AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 27, 1998
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. 22 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 23 [X]
(CHECK APPROPRIATE BOX OR BOXES)
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PRUDENTIAL TAX-FREE MONEY FUND, INC.
(Exact name of registrant as specified in charter)
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: (973) 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):
/x/ immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
Title of Securities Being Registered . . . Shares of common stock, par value
$.01 per share.
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<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
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PART A
<S> <C> <C>
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 Offered ........ Shareholder Investment Account; Net
Asset Value
Item 20. Tax Status ........................................................... Taxes, Dividends and Distributions
Item 21. Underwriters ......................................................... Distributor
Item 22. Calculation of Performance Data ...................................... Performance Information
Item 23. Financial Statements ................................................. Financial Statements
</TABLE>
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.
<PAGE>
Prudential Tax-Free Money Fund, Inc.
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Prospectus dated February 27, 1998
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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."
- --------------------------------------------------------------------------------
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing and is available at the Web
site of The Prudential Insurance Company of America (http://www.prudential.com).
Additional information about the Fund has been filed with the Securities and
Exchange Commission (the Commission) in a Statement of Additional Information,
dated February 27, 1998, 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. The
Commission maintains a Web site (http://www.sec.gov) that contains the Statement
of Additional Information, material incorporated by reference, and other
information regarding the Fund.
- --------------------------------------------------------------------------------
Investors are advised to read this Prospectus and retain it for future
reference.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION 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.
WHAT IS PRUDENTIAL TAX-FREE MONEY FUND, INC.?
Prudential Tax-Free Money Fund, Inc. 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 security. See "How the Fund Values its Shares" at page 11.
WHO MANAGES THE FUND?
Prudential Investments Fund Management LLC (PIFM 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% of the Fund's average daily net assets in excess of $1.5 billion. As
of January 31, 1998, PIFM served as manager or administrator to 64 investment
companies, including 42 mutual funds, with aggregate assets of approximately $63
billion. The Prudential Investment Corporation (PIC), doing business as
Prudential Investments (PI, the Subadviser or the investment adviser), furnishes
investment advisory services in connection with the management of the Fund under
a Subadvisory Agreement with PIFM. See "How the Fund is Managed--Manager" at
page 9.
2
<PAGE>
WHO DISTRIBUTES THE FUND'S SHARES?
Prudential Securities Incorporated (Prudential Securities or the
Distributor), 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 investment 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. Prudential Securities 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 11.
3
<PAGE>
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FUND EXPENSES
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<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
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 ........................................................................................... .155%
----
Total Fund Operating Expenses ............................................................................ .78%
====
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<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 $25 $43 $97
</TABLE>
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The above example is based on data for the Fund's fiscal year ended
December 31, 1997. The example should not be considered a representation of past
or future expenses. Actual expenses may be greater or less than those shown.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that an investor in the Fund will bear, whether
directly or indirectly. For more complete descriptions of the various costs and
expenses, see "How the Fund is Managed." "Other Expenses" include operating
expenses of the Fund, such as Directors' and professional fees, registration
fees, reports to shareholders, transfer agency and custodian fees.
4
<PAGE>
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FINANCIAL HIGHLIGHTS
(FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH OF THE YEARS INDICATED)
================================================================================
The following financial highlights with respect to each of the five years
ended December 31, 1997, 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 common stock 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.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988(b)
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of year ....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income and
realized gains ................ .030 .028 .031 .023 .018 .026 .041 .053 .056 .047
Dividends and distributions to
shareholders .................. (.030) (.028) (.031) (.023) (.018) (.026) (.041) (.053) (.056) (.047)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of year ... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN:(a) ............... 3.00% 2.84% 3.15% 2.31% 1.86% 2.63% 4.22% 5.42% 5.74% 4.83%
Ratios/Supplemental Data:
Net assets, end of year
(000) ........................ $329,812 $333,808 $387,651 $487,290 $601,622 $614,333 $616,867 $700,859 $653,268 $628,034
Average net assets (000) ...... $339,825 $403,230 $470,370 $644,481 $726,571 $669,588 $725,844 $701,869 $644,820 $705,161
Ratios to average net assets:(c)
Expenses, including
distribution fee ............. .78% .80% .85% .75% .74% .74% .75% .74% .78% .77%
Expenses, excluding
distribution fee ............. .66% .67% .72% .63% .62% .62% .63% .61% .66% .64%
Net investment income ......... 2.97% 2.83% 3.14% 2.26% 1.84% 2.60% 4.15% 5.30% 5.65% 4.79%
</TABLE>
- ----------
(a) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions.
(b) On May 2, 1988, Prudential Mutual Fund Management, Inc. succeeded The
Prudential Insurance Company of America as investment adviser and since
then has acted as manager of the Fund. See "Manager" in the Statement of
Additional Information.
(c) The ratios of expenses to average net assets for the fiscal 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.
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, 1997:
Value of hypothetical account at end of period ............ $1.000618253
Value of hypothetical account at beginning of period ...... 1.000000000
------------
Base period return ........................................ $ .000618253
============
CURRENT YIELD (.000618253 x (365/7)) ..................... 3.22%
EFFECTIVE ANNUAL YIELD, assuming weekly compounding ....... 3.28%
TAX EQUIVALENT YIELD (3.24% (divided by) (1-.396)) ........ 5.34%
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, 1997 was 64 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 and other
industry publications, business periodicals, rating services and market indices.
================================================================================
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 (AMT PAPER). THE FUND MAY INVEST UP TO 20% OF ITS NET
ASSETS IN AMT PAPER. SEE "TAXES, DIVIDENDS AND DISTRIBUTIONS." The Fund will
maintain a dollar-weighted average portfolio maturity of 90 days or less.
6
<PAGE>
THE FUND WILL INVEST IN HIGH QUALITY MUNICIPAL BONDS AND MUNICIPAL 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 Municipal 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 (the 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 Municipal 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 Municipal 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 Municipal 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 Municipal 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
Municipal 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 PIFM pursuant to an order of
the 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 Municipal Notes; however, because the Fund invests in securities
exempt from federal income tax, 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 Municipal 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>
SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest up to 10% of its total assets in shares of other
investment companies. To the extent the Fund does invest in securities of other
investment companies, shareholders may be subject to duplicate management and
advisory fees.
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company Act.
See "Investment Restrictions" in the Statement of Additional Information.
================================================================================
HOW THE FUND IS MANAGED
================================================================================
THE FUND HAS A BOARD OF DIRECTORS WHICH, IN ADDITION TO OVERSEEING THE
ACTIONS OF THE FUND'S MANAGER, SUBADVISER AND DISTRIBUTOR, AS SET FORTH BELOW,
DECIDES UPON MATTERS OF GENERAL POLICY. THE FUND'S MANAGER CONDUCTS AND
SUPERVISES THE DAILY BUSINESS OPERATIONS OF THE FUND. THE FUND'S SUBADVISER
FURNISHES DAILY INVESTMENT ADVISORY SERVICES.
For the year ended December 31, 1997, total expenses of the Fund as a
percentage of average net assets were .78%. See "Financial Highlights."
MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM 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% OF THE FUND'S AVERAGE DAILY NET ASSETS IN EXCESS OF $1.5 BILLION. PIFM is
organized as a New York limited liability company. For the fiscal year ended
December 31, 1997, the Fund paid management fees to PIFM of .50 of 1% of the
average net assets of the Fund. See "Manager" in the Statement of Additional
Information.
As of January 31, 1998, PIFM served as the manager to 42 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 $63 billion.
UNDER THE MANAGEMENT AGREEMENT WITH THE FUND, PIFM 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 PIFM AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC), DOING BUSINESS AS PRUDENTIAL INVESTMENTS (PI, THE SUBADVISER
OR THE INVESTMENT ADVISER), PI FURNISHES INVESTMENT ADVISORY SERVICES IN
CONNECTION WITH THE MANAGEMENT OF THE FUND AND IS REIMBURSED BY PIFM FOR ITS
REASONABLE COSTS AND EXPENSES INCURRED IN PROVIDING SUCH SERVICES. Under the
Management Agreement, PIFM continues to have responsibility for all investment
advisory services and supervises PI's performance of such services.
PIFM and PIC are indirect, wholly-owned subsidiaries of The Prudential
Insurance Company of America (Prudential), a major diversified insurance and
financial services company.
DISTRIBUTOR
PRUDENTIAL SECURITIES INCORPORATED (PRUDENTIAL SECURITIES OR THE
DISTRIBUTOR), 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.
9
<PAGE>
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 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, 1997, 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.
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.
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 PIFM. Its mailing address is P.O. Box
15005, New Brunswick, New Jersey 08906-5005.
YEAR 2000
The services provided to the Fund and the shareholders by the Manager, the
Distributor, the Transfer Agent and the Custodian depend on the smooth
functioning of their computer systems and those of their outside service
providers. Many computer software systems in use today cannot distinguish the
year 2000 from the year 1900 because of the way dates are encoded and
calculated. Such event could have a negative impact on handling securities
trades, payments of interest and dividends, pricing and account services.
Although, at this time, there can be no assurance that there will be no adverse
impact on the Fund, the Manager, the Distributor, the Transfer Agent and the
Custodian have advised the Fund that they have been actively working on
necessary changes to their computer systems to prepare for the year 2000 and
expect that their systems, and those of their outside service providers, will be
adapted in time for that event.
