PRUDENTIAL INSTITUTIONAL FUND, 485BPOS, 1996-01-26

PRUDENTIAL INSTITUTIONAL FUND
485BPOS, 1996-01-26

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As filed with the Securities and Exchange Commission
on January 26, 1996

Registration Nos. 33-48066
811-6677

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- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /

Post-Effective Amendment No. 5 / /

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 LLP
1800 Massachusetts Avenue, N.W.
Washington, DC 20036-1800

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, 1996 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, 1995, on November 15, 1995.

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<PAGE>

CROSS REFERENCE SHEET
(as required by Rule 495)

<TABLE>
<CAPTION>
N-1A Item No. Location
- ----------------------------------------------------------------------- ------------------------------
<C> <C> <S> <C>
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 Fund;
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
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 Other Considerations; Purchase
Offered..................................................... and Redemption of Shares

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.
</TABLE>

<PAGE>
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THE PRUDENTIAL INSTITUTIONAL FUND
ThePRUDENTIAL[LOGO] Prospectus dated February 1, 1996

- --------------------------------------------------------------------------------

The Prudential Institutional Fund is a no-load mutual fund that is designed
to provide a range of investment alternatives for certain retirement programs
and arrangements and other institutional investors. The Prudential Institutional
Fund consists of the following seven investment funds:

GROWTH STOCK FUND seeks to achieve long-term growth of capital through
investment primarily in equity securities of established companies with
above-average growth prospects.

STOCK INDEX FUND seeks to provide investment results that correspond to the
price and yield performance of Standard & Poor's 500 Composite Stock Price
Index.

INTERNATIONAL STOCK FUND seeks to achieve long-term growth of capital through
investment in equity securities of foreign issuers. Income is a secondary
objective.

ACTIVE BALANCED FUND seeks to achieve total returns approaching equity returns,
while accepting less risk than an all-equity portfolio, through an
actively-managed portfolio of equity securities, fixed income securities and
money market instruments.

BALANCED FUND seeks to realize long-term total return consistent with moderate
portfolio risk.

INCOME FUND seeks to achieve a high level of income over the longer term while
providing reasonable safety of capital.

MONEY MARKET FUND seeks to achieve high current income, preservation of
principal and maintenance of liquidity, while striving to maintain a $1.00 net
asset value per share.

INVESTMENTS IN THE MONEY MARKET FUND (OR IN ANY OTHER FUND) ARE NEITHER
INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT
THE MONEY MARKET FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00
PER SHARE.

PROSPECTIVE INVESTORS SHOULD NOTE THAT ALL OF THE FUNDS RESERVE THE RIGHT
TO BORROW MONEY FOR TEMPORARY AND EXTRAORDINARY PURPOSES AND (EXCEPT FOR THE
MONEY MARKET FUND) IN ORDER TO TAKE ADVANTAGE OF INVESTMENT OPPORTUNITIES, WHICH
MAY BE CONSIDERED SPECULATIVE DUE TO THE INCREASED COSTS AND EXPENSES INVOLVED.

The Prudential Institutional Fund is designed to meet the needs of
retirement program sponsors, program participants, individual retirement
accounts and certain institutional investors who seek the expertise, service,
and commitment to quality that organizations within The Prudential family of
investment service companies can provide. The Prudential affiliates provide
experienced investment management, investor services, recordkeeping, and
administrative services to The Prudential Institutional Fund.

----------

This Prospectus gives you information about The Prudential Institutional
Fund that you should be aware of before investing. Additional information about
The Prudential Institutional Fund has been filed with the Securities and
Exchange Commission in a Statement of Additional Information, dated February 1,
1996, which information is incorporated herein by reference and is available,
without charge, upon written request to The Prudential Institutional Fund, 21
Prudential Plaza, 751 Broad Street, Newark, New Jersey 07102-3777.

PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE.

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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<PAGE>

TABLE OF CONTENTS

Introduction to the Funds ...................... 1

Expense Information ............................ 2

Financial Highlights ........................... 3

The Funds ...................................... 6

Risk Factors and Investment Practices and
Policies of the Fund .......................... 9

Management of the Company ...................... 10

Investors Guide to Services .................... 12

Other Considerations ........................... 13

Performance and Yield Information .............. 15

Other Investment Practices, Risk Conditions,
and Policies of the Funds ..................... 15

More Facts About the Company ................... 22

<PAGE>

INTRODUCTION TO THE FUNDS

The Company. The Prudential Institutional Fund (the "Company") is a no-load,
open-end diversified management investment company, commonly known as a mutual
fund. The Company is organized as a Delaware business trust.

The Funds. The Company is comprised of seven investment portfolios (the
"Funds"), each of which is diversified. Each Fund has its own investment
objectives and policies, which are summarized below and described in detail
beginning on page 6.

The Advisers. Each Fund is managed by a registered investment adviser
("Adviser") that is a direct or indirect subsidiary of, or is otherwise
affiliated with, The Prudential Insurance Company of America ("The Prudential").
The Advisers operate under the supervision of Prudential Institutional Fund
Management, Inc., the Company's investment manager ("Manager").

Opening an Account. The Administrator of your retirement plan or your employee
benefits office can provide you with detailed information on how to participate
in your plan and how to select a Fund as an investment option.

<S> <C> <C> <C>
Name of Fund Investment Objective Invests Primarily in Investment Adviser
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Stock Fund Seeks to achieve long-term A diversified portfolio of equity Jennison Associates Capital
growth of capital securities of established companies Corp. ("Jennison")
with above average growth prospects
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Stock Index Fund Seeks to provide investment A diversified portfolio of equity The Prudential
results that correspond to the securities, which as a group is Investment Corporation
price and yield performance of designed to approximate the price ( "PIC ")
Standard & Poor's 500 Composite and yield performance of the S&P 500
Stock Price Index Index
("S&P 500 Index")
- ------------------------------------------------------------------------------------------------------------------------------------

International Stock Fund Seeks to achieve long-term A diversified portfolio of equity Mercator Asset
growth of capital; income is a securities of foreign issuers Management, L.P.
secondary objective ("Mercator")

- ------------------------------------------------------------------------------------------------------------------------------------
Active Balanced Fund Seeks to achieve total returns An actively-managed portfolio of Jennison
approaching equity returns, equity securities, fixed income
while accepting less risk than securities and money market
an all-equity portfolio instruments
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Balanced Fund Seeks to achieve long-term A diversified portfolio that PIC
total return consistent with allocates its assets among equity
moderate portfolio risk securities, fixed income securities
and money market instruments

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Income Fund Seeks to achieve a high level Debt securities, including corporate PIC
of income over the longer term debt obligations, mortgage-backed
while providing reasonable and asset-backed securities, U.S.
safety of capital Government obligations, and U.S.
dollar-denominated debt securities
of foreign issuers
- ------------------------------------------------------------------------------------------------------------------------------------
Money Market Fund Seeks to achieve high current A diversified portfolio of PIC
income, preservation of high-quality domestic and U.S.
principal and maintenance of dollar-denominated foreign money
liquidity, while striving to market instruments that present
maintain a $1.00 net asset minimal credit risks
value per share

</TABLE>

Each Fund may be expected to have different investment results and different
market and financial risks, which are described in detail beginning on page 5.
Since shares of a Fund represent an interest in an investment in securities with
fluctuating market prices, the net asset value per share of each Fund, other
than the Money Market Fund, and the value of a shareholder's holdings will vary
as the aggregate value of a Fund's portfolio securities increases or decreases.
It is anticipated that shares of the Money Market Fund will be purchased,
redeemed or exchanged at a net asset value of $1.00 per share, although there
can be no assurance that the Fund will be able to maintain a constant net asset
value per share. For information on how to purchase and redeem shares, or to
exchange the shares of one Fund for shares of another Fund, please refer to
pages 11-12.

The dividends paid by each Fund will vary proportionally to the income
received from its investments and the expenses incurred by the Fund. Dividends
and other distributions of each Fund are declared in cash and automatically
reinvested in additional shares of the Fund. While shareholders may not elect to
receive dividends and other distributions in cash, the same effect may be
achieved at any time by redeeming shares of the Fund.

The investment objectives of each Fund set forth above are fundamental and
may not be changed without a vote of the shareholders of that Fund. However, the
investment policies and practices of each Fund, unless otherwise specifically
stated, are not fundamental. There can be no assurance that a Fund will achieve
its investment objective.

The Prudential Institutional Fund Prospectus 1
<PAGE>

EXPENSE INFORMATION

The following table, including the examples below, is included to assist your
understanding of the various costs and expenses that an investor will incur
directly and indirectly as a shareholder in each of the Funds based upon each
Fund's annual operating expenses. The fees and expenses set forth below for the
Funds are based on data for the Fund's fiscal year ended September 30, 1995. The
example should not be considered a representation of past or future performance.
Actual fees and expenses for each of the Funds for the current year may be
greater or less than those stated below.

Shareholder Growth Stock International Active Money
Transaction Stock Index Stock Balanced Balanced Income Market
Expenses Fund Fund Fund Fund Fund Fund Fund
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales Load Imposed on Purchase None None None None None None None
Sales Load Imposed on Reinvested Dividends None None None None None None None
Deferred Sales Load Imposed on Redemptions None None None None None None None
Redemption Fee None None None None None None None
Exchange Fee None None None None None None None

Annual Operating Expenses (as a percentage of average daily net assets)
- --------------------------------------------------------------------------------------------------------------------------

Management Fees (Before Reduction) .70% .40% 1.15% .70% .70% .50% .45%
Distribution Expenses None None None None None None None
Other Expenses (Before Reduction) .31% .48% .49% .35% .40% .48% .47%
Total Operating Expenses (Before Reduction) 1.01% .88% 1.64% 1.05% 1.10% .98% .92%
Total Operating Expenses (After Reduction)<F1> 1.00% .60% 1.60% 1.00% 1.00% .70% .60%
- ----------
<FN>
<F1> In the interest of limiting the expenses of the Funds, the Manager has
agreed, until September 30, 1996, to bear any expenses that would cause the
ratio of expenses payable by each Fund to average daily net assets ("Fund
Operating Expenses") to exceed the Fund's Total Operating Expenses (After
Reduction) as specified above. Expenses paid or assumed under this
agreement are subject to recoupment by the Manager from the relevant Fund
in later years, provided that (a) no recoupment will be made, in any year,
if it would result in the Fund's expense ratio for a year exceeding the
estimated Total Operating Expenses (After Reduction) and (b) no recoupment
will be made after December 31, 1996. Each Fund's organizational expenses
will be charged to that Fund over a period not to exceed 60 months.

</FN>
</TABLE>

Examples: An investor in each Fund would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2) redemption at the end of each
future time period*:

1 Year 3 Years 5 Years 10 Years
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Growth Stock Fund $10 $32 $55 $122
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Stock Index Fund $ 6 $19 $33 $ 75
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International Stock Fund $16 $50 $87 $190
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Active Balanced Fund $10 $32 $55 $122
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Balanced Fund $10 $32 $55 $122
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Income Fund $ 7 $22 $39 $ 87
- --------------------------------------------------------------------------------
Money Market Fund $ 6 $19 $33 $ 75

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* There are no charges imposed upon redemption.

The above examples should not be considered to be a representation of past or
future expenses for each Fund. Actual expenses may be greater or less than those
shown above. Similarly, the annual rate of return assumed in the above examples
is not an estimate or guarantee of future investment performance, but is
included for illustrative purposes only.

2 The Prudential Institutional Fund Prospectus

<PAGE>

FINANCIAL HIGHLIGHTS (for a share outstanding throughout the indicated period)

The following financial highlights have been audited by Deloitte & Touche LLP,
independent accountants, whose report thereon was unqualified. This information
is derived from and should be read in conjunction with the financial statements
and notes thereto, which appear in the Statement of Additional Information. The
following financial highlights contain selected data for a share of beneficial
interest outstanding, total return, ratios to average net assets and other
supplemental data for the periods indicated.

<TABLE>
<CAPTION>
Growth Stock Fund Stock Index Fund
---------------------------------------- --------------------------------
November 5, November 5,
Year Ended 1992(a) Year Ended 1992(a)
September 30, Through September 30, Through
------------------ September ----------------- September
1995 1994 30, 1993 1995 1994 30, 1993
-------- -------- ------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period ........... $ 12.00 $ 12.10 $ 10.00 $ 11.27 $ 11.12 $10.00
-------- -------- ------- -------- ------- ------
Income from investment
operations:
Net investment income(b) ....................... -- -- .04 .23 .26 .23
Net realized and unrealized gain
(loss) on investment and foreign
currency transactions ......................... 4.22 (.06) 2.08 2.97 .11 .94
-------- -------- ------- -------- ------- ------
Total from investment
operations .................................. 4.22 (.06) 2.12 3.20 .37 1.17
-------- -------- ------- -------- ------- ------
Less distributions:
Dividends from net investment income ........... (.01) (.01) (.02) (.22) (.18) (.05)
Distributions from net realized gains .......... -- (.03) -- (.03) (.04) --
-------- -------- ------- -------- ------- ------
Total distributions ............................ (.01) (.04) (.02) (.25) (.22) (.05)
-------- -------- ------- -------- ------- ------
Net asset value, end of period ................. $ 16.21 $ 12.00 $ 12.10 $ 14.22 $ 11.27 $11.12
======== ======== ======= ======== ======= ======

TOTAL RETURN(d): ............................... 35.14% (0.50)% 21.22% 29.02% 3.33% 11.73%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ................ $220,505 $106,956 $47,998 $101,945 $50,119 $27,142
Average net assets (000) ....................... $149,985 $ 71,449 $17,592 $ 71,711 $38,098 $18,807
Ratios to average net assets(b):
Expenses ...................................... 1.00% 1.00% 1.00%(c) .60% .60 .60%(c)
Net investment income (loss) .................. (.07)% .04% .31%(c) 2.55% 2.34% 2.41%(c)
Portfolio turnover rate ........................ 64% 65% 84% 11% 2% 1%
</TABLE>
- ----------

(a) Commencement of investment operations.
(b) Net of expense subsidy.
(c) Annualized.
(d) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes
reinvestment of dividends and other distributions. Total return for periods
of less than a full year are not annualized. Total return includes the
effect of expense subsidies.

3 The Prudential Institutional Fund Prospectus

<PAGE>

FINANCIAL HIGHLIGHTS (for a share outstanding throughout the indicated period)

<TABLE>
<CAPTION>
International Stock Fund Active Balanced Fund
---------------------------------------- --------------------------------
November 5, January 4,
Year Ended 1992(a) Year Ended 1993(a)
September 30, Through September 30, Through
------------------ September --------------------- September
1995 1994 30, 1993 1995 1994 30, 1993
-------- -------- ------ -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period ........ $ 14.84 $ 12.35 $ 10.00 $ 10.92 $ 11.05 $ 10.00
-------- -------- ------- -------- ------- -------
Income from investment
operations:
Net investment income(b) .................... .18 .13 .16 .33 .24 .21
Net realized and unrealized gain
(loss) on investment and foreign
currency transactions ...................... .66 2.54 2.21 1.54 (.12) .84
-------- -------- ------- -------- ------- -------
Total from investment
operations ............................... .84 2.67 2.37 1.87 .12 1.05
-------- -------- ------- -------- ------- -------
Less distributions:
Dividends from net investment income ........ (.10) (.03) (.02) (.29) (.14) --
Distributions from net realized gains ....... (.33) (.15) -- (.04) (.11) --
-------- -------- ------- -------- ------- -------
Total distributions ......................... (.43) (.18) (.02) (.33) (.25) --
-------- -------- ------- -------- ------- -------
Net asset value, end of period .............. $ 15.25 $ 14.84 $ 12.35 $ 12.46 $ 10.92 $ 11.05
======== ======== ======= ======== ======= =======

TOTAL RETURN(d) ............................. 5.95% 21.71% 23.74% 17.66% 1.07% 10.50%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ............. $136,685 $102,824 $31,708 $133,352 $81,176 $38,786
Average net assets (000) .................... $118,927 $ 68,476 $14,491 $104,821 $58,992 $12,815
Ratios to average net assets:(b) ............
Expenses ................................... 1.60% 1.60% 1.60%(c) 1.00% 1.00% 1.00%(c)
Net investment income ...................... 1.58% 1.08% 1.44%(c) 3.53% 3.06% 2.68%(c)
Portfolio turnover rate ..................... 20% 21% 15% 30% 40% 47%
</TABLE>
- ----------
(a) Commencement of investment operations.
(b) Net of expense subsidy.
(c) Annualized.
(d) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes
reinvestment of dividends and other distributions. Total return for periods
of less than a full year are not annualized. Total return includes the
effect of expense subsidies.

The Prudential Institutional Fund Prospectus 4
<PAGE>

FINANCIAL HIGHLIGHTS (for a share outstanding throughout the indicated period)

Balanced Fund Income Fund Money Market Fund
----------------------------- --------------------------- ----------------------------
November 5, March 1, January 4,
Year Ended 1992(a) Year Ended 1993(a) Year Ended 1993(a)
September 30, Through September 30, Through Sepember 30, Through
---------------- September --------------- September --------------- September
1995 1994 30, 1993 1995 1994 30, 1993 1995 1994 30, 1993
------- ------- --------- ------- ------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period ........ $ 11.08 $ 11.80 $ 10.00 $ 9.38 $ 10.33 $ 10.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- ------- ------- -------
Income from investment
operations:
Net investment income(b) .... .18 .31 .31 .59 .52 .27 .05 .03 .02
Net realized and unrealized
gain (loss) on investment
and foreign currency
transactions ............... 1.53 (.52) 1.54 .60 (.91) .33 -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations ............... 1.71 (.21) 1.85 1.19 (.39) .60 .05 .03 .02
------- ------- ------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment income .......... (.25) (.23) (.05) (.59) (.52) (.27) (.05) (.03) (.02)
Distributions from net
realized gains ............. (.05) (.28) -- -- (.04) -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions ......... (.30) (.51) (.05) (.59) (.56) (.27) (.05) (.03) (.02)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value,
end of period .............. $ 12.49 $ 11.08 $ 11.80 $ 9.98 $ 9.38 $ 10.33 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= ======= ======= ======= =======

TOTAL RETURN(d) ............. 15.90% (1.88)% 18.58% 13.11% (3.91)% 6.11% 5.47% 3.32% 2.08%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000) ............... $82,110 $64,313 $27,663 $52,297 $41,401 $35,015 $58,054 $46,331 $30,235
Average net assets (000) .... $70,914 $44,048 $17,401 $46,386 $37,802 $25,626 $52,446 $38,170 $25,296

Ratios to average
net assets:(b)
Expenses .................. 1.00% 1.00% 1.00%(c) .70% .70% .70%(c) .60% .60% .60%(c)
Net investment income ..... 3.19% 2.86% 3.16%(c) 6.17% 5.24% 4.62%(c) 5.37% 3.34% 2.73%(c)
Portfolio turnover rate ..... 65% 52% 74% 145% 83% 93% -- -- --
</TABLE>
- ----------
(a) Commencement of investment operations.
(b) Net of expense subsidy.
(c) Annualized.
(d) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes
reinvestment of dividends and other distributions. Total return for periods
of less than a full year are not annualized. Total return includes the
effect of expense subsidies.

5 The Prudential Institutional Fund Prospectus

<PAGE>

================================================================================

THE FUNDS

Growth Stock Fund. The objective of the Growth Stock Fund is to achieve
long-term growth of capital through investment primarily in equity securities of
established companies with above-average growth prospects. Current income, if
any, is incidental to this objective.

Under normal market conditions, at least 65% of the value of the total assets of
the Fund will be invested in common stocks and preferred stocks of companies
that exceed $1 billion in market capitalization. Stocks will be selected on a
company-by-company basis primarily through use of fundamental analysis.
Jennison, the Adviser for the Fund, looks for companies that have demonstrated
growth in earnings and sales, high returns on equity and assets, or other strong
financial characteristics, and, in the judgment of Jennison, are attractively
valued. These companies tend to have a unique market niche, a strong new product
profile or superior management.

The Fund also may invest up to 35% of its total assets in: (i) common stocks,
preferred stocks and other equity-related securities of companies that are
undergoing changes in management or product and marketing dynamics that have not
yet been reflected in reported earnings but that are expected to impact earnings
in the intermediate term--these securities often lack investor recognition and
are often favorably valued, (ii) other equity-related securities; (iii) with
respect to a maximum of 20% of its total assets, common stocks, preferred stocks
and other equity-related securities of foreign issuers; (iv) fixed income
securities and mortgage-backed securities rated Baa or higher by Moody's
Investor Services ("Moody's") or BBB or higher by Standard & Poor's Ratings
Services or another nationally rated statistical rating organization ("NRSRO")
or, if not rated, determined by the adviser to be of comparable quality to
securities so rated ("investment grade"); and (v) obligations issued or
guaranteed by the U.S. Government, its agencies and instrumentalities.

The effort to achieve superior investment return necessarily involves a risk of
exposure to declining values. Securities in which the Fund primarily may invest
have historically been more volatile than the S&P 500 Index. Accordingly, during
periods when stock prices decline generally, it can be expected that the value
of the Fund may decline more than the market indices. However, on a long-term
basis, Jennison anticipates that the investment return of the Fund should exceed
that of the market indices.

In order to invest uncommitted cash balances, maintain liquidity to meet
redemptions, or for hedging or incidental income purposes, the Fund may: (i)
enter into repurchase agreements, when-issued, delayed-delivery and forward
commitment transactions; (ii) lend its portfolio securities; (iii) purchase and
sell put and call options on securities and stock indices; and (iv) purchase and
sell futures contracts on stock indices and options thereon.

Stock Index Fund. The Stock Index Fund seeks to provide investment results that
correspond to the price and yield performance of the S&P 500 Index. The S&P 500
Index is an unmanaged, market-weighted index of 500 stocks selected by Standard
& Poor's Corporation ("S&P") on the basis of their market size, liquidity and
industry group representation. Inclusion in the S&P 500 Index in no way implies
an opinion by S&P as to a stock's attractiveness as an investment. The S&P 500
Index, composed of stocks representing more than 70% of the total market value
of all publicly traded U.S. common stocks, is widely regarded as representative
of the performance of the U.S. stock market as a whole. "Standard & Poor's(R)",
"S&P(R)", "S&P 500(R)", "Standard & Poor's 500", and "500" are trademarks of
McGraw-Hill, Inc. and have been licensed for use by The Prudential Insurance
Company of America and its affiliates and subsidiaries. The Fund is not
sponsored, endorsed, sold or promoted by S&P and S&P makes no representation
regarding the advisability of investing in the Fund. See "The Funds--Stock Index
Fund" in the Statement of Additional Information regarding certain additional
disclaimers and limitations of liability on behalf of S&P.

Traditional methods of security analysis will not be used in connection with the
management of this Fund by PIC, the Adviser for the Fund, in making investment
decisions. Instead, PIC will use a passive, indexing approach. To achieve its
investment objective, the Fund will purchase equity securities that as a group
reflect the price and yield performance of the S&P 500 Index. The Fund intends
to purchase all 500 stocks included in the S&P 500 Index in approximately the
same proportions as they are represented in the S&P 500 Index. In addition, from
time to time adjustments may be made in the Fund's holdings due to changes in
the composition of the S&P 500 Index or due to receipt of distributions of
securities of companies spun off from S&P 500 companies. The Fund will not adopt
a temporary defensive investment posture in times of generally declining market
conditions, and investors in the Fund, therefore, will bear the risk of such
market conditions.

PIC believes that this investment approach will provide an effective method of
tracking the performance of the S&P 500 Index. Nevertheless, PIC does not expect
that the Fund's performance will precisely correspond to the performance of the
S&P 500 Index. The Fund will attempt to achieve a correlation between its
performance and that of the S&P 500 Index of at least 0.95, without taking into
account expenses. A correlation of 1.00 would indicate perfect correlation,
which would be achieved when the Fund's net asset value, including the value of
its dividends and capital gains distributions, increases or decreases in exact
proportion to changes in the S&P 500 Index. PIC will, of course, attempt to
minimize any tracking differential (i.e., the statistical measure of the
difference between the investment results of the Fund and those of the S&P 500
Index). Tracking will be monitored at least on a monthly basis. All tracking
maintenance activities will be reviewed regularly to determine whether any
changes in policies or techniques are necessary. However, in addition to
potential tracking differences, brokerage and other transaction costs, as well
as other Fund expenses, may cause the Fund's return to be lower than the return
of the S&P 500 Index. Consequently, there can be no assurance as to how closely
the Fund's performance will correspond to the performance of the S&P 500 Index.

The Fund intends that at least 80% of the value of its total assets will be
invested in securities included in the S&P 500 Index. The Fund may invest the
balance of its assets in: (i) other equity-related securities; (ii) obligations
issued or guaranteed by the U.S. Government, its agencies and instrumentalities;
(iii) put and call options on securities and stock indices; and (iv) futures
contracts on stock indices and options thereon.

6 The Prudential Institutional Fund Prospectus

<PAGE>

Options, futures contracts, and options on futures contracts are used, if at
all, primarily to invest uncommitted cash balances, to maintain liquidity to
meet redemptions, to facilitate tracking, to reduce transaction costs or to
hedge the Fund's portfolio.

In order to invest uncommitted cash balances, maintain liquidity to meet
redemptions, or for incidental return enhancement purposes, the Fund may also:
(i)enter into repurchase agreements, when-issued, delayed-delivery and forward
commitment transactions; and (ii) lend its portfolio securities.

International Stock Fund. The International Stock Fund seeks to achieve
long-term growth of capital through investment in equity securities of foreign
companies. Income is a secondary objective. The Fund will, under normal
circumstances, invest at least 65% of the value of its total assets in common
stocks and preferred stocks of issuers located in at least three foreign
countries. The Fund will invest primarily in seasoned companies (i.e., companies
with an established operating record of 3 years or greater) that are
incorporated, organized, or that do business primarily outside the United
States. The Fund will invest in securities of such foreign issuers through
direct market purchases on foreign stock exchanges and established
over-the-counter markets as well as through the purchase of American Depository
Receipts ("ADRs"), European Depository Receipts ("EDRs") or other similar
securities.

The Fund intends to broadly diversify its holdings among issuers located in
developed and developing countries having national financial markets. Mercator,
the Adviser for the Fund, believes that broad diversification provides a prudent
means of reducing volatility while permitting the Fund to take advantage of the
potentially different movements of major equity markets. While the Fund may
invest anywhere outside the United States, it expects that most of its
investments will be made in securities of issuers located in developed countries
in North America, Western Europe, and the Pacific Basin. In allocating the
Fund's investments among different countries and geographic regions, Mercator
will consider such factors as relative economic growth, expected levels of
inflation, government policies affecting business conditions, and market trends
throughout the world. In selecting companies within those countries and
geographic regions, Mercator seeks to identify those companies that are best
positioned and managed to benefit from the factors listed above.

Investing in securities of foreign issuers generally involves greater risks than
investing in the securities of domestic companies. These risks are often
heightened for investments in emerging or developing countries. The Fund does
not currently expect to invest 25% or more of its net assets in any one country.
For temporary defensive purposes, the Fund may invest up to 100% of its assets
in common stocks, preferred stocks and other equity-related securities of U.S.
issuers.

The Fund may invest up to 35% of the value of its total assets in: (i) other
equity-related securities of foreign issuers; (ii) common stocks, preferred
stocks and other equity-related securities of U.S. issuers; (iii) investment
grade debt securities of domestic and foreign corporations, governments,
governmental entities, and supranational entities (such as the Asian Development
Bank, the European Coal and Steel Community, the European Economic Community,
and the International Bank for Reconstruction and Development (the "World
Bank")); and (iv) invest in high-quality domestic money market instruments and
short-term fixed income securities. The Fund's use of money market instruments
and short-term debt securities generally will reflect Mercator's overall measure
of optimism relating to the global equity markets, and the Fund will use such
securities to reduce downside volatility during uncertain or declining market
conditions.

In order to invest uncommitted cash balances, maintain liquidity to meet
redemptions, or for hedging or incidental return enhancement purposes, the Fund
may: (i) enter into repurchase agreements, when-issued, delayed-delivery and
forward commitment transactions; (ii) lend its portfolio securities; and (iii)
purchase and sell put and call options on any securities in which it may invest
and options on any securities index based on securities in which the Fund may
invest. In order to attempt to reduce risks associated with currency
fluctuations, the Fund may (i) purchase and sell currency spot contracts; (ii)
purchase and sell currency futures contracts and currency forward contracts; and
(iii) purchase and sell put and call options on currencies and on foreign
currency futures contracts.

Active Balanced Fund. The objective of this Fund is to seek to achieve total
returns approaching equity returns, while accepting less risk than an all-equity
portfolio, through an actively-managed portfolio of equity securities, fixed
income securities, and money market instruments.

Jennison, the Adviser to the Fund, uses the following ranges as the normal
operating parameters for the securities to be purchased by the Fund: (i) 40-75%
of the total assets of the Fund will be invested in common stocks, preferred
stocks and other equity-related securities; (ii) 25-60% of the total assets of
the Fund will be invested in investment grade fixed income securities; and (iii)
0-35% of the total assets of the Fund will be invested in money market
instruments. Within these parameters, at least 25% of the Fund's total assets
will be invested in fixed income senior securities.

Unlike the Balanced Fund discussed below, the Active Balanced Fund's investments
will actively be shifted among these asset classes in order to capitalize on
intermediate term (i.e., 12 to 18 months) valuation opportunities and to
maximize the Fund's total investment return. The equity component of this Fund
will be invested in the common stocks, preferred stocks and other equity-related
securities of companies that are expected to generate superior earnings growth
or are attractively valued. The fixed income component of this Fund will be
invested primarily in fixed income securities rated "A" or better by Moody's or
S&P or, if not rated, determined by Jennison to be of comparable quality to
securities so rated. However, the Fund also may invest up to 20% of the fixed
income portion of its portfolio in securities rated Baa/BBB (or the equivalent
rating of another NRSRO) or, if not rated, determined by Jennison to be of
comparable quality to securities so rated. The weighted average maturity of the
fixed income component of the Fund will normally be between 5 and 25 years.

Under normal market conditions at least 65% of the value of the Fund's total
assets will be invested according to the above allocations. Within these
allocations, the Fund's assets may be invested as follows: (i) up to 15% of the
Fund's total assets, in common stocks, preferred stocks and other equity-related
securities of foreign issuers; (ii) up to 20% of the Fund's total assets, in
investment grade fixed income securities of foreign issuers; (iii) in
mort-
The Prudential Institutional Fund Prospectus 7
<PAGE>

gage-backed securities; (iv) in custodial receipts and asset-backed securities;
and (v) in obligations issued or guaranteed by the U.S. Government, its agencies
and instrumentalities.

In order to invest uncommitted cash balances, to maintain liquidity to meet
redemptions, or for hedging or incidental return enhancement, the Fund may: (i)
enter into repurchase agreements, when-issued, delayed-delivery and forward
commitment transactions; (ii) lend its portfolio securities; (iii) purchase and
sell put and call options on securities, stock indices and interest rate
indices; (iv) purchase and sell futures contracts on stock indices and interest
rate indices and options thereon and (v) purchase and sell futures contracts on
securities.

The Fund also may: (i) purchase and sell currency spot contracts; (ii) purchase
and sell currency futures contracts and currency forward contracts; and (iii)
purchase and sell put and call options on currencies and on foreign currency
futures contracts in each case to attempt to reduce risks associated with
currency fluctuations.

Balanced Fund. The Balanced Fund seeks to realize long-term total return
consistent with moderate portfolio risk. To achieve its objective, the Balanced
Fund will allocate at least 65% of its total assets among (i) common stocks,
preferred stocks and other equity-related securities (including ADRs); (ii)
investment grade fixed income securities with a weighted average maturity of 10
years or less, and (iii) high-quality money market instruments and other
short-term investment grade debt securities.

PIC will adjust the mix of investments among these three asset categories to
capitalize on perceived variations in the potential for return resulting from
the interaction of changing economic and financial market conditions, taking
into consideration the risks associated with each type of security. PIC uses the
following ranges as the normal operating parameters for each type of security to
be purchased for the Fund: (i) 25-50% of the Fund's total assets will be
invested in common stocks, preferred stocks and other equity-related securities
(including ADRs); (ii) 30-60% of the Fund's total assets will be invested in
investment grade fixed income securities with a weighted average maturity of 10
years or less; and (iii) 0-45% of the Fund's total assets will be invested in
money market instruments. Within these parameters, at least 25% of the Fund's
total assets will be invested in fixed income senior securities. The equity
portion of the Fund will be invested using an approach that combines a value
orientation to stock valuations with an in-depth analysis of individual
companies. Stock prices will be evaluated relative to a company's profitability,
estimated earnings growth, quality of management and other factors such as
underlying asset value and the presence of problems that are believed to be
temporary. While the majority of the Fund's holdings are expected to be in
larger, well-established companies, the Fund also may invest in the equity
securities of smaller companies. Adjustments to the investment mix of the
Balanced Fund normally will be made in a gradual manner over a period of time,
depending on market and economic conditions.

The Fund also may invest up to 35% of the value of its total assets in:
(i) common stocks, preferred stocks and other equity-related securities of
foreign issuers not traded in the U.S. or denominated in U.S. dollars;
(ii) investment grade fixed income securities of foreign issuers;
(iii) mortgage-backed securities; (iv) custodial receipts and asset-backed
securities; and (v) obligations issued or guaranteed by the U.S. Government, its
agencies and instrumentalities.

In order to invest uncommitted cash balances, to maintain liquidity to meet
redemptions, or for hedging or incidental return enhancement purposes, the Fund
may: (i) purchase and sell put and call options on securities, stock indices and
interest rate indices; (ii) purchase and sell futures contracts on securities,
stock indices and interest rate indices, and (iii) enter into interest rate swap
transactions.

In order to invest uncommitted cash balances, maintain liquidity to meet
redemptions, or for incidental return enhancement, the Fund may also: (i) enter
into repurchase agreements, when-issued, delayed-delivery and forward commitment
transactions; and (ii) lend its portfolio securities. With respect to the equity
component of the Fund's total assets, the Fund also may: (i) purchase and sell
currency spot contracts; (ii) purchase and sell currency futures contracts and
currency forward contracts; and (iii) purchase and sell put and call options on
currencies and on foreign currency futures contracts in each case to attempt to
reduce risks associated with currency fluctuations.

Income Fund. The Income Fund seeks a high level of income over the longer term
while providing reasonable safety of capital by investing in securities with a
low level of default risk, with the effect of seeking preservation of capital.
To achieve its objective, the Fund will invest, under normal circumstances, at
least 65% of the value of its total assets in fixed income securities. Such
securities include: (i) corporate debt obligations; (ii) mortgage-backed
securities; (iii) custodial receipts and asset-backed securities; (iv) U.S.
Government obligations (such as U.S. Treasury bills, notes and bonds), and
securities issued by its agencies or its instrumentalities; and (v) U.S.
dollar-denominated investment grade fixed income securities of foreign issuers.
The Fund will invest primarily in fixed income securities rated "A" or better by
Moody's or S&P (or the equivalent rating of another NRSRO) or, if not rated,
determined by PIC to be of comparable quality to securities so rated. However,
the Fund may also invest up to 20% of its portfolio in securities rated Baa/BBB
or above (or the equivalent rating of another NRSRO) or, if not rated,
determined by PIC to be of comparable quality to securities so rated.

The Fund has no maturity restrictions. However, PIC anticipates that the
securities in which the Fund will invest will primarily be intermediate to
long-term debt securities having an average maturity of between 5 and 20 years.
Movements in interest rates typically have a greater effect on the price of
longer-term bonds than shorter-term bonds. Normally, the value of the Fund's
investments will vary inversely with changes in interest rates. As interest
rates rise, the value of the Fund's investments will tend to decline and, as
interest rates fall, the value of the Fund's investments will tend to increase.

8 The Prudential Institutional Fund Prospectus

<PAGE>

In order to invest uncommitted cash balances, to maintain liquidity to meet
redemptions, or for hedging or incidental yield enhancement purposes, the Fund
may also: (i) purchase and sell put and call options on securities and interest
rate indices; (ii) purchase and sell futures contracts on securities, securities
indices and interest rate indices; and (iii) enter into interest rate swap
transactions, caps, collars and floors. To facilitate the Fund's investment
program, the Fund may also purchase and sell non-U.S. dollar denominated
investment grade fixed income securities of foreign issuers.

In order to invest uncommitted cash balances, maintain liquidity to meet
redemptions, or for additional income, the Fund may also: (i) enter into
repurchase agreements, when-issued, delayed-delivery and forward commitment
transactions; and (ii) lend its portfolio securities.

Money Market Fund. The Money Market Fund seeks to achieve high current income,
preservation of principal, and maintenance of liquidity. To achieve its
objectives, the Fund will invest in a diversified portfolio of high-quality
domestic and U.S. dollar-denominated foreign money market instruments that
present minimal credit risks and which, at the time of acquisition, are eligible
securities. Eligible securities include securities or issuers of securities
rated in one of the two highest credit categories for short-term debt
obligations assigned by any two NRSROs, or by one NRSRO, if only one has rated
the money market securities ("Requisite NRSROs") or, if unrated, are of
comparable investment quality. The Money Market Fund will invest at least 95% of
its total assets in eligible securities that are rated within the highest rating
category for short-term debt obligations by the Requisite NRSROs or unrated
securities of comparable investment quality. The Fund may also invest up to 50%
of the value of its total assets in U.S. dollar-denominated short-term
securities of foreign issuers.

The eligible money market securities in which the Fund may invest include: (i)
short-term obligations of the U.S. Government, its agencies, and
instrumentalities; (ii) short-term obligations of banks and savings and loan
associations, including certificates of deposit, banker's acceptances, and time
deposits; (iii) short-term corporate obligations, including notes and bonds with
remaining maturities of 397 days or less; (iv) commercial paper (unsecured
promissory notes having maturities of 9 months or less) issued by corporations
and finance companies; (v) repurchase agreements; and (vi) U.S.
dollar-denominated obligations of foreign issuers. Certain of these money market
securities may have adjustable rates of interest with periodic demand features.

The Fund will invest in eligible money market securities maturing in 397 days or
less and will maintain a dollar-weighted average portfolio maturity of 90 days
or less. These practices are designed to minimize any price fluctuation in the
Fund's portfolio securities. The Fund seeks to maintain a constant net asset
value of $1.00 per share, although in certain circumstances this may not be
possible.

PIC will actively manage the Fund, adjusting the composition of investments and
the average maturity of the Fund's portfolio according to its outlook for
short-term interest rates. During periods of rising interest rates, a shorter
average maturity may be expected, while a longer maturity may be more
appropriate when interest rates are falling.

In order to invest uncommitted cash balances, maintain liquidity to meet
redemptions, or for additional income, the Fund may (i) enter into repurchase
agreements, when-issued, delayed-delivery and forward commitment transactions
and (ii) lend its portfolio securities.

Risk Factors and Investment Practices and Policies of the Funds. As discussed
above under the section entitled "The Funds", an investment in each Fund is
subject to certain risks as a result of the particular investment practices and
policies followed by the Fund. For a fuller description of the types of
securities in which each of the Funds may invest, the investment techniques each
Fund may employ and the risks associated with these investments and techniques,
see the section entitled "Other Investment Practices, Risk Conditions and
Policies of the Funds" below and "Other Investment Practices, Risk Conditions
and Policies of the Funds" in the Statement of Additional Information.

The Prudential Institutional Fund Prospectus 9
<PAGE>

================================================================================

MANAGEMENT OF THE COMPANY

The Manager. Prudential Institutional Fund Management, Inc. (the "Manager") 30
Scranton Office Park, Moosic, Pennsylvania, 18507-1789 is the Manager of the
Company. The Manager is an indirect wholly-owned subsidiary of The Prudential,
one of the largest diversified insurance and financial services institutions in
the world. The Manager was incorporated on May 6, 1992 under the laws of the
Commonwealth of Pennsylvania. See "The Manager and Advisers" in the Statement of
Additional Information.

Subject to the supervision and direction of the Company's Trustees (the
"Trustees"), the Manager provides a continuous investment program for the
Company, monitors each Adviser's investment performance, and evaluates and
recommends whether each Adviser's contract should be renewed, modified, or
terminated. The Manager also supervises all matters relating to the Company's
operations and business affairs and may provide certain of the special
processing services described below.

Each Fund pays the Manager a fee for its services provided to the Fund that is
computed daily and paid monthly. For the year ended September 30, 1995, the
Manager was paid a management fee at the annual rate specified below, expressed
as a percentage of the Fund's average daily net assets:

Management Fee
Fund (Before Reduction)
- -----------------------------------------------------------
Growth Stock Fund .70%
- -----------------------------------------------------------
Stock Index Fund .40%
- -----------------------------------------------------------
International Stock Fund 1.15%*
- -----------------------------------------------------------
Active Balanced Fund .70%
- -----------------------------------------------------------
Balanced Fund .70%
- -----------------------------------------------------------
Income Fund .50%
- -----------------------------------------------------------
Money Market Fund .45%
- -----------------------------------------------------------

- ----------

* The Management Fee paid by the International Stock Fund is higher than that
charged to most investment companies.

The Manager may hereafter agree, from time to time, to further waive or modify
any waiver of its management fee and subsidize certain operating expenses of a
Fund.

The Advisers. The Manager has entered into Sub-Advisory Agreements (the
"Advisory Agreements") with PIC, Jennison and Mercator under which each
furnishes investment advisory services in connection with the management of the
various Funds. The Manager (not the Funds) compensates each Adviser for its
services. Under the Advisory Agreements, each Adviser, subject to the
supervision of the Manager and the Trustees, is responsible for managing the
assets of the respective Funds in accordance with their investment objectives,
investment programs, and policies. Each Adviser determines what securities and
other instruments are purchased and sold for its respective Fund and is
responsible for obtaining and evaluating financial data relevant to each Fund.

The Prudential Investment Corporation, 751 Broad Street, Newark, New Jersey
07102, serves as Adviser to the Stock Index Fund, the Balanced Fund, the Income
Fund, and the Money Market Fund. PIC also invests available cash balances for
all of the Funds which it may do through a joint repurchase agreement account.
The Manager reimburses PIC for the reasonable costs and expenses it incurs in
providing services to the Funds.

Prudential Diversified Investment Strategies (PDI Strategies), a unit of PIC, is
responsible for the asset allocation and overall management of the Balanced Fund
and for the day-to-day management of the Stock Index Fund. PDI Strategies
employs a team approach to the management of the Balanced Fund and has managed
the portfolio of the Fund since its commencement. Roger E. Ford, a Managing
Director of PIC, has had responsibility for the day-to-day portfolio management
of the equity portion of the Balanced Fund portfolio since February, 1995. Mr.
Ford has been employed by PIC as a portfolio manager since 1972. Kay T. Willcox,
Managing Director and Senior Portfolio Manager of Prudential Global Advisors, a
unit of PIC, has had responsibility for the day-to-day portfolio management of
the bond portion of the Balanced Fund since February, 1995. Ms. Willcox has been
a portfolio manager at PIC since 1987.

Prudential Global Advisors is also responsible for the day-to-day management of
the Income Fund and Money Market Fund. With respect to the Income Fund, Ms.
Willcox is responsible for the day-to-day portfolio management and has managed
the Income Fund since November, 1993.

PIC, a wholly-owned subsidiary of The Prudential, is a registered investment
adviser and a New Jersey corporation. PIC serves as adviser to institutional
investors, including The Prudential, and various other mutual funds.

Jennison Associates Capital Corp., 466 Lexington Avenue, New York, New York
10017, serves as Adviser to the Growth Stock Fund and the Active Balanced Fund.
The Manager compensates Jennison for its services at the annual rate of 0.30 of
1% of the Fund's average daily net assets.

