As filed with the Securities and Exchange Commission on October 11, 1996
Registration Nos. 33-48066
811-6677
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
POST-EFFECTIVE AMENDMENT NO. 6 [ ]
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 7 [ ]
(CHECK APPROPRIATE BOX OR BOXES)
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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)
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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)
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COPIES TO:
CLIFFORD ALEXANDER, ESQ.
KIRKPATRICK & LOCKHART LLP
1800 MASSACHUSETTS AVENUE, N.W.
WASHINGTON, DC 20036-1800
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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)
[ ] on February 1, 1996 pursuant to paragraph (b)
[X] 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)
N-1A Item No. Location
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PART A
Item 1. Cover Page..........................Cover Page
Item 2. Synopsis............................Fund Highlights; Fund Expenses
Item 3. Condensed Financial Information.....Fund Expenses;Financial Highlights;
How the Fund Calculates Performance
Item 4. General Description of Registrant...Cover Page; Fund Highlights;
General Information; How the Fund
Invests
Item 5. Management of the Fund..............Fund Highlights; How the Fund is
Managed
Item 5A. Managements' Discussion of Fund
Performance........................Financial Highlights
Item 6. Capital Stock and Other Securities..Fund Highlights; How the Fund is
Managed; Taxes, Dividends and
Distributions; General Information
Item 7. Purchase of Securities..............How the Fund is Managed; How the
Fund Values its Shares;
Shareholder Guide
Item 8. Redemption or Repurchase............Shareholder Guide
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..Investment Objective and Policies;
Investment Restrictions
Item 14. Management of the Fund..............Trustees and Officers; Manager and
Advisers
Item 15. Control Persons and Principal
Holders of Securities..............Trustees and Officers
Item 16. Investment Advisory and Other
Services...........................Manager and Subadvisors;
Distributor; Custodian, Transfer
and Dividend Disbursing Agent
Item 17. Brokerage Allocation and
Other Practices....................Portfolio Transactions and
Brokerage
Item 18. Capital Stock and Other Securities..Purchase and Redemption of Fund
Shares
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered........Purchase and Redemption of Fund
Shares
Item 20. Tax Status..........................Taxes
Item 21. Underwriters........................Distributor
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.
<PAGE>
Prudential Active Balanced Fund
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PROSPECTUS DATED , 1996
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Prudential Active Balanced Fund (the Fund) is a series of Prudential Dryden
Fund, (formerly The Prudential Institutional Fund), (the Company), a
diversified, open-end, management investment company. The Fund's investment
objective is 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. There can be no assurance that the Fund's investment objective will
be achieved. See "How the Fund Invests--Investment Objective and Policies." The
Fund's address is 21 Prudential Plaza, 751 Broad Street, Newark, NJ 07102-3777,
and its telephone number is (800) 225-1852.
THE FUND RESERVES THE RIGHT TO BORROW MONEY FOR TEMPORARY, EXTRAORDINARY OR
EMERGENCY PURPOSES AND IN ORDER TO TAKE ADVANTAGE OF INVESTMENT OPPORTUNITIES,
WHICH MAY BE CONSIDERED SPECULATIVE DUE TO THE INCREASED COSTS AND EXPENSES
INVOLVED.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. Additional information about
the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated , 1996, which information is
incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Fund at the
address or telephone number noted above.
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Investors are advised to read this Prospectus and retain it for future ference.
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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>
FUND HIGHLIGHTS
The following summary is intended to highlight certain information
contained in this Prospectus and is qualified in its entirety by the more
detailed information appearing elsewhere herein.
WHAT IS PRUDENTIAL ACTIVE BALANCED FUND?
Prudential Active Balanced Fund is a mutual fund. A mutual fund pools the
resources of investors by selling its shares to the public and investing the
proceeds of such sale in a portfolio of securities designed to achieve its
investment objective. Technically, the Company is a diversified, open-end,
management investment company.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective 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. The Fund's investments will be
actively 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. There can be no assurance that the
Fund's investment objective will be achieved. See "How the Fund
Invests--Investment Objective and Policies" at page .
RISK FACTORS AND SPECIAL CHARACTERISTICS
With respect to the equity portion of the Fund, the Fund invests primarily
in common stocks of established companies with growth prospects which are, in
the opinion of the Fund's investment adviser, Jennison Associates Capital
Corp. (Jennison), underappreciated by the market. These may include companies
that are experiencing important changes in their business structure and
management philosophy. The ability of the investment adviser to successfully
identify these changes will be an important factor in the Fund's performance
record. See "How the Fund Invests--Investment Objective and Policies" at page .
The Fund may invest up to 15% of its total assets in equity securities and
20% of its total assets in debt securities of foreign issuers. Investing in
securities of foreign companies and countries involves certain risks and
considerations not typically associated with investments in domestic companies.
See "How the Fund Invests--Risk Factors and Special Considerations of Investing
in Foreign Securities" at page . The Fund may commit up to 20% of the value of
its total assets to investment techniques such as dollar rolls, forward rolls
and reverse repurchase agreements. See "How the Fund Invests--Investment
Objective and Policies--Forward Rolls, Dollar Rolls and Reverse Repurchase
Agreements" at page . [The Fund may invest up to 5% of its total assets in
non-investment grade debt securities or in unrated securities of comparable
quality. Non-investment grade securities are securities rated lower than Baa by
Moody's Investors Service, Inc. or BBB by Standard & Poor's Ratings Group and
are commonly known as "junk bonds." These securities are considered speculative
and are subject to a greater risk of loss of principal and interest than higher
rated securities as well as greater price volatility. See "How the Fund
Invests--Risk Factors Relating to Investing in Debt Securities Rated Below
Investment Grade (Junk Bonds)" at page .] The Fund also may engage in various
hedging and return enhancement strategies and invest in derivative securities.
See "How the Fund Invests--Hedging and Return Enhancement Strategies--Risks of
Hedging and Return Enhancement Strategies" at page .
2
<PAGE>
WHO MANAGES THE FUND?
Prudential Mutual Fund Management, LLC (PMF or the Manager), is the manager
of the Company and is compensated by the Fund for its services at an annual rate
of .65 of 1% of average daily net assets of the Fund. As of September 30, 1996,
PMF served as manager or administrator to 60 investment companies, including 38
mutual funds, with aggregate assets of approximately $52 billion. Jennison
Associates Capital Corp. (Jennison, the Subadviser or the investment adviser)
furnishes investment advisory services in connection with the management of the
Fund under a Subadvisory Agreement with PMF. See "How the Fund is
Managed--Manager" at page and "How the Fund is Managed--Subadviser" at page .
WHO DISTRIBUTES THE FUND'S SHARES?
Prudential Securities Incorporated (Prudential Securities or PSI), a major
securities underwriter and securities and commodities broker, acts as the
Distributor of the Fund's Class A, Class B, Class C and Class Z shares.
Prudential Securities is paid a distribution and service fee with respect to
Class A shares which is currently being charged at the annual rate of .25 of 1%
of the average daily net assets of the Class A shares and is paid a distribution
and service fee with respect to Class B and Class C shares at an annual rate of
1% of the average daily net assets of each of the Class B and Class C shares.
Prudential Securities incurs the expense of distributing the Fund's Class Z
shares under a Distribution Agreement with the Company, none of which is
reimbursed or paid for by the Fund. See "How the Fund is Managed--Distributor"at
page .
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment is $1,000 per class for Class A and Class B
shares and $5,000 for Class C shares. There is no minimum initial investment
requirement for investors who qualify to purchase Class Z shares. The minimum
subsequent investment is $100 for all classes, except for Class Z shares for
which there is no such minimum. There is no minimum investment requirement for
certain retirement and employee savings plans or custodial accounts for the
benefit of minors. For purchases made through the Automatic Savings Accumulation
Plan, the minimum initial and subsequent investment is $50. See "Shareholder
Guide--How to Buy Shares of the Fund" at page and "Shareholder
Guide--Shareholder Services" at page .
HOW DO I PURCHASE SHARES?
You may purchase shares of the Fund through Prudential Securities, Pruco
Securities Corporation (Prusec) or directly from the Fund, through its transfer
agent, Prudential Mutual Fund Services, Inc. (PMFS or the Transfer Agent), at
the net asset value per share (NAV) next determined after receipt of your
purchase order by the Transfer Agent or Prudential Securities plus a sales
charge which may be imposed either (i) at the time of purchase (Class A shares)
or(ii) on a deferred basis (Class B or Class C shares). Class Z shares are
offered to a limited group of investors at net asset value without any sales
charge. [Participants in programs sponsored by Prudential Retirement Services
should contact their client representative for more information about Class Z
shares.] See "How the Fund Values its Shares" at page and "Shareholder
Guide--How to Buy Shares of the Fund" at page .
WHAT ARE MY PURCHASE ALTERNATIVES?
The Fund offers four classes of shares:
o Class A Shares: Sold with an initial sales charge of up to 5% of the
offering price.
3
<PAGE>
o Class B Shares: Sold without an initial sales charge but are subject to a
contingent deferred sales charge or CDSC (declining from 5%
to zero of the lower of the amount invested or the
redemption proceeds) which will be imposed on certain
redemptions made within six years of purchase. Although
Class B shares are subject to higher ongoing
distribution-related expenses than Class A shares, Class B
shares will automatically convert to Class A shares (which
are subject to lower ongoing distribution-related expenses)
approximately seven years after purchase.
o Class C Shares: Sold without an initial sales chargebut, for one year after
purchase, are subject to a CDSC of 1% on redemptions. Like
Class B shares, Class C shares are subject to higher ongoing
distribution-related expenses than Class A shares but do not
convert to another class.
o Class Z Shares: Sold without an initial or contingent deferred sales charge
to a limited group of investors. Class Z shares are not
subject to any ongoing service or distribution-related
expenses.
See "Shareholder Guide--Alternative Purchase Plan" at page .
HOW DO I SELL MY SHARES?
You may redeem your shares at any time at the NAV next determined after
Prudential Securities or the Transfer Agent receives your sell order. However,
the proceeds of redemptions of Class B and Class C shares may be subject to a
CDSC. Participants in programs sponsored by Prudential Retirement Services
should contact their client representative for more information about selling
their Class Z shares. See "Shareholder Guide--How to Sell Your Shares" at page .
HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?
The Fund expects to pay dividends of net investment income, if any, and
distributions of any net capital gains at least annually. Dividends and
distributions will be automatically reinvested in additional shares of the Fund
at NAV without a sales charge unless you request that they be paid to you in
cash. See "Taxes, Dividends and Distributions" at page .
4
<PAGE>
FUND EXPENSES
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES+
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) ...................... 5% None None None
Maximum Sales Load or Deferred Sales Load
Imposed on Reinvested Dividends .......................... None None None None
Deferred Sales Load (as a percentage of
original purchase price or redemption proceeds,
whichever is lower) .................................... None 5% during the first 1% on redemptions None
year, decreasing by made within one
1% annually to 1% year of purchase
to 1% in the fifth
and sixt years and
0% the seventh year*
Redemption Fees ............................................ None None None None
Exchange Fee ............................................... None None None None
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
ANNUAL FUND OPERATING EXPENSES -------------- -------------- -------------- --------------
(as a percentage of average net assets)
Management Fees ............................................ .65% .65% .65% .65%
12b-1 Fees (After Reduction) ............................... .25%++ 1.00% 1.00% None
Other Expenses ............................................. .24% .24% .24% .24%
---- ---- ---- ----
Total Fund Operating Expenses
(After Reduction) ........................................ 1.14% 1.89% 1.89% .89%
==== ==== ==== ====
<CAPTION>
1 3 5 10
EXAMPLE YEAR YEARS YEARS YEARS
---- ----- ----- -----
You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return
and (2) redemption at the end of each time period:
<S> <C> <C> <C> <C>
Class A ...................................................................................... $61 $84 $110 $182
Class B ...................................................................................... $69 $89 $112 $192
Class C ...................................................................................... $29 $59 $102 $221
Class Z ...................................................................................... $ 9 $28 $ 49 $110
You would pay the following expenses on the same investment, assuming no redemption:
Class A ...................................................................................... $61 $84 $110 $182
Class B ...................................................................................... $19 $59 $102 $192
Class C ...................................................................................... $19 $59 $102 $221
Class Z ...................................................................................... $ 9 $28 $ 49 $110
The above example is based on restated data for the Fund's fiscal year
ended September 30, 1996 which would be expected to have been incurred if the
Fund operated in accordance with the new fee and operating expense arrangements
which will go into effect subsequent to October 30, 1996. The example should not
be considered a representation of past or future expenses. Actual expenses may
be greater or less than those shown.
The purpose of this table is to assist investors in understanding the various
types of costs and expenses that an investor in the Fund will bear, whether
directly or indirectly. For more complete descriptions of the various costs and
expenses, see "How the Fund is Managed." "Other Expenses" includes estimated
operating expenses of the Fund for the fiscal year ended September 30, 1996,
such as Trustees' and professional fees, registration fees, reports to
shareholders and transfer agency and custodian (domestic and foreign) fees (but
excludes foreign withholding taxes).
- ---------------
* Class B shares will automatically convert to Class A shares
approximately seven years after purchase. See "Shareholder Guide--
Conversion Feature--Class B Shares."
** Prior to October 30, 1996, the Fund had one class of whares which became
Class Z shares effective October 30, 1996.
+ Pursuant to rules of the National Association of Securities Dealers,
Inc., the aggregate initial sales charges, deferred sales charges and
asset-based sales charges (12b-1 fees) on shares of the Fund may not
exceed 6.25% of total gross sales, subject to certain exclusions. This
6.25% limitation is imposed on each class of the Fund rather than on a
per shareholder basis. Therefore, long-term Class B and Class C
shareholders of the Fund may pay more in total sales charges than the
economic equivalent of 6.25% of such shareholders' investment in such
shares. See "How the Fund is Managed--Distributor."
++ Although the Class A Distribution and Service Plan provides that the
Fund may pay a distribution fee of up to .30 of 1% per annum of the
average daily net assets of the Class A shares, the Distributor has
agreed to limit its distribution fees with respect to Class A shares of
the Fund so as not to exceed .25 of 1% of the average daily net assets
of the Class A shares for the fiscal year ending September 30, 1997. See
"How the Fund is Managed--Distributor." Total Fund Operating Expenses
would be 1.19% absent this limitation with respect to Class A shares.
</TABLE>
5
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
(CLASS Z SHARES)
The following financial highlights have been audited by Deloitte & Touche
LLP, independent accountants, whose report thereon was unqualified. This
information should be read in conjunction with the financial statements and
notes thereto, which appear in the Statement of Additional Information. The
financial highlights contain selected data for a Class Z share of beneficial
interest outstanding, total return, ratios to average net assets and other
supplemental data for the period indicated. The information is based on data
contained in the financial statements. Further performance information is
contained in the annual report, which may be obtained without charge. See
"Shareholder Guide -- Shareholder Services -- Reports to Shareholders." During
these periods, no Class A, B or C shares were outstanding
<TABLE>
<CAPTION>
January 4,
Six months Year Ended 1993(A)
ended September 30, through
March 31, -------------------- September
1996 1995 1994 30, 1993
---------- -------- ------- ---------
(unaudited)
PER SHARE OPERATING PERFORMANCE:
<S> <C> <C> <C> <C>
Net asset value, beginning of period ......................... $ 12.46 $ 10.92 $ 11.05 $ 10.00
-------- -------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(b) ..................................... .19 .33 .24 .21
Net realized and unrealized gain (loss) on investment
and foreign currency transactions .......................... .48 1.54 (.12) .84
-------- -------- ------- -------
Total from investment operations ......................... .67 1.87 .12 1.05
-------- -------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income ......................... (.37) (.29) (.14) --
Distributions from net realized income ....................... (.18) (.04) (.11) --
-------- -------- ------- -------
Total distributions ........................................ (.55) (.33) (.25) --
-------- -------- ------- -------
Net asset value, end of period ............................... $ 12.58 $ 12.46 $ 10.92 $ 11.05
-------- -------- ------- -------
TOTAL RETURN(D): ............................................. 5.51% 17.66% 1.07% 10.50%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) .............................. $142,688 $133,352 $81,176 $38,786
Average net assets (000) ..................................... $137,861 $104,821 $58,992 $12,815
Ratios to average net assets(b):
Expenses ................................................... 1.00%(c) 1.00% 1.00% 1.00%(c)
Net investment income ...................................... 3.07%(c) 3.53% 3.06% 2.68%(c)
Portfolio turnover rate ...................................... 21% 30% 40% 47%
Average commission rate per share ........................... $ 0.0650 N/A N/A N/A
<FN>
- -----------
(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.
</FN>
</TABLE>
6
<PAGE>
HOW THE FUND INVESTS
INVESTMENT OBJECTIVE AND POLICIES
THE FUND'S INVESTMENT OBJECTIVE 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. THERE CAN BE NO ASSURANCE THAT
THE FUND'S OBJECTIVE WILL BE ACHIEVED. See "Investment Objectives and Policies"
in the Statement of Additional Information.
Jennison, the Subadviser 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.
The Active Balanced Fund's investments will be actively 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 Investors Service, Inc. (Moody's) or
Standard & Poors Ratings Group (S&P Ratings) 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 nationally
recognized statistical ratings organization (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
mortgage-backed securities; (iv) in custodial receipts and asset-backed
securities; and (v) in obligations issued or guaranteed by the U.S. Government,
its agencies and instrumentalities.
In order to invest uncommitted cash balances, to maintain liquidity to meet
redemptions, or for hedging or incidental return enhancement, the Fund may: (i)
enter into repurchase agreements, when-issued, delayed delivery and forward
commitment transactions; (ii) lend its portfolio securities; (iii) purchase and
sell put and call options on securities, stock indices and interest rate
indices; (iv) purchase and sell futures contracts on stock indices and interest
rate indices and options thereon and (v) purchase and sell futures contracts on
securities.
The Fund also may: (i) purchase and sell currency spot contracts; (ii)
purchase and sell currency futures contracts and currency forward contracts; and
(iii) purchase and sell put and call options on currencies and on foreign
currency futures contracts in each case to attempt to reduce risks associated
with currency fluctuations.
The Fund reserves the right as a defensive measure to hold temporarily
other types of securities without limit, including high quality commercial
paper, bankers' acceptances, non-convertible debt securities (corporate and
government) or government and high quality money market securities of U.S. and
non-U.S. issuers, or cash (foreign currencies or U.S. dollars), in such
proportions as, in the opinion of Jennison, prevailing market, economic or
political conditions warrant. The Fund may also temporarily hold cash and invest
in high quality foreign or domestic money market instruments pending investment
of proceeds from new sales of Fund shares or to meet ordinary daily cash needs.
See "Other Investments and Policies" below.
7
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE IS A FUNDAMENTAL POLICY AND THEREFORE MAY
NOT BE CHANGED WITHOUT THE APPROVAL OF THE HOLDERS OF A MAJORITY OF THE FUND'S
OUTSTANDING VOTING SECURITIES, AS DEFINED IN THE INVESTMENT COMPANY ACT OF 1940
(THE INVESTMENT COMPANY ACT). INVESTMENT POLICIES THAT ARE NOT FUNDAMENTAL MAY
BE MODIFIED BY THE BOARD OF TRUSTEES.
U.S. GOVERNMENT SECURITIES
The Fund may invest in securities issued or guaranteed by the U.S. Treasury
or by an agency or instrumentality of the U.S. Government. Not all U.S.
Government securities are backed by the full faith and credit of the United
States. Some are supported only by the credit of the issuing agency. See
"Investment Objectives and Policies--Other Investments and Policies--U.S.
Government Securities" in the Statement of Additional Information.
CORPORATE AND OTHER DEBT OBLIGATIONS
The Fund may invest in investment grade corporate and other debt
obligations of domestic and foreign issuers, including convertible securities
and money market instruments. See "Money Market Instruments" below. Bonds and
other debt securities are used by issuers to borrow money from investors. The
issuer pays the investor a fixed or variable rate of interest and must repay the
amount borrowed at maturity. Investment grade debt securities are rated within
the four highest quality grades as determined by Moody's (currently Aaa, Aa, A
and Baa for bonds), or S&P Ratings (currently AAA, AA, A and BBB for bonds), or
by another NRSRO or, in unrated securities which are of equivalent quality in
the opinion of Jennison. Securities rated Baa by Moody's, although considered to
be investment grade, lack outstanding investment characteristics and, in fact,
have speculative characteristics. Changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make interest
and principal payments than is the case with higher grade bonds. Such lower
rated securities are subject to a greater risk of loss of principal and
interest.
NON-INVESTMENT GRADE FIXED INCOME SECURITIES
Up to 5% of the total assets of the Fund may be invested in non-investment
grade fixed income securities, including convertible securities. See
"Convertible Securities, Warrants and Rights" below. Non-investment grade
fixed-income securities (those rated below Baa by Moody's or BBB by S&P Ratings
or comparably rated by another NRSRO or unrated securities determined by
Jennison to be of comparable quality) have speculative characteristics
(including the possibility of default or bankruptcy of the issuers of such
securities, market price volatility based upon interest rate sensitivity,
questionable creditworthiness and relative liquidity of the secondary trading
market). Because these securities have been found to be more sensitive to
adverse economic changes or individual corporate developments and less sensitive
to interest rate changes than higher-rated investments, an economic downturn
could disrupt the market for these securities and adversely affect the value of
these securities and the ability of issuers to repay principal and interest. See
"Risk Factors Relating to Investing in Debt Securities Rated Below Investment
Grade (Junk Bonds)" below.
EQUITY-RELATED SECURITIES
The Fund may invest in equity-related securities. Equity-related securities
are common stocks, preferred stocks, rights, warrants and debt securities or
preferred stocks which are convertible or exchangeable for common stocks or
preferred stocks. See "Convertible Securities, Warrants and Rights" below.
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 securities 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. Convertible securities are
senior to common
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stocks in a corporation's capital structure, but are usually subordinated to
similar nonconvertible securities. While providing a fixed income stream
(generally higher in yield than the income derivable from a common stock but
lower than that afforded by a similar nonconvertible security), a convertible
security also affords an investor the opportunity, through its conversion
feature, to participate in the capital appreciation dependent upon a market
price advance in the convertible security's underlying common stock.
In general, the market value of a convertible security is at least the
higher of its "investment value" (i.e., its value as a fixed income security) or
its "conversion value" (i.e., its value upon conversion into its underlying
common stock). As a fixed income security, a convertible security tends to
increase in market value when interest rates decline and tends to decrease in
value when interest rates rise. However, the price of a convertible security is
also influenced by the market value of the security's underlying stock. The
price of a convertible security tends to increase as the market value of the
underlying stock rises, whereas it tends to decrease as the market value of the
underlying stock declines. While no securities investment is without some risk,
investments in convertible securities generally entail less risk than
investments in the common stock of the same issuer. See "Risk Factors Relating
to Investing in Debt Securities Rated Below Investment Grade (Junk Bonds)"
below.
In recent years, convertible securities have been developed which combine
higher or lower current income with options and other features. The Fund may
invest in these types of convertible securities.
SECURITIES OF FOREIGN ISSUERS
The Fund may invest a portion of its assets in fixed income securities and
equity securities of foreign issuers (denominated in either U.S. or foreign
currency). The Fund may purchase american depository receipts (ADRs), which are
U.S. dollar-denominated certificates issued by a 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 U.S. 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.
FORWARD ROLLS, DOLLAR ROLLS AND REVERSE REPURCHASE AGREEMENTS
The Fund may commit up to 20% of the value of its total assets to
investment techniques such as dollar rolls, forward rolls and reverse repurchase
agreements. A forward roll is a transaction in which the 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.
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Reverse repurchase agreements, forward rolls and dollar rolls involve the
risk that the market value of the securities purchased by the Fund with the
proceeds of the initial sale may decline below the price of the securities the
Fund has sold but is obligated to repurchase under the agreement. In the event
the buyer of securities under a reverse repurchase agreement, forward roll or
dollar roll files for bankruptcy or becomes insolvent, the Fund's use of the
proceeds of the agreement may be restricted pending a determination by the other
party, or its trustee or receiver, whether to enforce the Fund's obligations to
repurchase the securities. The staff of the Securities and Exchange Commission
(SEC) has taken the position that reverse repurchase agreements, forward rolls
and dollar rolls are to be treated as borrowings. The Company expects that under
normal conditions most of the borrowings of the Fund will consist of such
investment techniques rather than bank borrowings. See "Other Investments and
Policies--Borrowing" below.
CUSTODIAL RECEIPTS
The 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, 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 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 (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
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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 Fund may purchase asset-backed securities that represent either
fractional interests or participations in pools of leases, retail installment
loans, or revolving credit receivables held by a trust or limited purpose
finance subsidiary. Such asset-backed securities may be secured by the
underlying assets (such as certificates for automobile receivables or may be
unsecured (such as credit card receivable securities). Depending on the
structure of the asset-backed security, monthly or quarterly payments of
principal and interest or interest only are passed-through or paid through to
certificate holders. Asset-backed securities may be guaranteed up to certain
amounts by guarantees, insurance, or letters of credit issued by a financial
institution affiliated or unaffiliated with the originator of the pool.
Underlying automobile sales contracts and credit card receivables are, of
course, subject to prepayment (although to a lesser degree than mortgage
pass-through securities), which may shorten the securities' weighted average
life and reduce their overall return to certificate holders. On the other hand,
asset-backed securities may present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities often do not have the
benefit of a security interest in the related collateral. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, some of which
may reduce the ability to obtain full payment. In the case of automobile
receivables, the security interests in the underlying automobiles are 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 the 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
the 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 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
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sponsor from third parties, through various means of structuring the transaction
or through a combination of such approaches. The Fund will not pay any fees for
credit support, although the existence of credit support may increase the price
of a security.
LIQUIDITY PUTS
The 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."
MONEY MARKET INSTRUMENTS
The Fund may invest in high quality money market instruments, including
commercial paper of a U.S. or non-U.S. company, foreign government securities,
certificates of deposit, bankers' acceptances and time deposits of domestic and
foreign banks, and obligations issued or guaranteed by the U.S. Government, its
agencies and instrumentalities. These obligations will be U.S. dollar
denominated or denominated in a foreign currency. Money market instruments
typically have a maturity of one year or less as measured from the date of
purchase. The Fund may invest in money market instruments without limit for
temporary defensive and cash management purposes. To the extent the Fund
otherwise invests in money market instruments, it is subject to the limitations
described above.
OTHER INVESTMENTS AND POLICIES
BORROWING
The Fund may borrow an amount equal to no more than 20% of the value of its
total assets (calculated when the loan is made) from banks or through forward
rolls, dollar rolls or reverse repurchase agreements for temporary,
extraordinary or emergency purposes or for the clearance of transactions. The
Fund may pledge up to 20% of its total assets to secure these borrowings. If the
Fund's asset coverage for borrowings falls below 300%, the Fund will take prompt
action to reduce its borrowings. The Fund will not purchase portfolio securities
when borrowings exceed 5% of the value of its total assets. See "Investment
Objectives and Policies--Other Investments and Policies--Borrowing" in the
Statement of Additional Information.
ILLIQUID SECURITIES
The Fund may hold up to 10% of its net assets in illiquid securities,
including 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 investment adviser will monitor the liquidity of such restricted securities
under the supervision of the Trustees. 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 limited time, uninterested in
purchasing Rule 144A securities. The Fund intends to comply with any applicable
state blue sky laws restricting the Fund's investments in illiquid securities.
See "Investment Restrictions" in the Statement of Additional Information.
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
over-the-counter (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 OTC option. The
exercise of such an option would ordinarily 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 securities used as "cover" as
liquid. The Fund will also treat non-U.S. Government IOs and POs as
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illiquid so long as the staff of the SEC maintains its position that such
securities are illiquid. See "Investment Objectives and Policies--Illiquid
Securities" in the Statement of Additional Information.]
REPURCHASE AGREEMENTS
The Fund will enter into repurchase agreements whereby the seller of the
security agrees to repurchase that security from the Fund at a mutually
agreed-upon time and price. The repurchase date is usually within a day or two
of the original purchase, although it may extend over a number of months. The
Fund's repurchase agreements will at all times be fully collateralized in an
amount at least equal to the resale price. In the event of a default or
bankruptcy by a seller, the Fund will promptly seek to liquidate the collateral.
To the extent that the proceeds from any sale of such collateral upon a default
in the obligation to repurchase are less than the repurchase price, the Fund
will suffer a loss. The Fund may participate in a joint repurchase account
managed by The Prudential Investment Corporation (PIC). See "Investment
Objectives and Policies--Other Investments and Policies--Repurchase Agreements"
in the Statement of Additional Information.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Fund may purchase or sell securities (including equity securities) on a
when-issued or delayed delivery basis. When-issued or delayed delivery
transactions arise when securities are purchased or sold by the Fund with
payment and delivery taking place a month or more in the future in order to
secure what is considered to be an advantageous price and/or yield to the Fund
at the time of entering into the transaction. While the Fund will only purchase
securities on a when-issued or delayed delivery basis with the intention of
acquiring the securities, the Fund may sell the securities before the settlement
date, if it is deemed advisable. At the time the Fund makes the commitment to
purchase securities on a when-issued or delayed delivery basis, the Fund will
record the transaction and thereafter reflect the value, each day, of such
security in determining the net asset value of the Fund. At the time of delivery
of the securities, the value may be more or less than the purchase price. The
Fund's Custodian will maintain, in a segregated account of the Fund, cash,
equity securities or other liquid unencumbered assets, marked to market daily
having a value equal to or greater than the Fund's purchase commitments. Subject
to this requirement, the Fund may purchase securities on such basis without
limit. See "Investment Objectives and Policies--Other Investments and
Policies--When-Issued and Delayed Delivery Securities" in the Statement of
Additional Information.
SECURITIES LENDING
The Fund may lend its portfolio securities to brokers or dealers, banks or
other recognized institutional borrowers of securities, provided that the
borrower at all times maintains cash or equivalent collateral or secures a
letter of credit in favor of the Fund in an amount equal to at least 100%,
determined daily, of the market value of the securities loaned which are
maintained in a segregated account pursuant to applicable regulations. During
the time portfolio 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 the cash collateral and earn additional income, or it may
receive an agreed-upon amount of interest income from the borrower. As with any
extensions of credit, there are risks of delay in recovery and in some cases
loss of rights in the collateral should the borrower of the securities fail
financially. As a matter of fundamental policy, the Fund cannot lend more than
30% of the value of its total assets. See "Investment Objectives and
Policies--Other Investments and Policies--Securities Lending" in the Statement
of Additional Information. The Fund may pay reasonable administration and
custodial fees in connection with a loan.
SEGREGATED ACCOUNTS. The Fund will establish a segregated account with its
Custodian, State Street Bank and Trust Company, in which it will maintain cash,
U.S. Government securities, equity securities or other liquid, unencumbered
assets 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,
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futures contracts, written options and options on futures contracts (unless
otherwise covered). The assets deposited in the segregated account will be
marked-to-market daily.
RISK FACTORS AND SPECIAL CONSIDERATIONS OF INVESTING IN FOREIGN SECURITIES
FOREIGN SECURITIES INVOLVE CERTAIN RISKS, WHICH SHOULD BE CONSIDERED
CAREFULLY BY AN INVESTOR IN THE FUND. THESE RISKS INCLUDE POLITICAL OR ECONOMIC
INSTABILITY IN THE COUNTRY OF THE ISSUER, 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 instrumentalities or agencies. 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. There is generally less
government regulation of securities exchanges, brokers and listed companies
abroad than in the United States and there is a possibility of expropriation,
confiscatory taxation or diplomatic developments which could affect investment.
ADDITIONAL COSTS COULD BE INCURRED IN CONNECTION WITH THE FUND'S
INTERNATIONAL INVESTMENT ACTIVITIES. Foreign brokerage commissions are generally
higher than U.S. brokerage commissions. Increased custodian costsas well as
administrative difficulties (such as the applicability of foreign laws to
foreign custodians in various circumstances) may be associated with the
maintenance of assets in foreign jurisdictions.
If the security is denominated in a foreign currency, it will be affected
by changes in currency exchange rates and in exchange control regulations, and
costs will be incurred in connection with conversions between currencies. A
change in the value of any such currency against the U.S. dollar will result in
a corresponding change in the U.S. dollar value of the Fund's securities
denominated in that currency. Such changes also will affect the Fund's income
and distributions to shareholders. In addition, although the Fund will receive
income in such currencies, the Fund will be required to compute and distribute
its income in U.S. dollars. Therefore, if the exchange rate for any such
currency declines after the Fund's income has been accrued and translated into
U.S. dollars, the Fund could be required to liquidate portfolio securities to
make such distributions, particularly in instances in which the amount of income
the Fund is required to distribute is not immediately reduced by the decline in
such currency. Similarly, if an exchange rate declines between the time the Fund
incurs expenses in U.S. dollars and the time such expenses are paid, the amount
of such currency required to be converted into U.S. dollars in order to pay such
expenses in U.S. dollars will be greater than the equivalent amount in any such
currency of such expenses at the time they were incurred. The Fund may, but need
not, enter into forward foreign currency exchange contracts, options on foreign
currencies and futures contracts on foreign currencies and related options, for
hedging purposes, including: locking-in the U.S. dollar price of the purchase or
sale of securities denominated in a foreign currency; locking-in the U.S. dollar
equivalent of dividends to be paid on such securities which are held by the
Fund; and protecting the U.S. dollar value of such securities which are held by
the Fund.
[SHAREHOLDERS SHOULD BE AWARE THAT INVESTING IN THE EQUITY MARKETS OF
DEVELOPING COUNTRIES INVOLVES EXPOSURE TO ECONOMIES THAT ARE GENERALLY LESS
DIVERSE AND MATURE, AND TO POLITICAL SYSTEMS WHICH CAN BE EXPECTED TO HAVE LESS
STABILITY THAN THOSE OF DEVELOPED COUNTRIES. HISTORICAL EXPERIENCE INDICATES
THAT THE MARKETS OF DEVELOPING COUNTRIES HAVE BEEN MORE VOLATILE THAN THE
MARKETS OF DEVELOPED COUNTRIES. THE RISKS ASSOCIATED WITH INVESTMENTS IN FOREIGN
SECURITIES, DESCRIBED ABOVE, MAY BE GREATER WITH RESPECT TO INVESTMENTS IN
DEVELOPING COUNTRIES.]
RISK FACTORS RELATING TO INVESTING IN DEBT SECURITIES RATED BELOW INVESTMENT
GRADE (JUNK BONDS)
The Fund may invest up to 5% of its total assets in non-investment grade
debt securities, including convertible securities. Fixed income securities are
subject to the risk of an issuer's inability to meet principal and interest
payments on the obligations (credit risk) and may also be subject to price
volatility due to such factors as interest rate sensitivity, market perception
of the creditworthiness of the issuer and general market liquidity (market
risk). Lower rated or unrated (i.e., high yield or high risk) securities
(commonly referred to as junk bonds) are more likely to react to
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developments affecting market and credit risk than are more highly rated
securities, which react primarily to movements in the general level of interest
rates. The Subadviser considers both credit risk and market risk in making
investment decisions for the Fund.
Under adverse economic conditions, there is a risk that highly leveraged
issuers may be unable to service their debt obligations or to repay their
obligations upon maturity. In addition, the secondary market for high yield
securities, which is concentrated in relatively few market makers, may not be as
liquid as the secondary market for more highly rated securities and, from time
to time, it may be more difficult to value high yield securities than more
highly rated securities. Under adverse market or economic conditions, the
secondary market for high yield securities could contract further, independent
of any specific adverse changes in the condition of a particular issuer. As a
result, the Subadviser could find it more difficult to sell these securities or
may be able to sell the securities only at prices lower than if such securities
were widely traded. Prices realized upon the sale of such lower rated or unrated
securities, under these circumstances, may be less than the prices in
calculating the Fund's net asset value.
Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, the Fund may
have to replace the security with a lower yielding security, resulting in a
decreased return for investors. If the Fund experiences unexpected net
redemptions, it may be forced to sell its higher rated securities, resulting in
a decline in the overall credit quality of the debt portion of its portfolio and
increasing the exposure of the Fund to the risks of high yield securities.
From time to time, federal laws have been enacted which have required the
divestiture by companies of their investments in high yield bonds and have
limited the deductibility of interest by certain corporate issuers of high yield
bonds. These types of laws could adversely affect the Fund's net asset value and
investment practices, the secondary market for high yield securities, the
financial condition of issuers of these securities and the value of outstanding
high yield securities. There is currently no legislation pending that would
adversely impact the market for junk bonds. However, there can be no assurance
that such legislation will not be proposed or enacted in the future.
HEDGING AND RETURN ENHANCEMENT STRATEGIES
THE FUND MAY ALSO ENGAGE IN VARIOUS PORTFOLIO STRATEGIES TO REDUCE CERTAIN
RISKS OF ITS INVESTMENTS [AND TO ATTEMPT TO ENHANCE RETURN.] These strategies
currently include the use of derivatives, such as options, forward currency
exchange contracts and futures contracts and options thereon. The Fund's ability
to use these strategies may be limited by market conditions, regulatory limits
and tax considerations and there can be no assurance that any of these
strategies will succeed. See "Investment Objectives and Policies" and "Taxes" in
the Statement of Additional Information. Jennison does not intend to buy all of
these instruments or use all of these strategies to the full extent permitted
unless it believes that doing so will help the Fund achieve its objective. New
financial products and risk management techniques continue to be developed and
the Fund may use these new investments and techniques to the extent consistent
with its investment objective and policies.
OPTIONS TRANSACTIONS
THE FUND MAY PURCHASE AND WRITE (I.E., 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. THESE OPTIONS ARE TRADED ON U.S. OR
FOREIGN SECURITIES EXCHANGES OR IN THE OVER-THE-COUNTER MARKET TO HEDGE ITS
PORTFOLIO. The Fund may write covered put and call options to generate
additional income through the receipt of premiums, purchase put options in an
effort to protect the value of securities (or currencies) that it owns against a
decline in market value and purchase call options in an effort to protect
against an increase in the price of securities (or currencies) it intends to
purchase. The Fund may also purchase put and call options to offset previously
written put and call options of the same series. See "Investment Objectives and
Policies--Other Investments and Policies--Options on Securities and Securities
Indices" in the Statement of Additional Information.
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A CALL OPTION GIVES THE PURCHASER, IN EXCHANGE FOR A PREMIUM PAID, THE
RIGHT FOR A SPECIFIED PERIOD OF TIME TO PURCHASE THE SECURITIES, SECURITIES IN
THE INDEX OR CURRENCY SUBJECT TO THE OPTION AT A SPECIFIED PRICE (THE EXERCISE
PRICE OR STRIKE PRICE). The writer of a call option, in return for the premium,
has the obligation, upon exercise of the option, to deliver, depending upon the
terms of the option contract, the underlying securities or a specified amount of
cash to the purchaser upon receipt of the exercise price. When the Fund writes a
call option, the Fund gives up the potential for gain on the underlying
securities or currency in excess of the exercise price of the option during the
period that the option is open.
A PUT OPTION GIVES THE PURCHASER, IN RETURN FOR A PREMIUM, THE RIGHT, FOR A
SPECIFIED PERIOD OF TIME, TO SELL THE SECURITIES OR CURRENCY SUBJECT TO THE
OPTION TO THE WRITER OF THE PUT AT THE SPECIFIED EXERCISE PRICE. The writer of
the put option, in return for the premium, has the obligation, upon exercise of
the option, to acquire the securities or currency underlying the option at the
exercise price. The Fund might, therefore, be obligated to purchase the
underlying securities or currency for more than their current market price.
THE FUND WILL WRITE ONLY "COVERED" OPTIONS. An option is covered if, so
long as the Fund is obligated under the option, it owns an offsetting position
in the underlying security or currency or maintains cash, equity securities or
other liquid, unencumbered assets, marked to market daily with a value
sufficient to cover its obligations. See "Investment Objectives and
Policies--Other Investments and Policies--Options on Securities and Securities
Indices" in the Statement of Additional Information. There is no limitation on
the amount of call options the Fund may write. [The Fund has undertaken with
certain state securities commissions that, so long as shares of the Fund are
registered in those states, it will not (a) write puts having aggregate exercise
prices greater than 25% of total net assets, (b) invest more than 10% of its
total assets in puts and calls, or (c) purchase (i) put options on stocks not
held in its portfolio, (ii) put options on stock indices or foreign currencies
or (iii) call options on stock, stock indices or foreign currencies if, after
any such purchase, the aggregate premiums paid for such options would exceed 10%
of the Fund's total assets; provided, however, that the Fund may purchase put
options on stocks held by the Fund if after such purchase the aggregate premiums
paid for such options do not exceed 20% of the Fund's total assets. The
aggregate value of the securities underlying call options and the obligations
underlying put options (as of the date the options are sold) will not exceed 25%
of the Fund's net assets.]
[The 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 the 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. The 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. The 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.
The 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. When purchasing or selling securities index options, the Fund is
subject to the risk that the value of its portfolio securities may not change as
much as or more than the index because the Fund's investments generally will not
match the composition of the index. See "Investment Objectives and
Policies--Other Investments and Policies--Options on Securities and Securities
Indices" and "Taxes" in the Statement of Additional Information.]
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FUTURES CONTRACTS AND OPTIONS THEREON
THE FUND MAY PURCHASE AND SELL FINANCIAL FUTURES CONTRACTS AND OPTIONS
THEREON WHICH ARE TRADED ON A COMMODITIES EXCHANGE OR BOARD OF TRADE TO REDUCE
CERTAIN RISKS OF ITS INVESTMENTS AND TO ATTEMPT TO ENHANCE RETURN IN ACCORDANCE
WITH REGULATIONS OF THE COMMODITY FUTURES TRADING COMMISSION (CFTC). These
futures contracts and related options will be on securities, securities indices,
interest rate indices and foreign currencies. A futures contract is an agreement
to purchase or sell an agreed amount of securities or currencies at a set price
for delivery in the future. A stock index futures contract is an agreement to
purchase or sell cash equal to a specific dollar amount times the difference
between the value of a specific stock index at the close of the last trading day
of the contract and the price at which the agreement is made. No physical
delivery of the underlying stocks in the index is made. The Fund may purchase
and sell futures contracts or related options as a hedge against changes in
market conditions.
The Fund may not purchase or sell futures contracts and related options to
attempt to enhance return, if immediately thereafter the sum of the amount of
initial margin deposits on the Fund's existing futures and options on futures
and premiums paid for such related options would exceed 5% of the liquidation
value of the Fund's total assets. The Fund may purchase and sell futures
contracts and related options, without limitation, for bona fide hedging
purposes in accordance with regulations of the CFTC (i.e., to reduce certain
risks of its investments). The value of all futures contracts sold will not
exceed the total market value of the Fund's portfolio.
Futures contracts and related options are generally subject to segregation
and coverage requirements of the CFTC or the SEC. If the Fund does not hold the
security or currency underlying the futures contract, the Fund will be required
to segregate on an ongoing basis with its Custodian cash, U.S. Government
securities, equity securities or other liquid, unencumbered assets, marked to
market daily, in an amount at least equal to the Fund's obligations with respect
to such futures contracts.
THE FUND'S SUCCESSFUL USE OF FUTURES CONTRACTS AND RELATED OPTIONS DEPENDS
UPON THE INVESTMENT ADVISER'S ABILITY TO PREDICT THE DIRECTION OF THE MARKET AND
IS SUBJECT TO VARIOUS ADDITIONAL RISKS. The correlation between movements in the
price of a futures contract and the movements in the index or price of the
currencies underlying the futures contract is imperfect and there is a risk that
the value of the indices or currencies underlying the futures contract may
increase or decrease at a greater rate than the related futures contracts
resulting in losses to the Fund. Certain futures exchanges or boards of trade
have established daily limits on the amount that the price of futures contracts
or related options may vary, either up or down, from the previous day's
settlement price. These daily limits may restrict the Fund's ability to purchase
or sell certain futures contracts or related options on any particular day.
The Fund's ability to enter into futures contracts and options thereon is
limited by the requirements of the Internal Revenue Code for qualification as a
regulated investment company. See "Investment Objectives and Policies" and
"Taxes" in the Statement of Additional Information.
FORWARD CURRENCY EXCHANGE CONTRACTS
THE FUND MAY ENTER INTO FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS TO
PROTECT THE VALUE OF ITS ASSETS AGAINST FUTURE CHANGES IN THE LEVEL OF CURRENCY
EXCHANGE RATES AND 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. The Fund may enter into such contracts on a spot, i.e., cash, basis
at the rate then prevailing in the currency exchange market or on a forward
basis, by entering into a forward contract to purchase or sell currency. A
forward contract on foreign currency is an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days agreed
upon by the parties from the date of the contract at a price set on the date of
the contract. These contracts are traded in the market conducted directly
between currency traders (typically large commercial banks) and their customers.
See "Investment Objectives and Policies--Other Investments and Policies-Foreign
Currency Forward Contracts, Options and Futures Transactions" in the Statement
of Additional Information.
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THE FUND'S DEALINGS IN FORWARD CONTRACTS WILL BE LIMITED TO HEDGING
INVOLVING EITHER SPECIFIC TRANSACTIONS OR PORTFOLIO POSITIONS. When the Fund
invests in foreign securities, it may enter into forward contracts in several
circumstances to protect the value of its assets. The 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. 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 portfolio securities and accruals of interest or
dividends receivable and Fund expenses. Position hedging is the sale of a
foreign currency with respect to portfolio security positions denominated or
quoted in that currency or in a different currency (cross hedge). Although there
are no limits on the number of forward contracts which the Fund may enter into,
the Fund may not position hedge (including cross hedges) with respect to a
particular currency for an amount greater than the aggregate market value
(determined at the time of making any sale of forward currency) of the
securities being hedged. See "Investment Objectives and Policies--[Risks Related
to Forward Foreign Currency Exchange Contracts]" in the Statement of Additional
Information.
RISKS OF HEDGING AND RETURN ENHANCEMENT STRATEGIES
PARTICIPATION IN THE OPTIONS OR FUTURES MARKETS AND IN CURRENCY EXCHANGE
TRANSACTIONS INVOLVES INVESTMENT RISKS AND TRANSACTION COSTS TO WHICH THE FUND
WOULD NOT BE SUBJECT ABSENT THE USE OF THESE STRATEGIES. If the Subadviser's
predictions of movements in the direction of the securities, foreign currency
and interest rate markets are inaccurate, the adverse consequences to the Fund
may leave the Fund in a worse position than if such strategies were not used.
Risks inherent in the use of options, foreign currency and futures contracts and
options on futures contracts include (1) dependence on the Subadviser's ability
to predict correctly movements in the direction of interest rates, securities
prices and currency markets; (2) imperfect correlation between the price of
options and futures contracts and options thereon and movements in the prices of
the securities or currencies being hedged; (3) the fact that skills needed to
use these strategies are different from those needed to select portfolio
securities; (4) the possible absence of a liquid secondary market for any
particular instrument at any time; (5) the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences; and (6) the possible
inability of the Fund to purchase or sell a portfolio security at a time that
otherwise would be favorable for it to do so, or the possible need for the Fund
to sell a portfolio 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 "Taxes" in the Statement of Additional Information.
The Fund will generally purchase options and futures on an exchange only if
there appears to be a liquid secondary market for such options or futures; the
Fund will generally purchase OTC options only if the investment adviser believes
that the other party to options will continue to make a market for such options.
However, there can be no assurance that a liquid secondary market will continue
to exist or that the other party will continue to make a market. Thus, it may
not be possible to close an options or futures transaction. The inability to
close options and futures positions also could have an adverse impact on the
Fund's ability to effectively hedge its portfolio. There is also the risk of
loss by the Fund of margin deposits or collateral in the event of bankruptcy of
a broker with whom the Fund has an open position in an option, a futures
contract or related option.
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company Act.
See "Investment Restrictions" in the Statement of Additional Information.
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HOW THE FUND IS MANAGED
THE COMPANY HAS A BOARD OF TRUSTEES WHICH, IN ADDITION TO OVERSEEING THE
ACTIONS OF THE FUND'S MANAGER, SUBADVISER AND DISTRIBUTOR, DECIDES UPON MATTERS
OF GENERAL POLICY. THE FUND'S MANAGER CONDUCTS AND SUPERVISES THE DAILY BUSINESS
OPERATIONS OF THE FUND. THE FUND'S SUBADVISER FURNISHES DAILY INVESTMENT
ADVISORY SERVICES.
For the fiscal year ended September 30, 1996, total expenses as a
percentage of average net assets were 1.00% for Class Z shares. No Class A,
Class B or Class C shares of the Fund were outstanding during this period.
MANAGER
PRUDENTIAL MUTUAL FUND MANAGEMENT LLC (PMF OR THE MANAGER), ONE SEAPORT
PLAZA, NEW YORK, NEW YORK 10292, IS THE MANAGER OF THE COMPANY AND IS
COMPENSATED FOR ITS SERVICES AT AN ANNUAL RATE OF .65 OF 1% OF THE FUND'S
AVERAGE DAILY NET ASSETS. It was established as a New York limited liability
company in 1996. See "Manager" in the Statement of Additional Information. Prior
to October 30, 1996, the Manager of the Fund was Prudential Institutional Fund
Management, Inc. It was compensated for its services at an annual rate of .70 of
1% of the Fund's average daily net assets.
As of September 30, 1996, PMF served as the manager to 37 open-end
investment companies, constituting all of the Prudential Mutual Funds, and as
manager or administrator to 22 closed-end investment companies with aggregate
assets of approximately $52 billion.
Under the Management Agreement with the Company, PMF manages the investment
operations of the Fund and also administers the Company's business affairs. See
"Manager" in the Statement of Additional Information.
SUBADVISERS
JENNISON ASSOCIATES CAPITAL CORP. (JENNISON OR THE SUBADVISER), 466
LEXINGTON AVENUE, NEW YORK, NEW YORK, 10017, IS THE SUBADVISER TO THE COMPANY.
It was incorporated in 1969 under the laws of the State of New York. As of
September 30, 1996, Jennison had over [$30.8] billion in assets under management
for institutional and mutual fund clients.
PURSUANT TO A SUBADVISORY AGREEMENT WITH PMF, JENNISON FURNISHES INVESTMENT
ADVISORY SERVICES IN CONNECTION WITH THE MANAGEMENT OF THE FUND AND IS
COMPENSATED BY PMF FOR ITS SERVICES AT AN ANNUAL RATE OF .30 OF 1% OF THE FUND'S
AVERAGE DAILY NET ASSETS UP TO AND INCLUDING $300 MILLION AND .25 OF 1% OF THE
FUND'S AVERAGE DAILY NET ASSETS IN EXCESS OF $300 MILLION.
Under the Subadvisory Agreement, Jennison, subject to the supervision of
PMF, is responsible for managing the assets of the Fund in accordance with its
investment objective, investment program and policies. Jennison determines what
securities and other instruments are purchased and sold for the Fund and is
responsible for obtaining and evaluating financial data relevant to the Fund.
Bradley Goldberg is the portfolio manager of the Fund. Mr. Goldberg is an
Executive Vice President and Director of Jennison and is responsible for the
day-to-day management of the Fund. Mr. Goldberg has managed the portfolio of the
Fund since its inception in January 1993 and has been employed as a portfolio
manager with Jennison since 1974.
The Prudential Investment Corporation, 751 Broad Street, Newark, New Jersey
07102, invests available cash balances for the Fund through a joint repurchase
agreement account. The Manager reimburses PIC for the reasonable costs and
expenses it incurs in providing such services.
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PMF, Jennison and PIC are wholly owned subsidiaries of The Prudential
Insurance Company of America (Prudential), a major diversified insurance and
financial services company.
DISTRIBUTOR
PRUDENTIAL SECURITIES INCORPORATED (PRUDENTIAL SECURITIES OR PSI), ONE
SEAPORT PLAZA, NEW YORK, NEW YORK 10292, IS A CORPORATION ORGANIZED UNDER THE
LAWS OF THE STATE OF DELAWARE AND SERVES AS THE DISTRIBUTOR OF THE CLASS A,
CLASS B, CLASS C AND CLASS Z SHARES OF THE FUND. IT IS AN INDIRECT, WHOLLY OWNED
SUBSIDIARY OF PRUDENTIAL.
UNDER SEPARATE DISTRIBUTION AND SERVICE PLANS (THE CLASS A PLAN, THE CLASS
B PLAN AND THE CLASS C PLAN, COLLECTIVELY, THE PLANS) ADOPTED BY THE FUND UNDER
RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT AND A DISTRIBUTION AGREEMENT (THE
DISTRIBUTION AGREEMENT), PRUDENTIAL SECURITIES (ALSO THE DISTRIBUTOR) INCURS THE
EXPENSES OF DISTRIBUTING THE FUND'S CLASS A, CLASS B AND CLASS C SHARES.
PRUDENTIAL SECURITIES ALSO INCURS THE EXPENSES OF DISTRIBUTING THE FUND'S CLASS
Z SHARES UNDER THE DISTRIBUTION AGREEMENT, NONE OF WHICH IS REIMBURSED BY OR
PAID FOR BY THE FUND. These expenses include commissions and account servicing
fees paid to, or on account of, financial advisers of Prudential Securities and
Pruco Securities Corporation (Prusec), an affiliated broker-dealer, commissions
and account servicing fees paid to, or on account of, other broker-dealers or
financial institutions (other than national banks) which have entered into
agreements with the Distributor, advertising expenses, the cost of printing and
mailing prospectuses to potential investors and indirect and overhead costs of
Prudential Securities and Prusec associated with the sale of Fund shares,
including lease, utility, communications and sales promotion expenses. The State
of Texas requires that shares of the Fund may be sold in that state only by
dealers or other financial institutions which are registered there as
broker-dealers.
Under the Plans, the Fund is obligated to pay distribution and/or service
fees to the Distributor as compensation for its distribution and service
activities, not as reimbursement for specific expenses incurred. If the
Distributor's expenses exceed its distribution and service fees, the Fund will
not be obligated to pay any additional expenses. If the Distributor's expenses
are less than such distribution and service fees, it will retain its full fees
and realize a profit.
UNDER THE CLASS A PLAN, THE FUND MAY PAY PRUDENTIAL SECURITIES FOR ITS
DISTRIBUTION-RELATED EXPENSES WITH RESPECT TO CLASS A SHARES AT AN ANNUAL RATE
OF UP TO .30 OF 1% OF THE AVERAGE DAILY NET ASSETS OF THE CLASS A SHARES. The
Class A Plan provides that (i) up to .25 of 1% of the average daily net assets
of the Class A shares may be used to pay for personal service and/or the
maintenance of shareholder accounts (service fee) and (ii) total distribution
fees (including the service fee of .25 of 1%) may not exceed .30 of 1% of the
average daily net assets of the Class A shares. Prudential Securities has agreed
to limit its distribution-related fees payable under the Class A Plan to .25 of
1% of the average daily net assets of the Class A shares for the fiscal year
ending September 30, 1997.
UNDER THE CLASS B AND CLASS C PLANS, THE FUND PAYS PRUDENTIAL SECURITIES
FOR ITS DISTRIBUTION-RELATED EXPENSES WITH RESPECT TO CLASS B AND CLASS C SHARES
AT AN ANNUAL RATE OF 1% OF THE AVERAGE DAILY NET ASSETS OF EACH OF THE CLASS B
AND CLASS C SHARES. The Class B and Class C Plans provide for the payment to
Prudential Securities of (i) an asset-based sales charge of .75 of 1% of the
average daily net assets of the Class B and Class C shares, respectively, and
(ii) a service fee of .25 of 1% of the average daily net assets of each of the
Class B and Class C shares. The service fee is used to pay for personal service
and/or the maintenance of shareholder accounts. Prudential Securities also
receives contingent deferred sales charges from certain redeeming shareholders.
See "Shareholder Guide--How to Sell Your Shares--Contingent Deferred Sales
Charges."
Distribution expenses attributable to the sale of shares of the Fund will
be allocated to each class based upon the ratio of sales of each class to the
sales of all shares of the Fund other than expenses allocable to a particular
class. The distribution fee and sales charge of one class will not be used to
subsidize the sale of another class.
Each Plan provides that it shall continue in effect from year to year
provided that a majority of the Trustees of the Company, including a majority of
the Trustees who are not "interested persons" of the Company (as defined in the
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Investment Company Act) and who have no direct or indirect financial interest in
the operation of the Plan or any agreement related to the Plan (the Rule 12b-1
Trustees), vote annually to continue the Plan. Each Plan may be terminated at
any time by vote of a majority of the Rule 12b-1 Trustees or of a majority of
the outstanding shares of the applicable class of the Fund. The Fund will not be
obligated to pay expenses incurred under any Plan if it is terminated or not
continued.
In addition to distribution and service fees paid by the Fund under the
Class A, Class B and Class C Plans, the Manager (or one of its affiliates) may
make payments to dealers and other persons which distribute shares of the Fund
(including Class Z shares). Such payments may be calculated by reference to the
net asset value of shares sold by such persons or otherwise.
The Distributor is subject to the rules of the National Association of
Securities Dealers, Inc. (NASD) governing maximum sales charges. See
"Distributor" in the Statement of Additional Information.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators (with the exception of the Texas Securities
Commissioner who joined the settlement on January 18, 1994) and the NASD to
resolve allegations that from 1980 through 1990 PSI sold certain limited
partnership interests in violation of securities laws to persons for whom such
securities were not suitable and misrepresented the safety, potential returns
and liquidity of these investments. Without admitting or denying the allegations
asserted against it, PSI consented to the entry of an SEC Administrative Order
which stated that PSI's conduct violated the federal securities laws, directed
PSI to cease and desist from violating the federal securities laws, pay civil
penalties, and adopt certain remedial measures to address the violations.
Pursuant to the terms of the SEC settlement, PSI agreed to the imposition
of $10,000,000 civil penalty, established a settlement fund in the amount of
$330,000,000 and procedures to resolve legitimate claims for compensatory
damages by purchasers of the partnership interests. PSI has agreed to provide
additional funds, if necessary, for the purposes of the settlement fund. PSI's
settlement with the state securities regulators included an agreement to pay a
penalty of $500,000 per jurisdiction. PSI consented to a censure and to the
payment of a $5,000,000 fine in settling the NASD action.
In October 1994, a criminal complaint was filed with the United States
Magistrate for the Southern District of New York alleging that PSI committed
fraud in connection with the sale of certain limited partnership interests in
violation of federal securities laws. An agreement was simultaneously filed to
defer prosecution of these charges for a period of three years from the signing
of the agreement, provided that PSI complies with the terms of the agreement.
If, upon completion of the three year period, PSI has complied with the terms of
the agreement, no prosecution will be instituted by the United States for the
offenses charged in the complaint. If on the other hand, during the course of
the three year period, PSI violates the terms of the agreement, the U.S.
Attorney can then elect to pursue these charges. Under the terms of the
agreement, PSI agreed, among other things, to pay an additional $330,000,000
into the fund established by the SEC to pay restitution to investors who
purchased certain PSI limited partnership interests.
For more detailed information concerning the foregoing matters, see
"Distributor" in the Statement of Additional Information, a copy of which may be
obtained at no cost by calling 1-800-225-1852.
The Company is not affected by PSI's financial condition and is an entirely
separate legal entity from PSI, which has no beneficial ownership therein and
the Fund's assets which are held by State Street Bank and Trust Company, an
independent custodian, are separate and distinct from PSI.
FEE WAIVERS AND SUBSIDY
PMF may from time to time waive all or a portion of its management fee and
subsidize all or a portion of the operating expenses of the Fund. Fee waivers
and expense subsidies will increase the Fund's total return. See "Performance
Information" in the Statement of Additional Information and "Fund Expenses."
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PORTFOLIO TRANSACTIONS
Prudential Securities may act as a broker or futures commission merchant
for the Fund provided that the commissions, fees or other remuneration it
receives are fair and reasonable. See "Portfolio Transactions and Brokerage" in
the Statement of Additional Information.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities and
cash and, in that capacity, maintains certain financial and accounting books and
records pursuant to an agreement with the Company.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison,
New Jersey 08837, serves as Transfer Agent and Dividend Disbursing Agent and in
those capacities maintains certain books and records for the Fund. PMFS is a
wholly owned subsidiary of PMF. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.
HOW THE FUND VALUES ITS SHARES
THE FUND'S NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING
ITS LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. NAV IS CALCULATED SEPARATELY FOR EACH CLASS. For
valuation purposes, quotations of foreign securities in a foreign currency are
converted to U.S. dollar equivalents. THE TRUSTEES FIXED THE SPECIFIC TIME OF
DAY FOR THE COMPUTATION OF THE FUND'S NAV TO BE AS OF 4:15 P.M., NEW YORK TIME.
Portfolio securities are valued based on market quotations or, if not
readily available, at fair value as determined in good faith under procedures
established by the Company's Trustees. See "Net Asset Value" in the Statement of
Additional Information.
The Fund will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase, sell
or redeem shares have been received by the Fund or days on which changes in the
value of the Fund's portfolio securities do not materially affect the NAV. The
New York Stock Exchange is closed on the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. See "Net Asset Value" in the Statement of
Additional Information.
Although the legal rights of each class of shares are substantially
identical, the different expenses borne by each class will result in different
NAVs and dividends. The NAV of Class B and Class C shares will generally be
lower than the NAV of Class A shares as a result of the larger
distribution-related fee to which Class B and Class C shares are subject. The
NAV of Class Z shares will generally be higher than the NAV of the other three
classes because Class Z shares are not subject to any distribution and/or
service fees. It is expected, however, that the NAV of the four classes will
tend to converge immediately after the recording of dividends, which will differ
by approximately the amount of any distribution and/or service fee expense
accrual differential among the classes.
HOW THE FUND CALCULATES PERFORMANCE
FROM TIME TO TIME THE FUND MAY ADVERTISE ITS TOTAL RETURN (INCLUDING
"AVERAGE ANNUAL" TOTAL RETURN AND "AGGREGATE" TOTAL RETURN) AND YIELD IN
ADVERTISEMENTS OR SALES LITERATURE. TOTAL RETURN AND YIELD ARE CALCULATED
SEPARATELY FOR CLASS A, CLASS B, CLASS C AND CLASS Z SHARES. These figures are
based on historical earnings and are not
22
<PAGE>
intended to indicate future performance. The "total return" shows how much an
investment in the Fund would have increased (decreased) over a specified period
of time (i.e., one, five or ten years or since inception of the Fund) assuming
that all distributions and dividends by the Fund were reinvested on the
reinvestment dates during the period and less all recurring fees. The
"aggregate" total return reflects actual performance over a stated period of
time. "Average annual" total return is a hypothetical rate of return that, if
achieved annually, would have produced the same aggregate total return if
performance had been constant over the entire period. "Average annual" total
return smooths out variations in performance and takes into account any
applicable initial or contingent deferred sales charges. Neither "average
annual" total return nor "aggregate" total return takes into account any federal
or state income taxes which may be payable upon redemption. The "yield" refers
to the income generated by an investment in the Fund over a one-month or 30-day
period. This income is then "annualized;" that is, the amount of income
generated by the investment during that 30-day period is assumed to be generated
each 30-day period for twelve periods and is shown as a percentage of the
investment. The income earned on the investment is also assumed to be reinvested
at the end of the sixth 30-day period. The Fund also may include comparative
performance information in advertising or marketing the Fund's shares. Such
performance information may include data from Lipper Analytical Services, Inc.,
Morningstar Publications, Inc., and other industry publications, business
periodicals and market indices. See "Performance Information" in the Statement
of Additional Information. Further performance information will be contained in
the Fund's annual and semi-annual reports to shareholders, which will be
available without charge. See "Shareholder Guide--Shareholder Services--Reports
to Shareholders."
