As filed with the Securities and Exchange Commission
on August 29, 1995
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. 8 /X/
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 9 /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)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
/ / This post-effective amendment designates a new effective date
for a previously filed post-effective amendment
CALCULATION OF REGISTRATION FEE
Proposed
Maximum Proposed Amount
Title of Amount Offering Maximum of
Securities Being Price Aggregate Registration
Being Registered Registered Per Unit Offering Price* Fee
- ------------------- ---------- --------- ------------------ ------------
Shares of beneficial
interest par
value $.001 per share 120,036,576 $1.00 $120,036,576 $100
________________________________________________________________________________
* The calculation of the maximum aggregate offering price was made pursuant
to Rule 24e-2 and was based upon an offering price of $1.00 per share as of the
close of business on August 25, 1995 pursuant to Rule 457(d). The total number
of shares redeemed during the fiscal year ended June 30, 1995 amounted to
119,746,576 shares. $1,731,707,729 of shares were used for reduction pursuant
to paragraph (c) of Rule 24f-2 during the fiscal year ended June 30, 1995.
$119,746,576 of the redeemed shares are being used for the reductions in the
post-effective amendment being filed herein.
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, 1995 on or about August 29, 1995.
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<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 495)
<TABLE>
<CAPTION>
N-1A Item No. Location
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Part A
<S> <C> <C>
Item 1. Cover Page.................................................. Cover Page
Item 2. Synopsis.................................................... Fund Expenses; Fund Highlights
Item 3. Condensed Financial Information............................. Fund Expenses; Financial
Highlights; Calculation of
Yield
Item 4. General Description of Registrant........................... Cover Page; Fund Highlights;
How the Fund Invests; 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 Shareholder Investment
Offered..................................................... 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, 1995
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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, 1995, 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 11.
WHO MANAGES THE FUND?
Prudential Mutual Fund Management, Inc. (PMF or the Manager) is the Manager
of the Fund and is compensated for its services at an annual rate of .50 of 1%
of the Fund's average daily net assets. As of July 31, 1995, PMF served as
manager or administrator to 67 investment companies, including 39 mutual
funds, with aggregate assets of approximately $49 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 14.
HOW DO I PURCHASE SHARES?
You may purchase shares of the Fund through Prudential Securities
Incorporated (Prudential Securities or PSI), 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 11 and "Shareholder
Guide--How to Buy Shares of the Fund" at page 14.
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 15. 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 17.
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 12.
3
<PAGE>
FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases............................. None
Maximum Sales Load Imposed on Reinvested Dividends.................. None
Deferred Sales Load (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...................................................... .20%
----
Total Fund Operating Expenses....................................... .70%
----
----
------------------
* 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
- ------------------------------------------------------ ------ ------- ------- --------
<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 $52 $49 $ 87
You would pay the following expenses on the same
investment, assuming no redemption:................... $ 7 $22 $39 $ 87
</TABLE>
------------------
The above example is based on data for the fiscal year ended June 30, 1995.
The example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
The purpose of this table is to assist 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.
* Shareholders who exchange Class B or Class C shares 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. The example takes into account
the deferred sales load generally applicable to Class B and Class C
shares. 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(a)
1995 1994 1993 1992 1991 THROUGH JUNE 30, 1990
-------- -------- -------- -------- -------- ---------------------
<S> <C> <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 $1.00
Net investment income................ 0.049 0.030 0.027 0.044 0.071(c) 0.036(c)
Dividends from net investment
income.............................. (0.049) (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 $1.00
-------- -------- -------- -------- -------- -------
-------- -------- -------- -------- -------- -------
TOTAL RETURN(d):..................... 5.05% 3.09% 2.77% 4.49% 7.36% 3.65%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...... $359,197 $473,057 $176,258 $183,093 $284,849 $181,690
Average net assets (000)............. $416,899 $271,869 $213,948 $249,223 $328,899 $177,412
Ratios to average net assets:
Expenses............................ 0.70% 0.72% 0.81% 0.83% 0.61%(c) 0.19%(b)(c)
Net investment income............... 4.93% 2.96% 2.73% 4.36% 6.98%(c) 8.12%(b)(c)
</TABLE>
--------------
(a) Commencement of investment operations.
(b) Annualized.
(c) Net of expense subsidy and management fee waiver.
(d) Total return is calculated assuming a purchase of shares on the first
day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total returns for periods
of less than a full 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, 1995.
<TABLE>
<S> <C>
Value of hypothetical account at end of period............................. $1.001020163
Value of hypothetical account at beginning of period....................... 1.000000000
------------
Base period return......................................................... $ .001020163
------------
------------
CURRENT YIELD ((.001020163 x (365/7))...................................... 5.32%
EFFECTIVE ANNUAL YIELD, assuming weekly compounding........................ 5.46%
</TABLE>
The weighted average life to maturity of the Fund's portfolio on June 30, 1995
was 64 days.
Yield is computed in accordance with a standardized formula described in the
Statement of Additional Information. In addition, comparative performance
information may be used from time to time in advertising or marketing the Fund's
shares, including data from Lipper Analytical Services, Inc., Morningstar
Publications, Inc., IBC/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 IS A FUNDAMENTAL POLICY AND, THEREFORE,
MAY NOT BE CHANGED WITHOUT THE APPROVAL OF THE HOLDERS OF A MAJORITY OF THE
FUND'S OUTSTANDING VOTING SECURITIES, AS DEFINED IN THE INVESTMENT COMPANY ACT
OF 1940, AS AMENDED (THE INVESTMENT COMPANY ACT). 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
repurchase agreement. 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 Objective and Policies--Floating Rate and Variable Rate
Securities" 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 Fund intends to comply with any applicable state blue sky laws restricting
the Fund's investments in illiquid securities. See "Investment Restrictions" in
the Statement of Additional Information. 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, 1995, total expenses as a percentage of
average net assets of the Fund were .70%. 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, 1995, the Fund paid management fees to PMF
of .50% of the Fund's average net assets. See "Manager" in the Statement of
Additional Information.
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As of July 31, 1995, PMF served as the manager to 39 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 28 closed-end investment companies with aggregate assets of
approximately $49 billion.
UNDER THE MANAGEMENT AGREEMENT WITH THE FUND, PMF MANAGES THE INVESTMENT
OPERATIONS OF THE FUND AND ALSO ADMINISTERS THE FUND'S CORPORATE AFFAIRS. See
"Manager" in the Statement of Additional Information.
UNDER A SUBADVISORY AGREEMENT BETWEEN PMF AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC OR THE SUBADVISER), 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 or PSI) (an
indirect, wholly-owned subsidiary of the Prudential) 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.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators (with the exception of the Texas Securities
Commissioner who joined the settlement on January 18, 1994) and the National
Association of Securities Dealers, Inc. (NASD) to resolve allegations that from
1980 through 1990 PSI sold certain limited partnership interests in violation of
securities laws to persons for whom such securities were not suitable and
misrepresented the safety, potential returns and liquidity of these investments.
Without admitting or denying the allegations asserted against it, PSI consented
to the entry of an SEC Administrative Order which stated that PSI's conduct
violated the federal securities laws, directed PSI to cease and desist from
violating the federal securities laws, pay civil penalties, and adopt certain
remedial measures to address the violations.
Pursuant to the terms of the SEC settlement, PSI agreed to the imposition of a
$10,000,000 civil penalty, established a settlement fund in the amount of
$330,000,000 and procedures to resolve legitimate claims for compensatory
damages by purchasers of the partnership interests. PSI has agreed to provide
additional funds, if necessary, for the purpose of the settlement fund. PSI's
settlement with the state securities regulators included an agreement to pay a
penalty of $500,000 per jurisdiction. PSI consented to a censure and to the
payment of a $5,000,000 fine in settling the NASD action.
In October 1994, a criminal complaint was filed with the United States
Magistrate for the Southern District of New York alleging that PSI committed
fraud in connection with the sale of certain limited partnership interests in
violation of federal securities laws. An agreement was simultaneously filed to
defer prosecution of these charges for a period of three years from the signing
of the agreement, provided that PSI complies with the terms of the agreement.
If, upon completion of the three year period, PSI has complied with the terms of
the agreement, no prosecution will be instituted by the United States for the
offenses charged in the complaint. If on the other hand, during the course of
the three year period, PSI violates the terms of the agreement, the U.S.
Attorney can then elect to pursue these charges. Under the
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terms of the agreement, PSI agreed, among other things, to pay an additional
$330,000,000 into the fund established by the SEC to pay restitution to
investors who purchased certain PSI limited partnership interests.
For more detailed information concerning the foregoing matters, see "Portfolio
Transactions" in the Statement of Additional Information, a copy of which may be
obtained at no cost by calling 1-800-225-1852.
