Notes to Financial Statements ACTIVE BALANCED 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 currently consists of two separate funds: Stock Index Fund and Active
Balanced Fund (the ``Fund''). Prior to September 21, 1996 the Company consisted of seven separate funds, five
of which were subsequently reorganized and combined with existing funds in the Prudential Mutual Funds family
of funds (see Note 6.)
The Company had no operations until July 7, 1992 when 10,000 shares of beneficial interest of the Company
were sold for $100,000 to Prudential Institutional Fund Management, Inc. (``PIFM''). Investment operations of
the Fund commenced on January 4, 1993. 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.
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the Fund.
Securities Valuation: 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 closing bid and asked prices quoted on
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 whi