TAXES, DIVIDENDS AND DISTRIBUTIONS
TAXATION OF THE FUND
THE FUND HAS ELECTED TO QUALIFY AND INTENDS TO REMAIN QUALIFIED AS A
REGULATED INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
(THE INTERNAL REVENUE CODE). ACCORDINGLY, THE FUND WILL NOT BE SUBJECT TO
FEDERAL INCOME TAXES ON ITS NET INVESTMENT INCOME AND CAPITAL GAINS, IF ANY,
THAT IT DISTRIBUTES TO ITS SHAREHOLDERS.
[The Fund may, from time to time, invest in Passive Foreign Investment
Companies (PFICs). PFICs are foreign corporations which derive a majority of
their income from passive sources. For tax purposes, the Fund's investments in
PFICs are subject to special tax provisions that may result in the taxation of
certain gains realized by the Fund. See "Taxes" in the Statement of Additional
Information.
In addition, under the Internal Revenue Code, special rules apply to the
treatment of certain options and futures contracts (Section 1256 contracts). At
the end of each year, such investments held by the Fund will be required to be
"marked to market" for federal income tax purposes; that is, treated as having
been sold at market value. Sixty percent of any gain or loss recognized on these
"deemed sales" and on actual dispositions may be treated as long-term capital
gain or loss, and the remainder will be treated as short-term capital gain or
loss. See "Taxes" in the Statement of Additional Information.
Gains or losses on disposition of debt securities denominated in a foreign
currency attributable to fluctuations in the value of foreign currency between
the date of acquisition of the security and the date of disposition are treated
as ordinary gain or loss. These gains or losses increase or decrease the amount
of the Fund's investment company taxable income available to be distributed to
shareholders as ordinary income, rather than increasing or decreasing the amount
of the Fund's net capital gain. If currency fluctuation losses exceed other
investment company taxable income during a taxable year, distributions made by
the Fund during the year would be characterized as a return of capital to
shareholders, reducing the shareholder's basis in his or her Fund shares.]
The Fund may incur foreign income taxes in connection with some of its
foreign investments.
23
<PAGE>
TAXATION OF SHAREHOLDERS
All dividends out of net investment income, together with distributions of
net short-term capital gains, will be taxable as ordinary income to the
shareholder whether or not reinvested. Any net long-term capital gains
distributed to shareholders will be taxable as such to the shareholder, whether
or not reinvested and regardless of the length of time a shareholder has owned
his or her shares. The maximum long-term capital gains rate for corporate
shareholders is currently the same as the maximum tax rate for ordinary income.
The maximum long-term capital gains rate for individual shareholders is
currently 28% and the maximum tax rate for ordinary income is 39.6%.
Any gain or loss realized upon a sale or redemption of shares by a
shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held more than one year and
otherwise as short-term capital gain or loss. Any such loss, however, on shares
that are held for six months or less, will be treated as a long-term capital
loss to the extent of any capital gain distributions received by the
shareholder.
The Fund has obtained opinions of counsel to the effect that neither (i)
the conversion of Class B shares into Class A shares nor (ii) the exchange of
Class B or Class C shares for Class A or Class Z shares or the exchange of Class
A shares for Class Z shares constitutes a taxable event for federal income tax
purposes. However, such opinions are not binding on the Internal Revenue
Service.
WITHHOLDING TAXES
Under U.S. Treasury Regulations, the Fund is required to withhold and remit
to the U.S. Treasury 31% of dividend, capital gain income and redemption
proceeds, payable on the accounts of those shareholders who fail to furnish
their tax identification numbers on IRS Form W-9 (or IRS Form W-8 in the case of
certain foreign shareholders) with the required certifications regarding the
shareholder's status under the federal income tax law.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to federal, state or local taxes. See "Taxes" in the Statement of
Additional Information.
DIVIDENDS AND DISTRIBUTIONS
THE FUND EXPECTS TO PAY DIVIDENDS OF NET INVESTMENT INCOME, IF ANY, AND TO
MAKE DISTRIBUTIONS OF ANY CAPITAL GAINS IN EXCESS OF NET LONG-TERM CAPITAL
LOSSES AT LEAST ANNUALLY. Dividends paid by the Fund with respect to each class
of shares, to the extent any dividends are paid, will be calculated in the same
manner, at the same time, on the same day and will be in the same amount except
that each class will bear its own distribution and/or service fee charges,
generally resulting in lower dividends for Class B and Class C shares in
relation to Class A and Class Z shares and lower dividends for Class A shares in
relation to Class Z shares. Distribution of net capital gains, if any, will be
paid in the same amount for each class of shares. See "How the Fund Values its
Shares."
DIVIDENDS AND DISTRIBUTIONS WILL BE PAID IN ADDITIONAL FUND SHARES, BASED
ON THE NAV OF EACH CLASS ON THE RECORD DATE OR SUCH OTHER DATE AS THE BOARD OF
TRUSTEES MAY DETERMINE, UNLESS THE SHAREHOLDER ELECTS IN WRITING NOT LESS THAN
FIVE BUSINESS DAYS PRIOR TO THE RECORD DATE TO RECEIVE SUCH DIVIDENDS AND
DISTRIBUTIONS IN CASH. Such election should be submitted to Prudential Mutual
Fund Services, Inc., Attn: Account Maintenance Unit, P.O. Box 15015, New
Brunswick, New Jersey 08906-5015. The Fund will notify each shareholder after
the close of the Fund's taxable year both of the dollar amount and the taxable
status of that year's dividends and distributions on a per share basis. If you
hold shares through Prudential Securities, you should contact your financial
adviser to elect to receive dividends and distributions in cash.
WHEN THE FUND GOES "EX-DIVIDEND," ITS NAV IS REDUCED BY THE AMOUNT OF THE
DIVIDEND OR DISTRIBUTION. IF YOU BUY SHARES JUST PRIOR TO THE EX-DIVIDEND DATE
(WHICH GENERALLY OCCURS FOUR BUSINESS DAYS PRIOR TO THE RECORD DATE), THE PRICE
YOU PAY WILL INCLUDE THE DIVIDEND OR DISTRIBUTION AND A PORTION OF YOUR
INVESTMENT WILL BE RETURNED TO YOU AS A TAXABLE DISTRIBUTION. YOU SHOULD,
THEREFORE, CONSIDER THE TIMING OF DIVIDENDS WHEN MAKING YOUR PURCHASES.
24
<PAGE>
GENERAL INFORMATION
DESCRIPTION OF SHARES
THE COMPANY WAS ESTABLISHED AS A DELAWARE BUSINESS TRUST ON MAY 11, 1992.
THE COMPANY IS AUTHORIZED TO ISSUE AN UNLIMITED NUMBER OF SHARES OF BENEFICIAL
INTEREST, $.001 PAR VALUE PER SHARE, DIVIDED INTO TWO SERIES OR PORTFOLIOS, THE
FUND AND PRUDENTIAL STOCK INDEX FUND. THE FUND IS FURTHER DIVIDED INTO FOUR
CLASSES, DESIGNATED CLASS A, CLASS B, CLASS C AND CLASS Z. Prudential Stock
Index Fund offers one class of shares. Each class of beneficial interest of the
Fund represents an interest in the same assets of the Fund and is identical in
all respects except that (i) each class (with the exception of Class Z shares)
is subject to different sales charges and distribution and/or service fees which
may affect performance, (ii) each class has exclusive voting rights on any
matter submitted to shareholders that relates solely to its arrangement and has
separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class of the Fund,
(iii) each class has a different exchange privilege, (iv) only Class B shares
have a conversion feature and (v) Class Z shares are offered exclusively for
sale to a limited group of investors. See "How the Fund is
Managed--Distributor." The Company is permitted to issue and sell multiple
classes of shares. In accordance with the Company's Declaration of Trust, the
Trustees may authorize the creation of additional series of beneficial interest
and classes within such series, with such preferences, privileges, limitations
and voting and dividend rights as the Board may determine.
The Company's expenses generally are allocated between the Fund and the
other series of the Company on the basis of relative net assets at the time of
allocation, except that expenses directly attributable to the Fund or the other
series of the Company are charged to the Fund or the other series, as the case
may be.
The Trustees may increase or decrease the number of authorized shares
without the approval of shareholders. Shares of the Fund, when issued, are fully
paid, nonassessable, fully transferable and redeemable at the option of the
holder. Shares are also redeemable at the option of the Fund under certain
circumstances as described under "Shareholder Guide--How to Sell Your Shares."
Each share of each class is equal as to earnings, assets and voting privileges,
except as noted above, and each class bears the expenses related to the
distribution of its shares (with the exception of Class Z shares, which are not
subject to any distribution or service fees). Except for the conversion feature
applicable to the Class B shares, there are no conversion, preemptive or other
subscription rights. In the event of liquidation, each share of the Fund is
entitled to its portion of all of the Fund's assets after all debts and expenses
of the Fund have been paid. Since Class B and Class C shares generally bear
higher distribution expenses than Class A shares, the liquidation proceeds to
shareholders of those classes are likely to be lower than to Class A
shareholders and to Class Z shareholders, whose shares are not subject to any
distribution and/or service fees. The Company's shares do not have cumulative
voting rights for the election of Trustees.
THE COMPANY DOES NOT INTEND TO HOLD ANNUAL MEETINGS OF SHAREHOLDERS UNLESS
OTHERWISE REQUIRED BY LAW.THE COMPANY WILL NOT BE REQUIRED TO HOLD MEETINGS OF
SHAREHOLDERS UNLESS, FOR EXAMPLE, THE ELECTION OF TRUSTEES IS REQUIRED TO BE
ACTED ON BY SHAREHOLDERS UNDER THE INVESTMENT COMPANY ACT. SHAREHOLDERS HAVE
CERTAIN RIGHTS, INCLUDING THE RIGHT TO CALL A MEETING UPON A VOTE OF 10% OR MORE
OF THE COMPANY'S OUTSTANDING SHARES FOR THE PURPOSE OF VOTING ON THE REMOVAL OF
ONE OR MORE TRUSTEES OR TO TRANSACT ANY OTHER BUSINESS.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which
has been incorporated by reference herein, does not contain all the information
set forth in the Registration Statement filed by the Fund with the SEC under the
Securities Act. Copies of the Registration Statement may be obtained at a
reasonable charge from the SEC or may be examined, without charge, at the office
of the SEC in Washington, D.C.
25
<PAGE>
SHAREHOLDER GUIDE
HOW TO BUY SHARES OF THE FUND
YOU MAY PURCHASE SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, PRUSEC
OR DIRECTLY FROM THE FUND, THROUGH ITS TRANSFER AGENT, PRUDENTIAL MUTUAL FUND
SERVICES, INC.(PMFS OR THE TRANSFER AGENT), ATTENTION: INVESTMENT SERVICES, P.O.
BOX 15020, NEW BRUNSWICK, NEW JERSEY 08906-5020. PARTICIPANTS IN PROGRAMS
SPONSORED BY PRUDENTIAL RETIREMENT SERVICES SHOULD CONTACT THEIR CLIENT
REPRESENTATIVE FOR MORE INFORMATION ABOUT CLASS Z SHARES. The offering price is
the NAV next determined following receipt of an order by the Transfer Agent or
Prudential Securities plus a sales charge which, at your option, may be imposed
either (i) at the time of purchase (Class A shares) or (ii) on a deferred basis
(Class B or Class C shares). Class Z shares are offered to a limited group of
investors at net asset value without any sales charge. See "Alternative Purchase
Plan" below. See also "How the Fund Values its Shares."
The minimum initial investment is $1,000 per class for Class A and Class B
shares and $5,000 for Class C shares. There is no minimum initial investment
requirement for Class Z shares. The minimum subsequent investment is $100 for
all classes, except for Class Z shares for which there is no such minimum. All
minimum investment requirements are waived for certain retirement and employee
savings plans or custodial accounts for the benefit of minors. For purchases
through the Automatic Savings Accumulation Plan, the minimum initial and
subsequent investment is $50. See "Shareholder Services."
Application forms can be obtained from PMFS, Prudential Securities or
Prusec. If a stock certificate is desired, it must be requested in writing for
each transaction. Certificates are issued only for full shares. Shareholders who
hold their shares through Prudential Securities will not receive share
certificates.
The Fund reserves the right to reject any purchase order (including an
exchange into the Fund) or to suspend or modify the continuous offering of its
shares. See "How to Sell Your Shares."
Your dealer is responsible for forwarding payment promptly to the Fund. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the third business day following the investment.
Transactions in Fund shares may be subject to postage and handling charges
imposed by your dealer.
PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire,
you must first telephone PMFS to receive an account number at (800) 225-1852
(toll-free). The following information will be requested: your name, address,
tax identification number, class election, dividend distribution election,
amount being wired and wiring bank. Instructions should then be given by you to
your bank to transfer funds by wire to State Street Bank and Trust Company
(State Street), Boston, Massachusetts, Custody and Shareholder Services
Division, Attention: Prudential Dryden Fund, Prudential Active Balanced Fund,
specifying on the wire the account number assigned by PMFS and your name and
identifying the sales charge alternative (Class A, Class B, Class C or Class Z
shares).
If you arrange for receipt by State Street of federal funds prior to 4:15
P.M., New York time, on a business day, you may purchase shares of the Fund as
of that day.
In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Dryden Fund,
Prudential Active Balanced Fund, Class A, Class B, Class C or Class Z shares and
your name and individual account number. It is not necessary to call PMFS to
make subsequent purchase orders utilizing federal funds. The minimum amount
which may be invested by wire is $1,000.
26
<PAGE>
ALTERNATIVE PURCHASE PLAN
THE FUND OFFERS FOUR CLASSES OF SHARES (CLASS A, CLASS B, CLASS C AND CLASS
Z SHARES) WHICH ALLOWS YOU TO CHOOSE THE MOST BENEFICIAL SALES CHARGE STRUCTURE
FOR YOUR INDIVIDUAL CIRCUMSTANCES GIVEN THE AMOUNT OF THE PURCHASE, THE LENGTH
OF TIME YOU EXPECT TO HOLD THE SHARES AND OTHER RELEVANT CIRCUMSTANCES
(ALTERNATIVE PURCHASE PLAN).
<TABLE>
<CAPTION>
Annual 12B-1 Fees
(as a % of average daily
Sales Charge net assets) Other Information
------------ ------------------------ -----------------
<S> <C> <C>
CLASS A Maximum initial sales charge of 5% of .30 of 1% (Currently Initial sales charge waived or reduced
the public offering price being charged at a rate for certain purchases
of .25 of 1%)
CLASS B Maximum contingent deferred sales 1% Shares convert to Class A shares
charge or CDSC of 5% of the lesser of approximately seven years after
the amount invested or the redemption purchase
proceeds; declines to zero after six
years
CLASS C Maximum CDSC of 1% of the lesser 1% Shares do not convert to another class
of the amount invested or the
redemption proceeds on redemptions
made within one year of purchase
CLASS Z None None Sold to a limited group of investors
</TABLE>
The four classes of shares represent an interest in the same portfolio of
investments of the Fund and have the same rights, except that (i) each class
(with the exception of Class Z shares which are not subject to any distribution
or service fees) bears the separate expenses of its Rule 12b-1 distribution and
service plan, (ii) each class has exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement and has
separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class, and (iii)
only Class B shares have a conversion feature. The four classes also have
separate exchange privileges. See "How to Exchange Your Shares" below. The
income attributable to each class and the dividends payable on the shares of
each class will be reduced by the amount of the distribution fee (if any) of
each class. Class B and Class C shares bear the expenses of a higher
distribution fee which will generally cause them to have higher expense ratios
and to pay lower dividends than the Class A and Class Z shares.
Financial advisers and other sales agents who sell shares of the Fund will
receive different compensation for selling Class A, Class B, Class C and Class Z
shares and will generally receive more compensation initially for selling Class
A and Class B shares than for selling Class C or Class Z shares.
In selecting a purchase alternative, you should consider, among other
things, (1) the length of time you expect to hold your investment, (2) the
amount of any applicable sales charge (whether imposed at the time of purchase
or redemption) and distribution-related fees, as noted above, (3) whether you
qualify for any reduction or waiver of any applicable sales charge, (4) the
various exchange privileges among the different classes of shares (see "How to
Exchange Your Shares" below) and (5) the fact that Class B shares automatically
convert to Class A shares approximately seven years after purchase (see
"Conversion Feature--Class B Shares" below).
The following is provided to assist you in determining which method of
purchase best suits your individual circumstances and is based on current fees
and expenses being charged to the Fund.
If you intend to hold your investment in the Fund for less than 7 years and
do not qualify for a reduced sales charge on Class A shares, since Class A
shares are subject to an initial sales charge of 5% and Class B shares are
subject to a CDSC
27
<PAGE>
of 5% which declines to zero over a 6-year period, you should consider
purchasing Class C shares over either Class A or Class B shares.
If you intend to hold your investment for 7 years or more and do not
qualify for a reduced sales charge on Class A shares, since Class B shares
convert to Class A shares approximately 7 years after purchase and because all
of your money would be invested initially in the case of Class B shares, you
should consider purchasing Class A or Class B shares over Class C shares.
If you qualify for a reduced sales charge on Class A shares, it may be more
advantageous for you to purchase Class A shares over either Class B or Class C
shares regardless of how long you intend to hold your investment. However,
unlike Class B and Class C shares, you would not have all of your money invested
initially because the sales charge on Class A shares is deducted at the time of
purchase.
If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class B or Class C shares, you would have to hold your investment for
more than 6 years in the case of Class B shares and Class C shares for the
higher cumulative annual distribution-related fee on those shares to exceed the
initial sales charge plus cumulative annual distribution-related fees on Class A
shares. This does not take into account the time value of money, which further
reduces the impact of the higher Class B or Class C distribution-related fee on
the investment, fluctuations in net asset value, the effect of the return on the
investment over this period of time or redemptions during which the CDSC is
applicable.
All purchases of $1 million or more, either as part of a single investment
or under Rights of Accumulation or Letters of Intent, must be for Class A shares
unless the purchaser is eligible to purchase Class Z shares. See "Reduction and
Waiver of Initial Sales Charges" below.
CLASS A SHARES
The offering price of Class A shares for investors choosing the initial
sales charge alternative is the next determined NAV plus a sales charge
(expressed as a percentage of the offering price and of the amount invested) as
shown in the following table:
Sales Charge As Sales Charge As Dealer Concession
Percentage of Percentage of as Percentage of
Offering Price Amount Invested Offering Price
--------------- --------------- -----------------
Less than $25,000 5.00% 5.26% 4.75%
$25,000 to $49,999 4.50 4.71 4.25
$50,000 to $99,999 4.00 4.17 3.75
$100,000 to $249,999 3.25 3.36 3.00
$250,000 to $499,999 2.50 2.56 2.40
$500,000 to $999,999 2.00 2.04 1.90
$1,000,000 and above None None None
The Distributor may reallow the entire initial sales charge to dealers.
Selling dealers may be deemed to be underwriters, as that term is defined in the
Securities Act.
In connection with the sale of Class A shares at NAV (without payment of an
initial sales charge), the Manager, the Distributor or one of their affiliates
will pay dealers, financial advisers and other persons which distribute shares a
finders' fee based on a percentage of the net asset value of shares sold by such
persons.
REDUCTION AND WAIVER OF INITIAL SALES CHARGES. Reduced sales charges are
available through Rights of Accumulation and Letters of Intent. Shares of the
Fund and shares of other Prudential Mutual Funds (excluding money
28
<PAGE>
market funds other than those acquired pursuant to the exchange privilege) may
be aggregated to determine the applicable reduction. See "Purchase and
Redemption of Fund Shares--Reduction and Waiver of Initial Sales Charges--Class
A Shares" in the Statement of Additional Information.
Benefit Plans. Class A shares may be purchased at NAV, without payment of
an initial sales charge, by pension, profit-sharing or other employee benefit
plans qualified under Section 401 of the Internal Revenue Code and deferred
compensation and annuity plans under Sections 457 or 403(b)(7) of the Internal
Revenue Code (collectively, Benefit Plans), provided that the plan has existing
assets of at least $1 million invested in shares of Prudential Mutual Funds
(excluding money market funds other than those acquired pursuant to the exchange
privilege) or 250 eligible employees or participants. In the case of Benefit
Plans whose accounts are held directly with the Transfer Agent or Prudential
Securities and for which the Transfer Agent or Prudential Securities does
individual account recordkeeping (Direct Account Benefit Plans) and Benefit
Plans sponsored by PSI or its subsidiaries (PSI or Subsidiary Prototype Benefit
Plans), Class A shares may be purchased at NAV by participants who are repaying
loans made from such plans to the participant.
PruArray and SmartPath Plans. Class A shares may be purchased at NAV by
certain retirement and deferred compensation plans, qualified or non-qualified
under the Internal Revenue Code, including pension, profit-sharing, stock-bonus
or other employee benefit plans under Section 401 of the Internal Revenue Code
and deferred compensation and annuity plans under Sections 457 or 403(b)(7) of
the Internal Revenue Code that participate in the Prudential's PruArray and
SmartPath Programs (benefit plan recordkeeping services) (hereafter referred to
as a PruArray or SmartPath Plan); provided that the plan has at least $1 million
in existing assets or 250 eligible employees or participants. The term "existing
assets" for this purpose includes stock issued by a PruArray or SmartPath Plan
sponsor, shares of non-money market Prudential Mutual Funds and shares of
certain unaffiliated non-money market mutual funds that participate in the
PruArray or SmartPath Program (Participating Funds). "Existing assets" also
include shares of money market funds acquired by exchange from a Participating
Fund.
Special Rules Applicable to Retirement Plans. After a Benefit Plan or
PruArray or SmartPath Plan qualifies to purchase Class A shares at NAV, all
subsequent purchases will be made at NAV.
Other Waivers. In addition, Class A shares may be purchased at NAV, through
Prudential Securities or the Transfer Agent, by the following persons: (a)
officers and current and former Directors/Trustees of the Prudential Mutual
Funds (including the Fund), (b) employees of Prudential Securities and PMF and
their subsidiaries and members of the families of such persons who maintain an
"employee related" account at Prudential Securities or the Transfer Agent, (c)
employees and special agents of Prudential and its subsidiaries and all persons
who have retired directly from active service with Prudential or one of its
subsidiaries, (d) registered representatives and employees of dealers who have
entered into a selected dealer agreement with Prudential Securities provided
that purchases at NAV are permitted by such person's employer and (e) investors
who have a business relationship with a financial adviser who joined Prudential
Securities from another investment firm, provided that (i) the purchase is made
within 180 days of the commencement of the financial adviser's employment at
Prudential Securities, or within one year in the case of Benefit Plans, (ii) the
purchase is made with proceeds of a redemption of shares of any open-end fund
sponsored by the financial adviser's previous employer (other than a money
market fund or other no-load fund which imposes a distribution or service fee of
.25 of 1% or less) and (iii) the financial adviser served as the client's broker
on the previous purchase.
You must notify the Transfer Agent either directly or through Prudential
Securities or Prusec that you are entitled to the reduction or waiver of the
sales charge. The reduction or waiver will be granted subject to confirmation of
your entitlement. No initial sales charges are imposed upon Class A shares
purchased upon the reinvestment of dividends and distributions. See "Purchase
and Redemption of Fund Shares--Reduction and Waiver of Initial Sales
Charges--Class A Shares" in the Statement of Additional Information.
29
<PAGE>
CLASS B AND CLASS C SHARES
The offering price of Class B and Class C shares for investors choosing one
of the deferred sales charge alternatives is the NAV next determined following
receipt of an order by the Transfer Agent, Prudential Securities or Prusec.
Although there is no sales charge imposed at the time of purchase, redemption of
Class B and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares--Contingent Deferred Sales Charges." The Distributor will pay sales
commissions of up to 4% of the purchase price of Class B shares to dealers,
financial advisers and other persons who sell Class B shares at the time of sale
from its own resources. This facilitates the ability of the Fund to sell the
Class B shares without an initial sales charge being deducted at the time of
purchase. The Distributor anticipates that it will recoup its advancement of
sales commissions from the combination of the CDSC and the distribution fee. See
"Distributor." In connection with the sale of Class C shares, the Distributor
will pay dealers, financial advisers and other persons which distribute Class C
shares a sales commission of up to 1% of the purchase price at the time of the
sale.
CLASS Z SHARES
Class Z shares are available for purchase by (i) pension, profit sharing or
other employee benefit plans qualified under Section 401 of the Internal Revenue
Code, deferred compensation and annuity plans under Sections 457 and 403(b)(7)
of the Internal Revenue Code, and non-qualified plans for which the Fund is an
available option (collectively, Benefit Plans), provided such Benefit Plans (in
combination with other plans sponsored by the same employer or group of related
employers) have at least $50 million in defined contribution assets; (ii)
participants in any fee-based program sponsored by Prudential Securities (or one
of its affiliates) which includes mutual funds as investment options and for
which the Fund is an available option; and (iii) investors who were, or have
executed a letter of intent to become, shareholders of any series of the Company
on or before one or more series of Company reorganized or who on that date had
investments in certain products for which the Company provided exchangeability.
After a Benefit Plan qualifies to purchase Class Z shares, all subsequent
purchases will be for Class Z shares.
In connection with the sale of Class Z shares, the Manager, the Distributor
or one of their affiliates may pay dealers, financial advisers and other persons
which distribute shares a finders' fee based on a percentage of the net asset
value of shares sold by such persons.
HOW TO SELL YOUR SHARES
YOU CAN REDEEM SHARES OF THE FUND AT ANY TIME FOR CASH AT THE NAV PER SHARE
NEXT DETERMINED AFTER THE REDEMPTION REQUEST IS RECEIVED IN PROPER FORM BY THE
TRANSFER AGENT OR PRUDENTIAL SECURITIES. See "How the Fund Values its Shares."
In certain cases, however, redemption proceeds will be reduced by the amount of
any applicable contingent deferred sales charge, as described below. See
"Contingent Deferred Sales Charges" below.
IF YOU HOLD SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, YOU MUST
REDEEM YOUR SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.
IF YOU HOLD SHARES IN NON-CERTIFICATE FORM, A WRITTEN REQUEST FOR REDEMPTION
SIGNED BY YOU EXACTLY AS THE ACCOUNT IS REGISTERED IS REQUIRED. IF YOU HOLD
CERTIFICATES, THE CERTIFICATES SIGNED IN THE NAMES(S) SHOWN ON THE FACE OF THE
CERTIFICATES, MUST BE RECEIVED BY THE TRANSFER AGENT IN ORDER FOR THE REDEMPTION
REQUEST TO BE PROCESSED. IF REDEMPTION IS REQUESTED BY A CORPORATION,
PARTNERSHIP, TRUST OR FIDUCIARY, WRITTEN EVIDENCE OF AUTHORITY ACCEPTABLE TO THE
TRANSFER AGENT MUST BE SUBMITTED BEFORE SUCH REQUEST WILL BE ACCEPTED. All
correspondence and documents concerning redemptions should be sent to the Fund
in care of its Transfer Agent, Prudential Mutual Fund Services, Inc., Attention:
Redemption Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010.
30
<PAGE>
IF THE PROCEEDS OF THE REDEMPTION (A) EXCEED $50,000, (B) ARE TO BE PAID TO
A PERSON OTHER THAN THE RECORD OWNER, (C) ARE TO BE SENT TO AN ADDRESS OTHER
THAN THE ADDRESS ON THE TRANSFER AGENT'S RECORDS, OR (D) ARE TO BE PAID TO A
CORPORATION, PARTNERSHIP, TRUST OR FIDUCIARY, THE SIGNATURE(S) ON THE REDEMPTION
REQUEST AND ON THE CERTIFICATES, IF ANY, OR STOCK POWER MUST BE GUARANTEED BY AN
"ELIGIBLE GUARANTOR INSTITUTION." AN "ELIGIBLE GUARANTOR INSTITUTION" INCLUDES
ANY BANK, BROKER, DEALER OR CREDIT UNION. THE TRANSFER AGENT RESERVES THE RIGHT
TO REQUEST ADDITIONAL INFORMATION FROM, AND MAKE REASONABLE INQUIRIES OF, ANY
ELIGIBLE GUARANTOR INSTITUTION. FOR CLIENTS OF PRUSEC, A SIGNATURE GUARANTEE MAY
BE OBTAINED FROM THE AGENCY OR OFFICE MANAGER OF MOST PRUDENTIAL INSURANCE AND
FINANCIAL SERVICES OR PRUDENTIAL PREFERRED FINANCIAL SERVICES OFFICES.
PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE MADE BY CHECK WITHIN
SEVEN DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE CERTIFICATE AND/OR WRITTEN
REQUEST EXCEPT AS INDICATED BELOW. Such payment may be postponed or the right of
redemption suspended at times (a) when the New York Stock Exchange is closed for
other than customary weekends and holidays, (b) when trading on such Exchange is
restricted, (c) when an emergency exists as a result of which disposal by the
Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, or (d) during any other period when the SEC, by order, so permits;
provided that applicable rules and regulations of the SEC shall govern as to
whether the conditions prescribed in (b), (c) or (d) exist.
PAYMENT FOR REDEMPTION OF RECENTLY PURCHASED SHARES WILL BE DELAYED UNTIL
THE FUND OR ITS TRANSFER AGENT HAS BEEN ADVISED THAT THE PURCHASE CHECK HAS BEEN
HONORED, UP TO 10 CALENDAR DAYS FROM THE TIME OF RECEIPT OF THE PURCHASE CHECK
BY THE TRANSFER AGENT. SUCH DELAY MAY BE AVOIDED BY PURCHASING SHARES BY WIRE OR
BY CERTIFIED OR OFFICIAL BANK CHECK.
REDEMPTION IN KIND. If the Trustees determines that it would be detrimental
to the best interests of the remaining shareholders of the Fund to make payment
wholly or partly in cash, the Fund may pay the redemption price in whole or in
part by a distribution in kind of securities from the investment portfolio of
the Fund, in lieu of cash, in conformity with applicable rules of the SEC.
Securities will be readily marketable and will be valued in the same manner as a
regular redemption. See "How the Fund Values its Shares." If your shares are
redeemed in kind, you would incur transaction costs in converting the assets
into cash. The Company has, however, elected to be governed by Rule 18f-1 under
the Investment Company Act, under which the Fund is obligated to redeem shares
solely in cash up to the lesser of $250,000 or 1% of the net asset value of the
Fund during the 90-day period for any one shareholder.
INVOLUNTARY REDEMPTION. In order to reduce expenses of the Fund, the
Trustees may redeem all of the shares of any shareholder, other than a
shareholder which is an IRA or other tax-deferred retirement plan, whose account
has a net asset value of less than $500 due to a redemption. The Fund will give
any such shareholder 60 days' prior written notice in which to purchase
sufficient additional shares to avoid such redemption. No contingent deferred
sales charge will be imposed on any such involuntary redemption.
90-DAY REPURCHASE PRIVILEGE. If you redeem your shares and have not
previously exercised the repurchase privilege, you may reinvest any portion or
all of the proceeds of such redemption in shares of the Fund at the NAV next
determined after the order is received, which must be within 90 days after the
date of redemption. No sales charge will apply to such repurchases. You will
receive pro rata credit for any contingent deferred sales charge paid in
connection with the redemption of Class B or Class C shares. You must notify the
Fund's Transfer Agent, either directly or through Prudential Securities or
Prusec, at the time the repurchase privilege is exercised that you are entitled
to credit for the contingent deferred sales charge previously paid. Exercise of
the repurchase privilege will not affect the federal income tax treatment of any
gain realized upon redemption. If the redemption results in a loss, some or all
of the loss, depending on the amount reinvested, will not be allowed for federal
income tax purposes.
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<PAGE>
CONTINGENT DEFERRED SALES CHARGES
Redemptions of Class B shares will be subject to a contingent deferred
sales charge or CDSC declining from 5% to zero over a six-year period. Class C
shares redeemed within one year of purchase will be subject to a 1% CDSC. The
CDSC will be deducted from the redemption proceeds and reduce the amount paid to
you. The CDSC will be imposed on any redemption by you which reduces the current
value of your Class B or Class C shares to an amount which is lower than the
amount of all payments by you for shares during the preceding six years, in the
case of Class B shares, and one year, in the case of Class C shares. A CDSC will
be applied on the lesser of the original purchase price or the current value of
the shares being redeemed. Increases in the value of your shares or shares
purchased through reinvestment of dividends or distributions are not subject to
CDSC. The amount of any contingent deferred sales charge will be paid to and
retained by the Distributor. See "How the Fund is Managed--Distributor" and
"Waiver of Contingent Deferred Sales Charges--Class B Shares" below.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of your shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments
during a month will be aggregated and deemed to have been made on the last day
of the month.
The following table sets forth the rates of the CDSC applicable to
redemptions of Class B shares:
Contingent Deferred Sales
Charge as a Percentage
Year Since Purchase of Dollars Invested or
Payment Made Redemption Proceeds
------------------- -------------------------
First ........................................ 5.0%
Second ....................................... 4.0%
Third ........................................ 3.0%
Fourth ....................................... 2.0%
Fifth ........................................ 1.0%
Sixth ........................................ 1.0%
Seventh ...................................... None
In determining whether a CDSC is applicable to a redemption, the
calculation will be made in a manner that results generally in the lowest
possible rate. It will be assumed that the redemption is made first of amounts
representing shares acquired pursuant to the reinvestment of dividends and
distributions; then of amounts representing the increase in net asset value
above the total amount of payments for the purchase of Fund shares made during
the preceding six years; then of amounts representing the cost of shares held
beyond the applicable CDSC period; and finally, of amounts representing the cost
of shares held for the longest period of time within the applicable CDSC period.
For example, assume you purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase, you decided to
redeem $500 of your investment. Assuming at the time of the redemption the NAV
had appreciated to $12 per share, the value of your Class B shares would be
$1,260 (105 shares at $12 per share). The CDSC would not be applied to the value
of the reinvested dividend shares and the amount which represents appreciation
($260). Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would
be charged at a rate of 4% (the applicable rate in the second year after
purchase) for a total CDSC of $9.60.
For federal income tax purposes, the amount of the CDSC will reduce the
gain or increase the loss, as the case may be, on the amount recognized on the
redemption of shares.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES--CLASS B SHARES. The CDSC will
be waived in the case of a redemption following the death or disability of a
shareholder or, in the case of a trust account, following the death or
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<PAGE>
disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint tenancy
(with rights of survivorship), or a trust, at the time of death or initial
determination or disability, provided that the shares were purchased prior to
death or disability.
The CDSC will also be waived in the case of a total or partial redemption
in connection with certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or Section 403(b)
custodial account. These distributions include: (i) in the case of a
tax-deferred retirement plan, a lump-sum or other distribution after retirement;
(ii) in the case of an IRA or Section 403(b) custodial account, a lump-sum or
other distribution after attaining age 59; and (iii) a tax-free return of an
excess contribution or plan distributions following the death or disability of
the shareholder, provided that the shares were purchased prior to death or
disability. The waiver does not apply in the case of a tax-free rollover or
transfer of assets, other than one following a separation from service, i.e.,
following voluntary or involuntary termination of employment or following
retirement. Under no circumstances will the CDSC be waived on redemptions
resulting from the termination of a tax-deferred retirement plan unless such
redemptions otherwise qualify as a waiver as described above. In the case of
Direct Account and PSI or Subsidiary Prototype Benefit Plans, the CDSC will be
waived on redemptions which represent borrowings from such plans. Shares
purchased with amounts used to repay a loan from such plans on which a CDSC was
not previously deducted will thereafter be subject to a CDSC without regard to
the time such amounts were previously invested. In the case of a 401(k) plan,
the CDSC will also be waived upon the redemption of shares purchased with
amounts used to repay loans made from the account to the participant and from
which a CDSC was previously deducted.
In addition, the CDSC will be waived on redemptions of shares held by a
Trustee of the Fund.
You must notify the Transfer Agent either directly or through Prudential
Securities or Prusec, at the time of redemption, that you are entitled to waiver
of the CDSC. The waiver will be granted subject to confirmation of your
entitlement.
CONVERSION FEATURE--CLASS B SHARES
Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. Conversions will be effected at
relative net asset value without the imposition of any additional sales charge.
Since the Fund tracks amounts paid rather than the number of shares bought
on each purchase of Class B shares, the number of Class B shares eligible to
convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will be
determined on each conversion date in accordance with the following formula: (i)
the ratio of (a) the amounts paid for Class B shares purchased at least seven
years prior to the conversion date to (b) the total amount paid for all Class B
shares purchased and then held in your account (ii) multiplied by the total
number of Class B shares then in your account. Each time any Eligible Shares in
your account convert to Class A shares, all shares or amounts representing Class
B shares then in your account that were acquired through the automatic
reinvestment of dividends and other distributions will convert to Class A
shares.
For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible Shares
calculated as described above will generally be either more or less than the
number of shares actually purchased approximately seven years before such
conversion date. For example, if 100 shares were initially purchased at $10 per
share (for a total of $1,000) and a second purchase of 100 shares was
subsequently made at $11 per share (for a total of $1,100), 95.24 shares would
convert approximately seven years from the initial purchase (i.e., $1,000
divided by $2,100 or 47.62% multiplied by 200 shares or 95.24 shares). The
Manager reserves the right to modify the formula for determining the number of
Eligible Shares in the future as it deems appropriate on notice to shareholders.
Since annual distribution-related fees are lower for Class A shares than
Class B shares, the per share net asset value of the Class A shares may be
higher than that of the Class B shares at the time of conversion. Thus, although
the aggregate
33
<PAGE>
dollar value will be the same, you may receive fewer Class A shares than Class B
shares converted. See "How the Fund Values its Shares."
For purposes of calculating the applicable holding period for conversions,
all payments for Class B shares during a month will be deemed to have been made
on the last day of the month, or for Class B shares acquired through exchange,
or a series of exchanges, on the last day of the month in which the original
payment for purchases of such Class B shares was made. For Class B shares
previously exchanged for shares of a money market fund, the time period during
which such shares were held in the money market fund will be excluded. For
example, Class B shares held in a money market fund for one year will not
convert to Class A shares until approximately eight years from purchase. For
purposes of measuring the time period during which shares are held in a money
market fund, exchanges will be deemed to have been made on the last day of the
month. Class B shares acquired through exchange will convert to Class A shares
after expiration of the conversion period applicable to the original purchase of
such shares.
The conversion feature is subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service (i) that the
dividends and other distributions paid on Class A, Class B, Class C and Class Z
shares will not constitute "preferential dividends" under the Internal Revenue
Code and (ii) that the conversion of shares does not constitute a taxable event.
The conversion of Class B shares into Class A shares may be suspended if such
opinions or rulings are no longer available. If conversions are suspended, Class
B shares of the Fund will continue to be subject, possibly indefinitely, to
their higher annual distribution and service fee.
HOW TO EXCHANGE YOUR SHARES
AS A SHAREHOLDER OF THE FUND YOU HAVE AN EXCHANGE PRIVILEGE WITH THE OTHER
SERIES OF THE COMPANY AND CERTAIN OTHER PRUDENTIAL MUTUAL FUNDS, INCLUDING ONE
OR MORE SPECIFIED MONEY MARKET FUNDS, SUBJECT TO THE MINIMUM INVESTMENT
REQUIREMENTS OF SUCH FUNDS. CLASS A, CLASS B, CLASS C AND CLASS Z SHARES MAY BE
EXCHANGED FOR CLASS A, CLASS B, CLASS C AND CLASS Z SHARES, RESPECTIVELY, OF
ANOTHER FUND ON THE BASIS OF THE RELATIVE NAV. No sales charge will be imposed
at the time of exchange. Any applicable CDSC payable upon the redemption of
shares exchanged will be that imposed by the fund in which shares are initially
purchased and will be calculated from the first day of the month after the
initial purchase, excluding the time shares were held in a money market fund.
Class B and Class C shares may not be exchanged into money market funds other
than Prudential Special Money Market Fund, Inc. For purposes of calculating the
holding period applicable to the Class B conversion feature, the time period
during which Class B shares were held in a money market fund will be excluded.
See "Conversion Feature--Class B Shares" above. An exchange will be treated as a
redemption and purchase for tax purposes. See "Shareholder Investment
Account--Exchange Privilege" in the Statement of Additional Information.
IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE TELEPHONE
EXCHANGES ON YOUR INITIAL APPLICATION FORM OR BY WRITTEN NOTICE TO THE TRANSFER
AGENT AND HOLD SHARES IN NON-CERTIFICATE FORM. Thereafter, you may call the Fund
at (800) 225-1852 to execute a telephone exchange of shares, on weekdays, except
holidays, between the hours of 8:00 A.M. and 6:00 P.M., New York time. For your
protection and to prevent fraudulent exchanges, your telephone call will be
recorded and you will be asked to provide your personal identification number. A
written confirmation of the exchange transaction will be sent to you. NEITHER
THE FUND NOR ITS AGENTS WILL BE LIABLE FOR ANY LOSS, LIABILITY OR COST WHICH
RESULTS FROM ACTING UPON INSTRUCTIONS REASONABLY BELIEVED TO BE GENUINE UNDER
THE FOREGOING PROCEDURES. (THE FUND OR ITS AGENTS COULD BE SUBJECT TO LIABILITY
IF THEY FAIL TO EMPLOY REASONABLE PROCEDURES.) All exchanges will be made on the
basis of the relative NAV of the two funds next determined after the request is
received in good order.
The exchange privilege is available only in states where the exchange may
legally be made.
IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.
34
<PAGE>
IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON
THE FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services, Inc., Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
IN PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS THE TELEPHONE EXCHANGE
OF SHARES MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD MAKE EXCHANGES BY MAIL BY
WRITING TO PRUDENTIAL MUTUAL FUND SERVICES, INC., AT THE ADDRESS NOTED ABOVE.
SPECIAL EXCHANGE PRIVILEGES. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV (see "Alternative
Purchase Plan--Class A Shares--Reduction and Waiver of Initial Sales Charges"
above) and for shareholders who qualify to purchase Class Z shares (see
"Alternative Purchase Plan--Class Z Shares" above). Under this exchange
privilege, amounts representing any Class B and Class C shares (which are not
subject to a CDSC) held in such a shareholder's account will be automatically
exchanged for Class A shares for shareholders who qualify to purchase Class A
shares at NAV on a quarterly basis, unless the shareholder elects otherwise.
Similarly, shareholders who qualify to purchase Class Z shares, will have their
Class B and Class C shares which are not subject to a CDSC and their Class A
shares exchanged for Class Z shares on a quarterly basis. Eligibility for this
exchange privilege will be calculated on the business day prior to the date of
the exchange. Amounts representing Class B or Class C shares which are not
subject to a CDSC include the following: (1) amounts representing Class B or
Class C shares acquired pursuant to the automatic reinvestment of dividends and
distributions, (2) amounts representing the increase in the net asset value
above the total amount of payments for the purchase of Class B or Class C shares
and (3) amounts representing Class B or Class C shares held beyond the
applicable CDSC period. Class B and Class C shareholders must notify the
Transfer Agent either directly or through Prudential Securities or Prusec that
they are eligible for this special exchange privilege.
Participants in any fee-based program for which the Fund is an available
option will have their Class A shares, if any, exchanged for Class Z shares when
they join the program. Upon leaving the program (whether voluntarily or not),
such Class Z shares (and, to the extent provided for in the program, Class Z
shares acquired through participation in the program) will be exchanged for
Class A shares at net asset value. Similarly, participants in PSI's 401(k) Plan
for which the Fund's Class Z shares is an available option and who wish to
transfer their Class Z shares out of the PSI 401(k) Plan following separation of
service (i.e., voluntary or involuntary termination of employment or retirement)
will have their Class Z shares exchanged for Class A shares at net asset value.
The Fund reserves the right to reject any exchange order including
exchanges (and market timing transactions) which are of a size and/or frequency
engaged in by one or more accounts acting in concert or otherwise, that have or
may have an adverse effect on the ability of the Subadviser to manage the
portfolio. The determination that such exchanges or activity may have an adverse
effect and the determination to reject any exchange order shall be in the
discretion of the Manager and the Subadviser.
The Exchange Privilege is not a right and may be suspended, modified or
terminated at any time.
SHAREHOLDER SERVICES
In addition to the exchange privilege, as a shareholder in the Fund, you
can take advantage of the following additional services and privileges:
o AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTION WITHOUT A SALES
CHARGE. For your convenience, all dividends and distributions are automatically
reinvested in full and fractional shares of the Fund at NAV without a sales
charge. You may direct the Transfer Agent in writing not less than 5 full
business days prior to the record date to have
35
<PAGE>
subsequent dividends and/or distributions sent in cash rather than reinvested.
If you hold shares through Prudential Securities, you should contact your
financial adviser.
o AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP). Under ASAP you may make
regular purchases of the Fund's shares in amounts as little as $50 via an
automatic debit to a bank account or Prudential Securities account (including a
Command Account). For additional information about this service, you may contact
your Prudential Securities financial adviser, Prusec registered representative
or the Transfer Agent directly.
o TAX-DEFERRED RETIREMENT PLANS. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue Code
are available through the Distributor. These plans are for use by both
self-employed individuals and corporate employers. These plans permit either
self-direction of accounts by participants, or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from Prudential Securities or the
Transfer Agent. If you are considering adopting such a plan, you should consult
with your own legal or tax adviser with respect to the establishment and
maintenance of such a plan.
o SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders, which provides for monthly or quarterly checks. Withdrawals of
Class B and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares--Contingent Deferred Sales Charges." See also "Shareholder Investment
Account--Systematic Withdrawal Plan" in the Statement of Additional Information.
o REPORTS TO SHAREHOLDERS. The Fund will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses, the Fund will provide one annual and semi-annual shareholder report
and annual prospectus per household. You may request additional copies of such
reports by calling (800) 225-1852 (toll-free) or by writing to the Fund at 21
Prudential Plaza, 751 Broad Street, Newark, New Jersey 07102-3777. In addition,
monthly unaudited financial data are available upon request from the Fund.
o SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Fund at 21
Prudential Plaza, 751 Broad Street, Newark, New Jersey 07102-3777, or by
telephone, at (800) 225-1852 (toll-free) or, from outside the U.S.A. at (908)
417-7555 (collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
36
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
Prudential Mutual Fund Management offers a broad range of mutual funds
designed to meet your individual needs. We welcome you to review the investment
options available through our family of funds. For more information on the
Prudential Mutual Funds, including charges and expenses, contact your Prudential
Securities financial adviser or Prusec representative or telephone the Fundat
(800) 225-1852 for a free prospectus. Read the prospectus carefully before you
invest or send money.
TAXABLE BOND FUNDS
Prudential Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Mortgage Income Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
The BlackRock Government Income Trust
TAX-EXEMPT BOND FUNDS
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Intermediate Series
Prudential Municipal Series Fund
Florida Series
Hawaii Income Series
Maryland Series
Massachusetts Series
Michigan Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
GLOBAL FUNDS
Prudential Europe Growth Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series
The Global Government Plus Fund, Inc.
The Global Total Return Fund, Inc.
Global Utility Fund, Inc.
EQUITY FUNDS
Prudential Allocation Fund
Balanced Portfolio
Strategy Portfolio
Prudential Distressed Securities Fund, Inc.
Prudential Dryden Fund
Prudential Active Balanced Fund
Prudential Stock Index Fund
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Jennison Series Fund, Inc.
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Multi-Sector Fund, Inc.
Prudential Small Companies Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
MONEY MARKET FUNDS
o Taxable Money Market Funds
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund, Inc.
Money Market Series
Prudential MoneyMart Assets, Inc.
o Tax-Free Money Market Funds
Prudential Tax-Free Money Fund, Inc.
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
o Command Funds
Command Money Fund
Command Government Fund
Command Tax-Free Fund
o Institutional Money Market Funds
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
A-1
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained herein, and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. This Prospectus does not
constitute an offer by the Fund or by the Distributor to sell or a solicitation
of any offer to buy any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer in such jurisdiction.
TABLE OF CONTENTS
PAGE
----
FUND HIGHLIGHTS ....................................................... 2
Risk Factors and Special Characteristics ............................. 2
FUND EXPENSES ......................................................... 5
FINANCIAL HIGHLIGHTS .................................................. 6
HOW THE FUND INVESTS .................................................. 7
Investment Objective and Policies .................................... 7
Other Investments and Policies ....................................... 12
Risk Factors and Special Considerations of
Investing in Foreign Securities ..................................... 14
Risk Factors Relating to Investing in Debt
Securities Rated Below Investment Grade
(Junk Bonds) ........................................................ 14
Hedging and Return Enhancement Strategies ............................ 15
Investment Restrictions .............................................. 18
HOW THE FUND IS MANAGED ............................................... 19
Manager .............................................................. 19
Subadvisers .......................................................... 19
Distributor .......................................................... 20
Fee Waivers and Subsidy .............................................. 21
Portfolio Transactions ............................................... 22
Custodian and Transfer and
Dividend Disbursing Agent ........................................... 22
HOW THE FUND VALUES ITS SHARES ........................................ 22
HOW THE FUND CALCULATES PERFORMANCE ................................... 22
TAXES, DIVIDENDS AND DISTRIBUTIONS .................................... 23
GENERAL INFORMATION ................................................... 25
Description of Shares ................................................ 25
Additional Information ............................................... 25
SHAREHOLDER GUIDE ..................................................... 26
How to Buy Shares of the Fund ........................................ 26
Alternative Purchase Plan ............................................ 27
How to Sell Your Shares .............................................. 30
Conversion Feature--Class B Shares ................................... 33
How to Exchange Your Shares .......................................... 34
Shareholder Services ................................................. 35
THE PRUDENTIAL MUTUAL FUND FAMILY ..................................... A-1
MF172A
Class A:
CUSIP Nos.: Class B:
Class C:
Class Z:
Prudential
Active
Balanced
Fund
PROSPECTUS
, 1996
Prudential Mutual Funds
Building Your Future [LOGO]
On Our Strength[sm]
<PAGE>
PRUDENTIAL STOCK INDEX FUND
- --------------------------------------------------------------------------------
PROSPECTUS DATED _________________, 1996
- --------------------------------------------------------------------------------
Prudential Stock Index Fund (the Fund) is a series of Prudential Dryden
Fund (formerly The Prudential Institutional Fund) (the Company), a
diversified, open-end, management investment company. The Fund's investment
objective is to seek to provide investment results that correspond to the
price and yield performance of Standard & Poor's 500 Composite Stock Price
Index (S&P 500). There can be no assurance that the Fund's investment
objective will be achieved. See "How the Fund Invests--Investment Objective
and Policies." The Fund's address is 21 Prudential Plaza, 751 Broad Street,
Newark, NJ 07102-3777, and its telephone number is (800) 225-1852.
THE FUND RESERVES THE RIGHT TO BORROW MONEY FOR TEMPORARY, EXTRAORDINARY OR
EMERGENCY PURPOSES AND IN ORDER TO TAKE ADVANTAGE OF INVESTMENT
OPPORTUNITIES, WHICH MAY BE CONSIDERED SPECULATIVE DUE TO THE INCREASED
COSTS AND EXPENSES INVOLVED.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. Additional information
about the Fund has been filed with the Securities and Exchange Commission
in a Statement of Additional Information, dated _____________, 1996, which
information is incorporated herein by reference (is legally considered a
part of this Prospectus) and is available without charge upon request to
the Fund at the address or telephone number noted above.
- --------------------------------------------------------------------------------
Investors are advised to read this Prospectus and retain it for future
reference.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
FUND HIGHLIGHTS
The following summary is intended to highlight certain information
contained in this Prospectus and is qualified in its entirety by the more
detailed information appearing elsewhere herein.
WHAT IS PRUDENTIAL STOCK INDEX FUND?
Prudential Stock Index Fund is a mutual fund. A mutual fund pools the
resources of investors by selling its shares to the public and investing the
proceeds of such sale in a portfolio of securities designed to achieve its
investment objective. Technically, the Company is a diversified, open-end,
management investment company.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to seek to provide investment results
that correspond to the price and yield performance of Standard & Poor's 500
Composite Stock Price Index. There can be no assurance that the Fund's
investment objective will be achieved. See "How the Fund Invests--Investment
Objective and Policies" at page .
RISK FACTORS AND SPECIAL CHARACTERISTICS
The Fund's performance will not 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. Potential tracking differences, brokerage and other
transaction costs and other Fund expenses may cause the Fund's return to be
lower then the return of the S&P 500 Index.
The Fund may also engage in various hedging and return enhancement
strategies and invest in derivative securities. See "How the Fund
Invests--Hedging and Return Enhancement Strategies--Risks of Hedging and Return
Enhancement Strategies" at page .
WHO MANAGES THE FUND?
Prudential Mutual Fund Management LLC (PMF or the Manager), is the manager
of the Company and is compensated for its services at an annual rate of .30 of
1% of average daily net assets of the Fund. As of September 30, 1996, PMF served
as manager or administrator to 60 investment companies, including 38 mutual
funds, with aggregate assets of approximately $52 billion. The Prudential
Investment Corportion, (PIC, the Subadviser or the investment adviser) furnishes
investment advisory services in connection with the management of the Fund under
a bSubadvisory Agreement with PMF. See "How the Fund is Managed--Manager" at
page and "How the Fund is Managed--Subadviser" at page .
2
<PAGE>
WHO DISTRIBUTES THE FUND'S SHARES?
Prudential Securities Incorporated (Prudential Securities or PSI), a major
securities underwriter and securities and commodities broker, acts as the
Distributor of the Fund's shares. Prudential Securities incurs the expense of
distributing the Fund's shares under a Distribution Agreement with the Company,
none of which is reimbursed or paid for by the Fund. See "How the Fund is
Managed--Distributor" at page .
WHAT IS THE MINIMUM INVESTMENT?
There is no minimum initial or subsequent investment requirement for
investors who qualify to purchase shares. See "Shareholder Guide--How to Buy
Shares of the Fund" at page and "Shareholder Guide--Shareholder Services" at
page .
HOW DO I PURCHASE SHARES?
You may purchase shares of the Fund through Prudential Securities, Pruco
Securities Corporation (Prusec) or directly from the Fund, through its transfer
agent, Prudential Mutual Fund Services, Inc. (PMFS or the Transfer Agent), at
the net asset value per share (NAV) next determined after receipt of your
purchase order by the Transfer Agent or Prudential Securities. Shares of the
Fund are offered to a limited group of investors at net asset value without any
sales charge. [Participants in programs sponsored by Prudential Retirement
Services should contact their client representative for more information about
purchasing shares of the Fund.] See "How The Fund Values its Shares" at page and
"Shareholder Guide--How to Buy Shares of the Fund" at page .
WHAT ARE MY PURCHASE ALTERNATIVES?
The Fund offers one class of shares, sold without an initial or contingent
deferred sales charge to a limited group of investors. Shares of the Fund are
not subject to any ongoing service or distribution-related expenses.
HOW DO I SELL MY SHARES?
You may redeem your shares at any time at the NAV next determined after
Prudential Securities or the Transfer Agent receives your sell order.
Participants in programs sponsored by Prudential Retirement Services should
contact their client representative for more information about selling their
shares. See "Shareholder Guide--How to Sell Your Shares" at page .
HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?
The Fund expects to pay dividends of net investment income, if any, and
distributions of any net capital gains at least annually. Dividends and
distributions will be automatically reinvested in additional shares of the Fund
at NAV without a sales charge unless you request that they be paid to you in
cash. See "Taxes, Dividends and Distributions" at page .
3
<PAGE>
FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES+
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price) ..................................................... None
Maximum Sales Load or Deferred Sales Load Imposed on Reinvested
Dividends ........................................................... None
Maximum Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, whichever is lower) .......... None
Redemption Fees ....................................................... None
Exchange Fee .......................................................... None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees ....................................................... .30%
12b-1 Fees ............................................................ None
Other Expenses ........................................................ .28%
---
Total Fund Operating Expenses ......................................... .58%
===
1 3 5 10
EXAMPLE YEAR YEARS YEARS YEARS
---- ----- ----- -----
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return 6 19 32 73
and (2) redemption at the end of each
time period:
The above example is based on restated data for the Fund's fiscal year
ended September 30, 1996 which would be expected to have been incurred if the
Fund operated in accordance with the new fee and operating expense arrangements
which will go into effect subsequent to October 30, 1996. The example should not
be considered a representation of past or future expenses. Actual expenses may
be greater or less than those shown.
The purpose of this table is to assist investors in understanding the
various types of costs and expenses that an investor in the Fund will bear,
whether directly or indirectly. For more complete descriptions of the various
costs and expenses, see "How the Fund is Managed." "Other Expenses" includes
estimated operating expenses of the Fund, such as Trustees' and professional
fees, registration fees, reports to shareholders and transfer agency and
custodian fees.
4
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
The following financial highlights have been audited by Deloitte & Touche
LLP, independent accountants, whose report thereon was unqualified. This
information should be read in conjunction with the financial statements and
notes thereto, which appear in the Statement of Additional Information. The
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 period indicated. The information is based on data contained in the
financial statements. Further performance information is contained in the annual
report, which may be obtained without charge. See "Shareholder Guide --
Shareholder Services -- Reports to Shareholders."
<TABLE>
<CAPTION>
November 5,
Six Months Year Ended 1992(A)
Ended September 30, Through
March 31, -------------------- September
1996 1995 1994 30,1993
---------- ------ ------ -------
PER SHARE OPERATING PERFORMANCE: (Unaudited)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........................ $14.22 $11.27 $11.12 $10.00
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(b) .................................... .12 .23 .26 .23
Net realized and unrealized gain (loss) on investment
and foreign currency transactions ......................... 1.46 2.97 .11 .94
------ ------ ------ ------
Total from investment operations ........................ 1.58 3.20 .37 1.17
------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income ........................ (.28) (.22) (.18) (.05)
Distributions from net realized income ...................... (.57) (.03) (.04) --
------ ------ ------ ------
Total distributions ..................................... (.85) (.25) (.22) (.05)
------ ------ ------ ------
Net asset value, end of period .............................. $14.95 $14.22 $11.27 $11.12
====== ====== ====== ======
TOTAL RETURN(D): ............................................ 11.44% 29.02% 3.33% 11.73%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ............................. $147,085 $101,945 $50,119 $27,142
Average net assets (000) .................................... $121,227 $ 71,711 $38,098 $18,807
Ratios to average net assets(b):
Expenses .................................................. .60%(c) .60% .60% .60%(c)
Net investment income ..................................... 1.91%(c) 2.55% 2.34% 2.41%(c)
Portfolio turnover rate ..................................... 1% 11% 2% 1%
Average commission rate per share ........................... $ 0.0250 N/A N/A N/A
</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
<PAGE>
HOW THE FUND INVESTS
INVESTMENT OBJECTIVE AND POLICIES
THE FUND'S INVESTMENT OBJECTIVE IS TO SEEK TO PROVIDE INVESTMENT RESULTS
THAT CORRESPOND TO THE PRICE AND YIELD PERFORMANCE OF STANDARD & POOR'S 500
COMPOSITE STOCK PRICE INDEX (S & P 500 INDEX). THERE CAN BE NO ASSURANCE THAT
THE FUND'S OBJECTIVE WILL BE ACHIEVED. See "Investment Objectives and Policies"
in the Statement of Additional Information.
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 "Investment Objectives
and Policies--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 the Fund by PIC, the investment 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 that 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
<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.
THE FUND'S INVESTMENT OBJECTIVE IS A FUNDAMENTAL POLICY AND THEREFORE MAY
NOT BE CHANGED WITHOUT THE APPROVAL OF THE HOLDERS OF A MAJORITY OF THE FUND'S
OUTSTANDING VOTING SECURITIES, AS DEFINED IN THE INVESTMENT COMPANY ACT OF 1940
(THE INVESTMENT COMPANY ACT). INVESTMENT POLICIES THAT ARE NOT FUNDAMENTAL MAY
BE MODIFIED BY THE BOARD OF TRUSTEES.
EQUITY-RELATED SECURITIES
The Fund may invest in equity-related securities. Equity-related securities
are common stocks, preferred stocks, rights, warrants and debt securities or
preferred stocks which are convertible or exchangeable for common stocks or
preferred stocks. See "Convertible Securities, Warrants and Rights" in the
Statement of Additional Information.
SECURITIES OF FOREIGN ISSUERS
The Fund may invest a portion of its assets in equity securities of foreign
issuers (denominated in U.S. currency). The Fund may purchase american
depository receipts (ADRs), which 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.
U.S. GOVERNMENT SECURITIES
The Fund may invest in securities issued or guaranteed by the U.S. Treasury
or by an agency or instrumentality of the U.S. Government. Not all U.S.
Government securities are backed by the full faith and credit of the United
States. Some are supported only by the credit of the issuing agency. See
"Investment Objectives and Policies--Other Investments and Policies--U.S.
Government Securities" in the Statement of Additional Information.
MONEY MARKET INSTRUMENTS
The Fund may invest in high quality money market instruments, including
commercial paper of a U.S. or non U.S. company, foreign government securities,
certificates of deposit, bankers' acceptances and time deposits of domestic and
foreign banks, and obligations issued or guaranteed by the U.S. Government, its
agencies and instrumentalities. These obligations will be U.S. dollar
denominated [or denominated in a foreign currency]. Money market instruments
typically have a maturity of one year or less as measured from the date of
purchase. The Fund may invest in money market instruments without limit for
temporary defensive and cash management purposes. To the extent the Fund
otherwise invests in money market instruments, it is subject to the limitations
described above.
7
<PAGE>
OTHER INVESTMENTS AND POLICIES
BORROWING
The Fund may borrow an amount equal to no more than 20% of the value of its
total assets (calculated when the loan is made) from banks or through forward
rolls, dollar rolls or reverse repurchase agreements for temporary,
extraordinary or emergency purposes or for the clearance of transactions. The
Fund may pledge up to 20% of its total assets to secure these borrowings. If the
Fund's asset coverage for borrowings falls below 300%, the Fund will take prompt
action to reduce its borrowings. The Fund will not purchase portfolio securities
when borrowings exceed 5% of the value of its total assets. See "Investment
Objectives and Policies--Other Investments and Policies--Borrowing" in the
Statement of Additional Information.
ILLIQUID SECURITIES
The Fund may hold up to 10% of its net assets in illiquid securities,
including 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 investment adviser will monitor the liquidity of such restricted securities
under the supervision of the Trustees. 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 limited time, uninterested in
purchasing Rule 144A securities. The Fund intends to comply with any applicable
state blue sky laws restricting the Fund's investments in illiquid securities.
See "Investment Restrictions" in the Statement of Additional Information.
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
over-the-counter (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 OTC option. The
exercise of such an option would ordinarily 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 securities 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. See "Investment Objectives and Policies--Illiquid Securities" in the
Statement of Additional Information.]
REPURCHASE AGREEMENTS
The Fund will enter into repurchase agreements whereby the seller of the
security agrees to repurchase that security from the Fund at a mutually
agreed-upon time and price. The repurchase date is usually within a day or two
of the original purchase, although it may extend over a number of months. The
Fund's repurchase agreements will at all times be fully collateralized in an
amount at least equal to the resale price. In the event of a default or
bankruptcy by a seller, the Fund will promptly seek to liquidate the collateral.
To the extent that the proceeds from any sale of such collateral upon a default
in the obligation to repurchase are less than the repurchase price, the Fund
will suffer a loss. The Fund may participate in a joint repurchase account
managed by PIC. See "Investment Objectives and Policies--Other Investments and
Policies--Repurchase Agreements" in the Statement of Additional Information.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Fund may purchase or sell securities (including equity securities) on a
when-issued or delayed delivery basis. When-issued or delayed delivery
transactions arise when securities are purchased or sold by the Fund with
payment and
8
<PAGE>
delivery taking place in the future in order to secure what is considered to be
an advantageous price and/or yield to the Fund at the time of entering into the
transaction. While the Fund will only purchase securities on a when-issued or
delayed delivery basis with the intention of acquiring the securities, the Fund
may sell the securities before the settlement date, if it is deemed advisable.
