5%
of its total assets.
REPURCHASE AGREEMENTS
Each Fund may purchase securities and concurrently enter into "repurchase
agreements" with the seller, whereby the seller agrees to repurchase such
securities at a specified price within a specified time (generally seven days or
less). The repurchase agreements provide that the Fund will sell the underlying
instruments back to the dealer or the bank at the specified price and at a fixed
time in the future, usually not more than seven days from the date of purchase.
The difference between the purchase price and the resale price represents the
interest earned by the Fund, which is unrelated to the coupon rate or maturity
of the purchased security. Repurchase agreements will at all times be fully
collateralized in an amount at least equal to the resale price. Such collateral
will be held by the Trust's Custodian, either directly or through a
sub-custodian, either physically or in a book-entry account.
A Fund will enter into repurchase transactions only with parties which meet
creditworthiness standards approved by the Trust's Board of Trustees. The Fund's
investment adviser monitors the creditworthiness of such parties under the
general supervision of the Board of Trustees. In the event of a default or
bankruptcy by a seller, the Fund will promptly seek to liquidate the collateral.
To the extent that the proceeds limit any sale of such collateral upon a default
in the obligation to repurchase are less than the resale price, the Fund will
suffer a loss, if the financial institution that is a party to the repurchase
agreement petitions for bankruptcy or becomes subject to the U.S. Bankruptcy
Code, the law regarding the rights of the trust is unsettled. As a result, under
these circumstances, there may be a restriction on the Fund's ability to sell
the collateral, and the Fund could suffer a loss.
LAF participates in a joint repurchase account with other investment
companies managed by Prudential Investments Fund Management LLC (PIFM or the
Manager) pursuant to an order of the Securities and Exchange Commission. On a
daily basis, any uninvested cash balances of LAF may be aggregated with those of
such other investment companies and invested in one or more repurchase
agreements. LAF 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 Trust's policy that its custodian or designated subcustodians, as the case
may be, under triparty repurchase agreements, take possession of the underlying
collateral securities, the value of which equals or exceeds the resale price of
the agreement. If the seller defaults and the value of the collateral declines
or if bankruptcy proceedings are commenced with respect to the seller of the
security, realization of the collateral by the Trust may be delayed or limited.
NMMF does not currently participate in the joint repurchase account.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements have the characteristics of borrowing and
involve the sale of securities held by a Fund with an agreement to repurchase
the securities at a specified price, date and interest payment. Each Fund
intends only to use the reverse repurchase technique when it will be to its
advantage to do so. These transactions are only advantageous if the Fund has an
opportunity to earn a greater rate of interest on the cash derived from the
transaction than the interest cost of obtaining that
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<PAGE>
cash. A Fund may be unable to realize earnings from the use of the proceeds
equal to or greater than the interest required to be paid. The use of reverse
repurchase agreements may exaggerate any increase or decrease in the value of
the Fund's portfolio. The Trust's Custodian will maintain in a segregated
account cash, or other liquid assets, maturing not later than the expiration of
the reverse repurchase agreements and having a value equal to or greater than
such commitments.
FIRM COMMITMENT AGREEMENTS
NMMF may enter into firm commitment agreements with banks or broker-dealers
for the purchase of securities at an agreed-upon price on a specified future
date. Such agreements might be entered into, for example, when NMMF anticipates
a decline in the yield of securities of a given issuer and is able to obtain a
more advantageous yield by committing currently to purchase securities to be
issued later. Entry into firm commitment agreements with broker-dealers requires
the creation and maintenance of a segregated account. The underlying securities
subject to a firm commitment agreement are subject to fluctuation in market
value and, therefore, to the extent that NMMF remains fully invested at the same
time that it has entered into firm commitment agreements, there will be a
greater possibility that the net asset value of NMMF shares will vary from
$1.00.
Pending delivery of securities purchased under firm commitment agreements,
the amount of the purchase price will be held in liquid assets such as cash or
high-quality debt obligations. Such obligations will be maintained in a separate
account with NMMF's custodian in an amount equal on a daily basis to the amount
of NMMF's firm commitments. When the time comes to pay for securities subject to
firm commitment agreements, NMMF will meet its obligations from then-available
cash flow or the sale of securities.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
LAF may purchase securities on a "when-issued" or delayed delivery basis.
When-issued or delayed delivery transactions arise when securities are purchased
or sold by LAF with payment and delivery taking place in the future in order to
secure what is considered to be an advantageous price and yield to the Fund at
the time of entering into the transaction. LAF will limit such purchases to
those which the date of delivery and payment falls within 90 days of the date of
the commitment. LAF will make commitments for such when issued transactions only
with the intention of actually acquiring the securities. The Trust's Custodian
will segregate cash or other liquid assets having a value equal to or greater
than LAF's purchase commitments. If LAF chooses to dispose of the right to
acquire a when-issued security prior to its acquisition, it could, as with the
disposition of any other portfolio security, incur a gain or loss due to market
fluctuations. The securities so purchased are subject to market fluctuation and
no interest accrues to the purchaser during the period between purchase and
settlement.
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies. Fundamental policies
are those which cannot be changed without the approval of the holders of a
majority of the outstanding voting securities of a Fund. A "majority of the
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. With respect to the submission of a change in fundamental policy or
investment objective to a particular Fund, such matters shall be deemed to have
been effectively acted upon with respect to such Fund if a majority of the
outstanding voting securities of the particular Fund votes for the approval of
such matters as provided above, notwithstanding (1) that such matter has not
been approved by a majority of the outstanding voting securities of the other
Fund affected by such matter and (2) that such matter has not been approved by a
majority of the outstanding voting securities of the Trust.
NATIONAL MONEY MARKET FUND
The following investment restrictions are fundamental policies of NMMF and
may not be changed except as described above.
NMMF may not:
1. Purchase any security if, as a result, more than 5% of its total
assets (based on current value) would then be invested in the
securities of a single issuer, except that the Fund may invest up to 15% of
its total net assets (based on current value) in the obligations of any one
bank. This limitation does not apply to U.S. Government Securities.
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<PAGE>
2. Purchase voting securities or make investments for the purpose of
exercising control or management.
3. Invest more than 25% of its total assets in any one industry. This
restriction does not apply to U.S. Government Securities or to bank
obligations. For purposes of this restriction, telephone, gas and electric
public utilities are each regarded as separate industries and finance
companies whose financing activities are related primarily to the activities
of their parent companies are classified in the industry of their parents.
4. Participate on a joint or joint and several basis in any trading
account in securities. (The "bunching" of orders for the purchase or
sale of portfolio securities with other accounts managed by the Manager or
the Sub-advisor to reduce acquisition costs, to average prices among them,
or to facilitate such transactions, is not considered participating in a
trading account in securities.)
5. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Fund may obtain short-term
credits as necessary for the clearance of security transactions.
6. Borrow money except for temporary or emergency purposes and then only
in an amount not exceeding 10% of its total assets taken at cost;
provided, however, that the Fund may loan its securities as described in the
Prospectus and this Statement of Additional Information under the caption
"Description of the Funds, their Investments and Risks-- Lending of
Securities". However, the Fund will not borrow if the value of the Fund's
assets would be less than 300% of its borrowing obligations. In addition,
when borrowings (other than permissible securities loans) exceed 5% of its
total assets, the Fund will not purchase additional portfolio securities.
Permissible borrowings will be entered into solely for the purpose of
facilitating the orderly sale of portfolio securities to accommodate
redemption requests.
7. Make loans, except that the Fund may purchase or hold debt
instruments in accordance with its investment objective and policies.
This restriction does not apply to repurchase agreements or loans of
portfolio securities.
8. Pledge, mortgage or hypothecate more than 10% of its net assets taken
at cost at the time of the incurrence of such borrowings.
9. Act as an underwriter of securities of other issuers except that, in
the disposition of portfolio securities, it may be deemed to be an
underwriter under the federal securities laws.
10. Invest in securities of other investment companies, except by
purchases in the open market involving only customary brokers'
commissions, or in connection with a merger, consolidation, reorganization
or similar transactions. For the purposes of this restriction, foreign banks
or their agents or subsidiaries are not considered investment companies.
(Under the Investment Company Act of 1940 (the "Investment Company Act") no
registered investment company may (a) invest more than 10% of its total
assets (taken at current value) in securities of other investment companies,
(b) own securities of any one investment company having a value in excess of
5% of its total assets (taken at current value), or (c) own more than 3% of
the outstanding voting stock of any one investment company.)
11. Purchase or retain securities of an issuer if, to the knowledge of
the Trust, any officers, trustees and directors of the Trust or any
investment adviser of the Trust, who individually own beneficially more than
1/2 of 1% of the shares or securities of that issuer, own in the aggregate
more than 5% of such shares or securities.
12. Purchase securities of any company which has (with predecessor
businesses and entities) a record of less than three years'
continuous operation or purchase securities whose source of repayment if
based, directly or indirectly, on the credit of such a company if as a
result more than 5% of the total assets of the Fund (taken at current value)
would be invested in such securities; provided, however, that the Fund may
purchase U.S. Government Securities without regard to this limitation.
13. Buy or sell oil, gas or other mineral leases, rights or royalty
contracts, commodities or commodity contracts or real estate. This
restriction does not prevent the Fund from purchasing securities of
companies investing in real estate or of companies which are not principally
engaged in the business of buying or selling such leases, rights or
contracts nor does it prevent the Fund from purchasing securities secured by
real estate or interests therein.
14. Purchase any illiquid security, including any securities whose
disposition is restricted under federal securities laws and
securities that are not readily marketable, if, as a result, more than 10%
of the Fund's total assets (based on
B-6
<PAGE>
current value) would then be invested in such securities. The staff of the
Securities and Exchange Commission is presently of the view that repurchase
agreements maturing in more than seven days are subject to this restriction.
Until that position is revised, modified or rescinded, the Fund will conduct
its operations in a manner consistent with this view.
15. Write or purchase puts, calls, warrants, straddles, spreads or
combinations thereof except that, as described above under "Firm
Commitment Agreements," the Fund may enter into firm commitment agreements
with respect to securities otherwise eligible for purchase by the Fund.
Restriction 1 applies to securities subject to repurchase agreements but not
to the repurchase agreements themselves provided that the obligation of the
seller to repurchase the securities from the Fund is "collateralized fully" as
defined in Rule 2a-7 under the Investment Company Act. Although Restriction 1
permits the Fund to invest up to 15% of its total assets in the obligations of
any one bank, federal regulations applicable to the Fund currently prohibit the
Fund (with limited exceptions) from making any investment that would result in
more than 5% of the Fund's assets being invested in obligations of a single
issuer.
Although Restriction 3 states that it does not apply to bank obligations,
federal regulations applicable to the Fund currently limit bank obligations to
include all banks which are organized under the laws of the United States or a
state (as defined in the Investment Company Act), U.S. branches of foreign banks
that are subject to the same regulations as U.S. banks and foreign branches of
domestic banks. In addition, in accordance with Restriction 3, it is our policy
not to concentrate 25% or more of total assets in a single industry.
Although Restriction 14 states that the Fund may invest no more than 10% of
its total assets in illiquid securities, the Fund intends to invest no more than
10% of its net assets in such securities, in compliance with current
interpretations of the staff of the Securities and Exchange Commission.
The limitation on investment in illiquid securities set forth in Restriction
14 does not apply to certain restricted securities, including securities issued
pursuant to Rule 144A under the Securities Act of 1933 and certain commercial
paper, that the Manager or Sub-adviser has determined to be liquid under
procedures approved by the Board of Trustees.
For purposes of the foregoing restrictions, U.S. Government Securities refer
to obligations of the U.S. Treasury and obligations issued by agencies of the
U.S. Government or instrumentalities established or sponsored by the U.S.
Government.
LIQUID ASSETS FUND
The following investment restrictions are fundamental policies of LAF and
may not be changed except as described above.
LAF may not:
1. Purchase securities on margin (but the Fund may obtain such
short-term credits as may be necessary for the clearance of
transactions); provided that the deposit or payment by the Fund of initial
or maintenance margin in connection with options or futures contracts is not
considered the purchase of a security on margin.
2. Make short sales of securities or maintain a short position.
3. Issue senior securities, borrow money (including through the entry
into reverse repurchase agreement transactions) or pledge its assets,
except that the Fund may borrow up to 33 1/3% of the value of its total
assets (calculated when the loan is made) from banks for temporary,
extraordinary or emergency purposes or for the clearance of transactions and
may pledge up to 33 1/3% of the value of the Fund's total assets to secure
such borrowings. The Fund will not purchase portfolio securities if its
borrowings exceed 5% of the Fund's net assets. The purchase or sale of
securities on a "when-issued" or delayed delivery basis, the entry into
reverse repurchase agreements, the purchase and sale of financial futures
contracts and collateral arrangements with respect thereto and with respect
to the writing of options and obligations of the Trust to Trustees pursuant
to deferred compensation arrangements are not deemed to be a pledge of
assets and such arrangements are not deemed to be the issuance of a senior
security.
4. Purchase any security (other than obligations of the U.S. Government,
its agencies or instrumentalities) if as a result, with respect to
75% of the value of the Fund's total assets, more than 5% of the value of
the Fund's total assets would be invested in the securities of a single
issuer.
5. 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
B-7
<PAGE>
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. For purposes of this
exception, domestic banks shall include all banks which are organized under
the laws of the United States or a state (as defined in the Investment
Company Act), U.S. branches of foreign banks that are subject to the same
regulations as U.S. banks and foreign branches of domestic banks.
6. Buy or sell real estate or interests in real estate, except that the
Fund may purchase and sell securities which are secured by real
estate, securities of companies which invest or deal in real estate and
publicly traded securities of real estate investment trusts.
7. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an
underwriter under certain federal securities laws.
8. Make investments for the purpose of exercising control or management.
9. Invest in securities of other non-affiliated investment companies,
except by purchases in the open market involving only customary
brokerage commissions and as a result of which the Fund will not hold more
than 3% of the outstanding voting securities of any one investment company,
will not have invested more than 5% of its total assets in any one
investment company and will not have invested more than 10% of its total
assets (determined at the time of investment) in such securities of one or
more investment companies, or except as part of a merger, consolidation or
other acquisition.
10. Make loans, except through (i) repurchase agreements and (ii) loans
of portfolio securities (limited to 33 1/3% of the value of the
Fund's total assets).
11. Buy or sell commodities or commodity contracts, except that the Fund
may purchase and sell futures contracts and options thereon.
12. Purchase more than 10% of the outstanding voting securities of any
one issuer.
Although Restriction 4 limits the Fund's investments in the securities of a
single issuer to 5% of the value of 75% of the value of the Fund's total assets,
federal regulations applicable to the Fund currently prohibit the Fund from
making any investment that would result in more than 5% of the Fund's total
assets being invested in securities of a single issuer.
Whenever any fundamental investment policy or investment restriction states
a maximum percentage of a Fund's assets, it is intended that if the percentage
limitation is met at the time the investment is made, a later change in
percentage resulting from changing total or net asset values will not be
considered a violation of such policy. However, in the event that the Fund's
asset coverage for borrowings falls below 300%, the Fund will take prompt action
to reduce its borrowing, as required by applicable law.
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<PAGE>
MANAGEMENT OF THE FUND
(a) TRUSTEES
The Trust has Trustees who, in addition to overseeing the actions of each
Fund's Manager, Subadviser, and Distributor, decide upon matters of general
policy.
The Trustees also review the actions of the officers of the Trust, who
conduct and supervise the daily business operations of the Trust.
(b) MANAGEMENT INFORMATION--TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
POSITION WITH AND OTHER AFFILIATIONS FOR
NAME, ADDRESS AND AGE (1) THE TRUST THE LAST FIVE YEARS
- ------------------------------ ------------------------------ -----------------------------------------------------------------
<S> <C> <C>
Edward D. Beach (73) Trustee President and Director of BMC Fund, Inc., a closed-end investment
company; previously Vice Chairman of Broyhill Furniture
Industries, Inc., Certified Public Accountant; Secretary and
Treasurer of Broyhill Family Foundation, Inc.; Member of the
Board of Trustees of Mars Hill College; and Director of The High
Yield Income Fund, Inc.
Delayne Dedrick Gold (59) Trustee Marketing and Management Consultant; Director of The High Yield
Income Fund, Inc.
*Robert F. Gunia (51) Trustee Vice President of Prudential Investments (since September 1997);
Executive Vice President and Treasurer (since December 1996) of
Prudential Investments Fund Management LLC (PIFM); Senior Vice
President (since March 1987) of Prudential Securities
Incorporated (Prudential Securities); formerly Chief
Administrative Officer (July 1990-September 1996), Director
(January 1989-September 1996) and Executive Vice President,
Treasurer and Chief Financial Officer (June 1987-September 1996)
of Prudential Mutual Fund Management, Inc. (PMF); Vice President
and Director (since May 1989) of The Asia Pacific Fund, Inc.;
Director of The High Yield Income Fund, Inc.
Don G. Hoff (62) Trustee Chairman and Chief Executive Officer (since 1980) of Intertec,
Inc. (investments); Chairman and Chief Executive Officer of The
Lamaur Corporation, Inc.; Director of Innovative Capital
Management, Inc. and The Greater China Fund, Inc.; and Chairman
and Director of The Asia Pacific Fund, Inc.
Robert E. LaBlanc (63) Trustee President (since 1981) of Robert E. LaBlanc Associates, Inc.
(telecommunications); formerly General Partner at Salomon
Brothers; and Vice-Chairman of Continental Telecom; Director of
Storage Technology Corporation, Titan Corporation, Salient 3
Communications, Inc. and Tribune Company; and Trustee of
Manhattan College.
</TABLE>
B-9
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
POSITION WITH AND OTHER AFFILIATIONS FOR
NAME, ADDRESS AND AGE (1) THE TRUST THE LAST FIVE YEARS
- ------------------------------ ------------------------------ -----------------------------------------------------------------
<S> <C> <C>
*Mendel A. Melzer, CFA (37) Trustee Chief Investment Officer (since October 1996) of Prudential
751 Broad Street Mutual Funds; formerly Chief Financial Officer (November 1995-
Newark, NJ 07102 September 1996) of Prudential Investments; 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) and
Senior Vice President of Prudential Capital Corporation (July
1989-April 1991); Chairman and Director of Prudential Series
Fund, Inc.; and Director of The High Yield Income Fund, Inc.
Robin B. Smith (58) Trustee Chairman and Chief Executive Officer (since August 1996) of
Publishers Clearing House; formerly President and Chief
Executive Officer (January 1988-August 1996) and President and
Chief Operating Officer (September 1981-December 1988) of
Publishers Clearing House; Director of BellSouth Corporation,
Texaco Inc., Springs Industries Inc., and Kmart Corporation.
Stephen Stoneburn (54) Trustee President and Chief Executive Officer (since June 1996) of
Quadrant Media Corp. (a publishing company); formerly President
(June 1995-June 1996) of Argus Integrated Media, Inc.; Senior
Vice President and Managing Director (January 1993-1995) of
Cowles Business Media; Senior Vice President (January 1991-1992)
and Publishing Vice President (May 1989-December 1990) of Gralla
Publications (a division of United Newspapers, U.K.); and Senior
Vice President of Fairchild Publications, Inc.
Nancy H. Teeters (67) Trustee Economist; Director of Inland Steel Industries; formerly, Vice
President and Chief Economist of International Business
Machines; Member of the Board of Governors of the Federal
Reserve System; Governor of the Horace H. Rackham School of
Graduate Studies of the University of Michigan; Assistant
Director of the Committee on the Budget of the US House of
Representatives; Senior Fellow at the Library of Congress;
Senior Fellow at the Brookings Institution; staff at Office of
Management and Budget, Council of Economic Advisors and the
Federal Reserve Board.
Brian M. Storms (44) President President (October 1998-Present) of Prudential Investments;
President (September 1996-October 1998) of Prudential Mutual
Funds, Annuities, and Investment Management Services; Managing
Director (July 1991-September 1996) of Fidelity Investments
Institutional Services Company, Inc.; President (October
1989-September 1991) of J.K. Schofield; Senior Vice President
(September 1982-October 1989) of INVEST Financial Corporation.
Robert C. Rosselot (38) Secretary Assistant General Counsel (since September 1997) of PIFM;
formerly, partner with the firm of Howard & Howard, Bloomfield
Hills, Michigan (December 1995-September 1997) and Corporate
Counsel (September 1990-December 1995) of Federated Investors.
</TABLE>
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<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
POSITION WITH AND OTHER AFFILIATIONS FOR
NAME, ADDRESS AND AGE (1) THE TRUST THE LAST FIVE YEARS
- ------------------------------ ------------------------------ -----------------------------------------------------------------
<S> <C> <C>
Grace C. Torres (39) Treasurer and Principal First Vice President (since December 1996) of PIFM; First Vice
Financial and Accounting President (since March 1994) of Prudential Securities; formerly
Officer First Vice President (March 1994-September 1996), Prudential
Mutual Fund Management, Inc. and Vice President (July 1989-March
1994) of Bankers Trust Corporation.
