<PAGE>
As filed with the Securities and Exchange Commission on August 26, 1997
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
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 10 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 11 /X/
(Check appropriate box or boxes)
------------------------
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
(Exact name of registrant as specified in charter)
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (201) 367-7530
S. JANE ROSE, ESQ.
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(NAME AND ADDRESS OF AGENT FOR SERVICE OF PROCESS)
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE
(CHECK APPROPRIATE BOX):
/ / immediately upon filing pursuant to paragraph (b)
/X/ on August 27, 1997 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
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE OFFERING REGISTRATION
BEING REGISTERED REGISTERED PER UNIT PRICE* FEE
<S> <C> <C> <C> <C>
Share of common stock, par
value $.001 per share....... 60,296,599 $1.00 $-- $0
</TABLE>
* 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 equal to
the net asset value per share as of the close of business on August 15, 1997
pursuant to Rule 457(d). The total number of shares redeemed during the
fiscal year ended June 30, 1997 amounted to 2,810,294,652 shares. Of this
number, no shares have been used for reduction pursuant to paragraph (a) of
rule 24e-2 in all previous filings of post-effective amendments during the
current year and 2,749,998,053 shares were used for reduction pursuant to
paragraph (c) of Rule 24f-2 during the fiscal year ended June 30, 1997.
60,296,599 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, 1997 on or about August 25, 1997.
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<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- ---------------------------------------------------- ----------------------------------------
<S> <C> <C> <C>
PART A
Item 1. Cover Page.............................. Cover Page
Item 2. Synopsis................................ Fund Expenses; Fund Highlights
Item 3. Condensed Financial Information......... Fund Expenses; Financial Highlights;
Calculation of Yield
Item 4. General Description of Registrant....... Cover Page; Fund Highlights; How the
Fund Invests; General Information
Item 5. Management of Fund...................... Financial Highlights; How the Fund is
Managed; General Information
Item 5A. Management's Discussion of Fund
Performance............................. Not Applicable
Item 6. Capital Stock and Other Securities...... Taxes, Dividends and Distributions;
General Information
Item 7. Purchase of Securities Being Offered.... Shareholder Guide; How the Fund Values
its Shares
Item 8. Redemption or Repurchase................ Shareholder Guide; How the Fund Values
its Shares; General Information
Item 9. Pending Legal Proceedings............... Not Applicable
PART B
Item 10. Cover Page.............................. Cover Page
Item 11. Table of Contents....................... Table of Contents
Item 12. General Information and History......... General Information
Item 13. Investment Objectives and Policies...... Investment Objective and Policies;
Investment Restrictions
Item 14. Management of the Fund.................. Directors and Officers; Manager;
Distributor
Item 15. Control Persons and Principal Holders of
Securities.............................. Directors and Officers
Item 16. Investment Advisory and Other
Services................................ Manager; Distributor; Custodian;
Transfer and Dividend Disbursing Agent
and Independent Accountants
Item 17. Brokerage Allocation and Other
Practices............................... Portfolio Transactions
Item 18. Capital Stock and Other Securities...... Not Applicable
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered................ Net Asset Value
Item 20. Tax Status.............................. Taxes, Dividends and Distributions
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, INC.
(Money Market Series)
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PROSPECTUS DATED AUGUST 27, 1997
- --------------------------------------------------------------------------------
Prudential Special Money Market Fund, Inc. (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 Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102-4077, 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 27, 1997, 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.
- --------------------------------------------------------------------------------
INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
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, INC.?
Prudential Special Money Market Fund, Inc. is a mutual fund. A mutual fund
pools the resources of investors by selling its shares to the public and
investing the proceeds of such sale in a portfolio of securities designed to
achieve its investment objective. Technically, the Fund is an open-end,
diversified, management investment company.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The 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.
WHAT ARE THE FUND'S 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's 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 12.
WHO MANAGES THE FUND?
Prudential Investments Fund Management LLC (PIFM or the Manager) is the
Manager of the Fund and is compensated for its services at an annual rate of
.50 of 1% of the Fund's average daily net assets. As of July 31, 1997, PIFM
served as manager or administrator to 62 investment companies, including 40
mutual funds, with aggregate assets of approximately $56.7 billion. The
Prudential Investment Corporation (PIC), which does business under the name
of Prudential Investments (PI, the Subadviser or the investment adviser),
furnishes investment advisory services in connection with the management of
the Fund under a Subadvisory Agreement with PIFM. See "How the Fund is
Managed--Manager" at page 10.
WHO DISTRIBUTES THE FUND'S SHARES?
Prudential Securities Incorporated (Prudential Securities or PSI), a major
securities underwriter and securities and commodities broker, acts as the
Distributor of the Fund's shares pursuant to a distribution agreement with
the Fund and serves without compensation. See "How the Fund is
Managed--Distributor" at page 11.
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, or directly
from the Fund, through its transfer agent, Prudential Mutual Fund Services LLC
(PMFS or the Transfer Agent), at the net asset value per share (NAV) next
determined after receipt of your purchase or exchange order by the Transfer
Agent or Prudential Securities. See "How the Fund Values its Shares" at page 12
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 16. 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 18.
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
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases.............................................. None
Maximum Sales Load Imposed on Reinvested Dividends................................... None
Deferred Sales Load (as a percentage of original purchase price or redemption
proceeds,
whichever is lower)................................................................ 5%*
Redemption Fees...................................................................... None
Exchange Fee......................................................................... None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees...................................................................... .50%
12b-1 Fees........................................................................... None
Other Expenses....................................................................... .21%
---
Total Fund Operating Expenses........................................................ .71%
---
---
</TABLE>
------------------
* 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 $ 53 $ 50 $ 88
You would pay the following expenses on the same investment,
assuming no redemption:...................................... $ 7 $ 23 $ 40 $ 88
</TABLE>
--------------------
THE ABOVE EXAMPLE IS BASED ON DATA FOR THE FISCAL YEAR ENDED JUNE 30, 1997.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The purpose of this table is to assist 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 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 for the year ended June 30, 1997 have
been audited by Price Waterhouse LLP, independent accountants, and for the
five years ended June 30, 1996 and the period from January 22, 1990 through
June 30, 1990 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)
---------------------------------------------------------------------- THROUGH
1997 1996 1995 1994 1993 1992 1991 JUNE 30, 1990
--------- -------- -------- -------- -------- -------- -------- -------------------
<S> <C> <C> <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 $ 1.00 $ 1.00
--------- -------- -------- -------- -------- -------- --------
Net investment income............. 0.049 0.051 0.049 0.030 0.027 0.044 0.071(c) 0.036(c)
Dividends from net investment
income.......................... (0.049) (0.051) (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 $ 1.00 $ 1.00
--------- -------- -------- -------- -------- -------- --------
--------- -------- -------- -------- -------- -------- --------
TOTAL RETURN(d):.................. 4.96% 5.19% 5.05% 3.09% 2.77% 4.49% 7.36% 3.65%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)... $261,856 $263,168 $359,197 $473,057 $176,258 $183,093 $284,849 $181,690
Average net assets (000).......... $298,821 $326,849 $416,899 $271,869 $213,948 $249,223 $328,899 $177,412
Ratios to average net assets:
Expenses........................ 0.71% 0.73% 0.70% 0.72% 0.81% 0.83% 0.61%(c) 0.19%(b)(c)
Net investment income........... 4.86% 5.07% 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, 1997.
<TABLE>
<S> <C>
Value of hypothetical account at end of period............................ $1.000967167
Value of hypothetical account at beginning of period...................... 1.000000000
------------
Base period return........................................................ $0.000967167
------------
------------
CURRENT YIELD ((.000967167 X (365/7))..................................... 5.04%
EFFECTIVE ANNUAL YIELD, assuming weekly compounding....................... 5.17%
</TABLE>
The weighted average life to maturity of the Fund's portfolio on June 30, 1997
was 57 days.
Yield is computed in accordance with a standardized formula described in the
Statement of Additional Information. In addition, comparative performance
information may be used from time to time in advertising or marketing the Fund's
shares, including data from Lipper Analytical Services, Inc., Morningstar
Publications, Inc., IBC/Financial Data, Inc., The Bank Rate Monitor and 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 (the SEC or the
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
6
<PAGE>
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 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
The Fund may invest in commercial paper, variable amount demand master notes,
funding agreements, 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 resale price. 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 Investments Fund
Management LLC (PIFM) 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.
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
8
<PAGE>
repurchase an underlying security. Changes in the credit quality of these
institutions could cause losses to the Fund and affect its share price. 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.
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, equity securities or other liquid, unencumbered assets,
marked-to-market daily, having a value equal to or greater than the Fund's
purchase commitments. See "Investment Objective and Policies--When-Issued and
Delayed Delivery Securities" in the Statement of Additional Information.
ILLIQUID SECURITIES
The Fund may hold up to 10% of its net assets in illiquid securities,
including repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable 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.
Investing in Rule 144A securities could, however, have the effect of increasing
the level of Fund illiquidity to the extent that qualified buyers become, for a
limited time, uninterested in purchasing these securities. The investment
adviser will monitor the liquidity of such restricted securities under the
supervision of the Board of Directors. Repurchase agreements subject to demand
are deemed to have a maturity equal to the applicable notice period. 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.
SECURITIES LENDING
The Fund may lend its portfolio securities to brokers or dealers, banks or
other recognized institutional borrowers of securities, provided that the
borrower at all times maintains cash or other liquid assets or secures an
irrevocable letter of credit in favor of the Fund in an amount equal to at least
100%, determined daily, of the market value of the securities loaned which are
maintained in a segregated account pursuant to applicable regulations. During
the time portfolio securities are on loan, the borrower will pay the Fund an
amount equivalent to any dividend or interest paid on such securities and the
Fund may invest the cash collateral and earn additional income, or it may
receive an agreed-upon amount of interest income from the borrower. As a matter
of fundamental policy, the Fund cannot lend more than 10% of the value of its
total assets. The Fund may pay reasonable administration and custodial fees in
connection with a loan. See "Investment Objective and Policies--Lending of
Portfolio Securities" in the Statement of Additional Information.
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INVESTMENTS IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest up to 10% of its total assets in shares of other
investment companies. To the extent that the Fund does invest in securities of
other investment companies, shareholders of the Fund may be subject to duplicate
management and advisory fees.
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities as defined in the Investment Company Act.
See "Investment Restrictions" in the Statement of Additional Information.
HOW THE FUND IS MANAGED
THE FUND HAS A BOARD OF DIRECTORS WHICH, IN ADDITION TO OVERSEEING THE ACTIONS
OF THE FUND'S MANAGER, SUBADVISER AND DISTRIBUTOR, AS SET FORTH BELOW, DECIDES
UPON MATTERS OF GENERAL POLICY. THE FUND'S MANAGER CONDUCTS AND SUPERVISES THE
DAILY BUSINESS OPERATIONS OF THE FUND. THE FUND'S SUBADVISER FURNISHES DAILY
INVESTMENT ADVISORY SERVICES.
For the fiscal year ended June 30, 1997, total expenses as a percentage of
average net assets of the Fund were 0.71%. See "Financial Highlights."
MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM OR THE MANAGER), GATEWAY
CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077, IS THE MANAGER
OF THE FUND AND IS COMPENSATED FOR ITS SERVICES AT AN ANNUAL RATE OF .50 OF 1%
OF THE FUND'S AVERAGE DAILY NET ASSETS. PIFM is organized in New York as a
limited liability company. It is the successor of Prudential Mutual Fund
Management, Inc., which transferred its assets to PIFM in September 1996.
For the fiscal year ended June 30, 1997, the Fund paid management fees to PIFM
of .50% of the Fund's average net assets. See "Manager" in the Statement of
Additional Information.
As of July 31, 1997, PIFM served as the manager to 40 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 22 closed-end investment companies with aggregate assets of
approximately $56.7 billion.
UNDER THE MANAGEMENT AGREEMENT WITH THE FUND, PIFM MANAGES THE INVESTMENT
OPERATIONS OF THE FUND AND ALSO ADMINISTERS THE FUND'S CORPORATE AFFAIRS. See
"Manager" in the Statement of Additional Information.
UNDER A SUBADVISORY AGREEMENT BETWEEN PIFM AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC), DOING BUSINESS AS PRUDENTIAL INVESTMENTS (PI, THE SUBADVISER
OR THE INVESTMENT ADVISER), PI FURNISHES INVESTMENT ADVISORY SERVICES IN
CONNECTION WITH THE MANAGEMENT OF THE FUND AND IS REIMBURSED BY PIFM FOR ITS
REASONABLE COSTS AND EXPENSES INCURRED IN PROVIDING SUCH SERVICES. Under the
Management Agreement, PIFM continues to have responsibility for all investment
advisory services and supervises PI's performance of such services.
PIFM and PIC are wholly-owned subsidiaries of The Prudential Insurance Company
of America (Prudential), a major diversified insurance and financial services
company.
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DISTRIBUTOR
PRUDENTIAL SECURITIES INCORPORATED (PRUDENTIAL SECURITIES, PSI 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 an indirect, wholly-owned subsidiary of Prudential.
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 terms of the
agreement, PSI agreed, among other things, to pay an additional $330,000,000
into the fund established by the SEC to pay restitution to investors who
purchased certain PSI limited partnership interests.
For more detailed information concerning the foregoing matters, see
"Distributor" in the Statement of Additional Information, a copy of which may be
obtained at no cost by calling (800) 225-1852.
The Fund is not affected by PSI's financial condition and is an entirely
separate legal entity from PSI, which has no beneficial ownership therein and
the Fund's assets which are held by State Street Bank and Trust Company, an
independent custodian, are separate and distinct from PSI.
PORTFOLIO TRANSACTIONS
Prudential Securities may act as a broker for the Fund provided that the
commissions, fees or other remuneration it receives are reasonable and fair. See
"Portfolio Transactions" in the Statement of Additional Information.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities and
cash and, in that capacity, maintains certain financial and accounting books and
records pursuant to an agreement with the Fund. Its mailing address is P.O. Box
1713, Boston, Massachusetts 02105.
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Prudential Mutual Fund Services LLC (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 PIFM. 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 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.
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.
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TAXATION OF SHAREHOLDERS
All dividends out of net investment income, together with distributions of any
net short-term gains (I.E., the excess of net short-term capital gains over net
long-term capital losses) 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 the Internal Revenue Code, the Fund is required to withhold and remit to
the U.S. Treasury 31% of dividends, 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 paid to a foreign
shareholder will generally be subject to U.S. withholding tax at the rate of 30%
(or lower treaty rate).
DIVIDENDS AND DISTRIBUTIONS
THE FUND EXPECTS TO DECLARE DAILY AND PAY MONTHLY 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 LLC, 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 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.
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GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
The Fund was incorporated in Maryland on October 20, 1989. Effective March 7,
1996, the Fund's name changed from Prudential-Bache Special Money Market Fund,
Inc. to Prudential Special Money Market Fund, Inc. 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 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.
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 LLC
(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
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<PAGE>
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 third 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 for Class
A or Class Z shares of the Prudential Mutual Funds.
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
number. A written confirmation of the exchange transaction will be sent to you.
NEITHER THE FUND NOR ITS AGENTS WILL BE LIABLE FOR ANY LOSS, LIABILITY OR COST
WHICH RESULTS FROM ACTING UPON INSTRUCTIONS REASONABLY BELIEVED TO BE GENUINE
UNDER THE FOREGOING PROCEDURES. (The Fund or its agents could be subject to
liability if they fail to employ reasonable procedures.) All exchanges will be
made on the basis of the relative 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 LLC, Attention: Exchange Processing, P.O. Box 15010, New Brunswick, New
Jersey 08906-5010.
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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 LLC AT THE ADDRESS NOTED
ABOVE.
The Fund reserves the right to reject any exchange order including exchanges
(and market timing transactions) which are of a size and/or frequency engaged in
by one or more accounts acting in concert or otherwise, that have or may have an
adverse effect on the ability of the Subadviser to manage the portfolio. The
determination that such exchanges or activity may have an adverse effect and the
determination to reject any exchange order shall be in the discretion of the
Manager and the Subadviser.
The Exchange Privilege is not a right and may be suspended, modified or
terminated on 60 days' notice to shareholders at any time.
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 LLC, Attention: Redemption
Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to a
person other than the record owner, (c) are to be sent to an address other than
the address on the Transfer Agent's records, or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the redemption
request and on the certificates, if any, or stock power must be guaranteed by an
"eligible guarantor institution." An "eligible guarantor institution" includes
any bank, broker, dealer or credit union. The Transfer Agent reserves the right
to request additional information from, and make reasonable inquiries of, any
eligible guarantor institution. For clients of 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 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 SEC, 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.
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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 LLC, Attention: Prudential Special Money Market
Fund, Inc., 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.
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
17
<PAGE>
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. The Fund will give any such shareholder 60 days'
prior written notice in which to purchase or acquire sufficient additional
shares to avoid such redemption. No contingent deferred sales charge will be
imposed on any involuntary redemption.
90-DAY REPURCHASE PRIVILEGE
If you redeem your shares and have not previously exercised the repurchase
privilege, you may reinvest any portion or all of the proceeds of such
redemption in shares of the Fund at the net asset value next determined after
the order is received, which must be within 90 days after the date of the
redemption. Any contingent deferred sales charge (CDSC) paid in connection with
such redemption will be credited (in shares) to your account. (If less than a
full repurchase is made, the credit will be on a PRO RATA basis.) You must
notify the Fund's Transfer Agent, either directly or through Prudential
Securities, at the time the repurchase privilege is exercised to adjust your
account for the CDSC you previously paid. Thereafter, any redemptions will be
subject to the CDSC applicable at the time of the redemption. See "Contingent
Deferred Sales Charge" below. Exercise of the repurchase privilege will
generally not affect federal tax treatment of any gain realized upon redemption.
However, if the redemption was made within a 30 day period of the repurchase and
if the redemption resulted in a loss, some or all of the loss, depending on the
amount reinvested, may not be allowed for federal income tax purposes.
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 LLC, 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 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.
18
<PAGE>
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 Gateway
Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077. In addition,
monthly unaudited financial data are available upon request from the Fund.
-SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Fund at Gateway
Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, or by
telephone, at (800) 225-1852 (toll free) or, from outside the U.S.A., at (908)
417-7555 (collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
19
<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 the best 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 risk appear somewhat larger than the 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. The obligations have an original
maturity not exceeding one year, unless explicitly noted.
PRIME-1: Issuers rated "Prime 1" (or supporting institutions) have a superior
ability for repayment of senior short-term obligations.
PRIME-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: This highest category indicates that the degree of safety regarding
timely payment is strong.
A-2: Capacity for timely payments on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
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.
A-1
<PAGE>
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
D-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.
D-1: Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.
D-1-: High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
D-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 Investments 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.
TAXABLE BOND FUNDS
-------------------------
Prudential Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Mortgage Income Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
The BlackRock Government Income Trust
TAX-EXEMPT BOND FUNDS
----------------------------
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Intermediate Series
Prudential Municipal Series Fund
Florida Series
Maryland Series
Massachusetts Series
Michigan Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
GLOBAL FUNDS
-------------------
Prudential Europe Growth Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential International Bond Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Global Utility Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series
The Global Total Return Fund, Inc.