At the time the Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, the Fund will record the transaction and
thereafter reflect the value, each day, of such security in determining the net
asset value of the Fund. At the time of delivery of the securities, the value
may be more or less than the purchase price. The Fund's Custodian will maintain,
in a segregated account of the Fund, cash, equity securities or other liquid
unencumbered assets, marked to market daily having a value equal to or greater
than the Fund's purchase commitments. Subject to this requirement, the Fund may
purchase securities on such basis without limit. See "Investment Objectives and
Policies--Other Investments and Policies--When-Issued and Delayed Delivery
Securities" in the Statement of Additional Information.
SECURITIES LENDING
The Fund may lend its portfolio securities to brokers or dealers, banks or
other recognized institutional borrowers of securities, provided that the
borrower at all times maintains cash or equivalent collateral or secures a
letter of credit in favor of the Fund in an amount equal to at least 100%,
determined daily, of the market value of the securities loaned which are
maintained in a segregated account pursuant to applicable regulations. During
the time portfolio 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 the cash collateral and earn additional income, or it may
receive an agreed-upon amount of interest income from the borrower. As with any
extensions of credit, there are risks of delay in recovery and in some cases
loss of rights in the collateral should the borrower of the securities fail
financially. As a matter of fundamental policy, the Fund cannot lend more than
30% of the value of its total assets. See "Investment Objectives and
Policies--Other Investments and Policies--Securities Lending" in the Statement
of Additional Information. The Fund may pay reasonable administration and
custodial fees in connection with a loan.
SEGREGATED ACCOUNTS. The Fund will establish a segregated account with its
Custodian in which it will maintain cash, U.S. Government securities, equity
securities or other liquid, unencumbered assets equal in value to its
obligations in respect of potentially leveraged transactions, including forward
contracts, when-issued and delayed delivery securities, repurchase agreements,
futures contracts, written options and options on futures contracts (unless
otherwise covered). The assets deposited in the segregated account will be
marked-to-market daily.
HEDGING AND RETURN ENHANCEMENT STRATEGIES
THE FUND MAY ALSO ENGAGE IN VARIOUS PORTFOLIO STRATEGIES TO REDUCE CERTAIN
RISKS OF ITS INVESTMENTS AND TO ATTEMPT TO ENHANCE RETURN. These strategies
currently include the use of derivatives, such as options, and futures contracts
and options thereon. The Fund's ability to use these strategies may be limited
by market conditions, regulatory limits and tax considerations and there can be
no assurance that any of these strategies will succeed. See "Investment
Objectives and Policies" and "Taxes" in the Statement of Additional Information.
PIC does not intend to buy all of these instruments or use all of these
strategies to the full extent permitted unless it believes that doing so will
help the Fund achieve its objective. New financial products and risk management
techniques continue to be developed and the Fund may use these new investments
and techniques to the extent consistent with its investment objective and
policies.
OPTIONS TRANSACTIONS
THE FUND MAY PURCHASE AND WRITE (I.E., 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. THESE OPTIONS ARE TRADED ON U.S. [OR
FOREIGN SECURITIES] EXCHANGES OR IN THE OVER-THE-COUNTER MARKET TO HEDGE ITS
PORTFOLIO. The Fund may write
9
<PAGE>
covered put and call options to generate additional income through the receipt
of premiums, purchase put options in an effort to protect the value of
securities that it owns against a decline in market value and purchase call
options in an effort to protect against an increase in the price of securities
it intends to purchase. The Fund may also purchase put and call options to
offset previously written put and call options of the same series. See
"Investment Objectives and Policies--Other Investments and Policies--Options on
Securities and Securities Indices" in the Statement of Additional Information.
A CALL OPTION GIVES THE PURCHASER, IN EXCHANGE FOR A PREMIUM PAID, THE
RIGHT FOR A SPECIFIED PERIOD OF TIME TO PURCHASE THE SECURITIES OR SECURITIES IN
THE INDEX SUBJECT TO THE OPTION AT A SPECIFIED PRICE (THE EXERCISE PRICE OR
STRIKE PRICE). The writer of a call option, in return for the premium, has the
obligation, upon exercise of the option, to deliver, depending upon the terms of
the option contract, the underlying securities or a specified amount of cash to
the purchaser upon receipt of the exercise price. When the Fund writes a call
option, the Fund gives up the potential for gain on the underlying securities or
in excess of the exercise price of the option during the period that the option
is open.
A PUT OPTION GIVES THE PURCHASER, IN RETURN FOR A PREMIUM, THE RIGHT, FOR A
SPECIFIED PERIOD OF TIME, TO SELL THE SECURITIES SUBJECT TO THE OPTION TO THE
WRITER OF THE PUT AT THE SPECIFIED EXERCISE PRICE. The writer of the put option,
in return for the premium, has the obligation, upon exercise of the option, to
acquire the securities underlying the option at the exercise price. The Fund
might, therefore, be obligated to purchase the underlying securities for more
than their current market price.
THE FUND WILL WRITE ONLY "COVERED" OPTIONS. An option is covered if, so
long as the Fund is obligated under the option, it owns an offsetting position
in the underlying security or maintains cash, U.S. Government securities, equity
securities or other liquid, unencumbered assets, marked to market daily, with a
value sufficient to cover its obligations. See "Investment Objectives and
Policies--Other Investments and Policies--Options on Securities and Securities
Indices" in the Statement of Additional Information. There is no limitation on
the amount of call options the Fund may write. [The Fund has undertaken with
certain state securities commissions that, so long as shares of the Fund are
registered in those states, it will not (a) write puts having aggregate exercise
prices greater than 25% of total net assets, (b) invest more than 10% of its
total assets in puts and calls, or (c) purchase (i) put options on stocks not
held in its portfolio, (ii) put options on stock indices or (iii) call options
on stock, stock indices if, after any such purchase, the aggregate premiums paid
for such options would exceed 10% of the Fund's total assets; provided, however,
that the Fund may purchase put options on stocks held by the Fund if after such
purchase the aggregate premiums paid for such options do not exceed 20% of the
Fund's total assets. The aggregate value of the securities underlying call
options and the obligations underlying put options (as of the date the options
are sold) will not exceed 25% of the Fund's net assets.]
The 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.
The Fund may purchase and sell put and call options on securities indices.
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. When
purchasing or selling securities index options, the Fund is subject to the risk
that the value of its portfolio securities may not change as much as or more
than the index because the Fund's investments generally will not match the
composition of the index. See "Investment Objectives and Policies--Other
Investments and Policies--Options on Securities and Securities Indices" and
"Taxes" in the Statement of Additional Information.
10
<PAGE>
FUTURES CONTRACTS AND OPTIONS THEREON
THE FUND MAY PURCHASE AND SELL FINANCIAL FUTURES CONTRACTS AND OPTIONS
THEREON WHICH ARE TRADED ON A COMMODITIES EXCHANGE OR BOARD OF TRADE TO REDUCE
CERTAIN RISKS OF ITS INVESTMENTS AND TO ATTEMPT TO ENHANCE RETURN IN
ACCORDANCE WITH REGULATIONS OF THE COMMODITY FUTURES TRADING COMMISSION (CFTC).
These futures contracts and related options will be on securities indices. A
futures contract is an agreement to purchase or sell an agreed amount of
securities at a set price for delivery in the future. A stock index futures
contract is an agreement to purchase or sell cash equal to a specific dollar
amount times the difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of the underlying stocks in the index is
made. The Fund may purchase and sell futures contracts or related options as a
hedge against changes in market conditions.
The Fund may not purchase or sell futures contracts and related options to
attempt to enhance return, if immediately thereafter the sum of the amount of
initial margin deposits on the Fund's existing futures and options on futures
and premiums paid for such related options would exceed 5% of the liquidation
value of the Fund's total assets. The Fund may purchase and sell futures
contracts and related options, without limitation, for bona fide hedging
purposes in accordance with regulations of the CFTC (i.e., to reduce certain
risks of its investments). The value of all futures contracts sold will not
exceed the total market value of the Fund's portfolio.
Futures contracts and related options are generally subject to segregation
and coverage requirements of the CFTC or the SEC. If the Fund does not hold the
security underlying the futures contract, the Fund will be required to segregate
on an ongoing basis with its Custodian cash, U.S. Government securities, equity
securities or other liquid, unencumbered assets, marked to market daily, in an
amount at least equal to the Fund's obligations with respect to such futures
contracts.
THE FUND'S SUCCESSFUL USE OF FUTURES CONTRACTS AND RELATED OPTIONS AND
IS SUBJECT TO VARIOUS ADDITIONAL RISKS. The correlation between movements in the
price of a futures contract and the movements in the index is imperfect and
there is a risk that the value of the indices underlying the futures contract
may increase or decrease at a greater rate than the related futures contracts
resulting in losses to the Fund. Certain futures exchanges or boards of trade
have established daily limits on the amount that the price of futures contracts
or related options may vary, either up or down, from the previous day's
settlement price. These daily limits may restrict the Fund's ability to purchase
or sell certain futures contracts or related options on any particular day.
The Fund's ability to enter into futures contracts and options thereon is
limited by the requirements of the Internal Revenue Code for qualification as a
regulated investment company. See "Investment Objectives and Policies" and
"Taxes" in the Statement of Additional Information.
RISKS OF HEDGING AND RETURN ENHANCEMENT STRATEGIES
PARTICIPATION IN THE OPTIONS OR FUTURES MARKETS INVOLVES INVESTMENT RISKS
AND TRANSACTION COSTS TO WHICH THE FUND WOULD NOT BE SUBJECT ABSENT THE USE OF
THESE STRATEGIES. Risks inherent in the use of options, futures contracts and
options on futures contracts include (1) imperfect correlation between the price
of options and futures contracts and options thereon and movements in the prices
of the securities being hedged; (2) the fact that skills needed to use these
strategies are different from those needed to select portfolio securities; (3)
the possible absence of a liquid secondary market for any particular instrument
at any time; (4) the possible need to defer closing out certain hedged positions
to avoid adverse tax consequences; and (5) the possible inability of the Fund to
purchase or sell a portfolio security at a time that otherwise would be
favorable for it to do so, or the possible need for the Fund to sell a portfolio
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
"Taxes" in the Statement of Additional Information.
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The Fund will generally purchase options and futures on an exchange only if
there appears to be a liquid secondary market for such options or futures; the
Fund will generally purchase OTC options only if the investment adviser believes
that the other party to options will continue to make a market for such options.
However, there can be no assurance that a liquid secondary market will continue
to exist or that the other party will continue to make a market. Thus, it may
not be possible to close an options or futures transaction. The inability to
close options and futures positions also could have an adverse impact on the
Fund's ability to effectively hedge its portfolio. There is also the risk of
loss by the Fund of margin deposits or collateral in the event of bankruptcy of
a broker with whom the Fund has an open position in an option, a futures
contract or related option.
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company Act.
See "Investment Restrictions" in the Statement of Additional Information.
HOW THE FUND IS MANAGED
THE COMPANY HAS A BOARD OF TRUSTEES WHICH, IN ADDITION TO OVERSEEING THE
ACTIONS OF THE FUND'S MANAGER, SUBADVISER AND DISTRIBUTOR, DECIDES UPON MATTERS
OF GENERAL POLICY. THE FUND'S MANAGER CONDUCTS AND SUPERVISES THE DAILY BUSINESS
OPERATIONS OF THE FUND. THE FUND'S SUBADVISER FURNISHES DAILY INVESTMENT
ADVISORY SERVICES.
For the fiscal year ended September 30, 1996, total expenses as a
percentage of average net assets were 60%.
MANAGER
PRUDENTIAL MUTUAL FUND MANAGEMENT LLC (PMF OR THE MANAGER), ONE SEAPORT
PLAZA, NEW YORK, NEW YORK 10292, IS THE MANAGER OF THE COMPANY AND IS
COMPENSATED FOR ITS SERVICES AT AN ANNUAL RATE OF .30 OF 1% OF THE FUND'S
AVERAGE DAILY NET ASSETS.It was established as a New York limited liability
company in 1996. See "Manager" in the Statement of Additional Information. Prior
to October 30, 1996, the Manager of the Fund was Prudential Institutional Fund
Management, Inc. It was compensated for its services at an annual rate of .40%
of 1% of the Fund's average daily net assets.
As of September 30, 1996, PMF served as the manager to 37 open-end
investment companies, constituting all of the Prudential Mutual Funds, and as
manager or administrator to 22 closed-end investment companies with aggregate
assets of approximately $52 billion.
Under the Management Agreement with the Company, PMF manages the investment
operations of the Fund and also administers the Company's business affairs. See
"Manager" in the Statement of Additional Information.
SUBADVISER
THE PRUDENTIAL INVESTMENT CORPORATION, 751 BROAD STREET, NEWARK, NEW JERSEY
07102, SERVES AS SUBADVISER TO THE FUND.
PURSUANT TO A SUBADVISORY AGREEMENT WITH PMF, PIC FURNISHES INVESTMENT
ADVISORY SERVICES IN CONNECTION WITH THE MANAGEMENT OF THE COMPANY AND IS
REIMBURSED FOR ALL REASONABLE COSTS AND EXPENSES INCURRED BY PIC.
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Under the Subadvisory Agreement, PIC, subject to the supervision of PMF, is
responsible for managing the assets of the Fund in accordance with its
investment objective, investment program and policies. PIC determines what
securities and other instruments are purchased and sold for the Fund and is
responsible for obtaining and evaluating financial data relevant to the Fund.
Prudential Diversified Investment Strategies (PDI Strategies), a unit of
PIC, is responsible for the day-to-day management of the Fund. PDI Strategies
employs a team approach to the management of the Fund.
PMF and PIC are wholly owned subsidiaries of The Prudential Insurance
Company of America (Prudential), a major diversified insurance and financial
services company.
DISTRIBUTOR
PRUDENTIAL SECURITIES INCORPORATED (PRUDENTIAL SECURITIES OR PSI), ONE
SEAPORT PLAZA, NEW YORK, NEW YORK 10292, IS A CORPORATION ORGANIZED UNDER THE
LAWS OF THE STATE OF DELAWARE AND SERVES AS THE DISTRIBUTOR OF THE SHARES OF THE
FUND. IT IS AN INDIRECT, WHOLLY OWNED SUBSIDIARY OF PRUDENTIAL.
UNDER A DISTRIBUTION AGREEMENT (THE DISTRIBUTION AGREEMENT), PRUDENTIAL
SECURITIES (ALSO THE DISTRIBUTOR) INCURS THE EXPENSES OF DISTRIBUTING THE FUND'S
SHARES, NONE OF WHICH IS REIMBURSED BY OR PAID FOR BY THE FUND. These expenses
include commissions and account servicing fees paid to, or on account of,
financial advisers of Prudential Securities and Pruco Securities Corporation
(Prusec), an affiliated broker-dealer, commissions and account servicing fees
paid to, or on account of, other broker-dealers or financial institutions (other
than national banks) which have entered into agreements with the Distributor,
advertising expenses, the cost of printing and mailing prospectuses to potential
investors and indirect and overhead costs of Prudential Securities and Prusec
associated with the sale of Fund shares, including lease, utility,
communications and sales promotion expenses. The State of Texas requires that
shares of the Fund may be sold in that state only by dealers or other financial
institutions which are registered there as broker-dealers.
The Manager (or one of its affiliates) may make payments to dealers and
other persons which distribute shares of the Fund. Such payments may be
calculated by reference to the net asset value of shares sold by such persons or
otherwise.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators (with the exception of the Texas Securities
Commissioner who joined the settlement on January 18, 1994) and the National
Association of Securities Dealers, Inc. (NASD) to resolve allegations that from
1980 through 1990 PSI sold certain limited partnership interests in violation of
securities laws to persons for whom such securities were not suitable and
misrepresented the safety, potential returns and liquidity of these investments.
Without admitting or denying the allegations asserted against it, PSI consented
to the entry of an SEC Administrative Order which stated that PSI's conduct
violated the federal securities laws, directed PSI to cease and desist from
violating the federal securities laws, pay civil penalties, and adopt certain
remedial measures to address the violations.
Pursuant to the terms of the SEC settlement, PSI agreed to the imposition
of $10,000,000 civil penalty, established a settlement fund in the amount of
$330,000,000 and procedures to resolve legitimate claims for compensatory
damages by purchasers of the partnership interests. PSI has agreed to provide
additional funds, if necessary, for the purposes of the settlement fund. PSI's
settlement with the state securities regulators included an agreement to pay a
penalty of $500,000 per jurisdiction. PSI consented to a censure and to the
payment of a $5,000,000 fine in settling the NASD action.
In October 1994, a criminal complaint was filed with the United States
Magistrate for the Southern District of New York alleging that PSI committed
fraud in connection with the sale of certain limited partnership interests in
violation of federal securities laws. An agreement was simultaneously filed to
defer prosecution of these charges for a period of three years from the signing
of the agreement, provided that PSI complies with the terms of the agreement.
If, upon completion of the three year period, PSI has complied with the terms of
the agreement, no prosecution will be instituted
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by the United States for the offenses charged in the complaint. If on the other
hand, during the course of the three year period, PSI violates the terms of the
agreement, the U.S. Attorney can then elect to pursue these charges. Under the
terms of the agreement, PSI agreed, among other things, to pay an additional
$330,000,000 into the fund established by the SEC to pay restitution to
investors who purchased certain PSI limited partnership interests.
For more detailed information concerning the foregoing matters, see
"Distributor" in the Statement of Additional Information, a copy of which may be
obtained at no cost by calling 1-800-225-1852.
The Company is not affected by PSI's financial condition and is an entirely
separate legal entity from PSI, which has no beneficial ownership therein and
the Fund's assets which are held by State Street Bank and Trust Company, an
independent custodian, are separate and distinct from PSI.
FEE WAIVERS AND SUBSIDY
PMF may from time to time waive all or a portion of its management fee and
subsidize all or a portion of the operating expenses of the Fund. Fee waivers
and expense subsidies will increase the Fund's total return. See "Performance
Information" in the Statement of Additional Information and "Fund Expenses."
PORTFOLIO TRANSACTIONS
Prudential Securities may act as a broker or futures commission merchant
for the Fund provided that the commissions, fees or other remuneration it
receives are fair and reasonable. See "Portfolio Transactions and Brokerage" in
the Statement of Additional Information.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities and
cash and, in that capacity, maintains certain financial and accounting books and
records pursuant to an agreement with the Company.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison,
New Jersey 08837, serves as Transfer Agent and Dividend Disbursing Agent and in
those capacities maintains certain books and records for the Fund. PMFS is a
wholly owned subsidiary of PMF. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.
HOW THE FUND VALUES ITS SHARES
THE FUND'S NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING
ITS LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. THE TRUSTEES FIXED THE SPECIFIC TIME OF DAY FOR
THE COMPUTATION OF THE FUND'S NAV TO BE AS OF 4:15 P.M., NEW YORK TIME.
Portfolio securities are valued based on market quotations or, if not
readily available, at fair value as determined in good faith under procedures
established by the Company's Trustees. See "Net Asset Value" in the Statement of
Additional Information.
The Fund will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase, sell
or redeem shares have been received by the Fund or days on which changes in the
value of the Fund's portfolio securities do not materially affect the NAV. The
New York Stock Exchange is closed on the
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following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. See "Net Asset
Value" in the Statement of Additional Information.
HOW THE FUND CALCULATES PERFORMANCE
FROM TIME TO TIME THE FUND MAY ADVERTISE ITS TOTAL RETURN (INCLUDING
"AVERAGE ANNUAL" TOTAL RETURN AND "AGGREGATE" TOTAL RETURN) AND YIELD IN
ADVERTISEMENTS OR SALES LITERATURE. These figures are based on historical
earnings and are not intended to indicate future performance. The "total return"
shows how much an investment in the Fund would have increased (decreased) over a
specified period of time (i.e., one, five or ten years or since inception of the
Fund) assuming that all distributions and dividends by the Fund were reinvested
on the reinvestment dates during the period and less all recurring fees. The
"aggregate" total return reflects actual performance over a stated period of
time. "Average annual" total return is a hypothetical rate of return that, if
achieved annually, would have produced the same aggregate total return if
performance had been constant over the entire period. "Average annual" total
return smooths out variations in performance. Neither "average annual" total
return nor "aggregate" total return takes into account any federal or state
income taxes which may be payable upon redemption. The "yield" refers to the
income generated by an investment in the Fund over a one-month or 30-day period.
This income is then "annualized;" that is, the amount of income generated by the
investment during that 30-day period is assumed to be generated each 30-day
period for twelve periods and is shown as a percentage of the investment. The
income earned on the investment is also assumed to be reinvested at the end of
the sixth 30-day period. The Fund also may include comparative performance
information in advertising or marketing the Fund's shares. Such performance
information may include data from Lipper Analytical Services, Inc., Morningstar
Publications, Inc., and other industry publications, business periodicals and
market indices. See "Performance Information" in the Statement of Additional
Information. Further performance information will be contained in the Fund's
annual and semi-annual reports to shareholders, which will be available without
charge. See "Shareholder Guide--Shareholder Services--Reports to Shareholders."
TAXES, DIVIDENDS AND DISTRIBUTIONS
TAXATION OF THE FUND
THE FUND HAS ELECTED TO QUALIFY AND INTENDS TO REMAIN QUALIFIED AS A
REGULATED INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
(THE INTERNAL REVENUE CODE). ACCORDINGLY, THE FUND WILL NOT BE SUBJECT TO
FEDERAL INCOME TAXES ON ITS NET INVESTMENT INCOME AND CAPITAL GAINS, IF ANY,
THAT IT DISTRIBUTES TO ITS SHAREHOLDERS.
[In addition, under the Internal Revenue Code, special rules apply to the
treatment of certain options and futures contracts (Section 1256 contracts). At
the end of each year, such investments held by the Fund will be required to be
"marked to market" for federal income tax purposes; that is, treated as having
been sold at market value. Sixty percent of any gain or loss recognized on these
"deemed sales" and on actual dispositions may be treated as long-term capital
gain or loss, and the remainder will be treated as short-term capital gain or
loss. See "Taxes" in the Statement of Additional Information.]
TAXATION OF SHAREHOLDERS
All dividends out of net investment income, together with distributions of
net short-term capital gains, will be taxable as ordinary income to the
shareholder whether or not reinvested. Any net long-term capital gains
distributed to
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shareholders will be taxable as such to the shareholder, whether or not
reinvested and regardless of the length of time a shareholder has owned his or
her shares. The maximum long-term capital gains rate for corporate shareholders
is currently the same as the maximum tax rate for ordinary income. The maximum
long-term capital gains rate for individual shareholders is currently 28% and
the maximum tax rate for ordinary income is 39.6%.
Any gain or loss realized upon a sale or redemption of shares by a
shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held more than one year and
otherwise as short-term capital gain or loss. Any such loss, however, on shares
that are held for six months or less, will be treated as a long-term capital
loss to the extent of any capital gain distributions received by the
shareholder.
WITHHOLDING TAXES
Under U.S. Treasury Regulations, the Fund is required to withhold and remit
to the U.S. Treasury 31% of dividend, capital gain income and redemption
proceeds, payable on the accounts of those shareholders who fail to furnish
their tax identification numbers on IRS Form W-9 (or IRS Form W-8 in the case of
certain foreign shareholders) with the required certifications regarding the
shareholder's status under the federal income tax law.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to federal, state or local taxes. See "Taxes" in the Statement of
Additional Information.
DIVIDENDS AND DISTRIBUTIONS
THE FUND EXPECTS TO PAY DIVIDENDS OF NET INVESTMENT INCOME, IF ANY, AND TO
MAKE DISTRIBUTIONS OF ANY CAPITAL GAINS IN EXCESS OF NET LONG-TERM CAPITAL
LOSSES AT LEAST ANNUALLY. See "How The Fund Values its Shares"
DIVIDENDS AND DISTRIBUTIONS WILL BE PAID IN ADDITIONAL FUND SHARES, BASED
ON THE NAV ON THE RECORD DATE OR SUCH OTHER DATE AS THE BOARD OF TRUSTEES MAY
DETERMINE, UNLESS THE SHAREHOLDER ELECTS IN WRITING NOT LESS THAN FIVE BUSINESS
DAYS PRIOR TO THE RECORD DATE TO RECEIVE SUCH DIVIDENDS AND DISTRIBUTIONS IN
CASH. Such election should be submitted to Prudential Mutual Fund Services,
Inc., Attn: Account Maintenance Unit, P.O. Box 15015, New Brunswick, New Jersey
08906-5015. The Fund will notify each shareholder after the close of the Fund's
taxable year both of the dollar amount and the taxable status of that year's
dividends and distributions on a per share basis. If you hold shares through
Prudential Securities, you should contact your financial adviser to elect to
receive dividends and distributions in cash.
WHEN THE FUND GOES "EX-DIVIDEND," ITS NAV IS REDUCED BY THE AMOUNT OF THE
DIVIDEND OR DISTRIBUTION. IF YOU BUY SHARES JUST PRIOR TO THE EX-DIVIDEND DATE
(WHICH GENERALLY OCCURS FOUR BUSINESS DAYS PRIOR TO THE RECORD DATE), THE PRICE
YOU PAY WILL INCLUDE THE DIVIDEND OR DISTRIBUTION AND A PORTION OF YOUR
INVESTMENT WILL BE RETURNED TO YOU AS A TAXABLE DISTRIBUTION. YOU SHOULD,
THEREFORE, CONSIDER THE TIMING OF DIVIDENDS WHEN MAKING YOUR PURCHASES.
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GENERAL INFORMATION
DESCRIPTION OF SHARES
THE COMPANY WAS ESTABLISHED AS A DELAWARE BUSINESS TRUST ON MAY 11, 1992.
THE COMPANY IS AUTHORIZED TO ISSUE AN UNLIMITED NUMBER OF SHARES OF BENEFICIAL
INTEREST, $.001 PAR VALUE PER SHARE, DIVIDED INTO TWO SERIES OR PORTFOLIOS, THE
FUND AND PRUDENTIAL ACTIVE BALANCED FUND. THE FUND OFFERS ONE CLASS OF SHARES.
The Company is permitted to issue and sell multiple classes of shares. In
accordance with the Company's Declaration of Trust, the Trustees may authorize
the creation of additional series of beneficial interest and classes within such
series, with such preferences, privileges, limitations and voting and dividend
rights as the Board may determine.
The Company's expenses generally are allocated between the Fund and the
other series of the Company on the basis of relative net assets at the time of
allocation, except that expenses directly attributable to the Fund or the other
series of the Company are charged to the Fund or the other series, as the case
may be.
The Trustees may increase or decrease the number of authorized shares
without the approval of shareholders. Shares of the Fund, when issued, are fully
paid, nonassessable, fully transferable and redeemable at the option of the
holder. Shares are also redeemable at the option of the Fund under certain
circumstances as described under "Shareholder Guide--How to Sell Your Shares."
The Company's shares do not have cumulative voting rights for the election of
Trustees.
THE COMPANY DOES NOT INTEND TO HOLD ANNUAL MEETINGS OF SHAREHOLDERS UNLESS
OTHERWISE REQUIRED BY LAW.THE COMPANY WILL NOT BE REQUIRED TO HOLD MEETINGS OF
SHAREHOLDERS UNLESS, FOR EXAMPLE, THE ELECTION OF TRUSTEES IS REQUIRED TO BE
ACTED ON BY SHAREHOLDERS UNDER THE INVESTMENT COMPANY ACT. SHAREHOLDERS HAVE
CERTAIN RIGHTS, INCLUDING THE RIGHT TO CALL A MEETING UPON A VOTE OF 10% OR MORE
OF THE COMPANY'S OUTSTANDING SHARES FOR THE PURPOSE OF VOTING ON THE REMOVAL OF
ONE OR MORE TRUSTEES OR TO TRANSACT ANY OTHER BUSINESS.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which
has been incorporated by reference herein, does not contain all the information
set forth in the Registration Statement filed by the Fund with the SEC under the
Securities Act. Copies of the Registration Statement may be obtained at a
reasonable charge from the SEC or may be examined, without charge, at the office
of the SEC in Washington, D.C.
SHAREHOLDER GUIDE
HOW TO BUY SHARES OF THE FUND
YOU MAY PURCHASE SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, PRUSEC
OR DIRECTLY FROM THE FUND, THROUGH ITS TRANSFER AGENT, PRUDENTIAL MUTUAL FUND
SERVICES, INC. (PMFS OR THE TRANSFER AGENT), ATTENTION: INVESTMENT SERVICES,
P.O. BOX 15020, NEW BRUNSWICK, NEW JERSEY 08906-5020. PARTICIPANTS IN PROGRAMS
SPONSORED BY PRUDENTIAL RETIREMENT SERVICES SHOULD CONTACT THEIR CLIENT
REPRESENTATIVE FOR MORE INFORMATION ABOUT PURCHASING SHARES OF THE FUND. The
offering price is the NAV next determined following receipt of an order by the
Transfer Agent or Prudential Securities. Shares of the Fund are offered to a
limited group of investors at net asset value without any sales charge. See "How
the Fund Values its Shares."
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There is no minimum or subsequent initial investment requirement for shares
of the Fund. See "Shareholder Services."
Application forms can be obtained from PMFS, Prudential Securities or
Prusec. If a share certificate is desired, it must be requested in writing for
each transaction. Certificates are issued only for full shares. Shareholders who
hold their shares through Prudential Securities will not receive share
certificates.
The Fund reserves the right to reject any purchase order (including an
exchange into the Fund) or to suspend or modify the continuous offering of its
shares. See "How to Sell Your Shares."
Your dealer is responsible for forwarding payment promptly to the Fund. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the third business day following the investment.
Transations in Fund shares may be subject to postage and handling charges
imposed by your dealer.
PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire,
you must first telephone PMFS to receive an account number at (800) 225-1852
(toll-free). The following information will be requested: your name, address,
tax identification number, class election, dividend distribution election,
amount being wired and wiring bank. Instructions should then be given by you to
your bank to transfer funds by wire to State Street Bank and Trust Company
(State Street), Boston, Massachusetts, Custody and Shareholder Services
Division, Attention: Prudential Dryden Fund, Prudential Stock Index Fund,
specifying on the wire the account number assigned by PMFS and your name.
If you arrange for receipt by State Street of federal funds prior to 4:15
P.M., New York time, on a business day, you may purchase shares of the Fund as
of that day.
In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Dryden Fund,
Prudential Stock Index Fund, and your name and individual account number. It is
not necessary to call PMFS to make subsequent purchase orders utilizing federal
funds. The minimum amount which may be invested by wire is $1,000.
ELIGIBLE PURCHASES
Shares of the Fund are available for purchase by (i) [pension,
profit-sharing or other employee benefit plans qualified under Section 401 of
the Internal Revenue Code, deferred compensation and annuity plans under
Sections 457 and 403(b)(7) of the Internal Revenue Code, and non-qualified plans
for which the Fund is an available option (collectively, Benefit Plans),
provided such Benefit Plans (in combination with other plans sponsored by the
same employer or group of related employers) have at least $50 million in
defined contribution assets;] (ii) participants in any fee-based program
sponsored by Prudential Securities (or one of its affiliates) which includes
mutual funds as investment options and for which the Fund is an available
option; (iii) investors who were, or executed a letter of intent to become,
shareholders of any series of the Company on or before one or more series of the
Company reorganized or who on that date had investments in certain products for
which the Company provided exchangeability and (iv) [investors who are
purchasing $1 million or more of shares (or who already own $1 million of shares
of other PMF Funds), including those described under "Benefit Plans" and
"PruArray and SmartPath Plans" below].
In connection with the sale of shares, the Manager, the Distributor or one
of their affiliates will pay dealers, financial advisers and other persons which
distribute shares a finders' fee based on a percentage of the net asset value of
shares sold by such persons.
RIGHTS OF ACCUMULATION
Shares of the Fund and shares of other Prudential Mutual Funds (excluding
money market funds other than those acquired pursuant to the exchange privilege)
may be aggregated to determine eligibility. See "Purchases and Redemption of
Funds Shares" in the Statement of Additional Information.
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[Benefit Plans. Shares of the Fund may be purchased by pension,
profit-sharing or other employee benefit plans qualified under Section 401 of
the Internal Revenue Code and deferred compensation and annuity plans under
Sections 457 or 403(b)(7) of the Internal Revenue Code (collectively, Benefit
Plans), provided that the plan has existing assets of at least $1 million
invested in shares of Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) [or 250 eligible
employees or participants.] In the case of Benefit Plans whose accounts are held
directly with the Transfer Agent or Prudential Securities and for which the
Transfer Agent or Prudential Securities does individual account recordkeeping
(Direct Account Benefit Plans) and Benefit Plans sponsored by PSI or its
subsidiaries (PSI or Subsidiary Prototype Benefit Plans), shares may be
purchased by participants who are repaying loans made from such plans to the
participant.
PruArray and SmartPath Plans. Shares of the Fund may be purchased by
certain retirement and deferred compensation plans, qualified or non-qualified
under the Internal Revenue Code, including pension, profit-sharing, stock-bonus
or other employee benefit plans under Section 401 of the Internal Revenue Code
and deferred compensation and annuity plans under Sections 457 or 403(b)(7) of
the Internal Revenue Code that participate in the Prudential's PruArray and
SmartPath Programs (benefit plan recordkeeping services) (hereafter referred to
as a PruArray or SmartPath Plan); provided that the plan has at least $1 million
in existing assets [or 250 eligible employees or participants.] The term
"existing assets" for this purpose includes stock issued by a PruArray or
SmartPath Plan sponsor, shares of non-money market Prudential Mutual Funds and
shares of certain unaffiliated non-money market mutual funds that participate in
the PruArray or SmartPath Program (Participating Funds). "Existing assets" also
include shares of money market funds acquired by exchange from a Participating
Fund.]
[Other Waivers. In addition, shares of the Fund may be purchased at NAV,
through Prudential Securities or the Transfer Agent, by the following persons:
(a) officers and current and former Directors/Trustees of the Prudential Mutual
Funds (including the Fund), (b) employees of Prudential Securities and PMF and
their subsidiaries and members of the families of such persons who maintain an
"employee related" account at Prudential Securities or the Transfer Agent, (c)
employees and special agents of Prudential and its subsidiaries and all persons
who have retired directly from active service with Prudential or one of its
subsidiaries, (d) registered representatives and employees of dealers who have
entered into a selected dealer agreement with Prudential Securities provided
that purchases at NAV are permitted by such person's employer and (e) investors
who have a business relationship with a financial adviser who joined Prudential
Securities from another investment firm, provided that (i) the purchase is made
within 180 days of the commencement of the financial adviser's employment at
Prudential Securities, or within one year in the case of Benefit Plans, (ii) the
purchase is made with proceeds of a redemption of shares of any open-end fund
sponsored by the financial adviser's previous employer (other than a money
market fund or other no-load fund which imposes a distribution or service fee of
.25 of 1% or less) and (iii) the financial adviser served as the client's broker
on the previous purchase.]
HOW TO SELL YOUR SHARES
YOU CAN REDEEM SHARES OF THE FUND AT ANY TIME FOR CASH AT THE NAV PER SHARE
NEXT DETERMINED AFTER THE REDEMPTION REQUEST IS RECEIVED IN PROPER FORM BY THE
TRANSFER AGENT OR PRUDENTIAL SECURITIES. See "How the Fund Values its Shares."
IF YOU HOLD SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, YOU MUST
REDEEM YOUR SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.
IF YOU HOLD SHARES IN NON-CERTIFICATE FORM, A WRITTEN REQUEST FOR REDEMPTION
SIGNED BY YOU EXACTLY AS THE ACCOUNT IS REGISTERED IS REQUIRED. IF YOU HOLD
CERTIFICATES, THE CERTIFICATES SIGNED IN THE NAMES(S) SHOWN ON THE FACE OF THE
CERTIFICATES, MUST BE RECEIVED BY THE TRANSFER AGENT IN ORDER FOR THE REDEMPTION
REQUEST TO BE PROCESSED. IF REDEMPTION IS REQUESTED BY A CORPORATION,
PARTNERSHIP, TRUST OR FIDUCIARY, WRITTEN EVIDENCE OF AUTHORITY ACCEPTABLE TO THE
TRANSFER AGENT MUST BE SUBMITTED BEFORE SUCH REQUEST WILL BE ACCEPTED. All
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correspondence and documents concerning redemptions should be sent to the Fund
in care of its Transfer Agent, Prudential Mutual Fund Services, Inc., Attention:
Redemption Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to
a person other than the record owner, (c) are to be sent to an address other
than the address on the Transfer Agent's records, or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the redemption
request and on the certificates, if any, or stock power must be guaranteed by an
"eligible guarantor institution." An "eligible guarantor institution" includes
any bank, broker, dealer or credit union. The Transfer Agent reserves the right
to request additional information from, and make reasonable inquiries of, any
eligible guarantor institution. For clients of Prusec, a signature guarantee may
be obtained from the agency or office manager of most Prudential Insurance and
Financial Services or Prudential Preferred Financial Services offices.
PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE MADE BY CHECK WITHIN
SEVEN DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE CERTIFICATE AND/OR WRITTEN
REQUEST EXCEPT AS INDICATED BELOW. Such payment may be postponed or the right of
redemption suspended at times (a) when the New York Stock Exchange is closed for
other than customary weekends and holidays, (b) when trading on such Exchange is
restricted, (c) when an emergency exists as a result of which disposal by the
Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, or (d) during any other period when the SEC, by order, so permits;
provided that applicable rules and regulations of the SEC shall govern as to
whether the conditions prescribed in (b), (c) or (d) exist.
PAYMENT FOR REDEMPTION OF RECENTLY PURCHASED SHARES WILL BE DELAYED UNTIL
THE FUND OR ITS TRANSFER AGENT HAS BEEN ADVISED THAT THE PURCHASE CHECK HAS BEEN
HONORED, UP TO 10 CALENDAR DAYS FROM THE TIME OF RECEIPT OF THE PURCHASE CHECK
BY THE TRANSFER AGENT. SUCH DELAY MAY BE AVOIDED BY PURCHASING SHARES BY WIRE OR
BY CERTIFIED OR OFFICIAL BANK CHECK.
REDEMPTION IN KIND. If the Trustees determines that it would be detrimental
to the best interests of the remaining shareholders of the Fund to make payment
wholly or partly in cash, the Fund may pay the redemption price in whole or in
part by a distribution in kind of securities from the investment portfolio of
the Fund, in lieu of cash, in conformity with applicable rules of the SEC.
Securities will be readily marketable and will be valued in the same manner as a
regular redemption. See "How the Fund Values its Shares." If your shares are
redeemed in kind, you would incur transaction costs in converting the assets
into cash. The Company has, however, elected to be governed by Rule 18f-1 under
the Investment Company Act, under which the Fund is obligated to redeem shares
solely in cash up to the lesser of $250,000 or 1% of the net asset value of the
Fund during the 90-day period for any one shareholder.
INVOLUNTARY REDEMPTION. In order to reduce expenses of the Fund, the
Trustees may redeem all of the shares of any shareholder, other than a
shareholder which is an IRA or other tax-deferred retirement plan, whose account
has a net asset value of less than $500 due to a redemption. The Fund will give
any such shareholder 60 days' prior written notice in which to purchase
sufficient additional shares to avoid such redemption. No contingent deferred
sales charge will be imposed on any such involuntary redemption.
HOW TO EXCHANGE YOUR SHARES
[AS A SHAREHOLDER OF THE FUND YOU HAVE AN EXCHANGE PRIVILEGE WITH THE OTHER
SERIES OF THE COMPANY AND CERTAIN OTHER PRUDENTIAL MUTUAL FUNDS, INCLUDING ONE
OR MORE SPECIFIED MONEY MARKET FUNDS, SUBJECT TO THE MINIMUM INVESTMENT
REQUIREMENTS OF SUCH FUNDS. SHARES OF THE FUND MAY BE EXCHANGED FOR CLASS Z
SHARES OF ANOTHER FUND ON THE BASIS OF THE RELATIVE NAV. An exchange will be
treated as a redemption and purchase for tax purposes. See "Shareholder
Investment Account--Exchange Privilege" in the Statement of Additional
Information.]
20
<PAGE>
IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE TELEPHONE
EXCHANGES ON YOUR INITIAL APPLICATION FORM OR BY WRITTEN NOTICE TO THE TRANSFER
AGENT AND HOLD SHARES IN NON-CERTIFICATE FORM. Thereafter, you may call the Fund
at (800) 225-1852 to execute a telephone exchange of shares, on weekdays, except
holidays, between the hours of 8:00 A.M. and 6:00 P.M., New York time. For your
protection and to prevent fraudulent exchanges, your telephone call will be
recorded and you will be asked to provide your personal identification number. A
written confirmation of the exchange transaction will be sent to you. NEITHER
THE FUND NOR ITS AGENTS WILL BE LIABLE FOR ANY LOSS, LIABILITY OR COST WHICH
RESULTS FROM ACTING UPON INSTRUCTIONS REASONABLY BELIEVED TO BE GENUINE UNDER
THE FOREGOING PROCEDURES. (THE FUND OR ITS AGENTS COULD BE SUBJECT TO LIABILITY
IF THEY FAIL TO EMPLOY REASONABLE PROCEDURES.) All exchanges will be made on the
basis of the relative NAV of the two funds next determined after the request is
received in good order.
The exchange privilege is available only in states where the exchange may
legally be made.
IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.
IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON
THE FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services, Inc., Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
IN PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS THE TELEPHONE EXCHANGE
OF SHARES MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD MAKE EXCHANGES BY MAIL BY
WRITING TO PRUDENTIAL MUTUAL FUND SERVICES, INC., AT THE ADDRESS NOTED ABOVE.
The Fund reserves the right to reject any exchange order including
exchanges (and market timing transactions) which are of a size and/or frequency
engaged in by one or more accounts acting in concert or otherwise, that have or
may have an adverse effect on the ability of the Subadviser to manage the
portfolio. The determination that such exchanges or activity may have an adverse
effect and the determination to reject any exchange order shall be in the
discretion of the Manager and the Subadviser.
The Exchange Privilege is not a right and may be suspended, modified or
terminated at any time.
SHAREHOLDER SERVICES
In addition to the exchange privilege, as a shareholder in the Fund, you
can take advantage of the following additional services and privileges:
o AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTION. For your
convenience, all dividends and distributions are automatically reinvested in
full and fractional shares of the Fund at NAV. You may direct the Transfer Agent
in writing not less than 5 full business days prior to the record date to have
subsequent dividends and/or distributions sent in cash rather than reinvested.
If you hold shares through Prudential Securities, you should contact your
financial adviser.
o TAX-DEFERRED RETIREMENT PLANS. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue Code
are available through the Distributor. These plans are for use by both
self-employed individuals and corporate employers. These plans permit either
self-direction of accounts by participants, or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from
21
<PAGE>
Prudential Securities or the Transfer Agent. If you are considering adopting
such a plan, you should consult with your own legal or tax adviser with respect
to the establishment and maintenance of such a plan.
o SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders, which provides for monthly or quarterly checks. See also
"Shareholder Investment Account--Systematic Withdrawal Plan" in the Statement of
Additional Information.
o REPORTS TO SHAREHOLDERS. The Fund will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses, the Fund will provide one annual and semi-annual shareholder report
and annual prospectus per household. You may request additional copies of such
reports by calling (800) 225-1852 (toll-free) or by writing to the Fund at 21
Prudential Plaza, 751 Broad Street, Newark, New Jersey 07102-3777. In addition,
monthly unaudited financial data are available upon request from the Fund.
o SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Fund at 21
Prudential Plaza, 751 Broad Street, Newark, New Jersey 07102-3777, or by
telephone, at (800) 225-1852 (toll-free) or, from outside the U.S.A. at (908)
417-7555 (collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
22
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
Prudential Mutual Fund Management offers a broad range of mutual funds
designed to meet your individual needs. We welcome you to review the investment
options available through our family of funds. For more information on the
Prudential Mutual Funds, including charges and expenses, contact your Prudential
Securities financial adviser or Prusec representative or telephone the Fundat
(800) 225-1852 for a free prospectus. Read the prospectus carefully before you
invest or send money.
TAXABLE BOND FUNDS
Prudential Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Mortgage Income Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
The BlackRock Government Income Trust
TAXABLE-EXEMPT BOND FUNDS
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Intermediate Series
Prudential Municipal Series Fund
Florida Series
Hawaii Income Series
Maryland Series
Massachusetts Series
Michigan Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
GLOBAL FUNDS
Prudential Europe Growth Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series
The Global Government Plus Fund, Inc.
The Global Total Return Fund, Inc.
Global Utility Fund, Inc.
EQUITY FUNDS
Prudential Allocation Fund
Balanced Portfolio
Strategy Portfolio
Prudential Distressed Securities Fund, Inc.
Prudential Dryden Fund
Prudential Active Balanced Fund
Prudential Stock Index Fund
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Jennison Series Fund, Inc.
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Multi-Sector Fund, Inc.
Prudential Small Companies Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
MONEY MARKET FUNDS
o Taxable Money Market Funds
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund, Inc.
Money Market Series
Prudential MoneyMart Assets, Inc.
o Tax-Free Money Market Funds
Prudential Tax-Free Money Fund, Inc.
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
o Command Funds
Command Money Fund
Command Government Fund
Command Tax-Free Fund
o Institutional Money Market Funds
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
A-1
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained herein, and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. This Prospectus does not
constitute an offer by the Fund or by the Distributor to sell or a solicitation
of any offer to buy any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer in such jurisdiction.
TABLE OF CONTENTS
PAGE
----
FUND HIGHLIGHTS ........................................................ 2
Risk Factors and Special Characteristics .............................. 2
FUND EXPENSES .......................................................... 4
FINANCIAL HIGHLIGHTS ................................................... 5
HOW THE FUND INVESTS ................................................... 6
Investment Objective and Policies ..................................... 6
Other Investments and Policies ........................................ 8
Hedging and Return Enhancement Strategies ............................. 9
Investment Restrictions ............................................... 12
HOW THE FUND IS MANAGED ................................................ 12
Manager ............................................................... 12
Subadviser ............................................................ 12
Distributor ........................................................... 13
Fee Waivers and Subsidy ............................................... 14
Portfolio Transactions ................................................ 14
Custodian and Transfer and
Dividend Disbursing Agent ............................................ 14
HOW THE FUND VALUES ITS SHARES ......................................... 14
HOW THE FUND CALCULATES PERFORMANCE .................................... 15
TAXES, DIVIDENDS AND DISTRIBUTIONS ..................................... 15
GENERAL INFORMATION .................................................... 17
Description of Shares ................................................. 17
Additional Information ................................................ 17
SHAREHOLDER GUIDE ...................................................... 17
How to Buy Shares of the Fund ......................................... 17
How to Sell Your Shares ............................................... 19
How to Exchange Your Shares ........................................... 20
Shareholder Services .................................................. 21
THE PRUDENTIAL MUTUAL FUND FAMILY ...................................... A-1
MF172A
CUSIP No.:
Prudential
Stock
Index
Fund
Prudential Mutual Funds
Building Your Future [LOGO]
On Our Strength[sm]
PROSPECTUS
, 1996
<PAGE>
PRUDENTIAL ACTIVE BALANCED FUND
PRUDENTIAL STOCK INDEX FUND
Statement of Additional Information
dated ___________, 1996
Prudential Active Balanced Fund and Prudential Stock Index Fund (each a
Fund and collectively, the Funds) are each a series of Prudential Dryden Fund
(formerly The Prudential Institutional Fund) (the Company). The investment
objective of Prudential Active Balanced 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. Under normal market conditions,
Prudential Active Balanced Fund intends to invest at least 65% of its total
assets as follows: (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.
The investment objective of Prudential Stock Index Fund is to seek to
provide investment results that correspond to the price and yield performance of
the Standard & Poor's 500 Composite Stock Price Index (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. 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.
Under normal market conditions, the Prudential Stock Index 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. There can be no assurance that either Fund's
investment objective will be achieved. See "Investment Objectives and Policies."
The Company's address is 21 Prudential Plaza, 751 Broad Street, Newark, NJ
07102-3777, and its telephone number is (800) 225-1852.
This Statement of Additional Informatioin is not a prospectus and should be
read in conjunction with the Prospectus of Prudential Active Balanced Fund,
dated ___________, 1996 and the Prospectus of Prudential Stock Index Fund, dated
_________, 1996, copies of which may be obtained from the Company upon request.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
General Information ...................................................................... B-2
Investment Objectives and Policies ....................................................... B-2
Investment Restrictions .................................................................. B-15
Trustees and Officers .................................................................... B-17
Manager and Subadvisers .................................................................. B-21
Distributor .............................................................................. B-24
Portfolio Transactions and Brokerage ..................................................... B-26
Purchase and Redemption of Fund Shares ................................................... B-27
Shareholder Investment Account ........................................................... B-30
Net Asset Value .......................................................................... B-33
Taxes .................................................................................... B-34
Performance and Yield Information ........................................................ B-37
Custodian, Transfer and Dividend Disbursing Agent and Independent Accountants ............ B-38
Financial Statements ..................................................................... B-39
Independent Auditors' Report ............................................................. B-82
Appendix--Description of S&P, Moody's and Duff & Phelps Ratings .......................... A-1
Appendix I--Historical Performance Data .................................................. I-1
Appendix II--General Investment Information .............................................. II-1
Appendix III--Information Relating to The Prudential ..................................... III-1
</TABLE>
B-1
<PAGE>
GENERAL INFORMATION
The Company changed its name from The Prudential Institutional Fund to
Prudential Dryden Fund effective October , 1996. In addition, Active Balanced
Fund changed its name to Prudential Active Balanced Fund and Stock Index Fund
changed its name to Prudential Stock Index Fund at the same time.
INVESTMENT OBJECTIVES AND POLICIES
STOCK INDEX FUND
If net cash outflows from Prudential Stock Index Fund are anticipated, the
Fund may sell stocks (in proportion to their weighting in the 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 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 & POORS
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.
OTHER INVESTMENTS AND POLICIES 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 investment adviser determines that the
instrumentality's credit risk does not render its securities unsuitable for
investment by the Fund. See "Mortgage-Related Securities" below.
B-2
<PAGE>
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 securities 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. Convertible securities are
senior to common stocks in a corporation's capital structure, but are usually
subordinated to similar nonconvertible securities. While providing a fixed
income stream (generally higher in yield than the income derivable from a common
stock but lower than that afforded by a similar nonconvertible security), a
convertible security also affords an investor the opportunity, through its
conversion feature, to participate in the capital appreciation dependent upon a
market price advance in the convertible security's underlying common stock.
In general, the market value of a convertible security is at least the
higher of its "investment value" (i.e., its value as a fixed income security) or
its "conversion value" (i.e., its value upon conversion into its underlying
common stock). As a fixed income security, a convertible security tends to
increase in market value when interest rates decline and tends to decrease in
value when interest rates rise. However, the price of a convertible security is
also influenced by the market value of the security's underlying stock. The
price of a convertible security tends to increase as the market value of the
underlying stock rises, whereas it tends to decrease as the market value of the
underlying stock declines. While no securities investment is without some risk,
investments in convertible securities generally entail less risk than
investments in the common stock of the same issuer.
In recent years, convertibles have been developed which combine higher or
lower current income with options and other features. The Fund may invest in
these types of convertible securities.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS
Prudential Active Balanced Fund may enter into repurchase and reverse
repurchase agreements. Prudential Stock Index Fund may enter into repurchase
agreements. Each Fund may enter into such agreements with banks and securities
dealers which meet the creditworthiness standards established by the Company's
Trustees (Qualified Institutions). The investment 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 resale price, which is marked-to-market
daily. These agreements permit the Fund to keep all its assets earning interest
while retaining "overnight" flexibility to pursue investments of a longer-term
nature.
The use of repurchase agreements and reverse repurchase agreements involve
certain risks. For example, if the seller of securities under a repurchase
agreement defaults on its obligation to repurchase the underlying securities, as
a result of its bankruptcy or otherwise, the Fund will seek to dispose of such
securities, which action could involve costs or delays. If the seller becomes
insolvent and subject to liquidation or reorganization under applicable
bankruptcy or other laws, the Fund's ability to dispose of the underlying
securities may be restricted. Finally, it is possible that the Fund may not be
able to substantiate its interest in the underlying securities. To minimize this
risk, the 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)
B-3
<PAGE>
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 Subadviser 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. An Appendix to this Statement of Additional
Information contains further information concerning the ratings of Moody's, S&P
and Duff & Phelps and their significance.
Prudential Active Balanced 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) 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 (or
the equivalent rating or, if not rated, determined by the relevant Subadviser 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. Neither Fund is authorized to invest
in excess of 5% of its net assets in non-investment grade fixed income
securities.
The markets in which medium and lower-rated securities (or unrated
securities that are equivalent to medium and lower-rated securities) are traded
are generally more limited than those in which higher-rated securities are
traded. The existence of limited markets may make it more difficult for the
Funds to obtain accurate market quotations for purposes of valuing its portfolio
and calculating its net asset value. Moreover, the lack of liquid trading market
may restrict the availability of debt securities for a Fund to purchase and may
also have the effect of limiting the ability of a Fund to sell debt securities
at their fair value either to meet redemption requests or to respond to changes
in the economy or the financial markets.
Lower-rated fixed income securities present risks based on payment
expectations. If an issuer calls the obligation for redemption, a Fund may have
to replace the security with a lower-yielding security, resulting in a decreased
return for investors. Also, as the principal value of fixed income securities
moves inversely with movements in interest rates, in the event of rising
interest rates, the value of the securities held by a Fund may decline
proportionately more than a Fund consisting of higher-rated securities.
Investments in zero coupon bonds may be more speculative and subject to greater
fluctuations in value due to changes in interest rates than bonds that pay
interest currently. If a Fund experiences unexpected net redemptions, it may be
forced to sell its higher-rated bonds, resulting in a decline in the overall
credit quality of the securities held by the Fund and increasing the exposure of
the Fund to the risks of lower-rated securities.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
To secure prices deemed advantageous at a particular time, each Fund may
purchase securities on a when-issued or delayed delivery basis, in which case
delivery of the securities occurs beyond the normal settlement period; payment
for or delivery of the securities would be made at the same time or prior to the
reciprocal delivery or payment by the other party to the transaction. A Fund
will enter into when-issued or delayed delivery transactions for the purpose of
acquiring securities and not for the purpose of leverage. When-issued securities
purchased by a Fund may include securities purchased on a "when, as and if
issued" basis under which the issuance of the securities depends on the
occurrence of a subsequent event, such as approval of a merger, corporate
reorganization or debt restructuring.
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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 Prudential Active Balanced 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, equity securities or other liquid,
unencumbered assets, marked to market daily, having a value equal to the
repurchase price (including accrued interest).
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.
Prudential Active Balanced Fund expects 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 Fund 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
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this occurs, a Fund's yield will correspondingly decline. Thus, mortgage-related
securities may have less potential for capital appreciation in periods of
falling interest rates than other fixed-income securities of comparable
maturity, although these securities may have a comparable risk of decline in
market value in periods of rising interest rates. To the extent that a Fund
purchases mortgage-related securities at a premium, unscheduled prepayments,
which are made at par, will result in a loss equal to any unamortized premium.
Government stripped mortgage-related interest-only (IOs) and principal only
(POs) securities are currently traded in an over-the-counter market maintained
by several large investment banking firms. There can be no assurance that a Fund
will be able to effect a trade of IOs or POs at a time when it wishes to do so.
The Funds will acquire IOs and POs only if, in the opinion of the Fund's
Subadviser, 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% of its net assets in illiquid securities. With respect to IOs and
POs that are issued by the U.S. Government, the Subadvisers, 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
Subadviser, the investment restriction limiting a Fund's investment in illiquid
instruments will apply.
COLLATERALIZED MORTGAGE OBLIGATIONS
Prudential Active Balanced Fund 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 Fund's 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 Investment Company
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 Investment Company
Act, and (iv) are not registered or regulated under the Investment Company 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.
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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
Prudential Active Balanced Fund may acquire custodial receipts or
certificates, such as CATS, TIGRs and FICOStrips, 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, 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.
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 may borrow from time to time, at its Subadviser'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
Subadviser'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.
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<PAGE>
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 the
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 a Fund 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
Prudential Active Balanced 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 its investment objective, the 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. The 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 Subadviser for the Fund
revises its evaluation of the creditworthiness of the issuer of the underlying
security. In determining whether to exercise puts or tender options prior to
their expiration date and in selecting which puts or tender options to exercise
in such circumstances, the Fund's Subadviser 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 the
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.
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<PAGE>
(1) Successful use of most Instruments depends upon an Subadviser'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 Subadvisers 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 Subadviser 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 of 1986, as defined (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
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<PAGE>
by acquiring and holding the underlying securities. A Fund can offset some of
the risk of writing a call index option position by holding a diversified
portfolio of securities similar to those on which the underlying index is based.
However, the Fund cannot, as a practical matter, acquire and hold a portfolio
containing exactly the same securities as underlie the index and, as a result,
bears a risk that the value of the securities held will vary from the value of
the index.
Even if a Fund could assemble a securities portfolio that exactly
reproduced the composition of the underlying index, it still would not be fully
covered from a risk standpoint because of the "timing risk" inherent in writing
index options. When an index option is exercised, the amount of cash that the
holder is entitled to receive is determined by the difference between the
exercise price and the closing index level on the date when the option is
exercised. As with other kinds of options, the Fund as the call writer will not
know that it has been assigned until the next business day at the earliest. The
time lag between exercise and notice of assignment poses no risk for the writer
of a covered call on a specific underlying security, such as a common stock,
because there the writer's obligation is to deliver the underlying security, not
to pay its value as of a fixed time in the past. So long as the writer already
owns the underlying security, it can satisfy its settlement obligations by
simply delivering it, and the risk that its value may have declined since the
exercise date is borne by the exercising holder. In contrast, even if the writer
of an index call holds securities that exactly match the composition of the
underlying index, it will not be able to satisfy its assignment obligations by
delivering those securities against payment of the exercise price. Instead, it
will be required to pay cash in an amount based on the closing index value on
the exercise date; and by the time it learns that it has been assigned, the
index may have declined, with a corresponding decline in the value of its
securities portfolio. This "timing risk" is an inherent limitation on the
ability of index call writers to cover their risk exposure by holding securities
positions.
If a Fund has purchased an index option and exercises it before the closing
index value for that day it available, it runs the risk that the level of the
underlying index may subsequently change. If such a change causes the exercised
option to fall out-of-the-money, the Fund will be required to pay the difference
between the closing index value and the exercise price of the option (times the
applicable multiplier) to the assigned writer.
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 each Fund's 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 or U.S. Government 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
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<PAGE>
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 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
Prudential Active Balanced Fund may enter. However, the 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. The 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 the Fund contracts for
the purchase or sale of a security denominated in a foreign currency, or (ii)
when the
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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, the 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 Subadviser 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, the 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 the 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 the 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.
Prudential Active Balanced Fund may purchase and write put and call options
on foreign currencies traded on securities exchanges or boards of trade (foreign
and domestic) and OTC options for hedging purposes in a manner similar to that
in which forward foreign currency exchange contracts and futures contracts on
foreign currencies will be employed. Options on foreign currencies are similar
to options on securities, except that the 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 the 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 the Fund's Subadviser 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. The 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
Prudential Active Balanced 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
B-12
<PAGE>
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.
The 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 Subadviser 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, the 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. Prudential Active Balanced 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.
Prudential Active Balanced Fund will comply with Securities and Exchange
Commission (SEC )guidelines regarding cover for these instruments and, if the
guidelines so require, set aside cash, U.S. Government securities, equity
securities or other liquid, unencumbered assets 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.
ILLIQUID SECURITIES
Prudential Active Balanced Fund and Prudential Stock Index Fund may each
hold up to 10% of their net assets in illiquid securities. Illiquid securities
include repurchase agreements which have a maturity of longer than seven days
B-13
<PAGE>
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 Subadvisers 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 NRSROs, 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
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.
B-14
<PAGE>
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
Investment Company 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 Investment Company 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.
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
a 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% 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. For purposes of this
restriction, the purchase or sale of securities on a "when-issued" or
delayed-delivery basis; the purchase and sale of options, financial futures
contracts and options thereon; the entry into repurchase agreements and
collateral and margin arrangements with respect to any of the foregoing, will
not be deemed to be a pledge of assets nor the issuance of senior securities.
8. Make loans except by the purchase of fixed income securities in which a
Fund may invest consistently with its investment objective and policies or by
use of reverse repurchase and repurchase agreements, forward rolls, dollar rolls
and securities lending arrangements.
9. Make short sales of securities.
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.)
B-15
<PAGE>
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 New York Stock Exchange (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 Investment Company 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.
B-16
<PAGE>
<TABLE>
TRUSTEES AND OFFICERS
Position with Principal Occupations
Name, Address and Age Company During Past Five Years
- --------------------- -------------- ----------------------
<S> <C> <C>
Edward D. Beach (71) Trustee President and Director of BMC Fund, Inc., a closed-end
c/o Prudential Mutual Fund investment company; prior thereto, Vice Chairman of
Management LLC Broyhill Furniture Industries, Inc.; Certified Public
One Seaport Plaza Accountant; Secretary and Treasurer of Broyhill Family
New York, NY 10292 Foundation; Member of the Board of Trustees of Mars Hill
College; President and Director of First Financial Fund, Inc.
and The High Yield Plus Fund, Inc.; President and Director of
Global Utility Fund, Inc.
Delayne Dedrick Gold (58) Trustee Marketing and Management Consultant.
c/o Prudential Mutual Fund
Management LLC
One Seaport Plaza
New York, NY 10292
*Robert F. Gunia (49) Trustee Chief Administrative Officer (since July 1990), Director
One Seaport Plaza (since January 1989), Executive Vice President, Treasurer
New York, NY 10292 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. (PMFD); 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).
Donald D. Lennox (77) Trustee Chairman (since February 1990) and Director (since April
c/o Prudential Mutual Fund 1989) of International Imaging Materials, Inc. (thermal
Management LLC transfer ribbon manufacturer); Retired Chairman, Chief
One Seaport Plaza Executive Officer and Director of Schlegel Corporation
New York, NY 10292 (industrial manufacturing) (March 1987-February 1989);
Director of Gleason Corporation, Personal Sound
Technologies, Inc., and The High Yield Income Fund, Inc.
Douglas H. McCorkindale (57) Trustee Vice Chairman, Gannett Co. Inc. (publishing and media) (since
c/o Prudential Mutual Fund March 1984); Director of Gannett Co. Inc., Frontier
Management LLC Corporation and Continental Airlines, Inc.
One Seaport Plaza
New York, NY 10292
</TABLE>
B-17
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupations
Name, Address and Age Company During Past Five Years
- --------------------- -------------- ----------------------
<S> <C> <C>
*Mendel A. Melzer (35) Trustee Chief Financial Officer (since November 1995) of the Money
751 Broad St. Management Group of Prudential; formerly Senior Vice
Newark, NJ 07102 President and Chief Financial Officer of Prudential
Preferred Financial Services (April 1993-November 1995);
Managing Director of Prudential Investment Advisors
(April 1991-April 1993); Senior Vice President of
Prudential Capital Corporation (July 1989-April 1991);
Chairman and Director of Prudential Series Fund, Inc.