The Fund is not affected by PSI's financial condition and is an entirely
separate legal entity from PSI, which has no beneficial ownership therein and
the Fund's assets which are held by State Street Bank and Trust Company, an
independent custodian, are separate and distinct from PSI.
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 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.
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TAXES, DIVIDENDS AND DISTRIBUTIONS
TAXATION OF THE FUND
THE FUND HAS ELECTED TO QUALIFY AND INTENDS TO REMAIN QUALIFIED AS A REGULATED
INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (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. For shareholders who are
otherwise subject to backup withholding under federal income tax law, only
dividends and capital gains distributions are subject to withholding. Dividends
of net investment income and short-term capital gains to a foreign shareholder
will generally be subject to U.S. withholding tax at the rate of 30% (or lower
treaty rate).
DIVIDENDS AND DISTRIBUTIONS
THE FUND EXPECTS TO DECLARE DAILY AND PAY MONTHLY 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 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
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<PAGE>
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, FOR EXAMPLE, THE ELECTION OF DIRECTORS IS REQUIRED TO BE
ACTED ON BY SHAREHOLDERS UNDER THE INVESTMENT COMPANY ACT. SHAREHOLDERS HAVE
CERTAIN RIGHTS INCLUDING THE RIGHT TO CALL A MEETING UPON A VOTE OF 10% OF THE
FUND'S OUTSTANDING SHARES FOR THE PURPOSE OF VOTING ON THE REMOVAL OF ONE OR
MORE DIRECTORS OR TO TRANSACT ANY OTHER BUSINESS.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which has
been incorporated by reference herein, does not contain all the information set
forth in the Registration Statement filed by the Fund with the 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.
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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.
Until November 1995, 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 November 1995 and thereafter, such shares may be exchanged for
Class B shares of another Prudential Mutual Fund as described in the preceding
paragraph.
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,
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
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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 CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE
FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES."
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 Preferred
Services offices.
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
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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 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.
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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 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
17
<PAGE>
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 DISTRIBUTIONS 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).
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>
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>
TAXABLE BOND FUNDS EQUITY FUNDS
<S> <C>
Prudential Adjustable Rate Securities Fund, Inc. Prudential Allocation Fund
Prudential Diversified Bond Fund, Inc. Conservatively Managed Portfolio
Prudential Government Income Fund, Inc. Strategy Portfolio
Prudential Government Securities Trust Prudential Equity Fund, Inc.
Short-Intermediate Term Series Prudential Equity Income Fund
Prudential High Yield Fund, Inc. Prudential Growth Opportunity Fund, Inc.
Prudential Mortgage Income Fund, Inc. Prudential IncomeVertible(R) Fund, Inc.
Prudential Structured Maturity Fund, Inc. Prudential Multi-Sector Fund, Inc.
Income Portfolio Prudential Utility Fund, Inc.
Prudential U.S. Government Fund Nicholas-Applegate Fund, Inc.
The BlackRock Government Income Trust Nicholas-Applegate Fund, Growth Equity Fund
TAX-EXEMPT BOND FUNDS MONEY MARKET FUNDS
Prudential California Municipal Fund . Taxable Money Market Funds
California Series Prudential Government Trust
California Income Series Money Market Series
Prudential Municipal Bond Fund U.S. Treasury Money Series
High Yield Series Prudential Special Money Fund
Insured Series Money Market Series
Intermediate Series Prudential MoneyMart Assets
Prudential Municipal Series Fund . Tax-Free Money Market Funds
Arizona Series Prudential Tax-Free Money Fund
Florida Series Prudential California Municipal Fund
Georgia Series California Money Market Series
Hawaii Income Series Prudential Municipal Series Fund
Maryland Series Connecticut Money Market Series
Massachusetts Series Massachusetts Money Series
Michigan Series New Jersey Money Market Series
Minnesota Series New York Money Market Series
New Jersey Series . Command Funds
New York Series Command Money Fund
North Carolina Series Command Government Fund
Ohio Series Command Tax-Free Fund
Pennsylvania Series . Institutional Money Market Fund
Prudential National Municipals Fund, Inc. Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
GLOBAL FUNDS
Prudential Europe Growth Fund, Inc.
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>
B-1
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained herein, and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. This Prospectus does not
constitute an offer by the Fund or by the Distributor to sell or a solicitation
of any offer to buy any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer in such jurisdiction.
-------------------------------------------
TABLE OF CONTENTS
PAGE
----
FUND HIGHLIGHTS....................... 2
Risk Factors and Special
Characteristics..................... 2
FUND EXPENSES......................... 4
FINANCIAL HIGHLIGHTS.................. 5
CALCULATION OF YIELD.................. 6
HOW THE FUND INVESTS.................. 6
Investment Objective and Policies.... 6
Other Investments and Policies....... 8
Investment Restrictions.............. 9
HOW THE FUND IS MANAGED............... 9
Manager.............................. 9
Distributor.......................... 10
Portfolio Transactions............... 10
Custodian and Transfer and
Dividend Disbursing Agent.......... 11
HOW THE FUND VALUES ITS SHARES........ 11
TAXES, DIVIDENDS AND DISTRIBUTIONS.... 12
GENERAL INFORMATION................... 13
Description of Common Stock.......... 13
Additional Information............... 13
SHAREHOLDER GUIDE..................... 14
How to Buy Shares of the Fund........ 14
How to Sell Your Shares.............. 15
Shareholder Services................. 18
APPENDIX.............................. A-1
THE PRUDENTIAL MUTUAL FUND FAMILY..... B-1
-------------------------------------------
444132B MF141A
CUSIP NO: 74436K-10-4
PROSPECTUS
August 29, 1995
Prudential
Special Money
Market Fund
----------------------
Money Market Series
PRUDENTIAL MUTUAL FUNDS
BUILDING YOUR FUTURE
ON OUR STRENGTH SM
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND
Statement of Additional Information
dated August 29, 1995
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, 1995, 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-11 18
Net Asset Value............................................................. B-12 11
Dividends and Distributions................................................. B-12 12
Taxes....................................................................... B-12 12
Calculation of Yield........................................................ B-13 6
Custodian, Transfer and Dividend Disbursing Agent and Independent
Accountants............................................................... B-14 11
Financial Statements........................................................ B-15 --
Independent Auditors' Report................................................ B-22 --
</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
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
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.
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
Position with Principal Occupations
Name, Address and Age Fund During Past 5 Years
- ---------------------- -------------------- ---------------------------------------------------
<S> <C> <C>
Edward D. Beach (70) Director President and Director of BMC Fund, Inc., a
c/o Prudential Mutual Fund closed-end investment company; prior thereto Vice
Management, Inc. Chairman of Broyhill Furniture Industries, Inc.;
One Seaport Plaza Certified Public Accountant; Secretary and
New York, NY Treasurer of Broyhill Family Foundation, Inc.;
Member of the Board of Trustees of Mars Hill
College; President and Director of First
Financial Fund, Inc. and The High Yield Income
Fund, Inc.; Director of The Global Government
Plus Fund, Inc. and The Global Total Return Fund,
Inc.
Delayne D. Gold (55) Director Marketing and Management Consultant.
c/o Prudential Mutual Fund
Management, Inc.
One Seaport Plaza
New York, NY
*Harry A. Jacobs, Jr. (72) 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; 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 First Australia Fund, Inc., The First
Australia Prime Income Fund, Inc., The Global
Government Plus Fund, Inc. and The Global Total
Return Fund, Inc.; Trustee of The Trudeau
Institute.
</TABLE>
- ---------------
* ``Interested'' Director, as defined in the Investment Company Act of 1940, by
reason of his affiliation with Prudential Securities or PMF.
B-5
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupations
Name, Address and Age Fund During Past 5 Years
- ---------------------- -------------------- ---------------------------------------------------
<S> <C> <C>
*Richard A. Redeker (52) President and President, Chief Executive Officer and Director
One Seaport Plaza Director (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);
Executive Vice President, The Prudential
Investment Corporation (since July 1994);
Director (since January 1994) of Prudential
Mutual Fund Distributors, Inc. (PMFD) and
Prudential Mutual Fund Services, Inc. (PMFS);
formerly Senior Executive Vice President and
Director of Kemper Financial Services, Inc.
(September 1978-September 1993); President and
Director of The Global Government Plus Fund,
Inc., The Global Total Return Fund, Inc. and The
High Yield Income Fund, Inc.
Stanley E. Shirk (78) Director Certified Public Accountant and a former Senior
c/o Prudential Mutual Fund Partner of the accounting firm of KPMG Peat
Management, Inc. Marwick; former Management and Accounting
One Seaport Plaza Consultant for the Association of Bank Holding
New York, NY Companies, Washington, D.C. and the Bank
Administration Institute, Chicago, IL; Director
of The High Yield Income Fund, Inc.
