As filed with the Securities and Exchange Commission on February 25, 1997
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. 21 [X]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 22 [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.)
GATEWAY CENTER THREE,
100 MULBERRY STREET,
NEWARK, NEW JERSEY 07102-4077
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (201) 367-7530
S. Jane Rose, Esq.
Gateway Center Three,
100 Mulberry Street,
Newark, New Jersey 07102-4077
(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)
[ ]on (date) pursuant to paragraph (b)
[X] 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.
<TABLE>
<CAPTION>
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Proposed Maximum Proposed Maximum
Title of Securities Amount Being Offering Price Aggregate Amount of
Being Registered Registered Per Unit Offering Price* Registration Fee
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<S> <C> <C> <C> <C>
Shares of Common Stock,
par value $.01 per share 53,554,629 N/A N/A N/A
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</TABLE>
*The calculation of the maximum aggregate offering price was made pursuant to
Rule 24e-2. The total number of shares redeemed during the fiscal year ended
December 31, 1996 amounted to 1,150,706,698 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
1,097,152,069 shares have been used for reduction pursuant to paragraph (c) of
Rule 24f-2 in all previous filings during the current year. 53,554,629
($53,554,629) of the redeemed shares for the fiscal year ended December 31,
1996 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, 1996 was filed on February 25, 1997.
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<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 495)
<TABLE>
<CAPTION>
N-1a Item No. Location
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<S> <C> <C>
Part A
Item 1. Cover Page .............................................. Cover Page
Item 2. Synopsis ................................................ Fund Expenses; Fund Highlights
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 5A. Management's Discussion of Fund Performance ............. Not Applicable
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 Shareholder Investment Account; Net
Offered 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 28, 1997
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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 Gateway Center Three, 100 Mulberry Street, Newark, New Jersey
07102-4077, 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 28, 1997, 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 NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
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FUND HIGHLIGHTS
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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.
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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.
What are the Fund's 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 LLC (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, 1997, PMF served as manager
or administrator to 62 investment companies, including 40 mutual funds, with
aggregate assets of approximately $55.8 billion. The Prudential Investment
Corporation, doing business as Prudential Investments (PI, the investment
adviser 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.
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2
<PAGE>
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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?
Except as otherwise provided, the minimum initial investment is $1,000. The
minimum subsequent investment is $100. Prudential Securities reserves the right
to impose a higher minimum subsequent amount from time to time as it may deem
appropriate. 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 LLC (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. PSI has automatic
investment procedures pursuant to which it will make automatic investments of
free cash balances (Eligible Cash Balances) held in a client's brokerage account
if the Fund is designated as your primary Money Sweep Fund. See "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.
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3
<PAGE>
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FUND EXPENSES
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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 ......................................... .175%
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Total Fund Operating Expenses .......................... .800%
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<TABLE>
<CAPTION>
Example 1 Year 3 Years 5 Years 10 Years
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<S> <C> <C> <C> <C>
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: $8 $26 $44 $99
</TABLE>
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The above example is based on data for the Fund's fiscal year ended
December 31, 1996. The example should not be considered a representation of past
or future expenses. Actual expenses may be greater or less than those shown.
The purpose of this table is to assist 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.
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4
<PAGE>
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FINANCIAL HIGHLIGHTS
(for a share outstanding throughout each of the years indicated)
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The following financial highlights with respect to each of the five years
ended December 31, 1996, 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.
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<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988(b) 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<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 .............. .028 .031 .023 .018 .026 .041 .053 .056 .047 .040
Dividends and distributions to
shareholders ................ (.028) (.031) (.023) (.018) (.026) (.041) (.053) (.056) (.047) (.040)
------- ------- -------- ------- ------- ------- ------- ------- ------- -------
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) ............. 2.84% 3.15% 2.31% 1.86% 2.63% 4.22% 5.42% 5.74% 4.83% 4.11%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000) ...................... $333,808 $387,651 $487,290 $601,622 $614,333 $616,867 $700,859 $653,268 $628,034 $630,822
Average net assets (000) .... $403,230 $470,370 $644,481 $726,571 $669,588 $725,844 $701,869 $644,820 $705,161 $719,244
Ratios to average net assets:(c)
Expenses, including
distribution fee ........... .80% .85% .75% .74% .74% .75% .74% .78% .77% .77%
Expenses, excluding
distribution fee ........... .67% .72% .63% .62% .62% .63% .61% .66% .64% .64%
Net investment income ....... 2.88% 3.14% 2.26% 1.84% 2.60% 4.15% 5.30% 5.65% 4.79% 4.08%
</TABLE>
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(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 years ended
December 31, 1995 and 1996 reflect an arrangement with the Fund's custodian
whereby uninvested monies earn credits which reduce the fees charged by the
custodian.
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5
<PAGE>
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CALCULATION OF YIELD
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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, 1996:
<TABLE>
<S> <C>
Value of hypothetical account at end of period ........................ $1.000619027
Value of hypothetical account at beginning of period .................. 1.000000000
------------
Base period return .................................................... $ .000619027
============
Current yield (.000619027 x (365/7)) ................................. 3.24%
Effective annual yield, assuming weekly compounding ................... 3.29%
Tax equivalent yield (3.24% / (1-.396)) ............................... 5.36%
</TABLE>
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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, 1996 was 57 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., IBC Financial Data, Inc., The Bank Rate Monitor, other
industry publications, business periodicals, rating services and market indices.
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HOW THE FUND INVESTS
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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 short-term 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 other liquid assets 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 PMF 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.
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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, 1996, total expenses of the Fund as a
percentage of average net assets were .50%. See "Financial Highlights."
MANAGER
Prudential Mutual Fund Management LLC (PMF or the Manager), Gateway Center
Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, 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. PMF is organized as a New York limited liability
company. It is the sucessor of Prudential Mutual Fund Management, Inc., which
transferred its assets to PMF in September 1996. For the fiscal year ended
December 31, 1996, 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, 1997, PMF served as the manager to 40 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 $55.8 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, doing business as Prudential Investments (PI, the Investment
Adviser or the Subadviser or the investment adviser), 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 PI's
performance of such services.
PMF and PI 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
9
<PAGE>
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.
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, 1996, 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
(including Prudential Securities) 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,
10
<PAGE>
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 LLC (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 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.
11
<PAGE>
- --------------------------------------------------------------------------------
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 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 generally begins to
earn
12
<PAGE>
dividends on the first business day after his or her order is placed with the
Fund, as described above, and continues to earn dividends through the day on
which his or her shares are redeemed. In the case of certain redemptions,
however, Prudential Securities clients will not be entitled to dividends
declared on the date of redemption. See "How to Sell Your Shares--Redemption of
Shares Purchased Through Prudential Securities."
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 LLC, 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, currently divided into two classes of shares, designated Class A
(including shares outstanding prior to February 25, 1997) and Class Z shares,
each Class consisting of 1.5 billion shares. Currently the Fund only offers one
class of shares, the Class A shares. 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
General information
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 LLC, Attention: Investment Services, P.O. Box 15020, New
13
<PAGE>
Brunswick, New Jersey 08906-5020. Shareholders of the Fund who are clients of
Prudential Securities are subject to the procedures under "Purchases through
Prudential Securities" below.
Except as otherwise provided below, the minimum initial investment is
$1,000 and the minimum subsequent investment is $100. All minimum investment
requirements are waived for certain retirement and employee savings plans and
custodial accounts for the benefit of minors. For purchases made through the
Automatic Savings Accumulation Plan, the minimum initial and subsequent
investment is $50. See "Shareholder Services" below. For automatic purchases
made through Prudential Securities, the minimum initial investment requirement
is $1,000 ($2,500 for U.S. Treasury Money Market Series of Prudential Government
Securities Trust) and there is no minimum subsequent investment requirement.
Shares of the Fund are sold through the Transfer Agent, without a sales
charge, at the NAV next determined after receipt and acceptance by the Transfer
Agent of a purchase order and payment in proper form (i.e., a check or Federal
Funds wired to State Street Bank and Trust Company (State Street), the Fund's
custodian). See "How the Fund Values its Shares." When payment is received by
the Transfer Agent prior to 4:30 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., on that
day, and the shares will begin to earn dividends on the following business day.
See "Taxes, Dividends and Distributions." If your purchase is made through an
account at Prudential Securities or through Prusec or another dealer, your
dealer will forward a purchase order and payment to the Fund.
Investors who purchase their shares through a dealer other than Prudential
Securities or Prusec, which dealer has a clearing arrangement with respect to
shares of the Fund, may be able to participate in the automatic sweep feature
described below under "Purchases through Prudential Securities--Automatic
Investment (Autosweep)" and "How to Sell Your Shares--Redemptions of Shares
Purchased through Prudential Securities." For further information, contact your
dealer.
Application forms for Prusec and direct account with the Transfer Agent
(e.g., non-Prudential Securities accounts) can be obtained from PMFS 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 certificates.
The Fund reserves the right, in its discretion, 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.
Transactions in Fund shares may be subject to postage and other charges
imposed by your dealer.
An investment in the Fund may not be appropriate for tax-exempt or
tax-deferred investors. Such investors should consult their own tax advisers.
Purchases through Prudential Securities
Automatic Investment (Autosweep)
Prudential Securities has advised the Fund that it has automatic investment
procedures (Autosweep) pursuant to which it will make automatic investments of
free credit cash balances (Eligible Credit Balances) held in a client's
brokerage account in shares of the Fund, if the Fund is your Primary Money Sweep
Fund. You may designate the Fund (or certain other Prudential money market
funds) as your Primary Money Sweep Fund. If you do not designate a Primary Money
Sweep Fund, the Primary Money Sweep Fund will be Prudential MoneyMart Assets,
Inc. (If you are a client of Prudential Securities at the time this change in
Autosweep is instituted and you hold a money market fund position in your
account other than Prudential MoneyMart Assets, Inc., that other fund will be
your Primary Money Sweep Fund.) Prudential Securities' clients who have a
Primary Money Sweep Fund can purchase shares of such fund only through the
automatic investment procedures described herein; no manual purchase orders will
be accepted for such fund. A Prudential Securities client has the option to
change his or her Primary Money Sweep Fund at any time by notifying his or her
Prudential Securities financial adviser. Under certain circumstances, you may
elect not to have a money market sweep feature for your account when you open
your account.
For accounts other than IRAs and Benefit Plans, as defined below, shares of
the Fund will be purchased by Prudential Securities as follows: in the case of
Eligible Credit Balances of $1,000 or more resulting from the proceeds of a
securities sale, maturity of a bond or
14
<PAGE>
call and Eligible Credit Balances of $10,000 or more resulting from a non-trade
related credit (e.g., receipt of a dividend or interest payment or a cash
payment into the securities account), orders to purchase shares will be placed
on the business day after such Eligible Credit Balances become available in your
account. For Eligible Credit Balances of $1.00 or more not otherwise described
above, orders to purchase shares will be placed monthly on the last business day
of the month. For IRAs and Benefit Plans, having Eligible Credit Balances of
$1.00 or more, orders to purchase shares of the Fund will be placed by
Prudential Securities (i) on the settlement date of the securities sale, in the
case of Eligible Credit Balances resulting from the proceeds of a securities
sale, and (ii) on the business day after receipt by Prudential Securities of the
non-trade related credit (including the maturity of a bond or a call), in the
case of Eligible Credit Balances resulting from a non-trade related credit. Each
time an order resulting from the settlement of a securities sale is placed, any
non-trade related credit in the client's account will also be invested.
The following chart shows the frequency and amount of the sweep for
accounts other than IRAS and Benefit Plans.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Daily Monthly
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Eligible Credit Balances resulting from the proceeds of a
securities sale, maturity of a bond or call $1,000 or more
- --------------------------------------------------------------------------------------------------------------
Eligible Credit Balances resulting from a non-trade related credit $10,000 or more
- --------------------------------------------------------------------------------------------------------------
Remaining Eligible Credit Balances $1.00 or more
- --------------------------------------------------------------------------------------------------------------
</TABLE>
All shares purchased pursuant to these automatic investment procedures will
be issued at the NAV computed on the business day the order is entered and will
begin earning dividends on the following business day. Purchases through
Autosweep are subject to the Fund's minimum initial investment requirement of
$1,000 ($2,500 for U.S. Treasury Money Market Series), which is waived for
certain retirement and employee savings plans and custodial accounts for the
benefit of minors. Prudential Securities will have the use of, and will retain
the benefits of, Eligible Credit Balances in a client's brokerage account until
monies are delivered to the Fund. (Prudential Securities delivers federal funds
on the business day after settlement). Eligible Credit Balances for purposes of
Autosweep are measured as of the close of business on the previous business day.
For the purposes of Autosweep, "Benefit Plans" include (i) employee benefit
plans as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974 (ERISA) other than governmental plans as defined in Section 3(32) of
ERISA and church plans as defined in Section 3(33) of ERISA, (ii) pension,
profit-sharing or other employee benefit plans qualified under Section 401 of
the Internal Revenue Code and (iii) deferred compensation and annuity plans
under Section 457 or 403(b)(7) of the Internal Revenue Code. "IRAs" are
Individual Retirement Accounts as defined in Section 408(a) of the Internal
Revenue Code.
Manual Investment
Prudential Securities will accept manual purchase orders for Prudential
money market fund shares only for those clients (i) who are purchasing shares of
a Prudential money market fund which is not their Primary Money Sweep Fund or
(ii) who do not have a money market sweep feature in their account, as described
above under "Automatic Investment (Autosweep)."
Prudential Securities clients eligible to make manual purchases, as
described above, are subject to the minimum initial investment of $1,000 ($2,500
for U.S. Treasury Money Market Series) and the minimum subsequent investment of
$100, except that all minimum investment requirements are waived for certain
retirement and employee savings plans and custodial accounts for the benefit of
minors. On the business day after the purchase order is received, Prudential
Securities will place the order for shares of the Fund for settlement that day.
Shares will be issued at the NAV determined on that day and will begin earning
dividends the next business day, which is the second business day after receipt
of the purchase order by Prudential Securities. Prudential Securities will have
the use of, and will retain the benefits of, Eligible Credit Balances in the
client's brokerage account until monies are delivered to the Fund. (Prudential
Securities delivers federal funds on the business day after settlement).
15
<PAGE>
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 LLC,
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.
16
<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 LLC, 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. In the case of redemptions from a benefit plan that
participates in the Prudential PruArray or Smartpath Program, if the proceeds of
the redemption are invested in another investment option of such plan, in the
name of the record holder and at the same address as reflected in the Transfer
Agent's records, a signature guarantee is not required.
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.
17
<PAGE>
Redemption of Shares Purchased Through Prudential Securities
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. The amount of the redemption will be the lesser of (a) the total net
asset value 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 who wishes to pay for a securities transaction or satisfy any
other debit balance in his or her account other than through such automatic
redemption procedure must do so prior to the day of settlement for such
securities transaction or the date the debit balance is incurred. In the case of
certain automatic redemptions, where Prudential Securities cannot anticipate
debits in the brokerage account (e.g., checks written against the account),
Prudential Securities clients will not be entitled to dividends declared on the
date of redemption; such dividends will be retained by Prudential Securities.
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 LLC, 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 LLC, 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.
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.
18
<PAGE>
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 may affect federal tax treatment of any gain realized upon
redemption.
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 offering such classes
of shares 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. 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.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services LLC, 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 LLC, at the
address noted above.
The Exchange Privilege is not a right and may be suspended, modified or
terminated at any time on 60 days' notice to shareholders.
19
<PAGE>
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 LLC (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 Gateway
Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077.
o Shareholder Inquiries. Inquiries should be addressed to the Fund at
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, 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.
20
<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 Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series
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 Distressed Securities Fund, Inc.
Prudential Dryden Fund
Prudential Active Balanced Fund
Prudential Stock Index Fund
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Jennison Series Fund, Inc.
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Multi-Sector Fund, Inc.
Prudential Small Companies Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
MONEY MARKET FUNDS
o Taxable Money Market Funds
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund, Inc.
Money Market Series
Prudential MoneyMart Assets, Inc.
o Tax-Free Money Market Funds
Prudential Tax-Free Money Fund, Inc.
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
o Command Funds
Command Money Fund
Command Government Fund
Command Tax-Free Fund
o Institutional Money Market Funds
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
- --------------------------------------------------------------------------------
A-1
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained herein, and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. This Prospectus does not
constitute an offer by the Fund or by the Distributor to sell or a solicitation
of any offer to buy any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer in such jurisdiction.
TABLE OF CONTENTS
Page
FUND HIGHLIGHTS 2
What are the Fund's 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 17
How to Exchange Your Shares 19
Shareholder Services 20
THE PRUDENTIAL MUTUAL FUND FAMILY A-1
- --------------------------------------------------------------------------------
103A 444030H
- --------------------------------------------------------------------------------
Class A: CUSIP No. 74436P-10-3
- --------------------------------------------------------------------------------
Prudential
Tax-Free Money
Fund, Inc.
PROSPECTUS
FEBRUARY 28, 1997
[Logo] Prudential Investments
<PAGE>
PRUDENTIAL TAX-FREE MONEY FUND, INC.
Statement of Additional Information
dated February 28, 1997
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 Gateway Center
Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, 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
28, 1997. A copy of the Prospectus may be obtained from the Fund at the address
or telephonenumber 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.
Securities of Other Investment Companies
The Fund may invest up to 10% of its total assets in shares of other
investment companies. Generally, the Fund does not intend to invest more than 5%
of its total assets in such securities. To the extent the Fund does invest in
securities of other investment companies, shareholders may be subject to
duplicate management and advisory fees.
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,
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<PAGE>
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 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.
B-5
<PAGE>
(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, except through the purchase of debt
obligations or repurchase agreements.
(9) Purchase securities of other investment companies, except in the open
market involving only customary brokerage commissions and as a result of which
not more than 10% of its total assets (determined at the time of investment)
would be invested in such securities or 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.
DIRECTORS AND OFFICERS
Position with Principal Occupations
Name, Address and Age(1) Fund During Past Five Years
- ------------------------ ------------- ----------------------
Edward D. Beach (72) Director President and Director of BMC Fund,
Inc., a closed-end investment company;
prior thereto, Vice Chairman of
Broyhill Furniture Industries, Inc.;
Certified Public Accountant; Secretary
and Treasurer of Broyhill Family
Foundation, Inc.; Chairman of the Board
of Trustees of Mars Hill College; of
President, Treasurer and Director First
Financial Fund, Inc. and The High Yield
Plus Fund, Inc.; Director of The High
Yield Income Fund, Inc.
Stephen C. Eyre (73) Director Executive Director of The John A.
Hartford Foundation, Inc. (charitable
foundation) (since May 1985); Director
of Faircom, Inc.; Trustee Emeritus of
Pace University.
Delayne Dedrick Gold (58) Director Marketing and Management Consultant;
Director of The High Yield Income Fund,
Inc.
* Robert F. Gunia (50) Director Comptroller, Prudential Investments
(since May 1996); Senior Vice President
(since March 1987) of Prudential
Securities Incorporated (Prudential
Securities); Executive Vice President
and Treasurer PMF, and formerly Chief
Administrative Officer (July
1990-September 1996), Director (January
1989-September 1996), Executive Vice
President, Treasurer and Chief
Financial Officer (June 1987-September
1996) of PMF; Management, Inc., Vice
President and Director of The Asia
Pacific Fund, Inc. (since May 1989);
Director of The High Yield Income Fund,
Inc.
Don G. Hoff (61) Director Chairman and Chief Executive Officer of
Intertec, Inc. (investments) since
1980; Chairman and CEO of EHS, Inc.;
Director of Innovative Capital
Management, Inc., and The Greater China
Fund, Inc.; Chairman and Director of
The Asia Pacific Fund, Inc.
Robert E. LaBlanc (62) Director President of Robert E. LaBlanc
Associates, Inc. (telecommunications)
since 1981; formerly General Partner at
Salomon Brothers; formerly
Vice-Chairman of Continental Telecom;
Director of Storage Technology
Corporation, Titan Corporation and
Tribune Company; Trustee of Manhattan
College.
B-6
<PAGE>
Position with Principal Occupations
Name, Address and Age(1) Fund During Past Five Years
- ------------------------ ------------- ----------------------
* Mendel A. Melzer (35) Director Chief Investment Officer (since
751 Broad Street September 1996); formerly Chief
Newark, NJ 07102 Financial Officer (November
1995-October 1996) of Prudential
Investments; formerly Senior Vice
President and Chief Financial Officer
of Prudential Preferred Financial
Services (April 1993- November 1995);
Managing Director of Prudential
Investment Advisors (April 1991-April
1993); Senior Vice President of
Prudential Capital Corporation (July
1989-April 1991); Chairman and Director
of Prudential Series Fund, Inc.;
Director of The High Yield Income Fund,
Inc.
* Richard A. Redeker (53) President Employee(l) of Prudential Investments,
751 Broad Street and Director formerly President, Chief Executive
Newark, NJ 07102 Officer and Director (October
1993-September 1996) of PMF; formerly
Executive Vice President, Director and
Member of the Operating Committee
(1993-September 1996), Prudential
Securities; formerly Director (October
1993-September 1996) of Prudential
Securities Group, Inc.; formerly Senior
Executive Vice President and Director
of Kemper Financial Services, Inc.
(September 1978- September 1993).
Robin B. Smith (57) Director Chairman (since August 1996) and Chief
Executive Officer (since January 1988),
formerly President (September
1981-August 1996) of Publishers
Clearing House; Director of BellSouth
Corporation, The Omnicom Group, Inc.,
Texaco Inc., Springs Industries Inc.
and Kmart Corporation.
Stephen Stoneburn (53) Director President and Chief Executive Officer of
Quadrant Media Corp. (a publishing
company) (since June 1996); formerly
President of Argus Integrated Media,
Inc. (June 1995-June 1996); formerly
Senior Vice President and Managing
Director, Cowles Business Media
(January 1993-1995); prior thereto,
Senior Vice President (January
1991-1992) and Publishing Vice
President (May 1989- December 1990) of
Gralla Publications (a division of
United Newspapers, U.K.); formerly
Senior Vice President of Fairchild
Publications, Inc.
Nancy H. Teeters (66) Director Economist; formerly Vice President and
Chief Economist (March 1986-June 1990)
of International Business Machines
Corporation; formerly Member of the
Board of Governors of the Horace
Rackham School of Graduate Studies of
the University of Michigan; Director of
Inland Steel Corporation (since July
1991) and First Financial Fund, Inc.
Susan C. Cote (42) Vice President Executive Vice President and Chief
Financial Officer of PMF (since May
1996); formerly Chief Operating Officer
& Managing Director of Prudential
Investments (March 1995-May 1996) and
formerly Senior Vice President-Fund
Administrator (September 1983-February
1995) PMF.
