As filed with the Securities and Exchange Commission
on August 30, 1994
Securities Act Registration No. 33-31603
Investment Company Act Registration No. 811-5951
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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 / /
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 7 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 8 /X/
(Check appropriate box or boxes)
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PRUDENTIAL-BACHE SPECIAL MONEY MARKET FUND, INC.
(d/b/a Prudential Special Money Market Fund)
(Exact name of registrant as specified in charter)
ONE SEAPORT PLAZA,
NEW YORK, NEW YORK 10292
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 214-1250
S. Jane Rose, Esq.
One Seaport Plaza
New York, New York 10292
(Name and Address of Agent for Service of Process)
It is proposed that this filing will become effective
(check appropriate box):
/X/ immediately upon filing pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on (date) pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (a), of Rule 485.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant
has previously registered an indefinite number of shares of Common Stock, par
value $.001 per share. The Registrant filed a notice under such Rule for its
fiscal year ended June 30, 1994 on or about August 29, 1994.
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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
Item 3. Condensed Financial Information........................Fund Expenses; Financial Highlights;
Calculation of Yield
Item 4. General Description of Registrant......................Cover Page; How the Fund is Managed;
General Information
Item 5. Management of Fund.....................................Financial Highlights; How the Fund is
Managed; General Information
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; 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........................Not Applicable
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,
Transfer and Dividend Disbursing Agent
and Independent Accountants
Item 17. Brokerage Allocation and Other Practices...............Portfolio Transactions
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
Item 21. Underwriters...........................................Distributor
Item 22. Calculation of Performance Data........................Calculation of Yield
Item 23. Financial Statements...................................Financial Statements
Part C
Information required to be included in Part C is set forth under the appropriate Item, so
numbered, in Part C to this Post-Effective Amendment to the Registration Statement.
</TABLE>
<PAGE>
Prudential
Special Money Market Fund
Money Market Series
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PROSPECTUS DATED AUGUST 29, 1994
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Prudential-Bache Special Money Market Fund, Inc., doing business as Prudential
Special Money Market Fund (the Fund), is an open-end, diversified management
investment company which is currently comprised of one series, the Money Market
Series (the Series or the Fund). The investment objective of the Fund is high
current income consistent with the preservation of principal and liquidity.
There can be no assurance that the Fund's investment objective will be achieved.
The Fund seeks to achieve its objective by investing in a diversified portfolio
of high quality money market instruments maturing in thirteen months or less. 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."
Shares of the Fund are offered to holders of Class B and Class C shares of the
Prudential Mutual Funds through an exchange privilege. Shares may also be
purchased directly by investors for cash with a minimum investment of
$1,000,000. Shares of the Fund may also be purchased by Individual Retirement
Accounts, retirement plans for self-employed individuals and employee benefit
plans (collectively, Plans) with the proceeds from any redemption of shares by
such Plans from The Target Portfolio Trust. There is no minimum investment
requirement for the purchase of shares of the Fund by Plans. See "Shareholder
Guide--How to Buy Shares of the Fund."
The Fund's address is One Seaport Plaza, New York, New York 10292, and its
telephone number is (800) 225-1852.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. Additional information about
the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated August 29, 1994, which information is
incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Fund at the
address or telephone number noted above.
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Investors are advised to read this Prospectus and retain it for future
reference.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
FUND HIGHLIGHTS
The following summary is intended to highlight certain information contained
in this Prospectus and is qualified in its entirety by more detailed information
appearing elsewhere herein.
WHAT IS PRUDENTIAL SPECIAL MONEY MARKET FUND?
Prudential Special Money Market Fund is a mutual fund. A mutual fund pools
the resources of investors by selling its shares to the public and investing
the proceeds of such sale in a portfolio of securities designed to achieve its
investment objective. Technically, the Fund is an open-end, diversified
management investment company.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is high current income consistent with the
preservation of principal and liquidity. There can be no assurance that the
Fund's objective will be achieved. See "How the Fund Invests--Investment
Objective and Policies" at page 6.
RISK FACTORS AND SPECIAL CHARACTERISTICS
In seeking to achieve its objective, the Fund will invest in a diversified
portfolio of high quality money market instruments maturing in thirteen months
or less. It is anticipated that the net asset value of the Fund 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
the Fund 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 10.
WHO MANAGES THE FUND?
Prudential Mutual Fund Management, Inc. (PMF or the Manager) is the Manager
of the Fund and is compensated for its services at an annual rate of .50 of 1%
of the Fund's average daily net assets. As of July 31, 1994, PMF served as
manager or administrator to 66 investment companies, including 37 mutual
funds, with aggregate assets of approximately $47 billion. The Prudential
Investment Corporation (PIC or the Subadviser) furnishes investment advisory
services in connection with the management of the Fund under a Subadvisory
Agreement with PMF. See "How the Fund is Managed--Manager" at page 9.
WHO DISTRIBUTES THE FUND'S SHARES?
Prudential Mutual Fund Distributors, Inc. (PMFD) acts as the Distributor of
the Fund's shares pursuant to a distribution agreement with the Fund and
serves without compensation. See "How the Fund is Managed-- Distributor" at
page 10.
2
<PAGE>
WHAT IS THE MINIMUM INVESTMENT?
Shares are offered to holders of Class B and Class C shares of Prudential
Mutual Funds as part of their exchange privilege with a minimum initial
investment of $1,000 and minimum subsequent investment of $100. As part of
their exchange privilege, shares are also offered to shareholders of certain
Prudential money market funds who acquired their money market fund shares
prior to January 22, 1990 from a Prudential Mutual Fund subject to a
contingent deferred sales charge, provided that a minimum initial investment
of $1,000 is satisfied. Shares may also be purchased directly with a minimum
initial investment of $1,000,000. See "Shareholder Guide--How to Buy Shares of
the Fund" at page 13.
HOW DO I PURCHASE SHARES?
You may purchase shares of the Fund through Prudential Securities, or
directly from the Fund, through its transfer agent, Prudential Mutual Fund
Services, Inc. (PMFS or the Transfer Agent) at the net asset value per share
(NAV) next determined after receipt of your purchase or exchange order by the
Transfer Agent or Prudential Securities. See "How the Fund Values its Shares"
at page 10 and "Shareholder Guide--How to Buy Shares of the Fund" at page 13.
HOW DO I SELL MY SHARES?
You may redeem shares of the Fund at any time at the NAV next determined
after Prudential Securities or the Transfer Agent receives your sell order.
See "Shareholder Guide--How to Sell Your Shares" at page 14. If your shares
were purchased as part of an exchange of Class B or Class C shares from
another Prudential Mutual Fund or as part of an exchange of shares of certain
other Prudential money market funds described above, redemption proceeds will
be reduced by the amount of any applicable contingent deferred sales charge
imposed by the original fund. See "Shareholder Guide--How to Sell Your
Shares--Contingent Deferred Sales Charge" at page 16.
HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?
The Fund expects to declare daily and pay monthly dividends of net
investment income and any net short-term capital gains. Dividends and
distributions will be reinvested automatically 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>
FUND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases......................................................... None
Maximum Sales Load Imposed on Reinvested Dividends.............................................. None
Deferred Sales Load (as a percentage of original purchase price or redemption proceeds,
whichever is lower)........................................................................... 5%*
Redemption Fees................................................................................. None
Exchange Fee.................................................................................... None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees................................................................................. .50%
12b-1 Fees...................................................................................... None
Other Expenses.................................................................................. .22%
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Total Fund Operating Expenses................................................................... .72%
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</TABLE>
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* Shares are sold without any sales charge. Shareholders who exchange into
the Fund, however, are generally subject to a contingent deferred sales
charge imposed by the original fund upon their redemption of Fund shares
depending on the date of purchase of shares of the original fund. See
"Shareholder Guide--How to Sell Your Shares." The contingent deferred
sales charge is based on the period shares of the original fund were
held calculated without regard to the period during which shares of the
Fund are held and is generally calculated with respect to Class B shares
at the following rates: 5% during the first year, decreasing by 1%
annually to 1% in the fifth and sixth years and 0% in the seventh year
and thereafter. Class C shares are generally subject to a 1% contingent
deferred sales charge for one year after purchase. Investors are
referred to the prospectus of the original fund for a description of the
applicable contingent deferred sales charge.
<TABLE> <CAPTION>
EXAMPLE* 1 YEAR 3 YEARS 5 YEARS 10 YEARS
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<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each
time period:........................................................ $ 57 $ 53 $ 50 $ 89
You would pay the following expenses on the same investment,
assuming no redemption:............................................. $ 7 $ 23 $ 40 $ 89
</TABLE>
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The above example is based on data for the fiscal year ended June 30,
1994. The example should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.
The purpose of this table is to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear, whether
directly or indirectly. For more complete descriptions of the various
costs and expenses, see "How the Fund is Managed." "Other Expenses"
includes operating expenses of the Fund, such as Directors' and
professional fees, registration fees, reports to shareholders and transfer
agency and custodian fees.
* The example takes into account the deferred sales load generally
applicable to Class B shares. Shareholders who exchange into the Fund
are generally subject to a contingent deferred sales charge imposed by
the original fund upon their redemption of Fund shares depending on the
date of purchase of shares of the original fund. See "Shareholder
Guide--How to Sell Your Shares."
4
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
The following financial highlights have been audited by Deloitte & Touche
LLP, independent accountants, whose report thereon was unqualified. This
information should be read in conjunction with the financial statements and
notes thereto, which appear in the Statement of Additional Information. The
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 the periods indicated. This information is based on data contained in
the financial statements.
<TABLE> <CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------ JANUARY 22, 1990*
1994 1993 1992 1991 THROUGH JUNE 30, 1990
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<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.............. $1.00 $1.00 $1.00 $1.00 $1.00
Net investment income............................. 0.030 0.027 0.044 0.071+ 0.036+
Dividends from net investment income.............. (0.030) (0.027) (0.044) (0.071) (0.036)
--------- --------- --------- --------- -------
Net asset value, end of period................... $1.00 $1.00 $1.00 $1.00 $1.00
--------- --------- --------- --------- -------
--------- --------- --------- --------- -------
TOTAL RETURN++.................................... 3.09% 2.77% 4.49% 7.36% 3.65%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)................... $ 473,057 $ 176,258 $ 183,093 $ 284,849 $181,690
Average net assets (000).......................... $ 271,869 $ 213,948 $ 249,223 $ 328,899 $177,412
Ratios to average net assets:
Expenses......................................... 0.72% 0.81% 0.83% 0.61%+ 0.19%**+
Net investment income............................ 2.96% 2.73% 4.36% 6.98%+ 8.12%**+
</TABLE>
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* Commencement of investment operations.
** Annualized.
+ Net of expense subsidy and management fee waiver.
++ Total return is calculated assuming a purchase of shares on the first
day and a sale on the last day of each year reported and includes
reinvestment of dividends and distributions. Total returns for periods
of less than one year are not annualized.
5
<PAGE>
CALCULATION OF YIELD
THE FUND CALCULATES ITS "CURRENT YIELD" based on the net change, exclusive of
realized and unrealized gains or losses, in the value of a hypothetical account
over a seven calendar day base period. THE FUND WILL ALSO CALCULATE ITS
"EFFECTIVE ANNUAL YIELD" assuming weekly compounding. The yield will fluctuate
from time to time and does not indicate future performance.
The following is an example of the current and effective annual yield
calculation as of June 30, 1994.
<TABLE>
<S> <C>
Value of hypothetical account at end of period.............................................. $ 1.000737989
Value of hypothetical account at beginning of period......................................... 1.000000000
---------------
Base period return........................................................................... $ .000737989
---------------
---------------
CURRENT YIELD ((.000737989 x (365/7))........................................................ 3.85%
EFFECTIVE ANNUAL YIELD, assuming weekly compounding.......................................... 3.92%
</TABLE>
The weighted average life to maturity of the Fund's portfolio on June 30,
1994 was 31 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/Donoghue's Money Fund Report, The Bank Rate Monitor,
other industry publications, business periodicals and market indices.
HOW THE FUND INVESTS
INVESTMENT OBJECTIVE AND POLICIES
THE INVESTMENT OBJECTIVE OF THE FUND IS HIGH CURRENT INCOME CONSISTENT WITH
THE PRESERVATION OF PRINCIPAL AND LIQUIDITY. THE FUND SEEKS TO ACHIEVE THIS
OBJECTIVE BY INVESTING 100% OF ITS ASSETS IN A PORTFOLIO OF HIGH QUALITY U.S.
DOLLAR-DENOMINATED MONEY MARKET INSTRUMENTS. THE FUND SEEKS TO MAINTAIN A $1.00
SHARE PRICE AT ALL TIMES. TO ACHIEVE THIS, THE FUND WILL PURCHASE ONLY
SECURITIES MATURING IN THIRTEEN MONTHS OR LESS AND THE DOLLAR-WEIGHTED AVERAGE
MATURITY OF THE FUND'S PORTFOLIO WILL BE 90 DAYS OR LESS. THERE IS NO ASSURANCE
THAT THE FUND'S INVESTMENT OBJECTIVE WILL BE ACHIEVED OR THAT THE FUND WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE PER SHARE.
THE INVESTMENT OBJECTIVE OF THE FUND MAY BE CHANGED ONLY WITH 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). THE FUND'S INVESTMENT POLICIES ARE NON-FUNDAMENTAL AND MAY BE
CHANGED BY THE BOARD OF DIRECTORS.
The Fund utilizes the amortized cost method of valuation in accordance with
regulations issued by the Securities and Exchange Commission (SEC or Commission)
as they may from time to time be amended. 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. "Eligible quality," for this purpose, means (i) a security (or
issuer) rated in one of the two highest rating categories by at least two
nationally recognized statistical rating organizations assigning a rating to the
security or issuer (or, if only one such rating organization assigned a rating,
that rating organization) or (ii) an unrated
6
<PAGE>
security deemed of comparable quality by the Fund's investment adviser under the
supervision of the Board of Directors.
In selecting portfolio securities for investment by the Fund, the investment
adviser considers ratings assigned by major rating services, information
concerning the financial history and condition of the issuer and its revenue and
expense prospects. The Board of Directors monitors the credit quality of
securities purchased for the Fund. If a portfolio security 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 that
security presents minimal credit risks and whether the Fund should continue to
hold the security. 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 interest of the Fund and its shareholders.
As long as the Fund utilizes the amortized cost method of valuation, it will
also comply with certain diversification requirements and will invest no more
than 5% of the total assets of the Fund in "second-tier securities," with no
more than 1% of the Fund's assets in any one issuer of a second-tier security. A
"second-tier security," for this purpose, is a security of "eligible quality"
that does not have the highest rating from at least two rating organizations
assigning a rating to that security or issuer (or, if only one rating
organization assigned a rating, that rating organization) or an unrated security
that is deemed of comparable quality by the Fund's investment adviser under the
supervision of the Board of Directors. A description of security ratings is
contained in the Appendix.
The Fund will invest in the following money market instruments:
U.S. GOVERNMENT OBLIGATIONS
Obligations issued or guaranteed as to principal and interest by the U.S.
Government or its agencies or instrumentalities.
BANK OBLIGATIONS
Obligations (including time deposits, certificates of deposit and bankers'
acceptances) of commercial banks, savings banks and savings and loan
associations having at the time of investment total assets of $1 billion or
more. The Fund may invest in obligations of domestic banks, foreign branches of
U.S. banks, foreign banks and U.S. branches and foreign branches of foreign
banks. The Fund may invest more than 25% of its total assets in money market
instruments of domestic banks (including U.S. branches of foreign banks that are
subject to the same regulation as U.S. banks and foreign branches of domestic
banks, provided the domestic bank is unconditionally liable in the event of the
failure of the foreign branch to make payment on its instruments for any
reason). See "Investment Restrictions" in the Statement of Additional
Information.
OTHER MONEY MARKET INSTRUMENTS
Commercial paper, variable amount demand master notes, bills, notes and other
obligations issued by a U.S. company, a foreign company or a foreign government,
its agencies or instrumentalities. If such obligations are guaranteed or
supported by a letter of credit issued by a bank, such bank (including a foreign
bank) must meet the requirements set forth under "Bank Obligations" above. If
such obligations are guaranteed or insured by an insurance company or other
non-bank entity, such insurance company must represent a credit of comparable
quality as determined by the Fund's investment adviser, under the supervision of
the Board of Directors.