10
<PAGE>
================================================================================
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 4:30 P.M., NEW YORK TIME,
IMMEDIATELY AFTER THE DECLARATION OF DIVIDENDS ON EACH DAY THE FUND IS OPEN FOR
BUSINESS. THE FUND IS OPEN FOR BUSINESS EACH DAY THAT THE NEW YORK STOCK
EXCHANGE IS OPEN FOR TRADING.
The Fund will compute its NAV once daily on each of its business days,
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 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.
================================================================================
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 Municipal 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.The maximum long-term capital gains rate for individual shareholders for
11
<PAGE>
securities held between 12 and 18 months currently is 28% and for securities
held more than 18 months is 20%. The maximum tax rate for individual
shareholders for ordinary income is 39.6%. The maximum long-term capital gains
rate for corporate shareholders is currently the same as the maximum tax rate
for ordinary income.
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.
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). The Clinton
Administration budget plan includes a tax proposal, which, if enacted as
legislation, would eliminate the 30% withholding tax applicable to distributions
from the Fund to foreign investors. There can be no assurance that any such
legislation will be enacted or, if enacted, as to the effective date of such
legislation.
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.
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 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
advisor 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 OFFERS ONLY
CLASS A SHARES, WHICH ARE DESCRIBED IN THIS PROSPECTUS. 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
12
<PAGE>
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 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 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, 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., New York time, 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. Payments may be
made by cash, wire, check or through your brokerage account.
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.
13
<PAGE>
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.
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 advisor. 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 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, 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 benefit 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.
14
<PAGE>
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 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).
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 (State Street), 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, 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
15
<PAGE>
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 invested 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., New York time, 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., New York time, on the next
business day. Prudential Securities will have the use of free credit cash
balances until delivery to the Fund.
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 PIFM
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."
Prudential Securities clients for whom Prudential Securities has purchased
shares of the Fund may have these shares redeemed only through Prudential
Securities. Please contact your Prudential Securities financial advisor.
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
16
<PAGE>
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 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 CASHIER'S CHECK.
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, unless the client notifies Prudential Securities to the contrary. 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
17
<PAGE>
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.
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 or Class Z shares of the Prudential Mutual Funds. See "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.
18
<PAGE>
IF YOU HOLD SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, YOU MUST
EXCHANGE YOUR SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISOR.
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.
FREQUENT TRADING
The Fund and the other Prudential Mutual Funds are not intended to serve as
vehicles for frequent trading in response to short-term fluctuations in the
market. Due to the disruptive effect that market timing investment strategies
and excessive trading can have on efficient portfolio management, the Fund
reserves the right to refuse purchase orders and exchanges by any person, group
or commonly controlled accounts, if, in the Manager's sole judgment, such
person, group or accounts were following a market timing strategy or were
otherwise engaging in excessive trading (Market Timers).
To implement this authority to protect the Fund and its shareholders from
excessive trading, the Fund will reject all exchanges and purchases from a
Market Timer unless the Market Timer has entered into a written agreement with
the Fund or its affiliates pursuant to which the Market Timer has agreed to
abide by certain procedures, which include a daily dollar limit on trading. The
Fund may notify the Market Timer of rejection of an exchange or purchase order
subsequent to the day on which the order was placed.
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 advisor.
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
19
<PAGE>
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 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
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
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 International Bond 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 Total Return Fund, Inc.
EQUITY FUNDS
Prudential Balanced Fund
Prudential Distressed Securities Fund, Inc.
Prudential Index Series Fund
Prudential Bond Market Index Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Small-Cap Index 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 Active Balanced Fund
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Multi-Sector Fund, Inc.
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
MONEY MARKET FUNDS
o Taxable Money Market Funds
Cash Accumulation Trust
Liquid Assets Fund
National Money Market Fund
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 ........................................... 10
Custodian and Transfer and
Dividend Disbursing Agent ....................................... 10
HOW THE FUND VALUES ITS SHARES .................................... 11
TAXES, DIVIDENDS AND DISTRIBUTIONS ................................ 11
GENERAL INFORMATION ............................................... 12
Description of Common Stock ...................................... 12
Additional Information ........................................... 13
SHAREHOLDER GUIDE ................................................. 13
How to Buy Shares of the Fund .................................... 13
How to Sell Your Shares .......................................... 16
How to Exchange Your Shares ...................................... 18
Shareholder Services ............................................. 19
THE PRUDENTIAL MUTUAL FUND FAMILY ................................. A-1
================================================================================
MF103A
- --------------------------------------------------------------------------------
Class A: CUSIP No.: 74436P-10-3
- --------------------------------------------------------------------------------
Prudential
Tax-Free Money
Fund, Inc.
P R O S P E C T U S
FEBRUARY 27, 1998
WWW.PRUDENTIAL.COM
[LOGO] Prudential
Investments
<PAGE>
PRUDENTIAL TAX-FREE MONEY FUND, INC.
Statement of Additional Information
dated February 27, 1998
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
27, 1998. A copy of the Prospectus may be obtained from the Fund at the address
or telephone number noted above.
TABLE OF CONTENTS
CROSS-REFERENCE
TO PAGE IN
PAGE PROSPECTUS
---- ---------------
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-12 10
Purchase and Redemption of Fund Shares .................. B-13 13
Shareholder Investment Account .......................... B-14 20
Net Asset Value ......................................... B-16 11
Calculation of Yield .................................... B-17 6
Taxes, Dividends and Distributions ...................... B-17 12
Custodian and Transfer and Dividend Disbursing Agent .... B-18 11
Financial Statements .................................... B-19 --
Report of Independent Accountants ....................... B-28 --
Appendix I--Description of Tax-Exempt Security Ratings .. I-1 --
Appendix II--Information Relating to The Prudential ..... II-1 --
================================================================================
MF103B
<PAGE>
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 (AMT Paper).
The Fund may invest up to 20% of its net assets in AMT Paper. 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 MUNICIPAL 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.
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 Municipal 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
B-2
<PAGE>
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 Municipal 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 Municipal Note
meets the Fund's investment quality requirements.
PUTS. The Fund may purchase Municipal Bonds or Municipal Notes together
with the right to resell the Municipal Bonds or Municipal Notes to the seller at
an agreed-upon price or yield within a specified period prior to the maturity
date of the Bonds or Municipal 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 Municipal 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 Municipal 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 Municipal 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 Municipal Notes subject to the puts or tender options so that
the interest on the Bonds or Municipal Notes will be tax-exempt income to the
Fund.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Municipal Bonds and Municipal
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. 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 Municipal Note on a when-issued or delayed delivery basis, it
will record the transaction and reflect the value of the Bond or Municipal 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 liquid
assets equal in value to commitments for when-issued or delayed delivery
securities. 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
B-3
<PAGE>
purchase of Municipal Bonds or Municipal Notes on a when-issued or delayed
delivery basis. The Fund may invest in when-issued or delayed delivery
securities without other limitation.
ILLIQUID SECURITIES
The Fund may not hold more than 10% of its net assets in repurchase
agreements which have a maturity of longer than seven days or in other illiquid
securities, including securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (Securities Act),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities, convertible and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or an issuer's ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on resale to the
general public or to certain institutions may not be indicative of the liquidity
of such investments.
Rule 144A under the Securities Act allows for a broader institutional
trading market for securities otherwise subject to restriction on resale to the
general public. Rule 144A establishes a "safe harbor" from the registration
requirements of the Securities Act for resales of certain securities to
qualified institutional buyers. The investment adviser anticipates that the
market for certain restricted securities such as institutional commercial paper
and foreign securities will expand further as a result of this regulation and
the development of automated systems for the trading, clearance and settlement
of unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc. (NASD).
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act, commercial paper and municipal lease obligations for which there
is a readily available market will not be deemed to be illiquid. The investment
adviser will monitor the liquidity of such restricted securities subject to the
supervision of the Board of Directors. In reaching liquidity decisions, the
investment adviser will consider, inter alia, the following factors: (1) the
frequency of trades and quotes for the security; (2) the number of dealers
wishing to purchase or sell the security and the number of other potential
purchasers; (3) dealer undertakings to make a market in the security; and (4)
the nature of the security and the nature of the marketplace trades (e.g., the
time needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer). With respect to municipal lease obligations, the
investment adviser will also consider: (1) the willingness of the municipality
to continue, annually or biannually, to appropriate funds for payment of the
lease; (2) the general credit quality of the municipality and the essentiality
to the municipality of the property covered by the lease; (3) in the case of
unrated municipal lease obligations, an analysis of factors similar to that
performed by nationally recognized statistical rating organizations in
evaluating the credit quality of a municipal lease obligation, including (i)
whether the lease can be cancelled; (ii) if applicable, what assurance there is
that the assets represented by the lease can be sold; (iii) the strength of the
lessee's general credit (e.g., its debt, administrative, economic and financial
characteristics); (iv) the likelihood that the municipality will discontinue
appropriating funding for the leased property because the property is no longer
deemed essential to the operations of the municipality (e.g., the potential for
an event of nonappropriation); (v) the legal recourse in the event of failure to
appropriate; and (4) any other factors unique to municipal lease obligations as
determined by the investment adviser. With respect to commercial paper that is
issued in reliance on Section 4(2) of the Securities Act (1) it must be rated in
one of the two highest 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 Municipal Notes depends on the terms and
B-4
<PAGE>
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 primarily include 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 Municipal Notes" under
"Investment Objective and Policies" for the definition of an issuer.
(2) Make short sales of securities.
(3) Purchase securities on margin, except for such short-term credits as
are necessary for the clearance of purchases and sales of portfolio securities.
