As filed with the Securities and Exchange Commission on February 28, 1996
Securities Act Registration No. 2-64625
Investment Company Act Registration No. 811-2927
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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 [x]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 20 [x]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 21 [x]
(Check appropriate box or boxes)
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PRUDENTIAL TAX-FREE MONEY FUND, INC.
(Exact name of registrant as specified in charter)
(formerly Prudential-Bache Tax-Free Money Fund, Inc.)
ONE SEAPORT PLAZA,
NEW YORK, NEW YORK 10292
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 214-1250
S. Jane Rose, Esq.
One Seaport Plaza
New York, New York 10292
(Name and Address of Agent for Service of Process)
Approximate date of proposed public offering:
As soon as practicable after the effective
date of the Registration Statement.
It is proposed that this filing will become effective
(check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[x] on February 29, 1996 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485. If
appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
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Title of Amount Proposed Maximum Proposed Maximum Amount of
Securities Being Offering Price Aggregate Registration
Being Registered Registered Per Unit Offering Price* Fee
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Shares of Common
Stock, par value
$.01 per share 106,916,243 $1.00 $290,000 $100
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* The calculation of the maximum aggregate offering price was made pursuant to
Rule 24e-2 and was based upon an offering price of $1 per share, equal to
the net asset value as of the close of business on February 20, 1996 in
accordance with Rule 457(d). The total number of shares redeemed during the
fiscal year ended December 31, 1995 amounted to 1,524,960,795 shares. Of
this number, no shares have been used for reduction pursuant to paragraph
(a) of Rule 24e-2 in all previous filings of post-effective amendments
during the current year, and 1,404,299,237 shares have been used for
reduction pursuant to paragraph (c) of Rule 24f-2 in all previous filings
during the current year. 106,626,243 ($106,626,243) of the redeemed shares
for the fiscal year ended December 31, 1995 are being used for the
reductions in the post-effective amendment being filed herein.
Registrant has registered an indefinite number of shares under the Securities
Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act of 1940. The
Rule 24f-2 Notice for the Registrant's most recent fiscal year ended December
31, 1995 was filed on February 28, 1996.
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<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 495)
<TABLE>
<CAPTION>
N-1a Item No. Location
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Part A
<S> <C> <C> <C>
Item 1. Cover Page .................................................... Cover Page
Item 2. Synopsis ...................................................... Fund Expenses
Item 3. Condensed Financial Information ............................... Fund Expenses; Financial Highlights; Calculation of
Yield
Item 4. General Description of Registrant ............................. Cover Page; Fund Highlights; How the Fund Invests;
General Information
Item 5. Management of the Fund ........................................ Financial Highlights; How the Fund is Managed
Item 6. Capital Stock and Other Securities ............................ Taxes, Dividends and Distributions; General
Information
Item 7. Purchase of Securities Being Offered .......................... Shareholder Guide; How the Fund Values its Shares
Item 8. Redemption or Repurchase ...................................... Shareholder Guide; How the Fund Values its Shares;
General Information
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 ............................... General Information
Item 13. Investment Objectives and Policies ............................ Investment Objective and Policies;
Investment Restrictions
Item 14. Management of the Fund ........................................ Directors and Officers; Manager; Distributor
Item 15. Control Persons and Principal Holders of Securities ........... Not Applicable
Item 16. Investment Advisory and Other Services ........................ Manager; Distributor; Custodian and
Transfer and Dividend Disbursing Agent
and Independent Accountants
Item 17. Brokerage Allocation and Other Practices ...................... Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other Securities ............................ Not Applicable
Item 19. Purchase, Redemption and Pricing of Securities
Being Offered ................................................ Shareholder Investment Account; Net Asset Value
Item 20. Tax Status .................................................... Taxes, Dividends and Distributions
Item 21. Underwriters .................................................. Distributor
Item 22. Calculation of Performance Data ............................... Performance 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 Post-Effective Amendment
to the Registration Statement.
</TABLE>
<PAGE>
PRUDENTIAL TAX-FREE MONEY FUND, INC.
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Prospectus dated February 29, 1996
Prudential Tax-Free Money Fund, Inc. (the Fund), is an open-end diversified
management investment company whose investment objective is to attain for
investors the highest level of current income that is exempt from federal income
taxes, consistent with liquidity and the preservation of capital. The Fund will
invest in short-term tax-exempt debt securities of state and local governments.
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 One Seaport Plaza, New York, New York 10292, and its telephone number
is (800) 225-1852.
An investment in the Fund is neither insured nor guaranteed by the U.S.
Government and there can be no assurance that the Fund will be able to maintain
a stable net asset value of $1.00 per share. See "How the Fund Values its
Shares."
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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 February 29, 1996, which information
is incorporated herein by reference (is legally considered a part of this
Prospectus) and 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
reference.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
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 Tax-Free Money Fund?
Prudential Tax-Free Money 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 Fund is an open-end, diversified
management investment company.
What Is the Fund's Investment Objective?
The investment objective of the Fund is to attain for investors the highest
level of current income that is exempt from federal income taxes, consistent
with liquidity and the preservation of capital. The Fund will seek to achieve
its investment objective by investing in a diversified portfolio of short-term
debt obligations issued by states, territories and possessions of the United
States and by the District of Columbia, and their political subdivisions, duly
constituted authorities and corporations, the interest from which is wholly
exempt from federal income tax in the opinion of bond counsel to the issuer.
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 6.
Risk Factors and Special Characteristics
It is anticipated that the Fund's net asset value will remain constant at
$1.00 per share, although this cannot be assured. In order to maintain such
constant net asset value, the Fund will value its portfolio securities at
amortized cost. While this method provides certainty in valuation, it may result
in periods during which the value of a security in its portfolio, as determined
by amortized cost, is higher or lower than the price the Fund would receive if
it sold such securities. See "How the Fund Values its Shares" at page 11.
Who Manages the Fund?
Prudential Mutual Fund Management, Inc. (PMF or the Manager) is the Manager
of the Fund and is compensated for its services at an annual rate of .50 of 1%
of the Fund's average daily net assets up to $750 million, .425 of 1% of the
Fund's average daily net assets between $750 million and $1.5 billion and .375
of 1% in excess of $1.5 billion. As of January 31, 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
Corporation (PIC or the Subadviser) 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 9.
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 and is paid an annual service fee at the rate
of .125 of 1% of the average daily net assets of the Fund's shares. See "How the
Fund is Managed-- Distributor" at page 9.
What Is the Minimum Investment?
The minimum initial investment is $1,000. The minimum subsequent investment
is $100. There is no minimum investment requirement for certain employee savings
plans. 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 13 and "Shareholder Guide--Shareholder Services"
at page 19.
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. See "How the Fund Values
its Shares" at page 11 and "Shareholder Guide--How to Buy Shares of the Fund" at
page 13.
How Do I Sell My Shares?
You may redeem shares of the Fund at any time at the NAV next determined
after Prudential Securities or the Transfer Agent receives your sell order. See
"Shareholder Guide--How to Sell Your Shares" at page 16.
How Are Dividends and Distributions Paid?
The Fund expects to declare daily and pay monthly dividends of net
investment income and short-term capital gains, if any, and make distributions
annually of any net long-term capital gains. Dividends and distributions will be
automatically reinvested in additional shares of the Fund at NAV unless you
request that they be paid to you in cash. See "Taxes, Dividends and
Distributions" at page 12.
3
<PAGE>
FUND EXPENSES
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases .......................... None
Maximum Sales Load Imposed on Reinvested Dividends ............... None
Deferred Sales Load .............................................. None
Redemption Fees .................................................. None
Exchange Fee ..................................................... None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees .................................................. .500%
12b-1 Fees ....................................................... .125%
Other Expenses ..................................................... .225%
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Total Fund Operating Expenses .................................... .850%
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Example 1 Year 3 Years 5 Years 10 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: $9 $27 $47 $105
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The above example is based on data for the Fund's fiscal year ended
December 31, 1995. 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 an investor in understanding the
various 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" include operating
expenses of the Fund, such as directors' and professional fees, registration
fees, reports to shareholders, transfer agency and custodian fees.
4
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout each of the years indicated)
The following financial highlights with respect to each of the five years
in the period ended December 31, 1995, have been audited by Price Waterhouse
LLP, independent accountants, whose report thereon was unqualified. This
information should be read in conjunction with the financial statements and
notes thereto, which appear in the Statement of Additional Information. The
following financial highlights contain selected data for a share of beneficial
interest outstanding, total return, ratios to average net assets and other
supplemental data for each of the periods 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>
Year Ended December 31,
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1995 1994 1993 1992 1991 1990 1989 1988(b) 1987 1986
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of year ....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income and
realized gains ................ .031 .023 .018 .026 .041 .053 .056 .047 .040 .044
Dividends and distributions to
shareholders .................. (.031) (.023) (.018) (.026) (.041) (.053) (.056) (.047) (.040) (.044)
------- -------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of year ... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======== ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN:(a) ............... 3.15% 2.31% 1.86% 2.63% 4.22% 5.42% 5.74% 4.83% 4.11% 4.50%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000) ........................ $387,651 $487,290 $601,622 $614,333 $616,867 $700,859 $653,268 $628,034 $630,822 $772,877
Average net assets (000) ...... $470,370 $644,481 $726,571 $669,588 $725,844 $701,869 $644,820 $705,161 $719,244 $671,626
Ratios to average net assets:(c)
Expenses, including
distribution fee ............. .85% .75% .74% .74% .75% .74% .78% .77% .77% .68%
Expenses, excluding
distribution fee ............. .72% .63% .62% .62% .63% .61% .66% .64% .64% .56%
Net investment income ......... 3.14% 2.26% 1.84% 2.60% 4.15% 5.30% 5.65% 4.79% 4.08% 4.22%
</TABLE>
- ------------------------
(a) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions.
(b) On May 2, 1988, Prudential Mutual Fund Management, Inc. succeeded The
Prudential Insurance Company of America as investment adviser and since
then has acted as manager of the Fund. See "Manager" in the Statement of
Additional Information.
(c) The ratios of expenses to average net assets for the fiscal year ended
December 31, 1995 reflect an arrangement with the Fund's custodian
whereby uninvested monies earn credits which reduce the fees charged by the
custodian.
5
<PAGE>
CALCULATION OF YIELD
The Fund calculates its "current yield" based on the net change, exclusive
of realized and unrealized gains or losses, in the value of a hypothetical
account over a seven calendar day base period. The Fund also calculates its
"effective annual yield" assuming weekly compounding and its "tax-equivalent
yield." Tax-equivalent yield shows the taxable yield an investor would have to
earn from a fully taxable investment in order to equal an after-tax equivalent
to the Fund's tax-free yield and is calculated by dividing the Fund's current or
effective yield by the result of one minus the maximum federal tax rate. The
following are examples of the current yield, effective annual yield and tax
equivalent yield calculations as of December 31, 1995:
Value of hypothetical account at end of period $1.000654231
Value of hypothetical account at beginning of period 1.000000000
------------
Base period return $0.000654231
============
Current yield (0.000654231 x (365/7)) 3.41%
Effective annual yield, assuming weekly compounding 3.47%
Tax equivalent yield (3.41% / (1-.396)) 5.65%
The yield will fluctuate from time to time and is not necessarily
representative of future income or dividends.
The weighted average life to maturity of the Fund's portfolio on December
31, 1995 was 56 days.
Yield is computed in accordance with a standardized formula described in
the Statement of Additional Information. In addition, comparative performance
information may be used from time to time in advertising or marketing the Fund's
shares, including data from Lipper Analytical Services, Inc., Morningstar
Publications, Inc., Donoghue's Money Fund Report, The Bank Rate Monitor, other
industry publications, business periodicals, rating services and market indices.
HOW THE FUND INVESTS
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to attain for investors the highest
level of current income that is exempt from federal income taxes, consistent
with liquidity and the preservation of capital. The achievement of the Fund's
investment objective will depend on market conditions generally and on the
analytical and portfolio management skills of the Fund's investment adviser.
There is no assurance that the Fund's investment objective will be achieved.
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,
as amended (the Investment Company Act). Policies that are not fundamental may
be modified by the Board of Directors.
The Fund will seek to achieve its investment objective by investing in a
diversified portfolio of short-term debt obligations issued by states,
territories and possessions of the United States and by the District of
Columbia, and their political subdivisions, duly constituted authorities and
corporations, the interest from which is wholly exempt from federal income tax
in the opinion of bond counsel to the issuer. Such securities are generally
known as "Municipal Bonds" or "Municipal Notes." Interest on certain Municipal
Bonds and Municipal Notes may be a preference item for purposes of the federal
alternative minimum tax. See "Taxes, Dividends and Distributions." The Fund will
maintain a dollar-weighted average maturity of its portfolio of 90 days or less.
6
<PAGE>
The Fund will invest in high quality Municipal Bonds and Notes with
short-term maturities, as follows:
1. Municipal Bonds with remaining maturities of thirteen months or less
which have been rated, at the time of purchase, Aaa or Aa by Moody's Investors
Service, Inc. ("Moody's") or AAA or AA by Standard & Poor's Ratings Group
("S&P"), or, if not rated, are of comparable quality in the judgment of the
investment adviser under the direction of the Board of Directors; or
2. Municipal Notes with remaining maturities of thirteen months or less
which have been rated, at the time of purchase, MIG-1 or MIG-2 by Moody's; P-1
or P-2 by Moody's; SP-1 or SP-1+ by S&P; A-1 or A-2 by S&P; or, if not rated,
are of comparable quality in the judgment of the investment adviser under the
direction of the Board of Directors; or
3. Municipal Bonds or Notes with remaining maturities of thirteen months or
less which depend directly or indirectly on the credit of the United States
Government.
The Fund utilizes the amortized cost method of valuation in accordance with
regulations issued by the Securities and Exchange Commission (SEC). See "How the
Fund Values its Shares." Accordingly, the Fund will limit its portfolio
investments to those instruments which present minimal credit risks and which
are of "eligible quality" as determined by the Fund's investment adviser under
the supervision of the Board of Directors in accordance with regulations of the
SEC, as they may from time to time be amended. "Eligible quality" for this
purpose means a security (i) rated in one of the two highest rating categories
(a) by at least two nationally recognized statistical rating organizations
assigning a rating to the security or issuer or, (b) if only one rating
organization assigned a rating, by that rating organization or (ii) if unrated,
of comparable quality as determined by the investment adviser under the
supervision of the Board of Directors.
See Appendix A in the Statement of Additional Information for a description
of tax-exempt security ratings.
In addition to considering ratings assigned by the rating services in its
selection of portfolio securities for the Fund, the investment adviser will
consider, among other things, information concerning the financial history and
condition of the issuer, its revenue and expense prospects and, in the case of
revenue bonds, the financial history and condition of the source of revenue to
service the bonds. In the event that a Municipal Bond or Note held by the Fund
is assigned a lower rating or ceases to be rated, the investment adviser, under
the supervision of the Board of Directors, will promptly reassess whether such
security presents minimal credit risks and whether the Fund should continue to
hold the security in its portfolio. If a portfolio security no longer presents
minimal credit risks or is in default, the Fund will dispose of the security as
soon as reasonably practicable unless the Board of Directors determines that to
do so is not in the best interests of the Fund.
Variable Rate and Floating Rate Securities
The Fund may invest in Municipal Bonds and Notes which are "variable rate"
and "floating rate" obligations. The interest rates on such obligations
fluctuate generally with changes in market interest rates and the Fund is
typically able to demand repayment of the principal amount of such obligations
at par plus accrued interest either, in some cases, at specified intervals of
less than one year, or, in other cases, upon not less than seven days' notice.
For additional information concerning variable rate and floating rate
obligations, see "Investment Objective and Policies" in the Statement of
Additional Information.
Puts
The Fund may also purchase Municipal Bonds or Notes together with the right
to resell such Bonds or Notes at an agreed-upon price or yield within a
specified period prior to the maturity date of the Bonds or Notes. Such a right
to resell is commonly known as a "put" or a "tender option," and the aggregate
price which the Fund pays for Municipal Bonds or Notes with puts or tender
options is higher than the price which would otherwise be paid for the Bonds or
Notes. For a more detailed description of Municipal Bonds and Notes, and puts
thereon, see "Investment Objective and Policies" in the Statement of Additional
Information.
When-Issued and Delayed Delivery Securities
The Fund may purchase municipal obligations on a when-issued or delayed
delivery basis, in each case without limit. When municipal obligations are
offered on a when-issued or delayed delivery basis, the price and coupon rate
are fixed at the time the
7
<PAGE>
commitment to purchase is made, but delivery and payment for such securities
take place at a later date. During the period between purchase and settlement,
no interest accrues to the purchaser. In the case of purchases of such
securities by the Fund, the price that the Fund is required to pay on the
settlement date may be in excess of the market value of the municipal
obligations on that date. While securities may be sold prior to the settlement
date, the Fund intends to purchase these securities with the purpose of actually
acquiring them unless a sale would be desirable for investment reasons. At the
time the Fund makes the commitment to purchase a municipal obligation on a
when-issued or delayed delivery basis, it will record the transaction and
reflect the value of the obligation, each day, in determining its net asset
value. This value may fluctuate from day to day in the same manner as values of
municipal obligations otherwise held by the Fund. If the seller defaults on the
sale, the Fund could fail to realize the appreciation, if any, that had
occurred. The Fund will establish a segregated account with its Custodian in
which it will maintain cash and liquid, high-grade debt obligations equal in
value to its commitments for when-issued or delayed delivery securities.
Repurchase Agreements
Up to 5% of the Fund's assets may be invested in repurchase agreements
whereby the seller of a security agrees to repurchase that security from the
Fund at a mutually agreed-upon time and price. The period of maturity is usually
quite short, possibly overnight or a few days, although it may extend over a
number of months. The resale price is in excess of the purchase price,
reflecting an agreed-upon rate of return effective for the period of time the
Fund's money is invested in the security. The Fund's repurchase agreements will
at all times be fully collateralized in an amount at least equal to the resale
price. The instruments held as collateral are valued daily, and if the value of
instruments declines, the Fund will require additional collateral. If the seller
defaults and the value of the collateral securing the repurchase agreement
declines, the Fund may incur a loss. The Fund participates in a joint repurchase
account with other investment companies managed by Prudential Mutual Fund
Management, Inc. pursuant to an order of the Securities and Exchange Commission
(SEC).
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. Restricted
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933, as amended (the Securities Act), privately placed commercial paper and
municipal lease obligations if in each case such investments have a readily
available market are not considered illiquid for purposes of this limitation.
The Fund's investment in Rule 144A securities could have the effect of
increasing illiquidity to the extent that qualified institutional buyers become,
for a time, uninterested in purchasing Rule 144A securities. The investment
adviser will monitor the liquidity of such restricted securities under the
supervision of the Board of Directors. Repurchase agreements subject to demand
are deemed to have a maturity equal to the applicable notice period.
OTHER INVESTMENTS AND POLICIES
The Fund intends to hold portfolio securities to maturity; however, it may
sell any security at any time in order to meet redemption requests or if such
action, in the judgment of the investment adviser, is appropriate based on the
investment adviser's evaluation of the issuer or of market conditions.
The Fund anticipates being as fully invested as practicable in Municipal
Bonds and Notes; however, because the Fund does not intend to invest in taxable
obligations, there may be occasions when, as a result of maturities of portfolio
securities or sales of Fund shares or in order to meet anticipated redemption
requests, the Fund may hold cash which is not earning income. In addition, there
may be occasions when, in order to raise cash to meet redemptions, the Fund
might be required to sell securities at a loss.
The Fund does not presently intend to borrow money except to the extent
that the entry into reverse repurchase agreements may be considered borrowing.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on municipal bonds and notes and for providing state and local
governments with federal credit assistance. Reevaluation of the Fund's
investment objective and structure might be necessary in the future due to
market conditions which may result from future changes in the tax laws.
8
<PAGE>
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 Fund has a Board of Directors which, in addition to overseeing the
actions of the Fund's Manager, Subadviser and Distributor, as set forth below,
decides upon matters of general policy. The Fund's officers conduct and
supervise the daily business operations of the Fund. The Fund's Subadviser
furnishes daily investment advisory services.
For the year ended December 31, 1995, total expenses of the Fund as a
percentage of average net assets were .85%. See "Financial Highlights."