EQUITY FUNDS
-------------------
Prudential Balanced Fund
Prudential Distressed Securities Fund, Inc.
Prudential Dryden Fund
Prudential Active Balanced Fund
Prudential Stock Index Fund
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Jennison Series Fund, Inc.
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Multi-Sector Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
MONEY MARKET FUNDS
--------------------------
- -TAXABLE MONEY MARKET FUNDS
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund, Inc.
Money Market Series
Prudential MoneyMart Assets, Inc.
- -TAX-FREE MONEY MARKET FUNDS
Prudential Tax-Free Money Fund, Inc.
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
- -COMMAND FUNDS
Command Money Fund
Command Government Fund
Command Tax-Free Fund
- -INSTITUTIONAL MONEY MARKET FUNDS
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FUND HIGHLIGHTS...................................................... 2
What are the Fund's Risk Factors and Special Characteristics?...... 2
FUND EXPENSES........................................................ 4
FINANCIAL HIGHLIGHTS................................................. 5
CALCULATION OF YIELD................................................. 6
HOW THE FUND INVESTS................................................. 6
Investment Objective and Policies.................................. 6
Other Investments and Policies..................................... 8
Investment Restrictions............................................ 10
HOW THE FUND IS MANAGED.............................................. 10
Manager............................................................ 10
Distributor........................................................ 11
Portfolio Transactions............................................. 11
Custodian and Transfer and Dividend Disbursing Agent............... 11
HOW THE FUND VALUES ITS SHARES....................................... 12
TAXES, DIVIDENDS AND DISTRIBUTIONS................................... 12
GENERAL INFORMATION.................................................. 14
Description of Common Stock........................................ 14
Additional Information............................................. 14
SHAREHOLDER GUIDE.................................................... 14
How to Buy Shares of the Fund...................................... 14
How to Sell Your Shares............................................ 16
Shareholder Services............................................... 19
APPENDIX............................................................. A-1
THE PRUDENTIAL MUTUAL FUND FAMILY.................................... B-1
</TABLE>
------------------------------------------------
MF141A 444132B
CUSIP NO: 74436K-10-4
[LOGO]
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED AUGUST 27, 1997
Prudential Special Money Market Fund, Inc. (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 Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102-4077 and its telephone number is (800) 225-1852.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus dated August 27, 1997, 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>
General Information................................................................................ B-2 14
Investment Objective and Policies.................................................................. B-2 6
Investment Restrictions............................................................................ B-4 10
Directors and Officers............................................................................. B-6 10
Manager............................................................................................ B-10 10
Distributor........................................................................................ B-11 11
Portfolio Transactions............................................................................. B-12 11
Shareholder Investment Account..................................................................... B-13 19
Net Asset Value.................................................................................... B-14 12
Dividends and Distributions........................................................................ B-14 12
Taxes.............................................................................................. B-15 12
Calculation of Yield............................................................................... B-16 6
Custodian, Transfer and Dividend Disbursing Agent and Independent Accountants...................... B-16 11
Financial Statements............................................................................... B-17 --
Report of Independent Accountants.................................................................. B-25 --
Independent Auditors' Report....................................................................... B-26 --
Appendix -- General Investment Information......................................................... A-1 --
Appendix -- Information Relating to Prudential..................................................... A-1 --
</TABLE>
<PAGE>
GENERAL INFORMATION
Effective March 7, 1996, the Fund's name changed from Prudential-Bache
Special Money Market Fund, Inc. to Prudential Special Money Market Fund, Inc.
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.
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.
B-2
<PAGE>
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 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 Investments Fund Management LLC (PIFM) pursuant
to an order of the Securities and Exchange Commission (the SEC or the
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, unencumbered assets, marked-to-market
daily, 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.
LENDING OF PORTFOLIO SECURITIES
The Fund may lend its portfolio securities to brokers, dealers and financial
institutions, provided that outstanding loans do not exceed in the aggregate 10%
of the value of the Fund's total assets and provided that such loans are
callable at any time by the Fund and are at all times secured by cash or
equivalent collateral (which may include a secured letter of credit) that is
equal to at least the market value, determined daily, of the loaned securities.
The advantage of such loans is that the Fund continues to receive payments in
lieu of the interest and dividends of the loaned securities, while at the same
time earning interest either directly from the borrower or on the collateral
which will be invested in short-term obligations.
A loan may be terminated by the borrower on one business day's notice or by
the Fund at any time. If the borrower fails to maintain the requisite amount of
collateral, the loan automatically terminates and the Fund can use the
collateral to replace the securities while holding the borrower liable for any
excess of replacement cost over collateral. As with any extensions of credit,
there are risks of delay in recovery and in some cases loss of rights in the
collateral should the borrower of the securities fail financially. However,
these loans of portfolio securities will only be made to firms determined to be
creditworthy pursuant to procedures approved by the Board of Directors of the
Fund. On termination of the loan, the borrower is required to return the
securities to the Fund, and any gain or loss in the market price during the loan
would inure to the Fund.
Since voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loan, in whole or in
part as may be appropriate, to permit the exercise of such rights if the matters
involved would have a material effect of the Fund's investment in the securities
which are the subject of the loan. The Fund will pay reasonable finders',
administrative and custodial fees in connection with a loan of its securities or
may share the interest earned on collateral with the borrower.
ILLIQUID SECURITIES
The Fund may not hold more than 10% of its net assets in repurchase
agreements which have a maturity of longer than seven days or in other illiquid
securities, including securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (Securities Act),
B-3
<PAGE>
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 regulation and the
development of automated systems for the trading, clearance and settlement of
unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc. (NASD).
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act 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 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.
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, equity securities or other liquid, unencumbered assets,
marked-to-market daily, having a value equal to or greater than the Fund's
purchase commitments.
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.
B-4
<PAGE>
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 to others, except through the purchase of debt obligations,
repurchase agreements and loans of portfolio securities limited to 10% of the
value of the Fund's total assets.
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 13 (below).
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. 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.
B-5
<PAGE>
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE(1) POSITION WITH FUND DURING PAST FIVE YEARS
- ----------------------------- ----------------------- ------------------------------------------------------------------
<S> <C> <C>
Edward D. Beach (72) Director President and Director of BMC Fund, Inc., a closed-end investment
company; previously, Vice Chairman of Broyhill Furniture
Industries, Inc.; Certified Public Accountant; Secretary and
Treasurer of Broyhill Family Foundation, Inc.; Member of the
Board of Trustees of Mars Hill College; Director of The High
Yield Income Fund, Inc.
Stephen C. Eyre (74) Director Executive Director (since May 1985) of the John A. Hartford
Foundation, Inc. (charitable foundation); Director of Faircom,
Inc.; Trustee Emeritus of Pace University.
Delayne Dedrick Gold (58) Director Marketing and Management Consultant; Director of The High Yield
Income Fund, Inc.
*Robert F. Gunia (50) Director Comptroller (since May 1996) of Prudential Investments; Executive
Vice President and Treasurer (since December 1996) of Prudential
Investments Fund Management LLC (PIFM); Senior Vice President
(since March 1987) of Prudential Securities Incorporated
(Prudential Securities); formerly Chief Administrative Officer
(July 1990-September 1996), Director (January 1989-September
1996) and Executive Vice President, Treasurer and Chief Financial
Officer (June 1987-September 1996) of Prudential Mutual Fund
Management, Inc. (PMF); Vice President and Director (since May
1989) of The Asia Pacific Fund, Inc.; Director of The High Yield
Income Fund, Inc.
Don G. Hoff (61) Director Chairman and Chief Executive Officer (since 1980) of Intertec,
Inc. (investments); Chairman and CEO of The Lamaur Corporation;
Director of Innovative Capital Management, Inc. and The Greater
China Fund, Inc.; Chairman and Director of The Asia Pacific Fund,
Inc.
Robert E. LaBlanc (62) Director President (since 1981) of Robert E. LaBlanc Associates, Inc.
(telecommunications); formerly General Partner at Salomon
Brothers and Vice-Chairman of Continental Telecom; Director of
Storage Technology Corporation, Titan Corporation, Salient-3
Communications, Inc. and Tribune Company; Trustee of Manhattan
College.
*Mendel A. Melzer, CFA (36) Director Chief Investment Officer (since October 1996) of Prudential Mutual
751 Broad Street Funds; formerly Chief Financial Officer (November 1995-September
Newark, NJ 07102 1996) of Prudential Investments, Senior Vice President and Chief
Financial Officer (April 1993-November 1995) of Prudential
Preferred Financial Services, Managing Director (April 1991-April
1993) of Prudential Investment Advisors and Senior Vice President
(July 1989-April 1991) of Prudential Capital Corporation;
Chairman and Director of Prudential Series Fund, Inc.; Director
of The High Yield Income Fund, Inc.
</TABLE>
B-6
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE(1) POSITION WITH FUND DURING PAST FIVE YEARS
- ----------------------------- ----------------------- ------------------------------------------------------------------
<S> <C> <C>
*Richard A. Redeker (54) President and Employee of Prudential Investments; formerly President, Chief
751 Broad Street Director Executive Officer and Director (October 1993-September 1996), of
Newark, NJ 07102 PMF; formerly Executive Vice President, Director and Member of
the Operating Committee (October 1993-September 1996) of
Prudential Securities; Director (October 1993-September 1996) of
Prudential Securities Group, Inc.; Executive Vice President (July
1994-September 1996), of the Prudential Investment Corporation,
Director (January 1994-September 1996) of Prudential Mutual Fund
Distributors, Inc. and Prudential Mutual Fund Services, Inc. and
Senior Executive Vice President and Director of Kemper Financial
Services, Inc. (September 1978-September 1993); President and
Director of The High Yield Income Fund, Inc.
Robin B. Smith (57) Director Chairman and Chief Executive Officer (since August 1996) of
Publishers Clearing House; formerly President and Chief Executive
Officer (January 1988-August 1996) and President and Chief
Operating Officer (September 1981-December 1988) of Publishers
Clearing House; Director of BellSouth Corporation, Texaco Inc.,
Springs Industries Inc. and Kmart Corporation.
Stephen Stoneburn (53) Director President and Chief Executive Officer (since June 1996) of
Quadrant Media Corp. (a publishing company); formerly President
(June 1995-June 1996) of Argus Integrated Media, Inc., Senior
Vice President and Managing Director (January 1993-June 1995),
Cowles Business Media, Senior Vice President (January 1991-1992)
and Publishing Vice President (May 1989-December 1990) of Gralla
Publications, (a division of United Newspapers, U.K.); and Senior
Vice President of Fairchild Publications, Inc.
Nancy H. Teeters (66) Director Economist; formerly Vice President and Chief Economist (March
1986-June 1990) of International Business Machines Corporation
and member of the Board of Governors of the Horace Rackham School
of Graduate Studies of the University of Michigan; Director of
Inland Steel Corporation (since July 1991).
Thomas A. Early (42) Vice President Vice President and General Counsel (since March 1997), PMF&A;
Executive Vice President, Secretary and General Counsel (since
December 1996), PIFM; formerly Vice President and General Counsel
(March 1994-March 1997), Prudential Retirement Services and
Associate General Counsel and Chief Financial Services Officer
(1988-1994), Frank Russell Company.
S. Jane Rose (51) Secretary Senior Vice President (since December 1996) of PIFM; Senior Vice
President and Senior Counsel (since July 1992) of Prudential
Securities; formerly Senior Vice President (January
1991-September 1996) and Senior Counsel (June 1987-December 1990)
of PMF.
</TABLE>
B-7
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE(1) POSITION WITH FUND DURING PAST FIVE YEARS
- ----------------------------- ----------------------- ------------------------------------------------------------------
<S> <C> <C>
Grace C. Torres (38) Treasurer and Principal First Vice President (since December 1996) of PIFM; First Vice
Financial and President (since March 1994) of Prudential Securities; formerly
Accounting Officer First Vice President (March 1994-September 1996) of PMF and Vice
President (July 1989-March 1994) of Bankers Trust.
Stephen M. Ungerman (43) Assistant Tax Director (since March 1996) of Prudential Investments and The
Treasurer Private Asset Group of The Prudential Insurance Company of
America; formerly First Vice President (February 1993-September
1996) of Prudential Mutual Fund Management, Inc. and Senior Tax
Manager (1981-January 1993) Price Waterhouse LLP.
</TABLE>
- ------------------------
(1) Unless otherwise noted, the address for each of the above persons is c/o
Prudential Investments Fund Management LLC, Gateway Center Three, 100
Mulberry Street, Newark, New Jersey 07102-4077.
* "Interested" Director of the Fund, as defined in the Investment Company Act
of 1940 (the Investment Company Act) by reason of his affiliation with
Prudential, Prudential Securities or PIFM.
Directors and officers of the Fund are also trustees, directors and officers
of some or all of the other investment companies managed by Prudential
Investments Fund Management LLC.
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.
Pursuant to the terms of the Management Agreement with the Fund, the Manager
pays all compensation of officers and employees of the Fund as well as the fees
and expenses of all Directors of the Fund who are affiliated persons of the
Manager. The Fund pays each of its Directors who is not an affiliated person of
PIFM annual compensation of $1,500 in addition to certain out-of-pocket
expenses. The amount of annual compensation paid to each Director may change as
a result of the introduction of additional funds on the board of which the
Director will be asked to serve.
The Board of Directors has adopted a retirement policy which calls for the
retirement of Directors on December 31 of the year in which they reach the age
of 72, except that retirement is being phased in for Directors who were age 68
or older as of December 31, 1993. Under this phase-in provision, Messrs. Beach
and Eyre are scheduled to retire on December 31, 1999 and 1998, respectively.
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, 1997 to the Directors who are not affiliated
with the Manager and the aggregate compensation paid to such Directors for
service on the Fund's
B-8
<PAGE>
Board and that of all other investment companies managed by PIFM (Fund Complex)
for the calendar year ended December 31, 1996. In October 1996, shareholders
elected a new Board of Directors. Below are listed the Directors who have served
the Fund during its most recent fiscal year, as well as the new Directors who
took office at the shareholder meeting in October.
<TABLE>
<CAPTION>
COMPENSATION TABLE
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM FUND AND
AGGREGATE BENEFITS FUND
COMPENSATION ACCRUED ESTIMATED ANNUAL COMPLEX PAID
FROM AS PART OF FUND BENEFITS UPON TO
NAME AND POSITION FUND(@) EXPENSES RETIREMENT DIRECTORS(2)
- -------------------------------------------- ----------- --------------- ----------------- -------------
<S> <C> <C> <C> <C>
Edward D. Beach, Director $ 2,250 None N/A $166,000(21/39)*
Stephen C. Eyre, Director $ 750 None N/A $ 34,250(4/5)*
Delayne Dedrick Gold, Director $ 2,250 None N/A $175,308(21/42)*
Robert F. Gunia(1), Director -- None N/A --
Don G. Hoff, Director $ 750 None N/A $ 50,042(5/7)*
Harry A. Jacobs, Jr.(1), Former Director -- None N/A --
Robert F. LaBlanc, Director $ 750 None N/A $ 34,542(4/6)*
Mendel A. Melzer(1), Director -- None N/A --
Richard A. Redeker(1), Director -- None N/A --
Stanley E. Shirk, Former Director $ 1,500 None N/A $ 71,000(7/18)*
Robin B. Smith, Director $ 750 None N/A $109,294(11/20)*
Stephen Stoneburn, Director $ 2,250 None N/A $ 30,375(4/6)*
Nancy H. Teeters, Director $ 2,250 None N/A $103,583(11/28)*
</TABLE>
- ------------------------
@ Effective January 1997, the annual compensation paid to each Director was
reduced to $1,500 in addition to certain out-of-pocket expenses.
* Indicates number of funds/portfolios in Fund Complex (including the Fund) to
which aggregate compensation relates.
(1) Robert F. Gunia, Harry A. Jacobs, Jr., Mendel A. Melzer and Richard A.
Redeker, who are Interested Directors, do not receive compensation from the
Fund or any fund in the Fund Complex.
(2) Total compensation from all the funds in the Fund Complex for the calendar
year ended December 31, 1996, including amounts deferred at the election of
Directors under the funds' deferred compensation plans. Including accrued
interest, total deferred compensation amounted to $109,294 for Robin B.
Smith. Currently, Ms. Smith has agreed to defer some of her fees at the
T-Bill rate and other fees at the Fund rate.
As of August 8, 1997, 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.
B-9
<PAGE>
MANAGER
The manager of the Fund is Prudential Investments Fund Management LLC
(formerly Prudential Mutual Fund Management LLC) as successor to Prudential
Mutual Fund Management, Inc. (PIFM or the Manager), Gateway Center Three, 100
Mulberry Street, Newark, New Jersey 07102-4077. PIFM 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, 1997, PIFM managed and/or
administered open-end and closed-end management investment companies with assets
of approximately $56.7 billion. According to the Investment Company Institute,
as of December 31, 1996, the Prudential Mutual Funds were the 15th largest
family of mutual funds in the United States.
PIFM is a subsidiary of Prudential Securities Incorporated and Prudential.
Prudential Mutual Fund Services LLC (PMFS or the Transfer Agent), a wholly-owned
subsidiary of PIFM, serves as the transfer agent for the Prudential Mutual Funds
and, in addition, provides customer service, recordkeeping and management and
administration services to qualified plans.
Pursuant to a Management Agreement with the Fund (the Management Agreement),
PIFM, subject to the supervision of the Fund's Board of Directors and in
conformity with the stated policies of the Fund, manages both the investment
operations of the Fund and the composition of the Fund's portfolio, including
the purchase, retention, disposition and loan of securities. In connection
therewith, PIFM is obligated to keep certain books and records of the Fund. PIFM
also administers the Fund's corporate affairs and, in connection therewith,
furnishes the Fund with office facilities, together with those ordinary clerical
and bookkeeping services which are not being furnished by State Street Bank and
Trust Company, the Fund's custodian, and PMFS, the Fund's transfer and dividend
disbursing agent. The management services of PIFM for the Fund are not exclusive
under the terms of the Management Agreement and PIFM is free to, and does,
render management services to others.
For its services, PIFM 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. No such reductions were required during
the fiscal year ended June 30, 1997. No jurisdiction currently limits the Fund's
expenses.
In connection with its management of the corporate affairs of the Fund, PIFM
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 PIFM
or the Fund's investment adviser;
(b) all expenses incurred by PIFM or by the Fund in connection with managing
the ordinary course of the Fund's business, other than those assumed by the
Fund, as described below; and
(c) the costs and expenses payable to The Prudential Investment Corporation
(PIC), doing business as Prudential Investments (PI, the Subadviser or the
investment adviser), pursuant to the subadvisory agreement between PIFM and PI
(the Subadvisory Agreement).
Under the terms of the Management Agreement, the Fund is responsible for the
payment of the following expenses: (a) the 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.
B-10
<PAGE>
The Management Agreement provides that PIFM 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 May 29, 1997, and by the Fund's shareholders on October 30, 1990.
For the fiscal years ended June 30, 1997, 1996 and 1995, the Fund paid
management fee of $1,494,105, $1,634,243 and $2,084,495, respectively.