(4) Borrow money, except that the Fund may borrow for temporary purposes in
amounts not exceeding 5% of the market or other fair value (taken at the lower
of cost or current value) of its total assets (not including the amount
borrowed). Any such borrowings will be made only from banks. Secured temporary
borrowings may take the form of reverse repurchase agreements, pursuant to which
the Fund would sell portfolio securities for cash and simultaneously agree to
repurchase them at a specified date for the same amount of cash plus an interest
component. The Fund would maintain, in a segregated account with its custodian,
liquid assets equal in value to the amount owed.
(5) Pledge its assets or assign or otherwise encumber them in excess of 10%
of its assets (taken at market or other fair value at the time of pledging) and
then only to secure borrowings effected within the limitations set forth in
restriction (4).
(6) Engage in the underwriting of securities.
(7) Purchase or sell real estate mortgage loans, although it may purchase
Municipal Bonds or Municipal 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.
B-5
<PAGE>
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.
<TABLE>
<CAPTION>
DIRECTORS AND OFFICERS
POSITION WITH PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE(1) FUND DURING PAST FIVE YEARS
- ------------------------ ------------- ----------------------
<S> <C> <C>
Edward D. Beach (73) Director President and Director of BMC Fund, Inc., a closed-end
investment company; previously, Vice Chairman of
Broyhill Furniture Industries, Inc.; Certified Public
Accountant; Secretary and Treasurer of Broyhill Family
Foundation, Inc.; Member of the Board of Trustees of
Mars Hill College and Director of The High Yield Income
Fund, Inc.
Stephen C. Eyre (75) Director Executive Director of The John A. Hartford Foundation,
Inc. (charitable foundation) (May 1985 through December
1997); Director of Faircom, Inc.; and Trustee Emeritus
of Pace University.
Delayne Dedrick Gold (59) Director Marketing and Management Consultant; Director of The High
Yield Income Fund, Inc.
* Robert F. Gunia (51) Director Vice President, Prudential Investments (since September
1997); Executive Vice President and Treasurer (since
December 1996), Prudential Investments Fund Management
LLC (PIFM); Senior Vice President (since March 1987) of
Prudential Securities Incorporated (Prudential
Securities); formerly Chief Administrative Officer (July
1990-September 1996), Director (January 1989-September
1996), and Executive Vice President, Treasurer and Chief
Financial Officer (June 1987- September 1996) of
Prudential Mutual Fund Management, Inc. (PMF); Vice
President and Director (since May 1989) of The Asia
Pacific Fund, Inc.; Director of The High Yield Income
Fund, Inc.
Don G. Hoff (62) Director Chairman and Chief Executive Officer (since 1980) of
Intertec, Inc. (investments); Chairman and Chief
Executive Officer of The Lamaur Corporation, Inc.;
Director of Innovative Capital Management, Inc. and The
Greater China Fund, Inc.; and Chairman and Director of
The Asia Pacific Fund, Inc.
Robert E. LaBlanc (63) Director President (since 1981) of Robert E. LaBlanc Associates,
Inc. (telecommunications); formerly General Partner at
Salomon Brothers and Vice-Chairman of Continental
Telecom; Director of Storage Technology Corporation,
Titan Corporation, Salient 3 Communications, Inc. and
Tribune Company; and Trustee of Manhattan College.
B-6
<PAGE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE(1) FUND DURING PAST FIVE YEARS
- ------------------------ ------------- ----------------------
<S> <C> <C>
* Mendel A. Melzer, Director Chief Investment Officer (since October 1996) of
CFA, (37) Prudential Mutual Funds; formerly Chief Financial
751 Broad Street Officer (November 1995-October 1996) of Prudential
Newark, NJ 07102 Investments; 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)
and Senior Vice President of Prudential Capital
Corporation (July 1989-April 1991); Chairman and
Director of Prudential Series Fund, Inc.; and Director
of The High Yield Income Fund, Inc.
* Richard A. Redeker (54) President and Employee of Prudential Investments; formerly President,
751 Broad Street Director Chief Executive Officer and Director (October
Newark, NJ 07102 1993-September 1996) of PMF, Executive Vice President,
Director and Member of the Operating Committee (October
1993-September 1996), Prudential Securities, Director
(October 1993-September 1996) of Prudential Securities
Group, Inc. (PSG), Executive Vice President, The
Prudential Investment Corporation (January
1994-September 1996), Director (January 1994-September
1996), Prudential Mutual Fund Distributors, Inc. and
Prudential Mutual Fund Services, Inc. and Senior
Executive Vice President and Director of Kemper
Financial Services, Inc. (September 1978-September
1993); and President and Director of The High Yield
Income Fund, Inc.
Robin B. Smith (58) Director Chairman and Chief Executive Officer (since August 1996),
of Publishers Clearing House; formerly President and
Chief Executive Officer (January 1989-August 1996) and
President and Chief Operating Officer (September
1981-December 1988) of Publishers Clearing House;
Director of BellSouth Corporation, Texaco Inc., Springs
Industries Inc. and Kmart Corporation.
Stephen Stoneburn (54) Director President and Chief Executive Officer (since June 1996) of
Quadrant Media Corp. (a publishing company); formerly
President (June 1995-June 1996) of Argus Integrated
Media, Inc.; Senior Vice President and Managing Director
(January 1993-1995) Cowles Business Media; Senior Vice
President (January 1991-1992) and Publishing Vice
President (May 1989- December 1990) of Gralla
Publications (a division of United Newspapers, U.K.);
and Senior Vice President of Fairchild Publications,
Inc.
Nancy H. Teeters (67) Director Economist; formerly Vice President and Chief Economist
(March 1986- June 1990) of International Business
Machines Corporation; member of the Board of Governors
of the Horace Rackham School of Graduate Studies of the
University of Michigan; Director (since July 1991) of
Inland Steel Corporation; and Director of The High Yield
Income Fund, Inc.
B-7
<PAGE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE(1) FUND DURING PAST FIVE YEARS
- ------------------------ ------------- ----------------------
<S> <C> <C>
S. Jane Rose (52) Secretary Senior Vice President (since December 1996) of PIFM;
Senior Vice President and Senior Counsel (since July
1992) of Prudential Securities; formerly Senior Vice
President (January 1991-September 1996) and Senior
Counsel (June 1987-September 1996) of PMF
Robert C. Rosselot (37) Assistant Assistant General Counsel (since September 1997) of PIFM.
Secretary Formerly, partner with the firm of Howard & Howard,
Bloomfield Hills, Michigan (December 1995-September
1997) and, prior thereto, Corporate Counsel, Federated
Investors (1990-1995).
Grace C. Torres (38) Treasurer and First Vice President (since December 1996) of PIFM; First
Principal Vice President (since March 1994) of Prudential
Financial and Securities; formerly First Vice President (March
Accounting 1994-September 1996), Prudential Mutual Fund Management,
Officer Inc. and Vice president (July 1989-March 1994) of
Bankers Trust Corporation.
Stephen M. Ungerman (44) Assistant Tax Director (since March 1996) Prudential Investments and
Treasurer the Private Asset Group of The Prudential Insurance
Company of America; formerly First Vice President
(February 1993-September 1996) Prudential Mutual Fund
Management, Inc. and Senior Tax Manager (1981-January
1993) Price Waterhouse LLP.
</TABLE>
- ---------------
(1) Unless otherwise noted the address for each of the above persons is c/o
Prudential Investments 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 Securities or PIFM.
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.
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 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 Fund pays each of its Directors who is not an affiliated person of PIFM
annual compensation of $2,000, in addition to certain out-of-pocket expenses.
The amount of annual compensation paid to each Director may change as a result
of the introduction of additional funds upon which the Director will be asked to
serve.
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 following table sets forth the aggregate compensation paid by the Fund
for the fiscal year ended December 31, 1997 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
PIFM (Fund Complex) for the calendar year ended December 31, 1997.
B-8
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
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 ......................... $2,000 None N/A $135,000(38/63)*
Stephen C. Eyre--Director ......................... $2,000 None N/A $ 45,000(12/13)*
Delayne D. Gold--Director ......................... $2,000 None N/A $135,000(38/63)*
Robert F. Gunia (1)--Director ..................... -- None N/A --
Don G. Hoff--Director ............................. $2,000 None N/A $ 45,000(12/13)*
Robert F. LaBlanc--Director ....................... $2,000 None N/A $ 45,000(12/13)*
Mendel A. Melzer (1)--Director .................... -- None N/A --
Richard A. Redeker (1)--Director .................. -- None N/A --
Robin B. Smith--Director .......................... $2,000 None N/A $ 90,000(27/34)*
Stephen Stoneburn--Director ....................... $2,000 None N/A $ 45,000(12/13)*
Nancy H. Teeters--Director ........................ $2,000 None N/A $ 90,000(26/50)*
</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 Fund Complex.
(2) Total compensation from all of the funds in the Fund Complex for the
calendar year ended December 31, 1997, including amounts deferred at the
election of Directors under the funds' Deferred Compensation Plans.
Including accrued interest, total deferred compensation amounted to
$139,081 for Robin B. Smith.
As of February 6, 1998, the Directors and officers of the Fund, as a
group, owned less than 1% of the outstanding common stock of the Fund.