Thomas T. Mooney (54) Trustee President of the Greater Rochester Metro Chamber of
c/o Prudential Mutual Fund Commerce; former Rochester City Manager; Trustee of
Management LLC Center for Governmental Research, Inc.; Director of Blue
One Seaport Plaza Cross of Rochester, Monroe County Water Authority,
New York, NY 10292 Rochester Jobs, Inc., Executive Service Corps of
Rochester, Monroe County Industrial Development Corporation,
Northeast Midwest Institute, The Business Council of New York
State, First Financial Fund, Inc.
Stephen P. Munn (54) Trustee Chairman (since January 1994), Director and President (since
c/o Prudential Mutual Fund 1988) and Chief Executive Officer (1988-December 1993)
Management LLC of Carlisle Companies Incorporated (manufacturer of
One Seaport Plaza industrial products).
New York, NY 10292
*Richard A. Redeker (53) Trustee President, Chief Executive Officer and Director (since October
One Seaport Plaza 1993), PMF; Executive Vice President, Director and
New York, NY 10292 Member of the Operating Committee (since October 1993),
PSI; Director (since October 1993) of Prudential Securities
Group, Inc.; Executive Vice President, The Prudential
Investment Corporation; Director (since January 1994),
PMFD; Director (since January 1994), PMFS; formerly
Senior Executive Vice President and Director of Kemper
Financial Services, Inc. (September 1978-September 1993);
Director of The High Yield Income Fund, Inc.**
Robin B. Smith (57) Trustee Chairman (since August 1996) and Chief Executive Officer
c/o Prudential Mutual Fund (since August 1996), former President (September
Management LLC 1981-August 1996) of Publishers Clearing House; Director
One Seaport Plaza of BellSouth Corporation, The Omnicom Group, Inc.,
New York, NY 10292 Texaco Inc., Spring Industries Inc., First Financial Fund,
Inc. and The High Yield Income Fund, Inc.
</TABLE>
B-18
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupations
Name, Address and Age Company During Past Five Years
- --------------------- -------------- ----------------------
<S> <C> <C>
Louis A Weil, III (55) Trustee President and Chief Executive Officer (since January 1996)
c/o Prudential Mutual Fund and Director (since September 1991) of Central Newspa-
Management LLC pers, Inc.; Chairman of the Board (since January 1996),
One Seaport Plaza Publisher and Chief Executive Officer (August
New York , NY 10292 1991-December 1995) of Phoenix Newspapers, Inc.;
formerly Publisher of Time Magazine (May 1989-March
1991); formerly President, Publisher & CEO of The Detroit
News (February 1986-August 1989); formerly member of
the Advisory Board, Chase Manhattan Bank-Westchester.
Clay T. Whitehead (57) Trustee President, National Exchange Inc. (new business development
c/o Prudential Mutual Fund firm) (since May 1983).
Management LLC
One Seaport Plaza
New York, NY 10292
Eugene S. Stark (38) Treasurer First Vice President (since January 1990) of PMF; First Vice
One Seaport Plaza President (since January 1992) of Prudential Securities.
New York, NY 10292
S. Jane Rose (50) 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. Morrison (40) Assistant Vice President and Associate General Counsel (since June
One Seaport Plaza Secretary 1991) of PMF; Vice President and Associate General
New York, NY 10292 Counsel of Prudential Securities.
</TABLE>
- ---------------
* "Interested" Trustee, as defined in the Investment Company Act, by reason
of his affiliation with the Manager, the Distributor or a Subadviser.
** Mr. Redeker has resigned as President and Chief Executive Officer and
Director of PMF effective on or before December 31, 1996. Although he will
no longer oversee the operations of PMF on a day-to-day basis, it is
anticipated that Mr. Redeker will remain associated with PMF and
Prudential.
B-19
<PAGE>
As of September 30, 1996, the Trustees and officers of the Fund as a group
owned beneficially less than 1% of the stock of the Company. As of September 30,
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>
Active Balanced Fund PAMCO VCA OA Account 1,575,825 (13.3%)
30 Scranton Office Park
Moosic, PA 18507-1774
Dobson Park Industries Inc. and 690,454 (5.8%)
Affiliates Savings Plan and
Dobson Park Industries Inc. and
Affiliates Cash Balance
Pension Plan
Dobson Technologies, Inc.
c/o IRD Mechanalysis
6150 Huntley Road
Columbus, OH 43229
Rite Aid Employee Investment 1,082,703 (9.2%)
Opportunity Plan
Rite Aid Corporation
30 Hunter Lane
Camp Hill, PA 17011
Thompson & Knight Savings Plan and 1,115,046 (9.4%)
Thompson & Knight Retirement Plan
300 First City Center
1700 Pacific Ave.
Dallas, TX 75201
Stock Index Fund PAMCO VCA OA Account 1,619,698 (14.1%)
30 Scranton Office Park
Moosic, PA 18507-1774
Prudential Employee Savings Plan 3,396,781 (29.6%)
71 Hanover Road
Florham Park, NJ 07932-1502
Eden Brewery Thrift Savings Plan and 632,908 (5.5%)
Fort Worth Brewery Thrift Savings Plan
Miller Brewing Company
3939 West Highland Blvd.
Milwaukee, WI 53201-0482
</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
were not affiliated with the Manager for the fiscal year ended September 30,
1996and the aggregate compensation paid to such Trustees for service on the
Company's board and that of all otherfunds managed by Prudential Institutional
Fund Management, Inc. (Fund Complex) for the year ended December 31, 1995.
B-20
<PAGE>
<TABLE>
COMPENSATION TABLE
------------------
<CAPTION>
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>
Edward D. Beach--Trustee $ -- NONE N/A $183,500(22/43)**
Delayne D. Gold--Trustee -- NONE N/A 183,250(24/45)**
Robert F. Gunia--Trustee+ -- NONE N/A --
Mark R. Fetting--Trustee+/++ -- NONE N/A --
David A. Finley--Trustee++ $21,000 NONE N/A 21,000(1/7)**
William E. Fruhan, Jr.--Trustee++ 21,000 NONE N/A 21,000(1/7)**
Donald D. Lennox--Trustee -- NONE N/A 86,250(10/22)**
Douglas H. McCorkingdale--Trustee -- NONE N/A 63,750(7/10)**
Mendel A. Melzer--Trustee+ -- NONE N/A --
Thomas T. Mooney--Trustee -- NONE N/A 125,625(14/19)**
Stephen P. Munn--Trustee -- NONE N/A 39,375(6/8)**
August G. Olsen--Trustee*/++ 21,000 NONE N/A 21,000(1/7)**
Richard A. Redeker--Trustee+ -- NONE N/A --
Robin B. Smith--Trustee+++ -- NONE N/A 91,875(10/19)**
Herbert G. Stolzer--Trustee*/++ 21,000 NONE N/A 21,000(1/7)**
Louis A. Weil, III--Trustee -- NONE N/A 93,750(11/16)**
Clay T. Whitehead--Trustee -- NONE N/A 35,500(4/5)
</TABLE>
- -------------
* All of the compensation from the Company for the fiscal year ended
September 30, 1996 represents deferredcompensation. Aggregate compensation
from the Company and the Fund Complex for the fiscal year endedSeptember
30, 1996, including accrued income and appreciation, amounted to
approximately $24,000 for Mr. Olsen and approximately $24,500 for Mr.
Stolzer.
** Indicates number of Funds/portfolios in Fund Complex to which aggregate
compensation relates.
+ Mark R. Fetting, Robert F. Gunia, Mendel A. Melzer and Richard A. Redeker,
who are "interested" Trustees, do not receive compensation from the
Company or any fund in the Prudential Mutual Fund Family.
++ Indicates Board Member who did not stand for reelection.
+++ Aggregate compensation from the Fund Complex for the year ended December
31, 1955, including accrued income and appreciation, amounted to
approximately $100,700.
MANAGER AND SUBADVISERS
The manager of the Company is Prudential Mutual Fund Management LLC (PMF or
the Manager), One Seaport Plaza, New York, New York 10292. PMF serves as manager
to all of the other investment companies that, together with the Funds, comprise
the Prudential Mutual Funds. See "How the Fund is Managed--Manager" in the
Prospectus of each Fund. As of September 30, 1996, PMF managed and/or
administered open-end and closed-end management investment companies with assets
of approximately $52 billion. According to the Investment Company Institute, as
of August 31, 1996, the Prudential Mutual Funds were the 17th largest family of
mutual funds in the United States.
PMF is a subsidiary of Prudential Securities Incorporated (Prudential
Securities or PSI) [and The Prudential Insurance Company of America
(Prudential)]. PMF has three wholly owned subsidiaries: Prudential Mutual Fund
Distributors, Inc., Prudential Mutual Fund Services, Inc. (PMFS or the Transfer
Agent) and Prudential Mutual Fund Investment Management. PMFS serves as the
transfer agent for the Prudential Mutual Funds and, in addition, provides
customer service, recordkeeping and management and administration services to
qualified plans.
B-21
<PAGE>
Pursuant to the Management Agreement with the Company (the Management
Agreement), PMF, subject to the supervision of the Company's Board of Trustees
and in conformity with the stated policies of each Fund, manages both the
investment operations of each Fund and the composition of each Fund's portfolio,
including the purchase, retention, disposition and loan of securities and other
assets. In connection therewith, PMF is obligated to keep certain books and
records of the Company. PMF also administers the Company's corporate affairs
and, in connection therewith, furnishes 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 Funds' custodian
(the Custodian), and PMFS, the Funds' transfer and dividend disbursing agent.
The management services of PMF for the Fund are not exclusive under the terms of
the Management Agreement and PMF is free to, and does, render management
services to others.
For its services, PMF receives, pursuant to the Management Agreement, a fee
at an annual rate of .65 of 1% of Prudential Active Balanced Fund's average
daily net assets and .30 of 1% of Prudential Stock Index Fund's average daily
net assets. The fee is computed daily and payable monthly. The Management
Agreement also provides that, in the event the expenses of a Fund (including the
fees of PMF, but excluding interest, taxes, brokerage commissions, distribution
fees and litigation and indemnification expenses and other extraordinary
expenses not incurred in the ordinary course of the Fund's business) for any
fiscal year exceed the lowest applicable annual expense limitation established
and enforced pursuant to the statutes or regulations of any jurisdiction in
which the Fund's shares are qualified for offer and sale, the compensation due
to PMF will be reduced by the amount of such excess. Reductions in excess of the
total compensation payable to PMF will be paid by PMF to the Company. Currently,
the Company believes that the most restrictive expense limitation of state
securities commissions is 21 @2% of a Fund's average daily net assets up to $30
million, 2% of the next $70 million of such assets and 11 @2% of such assets in
excess of $100 million.
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' Subadvisers;
(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) and Jennison Associates Capital Corp. (Jennison)
(collectively, the Subadvisers) 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' Subadvisers, (iii) the fees and certain expenses of the Custodian
and Transfer and Dividend Disbursing Agent, including the cost of providing
records to the Manager in connection with its obligation of maintaining required
records of the Company, pricing the Funds' shares and the cashiering function,
(iv) the charges and expenses of legal counsel and independent accountants for
the Company, (v) brokerage commissions and any issue or transfer taxes
chargeable to the Company in connection with its securities and futures
transactions, (vi) all taxes and corporate fees payable by the Company to
governmental agencies, (vii) the fees of any trade associations of which the
Company may be a member, (viii) the cost of stock certificates representing
shares of Funds of the Company, if any, (ix) the cost of fidelity and liability
insurance, (x) the fees and expenses involved in registering and maintaining
registration of the Company and of its shares with the SEC, registering the
Company and qualifying its shares under state securities laws, including the
preparation and printing of the Company's registration statements and
prospectuses for such purposes, (xi) licensing fees, if any, (xii) allocable
communications expenses with respect to investor services and all expenses of
shareholders' and Trustees' meetings and of preparing, printing and mailing
reports, proxy statements and prospectuses to shareholders in the amount
necessary for distribution to the shareholders and (xiii) litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of the Company's business.
B-22
<PAGE>
The Management Agreement provides that PMF 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 if
assigned and that it may be terminated without penalty by either party upon not
more than 60 days' nor less than 30 days' written notice. The Management
Agreement 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 Investment Company 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 Investment Company Act on May 17, 1996 and by the
shareholders of the Company on October 30, 1996. The Manager received, before
any reduction due to the subsidy by the Manager of certain expenses of the Fund,
the following management fees from each Fund, expressed both as a dollar amount
and as a percentage of each Fund's average daily net assets:
<TABLE>
<CAPTION>
Year ended Year ended Year ended
September 30, 1996 September 30, 1995 September 30, 1994
------------------ ------------------ ------------------
Fund Amount Rate Amount Rate Amount Rate
- ---- ------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Stock Index $570,160 .40% $286,843 .40% $152,392 .40%
Active Balanced 994,182 .70 733,748 .70 412,941 .70
</TABLE>
During the same period the Manager subsidized certain expenses of the Fund. See
"How the Fund is Managed--Fee Waivers and Subsidy" in the Prospectus.
The Manager has entered into Advisory Agreements with the Subadvisers. The
Advisory Agreements provide that the Advisers furnish investment advisory
services in connection with the management of their respective Funds. For its
service as Adviser, Jennison is paid at an annual rate of .30 of 1% of
Prudential Active Balanced Fund's average daily net assets up to and including
$300 million and .25 of 1% of the Fund's average daily net assets in excess of
$300 million. 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 Prudential 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.
PIC advises Prudential Stock Index Fund through Prudential Diversified
Investment Strategies (PDI). 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.
PIC also manages short-term assets and cash for Prudential Active Balanced
Fund and invests available cash balances for the Fund through a joint repurchase
agreement account. PIC is reimbursed by PMF for reasonable costs and expenses
incurred by it in furnishing such services.
The Advisory Agreements were last approved by the Trustees, including a
majority of the Trustees who are not interested persons of the Company and who
are not parties to the Agreements or interested persons of any such party as
defined in the Investment Company Act on May 17, 1996, and by the shareholders
of each Fund on October 30, 1996.
Each Advisory Agreement provides that it will terminate in the event of its
assignment (as defined in the Investment Company Act) or upon the termination of
the Management Agreement. 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.
B-23
<PAGE>
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 Investment Company Act.
DISTRIBUTOR
Prudential Securities Incorporated (Prudential Securities or PSI), One
Seaport Plaza, New York, New York 10292, acts as the distributor of shares of
Prudential Stock Index Fund and the Class A, Class B, Class C and Class Z shares
of Prudential Active Balanced Fund.
Pursuant to separate Distribution and Service Plans (the Class A Plan, the
Class B Plan and the Class C Plan, collectively, the Plans) adopted by the
Company under Rule 12b-1 under the Investment Company Act and a distribution
agreement (the Distribution Agreement), Prudential Securities (also the
Distributor) incurs the expenses of distributing Prudential Action Balanced
Fund's Class A, Class B and Class C shares. See "How the Fund is
Managed--Distributor" in the Prospectus of each Fund. Prudential Securities
serves as the Distributor of shares of Prudential Stock Index Fund and the Class
Z shares of Prudential Active Balanced Fund and incurs the expenses of
distributing the shares under a Distribution Agreement with the Company, none of
which are reimbursed by or paid for by the Fund.
On May 17, 1996, the Board of 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 operation of the Class A, Class B or Class C
Plan or in any agreement related to the Plans (the Rule 12b-1 Trustees), at a
meeting called for the purpose of voting on each Plan, approved the Plans with
respect to Prudential Active Balanced Fund and the Distribution Agreements for
both Funds. The Class A Plan provides that (i) .25 of 1% of the average daily
net assets of the Class A shares may be used to pay for personal service and the
maintenance of shareholder accounts (service fee) and (ii) total distribution
fees (including the service fee of .25 of 1%) may not exceed .30 of 1%. The
Class B and Class C Plans provide that (i) .25 of 1% of the average daily net
assets of the Class B and Class C shares, respectively, may be paid as a service
fee and (ii) .75 of 1% (not including the service fee) may be paid for
distribution-related expenses with respect to the Class B and Class C shares,
respectively (asset-based sales charge). The Plans were each approved by the
sole shareholder of the Class A, Class B and Class C shares of Prudential Active
Balanced Fund on 15 __________, 1996.
The Class A, Class B and Class C Plans for Prudential Active Balanced Fund
will continue in effect from year to year, provided that each such continuance
is approved at least annually by a vote of the Board of Trustees, including a
majority vote of the Rule 12b-1 Directors, cast in person at a meeting called
for the purpose of voting on such continuance. The Plans may each be terminated
at any time, without penalty, by the vote of a majority of the Rule 12b-1
Trustees or by the vote of the holders of a majority of the outstanding shares
of the applicable class on not more than 60 days', nor less than 30 days'
written notice to any other party to the Plans. The Plans may not be amended to
increase materially the amounts to be spent for the services described therein
without approval by the shareholders of the applicable class, and all material
amendments are required to be approved by the Board of Trustees in the manner
described above. Each Plan will automatically terminate in the event of its
assignment. The Fund will not be obligated to pay expenses incurred under any
Plan if it is terminated or not continued.
Pursuant to each Plan, the Board of Trustees will review at least quarterly
a written report of the distribution expenses incurred on behalf of each class
of shares of a Fund by the Distributor. The report will include an itemization
of the distribution expenses and the purposes of such expenditures. In addition,
as long as the Plans remain in effect, the selection and nomination of Rule
12b-1 Trustees shall be committed to the Rule 12b-1 Trustees.
Pursuant to the Distribution Agreement, the Company has agreed to indemnify
Prudential Securities to the extent permitted by applicable law against certain
liabilities under the Securities Act.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators in 51 jurisdictions and the NASD to resolve
allegations that PSI sold interests in more than 700 limited partnerships (and a
limited number of other types of securities) from January 1, 1980 through
December 31, 1990, in violation of securities
B-24
<PAGE>
laws to persons for whom such securities were not suitable in light of the
individuals' financial condition or investment objectives. It was also alleged
that the safety, potential returns and liquidity of the investments had been
misrepresented. The limited partnerships principally involved real estate, oil
and gas producing properties and aircraft leasing ventures. The SEC Order (i)
included findings that PSI's conduct violated the federal securities laws and
that an order issued by the SEC in 1986 requiring PSI to adopt, implement and
maintain certain supervisory procedures had not been complied with; (ii)
directed PSI to cease and desist from violating the federal securities laws and
imposed a $10 million civil penalty; and (iii) required PSI to adopt certain
remedial measures including the establishment of a Compliance Committee of its
Board of Directors. Pursuant to the terms of the SEC settlement, PSI established
a settlement fund in the amount of $330,000,000 and procedures, overseen by a
court approved Claims Administrator, to resolve legitimate claims for
compensatory damages by purchasers of the partnership interests. PSI has agreed
to provide additional funds, if necessary, for that purpose. PSI's settlement
with the state securities regulators included an agreement to pay a penalty of
$500,000 per jurisdiction. PSI consented to a censure and to the payment of a
$5,000,000 fine in settling the NASD action. In settling the above referenced
matters, PSI neither admitted nor denied the allegations asserted against it.
On January 18, 1994, PSI agreed to the entry of a Final Consent Order and a
Parallel Consent Order by the Texas Securities Commissioner. The firm also
entered into a related agreement with the Texas Securities Commissioner. The
allegations were that the firm had engaged in improper sales practices and other
improper conduct resulting in pecuniary losses and other harm to investors
residing in Texas with respect to purchases and sales of limited partnership
interests during the period of January 1, 1980 through December 31, 1990.
Without admitting or denying the allegations, PSI consented to a reprimand,
agreed to cease and desist from future violations, and to provide voluntary
donations to the State of Texas in the aggregate amount of $1,500,000. The firm
agreed to suspend solicitation of new customer accounts, the general
solicitation of new accounts, and the offer for sale of securities in or from
PSI's North Texas office to new customers during a period of twenty consecutive
business days, and agreed that its other Texas offices would be subject to the
same restrictions for a period of five consecutive business days. PSI also
agreed to institute training programs for its securities salesmen in Texas.
On October 27, 1994, Prudential Securities Group, Inc. and PSI entered into
agreements with the United States Attorney deferring prosecution (provided PSI
complies with the terms of the agreement for three years) for any alleged
criminal activity related to the sale of certain limited partnership programs
from 1983 to 1990. In connection with these agreements, PSI agreed to add the
sum of $330,000,000 to the Fund established by the SEC and executed a
stipulation providing for a reversion of such funds to the United States Postal
Inspection Service. PSI further agreed to obtain a mutually acceptable outside
director to sit on the Board of Directors of PSG and the Compliance Committee of
PSI. The new director serves as an independent "ombudsman" whom PSI employees
can call anonymously with complaints about ethics and compliance. Prudential
Securities shall report any allegations or instances of criminal conduct and
material improprieties to the new director. The new director submits compliance
reports which identify any such allegations or instances of criminal conduct and
material improprieties every three months for a three-year period.
NASD MAXIMUM SALES CHARGE RULE
Pursuant to rules of the NASD, the Distributor is required to limit
aggregate initial sales charges, deferred sales charges and asset-based sales
charges to 6.25% of total gross sales of each class of shares of Prudential
Active Balanced Fund. In the case of Class B shares, interest charges equal to
the prime rate plus one percent per annum may be added to the 6.25% limitation.
Sales from the reinvestment of dividends and distributions are not required to
be included in the calculation of the 6.25% limitation. The annual asset-based
sales charge with respect to Class B and Class C shares of Prudential Active
Balanced Fund may not exceed .75 of 1%. The 6.25% limitation applies to the Fund
rather than on a per shareholder basis. If aggregate sales charges were to
exceed 6.25% of total gross sales of any class, all sales charges on shares of
that class would be suspended.
B-25
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
PORTFOLIO TURNOVER
There are no limitations on the length of time that securities must be held
by the Fund and the 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. High portfolio turnover
(over 100%) may involve correspondingly greater brokerage commissions and other
transaction costs, which will be borne directly by the Fund. In addition, high
portfolio turnover may result in increased short-term capital gains, which, when
distributed to shareholders, are treated as ordinary income. See "Taxes."
Decisions to buy and sell assets for a Fund are made by the Fund's
Subadviser, 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 Subadviser, 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 Subadviser 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 Subadviser 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 Subadviser 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
Subadvisers 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 Subadviser
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 Subadvisers, 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 Exchange Act of
1934, as amended (1934 Act) a higher commission than another broker-dealer that
does not furnish such brokerage and research services might charge. The
Subadvisers must regard such higher commissions as reasonable in relation to the
brokerage and research services provided, viewed in terms of each Subadviser'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 Subadviser
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 Investment
Company Act and the rules and exemptions adopted by the SEC under the Investment
Company Act, the Trustees have determined that transactions for a Fund may be
executed through Prudential Securities and other affiliated broker-dealers if,
in the judgment of the Subadviser, 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) of the
1934 Act, Prudential Securities may not retain compensation for effecting
transactions on a national securities exchange for the Fund unless the Fund has
expressly authorized the retention of such compensation in a written contract
executed by the Fund and Prudential Securities. Section 11(a) provides that
Prudential Securities must furnish to the Fund at least annually a
B-26
<PAGE>
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 Subadviser, 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 Subadvisers 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 Subadviser. 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, 1996, 1995 and 1994, the Company paid
0, $965 and $3,247, respectively, in brokerage commissions to Prudential
Securities.
PURCHASE AND REDEMPTION OF FUND SHARES
Shares of Prudential Active Balanced Fund may be purchased at a price
equal to the next determined net asset value per share plus a sales charge
which, at the election of the investor, may be imposed either (i) at the time of
purchase (Class A shares) or (ii) on a deferred basis (Class B or Class C
shares). Class Z shares of Prudential Active Balanced Fund and shares of
Prudential Stock Index Fund are offered to a limited group of investors at net
asset value without any sales charges. See "Shareholder Guide--How to Buy Shares
of the Fund" in the Prospectus of each Fund.
Each class represents an interest in the same assets of Prudential Active
Balanced Fund and is identical in all respects except that (i) each class is
subject to different sales charges and distribution and/or service expenses
(except for Class Z shares which are not subject to any sales charge or
distribution and/or service fees), which may affect performance, (ii) each class
has exclusive voting rights on any matter submitted to shareholders that relates
solely to its arrangements and has separate voting rights on any matter
submitted to shareholders in which the interests of one class differ from the
interests of any other class, (iii) each class has a different exchange
privilege, (iv) only Class B shares have a conversion feature and (v) Class Z
shares are offered exclusively for sale to a limited group of investors. See
"Distributor" and "Shareholder Investment Account--Exchange Privilege."
SPECIMEN PRICE MAKE-UP
Using the net asset value of of Prudential Stock Index Fund, at September
30, 1996, the maximum offering price of the Fund's shares is $16.06. For
Prudential Active Balanced Fund, under the current distribution arrangements
between the Company and the Distributor, Class A shares are sold with a maximum
sales charge of 5% and Class B*,
B-27
<PAGE>
Class C* and Class Z** shares are sold at net asset value. Using the net asset
value of Prudential Active Balanced Fund at September 30, 1996, the maximum
offering price of the Fund's shares is as follows:
<TABLE>
<CAPTION>
Prudential Active
Balanced Fund
-----------------
<S> <C>
Class A**
Net asset value and redemption price per Class A share ........................... $13.01
Maximum sales charge (5% of offering price) ...................................... .68
------
Offering price to public ......................................................... $13.69
======
Class B**
Net asset value, redemption price and offering price per Class B share* .......... $13.01
======
Class C**
Net asset value, redemption price and offering price per Class C share* .......... $13.01
======
Class Z
Net asset value, offering price and redemption price per Class Z share ........... $13.01
======
</TABLE>
- -----------
* Class B and Class C shares are subject to a contingent deferred sales
charge on certain redemptions. See "Shareholder Guide--How to Sell Your
Shares--Contingent Deferred Sales Charges" in the Prospectus of Prudential
Active Balanced Fund.
** Class A, B, and C shares of Prudential Active Balanced Fund were not
offered on September 30, 1996.
REDUCTION AND WAIVER OF INITIAL SALES CHARGES--CLASS A SHARES
COMBINED PURCHASE AND CUMULATIVE PURCHASE PRIVILEGE. If an investor or
eligible group of related investors purchases Class A shares of Prudential
Active Balanced Fund concurrently with Class A shares of other Prudential Mutual
Funds, the purchases may be combined to take advantage of the reduced sales
charges applicable to larger purchases. See the table of breakpoints under
"Shareholder Guide--Alternative Purchase Plan" in the Prospectus of Prudential
Active Balanced Fund.
An eligible group of related Fund investors includes any combination of the
following:
(a) an individual;
(b) the individual's spouse, their children and their parents;
(c) the individual's and spouse's Individual Retirement Account (IRA);
(d) any company controlled by the individual (a person, entity or
group that holds 25% or more of the outstanding voting securities of a
company will be deemed to control the company, and a partnership will be
deemed to be controlled by each of its general partners);
(e) a trust created by the individual, the beneficiaries of which are
the individual, his or her spouse, parents or children;
(f) a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act
account created by the individual or the individual's spouse; and
(g) one or more employee benefit plans of a company controlled by an
individual.
In addition, an eligible group of related Fund investors may include an
employer (or group of related employers) and one or more qualified retirement
plans of such employer or employers (an employer controlling, controlled by or
under common control with another employer is deemed related to that employer).
The Distributor must be notified at the time of purchase that the investor
is entitled to a reduced sales charge. The reduced sales charge will be granted
subject to confirmation of the investor's holdings. The Combined Purchase and
Cumulative Purchase Privilege does not apply to individual participants in
pension, profit-sharing or other employee benefit plans qualified under Section
401 of the Internal Revenue Code and deferred compensation and annuity plans
under Sections 457 and 403(b)(7) of the Internal Revenue Code.
RIGHTS OF ACCUMULATION. Reduced sales charges are also available through
Rights of Accumulation, under which an investor or an eligible group of related
investors, as described above under "Combined Purchase and Cumulative Purchase
Privilege," may aggregate the value of their existing holdings of shares of
Prudential Active Balanced Fund and shares of other Prudential Mutual Funds
(excluding money market funds other than those acquired pursuant to the
B-28
<PAGE>
exchange privilege) to determine the reduced sales charge. The value of shares
held directly with the Transfer Agent and through Prudential Securities will not
be aggregated to determine the reduced sales charge. All shares must be held
either directly with the Transfer Agent or through Prudential Securities. The
value of existing holdings for purposes of determining the reduced sales charge
is calculated using the maximum offering or price (net asset value plus maximum
sales charge) as of the previous business day. See "How the Fund Values its
Shares" in the Prospectus of Prudential Active Balanced Fund. The Distributor
must be notified at the time of purchase that the investor is entitled to a
reduced sales charge. The reduced sales charges will be granted subject to
confirmation of the investor's holdings. Rights of Accumulation are not
available to individual participants in any retirement or group plans.
LETTERS OF INTENT. Reduced sales charges are available to investors (or an
eligible group of related investors), including retirement and group plans, who
enter into a written Letter of Intent providing for the purchase, within a
thirteen-month period, of shares of Prudential Active Balanced Fund and shares
of other Prudential Mutual Funds. All shares of Prudential Active Balanced Fund
and shares of other Prudential Mutual Funds (excluding money market funds other
than those acquired pursuant to the exchange privilege) which were previously
purchased and are still owned are also included in determining the applicable
reduction. However, the value of shares held directly with the Transfer Agent
and through Prudential Securities will not be aggregated to determine the
reduced sales charge. All shares must be held either directly with the Transfer
Agent or through Prudential Securities. The Distributor must be notified at the
time of purchase that the investor is entitled to a reduced sales charge. The
reduced sales charges will be granted subject to confirmation of the investor's
holdings. Letters of Intent are not available to individual participants in any
retirement or group plans.
A Letter of Intent permits a purchaser to establish a total investment goal
to be achieved by any number of investments over a thirteen-month period. Each
investment made during the period will receive the reduced sales charge
applicable to the amount represented by the goal, as if it were a single
investment, except in the case of retirement and group plans where the employer
or plan sponsor will be responsible for paying any applicable sales charge.
Escrowed Class A shares totaling 5% of the dollar amount of the Letter of Intent
will be held by the Transfer Agent in the name of the purchaser. The effective
date of a Letter of Intent may be back-dated up to 90 days, in order that any
investments made during this 90-day period, valued at the purchaser's cost, can
be applied to the fulfillment of the Letter of Intent goal, except in the case
of retirement and group plans.
The Letter of Intent does not obligate the investor to purchase, nor the
Company to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the purchaser (or the employer or
plan sponsor in the case of any retirement or group plan) is required to pay the
difference between the sales charge otherwise applicable to the purchases made
during this period and sales charges actually paid. Such payment may be made
directly to the Distributor or, if not paid, the Distributor will liquidate
sufficient escrowed shares to obtain such difference. Investors electing to
purchase Class A shares of Prudential Active Balanced Fund pursuant to a Letter
of Intent should carefully read such Letter of Intent.
WAIVER OF THE CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES
The contingent deferred sales charge is waived under circumstances
described in the Prospectus of Prudential Active Balanced Fund. See "Shareholder
Guide--How to Sell Your Shares--Waiver of Contingent Deferred Sales
Charges--Class B Shares" in the Prudential Active Balanced Fund Prospectus. In
connection with these waivers, the Transfer Agent will require you to submit the
supporting documentation set forth below.
Category of Waiver Required Documentation
- ------------------ ----------------------
Death A copy of the shareholder's
death certificate or, in the
case of a trust, a copy of the
grantor's death certificate,
plus a copy of the trust
agreement identifying the
grantor.
Disability--An individual will A copy of the Social Security
be considered disabled if he or Administration award letter or a
she is unable to engage in any letter from a physician on the
that substantial gainful physician's letterhead stating
activity by reason of any the shareholder (or, in the case
medically determinable physical of a trust, the grantor) is
or mental impairment which can permanently disabled. The letter
be expected to result in death must also indicate the date of
or to be of long-continued and disability.
indefinite duration.
Distribution from an IRA or 403(b) A copy of the distribution form
Custodial Account from the custodial firm indicating
(i) the date of birth of the
shareholder and (ii) that the
shareholder is over age 59 1/2
and is taking a normal
distribution--signed by the
shareholder.
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<PAGE>
Category of Waiver Required Documentation
- ------------------ ----------------------
Distribution from Retirement Plan A letter signed by the plan
administrator/trustee indicating
the reason for the distribution.
Excess Contributions A letter from the shareholder
(for an IRA) or the plan
administrator/trustee on company
letterhead indicating the amount
of the excess and whether or not
taxes have been paid.
The Transfer Agent reserves the right to request such additional documents
as it may deem appropriate.
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of Fund shares, a Shareholder Investment Account
is established for each investor under which a record of the shares held is
maintained by the Transfer Agent. If a share certificate is desired, it must be
requested in writing for each transaction. Certificates are issued only for full
shares and may be redeposited in the Account at any time. There is no charge to
the investor for issuance of a certificate. Each Fund makes available to its
shareholders the following privileges and plans.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. For the convenience
of investors, all dividends and distributions are automatically reinvested in
full and fractional shares of the applicable Fund. An investor may direct the
Transfer Agent in writing not less than five full business days prior to the
record date to have subsequent dividends or distributions sent in cash rather
than reinvested. In the case of recently purchased shares for which registration
instructions have not been received on the record date, cash payment will be
made directly to the dealer. Any shareholder who receives a cash payment
representing a dividend or distribution may reinvest such dividend or
distribution at net asset value by returning the check or the proceeds to the
Transfer Agent within 30 days after the payment date. Such investment will be
made at the net asset value per share next determined after receipt of the check
or proceeds by the Transfer Agent. Such shareholder will receive credit for any
contingent deferred sales charge paid in connection with the amount of proceeds
being reinvested.
EXCHANGE PRIVILEGE. The Company makes available to its shareholders the
privilege of exchanging their shares of a Fund for shares of certain other
Prudential Mutual Funds, including one or more specified money market funds,
subject in each case to the minimum investment requirements of such funds.
Shares of such other Prudential Mutual Funds may also be exchanged for shares of
a Fund. All exchanges are made on the basis of relative net asset value next
determined after receipt of an order in proper form. An exchange will be treated
as a redemption and purchase for tax purposes. Shares may be exchanged for
shares of another fund only if shares of such fund may legally be sold under
applicable state laws. For retirement and group plans having a limited menu of
Prudential Mutual Funds, the Exchange Privilege is available for those funds
eligible for investment in the particular program.
It is contemplated that the Exchange Privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.
CLASS A. Shareholders of Prudential Active Balanced Fund may exchange their
Class A shares for shares of certain other Prudential Mutual Funds, shares of
Prudential Government Securities Trust (Short-Intermediate Term Series) and
shares of the money market funds specified below. No fee or sales load will be
imposed upon the exchange. Shareholders of money market funds who acquired such
shares upon exchange of Class A shares may use the Exchange Privilege only to
acquire Class A shares of the Prudential Mutual Funds participating in the
Exchange Privilege.
The following money market funds participate in the Class A Exchange
Privilege:
Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury Money Market Series)
Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachusetts Money Market Series)
(New York Money Market Series)
(New Jersey Money Market Series)
Prudential MoneyMart Assets, Inc. (Class A shares)
Prudential Tax-Free Money Fund, Inc.
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<PAGE>
CLASS B AND CLASS C. Shareholders of Prudential Active Balanced Fund may
exchange their Class B and Class C shares for Class B and Class C shares,
respectively, of certain other Prudential Mutual Funds and shares of Prudential
Special Money Market Fund, Inc., a money market fund. No CDSC will be payable
upon such exchange, but a CDSC may be payable upon the redemption of the Class B
and Class C shares acquired as a result of the exchange. The applicable sales
charge will be that imposed by the fund in which shares were initially purchased
and the purchase date will be deemed to be the date of the initial purchase,
rather than the date of the exchange.
Class B and Class C shares of Prudential Active Balanced Fund may also be
exchanged for shares of Prudential Special Money Market Fund, Inc. without
imposition of any CDSC at the time of exchange. Upon subsequent redemption from
such money market fund or after re-exchange into the Fund, such shares will be
subject to the CDSC calculated without regard to the time such shares were held
in the money market fund. In order to minimize the period of time in which
shares are subject to a CDSC, shares exchanged out of the money market fund will
be exchanged on the basis of their remaining holding periods, with the longest
remaining holding periods being transferred first. In measuring the time period
shares are held in a money market fund and "tolled" for purposes of calculating
the CDSC holding period, exchanges are deemed to have been made on the last day
of the month. Thus, if shares are exchanged into Prudential Active Balanced Fund
from a money market fund during the month (and are held in the Fund at the end
of the month), the entire month will be included in the CDSC holding period.
Conversely, if shares are exchanged into a money market fund prior to the last
day of the month (and are held in the money market fund on the last day of the
month), the entire month will be excluded from the CDSC holding period.
At any time after acquiring shares of other funds participating in the
Class B or Class C exchange privilege, a shareholder may again exchange those
shares (and any reinvested dividends and distributions) for Class B or Class C
shares of the Fund, respectively, without subjecting such shares to any CDSC.
Shares of any fund participating in the Class B or Class C exchange privilege
that were acquired through reinvestment of dividends or distributions may be
exchanged for Class B or Class C shares of other funds, respectively, without
being subject to any CDSC.
CLASS Z. Class Z shares of Prudential Active Balanced Fund and shares of
Prudential Stock Index Fund may be exchanged for Class Z shares of other
Prudential Mutual Funds.
Additional details about the Exchange Privilege and prospectuses for each
of the Prudential Mutual Funds are available from the Fund's Transfer Agent,
Prudential Securities or Prusec.
The Exchange Privilege may be modified, terminated or suspended on 60 days'
notice, and any fund, including a Fund, or the Distributor, has the right to
reject any exchange application relating to such fund's shares.
DOLLAR COST AVERAGING
Dollar cost averaging is a method of accumulating shares by investing a
fixed amount of dollars in shares at set intervals. An investor buys more shares
when the price is low and fewer shares when the price is high. The average cost
per share is lower than it would be if a constant number of shares were bought
at set intervals.
Dollar cost averaging may be used, for example, to plan for retirement, to
save for a major expenditure, such as the purchase of a home, or to finance a
college education. The cost of a year's education at a four-year college today
averages around $14,000 at a private college and around $6,000 at a public
university. Assuming these costs increase at a rate of 7% a year, as has been
projected, for the freshman class of 2011, the cost of four years at a private
college could reach $210,000 and over $90,000 at a public university.(1)
B-31
<PAGE>
The following chart shows how much you would need in monthly investments to
achieve specified lump sums to finance your investment goals.(2)
Period of Monthly Investments: $100,000 $150,000 $200,000 $250,000
- ------------------------------ --------- -------- -------- --------
25 Years ....................... $ 110 $ 165 $ 220 $ 275
20 Years ....................... 176 264 352 440
15 Years ....................... 296 444 592 740
10 Years ....................... 555 833 1,110 1,388
5 Years ....................... 1,371 2,057 2,742 3,428
- -----------
(1) Source information concerning the costs of education at public and private
universities is available from The College Board Annual Survey of Colleges,
1993. Average costs for private institutions include tuition, fees, room
and board for the 1993-1994 academic year.
(2) The chart assumes an effective rate of return of 8% (assuming monthly
compounding). This example is for illustrative purposes only and is not
intended to reflect the performance of an investment in shares of a Fund.
The investment return and principal value of an investment will fluctuate
so that an investor's shares when redeemed may be worth more or less than
their original cost.
See "Automatic Savings Accumulation Plan."
AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP). Under ASAP, an investor may
arrange to have a fixed amount automatically invested in shares of a Fund
monthly by authorizing his or her bank account or Prudential Securities Account
(including a Command Account) to be debited to invest specified dollar amounts
in shares of a Fund. The investor's bank must be a member of the Automatic
Clearing House System. Stock certificates are not issued to ASAP participants.
Further information about this program and an application form can be
obtained from the Transfer Agent, Prudential Securities or Prusec.
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders through Prudential Securities or the Transfer Agent. Such
withdrawal plan provides for monthly or quarterly checks in any amount, except
as provided below, up to the value of the shares in the shareholder's account.
Withdrawals of Class B or Class C shares may be subject to a CDSC. See
"Shareholder Guide--How to Sell Your Shares--Contingent Deferred Sales Charges"
in the Prospectus of Prudential Active Balanced Fund.
In the case of shares held through the Transfer Agent (i) a $10,000 minimum
account value applies, (ii) withdrawals may not be for less than $100 and (iii)
the shareholder must elect to have all dividends and/or distributions
automatically reinvested in additional full and fractional shares at net asset
value on shares held under this plan. See "Shareholder Investment
Account--Automatic Reinvestment of Dividends and Distributions."
Prudential Securities and the Transfer Agent act as agents for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment. The systematic withdrawal plan may be
terminated at any time, and the Distributor reserves the right to initiate a fee
of up to $5 per withdrawal, upon 30 days' written notice to the shareholder.
Withdrawal payments should not be considered as dividends, yield or income.
If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.
Furthermore, each withdrawal constitutes a redemption of shares, and any
gain or loss realized must be recognized for federal income tax purposes. In
addition, withdrawals made concurrently with purchases of additional shares are
inadvisable because of the sales charges applicable to (i) the purchase of Class
A shares and (ii) the withdrawal of Class B and Class C shares. Each shareholder
should consult his or her own tax adviser with regard to the tax consequences of
the plan, particularly if used in connection with a retirement plan.
TAX-DEFERRED RETIREMENT PLANS. Various qualified retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-deferred accounts" under Section 403(b)(7) of the Internal Revenue Code are
available through the Distributor. These plans are for use by both self-employed
individuals and corporate employers. These plans permit either self-direction of
accounts by participants, or a pooled account arrangement. Information regarding
the establishment of these plans, and the administration, custodial fees an
other details are available from Prudential Securities or the Transfer Agent.
Investors who are considering the adoption of such a plan should consult
with their own legal counsel or tax adviser with respect to the establishment
and maintenance of any such plan.
B-32
<PAGE>
TAX-DEFERRED RETIREMENT ACCOUNTS
Individual Retirement Accounts. An individual retirement account (IRA)
permits the deferral of federal income tax on income earned in the account until
the earnings are withdrawn. The following chart represents a comparison of the
earnings in a personal savings account with those in an IRA, assuming a $2,000
annual contribution, an 8% rate of return and a 39.6% federal income tax bracket
and shows how much more retirement income can accumulate within an IRA as
opposed to a taxable individual savings account.
TAX-DEFERRED COMPOUNDING(1)
Contributions Personal
Made Over: Savings IRA
------------- -------- --------
10 years ..................... $ 26,165 $ 31,291
15 years ..................... 44,676 58,649
20 years ..................... 68,109 98,846
25 years ..................... 97,780 157,909
30 years ..................... 135,346 244,692
- ----------
(1) The chart is for illustrative purposes only and does not represent the
performance of a Fund or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated.
Earnings in the IRA account will be subject to tax when withdrawn from the
account.
MUTUAL FUND PROGRAMS
From time to time, the Company (or a portfolio of the Company, if
applicable) may be included in a mutual fund program with other Prudential
Mutual Funds. Under such a program, a group of portfolios will be selected and
thereafter promoted collectively. Typically, these programs are created with an
investment theme, e.g., to seek greater diversification, protection from
interest rate movements or access to different management styles. In the event
such a program is instituted, there may be a minimum investment requirement for
the program as a whole. A Fund may waive or reduce the minimum initial
investment requirements in connection with such a program.
The mutual funds in the program may be purchased individually or as a part
of the program. Since the allocation of portfolios included in the program may
not be appropriate for all investors, investors should consult their Prudential
Securities Financial Advisor or Prudential/Pruco Securities Representative
concerning the appropriate blend of portfolios for them. If investors elect to
purchase the individual mutual funds that constitute the program in an
investment ratio different from that offered by the program, the standard
minimum investment requirements for the individual mutual funds will apply.
NET ASSET VALUE
Portfolio securities of each 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 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
B-33
<PAGE>
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 Subadviser, 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 Subadviser to materially
affect the value of the security. The Company may engage pricing services to
obtain any prices.
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 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 Subadviser 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.
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. If so qualified,
each Fund will not be subject to federal income tax with respect to its net
investment income and net realized capital gains, if any, that are distributed
to its shareholders. In order to qualify for treatment as a RIC, each Fund will
have to meet income diversification, distribution, and certain other
requirements set forth in the Internal Revenue Code. If, in any year, a Fund
should fail to qualify under the Internal Revenue 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.
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
B-34
<PAGE>
(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 a 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 Internal Revenue 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 a Fund's investments 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
Fund's assets will be invested are not known. The Fund intends 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 Prudential
Active Balanced Fund accrues dividends, interest or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time the
Fund actually collects such receivables or pays such liabilities, generally will
be treated as ordinary income or loss. Similarly, gains or losses on the
disposition of foreign currencies or debt securities held by the 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 Internal Revenue 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 Fund may realize will adversely affect the
ability of the Fund to qualify as a RIC under the Internal Revenue 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
B-35
<PAGE>
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 Internal Revenue 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 Internal Revenue Code. Under these rules, depending on
different elections which may be made by the Company, the amount, timing and
character of gain and loss realized by the Company and its shareholders may be
affected.
TAX CONSEQUENCES TO SHAREHOLDERS
Ordinarily, distributions of a RIC's investment company taxable income
would be taxable to shareholders as ordinary income to the extent of the
earnings and profits of the RIC. To the extent that a distribution exceeds the
RIC's earnings and profits, it would be treated as a nontaxable return of
capital to the extent of the shareholder's tax basis in the shares of the RIC.
Distributions of net capital gain ordinarily would be taxable as long-term
capital gains. The rules discussed in this paragraph generally would apply
regardless of the length of time a shareholder holds the shares of the RIC.
The Company's present intention is to offer shares of the Funds primarily
to qualified retirement plans and other tax-exempt investors to whom the
foregoing rules do not apply. The Funds intend to satisfy the RIC distribution
requirements by distributions in the form of additional shares to its
shareholders. However, shareholders may redeem their shares, including shares
received as dividends or distributions, at any time for cash. Distributions are
generally not taxable to the participants in the shareholder plans.
Distributions from a qualified retirement plan to a participant or beneficiary
are subject to special rules. Because the effect of these rules varies greatly
with individual situations, potential investors are urged to consult their own
tax advisers.
TAX CONSEQUENCES TO NON-EXEMPT SHAREHOLDERS. Dividends and other
distributions declared by a Fund in October, November or December of any year
and payable to shareholders of record on a date in any of those months are
deemed to have been paid by the Fund and received by the shareholders on
December 31 of that year if the distributions are paid by the Fund during the
following January. Accordingly, those distributions will be taxed to
shareholders that are not tax-exempt entities for the year in which that
December 31 falls.
If shares of a Fund are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital loss
to the extent of any capital gain distributions received on those shares.
Non-exempt investors also should be aware that if shares 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.
B-36
<PAGE>
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.
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, 1996 and for the period
from commencement of each Fund's operations (November 5, 1992 for the Stock
Index Fund, and January 4, 1993 for the Active Balanced Fund) through March 31,
1996 was: Active Balanced, 17.4% and 10.6%, respectively; Stock Index, 31.3% and
16.1%, 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 amountwas
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 (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. Consequently, the given performance
quotations should not be considered as representative of the Fund's performance
for any specified period in the future.
B-37
<PAGE>
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 March 31, 1996 was: Active
Balanced, 38.6% and Stock Index, 66.0%.
From time to time, the performance of a Fund may be measured against
various indices. Set forth below is a chart which compares the performance of
different types of investments over the long term and the rate of inflation.(1)
[CRC]
[CHART
- -----------
(1) Source: Ibbotson Associates Stocks, Bonds, Bills and Inflation--1995
Yearbook (annually updates the work of Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved. Common stock returns
are based on the Standard and Poor's 500 Stock Index, a market-weighted,
unmanaged index of 500 common stock in a variety of industry sectors. It is a
commonly used indicator of broad stock price movements. This chart is for
illustrative purposes only and is not intended to represent the performance of
any particular investment or fund. Investors cannot invest directly in an index.
Past performance is not a guarantee of future results.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT AND INDEPENDENT ACCOUNTANTS
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the 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. Subcustodians provide
custodial services for a Fund's foreign assets held outside the United States.
See "How the Fund is Managed--Custodian and Transfer and Dividend Disbursing
Agent" in the Prospectus.
Prudential Mutual Fund Services, Inc., Raritan Plaza One, Edison, New
Jersey 08837 serves as the Transfer and Dividend Disbursing Agent of each Fund.
PMFS is a wholly-owned subsidiary of PMF. 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. For these services, PMFS receives an annual fee per shareholder
account of $9.50, a new account set-up fee for each manually established account
of $2.00 and a monthly inactive zero balance account fee per shareholder account
of $0.20. PMFS is also reimbursed for its out-of-pocket expenses, including, but
not limited to, postage, stationery, printing allocable communications expenses
and other costs.
Deloitte & Touche LLP, Two World Financial Center, New York, New York
10281, serves as the Company's independent accountants, and in that capacity
audits the annual reports of each Fund. Only two of the Funds included in the
financial statements, Prudential Active Balanced Fund and Prudential Stock Index
Fund, currently exist.
B-38
<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-39
<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-40
<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-41
<PAGE>
THE PRUDENTIAL STOCK INDEX FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Beverages--3.0%
800 Adolph Coors Co.................... $ 14,500
4,900 Anheuser Busch Cos., Inc........... 305,637
1,200 Brown-Forman Corp.................. 46,650
24,400 Coca-Cola Co....................... 1,683,600
15,200 PepsiCo Inc........................ 775,200
7,200 Seagram Co., Ltd................... 258,300
-----------
3,083,887
-----------
Chemicals--2.1%
2,200 Air Products & Chemicals, Inc...... 114,675
550 Albemarle Corp..................... 10,313
5,200 Dow Chemical Co.................... 387,400
10,700 duPont (E.I.) de Nemours & Co...... 735,625
1,600 Eastman Chemical Co................ 102,400
1,800 Grace (W.R.) & Co.................. 120,150
2,200 Hercules, Inc...................... 127,600
2,300 Monsanto Co........................ 231,725
1,300 Nalco Chemical Co.................. 44,362
1,300 Rohm & Haas Co..................... 78,487
1,000 Sigma-Aldrich...................... 48,500
2,600 Union Carbide Corp................. 103,350
-----------
2,104,587
-----------
Chemical-Specialty--0.4%
2,625 Engelhard Corp..................... 66,609
400 First Mississippi Corp............. 15,950
1,300 Great Lakes Chemical Corp.......... 87,913
2,800 Morton International, Inc.......... 86,800
2,600 Praxair, Inc....................... 69,550
900 Raychem Corp....................... 40,500
-----------
367,322
-----------
Commercial Services--0.2%
3,350 CUC International, Inc.(a)......... 116,831
1,500 Deluxe Corp........................ 49,687
600 Harland (John H.) Co............... 13,275
1,900 Moore Corp. Ltd.................... 38,238
<CAPTION>
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
800 Ogden Corp......................... $ 18,800
-----------
236,831
-----------
Computer Software & Services--3.0%
900 AutoDesk, Inc...................... 39,375
2,800 Automatic Data Processing, Inc..... 190,750
1,400 Cabletron Systems, Inc.(a)......... 92,225
900 Ceridian Corp.(a).................. 39,937
5,200 Cisco Systems, Inc.(a)............. 358,800
Computer Associates International,
4,600 Inc.............................. 194,350
1,050 Computer Sciences Corp.(a)......... 67,594
1,000 Intergraph Corp.(a)................ 12,125
4,000 Micron Technology Inc.............. 318,000
11,300 Microsoft Corp.(a)................. 1,022,650
6,900 Novell, Inc.(a).................... 125,925
8,350 Oracle Systems Corp.(a)............ 320,431
3,000 Silicon Graphics Inc.(a)........... 103,125
1,800 Sun Microsystems Inc.(a)........... 113,400
1,900 Tandem Computers Inc.(a)........... 23,275
-----------
3,021,962
-----------
Construction--0.1%
1,600 Fluor Corp......................... 89,600
700 Foster Wheeler Corp................ 24,762
600 Kaufman & Broad Home Corp.......... 7,575
500 Pulte Corp......................... 14,188
-----------
136,125
-----------
Consumer Goods--0.5%
600 Centex Corp........................ 17,400
600 Fleetwood Enterprises, Inc......... 11,925
3,100 Lowes Companies, Inc............... 93,000
3,200 Masco Corp......................... 88,000
2,200 Maytag Corp........................ 38,500
1,000 Owens-Corning Fiberglas Corp.(a)... 44,625
Pioneer Hi Bred International,
1,600 Inc.............................. 73,600
</TABLE>
See Notes to Financial Statements.
B-42
<PAGE>
THE PRUDENTIAL STOCK INDEX FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Consumer Goods, cont'd.
900 Stanley Works...................... $ 39,038
1,500 Whirlpool Corp..................... 86,625
-----------
492,713
-----------
Containers--0.1%
600 Ball Corp.......................... 17,775
900 Bemis, Inc......................... 24,863
1,700 Crown Cork & Seal, Inc.(a)......... 65,875
-----------
108,513
-----------
Cosmetics & Soaps--1.9%
500 Alberto Culver Co.................. 15,250
1,350 Avon Products, Inc................. 96,863
1,000 Clorox Co.......................... 71,375
2,800 Colgate-Palmolive Co............... 186,550
8,600 Gillette Co........................ 409,575
International Flavors & Fragrances
2,150 Inc.............................. 103,737
13,300 Procter & Gamble Co................ 1,024,100
-----------
1,907,450
-----------
Diversified Gas--0.1%
2,100 Coastal Corp....................... 70,613
400 Eastern Enterprises, Inc........... 12,850
1,400 Enserch Corp....................... 23,100
1,000 NICOR Inc.......................... 27,250
500 Oneok Inc.......................... 11,625
-----------
145,438
-----------
Drugs & Medical Supplies--7.1%
15,300 Abbott Laboratories................ 652,162
1,600 ALZA Corp.(a)...................... 36,800
6,000 American Home Products Corp........ 509,250
5,100 Amgen, Inc.(a)..................... 254,362
1,000 Bard (C.R.), Inc................... 30,500
1,100 Bausch & Lomb, Inc................. 45,513
Value
Shares Description (Note 1)
- ------------------------------------------------------------
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-43
<PAGE>
THE PRUDENTIAL STOCK INDEX FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Financial Services--2.4%
9,400 American Express Co................ $ 417,125
1,000 Beneficial Corp.................... 52,250
2,000 Block (H&R), Inc................... 76,000
3,258 Dean Witter Discover & Co.......... 183,262
3,500 Federal Home Loan Mortgage Corp.... 241,937
5,350 Federal National Mortgage Assn..... 553,725
2,300 First Data Corp.................... 142,600
1,900 Household International Corp....... 117,800
2,850 MBNA Corp.......................... 118,631
3,400 Merrill Lynch & Co., Inc........... 212,500
1,500 Morgan Stanley Group, Inc.......... 144,188
2,100 Salomon, Inc....................... 80,325
1,350 Transamerica Corp.................. 96,188
-----------
2,436,531
-----------
Food & Beverage--2.3%
10,596 Archer-Daniels-Midland Co.......... 162,910
4,800 Campbell Soup Co................... 241,200
4,700 ConAgra, Inc....................... 186,237
2,900 CPC International, Inc............. 191,400
700 Fleming Cos., Inc.................. 16,800
3,050 General Mills, Inc................. 170,038
1,200 Giant Foods, Inc................... 37,650
4,700 Heinz (H.J.) Co.................... 215,025
1,500 Hershey Foods Corp................. 96,563
4,250 Kellogg Co......................... 307,594
2,600 Quaker Oats Co..................... 86,125
2,000 Ralston Purina Co.................. 115,750
9,200 Sara Lee Corp...................... 273,700
3,500 Sysco Corp......................... 95,375
2,300 Wrigley (W.M.) Junior Co........... 116,150
-----------
2,312,517
-----------
Forest Products--1.5%
900 Boise Cascade Corp................. 36,338
1,900 Champion International Corp........ 102,362
160 Crown Vantage Inc.(a).............. 3,560
900 Federal Paper Board, Inc........... 34,538
1,750 Georgia Pacific Corp............... 153,125
<CAPTION>
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
4,900 International Paper Co............. $ 205,800
1,600 James River Corp................... 51,200
3,100 Kimberly Clark Corp................ 208,087
2,100 Louisiana Pacific Corp............. 50,663
1,000 Mead Corp.......................... 58,625
600 Potlatch Corp...................... 24,525
2,900 Scott Paper Co..................... 140,650
1,900 Stone Container Corp............... 36,100
1,100 Temple Inland Inc.................. 58,575
1,300 Union Camp Corp.................... 74,912
1,300 Westvaco Corp...................... 59,313
3,900 Weyerhaeuser Co.................... 177,937
1,000 Willamette Industries, Inc......... 66,750
-----------
1,543,060
-----------
Gas Pipelines--0.5%
3,018 Cinergy Corp....................... 84,127
1,000 Columbia Gas System, Inc.(a)....... 38,625
1,800 Consolidated Natural Gas Co........ 72,675
4,900 Enron Corp......................... 164,150
2,300 Noram Energy Corp.................. 18,112
2,900 Panhandle Eastern Corp............. 79,025
700 Peoples Energy Corp................ 19,250
2,000 Williams Cos., Inc................. 78,000
-----------
553,964
-----------
Hospital Management--0.9%
1,900 Beverly Enterprises, Inc.(a)....... 26,125
8,552 Columbia Healthcare Corp........... 415,841
700 Community Psychiatric Centers...... 8,225
1,200 Manor Care, Inc.................... 40,800
1,800 Service Corp. International........ 70,425
500 Shared Medical Systems Corp........ 20,750
4,000 Tenet Healthcare Corp.(a).......... 69,500
3,000 U.S. HealthCare Inc................ 106,125
3,300 United Healthcare Corp............. 161,287
-----------
919,078
-----------
Housing Construction
700 Armstrong World Industries......... 38,850
-----------
</TABLE>
See Notes to Financial Statements.
B-44
<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-45
<PAGE>
THE PRUDENTIAL STOCK INDEX FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Mineral Resources, cont'd.
1,850 Cyprus Minerals Co................. $ 52,031
2,400 Echo Bay Mines, Ltd................ 26,100
Freeport-McMoRan Copper & Gold
3,800 Inc.............................. 97,375
2,500 Homestake Mining Co................ 42,500
2,300 INCO, Ltd.......................... 78,775
1,698 Newmont Mining Corp................ 72,165
1,300 Phelps-Dodge Corp.................. 81,413
800 Pittston Minerals Group............ 21,700
4,600 Placer Dome, Inc................... 120,750
2,240 Santa Fe Pacific Gold Corp......... 28,280
-----------
824,826
-----------
Miscellaneous Basic Industry--4.4%
1,700 Applied Materials, Inc.(a)......... 173,825
Bassett Furniture Industries,
225 Inc.............................. 5,653
4,100 Browning Ferris Industries, Inc.... 124,537
600 Crane Co........................... 20,700
1,300 Ecolab, Inc........................ 35,913
750 FMC Corp.(a)....................... 57,000
32,800 General Electric Co................ 2,091,000
1,000 General Signal Corp................ 29,250
1,000 Grainger (W.W.) Inc................ 60,375
2,300 Illinois Tool Works, Inc........... 135,412
2,300 ITT Corp........................... 285,200
1,100 Loews Corp......................... 160,050
1,500 Mallinckrodt Group Inc............. 59,438
900 Millipore Corp..................... 33,750
400 Morrison Knudsen Corp.............. 3,100
150 NACCO Industries, Inc.............. 8,906
2,033 Pall Corp.......................... 47,267
3,900 PPG Industries, Inc................ 181,350
1,127 Teledyne, Inc...................... 30,212
1,600 Textron, Inc....................... 109,200
600 Trinova Corp....................... 20,250
1,200 TRW Inc............................ 89,250
1,500 Tyco International Ltd............. 94,500
2,400 United Technologies Corp........... 212,100
7,500 Westinghouse Electric Corp......... 112,500
9,300 WMX Technologies, Inc.............. 265,050
Value
Shares Description (Note 1)
- ------------------------------------------------------------
100 Zurn Industries, Inc............... $ 2,538
-----------
4,448,326
-----------
Miscellaneous Consumer Growth--1.8%
1,300 Allergan, Inc...................... 43,388
1,400 American Greetings Corp............ 42,700
1,600 Black & Decker Corp................ 54,600
4,500 Corning, Inc....................... 128,812
1,900 Dial Corp.......................... 47,025
6,600 Eastman Kodak Co................... 391,050
700 Jostens, Inc....................... 16,450
Minnesota Mining & Manufacturing
8,100 Co............................... 457,650
800 Polaroid Corp...................... 31,800
1,300 Premark International Inc.......... 66,137
3,000 Rubbermaid, Inc.................... 82,875
3,100 Unilever N.V....................... 403,000
2,000 Whitman Corp....................... 41,250
-----------
1,806,737
-----------
Office Equipment & Supplies--1.9%
1,100 Alco Standard Corp................. 93,225
1,000 Avery Dennison Corp................ 42,000
5,100 Compaq Computer Corp.(a)........... 246,712
2,500 Honeywell, Inc..................... 107,188
International Business Machines
11,000 Corp............................. 1,038,125
2,900 Pitney Bowes, Inc.................. 121,800
3,500 Unisys Corp.(a).................... 27,563
2,150 Xerox Corp......................... 288,906
-----------
1,965,519
-----------
Petroleum--6.7%
1,800 Amerada Hess Corp.................. 87,525
9,600 Amoco Corp......................... 615,600
1,100 Ashland Oil, Inc................... 36,713
3,150 Atlantic Richfield Co.............. 338,231
2,400 Burlington Resources Inc........... 93,000
12,600 Chevron Corp....................... 612,675
24,050 Exxon Corp......................... 1,737,612
</TABLE>
See Notes to Financial Statements.
B-46
<PAGE>
THE PRUDENTIAL STOCK INDEX FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Petroleum, cont'd.