PIFM has entered into a Subadvisory Agreement with PI. The Subadvisory
Agreement provides that PI will furnish investment advisory services in
connection with the management of the Fund. In connection therewith, PI is
obligated to keep certain books and records of the Fund. PIFM continues to have
responsibility for all investment advisory services pursuant to the Management
Agreement and supervises PI's performance of those services. PI is reimbursed by
PIFM for the reasonable costs and expenses incurred by PI 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 May 29, 1997, 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, PIFM, or PI 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.
DISTRIBUTOR
Prudential Securities Incorporated (Prudential Securities, PSI or the
Distributor), One Seaport Plaza, New York, New York 10292, acts as the
distributor of the shares of the Fund under a distribution agreement between
Prudential Securities and the Fund (Distribution Agreement). See "How the Fund
is Managed--Distributor" in the Prospectus.
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 May 29, 1997.
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.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators in 51 jurisdictions and the NASD to resolve
allegations that PSI sold interests in more than 700 limited partnerships (and a
limited number of other types of securities) from January 1, 1980 through
December 31, 1990, in violation of securities laws to persons for whom such
securities were not suitable in light of the individuals' financial condition or
investment objectives. It was also alleged that the safety, potential returns
and liquidity of the investments had been misrepresented. The limited
partnerships principally involved
B-11
<PAGE>
real estate, oil and gas producing properties and aircraft leasing ventures. The
SEC Order (i) included findings that PSI's conduct violated the federal
securities laws and that an order issued by the SEC in 1986 requiring PSI to
adopt, implement and maintain certain supervisory procedures had not been
complied with; (ii) directed PSI to cease and desist from violating the federal
securities laws and imposed a $10 million civil penalty; and (iii) required PSI
to adopt certain remedial measures including the establishment of a Compliance
Committee of its Board of Directors. Pursuant to the terms of the SEC
settlement, PSI established a settlement fund in the amount of $330,000,000 and
procedures, overseen by a court approved Claims Administrator, to resolve
legitimate claims for compensatory damages by purchasers of the partnership
interests. PSI has agreed to provide additional funds, if necessary, for that
purpose. PSI's settlement with the state securities regulators included an
agreement to pay a penalty of $500,000 per jurisdiction. PSI consented to a
censure and to the payment of a $5,000,000 fine in settling the NASD action. In
settling the above referenced matters, PSI neither admitted nor denied the
allegations asserted against it.
On January 18, 1994, PSI agreed to the entry of a Final Consent Order and a
Parallel Consent Order by the Texas Securities Commissioner. The firm also
entered into a related agreement with the Texas Securities Commissioner. The
allegations were that the firm had engaged in improper sales practices and other
improper conduct resulting in pecuniary losses and other harm to investors
residing in Texas with respect to purchases and sales of limited partnership
interests during the period of January 1, 1980 through December 31, 1990.
Without admitting or denying the allegations, PSI consented to a reprimand,
agreed to cease and desist from future violations, and to provide voluntary
donations to the State of Texas in the aggregate amount of $1,500,000. The firm
agreed to suspend the creation of new customer accounts, the general
solicitation of new accounts, and the offer for sale of securities in or from
PSI's North Dallas office to new customers during a period of twenty consecutive
business days, and agreed that its other Texas offices would be subject to the
same restrictions for a period of five consecutive business days. PSI also
agreed to institute training programs for its securities salesmen in Texas.
On October 27, 1994, Prudential Securities Group, Inc. (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 also serves 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 submits
compliance reports which identify all such allegations or instances of criminal
conduct and material improprieties every three months and will continue to do so
for a three-year period.
PORTFOLIO TRANSACTIONS
The Manager is responsible for decisions to buy and sell securities for the
Fund, the selection of brokers and dealers to effect the transactions and the
negotiation of brokerage commissions, if any. For purposes of this section, the
term "Manager" includes the Subadviser. The Fund will not normally incur any
brokerage commission expense on such transactions. In the market for money
market instruments, securities are generally traded on a "net" basis, with
dealers acting as principal for their own accounts without a stated commission,
although the price of the security usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price which includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. On occasion, certain money market
instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid. Portfolio securities may not be purchased
from any underwriting or selling syndicate of which Prudential Securities or any
affiliate thereof, during the existence of the syndicate, is a principal
underwriter (as defined in the Investment Company Act), except in accordance
with rules of the Securities and Exchange Commission. The Fund will not deal
with Prudential Securities or its affiliates on a principal basis.
In placing orders for portfolio securities of the Fund, the Manager is
required to give primary consideration to obtaining the most favorable price and
efficient execution. This means that the Manager will seek to execute each
transaction at a price and commission, if any, which provides the most favorable
total cost or proceeds reasonably attainable under the circumstances. While the
Manager generally seeks reasonably competitive spreads or commissions, the Fund
will not necessarily be paying the lowest spread or commissions available.
Within the framework of this policy the Manager may consider research and
investment services provided by brokers or dealers who effect or are parties to
portfolio transactions of the Fund, the Manager or the Manager's other clients.
Such research and investment services are those which brokerage houses
customarily provide to institutional investors and include statistical and
economic data and research reports on particular companies and industries. Such
services are used by the Manager in connection with all of its investment
activities, and some of such services obtained in connection with the execution
of transactions for the Fund may be used in managing other investment accounts.
Conversely,
B-12
<PAGE>
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,
1997, 1996 and 1995.
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.
B-13
<PAGE>
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.
<TABLE>
<CAPTION>
TAX-DEFERRED COMPOUNDING(1)
CONTRIBUTIONS PERSONAL
MADE OVER: SAVINGS IRA
--------------- -------- --------
<S> <C> <C>
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
</TABLE>
- ------------------------
(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.
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, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
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.
B-14
<PAGE>
The Fund endeavors to maintain its net asset value at $1.00 per share. As a
result of a significant expense or realized loss, it is possible that the Fund's
net asset value may fall below $1.00 per share. Should the Fund incur or
anticipate any unusual or unexpected significant expense or loss which would
disproportionately affect the Fund's income for a particular period, the Board
of Directors at that time would consider whether to adhere to the present
dividend policy described in the Prospectus or to revise it in light of the then
prevailing circumstances in order to ameliorate to the extent possible the
disproportionate effect of such expense or loss on the existing shareholders.
Such expenses or losses may nevertheless result in a shareholder receiving no
dividends for the period during which he or she held shares of the Fund and in
his or her receiving a price per share upon redemption lower than that which he
or she paid.
TAXES
The Fund has elected to qualify and intends to remain qualified as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the Internal Revenue Code). This relieves the Fund (but not
its shareholders) from paying federal income tax on income which is distributed
to shareholders and permits net capital gains of the Fund (I.E., the excess of
net long-term capital gains over net short-term capital losses) to be treated as
long-term capital gains of the shareholders, regardless of how long shareholders
have held their shares in the Fund.
Qualification as a regulated investment company requires, among other
things, that (a) at least 90% of the Fund's annual gross income (without
reduction for losses from the sale or other disposition of securities) be
derived from interest, dividends, payments with respect to securities loans and
gains from the sale or other disposition of securities or options thereon or
foreign currencies, or other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its business of
investing in such securities or currencies; (b) for taxable years prior to 1998
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 (except for foreign currencies directly related
to the Fund's business of investing in securities); (c) the Fund diversify its
holdings so that, at the end of each quarter of the taxable year, (i) at least
50% of the 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 value 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); and (d) the Fund distribute to its shareholders at
least 90% of its net investment income and net short-term gains (I.E., the
excess of net short-term capital gains over net long-term capital losses) in
each year.
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 which
may respectively cause the Fund to recognize income prior to the receipt of cash
with respect to interest and cause gains to be treated as ordinary income.
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 capital gains (I.E., the excess of net long-term
capital gains over net short-term capital losses), if any, are taxable as long-
term capital gains regardless of how long the investor has held his or her
shares. 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.
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.
B-15
<PAGE>
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/Financial Data,
Inc., The Bank Rate Monitor and other industry publications, business
periodicals and market indices.
The Fund's yield fluctuates, and an annualized yield quotation is not a
representation by the Fund as to what an investment in the Fund will actually
yield for any given period.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
AND INDEPENDENT ACCOUNTANTS
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities,
and in that capacity maintains cash and certain financial and accounting books
and records pursuant to an agreement with the Fund. See "How the Fund is
Managed--Custodian and Transfer and Dividend Disbursing Agent" in the
Prospectus.
Prudential Mutual Fund Services LLC (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as the Transfer and Dividend Disbursing Agent of the Fund.
It is a wholly-owned subsidiary of PIFM. PMFS provides customary transfer agency
services to the Fund, including the handling of shareholder communications, the
processing of shareholder transactions, the maintenance of shareholder account
records, payment of dividends and distributions and related functions. For these
services, PMFS receives an annual fee per shareholder account, a new account
set-up fee for each manually established account and a monthly inactive zero
balance account fee per shareholder account. PMFS is also reimbursed for its
out-of-pocket expenses, including but not limited to postage, stationery,
printing, allocable communications expenses and other costs. For the fiscal year
ended June 30, 1997, the Fund incurred fees of $252,200 for such services.
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036,
serves as the Fund's independent public accountants and, in that capacity,
audits the Fund's annual financial statements.
B-16
<PAGE>
PORTFOLIO OF INVESTMENTS AS OF PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
JUNE 30, 1997 MONEY MARKET SERIES
- -----------------------------------------------------------------
- -----------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) DESCRIPTION VALUE (NOTE 1)
<C> <S> <C>
- -----------------------------------------------------------------
BANK NOTES--8.0%
Abbey National Treasury Services,
PLC
$3,000 5.50%, 11/26/97 $ 2,998,771
American Express Centurion Bank
1,000(a) 5.6575%, 7/9/97 1,000,000
2,000(a) 5.7375%, 7/24/97 2,000,324
Comerica Bank of Detroit
1,000(a) 5.5875%, 7/7/97 999,623
3,000(a) 5.5825%, 7/11/97 2,998,749
First Bank, N.A., Minneapolis
1,000(a) 5.5875%, 7/16/97 999,782
1,000(a) 5.6075%, 7/16/97 999,698
3,000(a) 5.6475%, 7/16/97 3,000,000
Keybank, N.A.
2,000(a) 5.6075%, 7/21/97 1,999,933
Wachovia Bank, N.A.
4,000 6.14%, 6/1/98 4,000,000
------------
20,996,880
- -----------------------------------------------------------------
CERTIFICATES OF DEPOSIT - DOMESTIC--0.4%
CoreStates Bank, N.A.
1,000(a) 5.80203%, 7/23/97 1,000,000
- -----------------------------------------------------------------
CERTIFICATES OF DEPOSIT - EURODOLLAR--3.8%
Abbey National Treasury Services,
PLC
2,000 5.76%, 8/22/97 2,000,000
Berliner Handels-Und Frankfurter
Bank
1,000 5.62%, 8/11/97 1,000,011
Credit Agricole Indosuez
4,000 5.63%, 8/11/97 4,000,112
ING Bank, NV
2,000 5.54%, 8/7/97 2,000,080
Westdeutsche Landesbank
Girozentrale
1,000 5.61%, 8/18/97 1,000,012
------------
10,000,215
<CAPTION>
PRINCIPAL
AMOUNT
(000) DESCRIPTION VALUE (NOTE 1)
<C> <S> <C>
- -----------------------------------------------------------------
CERTIFICATES OF DEPOSIT - YANKEE--16.8%
Abbey National Treasury Services,
PLC
$5,000 6.185%, 4/7/98 $ 4,997,622
Banque Nationale de Paris
6,000 5.74%, 8/20/97 6,000,000
Canadian Imperial Bank of Commerce
10,000 5.70%, 8/14/97 10,000,000
Creditanstalt Bankverein
6,000 5.56%, 7/9/97 5,999,998
Landesbank Hessen-Thuringen
Girozentrale
2,000 6.01%, 7/18/97 2,000,095
2,000 5.94%, 6/19/98 1,998,891
Rabobank Nederland
5,000 5.98%, 3/20/98 4,999,314
Societe Generale
5,000 5.47%, 7/11/97 5,000,072
3,000 6.19%, 5/6/98 2,998,494
------------
43,994,486
- -----------------------------------------------------------------
COMMERCIAL PAPER--40.6%
AC Acquisition Holding Co.
1,000 5.60%, 7/16/97 997,667
Aristar, Inc.
4,825 5.77%, 7/1/97 4,825,000
1,000 5.72%, 7/14/97 997,934
Barton Capital Corp.
3,000 5.65%, 8/15/97 2,978,812
Bear Stearns Cos., Inc.
1,000 5.57%, 7/7/97 999,072
2,000 5.58%, 7/8/97 1,997,830
1,000 5.55%, 7/23/97 996,608
Ciesco, L.P.
1,000 5.60%, 8/14/97 993,156
Coca-Cola Enterprises, Inc.
1,000 5.58%, 7/14/97 997,985
1,000 5.66%, 8/13/97 993,239
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-17
<PAGE>
PORTFOLIO OF INVESTMENTS AS OF PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
JUNE 30, 1997 MONEY MARKET SERIES
- -----------------------------------------------------------------
- -----------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) DESCRIPTION VALUE (NOTE 1)
<C> <S> <C>
- -----------------------------------------------------------------
COMMERCIAL PAPER (CONT'D.)
Commerzbank U.S. Finance, Inc.
$2,000 5.67%, 8/21/97 $ 1,983,935
CoreStates Capital Corp.
1,000(a) 5.6575%, 7/24/97 1,000,000
Corporate Receivables Corp.
1,000 5.625%, 8/20/97 992,188
1,000 5.655%, 8/22/97 991,832
Creditanstalt Finance, Inc.
3,000 5.55%, 7/3/97 2,999,075
CXC, Inc.
2,000(c) 5.65%, 8/5/97 1,989,014
2,000(c) 5.63%, 8/14/97 1,986,238
Falcon Asset Securitization Corp.
1,599 5.62%, 7/1/97 1,599,000
2,000 5.60%, 8/22/97 1,983,822
Finova Capital Corp.
2,000 5.60%, 7/9/97 1,997,511
1,000 5.71%, 7/15/97 997,779
First Chicago Financial Corp.
2,000 5.56%, 8/25/97 1,983,011
Ford Motor Credit Corp.
10,000 5.55%, 7/9/97 9,987,667
General Electric Capital Corp.
5,000 5.71%, 11/3/97 4,900,868
5,000 5.74%, 11/4/97 4,899,550
3,000 5.70%, 11/5/97 2,939,675
General Motors Acceptance Corp.
5,000 5.59%, 7/7/97 4,995,342
5,000 5.82%, 11/7/97 4,895,725
GTE Corp.
1,000 5.60%, 9/12/97 988,644
IBM Credit Corp.
4,000 5.54%, 8/19/97 3,969,838
John Deere Capital Corp.
1,000 5.54%, 7/9/97 998,769
Johnson Controls, Inc.
1,841 5.63%, 7/14/97 1,837,257
<CAPTION>
PRINCIPAL
AMOUNT
(000) DESCRIPTION VALUE (NOTE 1)
<C> <S> <C>
- -----------------------------------------------------------------
MCI Communications Corp.
$5,000 5.54%, 7/7/97 $ 4,995,383
Mitsubishi International Corp.
11,978 5.75%, 7/8/97 11,964,608
National Bank of Canada
5,000 5.41%, 7/7/97 4,995,492
Newell Co.
1,000 5.60%, 8/20/97 992,222
NYNEX Corp.
2,500 5.55%, 7/7/97 2,497,687
1,000 5.65%, 7/14/97 997,960
Smith Barney, Inc.
2,000 5.55%, 7/7/97 1,998,150
------------
106,135,545
- -----------------------------------------------------------------
OTHER CORPORATE OBLIGATIONS--22.2%
American General Finance Corp.
2,000(a) 6.70%, 11/19/97 2,007,268
Avco Financial Services, Inc.
2,000(a) 5.7725%, 8/15/97 1,999,891
Capita Equipment Receivable Trust
1,133(a) 5.60%, 7/15/97 1,133,225
Ford Motor Credit Corp.
1,000 8.00%, 12/1/97 1,008,782
General Motors Acceptance Corp.
1,000(a) 6.06641%, 8/2/97 1,001,632
Goldman, Sachs Group L.P.
13,000(a) 5.69531%, 8/22/97 13,000,000
Merrill Lynch & Co., Inc.
2,000(a) 5.66141%, 7/1/97 1,999,853
5,000(a) 5.6475%, 7/24/97 4,999,202
Morgan Stanley Group, Inc.
1,000(a) 5.95313%, 7/15/97 1,000,000
10,000(a) 5.95313%, 8/15/97 10,000,000
Short Term Repackaged Asset Trust 1996-A
4,000(a) 5.6875%, 7/15/97 3,999,608
Short-Term Card Account Trust
1996-7
9,000(a) 5.7075%, 7/15/97 9,000,000
SMM Trust Notes 1997-Q
7,000(a) 5.6875%, 7/15/97 7,000,000
------------
58,149,461
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-18
<PAGE>
PORTFOLIO OF INVESTMENTS AS OF PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
JUNE 30, 1997 MONEY MARKET SERIES
- -----------------------------------------------------------------
- -----------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) DESCRIPTION VALUE (NOTE 1)
<C> <S> <C>
- -----------------------------------------------------------------
TIME DEPOSIT - EURODOLLAR--1.6%
First National Bank of Chicago
$4,214 6.25%, 7/1/97 $ 4,214,000
- -----------------------------------------------------------------
TOTAL INVESTMENTS--93.4%
(amortized cost $244,490,587(b)) 244,490,587
Other assets in excess
of liabilities--6.6% 17,365,540
------------
Net Assets--100% $261,856,127
------------
------------
</TABLE>
- ---------------
(a) The maturity date presented for these instruments is 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.
(b) The federal income tax basis of portfolio securities is the same as for
financial statement purposes.
(c) Indicates a security restricted as to resale.