Stephen M. Ungerman (44) Assistant Treasurer Vice President and Tax Director (since March 1996) of Prudential
Investments; formerly First Vice President of Prudential Mutual
Fund Management, Inc. (February 1993-September 1996).
</TABLE>
- ------------
(1) Unless otherwise noted, the address for each of the above persons is c/o
Prudential Investments Fund Management LLC, Gateway Center Three, 100
Mulberry Street, Newark, New Jersey 07102-4077.
* "Interested" Trustee of the Fund, as defined in the Investment Company Act
of 1940 (the Investment Company Act).
Trustees and officers of the Trust are also trustees, directors and officers
of some or all of the other investment companies distributed by Prudential
Securities or Prudential Investment Management Services LLC.
The Trustees have adopted a retirement policy which calls for the retirement
of Trustees on December 31 of the year in which they reach the age of 72, except
that retirement is being phased in for Trustees 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, 1999 and December 31, 1998, respectively.
Pursuant to the terms of the Management Agreements with the Trust, the
Manager pays all compensation of officers of the Trust as well as the fees and
expenses of all Trustees of the Trust who are affiliated persons of the Manager.
The Trust pays each of its Trustees who is not an affiliated person of PIFM
or Prudential Investments (PI) annual compensation of $3,000, in addition to
certain out-of-pocket expenses. The amount of annual compensation paid to each
Trustee may change as a result of the introduction of additional funds on the
board of which the Trustee will be asked to serve.
Trustees may receive their Trustee's fees pursuant to a deferred fee
agreement with the Trust. Under the terms of the agreement, the Trust accrues
daily the amount of such Trustee'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, at the daily rate of return
of the Trust (the Fund Rate). Payment of the interest so accrued is also
deferred and accruals become payable at the option of the Trustee. A Fund's
obligation to make payments of deferred Trustees' fees, together with interest
thereon, is a general obligation of the Fund.
The following table sets forth the aggregate compensation paid by the Fund
to the Trustees who are not affiliated with the Manager for the fiscal year
ended September 30, 1998 and the aggregate compensation paid to such Trustees
for service on the Trust's Board and that of all other funds managed by PIFM
(Fund Complex) for the calendar year ended December 31, 1998. In October 1997,
PIFM recommended to the Board of Trustees, and the Board approved, certain
changes in the Trust's management and operations, subject to shareholder
approval, whereby substantially similar services would be furnished, but with
lower expenses. Accordingly, on December 11, 1997, the shareholders elected a
new Board of Trustees, approved a management agreement between the Trust and
PIFM and approved a subadvisory agreement between PIFM and The Prudential
Investment Corporation. These new agreements became effective at the close of
business on December 12, 1997.
B-11
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION OR APPROXIMATE
RETIREMENT COMPENSATION
BENEFITS FROM TRUST
ACCRUED ESTIMATED AND PRUDENTIAL
AGGREGATE AS PART OF ANNUAL FUND
COMPENSATION TRUST BENEFITS UPON COMPLEX PAID
NAME AND POSITION FROM TRUST EXPENSES RETIREMENT TO TRUSTEES(2)
- ----------------------------------------------------- ------------- -------------- -------------- -----------------
<S> <C> <C> <C> <C>
Edward D. Beach--Trustee $ 2,250 None N/A $ 135,000( 38/63)*
E. Philip Cannon--Former Trustee $ 1,150 None N/A **
Donald P. Carter--Former Trustee $ 1,375 None N/A **
Gary A. Childress--Former Trustee $ 1,150 None N/A **
William D. Cvengros--Former Trustee $ 0 None N/A **
Stephen C. Eyre--Former Trustee $ 2,250 None N/A $ 45,000( 12/13)*
Delayne D. Gold--Trustee $ 2,250 None N/A $ 135,000( 38/63)*
Robert F. Gunia(1)--Trustee -- None N/A --
Don G. Hoff--Trustee $ 2,250 None N/A $ 45,000( 12/13)*
Robert E. LaBlanc--Trustee $ 2,250 None N/A $ 45,000( 12/13)*
Gary L. Light--Former Trustee $ 1,150 None N/A **
Mendel A. Melzer(1)--Trustee -- None N/A --
Richard L. Nelson--Former Trustee $ 1,200 None N/A **
Lyman W. Porter--Former Trustee $ 1,150 None N/A **
Robert A. Prindiville--Former Trustee $ 0 None N/A **
Alan Richards--Former Trustee $ 1,275 None N/A **
Joel Segall--Former Trustee $ 1,150 None N/A **
Robin B. Smith--Trustee $ 2,250 None N/A $ 90,000( 29/34)*
Stephen Stoneburn--Trustee $ 2,250 None N/A $ 45,000( 12/13)*
W. Bryant Stooks--Former Trustee $ 1,150 None N/A **
Nancy H. Teeters--Trustee $ 2,250 None N/A $ 90,000( 23/42)*
Gerald M. Thorne--Former Trustee $ 1,150 None N/A **
Stephen J. Treadway--Former Trustee $ 0 None N/A **
</TABLE>
- ------------
* Indicates number of funds/portfolios in Prudential Fund Complex (including
the Trust) to which aggregate compensation relates.
** Former Trustees receive no compensation from any fund in the Prudential Fund
Complex, other than the Trust as shown in the first column.
(1) Robert F. Gunia and Mendel A. Melzer, who are interested Trustees, do not
receive compensation from the Trust or any fund in the Fund Complex.
(2) Total compensation from all the funds in the Prudential Fund Complex for the
calendar year ended December 31, 1997, including amounts deferred at the
election of Trustees under the funds' deferred compensation plans. Including
accrued interest, total deferred compensation amounted to $139,081 for
Trustee 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.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of December 31, 1998, the Trustees and officers of the Trust, as a group,
owned less than 1% of the outstanding shares of beneficial interest of each of
the Funds and of the Trust as a whole.
B-12
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
(a) INVESTMENT ADVISERS
The manager of the Trust is Prudential Investments Fund Management LLC,
(PIFM or the Manager), Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102-4077 (PIFM or the Manager). PIFM serves as manager to all of the
other investment companies that, together with the Trust, comprise the
Prudential Mutual Funds. See "How the Fund is Managed" in each Prospectus. As of
November 30, 1998, PIFM managed and/or administered open-end and closed-end
management investment companies with assets of approximately $69 billion.
According to the Investment Company Institute, as of October 31, 1998, the
Prudential Mutual Funds were the 18th largest family of mutual funds in the
United States.
PIFM is a subsidiary of Prudential Securities Incorporated. Prudential
Mutual Fund Services LLC (PMFS or the Transfer Agent), a wholly-owned subsidiary
of PIFM, 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 for NMMF (the NMMF Management
Agreement) and the Management Agreement for LAF (the LAF Management Agreement
and, together with the NMMF Management Agreement, the Management Agreements),
both of which became effective on December 12, 1997, PIFM, subject to the
supervision of the Trust's Board of Trustees and in conformity with the stated
policies of the Funds, manages both the investment operations of each Fund and
the composition of each Fund's portfolio, including the purchase, retention,
disposition and loan of securities. In connection therewith, PIFM is obligated
to keep certain books and records of the Trust. PIFM also administers the
Trust's business affairs and, in connection therewith, furnishes the Trust with
office facilities, together with those ordinary clerical and bookkeeping
services which are not being furnished by State Street Bank and Trust Company,
the Trust's custodian, and PMFS, the Trust's transfer and shareholder servicing
agent. The management services of PIFM for the Trust are not exclusive under the
terms of the Management Agreements and PIFM is free to, and does, render
management services to others.
For its services, PIFM receives, pursuant to the NMMF Management Agreement,
a fee at an annual rate of the average daily net assets of the Fund of .390% of
the first $1 billion of net assets; .375% of the next $500 million of net
assets; .350% of the next $500 million of net assets; and .325% of net assets in
excess of $2 billion. The fee is computed daily and payable monthly. PIFM has
agreed, to the extent NMMF's total expenses exceed .62 of 1% of the average
daily net assets of NMMF for the fiscal year ending September 30, 1998, to
reimburse NMMF for certain expenses up to an aggregate amount of $100,000 to the
extent necessary to reduce such total operating expenses to .62 of 1%. For the
expenses PIFM assumes pursuant to the LAF Management Agreement, PIFM will be
reimbursed for its direct costs, exclusive of any profit or overhead, not to
exceed .39% of the LAF's average daily net assets. It is expected that this
amount will be approximately .07 of 1% of the average daily net assets of LAF
for the fiscal year ending September 30, 1999.
In connection with its management of the business affairs of the Trust
pursuant to the Management Agreements, PIFM bears the following expenses:
(a) the salaries and expenses of all personnel of the Trust and the
Manager, except the fees and expenses of Trustees who are not
affiliated persons of PIFM or the Trust's investment adviser;
(b) all expenses incurred by PIFM or by the Trust in connection with
managing the ordinary course of the Trust's business, other than
those assumed by the Trust, as described below; and
(c) the costs and expenses payable to The Prudential Investment
Corporation, doing business as Prudential Investments (PI or the
Subadviser), pursuant to subadvisory agreements on behalf of the Funds
between PIFM and PI (the Subadvisory Agreements).
Under the terms of the Management Agreements, the Trust is responsible for
the payment of the following expenses, including (a) the fees or reimbursements
payable to the Manager, (b) the fees and expenses of Trustees who are not
affiliated with the Manager or the Trust's investment adviser, (c) the fees and
certain expenses of the Trust'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 Trust and of pricing the
Trust's shares, (d) the charges and expenses of the Trust's legal counsel and
independent accountants, (e) brokerage commissions, if any, and any issue or
transfer taxes chargeable to the Trust in connection with its securities
transactions, (f) all taxes and trust fees payable by the Trust to governmental
agencies, (g) the fees of any trade association of which the Trust is a member,
(h) the cost of share certificates, if any, representing, and/or non-
B-13
<PAGE>
negotiable share deposit receipts evidencing, shares of the Trust, (i) the cost
of fidelity and liability insurance, (j) the fees and expenses involved in
registering and maintaining registration of the Trust and of its shares with the
Commission, including the preparation and printing of the Trust's registration
statements and prospectuses for such purposes, and paying the fees and expenses
of notice filings made in accordance with state securities laws, (k) allocable
communications expenses with respect to investor services and all expenses of
shareholders' and Trustees' 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 Trust's business and (m) any expenses assumed by the Fund
pursuant to a distribution plan adopted under Rule 12b-1 of the Investment
Company Act.
Each Management Agreement also provides that PIFM will not be liable for any
error of judgment or any loss suffered by the Trust in connection with the
matters to which the Management Agreements relate except a loss resulting from
willful misfeasance, bad faith, gross negligence or reckless disregard of duty.
Each Management Agreement provides that it will terminate automatically if
assigned (as defined in the Investment Company Act), and that it may be
terminated without penalty by either party upon not more than 60 days' nor less
than 30 days' written notice. The Management Agreements provide that each said
agreement will continue in effect for a period of more than two years from its
execution only so long as such continuance is specifically approved at least
annually in accordance with the requirements of the Investment Company Act.
For the fiscal year ended September 30, 1998, PIFM received management fees
from NMMF and LAF of $1,477,776 and $190,000, respectively. During the fiscal
year, PIMCO Advisors L.P. (PALP), the former manager, received management fees
from NMMF of $620,411.
For the fiscal year ended September 30, 1997 and the prior fiscal years,
PALP served as manager for NMMF. PALP did not serve as manager of LAF. Pursuant
to a management contract between PALP and NMMF, which contract was terminated by
a vote of the former Trustees on October 22, 1997, effective at the close of
business on December 12, 1997, the Fund paid PALP a monthly fee as follows:
.425% of the first $500 million of the average net assets of NMMF, .400% of the
next $500 million, .375% of the next $500 million, .350% of the next $500
million and .325% of amounts in excess of $2 billion. For the fiscal years ended
September 30, 1996 and 1997, NMMF paid PALP $2,560,734 and $2,886,449,
respectively, for its services under its management contract.
PIFM has entered into Subadvisory Agreements with PIC, doing business as PI
(the Subadviser), a wholly-owned subsidiary of Prudential, on behalf of each of
NMMF and LAF. The Subadvisory Agreements provide that PI furnish investment
advisory services in connection with the investment management of the Funds. In
connection therewith, PI is obligated to keep certain books and records of the
Funds. PIFM continues to have responsibility for all investment advisory
services pursuant to the Management Agreements and supervises PI's performance
of such services. In connection with NMMF, PI is reimbursed by PIFM for the
reasonable costs and expenses incurred by PI in furnishing services to PIFM. In
connection with LAF, PI is reimbursed by PIFM for its direct costs, excluding
profit and overhead, incurred by PI in furnishing services to PIFM.
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 Funds' portfolios. The credit unit, with a 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 Funds may invest.
The Subadvisory Agreements provide that each will terminate in the event of
its assignment (as defined in the Investment Company Act) or upon the
termination of the Management Agreements. The Subadvisory Agreements may be
terminated by the Trust, PIFM or PI upon not more than 60 days' nor less than 30
days' written notice. The Subadvisory Agreements provide that they will continue
in effect for a period of more than two years from their execution only so long
as such continuance is specifically approved at least annually in accordance
with the requirements of the Investment Company Act.
The Management Agreement between the Trust and PIFM and the Subadvisory
Agreements between PIFM and PIC were last approved by the Board of Trustees,
including a majority of the Trustees who are not parties to the contracts or
interested persons of any such parties, as defined in the Investment Company
Act, on May 13, 1998. Shareholders of NMMF and LAF last approved the Management
Agreement and the Subadvisory Agreements on December 12, 1997.
B-14
<PAGE>
(b) PRINCIPAL UNDERWRITER, DISTRIBUTOR AND RULE 12b-1 PLAN
Prudential Investment Management Services LLC (PIMS or the Distributor),
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, acts
as the distributor of the shares of the Trust. Prior to July 1, 1998, Prudential
Securities Incorporated (Prudential Securities, also referred to as the
Distributor), One Seaport Plaza, New York, New York 10292, served as the
distributor of the Trust's shares.
Pursuant to the Distribution Agreement, the Trust has agreed to indemnify
the Distributor to the extent permitted by applicable law against certain
liabilities under the federal securities laws.
DISTRIBUTION PLAN
Under the NMMF Distribution Plan (the Plan) and the Trust's Distribution
Agreement dated December 12, 1997, NMMF pays the Distributor a distribution fee
of up to 0.10% of the average daily net assets of the shares of NMMF, computed
daily and payable monthly which is designed to reimburse the Distributor, in
whole or in part, for its services. The Distributor incurs the expenses of
distributing LAF shares, none of which are reimbursed by or paid for by LAF.
For the fiscal year ended September 30, 1998, the Distributor received
payments of $400,863 under the Plan. The Trust's previous distributor, PIMCO
Funds Distribution Company, received payments of $148,938 under the Plan during
the fiscal year. These amounts were primarily expended for payment of account
servicing fees to financial advisers and other persons who sell shares of NMMF.
The Board of Trustees has determined that, in its judgment, there is a
reasonable likelihood that the Plan will benefit NMMF and its shareholders.
Pursuant to the Plan, the Trustees will be provided with, and will review,
at least quarterly, a written report of the distribution expenses incurred on
behalf of the Trust by the Distributor. The report will include an itemization
of the distribution expenses and the purpose of such expenditures.
The Plan may not be amended to increase materially the amount to be spent
for the services described therein with respect to NMMF without approval of the
shareholders of NMMF, and all material amendments of the Plan must also be
approved by the Trustees in the manner described above. The Plan may be
terminated at any time, by vote of a majority of the Trustees who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Plan or any agreements related to the Plan (the
Rule 12b-1 Trustees) or by a vote of a majority of the outstanding voting
securities of the shares of the Fund (as defined in the Investment Company Act).
The Trust's Distribution Agreement provides that it will terminate automatically
if assigned and that it may be terminated, without payment of any penalty, by a
majority of the Rule 12b-1 Trustees or by vote of a majority of the outstanding
voting securities of the Trust, or by the Distributor, on 60 days' written
notice to the other party.
NASD MAXIMUM SALES CHARGE RULE. Pursuant to rules of the NASD, the
Distributor is required to limit aggregate initial sales charges, deferred sales
charges and asset-based sales charges to 6.25% of total gross sales of NMMF
shares. Interest charges on unreimbursed distribution expenses equal to the
prime rate plus one percent per annum may be added to the 6.25% limitation.
Sales from the reinvestment of dividends and distributions are not included in
the calculation of the 6.25% limitation. The annual asset-based sales charge on
shares of NMMF may not exceed .75 of 1% per class. The 6.25% limitation applies
to NMMF rather than on a per shareholder basis. If aggregate sales charges were
to exceed 6.25% of the total gross sales of NMMF, all sales charges on shares of
NMMF would be suspended.
(c) OTHER SERVICE PROVIDERS
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Trust's portfolio securities,
and in that capacity maintains cash and certain financial and accounting books
and records pursuant to an agreement with the Trust.
Prudential Mutual Fund Services LLC (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as the Transfer and Shareholder Servicing Agent of the
Trust. It is a wholly-owned subsidiary of PIFM. PMFS provides customary transfer
agency services to the Trust, 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. In connection with services rendered to NMMF, PMFS receives an annual
fee ($9.50) per shareholder account, a new account set up fee ($2.00) for
B-15
<PAGE>
each manually-established account and a monthly inactive zero balance account
fee ($0.20) per shareholder account plus its out-of-pocket expenses, including
but not limited to postage, stationery, printing, allocable communications and
other costs. In connection with the transfer agency services rendered by PMFS to
LAF, PMFS will be reimbursed for its direct costs, excluding profit and
overhead.
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, serves as the Trust's independent public accountants and in that capacity
audits each Fund's annual financial statements. The financial information for
NMMF and LAF provided under "Financial Statements" for the fiscal year ended
September 30, 1998 has been audited by PricewaterhouseCoopers LLP, whose report
is also included under "Financial Statements."
BROKERAGE ALLOCATION AND OTHER PRACTICES
The Manager is responsible for decisions to buy and sell securities for the
Trust, 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 Trust does not normally incur any
brokerage commission expense on such transactions. In the market for money
market instruments, securities are generally traded on a "net" basis, with
dealers acting as principal for their own accounts without a stated commission,
although the price of the security usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price which includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. On occasion, certain money market
instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid. Portfolio securities may not be purchased
from any underwriting or selling syndicate of which the Distributor, or an
affiliate (including Prudential Securities), during the existence of the
syndicate, is a principal underwriter (as defined in the Investment Company
Act), except in accordance with rules of the SEC. The Trust will not deal with
the Distributor or its affiliates on a principal basis.
In placing orders for portfolio securities of the Trust, 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 Trust
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 Trust, 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
Trust may be used in managing other investment accounts. Conversely, brokers
furnishing such services may be selected for the execution of transactions for
such other accounts, whose aggregate assets are far larger than the Trust's, and
the services furnished by such brokers may be used by the Manager in providing
investment management for the Trust. 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 Trust does not reduce the advisory fee it pays to the
Manager by any amount that may be attributed to the value of such services.
Subject to the above considerations, Prudential Securities, as an affiliate
of the Trust, may act as a securities broker (or futures commission merchant)
for the Trust. In order for Prudential Securities to effect any portfolio
transactions for the Trust, the commissions, fees or other remuneration received
by Prudential Securities must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers in connection with
comparable transactions involving similar securities being purchased or sold
during a comparable period of time. This standard would allow Prudential
Securities to receive no more than the remuneration which would be expected to
be received by an unaffiliated broker in a commensurate arm's-length
transaction. Furthermore, the Board of Trustees of the Trust, including a
majority of the Trustees who are not "interested" persons, has adopted
procedures which are reasonably designed to provide that any commissions, fees
or other remuneration paid to Prudential Securities are consistent with the
foregoing standard. Brokerage transactions with Prudential Securities are also
subject to such fiduciary standards as may be imposed by applicable law.
During the fiscal years ended September 30, 1996, 1997 and 1998, the Trust
paid no brokerage commissions.
B-16
<PAGE>
SECURITIES AND ORGANIZATION
The Trust is authorized to issue an unlimited number of full and fractional
shares of beneficial interest, which may be divided into an unlimited number of
series of such shares, and which presently consist of NMMF and LAF. Each share
of a series represents an equal proportionate interest in that series with each
other share of that series and is entitled to a proportionate interest in the
dividends and distributions from that series. Upon termination of a series,
whether pursuant to liquidation of the series or otherwise, shareholders of that
series are entitled to share pro rata in the net assets of the series then
available for distribution to such shareholders. Shareholders have no preemptive
rights.
A copy of the Agreement and Declaration of Trust (the Declaration of Trust)
establishing the Trust is on file with the Secretary of State of The
Commonwealth of Massachusetts. The Declaration of Trust provides for the
perpetual existence of the Trust. The Trust or a series, however, may be
terminated at any time by vote of at least two-thirds of the outstanding shares
of an affected series or by the Trustees upon written notice to the
shareholders. Upon termination of the Trust or of a series, after paying or
otherwise providing for all charges, taxes, expenses and liabilities, whether
due or accrued or anticipated, of the Trust or of the series as may be
determined by the Trustees, the series shall, in accordance with such procedures
as the Trustees consider appropriate, reduce the remaining assets to
distributable form in cash or shares or other securities, or any combination
thereof, and distribute the proceeds to the shareholders of the series involved,
ratably according to the number of shares of such series held by the several
shareholders of the series on the date of termination.