The Fund may not invest more than 25% of its total assets in any one industry
except there is no limitation with respect to money market instruments of
domestic banks and obligations of the U.S. Government, its agencies and
instrumentalities, as described above.
7
<PAGE>
The Fund intends to hold portfolio securities until maturity; however, the
Fund 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 adviser's evaluation of the issuer or market conditions.
OTHER INVESTMENTS AND POLICIES
REPURCHASE AGREEMENTS
The Fund may enter into 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 repurchase date is usually within a day or two
of the original purchase, 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 purchase price including
accrued interest earned on the underlying securities. The instruments held as
collateral are valued daily, and if the value of such instruments declines, the
Fund will require additional collateral. If the seller defaults and the value of
the collateral securing the repurchase agreement declines, the Fund may incur a
loss. The Fund participates in a joint repurchase account with other investment
companies managed by Prudential Mutual Fund Management, Inc. pursuant to an
order of the SEC. See "Investment Objective and Policies--Repurchase Agreements"
in the Statement of Additional Information.
RISKS OF INVESTING IN FOREIGN SECURITIES
Investments in obligations of foreign issuers (including foreign banks) may
be subject to certain risks, including future political and economic
developments, the possible imposition of withholding taxes on interest income,
the seizure or nationalization of foreign deposits and foreign exchange controls
or other restrictions. In addition, there may be less publicly available
information about foreign issuers than about domestic issuers and foreign
issuers are generally not subject to the same accounting, auditing and financial
recordkeeping standards and requirements as domestic issuers. In the event of a
default with respect to any foreign debt obligations, it may be more difficult
for the Fund to obtain or enforce a judgment against the issuer of such
securities.
FLOATING RATE AND VARIABLE RATE SECURITIES
The Fund may purchase "floating rate" and "variable rate" obligations. The
interest rates on such obligations fluctuate generally with changes in market
interest rates, and in some cases the Fund is able to demand repayment of the
principal amount of such obligations at par plus accrued interest. For
additional information concerning variable rate and floating rate obligations,
see "Investment Objectives and Policies" in the Statement of Additional
Information.
LIQUIDITY PUTS
The Fund may purchase instruments of the types described above together with
the right to resell the instruments at an agreed-upon price or yield within a
specified period prior to the maturity date of the instrument. Such a right to
resell is commonly known as a "put," and the aggregate price that the Fund pays
for instruments with a put may be higher than the price that otherwise would be
paid for the instruments. See "Investment Objective and Policies--Liquidity
Puts" in the Statement of Additional Information.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Fund may purchase or sell securities on a when-issued or delayed delivery
basis. When-issued or delayed delivery transactions arise when securities are
purchased or sold by the Fund with payment and delivery taking place in the
future in order to secure what is considered to be an advantageous price and
yield to the Fund at the time of entering into the transaction. The Fund's
Custodian will maintain, in a segregated account, cash, U.S. Government
securities or other liquid high-grade debt obligations, having a value equal to
or greater than the Fund's purchase
8
<PAGE>
commitments; the Custodian will likewise segregate securities sold on a delayed
delivery basis. See "Investment Objective and Policies--When-Issued and Delayed
Delivery Securities" in the Statement of Additional Information.
ILLIQUID SECURITIES
The Fund may invest up to 10% of its net assets in illiquid securities
including repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable in securities markets
either within or outside of the United States. Restricted securities eligible
for resale pursuant to Rule 144A under the Securities Act of 1933, as amended
(the Securities Act), and privately placed commercial paper that have a readily
available market are not considered illiquid for purposes of this limitation.
The investment adviser will monitor the liquidity of such restricted securities
under the supervision of the Board of Directors. Repurchase agreements subject
to demand are deemed to have a maturity equal to the applicable notice period.
See "Investment Objective and Policies--Illiquid Securities" in the Statement of
Additional Information.
BORROWING
The Fund may borrow money from banks in an amount equal to no more than 20%
of the value of its total assets (computed at the time the loan is made) for
temporary, extraordinary or emergency purposes or for the clearance of
transactions. The Fund may pledge up to 20% of its total assets to secure such
borrowings. The Fund will not purchase portfolio securities if its borrowings
exceed 5% of its assets. See "Investment Objective and Policies--Pledging of
Assets and Borrowing" in the Statement of Additional Information.
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 fiscal year ended June 30, 1994, total expenses as a percentage of
average net assets of the Fund were .72%. See "Financial Highlights."
MANAGER
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC. (PMF OR THE MANAGER), ONE SEAPORT
PLAZA, NEW YORK, NEW YORK 10292, IS THE MANAGER OF THE FUND AND IS COMPENSATED
FOR ITS SERVICES AT AN ANNUAL RATE OF .50 OF 1% OF THE FUND'S AVERAGE DAILY NET
ASSETS. It was incorporated in May 1987 under the laws of the State of Delaware.
For the fiscal year ended June 30, 1994, the Fund paid management fees to PMF
of $1,359,346, .50% of the
Fund's average net assets. See "Manager" in the Statement of Additional
Information.
As of July 31, 1994, PMF served as the manager to 37 open-end investment
companies, constituting substantially all of the Prudential Mutual Funds, and as
manager or administrator to 29 closed-end investment companies with aggregate
assets of approximately $47 billion.
9
<PAGE>
UNDER THE MANAGEMENT AGREEMENT WITH THE FUND, PMF MANAGES THE INVESTMENT
OPERATIONS OF THE FUND AND ALSO ADMINISTERS THE FUND'S CORPORATE AFFAIRS. See
"Manager" in the Statement of Additional Information.
UNDER A SUBADVISORY AGREEMENT BETWEEN PMF AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC OR THE SUBADVISER), PIC FURNISHES INVESTMENT ADVISORY SERVICES
IN CONNECTION WITH THE MANAGEMENT OF THE FUND AND IS REIMBURSED BY PMF FOR ITS
REASONABLE COSTS AND EXPENSES INCURRED IN PROVIDING SUCH SERVICES. UNDER THE
MANAGEMENT AGREEMENT, PMF CONTINUES TO HAVE RESPONSIBILITY FOR ALL INVESTMENT
ADVISORY SERVICES AND SUPERVISES PIC'S PERFORMANCE OF SUCH SERVICES.
PMF and PIC are wholly-owned subsidiaries of The Prudential Insurance Company
of America (Prudential), a major diversified insurance and financial services
company.
DISTRIBUTOR
PRUDENTIAL MUTUAL FUND DISTRIBUTORS, INC. (PMFD OR THE DISTRIBUTOR), ONE
SEAPORT PLAZA, NEW YORK, NEW YORK 10292, ACTS AS DISTRIBUTOR OF THE FUND
PURSUANT TO A DISTRIBUTION AGREEMENT WITH THE FUND AND SERVES WITHOUT
COMPENSATION. It is a corporation organized under the laws of the State of
Delaware and a wholly-owned subsidiary of PMF.
PORTFOLIO TRANSACTIONS
Prudential Securities Incorporated (Prudential Securities) may act as a
broker for the Fund provided that the commissions, fees or other remuneration it
receives are reasonable and fair. See "Portfolio Transactions" in the Statement
of Additional Information.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities and
cash and, in that capacity, maintains certain financial and accounting books and
records pursuant to an agreement with the Fund. Its mailing address is P.O. Box
1713, Boston, Massachusetts 02105.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as Transfer Agent and Dividend Disbursing Agent and in
those capacities maintains certain books and records for the Fund. PMFS is a
wholly-owned subsidiary of PMF. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.
HOW THE FUND VALUES ITS SHARES
The Fund's net asset value per share or NAV is determined by subtracting its
liabilities from the value of its assets and dividing the remainder by the
number of outstanding shares. The Board of Directors has fixed the specific time
of day for the computation of NAV to be as of 4:30 P.M., New York time,
immediately after the daily declaration of dividends.
The Fund will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase, sell
or redeem shares have been received by the Fund. The New York Stock Exchange is
closed on the following holidays: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The Fund determines the value of its portfolio securities by the amortized
cost method. This method involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower
10
<PAGE>
than the price the Fund would receive if it sold the instrument. During these
periods, the yield to an existing 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 a 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 NAV of the shares of the Fund
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 ITS SHAREHOLDERS. Net
investment income consists of interest accrued or discount earned (including
both original issue and market discount) on the obligations held by the Fund,
less amortization of premium and the estimated expenses of the Fund applicable
to that dividend period.
The Fund will be subject to a 4% nondeductible excise tax imposed under the
Internal Revenue Code to the extent the Fund does not meet certain minimum
distribution requirements by the end of each calendar year. For this purpose,
dividends declared in October, November and December payable to shareholders of
record on a specified date in October, November and December and paid in the
following January will be treated as having been paid by the Fund and received
by shareholders in such prior year. Under this rule, shareholders may be taxed
in one year on dividends or distributions actually received in January of the
following year.
TAXATION OF SHAREHOLDERS
All dividends out of net investment income, together with distributions of
any net short-term capital gains, will be taxable as ordinary income to the
shareholder whether or not reinvested. The Fund does not expect to realize long-
term capital gains or losses. Shareholders are advised to consult their own tax
advisers regarding specific questions as to federal, state or local taxes. See
"Taxes" in the Statement of Additional Information.
WITHHOLDING TAXES
Under U.S. Treasury Regulations, the Fund is required to withhold and remit
to the U.S. Treasury 31% of dividend, capital gain income and redemption
proceeds on the accounts of those shareholders who fail to furnish their tax
identification numbers on IRS Form W-9 (or IRS Form W-8 in the case of certain
foreign shareholders) with the required certifications regarding the
shareholder's status under the federal income tax law.
DIVIDENDS AND DISTRIBUTIONS
THE FUND EXPECTS TO DECLARE DAILY AND PAY MONTHLY DISTRIBUTIONS OF NET
INVESTMENT INCOME AND NET SHORT-TERM CAPITAL GAINS AND MAKE DISTRIBUTIONS AT
LEAST ANNUALLY OF NET LONG-TERM CAPITAL GAINS, IF ANY. Dividends declared are
accrued throughout the month and are distributed in the form of full and
fractional shares on or about the twenty-fifth day of the month, unless the
shareholder elects in writing not less than five business days prior to the
dividend payment date to receive such dividends in cash. Such election should be
submitted to Prudential Mutual Fund Services, Inc., Attn: Account Maintenance
Unit, P.O. Box 15015, New Brunswick, New Jersey 08906-5015. The dividend payment
date may be changed for any given dividend for operational reasons without
further notice to shareholders. Dividends are reinvested at the net asset value
determined as of 4:30 P.M., New York time, on the day of
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<PAGE>
payment. If the entire amount in an account is withdrawn at any time during a
month, all dividends accrued with respect to that account during that month are
paid to the investor.
The calculation of net investment income for dividend purposes is made
immediately prior to the calculation of net asset value at 4:30 P.M., New York
time. Thus, a shareholder begins to earn dividends on the first business day
after his or her order becomes effective and continues to earn dividends through
the day on which his or her shares are redeemed. If a redemption request is
received prior to 4:30 P.M., New York time, the shareholder is entitled to the
dividend declared on that day.
Net income earned on Saturdays, Sundays and holidays is accrued in
calculating the dividend on the previous business day. Accordingly, a
shareholder who redeems his or her shares effective as of 4:30 P.M., New York
time, on a Friday earns a dividend which reflects the income earned by the Fund
on the following Saturday and Sunday. On the other hand, an investor whose
purchase order is effective as of 4:30 P.M., New York time, on a Friday does not
begin earning dividends until the following business day. See "How the Fund
Values its Shares."
The Fund will notify each shareholder after the close of the Fund's taxable
year both of the dollar amount and the taxable status of that year's dividends
and distributions.
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
THE FUND WAS INCORPORATED IN MARYLAND ON OCTOBER 20, 1989. The Fund is
authorized to issue 2 billion shares of common stock of $.001 par value. The
Board of Directors may increase or decrease the number of authorized shares
without approval by shareholders. Shares of the Fund, when issued, are fully
paid, nonassessable, fully transferable and redeemable at the option of the
holder. Shares are also redeemable at the option of the Fund under certain
circumstances as described under "Shareholder Guide--How to Sell Your
Shares--Involuntary Redemption." All shares of the Fund are equal as to
earnings, assets and voting privileges. There are no conversion, preemptive 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 of the Fund have been paid. The Fund's shares do not have
cumulative voting rights for the election of Directors. Pursuant to the Fund's
Articles of Incorporation, the Board of Directors may authorize the creation of
additional series of common stock and classes within such series, with such
preferences, privileges, limitations and voting and dividend rights as the Board
may determine. The Fund currently has one Series.
THE FUND DOES NOT INTEND TO HOLD ANNUAL MEETINGS OF SHAREHOLDERS UNLESS
OTHERWISE REQUIRED BY LAW. THE FUND WILL NOT BE REQUIRED TO HOLD MEETINGS OF
SHAREHOLDERS UNLESS 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 Securities and
Exchange Commission under the Securities Act. Copies of the Registration
Statement may be obtained at a reasonable charge from the Commission or may be
examined, without charge, at the office of the Commission in Washington, D.C.
12
<PAGE>
SHAREHOLDER GUIDE
HOW TO BUY SHARES OF THE FUND
YOU MAY PURCHASE SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES OR DIRECTLY
FROM THE FUND THROUGH ITS TRANSFER AGENT, PRUDENTIAL MUTUAL FUND SERVICES, INC.
(PMFS OR THE TRANSFER AGENT) ,ATTENTION: INVESTMENT SERVICES, P.O. BOX 15020,
NEW BRUNSWICK, NEW JERSEY 08906-5020. Shares are offered to holders of Class B
and Class C shares of the Prudential Mutual Funds as part of their exchange
privilege with a minimum initial investment of $1,000 and a minimum subsequent
investment of $100. As part of their exchange privilege, shares of the Fund are
also offered to shareholders of certain Prudential money market funds who
acquired their money market fund shares prior to January 22, 1990 from a
Prudential Mutual Fund subject to a contingent deferred sales charge, provided
that a minimum initial investment of $1,000 is satisfied. Shares of the Fund may
also be purchased directly by investors for cash with a minimum initial
investment of $1,000,000 and no minimum on subsequent investments. Shares of the
Fund may also be purchased by Individual Retirement Accounts, retirement plans
for self-employed individuals and employee benefit plans (collectively, Plans)
with the proceeds from any redemption of shares by such Plans from The Target
Portfolio Trust. There is no minimum investment requirement for the purchase of
shares of the Fund by Plans.
SHARES ARE SOLD ON A CONTINUOUS BASIS AT THE NAV NEXT DETERMINED AFTER
RECEIPT AND ACCEPTANCE BY PMFS OR PRUDENTIAL SECURITIES OF AN ORDER IN PROPER
FORM. SEE "HOW THE FUND VALUES ITS SHARES." When an exchange order is received
by PMFS 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 dividends on the shares purchased will begin on the business day
following such investment. For federal income tax purposes, an exchange is
treated as a sale on which a shareholder may realize a capital gain or loss. See
"Taxes, Dividends and Distributions."
Application forms can be obtained from PMFS or Prudential Securities. 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.
The Fund reserves the right to reject any purchase order (including an
exchange into the Fund) or to suspend or modify the continuous offering of its
shares. See "How to Sell Your Shares."
Your dealer is responsible for forwarding payment promptly to the Fund. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the fifth business day following the investment.
Transactions in Fund shares may be subject to postage and handling charges
imposed by your dealer.
Class B and Class C shares of Prudential Mutual Funds may be exchanged for
shares of the Fund without imposition of a contingent deferred sales charge at
the time of exchange. Upon subsequent redemption from the Fund or after re-
exchange into the Class B or Class C shares of the original fund or another
Prudential Mutual Fund, such shares will again be subject to a contingent
deferred sales charge calculated without regard to the period during which
shares of the Fund were held. Shares of the Fund may not be exchanged into the
Class A shares of the Prudential Mutual Funds. Shares of the Fund which were
obtained as a result of an exchange of Class B shares of The BlackRock
Government Income Trust may only be exchanged back for Class B shares of The
BlackRock Government Income Trust.
IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MAY AUTHORIZE THE TELEPHONE
EXCHANGE PRIVILEGE ON YOUR INITIAL APPLICATION FORM OR BY WRITTEN NOTICE TO THE
TRANSFER AGENT AND HOLD SHARES IN NON-CERTIFICATE FORM. Thereafter, you may call
the Fund at (800) 225-1852 to execute a telephone exchange of shares, weekdays,
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<PAGE>
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 net asset value of the two funds next determined after the request is
received in good order. The Exchange Privilege is available only in states where
the exchange may legally be made.
IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES OR THROUGH A DEALER WHICH
HAS ENTERED INTO A SELECTED DEALER AGREEMENT WITH THE FUND'S DISTRIBUTOR, YOU
MUST EXCHANGE YOUR SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL
ADVISER. IF YOU HOLD CERTIFICATES, THE CERTIFICATE SIGNED IN THE NAME(S) SHOWN
ON THE FACE OF THE CERTIFICATE MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES."
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services, Inc., Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
IN PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS, THE TELEPHONE EXCHANGE OF
SHARES MAY BE DIFFICULT TO IMPLEMENT AND SHAREHOLDERS SHOULD MAKE EXCHANGES BY
MAIL BY WRITING TO PRUDENTIAL MUTUAL FUND SERVICES, INC. AT THE ADDRESS NOTED
ABOVE.
The Exchange Privilege may be modified or terminated at any time on 60 days'
notice to shareholders.
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." In certain cases,
however, redemption proceeds will be reduced by the amount of any applicable
contingent deferred sales charge imposed by the original fund. See "Contingent
Deferred Sales Charge" below.
IF YOU HOLD SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, YOU MUST REDEEM
YOUR SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER. IF YOU
HOLD SHARES IN NON-CERTIFICATE FORM, A WRITTEN REQUEST FOR REDEMPTION SIGNED BY
YOU EXACTLY AS THE ACCOUNT IS REGISTERED IS REQUIRED. IF YOU HOLD CERTIFICATES,
THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE FACE OF THE CERTIFICATES,
MUST BE RECEIVED BY THE TRANSFER AGENT IN ORDER FOR THE REDEMPTION REQUEST TO BE
PROCESSED. IF REDEMPTION IS REQUESTED BY A CORPORATION, PARTNERSHIP, TRUST OR
FIDUCIARY, WRITTEN EVIDENCE OF AUTHORITY ACCEPTABLE TO THE TRANSFER AGENT MUST
BE SUBMITTED BEFORE SUCH REQUEST WILL BE ACCEPTED. All correspondence and
documents concerning redemptions should be sent to the Fund in care of its
Transfer Agent, Prudential Mutual Fund Services, Inc., Attention: Redemption
Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010.
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 Pruco Securities Corporation
(Prusec), a signature guarantee may be obtained from the agency or office
manager of most Prudential Insurance and Financial Services or Prudential
Preferred Financial Services offices.
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<PAGE>
PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE MADE BY CHECK WITHIN
SEVEN DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE CERTIFICATE AND/OR WRITTEN
REQUEST EXCEPT AS INDICATED BELOW. If you hold shares through Prudential
Securities, payment for shares presented for redemption will be credited to your
Prudential Securities account, unless you indicate otherwise. Such payment may
be postponed or the right of redemption suspended at times (a) when the New York
Stock Exchange is closed for other than customary weekends and holidays, (b)
when trading on such Exchange is restricted, (c) when an emergency exists as a
result of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (d) during any other period when the Securities
and Exchange Commission, by order, so permits; provided that applicable rules
and regulations of the Commission shall govern as to whether the conditions
prescribed in (b), (c) or (d) exist.
PAYMENT OF REDEMPTION PROCEEDS 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 IF SHARES ARE
PURCHASED BY WIRE OR BY CERTIFIED OR OFFICIAL BANK CHECK.
REDEMPTION OF SHARES PURCHASED THROUGH PRUDENTIAL SECURITIES
Shares of the Fund purchased by Prudential Securities on behalf of its
clients will be held by Prudential Securities as record holder. Shareholders who
hold shares of the Fund through Prudential Securities must therefore redeem
their shares by contacting their Prudential Securities financial adviser. The
Transfer Agent will not accept redemption requests directly from such Prudential
Securities clients.
CHECK REDEMPTION
At your request, State Street Bank and Trust Company (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 plus any applicable
contingent deferred sales charges. 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." Checks in an amount less than $500 will
not be honored. Shares for which certificates have been issued cannot be
redeemed by check. There is a service charge of $5.00 payable to PMFS to
establish a checking account and order checks.
EXPEDITED REDEMPTION
By pre-authorizing Expedited Redemption, you may arrange to have payment for
redeemed shares wired to your bank, normally on the next business day following
redemption. In order to use Expedited Redemption, you may so designate at the
time the initial investment is made or at a later date. Once an Expedited
Redemption authorization form has been completed, the signature on the
authorization form guaranteed as set forth above and the form returned to PMFS,
requests for redemption may be made by telegraph, letter or telephone. To
request Expedited Redemption by telephone, you should call PMFS at (800)
225-1852. Calls must be received by PMFS before 4:30 P.M., New York time, to
permit redemption as of such date. Requests by letter should be addressed to
Prudential Mutual Fund Services, Inc., Attention: Prudential Special Money
Market Fund, P.O. Box 15010, New Brunswick, New Jersey 08906-5010. 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 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
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<PAGE>
of less than $1,000 are forwarded by check to your designated bank account. Any
applicable contingent deferred sales charges will be deducted from the proceeds
of redeemed shares.
In periods of severe market or economic conditions, expedited redemptions may
be difficult to implement and shareholders should redeem their shares by mail as
described above.
REDEMPTION IN KIND
If the Board of Directors determines that it would be detrimental to the best
interests of the remaining shareholders of the Fund to make payment wholly or
partly in cash, the Fund may pay the redemption price in whole or in part by a
distribution in kind of securities from the investment portfolio of the Fund, in
lieu of cash, in conformity with applicable rules of the SEC. Securities will be
readily marketable and will be valued in the same manner as in a regular
redemption. See "How the Fund Values its Shares." If your shares are redeemed in
kind, you would incur transaction costs in converting the assets into cash. The
Fund, however, has elected to be governed by Rule 18f-1 under the Investment
Company Act, pursuant to which the Fund is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of the net asset value of the Fund
during any 90-day period for any one shareholder.
INVOLUNTARY REDEMPTION
In order to reduce expenses of the Fund, the Board of Directors may redeem
all of the shares of any shareholder, other than a shareholder which is an IRA
or other tax-deferred retirement plan, whose account has a net asset value of
less than $500 due to a redemption upon 60 days' prior written notice.
30-DAY REPURCHASE PRIVILEGE
If you redeem your shares and have not previously exercised the repurchase
privilege, you may reinvest any portion or all of the proceeds of such
redemption in shares of the Fund at the net asset value next determined after
the order is received, which must be within 30 days after the date of the
redemption. You will receive pro rata credit for any contingent deferred sales
charge paid in connection with such redemption. You must notify the Fund's
Transfer Agent, either directly or through Prudential Securities or Prusec, at
the time the repurchase privilege is exercised that you are entitled to credit
for the contingent deferred sales charge previously paid.
Exercise of the repurchase privilege may affect the federal income tax
treatment of any loss realized upon redemption. To the extent that the
redemption resulted in a loss, some or all of the loss, depending on the amount
reinvested, will generally not be allowed for federal income tax purposes.
CONTINGENT DEFERRED SALES CHARGE
Shares of the Fund are sold without any sales charge. Shareholders who
exchange into the Fund, however, are generally subject to a contingent deferred
sales charge imposed by the original fund upon their redemption of shares of the
Fund depending on the date of purchase of shares of the original fund, without
regard to the time shares were held in the Fund.
The following example is provided to assist an investor in understanding how
a contingent deferred sales charge is applied. Shareholders are advised to read
the prospectus of the original fund for a description of the applicable
contingent deferred sales charge. Shareholders may obtain copies of prospectuses
of the Prudential Mutual Funds by telephoning the Fund at (800) 225-1852 or by
writing to Prudential Mutual Fund Services, Inc., P.O Box 15010, New Brunswick,
New Jersey 08906-5010.
For example, assume an investor purchased 100 Class B shares of a fund (the
original fund) (subject to a contingent deferred sales charge declining from 5%
to 1% over a period of six years) at $10 per share for a total cost
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<PAGE>
of $1,000. Subsequently, the shareholder acquired 5 additional shares of the
original fund through dividend reinvestment. During the second year after the
original purchase, the investor exchanged into the Fund. Assuming at the time of
the exchange, the net asset value of the original fund had appreciated to $12
per share, the value of the investor's shares would be $1260 (105 shares at $12
per share). Subsequently, the shareholder acquired 1 additional share of the
Fund through dividend reinvestment (1 share at $1.00 per share). In year three,
the investor decided to redeem $500 of his or her investment. A contingent
deferred sales charge would not be applied to the amount which represents
appreciation and the value of the reinvested dividend shares ($261). Therefore,
$239 of the redemption proceeds ($500 minus $261) would be charged at a rate of
4% (the applicable contingent defined sales charge in the second year after
purchase of the original fund, i.e., without regard to the time shares were held
in the Fund) for a total contingent deferred sales charge of $9.56.
SHAREHOLDER SERVICES
As a shareholder in the Fund, you can take advantage of the following
additional services and privileges:
. AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTION WITHOUT A SALES
CHARGE. For your convenience, all dividends and distributions are automatically
reinvested in full and fractional shares of the Fund at NAV. You may direct the
Transfer Agent in writing not less than 5 full business days prior to the record
date to have subsequent dividends and/or distributions sent in cash rather than
reinvested. If you hold shares through Prudential Securities, you should contact
your financial adviser.
. TAX-DEFERRED RETIREMENT PLANS. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue Code
are available through the Distributor. These plans are for use by both
self-employed individuals and corporate employers. These plans permit either
self-direction of accounts by participants, or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from Prudential Securities or the
Transfer Agent. If you are considering adopting such a plan, you should consult
with your own legal or tax adviser with respect to the establishment and
maintenance of such a plan.
. SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders which provides for monthly or quarterly checks. Because such
withdrawals constitute redemptions, they are subject to any applicable
contingent deferred sales charges, as described above.
. REPORTS TO SHAREHOLDERS. The Fund will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses the Fund will provide one annual report and semi-annual shareholder
report and annual prospectus per household. You may request additional copies of
such reports by calling (800) 225-1852 or by writing to the Fund at One Seaport
Plaza, New York, New York 10292. In addition, monthly unaudited financial data
are available upon request from the Fund.
. SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Fund at One
Seaport Plaza, New York, New York 10292, or by telephone, at (800) 225-1852
(toll free) or, from outside the U.S.A., at (908) 417-7555 (collect).
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THE PRUDENTIAL MUTUAL FUND FAMILY
Prudential Mutual Fund Management offers a broad range of mutual funds
designed to meet your individual needs. We welcome you to review the investment
options available through our family of funds. For more information on the
Prudential Mutual Funds, including charges and expenses, contact your Prudential
Securities financial adviser or Prusec representative or telephone the Fund at
(800) 225-1852 for a free prospectus. Read the prospectus carefully before you
invest or send money.
<TABLE> <CAPTION>
TAXABLE BOND FUNDS EQUITY FUNDS
<S> <C>
Prudential Adjustable Rate Securities Fund, Inc. Prudential Allocation Fund
Prudential GNMA Fund, Inc. Conservatively Managed Portfolio
Prudential Government Income Fund, Inc. Strategy Portfolio
Prudential Government Securities Trust Prudential Equity Fund, Inc.
Intermediate Term Series Prudential Equity Income Fund
Prudential High Yield Fund, Inc. Prudential Growth Opportunity Fund, Inc.
Prudential Structured Maturity Fund, Inc. Prudential IncomeVertible(R) Fund, Inc.
Income Portfolio Prudential Multi-Sector Fund, Inc.
Prudential U.S. Government Fund Prudential Strategist Fund, Inc.
The BlackRock Government Income Trust Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
TAX-EXEMPT BOND FUNDS
Prudential California Municipal Fund MONEY MARKET FUNDS
California Series
California Income Series . Taxable Money Market Funds
Prudential Municipal Bond Fund Prudential Government Securities Trust
High Yield Series Money Market Series
Insured Series U.S. Treasury Money Market Series
Modified Term Series Prudential Special Money Market Fund
Prudential Municipal Series Fund Money Market Series
Arizona Series Prudential MoneyMart Assets
Florida Series . Tax-Free Money Market Funds
Georgia Series Prudential Tax-Free Money Fund
Maryland Series Prudential California Municipal Fund
Massachusetts Series California Money Market Series
Michigan Series Prudential Municipal Series Fund
Minnesota Series Connecticut Money Market Series
New Jersey Series Massachusetts Money Market Series
New York Series New Jersey Money Market Series
North Carolina Series New York Money Market Series
Ohio Series . Command Funds
Pennsylvania Series Command Money Fund
Prudential National Municipals Fund, Inc. Command Government Fund
Command Tax-Free Fund
GLOBAL FUNDS . Institutional Money Market Funds
Prudential Institutional Liquidity Portfolio, Inc.
Prudential Europe Growth Fund, Inc. Institutional Money Market Series
Prudential Global Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Natural Resources Fund, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential Short-Term Global Income Fund, Inc.
Global Assets Portfolio
Short-Term Global Income Portfolio
Global Utility Fund, Inc.
</TABLE>
18
<PAGE>
DESCRIPTION OF SECURITY RATINGS
MOODY'S INVESTORS SERVICE (MOODY'S)
BOND RATINGS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than Aaa bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
SHORT-TERM DEBT RATINGS
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations having an original maturity not
exceeding one year.
P-1: Issuers rated "Prime 1" (or supporting institutions) have a superior
ability for repayment of senior short-term obligations.
P-2: Issuers rated "Prime 2" (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations.
STANDARD & POOR'S RATINGS GROUP (S&P)
BOND RATINGS
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
COMMERCIAL PAPER RATINGS
S&P's commercial paper ratings are current assessments of the likelihood of
timely payment of debt considered short-term in the relevant market.
A-1: The A-1 designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+).
A-2: Capacity for timely payments on issues with the designation A-2 is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-1
<PAGE>
DUFF & PHELPS CREDIT RATING CO.
LONG-TERM DEBT RATINGS
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA: High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.
SHORT-TERM DEBT RATINGS
Duff 1+: Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of funds, is
outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations.
Duff 1: Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk factors are
minor.
Duff 1- High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
Duff 2: Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
A-2
<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
<TABLE>
<S> <C>
PAGE
-----------
FUND HIGHLIGHTS................................ 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.................................. 10
Portfolio Transactions....................... 10
Custodian and Transfer and
Dividend Disbursing Agent.................. 10
HOW THE FUND VALUES ITS SHARES................. 10
TAXES, DIVIDENDS AND DISTRIBUTIONS............. 11
GENERAL INFORMATION............................ 12
Description of Common Stock.................. 12
Additional Information....................... 12
SHAREHOLDER GUIDE.............................. 13
How to Buy Shares of the Fund................ 13
How to Sell Your Shares...................... 14
Shareholder Services......................... 17
THE PRUDENTIAL MUTUAL FUND FAMILY.............. 18
APPENDIX....................................... A-1
</TABLE>
------------------------------------------------------
444132B MF141A
CUSIP NO: 74430J-10-3
Prudential
Special Money
Market Fund
Money Market Series
- ------------------------------------------------------
PRUDENTIAL MUTUAL FUNDS
BUILDING YOUR FUTURE
ON OUR STRENGTH
<PAGE>
P
R
O
S
P
E
C
T
U
S
AUGUST 29, 1994
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND
Statement of Additional Information
dated August 29, 1994
Prudential-Bache Special Money Market Fund, Inc., doing business as
Prudential Special Money Market Fund (the Fund), is an open-end, diversified
management investment company which is currently comprised of one series, the
Money Market Series (the Series or the Fund). The investment objective of the
Fund is high current income consistent with the preservation of principal and
liquidity. The Fund seeks to achieve its objective by investing in a diversified
portfolio of high quality money market instruments maturing in thirteen months
or less. There can be no assurance that the Fund's investment objective will be
achieved. See ``Investment Objective and Policies.''
The Fund's address is One Seaport Plaza, New York, New York 10292 and its
telephone number is (800) 225-1852.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus dated August 29, 1994, a copy of
which may be obtained from the Fund upon request.