The industry classification of portfolio holdings shown as a percentage of net
assets as of June 30, 1997 was as follows:
<TABLE>
<S> <C>
Banks 37.1
Security Brokers & Dealers 14.1
Business Credit Institutions 10.6
Asset-Backed Securities 7.1
Auto Rental and Leasing 5.7
Commodity Trade 4.6
Personal Credit Institutions 3.8
Telecommunications 3.6
Insurance 3.4
Bank Holding Companies - Domestic 1.1
Beverages 0.8
Regulating Controls 0.7
Pharmaceuticals 0.4
Metal Cans 0.4
-----
93.4
Other assets in excess of liabilities 6.6
-----
100.0%
-----
-----
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-19
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------
<S> <C>
ASSETS
Investments, at amortized cost which approximates market value......... $244,490,587
Cash................................................................... 170,251
Receivable for Series shares sold...................................... 17,755,545
Interest receivable.................................................... 1,301,231
Prepaid expenses and other assets...................................... 8,909
-------------
Total assets........................................................ 263,726,523
-------------
LIABILITIES
Payable for Series shares reacquired................................... 1,434,108
Dividends payable...................................................... 248,989
Due to Manager......................................................... 105,054
Accrued expenses and other liabilities................................. 82,245
-------------
Total liabilities................................................... 1,870,396
-------------
NET ASSETS............................................................. $261,856,127
-------------
-------------
Net assets were comprised of:
Common stock, $0.001 par value per share............................ $ 261,856
Paid-in capital in excess of par.................................... 261,594,271
-------------
Net assets, June 30, 1997.............................................. $261,856,127
-------------
-------------
Net asset value, offering price and redemption price per share
($261,856,127 / 261,856,127 shares of common stock issued and
outstanding; two billion shares authorized)......................... $1.00
-----
-----
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-20
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
MONEY MARKET SERIES
STATEMENT OF OPERATIONS
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
NET INVESTMENT INCOME June 30, 1997
-------------
<S> <C>
Income
Interest and discount earned............... $16,640,429
-------------
Expenses
Management fee............................. 1,494,105
Transfer agent's fees and expenses......... 315,000
Custodian's fees and expenses.............. 98,000
Reports to shareholders.................... 75,000
Registration fees.......................... 72,000
Audit fee.................................. 25,000
Legal fees................................. 19,000
Directors' fees............................ 13,500
Insurance expense.......................... 11,000
Miscellaneous.............................. 4,455
-------------
Total expenses.......................... 2,127,060
-------------
Net investment income......................... 14,513,369
REALIZED GAIN ON INVESTMENTS
Net realized gain on investment
transactions............................... 11,538
-------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS..................... $14,524,907
-------------
-------------
</TABLE>
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
MONEY MARKET SERIES
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30,
INCREASE (DECREASE) ----------------------------------
IN NET ASSETS 1997 1996
--------------- ---------------
<S> <C> <C>
Operations
Net investment income..... $ 14,513,369 $ 16,560,547
Net realized gain on
investment
transactions........... 11,538 20,697
--------------- ---------------
Net increase in net assets
resulting from
operations............. 14,524,907 16,581,244
--------------- ---------------
Dividends and distributions
to shareholders........... (14,524,907) (16,581,244)
--------------- ---------------
Fund share transactions
(at $1 per share)
Proceeds from shares
subscribed............. 2,755,575,802 1,787,300,706
Net asset value of shares
issued to shareholders
in reinvestment of
dividends and
distributions.......... 11,898,218 13,336,273
Cost of shares
reacquired............. (2,768,786,005) (1,896,666,283)
--------------- ---------------
Net decrease in net assets
from Series share
transactions........... (1,311,985) (96,029,304)
--------------- ---------------
Total decrease............... (1,311,985) (96,029,304)
NET ASSETS
Beginning of year............ 263,168,112 359,197,416
--------------- ---------------
End of year.................. $ 261,856,127 $ 263,168,112
--------------- ---------------
--------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-21
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
NOTES TO FINANCIAL STATEMENTS MONEY MARKET SERIES
- --------------------------------------------------------------------------------
Prudential Special Money Market Fund, Inc. (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"). 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.
NOTE 2. AGREEMENTS
The Fund has a management agreement with Prudential Investments Fund Management
LLC ("PIFM"). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PIFM has entered into a subadvisory agreement with The Prudential
Investment Corporation ("PIC"); PIC furnishes investment advisory services in
connection with the management of the Fund. PIFM pays for the cost of the
subadviser's services, the compensation of officers 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 to PIFM 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 Securities Incorporated
("PSI"), where PSI serves the Fund without compensation.
PIFM, PIC and PSI are indirect wholly-owned subsidiaries of The Prudential
Insurance Company of America.
- ------------------------------------------------------------
NOTE 3. OTHER TRANSACTIONS WITH AFFILIATES
Prudential Mutual Fund Services LLC ("PMFS"), a wholly-owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the fiscal year ended June 30, 1997,
the Series incurred fees of approximately $252,200 for the services of PMFS. As
of June 30, 1997, approximately $20,800 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-22
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
FINANCIAL HIGHLIGHTS MONEY MARKET SERIES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<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 0.051 0.049 0.030 0.027
Dividends and distributions.................................. (0.049) (0.051) (0.049) (0.030) (0.027)
-------- -------- -------- -------- --------
Net asset value, end of year................................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN(a):............................................. 4.96% 5.19% 5.05% 3.09% 2.77%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................................ $261,856 $263,168 $359,197 $473,057 $176,258
Average net assets (000)..................................... $298,821 $326,849 $416,899 $271,869 $213,948
Ratios to average net assets:
Expenses................................................... 0.71% 0.73% 0.70% 0.72% 0.81%
Net investment income...................................... 4.86% 5.07% 4.93% 2.96% 2.73%
</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.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-23
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
CHANGE IN INDEPENDENT ACCOUNTANTS MONEY MARKET SERIES
- -------------------------------------------------------------------------------
Effective March 1, 1997, Deloitte & Touche LLP was terminated as the Fund's
independent accountants. For the year ended June 30, 1993 through the year ended
June 30, 1996, Deloitte & Touche LLP expressed an unqualified opinion on the
Fund's financial statements. There were no disagreements between Fund management
and Deloitte & Touche LLP prior to their termination. The Board of Directors
approved the termination of Deloitte & Touche LLP and the appointment of Price
Waterhouse LLP as the Fund's independent accountants.
- --------------------------------------------------------------------------------
B-24
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
REPORT OF INDEPENDENT ACCOUNTANTS MONEY MARKET SERIES
- -------------------------------------------------------------------------------
To the Shareholders and Board of Directors
Prudential Special Money Market Fund, Inc.
Money Market Series
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Special Money Market
Fund, Inc.--Money Market Series (the "Fund") at June 30, 1997, and the results
of its operations, the changes in its net assets and the financial highlights
for the year then ended, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at June 30, 1997 by correspondence with the
custodian, provides a reasonable basis for the opinion expressed above. The
accompanying statement of changes in net assets for the year ended June 30, 1996
and financial highlights for each of the four years in the period ended June 30,
1996 were audited by other independent accountants, whose opinion dated August
15, 1996 was unqualified.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
August 20, 1997
B-25
<PAGE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors of
The Prudential Special Money Market Fund, Inc.:
We have audited the accompanying statements of changes in net assets of The
Prudential Special Money Market Fund, Inc. for the year ended June 30, 1996, and
the financial highlights contained in the prospectus for each of the periods
presented in the four years ended June 30, 1996. 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. 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 changes in net assets and the financial
highlights of each of the respective portfolios of The Prudential Special Money
Market Fund, Inc. for the respective stated periods in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
New York, New York
August 15, 1996
B-26
<PAGE>
APPENDIX--GENERAL INVESTMENT INFORMATION
The following terms are used in mutual fund investing.
ASSET ALLOCATION
Asset allocation is a technique for reducing risk, providing balance. Asset
allocation among different types of securities within an overall investment
portfolio helps to reduce risk and to potentially provide stable returns, while
enabling investors to work toward their financial goal(s). Asset allocation is
also a strategy to gain exposure to better performing asset classes while
maintaining investment in other asset classes.
DIVERSIFICATION
Diversification is a time-honored technique for reducing risk, providing
"balance" to an overall portfolio and potentially achieving more stable returns.
Owning a portfolio of securities mitigates the individual risks (and returns) of
any one security. Additionally, diversification among types of securities
reduces the risks (and general returns) of any one type of security.
DURATION
Debt securities have varying levels of sensitivity to interest rates. As
interest rates fluctuate, the value of a bond (or a bond portfolio) will
increase or decrease. Longer term bonds are generally more sensitive to changes
in interest rates. When interest rates fall, bond prices generally rise.
Conversely, when interest rates rise, bond prices generally fall.
Duration is an approximation of the price sensitivity of a bond (or a bond
portfolio) to interest rate changes. It measures the weighted average maturity
of a bond's (or a bond portfolio's) cash flows, i.e., principal and interest
rate payments. Duration is expressed as a measure of time in years--the longer
the duration of a bond (or a bond portfolio), the greater the impact of interest
rate changes on the bond's (or the bond portfolio's) price. Duration differs
from effective maturity in that duration takes into account call provisions,
coupon rates and other factors. Duration measures interest rate risk only and
not other risks, such as credit risk and, in the case of non-U.S. dollar
denominated securities, currency risk. Effective maturity measures the final
maturity dates of a bond (or a bond portfolio).
MARKET TIMING
Market timing--buying securities when prices are low and selling them when
prices are relatively higher--may not work for many investors because it is
impossible to predict with certainty how the price of a security will fluctuate.
However, owning a security for a long period of time may help investors offset
short-term price volatility and realize positive returns.
POWER OF COMPOUNDING
Over time, the compounding of returns can significantly impact investment
returns. Compounding is the effect of continuous investment on long-term
investment results, by which the proceeds of capital appreciation (and income
distributions, if elected) are reinvested to contribute to the overall growth of
assets. The long-term investment results of compounding may be greater than that
of an equivalent initial investment in which the proceeds of capital
appreciation and income distributions are taken in cash.
APPENDIX--INFORMATION RELATING TO PRUDENTIAL
Set forth below is information relating to The Prudential Insurance Company
of America (Prudential) and its subsidiaries as well as information relating to
the Prudential Mutual Funds. See "Management of the Fund--Manager" in the
Prospectus. The data will be used in sales materials relating to the Prudential
Mutual Funds. Unless otherwise indicated, the information is as of December 31,
1996 and is subject to change thereafter. All information relies on data
provided by The Prudential Investment Corporation (PIC) or from other sources
believed by the Manager to be reliable. Such information has not been verified
by the Fund.
A-1
<PAGE>
INFORMATION ABOUT PRUDENTIAL
The Manager and PIC 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,
1996. Principal products and services include life and health insurance, other
healthcare products, property and casualty insurance, securities brokerage,
asset management, investment advisory services and real estate brokerage.
Prudential (together with its subsidiaries) employs almost 81,000 persons
worldwide, and maintains a sales force of approximately 11,500 agents and 6,400
financial advisors. Prudential is a major issuer of annuities, including
variable annuities. Prudential seeks to develop innovative products and services
to meet consumer needs in each of its business areas. Prudential uses the rock
of Gibraltar as its symbol. The Prudential rock is a recognized brand name
throughout the world.
INSURANCE. Prudential has been engaged in the insurance business since 1875.
It insures or provides financial services to nearly 50 million people worldwide.
Long one of the largest issuers of individual life insurance, the Prudential has
22 million life insurance policies in force today with a face value of $1
trillion. Prudential has the largest capital base ($12.1 billion) of any life
insurance company in the United States. Prudential provides auto insurance for
approximately 1.6 million cars and insures approximately 1.2 million homes.
MONEY MANAGEMENT. Prudential is one of the largest pension fund managers in
the country, providing pension services to 1 in 3 Fortune 500 firms. It manages
$36 billion of individual retirement plan assets, such as 401(k) plans. As of
December 31, 1996, Prudential had more than $332 billion in assets under
management. Prudential Investments, a business group of Prudential (of which
Prudential Mutual Funds is a key part), manages over $190 billion in assets of
institutions and individuals. In Pensions & Investments, May 12, 1997,
Prudential was ranked third in terms of total assets under management.
REAL ESTATE. The Prudential Real Estate Affiliates, the fourth largest real
estate brokerage network in the United States, has more than 37,000 brokers and
agents across the United States.(2)
HEALTHCARE. Over two decades ago, the Prudential introduced the first
federally-funded, for-profit HMO in the country. Today, approximately 4.6
million Americans receive healthcare from a Prudential managed care membership.
FINANCIAL SERVICES. The Prudential Bank, a wholly-owned subsidiary of
Prudential, has over $1 billion in assets and serves nearly 1.5 million
customers across 50 states.
INFORMATION ABOUT THE PRUDENTIAL MUTUAL FUNDS
As of June 30, 1997, Prudential Investments Fund Management is the fifteenth
largest mutual fund company in the country, with over 2.5 million shareholders
invested in more than 50 mutual fund portfolios and variable annuities with more
than 3.7 million shareholder accounts.
The Prudential Mutual Funds have over 30 portfolio managers who manage over
$55 billion in mutual fund and variable annuity assets. Some of Prudential's
portfolio managers have over 20 years of experience managing investment
portfolios.
From time to time, there may be media coverage of portfolio managers and
other investment professionals associated with the Manager and the Subadviser in
national and regional publications, on television and in other media.
Additionally, individual mutual fund portfolios are frequently cited in surveys
conducted by national and regional publications and media organizations such as
THE WALL STREET JOURNAL, THE NEW YORK TIMES, BARRON'S and USA TODAY.
EQUITY FUNDS. FORBES magazine listed Prudential Equity Fund among twenty
mutual funds on its Honor Roll in its mutual fund issue of August 28, 1995.
Honorees are chosen annually among mutual funds (excluding sector funds) which
are open to new investors and have had the same management for at least five
years. FORBES considers, among other criteria, the total return of a mutual fund
in both bull and bear markets as well as a fund's risk profile. Prudential
Equity Fund is managed with a "value" investment style by PIC. In 1995,
Prudential Securities introduced Prudential Jennison Fund, a growth-style equity
fund managed by Jennison Associates Capital Corp., a premier institutional
equity manager and a subsidiary of Prudential.
- ------------------------
[ 1 Prudential Investments, a business group of PIC, serves as the Subadviser to
substantially all of the Prudential Mutual Funds. Wellington Management
Company serves as the subadviser to Global Utility Fund, Inc.,
Nicholas-Applegate Capital Management as the subadviser to
Nicholas-Applegate Fund, Inc., Jennison Associates Capital Corp. as the
subadviser to Prudential Jennison Series Fund, Inc. and Prudential Active
Balanced Fund, a portfolio of Prudential Dryden Fund, Mercator Asset
Management LP as the subadviser to International Stock Series, a portfolio
of Prudential World Fund, Inc. and BlackRock Financial Management, Inc. as
subadviser to The BlackRock Government Income Trust. There are multiple
subadvisers for The Target Portfolio Trust.]
(2)As of December 31, 1996.
A-2
<PAGE>
HIGH YIELD FUNDS. Investing in high yield bonds is a complex and research
intensive pursuit. A separate team of high yield bond analysts monitor the 167
issues held in the Prudential High Yield Fund (currently the largest fund of its
kind in the country) along with 100 or so other high yield bonds, which may be
considered for purchase.(3) Non-investment grade bonds, also known as junk bonds
or high yield bonds, are subject to a greater risk of loss of principal and
interest including default risk than higher-rated bonds. Prudential high yield
portfolio managers and analysts meet face-to-face with almost every bond issuer
in the High Yield Fund's portfolio annually, and have additional telephone
contact throughout the year.
Prudential's portfolio managers are supported by a large and sophisticated
research organization. Fourteen investment grade bond analysts monitor the
financial viability of approximately 1,750 different bond issuers in the
investment grade corporate and municipal bond markets--from IBM to small
municipalities, such as Rockaway Township, New Jersey. These analysts consider
among other things sinking fund provisions and interest coverage ratios.
Prudential's portfolio managers and analysts receive research services from
almost 200 brokers and market service vendors. They also receive nearly 100
trade publications and newspapers--from PULP AND PAPER FORECASTER to WOMEN'S
WEAR DAILY--to keep them informed of the industries they follow.
Prudential Mutual Funds' traders scan over 100 computer monitors to collect
detailed information on which to trade. From natural gas prices in the Rocky
Mountains to the results of local municipal elections, a Prudential portfolio
manager or trader is able to monitor it if it's important to a Prudential mutual
fund.
Prudential Mutual Funds trade approximately $31 billion in U.S. and foreign
government securities a year. PIC seeks information from government policy
makers. In 1995, Prudential's portfolio managers met with several senior U.S.
and foreign government officials, on issues ranging from economic conditions in
foreign countries to the viability of index-linked securities in the United
States.
Prudential Mutual Funds' portfolio managers and analysts met with over 1,200
companies in 1995, often with the Chief Executive Officer (CEO) or Chief
Financial Officer (CFO). They also attended over 250 industry conferences.
Prudential Mutual Fund global equity managers conducted many of their visits
overseas, often holding private meetings with a company in a foreign language
(our global equity managers speak 7 different languages, including Mandarin
Chinese).
TRADING DATA.(4) On an average day, Prudential Mutual Funds' U.S. and
foreign equity trading desks traded $77 million in securities representing over
3.8 million shares with nearly 200 different firms. Prudential Mutual Funds'
bond trading desks traded $157 million in government and corporate bonds on an
average day. That represents more in daily trading than most bond funds tracked
by Lipper even have in assets.(5) Prudential Mutual Funds' money market desk
traded $3.2 billion in money market securities on an average day, or over $800
billion a year. They made a trade every 3 minutes of every trading day. In 1994,
the Prudential Mutual Funds effected more than 40,000 trades in money market
securities and held on average $20 billion of money market securities.(6)
Based on complex-wide data, on an average day, over 7,250 shareholders
telephoned Prudential Mutual Fund Services, Inc., the Transfer Agent of the
Prudential Mutual Funds, on the Prudential Mutual Funds' toll-free number. On an
annual basis, that represents approximately 1.8 million telephone calls
answered.
INFORMATION ABOUT PRUDENTIAL SECURITIES
Prudential Securities is the fifth largest retail brokerage firm in the
United States with approximately 5,600 financial advisors. It offers to its
clients a wide range of products, including Prudential Mutual Funds and
annuities. As of December 31, 1995, assets held by Prudential Securities for its
clients approximated $168 billion. During 1994, over 28,000 new customer
accounts were opened each month at PSI.(7)
Prudential Securities has a two-year Financial Advisor training program plus
advanced education programs, including Prudential Securities "university," which
provides advanced education in a wide array of investment areas. Prudential
Securities is
- ------------------------
(3) As of December 31, 1995. The number of bonds and the size of the Fund are
subject to change.
(4)Trading data represents average daily transactions for portfolios of the
Prudential Mutual Funds for which PIC serves as the subadviser, portfolios of
the Prudential Series Fund and institutional and non-US accounts managed by
Prudential Mutual Fund Investment Management, a division of PIC, for the year
ended December 31, 1995.
(5)Based on 669 funds in Lipper Analytical Services categories of Short U.S.
Treasury, Short U.S. Government, Intermediate U.S. Treasury, Intermediate
U.S. Government, Short Investment Grade Debt, Intermediate Investment Grade
Debt, General U.S. Treasury, General U.S. Government and Mortgage funds.
(6)As of December 31, 1994.
(7)As of December 31, 1994.
A-3
<PAGE>
the only Wall Street firm to have its own in-house Certified Financial Planner
(CFP) program. In the December 1995 issue of Registered Rep, an industry
publication, Prudential Securities' Financial Advisor training programs received
a grade of A-(compared to an industry average of B+).
In 1995, Prudential Securities equity research team ranked 8th in
INSTITUTIONAL INVESTOR magazine's 1995 "All America Research Team" survey. Five
Prudential Securities' analysts were ranked as first-team finishers.(8)
In addition to training, Prudential Securities provides its financial
advisors with access to firm economists and market analysts. It has also
developed proprietary tools for use by financial advisors, including the
Financial Architect-SM-, a state-of-the-art asset allocation software program
which helps Financial Advisors to evaluate a client's objectives and overall
financial plan, and a comprehensive mutual fund information and analysis system
that compares different mutual funds.