1,000 Kerr McGee Corp.................... $ 55,500
700 Louisiana Land & Exploration Co.... 24,938
7,700 Mobil Corp......................... 767,112
6,300 Occidental Petroleum Corp.......... 138,600
900 Pennzoil Co........................ 39,488
5,100 Phillips Petroleum Co.............. 165,750
Royal Dutch Petroleum Co. (ADR)
10,400 (Netherlands).................... 1,276,600
Santa Fe Energy Resources,
1,700 Inc.(a).......................... 16,150
1,500 Sun Co., Inc....................... 38,625
3,500 Tenneco, Inc....................... 161,875
5,000 Texaco, Inc........................ 323,125
4,800 Unocal Corp........................ 136,800
5,600 USX Marathon Corp.................. 110,600
1,100 Western Atlas, Inc.(a)............. 52,112
-----------
6,828,631
-----------
Petroleum Services--0.6%
2,600 Baker Hughes Inc................... 52,975
3,400 Dresser Industries, Inc............ 81,175
2,200 Halliburton Co..................... 91,850
500 Helmerich & Payne, Inc............. 14,063
1,000 McDermott International, Inc....... 19,750
1,900 Oryx Energy Co.(a)................. 24,700
1,400 Rowan Cos., Inc.(a)................ 10,500
4,700 Schlumberger, Ltd.................. 306,675
1,600 Sonat Inc.......................... 51,200
-----------
652,888
-----------
Railroads--0.8%
1,765 Burlington Northern Inc............ 127,975
1,500 Consolidated Rail Corp............. 103,125
2,000 CSX Corp........................... 168,250
2,500 Norfolk Southern Corp.............. 186,875
4,000 Union Pacific Corp................. 265,000
-----------
851,225
-----------
Restaurants--0.6%
3,150 Darden Restaurants Inc............. 36,225
Value
Shares Description (Note 1)
- ------------------------------------------------------------
400 Luby's Cafeterias, Inc............. $ 8,600
13,400 McDonald's Corp.................... 512,550
Ryan's Family Steak Houses,
900 Inc.(a).......................... 7,088
700 Shoney's Inc.(a)................... 7,700
2,100 Wendy's International, Inc......... 44,362
-----------
616,525
-----------
Retail--4.3%
4,900 Albertsons, Inc.................... 167,212
2,800 American Stores Co................. 79,450
300 Brown Group, Inc................... 5,513
39 Bruno's, Inc....................... 444
1,700 Charming Shoppes, Inc.............. 7,650
1,900 Circuit City Stores, Inc........... 60,087
1,400 Dayton Hudson Corp................. 106,225
2,200 Dillard Department Stores, Inc..... 70,125
2,800 Gap, Inc........................... 100,800
Great Atlantic & Pacific Tea
700 Inc.............................. 19,600
1,300 Harcourt General, Inc.............. 54,438
9,266 Home Depot, Inc.................... 369,482
8,800 K mart Corp........................ 127,600
2,400 Kroger Co.(a)...................... 81,900
7,000 Limited, Inc....................... 133,000
1,500 Liz Claiborne, Inc................. 37,875
400 Longs Drug Stores Corp............. 16,600
4,800 May Department Stores Co........... 210,000
2,000 Melville Corp...................... 69,000
700 Mercantile Stores, Inc............. 31,500
3,200 Newell Co.......................... 79,200
1,400 NIKE, Inc.......................... 155,575
1,600 Nordstrom, Inc..................... 66,800
4,400 Penney (J.C.), Inc................. 218,350
1,200 Pep Boys - Manny, Moe & Jack....... 32,550
3,752 Price Costco, Inc.(a).............. 64,253
1,600 Reebok International, Ltd.......... 55,000
1,500 Rite-Aid Corp...................... 42,000
7,500 Sears Roebuck & Co................. 276,562
1,600 Sherwin Williams Co................ 56,000
1,100 Stride Rite Corp................... 12,513
1,400 Supervalue, Inc.................... 41,125
1,400 TJX Companies, Inc................. 16,625
</TABLE>
See Notes to Financial Statements.
B-47
<PAGE>
THE PRUDENTIAL STOCK INDEX FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Retail, cont'd.
5,300 Toys 'R' Us Inc.(a)................ $ 143,100
44,400 Wal-Mart Stores, Inc............... 1,104,450
4,800 Walgreen Co........................ 134,400
1,500 Winn-Dixie Stores, Inc............. 89,437
2,600 Woolworth Corp..................... 40,950
-----------
4,377,391
-----------
Rubber--0.2%
1,700 Cooper Tire & Rubber............... 41,225
500 Goodrich (B.F.) Co................. 32,938
2,900 Goodyear Tire & Rubber Co.......... 114,187
-----------
188,350
-----------
Steel--0.2%
1,900 Armco Inc.(a)...................... 12,350
1,800 Bethlehem Steel Corp.(a)........... 25,425
1,000 Inland Steel Industries, Inc....... 22,750
1,700 Nucor Corp......................... 76,075
1,500 USX Corp. - U.S. Steel Group....... 46,500
1,850 Worthington Industries, Inc........ 33,994
-----------
217,094
-----------
Telecommunications--1.3%
3,700 ALLTEL Corp........................ 110,538
750 Andrew Corp.(a).................... 45,844
2,200 DSC Communications Corp.(a)........ 130,350
13,000 MCI Communications Corp............ 338,812
4,900 Northern Telecom Ltd............... 174,562
1,500 Scientific Atlanta, Inc............ 25,313
6,800 Sprint Corp........................ 238,000
12,500 Tele Communications, Inc.(a)....... 218,750
1,700 Tellabs, Inc.(a)................... 71,613
-----------
1,353,782
-----------
Textiles--0.2%
1,500 Fruit of the Loom, Inc.(a)......... 30,938
National Service Industries,
1,000 Inc.............................. 29,250
700 Russell Corp....................... 17,850
<CAPTION>
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
400 Springs Industries, Inc............ $ 15,700
1,200 VF Corp............................ 61,200
-----------
154,938
-----------
Tobacco--1.6%
3,700 American Brands Inc................ 156,325
16,250 Philip Morris Cos., Inc............ 1,356,875
3,800 UST, Inc........................... 108,775
-----------
1,621,975
-----------
Trucking & Shipping--0.2%
900 Consolidated Freightways, Inc...... 22,275
1,100 Federal Express Corp.(a)........... 91,300
5,600 Laidlaw Inc........................ 49,000
800 Roadway Services, Inc.............. 39,800
1,400 Ryder System, Inc.................. 35,525
400 Yellow Corp........................ 5,500
-----------
243,400
-----------
Utility-Communications--6.6%
9,600 AirTouch Communications(a)......... 294,000
10,700 Ameritech Corp..................... 557,737
30,700 AT&T Corp.......................... 2,018,525
8,500 Bell Atlantic Corp................. 521,687
9,600 BellSouth Corp..................... 702,000
18,700 GTE Corp........................... 733,975
8,300 NYNEX Corp......................... 396,325
8,200 Pacific Telesis Group.............. 252,150
11,800 SBC Communications Inc............. 649,000
9,100 U.S. West, Inc..................... 428,838
4,200 Unicom Corp........................ 127,050
-----------
6,681,287
-----------
Utility-Electric--2.8%
3,600 American Electric Power, Inc....... 130,950
2,700 Baltimore Gas & Electric Co........ 69,863
3,000 Carolina Power & Light Co.......... 100,875
</TABLE>
See Notes to Financial Statements.
B-48
<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-49
<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-50
<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
-----------
Value
Shares Description (Note 1)
- -------------------------------------------------------------
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-51
<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)
Value
Shares Description (Note 1)
- -------------------------------------------------------------
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-52
<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-53
<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
-----------
Value
Shares Description (Note 1)
- ------------------------------------------------------------
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-54
<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-55
<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-56
<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)
- ------------------------------------------------------------
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-57
<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)
- ------------------------------------------------------------
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-58
<PAGE>
THE PRUDENTIAL BALANCED FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Technology--0.8%
14,500 Coltec Inds., Inc.(a).............. $ 174,000
10,400 Litton Industries Inc.(a).......... 452,400
-----------
626,400
-----------
Telecommunications--1.5%
20,900 MCI Communications Corp............ 544,706
36,500 Tele Communications, Inc.(a)....... 706,275
-----------
1,250,981
-----------
Utility-Communications--0.4%
9,100 AirTouch Communications(a)......... 278,688
600 WorldCom Inc.(a)................... 19,275
-----------
297,963
-----------
Total common stocks
(cost $31,721,047)................. 37,484,175
-----------
Principal
Amount
(000) DEBT OBLIGATIONS--44.0%
- --------
Asset Backed Securities--0.5%
Standard Credit Card Master Trust
I,
Series 1995 Class - A1
$ 400 8.25%, 1/7/07 (cost $444,938)...... 438,872
-----------
Corporate Bonds--7.2%
African Development Bank,
400 7.70%, 7/15/02..................... 424,732
(Banking)
American General Finance Corp.,
400 7.25%, 5/15/05..................... 412,132
(Financial Services)
Comdisco Inc.,
300 6.50%, 6/15/00..................... 296,730
(Commercial Services)
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Consolidated Edison Co., Inc.,
$ 300 6.625%, 2/1/02.................... $ 299,175
(Utilities)
Detroit Edison Co.,
350 6.34%, 3/15/00.................... 346,038
(Utilities)
Federal Express Corp.,
350 10.00%, 9/1/98.................... 381,836
(Shipping)
Ford Motor Credit Co.,
400 9.375%, 12/15/97.................. 424,116
(Financial Services)
General Electric Capital Corp.,
400 8.75%, 11/26/96................... 411,024
(Financial Services)
General Motors Acceptance Corp.,
400 9.625%, 5/15/00................... 447,896
(Financial Services)
Greyhound Financial Corp.,
100 8.50%, 5/1/98..................... 104,629
(Financial Services)
Hanson PLC.,
400 7.375%, 1/15/03................... 413,828
(Industrial) (United Kingdom)
International Lease Finance Corp.,
200 5.50%, 4/1/97..................... 197,634
(Financial Services)
Lehman Brothers, Inc.,
200 7.125%, 7/15/02................... 198,082
(Financial Services)
Norwest Corp.,
300 7.125%, 4/1/00.................... 307,899
(Banking)
Salomon, Inc.,
200 8.64%, 2/27/98.................... 207,340
(Financial Services)
</TABLE>
See Notes to Financial Statements.
B-59
<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-60
<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-61
<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)
- -------------------------------------------------------------
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-62
<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-63
<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-64
<PAGE>
THE PRUDENTIAL MONEY MARKET FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
DEPOSIT NOTES--2.6%
Society National Bank Cleveland,
$ 1,000 6.70%, 4/15/96................... $ 1,004,941
500 6.00%, 4/25/96................... 498,649
------------
Total deposit notes
(amortized cost $1,503,590)...... 1,503,590
------------
VARIABLE RATE OBLIGATIONS(a)--28.5%
American Express Centurion Bank,
1,000 6.26%, 10/2/95................... 1,000,245
Bank One Columbus N.A.,
2,700 6.08%, 10/2/95................... 2,698,150
FCC National Bank,
1,400 6.15%, 10/2/95................... 1,399,944
Ford Motor Credit Corp.,
200 6.14%, 12/18/95.................. 200,233
Goldman Sachs Group, L.P.,
2,700 6.00%, 10/30/95.................. 2,700,000
IBM Credit Corp.,
1,500 5.615%, 10/16/95................. 1,499,775
John Deere Capital Corp.,
1,000 6.095%, 10/23/95................. 1,001,783
John Deere Owner Trust,
1,460 5.8125%, 10/16/95................ 1,460,089
Key Bank New York,
1,400 6.49%, 10/2/95................... 1,398,953
Lehman Brothers, Inc.,
1,000 6.11%, 10/24/95.................. 1,000,000
Merrill Lynch & Co., Inc.,
500 5.885%, 10/2/95.................. 500,000
Money Market Auto Loan Trust,
700 6.005%, 10/16/95................. 700,000
Morgan Stanley Group, Inc.,
1,000 6.00%, 11/15/95.................. 1,000,000
------------
Total variable rate obligations
(amortized cost $16,559,172)..... 16,559,172
------------
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
- -------------------------------------------------------------
LOAN PARTICIPATIONS--4.8%
Engelhard Corp.,
$ 800 6.20%, 10/2/95................... $ 800,000
General Electric Capital Corp.,
2,000 6.00%, 10/2/95................... 2,000,000
------------
Total loan participations
(amortized cost $2,800,000)...... 2,800,000
------------
MEDIUM-TERM OBLIGATIONS--9.1%
Associates Corp. of North
America,
100 4.68%, 3/29/96................... 99,143
Deere & Co.,
1,000 8.47%, 3/18/96................... 1,011,224
Ford Motor Credit Corp.,
1,000 5.15%, 3/15/96................... 993,295
General Motors Acceptance Corp.,
2,100 4.80%, 11/15/95.................. 2,095,777
570 4.75%, 2/14/96................... 567,268
International Lease Finance
Corp.,
500 5.00%, 5/28/96................... 496,536
------------
Total medium-term obligations
(amortized cost $5,263,243)...... 5,263,243
------------
Total Investments--99.0%
(amortized cost
$57,471,203(b))................ 57,471,203
Other assets in excess of
liabilities--1.0%.............. 582,874
------------
Net Assets--100%................. $ 58,054,077
------------
------------
</TABLE>
- ---------------
(a) For purposes of amortized cost valuation, the maturity
date of these instruments is considered to be the next
date on which the security can be redeemed at par or the
next date on which the rate of interest is adjusted.
(b) The cost of securities for federal income tax purposes is
substantially the same as for financial reporting
purposes.
See Notes to Financial Statements.
B-65
<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-66
<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-67
<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-68
<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-69
<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-70
<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%
</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-71
<PAGE>
THE PRUDENTIAL FINANCIAL HIGHLIGHTS
(LOGO) INSTITUTIONAL
FUND
<TABLE>
<CAPTION>
ACTIVE
BALANCED
INTERNATIONAL FUND
STOCK ---------
FUND
---------------------------------------------- Year
November 5, Ended
1992(a) September
Year Ended September 30, Through 30,
---------------------------- September 30, ---------
1995 1994 1993 1995
--------- ------------- ------------- ---------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 14.84 $ 12.35 $ 10.00 $ 10.92
--------- ------------- ------------- ---------
Income from investment operations:
Net investment income(b)...................... .18 .13 .16 .33
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions................................. .66 2.54 2.21 1.54
--------- ------------- ------------- ---------
Total from investment operations............. .84 2.67 2.37 1.87
--------- ------------- ------------- ---------
Less distributions:
Dividends from net investment income.......... (.10) (.03) (.02) (.29)
Distributions from net realized gains......... (.33) (.15) -- (.04)
--------- ------------- ------------- ---------
Total distributions........................... (.43) (.18) (.02) (.33)
--------- ------------- ------------- ---------
Net asset value, end of period................ $ 15.25 $ 14.84 $ 12.35 $ 12.46
--------- ------------- ------------- ---------
--------- ------------- ------------- ---------
TOTAL RETURN(d)............................... 5.95% 21.71% 23.74% 17.66%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $ 136,685 $ 102,824 $31,708 $ 133,352
Average net assets (000)...................... $ 118,927 $ 68,476 $14,491 $ 104,821
Ratios to average net assets:(b)
Expenses..................................... 1.60% 1.60% 1.60%(c) 1.00%
Net investment income........................ 1.58% 1.08% 1.44%(c) 3.53%
Portfolio turnover rate....................... 20% 21% 15% 30%
<CAPTION>
ACTIVE
BALANCE
FUND
--------------------------------
January 4,
1993(a)
Year Ended Through
September 30, September 30,
1994 1993
------------- -------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 11.05 $ 10.00
------------- -------------
Income from investment operations:
Net investment income(b)...................... .24 .21
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions................................. (.12) .84
------------- -------------
Total from investment operations............. .12 1.05
------------- -------------
Less distributions:
Dividends from net investment income.......... (.14) --
Distributions from net realized gains......... (.11) --
------------- -------------
Total distributions........................... (.25) --
------------- -------------
Net asset value, end of period................ $ 10.92 $ 11.05
------------- -------------
------------- -------------
TOTAL RETURN(d)............................... 1.07% 10.50%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $81,176 $38,786
Average net assets (000)...................... $58,992 $12,815
Ratios to average net assets:(b)
Expenses..................................... 1.00% 1.00%(c)
Net investment income........................ 3.06% 2.68%(c)
Portfolio turnover rate....................... 40% 47%
</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-72
<PAGE>
THE PRUDENTIAL FINANCIAL HIGHLIGHTS
(LOGO) INSTITUTIONAL
FUND
<TABLE>
<CAPTION>
BALANCED INCOME
FUND FUND
---------------------------------------------- ---------
November 5,
1992(a) Year Ended
Year Ended September 30, Through September 30,
---------------------------- September 30, ---------
1995 1994 1993 1995
--------- ------------- ------------- ---------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 11.08 $ 11.80 $ 10.00 $ 9.38
--------- ------------- ------------- ---------
Income from investment operations:
Net investment income(b)...................... .18 .31 .31 .59
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions................................. 1.53 (.52) 1.54 .60
--------- ------------- ------------- ---------
Total from investment operations............. 1.71 (.21) 1.85 1.19
--------- ------------- ------------- ---------
Less distributions:
Dividends from net investment income.......... (.25) (.23) (.05) (.59)
Distributions from net realized gains......... (.05) (.28) -- --
--------- ------------- ------------- ---------
Total distributions........................... (.30) (.51) (.05) (.59)
--------- ------------- ------------- ---------
Net asset value, end of period................ $ 12.49 $ 11.08 $ 11.80 $ 9.98
--------- ------------- ------------- ---------
--------- ------------- ------------- ---------
TOTAL RETURN(d)............................... 15.90% (1.88)% 18.58% 13.11%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $82,110 $64,313 $27,663 $52,297
Average net assets (000)...................... $70,914 $44,048 $17,401 $46,386
Ratios to average net assets: (b)
Expenses..................................... 1.00% 1.00% 1.00%(c) .70%
Net investment income........................ 3.19% 2.86% 3.16%(c) 6.17%
Portfolio turnover rate....................... 65% 52% 74% 145%
<CAPTION>
INCOME
FUND
--------------------------------
March 1,
1993(a)
Year Ended Through
September 30, September 30,
1994 1993
------------- -------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 10.33 $ 10.00
------------- -------------
Income from investment operations:
Net investment income(b)...................... .52 .27
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions................................. (.91) .33
------------- -------------
Total from investment operations............. (.39) .60
------------- -------------
Less distributions:
Dividends from net investment income.......... (.52) (.27)
Distributions from net realized gains......... (.04) --
------------- -------------
Total distributions........................... (.56) (.27)
------------- -------------
Net asset value, end of period................ $ 9.38 $ 10.33
------------- -------------
------------- -------------
TOTAL RETURN(d)............................... (3.91)% 6.11%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $41,401 $35,015
Average net assets (000)...................... $37,802 $25,626
Ratios to average net assets: (b)
Expenses..................................... .70% .70%(c)
Net investment income........................ 5.24% 4.62%(c)
Portfolio turnover rate....................... 83% 93%
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) Net of expense subsidy.
(c) Annualized.
(d) Total return is calculated assuming a purchase of shares on the first
day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total return for periods
of less than a full year are not annualized. Total return includes the
effect of expense subsidies.
See Notes to Financial Statements.
B-73
<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-74
<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-75
<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-76
<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-77
<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-78
<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/
Depreciation
-------------- Gross Unrealized
Fund Basis Appreciation Depreciation
- ------------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Growth Stock Fund $168,492,267 $ 53,882,096 $55,631,552 $1,749,456
Stock Index Fund 80,984,245 15,486,856 16,243,442 756,586
International Stock
Fund 120,016,426 17,315,559 19,620,167 2,304,608
Active Balanced
Fund 121,485,163 12,020,860 12,744,154 723,294
Balanced Fund 74,648,132 6,340,696 6,845,882 505,186
Income Fund 56,738,626 894,526 1,086,048 191,522
</TABLE>
The following Funds elected to treat net losses incurred in the eleven month
period ended September 30, 1994 as having occurred in the current fiscal year:
<TABLE>
<CAPTION>
Capital Currency
---------- --------
<S> <C> <C>
Growth Stock Fund $3,796,000 --
International Stock Fund -- $186,000
Income Fund 828,000 --
</TABLE>
B-79
<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-80
<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-81
<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-82
<PAGE>
THE PRUDENTIAL GROWTH STOCK FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS
Common Stocks--98.5%
Aerospace/Defense--3.5%
115,500 Boeing Co.......................... $10,005,188
-----------
Airlines--1.7%
56,800 AMR Corp.(a)....................... 5,083,600
-----------
Automobiles & Trucks--1.4%
69,200 General Motors Corp................ 3,944,400
-----------
Beverages--3.1%
40,800 Coca-Cola Co....................... 3,371,100
87,300 PepsiCo Inc........................ 5,521,725
-----------
8,892,825
-----------
Capital Goods--0.6%
34,100 Duracell International Inc......... 1,692,213
-----------
Chemicals--1.4%
3,170 Ciba-Geigy Ltd. (Switzerland)...... 3,961,502
-----------
Commercial Services--1.3%
125,750 CUC International, Inc.(a)......... 3,678,188
-----------
Computer Software & Services--18.0%
93,400 3Com Corp.(a)...................... 3,724,325
110,800 America Online Inc................. 6,204,800
84,800 AutoDesk, Inc...................... 3,201,200
162,800 Cisco Systems, Inc.(a)............. 7,549,850
Computer Associates International,
93,950 Inc.............................. 6,729,169
206,900 EMC Corp.(a)....................... 4,525,937
100,300 Macromedia Inc..................... 4,287,825
57,100 Microsoft Corp.(a)................. 5,888,437
71,000 SAP AG (ADR) (Germany)............. 3,390,250
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
54,400 Seagate Technology, Inc.(a)........ $ 2,978,400
104,300 Symbol Technologies, Inc.(a)....... 3,663,538
-----------
52,143,731
-----------
Cosmetics & Soaps--1.2%
66,700 Gillette Co........................ 3,451,725
-----------
Drugs & Medical Supplies--10.4%
156,500 Astra AB Class A (Sweden).......... 7,234,170
58,300 Johnson & Johnson Co............... 5,378,175
98,200 Lilly (Eli) & Co................... 6,383,000
80,000 Pfizer Inc......................... 5,360,000
Smith Kline Beecham PLC (ADR)
108,900 (United Kingdom)................. 5,608,350
-----------
29,963,695
-----------
Electronics--5.9%
76,600 Hewlett-Packard Co................. 7,200,400
96,700 Intel Corp......................... 5,499,813
160,900 LSI Logic Corp.(a)................. 4,304,075
-----------
17,004,288
-----------
Financial Services--6.3%
184,700 Federal National Mortgage Assn..... 5,887,312
68,833 First Data Corp.................... 4,852,726
70,500 Mutual Risk Management, Ltd........ 2,916,938
106,600 The PMI Group Inc.................. 4,650,425
-----------
18,307,401
-----------
Hospital Management--3.8%
90,300 Phycor, Inc.(a).................... 3,973,200
112,500 United Healthcare Corp............. 6,918,750
-----------
10,891,950
-----------
Insurance--2.4%
33,100 CIGNA Corp......................... 3,781,675
63,700 ITT Hartford Group Inc............. 3,121,300
-----------
6,902,975
-----------
</TABLE>
See Notes to Financial Statements.
B-83
<PAGE>
THE PRUDENTIAL GROWTH STOCK FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Leisure--4.4%
132,500 Disney (Walt) Co................... $ 8,463,437
72,200 ITT Corp. (New).................... 4,332,000
-----------
12,795,437
-----------
Lodging--0.8%
24,400 Hilton Hotels Corp................. 2,293,600
-----------
Machinery--1.1%
83,700 Harnischfeger Industries, Inc...... 3,243,375
-----------
Media--8.1%
Clear Channel Communications,
93,600 Inc.(a).......................... 5,288,400
154,100 Eagle River Interactive Inc.(a).... 2,003,300
128,800 Omnicom Group...................... 5,796,000
Reuters Holdings PLC (ADR)
100,300 (United Kingdom)................. 6,532,037
54,700 Scholastic Corp.(a)................ 3,760,625
-----------
23,380,362
-----------
Miscellaneous Basic Industry--0.9%
77,500 Applied Materials, Inc.(a)......... 2,702,813
-----------
Petroleum Services--1.1%
Schlumberger, Ltd. (ADR)
39,100 (Netherlands).................... 3,093,788
-----------
Restaurants--1.6%
Lone Star Steakhouse & Saloon,
122,500 Inc.(a).......................... 4,685,625
-----------
Retail--9.6%
153,100 AutoZone, Inc.(a).................. 5,186,262
117,100 Corporate Express, Inc.(a)......... 3,864,300
168,000 General Nutrition Cos., Inc.(a).... 4,200,000
137,400 Gymboree Corp.(a).................. 3,589,575
74,833 Home Depot, Inc.................... 3,582,630
65,400 Kohls Corp.(a)..................... 4,144,725
73,900 Micro Warehouse, Inc.(a)........... 3,066,850
-----------
27,634,342
-----------
Value
Shares Description (Note 1)
- ------------------------------------------------------------
Technology--2.6%
41,500 Broderbund Software Inc............ $ 1,566,625
32,333 Chiron Corp.(a).................... 3,176,717
60,500 Intuit Inc......................... 2,722,500
-----------
7,465,842
-----------
Telecommunications--6.3%
Ericsson (L.M.) Telephone Co.,
136,600 (ADR) (Sweden)................... 2,919,825
161,700 MCI Communications Corp............ 4,891,425
54,600 Nokia Corp. (ADR) (Finland)........ 1,870,050
97,000 Tellabs, Inc.(a)................... 4,692,375
Vodafone Group PLC (ADR)
101,500 (United Kingdom)................. 3,806,250
-----------
18,179,925
-----------
Transportation--1.0%
Wisconsin Central Transportation
44,400 Corp.(a)......................... 2,952,600
-----------
Total common stocks
(cost $221,117,430)................ 284,351,390
-----------
Principal
Amount
(000) SHORT-TERM INVESTMENT
- --------
Repurchase Agreement--1.4%
$ 4,122 Joint Repurchase Agreement Account,
5.35%, 04/01/96 (Note 4)
(cost $4,122,000)................ 4,122,000
-----------
Total Investments--99.9%
(cost $225,239,430; Note 3)........ 288,473,390
Other assets in excess of
liabilities--0.1%................ 398,096
-----------
Net Assets--100%................... $288,871,486
-----------
-----------
</TABLE>
- ---------------
(a) Non-income producing security.
ADR--American Depository Receipt.
See Notes to Financial Statements.
B-84
<PAGE>
THE PRUDENTIAL STOCK INDEX FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS
Common Stocks and Equivalents--96.0%
Aerospace/Defense--2.2%
8,200 Allied-Signal, Inc................. $ 484,825
10,000 Boeing Co.......................... 866,250
1,800 General Dynamics Corp.............. 105,300
5,730 Lockheed Corp...................... 434,764
5,000 Loral Corp......................... 245,000
3,300 McDonnell Douglas Corp............. 302,363
1,400 Northrop Corp...................... 89,075
7,000 Raytheon Co........................ 358,750
6,300 Rockwell International Corp........ 370,912
-----------
3,257,239
-----------
Airlines--0.3%
2,250 AMR Corp.(a)....................... 201,375
1,500 Delta Airlines, Inc................ 115,313
4,100 Southwest Airlines Co.............. 121,462
1,900 USAir Group Inc.(a)................ 34,675
-----------
472,825
-----------
Aluminum--0.4%
6,500 Alcan Aluminum Ltd................. 209,625
5,100 Aluminum Co. of America............ 319,388
1,850 Reynolds Metals Co................. 109,381
-----------
638,394
-----------
Automobiles & Trucks--2.3%
11,000 Chrysler Corp...................... 684,750
1,100 Cummins Engine, Inc................ 44,412
3,000 Dana Corp.......................... 100,125
1,800 Echlin Inc......................... 65,250
31,100 Ford Motor Co...................... 1,069,062
21,800 General Motors Corp................ 1,160,850
3,600 Genuine Parts Co................... 162,000
1,200 Johnson Controls, Inc.............. 89,550
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
2,420 Navistar International Corp.(a).... $ 25,108
1,500 Safety Kleen Corp.................. 21,563
-----------
3,422,670
-----------
Banking--6.9%
13,130 Banc One Corp...................... 467,756
3,200 Bank of Boston Corp................ 158,800
5,800 Bank of New York Co., Inc.......... 298,700
10,800 BankAmerica Corp................... 837,000
2,300 Bankers Trust NY Corp.............. 163,013
2,800 Barnett Banks, Inc................. 174,300
4,600 Boatmen's Bancshares............... 180,550
5,200 Chase Manhattan Corp............... 382,200
7,300 Chemical Banking Corp.............. 514,650
14,100 Citicorp........................... 1,128,000
3,400 Comerica, Inc...................... 141,950
4,000 CoreStates Financial Corp.......... 169,500
2,900 Fifth Third Bancorp................ 168,200
4,200 First Bank System, Inc............. 250,425
9,301 First Chicago Corp................. 385,991
2,200 First Interstate Bank Corp......... 381,700
8,300 First Union Corp................... 502,150
7,687 Fleet Financial Group, Inc......... 311,323
1,700 Golden West Financial Corp......... 91,163
4,000 Great Western Financial Corp....... 96,500
3,300 H.F. Ahmanson & Co................. 80,025
6,800 KeyCorp............................ 262,650
4,025 Mellon Bank Corp................... 221,878
5,400 Morgan (J.P.) & Co., Inc........... 448,200
4,100 National City Corp................. 144,013
8,600 NationsBank Corp................... 689,075
10,300 Norwest Corp....................... 378,525
9,900 PNC Financial Corp................. 304,425
1,600 Republic New York Corp............. 95,200
3,300 Suntrust Banks, Inc................ 231,000
4,300 U.S. Bancorp....................... 146,200
1,450 Wells Fargo & Co................... 378,450
-----------
10,183,512
-----------
</TABLE>
See Notes to Financial Statements.
B-85
<PAGE>
THE PRUDENTIAL STOCK INDEX FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Beverages--3.7%
1,200 Adolph Coors Co.................... $ 21,450
7,400 Anheuser Busch Cos., Inc........... 498,575
2,000 Brown-Forman Corp.................. 80,250
36,500 Coca-Cola Co....................... 3,015,812
22,900 PepsiCo Inc........................ 1,448,425
10,900 Seagram Co., Ltd................... 352,888
-----------
5,417,400
-----------
Chemicals--2.6%
3,200 Air Products & Chemicals, Inc...... 174,800
7,600 Dow Chemical Co.................... 660,250
16,200 duPont (E.I.) de Nemours & Co...... 1,344,600
2,300 Eastman Chemical Co................ 158,987
2,800 Grace (W.R.) & Co.................. 219,100
3,200 Hercules, Inc...................... 198,400
3,400 Monsanto Co........................ 521,900
1,900 Nalco Chemical Co.................. 58,425
2,000 Rohm & Haas Co..................... 133,000
1,500 Sigma-Aldrich...................... 85,875
4,000 Union Carbide Corp................. 198,500
-----------
3,753,837
-----------
Chemical-Specialty--0.4%
4,225 Engelhard Corp..................... 98,759
1,900 Great Lakes Chemical Corp.......... 128,013
4,300 Morton International, Inc.......... 165,013
4,300 Praxair, Inc....................... 171,462
1,300 Raychem Corp....................... 83,850
-----------
647,097
-----------
Commercial Services--0.2%
5,250 CUC International, Inc.(a)......... 153,563
2,400 Deluxe Corp........................ 75,300
800 Harland (John H.) Co............... 17,600
2,900 Moore Corp. Ltd.................... 56,550
1,400 Ogden Corp......................... 27,300
-----------
330,313
-----------
Value
Shares Description (Note 1)
- ------------------------------------------------------------
Computer Software & Services--3.8%
4,700 3Com Corp.(a)...................... $ 187,412
1,500 AutoDesk, Inc...................... 56,625
8,400 Automatic Data Processing, Inc..... 330,750
5,300 Bay Networks, Inc.(a).............. 162,975
2,100 Cabletron Systems, Inc.(a)......... 139,125
1,900 Ceridian Corp.(a).................. 81,700
16,000 Cisco Systems, Inc.(a)............. 742,000
Computer Associates International,
7,000 Inc.............................. 501,375
1,650 Computer Sciences Corp.(a)......... 116,119
4,500 EMC Corp.(a)....................... 98,438
1,300 Intergraph Corp.(a)................ 20,800
6,000 Micron Technology Inc.............. 188,250
17,300 Microsoft Corp.(a)................. 1,784,062
10,800 Novell, Inc.(a).................... 144,450
12,650 Oracle Systems Corp.(a)............ 596,131
4,600 Silicon Graphics Inc.(a)........... 115,000
5,400 Sun Microsystems Inc.(a)........... 236,250
3,300 Tandem Computers Inc.(a)........... 29,288
-----------
5,530,750
-----------
Construction--0.2%
2,400 Fluor Corp......................... 163,800
1,200 Foster Wheeler Corp................ 53,250
800 Kaufman & Broad Home Corp.......... 12,800
700 Pulte Corp......................... 18,813
-----------
248,663
-----------
Consumer Goods--0.5%
900 Centex Corp........................ 27,900
1,300 Fleetwood Enterprises, Inc......... 32,175
4,700 Lowes Companies, Inc............... 168,025
4,600 Masco Corp......................... 133,400
3,200 Maytag Corp........................ 64,800
1,500 Owens-Corning Fiberglas Corp.(a)... 60,188
Pioneer Hi Bred International,
2,400 Inc.............................. 126,300
1,300 Stanley Works...................... 71,500
2,200 Whirlpool Corp..................... 121,550
-----------
805,838
-----------
</TABLE>
See Notes to Financial Statements.
B-86
<PAGE>
THE PRUDENTIAL STOCK INDEX FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Containers--0.2%
900 Ball Corp.......................... $ 27,900
1,500 Bemis, Inc......................... 47,063
3,600 Crown Cork & Seal, Inc.(a)......... 175,500
-----------
250,463
-----------
Cosmetics & Soaps--2.2%
800 Alberto Culver Co.................. 30,800
1,950 Avon Products, Inc................. 167,212
1,500 Clorox Co.......................... 129,188
4,200 Colgate-Palmolive Co............... 327,075
12,900 Gillette Co........................ 667,575
International Flavors & Fragrances
3,250 Inc.............................. 155,594
20,000 Procter & Gamble Co................ 1,695,000
-----------
3,172,444
-----------
Diversified Gas--0.2%
3,000 Coastal Corp....................... 118,500
500 Eastern Enterprises, Inc........... 17,750
2,100 Enserch Corp....................... 34,125
1,500 NICOR Inc.......................... 40,125
700 Oneok Inc.......................... 16,713
-----------
227,213
-----------
Drugs & Medical Supplies--8.9%
23,000 Abbott Laboratories................ 937,250
2,400 ALZA Corp.(a)...................... 73,800
9,100 American Home Products Corp........ 986,212
7,700 Amgen, Inc.(a)..................... 447,562
1,700 Bard (C.R.), Inc................... 60,563
1,600 Bausch & Lomb, Inc................. 59,200
7,900 Baxter International Inc........... 357,475
1,900 Becton Dickinson & Co.............. 155,563
3,300 Biomet, Inc.(a).................... 46,200
5,000 Boston Scientific Corp.(a)......... 230,000
14,650 Bristol-Myers Squibb Co............ 1,254,406
19,400 Johnson & Johnson Co............... 1,789,650
16,000 Lilly (Eli) & Co................... 1,040,000
6,800 Medtronic, Inc..................... 405,450
Value
Shares Description (Note 1)
- ------------------------------------------------------------
35,800 Merck & Co., Inc................... $ 2,228,550
18,500 Pfizer Inc......................... 1,239,500
14,655 Pharmacia & Upjohn, Inc............ 584,368
10,600 Schering-Plough Corp............... 616,125
2,000 St. Jude Medical, Inc.(a).......... 74,625
1,600 United States Surgical Corp........ 52,400
4,000 Warner Lambert Co.................. 413,000
-----------
13,051,899
-----------
Electronics--3.9%
3,700 Advanced Micro Devices, Inc.(a).... 63,825
3,000 Amdahl Corp.(a).................... 25,500
6,284 AMP Inc............................ 260,000
3,700 Apple Computer, Inc................ 90,881
800 Cray Research, Inc.(a)............. 23,300
1,100 Data General Corp.(a).............. 16,088
4,400 Digital Equipment Corp.(a)......... 242,550
1,300 EG&G, Inc.......................... 29,088
6,500 Emerson Electric Co................ 524,875
2,000 General Instrument Corp.(a)........ 54,750
1,100 Harris Corp........................ 68,063
14,900 Hewlett-Packard Co................. 1,400,600
23,900 Intel Corp......................... 1,359,312
3,800 LSI Logic Corp.(a)................. 101,650
17,200 Motorola, Inc...................... 911,600
3,900 National Semiconductors Corp.(a)... 54,113
1,300 Perkin Elmer Corp.................. 70,362
1,800 Tandy Corp......................... 83,250
1,000 Tektronix, Inc..................... 32,500
5,500 Texas Instruments Inc.............. 279,812
550 Thomas & Betts Corp................ 41,250
-----------
5,733,369
-----------
Financial Services--3.0%
14,000 American Express Co................ 691,250
1,500 Beneficial Corp.................... 86,438
3,100 Block (H&R), Inc................... 111,988
4,958 Dean Witter Discover & Co.......... 283,845
</TABLE>
See Notes to Financial Statements.
B-87
<PAGE>
THE PRUDENTIAL STOCK INDEX FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Financial Services, cont'd.
5,300 Federal Home Loan Mortgage Corp.... $ 451,825
31,800 Federal National Mortgage Assn..... 1,013,625
6,500 First Data Corp.................... 458,250
3,900 Green Tree Financial Corp.......... 134,062
2,900 Household International Corp....... 195,025
6,425 MBNA Corp.......................... 190,341
5,100 Merrill Lynch & Co., Inc........... 309,825
4,500 Morgan Stanley Group, Inc.......... 232,875
3,100 Salomon, Inc....................... 116,250
1,950 Transamerica Corp.................. 146,006
-----------
4,421,605
-----------
Food & Beverage--2.6%
15,295 Archer-Daniels-Midland Co.......... 281,046
7,200 Campbell Soup Co................... 438,300
7,100 ConAgra, Inc....................... 288,437
4,200 CPC International, Inc............. 291,375
296 Earthgrains Co..................... 8,843
1,000 Fleming Cos., Inc.................. 14,250
4,650 General Mills, Inc................. 271,444
1,800 Giant Foods, Inc................... 59,400
10,700 Heinz (H.J.) Co.................... 354,437
2,200 Hershey Foods Corp................. 163,900
6,350 Kellogg Co......................... 481,012
3,900 Quaker Oats Co..................... 130,163
3,100 Ralston Purina Co.................. 207,313
14,100 Sara Lee Corp...................... 460,012
5,400 Sysco Corp......................... 177,525
3,400 Wrigley (W.M.) Junior Co........... 199,325
-----------
3,826,782
-----------
Forest Products--1.5%
1,400 Boise Cascade Corp................. 58,800
2,800 Champion International Corp........ 126,700
2,650 Georgia Pacific Corp............... 183,844
8,817 International Paper Co............. 347,165
2,400 James River Corp................... 61,800
8,108 Kimberly Clark Corp................ 604,046
3,100 Louisiana Pacific Corp............. 75,563
Value
Shares Description (Note 1)
- ------------------------------------------------------------
1,600 Mead Corp.......................... $ 86,400
800 Potlatch Corp...................... 34,200
3,100 Stone Container Corp............... 43,400
1,600 Temple Inland Inc.................. 75,000
2,000 Union Camp Corp.................... 99,250
3,000 Westvaco Corp...................... 88,125
5,900 Weyerhaeuser Co.................... 272,137
1,600 Willamette Industries, Inc......... 96,400
-----------
2,252,830
-----------
Gas Pipelines--0.6%
4,518 Cinergy Corp....................... 135,540
1,600 Columbia Gas System, Inc.(a)....... 73,400
2,700 Consolidated Natural Gas Co........ 117,450
7,300 Enron Corp......................... 269,187
3,400 Noram Energy Corp.................. 31,450
4,400 Panhandle Eastern Corp............. 136,950
1,100 Peoples Energy Corp................ 35,613
2,900 Williams Cos., Inc................. 146,087
-----------
945,677
-----------
Hospital Management--1.2%
2,700 Beverly Enterprises, Inc.(a)....... 29,700
12,952 Columbia Healthcare Corp........... 747,978
1,100 Community Psychiatric Centers...... 9,213
4,600 Humana, Inc.(a).................... 115,575
1,800 Manor Care, Inc.................... 70,650
3,400 Service Corp. International........ 165,750
700 Shared Medical Systems Corp........ 42,175
6,000 Tenet Healthcare Corp.(a).......... 126,000
4,500 U.S. HealthCare Inc................ 206,437
5,100 United Healthcare Corp............. 313,650
-----------
1,827,128
-----------
Housing Construction
1,100 Armstrong World Industries......... 68,338
-----------
</TABLE>
See Notes to Financial Statements.
B-88
<PAGE>
THE PRUDENTIAL STOCK INDEX FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Insurance--3.6%
3,300 Aetna Life & Casualty Co........... $ 249,150
Alexander & Alexander Services,
1,400 Inc.............................. 26,425
12,974 Allstate Corp...................... 546,530
5,900 American General Corp.............. 203,550
American International Group,
13,812 Inc.............................. 1,293,148
2,550 Chubb Corp......................... 239,381
2,250 CIGNA Corp......................... 257,062
2,400 General Re Corp.................... 349,800
3,400 ITT Hartford Group Inc............. 166,600
2,025 Jefferson-Pilot Corp............... 109,097
3,000 Lincoln National Corp.............. 152,250
2,100 Marsh & McLennan Cos............... 195,038
2,700 Providian Corp..................... 120,488
3,700 SAFECO Corp........................ 123,950
2,500 St. Paul Companies, Inc............ 138,750
2,050 Torchmark Corp..................... 92,250
9,231 Travelers, Inc..................... 609,246
2,100 UNUM Corp.......................... 124,950
3,200 USF&G Corp......................... 49,600
1,350 USLIFE Corp........................ 39,656
4,900 Wachovia Corp...................... 219,275
-----------
5,306,196
-----------
Leisure--1.4%
1,500 Bally Entertainment Group(a)....... 25,875
2,800 Brunswick Corp..................... 64,400
19,692 Disney (Walt) Co................... 1,257,826
2,900 Harrahs Entertainment Inc.(a)...... 85,187
2,600 Hasbro, Inc........................ 96,200
3,500 ITT Corp. (New).................... 210,000
1,000 King World Productions, Inc.(a).... 41,375
8,087 Mattel, Inc........................ 219,360
500 Outboard Marine Corp............... 9,563
-----------
2,009,786
-----------
Lodging--0.2%
1,400 Hilton Hotels Corp................. 131,600
3,600 Marriott International, Inc.(a).... 171,000
-----------
302,600
-----------
Value
Shares Description (Note 1)
- ------------------------------------------------------------
Machinery--1.2%
800 Briggs & Stratton Corp............. $ 34,500
2,100 Case Corp.......................... 106,837
5,800 Caterpillar Inc.................... 394,400
900 Cincinnati Milacron, Inc........... 23,625
3,100 Cooper Industries, Inc............. 120,900
7,600 Deere & Co......................... 317,300
3,300 Dover Corp......................... 150,975
2,300 Eaton Corp......................... 138,575
1,000 Giddings & Lewis, Inc.............. 19,000
1,400 Harnischfeger Industries, Inc...... 54,250
3,200 Ingersoll Rand Co.................. 130,400
1,102 PACCAR Inc......................... 53,722
2,150 Parker Hannifin Corp............... 80,625
1,200 Snap-On Tools Corp................. 56,100
900 Timken Co.......................... 41,513
1,100 Varity Corp.(a).................... 47,575
-----------
1,770,297
-----------
Media--1.9%
6,950 Comcast Corp....................... 122,928
4,400 Donnelley (R.R.) & Sons, Co........ 151,800
2,800 Dow Jones & Co., Inc............... 107,800
4,900 Dun & Bradstreet Corp.............. 297,062
4,050 Gannett, Inc....................... 272,363
2,300 Interpublic Group Cos., Inc........ 108,675
1,450 Knight-Ridder, Inc................. 98,781
1,500 McGraw Hill, Inc................... 130,125
800 Meredith Corp...................... 33,000
2,900 New York Times Co.................. 84,100
11,200 Time Warner, Inc................... 457,800
3,200 Times Mirror Co.................... 126,000
1,900 Tribune Co......................... 125,163
13,700 U.S. West Media Group, Inc.(a)..... 282,562
10,639 Viacom Inc.(a)..................... 448,168
-----------
2,846,327
-----------
Mineral Resources--1.0%
1,300 ASARCO Inc......................... 45,500
Barrick Gold Corp. (ADR)
10,200 (Canada)......................... 309,825
</TABLE>
See Notes to Financial Statements.
B-89
<PAGE>
THE PRUDENTIAL STOCK INDEX FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Mineral Resources, cont'd.
2,750 Cyprus Minerals Co................. $ 77,688
3,900 Echo Bay Mines, Ltd................ 52,650
Freeport-McMoRan Copper & Gold
6,000 Inc.............................. 189,750
4,000 Homestake Mining Co................ 77,500
3,500 INCO, Ltd.......................... 110,687
2,798 Newmont Mining Corp................ 158,437
2,000 Phelps-Dodge Corp.................. 137,250
6,900 Placer Dome, Inc................... 199,237
3,740 Santa Fe Pacific Gold Corp......... 59,840
-----------
1,418,364
-----------
Miscellaneous Basic Industry--4.9%
5,200 Applied Materials, Inc.(a)......... 181,350
6,100 Browning Ferris Industries, Inc.... 192,150
900 Crane Co........................... 36,338
1,800 Ecolab, Inc........................ 54,000
1,050 FMC Corp.(a)....................... 78,881
48,600 General Electric Co................ 3,784,725
1,400 General Signal Corp................ 50,750
1,500 Grainger (W.W.) Inc................ 100,687
3,400 Illinois Tool Works, Inc........... 219,725
3,400 ITT Industries Inc................. 86,700
3,400 Loews Corp......................... 257,125
2,200 Mallinckrodt Group Inc............. 82,775
1,300 Millipore Corp..................... 49,725
250 NACCO Industries, Inc.............. 14,219
3,233 Pall Corp.......................... 82,846
5,600 PPG Industries, Inc................ 273,700
1,600 Teledyne, Inc...................... 44,800
2,500 Textron, Inc....................... 200,000
900 Trinova Corp....................... 28,688
1,900 TRW Inc............................ 169,337
4,400 Tyco International Ltd............. 157,300
3,600 United Technologies Corp........... 404,100
12,000 Westinghouse Electric Corp......... 231,000
14,200 WMX Technologies, Inc.............. 450,850
-----------
7,231,771
-----------
Value
Shares Description (Note 1)
- ------------------------------------------------------------
Miscellaneous Consumer Growth--2.1%
1,900 Allergan, Inc...................... $ 70,063
2,400 American Greetings Corp............ 66,300
2,500 Black & Decker Corp................ 94,687
6,700 Corning, Inc....................... 234,500
2,700 Dial Corp.......................... 75,600
10,000 Eastman Kodak Co................... 710,000
1,100 Jostens, Inc....................... 24,613
Minnesota Mining & Manufacturing
12,200 Co............................... 791,475
1,300 Polaroid Corp...................... 58,500
1,800 Premark International Inc.......... 96,525
4,500 Rubbermaid, Inc.................... 127,687
4,700 Unilever N.V....................... 638,025
3,000 Whitman Corp....................... 72,750
-----------
3,060,725
-----------
Office Equipment & Supplies--2.2%
3,700 Alco Standard Corp................. 192,863
1,500 Avery Dennison Corp................ 81,000
7,700 Compaq Computer Corp.(a)........... 297,412
3,700 Honeywell, Inc..................... 204,425
International Business Machines
16,500 Corp............................. 1,833,562
4,400 Pitney Bowes, Inc.................. 215,600
5,300 Unisys Corp.(a).................... 31,800
3,150 Xerox Corp......................... 395,325
-----------
3,251,987
-----------
Petroleum--8.0%
2,700 Amerada Hess Corp.................. 148,500
14,400 Amoco Corp......................... 1,040,400
1,800 Ashland Oil, Inc................... 69,075
4,750 Atlantic Richfield Co.............. 565,250
3,600 Burlington Resources Inc........... 133,650
18,900 Chevron Corp....................... 1,060,762
36,150 Exxon Corp......................... 2,950,744
1,500 Kerr McGee Corp.................... 95,250
1,000 Louisiana Land & Exploration Co.... 46,625
11,500 Mobil Corp......................... 1,332,562
9,200 Occidental Petroleum Corp.......... 246,100
</TABLE>
See Notes to Financial Statements.
B-90
<PAGE>
THE PRUDENTIAL STOCK INDEX FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Petroleum, cont'd.
1,300 Pennzoil Co........................ $ 51,675
7,600 Phillips Petroleum Co.............. 300,200
Royal Dutch Petroleum Co. (ADR)
15,600 (Netherlands).................... 2,203,500
Santa Fe Energy Resources,
2,900 Inc.(a).......................... 30,450
2,200 Sun Co., Inc....................... 63,525
5,100 Tenneco, Inc....................... 284,963
7,700 Texaco, Inc........................ 662,200
7,200 Unocal Corp........................ 240,300
8,400 USX Marathon Corp.................. 161,700
1,500 Western Atlas, Inc.(a)............. 90,000
-----------
11,777,431
-----------
Petroleum Services--0.9%
4,200 Baker Hughes Inc................... 122,850
5,300 Dresser Industries, Inc............ 161,650
3,300 Halliburton Co..................... 187,687
700 Helmerich & Payne, Inc............. 23,625
1,700 McDermott International, Inc....... 32,725
3,000 Oryx Energy Co.(a)................. 41,625
2,400 Rowan Cos., Inc.(a)................ 30,600
Schlumberger, Ltd. (ADR)
7,000 (Netherlands).................... 553,875
2,600 Sonat Inc.......................... 93,600
-----------
1,248,237
-----------
Railroads--1.0%
4,165 Burlington Northern Inc............ 342,051
2,300 Consolidated Rail Corp............. 164,738
6,100 CSX Corp........................... 278,312
3,800 Norfolk Southern Corp.............. 323,000
6,000 Union Pacific Corp................. 411,750
-----------
1,519,851
-----------
Restaurants--0.8%
4,850 Darden Restaurants Inc............. 65,475
600 Luby's Cafeterias, Inc............. 13,875
20,300 McDonald's Corp.................... 974,400
Ryan's Family Steak Houses,
900 Inc.(a).......................... 8,100
Value
Shares Description (Note 1)
- ------------------------------------------------------------
700 Shoney's Inc.(a)................... $ 6,300
3,400 Wendy's International, Inc......... 61,625
-----------
1,129,775
-----------
Retail--4.9%
7,300 Albertsons, Inc.................... 271,012
4,200 American Stores Co................. 138,600
700 Brown Group, Inc................... 9,450
2,500 Charming Shoppes, Inc.............. 12,891
2,800 Circuit City Stores, Inc........... 83,650
2,100 Dayton Hudson Corp................. 178,237
3,200 Dillard Department Stores, Inc..... 110,800
Federated Department Stores,
5,800 Inc.(a).......................... 187,050
4,200 Gap, Inc........................... 232,575
Great Atlantic & Pacific Tea
1,000 Inc.............................. 31,000
2,100 Harcourt General, Inc.............. 95,287
13,866 Home Depot, Inc.................... 663,835
13,000 K mart Corp........................ 121,875
3,600 Kroger Co.(a)...................... 145,800
9,188 Limited, Inc....................... 174,572
2,200 Liz Claiborne, Inc................. 75,350
600 Longs Drug Stores Corp............. 28,350
7,200 May Department Stores Co........... 347,400
3,000 Melville Corp...................... 107,625
1,100 Mercantile Stores, Inc............. 67,513
4,700 Newell Co.......................... 125,725
4,200 NIKE, Inc.......................... 341,250
2,400 Nordstrom, Inc..................... 116,250
6,500 Penney (J.C.), Inc................. 323,375
1,900 Pep Boys - Manny, Moe & Jack....... 63,650
5,852 Price Costco, Inc.(a).............. 109,725
2,200 Reebok International, Ltd.......... 60,775
2,400 Rite-Aid Corp...................... 74,100
11,300 Sears Roebuck & Co................. 550,875
2,500 Sherwin Williams Co................ 110,937
1,100 Stride Rite Corp................... 10,038
1,900 Supervalue, Inc.................... 58,663
2,000 TJX Companies, Inc................. 50,250
7,900 Toys 'R' Us Inc.(a)................ 213,300
66,600 Wal-Mart Stores, Inc............... 1,540,125
</TABLE>
See Notes to Financial Statements.
B-91
<PAGE>
THE PRUDENTIAL STOCK INDEX FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Retail, cont'd.
7,200 Walgreen Co........................ $ 234,900
4,400 Winn-Dixie Stores, Inc............. 147,950
4,000 Woolworth Corp..................... 62,500
-----------
7,277,260
-----------
Rubber--0.2%
2,500 Cooper Tire & Rubber............... 64,375
800 Goodrich (B.F.) Co................. 63,600
4,400 Goodyear Tire & Rubber Co.......... 224,400
-----------
352,375
-----------
Steel--0.3%
2,800 Armco Inc.(a)...................... 15,050
3,200 Bethlehem Steel Corp.(a)........... 42,000
1,400 Inland Steel Industries, Inc....... 34,650
2,600 Nucor Corp......................... 153,725
2,400 USX Corp. - U.S. Steel Group....... 83,100
2,850 Worthington Industries, Inc........ 56,644
-----------
385,169
-----------
Telecommunications--1.5%
1,333 360 Communications Co.............. 31,825
5,400 ALLTEL Corp........................ 167,400
1,725 Andrew Corp.(a).................... 65,981
3,400 DSC Communications Corp.(a)........ 91,800
19,900 MCI Communications Corp............ 601,975
7,400 Northern Telecom Ltd............... 353,350
2,100 Scientific Atlanta, Inc............ 37,275
10,100 Sprint Corp........................ 383,800
19,100 Tele Communications, Inc.(a)....... 354,544
2,600 Tellabs, Inc.(a)................... 125,775
-----------
2,213,725
-----------
Textiles--0.2%
2,100 Fruit of the Loom, Inc.(a)......... 54,338
National Service Industries,
1,500 Inc.............................. 54,375
Value
Shares Description (Note 1)
- ------------------------------------------------------------
1,200 Russell Corp....................... $ 32,100
600 Springs Industries, Inc............ 27,600
1,800 VF Corp............................ 99,450
-----------
267,863
-----------
Tobacco--1.7%
5,300 American Brands Inc................ 224,588
24,250 Philip Morris Cos., Inc............ 2,127,937
5,600 UST, Inc........................... 178,500
-----------
2,531,025
-----------
Trucking & Shipping--0.3%
1,100 Caliber Systems Inc................ 47,163
1,300 Consolidated Freightways, Inc...... 33,313
1,700 Federal Express Corp.(a)........... 118,787
8,600 Laidlaw Inc........................ 91,375
2,400 Ryder System, Inc.................. 65,400
800 Yellow Corp........................ 10,000
-----------
366,038
-----------
Utility-Communications--6.8%
14,500 AirTouch Communications(a)......... 451,313
16,100 Ameritech Corp..................... 877,450
46,500 AT&T Corp.......................... 2,848,125
12,700 Bell Atlantic Corp................. 784,225
28,900 BellSouth Corp..................... 1,069,300
28,100 GTE Corp........................... 1,232,887
12,500 NYNEX Corp......................... 623,437
12,500 Pacific Telesis Group.............. 345,313
17,700 SBC Communications Inc............. 931,462
6,300 Unicom Corp........................ 170,100
13,700 US West Communications, Inc........ 443,538
3,700 WorldCom Inc.(a)................... 170,200
-----------
9,947,350
-----------
Utility-Electric--3.1%
5,400 American Electric Power, Inc....... 225,450
4,300 Baltimore Gas & Electric Co........ 118,788
4,400 Carolina Power & Light Co.......... 163,900
</TABLE>
See Notes to Financial Statements.
B-92
<PAGE>
THE PRUDENTIAL STOCK INDEX FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Utility-Electric, cont'd.
6,000 Central & South West Corp.......... $ 171,000
6,800 Consolidated Edison Co............. 216,750
4,300 Detroit Edison Co.................. 144,588
5,100 Dominion Resources, Inc............ 202,087
5,900 Duke Power Co...................... 297,950
13,100 Edison International............... 224,337
6,700 Entergy Corp....................... 187,600
5,400 FPL Group, Inc..................... 244,350
3,500 General Public Utilities Corp...... 115,500
7,600 Houston Industries, Inc............ 164,350
4,300 Niagara Mohawk Power Corp.......... 28,488
2,000 Northern States Power Co........... 97,500
4,600 Ohio Edison Co..................... 104,075
4,600 PP&L Resources Inc................. 112,125
2,500 Pacific Enterprises................ 64,688
12,100 Pacific Gas & Electric Co.......... 273,762
8,400 Pacificorp......................... 175,350
6,500 PECO Energy Co..................... 173,062
7,100 Public Service Enterprise Group.... 195,250
19,400 Southern Co........................ 463,175
6,500 Texas Utilities Co................. 268,937
2,900 Union Electric Co.................. 118,900
-----------
4,551,962
-----------
Total common stocks
(cost $114,921,129)................ 141,252,400
-----------
Preferred Stock
50 Teledyne Inc. (Cum), Ser. E
(cost $234)...................... 725
-----------
Total stocks
(cost $114,921,363)................ 141,253,125
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
SHORT-TERM INVESTMENTS--4.3%
U.S. Government--0.3%
United States Treasury Bill
$ 350 (b) 4.975%, 6/13/96................... $ 346,469
Repurchase Agreement--4.0%
5,929,000
5,929 Joint Repurchase Agreement
Account,
5.35%, 04/01/96 (Note 4)........
-----------
Total short-term investments
(cost $6,275,469)................. 6,275,469
-----------
Total Investments--100.3%
(cost $121,196,832; Note 3)....... 147,528,594
Liabilities in excess of other
assets--(0.3%).................. (443,917)
-----------
Net Assets--100%.................. $147,084,677
-----------
-----------
</TABLE>
- ---------------
(a) Non-income producing security.
(b) Pledged as initial margin on futures contracts.
ADR--American Depository Receipt.
See Notes to Financial Statements.
B-93
<PAGE>
THE PRUDENTIAL INTERNATIONAL STOCK FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
LONG-TERM INVESTMENTS--94.0%
Common Stocks
Argentina--2.6%
44,000 Telecom Argentina (ADR) ......... $ 1,826,000
(Utilities)
115,000 YPF Sociedad Anonima (ADR) ...... 2,314,375
(Oil & Gas) -----------
4,140,375
-----------
Australia--7.1%
880,000 CSR, Ltd. ....................... 2,933,241
(Multi-Industry)
600,000 Mayne Nickless Ltd. ............. 3,192,388
(Multi-Industry)
300,000 National Australia Bank Ltd. .... 2,675,973
(Commercial Banking)
900,000 Pioneer International Ltd. ...... 2,690,057
(Building Materials & -----------
Components)
11,491,659
-----------
Canada--5.0%
130,000 Bank of Nova Scotia ............. 2,933,407
(Commercial Banking)
270,000 Canadian Tire Corp., Ltd., Class A 3,269,125
.
(Automotive Parts)
145,000 MacMillan Bloedel Ltd. .......... 1,848,743
(Forestry & Paper) -----------
8,051,275
-----------
Finland--1.4%
136,000 Outokumpu O.V. .................. 2,296,955
(Metals - Non Ferrous) -----------
Value
Shares Description (Note 1)
- -------------------------------------------------------------
<C> <S> <C>
France--7.7%
12,000 Chargeurs Reunis S.A. ........... $ 3,070,571
(Multi-Industry)
30,075 Christian Dior S.A. ............. 4,006,020
(Textiles & Apparel)
20,000 Peugeot S.A. .................... 3,049,131
(Automobile Manufacturing)
35,000 Societe Nationale Elf Aquitaine 2,372,705
............................... -----------
(Energy)
12,498,427
-----------
Italy--3.8%
1,200,000 Banca Fideuram S.P.A. ........... 1,766,730
(Financial Services)
215,000 Benetton Group S.P.A. (ADR) ..... 2,459,688
(Textiles & Apparel)
2,100,000 Parmalat Finanziaria S.P.A. ..... 1,930,019
(Agriculture) -----------
6,156,437
-----------
Japan--5.6%
305,000 Hitachi, Ltd. ................... 2,958,955
(Electrical Equipment)
180,000 Matsushita Electric Industrial 2,921,642
Co., Ltd. .
(Electrical Equipment)
54,000 Sony Corp. ...................... 3,218,843
(Electronics) -----------
9,099,440
-----------
Netherlands--11.7%
29,000 AKZO N.V. ....................... 3,222,027
(Chemicals)
30,000 Gamma Holding N.V. .............. 1,271,925
(Textiles & Apparel)
</TABLE>
See Notes to Financial Statements.
B-94
<PAGE>
THE PRUDENTIAL INTERNATIONAL STOCK FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
Netherlands, cont'd
52,000 Internationale - Nederlanden
Group N.V. .................... $ 3,774,042
(Insurance)
90,000 KLM Royal Dutch Airlines ........ 3,129,914
(Airlines / Military Technology)
65,000 Knp Bt (kon) Nv ................. 1,627,555
(Forestry & Paper)
110,000 Pakhoed Holdings N.V. ........... 2,947,260
(Energy Equipment & Services)
110,000 Stork N.V. ...................... 3,080,319
(Machinery & Engineering) -----------
19,053,042
-----------
New Zealand--5.3%
1,320,000 Carter Holt Harvey Ltd. ......... 2,912,716
(Forestry & Paper)
700,000 Fisher & Paykel Industries Ltd. 2,240,656
...............................
(Consumer Durable Goods)
1,400,000 Lion Nathan Ltd. ................ 3,451,564
(Beverages & Tobacco) -----------
8,604,936
-----------
Norway--4.8%
100,000 Hafslund Nycomed A.S. ........... 2,725,623
(Health & Personal Care)
70,000 Orkla A.S. ...................... 3,058,149
(Food & Household Products)
127,900 Unitor A.S. ..................... 1,952,201
(Business & Public Services) -----------
7,735,973
-----------
South Korea--6.0%
85,000 Korea Zinc ...................... 1,868,968
(Metals - Non Ferrous)
30,575 L.G. Construction Ltd. .......... 676,187
(Construction & Housing)
Value
Shares Description (Note 1)
- -------------------------------------------------------------
17,600 Pohang Iron & Steel Co., Ltd. ... $ 1,273,455
(Metal - Steel)
35,000 Sam Yang Co. .................... 1,261,745
(Misc. Materials & Commodities)
6,580 Sam Yang Co., new shares ........ 222,908
(Misc. Materials & Commodities)
18,189 Samsung Electronics Co., Ltd. ... 2,139,198
(Manufacturing)
4,879 Samsung Electronics Co., Ltd., new
shares ........................ 545,126
(Manufacturing)
60,020 Tong Yang Cement Co. ............ 1,718,694
(Construction & Housing) -----------
9,706,281
-----------
Spain--5.8%
87,000 Banco Bilbao Vizcaya, S.A. ...... 3,245,981
(Commercial Banking)
21,000 Banco de Andalucia S.A. ......... 2,919,134
(Commercial Banking)
355,000 Iberdrola S.A. .................. 3,275,515
(Utilities) -----------
9,440,630
-----------
Sweden--6.4%
65,000 Electrolux AB ................... 3,169,643
(Appliances)
145,000 SKF International AB ............ 3,194,286
(Consumer Goods)
60,000 Svedala Industri AB ............. 1,953,536
(Engineering & Contruction)
90,000 Volvo AB ........................ 2,090,194
(Automobile Manufacturing) -----------
10,407,659
-----------
</TABLE>
See Notes to Financial Statements.
B-95
<PAGE>
THE PRUDENTIAL INTERNATIONAL STOCK FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
Switzerland--10.2%
4,100 Ciba-Geigy Ltd. ................. $ 5,123,710
(Chemicals)
13,000 Merkur Holding AG ............... 2,563,995
(Merchandising)
3,225,178
5,200 SMH-Swiss Corp. for
Microelectronics and Watchmaking
Industries Ltd..................