David Poiesz, a Director and Senior Vice President of Jennison, is responsible
for the day-to-day portfolio management of the Growth Stock Fund. Mr. Poiesz has
managed the portfolio of the Growth Stock Fund since its inception in November,
1992. Mr. Poiesz joined Jennison in 1983 and has been an equity portfolio
manager since 1991.

Bradley L. Goldberg, a Director and Executive Vice President of Jennison, is
responsible for the day-to-day portfolio management of the Active Balanced Fund.
Mr. Goldberg has managed the portfolio of the Active Balanced Fund since its
inception in January 1993 and has been employed as an equity manager with
Jennison since 1974.

Jennison, a wholly-owned subsidiary of The Prudential, is a registered
investment adviser and a New York corporation with $29 billion in assets under
management, as of December 31, 1995. Jennison serves as adviser to various
institutional investors and other mutual funds.

Mercator Asset Management, L.P., 2400 East Commercial Boulevard, Fort
Lauderdale, Florida 33308, serves as Adviser to the International Stock Fund.
The Manager compensates Mercator for its services at an annual rate of 0.75 of
1% of the Fund's average daily net assets up to $50 million, 0.60 of 1% of the
Fund's average daily net assets between $50 million and $300 million and 0.45 of
1% of average daily net assets in excess of $300 million.

Peter F. Spano is responsible for the day-to-day management of the portfolio of
the International Stock Fund. Mr. Spano has managed the portfolio of

10 The Prudential Institutional Fund Prospectus
<PAGE>

the International Stock Fund since its inception in November, 1992 and has been
employed as a portfolio manager with Mercator since its founding in 1984.

Mercator is a registered investment adviser and a Delaware limited partnership
with $1.8 billion in assets under management as of December 31, 1995. Mercator's
general partners are four Florida corporations: JZT Corp., KXB Corp., TXB Corp.,
and MXW Corp. Mercator's limited partner is The Prudential Asset Management
Company, Inc., a wholly-owned indirect subsidiary of The Prudential. John G.
Thompson, Peter F. Spano, Kenneth B. Brown, and Michael A. Williams are the sole
shareholders of JZT Corp., PXS Corp., KXB Corp. and MXW Corp., respectively. The
address of each of the general partners is 2400 East Commercial Blvd., Suite
810, Fort Lauderdale, Florida 33308. Mercator serves as adviser to various
institutional investors and mutual funds.

The Administrator, Transfer Agent and Dividend Disbursing Agent. The Company has
entered into an administration, transfer agency and service agreement (the
"Administration Agreement"), with Prudential Mutual Fund Management, Inc.
("PMF"), One Seaport Plaza, New York, New York, 10292, which provides that PMF,
a Delaware corporation and an indirect wholly-owned subsidiary of The
Prudential, furnishes to the Company such services as the Company may require in
connection with administration of the Company's business affairs. Under the
Administration Agreement, the Company pays PMF a monthly fee at an annual rate
of .17% of the average daily net assets of the Company up to $250 million and
.15% of the Company's average daily net assets in excess of $250 million. PMF
also provides the Company with transfer agent and dividend disbursing services
for no additional fee, through its wholly-owned subsidiary, Prudential Mutual
Fund Services, Inc. ("PMFS" or "Transfer Agent"), Raritan Plaza One, Edison, New
Jersey 08837. Its mailing address is P.O. Box 15005, New Brunswick, New Jersey
08906-5005. PMF reimburses PMFS for certain of the out-of-pocket expenses PMFS
incurs in providing these services and the Company reimburses PMF for those
out-of-pocket expenses.

The Distributor. Prudential Retirement Services, Inc. (the "Distributor"), 751
Broad Street, Newark, New Jersey 07102, an affiliate of the Manager and a
corporation organized under the laws of New Jersey, has entered into a
Distribution Agreement (the "Distribution Agreement") with the Company pursuant
to which it serves as the Distributor of the Company's shares. Potential
investors may be introduced to the Distributor, and persons who introduce
investors may be compensated by the Distributor for such introductions.

The Prudential Institutional Fund Prospectus 11
<PAGE>

================================================================================

INVESTORS GUIDE TO SERVICES

Investment in the Company and Special Processing. As an institutional fund,
shares are offered exclusively to retirement programs and arrangements
("Programs") through their plan sponsors, to Individual Retirement Accounts
("IRAs") and to certain institutional investors. Sponsors of a Program or their
agents are referred to as "Program Sponsor(s)" or "Program Administrator(s)" and
individual employees participating in a Program are referred to as
"Participant(s)," and individual investors who separate from a program are
referred to as "Continuing Participant(s)." Endowments, foundations, insurance
companies and other institutional investors are referred to as "Other
Institutional Investors". The term "shareholders" refers to each or all of these
categories as well as to IRAs, as appropriate.

Investments by Participants are made through their Program Sponsor's
recordkeeper, who is responsible for transmitting all orders for the purchase,
redemption or exchange of Company shares. The availability of each Fund and the
procedures for investing depend upon the provisions of the Program and whether
the Program Sponsor has contracted with the Company or the Transfer Agent for
special processing services, including subaccounting. Continuing Participants,
Other Institutional Investors and IRA investors must arrange for services
through Prudential Institutional Fund Management, Inc., the Manager, by
contacting them at 30 Scranton Office Park, Moosic, PA 18507-1789. The following
services are offered specifically to sponsors of qualified retirement programs.

Purchasing Shares. Shares of a Fund may be purchased through a Program Sponsor's
recordkeeper or directly from the Transfer Agent. The purchase price for shares
of a Fund will be the net asset value per share next determined following
acceptance of a purchase order by the Program Sponsor's recordkeeper or PMFS. In
order for a purchase order to be accepted, it must include the information
necessary to determine the proper share allocation for each Participant. In
addition, the Manager may determine, at its own discretion, to require the
Program Sponsor's recordkeeper to deliver to PMFS the funds for initial
investment prior to accepting any purchase order. Plans should determine, prior
to investing in the Funds, whether the Manager will require the delivery of
funds for the initial investment prior to accepting a purchase order. The
Company reserves the right to reject any purchase order (including an exchange
order) or to suspend or modify the continuous offering of its shares.

The Program Sponsor and its recordkeeper and PMFS are responsible for forwarding
payment promptly to the Company. Except where funds are received prior to the
opening of the account, the Company reserves the right to cancel any purchase
order for which payment has not been received by the fifth business day
following the investment. On behalf of the Company, the Manager, in its sole
discretion, may require assurances from the Program Sponsor and its recordkeeper
concerning timely payment of funds and payment of damages for failure to deliver
funds and purchase orders on a timely basis.

The Company also may determine to accept eligible securities as payment for a
Program's initial investment in a Fund. Eligible securities include any security
that a Fund has authority to purchase, consistent with its investment
restrictions and operating policies as set forth in this Prospectus and the
Statement of Additional Information, and that the Company otherwise agrees to
accept. Acceptance of such securities is at the absolute discretion of the
Company, and the Company may refuse to accept any securities at any time.
Eligible securities are valued using the same methods the Fund uses to value its
portfolio securities, except that applicable stock transfer taxes, if any, may
reduce the amount exchanged. The exchange of securities by the investor pursuant
to this offer will constitute a taxable transaction and may result in a gain or
a loss for federal income tax purposes.

Redemptions. Requests to redeem shares where the proceeds are not immediately
invested in shares of another Fund (see the section entitled "Exchange
Privilege" below) must be made in writing (or by such other means as agreed upon
in advance by the Program Sponsor's recordkeeper and the Program Administrator)
to the Program Sponsor's recordkeeper. Requests for the redemption of shares are
considered received when all required information and any necessary signatures
have been provided. The Company generally will redeem for cash all full and
fractional shares. The redemption price is the net asset value per share next
determined after receipt by the Company of proper notice of redemption. The
payment of redemption proceeds will be made by check (or at the discretion of
the Program Recordkeeper, by electronic credit to the Participant's account at a
financial institution). Unless extraordinary circumstances exist, the payment of
proceeds will be made within seven days of the receipt of the request for
redemption. The Company has reserved the right to redeem shares in excess of
$250,000 or 1% of the net asset value of each Fund during any 90-day period for
any one shareholder by "distribution in kind" of securities (instead of cash)
from such Funds. The Company does not intend to exercise this right except in
special circumstances when it determines that it is in the interest of the
Company and its shareholders. Redemption in kind is not as liquid as cash
redemption. If redemption is made in kind, shareholders receiving portfolio
instruments and selling them before their maturity could receive less than the
redemption value of their securities and the redeeming shareholder will incur
transaction costs from disposing of such securities. The right of redemption may
be suspended under unusual circumstances, as permitted by law. If shares to be
redeemed were purchased with clearing house funds, the Company reserves the
right to delay payment until it is reasonably sure the funds have been credited
to its account. If shares were purchased by personal, corporate, or U.S.
government check, proceeds may be delayed until the check has been honored, but
in no event more than 15 calendar days from the date of receipt of the check.
This procedure does not apply to shares purchased by wire payment. Prior to the
time the redemption is effective, dividends on such shares will accrue and be
payable, and you will be entitled to exercise all other rights of beneficial
ownership.

Exchange Privilege. Shares of each Fund may be exchanged for shares of any other
available Fund (depending upon the provisions of the Program) by written,
facsimile, telecopy, telephone or electronic exchange request through the
Program's recordkeeper at the net asset value next determined after receipt by
the Transfer Agent or the Program Sponsor's recordkeeper of an exchange request
in good order. Exchanges are

12 The Prudential Institutional Fund Prospectus

<PAGE>

currently permitted at no charge, subject to any minimum investment
requirements, or any general limitations of the Fund into which an exchange is
sought. Currently, there are no such requirements or limitations. The exchange
privilege may be modified or withdrawn by the Company upon 60 days' notice to
shareholders.

Signatures. When a Program provides that redemption may only be made by written
request, the signature on a written redemption request must be exactly as shown
on the enrollment form. In addition to a Program Participant's signature, a
written request must include all other signatures required by the Program and
federal law.

Telephone Requests. Certain Programs may allow participants to effect exchanges
and other Fund transactions by telephone and telecopy. If the Program offers
such telephone and telecopy privileges, each Program participant will
automatically receive such privileges unless he or she declines those privileges
on a form that will be supplied by the Program Sponsor or Program Recordkeeper.
For the participant's protection and to prevent fraudulent exchanges, telephone
calls will be recorded and the participant will be asked to provide his or her
personal identification number or other identifying information. A written
confirmation of an exchange transaction will be sent to the participant. Neither
the Funds nor their agents will be liable for any loss, liability or cost which
results from acting upon instructions reasonably believed to be genuine under
the foregoing procedures. (The Fund or its agents could be subject to liability
if they fail to employ reasonable procedures.) All exchanges will be made on the
basis of the relative net asset value of the two Funds next determined after the
request is received in good order. Telephone and telecopy privileges are
available only if the Program Sponsor has so elected and only in states where
these privileges may legally be offered. The safeguards discussed above that are
employed by each Fund are designed to minimize unauthorized exercise of these
privileges. During time of extraordinary economic or market changes, telephone
privileges or telecopied instructions may be difficult to implement.

Other Services

-- Reinvestment of Distributions. Income dividends and capital gain
distributions with respect to a particular Fund are declared in cash and
automatically reinvested in additional shares of that Fund. Shares of each
Fund, including shares received as dividends and other distributions, may
be redeemed for cash at any time. See "Investors Guide to Services" below
for a further description of share redemptions.

-- Systematic Withdrawal Plan. A Systematic Withdrawal Plan may be established
by a Program Administrator subject to the requirements of its Program,
federal tax laws, and the Company's applicable procedures. The
shareholder's interest in each Fund designated for systematic withdrawals
or in other programs for which the Manager or its affiliates act as
investment manager, must have a minimum value of $5,000 when the Systematic
Withdrawal Plan begins, unless used for the purpose of satisfying minimum
distribution rules. The proceeds from scheduled redemption of shares are
forwarded to the shareholder on a monthly, quarterly, semi-annual or annual
basis. Payments are in equal dollar amounts and must be at least $250. A
fee may be charged for accommodating wire transfer requests. For the
protection of shareholders and the Company, wiring instructions must be on
file prior to executing any request for the wire transfer of systematic
withdrawal proceeds. A shareholder may change the bank account previously
designated by written request, including appropriate signature guarantees,
a copy of any applicable corporate resolution or other relevant
documentation.

- --------------------------------------------------------------------------------

FURTHER INFORMATION REGARDING THESE SERVICES MAY BE OBTAINED FROM A SERVICE
REPRESENTATIVE. EACH OF THESE SERVICES IS SUBJECT TO THE REQUIREMENTS AND
LIMITATIONS OF THE PROGRAM AND MAY HAVE TAX CONSEQUENCES THAT DEPEND ON THE
INDIVIDUAL TAX STATUS OF THE RECIPIENT.

================================================================================

OTHER CONSIDERATIONS

Net Asset Value. The net asset value for each Fund is determined by subtracting
from the value of all securities, cash and other assets of each Fund, the amount
of its liabilities (including accrued expenses and dividends payable), and
dividing the result by the number of outstanding shares of that Fund. For
valuation purposes, quotations of foreign securities in a foreign currency are
converted to U.S. dollar equivalents. The Trustees have fixed the specific time
of day for the computation of the net asset value of all the Funds (except the
Money Market Fund) to be as of 4:15 p.m., New York time. The Money Market Fund
calculates net asset value as of 4:30 p.m., New York time.

Fund securities and other assets are valued based on market quotations, or, if
not readily available, at fair market value as determined in good faith under
procedures established by the Company's Trustees. See "Other Considerations--Net
Asset Value" in the Statement of Additional Information.

Each Fund computes its net asset value once daily on business days. Business
days are days when the NYSE is open for trading except on days on which no
orders to purchase, sell, or redeem shares have been received by the Company or
days on which changes in the value of the Company's portfolio securities do not
affect net asset value. The NYSE is closed on the following holidays: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.

The Money Market Fund determines the value of its portfolio securities by the
amortized cost method. This method involves valuing an instrument at its cost
and thereafter assuming a constant amortization to maturity of any discount or
premium regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Money Market Fund would receive if it sold
the instrument. During these periods, the yield to an existing shareholder may
differ somewhat from that which could be obtained if the Fund marked its
portfolio securities to market each day. The Trustees have established
procedures designed to stabilize, to the extent reasonably possible, the net
asset value of the shares of the Money

The Prudential Institutional Fund Prospectus 13
<PAGE>

Market Fund at $1.00 per share. The Money Market Fund seeks to maintain a $1.00
share price at all times although there can be no assurance that the Fund will
do so. To achieve this, the Money Market Fund purchases only securities with
remaining maturities of thirteen months or less and limits the dollar-weighted
average maturity of its portfolio to 90 days or less. The Money Market Fund
cannot guarantee a $1.00 share price, but the Fund's maturity standards and
investments solely in high quality money market instruments minimize any price
decreases or increases.

Portfolio Transactions. It is expected that Prudential Securities Incorporated
("PSI"), a registered broker-dealer, which is an indirect wholly-owned
subsidiary of The Prudential, may act as broker for the Company, in conformity
with the securities laws and rules thereunder. In order for PSI to effect any
portfolio transactions for the Company on an exchange or board of trade, the
commissions received by PSI must be reasonable and fair compared to the
commissions paid to other brokers in connection with comparable transactions
involving similar securities or futures being purchased or sold on an exchange
or board of trade during a comparable period of time. This standard would allow
PSI to receive no more than the remuneration which would be expected to be
received by an unaffiliated broker or futures commission merchant in a
commensurate arm's-length transaction. The Trustees have approved procedures for
evaluating the reasonableness of commissions paid to PSI and periodically
reviews these procedures.

Distributions. Dividends and other distributions of each Fund are declared in
cash and automatically reinvested in additional shares of the Fund. While
shareholders may not elect to receive dividends and other distributions in cash,
the same effect may be achieved at any time by redeeming shares of the Fund. The
Income Fund and Money Market Fund expect to declare dividends of their net
investment income and, for the Money Market Fund, net short-term capital gains,
and losses, daily and to distribute such dividends monthly. Each other Fund
expects to declare and distribute a dividend of its net investment income, if
any, at least annually. Except for the Money Market Fund, each Fund expects to
declare and distribute its net capital gains (the excess of net long-term
capital gain over net short-term capital loss) and net short-term capital gain,
if any, at least annually. Distributions of income dividends and capital gains
distributions of each Fund are made on the payment date and reinvested at the
per share net asset value as of the record date or such other date as the Board
may determine. On the "ex-dividend" date, the net asset value per share excludes
the dividend (i.e., is reduced by the amount of the distribution).

Taxes. The following discussion is only a brief summary of some of the important
tax considerations affecting the Company, its Funds and its shareholders. For
further tax-related information see "Other Considerations--Taxes" in the
Statement of Additional Information. No attempt is made to present a detailed
explanation of all federal, state, and local income tax considerations, and this
discussion (as well as that in the Statement of Additional Information) is not
intended as a substitute for careful tax planning. Accordingly, investors are
urged to consult their own tax advisors with specific reference to their own tax
situation.

Tax Consequences to the Funds. Each Fund is treated as a separate entity for
federal income tax purposes, and thus the provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), applicable to regulated investment
companies generally are applied to each Fund separately, rather than to the
Company as a whole. Each Fund has elected to qualify and intends to remain
qualified as a regulated investment company under the Code. If so qualified,
each Fund is not subject to federal income taxes with respect to net investment
income and net realized capital gains, if any, that are distributed to its
shareholders, provided that the Fund distributes each year at least 90% of its
net investment income, (including net short term capital gains), and meets
certain other requirements set forth in the Code. Each Fund would be subject to
a 4% nondeductible excise tax on such Fund's taxable income to the extent such
Fund did not meet certain distribution requirements by the end of each calendar
year. Each Fund intends to make sufficient distributions to avoid application
of this excise tax.

Tax Consequences to the Shareholders. The Company's present intention is to
offer the Funds to qualified retirement programs, Continuing Participants, and
Other Institutional Investors.

Distributions from a qualified retirement program or other non-qualified
arrangements to a Participant or beneficiary will be subject to the provisions
in the Code and Treasury Regulations relating to taxation of such distributions.
Because the effect of these rules varies greatly with individual situations,
potential investors are urged to consult their own tax advisors.

Certain investments of the Funds, such as Passive Foreign Investment Companies
and zero coupon instruments involve special tax issues. The Statement of
Additional Information contains a general discussion of these matters.

Tax Consequences to Non-Exempt Shareholders.
Dividends from a Fund's investment company taxable income (consisting generally
of net investment income, net short-term capital gain and, when applicable, net
gains from foreign currency transactions) are taxable to its shareholders that
are not tax-exempt entities as ordinary income to the extent of the Fund's
earnings and profits. Distributions of a Fund's net capital gains, when
designated as such, are taxable to those shareholders as long-term capital
gains, regardless of the length of time they held their shares.

A portion of the dividends paid by a Fund, even though reinvested in additional
Fund shares, may be eligible for the dividends-received deduction allowed to
corporations. The eligible portion may not exceed the aggregate dividends
received by the Fund from U.S. corporations. However, dividends received by a
corporate shareholder and deducted by it pursuant to the dividends-received
deduction are subject indirectly to the alternative minimum tax. No dividends
paid by the Income Fund or the Money Market Fund, and only an insignificant part
of the dividends paid by the International Stock Fund, are expected to be
eligible for this deduction.

14 The Prudential Institutional Fund Prospectus

<PAGE>

A redemption of Fund shares will result in taxable gain or loss to a non-exempt
shareholder, depending on whether the redemption proceeds are more or less than
its adjusted basis for the redeemed shares. An exchange of Fund shares for
shares of any other fund generally will have similar tax consequences.

================================================================================
PERFORMANCE AND YIELD
INFORMATION

Money Market Fund. From time to time quotations of the Money Market Fund's
"yield" and "effective yield" may be included in marketing material and
communications to shareholders. Both yield figures are based on historical
earnings and are not intended to indicate future performance. The "yield" of the
Fund refers to the net income generated by an investment in the Fund over a
specified seven-day period. This income is then "annualized." That is, the
amount of income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is expressed similarly but, when annualized,
the income earned by an investment in the Fund is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment. "Yield" and "effective yield"
for the Fund will vary based on changes in market conditions, the level of
interest rates and the level of the Fund expenses.

From time to time, the average annual total return or cumulative total return of
the Fund may also be included in marketing material and communications to
shareholders. The average annual total return will be calculated as described
below.

Other Funds. From time to time a Fund, other than the Money Market Fund, may
publish its 30-day yield, average annual total return and/or its cumulative
total return in its marketing material and communications to shareholders. The
yield of a Fund will be calculated by dividing the net investment income per
share during a recent 30-day period by the maximum offering price (i.e., net
asset value) per share of the Fund on the last day of the period. The results
are compounded on a bond equivalent (semi-annual) basis and then annualized. A
Fund's average annual total return is determined by computing the annual
percentage change in value of $1,000 invested at the maximum public offering
price (i.e., net asset value) for specified periods ending with the most recent
calendar quarter, assuming reinvestment of all dividends and distributions at
net asset value.

Investors should note that the investment results of a Fund will fluctuate over
time, and any presentation of a Fund's yield or average annual total return for
any prior period should not be considered as a representation of what an
investment may earn or what an investor's yield or total return may be in any
future period. Because the method of calculating yield differs from the methods
used for other accounting purposes, a Fund's yield may not equal the
distributions to shareholders or the income reported in a Fund's financial
statements. See "Performance and Yield Information" in the Statement of
Additional Information for additional performance and yield information. The
Fund also may publish other measurements of return including calculating return
that is not annualized; provided, however, that any non-standardized measures of
return will be accompanied by the standard return required by the Securities and
Exchange Commission ("SEC").

Performance Information. Comparative performance information may be used from
time to time in advertising the Company's shares, including, but not limited to,
data from Lipper Analytical Services, Inc., the Standard & Poor's 500 Index, the
Salomon Brothers Broad Investment Grade Bond Index, the Dow Jones Industrial
Average, the Donoghue Money Market Averages, Morningstar, Inc., the Salomon
Brothers 1-3 years Treasury Index, the Morgan Stanley EAFE Index, the Lehman
Brothers Aggregate Index or Government/Corporate Index and other commonly used
indices or industry publications. The Fund's annual report to Shareholders for
its fiscal year ended September 30, 1995 contains additional performance
information and may be obtained by prospective investors without cost.

================================================================================

OTHER INVESTMENT PRACTICES,
RISK CONDITIONS, AND POLICIES
OF THE FUNDS

The investment objective(s) of each Fund are fundamental. Fundamental
objectives, policies and restrictions may be changed only with the approval of a
"majority of the outstanding voting securities" of that Fund. Each Fund's
investment program, unless otherwise specified, is not fundamental and may be
changed by the Board without shareholder approval. A "majority of the
outstanding voting securities" means the lesser of (i) 67% of the shares
represented at a meeting at which more than 50% of the outstanding shares are
present in person or represented by proxy or (ii) more than 50% of the
outstanding shares. Each Fund's investment program is subject to further
restrictions as described in the Statement of Additional Information.

Each Fund may hold a portion of its assets in money market instruments in
amounts designed to pay expenses, to meet anticipated redemptions, pending
investments or to margin its purchases and sales of futures contracts in
accordance with its objectives and policies. These instruments may be purchased
on a forward commitment, when-issued or delayed-delivery basis. In addition,
each Fund (except for the Stock Index Fund and the Money Market Fund) may for
temporary defensive purposes invest, without limitation, in high-quality money
market instruments. Each Fund, except the Money Market Fund, may also purchase
non-investment grade fixed income securities and retain investment grade fixed
income securities that have been downgraded to non-investment grade provided
that no more than 5% of the Fund's net assets is invested in non-ivestment grade
fixed income securities, which are considered to be high risk securities, i.e.
"junk" bonds. See "Fixed Income Securities" below and "Other Investment
Practices, Risk Conditions, and Policies of the Funds--Fixed Income Securities"
in the Statement of Additional Information for a fuller description of
thesesecurities.

Each Fund, consistent with its investment objective, may invest in one or more
of the types of securities described below and may utilize a variety of

The Prudential Fund Prospectus 15

<PAGE>

the investment techniques described below. These securities and investment
techniques are more fully described in the Statement of Additional Information.

U.S. Government Securities. Each Fund may invest in fixed income securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
Obligations of the U.S. Government consist of various types of marketable
securities issued by the U.S. Treasury, i.e., bills, notes and bonds, and are
direct obligations of the U.S. Government. Obligations of agencies and
instrumentalities of the U.S. Government are not direct obligations of the U.S.
Government and are either: (i) guaranteed by the U.S. Treasury (e.g., Government
National Mortgage Association ("GNMA") mortgage-backed securities); (ii)
supported by the issuing agency's or instrumentality's right to borrow from the
U.S. Treasury at the discretion of the U.S. Treasury (e.g., Federal National
Mortgage Association ("FNMA") Discount Notes); or (iii) supported by only the
issuing agency's or instrumentality's credit (e.g., each of the Federal Home
Loan Banks).

Repurchase Agreements. Each Fund may enter into repurchase agreements, whereby
the seller of a security agrees to repurchase that security from the Fund at a
mutually agreed-upon time and price. The period of maturity is usually quite
short, possibly overnight or a few days, although it may extend over a number of
months. The resale price is in excess of the purchase price, reflecting an
agreed-upon rate of return effective for the period of time the Fund's money is
invested in the security. The Fund's repurchase agreements will at all times be
fully collateralized in an amount at least equal to the purchase price,
including accrued interest earned on the underlying securities. The instruments
held as collateral are valued daily, and if the value of the instruments
declines, the Fund will require additional collateral. For the Money Market
Fund, the underlying security must either be a U.S. Government security or a
security rated in the highest rating category by the requisite NRSROs and must
be determined to present minimal credit risks. In the event of bankruptcy or
default of certain sellers of repurchase agreements, the Funds could experience
costs and delays in liquidating the underlying security held as collateral and
might incur a loss if such collateral declines in value during this period. Each
Fund may participate in a joint repurchase account managed by PIC.

Equity-Related Securities. Each Fund (except for the Income Fund and the Money
Market Fund) may invest in equity-related securities. Equity-related securities
are common stock, preferred stock, rights, warrants and debt securities or
preferred stock which are convertible or exchangeable for common stock or
preferred stock.

Fixed Income Securities. Fixed income securities are considered high-quality if
they are rated at least AA/Aa by S&P or by Moody's or an equivalent rating by
any NRSRO or, if unrated, are determined to be of comparable investment quality
by the Adviser. High-quality fixed income securities are considered to have a
very strong capacity to pay principal and interest. Fixed income securities are
considered medium quality if they are rated, for example, at least BBB/Baa by
S&P or by Moody's or an equivalent rating by any NRSRO or, if not rated, are
determined to be of comparable investment quality by the Adviser. Medium quality
fixed income securities are regarded as having an adequate capacity to pay
principal and interest. Securities rated in the lowest category of investment
grade debt have speculative characteristics and changes in economic conditions
or other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade bonds.

Investment grade fixed income securities are securities rated BBB or better by
S&P or Baa or better by Moody's (or an equivalent rating by any NRSRO) or, if
not rated, are deemed by the Adviser to be of comparable investment quality.

Non-investment grade securities are rated lower than BBB/Baa (or an equivalent
rating by any NRSRO) or, if not rated, are deemed by the Adviser to be of
comparable investment quality and are commonly referred to as high risk or high
yield securities, i.e. "junk" bonds. High yield securities are generally riskier
than higher quality securities and are subject to more credit risk, including
risk of default, and are more volatile than higher quality securities. In
addition, such securities may have less liquidity and experience more price
fluctuation than higher quality securities. See the discussion of corporate bond
ratings in "Description of S&P, Moodys and Duff & Phelps Ratings" in the
Appendix to the Statement of Additional Information.

The maturity of debt securities may be considered long (ten plus years),
intermediate (three to ten years) or short term (three years or less). In
general, the principal values of longer-term securities fluctuate more widely in
response to changes in interest rates than those of shorter-term securities,
providing greater opportunity for capital gain or risk of capital loss. A
decline in interest rates usually produces an increase in the value of debt
securities, while an increase in interest rates generally reduces their value.

Convertible Securities, Warrants and Rights. A convertible security is a bond,
debenture, corporate note, preferred stock or other similar security that may be
converted into or exchanged for a prescribed amount of common stock or other
equity security of the same or a different issuer within a particular period of
time at a specified price or formula. A warrant or right entitles the holder to
purchase equity securities at a specific price for a specific period of time.

Securities of Foreign Issuers. The International Stock Fund intends to invest
primarily in securities of foreign issuers. In addition, the other Funds may
invest a portion of their assets in fixed income securities and equity
securities of foreign issuers (denominated in either U.S. or foreign currency).
The Money Market Fund may only invest in U.S. dollar-denominated securities of
foreign issuers.

Foreign securities involve certain unique risks. These risks include political
or economic instability in the country of issue, the difficulty of predicting
international trade patterns, the possible imposition of exchange controls and
the risk of currency fluctuations. Such securities may be subject to greater
fluctuations in price than securities issued by U.S. corporations or issued or
guaranteed by the U.S. Government, its agencies or instrumentalities. In
addition, there may be less publicly available information about a foreign
company than about a domestic company. Foreign companies generally are not
subject to uniform accounting, auditing, and financial reporting standards
comparable to those applicable to domestic companies.

16 The Prudential Institutional Fund Prospectus

<PAGE>

Dividends paid by foreign companies may be subject to withholding and other
foreign taxes that may decrease the net return on such investments as compared
to dividends and interest paid by the U.S. Government or by domestic companies.
There is generally less government regulation of securities exchanges, brokers
and listed companies abroad than in the United States, and, with respect to
certain foreign countries, there is a possibility of expropriation, confiscatory
taxation, or diplomatic developments which could affect investment in those
countries. Finally, in the event of a default of any such foreign fixed income
obligations, it may be more difficult for the Fund to obtain or to enforce a
judgment against the issuers of such securities. If the security is foreign
currency denominated, it may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations, and costs may be incurred in
connection with conversions between currencies.

Investments in emerging and less developed countries involve exposure to
economic structures that are generally less diverse and mature than in the U.S.
or other developed countries. A developing country can be considered to be a
country which is in the initial stages of its industrialization cycle.
Historically, markets of developing countries have been more volatile than the
markets of developed countries.

With respect to equity securities, each Fund (except for the Money Market Fund)
may purchase ADRs. ADRs are U.S. dollar-denominated certificates issued by a
United States bank or trust company and represent the right to receive
securities of a foreign issuer deposited in a domestic bank or foreign branch of
a United States bank and traded on a United States exchange or in an
over-the-counter market. Generally, ADRs are in registered form. There are no
fees imposed on the purchase or sale of ADRs when purchased from the issuing
bank or trust company in the initial underwriting, although the issuing bank or
trust company may impose charges for the collection of dividends and the
conversion of ADRs into the underlying securities. Investment in ADRs has
certain advantages over direct investment in the underlying foreign securities
since: (i) ADRs are U.S. dollar-denominated investments that are registered
domestically, easily transferable, and for which market quotations are readily
available; and (ii) issuers whose securities are represented by ADRs are usually
subject to comparable auditing, accounting, and financial reporting standards as
domestic issuers.

Segregated Accounts. Each Fund will establish a segregated account with its
Custodian in which it will maintain cash, U.S. Government securities or other
liquid high-grade debt obligations equal in value to its obligations in respect
of potentially leveraged transactions including, forward contracts, when-issued
and delayed-delivery securities, repurchase and reverse repurchase agreements,
forward rolls, dollar rolls, futures contracts, written options, options on
futures contracts (unless otherwise covered) and interest rate swaps. The assets
deposited in the segregated account will be marked-to-market daily.

Forward Rolls, Dollar Rolls and Reverse Repurchase Agreements. The Income Fund
and the Balanced Fund may each commit up to 33 1/3% of the value of its total
assets to investment techniques such as dollar rolls, forward rolls and reverse
repurchase agreements. The Growth Stock Fund, Stock Index Fund, International
Stock Fund, Active Balanced Fund and Money Market Fund may each commit up to 20%
of their net assets to these techniques. A forward roll is a transaction in
which a Fund sells a security to a financial institution, such as a bank or
broker-dealer, and simultaneously agrees to repurchase the same or similar
security from the institution at a later date at an agreed upon price. With
respect to mortgage-related securities, such transactions are often called
"dollar rolls." In dollar roll transactions, the mortgage-related securities
that are repurchased will bear the same coupon rate as those sold, but generally
will be collateralized by different pools of mortgages with different prepayment
histories than those sold. During the roll period, the Fund forgoes principal
and interest paid on the securities and is compensated by the difference between
the current sales price and the forward price for the future purchase as well as
by interest earned on the cash proceeds of the initial sale. A "covered roll" is
a specific type of dollar roll for which there is an offsetting cash position or
a cash equivalent security position which matures on or before the forward
settlement date of the dollar roll transaction.

Reverse repurchase agreements involve sales by a Fund of portfolio securities to
a financial institution concurrently with an agreement by that Fund to
repurchase the same securities at a later date at a fixed price. During the
reverse repurchase agreement period, the Fund continues to receive principal and
interest payments on these securities.

Reverse repurchase agreements, forward rolls and dollar rolls involve the risk
that the market value of the securities purchased by the Fund with the proceeds
of the initial sale may decline below the price of the securities the Fund has
sold but is obligated to repurchase under the agreement. In the event the buyer
of securities under a reverse repurchase agreement, forward roll or dollar roll
files for bankruptcy or becomes insolvent, the Fund's use of the proceeds of the
agreement may be restricted pending a determination by the other party, or its
trustee or receiver, whether to enforce the Fund's obligations to repurchase the
securities. The Staff of the SEC has taken the position that reverse repurchase
agreements, forward rolls and dollar rolls are to be treated as borrowings for
purposes of the percentage limitations discussed in the section entitled
"Borrowings" below. The Company expects that under normal conditions most of the
borrowings of the Funds will consist of such investment techniques rather than
bank borrowings. See "Other Investment Practices, Risk Conditions, and Policies
of the Funds--Borrowings" below.

When-Issued and Delayed-Delivery Securities.
Each Fund may purchase securities on a when-issued or delayed-delivery basis.
When a Fund purchases securities on a when-issued or delayed-delivery basis, the
price of such securities is fixed at the time of the commitment, but delivery
and payment for the securities may take place up to 120 days

The Prudential Institutional Fund Prospectus 17

<PAGE>

after the date of the commitment to purchase. With respect to up to 5% of their
respective net assets, the Income Fund and the Balanced Fund may each purchase
securities to be delivered and paid for up to six months after the date of the
commitment to purchase. The securities so purchased are subject to market
fluctuation, and no interest accrues to the purchaser during this period.
When-issued and delayed-delivery securities involve a risk of loss if the value
of the security to be purchased declines prior to the settlement date or
increases in value and there is a failure to deliver the security.

Custodial Receipts. The Income Fund, the Balanced Fund and the Active Balanced
Fund may each acquire custodial receipts or certificates, such as CATS, TIGRs
and FIC Strips, underwritten by securities dealers or banks, that evidence
ownership of future interest payments, principal payments or both on certain
notes or bonds issued by the U.S. Government, its agencies, authorities or
instrumentalities. The underwriters of these certificates or receipts generally
purchase a U.S. Government security and deposit the security in an irrevocable
trust or custodial account with a custodian bank, which then issues receipts or
certificates that evidence ownership of the periodic unmatured coupon payments
and the final principal payment on the U.S. Government security. Custodial
receipts evidencing specific coupon or principal payments have the same general
attributes as zero coupon U.S. Government securities but are not U.S.
Government Securities and therefore are neither insured nor guaranteed by the
U.S. Government.

Mortgage-Backed Securities. Mortgage-backed securities represent interests in
pools of mortgages. Principal and interest payments made on the mortgages in the
pools are passed through to the holder of such securities. Payment of principal
and interest on some mortgage-backed securities (but not the market value of the
securities themselves) may be guaranteed by the full faith and credit of the
U.S. Government, or guaranteed by agencies or instrumentalities of the U.S.
Government. Mortgage-backed securities created by non-governmental issuers (such
as commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers, and other secondary market issuers) may be
supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance, and letters of credit, which may be
issued by governmental entities, private insurers, or the mortgage poolers.

Mortgage-backed securities include collateralized mortgage obligations (CMOs),
which are obligations fully collateralized by the portfolio of mortgaged or
mortgage-related securities. Payments of principal and interest on the mortgages
are passed through to the holders of the CMO as they are received, although
certain classes of CMOs have priority over others for receipt of mortgage
pre-payments. Typically, CMOs are collateralized by GNMA, FNMA or FHLMC
Certificates, but also may be collateralized by whole loans or private mortgage
pass-through securities (such collateral is referred to below as "Underlying
Assets").

CMOs may be issued by agencies or instrumentalities of the U.S. Government, or
by private originators of, or investors in, mortgage loans, including depository
institutions, mortgage banks, investment banks and special-purpose subsidiaries
of the foregoing. The issuer of a series of CMOs may elect to be treated as a
Real Estate Mortgage Investment Conduit ("REMIC").

In a CMO, a series of bonds or certificates is issued in multiple classes. Each
class of a CMO, often referred to as a "tranche," is issued at a specific fixed
or floating coupon rate and has a stated maturity or final distribution date.
Principal prepayments on the Underlying Assets may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrues on all classes of CMOs on a monthly, quarterly or
semi-annual basis. The principal of and interest on the Underlying Assets may be
allocated among the several classes of a CMO series in a number of different
ways. Generally, the purpose of the allocation of the cash flow of a CMO to the
various classes is to obtain a more predictable cash flow to the individual
tranches than exists with the underlying collateral of the CMO. As a general
rule, the more predictable the cash flow on a CMO tranche, the lower the
anticipated yield will be on that tranche at the time of issuance compared to
prevailing market yields on mortgage-backed securities.

Unscheduled or early repayment of principal on mortgage pass-through securities
(arising from prepayments of principal due to the sale of the underlying
property, refinancing, or foreclosure, net of fees and costs which may be
incurred) may expose the Fund to a lower rate of return upon reinvestment of
principal. Like other fixed income securities, when interest rates rise, the
value of a mortgage-related security generally will decline; however, when
interest rates are declining, the value of mortgage-related securities with
prepayment features may not increase as much as other fixed-income securities.

Asset-Backed Securities. The Balanced Fund, the Active Balanced Fund and the
Income Fund may purchase asset-backed securities that represent either
fractional interests or participations in pools of leases, retail installment
loans, or revolving credit receivables held by a trust or limited purpose
finance subsidiary. Such asset-backed securities may be secured by the
underlying assets (such as certificates for automobile receivables or may be
unsecured (such as credit card receivable securities). Depending on the
structure of the asset-backed security, monthly or quarterly payments of
principal and interest or interest only are passed-through or paid through to
certificate holders. Asset-backed securities may be guaranteed up to certain
amounts by guarantees, insurance, or letters of credit issued by a financial
institution affiliated or unaffiliated with the originator of the pool.

Underlying automobile sales contracts and credit card receivables are, of
course, subject to prepayment (although to a lesser degree than mortgage
pass-through securities), which may shorten the securities' weighted average
life and reduce their overall return to certificate holders. On the other hand,
asset-backed securities may present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities often do not have the
benefit of a security interest in the related collateral. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, some of which
may reduce the ability to obtain full payment. In the case of automo-

18 The Prudential Institutional Fund Prospectus

<PAGE>

bile receivables, the security interests in the underlying automobiles are often
not transferred when the pool is created, with the resulting possibility that
the collateral could be resold.

Unlike traditional fixed income securities, interest and principal payments on
asset-backed securities are made more frequently, usually monthly, and principal
may be prepaid at any time. As a result, if a Fund purchases such a security at
a premium, a prepayment rate that is faster than expected will reduce yield to
maturity, while a prepayment rate that is slower than expected will have the
opposite effect of increasing yield to maturity. Alternatively, if a Fund
purchases these securities at a discount, faster than expected prepayments will
increase, while slower than expected prepayments will reduce, yield to maturity.
Certificate holders may also experience delays in payment if the full amounts
due on underlying loans, leases, or receivables are not realized because of
unanticipated legal or administrative costs of enforcing the contracts or
because of depreciation or damage to the collateral (usually automobiles)
securing certain contracts, or other factors. If consistent with its investment
objective and policies, the Balanced Fund, the Active Balanced Fund and the
Income Fund may invest in other asset-backed securities that may be developed in
the future.

Types of Credit Enhancement. Mortgage-backed securities and asset-backed
securities are often backed by a pool of assets representing the obligations of
a number of different parties. To lessen the effect of failures by obligors on
underlying assets to make payments, those securities may contain elements of
credit support, which fall into two categories: (i) liquidity protection and
(ii) protection against losses resulting from ultimate default by an obligor on
the underlying assets. Liquidity protection refers to the provision of advances,
generally by the entity administering the pool of assets, to ensure that the
receipt of payments on the underlying pool occurs in a timely fashion.
Protection against losses resulting from default ensures ultimate payment of the
obligations on at least a portion of the assets in the pool. This protection may
be provided through guarantees, insurance policies or letters of credit obtained
by the issuer or sponsor from third parties, through various means of
structuring the transaction or through a combination of such approaches. The
Funds will not pay any fees for credit support, although the existence of credit
support may increase the price of a security.

Liquidity Puts. Each Fund may purchase instruments together with the right to
resell the instruments at an agreed-upon price or yield, within a specified
period prior to the maturity date of the instruments. This instrument is
commonly known as a "liquidity put" or a "tender option bond." However, the
Growth Stock Fund and Stock Index Fund will only use such instruments in
connection with the cash or cash equivalent portion of their portfolio.

Illiquid Securities. The Growth Stock Fund, Stock Index Fund, International
Stock Fund, Active Balanced Fund, Balanced Fund and the Money Market Fund may
each hold up to 10% of their net assets in illiquid securities and the Income
Fund may hold up to 15% of its net assets in illiquid securities. Illiquid
securities include repurchase agreements which have a maturity of longer than
seven days, securities with legal or contractual restrictions on resale
(restricted securities) and securities that are not readily marketable in
securities markets either within or outside of the United States. Restricted
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933, as amended (the Securities Act) and privately placed commercial paper that
have a readily available market are not considered illiquid for purposes of this
limitation. The Fund intends to comply with any applicable state blue sky laws
restricting the Fund's investments in illiquid securities. See "Investment
Restrictions" in the Statement of Additional Information. The Fund's investment
in Rule 144A securities could have the effect of increasing illiquidity to the
extent that qualified institutional buyers become, for a time, uninterested in
purchasing Rule 144A securities. The Funds' Advisers will monitor the liquidity
of such restricted securities under the supervision of the Manager and the
Trustees. Repurchase agreements subject to demand are deemed to have a maturity
equal to the applicable notice period.

The staff of the SEC has taken the position that purchased OTC options and the
assets used as "cover" for written OTC options are illiquid securities unless
the Fund and the counterparty have provided for the Fund, at the Fund's
election, to unwind the over-the-counter option. The exercise of such an option
ordinarily would involve the payment by the Fund of an amount designed to
reflect the counterparty's economic loss from an early termination, but does
allow the Fund to treat the assets used as "cover" as "liquid." The Fund will
also treat non-U.S. Government IOs and POs as illiquid so long as the staff of
the SEC maintains its position that such securities are illiquid.

Securities Lending. Each Fund may lend its portfolio securities to brokers or
dealers, banks, or other recognized institutional borrowers of securities,
provided that the borrower at all times maintains collateral in an amount equal
to at least 100% of the market value of the securities loaned. During the time
Fund securities are on loan, the borrower will pay the Fund an amount equivalent
to any dividend or interest paid on such securities and the Fund may invest any
cash collateral it receives and earn additional income, or it may receive an
agreed-upon amount of interest income from the borrower. In these transactions,
there are risks of delay in recovery and in some cases even loss of rights in
the collateral should the borrower of the securities fail financially. Each Fund
(except the Money Market Fund) may lend up to 30% of the value of its total
assets. The Money Market Fund may lend up to 10% of the value of its total
assets.