As of February 6, 1998, Prudential Securities was the record holder for
other beneficial owners of 317,283,040 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 Investments Fund Management LLC (PIFM
or the Manager) (formerly, Prudential Mutual Fund Management LLC), Gateway
Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077). PIFM serves
as manager to all of the other investment companies that, together with the
Fund, comprise the Prudential Mutual Funds. See "How the Fund is Managed --
Manager" in the Prospectus. As of January 31, 1998, PIFM, managed and/or
administered open-end and closed-end management investment companies with assets
of approximately $63 billion. According to the Investment Company Institute,
as of December 31, 1997, the Prudential Mutual Funds were the 17th largest
family of mutual funds in the United States.
PIFM is a subsidiary of Prudential Securities. Prudential Mutual Fund
Services LLC (PMFS or the Transfer Agent), a wholly-owned subsidiary of PIFM,
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), PIFM, subject to the supervision of the Fund's Board of Directors
and in conformity with the stated policies of the Fund, manages both the
investment operations of the Fund and the composition of the Fund's portfolio,
including the purchase, retention, disposition and loan of securities. In
connection therewith, PIFM is obligated to keep certain books and records of the
Fund. PIFM 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 PMFS, the Fund's
transfer and dividend disbursing agent. The management services of PIFM for the
Fund are not exclusive under the terms of the Management Agreement and PIFM is
free to, and does, render management services to others.
B-9
<PAGE>
For its services, PIFM 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 PIFM, 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 PIFM
will be reduced by the amount of such excess. Reductions in excess of the total
compensation payable to PIFM will be paid by PIFM to the Fund. No such
reductions were required during the fiscal year ended December 31, 1997.
Currently, the Fund believes that there are no such expense limitations.
In connection with its management of the corporate affairs of the Fund,
PIFM 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 PIFM or the
Fund's investment adviser;
(b) all expenses incurred by PIFM 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 the
subadvisory agreement between PIFM 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, including the preparation and printing of the Fund's registration
statements and prospectuses for such purposes, and paying the fees and expenses
of notice filings made in accordance with state securities laws, (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 PIFM 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, 1997, 1996 and 1995, the Fund paid
management fees to PIFM (or its predecessors) of 1,699,125, $2,016,151 and
$2,351,851, respectively.
PIFM has entered into the Subadvisory Agreement with PI (the Subadviser), a
wholly-owned subsidiary of Prudential. The Subadvisory Agreement provides that
PI will 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. PIFM continues to have responsibility for all investment
advisory services pursuant to the Management Agreement and supervises PI's
performance of such services. PI is reimbursed by PIFM for the reasonable costs
and expenses incurred by the PI in furnishing services.
B-10
<PAGE>
The Subadviser 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, PIFM 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 by the Board of Directors at least
annually in accordance with the requirements of the Investment Company Act.
DISTRIBUTOR
Prudential Securities Incorporated (Prudential Securities or the
Distributor), One Seaport Plaza, New York, New York 10292, acts as the
distributor of the shares of the Fund.
Prudential Securities is engaged in the securities underwriting and
securities and commodities brokerage business and is a member of the New York
Stock Exchange, other major securities and commodities exchanges and the
National Association of Securities Dealers, Inc. (NASD). Prudential Securities
is also engaged in the investment advisory business. Prudential Securities is a
wholly-owned subsidiary of Prudential Securities Group, Inc., which is an
indirect, wholly-owned subsidiary of Prudential. The services it provides to the
Fund are discussed in the Fund's Prospectus. See "How the Fund is
Managed--Distributor."
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, 1997, Prudential Securities incurred
distribution expenses in the aggregate of $424,781 all of which was recovered
through the distribution fee paid by the Fund to Prudential Securities. 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
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<PAGE>
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.
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.
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. "Portfolio
Securities may not be purchased from any underwriting or selling syndicate of
which Prudential Securities (or any affiliate), during the existence of the
syndicate, is a principal underwriter (as defined in the Investment Company
Act), except in accordance with the rules of the SEC." The Fund will not deal
with Prudential Securities in any transaction in which Prudential Securities
acts as principal. Purchases and sales of securities on a securities exchange,
while infrequent, will be effected through brokers who charge a commission for
their services. Orders may be directed to any broker including, to the extent
and in the manner permitted by applicable law, Prudential Securities.
In placing orders for portfolio securities of the Fund, the Manager is
required to give primary consideration to obtaining the most favorable price and
efficient execution. This means that the Manager will seek to execute each
transaction at a price and commission, if any, which provides the most favorable
total cost or proceeds reasonably attainable in the circumstances.
While the Manager generally seeks reasonably competitive spreads or
commissions, the Fund will not necessarily be paying the lowest spread or
commission available. Within the framework of the policy of obtaining most
favorable price and efficient execution, the Manager will consider research and
investment services provided by brokers or dealers who effect or are parties to
portfolio transactions of the Fund, the Manager or the Manager's other clients.
Such research and investment services are those which brokerage houses
customarily provide to institutional investors and include statistical and
economic data and research reports on particular municipalities and industries.
Such services are used by the Manager in connection with all of its investment
activities, and some of such services obtained in connection with the execution
of transactions for the Fund may be used in managing other investment accounts.
Conversely, brokers furnishing such services may be selected for the execution
of transactions of such other accounts, whose aggregate assets are far larger
than the Fund, and the services furnished by such brokers may be used by the
Manager in providing investment management for the Fund. Commission rates are
established pursuant to negotiations with the broker based on the quality and
quantity of execution services provided by the broker in light of generally
prevailing rates. The Manager is authorized to pay higher commissions on
brokerage transactions for the Fund to brokers other than Prudential Securities
in order to secure the research and investment services described above, subject
to the primary consideration of obtaining the most favorable price and efficient
execution in the circumstances and subject to review by the Fund's Board of
Directors from time to time as to the extent and continuation of this practice.
The allocation of orders among brokers and the commission rates paid are
reviewed periodically.
Subject to the above considerations, the Manager may use Prudential
Securities as a broker for the Fund. In order for Prudential Securities to
effect any portfolio transactions for the Fund, the commissions, fees or other
remuneration received by Prudential Securities must be reasonable and fair
compared to the commissions, fees or other remuneration paid to other brokers in
connection with comparable transactions involving similar securities being
purchased or sold on a securities exchange during a comparable period of time.
This standard would allow Prudential Securities to receive no more than the
remuneration which would be expected to be received by an unaffiliated broker in
a commensurate arm's-length transaction. Furthermore, the Board of Directors of
the Fund, including a majority of the Directors who are not "interested"
directors, has adopted procedures which are reasonably designed to provide that
any commissions, fees or other remuneration paid to Prudential Securities are
consistent with the foregoing standard. Brokerage transactions with Prudential
Securities are also subject to such fiduciary standards as may be imposed upon
Prudential Securities by applicable law.
The Fund paid no brokerage commissions for the years ended December 31,
1996, 1995 and 1994.
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<PAGE>
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 (NAV) 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 NAV determined as of 4:30 P.M., New York time.
General information concerning redemption of shares is found in the Prospectus
under "Shareholder Guide--How to Sell Your Shares."
Investors who purchase shares directly from PMFS may use the following
procedures:
CHECK REDEMPTION. At a shareholder's request, State Street Bank and Trust
Company (State Street) will establish a personal checking account for the
shareholder. Checks drawn on this account can be made payable to the order of
any person in any amount greater than $500. The payee of the check may cash or
deposit it like any other check drawn on a bank. When such check is presented to
State Street for payment, State Street presents the check to the Fund as
authority to redeem a sufficient number of shares in the shareholder's account
to cover the amount of the check. This enables the shareholder to continue
earning daily dividends until the check is cleared. Canceled checks are returned
to the shareholder by State Street.
Shareholders are subject to State Street's rules and regulations governing
such checking accounts, including the right of State Street not to honor checks
in amounts exceeding the value of the shareholder's account at the time the
check is presented for payment.
Shares for which certificates have been issued are not available for
redemption to cover checks. A shareholder should be certain that adequate shares
for which certificates have not been issued are in his or her account to cover
the amount of the check. Also, shares purchased by check are not available to
cover checks until 10 calendar days after receipt of the purchase check by PMFS.
See "Shareholder Guide--How to Sell Your Shares" 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 NAV 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 10 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 LLC, at the address set
forth above.
B-13
<PAGE>
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to
a person other than the record owner, (c) are to be sent to an address other
than the address on the Transfer Agent's records or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the redemption
request and on the certificates, if any, or stock power must be guaranteed by an
"eligible guarantor institution." An "eligible guarantor institution" includes
any bank, broker, dealer or credit union. The Transfer Agent reserves the right
to request additional information from, and make reasonable inquiries of, any
eligible guarantor institution. 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
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 NAV. 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 NAV 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 NAV next determined after receipt of an order in
proper form
B-14
<PAGE>
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. (Class A shares)
Prudential Tax-Free Money Fund, Inc.
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 Prudential Mutual 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."
SYSTEMATIC WITHDRAWAL PLAN
A systematic 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 NAV 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.
B-15
<PAGE>
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.
TAX DEFERRED RETIREMENT ACCOUNTS
INDIVIDUAL RETIREMENT ACCOUNTS. An Individual retirement account (IRA)
permits the deferral of federal income tax on income earned in the account until
the earnings are withdrawn. The following chart represents a comparison of the
earnings in a personal savings account with those in an IRA, assuming a $2,000
annual contribution, an 8% rate of return and a 39.6% federal income tax bracket
and shows how much more retirement income can accumulate within an IRA as
opposed to a taxable individual savings account.
