As filed with the Securities and Exchange Commission on January 27, 1995
Registration Nos. 33-48066
811-6677
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
---------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 4
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 6
(Check appropriate box or boxes)
---------
THE PRUDENTIAL INSTITUTIONAL FUND
(Exact name of registrant as specified in charter)
751 BROAD STREET
NEWARK, NEW JERSEY 07102-3777
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (800) 824-7513
Mark R. Fetting
30 Scranton Office Park
Moosic, Pennsylvania 18507-1789
(Name and Address of Agent for Service)
copies to:
Clifford Alexander, Esq.
Kirkpatrick & Lockhart
South Lobby, 9th Fl.
1800 M Street, N.W.
Washington, DC 10036-5891
---------
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 February 1, 1995 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (a) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment
The Registrant has elected, pursuant to Rule 24f-2 under the Investment
Company Act of 1940, to register an indefinite number of shares. In accordance
with Rule 24f-2, the Registrant has filed a notice under such Rule for its
fiscal year ended September 30, 1994, on November 29, 1994.
================================================================================
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 495)
N-1A Item No. Location
- ------------- --------
Part A
Item 1. Cover Page.................... Cover Page
Item 2. Synopsis...................... Introduction to the
Funds; Expense
Information
Item 3. Condensed Financial
Information................. Expense Information,
Financial Highlights,
Performance and Yield
Information
Item 4. General Description of
Registrant.................. Cover Page; Introduction to
the Funds; More Facts
About the Company
Item 5. Management of the Fund........ Introduction to the
Funds; Management of
the Company
Item 6. Capital Stock and Other
Securities.................. The Funds; Investors Guide
to Services; Other
Considerations; More
Facts About the Company
Item 7. Purchase of Securities
Being Offered............... Management of the Company;
Investors Guide to
Services; Other
Considerations
Item 8. Redemption or Repurchase...... Investors Guide to
Services; Other
Considerations
Item 9. Pending Legal Proceedings..... Not Applicable
-i-
<PAGE>
N-1A Item No. Location
- ------------- --------
Part B
Item 10. Cover Page.................... Cover Page
Item 11. Table of Contents............. Table of Contents
Item 12. General Information and
History..................... Not Applicable
Item 13. Investment Objectives and
Policies.................... The Funds; Other Investment
Practices, Risk Conditions,
and Policies of the Funds;
Investment Restrictions
Item 14. Management of the Fund........ Management of the Company;
The Trustees and Officers
Item 15. Control Persons and Principal
Holders of Securities....... Not Applicable
Item 16. Investment Advisory and
Other Services.............. Management of the Company;
The Trustees and Officers;
Custodian, Transfer and
Dividend Disbursing Agent
Item 17. Brokerage Allocation and
Other Practices............. Other Considerations
Item 18. Capital Stock and Other
Securities.................. Other Considerations
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered............... Other Considerations
Item 20. Tax Status.................... Other Considerations
Item 21. Underwriters.................. Management of the Company
Item 22. Calculation of
Performance Data............ Performance and Yield
Information
Item 23. Financial Statements ......... Financial Statements
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
-ii-
<PAGE>
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The Prudential [LOGO] The Prudential Institutional Fund
Prospectus dated February 1, 1995
The Prudential Institutional Fund is a no-load mutual fund that is
designed to provide a range of investment alternatives for certain retirement
programs and arrangements and other institutional investors. The Prudential
Institutional Fund consists of the following seven investment funds:
Growth Stock Fund seeks to achieve long-term growth of capital through
investment primarily in equity securities of established companies with
above-average growth prospects.
Stock Index Fund seeks to provide investment results that correspond to
the price and yield performance of Standard & Poor's 500 Composite Stock Price
Index.
International Stock Fund seeks to achieve long-term growth of capital
through investment in equity securities of foreign issuers. Income is a
secondary objective.
Active Balanced Fund seeks to achieve total returns approaching equity
returns, while accepting less risk than an all-equity portfolio, through an
actively-managed portfolio of equity securities, fixed income securities and
money market instruments.
Balanced Fund seeks to realize long-term total return consistent with
moderate portfolio risk.
Income Fund seeks to achieve a high level of income over the longer term
while providing reasonable safety of capital.
Money Market Fund seeks to achieve high current income, preservation of
principal and maintenance of liquidity, while striving to maintain a $1.00 net
asset value per share.
Investments in the Money Market Fund (or in any other Fund) are neither
insured nor guaranteed by the U.S. Government. There can be no assurance that
the Money Market Fund will be able to maintain a stable net asset value of
$1.00 per share.
Prospective investors should note that all of the Funds reserve the right
to borrow money for temporary and extraordinary purposes and (except for the
Money Market Fund) in order to take advantage of investment opportunities,
which may be considered speculative due to the increased costs and expenses
involved.
The Prudential Institutional Fund is designed to meet the needs of
retirement program sponsors, program participants, individual retirement
accounts and certain institutional investors who seek the expertise, service,
and commitment to quality that organizations within The Prudential family of
investment service companies can provide. The Prudential affiliates provide
experienced investment management, investor services, recordkeeping, and
administrative services to the Prudential Institutional Fund.
-------------
This Prospectus gives you information about The Prudential Institutional
Fund that you should be aware of before investing. Additional information
about The Prudential Institutional Fund has been filed with the Securities and
Exchange Commission in a Statement of Additional Information, dated February
1, 1995, which information is incorporated herein by reference and is
available, without charge, upon written request to The Prudential
Institutional Fund, 21 Prudential Plaza, 751 Broad Street, Newark, New Jersey
07102-3777.
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Table of Contents
Introduction to the Funds .......................... 1
Expense Information ................................ 2
Financial Highlights ............................... 3
The Funds .......................................... 5
Risk Factors ....................................... 8
Management of the Company .......................... 9
Investors Guide to Services ........................ 11
Other Considerations ............................... 12
Performance and Yield Information .................. 14
Other Investment Practices, Risk
Conditions,and Policies of the Funds ............. 14
More Facts About the Company ....................... 21
<PAGE>
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Introduction to the Funds
The Company. The Prudential Institutional Fund (the "Company") is a
no-load, open-end diversified management investment company, commonly known as a
mutual fund. The Company is organized as a Delaware business trust.
The Funds. The Company is comprised of seven investment portfolios (the
"Funds"), each of which is diversified. Each Fund has its own investment
objectives and policies, which are summarized below and described in detail
beginning on page 4.
The Advisers. Each Fund is managed by a registered investment adviser
("Adviser") which is a direct or indirect subsidiary of The Prudential Insurance
Company of America ("The Prudential"). The Advisers operate under the
supervision of Prudential Institutional Fund Management, Inc., the Company's
investment manager ("Manager").
Opening an Account. The Administrator of your retirement plan or your
employee benefits office can provide you with detailed information on how to
participate in your plan and how to select a Fund as an investment option.
<TABLE>
<CAPTION>
Name of Fund Investment Objective Invests Primarily in Investment Adviser
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth Stock Fund Seeks to achieve A diversified port- Jennison Asso-
long-term growth folio of equity se- ciates Capital
of capital curities of estab- Corp.("Jennison")
lished companies
with above average
growth prospects
- ------------------------------------------------------------------------------------------------------------------------------------
Stock Index Fund Seeks to provide A diversified port- The Prudential
investment results folio of equity se- Investment
that correspond to curities, which as a Corporation
the price and group is designed to ("PIC")
yield performance approximate the
of Standard & price and yield per-
Poor's 500 Compos- formance of the S&P
ite Stock Price 500 Index
Index
("S&P 500 Index")
- ------------------------------------------------------------------------------------------------------------------------------------
International Stock Fund Seeks to achieve A diversified port- Mercator Asset
long-term growth folio of equity se- Management,
of capital; income curities of foreign Inc.
is a secondary issuers ("Mercator")
objective
- ------------------------------------------------------------------------------------------------------------------------------------
Active Balanced Fund Seeks to achieve An actively-managed Jennison
total returns ap- portfolio of equity
proaching equity securities, fixed
returns, while income securities
accepting less and money market
risk than an instruments
all-equity portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced Fund Seeks to achieve A diversified port- PIC
long-term total folio which allo-
return consistent cates its assets
with moderate among equity secu-
portfolio risk rities, fixed income
securities and money
market instruments
- ------------------------------------------------------------------------------------------------------------------------------------
Income Fund Seeks to achieve a Debt securities, PIC
high level of in- including corporate
come over the lon- debt obligations,
ger term while mortgage-backed and
providing reason- asset-backed secu-
able safety of rities, U.S. Govern-
capital ment obligations,
and U.S.
dollar-denominated
debt securities of
foreign issuers
- ------------------------------------------------------------------------------------------------------------------------------------
Money Market Fund Seeks to achieve A diversified port- PIC
high current in- folio of
come, preservation high-quality domes-
of principal and tic and U.S.
maintenance of dollar-denominated
liquidity, while foreign money market
striving to main- instruments that
tain a $1.00 net present minimal
asset value per credit risks
share
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Each Fund may be expected to have different investment results and
different market and financial risks, which are described in detail beginning
on page 5. Since shares of a Fund represent an investment in securities with
fluctuating market prices, the net asset value per share of each Fund, other
than the Money Market Fund, and the value of a shareholder's holdings will
vary as the aggregate value of a Fund's portfolio securities increases or
decreases. It is anticipated that shares of the Money Market Fund will be pur-
chased, redeemed or exchanged at a net asset value of $1.00 per share,
although there can be no assurance that the Fund will be able to maintain a
constant net asset value per share. For information on how to purchase and
redeem shares, or to exchange the shares of one Fund for shares of another
Fund, please refer to pages 11-12.
The dividends paid by each Fund will vary proportionally to the income
received from its investments and the expenses incurred by the Fund. Dividends
and other distributions of each Fund are declared in cash and automatically
reinvested in additional shares of the Fund. While shareholders may not elect
to receive dividends and other distributions in cash, the same effect may be
achieved at any time by redeeming shares of the Fund.
The investment objectives of each Fund set forth above are fundamental and
may not be changed without a vote of the shareholders of that Fund. However, the
investment policies and practices of each Fund, unless otherwise specifically
stated, are not fundamental. There can be no assurance that a Fund will achieve
its investment objectives.
1
<PAGE>
- --------------------------------------------------------------------------------
Expense Information
The following table, including the examples below, is included to assist
your understanding of the various costs and expenses that an investor will
incur directly and indirectly as a shareholder in each of the Funds based upon
each Fund's annual operating expenses. The fees and expenses set forth below
for the Funds are based on data for the Fund's fiscal year ended September 30,
1994. The example should not be considered a representation of past or future
performance. Actual fees and expenses for each of the Funds for the current
year may be greater or less than those stated below. A more complete
description of all fees and expenses is included in this Prospectus in the
section entitled "Expenses."
<TABLE>
<CAPTION>
Shareholder Growth Stock International Active Money
Transaction Stock Index Stock Balanced Balanced Income Market
Expenses Fund Fund Fund Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales Load Imposed on Purchase None None None None None None None
Sales Load Imposed on Reinvested Dividends None None None None None None None
Deferred Sales Load Imposed on Redemptions None None None None None None None
Redemption Fee None None None None None None None
Exchange Fee None None None None None None None
Annual Operating Expenses (as a percentage of average daily net assets)
- -----------------------------------------------------------------------------------------------------------------------
Management Fees (Before Reduction) .70% .40% 1.15% .70% .70% .50% .45%
Distribution Expenses None None None None None None None
Other Expenses (Before Reduction) .41% .73% .58% .43% .63% .44% .51%
Total Operating Expenses (Before Reduction) 1.11% 1.13% 1.73% 1.13% 1.33% .94% .96%
Total Operating Expenses (After Reduction)<F1> 1.00% .60% 1.60% 1.00% 1.00% .70% .60%
- ------------
<FN>
(F1)
In the interest of limiting the expenses of the Funds, the Manager has agreed,
until September 30, 1996, to bear any expenses that would cause the ratio of
expenses payable by each Fund to average daily net assets ("Fund Operating
Expenses") to exceed the Total Operating Expenses (After Reduction) for that
Fund specified in this line of the table. Expenses paid or assumed under this
agreement are subject to recoupment by the Manager from the relevant Fund in
later years, provided that (a) no recoupment will be made, in any year, if it
would result in the Fund's expense ratio for that year exceeding the
estimated Total Operating Expenses (After Reduction) and (b) no recoupment will
be made after December 31, 1996. Each Fund's organizational expenses will be
charged to that Fund over a period not to exceed 60 months.
</FN>
</TABLE>
Examples: An investor in each Fund would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2) redemption at the end of each
future time period*:
1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------
Growth Stock Fund $ 10 $ 32 $ 55 $122
- -------------------------------------------------------------------------------
Stock Index Fund $ 6 $ 19 $ 33 $ 75
- -------------------------------------------------------------------------------
International Stock $ 16 $ 50 $ 87 $190
- -------------------------------------------------------------------------------
Active Balanced Fund $ 10 $ 32 $ 55 $122
- -------------------------------------------------------------------------------
Balanced Fund $ 10 $ 32 $ 55 $122
- -------------------------------------------------------------------------------
Income Fund $ 7 $ 22 $ 39 $ 87
- -------------------------------------------------------------------------------
Money Market Fund $ 6 $ 19 $ 33 $ 75
- ----------
* There are no charges imposed upon redemption.
The above examples should not be considered to be a representation of past or
future expenses for each Fund. Actual expenses may be greater or less than those
shown above. Similarly, the annual rate of return assumed in the above examples
is not an estimate or guarantee of future investment performance, but is
included for illustrative purposes only.
2
<PAGE>
- -------------------------------------------------------------------------------
Financial Highlights (for a share outstanding through-out the indicated period)
The following financial highlights have been audited by Deloitte & Touche LLP,
independent accountants, whose report thereon was unqualified. This information
should be read in conjunction with the financial statements and notes thereto,
which appear in the Statement of Additional Information. The following financial
highlights contain selected data for a share of beneficial interest outstanding,
total return, ratios to average net assets and other supplemental data for the
periods indicated. The information is based on data contained in the financial
statements.
<TABLE>
<CAPTION>
Growth Stock Fund Stock Index Fund International Stock Fund Active Balanced Fund
----------------------- -------------------- ------------------------ ---------------------
November 5, November 5, November 5, January 4,
Year 1992* Year 1992* Year 1992* Year 1993*
Ended Through Ended Through Ended Through Ended Through
September September September September September September September September
30, 1994 30, 1993 30, 1994 30, 1993 30, 1994 30, 1993 30, 1994 30, 1993
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period ................... $12.10 $10.00 $11.12 $10.00 $12.35 $10.00 $11.05 $10.00
------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income<F1>...... -- .04 .26 .23 .13 .16 .24 .21
Net realized and unrealized
gain (loss) on investment
and foreign currency
transactions ................ (.06) 2.08 .11 .94 2.54 2.21 (.12) .84
------ ------ ----- ------ ------ ------ ------ ------
Total from investment
operations .................. (.06) 2.12 .37 1.17 2.67 2.37 .12 1.05
------ ------ ----- ------ ------ ------ ----- ------
Less distributions:
Dividends from net
investment income ........... (.01) (.02) (.18) (.05) (.03) (.02) (.14) --
Distributions from
net realized gains .......... (.03) -- (.04) -- (.15) -- (.11) --
------ ------ ------ ------ ------ ------ ------ ------
Total distributions ........... (.04) (.02) (.22) (.05) (.18) (.02) (.25) --
------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of period ............... $12.00 $12.10 $11.27 $11.12 $14.84 $12.35 $10.92 $11.05
====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN# (0.50)% 21.22% 3.33% 11.73% 21.71% 23.74% 1.07% 10.50%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000) ................ $106,956 $47,998 $50,119 $27,142 $102,824 $31,708 $81,176 $38,786
Average net assets (000) ...... $ 71,449 $17,592 $38,098 $18,807 $ 68,476 $14,491 $58,992 $12,815
Ratios to average net assets:<F1>
Expenses 1.00% 1.00%<F2> .60% .60%<F2> 1.60% 1.60%<F2> 1.00% 1.00%<F2>
Net investment income ....... .04% .31%<F2> 2.34% 2.41%<F2> 1.08% 1.44%<F2> 3.06% 2.68%<F2>
Portfolio turnover rate ....... 65% 84% 2% 1% 21% 15% 40% 47%
- -----------
<FN>
* Commencement of investment operations.
(F1)
Net of expense subsidy.
(F2)
Annualized.
# Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes reinvestment
of dividends and other distributions. Total return for periods of less than
a full year are not annualized.
</FN>
</TABLE>
3
<PAGE>
- -------------------------------------------------------------------------------
Financial Highlights (for a share outstanding through-out the indicated period)
<TABLE>
<CAPTION>
Balanced Fund Income Fund Money Market Fund
---------------------- ---------------------- ---------------------
November 5, March 1, January 4,
Year 1992* Year 1993* Year 1993*
Ended Through Ended Through Ended Through
September September September September September September
30, 1994 30, 1993 30, 1994 30, 1993 30, 1994 30, 1993
--------- --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period ......................... $ 11.80 $ 10.00 $ 10.33 $ 10.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------ ------
Income from investment
operations:
Net investment income <F1>...... .31 .31 .52 .27 .03 .02
Net realized and unrealized gain
(loss) on investment and foreign
currency transactions .......... (.52) 1.54 (.91) .33 -- --
------- ------- ------- ------- ------ ------
Total from investment
operations ..................... (.21) 1.85 (.39) .60 .03 .02
------- ------- ------- ------- ------ ------
Less distributions:
Dividends from net investment
income ......................... (.23) (.05) (.52) (.27) (.03) (.02)
Distributions from net realized
gains .......................... (.28) -- (.04) -- -- --
------- ------- ------- ------- ------ ------
Total distributions ............ (.51) (.05) .56) (.27) (.03) (.02)
------- ------- ------- ------- ------ ------
Net asset value,
end of period ................ $ 11.08 $ 11.80 $ 9.38 $ 10.33 $ 1.00 $ 1.00
======= ======= ======= ======= ====== ======
TOTAL RETURN# .................. (1.88)% 18.58% (3.91)% 6.11% 3.32% 2.08%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000) ................. $64,313 $27,663 $41,401 $35,015 $46,331 $30,235
Average net assets (000) ....... $44,048 $17,401 $37,802 $25,626 $38,170 $25,296
Ratios to average
net assets:<F1>
Expenses ..................... 1.00% 1.00%<F2> .70% .70%<F2> .60% .60%<F2>
Net investment income ........ 2.86% 3.16%<F2> 5.24% 4.62%<F2> 3.34% 2.73%<F2>
Portfolio turnover rate ........ 52% 74% 83% 93% -- --
- -----------
<FN>
* Commencement of investment operations.
<F1>
Net of expense subsidy.
<F2>
Annualized.
# Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes
reinvestment of dividends and other distributions. Total return for
periods of less than a full year are not annualized.
</FN>
</TABLE>
4
<PAGE>
- --------------------------------------------------------------------------------
The Funds
Growth Stock Fund. The objective of the Growth Stock Fund is to achieve
long-term growth of capital through investment primarily in equity securities of
established companies with above-average growth prospects. Current income, if
any, is incidental.
Under normal market conditions, at least 65% of the value of the total assets of
the Fund will be invested in common stocks and preferred stocks of companies
that exceed $1 billion in market capitalization. Stocks will be selected on a
company-by-company basis primarily through use of fundamental analysis.
Jennison, the Adviser for the Fund, looks for companies that have demonstrated
growth in earnings and sales, high returns on equity and assets, or other strong
financial characteristics, and, in the judgment of Jennison, are attractively
valued. These companies tend to have a unique market niche, a strong new product
profile or superior management.
The Fund may also invest up to 35% of its total assets in: (i) common stocks,
preferred stocks and other equity-related securities of companies that are
undergoing changes in management or product and marketing dynamics that have not
yet been reflected in reported earnings but that are expected to impact earnings
in the intermediate term--these securities often lack investor recognition and
are often favorably valued, (ii) other equity-related securities; (iii) with
respect to a maximum of 20% of its total assets, common stocks, preferred stocks
and other equity-related securities of foreign issuers; (iv) investment grade
fixed income securities and mortgage-backed securities, including lower rated
securities (securities rated Baa by Moody's Investor Services ("Moody's") or BBB
by Standard & Poor's Ratings Group ("S&P") or, if not rated, determined by
Jennison to be of comparable quality to securities so rated); and (v)
obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities.
The effort to achieve superior investment return necessarily involves a risk of
exposure to declining values. Securities in which the Fund may primarily invest
have historically been more volatile than the S&P 500 Index. Accordingly, during
periods when stock prices decline generally, it can be expected that the value
of the Fund may decline more than the market indices. However, on a long-term
basis, Jennison anticipates that the investment return of the Fund should exceed
that of the market indices.
In order to invest uncommitted cash balances, maintain liquidity to meet
redemptions, or for hedging or incidental income purposes, the Fund may: (i)
enter into repurchase agreements, when-issued, delayed-delivery and forward
commitment transactions; (ii) lend its portfolio securities; (iii) purchase and
sell put and call options on securities and stock indices; and (iv) purchase and
sell futures contracts on stock indices and options thereon.
See "Other Investment Practices, Risk Conditions, and Policies of the Funds"
below for a fuller description of these investment practices and their risks.
Stock Index Fund. The Stock Index Fund seeks to provide investment results that
correspond to the price and yield performance of the S&P 500 Index. The S&P 500
Index is an unmanaged, market-weighted index of 500 stocks selected by S&P on
the basis of their market size, liquidity and industry group representation.
Inclusion in the S&P 500 Index in no way implies an opinion by S&P as to a
stock's attractiveness as an investment. The S&P 500 Index, composed of stocks
representing more than 70% of the total market value of all publicly traded U.S.
common stocks, is widely regarded as representative of the performance of the
U.S. stock market as a whole. "Standard & Poor's(r)", "S&P(r)", "S&P 500(r)",
"Standard & Poor's 500", and "500" are trademarks of McGraw-Hill, Inc. and have
been licensed for use by The Prudential Insurance Company of America and its
affiliates and subsidiaries. The Fund is not sponsored, endorsed, sold or
promoted by S&P and S&P makes no representation regarding the advisability of
investing in the Fund. See "The Funds--Stock Index Fund" in the Statement of
Additional Information regarding certain additional disclaimers and limitations
of liability on behalf of S&P.
Traditional methods of security analysis will not be used in connection with the
management of this Fund by PIC, the Adviser for the Fund, in making investment
decisions. Instead, PIC will use a passive, indexing approach. To achieve its
investment objective, the Fund will purchase equity securities that as a group
reflect the price and yield performance of the S&P 500 Index. The Fund intends
to purchase all 500 stocks included in the S&P 500 Index in approximately the
same proportions as they are represented in the S&P 500 Index. The Fund may,
however, seek to compensate for omissions of stocks that are included in the S&P
500 Index, or for purchases of stocks in proportions that differ from their
weightings in the S&P 500 Index, by purchasing other stocks, in appropriate
amounts, that may or may not be included in the S&P 500 Index but that have
characteristics similar to the omitted or differently weighted stocks (such as
stocks from the same or similar industry group that have similar market
capitalizations and investment characteristics) ("Substitute Securities"). In
addition, from time to time adjustments may be made in the Fund's holdings due
to changes in the composition of the S&P 500 Index. The Fund will not adopt a
temporary defensive investment posture in times of generally declining market
conditions, and investors in the Fund, therefore, will bear the risk of such
market conditions.
PIC believes that this investment approach will provide an effective method of
tracking the performance of the S&P 500 Index. Nevertheless, PIC does not expect
that the Fund's performance will precisely correspond to the performance of the
S&P 500 Index. The Fund will attempt to achieve a correlation between its
performance and that of the S&P 500 Index of at least 0.95, without taking into
account expenses. A correlation of 1.00 would indicate perfect correlation,
which would be achieved when the Fund's net asset value, including the value of
its dividends and capital gains distributions, increases or decreases in exact
proportion to changes in the S&P 500 Index. PIC will, of course, attempt to
minimize any tracking differential (i.e., the statistical measure of the
difference between the investment results of the Fund and those of the S&P 500
Index). Tracking will be monitored on a daily basis. All tracking maintenance
activities will be reviewed regularly to determine whether any changes in
policies or techniques are necessary. However, in addition to potential tracking
differences, brokerage and other transaction costs, as well as other Fund
expenses, may cause the Fund's return to be lower than the return of the S&P 500
Index. Consequently, there can be no assurance as to how closely the Fund's
performance will correspond to the performance of the S&P 500 Index.
5
<PAGE>
- --------------------------------------------------------------------------------
The Fund intends that at least 80% of the value of its total assets will be
invested in securities included in the S&P 500 Index. The Fund may invest the
balance of its assets in: (i) Substitute Securities; (ii) other equity-related
securities; (iii) obligations issued or guaranteed by the U.S. Government, its
agencies and instrumentalities; (iv) put and call options on securities and
stock indices; and (v) futures contracts on stock indices and options thereon.
Options, futures contracts, and options on futures contracts are used, if at
all, primarily to hedge the Fund's portfolio, to invest uncommitted cash
balances, to maintain liquidity to meet redemptions, to facilitate tracking or
to reduce transaction costs.
In order to invest uncommitted cash balances, maintain liquidity to meet
redemptions, or for incidental return enhancement purposes, the Fund may also:
(i) enter into repurchase agreements, when-issued, delayed-delivery and forward
commitment transactions; and (ii) lend its portfolio securities. See "Other
Investment Practices, Risk Conditions, and Policies of the Funds" below for a
fuller description of these investment practices and their risks.
International Stock Fund. The International Stock Fund seeks to achieve
long-term growth of capital through investment in equity securities of foreign
companies. Income is a secondary objective.
The Fund will, under normal circumstances, invest at least 65% of the value of
its total assets in common stocks and preferred stocks of issuers located in at
least three foreign countries. The Fund will invest primarily in seasoned
companies (i.e., companies with an established operating record of 3 years or
greater) that are incorporated, organized, or that do business primarily outside
the U.S. The Fund will invest in securities of such foreign issuers through
direct market purchases on foreign stock exchanges and established
over-the-counter markets as well as through the purchase of ADRs, European
Depository Receipts ("EDRs") or other similar securities.
The Fund intends to broadly diversify its holdings among issuers located in
developed and developing countries having national financial markets. Mercator,
the Adviser for the Fund, believes that broad diversification provides a prudent
means of reducing volatility while permitting the Fund to take advantage of the
potentially different movements of major equity markets. While the Fund may
invest anywhere outside the U.S., it expects that most of its investments will
be made in securities of issuers located in developed countries in North
America, Western Europe, and the Pacific Basin. In allocating the Fund's
investments among different countries and geographic regions, Mercator will
consider such factors as relative economic growth, expected levels of inflation,
government policies affecting business conditions, and market trends throughout
the world. In selecting companies within those countries and geographic regions,
Mercator seeks to identify those companies that are best positioned and managed
to benefit from the factors listed above.
Investing in securities of foreign issuers generally involves greater risks than
investing in the securities of domestic companies. These risks are often
heightened for investments in emerging or developing countries. See "Other
Investment Practices, Risk Conditions, and Policies of the Funds--Securities of
Foreign Issuers" below for a description of these risks.
The Fund does not currently expect to invest 25% or more of its net assets in
any one country. For temporary defensive purposes, the Fund may invest in common
stocks, preferred stocks and other equity-related securities of U.S. issuers,
without limitation.
The Fund may invest up to 35% of the value of its total assets in: (i) other
equity-related securities of foreign issuers; (ii) common stocks, preferred
stocks and other equity-related securities of U.S. issuers; (iii) investment
grade debt securities, including lower rated securities (securities rated Baa by
Moody's or BBB by S&P or, if not rated, determined by Mercator to be of
comparable quality to securities so rated) of domestic and foreign corporations,
governments, governmental entities, and supranational entities (such as the
Asian Development Bank, the European Coal and Steel Community, the European
Economic Community, and the International Bank for Reconstruction and
Development (the "World Bank")); and (iv) invest in high-quality domestic money
market instruments and short-term fixed income securities. The Fund's use of
money market instruments and short-term debt securities will generally reflect
Mercator's overall measure of optimism relating to the global equity markets,
and the Fund will use such securities to reduce downside volatility during
uncertain or declining market conditions.
In order to invest uncommitted cash balances, maintain liquidity to meet
redemptions, or for hedging or incidental return enhancement purposes, the Fund
may: (i) enter into repurchase agreements, when-issued, delayed-delivery and
forward commitment transactions; (ii) lend its portfolio securities; and (iii)
purchase and sell put and call options on any securities in which it may invest
and options on any securities index based on securities in which the Fund may
invest. In order to attempt to reduce risks associated with currency
fluctuations, the Fund may (i) purchase and sell currency spot contracts; (ii)
purchase and sell currency futures contracts and currency forward contracts; and
(iii) purchase and sell put and call options on currencies and on foreign
currency futures contracts. See "Other Investment Practices, Risk Considerations
and Policies of the Funds" below for a fuller description of these investment
practices and their risks.
Active Balanced Fund. The objective of this Fund is to seek to achieve total
returns approaching equity returns, while accepting less risk than an all-equity
portfolio, through an actively-managed portfolio of equity securities, fixed
income securities, and high quality money market instruments.
Jennison, the Adviser to the Fund, uses the following ranges as the normal
operating parameters for the securities to be purchased by the Fund: (i) 40-75%
of the total assets of the Fund will be invested in common stocks, preferred
stocks and other equity-related securities; (ii) 25-60% of the total assets of
the Fund will be invested in investment grade fixed income securities; and (iii)
0-35% of the total assets of the Fund will be invested in money market
instruments. Within these parameters, at least 25% of the Fund's total assets
will be invested in fixed income senior securities.
Unlike the Balanced Fund, the Active Balanced Fund's investments will actively
be shifted among these asset classes in order to capitalize on intermediate
term (i.e., 12 to 18 months) valuation opportunities and to maximize the Fund's
total investment return. The equity component of this Fund
6
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will be invested in the common stocks, preferred stocks and other equity-related
securities of companies that are expected to generate superior earnings growth
or are attractively valued. The fixed income component of this Fund will be
invested primarily in fixed income securities rated "A" or better by Moody's or
S&P or, if not rated, determined by Jennison to be of comparable quality to
securities so rated. However, the Fund may also invest up to 20% of the fixed
income portion of its portfolio in securities rated Baa/BBB (or the equivalent
rating) or, if not rated, determined by Jennison to be of comparable quality to
securities so rated. The weighted average maturity of the fixed income component
of the Fund will normally be between 10 and 25 years. See "Other Investment
Practices, Risk Conditions, and Policies of the Funds--Fixed Income Securities"
below and "Other Investment Practices, Risk Conditions and Policies of the
Funds--Debt Securities" in the Statement of Additional Information for a fuller
description of these securities.
Under normal market conditions at least 65% of the value of the Fund's total
assets will be invested according to the above allocations. Within these
allocations, the Fund's assets may be invested as follows: (i) up to 15% of the
Fund's total assets, in common stocks, preferred stocks and other equity-related
securities of foreign issuers; (ii) up to 20% of the Fund's total assets, in
investment grade fixed income securities of foreign issuers; (iii) in
mortgage-backed securities; (iv) in custodial receipts and asset-backed
securities; and (v) in obligations issued or guaranteed by the U.S. Government,
its agencies and instrumentalities.
In order to invest uncommitted cash balances, to maintain liquidity to meet
redemptions, or for hedging or incidental return enhancement, the Fund may: (i)
enter into repurchase agreements, when-issued, delayed-delivery and forward
commitment transactions; (ii) lend its portfolio securities; (iii) purchase and
sell put and call options on securities, stock indices and interest rate
indices; (iv) purchase and sell futures contracts on stock indices and interest
rate indices and options thereon and (v) purchase and sell futures contracts on
securities.
The Fund also may: (i) purchase and sell currency spot contracts; (ii) purchase
and sell currency futures contracts and currency forward contracts; and (iii)
purchase and sell put and call options on currencies and on foreign currency
futures contracts in each case to attempt to reduce risks associated with
currency fluctuations. See "Other Investment Practices, Risk Conditions, and
Policies of the Funds" below for a fuller description of these investment
practices and their risks.
Balanced Fund. The Balanced Fund seeks to realize long-term total return
consistent with moderate portfolio risk. To achieve its objective, the Balanced
Fund will allocate at least 65% of its total assets among (i)common stocks,
preferred stocks and other equity-related securities (including ADRs); (ii)
investment grade fixed income securities of intermediate maturities, including
lower rated securities (securities rated Baa by Moody's or BBB by S&P or above
or, if not rated, determined by PIC to be of comparable quality to securities so
rated); and (iii) high-quality money market instruments and other short-term
investment grade debt securities.
PIC will adjust the mix of investments among these three asset categories to
capitalize on perceived variations in the potential for return resulting from
the interaction of changing economic and financial market conditions, taking
into consideration the risks associated with each type of security. PIC uses the
following ranges as the normal operating parameters for each type of security to
be purchased for the Fund: (i) 25-50% of the Fund's total assets will be
invested in common stocks, preferred stocks and other equity-related securities
(including ADRs); (ii) 30-60% of the Fund's total assets will be invested in
investment grade fixed income securities of intermediate maturities; and (iii)
0-45% of the Fund's total assets will be invested in money market instruments.
Within these parameters, at least 25% of the Fund's total assets will be
invested in fixed income senior securities. The equity portion of the Fund will
be invested using an approach that combines a value orientation to stock
valuations with an in-depth analysis of individual companies. Stock prices will
be evaluated relative to a company's profitability, estimated earnings growth,
quality of management and other factors such as underlying asset value and the
presence of problems that are believed to be temporary. While the majority of
the Fund's holdings are expected to be in larger, well-established companies,
the Fund may also invest in the equity securities of smaller companies.
Adjustments to the investment mix of the Balanced Fund normally will be made in
a gradual manner over a period of time, depending on market and economic
conditions.
The Fund may also invest up to 35% of the value of its total assets in: (i)
common stocks, preferred stocks and other equity-related securities of foreign
issuers not traded in the U.S. or denominated in U.S. dollars; (ii) investment
grade fixed income securities of foreign issuers; (iii) mortgage-backed
securities; (iv) custodial receipts and asset-backed securities; and (v)
obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities.
In order to invest uncommitted cash balances, to maintain liquidity to meet
redemptions, or for hedging or incidental return enhancement purposes, the Fund
may: (i) purchase and sell put and call options on securities, stock indices and
interest rate indices; (ii) purchase and sell futures contracts on securities,
stock indices and interest rate indices, and (iii) enter into interest rate swap
transactions.
In order to invest uncommitted cash balances, maintain liquidity to meet
redemptions, or for return enhancement, the Fund may also: (i) enter into
repurchase agreements, when-issued, delayed-delivery and forward commitment
transactions; and (ii) lend its portfolio securities.
With respect to the equity component of the Fund's total assets, the Fund also
may: (i) purchase and sell currency spot contracts; (ii) purchase and sell
currency futures contracts and currency forward contracts; and (iii) purchase
and sell put and call options on currencies and on foreign currency futures
contracts in each case to attempt to reduce risks associated with currency
fluctuations. See "Other Investment Practices, Risk Conditions, and Policies of
the Funds" below for a fuller description of these investment practices and
their risks.
Income Fund. The Income Fund seeks a high level of income over the longer term
while providing reasonable safety of capital by investing in securities with a
low level of default risk, with the effect of seeking preservation of capital.
To achieve its objective, the Fund will invest, under normal
7
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circumstances, at least 65% of the value of its total assets in fixed income
securities. Such securities include: (i) corporate debt obligations; (ii)
mortgage-backed securities; (iii) custodial receipts and asset-backed
securities; (iv) U.S. Government obligations (such as U.S. Treasury bills, notes
and bonds), and securities issued by its agencies or its instrumentalities; and
(v) U.S. dollar-denominated investment grade fixed income securities of foreign
issuers. The Fund will invest primarily in fixed income securities rated "A" or
better by Moody's or S&P (or the equivalent rating) or, if not rated, determined
by PIC to be of comparable quality to securities so rated. However, the Fund may
also invest up to 20% of its portfolio in securities rated Baa/BBB or above (or
the equivalent rating) or, if not rated, determined by PIC to be of comparable
quality to securities so rated.
The Fund has no maturity restrictions. However, PIC anticipates that the
securities in which the Fund will invest will primarily be intermediate to
long-term debt securities having an average maturity of between 5 and 20 years.
Movements in interest rates typically have a greater effect on the price of
longer-term bonds than shorter-term bonds. Normally, the value of the Fund's
investments will vary inversely with changes in interest rates. As interest
rates rise, the value of the Fund's investments will tend to decline and, as
interest rates fall, the value of the Fund's investments will tend to increase.
See "Other Investment Practices, Risk Conditions, and Policies of the
Funds--Fixed Income Securities" below and "Other Investment Practices, Risk
Conditions and Policies of the Funds--Debt Securities" in the Statement of
Additional Information for a fuller description of debt securities and their
risks.
In order to invest uncommitted cash balances, to maintain liquidity to meet
redemptions, or for hedging or incidental yield enhancement purposes, the Fund
may also: (i) purchase and sell put and call options on securities and interest
rate indices; (ii) purchase and sell futures contracts on securities, securities
indices and interest rate indices; and (iii) enter into interest rate swap
transactions, caps, collars and floors. To facilitate the Fund's investment
program, the Fund may also purchase and sell non-U.S. dollar denominated
investment grade fixed income securities of foreign issuers.
In order to invest uncommitted cash balances, maintain liquidity to meet
redemptions, or for additional income, the Fund may also: (i) enter into
repurchase agreements, when-issued, delayed-delivery and forward commitment
transactions; and (ii) lend its portfolio securities. See "Other Investment
Practices, Risk Conditions, and Policies" below for a fuller description of
these securities and investment techniques.
Money Market Fund. The Money Market Fund seeks to achieve high current income,
preservation of principal, and maintenance of liquidity. To achieve its
objectives, the Fund will invest in a diversified portfolio of high-quality
domestic and U.S. dollar-denominated foreign money market instruments that
present minimal credit risks and which, at the time of acquisition, are eligible
securities. Eligible securities include securities or issuers of securities
rated in one of the two highest credit categories for short-term debt
obligations assigned by any two nationally recognized statistical rating
organizations ("NRSROs"), or by one NRSRO, if only one has rated the money
market securities ("Requisite NRSROs") or, if unrated, are of comparable
investment quality. The Money Market Fund will invest at least 95% of its total
assets in eligible securities that are rated within the highest rating category
for short-term debt obligations by the Requisite NRSROs or unrated securities of
comparable investment quality. The Fund may also invest up to 50% of the value
of its total assets in U.S. dollar-denominated short-term securities of foreign
issuers.
The eligible money market securities in which the Fund may invest include: (i)
short-term obligations of the U.S. Government, its agencies, and
instrumentalities; (ii) short-term obligations of banks and savings and loan
associations, including certificates of deposit, banker's acceptances, and time
deposits; (iii) short-term corporate obligations, including notes and bonds with
remaining maturities of 397 days or less; (iv) commercial paper (unsecured
promissory notes having maturities of 9 months or less) issued by corporations
and finance companies; (v) repurchase agreements; and (vi) U.S.
dollar-denominated obligations of foreign issuers. Certain of these money market
securities may have adjustable rates of interest with periodic demand features.
The Fund will invest in eligible money market securities maturing in 397 days or
less and will maintain a dollar-weighted average portfolio maturity of 90 days
or less. These practices are designed to minimize any price fluctuation in the
Fund's portfolio securities. The Fund seeks to maintain a constant net asset
value of $1.00 per share, although in certain circumstances this may not be
possible.
PIC will actively manage the Fund, adjusting the composition of investments and
the average maturity of the Fund's portfolio according to its outlook for
short-term interest rates. During periods of rising interest rates, a shorter
average maturity may be expected, while a longer maturity may be more
appropriate when interest rates are falling.
In order to invest uncommitted cash balances, maintain liquidity to meet
redemptions, or for additional income, the Fund may (i) enter into repurchase
agreements, when-issued, delayed-delivery and forward commitment transactions
and (ii) lend its portfolio securities. See "Other Investment Practices, Risk
Conditions, and Policies of the Funds" below for a fuller description of these
investment practices and their risks.
RISK FACTORS
As discussed above under the section entitled "The Funds", an investment in each
Fund is subject to certain risks as a result of the particular investment
practices and policies followed by the Fund. For a fuller description of the
types of securities in which each of the Funds may invest, the investment
techniques each Fund may employ and the risks associated with these investments
and techniques, see the section entitled "Other Investment Practices, Risk
Conditions and Policies of the Funds" below that begins on page 14.
For a discussion of some of the additional risks associated with investment in
the Funds generally, see the section entitled "Other Considerations" that begins
on page 12.
8
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Management of the Company
The Manager. Prudential Institutional Fund Management, Inc. (the "Manager") 30
Scranton Office Park, Moosic, Pennsylvania, 18507-1789 is the Manager of the
Company. The Manager, is an indirect wholly-owned subsidiary of The Prudential,
one of the largest diversified insurance and financial services institutions in
the world. The Manager was incorporated on May 6, 1992 under the laws of the
State of Pennsylvania. See "The Manager and Advisers" in the Statement of
Additional Information.
Subject to the supervision and direction of the Company's Trustees (the
"Trustees"), the Manager provides a continuous investment program for the
Company, monitors each Adviser's investment performance, and evaluates and
recommends whether each Adviser's contract should be renewed, modified, or
terminated. The Manager also supervises all matters relating to the Company's
operations and business affairs and may provide certain of the special
processing services described below.
For the year ended September 30, 1994, the total expenses, net of expense
subsidy, as a percentage of average daily net assets of the Funds' shares, were
1.00% for the Growth Fund, .60% for the Stock Index Fund, 1.60% for the
International Stock Fund, 1.00% for the Active Balanced Fund, 1.00% for the
Balanced Fund, .70% for the Income Fund and .60% for the Money Market Fund. See
"Financial Highlights" above.
Each Fund pays the Manager a fee for its services provided to the Fund that is
computed daily and paid monthly. For the year ended September 30, 1994, the
Manager was paid a management fee at the annual rate specified below, expressed
as a percentage of the Fund's average daily net assets:
Fund Management Fee
(Before Reduction)*
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Growth Stock Fund .70%
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Stock Index Fund .40%
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International Stock Fund 1.15%
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Active Balanced Fund .70%
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Balanced Fund .70%
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Income Fund .50%
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Money Market Fund .45%
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* The Management Fee paid by the International Stock Fund is higher than
that charged to most investment companies. As a result of the limitation
of expenses agreed to by the Manager for the period ending September 30,
1996, the Manager did not retain any management fees for the Stock Index
Fund for the year ended September 30, 1994.
The Management Agreement between the Company and the Manager provides that one
or more additional expense limitation periods (of the same or different levels
and time periods) may be implemented after the expiration of the period ending
September 30, 1996 plus the period during which recoupment may occur (until
December 31, 1996), and that with respect to such additional limitation period,
the Manager may recoup such expenses from a Fund, provided the recoupment does
not result in the Fund's aggregate expenses exceeding the additional expense
limitation. The Manager may hereafter agree, from time to time, to further waive
or modify any waiver of its management fee and subsidize certain operating
expenses of a Fund.
The Advisers. The Manager has entered into Sub-Advisory Agreements (each, an
"Advisory Agreement") with PIC, Jennison and Mercator (each, an "Adviser")
under which each furnishes investment advisory services in connection with the
management of the various Funds. The Manager (not the Funds) compensates each
Adviser for its services. Under the Advisory Agreements, each Adviser, subject
to the supervision of the Manager and the Trustees, is responsible for managing
the assets of the respective Funds in accordance with their investment
objectives, investment programs, and policies. Each Adviser determines what
securities and other instruments are purchased and sold for its respective Fund
and is responsible for obtaining and evaluating financial data relevant to each
Fund. The Manager reimburses PIC for the reasonable costs and expenses it incurs
in providing services to the Funds and pays Jennison and Mercator a fee as
compensation for the performance of these services.
The Prudential Investment Corporation, 751 Broad Street, Newark, New Jersey
07102, serves as Adviser to the Stock Index Fund, the Balanced Fund, the Income
Fund, and the Money Market Fund. PIC also invests available cash balances for
all of the Funds which it may do through a joint repurchase agreement account.
PIC also administers the securities lending program for the Funds.
Prudential Diversified Investment Strategies (PDI Strategies), a unit of PIC, is
responsible for the day-to-day management of the Balanced Fund and the Stock
Index Fund. PDI Strategies employs a team approach to the management of the
Balanced Fund, and has managed the portfolio of the Fund since its commencement.