Borrowings. Each Fund may borrow from banks or through forward rolls, dollar
rolls or reverse repurchase agreements an amount equal to no more than 20%
(except for the Balanced Fund, the Income Fund and the Money Market Fund) of the
value of its total assets to take advantage of investment opportunities, for
temporary, extraordinary, or emergency purposes or for the clearance of
transactions and may pledge up to 20% of the value of its total assets to secure
these borrowings. The Balanced Fund and the Income Fund may borrow from banks up
to 20% of the value of their respective total assets for the same purposes and
may pledge up to 20% of the value of their respective total assets to secure
such borrowings. In addition, the Balanced Fund and the Income Fund may engage
in investment techniques such as reverse repurchase agreements, forward rolls
and dollar rolls to the extent that their respective assets dedicated to such
techniques

The Prudential Institutional Fund Prospectus 19

<PAGE>

combined with the respective values of their bank borrowings do not exceed
33 1/3% of their respective total assets. Such investment techniques are deemed
"borrowings" by the SEC because the SEC considers these techniques to involve
the use of leverage. When a Fund enters into one of these transactions, it
places in a segregated account an amount equal to the Fund's obligations in that
transaction. If a Fund's asset coverage for borrowings falls below 300%, the
Fund will take prompt action to reduce its borrowings. See "Segregated Accounts"
above. If a Fund borrows to invest in securities, any investment gains made on
the securities in excess of interest paid on the borrowing will cause the net
asset value of the shares to rise faster than would otherwise be the case. On
the other hand, if the investment performance of the additional securities
purchased fails to cover their cost (including any interest paid on the money
borrowed) to the Fund, the net asset value of the Fund's shares will decrease
faster than would otherwise be the case. This is the speculative characteristic
known as leverage. The Money Market Fund may borrow an amount equal to no more
than 20% of the value of its total assets only for temporary, extraordinary or
emergency purposes.

Options on Securities and Securities Indices. Each Fund (other than the Money
Market Fund) may purchase and sell put and call options on any securities in
which it may invest or options on any securities index based on securities in
which the Fund may invest. Each Fund is also authorized to enter into closing
purchase and sale transactions in order to realize gains or minimize losses on
options sold or purchased by the Fund.

A Fund would normally purchase call options to attempt to hedge against an
increase in the market value of the type of securities in which the Fund may
invest. The purchase of a call option would entitle a Fund, in return for the
premium paid, to purchase specified securities at a specified price, upon
exercise of the option, during the option period. A Fund would ordinarily
realize a gain if, during the option period, the value of such securities
exceeds the sum of the exercise price, the premium paid and transaction costs;
otherwise, the Fund would realize a loss on the purchase of the call option. A
Fund may also write a put option, which can serve as a limited long hedge
because increases in value of the hedged investment would be offset to the
extent of the premium received for writing the option. However, if the security
depreciates to a price lower than the exercise price of the put option, it can
be expected that the option will be exercised and the Fund will be obligated to
buy the security at more than its market value.

A Fund would normally purchase put options to hedge against a decline in the
market value of securities in its portfolio ("protective puts"). The purchase of
a put option would entitle a Fund, in exchange for the premium paid, to sell
specified securities at a specified price, upon exercise of the option, during
the option period. Gains and losses on the purchase of protective puts would
tend to be offset by countervailing changes in the value of underlying Fund
securities. A Fund would ordinarily realize a gain if, during the option period,
the value of the underlying securities decreases below the exercise price
sufficiently to cover the premium and transaction costs; otherwise, the Fund
would realize a loss on the purchase of the put option. A Fund may also write a
call option, which can serve as a limited short hedge because decreases in value
of the hedged investment would be offset to the extent of the premium received
for writing the option. However, if the security appreciates to a price higher
than the exercise price of the call option, it can be expected that the option
will be exercised and the Fund will be obligated to sell the security at less
than its market value.

A Fund may purchase and sell put and call options on securities indices for
hedging against a decline in the value of the securities owned by the Fund or
against an increase in the market value of the type of securities in which the
Fund may invest. Securities index options are designed to reflect price
fluctuations in a group of securities or segment of the securities market rather
than price fluctuations in a single security. Options on securities indices are
similar to options on securities, except that the exercise of securities index
options requires cash payments and does not involve the actual purchase or sale
of securities. A Fund purchasing or selling securities index options is subject
to the risk that the value of its portfolio securities may not change as much as
or more than the index because a Fund's investments generally will not match the
composition of the index. See "Other Considerations--Taxes" and "Other
Investment Practices, Risk Conditions, and Policies of the Funds" in the
Statement of Additional Information.

Futures Contracts and Options on Futures Contracts. The Balanced Fund, the
Active Balanced Fund and the Income Fund may enter into futures contracts on
securities, securities indices and interest rate indices. The Stock Index Fund
may enter into futures contracts on securities indices. The International Stock
Fund, the Balanced Fund and the Active Balanced Fund may also enter into
currency futures contracts and options thereon. The Growth Stock Fund, the Stock
Index Fund and the Active Balanced Fund may also purchase and sell options on
futures contracts on stock indices, and the Active Balanced Fund may also
purchase and sell options on futures contracts on interest rate indices. Each
Fund (except for the Money Market Fund) may enter into other types of futures
contracts when they become available, provided they correspond to securities
held by the relevant Fund. However, a Fund might not employ any of these
instruments.

To the extent that a Fund enters into futures contracts, options on futures
contracts, or options on foreign currencies traded on a Commodity Futures
Trading Commission (CFTC)-regulated exchange, in each case other than for bona
fide hedging purposes (as defined by the CFTC), the aggregate initial margin and
premiums required to establish those positions (excluding the amount by which
options are "in-the-money") will not exceed 5% of the liquidation value of the
Fund's portfolio, after taking into account unrealized profits and unrealized
losses on any contracts the Fund has entered into. In general, a call option on
a futures contract is "in-the-money" if the value of the underlying futures
contract exceeds the strike, i.e., exercise, price of the call; a put option on
a futures contract is "in-the-money" if the value of the underlying futures
contract is exceeded by the strike price of the put. This limitation does not
limit the percentage of a Fund's assets at risk to 5%. These transactions
involve brokerage costs, require margin deposits and require the Fund to
segregate assets to cover such contracts and options. In addition, a Fund's
activities in futures contracts and options thereon may be limited by the
requirements of the Inter-

20 The Prudential Institutional Fund Prospectus

<PAGE>

nal Revenue Code for qualification as a regulated investment company. See "Other
Considerations--Taxes" and "Other Investment Practices, Risk Conditions, and
Policies of the Funds" in the Statement of Additional Information.

Foreign Currency Forward Contracts, Options and Futures Transactions. The
International Stock Fund, the Balanced Fund and the Active Balanced Fund may
purchase and sell foreign currency forward contracts, futures contracts on
foreign currency, and options on futures contracts on foreign currency to
protect against the effect of adverse changes on foreign currencies. In addition
to the limitations on such practices described below, the Fund's ability to
engage in such practices may be limited by tax considerations. See "Other
Considerations--Taxes" and "Other Investment Practices, Risk Conditions, and
Policies of the Funds" in the Statement of Additional Information.

A forward foreign currency exchange contract involves an obligation to purchase
or sell a specific currency at a future date, at a price set at the time of the
contract. These contracts are traded in the market conducted directly between
currency traders (typically large commercial banks) and their customers. See
"Other Investment Practices, Risk Conditions, and Policies of the Funds--Foreign
Currency Forward Contracts, Options and Futures Transactions" in the Statement
of Additional Information.

When a Fund invests in foreign securities, it may enter into forward contracts
in several circumstances to protect the value of its assets. A Fund may not use
forward contracts, options on foreign currencies, futures contracts on foreign
currencies and options on such contracts in order to generate income, although
the use of such contracts may incidentally generate income. However, a Fund's
dealings in forward contracts will be limited to hedging involving either
specific transactions or portfolio positions. When a Fund enters into a contract
for the purchase or sale of a security denominated in a foreign currency, or
when a Fund anticipates the receipt in a foreign currency of dividends or
interest payments on a security that it holds, the Fund may desire to "lock in"
the U.S. dollar price of the security or the U.S. dollar equivalent of such
dividend or interest payment, as the case may be. By entering into a forward
contract for a fixed amount of dollars for the purchase or sale of the amount of
foreign currency involved in the underlying transaction, a Fund could protect
itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the subject foreign currency during the
period between the date on which the security is purchased or sold, or on which
the dividend or interest payment is declared, and the date on which such
payments are made or received. Additionally, when the Adviser believes that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, the Fund may enter into a forward contract, for a fixed
amount of dollars, to sell the amount of foreign currency approximating the
value of some or all of the securities of the Fund denominated in such foreign
currency. Further a Fund may enter into a forward contract in one foreign
currency to hedge against the decline or increase in value of another foreign
currency.

A Fund's successful use of foreign currency forward contracts, options on
foreign currencies, futures contracts on foreign currencies and options on such
contracts depends upon the Adviser's ability to predict the direction of the
market and political conditions, which requires different skills and techniques
than predicting changes in the securities markets generally.

Risks of Investing in Options and Futures.
Participation in the options or futures markets involves investment risks and
transaction costs to which the Funds would not be subject absent the use of
these strategies. If an Adviser's prediction of movements in the direction of
the securities or currency markets or interest rates is inaccurate, the adverse
consequences to a Fund may leave the Fund in a worse position than if such
strategies were not used. Risks inherent in the use of options and futures
include (i) dependence on the Adviser's ability to predict correctly movements
in the direction of interest rates, securities prices and currency markets; (ii)
imperfect correlation, or even no correlation, between the price of options,
futures and options thereon and movements in the prices of the assets being
hedged; (iii) the fact that skills needed to use these strategies are different
from those needed to select portfolio securities; (iv) the possible absence of a
liquid secondary market for any particular instrument at any time; (v) the
possible need to defer closing out certain hedged positions to avoid adverse tax
consequences; (vi) the fact that, while hedging strategies can reduce the risk
of loss, they can also reduce the opportunity for gain, or even result in
losses, by offsetting favorable price movements in hedged investments; and (vii)
the possible inability of a Fund to purchase or sell a portfolio security at a
time when it would otherwise be favorable for it to do so, or the possible need
for a Fund to sell a security at a disadvantageous time, due to the need for the
Fund to maintain "cover" or to segregate securities in connection with hedging
transactions.

See "Other Considerations--Taxes" and "Other Investment Practices, Risk
Conditions, and Policies of the Funds" in the Statement of Additional
Information.

Interest Rate Swap Transactions. The Balanced Fund and the Income Fund may enter
into interest rate swaps. Interest rate swaps involve the exchange by a Fund
with another party of their respective commitments to pay or receive interest,
for example, an exchange of floating rate payments for fixed rate payments. The
Funds expect to enter into these transactions primarily to preserve a return or
spread on a particular investment or portion of their portfolios or to protect
against any increase in the price of securities the Funds anticipate purchasing
at a later date. See "Other Investment Practices, Risk Conditions, and Policies
of the Funds--Other Investment Techniques" in the Statement of Additional
Information. The Income Fund will usually enter into interest rate swaps on a
net basis, i.e., the two payment streams are netted out, with the Fund receiving
or paying, as the case may be, only the net amount of the two payments. The
Balanced Fund may only enter into interest rate swaps on a net basis. The risk
of loss with respect to interest rate swaps entered into on a net basis is
limited to the net amount of interest payments that a Fund is contractually
obligated to make. The net amount of the excess, if any, of the Fund's
obligations over its entitlements with respect to each interest rate swap will

The Prudential Institutional Fund Prospectus 21

<PAGE>

be accrued on a daily basis and an amount of cash or liquid high-grade debt
securities having an aggregate net asset value at least equal to the accrued
excess will be maintained in a segregated account by the Custodian. To the
extent that the Income Fund enters into interest rate swaps on other than a net
basis, the amount maintained in the segregated account will be the full amount
of the Fund's obligations, if any, with respect to such interest rate swaps,
accrued on a daily basis.

The use of interest rate swaps may involve investment techniques and risks
different from those associated with ordinary portfolio transactions. If a
Fund's Adviser is incorrect in its forecast of market values, interest rates and
other applicable factors, the investment performance of the Fund would diminish
compared to what it would have been if this investment technique had not been
used.

================================================================================
MORE FACTS ABOUT THE COMPANY

Organization and Capitalization. The Company was established as a Delaware
business trust on May 11, 1992. The Trustees are responsible for the overall
management and supervision of its affairs. The Manager conducts and supervises
the daily business operations of the Company. The Company is authorized to issue
unlimited shares of beneficial interest, $0.001 par value per share. Each share
issued with respect to a Fund has a pro-rata interest in the assets of that Fund
and has no interest in the assets of any other Fund. Each Fund bears its own
liabilities and its proportionate share of the general liabilities of the
Company and is not responsible for the liabilities of any other Fund. The Board
is empowered by the Company's Declaration of Trust and By-laws to establish
additional series and classes of shares. As of December 31, 1995, each of the
following entities owned more than 25% of the outstanding voting securities of
each of the portfolios indicated: Growth Stock Fund, Stock Index Fund and
International Stock Fund--Prudential Employee Savings Plan; Balanced Fund--PAMCO
VCA OA Account and Prudential Employee Savings Plan; Income Fund and Money
Market Fund--The Prudential Insurance Company of America.

Portfolio Turnover. Although no Fund purchases securities with a view to rapid
turnover, there are no limitations on the length of time that securities must be
held by any Fund and a Fund's annual portfolio turnover rate may vary
significantly from year to year. A portfolio turnover rate in excess of 100% may
exceed that of other investment companies with similar objectives. A higher
portfolio turnover rate may involve correspondingly greater transaction costs,
which would be borne directly by the Funds, as well as additional realized gains
and/or losses to shareholders.

Meetings and Voting Rights. The Company does not intend to hold annual
shareholder meetings. Shareholders have certain rights, as set forth in the
Agreement and Declaration of Trust, including the right to call a meeting of
shareholders for the purpose of voting on the removal of one or more Trustees.
Such removal may be effected upon the action of two-thirds of the outstanding
shares of the Company.

Shareholders are entitled to one vote per share. Shares of a Fund will be voted
only with respect to that Fund except for the election of Trustees and
ratification of independent accountants. Approval by the shareholders of one
Fund is effective as to that Fund. Shares have noncumulative voting rights, do
not have preemptive or subscription rights, and are transferable. Pursuant to
the Investment Company Act of 1940, as amended, shareholders of each Fund are
required to approve the adoption of any investment advisory agreement relating
to such Fund and of any changes in fundamental investment restrictions or
policies of the Fund.

Certificates. In the interest of economy and efficiency, the Company does not
issue stock certificates. Shareholders of uncertificated shares have the same
ownership rights as if certificates had been issued.

Shareholder Communications. Shareholders of the Company will receive annual
financial statements examined by the Company's independent accountants as well
as unaudited semi-annual financial statements. Each report will show the
investments owned by the Company and their respective market values thereof, and
will provide other financial information. Shareholders with inquiries regarding
the Company and individual accounts should contact the Manager at (800)
824-7513.

Custodian. The Company's Custodian is State Street Bank and Trust Company, P.O.
Box 1713, Boston, Massachusetts 02105.

Additional Information. This Prospectus, including the State- ment of Additional
Information which has been incorporated by reference herein, does not contain
all the information set forth in the Registration Statement filed by the Company
with the SEC under the Securities Act of 1933. Copies of the Registration
Statement may be obtained from the Commission or may be examined at the office
of the Commission in Washington, D.C.

22 The Prudential Institutional Fund Prospectus

<PAGE>

The Prudential Institutional Fund
21 Prudential Plaza
751 Broad Street
Newark, NJ 07102-3777

---------------
Bulk Rate
U.S. Postage
PAID
Permit No. 2145
Newark, N.J.
---------------

ThePRUDENTIAL[LOGO]

PIF 02-01-95

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

FEBRUARY 1, 1996

THE PRUDENTIAL INSTITUTIONAL FUND

Prudential Plaza
751 Broad Street
Newark, New Jersey 07102-3777

This Statement of Additional Information supplements the information
contained in the current Prospectus (the "Prospectus") of The Prudential
Institutional Fund (the "Company"), dated February 1, 1996, and should be read
in conjunction with the Prospectus. The Prospectus may be obtained by contacting
your Program Administrator or by writing the Company at the address listed
above. This Statement of Additional Information, although not in itself a
prospectus, is incorporated by reference into the Prospectus in its entirety.

TABLE OF CONTENTS

For ease of reference, the section headings used in this Statement of
Additional Information, where applicable, are identical to those used in the
Prospectus.

<TABLE>
<CAPTION>
Page
<S> <C>
THE FUNDS.................................................................................. B-2
Stock Index Fund........................................................................... B-2
Money Market Fund.......................................................................... B-2
MANAGEMENT OF THE COMPANY.................................................................. B-3
The Manager and Advisers................................................................... B-3
The Administrator.......................................................................... B-5
The Distributor............................................................................ B-5
Counsel and Auditors....................................................................... B-5
THE TRUSTEES and OFFICERS.................................................................. B-5
OTHER CONSIDERATIONS....................................................................... B-9
Net Asset Value............................................................................ B-9
Portfolio Transactions..................................................................... B-10
Taxes...................................................................................... B-11
PERFORMANCE AND YIELD INFORMATION.......................................................... B-14
Calculation of Money Market Fund Yield..................................................... B-14
Calculation of Fund Performance............................................................ B-14
Yield (except Money Market Fund)........................................................... B-14
Average Annual Total Return................................................................ B-14
Aggregate Total Return..................................................................... B-15

OTHER INVESTMENT PRACTICES, RISK CONDITIONS AND POLICIES OF THE FUNDS...................... B-15

U.S. Government Securities................................................................. B-15
Repurchase Agreements and Reverse Repurchase Agreements.................................... B-15
Fixed Income Securities.................................................................... B-16

When-Issued and Delayed Delivery Securities................................................ B-17

Forward Rolls and Dollar Rolls............................................................. B-17
Mortgage-Related Securities................................................................ B-17
Collateralized Mortgage Obligations........................................................ B-18
Asset-Backed Securities.................................................................... B-18
Custodial Receipts......................................................................... B-18
</TABLE>

Securities Lending......................................................................... B-19

Borrowing.................................................................................. B-19
Securities of Foreign Issuers.............................................................. B-19
Liquidity Puts............................................................................. B-19
Special Risks of Strategies Involving Options, Futures Contracts and Forward Contracts..... B-20
Options on Securities and Securities Indices............................................... B-20
Futures Contracts and Options on Futures Contracts......................................... B-21
Foreign Currency Forward Contracts, Options and Futures Transactions....................... B-22
Foreign Currency Strategies--Special Considerations........................................ B-23
Covered Forward Currency Contracts, Future Contracts and Options........................... B-23

Illiquid Securities........................................................................ B-24

Other Investment Techniques................................................................ B-24
INVESTMENT RESTRICTIONS.................................................................... B-25

CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT.......................................... B-26

FINANCIAL STATEMENTS....................................................................... B-27

INDEPENDENT AUDITORS' REPORT............................................................... B-70
APPENDIX--DESCRIPTION OF S&P, MOODY'S AND DUFF & PHELPS RATINGS............................ A-1

</TABLE>

- --------------------------------------------------------------------------------

<PAGE>

THE FUNDS

The Prospectus discusses the investment objectives of the following funds
and the policies to be employed to achieve those objectives.

- Growth Stock Fund
- Stock Index Fund
- International Stock Fund
- Active Balanced Fund
- Balanced Fund
- Income Fund
- Money Market Fund
(collectively the "Funds")

Supplemental information is set out below concerning the types of
securities and other instruments in which the Funds may invest, the investment
policies and strategies that the Funds may utilize and certain risks attendant
to those investments, policies and strategies.

Stock Index Fund

If net cash outflows from the Stock Index Fund are anticipated, the Stock
Index Fund may sell stocks (in proportion to their weighting in the Standard &
Poor's 500 Composite Stock Price Index ("S&P 500 Index") in amounts in excess
of those needed to satisfy the cash outflows and hold the balance of the
proceeds in short-term investments if such a transaction appears, taking into
account transaction costs, to be more efficient than selling only the amount of
stocks needed to meet the cash requirements. The Stock Index Fund will not
increase its holdings of cash in anticipation of any decline in the value of the
S&P 500 Index or of the stock markets generally. If the Stock Index Fund does
hold un-hedged short-term investments as a result of the patterns of cash flows
to and from the Fund, such holdings may cause its performance to differ from
that of the S&P 500 Index.

THE "FUND" IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY STANDARD &
POOR'S CORPORATION ("S&P"). S&P MAKES NO REPRESENTATION OR WARRANTY, EXPRESS
OR IMPLIED, TO THE SHAREHOLDERS OF THE FUND OR ANY MEMBER OF THE PUBLIC
REGARDING THE ADVISABILITY OF INVESTING IN SECURITIES GENERALLY OR IN THE FUND
PARTICULARLY OR THE ABILITY OF THE S&P 500 INDEX TO TRACK GENERAL STOCK MARKET
PERFORMANCE. S&P'S ONLY RELATIONSHIP TO THE MANAGER AND ITS AFFILIATES IS THE
LICENSING OF CERTAIN TRADEMARKS AND TRADE NAMES OF S&P AND OF THE S&P 500 INDEX
WHICH IS DETERMINED, COMPOSED AND CALCULATED BY S&P WITHOUT REGARD TO THE
MANAGER OR THE FUND. S&P HAS NO OBLIGATION TO TAKE THE NEEDS OF THE MANAGER OR
THE SHAREHOLDERS INTO CONSIDERATION IN DETERMINING, COMPOSING OR CALCULATING THE
S&P 500 INDEX. S&P IS NOT RESPONSIBLE FOR AND HAS NOT PARTICIPATED IN THE
DETERMINATION OF THE PRICES AND AMOUNT OF THE FUND OR THE TIMING OF THE ISSUANCE
OR SALE OF THE SHARES OF THE FUND. S&P HAS NO OBLIGATION OR LIABILITY IN
CONNECTION WITH THE ADMINISTRATION, MARKETING OR TRADING OF THE FUND.

S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500
INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR
IMPLIED AS TO THE RESULTS TO BE OBTAINED BY MANAGER, SHAREHOLDERS, OR ANY OTHER
PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN.
S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY
OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL,
PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

Money Market Fund

The Money Market Fund may also, consistent with the provisions of Rule 2a-7
of the Investment Company Act of 1940, as amended (the "1940 Act"), invest in
securities with a face maturity of more than 397 days, provided that either the
security is a variable or floating rate U.S. Government security, or it is a
floating or variable rate security with certain demand or interest rate reset
features.

The Money Market Fund uses the amortized cost method of valuing its
investments, which facilitates the maintenance of the Fund's per share net asset
value at $1.00. The amortized cost method, which is used to value all of the
Fund's securities, involves initially valuing a security at its cost and
thereafter amortizing to maturity any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument.

The extent of deviation between the Money Market Fund's net asset value
based upon available market quotations or market equivalents and $1.00 per share
based on amortized cost will be examined periodically by the Trustees. If such
deviation exceeds 1/2 of
B-2

<PAGE>
1%, the Trustees will promptly consider what action, if any, will be initiated.
In the event the Trustees determine that a deviation exists that may result in
material dilution or other unfair results to investors or existing shareholders,
they will cause the Money Market Fund to take such corrective action as they
regard to be necessary and appropriate to eliminate or reduce to the extent
reasonably practicable such dilution or unfair results. Such action may include
the sale of Money Market Fund instruments prior to maturity to realize capital
gains or losses or to shorten average portfolio maturity; withholding part or
all of dividends or payment of distributions from capital or capital gains;
redemptions of shares in kind; or establishing a net asset value per share by
using available market quotations or equivalents. In addition, in order to
stabilize the net asset value per share at $1.00, the Trustees have the
authority (i) to reduce or increase the number of shares outstanding on a pro
rata basis, and (ii) to offset each shareholder's pro rata portion of the
deviation between the net asset value per share and $1.00 from the shareholder's
accrued dividend account or from future dividends.

MANAGEMENT OF THE COMPANY

The Manager and Advisers

The Manager of the Company is Prudential Institutional Fund Management,
Inc.("PIFM" or the "Manager"), whose principal business address is 30
Scranton Office Park, Moosic, Pennsylvania 18507-1789.

Pursuant to an agreement with the Company and the Manager, subject to the
supervision of the Company's Trustees and in conformity with the stated policies
of the Company, manages both the investment operations of the Company and the
composition of the Company's Funds, including the purchase, retention,
disposition and loan of securities, and other instruments held by the Funds (the
"Management Agreement"). In connection therewith, the Manager is obligated to
keep certain books and records of the Company. The management services of the
Manager for the Company are not exclusive under the terms of the Management
Agreement and the Manager is free to, and does, render management services to
others.

The Manager has agreed, until September 30, 1996, to bear any expenses,
including management fees, which would cause the ratio of expenses payable by
each Fund to average daily net assets to exceed the estimated Total Operating
Expenses (After Reduction) for each Fund specified in the expense table at the
beginning of the Prospectus. The fees are computed daily and payable monthly.
The Management Agreement also provides that, in the event the expenses of the
Company (including the fees of the Manager, but excluding interest, taxes,
brokerage commissions, distribution fees and litigation and indemnification
expenses and other extraordinary expenses not incurred in the ordinary course of
the Company's business) for any fiscal year exceed the lowest applicable annual
expense limitation established and enforced pursuant to the statutes or
regulations of any jurisdiction in which the Company's shares are qualified for
offer and sale, the compensation due to the Manager will be reduced by the
amount of such excess. Reductions in excess of the total compensation payable to
the Manager will be paid by the Manager to the relevant Fund. Currently, the
Company believes that the most restrictive expense limitation of state
securities commissions is 2 1/2% of the Company's average daily net assets up to
$30 million, 2% of the next $ 70 million of such assets and 1 1/2% of such
assets in excess of $100 million. The Company reserves the right to waive any
and all fees or a portion thereof at its discretion. Such waiver is subject to
later reimbursement by the applicable Fund for a period up to and including
December 31, 1996.

In connection with its management of the business affairs of the Company,
the Manager bears the following expenses:

(i) the salaries and expenses of all of its and the Company's personnel
except the fees and expenses of Trustees who are not affiliated persons of the
Manager or the Funds' Advisers;

(ii) all expenses incurred by the Manager or by the Company in connection
with managing the ordinary course of the Company's business, other than those
assumed by the Company as described below; and

(iii) the costs and expenses or fees payable to The Prudential Investment
Corporation ("PIC"), Jennison Associates Capital Corp. ("Jennison") and
Mercator Asset Management, L.P. ("Mercator") (collectively, the "Advisers")
pursuant to the subadvisory agreements between the Manager and the Advisers
(collectively, the "Advisory Agreements").

Under the terms of the Management Agreement, the Company is responsible for
the payment of the following expenses: (i) the fees payable to the Manager, (ii)
the fees and expenses of Trustees who are not affiliated persons of the Manager
or the Funds' Advisers, (iii) the fees and certain expenses of the Custodian and
Transfer and Dividend Disbursing Agent, including the cost of providing records
to the Manager and Plan Administrator in connection with its obligation of
maintaining required records of the Company, pricing the Funds' shares and the
cashiering function, (iv) the charges and expenses of legal counsel and
independent accountants for the Company, (v) brokerage commissions and any issue
or transfer taxes chargeable to the Company in connection with its securities
and futures transactions, (vi) all taxes and corporate fees payable by the
Company to governmental agencies, (vii) the fees of any trade associations of
which the Company may be a member, (viii) the cost of stock certificates
representing shares of Funds of the Company, if any, (ix) the cost of fidelity
and liability insurance, (x) the fees and expenses involved in registering and
maintaining registration of the Company and of its shares with the Securities
and Exchange Commission ("SEC"), registering the Company and qualifying its
shares under state securities laws, including the preparation and printing of
the Company's registration statements and prospectuses for such purposes,
B-3

<PAGE>
(xi) licensing fees, if any, (xii) allocable communications expenses with
respect to investor services and all expenses of shareholders' and Trustees'
meetings and of preparing, printing and mailing reports, proxy statements and
prospectuses to shareholders in the amount necessary for distribution to the
shareholders, (xiii) fees of the Administrator, and (xiv) litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of the Company's business.

The Management Agreement provides that the Manager will not be liable for
any error of judgment or for any loss suffered by the Company in connection with
the matters to which the Management Agreement relates, except a loss resulting
from willful misfeasance, bad faith, gross negligence or reckless disregard of
duty. The Management Agreement provides that it will terminate automatically in
the event of its assignment (as defined in the 1940 Act, and that it may be
terminated without penalty by either party upon not more than 60 days' nor less
than 30 days' written notice. The Management Agreement will continue in effect
for a period of more than two years from the date of execution only so long as
such continuance is specifically approved at least annually in conformity with
the 1940 Act. The Management Agreement was last approved by the Trustees of the
Company, including all of the Trustees who are not parties to the contract or
interested persons of any such party as defined in the 1940 Act on November 16,
1995 and by the sole shareholder of the Company on October 12, 1992. The Manager
received, before any reduction due to the subsidy by the Manager of certain
expenses of the Fund, the following management fees from each Fund, expressed
both as a dollar amount and as a percentage of each Fund's average daily net
assets:

Year ended Year ended Period ended
September 30, 1995 September 30, 1994 September 30, 1993
-------------------- ------------------ ------------------
Fund Amount Rate Amount Rate Amount Rate
------------ ----------- ---- --------- ---- --------- ----
<S> <C> <C> <C> <C> <C> <C>
Growth Stock $1,049,893 .70% $500,141 .70% $111,337 .70%
Stock Index 286,843 .40 152,392 .40 68,014 .40
International
Stock 1,367,665 1.15 787,473 1.15 150,665 1.15
Active
Balanced 733,748 .70 412,941 .70 66,355 .70
Balanced 496,395 .70 308,338 .70 110,128 .70
Income 231,931 .50 189,009 .50 75,122 .50
Money Market 236,009 .45 171,766 .45 84,206 .45

</TABLE>

During the same period the Manager subsidized certain expenses of the Fund. See
"Expense Information" and "Management of the Company--The Manager" in the
Prospectus.

The Manager has entered into Advisory Agreements with the "Advisers". The
Advisory Agreements provide that the Advisers furnish investment advisory
services in connection with the management of their respective Funds. For their
services as Advisers, Jennison and Mercator are each paid a portion of the fee
the Manager receives from each Fund. PIC is reimbursed by the Manager for the
reasonable costs and expenses incurred in furnishing its services. In connection
therewith, the Advisers are obligated to keep certain books and records of the
respective Funds to which they provide advisory services. The Manager continues
to have responsibility for all investment advisory services to all the Funds
pursuant to the Management Agreement and supervises the Advisers' performance of
such services.

Jennison advises the Growth Stock Fund and Active Balanced Fund. Founded in
1969 and acquired by The Prudential in 1985, Jennison is known for its highly
skilled investment team that has worked together for many years. Dedicated to
achieving superior investment results for institutional investors, Jennison
currently has $29 billion in assets under management, including more than $15
billion in investments managed with a "growth stock" orientation and $1.6
billion in actively managed balanced assets.

Mercator advises the International Stock Fund. Dedicated to global and
international common stock investing, Mercator was initially founded in 1984 by
senior professionals formerly associated with Templeton Investment Counsel as
Mercator Asset Management, Inc. ("Mercator, Inc."). On November 30, 1995
Mercator, a limited partnership organized under the laws of the State of
Delaware, assumed the investment advisory business of Mercator, Inc. Mercator
currently manages $1.8 billion for institutional clients.

PIC advises the Stock Index, Balanced, Income and Money Market Funds
through various of its specialized investment units discussed below.

Prudential Diversified Investment Strategies (PDI) manages the Stock Index
Fund and Balanced Fund. PDI is dedicated to equity index and balanced fund
investing for institutional clients. Founded in 1975, PDI is among the oldest
quantitatively-oriented balanced managers in the country. PDI currently manages
close to $21 billion in balanced and indexed assets.

Prudential Global Advisors (PGA) manages the Income Fund. PGA focuses on
fixed income investing. PGA is a recognized leader in asset/liability management
and other structured bond portfolios. PGA currently manages over $17 billion in
domestic fixed income assets.

B-4

<PAGE>

PGA also manages the Money Market Fund. PGA focuses on managing
institutional money market accounts and, as of December 31, 1995, manages
approximately $4 billion in short-term money market assets.

The Advisory Agreements, except the Advisory Agreement with Mercator, were
last approved by the Trustees, including a majority of the Trustees who are not
interested persons of the Company and who have no direct or indirect financial
interest in the Advisory Agreements, on November 16, 1995, and by the sole
shareholder of the Company on October 12, 1992. The Advisory Agreement with
Mercator was approved by the Trustees on October 2, 1995 and by the shareholders
of the International Stock Fund on November 16, 1995.

Each Advisory Agreement provides that it will terminate in the event of its
assignment (as defined in the 1940 Act) or upon the termination of the
Management Agreement. Each Advisory Agreement may be terminated by the Company,
the Manager or the relevant Adviser upon not more than 60 days', nor less than
30 days', written notice. Each Advisory Agreement provides that it will continue
in effect for a period of more than two years from its execution only so long as
such continuance is specifically approved at least annually in accordance with
the requirements of the 1940 Act.

The Administrator

The Company has entered into an Agreement with Prudential Mutual Fund
Management, Inc. ("PMF"), an affiliate of the Manager, which provides that PMF
will administer the Company's business affairs and, in connection therewith,
furnish the Company with office facilities, together with those ordinary
clerical and bookkeeping services which are not being furnished by State Street
Bank and Trust Company, the Company's Custodian (The "Administration
Agreement"). PMF will also act as the Company's Transfer and Dividend
Disbursing Agent for no additional fee through its wholly-owned subsidiary,
Prudential Mutual Fund Services, Inc. ("PMFS"), P.O. Box 15005, New Brunswick,
New Jersey 08906. Under the Administration Agreement, the Company will pay PMF a
monthly fee at an annual rate of .17% of the Company's average daily net assets
up to $250 million and .15% of the Company's average daily net assets in excess
of $250 million. PMF will reimburse PMFS for certain of the out-of-pocket
expenses PMFS may incur in providing the transfer agency and dividend disbursing
services and the Company will reimburse PMF for these out-of-pocket expenses.
For the years ended September 30, 1995 and 1994, and period from November 5,
1992 (commencement of operations) to September 30, 1993 the Administrator
received $972,783, $489,154 and $178,445, respectively, under the Administration
Agreement.

The Distributor

Prudential Retirement Services, Inc. ("PRSI") serves as the Distributor
of the Company's shares. The Company's distribution agreement with PRSI (the
"Distribution Agreement") has been approved by the Trustees, including a
majority of the Trustees who are not interested persons of the Company and who
have no direct or indirect financial interest in the Distribution Agreement, on
November 16, 1995. Potential investors may be introduced to the Distributor and
persons who introduce investors may be compensated for such introductions.

Counsel and Auditors

Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W., Washington,
D.C. 20036-1800, serves as counsel to the Company. Deloitte & Touche, LLP, 2
World Financial Center, New York, NY 10281-1438, independent accountants, serve
as auditors of the Company.

THE TRUSTEES AND OFFICERS

Position with Principal Occupations
Name, Address and Age Company During Past Five Years
- ---------------------- -------------- --------------------------------------------------------
<S> <C> <C>

Mark R. Fetting* (41) President and Chairman of the Board, President and Chief Operating
30 Scranton Office Trustee Officer, Prudential Institutional Fund Management,
Park Inc. (May, 1992 to date); Managing Director, The
Moosic, PA 18507-1789 Prudential Investment Corporation (October, 1991 to
date); Chairman of the Board, President and Chief
Executive Officer, Prudential Retirement Services,
Inc. (January 1993 to date); President of Prudential
Defined Contribution Services (April 1992 to date).

David A. Finley (63) Trustee Director, Executive Vice President, and Chief Financial
17 Bedford Center Road Officer, Broadway & Seymour Inc. (since January 1996);
Bedford Hills, NY Director of Legent Corp.; formerly Consultant (January
10507 1990 to January 1996).

</TABLE>

B-5

Position with Principal Occupations
Name, Address and Age Company During Past Five Years
- ---------------------- -------------- --------------------------------------------------------
<S> <C> <C>
William E. Fruhan, Trustee Professor, Harvard Graduate School of Business
Jr.(52) Administration (1979 to date).
Harvard Business
School
Boston, MA 02163

August G. Olsen (66) Trustee Pensions and Investments Consultant, August G. Olsen
417 W. Hawthorne Ct. Consulting (1992 to date); Corporate Pension Fund
Lake Bluff, IL 60044 Officer and Investment Manager, Abbott Laboratories
(1987 to 1992).

Herbert G. Stolzer Trustee Retired. Formerly Executive Committee Member, Board of
(70) Directors,Member and Assistant to the Chairman of the
19 Yorktown Road Board of Directors, Johnson & Johnson (August 1987 to
East Brunswick, NJ January 1991).
08816

Thomas A. Early (41) Vice President Vice President and Secretary of Prudential Institutional
30 Scranton Office Fund Management, Inc. and Prudential Retirement
Park Services, Inc. (since July 1994); Vice President and
Moosic, PA 18507-1789 General Counsel, Prudential Defined Contribution
Services (since April 1994); Formerly Associate
General Counsel and Chief Financial Services Counsel
for Frank Russell & Company (April 1988-April 1994).

Robert F. Gunia (49) Vice President Chief Administrative Officer (since July 1990), Director
One Seaport Plaza (since January 1989), Executive Vice President,
New York, NY 10292 Treasurer and Chief Financial Officer (since June
1987) of Prudential Mutual Fund Management, Inc.
("PMF"), Senior Vice President (since March 1987) of
Prudential Securities Incorporated ("Prudential
Securities"); Executive Vice President, Treasurer,
Comptroller and Director (since March 1991),
Prudential Mutual Fund Distributors, Inc.; Director
(since June 1987), PMFS; Vice President and Director
of The Asia Pacific Fund, Inc. (since May 1989) and
Director of Nicholas Applegate Fund, Inc. (since
February 1992).

Walter E. Watkins, Jr. Vice President Vice President, Prudential Institutional Fund
(43) Management, Inc., (since April 1993) and Prudential
30 Scranton Office Retirement Services, Inc. (since March 1994); Director
Park of Mutual Fund Administration, Prudential Defined
Moosic, PA 18507-1789 Contribution Services (since November 1992). Formerly,
financial reporting consultant (August 1991-September
1992).

Eugene S. Stark (37) Treasurer First Vice President (since January 1990) of PMF; First
One Seaport Plaza Vice President (since January 1992) of Prudential
New York, NY 10292 Securities.
S. Jane Rose (49) Secretary Senior Vice President (since January 1991) and Senior
One Seaport Plaza Counsel (since June 1987) of PMF; Senior Vice
New York, NY 10292 President and Senior Counsel of Prudential Securities
(since July 1992); formerly Vice President and
Associate General Counsel of Prudential Securities.

Marguerite E.H. Assistant Vice President and Associate General Counsel (since June
Morrison (39) Secretary 1991) of PMF; Vice President and Associate General
One Seaport Plaza Counsel of Prudential Securities.
New York, NY 10292

- ---------------
* "Interested" Trustee, as defined in the 1940 Act, by reason of his affiliation with the Manager,
the Distributor or a Subadviser.
</TABLE>

B-6

<PAGE>

As of January 12, 1996, the Trustees and officers of the Fund, as a group
owned beneficially less than 1% of the stock of the Company. As of January 23,
1996, each of the following entities owned more than 5% of the outstanding
voting securities of each of the portfolios indicated:

<TABLE>
<CAPTION>
Portfolio Shares
- ------------------------- -----------------
<S> <C> <C>

Growth Stock Fund PAMCO VCA OA Account 943,399 (6%)
30 Scranton Office Park
Moosic, PA 18507-1774
Prudential Employee Savings Plan 4,378,426 (28.1%)
71 Hanover Road
Florham Park, NJ 07932-1502
Rite Aid Employee Investment
Opportunity Plan 1,913,760 (12.2%)
Rite Aid Corporation
30 Hunter Lane
Camp Hill, PA 17011
Stock Index Fund PAMCO VCA OA Account 1,619,698 (19%)
30 Scranton Office Park
Moosic, PA 18507-1774
Prudential Employee Savings Plan 2,460,902 (28.8%)
71 Hanover Road
Florham Park, NJ 07932-1502
Eden Brewery Thrift Savings Plan and
Fort Worth Brewery Thrift Savings Plan
Miller Brewing Company 533,960 (6.2%)
3939 West Highland Blvd.
Milwaukee, WI 53201-0482
International Stock Fund Prudential Employee Savings Plan 4,017,916 (41.8%)
71 Hanover Road
Florham Park, NJ 07932-1502
PAMCO VCA OA Account 1,235,510 (12.8%)
30 Scranton Office Park
Moosic, PA 18507-1774
Deferred Compensation Plan for
Employees of The Metropolitan
Transportation Authority, its
Subsidiaries and Affiliates and
Thrift Plan for Employees of The
Metropolitan Transportation Authority,
its Subsidiaries and Affiliates 543,152 (5.6%)
347 Madison Ave.
New York, NY 10017
Rite Aid Employee Investment
Opportunity Plan 572,074 (5.9%)
30 Hunter Lane
Camp Hill, PA 17011
Balanced Fund PAMCO VCA OA Account 1,840,795 (25.1%)
30 Scranton Office Park
Moosic, PA 18507-1774
Prudential Employee Saving Plan 1,911,531 (26%)
71 Hanover Road
Florham Park, NJ 07932-1502

</TABLE>
B-7
<PAGE>

<TABLE>
<CAPTION>
Portfolio Shares
- ------------------------- -----------------
<S> <C> <C>

Seibels, Bruce & Company 414,964 (5.6%)
Employees' Profit Sharing and
Savings Plan
1501 Lady Street
Columbia, SC 29202
Active Balanced Fund PAMCO VCA OA Account 1,575,825 (14%)
30 Scranton Office Park
Moosic, PA 18507-1774
Dobson Park Industries Inc. and Affiliates
Savings Plan and
Dobson Park Industries Inc. and Affiliates
Cash Balance Pension Plan
Dobson Technologies, Inc. 776,559 (6.9%)
c/o IRD Mechanalysis
6150 Huntley Road
Columbus, OH 43229
Rite Aid Employee Investment
Opportunity Plan 1,027,817 (9.1%)
Rite Aid Corporation
30 Hunter Lane
Camp Hill, PA 17011
Thompson & Knight Savings Plan and
Thompson & Knight Retirement Plan 1,196,886 (10.6%)
300 First City Center
1700 Pacific Ave.
Dallas, TX 75201
Income Fund Prudential Insurance Company 2,932,815 (52.7%)
of America
30 Scranton Office Park
Moosic, PA 18507-1789
Rite Aid Employee Investment
Opportunity Plan 738,345 (13.3%)
Rite Aid Corporation
30 Hunter Lane
Camp Hill, PA 17011
Money Market Fund Prudential Insurance Company 28,188,209
of America (48.4%)
30 Scranton Office Park
Moosic, PA 18507-1789

</TABLE>

The Prudential Insurance Company of America is a mutual life insurance
company incorporated in 1873 under the laws of the state of New Jersey. The
Prudential Employee Savings Plan is a defined contribution retirement plan. The
PAMCO VCA OA Account is a portion of The Prudential Variable Contract Investment
Fund, a separate account, established in 1962, of The Prudential Insurance
Company of America.

The interested trustees serve without compensation. The following table
sets forth the aggregate compensation paid by the Company to the Trustees who
are not affiliated with the Manager for the fiscal year ended September 30, 1995
and the aggregate compensation paid to such Trustees for service on the
Company's board and that of all other funds managed by Prudential Institutional
Fund Management, Inc. (Fund Complex) for the fiscal year ended September 30,
1995.