Thomas A. Early (42) Vice President Executive Vice President, Secretary and
General Counsel of PMF (since December
1996); Vice President and General
Counsel, Prudential Retirement Services
(since March 1994); formerly Associate
General Counsel and Chief Financial
Services Officer, Frank Russell Company
(1988-1994).
S. Jane Rose (51) Secretary Senior Vice President and Senior Counsel
of PMF; Senior Vice President and
Senior Counsel of Prudential Securities
(since July 1992); formerly Vice
President and Associate General Counsel
of Prudential Securities.
B-7
<PAGE>
Position with Principal Occupations
Name, Address and Age(1) Fund During Past Five Years
- ------------------------ ------------- ----------------------
Ellyn C. Vogin (36) Assistant Vice President and Associate General
Counsel of Prudential Securities
Secretary and PMF (since March 1995);
prior thereto, associated with the law
firm of Fulbright & Jaworski L.L.P.
Grace C. Torres (38) Treasurer and First Vice President (since March 1994)
Principal of PMF; First Vice President (since
Financial and March 1994) of Prudential Securities;
Accounting Vice President of Bankers Trust (July
Officer 1989-March 1994).
Stephen M. Ungerman (44) Assistant First Vice President (since February
Treasurer 1993) of PMF; Tax Director of
Prudential Investments and the Private
Asset Group of The Prudential Insurance
Company of America (since March 1996);
prior thereto, Senior Tax Manager of
Price Waterhouse LLP (1981-January
1993).
- ----------
(1) Unless otherwise noted the address for each of the above persons is c/o
Prudential Mutual Fund Management LLC, Gateway Center Three, 100 Mulberry
Street, Newark, New Jersey 07102-4077.
* "Interested" director, as defined in the Investment Company Act by reason
of their affiliation with Prudential Securitiesor 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).
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 PIC annual compensation of $2,000, plus expenses.
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. Under this phase-in provision, Messrs. Beach
and Eyre are scheduled to retire on December 31, 1999 and 1998, respectively.
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, 1996 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 LLC (Fund Complex) for the calendar year ended
December 31, 1996. In October 1996, shareholders elected a new Board of
Directors. Below is listed all Directors who have served the Fund during its
most recent fiscal year, as well as the new Directors who took office after the
shareholder meeting in October.
B-8
<PAGE>
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 (2)
----------------- ------------ ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Edward D. Beach--Director ...................... -- None N/A $166,000(21/39)*
Stephen C. Eyre--Director ...................... -- None N/A $ 34,250( 4/ 5)*
Delayne D. Gold--Director ...................... $ 6,000 None N/A $175,308(21/42)*
Robert F. Gunia (1)--Director .................. -- None N/A --
Arthur Hauspurg--Former Director ............... $ 6,000 None N/A $ 38,250( 5/ 7)*
Don G. Hoff--Director .......................... -- None N/A $ 50,042( 5/ 7)*
Robert F. LaBlanc--Director .................... -- $ 34,542( 4/ 4)*
Mendel A. Melzer (1)--Director ................. -- --
Stephen P. Munn--Former Director ............... $ 6,000 None N/A $ 49,125( 6/ 8)*
Richard A. Redeker (1)--Director ............... -- --
Robin B. Smith--Director ....................... $12,000 $109,294(11/20)*
Stephen Stoneburn--Director .................... -- $ 30,375( 4/ 6)*
Nancy H. Teeters--Director ..................... -- $103,583(11/28)*
Louis A. Weil, III--Former Director ............ $ 6,000 None N/A $ 24,375( 2/ 2)*
</TABLE>
- ----------
* Indicates number of funds/portfolios in Fund Complex (including the Fund)
to which aggregate compensation relates.
(1) Robert F. Gunia, Mendel A. Melzer and Richard A. Redeker, who are
interested Directors, do not receive compensation from the Fund or any fund
in the Prudential Mutual Fund Family.
(2) Total compensation from all of the funds in the Fund Complex for the
calendar year ended December 31, 1996, including amounts deferred at the
election of Directors under the funds' Deferred Compensation Plans.
Including accrued interest, total deferred compensation amounted to
$109,294 for Robin B. Smith. Currently, Ms. Smith has agreed to defer some
of her fees at the T-Bill rate and other fees at the Fund rate.
As of February 14, 1997, the Directors and officers of the Fund, as a
group, owned less than 1% of the outstanding common stock of the Fund. Harry A.
Jacobs, Jr., a former interested Director, also did not receive compensation
from the Fund or any fund in the Fund Complex.
As of February 14, 1997, Prudential Securities was the record holder for
other beneficial owners of 337,615,773 shares (or approximately 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 LLC, Gateway
Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077 (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, 1997, PMF managed and/or
administered open-end and closed-end management investment companies with assets
of approximately $55.8 billion. According to the Investment Company Institute,
as of December 31, 1996, the Prudential Mutual Funds were the 15th 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 two wholly-owned
subsidiaries: Prudential Mutual Fund Distributors, Inc. and Prudential Mutual
Fund Services, Inc. (PMFS or the Transfer Agent). 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
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<PAGE>
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, 1996. Currently, the Fund believes that there are
no such expense limitations.
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, doing business as Prudential Investments, (PI) pursuant to a
subadvisory agreement between PMF and PI (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, 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.
For the fiscal years ended December 31, 1996, 1995 and 1994, the Fund paid
management fees to PMF (or its predecessors) of $2,016,151, $2,351,851 and
$3,222,405, respectively.
PMF has entered into the Subadvisory Agreement with PI (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, PI is obligated to keep certain books and
records of the Fund. PMF continues to have
B-10
<PAGE>
responsibility for all investment advisory services pursuant to the Management
Agreement and supervises PI's performance of such services. PI is reimbursed
by PMF for the reasonable costs and expenses incurred by the PI in furnishing
services to PMF.
PI 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 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 PI 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.
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. See "How the
Fund is Managed--Distributor" in the Prospectus.
For the fiscal year ended December 31, 1996, PMFD and PSI incurred
distribution expenses in the aggregate of $504,038 all of which was recovered
through the distribution fee paid by the Fund to PMFD and PSI. 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 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.
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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.
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 serves as an independent "ombudsman" whom PSI employees
can call anonymously with complaints about ethics and compliance. PSI reports
any allegations or instances of criminal conduct and material improprieties to
the new director. The new director submits compliance reports which identify all
such allegations or instances of criminal conduct and material improprieties
every three months and will continue to do so 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.
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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,
1996, 1995 and 1994.
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 LLC (PMFS), or by Prudential Securities clients through an
account at Prudential Securities. Shares may also be purchased through Pruco
Securities 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.
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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 LLC, 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 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
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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.
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, Inc., 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.
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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 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.
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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.
Effective yield = [(base period return + 1)^(365/7)]-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.
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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 options thereon 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 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. 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 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.
Under tax proposals in the Clinton Administration's budget plan, a portion
of the interest expense of a corporation that receives tax-exempt interest
income (including 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.
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.
B-18
<PAGE>
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 LLC, 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, 1996, the Fund incurred fees of $321,000 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 PRUDENTIAL TAX-FREE
as of December 31, 1996 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--4.5%
Maricopa Cnty. Ind. Dev. Auth., Grand Canyon Univ., F.R.W.D. SP-1+* 4.20% 1/02/97 $ 9,700 $ 9,700,000
Pima Cnty. Ind. Dev. Auth. Rev., F.R.W.D., Ser. 96A A-1+* 4.35 1/02/97 5,445 5,445,000
------------
15,145,000
- ------------------------------------------------------------------------------------------------------------------------------
Arkansas--1.2%
Arkansas Dev. Fin. Auth., Single Family Mtg. Rev., Ser. 96I A-1+* 3.80 11/05/97 4,000 4,000,000
- ------------------------------------------------------------------------------------------------------------------------------
California--1.5%
California Higher Ed. Ln. Auth., Student Ln. Rev.,
A.N.N.M.T.,
Ser. 87A VMIG1 3.95 7/01/97 5,000 5,000,000
- ------------------------------------------------------------------------------------------------------------------------------
Colorado--13.6%
Arapahoe Cnty. Multifamily Rev., Var. Ref. Hsg., Stratford
Sta. Proj., F.R.D.D., Ser. 94 A-2* 5.55 1/02/97 1,055 1,055,000
Colorado Hlth. Facs. Auth. Rev., Frasier Meadows Manor,
F.R.W.D.,
Ser. 94 NR 4.20 1/02/97 7,200 7,200,000
Colorado Hsg. Fin. Auth.,
Eagle Trust, F.R.W.D.S., Ser. 94C A-1* 4.26 1/02/97 12,000 12,000,000
Var. Ref. Multifamily Hsg. Rev., Central Park, Ser. 96C A-1* 4.30 1/02/97 13,960 13,960,000
Var. Ref. Multifamily Hsg. Rev., Huntington-J, Ser. 96J A-1* 4.30 1/02/97 6,560 6,560,000
Denver City & Cnty. of Airport Sys. Rev., F.R.W.D., Ser. 91B VMIG1 4.35 1/02/97 4,600 4,600,000
------------
45,375,000
- ------------------------------------------------------------------------------------------------------------------------------
Connecticut--0.3%
Connecticut Hsg. Fin. Auth., Hsg. Mtg. Fin. Pgm., A.N.N.M.T.,
Ser. A-4 VMIG1 3.65 4/10/97 1,100 1,099,880
- ------------------------------------------------------------------------------------------------------------------------------
District Of Columbia--3.4%
District of Columbia Rev., F.R.D.D., Ser. 92A-2 VMIG1 5.00 1/02/97 6,900 6,900,000
Metro Washington Airport-PVC Rev. Notes A-1* 3.65 5/20/97 4,500 4,500,000
------------
11,400,000
- ------------------------------------------------------------------------------------------------------------------------------
Florida--1.3%
Pasco Cnty. School Bd. Cert., M.T.H.O.T., Ser. 96 VMIG1 4.10 1/09/97 4,370 4,370,000
- ------------------------------------------------------------------------------------------------------------------------------
Georgia--8.9%
Burke County Dev. Auth. Poll., Adj. Oglethorpe Pwr. Corp.,
Ser. 96 NR 3.87 5 5/15/97 10,000 10,000,000
Cobb Cnty. Dev. Auth., Inst. of Nuclear Pwr., F.R.W.D., Ser.
92 NR 3.20 1/08/97 6,430 6,430,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-20
<PAGE>
Portfolio of Investments PRUDENTIAL TAX-FREE
as of December 31, 1996 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>
- ------------------------------------------------------------------------------------------------------------------------------
Georgia (cont'd.)
Fulton Cnty. Dev. Auth.,
Atlanta Jewish Federation, Ser. 96 VMIG1 4.15% 1/02/97 $ 5,345 $ 5,345,000
Siemen's Energy Inc., F.R.W.D., Ser. 94 VMIG1 4.20 1/02/97 7,750 7,750,000
------------
29,525,000
- ------------------------------------------------------------------------------------------------------------------------------
Illinois--9.0%
Illinois Dev. Fin. Auth., Orleans Proj. Multifamily Hsg.
Rev., F.R.W.D., Ser.92 A-1* 4.50 1/03/97 10,120 10,120,000
Illinois Hlth. Fac. Auth.,
Evanston Hsp., S.E.M.M.T., Ser. 95 VMIG1 3.75 5/15/97 7,000 7,000,000
Evanston Hsp., S.E.M.M.T., Ser. 92 VMIG1 3.70 12/01/97 8,000 8,000,000
Vlg. of Schaumburg, Multifamily Hsg. Rev., Windsong Apts.
Proj., F.R.W.D., Ser. 95 A-2* 4.61 1/02/97 5,000 5,000,000
------------
30,120,000
- ------------------------------------------------------------------------------------------------------------------------------
Indiana--2.1%
Gary Indiana, Miller Partnership, LP, F.R.W.D., Ser. 96A VMIG1 4.35 1/02/97 7,000 7,000,000
- ------------------------------------------------------------------------------------------------------------------------------
Iowa--2.1%
Iowa School Corps Warrants Certificates, Ser. 95-6A MIG1 4.75 6/27/97 7,000 7,024,243
- ------------------------------------------------------------------------------------------------------------------------------
Kentucky--4.5%
Louisville & Jefferson Cnty., Swr. & Drainage Proj.,
F.R.W.D., Ser. 96A A-1* 4.30 1/02/97 15,000 15,000,000
- ------------------------------------------------------------------------------------------------------------------------------
Maryland--2.2%
Maryland Econ. Dev. Corp., F.R.W.D., Ser.95 A-1* 4.30 1/02/97 7,500 7,500,000
- ------------------------------------------------------------------------------------------------------------------------------
Michigan--2.2%
Grand Rapids Econ. Dev. Corp., Ind. Dev. Rev. Rfdg.,
F.R.W.D., Ser. 92 NR 4.15 1/02/97 7,500 7,500,000
- ------------------------------------------------------------------------------------------------------------------------------
Nevada--1.0%
Washoe Cnty. Wtr. Fac. Rev., Sierra Pacific Co. Proj., Ser.
90 P-1 5.05 1/02/97 3,300 3,300,000
- ------------------------------------------------------------------------------------------------------------------------------
New Jersey--1.7%
Jersey City, School Promissory Notes SP-1+* 3.75 3/07/97 5,600 5,604,340
</TABLE>
- --------------------------------------------------------------------------------
- ----- See Notes to Financial Statements.
B-21
<PAGE>
Portfolio of Investments PRUDENTIAL TAX-FREE
as of December 31, 1996 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>
- ------------------------------------------------------------------------------------------------------------------------------
New York--2.7%
New York City, Gen. Oblig., T.E.C.P., Ser. 94H-2 VMIG1 3.65% 1/10/97 $ 9,000 $ 9,000,000
- ------------------------------------------------------------------------------------------------------------------------------
North Carolina--2.2%
Rockingham Cnty. Ind. Facs., Phillip Morris Rev. P-1 4.15 1/02/97 7,200 7,200,000
- ------------------------------------------------------------------------------------------------------------------------------
Ohio--6.4%
Eastlake Indl. Dev. Rev., Adj. Astro Model Dev. Corp. Ser. 96 NR 4.30 1/02/97 6,100 6,100,000
Ohio Hsg. Agcy. Res. Mtg. Rev., A.N.N.M.T., Ser. 96A-3 A-1+* 3.40 3/03/97 8,000 8,000,000
Ohio Wtr. Dev. Auth., Ohio Edison Co., A.N.N.O.T., Ser. 88A VMIG1 3.80 5/01/97 7,280 7,280,000
------------
21,380,000
- ------------------------------------------------------------------------------------------------------------------------------
Oklahoma--2.6%
Tulsa Pkg. Auth. Rev., Williams Ctr. Proj., S.E.M.M.T., Ser.
87A VMIG1 3.70 5/15/97 8,625 8,625,000
- ------------------------------------------------------------------------------------------------------------------------------
Pennsylvania--3.0%
Emmaus Gen. Auth. Rev., F.R.W.D., Ser. 96 A-1+* 5.00 1/02/97 5,000 5,000,000
Northeastern Pa. Hosp. & Ed. Auth. Rev., Allhealth Pooled
Fing
Prog., Ser. 96 VMIG1 4.30 1/02/97 5,100 5,100,000
------------
10,100,000
- ------------------------------------------------------------------------------------------------------------------------------
South Carolina--1.4%
York Cnty. Nat'l. Rural Coop. Fin. Corp., S.E.M.O.T., North
Carolina Electric, Ser. 84N-4 VMIG1 3.80 3/15/97 4,500 4,500,000
- ------------------------------------------------------------------------------------------------------------------------------
South Dakota--1.4%
South Dakota Hsg. Dev. Auth., F.R.W.D.S., Ser. PT-85 A-1+* 4.30 1/02/97 4,800 4,800,000
- ------------------------------------------------------------------------------------------------------------------------------
Tennessee--2.8%
Memphis Hlth. Edl. & Hsg., Wesley Hsg. Corp., F.R.W.D., Ser.
89 VMIG1 4.50 1/03/97 9,320 9,320,000
- ------------------------------------------------------------------------------------------------------------------------------
Texas--10.8%
Bexar Cnty. Hsg. Fin. Corp., Var. Ref. Windridge Apts. Proj.,
F.R.W.D., Ser. 95 A-1+* 4.25 1/02/97 6,270 6,270,000
Boatmens St. Louis Grantor Trust, Port Arthur TX IDC, CTF
Part.,
Ser. 96A A-1* 4.35 1/02/97 3,670 3,670,000
Greater Texas Student Ln. Rev., A.N.N.M.T., Ser. 96A VMIG1 3.35 3/01/97 5,000 5,000,000
Gulf Coast Ind. Dev. Auth., Citgo Petroleum., F.R.D.D., Ser.
95, VMIG1 5.10 1/02/97 400 400,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-22
<PAGE>
Portfolio of Investments PRUDENTIAL TAX-FREE
as of December 31, 1996 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>
- ------------------------------------------------------------------------------------------------------------------------------
Texas (cont'd.)
Houston, Gen. Oblig., T.E.C.P., Ser. A P-1 3.50% 4/30/97 $ 8,600 $ 8,600,000
Southeast Texas Hsg. Fin. Corp., Banc One Tax Exempt Trust,
F.R.W.D.S., Ser. 91D Aaa* 4.38 1/02/97 4,200 4,200,000
Texas Tax & Rev. Anticipation Notes, Ser. 96 MIG1 4.75 8/29/97 8,000 8,039,455
------------
36,179,455
- ------------------------------------------------------------------------------------------------------------------------------
Utah--1.2%
Intermountain Pwr. Agy., Utah Pwr. Supply Rev., A.N.N.O.T.,
Ser. 85E VMIG1 3.93 6/16/97 4,000 4,000,000
- ------------------------------------------------------------------------------------------------------------------------------
Virginia--2.0%
Chesterfield Cnty. Ind. Dev. Auth., Philip Morris Proj.,
F.R.W.D. P-1 4.15 1/02/97 6,500 6,500,000
- ------------------------------------------------------------------------------------------------------------------------------
Wisconsin--4.7%
Middleton Cross Plains Area Sch., T.R.A.N., Ser. 95 NR 4.25 8/27/97 5,500 5,508,943
Whitewater Ind. Dev. Rev., Trek Bicycle, F.R.W.D., Ser. 95 NR 4.30 1/02/97 4,270 4,270,000
Wisconsin Hsg. Econ. Dev. Auth., Eagle Tax Exempt Trust, Ser.
96(d) NR 3.65 3/01/97 5,800 5,800,000
------------
15,578,943
------------
Total Investments--100.7%
(cost $336,146,861(c)) 336,146,861
Other assets in excess of liabilities--(0.7)% (2,338,173)
------------
Net Assets--100% $333,808,688
------------
------------
</TABLE>
- ---------------
(a) The following abbreviations are used in portfolio descriptions:
A.N.N.M.T.--Annual Mandatory Tender(b)
A.N.N.O.T.--Annual Optional Tender(b)
F.R.D.D.--Floating Rate (Daily) 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)
S.E.M.M.T.--Semi-Annual Mandatory Tender(b)
S.E.M.O.T.--Semi-Monthly Optional Tender Offer(b)
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 later 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.
(d) Indicates illiquid security.
* 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>
<CAPTION>
Assets December 31, 1996
-----------------
<S> <C>
Investments, at amortized cost which approximates market value.......................................... $ 336,146,861
Cash.................................................................................................... 60,080
Receivable for Fund shares sold......................................................................... 7,706,620
Interest receivable..................................................................................... 2,285,107
Receivable for investments sold......................................................................... 480,000
Deferred expenses....................................................................................... 10,626
-----------------
Total assets......................................................................................... 346,689,294
-----------------
Liabilities
Payable for investments purchased....................................................................... 6,430,564
Payable for Fund shares reacquired...................................................................... 5,816,340
Dividends payable....................................................................................... 242,658
Accrued expenses........................................................................................ 211,994
Management fee payable.................................................................................. 157,547
Distribution fee payable................................................................................ 21,503
-----------------
Total liabilities.................................................................................... 12,880,606
-----------------
Net Assets.............................................................................................. $ 333,808,688
-----------------
-----------------
Net assets were comprised of:
Common Stock, $.01 par value......................................................................... $ 3,339,030
Paid-in capital in excess of par..................................................................... 330,469,658
-----------------
Net assets, December 31, 1996........................................................................... $ 333,808,688
-----------------
-----------------
Net asset value, offering price and redemption price
per share ($333,808,688 / 333,902,966)............................................................... $1.00
-----------------
-----------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-24
<PAGE>
PRUDENTIAL TAX-FREE MONEY FUND, INC.
Statement of Operations
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Year Ended
Net Investment Income December 31, 1996
Income
Interest.............................. $14,644,737
-----------------
Expenses
Management fee........................ 2,016,151
Distribution fee...................... 504,038
Transfer agent's fees and expenses.... 323,000
Reports to shareholders............... 161,000
Registration fees..................... 94,400
Audit fee and expenses................ 47,000
Legal fees and expenses............... 35,000
Custodian's fees and expenses......... 31,000
Directors' fees and expenses.......... 24,200
Insurance expenses.................... 3,500
Miscellaneous......................... 1,028
-----------------
Total expenses........................ 3,240,317
Less: custodian fee credit............ (15,287)
-----------------
Net expenses.......................... 3,225,030
-----------------
Net investment income.................... 11,419,707
-----------------
Realized Gain on Investments
Net realized gain on investment
transactions.......................... 2,446
-----------------
Net Increase in Net Assets
Resulting from Operations................ $11,422,153
-----------------
-----------------
</TABLE>
PRUDENTIAL TAX-FREE MONEY FUND, INC.
Statement of Changes in Net Assets
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended December 31,
in Net Assets 1996 1995
<S> <C> <C>
Operations
Net investment income..... $ 11,419,707 $ 14,779,107
Net realized gain on
investment
transactions........... 2,446 --
--------------- ---------------
Net increase in net assets
resulting from
operations............. 11,422,153 14,779,107
--------------- ---------------
Dividends and distributions
to shareholders........... (11,422,153) (14,779,107)
--------------- ---------------
Fund share transactions
(at $1 per share)
Proceeds from shares
subscribed............. 1,087,199,969 1,402,761,534
Net asset value of shares
issued to shareholders
in reinvestment of
dividends and
distributions.......... 10,887,534 14,035,315
Cost of shares
reacquired............. (1,151,929,658) (1,516,436,457)
--------------- ---------------
Net decrease in net assets
from Fund share
transactions........... (53,842,155) (99,639,607)
--------------- ---------------
Total decrease............... (53,842,155) (99,639,607)
Net Assets
Beginning of year............ 387,650,843 487,290,450
--------------- ---------------
End of year.................. $ 333,808,688 $ 387,650,843
=============== ===============
</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 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. The cost of portfolio securities for federal income tax purposes
is substantially the same as for financial reporting purposes. Expenses are
recorded on the accrual basis which may require the use of certain estimates by
management.