Stephen Stoneburn (52) Director Senior Vice President and Managing Director, Cowles
c/o Prudential Mutual Fund Business Media (since January 1993); prior
Management, Inc. thereto, Senior Vice President (January
One Seaport Plaza 1991-1992) and Publishing Vice President (May
New York, NY 1989-December 1990) of Gralla Publications, a
division of United Newspapers, U.K.; formerly
Senior Vice President of Fairchild Publications,
Inc.
Nancy H. Teeters (65) Director Economist; formerly Vice President and Chief
c/o Prudential Mutual Fund Economist (March 1986-June 1990) of International
Management, Inc. Business Machines Corporation; Member of the
One Seaport Plaza Board of Governors of the Horace H. Rackham
New York, NY School of Graduate Studies of the University of
Michigan; Director of Inland Steel Corporation
(since July 1991), The Global Total Return Fund,
Inc. and First Financial Fund, Inc.
Robert F. Gunia (48) Vice President Director (since January 1989), Chief Administrative
One Seaport Plaza Officer (since July 1990) 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;
Executive Vice President, Treasurer and
Comptroller (since March 1991) of PMFD; Director
(since June 1987) of PMFS; Vice President and
Director of The Asia Pacific Fund, Inc. (since
May 1989).
S. Jane Rose (49) 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.
Ellyn C. Acker (34) Assistant Vice President and Associate General Counsel of
One Seaport Plaza Secretary Prudential Securities and PMF (since March 1995);
New York, NY prior thereto, associated with the law firm of
Fulbright & Jaworski L.L.P.
</TABLE>
- ---------------
* ``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>
<CAPTION>
Position with Principal Occupations
Name, Address and Age Fund During Past 5 Years
- ---------------------- -------------------- ---------------------------------------------------
<S> <C> <C>
Eugene S. Stark (37) Treasurer and First Vice President (since January 1990) of PMF.
One Seaport Plaza Principal Financial
New York, NY and Accounting
Officer
Stephen M. Ungerman (42) Assistant First Vice President (since February 1993) of PMF;
One Seaport Plaza Treasurer prior thereto, Senior Tax Manager at Price
New York, NY Waterhouse LLP. (1981-January 1993).
</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.
The Board of Directors has adopted a retirement policy which calls for the
retirement of Directors on December 31 of the year in which they reach the age
of 72, except that retirement is being phased in for Directors who were age 68
or older as of December 31, 1993. Under this phase-in provision, Messrs. Beach,
Jacobs and Shirk are scheduled to retire on December 31, 1999, 1998 and 1997,
respectively.
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.
The following table sets forth the aggregate compensation paid by the Fund
for the fiscal year ended June 30, 1995 to the Directors who are not affiliated
with the Manager and the aggregate compensation paid to such Directors for
service on the Fund's Board and the Board of any other investment companies
managed by Prudential Mutual Fund Management, Inc. (Fund Complex) for the
calendar year ended December 31, 1994.
<TABLE>
<CAPTION>
Compensation Table
------------------
Total
Pension or Compensation
Retirement from Fund
Aggregate Benefits Accrued Estimated Annual and Fund
Compensation as Part of Fund Benefits Upon Complex Paid
Name and Position From Fund Expenses Retirement to Directors
- -------------------------------------- ------------ ----------------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Edward D. Beach, Director $3,000 None N/A $159,000(20)*(39)**
Delayne Dedrick Gold, Director $3,000 None N/A $185,000(24)*((43)**
Stanley E. Shirk, Director $3,000 None N/A $79,000(8)*(10)**
Stephen Stoneburn, Director $3,000 None N/A $48,000(7)*(7)**
Nancy H. Teeters, Director $3,000 None N/A $95,000(12)*(30)**
*Indicates number of funds in Fund Complex (including the Fund) to which aggregate compensation relates.
**Indicates the number of portfolios in Fund Complex (including the Fund) to which aggregate compensation
relates.
</TABLE>
As of August 4, 1995, the Directors and officers of the Fund, as a group,
owned less than 1% of the outstanding shares of common stock of the Fund and
there were no beneficial owners of greater than 5% of the outstanding shares of
the Fund.
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, 1995, PMF managed and/or
administered open-end and closed-end management investment companies with assets
of approximately $49 billion. According to the Investment Company Institute, as
of December 31, 1994, the Prudential Mutual Funds were the 12th largest family
of mutual funds in the United States.
B-7
<PAGE>
PMF is a subsidiary of Prudential Securities Incorporated and The
Prudential Insurance Company of America (Prudential). PMF has three wholly-owned
subsidiaries: Prudential Mutual Fund Distributors, Inc., Prudential Mutual Fund
Services, Inc. (PMFS or the Transfer Agent) and Prudential Mutual Fund
Investment Management, Inc. PMFS serves as the transfer agent for the Prudential
Mutual Funds and, in addition, provides customer service, recordkeeping and
management and administration services to qualified plans.
Pursuant to 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. In the event the expenses of the
Fund (including the fees of the Manager but excluding interest, taxes, brokerage
commissions, litigation and indemnification expenses and other extraordinary
expenses) for any fiscal year exceed the lowest applicable annual expense
limitation established and enforced pursuant to the statutes or regulations of
any jurisdictions in which shares of the Fund are then qualified for offer and
sale, the Manager will reduce its fee by the amount of such excess, or, if such
reduction exceeds the compensation payable to the Manager, the Manager will pay
to the Fund the amount of such reduction which exceeds the amount of such
compensation. Any such reductions or payments will be made monthly and are
subject to readjustment during the year. Currently, the most restrictive of such
annual limitations is believed to be 2 1/2% of the Fund's average daily net
assets up to $30 million, 2% of the next $70 million 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) 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 12, 1995, and by the Fund's shareholders on October 30, 1990.
For the fiscal years ended June 30, 1995, 1994 and 1993, the Fund paid
management fees of $2,084,495, $1,359,346 and $1,069,740, respectively.
B-8
<PAGE>
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 12, 1995, 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 are subsidiaries of Prudential, which is one
of the largest diversified financial services institutions in the world and,
based on total assets, the largest insurance company in North America as of
December 31, 1994. Its primary business is to offer a full range of products and
services in three areas: insurance, investments and home ownership for
individuals and families; health-care management and other benefit programs for
employees of companies and members of groups; and asset management for
institutional clients and their associates. Prudential (together with its
subsidiaries) employs nearly 100,000 persons worldwide, and maintains a sales
force of approximately 19,000 agents, 3,400 insurance brokers and 6,000
financial advisors. It insures or provides other financial services to more than
50 million people worldwide. Prudential is a major issuer of annuities,
including variable annuities. Prudential seeks to develop innovative products
and services to meet consumer needs in each of its business areas. Prudential
has been engaged in the insurance business since 1875. In July 1994,
Institutional Investor ranked Prudential the second largest institutional money
manager of the 300 largest money management organizations in the United States
as of December 31, 1993.
From time to time, there may be media coverage of portfolio managers and
other investment professionals associated with the Manager and the Subadviser in
national and regional publications, on television and other media. Additionally,
individual mutual fund portfolios are frequently cited in surveys conducted by
national and regional publications and media organizations such as The Wall
Street Journal, The New York Times, Barron's and USA Today.
DISTRIBUTOR
Prudential 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 12, 1995.
Pursuant to the Distribution Agreement, the Fund has agreed to indemnify
the Distributor to the extent permitted by applicable law against certain
liabilities under the Securities Act.
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
B-9
<PAGE>
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
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,
1995, 1994 and 1993.
On October 21, 1993, Prudential Securities (or PSI) entered into an omnibus
settlement with the SEC, state securities regulators in 51 jurisdictions and the
NASD to resolve allegations that PSI sold interests in more than 700 limited
partnerships (and a limited number of other types of securities) from January 1,
1980 through December 31, 1990, in violation of securities laws to persons for
whom such securities were not suitable in light of the individuals' financial
condition or investment objectives. It was also alleged that the safety,
potential returns and liquidity of the investments had been misrepresented. The
limited partnerships principally involved real estate, oil and gas producing
properties and aircraft leasing ventures. The SEC Order (i) included findings
that PSI's conduct violated the federal securities laws and that an order issued
by the SEC in 1986 requiring PSI to adopt, implement and maintain certain
supervisory procedures had not been complied with; (ii) directed PSI to cease
and desist from violating the federal securities laws and imposed a $10 million
civil penalty; and (iii) required PSI to adopt certain remedial measures
including the establishment of a Compliance Committee of its Board of Directors.
Pursuant to the terms of the SEC settlement, PSI established a settlement fund
in the amount of $330,000,000 and procedures, overseen by a court approved
Claims Administrator, to resolve legitimate claims for compensatory damages by
purchasers of the partnership interests. PSI has agreed to provide additional
funds, if necessary, for that purpose. PSI's settlement with the state
securities regulators included an agreement to pay a penalty of $500,000 per
jurisdiction. PSI consented to a censure and to the payment of a $5,000,000 fine
in settling the NASD action. In settling the above referenced matters, PSI
neither admitted nor denied the allegations asserted against it.