TABLE OF CONTENTS
<TABLE><CAPTION>
Cross-reference
to page in
Page Prospectus
---- ----------------
<S> <C> <C>
Investment Objective and Policies........................................... B-2 6
Investment Restrictions..................................................... B-4 9
Directors and Officers...................................................... B-5 9
Manager..................................................................... B-7 9
Distributor................................................................. B-9 10
Portfolio Transactions...................................................... B-9 10
Shareholder Investment Account.............................................. B-9 17
Net Asset Value............................................................. B-10 10
Dividends and Distributions................................................. B-11 11
Taxes....................................................................... B-11 11
Calculation of Yield........................................................ B-12 6
Custodian, Transfer and Dividend Disbursing Agent and Independent
Accountants............................................................... B-12 10
Financial Statements........................................................ B-13 --
Independent Auditors' Report................................................ B-21 --
</TABLE>
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is high current income consistent with
the preservation of principal and liquidity.
U.S. Government Obligations
The Fund will invest in U.S. Treasury obligations including bills, notes,
bonds and other debt obligations issued by the U.S. Treasury. These instruments
are direct obligations of the U.S. Government and, as such, are backed by the
``full faith and credit'' of the United States. They differ primarily in their
interest rates, the lengths of their maturities and the dates of their
issuances. The Fund will also invest in obligations which are guaranteed by
federal agencies or instrumentalities and which may or may not be backed by the
full faith and credit of the United States. Obligations of the Government
National Mortgage Association (GNMA), the Farmers Home Administration and the
Small Business Administration are backed by the full faith and credit of the
United States. In the case of obligations not backed by the full faith and
credit of the United States, the Fund must look principally to the agency
issuing or guaranteeing the obligation for ultimate repayment and may not be
able to assert a claim against the United States if the agency or
instrumentality does not meet its commitments. Instruments in which the Fund may
invest which are not backed by the full faith and credit of the United States
include obligations issued by the Federal Home Loan Banks, the Federal Home Loan
Mortgage Corporation (FHLMC), the Federal National Mortgage Association (FNMA),
the Student Loan Marketing Association, Resolution Funding Corporation and the
Tennessee Valley Authority, each of which under certain conditions has the right
to borrow from the U.S. Treasury to meet its obligations, and obligations of the
Farm Credit System, the obligations of which may be satisfied only by the
individual credit of the issuing agency. The Fund's investment in mortgage-
backed securities (e.g., GNMA, FNMA and FHLMC certificates) will be made only to
the extent such securities are used as collateral for repurchase agreements
entered into by the Fund.
Floating Rate and Variable Rate Securities
The Fund may purchase floating rate and variable rate securities.
Investments in floating or variable rate securities normally will involve
securities which provide that the rate of interest is set as a spread to a
designated base rate, such as rates on Treasury bills, and, in some cases, that
the purchaser can demand payment of the obligation at specified intervals or
after a specified notice period (in each case of less than one year) at par plus
accrued interest, which amount may be more or less than the amount paid for
them. Variable rate securities provide for a specified periodic adjustment in
the interest rate, while floating rate securities have an interest rate which
changes whenever there is a change in the designated base interest rate.
Liquidity Puts
The Fund may purchase instruments of the types described in the Prospectus
under ``How the Fund Invests--Investment Objective and Policies'' together with
the right to resell the instruments at an agreed-upon price or yield within a
specified period prior to the maturity date of the instruments. Such a right to
resell is commonly known as a ``put,'' and the aggregate price which the Fund
pays for instruments with a put may be higher than the price which otherwise
would be paid for the instruments. Consistent with the Fund's investment
objective and applicable rules issued by the Securities and Exchange Commission
and subject to the supervision of the Board of Directors, the purpose of this
practice is to permit the Fund to be fully invested while preserving the
necessary liquidity to meet unusually large redemptions and to purchase at a
later date securities other than those subject to the put. The Fund may choose
to exercise puts during periods in which proceeds from sales of its shares and
from recent sales of portfolio securities are insufficient to meet redemption
requests or when the funds available are otherwise allocated for investment. In
determining whether to exercise puts prior to their expiration date and in
selecting which puts 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, 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.
Since the value of the put is dependent on the ability of the put writer to
meet its obligation to repurchase, the Fund's policy is to enter into put
transactions only with such brokers, dealers or financial institutions which
present minimal credit risks. There is a credit risk associated with the
purchase of puts in that the broker, dealer or financial institution might
<PAGE>
default on its obligation to repurchase an underlying security. In the event
such a default should occur, the Fund is unable to predict whether all or any
portion of any loss sustained could subsequently be recovered from the broker,
dealer or financial institution.
The Fund values instruments which are subject to puts at amortized cost; no
value is assigned to the put. The cost of the put, if any, is carried as an
unrealized loss from the time of purchase until it is exercised or expires.
Repurchase Agreements
The Fund's repurchase agreements will be collateralized by U.S. Government
obligations. The Fund will enter into repurchase transactions only with parties
meeting creditworthiness standards approved by the Fund's Board of Directors.
The Fund's investment adviser will monitor the creditworthiness of such parties,
under the general supervision of the Board of Directors. In the event of a
default
B-2
<PAGE>
or bankruptcy by a seller, the Fund will promptly seek to liquidate the
collateral. To the extent that the proceeds from any sale of such collateral
upon a default in the obligation to repurchase are less than the repurchase
price, the Fund will suffer a loss.
The Fund participates in a joint repurchase account with other investment
companies managed by Prudential Mutual Fund Management, Inc. (PMF) pursuant to
an order of the Securities and Exchange Commission. On a daily basis, any
uninvested cash balances of the Fund may be aggregated with those of such
investment companies and invested in one or more repurchase agreements. Each
fund participates in the income earned or accrued in the joint account based on
the percentage of its investment.
Reverse Repurchase Agreements
Reverse repurchase agreements involve the sale of securities held by the
Fund with an agreement to repurchase the securities at an agreed-upon price,
date and interest payment. Generally, the effect of such a transaction is that
the Fund can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement, while
in many cases it will be able to keep some of the interest income associated
with those portfolio securities. The Fund intends only to use the reverse
repurchase technique when it will be to its advantage to do so. Such
transactions are advantageous if the Fund has an opportunity to earn a greater
rate of interest on the cash derived from the transactions than the interest
cost of obtaining that cash. Reverse repurchase agreements have the
characteristics of borrowing and may be considered speculative. The Fund may be
unable to realize earnings from the use of the proceeds equal to or greater than
the interest required to be paid. The use of reverse repurchase agreements may
exaggerate any increase or decrease in the value of the Fund's portfolio. The
Fund's custodian bank will maintain in a segregated account cash, U.S.
Government securities or other liquid high-grade debt obligations having a value
equal to or greater than such commitments. The Fund does not intend to invest in
reverse repurchase agreements during the coming year.
Illiquid Securities
The Fund may not invest 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 and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
Rule 144A of the Securities Act allows for a broader institutional trading
market for securities otherwise subject to restriction on resale to the general
public. Rule 144A establishes a ``safe harbor'' from the registration
requirements of the Securities Act for resales of certain securities to
qualified institutional buyers. The investment adviser anticipates that the
market for certain restricted securities such as institutional commercial paper
and foreign securities will expand further as a result of this new regulation
and the development of automated systems for the trading, clearance and
<PAGE>
settlement of unregistered securities of domestic and foreign issuers, such as
the PORTAL System sponsored by the National Association of Securities Dealers,
Inc.
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and commercial paper 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). In addition, in order for commercial paper that is issued in
reliance on Section 4(2) of the Securities Act to be considered liquid, (i) it
must be rated in one of the two highest rating categories by at least two
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
B-3
<PAGE>
investment adviser; and (ii) it must not be ``traded flat'' (i.e., without
accrued interest) or in default as to principal or interest. Repurchase
agreements subject to demand are deemed to have a maturity equal to the notice
period.
Securities of Other Investment Companies
The Fund may invest up to 10% of its total assets in securities of other
investment companies. Generally, the Fund does not intend to invest in such
securities. If the Fund invests in securities of other registered investment
companies, shareholders of the Fund may be subject to duplicate management and
advisory fees.
Pledging of Assets and Borrowing
The Fund may borrow up to 20% of the value of its total assets (computed at
the time the loan is made) from banks for temporary, extraordinary or emergency
purposes or for the clearance of transactions. The Fund may pledge up to 20% of
its total assets to secure such borrowings. The Fund will not purchase portfolio
securities if its borrowings exceed 5% of its total assets. See ``Investment
Restrictions.''
When-Issued and Delayed Delivery Securities
The Fund may purchase or sell securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased or sold by the Fund with payment and delivery taking
place in the future in order to secure what is considered to be an advantageous
price and yield to the Fund at the time of entering into the transaction. The
Fund's Custodian will maintain, in a segregated account for the Fund, cash, U.S.
Government securities or other liquid high-grade debt obligations, having a
value equal to (which is marked to market daily) or greater than the Fund's
purchase commitments; the Custodian will likewise segregate securities sold on a
delayed delivery basis.
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies. Fundamental policies
are those which cannot be changed without the approval of the holders of a
majority of the outstanding voting securities of the Fund. A ``majority of the
outstanding voting securities of the Fund,'' when used in this Statement of
Additional Information, means the lesser of (i) 67% of the voting shares
represented at a meeting at which more than 50% of the outstanding voting shares
are present in person or represented by proxy or (ii) more than 50% of the
outstanding voting shares.
The Fund may not:
1. Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of transactions).
2. Make short sales of securities or maintain a short position.
3. Issue senior securities, borrow money or pledge its assets, except
insofar as the Fund may be deemed to have issued a senior security by reason of
entering into a reverse repurchase agreement and except that the Fund may borrow
up to 20% of the value of its total assets (calculated when the loan is made)
from banks for temporary, extraordinary or emergency purposes or for the
clearance of transactions. The Fund may pledge up to 20% of the value of its
total assets to secure such borrowings or reverse repurchase agreements. For
purposes of this restriction, the purchase or sale of securities on a ``when-
issued'' or delayed delivery basis and obligations of the Fund to Directors
pursuant to deferred compensation arrangements are not deemed to be the issuance
of a senior security and such arrangements are not deemed to be a pledge of
assets.
4. Buy or sell real estate or interests in real estate, except that the
Fund may purchase and sell mortgage-backed securities, securities collateralized
by mortgages, securities which are secured by real estate, securities of
companies which invest or deal in real estate and publicly traded securities of
real estate investment trusts. The Fund may not purchase interests in real
estate limited partnerships which are not readily marketable.
5. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter under
certain federal securities laws.
6. Make investments for the purpose of exercising control or management.
7. Invest in interests in oil, gas or other mineral exploration or
development programs.
8. Make loans, except that the Fund may enter into repurchase agreements.
9. Purchase common stock or other voting securities, preferred stock,
warrants or other equity securities, except as may be permitted by the Fund by
restriction number 14 (below).
B-4
<PAGE>
10. Buy or sell commodities or commodity contracts (including futures
contracts and options thereon).
11. Purchase any security (other than obligations of the U.S. Government,
its agencies or instrumentalities) if as a result, with respect to 75% of the
Fund's total assets, more than 5% of the Fund's total assets (determined at the
time of investment) would then be invested in securities of a single issuer.
12. Purchase any securities (other than obligations of the U.S.
Government, its agencies or instrumentalities) if as a result 25% or more of the
value of the Fund's total assets (determined at the time of investment) would be
invested in the securities of one or more issuers conducting their principal
business activities in the same industry, provided that there is no limitation
with respect to money market instruments of domestic banks (including U.S.
branches of foreign banks that are subject to the same regulations as U.S. banks
and foreign branches of domestic banks, provided the domestic bank is
unconditionally liable in the event of the failure of the foreign branch to make
payment on its instruments for any reason).
13. Purchase securities, other than obligations of the U.S. Government,
its agencies or instrumentalities, of any issuer having a record, together with
predecessors, of less than three years of continuous operations if, immediately
after such purchase, more than 5% of the Fund's total assets would be invested
in such securities.
14. Invest in securities of other registered investment companies, except
by purchases 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 as part
of a merger, consolidation or other acquisition.
In order to comply with the requirements of certain state securities
commissions, the Fund will not as a matter of operating policy (i) invest in
oil, gas and mineral leases, (ii) purchase and sell (i.e., write) options except
for liquidity puts, (iii) invest in the securities of other registered
investment companies, except as they may be acquired as part of a merger,
consolidation or acquisition of assets and (iv) invest in securities which are
restricted as to disposition, if more than 15% of its total assets would be
invested in such securities. This restriction shall not apply to obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
<PAGE>
DIRECTORS AND OFFICERS
<TABLE><CAPTION>
Position with Principal Occupations
Name and Address the Fund During Past 5 Years
- ---------------------- -------------------- ---------------------------------------------------
<S> <C> <C>
Edward D. Beach Director President and Director of BMC Fund, Inc.; formerly
c/o Prudential Mutual Vice Chairman of Broyhill Furniture Industries,
Fund Inc.; Certified Public Accountant; Secretary and
Management, Inc. Treasurer of Broyhill Family Foundation, Inc.;
One Seaport Plaza President , Treasurer and Director of First
New York, NY Financial Fund, Inc. and The High Yield Plus
Fund, Inc.; Director of The Global Government
Plus Fund, Inc. and The Global Yield Fund, Inc.
Delayne D. Gold Director Marketing and Management Consultant.
c/o Prudential Mutual
Fund
Management, Inc.
One Seaport Plaza
New York, NY
*Harry A. Jacobs, Jr. Director Senior Director (since January 1986) of Prudential
One Seaport Plaza Securities Incorporated (Prudential Securities);
New York, NY formerly interim Chairman and Chief Executive
Officer (June-September 1993) of PMF; formerly,
Chairman of the Board of Prudential Securities
(1982-1985) and Chairman of the Board and Chief
Executive Officer of Bache Group Inc.
(1977-1982); Director of the Center for National
Policy, The First Australia Fund, Inc., The First
Australia Prime Income Fund, Inc., The Global
Government Plus Fund, Inc. and The Global Yield
Fund, Inc.; Trustee of The Trudeau Institute.
- ---------------
* ``Interested'' Director, as defined in the Investment Company Act of 1940, by
reason of his affiliation with Prudential Securities or PMF.
B-5
<PAGE>
<CAPTION>
Position with Principal Occupations
Name and Address the Fund During Past 5 Years
- ---------------------- -------------------- ---------------------------------------------------
<S> <C> <C>
*Lawrence C. McQuade President and Vice Chairman of PMF (since 1988); Managing
One Seaport Plaza Director Director, Investment Banking, Prudential
New York, NY Securities (1988-1991); Director of Quixote
Corporation (since February 1992) and BUNZL,
P.L.C. (since June 1991); formerly, Director of
Crazy Eddie Inc. (1987-1990) and Kaiser Tech
Ltd., Kaiser Aluminum and Chemical Corp. (March
1987-November 1988); President and Director of
The High Yield Income Fund, Inc., The Global
Government Plus Fund, Inc. and The Global Yield
Fund, Inc.
*Richard A. Redeker Director President, Chief Executive Officer and Director
One Seaport Plaza (since October 1993), PMF; Executive Vice
New York, NY President, Director and Member of the Operating
Committee (since October 1993), Prudential
Securities; Director (since October 1993) of
Prudential Securities Group, Inc. (PSG). Formerly
Senior Executive Vice President and Director of
Kemper Financial Services, Inc. (September
1978-September 1993); Director of The Global
Government Plus Fund, Inc., The Global Yield
Fund, Inc. and The High Yield Income Fund, Inc.
Stanley E. Shirk Director Certified Public Accountant and a former Senior
c/o Prudential Mutual Partner of the accounting firm of KPMG Peat,
Fund Marwick; former Management and Accounting
Management, Inc. Consultant for the Association of Bank Holding
One Seaport Plaza Companies, Washington, D.C. and the Bank
New York, NY Administration Institute, Chicago, IL; Director
of The High Yield Income Fund, Inc.
Stephen Stoneburn Director Senior Vice President and Managing Director, Cowles
c/o Prudential Mutual Business Media (since January 1993); prior
Fund thereto, Senior Vice President (January
Management, Inc. 1991-1992) and Publishing Vice President (May
One Seaport Plaza 1989-December 1990) of Gralla Publications, a
New York, NY division of United Newspapers, U.K.; formerly
Senior Vice President of Fairchild Publications,
Inc.