TAX-DEFERRED COMPOUNDING(1)
CONTRIBUTIONS PERSONAL
MADE OVER SAVINGS IRA
------------- --------- -------
10 years ........................................ $26,165 $31,291
15 years ........................................ 44,675 58,649
20 years ........................................ 68,109 98,846
25 years ........................................ 97,780 157,909
30 years ........................................ 135,346 244,692
- ----------
(1) The chart is for illustrative purposes only and does not represent the
performance of the Fund or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated.
Earnings in a traditional IRA account will be subject to tax when withdrawn
from the account. Distributions from a Roth IRA which meet the conditions
required under the Internal Revenue Code will not be subject to tax upon
withdrawal from the account.
NET ASSET VALUE
The NAV 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
B-16
<PAGE>
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 NAV 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 NAV 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 shares have been received or days on which
changes in the value of the Fund's securities do not affect NAV. The New York
Stock Exchange is closed on the following holidays: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
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.
| 365/7|
Effective yield = |(base period return + 1) | - 1
The Fund may also calculate the tax equivalent yield over a 7-day period.
The tax equivalent yield will be determined by first computing the current yield
as discussed above. The Fund will then determine what portion of the yield is
attributable to securities, the income of which is exempt for federal income tax
purposes. This portion of the yield will then be divided by one minus 39.6% (the
assumed maximum tax rate for individual taxpayers not subject to Alternative
Minimum Tax) and then added to the portion of the yield that is attributable to
other securities.
Comparative performance information may be used from time to time in
advertising or marketing the Fund's shares, including data from Lipper
Analytical Services, Inc., Donoghue's Money Fund Report, The Bank Rate Monitor,
other industry publications, business periodicals, rating services and market
indices.
The Fund's yield fluctuates, and an annualized yield quotation is not a
representation by the Fund as to what an investment in the Fund will actually
yield for any given period. Yield for the Fund will vary based on a number of
factors including changes in market conditions, the level of interest rates and
the level of Fund income and expenses.
TAXES, DIVIDENDS AND DISTRIBUTIONS
The Fund has elected to qualify and intends to remain qualified as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended ("Internal Revenue Code"). Qualification as a regulated
investment company under the Internal Revenue Code requires, among other things,
that the Fund (a) derive at least 90% of its annual gross income (without offset
for losses from the sale or other disposition of securities or foreign
currencies) from interest, payments with respect to securities loans, dividends
and gains from the sale or other disposition of securities or foreign currencies
and certain financial futures, options and forward contracts thereon; and (b)
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.
B-17
<PAGE>
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,
exempt-interest dividends attributable to interest on tax-exempt obligations,
whether or not private activity bonds, that are received 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 and (ii) in determining the foreign branch profits tax imposed on the
effectively connected earnings and profits (with adjustments) of United States
branches of foreign corporations. Under tax proposals in the Clinton
Administration's budget plan, the environmental tax imposed on corporations
equal to 0.12 percent of a corporation's modified alternative minimum taxable
income in excess of $2 million, would be reinstated. Exempt-interest dividends
would be taken into account for the purposes of such tax.
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.
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.
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 (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as the Transfer and Dividend Disbursing Agent of the Fund.
It is a wholly-owned subsidiary of PIFM. 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, 1997, the Fund incurred fees of $279,253 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-18
<PAGE>
Portfolio of Investments as of
December 31, 1997 PRUDENTIAL TAX-FREE MONEY FUND, INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description(a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
California--1.4%
California Higher Ed. Ln. Auth.,
Student Ln. Rev., A.N.N.M.T., Ser. 87A VMIG1 4.00% 7/01/98 $ 4,600 $ 4,600,000
- ------------------------------------------------------------------------------------------------------------------------------
Colorado--5.1%
Colorado Hlth. Facs. Auth. Rev., Frasier Meadows Manor,
F.R.W.D.,
Ser. 94 NR 4.25 1/02/98 6,950 6,950,000
Colorado Hsg. Fin. Auth., Eagle Trust, F.R.W.D.S., Ser.
94C(e) A-1 4.27 1/02/98 10,000 10,000,000
------------
16,950,000
- ------------------------------------------------------------------------------------------------------------------------------
Connecticut--0.9%
Connecticut Spl. Assmt., Unemploy. Comp. Rev., A.N.N.M.T.,
Ser 93C VMIG1 3.90 7/01/98 3,000 3,000,000
- ------------------------------------------------------------------------------------------------------------------------------
District Of Columbia--3.9%
Dist. of Columbia,
T.R.A.N., Ser. 98B MIG1 4.50 9/30/98 6,100 6,127,532
T.R.A.N., Ser. 98C MIG1 5.00 9/30/98 3,500 3,529,006
Dist. of Columbia G.O. Var. Rate,
F.R.D.D., Ser. 92A-3 VMIG1 5.15 1/02/98 500 500,000
F.R.D.D., Ser. 92A-4 VMIG1 5.15 1/02/98 600 600,000
F.R.D.D., Ser. 92A-5 VMIG1 5.15 1/02/98 2,000 2,000,000
------------
12,756,538
- ------------------------------------------------------------------------------------------------------------------------------
Florida--1.4%
Florida Hsg. Fin. Agy., Multifamily Hsg. Rev., Oaks at Mill
Creek, A.N.N.O.T A-1* 3.85 11/01/98 1,750 1,750,000
Pinellas Cnty. Hsg. Fin. Auth., Single Family Mtg. Rev., Ser.
97B VMIG1 3.80 2/01/98 2,840 2,840,000
------------
4,590,000
- ------------------------------------------------------------------------------------------------------------------------------
Georgia--8.7%
Cobb Cnty. Dev. Auth., Inst. of Nuclear Pwr., F.R.W.D., Ser.
92 NR 4.20 1/07/98 12,805 12,805,000
Fulton Cnty. Dev. Auth.,
Atlanta Jewish Federation, Ser. 96 VMIG1 4.20 1/02/98 5,345 5,345,000
Siemen's Energy Inc., F.R.W.D., Ser. 94 VMIG1 4.25 1/02/98 7,750 7,750,000
Monroe Cnty. Dev. Auth. Poll., Oglethorpe Pwr. Corp.,
S.E.M.O.T.,
Ser. 96 NR 3.90 5/01/98 2,670 2,670,000
------------
28,570,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-19
<PAGE>
Portfolio of Investments as of
December 31, 1997 PRUDENTIAL TAX-FREE MONEY FUND, INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description(a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Illinois--11.6%
Chicago G.O., A.N.N.M.T., Ser. 97 VMIG1 3.65% 2/05/98 $11,000 $ 11,000,000
Illinois Dev. Fin. Auth. Rev., Adventist Hlth Sys., F.R.W.D.,
Ser. 97A VMIG1 4.00 1/02/98 9,200 9,200,000
Illinois Hlth. Fac. Auth.,
Evanston Hsp., S.E.M.M.T., Ser. 95 VMIG1 4.00 5/15/98 7,000 7,000,000
Evanston Hsp., S.E.M.M.T., Ser. 92 VMIG1 3.85 11/30/98 9,000 9,000,000
Southwestern Ill. Dev. Auth., Shell Oil Co. Wood River Proj.,
F.R.D.D., Ser. 95 VMIG1 5.10 1/02/98 1,900 1,900,000
------------
38,100,000
- ------------------------------------------------------------------------------------------------------------------------------
Indiana--1.5%
Indiana St. Dev. Fin. Auth. Rev., Edl. Facs., Covenant High
Sch.,
Ser. 96 NR 4.20 1/02/98 5,000 5,000,000
- ------------------------------------------------------------------------------------------------------------------------------
Louisiana--3.4%
West Baton Rouge Parish Ind. Dev. Rev.,
Dow Chemical Co., F.R.D.D., Ser. 94B P1 5.05 1/02/98 8,200 8,200,000
Dow Chemical Co., T.E.C.P., Ser. 91A P1 3.80 1/08/98 3,000 3,000,000
------------
11,200,000
- ------------------------------------------------------------------------------------------------------------------------------
Maryland--1.4%
Maryland Econ. Dev. Corp., F.R.W.D., Ser. 95 A-1 4.20 1/02/98 4,600 4,600,000
- ------------------------------------------------------------------------------------------------------------------------------
Massachusetts--1.5%
Massachusetts Bay Trans. Auth., Ser. 97A MIG2 4.25 2/27/98 5,000 5,001,674
- ------------------------------------------------------------------------------------------------------------------------------
Michigan--3.8%
Detroit City Sch. Dist., G.O., Ser. 97 SP1+* 4.50 5/01/98 5,000 5,009,553
Grand Rapids Econ. Dev. Corp., Ind. Dev. Rev., F.R.W.D., Ser.