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 LLC
(``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 has a distribution agreement with Prudential Securities Incorporated
(``PSI''). The Fund compensated PSI 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.
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 LLC (``PMFS''), a wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent and during the year ended December 31,
1996, the Fund incurred fees of $321,000 for the services of PMFS. As of
December 31, 1996, approximately $26,000 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,
-----------------------------------------------
1996 1995 1994 1993
<S> <C> <C> <C> <C>
-------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year.......................................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income and realized gains.................................... .028 .031 .023 .018
Dividends and distributions to shareholders................................. (.028) (.031) (.023) (.018)
-------- -------- -------- --------
Net asset value, end of year................................................ $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
-------- -------- -------- --------
TOTAL RETURN(a):............................................................ 2.84% 3.15% 2.31% 1.86%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)............................................... $333,808 $387,651 $487,290 $601,622
Average net assets (000).................................................... $403,230 $470,370 $644,481 $726,571
Ratios to average net assets:
Expenses, including distribution fee..................................... .80% .85% .75% .74%
Expenses, excluding distribution fee..................................... .67% .72% .63% .62%
Net investment income.................................................... 2.88% 3.14% 2.26% 1.84%
<CAPTION>
1992
<S> <C>
--------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year.......................................... $ 1.00
Net investment income and realized gains.................................... .026
Dividends and distributions to shareholders................................. (.026)
--------
Net asset value, end of year................................................ $ 1.00
--------
--------
TOTAL RETURN(a):............................................................ 2.63%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)............................................... $614,333
Average net assets (000).................................................... $669,588
Ratios to average net assets:
Expenses, including distribution fee..................................... .74%
Expenses, excluding distribution fee..................................... .62%
Net investment income.................................................... 2.60%
</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. Total returns for periods
less than a full year are not annualized.
- --------------------------------------------------------------------------------
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, 1996, 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, 1996 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 24, 1997
Tax Information PRUDENTIAL TAX-FREE MONEY FUND, INC.
- -------------------------------------------------------------------------------
We are required by the Internal Revenue Code to advise you within 60 days of the
Fund's fiscal year end (December 31, 1996) as to the federal tax status of
dividends paid by the Fund during such fiscal year. Accordingly, we are advising
you that in the fiscal year ended December 31, 1996, dividends paid from net
investment income of $.028 were federally tax-exempt interest dividends.
Information with respect to the state taxability of your investment in the Fund
was sent to you under separate cover.
- --------------------------------------------------------------------------------
B-28
<PAGE>
Supplemental Proxy Information PRUDENTIAL TAX-FREE MONEY FUND, INC.
- -------------------------------------------------------------------------------
The Annual Meeting of Shareholders of the Prudential Tax-Free Money Fund,
Inc. (the ``Fund'') was held on Wednesday, October 30, 1996 at the offices of
Prudential Securities Incorporated, One Seaport Plaza, New York, New York. The
meeting was held for the following purposes:
(1) To elect Directors as follows: Edward D. Beach, Stephen C. Eyre, Delayne
Dedrick Gold, Robert F. Gunia, Don G. Hoff, Robert E. LaBlanc, Mendel A.
Melzer, Richard A. Redeker, Robin B. Smith, Stephen Stoneburn and Nancy H.
Teeters.
(2) To amend the Fund's fundamental investment restriction relating to
investment in shares of investment companies.
(3) To modify the Fund's investment restriction relating to the making of loans.
(4) To ratify the selection of Price Waterhouse LLP as independent accountants
for the fiscal year ending December 31, 1997.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
Director/Matter Votes for Votes against Abstentions
---------------- ------------- ------------- -----------
<S> <C> <C> <C>
(1) Edward D. Beach 191,966,948 -- 8,540,602
Stephen C. Eyre 191,973,710 -- 8,533,840
Delayne Dedrick Gold 191,932,370 -- 8,575,180
Robert F. Gunia 191,922,002 -- 8,585,548
Don G. Hoff 191,880,318 -- 8,627,232
Robert E. LaBlanc 191,937,202 -- 8,570,348
Mendel A. Melzer 191,937,843 -- 8,569,707
Richard A. Redeker 192,070,379 -- 8,437,171
Robin B. Smith 192,089,041 -- 8,418,509
Stephen Stoneburn 191,828,576 -- 8,678,974
Nancy H. Teeters 192,033,747 -- 8,473,803
(2) Investment Restrictions-shares of other Invest. Co. 138,697,276 9,331,329 9,947,324
(3) Investment Restrictions-making of loans 134,443,927 13,145,923 10,386,079
(4) Independent Auditors 188,620,312 2,899,067 8,988,171
</TABLE>
- --------------------------------------------------------------------------------
B-29
<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 or 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>
APPENDIX B
INFORMATION RELATING TO THE PRUDENTIAL
Set forth below is information relating to The Prudential Insurance Company
of America (Prudential) and its subsidiaries as well as information relating to
the Prudential Mutual Funds. See "How the Fund Is Managed--Manager" in the
Prospectus. The data will be used in sales materials relating to the Prudential
Mutual Funds. Unless otherwise indicated, the information is as of December 31,
1995 and is subject to change thereafter. All information relies on data
provided by The Prudential Investment Corporation (PlC) or from other sources
believed by the Manager to be reliable. Such information has not been verified
by the Fund.
Information about Prudential
The Manager and PlC(1) are subsidiaries of Prudential, which is one of the
largest diversfied financial services institutions in the world and, based on
total assets, the largest insurance company in North America as of December
31,1995. Its primary business is to offer a full range of products and services
in three areas: insurance, investments and home ownership for individuals and
families; health-care management and other benefit programs for employees of
companies and members of groups; and asset management for institutional clients
and their associates. Prudential (together with its subsidiaries) employs more
than 92,000 persons worldwide, and maintains a sales force of approximately
13,000 agents and 5,600 financial advisors. Prudential is a major issuer of
annuities, including variable annuities. Prudential seeks to develop innovative
products and services to meet consumer needs in each of its business areas.
Prudential uses the Rock of Gibraltar as its symbol. The Prudential rock is a
recognized brand name throughout the world.
lnsurance. Prudential has been engaged in the insurance business since
1875. It insures or provides financial services to more than 50 million people
worldwide--one of every five people in the United States. Long one of the
largest issuers of individual life insurance, the Prudential has 19 million life
insurance policies in force today with a face value of $1 trillion. Prudential
has the largest capital base ($11.4 billion) of any life insurance company in
the United States. The Prudential provides auto insurance for more than 1.7
million cars and insures more than 1.4 million homes.
Money Management. The Prudential is one of the largest pension fund
managers in the country, providing pension services to 1 in 3 Fortune 500 firms.
It manages $36 billion of individual retirement plan assets, such as 401(k)
plans. In July 1996, Institutional Investor ranked Prudential the fifth largest
institutional money manager of the 300 largest money management organizations in
the United States as of December 31,1995. As of December 31,1995, Prudential had
more than $314 billion in assets under management. Prudential Investments, a
business group of Prudential (of which Prudential Mutual Funds is a key part),
manages over $190 billion in assets of institutions and individuals.
Real Estate. The Prudential Real Estate Affiliates, the fourth largest real
estate brokerage network in the United States, has more than 34,000 brokers and
agents and more than 1,100 offices in the United States.(2)
Healthcare. Over two decades ago, the Prudential introduced the first
federally-funded, for-profit HMO in the country. Today, almost 5 million
Americans receive healthcare from a Prudential managed care membership.
Financial Services. The Prudential Bank, a wholly-owned subsidiary of the
Prudential, has nearly $3 billion in assets and serves nearly 1.5 million
customers across 50 states.
Information about the Prudential Mutual Funds
Prudential Mutual Fund Management is one of the seventeen largest mutual
fund companies in the country, with over 2.5 million shareholders invested in
more than 50 mutual fund portfolios and variable annuities with more than 3.7
million shareholder accounts.
The Prudential Mutual Funds have over 30 portfolio managers who manage over
$55 billion in mutual fund and variable annuity assets. Some of Prudential's
portfolio managers have over 20 years of experience managing investment
portfolios.
- ----------
(1) Prudentlal Investments, a business group of PIC, serves as the Subadviser to
substantially all of the Prudential Mutual Funds. Wellington Management Company
serves as the subadviser to Global Utility Fund, Inc., Nicholas-Applegate
Capital Management as the subadviser to Nicholas-Applegate Fund, Inc., Jennison
Associates Capital Corp. as the subadviser to Prudential Jennison Series Fund,
Inc. and Prudential Active Balanced Fund, a portfolio of Prudential Dryden Fund
and Mercator Asset Management L.P. as subadviser to International Stock Series a
portfolio of Prudential World Fund, Inc. and BlackRock Financial Management Inc.
as subadvlser to The BlackRock Government Income Trust. There are multiple
subadvisers for The Target Portfolio Trust.
(2) As of December 31, 1994.
B-1
<PAGE>
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.
Equity Funds. Forbes magazine listed Prudential Equity Fund among twenty
mutual funds on its Honor Roll in its mutual fund issue of August 28,1995.
Honorees are chosen annually among mutual funds (excluding sector funds) which
are open to new investors and have had the same management for at least five
years. Forbes considers, among other criteria, the total return of a mutual fund
in both bull and bear markets as well as a fund's risk profile. Prudential
Equity Fund is managed with a "value" investment style by PlC. In 1995,
Prudential Securities introduced Prudential Jennison Growth Fund, a growth-style
equity fund managed by Jennison Associates Capital Corp., a premier
institutional equity manager and a subsidiary of Prudential.
High Yield Funds. Investing in high yield bonds is a complex and research
intensive pursuit. A separate team of high yield bond analysts monitor the 167
issues held in the Prudential High Yield Fund (currently the largest fund of its
kind in the country) along with 100 or so other high yield bonds, which may be
considered for purchase.(3) Non-investment grade bonds, also known as junk bonds
or high yield bonds, are subject to a greater risk of loss of principal and
interest including default risk than higher-rated bonds. Prudential high yield
portfolio managers and analysts meet face-to-face with almost every bond issuer
in the High Yield Fund's portfolio annually, and have additional telephone
contact throughout the year.
Prudential's portfolio managers are supported by a large and sophisticated
research organization. Fourteen investment grade bond analysts monitor the
financial viability of approximately 1,750 different bond issuers in the
investment grade corporate and municipal bond markets--from IBM to small
municipalities, such as Rockaway Township, New Jersey. These analysts consider
among other things sinking fund provisions and interest coverage ratios.
Prudential's portfolio managers and analysts receive research services from
almost 200 brokers and market service vendors. They also receive nearly 100
trade publications and newspapers--from PULP AND PAPER FORECASTER to WOMEN'S
WEAR DAILY--to keep them informed of the industries they follow.
Prudential Mutual Funds' traders scan over 100 computer monitors to collect
detailed information on which to trade. From natural gas prices in the Rocky
Mountains to the results of local municipal elections, a Prudential portfolio
manager or trader is able to monitor it if it's important to a Prudential Mutual
Fund.
Prudential Mutual Funds trade approximately $31 billion in U.S. and foreign
government securities a year. PlC seeks information from government policy
makers. In 1995, Prudential's portfolio managers met with several senior U.S.
and foreign government officials, on issues ranging from economic conditions in
foreign countries to the viability of index-linked securities in the United
States.
Prudential Mutual Funds' portfolio managers and analysts met with over
1,200 companies in 1995, often with the Chief Executive Officer (CEO) or Chief
Financial Officer (CFO). They also attended over 250 industry conferences.
Prudential Mutual Funds' global equity managers conducted many of their
visits overseas, often holding private meetings with a company in a foreign
language (our global equity managers speak 7 different languages, including
Mandarin Chinese).
Trading Data.(4) On an average day, Prudential Mutual Funds' U.S. and
foreign equity trading desks traded $77 million in securities representing over
3.8 million shares with nearly 200 different firms. Prudential Mutual Funds'
bond trading desks traded $157 million in government and corporate bonds on an
average day. That represents more in daily trading than most bond funds tracked
by Lipper even have in assets.(5) Prudential Mutual Funds' money market desk
traded $3.2 billion in money market securities on an average day, or over $800
billion a year. They made a trade every 3 minutes of every trading day. In 1994,
the Prudential Mutual Funds effected more than 40,000 trades in money market
securities and held on average $20 billion of money market securities.(6)
- ----------
(3) As of December 31,1995. The number of bonds and the size of the Fund are
subject to change.
(4) Trading data represents average daily transactions for portfolios of the
Prudential Mutual Funds for which PlC serves as the subadviser, portfolios of
the Prudential Series Fund and institutional and non-U.S. accounts managed by
Prudential Mutual Fund InvestmentManagement, a division of PlC, for the year
ended December 31, 1995.
(5) Based on 669 funds in Lipper Analytical Services categories of Short U.S.
Treasury, Short U.S. Government, Intermediate U.S. Treasury, IntermedIate U.S.
Government, Short Investment Grade Debt, Intermediate Investment Grade Debt,
General U.S. Treasury, General U.S. Government and Mortgage funds.
(6) As of December 31, 1994.
B-2
<PAGE>
Based on complex-wide data, on an average day, over 7,250 shareholders
telephoned Prudential Mutual Fund Services LLC, 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.
Information about Prudential Securities
Prudential Securities is the fifth largest retail brokerage firm in the
United States with approximately 5,600 financial advisors. It offers to its
clients a wide range of products, including Prudential Mutual Funds and
annuities. As of December 31, 1995, assets held by Prudential Securities for its
clients approximated $168 billion.
During 1994, over 28,000 new customer accounts were opened each month at
PSI.(7)
Prudential Securities has a two-year Financial Advisor training program
plus advanced education programs, including Prudential Securities "university,"
which provides advanced education in a wide array of investment areas.
Prudential Securities is the only Wall Street firm to have its own in-house
Certified Financial Planner (CFP) program. In the December 1995 issue of
REGISTERED REP, an industry publication, Prudential Securities' Financial
Advisor training programs received a grade of A- (compared to an industry
average of B+).
In 1995, Prudential Securities' equity research team ranked 8th in
Institutional Investor magazine's 1995 "All America Research Team" survey. Five
Prudential Securities' analysts were ranked as first-team finishers.(8)
In addition to training, Prudential Securities provides its financial
advisors with access to firm economists and market analysts. It has also
developed proprietary tools for use by financial advisors, including the
Financial Architect, a state-of-the-art asset allocation software program which
helps Financial Advisors to evaluate a client's objectives and overall financial
plan, and a comprehensive mutual fund information and analysis system that
compares different mutual funds.
For more complete information about any of the Prudential Mutual Funds,
including charges and expenses, call your Prudential Securities financial
adviser or Pruco/Prudential representative for a free prospectus. Read it
carefully before you invest or send money.
- ----------
(7) As of December 31, 1994.
(8) On an annual basis, Institutional Investor magazine surveys more than 700
institutional money managers, chief investment officers and research directors,
asking them to evaluate analysts in 76 industry sectors. Scores are produced by
taking the number of votes awarded to an individual analyst and weighing them
based on the size of the voting institution. In total, the magazine sends its
survey to approximately 2,000 institutions and a group of European and Asian
institutions.
B-3
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements:
(1) Financial statements included in the Prospectus constituting Part
A of this Registration Statement:
Financial Highlights for each of the ten years in the period
ended December 31, 1996.
(2) Financial statements included in the Statement of Additional
Information constituting Part B of this Registration Statement:
Portfolio of Investments at December 31, 1996.
Statement of Assets and Liabilities at December 31, 1996.
Statement of Operations for the year ended December 31, 1996.
Statement of Changes in Net Assets for the years ended December
31, 1995 and December 31, 1996.
Financial Highlights with respect to each of the five years in
the period ended December 31, 1996.
Notes to Financial Statements.
Report of Independent Accountants.
(b) Exhibits:
1. Restated Articles of Incorporation.*
2. By-Laws of the Registrant as amended.*
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 and The Prudential Investment Corporation.*
6. (a) 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).
(b) Amended Distribution Agreement dated January 1, 1996,
incorporated by reference to Exhibit 6(c) to Post-Effective
Amendment No. 20 to the Registration Statement on Form N-1A via
EDGAR on February 28, 1996 (File No. 2-64625).
8. Custodian Agreement between the Registrant and State Street Bank
and Trust Company.*
9. Transfer Agency and Service Agreement, dated January 1, 1988,
between the Registrant and Prudential Mutual Fund Services.*
10. Opinion of Counsel to Pre-Effective Amendment No. 1 to
Registration Statement on Form N-1.*
11. Consent of Independent Accountants.*
15. Distribution and Service Plan of Registrant.*
16. Calculation of Yield and Total Return.*
17. Financial Data Schedule filed for electronic purposes as Exhibit
27.*
- ----------
*Filed herewith.
Item 25. Persons Controlled by or under Common Control with Registrant.
None.
C-1
<PAGE>
Item 26. Number of Holders of Securities.
As of February 14, 1997, there were 17,164 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 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
(a) Prudential Mutual Fund Management LLC.
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 Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102.
<TABLE>
<CAPTION>
Name and Address Position with PMF Principal Occupations
- ---------------- ----------------- ---------------------
<S> <C> <C>
Brian Storms Officer-in-Charge, President, Officer-in-Charge, President, Chief Executive
Chief Executive Officer and Officer and Chief Operating Officer; PMF
Chief Operating Officer
</TABLE>
C-2
<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>
Robert F. Gunia Executive Vice President Comptroller, Prudential Investments (since May
and Treasurer 1996); Senior Vice President (since March 1987) of
Prudential Securities Incorporated (Prudential
Securities); Executive Vice President and
Treasurer of PMF
Thomas A. Early Executive Vice President Executive Vice President, Secretary and General
Secretary and General Counsel Counsel of PMF (since December 1996); General
Counsel, Prudential Retirement Services (since
March 1994); formerly Associate General Counsel
and Chief Financial Services Officer, Frank Russell
Company (1988-1994).
E. Michael Caulfield Chairman of the Board, Chief Executive Officer of Prudential Investments
President and Chief Executive Officer
and Director
Jonathan M. Greene Senior Vice President President--Investment Management of Prudential
and Director Investments
John R. Strangfeld Vice President and President of Private Asset Management Group of
Director Prudential
Susan C. Cote Executive Vice President and Executive Vice President and Chief Financial Officer
Chief Financial Officer of PMF
Neil A. McGuiness Executive Vice President Executive Vice President, PMF
Robert J. Sullivan Executive Vice President Executive Vice President, PMF
</TABLE>
Item 29. Principal Underwriters
(a) Prudential Securities Incorporated
Prudential Securities is distributor for Prudential Jennison Series Fund,
Inc., The Target Portfolio Trust, The BlackRock Government Income Trust, First
Financial Fund, Inc., 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 Distressed Securities Fund, Inc., Prudential
Diversified Bond Fund, Inc., Prudential Dryden Fund, Prudential Emerging Growth
Fund, Inc., Prudential Equity Fund, Inc., Prudential Equity Income Fund,
Prudential Europe Growth Fund, Inc., Prudential World 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 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 Small Companies 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-3
<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 None
One New York Plaza Director
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
Hardwick Simmons ........................ Chief Executive Officer, President None
and Director
Lee B. Spencer .......................... General Counsel, Executive Vice President, None
Secretary 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, Gateway Center Three, 100 Mulberry
Street, Newark, New Jersey 07102, and Prudential Mutual Fund Services LLC,
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 LLC.
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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly caused
this Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Newark, and
State of New Jersey, on the 24th day of February, 1997.
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.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Edward D. Beach Director February 24, 1997
- ----------------------------------
Edward D. Beach
/s/ Stephen C. Eyre Director February 24, 1997
- ----------------------------------
Stephen C. Eyre
/s/ Delayne D. Gold Director February 24, 1997
- ----------------------------------
Delayne D. Gold
/s/ Robert F. Gunia Director February 24, 1997
- ----------------------------------
Robert F. Gunia
/s/ Don G. Hoff Director February 24, 1997
- ----------------------------------
Don G. Hoff
/s/ Robert E. LaBlanc Director February 24, 1997
- ----------------------------------
Robert E. LaBlanc
/s/ Mendel A. Melzer Director February 24, 1997
- ----------------------------------
Mendel A. Melzer
/s/ Richard A. Redeker President and Director February 24, 1997
- ----------------------------------
Richard A. Redeker
/s/ Robin B. Smith Director February 24, 1997
- ----------------------------------
Robin B. Smith
/s/ Stephen Stoneburn Director February 24, 1997
- ----------------------------------
Stephen Stoneburn
/s/ Nancy H. Teeters Director February 24, 1997
- ----------------------------------
Nancy H. Teeters
/s/ Grace C. Torres Treasurer, Principal Financial and February 24, 1997
- ---------------------------------- Accounting Officer
Grace C. Torres
</TABLE>
<PAGE>
EXHIBIT INDEX
1. (a) Restated Articles of Incorporation.*
2. (a) By-Laws of the Registrant as amended.*
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 and The
Prudential Investment Corporation.*
6. (a) 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).
(b) Amended Distribution Agreement dated January 1, 1996, incorporated by
reference to Exhibit 6(c) to Post-Effective Amendment No. 20 to the
Registration Statement on Form N-1A via EDGAR on February 28, 1996 (File
No. 2-64625).
8. Custodian Agreement between the Registrant and State Street Bank and Trust
Company.*
9. Transfer Agency and Service Agreement, dated January 1, 1988.*
10. (a) Opinion of Counsel 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 of Registrant.*
16. Calculation of Yield and Total Return.*
17. Financial Data Schedule filed for electronic purposes on Exhibit 27.*
- ----------
*Filed herewith.
ARTICLES OF RESTATEMENT
OF
ARTICLES OF INCORPORATION
OF
PRUDENTIAL TAX-FREE MONEY FUND, INC.
PRUDENTIAL TAX-FREE MONEY FUND, INC., a Maryland corporation having its
principal offices in the city of Baltimore, Maryland and Newark, New Jersey
(hereinafter called the "Corporation"), hereby certifies to the State Department
of Assessments and Taxation of Maryland that:
FIRST: The Corporation desires to restate its Charter as currently in
effect. The Charter of the Corporation is hereby restated in its entirety to
read as follows:
Article I
The name of the corporation (hereinafter called the "Corporation") is
Prudential Tax-Free Money Fund, Inc.
Article II
PURPOSES
The purpose for which the Corporation is formed is to act as an open-end
investment company of the management type registered as such with the Securities
and Exchange Commission pursuant to the Investment Company Act of 1940
-1-
<PAGE>
and to exercise and generally to enjoy all of the powers, rights and privileges
granted to, or conferred upon, corporations by the General Laws of the State of
Maryland now or hereafter in force.