(Electronics)
4,800 Sulzer Brothers Ltd. ............ 3,182,543
(Machinery & Engineering)
8,500 Zurich Versicherun .............. 2,439,782
(Insurance) -----------
16,535,208
-----------
United Kingdom--10.6%
360,076 Allied-Lyons PLC ................ 2,698,825
(Beverages & Tobacco)
1,070,000 Coats Viyella PLC ............... 3,381,062
(Textiles & Apparel)
445,000 Lloyds Abbey Life PLC ........... 3,668,198
(Insurance)
210,000 National Westminster Bank PLC ... 2,037,201
(Commercial Banking)
Value
Shares Description (Note 1)
- -------------------------------------------------------------
473,000 Takare PLC ...................... $ 1,086,667
(Health Services)
570,000 Tesco PLC ....................... 2,318,842
(Food & Household Products)
196,000 Whitbread PLC ................... 2,033,034
(Beverages & Tobacco) -----------
17,223,829
-----------
Total common stocks
(cost $131,032,274)............... 152,442,126
-----------
Principal
Amount
(000) SHORT-TERM INVESTMENT--6.9%
- ----------
Repurchase Agreement
$ 11,189 Joint Repurchase Agreement
Account,
5.35%, 4/01/96 (Note 4)
(cost $11,189,000)................ 11,189,000
-----------
Total Investments--100.9%
(cost $142,221,274; Note 3)....... 163,631,126
Liabilities in excess of other
assets--(0.9%).................. (1,424,946)
-----------
Net Assets--100%.................. $162,206,180
-----------
-----------
</TABLE>
- ---------------
ADR--American Depository Receipt.
See Notes to Financial Statements.
B-96
<PAGE>
THE PRUDENTIAL ACTIVE BALANCED FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--82.8%
Common Stocks--49.0%
Aerospace/Defense--0.4%
6,200 Boeing Co.......................... $ 537,075
-----------
Airlines--1.3%
19,600 Delta Airlines, Inc................ 1,506,750
1,800 UAL Corp........................... 375,300
-----------
1,882,050
-----------
Automobiles & Trucks--2.6%
70,800 General Motors Corp................ 3,770,100
-----------
Banking--5.3%
61,100 Boatmen's Bancshares............... 2,398,175
34,900 Chemical Banking Corp.............. 2,460,450
40,000 Fleet Financial Group, Inc......... 1,620,000
102,300 Hibernia Corp...................... 1,086,937
-----------
7,565,562
-----------
Capital Goods--0.4%
12,200 Duracell International, Inc........ 605,425
-----------
Chemicals--2.1%
37,800 Betz Laboratories, Inc............. 1,757,700
45,700 Dexter Corp........................ 1,211,050
-----------
2,968,750
-----------
Commercial Services--1.5%
24,150 CUC International, Inc.(a)......... 706,388
29,200 York International Corp............ 1,430,800
-----------
2,137,188
-----------
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
Computer Software & Services--1.8%
49,100 EMC Corp.(a)....................... $ 1,074,062
35,400 Geoworks........................... 1,062,000
13,700 Symbol Technologies, Inc.(a)....... 481,213
-----------
2,617,275
-----------
Drugs & Medical Supplies--1.1%
Smith Kline Beecham PLC (ADR)
17,700 (United Kingdom)................. 911,550
27,100 Vertex Pharmaceuticals, Inc........ 718,150
-----------
1,629,700
-----------
Electronics--2.1%
12,900 Hewlett-Packard Co................. 1,212,600
10,500 Intel Corp......................... 597,187
44,500 International Rectifier Corp.(a)... 801,000
13,800 LSI Logic Corp.(a)................. 369,150
-----------
2,979,937
-----------
Financial Services--0.5%
14,700 The PMI Group Inc.................. 641,288
-----------
Forest Products--0.4%
8,300 Georgia Pacific Corp............... 575,813
-----------
Insurance--3.0%
9,400 Aetna Life & Casualty Co........... 709,700
24,500 CIGNA Corp......................... 2,799,125
16,200 ITT Hartford Group Inc............. 793,800
-----------
4,302,625
-----------
Leisure--1.2%
37,200 Brunswick Corp..................... 855,600
13,900 ITT Corp. (New).................... 834,000
-----------
1,689,600
-----------
</TABLE>
See Notes to Financial Statements.
B-97
<PAGE>
THE PRUDENTIAL ACTIVE BALANCED FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Lodging--0.8%
12,200 Hilton Hotels Corp................. $ 1,146,800
-----------
Machinery--0.5%
19,147 Harnischfeger Industries, Inc...... 741,946
-----------
Media--6.6%
46,100 Dow Jones & Co., Inc............... 1,774,850
13,800 Dun & Bradstreet Corp.............. 836,625
10,700 McGraw-Hill, Inc................... 928,225
90,400 New York Times Co.................. 2,621,600
28,500 Omnicom Group...................... 1,282,500
9,200 Scholastic Corp.(a)................ 632,500
19,400 Tribune Co......................... 1,277,975
-----------
9,354,275
-----------
Mineral Resources--1.4%
34,874 Newmont Mining Corp................ 1,974,740
-----------
Miscellaneous Basic Industry--3.6%
80,550 Avalon Properties, Inc............. 1,731,825
7,900 Champion International Corp........ 357,475
18,600 Mead Corp.......................... 1,004,400
34,500 Reynolds Metals Co................. 2,039,812
-----------
5,133,512
-----------
Office Equipment & Supplies--0.5%
International Business Machines
6,500 Corp............................. 722,313
-----------
Petroleum--1.7%
9,500 Tenneco, Inc....................... 530,813
55,100 Unocal Corp........................ 1,838,962
-----------
2,369,775
-----------
Value
Shares Description (Note 1)
- ------------------------------------------------------------
Petroleum Services--2.2%
29,200 Anadarko Petroleum Corp............ $ 1,620,600
51,700 Dresser Industries, Inc............ 1,576,850
-----------
3,197,450
-----------
Railroads--1.2%
10,901 Southern Pacific Rail Corp.(a)..... 256,174
20,900 Union Pacific Corp................. 1,434,262
-----------
1,690,436
-----------
Retail--2.6%
9,800 Harcourt General, Inc.............. 444,675
98,779 Limited, Inc....................... 1,876,801
74,200 Price Costco, Inc.(a).............. 1,391,250
-----------
3,712,726
-----------
Steel--0.9%
35,500 USX Corp. -U.S. Steel Group........ 1,229,188
-----------
Technology--0.6%
11,100 Adobe Systems, Inc................. 357,975
4,505 Chiron Corp.(a).................... 442,616
-----------
800,591
-----------
Telecommunications--1.7%
81,700 MCI Communications Corp............ 2,471,425
-----------
Trucking & Shipping--1.0%
51,400 Ryder System, Inc.................. 1,400,650
-----------
Total common stocks
(cost $57,243,618)............... 69,848,215
-----------
</TABLE>
See Notes to Financial Statements.
B-98
<PAGE>
THE PRUDENTIAL ACTIVE BALANCED FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
DEBT OBLIGATIONS--33.8%
U.S. Government Securities
United States Treasury Notes,
$ 3,015 8.875%, 11/15/98................. $ 3,228,884
5,510 7.50%, 11/15/01.................. 5,847,487
17,435 6.25%, 2/15/03................... 17,383,218
14,750 5.75%, 8/15/03................... 14,245,255
United States Treasury Bonds,
3,020 10.75%, 8/15/05.................. 3,926,000
3,230 7.875%, 2/15/21.................. 3,606,489
------------
Total debt obligations
(cost $47,235,281)............. 48,237,333
------------
Total long-term investments
(cost $104,478,899)............ 118,085,548
------------
SHORT-TERM INVESTMENT
Repurchase Agreement--16.7%
23,888 Joint Repurchase Agreement
Account,
5.35%, 04/01/96 (Note 4)
(cost $23,888,000)............. 23,888,000
------------
Total Investments--99.5%
(cost $128,366,899; Note 3)...... 141,973,548
Other assets in excess of
liabilities--0.5%.............. 714,503
------------
Net Assets--100%................. $142,688,051
------------
------------
</TABLE>
- ---------------
(a) Non-income producing security.
ADR--American Depository Receipt.
See Notes to Financial Statements.
B-99
<PAGE>
THE PRUDENTIAL BALANCED FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--88.7%
Common Stocks--44.5%
Aerospace/Defense--1.2%
4,200 Allied-Signal, Inc................. $ 248,325
7,600 General Motors Corp., Class H...... 480,700
10,400 Litton Industries, Inc.(a)......... 478,400
-----------
1,207,425
-----------
Automobiles & Trucks--0.5%
23,100 Smith (A.O.) Corp.................. 545,737
-----------
Banking--2.0%
6,300 Bank of Boston Corp................ 312,637
8,400 Bank of New York Co., Inc.......... 432,600
8,578 First Chicago Corp................. 355,987
23,600 Norwest Corp....................... 867,300
-----------
1,968,524
-----------
Chemicals--4.2%
21,000 Agrium, Inc........................ 271,602
9,400 Cytec Industries, Inc.(a).......... 794,300
8,000 duPont (E.I.) de Nemours & Co...... 664,000
7,900 Grace (W.R.) & Co.................. 618,175
Imperial Chemical Inds. (ADR)
8,000 (United Kingdom)................. 456,000
22,700 Mississippi Chemical Corp.......... 459,675
6,600 Olin Corp.......................... 574,200
36,100 Uniroyal Chemical Corp.(a)......... 347,462
-----------
4,185,414
-----------
Chemical-Specialty--0.7%
19,500 Ferro Corp......................... 553,312
3,100 OM Group, Inc...................... 115,088
-----------
668,400
-----------
Communication Equipment--0.3%
13,500 Oak Industries, Inc.(a)............ 335,812
-----------
Value
Shares Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
Computer Hardware--0.2%
Lexmark International Group,
12,500 Inc.(a).......................... $ 242,188
-----------
Computer Software & Services--0.5%
12,000 Automatic Data Processing, Inc..... 472,500
-----------
Consumer Services--0.7%
17,600 ADT Ltd.(a)........................ 310,200
13,000 Pittston Brinks Group.............. 347,750
-----------
657,950
-----------
Diversified Consumer Products--0.7%
30,000 Whitman Corp....................... 727,500
-----------
Drugs & Medical Supplies--0.5%
8,000 Schering-Plough Corp............... 465,000
-----------
Electrical Equipment--0.5%
15,600 Belden, Inc........................ 460,200
-----------
Electronics--1.5%
28,000 Anixter International, Inc.(a)..... 472,500
6,000 Emerson Electric Co................ 484,500
5,600 Marshall Industries(a)............. 170,800
10,600 SGS-Thomson Microelectronics
N.V.(a) (France)................. 384,250
-----------
1,512,050
-----------
Enginerring & Construction--0.9%
32,000 Giant Cement Holding, Inc.(a)...... 404,000
21,400 Martin Marietta Corp............... 486,850
-----------
890,850
-----------
Exploration & Production--1.7%
19,400 Cabot Oil & Gas Corp............... 276,450
30,000 Cross Timbers Oil Co............... 517,500
12,900 Enron Oil and Gas Corp............. 340,237
11,000 Parker & Parsley Petroleum Co...... 253,000
6,700 Seagull Energy Corp.(a)............ 151,588
10,500 Vintage Petroleum, Inc............. 213,938
-----------
1,752,713
-----------
</TABLE>
See Notes to Financial Statements.
B-100
<PAGE>
THE PRUDENTIAL BALANCED FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Financial Services--1.2%
12,400 Dean Witter Discover & Co.......... $ 709,900
8,600 Finova Group, Inc.................. 469,775
-----------
1,179,675
-----------
Hospital Management--1.1%
Community Health Systems,
4,700 Inc.(a).......................... 192,700
7,000 Quorum Health Group(a)............. 164,500
33,000 Tenet Healthcare Corp.(a).......... 693,000
-----------
1,050,200
-----------
Household Products--0.3%
13,000 Libbey, Inc........................ 284,375
-----------
Housing Related--1.5%
13,000 Ethan Allen Interiors, Inc.(a)..... 341,250
Furniture Brands International,
33,000 Inc.............................. 305,250
16,000 Owens Corning Fiberglas Corp.(a)... 642,000
9,000 USG Corp.(a)....................... 228,375
-----------
1,516,875
-----------
Insurance--4.0%
8,600 Allmerica Financial Corp........... 226,825
9,000 Berkley (W. R.) Corp............... 416,250
10,500 Equitable Iowa Cos................. 375,375
10,000 NAC Re Corp........................ 326,250
9,700 National Re Corp................... 327,375
15,400 Penncorp Financial Group, Inc...... 485,100
Reinsurance Group of America,
21,000 Inc.............................. 769,125
15,000 TIG Holdings, Inc.................. 487,500
6,000 Travelers, Inc..................... 396,000
12,900 Western National Corp.............. 209,625
-----------
4,019,425
-----------
Integrated Producers--0.7%
20,000 Total S.A. (ADR) (France).......... 680,000
-----------
Value
Shares Description (Note 1)
- ------------------------------------------------------------
Machinery--2.8%
18,000 Applied Power, Inc................. $ 587,250
Gardner Denver Machinery,
26,000 Inc.(a).......................... 617,500
Global Industrial Technologies,
26,000 Inc.............................. 624,000
8,200 Harnischfeger Industries, Inc...... 317,750
9,000 Sundstrand Corp.................... 366,750
6,900 Varity Corp.(a).................... 298,425
-----------
2,811,675
-----------
Media--3.0%
20,000 Comcast Corp. Class A.............. 347,500
14,900 Cox Communications, Inc.(a)........ 325,938
3,600 Gannett Co., Inc................... 242,100
18,800 Hollinger International, Inc....... 225,600
6,900 Knight-Ridder, Inc................. 470,062
29,200 Tele Communications, Inc., Ser. A,
TCI Group(a)..................... 542,025
7,300 Telecom Inc. Liberty Media......... 192,537
10,000 Time Warner, Inc................... 408,750
8,237 Times Mirror Co.................... 324,332
-----------
3,078,844
-----------
Metals - Non Ferrous--0.3%
6,800 UCAR International, Inc.(a)........ 264,350
-----------
Miscellaneous Basic Industry--6.0%
15,400 Coltec Inds., Inc.(a).............. 186,725
8,700 Crane Co........................... 351,263
5,000 Danaher Corp....................... 185,000
Fisher Scientific International,
15,000 Inc.............................. 573,750
7,000 FMC Corp.(a)....................... 525,875
29,700 Hanson PLC (ADR)
(United Kingdom)................. 445,500
10,000 IDEX Corp.......................... 388,750
9,000 Illinois Tool Works, Inc........... 581,625
9,000 Kennametal, Inc.................... 325,125
</TABLE>
See Notes to Financial Statements.
B-101
<PAGE>
THE PRUDENTIAL BALANCED FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Miscellaneous Basic Industry, cont'd.
19,760 Mark IV Industries, Inc............ $ 434,720
14,000 Pentair, Inc....................... 353,500
20,000 Tyco International Ltd............. 715,000
19,100 United Dominion Inds............... 463,175
11,000 York International Corp............ 539,000
-----------
6,069,008
-----------
Office Equipment & Supplies--0.5%
1,700 Honeywell, Inc..................... 93,925
International Business Machines
3,500 Corp............................. 388,937
-----------
482,862
-----------
Petroleum--0.7%
18,000 Occidental Petroleum Corp.......... 481,500
Santa Fe Energy Resources,
21,600 Inc.(a).......................... 226,800
-----------
708,300
-----------
Petroleum Services--0.6%
41,000 Oryx Energy Co.(a)................. 568,875
-----------
Railroads--1.6%
6,400 Burlington Northern Inc............ 525,600
11,600 Canadian Pacific Ltd............... 232,000
13,350 Illinois Central Corp.............. 380,475
7,000 Union Pacific Corp................. 480,375
-----------
1,618,450
-----------
Retail--1.6%
16,300 Best Products, Inc.(a)............. 38,713
10,100 Dillard Department Stores, Inc..... 349,712
4,900 Eckerd Corp.(a).................... 235,812
11,800 Harcourt General, Inc.............. 535,425
8,500 May Department Stores Co........... 410,125
-----------
1,569,787
-----------
Value
Shares Description (Note 1)
- ------------------------------------------------------------
Rubber--0.2%
4,500 Goodyear Tire & Rubber Co.......... $ 229,500
-----------
Telecommunications--1.3%
20,700 Frontier Corp...................... 652,050
20,900 MCI Communications Corp............ 632,225
-----------
1,284,275
-----------
Trucking & Shipping--0.3%
12,900 Pittston Burlington Company........ 253,163
-----------
Utility-Communications--0.7%
9,100 Airtouch Communications, Inc.(a)... 283,238
5,900 AT&T Corp.......................... 361,375
-----------
644,613
-----------
Total common stocks
(cost $35,215,626)................. 44,406,515
-----------
Principal
Amount
(000) DEBT OBLIGATIONS--44.2%
- --------
Asset Backed Securities--3.2%
American Express Master Trust,
Series 1994-3, Class A,
$ 430 7.85%, 8/15/05..................... 454,858
Chemical Credit Card Trust,
Series 1995-3, Class A,
400 6.23%, 4/15/05..................... 392,872
Circuit City Credit Card Master
Trust,
Series 1994-2, Class A,
300 8.00%, 11/15/03.................... 315,094
Discover Card Master Trust I,
Series 1994-1, Class A,
400 6.70%, 2/16/00..................... 404,000
</TABLE>
See Notes to Financial Statements.
B-102
<PAGE>
THE PRUDENTIAL BALANCED FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Asset Backed Securities, cont'd.
Nationsbank Credit Card Master
Trust,
Series 1993-2, Class A,
$ 400 6.00%, 12/15/05.................. $ 383,624
Prime Credit Card Master Trust,
Series 1995-1, Class A,
400 6.75%, 11/15/05.................. 401,872
Sears Credit Account Master Trust
II,
Series 1995-5, Class A,
500 6.05%, 1/16/08................... 484,840
Standard Credit Card Master
Trust,
Series 1995-1, Class A,
400 8.25%, 1/7/07.................... 433,624
------------
Total asset backed securities
(cost $3,340,011)................ 3,270,784
------------
Corporate Bonds--8.2%
African Development Bank,
400 7.70%, 7/15/02................... 419,316
(Banking)
American General Finance Corp.,
400 7.25%, 5/15/05................... 406,168
(Financial Services)
Caterpillar, Inc.,
250 9.375%, 7/15/00.................. 274,450
(Industrials)
Comdisco Inc.,
300 6.50%, 6/15/00................... 298,329
(Commercial Services)
Commercial Credit Group, Inc.,
200 7.875%, 7/15/04.................. 211,666
(Financial Services)
Disney, (Walt) Co.,
400 6.75%, 3/30/06................... 398,212
(Leisure)
Principal
Amount Value
(000) Description (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
Federal Express Corp.,
$ 350 10.00%, 9/1/98................... $ 377,272
(Trucking & Shipping)
Finova Capital Corp.,
300 6.28%, 11/1/99................... 296,676
100 6.30%, 11/1/99................... 98,955
(Financial Services)
Ford Motor Credit Co.,
400 9.375%, 12/15/97................. 419,824
320 7.50%, 6/15/04................... 329,683
(Financial Services)
General Motors Acceptance Corp.,
450 9.625%, 5/15/00.................. 497,322
(Financial Services)
Greyhound Financial Corp.,
100 8.50%, 5/1/98.................... 104,033
(Financial Services)
Hanson PLC.,
400 7.375%, 1/15/03.................. 407,572
(Miscellaneous Basic Industry)
(United Kingdom)
Hydro Quebec Corp.,
250 8.40%, 1/15/22................... 266,958
(Utilities) (Canada)
Lehman Brothers, Inc.,
200 7.125%, 7/15/02.................. 200,592
(Financial Services)
Nationsbank Corp.,
500 6.50%, 3/15/06................... 482,110
(Banking)
Norwest Corp.,
300 7.125%, 4/1/00................... 306,111
(Banking)
Petroliam Nasional Berhad,
500 6.875%, 7/1/03................... 496,565
(Petroleum) (Malaysia)
</TABLE>
See Notes to Financial Statements.
B-103
<PAGE>
THE PRUDENTIAL BALANCED FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Corporate Bonds, cont'd.
Salomon, Inc.,
$ 200 8.64%, 2/27/98................... $ 205,838
(Financial Services)
Sears Roebuck & Co.,
100 9.48%, 7/24/01................... 112,375
(Retail)
Sears Roebuck Acceptance Corp.,
300 6.75%, 9/15/05................... 294,978
(Financial Services)
Tenneco Credit Corp.,
600 9.625%, 8/15/01.................. 673,164
(Financial Services)
Texas Utilities Co.,
300 6.375%, 8/1/97................... 300,612
(Utilities)
Union Oil Co.,
300 7.75%, 4/20/05 ................. 310,131
(Petroleum) ------------
Total corporate bonds
(cost $8,245,157)................ 8,188,912
------------
Sovereign Bond--0.3%
Republic of Italy
6.875%, 9/27/23
300 (cost $278,274)................ 269,193
------------
U.S. Government Securities--32.5%
United States Treasury Bond,
5,150 11.25%, 2/15/15.................. 7,568,080
United States Treasury Notes,
4,100 5.375%, 5/31/98.................. 4,062,198
3,900 6.375%, 1/15/99.................. 3,943,875
2,900 7.50%, 10/31/99.................. 3,035,024
1,600 6.375%, 1/15/00.................. 1,619,248
350 6.875%, 3/31/00.................. 359,733
Principal
Amount Value
(000) Description (Note 1)
- ------------------------------------------------------------
United States Treasury Notes,
$ 500 6.125%, 7/31/00.................. $ 500,310
6,600 6.25%, 2/15/03................... 6,580,398
4,500 7.25%, 8/15/04................... 4,747,500
------------
Total U.S. Government securities
(cost $32,455,321)............... 32,416,366
------------
Total debt obligations
(cost $44,318,763)............... 44,145,255
------------
Total long-term investments
(cost $79,534,389)............... 88,551,770
------------
SHORT-TERM INVESTMENTS--10.8%
Corporate Bond--0.4%
400 General Electric Capital Corp.,
8.75%, 11/26/96 ................
(Financial Services)
407,176
------------
Repurchase Agreement--10.4%
10,344 Joint Repurchase Agreement Account,
5.35%, 04/01/96 (Note 4)......... 10,344,000
------------
Total short-term investments
(cost $10,747,456)............... 10,751,176
------------
Total Investments--99.5%
(cost $90,281,845; Note 3)....... 99,302,946
Other assets in excess of
liabilities--0.5%.............. 501,089
------------
Net Assets--100%................. $ 99,804,035
------------
------------
</TABLE>
- ---------------
(a) Non-income producing security.
ADR--American Depository Receipt.
See Notes to Financial Statements.
B-104
<PAGE>
THE PRUDENTIAL INCOME FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
LONG-TERM INVESTMENTS--93.2%
Asset Backed Securities--8.3%
Chemical Credit Card Trust I,
Series 1995-3, Class A, 6.23%,
$ 500 4/15/05........................ $ 496,406
Circuit City Credit Card Master
Trust, Series 1994-2, Class A,
500 8.00%, 11/15/03.................. 535,790
Discover Card Master Trust I,
Series 1994-1, Class A,
500 6.70%, 2/16/00................... 505,000
Nationsbank Credit Card Master
Trust,
Series 1993-2, Class A,
500 6.00%, 12/15/05................ 479,530
Series 1995-1, Class A,
500 6.45%, 4/15/03................. 501,875
Prime Credit Card Master Trust,
Series 1995-1, Class A,
600 6.75%, 11/15/05................ 602,808
Sears Credit Account Master Trust
II,
Series 1995-5, Class A,
600 6.05%, 1/16/08................. 575,700
Standard Credit Card Master
Trust,
Series 1994-4, Class A,
500 8.25%, 11/07/03................ 536,715
Series 1995-1, Class A,
500 8.25%, 1/07/07................. 542,030
------------
Total asset backed securities
(cost $4,777,202).............. 4,775,854
------------
Corporate Bonds--29.4%
African Development Bank,
500 7.75%, 12/15/01.................. 523,480
500 6.50%, 3/15/04................... 493,150
(Banking)
Principal
Amount Value
(000) Description (Note 1)
- -------------------------------------------------------------
American General Finance Corp.,
$ 500 7.25%, 5/15/05 ................. $ 507,710
(Financial Services)
Associates Corp. of North
America,
400 7.25%, 5/15/98................... 408,392
500 6.625%, 6/15/05.................. 489,470
(Financial Services)
Burlington Northern Santa Fe
Corp.,
600 7.00%, 12/15/25 ................ 551,232
(Railroads)
Columbia Healthcare Corp.,
500 7.58%, 9/15/25 ................. 493,125
(Hospital Management)
Comdisco Inc.,
500 6.50%, 6/15/00 ................. 497,215
(Commercial Services)
Digital Equipment Corp.,
250 8.625%, 11/01/12 ............... 253,728
(Electronics)
Disney (Walt) Co.,
700 6.75%, 3/30/06 ................. 696,871
(Leisure)
Dresdner Bank AG,
500 7.25%, 9/15/15 ................. 492,090
(Banking) (Germany)
Equity Lord Realty Corp.,
300 10.50%, 12/30/97 ............... 313,500
(Real Estate)
Federal Express Corp.,
500 10.00%, 9/01/98 ................ 538,960
(Trucking & Shipping)
Finova Capital Corp.,
400 6.28%, 11/01/99.................. 395,568
100 6.30%, 11/01/99.................. 98,955
(Financial Services)
Ford Motor Credit Co.,
500 6.50%, 10/04/00 ................ 501,875
(Financial Services)
</TABLE>
See Notes to Financial Statements.
B-105
<PAGE>
THE PRUDENTIAL INCOME FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
Corporate Bonds, cont'd.
General Electric Capital Corp.,
$ 500 7.95%, 2/02/98 ................. $ 517,495
(Financial Services)
Glaxo Wellcome PLC,
500 6.125%, 1/25/06 ................ 472,187
(Drugs & Medical Supplies)
Grand Metropolitan Investment
Corp.,
800 Zero Coupon, 1/06/04 ........... 468,872
(Financial Services)
(United Kingdom)
Household Finance Corp.,
1,000 6.375%, 6/30/00 ................ 991,270
(Financial Services)
Hydro Quebec Corp.,
400 7.49%, 7/30/03................... 410,864
500 8.40%, 1/15/22................... 533,915
(Utilities) (Canada)
IC Industries Financial Corp.,
705 8.00%, 7/01/96 ................. 708,306
(Financial Services)
International Bank For
Reconstruction & Development,
400 8.625%, 10/15/16 ............... 461,352
(Banking)
ITT Corp. (New),
500 7.375%, 11/15/15 ............... 483,750
(Leisure)
Lehman Brothers Holdings, Inc.,
400 7.625%, 7/15/99 ................ 408,272
(Financial Services)
News America Holdings, Inc.,
300 7.60%, 10/11/15 ................ 286,677
(Media)
Petro-Canada,
500 9.25%, 10/15/21 ................ 576,505
(Petroleum) (Canada)
Principal
Amount Value
(000) Description (Note 1)
- -------------------------------------------------------------
Salomon Inc.,
$ 400 8.64%, 2/27/98................... $ 411,676
250 6.50%, 8/15/03 ................. 232,570
(Financial Services)
Sears Roebuck Acceptance Corp.,
500 6.75%, 9/15/05 ................. 491,630
(Financial Services)
SunAmerica, Inc.,
275 6.58%, 1/15/02 ................. 268,565
(Insurance)
Tenaga Nasional Berhad,
500 7.50%, 11/01/25 ................ 480,165
(Utilities) (Malaysia)
Tenneco Credit Corp.,
400 10.125%, 12/01/97 .............. 424,004
(Financial Services)
Time Warner Inc.,
300 9.15%, 2/01/23 ................. 322,938
(Media)
Union Bank of Finland, Ltd.,
250 5.25%, 6/15/96 ................. 249,465
(Banking) (Finland)
Viacom Inc.,
400 7.625%, 1/15/16 ................ 373,000
(Media) ------------
Total corporate bonds
(cost $16,988,095)............. 16,828,799
------------
Foreign Government Obligation--1.0%
New Zealand Government Bond,
10.50%, 7/16/00
500 (cost $559,455)................ 535,151
------------
Sovereign Bond--0.7%
Republic of Italy,
450 6.875%, 9/27/23
(cost $415,478).................. 403,172
------------
</TABLE>
See Notes to Financial Statements.
B-106
<PAGE>
THE PRUDENTIAL INCOME FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
U.S. Government and Agency
Securities--53.8%
Federal Home Loan Mortgage Corp.,
$ 500 7.00%, 8/15/23 (CMO)............. $ 469,685
Federal National Mortgage Assn.,
500 6.50%, 2/25/24 (CMO)............. 417,185
1,000(a) 6.50%, 15 yr..................... 1,014,060
4,000(a) 6.50%, 30 yr..................... 3,797,480
2,216 7.00%, 9/01/23 - 7/01/24......... 2,159,026
1,000 7.50%, 15 yr..................... 1,014,060
2,634 9.50%, 10/01/19 - 3/01/25........ 2,809,613
500 9.50%, 30 yr..................... 533,435
Government National Mortgage
Assn.,
1,206 7.00%, 2/15/09 - 6/15/23......... 1,198,078
2,000(a) 7.00%, 30 yr..................... 1,948,120
171 7.50%, 6/15/23 - 7/15/23......... 171,821
1,128 9.00%, 9/15/19 - 7/15/21......... 1,208,258
Tennessee Valley Authority,
600 7.25%, 7/15/43................... 566,910
United States Treasury Bonds,
240 6.875%, 8/15/25.................. 243,749
50 7.625%, 2/15/25.................. 55,024
450 9.00%, 11/15/18.................. 559,548
1,250 12.00%, 8/15/13.................. 1,804,487
United States Treasury Notes,
900 6.25%, 2/15/03................... 897,327
3,500 6.375%, 1/15/99.................. 3,539,375
400 6.375%, 1/15/00.................. 404,812
500 6.875%, 3/31/00.................. 513,905
800 7.25%, 8/15/04................... 844,000
1,950 8.25%, 7/15/98................... 2,049,937
1,800 8.625%, 8/15/97.................. 1,869,462
Principal
Amount Value
(000) Description (Note 1)
- -------------------------------------------------------------
United States Treasury Strips,
$ 800 Zero Coupon, 8/15/08............. $ 351,000
700 Zero Coupon, 8/15/11............. 244,881
500 Zero Coupon, 11/15/11............ 171,595
------------
Total U.S. government and agency
securities
(cost $30,705,657)............. 30,856,833
------------
Total long-term investments
(cost $53,516,943)............. 53,399,809
------------
SHORT-TERM INVESTMENT--20.1%
Repurchase Agreement
Joint Repurchase Agreement
11,549 Account,
5.35%, 4/01/96 (Note 4)
(cost $11,549,000)............. 11,549,000
------------
Total Investments--113.3%
(cost $65,065,943; Note 3)..... 64,948,809
Liabilities in excess of other
assets--(13.3%)................ (7,623,163)
------------
Net Assets--100%................. $ 57,325,646
------------
------------
</TABLE>
- ---------------
(a) Mortgage dollar roll, see Note 1.
CMO--Collateralized Mortgage Obligation.
See Notes to Financial Statements.
B-107
<PAGE>
THE PRUDENTIAL MONEY MARKET FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
BEARER DEPOSIT NOTES -
YANKEE--0.9%
Grand Metropolitan Investment Corp.,
8.125%, 8/15/96
$ 555 (amortized cost $560,141)...... $ 560,141
------------
COMMERCIAL PAPER--39.7%
American Home Products Corp.,
2,000 5.40%, 5/1/96.................... 1,991,000
Aristar, Inc.,
960 5.36%, 4/12/96................... 958,428
2,000 5.22%, 4/15/96................... 1,995,940
Countrywide Funding Corp.,
1,704 5.39%, 5/3/96.................... 1,695,836
1,300 5.47%, 5/8/96.................... 1,292,691
Duracell, Inc.,
1,382 5.60%, 4/1/96.................... 1,382,000
Enterprise Funding Corp.,
1,224 5.42%, 5/1/96.................... 1,218,472
Finova Capital Corp.,
2,961 5.25%, 4/26/96................... 2,950,205
First Data Corp.,
3,000 5.43%, 4/2/96.................... 2,999,548
General Motors Acceptance Corp.,
200 5.40%, 4/4/96.................... 199,910
Household International Inc.,
800 5.24%, 4/2/96.................... 799,884
Lehman Brothers, Inc.,
399 5.60%, 4/1/96.................... 399,000
Nynex Corp.,
2,980 5.30%, 4/8/96.................... 2,976,929
Whirlpool Financial Corp.,
820 5.20%, 4/26/96................... 817,039
2,100 5.43%, 5/10/96................... 2,087,645
------------
Total commercial paper
(amortized cost $23,764,527)..... 23,764,527
------------
Principal
Amount Value
(000) Description (Note 1)
- -------------------------------------------------------------
DEPOSIT NOTES--2.5%
Society National Bank Cleveland,
$ 1,000 6.70%, 4/15/96................... $ 1,000,351
500 6.00%, 4/25/96................... 499,843
------------
Total deposit notes
(amortized cost $1,500,194)...... 1,500,194
------------
LOAN PARTICIPATION--3.3%
Morgan Stanley Group Inc.,
5.60%, 4/3/96
2,000 (amortized cost $2,000,000).... 2,000,000
------------
MEDIUM-TERM OBLIGATIONS--19.6%
Associates Corp. of North America,
250 4.48%, 10/15/96.................. 248,249
Ford Motor Credit Corp.,
1,120 8.25%, 5/15/96................... 1,123,125
600 8.875%, 8/1/96................... 605,413
215 5.625%, 3/3/97................... 214,779
General Electric Co.,
840 7.875%, 5/1/96................... 841,296
Household Finance Corp.,
1,250 7.80%, 11/1/96................... 1,264,227
International Lease Finance
Corp.,
500 5.00%, 5/28/96................... 499,177
375 6.625%, 6/1/96................... 375,302
Norwest Corporation,
500 4.93%, 11/15/96.................. 497,245
400 7.875%, 1/30/97.................. 408,349
PHH Corporation,
2,200 8.00%, 1/1/97.................... 2,243,194
Potomac Electric Power Co.,
500 6.25%, 5/28/96................... 500,772
Sears Roebuck Acceptance Corp.,
1,635 8.55%, 8/1/96.................... 1,648,508
100 8.99%, 9/27/96................... 101,614
590 7.48%, 2/19/97................... 600,916
</TABLE>
See Notes to Financial Statements.
B-108
<PAGE>
THE PRUDENTIAL MONEY MARKET FUND
(LOGO) INSTITUTIONAL PORTFOLIO OF INVESTMENTS
FUND MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- -------------------------------------------------------------
MEDIUM-TERM OBLIGATIONS, cont'd.
Transamerica Finance Corp.,
$ 600 8.55%, 6/15/96................... $ 603,072
------------
Total medium-term obligations
(amortized cost $11,775,238)..... 11,775,238
------------
VARIABLE RATE OBLIGATIONS(a)--33.5%
American Express Centurion Bank,
1,900 5.349%, 4/16/96.................. 1,899,785
1,000 5.379%, 4/17/96.................. 999,991
Bank One Columbus N.A.,
2,700 5.34%, 4/1/96.................... 2,699,126
Caterpillar Financial Services
N.V.,
350 5.47%, 5/29/96................... 350,414
Fleet National Bank,
1,300 5.625%, 4/30/96.................. 1,300,262
Ford Motor Credit Corp.,
200 5.692%, 6/17/96.................. 200,069
350 5.40%, 2/18/97................... 350,344
General Motors Acceptance Corp.,
2,000 5.51%, 4/1/96.................... 1,999,970
350 5.622%, 6/18/96.................. 350,367
Goldman Sachs Group, L.P.,
2,700 5.438%, 4/29/96.................. 2,700,000
Household Finance Corp.,
1,700 5.34%, 4/1/96.................... 1,699,714
John Deere Capital Corp.,
1,000 5.767%, 4/22/96.................. 1,000,677
Key Bank New York,
1,400 5.33%, 4/1/96.................... 1,399,515
Lehman Brothers, Inc.,
2,000 5.509%, 4/1/96................... 2,000,000
Money Market Auto Loan Trust,
100 5.575%, 4/15/96.................. 100,000
Principal
Amount Value
(000) Description (Note 1)
- -------------------------------------------------------------
Morgan Stanley Group, Inc.,
$ 1,000 5.375%, 5/15/96.................. $ 1,000,000
------------
Total variable rate obligations
(amortized cost $20,050,234)..... 20,050,234
------------
U.S. GOVERNMENT AGENCY OBLIGATION--0.7%
Federal Home Loan Banks,
4.36%, 4/25/96
400 (amortized cost $399,668)...... 399,668
------------
Total investments--100.2%
(amortized cost
$60,050,002(b))................ 60,050,002
Liabilities in excess of other
assets--(0.2%)................. (119,819)
------------
Net Assets--100%................. $ 59,930,183
------------
------------
</TABLE>
- ---------------
(a) For purposes of amortized cost valuation, the maturity date of these
instruments is considered to be the next date on which the security can be
redeemed at par or the next date on which the rate of interest is adjusted.
(b) The cost of securities for federal income tax purposes is substantially the
same as for financial reporting purposes.
The industry classification of portfolio holdings and other net assets shown as
a percentage of net assets as of March 31, 1996 were as follows:
<TABLE>
<S> <C>
Personal Credit Institutions.............. 18.7%
Commercial Banks.......................... 16.4
Security Brokers & Dealers................ 13.5
Business Credit (Finance)................. 12.1
Information Services...................... 5.0
Mortgage Bankers.......................... 5.0
Phone Communication....................... 5.0
Household Appliances...................... 4.8
Auto Rental & Leasing..................... 3.8
Pharmaceutical............................ 3.3
Misc. Electric, Equipment, Supply......... 2.3
Asset Backed.............................. 2.2
Bank Holding Co........................... 1.5
Equipment Rental & Leasing................ 1.5
Electric & Equipment, Computer............ 1.4
Financial Services........................ 1.3
Food & Kindred Products................... 0.9
Electric Services......................... 0.8
Federal Credit............................ 0.7
Liabilities in excess of other assets..... (0.2)
-----
100.0%
-----
-----
</TABLE>
See Notes to Financial Statements.
B-109
<PAGE>
THE PRUDENTIAL STATEMENT OF ASSETS
(LOGO) INSTITUTIONAL AND LIABILITIES
FUND MARCH 31, 1996
<TABLE>
<CAPTION>
GROWTH STOCK INTERNATIONAL ACTIVE MONEY
STOCK INDEX STOCK BALANCED BALANCED INCOME MARKET
FUND FUND FUND FUND FUND FUND FUND
------------ ------------ ------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Investments, at value
(a)...................... $288,473,390 $147,528,594 $163,631,126 $141,973,548 $99,302,946 $64,948,809 $60,050,002
Cash....................... 571 -- 365 3,578 2,454 344 664
Foreign currency, at value
(cost $120,455).......... -- -- 120,201 -- -- -- --
Receivable for investments
sold..................... 1,843,811 110,805 -- 159,396 222,356 -- --
Interest and dividends
receivable............... 244,056 237,503 486,827 694,471 662,192 679,143 423,064
Receivable for Fund shares
sold..................... 836,874 419,537 507,136 469,950 397,983 60,429 47,347
Deferred expenses and other
assets................... 22,618 21,921 22,047 23,402 21,788 25,157 23,503
------------ ------------ ------------- ------------ ----------- ----------- -----------
Total assets........... 291,421,320 148,318,360 164,767,702 143,324,345 100,609,719 65,713,882 60,544,580
------------ ------------ ------------- ------------ ----------- ----------- -----------
Liabilities
Payable for investments
purchased................ 1,894,523 780,201 1,838,999 505,568 555,826 8,346,485 387,225
Payable for Fund shares
reacquired............... 379,951 350,236 440,038 2,721 151,391 6,891 195,043
Accrued expenses........... 59,193 56,018 104,667 27,875 33,386 17,866 17,517
Due to broker - variation
margin................... -- 29,750 -- -- -- -- --
Management fee payable..... 184,161 1,164 159,906 84,218 54,094 10,568 7,913
Administration fee
payable.................. 32,006 16,314 17,912 15,912 10,987 6,426 6,699
------------ ------------ ------------- ------------ ----------- ----------- -----------
Total liabilities...... 2,549,834 1,233,683 2,561,522 636,294 805,684 8,388,236 614,397
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net Assets................. $288,871,486 $147,084,677 $162,206,180 $142,688,051 $99,804,035 $57,325,646 $59,930,183
------------ ------------ ------------- ------------ ----------- ----------- -----------
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net assets were comprised
of:
Shares of beneficial
interest, at par......... $ 16,906 $ 9,836 $ 10,275 $ 11,342 $ 7,936 $ 5,781 $ 59,930
Paid-in capital in excess
of par................... 223,817,874 119,565,666 140,973,229 124,739,121 88,818,388 57,616,118 59,870,253
------------ ------------ ------------- ------------ ----------- ----------- -----------
223,834,780 119,575,502 140,983,504 124,750,463 88,826,324 57,621,899 59,930,183
Undistributed net
investment income
(loss)................... (362,804) 536,299 183,078 1,026,586 671,956 -- --
Accumulated net realized
gain (loss) on
investments.............. 2,165,314 596,539 (364,666 ) 3,304,353 1,284,654 (179,120) --
Net unrealized appreciation
(depreciation) on
investments and foreign
currencies............... 63,234,196 26,376,337 21,404,264 13,606,649 9,021,101 (117,133) --
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net assets, March 31,
1996..................... $288,871,486 $147,084,677 $162,206,180 $142,688,051 $99,804,035 $57,325,646 $59,930,183
------------ ------------ ------------- ------------ ----------- ----------- -----------
------------ ------------ ------------- ------------ ----------- ----------- -----------
Shares of beneficial
interest issued and
outstanding.............. 16,906,186 9,835,809 10,275,205 11,341,527 7,936,350 5,780,560 59,930,183
------------ ------------ ------------- ------------ ----------- ----------- -----------
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net asset value per
share.................... $ 17.09 $ 14.95 $ 15.79 $ 12.58 $ 12.58 $ 9.92 $ 1.00
------------ ------------ ------------- ------------ ----------- ----------- -----------
------------ ------------ ------------- ------------ ----------- ----------- -----------
(a) Identified cost........ $225,239,430 $121,196,832 $142,221,274 $128,366,899 $90,281,845 $65,065,943 $60,050,002
</TABLE>
See Notes to Financial Statements.
B-110
<PAGE>
THE PRUDENTIAL STATEMENT OF
(LOGO) INSTITUTIONAL OPERATIONS
FUND SIX MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
GROWTH STOCK INTERNATIONAL ACTIVE MONEY
STOCK INDEX STOCK BALANCED BALANCED INCOME MARKET
FUND FUND FUND FUND FUND FUND FUND
------------ ------------ ------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Investment Income
Income
Interest................. $ 142,475 $ 222,810 $ 299,227 $ 2,194,088 $ 1,500,344 $ 1,839,465 $ 1,716,542
Dividends (a)............ 835,346 1,295,809 1,257,014 610,799 246,391 -- --
------------ ------------ ------------- ------------ ----------- ----------- -----------
Total income........... 977,821 1,518,619 1,556,241 2,804,887 1,746,735 1,839,465 1,716,542
------------ ------------ ------------- ------------ ----------- ----------- -----------
Expenses
Management fee........... 885,234 242,455 828,186 482,513 312,574 139,295 132,163
Administration fee....... 168,078 80,560 95,715 91,614 59,348 37,027 38,798
Custodian's fees and
expenses................. 46,000 68,000 138,000 38,000 34,000 30,000 29,000
Registration fees........ 34,000 20,000 17,000 28,000 12,000 14,000 11,000
Transfer agent's fees and
expenses............... 28,969 13,885 16,497 15,790 10,229 6,382 6,964
Reports to
shareholders............. 15,000 15,000 15,000 7,500 15,000 7,500 7,500
Legal fees............... 7,500 7,500 7,500 7,500 7,500 7,500 7,500
Amortization of
organization
expenses............... 6,693 6,693 6,693 6,606 6,693 6,525 6,606
Audit fee................ 6,000 5,000 7,500 6,000 5,000 5,000 4,500
Trustees' fees........... 6,000 6,000 6,000 6,000 6,000 6,000 6,000
Miscellaneous............ 1,762 769 1,337 919 753 790 1,188
------------ ------------ ------------- ------------ ----------- ----------- -----------
Total expenses......... 1,205,236 465,862 1,139,428 690,442 469,097 260,019 251,219
Expense recovery
(subsidy) (Note 2)..... 59,383 (102,179) 12,836 (1,136) (22,563) (65,010) (75,031)
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net expenses............... 1,264,619 363,683 1,152,264 689,306 446,534 195,009 176,188
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net investment income
(loss)................... (286,798) 1,154,936 403,977 2,115,581 1,300,201 1,644,456 1,540,354
------------ ------------ ------------- ------------ ----------- ----------- -----------
Realized and Unrealized
Gain (Loss) on Investment
and Foreign Currency
Transactions
Net realized gain (loss) on:
Securities
transactions............. 5,181,317 329,077 2,870,670 3,822,493 1,674,656 553,480 774
Financial futures
contracts................ -- 706,645 -- -- -- -- --
Foreign currency
transactions............. (76,006) -- (63,741 ) -- -- -- --
------------ ------------ ------------- ------------ ----------- ----------- -----------
5,105,311 1,035,722 2,806,929 3,822,493 1,674,656 553,480 774
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net change in unrealized
appreciation
(depreciation) on:
Securities and foreign
currencies............... 9,168,246 10,803,505 4,083,056 1,492,196 2,639,177 (1,011,659) --
Financial futures
contracts................ -- (148,650) -- -- -- -- --
------------ ------------ ------------- ------------ ----------- ----------- -----------
9,168,246 10,654,855 4,083,056 1,492,196 2,639,177 (1,011,659) --
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net gain (loss) on
investments and foreign
currencies............... 14,273,557 11,690,577 6,889,985 5,314,689 4,313,833 (458,179) 774
------------ ------------ ------------- ------------ ----------- ----------- -----------
Net Increase in Net Assets
Resulting from
Operations................. $ 13,986,759 $ 12,845,513 $7,293,962 $ 7,430,270 $ 5,614,034 $ 1,186,277 $ 1,541,128
------------ ------------ ------------- ------------ ----------- ----------- -----------
------------ ------------ ------------- ------------ ----------- ----------- -----------
(a) Net of foreign withholding taxes of $17,997, $1,988, $160,696, $1,168 and $4,070, respectively.
</TABLE>
See Notes to Financial Statements.
B-111
<PAGE>
THE PRUDENTIAL STATEMENT OF CHANGES
(LOGO) INSTITUTIONAL IN NET ASSETS
FUND (UNAUDITED)
<TABLE>
<CAPTION>
GROWTH STOCK INTERNATIONAL
STOCK INDEX STOCK
FUND FUND FUND
--------------------------- ---------------------------- ---------------------
Six Months Year Six Months Year Six Months
Ended Ended Ended Ended Ended
March 31, September 30, March 31, September 30, March 31,
1996 1995 1996 1995 1996
------------ ------------ ------------- -------------- ---------------------
<S> <C> <C> <C> <C> <C>
Increase (Decrease) in
Net Assets
Operations
Net investment income
(loss)............... $ (286,798) $ (111,660) $ 1,154,936 $ 1,829,951 $ 403,977
Net realized gain
(loss) on investments
and foreign currency
transactions......... 5,105,311 814,853 1,035,722 4,044,854 2,806,929
Net change in
unrealized
appreciation
on investments and
foreign currencies... 9,168,246 47,538,274 10,654,855 13,914,900 4,083,056
------------ ------------- ------------ ------------------- ------------
Net increase in net
assets resulting from
operations........... 13,986,759 48,241,467 12,845,513 19,789,705 7,293,962
------------ ------------- ------------ ------------------- ------------
Dividends and
distributions
Dividends to
shareholders from net
investment income.... -- (48,781) (2,181,628) (1,015,394) (1,739,771)
Distributions to
shareholders from net
realized gains....... -- -- (4,441,171) (165,297) --
------------ ------------- ------------ ------------------- ------------
Total dividends and
distributions........ -- (48,781) (6,622,799) (1,180,691) (1,739,771)
------------ ------------- ------------ ------------------- ------------
Fund share transactions
Net proceeds from
shares sold.......... 133,171,200 138,943,129 57,112,238 52,960,096 57,849,159
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions........ -- 48,781 6,622,799 1,180,691 1,739,771
Cost of shares
redeemed............. (78,791,867) (73,635,170) (24,817,640) (20,924,559) (39,622,163)
------------ ------------- ------------ ------------------- ------------
Net increase in net
assets from Fund
share transactions... 54,379,333 65,356,740 38,917,397 33,216,228 19,966,767
------------ ------------- ------------ ------------------- ------------
Net increase............ 68,366,092 113,549,426 45,140,111 51,825,242 25,520,958
Net Assets
Beginning of period.... 220,505,394 106,955,968 101,944,566 50,119,324 136,685,222
------------ ------------- ------------ ------------------- ------------
End of period.......... $288,871,486 $ 220,505,394 $147,084,677 $ 101,944,566 $162,206,180
------------ ------------- ------------ ------------------- ------------
------------ ------------- ------------ ------------------- ------------
<CAPTION>
INTERNATIONAL ACTIVE
STOCK BALANCED
FUND FUND
---------------- ---------------------------
Year Six Months Year
Eneded Ended Ended
September 30, March 31, September 30,
1995 1996 1995
--------------- ----------- --------------
<S> <C> <C> <C>
Increase (Decrease) in
Net Assets
Operations
Net investment income
(loss)............... $ 1,884,332 $ 2,115,581 $ 3,695,777
Net realized gain
(loss) on investments
and foreign currency
transactions......... (3,084,946) 3,822,493 1,585,229
Net change in
unrealized
appreciation
on investments and
foreign currencies... 9,333,213 1,492,196 12,809,504
------------- ------------ -------------
Net increase in net
assets resulting from
operations........... 8,132,599 7,430,270 18,090,510
------------- ------------ -------------
Dividends and
distributions
Dividends to
shareholders from net
investment income.... (750,797) (3,972,956) (2,260,245)
Distributions to
shareholders from net
realized gains....... (2,440,090) (1,932,789) (272,788)
------------- ------------ -------------
Total dividends and
distributions........ (3,190,887) (5,905,745) (2,533,033)
------------- ------------ -------------
Fund share transactions
Net proceeds from
shares sold.......... 93,624,206 17,976,072 54,908,716
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions........ 3,190,887 5,905,745 2,533,033
Cost of shares
redeemed............. (67,895,915) (16,070,178) (20,823,769)
------------- ------------ -------------
Net increase in net
assets from Fund
share transactions... 28,919,178 7,811,639 36,617,980
------------- ------------ -------------
Net increase............ 33,860,890 9,336,164 52,175,457
Net Assets
Beginning of period.... 102,824,332 133,351,887 81,176,430
------------- ------------ -------------
End of period.......... $ 136,685,222 $142,688,051 $ 133,351,887
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
See Notes to Financial Statements.
B-112
<PAGE>
THE PRUDENTIAL STATEMENT OF CHANGES
(LOGO) INSTITUTIONAL IN NET ASSETS
FUND (UNAUDITED)
<TABLE>
<CAPTION>
MONEY
BALANCED INCOME MARKET
FUND FUND FUND
------------------------------ ----------------------------- ------------------------------
Six Months Year Six Months Year Six Months Year
Ended Ended Ended Ended Ended Ended
March 31, September 30, March 31, September 30, March 31, September 30,
1996 1995 1996 1995 1996 1995
------------ ------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in
Net Assets
Operations
Net investment
income............... $ 1,300,201 $ 2,258,681 $ 1,644,456 $ 2,862,527 $ 1,540,354 $ 2,813,967
Net realized gain on
investments and
foreign currency
transactions......... 1,674,656 2,196,076 553,480 92,951 774 --
Net change in
unrealized
appreciation
(depreciation) on
investments and
foreign currencies... 2,639,177 6,413,335 (1,011,659) 2,865,097 -- --
------------ ------------- ----------- ------------- ------------ -------------
Net increase in net
assets resulting from
operations........... 5,614,034 10,868,092 1,186,277 5,820,575 1,541,128 2,813,967
------------ ------------- ----------- ------------- ------------ -------------
Dividends and
distributions
Dividends to
shareholders from net
investment income.... (2,334,680) (1,529,788) (1,644,456) (2,862,527) (1,541,128) (2,813,967)
Distributions to
shareholders from net
realized gains....... (2,472,014) (269,963) -- -- -- --
------------ ------------- ----------- ------------- ------------ -------------
Total dividends and
distributions........ (4,806,694) (1,799,751) (1,644,456) (2,862,527) (1,541,128) (2,813,967)
------------ ------------- ----------- ------------- ------------ -------------
Fund share transactions
Net proceeds from
shares sold.......... 21,877,936 26,091,264 7,888,653 11,549,255 22,399,365 55,919,976
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions........ 4,806,694 1,799,751 1,644,456 2,862,527 1,541,128 2,813,967
Cost of shares
redeemed............. (9,797,881) (19,161,993) (4,046,651) (6,473,780) (22,064,387) (47,010,598)
------------ ------------- ----------- ------------- ------------ -------------
Net increase in net
assets from Fund
share transactions... 16,886,749 8,729,022 5,486,458 7,938,002 1,876,106 11,723,345
------------ ------------- ----------- ------------- ------------ -------------
Net increase............ 17,694,089 17,797,363 5,028,279 10,896,050 1,876,106 11,723,345
Net Assets
Beginning of period.... 82,109,946 64,312,583 52,297,367 41,401,317 58,054,077 46,330,732
------------ ------------- ----------- ------------- ------------ -------------
End of period.......... $ 99,804,035 $82,109,946 $57,325,646 $52,297,367 $ 59,930,183 $58,054,077
------------ ------------- ----------- ------------- ------------ -------------
------------ ------------- ----------- ------------- ------------ -------------
</TABLE>
See Notes to Financial Statements.
B-113
<PAGE>
THE PRUDENTIAL FINANCIAL HIGHLIGHTS
(LOGO) INSTITUTIONAL (UNAUDITED)
FUND
<TABLE>
<CAPTION>
STOCK
GROWTH INDEX
STOCK FUND
FUND ---------------------------
--------------------------------------------------------- Year
November 5, Ended
Six Months Year Ended September 1992(a) Six Months September
Ended 30, Through Ended 30,
March 31, ----------------------- September 30, March 31, ---------
1996 1995 1994 1993 1996 1995
---------- --------- --------- ------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning
of period.................. $ 16.21 $ 12.00 $ 12.10 $ 10.00 $ 14.22 $ 11.27
---------- --------- --------- ---------- ---------- ---------
Income from investment
operations:
Net investment income
(loss) (b)................. (.02) -- -- .04 .12 .23
Net realized and unrealized
gain (loss) on investment
and foreign currency
transactions............... .90 4.22 (.06) 2.08 1.46 2.97
---------- --------- --------- ---------- ---------- ---------
Total from investment
operations............... .88 4.22 (.06) 2.12 1.58 3.20
---------- --------- --------- ---------- ---------- ---------
Less distributions:
Dividends from net
investment income.......... -- (.01) (.01) (.02) (.28) (.22)
Distributions from net
realized gains............. -- -- (.03) -- (.57) (.03)
---------- --------- --------- ---------- ---------- ---------
Total distributions........ -- (.01) (.04) (.02) (.85) (.25)
---------- --------- --------- ---------- ---------- ---------
Net asset value, end of
period..................... $ 17.09 $ 16.21 $ 12.00 $ 12.10 $ 14.95 $ 14.22
---------- --------- --------- ---------- ---------- ---------
---------- --------- --------- ---------- ---------- ---------
TOTAL RETURN(d)............. 5.43% 35.14% (0.50)% 21.22% 11.44% 29.02%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of period
(000)...................... $288,871 $ 220,505 $ 106,956 $47,998 $147,085 $ 101,945
Average net assets (000).... $252,924 $ 149,985 $ 71,449 $17,592 $121,227 $ 71,711
Ratios to average
net assets: (b)
Expenses................... 1.00%(c) 1.00% 1.00% 1.00%(c) .60%(c) .60%
Net investment income...... (.23)%(c) (.07)% .04% .31%(c) 1.91%(c) 2.55%
Portfolio turnover rate..... 29% 64% 65% 84% 1% 11%
Average commission rate paid
per share.................. $ 0.0650 N/A N/A N/A $ 0.0250 N/A
<CAPTION>
Year November 5,
Ended 1992(a)
September Through
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
(loss) (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%
Average commission rate paid
per share.................. N/A N/A
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) Net of expense subsidy/recovery.
(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-114
<PAGE>
THE PRUDENTIAL FINANCIAL HIGHLIGHTS
(LOGO) INSTITUTIONAL (UNAUDITED)
FUND
<TABLE>
<CAPTION>
ACTIVE
INTERNATIONAL BALANCED
STOCK FUND
FUND ---------------------------
--------------------------------------------------------- Year
November 5, Ended
Six Months Year Ended September 1992(a) Six Months September
Ended 30, Through Ended 30,
March 31, ----------------------- September 30, March 31, ---------
1996 1995 1994 1993 1996 1995
---------- --------- --------- ------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning
of period.................. $ 15.25 $ 14.84 $ 12.35 $ 10.00 $ 12.46 $ 10.92
---------- --------- --------- ---------- ---------- ---------
Income from investment
operations:
Net investment income(b).... .04 .18 .13 .16 .19 .33
Net realized and unrealized
gain (loss) on investment
and foreign currency
transactions............... .69 .66 2.54 2.21 .48 1.54
---------- --------- --------- ---------- ---------- ---------
Total from investment
operations............... .73 .84 2.67 2.37 .67 1.87
---------- --------- --------- ---------- ---------- ---------
Less distributions:
Dividends from net
investment income.......... (.19) (.10) (.03) (.02) (.37) (.29)
Distributions from net
realized gains............. -- (.33) (.15) -- (.18) (.04)
---------- --------- --------- ---------- ---------- ---------
Total distributions........ (.19) (.43) (.18) (.02) (.55) (.33)
---------- --------- --------- ---------- ---------- ---------
Net asset value, end of
period..................... $ 15.79 $ 15.25 $ 14.84 $ 12.35 $ 12.58 $ 12.46
---------- --------- --------- ---------- ---------- ---------
---------- --------- --------- ---------- ---------- ---------
TOTAL RETURN(d)............. 4.86% 5.95% 21.71% 23.74% 5.51% 17.66%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of period
(000)...................... $162,206 $ 136,685 $ 102,824 $31,708 $142,688 $ 133,352
Average net assets (000).... $144,032 $ 118,927 $ 68,476 $14,491 $137,861 $ 104,821
Ratios to average
net assets:(b)
Expenses................... 1.60%(c) 1.60% 1.60% 1.60%(c) 1.00%(c) 1.00%
Net investment income...... .56%(c) 1.58% 1.08% 1.44%(c) 3.07%(c) 3.53%
Portfolio turnover rate..... 9% 20% 21% 15% 21% 30%
Average commission rate paid
per share.................. $ 0.0194 N/A N/A N/A $ 0.0650 N/A
<CAPTION>
Year January 4,
Ended 1993(a)
September Through
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%
Average commission rate paid
per share.................. N/A N/A
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) Net of expense subsidy/recovery.
(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-115
<PAGE>
THE PRUDENTIAL FINANCIAL HIGHLIGHTS
(LOGO) INSTITUTIONAL (UNAUDITED)
FUND
<TABLE>
<CAPTION>
BALANCED INCOME
FUND FUND
--------------------------------------------------------- ------------------------
November 5, Year
Six Months Year Ended September 30, 1992(a) Six Months Ended
Ended Through Ended September
March 31, ------------------------ September 30, March 31, 30,
1996 1995 1994 1993 1996 1995
---------- --------- --------- ------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period.................. $ 12.49 $ 11.08 $ 11.80 $ 10.00 $ 9.98 $ 9.38
---------- --------- --------- ---------- ---------- ---------
Income from investment
operations:
Net investment income(b).... .17 .18 .31 .31 .29 .59
Net realized and unrealized
gain (loss) on investment
and foreign currency
transactions............... .62 1.53 (.52) 1.54 (.06) .60
---------- --------- --------- ---------- ---------- ---------
Total from investment
operations............... .79 1.71 (.21) 1.85 .23 1.19
---------- --------- --------- ---------- ---------- ---------
Less distributions:
Dividends from net
investment income.......... (.34) (.25) (.23) (.05) (.29) (.59)
Distributions from net
realized gains............. (.36) (.05) (.28) -- -- --
---------- --------- --------- ---------- ---------- ---------
Total distributions........ (.70) (.30) (.51) (.05) (.29) (.59)
---------- --------- --------- ---------- ---------- ---------
Net asset value, end of
period..................... $ 12.58 $ 12.49 $ 11.08 $ 11.80 $ 9.92 $ 9.98
---------- --------- --------- ---------- ---------- ---------
---------- --------- --------- ---------- ---------- ---------
TOTAL RETURN(d)............. 6.53% 15.90% (1.88)% 18.58% 2.35% 13.11%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of period
(000)...................... $ 99,804 $82,110 $64,313 $27,663 $ 57,326 $52,297
Average net assets (000).... $ 89,307 $70,914 $44,048 $17,401 $ 55,718 $46,386
Ratios to average
net assets: (b)
Expenses................... 1.00%(c) 1.00% 1.00% 1.00%(c) .70%(c) .70%
Net investment income...... 2.91%(c) 3.19% 2.86% 3.16%(c) 5.90%(c) 6.17%
Portfolio turnover rate..... 37% 65% 52% 74% 53% 145%
Average commission rate paid
per share.................. $ 0.0597 N/A N/A N/A N/A N/A
<CAPTION>
Year March 1,
Ended 1993(a)
September Through
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%
Average commission rate paid
per share.................. N/A N/A
</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-116
<PAGE>
THE PRUDENTIAL FINANCIAL HIGHLIGHTS
(LOGO) INSTITUTIONAL (UNAUDITED)
FUND
<TABLE>
<CAPTION>
MONEY
MARKET
FUND
--------------------------------------------------------------------
January 4,
Six Months 1993(a)
Ended Year Ended September 30, Through
March 31, --------------------------- September 30,
1996 1995 1994 1993
---------- --------- --------- -------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income and
net realized gains(b)...... .03 .05 .03 .02
Dividends from net
investment income.......... (.03) (.05) (.03) (.02)
---------- --------- --------- ----------
Net asset value, end of
period..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- --------- --------- ----------
---------- --------- --------- ----------
TOTAL RETURN(d)............. 2.64% 5.47% 3.32% 2.08%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of period
(000)...................... $ 59,930 $58,054 $46,331 $30,235
Average net assets (000).... $ 58,739 $52,446 $38,170 $25,296
Ratios to average
net assets: (b)
Expenses................... .60%(c) .60% .60% .60%(c)
Net investment income...... 5.24%(c) 5.37% 3.34% 2.73%(c)
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) Net of expense subsidy.
(c) Annualized.
(d) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total return for periods of
less than a full year are not annualized. Total return includes the effect
of expense subsidies.
See Notes to Financial Statements.
B-117
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND (UNAUDITED)
The Prudential Institutional Fund (the ``Company'') is registered under the
Investment Company Act of 1940 as an open-end, diversified management investment
company. The Company was established as a Delaware business trust on May 11,
1992 and consists of seven separate funds (Fund or Funds): Growth Stock Fund,
Stock Index Fund, International Stock Fund, Active Balanced Fund, Balanced Fund,
Income Fund and Money Market Fund. The Company had no operations until July 7,
1992 when 10,000 shares of beneficial interest (2,500 shares each of Growth
Stock Fund, Stock Index Fund, International Stock Fund and Balanced Fund) were
sold for $100,000 to Prudential Institutional Fund Management, Inc. (``PIFM'').