For more complete information about any of the Prudential Mutual Funds,
including charges and expenses, call your Prudential Securities financial
adviser or Pruco/Prudential representative for a free prospectus. Read it
carefully before you invest or send money.
- ------------------------
(8)In 1995, INSTITUTIONAL INVESTOR magazine surveyed more than 700 institutional
money managers, chief investment officers and research directors, asking them
to evaluate analysts in approximately 80 industry sectors. Scores were
produced by taking the number of votes awarded to an individual analyst and
weighting them based on the size of the voting institution. In total, the
magazine sent its survey to more than 2,000 institutions, including a group
of European and Asian institutions. This survey is conducted annually.
A-4
<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, 1997.
Statement of Assets and Liabilities at June 30, 1997.
Statement of Operations for the fiscal year ended June 30, 1997.
Statement of Changes in Net Assets for the fiscal years ended June
30, 1997 and June 30, 1996.
Notes to Financial Statements.
Financial Highlights for the five years ended June 30, 1997.
Report of Independent Accountants.
Independent Auditors' Report.
(b) EXHIBITS:
1. Articles of Amendment and Restatement.*
2. By-Laws of the Registrant.*
4. Specimen stock certificate of the Registrant, $.001 par value per
share.*
5. (a) Management Agreement between the Registrant (Money Market Series)
and Prudential Mutual Fund Management, Inc.*
(b) Subadvisory Agreement between Prudential Mutual Fund Management,
Inc. and The Prudential Investment Corporation with respect to the
Money Market Series.*
6. (a) Distribution Agreement, amended and restated as of April 12,
1995, between the Registrant and Prudential Mutual Fund Distributors,
Inc. Incorporated by reference to Exhibit No. 6 to Post-Effective
Amendment No. 8 to the Registration Statement on Form N-1A filed via
EDGAR on August 29, 1995 (File No. 33-31603).
(b) Amendment to Distribution Agreements. Incorporated by reference
to Exhibit 6(b) to Post-Effective Amendment No. 9 to the Registration
Statement on Form N-1A filed via EDGAR on August 27, 1996 (File No.
33-31603).
8. Custodian Agreement dated January 12, 1990, between the Registrant
and State Street Bank and Trust Company.*
9. Transfer Agency and Service Agreement dated January 12, 1990 between
the Registrant and Prudential Mutual Fund Services, Inc.*
10. Opinion of counsel.*
11.(a) Consent of Independent Accountants.*
(b) Consent of Deloitte & Touche LLP.*
16. Schedule of computation of yield for the Money Market Series.*
27. Financial Data Schedule.*
- ------------------------
*Filed herewith.
C-1
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of August 8, 1997, there were 14,294 record holders of shares of common
stock, $.001 par value per share, of the Registrant.
ITEM 27. INDEMNIFICATION.
As permitted by Section 17(h) and (i) of the Investment Company Act of 1940,
as amended (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, as amended (the 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 Investments Fund Management LLC
(PIFM) and The Prudential Investment Corporation (PIC), respectively, to
liabilities arising from willful misfeasance, bad faith or gross negligence in
the performance of their respective duties or from reckless disregard by them of
their respective obligations and duties under the agreements.
The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws, Management, Subadvisory and the 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 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.
C-2
<PAGE>
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.
(i) Prudential Investments Fund Management LLC (PIFM)
See "How the Fund is Managed--Manager" in the Prospectus constituting Part A
of this Registration Statement and "Manager" in the Statement of Additional
Information constituting Part B of this Registration Statement.
The business and other connections of the officers of PIFM are listed in
Schedules A and D of Form ADV of PIFM as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-31104).
The business and other connections of PIFM's directors and principal
executive officers are set forth below. The address of each person is Gateway
Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIFM PRINCIPAL OCCUPATIONS
- -------------------- ------------------------------ -----------------------------------------------------------------
<S> <C> <C>
Brian Storms Officer-in-Charge, President, President, Prudential Mutual Funds & Annuities (PMF&A);
Chief Executive Officer and Officer-in- Charge, President, Chief Executive Officer and Chief
Chief Operating Officer Operating Officer, PIFM
Robert F. Gunia Executive Vice President and Controller, Prudential Investments; Executive Vice President and
Treasurer Treasurer, PIFM; Senior Vice President, Prudential Securities
Incorporated
Thomas A. Early Executive Vice President, Vice President and General Counsel, PMF&A; Executive Vice
Secretary and General Counsel President, Secretary and General Counsel, PIFM
Neil A. McGuinness Executive Vice President Executive Vice President and Director of Marketing, PMF&A;
Executive Vice President, PIFM
Robert J. Sullivan Executive Vice President Executive Vice President, PMF&A; Executive Vice President, PIFM
</TABLE>
(ii) The Prudential Investment Corporation (PIC)
See "How the Fund is Managed--Manager" in the Prospectus constituting Part A
of this Registration Statement and "Manager" in the Statement of Additional
Information constituting Part B of this Registration Statement.
C-3
<PAGE>
The business and other connections of PIC's directors and executive officers
are as set forth below. The address of each person is Prudential Plaza, Newark,
New Jersey 07102.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATIONS
- -------------------- ------------------------- ----------------------------------------------------------------------
<S> <C> <C>
E. Michael Caulfield Chairman of the Board, Chief Executive Officer of Prudential Investments of The Prudential
President and Chief Insurance Company of America (Prudential)
Executive Officer and
Director
Jonathan M. Greene Senior Vice President and President--Investment Management of Prudential Investments of
Director Prudential
John R. Strangfeld Vice President and President of Private Asset Management Group of Prudential
Director
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITER.
(a) PRUDENTIAL SECURITIES INCORPORATED
Prudential Securities is distributor for Command Government Fund, Command
Money Fund, Command Tax-Free Fund, The Target Portfolio Trust, Prudential
Balanced Fund, Prudential California Municipal Fund, Prudential Distressed
Securities Fund, Inc., Prudential Diversified Bond Fund, Inc., Prudential Dryden
Fund, Prudential Emerging Growth Fund, Inc., Prudential Equity Fund, Inc.,
Prudential Equity Income Fund, Prudential Europe Growth Fund, Inc., Prudential
Global Genesis Fund, Inc., Prudential Global Limited Maturity Fund, Inc.,
Prudential Government Income Fund, Inc., Prudential Government Securities Trust,
Prudential High Yield Fund, Inc., Prudential Institutional Liquidity Portfolio,
Inc., Prudential Intermediate Global Income Fund, Inc., Prudential International
Bond Fund, Inc., Prudential Jennison Series Fund, Inc., Prudential MoneyMart
Assets, Inc., Prudential Mortgage Income Fund, Inc., Prudential Multi-Sector
Fund, Inc., Prudential Municipal Bond Fund, Prudential Municipal Series Fund,
Prudential National Municipals Fund, Inc., Prudential Natural Resources Fund,
Inc., Prudential Pacific Growth Fund, Inc., Prudential Small Company Value Fund,
Inc., Prudential Special Money Market Fund, Inc., Prudential Structured Maturity
Fund, Inc., Prudential Tax-Free Money Fund, Inc., Prudential Utility Fund, Inc.,
Prudential World Fund, Inc., The Global Total Return Fund, Inc., Global Utility
Fund, Inc., Nicholas-Applegate Fund, Inc. (Nicholas-Applegate Growth Equity
Fund) and The BlackRock Government Income Trust. Prudential Securities is also a
depositor for the following unit investment trusts:
Corporate Investment Trust Fund
Prudential Equity Trust Shares
National Equity Trust
Prudential Unit Trusts
Government Securities Equity Trust
National Municipal Trust
C-4
<PAGE>
(b) Information concerning the Directors and officers of Prudential
Securities Incorporated is set forth below:
<TABLE>
<CAPTION>
POSITIONS AND
POSITIONS AND OFFICES OFFICES
NAME(1) WITH UNDERWRITER WITH REGISTRANT
- -------------------- ---------------------------------- -----------------
<S> <C> <C>
Alan D. Hogan....... Executive Vice President, Chief None
Administrative Officer and
Director
George A. Murray.... Executive Vice President and None
Director
Leland B. Paton .... Executive Vice President and None
One New York Plaza Director
New York, NY 10292
Martin Pfinsgraff... Executive Vice President, Chief None
Financial Officer and Director
Vincent T. Pica, Executive Vice President and None
II ................. Director
One New York Plaza
New York, NY 10292
Hardwick Simmons.... Chief Executive Officer, President None
and Director
Lee B. Spencer, Executive Vice President, General None
Jr.................. Counsel, Secretary and Director
Brian Storms ....... Director None
Gateway Center
Three
100 Mulberry Street
Newark, NJ 07102
</TABLE>
- ------------------------
(1) The address of each person named is One Seaport Plaza, New York, New York
10292 unless otherwise indicated.
(c) Registrant has no principal underwriter who is not an affiliated person
of the Registrant.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the Rules thereunder are maintained at the offices of
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts, The Prudential Investment Corporation, Prudential Plaza, 751
Broad Street, Newark, New Jersey, the Registrant, Gateway Center Three, 100
Mulberry Street, Newark, New Jersey 07102-4077, and Prudential Mutual Fund
Services LLC, Raritan Plaza One, Edison, New Jersey. Documents required by Rules
31a-1(b)(5), (6), (7), (9), (10) and (11) and 31a-1(f) will be kept at Gateway
Center Three, documents required by Rules 31a-1(b)(4) and (11) and 31a-1(d) at
One Seaport Plaza and the remaining accounts, books and other documents required
by such other pertinent provisions of Section 31(a) and the Rules promulgated
thereunder will be kept by State Street Bank and Trust Company and Prudential
Mutual Fund Services LLC.
ITEM 31. MANAGEMENT SERVICES.
Other than as set forth under the captions "How the Fund is Managed--Manager"
and "How the Fund is Managed--Distributor" in the Prospectus and the captions
"Manager" and "Distributor" in the Statement of Additional Information,
constituting Parts A and B, respectively, of this Post-Effective Amendment to
the 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 Newark, and State of New
Jersey, on the 25th day of August, 1997.
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
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 25, 1997
- ------------------------------------
EDWARD D. BEACH
/s/ Stephen C. Eyre Director August 25, 1997
- ------------------------------------
STEPHEN C. EYRE
/s/ Delayne D. Gold Director August 25, 1997
- ------------------------------------
DELAYNE D. GOLD
/s/ Robert F. Gunia Director August 25, 1997
- ------------------------------------
ROBERT F. GUNIA
/s/ Don G. Hoff Director August 25, 1997
- ------------------------------------
DON G. HOFF
/s/ Robert E. LaBlanc Director August 25, 1997
- ------------------------------------
ROBERT E. LABLANC
/s/ Mendel A. Melzer Director August 25, 1997
- ------------------------------------
MENDEL A. MELZER
/s/ Richard A. Redeker Director and President August 25, 1997
- ------------------------------------
RICHARD A. REDEKER
/s/ Robin B. Smith Director August 25, 1997
- ------------------------------------
ROBIN B. SMITH
/s/ Stephen D. Stoneburn Director August 25, 1997
- ------------------------------------
STEPHEN D. STONEBURN
/s/ Nancy Hays Teeters Director August 25, 1997
- ------------------------------------
NANCY HAYS TEETERS
/s/ Grace C. Torres Treasurer and Principal Financial August 25, 1997
- ------------------------------------ and Accounting Officer
GRACE C. TORRES
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- --------- -------------------------------------------------------------------------------------------------------- -----
<S> <C> <C>
1. Articles of Amendment and Restatement.*
2. By-Laws of the Registrant.*
4. Specimen stock certificate of the Registrant, $.001 par value per share.*
5. (a) Management Agreement between the Registrant (Money Market Series) and Prudential Mutual Fund
Management, Inc.*
(b) Subadvisory Agreement between Prudential Mutual Fund Management, Inc. and The Prudential Investment
Corporation with respect to the Money Market Series.*
6. (a) Distribution Agreement, amended and restated as of April 12, 1995, between the Registrant and
Prudential Mutual Fund Distributors, Inc. Incorporated by reference to Exhibit No. 6 to
Post-Effective Amendment No. 8 to the Registration Statement on Form N-1A filed via EDGAR on August
29, 1995 (File No. 33-31603).
(b) Amendment to Distribution Agreements. Incorporated by reference to Exhibit 6(b) to Post-Effective
Amendment No. 9 to the Registration Statement on Form N-1A filed via EDGAR on August 27, 1997 (File
No. 33-31603).
8. Custodian Agreement dated January 12, 1990, between the Registrant and State Street Bank and Trust
Company.*
9. Transfer Agency and Service Agreement dated January 12, 1990 between the Registrant and Prudential
Mutual Fund Services, Inc.*
10. Opinion of counsel*
11. (a) Consent of Independent Accountants.*
(b) Consent of Deloitte & Touche LLP.*
16. Schedule of computation of yield for the Money Market Series.*
17. Financial Data Schedule.*
</TABLE>
- ------------------------
*Filed herewith.
<PAGE>
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC. (formerly Prudential-Bache
Special Money Market Fund, Inc.), a Maryland corporation having its principal
offices in the cities of Baltimore, Maryland and Newark, New Jersey (hereinafter
called the "Corporation"), hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby amended to provide the
1,000,000,000 shares designated as shares of U.S. Treasury Series be hereby
designated as shares of Money Market Series and that Section 1 of Article IV be
heretofore amended as follows:
Section 1. The total number of shares of capital stock which the
Corporation has authority to issue is 2,000,000,000 shares of the par value of
$.001 per share, having an aggregate par value of $2,000,000, to be designated
as shares of the Money Market Series. and;
SECOND: (a) The amendment effected by Article First was approved by a
majority of the entire Board of Directors and is limited to a change expressly
permitted by Section 2-605 of the Maryland Corporation Law to be made without
action by the stockholders of Prudential Special Money Market Fund, Inc., a
registered open-end company under the Investment Company Act of 1940.
b) The amendment and restatement does not increase or decrease
the authorized stock of the Corporation;
THIRD: The Charter of the Corporation as currently in effect, is
hereby restated in its entirety to read as follows:
ARTICLE I.
The name of the corporation is Prudential Special Money Market Fund, Inc.
<PAGE>
ARTICLE II.
PURPOSES
The purpose for which the Corporation is formed is to act as an open-end
investment company of the management type registered as such with the Securities
and Exchange Commission pursuant to the Investment Company Act of 1940 and to
exercise and generally to enjoy all of the powers, rights and privileges granted
to, or conferred upon, corporations by the General Laws of the State of Maryland
now or hereinafter in force.
ARTICLE III.
ADDRESS IN MARYLAND
The post office address of the place at which the principal office of the
Corporation in the State of Maryland is located is c/o CT Corporation System, 32
South Street, Baltimore, Maryland 21202.
2
<PAGE>
The name of the Corporation's resident agent is The Corporation Trust
Incorporated, and its post office address is 32 South Street, Baltimore,
Maryland 21202. Said resident agent is a corporation of the State of Maryland.
ARTICLE IV.
COMMON STOCK
Section 1. The total number of shares of capital stock which the
Corporation has authority to issue is 2,000,000,000 shares of the par value of
$.001 per share, having an aggregate par value of $2,000,000, to be designated
as shares of the Money Market Series.
Section 2. The Board of Directors may, in its discretion, classify and
reclassify any unissued shares of the capital stock of the Corporation into one
or more classes or series (each of such series relating to a separate portfolio
of investments) by setting or changing in any one or more respects the
designations, conversion or other rights, restrictions, limitations as to
dividends, qualifications or terms or conditions of redemption of such shares
and pursuant to such classification or reclassification to increase or decrease
the number of authorized shares of any existing class or series.
Section 3. Unless otherwise expressly provided in the charter of
the Corporation, including any Articles Supplementary creating any class or
series of capital stock, the holders of each class and series of capital
stock of the Corporation shall be entitled to dividends and distributions in
such amounts and at such times as may be determined by the Board of
Directors, and the dividends and distributions paid with respect to the
various classes or series of capital stock may vary among such classes or
series. Expenses related to the distribution of, and other identified
expenses that should properly be allocated to, the shares of a particular
class or series of
3
<PAGE>
capital stock may be charged to and borne solely by such class or series, and
the bearing of expenses solely by a class or series may be appropriately
reflected (in a manner determined by the Board of Directors) and cause
differences in the net asset value attributable to, and the dividend,
redemption and liquidation rights of, the shares of each such class or series
of capital stock.
Section 4. Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, on each matter submitted to a vote of stockholders, each
holder of a share of capital stock of the Corporation shall be entitled to one
vote for each share standing in such holder's name on the books of the
Corporation, irrespective of the class or series thereof, and all shares of all
classes and series shall vote together as a single class; provided, however,
that (a) as to any matter with respect to which a separate vote of any class or
series is required by the Investment Company Act of 1940, as amended (the
"Investment Company Act"), and in effect from time to time, or any rules,
regulations or orders issued thereunder, or by the Maryland General Corporation
Law, such requirement as to a separate vote by that class or series shall apply
in lieu of a general vote of all classes and series as described above; (b) in
the event that the separate vote requirements referred to in (a) above apply
with respect to one or more classes or series, then subject to paragraph (c)
below, the shares of all other classes and series not entitled to a separate
vote shall vote together as a single class; and (c) as to any matter which does
not affect the interest of a particular class or series, such class or series
shall not be entitled to any vote, and only the holders of shares of the one or
more affected classes and series shall be entitled to vote.
Section 5. Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, in the event of
4
<PAGE>
any liquidation, dissolution or winding up of the Corporation, whether voluntary
or involuntary, holders of shares of capital stock of the Corporation shall be
entitled, after payment or provision for payment of the debts and other
liabilities of the Corporation (as such liabilities may affect one or more of
the classes of shares of capital stock of the Corporation), to share ratably in
the remaining net assets of the Corporation; provided, however, that in the
event the capital stock of the Corporation shall be classified or reclassified
into series, holders of any shares of capital stock within such series shall be
entitled to share ratably out of assets belonging to such series pursuant to
the provisions of Section 7(c) of this Article IV.
Section 6. Each share of any class of the capital stock of the
Corporation, and in the event the capital stock of the Corporation shall be
classified or reclassified into series, each share of any class of capital stock
of the Corporation within such series shall be subject to the following
provisions:
(a) The net asset value of each outstanding share of capital
stock of the Corporation (or of a series, in the event the capital stock
of the Corporation shall be classified or reclassified into series),
subject to subsection (b) of this Section 6, shall be the quotient
obtained by dividing the value of the net assets of the Corporation (or
of a series, in the event the capital stock of the Corporation shall be
classified or reclassified into series) by the total number of
outstanding shares of capital stock of the Corporation (or of such
series, in the event the capital stock of the Corporation shall be
classified or reclassified into series). Subject to subsection (b) of
this Section 6, the value of the net assets of the Corporation (or of a
series, in the event the capital stock of the Corporation shall be
classified or reclassified into series) shall be determined pursuant to
the
5
<PAGE>
procedures or methods (which procedures or methods, in the event the
capital stock of the Corporation shall be classified or reclassified into
series, may differ from series to series) prescribed or approved by the
Board of Directors in its discretion, and shall be determined at the time
or times (which time or times may, in the event the capital stock of the
Corporation shall be classified into series, differ from series to
series) prescribed or approved by the Board of Directors in its
discretion. In addition, subject to subsection (b) of this Section 6,
the Board of Directors, in its discretion, may suspend the daily
determination of net asset value of any share of any series or class of
capital stock of the Corporation.