The assets received by the Trust for the issue or sale of shares of a series
and all income, earnings, profits, losses and proceeds therefrom, subject only
to the rights of creditors, are allocated to that series, and constitute the
underlying assets of that series. The underlying assets of a series are
segregated and are charged with the expenses, including the organizational
expenses, in respect of that series and with a share of the general expenses of
the Trust. While the expenses of the Trust are allocated to the separate books
of account of the series, if more than one series has shares outstanding,
certain expenses may be legally chargeable against the assets of all series.
Under Massachusetts law, shareholders could, under certain circumstances, be
held liable for the obligations of the Trust. However, the Declaration of Trust
disclaims shareholder liability for acts or obligations of the Trust and
requires that notice of such disclaimer be given in each agreement, obligation
or instrument entered into or executed by the Trust or the Trustees. The
Declaration of Trust provides for indemnification out of the property of a
series for all loss and expense of any shareholder of that series held liable on
account of being or having been a shareholder. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the series of which he was a shareholder would be unable
to meet its obligations.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law. However, nothing in
the Declaration of Trust protects a Trustee against any liability to which the
Trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his office. The Declaration of Trust provides for indemnification by the Trust
of the Trustees and the officers of the Trust except with respect to any matter
as to which any such person did not act in good faith in the reasonable belief
that his action was in or not opposed to the best interests of the Trust. Such
person may not be indemnified against any liability to the Trust or the Trust
shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
The Trust will not normally hold annual shareholders' meetings. At such time
as less than a majority of the Trustees have been elected by the shareholders,
the Trustees then in office will call a shareholders' meeting for the election
of Trustees. In addition, Trustees may be removed from office by a written
consent signed by the holders of two-thirds of the outstanding shares and filed
with the Trust's custodian or by a vote of the holders of two-thirds of the
outstanding shares at a meeting duly called for the purpose, which meeting shall
be held upon written request of the holders of not less than 10% of the
outstanding shares. Upon written request by ten or more shareholders, who have
been such for at least six months and who hold shares constituting 1% of the
outstanding shares, stating that such shareholders wish to communicate with the
other shareholders for the purpose of obtaining the signatures necessary to
demand a meeting to consider removal of a Trustee, the Trust has undertaken to
provide a list of shareholders or to disseminate appropriate materials (at the
expense of the requesting shareholders).
Except as otherwise disclosed in the Prospectuses and in this Statement of
Additional Information, the Trustees shall continue to hold office and may
appoint their successors.
B-17
<PAGE>
PURCHASE AND REDEMPTION OF FUND SHARES
PURCHASE OF SHARES
Shares of the NMMF are offered to investment advisory clients of Prudential
Securities that participate in any of the following managed account programs
sponsored by Prudential Securities: Gibraltar Advisors, Prudential Securities
Portfolio Management (PSPM), Quantum Portfolio Management (Quantum), Managed
Assets Consulting Services (MACS), Managed Assets Consulting Services Custom
Services (MACS-CS) and Prudential Securities Investment Supervisory Group. See
"How to Buy and Sell Shares of the Fund" in the NMMF Prospectus. A Prudential
Securities client who applies to participate in these managed account programs
will be eligible to purchase shares of NMMF during the period between submission
to and acceptance of the application by Prudential Securities. Eligibility of
participants is within the discretion of Prudential Securities. In the event a
client of Prudential Securities leaves a managed account program, the client may
continue to hold shares of NMMF.
Shares of LAF are offered to investment advisory clients of Prudential
Securities Incorporated (Prudential Securities) that (a) participate in any of
the following managed account programs sponsored by Prudential Securities:
Gibraltar Advisors, Prudential Securities Portfolio Management (PSPM), Quantum
Portfolio Management (Quantum), Managed Assets Consulting Services (MACS) and
Prudential Securities Investment Supervisory Group and (b) are "Eligible Benefit
Plans." "Eligible Benefit Plans" include (i) employee benefit plans as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974 (ERISA)
other than governmental plans as defined in Section 3(32) of ERISA and church
plans as defined in Section 3(33) of ERISA, (ii) pension, profit-sharing or
other employee benefit plans qualified under Section 401 of the Internal Revenue
Code, (iii) deferred compensation and annuity plans under Section 457 or
403(b)(7) of the Internal Revenue Code, and (iv) Individual Retirement Accounts
(IRAs) as defined in Section 408(a) of the Internal Revenue Code. See "How to
Buy and Sell Shares of the Fund" in the LAF Prospectus. A Prudential Securities
client who applies to participate in these managed account programs will be
eligible to purchase shares of LAF during the period between submission to and
acceptance of the application by Prudential Securities. Investment advisory
clients of Prudential Securities which receive Managed Assets Consulting
Services Custom Services are not eligible to purchase shares of LAF. Eligibility
of participants is within the discretion of Prudential Securities. In the event
a client of Prudential Securities leaves a managed account program, the client
may continue to hold shares of LAF.
SALE OF SHARES
If the Board of Trustees determines that it would be detrimental to the best
interests of the remaining shareholders of a Fund to make payment wholly or
partly in cash, the Fund may pay the redemption price in whole or in part by a
distribution in kind of securities from the investment portfolio of the Fund, in
lieu of cash, in conformity with applicable rules of the SEC. Securities will be
readily marketable and will be valued in the same manner as in a regular
redemption. If your shares are redeemed in kind, you would incur transaction
costs in converting the assets into cash. The Trust, however, has elected to be
governed by Rule 18f-1 under the Investment Company Act pursuant to which each
Fund is obligated to redeem shares solely in cash up to the lesser of $250,000
or 1% of the net asset value of the Fund during any 90-day period for any one
shareholder.
The Trust may suspend the right of redemption or postpone the date of
payment for a period of up to seven days. Suspensions or postponements may not
exceed seven days except (1) for any period (a) during which the New York Stock
Exchange is closed other than customary weekend and holiday closings or (b)
during which trading on the New York Stock Exchange is restricted; (2) for any
period during which an emergency exists as a result of which (a) disposal by a
Fund of securities owned by it is not reasonably practicable or (b) it is not
reasonably practicable for a Fund fairly to determine the value of its net
assets; or (3) for such other periods as the SEC may by order permit for the
protection of shareholders of a Fund. The SEC by rules and regulations
determines the conditions under which (i) trading shall be deemed to be
restricted and (ii) an emergency is deemed to exist within the meaning of clause
(2) above.
NET ASSET VALUE
Each Fund's net asset value per share is determined by subtracting its
liabilities from the value of its assets and dividing the remainder by the
number of outstanding shares.
Each Fund uses the amortized cost method of valuation to determine the value
of its portfolio securities. In that regard, the Trust's Board of Trustees 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 investment
adviser under the supervision of the Board of Trustees to be of minimal credit
risk and to be of "eligible quality" in
B-18
<PAGE>
accordance with regulations of the SEC. The remaining maturity of an instrument
held by the Trust 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 Trustees also has established
procedures designed to stabilize, to the extent reasonably possible, a Fund's
price per share as computed for the purpose of sales and redemptions at $1.00.
Such procedures will include review of a Fund's portfolio holdings by the Board,
at such intervals as deemed appropriate, to determine whether a 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
Trustees 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.
Each Fund computes its net asset value at 4:30 PM New York time, on each day
the New York Stock Exchange (the Exchange) is open for trading. In the event the
New York Stock Exchange closes early on any business day, the net asset value of
a Fund's shares shall be determined at a time between such closing and 4:30 PM
New York time. The Exchange is closed on the following holidays: New Year's Day,
Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
TAXES, DIVIDENDS AND DISTRIBUTIONS
NMMF and LAF have elected and qualified, and each Fund intends to remain
qualified, as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended. This relieves a fund (but not its
shareholders) from paying federal income tax on income which is distributed to
shareholders, and, if a fund did realize long-term capital gains, 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 that
fund.
Qualification as a regulated investment company requires, among other
things, that (a) at least 90% of a fund's annual gross income (without reduction
for losses from the sale or other disposition of securities or foreign
currencies) be derived from interest, dividends, payments with respect to
securities loans, and gains from the sale or other disposition of securities or
options thereon, or other income (including, but not limited to, gains from
options) derived with respect to its business of investing in such securities;
(b) a fund must diversify its holdings so that, at the end of each quarter of
the taxable year, (i) at least 50% of the market value of a fund's assets is
represented by cash, U.S. Government obligations and other securities limited in
respect of any one issuer to an amount not greater than 5% of the market value
of the fund's assets 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 obligations) and (c)
the fund must 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 a Fund will be treated as
long-term capital gains or losses if the securities have been held by it for
more than one year. The Funds do not anticipate realizing long-term capital
gains or losses. Other gains or losses on the sale of securities will be
short-term capital gains or losses. In addition, debt securities acquired by a
Fund may be subject to original issue discount and market discount rules.
Each Fund is required to distribute 98% of its ordinary income in the same
calendar year in which it is earned. Each 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, a
Fund will be subject to a non-deductible 4% excise tax on the undistributed
amount. For purposes of this excise tax, income on which a Fund pays income tax
is treated as distributed. The Fund intends to make timely distributions in
order to avoid this excise tax. For this purpose, dividends declared in October,
November and December payable to shareholders of record on a specified date in
October, November and December and paid in the following January will be treated
as having been received by shareholders on December 31 of the calendar year in
which declared. Under this rule, therefore, a shareholder may be taxed in the
prior year on dividends or distributions actually received in January of the
following year.
B-19
<PAGE>
It is anticipated that the net asset value per share of each Fund will
remain constant. However, if the net asset value per share fluctuates, a
shareholder may realize gain or loss upon the disposition of a share.
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. Any gain
or loss realized upon a sale or redemption of shares by a shareholder who is not
a dealer in securities will generally be treated as long-term capital gain or
loss if the shares have been held for more than one year and otherwise as
short-term capital gain or loss if the shares have been held for more than one
year and otherwise as short-term capital gain or loss. Any such loss, however,
although otherwise treated as short-term capital loss, will be treated as
long-term capital loss to the extent of any capital gain distributions received
by the shareholder, if the shares have been held for six months or less.
Futhermore, certain rules may apply which would limit the ability of the
shareholder to recognize any loss if, for example, the shareholder replaced the
shares within 30 days of the disposition of the shares. 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.
Income received by the Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Income tax
treaties between certain countries and the United States may reduce or eliminate
such taxes. It is impossible to determine in advance the effective rate of
foreign tax to which the Fund will be subject, since the amount of the Fund's
assets to be invested in various countries is not known.
If the Fund is liable for foreign income taxes, and if more than 50% of the
value of the Fund's assets consists of securities of foreign corporations, the
Fund may elect to "pass through" to the Fund's shareholders the amount of
foreign income taxes paid by the Fund, but there can be no assurance that the
Fund will be able to do so. If the Fund does elect to "pass through" the foreign
taxes paid, shareholders will be required to (i) include in gross income (in
addition to taxable dividends actually received) their PRO RATA share of the
foreign income taxes paid by the Fund; and (ii) treat their PRO RATA share of
foreign income taxes as paid by them. Shareholders will then be permitted either
to deduct their PRO RATA share of foreign income taxes in computing their
taxable income or to claim a foreign tax credit against U.S. income taxes. No
deduction for foreign taxes may be claimed by a shareholder who does not itemize
deductions. Foreign shareholders may not deduct or claim a credit for foreign
tax unless the dividends paid to them by the Fund are effectively connected with
a U.S. trade or business. Accordingly, a foreign shareholder may recognize
additional taxable income as a result of the Fund's election to pass through the
foreign taxes to shareholders.
The amount of foreign taxes for which a shareholder may claim a credit in
any year will generally be subject to a separate limitation for "passive income"
which includes, among other things, dividends, interest and certain foreign
currency gains. Gain from the sale of a security will be treated as derived from
sources within the United States, potentially reducing the amount allowable as a
credit under the limitation.
Each shareholder will be notified within 60 days after the close of the
Fund's taxable year whether the foreign taxes paid by the Fund will "pass
through" for that year and, if so, such notification will designate (a) the
shareholder's portion of the foreign taxes paid by the Fund and (b) the portion
of the dividend which represents income derived from foreign sources.
The tax consequences to a foreign shareholder entitled to claim the benefits
of an applicable tax treaty may be different from those described herein.
Foreign shareholders are advised to consult their own tax advisers with respect
to the particular tax consequences to them of an investment in the Fund.
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.
The Trust under which the Funds are created is organized as a Massachusetts
business trust. Under current law, so long as the Funds qualify for federal
income tax treatment as described above, it is believed that neither the Trust
nor the Funds should be liable for any income or franchise tax in The
Commonwealth of Massachusetts.
CALCULATION OF YIELD
Each Fund will prepare a current quotation of yield daily. The yield quoted
will be the simple annualized yield for an identified seven calendar day period.
The yield calculation will be based on a hypothetical account having a balance
of exactly one share at the beginning of the seven-day period. The base 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 shares, but excluding any
B-20
<PAGE>
capital changes, divided by the value of the account at the beginning of the
base period. 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 a Fund's portfolio, and its
operating expenses. Each Fund also may 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.
Effective yield = [(base period return+1)TO THE POWER OF 365/7]-1
The yield and effective yield for NMMF based on the 7 days ended September
30, 1998 were 4.83% and 4.95%, respectively. The yield and effective yield for
LAF based on 7 days ended September 30, 1998 were 5.43% and 5.58%, respectively.
Comparative performance information may be used from time to time in
advertising or marketing the Funds' shares, including data from Lipper
Analytical Services, Inc., Morningstar Publications, Inc., IBC Financial Data,
Inc., The Bank Rate Monitor, other industry publications, business periodicals
and market indices.
Each 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 a Fund is
held, but also on changes in the Fund's expenses. Yield does not take into
account any federal or state income taxes.
B-21
<PAGE>
CASH ACCUMULATION TRUST
Portfolio of Investments as of September 30, 1998 NATIONAL MONEY MARKET FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Bank Notes--8.2%
Bank of America National Trust &
Savings
Association
$8,1002 5.55%, 10/21/98 $ 8,100,000
Corestates Bank N.A.
4,000 5.53984%, 10/16/98(b) 4,000,000
FCC National Bank
3,000 5.19%, 1/15/99 3,000,000
First National Bank of Chicago
3,000 5.19%, 1/14/99 3,000,000
First Union National Bank
6,000 5.57%, 10/15/98 5,999,903
Keybank N.A.
7,000 5.60%, 10/1/98(b) 6,998,133
1,000 5.6775%, 10/13/98(b) 1,000,159
Nationsbank N.A.
1,500 5.62%, 10/1/98(b) 1,500,541
US Bank N.A.
8,000 5.565%, 10/8/98 7,998,398
------------
41,597,134
- ------------------------------------------------------------
Certificates of Deposit - Domestic--0.4%
First Tennessee Bank N.A.
1,000 5.45%, 11/16/98 1,000,080
1,000 5.46%, 11/24/98 1,000,119
------------
2,000,199
- ------------------------------------------------------------
Certificates of Deposit - Eurodollar--0.4%
Bank of Scotland
2,000 5.34%, 12/29/98 2,000,049
- ------------------------------------------------------------
Certificates of Deposit - Yankee--22.5%
Bank of Montreal
10,000 5.30%, 10/30/98 10,000,000
Barclays Bank PLC
12,000 5.510%, 10/2/98(b) 11,993,660
Bayerische Landesbank Girozentrale
10,000 5.24%, 10/30/98(b) 9,994,038
Certificates of Deposit - Yankee (cont'd.)
Bayerishe Hypotheken Und Wechsel
Bank
$2,000 5.675%, 3/3/99 $ 1,999,639
Canadian Imperial Bank of Commerce
24,000 5.55%, 2/10/99 23,995,836
Deutsche Bank
5,000 5.62%, 2/26/99 4,999,028
3,000 5.63%, 2/26/99 2,998,951
6,000 5.66%, 3/3/99 5,998,795
ING Bank N.V.
5,000 5.585%, 11/12/98 5,001,765
Rabobank Nederland N.V.
9,000 5.50%, 2/9/99 8,997,520
Royal Bank of Canada
7,000 5.624%, 10/6/98(b) 6,995,970
10,000 5.460%, 10/15/98(b) 9,993,481
Swiss Bank Corp.
11,000 5.74%, 6/11/99 10,995,619
------------
113,964,302
- ------------------------------------------------------------
Commercial Paper--52.1%
Aetna Services, Inc.
4,000 5.56%, 10/23/98 3,986,409
Aon Corp.
4,000 5.55%, 10/19/98 3,988,900
Aristar, Inc.
2,000 5.61%, 10/16/98 1,995,325
Associates First Capital Corp.
5,000 5.55%, 10/19/98 4,986,125
Baker Hughes, Inc.
1,000 5.80%, 10/1/98 1,000,000
Bank One Corp
10,537 5.90%, 10/1/98 10,537,000
BBL North America Funding, Inc.
2,000 5.54%, 10/13/98 1,996,307
7,000 5.31%, 12/31/98 6,906,042
Bradford & Bingley Building Society
1,000 5.26%, 12/29/98 986,996
Caisse Des Depots Et Consignations
25,100 5.75%, 10/1/98 25,100,000
Centric Capital Corp.
7,000 5.60%, 10/2/98 6,998,911
11,500 5.23%, 11/30/98 11,399,758
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-22
<PAGE>
CASH ACCUMULATION TRUST
Portfolio of Investments as of September 30, 1998 NATIONAL MONEY MARKET FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Commercial Paper (cont'd.)
CIT Group Holdings, Inc.
$3,000 5.24%, 12/22/98 $ 2,964,193
1,000 5.24%, 12/23/98 987,919
Coca-Cola Enterprises, Inc.
6,196 5.35%, 12/2/98 6,138,911
Commercial Credit Co.
2,000 5.35%, 10/16/98 1,995,542
Cooper Industries, Inc.
4,000 5.80%, 10/1/98 4,000,000
Countrywide Home Loan, Inc.
1,000 5.60%, 10/19/98 997,200
4,000 5.32%, 11/27/98 3,966,307
Den Danske Corp.
9,000 5.19%, 12/2/98 8,920,852
Falcon Asset Securitization Corp.
3,200 5.26%, 11/20/98 3,176,622
2,000 5.26%, 12/3/98 1,981,590
Finova Capital Corp.
2,000 5.35%, 11/13/98 1,987,219
Ford Motor Credit Co.
5,000 5.25%, 11/20/98 4,963,542
7,000 5.3975%, 1/14/99 7,000,000
General Electric Capital Corp.
3,100 5.47%, 11/19/98 3,076,920
Internationale Nederlanden U.S.
Funding Corp.
2,000 5.26%, 12/28/98 1,974,284
2,000 5.25%, 12/29/98 1,974,042
Martin Marietta Material
5,000 5.55%, 10/28/98 4,979,187
5,000 5.65%, 10/29/98 4,978,028
Merrill Lynch & Co., Inc.
12,000 5.42%, 11/13/98 11,922,313
Monte Rosa Capital Corp.
7,000 5.60%, 10/15/98 6,984,756
National Bank of Canada
9,000 5.17%, 12/30/98 8,883,675
NationsBank Corp.
6,000 5.56%, 10/19/98 5,983,320
Nationwide Building Society
7,000 5.40%, 12/10/98 6,926,500
Nordbanken North America, Inc.
$5,000 5.38%, 12/18/98 $ 4,941,717
Norwest Financial, Inc.
3,000 5.25%, 12/18/98 2,965,875
Old Line Funding Corp.
9,000 5.55%, 10/23/98 8,969,475
San Paolo U.S. Financial Co.
8,500 6.00%, 10/1/98 8,500,000
Sony Capital Corp.
17,000 5.36%, 11/24/98 16,863,320
Special Purpose Accounts Recreation
Cooperative Corp.
3,000 5.51%, 11/13/98 2,980,256
Thunder Bay Funding Inc.
6,000 5.57%, 10/29/98 5,974,007
Windmill Funding Corp.
4,300 5.40%, 10/20/98 4,287,745
Wood Street Funding Corp.
2,885 5.65%, 10/16/98 2,878,208
5,685 5.55%, 11/2/98 5,656,954
13,936 5.55%, 11/16/98 13,837,171
------------
264,499,423
- ------------------------------------------------------------
Loan Participations--1.4%
Baker Hughes, Inc.
7,000 5.80%, 10/1/98 7,000,000
- ------------------------------------------------------------
Other Corporate Obligations--20.6%
Abbey National Treasury Services PLC
21,000 5.50%, 2/5/99 20,994,330
Chase Manhattan Corp.
3,000 5.6875%, 10/15/98(b) 3,000,045
Chrysler Financial Corp.
10,000 5.56703%, 10/21/98(b) 10,000,637
General Electric Capital Corp.
5,000 5.50%, 10/5/98(b) 4,995,983
General Motors Acceptance Corp.