Investment operations commenced on: November 5, 1992 for the Growth Stock Fund,
Stock Index Fund, International Stock Fund and Balanced Fund; January 4, 1993
for the Active Balanced Fund and Money Market Fund; and March 1, 1993 for the
Income Fund.
The Funds' investment objectives are as follows: Growth Stock Fund--long-term
growth of capital through investment primarily in equity securities of
established companies with above-average growth prospects; Stock Index
Fund--investment results that correspond to the price and yield performance of
Standard & Poor's 500 Composite Stock Price Index; International Stock
Fund--long-term growth of capital through investment in equity securities of
foreign issues with income as a secondary objective; Active Balanced Fund--total
returns approaching equity returns, while accepting less risk than an all-equity
portfolio, through an actively-managed portfolio of equity securities, fixed
income securities and money market instruments; Balanced Fund--long-term total
return consistent with moderate portfolio risk; Income Fund--a high level of
income over the longer term while providing reasonable safety of principal; and
Money Market Fund--high current income, preservation of principal and
maintenance of liquidity, while maintaining a $1.00 net asset value per share.
The ability of issuers of debt securities, other than those issued or
guaranteed by the U.S. Government, held by the Funds to meet their obligations
may be affected by economic developments in a specific industry, region, or
country.
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund.
Securities Valuations: Securities, including options, warrants, futures
contracts and options thereon, for which the primary market is on a national
securities exchange, commodities exchange or board of trade and NASDAQ national
market equity securities are valued at the last sale price on such exchange or
board of trade on the date of valuation or, if there was no sale on such day, at
the average of readily available closing bid and asked prices on such day.
Securities, that are actively traded in the over-the-counter market,
including listed securities for which the primary market is believed to be
over-the-counter, shall be valued at the average of the most recently quoted bid
and asked prices provided by a principal market maker or dealer.
U.S. Government securities for which market quotations are available shall be
valued at a price provided by an independent broker/dealer or pricing service.
Securities for which reliable market quotations are not available or for
which the pricing agent or principal market maker does not provide a valuation
or provides a valuation that, in the judgment of one of the subadvisers, does
not represent fair value, shall be valued at fair value as determined under
procedures established by the Trustees.
Quotations of foreign securities in a foreign currency shall be converted to
U.S. dollar equivalents at the current rate obtained from a
B-118
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND (UNAUDITED)
recognized bank or dealer. Forward currency exchange contracts shall be valued
at the current cost of covering or offsetting such contracts.
Securities held by the Money Market Fund are valued at amortized cost, which
approximates market value. The amortized cost method involves valuing a security
at its cost on the date of purchase and thereafter assuming a constant
amortization to maturity of the difference between the principal amount due at
maturity and cost. Short-term securities held by the other Funds which mature in
more than 60 days are valued at current market quotations and those which mature
in 60 days or less are valued at amortized cost. In the event that a Subadviser
determines that amortized cost does not represent fair value for certain
short-term securities with remaining maturities of 60 days or less, such
securities will be valued at market value.
In connection with transactions in repurchase agreements, it is the Company's
policy that its custodian or designated subcustodians, as the case may be under
triparty repurchase agreements, take possession of the underlying collateral
securities, the value of which exceeds the principal amount of the repurchase
transaction, including accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to ensure the adequacy of the collateral. If
the seller defaults, and the value of the collateral declines or, if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Company may be delayed or limited.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date and interest income is recorded on the accrual basis. Expenses
are recorded on the accrual basis which may require the use of certain estimates
by management.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Fund is required to pledge to the broker an amount of cash and/or other
assets equal to a certain percentage of the contract amount. This amount is
known as the ``initial margin.'' Subsequent payments, known as ``variation
margin,'' are made or received by the Fund each day, depending on the daily
fluctuations in the value of the underlying security. Such variation margin is
recorded for financial statement purposes on a daily basis as unrealized gain or
loss. When the contract expires or is closed, the gain or loss is realized and
is presented in the statement of operations as net realized gain (loss) on
financial futures contracts.
The Funds invest in financial futures contracts in order to hedge their
existing portfolio securities, or securities the Funds intend to purchase,
against fluctuations in value. Under a variety of circumstances, a Fund may not
achieve the anticipated benefits of the financial futures contracts and may
realized a loss. The use of futures transactions involves the risk of imperfect
correlation in movements in the price of futures contracts and the underlying
assets.
Dollar Rolls: The Fund may enter into dollar rolls in which the Fund sells
securities for delivery in the current month and simultaneously contracts to
repurchase somewhat similar securities on a specified future date. During the
roll period, the Fund forgoes principal and interest paid on the securities. The
Fund is compensated by the interest earned on the cash proceeds of the initial
sale and by the lower repurchase price at the future date.
Foreign Currency Translation: The books and records of the Funds are
maintained in U.S. dollars.
B-119
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND (UNAUDITED)
Foreign currency amounts are translated into U.S. dollars on the following
basis:
(i) market value of investment securities, other assets and liabilities--at
the closing rates of exchange.
(ii) purchases and sales of investment securities, income and expenses--at
the rate of exchange prevailing on the respective dates of such transactions.
Although the net assets of the Funds are presented at the foreign exchange
rates and market values at the close of the fiscal period, the Funds do not
isolate that portion of the results of operations arising as a result of changes
in the foreign exchange rates from the fluctuations arising from changes in the
market prices of securities held at the end of the fiscal period. Similarly, the
Funds do not isolate the effect of changes in foreign exchange rates from the
fluctuations arising from changes in the market prices of long-term portfolio
securities sold during the fiscal period. Accordingly, these realized foreign
currency gains (losses) are included in the reported net realized gains (losses)
on investment transactions.
Net realized losses on foreign currency transactions represent net foreign
exchange losses from holding of foreign currencies, currency gains or losses
realized between the trade and settlement dates of securities transactions, and
the difference between the amounts of dividends and foreign taxes recorded on
the Funds' books and the U.S. dollar equivalent amounts actually received or
paid. Net currency gains and losses from valuing foreign currency denominated
assets and liabilities at period end exchange rates are reflected as a component
of net unrealized appreciation/
depreciation on securities and foreign currencies.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin as a result of,
among other factors, the level of governmental supervision and regulation of
foreign securities markets and the possibility of political or economic
instability.
Dividends and Distributions: Dividends and distributions of each Fund are
declared in cash and automatically reinvested in additional shares of the Fund.
The Income Fund and Money Market Fund will declare dividends of their net
investment income and, for the Money Market Fund, net capital gain (loss), daily
and distribute such dividends monthly. Each other Fund will declare and
distribute a dividend of its net investment income, if any, at least annually.
Except for the Money Market Fund, each Fund will declare and distribute its net
capital gains, if any, at least annually. Distributions of income dividends and
capital gains distributions of each Fund are made on the payment date and
reinvested at the per share net asset value as of the record date or such other
date as the Board may determine. On the ``ex-dividend'' date, the net asset
value per share excludes the dividend (i.e., is reduced by the amount of the
distribution).
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
Taxes: It is the Funds' policy to continue to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable net income to its shareholders. Therefore, no
federal income tax provision is required.
Withholding taxes on foreign dividends have been provided for in accordance
with the Funds' understanding of the applicable country's tax rules and rates.
Reclassification of Capital Accounts: The Company accounts for and reports
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants' Statement
B-120
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND (UNAUDITED)
of Position 93-2: Determination, Disclosure, and Financial Statement
Presentation of Income, Capital Gain, and Return of Capital Distributions by
Investment Companies.
For the six months ended March 31, 1996, the application of this statement
affected undistributed net investment income (``UNI'') and accumulated net
realized gain (loss) on investments (``G/L'') by the following amounts:
<TABLE>
<CAPTION>
UNI G/L
-------- -------
<S> <C> <C>
Growth Stock Fund $(76,006) $76,006
International Stock Fund (63,741) 63,741
</TABLE>
Net investment income, net realized gains and net assets were not affected by
this change.
Deferred Organizational Expenses: Approxi-
mately $450,000 of costs were incurred in connection with the organization and
initial registration of the Company and have been deferred and are being
amortized ratably over the period of benefit not to exceed 60 months from the
date each of the Funds' commenced investment operations.
Note 2. Agreements
The Company has entered into a management agreement with PIFM. Pursuant to
this agreement, PIFM has responsibility for all investment advisory services and
supervises the subadviser's performance of such services. PIFM is an indirect,
wholly-owned subsidiary of The Prudential Insurance Company of America
(Prudential).
PIFM has entered into subadvisory agreements with The Prudential Investment
Corporation (``PIC''), Jennison Associates Capital Corp. (``Jennison'') and
Mercator Asset Management, L.P. (``Mercator''). PIC and Jennison are
wholly-owned subsidiaries of Prudential. Each subadviser will furnish investment
advisory services in connection with the management of the various Funds.
Jennison serves as subadviser to the Growth Stock Fund and the Active Balanced
Fund. PIC serves as subadviser to the Balanced Fund, the Stock Index Fund, the
Income Fund and the Money Market Fund. Mercator serves as subadviser to the
International Stock Fund. PIFM will pay for the costs and expenses attributable
to the subadvisory agreements and the salaries and expenses of all personnel of
the Company except for fees and expenses of unaffiliated Trustees. The Funds
will bear all other costs and expenses.
Each Fund will pay PIFM a fee for its services provided to the Fund. The fees
are computed daily and payable monthly at the annual rates specified below of
the value of each Funds' average daily net assets:
<TABLE>
<CAPTION>
Fund Management Fee
- -------------------------- ---------------
<S> <C>
Growth Stock Fund .70%
Stock Index Fund .40
International Stock Fund 1.15
Active Balanced Fund .70
Balanced Fund .70
Income Fund .50
Money Market Fund .45
</TABLE>
PIFM has voluntarily agreed to subsidize a portion of the operating expenses
of the Funds until September 30, 1996. Such expenses may be recovered by PIFM
through December 31, 1996 so long as the total expense ratios do not exceed
certain predetermined levels set forth in the Company's prospectus. For the six
months ended March 31, 1996, PIFM subsidized the following amounts:
<TABLE>
<CAPTION>
Percentage
of Average Amount per
Fund Net Assets Share
- --------------------------- ------------- ------------------
<S> <C> <C>
Stock Index Fund .17% $ .011
Active Balanced Fund .002 .0001
Balanced Fund .05 .003
Income Fund .23 .011
Money Market Fund .25 .001
</TABLE>
B-121
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND (UNAUDITED)
PIFM also recovered the following amounts of operating expenses it previously
subsidized for the six months ended March 31, 1996:
<TABLE>
<CAPTION>
Percentage
of Average Amount per
Net Assets Share
------------- ------------------
<S> <C> <C>
Growth Stock Fund .05% $ .004
International Stock Fund .02 .001
</TABLE>
The Company has entered into an administration agreement with Prudential
Mutual Fund Management, Inc. (``PMF''), an indirect wholly-owned subsidiary of
Prudential. The administration fee paid PMF will be computed daily and payable
monthly, at an annual rate of .17% of the Company's daily net assets up to $250
million and .15% of the Company's average daily net assets in excess of $250
million. PMF will furnish to the Company such services as the Company may
require in connection with the administration of the Company's business affairs.
PMF will also provide certain transfer agent services through its wholly-owned
subsidiary, Prudential Mutual Fund Services, Inc. (``PMFS''). For such services,
PMFS will be paid .03% of the Company's daily net assets up to $250 million and
.02% of the Company's average daily net assets in excess of $250 million from
the administration fee paid to PMF.
Note 3. Portfolio Securities
Purchases and sales of portfolio securities, excluding short-term
investments, for the six months ended March 31, 1996 were as follows:
<TABLE>
<CAPTION>
Fund Purchases Sales
- ---------------------------- ------------ -----------
<S> <C> <C>
Growth Stock Fund $125,001,676 $72,554,977
Stock Index Fund 47,804,297 948,671
International Stock Fund 28,187,107 11,866,927
Active Balanced Fund 28,778,511 23,901,019
Balanced Fund 40,800,913 29,694,202
Income Fund 30,157,486 28,424,962
</TABLE>
On March 31, 1996, the Stock Index Fund purchased 17 financial futures
contracts on the S&P 500 Index expiring June, 1996. The cost of such contracts
was $5,491,050. The value of such contracts on March 31, 1996 was $5,535,625,
thereby resulting in an unrealized gain of $44,575.
The federal income tax basis and unrealized appreciation/depreciation of the
Fund's investments as of March 31, 1996 were as follows:
<TABLE>
<CAPTION>
Net Unrealized
Appreciation/
(Depreciation)
--------------- Gross Unrealized
Fund Basis Appreciation Depreciation
- ------------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Growth Stock Fund $225,390,343 $63,083,047 $66,420,094 $3,337,047
Stock Index Fund 121,241,374 26,287,220 27,491,663 1,204,443
International
Stock Fund 142,221,274 21,409,852 25,461,090 4,051,238
Active Balanced
Fund 128,545,569 13,427,979 13,990,099 562,120
Balanced Fund 90,294,873 9,008,073 9,842,011 833,938
Income Fund 65,076,580 (127,771) 544,801 672,572
</TABLE>
The following Funds elected to treat net losses incurred in the eleven month
period ended September 30, 1995 as having occurred in the current fiscal year:
<TABLE>
<CAPTION>
Capital Currency
---------- --------
<S> <C> <C>
Growth Stock Fund -- $ 4,000
International Stock Fund $3,066,000 169,000
Balanced Fund -- 1,000
</TABLE>
For federal income tax purposes, the following Funds have a capital loss
carryforward as of September 30, 1995 which expires in 2003:
<TABLE>
<S> <C>
Growth Stock Fund $2,825,300
Income Fund 723,300
</TABLE>
The average monthly balance of dollar rolls outstanding during the six months
ended March 31, 1996 for the Income Fund was approximately $6,397,000. The
maximum amount of dollar rolls outstanding at any month-end during the six
months ended March 31, 1996 was $6,991,530 as of January 31, 1996 which was
10.8% of total assets. The amount of dollar rolls outstanding at March 31, 1996,
was $6,723,720, which was 10.2% of total assets.
B-122
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND (UNAUDITED)
Note 4. Joint Repurchase Agreement Account
The Company, along with other affiliated registered investment companies,
transfers uninvested cash balances into a single joint account, the daily
aggregate balance of which is invested in one or more repurchase agreements
collateralized by U.S. Treasury or federal agency obligations. At March 31,
1996, the Company had a 4.60% undivided interest, in the aggregate, in the
repurchase agreements in the joint account which represented $67,021,000 in
principal amount, in the aggregate, as follows:
<TABLE>
<CAPTION>
Percentage Principal
Company Interest Amount
- ---------------------------- ---------- -----------
<S> <C> <C>
Growth Stock Fund .28% $ 4,122,000
Stock Index Fund .41 5,929,000
International Stock Fund .77 11,189,000
Active Balanced Fund 1.64 23,888,000
Balanced Fund .71 10,344,000
Income Fund .79 11,549,000
</TABLE>
As of such date, each repurchase agreement in the joint account and the
collateral therefor was as follows:
Bear, Stearns & Co., Inc., 5.30%, in the principal amount of $387,000,000,
repurchase price $387,170,925, due 4/1/96. The value of the collateral including
accrued interest was $395,137,122.
CS First Boston Corp., 5.50%, in the principal amount of $150,000,000,
repurchase price $150,068,750, due 4/1/96. The value of the collateral including
accrued interest was $153,001,819.
Goldman Sachs & Co., 5.40%, in the principal amount of $463,000,000,
repurchase price $463,208,350, due 4/1/96. The value of the collateral including
accrued interest was $472,260,747.
Nomura Securities, Inc., 5.375%, in the principal amount of $100,000,000,
repurchase price $100,044,792, due 4/1/96. The value of the collateral including
accrued interest was $102,398,695.
Smith Barney, Inc., 5.284%, in the principal amount of $355,886,000,
repurchase price $356,042,708, due 4/1/96. The value of the collateral including
accrued interest was $363,004,234.
Note 5. Capital
Each Fund has authorized an unlimited number of shares of beneficial interest
at $.001 par value per share.
Transactions in shares of beneficial interest during the six months ended
March 31, 1996 and the year ended September 30, 1995 were as follows:
Six months ended March 31, 1996:
<TABLE>
<CAPTION>
Shares
Issued in
Reinvestment Increase
Shares of Dividends/ Shares in Shares
Fund Sold Distributions Redeemed Outstanding
- ---------------------- ---------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Growth Stock Fund 8,107,640 -- (4,805,656) 3,301,984
Stock Index Fund 3,893,782 467,712 (1,694,486) 2,667,008
International Stock
Fund 3,795,911 116,606 (2,601,769) 1,310,748
Active Balanced Fund 1,438,229 483,285 (1,283,160) 638,354
Balanced Fund 1,748,784 395,938 (784,163) 1,360,559
Income Fund 780,386 162,743 (400,473) 542,656
Money Market Fund 22,399,365 1,541,128 (22,064,387) 1,876,106
</TABLE>
Year ended September 30, 1995:
<TABLE>
<CAPTION>
Shares
Issued in
Reinvestment Increase
Shares of Dividends/ Shares in Shares
Fund Sold Distributions Redeemed Outstanding
- ----------------------- ---------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Growth Stock Fund 9,932,496 4,078 (5,248,506) 4,688,068
Stock Index Fund 4,340,797 107,238 (1,725,892) 2,722,143
International Stock
Fund 6,497,880 228,737 (4,691,305) 2,035,312
Active Balanced Fund 4,883,689 242,395 (1,856,069) 3,270,015
Balanced Fund 2,303,919 168,832 (1,702,980) 769,771
Income Fund 1,204,925 296,456 (675,384) 825,997
Money Market Fund 55,919,976 2,813,967 (47,010,598) 11,723,345
</TABLE>
B-123
<PAGE>
THE PRUDENTIAL NOTES TO
(LOGO) INSTITUTIONAL FINANCIAL STATEMENTS
FUND (UNAUDITED)
Of the shares outstanding at March 31, 1996, PIFM and affiliates owned the
following shares:
<TABLE>
<CAPTION>
Fund Shares
- -------------------------- ----------
<S> <C>
Growth Stock Fund 5,800,387
Stock Index Fund 4,642,203
International Stock Fund 5,647,337
Active Balanced Fund 2,485,468
Balanced Fund 3,883,087
Income Fund 2,975,746
Money Market Fund 28,544,777
</TABLE>
Note 6. Proposed Reorganization
On May 17, 1996, the Trustees of the Fund approved an Agreement and a Plan of
Reorganization (the ``Plan of Reorganization'') for the Fund. Under the Plan of
Reorganization, substantially all of the assets and liabilities of the Growth
Stock Fund, Balanced Fund, Income Fund and Money Market Fund will be transferred
at net asset value for equivalent value Class Z shares of Prudential Jennison
Fund, Inc., Prudential Allocation Fund (Balanced Portfolio), Prudential
Government Income Fund, Inc. and Prudential MoneyMart Assets, Inc.,
respectively. These Funds will then cease operations. Stock Index Fund and
Active Balanced Fund will remain with The Prudential Institutional Fund (to be
renamed the Prudential Dryden Fund) as Class Z shares. Active Balanced Fund will
begin offering Classes A, B and C shares and Stock Index Fund will offer Class A
shares. International Stock Fund will join the Prudential Global Fund as a
separate series of a newly named Prudential World Fund. The existing
shareholders will become Class Z shareholders and the Fund will also begin
offering Classes A, B and C shares. The successor funds will be managed by PMF,
PMFS will provide transfer agency services and Prudential Securities
Incorporated, a wholly-owned subsidiary of Prudential, will act as distributor.
The Plan of Reorganization requires the approval of shareholders of the Fund
to become effective. A proxy will be mailed to shareholders of the Fund for
shareholder meetings in the fall of 1996. If the Plan of Reorganization is
approved, it is expected that the reorganizations will take place shortly after
the meetings. All funds involved will share pro rata in the costs of the
reorganizations.
B-124
<PAGE>
APPENDIX
S&P RATINGS, MOODY'S AND DUFF & PHELPS RATINGS
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.
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 a 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 rate 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.
A-1
<PAGE>
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 market 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.
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 rate. 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.
A-2
<PAGE>
S&P COMMERCIAL PAPER RATINGS:
Commercial paper rate 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.
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.
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 factor 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-3
<PAGE>
APPENDIX I--HISTORICAL PERFORMANCE DATA
The historical performance data contained in this Appendix relies on data
obtained from statistical services, reports and other services believed by the
Manager to be reliable. The information has not been independently verified by
the Manager.
This chart shows the long-term performance of various asset classes and the
rate of inflation.
CAMERA READY GRAPH
Source: Prudential Investment Corporation based on data from Ibbotson
Associates' EnCORR Software, Chicago, Illinois. Used with permission. This chart
is for illustrative purposes only and is not indicative of the past, present, or
future performance of any portfolio.
Generally, stock returns are attributable to capital appreciation and the
reinvestment of distributions. Bond returns are attributable mainly to the
reinvestment of distributions. Also, stock prices are usually more volatile than
bond prices over the long-term.
Small stock returns for 1926-1989 are those of stocks comprising the 5th
quintile of the New York Stock Exchange. Thereafter, returns are those of the
Dimensional Fund Advisors (DFA) Small Company Fund. Common stock returns are
based on the S&P Composite Index, a market-weighted, unmanaged index of 500
stocks (currently) in a variety of industries. It is often used as a broad
measure of stock market performance.
Long-term government bond returns are represented by a portfolio that contains
only one bond with a maturity of roughly 20 years. At the beginning of each year
a new bond with a then-current coupon replaces the old bond. Treasury bill
returns are for a one-month bill. Treasuries are guaranteed by the government as
to the timely payment of principal and interest; equities are not. Inflation is
measured by the consumer price index (CPI).
Impact of Inflation. The "real" rate of investment return is that which exceeds
the rate of inflation, the percentage change in the value of consumer goods and
the general cost of living. A common goal of long-term investors is to outpace
the erosive impact of inflation on investment returns.
I-1
<PAGE>
Set forth below is historical performance data relating to various sectors
of the fixed-income securities markets. The chart shows the historical total
returns of U.S. Treasury bonds, U.S. mortgage securities, U.S. corporate bonds,
U.S. high yield bonds and world government bonds on an annual basis from 1987 to
December 1995. The total returns of the indices include accrued interest, plus
the price changes (gains or losses) of the underlying securities during the
period mentioned. The data is provided to illustrate the varying historical
total returns and investors should not consider this performance data as an
indication of the future performance of the Series or of any sector in which the
Series invests.
All information relies on data obtained from statistical services, reports
and other services believed by the Manager to be reliable. Such information has
not been verified. The figures do not reflect the operating expenses and fees of
a mutual fund. See "Fund Expenses" in the prospectus. The net effect of the
deduction of the operating expenses of a mutual fund on these historical total
returns, including the compounded effect over time, could be substantial.
[Chart]
HISTORICAL TOTAL RETURNS OF DIFFERENT BOND MARKET SECTORS
<TABLE>
<CAPTION>
YEAR '87 '88 '89 '90 '91 '92 '93 '94 '95
- ---- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. TREASURY BONDS 2.0% 7.0% 14.4% 8.5% 15.3% 7.2% 10.7% -3.4% 18.4%
MORTGAGE SECURITIES 4.3% 8.7% 15.4% 10.7% 15.7% 7.0% 6.8% -1.6% 16.8%
U.S. CORPORATE BONDS 2.6% 9.2% 14.1% 7.1% 18.5% 8.7% 12.2% -3.9% 22.3%
U.S. HIGH YIELD CORPORATE BONDS 5.0% 12.5% 0.8% -9.6% 46.2% 15.8% 17.1% -1.0% 19.2%
WORLD GOVERNMENT BONDS 35.2% 2.3% -3.4% 15.3% 16.2% 4.8% 15.1% 6.0% 19.6%
DIFFERENCE BETWEEN HIGHEST AND LOWEST
RETURN IN PERCENT 33.2 10.2 18.8 24.9 30.9 11.0 10.3 9.9 5.5
</TABLE>
1 LEHMAN BROTHERS TREASURY BOND INDEX is an unmanaged index made up of over 150
public issues of the U.S. Treasury having maturities of at least one year.
2 LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX is an unmanaged index that
includes over 600 15- and 30-year fixed-rate mortgage-backed securities of the
Government National Mortgage Association (GNMA), Federal National Mortgage
Association (FNMA), and the Federal Home Loan Mortgage Corporation (FHLMC).
3 LEHMAN BROTHERS CORPORATE BOND INDEX includes over 3,000 public fixed-rate,
nonconvertible investment-grade bonds. All bonds are U.S. dollar-denominated
issues and include debt issued or guaranteed by foreign sovereign governments,
municipalities, governmental agencies or international agencies. All bonds in
the index have maturities of at least one year.
4 LEHMAN BROTHERS HIGH YIELD BOND INDEX is an unmanaged index comprising over
750 public, fixed-rate, nonconvertible bonds that are rated Ba1 or lower by
Moody's Investors Service (or rated BB+ or lower by Standard & Poor's or Fitch
Investors Service). All bonds in the index have maturities of at least one year.
5 SALOMON BROTHERS WORLD GOVERNMENT INDEX (NON U.S.) includes over 800 bonds
issued by various foreign governments or agencies, excluding those in the U.S.,
but including those in Japan, Germany, France, the U.K., Canada, Italy,
Australia, Belgium, Denmark, the Netherlands, Spain, Sweden, and Austria. All
bonds in the index have maturities of at least one year.
I-2
<PAGE>
This chart illustrates the performance of major world stock markets for the
period from 1986 through 1995. It does not represent the performance of any
Prudential Mutual Fund.
[Chart]
HONG KONG 23.8%
BELGIUM 20.7%
SWEDEN 19.4%
NETHERLAND 19.3%
SPAIN 17.9%
SWITZERLAND 17.1%
FRANCE 15.3%
U.K. 15.0%
U.S. 14.8%
JAPAN 12.8%
AUSTRIA 10.9%
GERMANY 10.7%
Source: Morgan Stanley Capital International (MSCI) Used with permission. Morgan
Stanley Country indices are unmanaged indices which include those stocks making
up the largest two-thirds of each country's total stock market capitalization.
Returns reflect the reinvestment of all distributions. This chart is for
illustrative purposes only and is not indicative of the past, present or future
performance of any specific investment. Investors cannot invest directly in
stock indices.
This chart shows the growth of a hypothetical $10,000 investment made in the
stock representing the S&P 500 stock index with and without reinvested
dividends.
[Chart]
CAPITAL APPRECIATION
AND REINVESTING
DIVIDENDS $188,208
CAPITAL APPRECIATION
ONLY $ 66,913
Source: Stocks, Bonds, Bills and Inflation 1995 Yearbook, Ibbotson Associates,
Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield).
Used with permission. All rights reserved. This chart is used for illustrative
purposes only and is not intended to represent the past, present or future
performance of any Prudential Mutual Fund. Common stock total return is based on
the Standard & Poor's 500 Stock Index, a market-value-weighted index made up of
500 of the largest stocks in the U.S. based upon their stock market value.
Investors cannot invest directly in indices.
[Chart]
WORLD STOCK MARKET BY REGION
World Total: $9.2 trillion
CANADA 2.2%
EUROPE 28.3%
U.S. 40.8%
PACIFIC BASIN 28.7%
Source: Morgan Stanley Capital International, December 1995. Used with
permission. This chart represents the capitalization of major world stock
markets as measured by the Morgan Stanley Capital International (MSCI) World
Index. The total market capitalization is based on the value of 1579 companies
in 22 countries (representing approximately 60% of the aggregate market value of
the stock exchanges). This chart is for illustrative purposes only and does not
represent the allocation of any Prudential Mutual Fund.
I-3
<PAGE>
This chart below shows the historical volatility of general interest rates
as measured by the long U.S. Treasury Bond.
LONG U.S. TREASURY BOND YIELD IN PERCENT (1926-1995)
(CHART)
- -----------
Source: Stocks, Bonds, Bills, and Inflation 1995 Yearbook, Ibbotson Associates,
Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield).
Used with permission. All rights reserved. The chart illustrates the historical
yield of the long-term U.S. Treasury Bond from 1926-1994. Yields represent that
of an annually renewed one-bond portfolio with a remaining maturity of
approximately 20 years. This chart is for illustrative purposes and should not
be construed to represent the yields of any Prudential Mutual Fund.
The following chart, although not relevant to share ownership in the Fund,
may provide useful information about the effects of a hypothetical investment
diversified over different asset portfolios. The chart shows the range of annual
total returns for major stock and bond indices for the period from December 31,
1975 through December 31, 1995. The horizontal "Best Returns Zone" band shows
that a hypothetical blended portfolio constructed of one-third U.S. stocks (S&P
500), one-third foreign stocks (EAFE Index), and one-third U.S. bonds (Lehman
Index) would have eliminated the "highest highs" and "lowest lows" of any single
asset class.
(CHART)
- -------------
*Source: Prudential Investment Corporation based on data from Lipper Analytical
New Application (LANA). Past performance is not indicative of future results.
The S&P 500 Index is a weighted, unmanaged index comprised of 500 stocks which
provides a broad indication of stock price movements. The Morgan Stanley EAFE
Index is an unmanaged index comprised of 20 overseas stock markets in Europe,
Australia, New Zealand and the Far East. The Lehman Aggregate Index includes all
publicly-issued investment grade debt with maturities over one year, including
U.S. government and agency issues, 15 and 30 year fixed-rate government agency
mortgage securities, dollar denominated SEC registered corporate and government
securities, as well as asset-backed securities. Investors cannot invest directly
in stock or bond market indices.
I-4
<PAGE>
APPENDIX II--GENERAL INVESTMENT INFORMATION
The following terms are used in mutual fund investing.
ASSET ALLOCATION
Asset allocation is a technique for reducing risk, providing balance. Asset
allocation among different types of securities within an overall investment
portfolio helps to reduce risk and to potentially provide stable returns, while
enabling investors to work toward their financial goal(s). Asset allocation is
also a strategy to gain exposure to better performing asset classes while
maintaining investment in other asset classes.
DIVERSIFICATION
Diversification is a time-honored technique for reducing risk, providing
"balance" to an overall portfolio and potentially achieving more stable returns.
Owning a portfolio of securities mitigates the individual risks (and returns) of
any one security. Additionally, diversification among types of securities
reduces the risks and (general returns) of any one type of security.
DURATION
Debt securities have varying levels of sensitivity to interest rates. As
interest rates fluctuate, the value of a bond (or a bond portfolio) will
increase or decrease. Longer term bonds are generally more sensitive to changes
in interest rates. When interest rates fall, bond prices generally rise.
Conversely, when interest rates rise, bond prices generally fall.
Duration is an approximation of the price sensitivity of a bond (or a bond
portfolio) to interest rate changes. It measures the weighted average maturity
of a bond's (or a bond portfolio's) cash flows, i.e., principal and interest
rate payments. Duration is expressed as a measure of time in years--the longer
the duration of a bond (or a bond portfolio), the greater the impact of interest
rate changes on the bond's (or the bond portfolio's) price. Duration differs
from effective maturity in that duration takes into account call provisions,
coupon rates and other factors. Duration measures interest rate risk only and
not other risks, such as credit risk and, in the case of non-U.S. dollar
denominated securities, currency risk. Effective maturity measures the final
maturity dates of a bond (or a bond portfolio).
MARKET TIMING
Market timing--buying securities when prices are low and selling them when
prices are relatively higher--may not work for many investors because it is
impossible to predict with certainty how the price of a security will fluctuate.
However, owning a security for a long period of time may help investors offset
short-term price volatility and realize positive returns.
POWER OF COMPOUNDING
Over time, the compounding of returns can significantly impact investment
returns. Compounding is the effect of continuous investment on long-term
investment results, by which the proceeds of capital appreciation (and income
distributions, if elected) are reinvested to contribute to the overall growth of
assets. The long-term investment results of compounding may be greater than that
of an equivalent initial investment in which the proceeds of capital
appreciation and income distributions are taken in cash.
II-1
<PAGE>
APPENDIX III--INFORMATION RELATING TO THE PRUDENTIAL
Set forth below is information relating to The Prudential Insurance Company
of America (Prudential) and its subsidiaries as well as information relating to
the Prudential Mutual Funds. See "Management of the Fund--Manager" in the
Prospectus. The data will be used in sales materials relating to the Prudential
Mutual Funds. Unless otherwise indicated, the information is as of December 31,
1995 and is subject to change thereafter. All information relies on data
provided by The Prudential Investment Corporation (PIC) or from other sources
believed by the Manager to be reliable. Such information has not been verified
by the Fund.
INFORMATION ABOUT PRUDENTIAL
The Manager and PIC(1) are subsidiaries of Prudential, which is one of the
largest diversified financial services institutions in the world and, based on
total assets, the largest insurance company in North America as of December 31,
1995. Its primary business is to offer a full range of products and services in
three areas: insurance, investments and home ownership for individuals and
families; health-care management and other benefit programs for employees of
companies and members of groups; and asset management for institutional clients
and their associates. Prudential (together with its subsidiaries) employs more
than 92,000 persons worldwide, and maintains a sales force of approximately
13,000 agents and 5,600 financial advisors. Prudential is a major issuer of
annuities, including variable annuities. Prudential seeks to develop innovative
products and services to meet consumer needs in each of its business areas.
Prudential uses the Rock of Gibraltar as its symbol. The Prudential rock is a
recognized brand name throughout the world.
Insurance. Prudential has been engaged in the insurance business since
1875. It insures or provides financial services to more than 50 million people
worldwide--one of every five people in the United States. Long one of the
largest issuers of individual life insurance, the Prudential has 19 million life
insurance policies in force today with a face value of $1 trillion. Prudential
has the largest capital base ($11.4 billion) of any life insurance company in
the United States. The Prudential provides auto insurance for more than 1.7
million cars and insures more than 1.4 million homes.
Money Management. The Prudential is one of the largest pension fund
managers in the country, providing pension services to 1 in 3 Fortune 500 firms.
It manages $36 billion of individual retirement plan assets, such as 401(k)
plans. In July 1996, Institutional Investor ranked Prudential the fifth largest
institutional money manager of the 300 largest money management organizations in
the United States as of December 31, 1995. As of December 31, 1995, Prudential
had more than $314 billion in assets under management. Prudential's Money
Management Group (of which Prudential Mutual Funds is a key part) manages over
$190 billion in assets of institutions and individuals.
Real Estate. The Prudential Real Estate Affiliates, the fourth largest real
estate brokerage network in the United States, has more than 34,000 brokers and
agents and more than 1,100 offices in the United States.(2)
Healthcare. Over two decades ago, the Prudential introduced the first
federally-funded, for-profit HMO in the country. Today, almost 5 million
Americans receive healthcare from a Prudential managed care membership.
Financial Services. The Prudential Bank, a wholly-owned subsidiary of the
Prudential, has nearly $3 billion in assets and serves nearly 1.5 million
customers across 50 states.
INFORMATION ABOUT THE PRUDENTIAL MUTUAL FUNDS
Prudential Mutual Fund Management is one of the sixteenth largest mutual
fund companies in the country, with over 2.5 million shareholders invested in
more than 50 mutual fund portfolios and variable annuities with more than 3.7
million shareholder accounts.
The Prudential Mutual Funds have over 30 portfolio managers who manage over
$55 billion in mutual fund and variable annuity assets. Some of Prudential's
portfolio managers have over 20 years of experience managing investment
portfolios.
From time to time, there may be media coverage of portfolio managers and
other investment professionals associated with the Manager and the Subadviser in
national and regional publications, on television and in other media.
Additionally, individual mutual fund portfolios are frequently cited in surveys
conducted by national and regional publications and media organizations such as
The Wall Street Journal, The New York Times, Barron's and USA Today.
- -------------
(1) Prudential Mutual Fund Investment Management, a unit of PIC, serves as the
Subadviser to substantially all of the Prudential Mutual Funds. Wellington
Management Company serves as the subadviser to Global Utility Fund, Inc.,
Nicholas-Applegate Capital Management as subadviser to Nicholas-Applegate
Fund, Inc., Jennison Associates Capital Corp. as the subadviser to
Prudential Jennison Series Fund, Inc. and BlackRock Financial Management,
Inc. as subadviser to The BlackRock Government Income Trust. There are
multiple subadvisers for The Target Portfolio Trust.
(2) As of December 31, 1994.
III-1
<PAGE>
Equity Funds. Forbes magazine listed Prudential Equity Fund among twenty
mutual funds on its Honor Roll in its mutual fund issue of August 28, 1995.
Honorees are chosen annually among mutual funds (excluding sector funds) which
are open to new investors and have had the same management for at least five
years. Forbes considers, among other criteria, the total return of a mutual fund
in both bull and bear markets as well as a fund's risk profile. Prudential
Equity Fund is managed with a "value" investment style by PIC. In 1995,
Prudential Securities introduced Prudential Jennison Growth Fund, a growth-style
equity fund managed by Jennison Associates Capital Corp., a premier
institutional equity manager and a subsidiary of Prudential.
High Yield Funds. Investing in high yield bonds is a complex and research
intensive pursuit. A separate team of high yield bond analysts monitor the 167
issues held in the Prudential High Yield Fund (currently the largest fund of its
kind in the country) along with 100 or so other high yield bonds, which may be
considered for purchase(3). Non-investment grade bonds, also known as junk bonds
or high yield bonds, are subject to a greater risk of loss of principal and
interest including default risk than higher-rated bonds. Prudential high yield
portfolio managers and analysts meet face-to-face with almost every bond issuer
in the High Yield Fund's portfolio annually, and have additional telephone
contact throughout the year.
Prudential's portfolio managers are supported by a large and sophisticated
research organization. Fourteen investment grade bond analysts monitor the
financial viability of approximately 1,750 different bond issuers in the
investment grade corporate and municipal bond markets--from IBM to small
municipalities, such as Rockaway Township, New Jersey. These analysts consider
among other things sinking fund provisions and interest coverage ratios.
Prudential's portfolio managers and analysts receive research services from
almost 200 brokers and market service vendors. They also receive nearly 100
trade publications and newspapers--from Pulp and Paper Forecaster to Women's
Wear Daily--to keep them informed of the industries they follow.
Prudential Mutual Funds' traders scan over 100 computer monitors to collect
detailed information on which to trade. From natural gas prices in the Rocky
Mountains to the results of local municipal elections, a Prudential portfolio
manager or trader is able to monitor it if it's important to a Prudential mutual
fund.
Prudential Mutual Funds trade approximately $31 billion in U.S. and foreign
government securities a year. PIC seeks information from government policy
makers. In 1995, Prudential's portfolio managers met with several senior U.S.
and foreign government officials, on issues ranging from economic conditions in
foreign countries to the viability of index-linked securities in the United
States.
Prudential Mutual Funds' portfolio managers and analysts met with over
1,200 companies in 1995, often with the Chief Executive Officer (CEO) or Chief
Financial Officer (CFO). They also attended over 250 industry conferences.
Prudential Mutual Fund global equity managers conducted many of their
visits overseas, often holding private meetings with a company in a foreign
language (our global equity managers speak 7 different languages, including
Mandarin Chinese).
Trading Data(4). On an average day, Prudential Mutual Funds' U.S. and
foreign equity trading desks traded $77 million in securities representing over
3.8 million shares with nearly 200 different firms. Prudential Mutual Funds'
bond trading desks traded $157 million in government and corporate bonds on an
average day. That represents more in daily trading than most bond funds tracked
by Lipper even have in assets(5). Prudential Mutual Funds' money market desk
traded $3.2 billion in money market securities on an average day, or over $800
billion a year. They made a trade every 3 minutes of every trading day. In 1994,
the Prudential Mutual Funds effected more than 40,000 trades in money market
securities and held on average $20 billion of money market securities(6).
Based on complex-wide data, on an average day, over 7,250 shareholders
telephoned Prudential Mutual Fund Services, Inc., the Transfer Agent of the
Prudential Mutual Funds, on the Prudential Mutual Funds' toll-free number. On an
annual basis, that represents approximately 1.8 million telephone calls
answered.
- -------------
(3) As of December 31, 1995. The number of bonds and the size of the Fund are
subject to change.
(4) Trading data represents average daily transactions for portfolios of the
Prudential Mutual Funds for which PIC serves as the subadviser, portfolios
of the Prudential Series Fund and institutional and non-US accounts managed
by Prudential Mutual Fund Investment Management, a division of PIC, for the
year ended December 31, 1995.
(5) Based on 669 funds in Lipper Analytical Services categories of Short U.S.
Treasury, Short U.S. Government, Intermediate U.S. Treasury, Intermediate
U.S. Government, Short Investment Grade Debt, Intermediate Investment Grade
Debt, General U.S. Treasury, General U.S. Government and Mortgage funds.
(6) As of December 31, 1994.
III-2
<PAGE>
INFORMATION ABOUT PRUDENTIAL SECURITIES
Prudential Securities is the fifth largest retail brokerage firm in the
United States with approximately 5,600 financial advisors. It offers to its
clients a wide range of products, including Prudential Mutual Funds and
annuities. As of December 31, 1995, assets held by Prudential Securities for its
clients approximated $168 billion. During 1994, over 28,000 new customer
accounts were opened each month at PSI(7).
Prudential Securities has a two-year Financial Advisor training program
plus advanced education programs, including Prudential Securities "university,"
which provides advanced education in a wide array of investment areas.
Prudential Securities is the only Wall Street firm to have its own in-house
Certified Financial Planner (CFP) program. In the December 1995 issue of
Registered Rep, an industry publication, Prudential Securities' Financial
Advisor training programs received a grade of A- (compared to an industry
average of B+).
In 1995, Prudential Securities' equity research team ranked 8th in
Institutional Investor magazine's 1995 "All America Research Team" survey. Five
Prudential Securities' analysts were ranked as first-team finishers(8).
In addition to training, Prudential Securities provides its financial
advisors with access to firm economists and market analysts. It has also
developed proprietary tools for use by financial advisors, including the
Financial ArchitectSM, a state-of-the-art asset allocation software program
which helps Financial Advisors to evaluate a client's objectives and overall
financial plan, and a comprehensive mutual fund information and analysis system
that compares different mutual funds.
For more complete information about any of the Prudential Mutual Funds,
including charges and expenses, call your Prudential Securities financial
adviser or Pruco/Prudential representative for a free prospectus. Read it
carefully before you invest or send money.
- -------------
(7) As of December 31, 1994.
(8) On an annual basis, Institutional Investor magazine surveys more than 700
institutional money managers, chief investment officers and research
directors, asking them to evaluate analysts in 76 industry sectors. Scores
are produced by taking the number of votes awarded to an individual analyst
and weighting them based on the size of the voting institution. In total,
the magazine sends its survey to approximately 2,000 institutions and a
group of European and Asian institutions.
III-3
<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 and for the six-months
ended March 31, 1996 (unaudited).*
Statement of Assets and Liabilities at September 30, 1995 and for the
six-months ended March 31, 1996 (unaudited).*
Statement of Operations for the year ended September 30, 1995 and for
the six-months ended March 31, 1996 (unaudited).*
Statements of Changes in Net Assets for the years ended September 30,
1995 and 1994 and for the six-months ended March 31, 1996
(unaudited).*
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) Form of Second Amendment to Certificate of Trust of the
Registrant.*
(d) 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).
(e) 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).
(f) Form of Second Amendment to Declaration of Trust of the
Registrant.*
2. By-Laws of the Registrant as revised and restated October 5,
1992. Incorporated by reference as Exhibit 2 to Pre-Effective
Amendment No. 2 to the Registration Statement on Form N-1A filed
on October 30, 1992 (File No. 33-48066).
3. Not Applicable.
4. Instruments defining rights of shareholders.
5. (a) Management Agreement between the Registrant and Prudential
Institutional Fund Management, Inc. Incorporated by reference as
Exhibit 5(a) to Post-Effective Amendment No. 2 to the
Registration Statement on Form N1-A filed on May 4, 1993 (File
No. 33-48066).
(b) (i) Subadvisory Agreement between Prudential Institutional
Fund Management, Inc. and The Prudential Investment Corporation.
Incorporated by reference as Exhibit 5(b)(i) to Post-Effective
Amendment No. 2 to the Registration Statement on Form N1-A filed
on May 4, 1993 (File No. 33-48066).
C-1
<PAGE>
(ii) Cash Management Subadvisory Agreement between Prudential
Institutional Fund Management, Inc. and The Prudential Investment
Corporation. Incorporated by reference as Exhibit 5(b)(ii) to
Post-Effective Amendment No. 2 to the Registration Statement on
Form N1-A filed on May 4, 1993 (File No. 33-48066).
(c) Subadvisory Agreement between Prudential Institutional Fund
Management, Inc. and Jennison Associates Capital Corp.
Incorporated by reference as Exhibit 5(c) to Post-Effective
Amendment No. 2 to the Registration Statement on Form N-1A filed
on May 4, 1993 (File No. 33-48066).
(d) Subadvisory Agreement between Prudential Institutional Fund
Management, Inc. and Mercator Asset Management, L.P.*
(e) Form of Management Agreement.*
(f)(i) Form of Subadvisory Agreement between Prudential Mutual
Fund Management LLC and The Prudential Investment Corporation.*
(ii) Form of Cash Management Agreement between Prudential Mutual
Fund Management LLC and The Prudential Investment Corporation.*
(g) Form of Subadvisory Agreement between Prudential Mutual Fund
Management LLC and Jennison Associates Capital Corp.*
6. (a) 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).
(b) Form of Distribution Agreement.*
7. Not Applicable.
8. Custodian Agreement between the Registrant and State Street Bank
and Trust Company. Incorporated by reference as Exhibit 8 to
Post-Effective Amendment No. 2 to the Registration Statement on
Form N-1A filed on May 4, 1993 (File No. 33-48066).
9. (a) Amended Administration, Transfer Agency and Service Agreement
between the Registrant and Prudential Mutual Fund Management,
Inc. Incorporated by reference as Exhibit 9(a) to Post-Effective
Amendment No. 3 to the Registration Statement on Form N-1A filed
via EDGAR on January 19, 1994 (File No. 33-48066).
(b) Transfer Agency and Service Agreement between Prudential
Mutual Fund Management, Inc. and Prudential Mutual Fund Services,
Inc. Incorporated by reference as Exhibit 9(b) to Post-Effective
Amendment No. 2 to the Registration Statement on Form N-1A filed
on May 4, 1993 (File No. 33-48066).
(c) Form of Transfer Agency and Service Agreement.*
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.
C-2
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of September 30, 1996 there were 3654 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.
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 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.
C-3
<PAGE>
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
(a) Prudential 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 the officers of PMF are listed in
Schedules A and D of Form ADV of PMF as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-31104, filed on November 13, 1987).
The business and other connections of PMF's directors and principal
executive officers are set forth below. Except as otherwise indicated, the
address of each person is One Seaport Plaza, New York, NY 10292.
<TABLE>
<CAPTION>
Name and Address Position with PMF Principal Occupations
- ---------------- ----------------- ---------------------
<S> <C> <C>
Stephen P. Fisher Senior Vice President Senior Vice President, PMF; Senior Vice President,
Prudential Securities; Vice President, Prudential Mutual
Fund Distributors, Inc. (PMFD)
Frank W. Giordano Executive Vice Executive Vice President, General Counsel, Secretary and
President, General Director, PMF and PMFD; Senior Vice President, Prudential
Counsel, Secretary and Securities; Director, Prudential Mutual Fund Services, Inc.
Director (PMFS)
Robert F. Gunia Executive Vice Executive Vice President, Chief Financial and
President, Chief Administrative Officer, Treasurer and Director, PMF; Senior
Financial and Vice President, Prudential Securities; Executive Vice
Administrative Officer, President, Chief Financial Officer, Treasurer and Director,
Treasurer and Director PMFD; Director, PMFS
Theresa A. Hamacher Director Director, PMF; Vice President, Prudential; Director and
Prudential Plaza Chief Executive Officer, Prudential Investment Corporation
Newark, NJ 07102 (PIC)
Timothy J. O'Brien Director President, Chief Executive Officer, Chief Operating Officer
Raritan Plaza One and Director, PMFD; Chief Executive Officer and Director,
Edison, NJ 08837 PMFS; Director, PMF
Richard A. Redeker President, Chief President, Chief Executive Officer and Director, PMF;
Executive Officer and Executive Vice President, Director and Member of Operating
Director Committee, Prudential Securities; Director, Prudential
Securities Group, Inc. (PSG); Executive Vice President,
PIC; Director, PMFD; Director, PMFS*
S. Jane Rose Senior Vice President, Senior Vice President, Senior Counsel and Assistant
Senior Counsel and Secretary, PMF; Senior Vice President and Senior Counsel,
Assistant Secretary Prudential Securities
</TABLE>
- ------------
* Mr. Redeker has resigned as President and Chief Executive Officer and
Director of PMF effective on or before December 31, 1996. Although he will
no longer oversee the operations of PMF on a day-to-day basis, it is
anticipated that Mr. Redeker will remain associated with PMF and
Prudential.
(b) The Prudential Investment Corporation (PIC)
See Management of the Company in the Prospectus constituting Part A of this
Registration Statement and Management of the Company in the Statement of
Additional Information constituting Part B of this Registration Statement.
C-4
<PAGE>
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.
<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
E. Michael Caulfield Chairman of the Board, Chief Executive Officer of The Money Management Group of
President and Chief Prudential
Executive Officer and
Director
Jonathan M. Greene Senior Vice President and President--Investment Management of The Money Management
Director Group of Prudential
Theresa A. Hamacher Vice President Vice President, Prudential; Vice President, PIC; Director,
PMF; President PMFIM;
Richard A. Redeker Executive Vice President President, Chief Executive Officer and Director, PMF;
One Seaport Plaza Executive Vice President, Director and Member of Operating
New York, NY 10292 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>
- -------------
* Mr. Redeker has resigned as President and Chief Executive Officer and
Director of PMF effective on or before December 31, 1996. Although he will
no longer oversee the operations of PMF on a day-to-day basis, it is
anticipated that Mr. Redeker will remain associated with PMF and
Prudential.
(c) Jennison Associates Capital Corp.
See Management of the Company in the Prospectus constituting Part A of this
Registration Statement and Management of the Company in the Statement of
Additional Information constituting Part B of this Registration Statement.
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.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Prudential Securities Incorporated
Prudential Securities incorporated is distributor for The BlackRock
Government Income Trust, Command Government Fund, Command Money Fund, Command
Tax-Free Fund, The Global Government Plus Fund, Inc., The Global Return Fund,
Inc., Global Utility Fund, Inc., Nicholas-Applegate Fund, Inc.
(Nicholas-Applegate Growth Equity Fund), Prudential Allocation Fund, Prudential
California Municipal Fund, Prudential Diversified Bond Fund, Inc., Prudential
Distressed Securities Fund, Inc., Prudential Equity Fund, Inc., Prudential
Equity Income Fund, Prudential Europe Growth Fund, Inc., Prudential Global
Genesis Fund, Inc., Prudential Global Limited Maturity Fund, Inc., Prudential
Government Income Fund, Inc., Prudential Government Securities Trust
(Short-Intermediate Term Series, Money Market Series U.S. Treasury Money Market
Series), Prudential High Yield Fund, Inc., Prudential Institutional Liquidity
Portfolio, Inc., Prudential Intermediate Global Income Fund, Inc., Prudential
Jennison Fund, Inc., Prudential MoneyMart Assets, Inc., Prudential Mortgage
Income Fund, Inc., Prudential Multi-Sector Fund, Inc., Prudential Municipal Bond
Fund, Prudential Municipal Series Fund, Prudential National Municipals Fund,
Inc., Prudential Natural Resources Fund, Inc., Prudential Pacific Growth Fund,
Inc., Prudential Small Companies Fund, Inc., Prudential Special Money Market
Fund, Prudential Structured Maturity Fund, Inc., Prudential Tax-Free Money Fund,
Inc., Prudential Utility
C-5
<PAGE>
Fund, Inc., Prudential World Fund, Inc. and The Target Portfolio Trust.
Prudential Securities is also a depositor for the following unit investment
trusts:
The Corporate Investment Trust Fund
Prudential Equity Trust Shares
National Equity Trust
Prudential Unit Trusts
Government Securities Equity Trust
National Municipal Trust
(b) Information concerning directors and officers of Prudential Securities
Incorporated is set forth below.
Positions and Positions and
Offices with Offices with
Name(1) Underwriter Registrant
------- ------------- -------------
Robert Golden ....... Executive Vice President and Director None
Alan D. Hogan ....... Executive Vice President and Director None
George A. Murray .... Executive Vice President and Director None
Leland B. Paton ..... Executive Vice President and Director None
One New York Plaza
New York, NY
Martin Pfinsgraff ... Executive Vice President, Chief None
Financial Officer and Director
Vincent T. Pica, II . Executive Vice President and Director None
One New York Plaza
New York, NY
Richard A. Redeker .. Executive Vice President and Director None
Hardwick Simmons .... Chief Executive Officer, President and None
Director
Lee B. Spencer, Jr. . Executive Vice President, Secretary None
General Counsel, and Director
- -----------
(1) The address of each person named is One Seaport Plaza, New York, NY
10292 unless otherwise indicated.
(c) Registrant has no principal underwriter who is not an affiliated person
of the Registrant.
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, LLC, 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 Prudential Stock Index Fund,
and 466 Lexington Avenue, New York, New York 10017, for Prudential Active
Balanced 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-6
<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
has duly caused this Post-Effective Amendment No. 5 to the Registration
Statement on Form N-1A 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 10th
day of October, 1996.
THE PRUDENTIAL INSTITUTIONAL FUND
By /s/ MARK R. FETTING
--------------------------------
Mark R. Fetting, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 6 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ EUGENE S. STARK Treasurer and Principal October 10, 1996
- ------------------------------- Financial and Accounting
Eugene S. Stark Officer
/s/ MARK R. FETTING President and Trustee October 10, 1996
- -------------------------------
Mark R. Fetting
/s/ DAVID A. FINLEY Trustee October 10, 1996
- -------------------------------
David A. Finley
/s/ WILLIAM E. FRUHAN, JR. Trustee October 10, 1996
- -------------------------------
Prof. William E. Fruhan, Jr.
/s/ AUGUST G. OLSEN Trustee October 10, 1996
- -------------------------------
August G. Olsen
/s/ HERBERT G. STOLZER Trustee October 10, 1996
- -------------------------------
Herbert G. Stolzer
C-7
<PAGE>
INDEX TO EXHIBITS
Sequentially
Numbered
Exhibit No. Description Page
- ------------ ----------- ----
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) Form of Second Amendment to Certificate of Trust of the
Registrant.*
(d) 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).
(e) 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).
(f) Form of Second Amendment to Declaration of Trust.*
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.
(e) Form of Management Agreement.*
(f)(i) Form of Subadvisory Agreement between Prudential Mutual Fund
Management, LLC and The Prudential Investment Corporation.*
(ii) Form of Cash Management Agreement between Prudential Mutual
Fund Management, LLC and The Prudential Investment Corporation.*
(g) Form of Subadvisory Agreement between Prudential Mutual Fund
Management, LLC and Jennison Associates Capital Corp.*
6. (a) 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).
(b) Form of Distribution Agreement.*
<PAGE>
Sequentially
Numbered
Exhibit No. Description Page
- ------------ ----------- ----
7. Not Applicable.
8. Custodian Agreement between the Registrant and State Street Bank
and Trust Company. Incorporated by reference as Exhibit 8 to
Post-Effective Amendment No. 2 to the Registration Statement on Form
N-1A filed on May 4, 1993 (File No. 33-48066).
9. (a) Amended Administration, Transfer Agency and Service Agreement
between the Registrant and Prudential Mutual Fund Management, Inc.
Incorporated by reference as Exhibit 9(a) to Post-Effective Amendment
No. 3 to the Registration Statement on Form N-1A filed via EDGAR on
January 19, 1994 (File No. 33-48066).
(b) Transfer Agency and Service Agreement between Prudential Mutual
Fund Management, Inc. and Prudential Mutual Fund Services, Inc.
Incorporated by reference as Exhibit 9(b) to Post-Effective Amendment
No. 2 to the Registration Statement on Form N-1A filed on May 4, 1993
(File No. 33-48066).
(c) Form of Transfer Agency and Service Agreement.*
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.
SECOND AMENDMENT
TO
CERTIFICATE OF TRUST
OF
THE PRUDENTIAL INSTITUTIONAL FUND
This Second Amendment to the Certificate of Trust (the "Certificate") of
The Prudential Institutional Fund (the "Business Trust") is being executed as of
October , 1996, for the purpose of amending the terms of the Certificate, as
originally filed in the Office of the Secretary of the State of Delaware on May
11, 1992, to reflect the change in current paragraph FIRST giving the name of
the Business Trust.
NOW, THEREFORE, the undersigned do hereby certify as follows:
1. The Certificate is hereby amended by changing current paragraph
FIRST as follows:
"FIRST: The name of the Business Trust is Prudential Dryden
Fund."
2. This Second Amendment to the Certificate shall become effective on
October 30, 1996.
3. Except as amended pursuant to the foregoing paragraph, the
Certificate is hereby ratified and confirmed in all respects.
<PAGE>
IN WITNESS WHEREOF, the undersigned, being the Trustees of the Business
Trust, have duly executed this Amendment to the Certificate as of the day and
year first above written.
TRUSTEES
-----------------------------
Mark R. Fetting
-----------------------------
David A. Finley
-----------------------------
William E. Fruhan, Jr.
-----------------------------
August G. Olsen
-----------------------------
Herbert G. Stolzer
2
SECOND AMENDMENT
TO
AGREEMENT AND DECLARATION OF TRUST
OF
THE PRUDENTIAL INSTITUTIONAL FUND
This Second Amendment to the Agreement and Declaration of Trust (the
"Declaration of Trust") of The Prudential Institutional Fund (the "Trust") is
being executed as of October __, 1996, for the purpose of changing the name of
the Trust as reflected in Article I of the Declaration of Trust.
NOW, THEREFORE, the undersigned do hereby direct that the Declaration of
Trust be amended as follows:
1. Section 1 of Article I of the Declaration of Trust is hereby
amended by substituting the name "Prudential Dryden Fund" for the name "The
Prudential Institutional Fund" in the second line thereof.
2. This Second Amendment to the Declaration of Trust shall become
effective on October 30, 1996.
3. Except as amended pursuant to the foregoing paragraph, the
Declaration of Trust is hereby ratified and confirmed in all respects.
A-1
<PAGE>
IN WITNESS WHEREOF, the undersigned, being the Trustees of the Trust, have
duly executed this Second Amendment to the Declaration of Trust as of the day
and year first above written.
------------------------------------
Mark R. Fetting
Trustee
------------------------------------
David A. Finley
Trustee
------------------------------------
William E. Fruhan, Jr.
Trustee
------------------------------------
August G. Olsen
Trustee
------------------------------------
Herbert G. Stolzer
Trustee
A-2
EXHIBIT 99.5(e)
PRUDENTIAL DRYDEN FUND
(formerly The Prudential Institutional Fund)
MANAGEMENT AGREEMENT
Agreement, made this _____ day of ______________, 1996 between Prudential
Dryden Fund, a Delaware business trust (the Trust), and Prudential Mutual Fund
Management LLC, a limited liability company (the Manager).
W I T N E S S E T H
WHEREAS, the Trust is a diversified, open-end management investment company
registered under the Investment Company Act of 1940, as amended (the 1940 Act);
WHEREAS, the shares of beneficial interest of the Trust are divided into
separate series or funds (each a Fund), 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 Funds or establish and terminate additional Funds; and
WHEREAS, the Trust desires to retain the Manager to render or contract to
obtain as hereinafter provided investment advisory services to the Trust, and
the Manager is willing to render such investment advisory services;
<PAGE>
NOW, THEREFORE, the parties agree as follows:
1. The Trust hereby appoints the Manager to act as manager of the Trust and
administrator of its corporate affairs for the period and on the terms set forth
in this Agreement. The Manager accepts such appointment and agrees to render the
services herein described, for the compensation herein provided. The Manager is
authorized to enter into subadvisory agreements for investment advisory services
in connection with the management of the Trust and each Fund thereof. Any such
agreement may be entered into by the Manager on such terms and in such manner as
may be permitted by the 1940 Act and the rules thereunder. The Manager will
continue to have responsibility for all investment advisory services furnished
pursuant to any such investment advisory agreements. The Manager will review the
performance of all subadvisers, as well as the Distributor, Transfer Agent and
Custodian and make recommendations to the Trustees of the Trust with respect to
the retention and renewal of contracts.
2. Subject to the supervision of the Trustees of the Trust, the Manager
shall administer the Fund's corporate affairs and, in connection therewith,
shall furnish the Fund with office facilities and with clerical, bookkeeping and
recordkeeping services at such office facilities and, subject to Section 1
hereof, the Manager shall manage the investment operations of the Trust and each
Fund thereof and the composition of each Fund's portfolio, including the
purchase, retention and disposition thereof, in accordance with the Trust's and
the Fund's investment objectives, policies and restrictions as stated in the
Prospectus (hereinafter defined) and subject to the following understandings:
(a) The Manager shall provide supervision of each Fund's investments
and determine from time to time what investments or securities will be
purchased, retained, sold or loaned
2
<PAGE>
by each Fund, and what portion of the assets will be invested or held
uninvested as cash.
(b) The Manager, in the performance of its duties and obligations
under this Agreement, shall act in conformity with the Declaration of
Trust, By-Laws and Prospectus (hereinafter defined) of the Trust and with
the instructions and directions of the Trustees of the Trust and will
conform to and comply with the requirements of the 1940 Act and all other
applicable federal and state laws and regulations.
(c) The Manager shall determine the securities and futures contracts
to be purchased or sold by each Fund and will place orders pursuant to its
determinations with or through such persons, brokers, dealers or futures
commission merchants (including but not limited to Prudential Securities
Incorporated) in conformity with the policy with respect to brokerage as
set forth in the Trust's Registration Statement and Prospectus (hereinafter
defined) or as the Trustees may direct from time to time. In providing the
Trust with investment supervision, it is recognized that the Manager will
give primary consideration to securing the most favorable price and
efficient execution. Consistent with this policy, the Manager 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 other clients of the Manager 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 understood that
it is desirable for the Trust that the Manager have access to supplemental
investment and market research and security and economic analysis provided
by brokers or futures commission merchants and that such
3
<PAGE>
brokers may execute brokerage transactions at a higher cost to the Trust
than may result when allocating brokerage to other brokers or futures
commission merchants on the basis of seeking the most favorable price and
efficient execution. Therefore, the Manager is authorized to pay higher
brokerage commissions for the purchase and sale of securities and futures
contracts for the Trust to brokers or futures commission merchants who
provide such research and analysis, 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 broker
or futures commission merchant may be useful to the Manager in connection
with its services to other clients.
On occasions when the Manager deems the purchase or sale of a security
or a futures contract to be in the best interest of the Trust as well as
other clients of the Manager or the Subadviser, the Manager, 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 so sold
or purchased in order to obtain the most favorable price or lower brokerage
commissions and 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 Manager or the
subadviser in the manner it considers to be the most equitable and
consistent with its fiduciary obligations to the Fund, the Trust and to
such other clients.
(d) The Manager shall maintain all books and records with respect to
each Fund's portfolio transactions and shall render to the Trustees of the
Trust such periodic and special reports as the Board may reasonably
request.
(e) The Manager shall be responsible for the financial and accounting
records to be
4
<PAGE>
maintained by the Trust (including those being maintained by the Trust's
Custodian).
(f) The Manager shall provide the Trust's Custodian on each business
day with information relating to all transactions concerning the Trust's
assets.
(g) The investment management services of the Manager to the Trust
under this Agreement are not to be deemed exclusive, and the Manager shall
be free to render similar services to others.