On January 18, 1994, PSI agreed to the entry of a Final Consent Order and a
Parallel Consent Order by the Texas Securities Commissioner. The firm also
entered into a related agreement with the Texas Securities Commissioner. The
allegations were that the firm had engaged in improper sales practices and other
improper conduct resulting in pecuniary losses and other harm to investors
residing in Texas with respect to purchases and sales of limited partnership
interests during the period of January 1, 1980 through December 31, 1990.
Without admitting or denying the allegations, PSI consented to a reprimand,
agreed to cease and desist from future violations, and to provide voluntary
donations to the State of Texas in the aggregate amount of $1,500,000. The firm
agreed to suspend the creation of new customer accounts, the general
solicitation of new accounts, and the offer for sale of securities in or from
PSI's North Dallas office to new customers during a period of twenty consecutive
business days, and agreed that its other Texas offices would be subject to the
same restrictions for a period of five consecutive business days. PSI also
agreed to institute training programs for its securities salesmen in Texas.
B-10
<PAGE>
On October 27, 1994, Prudential Securities Group, Inc. (PSG) and PSI
entered into agreements with the United States Attorney deferring prosecution
(provided PSI complies with the terms of the agreement for three years) for any
alleged criminal activity related to the sale of certain limited partnership
programs from 1983 to 1990. In connection with these agreements, PSI agreed to
add the sum of $330,000,000 to the fund established by the SEC and executed a
stipulation providing for a reversion of such funds to the United States Postal
Inspection Service. PSI further agreed to obtain a mutually acceptable outside
director to sit on the Board of Directors of PSG and the Compliance Committee of
PSI. The new director will also serve as an independent ``ombudsman'' whom PSI
employees can call anonymously with complaints about ethics and compliance.
Prudential Securities shall report any allegations or instances of criminal
conduct and material improprieties to the new director. The new director will
submit compliance reports which shall identify all such allegations or instances
of criminal conduct and material improprieties every three months for a
three-year period.
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.
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.
B-11
<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 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, provided that it distributes at least 90% of its net investment
income and
B-12
<PAGE>
short-term capital gains, 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
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 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.
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.
B-13
<PAGE>
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
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, 1995, the Fund incurred fees of $312,000 for such
services.
Deloitte & Touche LLP, Two World Financial Center, New York, New York
10281, serves as the Fund's independent public accountants and, in that
capacity, audits the Fund's annual financial statements.
B-14
<PAGE>
Portfolio of Investments as PRUDENTIAL SPECIAL MONEY MARKET FUND
of June 30, 1995 MONEY MARKET SERIES
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Bank Holding Paper--0.6%
$2,000 PNC Funding Corp., 5.96%, 8/18/95 $ 1,984,107
- ------------------------------------------------------------
Bank Notes--9.5%
1,000 Bank One Indianapolis N.A.,
7.18%, 2/5/96 1,002,348
16,000 Bank One Milwaukee, N.A.,
5.98%, 7/31/95 15,999,961
2,000 Huntington National Bank,
6.20%, 11/3/95 2,000,564
1,000 Mellon Bank, N.A., 6.20%, 11/1/95 999,934
NationsBank Texas,
8,000 6.82%, 10/31/95 8,000,506
3,000 7.30%, 1/26/96 3,007,133
2,000 Northern Trust Co., 6.60%, 11/17/95 2,002,369
1,000 State Street Bank & Trust Co.,
6.01%, 9/20/95 999,980
------------
34,012,795
- ------------------------------------------------------------
Certificates of Deposit - Domestic--1.4%
1,000 National Westminster Bank Delaware,
5.85%, 12/26/95 1,000,000
4,000 Societe Generale, 7.65%, 1/8/96 4,020,046
------------
5,020,046
- ------------------------------------------------------------
Certificates of Deposit - Eurodollar--0.8%
Bank of New York,
1,000 6.15%, 7/3/95 1,000,002
2,000 6.27%, 10/31/95 2,000,453
------------
3,000,455
- ------------------------------------------------------------
Certificates of Deposit - Yankee--7.8%
3,000 Caisse Nationale de Credit,
6.22%, 11/2/95 3,000,190
2,000 Commerzbank, 7.10%, 2/2/96 2,005,108
3,000 Industrial Bank of Japan, Ltd.,
6.02%, 7/5/95 3,000,000
5,000 Norinchukin Bank, 6.06%, 7/20/95 5,000,026
Sumitomo Bank, Ltd.,
$9,000 6.00%, 7/10/95 $ 9,000,000
6,000 6.06%, 7/14/95 6,000,022
------------
28,005,346
- ------------------------------------------------------------
Commercial Paper - Domestic--40.7%
3,000 A. H. Robbins Co., Inc., 5.97%,
7/21/95 2,990,050
2,973,735
American Express Credit Corp.,
3,000 6.18%, 8/21/95
2,000 5.90%, 10/16/95 1,964,928
995,739
American Home Products Corp.,
1,000 5.90%, 7/27/95
1,000 5.95%, 7/27/95 995,703
3,000 5.98%, 7/27/95 2,987,043
5,000 5.97%, 8/10/95 4,966,833
1,000 5.95%, 8/31/95 989,918
2,000 Aristar, Inc., 6.02%, 7/5/95 1,998,662
1,998,667
Associates Corp. of North America,
2,000 6.00%, 7/5/95
5,000 5.96%, 8/2/95 4,973,511
3,000 5.91%, 8/29/95 2,970,943
2,000 5.91%, 8/30/95 1,980,300
AT&T Capital Corp.,
1,000 5.83%, 9/8/95 988,826
2,000 5.83%, 9/12/95 1,976,356
CIT Group Holdings, Inc.,
3,500 6.00%, 7/5/95 3,497,667
2,000 5.90%, 9/11/95 1,976,400
1,000 Coca-Cola Enterprises, Inc.,
6.00%, 11/3/95 979,167
2,991,030
Countrywide Funding Corp.,
3,000 5.98%, 7/19/95
1,000 6.02%, 7/25/95 995,987
1,000 6.02%, 7/27/95 995,652
3,000 6.00%, 7/28/95 2,986,500
2,000 Dean Witter, Discover & Co.,
5.97%, 7/5/95 1,998,673
1,000 Duracell, Inc., 5.98%, 8/11/95 993,189
Finova Capital Corp.,
2,000 6.20%, 7/6/95 1,998,278
1,000 6.12%, 7/11/95 998,300
1,000 6.03%, 8/1/95 994,808
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-15
<PAGE>
Portfolio of Investments as PRUDENTIAL SPECIAL MONEY MARKET FUND
of June 30, 1995 MONEY MARKET SERIES
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Commercial Paper - Domestic (cont'd.)