5,000 5.6275%, 11/12/98(b) 4,999,731
5,000 5.6075%, 11/24/98(b) 4,999,527
1,000 7.75%, 1/15/99 1,005,970
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-23
<PAGE>
CASH ACCUMULATION TRUST
Portfolio of Investments as of September 30, 1998 NATIONAL MONEY MARKET FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Other Corporate Obligations (cont'd.)
International Lease Finance Corp.
$2,400 8.35%, 10/1/98 $ 2,400,000
2,235 6.625%, 4/1/99 2,243,708
Liquid Asset Backed Securities
Trust,
Ser. 1997-7
5,237 5.58594%, 10/22/98(a)(b)
(cost $5,236,779; purchased
12/19/97) 5,236,779
Ser. 1998-1
3,646 5.52734%, 10/26/98(a)(b)
(cost $3,646,009; purchased
2/26/98) 3,646,009
Restructured Asset Securities,
11,000 5.64234%, 10/2/98(b) 11,000,000
1,000 5.375%, 10/30/98(a)(b)
(cost $1,000,000; purchased
4/2/98) 1,000,000
Strategic Money Market Trust,
Ser. 1997-A
21,000 5.50%, 12/16/98(b) 21,000,000
Ser. 1998-B
5,000 5.625%, 10/5/98(b) 5,000,000
UBS Finance (Delaware) Inc.
3,200 6.20%, 10/1/98 3,200,000
------------
104,722,719
- ------------------------------------------------------------
Time Deposit - Eurodollar--0.6%
Suntrust Bank, Atlanta
2,961 5.875%, 10/1/98 2,961,000
- ------------------------------------------------------------
U.S. Government Agency & Instrumentality
Obligations - Discount--0.6%
Federal National Mortgage Assoc.
2,000 5.25%, 12/23/98 1,975,792
Federal Home Loan Mortgage Corp.
1,000 5.25%, 12/3/98 990,812
------------
2,966,604
Total Investments--106.8%
(amortized cost $541,711,430(c)) $541,711,430
Liabilities in excess of other
assets--(6.8%) (34,423,630)
------------
Net Assets--100% $507,287,800
------------
------------
</TABLE>
- ---------------
(a) Indicates a restricted security; the aggregate cost and value of such
securities are both $9,882,788. The aggregate value is approximately 1.9% of
net assets.
(b) Variable rate instrument. 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.
(c) The cost for federal income tax purposes is substantially the same as for
financial reporting purposes.
The industry classification of portfolio holdings and other assets in excess of
liabilities shown as a percentage of net assets as of September 30, 1998 was as
follows:
<TABLE>
<S> <C>
Commercial Banks 56.3%
Asset Backed Securities 14.8
Short-Term Business Credit 7.7
Motor Vehicle Parts 6.5
Bank Holding Companies-Domestic 3.8
Phono, Records, Tape, Disk 3.3
Security Brokers & Dealers 2.4
Personal Credit Institutions 2.3
Mining 2.0
Oil Construction Equipment 1.6
Accident & Health Insurance 1.6
Beverages 1.2
Mortgage Banks 1.0
Equipment Rental & Leasing 0.9
Miscellaneous Electrical Equipment & Supplies 0.8
Federal Credit Agencies 0.6
-----
106.8%
Liabilities in excess of other assets (6.8)
-----
100.0%
-----
-----
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-24
<PAGE>
CASH ACCUMULATION TRUST
Statement of Assets and Liabilities NATIONAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets September 30, 1998
<S> <C>
Investments, at amortized cost which approximates market value......................................... $541,711,430
Receivable for Fund shares sold........................................................................ 17,193,466
Interest receivable.................................................................................... 3,583,962
Prepaid expenses and other assets...................................................................... 141,768
------------------
Total assets........................................................................................ 562,630,626
------------------
Liabilities
Payable for investments purchased...................................................................... 32,845,077
Payable for Fund shares reacquired..................................................................... 21,531,356
Dividends payable...................................................................................... 463,761
Accrued expenses and other liabilities................................................................. 295,571
Management fee payable................................................................................. 164,804
Distribution fee payable............................................................................... 42,257
------------------
Total liabilities................................................................................... 55,342,826
------------------
Net Assets............................................................................................. $507,287,800
------------------
------------------
Net assets were comprised of:
Shares of beneficial interest, at $.00001 par value................................................. $ 5,073
Paid-in capital in excess of par.................................................................... 507,282,727
------------------
Net assets, September 30, 1998......................................................................... $507,287,800
------------------
------------------
Net asset value, offering price and redemption price per share
($507,287,800 / 507,287,800 shares of beneficial interest issued and outstanding)................... $1.00
------------------
------------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-25
<PAGE>
CASH ACCUMULATION TRUST
NATIONAL MONEY MARKET FUND
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income September 30, 1998
<S> <C>
Income
Interest.............................. $ 31,153,367
------------------
Expenses
Management fee........................ 2,098,187
Distribution fee...................... 549,801
Transfer agent's fees and expenses.... 335,000
Registration fees..................... 130,000
Reports to shareholders............... 100,000
Custodian's fees and expenses......... 88,000
Audit fees and expenses............... 27,000
Legal fees and expenses............... 30,000
Trustees' fees........................ 12,500
Miscellaneous......................... 13,426
------------------
Total expenses..................... 3,383,914
------------------
Net Investment Income and Net Increase in
Net Assets
Resulting from Operations................ $ 27,769,453
------------------
------------------
</TABLE>
CASH ACCUMULATION TRUST
NATIONAL MONEY MARKET FUND
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Decrease in Year Ended September 30,
Net Assets 1998 1997
<S> <C> <C>
Operations
Net investment income and
net increase in net
assets resulting from
operations............... $ 27,769,453 $ 33,771,657
-------------- --------------
Dividends and distributions to
shareholders (Note 1)....... (27,769,453) (33,771,657)
-------------- --------------
Fund share transactions (at $1
per share)
Net proceeds from shares
sold..................... 5,056,612,846 6,248,712,913
Net asset value of shares
issued in reinvestment of
dividends and
distributions............... 24,443,399 32,440,525
Cost of shares reacquired...... (5,275,771,195)(a) (6,231,478,119)
-------------- --------------
Net increase (decrease) in net
assets from Fund share
transactions................ (194,714,950) 49,675,319
-------------- --------------
Total increase (decrease)...... (194,714,950) 49,675,319
Net Assets
Beginning of year.............. 702,002,750 652,327,431
-------------- --------------
End of year.................... $ 507,287,800 $ 702,002,750
-------------- --------------
-------------- --------------
- ---------------
(a) Includes $295,683,132 that was transferred into Liquid Assets
Fund. (see Note 4.)
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-26
<PAGE>
CASH ACCUMULATION TRUST
Notes to Financial Statements NATIONAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
Cash Accumulation Trust (the "Trust") is registered under the Investment Company
Act of 1940 as an open-end, diversified management investment company. The Trust
consists of two series--the National Money Market Fund (the "Fund") and the
Liquid Assets Fund. The investment objective of the Fund is current income to
the extent consistent with the preservation of capital and liquidity. The Fund
invests primarily in a portfolio of U.S. Government obligations, financial
institution obligations and other high quality money market instruments maturing
in thirteen months or less whose ratings are within the two highest ratings
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 its obligations may be affected by economic
developments in a specific industry or region.
- ------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Trust and 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 any discount or premium.
SECURITIES TRANSACTIONS AND NET INVESTMENT INCOME: Securities 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. Expenses are recorded on the accrual basis, which may require the
use of certain estimates by management.
FEDERAL INCOME TAXES: For federal income tax purposes, each fund in the Trust is
treated as a separate taxpaying entity. It is the intent of the Fund 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: The Fund declares all of its net investment income
and net realized short-term capital gains or losses, if any, as dividends daily
to its shareholders of record at the time of such declaration. Net investment
income for dividend purposes includes interest accrued or discount earned less
amortization of premium and the estimated expenses applicable to the dividend
period. The Fund does not expect to realize long-term capital gains or losses.
NOTE 2. AGREEMENTS
The Trust has a management agreement with Prudential Investments Fund Management
LLC ("PIFM") as of December 12, 1997. (Prior to December 12, 1997, the Fund had
a management agreement with PIMCO Advisors L.P. ("PIMCO"). PIMCO had a
subadvisory agreement with Columbus Circle Investors.) Pursuant to this
agreement, PIFM has responsibility for all investment advisory services and
supervises the subadviser's performance of such services. PIFM has entered into
a subadvisory agreement with The Prudential Investment Corporation ("PIC"); PIC
furnishes investment advisory services in connection with the management of the
Trust. PIFM pays for the cost of the subadviser's services, the compensation of
officers of the Trust, occupancy and certain clerical and bookkeeping costs of
the Fund. The Trust bears all other costs and expenses.
Beginning December 22, 1997, the management fee paid PIFM is computed daily and
payable monthly, at an annual rate of .39% of the Fund's average daily net
assets up to and including $1 billion, .375% of the next $500 million, .35% of
the next $500 million and .325% of the Fund's average daily net assets in excess
of $2 billion. The management fee paid to PIMCO through December 11, 1997 was
computed daily and payable monthly at an annual rate of .425% of the Fund's
average daily net assets up to and including $500 million, .400% of the next
$500 million, .375% of the next $500 million, .350% of the next $500 million and
.325% of the Fund's average daily net assets in excess of $2 billion.
The Trust had a distribution agreement with Prudential Securities Incorporated
("PSI") which acted as the distributor of the shares of the Trust from December
12, 1998 through May 31, 1998. Prudential Investment Management Services LLC
("PIMS") became the distributor of the Trust effective June 1, 1998 and is
serving the Trust under the same terms and conditions as under the arrangement
with PSI. The Fund compensated PSI and PIMS for distributing and servicing the
Fund's shares pursuant to the plan of distribution at an annual rate of .10 of
1% of the average daily net assets of the shares, regardless of expenses
actually incurred by them. The distribution fees are accrued daily and payable
monthly. Prior to December 12, 1997, PIMCO Funds Distribution Company served as
the Trust's distributor and was compensated at the same rate.
PSI, PIFM, PIC and PIMS are indirect, wholly owned subsidiaries of The
Prudential Insurance Company of America.
- --------------------------------------------------------------------------------
B-27
<PAGE>
CASH ACCUMULATION TRUST
Notes to Financial Statements NATIONAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
NOTE 3. OTHER TRANSACTIONS WITH AFFILIATES
On December 12, 1997, Prudential Mutual Fund Services LLC ("PMFS"), a wholly
owned subsidiary of PIFM, began serving as the Fund's transfer agent. Prior to
December 12, 1997, Shareholder Services, Inc. ("SSI") served as the Fund's
transfer agent. During the period December 12, 1997 through September 30, 1998,
the Fund incurred fees of approximately $210,200 for the services of PMFS. As of
September 30, 1998, $20,800 of such fees were due to PMFS. Transfer agent fees
and expenses in the Statement of Operations include fees paid to SSI and certain
out-of-pocket expenses paid to nonaffiliates.
- ------------------------------------------------------------
NOTE 4. CAPITAL
On December 22, 1997, $295,683,132 was transferred from the Fund to the Liquid
Assets Fund. The transfer established the Liquid Assets Fund as the primary
money sweep fund for certain investment advisory clients of Prudential
Securities enrolled in Prudential Securities' automatic investment procedures
(Autosweep) program.
- ------------------------------------------------------------
NOTE 5. CHANGE IN CUSTODIAN AND ACCOUNTING AGENT
As of December 12, 1997, the custodian and accounting agent is State Street Bank
and Trust Company. Prior to December 12, 1997, Oppenheimer Funds, Inc. served as
the Fund's accounting agent and The Bank of New York served as the custodian.
- --------------------------------------------------------------------------------
B-28
<PAGE>
CASH ACCUMULATION TRUST
Financial Highlights NATIONAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year........................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income........................................ 0.05 0.05 0.05 0.05 0.03
Dividends and distributions to shareholders.................. (0.05) (0.05) (0.05) (0.05) (0.03)
-------- -------- -------- -------- --------
Net asset value, end of year................................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN(a):............................................. 5.2% 5.0% 5.0% 5.2% 3.2%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............................. $507,288 $702,003 $652,327 $685,228 $823,343
Ratios to average net assets:
Expenses, including distribution fee...................... 0.62% 0.65% 0.69% 0.69% 0.61%
Expenses, excluding distribution fee...................... 0.52% 0.55% 0.59% 0.59% 0.51%
Net investment income..................................... 5.05% 4.89% 4.86% 5.15% 3.20%
</TABLE>
- ------------------------------
(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.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-29
<PAGE>
CASH ACCUMULATION TRUST
Report of Independent Accountants NATIONAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
Cash Accumulation Trust
National Money Market Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Cash Accumulation Trust--National
Money Market Fund (the "Fund", one of the portfolios constituting Cash
Accumulation Trust) at September 30, 1998, the results of its operations for the
year then ended, and the changes in its net assets and the financial highlights
for each of the two years in the period then ended, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at September 30, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above. The accompanying financial highlights for each of
the three years in the period ended September 30, 1996 were audited by other
independent accountants, whose opinion dated October 23, 1996 was unqualified.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
November 20, 1998
B-30
<PAGE>
CASH ACCUMULATION TRUST
Portfolio of Investments as of September 30, 1998 LIQUID ASSETS FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Bank Notes--6.3%
Comerica Bank
$10,000 5.46%, 10/19/98(b) $ 9,995,291
Corestates Bank
2,000 5.540%, 10/16/98(b) 2,000,000
FCC National Bank
2,000 5.19%, 1/15/99 2,000,000
First National Bank
3,000 5.19%, 1/14/99 3,000,000
First Union National Bank
5,000 5.57%, 10/15/98 4,999,919
Key Bank N.A.
4,000 5.60%, 10/1/98(b) 3,998,933
1,000 5.62%, 10/1/98(b) 999,825
1,000 5.678%, 10/13/98(b) 1,000,159
------------
27,994,127
- ------------------------------------------------------------
Bankers Acceptance - Yankee--0.4%
Wachovia Bank, N.A.
2,000 5.40%, 10/29/98 1,991,600
- ------------------------------------------------------------
Certificates Of Deposit - Domestic--0.9%
First Tennessee Bank N.A.
1,000 5.45%, 11/16/98 1,000,081
1,000 5.46%, 11/24/98 1,000,119
1,000 5.40%, 12/16/98 1,000,298
Nationsbank, N.A.
1,000 5.84%, 12/28/98 1,000,536
------------
4,001,034
- ------------------------------------------------------------
Certificates Of Deposit - Eurodollar--1.8%
Abbey National Treasury Services PLC
2,000 5.52%, 1/22/99 1,997,937
2,000 5.75%, 3/5/99 2,000,000
Bank of Scotland
2,000 5.34%, 12/29/98 2,000,049
Bayerische Hypotheken Und Weschel
Bank
1,000 5.93%, 11/25/98 1,000,049
Bayerische Vereinsbank Ag
$1,000 5.60%, 2/2/99 $ 999,165
------------
7,997,200
- ------------------------------------------------------------
Certificates Of Deposit - Yankee--14.9%
Barclays Bank PLC
9,000 5.510%, 10/2/98(b) 8,995,245
10,000 5.53%, 2/23/99 9,997,713
Bayerische Landesbank Girozentrale
5,000 5.24%, 10/30/98(b) 4,997,019
Bayerische Vereinsbank
1,000 5.58%, 10/9/98 999,993
Canadian Imperial Bank of Commerce
6,000 5.55%, 2/10/99 5,998,959
Credit Agricole Indosuez
3,000 5.74%, 4/26/99 2,999,023
Credit Communal De Belgique S.A.
6,000 5.65%, 10/21/98 6,000,000
Deutsche Bank
5,000 5.57%, 2/26/99 4,999,028
3,000 5.62%, 2/26/99 2,999,417
3,000 5.63%, 2/26/99 2,998,951
3,000 5.66%, 3/3/99 2,999,397
Rabobank Nederland N.V.
4,000 5.50%, 2/9/99 3,998,898
Royal Bank of Canada
7,000 5.624%, 10/6/98(b) 6,995,970
Societe Generale
705 5.56%, 1/19/99 704,453
------------
65,684,066
- ------------------------------------------------------------
Commercial Paper--56.0%
Aetna Services, Inc.
20,000 5.55%, 10/16/98 19,953,750
Aristar, Inc.
3,000 5.61%, 10/16/98 2,992,988
Associates Corp. of North America
3,912 5.51%, 11/10/98 3,888,050
Bank of New York Co., Inc.
2,700 5.52%, 10/8/98 2,697,102
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-31
<PAGE>
CASH ACCUMULATION TRUST
Portfolio of Investments as of September 30, 1998 LIQUID ASSETS FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Commercial Paper (cont'd.)
BCI Funding Corp.
$1,000 5.25%, 10/30/98 $ 995,771
Bl North America
4,000 5.54%, 10/13/98 3,992,613
5,000 5.53%, 10/19/98 4,986,175
5,000 5.515%, 10/28/98 4,979,319
Bradford & Bingley Building Society
1,000 5.26%, 12/29/98 986,996
Chrysler Financial Corp.
10,000 5.52%, 10/14/98 9,980,067
CIT Group Holdings, Inc.
3,000 5.24%, 12/23/98 2,963,757
Coca-Cola Enterprises, Inc.
1,000 5.56%, 10/14/98 997,992
5,000 5.57%, 11/4/98 4,973,697
Commerzbank U.S. Finance, Inc.
9,000 5.52%, 10/21/98 8,972,400
Countrywide Home Loan, Inc.
3,000 5.60%, 10/19/98 2,991,600
1,000 5.33%, 11/20/98 992,597
1,000 5.32%, 11/27/98 991,577
Den Denske Corp.
6,000 5.26%, 12/2/98 5,970,193
Duke Capital Corp.
4,000 5.56%, 10/16/98 3,990,733
Falcon Asset Securitization Corp.
2,000 5.26%, 12/3/98 1,981,590
General Electric Capital Corp.
13,000 5.27%, 10/27/98 12,950,521
130 5.51%, 11/19/98 129,025
1,500 5.19%, 12/11/98 1,484,646
General Motors Acceptance Corp.
7,800 5.53%, 10/19/98 7,778,433
General Motors Corp.
3,000 5.54%, 10/16/98 2,993,075
GTE Funding, Inc.
8,414 5.28%, 10/27/98 8,381,915
Halliburton Corp.
1,000 5.52%, 10/15/98 997,853
Internationale Nederland en U.S.
Funding Corp.
$2,000 5.26%, 12/28/98 $ 1,974,284
1,000 5.25%, 12/29/98 987,021
Johnson Controls, Inc.
1,000 5.60%, 10/29/98 995,644
1,000 5.59%, 10/30/98 995,497
Merrill Lynch & Co., Inc.
10,000 5.42%, 11/13/98 9,935,261
Mont Blanc Capital Corp.
17,784 5.57%, 10/21/98 17,728,968
Monte Rosa Capital Corp.
4,846 5.60%, 10/15/98 4,835,447
2,424 5.54%, 10/27/98 2,414,301
Morgan (J.P.) & Co., Inc.
9,000 5.50%, 10/19/98 8,975,250
National Australia Funding, Inc.
5,000 5.51%, 10/22/98 4,983,929
NationsBank Corp.
800 5.60%, 10/8/98 799,129
3,000 5.50%, 2/12/99 2,938,583
Nationwide Building Society
2,000 5.51%, 10/14/98 1,996,021
Old Line Funding Corp.
2,000 5.55%, 10/16/98 1,995,375
3,428 5.55%, 10/23/98 3,416,373
3,000 5.57%, 10/28/98 2,987,468
1,000 5.52%, 11/5/98 994,633
Safeco Corp.
5,000 5.54%, 10/13/98 4,990,767
8,000 5.54%, 10/27/98 7,967,991
Skandinaviska Enskilda Banken
2,000 5.27%, 10/1/98 1,991,509
10,882 5.80%, 10/1/98 10,882,000
Sonoco Products Co.
1,500 5.80%, 10/1/98 1,500,000
Special Purpose Accounts Recreation
Cooperative Corp.
3,000 5.55%, 10/22/98 2,990,288
The Travelers, Inc.
2,000 5.53%, 10/14/98 1,996,006
Thunder Bay Funding, Inc.
4,000 5.60%, 10/15/98 3,991,289
1,000 5.60%, 10/26/98 996,111
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-32
<PAGE>
CASH ACCUMULATION TRUST
Portfolio of Investments as of September 30, 1998 LIQUID ASSETS FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Commercial Paper (cont'd.)
Windmill Funding Corp.
$2,731 5.85%, 10/1/98 $ 2,731,000
138 5.53%, 10/6/98 137,894
4,000 5.50%, 10/9/98 3,995,111
Wood Street Funding Corp.
4,950 5.55%, 10/16/98 4,938,553
4,315 5.55%, 11/2/98 4,293,713
------------
247,349,851
- ------------------------------------------------------------
Other Corporate Obligations--22.5%
Abbey National Treasury Services PLC
7,331 5.50%, 2/5/99(b) 7,329,021
2,000 5.72%, 6/11/99 1,998,938
Ford Motor Credit Co.