92 Aa2 4.20 1/02/98 7,500 7,500,000
------------
12,509,553
- ------------------------------------------------------------------------------------------------------------------------------
Minnesota--3.1%
Bloomington Coml. Dev. Rev., 94th Street Assoc. Proj.,
F.R.W.D.,
Ser. 85 A1+* 4.20 1/02/98 5,245 5,245,000
Bloomington Port Auth. Tax Rev., F.R.W.D., Ser. 95A VMIG1 4.20 1/02/98 5,000 5,000,000
------------
10,245,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-20
<PAGE>
Portfolio of Investments as of
December 31, 1997 PRUDENTIAL TAX-FREE MONEY FUND, INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description(a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
New Hampshire--2.6%
New Hampshire Bus. Fin. Auth.,
New England Pwr. Co. Proj., T.E.C.P., Ser. 90B VMIG1 3.85% 3/16/98 $ 3,500 $ 3,500,000
Whellabrator, F.R.W.D., Ser. 97A A1+* 3.70 1/07/98 5,000 5,000,000
------------
8,500,000
- ------------------------------------------------------------------------------------------------------------------------------
New Jersey--0.7%
New Jersey Econ. Dev. Auth. Rev., Nwk. Recl. Fac.,
A.N.N.M.T.,
Ser. 97 A-1+ 3.95 12/15/98 2,300 2,300,000
- ------------------------------------------------------------------------------------------------------------------------------
New York--5.3%
New York City Wtr. Fin. Auth., T.E.C.P., Ser. 97 P-1 3.80 3/11/98 12,000 12,000,000
New York St., General Obligation, T.E.C.P., Ser. 5 P-1 3.80 2/19/98 5,500 5,500,000
------------
17,500,000
- ------------------------------------------------------------------------------------------------------------------------------
North Carolina--2.2%
Rockingham Cnty. Ind. Facs., Poll. Ctl. Rev., Phillip Morris
Proj., F.R.W.D. P1 4.00 1/07/98 7,200 7,200,000
- ------------------------------------------------------------------------------------------------------------------------------
Ohio--5.4%
EastLake Indl. Dev. Rev., Astro Model Dev. Corp., F.R.W.D.,
Ser. 96 NR 4.25 1/02/98 6,500 6,500,000
Medina Cnty. Hsg. Rev., Oaks At Medina Proj., F.R.W.D. NR 4.15 1/02/98 4,100 4,100,000
Ohio Wtr. Dev. Auth., Ohio Edison Co. Proj., A.N.N.O.T., Ser.
88A VMIG 4.10 5/01/98 7,280 7,280,000
------------
17,880,000
- ------------------------------------------------------------------------------------------------------------------------------
Oklahoma--2.5%
Tulsa Pkg. Auth. Rev., Williams Ctr. Proj., S.E.M.M.T., Ser.
87A VMIG1 3.80 5/15/98 8,210 8,210,000
- ------------------------------------------------------------------------------------------------------------------------------
Oregon--3.8%
Oregon St Hsg. Comm. Serv. Dept., Single Family Mtg. Rev.,
Ser. K MIG1 3.875 12/03/98 5,000 5,000,000
Oregon St. Econ. Dev. Rev., KRC Western Inc. Proj., Ser. 178 Aa2 4.30 1/02/98 7,650 7,650,000
------------
12,650,000
- ------------------------------------------------------------------------------------------------------------------------------
Pennsylvania--2.7%
Dauphin Cnty. Gen. Auth. Rev., Ed + Hlth. Prog., F.R.W.D.,
Ser. 97 VMIG1 4.20 1/02/98 4,300 4,300,000
Montgomery Cnty. Higher Ed. & Hlth. Auth. Rev., F.R.W.D.,
Ser. 96A A-1 4.00 1/07/98 4,600 4,600,000
------------
8,900,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-21
<PAGE>
Portfolio of Investments as of
December 31, 1997 PRUDENTIAL TAX-FREE MONEY FUND, INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description(a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
South Dakota--4.5%
Brookings SD,
Cert. of Part., Q.T.R.M.T., Ser. 97 NR 4.00% 4/09/98 $ 985 $ 985,000
Cert. of Part., Q.T.R.M.T., Ser. 97 NR 4.00 4/09/98 1,140 1,140,000
Cert. of Part., Q.T.R.M.T., Ser. 97 NR 4.00 4/09/98 1,530 1,530,000
South Dakota Ed. Lns. Inc. Corp., Student Ln. Rev.,
Q.T.R.M.T.,
Ser. 97A NR 3.85 2/04/98 3,500 3,500,000
South Dakota Hsg. Dev. Auth.,
Home Ownership Mtg., Ser. 97D VMIG1 3.85 3/26/98 4,810 4,810,000
Home Ownership Mtg., Ser. H MIG1 3.95 8/13/98 3,000 3,000,000
------------
14,965,000
- ------------------------------------------------------------------------------------------------------------------------------
Tennessee--1.5%
Metro Govt Nashville & Davidson Cnty., Ind. Dev. Brd. Rev.,
Multifamily Hsg., F.R.W.D. Ser. 89 A-1+ 4.30 1/02/98 5,000 5,000,000
- ------------------------------------------------------------------------------------------------------------------------------
Texas--9.8%
Boatmen's St. Louis Grantor Trust, Port Arthur TX IDC, CTF
Part., F.R.W.D., Ser. 96A A-1 4.15 1/07/98 3,415 3,415,000
Brazos Rvr. Auth. Tx., Poll. Ctrl. Rev., F.R.D.D, Ser. 96C VMIG1 5.10 1/02/98 2,900 2,900,000
Greater East Texas Higher Ed. Auth., Student Ln. Rev.,
A.N.N.O.T., Ser. 95A VMIG1 4.10 5/01/98 3,500 3,500,000
Houston General Obligation, T.E.C.P., Ser. B P-1 3.80 2/26/98 5,000 5,000,000
San Antonio Elec. & Gas, T.E.C.P.,
Ser. A P-1 3.70 1/14/98 7,000 7,000,000
Ser. A P-1 3.80 3/13/98 8,000 8,000,000
Southeast Texas Hsg. Fin. Corp., Banc One Tax Ex. Trust,
F.R.W.D.S., Ser. 91D(e) AAA 4.33 1/02/98 2,550 2,550,000
------------
32,365,000
- ------------------------------------------------------------------------------------------------------------------------------
Utah--3.2%
Intermountain Pwr. Agy., T.E.C.P. A-1 3.80 2/03/98 10,000 10,000,000
Salt Lake Cnty., Poll. Ctrl. Rev., F.R.D.D., Ser. 94 P1 5.00 1/02/98 400 400,000
------------
10,400,000
- ------------------------------------------------------------------------------------------------------------------------------
Washington--1.5%
Washington Hsg. Fin. Comm., Panorama Cty. Proj., F.R.D.D.,
Ser. 97 VMIG1 4.75 1/02/98 5,100 5,100,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-22
<PAGE>
Portfolio of Investments as of
December 31, 1997 PRUDENTIAL TAX-FREE MONEY FUND, INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description(a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Wisconsin--2.9%
Whitewater Ind. Dev. Rev., Trek Bicycle Proj., F.R.W.D., Ser.
95 NR 4.35% 1/02/98 $ 4,235 $ 4,235,000
Wisconsin Hsg. & Econ. Dev. Auth., Eagle Tax Ex. Trust,
Q.T.R.O.T, Ser. 4901(d)(e) A-1+ 3.80 3/01/98 5,300 5,300,000
------------
9,535,000
- ------------------------------------------------------------------------------------------------------------------------------
Wyoming--1.3%
Green River Poll. Ctrl. Rev., Rhone Poulene, Inc. Proj.,
F.R.D.D.,
Ser. 92 VMIG1 5.20 1/02/98 4,200 4,200,000
------------
Total Investments--97.6%
(cost $321,827,765(c)) 321,827,765
Other assets in excess of liabilities--2.4% 7,984,355
------------
Net Assets--100% $329,812,120
------------
------------
</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)
G.O.--General Obligation
Q.T.R.M.T.--Quarterly Tax & Reserve Mandatory Tender(b)
Q.T.R.O.T.--Quarterly Tax & Reserve 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.
(e) Indicates a security restricted as to resale.
* 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, 1997
-----------------
<S> <C>
Investments, at amortized cost which approximates market value.......................................... $ 321,827,765
Cash.................................................................................................... 2,438,714
Receivable for Fund shares sold......................................................................... 7,083,847
Interest receivable..................................................................................... 2,450,064
Other assets............................................................................................ 8,872
-----------------
Total assets......................................................................................... 333,809,262
-----------------
Liabilities
Payable for Fund shares reacquired...................................................................... 3,463,899
Dividends payable....................................................................................... 234,041
Management fee payable.................................................................................. 147,360
Accrued expenses........................................................................................ 131,880
Distribution fee payable................................................................................ 19,962
-----------------
Total liabilities.................................................................................... 3,997,142
-----------------
Net Assets.............................................................................................. $ 329,812,120
-----------------
-----------------
Net assets were comprised of:
Common Stock, $.01 par value......................................................................... $ 3,298,933
Paid-in capital in excess of par..................................................................... 326,513,187
-----------------
Net assets, December 31, 1997........................................................................... $ 329,812,120
-----------------
-----------------
Net asset value, offering price and redemption price
per share ($329,812,120 / 329,906,399 shares)........................................................ $1.00
-----------------
-----------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-24
<PAGE>
PRUDENTIAL TAX-FREE MONEY FUND, INC.
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income December 31, 1997
<S> <C>
Income
Interest.............................. $12,750,064
-----------------
Expenses
Management fee........................ 1,699,125
Distribution fee...................... 424,781
Transfer agent's fees and expenses.... 279,000
Custodian's fees and expenses......... 73,000
Registration fees..................... 56,000
Reports to shareholders............... 53,000
Audit fee and expenses................ 26,000
Legal fees and expenses............... 26,000
Directors' fees and expenses.......... 16,000
Insurance............................. 3,600
Miscellaneous......................... 2,633
-----------------
Total expenses..................... 2,659,139
Less: custodian fee credit............ (6,349)
-----------------
Net expenses....................... 2,652,790
-----------------
Net investment income.................... 10,097,274
-----------------
Net Increase in Net Assets
Resulting from Operations................ $10,097,274
-----------------
-----------------
</TABLE>
PRUDENTIAL TAX-FREE MONEY FUND, INC.