Article III
ADDRESS IN MARYLAND
The post office address of the place at which the principal office of the
Corporation in the State of Maryland is located is c/o The Corporation Trust
Incorporated, 32 South Street, Baltimore, Maryland 21201-3242.
The name of the Corporation's resident agent is The Corporation Trust
Incorporated, and its post office address is 32 South Street, Baltimore,
Maryland 21201-3242. Said resident agent is a corporation of the State of
Maryland.
Article IV
COMMON STOCK
Section 1. The total number of shares of capital stock which the
Corporation shall have authority to issue is 3,000,000,000 shares of Common
Stock of the par value of $.01 per share, having an aggregate par value of
-2-
<PAGE>
$30,000,000, to be divided into two classes, consisting of 1,500,000,000 Class A
Common Stock and 1,500,000,000 Class Z Common Stock.
The Class Z Common Stock shall represent the same interest in the
Corporation and have identical voting, dividend, liquidation, and other rights
as the Class A Common Stock of the Corporation; provided, however, that
notwithstanding anything in the Charter of the Corporation to the contrary:
(1) Expenses related solely to a particular Class of Common Stock
(including, without limitation, distribution expenses under a Rule 12b-1
plan and administrative expenses under an administration or service
agreement, plan or other arrangement, however designated) shall be borne
by that Class, shall be appropriately reflected (in the manner determined
by the Board of Directors) in the net asset value, dividends, distribution
and liquidation rights of the shares of that Class, and shall be described
in the prospectus or
-3-
<PAGE>
statement of additional information for such Class as and to the extent
required by the Investment Company Act of 1940, as amended, and the rules
and regulations thereunder. As of the date hereof, the Class Z shares
shall not be subject to any Rule 12b-1 distribution fees.
(2) As to any matter with respect to which a separate vote of any
Class is required by the Investment Company Act (including, without
limitation, approval of any Rule 12b-1 plan, agreement or other
arrangement referred to in subsection (1) above), such requirement as to a
separate vote by that Class shall apply in lieu of any voting requirements
established by the Maryland General Corporation Law. As to any matter
which does not affect the interest of the Class Z Common Stock, only the
holders of shares of the affected Class or Classes shall be entitled to
vote.
-4-
<PAGE>
Section 2. The Board of Directors may, in its discretion, classify and
reclassify any unissued shares of the capital stock of the Corporation into one
or more additional or other classes or series by setting or changing in any one
or more respects the designations, conversion or other rights, restrictions,
limitations as to dividends, qualifications or terms or conditions of redemption
of such shares and pursuant to such classification or reclassifica tion to
increase or decrease the number of authorized shares of any existing class or
series. If designated by the Board of Directors, particular classes or series of
capital stock may relate to separate portfolios of investments.
Section 3. Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, the holders of each class and series of capital stock of the
Corporation shall be entitled to dividends and distributions in such amounts and
at such times as may be determined by the Board of Directors, and the dividends
and distributions paid with respect to the various classes or series of
-5-
<PAGE>
capital stock may vary among such classes or series. Expenses related to the
distribution of, and other identified expenses that should properly be allocated
to, the shares of a particular class or series of capital stock may be charged
to and borne solely by such class or series and the bearing of expenses solely
by a class or series may be appropriately reflected (in a manner determined by
the Board of Directors) and cause differences in the net asset value
attributable to, and the dividend, redemption and liquidation rights of, the
shares of each such class or series of capital stock.
Section 4. Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, on each matter submitted to a vote of stockholders, each
holder of a share of capital stock of the Corporation shall be entitled to one
vote for each share outstanding in such holder's name on the books of the
Corporation, irrespective of the class or series thereof, and all shares of all
classes and series shall vote together as a single class;
-6-
<PAGE>
provided, however, that (a) as to any matter with respect to which a separate
vote of any class or series is required by the Investment Company Act of 1940,
as amended (the "Investment Company Act") and in effect from time to time, or
any rules, regulations or orders issued thereunder, or by the Maryland General
Corporation Law, such requirement as to a separate vote by that class or series
shall apply in lieu of a general vote of all classes and series as described
above; (b) in the event that the separate vote requirements referred to in (a)
above apply with respect to one or more classes or series, then subject to
paragraph (c) below, the shares of all other classes and series not entitled to
a separate vote shall vote together as a single class; and (c) as to any matter
which in the judgment of the Board of Directors (which shall be conclusive) does
not affect the interest of a particular class or series, such class or series
shall not be entitled to any vote and only the holders of shares of the one or
more affected classes or series shall be entitled to vote.
-7-
<PAGE>
Section 5. Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, in the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, holders of shares of capital
stock of the Corporation shall be entitled, after payment or provision for
payment of the debts and other liabilities of the Corporation (as such
liabilities may affect one or more of the classes of shares of capital stock of
the Corporation), to share ratably in the remaining net assets of the
Corporation; provided, however, that in the event the capital stock of the
Corporation shall be classified or reclassified into series, holders of any
shares of capital stock within such series shall be entitled to share ratably
out of assets belonging to such series pursuant to the provisions of Section
7(c) of this Article IV.
Section 6. Each share of any class of the capital stock of the
Corporation, and in the event the capital stock of the Corporation shall be
classified or reclassified into
-8-
<PAGE>
series, each share of any class of capital stock of the Corporation within such
series shall be subject to the following provisions:
(a) The net asset value of each outstanding share of capital stock
of the Corporation (or of a class or series, in the event the capital
stock of the Corporation shall be so classified or reclassified into
series), subject to subsection (b) of this Section 6, shall be the
quotient obtained by dividing the value of the net assets of the
Corporation (or the net assets of the Corporation attributable or
belonging to that class or series as designated by the Board of Directors
pursuant to Articles Supplementary) by the total number of outstanding
shares of capital stock of the Corporation (or of such class or series, in
the event the capital stock of the Corporation shall be classified or
reclassified into series). Subject to subsection (b) of this Section 6,
the value of the net assets of the Corporation (or of such class or
series, in the event the capital stock of the Corporation shall
-9-
<PAGE>
be classified or reclassified into series) shall be determined pursuant to
the procedures or methods (which procedures or methods, in the event the
capital stock of the Corporation shall be classified or reclassified into
series, may differ from class to class or from series to series)
prescribed or approved by the Board of Directors in its discretion, and
shall be determined at the time or times (which time or times may, in the
event the capital stock of the Corporation shall be classified into
classes or series, differ from series to series) prescribed or approved by
the Board of Directors in its discretion. In addition, subject to
subsection (b) of this Section 6, the Board of Directors, in its
discretion, may suspend the daily determination of net asset value of any
share of any series or class of capital stock of the Corporation.
(b) The net asset value of each share of the capital stock of the
Corporation or any class or series thereof shall be determined in
accordance with any applicable provision of the Investment Company Act,
any
-10-
<PAGE>
applicable rule, regulation or order of the Securities and Exchange
Commission thereunder, and any applicable rule or regulation made or
adopted by any securities association registered under the Securities
Exchange Act of 1934.
(c) All shares now or hereafter authorized shall be subject to
redemption and redeemable at the option of the stockholder pursuant to the
applicable provisions of the Investment Company Act and laws of the State
of Maryland, including any applicable rules and regulations thereunder.
Each holder of a share of any class or series, upon request to the
Corporation (if such holder's shares are certificated, such request being
accompanied by surrender of the appropriate stock certificate or
certificates in proper form for transfer), shall be entitled to require
the Corporation to redeem all or any part of such shares outstanding in
the name of such holder on the books of the Corporation (or as represented
by share certificates surrendered to the Corporation by such redeeming
holder) at a
-11-
<PAGE>
redemption price per share determined in accordance with subsection (a) of
this Section 6.
(d) Notwithstanding subsection (c) of this Section 6, the Board of
Directors of the Corporation may suspend the right of the holders of
shares of any or all classes or series of capital stock to require the
Corporation to redeem such shares or may suspend any purchase of such
shares:
(i) for any period (A) during which the New York Stock
Exchange is closed, other than customary weekend and holiday
closings, or (B) during which trading on the New York Stock Exchange
is restricted;
(ii) for any period during which an emergency, as defined by
the rules of the Securities and Exchange Commission or any successor
thereto, exists as a result of which (A) disposal by the Corporation
of securities owned by it and belonging to the affected series of
capital stock (or the Corporation, if the
-12-
<PAGE>
shares of capital stock of the Corporation have not been classified
or reclassified into series) is not reasonably practicable, or (B)
it is not reasonably practicable for the Corporation fairly to
determine the value of the net assets of the affected series of
capital stock; or
(iii) for such other periods as the Securities and Exchange
Commission or any successor thereto may by order permit for the
protection of the holders of shares of capital stock of the
Corporation.
(e) All shares of the capital stock of the Corporation now or
hereafter authorized shall be subject to redemption and redeemable at the
option of the Corporation. The Board of Directors may by resolution from
time to time authorize the Corporation to require the redemption of all or
any part of the outstanding shares of any classes or series upon the
sending of written notice thereof to each holder whose shares are to be
redeemed and upon such terms and
-13-
<PAGE>
conditions as the Board of Directors, in its discretion, shall deem
advisable, out of funds legally available therefor, at the net asset value
per share of that class or series determined in accordance with
subsections (a) and (b) of this Section 6 and take all other steps deemed
necessary or advisable in connection therewith.
(f) The Board of Directors may by resolution from time to time
authorize the purchase by the Corporation, either directly or through an
agent, of shares of any class or series of the capital stock of the
Corporation upon such terms and conditions and for such considera tion as
the Board of Directors, in its discretion, shall deem advisable out of
funds legally available therefor at prices per share not in excess of the
net asset value per share of that class or series determined in accordance
with subsections (a) and (b) of this Section 6 and to take all other steps
deemed necessary or advisable in connection therewith.
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<PAGE>
(g) Except as otherwise permitted by the Investment Company Act,
payment of the redemption price for shares of any class or series of the
capital stock of the Corporation surrendered to the Corporation for
redemption pursuant to the provisions of subsection (c) of this Section 6
or for purchase by the Corporation pursuant to the provisions of
subsection (e) or (f) of this Section 6 shall be made by the Corporation
within seven days after surrender of such shares to the Corporation for
such purpose. Any such payment may be made in whole or in part in
portfolio securities or in cash, as the Board of Directors, in its
discretion, shall deem advisable, and no stockholder shall have the right,
other than as determined by the Board of Directors, to have his or her
shares redeemed in portfolio securities.
(h) In the absence of any specification as to the purposes for which
shares are redeemed or repurchased by the Corporation, all shares so
redeemed or repurchased shall be deemed to be acquired for
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<PAGE>
retirement in the sense contemplated by the laws of the State of Maryland.
Shares of any class or series retired by repurchase or redemption shall
thereafter have the status of authorized but unissued shares of such class
or series.
Section 7. In the event the Board of Directors shall authorize the
classification or reclassification of shares into classes or series, the Board
of Directors may (but shall not be obligated to) provide that each class or
series shall have the following powers, preferences and voting or other special
rights, and the qualifications, restrictions and limitations thereof shall be as
follows:
(a) All consideration received by the Corporation for the issue or
sale of shares of capital stock of each series, together with all income,
earnings, profits, and proceeds received thereon, including any proceeds
derived from the sale, exchange or liquidation thereof, and any funds or
payments derived from any reinvestment of such proceeds in whatever form
the same may be, shall irrevocably belong to the series with
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<PAGE>
respect to which such assets, payments or funds were received by the
Corporation for all purposes, subject only to the rights of creditors, and
shall be so handled upon the books of account of the Corporation. Such
assets, payments and funds, including any proceeds derived from the sale,
exchange or liquidation thereof, and any assets derived from any
reinvestment of such proceeds in whatever form the same may be, are herein
referred to as "assets belonging to" such series.
(b) The Board of Directors may from time to time declare and pay
dividends or distributions, in additional shares of capital stock of such
series or in cash, on any or all series of capital stock, the amount of
such dividends and the means of payment being wholly in the discretion of
the Board of Directors.
(i) Dividends or distributions on shares of any series shall
be paid only out of earned surplus or other lawfully available
assets belonging to such series.
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<PAGE>
(ii) Inasmuch as one goal of the Corporation is to qualify as
a "regulated investment company" under the Internal Revenue Code of
1986, as amended, or any successor or comparable statute thereto,
and Regulations promulgated thereunder, and inasmuch as the
computation of net income and gains for federal income tax purposes
may vary from the computation thereof on the books of the
Corporation, the Board of Directors shall have the power, in its
discretion, to distribute in any fiscal year as dividends, including
dividends designated in whole or in part as capital gains
distributions, amounts sufficient, in the opinion of the Board of
Directors, to enable the Corporation to qualify as a regulated
investment company and to avoid liability for the Corporation for
federal income tax in respect of that year. In furtherance, and not
in limitation of the foregoing, in the event that a series has a net
capital loss for a fiscal year, and to the extent
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<PAGE>
that the net capital loss offsets net capital gains from such
series, the amount to be deemed available for distribution to that
series with the net capital gain may be reduced by the amount
offset.
(c) In the event of the liquidation or dissolution of the
Corporation, holders of shares of capital stock of each series shall be
entitled to receive, as a series, out of the assets of the Corporation
available for distribution to such holders, but other than general assets
not belonging to any particular series, the assets belonging to such
series; and the assets so distributable to the holders of shares of
capital stock of any series shall be distributed, subject to the
provisions of subsection (d) of this Section 7, among such stockholders in
proportion to the number of shares of such series held by them and
recorded on the books of the Corporation. In the event that there are any
general assets not belonging to any particular series and available for
distribution, such distribution shall
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<PAGE>
be made to the holders of all series in proportion to the net asset value
of the respective series determined in accordance with the charter of the
Corporation.
(d) The assets belonging to any series shall be charged with the
liabilities in respect of such series, and shall also be charged with
their share of the general liabilities of the Corporation, in proportion
to the asset value of the respective series determined in accordance with
the charter of the Corporation. The determination of the Board of
Directors shall be conclusive as to the amount of liabilities, including
accrued expenses and reserves, as to the allocation of the same as to a
given series, and as to whether the same or general assets of the
Corporation are allocable to one or more classes.
Section 8. Any fractional share shall carry propor tionately all the
rights of a whole share, excepting any right to receive a certificate evidencing
such fractional share, but including, without limitation, the right to vote and
the right to receive dividends.
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<PAGE>
Section 9. No holder of shares of Common Stock of the Corporation shall,
as such holder, have any preemptive right to purchase or subscribe for any
shares of the Common Stock of the Corporation of any class or series which it
may issue or sell (whether out of the number of shares authorized by the
Articles of Incorporation, or out of any shares of the Common Stock of the
Corporation acquired by it after the issue thereof, or otherwise).
Section 10. All persons who shall acquire any shares of capital stock of
the Corporation shall acquire the same subject to the provisions of the Charter
and By-Laws of the Corporation.
Section 11. Notwithstanding any provision of law requiring action to be
taken or authorized by the affirmative vote of the holders of a designated
proportion greater than a majority of the shares of any class or series of
Common Stock, such action shall be valid and effective if taken or authorized by
the affirmative vote of the holders of a majority of the total number of shares
of such class or series of Common Stock outstanding and entitled to vote
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<PAGE>
thereupon pursuant to the provisions of these Articles of Incorporation.
Article V
DIRECTORS
The number of directors of the Corporation shall be five, and the names of
those who shall act as such until their successors are duly elected and
qualified are as follows:
Arthur Hauspurg
William M. Marlin
Charles F. Mansfield
George W. Meyers
Richard C. Wells
However, the By-Laws of the Corporation may fix the number of directors at a
number of other than five and may authorize the Board of Directors, by the vote
of a majority of the entire Board of Directors, to increase or decrease the
number of directors within a limit specified in the ByLaws, provided that in no
case shall the number of directors be less than three, and to fill the vacancies
created by any such increase in the number of directors. Unless otherwise
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<PAGE>
provided by the By-Laws of the Corporation, the directors of the Corporation
need not be stockholders.
The By-Laws of the Corporation may divide the Directors of the Corporation
into classes and prescribe the tenure of office of the several classes; but no
class shall be elected for a period shorter than that from the time of the
election of such class until the next annual meeting and thereafter for a period
shorter than the interval between annual meetings or for a longer period than
five years, and the term of office of at least one class shall expire each year.
Article VI
INDEMNIFICATION OF DIRECTORS AND OFFICERS
A director or officer of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director or officer, except to the extent such exemption from
liability or limitation thereof is not permitted by law (including the
Investment Company Act of 1940) as currently in effect or as the same may
hereafter be amended.
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<PAGE>
No amendment, modification or repeal of this Article VI shall adversely
affect any right or protection of a director or officer that exists at the time
of such amendment, modification or repeal.
Article VII
MISCELLANEOUS
The following provisions are inserted for the management of the business
and for the conduct of the affairs of the Corporation, and for creating,
defining, limiting and regulating the powers of the Corporation, the directors
and the stockholders.
Section 1. The Board of Directors shall have the management and control of
the property, business and affairs of the Corporation and is hereby vested with
all the powers possessed by the Corporation itself so far as is not inconsistent
with law or these Articles of Incorporation. In furtherance and without
limitation of the foregoing provisions, it is expressly declared that, subject
to these Articles of Incorporation, the Board of Directors shall have power:
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<PAGE>
(a) To make, alter, amend or repeal from time to time the By-Laws of
the Corporation except as such power may otherwise be limited in the
By-Laws.
(b) To issue shares of any class or series of the capital stock of
the Corporation.
(c) To authorize the purchase of shares of any class or series in
the open market or otherwise, at prices not in excess of their net asset
value for shares of that class, series or class within such series
determined in accordance with subsections (a) and (b) of Section 6 of
Article IV hereof, provided that the Corporation has assets legally
available for such purpose, and to pay for such shares in cash, securities
or other assets then held or owned by the Corporation.
(d) To declare and pay dividends and distributions from funds
legally available therefor on shares of such class or series, in such
amounts, if any, and in such manner (including declaration by means of a
formula or other similar method of determination whether or not
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<PAGE>
the amount of the dividend or distribution so declared can be calculated
at the time of such declaration) and to the holders of record as of such
date, as the Board of Directors may determine.
(e) To take any and all action necessary or appropriate to maintain
a constant net asset value per share for shares of any class, series or
class within such series.
Section 2. The directors of the Corporation may receive compensation for
their services, subject, however, to such limitations with respect thereto as
may be determined from time to time by the holders of shares of capital stock of
the Corporation.
Section 3. Except as required by law, the holders of shares of capital
stock of the Corporation shall have only such right to inspect the records,
documents, accounts and books of the Corporation as may be granted by the Board
of Directors of the Corporation.
Section 4. (a) The Corporation shall have as custodian or custodians one
or more trust companies or banks of good
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<PAGE>
standing, each having a capital, surplus and undivided profits aggregating not
less than fifty million dollars ($50,000,000), and, to the extent required by
the Investment Company Act of 1940, the funds and securities held by the
Corporation shall be kept in the custody of one or more such custodians,
provided such custodian or custodians can be found ready and willing to act, and
further provided that the Corporation may use as subcustodians, for the purpose
of holding any foreign securities and related funds of the Corporation, such
foreign banks as the Board of Directors may approve and as shall be permitted by
law.
(b) The Corporation shall upon the resignation or inability to serve of
its custodian or upon change of the custodian:
(i) in case of such resignation or inability to serve, use its best
efforts to obtain a successor custodian;
(ii) require that the cash and securities owned by the Corporation
be delivered directly to the successor custodian; and
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<PAGE>
(iii) in the event that no successor custodian can be found, submit
to the stockholders before permitting delivery of the cash and securities
owned by the Corporation otherwise than to a successor custodian, the
question whether or not this Corporation shall be liquidated or shall
function without a custodian.
Section 5. Any vote of the holders of shares of capital stock of the
Corporation authorizing liquidation of the Corporation or proceedings for its
dissolution may authorize the Board of Directors to determine, as provided
herein, or if provision is not made herein, in accordance with generally
accepted accounting principles, which assets are the assets belonging to the
Corporation or any series thereof available for distribution to the holders of
shares of capital stock of the Corporation or any series thereof (pursuant to
the provisions of Section 7 of Article IV hereof) and may divide, or authorize
the Board of Directors to divide, such assets among the stockholders of the
shares of capital stock of the Corporation or any series thereof in such manner
as to ensure that each such holder receives an
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<PAGE>
amount from the proceeds of such liquidation or dissolution that such holder is
entitled to, as determined pursuant to the provisions of Sections 3 and 7 of
Article IV hereof.
Article VIII
DEFINITIONS
Section 1. As used in these Articles of Incorporation and in the By-Laws
of the Corporation, the following terms shall have the meanings indicated:
"Gross Assets" shall mean the total value of the assets of the
Corporation determined as provided in Section 3 below.
"Person" shall mean a natural person, corporation, joint stock
company, firm, association, partnership, trust, syndicate, combination,
organization, government or agency or subdivision thereof.
"Securities" shall mean any stock, shares, bonds, debentures, notes,
mortgages or other obligations, and any certificates, receipts, warrants
or other instruments representing rights to receive, purchase or subscribe
for the same, or evidencing or representing
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<PAGE>
any other rights or interests therein, or in any property or assets
created or issued by any Person. Section 2. Net Asset Value shall be
determined by
dividing:
(a) The total value of the assets of the Corporation determined as
provided in Section 3 below less, to the extent determined by or pursuant
to the direction of the Board of Directors in accordance with generally
accepted accounting principles, all debts, obligations and liabilities of
the Corporation (which debts, obligations and liabilities shall include,
without limitation of the generality of the foregoing, any and all debts,
obligations, liabilities or claims, of any and every kind and nature,
fixed, accrued or unmatured, including the estimated accrued expense of
investment advisory and administrative services, and any reserves or
charges for any or all of the foregoing, whether for taxes, expenses,
contingencies, or otherwise, and the price of common stock redeemed
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<PAGE>
but not paid for) but excluding the Corporation's liability upon its
shares and its surplus, by
(b) the total number of shares of the Corporation outstanding
(shares sold by the Corporation whether or not paid for being treated as
outstanding and shares purchased or redeemed by the Corporation whether or
not paid for and treasury shares being treated as not outstanding).
Section 3. In determining for the purposes of these Articles of
Incorporation the total value of the assets of the Corporation at any time,
securities shall be taken at their market value or, in the absence of readily
available market quotations, at fair value, both as determined pursuant to
methods approved by the Board of Directors and in accordance with applicable
statutes and regulations, and all other assets at fair value determined in such
manner as may be approved from time to time by or pursuant to the direction of
the Board of Directors.