$1,000 6.01%, 8/2/95 $ 994,658
1,000 6.05%, 8/7/95 993,782
4,000 6.00%, 8/21/95 3,966,000
Ford Motor Credit Corp.,
5,000 6.20%, 9/12/95 4,937,139
General Electric Capital Corp.,
9,000 6.05%, 10/18/95 8,835,138
4,000 6.53%, 10/30/95 3,912,208
19,000 General Motors Acceptance Corp.,
6.15%, 7/12/95 18,964,295
1,000 GTE Finance Corp., 5.98%, 8/11/95 993,188
9,000 Hertz Corp., 5.86%, 9/18/95 8,884,265
2,000 Household Finance Corp., 5.82%,
9/26/95 1,971,870
ITT Corp.,
2,000 6.00%, 7/11/95 1,996,667
4,000 5.96%, 7/14/95 3,991,391
2,987,217
McKenna Triangle National Corp.,
3,000 5.90%, 7/27/95
5,679 5.96%, 8/3/95 5,647,974
4,000 Morgan Stanley Group, Inc.,
5.85%, 10/2/95 3,939,550
1,000 Norwest Financial, Inc., 6.00%,
7/5/95 999,333
Pennsylvania Power & Light Energy
Trust,
1,000 5.92%, 7/10/95 998,520
1,000 5.95%, 7/17/95 997,356
4,000 Philip Morris Co., Inc., 6.02%,
7/13/95 3,991,973
986,838
Preferred Receivables Funding Corp.,
1,000 5.85%, 9/20/95
3,000 Sears Roebuck Acceptance Corp.,
5.98%, 7/10/95 2,995,515
1,243 State Street Capital Corp., 6.07%,
7/7/95 1,241,742
983 Transamerica Corp., 6.00%, 7/6/95 982,181
2,000 Whirlpool Financial Corp.,
6.05%, 7/21/95 1,993,278
1,000 Xerox Corp., 5.82%, 9/14/95 987,875
------------
146,346,818
- ------------------------------------------------------------
Commercial Paper - Yankee--12.1%
2,891,445
Abbey National Treasury Services,
PLC,
2,900 5.90%, 7/19/95
3,000 5.82%, 9/15/95 2,963,140
$3,000 6.40%, 5/17/96 $ 3,000,000
994,958
American Honda Finance Corp.,
1,000 6.05%, 7/31/95
1,000 5.88%, 8/31/95 990,037
2,000 Bayerishe Hypo Und Wechsel Bank,
6.376%, 4/24/96 1,998,828
3,000 BHF Finance, Inc., 5.80%, 9/22/95 2,959,883
987,872
Bradford & Bingley Building Society,
1,000 5.90%, 9/13/95
2,000 5.81%, 9/26/95 1,971,918
3,000 Cheltenham & Gloucester Building
Society,
6.02%, 7/20/95 2,990,467
1,000 Halifax Building Society, 5.81%,
9/11/95 988,380
Hanson Finance, PLC.,
2,000 5.83%, 9/20/95 1,973,765
4,000 5.90%, 9/21/95 3,946,244
2,847,117
Leeds Permanent Buillding Society,
2,850 6.07%, 7/7/95
2,000 National Australia Funding, Inc.,
6.35%, 8/4/95 1,988,006
Paribas Finance, Inc.,
1,000 6.00%, 8/1/95 994,833
4,000 5.84%, 9/28/95 3,942,249
5,000 Province of Quebec, 5.82%, 9/26/95 4,929,675
------------
43,358,817
- ------------------------------------------------------------
Corporate Bonds--1.1%
1,014,503
American General Finance Corp.,
1,000 8.875%, 3/15/96
1,000 Atlantic Richfield Company,
10.375%, 7/15/95 1,001,408
1,000 BP America Inc.,
10.15%, 3/15/96 1,022,887
1,000 Ford Motor Credit Corp.,
8.875%, 3/15/96 1,013,246
------------
4,052,044
- ------------------------------------------------------------
Government Coupon Issue--1.5%
2,500 Federal Home Loan Banks,
6.05%, 6/13/96 2,501,396
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-16
<PAGE>
Portfolio of Investments as PRUDENTIAL SPECIAL MONEY MARKET FUND
of June 30, 1995 MONEY MARKET SERIES
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Government Coupon Issue (cont'd.)
$3,000 Federal National Mortgage
Association, 5.71%, 6/10/96 $ 2,991,845
------------
5,493,241
- ------------------------------------------------------------
Medium-Term Notes--1.7%
3,000 Merrill Lynch & Co., Inc.,
6.0725%, 7/5/95 2,999,851
3,000 Ford Motor Credit Corp.,
6.125%, 12/11/95 2,992,205
------------
5,992,056
- ------------------------------------------------------------
Medium-Term Notes - Yankee--0.6%
2,000 Westdeusche Landesbank,
6.85%, 3/1/96 2,002,072
- ------------------------------------------------------------
Time Deposit - Yankee--5.4%
3,547 Dai-Ichi Kangyo Bank, Ltd.,
6.375%, 7/5/95 3,547,000
Mitsubishi Bank, Ltd.,
9,000 6.1875%, 7/7/95 9,000,000
7,000 6.125%, 7/12/95 7,000,000
------------
19,547,000
- ------------------------------------------------------------
Variable Rate Obligations(b)--19.5%
1,999,981
American Express Centurion Bank,
2,000 6.0625%, 7/5/95
1,000 6.0625%, 7/17/95 999,873
2,000 6.0625%, 7/19/95 1,999,966
1,000 6.0625%, 7/28/95 999,976
1,000 Avco Financial Services, Inc.,
6.1407%, 7/13/95 1,000,000
6,000 Beneficial Corp., 6.0404%, 7/19/95 5,999,797
5,000 General Electric Capital Corp.,
6.0313%, 7/26/95 5,000,000
20,000 Goldman, Sachs & Co.,
6.1875%, 11/27/95 20,000,000
9,000 Lehman Brothers Holdings, Inc.,
6.2625%, 7/24/95 9,000,000
4,000 Merrill Lynch & Co., Inc.,
6.0725%, 7/24/95 3,999,823
8,000 Money Market Auto Loan Trust,
6.235%, 7/17/95 8,000,000
$ 1,000,000
Morgan Stanley Group, Inc.,
$1,000 6.375%, 7/17/95
10,000 6.25%, 8/15/95 10,000,000
------------
69,999,416
- ------------------------------------------------------------
Total Investments--102.7%
(amortized cost $368,814,213(a)) 368,814,213
Liabilities in excess of
other assets--(2.7%) (9,616,797)
------------
Net Assets--100% $359,197,416
------------
------------
</TABLE>
- ---------------
(a) The federal income tax basis of portfolio securities is the same as for
financial reporting purposes.
(b) For purposes of amortized cost valuation, the maturity date
of these instruments is considered to be the later of the next date on which the
security can be redeemed at par or the next date on which the rate of interest
is adjusted.
The industry classification of portfolio holdings shown as a
percentage of net assets as of June 30, 1995 was as follows:
<TABLE>
<S> <C>
Banks 36.5%
Personal Credit Institutions 15.3
Security Brokers & Dealers 14.7
Business Credit Institutions 11.4
Asset Backed Securities 4.9
Pharmaceuticals 3.9
Tobacco 2.8
Equipment Rental & Leasing 2.5
Bank Holding Companies 2.2
Financial Services 1.9
Federal Credit Agencies 1.5
Canadian Government 1.4
Telecommunication 1.1
Electrical Services 0.6
Household Appliances 0.6
Petroleum Refining 0.6
Beverages 0.3
Photographic Equipment 0.3
Miscellaneous Electrical, Equipment & Supplies 0.2
-----
102.7
Liabilities in excess of other assets (2.7)
-----
100.0%
-----
-----
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-17
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND
Statement of Assets and Liabilities MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets June 30, 1995
--------------
Investments, at amortized cost which approximates value..................................................... $ 368,814,213
Cash........................................................................................................ 37,677
Interest receivable......................................................................................... 1,378,579
Receivable for Series shares sold........................................................................... 429,499
Deferred expenses and other assets.......................................................................... 9,123
--------------
Total assets............................................................................................. 370,669,091
--------------
Liabilities
Payable for investments purchased........................................................................... 7,000,000
Payable for Series shares reacquired........................................................................ 3,994,362
Dividends payable........................................................................................... 259,676
Management fee payable...................................................................................... 156,188
Accrued expenses and taxes.................................................................................. 61,449
--------------
Total liabilities........................................................................................ 11,471,675
--------------
Net Assets.................................................................................................. $ 359,197,416
--------------
--------------
Net assets were comprised of:
Common stock, $0.001 par value per share................................................................. $ 359,197
Paid-in capital in excess of par......................................................................... 358,838,219
--------------
Net assets, June 30, 1995................................................................................ $ 359,197,416
--------------
--------------
Net asset value, offering price and redemption price per share
($359,197,416 / 359,197,416 shares of common stock issued and outstanding; two billion shares
authorized).............................................................................................. $1.00
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-18
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND
MONEY MARKET SERIES
Statement of Operations
============================================================
<TABLE><CAPTION>
Year Ended
Net Investment Income June 30, 1995
-------------
<S> <C>
Income
Interest and discount earned................ $ 23,456,593
-------------
Expenses
Management fee.............................. 2,084,495
Transfer agent's fees and expenses.......... 409,000
Custodian's fees and expenses............... 163,000
Registration fees........................... 102,000
Reports to shareholders..................... 62,000
Audit fee................................... 37,000
Directors' fees............................. 15,000
Legal fees.................................. 13,000
Amortization of organization expense........ 11,488
Miscellaneous............................... 17,381
-------------
Total expenses........................... 2,914,364
-------------
Net investment income.......................... 20,542,229
Realized Gain on Investments
Net realized gain on investment transactions... 27,039
-------------
Net Increase in Net Assets
Resulting from Operations...................... $ 20,569,268
-------------
-------------
</TABLE>
PRUDENTIAL SPECIAL MONEY MARKET FUND
MONEY MARKET SERIES
Statement of Changes in Net Assets
<TABLE><CAPTION>
Increase (Decrease) Year Ended June 30, 1995
-----------------------------------
<S> <C> <C>
in Net Assets 1995 1994
-------------- -----------------
Operations
Net investment income... $ 20,542,229 $ 8,036,713
Net realized gain on
investment
transactions......... 27,039 35,906
-------------- -----------------
Net increase in net
assets
resulting from
operations........... 20,569,268 8,072,619
-------------- -----------------
Dividends and distributions
to shareholders......... (20,569,268) (8,072,619)
-------------- -----------------
Fund share transactions
(at $1 per share)
Proceeds from shares
subscribed........... 1,721,699,172 1,796,491,879
Net asset value of
shares
issued to
shareholders in
reinvestment of
dividends and
distributions........ 16,901,677 6,433,981
Cost of shares
reacquired........... (1,852,460,009) (1,506,126,858)
-------------- -----------------
Net increase (decrease)
in net assets from
Series share
transactions......... (113,859,160) 296,799,002
-------------- -----------------
Total increase
(decrease)................. (113,859,160) 296,799,002
Net Assets
Beginning of year.......... 473,056,576 176,257,574
-------------- -----------------
End of year................ $ 359,197,416 $ 473,056,576
============== =================
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-19
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND
Notes to Financial Statements MONEY MARKET SERIES
- --------------------------------------------------------------------------------
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 Policies
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
Securities Valuation: Portfolio securities are valued at amortized cost, which
approximates market value. The amortized cost method of valuation involves
valuing a security at its cost on the date of purchase and thereafter assuming a
constant amortization to maturity of 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 were deferred and amortized over five
years.