B-8

<PAGE>

<TABLE>
<CAPTION>
Compensation Table
- --------------------------------------------------------------------------------------------------------
Pension or Total
Retirement Compensation
Benefits Accrued Estimated from Company
Aggregate As Part of Annual and Fund
Compensation Company Benefits Upon Complex Paid
Name and Position From Company Expenses Retirement to Trustees
- ------------------------------ ------------- ----------------- -------------- -------------
<S> <C> <C> <C> <C>

David A. Finley--Trustee 15,$000 NONE N/A 15$,000(1/7)**
William E. Fruhan,
Jr.--Trustee 15,000 NONE N/A 15,000(1/7)**
August G. Olsen*--Trustee 15,000 NONE N/A 15,000(1/7)**
Herbert G. Stolzer*--Trustee 15,000 NONE N/A 15,000(1/7)**
* All of the compensation from the Company for the fiscal year ended September 30, 1995 represents
deferred compensation. Aggregate compensation from the Company and the Fund Complex for the fiscal
year ended September 30, 1995, including accrued income and appreciation, amounted to approximately
$18,339 for Mr. Olsen and approximately $21,792 for Mr. Stolzer.
**Indicates number of Funds/portfolios in Fund Complex to which aggregate compensation relates.

</TABLE>

OTHER CONSIDERATIONS

Net Asset Value

Portfolio securities of each Fund, except the Money Market Fund, are
generally valued as follows: (1) Securities for which the primary market is on
an exchange are valued at the last sale price on such exchange on the day of
valuation or, if there was no sale on such day, at the average of readily
available closing bid and asked prices on such day; (2) Securities that are
actively traded in the over-the-counter ("OTC") market, including listed
securities for which the primary market is believed to be over-the-counter, are
valued at the average of the most recently quoted bid and asked prices provided
by a principal market maker; (3) Securities issued in private placements are
valued at the mean between the bid and asked prices provided by primary market
dealers or, if no primary dealers are able to provide a market value, at fair
value determined by a valuation committee of Trustees (the "Valuation
Committee"); (4) U.S. Government securities for which market quotations are
available are valued at a price provided by an independent broker/dealer or
pricing service; (5) Short-term debt securities, including bonds, notes,
debentures and other debt securities, and money market instruments such as
certificates of deposit, commercial paper, bankers' acceptances and obligations
of domestic and foreign banks, with remaining maturities of more than 60 days
for which reliable market quotations are readily available, are valued at
current market quotations as provided by an independent broker/dealer or pricing
service; (6) Short-term investments with remaining maturities of 60 days or less
are valued at cost with interest accrued or discount amortized to the date of
maturity, unless the Trustees determine that such valuation does not represent
fair value; (7) Options on securities that are listed on an exchange are valued
at the last sales price at the close of trading on such exchange or, if there
was no sale on the applicable options exchange on such day, at the average of
the quoted bid and asked prices as of the close of such exchange; (8) Futures
contracts and options thereon traded on a commodities exchange or board of trade
are valued at the last sale price at the close of trading on such exchange or
board of trade or, if there was no sale on the applicable commodities exchange
or board of trade on such day, at the average of quoted bid and asked prices as
of the close of such exchange or board of trade; (9) Quotations of foreign
securities in a foreign currency shall be converted to U.S. dollar equivalents
at the current rate obtained from a recognized bank or dealer; (10) Forward
currency exchange contracts are valued at the current cost of covering or
offsetting such contracts; (11) OTC options are valued at the mean between bid
and asked prices provided by a dealer, with additional prices obtained for
comparison, monthly and as indicated by monitoring of the underlying securities;
(12) Securities for which market quotations are not available, other than
private placements, are valued at a price supplied by a pricing agent approved
by the Trustees; (13) Securities for which reliable market quotations are not
available or for which the pricing agent or principal market maker does not
provide a valuation or provides a valuation that, in the judgment of the
applicable Adviser, does not represent fair value, are valued by the Valuation
Committee on the basis of cost of the security, transactions in comparable
securities, relationships among various securities and other factors determined
by the Adviser to materially affect the value of the security. The Company may
engage pricing services to obtain any prices.

The Trustees have determined that in the best interests of shareholders the
best method currently available for valuing the Money Market Fund's securities
is amortized cost. The Trustees continuously review this method of valuation to
assure that the Money Market Fund's securities are valued at their fair value,
as determined by the Trustees in good faith. The Trustees are obligated, as a
particular responsibility within the overall duty of care owed to shareholders,
to establish procedures reasonably designed, taking into account current market
conditions and the Money Market Fund's investment objective, to stabilize the
net asset value per share as computed for the purpose of distribution and
redemption at $1.00 per share. The Trustees' procedures include periodically
monitoring, as appropriate and at such intervals as are reasonable in light of
current market conditions, the relationship between the amortized cost value per
share and a net asset value per share based upon available indications of market
value.

B-9

<PAGE>

While the amortized cost method provides certainty in valuation, it may
result in periods during which value, as determined by amortized cost, is higher
or lower than the price the Money Market Fund would receive if it sold the
instrument. During periods of declining interest rates, the quoted yield on
shares of the Money Market Fund may tend to be higher than a like computation
made by a fund with identical investments utilizing a method of valuation based
upon market prices and estimates of market prices for all of its portfolio
instruments. Thus, if the use of amortized cost by the Money Market Fund
resulted in a lower aggregate portfolio value on a particular day, a prospective
investor in the Money Market Fund would be able to obtain a somewhat higher
yield if he or she purchased shares of the Money Market Fund on that day, than
would result from investment in a fund utilizing solely market values, and
existing investors in the Money Market Fund would receive less investment
income. The converse would apply in a period of rising interest rates.

Portfolio securities traded on more than one U.S. national securities
exchange or foreign securities exchange are valued at the last sale price on the
business day as of which such value is being determined at the close of the
exchange representing the principal market for such securities. The value of all
assets and liabilities expressed in foreign currencies will be converted into
U.S. dollar values at the current rate obtained from a recognized bank or
dealer. If such quotations are not available, the rate of exchange will be
determined in good faith by or under procedures established by the Trustees of
the Company.

Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
on each business day in New York (i.e., a day on which the New York Stock
Exchange ("NYSE") is open for trading). In addition, European or Far Eastern
securities trading generally or in a particular country or countries may not
take place on all business days in New York. Furthermore, trading takes place in
Japanese markets on certain Saturdays and in various foreign markets on days
which are not business days in New York and on which the Funds' net asset values
are not calculated. Such calculation does not take place contemporaneously with
the determination of the prices of the majority of the portfolio securities used
in such calculation. Events affecting the values of portfolio securities that
occur between the time their prices are determined and the close of the regular
trading on the NYSE will not be reflected in the Fund's calculation of net asset
values unless, pursuant to procedures adopted by the Trustees, the Adviser deems
that the particular event would materially affect net asset value, in which case
an adjustment will be made.

The proceeds received by each Fund for each issue or sale of its shares,
and all net investment income, realized and unrealized gain and proceeds
thereof, subject only to the rights of creditors, will be specifically allocated
to such Fund and constitute the underlying assets of that Fund. The underlying
assets of each Fund will be segregated on the books of account, and will be
charged with the liabilities in respect to such Fund and with a share of the
general liabilities of the Company. Expenses with respect to any two or more
Funds are to be allocated in proportion to the net asset values of the
respective Funds except where allocations of direct expenses can otherwise be
fairly made.

Portfolio Transactions

Decisions to buy and sell assets for a Fund are made by the Fund's Adviser,
subject to the overall review of the Manager and the Trustees. Although
investment decisions for the Funds are made independently from those of the
other accounts managed by an Adviser, investments of the type that the Funds may
make also may be made for those other accounts. When a Fund and one or more
other accounts managed by an Adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the Adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
a Fund or the size of the position obtained or disposed of by a Fund.

Transactions on U.S. stock exchanges and some foreign stock exchanges
involve the payment of negotiated brokerage commissions. On exchanges on which
commissions are negotiated, the cost of transactions may vary among different
brokers. On most foreign exchanges, commissions are generally fixed. No stated
commission is generally applicable to securities traded in U.S. over-the-counter
markets, but the prices of those securities includes commissions or mark-ups.
The cost of securities purchased from underwriters includes an underwriting
commission or concession and the prices at which securities are purchased from
and sold to dealers include a dealer's mark-up or mark-down. U.S. Government
securities generally are purchased from underwriters or dealers, although
certain newly-issued U.S. Government securities may be purchased directly from
the U.S. Treasury or from the issuing agency or instrumentality.

In selecting brokers or dealers to execute securities transactions on
behalf of a Fund, its Adviser seeks the best overall terms available. The Funds
have no obligation to do business with any broker-dealer or group of
broker-dealers in executing transactions in securities. In placing orders, the
Advisers are subject to the Company's policy to seek the most favorable price
and efficient execution taking into account such factors as price (including the
applicable commission or dealer spread), size, type, and difficulty of the
transaction, and the firm's general execution and operating facilities. In
assessing the best overall terms available for any transaction, the Adviser will
consider the factors that it deems relevant, including the breadth of the market
in the security, the price of the security, the financial condition and
execution capability of the broker or dealer and the reasonableness of the
commission, if any, for the specific transaction and on a continuing basis. In
addition, the Advisers, subject to seeking best price and execution, are
authorized to cause a Fund to pay broker-dealers that furnish brokerage and
research services (as defined by Section 28(e) of the Securities and Exchange
Act
B-10

<PAGE>
of 1934, as amended (the "1934 Act") a higher commission than another
broker-dealer that does not furnish such brokerage and research services might
charge. The Advisers must regard such higher commissions as reasonable in
relation to the brokerage and research services provided, viewed in terms of
each Adviser's responsibilities to the Fund or other accounts, if any, as to
which it exercises investment discretion. The fees under the Management
Agreement and the Advisory Agreements, respectively, are not reduced by reason
of a Fund's Adviser receiving brokerage and research services. The Trustees of
the Company will periodically review the commissions paid by a Fund to determine
if the commissions paid over representative periods of time were reasonable in
relation to the benefits inuring to the Fund. Over-the-counter purchases and
sales by a Fund are transacted directly with principal market makers except in
those cases in which better prices and executions may be obtained elsewhere.

To the extent consistent with applicable provisions of the 1940 Act and the
rules and exemptions adopted by the SEC under the 1940 Act, the Trustees have
determined that transactions for a Fund may be executed through Prudential
Securities Incorporated ("Prudential Securities" or "PSI") and other
affiliated broker-dealers if, in the judgment of the Adviser, the use of an
affiliated broker-dealer is likely to result in price and execution at least as
favorable as those of other qualified broker-dealers, and if, in the
transaction, the affiliated broker-dealer charges the Fund a fair and reasonable
rate. Furthermore, the Trustees of the Company, including a majority of the
Trustees who are not "interested" Trustees, have adopted procedures which are
reasonably designed to provide that any commissions, fees or other remuneration
paid to PSI are consistent with the foregoing standard. In accordance with
Section 11(a) 1934 Act, Prudential Securities may not retain compensation for
effecting transactions on a national securities exchange for the Fund unless the
Fund has expressly authorized the retention of such compensation in a written
contract executed by the Fund and Prudential Securities. Section 11(a) provides
that Prudential Securities must furnish to the Fund at least annually a
statement setting forth the total amount of all compensation retained by
Prudential Securities from transactions effected for the Fund during the
applicable period. Brokerage transactions with PSI also are subject to such
fiduciary standards as may be imposed by applicable law.

The Funds may use PSI and other affiliated broker-dealers as a futures
commission merchant in connection with entering into futures contracts and
options on futures contracts if, in the judgment of a Fund's Adviser, the
affiliated broker-dealer charges the Fund a fair and reasonable rate. This
standard would allow PSI to receive no more than the remuneration which would be
expected to be received by an unaffiliated broker in a commensurate arm's-length
transaction.

The Company does not market its shares through intermediary brokers or
dealers; therefore, it is not the Company's practice to allocate brokerage or
principal business on the basis of sales of its shares which may be made through
such firms. However, the Advisers may place portfolio orders with qualified
broker-dealers who recommend the Company to clients, and may, when a number of
brokers and dealers can provide best price and execution on a particular
transaction, consider such recommendations by a broker or dealer in selecting
among broker-dealers.

Transactions in options and futures by a Fund will be subject to
limitations established by each of the exchanges and boards of trade governing
the maximum position which may be written or held by a single investor or group
of investors acting in concert, regardless of whether the options and futures
are written or held on the same or different exchanges or are written or held in
one or more accounts or though one or more brokers. Thus, the number of options
and futures which a Fund may write or hold may be affected by options and
futures written or held by the Adviser and other investment advisory clients of
the Adviser. An exchange or board of trade may order the liquidation of
positions found to be in excess of these limits, and it may impose certain other
sanctions.

The Funds will not purchase any security, including U.S. Government
securities, during the existence of any underwriting or selling group relating
thereto of which PSI is a member, except to the extent permitted by SEC rules.

During the years ended September 30, 1995 and 1994 and the period from
November 5, 1992 (commencement of operations) through September 30, 1993, the
Company paid $965, $3,247 and $1,528, respectively in brokerage commissions to
Prudential Securities.

Taxes

The following is a brief summary of some of the more important tax
considerations affecting the Company, the Funds and their shareholders. No
attempt is made to present a detailed explanation of all federal, state, local,
and foreign income tax considerations. Neither this discussion nor the tax
discussion in the Prospectus is intended to substitute for careful individual
tax planning. Accordingly, potential investors are urged to consult their own
tax advisers with specific reference to their own tax situation.

Tax Consequences to the Funds

As a separate entity for federal tax purposes, each Fund intends to
continue to qualify separately for tax treatment as a regulated investment
company ("RIC") under subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). If so qualified, each Fund will not be subject to
federal income tax with respect to its net investment income and net realized
capital gains, if any, that are distributed to its shareholders. In order to
qualify for treatment as a RIC, each Fund will have to meet income
diversification, distribution,
B-11

<PAGE>
and certain other requirements set forth in the Code. If, in any year, a Fund
should fail to qualify under the Code for tax treatment as a RIC, the Fund would
incur a regular federal corporate income tax on its taxable income, if any, for
that year.

The following Funds will elect to treat net losses incurred in the eleven
month period ended September 30, 1995 as having been incurred in the following
fiscal year:

<TABLE>
<CAPTION>
Capital Currency
----------- ---------
<S> <C> <C>

Growth Stock Fund -- $4,000
International Fund $3,066,000 $169,000
Balanced Fund -- $1,000

</TABLE>

For federal income tax purposes, the following Funds have a capital loss
carryforward as of September 30, 1995 which expires in 2003:

<TABLE>
<S> <C>
Growth Stock Fund $2,825,300
Income Fund $723,300

</TABLE>

Income and Diversification Requirements. The income tests require each Fund
to derive (i) at least 90% of its gross income in each taxable year from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of stock, securities, or foreign currencies, or
other income (including gains from options, futures, or forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies ("Income Requirement") and (ii) less than 30% of its gross income
in each taxable year from the sale or other disposition of (A) stock or
securities held for less than three months, (B) options, futures, or forward
contracts (other than those on foreign currencies) held for less than three
months, and (C) foreign currencies (or options, futures, or forward contracts on
foreign currencies) held for less than three months but only if such currencies
(or options, futures, or forward contracts) are not directly related to the
Fund's principal business of investing in stock or securities (or options or
futures with respect to stock or securities) ("Short-Short Limitation"). Each
Fund also must diversify its holdings so that, at the end of each quarter of its
taxable year, (i) at least 50% of the value of the Fund's total assets is
represented by cash and cash items, U.S. Government securities, securities of
other RICs, and other securities, with such other securities limited, in respect
of any one issuer, to an amount not greater in value than 5% of the Fund's total
assets and not more than 10% of the outstanding voting securities, and (ii) not
more than 25% of the value of its total assets is invested in the securities of
any one issuer (other than U.S. Government securities or the securities of other
RICs).

Distribution Requirement. Each Fund must distribute (or be deemed to have
distributed) 90% or more of its investment company taxable income (generally
consisting of net investment income, net short-term capital gain, and net gains
from certain foreign currency transactions) for each taxable year. Each Fund
also must meet certain other distribution requirements to avoid a 4%
nondeductible excise tax (these requirements are collectively referred to below
as the "RIC distribution requirements").

Zero Coupon Securities and Original Issue Discount. The Funds may invest in
zero coupon securities and other securities issued with original issue discount.
Such securities generate current income subject to the distribution requirements
without providing cash available for distribution. The Funds do not anticipate
that such investments will adversely affect their ability to meet the RIC
distribution requirements.

Foreign Investments. If the International Stock Fund or any other Fund
purchases shares in certain foreign corporations called "passive foreign
investment companies" ("PFICs"), the Fund may be subject to U.S. federal
income tax on a portion of any "excess distribution" or gain from the
disposition of such shares even if such income is distributed as a dividend by
the Fund to its shareholders. Because a credit for this tax could not be passed
through to shareholders, the tax effectively would reduce the Fund's economic
return from its PFIC investment. Additional charges in the nature of interest
may be imposed on a PFIC investor in respect of deferred taxes arising from such
distributions or gains. If a Fund were to invest in a PFIC and elected to treat
the PFIC as a "qualified electing fund" under the Code, then in lieu of the
foregoing tax and interest, the Fund might be required to include in income each
year a portion of the ordinary earnings and net capital gains of the qualified
electing fund, even if not distributed to the Fund, and such amounts would be
subject to the RIC distribution requirements. Management of the Company will
consider these potential tax consequences in evaluating whether to invest in a
PFIC.

Net investment income or capital gains earned by the Funds investing in
foreign securities may be subject to foreign income taxes withheld at the
source. The United States has entered into tax treaties with many foreign
countries that entitle the Funds to a reduced rate of tax or exemption from tax
on this related income and gains. It is impossible to determine the effective
rate of foreign tax in advance since the amount and the countries in which the
Funds' assets will be invested are not known. The Funds intend to operate so as
to qualify for treaty-reduced rates of tax where applicable.

Currency Fluctuations--Section 988 Gains and Losses. Gains or losses
attributable to fluctuations in exchange rates between the time a Fund accrues
dividends, interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time a Fund actually
collects such receivables or pays such liabilities, generally will be treated as
ordinary income or loss.
B-12

<PAGE>
Similarly, gains or losses on the disposition of foreign currencies or debt
securities held by a Fund denominated in a foreign currency, if any, to the
extent attributable to fluctuations in exchange rates between the acquisition
and disposition dates, generally will also be treated as ordinary income or
loss. These gains and losses are referred to under the Code as "Section 988"
gains and losses.

Furthermore, foreign currency gains and losses attributable to certain
forward contracts, futures contracts that are not "regulated futures
contracts," equity options and unlisted non-equity options also will be treated
as Section 988 gains and losses. (In certain circumstances, however, the Company
may elect capital gain or loss treatment for such transactions.) Section 988
gains and losses will increase or decrease the amount of the Company's
investment company taxable income available for distribution. The Company does
not anticipate that any Section 988 gains and losses the Funds may realize will
adversely affect the ability of any Fund to qualify as a RIC under the Code.

Option and Futures Transactions. The use of hedging strategies, such as
writing (selling) and purchasing options and futures contracts and entering into
forward contracts, involves complex rules that will determine for income tax
purposes the character and timing of recognition of the gains and losses each
Fund realizes in connection therewith. Income from foreign currencies (except
certain gains therefrom that may be excluded by future regulations), and income
from transactions in options, futures, and forward contracts derived by a Fund
with respect to its business of investing in stock, securities, or foreign
currencies, will qualify as permissible income under the Income Requirement.
However, income from the disposition of options and futures contracts (other
than those on foreign currencies) will be subject to the Short-Short Limitation
if they are held for less than three months. Income from the disposition of
foreign currencies, and options, futures, and forward contracts thereon, that
are not directly related to the Fund's principal business of investing in stock
or securities (or options and futures with respect thereto) also will be subject
to the Short-Short Limitation if they are held for less than three months.

If a Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease
in value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
Short-Short Limitation. Thus, only the net gain (if any) from the designated
hedge will be included in gross income for purposes of that limitation. Each
Fund will consider whether it should seek to qualify for this treatment for its
hedging transactions. To the extent a Fund does not so qualify, it may be forced
to defer the closing out of certain options, futures, and forward contracts
beyond the time when it otherwise would be advantageous to do so, in order for
the Fund to qualify as a RIC.

Under Section 1256 of the Code, gain or loss on certain options, futures
contracts, options on futures contracts ("Section 1256 contracts"), other than
Section 1256 contracts that are part of a "mixed straddle" with respect to
which a Fund has made an election not to have the following rules apply, will be
treated as 60% long-term and 40% short-term capital gain or loss ("blended gain
or loss"). In addition, Section 1256 contracts held by a Fund at the end of
each taxable year will be required to be treated as sold at fair market value on
the last day of such taxable year for federal income tax purposes and the
resulting gain or loss will be treated as blended gain or loss and will affect
the amount of distributions required to be made by a Fund in order to satisfy
the RIC distribution requirements.

Offsetting positions held by a Fund involving certain futures and options
transactions may be considered to constitute "straddles" which are subject to
special rules under the Code. Under these rules, depending on different
elections which may be made by the Company, the amount, timing and character of
gain and loss realized by the Company and its shareholders may be affected.

Tax Consequences to Shareholders

Ordinarily, distributions of a RIC's investment company taxable income
would be taxable to shareholders as ordinary income to the extent of the
earnings and profits of the RIC. To the extent that a distribution exceeds the
RIC's earnings and profits, it would be treated as a nontaxable return of
capital to the extent of the shareholder's tax basis in the shares of the RIC.
Distributions of net capital gain ordinarily would be taxable as long-term
capital gains. The rules discussed in this paragraph generally would apply
regardless of the length of time a shareholder holds the shares of the RIC.

The Company's present intention is to offer shares of the Funds primarily
to qualified retirement plans and other tax-exempt investors to whom the
foregoing rules do not apply. The Funds intend to satisfy the RIC distribution
requirements by distributions in the form of additional shares to its
shareholders. However, shareholders may redeem their shares, including shares
received as dividends or distributions, at any time for cash. Distributions are
generally not taxable to the participants in the shareholder plans.
Distributions from a qualified retirement plan to a participant or beneficiary
are subject to special rules. Because the effect of these rules varies greatly
with individual situations, potential investors are urged to consult their own
tax advisers.

Tax Consequences to Non-Exempt Shareholders. Dividends and other
distributions declared by a Fund in October, November or December of any year
and payable to shareholders of record on a date in any of those months are
deemed to have been paid by the Fund and received by the shareholders on
December 31 of that year if the distributions are paid by the Fund during the
following January. Accordingly, those distributions will be taxed to
shareholders that are not tax-exempt entities for the year in which that
December 31 falls.

B-13

<PAGE>

If shares of a Fund are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital loss
to the extent of any capital gain distributions received on those shares.
Non-exempt investors also should be aware that if shares are purchased shortly
before the record date for a dividend or other distribution, the purchaser will
receive some portion of the purchase price back as a taxable distribution.

PERFORMANCE AND YIELD INFORMATION

From time to time, the Company may quote a Fund's yield or total return in
advertisements or in advertisements, sales literature, reports and other
communications to shareholders.

Calculation of Money Market Fund Yield

The Money Market Fund will prepare a current quotation of yield daily. The
yield quoted will be the simple annualized yield for an identified
seven-calendar-day period. The yield calculation will be based on a hypothetical
account having a balance of exactly one share at the beginning of the seven-day
period. The base return will be the change in the value of the hypothetical
account during the seven-day period, including dividends declared on any shares
purchased with dividends on the shares, but excluding any capital changes. The
yield will vary as interest rates and market conditions change. Yield also
depends on the quality, length of maturity and type of instruments in the Money
Market Fund, and its operating expenses. The Fund may also prepare an effective
annual yield computed by compounding the unannualized seven-day period return as
follows: by adding 1 to the unannualized seven-day period return, raising the
sum to a power equal to 365 divided by 7, and subtracting 1 from the result. The
Fund's seven-day current yield and effective yield as of September 30, 1995 was
5.47% and 5.63% respectively.

Calculation of Fund Performance

Yield (except Money Market Fund)

The Income Fund's 30-day yield is calculated according to a formula
prescribed by the Securities and Exchange Commission ("SEC"), expressed as
follows:

YIELD = 2 [ ( a - b +1)6 - 1]
cd

Where: a=dividends and interest earned during the period.
b=expenses accrued for the period.
c=the average daily number of shares outstanding during the period that
were entitled to receive dividends.
d=the maximum offering price per share on the last day of the period.

For the purpose of determining the interest earned (variable "a" in the
formula) on debt obligations that were purchased by a Fund at a discount or
premium, the formula generally calls for amortization of the discount or
premium; the amortization schedule will be adjusted monthly to reflect changes
in the market values of the debt obligations.

Investors should recognize that, in periods of declining interest rates, a
Fund's yield will tend to be somewhat higher than prevailing market rates and,
in periods of rising interest rates, will tend to be somewhat lower. In
addition, when interest rates are falling, the inflow of net new money to a Fund
from the continuous sale of its shares will likely be invested in instruments
producing lower yields than the balance of its portfolio of securities, thereby
reducing the current yield of the Fund. In periods of rising interest rates the
opposite can be expected to occur. The yield for the 30-day period ended
September 30, 1995 for the Income Fund was 6.11%.

Average Annual Total Return

A Fund's "average annual total return" is computed according to a formula
prescribed by the SEC, expressed as follows:

P ( 1+T ) n = ERV

Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value ("ERV") at the end of a 1-, 5-or 10-year
period (or fractional portion thereof) of a hypothetical $1,000
investment made at the beginning of a 1-, 5-or 10-year period
assuming reinvestment of all dividends and distributions and the
effect of the maximum annual fee for participation in the Company.

The ERV assumes complete redemption of the hypothetical investment at the
end of the measuring period. A Fund's net investment income changes in response
to fluctuations in interest rates and the expenses of the Fund. The Average
Annual Total Return for the year ended September 30, 1995 and for the period
from commencement of each Fund's operations (November 5, 1992 for the Growth
Stock

B-14

<PAGE>

Fund, Stock Index Fund, International Stock Fund and Balanced Fund and March 1,
1993 for the Income Fund and January 4, 1993 for the Active Balanced Fund and
Money Market Fund) through September 30, 1995 was: Growth Stock, 35.14% and
18.34%, respectively; Stock Index, 29.02% and 14.72%, respectively;
International Stock, 5.95% and 17.48%, respectively; Active Balanced, 17.66% and
10.49%, respectively; Balanced, 15.90% and 10.85%, respectively; Income, 13.11%
and 5.68%; and Money Market, 5.48% and 3.97%, respectively. These amounts are
computed by assuming a hypothetical initial payment of $1,000. It was then
assumed that all of the dividends and distributions paid by the Fund over the
relevant time period were reinvested. It was then assumed that at the end of the
time period, the entire amount was redeemed.

Aggregate Total Return

A Fund's aggregate total return represents the cumulative change in the
value of an investment in the Fund for the specified period and is computed by
the following formula:

ERV - P
-------
P

Where: P = a hypothetical initial payment of $1,000.
ERV = Ending Redeemable Value at the end of a 1-, 5-or 10-year period (or
fractional portion thereof) of a hypothetical $1,000 investment made
at the beginning of the 1-, 5-or 10-year period assuming
reinvestment of all dividends and distributions and the effect of
the maximum annual fee for participation in the Company.

The ERV assumes complete redemption of the hypothetical investment at the
end of the measuring period.

A Fund's net investment income changes in response to fluctuations in
interest rates and the expenses of the Fund. Consequently, the given performance
quotations should not be considered as representative of the Fund's performance
for any specified period in the future.

A Fund's performance will vary from time to time depending upon market
conditions, the composition of its portfolio and its operating expenses.
Consequently, any given performance quotation should not be considered
representative of a Fund's performance for any specified period in the future.
In addition, because performance will fluctuate, it may not provide a basis for
comparing an investment in the Fund with certain bank deposits or other
investments that pay a fixed yield for a stated period of time. Investors
comparing a Fund's performance with that of other mutual funds should give
consideration to the quality and maturity of the respective investment
companies' portfolio securities. The aggregate total return for the period from
commencement of each Fund's operations through September 30, 1995 was: Growth
Stock, 63.00%; Stock Index, 48.96% International Stock, 59.57%; Active Balanced,
31.40%; Balanced 34.84%; Income, 15.35%; and Money Market, 11.24%.

OTHER INVESTMENT PRACTICES, RISK CONDITIONS, AND POLICIES OF THE FUNDS

U.S. Government Securities

Securities issued or guaranteed by the U.S. Government or one of its
agencies, authorities or instrumentalities in which the Funds may invest include
debt obligations of varying maturities issued by the U.S. Treasury or issued or
guaranteed by an agency or instrumentality of the U.S. Government, including the
Federal Housing Administration, Farmers Home Administration, Export-Import Bank
of the U.S., Small Business Administration, Government National Mortgage
Association ("GNMA"), General Services Administration, Central Bank for
Cooperatives, Federal Farm Credit Banks, Federal Home Loan Banks, Federal Home
Loan Mortgage Corporation ("FHLMC"), Federal Intermediate Credit Banks,
Federal Land Banks, Federal National Mortgage Association ("FNMA"), Maritime
Administration, Tennessee Valley Authority, District of Columbia Armory Board,
Student Loan Marketing Association and Resolution Trust Corporation. Direct
obligations of the U.S. Treasury include a variety of securities that differ in
their interest rates, maturities and dates of issuance. Because the U.S.
Government is not obligated by law to provide support to an instrumentality that
it sponsors, a Fund will invest in obligations issued by an instrumentality of
the U.S. Government only if the Fund's Adviser determines that the
instrumentality's credit risk does not render its securities unsuitable for
investment by the Fund. For further information, see "Mortgage-Related
Securities" below.

Repurchase Agreements and Reverse Repurchase Agreements

Each Fund may enter into repurchase and reverse repurchase agreements with
banks and securities dealers which meet the creditworthiness standards
established by the Company's Trustees ("Qualified Institutions"). The Adviser
will monitor the continued creditworthiness of Qualified Institutions, subject
to the oversight of the Company's Trustees. The resale price of the securities
purchased reflects the purchase price plus an agreed upon market rate of
interest which is unrelated to the coupon rate or date of maturity of the
purchased security. The Fund receives collateral equal to the repurchase price
plus accrued interest, which is
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marked-to-market daily. These agreements permit the Fund to keep all its assets
earning interest while retaining "overnight" flexibility to pursue investments
of a longer-term nature.

The use of repurchase agreements and reverse repurchase agreements involve
certain risks. For example, if the seller of securities under a repurchase
agreement defaults on its obligation to repurchase the underlying securities, as
a result of its bankruptcy or otherwise, the Fund will seek to dispose of such
securities, which action could involve costs or delays. If the seller becomes
insolvent and subject to liquidation or reorganization under applicable
bankruptcy or other laws, the Fund's ability to dispose of the underlying
securities may be restricted. Finally, it is possible that the Fund may not be
able to substantiate its interest in the underlying securities. To minimize this
risk, the securities underlying the agreement will be held by the Custodian at
all times in an amount at least equal to the repurchase price, including accrued
interest. If the counterparty fails to resell or repurchase the securities, the
Fund may suffer a loss to the extent proceeds from the sale of the underlying
collateral are less than the repurchase price. Reverse repurchase agreements
involve the risk that the market value of the securities retained in lieu of
sale by the Fund may decline below the price of the securities the Fund has sold
but is obligated to repurchase.

Fixed Income Securities

In general, the ratings of Moody's Investors Service ("Moody's"),
Standard & Poor's Ratings Services ("S&P Ratings"), Duff and Phelps, Inc.
("Duff & Phelps") and other nationally recognized statistical rating
organizations ("NRSROs") represent the opinions of those organizations as to
the quality of debt obligations that they rate. These ratings are relative and
subjective, are not absolute standards of quality and do not evaluate the market
risk of securities. These ratings will be among the initial criteria used for
the selection of portfolio securities. Among the factors that the rating
agencies consider are the long-term ability of the issuer to pay principal and
interest and general economic trends.

Subsequent to its purchase by a Fund, an issue of debt obligations may
cease to be rated or its rating may be reduced below the minimum required for
purchase by the Fund. Neither event will require the sale of the debt obligation
by the Fund, but the Fund's Adviser will consider the event in its determination
of whether the Fund should continue to hold the obligation. In addition, to the
extent that the ratings change as a result of changes in rating organizations or
their rating systems or owing to a corporate restructuring of Moody's, S&P
Ratings, Duff & Phelps or other NRSRO, the Fund will attempt to use comparable
ratings as standards for its investments in accordance with its investment
objectives and policies. The Appendix to this Statement of Additional
Information contains further information concerning the ratings of Moody's, S&P
Ratings and Duff & Phelps and their significance.

All Funds, except the Money Market Fund and the Stock Index Fund may
invest, to a limited extent, in medium, lower-rated and unrated debt securities.
Debt securities rated in the lowest category of investment grade debt (i.e., Baa
by Moody's or BBB by S&P Ratings) may have speculative characteristics, and
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity to make principal and interest payments than is the case
with higher grade bonds.

Non-investment grade fixed income securities are rated lower than Baa/BBB
(or the equivalent rating or, if not rated, determined by the relevant Adviser
to be of comparable quality to securities so rated) and are commonly referred to
as high risk or high yield securities or "junk" bonds. High yield securities
are generally riskier than higher quality securities and are subject to more
credit risk, including risk of default, and the prices of such securities are
more volatile than higher quality securities. Such securities may also have less
liquidity than higher quality securities. None of the Funds is authorized to
invest in excess of 5% of its net assets in non-investment grade fixed income
securities.

The markets in which medium and lower-rated securities (or unrated
securities that are equivalent to medium and lower-rated securities) are traded
are generally more limited than those in which higher-rated securities are
traded. The existence of limited markets may make it more difficult for the
Funds to obtain accurate market quotations for purposes of valuing its portfolio
and calculating its net asset value. Moreover, the lack of liquid trading market
may restrict the availability of debt securities for a Fund to purchase and may
also have the effect of limiting the ability of a Fund to sell debt securities
at their fair value either to meet redemption requests or to respond to changes
in the economy or the financial markets.

Lower-rated fixed income securities present risks based on payment
expectations. If an issuer calls the obligation for redemption, a Fund may have
to replace the security with a lower-yielding security, resulting in a decreased
return for investors. Also, as the principal value of fixed income securities
moves inversely with movements in interest rates, in the event of rising
interest rates, the value of the securities held by a Fund may decline
proportionately more than a Fund consisting of higher-rated securities.
Investments in zero coupon bonds may be more speculative and subject to greater
fluctuations in value due to changes in interest rates than bonds that pay
interest currently. If a Fund experiences unexpected net redemptions, it may be
forced to sell its higher-rated bonds, resulting in a decline in the overall
credit quality of the securities held by the Fund and increasing the exposure of
the Fund to the risks of lower-rated securities.

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When-Issued and Delayed Delivery Securities

To secure prices deemed advantageous at a particular time, each Fund may
purchase securities on a when-issued or delayed delivery basis, in which case
delivery of the securities occurs beyond the normal settlement period; payment
for or delivery of the securities would be made at the same time or prior to the
reciprocal delivery or payment by the other party to the transaction. A Fund
will enter into when-issued or delayed delivery transactions for the purpose of
acquiring securities and not for the purpose of leverage. When-issued securities
purchased by a Fund may include securities purchased on a "when, as and if
issued" basis under which the issuance of the securities depends on the
occurrence of a subsequent event, such as approval of a merger, corporate
reorganization or debt restructuring.

Securities purchased on a when-issued or delayed delivery basis may expose
a Fund to risk because the securities may experience fluctuations in value prior
to their actual delivery. A Fund does not accrue income with respect to a
when-issued or delayed-delivery security prior to its stated delivery date.
Purchasing securities on a when-issued or delayed delivery basis may involve the
additional risk that the yield available in the market when the delivery takes
place may be higher than that obtained in the transaction itself.

Forward Rolls and Dollar Rolls

Forward roll and dollar roll transactions involve the risk that the market
value of the securities sold by a Fund may decline below the repurchase price of
those securities. At the time the Fund enters into a forward roll transaction,
it will place in a segregated account with its Custodian cash, U.S. Government
securities and other liquid high grade debt securities having a value equal to
the repurchase price (including accrued interest) and will subsequently mark the
account to market.

Mortgage-Related Securities

Mortgage-backed securities may be classified as private, governmental or
government related, depending on the issuer or guarantor. Private
mortgage-backed securities represent pass-through pools consisting principally
of conventional residential mortgage loans created by non-governmental issuers,
such as commercial banks, savings and loan associations and private mortgage
insurance companies. Governmental mortgage-backed securities are backed by the
full faith and credit of the United States. GNMA, the principal U.S. guarantor
of such securities, is a wholly-owned corporate instrumentality of the United
States within the Department of Housing and Urban Development. Pass-through
securities issued by FNMA are guaranteed as to timely payment of principal and
interest by FNMA, which guarantee is not backed by the full faith and credit of
the U.S. Government. FHLMC is a corporate instrumentality of the United States,
the stock of which is owned by the Federal Home Loan Banks. Participation
certificates representing interests in mortgages from FHLMC's national portfolio
are guaranteed as to the timely payment of interest and ultimate, but generally
not timely collection of principal by FHLMC. The obligations of the FHLMC under
its guarantee are obligations solely of FHLMC and are not backed by the full
faith and credit of the U.S. Government.

The Funds expect that private and governmental entities may create mortgage
loan pools offering pass-through investments in addition to those described
above. The mortgages underlying these securities may be alternative mortgage
instruments, that is, mortgage instruments whose principal or interest payments
may vary or whose terms to maturity may be shorter than previously customary. As
new types of mortgage-backed securities are developed and offered to investors,
the Funds, consistent with their respective investment objectives and policies,
will consider making investments in those new types of securities.

The Funds may also invest in pass-through securities backed by adjustable
rate mortgages that have been issued by GNMA, FNMA and FHLMC or private issuers.
These securities bear interest at a rate that is adjusted monthly, quarterly or
annually. The prepayment experience of the mortgages underlying these securities
may vary from that for fixed rate mortgages.

The average maturity of pass-through pools of mortgage-related securities
varies with the maturities of the underlying mortgage instruments. In addition,
a pool's stated maturity may be shortened by unscheduled payments on the
underlying mortgages. Factors affecting mortgage prepayments include the level
of interest rates, general economic and social conditions, the location of the
mortgaged property and age of the mortgage. Because prepayment rates of
individual pools vary widely, it is not possible to predict accurately the
average life of a particular pool. Common practice is to assume that prepayments
will result in an average life ranging from two to ten years for pools of fixed
rate 30-year mortgages. Pools of mortgages with other maturities or different
characteristics will have varying average life assumptions.

Because prepayments of principal generally occur when interest rates are
declining, it is likely that a Fund will have to reinvest the proceeds of
prepayments at lower interest rates than those at which the assets were
previously invested. If this occurs, a Fund's yield will correspondingly
decline. Thus, mortgage-related securities may have less potential for capital
appreciation in periods of falling interest rates than other fixed-income
securities of comparable maturity, although these securities may have a
comparable risk of decline in market value in periods of rising interest rates.
To the extent that a Fund purchases mortgage-related securities at a premium,
unscheduled prepayments, which are made at par, will result in a loss equal to
any unamortized premium.

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Government stripped mortgage-related interest-only ("IOs") and principal
only ("POs") securities are currently traded in an over-the-counter market
maintained by several large investment banking firms. There can be no assurance
that a Fund will be able to effect a trade of IOs or POs at a time when it
wishes to do so. The Funds will acquire IOs and POs only if, in the opinion of
the Fund's Adviser, a secondary market for the securities exists at the time of
acquisition, or is subsequently expected. A Fund will treat IOs and POs that are
not U.S. Government securities as illiquid and will limit its investments in
these securities, together with other illiquid investments, in order not to hold
more than 15% (10% in the case of the Money Market Fund) of its net assets in
illiquid securities. With respect to IOs and POs that are issued by the U.S.
Government, the Advisers, subject to the supervision of the Trustees, may
determine that such securities are liquid, if they determine the securities can
be disposed of promptly in the ordinary course of business at a value reasonably
close to that used in the calculation of net asset value per share.

Investing in IOs and POs involves the risks normally associated with
investing in government and government agency mortgage-related securities. In
addition, the yields on IOs and POs are extremely sensitive to the prepayment
experience on the mortgage loans underlying the certificates collateralizing the
securities. If a decline in the level of prevailing interest rates results in a
rate of principal prepayments higher than anticipated, distributions of
principal will be accelerated, thereby reducing the yield to maturity on IOs and
increasing the yield to maturity on POs. Sufficiently high prepayment rates
could result in a Fund not fully recovering its initial investment in an IO.

Mortgage-related securities may not be readily marketable. To the extent
any of these securities are not readily marketable in the judgment of the Fund's
Adviser, the investment restriction limiting a Fund's investment in illiquid
instruments will apply.

Collateralized Mortgage Obligations

The Funds also may invest in, among other things, parallel pay CMOs and
Planned Amortization Class CMOs (PAC Bonds). Parallel pay CMOs are structured to
provide payments of principal on each payment date to more than one class. These
simultaneous payments are taken into account in calculating the stated maturity
date or final distribution date of each class, which, as with other CMO
structures, must be retired by its stated maturity date or final distribution
date but may be retired earlier. PAC Bonds generally require payments of a
specified amount of principal on each payment date. PAC Bonds always are
parallel pay CMOs with the required principal payment on such securities having
the highest priority after interest has been paid to all classes.

In reliance on SEC rules and orders, the Funds' investments in certain
qualifying CMOs, including CMOs that have elected to be treated as Real Estate
Mortgage Investment Conduits (REMICs), are not subject to the 1940 Act's
limitation on acquiring interests in other investment companies. In order to be
able to rely on the SEC's interpretation, the CMOs and REMICs must be unmanaged,
fixed-asset issuers that (i) invest primarily in mortgage-backed securities,
(ii) do not issue redeemable securities, (iii) operate under general exemptive
orders exempting them from all provisions of the 1940 Act, and (iv) are not
registered or regulated under the 1940 Act as investment companies. To the
extent that a Fund selects CMOs or REMICs that do not meet the above
requirements, the Fund may not invest more than 10% of its assets in all such
entities and may not acquire more than 3% of the voting securities of any single
such entity.

Asset-Backed Securities

The value of these securities may change because of changes in the market's
perception of the creditworthiness of the servicing agent for the pool, the
originator of the pool, or the financial institution providing credit support
enhancement for the pool.

Custodial Receipts

Each Fund, other than the Growth Stock Fund, the Stock Index Fund, the
International Fund and the Money Market Fund, may acquire custodial receipts or
certificates, such as CATS, TIGRs and FICO Strips, underwritten by securities
dealers or banks, that evidence ownership of future interest payments, principal
payments or both on certain notes or bonds issued by the U.S. Government, its
agencies, authorities or instrumentalities. The underwriters of these
certificates or receipts purchase a U.S. Government security and deposit the
security in an irrevocable trust or custodial account with a custodian bank,
which then issues receipts or certificates that evidence ownership of the
periodic unmatured coupon payments and the final principal payment on the U.S.
Government security. Custodial receipts evidencing specific coupon or principal
payments have the same general attributes as zero coupon U.S. Government
securities.

There are a number of risks associated with investments in custodial
receipts. Although, typically, under the terms of a custodial receipt, a Fund is
authorized to assert its rights directly against the issuer of the underlying
obligation, the Fund may be required to assert through the custodian bank such
rights as may exist against the underlying issuer. Thus, in the event the
underlying issuer fails to pay principal and/or interest when due, a Fund may be
subject to delays, expenses and risks that are greater than those that would
have been involved if the Fund had purchased a direct obligation of the issuer.
In addition, in the event that the trust or custodial account in which the
underlying security has been deposited is determined to be an association
taxable as a corporation, instead of a non-taxable entity, the yield on the
underlying security would be reduced in respect of any taxes paid.