Nancy H. Teeters Director Economist; formerly, Vice President and Chief
c/o Prudential Mutual Economist (March 1986-June 1990) of International
Fund Business Machines Corporation; Member of the
Management, Inc. Board of Governors of the
One Seaport Plaza Horace H. Rackham School of Graduate Studies of
New York, NY the University of Michigan; Director of Inland
Steel Corporation (since July 1991), The Global
Yield Fund, Inc. and First Financial Fund, Inc.
Robert F. Gunia Vice President Chief Administrative Officer (since July 1990),
One Seaport Plaza Director (since January 1989) and Executive Vice
New York, NY President, Treasurer and Chief Financial Officer
(since June 1987) of PMF; Senior Vice President
(since March 1987) of Prudential Securities; Vice
President and Director of The Asia Pacific Fund,
Inc. (since May 1989).
<PAGE>
<CAPTION>
<S> <C> <C>
S. Jane Rose Secretary Senior Vice President (since January 1991), Senior
One Seaport Plaza Counsel (since June 1987) and First Vice
New York, NY President (June 1987-December 1990) of PMF;
Senior Vice President and Senior Counsel of
Prudential Securities (since July 1992); formerly
Vice President and Associate General Counsel of
Prudential Securities.
Susan C. Cote Treasurer and Senior Vice President (since January 1989) of PMF;
One Seaport Plaza Principal Accounting Senior Vice President (since January 1992) and
New York, NY Officer Vice President (January 1986-December 1991) of
Prudential Securities.
- ---------------
* ``Interested'' Director, as defined in the Investment Company Act of 1940, by
reason of his affiliation with Prudential Securities or PMF.
B-6
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Position with Principal Occupations
Name and Address the Fund During Past 5 Years
- ---------------------- -------------------- ---------------------------------------------------
<S> <C> <C>
Domenick Pugliese Assistant Secretary Vice President (since July 1992) and Associate
One Seaport Plaza General Counsel (since March 1992) of PMF; Vice
New York, NY President and Associate General Counsel of
Prudential Securities (since July 1992); prior
thereto, associated with the law firm of Battle
Fowler.
</TABLE>
Directors and officers of the Fund are also trustees, directors and
officers of some or all of the other investment companies managed by Prudential
Mutual Fund Management, Inc.
The officers conduct and supervise the daily business operations of the
Fund, while the Directors, in addition to their functions set forth under
``Manager,'' review such actions and decide on general policy.
The Fund pays each of its Directors who is not an affiliated person of the
Manager or The Prudential Investment Corporation annual compensation of $3,000
in addition to certain out-of-pocket expenses.
Directors may receive their Directors' fees pursuant to a deferred fee
agreement with the Fund. Under the terms of the agreement, the Fund accrues
daily the amount of Directors' fees 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 at the daily rate of return of the Fund. 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.
As of August 5, 1994, the Directors and officers of the Fund, as a group,
owned less than 1% of the outstanding shares of common stock of the Fund.
As of August 5, 1994, Prudential Securities was recordholder of 242,925,991
shares (or 61% of the outstanding shares of the Fund). In the event of any
meetings of shareholders, Prudential Securities will forward, or cause the
forwarding of, proxy material to the beneficial owner for which it is the
recordholder.
MANAGER
The manager of the Fund is Prudential Mutual Fund Management, Inc. (PMF or
the Manager), One Seaport Plaza, New York, New York 10292. PMF serves as manager
to substantially 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 July 31, 1994, PMF managed and/or
administered open-end and closed-end management investment companies with
assets of approximately $47 billion. According to the Investment Company
Institute, as of April 30, 1994, the Prudential Mutual Funds were the 12th
largest family of mutual funds in the United States.
Pursuant to a Management Agreement with the Fund (the Management
Agreement), PMF, subject to the supervision of the Fund's Board of Directors and
in conformity with the stated policies of the Fund, manages both the investment
operations of the Fund and the composition of the Fund's portfolio, including
the purchase, retention, disposition and loan of securities. In connection
therewith, PMF is obligated to keep certain books and records of the Fund. PMF
also administers the Fund's corporate affairs and, in connection therewith,
furnishes the Fund with office facilities, together with those ordinary clerical
and bookkeeping services which are not being furnished by State Street Bank and
Trust Company, the Fund's custodian, and Prudential Mutual Fund Services, Inc.,
the Fund's transfer and dividend disbursing agent. The management services of
PMF for the Fund are not exclusive under the terms of each Management Agreement
and PMF is free to, and does, render management services to others.
For its services, PMF receives, pursuant to the Management Agreement fees
at an annual rate of .50 of 1% of the average daily net assets of the Fund. The
fees are computed daily and payable monthly. The Management Agreement also
provides that, in the event the expenses of the Fund (including the fees of PMF,
but excluding interest, taxes, brokerage commissions and litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of the Fund's business) for any fiscal year exceed the lowest
applicable annual expense limitation established and enforced pursuant to the
statutes or regulations of any jurisdiction in which the Fund's shares are
qualified for offer and sale, the compensation due to PMF will be reduced by the
<PAGE>
amount of such excess. Reductions in excess of the total compensation payable to
PMF will be paid by PMF to the Fund. No such reductions were required during the
fiscal year ended June 30, 1994. Currently, the Fund believes that the most
restrictive expense limitation of state securities commissions is 2 1/2% of the
Fund's average daily net assets up to $30 million, 2% of the next $70 million of
such assets and 1 1/2% of such assets in excess of $100 million.
In connection with its management of the corporate affairs of the Fund, PMF
bears the following expenses:
(a) the salaries and expenses of all of its and of the Fund's personnel,
except the fees and expenses of Directors who are not affiliated persons of PMF
or the Fund's investment adviser;
B-7
<PAGE>
(b) all expenses incurred by PMF or by the Fund in connection with managing
the ordinary course of the Fund's business, other than those assumed by the
Fund, as described below; and
(c) the costs and expenses payable to The Prudential Investment Corporation
(PIC) pursuant to the Subadvisory Agreement.
Under the terms of the Management Agreement, the Fund is responsible for
the payment of the following expenses: (a) the fee payable to the Manager, (b)
the fees and expenses of Directors who are not affiliated persons of 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
for the Fund, (e) brokerage commissions and any issue or transfer taxes
chargeable to the Fund in connection with its securities 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 may be a member, (h) the cost of
stock certificates representing shares of the Fund, (i) the cost of fidelity and
liability insurance, (j) certain organizational expenses and the fees and
expenses involved in registering and maintaining registration of the Fund and of
its shares with the Securities and Exchange Commission, registering the Fund and
qualifying its shares under state securities laws, including the preparation and
printing of the Fund's registration statements and prospectuses for such
purposes, (k) allocable communications expenses with respect to investor
services and all expenses of shareholders' and Board of Directors' meetings and
of preparing, printing and mailing reports to shareholders, and (l) litigation
and indemnification expenses and other extraordinary expenses not incurred in
the ordinary course of the Fund's business.
The Management Agreement provides that PMF will not be liable for any error
of judgment or for any loss suffered by the Fund in connection with the matters
to which the Management Agreement relates, except a loss resulting from willful
misfeasance, bad faith, gross negligence or reckless disregard of duty. The
Management Agreement provides that it will terminate automatically if assigned,
and that it may be terminated without penalty by either party upon not more than
60 days', nor less than 30 days', written notice. The Management Agreement
provides that it will continue in effect for a period of more than two years
from its execution only so long as such continuance is specifically approved at
least annually in accordance with the requirements of the Investment Company
Act. The Management Agreement was last approved by the Board of Directors,
including a majority of the Directors who are not parties to the contract or
interested persons of any such party as defined in the Investment Company Act,
on April 13, 1994, and by the Fund's shareholders on October 30, 1990.
For the fiscal years ended June 30, 1994, 1993 and 1992, the Fund paid
management fees of $1,359,346, $1,069,740 and $1,246,113, respectively.
PMF has entered into a Subadvisory Agreement with PIC, a wholly-owned
subsidiary of Prudential. The Subadvisory Agreement provides that PIC will
furnish investment advisory services in connection with the management of the
Fund. In connection therewith, PIC is obligated to keep certain books and
records of the Fund. PMF continues to have responsibility for all investment
advisory services pursuant to the Management Agreement and supervises PIC's
performance of those services. PIC is reimbursed by PMF for the reasonable costs
and expenses incurred by PIC in furnishing those services.
The Subadviser maintains a corporate credit unit which provides credit
analysis and research on taxable fixed-income securities including money market
instruments. The portfolio manager consults routinely with the credit unit in
managing the Fund's portfolio. The credit unit, which currently maintains a
staff of credit analysts, reviews on an ongoing basis commercial paper issuers,
commercial banks, non-bank financial institutions and issuers of other taxable
fixed-income obligations. Credit analysts have broad access to research and
financial reports, data retrieval services and industry analysts. They maintain
relationships with the management of corporate issuers and from time to time
visit companies in whose securities the Fund may invest.
The Subadvisory Agreement was last approved by the Board of Directors,
including a majority of the Directors who are not parties to the contract or
interested persons of any such party as defined in the Investment Company Act,
on April 14, 1994, and by shareholders of the Fund on October 30, 1990.
The Subadvisory Agreement provides that it will terminate in the event of
its assignment as defined in the Investment Company Act or upon the termination
of the Management Agreement. The Subadvisory Agreement may be terminated by the
Fund, PMF, or PIC upon not less than 30 days' nor more than 60 days' written
notice. The Subadvisory Agreement provides that it will continue in effect for a
period of more than two years from its execution only so long as such
continuance is specifically approved at least annually in accordance with the
requirements of the Investment Company Act.
The Manager and the Subadviser (The Prudential Investment Corporation) are
subsidiaries of The Prudential Insurance Company of America (The Prudential)
which, as of December 31, 1993, was the largest insurance company in North
America. The Prudential has been engaged in the insurance business since 1875.
In July 1993, Institutional Investor ranked The Prudential the third largest
institutional money manager of the 300 largest money management organizations in
the United States as of December 31, 1992.
B-8
<PAGE>
DISTRIBUTOR
Prudential Mutual Fund Distributors, Inc. (PMFD or the Distributor), One
Seaport Plaza, New York, New York 10292, acts as distributor to the Fund under a
distribution agreement between PMFD and the Fund (the Distribution Agreement).
See ``How the Fund is Managed-- Distributor'' in the Prospectus. PMFD is a
wholly-owned subsidiary of PMF. The services it provides to the Fund are
described in the Prospectus. See ``How the Fund is Managed--Distributor.''
The Fund's Distribution Agreement provides that it will terminate
automatically if assigned and that it may be terminated, without payment of any
penalty, by a majority of the Directors who are not parties to the Distribution
Agreement or interested persons of any such parties and who have no direct or
indirect financial interest in the Distribution Agreement or in any agreement
related thereto or by vote of a majority of the outstanding voting securities of
the Fund or by the Distributor, on 60 days' written notice to the other party.
The Distribution Agreement was last approved by the Board of Directors,
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 Distribution
Agreement, on April 13, 1994.
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.
PORTFOLIO TRANSACTIONS
The Manager is responsible for decisions to buy and sell securities for the
Fund, the selection of brokers and dealers to effect the transactions and the
negotiation of brokerage commissions, if any. For purposes of this section, the
term ``Manager'' includes the Subadviser. The Fund will not normally incur any
brokerage commission expense on such transactions. In the market for money
market instruments, 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. On occasion, certain money market
instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid. Portfolio securities may not be purchased
from any underwriting or selling syndicate of which Prudential Securities or any
affiliate thereof, during the existence of the syndicate, is a principal
underwriter (as defined in the Investment Company Act), except in accordance
with rules of the Securities and Exchange Commission. The Fund will not deal
with Prudential Securities or its affiliates on a principal basis.
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 under the circumstances. While the
Manager generally seeks reasonably competitive spreads or commissions, the Fund
will not necessarily be paying the lowest spread or commissions available.
Within the framework of this policy the Manager may 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 companies 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 for such other accounts, whose aggregate assets are far larger
than the Fund's, and the services furnished by such brokers may be used by the
Manager in providing investment management for the Fund. While such services are
useful and important in supplementing its own research and facilities, the
Manager believes that the value of such services is not determinable and does
not significantly reduce expenses. The Fund does not reduce the advisory fee it
pays to the Manager by any amount that may be attributed to the value of such
services.
Subject to the above considerations, Prudential Securities may act as a
securities broker for the Fund. In order for Prudential Securities (or any
affiliate) to effect any portfolio transactions for the Fund, the commissions,
fees or other remuneration received by Prudential Securities (or any affiliate)
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 during a comparable period
of time. This standard would allow Prudential Securities (or any affiliate) 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
<PAGE>
are not ``interested'' persons, has adopted procedures which are reasonably
designed to provide that any commissions, fees or other remuneration paid to
Prudential Securities (or any affiliate) are consistent with the foregoing
standard.
The Fund paid no brokerage commissions for the fiscal years ended June 30,
1994, 1993 and 1992.
SHAREHOLDER INVESTMENT ACCOUNT
Upon the acquisition of shares of the Fund, a Shareholder Investment
Account is established for each investor under which a record of the shares held
is maintained by the Transfer Agent. The Transfer Agent maintains an account for
each investor expressed in terms of full and fractional shares of the Fund
rounded to the nearest 1/100th of a share.
B-9
<PAGE>
Automatic Reinvestment of Dividends and/or Distributions. For the
convenience of investors, all dividends and distributions are automatically
reinvested in full and fractional shares of the Fund. An investor may direct the
Transfer Agent in writing not less than five full business days prior to the
payment date to have subsequent dividends and/or distributions sent in cash
rather than reinvested.
Systematic Withdrawal Plan. A systematic withdrawal plan is available to
shareholders through Prudential Securities or the Transfer Agent. Such
withdrawal plan provides for monthly or quarterly checks in any amount, except
as provided below, up to the value of the shares in the shareholder's account.
Because withdrawals constitute redemptions, they will be subject to any
applicable contingent deferred sales charge, as described in the Prospectus. See
``Shareholder Guide--How to Sell Your Shares--Contingent Deferred Sales Charge''
in the Prospectus.
In the case of shares held through the Transfer Agent (i) a $10,000 minimum
account values applies, (ii) withdrawals may not be for less than $100 and (iii)
the shareholder must elect to have all dividends and/or distributions
automatically reinvested in additional full and fractional shares at net asset
value on shares held under this plan. See ``Shareholder Investment Account--
Automatic Reinvestment of Dividends and/or Distributions.''
Prudential Securities and the Transfer Agent act as agents for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment. The systematic withdrawal plan may be
terminated at any time, and the Distributor reserves the right to initiate a fee
of up to $5 per withdrawal, upon 30 days' written notice to the shareholder.
Withdrawal payments should not be considered as dividends, yield or income.
If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.
Furthermore, each withdrawal constitutes a redemption of shares, and any
gain or loss realized must be recognized for federal income tax purposes. Each
shareholder should consult his or her own tax adviser with regard to the tax
consequences of the systematic withdrawal plan, particularly if used in
connection with a retirement plan.
Tax-Deferred Retirement Plans. Various tax-deferred retirement plans,
including a 401(k) Plan, self-directed individual retirement accounts and ``tax-
sheltered accounts'' under Section 403(b)(7) of the Internal Revenue Code are
available through the Distributor. These plans are for use by both self-employed
individuals and corporate employers. These plans permit either self-direction of
accounts by participants, or a pooled account arrangement. Information regarding
the establishment of these plans, the administration, custodial fees and other
details are available from Prudential Securities or the Transfer Agent.
Investors who are considering the adoption of such a plan should consult
with their own legal counsel or tax adviser with respect to the establishment
and maintenance of any such plan.
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.
<PAGE>
Tax-Deferred Compounding1
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 the
IRA account will be subject to tax when withdrawn from the account.