- ------------------------------------------------------------
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 America.
- ------------------------------------------------------------
Note 3. Other Transactions With Affiliates
Prudential Mutual Fund Services, Inc. (``PMFS''), a wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During the twelve months ended June
30, 1995, the Series incurred fees of approximately $312,000 for the services of
PMFS. As of June 30, 1995, approximately $29,000 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-20
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND
Financial Highlights MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------------------------------
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
-------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income and net realized
gains....................................... 0.049 0.030 0.027 0.044 0.071(b)
Dividends and distributions................... (0.049) (0.030) (0.027) (0.044) (0.071)
-------- -------- -------- -------- --------
Net asset value, end of year.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN(a):.............................. 5.05% 3.09% 2.77% 4.49% 7.36%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................. $359,197 $473,057 $176,258 $183,093 $284,849
Average net assets (000)...................... $416,899 $271,869 $213,948 $249,223 $328,899
Ratios to average net assets:
Expenses.................................... 0.70% 0.72% 0.81% 0.83% 0.61%(b)
Net investment income....................... 4.93% 2.96% 2.73% 4.36% 6.98%(b)
</TABLE>
- ---------------
(a) 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.
(b) Net of expense subsidy and/or management fee waiver.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-21
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND
Independent Auditors' Report MONEY MARKET SERIES
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
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, 1995, 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
five years in the period then ended. 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 as of
June 30, 1995 by correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing procedures. 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, 1995, 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 LLP
New York, New York
August 21, 1995
- --------------------------------------------------------------------------------
B-22
<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, 1995.
Statement of Assets and Liabilities at June 30, 1995.
Statement of Operations for the fiscal year ended June 30, 1995.
Statement of Changes in Net Assets for the fiscal years ended June 30,
1995 and June 30, 1994.
Notes to Financial Statements.
Financial Highlights for the fiscal years ended June 30, 1995, 1994,
1993, 1992 and 1991.
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, amended and restated as of April 12, 1995,
between the Registrant and Prudential Mutual Fund Distributors, Inc.*
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.a. 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).
b. Opinion of Gardner, Carton & Douglas.*
11. Independent auditors' consent.*
C-1
<PAGE>
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).
27. Financial Data Schedule.*
- ------------------
*Filed herewith.
Item 25.Persons Controlled by or under Common Control with Registrant.
None.
Item 26.Number of Holders of Securities.
As of August 4, 1995, there were 19,461 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.
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
C-2
<PAGE>
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, 1995).
The business and other connections of PMF's directors and principal
executive officers are set forth below. Except as otherwise indicated, the
address of each person is One Seaport Plaza, New York, NY 10292.
<TABLE>
<CAPTION>
Name and Address Position with PMF Principal Occupations
- ---------------- ---------------------- --------------------------------------------------------
<S> <C> <C>
Brendan D. Boyle Executive Vice Executive Vice President, Director of Marketing and
President, Director of Director, PMF; Senior Vice President, Prudential
Marketing and Director Securities Incorporated (Prudential Securities);
Chairman and Director of Prudential Mutual Fund
Distributors, Inc. (PMFD)
Stephen P. Fisher Senior Vice President Senior Vice President, PMF; Senior Vice President,
Prudential Securities; Vice President, PMFD
Frank W. Giordano Executive Vice Executive Vice President, General Counsel, Secretary and
President, General Director, PMF and PMFD; Senior Vice President,
Counsel, Secretary and Prudential Securities; Director, Prudential Mutual
Director Fund Services, Inc. (PMFS)
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 Executive Vice President, Chief Financial Officer,
Officer, Treasurer and Treasurer and Director, PMFD; Director, PMFS
Director
Theresa A. Hamacher Director Director, PMF; Vice President, The Prudential Insurance
Company of America (Prudential); Vice President, The
Prudential Investment Corporation (PIC)
Timothy J. O'Brien Director President, Chief Executive Officer, Chief Operating
Officer, and Director, PMFD; Chief Executive Officer
and Director, PMFS; Director, PMF
Richard A. Redeker President, Chief President, Chief Executive Officer and Director, PMF;
Executive Officer and Executive Vice President, Director and Member of the
Director Operating Committee, Prudential Securities; Director,
Prudential Securities Group, Inc. (PSG); Executive
Vice President, PIC; Director, PMFD; Director, PMFS
</TABLE>
C-3
<PAGE>
<TABLE>
<CAPTION>
Name and Address Position with PMF Principal Occupations
- -------------------------- ---------------------- --------------------------------------------------------
<S> <C> <C>
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
</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>
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 President
51 JFK Pkwy and Director and Director, PIC
Short Hills, NJ 07078
Barry M. Gillman Director Director, PIC
Theresa A. Hamacher Vice President Vice President, Prudential; Vice President, PIC;
Director, PMF
Harry E. Knapp, Jr. President, Chairman of President, Chairman of the Board, Chief Executive
the Board, Chief Officer and Director, PIC; Vice President, Prudential
Executive Officer and
Director
William P. Link Senior Vice President Executive Vice President, Prudential; Senior Vice
Four Gateway Center President, PIC
Newark, NJ 07102
Richard A. Redeker Executive Vice President, Chief Executive Officer and Director, PMF;
President Executive Vice President, Director and Member of the
Operating Committee, Prudential Securities; Director
PSG; Executive Vice President, PIC; Director, PMFD;
Director, PMFS
Eric A. Simonson Vice President and Vice President and Director, PIC; Executive Vice
Director President, Prudential
Claude J. Zinngrabe, Jr. Executive Vice Vice President, Prudential; Executive Vice President,
President PIC
</TABLE>
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-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 Institutional Liquidity Portfolio, Inc.,
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 Prudential Adjustable Rate
Securities Fund, Inc., Prudential Allocation Fund, The BlackRock Government
Income Trust, Prudential California Municipal Fund (California Income Series and
California Series), Prudential Diversified Bond Fund, Inc., Prudential Equity
Fund, Inc., Prudential Equity Income Fund, Prudential Europe Growth Fund, Inc.,
Prudential Global Fund, Inc., Prudential Global Genesis Fund, Inc., Prudential
Global Natural Resources Fund, Inc., Prudential Mortgage Income Fund, Inc.,
Prudential Government Income 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 (Arizona
Series, Georgia Series, Hawaii Income Series, Maryland Series, Massachusetts
Series, Michigan Series, Minnesota Series, New Jersey Series, New York Series,
North Carolina Series, Ohio Series and Pennsylvania Series),
C-4
<PAGE>
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, Prudential Utility Fund, Inc.,
Global Utility Fund, Inc. and Nicholas-Applegate Fund, Inc. (Nicholas-Applegate
Growth Equity Fund).
(b) Information concerning the directors and officers of Prudential
Mutual Fund Distributors, Inc. is set forth below.
<TABLE>
Position and Offices Position and Offices
Name1 with Underwriter with Registrant
- --------------------------------- -------------------------------------- -------------------------
<S> <C> <C>
Joanne Accurso-Soto.............. Vice President None
Dennis Annarumma................. Vice President, Assistant Treasurer None
and Assistant Comptroller
Phyllis J. Berman................ Vice President None
Brendan D. Boyle................. Chairman and Director None
Stephen P. Fisher................ Vice President None
Frank W. Giordano................ Executive Vice President, General None
Counsel, Secretary and Director
Robert F. Gunia.................. Executive Vice President, Chief Vice President
Financial Officer, Treasurer and
Director
Timothy J. O'Brien............... President, Chief Executive Officer, None
Chief Operating Officer and Director
Richard A. Redeker............... Director Director and President
Andrew J. Varley................. Vice President None
Anita L. Whelan.................. Vice President and Assistant Secretary None
- ------------------
(1)The address of each person named is One Seaport Plaza, New York, NY 10292 unless otherwise
indicated.