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended December 31,
in Net Assets 1997 1996
<S> <C> <C>
Operations
Net investment income..... $ 10,097,274 $ 11,419,707
Net realized gain on
investment
transactions........... -- 2,446
--------------- ---------------
Net increase in net assets
resulting from
operations............. 10,097,274 11,422,153
--------------- ---------------
Dividends and distributions
to shareholders........... (10,097,274) (11,422,153)
--------------- ---------------
Fund share transactions
(at $1 per share)
Proceeds from shares
subscribed............. 1,046,969,468 1,087,199,969
Net asset value of shares
issued to shareholders
in reinvestment of
dividends and
distributions.......... 9,663,288 10,887,534
Cost of shares
reacquired............. (1,060,629,324) (1,151,929,658)
--------------- ---------------
Net decrease in net assets
from Fund share
transactions........... (3,996,568) (53,842,155)
--------------- ---------------
Total decrease............... (3,996,568) (53,842,155)
Net Assets
Beginning of year............ 333,808,688 387,650,843
--------------- ---------------
End of year.................. $ 329,812,120 $ 333,808,688
--------------- ---------------
--------------- ---------------
</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 Net 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 investment income to its
shareholders. For this reason, no federal income tax provision is required.
Dividends: The Fund declares dividends daily from net investment income and net
realized gains, if any. 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 Investments Fund Management
LLC ('PIFM'). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PIFM has entered into a subadvisory agreement with Prudential
Investment Corporation ('PIC'); PIC furnishes investment advisory services in
connection with the management of the Fund. PIFM 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 PIFM 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, PIFM 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 PIFM,
serves as the Fund's transfer agent and during the year ended December 31, 1997,
the Fund incurred fees of approximately $248,000 for the services of PMFS. As of
December 31, 1997, approximately $19,000 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 nonaffiliates.
- --------------------------------------------------------------------------------
B-26
<PAGE>
Financial Highlights PRUDENTIAL TAX-FREE MONEY FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1997 1996 1995 1994
<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.............................. .030 .028 .031 .023
Dividends and distributions to shareholders........................... (.030) (.028) (.031) (.023)
-------- -------- -------- --------
Net asset value, end of year.......................................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
-------- -------- -------- --------
TOTAL RETURN(a):...................................................... 3.00% 2.84% 3.15% 2.31%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)......................................... $329,812 $333,808 $387,651 $487,290
Average net assets (000).............................................. $339,825 $403,230 $470,370 $644,481
Ratios to average net assets:
Expenses, including distribution fee............................... .78% .80% .85% .75%
Expenses, excluding distribution fee............................... .66% .67% .72% .63%
Net investment income.............................................. 2.97% 2.83% 3.14% 2.26%
<CAPTION>
1993
<S> <C>
--------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year.................................... $ 1.00
Net investment income and realized gains.............................. .018
Dividends and distributions to shareholders........................... (.018)
--------
Net asset value, end of year.......................................... $ 1.00
--------
--------
TOTAL RETURN(a):...................................................... 1.86%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)......................................... $601,622
Average net assets (000).............................................. $726,571
Ratios to average net assets:
Expenses, including distribution fee............................... .74%
Expenses, excluding distribution fee............................... .62%
Net investment income.............................................. 1.84%
</TABLE>
- ---------------
(a) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes reinvestment
of dividends and distributions.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-27
<PAGE>
Report of Independent Accountants PRUDENTIAL TAX-FREE MONEY FUND, INC.
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
Prudential Tax-Free Money Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Tax-Free Money Fund,
Inc. ('the Fund') at December 31, 1997, 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, 1997 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 6, 1998
B-28
<PAGE>
APPENDIX I
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.
I-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.
I-2
<PAGE>
APPENDIX II
INFORMATION RELATING TO 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 PIC(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
31,1996. Principal products and services include life and health insurance,
other healthcare products, property and casualty insurance, securities
brokerage, asset management, investment advisory services and real estate
brokerage. Prudential (together with its subsidiaries) employs more than 92,000
persons worldwide, and maintains a sales force of approximately 13,000 agents
and 5,600 financial advisors. Prudential is a major issuer of annuities,
including variable annuities. Prudential seeks to develop innovative products
and services to meet consumer needs in each of its business areas. Prudential
uses the Rock of Gibraltar as its symbol. The Prudential rock is a recognized
brand name throughout the world.
INSURANCE. Prudential has been engaged in the insurance business since
1875. It insures or provides financial services to nearly 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 22 million life
insurance policies in force today with a face value of $1 trillion. Prudential
has the largest capital base ($12.1 billion) of any life insurance company in
the United States. The Prudential provides auto insurance for more than 1.6
million cars and insures more than 1.2 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. As of December 31,1996, Prudential had more than $332 billion in assets
under management. Prudential Investments, a business group of Prudential (of
which Prudential Mutual Funds is a key part), manages over $211 billion in
assets of institutions and individuals. In Pensions and Investments, May 12,
1996, Prudential was ranked third in terms of total assets under management.
REAL ESTATE. The Prudential Real Estate Affiliates, the fourth largest real
estate brokerage network in the United States, has more than 37,000 brokers and
agents across the United States.(2)
HEALTHCARE. Over two decades ago, the Prudential introduced the first
federally-funded, for-profit HMO in the country. Today, approximately 4.6
million Americans receive healthcare from a Prudential managed care membership.
FINANCIAL SERVICES. The Prudential Bank, a wholly-owned subsidiary of the
Prudential, has nearly $4 billion in assets and serves nearly 1.5 million
customers across 50 states.
INFORMATION ABOUT THE PRUDENTIAL MUTUAL FUNDS
As of December 31, 1997, Prudential Investments Fund Management is the
eighteenth largest mutual fund company 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) Prudential 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
subadviser to The BlackRock Government Income Trust. There are multiple
subadvisers for The Target Portfolio Trust.
(2) As of December 31, 1996.
II-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, indivldual 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 Investment Management, 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.
II-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 6,000 financial advisors. It offers to its
clients a wide range of products, including Prudential Mutual Funds and
Annuities. As of December 31, 1997, assets held by Prudential Securities for its
clients approximated $235 billion.
During 1997, approximately 29,000 new customer accounts were opened each
month at PSl.(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 1995, Prudential Securities' equity research team ranked 8th in
Institutional Investor magazine's 1995 "All Amerlca Research Team" survey. Three
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 proprletary 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.
Standard & Poor's rates Prudential Securities Incorporated BBB+ with a
"Stable Outlook".
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, 1997.
(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.
II-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, 1997.
(2) Financial statements included in the Statement of Additional
Information constituting Part B of this Registration Statement:
Portfolio of Investments at December 31, 1997.
Statement of Assets and Liabilities at December 31, 1997.
Statement of Operations for the year ended December 31, 1997.
Statement of Changes in Net Assets for the years ended December
31, 1996 and December 31, 1997.
Financial Highlights with respect to each of the five years in
the period ended December 31, 1997.
Notes to Financial Statements.
Report of Independent Accountants.
(B) EXHIBITS:
1. Restated Articles of Incorporation, incorporated by reference to
Exhibit 1 to Post-Effective Amendment No. 21 to the Registration
Statement on Form N-1A filed via EDGAR on February 26, 1997 (File
No. 2-64625).
2. By-Laws of the Registrant as amended, incorporated by reference
to Exhibit 2 to Post-Effective Amendment No. 21 to the
Registration Statement on Form N-1A filed via EDGAR on February
26, 1997 (File No. 2-64625).
4. Instruments defining rights of holders of the securities being
offered, incorporated by reference to Exhibit Nos. 1 and 2 above.
5. (a) Management Agreement between the Registrant and Prudential
Mutual Fund Management, Inc., as amended on November 19, 1993,
incorporated by reference to Exhibit 5(a) to Post-Effective
Amendment No. 17 to Registration Statement filed on Form N-1A via
EDGAR on March 2, 1994 (File No. 2-64625).
(b) Subadvisory Agreement between Prudential Mutual Fund
Management and The Prudential Investment Corporation,
incorporated by reference to Exhibit 5(b) to Post-Effective
Amendment No. 21 to the Registration Statement on Form N-1A filed
via EDGAR on February 26, 1997 (File No. 2-64625).
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,
incorporated by reference to Exhibit 9 to Post-Effective
Amendment No. 21 to the Registration Statement on Form N-1A filed
via EDGAR on February 26, 1997 (File No. 2-64625).
10. Opinion of Counsel to Pre-Effective Amendment No. 1 to
Registration Statement on Form N-1, incorporated by reference to
Exhibit 10 to Post-Effective Amendment No. 21 to the Registration
Statement on Form N-1A filed via EDGAR on February 26, 1997 (File
No. 2-64625).
11. Consent of Independent Accountants.*
15. Distribution and Service Plan of Registrant, incorporated by
reference to Exhibit 15 to Post-Effective Amendment No. 21 to the
Registration Statement on Form N-1A filed via EDGAR on February
26, 1997 (File No. 2-64625).
16. Calculation of Yield and Total Return, incorporated by reference
to Exhibit 16 to Post-Effective Amendment No. 21 to the
Registration Statement on Form N-1A filed via EDGAR on February
26, 1997 (File No. 2-64625).
17. Financial Data Schedule filed for electronic purposes as
Exhibit 27.*
- ----------
* Filed herewith.