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Securities Lending

A Fund will enter into securities lending transactions only with Qualified
Institutions. A Fund will comply with the following conditions whenever it lends
securities: (i) the Fund must receive at least 100% cash collateral or
equivalent securities from the borrower; (ii) the value of the loan is
"marked-to-market" on a daily basis; (iii) the Fund must be able to terminate
the loan at any time; (iv) the Fund must receive reasonable interest on the
loan, as well as any dividends, interest or other distributions on the loaned
securities and any increase in market value; (v) the Fund may pay only
reasonable custodian fees in connection with the loan; and (vi) voting rights on
the loaned securities may pass to the borrower except that, if a material event
adversely affecting the investment in the loaned securities occurs, the Fund
must terminate the loan and regain the right to vote the securities. A Fund may
pay reasonable finders', administrative and custodial fees in connection with a
loan of its securities. In these transactions, there are risks of delay in
recovery and in some cases even of loss of rights in the collateral should the
borrower of the securities fail financially.

Borrowing

Each Fund (except for the Money Market Fund) may borrow from time to time,
at its Adviser's discretion, to take advantage of investment opportunities, when
yields on available investments exceed interest rates and other expenses of
related borrowing, or when, in the Adviser's opinion, unusual market conditions
otherwise make it advantageous for the Fund to increase its investment capacity.
A Fund will only borrow when there is an expectation that it will benefit the
Fund after taking into account considerations such as interest income and
possible losses upon liquidation. Borrowing by a Fund creates an opportunity for
increased net income but, at the same time, creates risks, including the fact
that leverage may exaggerate changes in the net asset value of Fund shares and
in the yield on the Fund. A Fund may also borrow for temporary, extraordinary or
emergency purposes and for the clearance of transactions.

Securities of Foreign Issuers

The value of a Fund's foreign investments may be significantly affected by
changes in currency exchange rates. The dollar value of a foreign security
generally decreases when the value of the dollar rises against the foreign
currency in which the security is denominated and tends to increase when the
value of the dollar falls against such currency. In addition, the value of a
Fund's assets may be affected by losses and other expenses incurred in
converting between various currencies in order to purchase and sell foreign
securities and by currency restrictions and exchange control regulation.

The economies of many of the countries in which the Stock Index Fund and
other Funds may invest are not as developed as the economy of the U.S. and may
be subject to significantly different forces. Political or social instability,
expropriation or confiscatory taxation, and limitations on the removal of funds
or other assets, could also adversely affect the value of investments.

Foreign companies are generally not subject to the regulatory controls
imposed on U.S. issuers and, in general, there is less publicly available
information about foreign securities than is available about domestic
securities. Many foreign companies are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to domestic companies. Income from foreign
securities owned by a Fund may be reduced by a withholding tax at the source
which would reduce dividend income payable to shareholders.

Brokerage commission rates in foreign countries, which are generally fixed
rather than subject to negotiation as in the U.S. are likely to be higher. The
securities markets in many of the countries in which a Fund may invest will have
substantially less trading volume than the principal U.S. markets. As a result,
the securities of some companies in these countries may be less liquid and more
volatile than comparable U.S. securities. There is generally less government
regulation and supervision of foreign stock exchanges, brokers and issuers which
may make it difficult to enforce contractual obligations.

Liquidity Puts

Each Fund, other than the Growth Stock Fund and the Stock Index Fund, may
purchase instruments together with the right to resell the instruments at an
agreed-upon price or yield, within a specified period prior to the maturity date
of the instruments. This instrument is commonly known as a "put bond" or a
"tender option bond."

Consistent with each Fund's investment objective, a Fund may purchase a put
so that it will be fully invested in securities while preserving the necessary
liquidity to purchase securities on a when-issued basis, to meet unusually large
redemptions and to purchase at a later date securities other than those subject
to the put. A Fund will generally exercise the puts or tender options on their
expiration date when the exercise price is higher than the current market price
for the related fixed income security. Puts or tender options may be exercised
prior to the expiration date in order to fund obligations to purchase other
securities or to meet redemption requests. These obligations may arise during
periods in which proceeds from sales of Fund shares and from recent sales of
portfolio securities are insufficient to meet such obligations or when the funds
available are otherwise allocated for investment. In addition, puts may be
exercised prior to the expiration date in the event the Adviser for the Fund
revises its evaluation of the creditworthiness of the issuer of the underlying
security. In determining whether to exercise puts or tender options prior to
their expiration date and in selecting which puts or

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tender options to exercise in such circumstances, the Fund's Adviser considers,
among other things, the amount of cash available to the Fund, the expiration
dates of the available puts or tender options, any future commitments for
securities purchases, the yield, quality and maturity dates of the underlying
securities, alternative investment opportunities and the desirability of
retaining the underlying securities in the Fund.

These instruments are not deemed to be "put options" for purposes of any
Fund's investment restriction.

Special Risks of Strategies Involving Options, Futures Contracts and Forward
Contracts

The use of options, futures contracts and forward currency contracts
(collectively, "Instruments") involves special considerations and risks, as
described below. Risks pertaining to particular hedging strategies are described
in the sections that follow.

(1) Successful use of most Instruments depends upon an Adviser's ability to
predict movements in the overall securities and currency markets, and interest
rates, which requires different skills than predicting changes in the prices of
individual securities. While the Advisers are experienced in the use of
Instruments, there can be no assurance that any particular strategy adopted will
succeed.

(2) There might be imperfect correlation, or even no correlation, between
price movements of an Instrument and price movements of the investments being
hedged. For example, if the value of an Instrument used in a short hedge
increased by less than the decline in value of the hedged investment, the hedge
would not be fully successful. Such a lack of correlation might occur due to
factors unrelated to the value of the investments being hedged, such as
speculative or other pressures on the markets in which Instruments are traded.
The effectiveness of hedges using Instruments on indices will depend on the
degree of correlation between price movements in the index and price movements
in the investments being hedged.

(3) Hedging strategies, if successful, can reduce risk of loss by wholly or
partially offsetting the negative effect of unfavorable price movements in the
investments being hedged. However, hedging strategies can also reduce
opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. For example, if a Fund entered into a short
hedge because its Adviser projected a decline in the price of a security in the
Fund's portfolio, and the price of that security increased instead, the gain
from that increase might be wholly or partially offset by a decline in the price
of the hedging instrument. Moreover, if the price of the hedging instrument
declined by more than the increase in the price of the security, the Fund could
suffer a loss. In either such case, the Fund would have been in a better
position had it not hedged at all.

(4) As described below, a Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in Instruments involving obligations to third parties (i.e.
Instruments other than purchased options). If a Fund were unable to close out
its positions in such Instruments, it might be required to continue to maintain
such assets or accounts or make such payments until the position expired or
matured. The requirements might impair the Fund's ability to sell a portfolio
security or make an investment at a time when it would otherwise be favorable to
do so, or require that the Fund sell a portfolio security at a disadvantageous
time. A Fund's ability to close out a position in an Instrument prior to
expiration or maturity depends on the existence of a liquid secondary market or,
in the absence of such a market, the ability and willingness of the other party
to the transaction ("contra party") to enter into a transaction closing out
the position. Therefore, there is no assurance that any hedging position can be
closed out at a time and price that is favorable to a Fund.

Options on Securities and Securities Indices

A number of risk factors are associated with options transactions. There is
no assurance that a liquid secondary market on an options exchange will exist
for any particular option, at any particular time. If a Fund is unable to effect
a closing purchase transaction with respect to covered options it has written, a
Fund will not be able to sell the underlying securities or dispose of assets
held in a segregated account until the options expire or are exercised.
Similarly, if a Fund is unable to effect a closing sale transaction with respect
to options it has purchased, it would have to exercise the options in order to
realize any profit and may incur transaction costs upon the purchase or sale of
underlying securities. The ability to terminate over-the-counter ("OTC")
option positions is more limited than the ability to terminate exchange-traded
option positions because a Fund would have to negotiate directly with a contra
party. In addition, with OTC options, there is a risk that the contra party in
such transactions will not fulfill its obligations.

A Fund pays brokerage commissions or spreads in connection with its options
transactions, as well as for purchases and sales of underlying securities. The
writing of options could result in significant increases in a Fund's turnover
rate. A Fund's transactions in options may be limited by the requirements of the
Internal Revenue Code for qualification as a regulated investment company.

The risks of investment in index options may be greater than options on
securities. Because index options are settled in cash, when a Fund writes a call
option on an index it cannot provide in advance for its potential settlement
obligations by acquiring and holding the underlying securities. A Fund can
offset some of the risk of writing a call index option position by holding a
diversified portfolio of securities similar to those on which the underlying
index is based. However, the Fund cannot, as a practical matter, acquire and
hold a

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portfolio containing exactly the same securities as underlie the index and, as a
result, bears a risk that the value of the securities held will vary from the
value of the index.

Even if a Fund could assemble a securities portfolio that exactly
reproduced the composition of the underlying index, it still would not be fully
covered from a risk standpoint because of the "timing risk" inherent in
writing index options. When an index option is exercised, the amount of cash
that the holder is entitled to receive is determined by the difference between
the exercise price and the closing index level on the date when the option is
exercised. As with other kinds of options, the Fund as the call writer will not
know that it has been assigned until the next business day at the earliest. The
time lag between exercise and notice of assignment poses no risk for the writer
of a covered call on a specific underlying security, such as a common stock,
because there the writer's obligation is to deliver the underlying security, not
to pay its value as of a fixed time in the past. So long as the writer already
owns the underlying security, it can satisfy its settlement obligations by
simply delivering it, and the risk that its value may have declined since the
exercise date is borne by the exercising holder. In contrast, even if the writer
of an index call holds securities that exactly match the composition of the
underlying index, it will not be able to satisfy its assignment obligations by
delivering those securities against payment of the exercise price. Instead, it
will be required to pay cash in an amount based on the closing index value on
the exercise date; and by the time it learns that it has been assigned, the
index may have declined, with a corresponding decline in the value of its
securities portfolio. This "timing risk" is an inherent limitation on the
ability of index call writers to cover their risk exposure by holding securities
positions.

If a Fund has purchased an index option and exercises it before the closing
index value for that day it available, it runs the risk that the level of the
underlying index may subsequently change. If such a change causes the exercised
option to fall out-of-the-money, the Fund will be required to pay the difference
between the closing index value and the exercise price of the option (times the
applicable multiplier) to the assigned writer.

A Fund will not purchase put options or call options if, after any such
purchase, the aggregate premiums paid for such options would exceed 20% of the
Fund's net assets. The aggregate value of the obligations underlying put options
will not exceed 25% of a Fund's net assets.

Futures Contracts and Options on Futures Contracts

A futures contract on securities or currency is an agreement to buy and
sell securities or currency at a specified price at a designated date. Futures
contracts and options thereon may be entered into for hedging purposes and for
the other purposes described in the Funds' Prospectus. A Fund may enter into
futures contracts in order to hedge against changes in interest rates, stock
market prices or currency exchange rates.

The purchase of futures or call options thereon can serve as a long hedge,
and the sale of futures or the purchase of put options thereon can serve as a
short hedge. Writing call options on futures contracts can serve as a limited
short hedge, and writing put options on futures contracts can serve as a limited
long hedge.

No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract, a Fund is required to deposit "initial
margin," consisting of cash, U.S. government securities or other liquid,
high-grade debt securities, in an amount generally equal to 10% or less of the
contract value. Margin must also be deposited when writing a call or put option
on a futures contract, in accordance with applicable exchange rules. Unlike
margin in securities transactions, initial margin does not represent a
borrowing, but rather is in the nature of a performance bond or good-faith
deposit that is returned to the Fund at the termination of the transaction if
all contractual obligations have been satisfied. Under certain circumstances,
such as periods of high volatility, a Fund may be required by an exchange to
increase the level of its initial margin payment.

Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking to market." Variation margin does not involve borrowing, but rather
represents a daily settlement of a Fund's obligations to or from a futures
broker. When a Fund purchases an option on a future, the premium paid plus
transaction costs are all that is at risk. In contrast, when a Fund purchases or
sells a futures contract or writes a call or put option thereon, it is subject
to daily variation margin calls that could be substantial in the event of
adverse price movements. If the Fund has insufficient cash to meet daily
variation margin requirements, it might need to sell securities at a time when
such sales are disadvantageous.

Purchasers and sellers of futures contracts and options on futures can
enter into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, an instrument identical to the
instrument purchased or sold. Positions in futures and options on futures may be
closed only on an exchange or board of trade that provides a secondary market.
Each Fund intends to enter into futures and options on futures transactions only
on exchanges or boards of trade where there appears to be a liquid secondary
market. However, there can be no assurance that such a market will exist for a
particular contract at a particular time.

Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a future or option on a futures contract can
vary from the previous day's settlement price; once that limit is reached, no
trades may be made that day at a price

B-21

<PAGE>
beyond the limit. Daily price limits do not limit potential losses because
prices could move to the daily limit for several consecutive days with little or
no trading, thereby preventing liquidation of unfavorable positions.

If a Fund were unable to liquidate a futures or option on a futures
contract position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The Fund would
continue to be subject to market risk with respect to the position. In addition,
except in the case of purchased options, the Fund would continue to be required
to make daily variation margin payments and might be required to maintain the
position being hedged by the future or option or to maintain cash or securities
in a segregated account.

Certain characteristics of the futures market might increase the risk that
movements in the prices of futures contracts or options on futures contracts
might not correlate perfectly with movements in the prices of the investments
being hedged. For example, all participants in the futures and options on
futures contracts markets are subject to daily variation margin calls and might
be compelled to liquidate futures or options on futures contract positions whose
prices are moving unfavorably to avoid being subject to further calls. These
liquidations could increase price volatility of the instruments and distort the
normal price relationship between the futures or options and the investments
being hedged. Also, because initial margin deposit requirements in the futures
market are less onerous than margin requirements in the securities markets,
there might be increased participation by speculators in the futures markets.
This participation also might cause temporary price distortions. In addition,
activities of large traders in both the futures and securities markets involving
arbitrage, "program trading" and other investment strategies might result in
temporary price distortions.

Foreign Currency Forward Contracts, Options and Futures Transactions

There is no limitation on the value of forward contracts into which a Fund
may enter. However, a Fund's transactions in forward contracts will be limited
to hedging involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of a forward contract with respect
to specific receivables or payables of the Fund generally arising in connection
with the purchase or sale of its securities and accruals of interest or
dividends receivable and Fund expenses. Position hedging is the sale of a
foreign currency with respect to security positions denominated or quoted in
that currency. A Fund may not position hedge with respect to a particular
currency for an amount greater than the aggregate market value (determined at
the time of making any sale of a forward contract) of securities, denominated or
quoted in, or currently convertible into, such currency. A forward contract
generally has no deposit requirements, and no commissions are charged for such
trades.

A Fund may enter into a forward contract to hedge against risk in the
following circumstances: (i) during the time period when a Fund contracts for
the purchase or sale of a security denominated in a foreign currency, or (ii)
when a Fund anticipates the receipt in a foreign currency of dividends or
interest payments on a security which it holds. By entering into a forward
contract for a fixed amount of dollars for the purchase or sale of the amount of
foreign currency involved in the underlying transaction, a Fund will be able to
protect itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the subject foreign currency during the
period between the date on which the security is purchased or sold, or on which
the dividend or interest payment is declared, and the date on which such
payments are made or received. Additionally, when a Fund's Adviser believes that
the currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, the Fund may enter into a forward contract, for a fixed
amount of dollars, to sell the amount of foreign currency approximating the
value of some or all of the securities of the Fund denominated in such foreign
currency. Further, a Fund may enter into a forward contract in one foreign
currency, or basket of currencies, to hedge against the decline or increase in
value in another foreign currency. Use of a different currency or basket of
currencies magnifies the risk that movements in the price of the forward
contract will not correlate or will correlate unfavorably with the foreign
currency being hedged.

Forward currency contracts (i) are traded in an interbank market conducted
directly between currency traders (typically commercial banks or other financial
institutions) and their customers, (ii) generally have no deposit requirements
and (iii) are typically consummated without payment of any commissions. Failure
by a Fund's contra party to make or take delivery of the underlying currency at
the maturity of the forward contract would result in the loss to the Fund of any
expected benefit of the transaction.

As is the case with futures contracts, purchasers and sellers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures, by selling or purchasing, respectively, an
instrument identical to the instrument purchased or sold. Secondary markets
generally do not exist for forward currency contracts, with the result that
closing transactions generally can be made for forward currency contracts only
by negotiating directly with the contra party. Thus, there can be no assurance
that a Fund will in fact be able to close out a forward currency contract at a
favorable price prior to maturity. In addition, in the event of insolvency of
the contra party, a Fund might be unable to close out a forward currency
contract at any time prior to maturity. In either event, the Fund would continue
to be subject to market risk with respect to the position, and would continue to
be required to maintain a position in the securities or currencies that are the
subject of the hedge or to maintain cash or securities in a segregated account.

A Fund may purchase and write put and call options on foreign currencies
traded on securities exchanges or boards of trade (foreign and domestic) and OTC
options for hedging purposes in a manner similar to that in which forward
foreign currency exchange contracts

B-22

<PAGE>
and futures contracts on foreign currencies will be employed. Options on foreign
currencies are similar to options on securities, except that a Fund has the
right to take or make delivery of a specified amount of foreign currency, rather
than securities.

Generally, the OTC foreign currency options used by a Fund are
European-style options. This means that the option is only exercisable
immediately prior to its expiration. This is in contrast to American-style
options, which are exercisable at any time prior to the expiration date of the
option.

If a Fund's Adviser anticipates purchasing a foreign security and also
anticipates a rise in the value of such foreign currency (thereby increasing the
cost of such security), the Fund may purchase call options or write put options
on the foreign currency. A Fund could also enter into a long forward contract or
a long futures contract on such currency, or purchase a call option, or write a
put option, on a currency futures contract. The use of such instruments could
offset, at least partially, the effects of the adverse movements of the exchange
rates.

Foreign Currency Strategies--Special Considerations

A Fund may use options on foreign currencies, futures on foreign
currencies, options on futures on foreign currencies and forward currency
contracts, to hedge against movements in the values of the foreign currencies in
which the Fund's securities are denominated. Such currency hedges can protect
against price movements in a security that the Fund owns or intends to acquire
that are attributable to changes in the value of the currency in which it is
denominated. Such hedges do not, however, protect against price movements in the
securities that are attributable to other causes.

A Fund might seek to hedge against changes in the value of a particular
currency when no futures contract, forward contract or option involving that
currency is available or one of such contracts is more expensive than certain
other contracts. In such cases, the Fund may hedge against price movements in
that currency by entering into a contract on another currency or basket of
currencies, the values of which the Fund's Adviser believes will have a positive
correlation to the value of the currency being hedged. The risk that movements
in the price of the contract will not correlate perfectly with movements in the
price of the currency being hedged is magnified when this strategy is used.

The value of futures contracts, options on futures contracts, forward
contracts and options on foreign currencies depends on the value of the
underlying currency relative to the U.S. dollar. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of futures contracts, forward
contracts or options, a Fund could be disadvantaged by dealing in the odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.

There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirements that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or futures markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements might take place in the underlying markets that cannot
be reflected in the markets for the futures contracts or options until they
reopen.

Settlement of futures contracts, forward contracts and options involving
foreign currencies might be required to take place within the country issuing
the underlying currency. Thus, a Fund might be required to accept or make
delivery of the underlying foreign currency in accordance with any U.S. or
foreign regulations regarding the maintenance of foreign banking arrangements by
U.S. residents and might be required to pay any fees, taxes and charges
associated with such delivery assessed in the issuing country.

Covered Forward Currency Contracts, Futures Contracts and Options

Transactions using forward currency contracts, futures contracts and
options (other than options that a Fund has purchased) expose the Fund to an
obligation to another party. A Fund will not enter into any such transactions
unless it owns either (1) an offsetting ("covered") position in securities,
currencies, or other options, forward currency contracts or futures contracts,
or (2) liquid assets with a value sufficient at all times to cover its potential
obligations not covered as provided in (1) above. Each Fund will comply with SEC
guidelines regarding cover for these instruments and, if the guidelines so
require, set aside cash, U.S. government securities or other liquid, high-grade
debt securities in a segregated account with its Custodian in the prescribed
amount.

Assets used as cover or held in a segregated account cannot be sold while
the position in the corresponding forward currency contract, futures contract or
option is open, unless they are replaced with similar assets. As a result, the
commitment of a large portion of a Fund's assets to cover or segregated accounts
could impede portfolio management or the Fund's ability to meet redemption
requests or other current obligations.

B-23

<PAGE>

Illiquid Securities

The Growth Stock Fund, International Stock Fund, Stock Index Fund, Active
Balanced Fund, Balanced Fund and the Money Market Fund may each hold up to 10%
of their net assets in illiquid securities. The Income Fund may hold up to 15%
of its net assets in illiquid securities. Illiquid securities include repurchase
agreements which have a maturity of longer than seven days and securities that
are illiquid by virtue of the absence of a readily available market or legal or
contractual restrictions on resale. Historically, illiquid securities have
included securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act of 1933, as
amended ("Securities Act"), securities which are otherwise not readily
marketable and repurchase agreements having a maturity of longer than seven
days. Securities which have not been registered under the Securities Act are
referred to as private placements or restricted securities and are purchased
directly from the issuer or in the secondary market. Mutual funds do not
typically hold a significant amount of these restricted or other illiquid
securities because of the potential for delays on resale and uncertainty in
valuation. Limitations on resale may have an adverse effect on the marketability
of portfolio securities and a mutual fund might be unable to dispose of
restricted or other illiquid securities promptly or at reasonable prices and
might thereby experience difficulty satisfying redemptions within seven days. A
mutual fund might also have to register such restricted securities in order to
dispose of them resulting in additional expense and delay. Adverse market
conditions could impede such a public offering of securities.

In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.

Rule 144A of the Securities Act allows for a broader institutional trading
market for securities otherwise subject to restriction on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration
requirements of the Securities Act for resales of certain securities to
qualified institutional buyers. The investment adviser anticipates that the
market for certain restricted securities such as institutional commercial paper
will expand further as a result of this new regulation and the development of
automated systems for the trading, clearance and settlement of unregistered
securities of domestic and foreign issuers, such as the PORTAL System sponsored
by the NASD.

Restricted securities eligible for resale pursuant to Rule 144A and
commercial paper for which there is a readily available market will not be
deemed illiquid. The Advisers will monitor the liquidity of such restricted
securities, subject to the supervision of the Trustees. In reaching liquidity
decisions, Advisers will consider, among other things, the following factors:
(1) the frequency of trades and quotes for the security; (2) the number of
dealers wishing to purchase or sell the security and the number of other
potential purchasers; (3) dealer undertakings to make a market in the security
and (4) the nature of the security and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer). In addition, in order for commercial
paper that is issued in reliance on Section 4(2) of the Securities Act to be
considered liquid, (i) it must be rated in one of the two highest rating
categories by at least two nationally recognized statistical rating
organizations (NRSRO), or if only one NRSRO rates the securities, by that NRSRO,
or, if unrated, be of comparable quality in the view of the investment adviser,
and (ii) it must not be "traded flat" (i.e., without accrued interest) or in
default as to principal or interest. Repurchase agreements subject to demand are
deemed to have a maturity equal to the notice period.

Other Investment Techniques

In order to protect the value of the Funds from interest rate fluctuations,
the Balanced Fund and the Income Fund may enter into interest rate swaps. The
Funds intend to enter into these transactions primarily to preserve a return or
spread on a particular investment or portion of its portfolio or to protect
against any increase in the price of securities the Fund anticipates purchasing
at a later date. In addition, the Income Fund may, engage in the purchase or
sale of interest rate caps, floors and collars. The purchase of an interest rate
cap entitles the purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payments of interest on a
contractually-based principal amount from the party selling such interest rate
cap. The purchase of an interest rate floor entitles the purchaser, to the
extent that a specified index falls below a predetermined interest rate, to
receive payments of interest on a contractually-based principal amount from the
party selling such interest rate floor.

A Fund may enter into interest rate swaps, caps and floors, on either an
asset-based or liability-based basis, depending on whether it is hedging its
assets or its liabilities. The Income Fund will usually enter into interest rate
swaps on a net basis, i.e., the two payment streams are netted out, with the
Fund receiving or paying, as the case may be, only the net amount of the two
payments. Inasmuch as these techniques are entered into for good faith hedging
purposes, the Manager and each Adviser believe such obligations do not
constitute senior securities and, accordingly, will not treat them as being
subject to a Fund's borrowing restrictions. When a Fund enters into interest
rate swaps on a net basis, the net amount of the excess, if any, of the Fund's
obligations over its entitlements with respect to each interest rate swap will
be accrued on a daily basis and an amount of cash or liquid securities having an
aggregate net asset value at

B-24

<PAGE>
least equal to the accrued excess will be maintained in a segregated account by
the Custodian. To the extent that a Fund enters into an interest rate swap other
than on a net basis, or sells caps or floors, the amount maintained in the
segregated account will be the full amount of the Fund's obligations. When a
Fund enters into interest rate swaps on other than a net basis, the entire
amount of the Fund's obligations, if any, with respect to such interest rate
swaps will be treated as illiquid. To the extent that a Fund enters into
interest rate swaps on a net basis, the net amount of the excess, if any, of the
Fund's obligations over its entitlements with respect to each interest rate swap
will be treated as illiquid. If there is a default by the other party to such a
transaction, the Fund will have contractual remedies pursuant to the agreements
related to the transaction.

Each Fund may take advantage of opportunities in the area of options and
futures contracts and any other derivative instruments that are not presently
contemplated for use by such Fund or that are not currently available but that
may be developed, to the extent such opportunities are both consistent with its
investment objective and legally permissible for the Fund. Before entering into
such transactions or making any such investment, the Fund will provide
appropriate disclosure in its prospectus.

INVESTMENT RESTRICTIONS

The investment restrictions listed below have been adopted by the Company
as fundamental policies of the Funds, except as otherwise indicated. Under the
1940 Act, a fundamental policy of a Fund may not be changed without the vote of
a majority of the outstanding voting securities of the Fund. As defined in the
1940 Act, a "majority of a Fund's outstanding voting securities" means the
lesser of (i) 67% of the shares represented at a meeting at which more than 50%
of the outstanding shares are present in person or represented by proxy or (ii)
more than 50% of the outstanding shares. For purposes of the following
limitations: (i) all percentage limitations apply immediately after a purchase
or initial investment; and (ii) any subsequent change in any applicable
percentage resulting from market fluctuations does not require elimination of
any asset from Fund.

A Fund may not:

1. Purchase any security if, as a result, with respect to 75% of the Fund's
total assets, more than 5% of the value of its total assets (determined at the
time of investment) would then be invested in the securities of any one issuer.

2. Purchase a security if more than 10% of the outstanding voting
securities of any one issuer would be held by the Fund.

3. Purchase a security if, as a result, 25% or more of the value of its
total assets (determined at the time of investment) would be invested in
securities of one or more issuers having their principal business activities in
the same industry. This restriction does not apply to obligations issued or
guaranteed by the United States Government, its agencies or instrumentalities
and, in the case of the Money Market Fund, to the securities of domestic banks
(including all banks which are organized under the laws of the United States or
a state (as defined in the 1940 Act) and U.S. branches of foreign banks that are
subject to the same regulations as U.S. banks.

4. Purchase or sell real estate or interests therein (including limited
partnership interests), although a Fund may purchase securities of issuers which
engage in real estate operations and securities which are secured by real estate
or interests therein.

5. Purchase or sell commodities or commodity futures contracts, except that
all Funds (other than the Money Market Fund) may purchase and sell financial
futures contracts and options thereon and that forward contracts are not deemed
to be commodities or commodity futures contracts.

6. Purchase oil, gas or other mineral leases, rights or royalty contracts
or exploration or development programs, except that a Fund may invest in the
securities of companies which operate, invest in or sponsor such programs.

7. Issue senior securities, borrow money or pledge its assets, except that
each Fund may borrow from banks or through forward rolls, dollar rolls or
reverse repurchase agreements up to 20% (except for the Balanced Fund, the
Income Fund and the Money Market Fund) of the value of its total assets to take
advantage of investment opportunities, for temporary, extraordinary or emergency
purposes, or for the clearance of transactions and may pledge up to 20% of the
value of its total assets to secure such borrowings. The Balanced Fund and the
Income Fund may borrow from banks up to 20% of the value of their respective
total assets for the same purposes and may pledge up to 20% of the value of
their respective total assets to secure such borrowings. In addition, the
Balanced Fund and the Income Fund may engage in investment techniques such as
reverse repurchase agreements, forward rolls and dollar rolls to the extent that
their respective assets dedicated to such techniques combined with the
respective values of their bank borrowings do not exceed 33 1/3% of their
respective total assets. The Money Market Fund may borrow an amount equal to no
more than 20% of the value of its total assets only for temporary, extraordinary
or emergency purposes. For purposes of this restriction, the purchase or sale of
securities on a "when-issued" or delayed-delivery basis; the purchase and sale
of options, financial futures contracts and options thereon; the entry into
repurchase agreements and collateral and margin arrangements with respect to any
of the foregoing, will not be deemed to be a pledge of assets nor the issuance
of senior securities.

B-25

<PAGE>

8. Make loans except by the purchase of fixed income securities in which a
Fund may invest consistently with its investment objective and policies or by
use of reverse repurchase and repurchase agreements, forward rolls, dollar rolls
and securities lending arrangements.

9. Make short sales of securities.

10. Purchase securities on margin, except for such short-term loans as are
necessary for the clearance of purchases of portfolio securities. (For the
purpose of this restriction, the deposit or payment by any Fund of initial or
maintenance margin in connection with financial futures contracts is not
considered the purchase of a security on margin.)

11. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter under
certain federal securities laws. The Fund has no limit with respect to
investments in restricted securities.

The Funds will not as a matter of operating policy:

1. Invest in oil, gas and mineral leases or development programs.

2. Purchase a security if, as a result, more than 15% of its total assets
would be invested in securities which are restricted as to disposition. This
restriction shall not apply to mortgage-backed securities or obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities.

3. Purchase or retain the securities of any issuer if any officer or
Trustee of the Company or the Company's Manager or any Adviser owns more than
1/2 of 1% of the outstanding securities of such issuer, and such officers and/or
Trustees, who own more than 1/2 of 1% own in the aggregate more than 5% of the
outstanding securities of such issuer.

4. Purchase warrants if, as a result, the Company would then have more than
5% of its assets (determined at the time of investment) invested in warrants.
Warrants will be valued at the lower of cost or market and investment in
warrants which are not listed on the NYSE or American Stock Exchange or a major
foreign exchange will be limited to 2% of the Company's total assets (determined
at the time of investment). For purposes of this limitation, warrants acquired
in units or attached to securities are deemed to be without value.

5. Purchase securities of other investment companies except in compliance
with the 1940 Act and applicable state law.

6. Invest in companies for the purpose of exercising control or management
of any other issuer, except in connection with a merger, consolidation,
acquisition or reorganization.

7. Invest more than 15% of its total assets in securities of unseasoned
issuers, including their predecessors, which have been in operation for less
than three years.

Whenever any fundamental investment policy or investment restriction states
a maximum percentage of a Fund's assets, it is intended that if the percentage
limitation is met at the time the investment is made, a later change in
percentage resulting from changing total or net asset values will not be
considered a violation of such policy. However, in the event that a Fund's asset
coverage for borrowings falls below 300%, the Fund will take prompt action to
reduce its borrowings, as required by applicable law.

In order to comply with the rules and regulations of certain State
securities commissions, the Funds have agreed (i) that over-the-counter options
transactions shall be entered into only when such options are not available on a
national securities exchange, and (ii) broker-dealers with whom the Fund shall
enter into such transaction shall have a minimum net worth, at the time of the
transaction is entered into, of $20 million. In addition, the Fund will only buy
and sell puts and calls on securities, stock index futures, or financial futures
or options on financial futures, if such options are written by other persons,
and if;

i) the aggregate premiums paid on all such options which are held at any
time do not exceed 20% of the Fund's total net assets; and

ii) the aggregate margin deposits required on all such futures or options
thereon held at any time do not exceed 5% of the Fund's total assets.

CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT

State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Company's portfolio securities
and cash and, in that capacity, maintains certain financial and accounting books
and records pursuant to an agreement with the Company.

PMF serves as the Transfer Agent and Dividend Disbursing Agent of the
Company through its wholly-owned subsidiary, Prudential Mutual Fund Services,
Inc., Raritan Plaza One, Edison, New Jersey 08837. PMFS provides customary
transfer agency services to the Company, including the handling of shareholder
communications, the processing of shareholder transactions, the maintenance of
shareholder account records, payment of dividends and distributions, and related
functions. PMFS is also reimbursed for its out-of-pocket expenses, including,
but not limited to, postage, stationery, printing, allocable communications
expenses and other costs.

B-26

<PAGE>
THE PRUDENTIAL GROWTH STOCK FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS
Common Stocks--98.7%
Aerospace/Defense--2.4%
78,200 Boeing Co.......................... $ 5,337,150
-----------
Airlines--1.9%
56,900 AMR Corp.(a)....................... 4,103,913
-----------
Beverages--3.0%
49,500 Coca-Cola Co....................... 3,415,500
61,000 PepsiCo Inc........................ 3,111,000
-----------
6,526,500
-----------
Commercial Services--1.4%
90,850 CUC International, Inc.(a)......... 3,168,394
-----------
Computer Software & Services--14.3%
55,400 America Online Inc................. 3,808,750
78,300 AutoDesk, Inc...................... 3,425,625
85,300 Cisco Systems, Inc.(a)............. 5,885,700
Computer Associates International,
72,150 Inc.............................. 3,048,337
36,400 Macromedia Inc..................... 2,079,350
52,900 Microsoft Corp.(a)................. 4,787,450
64,600 SAP AG (ADR) (Germany)............. 3,544,925
62,300 Silicon Graphics Inc.(a)........... 2,141,563
87,400 Symbol Technologies, Inc.(a)....... 2,895,125
-----------
31,616,825
-----------
Cosmetics & Soaps--1.7%
79,300 Gillette Co........................ 3,776,663
-----------
Drugs & Medical Supplies--7.4%
109,000 Astra AB Class A (Sweden).......... 3,904,135
44,900 Lilly (Eli) & Co................... 4,035,388
62,900 Merck & Co., Inc................... 3,522,400

<CAPTION>
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
Smith Kline Beecham PLC (ADR)
94,300 (United Kingdom)................. $ 4,773,937
-----------
16,235,860
-----------
Electronics--11.1%
104,400 Hewlett-Packard Co................. 8,704,350
131,500 Intel Corp......................... 7,906,437
102,000 Motorola, Inc...................... 7,790,250
-----------
24,401,037
-----------
Financial Services--7.3%
43,900 Federal National Mortgage Assn..... 4,543,650
35,900 First Financial Mgmt. Corp......... 3,504,737
27,200 Morgan Stanley Group, Inc.......... 2,614,600
61,500 Mutual Risk Management, Ltd........ 2,429,250
61,800 The PMI Group Inc.................. 2,927,775
-----------
16,020,012
-----------
Health Care Services--0.6%
53,800 Value Health, Inc.(a).............. 1,425,700
-----------
Hospital Management--1.9%
86,100 United Healthcare Corp............. 4,208,138
-----------
Insurance--1.1%
American International Group,
29,450 Inc.............................. 2,503,250
-----------
Leisure--3.8%
94,300 Disney (Walt) Co................... 5,410,462
99,600 Harrahs Entertainment Inc.(a)...... 2,913,300
-----------
8,323,762
-----------
Lodging--0.8%
75,300 Promus Cos., Inc.(a)............... 1,713,075
-----------
Machinery--1.2%
78,300 Harnischfeger Industries, Inc...... 2,613,263
-----------
</TABLE>

See Notes to Financial Statements.
B-27

<PAGE>
THE PRUDENTIAL GROWTH STOCK FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Media--7.1%
Clear Channel Communications,
44,400 Inc.(a).......................... $ 3,363,300
News Corp. Ltd. (ADR)
120,100 (Australia)...................... 2,642,200
48,900 Omnicom Group...................... 3,184,613
Reuters Holdings PLC (ADR)
70,100 (United Kingdom)................. 3,706,537
43,800 Scholastic Corp.(a)................ 2,748,450
-----------
15,645,100
-----------
Miscellaneous Basic Industry--4.2%
36,000 Applied Materials, Inc.(a)......... 3,681,000
62,400 Cerner Corp.(a).................... 2,137,200
27,300 ITT Corp........................... 3,385,200
-----------
9,203,400
-----------
Miscellaneous Consumer Growth--0.9%
29,900 Eastman Kodak Co................... 1,771,575
7,000 Luxottica Group (ADR) (Italy)...... 342,125
-----------
2,113,700
-----------
Office Equipment & Supplies--1.3%
58,000 Compaq Computer Corp.(a)........... 2,805,750
-----------
Railroads--1.1%
37,800 Union Pacific Corp................. 2,504,250
-----------
Restaurants--2.5%
Lone Star Steakhouse & Saloon,
69,400 Inc.(a).......................... 2,845,400
68,000 McDonald's Corp.................... 2,601,000
-----------
5,446,400
-----------
Retail--4.6%
122,300 AutoZone, Inc.(a).................. 3,118,650
85,350 Dollar General Corp................ 2,507,156
55,533 Home Depot, Inc.................... 2,214,379
46,400 Kohls Corp. (a).................... 2,407,000
-----------
10,247,185
-----------
<CAPTION>

Value
Shares Description (Note 1)
- ------------------------------------------------------------
Technology--10.8%
74,600 Adobe Systems, Inc................. $ 3,860,550
37,800 Broderbund Software Inc............ 2,877,525
34,233 Chiron Corp.(a).................... 3,098,086
35,700 Cirrus Logic, Inc.(a).............. 2,043,825
59,500 Intuit Inc......................... 2,796,500
123,900 LSI Logic Corp.(a)................. 7,155,225
101,800 Pyxis Corp.(a)..................... 1,972,375
-----------
23,804,086
-----------
Telecommunications--4.8%
74,700 Nokia Corp. (ADR) (Finland)........ 5,210,325
46,800 Tellabs, Inc.(a)................... 1,971,450
Vodafone Group PLC (ADR)
82,100 (United Kingdom)................. 3,366,100
-----------
10,547,875
-----------
Transportation--1.5%
Wisconsin Central Transportation
48,900 Corp.(a)......................... 3,264,075
-----------
Total common stocks
(cost $163,489,413)................ 217,555,363
-----------
Principal
Amount
(000) SHORT-TERM INVESTMENT
- --------
Repurchase Agreement--2.2%
$ 4,819 Joint Repurchase Agreement Account,
6.39%, 10/2/95 (Note 5)
(cost $4,819,000)................ 4,819,000
-----------
Total Investments--100.9%
(cost $168,308,413; Note 4)........ 222,374,363
Liabilities in excess of other
assets--(0.9%)................... (1,868,969)
-----------
Net Assets--100%................... $220,505,394
-----------
-----------
</TABLE>
- ---------------
(a) Non-income producing security.
ADR--American Depository Receipt.
See Notes to Financial Statements.
B-28
<PAGE>
THE PRUDENTIAL STOCK INDEX FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS
Common Stocks and Equivalents--81.7%
Aerospace/Defense--1.7%
5,400 Allied-Signal, Inc................. $ 238,275
6,600 Boeing Co.......................... 450,450
1,200 General Dynamics Corp.............. 65,850
3,830 Lockheed Corp...................... 257,089
1,700 Loral Corp......................... 96,900
2,200 McDonnell Douglas Corp............. 182,050
1,000 Northrop Corp...................... 60,875
2,400 Raytheon Co........................ 204,000
4,200 Rockwell International Corp........ 198,450
-----------
1,753,939
-----------
Airlines--0.3%
1,450 AMR Corp.(a)....................... 104,581
1,000 Delta Airlines, Inc................ 69,250
2,700 Southwest Airlines Co.............. 68,175
1,200 USAir Group Inc.(a)................ 13,800
-----------
255,806
-----------
Aluminum--0.4%
4,400 Alcan Aluminum Ltd................. 142,450
3,400 Aluminum Co. of America............ 179,775
1,250 Reynolds Metals Co................. 72,188
-----------
394,413
-----------
Automobiles & Trucks--2.0%
7,400 Chrysler Corp...................... 392,200
800 Cummins Engine, Inc................ 30,800
2,000 Dana Corp.......................... 57,750
1,200 Echlin Inc......................... 42,900
20,700 Ford Motor Co...................... 644,287
14,400 General Motors Corp................ 675,000
2,400 Genuine Parts Co................... 96,300
800 Johnson Controls, Inc.............. 50,600
<CAPTION>
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>

1,420 Navistar International Corp.(a).... $ 17,040
1,200 Safety Kleen Corp.................. 17,550
-----------
2,024,427
-----------
Banking--5.1%
7,637 Banc One Corp...................... 278,750
2,200 Bank of Boston Corp................ 104,775
3,700 Bank of New York Co., Inc.......... 172,050
7,200 BankAmerica Corp................... 431,100
1,500 Bankers Trust NY Corp.............. 105,375
1,900 Barnett Banks, Inc................. 107,588
2,500 Boatmen's Bancshares............... 92,500
3,400 Chase Manhattan Corp............... 207,825
4,900 Chemical Banking Corp.............. 298,287
7,700 Citicorp........................... 544,775
2,700 CoreStates Financial Corp.......... 98,888
1,700 First Chicago Corp................. 116,662
1,500 First Fidelity Bancorp, Inc........ 101,250
1,500 First Interstate Bank Corp......... 151,125
3,300 First Union Corp................... 168,300
2,700 Fleet Financial Group, Inc......... 101,925
1,100 Golden West Financial Corp......... 55,550
2,700 Great Western Financial Corp....... 64,125
2,300 H.F. Ahmanson & Co................. 58,363
4,400 KeyCorp............................ 150,700
2,825 Mellon Bank Corp................... 126,066
3,600 Morgan (J.P.) & Co., Inc........... 278,550
2,900 National City Corp................. 89,538
5,300 NationsBank Corp................... 356,425
3,000 NBD Bancorp, Inc................... 114,750
6,200 Norwest Corp....................... 203,050
4,400 PNC Financial Corp................. 122,650
1,100 Republic New York Corp............. 64,350
2,400 Shawmut National Corp.............. 80,700
2,200 Suntrust Banks, Inc................ 145,475
1,800 U.S. Bancorp....................... 50,850
900 Wells Fargo & Co................... 167,062
-----------
5,209,379
-----------
</TABLE>

See Notes to Financial Statements.
B-29

<CAPTION>
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
800 Ogden Corp......................... $ 18,800
-----------
236,831
-----------
Computer Software & Services--3.0%
900 AutoDesk, Inc...................... 39,375
2,800 Automatic Data Processing, Inc..... 190,750
1,400 Cabletron Systems, Inc.(a)......... 92,225
900 Ceridian Corp.(a).................. 39,937
5,200 Cisco Systems, Inc.(a)............. 358,800
Computer Associates International,
4,600 Inc.............................. 194,350
1,050 Computer Sciences Corp.(a)......... 67,594
1,000 Intergraph Corp.(a)................ 12,125
4,000 Micron Technology Inc.............. 318,000
11,300 Microsoft Corp.(a)................. 1,022,650
6,900 Novell, Inc.(a).................... 125,925
8,350 Oracle Systems Corp.(a)............ 320,431
3,000 Silicon Graphics Inc.(a)........... 103,125
1,800 Sun Microsystems Inc.(a)........... 113,400
1,900 Tandem Computers Inc.(a)........... 23,275
-----------
3,021,962
-----------