(b) The net asset value of each share of the capital stock of
the Corporation or any series thereof shall be determined in accordance
with any applicable provision of the Investment Company Act, any
applicable rule, regulation or order of the Securities and Exchange
Commission thereunder and any applicable rule or regulation made or
adopted by any securities association registered under the Securities
Exchange Act of 1934.
(c) All shares now or hereafter authorized shall be subject to
redemption and redeemable at the option of the stockholder pursuant to
the applicable provisions of the Investment Company Act and laws of the
State of Maryland, including any applicable rules and regulations
thereunder. Each holder of a share of any class or series, upon request
to the Corporation (if such holder's shares are certificated, such
request being accompanied by surrender of the appropriate stock
certificate or certificates in proper form for transfer), shall be
entitled to require the Corporation to redeem all or any part of such
shares standing in the name of such holder on the books of the
Corporation (or as represented by
6
<PAGE>
share certificates surrendered to the Corporation by such redeeming
holder) at a redemption price per share determined in accordance with
subsection (a) of this Section 6.
(d) Notwithstanding subsection (c) of this Section 6, the Board
of Directors of the Corporation may suspend the right of the holders of
shares of any or all classes or series of capital stock to require the
Corporation to redeem such shares or may suspend any purchase of such
shares:
(i) for any period (A) during which the New York Stock
Exchange is closed, other than customary weekend and holiday
closing, or (B) during which trading on the New York Stock
Exchange is restricted;
(ii) for any period during which an emergency, as defined
by the rules of the Securities and Exchange Commission or any
successor thereto, exists as a result of which (A) disposal by the
Corporation of securities owned by it and belonging to the
affected series of capital stock (or the Corporation, if the
shares of capital stock of the Corporation have not been
classified or reclassified into series) is not reasonably
practicable, or (B) it is not reasonably practicable for the
Corporation fairly to determine the value of the net assets of the
affected series of capital stock; or
(iii) for such other periods as the Securities and
Exchange Commission or any successor thereto may by order permit
for the protection of the holders of shares of capital stock of
the Corporation.
7
<PAGE>
(e) All shares of the capital stock of the Corporation now or
hereafter authorized shall be subject to redemption and redeemable at the
option of the Corporation. The Board of Directors may by resolution from
time to time authorize the Corporation to require the redemption of all
or any part of the outstanding shares of any class or series upon the
sending of written notice thereof to each holder whose shares are to be
redeemed and upon such terms and conditions as the Board of Directors, in
its discretion, shall deem advisable out of funds legally available
therefor at the net asset value per share of that class or series
determined in accordance with subsections (a) and (b) of this Section 6,
and take all other steps deemed necessary or advisable in connection
therewith.
(f) The Board of Directors may by resolution from time to time
authorize the purchase by the Corporation, either directly or through an
agent, of shares of any class or series of the capital stock of the
Corporation upon such terms and conditions and for such consideration as
the Board of Directors, in its discretion, shall deem advisable out of
funds legally available therefor at prices per share not in excess of the
net asset value per share of that class or series determined in
accordance with subsections (a) and (b) of this Section 6 and to take all
other steps deemed necessary or advisable in connection therewith.
(g) Except as otherwise permitted by the Investment Company
Act, payment of the redemption price of shares of any class or series of
the capital stock of the Corporation surrendered to the Corporation for
redemption pursuant to the provisions of subsection (c) of this Section 6
or for purchase by the Corporation pursuant to the provisions of
subsections (e) or (f) of this Section 6 shall be made by the Corporation
within seven days after surrender of such shares to the Corporation for
such purpose. Any
8
<PAGE>
such payment may be made in whole or in part in portfolio securities or
in cash, as the Board of Directors, in its discretion, shall deem
advisable, and no stockholder shall have the right, other than as
determined by the Board of Directors, to have his or her shares redeemed
in portfolio securities.
(h) In the absence of any specification as to the purpose for
which shares are redeemed or repurchased by the Corporation, all shares
so redeemed or repurchased shall be deemed to be acquired for retirement
in the sense contemplated by the laws of the State of Maryland. Shares
of any class or series retired by repurchase or redemption shall
thereafter have the status of authorized but unissued shares of such
class or series.
Section 7. In the event the Board of Directors shall authorize the
classification or reclassification of shares into series, each series shall have
the following powers, preferences and voting or other special rights, and the
qualifications, restrictions and limitations thereof shall be as follows:
(a) All consideration received by the Corporation for the issue
or sale of shares of capital stock of each series, together with all
income, earnings, profits and proceeds received thereon, including any
proceeds derived from the sale, exchange or liquidation thereof, and any
funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall irrevocably belong to the series
with respect to which such assets, payments or funds were received by the
Corporation for all purposes, subject only to the rights of creditors,
and shall be so handled upon the books of account of the Corporation.
Such assets, payments and funds, including any proceeds derived from the
sale, exchange or liquidation thereof and any asset derived from any
reinvestment
9
<PAGE>
of such proceeds in whatever form the same may be, are herein referred to
as "assets belonging to" such series.
(b) The Board of Directors may from time to time declare and
pay dividends or distributions, in additional shares of capital stock of
such series or in cash, on any or all series of capital stock, the amount
of such dividends and the means of payment being wholly in the discretion
of the Board of Directors.
(i) Dividends or distributions on shares of any series
shall be paid only out of earned surplus or other lawfully
available assets belonging to such series.
(ii) Inasmuch as one goal of the Corporation is to
qualify as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended, or any successor or comparable
statute thereto, and regulations promulgated thereunder, and
inasmuch as the computation of net income and gains for federal
income tax purposes may vary from the computation thereof on the
books of the Corporation, the Board of Directors shall have the
power, in its discretion, to distribute in any fiscal year as
dividends, including dividends designated in whole or in part as
capital gains distributions, amounts sufficient, in the opinion of
the Board of Directors, to enable the Corporation to qualify as a
regulated investment company and to avoid liability for the
Corporation for federal income tax in respect of that year. In
furtherance and not in limitation of the foregoing, in the event
that a series has a net capital loss for a fiscal year, and to the
extent that the net capital loss offsets net capital gains from
such series, the
10
<PAGE>
amount to be deemed available for distribution to that series with
the net capital gain may be reduced by the amount offset.
(c) In the event of the liquidation or dissolution of the
Corporation, holders of shares of capital stock of each series shall be
entitled to receive, as a series, out of the assets of the Corporation
available for distribution to such holders, but other than general assets
not belonging to any particular series, the assets belonging to such
series; and the assets so distributable to the holders of shares of
capital stock of any series shall be distributed among such stockholders
in proportion to the number of shares of such series held by them and
recorded on the books of the Corporation. In the event that there are
any general assets not belonging to any particular series and available
for distribution, such distribution shall be made to the holders of all
series in proportion to the net asset value of the respective series
determined in accordance with the charter of the Corporation.
Section 8. Any fractional shares shall carry proportionately all the
rights of a whole share, excepting any right to receive a certificate evidencing
such fractional share, but including, without limitation, the right to vote and
the right to receive dividends.
Section 9. No holder of shares of Common Stock of the Corporation
shall, as such holder, have any preemptive right to purchase or subscribe for
any shares of the Common Stock of the Corporation of any class or series which
it may issue or sell (whether out of the number of shares authorized by the
Articles of Incorporation or out of any shares of the Common Stock of the
Corporation acquired by it after the issue thereof, or otherwise).
11
<PAGE>
Section 10. All persons who shall acquire any shares of capital stock
of the Corporation shall acquire the same subject to the provisions of the
charter and By-Laws of the Corporation.
Section 11. Notwithstanding any provisions of law requiring action to
be taken or authorized by the affirmative vote of the holders of a designated
proportion greater than a majority of the outstanding Shares of all Classes or
of the outstanding Shares of a particular Class or Classes, as the case may be,
such action shall be valid and effective if taken or authorized by the
affirmative vote of the holders of a majority of the total number of Shares of
all Classes or of the total number of Shares of such Class or Classes, as the
case may be, outstanding and entitled to vote thereupon pursuant to the
provisions of these Articles of Incorporation.
ARTICLE V.
DIRECTORS
The By-Laws of the Corporation may fix the number of directors at no less
than three and may authorize the Board of Directors, by the vote of a majority
of the entire Board of Directors, to increase or decrease the number of
directors within a limit specified in the By-Laws (provided that, if there are
no Shares outstanding, the number of directors may be less than three but not
less than one), and to fill the vacancies created by any such increase in the
number of directors. Unless otherwise provided by the By-Laws of the
Corporation, the directors of the Corporation need not be stockholders.
The By-Laws of the Corporation may divide the directors of the
Corporation into classes and prescribe the tenure of office of the several
classes; but no class shall be elected for a period
12
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shorter than one year or for a period longer than five years, and the term of
office of at least one class shall expire each year.
ARTICLE VI.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Corporation shall indemnify to the fullest extent permitted by law
(including the Investment Company Act of 1940), as currently in effect or as the
same may hereafter be amended, any person made or threatened to be made a party
to any action, suit or proceeding, whether criminal, civil, administrative or
investigative, by reason of the fact that such person or such person's testator
or intestate is or was a director or officer of the Corporation or serves or
served at the request of the Corporation any other enterprise as a director or
officer. To the fullest extent permitted by law (including the Investment
Company Act of 1940), as currently in effect or as the same may hereafter be
amended, expenses incurred by any such person in defending any such action, suit
or proceeding shall be paid or reimbursed by the Corporation promptly upon
receipt by it of an undertaking of such person to repay such expenses if it
shall ultimately be determined that such person is not entitled to be
indemnified by the Corporation. The rights provided to any person by this
Article VI shall be enforceable against the Corporation by such person who shall
be presumed to have relied upon it in serving or continuing to serve as a
director or officer as provided above. No amendment of this Article VI shall
impair the rights of any person arising at any time with respect to events
occurring prior to such amendment. For purposes of this Article VI, the term
"Corporation" shall include any predecessor of the Corporation and any
constituent corporation (including any constituent of a constituent) absorbed by
the Corporation in a consolidation or merger; the term "other enterprise" shall
include any corporation, partnership, joint venture, trust or employee benefit
plan; service "at the request of
13
<PAGE>
the Corporation" shall include serving as a director or officer of the
Corporation which imposes duties on, or involves services by, such director or
officer with respect to an employee benefit plan, its participants or
beneficiaries; any excise taxes assessed on a person with respect to an employee
benefit plan shall be deemed to be indemnifiable expenses; and action by a
person with respect to any employee benefit plan which such person reasonably
believes to be in the interest of the participants and beneficiaries of such
plan shall be deemed to be action not opposed to the best interests of the
Corporation.
ARTICLE VII.
MISCELLANEOUS
The following provisions are inserted for the management of the business
and for the conduct of the affairs of the Corporation, and for creating,
defining, limiting and regulating the powers of the Corporation, the directors
and the stockholders.
Section 1. The Board of Directors shall have the management and
control of the property, business and affairs of the Corporation and is hereby
vested with all the powers possessed by the Corporation itself so far as is not
inconsistent with law or these Articles of Incorporation. In furtherance and
without limitation of the foregoing provisions, it is expressly declared that,
subject to these Articles of Incorporation, the Board of Directors shall have
power:
(a) To make, alter, amend or repeal from time to time the By-
Laws of the Corporation except as such power may otherwise be limited in
the By-Laws.
(b) To issue shares of any class or series of the capital stock
of the Corporation.
14
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(c) To authorize the purchase of shares of any class or series
in the open market or otherwise, at prices not in excess of their net
asset value for shares of that class, series or class within such series
determined in accordance with subsections (a) and (b) of Section 6 of
Article IV hereof, provided that the Corporation has assets legally
available for such purpose, and to pay for such shares in cash,
securities or other assets then held or owned by the Corporation.
(d) To declare and pay dividends and distributions from funds
legally available therefor on shares of such class or series, in such
amounts, if any, and in such manner (including declaration by means of a
formula or other similar method of determination whether or not the
amount of the dividend or distribution so declared can be calculated at
the time of such declaration) and to the holders of record as of such
date, as the Board of Directors may determine.
(e) To take any and all action necessary or appropriate to
maintain a constant net asset value per share for shares of any class,
series or class within such series.
Section 2. Any determination made in good faith and, so far as
accounting matters are involved, in accordance with generally accepted
accounting principles by or pursuant to the direction of the Board of Directors
or as otherwise required or permitted by the Securities and Exchange Commission,
shall be final and conclusive, and shall be binding upon the Corporation and all
holders of shares, past, present and future, of each class or series, and shares
are issued and sold on the condition and undertaking, evidenced by acceptance of
certificates for such shares by, or confirmation of such shares being held for
the account of, any stockholder, that any and all such determinations shall be
binding as aforesaid.
15
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Subject to Article VI, nothing in this Section 2 shall be construed to
protect any director or officer of the Corporation against any liability to the
Corporation or its stockholders to which such director or officer would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office.
Section 3. The directors of the Corporation may receive compensation
for their services, subject, however, to such limitations with respect thereto
as may be determined from time to time by the holders of shares of capital stock
of the Corporation.
Section 4. Except as required by law, the holders of shares of capital
stock of the Corporation shall have only such right to inspect the records,
documents, accounts and books of the Corporation as may be granted by the Board
of Directors of the Corporation.
Section 5. Any vote of the holders of shares of capital stock of the
Corporation authorizing liquidation of the Corporation or proceedings for its
dissolution may authorize the Board of Directors to determine, as provided
herein, or if provision is not made herein, in accordance with generally
accepted accounting principles, which assets are the assets belonging to the
Corporation or any series thereof available for distribution to the holders of
shares of capital stock of the Corporation or any series thereof (pursuant to
the provisions of Section 7 of Article IV hereof) and may divide, or authorize
the Board of Directors to divide, such assets among the holders of the shares of
capital stock of the Corporation or any series thereof in such manner as to
ensure that each such holder receives an amount from the proceeds of such
liquidation or dissolution that such holder is entitled to, as determined
pursuant to the provisions of Sections 3 and 7 of Article IV hereof.
16
<PAGE>
ARTICLE VIII.
AMENDMENTS
The Corporation reserves the right from time to time to amend, alter or
repeal any of the provisions of these Articles of Incorporation (including any
amendment that changes the terms of any of the outstanding shares by
classification, reclassification or otherwise), and to add or insert any other
provisions that may, under the statutes of the State of Maryland at the time in
force, be lawfully contained in articles of incorporation, and all rights at any
time conferred upon the stockholders of the Corporation by these Articles of
Incorporation are subject to the provisions of this Article VIII.
------------------------------
FOURTH: The provisions set forth in these Articles of Restatement and
Amendment under Paragraph Second constitute all of the provisions of the Charter
of the Corporation as currently in effect.
FIFTH: The restatement of the Charter of the Corporation has been
approved by the affirmative vote of a majority of the Directors of the
Corporation at a meeting duly called and held on August 20, 1997. The
Corporation has 11 Directors, Edward D. Beach, Stephen C. Eyre, Delayne Dedrick
Gold, Robert F. Gunia, Don G. Hoff, Robert E. LaBlanc, Mendel A. Melzer,
Richard A. Redeker, Robin B. Smith, Stephen Stoneburn and Nancy H. Teeters,
currently in office.
17
<PAGE>
IN WITNESS WHEREOF, Prudential Special Money Market Fund, Inc. has
caused these presents to be signed in its name and on its behalf by its
President and witnessed by its Secretary on this 21st day of August, 1997.
PRUDENTIAL SPECIAL MONEY
MARKET FUND, INC.
By: /s/ Richard A. Redeker
-------------------------------
Richard A. Redeker
President
Attest
[Seal]
By: /s/ S. Jane Rose
----------------------------
S. Jane Rose
Secretary
The undersigned, President of Prudential Special Money Market Fund,
Inc., who executed on behalf of said Corporation the foregoing Articles of
Amendment and Restatement, of which this certificate is made a part, hereby
acknowledges that these Articles of Amendment and Restatement are the act of
the Corporation and affirms that to the best of his knowledge, information
and belief all matters and facts set forth therein relating to the
authorization and approval of the Articles of Amendment and Restatement are
true in all material respects and that this statement is made under the
penalties of perjury.
/s/ Richard A. Redeker
--------------------------------------
Richard A. Redeker
President
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PRUDENTIAL-BACHE SPECIAL MONEY MARKET FUND, INC.
By-Laws
ARTICLE 1.
STOCKHOLDERS
Section 1. PLACE OF MEETING. All meetings of the stockholders shall be
held at the principal office of the Corporation in the State of Maryland or at
such other place within the United States as may from time to time be designated
by the Board of Directors and stated in the notice of such meeting.
Section 2. ANNUAL MEETINGS. The annual meeting of the stockholders of
the Corporation shall be held on a date and at such hour as may from time to
time be designated by the Board of Directors and stated in the notice of such
meeting, within the 31-day period ending four months after the end of the
Corporation's fiscal year, for the transaction of such business as may properly
be brought before the meeting; PROVIDED, however, that an annual meeting shall
not be required to be held in any year in which none of the following is
required to be acted on by stockholders under the Investment Company Act of
1940: election of directors; approval of the investment advisory agreement;
ratification of the selection of independent public accountants; and approval of
a distribution agreement.
Section 3. MEETINGS. Meetings of the stockholders for any purpose or
purposes may be called by the Chairman of the Board, the President or a majority
of the Board of Directors, and shall be called by the Secretary upon receipt of
the request in
<PAGE>
writing signed by stockholders holding not less than 25% of the common stock
issued and outstanding and entitled to vote thereat. Such request shall state
the purpose or purposes of the proposed meeting. The Secretary shall inform
such stockholders of the reasonably estimated costs of preparing and mailing
such notice of meeting and upon payment to the Corporation of such costs, the
Secretary shall give notice stating the purpose or purposes of the meeting as
required in this Article and by-law to all stockholders entitled to notice of
such meeting. No meeting need be called upon the request of the holders of
shares entitled to cast less than a majority of all votes entitled to be cast at
such meeting to consider any matter which is substantially the same as a matter
voted upon at any meeting of stockholders held during the preceding twelve
months.
Section 4. NOTICE OF MEETINGS OF STOCKHOLDERS. Not less than ten days'
and not more than ninety days' written or printed notice of every meeting of
stockholders, stating the time and place thereof and the general nature of the
business proposed to be transacted thereat, shall be given to each stockholder
entitled to vote thereat by leaving the same with such stockholder or at such
stockholder's residence or usual place of business or by mailing it, postage
prepaid, and addressed to such stockholder at such stockholder's address as it
appears upon the books of the Corporation. If mailed, notice shall be deemed to
be given when deposited in the United States mail addressed to the stockholder
as aforesaid.
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No notice of the time, place or purpose of any meeting of stockholders need
be given to any stockholder who attends in person or by proxy or to any
stockholder who, in writing executed and filed with the records of the meeting,
either before or after the holding thereof, waives such notice.