NET ASSET VALUE
The Fund uses the amortized cost method of valuation to determine the value
of its portfolio securities. In that regard, the Fund's Board of Directors has
determined to maintain a dollar-weighted average portfolio maturity of 90 days
or less, to purchase only instruments having remaining maturities of thirteen
months or less, and to invest only in securities determined by the investment
adviser under the direction of the Board of Directors to be of minimal credit
risk and of eligible quality. Subject to the Fund's compliance with the
applicable
B-10
<PAGE>
rules promulgated by the SEC relating to the amortized cost method of valuation,
the remaining maturity of an instrument held by the Fund that is subject to a
put is deemed to be the period remaining until the principal amount can be
recovered through demand or, in the case of a variable rate instrument, the next
interest reset date, if longer. The value assigned to the put is zero. The Board
of Directors also has established procedures designed to stabilize, to the
extent reasonably possible, the Fund's price per share as computed for the
purpose of sales and redemptions at $1.00. Such procedures will include review
of the Fund's portfolio holdings by the Board, at such intervals as deemed
appropriate, to determine whether the Fund's net asset value calculated by using
available market quotations deviates from $1.00 per share based on amortized
cost. The extent of any deviation will be examined by the Board, and 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 of Directors 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 as it regards necessary and appropriate, including the sale of portfolio
instruments prior to maturity to realize gains or losses, the shortening of
average portfolio maturity, the withholding of dividends or the establishment of
net asset value per share by using available market quotations. A description of
security ratings is contained in the Appendix to the Prospectus. The value of
fixed-income securities generally will vary inversely with changes in interest
rates and also will fluctuate according to changes in market conditions or other
factors.
DIVIDENDS AND DISTRIBUTIONS
The Fund declares dividends daily based on actual net investment income
determined in accordance with generally accepted accounting principles. Such
dividends will be payable monthly. See ``Taxes, Dividends and Distributions'' in
the Prospectus. The Fund does not expect to realize long-term capital gains or
losses. Distribution of any net realized short-term capital gains will be
taxable to shareholders as ordinary income. Dividends and distributions will be
paid in additional shares of the Fund based on net asset value on the payment
date, unless the shareholder elects in writing not less than five full business
days prior to the payment date to receive such dividends or distributions in
cash. In the event that a shareholder's shares are redeemed on a date other than
the monthly dividend payment date, the proceeds of such redemption will equal
the net asset value of the shares redeemed plus the amount of all dividends
declared through the date of redemption.
The Fund endeavors to maintain its net asset value at $1.00 per share. As a
result of a significant expense or realized loss, it is possible that the Fund's
net asset value may fall below $1.00 per share. Should the Fund incur or
anticipate any unusual or unexpected significant expense or loss which would
disproportionately affect the Fund's income for a particular period, the Board
of Directors at that time would consider whether to adhere to the present
dividend policy described in the Prospectus or to revise it in light of the then
prevailing circumstances in order to ameliorate to the extent possible the
disproportionate effect of such expense or loss on the existing shareholders.
Such expenses or losses may nevertheless result in a shareholder receiving no
dividends for the period during which he or she held shares of the Fund and in
his or her receiving a price per share upon redemption lower than that which he
or she paid.
TAXES
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 (the Internal Revenue Code). This relieves the Fund (but not
its shareholders) from paying federal income tax on income which is distributed
to shareholders, and permits net capital gains of the Fund (i.e., the excess of
net long-term capital gains over net short-term capital losses) to be treated as
long-term capital gains of the shareholders, regardless of how long shareholders
have held their shares in the Fund.
Qualification as a regulated investment company requires, among other
things, that (a) at least 90% of the Fund's annual gross income (without
reduction for losses from the sale or other disposition of securities) be
derived from interest, dividends, payments with respect to securities loans and
gains from the sale or other disposition of securities, options thereon, futures
contracts, options thereon, forward contracts and foreign currencies; (b) the
Fund derive less than 30% of its gross income from gains (without reduction for
losses) from the sale or other disposition of securities, options thereon,
futures contracts, options thereon, forward contracts and foreign currencies
held for less than three months; and (c) the Fund 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
obligations 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
<PAGE>
assets is invested in the securities of any one issuer (other than U.S.
Government obligations).
Gains or losses on sales of securities by the Fund will be treated as long-
term capital gains or losses if the securities have been held by it for more
than one year. Other gains or losses on the sale of securities will be short-
term capital gains or losses. In addition, debt securities acquired by the Fund
may be subject to original issue discount and market discount rules.
The Fund is required to distribute 98% of its ordinary income in the same
calendar year in which it is earned. The Fund is also required to distribute
during the calendar year 98% of the capital gain net income it earned during the
twelve months ending on October 31 of such calendar year, as well as all
undistributed ordinary income and undistributed capital gain net income from the
prior year or the twelve-month period ending on October 31 of such prior year,
respectively. To the extent it does not meet these distribution requirements,
the Fund will be subject to a non-deductible 4% excise tax on the undistributed
amount. The Fund intends to distribute its income and
B-11
<PAGE>
capital gains in the manner necessary to avoid imposition of the 4% excise tax.
For purposes of this excise tax, income on which the Fund pays income tax is
treated as distributed.
As a regulated investment company, the Fund will not be subject to federal
income tax on its net investment income and capital gains, if any, provided that
the Fund distributes at least 90% of its net investment income and short-term
capital gains earned in each year.
Distributions of net investment income and net short-term capital gains of
the Fund will be taxable to the shareholder at ordinary income rates regardless
of whether the shareholder receives such distributions in additional shares or
cash. Distributions of net long-term capital gains, if any, are taxable as long-
term capital gains regardless of how long the investor has held his or her
shares. However, if a shareholder holds shares in the Fund for not more than six
months, then any loss recognized on the sale of such shares will be treated as
long-term capital loss to the extent of any distribution on the shares which was
treated as long-term capital gain. Shareholders electing to receive dividends
and distributions in the form of additional shares will have a cost basis for
federal income tax purposes in each share so received equal to the net asset
value of a share of the Fund on the reinvestment date. Shareholders will be
notified annually by the Fund as to the federal tax status of dividends and
distributions made by the Fund.
Any gain or loss realized upon a sale or redemption of shares by a
shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held more than one year and
otherwise as short-term capital gain or loss. Any such loss, however, although
otherwise treated as a short-term capital loss, will be treated as long-term
capital loss to the extent of any capital gain distributions received by the
shareholder, if the shares have been held for six months or less.
Under the laws of certain states, distributions of net income may be
taxable to shareholders of the Fund as income even though a portion of such
distributions may be derived from interest on U.S. Government obligations which,
if realized directly, would be exempt from state income taxes. Distributions may
be subject to additional state and local taxes. Shareholders of the Fund are
advised to consult their tax advisers concerning state and local taxes.
CALCULATION OF YIELD
The Fund will prepare a current quotation of yield daily. 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 shares, but excluding any capital changes. 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. The Fund
also may prepare an effective annual yield computed by compounding the
unannualized seven-day period return as follows: by adding 1 to the unannualized
seven-day period return, raising the sum to a power equal to 365 divided by 7,
and subtracting 1 from the result.
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/Donoghue's Money
Fund Report, The Bank Rate Monitor, other industry publications, business
periodicals 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.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
AND INDEPENDENT ACCOUNTANTS
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities,
and in that capacity maintains cash and certain financial and accounting books
and records pursuant to an agreement with the Fund. See ``How the Fund is
Managed--Custodian and Transfer and Dividend Disbursing Agent'' in the
Prospectus.
Prudential Mutual Fund Services, Inc. (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 PMF. PMFS provides customary transfer
agency services to the Fund, including the handling of shareholder
communications, the processing of shareholder transactions, the maintenance of
shareholder account records, payment of dividends and distributions and related
functions. For these services, PMFS receives an annual fee per shareholder
account, a new account set-up fee for each manually established account and a
monthly inactive zero balance account fee per shareholder account. PMFS is also
<PAGE>
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 June 30, 1994, the Fund incurred fees of $234,000 for such
services.
Deloitte & Touche LLP, 1633 Broadway, New York, New York 10019, serves as
the Fund's independent public accountants and, in that capacity, audits the
Fund's annual financial statements.
B-12
<PAGE>
PRINCIPAL DESCRIPTION VALUE
AMOUNT (NOTE 1)
(000)
BANK NOTES--7.4%
Bank of New York
$7,000 4.35%, 8/4/94............. $ 6,999,836
First National Bank
7,000 4.61%, 7/18/94............ 7,000,000
NationsBank Corp.
10,000 4.27%, 7/11/94............ 10,000,000
PNC Bank, Ohio
1,000 3.50%, 1/31/95............ 999,254
Republic National Bank
9,000 4.30%, 3/8/95............. 8,981,223
Society National Bank of
Cleveland
1,000 3.55%, 1/20/95............ 999,105
------------
34,979,418
------------
CERTIFICATE OF DEPOSIT--
EURODOLLAR--0.4%
Republic National Bank
2,000 4.29%, 7/6/94............. 2,000,011
------------
2,000,011
------------
CERTIFICATES OF DEPOSIT--
YANKEE--5.1%
Dai-Ichi Kangyo Bank, Ltd.
1,000 4.29%, 7/8/94............. 999,998
Industrial Bank (Japan)
15,000 4.54%, 7/28/94............ 15,000,000
4,000 4.54%, 7/29/94............ 4,000,000
Sumitomo Bank, Ltd.
4,000 4.23%, 8/5/94............. 3,999,334
------------
23,999,332
------------
COMMERCIAL PAPER--
DOMESTIC--53.3%
American Brands, Inc.
10,000 4.35%, 7/8/94............. 9,991,542
American Express Credit
Corp.
8,000 4.31%, 7/5/94............. 7,996,169
American Honda Finance
Corp.
$1,500 4.32%, 7/5/94............. $ 1,499,280
American Telephone &
Telegraph Co.,
2,500 4.15%, 7/29/94............ 2,491,931
Aristar, Inc.
1,735 4.45%, 7/21/94............ 1,730,711
Associates Corp. of North
America
5,000 4.36%, 8/5/94............. 4,978,806
Auto Alliance Int'l., Inc.
1,000 4.40%, 7/7/94............. 999,267
Beneficial Corp.
8,000 4.35%, 7/5/94............. 7,996,133
Ciesco, Inc.
1,000 4.55%, 7/12/94............ 998,610
CIT Group Holdings, Inc.
5,000 4.45%, 8/22/94............ 4,967,861
Commercial Credit Co.
2,000 4.55%, 7/12/94............ 1,997,219
Consolidated Rail Corp.
1,000 4.33%, 7/7/94............. 999,278
Corporate Asset Funding
Co., Inc.
3,000 4.25%, 7/15/94............ 2,995,042
3,115 4.44%, 8/22/94............ 3,095,022
Corporate Receivables
Corp.
<PAGE>
PRINCIPAL DESCRIPTION VALUE
AMOUNT (NOTE 1)
(000)
5,300 4.12%, 7/18/94............ 5,289,689
Countrywide Funding Corp.
1,000 4.42%, 7/19/94............ 997,790
Dean Witter, Discover &
Co.
5,000 4.10%, 7/11/94............ 4,994,306
Falcon Asset
Securitization Corp.
1,000 4.55%, 7/12/94............ 998,610
2,000 4.52%, 7/13/94............ 1,996,987
2,000 4.30%, 7/18/94............ 1,995,939
First Union Corp.
5,000 4.27%, 7/20/94............ 4,988,732
See Notes to Financial Statements.
B-13
<PAGE>
PRINCIPAL DESCRIPTION VALUE
AMOUNT (NOTE 1)
(000)
COMMERCIAL PAPER--
DOMESTIC--(cont'd)
Ford Motor Credit Corp.
$15,000 4.30%, 7/26/94............ $ 14,955,208
General Electric Capital
Corp.
4,000 4.30%, 7/26/94............ 3,988,056
10,000 4.40%, 8/4/94............. 9,958,444
6,000 3.43%, 9/29/94............ 5,948,550
General Motors Acceptance
Corp.
9,000 4.25%, 7/5/94............. 8,995,750
6,400 4.67%, 7/11/94............ 6,391,698
Golden Peanut Co.
1,000 4.60%, 8/11/94............ 994,761
GTE Corp.
2,995 4.40%, 7/11/94............ 2,991,339
1,000 4.385%, 7/15/94........... 998,295
Heller Financial Services,
Inc.
3,000 4.45%, 7/28/94............ 2,989,988
Hertz Corp.
3,000 4.40%, 7/12/94............ 2,995,967
Household Finance Corp.
5,000 4.40%, 7/6/94............. 4,996,944
3,000 4.30%, 7/25/94............ 2,991,400
International Lease
Finance
1,300 4.15%, 7/20/94............ 1,297,153
2,000 4.675%, 9/7/94............ 1,982,339
ITT Financial Corp.
2,000 4.13%, 7/7/94............. 1,998,623
3,000 4.625%, 7/14/94........... 2,994,990
5,000 4.50%, 7/18/94............ 4,989,375
5,000 4.55%, 7/20/94............ 4,987,993
J.P. Morgan & Co., Inc.
10,000 3.85%, 7/11/94............ 9,989,306
John Deere Capital Corp.
1,000 4.35%, 7/15/94............ 998,308
Merrill Lynch & Co., Inc.
$5,000 4.30%, 7/21/94............ $ 4,988,056
9,000 4.12%, 7/25/94............ 8,975,280
NationsBank Corp.
5,000 4.46%, 8/1/94............. 4,980,797
NYNEX Corp.
2,000 4.37%, 7/15/94............ 1,996,601
2,500 4.52%, 8/23/94............ 2,483,364
Pennsylvania Power &
Lighting Co.
1,000 4.30%, 7/8/94............. 999,164
PHH Corp.
1,000 4.25%, 7/8/94............. 999,174
2,000 4.25%, 7/11/94............ 1,997,639
1,000 4.32%, 7/15/94............ 998,320
Phillip Morris Co., Inc.
2,000 4.30%, 7/5/94............. 1,999,044
19,000 4.35%, 7/8/94............. 18,983,929
Preferred Receivables
Funding Corp.
1,000 4.25%, 7/1/94............. 1,000,000
1,110 4.25%, 7/12/94............ 1,108,559
3,000 4.26%, 7/13/94............ 2,995,740
5,000 4.27%, 7/22/94............ 4,987,546
Public Service Electric &
Gas Co.
3,000 4.60%, 8/25/94............ 2,978,917
Smith Barney Shearson,
Inc.
7,000 4.40%, 7/25/94............ 6,979,466
SRD Finance, Inc.
5,000 4.35%, 7/14/94............ 4,992,145
<PAGE>
PRINCIPAL DESCRIPTION VALUE
AMOUNT (NOTE 1)
(000)
US West Commerce, Inc.
1,000 4.10%, 7/15/94............ 998,405
USL Capital Corp.
2,000 4.28%, 7/18/94............ 1,995,957
Xerox Credit Corp.
2,000 4.25%, 7/6/94............. 1,998,818
------------
251,870,332
------------
See Notes to Financial Statements.
B-14
<PAGE>
PRINCIPAL DESCRIPTION VALUE
AMOUNT (NOTE 1)
(000)
COMMERCIAL PAPER--YANKEE--6.3%
American Honda Finance
Corp.
$1,000 4.32%, 7/6/94............. $ 999,400
Bank of Montreal
7,000 4.30%, 7/26/94............ 6,979,097
Canadian Imperial
Holdings, Inc.
10,000 4.25%, 7/11/94............ 9,988,194
Cheltenham & Glouster
Building Society
4,000 4.22%, 7/6/94............. 3,997,656
2,000 4.68%, 8/16/94............ 1,988,040
Grand Metropolitan
Investment Corp.
1,000 4.60%, 8/4/94............. 995,656
Halifax Building Society
1,000 4.68%, 8/16/94............ 994,020
National Australia Funding
1,000 4.30%, 7/21/94............ 997,611
Province of British
Columbia
1,000 4.60%, 7/18/94............ 997,828
1,000 4.70%, 8/8/94............. 995,039
Province of Quebec
1,000 4.40%, 8/26/94............ 993,155
------------
29,925,696
------------
LOAN PARTICIPATIONS--1.7%
Bell Atlantic Financial
Services, Inc.
2,000 4.33%, 7/7/94............. 2,000,000
Hewlett Packard Co.
1,000 4.42%, 7/20/94............ 1,000,000
Morgan Stanley Group, Inc.
5,000 4.60%, 7/1/94............. 5,000,000
------------
8,000,000
------------
MEDIUM--TERM OBLIGATION--1.1%
PNC Bank Kentucky
5,000 3.75%, 9/1/94............. 4,990,437
------------
TIME DEPOSITS--EURODOLLAR--9.6%
Mitsubishi International
Corp.
$21,560 4.50%, 7/1/94............. $ 21,560,000
1,000 4.65%, 8/15/94............ 994,187
Sakura Bank, Ltd.