Construction--0.1%
1,600 Fluor Corp......................... 89,600
700 Foster Wheeler Corp................ 24,762
600 Kaufman & Broad Home Corp.......... 7,575
500 Pulte Corp......................... 14,188
-----------
136,125
-----------
Consumer Goods--0.5%
600 Centex Corp........................ 17,400
600 Fleetwood Enterprises, Inc......... 11,925
3,100 Lowes Companies, Inc............... 93,000
3,200 Masco Corp......................... 88,000
2,200 Maytag Corp........................ 38,500
1,000 Owens-Corning Fiberglas Corp.(a)... 44,625
Pioneer Hi Bred International,
1,600 Inc.............................. 73,600
</TABLE>

See Notes to Financial Statements.
B-30

<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
5,300 Baxter International Inc........... $ 217,962
1,300 Becton Dickinson & Co.............. 81,738
2,300 Biomet, Inc.(a).................... 39,675
2,900 Boston Scientific Corp.(a)......... 123,613
9,850 Bristol-Myers Squibb Co............ 717,819
12,500 Johnson & Johnson Co............... 926,562
5,700 Lilly (Eli) & Co................... 512,287
4,500 Medtronic, Inc..................... 241,875
23,900 Merck & Co., Inc................... 1,338,400
12,200 Pfizer Inc......................... 651,175
7,200 Schering-Plough Corp............... 370,800
900 St. Jude Medical, Inc.(a).......... 56,925
1,100 United States Surgical Corp........ 29,425
3,300 Upjohn Co.......................... 147,263
2,600 Warner Lambert Co.................. 247,650
-----------
7,231,756
-----------
Electronics--4.0%
2,000 Advanced Micro Devices, Inc.(a).... 58,250
2,500 Amdahl Corp.(a).................... 24,063
4,184 AMP Inc............................ 161,084
2,400 Apple Computer, Inc................ 89,400
400 Cray Research, Inc.(a)............. 8,850
400 Data General Corp.(a).............. 4,150
2,800 Digital Equipment Corp.(a)......... 127,750
1,100 EG&G, Inc.......................... 21,450
4,300 Emerson Electric Co................ 307,450
800 Harris Corp........................ 43,900
9,900 Hewlett-Packard Co................. 825,412
15,900 Intel Corp......................... 955,987
11,400 Motorola, Inc...................... 870,675
2,300 National Semiconductors Corp.(a)... 63,538
800 Perkin Elmer Corp.................. 28,500
1,300 Tandy Corp......................... 78,975
600 Tektronix, Inc..................... 35,400
3,700 Texas Instruments Inc.............. 295,537
350 Thomas & Betts Corp................ 22,619
900 Zenith Electronics Corp.(a)........ 7,763
-----------
4,030,753
-----------
</TABLE>

See Notes to Financial Statements.
B-31

<CAPTION>
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>

4,900 International Paper Co............. $ 205,800
1,600 James River Corp................... 51,200
3,100 Kimberly Clark Corp................ 208,087
2,100 Louisiana Pacific Corp............. 50,663
1,000 Mead Corp.......................... 58,625
600 Potlatch Corp...................... 24,525
2,900 Scott Paper Co..................... 140,650
1,900 Stone Container Corp............... 36,100
1,100 Temple Inland Inc.................. 58,575
1,300 Union Camp Corp.................... 74,912
1,300 Westvaco Corp...................... 59,313
3,900 Weyerhaeuser Co.................... 177,937
1,000 Willamette Industries, Inc......... 66,750
-----------
1,543,060
-----------
Gas Pipelines--0.5%
3,018 Cinergy Corp....................... 84,127
1,000 Columbia Gas System, Inc.(a)....... 38,625
1,800 Consolidated Natural Gas Co........ 72,675
4,900 Enron Corp......................... 164,150
2,300 Noram Energy Corp.................. 18,112
2,900 Panhandle Eastern Corp............. 79,025
700 Peoples Energy Corp................ 19,250
2,000 Williams Cos., Inc................. 78,000
-----------
553,964
-----------
Hospital Management--0.9%
1,900 Beverly Enterprises, Inc.(a)....... 26,125
8,552 Columbia Healthcare Corp........... 415,841
700 Community Psychiatric Centers...... 8,225
1,200 Manor Care, Inc.................... 40,800
1,800 Service Corp. International........ 70,425
500 Shared Medical Systems Corp........ 20,750
4,000 Tenet Healthcare Corp.(a).......... 69,500
3,000 U.S. HealthCare Inc................ 106,125
3,300 United Healthcare Corp............. 161,287
-----------
919,078
-----------
Housing Construction
700 Armstrong World Industries......... 38,850
-----------
</TABLE>

See Notes to Financial Statements.
B-32

<PAGE>
THE PRUDENTIAL STOCK INDEX FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Insurance--3.1%
2,200 Aetna Life & Casualty Co........... $ 161,425
Alexander & Alexander Services,
800 Inc.............................. 19,400
8,574 Allstate Corp...................... 303,305
4,000 American General Corp.............. 149,500
American International Group,
9,212 Inc.............................. 783,020
1,650 Chubb Corp......................... 158,400
1,450 CIGNA Corp......................... 150,981
1,600 General Re Corp.................... 241,600
950 Jefferson-Pilot Corp............... 61,038
1,800 Lincoln National Corp.............. 84,825
1,400 Marsh & McLennan Cos............... 123,025
1,900 Providian Corp..................... 78,850
1,200 SAFECO Corp........................ 78,750
1,600 St. Paul Companies, Inc............ 93,400
1,450 Torchmark Corp..................... 61,081
6,131 Travelers, Inc..................... 325,709
1,400 UNUM Corp.......................... 73,850
2,300 USF&G Corp......................... 44,563
750 USLIFE Corp........................ 21,938
3,300 Wachovia Corp...................... 142,312
-----------
3,156,972
-----------
Leisure--0.9%
1,100 Bally Entertainment Group(a)....... 11,963
2,000 Brunswick Corp..................... 40,500
10,100 Disney (Walt) Co................... 579,487
400 Handleman Co....................... 3,550
1,900 Harrahs Entertainment Inc.(a)...... 55,575
1,800 Hasbro, Inc........................ 56,025
700 King World Productions, Inc.(a).... 25,637
4,250 Mattel, Inc........................ 124,844
300 Outboard Marine Corp............... 6,450
-----------
904,031
-----------
Lodging--0.1%
900 Hilton Hotels Corp................. 57,488
2,400 Marriott International, Inc........ 89,700
-----------
147,188
-----------
<CAPTION>
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
Machinery--0.9%
600 Briggs & Stratton Corp............. $ 24,150
3,800 Caterpillar Inc.................... 216,125
700 Cincinnati Milacron, Inc........... 22,050
2,000 Cooper Industries, Inc............. 70,500
1,700 Deere & Co......................... 138,337
2,200 Dover Corp......................... 84,150
1,600 Eaton Corp......................... 84,800
700 Giddings & Lewis, Inc.............. 12,206
1,000 Harnischfeger Industries, Inc...... 33,375
2,100 Ingersoll Rand Co.................. 78,750
802 PACCAR Inc......................... 37,494
1,450 Parker Hannifin Corp............... 55,100
800 Snap-On Tools Corp................. 30,400
600 Timken Co.......................... 25,575
800 Varity Corp.(a).................... 35,600
-----------
948,612
-----------
Media--2.1%
3,000 Capital Cities/ABC, Inc............ 352,875
1,220 CBS, Inc........................... 97,447
4,550 Comcast Corp....................... 91,000
3,000 Donnelley (R.R.) & Sons, Co........ 117,000
1,800 Dow Jones & Co., Inc............... 66,375
3,300 Dun & Bradstreet Corp.............. 190,987
2,750 Gannett, Inc....................... 150,219
1,500 Interpublic Group Cos., Inc........ 59,625
950 Knight-Ridder, Inc................. 55,694
1,000 McGraw Hill, Inc................... 81,750
600 Meredith Corp...................... 23,850
1,700 New York Times Co.................. 46,538
7,500 Time Warner, Inc................... 298,125
2,100 Times Mirror Co.................... 60,375
1,300 Tribune Co......................... 86,288
6,939 Viacom Inc.(a)..................... 345,215
-----------
2,123,363
-----------
Mineral Resources--0.8%
800 ASARCO Inc......................... 25,200
Barrick Gold Corp. (ADR)
6,900 (Canada)......................... 178,537
</TABLE>

See Notes to Financial Statements.
B-33

Value
Shares Description (Note 1)
- ------------------------------------------------------------

100 Zurn Industries, Inc............... $ 2,538
-----------
4,448,326
-----------
Miscellaneous Consumer Growth--1.8%
1,300 Allergan, Inc...................... 43,388
1,400 American Greetings Corp............ 42,700
1,600 Black & Decker Corp................ 54,600
4,500 Corning, Inc....................... 128,812
1,900 Dial Corp.......................... 47,025
6,600 Eastman Kodak Co................... 391,050
700 Jostens, Inc....................... 16,450
Minnesota Mining & Manufacturing
8,100 Co............................... 457,650
800 Polaroid Corp...................... 31,800
1,300 Premark International Inc.......... 66,137
3,000 Rubbermaid, Inc.................... 82,875
3,100 Unilever N.V....................... 403,000
2,000 Whitman Corp....................... 41,250
-----------
1,806,737
-----------
Office Equipment & Supplies--1.9%
1,100 Alco Standard Corp................. 93,225
1,000 Avery Dennison Corp................ 42,000
5,100 Compaq Computer Corp.(a)........... 246,712
2,500 Honeywell, Inc..................... 107,188
International Business Machines
11,000 Corp............................. 1,038,125
2,900 Pitney Bowes, Inc.................. 121,800
3,500 Unisys Corp.(a).................... 27,563
2,150 Xerox Corp......................... 288,906
-----------
1,965,519
-----------
Petroleum--6.7%
1,800 Amerada Hess Corp.................. 87,525
9,600 Amoco Corp......................... 615,600
1,100 Ashland Oil, Inc................... 36,713
3,150 Atlantic Richfield Co.............. 338,231
2,400 Burlington Resources Inc........... 93,000
12,600 Chevron Corp....................... 612,675
24,050 Exxon Corp......................... 1,737,612
</TABLE>
See Notes to Financial Statements.
B-34

Value
Shares Description (Note 1)
- ------------------------------------------------------------

400 Luby's Cafeterias, Inc............. $ 8,600
13,400 McDonald's Corp.................... 512,550
Ryan's Family Steak Houses,
900 Inc.(a).......................... 7,088
700 Shoney's Inc.(a)................... 7,700
2,100 Wendy's International, Inc......... 44,362
-----------
616,525
-----------
Retail--4.3%
4,900 Albertsons, Inc.................... 167,212
2,800 American Stores Co................. 79,450
300 Brown Group, Inc................... 5,513
39 Bruno's, Inc....................... 444
1,700 Charming Shoppes, Inc.............. 7,650
1,900 Circuit City Stores, Inc........... 60,087
1,400 Dayton Hudson Corp................. 106,225
2,200 Dillard Department Stores, Inc..... 70,125
2,800 Gap, Inc........................... 100,800
Great Atlantic & Pacific Tea
700 Inc.............................. 19,600
1,300 Harcourt General, Inc.............. 54,438
9,266 Home Depot, Inc.................... 369,482
8,800 K mart Corp........................ 127,600
2,400 Kroger Co.(a)...................... 81,900
7,000 Limited, Inc....................... 133,000
1,500 Liz Claiborne, Inc................. 37,875
400 Longs Drug Stores Corp............. 16,600
4,800 May Department Stores Co........... 210,000
2,000 Melville Corp...................... 69,000
700 Mercantile Stores, Inc............. 31,500
3,200 Newell Co.......................... 79,200
1,400 NIKE, Inc.......................... 155,575
1,600 Nordstrom, Inc..................... 66,800
4,400 Penney (J.C.), Inc................. 218,350
1,200 Pep Boys - Manny, Moe & Jack....... 32,550
3,752 Price Costco, Inc.(a).............. 64,253
1,600 Reebok International, Ltd.......... 55,000
1,500 Rite-Aid Corp...................... 42,000
7,500 Sears Roebuck & Co................. 276,562
1,600 Sherwin Williams Co................ 56,000
1,100 Stride Rite Corp................... 12,513
1,400 Supervalue, Inc.................... 41,125
1,400 TJX Companies, Inc................. 16,625
</TABLE>

See Notes to Financial Statements.
B-35

<CAPTION>
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
400 Springs Industries, Inc............ $ 15,700
1,200 VF Corp............................ 61,200
-----------
154,938
-----------
Tobacco--1.6%
3,700 American Brands Inc................ 156,325
16,250 Philip Morris Cos., Inc............ 1,356,875
3,800 UST, Inc........................... 108,775
-----------
1,621,975
-----------
Trucking & Shipping--0.2%
900 Consolidated Freightways, Inc...... 22,275
1,100 Federal Express Corp.(a)........... 91,300
5,600 Laidlaw Inc........................ 49,000
800 Roadway Services, Inc.............. 39,800
1,400 Ryder System, Inc.................. 35,525
400 Yellow Corp........................ 5,500
-----------
243,400
-----------

Utility-Communications--6.6%
9,600 AirTouch Communications(a)......... 294,000
10,700 Ameritech Corp..................... 557,737
30,700 AT&T Corp.......................... 2,018,525
8,500 Bell Atlantic Corp................. 521,687
9,600 BellSouth Corp..................... 702,000
18,700 GTE Corp........................... 733,975
8,300 NYNEX Corp......................... 396,325
8,200 Pacific Telesis Group.............. 252,150
11,800 SBC Communications Inc............. 649,000
9,100 U.S. West, Inc..................... 428,838
4,200 Unicom Corp........................ 127,050
-----------
6,681,287
-----------
Utility-Electric--2.8%
3,600 American Electric Power, Inc....... 130,950
2,700 Baltimore Gas & Electric Co........ 69,863
3,000 Carolina Power & Light Co.......... 100,875
</TABLE>

See Notes to Financial Statements.
B-36

<PAGE>
THE PRUDENTIAL STOCK INDEX FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Utility - Electric, cont'd.
3,600 Central & South West Corp.......... $ 91,800
4,500 Consolidated Edison Co............. 136,687
2,800 Detroit Edison Co.................. 90,300
3,400 Dominion Resources, Inc............ 127,925
4,000 Duke Power Co...................... 173,500
4,300 Entergy Corp....................... 112,337
3,600 FPL Group, Inc..................... 147,150
2,200 General Public Utilities Corp...... 68,475
2,500 Houston Industries, Inc............ 110,312
2,800 Niagara Mohawk Power Corp.......... 36,750
1,300 Northern States Power Co........... 58,988
3,000 Ohio Edison Co..................... 68,250
1,700 Pacific Enterprises................ 42,713
8,200 Pacific Gas & Electric Co.......... 244,975
5,400 Pacificorp......................... 102,600
4,300 PECO Energy Co..................... 123,087
4,700 Public Service Enterprise Group.... 139,825
8,700 SCE Corp........................... 154,425
12,800 Southern Co........................ 302,400
4,400 Texas Utilities Co................. 153,450
2,000 Union Electric Co.................. 74,750
-----------
2,862,387
-----------
Total common stocks
(cost $67,756,491)................. 83,284,748
-----------
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
SHORT-TERM INVESTMENTS--12.9%
U. S. Government--0.7%
United States Treasury Bills
$ 550(b) 5.31%, 12/14/95................... $ 544,003
150(b) 5.41%, 12/14/95................... 148,350
-----------
692,353
-----------
Repurchase Agreement--12.2%
12,494 Joint Repurchase Agreement
Account,
6.39%, 10/2/95 (Note 5)........... 12,494,000
-----------
Total short-term investments
(cost $13,186,353)................ 13,186,353
-----------
Total Investments--94.6%
(cost $80,942,844; Note 4)........ 96,471,101
Other assets in excess of
liabilities--5.4%............... 5,473,465
-----------
Net Assets--100%.................. $101,944,566
-----------
-----------
</TABLE>
--------
(a) Non-income producing security.
(b) Pledged as initial margin on futures contracts.
ADR--American Depository Receipt.
See Notes to Financial Statements.
B-37
<PAGE>
THE PRUDENTIAL INTERNATIONAL STOCK FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
LONG-TERM INVESTMENTS
Common Stocks--94.5%
Argentina--2.3%
35,000 Telecom Argentina (ADR) ......... $ 1,465,625
(Utilities)
95,000 YPF Sociedad Anonima (ADR) ...... 1,710,000
(Oil & Gas) -----------
3,175,625
-----------
Australia--7.3%
800,000 CSR, Ltd. ....................... 2,662,008
(Multi-Industry)
540,000 Mayne Nickless Ltd. ............. 2,560,519
(Multi-Industry)
270,000 National Australia Bank Ltd. .... 2,389,001
(Commercial Banking)
900,000 Pioneer International Ltd. ...... 2,382,195
(Building Materials & -----------
Components)
9,993,723
-----------
Canada--4.6%
100,000 Bank of Nova Scotia ............. 2,104,675
(Commercial Banking)
Canadian Tire Corp., Ltd.,
210,000 Class A ......................... 2,366,362
(Automotive Parts)
145,000 MacMillan Bloedel Ltd. .......... 1,782,455
(Forestry & Paper) -----------
6,253,492
-----------
<CAPTION>
Value
Shares Description (Note 1)
- -------------------------------------------------------------
<C> <S> <C>
Finland--2.5%
140,000 Enso-Gutzeit Oy, Class R ........ $ 1,186,316
(Forestry & Paper)
124,000 Outokumpu Oy .................... 2,205,966
(Metals - Non Ferrous) -----------
3,392,282
-----------
France--5.7%
12,000 Chargeurs S.A. .................. 2,484,523
(Multi-Industry)
30,075 Christian Dior S.A. ............. 2,734,923
(Textiles & Apparel)
19,000 Peugeot S.A. .................... 2,595,555
(Automobile Manufacturing) -----------
7,815,001
-----------
Germany--1.7%
7,000 Volkswagen A.G. ................. 2,272,059
(Automobile Manufacturing) -----------
Italy--0.7%
890,000 Bca Fideuram S.P.A. ............. 992,565
(Financial Services) -----------
Japan--5.9%
263,000 Hitachi Ltd. .................... 2,857,545
(Electrical Equipment)
165,000 Matsushita Electric Industrial 2,523,139
Co., Ltd. .
(Electrical Equipment)
51,000 Sony Corp. ...................... 2,637,223
(Electronics) -----------
8,017,907
-----------
</TABLE>

See Notes to Financial Statements.
B-38

<PAGE>
THE PRUDENTIAL INTERNATIONAL STOCK FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
Netherlands--11.3%
20,000 AKZO N.V. ....................... $ 2,400,650
(Chemicals)
30,000 Gamma Holding N.V. .............. 1,349,663
(Textiles & Apparel)
52,000 Internationale - Nederlanden Groep 3,018,495
N.V. .
(Insurance)
77,000 KLM Royal Dutch Airlines ........ 2,699,138
(Airline/Military Technology)
65,000 Knp Bt (kon) Nv ................. 1,929,205
(Forestry & Paper)
84,000 Pakhoed Holdings N.V. ........... 2,461,635
(Energy Equipment & Services)
63,000 Stork N.V. ...................... 1,574,606
(Machinery & Engineering) -----------
15,433,392
-----------
New Zealand--3.6%
700,000 Fisher & Paykel Industries Ltd. 2,165,471
...............................
(Consumer Durable Goods)
1,320,000 Lion Nathan Ltd. ................ 2,762,851
(Beverages & Tobacco) -----------
4,928,322
-----------
Norway--7.5%
195,000 Aker A.S. ....................... 2,827,438
(Multi-Industry)
101,000 Hafslund Nycomed A.S. ........... 2,623,168
(Health & Personal Care)
65,000 Orkla A.S. ...................... 2,899,936
(Food & Household Products)
127,900 Unitor Shipping Service, A.S. ... 1,956,405
(Business & Public Services) -----------
10,306,947
-----------

<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
South Korea--7.4%
85,000 Korea Zinc ...................... $ 2,135,512
(Metals - Non Ferrous)
30,575 Lucky Development Co. ........... 704,475
(Construction & Housing)
4,500 Pohang Iron & Steel Co., Ltd. ... 388,375
(Metals - Steel)
13,134 Samsung Electronics Co., Ltd. ... 2,829,572
(Manufacturing)
2,599 Samsung Electronics Co., Ltd., new
shares.......................... 556,542
(Manufacturing)
35,000 Sam Yang Co. .................... 1,298,490
(Misc. Materials & Commodities)
60,020 Tong Yang Cement Corp. .......... 2,117,342
(Construction & Housing) -----------
10,030,308
-----------
Spain--5.9%
87,000 Banco Bilbao Vizcaya ............ 2,678,116
(Commercial Banking)
21,000 Banco de Andalucia .............. 2,726,963
(Commercial Banking)
355,000 Iberdrola ....................... 2,685,974
(Utilities) -----------
8,091,053
-----------
Sweden--7.5%
47,000 Electrolux AB ................... 2,245,708
(Appliances)
95,000 Pharmacia AB .................... 2,854,971
(Commercial Banking)
132,000 SKF International AB ............ 2,910,967
(Consumer Goods)
</TABLE>

See Notes to Financial Statements.
B-39

<PAGE>
THE PRUDENTIAL INTERNATIONAL STOCK FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995

<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
Sweden, cont'd.
90,000 Volvo AB ........................ $ 2,205,278
(Automobile Manufacturing) -----------
10,216,924
-----------
Switzerland--11.0%
4,100 Ciba-Geigy Ltd. ................. 3,284,256
(Chemicals)
3,500 Hero ............................ 1,680,363
(Food & Household Products)
11,000 Merkur Holding AG ............... 2,531,142
(Merchandising)
4,000 SMH-Swiss Corp. for
Microelectronics and Watchmaking
Industries Ltd.................. 2,595,156
(Electronics)
4,500 Sulzer Brothers Ltd. ............ 2,608,131
(Machinery & Engineering)
8,500 Zurich Insurance Co. ............ 2,382,353
(Insurance) -----------
15,081,401
-----------
United Kingdom--9.6%
270,076 Allied-Domecq PLC ............... 2,293,666
(Beverages & Tobacco)
<CAPTION>

Value
Shares Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
445,000 Lloyds Abbey Life PLC ........... $ 3,173,557
(Insurance)
210,000 National Westminster Bank PLC ... 2,105,613
(Commercial Banking)
385,000 Takare .......................... 1,363,888
(Commercial Banking)
470,000 Tesco PLC ....................... 2,319,116
(Food & Household Products)
196,000 Whitbread PLC ................... 1,900,144
(Beverages & Tobacco) -----------
13,155,984
-----------
Total common stocks
(cost $111,841,426)............... 129,156,985
-----------
Principal
Amount
(000) SHORT-TERM INVESTMENT
- ----------
Repurchase Agreement--6.0%
$ 8,175 Joint Repurchase Agreement
Account,
6.39%, 10/2/95 (Note 5)
(cost $8,175,000)................. 8,175,000
-----------
Total Investments--100.5%
(cost $120,016,426; Note 4)....... 137,331,985
Liabilities in excess of other
assets--(0.5%).................. (646,763)
-----------
Net Assets--100%.................. $136,685,222
-----------
-----------
</TABLE>
- ---------------
ADR--American Depository Receipt.
See Notes to Financial Statements.
B-40
<PAGE>
THE PRUDENTIAL ACTIVE BALANCED FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--80.9%
Common Stocks--47.3%
Aerospace/Defense--0.5%
10,500 Boeing Co.......................... $ 716,625
-----------
Airlines--1.4%
12,100 Delta Airlines, Inc................ 837,925
6,300 UAL Corp........................... 1,076,513
-----------
1,914,438
-----------
Automobiles & Trucks--1.8%
51,600 General Motors Corp................ 2,418,750
-----------
Banking--2.8%
38,400 Boatmen's Bancshares............... 1,420,800
9,300 Chemical Banking Corp.............. 566,138
17,800 Fleet Financial Group, Inc......... 671,950
102,300 Hibernia Corp...................... 1,035,787
-----------
3,694,675
-----------
Capital Goods--0.7%
20,900 Duracell International, Inc........ 937,888
-----------
Chemicals--0.8%
41,600 Dexter Corp........................ 1,060,800
-----------
Commercial Services--1.5%
19,850 CUC International, Inc.(a)......... 692,269
30,900 York International Corp............ 1,301,662
-----------
1,993,931
-----------
Computer Software & Services--0.4%
6,800 Novell, Inc.(a).................... 124,100
13,700 Symbol Technologies, Inc.(a)....... 453,812
-----------
577,912
-----------

<CAPTION>
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
Diversified Gas--0.3%
10,300 Coastal Corp....................... $ 346,338
-----------
Drugs & Medical Supplies--0.9%
Smith Kline Beecham PLC (ADR)
17,700 (United Kingdom)................. 896,063
19,600 Vertex Pharmaceuticals, Inc........ 367,500
-----------
1,263,563
-----------
Electronics--3.1%
22,000 Hewlett-Packard Co................. 1,834,250
22,700 Intel Corp......................... 1,364,837
24,700 International Rectifier Corp.(a)... 994,175
-----------
4,193,262
-----------
Financial Services--0.5%
13,000 The PMI Group Inc.................. 615,875
-----------
Forest Products--0.9%
13,900 Georgia Pacific Corp............... 1,216,250
-----------
Insurance--2.8%
8,000 Aetna Life & Casualty Co........... 587,000
30,700 CIGNA Corp......................... 3,196,637
-----------
3,783,637
-----------
Leisure--0.6%
37,200 Brunswick Corp..................... 753,300
-----------
Lodging--1.2%
24,500 Hilton Hotels Corp................. 1,564,938
-----------
Machinery--0.6%
23,547 Harnischfeger Industries, Inc...... 785,881
-----------
Media--5.5%
17,700 Dow Jones & Co., Inc............... 652,688
</TABLE>

See Notes to Financial Statements.
B-41

<PAGE>
THE PRUDENTIAL ACTIVE BALANCED FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Media, cont'd.
13,800 Dun & Bradstreet Corp.............. $ 798,675
11,900 McGraw-Hill, Inc................... 972,825
News Corp. Ltd. (ADR)
35,400 (Australia)...................... 778,800
71,800 New York Times Co.................. 1,965,525
10,300 Omnicom Group...................... 670,787
8,100 Scholastic Corp.(a)................ 508,275
14,700 Tribune Co......................... 975,712
-----------
7,323,287
-----------
Mineral Resources--1.5%
47,974 Newmont Mining Corp................ 2,038,895
-----------
Miscellaneous Basic Industry--6.4%
62,900 Avalon Properties, Inc............. 1,281,587
20,200 Champion International Corp........ 1,088,275
11,200 ITT Corp........................... 1,388,800
26,400 Mead Corp.......................... 1,547,700
25,300 Reynolds Metals Co................. 1,461,075
8,500 United Technologies Corp........... 751,188
40,000 Wellman Inc........................ 980,000
-----------
8,498,625
-----------
Miscellaneous Consumer Growth--0.4%
8,600 Eastman Kodak Co................... 509,550
-----------
Office Equipment & Supplies--2.0%
41,200 Apple Computer, Inc................ 1,534,700
9,300 Compaq Computer Corp.(a)........... 449,887
5,000 Xerox Corp......................... 671,875
-----------
2,656,462
-----------
Petroleum--0.5%
15,700 Tenneco, Inc....................... 726,125
-----------
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Petroleum Services--1.4%
18,500 Anadarko Petroleum Corp............ $ 876,438
43,400 Dresser Industries, Inc............ 1,036,175
-----------
1,912,613
-----------
Railroads--1.4%
10,901 Southern Pacific Rail Corp.(a)..... 264,349
24,400 Union Pacific Corp................. 1,616,500
-----------
1,880,849
-----------
Retail--1.5%
9,800 Harcourt General, Inc.............. 410,375
84,000 Limited, Inc....................... 1,596,000
-----------
2,006,375
-----------
Steel--0.3%
12,300 USX Corp. - U.S. Steel Group....... 381,300
-----------
Technology--1.8%
19,700 Adobe Systems, Inc................. 1,019,475
8,605 Chiron Corp.(a).................... 778,753
30,600 Pyxis Corp.(a)..................... 592,875
-----------
2,391,103
-----------
Telecommunications--2.8%
78,300 MCI Communications Corp............ 2,040,694
17,300 QUALCOMM Inc.(a)................... 793,637
Vodafone Group PLC (ADR) (United
20,600 Kingdom)......................... 844,600
-----------
3,678,931
-----------
Trucking & Shipping--1.0%
50,700 Ryder System, Inc.................. 1,286,513
-----------
Total common stocks
(cost $52,575,805)................. 63,128,691
-----------
</TABLE>

See Notes to Financial Statements.
B-42

<PAGE>
THE PRUDENTIAL ACTIVE BALANCED FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995

<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
DEBT OBLIGATIONS--33.6%
U. S. Government Securities
United States Treasury Notes,
$ 3,015 8.875%, 11/15/98................. $ 3,263,255
5,510 7.50%, 11/15/01.................. 5,900,879
17,435 6.25%, 2/15/03................... 17,532,985
14,750 5.75%, 8/15/03................... 14,351,308
United States Treasury Bonds,
3,230 7.875%, 2/15/21.................. 3,703,905
------------
Total debt obligations
(cost $43,190,765)............... 44,752,332
------------
Total long-term investments
(cost $95,766,570)............... 107,881,023
------------
SHORT-TERM INVESTMENTS
Repurchase Agreement--19.2%
25,625 Joint Repurchase Agreement Account,
6.39%, 10/2/95 (Note 5)
(cost $25,625,000)............. 25,625,000
------------
Total Investments--100.1%
(cost $121,391,570; Note 4)...... 133,506,023
Liabilities in excess of other
assets--(0.1%)................. (154,136)
------------
Net Assets--100%................. $133,351,887
------------
------------
</TABLE>
- ---------------
(a) Non-income producing security.
ADR--American Depository Receipt.

See Notes to Financial Statements.
B-43
<PAGE>
THE PRUDENTIAL BALANCED FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--89.7%
Common Stocks--45.7%
Aerospace/Defense--0.5%
15,100 Martin Marietta Corp............... $ 296,338
2,100 Rockwell International Corp........ 99,225
-----------
395,563
-----------
Automobiles & Trucks--1.3%
4,700 Allied Signal Automotive, Inc...... 207,387
5,000 Danaher Corp....................... 163,750
General Motors Corp.
4,000 Class E............................ 182,000
10,000 Class H............................ 410,000
3,700 Modine Manufacturing Co............ 105,450
-----------
1,068,587
-----------
Banking--2.8%
7,400 Bank of Boston Corp................ 352,425
16,800 Bank of New York, Inc.............. 781,200
1,900 First Chicago Corp................. 130,387
2,700 First Interstate Bank Corp......... 272,025
23,600 Norwest Corp....................... 772,900
-----------
2,308,937
-----------
Building Materials & Components--0.3%
9,000 USG Corp.(a)....................... 252,000
-----------
Capital Goods--0.6%
Fisher Scientific International,
15,000 Inc.............................. 485,625
-----------
Chemicals--3.9%
7,000 Agrium, Inc........................ 256,845
2,000 Air Products & Chemicals, Inc...... 104,250
10,400 Cytec Industries, Inc.(a).......... 601,900

<CAPTION>
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
8,000 duPont (E.I.) de Nemours & Co...... $ 550,000
3,000 Eastman Chemical Co................ 192,000
9,000 Grace (W.R.) & Co.................. 600,750
Imperial Chemical Inds. (ADR)
8,000 (United Kingdom)................. 406,000
6,600 Olin Corp.......................... 453,750
-----------
3,165,495
-----------
Chemical-Specialty--1.0%
7,500 Hanna (M.A.) Co.................... 197,812
10,600 Mississippi Chemical Corp.......... 222,600
3,100 OM Group, Inc...................... 94,163
36,100 Uniroyal Chemical Corp.(a)......... 324,900
-----------
839,475
-----------
Commercial Services--0.6%
11,000 York International Corp............ 463,375
-----------
Computer Software & Services--0.5%
6,000 Automatic Data Processing, Inc..... 408,750
-----------
Construction--0.5%
32,000 Giant Cement Holding Inc.(a)....... 388,000
-----------
Consumer Goods--1.6%
13,000 Ethan Allen Interiors, Inc.(a)..... 279,500
13,000 Libbey, Inc........................ 310,375
16,000 Owens Corning Fiberglas Corp.(a)... 714,000
-----------
1,303,875
-----------
Drugs & Medical Supplies--1.8%
10,100 Baxter International Inc........... 415,362
8,000 Schering-Plough Corp............... 412,000
30,000 Whitman Corp....................... 618,750
-----------
1,446,112
-----------
</TABLE>

See Notes to Financial Statements.
B-44

<PAGE>
THE PRUDENTIAL BALANCED FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Electrical Equipment--0.9%
14,000 Anixter International Inc.(a)...... $ 579,250
6,800 UCAR International Inc.(a)......... 185,300
-----------
764,550
-----------
Electronics--1.0%
6,000 Emerson Electric Co................ 429,000
7,200 Oak Industries, Inc.(a)............ 216,900
2,500 Sundstrand Corp.................... 161,875
-----------
807,775
-----------
Financial Services--1.6%
12,400 Dean Witter Discover & Co.......... 697,500
10,500 Equitable Companies, Inc........... 388,500
4,700 Finova Group, Inc.................. 209,150
-----------
1,295,150
-----------
Food & Beverage--0.1%
4,000 Sbarro, Inc........................ 92,000
-----------
Forest Products--0.4%
7,000 Pentair, Inc....................... 315,000
-----------
Freight Transportation--0.3%
9,000 Pittston Services Group............ 244,125
-----------
Furniture
1,900 INTERCO Inc.(a).................... 14,963
-----------
Gas Pipelines--1.9%
19,400 Cabot Oil & Gas Corp............... 264,325
12,900 Enron Corp......................... 280,575
15,700 Mesa, Inc.(a)...................... 74,575

<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
11,000 Parker & Parsley Petroleum Co...... $ 220,000
6,700 Seagull Energy Corp.(a)............ 135,675
20,000 Total S.A. (ADR) (France).......... 602,500
-----------
1,577,650
-----------
Health Care--0.3%
10,000 Quorum Health Group(a)............. 226,250
-----------
Hospital Management--1.3%
10,400 Columbia Healthcare Corp........... 505,700
33,000 Tenet Healthcare Corp.(a).......... 573,375
-----------
1,079,075
-----------
Insurance--3.7%
7,300 Emphesys Financial Group, Inc...... 271,013
7,000 John Alden Financial Corp.......... 158,375
3,900 NAC Re Corp........................ 141,375
9,700 National Re Corp................... 343,137
16,000 Penncorp Financial Group, Inc...... 382,000
Reinsurance Group of America,
17,200 Inc.............................. 606,300
15,000 TIG Holdings, Inc.................. 403,125
6,000 Travelers, Inc..................... 318,750
28,900 Western National Corp.............. 397,375
-----------
3,021,450
-----------
Machinery--1.5%
Gardner Denver Machinery,
26,000 Inc.(a).......................... 442,000
10,000 IDEX Corp.......................... 357,500
17,100 United Dominion Inds............... 412,537
-----------
1,212,037
-----------
Manufacturing--0.2%
4,500 Parker-Hannifin Corp............... 171,000
-----------
</TABLE>

See Notes to Financial Statements.
B-45

<PAGE>
THE PRUDENTIAL BALANCED FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995

<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Media--2.2%
10,000 Comcast Corp....................... $ 198,750
14,900 Cox Communications, Inc.(a)........ 301,725
9,400 Gannett, Inc....................... 513,475
News Corp. Ltd. (ADR)
6,000 (Australia)...................... 119,250
10,000 Time Warner, Inc................... 397,500
9,437 Times Mirror Co.................... 271,314
-----------
1,802,014
-----------
Medical Technology--0.3%
8,200 Guidant Corp....................... 239,850
-----------
Mineral Resources--0.5%
23,500 INDRESCO, Inc.(a).................. 420,063
-----------
Miscellaneous Basic Industry--4.5%
21,100 ADT Ltd.(a)........................ 290,125
15,600 Belden, Inc........................ 409,500
6,900 Crane Co........................... 238,050
19,500 Ferro Corp......................... 485,062
7,000 FMC Corp.(a)....................... 532,000
9,000 Illinois Tool Works, Inc........... 529,875
17,960 Mark IV Industries, Inc............ 399,610
10,000 Tyco International Ltd............. 630,000
2,500 United Technologies Corp........... 220,938
-----------
3,735,160
-----------
Office Equipment & Supplies--0.6%
12,100 Honeywell, Inc..................... 518,788
-----------
Oil & Gas-Equipment & Services--0.8%
20,700 Frontier Corp...................... 551,138
5,400 Vintage Petroleum, Inc............. 113,400
-----------
664,538
-----------

<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Petroleum--1.2%
30,000 Cross Timbers Oil Co............... $ 427,500
18,000 Occidental Petroleum Corp.......... 396,000
Santa Fe Energy Resources,
15,000 Inc.(a).......................... 142,500
-----------
966,000
-----------
Petroleum Services--0.5%
33,300 Oryx Energy Co..................... 432,900
-----------
Publishing--0.3%
17,000 American Publishing Co., Class A... 212,500
-----------
Railroads--1.5%
6,400 Burlington Northern Inc............ 464,000
8,900 Illinois Central Corp.............. 348,212
7,000 Union Pacific Corp................. 463,750
-----------
1,275,962
-----------
Restaurants--0.1%
4,300 Shoney's Inc.(a)................... 47,300
-----------
Retail--1.4%
50,000 Best Products, Inc.(a)............. 425,000
12,000 Dillard Department Stores, Inc..... 382,500
4,900 Eckerd Corp.(a).................... 196,000
4,100 Harcourt General, Inc.............. 171,687
-----------
1,175,187
-----------
Rubber--0.4%
9,000 Goodyear Tire & Rubber Co.......... 354,375
-----------
Steel--0.1%
3,000 Carpenter Technology Corp.......... 117,375
-----------
</TABLE>

See Notes to Financial Statements.
B-46

Principal
Amount
(000) DEBT OBLIGATIONS--44.0%
- --------
Asset Backed Securities--0.5%
Standard Credit Card Master Trust
I,
Series 1995 Class - A1
$ 400 8.25%, 1/7/07 (cost $444,938)...... 438,872
-----------
Corporate Bonds--7.2%
African Development Bank,
400 7.70%, 7/15/02..................... 424,732
(Banking)
American General Finance Corp.,
400 7.25%, 5/15/05..................... 412,132
(Financial Services)
Comdisco Inc.,
300 6.50%, 6/15/00..................... 296,730
(Commercial Services)
</TABLE>

<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Consolidated Edison Co., Inc.,
$ 300 6.625%, 2/1/02.................... $ 299,175
(Utilities)
Detroit Edison Co.,
350 6.34%, 3/15/00.................... 346,038
(Utilities)
Federal Express Corp.,
350 10.00%, 9/1/98.................... 381,836
(Shipping)
Ford Motor Credit Co.,
400 9.375%, 12/15/97.................. 424,116
(Financial Services)
General Electric Capital Corp.,
400 8.75%, 11/26/96................... 411,024
(Financial Services)
General Motors Acceptance Corp.,
400 9.625%, 5/15/00................... 447,896
(Financial Services)
Greyhound Financial Corp.,
100 8.50%, 5/1/98..................... 104,629
(Financial Services)
Hanson PLC.,
400 7.375%, 1/15/03................... 413,828
(Industrial) (United Kingdom)
International Lease Finance Corp.,
200 5.50%, 4/1/97..................... 197,634
(Financial Services)
Lehman Brothers, Inc.,
200 7.125%, 7/15/02................... 198,082
(Financial Services)
Norwest Corp.,
300 7.125%, 4/1/00.................... 307,899
(Banking)
Salomon, Inc.,
200 8.64%, 2/27/98.................... 207,340
(Financial Services)
</TABLE>
See Notes to Financial Statements.
B-47

<PAGE>
THE PRUDENTIAL BALANCED FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
Corporate Bonds, cont'd.
Sears Roebuck & Co.,
$ 100 9.48%, 7/24/01.................... $ 113,359
(Retail)
Sears Roebuck Acceptance Corp.,
300 6.75%, 9/15/05.................... 297,726
(Financial Services)
Texas Utilities Co.,
300 6.375%, 8/1/97.................... 299,787
(Utilities)
Union Oil Co.,
300 7.75%, 4/20/05.................... 316,758
-----------
(Petroleum)
Total corporate bonds
(cost $5,852,940)................. 5,900,721
-----------
U. S. Government Securities--36.3%
United States Treasury Bonds,
1,600 10.75%, 8/15/05................... 2,120,256
6,300 11.25%, 2/15/15................... 9,473,625
United States Treasury Notes,
3,700 6.00%, 11/30/97................... 3,709,250
400 5.625%, 1/31/98................... 397,688
4,325 9.00%, 5/15/98.................... 4,644,661
5,500 6.375%, 1/15/99................... 5,565,285
2,000 7.50%, 10/31/99................... 2,105,940

<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
United States Treasury Notes,
$ 150 7.75%, 11/30/99................... $ 159,421
1,100 6.375%, 8/15/02................... 1,116,324
500 7.25%, 8/15/04.................... 534,610
-----------
Total U. S. Government Securities
(cost $29,249,979).............. 29,827,060
-----------
Total debt obligations
(cost $35,547,857).............. 36,166,653
-----------
Total long-term investments
(cost $67,268,904).............. 73,650,828
-----------
SHORT-TERM INVESTMENT
Repurchase Agreement--8.9%
7,338 Joint Repurchase Agreement
Account,
6.39%, 10/2/95 (Note 5)
(cost $7,338,000)............... 7,338,000
-----------
Total Investments--98.6%
(cost $74,606,904; Note 4)........ 80,988,828
Other assets in excess of
liabilities--1.4%................. 1,121,118
-----------
Net Assets--100%.................. $82,109,946
-----------
-----------
</TABLE>

- ---------------
(a) Non-income producing security.
ADR--American Depository Receipt.
See Notes to Financial Statements.
B-48
<PAGE>
THE PRUDENTIAL INCOME FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
LONG-TERM INVESTMENTS--95.9%
Asset Backed Securities--4.0%
Nationsbank Credit Card Trust,
$ 500 Series 1995-1, 6.45%, 4/15/03.... $ 501,875
Prime Credit Card
500 Series 1995-1, 6.75%, 11/15/05... 500,000
Standard Credit Card Trust,
500 Series 1994-4, 8.25%, 11/07/03... 541,090
500 Series 1995-1, 8.25%, 1/07/07.... 548,590
------------
Total asset backed securities
(cost $2,084,823)................ 2,091,555
------------
Corporate Bonds--23.9%
African Development Bank,
500 7.75%, 12/15/01.................. 529,150
(Financial Services)
American General Finance Corp.,
500 7.25%, 5/15/05................... 515,165
(Financial Services)
Associates Corp. of North
America,
(Financial Services)
500 6.625%, 6/15/05.................. 493,845
400 7.25%, 5/15/98................... 409,296
Columbia Healthcare Corp,
500 7.58%, 9/15/25................... 512,500
(Hospital Management)
Comdisco Inc.,
500 6.50%, 6/15/00................... 494,550
(Commercial Services)
Detroit Edison Co.,
500 6.34%, 3/15/00................... 494,340
(Utilities)
Digital Equipment Corp.,
250 7.125%, 10/15/02................. 243,505
(Electronics)
Dresdner Bank AG,
500 7.25%, 9/15/15................... 501,040
(Banking) (Germany)
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
- -------------------------------------------------------------
<C> <S> <C>
Equity Lord Realty Corp.,
$ 300 10.50%, 12/30/97................. $ 316,875
(Real Estate)
Federal Express Corp.,
500 10.00%, 9/01/98.................. 545,480
(Shipping)
General Electric Capital Corp.,
500 7.95%, 2/02/98................... 518,360
(Financial Services)
General Motors Acceptance Corp.,
350 8.00%, 4/10/97................... 358,981
(Financial Services)
Grand Metropolitan Investment
Corp.,
800 Zero Coupon, 1/06/04............. 454,656
(Financial Services) (United Kingdom)
Household Finance Corp.,
1,000 6.375%, 6/30/00.................. 993,560
(Financial Services)
Hydro Quebec,
500 8.00%, 2/01/13................... 525,450
(Utilities) (Canada)
IC Industries Financial Corp.,
705 8.00%, 7/01/96................... 714,166
(Financial Services)
Intermediate American Development
Bank,
435 8.50%, 3/15/11................... 501,046
(Banking)
International Lease Finance
Corp.,
300 5.50%, 4/01/97................... 296,451
(Financial Services)
Lehman Brothers Holdings, Inc.,
400 7.625%, 7/15/99.................. 409,120
(Financial Services)
Petroliam Nasional Berhad,
500 7.75%, 8/15/15................... 511,100
(Petroleum)
</TABLE>

See Notes to Financial Statements.
B-49
<PAGE>
THE PRUDENTIAL INCOME FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
Corporate Bonds, cont'd.
Salomon, Inc.,
$ 400 8.64%, 2/27/98................... $ 414,680
(Financial Services)
Sears Roebuck Acceptance Corp.,
500 6.75%, 9/15/05................... 496,210
(Financial Services)
SunAmerica, Inc.,
275 6.58%, 1/15/02................... 270,281
(Insurance)
Tenneco Credit Corp.,
400 10.125%, 12/01/97................ 428,396
(Financial Services)
Time Warner Inc.,
300 9.15%, 2/01/23................... 325,533
(Media)
Union Bank Finland, Ltd.,
250 5.25%, 6/15/96................... 247,670
------------
(Banking) (Finland)
Total corporate bonds
(cost $12,342,321)............... 12,521,406
------------
Foreign Government Obligations--1.9%
New Zealand Government Bond,
500 10.50%, 7/16/00.................. 541,721
Province of Quebec,
400 9.00%, 5/08/01................... 438,952
------------
Total foreign government
obligations
(cost $1,015,099)................ 980,673
------------
U.S. Government and Agency Securities--66.1%
Federal Home Loan Mortgage Corp.,
802 7.00%, 7/01/08................... 804,823
500 7.00%, 8/15/23................... 486,405

<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
Federal National Mortgage Assn.,
$ 500 6.50%, 2/25/24................... $ 463,905
1,000(a) 6.50%, 15 yr..................... 986,250
1,000(a) 6.50%, 30 yr..................... 964,370
2,268 7.00%, 9/25/23 - 7/01/24......... 2,236,387
2,000(a) 7.50%, 30 yr..................... 2,012,500
1,444 8.00%, 9/01/09 - 7/01/24......... 1,478,962
1,493 9.50%, 1/01/25 - 3/01/25......... 1,577,843
Government National Mortgage
Assn.,
843 7.00%, 2/15/09................... 849,303
2,441(b) 7.00%, 30 yr..................... 2,413,594
697 7.50%, 12/15/22 - 7/15/23........ 707,019
1,261 9.00%, 9/15/19 - 7/15/21......... 1,336,782
Tennessee Valley Authority,
600 7.25%, 7/15/43................... 590,646
United States Treasury Bonds,
200 7.625%, 2/15/25.................. 226,468
450 9.00%, 11/15/18.................. 573,327
200 9.25%, 2/15/16................... 257,406
1,000 10.75%, 8/15/05.................. 1,325,160
1,350 12.00%, 8/15/13.................. 1,986,403
United States Treasury Notes,
3,350 5.25%, 7/31/98................... 3,292,414
650 5.625%, 1/31/98.................. 646,243
1,500 5.75%, 10/31/97.................. 1,496,955
500 5.875%, 3/31/99.................. 498,670
600 6.25%, 2/15/03................... 603,372
150 6.375%, 8/15/02.................. 152,226
2,400 6.375%, 1/15/99.................. 2,428,488
2,100 8.625%, 8/15/97.................. 2,202,375
United States Treasury Strips,
1,500 Zero Coupon, 2/15/08............. 676,680
2,000 Zero Coupon, 8/15/08............. 870,400
700 Zero Coupon, 8/15/11............. 244,657
500 Zero Coupon, 11/15/11............ 171,485
------------
Total U.S. government and
agency securities
(cost $33,818,383)............... 34,561,518
------------
</TABLE>
See Notes to Financial Statements.
B-50

<PAGE>
THE PRUDENTIAL INCOME FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995

<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
- -------------------------------------------------------------
<C> <S> <C>
Total long-term investments
(cost $49,260,626)............... $ 50,155,152
------------
SHORT-TERM INVESTMENT
Repurchase Agreement--14.3%
Joint Repurchase Agreement
$ 7,478 Account,
6.39%, 10/2/95 (Note 5)
(cost $7,478,000)................ 7,478,000
------------
Total Investments--110.2%
(cost $56,738,626; Note 4)....... 57,633,152
Liabilities in excess of other
assets--(10.2%).................. (5,335,785)
------------
Net Assets--100%................. $ 52,297,367
------------
------------
</TABLE>

- ---------------
(a) Mortgage dollar roll, see Note 1.
(b) $2,000,000 of principal amount is a mortgage dollar roll, see Note 1.