Section 5. RECORDS DATES. The Board of Directors may fix, in advance,
a date not exceeding ninty days preceding the date of any meeting of
stockholders, any dividend payment date or any date for the allotment of rights,
as a record date for the determination of the stockholders entitled to notice of
and to vote at such meeting or entitled to receive such dividends or rights, as
the case may be; and only stockholders of record on such date shall be entitled
to notice of and to vote at such meeting or to receive such dividends or rights,
as the case may be. In the case of a meeting of stockholders, such date shall
not be less than ten days prior to the date fixed for such meeting.
Section 6. QUORUM, ADJOURNMENT OF MEETINGS. The presence in person or
by proxy of the holders of record of one-third of the shares of the common stock
of the Corporation issued and outstanding and entitled to vote thereat shall
constitute a quorum at all meetings of the stockholders except as otherwise
provided in the Articles of Incorporation. If, however, such quorum shall not
be present or represented at any meeting of the stockholders, the holders of a
majority of the stock present in person or by proxy shall have power to adjourn
the
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<PAGE>
meeting from time to time, without notice other than announcement at the
meeting, until stockholders owning the requisite amount of stock entitled to
vote at such meeting shall be present. At such adjourned meeting at which
stockholders owning the requisite amount of stock entitled to vote thereat shall
be represented, any business may be transacted which might have been transacted
at the meeting as originally notified.
Section 7. VOTING AND INSPECTORS. At all meetings, stockholders of
record entitled to vote thereat shall have one vote for each share of common
stock standing in his name on the books of the Corporation (and such
stockholders of record holding fractional shares, if any, shall have
proportionate voting rights) on the date for the determination of stockholders
entitled to vote at such meeting, either in person or by proxy appointed by
instrument in writing subscribed by such stockholder or his duly authorized
attorney.
All elections shall be had and all questions decided by a majority of the
votes cast at a duly constituted meeting, except as otherwise provided by
statute or by the Articles of Incorporation or by these By-Laws.
At any election of directors, the Chairman of the meeting may, and upon the
request of the holders of ten percent (10%) of the stock entitled to vote at
such election shall, appoint two inspectors of election who shall first
subscribe an oath or affirmation to execute faithfully the duties of inspectors
at
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<PAGE>
such election with strict impartiality and according to the best of their
ability, and shall after the election make a certificate of the result of the
vote taken. No candidate for the office of director shall be appointed such
inspector.
Section 8. CONDUCT OF STOCKHOLDERS' MEETINGS. The meetings of the
stockholders shall be presided over by the Chairman of the Board, or if he or
she is not present, by the President, or if he or she in not present, by a
Vice-President, or if none of them is present, by a Chairman to be elected at
the meeting. The Secretary of the Corporation, if present, shall act as a
Secretary of such meetings, or if he or she is not present, an Assistant
Secretary shall so act; if neither the Secretary nor the Assistant Secretary is
present, then the meeting shall elect its Secretary.
Section 9. CONCERNING VALIDITY OF PROXIES, BALLOTS, ETC. At every
meeting of the stockholders, all proxies shall be received and taken in charge
of and all ballots shall be received and canvassed by the Secretary of the
meeting, who shall decide all questions concerning the qualification of voters,
the validity of the proxies and the acceptance or rejection of votes, unless
inspectors of election shall have been appointed by the Chairman of the meeting,
in which event such inspectors of election shall decide all such questions.
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<PAGE>
ARTICLE II.
BOARD OF DIRECTORS
Section 1. NUMBER AND TENURE OF OFFICE. The business and affairs of
the Corporation shall be conducted and managed by a Board of Directors of not
less than three nor more than twelve directors, as may be determined from time
to time by vote of a majority of the directors then in office, provided that if
there is no stock outstanding the number of directors may be less than three but
not less than one. Directors need not be stockholders.
Section 2. VACANCIES. In case of any vacancy in the Board of Directors
through death, resignation or other cause, other than an increase in the number
of directors, a majority of the remaining directors, although a majority is less
than a quorum, by an affirmative vote, may elect a successor to hold office
until the next meeting of stockholders or until his successor is chosen and
qualifies.
Section 3. INCREASE OR DECREASE IN NUMBER OF DIRECTORS. The Board of
Directors, by the vote of a majority of the entire Board, may increase the
number of directors and may elect directors to fill the vacancies created by any
such increase in the number of directors until the next meeting of stockholders
or until their successors are duly chosen and qualified. The Board of
Directors, by the vote of a majority of the entire Board, may likewise decrease
the number of directors to a number not less than three.
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<PAGE>
Section 4. PLACE OF MEETING. The directors may hold their meetings,
have one or more offices, and keep the books of the Corporation, outside the
State of Maryland, at any office or offices of the Corporation or at any other
place as they may from time to time by resolution determine, or in the case of
meetings, as they may from time to time by resolution determine or as shall be
specified or fixed in the respective notices or waivers of notice thereof.
Section 5. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such time and on such notice as the directors may
from time to time determine.
Section 6. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be held from time to time upon call of the Chairman of the Board,
the President, the Secretary or two or more of the directors, by oral or
telegraphic or written notice duly served on or sent or mailed to each director
not less than one day before such meeting. No notice need be given to any
director who attends in person or to any director who, in writing executed and
filed with the records of the meeting either before or after the holding
thereof, waives such notice. Such notice of waiver of notice need not state the
purpose or purposes of such meeting.
Section 7. QUORUM. One-third of the directors then in office shall
constitute a quorum for the transaction of business, provided that a quorum
shall in no case be less than two directors. If at any meeting of the Board
there shall be less
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<PAGE>
than a quorum present, a majority of those present may adjourn the meeting from
time to time until a quorum shall have been obtained. The act of the majority
of the directors present at any meeting at which there is a quorum shall be the
act of the directors, except as may be otherwise specifically provided by
statute or by the Articles of Incorporation or by these By-Laws.
Section 8. EXECUTIVE COMMITTEE. The Board of Directors may, by the
affirmative vote of a majority of the whole Board, appoint from the directors an
Executive Committee to consist of such number of directors (not less than three)
as the Board may from time to time determine. The Chairman of the Committee
shall be elected by the Board of Directors. The Board of Directors by such
affirmative vote shall have power at any time to change the members of such
Committee and may fill vacancies in the Committee by election from the
directors. When the Board of Directors is not in session, to the extent
permitted by law, the Executive Committee shall have and may exercise any or all
of the powers of the Board of Directors in the management of the business and
affairs of the Corporation. The Executive Committee may fix its own rules of
procedure, and may meet when and as provided by such rules or by resolution of
the Board of Directors, but in every case the presence of a majority shall be
necessary to constitute a quorum. During the absence of a member of the
Executive Committee, the remaining members may appoint a member of the Board of
Directors to act in his place.
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<PAGE>
Section 9. OTHER COMMITTEES. The Board of Directors, by the
affirmative vote of majority of the whole Board, may appoint from the directors
other committees which shall in each case consist of such number of directors
(not less than two) and shall have and may exercise such powers as the Board may
determine in the resolution appointing them. A majority of all the members of
any such committee may determine its action and fix the time and place of its
meetings, unless the Board of Directors shall otherwise provide. The Board of
Directors shall have power at any time to change the members and powers of any
such committee, to fill vacancies and to discharge any such committee.
Section 10. TELEPHONE MEETINGS. Members of the Board of Directors or a
committee of the Board of Directors may participate in a meeting by means of a
conference telephone or similar communications equipment if all persons
participating in the meeting can hear each other at the same time.
Participation in a meeting by these means constitutes presence in person at the
meeting unless otherwise provided by the Investment Company Act of 1940.
Section 11. ACTION WITHOUT A MEETING. Any action required or permitted
to be taken at any meeting of the Board of Directors or any committee thereof
may be taken without a meeting, if a written consent to such action is signed by
all members of the Board or of such committee, as the case may be, and such
written consent is filed with the minutes of the
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<PAGE>
proceedings of the Board or such committee, unless otherwise provided by the
Investment Company Act of 1940.
Section 12. COMPENSATION OF DIRECTORS. No director shall receive any
stated salary or fees from the Corporation for his services as such if such
director is, other than by reason of being such director, an interested
person (as such term is defined by the Investment Company Act of 1940) of the
Corporation or of its investment adviser, administrator or principal
underwriter. Except as provided in the preceding sentence, directors shall
be entitled to receive such compensation from the Corporation for their
services as may from time to time be voted by the Board of Directors.
Section 13. REMOVAL OF DIRECTORS. No director shall continue to hold
office after the holders of record of not less than two-thirds of the
Corporation's outstanding common stock of all series have declared that that
director be removed from office either by declaration in writing filed with the
Corporation's secretary or by votes cast in person or by proxy at a meeting
called for the purpose. The directors shall promptly call a meeting of
stockholders for the purpose of voting upon the question of removal of any
director or directors when requested in writing to do so by the record holders
of not less than 10 percent of the Corporation's outstanding common stock of all
series.
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<PAGE>
ARTICLE III.
OFFICERS
Section 1. EXECUTIVE OFFICERS. The executive officers of the
Corporation shall be chosen by the Board of Directors. These may include a
Chairman of the Board of Directors (who shall be a director) and shall
include a President (who shall be a director), one or more Vice-Presidents
(the number thereof to be determined by the Board of Directors), a Secretary
and a Treasurer. The Board of Directors or the Executive Committee may also
in its discretion appoint Assistant Secretaries, Assistant Treasurers and
other officers, agents and employees, who shall have such authority and
perform such duties as the Board or the Executive Committee may determine.
The Board of Directors may fill any vacancy which may occur in any office.
Any two offices, except those of President and Vice-President, may be held by
the same person, but no officer shall execute, acknowledge or verify any
instrument in more than one capacity, if such instrument is required by law
or these By-Laws to be executed, acknowledged or verified by two or more
officers.
Section 2. TERM OF OFFICE. The term of office of all officers shall be
one year and until their respective successors are chosen and qualified. Any
officer may be removed from office at any time with or without cause by the vote
of a majority of the whole Board of Directors.
Section 3. POWERS AND DUTIES. The officers of the Corporation shall
have such powers and duties as generally
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<PAGE>
pertain to their respective offices, as well as such powers and duties as may
from time to time be conferred by the Board of Directors or the Executive
Committee.
ARTICLE IV.
CAPITAL STOCK
Section 1. CERTIFICATES FOR SHARES. Each stockholder of the
Corporation shall be entitled to a certificate or certificates for the full
shares of stock of the Corporation owned by him in such form as the Board from
time to time prescribe.
Section 2. TRANSFER OF SHARES. Shares of the Corporation shall be
transferable on the books of the Corporation by the holder thereof in person or
by his duly authorized attorney or legal representative, upon surrender and
cancellation of certificates, if any, for the same number of shares, duly
endorsed or accompanied by proper instruments of assignment and transfer, with
such proof of the authenticity of the signature as the Corporation or its agents
may reasonably require; in the case of shares not represented by certificates,
the same or similar requirements may be imposed by the Board of Directors.
Section 3. STOCK LEDGERS. The stock ledgers of the Corporation,
containing the names and addresses of the stockholders and the number of shares
held by them respectively, shall be kept at the principal office of the
Corporation or, if the Corporation employs a Transfer Agent, at the office of
the Transfer Agent of the Corporation.
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<PAGE>
Section 4. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of
Directors or the Executive Committee may determine the conditions upon which a
new certificate of stock of the Corporation of any class may be issued in place
of a certificate which is alleged to have been lost, stolen or destroyed; and
may, in its discretion, require the owner of such certificate or such owner's
legal representative to give bond, with sufficient surety, to the Corporation
and each Transfer Agent, if any, to indemnify it and each such Transfer
Agent against any and all loss or claims which may arise by reason of the issue
of a new certificate in the place of the one so lost, stolen or destroyed.
ARTICLE V.
CORPORATE SEAL
The Board of Directors may provide for a suitable corporate seal, in such
form and bearing such inscriptions as it may determine.
ARTICLE VI.
FISCAL YEAR
The fiscal year of the Corporation shall be fixed by the Board of
Directors.
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<PAGE>
ARTICLE VII.
INDEMNIFICATION
Directors, officers, employees and agents of the Corporation shall not be
liable to the Corporation, any stockholder, officer, director, employee or other
person for any action or failure to act except for willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of their office. The Corporation shall indemnify directors, officers,
employees and agents of the Corporation against judgments, fines, settlements
and expenses to the fullest extent authorized and in the manner permitted by
applicable federal and state law. The Corporation may purchase insurance to
protect itself and its directors, officers, employees and agents against
judgments, fines, settlements and expenses to the fullest extent authorized and
in the manner permitted by applicable federal and state law. Nothing contained
in this Article VII shall be construed to indemnify directors, officers,
employees and agents of the Corporation against, nor to permit the Corporation
to purchase insurance that purports to protect against, any liability to the
Corporation or any stockholder, officer, director, employee, agent or other
person to whom he or she would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office.
-14-
<PAGE>
ARTICLE VIII.
CUSTODIAN
Section 1. The Corporation shall have as custodian or custodians one or
more trust companies or banks of good standing, each having a capital, surplus
and undivided profits aggregating not less than fifty million dollars
($50,000,000), and, to the extent required by the Investment Company Act of
1940, the funds and securities held by the Corporation shall be kept in the
custody of one or more such custodians, provided such custodian or custodians
can be found ready and willing to act, and further provided that the Corporation
may use as subcustodians, for the purpose of holding any foreign securities and
related funds of the Corporation, such foreign banks as the Board of Directors
may approve and as shall be permitted by law.
Section 2. The Corporation shall upon the resignation or inability to
serve of its custodian or upon change of the custodian:
(a) in case of such resignation or inability to serve, use its best
efforts to obtain a successor custodian:
(b) require that the cash and securities owned by the Corporation be
delivered directly to the successor custodian: and
(c) in the event that no successor custodian can be found, submit to
the stockholders before permitting delivery of the cash and securities
owned by the Corporation
-15-
<PAGE>
otherwise than to a successor custodian, the question whether or not
this Corporation shall be liquidated or shall function without a
custodian.
ARTICLE IX.
AMENDMENT OF BY-LAWS
The By-Laws of the Corporation may be altered, amended, added to or
repealed by the stockholders or by majority vote of the entire Board of
Directors; but any such alteration, amendment, addition or repeal of the By-Laws
by action of the Board of Directors may be altered or repealed by stockholders.
-16-
<PAGE>
<TABLE>
<S><C>
NUMBER SHARES
/ / / /
PRUDENTIAL-BACHE SPECIAL MONEY MARKET FUND, INC.
(MONEY MARKET SERIES)
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
DOING BUSINESS AS PRUDENTIAL SPECIAL MONEY MARKET FUND
ACCOUNT NO. ALPHA CODE CUSIP 74436K 10 4
SEE REVERSE SIDE FOR CERTAIN DEFINITIONS
THIS IS TO CERTIFY that
SPECIMEN
is the owner of
FULLY-PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $.001 EACH OF THE COMMON STOCK OF
--------------------PRUDENTIAL SPECIAL MONEY MARKET FUND (MONEY MARKET SERIES)--------------------
hereafter called the "Corporation", transferable on the books of the Corporation by the owner in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed.
This Certificate and the shares represented hereby are issued and shall be held subject to the provisions of the
Articles of Incorporation and By-Laws of the Corporation and all amendments thereof, copies of which are on file at the office
of the Corporation, to all of which the holder, by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Trust has caused this Certificate to be signed in its name by its proper officers and to
be sealed with its Corporate Seal.
[SEAL] Dated
/s/ S. Jane Rose /s/ Laurence C. McQuade
Secretary President
COUNTERSIGNED
PRUDENTIAL MUTUAL FUND SERVICES, INC.
(NEW JERSEY)
TRANSFER AGENT,
BY
AUTHORIZED OFFICER
</TABLE>
<PAGE>
PRUDENTIAL-BACHE SPECIAL MONEY MARKET FUND, INC.
MANAGEMENT AGREEMENT
Agreement, made this 12th day of January, 1990 between
Prudential-Bache Special Money Market Fund, Inc., a Maryland corporation (the
"Fund"), and Prudential Mutual Fund Management, Inc., a Delaware corporation
(the "Manager").
W I T N E S S E T H
WHEREAS, the Fund is a diversified, open-end management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Fund desires to retain the Manager to render or contract
to obtain as hereinafter provided investment advisory services to the Fund and
the Fund also desires to avail itself of the facilities available to the Manager
with respect to the administration of its day to day corporate affairs, and the
Manager is willing to render such investment advisory and administrative
services;
NOW, THEREFORE, the parties agree as follows:
1. The Fund hereby appoints the Manager to act as manager of the
Fund and administrator of its corporate affairs for the period and on the terms
set forth in this Agreement. The Manager accepts such appointment and agrees to
render the services herein described, for the compensation herein provided. The
Manager will enter into an agreement, dated the date hereof,
<PAGE>
with The Prudential Investment Corporation ("PIC") pursuant to which PIC shall
furnish to the Fund the investment advisory services specified therein in
connection with the management of the Fund. Such agreement in the form attached
as Exhibit A is hereinafter referred to as the "Subadvisory Agreement." The
Manager will continue to have responsibility for all investment advisory
services furnished pursuant to the Subadvisory Agreement.
2. Subject to the supervision of the Board of Directors of the Fund,
the Manager shall administer the Fund's corporate affairs and, in connection
therewith, shall furnish the Fund with office facilities and with clerical,
bookkeeping and recordkeeping services at such office facilities and, subject to
Section 1 hereof and the Subadvisory Agreement, the Manager shall manage the
investment operations of the Fund and the composition of the Fund's portfolio,
including the purchase, retention and disposition thereof, in accordance with
the Fund's investment objectives, policies and restrictions as stated in the
Prospectus (hereinafter defined) and subject to the following understandings:
(a) The Manager shall provide supervision of the Fund's investments
and determine from time to time what investments or securities will be
purchased, retained, sold or loaned by the Fund, and what portion of the
assets will be invested or held uninvested as cash.
-2-
<PAGE>
(b) The Manager, in the performance of its duties and obligations
under this Agreement, shall act in conformity with the Articles of
Incorporation, By-Laws and Prospectus (hereinafter defined) of the Fund and
with the instructions and directions of the Board of Directors of the Fund
and will conform to and comply with the requirements of the 1940 Act and
all other applicable federal and state laws and regulations.
(c) The Manager shall determine the securities and futures contracts
to be purchased or sold by the Fund and will place orders pursuant to its
determinations with or through such persons, brokers, dealers or futures
commission merchants (including but not limited to Prudential-Bache
Securities Inc.) in conformity with the policy with respect to brokerage as
set forth in the Fund's Registration Statement and Prospectus (hereinafter
defined) or as the Board of Directors may direct from time to time. In
providing the Fund with investment supervision, it is recognized that the
Manager will give primary consideration to securing the most favorable
price and efficient execution. Consistent with this policy, the Manager
may consider the financial responsibility, research and investment
information and other services provided by brokers, dealers or futures
commission merchants who may effect or be a party to any such transaction
or other transactions to which other clients
-3-
<PAGE>
of the Manager may be a party. It is understood that Prudential-Bache
Securities Inc. may be used as principal broker for securities transactions
but that no formula has been adopted for allocation of the Fund's
investment transaction business. It is also understood that it is desirable
for the Fund that the Manager have access to supplemental investment and
market research and security and economic analysis provided by brokers or
futures commission merchants and that such brokers may execute brokerage
transactions at a higher cost to the Fund than may result when allocating
brokerage to other brokers or futures commission merchants on the basis of
seeking the most favorable price and efficient execution. Therefore, the
Manager is authorized to pay higher brokerage commissions for the purchase
and sale of securities and futures contracts for the Fund to brokers or
futures commission merchants who provide such research and analysis,
subject to review by the Fund's Board of Directors from time to time with
respect to the extent and continuation of this practice. It is understood
that the services provided by such broker or futures commission merchant
may be useful to the Manager in connection with its services to other
clients.