22,000 5.40%, 1/14/99 21,916,000
General Electric Capital Corp.
7,000 5.50%, 10/5/98(b) 6,994,376
General Motors Acceptance Corp.
13,000 5.668%, 11/2/98(b) 12,998,717
International Business Machines
6,000 5.529%, 10/1/98(b) 5,997,090
Lehman Brothers Holdings, Inc.
8,000 5.593%, 10/1/98(b) 8,000,000
Liquid Asset Backed Securities Trust
2,188 5.527%, 2/26/99(b) 2,187,606
Restructured Asset Securities
10,000 5.64%, 10/2/98(b) 10,000,000
1,000 5.375%, 10/30/98(b)(c) 1,000,000
Strategic Money Market Trust, Series
1998-B
15,000 5.625%, 10/5/98(b) 15,000,000
Strats Trust
6,000 5.593%, 10/19/98(b)(c) 6,000,000
------------
99,421,748
- ------------------------------------------------------------
U.S. Government Agency Obligations-Discount--2.7%
Federal Home Loan Mortgage Corp.
9,000 4.95%, 2/24/99 8,819,325
1,000 5.25%, 12/3/98 990,812
Federal National Mortgage Assoc.
$2,000 5.25%, 12/23/98 $ 1,975,792
------------
11,785,929
Total Investments--105.5%
(amortized cost $466,225,555(a)) 466,225,555
Liabilities in excess of other
assets--(5.5%) (24,281,067)
------------
Net Assets--100% $441,944,488
------------
------------
</TABLE>
(a) The cost of securities for federal income tax purposes is substantially the
same as for financial reporting purposes.
(b) Variable rate instrument. 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.
(c) Private placement restricted as to resale and does not have a readily
available market; the aggregate cost of such securities is $7,000,000. The
aggregate value ($7,000,000) is approximately 2.7% of net assets.
The industry classification of portfolio holdings and liabilities in excess of
other assets shown as a percentage of net assets as of September 30, 1998 was as
follows:
<TABLE>
<S> <C>
Commercial Banks.................................... 46.6%
Asset Backed Securities............................. 13.8
Motor Vehicles...................................... 9.7
Securities Brokers & Dealers........................ 6.1
Business Credit (Finance)........................... 5.6
Life Insurance...................................... 4.5
Fire Insurance...................................... 3.4
Mortgage Banks...................................... 3.2
Bank Holding Companies.............................. 2.9
U.S. Gov't Agency................................... 2.7
Telephone & Communications.......................... 1.9
Personal Credit Institutions........................ 1.6
Office Machines..................................... 1.4
Electrical Services................................. 0.9
Regulating Controls................................. 0.5
Paper Board Mills................................... 0.3
Beverages........................................... 0.2
Construction........................................ 0.2
-----
105.5
Liabilities in excess of other assets (5.5)
-----
100.0%
-----
-----
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-33
<PAGE>
CASH ACCUMULATION TRUST
Statement of Assets and Liabilities LIQUID ASSETS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 22,
1997(a)
Through
Assets March 31, 1998
<S> <C>
Investments, at amortized cost which approximates market value.......................................... $ 466,225,555
Cash.................................................................................................... 739
Receivable for Fund shares sold......................................................................... 9,888,416
Interest receivable..................................................................................... 2,591,843
Prepaid expenses and other assets....................................................................... 3,644
-----------------
Total assets......................................................................................... 478,710,197
-----------------
Liabilities
Payable for investments purchased....................................................................... 23,877,703
Payable for Fund shares reacquired...................................................................... 12,192,892
Dividends payable....................................................................................... 461,512
Accrued expenses........................................................................................ 131,822
Management fee payable.................................................................................. 101,780
-----------------
Total liabilities.................................................................................... 36,765,709
-----------------
Net Assets.............................................................................................. $ 441,944,488
-----------------
Net assets were comprised of:
Shares of beneficial interest, at par................................................................ $ 4,419
Paid-in capital in excess of par..................................................................... 441,940,069
-----------------
Net assets, September 30, 1998.......................................................................... $ 441,944,488
-----------------
-----------------
Net asset value, offering and redemption price per share
($441,944,488 / 441,944,488 shares of beneficial interest issued and outstanding).................... $1.00
-----------------
-----------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-34
<PAGE>
CASH ACCUMULATION TRUST
LIQUID ASSETS FUND
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
December 22,
1997(a)
Through
September 30,
Net Investment Income 1998
<S> <C>
Income
Interest.................................... $ 16,647,803
-------------
Expenses
Management fee.............................. 190,000
Registration fees........................... 163,000
Transfer agent's fees and expenses.......... 93,000
Custodian's fees and expenses............... 61,000
Legal fees and expenses..................... 41,000
Audit fee and expenses...................... 27,000
Reports to shareholders..................... 20,000
Trustees' fees and expenses................. 9,000
Miscellaneous............................... 7,150
-------------
Total expenses........................... 611,150
-------------
Net investment income.......................... 16,036,653
-------------
Realized Gain on Investments
Net realized gain on investment transactions... 7,050
-------------
Net Increase in Net Assets
Resulting from Operations...................... $ 16,043,703
-------------
-------------
</TABLE>
- ---------------
(a) Commencement of investment operations.
CASH ACCUMULATION TRUST
LIQUID ASSETS FUND
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
December 22,
1997(a)
Through
Increase (Decrease) September 30,
in Net Assets 1998
<S> <C>
Operations
Net investment income...................... $ 16,036,653
Net realized gain on investment
transactions............................ 7,050
---------------
Net increase in net assets resulting from
operations.............................. 16,043,703
---------------
Dividends and distributions (Note 1).......... (16,043,703)
---------------
Fund share transactions
Net proceeds from shares sold.............. 3,011,683,905(b)
Net asset value of shares issued in
reinvestment of dividends and
distributions........................... 15,377,615
Cost of shares reacquired.................. (2,585,117,032)
---------------
Net increase in net assets from Fund share
transactions............................ 441,944,488
---------------
Total increase............................. 441,944,488
Net Assets
Beginning of period........................... --
---------------
End of period................................. $ 441,944,488
---------------
---------------
- ---------------
(b) Includes $295,683,132 that was transferred from the
National Money Market Fund. (See Note 4)
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-35
<PAGE>
CASH ACCUMULATION TRUST
Notes to Financial Statements LIQUID ASSETS FUND
- --------------------------------------------------------------------------------
Cash Accumulation Trust (the "Trust") is registered under the Investment Company
Act of 1940 as an open-end, diversified management investment company. The Trust
consists of two series - the National Money Market Fund and the Liquid Assets
Fund (the "Fund"). The Fund commenced investment operations on December 22,
1997, when $295,683,132 was transferred from the National Money Market Fund to
the Fund. The investment objective of the Fund is current income to the extent
consistent with the preservation of capital and liquidity. The Fund invests
primarily in a portfolio of U.S. Government obligations, financial institution
obligations and other high quality money market instruments maturing in thirteen
months or less whose ratings are within the two highest ratings 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 its obligations may be affected by economic developments in a
specific industry or region.
- ------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Trust and 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 any discount or premium.
SECURITIES TRANSACTIONS AND NET INVESTMENT INCOME: Securities 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. Expenses are recorded on the accrual basis which may require the
use of certain estimates by management.
FEDERAL INCOME TAXES: For Federal income tax purposes, each fund in the Trust is
treated as a separate tax paying entity. It is the intent of the Fund 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: The Fund declares all of its net investment income
and net realized short-term capital gains or losses, if any, as dividends daily
to its shareholders of record at the time of such declaration. Net investment
income for dividend purposes includes interest accrued or discount earned less
amortization of premium and the estimated expenses applicable to the dividend
period. Payment of dividends is made monthly. The Fund does not expect to
realize long-term capital gains or losses.
NORE 2. AGREEMENTS
The Trust has a management agreement with Prudential Investments Fund Management
LLC ("PIFM"). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PIFM has entered into a subadvisory agreement with The Prudential
Investment Corporation ("PIC"), doing business as Prudential Investments ("PI",
the Subadviser or the investment adviser). PI furnishes investment advisory
services in connection with the management of the Trust. PIFM pays for the cost
of the subadviser's services, the compensation of officers of the Trust,
occupancy and certain clerical and bookkeeping costs of the Trust. The Trust
bears all other costs and expenses.
Under the management agreement, PIFM is reimbursed by the Fund for its direct
administrative costs and expenses, excluding overhead and profit incurred in
providing services to the Fund up to a maximum of .39% of the average daily net
assets.
The Trust had a distribution agreement with Prudential Securities Incorporated
("PSI") which acted as the distributor of the shares of the Trust through May
31, 1998. Prudential Investment Management Services LLC ("PIMS") became the
distributor of the Trust effective June 1, 1998 and is serving the Trust under
the same terms and conditions as under the arrangement with PSI. No distribution
or service fees are paid to PIMS as distributor of the Fund.
PIFM, PIC and PIMS are 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 PIFM,
serves as the Fund's transfer agent. Transfer agent fees and expenses in the
Statement of Operations include certain out-of-pocket expenses paid to
nonaffiliates.
- ------------------------------------------------------------
NOTE 4. CAPITAL
On December 22, 1997, $295,683,132 was transferred from the National Money
Market Fund to the Fund. The transfer established the Liquid Assets Fund as the
primary money sweep fund for certain investment advisory clients of Prudential
Securities enrolled in Prudential Securities' automatic investment procedures
(Autosweep) program.
- --------------------------------------------------------------------------------
B-36
<PAGE>
CASH ACCUMULATION TRUST
Financial Highlights (Unaudited) LIQUID ASSETS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 22,
1997(a)
Through
September 30,
1998
-------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................................................................... $ 1.00
-------------
Net investment income and net realized gains................................................................... .04
Dividends and distributions to shareholders.................................................................... (.04)
-------------
Net asset value, end of period................................................................................. $ 1.00
-------------
-------------
TOTAL RETURN(b):............................................................................................... 4.52%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)................................................................................ $ 441,944
Average net assets (000)....................................................................................... $ 374,141
Ratios to average net assets:
Expenses.................................................................................................... .21%(c)
Net investment income....................................................................................... 5.53%(c)
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) 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.
(c) Annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-37
<PAGE>
CASH ACCUMULATION TRUST
Report of Independent Accountants LIQUID ASSETS FUND
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
Cash Accumulation Trust--Liquid Assets Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Cash Accumulation Trust--Liquid
Assets Fund (the "Fund" one of the portfolios constituting Cash Accumulation
Trust) at September 30, 1998, and the results of its operations, the changes in
its net assets and the financial highlights for the period December 22, 1997
(commencement of operations) through September 30, 1998, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at September 30, 1998 by
correspondence with the custodian and brokers, provides a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
November 20, 1998
B-38
<PAGE>
APPENDIX I--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. Mood'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.
FITCH IBCA--The following summarizes the ratings used by Fitch IBCA for
long-term debt:
"AAA": Highest credit quality. "AAA" ratings denote the lowest
expectation of credit risk. They are assigned only in case of
exceptionally strong capacity for timely payment of financial
commitments. This capacity is highly unlikely to be adversely affected by
foreseeable events.
"AA": Very high credit quality. "AA" ratings denote a very low
expectation of credit risk. They indicate very strong capacity for timely
payment of financial commitments. This capacity is not significantly
vulnerable to foreseeable events.
"A": High credit quality. "A" ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is
considered strong. This capacity may, nevertheless, be more vulnerable to
changes in circumstances or in economic conditions than is the case for
higher ratings.
"BBB": Good credit quality. "BBB" ratings indicate that there is
currently a low expectation of credit risk. The capacity for timely
payment of financial commitments is considered adequate, but adverse
changes in circumstances and in economic conditions are more likely to
impair this capacity. This is the lowest investment grade category.
"+" or "-" may be appended to a rating to denote relative status within major
rating categories. Such suffixes are not added to the "AAA" long-term rating
category or to categories below "CCC".
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
I-I
<PAGE>
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.
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.
The following summarizes the ratings used by Fitch IBCA for short-term debt,
which apply to most obligations with maturities of less than 12 months, or up to
three years for U.S. public finance securities:
"F1": Highest credit quality. Indicates the strongest capacity for timely
payment of financial commitments; may have an added "+" to denote any
exceptionally strong credit feature.
"F2": Good credit quality. A satisfactory capacity for timely payment of
financial commitments, but the margin of safety is not as great as in the case
of the higher ratings.
"F3": Fair credit quality. The capacity for timely payment of financial
commitments is adequate, however, near-term adverse changes could result in a
reduction to non-investment grade.
"B": Speculative. Minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
"C": High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D": Default. Denotes actual or imminent payment default.
"+" or "-" may be appended to a rating to denote relative status within major
rating categories. Such suffixes are not added to short-term ratings other than
"F1".
I-II
<PAGE>
APPENDIX II--INFORMATION RELATING TO 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 "Manager" in the Prospectus. The data will be
used in sales materials relating to the Prudential Mutual Funds. Unless
otherwise indicated, the information is as of December 31, 1995 and is subject
to change thereafter. All information relies on data provided by The Prudential
Investment Corporation (PIC) or from other sources believed by the Manager to be
reliable. Such information has not been verified by the Fund.
INFORMATION ABOUT PRUDENTIAL
The Manager and PIC(1) are subsidiaries of Prudential, which is one of the
largest diversified financial services institutions in the world and, based on
total assets, the largest insurance company in North America as of December 31,
1996. Principal products and services include life and health insurance, other
healthcare products, property and casualty insurance, securities brokerage,
asset management, investment advisory services and real estate brokerage.
Prudential (together with its subsidiaries) employs almost 79,000 persons
worldwide, and maintains a sales force of approximately 10,100 agents and nearly
6,500 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 nearly 40 million people worldwide.
Long one of the largest issuers of individual life insurance, the Prudential has
25 million life insurance policies and group certificates in force today with a
face value of almost $1 trillion. Prudential has the largest capital base ($12.3
billion) of any life insurance company in the United States. Prudential provides
auto insurance for approximately 1.5 million cars and insures approximately 1.2
million homes.
MONEY MANAGEMENT. 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. As of
December 31, 1997, Prudential had more than $370 billion in assets under
management. Prudential Investments, a business group of Prudential (of which
Prudential Mutual Funds is a key part) manages over $211 billion in assets of
institutions and individuals. In Pensions & Investments, May 12, 1997,
Prudential was ranked third in terms of total assets under management.
REAL ESTATE. Prudential Real Estate Affiliates, the fourth largest real
estate brokerage network in the United States, has more than 37,000 brokers and
agents across the United States.(2)
HEALTHCARE. Over two decades ago, Prudential introduced the first
federally-funded, for-profit HMO in the country. Today, approximately 4.9
million Americans receive healthcare from a Prudential managed care membership.
FINANCIAL SERVICES. The Prudential Bank, a wholly-owned subsidiary of
Prudential, has over $4 billion in assets and serves nearly 1.5 million
customers across 50 states.
INFORMATION ABOUT THE PRUDENTIAL MUTUAL FUNDS
As of December 31, 1997, Prudential Investments Fund Management LLC is the
eighteenth largest mutual fund company in the country, with over 2.5 million
shareholders invested in more than 50 mutual fund portfolios and variable
annuities with more than 3.7 million shareholder accounts.
The Prudential Mutual Funds have over 30 portfolio managers who manage over
$55 billion in mutual fund and variable annuity assets. Some of Prudential's
portfolio managers have over 20 years of experience managing investment
portfolios.
From time to time, there may be media coverage of portfolio managers and
other investment professionals associated with the Manager and the Subadviser in
national and regional publications, on television and in other media.
Additionally, individual mutual fund portfolios are frequently cited in surveys
conducted by national and regional publications and media organizations such as
THE WALL STREET JOURNAL, THE NEW YORK TIMES, BARRON'S and USA TODAY.
- ------------
(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 subadviser to Global Utility Fund, Inc., Nicholas-Applegate Capital
Management as the subadviser to Nicholas-Applegate Fund, Inc., Jennison
Associates LLC as one of the subadvisers to The Prudential Investment
Portfolios, Inc. and Mercator Assets Management LP, as the subadviser to
International Stock Series, a portfolio of Prudential World Fund, Inc. There are
multiple subadvisers for The Target Portfolio Trust.
(2)As of December 31, 1996.
II-I
<PAGE>
EQUITY FUNDS. FORBES magazine listed Prudential Equity Fund among twenty
mutual funds on its Honor Roll in its mutual fund issue of August 28, 1995.
Honorees are chosen annually among mutual funds (excluding sector funds) which
are open to new investors and have had the same management for at least five
years. Forbes considers, among other criteria, the total return of a mutual fund
in both bull and bear markets as well as a fund's risk profile. Prudential
Equity Fund is managed with a "value" investment style by PIC. In 1995,
Prudential Securities introduced Prudential Jennison Fund, a growth-style equity
fund managed by Jennison Associates Capital Corp., a premier institutional
equity manager and a subsidiary of Prudential.
HIGH YIELD FUNDS. Investing in high yield bonds is a complex and research
intensive pursuit. A separate team of high yield bond analysts monitor
approximately 200 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) Noninvestment grade bonds, also
known as junk bonds or high yield bonds, are subject to a greater risk of loss
of principal and interest including default risk than higher-rated bonds.
Prudential high yield portfolio managers and analysts meet face-to-face with
almost every bond issuer in the High Yield Fund's portfolio annually, and have
additional telephone contact throughout the year.
Prudential's portfolio managers are supported by a large and sophisticated
research organization. Fourteen investment grade bond analysts monitor the
financial viability of approximately 1,750 different bond issuers in the
investment grade corporate and municipal bond markets--from IBM to small
municipalities, such as Rockaway Township, New Jersey. These analysts consider
among other things sinking fund provisions and interest coverage ratios.
Prudential's portfolio managers and analysts receive research services from
almost 200 brokers and market service vendors. They also receive nearly 100
trade publications and newspapers--from PULP AND PAPER FORECASTER to WOMEN'S
WEAR DAILY--to keep them informed of the industries they follow.
Prudential Mutual Funds' traders scan over 100 computer monitors to collect
detailed information on which to trade. From natural gas prices in the Rocky
Mountains to the results of local municipal elections, a Prudential portfolio
manager or trader is able to monitor it if it's important to a Prudential mutual
fund.
Prudential Mutual Funds trade approximately $31 billion in U.S. and foreign
government securities a year. PIC seeks information from government policy
makers. In 1995, Prudential's portfolio managers met with several senior U.S.
and foreign government officials, on issues ranging from economic conditions in
foreign countries to the viability of index-linked securities in the United
States.
Prudential Mutual Funds' portfolio managers and analysts met with over 1,200
companies in 1995, often with the Chief Executive Officer (CEO) or Chief
Financial Officer (CFO). They also attended over 250 industry conferences.
Prudential Mutual Fund global equity managers conducted many of their visits
overseas, often holding private meetings with a company in a foreign language
(our global equity managers speak 7 different languages, including Mandarin
Chinese).
TRADING DATA.(4) On an average day, Prudential Mutual Funds' U.S. and
foreign equity trading desks traded $77 million in securities representing over
3.8 million shares with nearly 200 different firms. Prudential Mutual Funds'
bond trading desks traded $157 million in government and corporate bonds on an
average day. That represents more in daily trading than most bond funds tracked
by Lipper even have in assets.(5) Prudential Mutual Funds' money market desk
traded $3.2 billion in money market securities on an average day, or over $800
billion a year. They made a trade every 3 minutes of every trading day. In 1994,
the Prudential Mutual Funds effected more than 40,000 trades in money market
securities and held on average $20 billion of money market securities.(6)
Based on complex-wide data, on an average day, over 7,250 shareholders
telephoned Prudential Mutual Fund Services, Inc., the Transfer Agent of the
Prudential Mutual Funds, on the Prudential Mutual Funds' toll-free number. On an
annual basis, that represents approximately 1.8 million telephone calls
answered.
- ------------
(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 PIC serves as the subadviser, portfolios of
the Prudential Series Fund and institutional and non-US accounts managed by
Prudential Mutual Fund Investment Management, a division of PIC, for the year
ended December 31, 1995.
(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.
II-II
<PAGE>
INFORMATION ABOUT PRUDENTIAL SECURITIES
Prudential Securities is the fifth largest retail brokerage firm in the
United States with approximately 6,000 financial advisors. It offers to its
clients a wide range of products, including Prudential Mutual Funds and
annuities. As of December 31, 1997, assets held by Prudential Securities for its
clients approximated $235 billion.
During 1997, approximately 29,000 new customer accounts were opened each
month at Prudential Securities.(7)
Prudential Securities has a two-year Financial Advisor training program plus
advanced education programs, including Prudential Securities "university," which
provides advanced education in a wide array of investment areas. Prudential
Securities is the only Wall Street firm to have its own in-house Certified
Financial Planner (CFP) program. In the December 1995 issue of REGISTERED REP,
an industry publication, Prudential Securities Financial Advisor training
programs received a grade of A- (compared to an industry average of B+).