</TABLE>
(c) Registrant has no principal underwriter who is not an affiliated
person of the Registrant.
Item 30. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules thereunder are maintained at the
offices of State Street Bank and Trust Company, One Heritage Drive, North
Quincy, Massachusetts, 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 Two 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
None.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, and State of
New York, on the 29th day of August, 1995.
PRUDENTIAL SPECIAL MONEY MARKET FUND
By: /s/ Richard A. Redeker
-----------------------------------
Richard A. Redeker, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- -------------------------------------- ----------------
<S> <C> <C>
/s/ Edward D. Beach Director August 29, 1995
- --------------------------------------
Edward D. Beach
/s/ Delayne D. Gold Director August 29, 1995
- --------------------------------------
Delayne D. Gold
/s/ Harry A. Jacobs, Jr. Director August 29, 1995
- --------------------------------------
Harry A. Jacobs, Jr.
/s/ Richard A. Redeker Director and President August 29, 1995
- --------------------------------------
Richard A. Redeker
/s/ Stanley E. Shirk Director August 29, 1995
- --------------------------------------
Stanley E. Shirk
/s/ Stephen D. Stoneburn Director August 29, 1995
- --------------------------------------
Stephen D. Stoneburn
/s/ Nancy Hays Teeters Director August 29, 1995
- --------------------------------------
Nancy Hays Teeters
/s/ Eugene S.Stark Treasurer and Principal August 29, 1995
- -------------------------------------- Financial and
Eugene S.Stark Accounting Officer
</TABLE>
<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, amended and restated as of April 12, 1995, between
the Registrant and Prudential Mutual Fund Distributors, Inc.*
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.
a. 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).
b. Opinion of Gardner, Carton & Douglas.*
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).
27. Financial Data Schedule.*
- ------------------
*Filed herewith.
Exhibit 6
PRUDENTIAL SPECIAL MONEY MARKET FUND
DISTRIBUTION AGREEMENT
Agreement, made as of the 12th day of January, 1990, and amended and
restated as of April 12, 1995, between Prudential Special Money Market Fund
(the "Fund") and Prudential Mutual Fund Distributors, Inc. (the "Distributor").
Recitals
1. The Fund is registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"), as a diversified, open-end, management
investment company and it is in the interest of the Fund to offer its shares for
sale continuously.
2. The Distributor is a broker-dealer registered under the Securities
Exchange Act of 1934, as amended, and is engaged in the business of selling and
distributing shares of registered investment companies through other broker-
dealers. The Distributor is a wholly-owned subsidiary of Prudential Mutual Fund
Management, Inc.
3. The Fund and the Distributor wish to enter into an agreement with each
other with respect to the continuous offering of the Fund's shares from and
after the date hereof in order to promote the growth of the Fund and facilitate
the distribution of its shares.
The Fund and the Distributor hereby agree as follows:
Section 1. Appointment of the Distributor
------------------------------
The Fund hereby appoints the Distributor as the principal underwriter and
distributor of the Fund to sell shares to the public on behalf of the Fund and
the Distributor hereby accepts such appointment and agrees to act hereunder.
The Fund hereby agrees during the term of this Agreement to sell shares through
the Fund to the Distributor on the terms and conditions set forth below.
Section 2. Exclusive Nature of Duties
--------------------------
The Distributor shall be the exclusive representative of the Fund to act as
principal underwriter and distributor, except that:
2.1. The exclusive rights granted to the Distributor to sell shares of the
Fund shall not apply to shares of the Fund issued in connection with the merger
or consolidation of any other
<PAGE>
investment company or personal holding company with the Fund or the acquisition
by purchase or otherwise of all (or substantially all) the assets or the
outstanding shares of any such company by the Fund.
2.2. Such exclusive rights shall not apply to shares issued by the Fund
pursuant to reinvestment of dividends or capital gains distributions.
2.3. Such exclusive rights shall not apply to shares issued by the Fund
pursuant to the reinstatement privilege afforded redeeming shareholders.
2.4. Such exclusive rights shall not apply to purchases made through the
Fund's transfer and disbursing agent in the manner set forth in the currently
effective Prospectus of the Fund.
Section 3. Purchase of Shares from the Fund
--------------------------------
3.1. The Distributor shall have the right to buy from the Fund on behalf of
investors the shares needed, but not more than the shares needed (except for
clerical errors in transmission) to fill unconditional orders for shares placed
with the Distributor by investors.
3.2. The term "Prospectus" shall mean the Prospectus and Statement of
Additional Information included as part of the Fund's Registration Statement, as
such Prospectus and Statement of Additional Information may be amended or
supplemented from time to time, and the term "Registration Statement" shall mean
the Registration Statement filed by the Fund with the Securities and Exchange
Commission and effective under the Securities Act of 1933, as amended (the
"Securities Act"), and the Investment Company Act, as such Registration
Statement is amended from time to time.
3.3. The shares shall be sold by the Distributor on behalf of the Fund and
delivered by the Distributor to investors at the offering price as set forth in
the Prospectus.
3.4. The Fund shall have the right to suspend the sale of its shares at
times when redemption is suspended pursuant to the conditions in Section 4.3
hereof or at such other times as may be determined by the directors. The Fund
shall also have the right to suspend the sale of its shares if a banking
moratorium shall have been declared by federal or New York authorities.
3.5. The Fund, or any agent of the Fund designated in writing by the Fund,
shall be promptly advised of all purchase orders for shares received by the
Distributor. Any order may be rejected by the Fund; provided, however, that the
Fund will not arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of shares. The Fund (or its agent) will confirm
orders upon their receipt, will make
<PAGE>
appropriate book entries and upon receipt by the Fund (or its agent) of payment
therefor, will deliver deposit receipts for such shares pursuant to the
instructions of the Distributor. Payment shall be made to the Fund in New York
Clearing House funds or federal funds. The Distributor agrees to cause such
payment and such instructions to be delivered promptly to the Fund (or its
agent).
Section 4. Repurchase or Redemption of Shares by the Fund
----------------------------------------------
4.1. Any of the outstanding shares may be tendered for redemption at any
time, and the Fund agrees to repurchase or redeem the shares so tendered in
accordance with its Articles of Incorporation as amended from time to time, and
in accordance with the applicable provisions of the Prospectus. The price to be
paid to redeem or repurchase the shares shall be equal to the net asset value
determined as set forth in the Prospectus. All payments by the Fund hereunder
shall be made in the manner set forth in Section 4.2 below.
4.2. The Fund shall pay the total amount of the Redemption price as defined
in the above paragraph pursuant to the instructions of the Distributor on or
before the seventh day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of shares shall be
paid by the Fund to or for the account of the redeeming shareholder, in each
case in accordance with applicable provisions of the Prospectus.
4.3. Redemption of shares or payment may be suspended at times when the New
York Stock Exchange is closed for other than customary weekends and holidays,
when trading on said Exchange is restricted, 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 during any other period when the Securities and
Exchange Commission, by order, so permits.
Section 5. Duties of the Fund
------------------
5.1. Subject to the possible suspension of the sale of shares as provided
herein, the Fund agrees to sell its shares so long as it has shares available.
5.2. The Fund shall furnish the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of shares, and this shall
include one certified copy, upon request by the Distributor, of all financial
statements prepared for the Fund by independent public accountants. The Fund
shall make available to the Distributor
<PAGE>
such number of copies of its Prospectus and annual and interim reports as the
Distributor shall reasonably request.
5.3. The Fund shall take, from time to time, but subject to the necessary
approval of the Board of Directors and shareholders, all necessary action to fix
the number of authorized shares and such steps as may be necessary to register
the same under the Securities Act, to the end that there will be available for
sale such number of shares as the Distributor reasonably may expect to sell.
The Fund agrees to file from time to time amendments, reports and other
documents as may be necessary in order that there will be no untrue statement of
a material fact in the Registration Statement, or necessary in order that there
will be no omission to state a material fact in the Registration Statement which
omission would make the statements therein misleading.
5.4. The Fund shall use its best efforts to qualify and maintain the
qualification of any appropriate number of its shares for sales under the
securities laws of such states as the Distributor and the Fund may approve;
provided that the Fund shall not be required to amend its Articles of
Incorporation or By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its shares in any
state from the terms set forth in its Registration Statement, to qualify as a
foreign corporation in any state or to consent to service of process in any
state other than with respect to claims arising out of the offering of its
shares. Any such qualification may be withheld, terminated or withdrawn by the
Fund at any time in its discretion. As provided in Section 7.1 hereof, the
expense of qualification and maintenance of qualification shall be borne by the
Fund. The Distributor shall furnish such information and other material
relating to its affairs and activities as may be required by the Fund in
connection with such qualifications.