MANAGER
Prudential Mutual Fund Management, Inc. (PMF or the Manager), One Seaport
Plaza, New York, New York 10292, is the Manager of the Fund and is compensated
for its services at an annual rate of .50 of 1% of the Fund's average daily net
assets up to $750 million, .425 of 1% of the Fund's average daily net assets
between $750 million and $1.5 billion and .375 of 1% in excess of $1.5 billion.
It was incorporated in May 1987 under the laws of the State of Delaware. For the
fiscal year ended December 31, 1995, the Fund paid management fees to PMF of
.50% of the average net assets of the Fund. See "Manager" in the Statement of
Additional Information.
As of January 31, 1996, PMF served as the manager to 38 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 Fund, PMF manages the investment
operations of the Fund and also administers the Fund's corporate affairs. See
"Manager" in the Statement of Additional Information.
Under a Subadvisory Agreement between PMF and The Prudential Investment
Corporation (PIC or the Subadviser), a wholly-owned subsidiary of The Prudential
Insurance Company of America (Prudential), PIC furnishes investment advisory
services in connection with the management of the Fund and is reimbursed by PMF
for its reasonable costs and expenses incurred in providing such services. Under
the Management Agreement, PMF continues to have responsibility for all
investment advisory services and supervises PIC's performance of such services.
PMF and PIC are indirect, wholly-owned subsidiaries of 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 Fund's
shares. It is an indirect, wholly-owned subsidiary of Prudential.
Under a Distribution and Service Plan (the Plan) adopted by the Fund under
Rule 12b-1 under the Investment Company Act and a distribution and service
agreement (the Distribution Agreement), the Distributor incurs the
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expenses of distributing shares of the Fund. These expenses include account
servicing fees paid to, or on account of, financial advisers of Prudential
Securities and representatives of Pruco Securities Corporation (Prusec),
affiliated broker-dealers, 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 the Fund's 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 Plan, the Fund is obligated to pay a service fee 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 Plan, the Fund pays the Distributor for its distribution-related
activities at an annual rate of .125 of 1% of the Fund's average daily net
assets. Account servicing fees are paid based on the average balance of the
Fund's shares held in the accounts of customers of financial advisers. The
entire distribution fee may be used to pay account servicing fees.
For the fiscal year ended December 31, 1995, the Fund paid distribution
expenses of .125 of 1% of the average daily net assets of its shares. The Fund
records all payments made under the Plan as expenses in the calculation of its
net investment income.
The Plan provides that it shall continue in effect from year to year,
provided that each such continuance is approved annually by a majority vote of
the Board of Directors of the Fund, including a majority of the directors who
are not interested persons of the Fund and who have no direct or indirect
financial interest in the operation of the Plan or any agreements related to the
Plan. The Board of Directors is provided with and reviews quarterly reports of
expenditures under the Plan. The Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Directors or of a majority of the Fund's outstanding
shares. The Fund will not be obligated to pay expenses incurred under the Plan
if it is terminated or not continued.
In addition to service fees paid by the Fund under the Plan, the Manager
(or one of its affiliates) may make payments out of its own resources 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
measures to address the violations.
Pursuant to the terms of the SEC settlement, PSI agreed to the imposition
of a $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 purpose 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,
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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 Fund 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.
PORTFOLIO TRANSACTIONS
Prudential Securities may act as broker 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 (State Street or the Custodian), 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
Fund. Its mailing address is P.O. Box 1713, Boston, Massachusetts 02105.
Prudential Mutual Fund Services, Inc. (PMFS or the Transfer Agent), Raritan
Plaza One, Edison, New Jersey 08837, serves as Transfer 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 Board of Directors has fixed the specific time
of day for the computation of the NAV to be as of 4:30 p.m., New York time,
immediately after the declaration of dividends.
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 Fund shares have been received 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.
The Fund determines the value of its portfolio securities by the amortized
cost method. This method involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Fund would receive if it sold the instrument.
During these periods, the yield to a shareholder may differ somewhat from that
which could be obtained from a similar fund which marks its portfolio securities
to the market each day. For example, during periods of declining interest rates,
if the use of the amortized cost method resulted in lower value of the Fund's
portfolio on a given day, a prospective investor in the Fund would be able to
obtain a somewhat higher yield and existing shareholders would receive
correspondingly less income. The converse would apply during periods of rising
interest rates. The Board of Directors has established procedures designed to
stabilize, to the extent reasonably possible, the Fund's NAV at $1.00 per share.
See "Net Asset Value" in the Statement of Additional Information.
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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. 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 shareholders. In addition, the
Fund intends to invest its assets so that dividends payable from net tax-exempt
interest earned from Municipal Bonds and Notes will qualify as exempt-interest
dividends and thus be excluded from a shareholder's gross income under the
Internal Revenue Code. See "Taxes, Dividends and Distributions" in the Statement
of Additional Information.
Taxation of Shareholders
Distributions of net tax-exempt interest earned on Municipal Bonds and
Municipal Notes will be excluded from a shareholder's gross income under the
Internal Revenue Code. Distributions of net investment income (excluding such
exempt-interest dividends) and realized net short-term capital gains in excess
of net long-term capital losses of the Fund are taxable to shareholders of the
Fund as ordinary income, whether such distributions are received in cash or
reinvested in additional shares.
Interest on certain "private activity" tax-exempt obligations (as defined
in the Internal Revenue Code) issued on or after August 8, 1986 is a preference
item for purposes of the alternative minimum tax. The portion of an
exempt-interest dividend of the Fund that is allocable to such municipal
obligations will be treated as a preference item for purposes of the alternative
minimum tax. In addition, a portion of the tax-exempt dividend interest received
by corporate shareholders with respect to tax-exempt obligations, whether or not
private activity bonds, will be taken into account in computing the alternative
minimum tax. See "Taxes, Dividends and Distributions" in the Statement of
Additional Information.
Distributions of net long-term capital gains (i.e., the excess of net
long-term capital gains over net short-term capital losses) are taxable to
shareholders as long-term capital gains regardless of how long a shareholder has
held shares in the Fund. The Fund does not expect to realize long-term capital
gains or losses. In determining the amount of capital gains to be distributed,
any capital loss carryovers from prior years will be offset against capital
gains.
Neither distributions of net investment income nor distributions of capital
gains, if any, will be eligible for the 70% dividends received deduction allowed
to corporate shareholders. The maximum long-term capital gains rate for
individuals is currently 28%. The maximum long-term capital gains rate for
corporate shareholders is currently the same as the maximum tax rate for
ordinary income.
Distributions may be subject to state and local taxes. Shareholders are
advised to consult their own tax advisers regarding specific questions as to
federal, state or local taxes. See "Taxes, Dividends and Distributions" in the
Statement of Additional Information.
Withholding Taxes
Under the Internal Revenue Code, the Fund is generally required to withhold
and remit to the U.S. Treasury 31% of taxable dividends and capital gain
distributions payable to individuals and certain noncorporate shareholders who
fail to furnish correct tax identification numbers on IRS Form W-9 (or IRS Form
W-8 in the case of certain foreign shareholders). Withholding at this rate is
also required from dividends and capital gains distributions (but not redemption
proceeds) payable to shareholders who are otherwise subject to backup
withholding. Dividends from taxable net investment income and short-term capital
gains paid to a foreign shareholder will generally be subject to U.S.
withholding tax at the rate of 30% (or lower treaty rate).
Dividends and Distributions
The Fund expects to declare daily and pay monthly dividends of net
investment income and short-term capital gains, if any, and make distributions
annually of any net long-term capital gains. A shareholder begins to earn
dividends on the first business day after the settlement date of his or her
order and continues to earn dividends through the day on which his or her shares
are redeemed.
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Dividends and distributions will be paid in additional shares of the Fund
based on the net asset value of the Fund's shares on the payment date, unless
the shareholder elects in writing not less than five business days prior to the
payment date to receive such dividends and distributions in cash. Such election
should be submitted to Prudential Mutual Fund Services, Inc., Attention: Account
Maintenance, P.O. Box 15015, New Brunswick, New Jersey 08906-5015. If you hold
your shares through Prudential Securities, you should contact your financial
adviser to elect to receive dividends and distributions in cash. The Fund will
notify each shareholder after the close of the Fund's taxable year both of the
dollar amount and taxable status of that year's dividends and distributions on a
per share basis.
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
The Fund was incorporated in Maryland on March 22, 1979, and its authorized
capital stock consists of three billion shares of common stock of $.01 par
value. Shares of the Fund, when issued, are fully paid, nonassessable, fully
transferable and redeemable at the option of the shareholder. Shares are also
redeemable at the option of the Fund. See "Shareholder Guide--How to Sell Your
Shares." All shares are equal as to earnings, assets and voting privileges.
There are no conversion, pre-emptive or other subscription rights. In the event
of liquidation, each share of common stock of the Fund is entitled to its
portion of all of the Fund's assets after all debts and expenses have been paid.
The shares of the Fund do not have cumulative voting rights for the election of
directors.
The Fund does not intend to hold annual meetings of shareholders unless
otherwise required by law. The Fund will not be required to hold annual meetings
of shareholders unless, for example, the election of directors 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% of the
Fund's outstanding shares for the purpose of voting on the removal of one or
more Directors 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 of 1933. 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 or Prusec
or directly from the Fund through its Transfer Agent, Prudential Mutual Fund
Services, Inc., Attention: Investment Services, P.O. Box 15020, New Brunswick,
New Jersey 08906-5020. The minimum initial investment is $1,000. The minimum
subsequent investment is $100. All minimum investment requirements are waived
for certain employee savings plans. For purchases made through the Automatic
Savings Accumulation Plan, the minimum initial and subsequent investment is $50.
See "Shareholder Services" below.
An investment in the Fund may not be appropriate for tax-exempt or
tax-deferred investors. Such investors should consult their own tax advisers.
Shares of the Fund are sold, without a sales charge, at the NAV next
determined after receipt and acceptance by PMFS of a purchase order and payment
in proper form [i.e., a check or Federal Funds wired to State Street Bank &
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Trust Company (State Street)]. See "How the Fund Values its Shares." When
payment is received by PMFS prior to4:30 P.M., New York time, in proper form, a
share purchase order will be entered at the price determined as of 4:30 P.M.,
New York time, on that day, and dividends on the shares purchased will begin on
the business day following such investment. See "Taxes, Dividends and
Distributions."
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 stock
certificates. Shareholders cannot utilize Expedited Redemption or Check
Redemption or have a Systematic Withdrawal Plan if they have been issued 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" below.
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 shares of the Fund may be subject to postage and other
charges imposed by your dealer.
Purchase through Prudential Securities
Shares of the Fund may be purchased through Prudential Securities at the
net asset value next computed after your order is received. Prudential
Securities will transmit your order to the Fund on the next business day for
settlement that day and you will begin earning dividends on the second business
day after receipt of your order by Prudential Securities. Prudential Securities
will have the use of any free credit balances (i.e., immediately available
funds) held in your account until they are delivered to the Fund in connection
with your purchase.
Shares of the Fund purchased by Prudential Securities on behalf of its
clients will be held by Prudential Securities as record holder. Prudential
Securities will therefore receive statements and dividends directly from the
Fund and will in turn provide investors with Prudential Securities account
statements reflecting purchases, redemptions and dividend payments. Although
Prudential Securities clients who purchase shares of the Fund through Prudential
Securities may not redeem shares of the Fund by check, Prudential Securities may
provide its clients with alternative forms of immediate access to monies
invested in shares of the Fund.
Prudential Securities clients wishing additional information concerning
investment in Fund shares made through Prudential Securities should call their
Prudential Securities financial adviser.
Automatic Investment. Prudential Securities has advised the Fund that it
has instituted procedures pursuant to which, upon enrollment by a Prudential
Securities client, Prudential Securities will make automatic investments of free
credit balances of $1,000 or more (Eligible Credit Balances) held in such
client's account in shares of the Fund (Autosweep). To effect the automatic
investment of Eligible Credit Balances representing the proceeds from the sale
of securities, Prudential Securities will enter orders for the purchase of Fund
shares at the opening of business on the day following the settlement of such
securities transactions; to effect the automatic investment of Eligible Credit
Balances representing non-trade related credits, Prudential Securities will
enter orders for the purchase of Fund shares at the opening of business
semi-monthly. Each time an order is placed under these procedures resulting from
the settlement of a securities sale, any non-trade related credit in the
client's account will also be automatically invested. All shares purchased
pursuant to these procedures will begin earning dividends on the business day
after the order is placed. Prudential Securities will have the use of Eligible
Credit Balances until monies are delivered to the Fund.
Self-directed Investment. Prudential Securities clients not electing
Autosweep may continue to place orders for the purchase of Fund shares through
Prudential Securities, subject to minimum initial and subsequent investment
requirements as described above.
A Prudential Securities client who has not elected Autosweep (see
"Automatic Investment" above) and who does not place a purchase order promptly
after funds are credited to his or her Prudential Securities account will have a
free credit balance with Prudential Securities and will not begin earning
dividends on shares of the Fund until the second business day after receipt of
the order by Prudential Securities from the client. Accordingly, Prudential
Securities will have the use of such free credit balances during this period.
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Purchase through Prusec
You may purchase shares of the Fund by placing an order with your Prusec
registered representative accompanied by payment for the purchase price of such
shares and, in the case of a new account, a completed application form. You
should also submit an IRS Form W-9. The Prusec registered representative will
then forward these items to PMFS. See "Purchase by Mail" below.
Purchase by Wire
For an initial purchase of shares of the Fund by wire, you must first
telephone PMFS at (800) 225-1852 (toll-free) to receive an account number. The
following information will be requested: your name, address, tax identification
number, 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, Boston, Massachusetts, Custody and
Shareholder Services Division, Attention: Prudential Tax-Free Money 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 4:30
P.M., New York time, on a business day, you may purchase Fund shares as of that
day and earn dividends commencing on the next business day.
In making a subsequent purchase order by wire, you should wire State Street
directly, and should be sure that the wire specifies Prudential Tax-Free Money
Fund and your name and individual account number. It is not necessary to call
PMFS to make subsequent purchase orders by wire. The minimum amount which may be
invested by wire is $1,000.
Purchase by Mail
Purchase orders for which remittance is to be made by check or money order
may be submitted directly by mail to Prudential Mutual Fund Services, Inc.,
Attention: Investment Services, P.O. Box 15020, New Brunswick, NJ 08906-5020,
together with payment for the purchase price of such shares and, in the case of
a new account, a completed application form. You should also submit an IRS Form
W-9. If PMFS receives an order to purchase shares of the Fund prior to 4:30
P.M., New York time, and payment by check, the purchase order will be effective
that day and you will be entitled to dividends the following business day. See
"Taxes, Dividends and Distributions." Checks should be made payable to
Prudential Tax-Free Money Fund. Certified checks are not necessary, but checks
must be drawn on a bank located in the United States. There are restrictions on
the redemption of shares purchased by check while funds are being collected. See
"How to Sell Your Shares."
Purchase by Holders of Prudential Securities Unit Trusts
Holders of Prudential sponsored Unit Trusts may elect to have monthly
distributions paid by such Unit Trusts reinvested in shares of the Fund without
compliance with the investment minimums described under "How to Buy Shares of
the Fund."
The Prudential Advantage Account Program
Shares of the Fund are offered to participants in the Prudential Advantage
Account Program (the Advantage Account Program), a financial services program
available to clients of Pruco Securities Corporation. Investors participating in
the Advantage Account Program may select the Fund as their primary investment
vehicle. Such investors will have the cash balances of $1.00 or more in their
Securities Account (Available Cash) (a component of the Advantage Account
Program carried through Prudential Securities) automatically invested in shares
of the Fund. Specifically, an order to purchase shares of the Fund is placed (i)
in the case of Available Cash resulting from the proceeds of securities sales,
on the settlement date of the securities sale, and (ii) in the case of Available
Cash resulting from non-trade related credits (i.e., receipt of dividends and
interest payments, or a cash payment by the participant into his or her
Securities Account), on the business day after receipt by Prudential Securities
of the non-trade related credit.
All shares purchased pursuant to these automatic purchase procedures will
begin earning dividends on the business day after the order is placed.
Prudential Securities will arrange for investment in shares of the Fund at 4:30
P.M. on the day the order is placed and cause payment to be made in federal
funds for the shares prior to 4:30 P.M. on the next business day. Prudential
Securities will have the use of free credit cash balances until delivery to the
Fund.
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<PAGE>
Redemptions will be automatically effected by Prudential Securities to
satisfy debit balances in a Securities Account created by activity therein or
existing under the Advantage Account Program, such as those incurred by use of
the Visa(R) Account, including Visa purchases, cash advances and Visa Account
checks. Each Advantage Account Program Securities Account will be automatically
scanned for debits each business day as of the close of business on that day and
after application of any free credit cash balances in the account to such
debits, a sufficient number of shares of the Fund (if selected as the primary
fund) and, if necessary, shares of other Advantage Account funds owned by the
Advantage Account Program participant which have not been selected as his or her
primary fund or shares of a participant's money market funds managed by PMF
which are not primary Advantage Account funds will be redeemed as of that
business day to satisfy any remaining debits in the Securities Account. Shares
may not be purchased until all debits, overdrafts and other requirements in the
Securities Account are satisfied.
Advantage Account Program charges and expenses are not reflected in the
Table of Fund Expenses. See "Fund Expenses."
For information on participation in the Advantage Account Program, you
should telephone (800) 235-7637 (toll-free).
HOW TO SELL YOUR SHARES
You can redeem your shares at any time for cash at the NAV 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."
Shares for which a redemption request is received by PMFS prior to 4:30
P.M., New York time, are entitled to a dividend on the day on which the request
is received. By pre-authorizing Expedited Redemption, you may arrange to have
payment for redeemed shares made in Federal Funds wired to your bank, normally
on the next bank business day following the date of receipt of the redemption
instructions. Should you redeem all of your shares, you will receive the amount
of all dividends declared for the month-to-date on those shares. See "Taxes,
Dividends and Distributions."
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.
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 offices.
Normally, the Fund makes payment on the next business day for all shares
redeemed, but in any event, payment is made within seven days after receipt by
PMFS of stock certificates and/or of a redemption request in proper form.
However, the Fund may suspend the right of redemption or postpone the date of
payment (a) for any periods during which the New York Stock Exchange is closed
(other than for customary weekend or holiday closings), (b) for any periods when
trading in the markets which the Fund normally utilizes is closed or restricted
or an emergency exists as determined by the SEC so that disposal of the Fund's
investments or determination of its NAV is not reasonably practicable or (c) for
such other periods as the SEC may permit for protection of the Fund's
shareholders; provided that applicable rules and regulations of the SEC shall
govern as to whether the conditions in (b) or (c) 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.
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Redemption of Shares Purchased Through Prudential Securities
Prudential Securities clients for whom Prudential Securities has purchased
shares of the Fund may have these shares redeemed only by instructing their
Prudential Securities financial adviser orally or in writing.
Prudential Securities has advised the Fund that it has established
procedures pursuant to which shares of the Fund held by a Prudential Securities
client having a deficiency in his or her Prudential Securities account will be
redeemed automatically to the extent of that deficiency to the nearest highest
dollar, unless the client notifies Prudential Securities to the contrary. The
amount of the redemption will be the lesser of (a) the total NAV of Fund shares
held in the client's Prudential Securities account or (b) the deficiency in the
client's Prudential Securities account at the close of business on the date such
deficiency is due. Accordingly, a Prudential Securities client utilizing this
automatic redemption procedure and who wishes to pay for a securities
transaction or meet any market action related deficiency in his or her account
other than through such automatic redemption procedure must do so not later than
the day of settlement for such securities transaction or the date such market
action related deficiency is incurred. Prudential Securities clients who have
elected to utilize Autosweep will not be entitled to dividends declared on the
date of redemption.
Redemption of Shares Purchased Through PMFS
If you purchase shares of the Fund through PMFS, you may use Check
Redemption, Expedited Redemption or Regular Redemption. Prudential Securities
clients for whom Prudential Securities has purchased shares may not use such
services.