Roger E. Ford, a Managing Director of PIC, assumed responsibility for the
day-to-day portfolio management of the equity portion of the Balanced Fund
portfolio effective February, 1995. Mr. Ford has been employed by PIC as a
portfolio manager since 1972. Kay T. Willcox, Managing Director and Senior
Portfolio Manager of Prudential Global Advisors, a unit of PIC, assumed
responsibility for the day-to-day portfolio management of the bond portion of
the Balanced Fund effective February, 1995. Ms. Willcox has been a portfolio
manager at PIC since 1987.
Prudential Global Advisors, a successor to Prudential Fixed Income Advisors, is
also responsible for the day-to-day management of the Income Fund and Money
Market Fund. With respect to the Income Fund, Ms. Willcox is responsible for the
day-to-day portfolio management and has managed the Income Fund since November,
1993.
PIC, a wholly-owned subsidiary of The Prudential, is a registered investment
adviser and a New Jersey corporation. PIC serves as adviser to institutional
investors, including The Prudential, and various other mutual funds.
Jennison Associates Capital Corp., 466 Lexington Avenue, New York, New York
10017, serves as Adviser to the Growth Stock Fund and the Active Balanced Fund.
David Poiesz, a Director and Senior Vice President of Jennison, is responsible
for the day-to-day portfolio management of the Growth Stock Fund. Mr. Poiesz has
managed the portfolio of the Growth Stock Fund since its incep-
9
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tion in November, 1992. Mr. Poiesz joined Jennison in 1983 as an equity analyst,
and has been an equity portfolio manager since 1991.
Bradley L. Goldberg, a Director and Senior Vice President of Jennison, is
responsible for the day-to-day portfolio management of the Active Balanced Fund.
Mr. Goldberg has managed the portfolio of the Active Balanced Fund since its
inception in January 1993 and has been employed as an equity manager with
Jennison since 1974.
Jennison, a wholly-owned subsidiary of The Prudential, is a registered
investment adviser and a New York corporation with over $21 billion in assets
under management, as of December 31, 1994. Jennison serves as adviser to various
institutional investors and other mutual funds.
Mercator Asset Management, Inc., 2400 East Commercial Boulevard, Fort
Lauderdale, Florida 33308, serves as Adviser to the International Stock Fund.
Peter F. Spano, a Managing Director of Mercator, is responsible for the
day-to-day management of the portfolio of the International Stock Fund. Mr.
Spano has managed the portfolio of the International Stock Fund since its
inception in November, 1992 and has been employed as a portfolio manager with
Mercator since its founding in 1984.
Mercator, an indirect wholly-owned subsidiary of The Prudential, is a registered
investment adviser and a Florida corporation with $1.6 billion in assets under
management as of December 31, 1994. Mercator serves as adviser to various
institutional investors and mutual funds.
The Administrator, Transfer Agent and Dividend Disbursing Agent. The Company has
entered into an administration service agreement (the "Administration
Agreement"), with Prudential Mutual Fund Management, Inc. ("PMF"), One
Seaport Plaza, New York, New York, 10292, which provides that PMF, a Delaware
corporation and an indirect wholly-owned subsidiary of The Prudential, will
furnish to the Company such services as the Company may require in connection
with administration of the Company's business affairs. Under the Administration
Agreement, the Company will pay PMF a monthly fee at an annual rate of .17% of
the average daily net assets of the Company up to $250 million and .15% of the
Company's average daily net assets in excess of $250 million. PMF will also
provide the Company with transfer agent and dividend disbursing services for no
additional fee, through its wholly-owned subsidiary, Prudential Mutual Fund
Services, Inc. ("PMFS" or "Transfer Agent"), Raritan Plaza One, Edison, New
Jersey 08837. Its mailing address is P.O. Box 15005, New Brunswick, New Jersey
08906-5005. PMF will reimburse PMFS for certain of the out-of-pocket expenses
PMFS may incur in providing these services and the Company will reimburse PMF
for those out-of-pocket expenses.
The Distributor. Prudential Retirement Services, Inc. (the "Distributor"), 751
Broad Street, Newark, New Jersey 07102, an affiliate of the Manager and a
corporation organized under the laws of Delaware, has entered into a
Distribution Agreement (the "Distribution Agreement") with the Company
pursuant to which it will serve as the Distributor of the Company's shares.
Potential investors may be introduced to the Distributor, and persons who
introduce investors may be compensated for such introductions.
10
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Investors Guide to Services
Investment in the Company and Special Processing. As an institutional fund,
shares are offered exclusively to retirement programs and arrangements
("Programs") through their plan sponsors, to Individual Retirement Accounts
("IRAs") and to certain institutional investors. Sponsors of a Program or their
agents are referred to as "Program Sponsor(s)" or "Program Administrator(s)"
and individual employees participating in a Program are referred to as
"Participant(s)," and individual investors who separate from a program are
referred to as "Continuing Participant(s)." Endowments, foundations, insurance
companies and other institutional investors are referred to as "Other
Institutional Investors". The term "shareholders" refers to each or all of
these categories as well as to IRAs, as appropriate.
Investments by Participants are made through their Program Sponsor's
recordkeeper, who is responsible for transmitting all orders for the purchase,
redemption or exchange of Company shares. The availability of each Fund, and the
procedures for investing, depend upon the provisions of the Program and whether
the Program Sponsor has contracted with the Company or its transfer agent for
special processing services, including subaccounting. Continuing Participants,
other institutional investors and IRA investors must arrange for services
through Prudential Institutional Fund Management, Inc., the Manager, by
contacting them at 30 Scranton Office Park, Moosic, PA 18507-1789. The following
services are offered specifically to sponsors of qualified retirement programs.
Purchasing Shares. Shares of a Fund may be purchased through a Program Sponsor's
recordkeeper or directly from the Company's Transfer Agent, PMFS. The purchase
price for shares of a Fund will be the net asset value per share next determined
following receipt of a purchase order by the Program Sponsor's recordkeeper or
PMFS. A purchase order must include the information necessary to determine the
proper share allocation for each Participant. In addition, the Manager may
determine, at its own discretion, to require the Program Sponsor's recordkeeper
to deliver to PMFS the funds for initial investment prior to accepting any
purchase order. Plans should determine, prior to investing in the Funds, whether
the Manager will require the delivery of funds for the initial investment prior
to accepting a purchase order. The Company reserves the right to reject any
purchase order (including an exchange order) or to suspend or modify the
continuous offering of its shares.
The Program Sponsor and its recordkeeper and PMFS are responsible for forwarding
payment promptly to the Company. Except where funds are received prior to the
opening of the account, the Company reserves the right to cancel any purchase
order for which payment has not been received by the fifth business day
following the investment. On behalf of the Company, the Manager, in its sole
discretion, may require assurances from the Program Sponsor and its recordkeeper
concerning timely payment of funds and payment of damages for failure to deliver
funds and purchase orders on a timely basis.
The Company also may determine to accept eligible securities as payment for a
Program's initial investment in a Fund. Eligible securities include any security
that a Fund has authority to purchase, consistent with its investment
restrictions and operating policies as set forth in this Prospectus and the
Statement of Additional Information, and that the Company otherwise agrees to
accept. Acceptance of such securities is at the absolute discretion of the
Company, and the Company may refuse to accept any securities at any time.
Eligible securities are valued using the same methods the Fund uses to value its
portfolio securities, except that applicable stock transfer taxes, if any, may
reduce the amount exchanged. The exchange of securities by the investor pursuant
to this offer will constitute a taxable transaction and may result in a gain or
a loss for federal income tax purposes.
Redemptions. Requests to redeem shares where the proceeds are not immediately
invested in shares of another Fund (see the section entitled "Exchange
Privilege" below) must be made in writing (or by such other means as agreed
upon in advance by the Program Sponsor's recordkeeper and the Program
Administrator) to the Program Sponsor's recordkeeper. Requests for the
redemption of shares are considered received when all required information and
any necessary signatures have been provided. The Company generally will redeem
for cash all full and fractional shares. The redemption price is the net asset
value per share next determined after receipt by the Company of proper notice of
redemption. The payment of redemption proceeds will be made by check (or at the
discretion of the Program Recordkeeper, by electronic credit to the
Participant's account at a financial institution). Unless extraordinary
circumstances exist, the payment of proceeds will be made within seven days of
the receipt of the request for redemption. The Company has reserved the right to
redeem shares in excess of $250,000 or 1% of the net asset value of each Fund
during any 90-day period for any one shareholder by "distribution in kind" of
securities (instead of cash) from such Funds. The Company does not intend to
exercise this right except in special circumstances when it determines that it
is in the interest of the Company and its shareholders. Redemption in kind is
not as liquid as cash redemption. If redemption is made in kind, shareholders
receiving portfolio instruments and selling them before their maturity could
receive less than the redemption value of their securities and the redeeming
shareholder will incur transaction costs from disposing of such securities. The
right of redemption may be suspended under unusual circumstances, as permitted
by law. If shares to be redeemed were purchased with clearing house funds, the
Company reserves the right to delay payment until it is reasonably sure the
funds have been credited to its account. If shares were purchased by personal,
corporate, or government check, proceeds may be delayed until the check has been
honored, but in no event more than 15 calendar days from the date of receipt of
the check. This procedure does not apply to shares purchased by wire payment.
Prior to the time the redemption is effective, dividends on such shares will
accrue and be payable, and you will be entitled to exercise all other rights of
beneficial ownership.
Exchange Privilege. Shares of each Fund may be exchanged for shares of any other
available Fund (depending upon the provisions of the Program) by written,
facsimile, telecopy, telephone or electronic exchange request through the
Program's recordkeeper at the net asset value next determined after receipt by
the Funds' Transfer Agent or the Program Sponsor's record-keeper of an exchange
request in good order. Exchanges
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are currently permitted at no charge, subject to any minimum investment
requirements, or any general limitations of the Fund into which an exchange is
sought. Currently, there are no such requirements or limitations. The exchange
privilege may be modified or withdrawn by the Company upon 60 days' notice to
shareholders.
Signatures. When a Program provides that redemption may only be made by written
request, the signature on a written redemption request must be exactly as shown
on the enrollment form. In addition to a Program Participant's signature, a
written request must include all other signatures required by the Program and
federal law.
Telephone Requests. Certain Programs may offer telephone and telecopy exchange
privileges to participants who have completed a telephone exchange authorization
form. Eligible participants may obtain the telephone exchange authorization form
by contacting their Program Sponsor or Program Recordkeeper. For the
participant's protection and to prevent fraudulent exchanges, telephone calls
will be recorded and the participant will be asked to provide his or her
personal identification number. A written confirmation of the exchange
transaction will be sent to the participant. Neither the Funds nor their agents
will be liable for any loss, liability or cost which results from acting upon
instructions reasonably believed to be genuine under the foregoing procedures.
All exchanges will be made on the basis of the relative net asset value of the
two Funds next determined after the request is received in good order. Telephone
and telecopy exchange privileges are available only if the Program Sponsor has
so elected and only in states where these exchanges may legally be made. The
authorization form and any limitations thereunder are designed to minimize
unauthorized exercise of these privileges. Telephone requests for loans that
result in a redemption may also be made. During times of extraordinary economic
or market changes, telephone privileges or telecopied instructions may be
difficult to implement.
Other Services
[] Reinvestment of Distributions. Income dividends and capital gain
distributions with respect to a particular Fund are declared in cash and
automatically reinvested in additional shares of that Fund. Shares of each
Fund, including shares received as dividends and other distributions, may
be redeemed for cash at any time. See "Investors Guide to Services" below
for a further description of share redemptions.
[] Systematic Withdrawal Plan. A Systematic Withdrawal Plan may be established
by a Program Administrator subject to the requirements of its Program,
federal tax laws, and the Company's applicable procedures. The
shareholder's interest in each Fund designated for systematic withdrawals
or in other programs for which the Manager or its affiliates act as
investment manager, must have a minimum value of $5,000 when the Systematic
Withdrawal Plan begins, unless used for the purpose of satisfying minimum
distribution rules. The proceeds from scheduled redemption of shares are
forwarded to the shareholder on a monthly, quarterly, semi-annual or annual
basis. Payments are in equal dollar amounts and must be at least $250. A
fee may be charged for accommodating wire transfer requests. For the
protection of shareholders and the Company, wiring instructions must be on
file prior to executing any request for the wire transfer of systematic
withdrawal proceeds. A shareholder may change the bank account previously
designated by written request, including appropriate signature guarantees,
a copy of any applicable corporate resolution or other relevant
documentation.
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FURTHER INFORMATION REGARDING THESE SERVICES MAY BE OBTAINED FROM A SERVICE
REPRESENTATIVE. EACH OF THESE SERVICES IS SUBJECT TO THE REQUIREMENTS AND
LIMITATIONS OF THE PROGRAM AND MAY HAVE TAX CONSEQUENCES THAT DEPEND ON THE
INDIVIDUAL TAX STATUS OF THE RECIPIENT.
Other Considerations
Net Asset Value. The net asset value for each Fund is determined by subtracting
from the value of all securities, cash and other assets of each Fund, the amount
of its liabilities (including accrued expenses and dividends payable), and
dividing the result by the number of outstanding shares of that Fund. For
valuation purposes, quotations of foreign securities in a foreign currency are
converted to U.S. dollar equivalents. The Trustees have fixed the specific time
of day for the computation of the net asset value of all the Funds (except the
Money Market Fund) to be as of 4:15 p.m., New York time. The Money Market Fund
shall calculate net asset value as of 4:30 p.m., New York time.
Fund securities and other assets are valued based on market quotations, or, if
not readily available, at fair market value as determined in good faith under
procedures established by the Company's Trustees. See "Other
Considerations--Net Asset Value" in the Statement of Additional Information.
Each Fund computes its net asset value once daily on business days. Business
days are days when the NYSE is open for trading except on days on which no
orders to purchase, sell, or redeem shares have been received by the Company or
days on which changes in the value of the Company's portfolio securities do not
affect net asset value. The NYSE is closed on the following holidays: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
The Money Market Fund determines the value of its portfolio securities by the
amortized cost method. This method involves valuing an instrument at its cost
and thereafter assuming a constant amortization to maturity of any discount or
premium regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Money Market Fund would receive if it sold
the instrument. During these periods, the yield to an existing shareholder may
differ somewhat from that which could be obtained if the Fund marked its
portfolio securities to market each day. The Trustees have established
procedures designed to stabilize, to the extent reasonably possible, the net
asset value of the shares of the Money Market Fund at $1.00 per share. The Money
Market Fund seeks to maintain a $1.00 share price at all times although there
can be no assurance that the
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Fund will do so. To achieve this, the Money Market Fund purchases only
securities with remaining maturities of thirteen months or less and limits the
dollar-weighted average maturity of its portfolio to 90 days or less. The Money
Market Fund cannot guarantee a $1.00 share price, but the Fund's maturity
standards and investments solely in high quality money market instruments
minimize any price decreases or increases.
Portfolio Transactions. It is expected that Prudential Securities Incorporated
("PSI"), a registered broker-dealer, which is an indirect wholly-owned
subsidiary of The Prudential, may act as broker for the Company, in conformity
with the securities laws and rules thereunder. In order for PSI to effect any
portfolio transactions for the Company on an exchange or board of trade, the
commissions received by PSI must be reasonable and fair compared to the
commissions paid to other brokers in connection with comparable transactions
involving similar securities or futures being purchased or sold on an exchange
or board of trade during a comparable period of time. This standard would allow
PSI to receive no more than the remuneration which would be expected to be
received by an unaffiliated broker or futures commission merchant in a
commensurate arm's-length transaction. The Trustees have approved procedures for
evaluating the reasonableness of commissions paid to PSI and periodically
reviews these procedures.
Distributions. Dividends and other distributions of each Fund are declared in
cash and automatically reinvested in additional shares of the Fund. While
shareholders may not elect to receive dividends and other distributions in cash,
the same effect may be achieved at any time by redeeming shares of the Fund. The
Income Fund and Money Market Fund expect to declare dividends of their net
investment income and, for the Money Market Fund, net short-term capital gains,
and losses, daily and to distribute such dividends monthly. Each other Fund
expects to declare and distribute a dividend of its net investment income, if
any, at least annually. Except for the Money Market Fund, each Fund expects to
declare and distribute its net capital gains (the excess of net long-term
capital gain over net short-term capital loss) and net short-term capital gain,
if any, at least annually. Distributions of income dividends and capital gains
distributions of each Fund are made on the payment date and reinvested at the
per share net asset value as of the record date or such other date as the Board
may determine. On the "ex-dividend" date, the net asset value per share
excludes the dividend (i.e., is reduced by the amount of the distribution).
Taxes. The following discussion is only a brief summary of some of the important
tax considerations affecting the Company, its Funds and its shareholders. For
further tax-related information see "Other Considerations--Taxes" in the
Statement of Additional Information. No attempt is made to present a detailed
explanation of all federal, state, and local income tax considerations, and this
discussion (as well as that in the Statement of Additional Information) is not
intended as a substitute for careful tax planning. Accordingly, investors are
urged to consult their own tax advisors with specific reference to their own tax
situation.
Tax Consequences to the Funds. Each Fund is treated as a separate entity for
federal income tax purposes, and thus the provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), applicable to regulated investment
companies generally are applied to each Fund separately, rather than to the
Company as a whole. Each Fund has elected to qualify and intends to remain
qualified as a regulated investment company under the Code. If so qualified,
each Fund is not subject to federal income taxes with respect to net investment
income and net realized capital gains, if any, that are distributed to its
shareholders, provided that the Fund distributes each year at least 90% of its
net investment income, (including net short term capital gains), and meets
certain other requirements set forth in the Code. Each Fund would be subject to
a 4% nondeductible excise tax on such Fund's taxable income to the extent such
Fund did not meet certain distribution requirements by the end of each calendar
year. Each Fund intends to make sufficient distributions to avoid application of
this excise tax.
Tax Consequences to the Shareholders. The Company's present intention is to
offer the Funds to qualified retirement programs, Continuing Participants, and
Other Institutional Investors.
Distributions from a qualified retirement program or other non-qualified
arrangements to a Participant or beneficiary will be subject to the provisions
in the Code and Treasury Regulations relating to taxation of such distributions.
Because the effect of these rules varies greatly with individual situations,
potential investors are urged to consult their own tax advisors.
Certain investments of the Funds, such as Passive Foreign Investment Companies
and zero coupon instruments involve special tax issues. The Statement of
Additional Information contains a general discussion of these matters.
Tax Consequences to Non-Exempt Shareholders. Dividends from a Fund's investment
company taxable income (consisting generally of net investment income, net
short-term capital gain and, when applicable, net gains from foreign currency
transactions) are taxable to its shareholders that are not tax-exempt entities
as ordinary income to the extent of the Fund's earnings and profits.
Distributions of a Fund's net capital gains, when designated as such, are
taxable to those shareholders as long-term capital gains, regardless of the
length of time they held their shares.
A portion of the dividends paid by a Fund, even though reinvested in additional
Fund shares, may be eligible for the dividends-received deduction allowed to
corporations. The eligible portion may not exceed the aggregate dividends
received by the Fund from U.S. corporations. However, dividends received by a
corporate shareholder and deducted by it pursuant to the dividends-received
deduction are subject indirectly to the alternative minimum tax. No dividends
paid by the Income Fund or the Money Market Fund, and only an insignificant part
of the dividends paid by the International Stock Fund, are expected to be
eligible for this deduction.
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A redemption of Fund shares will result in taxable gain or loss to a non-exempt
shareholder, depending on whether the redemption proceeds are more or less than
its adjusted basis for the redeemed shares. An exchange of Fund shares for
shares of any other fund generally will have similar tax consequences.
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Performance and Yield Information
Money Market Fund. From time to time quotations of the Money Market Fund's
"yield" and "effective yield" may be included in marketing material and
communications to shareholders. Both yield figures are based on historical
earnings and are not intended to indicate future performance. The "yield" of
the Fund refers to the net income generated by an investment in the Fund over a
specified seven-day period. This income is then "annualized." That is, the
amount of income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is expressed similarly but, when annualized,
the income earned by an investment in the Fund is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment. "Yield" and "effective
yield" for the Fund will vary based on changes in market conditions, the level
of interest rates and the level of the Fund expenses.
From time to time, the average annual total return or cumulative total return of
the Fund may also be included in marketing material and communications to
shareholders. The average annual total return will be calculated as described
below.
Other Funds. From time to time a Fund, other than the Money Market Fund, may
publish its 30-day yield, average annual total return and/or its cumulative
total return in its marketing material and communications to shareholders. The
yield of a Fund will be calculated by dividing the net investment income per
share during a recent 30-day period by the maximum offering price (i.e., net
asset value) per share of the Fund on the last day of the period. The results
are compounded on a bond equivalent (semi-annual) basis and then annualized. A
Fund's average annual total return is determined by computing the annual
percentage change in value of $1,000 invested at the maximum public offering
price (i.e., net asset value) for specified periods ending with the most recent
calendar quarter, assuming reinvestment of all dividends and distributions at
net asset value.
Investors should note that the investment results of a Fund will fluctuate over
time, and any presentation of a Fund's yield or average annual total return for
any prior period should not be considered as a representation of what an
investment may earn or what an investor's yield or total return may be in any
future period. Because the method of calculating yield differs from the methods
used for other accounting purposes, a Fund's yield may not equal the
distributions to shareholders or the income reported in a Fund's financial
statements. See "Performance and Yield Information" in the Statement of
Additional Information for recent performance and yield information. The Fund
also may publish other measurements of return including calculating return that
is not annualized; provided, however, that any non-standardized measures of
return will be accompanied by the standard return required by the SEC.
Performance Information. Comparative performance information may be used from
time to time in advertising the Company's shares, including, but not limited to,
data from Lipper Analytical Services, Inc., the Standard & Poor's 500 Index, the
Salomon Brothers Broad Investment Grade Bond Index, the Dow Jones Industrial
Average, the Donoghue Money Market Averages, Morningstar, Inc., the Salomon
Brothers 1-3 years Treasury Index, the Morgan Stanley EAFE Index, the Lehman
Brothers Aggregate Index or Government/Corporate Index and other commonly used
indices or industry publications. The Fund's annual report to Shareholders for
its fiscal year ended September 30, 1994 contains additional performance
information and may be obtained by prospective investors without cost.
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Other Investment Practices, Risk Conditions, and Policies of the Funds
The investment objective(s) of each Fund are fundamental. Fundamental
objectives, policies and restrictions may be changed only with the approval of a
"majority of the outstanding voting securities" of that Fund. Each Fund's
investment program, unless otherwise specified, is not fundamental and may be
changed by the Board without shareholder approval. A "majority of the
outstanding voting securities" means the lesser of (i) 67% of the shares
represented at a meeting at which more than 50% of the outstanding shares are
present in person or represented by proxy or (ii) more than 50% of the
outstanding shares. Each Fund's investment program is subject to further
restrictions as described in the Statement of Additional Information.
Each Fund may hold a portion of its assets in money market instruments in
amounts designed to pay expenses, to meet anticipated redemptions, pending
investments or to margin its purchases and sales of futures contracts in
accordance with its objectives and policies. These instruments may be purchased
on a forward commitment, when-issued or delayed-delivery basis. In addition,
each Fund (except for the Stock Index Fund and the Money Market Fund) may for
temporary defensive purposes invest, without limitation, in high-quality money
market instruments. Each Fund, except the Money Market Fund, may also purchase
non-investment grade fixed income securities and retain investment grade fixed
income securities that have been downgraded to non-investment grade provided
that no more than 5% of the Fund's net assets is invested in non-investment
grade fixed income securities, which are considered to be high risk securities.
See "Fixed Income Securities" below and "Other Investment Practices, Risk
Conditions, and Policies of the Funds--Debt Securities" in the Statement of
Additional Information for a fuller description of these securities.
Each Fund, consistent with its investment objective(s), may invest in one or
more of the types of securities described below and may utilize a variety of the
investment techniques described below. These securities and investment
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techniques are more fully described in the Statement of Additional Information.
U.S. Government Securities. Each Fund may invest in fixed income securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
Obligations of the U.S. Government consist of various types of marketable
securities issued by the U.S. Treasury, i.e., bills, notes and bonds, and are
direct obligations of the U.S. Government. Obligations of agencies and
instrumentalities of the U.S. Government are not direct obligations of the U.S.
Government and are either: (i) guaranteed by the U.S. Treasury (e.g., Government
National Mortgage Association ("GNMA") mortgage-backed securities); (ii)
supported by the issuing agency's or instrumentality's right to borrow from the
U.S. Treasury at the discretion of the U.S. Treasury (e.g., Federal National
Mortgage Association ("FNMA") Discount Notes); or (iii) supported by only the
issuing agency's or instrumentality's credit (e.g., each of the Federal Home
Loan Banks).
Repurchase Agreements. Each Fund may enter into repurchase agreements, whereby
the seller of a security agrees to repurchase that security from the Fund at a
mutually agreed-upon time and price. The period of maturity is usually quite
short, possibly overnight or a few days, although it may extend over a number of
months. The resale price is in excess of the purchase price, reflecting an
agreed-upon rate of return effective for the period of time the Fund's money is
invested in the security. The Fund's repurchase agreements will at all times be
fully collateralized in an amount at least equal to the purchase price,
including accrued interest earned on the underlying securities. The instruments
held as collateral are valued daily, and if the value of the instruments
declines, the Fund will require additional collateral. For the Money Market
Fund, the underlying security must either be a U.S. Government security or a
security rated in the highest rating category by the requisite NRSROs and must
be determined to present minimal credit risks. In the event of bankruptcy or
default of certain sellers of repurchase agreements, the Funds could experience
costs and delays in liquidating the underlying security held as collateral and
might incur a loss if such collateral declines in value during this period. Each
Fund may participate in a joint repurchase account managed by PIC.
Equity-Related Securities. Each Fund (except for the Income Fund and the Money
Market Fund) may invest in equity-related securities. Equity-related securities
are common stock, preferred stock, rights, warrants and debt securities or
preferred stock which are convertible or exchangeable for common stock or
preferred stock.
Fixed Income Securities. Fixed income securities are considered high-quality if
they are rated at least AA/Aa by S&P or by Moody's or an equivalent rating by
any NRSRO or, if unrated, are determined to be of comparable investment quality
by the Adviser. High-quality fixed income securities are considered to have a
very strong capacity to pay principal and interest. Fixed income securities are
considered medium quality if they are rated, for example, at least BBB/Baa by
S&P or by Moody's or an equivalent rating by any NRSRO or, if not rated, are
determined to be of comparable investment quality by the Adviser. Medium quality
fixed income securities are regarded as having an adequate capacity to pay
principal and interest. Securities rated in the lowest category of investment
grade debt (i.e., BBB by S&P or Baa by Moody's) may have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade bonds.
Investment grade fixed income securities are securities rated BBB or better by
S&P or Baa or better by Moody's (or an equivalent rating by any NRSRO) or, if
not rated, are deemed by the Adviser to be of comparable investment quality.
Non-investment grade securities are rated lower than BBB/Baa (or an equivalent
rating by any NRSRO) or, if not rated, are deemed by the Adviser to be of
comparable investment quality and are commonly referred to as high risk or high
yield securities. High yield securities are generally riskier than higher
quality securities and are subject to more credit risk, including risk of
default, and are more volatile than higher quality securities. In addition, such
securities may have less liquidity and experience more price fluctuation than
higher quality securities. See the discussion of corporate bond ratings in
"Description of S&P, Moodys and Duff & Phelps Ratings" in the Appendix to the
Statement of Additional Information.
The maturity of debt securities may be considered long (ten plus years),
intermediate (three to ten years) or short term (three years or less). In
general, the principal values of longer-term securities fluctuate more widely in
response to changes in interest rates than those of shorter-term securities,
providing greater opportunity for capital gain or risk of capital loss. A
decline in interest rates usually produces an increase in the value of debt
securities, while an increase in interest rates generally reduces their value.
Convertible Securities, Warrants and Rights. A convertible security is a bond,
debenture, corporate note, preferred stock or other similar security that may be
converted into or exchanged for a prescribed amount of common stock or other
equity security of the same or a different issuer within a particular period of
time at a specified price or formula. A warrant or right entitles the holder to
purchase equity securities at a specific price for a specific period of time.
Securities of Foreign Issuers. The International Stock Fund intends to invest
primarily in securities of foreign issuers. In addition, the other Funds may
invest a portion of their assets in fixed income securities and equity
securities of foreign issuers (denominated in either U.S. or foreign currency).
The Money Market Fund may only invest in U.S. dollar-denominated securities of
foreign issuers.
Foreign securities involve certain unique risks. These risks include political
or economic instability in the country of issue, the difficulty of predicting
international trade patterns, the possible imposition of exchange controls and
the risk of currency fluctuations. Such securities may be subject to greater
fluctuations in price than securities issued by U.S. corporations or issued or
guaranteed by the U.S. government, its agencies or instrumentalities. In
addition, there may be less publicly available information about a foreign
company than about a domestic company. Foreign companies generally are not
subject to uniform accounting, auditing, and financial reporting standards
comparable to those applicable to domestic companies.
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Dividends paid by foreign companies may be subject to withholding and other
foreign taxes which may decrease the net return on such investments as compared
to dividends and interest paid by the U.S. Government or by domestic companies.
There is generally less government regulation of securities exchanges, brokers
and listed companies abroad than in the United States, and, with respect to
certain foreign countries, there is a possibility of expropriation, confiscatory
taxation, or diplomatic developments which could affect investment in those
countries. Finally, in the event of a default of any such foreign fixed income
obligations, it may be more difficult for the Fund to obtain or to enforce a
judgment against the issuers of such securities. If the security is foreign
currency denominated, it may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations, and costs may be incurred in
connection with conversions between currencies.
Investments in emerging and less developed countries involve exposure to
economic structures that are generally less diverse and mature than in the U.S.
or other developed countries. A developing country can be considered to be a
country which is in the initial stages of its industrialization cycle.
Historically, markets of developing countries have been more volatile than the
markets of developed countries.
With respect to equity securities, each Fund (except for the Money Market Fund)
may purchase ADRs. ADRs are U.S. dollar-denominated certificates issued by a
United States bank or trust company and represent the right to receive
securities of a foreign issuer deposited in a domestic bank or foreign branch of
a United States bank and traded on a United States exchange or in an
over-the-counter market. Generally, ADRs are in registered form. There are no
fees imposed on the purchase or sale of ADRs when purchased from the issuing
bank or trust company in the initial underwriting, although the issuing bank or
trust company may impose charges for the collection of dividends and the
conversion of ADRs into the underlying securities. Investment in ADRs has
certain advantages over direct investment in the underlying foreign securities
since: (i) ADRs are U.S. dollar-denominated investments that are registered
domestically, easily transferable, and for which market quotations are readily
available; and (ii) issuers whose securities are represented by ADRs are usually
subject to comparable auditing, accounting, and financial reporting standards as
domestic issuers.
Segregated Accounts. Each Fund will establish a segregated account with its
Custodian in which it will maintain cash, U.S. Government securities or other
liquid high-grade debt obligations equal in value to its obligations in respect
of potentially leveraged transactions including, forward contracts, when-issued
and delayed-delivery securities, repurchase and reverse repurchase agreements,
forward rolls, dollar rolls, futures contracts, written options, options on
futures contracts (unless otherwise covered) and interest rate swaps. The assets
deposited in the segregated account will be marked-to-market daily.
Forward Rolls, Dollar Rolls and Reverse Repurchase Agreements. The Income Fund
and the Balanced Fund may each commit up to 33 1/3% of the value of its total
assets to investment techniques such as dollar rolls, forward rolls and reverse
repurchase agreements. The Growth Stock Fund, Stock Index Fund, International
Stock Fund, Active Balanced Fund and Money Market Fund may each commit up to 20%
of their net assets to these techniques. A forward roll is a transaction in
which a Fund sells a security to a financial institution, such as a bank or
broker-dealer, and simultaneously agrees to repurchase the same or similar
security from the institution at a later date at an agreed upon price. With
respect to mortgage-related securities, such transactions are often called
"dollar rolls." In dollar roll transactions, the mortgage-related securities
that are repurchased will bear the same coupon rate as those sold, but generally
will be collateralized by different pools of mortgages with different prepayment
histories than those sold. During the roll period, the Fund forgoes principal
and interest paid on the securities and is compensated by the difference between
the current sales price and the forward price for the future purchase as well as
by interest earned on the cash proceeds of the initial sale. A "covered roll"
is a specific type of dollar roll for which there is an offsetting cash position
or a cash equivalent security position which matures on or before the forward
settlement date of the dollar roll transaction.
Reverse repurchase agreements involve sales by a Fund of portfolio securities to
a financial institution concurrently with an agreement by that Fund to
repurchase the same securities at a later date at a fixed price. During the
reverse repurchase agreement period, the Fund continues to receive principal and
interest payments on these securities.
Reverse repurchase agreements, forward rolls and dollar rolls involve the risk
that the market value of the securities purchased by the Fund with the proceeds
of the initial sale may decline below the price of the securities the Fund has
sold but is obligated to repurchase under the agreement. In the event the buyer
of securities under a reverse repurchase agreement, forward roll or dollar roll
files for bankruptcy or becomes insolvent, the Fund's use of the proceeds of the
agreement may be restricted pending a determination by the other party, or its
trustee or receiver, whether to enforce the Fund's obligations to repurchase the
securities. The Staff of the Securities and Exchange Commission (the "SEC")
has taken the position that reverse repurchase agreements, forward rolls and
dollar rolls are to be treated as borrowings for purposes of the percentage
limitations discussed in the section entitled "Borrowings" below. The Company
expects that under normal conditions most of the borrowings of the Funds will
consist of such investment techniques rather than bank borrowings. See "Other
Investment Practices, Risk Conditions, and Policies of the Funds--Borrowings"
below.
When Issued and Delayed-Delivery Securities. Each Fund may purchase securities
on a when-issued or delayed-delivery basis. When a Fund purchases securities on
a when-issued or delayed-delivery basis, the price of such securities is fixed
at the time of the commitment, but delivery and payment for the securities may
take place up to 120 days
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after the date of the commitment to purchase. With respect to up to 5% of their
respective net assets, the Income Fund and the Balanced Fund may each purchase
securities to be delivered and paid for up to six months after the date of the
commitment to purchase. The securities so purchased are subject to market
fluctuation, and no interest accrues to the purchaser during this period.
When-issued and delayed-delivery securities involve a risk of loss if the value
of the security to be purchased declines prior to the settlement date or
increases in value and there is a failure to deliver the security.
Custodial Receipts. The Income Fund, the Balanced Fund and the Active Balanced
Fund may each acquire custodial receipts or certificates, such as CATS, TIGRs
and FIC Strips, underwritten by securities dealers or banks, that evidence
ownership of future interest payments, principal payments or both on certain
notes or bonds issued by the U.S. Government, its agencies, authorities or
instrumentalities. The underwriters of these certificates or receipts generally
purchase a U.S. Government security and deposit the security in an irrevocable
trust or custodial account with a custodian bank, which then issues receipts or
certificates that evidence ownership of the periodic unmatured coupon payments
and the final principal payment on the U.S. Government security. Custodial
receipts evidencing specific coupon or principal payments have the same general
attributes as zero coupon U.S. Government securities but are not U.S.
Government Securities and therefore are neither insured nor guaranteed by the
U.S. Government.
Mortgage Backed Securities. Mortgage-backed securities represent interests in
pools of mortgages. Principal and interest payments made on the mortgages in the
pools are passed through to the holder of such securities. Payment of principal
and interest on some mortgage-backed securities (but not the market value of the
securities themselves) may be guaranteed by the full faith and credit of the
U.S. Government, or guaranteed by agencies or instrumentalities of the U.S.
Government. Mortgage-backed securities created by non-governmental issuers (such
as commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers, and other secondary market issuers) may be
supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance, and letters of credit, which may be
issued by governmental entities, private insurers, or the mortgage poolers.
Mortgage-backed securities include CMOs, which are obligations fully
collateralized by the portfolio of mortgaged or mortgage-related securities.
Payments of principal and interest on the mortgages are passed through to the
holders of the CMO as they are received, although certain classes of CMOs have
priority over others for receipt of mortgage pre-payments. Typically, CMOs are
collateralized by GNMA, FNMA or FHLMC Certificates, but also may be
collateralized by whole loans or private mortgage pass-through securities (such
collateral is referred to below as "Underlying Assets").
CMOs may be issued by agencies or instrumentalities of the U.S. Government, or
by private originators of, or investors in, mortgage loans, including depository
institutions, mortgage banks, investment banks and special-purpose subsidiaries
of the foregoing. The issuer of a series of CMOs may elect to be treated as a
Real Estate Mortgage Investment Conduit ("REMIC").
In a CMO, a series of bonds or certificates is issued in multiple classes. Each
class of a CMO, often referred to as a "tranche," is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the Underlying Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates. Interest is paid or accrues on all classes of CMOs on a monthly,
quarterly or semi-annual basis. The principal of and interest on the Underlying
Assets may be allocated among the several classes of a CMO series in a number of
different ways. Generally, the purpose of the allocation of the cash flow of a
CMO to the various classes is to obtain a more predictable cash flow to the
individual tranches than exists with the underlying collateral of the CMO. As a
general rule, the more predictable the cash flow on a CMO tranche, the lower the
anticipated yield will be on that tranche at the time of issuance compared to
prevailing market yields on mortgage-backed securities.
Unscheduled or early repayment of principal on mortgage pass-through securities
(arising from prepayments of principal due to the sale of the underlying
property, refinancing, or foreclosure, net of fees and costs which may be
incurred) may expose the Fund to a lower rate of return upon reinvestment of
principal. Like other fixed income securities, when interest rates rise, the
value of a mortgage-related security generally will decline; however, when
interest rates are declining, the value of mortgage-related securities with
prepayment features may not increase as much as other fixed-income securities.
Asset-Backed Securities. The Balanced Fund, the Active Balanced Fund and the
Income Fund may purchase asset-backed securities that represent either
fractional interests or participations in pools of leases, retail installment
loans, or revolving credit receivables held by a trust or limited purpose
finance subsidiary. Such asset-backed securities may be secured by the
underlying assets (such as certificates for automobile receivables or may be
unsecured (such as credit card receivable securities). Depending on the
structure of the asset-backed security, monthly or quarterly payments of
principal and interest or interest only are passed-through or paid through to
certificate holders. Asset-backed securities may be guaranteed up to certain
amounts by guarantees, insurance, or letters of credit issued by a financial
institution affiliated or unaffiliated with the originator of the pool.
Underlying automobile sales contracts and credit card receivables are, of
course, subject to prepayment (although to a lesser degree than mortgage
pass-through securities), which may shorten the securities' weighted average
life and reduce their overall return to certificate holders. On the other hand,
asset-backed securities may present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities often do not have the
benefit of a security interest in the related collateral. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, some of which
may reduce the ability to obtain full payment. In the case of automobile
receivables, the security interests in the underlying automobiles are
17
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often not transferred when the pool is created, with the resulting possibility
that the collateral could be resold.
Unlike traditional fixed income securities, interest and principal payments on
asset-backed securities are made more frequently, usually monthly, and principal
may be prepaid at any time. As a result, if a Fund purchases such a security at
a premium, a prepayment rate that is faster than expected will reduce yield to
maturity, while a prepayment rate that is slower than expected will have the
opposite effect of increasing yield to maturity. Alternatively, if a Fund
purchases these securities at a discount, faster than expected prepayments will
increase, while slower than expected prepayments will reduce, yield to maturity.
Certificate holders may also experience delays in payment if the full amounts
due on underlying loans, leases, or receivables are not realized because of
unanticipated legal or administrative costs of enforcing the contracts or
because of depreciation or damage to the collateral (usually automobiles)
securing certain contracts, or other factors. If consistent with its investment
objective and policies, the Balanced Fund, the Active Balanced Fund and the
Income Fund may invest in other asset-backed securities that may be developed in
the future.
Types of Credit Enhancement. Mortgage-backed securities and asset-backed
securities are often backed by a pool of assets representing the obligations of
a number of different parties. To lessen the effect of failures by obligors on
underlying assets to make payments, those securities may contain elements of
credit support, which fall into two categories: (i) liquidity protection and
(ii) protection against losses resulting from ultimate default by an obligor on
the underlying assets. Liquidity protection refers to the provision of advances,
generally by the entity administering the pool of assets, to ensure that the
receipt of payments on the underlying pool occurs in a timely fashion.
Protection against losses resulting from default ensures ultimate payment of the
obligations on at least a portion of the assets in the pool. This protection may
be provided through guarantees, insurance policies or letters of credit obtained
by the issuer or sponsor from third parties, through various means of
structuring the transaction or through a combination of such approaches. The
Funds will not pay any fees for credit support, although the existence of credit
support may increase the price of a security.
Liquidity Puts. Each Fund may purchase instruments together with the right to
resell the instruments at an agreed upon price or yield, within a specified
period prior to the maturity date of the instruments. This instrument is
commonly known as a "liquidity put" or a "tender option bond." However, the
Growth Stock Fund and Stock Index Fund will only use such instruments in
connection with the cash or cash equivalent portion of their portfolio.
Illiquid Securities. The Growth Stock Fund, Stock Index Fund, International
Stock Fund, Active Balanced Fund, Balanced Fund and the Money Market Fund may
each invest up to 10% in illiquid securities and the Income Fund may invest up
to 15% in illiquid securities. Illiquid securities include repurchase agreements
which have a maturity of longer than seven days, securities with legal or
contractual restrictions on resale (restricted securities) and securities that
are not readily marketable in securities markets either within or outside of the
United States. Restricted securities eligible for resale pursuant to Rule 144A
under the Securities Act of 1933, as amended (the Securities Act) and privately
placed commercial paper that have a readily available market are not considered
illiquid for purposes of this limitation. The Funds' Advisers will monitor the
liquidity of such restricted securities under the supervision of the Manager and
the Trustees. Repurchase agreements subject to demand are deemed to have a
maturity equal to the applicable notice period.
The staff of the SEC has taken the position that purchased OTC options and the
assets used as "cover" for written OTC options are illiquid securities unless
the Fund and the counterparty have provided for the Fund, at the Fund's
election, to unwind the over-the-counter option. The exercise of such an option
ordinarily would involve the payment by the Fund of an amount designed to
reflect the counterparty's economic loss from an early termination, but does
allow the Fund to treat the assets used as "cover" as "liquid."
Securities Lending. Each Fund may lend its portfolio securities to brokers or
dealers, banks, or other recognized institutional borrowers of securities,
provided that the borrower at all times maintains collateral in an amount equal
to at least 100% of the market value of the securities loaned. During the time
Fund securities are on loan, the borrower will pay the Fund an amount equivalent
to any dividend or interest paid on such securities and the Fund may invest any
cash collateral it receives and earn additional income, or it may receive an
agreed-upon amount of interest income from the borrower. In these transactions,
there are risks of delay in recovery and in some cases even loss of rights in
the collateral should the borrower of the securities fail financially. Each Fund
(except the Money Market Fund) may lend up to 30% of the value of its total
assets. The Money Market Fund may lend up to 10% of the value of its total
assets.
Borrowings. Each Fund may borrow from banks or through forward rolls, dollar
rolls or reverse repurchase agreements an amount equal to no more than 20%
(except for the Balanced Fund, the Income Fund and the Money Market Fund) of the
value of its total assets to take advantage of investment opportunities, for
temporary, extraordinary, or emergency purposes or for the clearance of
transactions and may pledge up to 20% of the value of its total assets to secure
these borrowings. The Balanced Fund and the Income Fund may borrow from banks up
to 20% of the value of their respective total assets for the same purposes and
may pledge up to 20% of the value of their respective total assets to secure
such borrowings. In addition, the Balanced Fund and the Income Fund may engage
in investment techniques such as reverse repurchase agreements, forward rolls
and dollar rolls to the extent that their respective assets dedicated to such
techniques combined with the respective values of their bank borrowings do not
exceed 33 1/3% of their respective total assets. Such investment techniques are
deemed "borrowings" by the SEC because the SEC considers these techniques to
involve the use of leverage. When a Fund enters into one of these transactions,
it places in a segregated account an amount equal to the Fund's obligations in
that transaction. If a Fund's asset coverage for borrowings falls below 300%,
the Fund will take prompt action to reduce its borrowings. See and Policies of
the Funds "Segregated Accounts" above. If a Fund borrows to invest in
securities, any investment gains made on the securities in excess of inter-
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est paid on the borrowing will cause the net asset value of the shares to rise
faster than would otherwise be the case. On the other hand, if the investment
performance of the additional securities purchased fails to cover their cost
(including any interest paid on the money borrowed) to the Fund, the net asset
value of the Fund's shares will decrease faster than would otherwise be the
case. This is the speculative characteristic known as leverage. The Money Market
Fund may borrow an amount equal to no more than 20% of the value of its total
assets only for temporary, extraordinary or emergency purposes.