Section 4. Any determination made in good faith and, so far as accounting
matters are involved, in accordance
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<PAGE>
with generally accepted accounting principles by or pursuant to the direction of
the Board of Directors, shall be final and conclusive, and shall be binding upon
the Corporation and all holders of its shares, past, present and future, and
shares of the Corporation are issued and sold on the condition and undertaking,
evidenced by acceptance of certificates for such shares by, or confirmation of
such shares being held for the account of, any stockholder, that any and all
such determinations shall be binding as aforesaid.
Nothing in this Section 4 shall be construed to protect any director or
officer of the Corporation against any liability to the Corporation or its
stockholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
Article IX
AMENDMENTS
From time to time any of the provisions of these Articles of Incorporation
may be amended, altered or
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<PAGE>
repealed (including any amendment that changes the terms of any of the
outstanding stock by classification, reclassification or otherwise), and other
provisions that may, under the statutes of the State of Maryland at the time in
force, be lawfully contained in articles of incorporation may be added or
inserted, upon the vote of the holders of a majority of the shares of common
stock of the Corporation at the time outstanding and entitled to vote, and all
rights at any time conferred upon the stockholders of the Corporation by these
Articles of Incorporation are subject to the provisions of this Article IX.
--------------------------------
The term "Articles of Incorporation" as used herein and in the By-Laws of
the Corporation shall be deemed to mean these Articles of Incorporation as from
time to time amended and restated.
--------------------------------
SECOND: The provisions set forth in these Articles of Restatement
constitute all of the provisions of the Charter
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<PAGE>
of the Corporation as currently in effect. These Articles do not amend the
Charter of the Corporation.
THIRD: The restatement of the Charter of the Corporation has been approved
by the affirmative vote of a majority of the Directors of the Corporation at a
meeting duly called and held on February 21, 1997. The Corporation has eleven
Directors, Edward D. Beach, Stephen C. Eyre, Delayne D. Gold, Robert F. Gunia,
Don G. Hoff, Robert E. LaBlanc, Mendel A. Melzer, Richard A. Redeker, Robin B.
Smith, Stephen Stoneburn and Nancy H. Teeters, currently in office.
IN WITNESS WHEREOF, the Articles of Restatement have been executed on
behalf of Prudential Tax-Free Money Fund, Inc. this 24 day of February ,1997.
PRUDENTIAL TAX-FREE MONEY FUND, INC.
By: /s/ Richard A. Redeker
--------------------------
Richard A. Redeker
President
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<PAGE>
Attest
[Seal]
By: /s/ Ellyn C. Vogin
------------------
Ellyn C. Vogin
Assistant Secretary
The undersigned, President of Prudential Tax-Free Money Fund, Inc., who
executed on behalf of said Corporation the foregoing Articles of Restatement, of
which this certificate is made a part, hereby acknowledges that these Articles
of Restatement are the act of the Corporation and affirms that to the best of
his knowledge, information and belief all matters and facts set forth therein
relating to the authorization and approval of the Articles of Restatement are
true in all material respects and that this statement is made under the
penalties of perjury.
/s/ Richard A. Redeker
----------------------
Richard A. Redeker
President
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PRUDENTIAL TAX-FREE MONEY FUND, INC.
By-Laws
ARTICLE I.
Stockholders
Section 1. Place of Meeting. All meetings of the stockholders shall be
held at the principal office of the Corporation in the State of Maryland or at
such other place within the United States as may from time to time be designated
by the Board of Directors and stated in the notice of such meeting.
Section 2. Annual Meetings. The annual meeting of the stockholders of the
Corporation shall be held on a date and at such hour as may from time to time be
designated by the Board of Directors and stated in the notice of such meeting,
within the month ending four months after the end of the Corporation's fiscal
year, for the transaction of such business as may properly be brought before the
meeting; provided, however, that an annual meeting shall not be required to be
held in any year in which the election of directors is not required to be acted
on by stockholders under the Investment Company Act of 1940.
Section 3. Meetings. Meetings of the stockholders for any purpose or
purposes, including for purposes of voting on the removal of one or more
Directors, may be called by the Chairman of
<PAGE>
the Board, the President or a majority of the Board of Directors, and shall be
called by the Secretary upon receipt of the request in writing signed by
stockholders holding not less than 10% of the common stock issued and
outstanding and entitled to vote thereat. Such request shall state the purpose
or purposes of the proposed meeting. The Secretary shall inform such
stockholders of the reasonably estimated costs of preparing and mailing such
notice of meeting and upon payment to the Corporation of such costs, the
Secretary shall give notice stating the purpose or purposes of the meeting as
required in this Article and By-Law to all stockholders entitled to notice of
such meeting. No meeting need be called upon the request of the holders of
shares entitled to cast less than a majority of all votes entitled to be cast at
such meeting to consider any matter which is substantially the same as a matter
voted upon at any meeting of stockholders held during the preceding twelve
months.
Section 4. Notice of Meetings of Stockholders. Not less than ten days' and
not more than ninety days' written or printed notice of every meeting of
stockholders, stating the time and place thereof and the general nature of the
business proposed to be transacted thereat, shall be given to each stockholder
entitled to
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<PAGE>
vote thereat by leaving the same with such stockholder or at such stockholder's
residence or usual place of business or by mailing it, postage prepaid, and
addressed to such stockholder at such stockholder's address as it appears upon
the books of the Corporation. If mailed, notice shall be deemed to be given when
deposited in the United States mail addressed to the stockholder as aforesaid.
No notice of the time, place or purpose of any meeting of stockholders
need be given to any stockholder who attends in person or by proxy or to any
stockholder who, in writing executed and filed with the records of the meeting,
either before or after the holding thereof, waives such notice.
Section 5. Record Dates. The Board of Directors may fix, in advance, a
date not exceeding ninety days preceding the date of any meeting of
stockholders, any dividend payment date or any date for the allotment of rights,
as a record date for the determination of the stockholders entitled to notice of
and to vote at such meeting or entitled to receive such dividends or rights, as
the case may be; and only stockholders of record on such date shall be entitled
to notice of and to vote at such meeting or to receive such dividends or rights,
as the case may be. In the case of a meeting
3
<PAGE>
of stockholders, such date shall not be less than ten days prior to the date
fixed for such meeting.
Section 6. Quorum, Adjournment of Meetings. The presence in person or by
proxy of the holders of record of a majority of the shares of the common stock
of the Corporation issued and outstanding and entitled to vote thereat shall
constitute a quorum at all meetings of the stockholders except as otherwise
provided in the Articles of Incorporation. If, however, such quorum shall not be
present or represented at any meeting of the stockholders, the holders of a
majority of the stock present in person or by proxy shall have power to adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until stockholders owning the requisite amount of stock entitled to
vote at such meeting shall be present, provided that, if the date on which the
meeting held is more than 120 days after the original record date, notice of the
time and date of such adjourned meeting shall be given. At such adjourned
meeting at which stockholders owning the requisite amount of stock entitled to
vote thereat shall be represented, any business may be transacted which might
have been transacted at the meeting as originally notified.
Section 7. Voting and Inspectors. At all meetings,
4
<PAGE>
stockholders of record entitled to vote thereat shall have one vote for each
share of common stock standing in his name on the books of the Corporation (and
such stockholders of record holding fractional shares, if any, shall have
proportionate voting rights) on the date for the determination of stockholders
entitled to vote at such meeting, either in person or by proxy appointed by
instrument in writing subscribed by such stockholder or his duly authorized
attorney.
All elections shall be had and all questions decided by a majority of the
votes cast at a duly constituted meeting, except as otherwise provided by
statute or by the Articles of Incorporation or by these By-Laws.
At any election of directors, the Chairman of the meeting may, and upon
the request of the holders of ten percent (10%) of the stock entitled to vote at
such election shall, appoint two inspectors of election who shall first
subscribe an oath or affirmation to execute faithfully the duties of inspectors
at such election with strict impartiality and according to the best of their
ability, and shall after the election make a certificate of the result of the
vote taken. No candidate for the office of director shall be appointed such
inspector.
5
<PAGE>
Section 8. Conduct of Stockholders' Meetings. The meetings of the
stockholders shall be presided over by the Chairman of the Board, or if he or
she is not present, by the President, or if he or she is not present, by a
Vice-President, or if none of them is present, by a Chairman to be elected at
the meeting. The Secretary of the Corporation, if present, shall act as a
Secretary of such meetings, or if he or she is not present, an Assistant
Secretary shall so act; if neither the Secretary nor the Assistant Secretary is
present, then the meeting shall elect its Secretary.
Section 9. Concerning Validity of Proxies, Ballots, etc. At every meeting
of the stockholders, all proxies shall be received and taken in charge of and
all ballots shall be received and canvassed by the Secretary of the meeting, who
shall decide all questions concerning the qualification of voters, the validity
of the proxies and the acceptance or rejection of votes, unless inspectors of
election shall have been appointed by the Chairman of the meeting, in which
event such inspectors of election shall decide all such questions.
ARTICLE II.
Board of Directors
Section 1. Number and Tenure of Office. The business and
6
<PAGE>
affairs of the Corporation shall be conducted and managed by a Board of
Directors of not less than three nor more than twelve directors, as may be
determined from time to time by vote of a majority of the directors then in
office, provided that if there is no stock outstanding the number of directors
may be less than three but not less than one. Directors need not be
stockholders.
Section 2. Vacancies. In case of any vacancy in the Board of Directors
through death, resignation or other cause, other than an increase in the number
of directors, a majority of the remaining directors, although a majority is less
than a quorum, by an affirmative vote, may elect a successor to hold office
until the next meeting of stockholders or until his successor is chosen and
qualifies.
Section 3. Increase or Decrease in Number of Directors. The Board of
Directors, by the vote of a majority of the entire Board, may increase the
number of directors and may elect directors to fill the vacancies created by any
such increase in the number of directors until the next meeting of stockholders
or until their successors are duly chosen and qualified. The Board of Directors,
by the vote of a majority of the entire Board, may likewise decrease the number
of directors to a number not less than three.
7
<PAGE>
Section 4. Place of Meeting. The directors may hold their meetings, have
one or more offices, and keep the books of the Corporation, outside the State of
Maryland, at any office or offices of the Corporation or at any other place as
they may from time to time by resolution determine, or in the case of meetings,
as they may from time to time by resolution determine or as shall be specified
or fixed in the respective notices or waivers of notice thereof.
Section 5. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such time and on such notice as the directors may from time to
time determine.
Section 6. Special Meetings. Special meetings of the Board of Directors
may be held from time to time upon call of the Chairman of the Board, the
President, the Secretary or two or more of the directors, by oral or telegraphic
or written notice duly served on or sent or mailed to each director not less
than one day before such meeting. No notice need be given to any director who
attends in person or to any director who, in writing executed and filed with the
records of the meeting either before or after the holding thereof, waives such
notice. Such notice or waiver of notice need not state the purpose or purposes
of such meeting.
8
<PAGE>
Section 7. Quorum. One-third of the directors then in office shall
constitute a quorum for the transaction of business, provided that a quorum
shall in no case be less than two directors. If at any meeting of the Board
there shall be less than a quorum present, a majority of those present may
adjourn the meeting from time to time until a quorum shall have been obtained.
The act of the majority of the directors present at any meeting at which there
is a quorum shall be the act of the directors, except as may be otherwise
specifically provided by statute or by the Articles of Incorporation or by these
By-Laws.
Section 8. Executive Committee. The Board of Directors may, by the
affirmative vote of a majority of the whole Board, appoint from the directors an
Executive Committee to consist of such number of directors (not less than three)
as the Board may from time to time determine. The Chairman of the Committee
shall be elected by the Board of Directors. The Board of Directors by such
affirmative vote shall have power at any time to change the members of such
Committee and may fill vacancies in the Committee by election from the
directors. When the Board of Directors is not in session, to the extent
permitted by law, the Executive Committee shall have and may exercise any or all
of the powers of the Board of Directors in
9
<PAGE>
the management of the business and affairs of the Corporation. The Executive
Committee may fix its own rules of procedure, and may meet when and as provided
by such rules or by resolution of the Board of Directors, but in every case the
presence of a majority shall be necessary to constitute a quorum. During the
absence of a member of the Executive Committee, the remaining members may
appoint a member of the Board of Directors to act in his place.
Section 9. Other Committees. The Board of Directors, by the affirmative
vote of a majority of the whole Board, may appoint from the directors other
committees which shall in each case consist of such number of directors (not
less than two) and shall have and may exercise such powers as the Board may
determine in the resolution appointing them. A majority of all the members of
any such committee may determine its action and fix the time and place of its
meetings, unless the Board of Directors shall otherwise provide. The Board of
Directors shall have power at any time to change the members and powers of any
such committee, to fill vacancies and to discharge any such committee.
Section 10. Telephone Meetings. Members of the Board of Directors or a
committee of the Board of Directors may participate in a meeting by means of a
conference telephone or similar
10
<PAGE>
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means
constitutes presence in person at the meeting unless otherwise provided by the
Investment Company Act of 1940.
Section 11. Action Without a Meeting. Any action required or permitted to
be taken at any meeting of the Board of Directors or any committee thereof may
be taken without a meeting, if a written consent to such action is signed by all
members of the Board or of such committee, as the case may be, and such written
consent is filed with the minutes of the proceedings of the Board or such
committee, unless otherwise provided by the Investment Company Act of 1940.
Section 12. Compensation of Directors. No director shall receive any
stated salary or fees from the Corporation for his services as such if such
director is, other than by reason of being such director, an interested person
(as such term is defined by the Investment Company Act of 1940) of the
Corporation or of its investment adviser, administrator or principal
underwriter. Except as provided in the preceding sentence, directors shall be
entitled to receive such compensation from the Corporation for their
11
<PAGE>
services as may from time to time be voted by the Board of Directors.
Section 13. Removal of Directors. No director shall continue to hold
office after the holders of record of not less than two-thirds of the
Corporation's outstanding common stock of all series have declared that that
director be removed from office either by declaration in writing filed with the
Corporation's secretary or by votes cast in person or by proxy at a meeting
called for the purpose. The directors shall promptly call a meeting of
stockholders for the purpose of voting upon the question of removal of any
director or directors when requested in writing to do so by the record holders
of not less than 10 percent of the Corporation's outstanding common stock of all
series.
ARTICLE III.
Officers
Section 1. Executive Officers. The executive officers of the Corporation
shall be chosen by the Board of Directors. These may include a Chairman of the
Board of Directors (who shall be a director) and shall include a President, one
or more Vice-Presidents (the number thereof to be determined by the Board of
Directors), a Secretary and a Treasurer. The Board of Directors
12
<PAGE>
or the Executive Committee may also in its discretion appoint Assistant
Secretaries, Assistant Treasurers and other officers, agents and employees, who
shall have such authority and perform such duties as the Board or the Executive
Committee may determine. The Board of Directors may fill any vacancy which may
occur in any office. Any two offices, except those of President and
Vice-President, may be held by the same person, but no officer shall execute,
acknowledge or verify any instrument in more than one capacity, if such
instrument is required by law or these By-Laws to be executed, acknowledged or
verified by two or more officers.
Section 2. Term of Office. The term of office of all officers shall be one
year and until their respective successors are chosen and qualified. Any officer
may be removed from office at any time with or without cause by the vote of a
majority of the whole Board of Directors.
Section 3. Powers and Duties. The officers of the Corporation shall have
such powers and duties as generally pertain to their respective offices, as well
as such powers and duties as may from time to time be conferred by the Board of
Directors or the Executive Committee.
13
<PAGE>
ARTICLE IV.
Capital Stock
Section 1. Certificates for Shares. Stockholder of the Corporation shall
not be entitled to a certificate or certificates for the shares of stock of the
Corporation owned by them and the Corporation shall provide, or cause to be
provided, the information set forth in Section 2-211 of the General Corporation
Law.
Section 2. Transfer of Shares. Shares of the Corporation shall be
transferable on the books of the Corporation by the holder thereof in person or
by his duly authorized attorney or legal representative, upon surrender and
cancellation of certificates, if any, for the same number of shares, duly
endorsed or accompanied by proper instruments of assignment and transfer, with
such proof of the authenticity of the signature as the Corporation or its agents
may reasonably require; in the case of shares not represented by certificates,
the same or similar requirements may be imposed by the Board of Directors.
Section 3. Stock Ledgers. The stock ledgers of the Corporation, containing
the names and addresses of the stockholders and the number of shares held by
them respectively, shall be kept at the principal office of the Corporation or,
if the Corporation
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<PAGE>
employs a Transfer Agent, at the office of the Transfer Agent of the
Corporation.
Section 4. Lost, Stolen or Destroyed Certificates. The Board of Directors
or the Executive Committee may determine the conditions upon which a new
certificate of stock of the Corporation of any class may be issued in place of a
certificate which is alleged to have been lost, stolen or destroyed; and may, in
its discretion, require the owner of such certificate or such owner's legal
representative to give bond, with sufficient surety, to the Corporation and each
Transfer Agent, if any, to indemnify it and each such Transfer Agent against any
and all loss or claims which may arise by reason of the issue of a new
certificate in the place of the one so lost, stolen or destroyed.
ARTICLE V.
Corporate Seal
The Board of Directors may provide for a suitable corporate seal, in such
form and bearing such inscriptions as it may determine.
ARTICLE VI.
Fiscal Year
The fiscal year of the Corporation shall be fixed by the Board
15
<PAGE>
of Directors.
ARTICLE VII.
Indemnification
Directors, officers, employees and agents of the Corporation shall not be
liable to the Corporation, any stockholder, officer, director, employee or other
person for any action or failure to act except for willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of their office. The Corporation shall indemnify directors, officers,
employees and agents of the Corporation against judgments, fines, settlements
and expenses to the fullest extent authorized and in the manner permitted by
applicable federal and state law. The Corporation may purchase insurance to
protect itself and its directors, officers, employees and agents against
judgments, fines, settlements and expenses to the fullest extent authorized and
in the manner permitted by applicable federal and state law. Nothing contained
in this Article VII shall be construed to indemnify directors, officers,
employees and agents of the Corporation against, nor to permit the Corporation
to purchase insurance that purports to protect against, any liability to the
Corporation or any stockholder, officer, director, employee, agent or other
person
16
<PAGE>
to whom he or she would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office.
ARTICLE VIII.
Amendment of By-Laws
The By-Laws of the Corporation may be altered, amended, added to or
repealed by majority vote of the entire Board of Directors.
BYLAWS.TFM
Amended and restated 2/21/97
17
PRUDENTIAL-BACHE TAX-FREE MONEY FUND, INC.
SUBADVISORY AGREEMENT
Agreement made as of this 2nd day of May, 1988 between Prudential Mutual
Fund Management Inc., a Delaware Corporation ("PMF" or the "Manager"), and The
Prudential Investment Corporation, a New Jersey Corporation (the "Subadviser").
WHEREAS, the Manager has entered into a Management Agreement, dated May 2,
1988(the "Management Agreement"), with Prudential-Bache Tax-Free Money Fund,
Inc. (the "Fund"), a Maryland corporation and a diversified open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"), pursuant to which PMF will act as Manager of the Fund.
WHEREAS, PMF desires to retain the Subadviser to provide investment
advisory services to the Fund in connection with the management of the Fund and
the Subadviser is willing to render such investment advisory services.
NOW, THEREFORE, the Parties agree as follows:
1. (a) Subject to the supervision of the Manager and of the Board of
Directors of the Fund, the Subadviser shall manage the investment
operations of the Fund and the composition of the Fund's portfolio,
including the purchase, retention and disposition thereof, in accordance
with the Fund's investment objectives, policies and restrictions as stated
in the Prospectus, (such Prospectus and Statement of Additional
Information as currently in effect and as amended or supplemented from
time to time, being herein called the "Prospectus"), and subject to the
following understandings:
(i) The Subadviser shall provide supervision of the Fund's
investments and determine from time to time what investments and
securities will be purchased, retained, sold or loaned by the
Fund, and what portion of the assets will be invested or held
uninvested as cash.
(ii) In the performance of its duties and obligations under
this Agreement, the Subadviser shall act in conformity with the
Articles of Incorporation,
1
<PAGE>
By-Laws and Prospectus of the Fund and with the instructions and
directions of the Manager and of the Board of Directors of the
Fund and will conform to and comply with the requirements of the
1940 Act, the Internal Revenue Code of 1986 and all other
applicable federal and state laws and regulations.
(iii) The Subadviser shall determine the securities and futures
contracts to be purchased or sold by the Fund and will place
orders with or through such persons, brokers, dealers or futures
commission merchants (including but not limited to
Prudential-Bache Securities Inc.) to carry out the policy with
respect to brokerage as set forth in the Fund's Registration
Statement and Prospectus or as the Board of Directors may direct
from time to time. In providing the Fund with investment
supervision, it is recognized that the Subadviser will give
primary consideration to securing the most favorable price and
efficient execution. Within the framework of this policy, the
Subadviser may consider the financial responsibility, research and
investment information and other services provided by brokers,
dealers or futures commission merchants who may effect or be a
party to any such transaction or other transactions to which the
Subadviser's other clients may be a party. It is understood that
Prudential-Bache Securities Inc. may be used as principal broker
for securities transactions but that no formula has been adopted
for allocation of the Fund's investment transaction business. It
is also understood that it is desirable for the Fund that the
Subadviser have access to supplemental investment and market
research and security and economic analysis provided by brokers or
futures commission merchants who may execute brokerage
transactions at a higher cost to the Fund than may result when
allocating brokerage to other brokers on the basis of seeking the
most favorable price and efficient execution. Therefore, the
Subadviser is authorized to place orders for the purchase and sale
of securities and futures contracts for the Fund with such brokers
or futures commission merchants, subject to review by the Fund's
Board of Directors from time to time with respect to the extent
and continuation of this practice. It is
2
<PAGE>
understood that the services provided by such brokers or futures
commission merchants may be useful to the Subadviser in connection
with the Subadviser's services to other clients.
On occasions when the Subadviser deems the purchase or
sale of a security or futures contract to be in the best interest
of the Fund as well as other clients of the Subadviser, the
Subadviser, to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate
the securities or futures contracts to be sold or purchased in
order to obtain the most favorable price or lower brokerage
commissions and efficient execution. In such event, allocation of
the securities or futures contracts so purchased or sold, as well
as the expenses incurred in the transaction, will be made by the
Subadviser in the manner the Subadviser considers to be the most
equitable and consistent with its fiduciary obligations to the
Fund and to such other clients.
(iv) The Subadviser shall maintain all books and records with
respect to the Fund's portfolio transactions required by
subparagraphs (b)(5), (6), (7), (9), (10) and (11) and paragraph
(f) of Rule 31a-1 under the 1940 Act and shall render to the
Fund's Board of Trustees such periodic and special reports as the
Trustees may reasonably request.