Regular Redemption. You may redeem your shares by sending a written
request, accompanied by duly endorsed share certificates, if issued, to PMFS,
Attention: Redemption Services, P.O. Box 15010, New Brunswick, NJ 08906-5010. In
this case, all share certificates must be endorsed by you with signature
guaranteed, as described above. PMFS may request further documentation from
corporations, executors, administrators, trustees or guardians. Regular
redemption is made by check sent to the shareholder's address.
Expedited Redemption. By pre-authorizing Expedited Redemption, you may
arrange to have payment for redeemed shares made in Federal Funds wired to the
shareholder's bank, normally on the next business day following redemption. In
order to use Expedited Redemption, you may so designate at the time the initial
application form is filed or at a later date. Once the Expedited Redemption
authorization form has been completed, the signature on the authorization form
guaranteed as set forth below and the form returned to Prudential Mutual Fund
Services, Inc., Attention: Redemption Services, P.O. Box 15010, New Brunswick,
NJ 08906-5010, requests for redemption may be made by telegraph, letter or
telephone. To request Expedited Redemption by telephone, a shareholder should
call PMFS at (800) 225-1852. Calls must be received by PMFS before 4:30 P.M.,
New York time to permit redemption as of such date. Requests by letter should be
addressed to Prudential Mutual Fund Services, Inc., at the address set forth
above.
A signature guarantee is not required under Expedited Redemption once the
authorization form is properly completed and returned. The Expedited Redemption
privilege may be used only to redeem shares in an amount of $200 or more, except
that, if an account for which Expedited Redemption is requested has a net asset
value of less than $200, the entire account must be redeemed. The proceeds of
redeemed shares in the amount of $1,000 or more are transmitted by wire to your
account at a domestic commercial bank which is a member of the Federal Reserve
System. Proceeds of less than $1,000 are forwarded by check to your designated
bank account.
During periods of severe market or economic conditions, Expedited
Redemption may be difficult to implement, and you should redeem shares by mail
as described above.
Check Redemption. At your request, State Street will establish a personal
checking account for you. Checks drawn on this account can be made payable to
the order of any person in any amount greater than $500. When such check is
presented to State Street for payment, State Street presents the check to the
Fund as authority to redeem a sufficient number of shares of the Fund in your
account to cover the amount of the check. If insufficient shares are in the
account, or if the purchase was made by check within 10 days, the check will be
returned marked "insufficient funds." Checks in an amount less than $500 will
not be honored. Shares for which certificates have been issued cannot be
redeemed by check. PMFS reserves the right to impose a service charge to
establish a checking account and order checks.
17
<PAGE>
Involuntary Redemption
Because of the relatively high cost of maintaining an account, the Fund
reserves the right to redeem, upon 60 days' written notice, an account which is
reduced by a shareholder to an NAV of $500 or less due to redemption. You may
avoid such redemption by increasing the NAV of your account to an amount in
excess of $500.
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 net asset value next determined after
the order is received, which must be within 90 days after the date of the
redemption. Any contingent deferred sales charge (CDSC) paid in connection with
such redemption will be credited (in shares) to your account. (If less than a
full repurchase is made, the credit will be on a pro rata basis.) You must
notify the Fund's Transfer Agent, either directly or through Prudential
Securities, at the time the repurchase privilege is exercised to adjust your
account for the CDSC you previously paid. Thereafter, any redemptions will be
subject to the CDSC applicable at the time of the redemption. Exercise of the
repurchase privilege will generally not affect federal tax treatment of any gain
realized upon redemption. However, if the redemption was made within a 30 day
period of the repurchase and if the redemption resulted in a loss, some or all
of the loss, depending on the amount reinvested, may not be allowed for federal
income tax purposes.
Class B and Class C Purchase Privilege
You may direct that the proceeds of a redemption of Fund shares be invested
in Class B or Class C shares of any Prudential Mutual Fund by calling your
Prudential Securities financial adviser or the Transfer Agent at (800) 225-1852.
The transaction will be effected on the basis of the relative NAV.
HOW TO EXCHANGE YOUR SHARES
As a shareholder of the Fund, you may exchange your shares for shares of
certain other Prudential Mutual Funds, including money market funds and funds
sold with an initial sales charge, subject to the minimum investment
requirements of such funds on the basis of relative NAV. You may exchange your
shares for Class A shares of the Prudential Mutual Funds on the basis of the
relative NAV plus the applicable sales charge. No additional sales charge is
imposed in connection with subsequent exchanges. You may not exchange your
shares for Class B shares of the Prudential Mutual Funds, except that shares
acquired prior to January 22, 1990 subject to a contingent deferred sales charge
can be exchanged for Class B shares. You may not exchange your shares for Class
C shares of the Prudential Mutual Funds. See "How to Sell Your Shares--Class B
and Class C Purchase Privilege" above and "Shareholder Investment
Account--Exchange Privilege" in the Statement of Additional Information. An
exchange will be treated as a redemption and purchase for tax purposes.
In order to exchange shares by telephone, you must authorize telephone
exchanges on your initial application form or by written consent 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, 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 of the Fund 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.
18
<PAGE>
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 of the Fund 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 Exchange Privilege may be modified or terminated at any time on 60
days' notice to shareholders.
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 Distributions. 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 Automatic Savings Accumulation Plan (ASAP). Under ASAP you may make
regular purchases of Fund shares in amounts as little as $50 via an automatic
charge to a bank account or Prudential Securities account (not 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 Systematic Withdrawal Plan. A systematic withdrawal plan is available for
shareholders having shares of the Fund which provides for monthly or quarterly
checks. For additional information about this service, you may contact your
Prudential Securities financial adviser, Prusec representative or the Transfer
Agent directly.
o Multiple Accounts. Special procedures have been designed for banks and
other institutions that wish to open multiple accounts. An institution may open
a single master account by filing an Application Form with Prudential Mutual
Fund Services, Inc. (PMFS or the Transfer Agent), Attention: Customer Service,
P.O. Box 15005, New Brunswick, New Jersey 08906, signed by personnel authorized
to act for the institution. Individual sub-accounts may be opened at the time
the master account is opened by listing them, or they may be added at a later
date by written advice or by filing forms supplied by the Fund. Procedures are
available to identify sub-accounts by name and number within the master account
name. The investment minimums set forth above are applicable to the aggregate
amounts invested by a group and not to the amount credited to each sub-account.
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 report and semi-annual shareholder
report and annual prospectus per household. You may request additional copies of
such reports by calling (800) 225-1852 or by writing to the Fund at One Seaport
Plaza, New York, New York 10292.
o Shareholder Inquiries. Inquiries should be addressed to the Fund at One
Seaport Plaza, New York, New York 10292, 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.
19
<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 registered representative or telephone
the Fund at (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 Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Global Natural Resources Fund, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Global Utility Fund, Inc.
The Global Government Plus Fund, Inc.
The Global Total Return Fund, Inc.
Equity Funds
Prudential Allocation Fund
Balanced Portfolio
Strategy Portfolio
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Growth Opportunity Fund, Inc.
Prudential Jennison Fund, Inc.
Prudential Multi-Sector 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
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
CALCULATION OF YIELD ............................................. 6
HOW THE FUND INVESTS ............................................. 6
Investment Objective and Policies ............................... 6
Other Investments and Policies .................................. 8
Investment Restrictions ......................................... 9
HOW THE FUND IS MANAGED .......................................... 9
Manager ......................................................... 9
Distributor ..................................................... 9
Portfolio Transactions .......................................... 11
Custodian and Transfer and
Dividend Disbursing Agent ...................................... 11
HOW THE FUND VALUES ITS SHARES ................................... 11
TAXES, DIVIDENDS AND DISTRIBUTIONS ............................... 12
GENERAL INFORMATION .............................................. 13
Description of Common Stock ..................................... 13
Additional Information .......................................... 13
SHAREHOLDER GUIDE ................................................ 13
How to Buy Shares of the Fund ................................... 13
How to Sell Your Shares ......................................... 16
How to Exchange Your Shares ..................................... 18
Shareholder Services ............................................ 19
THE PRUDENTIAL MUTUAL FUND FAMILY ................................ A-1
- --------------------------------------------------------------------------------
103A 444030H
- --------------------------------------------------------------------------------
CUSIP No. 74436P-10-3
- --------------------------------------------------------------------------------
PRUDENTIAL
TAX-FREE MONEY
FUND, INC.
PROSPECTUS
FEBRUARY 29, 1996
Prudential Mutual Funds
Building Your Future
On Our Strength
<PAGE>
PRUDENTIAL TAX-FREE MONEY FUND, INC.
Statement of Additional Information
dated February 29, 1996
Prudential Tax-Free Money Fund, Inc. (the Fund), is an open-end diversified
management investment company whose investment objective is to attain for
investors the highest level of current income that is exempt from federal income
taxes, consistent with liquidity and the preservation of capital. The Fund will
invest in short-term tax-exempt debt securities of state and local governments.
There can be no assurance that the Fund's investment objective will be achieved.
See "Investment Objective and Policies." The Fund's address is One Seaport
Plaza, New York, New York 10292, and its telephone number is (800) 225-1852.
This Statement of Additional Information is not a prospectus. It is
intended to be read in conjunction with the Fund's Prospectus, dated February
29, 1996. A copy of the Prospectus may be obtained from the Fund at the address
or telephone number noted above.
TABLE OF CONTENTS
Cross-reference
to page in
Page Prospectus
---- ---------------
General Information ..................................... B-2 13
Investment Objective and Policies ....................... B-2 6
Investment Restrictions ................................. B-5 9
Directors and Officers .................................. B-6 9
Manager ................................................. B-9 9
Distributor ............................................. B-11 9
Portfolio Transactions and Brokerage .................... B-13 11
Purchase and Redemption of Fund Shares .................. B-13 13
Shareholder Investment Account .......................... B-15 19
Net Asset Value ......................................... B-17 11
Calculation of Yield .................................... B-17 6
Taxes, Dividends and Distributions ...................... B-18 12
Custodian and Transfer and Dividend Disbursing Agent .... B-19 11
Financial Statements .................................... B-20 --
Report of Independent Accountants ....................... B-28 --
Appendix A--Description of Tax-Exempt Security Ratings .. A-1 --
- --------------------------------------------------------------------------------
103B 4440076
<PAGE>
GENERAL INFORMATION
At a meeting of shareholders held on May 2, 1995, the Board of Directors
approved an amendment to the Fund's Articles of Incorporation to change the
Fund's name from Prudential-Bache Tax-Free Money Fund, Inc. to Prudential
Tax-Free Money Fund, Inc.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to attain for investors the highest
level of current income that is exempt from federal income taxes, consistent
with liquidity and the preservation of capital. The Fund will seek to achieve
its investment objective by investing in a diversified portfolio of short-term
debt obligations issued by states, territories and possessions of the United
States and by the District of Columbia, and their political subdivisions, duly
constituted authorities and corporations, the interest from which is
wholly-exempt from federal income tax in the opinion of bond counsel to the
issuer. Such securities are generally known as "Municipal Bonds" or "Municipal
Notes." Interest on certain Municipal Bonds and Municipal Notes may be a
preference item for purposes of the federal alternative minimum tax. See "Taxes,
Dividends & Distributions." There can be no assurance that the Fund's investment
objective will be achieved.
The investment policies of the Fund other than its investment objective and
those described under "Investment Restrictions" may be changed by the Board of
Directors of the Fund without shareholder approval.
Municipal Bonds and Notes
Municipal Bonds. Municipal Bonds are generally issued to obtain funds for
various public purposes, including construction of public facilities such as
airports, bridges, highways, housing, hospitals, mass transportation, schools,
streets and water and sewer works. They may also be issued to refund outstanding
obligations, to meet general operating expenses or to obtain funds to lend to
other public institutions and facilities. Municipal Bonds also include bonds
issued by or on behalf of public authorities in order to obtain funds with which
to provide privately operated housing facilities, sports facilities, pollution
control facilities, convention or trade show facilities, industrial, port or
parking facilities and facilities for water supply, gas, electricity or waste
disposal. These bonds typically are revenue bonds and generally do not carry the
pledge of the issuer's credit.
Municipal Bonds may be general obligation or revenue bonds. General
obligation bonds are secured by the issuer's pledge of its faith, credit and
taxing power for the payment of principal and interest. Revenue bonds are
payable from the revenues derived from a particular facility or class of
facilities or from the proceeds of a special excise tax or other specific
revenue source but not from the general taxing power.
Municipal Notes. Municipal Notes are short-term obligations generally with
a maturity, at the time of issuance, ranging from six months to three years. The
principal types of Municipal Notes include tax anticipation notes, bond
anticipation notes and revenue anticipation notes. Municipal Notes sold in
anticipation of collection of taxes, a bond sale, or receipt of other revenues,
are usually general obligations of the issuing municipality or agency.
Municipal Notes also include tax-exempt or municipal commercial paper,
which is likely to be issued to meet seasonal working capital needs of a
municipality or interim construction financing and to be paid from general
revenues of the municipality or refinanced with long-term debt. In most cases
municipal commercial paper is backed by letters of credit, lending agreements,
note repurchase agreements or other credit facility agreements offered by banks
or other institutions.
The Fund will treat an investment in a municipal security refunded with
escrowed U.S. Government securities as U.S. Government securities for purposes
of the Investment Company Act's diversification requirements provided: (i) the
escrowed securities are "government securities" as defined in the Investment
Company Act, (ii) the escrowed securities are irrevocably pledged only to
payment of debt service on the refunded securities, except to the extent there
are amounts in excess of funds necessary for such debt service, (iii) principal
and interest on the escrowed securities will be sufficient to satisfy all
scheduled principal, interest and any premiums on the refunded securities and a
verification report prepared by a party acceptable to a nationally recognized
statistical rating agency, or counsel to the holders of the refunded securities,
so verifies, (iv) the escrow agreement provides that the issuer of the refunded
securities grants and assigns to the escrow agent, for the equal and ratable
benefit of the holders of the refunded securities, an express first lien on,
pledge of and perfected security interest in the escrowed securities and the
interest income thereon, (v) the escrow agent had no lien of any type with
respect to the escrowed securities for payment of its fees or expenses except to
the extent there are excess securities, as described in (ii) above. The Fund
will not, however, invest more than 25% of its total assets in pre-refunded
bonds of the same municipal issuer.
B-2
<PAGE>
Variable Rate and Floating Rate Securities. The interest rates payable on
certain Municipal Bonds and Municipal Notes are not fixed and may fluctuate
based upon changes in market rates. Municipal Bonds and Notes of this type are
called "variable rate" or "floating rate" obligations. The interest rate payable
on a variable rate obligation is adjusted at predesignated intervals and that
payable on a floating rate obligation is adjusted whenever there is a change in
the market rate of interest on which the interest rate payable is based. Other
features of these obligations typically include the right of the Fund to demand,
in some cases, at specified intervals of less than one year or, in other cases,
upon not less than seven days' notice, prepayment of the principal amount of the
obligation prior to its stated maturity (a demand feature). In addition, the
issuer may have the right, at similar intervals or upon similar notice, to
prepay the principal amount prior to maturity. The principal benefit of variable
and floating rate obligations is that the interest rate adjustment minimizes
changes in the market value of the obligations. As a result, the purchase of
such obligations should enhance the ability of the Fund to maintain a stable net
asset value per share (see Net Asset Value) and to sell an obligation prior to
maturity at a price approximating the full principal amount of the obligation.
The payment of principal and interest by issuers of certain Municipal Bonds and
Notes purchased by the Fund may be guaranteed by letters of credit or other
credit facilities offered by banks or other financial institutions. Such
guarantees will be considered in determining whether a Municipal Bond or Note
meets the Fund's investment quality requirements.
Puts. The Fund may purchase Municipal Bonds or Notes together with the
right to resell the Municipal Bonds or Notes to the seller at an agreed-upon
price or yield within a specified period prior to the maturity date of the Bonds
or Notes. Such a right to resell is commonly known as a "put" or "tender
option," and the aggregate price which the Fund pays for Municipal Bonds or
Notes with puts or tender options is higher than the price which otherwise would
be paid for the Bonds or Notes. Consistent with the Fund's investment objective
and subject to the supervision of the Board of Directors, the primary purpose of
this practice is to permit the Fund to be fully invested in securities the
interest on which is exempt from federal income taxes 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's policy is generally to exercise the
puts or tender options on their expiration date when the exercise price is
higher than the current market price for related Municipal Bonds or Notes. 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
Fund's investment adviser 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 investment adviser
considers, among other things, the amount of cash available to the Fund, the
expiration dates of the available puts or tender options, any future commitments
for securities purchases, the yield, quality and maturity dates of the
underlying securities, alternative investment opportunities and the desirability
of retaining the underlying securities in the Fund's portfolio.
The Fund values Municipal Bonds and Notes which are subject to puts or
tender options at amortized cost; no value is assigned to the put or tender
option. The cost of the put or tender option is carried as an unrealized loss
from the time of purchase until it is exercised or expires. The value of the put
or tender option is dependent on the ability of the put writer to meet its
obligation of repurchase, and it is the Fund's general policy to enter into put
or tender option transactions only with such brokers, dealers or other financial
institutions which present minimal credit risks. There is a credit risk
associated with the purchase of puts or tender options in that the broker,
dealer or financial institution might default on its obligation to repurchase an
underlying security. The Fund has received a ruling of the Internal Revenue
Service to the effect that the Fund will be considered the owner of the
Municipal Bonds or Notes subject to the puts or tender options so that the
interest on the Bonds or Notes will be tax-exempt income to the Fund.
When-Issued and Delayed Delivery Securities. Municipal Bonds and Notes are
frequently offered on a when-issued or delayed delivery basis. When so offered,
the price and coupon rate are fixed at the time the commitment to purchase is
made, but delivery and payment for the when-issued securities take place at a
later date. Normally, the settlement date occurs within one week of the purchase
of Municipal Notes and within one month of the purchase of Municipal Bonds. The
purchase price and the interest rate payable on the securities are fixed on the
transaction date. The securities so purchased are subject to market fluctuation
and, during the period between purchase and settlement, no interest accrues to
the purchaser. While securities may be sold prior to the settlement date, the
Fund intends to purchase such securities with the purpose of actually acquiring
them unless a sale would be desirable for investment reasons. At the time the
Fund makes the commitment to purchase a Municipal Bond or Note on a when-issued
or delayed delivery basis, it will record the transaction and reflect the value
of the Bond or Note in determining its net asset value. The Fund will also
establish a segregated account with its custodian bank in which it will maintain
cash and other Municipal Bonds or Notes equal in value to commitments for
B-3
<PAGE>
when-issued or delayed delivery securities. Such Municipal Bonds or Notes will
either mature on or about the settlement date or will be Bonds or Notes as to
which the Fund has a put exercisable on or about the settlement date. If the
Fund chooses to dispose of the right to acquire a when-issued or delayed
delivery security prior to the settlement date, it could, as with the
disposition of any other portfolio obligation, incur a gain or loss due to
market fluctuation. The Fund does not believe that its net asset value or net
investment income will be adversely affected by its purchase of Municipal Bonds
or Notes on a when-issued or delayed delivery basis. The Fund may invest in
when-issued or delayed delivery securities without other limitation.
Illiquid Securities
The Fund may not hold more than 10% of its net assets in repurchase
agreements which have a maturity of longer than seven days or in other illiquid
securities, including 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, convertible and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or 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 under the Securities Act allows for a broader institutional
trading market for securities otherwise subject to restriction on resale to the
general public. Rule 144A establishes a "safe harbor" from the registration
requirements of the Securities Act for resales of certain securities to
qualified institutional buyers. The investment adviser anticipates that the
market for certain restricted securities such as institutional commercial paper
and foreign securities will expand further as a result of this regulation and
the development of automated systems for the trading, clearance and settlement
of unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc. (NASD).