See Notes to Financial Statements.
B-51
<PAGE>
THE PRUDENTIAL MONEY MARKET FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
BANK HOLDING PAPER--4.8%
Bank of New York, Inc.,
5.87%, 10/27/95
$ 2,800 (amortized cost $2,788,129)...... $ 2,788,129
------------
COMMERCIAL PAPER -
DOMESTIC--36.6%
Aristar, Inc.,
2,000 5.80%, 10/17/95.................. 1,994,844
800 5.82%, 10/19/95.................. 797,672
Caterpillar Financial Services
N.V.,
489 5.67%, 11/21/95.................. 485,072
Chrysler Financial Corp.,
400 5.85%, 10/27/95.................. 398,310
Countrywide Funding Corp.,
2,050 5.80%, 10/31/95.................. 2,040,092
Dayton Hudson Corp.,
2,800 5.78%, 10/25/95.................. 2,789,211
Finova Capital Corp.,
2,100 5.83%, 10/11/95.................. 2,096,599
735 5.90%, 11/2/95................... 731,145
Honeywell, Inc.,
470 5.80%, 11/13/95.................. 466,744
IBM Credit Corp.,
1,300 5.80%, 10/16/95.................. 1,296,858
ITT Corp.,
2,100 5.83%, 10/3/95................... 2,099,320
349 5.85%, 10/4/95................... 348,830
Nike Inc.,
988 6.75%, 10/2/95................... 987,815
Nynex Corp.,
2,800 6.80%, 10/2/95................... 2,799,471

<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
- -------------------------------------------------------------
<C> <S> <C>
Public Service Elec. & Gas Co.,
$ 1,150 5.78%, 10/17/95.................. $ 1,147,046
Smith Barney, Inc.,
770 5.75%, 10/18/95.................. 767,909
------------
Total commercial paper - domestic
(amortized cost $21,246,938)..... 21,246,938
------------
CORPORATE BONDS--12.6%
Associates Corp. of North
America,
500 6.00%, 12/1/95................... 500,058
400 4.50%, 2/15/96................... 397,922
1,000 8.80%, 3/1/96.................... 1,008,706
Ford Motor Credit Corp.,
1,000 8.25%, 5/15/96................... 1,013,983
600 8.875%, 8/1/96................... 613,532
General Electric Co.,
840 7.875%, 5/1/96................... 849,202
General Motors Acceptance Corp.,
100 8.75%, 2/1/96.................... 100,850
Household Finance Corp.,
900 9.375%, 2/15/96.................. 908,981
International Lease Finance
Corp.,
430 6.875%, 12/15/95................. 430,568
375 6.625%, 6/1/96................... 376,208
NationsBank Corp.,
500 5.375%, 12/1/95.................. 499,554
Transamerica Finance Corp.,
600 8.55%, 6/15/96................... 610,567
------------
Total corporate bonds
(amortized cost $7,310,131)...... 7,310,131
------------
</TABLE>

See Notes to Financial Statements.
B-52

<PAGE>
THE PRUDENTIAL MONEY MARKET FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
DEPOSIT NOTES--2.6%
Society National Bank Cleveland,
$ 1,000 6.70%, 4/15/96................... $ 1,004,941
500 6.00%, 4/25/96................... 498,649
------------
Total deposit notes
(amortized cost $1,503,590)...... 1,503,590
------------
VARIABLE RATE OBLIGATIONS(a)--28.5%
American Express Centurion Bank,
1,000 6.26%, 10/2/95................... 1,000,245
Bank One Columbus N.A.,
2,700 6.08%, 10/2/95................... 2,698,150
FCC National Bank,
1,400 6.15%, 10/2/95................... 1,399,944
Ford Motor Credit Corp.,
200 6.14%, 12/18/95.................. 200,233
Goldman Sachs Group, L.P.,
2,700 6.00%, 10/30/95.................. 2,700,000
IBM Credit Corp.,
1,500 5.615%, 10/16/95................. 1,499,775
John Deere Capital Corp.,
1,000 6.095%, 10/23/95................. 1,001,783
John Deere Owner Trust,
1,460 5.8125%, 10/16/95................ 1,460,089
Key Bank New York,
1,400 6.49%, 10/2/95................... 1,398,953
Lehman Brothers, Inc.,
1,000 6.11%, 10/24/95.................. 1,000,000
Merrill Lynch & Co., Inc.,
500 5.885%, 10/2/95.................. 500,000
Money Market Auto Loan Trust,
700 6.005%, 10/16/95................. 700,000
Morgan Stanley Group, Inc.,
1,000 6.00%, 11/15/95.................. 1,000,000
------------
Total variable rate obligations
(amortized cost $16,559,172)..... 16,559,172
------------
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
LOAN PARTICIPATIONS--4.8%
Engelhard Corp.,
$ 800 6.20%, 10/2/95................... $ 800,000
General Electric Capital Corp.,
2,000 6.00%, 10/2/95................... 2,000,000
------------
Total loan participations
(amortized cost $2,800,000)...... 2,800,000
------------
MEDIUM-TERM OBLIGATIONS--9.1%
Associates Corp. of North
America,
100 4.68%, 3/29/96................... 99,143
Deere & Co.,
1,000 8.47%, 3/18/96................... 1,011,224
Ford Motor Credit Corp.,
1,000 5.15%, 3/15/96................... 993,295
General Motors Acceptance Corp.,
2,100 4.80%, 11/15/95.................. 2,095,777
570 4.75%, 2/14/96................... 567,268
International Lease Finance
Corp.,
500 5.00%, 5/28/96................... 496,536
------------
Total medium-term obligations
(amortized cost $5,263,243)...... 5,263,243
------------
Total Investments--99.0%
(amortized cost
$57,471,203(b))................ 57,471,203
Other assets in excess of
liabilities--1.0%.............. 582,874
------------
Net Assets--100%................. $ 58,054,077
------------
------------
</TABLE>
- ---------------
(a) For purposes of amortized cost valuation, the maturity
date of these instruments is considered to be the next
date on which the security can be redeemed at par or the
next date on which the rate of interest is adjusted.
(b) The cost of securities for federal income tax purposes is
substantially the same as for financial reporting
purposes.
See Notes to Financial Statements.
B-53

<PAGE>
THE PRUDENTIAL MONEY MARKET FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995

The industry classification of portfolio holdings and other net
assets shown as a percentage of net assets as of September 30,
1995 were as follows:

<TABLE>
<S> <C>
Personal Credit Institutions.......... 20.1%
Business Credit (Finance)............. 11.6
Bank Holding Co....................... 10.3
Security Brokers & Dealers............ 10.3
Commercial Banks...................... 9.1
Financial Services.................... 9.0
Telecommunications.................... 4.8
Variety Store......................... 4.8
Asset Backed.......................... 3.7
Mortgage Bankers...................... 3.5
Farm Machinery........................ 3.5
Equip. Rental & Leasing............... 2.2
Electric Services..................... 2.0
Footwear.............................. 1.7
Chemicals-Specialty................... 1.4
Regulating Controls................... 1.0
Other assets in excess of liabilities 1.0
-----
100.0%
-----
-----
</TABLE>

See Notes to Financial Statements.
B-54

<PAGE>
THE PRUDENTIAL STATEMENT OF ASSETS
(LOGO) INSTITUTIONAL AND LIABILITIES
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
GROWTH STOCK INTERNATIONAL ACTIVE MONEY
STOCK INDEX STOCK BALANCED BALANCED INCOME MARKET
FUND FUND FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C> <C>
------------ ------------ ------------- ------------ ----------- ----------- -----------
Assets
Investments, at value
(a)...................... $222,374,363 $ 96,471,101 $137,331,985 $133,506,023 $80,988,828 $57,633,152 $57,471,203
Cash....................... -- -- 184 417 872 897 440
Foreign currency, at value
(cost $153,643).......... -- -- 153,891 -- -- -- --
Receivable for investments
sold..................... 1,199,509 5,941,403 -- 176,030 1,133,257 -- --
Interest and dividends
receivable............... 162,987 206,021 404,440 641,767 685,304 563,134 386,072
Receivable for Fund shares
sold..................... 789,547 361,069 323,593 191,349 207,730 58,336 227,193
Due from Manager........... -- 1,754 -- -- -- 4,635 --
Deferred expenses and other
assets................... 29,670 32,252 29,485 30,735 28,919 31,988 30,486
------------ ------------ ------------- ------------ ----------- ----------- -----------
Total assets........... 224,556,076 103,013,600 138,243,578 134,546,321 83,044,910 58,292,142 58,115,394
------------ ------------ ------------- ------------ ----------- ----------- -----------
Liabilities
Payable for investments
purchased................ 2,555,583 872,222 987,689 1,013,369 667,995 5,934,375 --
Payable for Fund shares
reacquired............... 1,286,353 85,455 314,389 46,984 155,532 11,863 34,386
Accrued expenses........... 77,378 70,888 148,784 51,045 44,922 42,870 16,633
Due to broker-variation
margin................... -- 29,670 -- -- -- -- --
Management fee payable..... 107,403 -- 92,756 68,472 57,582 -- 3,953
Administration fee
payable.................. 23,965 10,799 14,738 14,564 8,933 5,667 6,345
------------ ------------ ------------- ------------ ----------- ----------- -----------
Total liabilities...... 4,050,682 1,069,034 1,558,356 1,194,434 934,964 5,994,775 61,317
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net Assets................. $220,505,394 $101,944,566 $136,685,222 $133,351,887 $82,109,946 $52,297,367 $58,054,077
------------ ------------ ------------- ------------ ----------- ----------- -----------
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net assets were comprised
of:
Shares of beneficial
interest, at par......... $ 13,604 $ 7,169 $ 8,964 $ 10,703 $ 6,576 $ 5,238 $ 58,054
Paid-in capital in excess
of par................... 169,441,843 80,650,936 121,007,773 116,928,121 71,932,999 52,130,203 57,996,023
------------ ------------ ------------- ------------ ----------- ----------- -----------
169,455,447 80,658,105 121,016,737 116,938,824 71,939,575 52,135,441 58,054,077
Undistributed net
investment income........ -- 1,562,991 1,582,613 2,883,961 1,706,435 -- --
Accumulated net realized
gain (loss) on
investments.............. (3,016,003) 4,001,988 (3,235,336 ) 1,414,649 2,082,012 (732,600) --
Net unrealized appreciation
(depreciation) on
investments and foreign
currencies............... 54,065,950 15,721,482 17,321,208 12,114,453 6,381,924 894,526 --
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net assets, September 30,
1995..................... $220,505,394 $101,944,566 $136,685,222 $133,351,887 $82,109,946 $52,297,367 $58,054,077
------------ ------------ ------------- ------------ ----------- ----------- -----------
------------ ------------ ------------- ------------ ----------- ----------- -----------
Shares of beneficial
interest issued and
outstanding.............. 13,604,202 7,168,801 8,964,457 10,703,173 6,575,791 5,237,904 58,054,077
------------ ------------ ------------- ------------ ----------- ----------- -----------
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net asset value per
share.................... $ 16.21 $ 14.22 $ 15.25 $ 12.46 $ 12.49 $ 9.98 $ 1.00
------------ ------------ ------------- ------------ ----------- ----------- -----------
------------ ------------ ------------- ------------ ----------- ----------- -----------
(a) Identified cost........ $168,308,413 $ 80,942,844 $120,016,426 $121,391,570 $74,606,904 $56,738,626 $57,471,203
</TABLE>
See Notes to Financial Statements.
B-55

<PAGE>
THE PRUDENTIAL STATEMENT OF
(LOGO) INSTITUTIONAL OPERATIONS
FUND YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
GROWTH STOCK INTERNATIONAL ACTIVE MONEY
STOCK INDEX STOCK BALANCED BALANCED INCOME MARKET
FUND FUND FUND FUND FUND FUND FUND
------------ ------------ ------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Investment Income
Income
Interest................. $ 198,002 $ 637,099 $ 499,812 $ 3,847,389 $ 2,407,512 $ 3,187,231 $ 3,128,647
Dividends (a)............ 1,190,186 1,623,115 3,287,355 896,599 560,304 -- --
------------ ------------ ------------- ------------ ----------- ----------- -----------
Total income........... 1,388,188 2,260,214 3,787,167 4,743,988 2,967,816 3,187,231 3,128,647
------------ ------------ ------------- ------------ ----------- ----------- -----------
Expenses
Management fee........... 1,049,893 286,843 1,367,665 733,748 496,395 231,931 236,009
Administration fee....... 201,075 96,138 159,439 140,527 95,069 62,187 70,311
Custodian's fees and
expenses................. 88,000 124,000 280,000 74,000 72,000 65,000 73,000
Registration fees........ 63,000 35,000 32,000 60,000 23,000 25,000 30,000
Transfer agent's fees and
expenses............... 36,092 17,256 28,618 25,224 17,064 11,162 12,621
Reports to
shareholders............. 25,000 25,000 25,000 13,000 25,000 13,000 13,000
Amortization of
organization
expenses............... 13,385 13,385 13,385 13,213 13,385 13,049 13,213
Legal fees............... 11,000 11,000 15,000 11,000 11,000 11,000 11,000
Audit fee................ 12,000 11,000 15,000 12,000 11,000 11,000 9,000
Trustees' fees........... 8,572 8,572 8,572 8,572 8,572 8,572 8,572
Miscellaneous............ 6,056 4,525 5,856 5,244 4,762 4,256 4,382
------------ ------------ ------------- ------------ ----------- ----------- -----------
Total expenses......... 1,514,073 632,719 1,950,535 1,096,528 777,247 456,157 481,108
Expense subsidy (Note
2)..................... (14,225) (202,456) (47,700) (48,317) (68,112) (131,453) (166,428)
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net expenses............... 1,499,848 430,263 1,902,835 1,048,211 709,135 324,704 314,680
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net investment income
(loss)................... (111,660) 1,829,951 1,884,332 3,695,777 2,258,681 2,862,527 2,813,967
------------ ------------ ------------- ------------ ----------- ----------- -----------
Realized and Unrealized
Gain (Loss) on Investment
and Foreign Currency
Transactions
Net realized gain (loss)
on:
Securities............... 820,651 1,869,439 (2,892,161) 1,585,229 2,197,085 92,951 --
Futures transactions..... -- 2,175,415 -- -- -- -- --
Foreign currency
transactions............. (5,798) -- (192,785) -- (1,009) -- --
------------ ------------ ------------- ------------ ----------- ----------- -----------
814,853 4,044,854 (3,084,946) 1,585,229 2,196,076 92,951 --
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net change in unrealized
appreciation
(depreciation) on:
Securities and foreign
currencies............... 47,538,274 13,632,300 9,333,213 12,809,504 6,413,335 2,865,097 --
Financial futures
contracts................ -- 282,600 -- -- -- -- --
------------ ------------ ------------- ------------ ----------- ----------- -----------
47,538,274 13,914,900 9,333,213 12,809,504 6,413,335 2,865,097 --
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net gain on investments and
foreign currencies....... 48,353,127 17,959,754 6,248,267 14,394,733 8,609,411 2,958,048 --
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net Increase in Net Assets
Resulting from
Operations................. $ 48,241,467 $ 19,789,705 $8,132,599 $ 18,090,510 $10,868,092 $ 5,820,575 $ 2,813,967
------------ ------------ ------------- ------------ ----------- ----------- -----------
------------ ------------ ------------- ------------ ----------- ----------- -----------
(a)Net of foreign withholding taxes of $26,902, $11,248, $461,615, $3,187, $10,097, respectively.
</TABLE>
See Notes to Financial Statements.
B-56

<PAGE>
THE PRUDENTIAL STATEMENT OF CHANGES
(LOGO) INSTITUTIONAL IN NET ASSETS
FUND
<TABLE>
<CAPTION>
GROWTH STOCK INTERNATIONAL
STOCK INDEX STOCK
FUND FUND FUND
--------------------------- ---------------------------- -------------------------
Year Ended September 30, Year Ended September 30, Year Ended September 30,
--------------------------- ---------------------------- -------------------------
1995 1994 1995 1994 1995
------------ ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Increase (Decrease) in
Net Assets
Operations
Net investment income
(loss)............... $(111,660) $25,287 $1,829,951 $892,321 $1,884,332
Net realized gain
(loss) on investments
and foreign currency
transactions......... 814,853 (3,778,648) 4,044,854 186,406 (3,084,946)
Net change in
unrealized
appreciation
(depreciation) on
investments and
foreign currencies... 47,538,274 3,531,929 13,914,900 380,870 9,333,213
------------ ------------- ------------- ------------- ------------
Net increase (decrease)
in net assets
resulting from
operations........... 48,241,467 (221,432) 19,789,705 1,459,597 8,132,599
------------ ------------- ------------- ------------- ------------
Net equalization
credits................. -- 44,776 -- 289,937 --
------------ ------------- ------------- ------------- ------------
Dividends and
distributions
Dividends to
shareholders from net
investment income.... (48,781) (43,709) (1,015,394) (481,228) (750,797)
------------ ------------- ------------ -------------- ------------
Distributions to
shareholders from net
realized gains....... -- (131,129) (165,297) (106,939) (2,440,090)
------------ ------------- ------------ -------------- ------------
Fund share transactions
Net proceeds from
shares sold.......... 138,943,130 80,605,272 52,960,096 29,356,230 93,624,206
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions........ 48,781 174,838 1,180,691 588,167 3,190,887
Cost of shares
redeemed............. (73,635,171) (21,470,653) (20,924,559) (8,128,767) (67,895,915)
------------ ------------- ------------- ------------- ------------
Net increase in net
assets from Fund
share transactions... 65,356,740 59,309,457 33,216,228 21,815,630 28,919,178
------------ ------------- ------------ ------------- ------------
Net increase............ 113,549,426 58,957,963 51,825,242 22,976,997 33,860,890
Net Assets
Beginning of year...... 106,955,968 47,998,005 50,119,324 27,142,327 102,824,332
------------ ------------- ------------ ------------- ------------
End of year...... ...... $220,505,394 $106,955,968 $101,944,566 $50,119,324 $136,685,222
------------ ------------- ------------ ------------- ------------
------------ ------------- ------------ ------------- ------------
<CAPTION>

INTERNATIONAL ACTIVE
STOCK BALANCED
FUND FUND
--------------------------- ----------------------------
Year Ended September 30, Year Ended September 30,
--------------------------- ----------------------------
1994 1995 1994
------------ ------------- ------------
<S> <C> <C> <C>
Increase (Decrease) in
Net Assets
Operations
Net investment income
(loss)............... $ 736,785 $ 3,695,777 $ 1,805,400
Net realized gain
(loss) on investments
and foreign currency
transactions........ . 2,235,681 1,585,229 119,065
Net change in
unrealized
appreciation
(depreciation) on
investments and
foreign currencies... 5,701,535 12,809,504 (1,395,057)
------------- ------------- -------------
Net increase (decrease)
in net assets
resulting from
operations......... .. 8,674,001 18,090,510 529,408
------------- ------------- -------------
Net equalization
credits................. 695,692 -- 296,744
------------- ------------- -------------
Dividends and
distributions
Dividends to
shareholders from net
investment incom e.... (98,619) (2,260,245) (503,768)
------------- ------------- -------------
Distributions to
shareholders from net
realized gains....... (493,097) (272,788) (395,817)
------------- ------------- -------------
Fund share transactions
Net proceeds from
shares sold.......... 86,220,384 54,908,716 56,588,609
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions........ 591,716 2,533,033 899,585
Cost of shares
redeemed............. (24,473,332) (20,823,769) (15,023,860)
------------- ------------- --------------
Net increase in net
assets from Fund
share transactions... 62,338,768 36,617,980 42,464,334
------------- ------------- --------------
Net increase............ 71,116,745 52,175,457 42,390,901
Net Assets
Beginning of year...... 31,707,587 81,176,430 38,785,529
------------- ------------- --------------
End of year............ $ 102,824,332 $ 133,351,887 $81,176,430
------------- ------------- --------------
------------- ------------- --------------
</TABLE>

See Notes to Financial Statements.
B-57

<PAGE>
THE PRUDENTIAL STATEMENT OF CHANGES
(LOGO) INSTITUTIONAL IN NET ASSETS
FUND
<TABLE>
<CAPTION>
MONEY
BALANCED INCOME MARKET
FUND FUND FUND
------------------------------- ------------------------------- -------------------------------
Year Ended September 30, Year Ended September 30, Year Ended September 30,
------------------------------- ------------------------------- -------------------------------
1995 1994 1995 1994 1995 1994
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in
Net Assets
Operations
Net investment
income............... $ 2,258,681 $ 1,261,344 $ 2,862,527 $ 1,982,080 $ 2,813,967 $ 1,276,052
Net realized gain
(loss) on investments
and foreign currency
transactions......... 2,196,076 163,359 92,951 (826,533) -- 1,550
Net change in
unrealized
appreciation
(depreciation) on
investments and
foreign currencies... 6,413,335 (1,878,445) 2,865,097 (2,659,530) -- --
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease)
in net assets
resulting from
operations........... 10,868,092 (453,742) 5,820,575 (1,503,983) 2,813,967 1,277,602
------------- ------------- ------------- ------------- ------------- -------------
Net equalization
credits................ -- 721,188 -- -- -- --
------------- ------------- ------------- ------------- ------------- -------------
Dividends and
distributions
Dividends to
shareholders from net
investment income.... (1,529,788) (604,065) (2,862,527) (1,982,080) (2,813,967) (1,277,602)
------------- ------------- ------------- ------------- ------------- -------------
Distributions to
shareholders from net
realized gains....... (269,963) (735,383) -- (137,236) -- --
------------- ------------- ------------- ------------- ------------- -------------
Fund share transactions
Net proceeds from
shares sold.......... 26,091,264 42,441,610 11,549,255 15,768,473 55,919,976 32,311,167
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions........ 1,799,751 1,339,448 2,862,527 2,119,316 2,813,967 1,277,602
Cost of shares
redeemed............. (19,161,993) (6,059,058) (6,473,780) (7,878,160) (47,010,598) (17,493,001)
------------- ------------- ------------- ------------- ------------- -------------
Net increase in net
assets from Fund
share transactions... 8,729,022 37,722,000 7,938,002 10,009,629 11,723,345 16,095,768
------------- ------------- ------------- ------------- ------------- -------------
Net increase............ 17,797,363 36,649,998 10,896,050 6,386,330 11,723,345 16,095,768
Net Assets
Beginning of year...... 64,312,583 27,662,585 41,401,317 35,014,987 46,330,732 30,234,964
------------- ------------- ------------- ------------- ------------- -------------
End of year............ $ 82,109,946 $64,312,583 $52,297,367 $41,401,317 $ 58,054,077 $46,330,732
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>

See Notes to Financial Statements.
B-58

<PAGE>
THE PRUDENTIAL FINANCIAL HIGHLIGHTS
(LOGO) INSTITUTIONAL
FUND
<TABLE>
<CAPTION>
GROWTH STOCK
STOCK INDEX
FUND FUND
---------------------------------------------- ---------
November 5, Year Ended
1992(a) September
Year Ended September 30, Through 30,
---------------------------- September 30, ---------
1995 1994 1993 1995
--------- ------------- ------------- ---------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 12.00 $ 12.10 $ 10.00 $ 11.27
--------- ------------- ------------- ---------
Income from investment operations:
Net investment income(b)...................... -- -- .04 .23
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions................................. 4.22 (.06) 2.08 2.97
--------- ------------- ------------- ---------
Total from investment operations............. 4.22 (.06) 2.12 3.20
--------- ------------- ------------- ---------
Less distributions:
Dividends from net investment income.......... (.01) (.01) (.02) (.22)
Distributions from net realized gains......... -- (.03) -- (.03)
--------- ------------- ------------- ---------
Total distributions........................... (.01) (.04) (.02) (.25)
--------- ------------- ------------- ---------
Net asset value, end of period................ $ 16.21 $ 12.00 $ 12.10 $ 14.22
--------- ------------- ------------- ---------
--------- ------------- ------------- ---------
TOTAL RETURN(d)............................... 35.14% (0.50)% 21.22% 29.02%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $ 220,505 $ 106,956 $47,998 $ 101,945
Average net assets (000)...................... $ 149,985 $ 71,449 $17,592 $ 71,711
Ratios to average net assets: (b)
Expenses..................................... 1.00% 1.00% 1.00%(c) .60%
Net investment income........................ (.07)% .04% .31%(c) 2.55%
Portfolio turnover rate....................... 64% 65% 84% 11%

<CAPTION>
STOCK
INDEX
FUND
--------------------------------

November 5,
1992(a)
Year Ended Through
September 30, September 30,
1994 1993
------------- -------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 11.12 $ 10.00
------------- -------------
Income from investment operations:
Net investment income(b)...................... .26 .23
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions................................. .11 .94
------------- -------------
Total from investment operations............. .37 1.17
------------- -------------
Less distributions:
Dividends from net investment income.......... (.18) (.05)
Distributions from net realized gains......... (.04) --
------------- -------------
Total distributions........................... (.22) (.05)
------------- -------------
Net asset value, end of period................ $ 11.27 $ 11.12
------------- -------------
------------- -------------
TOTAL RETURN(d)............................... 3.33% 11.73%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $50,119 $27,142
Average net assets (000)...................... $38,098 $18,807
Ratios to average net assets: (b)
Expenses..................................... .60% .60%(c)
Net investment income........................ 2.34% 2.41%(c)
Portfolio turnover rate....................... 2% 1%

- ---------------
(a) Commencement of investment operations.
(b) Net of expense subsidy.
(c) Annualized.
(d) Total return is calculated assuming a purchase of shares on the first day and a sale on the last day of each period reported
and includes reinvestment of dividends and distributions. Total return for periods of less than a full year are not
annualized. Total return includes the effect of expense subsidies.
</TABLE>
See Notes to Financial Statements.
B-59

<PAGE>
THE PRUDENTIAL FINANCIAL HIGHLIGHTS
(LOGO) INSTITUTIONAL
FUND
<TABLE>
<CAPTION>
ACTIVE
BALANCED
INTERNATIONAL FUND
STOCK ---------
FUND
---------------------------------------------- Year
November 5, Ended
1992(a) September
Year Ended September 30, Through 30,
---------------------------- September 30, ---------
1995 1994 1993 1995
--------- ------------- ------------- ---------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 14.84 $ 12.35 $ 10.00 $ 10.92
--------- ------------- ------------- ---------
Income from investment operations:
Net investment income(b)...................... .18 .13 .16 .33
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions................................. .66 2.54 2.21 1.54
--------- ------------- ------------- ---------
Total from investment operations............. .84 2.67 2.37 1.87
--------- ------------- ------------- ---------
Less distributions:
Dividends from net investment income.......... (.10) (.03) (.02) (.29)
Distributions from net realized gains......... (.33) (.15) -- (.04)
--------- ------------- ------------- ---------
Total distributions........................... (.43) (.18) (.02) (.33)
--------- ------------- ------------- ---------
Net asset value, end of period................ $ 15.25 $ 14.84 $ 12.35 $ 12.46
--------- ------------- ------------- ---------
--------- ------------- ------------- ---------
TOTAL RETURN(d)............................... 5.95% 21.71% 23.74% 17.66%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $ 136,685 $ 102,824 $31,708 $ 133,352
Average net assets (000)...................... $ 118,927 $ 68,476 $14,491 $ 104,821
Ratios to average net assets:(b)
Expenses..................................... 1.60% 1.60% 1.60%(c) 1.00%
Net investment income........................ 1.58% 1.08% 1.44%(c) 3.53%
Portfolio turnover rate....................... 20% 21% 15% 30%

ACTIVE
BALANCE
FUND
--------------------------------
January 4,
1993(a)
Year Ended Through
September 30, September 30,
1994 1993
------------- -------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 11.05 $ 10.00
------------- -------------
Income from investment operations:
Net investment income(b)...................... .24 .21
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions................................. (.12) .84
------------- -------------
Total from investment operations............. .12 1.05
------------- -------------
Less distributions:
Dividends from net investment income.......... (.14) --
Distributions from net realized gains......... (.11) --
------------- -------------
Total distributions........................... (.25) --
------------- -------------
Net asset value, end of period................ $ 10.92 $ 11.05
------------- -------------
------------- -------------
TOTAL RETURN(d)............................... 1.07% 10.50%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $81,176 $38,786
Average net assets (000)...................... $58,992 $12,815
Ratios to average net assets:(b)
Expenses..................................... 1.00% 1.00%(c)
Net investment income........................ 3.06% 2.68%(c)
Portfolio turnover rate....................... 40% 47%

<PAGE>
THE PRUDENTIAL FINANCIAL HIGHLIGHTS
(LOGO) INSTITUTIONAL
FUND
<TABLE>
<CAPTION>
BALANCED INCOME
FUND FUND
---------------------------------------------- ---------
November 5,
1992(a) Year Ended
Year Ended September 30, Through September 30,
---------------------------- September 30, ---------
1995 1994 1993 1995
--------- ------------- ------------- ---------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 11.08 $ 11.80 $ 10.00 $ 9.38
--------- ------------- ------------- ---------
Income from investment operations:
Net investment income(b)...................... .18 .31 .31 .59
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions................................. 1.53 (.52) 1.54 .60
--------- ------------- ------------- ---------
Total from investment operations............. 1.71 (.21) 1.85 1.19
--------- ------------- ------------- ---------
Less distributions:
Dividends from net investment income.......... (.25) (.23) (.05) (.59)
Distributions from net realized gains......... (.05) (.28) -- --
--------- ------------- ------------- ---------
Total distributions........................... (.30) (.51) (.05) (.59)
--------- ------------- ------------- ---------
Net asset value, end of period................ $ 12.49 $ 11.08 $ 11.80 $ 9.98
--------- ------------- ------------- ---------
--------- ------------- ------------- ---------
TOTAL RETURN(d)............................... 15.90% (1.88)% 18.58% 13.11%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $82,110 $64,313 $27,663 $52,297
Average net assets (000)...................... $70,914 $44,048 $17,401 $46,386
Ratios to average net assets: (b)
Expenses..................................... 1.00% 1.00% 1.00%(c) .70%
Net investment income........................ 3.19% 2.86% 3.16%(c) 6.17%
Portfolio turnover rate....................... 65% 52% 74% 145%

INCOME
FUND
--------------------------------
March 1,
1993(a)
Year Ended Through
September 30, September 30,
1994 1993
------------- -------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 10.33 $ 10.00
------------- -------------
Income from investment operations:
Net investment income(b)...................... .52 .27
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions................................. (.91) .33
------------- -------------
Total from investment operations............. (.39) .60
------------- -------------
Less distributions:
Dividends from net investment income.......... (.52) (.27)
Distributions from net realized gains......... (.04) --
------------- -------------
Total distributions........................... (.56) (.27)
------------- -------------
Net asset value, end of period................ $ 9.38 $ 10.33
------------- -------------
------------- -------------
TOTAL RETURN(d)............................... (3.91)% 6.11%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $41,401 $35,015
Average net assets (000)...................... $37,802 $25,626
Ratios to average net assets: (b)
Expenses..................................... .70% .70%(c)
Net investment income........................ 5.24% 4.62%(c)
Portfolio turnover rate....................... 83% 93%
</TABLE>

- ---------------
(a) Commencement of investment operations.
(b) Net of expense subsidy.
(c) Annualized.
(d) Total return is calculated assuming a purchase of shares on the first
day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total return for periods
of less than a full year are not annualized. Total return includes the
effect of expense subsidies.

See Notes to Financial Statements.
B-61

<PAGE>
THE PRUDENTIAL FINANCIAL HIGHLIGHTS
(LOGO) INSTITUTIONAL
FUND
<TABLE>
<CAPTION>
MONEY
MARKET
FUND
-----------------------------------------------------
January 4,
1993(a)
Year Ended September 30, Through
------------------------------- September 30,
1995 1994 1993
--------- ------------- -------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 1.00 $ 1.00 $ 1.00
Net investment income and net realized
gains(b)..................................... .05 .03 .02
Dividends from net investment income.......... (.05) (.03) (.02)
--------- ------------- -------------
Net asset value, end of period................ $ 1.00 $ 1.00 $ 1.00
--------- ------------- -------------
--------- ------------- -------------
TOTAL RETURN(d)............................... 5.47% 3.32% 2.08%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $58,054 $46,331 $30,235
Average net assets (000)...................... $52,446 $38,170 $25,296
Ratios to average net assets: (b)
Expenses..................................... .60% .60% .60%(c)
Net investment income........................ 5.37% 3.34% 2.73%(c)
</TABLE>

- ---------------
(a) Commencement of investment operations.
(b) Net of expense subsidy.
(c) Annualized.
(d) Total return is calculated assuming a purchase of shares on the first
day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total return for periods
of less than a full year are not annualized. Total return includes
the effect of expense subsidies.

See Notes to Financial Statements.
B-62
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND

The Prudential Institutional Fund (the "Company") is registered under the
Investment Company Act of 1940 as an open-end, diversified management investment
company. The Company was established as a Delaware business trust on May 11,
1992 and consists of seven separate funds (Fund or Funds): Growth Stock Fund,
Stock Index Fund, International Stock Fund, Active Balanced Fund, Balanced Fund,
Income Fund and Money Market Fund. The Company had no operations until July 7,
1992 when 10,000 shares of beneficial interest (2,500 shares each of Growth
Stock Fund, Stock Index Fund, International Stock Fund and Balanced Fund) were
sold for $100,000 to Prudential Institutional Fund Management, Inc. ("PIFM").
Investment operations commenced on: November 5, 1992 for the Growth Stock Fund,
Stock Index Fund, International Stock Fund and Balanced Fund; January 4, 1993
for the Active Balanced Fund and Money Market Fund; and March 1, 1993 for the
Income Fund.

The Funds' investment objectives are as follows: Growth Stock Fund--long-term
growth of capital through investment primarily in equity securities of
established companies with above-average growth prospects; Stock Index
Fund--investment results that correspond to the price and yield performance of
Standard & Poor's 500 Composite Stock Price Index; International Stock
Fund--long-term growth of capital through investment in equity securities of
foreign issues with income as a secondary objective; Active Balanced Fund--total
returns approaching equity returns, while accepting less risk than an all-equity
portfolio, through an actively-managed portfolio of equity securities, fixed
income securities and money market instruments; Balanced Fund--long-term total
return consistent with moderate portfolio risk; Income Fund--a high level of
income over the longer term while providing reasonable safety of principal; and
Money Market Fund--high current income, preservation of principal and
maintenance of liquidity, while maintaining a $1.00 net asset value per share.

The ability of issuers of debt securities, other than those issued or
guaranteed by the U.S. Government, held by the Funds to meet their obligations
may be affected by economic developments in a specific industry, region, or
country.

Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund.

Securities Valuations: Securities, including options, warrants, futures
contracts and options thereon, for which the primary market is on a national
securities exchange, commodities exchange or board of trade and NASDAQ national
market equity securities are valued at the last sale price on such exchange or
board of trade on the date of valuation or, if there was no sale on such day, at
the average of readily available closing bid and asked prices on such day.

Securities, that are actively traded in the over-the-counter market,
including listed securities for which the primary market is believed to be
over-the-counter, shall be valued at the average of the most recently quoted bid
and asked prices provided by a principal market maker or dealer.

U.S. Government securities for which market quotations are available shall be
valued at a price provided by an independent broker/dealer or pricing service.

Securities for which reliable market quotations are not available or for
which the pricing agent or principal market maker does not provide a valuation
or provides a valuation that, in the judgment of one of the subadvisers, does
not represent fair value, shall be valued at fair value as determined under
procedures established by the Trustees.

Quotations of foreign securities in a foreign currency shall be converted to
U.S. dollar equivalents at the current rate obtained from a recognized bank or
dealer. Forward currency
B-63

<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND

exchange contracts shall be valued at the current cost of covering or offsetting
such contracts.

Securities held by the Money Market Fund are valued at amortized cost, which
approximates market value. The amortized cost method involves valuing a security
at its cost on the date of purchase and thereafter assuming a constant
amortization to maturity of the difference between the principal amount due at
maturity and cost. Short-term securities held by the other Funds which mature in
more than 60 days are valued at current market quotations and those which mature
in 60 days or less are valued at amortized cost. In the event that a Subadviser
determines that amortized cost does not represent fair value for certain
short-term securities with remaining maturities of 60 days or less, such
securities will be valued at market value.

In connection with transactions in repurchase agreements, it is the Company's
policy that its custodian or designated subcustodians, as the case may be under
triparty repurchase agreements, take possession of the underlying collateral
securities, the value of which exceeds the principal amount of the repurchase
transaction, including accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to ensure the adequacy of the collateral. If
the seller defaults, and the value of the collateral declines or, if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Company may be delayed or limited.

Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date and interest income is recorded on the accrual basis.

Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Fund is required to pledge to the broker an amount of cash and/or other
assets equal to a certain percentage of the contract amount. This amount is
known as the "initial margin." Subsequent payments, known as "variation
margin," are made or received by the Fund each day, depending on the daily
fluctuations in the value of the underlying security. Such variation margin is
recorded for financial statement purposes on a daily basis as unrealized gain or
loss. When the contract expires or is closed, the gain or loss is realized and
is presented in the statement of operations as net realized gain (loss) on
financial futures contracts.

The Funds invest in financial futures contracts in order to hedge their
existing portfolio securities, or securities the Funds intend to purchase,
against fluctuations in value. Under a variety of circumstances, a Fund may not
achieve the anticipated benefits of the financial futures contracts and may
realized a loss. The use of futures transactions involves the risk of imperfect
correlation in movements in the price of futures contracts and the underlying
assets.

Dollar Rolls: The Fund may enter into dollar rolls in which the Fund sells
securities for delivery in the current month and simultaneously contracts to
repurchase somewhat similar securities on a specified future date. During the
roll period, the Fund forgoes principal and interest paid on the securities. The
Fund is compensated by the interest earned on the cash proceeds of the initial
sale and by the lower repurchase price at the future date.

Foreign Currency Translation: The books and records of the Funds are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:
(i) market value of investment securities, other assets and liabilities--at
the closing rates of exchange.
(ii) purchases and sales of investment securities, income and expenses--at
the rate of exchange
B-64

<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND

prevailing on the respective dates of such transactions.

Although the net assets of the Funds are presented at the foreign exchange
rates and market values at the close of the fiscal year, the Funds do not
isolate that portion of the results of operations arising as a result of changes
in the foreign exchange rates from the fluctuations arising from changes in the
market prices of securities held at the end of the fiscal year. Similarly, the
Funds do not isolate the effect of changes in foreign exchange rates from the
fluctuations arising from changes in the market prices of long-term portfolio
securities sold during the fiscal year. Accordingly, these realized foreign
currency gains (losses) are included in the reported net realized gains (losses)
on investment transactions.