In 1995, Prudential Securities' equity research team ranked 8th in
INSTITUTIONAL INVESTOR magazine's 1995 "All America Research Team" survey. Five
Prudential Securities analysts were ranked as first-team finishers.(8)
In addition to training, Prudential Securities provides its financial
advisors with access to firm economists and market analysts. It has also
developed proprietary tools for use by financial advisors, including the
Financial 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.
Standard & Poor's rates Prudential Securities Incorporated BBB+, with a
"stable outlook."
For more complete information about any of the Prudential Mutual Funds,
including charges and expenses, call your Prudential Securities financial
advisor or Pruco/Prudential representative for a free prospectus. Read it
carefully before you invest or send money.
- ------------
(7)As of December 31, 1997.
(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 weighting 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.
II-III
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS.
(a) (i) Agreement and Declaration of Trust of the Trust dated April 27, 1984
and Amendment No. 1 dated June 19, 1984.*
(ii) Amendment No. 2 to Agreement and Declaration of Trust of the Trust
dated August 9, 1984.*
(iii) Amendment No. 3 to Agreement and Declaration of Trust of the Trust
dated September 11, 1984.*
(b) (i) By-Laws of the Trust incorporated by reference to Exhibit 2(a) to
Post-Effective Amendment No. 22 to the Registration Statement on Form
N-1A (2-91889) filed via EDGAR on November 7, 1997.
(ii) Amendment to By-Laws of the Trust dated July 25, 1990 incorporated
by reference to Exhibit 2(b) to Post-Effective Amendment No. 22 to the
Registration Statement on Form N-1A (2-91889) filed via EDGAR on November
7, 1997.
(iii) Amendment to By-Laws of the Trust dated May 24, 1991 incorporated
by reference to Exhibit 2(c) to Post-Effective Amendment No. 22 to the
Registration Statement on Form N-1A (2-91889) filed via EDGAR on November
7, 1997.
(iv) Amendment to By-Laws of the Trust dated October 22, 1997
incorporated by reference to Exhibit 2(d) to Post-Effective Amendment No.
22 to the Registration Statement on Form N-1A (2-91889) filed via EDGAR
on November 7, 1997.
(c) (i) Specimen Share Certificates of the National Money Market Fund.*
(ii) Specimen Share Certificate for the Liquid Assets Fund incorporated
by reference to Exhibit (c)(ii) to Post-Effective Amendment No. 24 to the
Registration Statement on Form N-1A (2-91889) filed via EDGAR on October
1, 1998.
(d) (i) Management Agreement between the Registrant, on behalf of the
National Money Market Fund, and Prudential Investments Fund Management
LLC incorporated by reference to Exhibit d(i) to Post-Effective Amendment
No. 24 to the Registration Statement on Form N-1A (2-91889) filed via
EDGAR on October 1, 1998.
(ii) Subadvisory Agreement, with respect to the National Money Market
Fund, between Prudential Investments Fund Management LLC and The
Prudential Investment Corporation incorporated by reference to Exhibit
(d)(ii) to Post-Effective Amendment No. 24 to the Registration Statement
on Form N-1A (2-91889) filed via EDGAR on October 1, 1998.
(iii) Management Agreement between the Registrant, on behalf of the
Liquid Assets Fund, and Prudential Investments Fund Management LLC
incorporated by reference to Exhibit (d)(iii) to Post-Effective Amendment
No. 24 to the Registration Statement on Form N-1A (2-91889) filed via
EDGAR on October 1, 1998.
(iv) Subadvisory Agreement, with respect to the Liquid Assets Fund,
between Prudential Investments Fund Management LLC and the Prudential
Investment Corporation incorporated by reference to Exhibit (d)(iv) to
Post-Effective Amendment No. 24 to the Registration Statement on Form
N-1A (2-91889) filed via EDGAR on October 1, 1998.
(e) (i) Distribution Agreement between the Registrant and Prudential
Securities Inc incorporated by reference to Exhibit (e)(i) to
Post-Effective Amendment No. 24 to the Registration Statement on Form
N-1A (2-91889) filed via EDGAR on October 1, 1998.
(ii) Distribution Agreement between the Registrant and Prudential
Investment Management Services LLC incorporated by reference to Exhibit
(e)(ii) to Post-Effective Amendment No. 24 to the Registration Statement
on Form N-1A (2-91889) filed via EDGAR on October 1, 1998.
(iii) Form of Dealer Agreement incorporated by reference to Exhibit
(e)(iii) to Post-Effective Amendment No. 24 to the Registration Statement
on Form N-1A (2-91889) filed via EDGAR on October 1, 1998.
(f) Not applicable.
C-1
<PAGE>
(g) Custodian Contract between the Registrant and State Street Bank and
Trust Company incorporated by reference to Exhibit (g) to Post-Effective
Amendment No. 24 to the Registration Statement on Form N-1A (2-91889)
filed via EDGAR on October 1, 1998.
(h) Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services incorporated by reference to Exhibit (h)
to Post-Effective Amendment No. 24 to the Registration Statement on Form
N-1A (2-91889) filed via EDGAR on October 1, 1998.
(i) Opinion of Counsel, incorporated by reference to Exhibit 10 to
Pre-Effective Amendment No. 1 to the Registration Statement filed on
September 12, 1984.
(j) Consent of Independent Accountants.*
(k) Not applicable.
(l) Not applicable.
(m) (i) Amended Distribution Plan of the Trust, as revised through October
22, 1997 incorporated by reference to Exhibit 15 to Post-Effective
Amendment No. 22 to the Registration Statement on Form N-1A (2-91889)
filed via EDGAR on November 7, 1997.
(ii) Amended and Restated Distribution and Service Plan, with respect to
National Money Market Fund incorporated by reference to Exhibit (m)(ii)
to Post-Effective Amendment No. 24 to the Registration Statement on Form
N-1A (2-91889) filed via EDGAR on October 1, 1998.
(n) Financial Data Schedule for the fiscal year ended September 30, 1998.*
(o) Not applicable.
- ------------------------
* Filed herewith.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 25. INDEMNIFICATION.
As permitted by Section 17(h) and (i) of the Investment Company Act of 1940,
as amended (the 1940 Act) and pursuant to Article V of the Fund's Declaration of
Trust (Exhibit 1 to the Registration Statement) with respect to trustees,
officers, employees and agents thereof and Article VII of the Fund's By-Laws
(Exhibit 2 to the Registration Statement), trustees, officers, employees and
agents of the Fund may be indemnified against certain liabilities in connection
with the Trust. As permitted by Section 17(i) of the 1940 Act, pursuant to
Section 10 of the Distribution Agreement (Exhibit (e)(ii) to the Registration
Statement), the Distributor of the Registrant may be indemnified against
liabilities which it may incur, except liabilities arising from bad faith, gross
negligence, willful misfeasance or reckless disregard of duties. Such Article V
of the Declaration of Trust, Article VII of the By-Laws and Section 10 of the
Distribution Agreement are hereby incorporated by reference in their entirety.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the Securities Act) may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing provisions
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the 1940 Act and is, therefore, unenforceable. In the event that
a claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in connection with the successful defense
of any action, suit or proceeding) is asserted against the Registrant by such
director, officer or controlling person in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the 1940 Act and will be governed by the final
adjudication of such issue.
The Registrant intends to purchase an insurance policy insuring its officers
and directors against liabilities, and certain costs of defending claims against
such officers and directors, to the extent such officers and directors are not
found to have
C-2
<PAGE>
committed conduct constituting willful misfeasance, bad faith, gross negligence
or reckless disregard in the performance of their duties. The insurance policy
also insures the Registrant against the cost of indemnification payments to
officers and directors under certain circumstances.
Section 9 of the Management Agreement (Exhibits (d)(i) and (iii) to the
Registration Statement) and Section 4 of the Subadvisory Agreement (Exhibits
(d)(ii) and (iv) to the Registration Statement) limit the liability of
Prudential Investments Fund Management LLC (PIFM) and The Prudential Investment
Corporation (PIC), respectively, to liabilities arising from willful
misfeasance, bad faith or gross negligence in the performance of their
respective duties or from reckless disregard by them of their respective
obligations and duties under the agreements.
The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws and each Distribution Agreement in a manner consistent
with Release No. 11330 of the Securities and Exchange Commission under the 1940
Act so long as the interpretation of Sections 17(h) and 17(i) of such Act
remains in effect and is consistently applied.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
(i) Prudential Investments Fund Management LLC (PIFM).
See "How the Fund is Managed--Manager" in the Prospectus constituting Part A
of this Post-Effective Amendment to the Registration Statement and "Investment
Advisory and Other Services--Investment Advisers" in the Statement of Additional
Information constituting Part B of this Post-Effective Amendment to the
Registration Statement.
The business and other connections of the officers of PIFM are listed in
Schedules A and D of Form ADV of PIFM as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-31104).
The business and other connections of PIFM's directors and principal
executive officers are set forth below. Except as otherwise indicated, the
address of each person is Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102-4077.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIFM PRINCIPAL OCCUPATIONS
- --------------------- ---------------------------- --------------------------------------------------------------
<S> <C> <C>
Brian M. Storms Officer-in-Charge, President, Prudential Mutual Funds & Annuities (PMF&A);
President, Chief Executive President, Chief Executive Officer and Chief Operating
Officer and Chief Operating Officer, PIFM
Officer
Robert F. Gunia Executive Vice President and Vice President, Prudential Investments; Executive Vice
Treasurer President and Treasurer, PIFM; Senior Vice President,
Prudential Securities Incorporated
Neil A. McGuinness Executive Vice President Executive Vice President and Director of Marketing PMF&A;
Executive Vice President, PIFM
Robert J. Sullivan Executive Vice President Executive Vice President, PMF&A; Executive Vice President,
PIFM
</TABLE>
(ii) The Prudential Investment Corporation (PIC)
See "How the Fund is Managed--Manager" in the Prospectus constituting Part A
of this Post-Effective Amendment to the Registration Statement and "Investment
Advisory and Other Services--Investment Advisers" in the Statement of Additional
Information constituting Part B of this Post-Effective Amendment to the
Registration Statement.
C-3
<PAGE>
The business and other connections of PIC's directors and executive officers
are as set forth below. The address of each person is Prudential Plaza, Newark,
New Jersey 07102-4077.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATIONS
- -------------------------- ------------------------- ------------------------------------------------------------
<S> <C> <C>
Mendel A. Melzer, CFA Senior Vice President and Chief Investment Officer of Prudential Investments
Gateway Center Two Director
100 Mulberry Street
Newark, NJ 07102
John R. Strangfeld, Jr. Chairman of the Board, Senior Vice President, Prudential; Chief Executive Officer,
President and Chief Prudential Global Asset Management, Chairman of the Board,
Executive Officer and President and Chief Executive Officer and Director, PIC
Director
Bernard B. Winograd Senior Vice President and Chief Executive Officer of Prudential Real Estate Investors
Director (PRFI); Senior Vice President and Director PIC
</TABLE>
ITEM 27. PRINCIPAL UNDERWRITER.
(a) Prudential Investment Management Services LLC is distributor for Cash
Accumulation Trust, COMMAND Government Fund, COMMAND Money Fund, COMMAND
Tax-Free Fund, Prudential Government Securities Trust (Intermediate Term Series,
Money Market Series and U.S. Treasury Money Market Series). Prudential MoneyMart
Assets, Inc., Prudential Institutional Liquidity Portfolio, Inc., Prudential
Special Money Market Fund, Inc., Prudential Tax-Free Money Fund, Inc.,
Prudential Distressed Securities Fund, Inc., The Prudential Investment
Portfolios, Inc., Prudential Index Series Fund, Prudential Emerging Growth Fund,
Inc., Target Portfolio Trust, Prudential Balanced Fund, Prudential California
Municipal Fund, Prudential Developing Markets Fund, Prudential Diversified Bond
Fund, Inc., Prudential Equity Fund, Inc., Prudential Equity Income Fund,
Prudential Europe Growth Fund Inc., Prudential Global Genesis Fund, Inc.,
Prudential Global Limited Maturity Fund, Inc., Prudential High Yield Total
Return Fund, Inc., Prudential Natural Resources Fund, Inc., Prudential Real
Estate Securities Fund, Prudential Government Income Fund, Inc., Prudential
Small-Cap Quantum Fund, Inc., Prudential Small Company Value Fund, Inc.,
Prudential High Yield Fund, Prudential Intermediate Global Income Fund, Inc.,
Prudential Mid-Cap Value Fund, Prudential Mortgage Income Fund, Inc., Prudential
Municipal Bond Fund, Prudential Municipal Series Fund, Prudential National
Municipals Fund, Inc., Prudential Pacific Growth Fund, Inc., Prudential
Structured Maturity Fund, Inc., Prudential Utility Fund, Inc., Prudential World
Fund, Inc., Prudential International Bond Fund, Inc., The Global Total Return
Fund, Inc., Global Utility Fund, Inc., Nicholas-Applegate Fund, Inc.
(Nicholas-Applegate Growth Equity Fund) and Prudential 20/20 Focus Fund.
(b) Information concerning the Directors and officers of Prudential
Investment Management Services LLC is set forth below:
<TABLE>
<CAPTION>
POSITIONS AND
POSITIONS AND OFFICES OFFICES
NAME WITH UNDERWRITER WITH REGISTRANT
- ---------------------------------------- ----------------------------------------------------- ------------------
<S> <C> <C>
Mark R. Fetting ........................ Executive Vice President None
Gateway Center Three
100 Mulberry Street
Newark, New Jersey 07102
Mendel A. Melzer, CFA .................. Executive Vice President Trustee
Gateway Center Two
100 Mulberry Street
Newark, NJ 07102
Jean D. Hamilton........................ Executive Vice President None
Ronald P. Joelson....................... Executive Vice President None
Brian M. Storms ........................ President President
Gateway Center Three
100 Mulberry Street
Newark, New Jersey 07102
John R. Strangfeld, Jr.................. Executive Vice President None
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
POSITIONS AND
POSITIONS AND OFFICES OFFICES
NAME WITH UNDERWRITER WITH REGISTRANT
- ---------------------------------------- ----------------------------------------------------- ------------------
<S> <C> <C>
Brian Henderson ........................ Senior Vice President and Chief Operating Officer None
Gateway Center Three
100 Mulberry Street
Newark, New Jersey 07102
William V. Healey....................... Senior Vice President and Chief Operating Officer None
Margaret M. Deverell ................... Vice President, Comptroller and Chief Financial None
Gateway Center Three Officer
100 Mulberry Street
Newark, New Jersey 07102
C. Edward Chaplin....................... Treasurer None
Keven B. Frawley ....................... Senior Vice President and Chief Compliance Officer
213 Washington St.
Newark, NJ 07102
</TABLE>
(c) Registrant has no principal underwriter who is not an affiliated person
of the Registrant.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the Rules thereunder are maintained at the offices of
State Street Bank and Trust Company, 1776 Heritage Drive, North Quincy,
Massachusetts, The Prudential Investment Corporation, Prudential Plaza, 751
Broad Street, Newark, New Jersey, the Registrant, Gateway Center Three, 100
Mulberry Street, Newark, New Jersey 07102-4077, and Prudential Mutual Fund
Services LLC, Raritan Plaza One, Edison, New Jersey 08837. Documents required by
Rules 31a-1(b)(4), (5), (6), (7), (9), (10) and (11) and
C-5
<PAGE>
31a-1(d) and (f) will be kept at Gateway Center Three, Newark, New Jersey
07102-4077, and the remaining accounts, books and other documents required by
such other pertinent provisions of Section 31(a) and the Rules promulgated
thereunder will be kept by State Street Bank and Trust Company and Prudential
Mutual Fund Services LLC.
ITEM 29. MANAGEMENT SERVICES
Other than as set forth under the captions "How the Fund is
Managed--Manager" and "How the Fund is Managed-- Distributor" in the Prospectus
and the captions "Investment Advisory and Other Services--Investment Advisers"
and "Investment Advisory and Other Services--Principal Underwriter, Distributor
and Rule 12b-1 Plan" in the Statement of Additional Information, constituting
Parts A and B, respectively, of this Post-Effective Amendment to the
Registration Statement, Registrant is not a party to any management-related
service contract.
ITEM 30. UNDERTAKINGS
None.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement under Rule
485(b) under the Securities Act and has duly caused this Post-Effective
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Newark, and State of New
Jersey, on the 15th day of January, 1999.
CASH ACCUMULATION TRUST
By: /s/ BRIAN M. STORMS
----------------------------------------
(Brian M. Storms, PRESIDENT)
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------- ---------------------
<C> <S> <C>
/s/ EDWARD D. BEACH
------------------------------------------- Trustee January 15, 1999
Edward D. Beach
/s/ DELAYNE D. GOLD
------------------------------------------- Trustee January 15, 1999
Delayne D. Gold
/s/ ROBERT F. GUNIA
------------------------------------------- Trustee January 15, 1999
Robert F. Gunia
/s/ DON G. HOFF
------------------------------------------- Trustee January 15, 1999
Don G. Hoff
/s/ ROBERT E. LABLANC
------------------------------------------- Trustee January 15, 1999
Robert E. LaBlanc
/s/ MENDEL A. MELZER
------------------------------------------- Trustee January 15, 1999
Mendel A. Melzer
/s/ ROBIN B. SMITH
------------------------------------------- Trustee January 15, 1999
Robin B. Smith
/s/ STEPHEN STONEBURN
------------------------------------------- Trustee January 15, 1999
Stephen Stoneburn
/s/ NANCY H. TEETERS
------------------------------------------- Trustee January 15, 1999
Nancy H. Teeters
/s/ GRACE C. TORRES
------------------------------------------- Treasurer and Principal Financial January 15, 1999
Grace C. Torres and Accounting Officer
</TABLE>
<PAGE>
EXHIBIT INDEX
(a) (i) Agreement and Declaration of Trust of the Trust dated April 27, 1984
and Amendment No. 1 dated June 19, 1984.*
(ii) Amendment No. 2 to Agreement and Declaration of Trust of the Trust
dated August 9, 1984.*
(iii) Amendment No. 3 to Agreement and Declaration of Trust of the Trust
dated September 11, 1984.*
(b) (i) By-Laws of the Trust incorporated by reference to Exhibit 2(a) to
Post-Effective Amendment No. 22 to the Registration Statement on Form
N-1A (2-91889) filed via EDGAR on November 7, 1997.
(ii) Amendment to By-Laws of the Trust dated July 25, 1990 incorporated
by reference to Exhibit 2(b) to Post-Effective Amendment No. 22 to the
Registration Statement on Form N-1A (2-91889) filed via EDGAR on November
7, 1997.
(iii) Amendment to By-Laws of the Trust dated May 24, 1991 incorporated
by reference to Exhibit 2(c) to Post-Effective Amendment No. 22 to the
Registration Statement on Form N-1A (2-91889) filed via EDGAR on November
7, 1997.
(iv) Amendment to By-Laws of the Trust dated October 22, 1997
incorporated by reference to Exhibit 2(d) to Post-Effective Amendment No.
22 to the Registration Statement on Form N-1A (2-91889) filed via EDGAR
on November 7, 1997.
(c) (i) Specimen Share Certificates of the National Money Market Fund.*
(ii) Specimen Share Certificate for the Liquid Assets Fund incorporated
by reference to Exhibit (c)(ii) to Post-Effective Amendment No. 24 to the
Registration Statement on Form N-1A (2-91889) filed via EDGAR on October
1, 1998.
(d) (i) Management Agreement between the Registrant, on behalf of the
National Money Market Fund, and Prudential Investments Fund Management
LLC incorporated by reference to Exhibit (d)(i) to Post-Effective
Amendment No. 24 to the Registration Statement on Form N-1A (2-91889)
filed via EDGAR on October 1, 1998.
(ii) Subadvisory Agreement, with respect to the National Money Market
Fund, between Prudential Investments Fund Management LLC and The
Prudential Investment Corporation incorporated by reference to Exhibit
(d)(ii) to Post-Effective Amendment No. 24 to the Registration Statement
on Form N-1A (2-91889) filed via EDGAR on October 1, 1998.
(iii) Management Agreement between the Registrant, on behalf of the
Liquid Assets Fund, and Prudential Investments Fund Management LLC
incorporated by reference to Exhibit (d)(iii) to Post-Effective Amendment
No. 24 to the Registration Statement on Form N-1A (2-91889) filed via
EDGAR on October 1, 1998.
(iv) Subadvisory Agreement, with respect to the Liquid Assets Fund,
between Prudential Investments Fund Management LLC and the Prudential
Investment Corporation incorporated by reference to Exhibit (d)(iv) to
Post-Effective Amendment No. 24 to the Registration Statement on Form
N-1A (2-91889) filed via EDGAR on October 1, 1998.
(e) (i) Distribution Agreement between the Registrant and Prudential
Securities Inc incorporated by reference to Exhibit (e)(i) to
Post-Effective Amendment No. 24 to the Registration Statement on Form
N-1A (2-91889) filed via EDGAR on October 1, 1998.
(ii) Distribution Agreement between the Registrant and Prudential
Investment Management Services LLC incorporated by reference to Exhibit
(e)(ii) to Post-Effective Amendment No. 24 to the Registration Statement
on Form N-1A (2-91889) filed via EDGAR on October 1, 1998.