(v) The Subadviser shall provide the Fund's Custodian on each
business day with information relating to all transactions
concerning the Fund's assets and shall provide the Manager with
such information upon request of the Manager.
(vi) The investment management services provided by the
Subadviser hereunder are not to be deemed exclusive, and the
Subadviser shall be free to render similar services to others.
(b) The Subadviser shall authorize and permit any of its directors,
officers and employees who may be elected as directors or officers of
the Fund to serve in the capacities
3
<PAGE>
in which they are elected. Services to be furnished by the Subadviser
under this Agreement may be furnished through the medium of any of such
directors, officers or employees.
(c) The Subadviser shall keep the Fund's books and records required to
be maintained by the Subadviser pursuant to paragraph 1(a) hereof and
shall timely furnish to the Manager all information relating to the
Subadviser's services hereunder needed by the Manager to keep the other
books and records of the Fund required by Rule 31a-1 under the 1940 Act.
The Subadviser agrees that all records which it maintains for the Fund
are the property of the Fund and the Subadviser will surrender promptly
to the Fund any of such records upon the Fund's request, provided
however that the Subadviser may retain a copy of such records. The
Subadviser further agrees to preserve for the periods prescribed by Rule
31a-2 of the Commission under the 1940 Act any such records as are
required to be maintained by it pursuant to paragraph 1(a) hereof.
2. The Manager shall continue to have responsibility for all services to
be provided to the Fund pursuant to the Management Agreement and shall
oversee and review the Subadviser's performance of its duties under this
Agreement.
3. The Manager shall reimburse the Subadviser for reasonable costs and
expenses incurred by the Subadviser determined in a manner acceptable to
the Manager in furnishing the services described in paragraph 1 hereof.
4. The Subadviser shall not be liable for any error of judgment or for
any loss suffered by the Fund or the Manager in connection with the
matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the Subadviser's
part in the performance of its duties or from its reckless disregard of
its obligations and duties under this Agreement.
5. This Agreement shall continue in effect for a period of more than two
years from the date hereof only so long as such continuance is
specifically approved at least annually in conformity with the
requirements of the 1940 Act; provided, however, that this Agreement may
be terminated by the Fund at
4
<PAGE>
any time, without the payment of any penalty, by the Board of Directors
of the Fund or by vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of the Fund, or by the Manager
or the Subadviser at any time, without the payment of any penalty, on
not more than 60 days' nor less than 30 days' written notice to the
other party. This Agreement shall terminate automatically in the event
of its assignment (as defined in the 1940 Act) or upon the termination
of the Management Agreement.
6. Nothing in this Agreement shall limit or restrict the right of any of
the Subadviser's directors, officers, or employees who may also be a
director, officer or employee of the Fund to engage in any other
business or to devote his or her time and attention in part to the
management or other aspects of any business, whether of a similar or a
dissimilar nature, nor limit or restrict the Subadviser's right to
engage in any other business or to render services of any kind to any
other corporation, firm, individual or association.
7. During the term of this Agreement, the Manager agrees to furnish the
Subadviser at its principal office all prospectuses, proxy statements,
reports to stockholders, sales literature or other material prepared for
distribution to stockholders of the Fund or the public, which refer to
the Subadviser in any way, prior to use thereof and not to use material
if the Subadviser reasonably objects in writing five business days (or
such other time as may be mutually agreed) after receipt thereof. Sales
literature may be furnished to the Subadviser hereunder by first-class
or overnight mail, facsimile transmission equipment or hand delivery.
5
<PAGE>
8. This Agreement may be amended by mutual consent, but the consent of
the Fund must be obtained in conformity with the requirements of the
1940 Act.
9. This Agreement shall be governed by the laws of the
State of New York.
IN WITNESS WHEREOF, the Parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC.
BY /s/ MICHAEL J. DOWNEY
----------------------------------------------
President
THE PRUDENTIAL INVESTMENT CORPORATION
BY /s/ JOHN BOOKMEYER, JR.
----------------------------------------------
Vice President
6
CUSTODIAN CONTRACT
Between
EACH OF THE PARTIES INDICATED ON APPENDIX A
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
----
1. Employment of Custodian and Property to be Held by It................-1-
2. Duties to the Custodian with Respect to Property of The Fund Held
By the Custodian in the United States................................-2-
2.1 Holding Securities.............................................-2-
2.2 Delivery of Securities.........................................-2-
2.3 Registration of Securities.....................................-6-
2.4 Bank Accounts..................................................-7-
2.5 Availability of Federal Funds..................................-7-
2.6 Collection of Income...........................................-8-
2.7 Payment of Fund Monies.........................................-8-
2.8 Liability for Payment in Advance of Receipt of
Securities Purchased..........................................-11-
2.9 Appointment of Agents.........................................-11-
2.10 Deposit of Securities in Securities Systems...................-11-
2.10A Fund Assets Held in the Custodian's Direct Paper System.-13-
2.11 Segregated Account............................................-14-
2.12 Ownership Certificates for Tax Purposes.......................-15-
2.13 Proxies.......................................................-16-
2.14 Communications Relating to Fund Portfolio Securities..........-16-
2.15 Reports to Fund by Independent Public Accountants.............-16-
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States........................................-17-
3.1 Appointment of Foreign Sub-Custodians.........................-17-
3.2 Assets to be Held.............................................-17-
3.3 Foreign Securities Depositories...............................-18-
3.4 Segregation of Securities.....................................-18-
3.5 Agreements with Foreign Banking Institutions..................-18-
3.6 Access of Independent Accountants of the Fund.................-19-
3.7 Reports by Custodian..........................................-19-
3.9 Liability of Foreign Sub-Custodians...........................-20-
3.10 Liability of Custodian........................................-21-
3.11 Reimbursements for Advances...................................-21-
3.12 Monitoring Responsibilities...................................-22-
3.13 Branches of U.S. Banks........................................-22-
4. Payments for Repurchases or Redemptions and Sales of Shares
of the Fund.........................................................-23-
-i-
<PAGE>
5. Proper Instructions.................................................-24-
6. Actions Permitted without Express Authority.........................-24-
7. Evidence of Authority...............................................-25-
8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income.......................-26-
9. Records.............................................................-26-
10. Opinion of Fund's Independent Accountant............................-27-
11. Compensation of Custodian...........................................-27-
12. Responsibility of Custodian.........................................-27-
13. Effective Period, Termination and Amendment.........................-29-
14. Successor Custodian.................................................-30-
15. Interpretative and Additional Provisions............................-32-
16. Massachusetts Law to Apply..........................................-32-
17. Prior Contracts.....................................................-32-
18. The Parties.........................................................-32-
19. Limitation of Liability.............................................-33-
-ii-
<PAGE>
CUSTODIAN CONTRACT
This Contract between State Street Bank and Trust Company, a Massachusetts
trust company, having its principal place of business at 225 Franklin Street,
Boston, Massachusetts, 02110, hereinafter called the "Custodian", and each Fund
listed on Appendix A which evidences its agreement to be bound hereby by
executing a copy of this Contract (each such Fund individually hereinafter
referred to as the "Fund").
WITNESSETH: That in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of its assets,
including securities it desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Articles of
Incorporation/ Declaration of Trust. The Fund agrees to deliver to the Custodian
all securities and cash owned by it, and all payments of income, payments of
principal or capital distributions received by it with respect to all securities
owned by the Fund from time to time, and the cash consideration received by it
for such new or treasury shares of capital stock, ("Shares") of the Fund as may
be issued or sold from time to time. The Custodian shall not be responsible for
any property of the Fund held or received by the Fund and not delivered to the
Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article 5),
the Custodian shall from time to time employ one or more sub-custodians located
in the United States, but only in accordance with an applicable vote by the
Board of Directors/ Trustees of the Fund, and
-1-
<PAGE>
provided that the Custodian shall have the same responsibility or liability to
the Fund on account of any actions or omissions of any sub-custodian so employed
as any such sub-custodian has to the Custodian, provided that the Custodian
agreement with any such domestic sub-custodian shall impose on such
sub-custodian responsibilities and liabilities similar in nature and scope to
those imposed by this Agreement with respect to the functions to be performed by
such sub-custodian. The Custodian may employ as sub-custodians for the Fund's
securities and other assets the foreign banking institutions and foreign
securities depositories designated in Schedule "A" hereto but only in accordance
with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of The Fund Held By the
Custodian in the United States.
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of the Fund all non-cash property, to be held by it in the
United States, including all domestic securities owned by the Fund, other than
(a) securities which are maintained pursuant to Section 2.10 in a clearing
agency which acts as a securities depository or in a book-entry system
authorized by the U.S. Department of Treasury, collectively referred to herein
as "Securities System" and (b) commercial paper of an issuer for which State
Street Bank and Trust Company acts as issuing and paying agent ("Direct Paper")
which is deposited and/or maintained in the Direct Paper System of the Custodian
pursuant to Section 2.10A.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by the Fund held by the Custodian or in a Securities
System account of the Custodian or in the Custodian's Direct Paper book-entry
system account ("Direct Paper System") only upon receipt
-2-
<PAGE>
of Proper Instructions, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
(1) Upon sale of such securities for the account of the Fund and
receipt of payment therefor;
(2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Fund;
(3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
(4) To the depository agent in connection with tender or other
similar offers for portfolio securities of the Fund;
(5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
(6) To the issuer thereof, or its agent, for transfer into the
name of the Fund or into the name of any nominee or nominees
of the Custodian or into the name or nominee name of any agent
appointed pursuant to Section 2.9 or into the name or nominee
name of any sub-custodian appointed pursuant to Article 1; or
for exchange for a different number of bonds, certificates or
other evidence representing the same aggregate face amount or
number of units; provided that, in any such case, the new
securities are to be delivered to the Custodian;
-3-
<PAGE>
(7) Upon the sale of such securities for the account of the Fund,
to the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery" custom;
provided that in any such case, the Custodian shall have no
responsibility or liability for any loss arising from the
delivery of such securities prior to receiving payment for
such securities except as may arise from the Custodian's own
negligence or willful misconduct;
(8) For exchange or conversation pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;
(9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
(10) For delivery in connection with any loans of securities made
by the Fund, but only against receipt of adequate collateral
as agreed upon from time to time by the Custodian and the
Fund, which may be in the form of cash or
-4-
<PAGE>
obligations issued by the United States government, its
agencies or instrumentalities, except that in connection with
any loans for which collateral is to be credited to the
Custodian's account in the book-entry system authorized by the
U.S. Department of the Treasury, the Custodian will not be
held liable or responsible for the delivery of securities
owned by the Fund prior to the receipt of such collateral;
(11) For delivery as security in connection with any borrowings by
the Fund requiring a pledge of assets by the Fund, but only
against receipt of amounts borrowed;
(12) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934 (the
"Exchange Act") and a member of The National Association of
Securities Dealers, Inc. ("NASD"), relating to compliance with
the rules of The Options Clearing Corporation and of any
registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Fund;
(13) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian, and a Futures
Commission Merchant registered under the Commodity Exchange
Act, relating to compliance with the rules of the Commodity
Futures Trading Commission and/or any Contract Market, or
-5-
<PAGE>
any similar organization or organizations, regarding account
deposits in connection with transactions by the Fund;
(14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such Transfer
Agent or to the holders of shares in connection with
distributions in kind, as may be described from time to time
in the Fund's currently effective prospectus and statement of
additional information ("prospectus"), in satisfaction of
requests by holders of Shares for repurchase or redemption;
and
(15) For any other proper business purpose, but only upon receipt
of, in addition to Proper Instructions, a certified copy of a
resolution of the Board of Directors/Trustees or of the
Executive Committee signed by an officer of the Fund and
certified by the Secretary or an Assistant Secretary,
specifying the securities to be delivered, setting forth the
purpose for which such delivery is to be made, declaring such
purpose to be a proper business purpose, and naming the person
or persons to whom delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the Fund or in
the name of any nominees of the Fund or of any nominee of the Custodian which
nominee shall be assigned exclusively to the Fund, unless the Fund has
authorized in writing the appointment of a nominee to be used in common with
other registered investment companies having the same investment adviser as the
-6-
<PAGE>
Fund, or in the name or nominee name of any agent appointed pursuant to Section
2.9 or in the name or nominee name of any sub-custodian appointed pursuant to
Article 1. All securities accepted by the Custodian on behalf of the Fund under
the terms of this Contract shall be in "street name" or other good delivery
form. If, however, the Fund directs the Custodian to maintain securities in
"street name", the Custodian shall utilize its best efforts to timely collect
income due the Fund on such securities and to notify the Fund on a best efforts
basis of relevant corporate actions including, without limitation, pendency of
calls, maturities, tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of the Fund, subject only
to draft or order by the Custodian acting pursuant to the terms of this
Contract, and shall hold in such account or accounts, subject to the provisions
hereof, all cash received by it from or for the account of the Fund, other than
cash maintained by the Fund, other than cash maintained by the Fund in a bank
account established and used in accordance with Rule 17f-3 under the Investment
Company Act of 1940. Funds held by the Custodian for the Fund may be deposited
by it to its credit as Custodian in the Banking Department of the Custodian or
in such other banks or trust companies as it may in its discretion deem
necessary or desirable; provided, however, that every such bank or trust company
shall be qualified to act as a custodian under the Investment Company Act of
1940 and that each such bank or trust company and the funds to be approved by
vote of a majority of the Board of Directors/Trustees of the Fund. Such funds
shall be deposited by the Custodian in its capacity as Custodian and shall be
withdrawable by the Custodian only in that capacity.
-7-
<PAGE>
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund
and the Custodian, the Custodian shall, upon the receipt of Proper Instructions,
make federal funds available to the Fund as of specified times agreed upon from
time to time by the Fund and the Custodian in the amount of checks received in
payment for Shares of the Fund which are deposited into the Fund's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments with
respect to registered securities held hereunder to which the Fund shall be
entitled either by law or pursuant to custom in the securities business, and
shall collect on a timely basis all income and other payments with respect to
bearer securities if, on the date of payment by the issuer, such securities are
held by the Custodian or its agent thereof and shall credit such income, as
collected, to the Fund's custodian account. Without limiting the generality of
the foregoing, the Custodian shall detach and present for payment all coupons
and other income items requiring presentation as and when they become due and
shall collect interest when due on securities held hereunder. Income due the
Fund on securities loaned pursuant to the provisions of Section 2.2 (10) shall
be the responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund with such
information or data as may be necessary to assist the Fund in arranging for the
timely delivery to the Custodian of the income to which the Fund is properly
entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions, which may
be continuing instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of the Fund in the following cases only:
-8-
<PAGE>
(1) Upon the purchase of securities held domestically, options,
futures contracts or options on futures contracts for the
account of the Fund but only (a) against the delivery of such
securities, or evidence of title to such options, futures
contracts or options on futures contracts, to the Custodian
(or any bank, banking firm or trust company doing business in
the United States or abroad which is qualified under the
Investment Company Act of 1940, as amended, to act as a
custodian and has been designated by the Custodian as its
agent for this purpose) registered in the name of the Fund or
in the name of a nominee of the Custodian referred to in
Section 2.3 hereof or in proper form for transfer; (b) in the
case of a purchase effected through a Securities System, in
accordance with the conditions set forth in Section 2.10
hereof; (c) in the case of a purchase involving the Direct
Paper System, in accordance with the conditions set forth in
Section 2.10A; (d) in the case of repurchase agreements
entered into between the Fund and the Custodian, or another
bank, or a broker-dealer which is a member of NASD, (i)
against delivery of the securities either in certificate form
or through an entry crediting the Custodian's account at the
Federal Reserve Bank with such securities or (ii) against
delivery of the receipt evidencing purchase by the Fund of
securities owned by the Custodian along with written evidence
of the agreement by the Custodian to repurchase such
securities from the Fund or (e) for transfer to a time deposit
account of the
-9-
<PAGE>
Fund in any bank, whether domestic or foreign; such transfer
may be effected prior to receipt of a confirmation from a
broker and/or the applicable bank pursuant to Proper
Instructions from the Fund as defined in Article 5;
(2) In connection with conversion, exchange or surrender of
securities owned by the Fund as set forth in Section 2.2
hereof;
(3) For the redemption or repurchase of Shares issued by the Fund
as set forth in Article 4 hereof;
(4) For the payment of any expense or liability incurred by the
Fund, including but not limited to the following payments for
the account of the Fund: interest, taxes, management,
accounting, transfer agent and legal fees, and operating
expenses of the Fund whether or not such expenses are to be in
whole or part capitalized or treated as deferred expenses;
(5) For the payment of any dividends declared pursuant to the
governing documents of the Fund;
(6) For payment of the amount of dividends received in respect of
securities sold short;
(7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions, a certified copy of a
resolution of Board of Directors/Trustees or of the Executive
Committee of the Fund signed by an officer of the Fund and
certified by its Secretary or an Assistant Secretary,
-10-
<PAGE>
specifying the amount of such payment, setting forth the
purpose for which such payment is to be made, declaring such
purpose to be a proper purpose, and naming the person or
persons to whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and every case
where payment for purchase of securities for the account of the Fund is made by
the Custodian in advance of receipt of the securities purchased in the absence
of specific written instructions from the Fund to so pay in advance, the
Custodian shall be absolutely liable to the Fund for such securities to the same
extent as if the securities had been received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust company
which is itself qualified under the Investment Company Act of 1940, as amended,
to act as a custodian, as its agent to carry out such of the provisions of this
Article 2 as the Custodian may from time to time direct; provided, however, that
the appointment of any agent shall not relieve the Custodian of its
responsibilities or liabilities hereunder.
2.10 Deposit of Securities in Securities Systems. The Custodian may
deposit and/or maintain domestic securities owned by the Fund in a clearing
agency registered with the Securities and Exchange Commission under Section 17A
of the Securities Exchange Act of 1934, which acts as a securities depository,
or in the book-entry system authorized by the U.S. Department of the Treasury
and certain federal agencies, collectively referred to herein as "Securities
System" in
-11-
<PAGE>
accordance with applicable Federal Reserve Board and Securities and Exchange
Commission rules and regulations, if any, and subject to the following
provisions:
(1) The Custodian may keep domestic securities of the Fund in a
Securities System provided that such securities are
represented in an account ("Account") of the Custodian in the
Securities System which shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or
otherwise for customers;
(2) The records of the Custodian with respect to domestic
securities of the Fund which are maintained in a Securities
System shall identify by book-entry those securities belonging
to the Fund;
(3) The Custodian shall pay for domestic securities purchased for
the account of the Fund upon (i) receipt of advice from the
Securities System that such securities have been transferred
to the Account, and (i.) the making of an entry on the records
of the Custodian to reflect such payment and transfer for
the account of the Fund. The Custodian shall transfer domestic
securities sold for the account of the Fund upon (i) receipt
of advice from the Securities System that payment for such
securities has been transferred to the Account, and (ii) the
making of an entry on the records of the Custodian to reflect
such transfer and payment for the account of the Fund. Copies
of all advices from the Securities System of transfers of
domestic securities for the account of the Fund shall identify
the Fund, be maintained
-12-
<PAGE>
for the Fund by the Custodian and be provided to the Fund at
its request. Upon request, the Custodian shall furnish the
Fund confirmation of each transfer to or from the account of
the Fund in the form of a written advice or notice and shall
furnish promptly to the Fund copies of daily transaction
sheets reflecting each day's transactions in the Securities
System for the account of the Fund.
(4) The Custodian shall provide the Fund with any report obtained
by the Custodian on the Securities System's accounting system,
internal accounting control and procedures for safeguarding
securities deposited in the Securities System;
(5) The Custodian shall have received the initial or annual
certificate, as the case may be, required by Article 13
hereof;
(6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for any loss or damage
to the Fund resulting from use of the Securities System by
reason of any negligence, misfeasance or misconduct of the
Custodian or any of its agents or of any of its or their
employees or from failure of the Custodian or any such agent
to enforce effectively such rights as it may have against the
Securities System; at the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with
respect to any claim against the Securities System or any
other person which the Custodian may have as a consequence of
any such
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loss or damage if and to the extent that the Fund has not been
made whole for any such loss or damage.
2.10A Fund Assets Held in the Custodian's Direct Paper System. The
Custodian may deposit and/or maintain securities owned by the Fund in the Direct
Paper System of the Custodian subject to the following provisions:
(1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions;
(2) The Custodian may keep securities of the Fund in the Direct
Paper System only if such securities are represented in an
account ("Account") of the Custodian in the Direct Paper
System which shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or otherwise
for customers;
(3) The records of the Custodian with respect to securities of the
Fund which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the Fund;
(4) The Custodian shall pay for securities purchased for the
account of the Fund upon the making of an entry on the records
of the Custodian to reflect such payment and transfer of
securities to the account of the Fund. The Custodian shall
transfer securities sold for the account of the Fund upon the
making of an entry on the records of the Custodian to reflect
such transfer and receipt of payment for the account of the
Fund;
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<PAGE>
(5) The Custodian shall furnish the Fund confirmation of each
transfer to or from the account of the Fund, in the form of a
written advice or notice, of Direct Paper on the next business
day following such transfer and shall furnish to the Fund
copies of daily transaction sheets reflecting each day's
transaction in the Direct Paper System for the account of the
Fund;
(6) The Custodian shall provide the Fund with any report on its
system of internal accounting control as the Fund may
reasonably request from time to time;
2.11 Segregated Account. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or accounts for and on
behalf of the Fund, into which account or accounts may be transferred cash
and/or securities, including securities maintained in an account by the
Custodian pursuant to Section 2.10 hereof, (i) in accordance with the provisions
of any agreement among the Fund, the Custodian and a broker-dealer registered
under the Exchange Act and a member of the NASD (or any futures commission
merchant registered under the Commodity Exchange Act), relating to compliance
with the rules of The Options Clearing Corporation and of any registered
national securities exchange (or the Commodity Futures Trading Commission or any
registered contract market), or of any similar organization or organizations,
regarding escrow or other arrangements in connection with transactions by the
Fund, (ii) for purposes of segregating cash, government securities or liquid,
high-grade debt obligations in connection with options purchased, sold or
written by the Fund or commodity futures contracts or options thereon purchased
or sold by the Fund, (iii) for the purposes of compliance by the Fund
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with the procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange Commission
relating to the maintenance of segregated accounts by registered investment
companies and (iv) for other proper corporate purposes, but only, in the case of
clause (iv), upon receipt of, in addition to Proper Instructions, a certified
copy of a resolution of the Board of Directors/Trustees or of the Executive
Committee signed by an officer of the Fund and certified by the Secretary or an
Assistant Secretary, setting forth the purpose or purposes of such segregated
account and declaring such purposes to be proper corporate purposes.
2.12 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and state tax
purposes in connection with receipt of income or other payments with respect to
domestic securities of the Fund held by it and in connection with transfers of
such securities.