Options on Securities and Securities Indices. Each Fund (other than the Money
Market Fund) may purchase and sell put and call options on any securities in
which it may invest or options on any securities index based on securities in
which the Fund may invest. Each Fund is also authorized to enter into closing
purchase and sale transactions in order to realize gains or minimize losses on
options sold or purchased by the Fund.
A Fund would normally purchase call options to attempt to hedge against an
increase in the market value of the type of securities in which the Fund may
invest. The purchase of a call option would entitle a Fund, in return for the
premium paid, to purchase specified securities at a specified price, upon
exercise of the option, during the option period. A Fund would ordinarily
realize a gain if, during the option period, the value of such securities
exceeds the sum of the exercise price, the premium paid and transaction costs;
otherwise, the Fund would realize a loss on the purchase of the call option. A
Fund may also write a put option, which can serve as a limited long hedge
because increases in value of the hedged investment would be offset to the
extent of the premium received for writing the option. However, if the security
depreciates to a price lower than the exercise price of the put option, it can
be expected that the option will be exercised and the Fund will be obligated to
buy the security at more than its market value.
A Fund would normally purchase put options to hedge against a decline in the
market value of securities in its portfolio ("protective puts"). The purchase
of a put option would entitle a Fund, in exchange for the premium paid, to sell
specified securities at a specified price, upon exercise of the option, during
the option period. Gains and losses on the purchase of protective puts would
tend to be offset by countervailing changes in the value of underlying Fund
securities. A Fund would ordinarily realize a gain if, during the option period,
the value of the underlying securities decreases below the exercise price
sufficiently to cover the premium and transaction costs; otherwise, the Fund
would realize a loss on the purchase of the put option. A Fund may also write a
call option, which can serve as a limited short hedge because decreases in value
of the hedged investment would be offset to the extent of the premium received
for writing the option. However, if the security appreciates to a price higher
than the exercise price of the call option, it can be expected that the option
will be exercised and the Fund will be obligated to sell the security at less
than its market value.
A Fund may purchase and sell put and call options on securities indices for
hedging against a decline in the value of the securities owned by the Fund or
against an increase in the market value of the type of securities in which the
Fund may invest. Securities index options are designed to reflect price
fluctuations in a group of securities or segment of the securities market rather
than price fluctuations in a single security. Options on securities indices are
similar to options on securities, except that the exercise of securities index
options requires cash payments and does not involve the actual purchase or sale
of securities. A Fund purchasing or selling securities index options is subject
to the risk that the value of its portfolio securities may not change as much as
or more than the index because a Fund's investments generally will not match the
composition of the index. See "Other Considerations--Taxes" and "Other
Investment Practices, Risk Conditions, and Policies of the Funds" in the
Statement of Additional Information.
Futures Contracts and Options on Futures Contracts. The Balanced Fund, the
Active Balanced Fund and the Income Fund may enter into futures contracts on
securities, securities indices and interest rate indices. The Stock Index Fund
may enter into futures contracts on securities indices. The International Stock
Fund, the Balanced Fund and the Active Balanced Fund may also enter into
currency futures contracts and options thereon. The Growth Stock Fund, the Stock
Index Fund and the Active Balanced Fund may also purchase and sell options on
futures contracts on stock indices, and the Active Balanced Fund may also
purchase and sell options on futures contracts on interest rate indices. Each
Fund (except for the Money Market Fund) may enter into other types of futures
contracts when they become available, provided they correspond to securities
held by the relevant Fund. However, a Fund might not employ any of these
instruments.
To the extent that a Fund enters into futures contracts, options on futures
contracts, or options on foreign currencies traded on a Commodity Futures
Trading Commission (CFTC)-regulated exchange, in each case other than for bona
fide hedging purposes (as defined by the CFTC), the aggregate initial margin and
premiums required to establish those positions (excluding the amount by which
options are "in-the-money") will not exceed 5% of the liquidation value of the
Fund's portfolio, after taking into account unrealized profits and unrealized
losses on any contracts the Fund has entered into. In general, a call option on
a futures contract is "in-the-money" if the value of the underlying futures
contract exceeds the strike, i.e., exercise, price of the call; a put option on
a futures contract is "in-the-money" if the value of the underlying futures
contract is exceeded by the strike price of the put. This limitation does not
limit the percentage of a Fund's assets at risk to 5%. These transactions
involve brokerage costs, require margin deposits and require the Fund to
segregate assets to cover such contracts and options. In addition, a Fund's
activities in futures contracts and options thereon may be limited by the
requirements of the Internal Revenue Code for qualification as a regulated
investment company. See "Other Considerations--Taxes" and "Other Investment
Practices, Risk Conditions, and Policies of the Funds" in the Statement of
Additional Information.
Foreign Currency Forward Contracts, Options and Futures Transactions. The
International Stock Fund, the Balanced Fund and the Active Balanced Fund may
purchase and sell foreign currency forward contracts, futures contracts on
foreign currency,
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and options on futures contracts on foreign currency to protect against the
effect of adverse changes on foreign currencies. In addition to the limitations
on such practices described below, the Fund's ability to engage in such
practices may be limited by tax considerations. See "Other
Considerations--Taxes" and "Other Investment Practices, Risk Conditions, and
Policies of the Funds" in the Statement of Additional Information.
A forward foreign currency exchange contract involves an obligation to purchase
or sell a specific currency at a future date, at a price set at the time of the
contract. These contracts are traded in the market conducted directly between
currency traders (typically large commercial banks) and their customers. See
"Other Investment Practices, Risk Conditions, and Policies of the
Funds--Foreign Currency Forward Contracts, Options and Futures Transactions" in
the Statement of Additional Information.
When a Fund invests in foreign securities, it may enter into forward contracts
in several circumstances to protect the value of its assets. A Fund may not use
forward contracts, options on foreign currencies, futures contracts on foreign
currencies and options on such contracts in order to generate income, although
the use of such contracts may incidentally generate income. However, a Fund's
dealings in forward contracts will be limited to hedging involving either
specific transactions or portfolio positions. When a Fund enters into a contract
for the purchase or sale of a security denominated in a foreign currency, or
when a Fund anticipates the receipt in a foreign currency of dividends or
interest payments on a security that it holds, the Fund may desire to "lock
in" the U.S. dollar price of the security or the U.S. dollar equivalent of such
dividend or interest payment, as the case may be. By entering into a forward
contract for a fixed amount of dollars for the purchase or sale of the amount of
foreign currency involved in the underlying transaction, a Fund could protect
itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the subject foreign currency during the
period between the date on which the security is purchased or sold, or on which
the dividend or interest payment is declared, and the date on which such
payments are made or received. Additionally, when the Adviser believes that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, the Fund may enter into a forward contract, for a fixed
amount of dollars, to sell the amount of foreign currency approximating the
value of some or all of the securities of the Fund denominated in such foreign
currency. Further a Fund may enter into a forward contract in one foreign
currency to hedge against the decline or increase in value of another foreign
currency.
A Fund's successful use of foreign currency forward contracts, options on
foreign currencies, futures contracts on foreign currencies and options on such
contracts depends upon the Adviser's ability to predict the direction of the
market and political conditions, which requires different skills and techniques
than predicting changes in the securities markets generally.
Risks of Investing in Options and Futures. Participation in the options or
futures markets involves investment risks and transaction costs to which the
Funds would not be subject absent the use of these strategies. If an Adviser's
prediction of movements in the direction of the securities or currency markets
or interest rates is inaccurate, the adverse consequences to a Fund may leave
the Fund in a worse position than if such strategies were not used. Risks
inherent in the use of options and futures include (i) dependence on the
Adviser's ability to predict correctly movements in the direction of interest
rates, securities prices and currency markets; (ii) imperfect correlation, or
even no correlation, between the price of options, futures and options thereon
and movements in the prices of the assets being hedged; (iii) the fact that
skills needed to use these strategies are different from those needed to select
portfolio securities; (iv) the possible absence of a liquid secondary market for
any particular instrument at any time; (v) the possible need to defer closing
out certain hedged positions to avoid adverse tax consequences; (vi) the fact
that, while hedging strategies can reduce the risk of loss, they can also reduce
the opportunity for gain, or even result in losses, by offsetting favorable
price movements in hedged investments; and (vii) the possible inability of a
Fund to purchase or sell a portfolio security at a time when it would otherwise
be favorable for it to do so, or the possible need for a Fund to sell a security
at a disadvantageous time, due to the need for the Fund to maintain "cover" or
to segregate securities in connection with hedging transactions.
See "Other Considerations--Taxes" and "Other Investment Practices, Risk
Conditions, and Policies of the Funds" in the Statement of Additional
Information.
Interest Rate Swap Transactions. The Balanced Fund and the Income Fund may enter
into interest rate swaps. Interest rate swaps involve the exchange by a Fund
with another party of their respective commitments to pay or receive interest,
for example, an exchange of floating rate payments for fixed rate payments. The
Funds expect to enter into these transactions primarily to preserve a return or
spread on a particular investment or portion of their portfolios or to protect
against any increase in the price of securities the Funds anticipate purchasing
at a later date. See "Other Investment Practices, Risk Conditions, and Policies
of the Funds--Other Investment Techniques" in the Statement of Additional
Information. The Income Fund will usually enter into interest rate swaps on a
net basis, i.e., the two payment streams are netted out, with the Fund receiving
or paying, as the case may be, only the net amount of the two payments. The
Balanced Fund may only enter into interest rate swaps on a net basis. The risk
of loss with respect to interest rate swaps entered into on a net basis is
limited to the net amount of interest payments that a Fund is contractually
obligated to make. The net amount of the excess, if any, of the Fund's
obligations over its entitlements with respect to each interest rate swap will
be accrued on a daily basis and an amount of cash or liquid high-grade debt
securities having an aggregate net asset value at least equal to the accrued
excess will be maintained in a segregated account by the Custodian. To the
extent that the Income Fund enters into interest rate swaps on other than a net
basis, the amount maintained in the segregated account will be the full amount
of the Fund's obligations, if any, with respect to such interest rate swaps,
accrued on a daily basis.
The use of interest rate swaps may involve investment techniques and risks
different from those associated with ordinary portfolio transactions. If a
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Fund's Adviser is incorrect in its forecast of market values, interest rates and
other applicable factors, the investment performance of the Fund would diminish
compared to what it would have been if this investment technique had not been
used.
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More Facts About the Company
Organization and Capitalization. The Company was established as a Delaware
business trust on May 11, 1992. The Trustees are responsible for the overall
management and supervision of its affairs. The Manager conducts and supervises
the daily business operations of the Company. The Company is authorized to issue
unlimited shares of beneficial interest, $0.001 par value per share. Each share
issued with respect to a Fund has a pro-rata interest in the assets of that Fund
and has no interest in the assets of any other Fund. Each Fund bears its own
liabilities and its proportionate share of the general liabilities of the
Company and is not responsible for the liabilities of any other Fund. The Board
is empowered by the Company's Declaration of Trust and By-laws to establish
additional series and classes of shares. As of January 13, 1994, each of the
following entities owned more than 25% of the outstanding voting securities of
each of the portfolios indicated: Growth Stock Fund and International Stock
Fund--Prudential Employees Savings Plan; Stock Index Fund--PAMCO VCA OA Account;
Balanced Fund--PAMCO VCAOA Account, Income Fund and Money Market
Fund--Prudential Insurance Company.
Portfolio Turnover. Although no Fund purchases securities with a view to rapid
turnover, there are no limitations on the length of time that securities must be
held by any Fund and a Fund's annual portfolio turnover rate may vary
significantly from year to year. A portfolio turnover rate in excess of 100% may
exceed that of other investment companies with similar objectives. A higher
portfolio turnover rate may involve correspondingly greater transaction costs,
which would be borne directly by the Funds, as well as additional realized gains
and/or losses to shareholders.
Meetings and Voting Rights. The Company does not intend to hold annual
shareholder meetings. Shareholders have certain rights, as set forth in the
Agreement and Declaration of Trust, including the right to call a meeting of
shareholders for the purpose of voting on the removal of one or more Trustees.
Such removal may be effected upon the action of two-thirds of the outstanding
shares of the Company.
Shareholders are entitled to one vote per share. Shares of a Fund will be voted
only with respect to that Fund except for the election of Trustees and
ratification of independent accountants. Approval by the shareholders of one
Fund is effective as to that Fund. Shares have noncumulative voting rights, do
not have preemptive or subscription rights, and are transferable. Pursuant to
the Investment Company Act of 1940, as amended, shareholders of each Fund are
required to approve the adoption of any investment advisory agreement relating
to such Fund and of any changes in fundamental investment restrictions or
policies of the Fund.
Certificates. In the interest of economy and efficiency, the Company does not
issue stock certificates. Shareholders of uncertificated shares have the same
ownership rights as if certificates had been issued.
Shareholder Communications. Shareholders of the Company will receive annual
financial statements examined by the Company's independent accountants as well
as unaudited semi-annual financial statements. Each report will show the
investments owned by the Company and their respective market values thereof, and
will provide other financial information. Shareholders with inquiries regarding
the Company and individual accounts should contact the Manager at (800)
824-7513.
Custodian. The Company's Custodian is State Street Bank and Trust Company, P.O.
Box 1713, Boston, Massachusetts 02105.
Additional Information. This Prospectus, including the Statement of Additional
Information which has been incorporated by reference herein, does not contain
all the information set forth in the Registration Statement filed by the Company
with the SEC under the Securities Act of 1933. Copies of the Registration
Statement may be obtained from the Commission or may be examined at the office
of the Commission in Washington, D.C.
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The Prudential Institutional Fund Bulk Rate
21 Prudential Plaza U.S. Postage
751 Broad Street PAID
Newark, NJ 07102-3777 Permit No. 2145
The Prudential (Logo) Newark, N.J.
---------------
PIF 02-01-95
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
February 1, 1995
----------------
THE PRUDENTIAL INSTITUTIONAL FUND
Prudential Plaza
751 Broad Street
Newark, New Jersey 07102-3777
This Statement of Additional Information supplements the information
contained in the current Prospectus (the "Prospectus") of The Prudential
Institutional Fund (the "Company"), dated February 1, 1995, and should be read
in conjunction with the Prospectus. The Prospectus may be obtained by contacting
your Program Administrator or by writing the Company at the address listed
above. This Statement of Additional Information, although not in itself a
prospectus, is incorporated by reference into the Prospectus in its entirety.
TABLE OF CONTENTS
For ease of reference, the section headings used in this Statement of
Additional Information, where applicable, are identical to those used in the
Prospectus.
Page
- ----
THE FUNDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Stock Index Fund. . . . . . . . . . . . . . . . . . . . . . 3
Money Market Fund . . . . . . . . . . . . . . . . . . . . . 4
MANAGEMENT OF THE COMPANY. . . . . . . . . . . . . . . . . . . . . . 5
The Manager and Advisers. . . . . . . . . . . . . . . . . . 5
The Administrator . . . . . . . . . . . . . . . . . . . . . 8
The Distributor . . . . . . . . . . . . . . . . . . . . . . 9
Counsel and Auditors. . . . . . . . . . . . . . . . . . . . 9
THE TRUSTEES and OFFICERS. . . . . . . . . . . . . . . . . . . . . . 9
OTHER CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . 15
Net Asset Value . . . . . . . . . . . . . . . . . . . . . . 15
Portfolio Transactions. . . . . . . . . . . . . . . . . . . 17
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
<PAGE>
PERFORMANCE AND YIELD INFORMATION .................................. 24
Calculation of Money Market Fund Yield .................... 24
Calculation of Fund Performance ........................... 24
Yield (except Money Market Fund) ....................... 24
Average Annual Total Return ............................ 25
Aggregate Total Return ................................. 26
OTHER INVESTMENT PRACTICES, RISK CONDITIONS, AND
POLICIES OF THE FUNDS ............................................ 27
U.S. Government Securities ................................ 27
Repurchase Agreements and Reverse Repurchase Agreements ... 27
Fixed Income Securities . . . . . . . . . . . . . . . . . . 28
When-Issued and Delayed Delivery Securities . . . . . . . . 29
Forward Rolls and Dollar Rolls. . . . . . . . . . . . . . . 30
Mortgage-Related Securities . . . . . . . . . . . . . . . . 30
Collateralized Mortgage Obligations . . . . . . . . . . . . 32
Asset-Backed Securities . . . . . . . . . . . . . . . . . . 32
Custodial Receipts. . . . . . . . . . . . . . . . . . . . . 32
Securities Lending. . . . . . . . . . . . . . . . . . . . . 33
Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . 33
Securities of Foreign Issuers . . . . . . . . . . . . . . . 34
Liquidity Puts. . . . . . . . . . . . . . . . . . . . . . . 34
Special Risks of Strategies Involving Options, Futures
Contracts and Forward Contracts. . . . . . . . . . . . . 35
Options on Securities and Securities Indices ........... 36
Futures Contracts and Options on Futures Contracts ..... 38
Foreign Currency Forward Contracts, Options and Futures
Transactions ........................................... 39
Foreign Currency Strategies - Special Considerations ... 41
Covered Forward Currency Contract, Future Contracts and
Options .............................................. 42
Illiquid Securities .................................... 43
Other Investment Techniques ............................ 44
INVESTMENT RESTRICTIONS ............................................ 45
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT .................. 48
APPENDIX - DESCRIPTION OF S&P, MOODY'S AND DUFF & PHELPS RATINGS ... 49
FINANCIAL STATEMENTS ............................................... 53
REPORT OF INDEPENDENT AUDITORS ..................................... 91
2
<PAGE>
THE FUNDS
The Prospectus discusses the investment objectives of the
following funds and the policies to be employed to achieve those objectives.
* Growth Stock Fund
* Stock Index Fund
* International Stock Fund
* Active Balanced Fund
* Balanced Fund
* Income Fund
* Money Market Fund
(collectively the "Funds")
Supplemental information is set out below concerning the types of securities and
other instruments in which the Funds may invest, the investment policies and
strategies that the Funds may utilize and certain risks attendant to those
investments, policies and strategies.
Stock Index Fund
If net cash outflows from the Stock Index Fund are anticipated,
the Stock Index Fund may sell stocks (in proportion to their weighting in the
Standard & Poor's 500 Composite Stock Price Index ("S&P 500 Index") in amounts
in excess of those needed to satisfy the cash outflows and hold the balance of
the proceeds in short-term investments if such a transaction appears, taking
into account transaction costs, to be more efficient than selling only the
amount of stocks needed to meet the cash requirements. The Stock Index Fund will
not increase its holdings of cash in anticipation of any decline in the value of
the S&P 500 Index or of the stock markets generally. If the Stock Index Fund
does hold un-hedged short-term investments as a result of the patterns of cash
flows to and from the Fund, such holdings may cause its performance to differ
from that of the S&P 500 Index.
THE "FUND" IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY
STANDARD & POOR'S ("S&P"). S&P MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, TO THE SHAREHOLDERS OF THE FUND OR ANY MEMBER OF THE PUBLIC REGARDING
THE ADVISABILITY OF INVESTING IN SECURITIES GENERALLY OR IN THE FUND
PARTICULARLY OR THE ABILITY OF THE S&P 500 INDEX TO TRACK GENERAL STOCK MARKET
PERFORMANCE. S&P'S ONLY RELATIONSHIP TO THE MANAGER AND ITS AFFILIATES IS THE
LICENSING OF CERTAIN TRADEMARKS AND TRADE NAMES OF S&P AND OF THE S&P 500 INDEX
WHICH IS DETERMINED, COMPOSED AND CALCULATED BY S&P WITHOUT REGARD TO THE
MANAGER OR THE FUND. S&P HAS NO OBLIGATION TO TAKE THE NEEDS OF THE MANAGER OR
THE SHAREHOLDERS INTO CONSIDERATION IN DETERMINING, COMPOSING OR CALCULATING THE
S&P 500 INDEX. S&P IS NOT RESPONSIBLE FOR AND HAS NOT PARTICIPATED IN THE
DETERMINATION OF THE PRICES AND AMOUNT OF THE FUND OR THE TIMING OF THE ISSUANCE
OR SALE OF THE SHARES OF THE FUND. S&P HAS NO OBLIGATION OR LIABILITY IN
CONNECTION WITH THE ADMINISTRATION, MARKETING OR TRADING OF THE FUND.
3
<PAGE>
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF
THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY
FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY,
EXPRESS OR IMPLIED AS TO THE RESULTS TO BE OBTAINED BY MANAGER, SHAREHOLDERS, OR
ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA
INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY
DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR USE WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY
SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS),
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
Money Market Fund
The Money Market Fund may also, consistent with the provisions of
Rule 2a-7 of the Investment Company Act of 1940, as amended (the "1940 Act"),
invest in securities with a face maturity of more than 397 days, provided that
either the security is a variable or floating rate U.S. Government security, or
it is a floating or variable rate security with certain demand or interest rate
reset features.
The Money Market Fund uses the amortized cost method of valuing
its investments, which facilitates the maintenance of the Fund's per share net
asset value at $1.00. The amortized cost method, which is used to value all of
the Fund's securities, involves initially valuing a security at its cost and
thereafter amortizing to maturity any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument.
The extent of deviation between the Money Market Fund's net asset
value based upon available market quotations or market equivalents and $1.00 per
share based on amortized cost will be examined periodically by the Trustees. If
such deviation exceeds 1/2 of 1%, the Trustees will promptly consider what
action, if any, will be initiated. In the event the Trustees determine that a
deviation exists that may result in material dilution or other unfair results to
investors or existing shareholders, they will cause the Money Market Fund to
take such corrective action as they regard to be necessary and appropriate to
eliminate or reduce to the extent reasonably practicable such dilution or unfair
results. Such action may include the sale of Money Market Fund instruments prior
to maturity to realize capital gains or losses or to shorten average portfolio
maturity; withholding part or all of dividends or payment of distributions from
capital or capital gains; redemptions of shares in kind; or establishing a net
asset value per share by using available market quotations or equivalents. In
addition, in order to stabilize the net asset value per share at $1.00, the
Trustees have the authority (i) to reduce or increase the number of shares
outstanding on a pro rata basis, and (ii) to offset each shareholder's pro rata
portion of the deviation between the net asset value per share and $1.00 from
the shareholder's accrued dividend account or from future dividends.
4
<PAGE>
MANAGEMENT OF THE COMPANY
The Manager and Advisers
- ------------------------
The Manager of the Company is Prudential Institutional Fund
Management, Inc. (The "Manager"), whose principal business address is 30
Scranton Office Park, Moosic, Pennsylvania 18507-1789.
Pursuant to an agreement with the Company, the Manager, subject
to the supervision of the Company's Trustees and in conformity with the stated
policies of the Company, manages both the investment operations of the Company
and the composition of the Company's Funds, including the purchase, retention,
disposition and loan of securities, and other instruments held by the Funds (the
"Management Agreement"). In connection therewith, the Manager is obligated to
keep certain books and records of the Company. The management services of the
Manager for the Company are not exclusive under the terms of the Management
Agreement and the Manager is free to, and does, render management services to
others.
The Manager has agreed, until September 30, 1996, to bear any
expenses, including management fees, which would cause the ratio of expenses
payable by each Fund to average daily net assets to exceed the estimated Total
Operating Expenses (After Reduction) for each Fund specified in the expense
table at the beginning of the Prospectus. The fees are computed daily and
payable monthly. The Management Agreement also provides that, in the event the
expenses of the Company (including the fees of the Manager, but excluding
interest, taxes, brokerage commissions, distribution fees and litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of the Company's business) for any fiscal year exceed the lowest
applicable annual expense limitation established and enforced pursuant to the
statutes or regulations of any jurisdiction in which the Company's shares are
qualified for offer and sale, the compensation due to the Manager will be
reduced by the amount of such excess. Reductions in excess of the total
compensation payable to the Manager will be paid by the Manager to the relevant
Fund. Currently, the Company believes that the most restrictive expense
limitation of state securities commissions is 2-1/2% of the Company's average
daily net assets up to $30 million, 2% of the next $70 million of such assets
and 1-1/2% of such assets in excess of $100 million. The Company reserves the
right to waive any and all fees or a portion thereof at its discretion. Such
waiver is subject to later reimbursement by the applicable Fund for a period up
to and including December 31, 1996.
In connection with its management of the business affairs of the
Company, the Manager bears the following expenses:
(i) the salaries and expenses of all of its and the Company's
personnel except the fees and expenses of Trustees who are not affiliated
persons of the Manager or the Funds' Advisers;
5
<PAGE>
(ii) all expenses incurred by the Manager or by the Company in
connection with managing the ordinary course of the Company's business, other
than those assumed by the Company as described below; and
(iii) the costs and expenses or fees payable to The Prudential
Investment Corporation ("PIC"), Jennison Associates Capital Corp.
("Jennison") and Mercator Asset Management, Inc. ("Mercator")
(collectively, the "Advisers") pursuant to the subadvisory agreements
between the Manager and the Advisers (collectively, the "Advisory
Agreements").
Under the terms of the Management Agreement, the Company is
responsible for the payment of the following expenses: (i) the fees payable to
the Manager, (ii) the fees and expenses of Trustees who are not affiliated
persons of the Manager or the Funds' Advisers, (iii) the fees and certain
expenses of the Custodian and Transfer and Dividend Disbursing Agent, including
the cost of providing records to the Manager and Plan Administrator in
connection with its obligation of maintaining required records of the Company,
pricing the Funds' shares and the cashiering function, (iv) the charges and
expenses of legal counsel and independent accountants for the Company, (v)
brokerage commissions and any issue or transfer taxes chargeable to the Company
in connection with its securities and futures transactions, (vi) all taxes and
corporate fees payable by the Company to governmental agencies, (vii) the fees
of any trade associations of which the Company may be a member, (viii) the cost
of stock certificates representing shares of Funds of the Company, if any, (ix)
the cost of fidelity and liability insurance, (x) the fees and expenses involved
in registering and maintaining registration of the Company and of its shares
with the SEC, registering the Company and qualifying its shares under state
securities laws, including the preparation and printing of the Company's
registration statements and prospectuses for such purposes, (xi) licensing fees,
if any, (xii) allocable communications expenses with respect to investor
services and all expenses of shareholders' and Trustees' meetings and of
preparing, printing and mailing reports, proxy statements and prospectuses to
shareholders in the amount necessary for distribution to the shareholders,
(xiii) fees of the Administrator, and (xiv) litigation and indemnification
expenses and other extraordinary expenses not incurred in the ordinary course of
the Company's business.
The Management Agreement provides that the Manager will not be
liable for any error of judgment or for any loss suffered by the Company in
connection with the matters to which the Management Agreement relates, except a
loss resulting from willful misfeasance, bad faith, gross negligence or reckless
disregard of duty. The Management Agreement provides that it will terminate
automatically in the event of its assignment (as defined in the 1940 Act), and
that it may be terminated without penalty by either party upon not more than 60
days' nor less than 30 days' written notice. The Management Agreement will
continue in effect for a period of more than two years from the date of
execution only so long as such continuance is specifically approved at least
annually in conformity with the 1940 Act. The Management Agreement was last
approved by the Trustees of the Company,
6
<PAGE>
including all of the Trustees who are notparties to the contract or interested
persons of any such party as defined in the 1940 Act on November 10, 1994 and by
the sole shareholder of the Company on October 12, 1992. The Manager received,
before any reduction due to the subsidy by the Manager of certain expenses of
the Fund, the following management fees from each Fund, expressed both as a
dollar amount and as a percentage of each Fund's average daily net assets:
Year ended Period ended
September 30, 1994 September 30, 1993
------------------ ------------------
Fund Amount Rate Amount Rate
---- ------ ---- ------ ----
Growth Stock ................. $500,141 .70% $111,337 .70%
Stock Index .................. 152,392 .40 68,014 .40
International Stock .......... 787,473 1.15 150,665 1.15
Active Balanced .............. 412,941 .70 66,355 .70
Balanced ..................... 308,338 .70 110,128 .70
Income ....................... 189,009 .50 75,122 .50
Money Market ................. 171,766 .45 84,206 .45
During the same period the Manager subsidized certain expenses of the Fund. See
"Expense Information" and "Management of the Company -- The Manager" in the
Prospectus.
The Manager has entered into Advisory Agreements with the
Advisers. The Advisory Agreements provide that the Advisers furnish investment
advisory services in connection with the management of their respective Funds.
For their services as Advisers, Jennison and Mercator are each paid a portion of
the fee the Manager receives from each Fund. PIC is reimbursed by the Manager
for the reasonable costs and expenses incurred in furnishing its services. In
connection therewith, the Advisers are obligated to keep certain books and
records of the respective Funds to which they provide advisory services. The
Manager continues to have responsibility for all investment advisory services to
all the Funds pursuant to the Management Agreement and supervises the Advisers'
performance of such services.
Jennison Associates Capital Corp. advises the Growth Stock Fund
and Active Balanced Fund. Founded in 1969 and acquired by The Prudential in
1985, Jennison is known for its highly skilled investment team that has worked
together for many years. Jennison is known for its highly skilled investment
team that has worked. Dedicated to achieving superior investment results for
institutional investors, Jennison currently has over $21 billion in assets under
management, including more than $11 billion in
7
<PAGE>
investments managed with a "growth stock" and over $1 billion in actively
managed balanced assets.
Mercator Asset Management advises the International Stock Fund.
Dedicated to global and international common stock investing, Mercator (a wholly
owned subsidiary of Prudential) was organized in 1984 by senior professionals
formerly associated with Templeton Investment Counsel. Mercator currently
manages $1.6 billion for institutional clients.
Prudential Investment Corporation (PIC) advises the Stock Index,
Balanced, Income and Money Market Funds through various of its specialized
investment units discussed below.
Prudential Diversified Investment Strategies (PDI) manages
the Stock Index Fund and Balanced Fund. PDI is dedicated to
equity index and balanced fund investing for institutional
clients. Founded in 1975, PDI is among the oldest
quantitatively-oriented balanced managers in the country. PDI
currently manages close to $18 billion in balanced and indexed
assets.
Prudential Global Advisors (PGA) manages the Income Fund.
PGA focuses on fixed income investing. PGA is a recognized leader
in asset/liability management and other structured bond
portfolios. PGA currently manages over $15 billion in domestic
fixed income assets.
PGA also manages the Money Market Fund. PGA focuses on
managing institutional money market accounts and, as of December
31, 1994, manages approximately $4 billion in short-term money
market assets.
The Advisory Agreements were last approved by the Trustees,
including a majority of the Trustees who are not interested persons of the
Company and who have no direct or indirect financial interest in the Advisory
Agreements, on November 10, 1994, and by the sole shareholder of the Company on
October 12, 1992.
Each Advisory Agreement provides that it will terminate in the
event of its assignment (as defined in the 1940 Act) or upon the termination of
the Management Agreement. Each Advisory Agreement may be terminated by the
Company, the Manager or the relevant Adviser upon not more than 60 days', nor
less than 30 days', written notice. Each Advisory Agreement provides that it
will continue in effect for a period of more than two years from its execution
only so long as such continuance is specifically approved at least annually in
accordance with the requirements of the 1940 Act.
The Administrator
- -----------------
The Company has entered into an Agreement with Prudential Mutual
Fund Management, Inc. ("PMF"), an affiliate of the Manager, which provides that
PMF will administer the Company's business affairs and, in connection therewith,
furnish the Company with office facilities, together with those
8
<PAGE>
ordinary clerical and bookkeeping services which are not being furnished by
State Street Bank and Trust Company, the Company's Custodian (The
"Administration Agreement"). PMF will also act as the Company's Transfer and
Dividend Disbursing Agent for no additional fee through its wholly-owned
subsidiary, Prudential Mutual Fund Services, Inc. ("PMFS"), P.O. Box 15005, New
Brunswick, New Jersey 08906. Under the Administration Agreement, the Company
will pay PMF a monthly fee at an annual rate of .17% of the Company's average
daily net assets up to $250 million and .15% of the Company's average daily net
assets in excess of $250 million. PMF will reimburse PMFS for certain of the
out-of-pocket expenses PMFS may incur in providing the transfer agency and
dividend disbursing services and the Company will reimburse PMF for these
out-of-pocket expenses. For the year ended September 30, 1994, and period from
November 5, 1992 (commencement of operations) to September 30, 1993 the
Administrator received $489,154 and $178,445, respectively, under the
Administration Agreement.
The Distributor
- ---------------
Prudential Retirement Services, Inc. ("PRSI") serves as the
Distributor of the Company's shares. The Company's distribution agreement with
PRSI (the "Distribution Agreement") has been approved by the Trustees, including
a majority of the Trustees who are not interested persons of the Company and who
have no direct or indirect financial interest in the Distribution Agreement, on
November 10, 1994. Potential investors may be introduced to the Distributor and
persons who introduce investors may be compensated for such introductions.
Counsel and Auditors
- --------------------
Kirkpatrick & Lockhart serves as counsel to the Company.
Deloitte & Touche, LLP independent accountants, serve as auditors
of the Company.
THE TRUSTEES AND OFFICERS
Principal Occupations
Name and Position During Past Five
Address with Company Years
- -------- ------------ ---------------------
William P. Link* (47) Chairman of Executive Vice President,
56 N. Livingston Avenue the Board The Prudential Insurance
Roseland NJ 07068 of Trustees Company of America (November
1990 to present); Chairman and
Executive Officer, Group
Operations (October, 1993 to
present); Chairman and Chief
Principal Occupations
Executive Officer, Prudential
Reinsurance Company (May, 1994
to present); previously
President, Group Operations
(March, 1989 to October, 1993).
9
<PAGE>
Name and Position During Past Five
Address with Company Years
- -------- ------------ -----------------------
Mark R. Fetting* (40) President President & Chief
30 Scranton Office Park and Operating Officer,
Moosic, PA 18507-1789 Trustee Prudential Institutional
Fund Management, Inc. (May,
1992 to date); Managing
Director, The Prudential
Investment Corporation
(October, 1991 to date);
President & Chief Executive
Officer, Prudential Retirement
Services, Inc. (January 1993 to
date); President of Prudential
Defined Contribution Services
(April 1992 to date);
Investment Management
Consultant, (1989 to 1991).
David A. Finley (62) Trustee Consultant (January 1990
17 Bedford Center Road to date); Director of Legent
Bedford Hills, NY 10507 Corp. and Broadway & Seymour
Inc.
William E. Fruhan, Jr. Trustee Professor, Harvard
(51) Graduate School of
Harvard Business School Business Administration (1979
Boston, MA 02163 to date).
August G. Olsen (65) Trustee Pensions and Investments
417 W. Hawthorne Ct. Consultant, August G.
Lake Bluff, IL 60044 Olsen Consulting (1992 to
date); Corporate Pension Fund
Officer and Investment Manager,
Abbott Laboratories (1987 to
1992).
Eric A. Simonson* (49) Trustee President & Chief Executive
Officer, Prudential Asset
Management Group (November 1994
to date); Vice President,
Prudential Investment
Corporation (April 1992 to
date); Chairman, Prudential
Global Asset Management
(January 1993 to October 1994);
President, Prudential
Investment Advisory Company,
Ltd., Japan (March 1992 to
10
<PAGE>
Name and Position During Past Five
Address with Company Years
- -------- ------------ ---------------------
September 1994); President
Equity Management Associates
(March 1992 to December 1992);
Chairman & Chief Executive
Officer, Prudential Capital
Corporation (June 1990 to March
1992); Managing Director and
Group Head, Prudential Corporate
Finance Group (April 1988 to
June 1990).
Herbert G. Stolzer (69) Trustee Executive Committee
19 Yorktown Road Member, Board of Directors;
East Brunswick, NJ 08816 Member and Assistant to the
Chairman of the Board of
Directors, Johnson & Johnson
(August 1987 to January 1991).
Principal Occupations
Thomas A. Early (40) Vice President Vice President and Secretary of
Prudential Institutional Fund
Management, Inc. and Prudential
Retirement Services, Inc.
(since April 1994); Vice
President and General Counsel,
Prudential Defined Contribution
Services (since April 1994);
Formerly Associate General
Counsel and Chief Financial
Services Counsel for Frank
Russell & Company (April 1988 -
April 1994).
Robert F. Gunia (48) Vice President Chief Administrative
One Seaport Plaza Officer (since July 1990),
New York, New York Director (since January 1989),
Executive Vice President,
Treasurer and Chief Financial
Officer (since June 1987) of
Prudential Mutual Fund
Management, Inc. ("PMFM"),
Senior Vice President (since
March 1987) of Prudential
Securities Incorporated
("Prudential Securities");
Vice President and Director of
The Asia Pacific Fund, Inc.
(since May 1989) and Director
of Nicholas Applegate Fund, Inc.
(since February 1992).
11
<PAGE>
Principal Occupations
Name and Position During Past Five
Address with Company Years
- -------- ------------- --------------------
Walter E. Watkins, Jr. Vice President Vice President, Prudential
(42) Institutional Fund Management,
Inc., (since April 1993) and
Prudential Retirement Services,
Inc. (since March 1994);
Director of Mutual Fund
Administration, Prudential
Defined Contribution Services
(since November 1992). Formerly,
financial reporting consultant
(August 1991 - September 1992);
formerly Controller, CIGNA
Mutual Funds (1987 - 1991).
Susan C. Cote (40) Treasurer Senior Vice President
One Seaport Plaza (since January 1989)
New York, New York of PMFM; Senior Vice President
(since January 1992) and Vice
President (January 1986 to
December 1991) of Prudential
Securities.
S. Jane Rose (48) Secretary Senior Vice President
One Seaport Plaza (since January 1991),
New York, New York Senior Counsel (since June
1987) and First Vice President
(June 1987 - December 1990) of
PMFM; Senior Vice President and
Senior Counsel of Prudential
Securities (since July 1992);
formerly Vice President and
Associate General Counsel of
Prudential Securities.
* "Interested" Trustee, as defined in the 1940 Act, by reason of his affiliation
with the Manager, the Distributor or a Subadviser.
As of January 13, 1995, the Trustees and officers of the Fund, as
a group owned beneficially less than 1% of the stock of the Company. As of
January 13, 1995, each of the following entities owned more than 5% of the
outstanding voting securities of each of the portfolios indicated:
12
<PAGE>
Portfolio Shares
- --------- ------
Growth Stock Fund
PAMCO VCA OA Account 943,339 (9%)
Attn: Jay Duffy
30 Scranton Office Park
Moosic, PA 18507-1774
Prudential Employee Savings Plan 2,719,326 (27.5%)
Attn: Christine Dennis
71 Hanover Road
Florham Park, NJ 07932-1502
Stock Index Fund PAMCO VCA OA Account 1,528,221 (28%)
Attn: Jay Duffy
30 Scranton Office Park
Moosic, PA 18507-1774
Prudential Employee Savings Plan 1,381,760 (25.3%)
Attn: Christine Dennis
71 Hanover Road
Florham Park, NJ 07932-1502
International Stock Prudential Employee Savings Plan 3,650,932 (45%)
Fund Attn: Christine Dennis
71 Hanover Road
Florham Park, NJ 07932-1502
PAMCO VCA OA Account 1,219,289 (15%)
30 Scranton Office Park
Moosic, PA 18507-
1774
Balanced Fund PAMCO VCA OA Account 1,740,485 (28%)
Attn: Jay Duffy
30 Scranton Office Park
Moosic, PA 18507-1774
Prudential Employee Savings Plan 1,454,575 (23%)
Attn: Christine Dennis
71 Hanover Road
Florham Park, NJ 07932-1502
13
<PAGE>
Active Balanced PAMCO VCA OA Account 1,507,867 (17.8%)
Fund Attn: John Duffy
30 Scranton Office Park
Moosic, PA 18507-1774
Income Fund Prudential Insurance Company 2,759,974 (59%)
of America
Attn: John Duffy
30 Scranton Office Park
Moosic, PA 18507-1789
Money Market Fund Prudential Insurance Company 26,692,628 (53.4%)
c/o Prudential Defined
Contribution Services
Attn: Jay Duffy
30 Scranton Office Park
Moosic, PA 18507-1789
The Prudential Insurance Company of America is a mutual life
insurance company incorporated in 1873 under the laws of the state of New
Jersey. The Prudential Employee Savings Plan is a defined contribution
retirement plan. The PAMCO VCA OA Account is a portion of The Prudential
Variable Contract Investment Fund, a separate account, established in 1962, of
The Prudential Insurance Company of America. Jennison Associates Capital Corp.
Savings Plan is a defined contribution retirement plan.
The interested trustees serve without compensation. The following
table sets forth the aggregate compensation paid by the Company to the Trustees
who are not affiliated with the Manager for the fiscal year ended September 30,
1994 and the aggregate compensation paid to such Trustees for service on the
Company's board and that of all other funds managed by Prudential Institutional
Fund Management, Inc. (Fund Complex) for the calendar year ended September 30,
1994.
Compenation Table
<TABLE>
<CAPTION>
Total
Pension or Compenation
Retirement From Company
Aggregate Benefits Accrued Estimated Annual and Fund
Compensation As Part of Company Benefits Upon Complex Paid
Name and Position From Company Expenses Retirement to Trustees
- ----------------- ------------ ---------------- ---------------- -------------
<S> <C> <C> <C> <C>
David A. Finley, Trustee 15,000 None N/A $15,000(1)**
William E. Fruhan, Jr., Trustee 15,000 None N/A 15,000(1)**
August G. Olsen, Trustee(*) 15,000 None N/A 15,000(1)**
Herbert G. Stolzer, Trustee(*) 15,000 None N/A 15,000(1)**
- ---------
<FN>
(*) All except $3,750 of the compensation from the Company for the fiscal
year ended September 30, 1994 represents deferred compensation. Aggregate
deferred compensation from the Company and the Fund complex for the fiscal
year ended September 30, 1994, including accrued interest, amounted to
approximately $11,380 for Mr. Olsen and $11,624 for Mr. Stolzer.
(**) indicates number of Funds in Fund Complex to which aggregate compenation
relates.
</FN>
</TABLE>
14
<PAGE>
OTHER CONSIDERATIONS
Net Asset Value
- ---------------
Portfolio securities of each Fund, except the Money Market Fund,
are generally valued as follows: (1) Securities for which the primary market is
on an exchange are valued at the last sale price on such exchange on the day of
valuation or, if there was no sale on such day, at the average of readily
available closing bid and asked prices on such day; (2) Securities that are
actively traded in the over-the-counter ("OTC") market, including listed
securities for which the primary market is believed to be over-the-counter, are
valued at the average of the most recently quoted bid and asked prices provided
by a principal market maker; (3) Securities issued in private placements are
valued at the mean between the bid and asked prices provided by primary market
dealers or, if no primary dealers are able to provide a market value, at fair
value determined by a valuation committee of Trustees (the "Valuation
Committee"); (4) U.S. Government securities for which market quotations are
available are valued at a price provided by an independent broker/dealer or
pricing service; (5) Short-term debt securities, including bonds, notes,
debentures and other debt securities, and money market instruments such as
certificates of deposit, commercial paper, bankers' acceptances and obligations
of domestic and foreign banks, with remaining maturities of 60 days or more, for
which reliable market quotations are readily available, are valued at current
market quotations as provided by an independent broker/dealer or pricing
service; (6) Short-term investments with remaining maturities of 60 days or less
are valued at cost with interest accrued or discount amortized to the date of
maturity, unless the Trustees determine that such valuation does not represent
fair value; (7) Options on securities that are listed on an exchange are valued
at the last sales price at the close of trading on such exchange or, if there
was no sale on the applicable options exchange on such day, at the average of
the quoted bid and asked prices as of the close of such exchange; (8) Futures
contracts and options thereon traded on a commodities exchange or board of trade
are valued at the last sale price at the close of trading on such exchange or
board of trade or, if there was no sale on the applicable commodities exchange
or board of trade on such day, at the average of quoted bid and asked prices as
of the close of such exchange or board of trade; (9) Quotations of foreign
securities in a foreign currency shall be converted to U.S. dollar equivalents
at the current rate obtained from a recognized bank or dealer; (10) Forward
currency exchange contracts are valued at the current cost of covering or
offsetting such contracts; (11) OTC options are valued at the mean between bid
and asked prices provided by a dealer, with additional prices obtained for
comparison, monthly and as indicated by monitoring of the underlying securities;
(12) Securities for which market quotations are not available, other than
private placements, are valued at a price supplied by a pricing agent approved
by the Trustees; (13) Securities for which reliable market quotations are not
available or for which the pricing agent or principal market maker does not
provide a valuation or provides a valuation that, in the judgment of the
applicable Adviser, does not represent fair value, are valued by the Valuation
Committee on the basis of cost of the security, transactions in comparable
securities, relationships
15
<PAGE>
among various securities and other factors determined by the Adviser to
materially affect the value of the security. The Company may engage pricing
services to obtain any prices.