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act, commercial paper and municipal lease obligations for which there
is a readily available market will not be deemed to be illiquid. The investment
adviser will monitor the liquidity of such restricted securities subject to the
supervision of the Board of Directors. In reaching liquidity decisions, the
investment adviser will consider, inter alia, the following factors: (1) the
frequency of trades and quotes for the security; (2) the number of dealers
wishing to purchase or sell the security and the number of other potential
purchasers; (3) dealer undertakings to make a market in the security; and (4)
the nature of the security and the nature of the marketplace trades (e.g., the
time needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer). With respect to municipal lease obligations, the
investment adviser will also consider: (1) the willingness of the municipality
to continue, annually or biannually, to appropriate funds for payment of the
lease; (2) the general credit quality of the municipality and the essentiality
to the municipality of the property covered by the lease; (3) in the case of
unrated municipal lease obligations, an analysis of factors similar to that
performed by nationally recognized statistical rating organizations in
evaluating the credit quality of a municipal lease obligation, including (i)
whether the lease can be cancelled; (ii) if applicable, what assurance there is
that the assets represented by the lease can be sold; (iii) the strength of the
lessee's general credit (e.g., its debt, administrative, economic and financial
characteristics); (iv) the likelihood that the municipality will discontinue
appropriating funding for the leased property because the property is no longer
deemed essential to the operations of the municipality (e.g., the potential for
an event of nonappropriation); (v) the legal recourse in the event of failure to
appropriate; and (4) any other factors unique to municipal lease obligations as
determined by the investment adviser. With respect to commercial paper that is
issued in reliance on Section 4(2) of the Securities Act (1) it must be rated in
one of the two highest
B-4
<PAGE>
rating categories by at least two nationally recognized statistical rating
organizations (NRSRO), or if only one NRSRO rates the securities, by that NRSRO,
or, if unrated, be of comparable quality in the view of the investment adviser;
and (2) 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 Matters. For purposes of diversification under the Investment Company
Act of 1940, as amended (the Investment Company Act), the identification of the
issuer of Municipal Bonds or Notes depends on the terms and conditions of the
obligation. If the assets and revenues of an agency, authority, instrumentality
or other political subdivision are separate from those of the government
creating the subdivision, and the obligation is backed only by the assets and
revenues of the subdivision, such subdivision would be regarded as the sole
issuer. Similarly, in the case of a private activity revenue bond or pollution
control revenue bond, if the bond is backed only by the assets and revenues of
the nongovernmental user, the nongovernmental user would be regarded as the sole
issuer. If in either case the creating government or another entity guarantees
an obligation, the guarantee would be regarded as a separate security and
treated as an issue of such government or entity.
Portfolio Turnover
Portfolio turnover rate is defined as the lesser of the amount of the
securities purchased or securities sold, excluding all securities whose maturity
or expiration date at the time of acquisition was one year or less, divided by
the average monthly value of such securities owned during the year. Because the
Fund's portfolio will contain only securities maturing within one year, the Fund
does not expect to have a turnover rate as so defined. However, because of the
short-term nature of the Fund's portfolio, it expects to have substantial
amounts of portfolio transactions. The Fund does not expect to pay any material
amounts of brokerage commissions, but transaction costs exist in the form of
spreads between bid and asked price.
INVESTMENT RESTRICTIONS
The following investment restrictions are fundamental policies. Fundamental
policies are those which cannot be changed without the approval of the holders
of a majority of the Fund's outstanding voting securities. A "majority of the
Fund's outstanding voting securities," when used in this Statement of Additional
Information, means the lesser of (1) 67% of the Fund's voting shares represented
at a meeting at which more than 50% of the outstanding shares are present in
person or represented by proxy, or (2) more than 50% of the Fund's outstanding
voting shares.
The Fund may not:
(1) Invest more than 5% of the market or other fair value of its total
assets in the securities of any one issuer (other than obligations of, or
guaranteed by, the United States Government, its agencies or instrumentalities
or secured by such obligations). See "Municipal Bonds and Notes" under
"Investment Objective and Policies" for definition of an issuer.
(2) Make short sales of securities.
(3) Purchase securities on margin, except for such short-term credits as
are necessary for the clearance of purchases and sales of portfolio securities.
(4) Borrow money, except that the Fund may borrow for temporary purposes in
amounts not exceeding 5% of the market or other fair value (taken at the lower
of cost or current value) of its total assets (not including the amount
borrowed). Any such borrowings will be made only from banks. Secured temporary
borrowings may take the form of reverse repurchase agreements, pursuant to which
the Fund would sell portfolio securities for cash and simultaneously agree to
repurchase them at a specified date for the same amount of cash plus an interest
component. The Fund would maintain, in a segregated account with its custodian,
liquid assets equal in value to the amount owed.
(5) Pledge its assets or assign or otherwise encumber them in excess of 10%
of its assets (taken at market or other fair value at the time of pledging) and
then only to secure borrowings effected within the limitations set forth in
restriction (4).
(6) Engage in the underwriting of securities.
(7) Purchase or sell real estate mortgage loans, although it may purchase
Municipal Bonds or Notes secured by interests in real estate.
(8) Make loans of money or securities. The purchase of a portion of an
issue of publicly distributed debt securities is not considered the making of a
loan.
B-5
<PAGE>
(9) Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets.
(10) Invest for the purpose of exercising control or management of another
company.
(11) Purchase industrial revenue bonds if, as a result of such purchase,
more than 5% of total Fund assets would be invested in industrial revenue bonds
where payment of principal and interest are the responsibility of companies with
less than three years of operating history.
Whenever any fundamental investment policy or investment restriction states
a maximum percentage of the Fund's assets, it is intended that if the percentage
limitation is met at the time the investment is made, a later change in
percentage resulting from changing total or net asset values will not be
considered a violation of such policy. However, in the event that the Fund's
asset coverage for borrowings falls below 300%, the Fund will take prompt action
to reduce its borrowings, as required by applicable law.
In order to comply with certain state "blue sky" restrictions, the Fund
will not as a matter of operating policy:
1. Invest more than 10% of its total assets in repurchase agreements which
have a maturity of longer than seven days or in other illiquid securities,
including securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale. Securities
eligible for resale in accordance with Rule 144A under the Securities Act of
1933, privately placed commercial paper and Municipal Lease Obligations that
have legal or contractual restrictions on resale but have a readily available
market will not be considered illiquid for purposes of this limitation if
determined to be liquid by the Board of Directors. Repurchase agreements subject
to demand are deemed to have a maturity equal to the notice period.
2. Invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation, or securities of
issuers which are restricted as to disposition, if more than 15% of its total
assets would be invested in such securities. This restriction shall not apply to
mortgage-backed securities, asset-backed securities or obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
3. Purchase the securities of any one issuer if any officer or director of
the Fund or the Manager or Subadviser owns more than 1/2 of 1% of the
outstanding securities of such issuer, and such officers and directors who own
more than 1/2 of 1% own in the aggregate more than 5% of the outstanding
securities of such issuer.
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
Position with Principal Occupations
Name, Address and Age Fund During Past Five Years
- --------------------- ------------- -----------------------
<S> <C> <C>
Delayne Dedrick Gold (57) Director Marketing and Management Consultant.
c/o Prudential Mutual Fund
Management, Inc.
One Seaport Plaza
New York, NY
Arthur Hauspurg (70) Director Trustee and former President, Chief Executive Officer
c/o Prudential Mutual Fund and Chairman of the Board of Consolidated Edison Company of New York,
Management, Inc. Inc.; Director of COMSAT Corp.
One Seaport Plaza
New York, NY
Stephen P. Munn (53) Director Chairman (since January 1994), President (1988-1993), Director and Chief
250 South Clinton Street Executive Officer (since 1988) of Carlisle Companies Incorporated.
Syracuse, NY
</TABLE>
B-6
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupations
Name, Address and Age Fund During Past Five Years
- --------------------- ------------- -----------------------
<S> <C> <C>
*Richard A. Redeker (52 President President, Chief Executive Officer and Director (since October 1993);
One Seaport Plaza and Director Prudential Mutual Fund Management, Inc.(PMF); Executive Vice President,
New York, NY Director and Member of the Operating Committee (since October 1993) of
Prudential Securities; Director (since October 1993) of Prudential
Securities Group, Inc. (PSG); Executive Vice President, The Prudential
Investment Corporation (since July 1994); Director of Prudential Mutual
Fund Distributors, Inc. (PMFD) (since January 1994) and Prudential
Mutual Fund Services, Inc. (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.
Louis A. Weil, III (54) Director President and Chief Executive Officer (since January 1996) and
120 E. Van Buren Director (since September 1991) of Central Newspapers, Inc.;
Phoenix, AZ Chairman (since January 1996) and Publisher and Chief Executive
Officer, Phoenix Newspapers, Inc. (August 1991-December 1995);
prior thereto, Publisher of Time Magazine (May 1989-March 1991);
formerly, President, Publisher and Chief Executive Officer of The
Detroit News (February 1986-August 1989); formerly member of the
Advisory Board, Chase Manhattan Bank-Westchester.
David W. Drasnin (59) Vice President Vice President and Branch Manager of Prudential Securities.
39 Public Square
Suite 500
Wilkes-Barre, PA
Robert F. Gunia (49) Vice President Chief Administrative Officer (since July 1990), Director (since
One Seaport Plaza January 1989), Executive Vice President, Treasurer and Chief
New York, NY Financial Officer (since June 1987) of PMF; Senior Vice President
(since March 1987) of Prudential Securities; Executive Vice
President, Treasurer and Comptroller (since March 1991) of PMFD
and Director (since June 1987) of PMFS; Vice President and
Director of The Asia Pacific Fund, Inc. (since May 1989).
Grace Torres (36) Treasurer and First Vice President (since March 1994) of PMF; First Vice
One Seaport Plaza Principal President (since March 1994) of PSI. Prior thereto, Vice
New York, NY Financial and President, Bankers Trust Company.
Accounting
Officer
Stephen M. Ungerman (42) Assistant First Vice President of PMF (since February 1993). Prior thereto,
One Seaport Plaza Treasurer Senior Tax Manager at Price Waterhouse (since 1981).
New York, NY
S. Jane Rose (50) Secretary Senior Vice President (since January 1991), Senior Counsel (since
One Seaport Plaza June 1987) and First Vice President (June 1987-December 1990) of
New York, NY PMF; Senior Vice President and Senior Counsel of Prudential
Securities (since July 1992); formerly Vice President and
Associate General Counsel of Prudential Securities.
</TABLE>
B-7
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupations
Name, Address and Age Fund During Past Five Years
- --------------------- ------------- ----------------------
<S> <C> <C>
Ronald Amblard (37) Assistant First Vice President (since January 1994), and Associate General
One Seaport Plaza Secretary Counsel (since January 1992) of PMF; Vice President and Associate
New York, NY General Counsel of Prudential Securities (since January 1992);
formerly, Assistant General Counsel (August 1988-December 1991);
Associate Vice President (January 1989-December 1990) and Vice
President (January 1991-December 1993) of PMF.
</TABLE>
- -------------
* "Interested" director, as defined in the Investment Company Act by reason of
their affiliation with Prudential Securities or PMF.
Directors and officers of the Fund are also trustees, directors and
officers of some or all of the other investment companies distributed by
Prudential Securities Incorporated (Prudential Securities or PSI) or Prudential
Mutual Fund Distributors, Inc.
The officers conduct and supervise the daily business operations of the
Fund, while the directors, in addition to their functions set forth under
"Manager" and "Distributor," review such actions and decide on general policy.
The Fund pays each of its directors who is not an affiliated person of PMF
or The Prudential Investment Corporation (PIC) annual compensation of $6,000, in
addition to certain out-of-pocket expenses. The Chairman of the Audit Committee
receives an additional $200 per year.
Directors may receive their Director's fee pursuant to a deferred fee
agreement with the Fund. Under the terms of the agreement, the Fund accrues
daily the amount of such Director's fee in installments which accrue interest at
a rate equivalent to the prevailing rate applicable to 90-day U.S. Treasury
Bills at the beginning of each calendar quarter or, pursuant to an exemptive
order of the Securities and Exchange Commission (SEC), at the daily rate of
return of the Fund (the Fund rate). Payment of the interest so accrued is also
deferred and accruals become payable at the option of the Director. The Fund's
obligation to make payments of deferred Directors' fees, together with interest
thereon, is a general obligation of the Fund.
The Board of Directors has adopted a retirement policy which calls for the
retirement of Directors on December 31 of the year in which they reach the age
of 72, except that retirement is being phased in for Directors who were age 68
or older as of December 31, 1993.
The Board of Directors has nominated a new slate of Directors for the Fund
which will be submitted to shareholders at a special meeting scheduled to be
held in or about October 1996.
Pursuant to the Management Agreement with the Fund, the Manager pays all
compensation of officers and employees of the Fund as well as the fees and
expenses of all Directors of the Fund who are affiliated persons of the Manager.
The following table sets forth the aggregate compensation paid by the
Fund for the fiscal year ended December 31, 1995 to the Directors who are not
affiliated with the Manager and the aggregate compensation paid to such
Directors for service on the Fund's board and that of all other funds managed by
Prudential Mutual Fund Management, Inc. (Fund Complex) for the calendar year
ended December 31, 1995.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Total
Pension or Compensation
Retirement From Fund
Aggregate Benefits Accrued Estimated Annual and Fund
Compensation As Part of Fund Benefits Upon Complex Paid
Name and Position From Fund Expenses Retirement to Directors
----------------- ------------ ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Delayne Dedrick Gold--Director .................... $6,200 None N/A $183,250(24/45)*
Arthur Hauspurg--Director ......................... $6,000 None N/A $ 37,500(5/7)*
Stephen P. Munn--Director ......................... $6,000 None N/A $ 39,375(6/8)*
Louis A. Weil, III--Director ...................... $6,000 None N/A $ 93,750(11/16)*
</TABLE>
- -------------
* Indicates number of funds/portfolios in Fund Complex (including the Fund) to
which aggregate compensation relates.
B-8
<PAGE>
As of February 9, 1996, the Directors and officers of the Fund, as a group,
owned less than 1% of the outstanding common stock of the Fund.
As of February 9, 1996, Prudential Securities was the record holder for
other beneficial owners of 417,964,810 shares (or 94%) of the outstanding common
stock of the Fund. In the event of any meetings of shareholders, Prudential
Securities will forward, or cause the forwarding of, proxy materials to the
beneficial owners for which it is the record holder.
MANAGER
The manager of the Fund is Prudential Mutual Fund Management, Inc., One
Seaport Plaza, New York, New York 10292 (PMF or the Manager). PMF serves as
manager of the other investment companies that, together with the Fund, comprise
the "Prudential Mutual Funds." See "How the Fund is Managed" in the Prospectus.
As of January 31, 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 September 30, 1995, the
Prudential Mutual Funds were the 13th largest family of mutual funds in the
United States.
PMF is a subsidiary of Prudential Securities Incorporated 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, Inc. 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.
Pursuant to the Management Agreement with the Fund (the Management
Agreement), PMF, subject to the supervision of the Fund's Board of Directors and
in conformity with the stated policies of the Fund, manages both the investment
operations of the Fund and the composition of the Fund's portfolio, including
the purchase, retention, disposition and loan of securities. In connection
therewith, PMF is obligated to keep certain books and records of the Fund. PMF
also administers the Fund's corporate affairs and, in connection therewith,
furnishes the Fund with office facilities, together with those ordinary clerical
and bookkeeping services which are not being furnished by State Street Bank and
Trust Company, the Fund's custodian, and Prudential Mutual Fund Services, Inc.
(PMFS or the Transfer Agent), the Fund's 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 .50 of 1% of the Fund's average daily net assets up to $750
million, .425 of 1% of the Fund's average daily net assets between $750 million
and a $1.5 billion and .375 of 1% in excess of $1.5 billion. The fee is computed
daily and payable monthly. The Management Agreement provides that, in the event
the expenses of the Fund (including the fees payable to 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 shares of the Fund are then
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 Fund. No such reductions were required during the
fiscal year ended December 31, 1995. Currently, the Fund believes that the most
restrictive expense limitation of state securities commissions is 2-1/2% of the
Fund's average daily net assets up to $30 million, 2% of the Fund's average
daily net assets from $30 million to $100 million and 1-1/2% of the excess over
$100 million.
In connection with its management of the corporate affairs of the Fund, PMF
bears the following expenses:
(a) the salaries and expenses of its and the Fund's personnel except the
fees and expenses of Directors who are not affiliated persons of PMF or the
Fund's investment adviser;
(b) all expenses incurred by PMF or by the Fund in connection with managing
the ordinary course of the Fund's business, other than those assumed by the
Fund, as described below; and
(c) the costs and expenses payable to The Prudential Investment Corporation
(PIC) pursuant to a subadvisory agreement between PMF and PIC (the Subadvisory
Agreement).
Under the terms of the Management Agreement, the Fund is responsible for
the payment of the following expenses: (a) the fees payable to the Manager, (b)
the fees and expenses of Directors who are not affiliated with the Manager or
the Fund's investment adviser, (c) the fees and certain expenses of the Fund's
Custodian and Transfer and Dividend Disbursing Agent,
B-9
<PAGE>
including the cost of providing records to the Manager in connection with its
obligation of maintaining required records of the Fund and of pricing the Fund's
shares, (d) the charges and expenses of the Fund's legal counsel and independent
accountants, (e) brokerage commissions and any issue or transfer taxes
chargeable to the Fund in connection with its securities and futures
transactions, (f) all taxes and corporate fees payable by the Fund to
governmental agencies, (g) the fees of any trade association of which the Fund
is a member, (h) the cost of stock certificates representing and/or
non-negotiable share deposit receipts evidencing shares of the Fund, (i) the
cost of fidelity and liability insurance, (j) the fees and expenses involved in
registering and maintaining registration of the Fund and of its shares with the
SEC and registering the Fund and qualifying its shares under state securities
laws, including the preparation and printing of the Fund's registration
statements and prospectuses for such purposes, (k) allocable communications
expenses with respect to investor services and all expenses of shareholders' and
Directors' meetings and of preparing, printing and mailing reports, proxy
statements and prospectuses to shareholders, (l) litigation and indemnification
expenses and other extraordinary expenses not incurred in the ordinary course of
the Fund's business, and (m) distribution fees.
The Management Agreement provides that PMF will not be liable for any error
of judgment or any loss suffered by the Fund 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
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. The Management Agreement was last approved by the Board of Directors of the
Fund, including a majority of the Directors who are not parties to the agreement
or interested persons of such parties as defined in the Investment Company Act,
on May 2, 1995, and was approved by the shareholders of the Fund on April 28,
1988.
For the fiscal years ended December 31, 1995, 1994 and 1993, the Fund paid
management fees to PMF of $2,351,851, $3,222,405 and $3,632,856, respectively.
PMF has entered into the Subadvisory Agreement with PIC (the Subadviser), a
wholly-owned subsidiary of Prudential. The Subadvisory Agreement provides that
PIC furnish investment advisory services in connection with the management of
the Fund. In connection therewith, PIC is obligated to keep certain books and
records of the Fund. PMF continues to have responsibility for all investment
advisory services pursuant to the Management Agreement and supervises PIC's
performance of such services. PIC is reimbursed by PMF for the reasonable costs
and expenses incurred by the PIC in furnishing services to PMF. Investment
advisory services are provided to the Fund by a unit of the Subadviser, known as
Prudential Mutual Fund Investment Management.
PIC maintains a credit unit which provides credit analysis and research on
tax-exempt fixed-income securities. The portfolio manager consults routinely
with the credit unit in managing the Fund's portfolio. The credit unit reviews
on an ongoing basis issuers of tax-exempt fixed-income obligations, including
prospective purchases and portfolio holdings of the Fund. Credit analysts have
broad access to research and financial reports, data retrieval services and
industry analysts. They review financial and operating statements supplied by
state and local governments and other issuers of municipal securities to
evaluate revenue projections and the financial soundness of municipal issuers.
They study the impact of economic and political developments on state and local
governments, evaluate industry sectors and meet periodically with public
officials and other representatives of state and local governments and other
tax-exempt issuers to discuss such matters as budget projections, debt policy,
the strength of the regional economy and, in the case of revenue bonds, the
demand for facilities. They also make site inspections to review specific
projects and to evaluate the progress of construction or the operation of a
facility.
The Subadvisory Agreement was last approved by the Board of Directors,
including a majority of the directors who are not parties to such contract or
interested persons of such parties as defined in the Investment Company Act, on
May 2, 1995, and was approved by the shareholders of the Fund on April 28, 1988.
The Subadvisory 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. The Subadvisory Agreement may be
terminated by the Fund, PMF or PIC upon not more than 60 days' nor less than 30
days' written notice. The Subadvisory 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.