23,000 4.34%, 7/6/94............. 23,000,000
------------
45,554,187
------------
VARIABLE RATE INSTRUMENTS#--12.5%
Avco Financial Services,
Inc.
2,000 4.436%, 8/26/94........... 2,000,000
Federal Home Loan Mortgage
Corp.
4,000 4.2625%, 9/15/94.......... 3,999,922
Goldman, Sachs & Co.
23,000 5.125%, 4/13/95........... 23,000,000
Lehman Brothers Holdings,
Inc.
6,000 4.75%, 8/26/94............ 6,000,000
Merrill Lynch & Co., Inc.
4,000 4.0125%, 7/20/94.......... 3,999,837
Money Market Auto Loan
Trust 1990-1
2,000 4.525%, 5/31/95........... 2,000,000
<PAGE>
Money Market Credit Card
Trust
6,000 4.42%, 6/12/95............ 6,000,000
Morgan Stanley Group, Inc.
1,000 4.125%, 7/15/95........... 1,000,000
1,000 4.5781%, 7/29/94.......... 1,000,019
10,000 4.9375%, 6/15/95.......... 10,000,000
------------
58,999,778
------------
REPURCHASE AGREEMENT--1.0%
5,000 Lehman Brothers Holdings,
Inc., 4.23% dated
6/29/94, due 7/1/94 in
the amount of $5,001,175
(cost $5,000,000; the
value of the collateral
including accrued
interest is
$5,094,516)............. 5,000,000
------------
See Notes to Financial Statements.
B-15
<PAGE>
PRINCIPAL DESCRIPTION VALUE
AMOUNT (NOTE 1)
(000)
Total Investments--98.4%
(amortized cost
$465,319,191*).......... $465,319,191
Other assets in excess of
liabilities--1.6%....... 7,737,385
------------
Net Assets--100%.......... $473,056,576
------------
------------
* The federal income tax basis of portfolio
securities is the same as for financial
reporting purposes.
# 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.
The industry classification of portfolio holdings shown as a percentage of net
assets as of June 30, 1994 was as follows:
Banks..................................... 34.3%
Security Brokers & Dealers................ 17.2
Personal Credit Institutions.............. 14.7
Business Credit Institutions.............. 8.2
Asset Backed Securities................... 7.5
Tobacco................................... 6.6
Telephone Communications.................. 3.0
Auto Rental & Leasing..................... 1.5
Financial Services........................ 1.1
Electrical Services....................... 0.8
Federal Credit Agencies................... 0.8
Equipment Rental & Leasing................ 0.7
Canadian Government....................... 0.6
Computer Rental & Leasing................. 0.4
Food & Kindred Products................... 0.4
Railroads................................. 0.2
Office Machines........................... 0.2
Commodity Trading Firms................... 0.2
-----
98.4
Other assets in excess of liabilities..... 1.6
-----
100.0%
-----
-----
See Notes to Financial Statements.
B-16
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND
MONEY MARKET SERIES
Statement of Assets and Liabilities
<TABLE><CAPTION>
Assets June 30, 1994
-------------
<S> <C>
Investments, at amortized cost which approximates value................................... $ 465,319,191
Cash...................................................................................... 16,930
Receivable for Fund shares sold........................................................... 10,438,056
Interest receivable....................................................................... 728,415
Deferred expenses and other assets........................................................ 30,624
-------------
Total assets.......................................................................... 476,533,216
-------------
Liabilities
Payable for Fund shares reacquired........................................................ 2,988,658
Dividends payable......................................................................... 190,272
Due to Manager............................................................................ 165,179
Accrued expenses and other liabilities.................................................... 132,531
-------------
Total liabilities..................................................................... 3,476,640
-------------
Net Assets................................................................................ $ 473,056,576
-------------
-------------
Net assets were comprised of:
Common stock, $0.001 par value.......................................................... $ 473,057
Paid-in capital in excess of par........................................................ 472,583,519
-------------
Net assets at June 30, 1994............................................................. $ 473,056,576
-------------
-------------
Net asset value, offering price and redemption price per share
($473,056,576 3 473,056,576 shares of common stock issued and outstanding; two billion
shares authorized)...................................................................... $1.00
-------------
-------------
See Notes to Financial Statements.
</TABLE>
B-17
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND
MONEY MARKET SERIES
Statement of Operations
Year Ended
June 30,
Net Investment Income 1994
----------
Income
Interest.............................. $9,991,977
----------
Expenses
Management fee........................ 1,359,346
Transfer agent's fees and expenses.... 261,000
Custodian's fees and expenses......... 101,000
Registration fees..................... 105,000
Audit fee............................. 37,000
Amortization of organization
expenses............................ 27,000
Reports to shareholders............... 25,000
Directors' fees....................... 15,000
Legal fees............................ 10,000
Miscellaneous......................... 14,918
----------
Total expenses...................... 1,955,264
----------
Net investment income................... 8,036,713
----------
Realized Gain on Investments
Net realized gain on investment
transactions.......................... 35,906
----------
Net Increase in Net Assets
Resulting from Operations............... $8,072,619
----------
----------
See Notes to Financial Statements.
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND
MONEY MARKET SERIES
Statement of Changes in Net Assets
Years Ended
Increase (Decrease) ----------------------------------
in Net Assets 1994 1993
--------------- ---------------
Operations
Net investment
income........... $ 8,036,713 $ 5,681,217 Net realized gain
from
investment
transactions..... 35,906 149,500
--------------- ---------------
Net increase in net
assets
resulting from
operations....... 8,072,619 5,830,717
--------------- ---------------
Dividends and
distributions to
shareholders....... (8,072,619) (5,830,717)
--------------- ---------------
Fund share
transactions
(at $1 per share)
Proceeds from
shares
subscribed....... 1,796,491,879 1,301,022,263 Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions.... 6,433,981 4,625,673 Cost of shares
reacquired....... (1,506,126,858) (1,312,483,396)
------------- ---------------
Net increase
(decrease) in net
assets from Fund
share
transactions..... 296,799,002 (6,835,460)
--------------- ---------------
Total increase
(decrease)......... 296,799,002 (6,835,460) Net Assets
Beginning of year.... 176,257,574 183,093,034
--------------- ---------------
End of year.......... $ 473,056,576 $ 176,257,574
--------------- ---------------
--------------- ---------------
See Notes to Financial Statements.
B-18
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND
MONEY MARKET SERIES
Notes to Financial Statements
Prudential-Bache Special Money Market Fund, Inc., doing business as
Prudential Special Money Market Fund (the ``Fund''), is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company consisting of only the Money Market Series (the ``Series''). The Fund
was incorporated in Maryland on October 20, 1989 and had no operations until
November 30, 1989 when 100,000 shares of the Series' common stock was sold for
$100,000 to Prudential Mutual Fund Management, Inc. (PMF). Investment operations
commenced January 22, 1990.
The investment objective of the Series is high current income consistent with
the preservation of principal and liquidity. The Series invests in a diversified
portfolio of high quality money market securities maturing in 13 months or less.
The ability of issuers of securities held by the Series to meet their
obligations may be affected by economic developments in a specific industry or
region.
Note 1. Accounting The following is a summary of significant
Policies accounting policies followed by the Fund
in the preparation of its financial statements.
Securities Valuation: Portfolio securities are valued at amortized cost, which
approximates market value. The amortized cost method of valuation involves
valuing a security at its cost on the date of purchase and thereafter assuming a
constant amortization to maturity of the difference between the principal amount
due at maturity and cost.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of investments
are calculated on the identified cost basis. Interest income is recorded on the
accrual basis.
Federal Income Taxes: It is the intent of the Fund to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable net income to its shareholders.
Therefore, no federal income tax provision is required.
Dividends and Distributions: The Fund declares daily and pays monthly dividends
from net investment income and short-term capital gains. Dividends are recorded
on ex-dividend date. Income distributions and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles.
Deferred Organization Expenses: Organization expenses of approximately $135,000
were incurred in connection with the organization and initial registration of
the Fund. The total organization expenses have been deferred and are being
amortized over the period of benefit not to exceed 60 months from the date of
commencement of investment operations for the Fund. PMF has agreed not to redeem
the 100,000 shares purchased until all organization expenses have been
amortized.
Note 2. Agreements
The Fund has a management agreement with PMF.
Pursuant to this agreement, PMF has responsibility for all investment advisory
services and supervises the subadviser's performance of such services. PMF has
entered into a subadvisory agreement with The Prudential Investment Corporation
(``PIC''); PIC furnishes investment advisory services in connection with the
management of the Fund. PMF pays for the cost of the subadviser's services, the
compensation of officers and employees of the Fund, occupancy and certain
clerical and bookkeeping costs of the Fund. The Fund bears all other costs and
expenses.
The management fee paid PMF is computed daily and payable monthly at an
annual rate of .50% of the average daily net assets of the Fund.
The Fund has a distribution agreement with Prudential Mutual Fund
Distributors, Inc. (``PMFD''). PMFD serves the Fund without compensation.
PMFD is a wholly-owned subsidiary of PMF; PMF and PIC are (indirect) wholly-
owned subsidiaries of The Prudential Insurance Company of North America.
Note 3. Other Prudential Mutual Fund Services, Inc. (``PMFS''),
Transactions With wholly-owned subsidiary of PMF, serves as the
Affiliates Fund's transfer agent. During the year ended
June 30, 1994, the Series incurred fees of
approximately $234,000 for the services of PMFS. As of June 30, 1994,
approximately $27,000 of such fees were owed to PMFS. Transfer agent fees and
expenses in the Statement of Operations include certain out of pocket expenses
paid to non-affiliates.
B-19
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND
MONEY MARKET SERIES
Financial Highlights
<TABLE><CAPTION>
January 22,
1990*
Year Ended June 30, Through
--------------------------------------------------- June 30,
1994 1993 1992 1991 1990*
------------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income and net realized gains......... 0.030 0.027 0.044 0.071# 0.036#
Dividends and distributions.......................... (0.030) (0.027) (0.044) (0.071) (0.036)
------------- -------- -------- -------- -------------
Net asset value, end of period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------- -------- -------- -------- -------------
------------- -------- -------- -------- -------------
TOTAL RETURN:**...................................... 3.09% 2.77% 4.49% 7.36% 3.65%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...................... $ 473,057 $176,258 $183,093 $284,849 $ 181,690
Average net assets (000)............................. $ 271,869 $213,948 $249,223 $328,899 $ 177,412
Ratios to average net assets:
Expenses........................................... 0.72% 0.81% 0.83% 0.61%# 0.19%+#
Net investment income.............................. 2.96% 2.73% 4.36% 6.98%# 8.12%+#
</TABLE>
- ---------------
* Commencement of investment operations.
** Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each year reported and includes reinvestment
of dividends and distributions. Total returns for periods for less than a
full year are not annualized.
+ Annualized.
# Net of expense subsidy and/or management fee waiver.
See Notes to Financial Statements.
B-20
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors of
Prudential Special Money Market Fund
Money Market Series
We have audited the accompanying statement of assets and liabilities of
Prudential Special Money Market Fund--Money Market Series, including the
portfolio of investments, as of June 30, 1994, the related statements of
operations for the year then ended and of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
four years in the period then ended, and for the period January 22, 1990
(commencement of investment operations) through June 30, 1990. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at June
30, 1994 by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Prudential Special
Money Market Fund--Money Market Series as of June 30, 1994, the results of its
operations, the changes in its net assets and the financial highlights for the
respective stated periods, in conformity with generally accepted accounting
principles.
Deloitte & Touche
New York, New York
July 28, 1994
B-21
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
1. The following financial statement is included in the Prospectus
constituting Part A of this Registration Statement:
Financial Highlights.
2. The following financial statements are included in the Statement of
Additional Information constituting Part B of this Registration Statement:
Portfolio of Investments at June 30, 1994.
Statement of Assets and Liabilities at June 30, 1994.
Statement of Operations for the fiscal year ended June 30, 1994.
Statement of Changes in Net Assets for the fiscal years ended June 30,
1994 and June 30 1993.
Notes to Financial Statements.
Financial Highlights for the fiscal years ended June 30, 1994, 1993
and 1992 and for the period January 22, 1990 to June 30, 1990.
Independent Auditors' Report.
(b) Exhibits:
1. (a) Articles of Incorporation of the Registrant filed on October 20,
1989. Incorporated by reference to Exhibit No. 1 to the Registration
Statement on Form N-1A filed on October 23, 1989 (File No. 33-31603).
(b) Amendment to Articles of Incorporation. Incorporated by reference
to Exhibit No. 1(b) to Pre-Effective Amendment No. 1 to
the Registration Statement on Form N-1A filed on December 8, 1989
(File No. 33-31603).
(c) Amendment to Articles of Incorporation. Incorporated by reference
to Exhibit No. 1(c) to Post-Effective Amendment No. 4 to the
Registration Statement on Form N-1A filed on August 30, 1991
(File No. 33-31603).
2. By-Laws of the Registrant. Incorporated by reference to Exhibit No. 2
to the Registration Statement on Form N-1A filed on October 23, 1989
(File No. 33-31603).
4. Specimen stock certificate of the Registrant, $.001 par value per
share. Incorporated by reference to Exhibit No. 4 to Pre-Effective
Amendment No. 1 to Registration Statement on Form N-1A filed on
December 8, 1989 (File No. 33-31603).
5. (a) Management Agreement between the Registrant (Money Market Series)
and Prudential Mutual Fund Management, Inc. Incorporated by reference
to Exhibit No. 5(a) to Post-Effective Amendment No. 1 to the
Registration Statement on Form N-1A filed on July 30, 1990
(File No. 33-31603).
(b) Subadvisory Agreement between Prudential Mutual Fund Management,
Inc. and The Prudential Investment Corporation with respect to the
Money Market Series. Incorporated by reference to Exhibit No. 5(b) to
Post-Effective Amendment No.1 to the Registration Statement on Form
N-1A filed on July 30, 1990 (File No. 33-31603).
6. Distribution Agreement, dated January 12, 1990, between the
Registrant and Prudential Mutual Fund Distributors, Inc.Incorporated
by reference to Exhibit No. 6 to Post-Effective Amendment No. 1 to
the Registration Statement on Form N-1A filed on July 30, 1990
(File No. 33-31603).
8. Custodian Agreement dated January 12, 1990, between the Registrant
and State Street Bank and Trust Company. Incorporated by reference
to Exhibit No. 8 to Post-Effective Amendment No. 1 to the
Registration Statement on Form N-1A filed on July 30, 1990
(File No. 33-31603).
9. Transfer Agency and Service Agreement dated January 12, 1990 between
the Registrant and Prudential Mutual Fund Services, Inc. Incorporated
by reference to Exhibit No. 9 to Post-Effective Amendment No. 1 to
the Registration Statement on Form N-1A filed on July 30, 1990
(File No. 33-31603).
C-1
<PAGE>
10. Opinion of Gardner, Carton & Douglas. Incorporated by reference to
Exhibit No. 10 to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A filed on December 8, 1989 (File No. 33-31603).
11. Independent auditors' consent.*
13. Purchase Agreement between the Registrant and Prudential Mutual Fund
Management, Inc. Incorporated by reference to Exhibit No. 13 to
Post-Effective Amendment No. 1 to the Registration Statement on Form
N-1A filed on July 30, 1990 (File No. 33-31603).
16. Schedule of computation of yield for the Money Market Series.
Incorporated by reference to Exhibit No. 16 to Post-Effective
Amendment No. 2 to the Registration Statement on Form N-1A filed on
August 28, 1990 (File No. 33-31603).
- ------------------
*Filed herewith.
Item 25. Persons Controlled by or under Common Control with Registrant.
None.
Item 26. Number of Holders of Securities.
As of August 5, 1994, there were 18,736 record holders of shares of common
stock, $.001 par value per share of the Registrant Fund.
Item 27. Indemnification.
As permitted by Section 17(h) and (i) of the Investment Company Act of 1940
(the 1940 Act) and pursuant to Article VI of the Fund's Articles of
Incorporation (Exhibit 1 to the Registration Statement) and Section 2-418 of the
Maryland General Corporation Law, 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.