2.13 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of the
Fund or a nominee of the Fund, all proxies, without indication of the manner in
which such proxies are to be voted, and shall promptly deliver to the Fund such
proxies, all proxy soliciting materials and all notices relating to such
securities.
2.14 Communications Relating to Fund Portfolio Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to the Fund all
written information (including, without limitation, pendency of calls and
maturities of securities held domestically and
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expirations of rights in connection therewith and notices of exercise of call
and put options written by the Fund and the maturity of futures contracts
purchased or sold by the Fund) received by the Custodian from issuers of the
securities being held for the Fund. With respect to tender or exchange offers,
the Custodian shall transmit promptly to the Fund all written information
received by the Custodian from issuers of the securities whose tender or
exchange is sought and from the party (or his agents) making the tender or
exchange offer. If the Fund desires to take action with respect to any tender
offer, exchange offer or any other similar transaction, the Fund shall notify
the Custodian at least three business days prior to the date of which the
Custodian is to take such action.
2.15 Reports to Fund by Independent Public Accountants. The Custodian
shall provide the Fund, at such times as the Fund may reasonably require, with
reports by independent public accountants on the accounting system, internal
accounting control and procedures for safeguarding securities, futures contracts
and options on futures contracts, including securities deposited and/or
maintained in a Securities System, relating to the services provided by the
Custodian under this Contract; such reports shall be of sufficient scope and in
sufficient detail, as may reasonably be required by the Fund to provide
reasonable assurance that any material inadequacies would be disclosed by such
examination, and, if there are no such inadequacies, the reports shall so state.
3. Duties of the Custodian with Respect to Property of the Fund Held Outside of
the United States
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Fund's securities
and other assets maintained
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outside the United States the foreign banking institutions and foreign
securities depositories designated on Schedule A hereto ("foreign
sub-custodians"). Upon receipt of "Proper Instructions", as defined in Section 5
of this Contract, together with a certified resolution of the Fund's Board of
Directors/Trustees, the Custodian and the Fund may agree to amend Schedule A
hereto from time to time to designate additional foreign banking institutions
and foreign securities depositories to act as sub-custodian. Upon receipt of
Proper Instructions, the Fund may instruct the Custodian to cease the employment
of any one or more such sub-custodians for maintaining custody of the Fund's
assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a) "foreign
securities", as defined in paragraph (c)(1) of Rule 17f-5 under the Investment
Company Act of 1940, and (b) cash and cash equivalents in such amounts as the
Custodian or the Fund may determine to be reasonably necessary to effect the
Fund's foreign securities transactions.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed
upon in writing by the Custodian and the Fund, assets of the Fund shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as sub-custodians
pursuant to the terms hereof. Where possible, such arrangements shall include
entry into agreements containing the provisions set forth in Section 3.5 hereof.
3.4 Segregation of Securities. The Custodian shall identify on its books
as belonging to the Fund, the foreign securities of the Fund held by each
foreign sub-custodian. Each agreement pursuant to which the Custodian employs a
foreign banking institution shall require that
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such institution establish a custody account for the Custodian on behalf of the
Fund and physically segregate in that account, securities and other assets of
the Fund, and, in the event that such institution deposits the Fund's securities
in a foreign securities depository, that it shall identify on its books as
belonging to the Custodian, as agent for the Fund, the securities so deposited.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall be substantially in the form set forth in
Exhibit I hereto and shall provide that (a) the Fund's assets will not be
subject to any right, charge, security interest, lien or claim of any kind in
favor of the foreign banking institution or its creditors or agent, except a
claim of payment for their safe custody or administration; (b) beneficial
ownership of the Fund's assets will be freely transferable without the payment
of money or value other than for custody or administration; (c) adequate records
will be maintained identifying the assets as belonging to the Fund; (d) officers
of or auditors employed by, or other representatives of the Custodian, including
to the extent permitted under applicable law the independent public accountants
for the Fund, will be given access to the books and records of the foreign
banking institution relating to its actions under its agreement with the
Custodian; and (e) assets of the Fund held by the foreign sub-custodian will be
subject only to the instructions of the Custodian or its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of any
foreign banking institution employed as a foreign sub-custodian insofar as such
books and records relate to the performance of such foreign banking institution
under its agreement with the Custodian.
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3.7 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the securities and
other assets of the Fund held by foreign sub-custodians, including but not
limited to an identification of entities having possession of the Fund's
securities and other assets and advices or notifications of any transfers of
securities to or from each custodial account maintained by a foreign banking
institution for the Custodian on behalf of the Fund indicating, as to securities
acquired for the Fund, the identity of the entity having physical possession of
such securities.
3.8 Transactions in Foreign Custody Account
(a) Except as otherwise provided in paragraph (b) of this Section
3.8, the provision of Sections 2.2 and 2.7 of this Contract shall apply, in
their entirety to the foreign securities of the Fund held outside the United
States by foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of the Fund and
delivery of securities maintained for the account of the Fund may be effected in
accordance with the customary established securities trading or securities
processing practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering securities to the
purchaser thereof or to a dealer therefore (or an agent for such purchaser or
dealer) against a receipt with the expectation of receiving later payment for
such securities from such purchaser or dealer.
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<PAGE>
(c) Securities maintained in the custody of a foreign sub-custodian
may be maintained in the name of such entity's nominee to the same extent as set
forth in Section 2.3 of this Contract, and the Fund agrees to hold any such
nominee harmless from any liability as a holder of record of such securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign sub-custodian
shall require the institution to exercise reasonable care in the performance of
its duties and to indemnify, and hold harmless, the Custodian and each Fund from
and against any loss, damage, cost, expense, liability or claim arising out of
or in connection with the institution's performance of such obligations. At the
election of the Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a foreign banking institution as a
consequence of any such loss, damage, cost, expense, liability or claim if and
to the extent that the Fund has not been made whole for any such loss, damage,
cost, expense, liability or claim.
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set forth with
respect to sub-custodians generally in this Contract and, regardless of whether
assets are maintained in the custody of a foreign banking institution, a foreign
securities depository or a branch of a U.S. bank as contemplated by paragraph
3.13 hereof, the Custodian shall not be liable for any loss, damage, cost,
expense, liability or claim resulting from nationalization, expropriation,
currency restrictions, or acts of war or terrorism or any loss where the
sub-custodian has otherwise exercised reasonable care. Notwithstanding the
foregoing provisions of this paragraph 3.10, in
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<PAGE>
delegating custody duties to State Street London Ltd., the Custodian shall not
be relieved of any responsibility to the Fund for any loss due to such
delegation, except such loss as may result from (a) political risk (including,
but not limited to, exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or (b) other
losses (excluding a bankruptcy or insolvency of State Street London Ltd. not
caused by political risk) due to Acts of God, nuclear incident or other losses
under circumstances where the Custodian and State Street London Ltd. have
exercised reasonable care.
3.11 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose including the purchase or sale of
foreign exchange or of contracts for foreign exchange, or in the event that the
Custodian or its nominees shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the performance
of this Contract, except such as amy arise from its or its nominee's own
negligent action, negligent failure to act or wilful misconduct, any property at
any time held for the account of the Fund shall be security
therefor and should the Fund fail to repay the Custodian promptly, the Custodian
shall be entitled to utilize available cash and to dispose of the Fund assets to
the extent necessary to obtain reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be similar in
kind and scope to that furnished to the Fund in connection with the initial
approval of this Contract. In addition, the Custodian will promptly inform the
Fund in the event that the Custodian learns of a material adverse change in the
financial
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condition of a foreign sub-custodian or any material loss of the assets of the
Fund or in the case of any foreign sub-custodian not the subject of an exemptive
order from the Securities and Exchange Commission is notified by such foreign
sub-custodian that there appears to be a substantial likelihood that its
shareholders equity will decline below $200 million (U.S. dollars or the
equivalent thereof) or that its shareholders equity has declined below $200
million (in each case computed in accordance with generally accepted U.S.
accounting principles).
3.13 Branches of U.S. Banks
(a) Except as otherwise set forth in this Contract, the provisions
of Article 3 shall not apply where the custody of the Fund assets are maintained
in a foreign branch of a banking institution which is a "bank" as defined by
Section 2(a)(5) of the Investment Company Act of 1940 meeting the qualification
set forth in Section 26(a) of said Act. The appointment of any such branch as a
sub-custodian shall be governed by paragraph 1 of this Contract.
(b) Cash held for the Fund in the United Kingdom shall be maintained
in an interest bearing account established for the Fund with the Custodian's
London branch, which account shall be subject to the direction of the Custodian,
State Street London Ltd. or both.
4. Payments for Repurchases or Redemptions and Sales of Shares of the Fund.
From such funds as may be available for the purpose but subject to the
limitations of the Articles of Incorporation/Declaration of Trust and any
applicable votes of the Board of Directors/Trustees of the Fund pursuant
thereto, the Custodian shall, upon receipt of instructions from the Transfer
Agent, make funds available for payment to holders of Shares who have delivered
to the Transfer Agent a request for redemption or repurchase of their Shares. In
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connection with the redemption or repurchase of Shares of the Fund, the
Custodian is authorized upon receipt of instructions from the Transfer Agent to
wire funds to or through a commercial bank designated by the redeeming
shareholders. In connection with the redemption or repurchase of Shares of the
Fund, the Custodian shall honor checks drawn on the Custodian by a holder of
Shares, which checks have been furnished by the Fund to the holder of Shares,
when presented to the Custodian in accordance with such procedures and controls
as are mutually agreed upon from time to time between the Fund and the
Custodian.
The Custodian shall receive from the distributor for the Fund's Shares or
from the Transfer Agent of the Fund and deposit into the Fund's account such
payments as are received for Shares of the Fund issued or sold from time to time
by the Fund. The Custodian will provide timely notification to the Fund and the
Transfer Agent of any receipt by it of payments for Shares of the Fund.
5. Proper Instructions.
Proper Instructions as used herein means a writing signed or initialled by
one or more person or persons as the officers of the Fund shall have from time
to time authorized. Each such writing shall set forth the specific transaction
or type of transaction involved, including a specific statement of the purpose
for which such action is requested. Oral instructions will be considered Proper
Instructions if the Custodian reasonably believes them to have been given by a
person authorized to give such instructions with respect to the transaction
involved. The Fund shall cause all oral instructions to be confirmed in writing.
It is understood and agreed that the Board of
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Directors/Directors/Trustees has authorized (i) Prudential Mutual Fund
Management, Inc., as Manager of the Fund, and (ii) The Prudential Investment
Corporation (or Prudential-Bache Securities Inc.), as Subadviser to the Fund, to
deliver proper instructions with respect to all matters for which proper
instructions are required by this Article 5. The Custodian may rely upon the
certificate of an officer of the Manager or Subadviser, as the case may be, with
respect to the person or persons authorized on behalf of the Manager and
Subadviser, respectively, to sign, initial or give proper instructions for the
purpose of this Article 5. Proper Instructions may include communications
effected directly between electro-mechanical or electronic devices provided that
the Fund and the Custodian are satisfied that such procedures afford adequate
safeguards for the Fund's assets. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian pursuant to
any three-party agreement which requires a segregated asset account in
accordance with Section 2.11.
6. Actions Permitted without Express Authority.
The Custodian may in its discretion, without express authority from the
Fund:
(1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this Contract,
provided that all such payments shall be accounted for to the Fund;
(2) surrender securities in temporary form for securities in
definitive form;
(3) endorse for collection, in the name of the Fund, checks, drafts
and other negotiable instruments; and
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(4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of the Fund except as otherwise
directed by the Board of Directors/Trustees of the Fund.
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Fund. The
Custodian may receive and accept a certified copy of a vote of the Board of
Directors/Trustees of the Fund as conclusive evidence (a) of the authority of
any person to act in accordance with such vote or (b) of any determination or of
any action by the Board of Directors/ Trustees pursuant to the Articles of
Incorporation/Declaration of Trust as described in such vote, and such vote may
be considered as in full force and effect until receipt by the Custodian of
written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and Calculation of
Net Asset Value and Net Income.
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Directors/Trustees of the Fund to
keep the books of account of the Fund and/or compute the net asset value per
share of the outstanding shares of the Fund or, if directed in writing to do so
by the Fund, shall itself keep such books of account and/or compute such net
asset value per share. If so directed, the Custodian shall also calculate daily
the net income of the Fund as described in the Fund's currently effective
prospectus and shall advise the
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Fund and the Transfer Agent daily of the total amounts of such net income and,
if instructed in writing by an office of the Fund to do so, shall advise the
Transfer Agent periodically of the division of such net income among its various
components. The calculations of the net asset value per share and the daily
income of the Fund shall be made at the time or times described from time to
time in the Fund's currently effective prospectus.
9. Records
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet the
obligations of the Fund under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder.
All such records shall be the property of the Fund and shall at all times during
the regular business hours of the Custodian be open for inspection by duly
authorized officers, employees or agents of the Fund and employees and agents of
the Securities and Exchange Commission. The Custodian shall, at the Fund's
request, supply the Fund with a tabulation of securities owned by the Fund and
held by the Custodian and shall, when requested to do so by the Fund and for
such compensation as shall be agreed upon between the Fund and the Custodian,
include certificate numbers in such tabulations.
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund may from time
to time request, to obtain from year to year favorable opinions from the Fund's
independent accountants with respect to its activities hereunder in connection
with the preparation of the Fund's Form N-1A, Form N-2 (in the case of a closed
end Fund) and Form N-SAR or other periodic reports to
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the Securities and Exchange Commission and with respect to any other
requirements of such Commission.
11. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund and the Custodian.
12. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract but
shall be kept indemnified by and shall be without liability to the Fund for any
action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel for
the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice. Notwithstanding the
foregoing, the responsibility of the Custodian with respect to redemptions
effected by check shall be in accordance with a separate Agreement entered into
between the Custodian and the Fund.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof
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with respect to sub-custodians located in the United States and, regardless of
whether assets are maintained in the custody of a foreign banking institution, a
foreign securities depository or a branch of a U.S. bank as contemplated by
paragraph 3.11 hereof, the Custodian shall not be liable for any loss, damage,
cost, expense, liability or claim resulting from, or caused by, the direction of
or authorization by the Fund to maintain custody or any securities or cash of
the Fund in a foreign country including, but not limited to, losses resulting
from nationalization, expropriation, currency restrictions, or acts of war or
terrorism.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned to
the Fund being liable for the payment of money or incurring liability of some
other form, the Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian to advance cash or securities for any
purpose or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or wilful
misconduct, any property at any time held for the account of the Fund shall be
security therefor and should the Fund fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of the Fund
assets to the extent necessary to obtain reimbursement provided, however that,
prior to disposing of Fund assets hereunder, the Custodian shall give the
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Fund notice of its intention to dispose of assets identifying such assets and
the Fund shall have one business day from receipt of such notice to notify the
Custodian if the Fund wishes the Custodian to dispose of Fund assets of equal
value other than those identified in such notice.
13. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than sixty (60) days after the date of such delivery or mailing; provided,
however that the Custodian shall not act under Section 2.10 hereof in the
absence of receipt of an initial certificate of the Secretary or an Assistant
Secretary that the Board of Directors/Trustees of the Fund has approved the
initial use of a particular Securities System and the receipt of an annual
certificate of the Secretary or an Assistant Secretary that the Board of
Directors/Trustees has reviewed the use by the Fund of such Securities System,
as required in each case by Rule 17f-4 under the Investment Company Act of 1940,
as amended and that the Custodian shall not act under Section 2.10A hereof in
the absence of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Directors/Trustees has approved the
initial use of the Direct Paper System and the receipt of an annual certificate
of the Secretary or an Assistant Secretary that the Board of Directors/Trustees
has reviewed the use by the Fund of the Direct Paper System; provided further,
however, that the Fund shall not amend or terminate this Contract in
contravention of any applicable federal or state regulations, or any provision
of the Articles of
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Incorporation/Declaration of Trust, and further, provided, that the Fund may at
any time by action of its Board of Directors/Trustees (i) substitute another
bank or trust company for the Custodian by giving notice as described above to
the Custodian, or (ii) immediately terminate this Contract in the event of the
appointment of a conservator or receiver for the Custodian by the Comptroller of
the Currency or upon the happening of a like event at the direction of an
appropriate regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund shall pay to the Custodian such
compensation as may be due as of the date of such termination and shall likewise
reimburse the Custodian for its costs, expenses and disbursements.
14. Successor Custodian
If a successor custodian shall be appointed by the Board of
Directors/Trustees of the Fund, the Custodian shall, upon termination, deliver
to such successor custodian at the office of the Custodian, duly endorsed and in
the form for transfer, all securities then held by it hereunder and shall
transfer to an account of the successor custodian all of the Fund's securities
held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of
Directors/Trustees of the Fund, deliver at the office of the Custodian and
transfer such securities, funds and other properties in accordance with such
vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors/Trustees shall have been
delivered to the Custodian on or before
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the date when such termination shall become effective, then the Custodian shall
have the right to deliver to a bank or trust company, which is a "bank" as
defined in the Investment Company Act of 1940, doing business in Boston,
Massachusetts, of its own selection, having an aggregate capital, surplus, and
undivided profits, as shown by its last published report, of not less than
$25,000,000, all securities, funds and other properties held by the Custodian
and all instruments held by the Custodian relative thereto and all other
property held by it under this Contract and to transfer to an account of such
successor custodian all of the Fund's securities held in any Securities System.
Thereafter, such bank or trust company shall be the successor of the Custodian
under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Directors/Trustees to appoint a successor custodian, the Custodian
shall be entitled to fair compensation for its services during such period as
the Custodian retains possession of such securities, funds and other properties
and the provisions of this Contract relating to the duties and obligations of
the Custodian shall remain in full force and effect.
15. Interpretative and Additional Provisions
In connection with the operation of this Contract, the Custodian and the
Fund may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
-32-
<PAGE>
annexed hereto, provided that no such interpretative or additional provisions
shall contravene any applicable federal or state regulations or any provision of
the Articles of Incorporation/ Declaration of Trust of the Fund. No
interpretative or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Contract.
16. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of the Commonwealth of Massachusetts.
17. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund and the Custodian relating to the custody of the
Fund's assets.
18. The Parties
All references herein to the "Fund" are to each of the Funds listed on
Appendix A individually, as if this Contract were between such individual Fund
and the Custodian. With respect to any Fund listed on Appendix A which is
organized as a Massachusetts Business Trust, references to Board of Directors
and Articles of Incorporation shall be deemed a reference to Board of
Directors/Trustees and Articles of Incorporation/Declaration of Trust
respectively and reference to shares of capital stock shall be deemed a
reference to shares of beneficial interest.
19. Limitation of Liability
Each Fund listed on Appendix A that is referenced as a Massachusetts
Business Trust is the designation of the Directors/Trustees under a Articles of
Incorporation/Declaration of Trust, dated (see Appendix A) and all persons
dealing with the Fund must look solely to the property of
-33-
<PAGE>
the Fund for the enforcement of any claims against the Fund as neither the
Directors/Trustees, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the dates set forth on Appendix A.
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/ By /s/ AL O'NEIL
- ------------------------- ------------------------------------------
Assistant Secretary Vice President
ATTEST EACH OF THE FUNDS LISTED ON APPENDIX A
/s/ S. JANE ROSE By /s/ ROBERT F. GUNIA
- ------------------------- ------------------------------------------
Secretary Vice President
-34-
Transfer Agency And Service Agreement
between
PRUDENTIAL-BACHE TAX-FREE MONEY FUND, INC.
and
PRUDENTIAL MUTUAL FUND SERVICES, INC.
<PAGE>
TABLE OF CONTENTS
Article 1 Terms of Appointment; Duties of the Agent ............ 1
Article 2 Fees and Expenses..................................... 6
Article 3 Representations and Warranties of the Agent .......... 6
Article 4 Representations of Warranties of the Fund ............ 7
Article 5 Duty of Care and Indemnification ..................... 8
Article 6 Documents and Covenants of the Fund and
the Agent ............................................11
Article 7 Termination of Agreement .............................13
Article 8 Assignment ...........................................13
Article 9 Affiliations .........................................14
Article 10 Amendment.............................................15
<PAGE>
TABLE OF CONTENTS (Continued)
Article 11 Applicable Law..........................................15
Article 12 Miscellaneous...........................................15
Article 13 Merger of Agreement.....................................16
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 1st day of January, 1988 by and between
PRUDENTIAL-BACHE TAX-FREE MONEY FUND, INC., a Maryland corporation, having its
principal office and place of business at One Seaport Plaza, New York, New York
10292 (the "Fund"), and PRUDENTIAL MUTUAL FUND SERVICES, INC., a New Jersey
corporation, having its principal office and place of business at Raritan Plaza
I, Edison, New Jersey 08818 (the "Agent" or "PMFS").
WHEREAS, the Fund desires to appoint PMFS as its transfer agent, dividend
disbursing agent and shareholder servicing agent in connection with certain
other activities, and PMFS desires to accept such appointment;
NOW THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
Article 1 Terms of Appointment; Duties of PMFS
1.01 Subject to the terms and conditions set forth in this
Agreement, the Fund hereby employs and appoints PMFS to act as, and PMFS agrees
to act as, the transfer agent for the authorized and issued shares of the common
stock of each series of the Fund, $.01 par value ("Shares"), dividend disbursing
agent and shareholder servicing agent in connection with any
<PAGE>
accumulation, open-account or similar plans provided to the shareholders of the
Fund or any series thereof ("Shareholders") and set out in the currently
effective prospectus and statement of additional information ("prospectus") of
the Fund, including without limitation any periodic investment plan or periodic
withdrawal program.
1.02 PMFS agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund and PMFS, PMFS shall:
(i) Receive for acceptance, orders for the purchase of Shares, and
promptly deliver payment and appropriate documentation therefor to the Custodian
of the Fund authorized pursuant to the Articles of Incorporation of the Fund
(the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation therefor to the Custodian;
(iv) At the appropriate time as and when it receives
2
<PAGE>
monies paid to it by the Custodian with respect to any redemption, pay over or
cause to be paid over in the appropriate manner such monies as instructed by the
redeeming Shareholders;
(v) Effect transfers of Shares by the registered owners thereof upon
receipt of appropriate instructions;
(vi) Prepare and transmit payments for dividends and distributions
declared by the Fund;
(vii) Calculate any sales charges payable by a Shareholder on purchases
and/or redemptions of Shares of the Fund as such charges may be reflected in the
prospectus;
(viii) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(ix) Record the issuance of Shares of the Fund and maintain pursuant to
Rule 17Ad-10(e) under the Securities Exchange Act of 1934 ("1934 Act") a record
of the total number of Shares of the Fund which are authorized, based upon data
provided to it by the Fund, and issued and outstanding. PMFS shall also provide
to the Fund on a regular basis the total number of Shares which are authorized,
issued and outstanding and shall notify the Fund in case any proposed issue of
Shares by the Fund would result in an overissue. In case any issue of Shares
would result in an overissue, PMFS shall refuse to issue such Shares and shall
3
<PAGE>
not countersign and issue any certificates requested for such Shares. When
recording the issuance of Shares, PMFS shall have no obligation to take
cognizance of any Blue Sky laws relating to the issue or sale of such Shares,
which functions shall be the sole responsibility of the Fund.