The Manager and Subadviser 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, 1994. Its primary business is to offer a full range of products and services
in three areas: insurance, investments and home
B-10
<PAGE>
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 nearly 100,000 persons worldwide, and maintains a sales
force of approximately 19,000 agents, 3,400 insurance brokers and 6,000
financial advisors. It insures or provides other financial services to more than
50 million people worldwide. 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. For the year
ended December 31, 1994, Prudential through its subsidiaries provided financial
services to more than 50 million people worldwide--equivalent to more than one
of every five people in the United States. As of December 31, 1994, Prudential
through its subsidiaries provided automobile insurance for more than 1.8 million
cars and insured more than 1.5 million homes. For the year ended December 31,
1994, The Prudential Bank, a subsidiary of Prudential, served 940,000 customers
in 50 states providing credit card services and loans totaling more than $1.2
billion. Assets held by Prudential Securities Incorporated (PSI) for its clients
totaled approximately $150 billion at December 31, 1994. During 1994, over
28,000 new customer accounts were opened each month at PSI. 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.
Based on data for the period from January 1, 1995 to September 30, 1995 for
the Prudential Mutual Funds, on an average business day, there are approximately
$80 million in common stock transactions, over $150 million in bond transactions
and over $3.1 billion in money market transactions. 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. Based on complex-wide
data for the period from January 1, 1995 to September 30, 1995, on an average
business day, over 7,000 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.
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.
DISTRIBUTOR
Prudential Securities Incorporated (Prudential Securities or PSI), One
Seaport Plaza, New York, New York 10292, acts as the distributor of the shares
of the Fund. Prior to January 2, 1996, Prudential Mutual Fund Distributors, Inc.
(PMFD), One Seaport Plaza, New York, New York 10292, acted as distributor of the
shares of the Fund.
Distribution and Service Plan
Under the Fund's Distribution and Service Plan (the Plan) and the
Distribution Agreement with Prudential Securities, the Fund pays Prudential
Securities, as distributor, a distribution fee of .125 of 1% of the average
daily net assets of the Fund, computed daily and payable monthly. At a meeting
held on November 3-4, 1995, the Board of Directors approved an assignment of the
Distribution Agreement from PMFD to Prudential Securities. See "How the Fund is
Managed--Distributor" in the Prospectus.
For the fiscal year ended December 31, 1995, PMFD incurred distribution
expenses in the aggregate of $587,963, all of which was recovered through the
distribution fee paid by the Fund to PMFD. It is estimated that all this amount
was spent on commission credits to Prudential Securities and Prusec for payments
of account servicing fees to financial advisers and an allocation of overhead
and other branch office distribution-related expenses. The term "overhead and
other branch office distribution-related expenses" represents (a) the expenses
of operating Prudential Securities' and Prusec's branch offices in connection
with the sale of Fund shares including lease costs, the salaries and employee
benefits of operations and sales support personnel, utility costs,
communications costs and the costs of stationery and supplies, (b) the costs of
client sales seminars, (c) travel expenses of mutual fund sales coordinators to
promote the sale of Fund shares, and (d) other incidental expenses relating to
branch promotion of Fund sales.
The Plan continues in effect from year to year, provided that each such
continuance is approved at least annually by a vote of the Board of Directors,
including a majority vote of the directors who are not interested persons of the
Fund and who have no direct or indirect financial interest in the operation of
the Plan (as defined in the Investment Company Act), cast in person at a meeting
called for the purpose of voting on such continuance. The Plan may be terminated
at any time, without penalty, by the vote of a majority of the Directors who are
not interested persons or by the vote of the holders of a majority of the
outstanding
B-11
<PAGE>
voting securities of the Fund on not more than 60 days' written notice to any
other party to the Plan. The Plan may not be amended to increase materially the
amounts to be spent by the Fund thereunder without shareholder approval, and all
material amendments are required to be approved by the Board of Directors in the
manner described above. The Plan will automatically terminate in the event of
its assignment.
Pursuant to the Plan, the Directors will be provided with, and will review,
at least quarterly, a written report of the distribution expenses incurred on
behalf of the Fund by Prudential Securities. The report will include an
itemization of the distribution expenses and the purpose of such expenditures.
In addition, as long as the Plan remains in effect, the selection and nomination
of directors who are not interested persons of the Fund shall be committed to
the Directors who are not interested persons of the Fund or a committee thereof.
On May 2, 1995, the Board of Directors, including a majority of Directors
who are not interested persons of the Fund and who have no direct or indirect
financial interest in the operation of the Plan (the Rule 12b-1 Directors), at a
meeting called for the purpose of voting on the Plan, approved amendments to the
Plan changing it from a reimbursement type plan to a compensation type plan.
Pursuant to Rule 12b-1, the Plan was last approved by the Board of Directors,
including a majority of the Rule 12b-1 Directors, in person at a meeting called
for such purpose on May 2, 1995, and, as amended, was approved by the
shareholders of the Fund on July 19, 1995.
Pursuant to the Distribution Agreement, the Fund has agreed to indemnify
the Distributor to the extent permitted by applicable law against certain
liabilities under the Securities Act of 1933, as amended. The Distribution
Agreement was approved by the Board of Directors, including a majority of the
Rule 12b-1 Directors, on May 2, 1995.
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 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 the creation of new customer accounts, the general
solicitation of new accounts, and the offer for sale of securities in or from
PSI's North Dallas 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 will also serve as an independent "ombudsman" whom PSI
employees can call anonymously with complaints about ethics and compliance. PSI
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shall report any allegations or instances of criminal conduct and material
improprieties to the new director. The new director will submit compliance
reports which shall identify all such allegations or instances of criminal
conduct and material improprieties every three months for a three-year period.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Manager is responsible for decisions to buy and sell securities for the
Fund, the selection of brokers and dealers to effect transactions and the
negotiation of brokerage commissions, if any. The term "Manager" as used in this
section includes the "Subadviser." Fixed-income securities are generally traded
on a "net" basis with dealers acting as principal for their own accounts without
a stated commission, although the price of the security usually includes a
profit to the dealer. In underwritten offerings, securities are purchased at a
fixed price which includes an amount of compensation to the underwriter,
generally referred to as the underwriter's concession or discount. The Fund will
not deal with Prudential Securities in any transaction in which Prudential
Securities acts as principal. Purchases and sales of securities on a securities
exchange, while infrequent, will be effected through brokers who charge a
commission for their services. Orders may be directed to any broker including,
to the extent and in the manner permitted by applicable law, Prudential
Securities.
In placing orders for portfolio securities of the Fund, the Manager is
required to give primary consideration to obtaining the most favorable price and
efficient execution. This means that the Manager will seek to execute each
transaction at a price and commission, if any, which provides the most favorable
total cost or proceeds reasonably attainable in the circumstances. While the
Manager generally seeks reasonably competitive spreads or commissions, the Fund
will not necessarily be paying the lowest spread or commission available. Within
the framework of the policy of obtaining most favorable price and efficient
execution, the Manager will consider research and investment services provided
by brokers or dealers who effect or are parties to portfolio transactions of the
Fund, the Manager or the Manager's other clients. Such research and investment
services are those which brokerage houses customarily provide to institutional
investors and include statistical and economic data and research reports on
particular municipalities and industries. Such services are used by the Manager
in connection with all of its investment activities, and some of such services
obtained in connection with the execution of transactions for the Fund may be
used in managing other investment accounts. Conversely, brokers furnishing such
services may be selected for the execution of transactions of such other
accounts, whose aggregate assets are far larger than the Fund, and the services
furnished by such brokers may be used by the Manager in providing investment
management for the Fund. Commission rates are established pursuant to
negotiations with the broker based on the quality and quantity of execution
services provided by the broker in light of generally prevailing rates. The
Manager is authorized to pay higher commissions on brokerage transactions for
the Fund to brokers other than Prudential Securities in order to secure the
research and investment services described above, subject to the primary
consideration of obtaining the most favorable price and efficient execution in
the circumstances and subject to review by the Fund's Board of Directors from
time to time as to the extent and continuation of this practice. The allocation
of orders among brokers and the commission rates paid are reviewed periodically.
Subject to the above considerations, the Manager may use Prudential
Securities as a broker for the Fund. In order for Prudential Securities to
effect any portfolio transactions for the Fund, the commissions, fees or other
remuneration received by Prudential Securities must be reasonable and fair
compared to the commissions, fees or other remuneration paid to other brokers in
connection with comparable transactions involving similar securities being
purchased or sold on a securities exchange during a comparable period of time.
This standard would allow Prudential Securities to receive no more than the
remuneration which would be expected to be received by an unaffiliated broker in
a commensurate arm's-length transaction. Furthermore, the Board of Directors of
the Fund, including a majority of the Directors who are not "interested"
directors, has adopted procedures which are reasonably designed to provide that
any commissions, fees or other remuneration paid to Prudential Securities are
consistent with the foregoing standard. Brokerage transactions with Prudential
Securities are also subject to such fiduciary standards as may be imposed upon
Prudential Securities by applicable law.
The Fund paid no brokerage commissions for the years ended December 31,
1995, 1994 and 1993.
PURCHASE AND REDEMPTION OF FUND SHARES
How To Purchase Shares
The Fund's shares are sold, without a sales charge, on a continuing basis
on each business day at their net asset value next determined (see "How the Fund
Values its Shares" in the Prospectus) after a purchase order becomes effective.
Shares of the Fund may be purchased by investors directly through Prudential
Mutual Fund Services, Inc. (PMFS), or by Prudential Securities clients through
an account at Prudential Securities. Shares may also be purchased through Pruco
Securities
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Corporation (Prusec). Prudential Securities clients who hold Fund shares through
Prudential Securities may benefit through administrative conveniences afforded
them as Prudential Securities clients, but may be subject to certain additional
restrictions imposed by Prudential Securities. See "Shareholder Guide--How to
Buy Shares of the Fund" in the Prospectus.
How To Redeem Shares
The Fund effects redemption orders received by PMFS by 4:30 P.M., New York
time, on each business day at the net asset value determined as of 4:30 P.M.,
New York time. General information concerning redemption of shares is found in
the Prospectus under "Shareholder Guide--How to Sell Your Shares."
Investors who purchase shares directly from PMFS may use the following
procedures:
Check Redemption. At a shareholder's request, State Street Bank and Trust
Company (State Street) will establish a personal checking account for the
shareholder. Checks drawn on this account can be made payable to the order of
any person in any amount greater than $500. The payee of the check may cash or
deposit it like any other check drawn on a bank. When such check is presented to
State Street for payment, State Street presents the check to the Fund as
authority to redeem a sufficient number of shares in the shareholder's account
to cover the amount of the check. This enables the shareholder to continue
earning daily dividends until the check is cleared. Canceled checks are returned
to the shareholder by State Street.
Shareholders are subject to State Street's rules and regulations governing
such checking accounts, including the right of State Street not to honor checks
in amounts exceeding the value of the shareholder's account at the time the
check is presented for payment.
Shares for which certificates have been issued are not available for
redemption to cover checks. A shareholder should be certain that adequate shares
for which certificates have not been issued are in his or her account to cover
the amount of the check. Also, shares purchased by check are not available to
cover checks until 15 calendar days after receipt of the purchase check by PMFS.
See "Shareholder Guide--How to Buy Shares of the Fund" in the Prospectus. If
insufficient shares are in the account, or if the purchase was made by check
within 10 calendar days, the check will be returned marked "insufficient funds."
Since the dollar value of an account is constantly changing, it is not possible
for a shareholder to determine in advance the total value of his or her account
so as to write a check for the redemption of the entire account.
PMFS reserves the right to impose a service charge to establish a checking
account and to order checks. State Street, the Fund and PMFS have reserved the
right to modify this checking account privilege or to place a charge for each
check presented for payment for any individual account or for all accounts in
the future.
The Fund, PMFS or State Street may terminate Check Redemption at any time
upon 30 days' notice to participating shareholders. To receive further
information, contact Prudential Mutual Fund Services, Inc., Attention:
Redemption Services, P.O. Box 15010, New Brunswick, NJ 08906-5010.
Expedited Redemption. In order to use Expedited Redemption, a shareholder
may so designate at the time the initial application form is filed, or at a
later date. Once the Expedited Redemption authorization form has been completed,
the signature(s) on the authorization form guaranteed as set forth below and the
Form returned to PMFS, requests for redemption may be made by telegraph, letter
or telephone. The proceeds of redeemed shares in the amount of $1,000 or more
are transmitted by wire to the shareholder's account at a domestic commercial
bank which is a member of the Federal Reserve System. Proceeds of less than
$1,000 are forwarded by check to the shareholder's designated bank account. The
minimum amount that may be redeemed by Expedited Redemption is $200, except
that, if an account for which Expedited Redemption is requested has a net asset
value of less than $200, the entire account may be redeemed. The Fund does not
forward redemption proceeds with respect to shares purchased by check until 15
calendar days after receipt of the purchase check by PMFS.
To request Expedited Redemption by telephone, a shareholder should call
PMFS at 800-225-1852. Calls must be received by PMFS before 4:30 P.M., New York
time in order for the redemption to be effective on that day. Requests by letter
should be addressed to Prudential Mutual Funds Services, Inc., at the address
set forth above.
Each shareholder's signature on the authorization form must be guaranteed
by: (a) a commercial bank which is a member of the Federal Deposit Insurance
Corporation; (b) a trust company; or (c) a member firm of a domestic securities
exchange. Guarantees must be signed by an authorized signatory of the bank,
trust company or member firm, and "Signature Guaranteed" should appear with the
signature. Signature guarantees by savings banks, savings and loan associations
and notaries will not be accepted. PMFS may request further documentation from
corporations, executors, administrators, trustees or guardians. In order to
change the name of the commercial bank or account designated to receive
redemption
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<PAGE>
proceeds, it is necessary to execute a new Expedited Redemption authorization
form and submit it to PMFS at the address set forth above. See "Shareholder
Guide--How to Sell Your Shares" in the Prospectus for additional information on
Expedited Redemption.
Regular Redemption. Shareholders may redeem their shares by sending to
PMFS, at the address set forth above, a written request, accompanied by duly
endorsed share certificates, if issued. All written requests for redemption, and
any share certificates, must be endorsed by the shareholder with signature
guaranteed, as described above under "Expedited Redemption." PMFS may request
further documentation from corporations, executors, administrators, trustees or
guardians. Redemption proceeds are sent to a shareholder's address by check.
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of shares of the Fund, a Shareholder Investment
Account is established for each investor under which a record of the share 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. Whenever a transaction
takes place in the Shareholder Investment Account, the shareholder will be
mailed a statement showing the transaction and the status of such account.
Procedure for Multiple Accounts
Special procedures have been designed for banks and other institutions that
wish to open multiple accounts. An institution may open a single master account
by filing an Application and Order Form with PMFS, signed by personnel
authorized to act for the institution. Individual sub-accounts may be opened at
the time the master account is opened by listing them, or they may be added at a
later date by written advice or by filing forms supplied by PMFS. Procedures are
available to identify sub-accounts by name and number within the master account
name. The investment minimums described in the Prospectus under "Shareholder
Guide--How to Buy Shares of the Fund" are applicable to the aggregate amounts
invested by a group, and not to the amount credited to each sub-account.
PMFS provides each institution with a written confirmation for each
transaction in a sub-account and, to each institution on a monthly basis, a
statement which sets forth for each master account its share balance and income
earned for the month. In addition, each institution receives a statement for
each individual account setting forth transactions in the sub-account for the
year-to-date, the total number of shares owned as of the dividend payment date
and the dividends paid for the current month, as well as for the year-to-date.
For further information on the sub-accounting system and procedures, contact
PMFS.
Automatic Reinvestment of Dividends and Distributions
For the convenience of investors, all dividends and distributions are
automatically invested in full and fractional shares of the Fund at net asset
value. An investor may direct the Transfer Agent in writing not less than 5 full
business days prior to the payable date to have subsequent dividends and/or
distributions sent in cash rather than invested. 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.
Exchange Privilege
The Fund makes available to its shareholders the privilege of exchanging
their shares 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. Class A shares of such other Prudential
Mutual Funds may also be exchanged for shares of the Fund. All exchanges are
made on the basis of relative net asset value next determined after receipt of
an order in proper form plus the applicable sales charge. 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.
It is contemplated that the exchange privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.
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Shareholders of the Fund may exchange their shares for Class A shares of
the Prudential Mutual Funds and shares of the money market funds specified
below.
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 Jersey Money Market Series)
(New York Money Market Series)
Prudential MoneyMart Assets, Inc.
Prudential Tax-Free Money Fund, Inc.
Shareholders of the Fund may not exchange their shares for Class B or Class
C shares of the Prudential Mutual Funds or shares of Prudential Special Money
Market Fund, a money market fund, except that shares acquired prior to January
22, 1990 subject to a contingent deferred sales charge may be exchanged for
Class B shares.
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 sixty days' notice, and any fund, including the Fund,
or the Distributor, has the right to reject any exchange application relating to
such fund's shares.
Automatic Savings Accumulation Plan (ASAP)
Under ASAP, an investor may arrange to have a fixed amount automatically
invested in Fund shares each month by authorizing his or her bank account or
Prudential Securities Account (not including a Command Account) to be debited to
invest specified dollar amounts in shares of the Fund. The investor's bank must
be a member of the Automatic Clearing House System. Share 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.
In addition, an investor may direct the Transfer Agent to redeem on a
monthly or other periodic basis specified amounts (minimum of $100) of shares of
the Fund and invest the proceeds of such redemptions in shares of any Prudential
Mutual Fund pursuant to the "Exchange Privilege" or the "Class B and Class C
Purchase Privilege."
Systematic Withdrawal Plan
A withdrawal plan is available for shareholders having shares of the Fund
held 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.
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" above.
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 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
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<PAGE>
ultimately exhausted. Furthermore, each withdrawal constitutes a redemption of
shares, and any gain or loss realized must be recognized for federal income tax
purposes. 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.
Mutual Fund Programs
From time to time, the Fund 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. The 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 part of
the program. Since the allocation of portfolios included in the program may not
be appropriate for all investors, individuals 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
The net asset value per share is the net worth of the Fund (assets,
including securities at value, minus liabilities) divided by the number of
shares outstanding.
The Fund uses the amortized cost method to determine the value of its
portfolio securities. The amortized cost method involves valuing a security at
its cost and amortizing any discount or premium over the period until maturity.
The method does not take into account unrealized capital gains and losses which
may result from the effect of fluctuating interest rates on the market value of
the security.
The Fund maintains a dollar-weighted average portfolio maturity of 90 days
or less, purchases instruments having remaining maturities of thirteen months or
less and invests only in securities determined by the investment adviser under
the supervision of the Board of Directors to present minimal credit risks and to
be of "eligible quality" in accordance with regulations of the SEC. The Board
has established procedures designed to stabilize, to the extent reasonably
possible, the Fund's price per share as computed for the purpose of sales and
redemptions at $1.00. Such procedures include review of the Fund's portfolio
holdings by the Board of Directors, at such intervals as it may deem
appropriate, to determine whether the Fund's net asset value calculated by using
available market quotations deviates from $1.00 per share based on amortized
cost. The extent of any deviation will be examined by the Board of Directors. If
such deviation exceeds 1/2 of 1%, the Board will promptly consider what action,
if any, will be initiated. In the event the Board determines that a deviation
exists which may result in material dilution or other unfair results to
investors or existing shareholders, the Board will take such corrective action
which it regards as necessary and appropriate, including the sale of portfolio
instruments prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity, the withholding of dividends, redemptions of shares
in kind, or the use of available market quotations to establish a net asset
value per share.
The Fund will calculate its net asset value at 4:30 P.M., New York time, on
each day the New York Stock Exchange is open for trading except on days on which
no orders to purchase, sell or redeem series shares have been received or days
on which changes in the value of the Fund's securities do not affect net asset
value.
CALCULATION OF YIELD
The Fund will prepare a current quotation of yield from time to time. The
yield quoted will be the simple annualized yield for an identified seven
calendar day period. The yield calculation will be based on a hypothetical
account having a balance of exactly one share at the beginning of the seven-day
period. The base period return will be the change in the value of the
hypothetical account during the seven-day period, including dividends declared
on any shares purchased with dividends on the share but excluding any capital
changes. The yield will vary as interest rates and other conditions affecting
money market instruments change. Yield also depends on the quality, length of
maturity and type of instruments in the Fund's portfolio, and its operating
expenses. The Fund may also prepare an effective annual yield computed by
compounding the unannualized seven-day period return as follows: by adding 1 to
the unannualized 7-day period return, raising the sum to a power equal to 365
divided by 7, and subtracting 1 from the result.