The Trustees have determined that in the best interests of
shareholders the best method currently available for valuing the Money Market
Fund's securities is amortized cost. The Trustees continuously review this
method of valuation to assure that the Money Market Fund's securities are valued
at their fair value, as determined by the Trustees in good faith. The Trustees
are obligated, as a particular responsibility within the overall duty of care
owed to shareholders, to establish procedures reasonably designed, taking into
account current market conditions and the Money Market Fund's investment
objective, to stabilize the net asset value per share as computed for the
purpose of distribution and redemption at $1.00 per share. The Trustees'
procedures include periodically monitoring, as appropriate and at such intervals
as are reasonable in light of current market conditions, the relationship
between the amortized cost value per share and a net asset value per share based
upon available indications of market value.
While the amortized cost method provides certainty in valuation,
it may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Money Market Fund would receive if it sold
the instrument. During periods of declining interest rates, the quoted yield on
shares of the Money Market Fund may tend to be higher than a like computation
made by a fund with identical investments utilizing a method of valuation based
upon market prices and estimates of market prices for all of its portfolio
instruments. Thus, if the use of amortized cost by the Money Market Fund
resulted in a lower aggregate portfolio value on a particular day, a prospective
investor in the Money Market Fund would be able to obtain a somewhat higher
yield if he or she purchased shares of the Money Market Fund on that day, than
would result from investment in a fund utilizing solely market values, and
existing investors in the Money Market Fund would receive less investment
income. The converse would apply in a period of rising interest rates.
Portfolio securities traded on more than one U.S. national
securities exchange or foreign securities exchange are valued at the last sale
price on the business day as of which such value is being determined at the
close of the exchange representing the principal market for such securities. The
value of all assets and liabilities expressed in foreign currencies will be
converted into U.S. dollar values at the current rate obtained from a recognized
bank or dealer. If such quotations are not available, the rate of exchange will
be determined in good faith by or under procedures established by the Trustees
of the Company.
Trading in securities on European and Far Eastern securities
exchanges and over-the-counter markets is normally completed well before the
close of business on each business day in New York (i.e., a day on which the New
York Stock Exchange ("NYSE") is open for trading). In addition, European or Far
Eastern securities trading generally or in a particular country or countries may
not take place on all business days in New York. Furthermore, trading takes
place in Japanese markets on certain Saturdays and in various foreign markets on
days which are not business days in
16
<PAGE>
New York and on which the Funds' net asset values are not calculated. Such
calculation does not take place contemporaneously with the determination of the
prices of the majority of the portfolio securities used in such calculation.
Events affecting the values of portfolio securities that occur between the time
their prices are determined and the close of the regular trading on the NYSE
will not be reflected in the Fund's calculation of net asset values unless,
pursuant to procedures adopted by the Trustees, the Adviser deems that the
particular event would materially affect net asset value, in which case an
adjustment will be made.
The proceeds received by each Fund for each issue or sale of its
shares, and all net investment income, realized and unrealized gain and proceeds
thereof, subject only to the rights of creditors, will be specifically allocated
to such Fund and constitute the underlying assets of that Fund. The underlying
assets of each Fund will be segregated on the books of account, and will be
charged with the liabilities in respect to such Fund and with a share of the
general liabilities of the Company. Expenses with respect to any two or more
Funds are to be allocated in proportion to the net asset values of the
respective Funds except where allocations of direct expenses can otherwise be
fairly made.
Portfolio Transactions
- ----------------------
Decisions to buy and sell assets for a Fund are made by the
Fund's Adviser, subject to the overall review of the Manager and the Trustees.
Although investment decisions for the Funds are made independently from those of
the other accounts managed by an Adviser, investments of the type that the Funds
may make also may be made for those other accounts. When a Fund and one or more
other accounts managed by an Adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the Adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
a Fund or the size of the position obtained or disposed of by a Fund.
Transactions on U.S. stock exchanges and some foreign stock
exchanges involve the payment of negotiated brokerage commissions. On exchanges
on which commissions are negotiated, the cost of transactions may vary among
different brokers. On most foreign exchanges, commissions are generally fixed.
No stated commission is generally applicable to securities traded in U.S.
over-the-counter markets, but the prices of those securities includes
commissions or mark-ups. The cost of securities purchased from underwriters
includes an underwriting commission or concession and the prices at which
securities are purchased from and sold to dealers include a dealer's mark-up or
mark-down. U.S. Government securities generally are purchased from underwriters
or dealers, although certain newly-issued U.S. Government securities may be
purchased directly from the U.S. Treasury or from the issuing agency or
instrumentality.
17
<PAGE>
In selecting brokers or dealers to execute securities
transactions on behalf of a Fund, its Adviser seeks the best overall terms
available. The Funds have no obligation to do business with any broker-dealer or
group of broker-dealers in executing transactions in securities. In placing
orders, the Advisers are subject to the Company's policy to seek the most
favorable price and efficient execution taking into account such factors as
price (including the applicable commission or dealer spread), size, type, and
difficulty of the transaction, and the firm's general execution and operating
facilities.In assessing the best overall terms available for any transaction,
the Adviser will consider the factors that it deems relevant, including the
breadth of the market in the security, the price of the security, the financial
condition and execution capability of the broker or dealer and the
reasonableness of the commission, if any, for the specific transaction and on a
continuing basis. In addition, the Advisers, subject to seeking best price and
execution, are authorized to cause a Fund to pay broker-dealers that furnish
brokerage and research services (as defined by Section 28(e) of the Securities
and Exchange Act of 1934, as amended (the "1934 Act") a higher commission than
another broker-dealer that does not furnish such brokerage and research services
might charge. The Advisers must regard such higher commissions as reasonable in
relation to the brokerage and research services provided, viewed in terms of
each Adviser's responsibilities to the Fund or other accounts, if any, as to
which it exercises investment discretion. The fees under the Management
Agreement and the Advisory Agreements, respectively, are not reduced by reason
of a Fund's Adviser receiving brokerage and research services. The Trustees of
the Company will periodically review the commissions paid by a Fund to determine
if the commissions paid over representative periods of time were reasonable in
relation to the benefits inuring to the Fund. Over-the-counter purchases and
sales by a Fund are transacted directly with principal market makers except in
those cases in which better prices and executions may be obtained elsewhere.
To the extent consistent with applicable provisions of the 1940
Act and the rules and exemptions adopted by the Securities & Exchange Commission
("SEC") under the 1940 Act, the Trustees have determined that transactions for a
Fund may be executed through Prudential Securities Incorporated ("PSI") and
other affiliated broker-dealers if, in the judgment of the Adviser, the use of
an affiliated broker-dealer is likely to result in price and execution at least
as favorable as those of other qualified broker-dealers, and if, in the
transaction, the affiliated broker-dealer charges the Fund a fair and reasonable
rate. Furthermore, the Trustees of the Company, including a majority of the
Trustees who are not "interested" Trustees, have adopted procedures which are
reasonably designed to provide that any commissions, fees or other remuneration
paid to PSI are consistent with the foregoing standard. In accordance with
Section 11(a) under the 1934 Act, Prudential Securities may not retain
compensation for effecting transactions on a national securities exchange for
the Fund unless the Fund has expressly authorized the retention of such
compensation in a written contract executed by the Fund and Prudential
Securities. Section 11(a) provides that Prudential Securities must furnish to
the Fund at least annually a statement setting forth the total amount of all
compensation retained by Prudential Securities from transactions effected
18
<PAGE>
for the Fund during the applicable period. Brokerage transactions with
Prudential Securities are also subject to such fiduciary standards as may be
imposed by applicable law.
The Funds may use PSI and other affiliated broker-dealers as a
futures commission merchant in connection with entering into futures contracts
and options on futures contracts if, in the judgment of a Fund's Adviser, the
affiliated broker-dealer charges the Fund a fair and reasonable rate. This
standard would allow PSI to receive no more than the remuneration which would be
expected to be received by an unaffiliated broker in a commensurate arm's-length
transaction.
The Company does not market its shares through intermediary
brokers or dealers; therefore, it is not the Company's practice to allocate
brokerage or principal business on the basis of sales of its shares which may be
made through such firms. However, the Advisers may place portfolio orders with
qualified broker-dealers who recommend the Company to clients, and may, when a
number of brokers and dealers can provide best price and execution on a
particular transaction, consider such recommendations by a broker or dealer in
selecting among broker-dealers.
Transactions in options and futures by a Fund will be subject to
limitations established by each of the exchanges and boards of trade governing
the maximum position which may be written or held by a single investor or group
of investors acting in concert, regardless of whether the options and futures
are written or held on the same or different exchanges or are written or held in
one or more accounts or though one or more brokers. Thus, the number of options
and futures which a Fund may write or hold may be affected by options and
futures written or held by the Adviser and other investment advisory clients of
the Adviser. An exchange or board of trade may order the liquidation of
positions found to be in excess of these limits, and it may impose certain other
sanctions.
The Funds will not purchase any security, including U.S.
Government securities, during the existence of any underwriting or selling group
relating thereto of which PSI is a member, except to the extent permitted by SEC
rules.
During the year ended September 30, 1994 and the period from
November 5, 1992 (commencement of operations) through September 30, 1993, the
Company paid $3,247 and $1,528, respectively in brokerage commissions to
Prudential Securities.
Taxes
The following is a brief summary of some of the more important
tax considerations affecting the Company, the Funds and their shareholders. No
attempt is made to present a detailed explanation of all federal, state, local,
and foreign income tax considerations. Neither this discussion nor the tax
discussion in the Prospectus is intended to substitute for careful
19
<PAGE>
individual tax planning. Accordingly, potential investors are urged to consult
their own tax advisers with specific reference to their own tax situation.
Tax Consequences to the Funds
As a separate entity for federal tax purposes, each Fund intends
to continue to qualify separately for tax treatment as a regulated investment
company ("RIC") under subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). If so qualified, each Fund will not be subject to federal
income tax with respect to its net investment income and net realized capital
gains, if any, that are distributed to its shareholders. In order to qualify for
treatment as a RIC, each Fund will have to meet income diversification,
distribution, and certain other requirements set forth in the Code. If, in any
year, a Fund should fail to qualify under the Code for tax treatment as a RIC,
the Fund would incur a regular federal corporate income tax on its taxable
income, if any, for that year
The following Funds will elect to treat net losses incurred in
the eleven month period ended September 30, 1994 as having been incurred in the
following fiscal year:
Capital Currency
------- --------
Growth Stock Fund .................... $3,796,000 --
International Fund ................... -- $ 186,000
Income Fund .......................... 828,000 --
Income and Diversification Requirements. The income tests require
each Fund to derive (i) at least 90% of its gross income in each taxable year
from dividends, interest, payments with respect to securities loans, and gains
from the sale or other disposition of stock, securities, or foreign currencies,
or other income (including gains from options, futures, or forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies ("Income Requirement") and (ii) less than 30% of its gross income in
each taxable year from the sale or other disposition of (A) stock or securities
held for less than three months, (B) options, futures, or forward contracts
(other than those on foreign currencies) held for less than three months, and
(C) foreign currencies (or options, futures, or forward contracts on foreign
currencies) held for less than three months but only if such currencies (or
options, futures, or forward contracts) are not directly related to the Fund's
principal business of investing in stock or securities (or options or futures
with respect to stock or securities) ("Short-Short Limitation"). Each Fund also
must diversify its holdings so that, at the end of each quarter of its taxable
year, (i) at least 50% of the value of the Fund's total assets is represented by
cash and cash items, U.S. Government securities, securities of other RICs, and
other securities, with such other securities limited, in respect of any one
issuer, to an amount not greater in value than 5% of the Fund's total assets and
not more than 10% of the outstanding voting securities, and (ii) not more than
25% of the value of its total assets is invested in the securities of any one
issuer (other than U.S. Government securities or the securities of other RICs).
20
<PAGE>
Distribution Requirement. Each Fund must distribute (or be deemed
to have distributed) 90% or more of its investment company taxable income
(generally consisting of net investment income, net short-term capital gain, and
net gains from certain foreign currency transactions) for each taxable year.
Each Fund also must meet certain other distribution requirements to avoid a 4%
nondeductible excise tax (these requirements are collectively referred to below
as the "RIC distribution requirements").
Zero Coupon Securities and Original Issue Discount. The Funds may
invest in zero coupon securities and other securities issued with original issue
discount. Such securities generate current income subject to the distribution
requirements without providing cash available for distribution. The Funds do not
anticipate that such investments will adversely affect their ability to meet the
RIC distribution requirements.
Foreign Investments. If the International Stock Fund or any other
Fund purchases shares in certain foreign corporations called "passive foreign
investment companies" ("PFICs"), the Fund may be subject to U.S. federal income
tax on a portion of any "excess distribution" or gain from the disposition of
such shares even if such income is distributed as a dividend by the Fund to its
shareholders. Because a credit for this tax could not be passed through to
shareholders, the tax effectively would reduce the Fund's economic return from
its PFIC investment. Additional charges in the nature of interest may be imposed
on a PFIC investor in respect of deferred taxes arising from such distributions
or gains. If a Fund were to invest in a PFIC and elected to treat the PFIC as a
"qualified electing fund" under the Code, then in lieu of the foregoing tax and
interest, the Fund might be required to include in income each year a portion of
the ordinary earnings and net capital gains of the qualified electing fund, even
if not distributed to the Fund, and such amounts would be subject to the RIC
distribution requirements. Management of the Company will consider these
potential tax consequences in evaluating whether to invest in a PFIC.
Net investment income or capital gains earned by the Funds
investing in foreign securities may be subject to foreign income taxes withheld
at the source. The United States has entered into tax treaties with many foreign
countries that entitle the Funds to a reduced rate of tax or exemption from tax
on this related income and gains. It is impossible to determine the effective
rate of foreign tax in advance since the amount and the countries in which the
Funds' assets will be invested are not known. The Funds intend to operate so as
to qualify for treaty-reduced rates of tax where applicable.
Currency Fluctuations - Section 988 Gains and Losses. Gains or
losses attributable to fluctuations in exchange rates between the time a Fund
accrues dividends, interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time a Fund actually
collects such receivables or pays such liabilities, generally will be treated as
ordinary income or loss. Similarly, gains or losses on the disposition of
foreign currencies or debt securities held by a Fund denominated in a foreign
currency, if any, to the extent attributable to fluctuations in exchange rates
between the acquisition and disposition
21
<PAGE>
dates, generally will also be treated as ordinary income or loss. These gains
and losses are referred to under the Code as "Section 988" gains and losses.
Furthermore, foreign currency gains and losses attributable to
certain forward contracts, futures contracts that are not "regulated futures
contracts," equity options and unlisted non-equity options also will be treated
as Section 988 gains and losses. (In certain circumstances, however, the Company
may elect capital gain or loss treatment for such transactions.) Section 988
gains and losses will increase or decrease the amount of the Company's
investment company taxable income available for distribution. The Company does
not anticipate that any Section 988 gains and losses the Funds may realize will
adversely affect the ability of any Fund to qualify as a RIC under the Code.
Option and Futures Transactions. The use of hedging strategies,
such as writing (selling) and purchasing options and futures contracts and
entering into forward contracts, involves complex rules that will determine for
income tax purposes the character and timing of recognition of the gains and
losses each Fund realizes in connection therewith. Income from foreign
currencies (except certain gains therefrom that may be excluded by future
regulations), and income from transactions in options, futures, and forward
contracts derived by a Fund with respect to its business of investing in stock,
securities, or foreign currencies, will qualify as permissible income under the
Income Requirement. However, income from the disposition of options and futures
contracts (other than those on foreign currencies) will be subject to the
Short-Short Limitation if they are held for less than three months. Income from
the disposition of foreign currencies, and options, futures, and forward
contracts thereon, that are not directly related to the Fund's principal
business of investing in stock or securities (or options and futures with
respect thereto) also will be subject to the Short-Short Limitation if they are
held for less than three months.
If a Fund satisfies certain requirements, any increase in value
of a position that is part of a "designated hedge" will be offset by any
decrease in value (whether realized or not) of the offsetting hedging position
during the period of the hedge for purposes of determining whether the Fund
satisfies the Short-Short Limitation. Thus, only the net gain (if any) from the
designated hedge will be included in gross income for purposes of that
limitation. Each Fund will consider whether it should seek to qualify for this
treatment for its hedging transactions. To the extent a Fund does not so
qualify, it may be forced to defer the closing out of certain options, futures,
and forward contracts beyond the time when it otherwise would be advantageous to
do so, in order for the Fund to qualify as a RIC.
Under Section 1256 of the Code, gain or loss on certain options,
futures contracts, options on futures contracts ("Section 1256 contracts"),
other than Section 1256 contracts that are part of a "mixed straddle" with
respect to which a Fund has made an election not to have the following rules
apply, will be treated as 60% long-term and 40% short-term capital
22
<PAGE>
gain or loss ("blended gain or loss"). In addition, Section 1256 contracts held
by a Fund at the end of each taxable year will be required to be treated as sold
at fair market value on the last day of such taxable year for federal income tax
purposes and the resulting gain or loss will be treated as blended gain or loss
and will affect the amount of distributions required to be made by a Fund in
order to satisfy the RIC distribution requirements.
Offsetting positions held by a Fund involving certain futures and
options transactions may be considered to constitute "straddles" which are
subject to special rules under the Code. Under these rules, depending on
different elections which may be made by the Company, the amount, timing and
character of gain and loss realized by the Company and its shareholders may be
affected.
Tax Consequences to Shareholders
Ordinarily, distributions of a RIC's investment company taxable
income would be taxable to shareholders as ordinary income to the extent of the
earnings and profits of the RIC. To the extent that a distribution exceeds the
RIC's earnings and profits, it would be treated as a nontaxable return of
capital to the extent of the shareholder's tax basis in the shares of the RIC.
Distributions of net capital gain ordinarily would be taxable as long-term
capital gains. The rules discussed in this paragraph generally would apply
regardless of the length of time a shareholder holds the shares of the RIC.
The Company's present intention is to offer shares of the Funds
primarily to qualified retirement plans and other tax-exempt investors to whom
the foregoing rules do not apply. The Funds intend to satisfy the RIC
distribution requirements by distributions in the form of additional shares to
its shareholders. However, shareholders may redeem their shares, including
shares received as dividends or distributions, at any time for cash.
Distributions are generally not taxable to the participants in the shareholder
plans. Distributions from a qualified retirement plan to a participant or
beneficiary are subject to special rules. Because the effect of these rules
varies greatly with individual situations, potential investors are urged to
consult their own tax advisers.
Tax Consequences to Non-Exempt Shareholders. Dividends and other
distributions declared by a Fund in October, November or December of any year
and payable to shareholders of record on a date in any of those months are
deemed to have been paid by the Fund and received by the shareholders on
December 31 of that year if the distributions are paid by the Fund during the
following January. Accordingly, those distributions will be taxed to
shareholders that are not tax-exempt entities for the year in which that
December 31 falls.
If shares of a Fund are sold at a loss after being held for six
months or less, the loss will be treated as long-term, instead of short-term,
capital loss to the extent of any capital gain distributions received on those
shares. Non-exempt investors also should be aware that if shares
23
<PAGE>
are purchased shortly before the record date for a dividend or other
distribution, the purchaser will receive some portion of the purchase price back
as a taxable distribution.
PERFORMANCE AND YIELD INFORMATION
From time to time, the Company may quote a Fund's yield or total
return in advertisements or in advertisements, sales literature, reports and
other communications to shareholders.
Calculation of Money Market Fund Yield
- --------------------------------------
The Money Market Fund will prepare a current quotation of yield
daily. The yield quoted will be the simple annualized yield for an identified
seven-calendar-day period. The yield calculation will be based on a hypothetical
account having a balance of exactly one share at the beginning of the seven-day
period. The base return will be the change in the value of the hypothetical
account during the seven-day period, including dividends declared on any shares
purchased with dividends on the shares, but excluding any capital changes. The
yield will vary as interest rates and market conditions change. Yield also
depends on the quality, length of maturity and type of instruments in the Money
Market Fund, and its operating expenses. The Fund may also prepare an effective
annual yield computed by compounding the unannualized seven-day period return as
follows: by adding 1 to the unannualized seven-day period return, raising the
sum to a power equal to 365 divided by 7, and subtracting 1 from the result. The
Fund's seven-day current yield and effective yield as of September 30, 1994 was
4.31% and 4.41% respectively.
Calculation of Fund Performance
Yield (except Money Market Fund)
The Income Fund's 30-day yield is calculated according to a
formula prescribed by the Securities and Exchange Commission ("SEC"), expressed
as follows:
YIELD = 2[(a-b+1)6-1]
cd
Where: a = dividends and interest earned during the
period.
b = expenses accrued for the period.
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends.
d = the maximum offering price per share on
the last day of the period.
24
<PAGE>
For the purpose of determining the interest earned (variable "a"
in the formula) on debt obligations that were purchased by a Fund at a discount
or premium, the formula generally calls for amortization of the discount or
premium; the amortization schedule will be adjusted monthly to reflect changes
in the market values of the debt obligations.
Investors should recognize that, in periods of declining interest
rates, a Fund's yield will tend to be somewhat higher than prevailing market
rates and, in periods of rising interest rates, will tend to be somewhat lower.
In addition, when interest rates are falling, the inflow of net new money to a
Fund from the continuous sale of its shares will likely be invested in
instruments producing lower yields than the balance of its portfolio of
securities, thereby reducing the current yield of the Fund. In periods of rising
interest rates the opposite can be expected to occur. The yield for the 30-day
period ended September 30, 1994 for the Income Fund was 6.65%.
Average Annual Total Return
A Fund's "average annual total return" is computed according to a
formula prescribed by the SEC, expressed as follows:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of
$1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value ("ERV") at the
end of a 1-, 5- or 10-year period (or
fractional portion thereof) of a hypothetical
$1,000 investment made at the beginning of a
1-, 5- or 10-year period assuming reinvestment
of all dividends and distributions and the
effect of the maximum annual fee for
participation in the Company.
The ERV assumes complete redemption of the hypothetical
investment at the end of the measuring period. A Fund's net investment income
changes in response to fluctuations in interest rates and the expenses of the
Fund. The Average Annual Total Return for the year ended September 30, 1994 and
for the period from commencement of each Fund's operations through September 30,
1994 was: Growth Stock, -0.50% and 10.36%, respectively; Stock Index, 3.33% and
7.85%, respectively; International Stock, 21.71% and 24.03%, respectively;
Active Balanced, 1.07% and 6.57%, respectively; Balanced, -1.88% and 8.29%,
respectively; Income, -3.91% and 1.23%; and Money Market, 3.32% and 3.11%,
respectively. These amounts are computed by assuming a hypothetical initial
payment of $1,000. It was then assumed
25
<PAGE>
that all of the dividends and distributions paid by the Fund over the relevant
time period were reinvested. It was then assumed that at the end of the time
period, the entire amount was redeemed.
Aggregate Total Return
A Fund's aggregate total return represents the cumulative change
in the value of an investment in the Fund for the specified period and is
computed by the following formula:
ERV - P
-------
P
Where: P = a hypothetical initial payment of
$1,000.
ERV = Ending Redeemable Value at the end of a
1-, 5- or 10-year period (or fractional
portion thereof) of a hypothetical $1,000
investment made at the beginning of the 1-,
5-or 10-year period assuming reinvestment of
all dividends and distributions and the effect
of the maximum annual fee for participation in
the Company.
The ERV assumes complete redemption of the hypothetical
investment at the end of the measuring period.
A Fund's net investment income changes in response to
fluctuations in interest rates and the expenses of the Fund. Consequently, the
given performance quotations should not be considered as representative of the
Fund's performance for any specified period in the future.
A Fund's performance will vary from time to time depending upon
market conditions, the composition of its portfolio and its operating expenses.
Consequently, any given performance quotation should not be considered
representative of a Fund's performance for any specified period in the future.
In addition, because performance will fluctuate, it may not provide a basis for
comparing an investment in the Fund with certain bank deposits or other
investments that pay a fixed yield for a stated period of time. Investors
comparing a Fund's performance with that of other mutual funds should give
consideration to the quality and maturity of the respective investment
companies' portfolio securities. The aggregate total return for the period from
commencement of each Fund's operations through September 30, 1994 was: Growth
Stock, 20.6%; Stock Index, 15.5% International Stock, 50.6%; Active Balanced,
11.7%; Balanced 16.4%; Income, 2.0%; and Money Market, 5.5%.
26
<PAGE>
OTHER INVESTMENT PRACTICES, RISK CONDITIONS,
AND POLICIES OF THE FUNDS
U.S. Government Securities
Securities issued or guaranteed by the U.S. Government or one of
its agencies, authorities or instrumentalities in which the Funds may invest
include debt obligations of varying maturities issued by the U.S. Treasury or
issued or guaranteed by an agency or instrumentality of the U.S. Government,
including the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the U.S., Small Business Administration, Government
National Mortgage Association ("GNMA"), General Services Administration, Central
Bank for Cooperatives, Federal Farm Credit Banks, Federal Home Loan Banks,
Federal Home Loan Mortgage Corporation ("FHLMC"), Federal Intermediate Credit
Banks, Federal Land Banks, Federal National Mortgage Association ("FNMA"),
Maritime Administration, Tennessee Valley Authority, District of Columbia Armory
Board, Student Loan Marketing Association and Resolution Trust Corporation.
Direct obligations of the U.S. Treasury include a variety of securities that
differ in their interest rates, maturities and dates of issuance. Because the
U.S. Government is not obligated by law to provide support to an instrumentality
that it sponsors, a Fund will invest in obligations issued by an instrumentality
of the U.S. Government only if the Fund's Adviser determines that the
instrumentality's credit risk does not render its securities unsuitable for
investment by the Fund. For further information, see "Mortgage-Related
Securities" below.
Repurchase Agreements and Reverse Repurchase Agreements
Each Fund may enter into repurchase and reverse repurchase
agreements with banks and securities dealers which meet the creditworthiness
standards established by the Company's Trustees ("Qualified Institutions"). The
Adviser will monitor the continued creditworthiness of Qualified Institutions,
subject to the oversight of the Company's Trustees. The resale price of the
securities purchased reflects the purchase price plus an agreed upon market rate
of interest which is unrelated to the coupon rate or date of maturity of the
purchased security. The Fund receives collateral equal to the repurchase price
plus accrued interest, which is marked-to-market daily. These agreements permit
the Fund to keep all its assets earning interest while retaining "overnight"
flexibility to pursue investments of a longer-term nature.
The use of repurchase agreements and reverse repurchase
agreements involve certain risks. For example, if the seller of securities under
a repurchase agreement defaults on its obligation to repurchase the underlying
securities, as a result of its bankruptcy or otherwise, the Fund will seek to
dispose of such securities, which action could involve costs or delays. If the
seller becomes insolvent and subject to liquidation or reorganization under
applicable bankruptcy or other laws, the Fund's ability to dispose of the
underlying securities may be restricted. Finally, it is possible that the Fund
may not be able to substantiate its interest in the underlying securities. To
minimize this risk, the
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securities underlying the agreement will be held by the Custodian at all times
in an amount at least equal to the repurchase price, including accrued interest.
If the counterparty fails to resell or repurchase the securities, the Fund may
suffer a loss to the extent proceeds from the sale of the underlying collateral
are less than the repurchase price. Reverse repurchase agreements involve the
risk that the market value of the securities retained in lieu of sale by the
Fund may decline below the price of the securities the Fund has sold but is
obligated to repurchase.
Fixed Income Securities
In general, the ratings of Moody's Investors Service ("Moody's"),
Standard & Poor's Ratings Group ("S&P"), Duff and Phelps, Inc. ("Duff & Phelps")
and other nationally recognized statistical rating organizations ("NRSROs")
represent the opinions of those organizations as to the quality of debt
obligations that they rate. These ratings are relative and subjective, are not
absolute standards of quality and do not evaluate the market risk of securities.
These ratings will be among the initial criteria used for the selection of
portfolio securities. Among the factors that the rating agencies consider are
the long-term ability of the issuer to pay principal and interest and general
economic trends.
Subsequent to its purchase by a Fund, an issue of debt
obligations may cease to be rated or its rating may be reduced below the minimum
required for purchase by the Fund. Neither event will require the sale of the
debt obligation by the Fund, but the Fund's Adviser will consider the event in
its determination of whether the Fund should continue to hold the obligation. In
addition, to the extent that the ratings change as a result of changes in rating
organizations or their rating systems or owing to a corporate restructuring of
Moody's, S&P, Duff & Phelps or other NRSRO, the Fund will attempt to use
comparable ratings as standards for its investments in accordance with its
investment objectives and policies. The Appendix to this Statement of Additional
Information contains further information concerning the ratings of Moody's, S&P
and Duff & Phelps and their significance.
All Funds, except the Money Market Fund and the Stock Index Fund
may invest, to a limited extent, in medium, lower-rated and unrated debt
securities. Debt securities rated in the lowest category of investment grade
debt (i.e., Baa by Moody's or BBB by S&P) may have speculative characteristics,
and changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments than is the
case with higher grade bonds.
Non-investment grade fixed income securities are rated lower than
Baa/BBB (or the equivalent rating or, if not rated, determined by the relevant
Adviser to be of comparable quality to securities so rated) and are commonly
referred to as high risk or high yield securities or "junk" bonds. High yield
securities are generally riskier than higher quality securities and are subject
to more credit risk, including risk of default, and the prices of such
securities are more volatile than higher quality securities. Such securities may
also have less liquidity than higher
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quality securities. None of the Funds is authorized to invest in excess of 5% of
its net assets in non-investment grade fixed income securities.
The markets in which medium and lower-rated securities (or
unrated securities that are equivalent to medium and lower-rated securities) are
traded are generally more limited than those in which higher-rated securities
are traded. The existence of limited markets may make it more difficult for the
Funds to obtain accurate market quotations for purposes of valuing its portfolio
and calculating its net asset value. Moreover, the lack of liquid trading market
may restrict the availability of debt securities for a Fund to purchase and may
also have the effect of limiting the ability of a Fund to sell debt securities
at their fair value either to meet redemption requests or to respond to changes
in the economy or the financial markets.
Lower-rated fixed income securities present risks based on
payment expectations. If an issuer calls the obligation for redemption, a Fund
may have to replace the security with a lower-yielding security, resulting in a
decreased return for investors. Also, as the principal value of fixed income
securities moves inversely with movements in interest rates, in the event of
rising interest rates, the value of the securities held by a Fund may decline
proportionately more than a Fund consisting of higher-rated securities.
Investments in zero coupon bonds may be more speculative and subject to greater
fluctuations in value due to changes in interest rates than bonds that pay
interest currently. If a Fund experiences unexpected net redemptions, it may be
forced to sell its higher-rated bonds, resulting in a decline in the overall
credit quality of the securities held by the Fund and increasing the exposure of
the Fund to the risks of lower-rated securities.
When-Issued and Delayed Delivery Securities
To secure prices deemed advantageous at a particular time, each
Fund may purchase securities on a when-issued or delayed delivery basis, in
which case delivery of the securities occurs beyond the normal settlement
period; payment for or delivery of the securities would be made at the same time
or prior to the reciprocal delivery or payment by the other party to the
transaction. A Fund will enter into when-issued or delayed delivery transactions
for the purpose of acquiring securities and not for the purpose of leverage.
When-issued securities purchased by a Fund may include securities purchased on a
"when, as and if issued" basis under which the issuance of the securities
depends on the occurrence of a subsequent event, such as approval of a merger,
corporate reorganization or debt restructuring.
Securities purchased on a when-issued or delayed delivery basis
may expose a Fund to risk because the securities may experience fluctuations in
value prior to their actual delivery. A Fund does not accrue income with respect
to a when-issued or delayed-delivery security prior to its stated delivery date.
Purchasing securities on a when-issued or delayed delivery basis may involve the
additional risk that the yield available in the
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market when the delivery takes place may be higher than that obtained in the
transaction itself.
Forward Rolls and Dollar Rolls
Forward roll and dollar roll transactions involve the risk that
the market value of the securities sold by a Fund may decline below the
repurchase price of those securities. At the time the Fund enters into a forward
roll transaction, it will place in a segregated account with its Custodian cash,
U.S. Government securities and other liquid high grade debt securities having a
value equal to the repurchase price (including accrued interest) and will
subsequently mark the account to market.
Mortgage-Related Securities
Mortgage-backed securities may be classified as private,
governmental or government related, depending on the issuer or guarantor.
Private mortgage-backed securities represent pass-through pools consisting
principally of conventional residential mortgage loans created by
non-governmental issuers, such as commercial banks, savings and loan
associations and private mortgage insurance companies. Governmental
mortgage-backed securities are backed by the full faith and credit of the United
States. GNMA, the principal U.S. guarantor of such securities, is a wholly-owned
corporate instrumentality of the United States within the Department of Housing
and Urban Development. Pass-through securities issued by FNMA are guaranteed as
to timely payment of principal and interest by FNMA, which guarantee is not
backed by the full faith and credit of the U.S. Government. FHLMC is a corporate
instrumentality of the United States, the stock of which is owned by the Federal
Home Loan Banks. Participation certificates representing interests in mortgages
from FHLMC's national portfolio are guaranteed as to the timely payment of
interest and ultimate, but generally not timely collection of principal by
FHLMC. The obligations of the FHLMC under its guarantee are obligations solely
of FHLMC and are not backed by the full faith and credit of the U.S. Government.
The Funds expect that private and governmental entities may
create mortgage loan pools offering pass-through investments in addition to
those described above. The mortgages underlying these securities may be
alternative mortgage instruments, that is, mortgage instruments whose principal
or interest payments may vary or whose terms to maturity may be shorter than
previously customary. As new types of mortgage-backed securities are developed
and offered to investors, the Funds, consistent with their respective investment
objectives and policies, will consider making investments in those new types of
securities.
The Funds may also invest in pass-through securities backed by
adjustable rate mortgages that have been issued by GNMA, FNMA and FHLMC or
private issuers. These securities bear interest at a rate that is adjusted
monthly, quarterly or annually. The prepayment experience of the mortgages
underlying these securities may vary from that for fixed rate mortgages.
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The average maturity of pass-through pools of mortgage-related
securities varies with the maturities of the underlying mortgage instruments. In
addition, a pool's stated maturity may be shortened by unscheduled payments on
the underlying mortgages. Factors affecting mortgage prepayments include the
level of interest rates, general economic and social conditions, the location of
the mortgaged property and age of the mortgage. Because prepayment rates of
individual pools vary widely, it is not possible to predict accurately the
average life of a particular pool. Common practice is to assume that prepayments
will result in an average life ranging from two to ten years for pools of fixed
rate 30-year mortgages. Pools of mortgages with other maturities or different
characteristics will have varying average life assumptions.
Because prepayments of principal generally occur when interest
rates are declining, it is likely that a Fund will have to reinvest the proceeds
of prepayments at lower interest rates than those at which the assets were
previously invested. If this occurs, a Fund's yield will correspondingly
decline. Thus, mortgage-related securities may have less potential for capital
appreciation in periods of falling interest rates than other fixed-income
securities of comparable maturity, although these securities may have a
comparable risk of decline in market value in periods of rising interest rates.
To the extent that a Fund purchases mortgage-related securities at a premium,
unscheduled prepayments, which are made at par, will result in a loss equal to
any unamortized premium.
Government stripped mortgage-related interest-only ("IOs") and
principal only ("POs") securities are currently traded in an over-the-counter
market maintained by several large investment banking firms. There can be no
assurance that a Fund will be able to effect a trade of IOs or POs at a time
when it wishes to do so. The Funds will acquire IOs and POs only if, in the
opinion of the Fund's Adviser, a secondary market for the securities exists at
the time of acquisition, or is subsequently expected. A Fund will treat IOs and
POs that are not U.S. Government securities as illiquid and will limit its
investments in these securities, together with other illiquid investments, to
not more than 15% (10% in the case of the Money Market Fund) of its net assets.
With respect to IOs and POs that are issued by the U.S. Government, the
Advisers, subject to the supervision of the Trustees, may determine that such
securities are liquid, if they determine the securities can be disposed of
promptly in the ordinary course of business at a value reasonably close to that
used in the calculation of net asset value per share.
Investing in IOs and POs involves the risks normally associated
with investing in government and government agency mortgage-related securities.
In addition, the yields on IOs and POs are extremely sensitive to the prepayment
experience on the mortgage loans underlying the certificates collateralizing the
securities. If a decline in the level of prevailing interest rates results in a
rate of principal prepayments higher than anticipated, distributions of
principal will be accelerated, thereby reducing the yield to maturity on IOs and
increasing the yield to maturity on POs. Sufficiently high prepayment rates
could result in a Fund not fully recovering its initial investment in an IO.
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Mortgage-related securities may not be readily marketable. To the
extent any of these securities are not readily marketable in the judgment of the
Fund's Adviser, the investment restriction limiting a Fund's investment in
illiquid instruments will apply.
Collateralized Mortgage Obligations
The Funds also may invest in, among other things, parallel pay
CMOs and Planned Amortization Class CMOs (PAC Bonds). Parallel pay CMOs are
structured to provide payments of principal on each payment date to more than
one class. These simultaneous payments are taken into account in calculating the
stated maturity date or final distribution date of each class, which, as with
other CMO structures, must be retired by its stated maturity date or final
distribution date but may be retired earlier. PAC Bonds generally require
payments of a specified amount of principal on each payment date. PAC Bonds
always are parallel pay CMOs with the required principal payment on such
securities having the highest priority after interest has been paid to all
classes.
In reliance on SEC rules and orders, the Funds' investments in
certain qualifying CMOs, including CMOs that have elected to be treated as Real
Estate Mortgage Investment Conduits (REMICs), are not subject to the 1940 Act's
limitation on acquiring interests in other investment companies. In order to be
able to rely on the SEC's interpretation, the CMOs and REMICs must be unmanaged,
fixed-asset issuers that (i) invest primarily in mortgage-backed securities,
(ii) do not issue redeemable securities, (iii) operate under general exemptive
orders exempting them from all provisions of the 1940 Act, and (iv) are not
registered or regulated under the 1940 Act as investment companies. To the
extent that a Fund selects CMOs or REMICs that do not meet the above
requirements, the Fund may not invest more than 10% of its assets in all such
entities and may not acquire more than 3% of the voting securities of any single
such entity.
Asset-Backed Securities
The value of these securities may change because of changes in the
market's perception of the creditworthiness of the servicing agent for the pool,
the originator of the pool, or the financial institution providing credit
support enhancement for the pool.
Custodial Receipts
Each Fund, other than the Growth Stock Fund, the Stock Index
Fund, the International Fund and the Money Market Fund, may acquire custodial
receipts or certificates, such as CATS, TIGRs and FICO Strips, underwritten by
securities dealers or banks, that evidence ownership of future interest
payments, principal payments or both on certain notes or bonds issued by the
U.S. Government, its agencies, authorities or instrumentalities. The
underwriters of these certificates or receipts purchase a U.S. Government
security and deposit the security in an irrevocable trust or custodial account
with a custodian bank, which then issues receipts or certificates that evidence
ownership of the periodic unmatured coupon payments and the
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final principal payment on the U.S. Government security. Custodial receipts
evidencing specific coupon or principal payments have the same general
attributes as zero coupon U.S. Government securities.
There are a number of risks associated with investments in
custodial receipts. Although, typically, under the terms of a custodial receipt,
a Fund is authorized to assert its rights directly against the issuer of the
underlying obligation, the Fund may be required to assert through the custodian
bank such rights as may exist against the underlying issuer. Thus, in the event
the underlying issuer fails to pay principal and/or interest when due, a Fund
may be subject to delays, expenses and risks that are greater than those that
would have been involved if the Fund had purchased a direct obligation of the
issuer. In addition, in the event that the trust or custodial account in which
the underlying security has been deposited is determined to be an association
taxable as a corporation, instead of a non-taxable entity, the yield on the
underlying security would be reduced in respect of any taxes paid.
Securities Lending
A Fund will enter into securities lending transactions only with Qualified
Institutions. A Fund will comply with the following conditions whenever it lends
securities: (i) the Fund must receive at least 100% cash collateral or
equivalent securities from the borrower; (ii) the value of the loan is
"marked-to-market" on a daily basis; (iii) the Fund must be able to terminate
the loan at any time; (iv) the Fund must receive reasonable interest on the
loan, as well as any dividends, interest or other distributions on the loaned
securities and any increase in market value; (v) the Fund may pay only
reasonable custodian fees in connection with the loan; and (vi) voting rights on
the loaned securities may pass to the borrower except that, if a material event
adversely affecting the investment in the loaned securities occurs, the Fund
must terminate the loan and regain the right to vote the securities. A Fund may
pay reasonable finders', administrative and custodial fees in connection with a
loan of its securities. In these transactions, there are risks of delay in
recovery and in some cases even of loss of rights in the collateral should the
borrower of the securities fail financially.
Borrowing
Each Fund (except for the Money Market Fund) may borrow from time
to time, at its Adviser's discretion, to take advantage of investment
opportunities, when yields on available investments exceed interest rates and
other expenses of related borrowing, or when, in the Adviser's opinion, unusual
market conditions otherwise make it advantageous for the Fund to increase its
investment capacity. A Fund will only borrow when there is an expectation that
it will benefit the Fund after taking into account considerations such as
interest income and possible losses upon liquidation. Borrowing by a Fund
creates an opportunity for increased net income but, at the same time, creates
risks, including the fact that leverage may exaggerate changes in the net asset
value of Fund shares and
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in the yield on the Fund. A Fund may also borrow for temporary, extraordinary or
emergency purposes and for the clearance of transactions.
Securities of Foreign Issuers
The value of a Fund's foreign investments may be significantly
affected by changes in currency exchange rates. The dollar value of a foreign
security generally decreases when the value of the dollar rises against the
foreign currency in which the security is denominated and tends to increase when
the value of the dollar falls against such currency. In addition, the value of a
Fund's assets may be affected by losses and other expenses incurred in
converting between various currencies in order to purchase and sell foreign
securities and by currency restrictions and exchange control regulation.
The economies of many of the countries in which the Stock Index
Fund and other Funds may invest are not as developed as the economy of the U.S.
and may be subject to significantly different forces. Political or social
instability, expropriation or confiscatory taxation, and limitations on the
removal of funds or other assets, could also adversely affect the value of
investments.
Foreign companies are generally not subject to the regulatory
controls imposed on U.S. issuers and, in general, there is less publicly
available information about foreign securities than is available about domestic
securities. Many foreign companies are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to domestic companies. Income from foreign
securities owned by a Fund may be reduced by a withholding tax at the source
which would reduce dividend income payable to shareholders.
Brokerage commission rates in foreign countries, which are
generally fixed rather than subject to negotiation as in the U.S. are likely to
be higher. The securities markets in many of the countries in which a Fund may
invest will have substantially less trading volume than the principal U.S.
markets. As a result, the securities of some companies in these countries may be
less liquid and more volatile than comparable U.S. securities. There is
generally less government regulation and supervision of foreign stock exchanges,
brokers and issuers which may make it difficult to enforce contractual
obligations.
Liquidity Puts
Each Fund, other than the Growth Stock Fund and the Stock Index
Fund, may purchase instruments together with the right to resell the instruments
at an agreed-upon price or yield, within a specified period prior to the
maturity date of the instruments. This instrument is commonly known as a "put
bond" or a "tender option bond."
Consistent with each Fund's investment objective, a Fund may
purchase a put so that it will be fully invested in securities while preserving
the necessary liquidity to purchase securities on a when-issued
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basis, to meet unusually large redemptions and to purchase at a later date
securities other than those subject to the put. A Fund will generally exercise
the puts or tender options on their expiration date when the exercise price is
higher than the current market price for the related fixed income security. Puts
or tender options may be exercised prior to the expiration date in order to fund
obligations to purchase other securities or to meet redemption requests. These
obligations may arise during periods in which proceeds from sales of Fund shares
and from recent sales of portfolio securities are insufficient to meet such
obligations or when the funds available are otherwise allocated for investment.
In addition, puts may be exercised prior to the expiration date in the event the
Adviser for the Fund revises its evaluation of the creditworthiness of the
issuer of the underlying security. In determining whether to exercise puts
or tender options prior to their expiration date and in selecting which puts or
tender options to exercise in such circumstances, the Fund's Adviser considers,
among other things, the amount of cash available to the Fund, the expiration
dates of the available puts or tender options, any future commitments for
securities purchases, the yield, quality and maturity dates of the underlying
securities, alternative investment opportunities and the desirability of
retaining the underlying securities in the Fund.
These instruments are not deemed to be "put options" for purposes of any Fund's
investment restriction.
Special Risks of Strategies Involving Options, Futures Contracts
and Forward Contracts
The use of options, futures contracts and forward currency
contracts (collectively, "Instruments") involves special considerations and
risks, as described below. Risks pertaining to particular hedging strategies are
described in the sections that follow.