Section 6. Duties of the Distributor
-------------------------
6.1. The Distributor shall devote reasonable time and effort to effect
sales of shares of the Fund, but shall not be obligated to sell any specific
number of shares. Sales of the shares shall be on the terms described in the
Prospectus. The Distributor may enter into like arrangements with other
investment companies. The Distributor shall compensate the selected dealers as
set forth in the Prospectus.
6.2. In selling the shares, the Distributor shall use its best efforts in
all respects duly to conform with the requirements of all Federal and state laws
relating to the sale of such securities. Neither the Distributor nor any
selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales literature approved by
appropriate officers of the Fund.
<PAGE>
6.3. The Distributor shall adopt and follow procedures for the confirmation
of sales to investors, the collection of amounts payable by investors on such
sales, and the cancellation of unsettled transactions, as may be necessary to
comply with the requirements of the National Association of Securities Dealers,
Inc. (the "NASD").
Section 7. Allocation of Expenses
----------------------
7.1. The Fund shall bear all costs and expenses of the continuous offering
of its shares, including fees and disbursements of its counsel and auditors, in
connection with the preparation and filing of any required registration
statements and/or prospectuses under the Investment Company Act or the
Securities Act, and all amendments and supplements thereto, and preparing and
mailing annual and periodic reports and proxy materials to shareholders
(including but not limited to the expense of setting in type any such
registration statements, prospectuses, annual or periodic reports or proxy
materials). The Fund shall also bear the cost of expenses of qualification of
the shares for sale, and, if necessary or advisable in connection therewith, of
qualifying the Fund as a broker or dealer, in such states of the United States
or other jurisdictions as shall be selected by the Fund and the Distributor
pursuant to Section 5.4 hereof and the cost and expense payable to each such
state for continuing qualification therein until the Fund decides to discontinue
such qualification pursuant to Section 5.4 hereof.
Section 8. Indemnification
---------------
8.1. The Fund agrees to indemnify, defend and hold the Distributor, its
officers and directors and any person who controls the Distributor within the
meaning of Section 15 of the Securities Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which the Distributor, its officers,
directors or any such controlling person may incur under the Securities Act, or
under common law or otherwise, arising out of or based upon any untrue statement
of a material fact contained in the Registration Statement or Prospectus or
arising out of or based upon any alleged omission to state a material fact
required to be stated in either thereof or necessary to make the statements in
either thereof not misleading, except insofar as such claims, demands,
liabilities or expenses arise out of or are based upon any such untrue statement
or omission or alleged untrue statement or omission made in reliance upon and in
conformity with information furnished in writing by the Distributor to the Fund
for use in the Registration Statement or Prospectus; provided, however, that
this indemnity agreement shall not inure to the benefit of any such officer,
director or controlling person unless a court of competent jurisdiction shall
determine in a final decision on the merits, that the person to be indemnified
was not liable, by
<PAGE>
reason of willful misfeasance, bad faith or gross negligence in the performance
of its duties, or by reason of its reckless disregard of its obligations under
this Agreement ("disabling conduct"), or, in the absence of such a decision, a
reasonable determination, based upon a review of the facts, that the indemnified
person was not liable by reason of disabling conduct, by (a) a vote of a
majority of a quorum of directors who are neither "interested persons" of the
Fund as defined in Section 2(a)(19) of the Investment Company Act nor parties to
the proceeding, or (b) an independent legal counsel in a written opinion. The
Fund's agreement to indemnify the Distributor, its officers and directors and
any such controlling person as aforesaid is expressly conditioned upon the
Fund's being promptly notified of any action brought against the Distributor,
its officers or directors, or any such controlling person, such notification to
be given by letter or telegram addressed to the Fund at its principal business
office. The Fund agrees promptly to notify the Distributor of the commencement
of any litigation or proceedings against it or any of its officers or directors
in connection with the issue and sale of any shares.
8.2. The Distributor agrees to indemnify, defend and hold the Fund, its
officers and directors and any person who controls the Fund, if any, within the
meaning of Section 15 of the Securities Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Fund, its officers and
directors or any such controlling person may incur under the Securities Act or
under common law or otherwise, but only to the extent that such liability or
expense incurred by the Fund, its directors or officers or such controlling
person resulting from such claims or demands shall arise out of or be based upon
any alleged untrue statement of a material fact contained in information
furnished in writing by the Distributor to the Fund for use in the Registration
Statement or Prospectus or shall arise out of or be based upon any alleged
omission to state a material fact in connection with such information required
to be stated in the Registration Statement or Prospectus or necessary to make
such information not misleading. The Distributor's agreement to indemnify the
Fund, its officers and directors and any such controlling person as aforesaid,
is expressly conditioned upon the Distributor's being promptly notified of any
action brought against the Fund, its officers and directors or any such
controlling person, such notification being given to the Distributor at its
principal business office.
Section 9. Duration and Termination of this Agreement
------------------------------------------
9.1. This Agreement shall become effective as of the date first above
written and shall remain in force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the
<PAGE>
Board of Directors of the Fund, or by the vote of a majority of the outstanding
voting securities of the Fund, and (b) by the vote of a majority of those
directors who are not parties to this Agreement or interested persons of any
such parties and who have no direct or indirect financial interest in this
Agreement or in any agreement related thereto ("Rule 12b-1 Directors"), cast in
person at a meeting called for the purpose of voting upon such approval.
9.2. This Agreement may be terminated at any time, without the payment of
any penalty, by a majority of the Rule 12b-1 Directors or by vote of a majority
of the outstanding voting securities of the Fund, or by the Distributor, on
sixty (60) days' written notice to the other party. This Agreement shall
automatically terminate in the event of its assignment.
9.3. The terms "affiliated person," "assignment," "interested person" and
"vote of a majority of the outstanding voting securities," when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 10. Amendments to this Agreement
----------------------------
This Agreement may be amended by the parties only if such amendment is
specifically approved by (a) the directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the Fund, and (b) by the vote
of a majority of the Rule 12b-1 Directors cast in person at a meeting called for
the purpose of voting on such amendment.
Section 11. Governing Law
-------------
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New York as at the time in effect and
the applicable provisions of the Investment Company Act. To the extent that the
applicable law of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the Investment Company Act, the
latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
Prudential Mutual Fund Distributors, Inc.
By:/s/ Robert F. Gunia
-----------------------
Robert F. Gunia
Executive Vice President
Prudential Special Money Market Fund
By:/s/ Richard A. Redeker
------------------------
Richard A. Redeker
President
EXHIBIT 99.10(b)
GARDNER, CARTON & DOUGLAS
Suite 3400 - Quaker Tower
321 North Clark Street
Chicago, Illinois 60610-4795
(312) 644-3000
Telecopier: (312) 644-3381
August 28, 1995
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
Re: Prudential-Bache Special Money Market Fund, Inc.
Shares of Common Stock, $.001 par value per share
-------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel for Prudential-Bache Special Money Market,
Inc., a Maryland corporation (the "Fund"), in connection with its filing of
Post-Effective Amendment No. 8 to its Registration Statement on Form N-1A
(File No. 33-31603)(the "Amendment"). In addition to updating the
information contained therein, this Amendment registers 120,036,576 shares of
Common Stock, $.001 par value per share, of the Fund.
We have examined all instruments and records which, in our opinion,
were necessary of examination for the purpose of rendering this opinion. Based
upon such examination, we are of the opinion that the above-described shares
of Common Stock will be, if and when issued by the Fund in the manner and
upon the terms set forth in said Form N-1A, validly authorized and issued,
fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to
the Amendment.
Very truly yours,
/s/ Gardner, Carton & Douglas
Gardner, Carton & Douglas
PHD/HJM/KJF/cav
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in Post-Effective Amendment No. 8 to Registration
Statement No. 33-31603 of Prudential-Bache Special Money Market Fund, Inc. of
our report dated August 21, 1995, 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, 1995
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<ARTICLE>6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 368,814,213
<RECEIVABLES> 1,808,078
<ASSETS-OTHER> 46,800
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 370,669,091
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11,471,675
<TOTAL-LIABILITIES> 11,471,675
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 359,197,416
<SHARES-COMMON-STOCK> 359,197,416
<SHARES-COMMON-PRIOR> 473,056,576
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 359,197,416
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 23,456,593
<OTHER-INCOME> 0
<EXPENSES-NET> 2,914,364
<NET-INVESTMENT-INCOME> 20,542,229
<REALIZED-GAINS-CURRENT> 27,039
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 20,569,268
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (20,569,268)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,721,699,172
<NUMBER-OF-SHARES-REDEEMED> (1,852,460,009)
<SHARES-REINVESTED> 16,901,677
<NET-CHANGE-IN-ASSETS> (113,859,160)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,084,495
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,914,364
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
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<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