(iii) Form of Dealer Agreement incorporated by reference to Exhibit
(e)(iii) to Post-Effective Amendment No. 24 to the Registration Statement
on Form N-1A (2-91889) filed via EDGAR on October 1, 1998.
(f) Not applicable.
(g) Custodian Contract between the Registrant and State Street Bank and
Trust Company incorporated by reference to Exhibit (g) to Post-Effective
Amendment No. 24 to the Registration Statement on Form N-1A (2-91889)
filed via EDGAR on October 1, 1998.
<PAGE>
(h) Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services incorporated by reference to Exhibit (h)
to Post-Effective Amendment No. 24 to the Registration Statement on Form
N-1A (2-91889) filed via EDGAR on October 1, 1998.
(i) Opinion of Counsel, incorporated by reference to Exhibit 10 to
Pre-Effective Amendment No. 1 to the Registration Statement filed on
September 12, 1984.
(j) Consent of Independent Accountants.*
(k) Not applicable.
(l) Not applicable.
(m) (i) Amended Distribution Plan of the Trust, as revised through October
22, 1997 incorporated by reference to Exhibit 15 to Post-Effective
Amendment No. 22 to the Registration Statement on Form N-1A (2-91889)
filed via EDGAR on November 7, 1997.
(ii) Amended and Restated Distribution and Service Plan with respect to
National Money Market Fund incorporated by reference to Exhibit (m)(ii)
to Post-Effective Amendment No. 24 to the Registration Statement on Form
N-1A (2-91889) filed via EDGAR on October 1, 1998.
(n) Financial Data Schedule for the fiscal year ended September 30, 1998.*
(o) Not applicable.
<PAGE>
Exhibit
a(i)
AMENDMENT NO. 1
TO THE
AGREEMENT AND DECLARATION OF TRUST
OF
THOMSON MCKINNON MONEY MARKET SERIES TRUST
WHEREAS Section 7 of Article IX of the Agreement and Declaration of Trust
dated April 27, 1984 of Thomson McKinnon Money Market Series Trust, a copy of
which is on file in the office of the Secretary of The Commonwealth of
Massachusetts, authorizes the Trustees of the Trust to amend said Agreement and
Declaration of Trust to change the name of the Trust without authorization by
vote of Shareholders of the Trust thereon,
I, THE UNDERSIGNED, being the sole trustee of Thomson McKinnon Money Market
Series Trust, do hereby certify that the undersigned has determined to conduct
the business of the Trust under the name "Cash Accumulation Trust" and has
authorized the following amendment to said Agreement and Declaration of Trust:
Section 1 of Article I is hereby amended to read in its entirety as
follows:
Section 1. This Trust shall be known as "Cash Accumulation Trust",
and the Trustees shall conduct the business of the Trust under that
name or any other name as they may from time to time determine.
The foregoing Amendment shall become effective as of the close of business
on June 19, 1984.
IN WITNESS WHEREOF, I have hereunto set my hand and seal, for myself and
for my successors and assigns.
/s/ Michael P. Devine
---------------------------------
Michael P. Devine
<PAGE>
THOMSON MCKINNON MONEY MARKET SERIES TRUST
---------------------------
AGREEMENT AND DECLARATION OF TRUST
---------------------------
AGREEMENT AND DECLARATION OF TRUST made at Boston, Massachusetts, this 27th
day of April, 1984, by the Trustees hereunder, and by the holders of shares of
beneficial interest to be issued hereunder as hereinafter provided.
WITNESSETH that
WHEREAS, this Trust has been formed to carry on the business of an
investment company; and
WHEREAS, the Trustees have agreed to manage all property coming into their
hands as trustees of a Massachusetts voluntary association with transferable
shares in accordance with the provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby declare that they will hold all cash,
securities and other assets, which they may from time to time acquire in any
manner as Trustees hereunder IN TRUST to manage and dispose of the same upon the
following terms and conditions for the pro rata benefit of the holders from
time to time of Shares in this Trust as hereinafter set forth.
<PAGE>
ARTICLE I
Name and Definitions
NAME
Section 1. This Trust shall be known as "Thomson McKinnon Money Market
Series Trust", and the Trustees shall conduct the business of the Trust under
that name or any other name as they may from time to time determine.
DEFINITIONS
Section 2. Whenever used herein, unless otherwise required by the context
or specifically provided:
(a) The "Trust" refers to the Massachusetts business trust established
by this Agreement and Declaration of Trust, as amended from time to time;
(b) "Trustees" refers to the Trustees of the Trust named herein or
elected in accordance with Article IV;
(c) "Shares" means the equal proportionate transferable units of
interest into which the beneficial interest in the Trust shall be divided
from time to time or, if more than one series of Shares is authorized by
the Trustees, the equal proportionate transferable units into which each
series of Shares shall be divided from time to time;
(d) "Shareholder" means a record owner of Shares;
(e) The "1940 Act" refers to the Investment Company Act of 1940 and
the Rules and Regulations thereunder, all as amended from time to time;
(f) The terms "Affiliated Person", "Assignment", "Commission",
"Interested Person", "Principal Underwriter" and "Majority Shareholder
Vote" (the 67% or 50% requirement of the third sentence of Section 2(a)(42)
of the 1940 Act, whichever may be applicable) shall have the meanings
given them in the 1940 Act;
(g) "Declaration of Trust" shall mean this Agreement and Declaration
of Trust as amended or restated from time to time; and
(h) "Bylaws" shall mean the Bylaws of the Trust as amended from time
to time.
-2-
<PAGE>
ARTICLE II
Purpose of Trust
The purpose of the Trust is to provide investors a managed investment
primarily in securities and debt instruments and to carry on such other business
as the Trustees may from time to time determine pursuant to their authority
under this Declaration of Trust.
ARTICLE III
Shares
DIVISION OF BENEFICIAL INTEREST
Section 1. The Shares of the Trust shall be issued in one or more series as
the Trustees may, without shareholder approval, authorize. Each series shall be
preferred over all other series in respect of the assets allocated to that
series. The beneficial interest in each series shall at all times be divided
into Shares, without par value, each of which shall represent an equal
proportionate interest in the series with each other Share of the same series,
none having priority or preference over another. The number of Shares authorized
shall be unlimited. The Trustees may from time to time divide or combine the
Shares into a greater or lesser number without thereby changing the
proportionate beneficial interests in the series.
OWNERSHIP OF SHARES
Section 2. The ownership of Shares shall be recorded on the books of the
Trust or a transfer or similar agent. No certificates certifying the ownership
of Shares shall be issued except as the Trustees may otherwise determine from
time to time. The Trustees may make such rules as they consider appropriate for
the issuance of Share certificates, the transfer of Shares and similar matters.
The record books of the Trust as kept by the Trust or any transfer or similar
agent, as the case may be, shall be conclusive as to who are the Shareholders of
each series and as to the number of Shares of each series held from time to time
by each Shareholder.
INVESTMENT IN THE TRUST
Section 3. The Trustees shall accept investments in the Trust from such
persons and on such terms and for such consideration, which may consist of cash
or tangible or intangible property or a combination thereof, as they from time
to time authorize.
-3-
<PAGE>
All consideration received by the Trust for the issue or sale of Shares of
each series, together with all income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation thereof,
and any funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall irrevocably belong to the series of Shares
with respect to which the same were received by the Trust for all purposes,
subject only to the rights of creditors, and shall be so handled upon the books
of account of the Trust and are herein referred to as "assets of" such series.
NO PREEMPTIVE RIGHTS
Section 4. Shareholders shall have no preemptive or other right to
subscribe to any additional Shares or other securities issued by the Trust.
STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY
Section 5. Shares shall be deemed to be personal property giving only the
rights provided in this instrument. Every Shareholder by virtue of having become
a Shareholder shall be held to have expressly assented and agreed to the terms
hereof and to have become a party hereto. The death of a Shareholder during the
continuance of the Trust shall not operate to terminate the same nor entitle the
representative of any deceased Shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the Trustees, but only to the
rights of said decedent under this Trust. Ownership of Shares shall not entitle
the Shareholder to any title in or to the whole or any part of the Trust
property or right to call for a partition or division of the same or for an
accounting, nor shall the ownership of Shares constitute the Shareholders
partners. Neither the Trust nor the Trustees, nor any officer, employee or agent
of the Trust shall have any power to bind personally any Shareholder, nor except
as specifically provided herein to call upon any Shareholder for the payment of
any sum of money or assessment whatsoever other than such as the Shareholder may
at any time personally agree to pay.
-4-
<PAGE>
ARTICLE IV
The Trustees
ELECTION
Section 1. There shall initially be a single Trustee who shall be Michael
P. Devine. The number of Trustees shall be as provided in the Bylaws or as fixed
from to time by the Trustees. The shareholders may elect Trustees at any meeting
of Shareholders called by the Trustees for that purpose. Each Trustee shall
serve during the continued lifetime of the Trust until he dies, resigns or is
removed, or, if sooner, until the next meeting of Shareholders called for the
purpose of electing Trustees and the election and qualification of his
successor. Any Trustee may resign at any time by written instrument signed by
him and delivered to any officer of the Trust, to each other Trustee or to a
meeting of the Trustees. Such resignation shall be effective upon receipt unless
specified to be effective at some other time. Except to the extent expressly
provided in a written agreement with the Trust, no Trustee resigning and no
Trustee removed shall have any right to any compensation for any period
following his resignation or removal, or any right to damages on account of such
removal.
EFFECT OF DEATH, RESIGNATION, ETC., OF A TRUSTEE
Section 2. The death, declination, resignation, retirement, removal or
incapacity of the Trustees, or any one of them, shall not operate to annul the
Trust or to revoke any existing agency created pursuant to the terms of
this Declaration of Trust.
POWERS
Section 3. Subject to the provisions of this Declaration of Trust, the
business of the Trust shall be managed by the Trustees, and they shall have all
powers necessary or convenient to carry out that responsibility. Without
limiting the foregoing, the Trustees may adopt Bylaws not inconsistent with this
Declaration of Trust providing for the conduct of the business of the Trust and
may amend and repeal them to the extent that such Bylaws do not reserve that
right to the Shareholders; they may enlarge or reduce their number, may fill
vacancies in their number, including vacancies caused by enlargement of their
number, and may remove Trustees with or without cause; they may elect and
remove, with or without cause, such officers and appoint and terminate such
agents as they consider appropriate; they may appoint from their own number, and
terminate, any one or more committees consisting of two or more Trustees,
including an executive committee which may, when the Trustees are not in
session, exercise some or all
-5-
<PAGE>
of the power and authority of the Trustees as the Trustees may determine; they
may employ one or more custodians of the assets of the Trust and may authorize
such custodians to employ subcustodians and to deposit all or any part of such
assets in a system or systems for the central handling of securities, retain a
transfer agent or a Shareholder servicing agent, or both, provide for the
distribution of Shares by the Trust, through one or more principal underwriters
or otherwise, set record dates for the determination of Shareholders with
respect to various matters, and in general delegate such authority as they
consider desirable to any officer of the Trust, to any committee of the Trustees
and to any agent or employee of the Trust or to any such custodian or
underwriter.
Without limiting the foregoing, the Trustees shall have power and
authority:
(a) To invest and reinvest cash, and to hold cash uninvested;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate, write
options on and lease any or all of the assets of the Trust;
(c) To act as a distributor of shares and as underwriter of, or broker
or dealer in, securities or other property;
(d) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and
deliver proxies or powers of attorney to such person or persons as the
Trustees shall deem proper, granting to such person or persons such power
and discretion with relation to securities or property as the Trustees
shall deem proper;
(e) To exercise powers and rights of subscription or otherwise which
in any manner arise out of ownership of securities;
(f) To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form, or in the
name of the Trustees or of the Trust or in the name of a custodian,
subcustodian or other depositary or a nominee or nominees or otherwise;
(g) To allocate assets, liabilities and expenses of the Trust to a
particular series of Shares or to apportion the same among two or more
series, provided that any liabilities or expenses incurred by a
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particular series of Shares shall be payable solely out of the assets of
that series.
(h) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer, any security of which
is or was held in the Trust; to consent to any contract, lease, mortgage,
purchase or sale of property by such corporation or issuer, and to pay
calls or subscriptions with respect to any security held in the Trust;
(i) To join with other security holders in acting through a committee
depositary, voting trustee or otherwise, and in that connection to deposit
any security with, or transfer any security to, any such committee,
depositary or trustee, and to delegate to them such power and authority
with relation to any security (whether or not so deposited or transferred)
as the Trustees shall deem proper, and to agree to pay, and to pay, such
portion of the expenses and compensation of such committee, depositary or
trustee as the Trustees shall deem proper;
(j) To compromise, arbitrate or otherwise adjust claims in favor of or
against the Trust or any matter in controversy, including but not limited
to claims for taxes;
(k) To enter into joint ventures, general or limited partnerships and
any other combination or associations;
(l) To borrow funds;
(m) To endorse or guarantee the payment of any notes or other
obligations of any person; to make contracts of guaranty or suretyship, or
otherwise assume liability for payment thereof; and to mortgage and pledge
the Trust property or any part thereof to secure any of or all such
obligations;
(n) To purchase and pay for entirely out of Trust property such
insurance as they may deem necessary or appropriate for the conduct of the
business, including without limitation, insurance policies insuring the
assets of the Trust and payment of distributions and principal on its
portfolio investments, and insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, investment advisers or managers,
principal underwriters, or independent contractors of the Trust
individually against all claims and liabilities of every nature arising by
reason of holding, being or having held any such office or
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position, or by reason of any action alleged to have been taken or omitted
by any such person as Shareholder, Trustee, officer, employee, agent,
investment adviser or manager, principal underwriter, or independent
contractor, including any action taken or omitted that may be determined to
constitute negligence, whether or not the Trust would have the power to
indemnify such person against such liability;
(o) To pay pensions for faithful service, as deemed appropriate by the
Trustees, and to adopt, establish and carry out pension, profit-sharing,
share bonus, share purchase, savings, thrift and other retirement,
incentive and benefit plans, trusts and provisions, including the
purchasing of life insurance and annuity contracts as a means of providing
such retirement and other benefits, for any or all of the Trustees,
officers, employees and agents of the Trust; and
(p) To engage in any other lawful act or activity in which
corporations organized under the Massachusetts Business Corporation Law may
engage.
The Trustees shall not in any way be bound or limited by any present or
future law or custom in regard to investments by trustees.
Except as otherwise provided herein or from time to time in the Bylaws, any
action to be taken by the Trustees may be taken by a majority of the Trustees
present at a meeting of Trustees (a quorum being present), within or without
Massachusetts, including any meeting held by means of a conference telephone
or other communications equipment by means of which all persons participating in
the meeting can hear each other at the same time and participation by such means
shall constitute presence in person at a meeting, or by written consents of a
majority of the Trustees then in office.
PAYMENT OF EXPENSES BY TRUST
Section 4. The Trustees are authorized to pay or to cause to be paid out of
the principal or income of the Trust, or partly out of principal and partly out
of income, as they deem fair, all expenses, fees, charges, taxes and liabilities
incurred or arising in connection with the Trust, in connection with the
management thereof, or in connection with the financing of the sale of Shares,
including, but not limited to, the Trustees' compensation and such expenses and
charges for the services of the Trust's officers, employees, any investment
adviser, manager, or sub-adviser, principal underwriter, auditor,
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counsel, custodian, transfer agent, shareholder servicing agent, and such other
agents or independent contractors and such other expenses and charges as the
Trustees may deem necessary or proper to incur, provided, however, that all
expenses, fees, charges, taxes and liabilities incurred or arising in connection
with a particular series of Shares as determined by the Trustees, shall be
payable solely out of the assets of that series.
OWNERSHIP OF ASSETS OF THE TRUST
Section 5. Title to all of the assets of each series of Shares and of the
Trust shall at all times be considered as vested in the Trustees.
ADVISORY, MANAGEMENT AND DISTRIBUTION
Section 6. The Trustees may, at any time and from time to time, contract
for exclusive or nonexclusive advisory and/or management services with any
corporation, trust, association or other organization (the "Manager"), every
such contract to comply with such requirements and restrictions as may be set
forth in the Bylaws; and any such contract may provide for one or more
Sub-advisers who shall perform all or part of the obligations of the Manager
under such Contract and may contain such other terms interpretive of or in
addition to said requirements and restrictions as the Trustees may determine,
including, without limitation, authority to determine from time to time what
investments shall be purchased, held, sold or exchanged and what portion, if
any, of the assets of the Trust shall be held uninvested and to make changes in
the Trust's investments. The Trustees may also, at any time and from time to
time, contract with the Manager or any other corporation, trust, association or
other organization, appointing it exclusive or nonexclusive distributor or
principal underwriter for the Shares, every such contract to comply with such
requirements and restrictions as may be set forth in the Bylaws; and any such
contract may contain such other terms interpretive of or in addition to said
requirements and restrictions as the Trustees may determine.
The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, manager,
adviser, principal underwriter or distributor or agent of or for any
corporation, trust, association, or other organization, or of or for any
parent or affiliate of any organization, with which an advisory or
management contract, or principal underwriter's or distributor's contract,
or transfer, shareholder servicing or other
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agency contract may have been or may hereafter be made, or that any such
organization, or any parent or affiliate thereof, is a Shareholder or has
an interest in the Trust, or that
(ii) any corporation, trust, association or other organization with
which an advisory or management contract or principal underwriter's or
distributor's contract, or transfer, shareholder servicing or other agency
contract may have been or may hereafter be made also has an advisory or
management contract, or principal underwriter's or distributor's contract,
or transfer, Shareholder servicing or other agency contract with one or
more other corporations, trusts, associations, or other organizations, or
has other business or interests
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its Shareholders.
ARTICLE V
Shareholders' Voting Powers and Meetings
Shareholders shall have such power to vote as is provided for in, and may
hold meetings and take actions pursuant to the provisions of the Bylaws.
ARTICLE VI
Distributions, Redemptions and Repurchases
DISTRIBUTIONS
Section 1. The Trustees may each year, or more frequently if they so
determine, distribute to the Shareholders of each series such income and capital
gains, accrued or realized, as the Trustees may determine, after providing for
actual and accrued expenses and liabilities (including such reserves as the
Trustees may establish) determined in accordance with good accounting practices.
The Trustees shall have full discretion to determine which items shall be
treated as income and which items as capital and their determination shall be
binding upon the Shareholders. Distributions of each year's income of each
series shall be distributed pro rata to Shareholders in proportion to the number
of Shares of each series held by each of them. Such distributions shall be made
in cash or Shares or a combination thereof as determined by the Trustees. Any
such distribution paid in Shares will be paid
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at the net asset value thereof as determined in accordance with the Bylaws.
REDEMPTIONS AND REPURCHASES
Section 2. The Trust shall purchase such Shares as are offered by any
Shareholder for redemption, upon the presentation of any certificate for the
Shares to be purchased, a proper instrument of transfer and a request directed
to the Trust or a person designated by the Trust that the Trust purchase such
Shares, or in accordance with such other procedures for redemption as the
Trustees may from time to time authorize; and the Trust will pay therefor the
net asset value thereof, as next determined in accordance with the Bylaws, less
such redemption charge or fee as the Trustees may determine from time to time.
Payment for said Shares shall be made by the Trust to the Shareholder within
seven days after the date on which the request is made. The obligation set forth
in this Section 2 is subject to the provision that in the event that any time
the New York Stock Exchange is closed for other than customary weekends or
holidays, or, if permitted by rules of the Commission, during periods when
trading on the Exchange is restricted or during any emergency which makes it
impractical for the Trust to dispose of its investments or to determine fairly
the value of its net assets, or during any other period permitted by order of
the Commission for the protection of investors, such obligation may be suspended
or postponed by the Trustees. The Trust may also purchase or repurchase Shares
at a price not exceeding the net asset value of such Shares in effect when the
purchase or repurchase or any contract to purchase or repurchase is made.
REDEMPTIONS AT THE OPTION OF THE TRUST
Section 3. The Trust shall have the right at its option and at any time to
redeem Shares of any Shareholder at the net asset value thereof as determined in
accordance with the Bylaws: (i) if at such time such Shareholder owns fewer
Shares than, or Shares having an aggregate net asset value of less than, an
amount determined from time to time by the Trustees; or (ii) to the extent that
such Shareholder owns Shares of a particular series of Shares equal to or in
excess of a percentage of the outstanding Shares of that series determined from
time to time by the Trustees; or (iii) to the extent that such Shareholder owns
Shares of the Trust representing a percentage equal to or in excess of such
percentage of the aggregate number of outstanding Shares of the Trust or the
aggregate net asset value of the Trust determined from time to time by the
Trustees.
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DIVIDENDS, DISTRIBUTIONS, REDEMPTIONS AND REPURCHASES
Section 4. No dividend or distribution (including, without limitation, any
distribution paid upon termination of the Trust or of any series) with respect
to, nor any redemption or repurchase of, the Shares of any series shall be
effected by the Trust other than from the assets of such series.
ARTICLE VII
Compensation and Limitation of Liability of Trustees
COMPENSATION
Section 1. The Trustees as such shall be entitled to reasonable
compensation from the Trust; they may fix the amount of their compensation.