(1) Successful use of most Instruments depends upon an Adviser's
ability to predict movements in the overall securities and currency markets, and
interest rates, which requires different skills than predicting changes in the
prices of individual securities. While the Advisers are experienced in the use
of Instruments, there can be no assurance that any particular strategy adopted
will succeed.
(2) There might be imperfect correlation, or even no correlation,
between price movements of an Instrument and price movements of the investments
being hedged. For example, if the value of an Instrument used in a short hedge
increased by less than the decline in value of the hedged investment, the hedge
would not be fully successful. Such a lack of correlation might occur due to
factors unrelated to the value of the investments being hedged, such as
speculative or other pressures on the markets in which Instruments are traded.
The effectiveness of hedges using Instruments on indices will depend on the
degree of correlation between price movements in the index and price movements
in the investments being hedged.
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(3) Hedging strategies, if successful, can reduce risk of loss by
wholly or partially offsetting the negative effect of unfavorable price
movements in the investments being hedged. However, hedging strategies can also
reduce opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. For example, if a Fund entered into a short
hedge because its Adviser projected a decline in the price of a security in the
Fund's portfolio, and the price of that security increased instead, the gain
from that increase might be wholly or partially offset by a decline in the price
of the hedging instrument. Moreover, if the price of the hedging instrument
declined by more than the increase in the price of the security, the Fund could
suffer a loss. In either such case, the Fund would have been in a better
position had it not hedged at all.
(4) As described below, a Fund might be required to maintain
assets as "cover," maintain segregated accounts or make margin payments when it
takes positions in Instruments involving obligations to third parties (i.e.
Instruments other than purchased options). If a Fund were unable to close out
its positions in such Instruments, it might be required to continue to maintain
such assets or accounts or make such payments until the position expired or
matured. The requirements might impair the Fund's ability to sell a portfolio
security or make an investment at a time when it would otherwise be favorable to
do so, or require that the Fund sell a portfolio security at a disadvantageous
time. A Fund's ability to close out a position in an Instrument prior to
expiration or maturity depends on the existence of a liquid secondary market or,
in the absence of such a market, the ability and willingness of the other party
to the transaction ("contra party") to enter into a transaction closing out the
position. Therefore, there is no assurance that any hedging position can be
closed out at a time and price that is favorable to a Fund.
Options on Securities and Securities Indices
A number of risk factors are associated with options
transactions. There is no assurance that a liquid secondary market on an options
exchange will exist for any particular option, at any particular time. If a Fund
is unable to effect a closing purchase transaction with respect to covered
options it has written, a Fund will not be able to sell the underlying
securities or dispose of assets held in a segregated account until the options
expire or are exercised. Similarly, if a Fund is unable to effect a closing sale
transaction with respect to options it has purchased, it would have to exercise
the options in order to realize any profit and may incur transaction costs upon
the purchase or sale of underlying securities. The ability to terminate
over-the-counter ("OTC") option positions is more limited than the ability to
terminate exchange-traded option positions because a Fund would have to
negotiate directly with a contra party. In addition, with OTC options, there
is a risk that the contra party in such transactions will not fulfill its
obligations.
A Fund pays brokerage commissions or spreads in connection with
its options transactions, as well as for purchases and sales of underlying
securities. The writing of options could result in significant increases
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in a Fund's turnover rate. A Fund's transactions in options may be limited by
the requirements of the Internal Revenue Code for qualification as a regulated
investment company.
The risks of investment in index options may be greater than
options on securities. Because index options are settled in cash, when a Fund
writes a call option on an index it cannot provide in advance for its potential
settlement obligations by acquiring and holding the underlying securities. A
Fund can offset some of the risk of writing a call index option position by
holding a diversified portfolio of securities similar to those on which the
underlying index is based. However, the Fund cannot, as a practical matter,
acquire and hold a portfolio containing exactly the same securities as underlie
the index and, as a result, bears a risk that the value of the securities held
will vary from the value of the index.
Even if a Fund could assemble a securities portfolio that exactly
reproduced the composition of the underlying index, it still would not be fully
covered from a risk standpoint because of the "timing risk" inherent in writing
index options. When an index option is exercised, the amount of cash that the
holder is entitled to receive is determined by the difference between the
exercise price and the closing index level on the date when the option is
exercised. As with other kinds of options, the Fund as the call writer will not
know that it has been assigned until the next business day at the earliest. The
time lag between exercise and notice of assignment poses no risk for the writer
of a covered call on a specific underlying security, such as a common stock,
because there the writer's obligation is to deliver the underlying security, not
to pay its value as of a fixed time in the past. So long as the writer already
owns the underlying security, it can satisfy its settlement obligations by
simply delivering it, and the risk that its value may have declined since the
exercise date is borne by the exercising holder. In contrast, even if the writer
of an index call holds securities that exactly match the composition of the
underlying index, it will not be able to satisfy its assignment obligations by
delivering those securities against payment of the exercise price. Instead, it
will be required to pay cash in an amount based on the closing index value on
the exercise date; and by the time it learns that it has been assigned, the
index may have declined, with a corresponding decline in the value of its
securities portfolio. This "timing risk" is an inherent limitation on the
ability of index call writers to cover their risk exposure by holding securities
positions.
If a Fund has purchased an index option and exercises it before
the closing index value for that day it available, it runs the risk that the
level of the underlying index may subsequently change. If such a change causes
the exercised option to fall out-of-the-money, the Fund will be required to pay
the difference between the closing index value and the exercise price of the
option (times the applicable multiplier) to the assigned writer.
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A Fund will not purchase put options or call options if, after
any such purchase, the aggregate premiums paid for such options would exceed 20%
of the Fund's net assets. The aggregate value of the obligations underlying put
options will not exceed 25% of a Fund's net assets.
Futures Contracts and Options on Futures Contracts
A futures contract on securities or currency is an agreement to
buy and sell securities or currency at a specified price at a designated date.
Futures contracts and options thereon may be entered into for hedging purposes
and for the other purposes described in the Funds' Prospectus. A Fund may enter
into futures contracts in order to hedge against changes in interest rates,
stock market prices or currency exchange rates.
The purchase of futures or call options thereon can serve as a
long hedge, and the sale of futures or the purchase of put options thereon can
serve as a short hedge. Writing call options on futures contracts can serve as a
limited short hedge, and writing put options on futures contracts can serve as a
limited long hedge.
No price is paid upon entering into a futures contract. Instead,
at the inception of a futures contract, a Fund is required to deposit "initial
margin," consisting of cash, U.S. government securities or other liquid,
high-grade debt securities, in an amount generally equal to 10% or less of the
contract value. Margin must also be deposited when writing a call or put option
on a futures contract, in accordance with applicable exchange rules. Unlike
margin in securities transactions, initial margin does not represent a
borrowing, but rather is in the nature of a performance bond or good-faith
deposit that is returned to the Fund at the termination of the transaction if
all contractual obligations have been satisfied. Under certain circumstances,
such as periods of high volatility, a Fund may be required by an exchange to
increase the level of its initial margin payment.
Subsequent "variation margin" payments are made to and from the
futures broker daily as the value of the futures position varies, a process
known as "marking to market." Variation margin does not involve borrowing, but
rather represents a daily settlement of a Fund's obligations to or from a
futures broker. When a Fund purchases an option on a future, the premium paid
plus transaction costs are all that is at risk. In contrast, when a Fund
purchases or sells a futures contract or writes a call or put option thereon, it
is subject to daily variation margin calls that could be substantial in the
event of adverse price movements. If the Fund has insufficient cash to meet
daily variation margin requirements, it might need to sell securities at a time
when such sales are disadvantageous.
Purchasers and sellers of futures contracts and options on
futures can enter into offsetting closing transactions, similar to closing
transactions on options, by selling or purchasing, respectively, an instrument
identical to the instrument purchased or sold. Positions in futures and options
on futures may be closed only on an exchange or board of trade that provides a
secondary market. Each Fund intends to enter into
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futures and options on futures transactions only on exchanges or boards of trade
where there appears to be a liquid secondary market. However, there can be no
assurance that such a market will exist for a particular contract at a
particular time.
Under certain circumstances, futures exchanges may establish
daily limits on the amount that the price of a future or option on a futures
contract can vary from the previous day's settlement price; once that limit is
reached, no trades may be made that day at a price beyond the limit. Daily price
limits do not limit potential losses because prices could move to the daily
limit for several consecutive days with little or no trading, thereby preventing
liquidation of unfavorable positions.
If a Fund were unable to liquidate a futures or option on a
futures contract position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The Fund would
continue to be subject to market risk with respect to the position. In addition,
except in the case of purchased options, the Fund would continue to be required
to make daily variation margin payments and might be required to maintain the
position being hedged by the future or option or to maintain cash or securities
in a segregated account.
Certain characteristics of the futures market might increase the
risk that movements in the prices of futures contracts or options on futures
contracts might not correlate perfectly with movements in the prices of the
investments being hedged. For example, all participants in the futures and
options on futures contracts markets are subject to daily variation margin calls
and might be compelled to liquidate futures or options on futures contract
positions whose prices are moving unfavorably to avoid being subject to further
calls. These liquidations could increase price volatility of the instruments and
distort the normal price relationship between the futures or options and the
investments being hedged. Also, because initial margin deposit requirements in
the futures market are less onerous than margin requirements in the securities
markets, there might be increased participation by speculators in the futures
markets. This participation also might cause temporary price distortions. In
addition, activities of large traders in both the futures and securities markets
involving arbitrage, "program trading" and other investment strategies might
result in temporary price distortions.
Foreign Currency Forward Contracts, Options and Futures Transactions
There is no limitation on the value of forward contracts into
which a Fund may enter. However, a Fund's transactions in forward contracts will
be limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is the purchase or sale of a forward contract
with respect to specific receivables or payables of the Fund generally arising
in connection with the purchase or sale of its securities and accruals of
interest or dividends receivable and Fund expenses. Position hedging is the sale
of a foreign currency with respect to security positions denominated or quoted
in that currency. A Fund may not position hedge with respect to a particular
currency for an amount greater than the
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aggregate market value (determined at the time of making any sale of a forward
contract) of securities, denominated or quoted in, or currently convertible
into, such currency. A forward contract generally has no deposit requirements,
and no commissions are charged for such trades.
A Fund may enter into a forward contract to hedge against risk in
the following circumstances: (i) during the time period when a Fund contracts
for the purchase or sale of a security denominated in a foreign currency, or
(ii) when a Fund anticipates the receipt in a foreign currency of dividends or
interest payments on a security which it holds. By entering into a forward
contract for a fixed amount of dollars for the purchase or sale of the amount of
foreign currency involved in the underlying transaction, a Fund will be able to
protect itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the subject foreign currency during the
period between the date on which the security is purchased or sold, or on which
the dividend or interest payment is declared, and the date on which such
payments are made or received. Additionally, when a Fund's Adviser believes that
the currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, the Fund may enter into a forward contract, for a fixed
amount of dollars, to sell the amount of foreign currency approximating the
value of some or all of the securities of the Fund denominated in such foreign
currency. Further, a Fund may enter into a forward contract in one foreign
currency, or basket of currencies, to hedge against the decline or increase in
value in another foreign currency. Use of a different currency or basket of
currencies magnifies the risk that movements in the price of the forward
contract will not correlate or will correlate unfavorably with the foreign
currency being hedged.
Forward currency contracts (i) are traded in an interbank market
conducted directly between currency traders (typically commercial banks or other
financial institutions) and their customers, (ii) generally have no deposit
requirements and (iii) are typically consummated without payment of any
commissions. Failure by a Fund's contra party to make or take delivery of the
underlying currency at the maturity of the forward contract would result in the
loss to the Fund of any expected benefit of the transaction.
As is the case with futures contracts, purchasers and sellers of
forward currency contracts can enter into offsetting closing transactions,
similar to closing transactions on futures, by selling or purchasing,
respectively, an instrument identical to the instrument purchased or sold.
Secondary markets generally do not exist for forward currency contracts, with
the result that closing transactions generally can be made for forward currency
contracts only by negotiating directly with the contra party. Thus, there can be
no assurance that a Fund will in fact be able to close out a forward currency
contract at a favorable price prior to maturity. In addition, in the event of
insolvency of the contra party, a Fund might be unable to close out a forward
currency contract at any time prior to maturity. In either event, the Fund would
continue to be subject to market risk with respect to the position, and would
continue to be required to
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maintain a position in the securities or currencies that are the subject of the
hedge or to maintain cash or securities in a segregated account.
A Fund may purchase and write put and call options on foreign
currencies traded on securities exchanges or boards of trade (foreign and
domestic) and OTC options for hedging purposes in a manner similar to that in
which forward foreign currency exchange contracts and futures contracts on
foreign currencies will be employed. Options on foreign currencies are similar
to options on securities, except that a Fund has the right to take or make
delivery of a specified amount of foreign currency, rather than securities.
Generally, the OTC foreign currency options used by a Fund are
European-style options. This means that the option is only exercisable
immediately prior to its expiration. This is in contrast to American-style
options, which are exercisable at any time prior to the expiration date of the
option.
If a Fund's Adviser anticipates purchasing a foreign security and
also anticipates a rise in the value of such foreign currency (thereby
increasing the cost of such security), the Fund may purchase call options or
write put options on the foreign currency. A Fund could also enter into a long
forward contract or a long futures contract on such currency, or purchase a call
option, or write a put option, on a currency futures contract. The use of such
instruments could offset, at least partially, the effects of the adverse
movements of the exchange rates.
Foreign Currency Strategies--Special Considerations
A Fund may use options on foreign currencies, futures on foreign
currencies, options on futures on foreign currencies and forward currency
contracts, to hedge against movements in the values of the foreign currencies in
which the Fund's securities are denominated. Such currency hedges can protect
against price movements in a security that the Fund owns or intends to acquire
that are attributable to changes in the value of the currency in which it is
denominated. Such hedges do not, however, protect against price movements in the
securities that are attributable to other causes.
A Fund might seek to hedge against changes in the value of a
particular currency when no futures contract, forward contract or option
involving that currency is available or one of such contracts is more expensive
than certain other contracts. In such cases, the Fund may hedge against price
movements in that currency by entering into a contract on another currency or
basket of currencies, the values of which the Fund's Adviser believes will have
a positive correlation to the value of the currency being hedged. The risk that
movements in the price of the contract will not correlate perfectly with
movements in the price of the currency being hedged is magnified when this
strategy is used.
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The value of futures contracts, options on futures contracts,
forward contracts and options on foreign currencies depends on the value of the
underlying currency relative to the U.S. dollar. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of futures contracts, forward
contracts or options, a Fund could be disadvantaged by dealing in the odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for
foreign currencies or any regulatory requirements that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Quotation information generally is representative of very large transactions in
the interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or futures markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements might take place in the underlying markets that cannot
be reflected in the markets for the futures contracts or options until they
reopen.
Settlement of futures contracts, forward contracts and options
involving foreign currencies might be required to take place within the country
issuing the underlying currency. Thus, a Fund might be required to accept or
make delivery of the underlying foreign currency in accordance with any U.S. or
foreign regulations regarding the maintenance of foreign banking arrangements by
U.S. residents and might be required to pay any fees, taxes and charges
associated with such delivery assessed in the issuing country.
Covered Forward Currency Contracts, Futures Contracts and Options
Transactions using forward currency contracts, futures contracts
and options (other than options that a Fund has purchased) expose the Fund to an
obligation to another party. A Fund will not enter into any such transactions
unless it owns either (1) an offsetting ("covered") position in securities,
currencies, or other options, forward currency contracts or futures contracts,
or (2) liquid assets with a value sufficient at all times to cover its potential
obligations not covered as provided in (1) above. Each Fund will comply with
Securities and Exchange Commission guidelines regarding cover for these
instruments and, if the guidelines so require, set aside cash, U.S. government
securities or other liquid, high-grade debt securities in a segregated account
with its Custodian in the prescribed amount.
Assets used as cover or held in a segregated account cannot be
sold while the position in the corresponding forward currency contract, futures
contract or option is open, unless they are replaced with similar assets. As a
result, the commitment of a large portion of a Fund's assets to cover or
segregated accounts could impede portfolio management or the Fund's ability to
meet redemption requests or other current obligations.
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Illiquid Securities
The Growth Stock Fund, International Stock Fund, Stock Index
Fund, Active Balanced Fund, Balanced Fund and Income Fund may each invest up to
15% in illiquid securities. The Money Market Fund may invest up to 10% in
illiquid securities. Illiquid securities include repurchase agreements which
have a maturity of longer than seven days and securities that are illiquid by
virtue of the absence of a readily available market or legal or contractual
restrictions on resale. Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale because they
have not been registered under the Securities Act of 1933, as amended
("Securities Act"), securities which are otherwise not readily marketable and
repurchase agreements having a maturity of longer than seven days. Securities
which have not been registered under the Securities Act are referred to as
private placements or restricted securities and are purchased directly from the
issuer or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid securities because of
the potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. A mutual fund might also
have to register such restricted securities in order to dispose of them
resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
In recent years, however, a large institutional market has
developed for certain securities that are not registered under the Securities
Act including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on resale to the
general public or to certain institutions may not be indicative of the liquidity
of such investments.
Rule 144A of the Securities Act allows for a broader
institutional trading market for securities otherwise subject to restriction on
resale to the general public. Rule 144A establishes a "safe harbor" from the
registration requirements of the Securities Act for resales of certain
securities to qualified institutional buyers. The investment adviser anticipates
that the market for certain restricted securities such as institutional
commercial paper will expand further as a result of this new regulation and the
development of automated systems for the trading, clearance and settlement of
unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the NASD.
Restricted securities eligible for resale pursuant to Rule 144A
and commercial paper for which there is a readily available market will not be
deemed illiquid. The Advisers will monitor the liquidity of such
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restricted securities, subject to the supervision of the Trustees. In reaching
liquidity decisions, Advisers will consider, among other things, the following
factors: (1) the frequency of trades and quotes for the security; (2) the number
of dealers wishing to purchase or sell the security and the number of other
potential purchasers; (3) dealer undertakings to make a market in the security
and (4) the nature of the security and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer). In addition, in order for commercial
paper that is issued in reliance on Section 4(2) of the Securities Act to be
considered liquid, (i) it must be rated in one of the two highest rating
categories by at least two nationally recognized statistical rating
organizations (NRSRO), or if only one NRSRO rates the securities, by that NRSRO,
or, if unrated, be of comparable quality in the view of the investment adviser,
and (ii) it must not be "traded flat" (i.e., without accrued interest) or in
default as to principal or interest. Repurchase agreements subject to demand are
deemed to have a maturity equal to the notice period.
Other Investment Techniques
In order to protect the value of the Funds from interest rate
fluctuations, the Balanced Fund and the Income Fund may enter into interest rate
swaps. The Funds intend to enter into these transactions primarily to preserve a
return or spread on a particular investment or portion of its portfolio or to
protect against any increase in the price of securities the Fund anticipates
purchasing at a later date. In addition, the Income Fund may, engage in the
purchase or sale of interest rate caps, floors and collars. The purchase of an
interest rate cap entitles the purchaser, to the extent that a specified index
exceeds a predetermined interest rate, to receive payments of interest on a
contractually-based principal amount from the party selling such interest rate
cap. The purchase of an interest rate floor entitles the purchaser, to the
extent that a specified index falls below a predetermined interest rate, to
receive payments of interest on a contractually-based principal amount from the
party selling such interest rate floor.
A Fund may enter into interest rate swaps, caps and floors, on
either an asset-based or liability-based basis, depending on whether it is
hedging its assets or its liabilities. The Income Fund will usually enter into
interest rate swaps on a net basis, i.e., the two payment streams are netted
out, with the Fund receiving or paying, as the case may be, only the net amount
of the two payments. Inasmuch as these techniques are entered into for good
faith hedging purposes, the Manager and each Adviser believe such obligations do
not constitute senior securities and, accordingly, will not treat them as being
subject to a Fund's borrowing restrictions. When a Fund enters into interest
rate swaps on a net basis, the net amount of the excess, if any, of the Fund's
obligations over its entitlements with respect to each interest rate swap will
be accrued on a daily basis and an amount of cash or liquid securities having an
aggregate net asset value at least equal to the accrued excess will be
maintained in a segregated account by the Custodian. To the extent that a Fund
enters into an interest rate swap other than on a net basis, or sells caps or
floors, the
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amount maintained in the segregated account will be the full amount of the
Fund's obligations. When a Fund enters into interest rate swaps on other than a
net basis, the entire amount of the Fund's obligations, if any, with respect to
such interest rate swaps will be treated as illiquid. To the extent that a Fund
enters into interest rate swaps on a net basis, the net amount of the excess, if
any, of the Fund's obligations over its entitlements with respect to each
interest rate swap will be treated as illiquid. If there is a default by the
other party to such a transaction, the Fund will have contractual remedies
pursuant to the agreements related to the transaction.
Each Fund may take advantage of opportunities in the area of
options and futures contracts and any other derivative instruments that are not
presently contemplated for use by such Fund or that are not currently available
but that may be developed, to the extent such opportunities are both consistent
with its investment objective and legally permissible for the Fund. Before
entering into such transactions or making any such investment, the Fund will
provide appropriate disclosure in its prospectus.
INVESTMENT RESTRICTIONS
The investment restrictions listed below have been adopted by the
Company as fundamental policies of the Funds, except as otherwise indicated.
Under the 1940 Act, a fundamental policy of a Fund may not be changed without
the vote of a majority of the outstanding voting securities of the Fund. As
defined in the 1940 Act, a "majority of a Fund's outstanding voting securities"
means the lesser of (i) 67% of the shares represented at a meeting at which more
than 50% of the outstanding shares are present in person or represented by proxy
or (ii) more than 50% of the outstanding shares. For purposes of the following
limitations: (i) all percentage limitations apply immediately after a purchase
or initial investment; and (ii) any subsequent change in any applicable
percentage resulting from market fluctuations does not require elimination of
any asset from Fund.
A Fund may not:
1. Purchase any security if, as a result, with respect to 75% of
the Fund's total assets, more than 5% of the value of its total assets
(determined at the time of investment) would then be invested in the securities
of any one issuer.
2. Purchase a security if more than 10% of the outstanding
voting securities of any one issuer would be held by the Fund.
3. Purchase a security if, as a result, 25% or more of the value
of its total assets (determined at the time of investment) would be invested in
securities of one or more issuers having their principal business activities in
the same industry. This restriction does not apply to obligations issued or
guaranteed by the United States Government, its agencies or instrumentalities
and, in the case of the Money Market Fund, to the securities of domestic banks
(including all banks which are organized
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under the laws of the United States or a state (as defined in the 1940 Act) and
U.S. branches of foreign banks that are subject to the same regulations as U.S.
banks.
4. Purchase or sell real estate or interests therein (including
limited partnership interests), although a Fund may purchase securities of
issuers which engage in real estate operations and securities which are secured
by real estate or interests therein.
5. Purchase or sell commodities or commodity futures contracts,
except that all Funds (other than the Money Market Fund) may purchase and sell
financial futures contracts and options thereon and that forward contracts are
not deemed to be commodities or commodity futures contracts.
6. Purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that a Fund may invest
in the securities of companies which operate, invest in or sponsor such
programs.
7. Issue senior securities, borrow money or pledge its assets,
9except that each Fund may borrow from banks or through forward rolls, dollar
rolls or reverse repurchase agreements up to 20% (except for the Balanced Fund,
the Income Fund and the Money Market Fund) of the value of its total assets to
take advantage of investment opportunities, for temporary, extraordinary or
emergency purposes, or for the clearance of transactions and may pledge up to
20% of the value of its total assets to secure such borrowings. The Balanced
Fund and the Income Fund may borrow from banks up to 20% of the value of their
respective total assets for the same purposes and may pledge up to 20% of the
value of their respective total assets to secure such borrowings. In addition,
the Balanced Fund and the Income Fund may engage in investment techniques such
as reverse repurchase agreements, forward rolls and dollar rolls to the extent
that their respective assets dedicated to such techniques combined with the
respective values of their bank borrowings do not exceed 33 1/3% of their
respective total assets. The Money Market Fund may borrow an amount equal to no
more than 20% of the value of its total assets only for temporary, extraordinary
or emergency purposes. For purposes of this restriction, the purchase or sale of
securities on a "when-issued" or delayed-delivery basis; the purchase and sale
of options, financial futures contracts and options thereon; the entry into
repurchase agreements and collateral and margin arrangements with respect to any
of the foregoing, will not be deemed to be a pledge of assets nor the issuance
of senior securities.
8. Make loans except by the purchase of fixed income securities
in which a Fund may invest consistently with its investment objective and
policies or by use of reverse repurchase and repurchase agreements, forward
rolls, dollar rolls and securities lending arrangements.
9. Make short sales of securities.
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10. Purchase securities on margin, except for such short-term
loans as are necessary for the clearance of purchases of portfolio securities.
(For the purpose of this restriction, the deposit or payment by any Fund of
initial or maintenance margin in connection with financial futures contracts is
not considered the purchase of a security on margin.)
11. Act as underwriter except to the extent that, in connection
with the disposition of portfolio securities, it may be deemed to be an
underwriter under certain federal securities laws. The Fund has no limit with
respect to investments in restricted securities.
The Funds will not as a matter of operating policy:
1. Invest in oil, gas and mineral leases or development programs.
2. Purchase a security if, as a result, more than 15% of its
total assets would be invested in securities which are restricted as to
disposition. This restriction shall not apply to mortgage-backed securities or
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
3. Purchase or retain the securities of any issuer if, to the
knowledge of the Company, any officer or Trustee of the Company or the Company's
Manager or any Adviser owns more than 1/2 of 1% of the outstanding securities of
such issuer, and such officers and/or Trustees, who own more than 1/2 of 1% own
in the aggregate more than 5% of the outstanding securities of such issuer.
4. Purchase warrants if, as a result, the Company would then have
more than 5% of its assets (determined at the time of investment) invested in
warrants. Warrants will be valued at the lower of cost or market and investment
in warrants which are not listed on the NYSE or American Stock Exchange or a
major foreign exchange will be limited to 2% of the Company's total assets
(determined at the time of investment). For purposes of this limitation,
warrants acquired in units or attached to securities are deemed to be without
value.
5. Purchase securities of other investment companies except in
compliance with the 1940 Act and applicable state law.
6. Invest in companies for the purpose of exercising control or
management of any other issuer, except in connection with a merger,
consolidation, acquisition or reorganization.
Whenever any fundamental investment policy or investment
restriction states a maximum percentage of a Fund's assets, it is intended that
if the percentage limitation is met at the time the investment is made, a later
change in percentage resulting from changing total or net asset values will not
be considered a violation of such policy. However, in the event that a Fund's
asset coverage for borrowings falls below 300%, the Fund will take prompt action
to reduce its borrowings, as required by applicable law.
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In order to comply with the rules and regulations of certain
State securities commissions, the Funds have agreed (i) that over-the-counter
options transactions shall be entered into only when such options are not
available on a national securities exchange, and (ii) broker-dealers with whom
the Fund shall enter into such transaction shall have a minimum net worth, at
the time of the transaction is entered into, of $20 million. In addition, the
Fund will only buy and sell puts and calls on securities, stock index futures,
or financial futures or options on financial futures, if such options are
written by other persons, and if;
i) the aggregate premiums paid on all such options which are held
at any time do not exceed 20% of the Fund's total net assets; and
ii) the aggregate margin deposits required on all such futures or options
thereon held at any time do not exceed 5% of the Fund's total assets.
CUSTODIAN, TRANSFER AND DIVIDEND
DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North
Quincy, Massachusetts 02171, serves as Custodian for the Company's portfolio
securities and cash and, in that capacity, maintains certain financial and
accounting books and records pursuant to an agreement with the Company.
PMF serves as the Transfer Agent and Dividend Disbursing Agent of
the Company through its wholly-owned subsidiary, Prudential Mutual Fund
Services, Inc., Raritan Plaza One, Edison, New Jersey 08837. PMFS provides
customary transfer agency services to the Company, including the handling of
shareholder communications, the processing of shareholder transactions, the
maintenance of shareholder account records, payment of dividends and
distributions, and related functions. PMFS is also reimbursed for its
out-of-pocket expenses, including, but not limited to, postage, stationery,
printing, allocable communications expenses and other costs.
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APPENDIX
DESCRIPTION OF S&P, MOODY'S AND DUFF & PHELPS RATINGS
Description of S&P Corporate Bond Ratings:
AAA - Bonds rated AAA have the highest rating assigned by S&P to
a debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Bonds rated AA have a very strong capacity to pay interest
and repay principal and differ from the highest rated issues only in small
degree.
A - Bonds rated A have a strong capacity to pay interest and
repay principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds in higher
rated categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity
to pay interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for bonds in this category than for bonds in higher rated categories.
BB, B, CCC, CC, C - Bonds rated BB, B, CCC, CC, or C are
regarded, on balance, as predominantly speculative with respect to capacity to
pay interest and repay principal in accordance with the terms of the obligation.
BB represents the lowest degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
Description of Moody's Corporate Bond Ratings:
Aaa - Bonds rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of these issues.
Aa - Bonds rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
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A - Bonds rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate and thereby not
wellsafeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 in the Aa and
A rating categories. The modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
Description of Duff & Phelps Bond Ratings:
AAA - Bonds rated AAA by Duff & Phelps are considered to be of
the highest credit quality. The risk factors are negligible, being only slightly
more than for risk-free U.S. Treasury debt.
AA+, AA, AA- - Bonds rated AA+, AA or AA- are considered to be of
high credit quality. Protection factors are strong. Risk is modest but may vary
slightly from time to time because of economic conditions.
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A+, A, A- - Bonds rated A+, A or A- have protection factors which
are average but adequate; however, risk factors are more variable and greater in
periods of economic stress.
BBB+, BBB, BBB- - Bonds rated BBB+, BBB or BBB- have below
average protection factors but are still considered sufficient for prudent
investment. These bonds demonstrate considerable variability in risk during
economic cycles.
BB+, BB, BB- - Bonds rated BB+, BB, or BB- are below investment
grade but are still deemed likely to meet obligations when due. Present or
prospective financial protection factors fluctuate according to industry
conditions or company fortunes. Overall quality may move up or down frequently
within this category.
B+, B, B- - Bonds rated B+, B, or B- are below investment grade
and possess the risk that obligations will not be met when due. Financial
protection factors will fluctuate widely according to economic cycles, industry
conditions and/or company fortunes. Potential exists for frequent changes in the
rating within this category or into a higher or lower rating grade.
CCC - Bonds rated CCC are well below investment grade securities.
Considerable uncertainty exists as to timely payment of principal, interest or
preferred dividends. Protection factors are narrow and risk can be substantial
with unfavorable economic/industry conditions, and/or with unfavorable company
developments.
DD - Bonds rated DD are defaulted debt obligations. The issuer
failed to meet scheduled principal and/or interest payments.
Description of S&P Commercial Paper Ratings:
Commercial paper rated A-1 by S&P indicates that the degree of
safety regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are denoted
A-1+. Capacity for timely payment on commercial paper rated A-2 is strong, but
the relative degree of safety is not as high as for issues designated A-1.
Description of Moody's Commercial Paper Ratings:
The rating Prime-1 is the highest commercial paper rating
assigned by Moody's. Issuers rated Prime-1 (or related supporting institutions)
are considered to have a superior capacity for repayment of short-term
promissory obligations. Issuers rated Prime-2 (or related supporting
institutions) are considered to have a strong capacity for repayment of
short-term promissory obligations. This will normally be evidenced by many of
the characteristics of issuers rated Prime-1 but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternative liquidity is maintained.
51
<PAGE>
Description of Duff & Phelps Commercial Paper Ratings:
Duff & Phelps commercial paper ratings are divided into three
categories, ranging from "1" for the highest quality obligations to "3" for the
lowest. No ratings are issued for companies whose paper is not deemed investment
grade. Issues assigned the Duff 1 rating are considered top grade. This category
is further divided into three gradations as follows: Duff 1 plus -- highest
certainty of timely payment, short-term liquidity, including internal operating
factors and/or ready access to alternative sources of funds, is clearly
outstanding and safety is just below risk-free U.S. Treasury short-term
obligations; Duff 1 -- very high certainty or timely payment, liquidity factors
are excellent and supported by strong fundamental protection factors, risk
factors are minor; Duff 1 minus-high certainty of timely payment, liquidity
factors are strong and supported by good fundamental protection factors, risk
factors are very small. Issues rated Duff 2 represent a good certainty of timely
payment; liquidity factors and company fundamentals are sound; although ongoing
internal funds needs may enlarge total financing requirements, access to capital
markets is good; risk factors are small. Duff 3 represents a satisfactory grade;
satisfactory liquidity and other protection factors qualify issue as to
investment grade; risk factors are larger and subject to more variation;
nevertheless timely payment is expected.
52
<PAGE>
THE PRUDENTIAL
GROWTH STOCK FUND
INSTITUTIONAL
PORTFOLIO OF INVESTMENTS
FUND
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
LONG-TERM INVESTMENTS
Common Stocks--91.5%
Aerospace/Defense--1.4%
34,200 Boeing Co.......................... $ 1,474,875
-----------
Airlines--0.4%
5,250 UAL Corp........................... 455,438
-----------
Banking--2.1%
36,200 Fleet Financial Group, Inc......... 1,362,025
110,600 Hibernia Corp...................... 884,800
-----------
2,246,825
-----------
Beverage--2.4%
53,200 Coca-Cola Co....................... 2,586,850
-----------
Capital Goods--2.2%
52,400 Duracell International, Inc........ 2,390,750
-----------
Computer Software & Services--16.6%
29,500 AutoDesk, Inc...................... 1,843,750
71,500 Cisco Systems, Inc.*............... 1,957,313
Computer Associates International,
33,100 Inc.............................. 1,472,950
49,200 CUC International, Inc.*........... 1,623,600
99,100 Intergraph Corp.*.................. 904,288
54,100 Microsoft Corp.*................... 3,036,362
87,700 Novell, Inc.*...................... 1,293,575
36,100 Oracle Systems Corp.*.............. 1,552,300
42,000 Sybase, Inc.*...................... 1,926,750
70,000 Symbol Technologies, Inc.*......... 2,135,000
-----------
17,745,888
-----------
Consumer Goods--2.8%
Kimberly Clark de Mexico S.A. (ADR)
27,900 (Mexico)......................... 1,170,056
39,300 Lowes Companies, Inc............... 1,517,963
20,200 Whole Foods Market, Inc.*.......... 303,000
-----------
2,991,019
-----------
Cosmetics & Soaps--1.8%
27,900 Gillette Co........................ 1,973,925
-----------
Drugs & Medical Supplies--3.4%
94,100 Astra AB Class A (Sweden).......... 2,252,945
26,300 Biogen, Inc.*...................... 1,433,350
-----------
3,686,295
-----------
Electronics--10.9%
14,300 AMP, Inc........................... 1,106,462
45,300 Hewlett-Packard Co................. 3,958,087
55,100 Intel Corp......................... 3,388,650
60,200 Motorola, Inc...................... 3,175,550
-----------
11,628,749
-----------
Financial Services--4.1%
32,700 Block (H&R), Inc................... 1,500,112
18,000 Federal National Mortgage Assn..... 1,417,500
24,900 First Financial Mgmt. Corp......... 1,431,750
-----------
4,349,362
-----------
Health Care Services--2.4%
53,700 Humana, Inc.*...................... 1,268,663
26,300 Value Health, Inc.*................ 1,262,400
-----------
2,531,063
-----------
Hospital Management--3.9%
78,600 United Healthcare Corp............. 4,165,800
-----------
Insurance--2.4%
American International Group,
12,300 Inc.............................. 1,093,162
42,000 Life Re Corp....................... 892,500
12,800 UNUM Corp.......................... 588,800
-----------
2,574,462
-----------
Leisure--1.6%
43,400 Disney (Walt) Co................... 1,687,175
-----------
Lodging--2.1%
18,300 Hilton Hotels Corp................. 1,095,713
34,650 Promus Cos., Inc.*................. 1,165,106
-----------
2,260,819
-----------
</TABLE>
See Notes to Financial Statements.
53
<PAGE>
THE PRUDENTIAL
GROWTH STOCK FUND
INSTITUTIONAL
PORTFOLIO OF INVESTMENTS
FUND
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
Media--3.6%
Clear Channel Communications
22,900 Inc.*............................ $ 1,176,487
Grupo Televisa, S.A. (ADR)
23,700 (Mexico)......................... 1,371,637
25,200 Omnicom Group...................... 1,266,300
-----------
3,814,424
-----------
Miscellaneous Basic Industry--2.7%
28,900 Applied Materials, Inc.*........... 1,351,075
36,300 Cerner Corp.*...................... 1,483,762
-----------
2,834,837
-----------
Misc. Consumer Growth--1.3%
46,600 American Greetings Corp............ 1,345,575
-----------
Office Equipment & Supplies--1.8%
59,100 Compaq Computer Corp.*............. 1,928,138
-----------
Petroleum--1.3%
31,200 Western Atlas, Inc.*............... 1,365,000
-----------
Petroleum Services--2.6%
21,300 Anadarko Petroleum Corp............ 953,175
YPF Sociedad Anonima (ADR)*
71,600 (Argentina)...................... 1,807,900
-----------
2,761,075
-----------
Railroads--1.2%
25,700 Consolidated Rail Corp............. 1,272,150
-----------
Restaurants--1.3%
55,100 McDonald's Corp.................... 1,446,375
-----------
Retail--6.1%
32,900 Bed-Bath & Beyond, Inc.*........... 847,175
6,000 Gap, Inc........................... 197,250
42,300 Heilig Meyers, Co.................. 1,099,800
50,733 Home Depot, Inc.................... 2,130,786
27,900 Kohls Corp.*....................... 1,353,150
64,800 Shaw Industries, Inc............... 931,500
-----------
6,559,661
-----------
Technology--3.7%
44,200 Adobe Systems, Inc................. 1,436,500
21,900 BMC Software, Inc.*................ 985,500
18,700 Chiron Corp.*...................... 1,243,550
8,400 LSI Logic Corp.*................... 313,950
-----------
3,979,500
-----------
Telecommunications--4.0%
Ericsson (L.M.) Telephone Co.,
(ADR)
17,300 (Sweden)......................... 929,875
68,300 MCI Communications Corp............ 1,750,188
Telefonos de Mexico S.A. (ADR)
25,600 (Mexico)......................... 1,600,000
-----------
4,280,063
-----------
Transportation--1.4%
Wisconsin Central Transportation
36,000 Corp.*........................... 1,476,000
-----------
Total common stocks
(cost $91,284,417)................ 97,812,093
-----------
Principal
Amount
(000) SHORT-TERM INVESTMENT
- --------
Repurchase Agreement--4.1%
$ 4,428 Joint Repurchase Agreement Account,
4.83%, 10/3/94 (Note 5)
(cost $4,428,000)................ 4,428,000
-----------
Total Investments--95.6%
(cost $95,712,417; Note 4)........ 102,240,093
Other assets in excess of
liabilities--4.4%................. 4,715,875
-----------
Net Assets--100%................... $106,955,968
============
<FN>
- ---------------
* Non-income producing security.
ADR--American Depository Receipt.
</FN>
</TABLE>
See Notes to Financial Statements.
54
<PAGE>
THE PRUDENTIAL
STOCK INDEX FUND
INSTITUTIONAL
PORTFOLIO OF INVESTMENTS
FUND
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
LONG-TERM INVESTMENTS
Common Stocks and Equivalents--86.6%
Aerospace/Defense--1.6%
3,700 Allied-Signal, Inc................. $ 126,262
4,400 Boeing Co.......................... 189,750
500 E-Systems, Inc..................... 20,688
800 General Dynamics Corp.............. 35,000
800 Lockheed Corp...................... 55,700
1,100 Loral Corp......................... 43,313
1,200 Martin Marietta Corp............... 53,400
500 McDonnell Douglas Corp............. 57,750
600 Northrop Corp...................... 27,150
1,800 Raytheon Co........................ 115,425
2,800 Rockwell International Corp........ 95,900
-----------
820,338
-----------
Airlines--0.3%
1,050 AMR Corp.*......................... 54,075
700 Delta Airlines, Inc................ 31,325
1,800 Southwest Airlines Co.............. 40,500
500 USAir Group, Inc................... 2,313
-----------
128,213
-----------
Aluminum--0.4%
2,900 Alcan Aluminum Ltd................. 76,487
1,200 Aluminum Co. of America............ 101,700
750 Reynolds Metals Co................. 42,469
-----------
220,656
-----------
Automobiles & Trucks--2.4%
4,600 Chrysler Corp...................... 206,425
500 Cummins Engine, Inc................ 19,687
1,300 Dana Corp.......................... 36,400
700 Echlin, Inc........................ 21,263
12,900 Ford Motor Co...................... 357,975
9,600 General Motors Corp................ 450,000
1,600 Genuine Parts Co................... 56,200
500 Johnson Controls, Inc.............. 24,875
920 Navistar International Corp.*...... 12,765
700 Safety Kleen Corp.................. 11,375
-----------
1,196,965
-----------
Banking--5.0%
5,237 Banc One Corp...................... 156,455
1,400 Bank of Boston Corp................ 37,275
4,800 BankAmerica Corp................... 211,800
1,000 Bankers Trust NY Corp.............. 66,750
1,300 Barnett Banks, Inc................. 57,525
1,300 Boatmen's Bancshares............... 40,381
2,400 Chase Manhattan Corp............... 83,100
3,200 Chemical Banking Corp.............. 112,000
5,000 Citicorp........................... 212,500
1,800 CoreStates Financial Corp.......... 47,925
1,200 First Chicago Corp................. 55,050
1,000 First Fidelity Bancorp............. 42,000
1,100 First Interstate Bank Corp......... 89,237
2,300 First Union Corp................... 99,475
1,800 Fleet Financial Group, Inc......... 67,725
800 Golden West Financial Corp......... 31,700
1,700 Great Western Financial Corp....... 32,725
1,500 H.F. Ahmanson & Co................. 31,313
3,100 KeyCorp............................ 94,550
1,250 Mellon Bank Corp................... 70,312
2,500 Morgan (J.P.) & Co., Inc........... 151,875
1,700 National City Corp................. 47,813
3,500 NationsBank Corp................... 171,500
2,000 NBD Bancorp, Inc................... 57,250
4,100 Norwest Corp....................... 101,475
3,000 PNC Financial Corp................. 77,625
1,500 Shawmut National Corp.............. 31,125
1,700 Suntrust Banks, Inc................ 82,875
1,200 U.S. Bancorp....................... 30,600
700 Wells Fargo & Co................... 101,588
-----------
2,493,524
-----------
Beverages--3.0%
500 Adolph Coors Co.................... 9,250
3,400 Anheuser Busch Cos., Inc........... 172,975
</TABLE>
See Notes to Financial Statements.
55
<PAGE>
THE PRUDENTIAL
STOCK INDEX FUND
INSTITUTIONAL
PORTFOLIO OF INVESTMENTS
FUND
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
Beverages, cont'd.
900 Brown-Forman Corp.................. $ 24,300
16,700 Coca-Cola Co....................... 812,037
10,300 PepsiCo, Inc....................... 341,188
4,800 Seagram Co., Ltd................... 145,200
-----------
1,504,950
-----------
Chemicals--2.9%
1,500 Air Products & Chemicals, Inc...... 70,125
550 Albemarle Corp..................... 7,906
American Cyanamid Company and
1,150 rights........................... 114,425
3,600 Dow Chemical Co.................... 281,700
8,800 duPont (E.I.) de Nemours & Co...... 510,400
1,100 Eastman Chemical Co................ 59,812
1,200 Grace (W.R.) & Co.................. 49,800
600 Hercules, Inc...................... 61,725
1,500 Monsanto Co........................ 120,562
900 Nalco Chemical Co.................. 29,588
900 Rohm & Haas Co..................... 51,413
300 Sigma-Aldrich...................... 10,500
1,900 Union Carbide Corp................. 64,600
-----------
1,432,556
-----------
Chemical - Specialty--0.4%
1,250 Engelhard Corp..................... 33,594
200 First Mississippi Corp............. 4,050
900 Great Lakes Chemical Corp.......... 52,875
1,800 Morton International, Inc.......... 49,500
1,700 Praxair, Inc....................... 41,437
500 Raychem Corp....................... 20,500
-----------
201,956
-----------
Commercial Services--0.1%
1,100 Deluxe Corp........................ 32,313
400 Harland (John H) Co................ 8,400
1,300 Moore Corp., Ltd................... 23,887
500 Ogden Corp......................... 10,500
-----------
75,100
-----------
Computer Software & Services--2.3%
300 AutoDesk, Inc...................... 18,750
1,900 Automatic Data Processing, Inc..... 106,638
600 Ceridian Corp.*.................... 14,775
3,300 Cisco Systems, Inc.*............... 90,338
Computer Associates International,
2,100 Inc.............................. 93,450
650 Computer Sciences Corp............. 28,275
500 Intergraph Corp.*.................. 4,562
600 Lotus Development Corp.*........... 22,050
1,100 Micron Technology, Inc............. 37,950
7,500 Microsoft Corp.*................... 420,937
4,700 Novell, Inc.*...................... 69,325
3,800 Oracle Systems Corp.*.............. 163,400
1,200 Sun Microsystems, Inc.*............ 35,250
1,400 Tandem Computers, Inc.*............ 22,750
-----------
1,128,450
-----------
Construction--0.2%
1,200 Fluor Corp......................... 59,700
500 Foster Wheeler Corp................ 17,187
300 Kaufman & Broad Home Corp.......... 4,088
300 Pulte Corp......................... 6,525
-----------
87,500
-----------
Consumer Goods--0.6%
400 Centex Corp........................ 9,250
600 Fleetwood Enterprises, Inc......... 15,075
2,000 Lowes Companies, Inc............... 77,250
2,000 Masco Corp......................... 48,250
1,300 Maytag Corp........................ 20,963
500 Owens Corning Fiberglas Corp....... 16,750
Pioneer Hi Bred International,
1,100 Inc.............................. 34,650
100 Skyline Corp....................... 2,025
600 Stanley Works...................... 24,375
1,000 Whirlpool Corp..................... 51,375
-----------
299,963
-----------
Containers--0.1%
400 Ball Corp.......................... 11,350
600 Bemis, Inc......................... 14,850
</TABLE>
See Notes to Financial Statements.