3. The Trust has delivered to the Manager copies of each of the following
documents and will deliver to it all future amendments and supplements thereto,
if any:
(a) Agreement and Declaration of Trust, as filed with the Secretary of
State of Delaware (such Agreement and Declaration of Trust, as in effect on
the date hereof and as amended from time to time, are herein called the
"Declaration of Trust");
(b) By-Laws of the Trust (such By-Laws, as in effect on the date
hereof and as amended from time to time, are herein called the "By-Laws");
(c) Certified resolutions of the Trustees of the Trust authorizing the
appointment of the Manager and approving the form of this Agreement;
(d) Registration Statement under the 1940 Act and the Securities Act
of 1933, as amended, on Form N-1A (the Registration Statement), as filed
with the Securities and Exchange Commission (the Commission) relating to
the Trust and shares of beneficial interest of the Trust and all amendments
thereto;
(e) Notification of Registration of the Trust under the 1940 Act on
Form N-8A as filed with the Commission and all amendments thereto; and
(f) Prospectus of the Trust (such Prospectus and Statement of
Additional
5
<PAGE>
Information, each as currently in effect and as amended or supplemented
from time to time, being herein collectively called the "Prospectus").
4. The Manager shall authorize and permit any of its directors, officers
and employees who may be elected as Trustees or officers of the Trust to serve
in the capacities in which they are elected. All services to be furnished by the
Manager under this Agreement may be furnished through the medium of any such
directors, officers or employees of the Manager.
5. The Manager shall keep the Trust's books and records required to be
maintained by it pursuant to paragraph 2 hereof. The Manager agrees that all
records which it maintains for the Trust are the property of the Trust and it
will surrender promptly to the Trust any such records upon the Trust's request,
provided however that the Manager may retain a copy of such records. The Manager
further agrees to preserve for the periods prescribed by Rule 31a-2 under the
1940 Act any such records as are required to be maintained by the Manager
pursuant to paragraph 2 hereof.
6. During the term of this Agreement, the Manager shall pay the following
expenses:
(i) the salaries and expenses of all personnel of the Trust and the
Manager except the fees and expenses of Trustees who are not affiliated
persons of the Manager or the Trust's investment adviser,
(ii) all expenses incurred by the Manager or by the Trust in
connection with managing the ordinary course of the Trust's business other
than those assumed by the Trust herein, and
(iii) the costs and expenses payable pursuant to any subadvisory
agreements.
The Trust assumes and will pay the expenses described below:
(a) the fees and expenses incurred by the Trust in connection with the
management of the investment and reinvestment of each Fund's assets,
6
<PAGE>
(b) the fees and expenses of Trustees who are not affiliated persons
of the Manager or a Fund's investment adviser,
(c) the fees and expenses of the Custodian that relate to (i) the
custodial function and the recordkeeping connected therewith, (ii)
preparing and maintaining the general accounting records of the Trust and
the providing of any such records to the Manager useful to the Manager in
connection with the Manager's responsibility for the accounting records of
the Trust pursuant to Section 31 of the 1940 Act and the rules promulgated
thereunder, (iii) the pricing of the shares of the Trust, including the
cost of any pricing service or services which may be retained pursuant to
the authorization of the Trustees of the Fund, and (iv) for both mail and
wire orders, the cashiering function in connection with the issuance and
redemption of the Trust's securities,
(d) the fees and expenses of the Trust's Transfer and Dividend
Disbursing Agent, which may be the Custodian, that relate to the
maintenance of each shareholder account,
(e) the charges and expenses of legal counsel and independent
accountants for the Trust,
(f) brokers' commissions and any issue or transfer taxes chargeable to
the Trust in connection with its securities and futures transactions,
(g) all taxes and corporate fees payable by the Trust to federal,
state or other governmental agencies,
(h) the fees of any trade associations of which the Trust may be a
member,
(i) the cost of share certificates representing, and/or non-negotiable
share deposit receipts evidencing, shares of the Trust,
7
<PAGE>
(j) the cost of fidelity, directors and officers and errors and
omissions insurance,
(k) the fees and expenses involved in registering and maintaining the
registration of the Trust and of its shares with the Securities and
Exchange Commission, registering the Trust as a broker or dealer and
qualifying its shares under state securities laws, including the
preparation and printing of the Trust's registration statements,
prospectuses and statements of additional information for filing under
federal and state securities laws for such purposes,
(l) allocable communications expenses with respect to investor
services and all expenses of shareholders' and Trustees' meetings and of
preparing, printing and mailing reports to shareholders in the amount
necessary for distribution to the shareholders, and
(m) litigation and indemnification expenses and other extraordinary
expenses not incurred in the ordinary course of the Trust's business, and
(n) any expenses assumed by the Fund pursuant to a Plan of
Distribution adopted in conformity with Rule 12b-1 under the 1940 Act.
7. In the event the expenses of the Trust for any fiscal year (including
the fees payable to 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 Trust's
business) exceed the lowest applicable annual expense limitation established and
enforced pursuant to the statute or regulations of any jurisdictions in which
shares of the Trust are then qualified for offer and sale, the compensation due
the Manager will be reduced by the amount of such excess, or, if such reduction
exceeds the compensation payable to the Manager, the Manager will pay to the
Trust the amount of such reduction which exceeds the amount of such
compensation.
8. For the services provided and the expenses assumed pursuant to this
Agreement, the Trust
8
<PAGE>
will pay to the Manager as full compensation therefor fees as set forth below.
These fees will be computed daily and will be paid to the Manager monthly. Any
reduction in the fees payable and any payments by the Manager to the Trust
pursuant to paragraph 7 shall be made monthly. Any such reductions or payments
are subject to readjustment during the year.
Rate as a percentage of
Name of Fund average daily net assets
------------ ------------------------
Stock Index Fund .30 of 1%
Active Balanced Fund .65 of 1%
9. The Manager shall not be liable for any error of judgment or for any
loss suffered by the Fund in connection with the matters to which this Agreement
relates, except a loss resulting from a breach of fiduciary duty with respect to
the receipt of compensation for services (in which case any award of damages
shall be limited to the period and the amount set forth in Section 36(b)(3) of
the 1940 Act) or loss resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement.
10. The Trust shall indemnify the Manager and hold it harmless from and
against all damages, liabilities, costs and expenses (including reasonable
attorneys' fees and amounts reasonably paid in settlement) incurred by the
Manager in or by reason of any pending, threatened or completed action, suit,
investigation or other proceeding (including an action or suit by or in the
right of the Trust or its security holders) arising out of or otherwise based
upon any action actually or allegedly taken or omitted to be taken by the
Manager in connection with the performance of any of its duties or obligations
under this Agreement; provided, however, that nothing contained herein shall
protect
9
<PAGE>
or be deemed to protect the Manager against or entitle or be deemed to entitle
the Manager to indemnification in respect of any liability to the Trust or its
security holders to which the Manager would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of its reckless disregard of its duties and obligations
under this Agreement.
11. 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 Trust or any
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 a Fund, or by the Manager 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).
12. Nothing in this Agreement shall limit or restrict the right of any
director, officer or employee of the Manager who may also be a Trustee, officer
or employee of the Trust 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 dissimilar nature, nor limit or restrict the right of
the Manager to engage in any other business or to render services of any kind to
any other corporation, firm, individual or association.
13. Except as otherwise provided herein or authorized by the Trustees of
the Trust from time to time, the Manager shall for all purposes herein be deemed
to be an independent contractor and shall have no authority to act for or
represent the Trust in any way or otherwise be deemed an agent of the Trust.
10
<PAGE>
14. During the term of this Agreement, the Trust agrees to furnish the
Manager at its principal office all prospectuses, proxy statements, reports to
shareholders, sales literature, or other material prepared for distribution to
shareholders of the Trust or the public, which refer in any way to the Manager,
prior to use thereof and not to use such material if the Manager reasonably
objects in writing within five business days (or such other time as may be
mutually agreed) after receipt thereof. In the event of termination of this
Agreement, the Trust will continue to furnish to the Manager copies of any of
the above mentioned materials which refer in any way to the Manager. Sales
literature may be furnished to the Manager hereunder by first class or overnight
mail, facsimile transmission equipment or hand delivery. The Trust shall furnish
or otherwise make available to the Manager such other information relating to
the business affairs of the Trust as the Manager at any time, or from time to
time, reasonably requests in order to discharge its obligations hereunder.
15. This Agreement may be amended by mutual consent, but the consent of the
Trust must be obtained in conformity with the requirements of the 1940 Act.
16. 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 One Seaport Plaza, New York, New York
10292-0132, Attention: Secretary; or (2) to the Trust at Prudential Plaza, 751
Broad Street, Newark, NJ 07102-3777, Attention: Assistant Secretary.
17. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York 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>
18. The Trust may use the name "Prudential Dryden Fund" or any name
including the word "Prudential" only for so long as this Agreement or any
extension, renewal or amendment hereof remains in effect, including any similar
agreement with any organization which shall have succeeded to the Manager's
business as Manager or any extension, renewal or amendment thereof remain in
effect. At such time as such an agreement shall no longer be in effect, the
Trust will (to the extent that it lawfully can) cease to use such a name or any
other name indicating that it is advised by, managed by or otherwise connected
with the Manager, or any organization which shall have so succeeded to such
businesses. In no event shall the Trust use the name "Prudential Dryden Fund" or
any name including the word "Prudential" if the Manager's function is
transferred or assigned to a company of which The Prudential Insurance Company
of America does not have control.
19. The Trust is a business trust organized under the Delaware Business
Trust Act pursuant to a certificate of trust dated May 11, 1992. The Trust is a
series trust and all debts, liabilities, obligations and expenses of a
particular Fund shall be enforceable only against the assets of that Fund and
not against the assets of any other Fund or of the Trust as a whole. Neither the
Trustees, officers, agents or shareholders of the Trust assume any personal
liability for obligations entered into on behalf of the Trust (or a Fund
thereof).
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 DRYDEN FUND
By
----------------------------------
PRUDENTIAL MUTUAL FUND MANAGEMENT LLC
By
----------------------------------
12
EXHIBIT 99.5(f)(i)
THE PRUDENTIAL INSTITUTIONAL FUND
(Stock Index Fund)
SUBADVISORY AGREEMENT
Agreement made as of this _____ day of_______________, 1996, between
Prudential Mutual Fund Management LLC, a limited liability company, (PMF or the
Manager), and The Prudential Investment Corporation, a New Jersey Corporation
(the Subadviser).
W I T N E S S E T H
WHEREAS, the Manager has entered into a Management Agreement, dated
_______________, 1996 (the Management Agreement), with Prudential Dryden Fund
(formerly 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 PMF 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 desires to retain the Subadviser to provide investment
advisory services to Stock Index 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 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 determine the securities and futures
contracts to
2
<PAGE>
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 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
3
<PAGE>
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 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.
(iv) 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.
(v) 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
4
<PAGE>
provide the Manager with such information upon request of the Manager.
(vi) 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.
(b) The Subadviser shall authorize and permit any of its directors,
officers and employees who may be elected as Trustees or officers of the
Trust to serve in the capacities in which they are elected. Services to be
furnished by the Subadviser under this Agreement may be furnished through
the medium of any of such directors, officers or employees.
(c) The Subadviser shall keep the Trust's books and records required
to be maintained by the Subadviser pursuant to paragraph 1(a)(iv) 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-1 under the 1940f 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 1(a)(iv) hereof.
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.
5
<PAGE>
3. The Manager shall reimburse the Subadviser for reasonable costs and
expenses incurred by the Subadviser determined in a manner acceptable to the
Manager in furnishing the services provided in paragraph 1 hereof.
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.
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 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 directors, officers, or employees who may also be a Trustee,
officer or employee of the Trust 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.
6
<PAGE>
7. During the term of this Agreement, the Manager agrees to furnish the
Subadviser at its principal office all prospectuses, proxy statements, reports
to shareholders, 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 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. 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 One Seaport Plaza, New York, New York
10292-0125, Attention: Secretary; or (2) to the Subadviser at Prudential Plaza,
751 Broad Street, Newark, NJ 07102-3777, Attention: President.
9. 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.
10. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York 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.
7
<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 MUTUAL FUND MANAGEMENT LLC
By ____________________________________
THE PRUDENTIAL INVESTMENT CORPORATION
By ____________________________________
8
EXHIBIT 99.5(f)(ii)
PRUDENTIAL DRYDEN FUND
(formerly the Prudential Institutional Fund)
(Active Balanced Fund)
CASH MANAGEMENT AGREEMENT
Agreement made as of this ______day of_____________, 1996 between
Prudential Mutual Fund Management LLC (PMF or the Manager), a limited liability
company, and The Prudential Investment Corporation (PIC), a New Jersey
Corporation.
W I T N E S S E T H
WHEREAS, the Manager has entered into a Management Agreement, dated
_____________, 1996 (the Management Agreement), with Prudential Dryden 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 PMF will act as Manager of the Trust;
WHEREAS, the shares of beneficial interest of the Trust are divided into
separate series or portfolios, 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 funds or establish and terminate additional funds;
<PAGE>
WHEREAS, the Manager has entered into a separate subadvisory agreement for
the Active Balanced Fund (the Fund) with Jennison Associates Capital Corp. (the
Subadviser) pursuant to which investment advisory services will be provided to
the Fund except 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 PIC to provide investment advisory
services to the Active Balanced Fund 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 in connection with the
management of the Trust and PIC 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, PIC shall manage the short-term assets and cash of the Fund,
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 called the "Prospectus") and subject to the
following understandings:
(i) PIC shall provide supervision of the Fund's investments and
determine from time to time what investments and securities will be
purchased, retained,
2
<PAGE>
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, PIC 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.
(iv) Upon receipt of information from the Subadviser as to the
amount of funds available for short-term investment, as described in
paragraph 1(a)(iii) above, PIC shall determine the securities to be
purchased or sold by the Fund and will place orders with or through
such persons, brokers or dealers (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 PIC will give primary consideration to securing the
most favorable price and efficient execution. Within the framework of
this policy, PIC may consider the financial
3
<PAGE>
responsibility, research and investment information and other services
provided by brokers or dealers who may effect or be a party to any
such transaction or other transactions to which PIC's other clients
may be a party. On occasions when PIC deems the purchase or sale of a
security to be in the best interest of a Fund as well as other clients
of PIC, PIC, to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the
securities to be sold or purchased in order to obtain the most
favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the securities so purchased or
sold, as well as the expenses incurred in the transaction, will be
made by PIC in the manner PIC considers to be the most equitable and
consistent with its fiduciary obligations to the Fund, the Trust and
to such other clients.
(v) PIC 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) PIC 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 PIC
hereunder are not to be deemed exclusive, and PIC shall be free to
render similar services to others.
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(b) PIC shall authorize and permit any of its directors, officers and
employees who may be elected as Trustees or officers of the Trust to serve
in the capacities in which they are elected. Services to be furnished by
PIC under this Agreement may be furnished through the medium of any of such
directors, officers or employees.
(c) PIC shall keep the Trust's books and records required to be
maintained by PIC pursuant to paragraph 1(a)(v) hereof and shall timely
furnish to the Manager all information relating to PIC's services hereunder
needed by the Manager to keep the other books and records of the Trust
required by Rule 31a-1 under the 1940 Act. PIC agrees that all records
which it maintains for the Trust are the property of the Trust and PIC will
surrender promptly to the Trust any of such records upon the Trust's
request, provided however that PIC may retain a copy of such records. PIC
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 1(a)(v) hereof.
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 PIC's performance of its duties under this Agreement.
3. The Manager shall reimburse PIC for reasonable costs and expenses
incurred by PIC determined in a manner acceptable to the Manager in furnishing
the services provided in paragraph 1 hereof.
4. PIC 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 PIC's part in the performance of
5
<PAGE>
its duties or from its reckless disregard of its obligations and 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 PIC 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
PIC's directors, officers, or employees who may also be a Trustee, officer or
employee of the Trust 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 PIC's right
to engage in any other business or to render services of any kind to any other
corporation, firm, individual or association.
7. During the term of this Agreement, the Manager agrees to furnish PIC at
its principal office all prospectuses, proxy statements, reports to
shareholders, sales literature or other material prepared for distribution to
shareholders of the Fund or the public, which refer to PIC in any way, prior to
use thereof and not to use material if PIC reasonably objects in writing five
business days (or such other time as may be mutually agreed) after receipt
thereof. Sales literature may be furnished to PIC hereunder by first-class or
overnight mail, facsimile transmission equipment or hand delivery.
6
<PAGE>
8. 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 One Seaport Plaza, New York, New York
10292-0125, Attention: Secretary; or (2) to the Subadviser at 466 Lexington
Avenue, New York, New York 10017, Attention: President.
9. This Agreement may be amended by mutual consent, but the consent of a
Fund must be obtained in conformity with the requirements of the 1940 Act.
10. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York 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.
7
<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 MUTUAL FUND MANAGEMENT LLC
By _____________________________________________
THE PRUDENTIAL INVESTMENT CORPORATION
By ___________________________________________
8
EXHIBIT 99.5(g)
PRUDENTIAL DRYDEN FUND
(formerly The Prudential Institutional Fund)
(Active Balanced Series)
SUBADVISORY AGREEMENT
Agreement made as of this ____ day of _____________, 1996, between
Prudential Mutual Fund Management LLC, a limited liability company, (PMF or
the Manager), and Jennison Associates Capital Corp., a New York Corporation (the
Subadviser).
W I T N E S S E T H
WHEREAS, the Manager has entered into a Management Agreement, dated
_________________, 1996 (the Management Agreement), with Prudential Dryden Fund
(formerly 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 PMF 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 ________________, 1996 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 Active Balanced Series (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 each
Fund and the composition of each Fund's portfolio, including the purchase,
retention and disposition thereof, in accordance with each 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 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
2
<PAGE>
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
each 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 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 and futures
contracts 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.
3
<PAGE>
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 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
4
<PAGE>
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 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.
(b) The Subadviser shall authorize and permit any of its directors,
officers and employees who may be elected as Trustees or officers of the
Trust to serve in the capacities in which they are elected. Services to be
furnished by the Subadviser under
5
<PAGE>
this Agreement may be furnished through the medium of any of such
directors, officers or employees.
(c) The Subadviser shall keep the Trust's books and records required
to be maintained by the Subadviser pursuant to paragraph 1(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-1 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 1(a)(v) hereof.
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.
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 .30 of 1% of the Fund's average daily net assets up to $300
million and .25 of 1% of average daily net assets in excess of $300 million.
This fee will be computed daily and paid monthly.
4. The Subadviser shall not be liable for any error of judgment or for any
loss suffered by a 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
6
<PAGE>
in the performance of its duties or from its reckless disregard of its
obligations and 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 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 directors, officers, or employees who may also be a Trustee,
officer or employee of the Trust 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.
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 mutually
agreed) after receipt
7
<PAGE>
thereof. Sales literature may be furnished to the Subadviser hereunder by
first-class or overnight mail, facsimile transmission equipment or hand
delivery.
8. 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 One Seaport Plaza, New York, New York
10292-0125, Attention: Secretary; or (2) to the Subadviser at 466 Lexington
Avenue, New York, NY 10017, Attention: President.
9. 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.
10. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York 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.
8
<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 MUTUAL FUND MANAGEMENT LLC
By ______________________________________________
JENNISON ASSOCIATES CAPITAL CORPORATION
By ______________________________________________
9
EXHIBIT 99.6(b)
PRUDENTIAL DRYDEN FUND
(formerly The Prudential Institutional Fund)
Distribution Agreement
Agreement made as of May 8, 1996 between Prudential Dryden Fund, a
Delaware business trust (the Fund), and Prudential Securities Incorporated, a
Delaware corporation (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company Act of 1940,
as amended (the Investment Company Act), as a diversified, open-end, management
investment company and it is in the interest of the Fund to offer its shares for
sale continuously;
WHEREAS, the shares of the Fund may be divided into classes and/or series
(all such shares being referred to herein as Shares) and the Fund currently is
authorized to offer Class A, Class B, Class C and Class Z Shares;
WHEREAS, the Distributor is a broker-dealer registered under the Securities
Exchange Act of 1934, as amended, and is engaged in the business of selling
shares of registered investment companies either directly or through other
broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into an agreement with
each other, with respect to the continuous offering of the Fund's Shares from
and after the date hereof in order to promote the growth of the Fund and
facilitate the distribution of its Shares; and
WHEREAS, upon approval by the holders of the respective classes and/or
series of Shares of the Fund it is contemplated that the Fund will adopt a plan
(or plans) of distribution pursuant to Rule 12b-1 under the Investment Company
Act with respect to certain of its classes and/or series of Shares (the Plans)
authorizing payments by the Fund to the Distributor with respect to the
<PAGE>
distribution of such classes and/or series of Shares and the maintenance of
related shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor
The Fund hereby appoints the Distributor as the principal underwriter and
distributor of the Shares of the Fund to sell Shares to the public on behalf of
the Fund and the Distributor hereby accepts such appointment and agrees to act
hereunder. The Fund hereby agrees during the term of this Agreement to sell
Shares of the Fund through the Distributor on the terms and conditions set forth
below.
Section 2. Exclusive Nature of Duties
The Distributor shall be the exclusive representative of the Fund to act as
principal underwriter and distributor of the Fund's Shares, except that:
2.1 The exclusive rights granted to the Distributor to sell Shares of the
Fund shall not apply to Shares of the Fund issued in connection with the merger
or consolidation of any other investment company or personal holding company
with the Fund or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding shares of any such company by
the Fund.
2.2 Such exclusive rights shall not apply to Shares issued by the Fund
pursuant to reinvestment of dividends or capital gains distributions or through
the exercise of any conversion feature or exchange privilege.
2.3 Such exclusive rights shall not apply to Shares issued by the Fund
pursuant to the reinstatement privilege afforded redeeming shareholders.
2.4 Such exclusive rights shall not apply to purchases made through the
Fund's transfer and dividend disbursing agent in the manner set forth in the
currently effective Prospectus of the Fund. The term "Prospectus" shall mean the
Prospectus and Statement of Additional Information included as part of the
Fund's
2
<PAGE>
Registration Statement, as such Prospectus and Statement of Additional
Information may be amended or supplemented from time to time, and the term
"Registration Statement" shall mean the Registration Statement filed by the Fund
with the Securities and Exchange Commission and effective under the Securities
Act of 1933, as amended (Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. Purchase of Shares from the Fund
3.1 The Distributor shall have the right to buy from the Fund on behalf of
investors the Shares needed, but not more than the Shares needed (except for
clerical errors in transmission) to fill unconditional orders for Shares placed
with the Distributor by investors or registered and qualified securities dealers
and other financial institutions (selected dealers).
3.2 The Shares shall be sold by the Distributor on behalf of the Fund and
delivered by the Distributor or selected dealers, as described in Section 6.4
hereof, to investors at the offering price as set forth in the Prospectus.
3.3 The Fund shall have the right to suspend the sale of any or all classes
and/or series of its Shares at times when redemption is suspended pursuant to
the conditions in Section 4.3 hereof or at such other times as may be determined
by the Trustees. The Fund shall also have the right to suspend the
sale of any or all classes and/or series of its Shares if a banking moratorium
shall have been declared by federal or New York authorities.
3.4 The Fund, or any agent of the Fund designated in writing by the Fund,
shall be promptly advised of all purchase orders for Shares received by the
Distributor. Any order may be rejected by the Fund; provided, however, that the
Fund will not arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of Shares. The Fund (or its agent) will confirm
orders upon their receipt, will make appropriate book entries and upon receipt
by the Fund (or its agent) of payment therefor, will deliver deposit receipts
for such Shares pursuant to the instructions of the Distributor. Payment shall
be made to the Fund in New York Clearing House funds or federal funds. The
3
<PAGE>
Distributor agrees to cause such payment and such instructions to be delivered
promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Shares by the Fund
4.1 Any of the outstanding Shares may be tendered for redemption at any
time, and the Fund agrees to repurchase or redeem the Shares so tendered in
accordance with its Articles of Inbusiness trust as amended from time to time,
and in accordance with the applicable provisions of the Prospectus. The price to
be paid to redeem or repurchase the Shares shall be equal to the net asset value
determined as set forth in the Prospectus. All payments by the Fund hereunder
shall be made in the manner set forth in Section 4.2 below.
4.2 The Fund shall pay the total amount of the redemption price as defined
in the above paragraph pursuant to the instructions of the Distributor on or
before the seventh day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of Shares shall be
paid by the Fund as follows: (i) in the case of Shares subject to a contingent
deferred sales charge, any applicable contingent deferred sales charge shall be
paid to the Distributor, and the balance shall be paid to or for the account of
the redeeming shareholder, in each case in accordance with applicable provisions
of the Prospectus; and (ii) in the case of all other Shares, proceeds shall be
paid to or for the account of the redeeming shareholder, in each case in
accordance with applicable provisions of the Prospectus.
4.3 Redemption of any class and/or series of Shares or payment may be
suspended at times when the New York Stock Exchange is closed for other than
customary weekends and holidays, when trading on said Exchange is restricted,
when an emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or during any
other period when the Securities and Exchange Commission, by order, so permits.
Section 5. Duties of the Fund
4
<PAGE>
5.1 Subject to the possible suspension of the sale of Shares as provided
herein, the Fund agrees to sell its Shares so long as it has Shares of the
respective class and/or series available.
5.2 The Fund shall furnish the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Shares, and this shall
include one certified copy, upon request by the Distributor, of all financial
statements prepared for the Fund by independent public accountants. The Fund
shall make available to the Distributor such number of copies of its Prospectus
and annual and interim reports as the Distributor shall reasonably request.
5.3 The Fund shall take, from time to time, but subject to the necessary
approval of the Trustees and the shareholders, all necessary action to
fix the number of authorized Shares and such steps as may be necessary to
register the same under the Securities Act, to the end that there will be
available for sale such number of Shares as the Distributor reasonably may
expect to sell. The Fund agrees to file from time to time such amendments,
reports and other documents as may be necessary in order that there will be no
untrue statement of a material fact in the Registration Statement, or necessary
in order that there will be no omission to state a material fact in the
Registration Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to qualify and maintain the
qualification of any appropriate number of its Shares for sales under the
securities laws of such states as the Distributor and the Fund may approve;
provided that the Fund shall not be required to amend its Articles of
Incorporation or By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its Shares in any
state from the terms set forth in its Registration Statement, to qualify as a
foreign corporation in any state or to consent to service of process in any
state other than with respect to claims arising out of the offering of its
Shares. Any such qualification may be withheld, terminated or withdrawn by the
Fund at any time in its discretion. As provided in Section 9 hereof, the expense
of qualification and maintenance of
5
<PAGE>
qualification shall be borne by the Fund. The Distributor shall furnish such
information and other material relating to its affairs and activities as may be
required by the Fund in connection with such qualifications.
Section 6. Duties of the Distributor
6.1 The Distributor shall devote reasonable time and effort to effect sales
of Shares, but shall not be obligated to sell any specific number of Shares.
Sales of the Shares shall be on the terms described in the Prospectus. The
Distributor may enter into like arrangements with other investment companies.
The Distributor shall compensate the selected dealers as set forth in the
Prospectus.
6.2 In selling the Shares, the Distributor shall use its best efforts in
all respects duly to conform with the requirements of all federal and state laws
relating to the sale of such securities. Neither the Distributor nor any
selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales literature approved by
appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the confirmation
of sales to investors and selected dealers, the collection of amounts payable by
investors and selected dealers on such sales and the cancellation of unsettled
transactions, as may be necessary to comply with the requirements of the
National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into selected dealer
agreements with registered and qualified securities dealers and other financial
institutions of its choice for the sale of Shares, provided that the Fund shall
approve the forms of such agreements. Within the United States, the Distributor
shall offer and sell Shares only to such selected dealers as are members in good
standing of the NASD. Shares sold to selected dealers shall be for resale by
such dealers only at the offering price determined as set forth in the
Prospectus.
Section 7. Payments to the Distributor
6
<PAGE>
7.1 With respect to classes and/or series of Shares which impose a
front-end sales charge, the Distributor shall receive and may retain any portion
of any front-end sales charge which is imposed on such sales and not reallocated
to selected dealers as set forth in the Prospectus, subject to the limitations
of Article III, Section 26 of the NASD Rules of Fair Practice. Payment of these
amounts to the Distributor is not contingent upon the adoption or continuation
of any applicable Plans.
7.2 With respect to classes and/or series of Shares which impose a
contingent deferred sales charge, the Distributor shall receive and may retain
any contingent deferred sales charge which is imposed on such sales as set forth
in the Prospectus, subject to the limitations of Article III, Section 26 of the
NASD Rules of Fair Practice. Payment of these amounts to the Distributor is not
contingent upon the adoption or continuation of any Plan.
Section 8. Payment of the Distributor under the Plan
8.1 The Fund shall pay to the Distributor as compensation for services
under any Plans adopted by the Fund and this Agreement a distribution and
service fee with respect to the Fund's classes and/or series of Shares as
described in each of the Fund's respective Plans and this Agreement.
8.2 So long as a Plan or any amendment thereto is in effect, the
Distributor shall inform the Trustees of the commissions and account
servicing fees with respect to the relevant class and/or series of Shares to be
paid by the Distributor to account executives of the Distributor and to
broker-dealers and financial institutions which have dealer agreements with the
Distributor. So long as a Plan (or any amendment thereto) is in effect, at the
request of the Trustees or any agent or representative of the Fund,
the Distributor shall provide such additional information as may reasonably be
requested concerning the activities of the Distributor hereunder and the costs
incurred in performing such activities with respect to the relevant class and/or
series of Shares.
Section 9. Allocation of Expenses
7
<PAGE>
The Fund shall bear all costs and expenses of the continuous offering of
its Shares (except for those costs and expenses borne by the Distributor
pursuant to a Plan and subject to the requirements of Rule 12b-1 under the
Investment Company Act), including fees and disbursements of its counsel and
auditors, in connection with the preparation and filing of any required
Registration Statements and/or Prospectuses under the Investment Company Act or
the Securities Act, and all amendments and supplements thereto, and preparing
and mailing annual and periodic reports and proxy materials to shareholders
(including but not limited to the expense of setting in type any such
Registration Statements, Prospectuses, annual or periodic reports or proxy
materials). The Fund shall also bear the cost of expenses of qualification of
the Shares for sale, and, if necessary or advisable in connection therewith, of
qualifying the Fund as a broker or dealer, in such states of the United States
or other jurisdictions as shall be selected by the Fund and the Distributor
pursuant to Section 5.4 hereof and the cost and expense payable to each such
state for continuing qualification therein until the Fund decides to discontinue
such qualification pursuant to Section 5.4 hereof. As set forth in Section 8
above, the Fund shall also bear the expenses it assumes pursuant to any Plan, so
long as such Plan is in effect.
Section 10. Indemnification
10.1 The Fund agrees to indemnify, defend and hold the Distributor, its
officers and directors and any person who controls the Distributor within the
meaning of Section 15 of the Securities Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any
reasonable counsel fees incurred in connection therewith) which the Distributor,
its officers, directors or any such controlling person may incur under the
Securities Act, or under common law or otherwise, arising out of or based upon
any untrue statement of a material fact contained in the Registration Statement
or Prospectus or arising out of or based upon any alleged omission to state a
material fact required to be stated in either thereof or necessary to make the
statements in either thereof not misleading, except insofar as such claims,
demands, liabilities or expenses arise out of or are based upon any such untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in
8
<PAGE>
conformity with information furnished in writing by the Distributor to the Fund
for use in the Registration Statement or Prospectus; provided, however, that
this indemnity agreement shall not inure to the benefit of any such officer,
director, trustee or controlling person unless a court of competent jurisdiction
shall determine in a final decision on the merits, that the person to be
indemnified was not liable by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations under this Agreement (disabling conduct), or, in
the absence of such a decision, a reasonable determination, based upon a review
of the facts, that the indemnified person was not liable by reason of disabling
conduct, by (a) a vote of a majority of a quorum of directors or trustees who
are neither "interested persons" of the Fund as defined in Section 2(a)(19) of
the Investment Company Act nor parties to the proceeding, or (b) an independent
legal counsel in a written opinion. The Fund's agreement to indemnify the
Distributor, its officers and directors and any such controlling person as
aforesaid is expressly conditioned upon the Fund's being promptly notified of
any action brought against the Distributor, its officers or directors, or any
such controlling person, such notification to be given by letter or telegram
addressed to the Fund at its principal business office. The Fund agrees promptly
to notify the Distributor of the commencement of any litigation or proceedings
against it or any of its officers or directors in connection with the issue and
sale of any Shares.
10.2 The Distributor agrees to indemnify, defend and hold the Fund, its
officers and Trustees and any person who controls the Fund, if any, within the
meaning of Section 15 of the Securities Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
reasonable counsel fees incurred in connection therewith) which the Fund, its
officers and Directors or any such controlling person may incur under the
Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Fund, its Trustees or officers or such
controlling person resulting from such claims or demands shall arise out of or
be based upon any alleged untrue statement of a material fact contained in
information furnished in writing by the Distributor to the Fund for use in the
Registration
9
<PAGE>
Statement or Prospectus or shall arise out of or be based upon any alleged
omission to state a material fact in connection with such information required
to be stated in the Registration Statement or Prospectus or necessary to make
such information not misleading. The Distributor's agreement to indemnify the
Fund, its officers and Trustees and any such controlling person as aforesaid, is
expressly conditioned upon the Distributor's being promptly notified of any
action brought against the Fund, its officers and Trustees or any such
controlling person, such notification being given to the Distributor at its
principal business office.
Section 11. Duration and Termination of this Agreement
11.1 This Agreement shall become effective as of the date first above
written and shall remain in force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Trustees of the Fund, or by the
vote of a majority of the outstanding voting securities of the applicable class
and/or series of the Fund, and (b) by the vote of a majority of those
Directors who are not parties to this Agreement or interested persons
of any such parties and who have no direct or indirect financial interest in
this Agreement or in the operation of any of the Fund's Plans or in any
agreement related thereto (Independent Directors), cast in person at a meeting
called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time, without the payment of
any penalty, by a majority of the Independent Trustees or by vote of a majority
of the outstanding voting securities of the applicable class and/or series of
the Fund, or by the Distributor, on sixty (60) days' written notice to the other
party. This Agreement shall automatically terminate in the event of its
assignment.
11.3 The terms "affiliated person," "assignment," "interested person" and
"vote of a majority of the outstanding voting securities", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
10
<PAGE>
Section 12. Amendments to this Agreement
This Agreement may be amended by the parties only if such amendment is
specifically approved by (a) the Trustees of the Fund, or by the vote of a
majority of the outstanding voting securities of the applicable class and/or
series of the Fund, and (b) by the vote of a majority of the Independent
Trustees cast in person at a meeting called for the purpose of voting on such
amendment.
Section 13. Separate Agreement as to Classes and/or Series
The amendment or termination of this Agreement with respect to any class
and/or series shall not result in the amendment or termination of this Agreement
with respect to any other class and/or series unless explicitly so provided.
Section 14. Governing Law
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New York as at the time in effect and
the applicable provisions of the Investment Company Act. To the extent that the
applicable law of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the Investment Company Act, the
latter shall control.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year above written.
PRUDENTIAL SECURITIES INCORPORATED
By: /s/ROBERT F. GUNIA
------------------------------
Robert F. Gunia
Senior Vice President
PRUDENTIAL DRYDEN FUND
By: /s/RICHARD A. REDEKER
------------------------------
Richard A. Redeker
President
12
EXHIBIT 99.9(c)
TRANSFER AGENCY AND SERVICE AGREEMENT
between
PRUDENTIAL DRYDEN FUND
(formerly The Prudential Institutional Fund)
and
PRUDENTIAL MUTUAL FUND SERVICES, INC.
<PAGE>
TABLE OF CONTENTS
Page
----
Article 1 Terms of Appointment; Duties of the Agent...................... 1
Article 2 Fees and Expenses.............................................. 2
Article 3 Representations and Warranties of the Agent.................... 5
Article 4 Representations of Warranties of the Fund...................... 6
Article 5 Duty of Care and Indemnification............................... 7
Article 6 Documents and Covenants of the Fund and the Agent.............. 10
Article 7 Termination of Agreement....................................... 12
Article 8 Assignment......... ........................................... 12
Article 9 Affiliations................................................... 13
Article 10 Amendment...................................................... 14
Article 11 Applicable Law................................................. 14
Article 12 Miscellaneous.................................................. 14
Article 13 Merger of Agreement............................................ 15
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the __th day of __, 1996 by and between PRUDENTIAL
DRYDEN FUND (formerly The Prudential Institutional Fund), a Delaware business
trust, having its principal office and place of business at 21 Prudential Plaza,
751 Broad Street, Newark, New Jersey 07102 (the Fund), and PRUDENTIAL MUTUAL
FUND SERVICES, INC., a New Jersey corporation, having its principal office and
place of business at Raritan Plaza One, Edison, New Jersey 08837 (the Agent or
PMFS).
WHEREAS, the Fund desires to appoint PMFS as its transfer agent, dividend
disbursing agent and shareholder servicing agent in connection with certain
other activities, and PMFS desires to accept such appointment;
NOW THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
ARTICLE 1 -- TERMS OF APPOINTMENT; DUTIES OF PMFS
1.01 Subject to the terms and conditions set forth in this Agreement, the
Fund hereby employs and appoints PMFS to act as, and PMFS agrees to act as, the
transfer agent for the authorized and issued shares of beneficial interest of
each series of the Fund, $.001 par value (Shares), dividend disbursing agent and
shareholder servicing agent in connection with any accumulation, open-account or
similar plans provided to the shareholders of the Fund or any series thereof
(Shareholders) and set out in the currently effective prospectus and statement
of additional information (Prospectus) of the Fund, including without limitation
any periodic investment plan or periodic withdrawal program.
1
<PAGE>
1.02 PMFS agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund and PMFS, PMFS shall:
(i) Receive for acceptance, orders for the purchase of Shares,
and promptly deliver payment and appropriate documentation therefor to
the Custodian of the Fund authorized pursuant to the Articles of
Incorporation of the Fund (the Custodian);
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation therefor to the
Custodian;
(iv) At the appropriate time as and when it receives monies paid
to it by the Custodian with respect to any redemption, pay over or
cause to be paid over in the appropriate manner such monies as
instructed by the redeeming Shareholders;
(v) Effect transfers of Shares by the registered owners thereof
upon receipt of appropriate instructions;
(vi) Prepare and transmit payments for dividends and
distributions declared by the Fund;
(vii) Calculate any sales charges payable by a Shareholder on
purchases and/or redemptions of Shares of the Fund as such charges may
be reflected in the prospectus;
(viii) Maintain records of account for and advise the Fund and
its Shareholders as to the foregoing; and
2
<PAGE>
(ix) Record the issuance of Shares of the Fund and maintain
pursuant to Rule 17Ad-10(e) under the Securities Exchange Act of 1934
(1934 Act) a record of the total number of Shares of the Fund which
are authorized, based upon data provided to it by the Fund, and issued
and outstanding. PMFS shall also provide to the Fund on a regular
basis the total number of Shares which are authorized, issued and
outstanding and shall notify the Fund in case any proposed issue of
Shares by the Fund would result in an overissue. In case any issue of
Shares would result in an overissue, PMFS shall refuse to issue such
Shares and shall not countersign and issue any certificates requested
for such Shares. When recording the issuance of Shares, PMFS shall
have no obligation to take cognizance of any Blue Sky laws relating to
the issue or sale of such Shares, which functions shall be the sole
responsibility of the Fund.
(b) In addition to and not in lieu of the services set forth in the
above paragraph (a), PMFS shall: (i) perform all of the customary services
of a transfer agent, dividend disbursing agent and, as relevant,
shareholder servicing agent in connection with accumulation, open-account
or similar plans (including without limitation any periodic investment plan
or periodic withdrawal program), including but not limited to, maintaining
all Shareholder accounts, preparing Shareholder meeting lists, mailing
proxies, receiving and tabulating proxies, mailing Shareholder reports and
prospectuses to current Shareholders, withholding taxes on non-resident
alien accounts, preparing and filing appropriate forms required with
respect to dividends and distributions by federal tax authorities for all
Shareholders, preparing and mailing confirmation forms and statements of
account to Shareholders for all purchases and redemptions of Shares and
other confirmable transactions in Shareholder accounts, preparing and
mailing activity statements for Shareholders and providing Shareholder
account information and (ii) provide a system which will enable the Fund to
monitor the
3
<PAGE>
total number of Shares sold in each State or other jurisdiction.
(c) In addition, the Fund shall (i) identify to PMFS in writing those
transactions and assets to be treated as exempt from Blue Sky reporting for
each State and (ii) verify the establishment of transactions for each State
on the system prior to activation and thereafter monitor the daily activity
for each State. The responsibility of PMFS for the Fund's registration
status under the Blue Sky or securities laws of any State or other
jurisdiction is solely limited to the initial establishment of transactions
subject to Blue Sky compliance by the Fund and the reporting of such
transactions to the Fund as provided above and as agreed from time to time
by the Fund and PMFS.
PMFS may also provide such additional services and functions not
specifically described herein as may be mutually agreed between PMFS and the
Fund and set forth in Schedule B hereto.
Procedures applicable to certain of these services may be established from
time to time by agreement between the Fund and PMFS.
ARTICLE 2 -- FEES AND EXPENSES
2.01 For performance by PMFS pursuant to this Agreement, the Fund agrees to
pay PMFS an annual maintenance fee for each Shareholder account and certain
transactional fees as set out in the fee schedule attached hereto as Schedule A.
Such fees and out-of-pocket expenses and advances identified under Section 2.02
below may be changed from time to time subject to mutual written agreement
between the Fund and PMFS.
2.02 In addition to the fees paid under Section 2.01 above, the Fund agrees
to reimburse PMFS for out-of-pocket expenses or advances incurred by PMFS for
the items set out in Schedule A attached hereto. In addition, any other expenses
incurred by PMFS at the request or with the consent of the Fund will be
reimbursed by the Fund.
4
<PAGE>
2.03 The Fund agrees to pay all fees and reimbursable expenses within a
reasonable period of time following the mailing of the respective billing
notice. Postage for mailing of dividends, proxies, Fund reports and other
mailings to all Shareholder accounts shall be advanced to PMFS by the Fund upon
request prior to the mailing date of such materials.
ARTICLE 3 -- REPRESENTATIONS AND WARRANTIES OF PMFS
PMFS represents and warrants to the Fund that:
3.01 It is a corporation duly organized and existing and in good
standing under the laws of New Jersey and it is duly qualified to carry on
its business in New Jersey.
3.02 It is and will remain registered with the U.S. Securities and
Exchange Commission (SEC) as a Transfer Agent pursuant to the requirements
of Section 17A of the 1934 Act.
3.03 It is empowered under applicable laws and by its charter and
By-Laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to authorize
it to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations
under this Agreement.
ARTICLE 4 -- REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to PMFS that:
4.01 It is a business trust duly organized and existing and in good
standing under the laws of Delaware.
4.02 It is empowered under applicable laws and by its Declaration of
Trust and By-Laws to enter into and perform this Agreement.
5
<PAGE>
4.03 All proceedings required by said Declaration of Trust and By-Laws
have been taken to authorize it to enter and perform this Agreement.
4.04 It is an investment company registered with the SEC under the
Investment Company Act of 1940, as amended (the 1940 Act).
4.05 A registration statement under the Securities Act of 1933 (the
1933 Act) is currently effective and will remain effective, and appropriate
state securities law filings have been made and will continue to be made,
with respect to all Shares of the Fund being offered for sale.
ARTICLE 5 -- DUTY OF CARE AND INDEMNIFICATION
5.01 PMFS shall not be responsible for, and the Fund shall indemnify and
hold PMFS harmless from and against, any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liability arising out of or
attributable to:
(a) All actions of PMFS or its agents or subcontractors required to be
taken pursuant to this Agreement, provided that such actions are taken in
good faith and without negligence or willful misconduct.
(b) The Fund's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Fund's lack of good faith, negligence
or willful misconduct or which arise out of the breach of any
representation or warranty of the Fund hereunder.
(c) The reliance on or use by PMFS or its agents or subcontractors of
information, records and documents which (i) are received by PMFS or its
agents or subcontractors and furnished to it by or on behalf of the Fund,
and (ii) have been prepared and/or maintained by the Fund or any other
person or firm on behalf of the Fund.
(d) The reliance on, or the carrying out by PMFS or its agents or
subcontractors
6
<PAGE>
of, any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities or Blue Sky
laws of any State or other jurisdiction that such Shares be registered in
such State or other jurisdiction or in violation of any stop order or other
determination or ruling by any federal agency or any State or other
jurisdiction with respect to the offer or sale of such Shares in such State
or other jurisdiction.
5.02 PMFS shall indemnify and hold the Fund harmless from and against any
and all losses, damages, costs, charges, counsel fees, payments, expenses and
liability arising out of or attributable to any action or failure or omission to
act by PMFS as a result of PMFS' lack of good faith, negligence or willful
misconduct.
5.03 At any time PMFS may apply to any officer of the Fund for
instructions, and may consult with legal counsel, with respect to any matter
arising in connection with the services to be performed by PMFS under this
Agreement, and PMFS and its agents or subcontractors shall not be liable and
shall be indemnified by the Fund for any action taken or omitted by it in
reliance upon such instructions or upon the opinion of such counsel. PMFS, its
agents and subcontractors shall be protected and indemnified in acting upon any
paper or document furnished by or on behalf of the Fund, reasonably believed to
be genuine and to have been signed by the proper person or persons, or upon any
instruction, information, data, records or documents provided to PMFS or its
agents or subcontractors by machine readable input, telex, CRT data entry or
other similar means authorized by the Fund, and shall not be held to have notice
of any change of authority of any person, until receipt of written notice
thereof from the Fund. PMFS, its agents and subcontractors shall also be
protected and indemnified in recognizing stock certificates which are reasonably
believed to bear the
7
<PAGE>
proper manual or facsimile signature of the officers of the Fund, and the proper
countersignature of any former transfer agent or registrar, or of a co-transfer
agent or co-registrar.
5.04 In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes.
5.05 Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any act or
failure to act hereunder.
5.06 In order that the indemnification provisions contained in this Article
5 shall apply, upon the assertion of a claim for which either party may be
required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
ARTICLE 6 -- DOCUMENTS AND COVENANTS OF THE FUND AND PMFS
6.01 The Fund shall promptly furnish to PMFS the following:
(a) A certified copy of the resolution of the Board of Trustees of the
Fund authorizing the appointment of PMFS and the execution and delivery of
this Agreement;
(b) A certified copy of the Declaration of Trust and By-Laws of the
Fund and all
8
<PAGE>
amendments thereto;
(c) The current registration statements and any amendments and
supplements thereto filed with the SEC pursuant to the requirements of the
1933 Act and the 1940 Act;
(d) A specimen of the certificate for Shares of the Fund in the form
approved by the Board of Trustees, with a certificate of the Secretary of
the Fund as to such approval;
(e) All account application forms or other documents relating to
Shareholder accounts and/or relating to any plan program or service offered
or to be offered by the Fund; and
(f) Such other certificates, documents or opinions as the Agent deems
to be appropriate or necessary for the proper performance of its duties.
6.02 PMFS hereby agrees to establish and maintain facilities and procedures
reasonably acceptable to the Fund for safekeeping of stock certificates, check
forms and facsimile signature imprinting devices, if any; and for the
preparation or use, and for keeping account of, such certificates, forms and
devices.
6.03 PMFS shall prepare and keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the 1940 Act, and the Rules and Regulations
thereunder, PMFS agrees that all such records prepared or maintained by PMFS
relating to the services to be performed by PMFS hereunder are the property of
the Fund and will be preserved, maintained and made available in accordance with
such Section 31 of the 1940 Act, and the Rules and Regulations thereunder, and
will be surrendered promptly to the Fund on and in accordance with its request.
6.04 PMFS and the Fund agree that all books, records, information and data
pertaining to the business of the other party which are exchanged or received
pursuant to the negotiation or the
9
<PAGE>
carrying out of this Agreement shall remain confidential and shall not be
voluntarily disclosed to any other person except as may be required by law or
with the prior consent of PMFS and the Fund.
6.05 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, PMFS will endeavor to notify the Fund and to
secure instructions from an authorized officer of the Fund as to such
inspection. PMFS reserves the right, however, to exhibit the Shareholder records
to any person whenever it is advised by its counsel that it may be held liable
for the failure to exhibit the Shareholder records to such person.
ARTICLE 7 -- TERMINATION OF AGREEMENT
7.01 This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other.
7.02 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and other materials will be
borne by the Fund. Additionally, PMFS reserves the right to charge for any other
reasonable fees and expenses associated with such termination.
10
<PAGE>
ARTICLE 8 -- ASSIGNMENT
8.01 Except as provided in Section 8.03 below, neither this Agreement nor
any rights or obligations hereunder may be assigned by either party without the
written consent of the other party.
8.02 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
8.03 PMFS may, in its sole discretion and without further consent by the
Fund, subcontract, in whole or in part, for the performance of its obligations
and duties hereunder with any person or entity including but not limited to: (i)
Prudential Securities Incorporated (Prudential Securities), a registered
broker-dealer, (ii) The Prudential Insurance Company of America (Prudential),
(iii) Pruco Securities Corporation, a registered broker-dealer, (iv) any
Prudential Securities or Prudential subsidiary or affiliate duly registered as a
broker-dealer and/or a transfer agent pursuant to the 1934 Act or (vi) any other
Prudential Securities or Prudential affiliate or subsidiary; provided, however,
that PMFS shall be as fully responsible to the Fund for the acts and omissions
of any agent or subcontractor as it is for its own acts and omissions.
ARTICLE 9 -- AFFILIATIONS
9.01 PMFS may now or hereafter, without the consent of or notice to the
Fund, function as Transfer Agent and/or Shareholder Servicing Agent for any
other investment company registered with the SEC under the 1940 Act, including
without limitation any investment company whose adviser, administrator, sponsor
or principal underwriter is or may become affiliated with Prudential Securities
and/or Prudential or any of its or their direct or indirect subsidiaries or
affiliates.
9.02 It is understood and agreed that the trustees, officers, employees,
agents and
11
<PAGE>
Shareholders of the Fund, and the directors, officers, employees, agents and
shareholders of the Fund's investment adviser and/or distributor, are or may be
interested in the Agent as directors, officers, employees, agents, shareholders
or otherwise, and that the directors, officers, employees, agents or
shareholders of the Agent may be interested in the Fund as trustees, officers,
employees, agents, Shareholders or otherwise, or in the investment adviser
and/or distributor as officers, trustees, employees, agents, shareholders or
otherwise.
ARTICLE 10 -- AMENDMENT
10.01 This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution of the Board
of Trustees of the Fund.
ARTICLE 11 -- APPLICABLE LAW
11.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the State of New Jersey.
ARTICLE 12 -- MISCELLANEOUS
12.01 In the event of an alleged loss or destruction of any Share
certificate, no new certificate shall be issued in lieu thereof, unless there
shall first be furnished to PMFS an affidavit of loss or non-receipt by the
holder of Shares with respect to which a certificate has been lost or destroyed,
supported by an appropriate bond satisfactory to PMFS and the Fund issued by a
surety company satisfactory to PMFS, except that PMFS may accept an affidavit of
loss and indemnity agreement executed by the registered holder (or legal
representative) without surety in such form as PMFS deems appropriate
indemnifying PMFS and the Fund for the issuance of a replacement certificate, in
cases where the alleged loss is in the amount of $1000 or less.
12
<PAGE>
12.02 In the event that any check or other order for payment of money on
the account of any Shareholder or new investor is returned unpaid for any
reason, PMFS will (a) give prompt notification to the Fund's distributor
(Distributor) of such non-payment; and (b) take such other action, including
imposition of a reasonable processing or handling fee, as PMFS may, in its sole
discretion, deem appropriate or as the Fund and the Distributor may instruct
PMFS.
12.03 Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Fund or to PMFS shall be sufficiently
given if addressed to that party and received by it at its office set forth
below or at such other place as it may from time to time designate in writing.
To the Fund:
Prudential Dryden Fund
21 Prudential Plaza
751 Broad Street
Newark, NJ 07102
Attention: President
To PMFS:
Prudential Mutual Fund Services, Inc.
Raritan Plaza One
Edison, NJ 08837
Attention: President
ARTICLE 13 -- MERGER OF AGREEMENT
13.01 This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof whether oral or written.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized
13
<PAGE>
officers, as of the day and year first above written.
PRUDENTIAL DRYDEN FUND
By:
---------------------------------
ATTEST:
- ---------------------------------
PRUDENTIAL MUTUAL FUND SERVICES, INC.
By:
---------------------------------
ATTEST:
- ---------------------------------
14
<PAGE>
SCHEDULE A
15
<PAGE>
SCHEDULE B
16
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in Post-Effective Amendment No. 6 to Registration
Statement No. 33-48066 of The 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 "Custodian, Transfer and Dividend Disbursing Agent
and Independent Accountants" in the Statement of Additional Information.
Deloitte & Touche LLP
New York, New York
October 10, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000887991
<NAME> STOCK INDEX FUND
<SERIES>
<NUMBER> 01
<NAME> STOCK INDEX FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 147,528,594
<RECEIVABLES> 530,342
<ASSETS-OTHER> 259,424
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 148,318,360
<PAYABLE-FOR-SECURITIES> 780,201
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 453,482
<TOTAL-LIABILITIES> 1,233,683
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 119,575,502
<SHARES-COMMON-STOCK> 9,835,809
<SHARES-COMMON-PRIOR> 7,168,801
<ACCUMULATED-NII-CURRENT> 536,299
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 596,539
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 26,376,337
<NET-ASSETS> 147,084,677
<DIVIDEND-INCOME> 1,295,809
<INTEREST-INCOME> 222,810
<OTHER-INCOME> 0
<EXPENSES-NET> 363,683
<NET-INVESTMENT-INCOME> 1,154,936
<REALIZED-GAINS-CURRENT> 1,035,722
<APPREC-INCREASE-CURRENT> 10,654,855
<NET-CHANGE-FROM-OPS> 12,845,513
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6,622,799)
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<NUMBER-OF-SHARES-SOLD> 57,112,238
<NUMBER-OF-SHARES-REDEEMED> (24,817,640)
<SHARES-REINVESTED> 6,622,799
<NET-CHANGE-IN-ASSETS> 45,140,111
<ACCUMULATED-NII-PRIOR> 1,562,991
<ACCUMULATED-GAINS-PRIOR> 4,001,988
<OVERDISTRIB-NII-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 261,504
<AVERAGE-NET-ASSETS> 121,227,000
<PER-SHARE-NAV-BEGIN> 14.22
<PER-SHARE-NII> 1.58
<PER-SHARE-GAIN-APPREC> 0.00
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<PER-SHARE-DISTRIBUTIONS> (0.85)
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<PER-SHARE-NAV-END> 14.95
<EXPENSE-RATIO> 0.60
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<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000887991
<NAME> GROWTH STOCK FUND
<SERIES>
<NUMBER> 02
<NAME> GROWTH STOCK FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 288,473,390
<RECEIVABLES> 2,924,741
<ASSETS-OTHER> 23,189
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 291,421,320
<PAYABLE-FOR-SECURITIES> 1,894,523
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 655,311
<TOTAL-LIABILITIES> 2,549,834
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 223,834,780
<SHARES-COMMON-STOCK> 16,906,186
<SHARES-COMMON-PRIOR> 13,604,202
<ACCUMULATED-NII-CURRENT> (362,804)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,165,314
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 63,234,196
<NET-ASSETS> 288,871,486
<DIVIDEND-INCOME> 835,346
<INTEREST-INCOME> 142,475
<OTHER-INCOME> 0
<EXPENSES-NET> 1,264,619
<NET-INVESTMENT-INCOME> (286,798)
<REALIZED-GAINS-CURRENT> 5,105,311
<APPREC-INCREASE-CURRENT> 9,168,246
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<EQUALIZATION> 0
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<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 133,171,200
<NUMBER-OF-SHARES-REDEEMED> (78,791,867)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 68,366,092
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (3,016,003)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 885,234
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,324,002
<AVERAGE-NET-ASSETS> 252,924,000
<PER-SHARE-NAV-BEGIN> 16.21
<PER-SHARE-NII> 0.88
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<PER-SHARE-DIVIDEND> 0.00
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<PER-SHARE-NAV-END> 17.09
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000887991
<NAME> ACTIVE BALANCED FUND
<SERIES>
<NUMBER> 03
<NAME> ACTIVE BALANCED FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 141,973,548
<RECEIVABLES> 1,323,817
<ASSETS-OTHER> 26,980
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 143,324,345
<PAYABLE-FOR-SECURITIES> 505,568
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 130,726
<TOTAL-LIABILITIES> 636,294
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 124,750,463
<SHARES-COMMON-STOCK> 11,341,527
<SHARES-COMMON-PRIOR> 10,703,173
<ACCUMULATED-NII-CURRENT> 1,026,586
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,304,353
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13,606,649
<NET-ASSETS> 142,688,051
<DIVIDEND-INCOME> 610,799
<INTEREST-INCOME> 2,194,088
<OTHER-INCOME> 0
<EXPENSES-NET> 689,306
<NET-INVESTMENT-INCOME> 2,115,581
<REALIZED-GAINS-CURRENT> 3,822,493
<APPREC-INCREASE-CURRENT> 1,492,196
<NET-CHANGE-FROM-OPS> 7,430,270
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (5,905,745)
<NUMBER-OF-SHARES-SOLD> 17,976,072
<NUMBER-OF-SHARES-REDEEMED> (16,070,178)
<SHARES-REINVESTED> 5,905,745
<NET-CHANGE-IN-ASSETS> 9,336,164
<ACCUMULATED-NII-PRIOR> 2,883,961
<ACCUMULATED-GAINS-PRIOR> 1,414,649
<OVERDISTRIB-NII-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 688,170
<AVERAGE-NET-ASSETS> 137,861,000
<PER-SHARE-NAV-BEGIN> 12.46
<PER-SHARE-NII> 0.67
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.55)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.58
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000887991
<NAME> INTERNATIONAL STOCK FUND
<SERIES>
<NUMBER> 04
<NAME> INTERNATIONAL STOCK FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 142,221,274
<INVESTMENTS-AT-VALUE> 163,631,126
<RECEIVABLES> 993,963
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 164,767,702
<PAYABLE-FOR-SECURITIES> 1,838,999
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<OTHER-ITEMS-LIABILITIES> 722,523
<TOTAL-LIABILITIES> 2,561,522
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 140,983,504
<SHARES-COMMON-STOCK> 10,275,205
<SHARES-COMMON-PRIOR> 8,964,457
<ACCUMULATED-NII-CURRENT> 183,078
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (364,666)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21,404,264
<NET-ASSETS> 162,206,180
<DIVIDEND-INCOME> 1,257,014
<INTEREST-INCOME> 299,227
<OTHER-INCOME> 0
<EXPENSES-NET> 1,152,264
<NET-INVESTMENT-INCOME> 403,977
<REALIZED-GAINS-CURRENT> 2,806,929
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<NUMBER-OF-SHARES-SOLD> 57,849,159
<NUMBER-OF-SHARES-REDEEMED> (39,622,163)
<SHARES-REINVESTED> 1,739,771
<NET-CHANGE-IN-ASSETS> 25,520,958
<ACCUMULATED-NII-PRIOR> 1,582,613
<ACCUMULATED-GAINS-PRIOR> (3,253,336)
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<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 926,901
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,165,100
<AVERAGE-NET-ASSETS> 144,032,000
<PER-SHARE-NAV-BEGIN> 15.25
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.69
<PER-SHARE-DIVIDEND> (0.19)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.79
<EXPENSE-RATIO> 1.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000887991
<NAME> INCOME FUND
<SERIES>
<NUMBER> 05
<NAME> INCOME FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 65,065,943
<INVESTMENTS-AT-VALUE> 64,948,809
<RECEIVABLES> 739,572
<ASSETS-OTHER> 25,501
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 65,713,882
<PAYABLE-FOR-SECURITIES> 8,346,485
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 41,751
<TOTAL-LIABILITIES> 8,388,236
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 57,621,899
<SHARES-COMMON-STOCK> 65,065,943
<SHARES-COMMON-PRIOR> 56,738,626
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (179,120)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (117,133)
<NET-ASSETS> 57,325,646
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,839,465
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<EXPENSES-NET> 195,009
<NET-INVESTMENT-INCOME> 1,644,456
<REALIZED-GAINS-CURRENT> 553,480
<APPREC-INCREASE-CURRENT> (1,011,659)
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<DISTRIBUTIONS-OF-INCOME> (1,644,456)
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 7,888,653
<NUMBER-OF-SHARES-REDEEMED> (4,046,651)
<SHARES-REINVESTED> 1,644,456
<NET-CHANGE-IN-ASSETS> 5,028,279
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (732,600)
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<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 129,999
<AVERAGE-NET-ASSETS> 55,718,000
<PER-SHARE-NAV-BEGIN> 9.98
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> (0.06)
<PER-SHARE-DIVIDEND> (0.29)
<PER-SHARE-DISTRIBUTIONS> 0.00
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<PER-SHARE-NAV-END> 9.92
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000887991
<NAME> MONEY MARKET FUND
<SERIES>
<NUMBER> 06
<NAME> MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 60,050,005
<INVESTMENTS-AT-VALUE> 60,050,002
<RECEIVABLES> 470,411
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<TOTAL-ASSETS> 60,544,580
<PAYABLE-FOR-SECURITIES> 387,225
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 227,172
<TOTAL-LIABILITIES> 614,397
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 59,930,183
<SHARES-COMMON-STOCK> 59,930,183
<SHARES-COMMON-PRIOR> 58,054,077
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 59,930,183
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,716,542
<OTHER-INCOME> 0
<EXPENSES-NET> 176,188
<NET-INVESTMENT-INCOME> 1,540,354
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<APPREC-INCREASE-CURRENT> 0
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<DISTRIBUTIONS-OF-INCOME> (1,541,128)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 22,399,365
<NUMBER-OF-SHARES-REDEEMED> (22,064,387)
<SHARES-REINVESTED> 1,541,128
<NET-CHANGE-IN-ASSETS> 1,876,106
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 101,157
<AVERAGE-NET-ASSETS> 58,739,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
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<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000887991
<NAME> BALANCED FUND
<SERIES>
<NUMBER> 07
<NAME> BALANCED FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1996
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<INVESTMENTS-AT-VALUE> 99,302,946
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<TOTAL-ASSETS> 100,609,719
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<SHARES-COMMON-STOCK> 7,936,350
<SHARES-COMMON-PRIOR> 6,575,791
<ACCUMULATED-NII-CURRENT> 671,956
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,284,654
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9,021,101
<NET-ASSETS> 99,804,035
<DIVIDEND-INCOME> 246,391
<INTEREST-INCOME> 1,500,344
<OTHER-INCOME> 0
<EXPENSES-NET> 446,534
<NET-INVESTMENT-INCOME> 1,300,201
<REALIZED-GAINS-CURRENT> 1,674,656
<APPREC-INCREASE-CURRENT> 2,639,177
<NET-CHANGE-FROM-OPS> 5,614,034
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<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 21,877,936
<NUMBER-OF-SHARES-REDEEMED> (9,797,881)
<SHARES-REINVESTED> 4,806,694
<NET-CHANGE-IN-ASSETS> 17,694,089
<ACCUMULATED-NII-PRIOR> 1,706,435
<ACCUMULATED-GAINS-PRIOR> 2,082,012
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<PER-SHARE-NAV-BEGIN> 12.49
<PER-SHARE-NII> 0.79
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<PER-SHARE-NAV-END> 12.58
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