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Effective yield = [(base period return + 1)365/7(superior)]-1
The Fund may also calculate the tax equivalent yield over a 7-day period.
The tax equivalent yield will be determined by first computing the current yield
as discussed above. The Fund will then determine what portion of the yield is
attributable to securities, the income of which is exempt for federal income tax
purposes. This portion of the yield will then be divided by one minus 39.6% (the
assumed maximum tax rate for individual taxpayers not subject to Alternative
Minimum Tax) and then added to the portion of the yield that is attributable to
other securities.
Comparative performance information may be used from time to time in
advertising or marketing the Fund's shares, including data from Lipper
Analytical Services, Inc., Donoghue's Money Fund Report, The Bank Rate Monitor,
other industry publications, business periodicals, rating services and market
indices.
The Fund's yield fluctuates, and an annualized yield quotation is not a
representation by the Fund as to what an investment in the Fund will actually
yield for any given period. Yield for the Fund will vary based on a number of
factors including changes in market conditions, the level of interest rates and
the level of Fund income and expenses.
TAXES, DIVIDENDS AND DISTRIBUTIONS
The Fund has elected to qualify and intends to remain qualified as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended ("Internal Revenue Code"). Qualification as a regulated
investment company under the Internal Revenue Code requires, among other things,
that the Fund (a) derive at least 90% of its annual gross income (without offset
for losses from the sale or other disposition of securities or foreign
currencies) from interest, payments with respect to securities loans, dividends
and gains from the sale or other disposition of securities or foreign currencies
and certain financial futures, options and forward contracts thereon; (b) derive
less than 30% of its annual gross income from gains from the sale or other
disposition of securities or certain options, futures and forward contracts held
for less than three months; and (c) diversify its holdings so that, at the end
of each quarter of the taxable year, (i) at least 50% of the market value of the
Fund's assets is represented by cash, U.S. Government securities and other
securities limited in respect of any one issuer to an amount not greater than 5%
of the Fund's assets and 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its assets is invested in the
securities of any one issuer (other than U.S. Government securities). In
addition, in order not to be subject to federal income tax on amounts
distributed to shareholders, the Fund must distribute to its shareholders as
ordinary dividends at least 90% of its net investment income (including net
tax-exempt interest income) and net short-term capital gains in excess of its
net long-term capital losses earned in each year.
The Fund generally will be subject to a nondeductible excise tax of 4% to
the extent that it does not meet certain minimum distribution requirements as of
the end of each calendar year. The Fund intends to make timely distributions of
the Fund's income in compliance with these requirements. As a result, it is
anticipated that the Fund will not be subject to the excise tax.
The Fund intends to invest its assets so that dividends payable from net
tax-exempt interest income will qualify as exempt-interest dividends and be
excluded from a shareholder's gross income under the Internal Revenue Code. In
order for its dividends to qualify as tax-exempt income, (i) at least 50 percent
of the value of the total assets of the Fund at the close of each quarter of its
taxable year must consist of certain tax-exempt government obligations and (ii)
the Fund must designate the dividend as an exempt-interest dividend in a written
notice mailed to shareholders not later than sixty days after the end of its
taxable year.
Exempt-interest dividends attributable to interest on certain "private
activity" tax-exempt obligations are a preference item for purposes of computing
the alternative minimum tax for both individuals and corporations. Moreover,
interest on tax-exempt obligations, whether or not private activity bonds, that
are held by corporations will be taken into account (i) in determining the
alternative minimum tax imposed on 75% of the excess of adjusted current
earnings over alternative minimum taxable income, (ii) in calculating the
environmental tax equal to 0.12 percent of a corporation's modified alternative
minimum taxable income in excess of $2 million, and (iii) in determining the
foreign branch profits tax imposed on the effectively connected earnings and
profits (with adjustments) of United States branches of foreign corporations.
Interest on indebtedness incurred or continued by a shareholder, whether a
corporation or an individual, to purchase or carry shares of the Fund is not
deductible. Under legislation proposed by the Clinton Administration, a portion
of the interest expense of a corporation that receives tax-exempt interest
dividends paid by a regulated investment company) would be nondeductible. The
fraction of the corporation's interest expense that is nondeductible would
generally equal the ratio of the average adjusted bases of the corporation's
tax-exempt obligations (including shares of any regulated investment company
from which the corporation receives exempt-interest dividends) to the average
adjusted bases of all the assets used in a trade or business of the corporation.
It is uncertain whether, when or in what form this proposal or similar
legislation will be enacted into law.
Shareholders who have held their shares for six months or less may be
subject to a disallowance of losses from the sale or exchange of those shares to
the extent of any exempt-interest dividends received by the shareholder with
respect to the shares and if such losses are not disallowed, they will be
treated as long-term capital losses to the extent of any distribution of
long-term capital gains received by the shareholder with respect to such shares.
Moreover, any loss realized on a sale or exchange will be disallowed to the
extent the shares disposed of are replaced within a period of 61
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days beginning 30 days before and ending 30 days after the disposition, such as
pursuant to a dividend reinvestment in shares. In such a case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss. Entities or
persons who are "substantial users" (or related persons) of facilities financed
by private activity bonds should consult their tax advisers before purchasing
shares of the Fund.
The Fund does not expect to realize long-term capital gains or losses.
The Fund may be subject to state or local tax in certain other states where
it is deemed to be doing business. Further, in those states which have income
tax laws, the tax treatment of the Fund and of shareholders of the Fund with
respect to distributions by the Fund may differ from federal tax treatment. The
exemption of interest income for federal income tax purposes may not result in
similar exemption under the laws of a particular state or local taxing
authority. The Fund will report annually to its shareholders the percentage and
source, on a state-by-state basis, of interest income on Municipal Bonds
received by the Fund during the preceding year and on other aspects of the
federal income tax status of distributions made by the Fund.
Pennsylvania Personal Property Tax. The Fund has obtained a written letter
of determination from the Pennsylvania Department of Revenue that the Fund is
subject to the Pennsylvania foreign franchise tax upon initiating its intended
business activities in Pennsylvania. Accordingly, Fund shares are believed to be
exempt from Pennsylvania personal property taxes. The Fund anticipates that it
will continue such business activities but reserves the right to suspend them at
any time, resulting in the termination of the exemption.
CUSTODIAN AND 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 Fund's portfolio securities and
cash and, in that capacity, maintains certain financial and accounting books and
records pursuant to agreements with the Fund.
Prudential Mutual Fund Services, Inc., Raritan Plaza One, Edison, New
Jersey 08837 (PMFS), serves as the Transfer and Dividend Disbursing Agent of the
Fund. It is a wholly-owned subsidiary of PMF. PMFS provides customary transfer
agency services to the Fund, 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, a new account set-up fee for each manually-established account and a
monthly inactive zero balance account fee per shareholder account. PMFS is also
reimbursed for its out-of-pocket expenses, including but not limited to postage,
stationery, printing, allocable communications expenses and other costs. For the
fiscal year ended December 31, 1995, the Fund incurred fees of $366,500 for the
services of PMFS.
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York,
serves as the Fund's independent accountants and in that capacity audits the
Fund's annual financial statements.
B-19
<PAGE>
Portfolio of Investments as of December 31, 1995 PRUDENTIAL TAX-FREE MONEY
FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description(a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Arizona--2.6%
Maricopa Cnty. Ind. Dev. Auth., Grand Canyon Univ., F.R.W.D., SP-1+* 5.20% 1/4/96 $10,000 $ 10,000,000
- ------------------------------------------------------------------------------------------------------------------------------
California--2.5%
California Higher Ed. Ln. Auth. Inc., Student Ln. Rev.,
A.N.N.M.T.,
Ser. 87A VMIG1 3.90 7/1/96 9,800 9,800,000
- ------------------------------------------------------------------------------------------------------------------------------
Colorado--6.6%
Arapahoe Cnty. Multifamily Rev., Var. Ref. Hsg. Stratford
Sta. Proj., F.R.D.D., Ser. 94 A-1* 6.60 1/2/96 6,055 6,055,000
Colorado Hlth. Facs. Auth. Rev., Frasier Meadows Manor,
F.R.W.D.,
Ser. 94 NR 5.20 1/4/96 15,000 15,000,000
Denver City & Cnty. Airport Sys. Rev., F.R.W.D., Ser. 91B VMIG1 5.90 1/3/96 4,600 4,600,000
------------
25,655,000
- ------------------------------------------------------------------------------------------------------------------------------
District of Columbia--1.2%
Dist. of Columbia Rev., Amer. Assoc. for the Advancement of
Science, F.R.D.D.,
Gen. Oblig., Ser. 92A-2 VMIG1 6.00 1/2/96 1,300 1,300,000
Gen. Oblig., Ser. 92A-5 VMIG1 6.00 1/2/96 3,400 3,400,000
------------
4,700,000
- ------------------------------------------------------------------------------------------------------------------------------
Georgia--8.2%
Cobb Cnty. Dev. Auth. Rev., Inst. of Nuclear Pwr., F.R.W.D.,
Ser. 92 CPS1 5.15 1/3/96 6,830 6,830,000
Fulton Cnty. Dev. Auth. Ind. Rev., Siemen's Energy Inc.,
F.R.W.D.,
Ser. 94 VMIG1 5.20 1/4/96 7,750 7,750,000
Glynn Brunswick Memorial Hosp.Auth., Rev., Camden Med. Cntr.
Proj., F.R.W.D., Ser. 94 VMIG1 5.15 1/3/96 8,700 8,700,000
Monroe Cnty. Dev. Auth., Poll. Ctrl., Ogletherpe Power Corp.,
Ser. 95 NR 3.70 6/27/96 8,600 8,600,000
------------
31,880,000
- ------------------------------------------------------------------------------------------------------------------------------
Illinois--12.3%
Chicago Illinois Rev., Gen. Oblig., S.E.M.M.T., Ser. 95A VMIG1 3.75 5/1/96 10,900 10,900,000
Illinois Dev. Fin. Auth. Rev., Orleans Multifamily Hsg.,
F.R.W.D., Ser.92 A-1* 5.60 1/5/96 10,120 10,120,000
Illinois Ed. Fac. Auth Rev., J. F. Kennedy Hlth. Care.,
T.E.C.P., Ser. 95 A1+* 3.45 3/7/96 5,000 5,000,000
Illinois Hlth. Fac. Auth. Rev., Evanston Hsp. Corp. Proj.,
S.E.M.M.T., Ser. 92 VMIG1 4.30 2/29/96 7,000 7,000,000
Vlg. of Schaumburg Multifamily Hsg. Rev., Windsong Apts.
Proj., F.R.W.D., Ser. 95 A-1* 5.50 1/4/96 5,000 5,000,000
Wheeling Multifamily Hsg. Rev., Woodland Creek II, F.R.W.D.,
Ser. 90 SP-1+* 5.20 1/5/96 9,655 9,655,000
------------
47,675,000
- ------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
B-20
<PAGE>
Portfolio of Investments as of December 31, 1995 PRUDENTIAL TAX-FREE MONEY
FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description(a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Maine--2.0%
Biddeford Res. Rec. Rev., Energy Recovery Co. Proj.,
F.R.M.D., Ser. 85 VMIG1 3.90% 1/2/96 $ 7,600 $ 7,600,000
- ------------------------------------------------------------------------------------------------------------------------------
Maryland--1.9%
Maryland St. Econ. Dev. Corp., F.R.W.D., Ser.95 A-1* 5.30 1/4/96 7,500 7,500,000
- ------------------------------------------------------------------------------------------------------------------------------
Massachusetts--1.1%
Massachusetts Ind. Fin. Agcy., New England Pwr. Co.,
T.E.C.P., Ser. 92B VMIG1 3.70 1/19/96 4,200 4,200,000
- ------------------------------------------------------------------------------------------------------------------------------
Michigan--1.9%
Grand Rapids Econ. Dev. Corp., Ind. Dev. Rev. Rfdg.,
F.R.W.D., Ser. 92 CPS1 5.15 1/4/96 7,500 7,500,000
- ------------------------------------------------------------------------------------------------------------------------------
Minnesota--1.6%
Minnesota St. Hsg. Fin. Agcy., Sngl. Fam. Mtg. Rev.,
A.N.N.M.T., Ser. 93F VMIG1 5.25 1/16/96 6,305 6,305,000
- ------------------------------------------------------------------------------------------------------------------------------
Nebraska--2.3%
Nebraska Invest. Fin. Auth., Briarhurst Candletree Proj.,
S.E.M.M.T., Ser. 85 A1+* 4.00 4/1/96 8,780 8,780,000
- ------------------------------------------------------------------------------------------------------------------------------
New York--3.0%
Nassau Cnty. New York., B.A.N., Ser. 95F MIG1 4.50 3/15/96 7,400 7,408,048
Nassau Cnty. New York., T.A.N., Ser. 95B SP-1+* 4.50 4/15/96 4,400 4,407,410
------------
11,815,458
- ------------------------------------------------------------------------------------------------------------------------------
North Carolina--1.9%
Rockingham Cnty. Ind. Facs., Poll. Ctrl. Rev., Phillip Morris
Proj., F.R.W.D. P-1 5.15 1/3/96 7,200 7,200,000
- ------------------------------------------------------------------------------------------------------------------------------
Ohio--2.1%
Toledo-Lucas Cnty., Convntn. & Visitors Bureau, M.T.H.O.T.,
Ser. 88 VMIG1 3.75 2/1/96 8,140 8,140,000
- ------------------------------------------------------------------------------------------------------------------------------
Oklahoma--4.5%
Oklahoma Sch. Dist. & Cnty. Rev., R.A.N., Ser. 95 NR 5.61 6/28/96 8,493 8,531,661
Tulsa Pkg. Auth. Rev., Williams Ctr. Proj., S.E.M.M.T., Ser.
87A VMIG1 3.75 5/15/96 9,000 9,000,000
------------
17,531,661
- ------------------------------------------------------------------------------------------------------------------------------
Oregon--2.6%
Klamath Falls Elec.Rev., Salt Caves Hydroelectric,
A.N.N.M.T., Ser. 86D SP-1+* 4.40 5/2/96 10,000 10,000,000
- ------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
B-21
<PAGE>
Portfolio of Investments as of December 31, 1995 PRUDENTIAL TAX-FREE MONEY
FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description(a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Pennsylvania--1.0%
Beaver Cnty. Ind. Dev. Auth., Poll. Ctrl. Rev., Toledo
Edison/Mansfield Proj., S.E.M.M.T., Ser. 92E A-1* 3.85% 3/6/96 $ 3,800 $ 3,800,000
- ------------------------------------------------------------------------------------------------------------------------------
Puerto Rico--0.4%
Puerto Rico Ind. Med. & Environ. Facs., Inter American Proj.,
T.E.C.P.,
Ser. 88 VMIG1 3.50 1/10/96 1,400 1,400,000
- ------------------------------------------------------------------------------------------------------------------------------
South Carolina--1.2%
York Cnty. Poll. Ctrl. Rev., NC Elec. Pwr. Proj., S.E.M.O.T.,
Ser. 84N-4 A-1+* 3.75 3/15/96 4,715 4,715,000
- ------------------------------------------------------------------------------------------------------------------------------
Tennessee--2.4%
Memphis Hlth. Edl. & Hsg. Fac. Brd., Wesley Hsg. Corp.,
F.R.W.D., Ser. 89 VMIG1 5.60 1/5/96 9,320 9,320,000
- ------------------------------------------------------------------------------------------------------------------------------
Texas--13.7%
Austin Util. Sys. Rev., Mun. Trust Rcpts., F.R.W.D.S., Ser.
SG30 A-1+* 5.25 1/4/96 10,400 10,400,000
Houston Gen. Oblig., T.E.C.P., Ser. A P-1 3.75 3/6/96 6,000 6,000,000
Houston Wtr. & Swr. Sys., T.E.C.P., Ser. A P-1 3.90 1/3/96 2,500 2,500,000
San Antonio Elec. & Gas Rev., T.E.C.P., Ser. A P-1 3.50 1/11/96 14,000 14,000,000
P-1 3.50 1/17/96 4,000 4,000,000
Southeast Texas Hsg. Fin. Corp., Banc One Tax Exempt Trust,
F.R.W.D.S., Ser. 91D Aaa 5.30 1/4/96 6,150 6,150,000
Texas State, T.R.A.N., Ser. 95A MIG1 4.75 8/30/96 10,000 10,043,157
------------
53,093,157
- ------------------------------------------------------------------------------------------------------------------------------
Utah--4.5%
Intermountain Pwr. Agcy., Utah Pwr. Supply Rev.,
T.E.C.P., Ser. 85E VMIG1 3.80 3/13/96 3,250 3,250,000
S.E.M.O.T., Ser. 85F VMIG1 3.75 3/15/96 6,700 6,700,000
Utah Cnty. Environ. Improv. Rev., Usx Corp. Proj.,
S.E.M.M.T., Ser. 95 VMIG1 3.70 5/1/96 7,575 7,575,000
------------
17,525,000
- ------------------------------------------------------------------------------------------------------------------------------
Virginia--5.3%
Chesterfield Cnty. Ind. Dev. Auth.,
Philip Morris Proj., F.R.W.D., P-1 5.15 1/3/96 6,500 6,500,000
Virginia Elec. Pwr. Co. Proj., T.E.C.P., Ser. 87A VMIG1 3.60 1/10/96 4,650 4,650,000
Culpeper Ind. Dev. Auth., Residential Care Fac. Rev.,
F.R.W.D., Ser. 92 A-1* 5.30 1/4/96 5,640 5,640,000
York Cnty. Ind. Dev. Auth., Va. Elec. & Pwr. Co., T.E.C.P. VMIG1 3.65 3/8/96 3,600 3,600,000
------------
20,390,000
- ------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
B-22
<PAGE>
Portfolio of Investments as of December 31, 1995 PRUDENTIAL TAX-FREE MONEY
FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description(a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Washington--1.4%
Washington St. Hsg. Fin. Comm., F.R.D.D.,
YMCA of Greater Seattle, Ser. 91 VMIG1 6.15% 1/2/96 $ 3,120 $ 3,120,000
YMCA of Snohomish Cnty. Prog., Ser. 94 VMIG1 5.30 1/2/96 2,305 2,305,000
------------
5,425,000
- ------------------------------------------------------------------------------------------------------------------------------
Wisconsin--5.8%
Middleton Cross Plains Area Sch. Dist. Union High Sch. Dist.,
T.R.A.N., Ser. 95 NR 4.25 8/28/96 5,000 5,003,158
Neenah Jt. Sch. Dist., B.A.N. NR 4.40 5/1/96 10,000 10,000,000
Wisconsin Hsg. & Econ. Dev. Auth., Home Ownership Rev.,
Q.T.R.O.T., Ser. 87B Aaa 3.55 3/1/96 7,320 7,320,000
------------
22,323,158
------------
Total Investments--94.0%
(amortized cost $364,273,434(c)) 364,273,434
Other assets in excess of liabilities--6.0% 23,377,409
------------
Net Assets--100% $387,650,843
------------
------------
</TABLE>
- ---------------
(a) The following abbreviations are used in portfolio descriptions:
A.N.N.M.T.--Annual Mandatory Tender
B.A.N.--Bond Anticipation Note
F.R.D.D.--Floating Rate (Daily) Demand Note(b)
F.R.M.D.--Floating Rate (Monthly) Demand Note(b)
F.R.W.D.--Floating Rate (Weekly) Demand Note(b)
F.R.W.D.S.--Floating Rate (Weekly) Demand Note Synthetic(b)
M.T.H.O.T.--Monthly Optional Tender(b)
Q.T.R.O.T.--Quarterly Tax & Reserve Optional Tender(b)
R.A.N.--Revenue Anticipation Note
S.E.M.M.T.--Semi-Annual Mandatory Tender(b)
S.E.M.O.T.--Semi-Monthly Optional Tender Offer(b)
T.A.N.--Tax Anticipation Note
T.E.C.P.--Tax-Exempt Commercial Paper
T.R.A.N.--Tax & Revenue Anticipation Note
(b) For purposes of amortized cost valuation, the maturity date of these
instruments is considered to be the latter of the next date on which the
security can be redeemed at par, or the next date on which the rate of
interest is adjusted.