56
<PAGE>
THE PRUDENTIAL
STOCK INDEX FUND
INSTITUTIONAL
PORTFOLIO OF INVESTMENTS
FUND
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
Containers, cont'd.
1,200 Crown Cork & Seal, Inc.*........... $ 46,200
-----------
72,400
-----------
Cosmetics & Soaps--2.0%
300 Alberto Culver Co.................. 7,012
950 Avon Products, Inc................. 56,763
700 Clorox Co.......................... 36,488
1,900 Colgate-Palmolive Co............... 110,200
2,900 Gillette Co........................ 205,175
International Flavors & Fragrances,
1,450 Inc.............................. 60,356
8,800 Procter & Gamble Co................ 524,700
-----------
1,000,694
-----------
Diversified Gas--0.2%
1,400 Coastal Corp....................... 39,025
300 Eastern Enterprises, Inc........... 7,875
800 Enserch Corp....................... 11,100
700 NICOR, Inc......................... 16,975
300 Oneok, Inc......................... 5,063
-----------
80,038
-----------
Drugs & Medical Supplies--6.6%
10,600 Abbott Laboratories................ 332,575
1,000 ALZA Corp.*........................ 20,625
4,000 American Home Products Corp........ 240,000
1,700 Amgen, Inc......................... 90,525
600 Bard (C.R.), Inc................... 15,000
800 Bausch & Lomb, Inc................. 31,200
3,500 Baxter International, Inc.......... 98,437
900 Becton Dickinson & Co.............. 43,425
1,400 Biomet, Inc.*...................... 17,325
6,650 Bristol-Myers Squibb Co............ 381,543
8,300 Johnson & Johnson Co............... 428,488
3,800 Lilly (Eli) & Co................... 219,925
1,600 Medtronic, Inc..................... 84,600
16,200 Merck & Co., Inc.,................. 575,100
4,200 Pfizer, Inc........................ 290,325
2,500 Schering-Plough Corp............... 177,500
600 St. Jude Medical, Inc.............. 21,488
700 United States Surgical Corp........ 18,813
2,200 Upjohn Co.......................... 75,075
1,800 Warner Lambert Co.................. 144,450
-----------
3,306,419
-----------
Electronics--3.3%
1,200 Advanced Micro Devices, Inc.*...... 35,700
1,500 Amdahl Corp........................ 13,125
1,400 AMP, Inc........................... 108,325
1,500 Apple Computer..................... 50,531
300 Cray Research, Inc.*............... 6,150
200 Data General Corp.*................ 2,000
1,800 Digital Equipment Corp............. 47,700
600 EG&G, Inc.......................... 9,150
2,900 Emerson Electric Co................ 172,912
500 Harris Corp........................ 24,312
3,300 Hewlett-Packard Co................. 288,337
5,400 Intel Corp......................... 332,100
7,200 Motorola, Inc...................... 379,800
1,500 National Semiconductors Corp.*..... 23,438
600 Perkin Elmer Corp.................. 18,825
800 Tandy Corp......................... 34,400
400 Tektronix, Inc..................... 15,500
1,200 Texas Instruments, Inc............. 82,050
250 Thomas & Betts Corp................ 16,938
500 Zenith Electronics Corp.*.......... 5,688
-----------
1,666,981
-----------
Financial Services--2.2%
6,400 American Express Co................ 194,400
700 Beneficial Corp.................... 28,525
1,400 Block (H&R), Inc................... 64,225
2,258 Dean Witter Discover & Co.......... 84,957
2,300 Federal Home Loan Mortgage Corp.... 122,762
3,550 Federal National Mortgage Assn..... 279,562
1,100 First Data Corp.................... 55,275
1,200 Household International Corp....... 42,900
1,950 MBNA Corp.......................... 45,094
2,700 Merrill Lynch & Co., Inc........... 93,488
</TABLE>
See Notes to Financial Statements.
57
<PAGE>
THE PRUDENTIAL
STOCK INDEX FUND
INSTITUTIONAL
PORTFOLIO OF INVESTMENTS
FUND
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
Financial Services, cont'd.
1,400 Salomon, Inc....................... $ 55,300
950 Transamerica Corp.................. 47,738
-----------
1,114,226
-----------
Food & Beverage--2.7%
4,431 Archer-Daniels-Midland Co.......... 115,212
1,700 Borden, Inc........................ 23,375
3,200 Campbell Soup Co................... 126,400
3,200 ConAgra, Inc....................... 100,800
1,900 CPC Int'l., Inc.................... 96,188
500 Fleming Cos., Inc.................. 11,687
2,050 General Mills, Inc................. 118,387
700 Giant Foods, Inc................... 15,050
3,300 Heinz (H.J.) Co.................... 120,863
1,100 Hershey Foods Corp................. 49,500
2,950 Kellogg Co......................... 169,256
1,300 Pet, Inc........................... 25,675
900 Quaker Oats Co..................... 68,850
1,300 Ralston Purina Co.................. 53,788
6,100 Sara Lee Corp...................... 137,250
2,400 Sysco Corp......................... 60,900
1,500 Wrigley (W.M.) Junior Co........... 61,125
-----------
1,354,306
-----------
Forest Products--1.7%
500 Boise Cascade Corp................. 14,750
1,200 Champion International Corp........ 46,500
500 Federal Paper Board, Inc........... 15,750
1,150 Georgia Pacific Corp............... 87,975
1,600 International Paper Co............. 125,600
1,100 James River Corp................... 26,675
2,100 Kimberly Clark Corp................ 123,375
1,400 Louisiana Pacific Corp............. 46,375
800 Mead Corp.......................... 41,600
400 Potlatch Corp...................... 16,500
1,000 Scott Paper Co..................... 61,125
1,200 Stone Container Corp............... 23,400
700 Temple Inland, Inc................. 38,675
900 Union Camp Corp.................... 44,212
800 Westvaco Corp...................... 30,500
2,700 Weyerhaeuser Co.................... 120,488
-----------
863,500
-----------
Gas Pipelines--0.5%
700 Columbia Gas System, Inc.*......... 18,813
1,200 Consolidated Natural Gas Co........ 46,650
3,200 Enron Corp......................... 96,800
1,400 Noram Energy Corp.................. 9,100
1,500 Panhandle Eastern Corp............. 34,875
400 Peoples Energy Corp................ 10,500
500 Transco Energy Co.................. 7,500
1,300 Williams Cos., Inc................. 39,000
-----------
263,238
-----------
Hospital Management--1.0%
1,000 Beverly Enterprises, Inc.*......... 15,375
4,352 Columbia Healthcare Corp........... 189,312
500 Community Psychiatric Centers...... 6,812
800 Manor Care, Inc.................... 21,300
National Medical Enterprises,
2,100 Inc.............................. 35,963
1,100 Service Corp. International........ 28,325
300 Shared Medical Systems Corp........ 8,250
2,100 U.S. HealthCare, Inc............... 97,781
2,100 United Healthcare Corp............. 111,300
-----------
514,418
-----------
Housing Construction
500 Armstrong World Industries......... 21,688
-----------
Insurance--2.8%
1,400 Aetna Life & Casualty Co........... 64,925
Alexander & Alexander Services,
500 Inc.............................. 9,750
2,700 American General Corp.............. 73,237
American International Group,
4,175 Inc.............................. 371,053
1,150 Chubb Corp......................... 81,793
950 CIGNA Corp......................... 58,543
600 Continental Corp................... 8,100
1,100 General Re Corp.................... 116,463
650 Jefferson-Pilot Corp............... 34,369
</TABLE>
See Notes to Financial Statements.
58
<PAGE>
THE PRUDENTIAL
STOCK INDEX FUND
INSTITUTIONAL
PORTFOLIO OF INVESTMENTS
FUND
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
Insurance, cont'd.
1,200 Lincoln National Corp.............. $ 44,850
1,000 Marsh & McLennan Cos............... 78,125
1,300 Providian Corp..................... 40,950
800 SAFECO Corp........................ 41,200
1,100 St. Paul Companies, Inc............ 44,688
950 Torchmark Corp..................... 41,681
4,131 Travelers, Inc..................... 135,807
1,000 UNUM Corp.......................... 46,000
1,000 USF&G Corp......................... 13,250
300 USLIFE Corp........................ 9,938
2,200 Wachovia Corp...................... 70,950
-----------
1,385,672
-----------
Leisure--0.8%
500 Bally Entertainment Group*......... 3,750
1,200 Brunswick Corp..................... 24,150
7,000 Disney (Walt) Co................... 272,125
400 Handleman Co....................... 4,300
1,200 Hasbro, Inc........................ 35,400
500 King World Productions, Inc.*...... 19,125
2,300 Mattel, Inc........................ 62,388
200 Outboard Marine Corp............... 4,550
-----------
425,788
-----------
Lodging--0.3%
600 Hilton Hotels Corp................. 35,925
1,700 Marriott International, Inc........ 49,087
1,300 Promus Cos., Inc.*................. 43,713
-----------
128,725
-----------
Machinery--1.2%
250 Briggs & Stratton Corp............. 17,562
2,700 Caterpillar, Inc................... 146,137
400 Cincinnati Milacron, Inc........... 10,300
200 Clark Equipment Co.*............... 13,850
1,500 Cooper Industries, Inc............. 60,375
1,100 Deere & Co......................... 75,487
700 Dover Corp......................... 39,813
1,100 Eaton Corp......................... 52,250
400 Giddings & Lewis, Inc.............. 7,125
300 Harnischfeger Industries, Inc...... 7,913
1,400 Ingersoll Rand Co.................. 49,525
502 PACCAR Inc......................... 22,872
600 Parker Hannifin Corp............... 23,925
500 Snap-On Tools Corp................. 17,625
50 SPX Corp........................... 863
400 Timken Co.......................... 15,050
600 Varity Corp.*...................... 22,425
-----------
583,097
-----------
Media--2.2%
2,000 Capital Cities/ABC, Inc............ 164,000
204 CBS, Inc........................... 65,433
3,050 Comcast Corp....................... 46,703
2,000 Donnelley (R.R.) & Sons, Co........ 60,000
1,200 Dow Jones & Co., Inc............... 36,000
2,200 Dun & Bradstreet Corp.............. 126,500
1,850 Gannett, Inc....................... 88,800
1,000 Interpublic Group Cos., Inc........ 33,000
650 Knight-Ridder, Inc................. 32,337
600 McGraw Hill, Inc................... 43,950
200 Meredith Corp...................... 9,300
1,300 New York Times Co.................. 28,438
4,800 Time Warner, Inc................... 168,600
1,600 Times Mirror Co.................... 49,200
900 Tribune Co......................... 48,600
2,196 Viacom, Inc.*...................... 87,566
3,200 Viacom, Inc. (Rights).............. 4,200
-----------
1,092,627
-----------
Mineral Resources--0.9%
American Barrick Resources Corp.
3,700 (ADR) (Canada)................... 98,512
500 ASARCO, Inc........................ 16,437
1,150 Cyprus Minerals Corp............... 35,937
1,300 Echo Bay Mines, Ltd................ 17,875
1,700 Homestake Mining Co................ 36,125
1,500 INCO, Ltd.......................... 45,188
1,098 Newmont Mining Corp................ 49,410
</TABLE>
See Notes to Financial Statements.
59
<PAGE>
THE PRUDENTIAL
STOCK INDEX FUND
INSTITUTIONAL
PORTFOLIO OF INVESTMENTS
FUND
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
Mineral Resources, cont'd.
900 Phelps-Dodge Corp.................. $ 55,913
500 Pittston Minerals Group............ 14,250
3,100 Placer Dome, Inc................... 77,888
-----------
447,535
-----------
Miscellaneous Basic Industry--4.3%
Bassett Furniture Industries,
225 Inc.............................. 5,878
2,500 Browning Ferris Industries, Inc.... 79,375
400 Crane Co........................... 10,250
800 Ecolab, Inc........................ 17,400
450 FMC Corp.*......................... 28,013
22,000 General Electric Co................ 1,058,750
600 General Signal Corp................ 21,075
700 Grainger (W.W.), Inc............... 41,475
1,500 Illinois Tool Works, Inc........... 64,125
1,500 ITT Corp........................... 125,062
1,000 Mallinckrodt Group Inc............. 32,375
400 Millipore Corp..................... 21,500
400 Morrison Knudsen Corp.............. 6,650
150 NACCO Industries, Inc.............. 8,906
1,433 Pall Corp.......................... 24,719
2,700 PPG Industries, Inc................ 106,987
Rollins Environmental Services,
700 Inc.............................. 4,288
600 Teledyne, Inc...................... 9,525
1,100 Textron, Inc....................... 55,963
400 Trinova Corp....................... 13,950
900 TRW, Inc........................... 65,250
600 Tyco International Limited......... 28,500
1,600 United Technologies Corp........... 100,200
4,500 Westinghouse Electric Corp......... 58,500
6,200 WMX Technologies, Inc.............. 179,025
100 Zurn Industries, Inc............... 1,963
-----------
2,169,704
-----------
Miscellaneous Consumer Growth--2.2%
800 Allergan, Inc...................... 20,300
1,000 American Greetings Corp............ 28,875
1,100 Black & Decker Corp................ 24,062
2,700 Corning, Inc....................... 87,412
1,200 Dial Corp.......................... 25,050
4,300 Eastman Kodak Co................... 222,525
600 Jostens, Inc....................... 10,725
Minnesota Mining & Manufacturing
5,500 Co............................... 303,875
100 National Education Corp.*.......... 513
600 Polaroid Corp...................... 21,075
800 Premark International, Inc......... 33,800
2,100 Rubbermaid, Inc.................... 55,913
2,050 Unilever N.V....................... 232,419
1,400 Whitman Corp....................... 23,450
-----------
1,089,994
-----------
Office Equipment & Supplies--2.0%
700 Alco Standard Corp................. 43,487
700 Avery Dennison Corp................ 24,062
3,300 Compaq Computer Corp.*............. 107,663
1,700 Honeywell, Inc..................... 58,650
International Business Machines
7,400 Corp............................. 514,300
2,000 Pitney Bowes, Inc.................. 71,000
2,100 Unisys Corp.*...................... 22,575
1,350 Xerox Corp......................... 144,113
-----------
985,850
-----------
Petroleum--7.9%
1,200 Amerada Hess Corp.................. 55,800
6,400 Amoco Corp......................... 379,200
800 Ashland Oil, Inc................... 28,300
2,050 Atlantic Richfield Co.............. 206,793
1,700 Burlington Resources, Inc.......... 63,750
8,400 Chevron Corp....................... 349,650
16,050 Exxon Corp......................... 924,881
700 Kerr Mcgee Corp.................... 34,038
400 Louisiana Land & Exploration Co.... 17,500
1,300 Maxus Energy Corp.*................ 5,850
5,200 Mobil Corp......................... 411,450
3,900 Occidental Petroleum Corp.......... 81,900
600 Pennzoil Co........................ 28,125
3,400 Phillips Petroleum Co.............. 116,450
6,900 Royal Dutch Petroleum Co........... 740,888
</TABLE>
See Notes to Financial Statements.
60
<PAGE>
THE PRUDENTIAL
STOCK INDEX FUND
INSTITUTIONAL
PORTFOLIO OF INVESTMENTS
FUND
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
Petroleum, cont'd.
1,100 Santa Fe Energy Resources, Inc..... $ 10,175
1,400 Sun Co., Inc....................... 40,250
2,200 Tenneco, Inc....................... 97,075
3,300 Texaco, Inc........................ 198,000
3,100 Unocal Corp........................ 87,575
3,600 USX Marathon Group................. 63,900
600 Western Atlas, Inc.*............... 26,250
-----------
3,967,800
-----------
Petroleum Services--0.8%
1,800 Baker Hughes, Inc.................. 33,525
2,200 Dresser Industries, Inc............ 44,550
1,500 Halliburton Co..................... 47,250
300 Helmerich & Payne, Inc............. 8,437
700 McDermott International, Inc....... 18,025
1,200 Oryx Energy Co..................... 16,650
1,000 Rowan Cos., Inc.*.................. 7,250
3,200 Schlumberger, Ltd.................. 174,000
1,100 Sonat, Inc......................... 34,513
-----------
384,200
-----------
Railroads--1.0%
1,200 Burlington Northern, Inc........... 60,300
1,000 Consolidated Rail Corp............. 49,500
1,400 CSX Corp........................... 95,900
1,800 Norfolk Southern Corp.............. 112,050
2,400 Santa Fe Pacific Corp.............. 54,300
2,600 Union Pacific Corp................. 139,425
-----------
511,475
-----------
Restaurants--0.6%
300 Luby's Cafeterias, Inc............. 6,900
9,200 McDonald's Corp.................... 241,500
600 Ryans Family Steak Houses, Inc.*... 3,562
500 Shoney's, Inc.*.................... 6,938
1,300 Wendy's International, Inc......... 18,850
-----------
277,750
-----------
Retail--5.7%
3,300 Albertsons, Inc.................... 96,112
1,800 American Stores Co................. 45,450
200 Brown Group, Inc................... 6,725
900 Brunos, Inc........................ 8,325
1,300 Charming Shoppes, Inc.............. 10,562
1,200 Circuit City Stores, Inc........... 31,050
1,000 Dayton Hudson Corp................. 76,500
1,400 Dillard Department Stores, Inc..... 37,450
1,900 Gap, Inc........................... 62,462
100 Genesco, Inc.*..................... 237
Great Atlantic & Pacific Tea,
500 Inc.............................. 12,687
1,000 Harcourt General, Inc.............. 34,375
300 Hartmarx Corp.*.................... 1,612
5,766 Home Depot, Inc.................... 242,172
5,200 K-Mart Corp........................ 92,950
1,400 Kroger Co.*........................ 37,275
4,700 Limited, Inc....................... 92,238
1,000 Liz Claiborne, Inc................. 22,750
300 Longs Drug Stores Corp............. 10,388
3,200 May Department Stores Co........... 126,000
1,400 Melville Corp...................... 49,875
500 Mercantile Stores, Inc............. 20,750
2,000 Newell Co.......................... 44,500
1,000 NIKE, Inc.......................... 58,875
1,100 Nordstrom, Inc..................... 44,000
100 Oshkosh 'B' Gosh, Inc.............. 1,438
3,100 Penney (J.C.), Inc................. 160,038
800 Pep Boys - Manny, Moe & Jack....... 27,800
2,752 Price Costco, Inc.*................ 44,204
1,100 Reebok International Ltd........... 39,325
1,000 Rite-Aid Corp...................... 20,750
4,600 Sears Roebuck & Co................. 220,800
1,100 Sherwin Williams Co................ 34,238
600 Stride Rite Corp................... 8,400
900 Supervalue, Inc.................... 23,400
900 TJX Companies, Inc................. 18,900
3,800 Toys 'R' Us, Inc.*................. 135,375
29,700 Wal-Mart Stores, Inc............... 694,238
1,600 Walgreen Co........................ 60,200
</TABLE>
See Notes to Financial Statements.
61
<PAGE>
THE PRUDENTIAL
STOCK INDEX FUND
INSTITUTIONAL
PORTFOLIO OF INVESTMENTS
FUND
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
Retail, cont'd.
1,000 Winn-Dixie Stores, Inc............. $ 50,000
1,700 Woolworth Corp..................... 29,537
-----------
2,833,963
-----------
Rubber--0.2%
1,100 Cooper Tire & Rubber............... 25,712
300 Goodrich (B.F.) Co................. 12,600
1,900 Goodyear Tire & Rubber Co.......... 63,413
-----------
101,725
-----------
Steel--0.4%
1,200 Armco, Inc......................... 7,200
1,400 Bethlehem Steel Corp............... 29,400
500 Inland Steel Industries, Inc.*..... 19,687
1,100 Nucor Corp......................... 76,588
1,000 USX Corp. - U.S. Steel Group....... 41,875
1,150 Worthington Industries, Inc........ 24,725
-----------
199,475
-----------
Telecommunications--1.9%
7,100 Ameritech Corp..................... 285,775
400 Andrew Corp.*...................... 20,050
1,400 DSC Communications Corp.*.......... 39,900
100 M/A-Com, Inc.*..................... 762
7,000 MCI Communications Corp............ 179,375
3,300 Northern Telecom Ltd............... 114,675
450 Scientific Atlanta, Inc............ 18,394
4,400 Sprint Corp........................ 167,750
7,400 Tele Communications Inc.*.......... 164,187
-----------
990,868
-----------
Textiles--0.2%
National Service Industries,
600 Inc.............................. 15,900
500 Russell Corp....................... 15,250
200 Springs Industries, Inc............ 7,200
900 VF Corp............................ 44,438
-----------
82,788
-----------
Tobacco--1.7%
2,600 American Brands, Inc............... 94,250
11,250 Philip Morris Cos., Inc............ 687,656
2,600 UST, Inc........................... 74,425
-----------
856,331
-----------
Trucking & Shipping--0.2%
500 Consolidated Freightways, Inc.*.... 11,000
700 Federal Express Corp.*............. 43,312
500 Roadway Services, Inc.............. 28,750
1,000 Ryder System, Inc.................. 25,625
300 Yellow Corp........................ 5,588
-----------
114,275
-----------
Utility - Communications--6.9%
6,300 AirTouch Communications*........... 180,337
20,300 AT&T Corp.......................... 1,096,200
5,700 Bell Atlantic Corp................. 302,100
6,400 BellSouth Corp..................... 356,800
12,400 GTE Corp........................... 376,650
5,400 NYNEX Corp......................... 207,900
5,400 Pacific Telesis Group.............. 166,050
7,800 Southwestern Bell Corp............. 331,500
2,900 Texas Utilities Co................. 94,613
5,900 U.S. West, Inc..................... 228,625
2,800 Unicom Corp........................ 62,300
1,300 Union Electric Co.................. 45,500
-----------
3,448,575
-----------
Utility - Electric--2.9%
2,400 American Electric Power, Inc....... 75,300
1,900 Baltimore Gas & Electric........... 43,700
2,100 Carolina Power & Light Co.......... 55,387
2,400 Central & South West Corp.......... 53,400
3,000 Consolidated Edison Co............. 74,625
1,900 Detroit Edison Co.................. 48,450
2,200 Dominion Resources, Inc............ 81,950
2,700 Duke Power Co...................... 105,300
3,000 Entergy Corp....................... 69,750
</TABLE>
See Notes to Financial Statements.
62
<PAGE>
THE PRUDENTIAL
STOCK INDEX FUND
INSTITUTIONAL
PORTFOLIO OF INVESTMENTS
FUND
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
Utility - Electric, cont'd.
2,500 FPL Group, Inc..................... $ 81,250
1,700 Houston Industries, Inc............ 59,925
1,800 Niagara Mohawk Power Corp.......... 23,850
900 Northern States Power Co........... 38,025
2,000 Ohio Edison Co..................... 38,000
1,100 Pacific Enterprises................ 23,375
5,500 Pacific Gas & Electric Co.......... 125,125
3,600 Pacificorp......................... 60,750
2,900 PECO Energy Co..................... 73,587
700 PSI Resources, Inc................. 15,662
3,200 Public Service Enterprise Group.... 84,000
5,700 SCE Corp........................... 74,100
8,400 Southern Co........................ 156,450
-----------
1,461,961
-----------
Total common stocks
(cost $41,492,300)................ 43,388,257
-----------
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS--10.3%
U. S. Government--0.5%
$ 250 (D) United States Treasury Bill
4.78%, 12/15/94
(cost $247,615)................. $ 247,615
-----------
Repurchase Agreement--9.8%
4,914 Joint Repurchase Agreement
Account, 4.83%, 10/3/94 (Note 5)
(cost $4,914,000)............... 4,914,000
-----------
Total short-term investments
(cost $5,161,615)................ 5,161,615
-----------
Total Investments--96.9%
(cost $46,653,915; Note 4)....... 48,549,872
Other assets in excess of
liabilities--3.1%................ 1,569,452
-----------
Net Assets--100%.................. $50,119,324
===========
<FN>
--------
* Non-income producing security.
(D)Pledged as initial margin on futures contracts.
ADR--American Depository Receipt.
</FN>
</TABLE>
See Notes to Financial Statements.
63
<PAGE>
THE PRUDENTIAL
INTERNATIONAL STOCK FUND
INSTITUTIONAL
PORTFOLIO OF INVESTMENTS
FUND
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
- -------------------------------------------------------------
<C> <S> <C>
LONG-TERM INVESTMENTS
Common Stocks and Equivalents--90.3%
Argentina--2.9%
22,000 Telecom Argentina ............... $ 1,469,600
(Utilities)
60,000 YPF Sociedad Anonima (ADR)* ..... 1,515,000
(Oil & Gas) -----------
2,984,600
-----------
Australia--5.7%
610,000 CSR, Ltd. ....................... 2,023,232
(Multi-Industry)
240,000 National Australia Bank Ltd. .... 1,833,702
(Commercial Banking)
800,000 Pioneer International Ltd. ...... 1,984,142
(Building Materials & -----------
Components) .................... 5,841,076
-----------
Belgium--1.3%
11,000 Groupe Brussels Lambert S.A. .... 1,371,855
(Commercial Banking) -----------
Canada--3.2%
86,000 Bank of Nova Scotia ............. 1,681,001
(Commercial Banking)
106,000 MacMillan Bloedel Ltd. .......... 1,588,480
(Forestry & Paper) -----------
3,269,481
-----------
Finland--4.0%
220,000 Enso-Gutzeit, Class R ........... 2,053,138
(Forestry & Paper)
100,000 Outokumpu O.V. .................. 2,024,770
(Metals-Non Ferrous) -----------
4,077,908
-----------
France--6.5%
13,500 Bon Marche ...................... 2,018,120
(Consumer Goods)
7,200 Chargeurs Reunis S.A. ........... 1,657,984
(Multi-Industry)
22,000 Gan ............................. 1,083,805
(Insurance)
13,400 Peugeot S.A. .................... 1,982,937
(Automobile Manufacturing) -----------
6,742,846
-----------
Germany--1.7%
6,400 Volkswagen A.G. ................. 1,755,287
(Automobile Manufacturing) -----------
Italy--1.4%
54,000 Avir Finanziaria S.P.A. ......... 325,072
(Misc. Materials & Commodities)
730,000 Pirelli, S.P.A. ................. 1,164,073
(Tires & Rubber) -----------
1,489,145
-----------
Mexico--7.4%
210,875 Cementos Mexicanos S.A. ......... 1,948,116
(Misc. Materials & Commodities)
1,200,000 Grupo Financiero Bancomer ....... 1,456,903
(Commercial Banking)
570,263 Grupo Situr S.A. ................ 1,956,051
(Real Estate)
</TABLE>
See Notes to Financial Statements.
64
<PAGE>
THE PRUDENTIAL
INTERNATIONAL STOCK FUND
INSTITUTIONAL
PORTFOLIO OF INVESTMENTS
FUND
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
- -------------------------------------------------------------
<C> <S> <C>
Mexico, cont'd.
260,000 Vitro, S.A. ..................... $ 2,221,895
(Industrial Components) -----------
7,582,965
-----------
Netherlands--11.2%
14,000 Akzo Nobel N.V. ................. 1,643,317
(Chemicals)
19,000 Gamma Holdings N.V. ............. 1,008,569
(Textiles & Apparel)
45,000 Internationale Nederlander Bank 1,940,994
N.V.
(Insurance)
58,000 KLM Royal Dutch Airlines ........ 1,617,783
(Airlines/Military Technology)
63,000 Knp Bt (kon) Nv ................. 1,884,058
(Forestry & Paper)
72,000 Pakhoed Holdings N.V. ........... 1,884,058
(Energy Equipment & Services)
63,000 Stork N.V. ...................... 1,557,971
(Machinery & Engineering) -----------
11,536,750
-----------
New Zealand--3.8%
750,000 Fletcher Challenge Industries Ltd. 1,919,672
(Forestry & Paper)
1,040,000 Lion Nathan Ltd. ................ 1,972,971
(Beverages & Tobacco) -----------
3,892,643
-----------
Norway--5.6%
175,000 Aker A.S. ....................... 1,777,670
(Multi-Industry)
106,000 Hafslund Nycomed A.S. ........... 1,747,784
(Health & Personal Care)
55,000 Orkla Borregaard A.S. ........... 1,514,148
(Food & Household Products)
40,000 Unitor Shipping Service, A.S. ... 727,262
(Business & Public Services) -----------
5,766,864
-----------
South Korea--5.5%
17,000 Dong Shin Pharmaceuticals ....... 953,550
(Health & Personal Care)
16,850 Korea First Bank ................ 280,587
(Commercial Banking)
20,118 Korea Long Term Credit Bank ..... 592,929
(Commercial Banking)
34,000 Korea Zinc ...................... 864,154
(Metals-Non Ferrous)
Lucky Development Co.
(including 1,429 rights expiring
October '94).................... 202,830
9,000 (Construction & Housing)
4,500 Pohang Iron & Steel Co., Ltd. ... 499,750
(Metals - Steel)
25,000 Sam Yang Co. .................... 913,985
(Misc. Materials & Commodities)
36,120 Tong Yang Cement ................ 1,365,749
(Construction & Housing) -----------
5,673,534
-----------
Spain--5.6%
67,000 Banco Bilbao Vizcaya, S.A. ...... 1,646,600
(Commercial Banking)
18,000 Banco de Andalucia .............. 1,966,869
(Commercial Banking)
260,000 Iberdrola ....................... 1,643,957
(Utilities)
23,614 Prosegur Compania ............... 511,472
(Business & Public Services) -----------
5,768,898
-----------
</TABLE>
See Notes to Financial Statements.
65
<PAGE>
THE PRUDENTIAL
INTERNATIONAL STOCK FUND
INSTITUTIONAL
PORTFOLIO OF INVESTMENTS
FUND
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
- -------------------------------------------------------------
<C> <S> <C>
Sweden--4.7%
36,000 Electrolux AB ................... $ 1,699,743
(Appliances)
88,000 SKF International AB ............ 1,531,690
(Consumer Goods)
90,000 Volvo AB ........................ 1,638,524
(Automobile Manufacturing) -----------
4,869,957
-----------
Switzerland--9.5%
2,600 Alusuisse-Lonza Holdings Ltd. ... 1,357,975
(Metals-Non Ferrous)
3,400 Ciba-Geigy Ltd. ................. 1,907,551
(Chemicals)
3,500 Hero ............................ 1,708,706
(Food & Household Products)
6,800 Merkur Holding AG ............... 1,833,779
(Merchandising)
2,000 Sulzer Ltd. ..................... 1,377,814
(Machinery & Engineering)
1,700 Zurich Versicherung ............. 1,541,323
(Insurance) -----------
9,727,148
-----------
United Kingdom--10.3%
212,076 Allied-Lyons PLC ................ 1,887,808
(Beverages & Tobacco)
460,000 Ladbroke Group PLC .............. 1,116,083
(Leisure & Tourism)
350,000 Lloyds Abbey Life PLC ........... 1,803,157
(Insurance)
180,000 National Westminster Bank PLC
(ADR)........................... 1,381,081
(Commercial Banking)
135,000 Rank Organisation PLC (ADR) ..... 856,086
(Leisure & Tourism)
495,375 Tesco PLC ....................... 1,837,989
(Food & Household Products)
196,000 Whitbread & Co., Ltd. ........... 1,665,961
(Beverages & Tobacco) -----------
10,548,165
-----------
Total common stocks & equivalents
(cost $84,914,223)................ 92,899,122
-----------
Principal
Amount
(000) SHORT-TERM INVESTMENT
- ----------
Repurchase Agreement--8.7%
$ 8,958 Joint Repurchase Agreement
Account, 4.83%, 10/3/94 (Note 5)
(cost $8,958,000)............... 8,958,000
------------
Total Investments--99.0%
(cost $93,872,223; Note 4)...... 101,857,122
Other assets in excess of
liabilities--1.0%............... 967,210
------------
Net Assets--100%.................. $102,824,332
============
<FN>
- ---------------
* Non-income producing security.
ADR--American Depository Receipt.
</FN>
</TABLE>
See Notes to Financial Statements.
66
<PAGE>
THE PRUDENTIAL
ACTIVE BALANCED FUND
INSTITUTIONAL
PORTFOLIO OF INVESTMENTS
FUND
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
LONG-TERM INVESTMENTS--77.2%
Common Stocks--39.4%
Airlines--0.5%
4,600 UAL Corp........................... $ 399,050
-----------
Automobiles & Trucks--1.3%
22,000 General Motors Corp................ 1,031,250
-----------
Banking--3.3%
34,800 Boatmen's Bancshares............... 1,080,975
29,700 Fleet Financial Group, Inc......... 1,117,462
56,000 Hibernia Corp...................... 448,000
-----------
2,646,437
-----------
Capital Goods--0.5%
9,100 Duracell International, Inc........ 415,188
-----------
Chemicals--0.5%
19,200 Dexter Corp........................ 444,000
-----------
Computer Software & Services--1.9%
14,200 CUC International, Inc.*........... 468,600
31,000 Intergraph Corp.*.................. 282,875
23,000 Novell, Inc.*...................... 339,250
14,800 Symbol Technologies, Inc.*......... 451,400
-----------
1,542,125
-----------
Consumer Goods--0.3%
11,500 Masco Corp......................... 277,438
-----------
Diversified Gas--0.6%
16,600 Coastal Corp....................... 462,725
-----------
Drugs & Medical Supplies--1.6%
9,100 Amgen, Inc.*....................... 484,575
10,100 Biogen, Inc.*...................... 550,450
26,800 Wellcome Plc (ADR) ............... 274,700
(United Kingdom) -----------
1,309,725
-----------
Electronics--3.3%
11,300 Hewlett-Packard Co................. 987,337
17,500 Intel Corp......................... 1,076,250
24,400 International Rectifier Corp.*..... 497,150
2,100 Texas Instruments, Inc............. 143,588
-----------
2,704,325
-----------
Food & Beverages--0.6%
23,400 Pet, Inc........................... 462,150
-----------
Forest Products--0.9%
9,900 Georgia Pacific Corp............... 757,350
-----------
Insurance--3.2%
11,900 Aetna Life & Casualty Co........... 551,862
25,200 CIGNA Corp......................... 1,552,950
22,700 Life Re Corp....................... 482,375
-----------
2,587,187
-----------
Lodging--0.9%
12,500 Hilton Hotels Corp................. 748,438
-----------
Media--4.8%
10,000 Dow Jones & Co., Inc............... 300,000
13,300 Dun & Bradstreet Corp.............. 764,750
9,600 McGraw Hill, Inc................... 703,200
40,400 New York Times Co.................. 883,750
9,000 Omnicom Group...................... 452,250
</TABLE>
See Notes to Financial Statements.
67
<PAGE>
THE PRUDENTIAL
ACTIVE BALANCED FUND
INSTITUTIONAL
PORTFOLIO OF INVESTMENTS
FUND
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
Media, cont'd.
4,700 Scholastic Corp.*.................. $ 229,125
10,300 Tribune Co......................... 556,200
-----------
3,889,275
-----------
Mineral Resources--1.3%
22,974 Newmont Mining Corp................ 1,033,830
-----------
Miscellaneous Basic Industry--1.9%
5,600 Avalon Properties, Inc............. 118,300
21,200 Blanch E W Hldgs, Inc.............. 484,950
15,300 Irvine Apartment Communities,Inc... 273,488
11,000 United Technologies Corp........... 688,875
-----------
1,565,613
-----------
Miscellaneous Consumer Growth--1.0%
15,200 Eastman Kodak Co................... 786,600
-----------
Petroleum--0.5%
10,000 Western Atlas, Inc.*............... 437,500
-----------
Petroleum Services--4.2%
9,500 Anadarko Petroleum Corp............ 425,125
27,700 Baker Hughes, Inc.................. 515,912
42,000 Dresser Industries, Inc............ 850,500
24,200 Petroleum Geo Svcs A/S (ADR)* .... 468,875
(Norway)
13,700 Tenneco, Inc....................... 604,512
20,300 YPF Sociedad Anonima (ADR)* ...... 512,575
(Argentina) -----------
3,377,499
-----------
Pharmaceuticals--0.2%
11,800 Vertex Pharmaceuticals, Inc........ 168,150
-----------
Railroads--0.9%
15,200 Southern Pacific Rail Corp.*....... 285,000
7,600 Union Pacific Corp................. 407,550
-----------
692,550
-----------
Retail--1.1%
9,000 Harcourt General, Inc.............. 309,375
31,900 Limited, Inc....................... 626,038
-----------
935,413
-----------
Steel--0.6%
11,100 USX Corp. - U.S. Steel Group....... 464,812
-----------
Technology--1.0%
15,100 Adobe Systems, Inc................. 490,750
5,000 Chiron Corp.*...................... 332,500
-----------
823,250
-----------
Telecommunications--2.0%
19,600 MCI Communications Corp............ 502,250
8,800 Telefonos de Mexico S.A. (ADR) ... 550,000
(Mexico)
18,000 Vodafone Group PLC ............... 564,750
(United Kingdom) -----------
1,617,000
-----------
Trucking/Shipping--0.5%
16,100 Ryder System, Inc.................. 412,563
-----------
Total common stocks
(cost $30,545,114)............... 31,991,443
-----------
Principal
Amount Debt Obligations--37.8%
(000) Convertible Bond--0.7%
- --------
Conner Peripherals, Inc.,
$ 685 6.50%, 3/1/02
(cost $608,684).................. 540,294
-----------
U. S. Government Securities--37.1%
United States Treasury Notes,
2,165 8.875%, 11/15/98................... 2,294,229
4,510 7.50%, 11/15/01.................... 4,515,637
12,565 6.25%, 2/15/03..................... 11,546,104
13,335 5.75%, 8/15/03..................... 11,757,736
-----------
Total U. S. government securities
(cost $32,186,696)............... 30,113,706
-----------
</TABLE>
See Notes to Financial Statements.
68
<PAGE>
THE PRUDENTIAL
ACTIVE BALANCED FUND
INSTITUTIONAL
PORTFOLIO OF INVESTMENTS
FUND
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
Total debt obligations
(cost $32,795,380).............. $30,654,000
-----------
Total long-term investments
(cost $63,340,494).............. 62,645,443
-----------
SHORT-TERM INVESTMENT
Repurchase Agreement--23.1%
$ 18,768 Joint Repurchase Agreement
Account, 4.83%, 10/3/94 (Note 5)
(cost $18,768,000).............. 18,768,000
-----------
Total Investments--100.3%
(cost $82,108,494; Note 4)...... 81,413,443
Liabilities in excess of other
assets--(0.3%).................. (237,013)
-----------
Net Assets--100%.................. $81,176,430
===========
<FN>
--------
* Non-income producing security.
ADR--American Depository Receipt.
</FN>
</TABLE>
See Notes to Financial Statements.
69
<PAGE>
THE PRUDENTIAL
BALANCED FUND
INSTITUTIONAL
PORTFOLIO OF INVESTMENTS
FUND
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
LONG-TERM INVESTMENTS--85.4%
Common Stocks--45.5%
Aerospace/Defense--1.0%
4,500 Boeing Co.......................... $ 194,063
3,500 Loral Corp......................... 137,813
14,100 Martin Marietta Corp.*............. 282,000
-----------
613,876
-----------
Aluminum--0.7%
5,200 Aluminum Co. of America............ 440,700
-----------
Automobiles & Trucks--0.7%
8,800 Donaldson Co., Inc................. 195,800
9,000 Ford Motor Co...................... 249,750
-----------
445,550
-----------
Banking--2.4%
19,300 Bank of New York, Inc.............. 571,745
12,900 Norwest Corp....................... 319,275
2,900 Summit Bancorporation.............. 60,719
8,100 Washington Mutual Savings Bank..... 165,038
2,800 Wells Fargo & Co................... 406,350
-----------
1,523,127
-----------
Capital Goods--0.3%
Fisher Scientific International,
5,700 Inc.............................. 190,950
-----------
Chemicals--2.0%
5,200 Air Products & Chemicals, Inc...... 243,100
3,500 Dow Chemical Co.................... 273,875
4,800 Eastman Chemical Co................ 261,000
6,800 IMC Fertilizer Group, Inc.......... 302,600
3,300 Imperial Chemical Ind. (ADR)....... 172,425
700 Praxair, Inc....................... 17,063
-----------
1,270,063
-----------
Commercial Services--0.4%
500 DeVRY, Inc.*....................... 13,500
8,400 ServiceMaster L.P.................. 212,100
-----------
225,600
-----------
Computer Software & Services--1.1%
7,800 Automatic Data Processing, Inc..... 437,775
3,800 Microsoft Corp.*................... 213,275
4,100 National Data Corp................. 88,150
-----------
739,200
-----------
Consumer Goods--1.2%
8,800 A.T. Cross, Co..................... 146,300
2,100 Danaher Corp....................... 93,450
5,000 Kendall International, Inc......... 301,250
4,400 Modine Manufacturing Co............ 121,000
3,900 Rival Co........................... 85,800
-----------
747,800
-----------
Cosmetics & Soaps--0.3%
2,300 Gillette Co........................ 162,725
-----------
Drugs & Medical Supplies--1.2%
7,700 Abbott Laboratories................ 241,588
9,400 Baxter International, Inc.......... 264,375
3,700 Schering-Plough Corp............... 262,700
-----------
768,663
-----------
Electronics--1.7%
18,300 ADT, Ltd.*......................... 210,450
6,860 Baldor Electric Co................. 166,355
10,300 Emerson Electric Co................ 614,138
6,150 Thermotrex Corp.*.................. 98,400
-----------
1,089,343
-----------
</TABLE>
See Notes to Financial Statements.
70
<PAGE>
THE PRUDENTIAL
BALANCED FUND
INSTITUTIONAL
PORTFOLIO OF INVESTMENTS
FUND
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
Financial Services--3.2%
5,000 Block (H&R), Inc................... $ 229,375
10,800 Dean Witter Discover & Co.......... 406,350
3,000 Equitable Companies, Inc........... 108,000
9,000 Federal Home Loan Mortgage Corp.... 480,375
5,900 First Data Corp.................... 296,475
1,600 First Financial Management Corp.... 92,000
4,300 GFC Financial Corp................. 153,188
9,000 National Auto Credit, Inc.*........ 109,125
3,800 Penncorp Financial Group, Inc...... 56,525
8,500 Riggs National Corp................ 86,594
2,200 T. Rowe Price & Associates, Inc.... 73,700
-----------
2,091,707
-----------
Food & Beverage--1.4%
26,815 Archer-Daniels-Midland Co.......... 697,190
4,300 Dr. Pepper/Seven Up Cos., Inc.*.... 99,975
4,800 Sbarro, Inc........................ 122,400
-----------
919,565
-----------
Forest Products--0.9%
11,000 Willamette Industries, Inc......... 563,750
-----------
Gas Pipelines--0.2%
6,700 Seagull Energy Corp.*.............. 156,613
-----------
Glass Products--0.2%
5,800 Libbey, Inc........................ 100,050
-----------
Hospital Management--1.5%
10,562 Columbia Healthcare Corp........... 459,447
6,900 Health Care & Retirement Corp.*.... 195,788
5,500 Healthtrust-The Hospital Co.*...... 180,813
National Medical Enterprises,
8,900 Inc.............................. 152,413
-----------
988,461
-----------
Housing Related--1.6%
7,800 Crescent Real Estate Equities...... 219,375
Equity Residential Property
7,400 Trust............................ 234,950
3,900 Federal Realty Investment Trust.... 83,363
9,500 Manufactured Home Community, Inc... 190,000
5,900 Toll Brothers, Inc................. 67,113
2,400 Vornado Realty Trust............... 82,200
3,800 Weingarten Realty Investors........ 135,850
-----------
1,012,851
-----------
Insurance--2.1%
American International Group,
4,800 Inc.............................. 426,600
5,100 CCP Insurance, Inc................. 116,663
3,300 Chubb Corp......................... 234,713
2,980 General Re Corp.................... 315,508
3,600 NAC Re Corp........................ 91,800
3,600 Torchmark Corp..................... 157,950
-----------
1,343,234
-----------
Leisure--0.6%
8,500 Carnival Cruise Lines, Inc......... 372,938
-----------
Lodging
200 Marriott International, Inc........ 5,775
-----------
Machinery
1,000 Gorman-Rupp Co..................... 23,375
-----------
Media--2.2%
8,300 American Business Information*..... 122,425
3,600 Capital Cities/ABC, Inc............ 295,200
7,700 Enquirer Star Group, Inc........... 129,938
2,300 Grupo Televisa S.A................. 133,113
(Mexico)
8,300 Rogers Communications, Inc.*....... 125,926
2,500 Scholastic Corp.*.................. 121,875
</TABLE>
See Notes to Financial Statements.