C-1
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of February 6, 1998, there were 14,658 record holders of Class A common
stock, $.01 par value per share, of the Registrant. As of February 13, 1998,
Class Z common stock is not being offered.
ITEM 27. INDEMNIFICATION.
As permitted by Section 17(h) and (i) of the Investment Company Act of
1940, as amended (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, as amended (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 Investments Fund
Management LLC (PIFM) 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 Investments 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 PIFM are listed in
Schedules A and D of Form ADV of PIFM 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).
C-2
<PAGE>
The business and other connections of PIFM'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 PIFM PRINCIPAL OCCUPATIONS
- ---------------- ------------------ ---------------------
<S> <C> <C>
Frank W. Giordano Executive Vice President, Executive Vice President, Secretary and General
Secretary and General Counsel Counsel, PIFM; Senior Vice President, Prudential
Securities Incorporated (Prudential Securities)
Robert F. Gunia Executive Vice President Vice President, Prudential Investments; Executive
and Treasurer Vice President and Treasurer, PIFM; Senior Vice
President, Prudential Securities
Neil A. McGuiness Executive Vice President Executive Vice President and Director of Marketing,
Prudential Mutual Funds & Annuities (PMF&A);
Executive Vice President, PIFM
Brian M. Storms Officer-in-Charge, President, PMF&A; Officer-in-Charge, President,
President, Chief Executive Chief Executive Officer and Chief Operating Officer,
Officer and Chief Operating Officer PIFM
Robert J. Sullivan Executive Vice President Executive Vice President, PMF&A; Executive Vice
President, PIFM
</TABLE>
(b) The Prudential Investment Corporation (PIC)
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 PIC's directors and executive
officers are as set forth below. Except as otherwise indicated, the address of
each person in Prudential Plaza, Newark, NJ 07102.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATIONS
- ---------------- ----------------- ---------------------
<S> <C> <C>
E. Michael Caulfield Chairman of the Board, Chief Executive Officer of Prudential Investments
President and Chief Executive of The Prudential Insurance Company of
Officer and Director America (Prudential)
Jonathan M. Greene Senior Vice President and President-Investment Management of Prudential
Director Investments of Prudential; Senior Vice President
and Director, PIC
John R. Strangfeld Vice President and Director President of Private Asset Management Group of
Prudential; Senior Vice President, Prudential; Vice
President and Director, PIC
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS
(A) PRUDENTIAL SECURITIES INCORPORATED
Prudential Securities is distributor for Prudential Jennison Series Fund,
Inc., The Target Portfolio Trust, First Financial Fund, Inc., The Global Total
Return Fund, Inc., Global Utility Fund, Inc., Nicholas-Applegate Fund, Inc.
(Nicholas-Applegate Growth Equity Fund), Prudential Balanced Fund, Prudential
California Municipal Fund, Cash Accumulation Trust, Command Government Fund,
Command Money Fund, Command Tax-Free Fund, Prudential Distressed Securities
Fund, Inc., Prudential Diversified Bond Fund, Inc., Prudential Index Series
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 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 International Bond 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-Cap Quantum Fund, Inc.,
Prudential Small Company Value 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
C-3
<PAGE>
National Equity Trust
Prudential Unit Trusts
Government Securities Equity Trust
National Municipal Trust
(b) Information concerning the officers and directors of Prudential
Securities Incorporated is set forth below.
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME(1) UNDERWRITER REGISTRANT
- ------- ----------- ----------
Alan D. Hogan .............. Executive Vice President, None
Chief Administrative Officer
and Director
William Horan .............. Chief Financial Officer None
George A. Murray ........... Executive Vice President and None
Director
Leland B. Paton ............ Executive Vice President and None
One New York Plaza Director
New York, NY 10292
Martin Pfinsgraff .......... Executive Vice President and None
Director
Vincent T. Pica, II ........ Executive Vice President and None
One New York Plaza Director
New York, NY 10292
Hardwick Simmons ........... Chief Executive Officer, President None
and Director
Lee B. Spencer ............. Executive Vice President, None
General Counsel,
Secretary and Director
Brian Storms ............... Director None
Gateway Center Three
Newark, NJ 07102
- ----------
(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 07102-4077, 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 Gateway
Center Three, Newark, New Jersey 07102-4077, documents required by Rules
31a-1(b)(4) and (11) and 31a-1(d) at Gateway Center Three, Newark, New Jersey
07102-4077, 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 meets all of
the requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Newark, and State of New Jersey, on the 27th day of February, 1998.
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 27, 1998
- ------------------------------
EDWARD D. BEACH
/s/ STEPHEN C. EYRE Director February 27, 1998
- ------------------------------
STEPHEN C. EYRE
/s/ DELAYNE D. GOLD Director February 27, 1998
- ------------------------------
DELAYNE D. GOLD
/s/ ROBERT F. GUNIA Director February 27, 1998
- ------------------------------
ROBERT F. GUNIA
/s/ DON G. HOFF Director February 27, 1998
- ------------------------------
DON G. HOFF
/s/ ROBERT E. LABLANC Director February 27, 1998
- ------------------------------
ROBERT E. LABLANC
/s/ MENDEL A. MELZER Director February 27, 1998
- ------------------------------
MENDEL A. MELZER
/s/ RICHARD A. REDEKER President and Director February 27, 1998
- ------------------------------
RICHARD A. REDEKER
/s/ ROBIN B. SMITH Director February 27, 1998
- ------------------------------
ROBIN B. SMITH
/s/ STEPHEN STONEBURN Director February 27, 1998
- ------------------------------
STEPHEN STONEBURN
/s/ NANCY H. TEETERS Director February 27, 1998
- ------------------------------
NANCY H. TEETERS
/s/ GRACE C. TORRES Treasurer, Principal Financial and February 27, 1998
- ------------------------------ Accounting Officer
GRACE C. TORRES
</TABLE>
<PAGE>
EXHIBIT INDEX
1. (a) Restated Articles of Incorporation, incorporated by reference to
Exhibit 1 to Post-Effective Amendment No. 21 to the Registration Statement
on Form N-1A filed via EDGAR on February 26, 1997 (File No. 2-64625).
2. (a) By-Laws of the Registrant as amended, incorporated by reference to
Exhibit 2 to Post-Effective Amendment No. 21 to the Registration Statement
on Form N-1A filed via EDGAR on February 26, 1997 (File No. 2-64625).
4. Instruments defining rights of holders of the securities being offered,
incorporated by reference to Exhibit Nos. 1 and 2 above.
5. (a) Management Agreement between the Registrant and Prudential Mutual Fund
Management, Inc., as amended on November 19, 1993, incorporated by
reference to Exhibit 5(a) to Post-Effective Amendment No. 17 to
Registration Statement filed on Form N-1A via EDGAR on March 2, 1994 (File
No. 2-64625).
(b) Subadvisory Agreement between Prudential Mutual Fund Management and The
Prudential Investment Corporation, incorporated by reference to Exhibit
5(b) to Post-Effective Amendment No. 21 to the Registration Statement on
form N-1A filed via EDGAR on February 26, 1997 (File No. 2-64625).
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, incorporated by reference to Exhibit 8 to Post-Effective Amendment
No. 21 to the Registration Statement on Form N-1A filed via EDGAR on
February 26, 1997 (File No. 2-64625).
9. Transfer Agency and Service Agreement, dated January 1, 1988, incorporated
by reference to Exhibit 9 to Post-Effective Amendment No. 21 to the
Registration Statement on Form N-1A filed via EDGAR on February 26, 1997
(File No. 2-64625).
10. Opinion of Counsel to Pre-Effective Amendment No. 1 to Registration
Statement on Form N-1, incorporated by reference to Exhibit 10 to
Post-Effective Amendment No. 21 to the Registration Statement on Form N-1A
filed via EDGAR on February 26, 1997 (File No. 2-64625).
11. Consent of Independent Accountants.*
15. (a) Distribution and Service Plan of Registrant, incorporated by reference
to Exhibit 15 to Post-Effective Amendment No. 21 to the Registration
Statement on Form N-1A filed via EDGAR on February 26, 1997 (File No.
2-64625).
16. Calculation of Yield and Total Return, incorporated by reference to Exhibit
16 to Post-Effective Amendment No. 21 to the Registration Statement on Form
N-1A filed via EDGAR on February 26, 1997 (File No. 2-64625).
17. Financial Data Schedule filed for electronic purposes on Exhibit 27.*
- ----------
*Filed herewith.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 22 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
February 6, 1998, 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, 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, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000311561
<NAME> PRUDENTIAL TAX FREE MONEY FUND, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 321,827,765
<INVESTMENTS-AT-VALUE> 321,827,765
<RECEIVABLES> 9,533,911
<ASSETS-OTHER> 2,447,586
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 333,809,262
<PAYABLE-FOR-SECURITIES> 3,463,899
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 533,243
<TOTAL-LIABILITIES> 3,997,142
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 329,812,120
<SHARES-COMMON-STOCK> 329,812,120
<SHARES-COMMON-PRIOR> 333,808,688
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 329,812,120
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 12,750,064
<OTHER-INCOME> 0
<EXPENSES-NET> 2,652,790
<NET-INVESTMENT-INCOME> 10,097,274
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 10,097,274
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,046,969,468
<NUMBER-OF-SHARES-REDEEMED> (1,060,629,324)
<SHARES-REINVESTED> 9,663,288
<NET-CHANGE-IN-ASSETS> 6,100,706
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,699,125
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,652,790
<AVERAGE-NET-ASSETS> 339,825,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.78
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