(b) In addition to and not in lieu of the services set forth in the
above paragraph (a), PMFS shall: (i) perform all of the customary services of a
transfer agent, dividend disbursing agent and, as relevant, shareholder
servicing agent in connection with accumulation, open-account or similar plans
(including without limitation any periodic investment plan or periodic
withdrawal program), including but not limited to, maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing proxies, receiving and
tabulating proxies, mailing Shareholder reports and prospectuses to current
Shareholders, withholding taxes on non-resident alien accounts, preparing and
filing appropriate forms required with respect to dividends and distributions by
federal tax authorities for all Shareholders, preparing and mailing confirmation
forms and statements of account to Shareholders for all purchases and
redemptions of Shares and other confirmable transactions in Shareholder
accounts, preparing and mailing activity statements for
4
<PAGE>
Shareholders and providing Shareholder account information and (ii) provide a
system which will enable the Fund to monitor the total number of Shares sold in
each State or other jurisdiction.
(c) In addition, the Fund shall (i) identify to PMFS in writing those
transactions and assets to be treated as exempt from Blue Sky reporting for each
State and (ii) verify the establishment of transactions for each State on the
system prior to activation and thereafter monitor the daily activity for each
State. The responsibility of PMFS for the Fund's registration status under the
Blue Sky or securities laws of any State or other jurisdiction is solely limited
to the initial establishment of transactions subject to Blue Sky compliance by
the Fund and the reporting of such transactions to the Fund as provided above
and as agreed from time to time by the Fund and PMFS.
PMFS may also provide such additional services and functions not
specifically described herein as may be mutually agreed between PMFS and the
Fund and set forth in Schedule B hereto.
Procedures applicable to certain of these services may be established
from time to time by agreement between the Fund and PMFS.
Article 2 Fees and Expenses
5
<PAGE>
2.01 For performance by PMFS pursuant to this Agreement, the Fund
agrees to pay PMFS an annual maintenance fee for each Shareholder account and
certain transactional fees as set out in the fee schedule attached hereto as
Schedule A. Such fees and out-of-pocket expenses and advances identified under
Section 2.02 below may be changed from time to time subject to mutual written
agreement between the Fund and PMFS.
2.02 In addition to the fees paid under Section 2.01 above, the Fund
agrees to reimburse PMFS for out-of-pocket expenses or advances incurred by PMFS
for the items set out in Schedule A attached hereto. In addition, any other
expenses incurred by PMFS at the request or with the consent of the Fund will be
reimbursed by the Fund.
2.03 The Fund agrees to pay all fees and reimbursable expenses
within a reasonable period of time following the mailing of the respective
billing notice. Postage for mailing of dividends, proxies, Fund reports and
other mailings to all Shareholder accounts shall be advanced to PMFS by the Fund
upon request prior to the mailing date of such materials.
Article 3 Representations and Warranties of PMFS
PMFS represents and warrants to the Fund that:
6
<PAGE>
3.01 It is a corporation duly organized and existing and in good
standing under the laws of New Jersey and it is duly qualified to carry on its
business in New Jersey.
3.02 It is and will remain registered with the U.S. Securities and
Exchange Commission ("SEC") as a Transfer Agent pursuant to the requirements of
Section 17A of the 1934 Act.
3.03 It is empowered under applicable laws and by its charter and
By-Laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
Article 4 Representations and Warranties of the Fund
The Fund represents and warrants to PMFS that:
4.01 It is a corporation duly organized and existing and in good
standing under the laws of Maryland.
4.02 It is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement.
4.03 All corporate proceedings required by said Articles of
Incorporation and By-Laws have been taken to
7
<PAGE>
authorize it to enter into and perform this Agreement.
4.04 It is an investment company registered with the SEC under the
Investment Company Act of 1940, as amended (the "1940 Act").
4.05 A registration statement under the Securities Act of 1933 (the
"1933 Act") is currently effective and will remain effective, and appropriate
state securities law filings have been made and will continue to be made, with
respect to all Shares of the Fund being offered for sale.
Article 5 Duty of Care and Indemnification
5.01 PMFS shall not be responsible for, and the Fund shall indemnify
and hold PMFS harmless from and against, any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liability arising out of or
attributable to:
(a) All actions of PMFS or its agents or subcontractors required to be
taken pursuant to this Agreement, provided that such actions are taken in good
faith and without negligence or willful misconduct.
(b) The Fund's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Fund's lack of good faith, negligence or
willful misconduct or which arise out of the breach of any representation or
warranty of the Fund
8
<PAGE>
hereunder.
(c) The reliance on or use by PMFS or its agents or subcontractors of
information, records and documents which (i) are received by PMFS or its agents
or subcontractors and furnished to it by or on behalf of the Fund, and (ii) have
been prepared and/or maintained by the Fund or any other person or firm on
behalf of the Fund.
(d) The reliance on, or the carrying out by PMFS or its agents or
subcontractors of, any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities or Blue Sky laws of
any State or other jurisdiction that such Shares be registered in such State or
other jurisdiction or in violation of any stop order or other determination or
ruling by any federal agency or any State or other jurisdiction with respect to
the offer or sale of such Shares in such State or other jurisdiction.
5.02 PMFS shall indemnify and hold the Fund harmless from and against
any and all losses, damages, costs, charges, counsel fees, payments, expenses
and liability arising out of or attributable to any action or failure or
omission to act by PMFS
9
<PAGE>
as a result of PMFS' lack of good faith, negligence or willful misconduct.
5.03 At any time PMFS may apply to any officer of the Fund for
instructions, and may consult with legal counsel, with respect to any matter
arising in connection with the services to be performed by PMFS under this
Agreement, and PMFS and its agents or subcontractors shall not be liable and
shall be indemnified by the Fund for any action taken or omitted by it in
reliance upon such instructions or upon the opinion of such counsel. PMFS, its
agents and subcontractors shall be protected and indemnified in acting upon any
paper or document furnished by or on behalf of the Fund, reasonably believed to
be genuine and to have been signed by the proper person or persons, or upon any
instruction, information, data, records or documents provided to PMFS or its
agents or subcontractors by machine readable input, telex, CRT data entry or
other similar means authorized by the Fund, and shall not be held to have notice
of any change of authority of any person, until receipt of written notice
thereof from the Fund. PMFS, its agents and subcontractors shall also be
protected and indemnified in recognizing stock certificates which are reasonably
believed to bear the proper manual or facsimile signature of the officers of the
Fund, and the proper
10
<PAGE>
countersignature of any former transfer agent or registrar, or of a co-transfer
agent or co-registrar.
5.04 In the event either party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes.
5.05 Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement or for any act
or failure to act hereunder.
5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case
11
<PAGE>
in which the other party may be required to indemnify it except with the other
party's prior written consent.
Article 6 Documents and Covenants of the Fund and PMFS
6.01 The Fund shall promptly furnish to PMFS the following:
(a) A certified copy of the resolution of the Board of Directors of the
Fund authorizing the appointment of PMFS and the execution and delivery of this
Agreement;
(b) A certified copy of the Articles of Incorporation and By-Laws of
the Fund and all amendments thereto;
(c) The current registration statements and any amendments and
supplements thereto filed with the SEC pursuant to the requirements of the 1933
Act and the 1940 Act;
(d) A specimen of the certificate for Shares of the Fund in the form
approved by the Board of Directors, with a certificate of the Secretary of the
Fund as to such approval;
(e) All account application forms or other documents relating to
Shareholder accounts and/or relating to any plan program or service offered or
to be offered by the Fund; and
(f) Such other certificates, documents or opinions as the Agent deems
to be appropriate or necessary for the proper performance of its duties.
12
<PAGE>
6.02 PMFS hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
6.03 PMFS shall prepare and keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the 1940 Act, and the Rules and Regulations
thereunder, PMFS agrees that all such records prepared or maintained by PMFS
relating to the services to be performed by PMFS hereunder are the property of
the Fund and will be preserved, maintained and made available in accordance with
such Section 31 of the 1940 Act, and the Rules and Regulations thereunder, and
will be surrendered promptly to the Fund on and in accordance with its request.
6.04 PMFS and the Fund agree that all books, records, information and
data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential and shall not be voluntarily disclosed to any other person
except as may be required by law or with the prior consent of PMFS and
13
<PAGE>
the Fund.
6.05 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, PMFS will endeavor to notify the Fund and to
secure instructions from an authorized officer of the Fund as to such
inspection. PMFS reserves the right, however, to exhibit the Shareholder records
to any person whenever it is advised by its counsel that it may be held liable
for the failure to exhibit the Shareholder records to such person.
Article 7 Termination of Agreement
7.01 This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other.
7.02 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and other materials will be
borne by the Fund. Additionally, PMFS reserves the right to charge for any other
reasonable fees and expenses associated with such termination.
Article 8 Assignment
8.01 Except as provided in Section 8.03 below, neither this Agreement
nor any rights or obligations hereunder may be assigned by either party without
the written consent of the other party.
14
<PAGE>
8.02 This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns.
8.03 PMFS may, in its sole discretion and without further consent by
the Fund, subcontract, in whole or in part, for the performance of its
obligations and duties hereunder with any person or entity including but not
limited to: (i) Prudential-Bache Securities Inc.("Prudential-Bache"), a
registered broker-dealer, (ii) The Prudential Insurance Company of America
("Prudential"), (iii) Pruco Securities Corporation, a registered broker-dealer,
(iv) any Prudential-Bache or Prudential subsidiary or affiliate duly registered
as a broker-dealer and/or a transfer agent pursuant to the 1934 Act or (vi) any
other Prudential-Bache or Prudential affiliate or subsidiary; provided, however,
that PMFS shall be as fully responsible to the Fund for the acts and omissions
of any agent or subcontractor as it is for its own acts and omissions.
Article 9 Affiliations
9.01 PMFS may now or hereafter, without the consent of or notice to the
Fund, function as Transfer Agent and/or Shareholder Servicing Agent for any
other investment company registered with the SEC under the 1940 Act, including
without
15
<PAGE>
limitation any investment company whose adviser, administrator, sponsor or
principal underwriter is or may become affiliated with Prudential-Bache
Securities and/or Prudential or any of its or their direct or indirect
subsidiaries or affiliates.
9.02 It is understood and agreed that the directors, officers,
employees, agents and Shareholders of the Fund, and the directors, officers,
employees, agents and shareholders of the Fund's investment adviser and/or
distributor, are or may be interested in the Agent as directors, officers,
employees, agents, shareholders or otherwise, and that the directors, officers,
employees, agents or shareholders of the Agent may be interested in the Fund as
directors, officers, employees, agents, Shareholders or otherwise, or in the
investment adviser and/or distributor as officers, directors, employees, agents,
shareholders or otherwise.
16
<PAGE>
Article 10 Amendment
10.01 This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution of the Board
of Directors of the Fund.
Article 11 Applicable Law
11.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the State of New Jersey.
Article 12 Miscellaneous
12.01 In the event of an alleged loss or destruction of any Share
certificate, no new certificate shall be issued in lieu thereof, unless there
shall first be furnished to PMFS an affidavit of loss or non-receipt by the
holder of Shares with respect to which a certificate has been lost or destroyed,
supported by an appropriate bond satisfactory to PMFS and the Fund issued by a
surety company satisfactory to PMFS, except that PMFS may accept an affidavit of
loss and indemnity agreement executed by the registered holder (or legal
representative) without surety in such form as PMFS deems appropriate
indemnifying PMFS and the Fund for the issuance of a replacement certificate, in
cases where the alleged loss is in the amount of $1000 or less.
17
<PAGE>
12.02 In the event that any check or other order for payment of money
on the account of any Shareholder or new investor is returned unpaid for any
reason, PMFS will (a) give prompt notification to the Fund's distributor
("Distributor") of such non-payment; and (b) take such other action, including
imposition of a reasonable processing or handling fee, as PMFS may, in its sole
discretion, deem appropriate or as the Fund and the Distributor may instruct
PMFS.
12.03 Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Fund or to PMFS shall be sufficiently
given if addressed to that party and received by it at its office set forth
below or at such other place as it may from time to time designate in writing.
To the Fund:
Prudential-Bache Tax-Free Money Fund, Inc.
One Seaport Plaza
New York, NY 10292
Attention: President
To PMFS:
Prudential Mutual Fund Services, Inc.
Raritan Plaza One
Edison, NJ 08818
Attention: President
Article 13 Merger of Agreement
18
<PAGE>
13.01 This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.
PRUDENTIAL-BACHE TAX-FREE MONEY FUND,INC.
BY: /s/ ROBERT F. GUNIA
------------------------------
ATTEST:
/s/ S. JANE ROSE PRUDENTIAL MUTUAL FUND
- ---------------------- SERVICES, INC.
BY: /s/ FRED A. FIONDACA
----------------------------
ATTEST:
/s/ LYNDA M. PUGLIESE
- ----------------------
19
Exhibit 10(B)
SULLIVAN & CROMWELL
NEW YORK TELEPHONE: (212) 558-4000
TELEX: 62694 (INTERNATIONAL) 127816 (DOMESTIC)
CABLE ADDRESS: LADYCOURT, NEW YORK
FACSIMILE: (212) 558-3588 (125 Broad Street)
(212) 558-3792 (250 Park Avenue)
125 BROAD STREET, NEW YORK 10004-2498
----------
250 PARK AVENUE, NEW YORK 10177-0021
1701 PENNSYLVANIA AVE, N.W. WASHINGTON, D.C. 20006-5805
444 SOUTH FLOWER STREET, LOS ANGELES 90071-2901
8, PLACE VENDOME, 75001 PARIS
ST. OLAVE'S HOUSE, 9a IRONMONGER LANE, LONDON EC2V 8EY
101 COLLINS STREET, MELBOURNE 3000
2-1, MARUNOUCHI 1-CHROME, CHIYODA-KU, TOKYO 100
GLOUCESTER TOWER, 11 PEDDER STREET, HONG KONG
February 25, 1997
Prudential Tax-Free Money Fund, Inc.,
Gateway Center Three,
100 Mulberry Street,
New York, New York 07102-4077.
Dear Sirs:
You have requested our opinion in connection with your filing of
Post-Effective Amendment No. 21 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 53,554,629 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.
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 notice 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
---------------------------
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. 21 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
February 24, 1997, 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.
/s/ PRICE WATERHOUSE LLP
- ---------------------------------------------
PRICE WATERHOUSE LLP
New York, New York
February 24, 1997
PRUDENTIAL TAX-FREE MONEY FUND, INC.
Distribution and Service Plan
Introduction
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (NASD) has been adopted by Prudential Tax-Free Money Fund, Inc. (the Fund)
and by Prudential Mutual Fund Distributors, Inc., the Fund's distributor (the
Distributor).
The Fund has entered into a distribution agreement (the Distribution
Agreement) pursuant to which the Fund will employ the Distributor to distribute
shares issued by the Fund. Under the Plan, the Fund intends to pay to the
Distributor as compensation for its services, a distribution and service fee.
A majority of the Board of Directors or Trustees of the Fund, including a
majority of those Directors or Trustees who are not "interested persons" of the
Fund (as defined in the Investment Company Act) and who have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the
1
<PAGE>
Rule 12b-1 Directors or Trustees), have determined by votes cast in person at a
meeting called for the purpose of voting on this Plan that there is a reasonable
likelihood that adoption of this Plan will benefit the Fund and its
shareholders. Expenditures under this Plan by the Fund for Distribution
Activities (defined below) are primarily intended to result in the sale of
shares of the Fund within the meaning of paragraph (a)(2) of Rule 12b-1
promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor and/or
other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
The Plan
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Shares of the Fund and
to service shareholder accounts using all of the
2
<PAGE>
facilities of the distribution networks of Prudential Securities Incorporated
(Prudential Securities) and Pruco Securities Corporation (Prusec), including
sales personnel and branch office and central support systems, and also using
such other qualified broker-dealers and financial institutions as the
Distributor may select. Services provided and activities undertaken to
distribute shares of the Fund are referred to herein as "Distribution
Activities."
2. Payment of Service Fee
The Fund shall pay to the Distributor an compensation for providing
personal service and/or maintaining shareholder accounts a servie fee not to
exceed .125 of 1% per annum of the average daily net assets of the shares of the
Fund (service fee). The Fund shall calculate and accrue daily amounts payable by
the Shares of the Fund hereunder and shall pay such amounts monthly or at such
other intervals as the Board of Directors or Trustees may determine.
3. Payment for Distribution Activities
The Fund shall pay to the Distributor as compensation for its services a
distribution fee which, together with the service fee (described in Section 2
hereof), shall not exceed .125 of 1% per
3
<PAGE>
annum of the average daily net assets of the shares of the Fund. The Fund shall
calculate and accrue daily amounts payable by the shares of the Fund hereunder
and shall pay such amounts monthly or at such other intervals as the Board of
Directors or Trustees may determine.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a) amounts paid to Prudential Securities for performing services under
a selected dealer agreement between Prudential Securities and the
Distributor for sale of shares of the Fund, including sales
commissions and account servicing fees paid to, or on account of,
account executives and indirect and overhead costs associated with
Distribution Activities, including central office and branch
expenses;
(b) amounts paid to Prusec for performing services under a selected
dealer agreement between Prusec and the Distributor for sale of
shares of the Fund, including sales commissions and account
servicing fees paid to, or on account of, agents and indirect and
overhead costs associated with Distribution Activities;
(c) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund
prospectuses, statements of additional information and periodic
financial reports and sales literature to persons other than current
shareholders of the Fund; and
(d) sales commissions (including account servicing fees) paid to, or on
account of,
4
<PAGE>
broker-dealers and financial institutions (other than Prudential
Securities and Prusec) which have entered into selected dealer
agreements with the Distributor with respect to shares of the Fund.
4. Quarterly Reports; Additional Information
An appropriate officer of the Fund will provide to the Board of Directors
or Trustees of the Fund for review, at least quarterly, a written report
specifying in reasonable detail the amounts expended for Distribution Activities
(including payment of the service fee) and the purposes for which such
expenditures were made in compliance with the requirements of Rule 12b-1. The
Distributor will provide to the Board of Directors or Trustees of the Fund such
additional information as the Board of Directors or Trustees shall from time to
time reasonably request, including information about Distribution Activities
undertaken or to be undertaken by the Distributor.
The Distributor will inform the Board of Directors or Trustees of the Fund
of the commissions and account servicing fees to be paid by the Distributor to
broker-dealers and financial institutions which have selected dealer agreements
with the Distributor.
5
<PAGE>
5. Effectiveness; Continuation
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Fund.
If approved by a vote of a majority of the outstanding voting securities
of the Fund, the Plan shall, unless earlier terminated in accordance with its
terms, continue in full force and effect thereafter for so long as such
continuance is specifically approved at least annually by a majority of the
Board of Directors or Trustees of the Fund and a majority of the Rule 12b-1
Directors or Trustees by votes cast in person at a meeting called for the
purpose of voting on the continuation of the Plan.
6. Termination
This Plan may be terminated at any time by vote of a majority of the Rule
12b-1 Directors or Trustees, or by vote of a majority of the outstanding voting
securities (as defined in the Investment Company Act) of the Fund.
7. Amendments
The Plan may not be amended to change the service and distribution fee to
be paid as provided for in Sections 2 and 3 hereof so as to
6
<PAGE>
increase materially the amounts payable under this Plan unless such amendment
shall be approved by the vote of a majority of the outstanding voting securities
(as defined in the Investment Company Act) of the Fund. All material amendments
of the Plan, shall be approved by a majority of the Board of Directors or the
Trustees of the Fund, including a majority of the Rule 12b-1 Directors or
Trustees, by votes cast in person at a meeting called for the purpose of voting
on the Plan.
8. Rule 12b-1 Directors or Trustees
While the Plan is in effect, the selection and nomination of the Rule
12b-1 Directors or Trustees who are not "interested persons" of the Fund
(non-interested Directors or Trustees) shall be committed to the discretion of
the Rule 12b-1 Directors or Trustees.
9. Records
The Fund shall preserve copies of the Plan and any related agreements and
all reports made pursuant to Section 4 hereof, for a period of not less than six
years from the date of effectiveness of the Plan, such agreements or reports,
and for at least the first two years in an easily accessible place.
7
<PAGE>
Dated: May 2, 1988,as amended and restated on July 1, 1993 and August 1, 1995.
8
TAX FREE MONEY
ANNUALIZED YIELD CALCULATION
DATE SHARES DIVIDEND RATE DIVDIDEND
- ---- ------ ------------- ---------
25-Dec-96 1.000000000 x 0.000008548 = 0.000085
26-Dec-96 1.000085481 x 0.000088488 = 0.000088
27-Dec-96 1.000173977 x 0.000266829 = 0.000267
30-Dec-96 1.000440852 x 0.000089297 = 0.000089
31-Dec-96 1.000530188 x 0.000088792 = 0.000089
- --------------------------------------------------------------------
1.000619027
===========
CURRENT YIELD
0.000619027429279353243 X 366/7 = 0.032366
========
= 3.24%
========
ANNUALIZED YIELD FORMULA
0.032894298656014551 = 0.0328942987 = 3.29%
============ ========
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 336,146,861
<INVESTMENTS-AT-VALUE> 336,146,861
<RECEIVABLES> 10,471,727
<ASSETS-OTHER> 70,706
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 6,430,564
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<OTHER-ITEMS-LIABILITIES> 6,450,042
<TOTAL-LIABILITIES> 0
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<PAID-IN-CAPITAL-COMMON> 333,808,688
<SHARES-COMMON-STOCK> 333,808,688
<SHARES-COMMON-PRIOR> 387,650,843
<ACCUMULATED-NII-CURRENT> 0
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<NET-ASSETS> (721,459,531)
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<EXPENSES-NET> 3,225,030
<NET-INVESTMENT-INCOME> 11,419,707
<REALIZED-GAINS-CURRENT> 2,446
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 11,422,153
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (11,422,153)
<NUMBER-OF-SHARES-SOLD> 1,087,199,969
<NUMBER-OF-SHARES-REDEEMED> (1,151,929,658)
<SHARES-REINVESTED> 10,887,534
<NET-CHANGE-IN-ASSETS> (53,842,155)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 2,016,151
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,209,743
<AVERAGE-NET-ASSETS> 403,230,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
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<AVG-DEBT-PER-SHARE> 0.00
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