71
<PAGE>
THE PRUDENTIAL
BALANCED FUND
INSTITUTIONAL
PORTFOLIO OF INVESTMENTS
FUND
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
Media, cont'd.
2,900 TCA Cable TV, Inc.................. $ 70,688
32,000 Television Broadcasts, Ltd.*....... 148,670
5,600 Tribune Co......................... 302,400
-----------
1,450,235
-----------
Mineral Resources--0.5%
11,600 Placer Dome, Inc................... 291,450
-----------
Miscellaneous Basic Industry--5.1%
6,700 Belden, Inc........................ 139,025
5,600 Cabot Corp......................... 152,600
5,200 Duke Realty Investments, Inc....... 130,000
10,700 General Electric Co................ 514,938
10,000 Illinois Tool Works, Inc........... 427,500
8,800 Potash Corp........................ 359,700
6,700 Thermo Electron Corp.*............. 307,363
8,900 Thermo Fibertek, Inc.*............. 130,163
8,800 Tyco International Limited......... 418,000
4,400 Unifi, Inc......................... 110,000
2,900 Valspar Corp....................... 98,963
8,100 Wellman, Inc....................... 276,413
7,000 WMX Technologies, Inc.............. 202,125
-----------
3,266,790
-----------
Miscellaneous Consumer Growth--0.4%
4,400 Eastman Kodak Co................... 227,700
-----------
Office Equipment & Supplies--0.5%
International Business Machines
4,800 Corp............................. 333,600
-----------
Oil & Gas Exploration/Production--0.5%
15,700 Mesa, Inc.*........................ 86,350
8,600 TOTAL S.A. (ADR)................... 251,550
-----------
337,900
-----------
Paper--0.3%
6,000 Caraustar Inds., Inc............... 124,125
2,500 Pentair, Inc....................... 98,750
-----------
222,875
-----------
Petroleum--3.0%
4,700 Amoco Corp......................... 278,475
12,300 Baker Hughes, Inc.................. 229,088
7,800 Broken Hill Proprietary Ltd. (ADR). 451,425
(Australia)
13,100 Cross Timbers Oil Co............... 191,588
2,600 Kaydon Corp........................ 60,450
6,700 Royal Dutch Petroleum Co........... 719,413
-----------
1,930,439
-----------
Petroleum Services--0.2%
2,900 Schlumberger, Ltd.................. 157,688
-----------
Power Generation--0.1%
2,500 AES Corp........................... 49,375
-----------
Railroads--0.3%
4,300 Illinois Central Corp.............. 129,000
900 Santa Fe Pacific Corp.*............ 15,560
3,800 Southern Pacific Rail Corp.*....... 71,250
-----------
215,810
-----------
Retail--1.4%
3,900 Harcourt General, Inc.............. 134,063
4,550 Kellwood Co........................ 109,769
13,200 Newell Co.......................... 293,700
8,600 Sothebys Holdings Inc.............. 110,725
2,600 Tiffany & Co....................... 96,200
4,800 Toys 'R' Us, Inc.*................. 171,000
-----------
915,457
-----------
</TABLE>
See Notes to Financial Statements.
72
<PAGE>
THE PRUDENTIAL
BALANCED FUND
INSTITUTIONAL
PORTFOLIO OF INVESTMENTS
FUND
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
Rubber--0.6%
12,500 Goodyear Tire & Rubber Co.......... $ 417,188
-----------
Steel--1.4%
3,000 Carpenter Technology Corp.......... 190,500
12,900 LTV Corp.*......................... 264,450
21,200 Worthington Industries, Inc........ 455,800
-----------
910,750
-----------
Technology--0.3%
5,600 American Management Systems, Inc.*. 131,600
4,500 McWhorter Technologies, Inc.*...... 83,813
-----------
215,413
-----------
Telecommunications--1.8%
7,000 Shaw Communications, Inc........... 52,124
8,184 Tele Communications, Inc.*......... 181,583
14,000 Telefonos de Mexico S.A. (ADR)..... 875,000
(Mexico)
1,100 Telephone & Data Systems, Inc...... 50,600
-----------
1,159,307
-----------
Textiles--0.4%
2,400 Russell Corp....................... 73,200
3,200 VF Corp............................ 158,000
-----------
231,200
-----------
Tobacco--0.4%
1,200 Philip Morris Cos., Inc............ 73,350
5,700 UST, Inc........................... 163,163
-----------
236,513
-----------
Trucking & Shipping--0.2%
5,700 Expeditors International, Inc...... 114,000
-----------
Utility - Communications--1.2%
7,900 Airtouch Communications, Inc.*..... 226,138
10,300 AT&T Corp.......................... 556,200
-----------
782,338
-----------
Total common stocks
(cost $27,775,985)............... 29,261,944
-----------
Principal
Amount DEBT OBLIGATIONS
(000) U. S. Government Securities--39.9%
- --------
United States Treasury Bond,
$ 6,500 11.25%, 2/15/15.................... 8,616,530
United States Treasury Notes,
2,500 7.25%, 11/15/96.................... 2,528,900
4,000 6.00%, 11/30/97.................... 3,891,880
5,000 9.00%, 5/15/98..................... 5,299,200
5,500 6.375%, 1/15/99.................... 5,337,585
-----------
Total U. S. government securities
(cost $27,191,632)............... 25,674,095
-----------
Total long-term investments
(cost $54,967,617)............... 54,936,039
SHORT-TERM INVESTMENT
Repurchase Agreement--13.6%
8,763 Joint Repurchase Agreement Account,
4.83%, 10/3/94 (Note 5)
(cost $8,763,000)................ 8,763,000
-----------
Total Investments--99.0%
(cost $63,730,617; Note 4)......... 63,699,039
Other assets in excess of
liabilities--1.0%................ 613,544
-----------
Net Assets--100%................... $64,312,583
===========
<FN>
- ---------------
* Non-income producing security.
ADR--American Depository Receipt.
</FN>
</TABLE>
See Notes to Financial Statements.
73
<PAGE>
THE PRUDENTIAL
INCOME FUND
INSTITUTIONAL
PORTFOLIO OF INVESTMENTS
FUND
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
LONG-TERM INVESTMENTS--88.9%
Asset Backed Security--2.5%
Standard Credit Card Trust,
$ 1,000 Series 1991-3A, 8.875%, 9/07/99
(cost $1,071,562)............... $ 1,042,180
-----------
Corporate Bonds--14.6%
Atlantic Richfield Co.,
400 9.875%, 3/01/16................. 444,028
Bell Atlantic Financial Services,
300 Inc., 6.71%, 2/03/03........... 276,813
Chrysler Corp.,
150 13.00%, 3/01/97................. 153,942
Eastman Kodak Co.,
500 9.875%, 11/01/04................ 533,665
Equity Lord Realty Corp.,
300 10.50%, 12/30/97................ 318,810
General Motors Acceptance Corp.,
350 8.00%, 4/10/97.................. 354,459
475 8.15%, 9/17/96.................. 482,571
Grand Metropolitan Investment
Corp.,
800 Zero Coupon, 1/06/04............ 376,720
Household Finance Corp.,
1,000 7.80%, 11/01/96................. 1,013,010
IC Industries Financial Corp.,
705 8.00%, 7/01/96.................. 714,254
Intermediate American Development
Bank,
435 8.50%, 3/15/11.................. 442,634
SunAmerica, Inc.,
275 6.58%, 1/15/02.................. 249,769
Tenneco Credit Corp.,
400 10.125%, 12/01/97............... 429,316
Union Bank Finland,
250 5.25%, 6/15/96.................. 242,080
-----------
Total corporate bonds
(cost $6,265,019)............... $ 6,032,071
-----------
Foreign Government Obligations--2.3%
New Zealand Government Bond,
500 10.50%, 7/16/00................. 540,313
Province of Quebec,
400 9.00%, 5/08/01.................. 413,875
-----------
Total foreign government
obligations
(cost $1,033,354)............... 954,188
-----------
U. S. Government and Agency
Securities--69.5%
Federal Home Loan Mortgage Corp.,
841 7.00%, 7/01/08.................. 804,444
Federal National Mortgage Assn.,
2,378 7.00%, 9/01/23 - 7/01/24........ 2,184,248
1,506 8.00%, 9/01/09 - 7/01/24........ 1,478,529
Government National Mortgage
Assn.,
1,397 7.00%, 2/15/09 - 6/15/23........ 1,310,716
3,775 7.50%, 12/15/22 - 10/15/24...... 3,545,937
2,988 9.00%, 7/15/18 - 8/15/24........ 3,069,554
Tennessee Valley Authority,
600 6.875%, 12/15/43................ 482,484
United States Treasury Bonds,
120 6.25%, 8/15/23.................. 97,387
500 8.75%, 5/15/20.................. 539,530
400 11.25%, 2/15/15................. 530,248
750 12.00%, 8/15/13................. 1,005,818
United States Treasury Notes,
4,500 5.75%, 10/31/97................. 4,353,750
1,700 6.375%, 1/15/99................. 1,649,799
2,400 8.25%, 7/15/98.................. 2,487,384
2,400 8.625%, 8/15/97................. 2,506,872
</TABLE>
See Notes to Financial Statements.
74
<PAGE>
THE PRUDENTIAL
INCOME FUND
INSTITUTIONAL
PORTFOLIO OF INVESTMENTS
FUND
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
U. S. Government and Agency Securities,
cont'd.
United States Treasury Strips,
$ 1,500 Zero Coupon, 11/15/07........... $ 530,055
1,850 Zero Coupon, 5/15/08............ 625,855
2,500 Zero Coupon, 8/15/08............ 828,525
1,500 Zero Coupon, 8/15/11............ 385,170
1,500 Zero Coupon, 11/15/11........... 376,560
-----------
Total U. S. government and agency
securities
(cost $30,413,230).............. 28,792,865
-----------
Total long-term investments
(cost $38,783,165).............. 36,821,304
-----------
SHORT-TERM INVESTMENTS--17.3%
Corporate Bonds--2.1%
Ashland Oil, Inc.,
400 9.85%, 9/15/95.................. 411,716
Masco Industries, Inc.,
450 10.00%, 3/15/95................. 456,188
-----------
Total corporate bonds
(cost $876,614)................. 867,904
-----------
Repurchase Agreement--15.2%
Joint Repurchase Agreement
6,280 Account,
4.83%, 10/3/94 (Note 5)
(cost $6,280,000)............... 6,280,000
-----------
Total short-term investments
(cost $7,156,614)............... 7,147,904
-----------
Total Investments--106.2%
(cost $45,939,779; Note 4)...... 43,969,208
Liabilities in excess of other
assets--(6.2%).................. (2,567,891)
-----------
Net Assets--100%.................. $41,401,317
===========
</TABLE>
See Notes to Financial Statements.
75
<PAGE>
THE PRUDENTIAL
MONEY MARKET FUND
INSTITUTIONAL
PORTFOLIO OF INVESTMENTS
FUND
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
ASSET BACKED SECURITIES--4.0%
Money Market Auto Loan Trust,
$ 1,000 5.065%, 8/31/95................. $ 1,000,532
Money Market Credit Card Trust,
818 4.96%, 6/12/95.................. 818,182
Premier Auto Trust,
35 3.28%, 2/2/95................... 35,188
-----------
1,853,902
-----------
BANK NOTES--8.6%
American Express Centurion Bank,
1,000 5.0625%, 9/28/95................ 999,901
NationsBank,
1,000 5.40%, 5/19/95.................. 999,144
PNC Bank of North America,
1,000 5.02%, 4/21/95.................. 999,514
Republic National Bank,
1,000 4.30%, 3/8/95................... 998,480
-----------
3,997,039
-----------
CERTIFICATES OF DEPOSIT--DOMESTIC--2.2%
Morgan Stanley Group, Inc.,
1,000 5.25%, 10/7/94.................. 999,125
-----------
CERTIFICATES OF DEPOSIT--
YANKEE--6.5%
Bank of Tokyo, Ltd.,
1,000 4.86%, 10/17/94................. 1,000,000
Sanwa Bank, Ltd.,
1,000 4.81%, 10/11/94................. 1,000,000
Sumitomo Bank, Ltd.,
1,000 5.03%, 10/28/94................. 1,000,000
-----------
3,000,000
-----------
COMMERCIAL PAPER--
DOMESTIC--41.3%
Asset Securitization Cooperative
Corp.,
335 5.00%, 10/5/94.................. 334,814
CIT Group Holdings, Inc.,
500 4.81%, 11/9/94.................. 497,395
1,000 4.88%, 12/1/94.................. 991,731
Corporate Receivables Corp.,
1,000 4.95%, 11/1/94.................. 995,738
Countrywide Funding Corp.,
1,000 4.80%, 10/5/94.................. 999,467
General Motors Acceptance Corp.,
1,700 4.90%, 11/14/94................. 1,689,819
Greyhound Financial Corp.,
1,000 5.08%, 10/20/94................. 997,319
GTE Corp.,
1,000 4.85%, 10/14/94................. 998,249
Household Finance Corp.,
1,000 4.90%, 11/17/94................. 993,603
International Business Machines
Corp.,
1,000 4.84%, 10/25/94................. 996,773
ITT Corp.,
1,000 4.82%, 10/3/94.................. 999,732
Merrill Lynch & Co., Inc.,
1,000 4.85%, 10/17/94................. 997,844
Pennsylvania Power & Lighting Co.,
1,664 4.82%, 10/17/94................. 1,660,435
PHH Corp.,
1,000 4.80%, 10/18/94................. 997,733
Pitney Bowes Inc.,
723 4.80%, 10/26/94................. 720,590
Sears Roebuck Acceptance Corp.,
1,000 5.00%, 10/26/94................. 996,528
Smith Barney Shearson, Inc.,
1,000 4.78%, 10/11/94................. 998,672
Weyerhauser Mtge. Corp.,
1,910 4.95%, 10/25/94................. 1,903,697
Weyerhauser Real Estate,
344 4.97%, 10/14/94................. 343,383
-----------
19,113,522
-----------
</TABLE>
See Notes to Financial Statements.
76
<PAGE>
THE PRUDENTIAL
MONEY MARKET FUND
INSTITUTIONAL
PORTFOLIO OF INVESTMENTS
FUND
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
COMMERCIAL PAPER--YANKEE--15.3%
American Honda Finance Corp.,
$ 1,000 5.00%, 10/17/94................. $ 997,778
BAT Capital Corp.,
435 5.00%, 10/26/94................. 433,490
Bridgestone/Firestone, Inc.,
1,000 4.83%, 10/14/94................. 998,256
1,000 4.83%, 10/18/94................. 997,719
DIC Americas, Inc.,
300 4.87%, 10/14/94................. 299,472
MCA Funding Corp.,
1,000 5.12%, 1/17/95.................. 984,640
Michelin Tire Corp.,
400 5.02%, 10/11/94................. 399,442
National Australia Funding,
Delaware Inc.,
1,000 4.93%, 10/31/94................. 995,892
State Street Capital Corp.,
1,000 5.00%, 10/28/94................. 996,250
-----------
7,102,939
-----------
GOVERNMENT COUPON ISSUE--2.2%
Federal Farm Credit Bank,
500 3.48%, 11/1/94.................. 499,951
Federal National Mortgage Assoc.,
500 9.25%, 11/10/94................. 502,611
-----------
1,002,562
-----------
MASTER NOTE--2.2%
Lehman Brothers, Inc.,
1,000 5.25%, 5/23/95.................. 1,000,000
-----------
MEDIUM--TERM OBLIGATIONS--10.8%
Beneficial Corp.,
1,000 4.87%, 7/19/95.................. 999,454
General Motors Acceptance Corp.,
500 6.90%, 5/8/95................... 503,177
Goldman, Sachs & Co., L.P.,
2,000 5.375%, 10/9/95................. 2,000,000
Merrill Lynch & Co., Inc.,
500 4.885%, 10/2/95................. 499,902
Union Pacific Corp.,
1,000 9.90%, 10/2/94.................. 1,000,163
-----------
5,002,696
-----------
TIME DEPOSITS--1.9%
Industrial Bank of Japan,
906 3.525%, 10/3/94................. 906,000
-----------
VARIABLE RATE OBLIGATIONS*--3.2%
Merrill Lynch & Co., Inc.,
500 4.925%, 10/12/94................ 500,000
Morgan Stanley Group, Inc.,
1,000 5.00%, 11/15/94................. 1,000,000
-----------
1,500,000
-----------
Total Investments--98.2%
(amortized cost $45,477,785**).. 45,477,785
Other assets in excess of
liabilities--1.8%............... 852,947
-----------
Net Assets--100%.................. $46,330,732
===========
<FN>
--------
* For purposes of amortized cost valuation, the maturity date of these
instruments is considered to be the next date on which the security can be
redeemed at par or the next date on which the rate of interest is adjusted.
** The cost of securities for federal income tax purposes is substantially the
same as for financial reporting purposes.
</FN>
</TABLE>
The industry classification of portfolio holdings and other net assets shown as
a percentage of net assets as of September 30, 1994 was as follows:
<TABLE>
<S> <C>
Business Credit (Finance)............. 23.4%
Commercial Banks...................... 19.8
Security Brokers & Dealers............ 17.3
Personal Credit Institutions.......... 16.0
Asset Backed.......................... 6.9
Telecommunications.................... 4.3
Electric Services..................... 3.6
Federal Credit Agencies............... 2.2
Railroads............................. 2.2
Office Machines....................... 1.6
Tobacco............................... 0.9
-----
98.2
Other assets in excess of liabilities 1.8
-----
100.8%
=====
</TABLE>
See Notes to Financial Statements.
77
<PAGE>
THE PRUDENTIAL
STATEMENT OF ASSETS
INSTITUTIONAL
AND LIABILITIES
FUND
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
GROWTH STOCK INTERNATIONAL ACTIVE MONEY
STOCK INDEX STOCK BALANCED BALANCED INCOME MARKET
FUND FUND FUND FUND FUND FUND FUND
------------ ----------- ------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Investments, at value*... $102,240,093 $48,549,872 $ 101,857,122 $81,413,443 $63,699,039 $43,969,208 $45,477,785
Cash..................... 644 287 854 263 8,089 706 --
Foreign currency, at
value (cost $104,937
and $113,360,
respectively).......... -- -- 106,150 -- 113,527 -- --
Receivable for
investments sold....... 2,547,970 -- 1,335,371 136,101 1,212,767 -- --
Interest and dividends
receivable............. 75,177 129,883 265,964 473,381 559,563 538,086 163,053
Receivable for Fund
shares sold............ 6,006,889 1,620,822 789,303 905,994 116,931 59,145 710,420
Due from Manager......... -- 2,417 -- -- -- -- --
Deferred expenses and
other assets........... 21,068 59,784 98,059 45,059 77,898 42,505 43,483
------------ ----------- ------------- ----------- ----------- ----------- -----------
Total assets....... 110,891,841 50,363,065 104,452,823 82,974,241 65,787,814 44,609,650 46,394,741
------------ ----------- ------------- ----------- ----------- ----------- -----------
Liabilities
Payable for investments
purchased.............. 3,713,611 140,635 1,283,648 1,671,921 1,246,489 3,015,319 --
Payable for Fund shares
reacquired............. 81,967 10,130 98,628 16,786 126,055 139,976 1,547
Accrued expenses......... 50,155 79,378 159,161 55,315 100,628 32,172 48,183
Due to broker-variation
margin................. -- 8,200 -- -- -- -- --
Management fee payable... 78,945 -- 75,583 44,805 725 16,270 9,293
Administration fee
payable................ 11,195 5,398 11,471 8,984 1,334 4,596 4,986
------------ ----------- ------------- ----------- ----------- ----------- -----------
Total liabilities.. 3,935,873 243,741 1,628,491 1,797,811 1,475,231 3,208,333 64,009
------------ ----------- ------------- ----------- ----------- ----------- -----------
Net Assets............... $106,955,968 $50,119,324 $ 102,824,332 $81,176,430 $64,312,583 $41,401,317 $46,330,732
============ =========== ============= =========== =========== =========== ===========
Net assets were comprised of:
Shares of beneficial
interest, at par....... $ 8,916 $ 4,447 $ 6,929 $ 7,433 $ 5,806 $ 4,412 $ 46,331
Paid-in capital in excess
of par................. 104,146,596 47,039,203 91,209,168 79,525,295 62,304,835 44,193,027 46,284,401
------------ ----------- ------------- ----------- ----------- ----------- -----------
104,155,512 47,043,650 91,216,097 79,532,728 62,310,641 44,197,439 46,330,732
Undistributed net
investment income...... 103,636 1,146,661 1,411,865 2,343,730 1,990,088 -- --
Accumulated net realized
gain (loss) on
investments............ (3,830,856) 122,431 2,208,375 (4,977) 43,265 (825,551) --
Net unrealized
appreciation
(depreciation) on
investments and foreign
currencies............. 6,527,676 1,806,582 7,987,995 (695,051) (31,411) (1,970,571) --
------------ ----------- ------------- ----------- ----------- ----------- -----------
Net assets, September 30,
1994................... $106,955,968 $50,119,324 $ 102,824,332 $81,176,430 $64,312,583 $41,401,317 $46,330,732
============ =========== ============= =========== =========== =========== ===========
Shares of beneficial
interest issued and
outstanding............ 8,916,134 4,446,658 6,929,145 7,433,158 5,806,020 4,411,907 46,330,732
============ =========== ============= =========== =========== =========== ===========
Net asset value per
share.................. $ 12.00 $ 11.27 $ 14.84 $ 10.92 $ 11.08 $ 9.38 $ 1.00
============ =========== ============= =========== =========== =========== ===========
*Identified cost......... $ 95,712,417 $46,653,915 $ 93,872,223 $82,108,494 $63,730,617 $45,939,779 $45,477,785
</TABLE>
See Notes to Financial Statements.
78
<PAGE>
THE PRUDENTIAL
STATEMENT OF
INSTITUTIONAL
OPERATIONS
FUND
YEAR ENDED SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
GROWTH STOCK INTERNATIONAL ACTIVE MONEY
STOCK INDEX STOCK BALANCED BALANCED INCOME MARKET
FUND FUND FUND FUND FUND FUND FUND
------------ ----------- --------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Investment Income
Income
Interest............... $ 120,137 $ 147,146 $ 271,215 $ 1,939,933 $ 1,328,507 $ 2,248,061 $ 1,505,021
Dividends D............ 619,637 973,764 1,561,310 455,383 373,241 -- --
------------ ----------- ------------- ----------- ----------- ----------- -----------
Total income........... 739,774 1,120,910 1,832,525 2,395,316 1,701,748 2,248,061 1,505,021
------------ ----------- ------------- ----------- ----------- ----------- -----------
Expenses
Management fee......... 500,141 152,392 787,473 412,941 308,338 189,009 171,766
Administration fee..... 97,886 52,195 93,814 80,820 60,347 51,798 52,294
Custodian's fees and
expenses............. 80,000 139,000 197,000 74,000 114,000 34,000 60,000
Registration fees...... 38,000 20,000 30,000 29,000 33,000 20,000 20,000
Transfer agent's fees
and expenses......... 19,293 10,287 18,489 15,929 11,894 10,207 10,307
Amortization of
organization
expenses............. 13,275 13,275 13,275 13,212 13,275 13,005 13,212
Legal fees............. 11,000 11,000 11,000 11,000 11,000 11,000 11,000
Audit fee.............. 10,000 10,000 12,000 10,000 10,000 10,000 8,000
Reports to
shareholders......... 10,000 10,000 10,000 6,000 10,000 6,000 6,000
Trustees' fees......... 8,572 8,572 8,572 8,572 8,572 8,572 8,572
Miscellaneous.......... 4,233 3,699 5,346 3,739 3,603 3,606 3,889
------------ ----------- ------------- ----------- ----------- ----------- -----------
Total expenses....... 792,400 430,420 1,186,969 665,213 584,029 357,197 365,040
Less: expense subsidy
(Note 2)............. (77,913) (201,831) (91,229) (75,297) (143,625) (91,216) (136,071)
------------ ----------- ------------- ----------- ----------- ----------- -----------
Net expenses............. 714,487 228,589 1,095,740 589,916 440,404 265,981 228,969
------------ ----------- ------------- ----------- ----------- ----------- -----------
Net investment income.... 25,287 892,321 736,785 1,805,400 1,261,344 1,982,080 1,276,052
------------ ----------- ------------- ----------- ----------- ----------- -----------
Realized and Unrealized
Gain (Loss) on
Investment nd
Foreign Currency
Transactions
Net realized gain (loss)
on securities.......... (3,784,112) 101,967 2,429,888 119,065 170,465 (826,310) 1,550
Net realized gain (loss)
on futures
transactions........... -- 84,415 -- -- (7,150) (223) --
Net realized gain (loss)
on foreign currency
transactions........... 5,464 24 (194,207) -- 44 -- --
------------ ----------- ------------- ----------- ----------- ----------- -----------
(3,778,648) 186,406 2,235,681 119,065 163,359 (826,533) 1,550
------------ ----------- ------------- ----------- ----------- ----------- -----------
Net change in unrealized appreciation (depreciation) on:
Securities............. 3,531,929 471,775 5,701,535 (1,395,057) (1,878,445) (2,659,530) --
Financial futures
contracts............ -- (90,905) -- -- -- -- --
------------ ----------- ------------- ----------- ----------- ----------- -----------
3,531,929 380,870 5,701,535 (1,395,057) (1,878,445) (2,659,530) --
------------ ----------- ------------- ----------- ----------- ----------- -----------
Net gain (loss) on
investments and foreign
currencies............. (246,719) 567,276 7,937,216 (1,275,992) (1,715,086) (3,486,063) 1,550
------------ ----------- ------------- ----------- ----------- ----------- -----------
Net Increase (Decrease)
in Net Assets Resulting
from Operations.......... $ (221,432) $ 1,459,597 $ 8,674,001 $ 529,408 $ (453,742) $(1,503,983) $ 1,277,602
============ =========== ============= =========== =========== =========== ===========
D Net of foreign withholding taxes of $5,175, $6,488, $235,519, $2,680 and $5,531, respectively.
</TABLE>
See Notes to Financial Statements.
79
<PAGE>
THE PRUDENTIAL
STATEMENT OF CHANGES
INSTITUTIONAL
IN NET ASSETS
FUND
<TABLE>
<CAPTION>
GROWTH STOCK INTERNATIONAL
STOCK INDEX STOCK
FUND FUND FUND
----------------------------- ------------------------------- --------------
November 5, November 5,
Year 1992* 1992* Year
Ended Through Year Through Ended
September September Ended September September
30, 30, September 30, 30, 30,
1994 1993 1994 1993 1994
------------ ----------- ----------------- ----------- -----------
Increase (Decrease) in
Net Assets
<S> <C> <C> <C> <C> <C>
Operations
Net investment
income............... $ 25,287 $ 48,664 $ 892,321 $ 408,753 $ 736,785
Net realized gain
(loss) on investments
and foreign currency
transactions......... (3,778,648) 84,385 186,406 42,988 2,235,681
Net change in
unrealized
appreciation
(depreciation) on
investments and
foreign currencies... 3,531,929 2,995,747 380,870 1,425,712 5,701,535
------------ ----------- ----------- ----------- ------------
Net increase (decrease)
in net assets
resulting from
operations........... (221,432) 3,128,796 1,459,597 1,877,453 8,674,001
------------ ----------- ----------- ----------- ------------
Net equalization
credits............... 44,776 45,668 289,937 108,290 695,692
------------ ----------- ----------- ----------- ------------
Dividends and
distributions
Dividends to
shareholders from net
investment income.... (43,709) (22,514) (481,228) (71,436) (98,619)
------------ ----------- ----------- ----------- ------------
Distributions to
shareholders from net
realized gains....... (131,129) -- (106,939) -- (493,097)
------------ ----------- ----------- ----------- ------------
Fund share transactions
Net proceeds from
shares sold.......... 80,605,272 49,088,805 29,356,230 27,729,562 86,220,384
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions........ 174,838 22,514 588,167 71,436 591,716
Cost of shares
redeemed............. (21,470,653) (4,290,264) (8,128,767) (2,597,978) (24,473,332)
------------ ----------- ----------- ----------- ------------
Net increase in net
assets from Fund
share transactions... 59,309,457 44,821,055 21,815,630 25,203,020 62,338,768
------------ ----------- ----------- ----------- ------------
Net increase............ 58,957,963 47,973,005 22,976,997 27,117,327 71,116,745
Net Assets
Beginning of period.... 47,998,005 25,000 27,142,327 25,000 31,707,587
------------ ----------- ----------- ----------- ------------
End of period.......... $106,955,968 $47,998,005 $50,119,324 $27,142,327 $102,824,332
============ =========== =========== =========== ============
<FN>
* Commencement of investment operations.
</FN>
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL ACTIVE
STOCK BALANCED
FUND FUND
----------------- --------------------------------
November 5, January 4,
1992* Year 1993*
Through Ended Through
September September September
30, 30, 30,
1993 1994 1993
------------- ------------ ------------
Increase (Decrease) in
Net Assets
<S> <C> <C> <C>
Operations
Net investment
income............... $ 188,224 $ 1,805,400 $ 253,982
Net realized gain
(loss) on investments
and foreign currency
transactions......... 184,668 119,065 271,775
Net change in
unrealized
appreciation
(depreciation) on
investments and
foreign currencies... 2,286,460 (1,395,057) 700,006
----------- ----------- -----------
Net increase (decrease)
in net assets
resulting from
operations........... 2,659,352 529,408 1,225,763
----------- ----------- -----------
Net equalization
credits............... 185,770 296,744 491,372
----------- ----------- -----------
Dividends and
distributions
Dividends to
shareholders from net
investment income.... (14,864) (503,768) --
----------- ----------- -----------
Distributions to
shareholders from net
realized gains....... -- (395,817) --
----------- ----------- -----------
Fund share transactions
Net proceeds from
shares sold.......... 31,029,495 56,588,609 37,480,048
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions........ 14,864 899,585 --
Cost of shares
redeemed............. (2,192,030) (15,023,860) (412,654)
----------- ----------- -----------
Net increase in net
assets from Fund
share transactions... 28,852,329 42,464,334 37,067,394
----------- ----------- -----------
Net increase............ 31,682,587 42,390,901 38,784,529
Net Assets
Beginning of period.... 25,000 38,785,529 1,000
----------- ----------- -----------
End of period.......... $31,707,587 $81,176,430 $38,785,529
=========== =========== ===========
<FN>
* Commencement of investment operations.
</FN>
</TABLE>
See Notes to Financial Statements.
80
<PAGE>
THE PRUDENTIAL
STATEMENT OF CHANGES
INSTITUTIONAL
IN NET ASSETS
FUND
<TABLE>
<CAPTION>
MONEY
BALANCED INCOME MARKET
FUND FUND FUND
------------------------------- ------------------------------- -------------------------------
November 5, March 1, January 4,
Year 1992* Year 1993* Year 1993*
Ended Through Ended Through Ended Through
September 30, September 30, September 30, September 30, September 30, September 30,
1994 1993 1994 1993 1994 1993
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in
Net Assets
Operations
Net investment
income............... $ 1,261,344 $ 496,213 $ 1,982,080 $ 694,172 $ 1,276,052 $ 508,590
Net realized gain
(loss) on investments
and foreign currency
transactions......... 163,359 615,333 (826,533) 138,218 1,550 9,661
Net change in
unrealized
appreciation
(depreciation) on
investments and
foreign currencies... (1,878,445) 1,847,034 (2,659,530) 688,959 -- --
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease)
in net assets
resulting from
operations........... (453,742) 2,958,580 (1,503,983) 1,521,349 1,277,602 518,251
----------- ----------- ----------- ----------- ----------- -----------
Net equalization
credits................ 721,188 178,724 -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Dividends and
distributions
Dividends to
shareholders from net
investment income.... (604,065) (63,360) (1,982,080) (694,172) (1,277,602) (518,251)
----------- ----------- ----------- ----------- ----------- -----------
Distributions to
shareholders from net
realized gains....... (735,383) -- (137,236) -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Fund share transactions
Net proceeds from
shares sold......... 42,441,610 25,721,891 15,768,473 33,496,854 32,311,167 29,718,814
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions....... 1,339,448 63,360 2,119,316 694,172 1,277,602 518,251
Cost of shares
redeemed............ (6,059,058) (1,221,610) (7,878,160) (4,216) (17,493,001) (3,101)
----------- ----------- ----------- ----------- ----------- -----------
Net increase in net
assets from Fund
share transactions.. 37,722,000 24,563,641 10,009,629 34,186,810 16,095,768 30,233,964
----------- ----------- ----------- ----------- ----------- -----------
Net increase............ 36,649,998 27,637,585 6,386,330 35,013,987 16,095,768 30,233,964
Net Assets
Beginning of period... 27,662,585 25,000 35,014,987 1,000 30,234,964 1,000
----------- ----------- ----------- ----------- ----------- -----------
End of period......... $64,312,583 $27,662,585 $41,401,317 $35,014,987 $46,330,732 $30,234,964
=========== =========== =========== =========== =========== ===========
<FN>
- --------
* Commencement of investment operations.
</FN>
</TABLE>
See Notes to Financial Statements.
81
<PAGE>
THE PRUDENTIAL
FINANCIAL HIGHLIGHTS
INSTITUTIONAL
FUND
<TABLE>
<CAPTION>
GROWTH STOCK INTERNATIONAL
STOCK INDEX STOCK
FUND FUND FUND
------------------------------ ----------------------------------- ------------
Year November 5, November 5, Year
Ended 1992* Year 1992* Ended
September Through Ended Through September
30, September 30, September 30, September 30, 30,
1994 1993 1994 1993 1994
------------ ------------- ------------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of period.... $ 12.10 $ 10.00 $ 11.12 $ 10.00 $ 12.35
------------ ----------- ----------- ----------- ------------
Income from investment operations:
Net investment
incomeD................ -- .04 .26 .23 .13
Net realized and
unrealized gain (loss)
on investment and
foreign currency
transactions........... (.06) 2.08 .11 .94 2.54
------------ ----------- ----------- ----------- ------------
Total from investment
operations........... (.06) 2.12 .37 1.17 2.67
------------ ----------- ----------- ----------- ------------
Less distributions:
Dividends from net
investment income...... (.01) (.02) (.18) (.05) (.03)
Distributions from net
realized gains......... (.03) -- (.04) -- (.15)
------------ ----------- ----------- ----------- ------------
Total distributions..... (.04) (.02) (.22) (.05) (.18)
------------ ----------- ----------- ----------- ------------
Net asset value, end of
period................. $ 12.00 $ 12.10 $ 11.27 $ 11.12 $ 14.84
============ =========== =========== =========== ============
TOTAL RETURN#........... (0.50)% 21.22% 3.33% 11.73% 21.71%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000)........... $ 106,956 $ 47,998 $ 50,119 $ 27,142 $ 102,824
Average net assets
(000).................. $ 71,449 $ 17,592 $ 38,098 $ 18,807 $ 68,476
Ratios to average net
assets:D
Expenses............... 1.00% 1.00%DD .60% .60%DD 1.60%
Net investment
income............... .04% .31%DD 2.34% 2.41%DD 1.08%
Portfolio turnover
rate................... 65% 84% 2% 1% 21%
<CAPTION>
ACTIVE
BALANCED
FUND
-------------------------------
November 5, January 4,
1992* Year 1993*
Through Ended Through
September 30, September 30, September 30,
1993 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of period.... $ 10.00 $ 11.05 $ 10.00
----------- ----------- -----------
Income from investment operations:
Net investment
incomeD................ .16 .24 .21
Net realized and
unrealized gain (loss)
on investment and
foreign currency
transactions........... 2.21 (.12) .84
----------- ----------- -----------
Total from investment
operations........... 2.37 .12 1.05
----------- ----------- -----------
Less distributions:
Dividends from net
investment income...... (.02) (.14) --
Distributions from net
realized gains......... -- (.11) --
----------- ----------- -----------
Total distributions..... (.02) (.25) --
----------- ----------- -----------
Net asset value, end of
period................. $ 12.35 $ 10.92 $ 11.05
=========== =========== ===========
TOTAL RETURN#........... 23.74% 1.07% 10.50%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000)........... $ 31,708 $ 81,176 $ 38,786
Average net assets
(000).................. $ 14,491 $ 58,992 $ 12,815
Ratios to average net
assets:D
Expenses............... 1.60%DD 1.00% 1.00%DD
Net investment
income............... 1.44%DD 3.06% 2.68%DD
Portfolio turnover
rate................... 15% 40% 47%
<FN>
- ---------------
* Commencement of investment operations.
D Net of expense subsidy.
DD Annualized.
# Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total return for periods of
less than a full year are not annualized.
</FN>
</TABLE>
See Notes to Financial Statements.
82
<PAGE>
THE PRUDENTIAL
FINANCIAL HIGHLIGHTS
INSTITUTIONAL
FUND
<TABLE>
<CAPTION>
MONEY
BALANCED INCOME MARKET
FUND FUND FUND
------------------------------- ------------------------------- -------------------------------
November 5, March 1, January 4,
Year 1992* Year 1993* Year 1993*
Ended Through Ended Through Ended Through
September 30, September 30, September 30, September 30, September 30, September 30,
1994 1993 1994 1993 1994 1993
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period... $ 11.80 $ 10.00 $ 10.33 $ 10.00 $ 1.00 $ 1.00
----------- ----------- ----------- ----------- ----------- -----------
Income from
investment operations:
Net investment
incomeD............... .31 .31 .52 .27 .03 .02
Net realized and
unrealized gain (loss)
on investment and
foreign currency
transactions.......... (.52) 1.54 (.91) .33 -- --
----------- ----------- ----------- ----------- ----------- -----------
Total from investment
operations.......... (.21) 1.85 (.39) .60 .03 .02
----------- ----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends from net
investment income..... (.23) (.05) (.52) (.27) (.03) (.02)
Distributions from net
realized gains........ (.28) -- (.04) -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total distributions..... (.51) (.05) (.56) (.27) (.03) (.02)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of
period................ $ 11.08 $ 11.80 $ 9.38 $ 10.33 $ 1.00 $ 1.00
=========== =========== =========== =========== =========== ===========
TOTAL RETURN#........... (1.88)% 18.58% (3.91)% 6.11% 3.32% 2.08%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000).......... $ 64,313 $ 27,663 $ 41,401 $ 35,015 $ 46,331 $ 30,235
Average net assets
(000)................. $ 44,048 $ 17,401 $ 37,802 $ 25,626 $ 38,170 $ 25,296
Ratios to average net
assets: D
Expenses.............. 1.00% 1.00%DD .70% .70%DD .60% .60%DD
Net investment
income............. 2.86% 3.16%DD 5.24% 4.62%DD 3.34% 2.73%DD
Portfolio turnover
rate.................. 52% 74% 83% 93% -- --
<FN>
- ---------------
* Commencement of investment operations.
D Net of expense subsidy.
DD Annualized.
# Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total return for periods of
less than a full year are not annualized.
</FN>
</TABLE>
See Notes to Financial Statements.
83
<PAGE>
THE PRUDENTIAL
NOTES TO
INSTITUTIONAL
FINANCIAL STATEMENTS
FUND
The Prudential Institutional Fund (the "Company") is registered under the
Investment Company Act of 1940 as an open-end, diversified management investment
company. The Company was established as a Delaware business trust on May 11,
1992 and consists of seven separate funds (Fund or Funds): Growth Stock Fund,
Stock Index Fund, International Stock Fund, Active Balanced Fund, Balanced Fund,
Income Fund and Money Market Fund. The Company had no operations until July 7,
1992 when 10,000 shares of beneficial interest (2,500 shares each of Growth
Stock Fund, Stock Index Fund, International Stock Fund and Balanced Fund) were
sold for $100,000 to Prudential Institutional Fund Management, Inc. ("PIFM").
Investment operations commenced on: November 5, 1992 for the Growth Stock Fund,
Stock Index Fund, International Stock Fund and Balanced Fund; January 4, 1993
for the Active Balanced Fund and Money Market Fund; and March 1, 1993 for the
Income Fund.
The Funds' investment objectives are as follows: Growth Stock Fund--long-term
growth of capital through investment primarily in equity securities of
established companies with above-average growth prospects; Stock Index
Fund--investment results that correspond to the price and yield performance of
Standard & Poor's 500 Composite Stock Price Index; International Stock
Fund--long-term growth of capital through investment in equity securities of
foreign issues with income as a secondary objective; Active Balanced Fund--total
returns approaching equity returns, while accepting less risk than an all-equity
portfolio, through an actively-managed portfolio of equity securities, fixed
income securities and money market instruments; Balanced Fund--long-term total
return consistent with moderate portfolio risk; Income Fund--a high level of
income over the longer term while providing reasonable safety of principal; and
Money Market Fund--high current income, preservation of principal and
maintenance of liquidity, while maintaining a $1.00 net asset value per share.
The ability of issuers of debt securities, other than those issued or
guaranteed by the U.S. Government, held by the Funds to meet their obligations
may be affected by economic developments in a specific industry, region, or
country.
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund.
Securities Valuations: Securities, including options, warrants, futures
contracts and options thereon, for which the primary market is on a national
securities exchange, commodities exchange or board of trade and NASDAQ national
market equity securities are valued at the last sale price on such exchange or
board of trade on the date of valuation or, if there was no sale on such day, at
the average of readily available closing bid and asked prices on such day.
Securities, that are actively traded in the over-the-counter market,
including listed securities for which the primary market is believed to be
over-the-counter, shall be valued at the average of the most recently quoted bid
and asked prices provided by a principal market maker or dealer.
U.S. Government securities for which market quotations are available shall be
valued at a price provided by an independent broker/dealer or pricing service.
Securities for which reliable market quotations are not available or for
which the pricing agent or principal market maker does not provide a valuation
or provides a valuation that, in the judgment of one of the subadvisers, does
not represent fair value, shall be valued at fair value as determined under
procedures established by the Trustees.
Quotations of foreign securities in a foreign currency shall be converted to
U.S. dollar
84
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THE PRUDENTIAL
NOTES TO
INSTITUTIONAL
FINANCIAL STATEMENTS
FUND
equivalents at the current rate obtained from a recognized bank or dealer.
Forward currency exchange contracts shall be valued at the current cost of
covering or offsetting such contracts.
Securities held by the Money Market Fund are valued at amortized cost, which
approximates market value. The amortized cost method involves valuing a security
at its cost on the date of purchase and thereafter assuming a constant
amortization to maturity of the difference between the principal amount due at
maturity and cost. Short-term securities held by the other Funds which mature in
more than 60 days are valued at current market quotations. Short-term securities
held by the other Funds which mature in 60 days or less are valued at amortized
cost. In the event that a Subadviser determines that amortized cost does not
represent fair value for certain short-term securities with remaining maturities
of 60 days or less, such securities will be valued at market value.
In connection with transactions in repurchase agreements, it is the Company's
policy that its custodian or designated subcustodians, as the case may be under
triparty repurchase agreements, take possession of the underlying collateral
securities, the value of which exceeds the principal amount of the repurchase
transaction, including accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to ensure the adequacy of the collateral. If
the seller defaults, and the value of the collateral declines or, if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Company may be delayed or limited.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date and interest income is recorded on the accrual basis.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
a Fund is required to pledge to the broker an amount of cash and/or other assets
equal to a certain percentage of the contract amount. This is known as the
"initial margin". Subsequent payments, known as "variation margin", are made or
received by the Fund each day, depending on the daily fluctuations in the value
of the underlying security. Such variation margin is recorded for financial
statement purposes on a daily basis as unrealized gain or loss until the
contracts expire or are closed, at which time the gain or loss is reclassified
to realized gain or loss. The Funds invest in financial futures contracts solely
for the purpose of hedging their existing portfolio securities or securities the
Funds intend to purchase against fluctuations in value caused by changes in
prevailing market conditions or for other non-speculative purposes. Should
market conditions move unexpectedly, a Fund may not achieve the anticipated
benefits of the financial futures contracts and may realize a loss. The use of
futures transactions involves the risk of imperfect correlation in movements in
the price of futures contracts, interest rates and the underlying hedged assets.