Nothing herein shall in any way prevent the employment of any Trustee for
advisory, management, legal, accounting, investment banking, underwriting,
brokerage, or investment dealer or other services and payment for the same by
the Trust.
LIMITATION OF LIABILITY
Section 2. The Trustees shall not be responsible or liable in any event for
any neglect or wrongdoing of any officer, agent, employee, manager or principal
underwriter of the Trust, nor shall any Trustee be responsible for the act or
omission of any other Trustee, but nothing herein contained shall protect any
Trustee against any liability to which he or she would otherwise be subject by
reason of wilful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office.
Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever executed or done by or on behalf of the
Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been executed or done only in or with respect to
their or his or her capacity as Trustees or Trustee, and such Trustees or
Trustee shall not be personally liable thereon.
ARTICLE VIII
Indemnification
TRUSTEES, OFFICERS, ETC.
Section 1. The Trust shall indemnify each of its Trustees and officers
(including persons who serve at the
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Trust's request as directors, officers or trustees of another organization in
which the Trust has any interest as a shareholder, creditor or otherwise)
(hereinafter referred to as a "Covered Person") against all liabilities and
expenses, including but not limited to amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and counsel fees reasonably
incurred by any Covered Person in connection with the defense or disposition of
any action, suit or other proceeding, whether civil or criminal, before any
court or administrative or legislative body, in which such Covered Person may be
or may have been involved as a party or otherwise or with which such Covered
Person may be or may have been threatened, while in office or thereafter, by
reason of being or having been such a Covered Person except with respect to any
matter as to which such Covered Person shall have been finally adjudicated in
any such action, suit or other proceeding (a) not to have acted in good faith in
the reasonable belief that such Covered Person's action was in the best
interests of the Trust or (b) to be liable to the Trust or its Shareholders by
reason of wilful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of such Covered Person's office. Expenses,
including counsel fees so incurred by any such Covered Person (but excluding
amounts paid in satisfaction of judgments, in compromise or as fines or
penalties), shall be paid from time to time by the Trust in advance of the final
disposition of any such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such Covered Person to repay amounts so paid to
the Trust if it is ultimately determined that indemnification of such expenses
is not authorized under this Article, provided, however, that either (a) such
Covered Person shall have provided appropriate security for such undertaking,
(b) the Trust shall be insured against losses arising from any such advance
payments or (c) either a majority of the disinterested Trustees acting on the
matter (provided that a majority of the disinterested Trustees then in office
act on the matter), or independent legal counsel in a written opinion, shall
have determined, based upon a review of readily available facts (as opposed to a
full trial type inquiry) that there is reason to believe that such Covered
Person will be found entitled to indemnification under this Article.
COMPROMISE PAYMENT
Section 2. As to any matter disposed of (whether by a compromise payment,
pursuant to a consent decree or otherwise) without an adjudication by a court,
or by any other body before which the proceeding was brought, that such Covered
Person either (a) did not act in good faith in the reasonable belief that his
action was in the best
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interests of the Trust or (b) is liable to the Trust or its Shareholders by
reason of wilful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office, indemnification
shall be provided if (a) approved as in the best interests of the Trust, after
notice that it involves such indemnification, by at least a majority of the
disinterested Trustees acting on the matter (provided that a majority of the
disinterested Trustees then in office act on the matter) upon a determination,
based upon a review of readily available facts (as opposed to a full trial type
inquiry) that such Covered Person acted in good faith in the reasonable belief
that his action was in the best interests of the Trust and is not liable to the
Trust or its Shareholders by reasons of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office, or (b) there has been obtained an opinion in writing of independent
legal counsel, based upon a review of readily available facts (as opposed to a
full trial type inquiry) to the effect that such Covered Person appears to have
acted in good faith in the reasonable belief that his action was in the best
interests of the Trust and that such indemnification would not protect such
Person against any liability to the Trust to which he would otherwise be
subject by reason of wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office. Any approval
pursuant to this Section shall not prevent the recovery from any Covered Person
of any amount paid to such Covered Person in accordance with this Section as
indemnification if such Covered Person is subsequently adjudicated by a court of
competent jurisdiction not to have acted in good faith in the reasonable belief
that such Covered Person's action was in the best interests of the Trust or to
have been liable to the Trust or its Shareholders by reason of wilful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such Covered Person's office.
INDEMNIFICATION NOT EXCLUSIVE
Section 3. The right of indemnification hereby provided shall not be
exclusive of or affect any other rights to which such Covered Person may be
entitled. As used in this Article VIII, the term "Covered Person" shall include
such person's heirs, executors and administrators and a "disinterested Trustee"
is a Trustee who is not an "interested person" of the Trust as defined in
Section 2(a)(19) of the Investment Company Act of 1940, as amended, (or who has
been exempted from being an "interested person" by any rule, regulation or order
of the Commission) and against whom none of such actions, suits or other
proceedings or another action, suit or other proceeding on
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the same or similar grounds is then or has been pending. Nothing contained in
this Article shall affect any rights to indemnification to which personnel of
the Trust, other than Trustees or officers, and other persons may be entitled by
contract or otherwise under law, not the power of the Trust to purchase and
maintain liability insurance on behalf of any such person; provided, however,
that the Trust shall not purchase or maintain any such liability insurance in
contravention of applicable law, including without limitation the Investment
Company Act of 1940, as amended, and the rules and regulations thereunder.
SHAREHOLDERS
Section 4. In case any Shareholder or former Shareholder shall be held to
be personally liable solely by reason of his or her being or having been a
Shareholder and not because of his or her acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his or her heirs, executors,
administrators or other legal representatives or in the case of a corporation or
other entity, its corporate or other general successor) shall be entitled to be
held harmless from and indemnified against all loss and expense arising from
such liability, but only out of the assets of the particular series of Shares of
which he or she is or was a Shareholder.
ARTICLE IX
Miscellaneous
TRUSTEES, SHAREHOLDERS, ETC. NOT PERSONALLY LIABLE; NOTICE
Section 1. All persons extending credit to, contracting with or having any
claim against the Trust or a particular series of Shares shall look only to the
assets of the Trust or the assets of that particular series of Shares for
payment under such credit, contract or claim; and neither the Shareholders nor
the Trustees, nor any of the Trust's officers, employees or agents, whether
past, present or future, shall be personally liable therefor. Nothing in this
Declaration of Trust shall protect any Trustee against any liability to which
such Trustee would otherwise be subject by reason of wilful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee.
Every note, bond, contract, instrument, certificate or undertaking made or
issued by the Trustees or by any officer or officers shall give notice that this
Declaration of Trust is on file with the Secretary of The Commonwealth of
Massachusetts and shall recite that the same was executed or made by or on
behalf of the Trust or by them as Trustee or
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Trustees or as officers or officer and not individually and that the obligations
of such instrument are not binding upon any of them or the Shareholders
individually but are binding only upon the assets and property of the Trust, and
may contain such further recital as he or she or they may deem appropriate, but
the omission thereof shall not operate to bind any Trustee or Trustees or
officer or officers or Shareholder or Shareholders individually.
TRUSTEE'S GOOD FAITH ACTION, EXPERT ADVICE, NO BOND OR SURETY
Section 2. The exercise by the Trustees of their powers and discretions
hereunder shall be binding upon everyone interested. A Trustee shall be liable
for his or her own willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of Trustee, and
for nothing else, and shall not be liable for errors of judgment or mistakes of
fact or law. The Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Declaration of Trust, and shall be
under no liability for any act or omission in accordance with such advice or for
failing to follow such advice. The Trustees shall not be required to give any
bond as such, nor any surety if a bond is required.
LIABILITY OF THIRD PERSONS DEALING WITH TRUSTEES
Section 3. No person dealing with the Trustees shall be bound to make any
inquiry concerning the validity of any transaction made or to be made by the
Trustees or to see to the application of any payments made or property
transferred to the Trust or upon its order.
DURATION AND TERMINATION OF TRUST
Section 4. Unless terminated as provided herein, the Trust shall continue
without limitation of time. The Trust may be terminated at any time by the vote
of Shareholders holding at least a majority of the Shares of each series
entitled to vote or by the Trustees by written notice to the Shareholders. Any
series of Shares may be terminated at any time by vote of Shareholders holding
at least a majority of the Shares of such series entitled to vote or by the
Trustees by written notice to the Shareholders of such series.
Upon termination of the Trust or of any one or more series of Shares, after
paying or otherwise providing for all charges, taxes, expenses and liabilities,
whether due or accrued or anticipated, of the Trust or of the particular series
as may be determined by the Trustees, the Trust shall
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in accordance with such procedures as the Trustees consider appropriate reduce
the remaining assets to distributable form in cash or shares or other
securities, or any combination thereof, and distribute the proceeds to the
Shareholders of the series involved, ratably according to the number of Shares
of such series held by the several Shareholders of such series on the date of
termination.
FILING OF COPIES, REFERENCES, HEADINGS
Section 5. The original or a copy of this instrument and of each amendment
hereto shall be kept at the office of the Trust where it may be inspected by any
Shareholder. A copy of this instrument and of each amendment hereto shall be
filed by the Trust with the Secretary of The Commonwealth of Massachusetts and
with the Boston City Clerk, as well as any other governmental office where such
filing may from time to time be required. Anyone dealing with the Trust may
rely on a certificate by an officer of the Trust as to whether or not any such
amendments have been made and as to any matters in connection with the Trust
hereunder, and, with the same effect as if it were the original, may rely on a
copy certified by an officer of the Trust to be a copy of this instrument or of
any such amendments. In this instrument and in any such amendment, references
to this instrument, and all expressions like "herein", "hereof" and "hereunder"
shall be deemed to refer to this instrument as amended or affected by any such
amendments. Headings are placed herein for convenience of reference only and
shall not be taken as a part hereof or control or affect the meaning,
construction or effect of this instrument. This instrument may be executed in
any number of counterparts each of which shall be deemed an original.
APPLICABLE LAW
Section 6. This Declaration of Trust is made in The Commonwealth of
Massachusetts, and it is created under and is to be governed by and construed
and administered according to the laws of said Commonwealth. The Trust shall be
of the type commonly called a Massachusetts business trust, and without limiting
the provisions hereof, the Trust may exercise all powers which are ordinarily
exercised by such a trust.
AMENDMENTS
Section 7. This Declaration of Trust may be amended at any time by an
instrument in writing signed by a majority of the then Trustees when authorized
to do so by vote of Shareholders holding a majority of the Shares of each series
entitled to vote, except that an amendment which shall affect the holders of one
or more series of Shares but not
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the holders of all outstanding series shall be authorized by vote of the
Shareholders holding a majority of the Shares entitled to vote of each series
affected and no vote of Shareholders of a series not affected shall be required.
Amendments having the purpose of changing the name of the Trust or of supplying
any omission, curing any ambiguity or curing, correcting or supplementing any
defective or inconsistent provision contained herein shall not require
authorization by Shareholder vote.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal in
the City of Boston, Massachusetts for himself and his assigns, as of the day and
year first above written.
/s/ Michael P. Devine
------------------------------
Michael P. Devine
THE COMMONWEALTH OF MASSACHUSETTS
Boston, April 27, 1984
Suffolk, ss.
Then personally appeared the above-named Michael P. Devine and acknowledged
the foregoing instrument to be his free act and deed, before me,
/s/ Arthur C. Alexander
--------------------------------
Notary Public
My commission expires:
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Exhibit
a(ii)
AMENDMENT NO. 2
to the
AGREEMENT AND DECLARATION OF TRUST
of
CASH ACCUMULATION TRUST
We, the undersigned, being all of the Trustees of Cash Accumulation
Trust (the "Trust"), hereby consent to and adopt the following vote as and for
the action of the Trustees of the Trust, pursuant to Article IV, Section 3 of
the Trust's Agreement and Declaration of Trust:
VOTED: That the last sentence of Section 7 of Article IX of the Trust's
Agreement and Declaration of Trust is hereby amended and restated in
its entirety as follows:
"Amendments having the purpose of changing the name of the Trust,
of establishing, changing, or eliminating the par value of the Shares
or of supplying any omission, curing any ambiguity or curing,
correcting or supplementing any defective or inconsistent provision
contained herein, shall not require authorization by Shareholder
vote."
This consent shall be filed with the minutes of the meetings of Trustees,
and shall for all purposes be treated as action taken at a meeting.
IN WITNESS WHEREOF, the undersigned have hereunto set their respective
hands and seals in the City of New York, New York, for themselves and their
assigns, as of this 9th day of August, 1984.
/s/ Newton B. Schott, Jr. /s/ Robert A. Prindiville
- ---------------------------------- ---------------------------------
Newton B. Schott, Jr., Esq. Robert A. Prindiville
<PAGE>
STATE OF NEW YORK
New York County New York, August 9, 1984
Then personally appeared the above-named Newton B. Schott, Jr. and Robert
A. Prindeville and acknowledged the foregoing instrument to be their free act
and deed, before me,
/s/ Katherine Cogliandro
------------------------------
Notary Public
My Commission expires:
KATHERINE COGLIANDRO
Notary Public, State of New York
No. 24-4718984
Qualified in Kings County
Commission Expires March 30, 1986
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<PAGE>
Exhibit a(iii)
AMENDMENT NO. 3
to the
AGREEMENT AND DECLARATION OF TRUST
of
CASH ACCUMULATION TRUST
We, the undersigned, being a majority of the Trustees of Cash
Accumulation Trust (the "Trust"), hereby consent to and adopt the following
vote as and for the action of the Trustees of the Trust, pursuant to Article
IV, Section 3 of the Trust's Agreement and Declaration of Trust:
VOTED: That the third sentence of Section 1 of Article III of the Trust's
Agreement and Declaration of Trust is hereby amended and restated in
its entirety as follows:
"The beneficial interest in each series shall be divided into Shares,
with a par value of $0.00001, each of which shall represent an equal
proportionate interest in the series with each other Share of the
same series, none having priority or preference over another."
This consent shall be filed with the minutes of the meetings of
Trustees, and shall for all purposes be treated as action taken at a meeting.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands and
seals in New York, New York, as of this 11th day of September, 1984.
/s/ Donald R. Caldwell /s/ Gary Light
- ---------------------------- ---------------------------
Donald R. Caldwell Gary Light
/s/ Donald P. Carter /s/ John J. Maloney
- ---------------------------- ---------------------------
Donald P. Carter John J. Maloney
/s/ Emmet Cashin, Jr. /s/ J. Ronald Morgan
- ---------------------------- ---------------------------
Emmet Cashin, Jr. J. Ronald Morgan
/s/ Robert A. Prindiville
- ---------------------------- ---------------------------
Timothy S. Healy, S.J. Robert A. Prindiville
/s/ Joel Segall
- ---------------------------- ---------------------------
Joel Segall Newton B. Schott
/s/ William G. Christensen
- ----------------------------
William G. Christensen
<PAGE>
ACKNOWLEDGMENT
STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
Then personally appeared the above-named Donald R. Caldwell,
Donald P. Carter, Emmet Cashin, Jr., Joel Segall, William G. Christensen,
Gary Light, John J. Maloney, Jr., J. Ronald Morgan and Robert A. Prindiville
each of whom acknowledged the foregoing instrument to be his free act and
deed, before me,
/s/ Elizabeth A. Mc Lellan
--------------------------
Notary Public
My Commission expires:
ELIZABETH A. MC LELLAN
Notary Public, State of New York
No. 31-4606890
Qualified in New York County
Commission Expires March 30, 1986
<PAGE>
CUSIP
NUMBER SHARES
ESTABLISHED UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
CASH ACCUMULATION TRUST
NATIONAL MONEY MARKET FUND
THIS CERTIFIES THAT SEE REVERSE FOR
CERTAIN DEFINITIONS
PROOF
is the holder of 8/7/84 shares
of beneficial interest in CASH ACCUMULATION TRUST--NATIONAL MONEY MARKET FUND,
fully paid and nonassessable, which shares have been issued and are held under
and subject to terms and provisions of the Agreement and Declaration of Trust
dated April 27, 1984, establishing Cash Accumulation Trust, and all amendments
thereto, heretofore or hereafter made, copies of which are on file with the
Secretary of the Commonwealth of Massachusetts.
No transfer hereof will be of any effect as regards the Trustees of CASH
ACCUMULATION TRUST until this certificate, properly endorsed or assigned, has
been surrendered and the transfer recorded upon the books of said Trustees.
This certificate is executed on behalf of the Trustees as Trustees and not
individually and the obligations hereof are not binding upon any of the Trustees
or shareholders individually but are binding only upon the assets and property
of the Fund.
IN WITNESS WHEREOF the Trustees under said Agreement and
Declaration of Trust have caused the following facsimile
signatures to be affixed to this certificate and a facsimile of
their common seal to be hereto affixed by SHAREHOLDER SERVICES,
INC., Transfer Agent.
Dated
[SEAL] SHAREHOLDER SERVICES, INC.
CASH ACCUMULATION TRUST Transfer Agent
1984
MASSACHUSETTS
/s/ Robert A. Prindiville
-----------------------------------
)
President) FOR THE TRUSTEES
)
/s/ Joseph F. Morris
----------------------------------- -------------------------
Authorized Signatory Authorized Signatory
<PAGE>
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the certificate, in every particular, without
alteration or enlargement, or any change whatever.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM --as tenants in common
TEN ENT --as tenants by the entireties
JT TEN --as joint tenants with right of survivorship and
not as tenants in common
UNIF GIFT MIN ACT--______________Custodian________________under Uniform
(Cust) (Minor)
Gifts to Minors Act__________________.
(State)
Additional abbreviations may also be used though not in the above list.
For value received,__________________________________hereby sell, assign and
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
transfer unto _________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_________________________________________________________________________shares
of beneficial interest represented by the within certificate, and hereby
irrevocably constitute and appoint
_______________________________________________________________________attorney
to transfer the said shares on the books of the within mentioned Trust with full
power of substitution in the premises.
Dated
---------------------------
- -------------------------------------------------------------------------------
Signature guaranteed:
- -------------------------------------------------------------------------------
SIGNATURE MUST BE GUARANTEED BY A NATIONAL BANK, OR TRUST COMPANY, OR BY A
COMMERCIAL BANK WHICH IS A MEMBER OF THE FEDERAL RESERVE SYSTEM OR OF THE
FEDERAL DEPOSIT INSURANCE CORPORATION, OR BY A MEMBER FIRM OF THE NEW YORK,
BOSTON, AMERICAN, MIDWEST OR PACIFIC COAST STOCK EXCHANGE.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 26 to the registration
statement on Form N-1A (the "Registration Statement") of our reports dated
November 20, 1998, relating to the financial statements and financial highlights
of Cash Accumulation Trust (the "Trust", consisting of Liquid Assets Fund and
National Money Market Fund) which appear in such Statement of Additional
Information, and to the incorporation by reference of our reports into the
Prospectus which constitutes part of this Registration Statement. We also
consent to the reference to us under the heading "Investment Advisory and Other
Services" in such Statement of Additional Information and to the reference to us
under the heading "Financial Highlights" in such Prospectus.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
January 13, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000748719
<NAME> CASH ACCUMULATION TRUST
<SERIES>
<NUMBER> 001
<NAME> LIQUID ASSETS FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 466,225,555
<INVESTMENTS-AT-VALUE> 466,225,555
<RECEIVABLES> 12,480,259
<ASSETS-OTHER> 4,383
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 23,877,703
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 12,888,006
<TOTAL-LIABILITIES> 0
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<PAID-IN-CAPITAL-COMMON> 441,944,488
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<NET-ASSETS> (441,914,488)
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 16,647,803
<OTHER-INCOME> 0
<EXPENSES-NET> 611,150
<NET-INVESTMENT-INCOME> 16,036,653
<REALIZED-GAINS-CURRENT> 7,050
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 16,043,703
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (16,043,703)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,011,683,905
<NUMBER-OF-SHARES-REDEEMED> (2,585,117,032)
<SHARES-REINVESTED> 15,377,615
<NET-CHANGE-IN-ASSETS> 441,944,488
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 190,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 611,150
<AVERAGE-NET-ASSETS> 374,141,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.21
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000748719
<NAME> CASH ACCUMULATION TRUST
<SERIES>
<NUMBER> 002
<NAME> NATIONAL MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 541,711,430
<RECEIVABLES> 20,777,428
<ASSETS-OTHER> 141,768
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 32,845,077
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 22,497,749
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 507,287,800
<SHARES-COMMON-STOCK> 507,287,800
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> (507,287,800)
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 31,153,367
<OTHER-INCOME> 0
<EXPENSES-NET> 3,383,914
<NET-INVESTMENT-INCOME> 27,769,453
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<NET-CHANGE-FROM-OPS> 27,769,453
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (27,769,453)
<NUMBER-OF-SHARES-SOLD> 5,056,612,846
<NUMBER-OF-SHARES-REDEEMED> (5,275,771,195)
<SHARES-REINVESTED> 24,443,399
<NET-CHANGE-IN-ASSETS> (194,714,950)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,098,187
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,383,914
<AVERAGE-NET-ASSETS> 507,288,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
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<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