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 8 of the Distribution Agreement (Exhibit 6 to this
Post-Effective Amendment to the Registration Statement), the Distributor of the
Registrant may be indemnified against liabilities which it may incur, except
liabilities arising from bad faith, gross negligence, willful misfeasance or
reckless disregard of duties.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (Securities Act) may be permitted to 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
Securities 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 Securities Act and will be governed by the final adjudication
of such issue.
The Registrant has purchased 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 this
Post-Effective Amendment to the Registration Statement) and Section 4 of the
Subadvisory Agreement (Exhibit 5(b) to this Post-Effective Amendment to the
Registration Statement) limit the liability of Prudential Mutual Fund
Management, Inc. (PMF) and The Prudential Investment Corporation (PIC),
respectively, to liabilities arising from willful misfeasance, bad faith or
gross negligence in the performance of their respective duties or from
reckless disregard by them of their respective obligations and duties under
the agreements.
The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws, Management, Subadvisory and Distribution Agreements
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 remains in effect and is consistently applied.
C-2
<PAGE>
Under Section 17(h) of the 1940 Act, it is the position of the staff of
the Securities and Exchange Commission that if there is neither a court
determination on the merits that the defendant is not liable nor a court
determination that the defendant was not guilty of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of one's office, no indemnification will be permitted unless an
independent legal counsel (not including a counsel who does work for either the
Registrant, its investment advisor, its principal underwriters or persons
affiliated with these persons) determines, based upon a review of the facts,
that the person in question was not guilty of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office.
Under its Articles of Incorporation, the Registrant may
advance funds to provide for indemnification. Pursuant to the Securities
and Exchange Commission staff's position on Section 17(h), advances will be
limited in the following respect:
(1) Any advances must be limited to amounts used, or to
be used, for the preparation and/or presentation of a defense to the action
(including costs connected with preparation of a settlement);
(2) Any advances must be accompanied by a written promise
by, or on behalf of, the recipient to repay that amount of the advance
which exceeds the amount to which it is ultimately determined that he is
entitled to receive from the Registrant by reason of indemnification;
(3) Such promise must be secured by a surety bond or
other suitable insurance; and
(4) Such surety bond or other insurance must be paid for
by the recipient of the advance.
Item 28. Business and Other Connections of Investment Adviser
See ``How the Fund is Managed--Manager'' in the Prospectus
constituting Part A of this Registration Statement and ``Manager'' in the
Statement of Additional Information constituting Part B of this Registration
Statement.
The business and other connections of the officers of PMF
are listed in Schedules A and D of Form ADV of PMF as currently on file with
the Securities and Exchange Commission, the text of which is hereby incorporated
by reference (File No. 801-31104, filed on March 30, 1994).
The business and other connections of PMF's directors and
principal executive officers are set forth below. Except as otherwise
indicated, the address of each person is One Seaport Plaza, New York, NY 10292.
<TABLE><CAPTION>
Name and Address Position with PMF Principal Occupations
- ---------------- ----------------- ---------------------
<S> <C> <C>
Brendan D. Boyle Executive Vice Executive Vice President, PMF; Senior Vice President,
President and Director Prudential Securities Incorporated (Prudential
of Marketing Securities)
John D. Brookmeyer, Jr. Director Senior Vice President, The Prudential Insurance Company
Two Gateway Center of America (Prudential)
Newark, NJ 07102
Susan C. Cote Senior Vice President Senior Vice President, PMF; Senior Vice President,
Prudential Securities
Fred A. Fiandaca Executive Vice Executive Vice President, Chief Operating Officer and
Raritan Plaza One President, Chief Director, PMF; Chairman, Chief Executive Officer and
Edison, NJ 08847 Operating Officer and Director, Prudential Mutual Fund Services, Inc.
Director
Stephen P. Fisher Senior Vice President Senior Vice President, PMF; Senior Vice President,
Prudential Securities
Frank W. Giordano Executive Vice Executive Vice President, General Counsel and Secretary,
President, General PMF; Senior Vice President, Prudential Securities
Counsel and Secretary
Robert F. Gunia Executive Vice Executive Vice President, Chief Financial and
President, Chief Administrative Officer, Treasurer and Director, PMF;
Financial and Senior Vice President, Prudential Securities
Administrative
Officer, Treasurer and
Director
C-3
</TABLE>
<PAGE>
<TABLE><CAPTION>
Name and Address Position with PMF Principal Occupations
- ---------------- ----------------- ---------------------
<S> <C> <C>
Eugene B. Heimberg Director Senior Vice President, Prudential; President, Director
Prudential Plaza and Chief Investment Officer, PIC
Newark, NJ 07101
Lawrence C. McQuade Vice Chairman Vice Chairman, PMF
Leland B. Paton Director Executive Vice President, Director and Member of
Operating Committee, Prudential Securities; Director,
Prudential Securities Group, Inc. (PSG)
Richard A. Redeker President, Chief President, Chief Executive Officer and Director, PMF;
Executive Officer and Executive Vice President, Director and Member of
Director Operating Committee, Prudential Securities; Director,
PSG
S. Jane Rose Senior Vice President, Senior Vice President, Senior Counsel and Assistant
Senior Counsel, and Secretary, PMF; Senior Vice President and Senior
Assistant Secretary Counsel, Prudential Securities
Donald G. Southwell Director Senior Vice President, Prudential; Director, PSG
213 Washington Street
Newark, NJ
</TABLE>
The business and other connections of PIC's directors and executive
officers are as set forth below. Except as otherwise indicated, the address of
each person is Prudential Plaza, Newark, NJ 07101.
<TABLE><CAPTION>
Name and Address Position with PIC Principal Occupations
- ---------------- ----------------- ---------------------
<S> <C> <C>
Martin A. Berkowitz Senior Vice President Senior Vice President and Chief Financial and Compliance
and Chief Officer, PIC; Vice President, Prudential
Financial and Compliance Officer
William M. Bethke Senior Vice President Senior Vice President, Prudential; Senior Vice
Two Gateway Center President, PIC
Newark, NJ 07102
John D. Brookmeyer, Jr. Senior Vice President Senior Vice President, Prudential; Senior Vice
Two Gateway Center President, PIC
Newark, NJ 07102
Eugene B. Heimberg President, Director Senior Vice President, Prudential; President, Director
and Chief Investment and Chief Investment Officer, PIC
Officer
Garnett L. Keith, Jr. Director Vice Chairman and Director, Prudential; Director, PIC
William P. Link Senior Vice President Executive Vice President, Prudential; Senior Vice
Four Gateway Center President, PIC
Newark, NJ 07102
James W. Stevens Executive Vice Executive Vice President, Prudential; Director, PSG
Four Gateway Center President
Newark, NJ 07102
Robert C. Winters Director Chairman of the Board and Chief Executive Officer,
Prudential; Director, PIC; Chairman of the Board of
Directors, PSG
Claude J. Zinngrabe, Jr. Executive Vice Vice President, Prudential; Executive Vice President,
President PIC
</TABLE>
C-4
<PAGE>
Item 29. Principal Underwriter
(a) Prudential Mutual Fund Distributors, Inc.
Prudential Mutual Fund Distributors, Inc. is distributor for Command
Government Fund, Command Money Fund, Command Tax-Free Fund, Prudential
California Municipal Fund (California Money Market Series), Prudential
Government Securities Trust (Money Market Series and U.S. Treasury Money Market
Series), Prudential Institutional Liquidity Portfolio, Inc., Prudential-Bache
MoneyMart Assets Inc. (d/b/a Prudential MoneyMart Assets), Prudential Municipal
Series Fund (Connecticut Money Market Series, Massachusetts Money Market Series,
New York Money Market Series and New Jersey Money Market Series),
Prudential-Bache Special Money Market Fund, Inc. (d/b/a Prudential Special
Money Market Fund), Prudential-Bache Tax-Free Money Fund, Inc. (d/b/a Prudential
Tax-Free Money Fund), and for Class A shares of The BlackRock Government Income
Trust, Global Utility Fund, Inc., Nicholas-Applegate Fund, Inc.
(Nicholas-Applegate Growth Equity Fund), Prudential Adjustable Rate Securities
Fund, Inc., Prudential Allocation Fund, Prudential California Municipal Fund
(California Income Series and California Series), Prudential Equity Fund, Inc.,
Prudential Equity Income Fund, Prudential Global Fund, Inc., Prudential Global
Genesis Fund, Inc., Prudential Global Natural Resources Fund, Inc., Prudential
GNMA Fund, Inc., Prudential Government Income Fund, Inc., Prudential Growth
Fund, Inc., Prudential Growth Opportunity Fund, Inc., Prudential High Yield
Fund, Inc., Prudential IncomeVertible(R) Fund, Inc., Prudential Intermediate
Global Income Fund, Inc., Prudential Multi-Sector Fund, Inc., Prudential
Municipal Bond Fund, Prudential Municipal Series Fund (Class A shares of all
other Series not mentioned above), Prudential National Municipals Fund, Inc.,
Prudential Pacific Growth Fund, Inc., Prudential Short-Term Global Income Fund,
Inc., Prudential Structured Maturity Fund Inc., Prudential U.S. Government Fund
and Prudential Utility Fund, Inc.
(b) Information concerning the directors and officers of
Prudential Mutual Fund Distributors, Inc. is set forth below.
Position and Offices Position and Offices
Name1 with Underwriter with Registrant
- -------------------------- ---------------------- ------------------------
Joanne Accurso-Soto....... Vice President None
Dennis Annarumma.......... Vice President, None
Assistant Treasurer
and Assistant
Comptroller
Phyllis J. Berman......... Vice President None
Fred A. Fiandaca.......... President, Chief None
Raritan Plaza One Executive Officer and
Edison, NJ 08847 Director
Stephen P. Fisher......... Vice President None
Frank W. Giordano......... Executive Vice None
President, General
Counsel, Secretary and
Director
Robert F. Gunia........... Executive Vice Vice President
President, Treasurer,
Comptroller and
Director
Andrew J. Varley.......... Vice President None
Anita L. Whelan........... Vice President and None
Assistant Secretary
- ------------------
(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.
C-5
<PAGE>
Item 30. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules thereunder are maintained at the
offices of State Street Bank and Trust Company, One Heritage Drive, North
Quincy, Massachusetts, The Prudential Investment Corporation, Prudential Plaza,
745 Broad Street, Newark, New Jersey, the Registrant, One Seaport Plaza, New
York, New York, and Prudential Mutual Fund Services, Inc., Raritan Plaza One,
Edison, New Jersey. Documents required by Rules 31a-1(b)(5), (6), (7), (9), (10)
and (11) and 31a-1(f) will be kept at Three Gateway Center, documents required
by Rules 31a-1(b)(4) and (11) and 31a-1(d) at One Seaport Plaza and the
remaining accounts, books and other documents required by such other pertinent
provisions of Section 31(a) and the Rules promulgated thereunder will be kept by
State Street Bank and Trust Company and Prudential Mutual Fund Services, Inc.
Item 31. Management Services
Other than as set forth under the captions ``How the Fund is
Managed--Manager'' and ``How the Fund is Managed--Distributor'' in the
Prospectus and the captions ``Manager'' and ``Distributor'' in the Statement of
Additional Information, constituting Parts A and B, respectively, of this
Registration Statement, Registrant is not a party to any management-related
service contract.
Item 32. Undertakings
Not Applicable
C-6
<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 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 New York, and State of New York, on the 30th day of August, 1994.
PRUDENTIAL-BACHE SPECIAL MONEY MARKET FUND, INC.
By: /s/ Lawrence C. McQuade
------------------------------------------
(Lawrence C. McQuade, 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/ Susan C. Cote Treasurer and Principal Financial and August 30, 1994
- -------------------------------------- Accounting Officer
Susan C. Cote
/s/ Lawrence C. McQuade Director and President August 30, 1994
- --------------------------------------
Lawrence C. McQuade
/s/ Edward D. Beach Director August 30, 1994
- --------------------------------------
Edward D. Beach
/s/ Delayne D. Gold Director August 30, 1994
- --------------------------------------
Delayne D. Gold
/s/ Harry A. Jacobs, Jr. Director August 30, 1994
- --------------------------------------
Harry A. Jacobs, Jr.
/s/ Richard A. Redeker Director August 30, 1994
- --------------------------------------
Richard A. Redeker
/s/ Stanley E. Shirk Director August 30, 1994
- --------------------------------------
Stanley E. Shirk
/s/ Stephen D. Stoneburn Director August 30, 1994
- --------------------------------------
Stephen D. Stoneburn
/s/ Nancy Hays Teeters Director August 30, 1994
- --------------------------------------
Nancy Hays Teeters
<PAGE>
EXHIBIT INDEX
1. (a) Articles of Incorporation of the Registrant filed on October 20, 1989.
Incorporated by reference to Exhibit No. 1 to the Registration Statement on
Form N-1A filed on October 23, 1989 (File No. 33-31603).
(b) Amendment to Articles of Incorporation. Incorporated by reference to
Exhibit No. 1(b) to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A filed on December 8, 1989 (File No. 33-31603).
(c) Amendment to Articles of Incorporation. Incorporated by reference to
Exhibit No. 1(c) to Post-Effective Amendment No. 4 to the Registration
Statement on Form N-1A filed on August 30, 1991 (File No. 33-31603).
2. By-Laws of the Registrant. Incorporated by reference to Exhibit No. 2 to
the Registration Statement on Form N-1A filed on October 23, 1989
(File No. 33-31603).
4. Specimen stock certificate of the Registrant, $.001 par value per share.
Incorporated by reference to Exhibit No. 4 to Pre-Effective Amendment No. 1
to Registration Statement on Form N-1A filed on December 8, 1989
(File No. 33-31603).
5. (a) Management Agreement between the Registrant (Money Market Series) and
Prudential Mutual Fund Management, Inc. Incorporated by reference to Exhibit
No. 5(a) to Post-Effective Amendment No. 1 to the Registration Statement on
Form N-1A filed on July 30, 1990 (File No. 33-31603).
(b) Subadvisory Agreement between Prudential Mutual Fund Management, Inc.
and The Prudential Investment Corporation with respect to the Money Market
Series. Incorporated by reference to Exhibit No. 5(b) to Post-Effective
Amendment No.1 to the Registration Statement on Form N-1A filed on July 30,
1990 (File No. 33-31603).
6. Distribution Agreement, dated January 12, 1990, between the Registrant and
Prudential Mutual Fund Distributors, Inc. Incorporated by reference to
Exhibit No. 6 to Post-Effective Amendment No. 1 to the Registration
Statement on Form N-1A filed on July 30, 1990 (File No. 33-31603).
8. Custodian Agreement dated January 12, 1990, between the Registrant and State
Street Bank and Trust Company. Incorporated by reference to Exhibit No. 8 to
Post-Effective Amendment No. 1 to the Registration Statement on Form N-1A
filed on July 30, 1990 (File No. 33-31603).
9. Transfer Agency and Service Agreement dated January 12, 1990 between the
Registrant and Prudential Mutual Fund Services, Inc. Incorporated by
reference to Exhibit No. 9 to Post-Effective Amendment No. 1 to the
Registration Statement on Form N-1A filed on July 30, 1990
(File No. 33-31603).
10. Opinion of Gardner, Carton & Douglas. Incorporated by reference to Exhibit
No. 10 to Pre-Effective Amendment No. 1 to the Registration Statement on
Form N-1A filed on December 8, 1989 (File No. 33-31603).
11. Independent auditors' consent.*
13. Purchase Agreement between the Registrant and Prudential Mutual Fund
Management, Inc. Incorporated by reference to Exhibit No. 13 to
Post-Effective Amendment No. 1 to the Registration Statement on Form N-1A
filed on July 30, 1990 (File No. 33-31603).
16. Schedule of computation of yield for the Money Market Series. Incorporated
by reference to Exhibit No. 16 to Post-Effective Amendment No. 2 to the
Registration Statement on Form N-1A filed on August 28, 1990
(File No. 33-31603).
- ------------------
*Filed herewith.
</TABLE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in Post-Effective Amendment No. 7 to Registration
Statement No. 33-31603 of Prudential-Bache Special Money Market Fund, Inc.
of our report dated July 28, 1994, appearing in the Statement of
Additional Information, which is a part of such Registration Statement,
and to the references to us under the headings "Financial Highlights"
in the Prospectus, which is a part of such Registration Statement, and
"Custodian, Transfer and Dividend Disbursing Agent and Independent
Accountants" in the Statement of Additional Information.
Deloitte & Touche LLP
New York, New York
August 25, 1994