Dollar Rolls: The Fund may enter into dollar rolls in which the Fund sells
securities for delivery in the current month and simultaneously contracts to
repurchase somewhat similar securities on a specified future date. During the
roll period, the Fund forgoes principal and interest paid on the securities. The
Fund is compensated by the interest earned on the cash proceeds of the initial
sale and by the lower repurchase price at the future date.
85
<PAGE>
THE PRUDENTIAL
NOTES TO
INSTITUTIONAL
FINANCIAL STATEMENTS
FUND
Foreign Currency Translation: The books and records of the Funds are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:
(i) market value of investment securities, other assets and liabilities--at
the closing rates of exchange.
(ii) purchases and sales of investment securities, income and expenses--at
the rate of exchange prevailing on the respective dates of such transactions.
Although the net assets of the Funds are presented at the foreign exchange
rates and market values at the close of the fiscal year, the Funds do not
isolate that portion of the results of operations arising as a result of changes
in the foreign exchange rates from the fluctuations arising from changes in the
market prices of securities held at the end of the fiscal year. Similarly, the
Funds do not isolate the effect of changes in foreign exchange rates from the
fluctuations arising from changes in the market prices of long-term portfolio
securities sold during the fiscal year. Accordingly, these realized foreign
currency gains (losses) are included in the reported net realized gains (losses)
on investment transactions.
Net realized gains (losses) on foreign currency transactions, if any,
represent net foreign exchange gains (losses) from holding of foreign
currencies, currency gains or losses realized between the trade and settlement
dates of securities transactions, and the difference between the amounts of
dividends and foreign taxes recorded on the Funds' books and the U.S. dollar
equivalent amounts actually received or paid. Net currency gains and losses from
valuing foreign currency denominated assets and liabilities at year end exchange
rates are reflected as a component of net unrealized appreciation/ depreciation
on investments and foreign currencies.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin as a result of,
among other factors, the level of governmental supervision and regulation of
foreign securities markets and the possibility of political or economic
instability.
Equalization: The Funds (except for the Income and Money Market Funds) follow
the accounting practice known as equalization by which a portion of the proceeds
from sales and costs of reacquisitions of Fund shares, equivalent on a per share
basis to the amount of distributable net investment income on the date of the
transaction, is credited or charged to undistributed net investment income. As a
result, undistributed net investment income per share is unaffected by sales or
reacquisitions of the Funds' shares.
Dividends and Distributions: Dividends and distributions of each Fund are
declared in cash and automatically reinvested in additional shares of the Fund.
The Income Fund and Money Market Fund will declare dividends of their net
investment income and, for the Money Market Fund, net capital gain (loss), daily
and distribute such dividends monthly. Each other Fund will declare and
distribute a dividend of its net investment income, if any, at least annually.
Except for the Money Market Fund, each Fund will declare and distribute its net
capital gains, if any, at least annually. Distributions of income dividends and
capital gains distributions of each Fund are made on the payment date and
reinvested at the per share net asset value as of the record date or such other
date as the Board may determine. On the "ex-dividend" date, the net asset value
per share excludes the dividend (i.e., is reduced by the amount of the
distribution).
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
86
<PAGE>
THE PRUDENTIAL
NOTES TO
INSTITUTIONAL
FINANCIAL STATEMENTS
FUND
Taxes: It is the Funds' policy to continue to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable net income to its shareholders. Therefore, no
federal income tax provision is required.
Withholding taxes on foreign dividends have been provided for in accordance
with the Funds' understanding of the applicable country's tax rules and rates.
Reclassification of Capital Accounts: Effective October 1, 1993, the Company
began accounting and reporting for distributions to shareholders in accordance
with Statement of Position 93-2: Determination, Disclosure, and Financial
Statement Presentation of Income, Capital Gain, and Return of Capital
Distributions by Investment Companies. As a result of this statement, the
Company changed the classification of distributions to shareholders to disclose
better the differences between financial statement amounts and distributions
determined in accordance with income tax regulations. The effect caused by
adopting this statement was to decrease undistributed net investment income by
$86,916 and increase accumulated net realized gain on investments by $86,916 for
the International Stock Fund compared to amounts previously reported through
September 30, 1993.
For the year ended September 30, 1994, the application of this statement
effected undistributed net investment income ("UNI") and accumulated net
realized gain (loss) on investments ("G/L") by the following amounts:
<TABLE>
<CAPTION>
UNI G/L
--------- --------
<S> <C> <C>
Growth Stock
Fund $ 5,464 $ (5,464)
Stock Index
Fund 24 (24)
International
Stock Fund (194,207) 194,207
Balanced Fund 44 (44)
</TABLE>
Net investment income, net realized gains and net assets were not affected by
this change.
Deferred Organizational Expenses: Costs incurred of approximately $450,000,
in connection with the organization and initial registration of the Company have
been deferred and will be amortized ratably over the period of benefit not to
exceed 60 months from the date each of the Funds' commence of investment
operations.
Note 2. Agreements
The Company has entered into a management agreement with PIFM. Pursuant to
this agreement, PIFM has responsibility for all investment advisory services and
supervises the subadviser's performance of such services. PIFM is an indirect,
wholly-owned subsidiary of The Prudential Insurance Company of America
(Prudential).
PIFM has entered into subadvisory agreements with The Prudential Investment
Corporation ("PIC"), Jennison Associates Capital Corp. ("Jennison") and Mercator
Asset Management, Inc. ("Mercator"), each a wholly-owned subsidiary of
Prudential. Each subadviser will furnish investment advisory services in
connection with the management of the various Funds. Jennison serves as
subadviser to the Growth Stock Fund and the Active Balanced Fund. PIC serves as
subadviser to the Balanced Fund, the Stock Index Fund, the Income Fund and the
Money Market Fund. Mercator serves as subadviser to the International Stock
Fund. PIFM will pay for the costs and expenses attributable to the subadvisory
agreements and the salaries and expenses of all personnel of the Company except
for fees and expenses of unaffiliated Trustees. The Funds will bear all other
costs and expenses.
Each Fund will pay PIFM a fee for its services provided to the Fund that is
computed daily and payable monthly at the annual rate specified below of the
value of each Funds' average daily net assets:
87
<PAGE>
THE PRUDENTIAL
NOTES TO
INSTITUTIONAL
FINANCIAL STATEMENTS
FUND
<TABLE>
<CAPTION>
Fund Management Fee
- -------------------------- ---------------
<S> <C>
Growth Stock Fund .70%
Stock Index Fund .40
International Stock Fund 1.15
Active Balanced Fund .70
Balanced Fund .70
Income Fund .50
Money Market Fund .45
</TABLE>
PIFM has voluntarily agreed to subsidize a portion of the operating expenses
of the Funds until September 30, 1996. Such expenses may be recouped by PIFM
through December 31, 1996 so long as the total expense ratios do not exceed
certain predetermined levels set forth in the Company's prospectus. For the year
ended September 30, 1994, PIFM subsidized the following amounts:
<TABLE>
<CAPTION>
Percentage of
Average Net Amount per
Fund Assets Share
- ------------------------- ------------- ------------------
<S> <C> <C>
Growth Stock Fund .11% $ .009
Stock Index Fund .53 .059
International Stock Fund .13 .016
Active Balanced Fund .13 .010
Balanced Fund .33 .035
Income Fund .24 .024
Money Market Fund .36 .003
</TABLE>
The Company has entered into an administration agreement with Prudential
Mutual Fund Management, Inc. ("PMF"), an indirect wholly-owned subsidiary of
Prudential. The administration fee paid PMF will be computed daily and payable
monthly, at an annual rate of .17% of the Company's daily net assets up to $250
million and .15% of the Company's average daily net assets in excess of $250
million. PMF will furnish to the Company such services as the Company may
require in connection with administration of the Company's business affairs. PMF
will also provide certain transfer agent services through its wholly-owned
subsidiary, Prudential Mutual Fund Services, Inc. ("PMFS"). For such services,
PMFS will be paid .03% of the Company's daily net assets up to $250 million and
.02% of the Company's average daily net assets in excess of $250 million from
the administration fee paid to PMF.
Note 3. Other Transactions with Affiliates
For the year ended September 30, 1994, Prudential Securities Incorporated, an
affiliate of PIFM, earned approximately $3,200 in brokerage commissions from
portfolio transactions executed on behalf of the Balanced Fund.
Note 4. Portfolio Securities
Purchases and sales of portfolio securities, excluding short-term
investments, for the year ended September 30, 1994 were as follows:
<TABLE>
<CAPTION>
Fund Purchases Sales
- ---------------------------- ------------ -----------
<S> <C> <C>
Growth Stock Fund $113,352,851 $43,942,284
Stock Index Fund 17,835,552 543,031
International Stock Fund 68,386,927 13,000,496
Active Balanced Fund 62,415,952 17,903,812
Balanced Fund 52,003,003 19,820,872
Income Fund 38,071,891 29,202,622
</TABLE>
The federal income tax basis and unrealized appreciation/depreciation of the
Fund's investments as of September 30, 1994 were as follows:
<TABLE>
<CAPTION>
Net Unrealized
Appreciation/ Gross Unrealized
Fund Basis Depreciation Appreciation Depreciation
- -------------------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
Growth Stock Fund $95,745,954 $ 6,494,139 $10,441,290 $3,947,151
Stock Index Fund 46,656,403 1,893,469 3,523,128 1,629,659
International Stock 93,872,223 7,984,899 11,044,612 3,059,713
Active Balanced 82,110,634 (697,191) 2,508,115 3,205,306
Balanced Fund 63,779,456 (80,417) 2,088,926 2,169,343
Income Fund 45,939,779 (1,970,571) -- 1,970,571
</TABLE>
On September 30, 1994, the Stock Index Fund purchased twenty three financial
futures contracts on the S&P 500 Index expiring December, 1994. The cost of such
contracts was $5,416,750. The value of
88
<PAGE>
THE PRUDENTIAL
NOTES TO
INSTITUTIONAL
FINANCIAL STATEMENTS
FUND
such contracts on September 30, 1994 was $5,327,375, thereby resulting in an
unrealized loss of $89,375.
The following Funds will elect to treat net losses incurred in the eleven
month period ended September 30, 1994 as having been incurred in the following
fiscal year:
<TABLE>
<CAPTION>
Capital Currency
---------- --------
<S> <C> <C>
Growth Stock Fund $3,796,000 --
International Fund -- $186,000
Income Fund 828,000 --
</TABLE>
Note 5. Joint Repurchase Agreement Account
The Company, along with other affiliated registered investment companies,
transfers uninvested cash balances into a single joint account, the daily
aggregate balance of which is invested in one or more repurchase agreements
collateralized by U.S. Treasury or federal agency obligations. At September 30,
1994, the Company had a 7.33% undivided interest, in the aggregate, in the
repurchase agreements in the joint account which represented $52,111,000 in
principal amount, in the aggregate, as follows:
<TABLE>
<CAPTION>
Percentage Principal
Company Interest Amount
- ---------------------------- ---------- -----------
<S> <C> <C>
Growth Stock Fund .62% $ 4,428,000
Stock Index Fund .69 4,914,000
International Stock Fund 1.26 8,958,000
Active Balanced Fund 2.64 18,768,000
Balanced Fund 1.23 8,763,000
Income Fund .89 6,280,000
</TABLE>
As of such date, each repurchase agreement in the joint account and the
collateral therefor was as follows:
Goldman, Sachs & Co., 4.85%, in the principal amount of $237,000,000,
repurchase price $237,095,787, due 10/3/94. The value of the collateral
including accrued interest is $242,478,687.
Nomura Securities International, 4.75%, in the principal amount of
$237,000,000, repurchase price $237,093,812, due 10/3/94. The value of the
collateral including accrued interest is $241,948,993.
Smith Barney, Inc., 4.88%, in the principal amount of $237,000,000,
repurchase price $237,096,380, due 10/3/94. The value of the collateral
including accrued interest is $241,950,829.
Note 6. Capital
Each Fund has authorized an unlimited number of shares of beneficial interest
at $.001 par value per share.
Transactions in shares of beneficial interest during the year ended September
30, 1994 and the period ended September 30, 1993 were as follows:
Year ended September 30, 1994:
<TABLE>
<CAPTION>
Shares
Issued in
Reinvestment
of Dividends Increase
Shares and Shares in Shares
Fund Sold Distributions Redeemed Outstanding
- ----------------------- ---------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Growth Stock Fund 6,739,890 14,450 (1,804,735) 4,949,605
Stock Index Fund 2,697,792 52,328 (744,579) 2,005,541
International Stock
Fund 6,022,403 42,326 (1,702,734) 4,361,995
Active Balanced Fund 5,244,905 81,781 (1,404,380) 3,922,306
Balanced Fund 3,900,150 118,117 (556,779) 3,461,488
Income Fund 1,613,971 216,368 (809,032) 1,021,307
Money Market Fund 32,311,167 1,277,602 (17,493,001) 16,095,768
</TABLE>
89
<PAGE>
THE PRUDENTIAL
NOTES TO
INSTITUTIONAL
FINANCIAL STATEMENTS
FUND
Period ended September 30, 1993:
<TABLE>
<CAPTION>
Shares
Issued in Increase
Shares Reinvestment Shares in Shares
Fund Sold of Dividends Redeemed Outstanding
- ----------------------- ---------- ------------- ---------- -----------
<S> <C> <C> <C> <C>
Growth Stock Fund 4,341,461 2,064 (379,496) 3,964,029
Stock Index Fund 2,674,154 6,823 (242,360) 2,438,617
International Stock
Fund 2,749,239 1,453 (186,042) 2,564,650
Active Balanced Fund 3,550,356 -- (39,604) 3,510,752
Balanced Fund 2,447,014 6,175 (111,157) 2,342,032
Income Fund 3,322,489 68,418 (407) 3,390,500
Money Market Fund 29,718,814 518,251 (3,101) 30,233,964
</TABLE>
Of the shares outstanding at September 30, 1994, PIFM and affiliates owned
the following shares:
<TABLE>
<CAPTION>
Fund Shares
- -------------------------- ----------
<S> <C>
Growth Stock Fund 3,482,769
Stock Index Fund 2,759,447
International Stock Fund 4,586,508
Active Balanced Fund 2,294,383
Balanced Fund 2,984,528
Income Fund 2,718,382
Money Market Fund 26,370,451
</TABLE>
90
<PAGE>
THE PRUDENTIAL
INDEPENDENT
INSTITUTIONAL
AUDITORS' REPORT
FUND
The Shareholders and Trustees of
The Prudential Institutional Fund:
We have audited the accompanying statements of assets and liabilities of
The Prudential Institutional Fund (consisting of the Growth Stock Fund, Stock
Index Fund, International Stock Fund, Active Balanced Fund, Balanced Fund,
Income Fund and Money Market Fund), including the portfolios of investments, as
of September 30, 1994, the related statements of operations and of changes in
net assets, and the financial highlights for the periods presented. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
September 30, 1994, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of each of the
respective portfolios constituting The Prudential Institutional Fund as of
September 30, 1994, the results of their operations, the changes in their net
assets, and the financial highlights for the periods presented in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
November 10, 1994
91
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements:
1. Financial Statements included in the Prospectus
constituting Part A of this Registration Statement:
Financial Highlights.
2. Financial Statements included in the Statement of
Additional Information constituting Part B of this
Registration Statement:
Portfolio of Investments at September 30, 1994.
Statement of Assets and Liabilities at September 30,
1994.
Statement of Operations for the year ended September
30, 1994.
Statements of Changes in Net Assets for the year
ended September 30, 1994 and for the period from
commencement of Fund operations* through September
30, 1993.
Financial Highlights.
Notes to Financial Statements.
Independent Auditors' Report.
C-1
<PAGE>
(b) Exhibits:
1. (a) Certificate of Trust of the Registrant.
Incorporated by reference as Exhibit 1(a) to
Pre-Effective Amendment No. 2 to the
Registration Statement on Form N-1A filed on
October 30, 1992 (File No. 33-48066).
(b) First Amendment to Certificate of Trust of the
Registrant. Incorporated by reference as
Exhibit 1(b) to Pre-Effective Amendment No. 2
to the Registration Statement on Form N-1A
filed on October 30, 1992 (File No. 33-48066).
(c) Declaration of Trust of the Registrant.
Incorporated by reference as Exhibit 1(c) to
Pre-Effective Amendment No. 2 to the
Registration Statement on Form N-1A filed on
October 30, 1992 (File No. 33-48066).
(d) First Amendment to Declaration of Trust of the
Registrant. Incorporated by reference as
Exhibit 1(d) to Pre-Effective Amendment No. 2
to the Registration Statement on Form N-1A
filed on October 30, 1992 (File No. 33-48066).
2. By-Laws of the Registrant as revised and restated
October 5, 1992. Incorporated by reference as
Exhibit 2 to Pre-Effective Amendment No. 2 to the
Registration Statement on Form N-1A filed on
October 30, 1992 (File No. 33-48066).
3. Not Applicable.
4. Instruments defining rights of shareholders.
5. (a) Management Agreement between the Registrant
and Prudential Institutional Fund Management,
Inc. Incorporated by reference as Exhibit
5(a) to Post-Effective Amendment No. 2 to the
Registration Statement on Form N1-A filed on
May 4, 1993 (File No. 33-48066).
(b) (i) Subadvisory Agreement between Prudential
Institutional Fund Management, Inc. and The
Prudential Investment Corporation.
Incorporated by reference as Exhibit 5(b)(i)
to Post-Effective Amendment No. 2 to the
Registration Statement on Form N1-A filed on
May 4, 1993 (File No. 33-48066).
C-2
<PAGE>
(ii) Cash Management Subadvisory Agreement
between Prudential Institutional Fund
Management, Inc. and The Prudential Investment
Corporation. Incorporated by reference as
Exhibit 5(b)(ii) to Post-Effective Amendment
No. 2 to the Registration Statement on Form
N1-A filed on May 4, 1993 (File No. 33-48066).
(c) Subadvisory Agreement between Prudential
Institutional Fund Management, Inc. and
Jennison Associates Capital Corp.
Incorporated by reference as Exhibit 5(c) to
Post-Effective Amendment No. 2 to the
Registration Statement on Form N-1A filed on
May 4, 1993 (File No. 33-48066).
(d) Subadvisory Agreement between Prudential
Institutional Fund Management, Inc. and
Mercator Asset Management, Inc. Incorporated
by reference as Exhibit 5(d) to Post-Effective
Amendment No. 2 to the Registration Statement
on Form N-1A filed on May 4, 1993 (File No.
33-48066).
6. Distribution Agreement between the Registrant and
Prudential Retirement Services, Inc. Incorporated
by reference as Exhibit 6 to Post-Effective
Amendment No. 2 to the Registration Statement on
Form N-1A filed on May 4, 1993 (File No. 33-48066).
7. Not Applicable.
8. Custodian Agreement between the Registrant and
State Street Bank and Trust Company. Incorporated
by reference as Exhibit 8 to Post-Effective
Amendment No. 2 to the Registration Statement on
Form N-1A filed on May 4, 1993 (File No. 33-48066).
9.(a) Amended Administration, Transfer Agency and
Service Agreement between the Registrant and
Prudential Mutual Fund Management, Inc.
Incorporated by reference as Exhibit 9(a) to
Post-Effective Amendment No. 3 to the
Registration Statement on Form N-1A filed via
Edgar on January 19, 1994 (File No. 33-48066).
(b) Transfer Agency and Service Agreement between
Prudential Mutual Fund Management, Inc. and
Prudential Mutual Fund Services, Inc.
Incorporated by reference as Exhibit 9(b) to
Post-Effective Amendment No. 2 to the
Registration Statement on Form N-1A filed on
May 4, 1993 (File No. 33-48066).
C-3
<PAGE>
10.(a) Opinion of Arnold & Porter. Incorporated by
reference as Exhibit 10(a) to Pre-Effective
Amendment No. 2 to the Registration Statement
on Form N-1A filed on October 30, 1992 (File
No. 33-48066).
(b) Opinion of Morris, Nichols, Arsht & Tunnell.
Incorporated by reference as Exhibit 10(b) to
Pre-Effective Amendment No. 2 to the
Registration Statement on Form N-1A filed on
October 30, 1992 (File No. 33-48066).
11. Consent of Independent Accountants.*
12. Not Applicable.
13. Subscription Agreement between the Registrant and
Prudential Institutional Fund Management, Inc.
Incorporated by reference as Exhibit 13 to Pre-
Effective Amendment No. 2 to the Registration
Statement on Form N-1A filed on October 30, 1992
(File No. 33-48066).
14. Not Applicable.
15. Not Applicable.
16. Schedule of Computation of
Performance Quotations*.
27. Financial Data Schedule*
- ----------------
* Filed herewith
Item 25. Persons Controlled by or under Common Control with
Registrant.
None.
Item 26. Number of Holders of Securities.
As of January 13, 1994 there were approximately [44] recordholders of
shares of beneficial interest, $.001 par value per share, of the Registrant.
Certain of these recordholders may be sponsors of qualified retirement programs.
The aggregate number of participants in programs sponsored by such recordholders
which own shares of the Fund is approximately 45,000.
Item 27. Indemnification.
As permitted by Section 17(h) and (i) of the Investment Company Act of
1940 (the "1940 Act") and pursuant to Del. Code Ann. title 12 ss. 3817, a
Delaware business trust may provide in its governing instrument for the
indemnification of its officers and trustees from and against any and all claims
and demands
C-4
<PAGE>
whatsoever. Article VII, Section 2 of the Agreement and Declaration of Trust
states that (i) the Registrant shall indemnify any present trustee or officer to
the fullest extent permitted by law against liability, and all expenses
reasonably incurred by him or her in connection with any claim, action, suit or
proceeding in which he or she is involved by virtue of his or her service as a
trustee, officer or both, and against any amount incurred in settlement thereof
and (ii) all persons extending credit to, contracting with or having any claim
against the Registrant shall look only to the assets of the appropriate Series
(or if no Series has yet been established, only to the assets of the
Registrant). Indemnification will not be provided to a person adjudged by a
court or other adjudicatory body to be liable to the Registrant or its
shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his or her duties (collectively "disabling conduct"). In
the event of a settlement, no indemnification may be provided unless there has
been a determination, as specified in the Declaration of Trust, that the officer
or trustee did not engage in disabling conduct. As permitted by Section 17(i) of
the 1940 Act, pursuant to Section 8 of the Distribution Agreement (Exhibit 6) to
the Registration Statement), the Distributor of the Registrant may be
indemnified against liabilities which it may incur, except liabilities arising
from bad faith, gross negligence, willful misfeasance or reckless disregard of
duties.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (Securities Act) may be permitted to trustees, 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 trustee, 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
trustee, officer or controlling person in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1940 Act and will be governed by the final
adjudication of such issue.
The Registrant intends to purchase an insurance policy insuring its
officers and trustees against liabilities, and certain costs of defending claims
against such officers and trustees, to the extent such officers and trustees are
not found to have committed conduct constituting willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of their
C-5
<PAGE>
duties. The insurance policy also insures the Registrant against the cost of
indemnification payments to officers and trustees under certain circumstances.
Section 9 of the Management Agreement (Exhibit 5(a) to the Registration
Statement) and Section 4 of the Subadvisory Agreements (Exhibits 5(b-d) to the
Registration Statement) limit the liability of Prudential Institutional Fund
Management, Inc., The Prudential Investment Corporation ("PIC"), Jennison
Associates Capital Corp. ("Jennison") and Mercator Asset Management, Inc.
("Mercator"), 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, Declaration of Trust and the Distribution Agreement
in a manner consistent with Release No. 11330 of the Securities and Exchange
Commission under the 1940 Act so long as the interpretation of Section 17(h) and
17(i) of such Act remain in effect and are consistently applied.
Item 28. Business and other Connections of Investment Adviser
(a) Prudential Institutional Fund Management, Inc.
See Management of the Company in the Prospectus constituting Part A of
this Registration Statement and Management of the Company in the Statement of
Additional Information constituting Part B of this Registration Statement.
The business and other connections of Prudential Institutional Fund
Management, Inc.'s directors and principal executive officers are set forth
below. Except as otherwise indicated, the address of each person is 30 Scranton
Office Park, Moosic, PA 18507.
Principal
Name and Address Position with the Manager Occupation
- ------------------ ------------------------- ---------------
Thomas A. Early Vice President and Vice President and
Secretary General Counsel,
Prudential Defined
Contribution
Services
Mark R. Fetting President and Director President,
Prudential Defined
Contribution
Services
C-6
<PAGE>
Principal
Name and Address Position with the Manager Occupation
- ----------------- ------------------------- ----------
Nancy L. Lindgren Vice President and Vice President and
Comptroller Comptroller,
Prudential Defined
Contribution
Services
Martin Pfinsgraff Treasurer Vice President
751 Broad Street and Treasurer,
Newark, NJ 07102 The Prudential
William E. Schmid Vice President and Senior Vice
Director President,
Prudential Defined
Contribution
Services
Walter E. Watkins, Jr. Vice President and Director of Mutual
Chief Compliance Fund
Officer Administration,
Prudential Defined
Contribution
Services
(b) Prudential Investment Corporation
See Management of the Company in the Prospectus constituting Part A of
this Registration Statement and Management of the Company in the Statement of
Additional Information constituting Part B of this Registration Statement.
The business and other connections of PIC's directors and principal
executive officers are as set forth below. Except as otherwise indicated, the
address of each person is 751 Broad Street, Newark, NJ 07102.
Principal
Name and Address Position with PIC Occupation
- ---------------- ----------------- ----------
Martin A. Berkowitz Senior Vice President Senior Vice
and Chief Financial President and
and Chief Compliance Chief Financial
Officer and Chief
Compliance
Officer, PIC;
Vice President
Prudential
C-7
<PAGE>
Principal
Name and Address Position with PIC Occupation
- ---------------- ----------------- ----------
William M. Bethke Senior Vice President Senior Vice
President,
Prudential;
Senior Vice
President, PIC
John D. Brookmeyer, Jr. Senior Vice President Senior Vice
Two Gateway Center President,
Newark, NJ 07102 Prudential;
Senior Vice
President, PIC
Mary L. Cavanaugh Secretary Vice President
and Investment
Counsel, The
Prudential
Eugene B. Heimberg President, Director and President,
Chief Investment Officer Director, and
Chief Investment
Officer, PIC;
Senior Vice
President, PIC
Garnett L. Keith, Jr. Director Vice Chairman,
The Prudential
William P. Link Senior Vice President Executive Vice
56 Livingston Avenue President,
Roseland, NJ 07068 Prudential;
Senior Vice
President, PIC
Martin Pfinsgraff Vice President and Vice President
Treasurer and Treasurer,
The Prudential
Claude J. Zinngrabe, Jr. Executive Vice President Vice President,
Prudential;
Executive Vice
President, PIC
(c) Jennison Associates Capital Corp.
See Management of the Company in the Prospectus constituting Part A of
this Registration Statement and Management of the Company in the Statement of
Additional Information constituting Part B of this Registration Statement.
C-8
<PAGE>
Information as to Jennison's directors and principal executive officers
is included in its Form ADV filed with the Securities and Exchange Commission
(File No. 801-12484) as most recently amended, the text of which is
incorporated herein by reference.
(d) Mercator Asset Management, Inc.
See Management of the Company in the Prospectus constituting Part A of
this Registration Statement and Management of the Company in the Statement of
Additional Information constituting Part B of this Registration Statement.
Information as to Mercator's directors and executive officers
is included in its Form ADV filed with the Securities and Exchange
Commission (File No. 801-22906 ) as most recently amended, the text
of which is incorporated herein by reference.
Item 29. Principal Underwriters
(a) Prudential Retirement Services, Inc. ("PRSI")
The following is a list of each investment company (other than the
Registrant) for which PRSI acts as principal underwriter, depositor or
investment advisor:
The Prudential Variable Contract Account - 2
The Prudential Variable Contract Account - 10
The Prudential Variable Contract Account - 11
The Prudential Variable Contract Account - 24
(b) Information concerning the directors and officers of
Prudential Retirement Services, Inc. is set forth below. Except as
otherwise indicated, the address of each person is 30 Scranton
Office Park, Moosic, Pennsylvania 18507.
Positions and
Offices with
Name Underwriter
------ -------------
Thomas A. Early Vice President and Secretary
Mark R. Fetting Director, President and Chief
Executive Officer
Nancy L. Lindgren Vice President and Comptroller
Robert E. Lee Vice President
Michael G. Williamson Assistant Comptroller
Carl L. McGuire Assistant Secretary
C-9
<PAGE>
Positions and
Offices with
Name Underwriter
------ -------------
Martin Pfinsgraff Treasurer
751 Broad Street
Newark, NJ 07102
Walter E. Watkins, Jr. Vice President
William E. Schmid Director and Vice President
Item 30. 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, One Heritage Drive, North
Quincy, Massachusetts, The Prudential Investment Corporation, Prudential Plaza,
751 Broad Street, Newark, New Jersey; the Registrant, 751 Broad Street, Newark,
New Jersey; Prudential Mutual Fund Management, Inc., One Seaport Plaza, New
York, New York; and Prudential Mutual Fund Services, Inc., Raritan Plaza One,
Edison, New Jersey. Documents required by Rules 31a-1(b)(5), (6), (7), (9), (10)
and (11) and 31a-1(f) will be kept at 751 Broad Street, Newark, New Jersey
07102, (for the Balanced Fund, the Income Fund and the Money Market Fund; 466
Lexington Avenue, New York, New York 10017, for the Growth Stock Fund and Active
Balanced Fund and 2400 East Commercial Boulevard, Fort Lauderdale, Florida,
33308 for the International Stock Fund, documents required by Rules 31a-1(b)(4)
and (11) and 31a-1(d) at One Seaport Plaza 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, Inc.
Item 31. Management Services
Other than as set forth under the caption Management of the Company in
the Prospectus and in the Statement of Additional Information, constituting
Parts A and B, respectively, of this Registration Statement, Registrant is not a
party to any management-related service contract.
Item 32. Undertakings
The Registrant undertakes to furnish to each person to whom a
prospectus is delivered with, a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
C-10
<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 the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 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 the State of
New Jersey, on the 25th day of January, 1995.
THE PRUDENTIAL INSTITUTIONAL FUND
\s\ William P. Link
--------------------------
William P. Link
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.
Signature Title Date
--------- ----- ----
\s\ William P. Link Chairman January 25, 1995
- --------------------------
William P. Link
\s\ Mark R. Fetting President January 25, 1995
- --------------------------
Mark R. Fetting
\s\ David A. Finley Trustee January 25, 1995
- --------------------------
David A. Finley
\s\ William E. Fruhan, Jr. Trustee January 25, 1995
- --------------------------
Prof. William E. Fruhan, Jr.
\s\ August G. Olsen Trustee January 25, 1995
- --------------------------
August G. Olsen
\s\ Herbert G. Stolzer Trustee January 25, 1995
- --------------------------
Herbert G. Stolzer
\s\ Susan C. Cote Treasurer January 25, 1995
- --------------------------
Susan C. Cote
C-11
<PAGE>
INDEX TO EXHIBITS
Sequentially
Numbered
Exhibit No. Description Page
- ------------ ------------ ------
1. (a) Certificate of Trust of Registrant.
Incorporated by reference as Exhibit
1(a) to Pre-Effective Amendment No. 2
to the Registration Statement on form
N-1A filed on October 30, 1992 (File
No. 33-48066).
(b) First Amendment to Certificate of
Trust of the Registrant. Incorporated
by reference as Exhibit 1(b) to Pre-
Effective Amendment No. 2 to the
Registration Statement on form N-1A
filed on October 30, 1992 (File No.
33-48066).
(c) Declaration of Trust of the Registrant.
Incorporated by reference as Exhibit 1(c)
to Pre-Effective Amendment No. 2 to the
Registration Statement on form N-1A
filed on October 30, 1992 (File No.
33-48066).
(d) First Amendment to Declaration of Trust
of the Registrant. Incorporated by
reference as Exhibit 1(d) to Pre-
Effective Amendment No. 2 to the
Registration Statement on form N-1A
filed on October 30, 1992 (File No.
33-48066).
2. By-Laws of the Registrant as revised and
restated as of October 5, 1992. Incorporated
by reference as Exhibit 2 to Pre-Effective
Amendment No. 2 to the Registration Statement
on form N-1A filed on October 30, 1992 (File
No. 33-48066).
3. Not Applicable.
4. Instruments defining rights of shareholders.
5. (a) Management Agreement between the
Registrant and Prudential Institutional
Fund Management, Inc. Incorporated by
reference as Exhibit 5(a) to Post-
Effective Amendment No. 2 to the
C-12
<PAGE>
Registration Statement on Form N-1A filed
May 4, 1993 (File No. 33-48066).
(b) (i) Subadvisory Agreement between
Prudential Institutional Fund Management,
Inc. and The Prudential Investment
Corporation. Incorporated by reference
as Exhibit 5(b)(i) to Post-Effective
Amendment No. 2 to the Registration
Statement on Form N-1A filed on May 4, 1993
(File No. 33-48066).
(ii) Cash Management Subadvisory
Agreement between Prudential Institutional
Fund Management, Inc. and The Prudential
Investment Corporation. Incorporated by
reference as Exhibit 5(b)(ii) to Post-
Effective Amendment No. 2 to the
Registration Statement on Form N-1A
filed on May 4, 1993 (File No.
33-48066).
(c) Subadvisory Agreement between Prudential
Institutional Fund Management, Inc.
and Jennison Associates Capital Corp.
Incorporated by reference as Exhibit
5(c) to Post-Effective Amendment No.
2 to the Registration Statement on
Form N-1A filed on May 4, 1993 (File
No. 33-48066).
(d) Subadvisory Agreement between Prudential
Institutional Fund Management, Inc.
and Mercator Asset Management, Inc.
Incorporated by reference as Exhibit
5(d) to Post-Effective Amendment No.
2 to the Registration Statement
on Form N-1A filed on May 4, 1993
(File No. 33-48066).
6. Form of Distribution Agreement between
the Registrant and Prudential Retirement
Services, Inc. Incorporated by reference
as Exhibit 6 to Post-Effective Amendment
No. 2 to the Registration Statement on Form
N-1A filed on May 4, 1993 (File No. 33-48066).
7. Not Applicable.
C-13
<PAGE>
8. Custodian Agreement between the Registrant
and State Street Bank and Trust Company.
Incorporate by reference as Exhibit 8 to
Post-Effective Amendment No. 2 to the
Registration Statement on Form N-1A filed
on May 4, 1993 (File No. 33-48066).
9. (a) Amended Administration, Transfer
Agency and Service Agreement between
the Registrant and Prudential Mutual
Fund Management, Inc. Incorporated by
reference as Exhibit 9(a) to Post-
Effective Amendment No. 3 to the
Registration Statement on Form N-1A
filed via Edgar on January 19, 1994
(File No. 33-48066).
(b) Transfer Agency and Service Agreement
between Prudential Mutual Fund
Management, Inc. and Prudential Mutual
Fund Services, Inc. Incorporated by
reference as Exhibit 9(b) to Post-
Effective Amendment No. 2 to the
Registration Statement on Form N-1A
filed on May 4, 1993 (File No.
33-48066).
10. (a) Opinion of Arnold & Porter. Incorporated
by reference as Exhibit 10(a) to Pre-Effective
Amendment No. 2 to the Registration
Statement on Form N-1A filed on October 30,
1992 (File No. 33-48066).
(b) Opinion of Morris, Nichols, Arsht &
Tunnell. Incorporated by reference as
Exhibit 10(b) to Pre-Effective Amendment
No. 2 to the Registration Statement on
on Form N-1A filed on October 30, 1992
(File No. 33-48066).
11. Consent of Independent Accountants.*
12. Not Applicable.
13. Subscription Agreement between the Registrant
and Prudential Institutional Fund Management,
Inc. dated July 7, 1992. Incorporated by
reference as Exhibit 13 to Pre-Effective
Amendment No. 2 to the Registration Statement
on Form N-1A filed on October 30, 1992 (File
No. 33-48066).
C-14
<PAGE>
14. Not Applicable.
15. Not Applicable.
16. Schedule of Computation of Performance Quotations.*
27. Financial Data Schedule.*
- ----------------
* Filed herewith
C-15
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in Post-Effective Amendment No. 4 to Registration
Statement No. 33-48066 of The Prudential Institutional Fund of our report dated
November 10, 1994, appearing in the Statement of Additional Information, which
is a part of such Registration Statement, and to the references to us under the
headings "Financial Highlights" in the Prospectus, which is a part of such
Registration Statement, and "Counsel and Auditors" in the Statement of
Additional Information.
Deloitte & Touche LLP
New York, New York
January 25, 1995
The Prudential Institutional Fund
Growth Stock Fund
Exhibit
Average Annual Total Return
Calculation
As of September 30, 1994
n
ERV = P* (1+T)
P=hypothetical initial payment of $1,000
T=average annual total return
n=number of years
ERV=ending redeemable value
- -------------------------------------------------------------------------------
From Inception
--------------------------------
Annualized Unannualized
---------- ------------
P= $1,000.00 $1,000.00
n= 1.00 1.90
ERV= $1,103.60 $1,206.20
T= 10.36% 20.62%
The Prudential Institutional Fund
Stock Index Fund
Exhibit
Average Annual Total Return
Calculation
As of September 30, 1994
n
ERV = P* (1+T)
P=hypothetical initial payment of $1,000
T=average annual total return
n=number of years
ERV=ending redeemable value
- -------------------------------------------------------------------------------
From Inception
--------------------------------
Annualized Unannualized
---------- ------------
P= $1,000.00 $1,000.00
n= 1.00 1.90
ERV= $1,078.50 $1,154.50
T= 7.85% 15.45%
The Prudential Institutional Fund
International Fund
Exhibit
Average Annual Total Return
Calculation
As of September 30, 1994
n
ERV = P* (1+T)
P=hypothetical initial payment of $1,000
T=average annual total return
n=number of years
ERV=ending redeemable value
- -------------------------------------------------------------------------------
From Inception
--------------------------------
Annualized Unannualized
---------- ------------
P= $1,000.00 $1,000.00
n= 1.00 1.90
ERV= $1,240.30 $1,506.00
T= 24.03% 50.60%
The Prudential Institutional Fund
Active Balanced Fund
Exhibit
Average Annual Total Return
Calculation
As of September 30, 1994
n
ERV = P* (1+T)
P=hypothetical initial payment of $1,000
T=average annual total return
n=number of years
ERV=ending redeemable value
- -------------------------------------------------------------------------------
From Inception
--------------------------------
Annualized Unannualized
---------- ------------
P= $1,000.00 $1,000.00
n= 1.00 1.74
ERV= $1,065.70 $1,116.80
T= 6.57% 11.68%
The Prudential Institutional Fund
Balanced Fund
Exhibit
Average Annual Total Return
Calculation
As of September 30, 1994
n
ERV = P* (1+T)
P=hypothetical initial payment of $1,000
T=average annual total return
n=number of years
ERV=ending redeemable value
- -------------------------------------------------------------------------------
From Inception
--------------------------------
Annualized Unannualized
---------- ------------
P= $1,000.00 $1,000.00
n= 1.00 1.90
ERV= $1,082.90 $1,163.50
T= 8.29% 16.35%
The Prudential Institutional Fund
Income Fund
Exhibit
Average Annual Total Return
Calculation
As of September 30, 1994
n
ERV = P* (1+T)
P=hypothetical initial payment of $1,000
T=average annual total return
n=number of years
ERV=ending redeemable value
- -------------------------------------------------------------------------------
From Inception
--------------------------------
Annualized Unannualized
---------- ------------
P= $1,000.00 $1,000.00
n= 1.00 1.59
ERV= $1,012.30 $1,019.60
T= 1.23% 1.96%
The Prudential Institutional Fund
Money Market Fund
Exhibit
Average Annual Total Return
Calculation
As of September 30, 1994
n
ERV = P* (1+T)
P=hypothetical initial payment of $1,000
T=average annual total return
n=number of years
ERV=ending redeemable value
- -------------------------------------------------------------------------------
From Inception
--------------------------------
Annualized Unannualized
---------- ------------
P= $1,000.00 $1,000.00
n= 1.00 1.74
ERV= $1,031.10 $1,054.70
T= 3.11% 5.47%
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<NAME> GROWTH STOCK FUND
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<PERIOD-END> SEP-30-1994
<INVESTMENTS-AT-COST> 95,712,417
<INVESTMENTS-AT-VALUE> 102,240,093
<RECEIVABLES> 8,630,036
<ASSETS-OTHER> 21,712
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 110,891,841
<PAYABLE-FOR-SECURITIES> 3,713,611
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 222,262
<TOTAL-LIABILITIES> 3,935,873
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<ACCUMULATED-NET-GAINS> (3,830,856)
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<NET-ASSETS> 106,955,968
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<EXPENSES-NET> 714,487
<NET-INVESTMENT-INCOME> 25,287
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<DISTRIBUTIONS-OF-INCOME> (43,709)
<DISTRIBUTIONS-OF-GAINS> (131,129)
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<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 500,141
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 636,574
<AVERAGE-NET-ASSETS> 71,449,000
<PER-SHARE-NAV-BEGIN> 12.10
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> (0.06)
<PER-SHARE-DIVIDEND> (0.01)
<PER-SHARE-DISTRIBUTIONS> (0.03)
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<NAME> STOCK INDEX FUND
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> SEP-30-1994
<INVESTMENTS-AT-COST> 46,653,915
<INVESTMENTS-AT-VALUE> 48,549,872
<RECEIVABLES> 1,750,705
<ASSETS-OTHER> 62,488
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 50,363,065
<PAYABLE-FOR-SECURITIES> 140,635
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 103,106
<TOTAL-LIABILITIES> 243,741
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 47,043,650
<SHARES-COMMON-STOCK> 4,446,658
<SHARES-COMMON-PRIOR> 2,441,117
<ACCUMULATED-NII-CURRENT> 1,146,661
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 122,431
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,806,582
<NET-ASSETS> 50,119,324
<DIVIDEND-INCOME> 973,764
<INTEREST-INCOME> 147,146
<OTHER-INCOME> 0
<EXPENSES-NET> 228,589
<NET-INVESTMENT-INCOME> 892,321
<REALIZED-GAINS-CURRENT> 186,406
<APPREC-INCREASE-CURRENT> 380,870
<NET-CHANGE-FROM-OPS> 1,459,597
<EQUALIZATION> 289,937
<DISTRIBUTIONS-OF-INCOME> (481,228)
<DISTRIBUTIONS-OF-GAINS> (106,939)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 29,356,230
<NUMBER-OF-SHARES-REDEEMED> (8,128,767)
<SHARES-REINVESTED> 588,167
<NET-CHANGE-IN-ASSETS> 22,976,997
<ACCUMULATED-NII-PRIOR> 445,607
<ACCUMULATED-GAINS-PRIOR> 42,988
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 152,392
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 26,758
<AVERAGE-NET-ASSETS> 38,098,000
<PER-SHARE-NAV-BEGIN> 11.12
<PER-SHARE-NII> 0.26
<PER-SHARE-GAIN-APPREC> 0.11
<PER-SHARE-DIVIDEND> (0.18)
<PER-SHARE-DISTRIBUTIONS> (0.04)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.27
<EXPENSE-RATIO> 0.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> SEP-30-1994
<INVESTMENTS-AT-COST> 93,872,223
<INVESTMENTS-AT-VALUE> 101,857,122
<RECEIVABLES> 2,390,638
<ASSETS-OTHER> 205,063
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000887991
<NAME> PRUDENTIAL INSTITUTIONAL FUND
<SERIES>
<NUMBER> 004
<NAME> ACTIVE BALANCED FUND
<S> <C>
<PERIOD-TYPE> YEAR
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<PERIOD-END> SEP-30-1994
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000887991
<NAME> PRUDENTIAL INSTITUTIONAL FUND
<SERIES>
<NUMBER> 005
<NAME> BALANCED FUND
<S> <C>
<PERIOD-TYPE> YEAR
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000887991
<NAME> PRUDENTIAL INSTITUTIONAL FUND
<SERIES>
<NUMBER> 006
<NAME> INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000887991
<NAME> PRUDENTIAL INSTITUTIONAL FUND
<SERIES>
<NUMBER> 007
<NAME> MONEY MARKET FUND
<S> <C>
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</TABLE>