Net realized losses on foreign currency transactions represent net foreign
exchange losses from holding of foreign currencies, currency gains or losses
realized between the trade and settlement dates of securities transactions, and
the difference between the amounts of dividends and foreign taxes recorded on
the Funds' books and the U.S. dollar equivalent amounts actually received or
paid. Net currency gains and losses from valuing foreign currency denominated
assets and liabilities at year end exchange rates are reflected as a component
of net unrealized appreciation/depreciation on securities and foreign
currencies.

Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin as a result of,
among other factors, the level of governmental supervision and regulation of
foreign securities markets and the possibility of political or economic
instability.

Equalization: During the fiscal year ended September 30, 1995, the Funds
(except for the Income and Money Market Funds) discontinued the accounting
practice of equalization. Equalization is a practice whereby a portion of the
proceeds from sales and costs of repurchases of capital shares, equivalent on a
per-share basis to the amount of distributable net investment income on the date
of the transaction, is credited or charged to undistributed net investment
income. The following balances of undistributed net investment income at
September 30, 1994, resulting from equalization were transferred to paid-in
capital in excess of par for each of the respective Funds:

Growth Stock Fund $ 90,444
Stock Index Fund 398,227
International Stock Fund 881,462
Active Balanced Fund 788,116
Balanced Fund 899,912

Such reclassifications have no effect on net assets, results of operations,
or net asset value per share of the Funds.

Dividends and Distributions: Dividends and distributions of each Fund are
declared in cash and automatically reinvested in additional shares of the Fund.
The Income Fund and Money Market Fund will declare dividends of their net
investment income and, for the Money Market Fund, net capital gain (loss), daily
and distribute such dividends monthly. Each other Fund will declare and
distribute a dividend of its net investment income, if any, at least annually.
Except for the Money Market Fund, each Fund will declare and distribute its net
capital gains, if any, at least annually. Distributions of income dividends and
capital gains distributions of each Fund are made on the payment date and
reinvested at the per share net asset value as of the record date or such other
date as the Board may determine. On the "ex-dividend" date, the net asset
value per share excludes the dividend (i.e., is reduced by the amount of the
distribution).

Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
B-65

<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND

Taxes: It is the Funds' policy to continue to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable net income to its shareholders. Therefore, no
federal income tax provision is required.

Withholding taxes on foreign dividends have been provided for in accordance
with the Funds' understanding of the applicable country's tax rules and rates.

Reclassification of Capital Accounts: The Company accounts for and reports
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants' Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment Companies.

For the year ended September 30, 1995, the application of this statement
affected undistributed net investment income ("UNI"), accumulated net realized
gain (loss) on investments ("G/L") and paid-in capital in excess of par
("PIC") by the following amounts:

<TABLE>
<CAPTION>
UNI G/L PIC
--------- -------- ---------
<S> <C> <C> <C>
Growth Stock Fund $ 141,451 $ 5,798 $(147,249)
International Stock Fund (81,325) 81,325 --
Active Balanced Fund (107,185) 107,185 --
Balanced Fund (112,634) 112,634 --
</TABLE>

Net investment income, net realized gains and net assets were not affected by
this change.

Deferred Organizational Expenses: Approxi-
mately $450,000 of costs were incurred in connection with the organization and
initial registration of the Company and have been deferred and are being
amortized ratably over the period of benefit not to exceed 60 months from the
date each of the Funds' commenced investment operations.

Note 2. Agreements
The Company has entered into a management agreement with PIFM. Pursuant to
this agreement, PIFM has responsibility for all investment advisory services and
supervises the subadviser's performance of such services. PIFM is an indirect,
wholly-owned subsidiary of The Prudential Insurance Company of America
(Prudential).

PIFM has entered into subadvisory agreements with The Prudential Investment
Corporation ("PIC"), Jennison Associates Capital Corp. ("Jennison") and
Mercator Asset Management, Inc. ("Mercator"), each a wholly-owned subsidiary
of Prudential. Each subadviser will furnish investment advisory services in
connection with the management of the various Funds. Jennison serves as
subadviser to the Growth Stock Fund and the Active Balanced Fund. PIC serves as
subadviser to the Balanced Fund, the Stock Index Fund, the Income Fund and the
Money Market Fund. Mercator serves as subadviser to the International Stock
Fund. PIFM will pay for the costs and expenses attributable to the subadvisory
agreements and the salaries and expenses of all personnel of the Company except
for fees and expenses of unaffiliated Trustees. The Funds will bear all other
costs and expenses.

Each Fund will pay PIFM a fee for its services provided to the Fund. The fees
are computed daily and payable monthly at the annual rates specified below of
the value of each Funds' average daily net assets:

Fund Management Fee
- -------------------------- ---------------
Growth Stock Fund .70%
Stock Index Fund .40
International Stock Fund 1.15
Active Balanced Fund .70
Balanced Fund .70
Income Fund .50
Money Market Fund .45

PIFM has voluntarily agreed to subsidize a portion of the operating expenses
of the Funds until September 30, 1996. Such expenses may be recovered by PIFM
through December 31, 1996 so
B-66

<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND

long as the total expense ratios do not exceed certain predetermined levels set
forth in the Company's prospectus. For the year ended September 30, 1995, PIFM
subsidized the following amounts:

<TABLE>
<CAPTION>
Percentage
of Average Amount per
Fund Net Assets Share
- ------------------------- ------------- ------------------
<S> <C> <C>
Growth Stock Fund .01% $ .001
Stock Index Fund .28 .025
International Stock Fund .04 .002
Active Balanced Fund .05 .004
Balanced Fund .10 .005
Income Fund .28 .027
Money Market Fund .32 .001
</TABLE>

The Company has entered into an administration agreement with Prudential
Mutual Fund Management, Inc. ("PMF"), an indirect wholly-owned subsidiary of
Prudential. The administration fee paid PMF will be computed daily and payable
monthly, at an annual rate of .17% of the Company's daily net assets up to $250
million and .15% of the Company's average daily net assets in excess of $250
million. PMF will furnish to the Company such services as the Company may
require in connection with the administration of the Company's business affairs.
PMF will also provide certain transfer agent services through its wholly-owned
subsidiary, Prudential Mutual Fund Services, Inc. ("PMFS"). For such services,
PMFS will be paid .03% of the Company's daily net assets up to $250 million and
.02% of the Company's average daily net assets in excess of $250 million from
the administration fee paid to PMF.

Note 3. Other Transactions with Affiliates
For the year ended September 30, 1995, Prudential Securities Incorporated, an
affiliate of PIFM, earned approximately $1,000 in brokerage commissions from
portfolio transactions executed on behalf of the Balanced Fund.

Note 4. Portfolio Securities
Purchases and sales of portfolio securities, excluding short-term
investments, for the year ended September 30, 1995 were as follows:

<TABLE>
<CAPTION>
Fund Purchases Sales
- ---------------------------- ------------ -----------
<S> <C> <C>
Growth Stock Fund $166,285,606 $94,901,288
Stock Index Fund 31,191,257 6,793,307
International Stock Fund 51,878,167 22,058,837
Active Balanced Fund 55,254,010 24,449,598
Balanced Fund 51,413,549 41,017,407
Income Fund 72,942,188 62,818,679
</TABLE>

On September 30, 1995, the Stock Index Fund purchased 62 financial futures
contracts on the S&P 500 Index expiring December, 1995. The cost of such
contracts was $18,040,975. The value of such contracts on September 30, 1995 was
$18,234,200, thereby resulting in an unrealized gain of $193,225.

The federal income tax basis and unrealized appreciation/depreciation of the
Fund's investments as of September 30, 1995 were as follows:

<TABLE>
<CAPTION>
Net Unrealized
Appreciation/ Gross Unrealized
Fund Basis Depreciation Appreciation Depreciation
- ------------------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
Growth Stock Fund $168,492,267 $ 53,882,096 $55,631,552 $1,749,456
Stock Index Fund 80,984,245 15,486,856 16,243,442 756,586
International Stock
Fund 120,016,426 17,315,559 19,620,167 2,304,608
Active Balanced
Fund 121,485,163 12,020,860 12,744,154 723,294
Balanced Fund 74,648,132 6,340,696 6,845,882 505,186
Income Fund 56,738,626 894,526 1,086,048 191,522
</TABLE>

The following Funds elected to treat net losses incurred in the eleven month
period ended September 30, 1994 as having occurred in the current fiscal year:

<TABLE>
<CAPTION>
Capital Currency
---------- --------
<S> <C> <C>
Growth Stock Fund $3,796,000 --
International Stock Fund -- $186,000
Income Fund 828,000 --
</TABLE>

B-67

<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND

The following Funds will elect to treat net losses incurred in the eleven
month period ended September 30, 1995 as having been incurred in the following
fiscal year:

<TABLE>
<CAPTION>
Capital Currency
---------- --------
<S> <C> <C>
Growth Stock Fund -- $ 4,000
International Stock Fund $3,066,000 169,000
Balanced Fund -- 1,000
</TABLE>

For federal income tax purposes, the following Funds have a capital loss
carryforward as of September 30, 1995 which expires in 2003:

Growth Stock Fund $2,825,300
Income Fund 723,300

The average monthly balance of dollar rolls outstanding during the year ended
September 30, 1995 for the Income Fund was approximately $4,142,000. The amount
of dollar rolls outstanding at September 30, 1995 was $5,940,665, which was
10.2% of total assets.

Note 5. Joint Repurchase Agreement Account
The Company, along with other affiliated registered investment companies,
transfers uninvested cash balances into a single joint account, the daily
aggregate balance of which is invested in one or more repurchase agreements
collateralized by U.S. Treasury or federal agency obligations. At September 30,
1995, the Company had a 9.01% undivided interest, in the aggregate, in the
repurchase agreements in the joint account which represented $65,929,000 in
principal amount, in the aggregate, as follows:

<TABLE>
<CAPTION>
Percentage Principal
Company Interest Amount
- ---------------------------- ---------- -----------
<S> <C> <C>
Growth Stock Fund .66% $ 4,819,000
Stock Index Fund 1.71 12,494,000
International Stock Fund 1.12 8,175,000
Active Balanced Fund 3.50 25,625,000
Balanced Fund 1.00 7,338,000
Income Fund 1.02 7,478,000
</TABLE>

As of such date, each repurchase agreement in the joint account and the
collateral therefor was as follows:

Bear, Stearns & Co., Inc., 6.375%, in the principal amount of $225,000,000,
repurchase price $225,119,531, due 10/2/95. The value of the collateral
including accrued interest was $229,660,959.

BT Securities Corp., 6.10%, in the principal amount of $56,863,000,
repurchase price $56,891,905, due 10/2/95. The value of the collateral including
accrued interest was $58,082,904.

Goldman, Sachs & Co., 6.45%, in the principal amount of $225,000,000,
repurchase price $225,120,938, due 10/2/95. The value of the collateral
including accrued interest was $229,500,013.

Smith Barney, Inc., 6.43%, in the principal amount of $225,000,000,
repurchase price $225,120,563, due 10/2/95. The value of the collateral
including accrued interest was $229,500,366.

Note 6. Capital
Each Fund has authorized an unlimited number of shares of beneficial interest
at $.001 par value per share.

Transactions in shares of beneficial interest during the years ended
September 30, 1995 and 1994 were as follows:
Year ended September 30, 1995:

<TABLE>
<CAPTION>
Shares
Issued in
Reinvestment Increase
Shares of Dividends/ Shares in Shares
Fund Sold Distributions Redeemed Outstanding
- ----------------------- ---------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Growth Stock Fund 9,932,496 4,078 (5,248,506) 4,688,068
Stock Index Fund 4,340,797 107,238 (1,725,892) 2,722,143
International Stock
Fund 6,497,880 228,737 (4,691,305) 2,035,312
Active Balanced Fund 4,883,689 242,395 (1,856,069) 3,270,015
Balanced Fund 2,303,919 168,832 (1,702,980) 769,771
Income Fund 1,204,925 296,456 (675,384) 825,997
Money Market Fund 55,919,976 2,813,967 (47,010,598) 11,723,345
</TABLE>

B-68

<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND

Year ended September 30, 1994:
<TABLE>
<CAPTION>
Shares
Issued in
Reinvestment Increase
Shares of Dividends/ Shares in Shares
Fund Sold Distributions Redeemed Outstanding
- ---------------------- ---------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Growth Stock Fund 6,739,890 14,450 (1,804,735) 4,949,605
Stock Index Fund 2,697,792 52,328 (744,579) 2,005,541
International Stock
Fund 6,022,403 42,326 (1,702,734) 4,361,995
Active Balanced Fund 5,244,905 81,781 (1,404,380) 3,922,306
Balanced Fund 3,900,150 118,117 (556,779) 3,461,488
Income Fund 1,613,971 216,368 (809,032) 1,021,307
Money Market Fund 32,311,167 1,277,602 (17,493,001) 16,095,768
</TABLE>

Of the shares outstanding at September 30, 1995, PIFM and affiliates owned
the following shares:

<TABLE>
<CAPTION>
Fund Shares
- -------------------------- ----------
<S> <C>
Growth Stock Fund 4,724,608
Stock Index Fund 3,429,256
International Stock Fund 4,962,191
Active Balanced Fund 2,396,951
Balanced Fund 3,356,418
Income Fund 2,889,945
Money Market Fund 27,811,405
</TABLE>

B-69

<PAGE>
THE PRUDENTIAL INDEPENDENT
(LOGO) INSTITUTIONAL AUDITORS' REPORT
FUND
The Shareholders and Trustees of
The Prudential Institutional Fund:

We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of The Prudential Institutional Fund
(consisting of the Growth Stock Fund, Stock Index Fund, International Stock
Fund, Active Balanced Fund, Balanced Fund, Income Fund and Money Market Fund),
as of September 30, 1995, the related statements of operations for the year then
ended and of changes in net assets for each of the two years in the period then
ended, and the financial highlights for the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
September 30, 1995, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of each of the
respective portfolios constituting The Prudential Institutional Fund as of
September 30, 1995, the results of their operations, the changes in their net
assets, and the financial highlights for the periods presented in conformity
with generally accepted accounting principles.

DELOITTE & TOUCHE LLP

New York, New York
November 16, 1995
B-70

<PAGE>

APPENDIX

DESCRIPTION OF S&P, MOODY'S AND DUFF & PHELPS RATINGS

Description of S&P Corporate Bond Ratings:

AAA - Bonds rated AAA have the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.

AA - Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.

A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.

BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.

BB, B, CCC, CC, C - Bonds rated BB, B, CCC, CC, or C are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
represents the lowest degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

Description of Moody's Corporate Bond Ratings:

Aaa - Bonds rated Aaa are judged to be the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of these issues.

Aa - Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.

A - Bonds rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

Baa - Bonds rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba - Bonds rated Ba are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate and thereby not well-safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.

B - Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa - Bonds rated Caa are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.

Ca - Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.

C - Bonds rated C are the lowest rated class of bonds, and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.

Moody's applies the numerical modifiers 1, 2 and 3 in the Aa and A rating
categories. The modifier 1 indicates that the security ranks in the higher end
of its generic rating category; the modifier 2 indicates a mid-range ranking;
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.

A-1

<PAGE>

Description of Duff & Phelps Bond Ratings:

AAA - Bonds rated AAA by Duff & Phelps are considered to be of the highest
credit quality. The risk factors are negligible, being only slightly more than
for risk-free U.S. Treasury debt.

AA+, AA, AA--Bonds rated AA+, AA or AA-are considered to be of high credit
quality. Protection factors are strong. Risk is modest but may vary slightly
from time to time because of economic conditions.

A+, A, A--Bonds rated A+, A or A-have protection factors which are average
but adequate; however, risk factors are more variable and greater in periods of
economic stress.

BBB+, BBB, BBB--Bonds rated BBB+, BBB or BBB-have below average protection
factors but are still considered sufficient for prudent investment. These bonds
demonstrate considerable variability in risk during economic cycles.

BB+, BB, BB--Bonds rated BB+, BB, or BB-are below investment grade but are
still deemed likely to meet obligations when due. Present or prospective
financial protection factors fluctuate according to industry conditions or
company fortunes. Overall quality may move up or down frequently within this
category.

B+, B, B--Bonds rated B+, B, or B-are below investment grade and possess
the risk that obligations will not be met when due. Financial protection factors
will fluctuate widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade.

CCC - Bonds rated CCC are well below investment grade securities.
Considerable uncertainty exists as to timely payment of principal, interest or
preferred dividends. Protection factors are narrow and risk can be substantial
with unfavorable economic/industry conditions, and/or with unfavorable company
developments.

DD - Bonds rated DD are defaulted debt obligations. The issuer failed to
meet scheduled principal and/or interest payments.

Description of S&P Commercial Paper Ratings:

Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted A-1+.
Capacity for timely payment on commercial paper rated A-2 is strong, but the
relative degree of safety is not as high as for issues designated A-1.

Description of Moody's Commercial Paper Ratings:

The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics of
issuers rated Prime-1 but to a lesser degree. Earnings trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternative liquidity is maintained.

Description of Duff & Phelps Commercial Paper Ratings:

Duff & Phelps commercial paper ratings are divided into three categories,
ranging from "1" for the highest quality obligations to "3" for the lowest.
No ratings are issued for companies whose paper is not deemed investment grade.
Issues assigned the Duff 1 rating are considered top grade. This category is
further divided into three gradations as follows: Duff 1 plus--highest certainty
of timely payment, short-term liquidity, including internal operating factors
and/or ready access to alternative sources of funds, is clearly outstanding and
safety is just below risk-free U.S. Treasury short-term obligations; Duff
1--very high certainty or timely payment, liquidity factors are excellent and
supported by strong fundamental protection factors, risk factors are minor; Duff
1 minus-high certainty of timely payment, liquidity factors are strong and
supported by good fundamental protection factors, risk factors are very small.
Issues rated Duff 2 represent a good certainty of timely payment; liquidity
factors and company fundamentals are sound; although ongoing internal funds
needs may enlarge total financing requirements, access to capital markets is
good; risk factors are small. Duff 3 represents a satisfactory grade;
satisfactory liquidity and other protection factors qualify issue as to
investment grade; risk factors are larger and subject to more variation;
nevertheless timely payment is expected.

A-2
<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, 1995.

Statement of Assets and Liabilities at September 30, 1995.

Statement of Operations for the year ended September 30, 1995.

Statements of Changes in Net Assets for the years ended September 30,
1995 and 1994.

Financial Highlights.

Notes to Financial Statements.

Independent Auditors' Report.

(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).

(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, L.P.*

C-1

<PAGE>

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).

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. Incorporated by
reference as Exhibit 16 to Post Effective Amendment No. 4 to the
Registration Statement on Form N-1A filed via EDGAR on January 30,
1995 (File No. 33-48066).

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 12, 1996 there were 153 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 58,000.

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 sec. 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
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
C-2

<PAGE>
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 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, L.P.
("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 Mutual 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.

<TABLE>
<CAPTION>
Name and Address Position with The Manager Principal Occupations
- ------------------------ --------------------------- ----------------------------------------------------
<S> <C> <C>

Thomas A. Early Vice President and Vice President and General Counsel, Prudential
Secretary Defined Contribution Services

Mark R. Fetting Chairman of the Board and President, Prudential Defined Contribution Services
President
Nancy L. Lindgren Director, Vice President Vice President and Comptroller, Prudential Defined
and Comptroller Contribution Services
C. Edward Chaplin Treasurer Vice President and Treasurer, The Prudential
751 Broad Sreet,
Newark, NJ 07102
Walter E. Watkins, Jr. Vice President Director of Mutual Fund Administration, Prudential
Defined Contribution Services

</TABLE>

(b) The Prudential Investment Corporation (PIC)

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.

C-3

<PAGE>

<TABLE>
<CAPTION>
Name and Address Position with PIC Principal Occupations
- ------------------------ --------------------------- ----------------------------------------------------
<S> <C> <C>

William M. Bethke Senior Vice President Senior Vice President, Prudential; Senior Vice
President, PIC
Barry M. Gillman Director Director, PIC
Theresa A. Hamacher Vice President Vice President, Prudential; Vice President, PIC;
Director, PMF
Harry E. Knapp, Jr. President, Chairman of the President, Chairman of the Board, Chief Executive
Board, Chief Executive Officer and Director, PIC; Vice President,
Officer and Director Prudential
William P. Link Senior Vice President Executive Vice President, Prudential; Senior Vice
56 Livingston Avenue President, PIC
Roseland, NJ 07068
Richard A. Redeker Executive Vice President President, Chief Executive Officer and Director,
One Seaport Plaza PMF; Executive Vice President, Director and Member
New York, NY 10292 of Operating Committee, Prudential Securities;
Director, Prudential Securities Group, Inc.;
Executive Vice President, PIC; Director, PMFD;
Director, PMFS
Eric A. Simonson Vice President and Director Vice President and Director, PIC; Executive Vice
President, Prudential

</TABLE>

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, L.P.

Information as to Mercator's general and limited partners 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.

<TABLE>
<CAPTION>
Positions and
Offices with
Name Underwriter
- ------------------------------------------------- -----------------------------------------------
<S> <C>

C. Edward Chaplin Treasurer
Thomas A. Early Vice President and Secretary
Mark R. Fetting Chairman of the Board, President, Chief
Executive Officer and Director
Jeffrey Hiller Assistant Secretary
Robert E. Lee Vice President
Nancy L. Lindgren Vice President, Comptroller and Director

</TABLE>

C-4

<PAGE>
<TABLE>
<CAPTION>
Positions and
Offices with
Name Underwriter
- ------------------------------------------------- -----------------------------------------------
<S> <C>

Walter E. Watkins, Jr. Vice President
Michael G. Williamson Assistant Comptroller

</TABLE>

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
and 51 JFK Parkway, Short Hills, New Jersey 07078, 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-5

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant certifies that it
meets all the requirements for effectiveness of the amendment to its
Registration Statement on Form N-1A pursuant to Rule 485(b) under the Securities
Act of 1933 and has duly caused this Post-Effective Amendment No. 5 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 26th
day of January, 1996. No other material event requiring prospectus disclosure
has occurred since the latest of the three dates specified in Rule 485(b)(2).

PRUDENTIAL INSTITUTIONAL FUND

/s/ Mark R. Fetting
--------------------------------------------------
Mark R.Fetting, President

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 5 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature Title Date
- ------------------------- ------------------------------ ---------------
<S>

<C> <C>

/s/ Eugene S. Stark Treasurer and Principal January 26, 1996
- ------------------------- Financial and Accounting
Eugene S. Stark Officer

/s/ Mark R. Fetting President and Trustee January 26, 1996
- -------------------------
Mark R. Fetting

/s/ David A. Finley Trustee January 26, 1996
- -------------------------
David A. Finley

/s/ William E. Fruhan, Jr. Trustee January 26, 1996
- -------------------------
Prof. William E. Fruhan, Jr.

/s/ August G. Olsen Trustee January 26, 1996
- -------------------------
August G. Olsen

/s/ Herbert G. Stolzer Trustee January 26, 1996
- -------------------------
Herbert G. Stolzer

</TABLE>

<PAGE>

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit No. Description Page
- --------------------------- --------------------------------------------------------------------- -----
<C> <C> <S> <C>
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 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, L.P.*

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. --

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).
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit No. Description Page
- --------------------------- --------------------------------------------------------------------- -----
<C> <C> <S> <C>
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).

14. Not Applicable. --

15. Not Applicable. --

16. Schedule of Computation of Performance Quotations. Incorporated by reference --
as Exhibit 16 to Post-Effective Amendment No. 4 to the Registration Statement
on Form N-1A filed via EDGAR on January 30, 1995 (File No. 33-48066).

27. Financial Data Schedule.*
</TABLE>

- ---------------
*_Filed herewith.

EX-99.5(d)

THE PRUDENTIAL INSTITUTIONAL FUND
(International Stock Fund)

SUBADVISORY AGREEMENT

Agreement made as of this 30th day of November, 1995, between Prudential
Institutional Fund Management, Inc. (PIFM or the Manager), a Pennsylvania
Corporation, and Mercator Asset Management, L.P. (the Subadviser), a limited
partnership organized under the laws of the state of Delaware.

W I T N E S S E T H

WHEREAS, the Manager has entered into a Management Agreement, dated October
30, 1992 (the Management Agreement), with The Prudential Institutional Fund (the
Trust), a Delaware business trust and a diversified, open-end management
investment company registered under the Investment Company Act of 1940 (the 1940
Act), pursuant to which PIFM will act as Manager of the Trust;

WHEREAS, the shares of beneficial interest of the Trust are divided into
separate series or funds, each of which is established pursuant to a resolution
of the Trustees of the Trust, and the Trustees may from time to time terminate
such series or funds or establish and terminate additional series or funds:

<PAGE>

WHEREAS, the Manager has entered into a separate subadvisory agreement
dated October 30, 1992 with The Prudential Investment Corporation (PIC), a New
Jersey corporation, pursuant to which PIC will provide investment advisory
services to the Trust with respect to (i) the management of short-term assets,
including cash, money market instruments and repurchase agreements and (ii) the
lending of portfolio securities;

WHEREAS, the Manager desires to retain the Subadviser to provide investment
advisory services to the International Stock Fund (the Fund) in connection with
the management of the Trust and the Subadviser is willing to render such
investment advisory services;

NOW, THEREFORE, the Parties agree as follows:

1. (a) Subject to the supervision of the Manager and of the Trustees of the
Trust, the Subadviser shall manage the investment operations of the Fund
and the composition of the Fund's portfolio, including the purchase,
retention and disposition thereof, in accordance with the Fund's investment
objectives, policies and restrictions as stated in the Prospectus (such
Prospectus and Statement of Additional Information as currently in effect
and as amended or supplemented from time to time, being herein collectively

-2-

<PAGE>

called the "Prospectus") and subject to the following understandings:

(i) The Subadviser shall provide supervision of the Fund's investments
and determine from time to time what investments and securities will
be purchased, retained, sold or loaned by the Fund, and what portion
of the assets will be invested or held uninvested as cash.

(ii) In the performance of its duties and obligations under this
Agreement, the Subadviser shall act in conformity with the Declaration
of Trust, By-Laws and Prospectus of the Fund and the Trust and with
the instructions and directions of the Manager and of the Trustees of
the Trust and will conform to and comply with the requirements of the
1940 Act, the Internal Revenue Code of 1986 and all other applicable
federal and state laws and regulations.

(iii) The Subadviser shall advise PIC of the dollar amount of the
Fund's assets that shall be invested in repurchase agreements, money
market instruments or held in cash and advise PIC as to the securities
available for lending and the securities to be recalled from loan. In
the event the agreement with PIC is terminated, the Subadviser shall
provide investment advisory services to

-3-

<PAGE>

the Fund with respect to the management of short-term assets and the
lending of portfolio securities under this Agreement.

(iv) The Subadviser shall determine the securities, futures contracts
and currencies to be purchased or sold by the Fund and will place
orders with or through such persons, brokers, dealers or futures
commission merchants (including but not limited to Prudential
Securities Incorporated) to carry out the policy with respect to
brokerage as set forth in the Trust's Registration Statement and
Prospectus or as the Trustees may direct from time to time. In
providing the Fund with investment supervision, it is recognized that
the Subadviser will give primary consideration to securing the most
favorable price and efficient execution. Within the framework of this
policy, the Subadviser may consider the financial responsibility,
research and investment information and other services provided by
brokers, dealers or futures commission merchants who may effect or be
a party to any such transaction or other transactions to which the
Subadviser's other clients may be a party. It is understood that
Prudential Securities Incorporated may be used as principal broker for
securities transactions but that no formula has been adopted for
allocation of the Trust's investment transaction business. It is also

-4-

<PAGE>
understood that it is desirable for the Fund that the Subadviser have
access to supplemental investment and market research and security and
economic analysis provided by brokers or futures commission merchants
who may execute brokerage transactions at a higher cost to the Fund
than may result when allocating brokerage to other brokers on the
basis of seeking the most favorable price and efficient execution.
Therefore, the Subadviser is authorized to place orders for the
purchase and sale of securities and futures contracts for the Fund
with such brokers or futures commission merchants, subject to review
by the Trustees of the Trust from time to time with respect to the
extent and continuation of this practice. It is understood that the
services provided by such brokers or futures commission merchants may
be useful to the Subadviser in connection with the Subadviser's
services to other clients.

On occasions when the Subadviser deems the purchase or
sale of a security or futures contract to be in the best interest of
the Fund as well as other clients of the Subadviser, the Subadviser,
to the extent permitted by applicable laws and regulations, may, but
shall be under no obligation to, aggregate the securities or futures
contracts to be sold or purchased in order to obtain the most
favorable price or lower brokerage commissions and

-5-

<PAGE>

efficient execution. In such event, allocation of the securities or
futures contracts so purchased or sold, as well as the expenses
incurred in the transaction, will be made by the Subadviser in the
manner the Subadviser considers to be the most equitable and
consistent with its fiduciary obligations to the Fund, the Trust and
to such other clients.

(v) The Subadviser shall maintain all books and records with respect
to the Fund's portfolio transactions required by subparagraphs (b)(5),
(6), (7), (9), (10) and (11) and paragraph (f) of Rule 31a-1 under the
1940 Act and shall render to the Trustees of the Trust such periodic
and special reports as the Board may reasonably request.

(vi) The Subadviser shall provide the Trust's Custodian on each
business day with information relating to all transactions concerning
the Fund's assets and shall provide the Manager with such information
upon request of the Manager.

(vii) The investment management services provided by the Subadviser
hereunder are not to be deemed exclusive, and the Subadviser shall be
free to render similar services to others.

-6-

<PAGE>

(b) The Subadviser shall keep the Trust's books and records required
to be maintained by the Subadviser pursuant to paragraph l(a)(v) hereof and
shall timely furnish to the Manager all information relating to the
Subadviser's services hereunder needed by the Manager to keep the other
books and records of the Trust required by Rule 31a-l under the 1940 Act.
The Subadviser agrees that all records which it maintains for the Trust are
the property of the Trust and the Subadviser will surrender promptly to the
Trust any of such records upon the Trust's request, provided however that
the Subadviser may retain a copy of such records. The Subadviser further
agrees to preserve for the periods prescribed by Rule 31a-2 of the
Commission under the 1940 Act any such records as are required to be
maintained by it pursuant to paragraph l(a)(v) hereof.

(c) The Subadviser agrees to maintain adequate compliance procedures to
ensure its compliance with the 1940 Act, the Investment Advisers Act of
1940 and applicable state and federal laws and regulations.

2. The Manager shall continue to have responsibility for all services to be
provided to the Trust pursuant to the Management Agreement and shall oversee and
review the Subadviser's performance of its duties under this Agreement. Upon
request of the Manager, the Subadviser shall provide the Manager with any and
all

-7-

<PAGE>

documents, records, and other materials relating to the Subadviser's
performance of its duties under this Agreement or any activities that could
directly or indirectly impact the Fund that the Manager determines to be
necessary for the Manager to perform its duties of oversight and review. To the
extent information provided to the Manager includes reference to any other
client of the Subadviser, the identity of such other client need not be
reflected in the information unless the Subadviser is authorized in writing by
such client to disclose that client's identity in such information furnished to
the Manager. In addition, any information provided to the Manager that relates
to the officers or shareholders of the general partners of the Subadviser will
include disclosure of the identity of such officers or shareholders. The
Subadviser also shall allow the Manager or its designee to perform periodic
on-site inspections in performance of these duties.

3. The Manager shall compensate the Subadviser for the services provided
and the expenses assumed pursuant to this Subadvisory Agreement, a fee at an
annual rate of .75 of 1% of the average daily net assets of the Fund up to and
including $50 million, .60 of 1% of the average daily net assets of the Fund in
excess of $50 million up to and including $300 million and .45 of 1% of the
average daily net assets in excess of $300 million. This fee will be computed
daily and paid monthly.

-8-

<PAGE>

4. The Subadviser shall not be liable for any error of judgment or for any
loss suffered by the Fund or the Manager in connection with the matters to which
this Agreement relates, except a loss resulting from willful misfeasance, bad
faith or gross negligence on the Subadviser's part in the performance of its
duties or from its reckless disregard of its obligations and duties under this
Agreement; provided, however, that the Subadviser shall be liable for its own
negligence (but not mere errors in portfolio management judgment) with respect
to errors relating to portfolio trades. The Subadviser shall indemnify and hold
harmless the Fund or the Manager, as the case may be, from any and all claims,
losses, expenses, obligations and liabilities (including reasonable attorneys'
fees) that arise or result from the Subadviser's willful misfeasance, bad faith,
gross negligence (or negligence -- but not mere errors in portfolio management
judgment -- with respect to errors relating to portfolio trades), or reckless
disregard of its duties under this Agreement.

5. This Agreement shall continue in effect for a period of more than two
years from the date hereof only so long as such continuance is specifically
approved at least annually in conformity with the requirements of the 1940 Act;
provided, however, that this Agreement may be terminated by the Fund at any
time, without the payment of any penalty, by the Trustees of the Trust or by
vote of a majority of the outstanding voting securities (as defined in the 1940
Act) of the Fund, or by the Manager or the

-9-

<PAGE>

Subadviser at any time, without the payment of any penalty, on not more than 60
days' nor less than 30 days' written notice to the other party. This Agreement
shall terminate automatically in the event of its assignment (as defined in the
1940 Act) or upon the termination of the Management Agreement.

6. Nothing in this Agreement shall limit or restrict the right of any of
the Subadviser's general partners or officers thereof or employees to engage in
any other business or to devote his or her time and attention in part to the
management or other aspects of any business, whether of a similar or a
dissimilar nature, nor limit or restrict the Subadviser's right to engage in any
other business or to render services of any kind to any other corporation, firm,
individual or association. The Subadviser shall report to the Board, at least
annually, the extent to which the Subadviser's general partners or officers
thereof engage in any substantial business activities outside of the scope of
their activities as general partners or officers thereof.

7. During the term of this Agreement, the Manager agrees to furnish the
Subadviser at its principal office all prospectuses, proxy statements, reports
to stockholders, sales literature or other material prepared for distribution to
shareholders of the Fund or the public, which refer to the Subadviser in any
way, prior to use thereof and not to use material if the Subadviser reasonably
objects in writing five business days (or such other time as may be

-10-

<PAGE>

mutually agreed) after receipt thereof. Sales literature may be furnished to the
Subadviser hereunder by first-class or overnight mail, facsimile transmission
equipment or hand delivery.

8. The Subadviser shall notify the Manager of any change in the membership
of the partnership within five (5) days of such change.

9. Any notice or other communication required to be given pursuant to this
Agreement shall be deemed duly given if delivered or mailed by registered mail,
postage prepaid, (1) to the Manager at 30 Scranton Office Park, Moosic, PA
18507-1789, Attention: Secretary; or (2) to the Subadviser at 2400 East
Commercial Blvd., Fort Lauderdale, FL 33308.

10. This Agreement may be amended by mutual consent, but the consent of the
Fund must be obtained in conformity with the requirements of the 1940 Act.

11. This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware without reference to choice of law principles
thereof and in accordance with the 1940 Act. In the case of any conflict the
1940 Act shall control.

-11-

<PAGE>

IN WITNESS WHEREOF, the Parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.

PRUDENTIAL INSTITUTIONAL FUND
MANAGEMENT, INC.

By: /S/ Mark Fetting
-----------------------------------------------
President

MERCATOR ASSET MANAGEMENT, L.P.

By: /S/ Peter F. Spano, PSX Corp. General Partner
-----------------------------------------------
President

CONSENT OF INDEPENDENT AUDITORS

We consent to the use in Post-Effective Amendment No. 5 to Registration
Statement No. 33-48066 of Prudential Institutional Fund of our report dated
November 16, 1995, 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, 1996

<ARTICLE> 6
<CIK> 0000887991
<NAME> PRUDENTIAL INSTITUTIONAL FUND: GROWTH STOCK FUND
<SERIES>
<NAME> PRUDENTIAL INSTITUTIONAL FUND: GROWTH STOCK FUND
<NUMBER> 001

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 222,374,363
<RECEIVABLES> 2,152,043
<ASSETS-OTHER> 29,670
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 224,556,076
<PAYABLE-FOR-SECURITIES> 3,841,936
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 208,746
<TOTAL-LIABILITIES> 4,050,682
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<PAID-IN-CAPITAL-COMMON> 169,441,843
<SHARES-COMMON-STOCK> 13,604,202
<SHARES-COMMON-PRIOR> 8,916,134
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,016,003)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 54,065,950
<NET-ASSETS> 220,505,394
<DIVIDEND-INCOME> 1,190,186
<INTEREST-INCOME> 198,002
<OTHER-INCOME> 0
<EXPENSES-NET> 1,499,848
<NET-INVESTMENT-INCOME> (111,660)
<REALIZED-GAINS-CURRENT> 814,853
<APPREC-INCREASE-CURRENT> 47,538,274
<NET-CHANGE-FROM-OPS> 48,241,467
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (48,781)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 138,943,130
<NUMBER-OF-SHARES-REDEEMED> (73,635,171)
<SHARES-REINVESTED> 48,781
<NET-CHANGE-IN-ASSETS> 113,549,426
<ACCUMULATED-NII-PRIOR> 103,636
<ACCUMULATED-GAINS-PRIOR> (3,830,856)
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<GROSS-EXPENSE> 1,461,180
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<PER-SHARE-NAV-BEGIN> 12.00
<PER-SHARE-NII> 0.00
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<PER-SHARE-NAV-END> 16.21
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<ARTICLE> 6
<CIK> 0000887991
<NAME> PRUDENTIAL INSTITUTIONAL FUND: STOCK INDEX FUND
<SERIES>
<NAME> PRUDENTIAL INSTITUTIONAL FUND: STOCK INDEX FUND
<NUMBER> 002

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
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<INVESTMENTS-AT-VALUE> 96,471,101
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<TOTAL-ASSETS> 103,013,600
<PAYABLE-FOR-SECURITIES> 957,677
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 111,357
<TOTAL-LIABILITIES> 1,069,034
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 80,650,936
<SHARES-COMMON-STOCK> 7,168,801
<SHARES-COMMON-PRIOR> 4,446,658
<ACCUMULATED-NII-CURRENT> 1,562,991
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,001,988
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15,721,482
<NET-ASSETS> 101,944,566
<DIVIDEND-INCOME> 1,623,115
<INTEREST-INCOME> 637,099
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<EXPENSES-NET> 430,263
<NET-INVESTMENT-INCOME> 1,829,951
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<APPREC-INCREASE-CURRENT> 13,914,900
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,015,394)
<DISTRIBUTIONS-OF-GAINS> (165,297)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 52,960,096
<NUMBER-OF-SHARES-REDEEMED> (20,924,559)
<SHARES-REINVESTED> 1,180,691
<NET-CHANGE-IN-ASSETS> 51,825,242
<ACCUMULATED-NII-PRIOR> 1,146,661
<ACCUMULATED-GAINS-PRIOR> 122,431
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 286,843
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 345,876
<AVERAGE-NET-ASSETS> 71,711,000
<PER-SHARE-NAV-BEGIN> 11.27
<PER-SHARE-NII> 0.23
<PER-SHARE-GAIN-APPREC> 2.97
<PER-SHARE-DIVIDEND> (0.22)
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<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.22
<EXPENSE-RATIO> 0.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<ARTICLE> 6
<CIK> 0000887991
<NAME> PRUDENTIAL INSTITUTIONAL FUND: INTERNATIONAL STOCK FUND
<SERIES>
<NAME> PRUDENTIAL INSTITUTIONAL FUND: INTERNATIONAL STOCK FUND
<NUMBER> 003

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 137,331,985
<RECEIVABLES> 728,033
<ASSETS-OTHER> 183,560
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<TOTAL-ASSETS> 138,243,578
<PAYABLE-FOR-SECURITIES> 1,302,078
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 256,278
<TOTAL-LIABILITIES> 1,558,356
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 121,007,773
<SHARES-COMMON-STOCK> 8,964,457
<SHARES-COMMON-PRIOR> 6,929,145
<ACCUMULATED-NII-CURRENT> 1,582,613
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,235,336)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 17,321,208
<NET-ASSETS> 136,685,222
<DIVIDEND-INCOME> 3,287,355
<INTEREST-INCOME> 499,812
<OTHER-INCOME> 0
<EXPENSES-NET> 1,902,835
<NET-INVESTMENT-INCOME> 1,884,332
<REALIZED-GAINS-CURRENT> (3,084,946)
<APPREC-INCREASE-CURRENT> 9,333,213
<NET-CHANGE-FROM-OPS> 8,132,599
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (750,797)
<DISTRIBUTIONS-OF-GAINS> (2,440,090)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 93,624,206
<NUMBER-OF-SHARES-REDEEMED> (67,895,915)
<SHARES-REINVESTED> 3,190,887
<NET-CHANGE-IN-ASSETS> 33,860,890
<ACCUMULATED-NII-PRIOR> 1,411,865
<ACCUMULATED-GAINS-PRIOR> 2,208,375
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,367,665
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 582,870
<AVERAGE-NET-ASSETS> 118,927,000
<PER-SHARE-NAV-BEGIN> 14.84
<PER-SHARE-NII> 0.18
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<PER-SHARE-DIVIDEND> (0.10)
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<PER-SHARE-NAV-END> 15.25
<EXPENSE-RATIO> 1.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<ARTICLE> 6
<CIK> 0000887991
<NAME> PRUDENTIAL INSTITUTIONAL FUND: ACTIVE BALANCED FUND
<SERIES>
<NAME> PRUDENTIAL INSTITUTIONAL FUND: ACTIVE BALANCED FUND
<NUMBER> 004

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
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<PAID-IN-CAPITAL-COMMON> 116,938,824
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,114,453
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</TABLE>

<ARTICLE> 6
<CIK> 0000887991
<NAME> PRUDENTIAL INSTITUTIONAL FUND: BALANCED FUND
<SERIES>
<NAME> PRUDENTIAL INSTITUTIONAL FUND: BALANCED FUND
<NUMBER> 005

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<ARTICLE> 6
<CIK> 0000887991
<NAME> PRUDENTIAL INSTITUTIONAL FUND: INCOME FUND
<SERIES>
<NAME> PRUDENTIAL INSTITUTIONAL FUND: INCOME FUND
<NUMBER> 006

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
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<ACCUMULATED-NET-GAINS> (732,600)
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<NET-INVESTMENT-INCOME> 2,862,527
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<NUMBER-OF-SHARES-SOLD> 11,549,255
<NUMBER-OF-SHARES-REDEEMED> (6,473,780)
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<GROSS-EXPENSE> 224,226
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</TABLE>

<ARTICLE> 6
<CIK> 0000887991
<NAME> PRUDENTIAL INSTITUTIONAL FUND: MONEY MARKET FUND
<SERIES>
<NAME> PRUDENTIAL INSTITUTIONAL FUND: MONEY MARKET FUND
<NUMBER> 007

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
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<INVESTMENTS-AT-VALUE> 57,471,203
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<PAID-IN-CAPITAL-COMMON> 58,054,077
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<SHARES-COMMON-PRIOR> 46,330,732
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<NET-ASSETS> 58,054,077
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,128,647
<OTHER-INCOME> 0
<EXPENSES-NET> 314,680
<NET-INVESTMENT-INCOME> 2,813,967
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<NET-CHANGE-FROM-OPS> 2,813,967
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<DISTRIBUTIONS-OF-INCOME> (2,813,967)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 55,919,976
<NUMBER-OF-SHARES-REDEEMED> (47,010,598)
<SHARES-REINVESTED> 2,813,967
<NET-CHANGE-IN-ASSETS> 11,723,345
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 236,009
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 245,099
<AVERAGE-NET-ASSETS> 52,446,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
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<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
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<PER-SHARE-NAV-END> 1.00
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</TABLE>