(c) The cost of securities for federal income tax purposes is substantially the
same as for financial reporting purposes.
* Standard & Poor's Rating.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a description of
Moody's and Standard and Poor's ratings.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-23
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL TAX-FREE MONEY FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets December 31, 1995
Investments, at amortized cost which approximates market value.......................................... $ 364,273,434
Cash.................................................................................................... 86,392
Receivable for investments sold......................................................................... 18,837,075
Receivable for Fund shares sold......................................................................... 6,771,186
Interest receivable..................................................................................... 2,830,065
Prepaid expenses........................................................................................ 14,421
-----------------
Total assets......................................................................................... 392,812,573
-----------------
Liabilities
Payable for Fund shares reacquired...................................................................... 4,593,379
Dividends payable....................................................................................... 224,465
Due to Manager.......................................................................................... 185,364
Accrued expenses........................................................................................ 112,181
Due to Distributor...................................................................................... 46,341
-----------------
Total liabilities.................................................................................... 5,161,730
-----------------
Net Assets.............................................................................................. $ 387,650,843
-----------------
-----------------
Net assets were comprised of:
Common stock, $.01 par value......................................................................... $ 3,877,451
Paid-in capital in excess of par..................................................................... 383,773,392
-----------------
Net assets, December 31, 1995........................................................................... $ 387,650,843
-----------------
-----------------
Net asset value, offering price and redemption price
per share ($387,650,843 / 387,745,122)............................................................... $1.00
-----------------
-----------------
- ---------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
B-24
<PAGE>
PRUDENTIAL TAX-FREE MONEY FUND, INC.
Statement of Operations
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income December 31, 1995
-----------------
<S> <C>
Income
Interest................................. $18,716,931
-----------------
Expenses
Management fee........................... 2,351,851
Distribution fee......................... 587,963
Transfer agent's fees and expenses....... 370,000
Reports to shareholders.................. 244,500
Custodian's fees and expenses............ 100,000
Registration fees........................ 98,000
Franchise taxes.......................... 68,000
Legal fees and expenses.................. 61,000
Audit fee and expenses................... 47,000
Director's fees and expenses............. 24,300
Insurance................................ 17,200
Miscellaneous............................ 6,885
-----------------
Total expenses........................ 3,976,699
Less: custodian fee credit............ (38,875)
-----------------
Net expenses.......................... 3,937,824
-----------------
Net investment income....................... 14,779,107
-----------------
Net Increase in Net Assets.................. $14,779,107
-----------------
-----------------
</TABLE>
PRUDENTIAL TAX-FREE MONEY FUND, INC.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended December 31,
in Net Assets 1995 1994
<S> <C> <C>
Operations
Net investment income....... $ 14,779,107 $ 14,565,371
-------------- --------------
Net increase in net assets
resulting from
operations............... 14,779,107 14,565,371
-------------- --------------
Dividends and distributions to
shareholders................ (14,779,107) (14,565,371)
-------------- --------------
Fund share transactions
(at $1.00 per share)
Net proceeds from shares
subscribed............... 1,402,761,535 1,984,509,938
Net asset value of shares
issued to shareholders in
reinvestment of dividends
and distributions........ 14,035,315 13,746,715
Cost of shares reacquired... (1,516,436,457) (2,112,588,085)
-------------- --------------
Net decrease in net assets from
Fund share transactions..... (99,639,607) (114,331,432)
-------------- --------------
Total decrease................. (99,639,607) (114,331,432)
Net Assets
Beginning of year.............. 487,290,450 601,621,882
-------------- --------------
End of year.................... $ 387,650,843 $ 487,290,450
-------------- --------------
-------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-25
<PAGE>
Notes to Financial Statements PRUDENTIAL TAX-FREE MONEY FUND, INC.
- --------------------------------------------------------------------------------
Prudential Tax-Free Money Fund, Inc. (the ``Fund''), is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The investment objective of the Fund is to attain the highest level of
current income that is exempt from federal income taxes, consistent with
liquidity and preservation of capital. The Fund will invest in short-term
tax-exempt debt securities of state and local governments. The ability of the
issuers of the securities held by the Fund to meet their obligations may be
affected by economic or political developments in a specific state, industry or
region.
- ------------------------------------------------------------
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
Securities Valuation: Portfolio securities are valued at amortized cost, which
approximates market value. The amortized cost method of valuation involves
valuing a security at its cost on the date of purchase and thereafter assuming a
constant amortization to maturity of any discount or premium.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of investments
are calculated on an identified cost basis. Interest income is recorded on an
accrual basis. Expenses are recorded on the accrual basis which may require the
use of certain estimates by management. The cost of portfolio securities for
federal income tax purposes is substantially the same as for financial reporting
purposes.
Federal Income Taxes: It is the Fund's policy to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its net income to its shareholders. For this
reason, no federal income tax provision is required.
Dividends: The Fund declares dividends daily from net investment income. Payment
of dividends is made monthly.
Custody Fee Credits: The Fund has an arrangement with its custodian bank,
whereby uninvested monies earn credits which reduce the fees charged by the
custodian.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential Mutual Fund Management, Inc.
(``PMF''). Pursuant to this agreement PMF has responsibility for all investment
advisory services and supervises the subadviser's performance of such services.
PMF has entered into a subadvisory agreement with Prudential Investment
Corporation (``PIC''); PIC furnishes investment advisory services in connection
with the management of the Fund. PMF pays for the cost of the subadviser's
services, the compensation of officers of the Fund, occupancy and certain
clerical and bookkeeping costs of the Fund. The Fund bears all other costs and
expenses.
The management fee paid PMF is computed daily and payable monthly, at an annual
rate of .50 of 1% of the Fund's average daily net assets up to $750 million,
.425 of 1% of the next $750 million of average daily net assets and .375 of 1%
of average daily net assets in excess of $1.5 billion.
The Fund had a distribution agreement with Prudential Mutual Fund Distributors,
Inc. (``PMFD''), which acted as the distributor of the Fund through January 1,
1996. Effective January 2, 1996, Prudential Securities Incorporated (``PSI'')
became the distributor of the Fund and is serving the Fund under the same terms
and conditions as under the arrangement with PMFD. The Fund compensated PMFD for
distributing and servicing the Fund's shares pursuant to the plan of
distribution at an annual rate of .125% of 1% of the Fund's average daily net
assets. The distribution fee is accrued daily and payable monthly.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
- ------------------------------------------------------------
Note 3. Other Transactions With Affiliates
Prudential Mutual Fund Services, Inc. (``PMFS''), a wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent and during the year ended December 31,
1995, the Fund incurred fees of $366,500 for the services of PMFS. As of
December 31, 1995, approximately $30,000 of such fees were due to PMFS. Transfer
agent fees and expenses in the Statement of Operations include certain
out-of-pocket expenses paid to non-affiliates.
- --------------------------------------------------------------------------------
B-26
<PAGE>
Financial Highlights PRUDENTIAL TAX-FREE MONEY FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
-------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income and realized gains....................... .031 .023 .018 .026 .041
Dividends and distributions to shareholders.................... (.031) (.023) (.018) (.026) (.041)
-------- -------- -------- -------- --------
Net asset value, end of year................................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN(a):............................................... 3.15% 2.31% 1.86% 2.63% 4.22%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000).................................. $387,651 $487,290 $601,622 $614,333 $616,867
Average net assets (000)....................................... $470,370 $644,481 $726,571 $669,588 $725,844
Ratios to average net assets:
Expenses, including distribution fee........................ .85% .75% .74% .74% .75%
Expenses, excluding distribution fee........................ .72% .63% .62% .62% .63%
Net investment income....................................... 3.14% 2.26% 1.84% 2.60% 4.15%
</TABLE>
- ---------------
(a) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes reinvestment
of dividends and distributions.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-27
<PAGE>
Report of Independent Accountants PRUDENTIAL TAX-FREE MONEY FUND, INC.
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
Prudential Tax-Free Money Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Tax-Free Money Fund,
Inc. (``the Fund'') at December 31, 1995, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
``financial statements'') are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1995 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 6, 1996
B-28
<PAGE>
APPENDIX A
DESCRIPTION OF TAX-EXEMPT SECURITY RATINGS
CORPORATE AND TAX-EXEMPT BOND RATINGS
The four highest ratings of Moody's Investors Service, Inc. ("Moody's") for
tax-exempt and corporate bonds are Aaa, Aa, A and Baa. Bonds rated Aaa are
judged to be of the "best quality." The rating of Aa is assigned to bonds which
are of "high quality by all standards," but as to which margins of protection or
other elements make long-term risks appear somewhat larger than Aaa rated bonds.
The Aaa and Aa rated bonds comprise what are generally known as "high grade
bonds." Bonds which are rated A by Moody's possess many favorable investment
attributes and are considered "upper medium grade obligations." Factors giving
security to principal and interest of A rated bonds are considered adequate, but
elements may be present which suggest a susceptibility to impairment sometime in
the future. Bonds rated Baa are considered as "medium grade" obligations. 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. Moody's applies numerical modifiers "1",
"2", and "3" in each generic rating classification from Aa through B in its
corporate bond rating system. The modifier "1" indicates that the 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. The foregoing ratings for tax-exempt
bonds are sometimes presented in parentheses preceded with a "con" indicating
the bonds are rated conditionally. Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed or (d) payments to which some
other limiting condition attaches. Such parenthetical rating denotes the
probable credit stature upon completion of construction or elimination of the
basis of the condition.
The four highest ratings of Standard & Poor's Ratings Group ("Standard &
Poor's") for tax-exempt and corporate bonds are AAA, AA, A and BBB. Bonds rated
AAA bear the highest rating assigned by Standard & Poor's to a debt obligation
and indicate an extremely strong capacity to pay principal and interest. Bonds
rated AA also qualify as high-quality debt obligations. Capacity to pay
principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree. Bonds rated A have a strong
capacity to pay principal and interest, although they are somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions. The BBB rating, which is the lowest "investment grade" security
rating by Standard & Poor's, indicates an adequate capacity to pay principal and
interest. Whereas they normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay principal and interest for bonds in this category than
for bonds in the A category. The foregoing ratings are sometimes followed by a
"p" indicating that the rating is provisional. A provisional rating assumes the
successful completion of the project being financed by the bonds being rated and
indicates that payment of debt service requirements is largely and entirely
dependent upon the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of default upon
failure of, such completion.
TAX-EXEMPT NOTE RATINGS
The ratings of Moody's for tax-exempt notes are MIG 1, MIG 2, MIG 3 and
MIG 4. Notes bearing the designation MIG 1 are judged to be of the best quality,
enjoying strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the market for
refinancing, or both. Notes bearing the designation MIG 2 are judged to be of
high quality, with margins of protection ample although not so large as in the
preceding group. Notes bearing the designation MIG 3 are judged to be of
favorable quality, with all security elements accounted for but lacking the
undeniable strength of the preceding grades. Market access for refinancing, in
particular, is likely to be less well established. Notes bearing the designation
MIG 4 are judged to be of adequate quality, carrying specific risk but having
protection commonly regarded as required of an investment security and not
distinctly or predominantly speculative.
The ratings of Standard & Poor's for municipal notes issued on or after
July 29, 1984 are "SP-1", "SP-2" and "SP-3." Prior to July 29, 1984, municipal
notes carried the same symbols as municipal bonds. The designation "SP-1"
indicates a very strong capacity to pay principal and interest. A "+" is added
for those issues determined to possess overwhelming safety characteristics. An
"SP-2" designation indicates a satisfactory capacity to pay principal and
interest while an "SP-3" designation indicates speculative capacity to pay
principal and interest.
A-1
<PAGE>
CORPORATE AND TAX-EXEMPT COMMERCIAL PAPER RATINGS
Moody's and Standard & Poor's rating grades for commercial paper, set forth
below, are applied to Municipal Commercial Paper as well as taxable commercial
paper.
Moody's Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers: Prime-1, superior capacity; Prime-2, strong capacity; and
Prime-3, acceptable capacity.
Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Ratings are graded into four categories, ranging from "A" for the
highest quality obligations to "D" for the lowest. Issues assigned A ratings are
regarded as having the greatest capacity for timely payment. Issues in this
category are further refined with the designation 1, 2 and 3 to indicate the
relative degree of safety. The "A-1" designation indicates the degree of safety
regarding timely payment is very strong. A "+" designation is applied to those
issues rated "A-1" which possess an overwhelming degree of safety. The "A-2"
designation indicates that capacity for timely payment is strong. However, the
relative degree of safety is not as overwhelming as for issues designated "A-1."
The "A-3" designation indicates that the capacity for timely payment is
satisfactory. Such issues, however, are somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations. Issues rated "B" are regarded as having only an adequate capacity
for timely payment and such capacity may be impaired by changing conditions or
short-term adversities.
A-2
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS:
(1) Financial statements included in the Prospectus constituting Part A
of this Registration Statement:
Financial Highlights for each of the ten years in the period ended
December 31, 1995.
(2) Financial statements included in the Statement of Additional
Information constituting Part B of this Registration Statement:
Portfolio of Investments at December 31, 1995.
Statement of Assets and Liabilities at December 31, 1995.
Statement of Operations for the year ended December 31, 1995.
Statement of Changes in Net Assets for the years ended December 31,
1994 and December 31, 1995.
Financial Highlights with respect to each of the five years in the
period ended December 31, 1995.
Notes to Financial Statements.
Report of Independent Accountants.
(B) EXHIBITS:
1. (a) Articles of Incorporation of Registrant, as amended, incorporated
by reference to Exhibit (b) to Post-Effective Amendment No. 10 to
Registration Statement on Form N-1A (File No. 2-64625).
(b) Amendment to Articles of Incorporation dated April 28, 1988,
incorporated by reference to Exhibit 9(b) to Post-Effective Amendment
No. 12 to Registration Statement on Form N-1A (File No. 2-64625).
(c) Form of amended and restated Articles of Incorporation.
Incorporated by reference to Exhibit 1(c) to Post-Effective Amendment
No. 19 to Registration Statement on Form N-1A filed via EDGAR on May
31, 1995 (File No. 2-64625).
2. (a) By-Laws of the Registrant, incorporated by reference to Exhibit
No. 2 to Pre-Effective Amendment No. 1 to Registration Statement on
Form N-1 (File No. 2-64625).
(b) Amendment to By-Laws, incorporated by reference to Exhibit No.
2(b) to Post-Effective Amendment No. 11 to Registration Statement on
Form N-1A (File No. 2-64625).
(c) Amendment to By-Laws, incorporated by reference to Exhibit 3(c)
to Post-Effective Amendment No. 13 to Registration Statement on Form
N-1A (File No. 2-64625).
4. Instruments defining rights of holders of the securities being
offered, incorporated by reference to Exhibit Nos. 1 and 2 above.
5. (a) Management Agreement between the Registrant and Prudential Mutual
Fund Management, Inc., as amended on November 19, 1993, incorporated
by reference to Exhibit 5(a) to Post-Effective Amendment No.17 to
Registration Statement filed on Form N-1A via EDGAR on March 2, 1994
(File No. 2-64625).
(b) Subadvisory Agreement between Prudential Mutual Fund Management,
Inc. and The Prudential Investment Corporation, incorporated by
reference to Exhibit No. 5(b) to Post-Effective Amendment No. 12 to
Registration Statement on Form N-1A (File No. 2-64625).
6. (a) Distribution and Service Agreement between the Registrant and
Prudential Mutual Fund Distributors, Inc., as amended on July 1,
1993, incorporated by reference to Exhibit 6 to Post-Effective
Amendment No. 17 to Registration Statement filed on Form N-1A via
EDGAR on March 2, 1994 (File No. 2-64625).
(b) Amended Distribution and Service Agreement between the Registrant
and Prudential Mutual Fund Distributors, Inc. Incorporated by
reference to Exhibit 6(b) to Post-Effective Amendment No. 19 to
Registration Statement on Form N-1A filed via EDGAR on May 31, 1995
(File No. 2-64625).
(c) Amended Distribution Agreement dated January 1, 1996.*
C-1
<PAGE>
8. Custodian Agreement between the Registrant and State Street Bank and
Trust Company, incorporated by reference to Exhibit No. 8(b) to
Post-Effective Amendment No. 14 to Registration Statement on Form
N-1A (File No. 2-64625).
9. Transfer Agency and Service Agreement, dated January 1, 1988, between
the Registrant and Prudential Mutual Fund Services, Inc.,
incorporated by reference to Exhibit No. 9(b) to Post-Effective
Amendment No. 11 to Registration Statement on Form N-1A (File No.
2-64625).
10. (a) Opinion of Counsel, incorporated by reference to Exhibit No. 10
to Pre-Effective Amendment No. 1 to Registration Statement on Form
N-1.
(b) Opinion of Counsel.*
11. Consent of Independent Accountants.*
15. (a) Distribution and Service Plan between the Registrant and
Prudential Mutual Fund Distributors Inc., as amended on July 1, 1993,
incorporated by reference to Exhibit 15 to Post-Effective Amendment
No. 17 to Registration Statement filed on Form N-1A via EDGAR on
March 2, 1994 (File No. 2-64625).
(b) Amended Distribution and Service Plan between Registrant and
Prudential Mutual Fund Distributors, Inc. Incorporated by reference
to Exhibit 15(b) to Post-Effective Amendment No. 19 to Registration
Statement on Form N-1A filed via EDGAR on May 31, 1995 (File No.
2-64625).
16. Calculation of Yield and Total Return, incorporated by reference to
Exhibit 16 to Post-Effective Amendment No. 12 to Registration
Statement on Form N-1A (File No. 2-64625).
27. Financial Data Schedule.*
- ------------
* Filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of February 9, 1996, there were 20,728 record holders of common stock,
$.01 par value per share, of the Registrant.
ITEM 27. INDEMNIFICATION.
As permitted by Section 17(h) and (i) of the Investment Company Act of 1940
(the 1940 Act) and pursuant to Article VII of the Fund's Articles of
Incorporation (Exhibit 1 to the Registration Statement), officers, directors,
employees and agents of the Registrant will not be liable to the Registrant, any
stockholder, officer, director, employee, agent or other person for any action
or failure to act, except for bad faith, willful misfeasance, gross negligence
or reckless disregard of duties, and those individuals may be indemnified
against liabilities in connection with the Registrant, subject to the same
exceptions, as provided by Article VII of the By-Laws (Exhibit 2 to the
Registration Statement). Section 2-418 of Maryland General Corporation Law
permits indemnification of directors who acted in good faith and reasonably
believed that the conduct was in the best interests of the Registrant. As
permitted by Section 17(i) of the 1940 Act, pursuant to Section 10 of each
Distribution Agreement (Exhibit 6 to the Registration Statement), each
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 directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
1940 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in connection with the successful defense of any
action, suit or proceeding) is asserted against the Registrant by such director,
officer or controlling person in connection with the shares being registered,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question 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 maintains an insurance policy insuring its officers and
directors against liabilities, and certain costs of defending claims against
such officers and directors, to the extent such officers and directors are not
found to have committed
C-2
<PAGE>
conduct constituting willful misfeasance, bad faith, gross negligence or
reckless disregard in the performance of their duties. The insurance policy also
insures the Registrant against the cost of indemnification payments to officers
and directors under certain circumstances.
Section 9 of the Management Agreement (Exhibit 5(a) to the Registration
Statement) and Section 4 of the Subadvisory Agreement (Exhibit 5(b) to the
Registration Statement) limit the liability of Prudential Mutual Fund
Management, Inc. (PMF) and The Prudential Investment Corporation (PIC),
respectively, to liabilities arising from willful misfeasance, bad faith or
gross negligence in the performance of their respective duties or from reckless
disregard by them of their respective obligations and duties under the
agreements.
The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws and each Distribution Agreement in a manner consistent
with Release No. 11330 of the Securities and Exchange Commission under the 1940
Act so long as the interpretation of Section 17(h) and 17(i) of such Act remain
in effect and are consistently applied.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
See "How the Fund is Managed-Manager" in the Prospectus constituting Part A
of this Registration Statement and "Manager" 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 March 30, 1995).
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>
Brendan D. Boyle Executive Vice Executive Vice President, Director of Marketing and Director, PMF;
President, Director of Senior Vice President, Prudential Securities Incorporated
of Marketing and (Prudential Securities); Chairman and Director of Prudential Mutual
Director Fund Distributors, Inc. (PMFD)
Stephen P. Fisher Senior Vice President Senior Vice President, PMF; Senior Vice President, Prudential
Securities; Vice President, PMFD
Frank W. Giordano Executive Vice Executive Vice President, General Counsel, Secretary and Director,
President, General PMF and PMFD; Senior Vice President, Prudential Securities;
Counsel, Secretary Director, Prudential Mutual Fund Services, Inc. (PMFS)
and Director
Robert F. Gunia Executive Vice Executive Vice President, Chief Financial and Administrative Officer,
President, Chief Treasurer and Director, PMF; Senior Vice President, Prudential
Financial and Securities; Executive Vice President, Chief Financial Officer,
Administrative Treasurer and Director, PMFD; Director, PMFS
Officer, Treasurer
and Director
Theresa A. Hamacher Director Director, PMF; Vice President, The Prudential Insurance Company of
Prudential Plaza America (Prudential); Vice President, The Prudential Investment
Newark, NJ 07102 Corporation (PIC)
Timothy J. O'Brien Director President, Chief Executive Officer, Chief Operating Officer and
Raritan Plaza One Director, PMFD; Chief Executive Officer and Director, PMFS;
Edison, NJ 08837 Director, PMF
Richard A. Redeker President, Chief President, Chief Executive Officer and Director, PMF; Executive Vice
Executive Officer and President, Director and member of Operating Committee,
Director Prudential Securities; Director, Prudential Securities Group, Inc.(PSG);
Executive Vice President, PIC; Director, PMFD; Director, PMFS
S. Jane Rose Senior Vice Senior Vice President, Senior Counsel and Assistant Secretary, PMF;
President, Senior Vice President and Senior Counsel, Prudential Securities
Senior Counsel and
Assistant Secretary
</TABLE>
C-3
<PAGE>
The business and other connections of PIC's directors and executive officers are
as set forth below. Except as otherwise indicated, the address of each person is
Prudential Plaza, Newark, NJ 07101.
<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
Two Gateway Center
Newark, NJ 07102
Barry M. Gillman Director Director, PIC
Theresa A. Hamacher Vice President Vice President, Prudential; Vice President, PIC; Director, PMF
Harry E. Knapp, Jr. President, Chairman President, Chairman of the Board, Chief Executive Officer and Director,
of the Board, Chief PIC; Vice President, Prudential
Executive Officer and
Director
Richard A. Redeker Executive Vice President, Chief Executive Officer and Director, PMF; Executive Vice
One Seaport Plaza President President, Director and member of Operating Committee,
New York, NY 10292 Prudential Securities; Director, (PSG); Executive Vice President, PIC;
Director, PMFD; Director, PMFS
John L. Reeve Senior Vice President Managing Director, Prudential Asset Management Group; Senior Vice
President, PIC
Eric A. Simonson Vice President and Vice President and Director, PIC; Executive Vice President, Prudential
Director
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS
(A) PRUDENTIAL SECURITIES INCORPORATED
Prudential Securities is distributor for Prudential Jennison Fund, Inc.,
The Target Portfolio Trust, The BlackRock Government Income Trust, The Global
Government Plus Fund, Inc., The Global Total Return Fund, Inc., Global Utility
Fund, Inc., Nicholas-Applegate Fund, Inc. (Nicholas-Applegate Growth Equity
Fund), Prudential Allocation Fund, Prudential California Municipal Fund, Command
Government Fund, Command Money Fund, Command Tax-Free Fund, Prudential
Diversified Bond Fund, Inc., Prudential Equity Fund, Inc., Prudential Equity
Income Fund, Prudential Europe Growth Fund, Inc., Prudential Global Fund, Inc.,
Prudential Global Genesis Fund, Inc., Prudential Global Limited Maturity Fund,
Inc., Prudential Global Natural Resources Fund, Inc., Prudential Government
Income Fund, Inc., Prudential Government Securities Trust, Prudential Growth
Opportunity Fund, Inc., Prudential High Yield Fund, Inc., Prudential
Intermediate Global Income Fund, Inc., Prudential Institutional Liquidity
Portfolio, 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 Pacific Growth Fund, Inc., Prudential Special Money Market Fund,
Inc., Prudential Structured Maturity Fund, Inc., Prudential Tax-Free Money Fund,
Inc. and Prudential Utility Fund, Inc. Prudential Securities is also a depositor
for the following unit investment trusts:
Corporate Investment Trust Fund
Prudential Equity Trust Shares
National Equity Trust
Prudential Unit Trusts
Government Securities Equity Trust
National Municipal Trust
C-4
<PAGE>
(b) Information concerning the officers and directors of Prudential
Securities Incorporated is set forth below.
<TABLE>
<CAPTION>
Positions and Positions and
Offices with Offices with
Name(1) Underwriter Registrant
- ---------------------------------------- ------------------------------------- -------------
<S> <C> <C>
Robert C. Golden ....................... Executive Vice President and Director None
One New York Plaza
New York, NY 10292
Alan D. Hogan .......................... Executive Vice President, Chief None
Administrative Officer and Director
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 10292
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 10292
Richard A. Redeker ..................... Executive Vice President and Director President and Director
Hardwick Simmons ....................... Chief Executive Officer, President None
and Director
Lee B. Spencer ......................... General Counsel, Executive Vice President None
and Director
</TABLE>
- -----------
(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 02171, the Registrant, One Seaport Plaza, New York, New
York 10292, and Prudential Mutual Fund Services, Inc., Raritan Plaza One,
Edison, New Jersey 08837. Documents required by Rules 31a-1(b)(5), (6), (7),
(9), (10) and (11) and 31a-1(f) will be kept at 2 Gateway Center, Newark, New
Jersey, 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 captions "How the Fund is
Managed-Manager" and "How the Fund is Managed-Distributor" in the Prospectus and
the captions "Manager" and "Distributor" 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 hereby undertakes to furnish each person to whom a
Prospectus is delivered with a copy of Registrant's latest annual report to
shareholders upon request and without charge.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
and State of New York, on the 20th day of February, 1996.
PRUDENTIAL TAX-FREE MONEY FUND, INC.
/s/ RICHARD A. REDEKER
----------------------------------
(Richard A. Redeker, President)
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ RICHARD A. REDEKER President and Director February 20, 1996
- --------------------------
Richard A. Redeker
/s/ DELAYNE DEDRICK GOLD Director February 20, 1996
- --------------------------
Delayne Dedrick Gold
/s/ ARTHUR HAUSPURG Director February 20, 1996
- --------------------------
Arthur Hauspurg
/s/ STEPHEN P. MUNN Director February 20, 1996
- --------------------------
Stephen P. Munn
/s/ LOUIS A. WEIL, III Director February 20, 1996
- --------------------------
Louis A. Weil, III
/s/ GRACE TORRES Treasurer and Principal February 20, 1996
- -------------------------- Financial and
Grace Torres Accounting Officer
<PAGE>
EXHIBIT INDEX
1. (a) Articles of Incorporation of Registrant, as amended, incorporated by
reference to Exhibit (b) to Post-Effective Amendment No. 10 to Registration
Statement on Form N-1A (File No. 2-64625).
(b) Amendment to Articles of incorporation dated April 28, 1988,
incorporated by reference to Exhibit 9(b) to Post-Effective Amendment No.
12 to Registration Statement on Form N-1A (File No. 2-64625).
(c) Form of amended and restated Articles of Incorporation. Incorporated by
reference to Exhibit 1(c) to Post-Effective Amendment No. 19 to
Registration Statement on Form N-1A filed via EDGAR on May 31, 1995 (File
No. 2-64625).
2. (a) By-Laws of the Registrant, incorporated by reference to Exhibit No. 2
to Pre-Effective Amendment No. 1 to Registration Statement on Form N-1
(File No. 2-64625).
(b) Amendment to By-Laws, incorporated by reference to Exhibit No. 2(b) to
Post-Effective Amendment No. 11 to Registration Statement on Form N-1A
(File No. 2-64625).
(c) Amendment to By-Laws, incorporated by reference to Exhibit 3(c) to
Post-Effective Amendment No. 13 to Registration Statement on Form N-1A
(File No. 2-64625).
4. Instruments defining rights of holders of the securities being offered,
incorporated by reference to Exhibit Nos. 1 and 2 above.
5. (a) Management Agreement between the Registrant and Prudential Mutual Fund
Management, Inc., as amended on November 19, 1993, incorporated by
reference to Exhibit 5(a) to Post-Effective Amendment No. 17 to
Registration Statement filed on Form N-1A via EDGAR on March 2, 1994 (File
No. 2-64625).
(b) Subadvisory Agreement between Prudential Mutual Fund Management, Inc.
and The Prudential Investment Corporation, incorporated by reference to
Exhibit No. 5(b) to Post-Effective Amendment No. 12 to Registration
Statement on Form N-1A (File No. 2-64625).
6. (a) Distribution and Service Agreement between the Registrant and
Prudential Mutual Fund Distributors, Inc., as amended on July 1, 1993,
incorporated by reference to Exhibit 6 to Post-Effective Amendment No. 17
to Registration Statement filed on Form N-1A via EDGAR on March 2, 1994
(File No. 2-64625).
(b) Amended Distribution and Service Agreement between the Registrant and
Prudential Mutual Fund Distributors, Inc. Incorporated by reference to
Exhibit 6(b) to Post-Effective Amendment No. 19 to Registration Statement
on Form N-1A filed via EDGAR on May 31, 1995 (File No. 2-64625).
(c) Amended Distribution Agreement dated January 1, 1996.*
8. Custodian Agreement between the Registrant and State Street Bank and Trust
Company, incorporated by reference to Exhibit No. 8(b) to Post-Effective
Amendment No. 14 to Registration Statement on Form N-1A (File No. 2-64625).
9. Transfer Agency and Service Agreement, dated January 1, 1988, between the
Registrant and Prudential Mutual Fund Services, Inc., incorporated by
reference to Exhibit No. 9(b) to Post-Effective Amendment No. 11 to
Registration Statement on Form N-1A (File No. 2-64625).
10. (a) Opinion of Counsel, incorporated by reference to Exhibit No. 10 to
Pre-Effective Amendment No. 1 to Registration Statement on Form N-1.
(b) Opinion of Counsel.*
11. Consent of Independent Accountants.*
15. (a) Distribution and Service Plan between the Registrant and Prudential
Mutual Fund Distributors Inc., as amended on July 1, 1993, incorporated by
reference to Exhibit 15 to Post-Effective Amendment No. 17 to Registration
Statement filed on Form N-1A via EDGAR on March 2, 1994 (File No. 2-64625).
(b) Amended Distribution and Service Plan between Registrant and Prudential
Mutual Fund Distributors, Inc.
16. Calculation of Yield and Total Return, incorporated by reference to Exhibit
16 to Post-Effective Amendment No. 12 to Registration Statement on Form
N-1A (File No. 2-64625).
27. Financial Data Schedule.*
- ------------
*Filed herewith.
Exhibit 6(c)
Amendment to Distribution Agreements
The Distribution Agreements between Prudential Mutual Fund Distributors,
Inc. and each of the Funds listed below are hereby transferred to Prudential
Securities Incorporated effective January 1, 1996.
<TABLE>
<CAPTION>
Name of Fund Date of Agreement
- ------------ ------------------
<S> <C>
The BlackRock Government Income Trust August 30, 1991 and amended
(Class A) and restated on April 12, 1995
Command Government Fund September 15, 1988 and
amended and restated on
April 12, 1995
Command Money Fund September 15, 1988 and
amended and restated on
April 12, 1995
Command Tax-Free Money Fund September 15, 1988 and
amended and restated on
April 12, 1995
Global Utility Fund, Inc. February 4, 1991 and
(Class A) amended and restated on
July 1, 1993, August 1, 1994
and May 4, 1995
Nicholas-Applegate Fund, Inc. August 1, 1994 and amended
(Class A) and restated on May 12, 1995
Nicholas-Applegate Growth Equity Fund
Prudential Allocation Fund January 22, 1990 and
(Class A) amended and restated on
August 1, 1994 and
Strategy Portfolio May 3, 1995
Balanced Portfolio
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Prudential California Municipal Fund August 1, 1994 and amended
(Class A) and restated on May 5, 1995
California Income Series
California Series
Prudential California Municipal Fund February 10, 1989 and
amended and restated on
California Money Market Series July 1, 1993 and May 5, 1995
Prudential Diversified Bond Fund, Inc. January 3, 1995 and amended
(Class A) and restated on June 13, 1995
Prudential Equity Fund, Inc. August 1, 1994 and amended
(Class A) and restated on May 5, 1995
Prudential Equity Income Fund August 1, 1994 and amended
(Class A) and restated on May 3, 1995
Prudential Europe Growth Fund, Inc. July 11, 1994 and amended
(Class A) and restated on June 13, 1995
Prudential Global Fund, Inc. August 1, 1994 and amended
(Class A) and restated on June 5, 1995
Prudential Global Genesis Fund, Inc. August 1, 1994 and amended
(Class A) and restated on May 3, 1995
Prudential Global Natural Resources Fund, Inc. August 1, 1994 and amended
(Class A) and restated on May 3, 1995
Prudential Government Income Fund, Inc. January 22, 1990 and
(Class A) amended and restated on
April 13, 1995
Prudential Government Securities Trust November 20, 1990 and
Money Market Series amended and restated on
U.S. Treasury Money Market Series July 1, 1993, May 2, 1995
and August 1, 1995
Prudential Growth Opportunity Fund, Inc. January 22, 1990 and
(Class A) amended and restated on
July 1, 1993, August 1, 1994
and May 2, 1995
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Prudential High Yield Fund, Inc. January 22, 1990 and
(Class A) amended and restated on
July 1, 1993, August 1, 1994
and May 2, 1995
Prudential Institutional Liquidity Portfolio, Inc. November 20, 1987 and
amended and restated on
Prudential Institutional Money Market Series July 1, 1993 and
April 11, 1995
Prudential Intermediate Global Income Fund, Inc. August 1, 1994 and amended
(Class A) and restated on May 10, 1995
Prudential MoneyMart Assets May 1, 1988 and amended
and restated on July 1, 1993
and May 10, 1995
Prudential Mortgage Income Fund, Inc. August 1, 1994 and amended
(Class A) and restated on May 5, 1995
Prudential Multi-Sector Fund, Inc. August 1, 1994 and amended
(Class A) and restated on May 3, 1995
Prudential Municipal Bond Fund August 1, 1994 and amended
(Class A) and restated on May 3, 1995
Insured Series
High Yield Series
Intermediate Series
Prudential Municipal Series Fund August 1, 1994 and amended
(Class A) and restated on May 5, 1995
Florida Series
Hawaii Income Series
Maryland Series
Massachusetts Series
Michigan Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Prudential Municipal Series Fund
Connecticut Money Market Series February 10, 1989 and
Massachusetts Money Market Series amended and restated on
New Jersey Money Market Series July 1, 1993 and May 5, 1995
New York Money Market Series
Prudential National Municipals Fund, Inc. January 22, 1990 and
(Class A) amended and restated on
July 1, 1993, August 1, 1994
and May 2, 1995
Prudential Pacific Growth Fund, Inc. August 1, 1994 and amended
(Class A) and restated on June 5, 1995
Prudential Global Limited Maturity Fund, Inc. August 1, 1994 and amended
(formerly Prudential Short-Term Global Income and restated on June 5, 1995
Fund Inc.)
(Class A)
Global Assets Portfolio
Limited Maturity Portfolio
Prudential Special Money Market Fund January 12, 1990 and
Money Market Series amended and restated on
April 12, 1995
Prudential Structured Maturity Fund, Inc. August 1, 1994 and amended
(Class A) and restated on June 14, 1995
Income Portfolio
Prudential Tax-Free Money Fund, Inc. May 2, 1988 and
amended and restated on
July 1, 1993, May 2, 1995 and
August 1, 1995
Prudential U. S. Government Fund August 1, 1994 and amended
(Class A) and restated on June 5, 1995
Prudential Utility Fund, Inc. August 1, 1994 and amended
(Class A) and restated on June 14, 1995
</TABLE>
4
<PAGE>
EACH OF THE FUNDS LISTED ABOVE
By
/s/ ROBERT F. GUNIA
-------------------------------
Robert F. Gunia
Vice President
PRUDENTIAL MUTUAL FUND DISTRIBUTORS, INC.
By
/s/ STEPHEN P. FISHER
-------------------------------
Stephen P. Fisher
Vice President
AGREED TO AND ACCEPTED BY:
PRUDENTIAL SECURITIES INCORPORATED
By
/s/ BRENDAN BOYLE
-----------------------------------
Brendan Boyle
Senior Vice President
Sullivan & Cromwell
125 Broad Street
New York, New York 10004-2498
February 27, 1996
Prudential Tax-Free Money Fund, Inc.,
One Seaport Plaza,
New York, New York 10292.
Dear Sirs:
You have requested our opinion in connection with your filing of
Post-Effective Amendment No. 20 to the Registration Statement on Form N-1A (the
"Post-Effective Amendment") under the Securities Act of 1933 (the "Act") and
your registration in connection therewith of 106,916,243 shares of your Common
Stock, $.01 par value (the "Shares") pursuant to Rule 24e-2 under the Investment
Company Act of 1940.
As your counsel, we are familiar with your organization and corporate
status and the validity of your Common Stock.
We advise you that, in our opinion, when the Post-Effective Amendment
relating to the Shares has become effective under the Act, the Shares, when duly
issued and sold, for not less than the par value thereof and in conformity with
your charter, will be duly authorized and validly issued, fully paid and
nonassessable.
<PAGE>
Prudential Tax-Free Money Fund, Inc., -2-
The foregoing opinion is limited to the Federal laws of the United States
and the General Corporation Laws of the State of Maryland, and we are expressing
no opinion as to the effect by the laws of any other jurisdiction.
We have relied as to certain matters on information obtained from public
officials, your officers and other sources believed by us to be responsible.
We consent to the filing of this opinion with the Securities and Exchange
Commission in connection with the Post-Effective Amendment referred to above. In
giving such consent, we do not thereby admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933.
Very truly yours,
/s/ Sullivan & Cromwell
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 20 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
February 6, 1996, relating to the financial statements and financial highlights
of Prudential Tax-Free Money Fund, Inc., which appears in such Statement of
Additional Information, and to the incorporation by reference of our report into
the Prospectus which constitutes part of this Registration Statement. We also
consent to the reference to us under the heading "Custodian and Transfer and
Dividend Disbursing Agent, and Independent Accountants" in such Statement of
Additional Information and to the reference to us under the heading "Financial
Highlights" in such Prospectus.
PRICE WATERHOUSE LLP
New York, NY
February 26, 1996
<TABLE> <S> <C>
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<CIK> 0000311561
<NAME> PRUDENTIAL TAX-FREE MONEY FUND, INC.
<SERIES>
<NUMBER> 001
<NAME> PRUDENTIAL TAX-FREE MONEY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 364,273,434
<RECEIVABLES> 28,438,326
<ASSETS-OTHER> 100,813
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 392,812,573
<PAYABLE-FOR-SECURITIES> 4,593,379
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 568,351
<TOTAL-LIABILITIES> 5,161,730
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 387,650,843
<SHARES-COMMON-STOCK> 387,745,122
<SHARES-COMMON-PRIOR> 487,384,729
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 387,650,843
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 18,716,931
<OTHER-INCOME> 0
<EXPENSES-NET> 3,937,824
<NET-INVESTMENT-INCOME> 14,779,107
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 14,779,107
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (14,779,107)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,402,761,535
<NUMBER-OF-SHARES-REDEEMED> (1,516,436,457)
<SHARES-REINVESTED> 14,035,315
<NET-CHANGE-IN-ASSETS> (99,639,607)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,351,851
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,898,949
<AVERAGE-NET-ASSETS> 470,370,000
<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
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