On occasions when the Manager deems the purchase or sale of a security
or a futures contract to be in the best interest of the Fund as well as
other clients of the
-4-
<PAGE>
Manager of the Subadviser, the Manager, to the extent permitted by
applicable laws and regulations, may, but shall be under no obligation to,
aggregate the securities or futures contracts to be so sold or purchased in
order to obtain the most favorable price or lower brokerage commissions and
efficient execution. In such event, allocation of the securities or
futures contracts so purchased or sold, as well as the expenses incurred in
the transaction, will be made by the Manager in the manner it considers to
be the most equitable and consistent with its fiduciary obligations to the
Fund and to such other clients.
(d) The Manager shall maintain all books and records with respect
to the Fund's portfolio transactions and shall render to the Fund's Board
of Directors such periodic and special reports as the Board may reasonably
request.
(e) The Manager shall be responsible for the financial and
accounting records to be maintained by the Fund (including those being
maintained by the Fund's Custodian).
(f) The Manager shall provide the Fund's Custodian on each business
day with information relating to all transactions concerning the Fund's
assets.
(g) The investment management services of the Manager to the Fund
under this Agreement are not to be
-5-
<PAGE>
deemed exclusive, and the Manager shall be free to render similar services
to others.
3. The Fund has delivered to the Manager copies of each of the
following documents and will deliver to it all future amendments and
supplements, if any:
(a) Articles of Incorporation of the Fund, as filed with the
Secretary of State of Maryland (such Articles of Incorporation, as in
effect on the date hereof and as amended from time to time, are herein
called the "Articles of Incorporation");
(b) By-Laws of the Fund (such By-Laws, as in effect on the date
hereof and as amended from time to time, are herein called the "By-Laws");
(c) Certified resolutions of the Board of Directors of the Fund
authorizing the appointment of the Manager and approving the form of this
agreement;
(d) Registration Statement under the 1940 Act and the Securities
Act of 1933, as amended, on Form N-1A (the "Registration Statement"), as
filed with the Securities and Exchange Commission (the "Commission")
relating to the Fund and shares of the Fund's Common Stock and all
amendments thereto;
(e) Notification of Registration of the Fund under the 1940 Act on
Form N-8A as filed with the Commission and all amendments thereto; and
(f) Prospectus of the Fund (such Prospectus and
-6-
<PAGE>
Statement of Additional Information, as currently in effect and as amended
or supplemented from time to time, being herein called the "Prospectus").
4. The Manager shall authorize and permit any of its directors,
officers and employees who may be elected as directors or officers of the Fund
to serve in the capacities in which they are elected. All services to be
furnished by the Manager under this Agreement may be furnished through the
medium of any such directors, officers or employees of the Manager.
5. The Manager shall keep the Fund's books and records required to
be maintained by it pursuant to paragraph 2 hereof. The Manager agrees that all
records which it maintains for the Fund are the property of the Fund and it will
surrender promptly to the Fund any such records upon the Fund's request,
provided however that the Manager may retain a copy of such records. The
Manager further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act any such records as are required to be maintained by the
Manager pursuant to Paragraph 2 hereof.
6. During the term of this Agreement, the Manager shall pay the
following expenses:
(i) the salaries and expenses of all personnel of the Fund and the
Manager except the fees and expenses of directors who are not affiliated
persons of the Manager or the Fund's investment adviser,
-7-
<PAGE>
(ii) all expenses incurred by the Manager or by the Fund in
connection with managing the ordinary course of the Fund's business other
than those assumed by the Fund herein, and
(iii) the costs and expenses payable to PIC pursuant to the
Subadvisory Agreement.
The Fund assumes and will pay the expenses described below:
(a) the fees and expenses incurred by the Fund in connection with
the management of the investment and reinvestment of the Fund's assets,
(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 expenses of the Custodian that relate to (i) the
custodial function and the recordkeeping connected therewith, (ii)
preparing and maintaining the general accounting records of the Fund and
the providing of any such records to the Manager useful to the Manager in
connection with the Manager's responsibility for the accounting records of
the Fund pursuant to Section 31 of the 1940 Act and the rules promulgated
thereunder, (iii) the pricing of the shares of the Fund, including the cost
of any pricing service or services which may be retained pursuant to the
authorization of the Board of Directors of the Fund, and (iv) for both mail
and wire orders, the
-8-
<PAGE>
cashiering function in connection with the issuance and redemption
of the Fund's securities.
(d) the fees and expenses of the Fund's Transfer and Dividend
Disbursing Agent, which may be the Custodian, that relate to the
maintenance of each shareholder account,
(e) the charges and expenses of legal counsel and independent
accountants for the Fund,
(f) brokers' commissions and any issue or transfer taxes
chargeable to the Fund in connection with its securities and
futures transactions,
(g) all taxes and corporate fees payable by the Fund to
federal, state or other governmental agencies.
(h) the fees of any trade associations of which the Fund may be
a member,
(i) the cost of stock certificates representing, and/or
non-negotiable share deposit receipts evidencing, shares of the
Fund,
(j) the cost of fidelity, directors and officers and errors and
omissions insurance,
(k) 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 as a
broker or dealer and qualifying its shares under state securities
laws, including the preparation and printing of the Fund's
registration statements,
-9-
<PAGE>
prospectuses and statements of additional information for
filing under federal and state securities laws for such
purposes,
(l) allocable communications expenses with respect to
investor services and all expenses of shareholders' and
directors' meetings and of preparing, printing and mailing reports
to shareholders in the amount necessary for distribution to the
shareholders,
(m) litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of the
Fund's business, and
(n) any expenses assumed by the Fund pursuant to a
Plan of Distribution adopted in conformity with Rule 12b-1 under
the 1940 Act.
7. In the event the expenses of the Fund for any fiscal year
(including the fees payable to the Manager but excluding interest, taxes,
brokerage commissions, distribution fees and litigation and indemnification
expenses and other extraordinary expenses not incurred in the ordinary course
of the Fund's business) exceed the lowest applicable annual expense
limitation established and enforced pursuant to the statute or regulations of
any jurisdictions in which shares of the Fund are then qualified for offer
and sale, the compensation due the Manager will be reduced 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
-10-
<PAGE>
exceeds the amount of such compensation.
8. For the services provided and the expenses assumed pursuant
to this Agreement, the Fund will pay to the Manager as full compensation
therefor a fee at an annual rate of .50 of 1% of the Fund's average daily net
assets. This fee will be computed daily and will be paid to the Manager
monthly. Any reduction in the fee payable and any payment by the Manager to
the Fund pursuant to paragraph 7 shall be made monthly. Any such reductions
or payments are subject to readjustment during the year.
9. The Manager shall not be liable for any error of judgment
or for any loss suffered by the Fund in connection with the matters to which
this Agreement relates, except a loss resulting from a breach of fiduciary
duty with respect to the receipt of compensation for services (in which case
any award of damages shall be limited to the period and the amount set forth
in Section 36(b)(3) of the 1940 Act) or loss resulting from willfull
misfeasance, bad faith or gross negligence on its part in the performance of
its duties or from reckless disregard by it of its obligations and duties
under this Agreement.
10. This Agreement shall continue in effect for a period of
more than two years from the date hereof only so long as such continuance is
specifically approved at least annually in conformity with the requirements
of the 1940 Act; provided, however, that this Agreement may be terminated by
the Fund at any time, without the payment of any penalty, by the Board of
-11-
<PAGE>
Directors of the Fund or by vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of the Fund, or by the Manager at any
time, without the payment of any penalty, on not more than 60 days' nor less
than 30 days' written notice to the other party. This Agreement shall
terminate automatically in the event of its assignment (as defined in the
1940 Act).
11. Nothing in this Agreement shall limit or restrict the right
of any director, officer or employee of the Manager who may also be a
director, officer or employee of the Fund to engage in any other business or
to devote his or her time and attention in part to the management or other
aspects of any business, whether of a similar or dissimilar nature, nor
limit or restrict the right of the Manager to engage in any other business
or to render services of any kind to any other corporation, firm, individual
or association.
12. Except as otherwise provided herein or authorized by the
Board of Directors of the Fund from time to time, the Manager shall for all
purposes herein be deemed to be an independent contractor and shall have no
authority to act for or represent the Fund in any way or otherwise be deemed
an agent of the Fund.
13. During the term of this Agreement, the Fund agrees to
furnish the Manager at its principal office all prospectuses, proxy
statements, reports to shareholders, sales literature, or other material
prepared for distribution to shareholders of the Fund or the public, which
refer in any way to
-12-
<PAGE>
the Manager, prior to use thereof and not to use such material if the Manager
reasonably objects in writing within five business days (or such other time
as may be mutually agreed) after receipt thereof. In the event of termination
of this Agreement, the Fund will continue to furnish to the Manager copies of
any of the above mentioned materials which refer in any way to the Manager.
Sales literature may be furnished to the Manager hereunder by first-class or
overnight mail, facsimile transmission equipment or hand delivery. The Fund
shall furnish or otherwise make available to the Manager such other
information relating to the business affairs of the Fund as the Manager at
any time, or from time to time, reasonably requests in order to discharge its
obligations hereunder.
14. This Agreement may be amended by mutual consent, but the
consent of the Fund must be obtained in conformity with the requirements of
the 1940 Act.
15. Any notice or other communication required to be given
pursuant to this Agreement shall be deemed duly given if delivered or mailed
by registered mail, postage prepaid, (1) to the Manager at One Seaport Plaza,
New York, N.Y. 10292, Attention: Secretary; or (2) to the Fund at One
Seaport Plaza, New York, N.Y. 10292, Attention: President.
16. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
17. The Fund may use the name "Prudential-Bache Money Market
Exchange Fund, Inc." or any name including the words
-13-
<PAGE>
"Prudential" or "Bache" only for so long as this Agreement or any extension,
renewal or amendment hereof remains in effect, including any similar
agreement with any organization which shall have succeeded to the Manager's
business as Manager or any extension, renewal or amendment thereof remain in
effect. At such time as such an agreement shall no longer be in effect, the
Fund will (to the extent that it lawfully can) cease to use such a name or
any other name indicating that it is advised by, managed by or otherwise
connected with the Manager, or any organization which shall have so succeeded
to such businesses. In no event shall the Fund use the name
"Prudential-Bache Money Market Exchange Fund, Inc." or any name including the
word "Prudential" or "Bache" if the Manager's function is transferred or
assigned to a company of which The Prudential Insurance Company of America
does not have control.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day
and year first above written.
THE PRUDENTIAL-BACHE SPECIAL
MONEY MARKET FUND, INC.
By /s/ Laurence C. McQuade
------------------------------
President
PRUDENTIAL MUTUAL FUND
MANAGEMENT, INC.
By /s/ Robert F. Gunia
------------------------------
Executive Vice President
-14-
<PAGE>
PRUDENTIAL-BACHE SPECIAL MONEY MARKET FUND, INC.
SUBADVISORY AGREEMENT
Agreement made as of this 12th day of January, 1990 between Prudential
Mutual Fund Management, Inc., a Delaware Corporation ("PMF" or the "Manager"),
and The Prudential Investment Corporation, a New Jersey Corporation (the
"Subadviser").
WHEREAS, the Manager has entered into a Management Agreement, dated January
12, 1990 (the "Management Agreement"), with Prudential-Bache Special Money
Market Fund, Inc. (the "Fund"), a Maryland corporation and a diversified
closed-end management investment company registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), pursuant to which PMF will act as
Manager of the Fund.
WHEREAS, PMF desires to retain the Subadviser to provide investment
advisory services to the Fund in connection with the management of the Fund and
the Subadviser is willing to render such investment advisory services.
NOW, THEREFORE, the Parties agree as follows:
1. (a) Subject to the supervision of the Manager and of the Board of
Directors of the Fund, the Subadviser shall manage the investment
operations of the Fund and the composition of the Fund's portfolio,
including the purchase, retention and disposition thereof, in accordance
with the Fund's investment objectives, policies and restrictions as stated
in the Prospectus, as currently in effect and as amended or supplemented
from time to time (the "Prospectus"), and subject to the following
understandings:
(i) The Subadviser shall provide supervision of the Fund's
investments and determine from time to time what investments and
securities will be purchased, retained, sold or loaned by
<PAGE>
the Fund, and what portion of the assets will be invested or held
uninvested as cash.
(ii) In the performance of its duties and obligations under this
Agreement, the Subadviser shall act in conformity with the Articles of
Incorporation, By-Laws and Prospectus of the Fund and with the
instructions of the Manager and of the Board of Directors of the Fund
and will conform to and comply with the requirements of the 1940 Act,
the Internal Revenue Code of 1986 and all other applicable federal and
state laws and regulations.
(iii) The Subadviser shall determine the securities and futures
contracts to be purchased or sold by the Fund and will place orders
with or through such persons, brokers, dealers or futures commission
merchants (including but not limited to Prudential-Bache Securities
Inc.) to carry out the policy with respect to brokerage as set forth
in the Fund's Registration Statement and Prospectus or as the Board
of Directors may direct from time to time. In providing the Fund
with investment supervision, it is recognized that the Subadviser
will give primary consideration to securing the most favorable
price and efficient execution. Within the framework of this policy,
the Subadviser may consider the financial responsibility, research
and investment information and other services provided by brokers,
dealers or futures commission merchants who may effect or be a
party to any such transaction or other transactions to which the
Subadviser's other clients may be a party. It is
2
<PAGE>
understood that Prudential-Bache Securities Inc. may be used as a
principal broker for securities transactions but that no formula has
been adopted for allocation of the Fund's investment transaction
business. It is also understood that it is desirable for the Fund that
the Subadviser have access to supplemental investment and market
research and security and economic analysis provided by brokers or
futures commission merchants who may execute brokerage transactions at
a higher cost to the Fund than may result when allocating brokerage to
other brokers on the basis of seeking the most favorable price and
efficient execution. Therefore, the Subadviser is authorized to place
orders for the purchase and sale of securities and futures contracts
for the Fund with such brokers or futures commission merchants,
subject to review by the Fund's Board of Directors from time to time
with respect to the extent and continuation of this practice. It is
understood that the services provided by such brokers or futures
commission merchants may be useful to the Subadviser in connection
with the Subadviser's services to other clients.
On occasions when the Subadviser deems the purchase or sale of a
security or futures contract to be in the best interest of the Fund as
well as other clients of the Subadviser, the Subadviser, to the extent
permitted by applicable laws and regulations, may, but shall be under
no obligation to, aggregate the securities or futures contracts to be
sold or purchased in order to obtain the most favorable
3
<PAGE>
price or lower brokerage commissions and efficient execution. In such
event, allocation of the securities or futures contracts so purchased
or sold, as well as the expenses incurred in the transaction, will be
made by the Subadviser in the manner the Subadviser considers to be
the most equitable and consistent with its fiduciary obligations to
the Fund and to such other clients.
(iv) The Subadviser shall maintain all books and records with
respect to the Fund's portfolio transactions required by subparagraphs
(b)(5), (6), (7), (9), (10) and (11) and Paragraph (f) of Rule 31a-1
under the 1940 Act and shall render to the Fund's Board of Directors
such periodic and special reports as the Board may reasonably request.
(v) The Subadviser shall provide the Fund's Custodian on each
business day with information relating to all transactions concerning
the Fund's assets and shall provide the Manager with such information
upon request of the Manager.
(vi) The investment management services provided by the Subadviser
hereunder are not to be deemed exclusive, and the Subadviser shall be
free to render similar services to others.
(b) The Subadviser shall authorize and permit any of its directors,
officers and employees who may be elected as directors or officers of the
Fund to serve in the capacities in which they are elected. Services to be
furnished by the Subadviser under this Agreement may be furnished through
the medium of any of such directors, officers or employees.
4
<PAGE>
(c) The Subadviser shall keep the Fund's books and records required to
be maintained by the Subadviser pursuant to paragraph 1(a) hereof and
shall timely furnish to the Manager all information relating to the
Subadviser's services hereunder needed by the Manager to keep the other
books and records of the Fund required by Rule 31a-1 under the 1940 Act.
The Subadviser agrees that all records which it maintains for the Fund are
the property of the Fund and the Subadviser will surrender promptly to the
Fund any of such records upon the Fund's request, provided however that
the Subadviser may retain a copy of such records. The Subadviser further
agrees to preserve for the periods prescribed by Rule 31a-2 of the
Commission under the 1940 Act any such records as are required to be
maintained by it pursuant to paragraph 1(a) hereof.
2. The Manager shall continue to have responsibility for all services to
be provided to the Fund pursuant to the Management Agreement and shall
oversee and review the Subadviser's performance of its duties under this
Agreement.
3. The Manager shall reimburse the Subadviser for reasonable costs and
expenses incurred by the Subadviser determined in a manner acceptable to
the Manager in furnishing the services described in paragraph 1 hereof.
4. The Subadviser shall not be liable for any error of judgment or for
any loss suffered by the Fund or the Manager in connection with the
matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the Subadviser's
part in the performance of its duties or from its
5
<PAGE>
reckless disregard of its obligations and duties under this Agreement.
5. This Agreement shall continue in effect for a period of more than
two years from the date hereof only so long as such continuance is
specifically approved at least annually in conformity with the
requirements of the 1940 Act; provided, however, that this Agreement may
be terminated by the Fund at any time, without the payment of any penalty,
by the Board of Directors of the Fund or by vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of the Fund,
or by the Manager or the Subadviser at any time, without the payment of
any penalty, on not more than 60 days' nor less than 30 days' written
notice to the other party. This Agreement shall terminate automatically
in the event of its assignment (as defined in the 1940 Act) or upon the
termination of the Management Agreement.
6. Nothing in this Agreement shall limit or restrict the right of any of
the Subadviser's directors, officers, or employees who may also be a
director, officer or employee of the Fund to engage in any other business
or to devote his or her time and attention in part to the management or
other aspects of any business, whether of a similar or a dissimilar
nature, nor limit or restrict the Subadviser's right to engage in any
other business or to render services of any kind to any other corporation,
firm, individual or association.
7. During the term of this Agreement, the Manager agrees to furnish the
Subadviser at its principal office all prospectuses,
6
<PAGE>
proxy statements, reports to stockholders, sales literature or other
material prepared for distribution to stockholders of the Fund or the
public, which refer to the Subadviser in any way, prior to use thereof
and not to use material if the Subadviser reasonably objects in writing
five business days (or such other time as may be mutually agreed) after
receipt thereof. Sales literature may be furnished to the Subadviser
hereunder by first-class or overnight mail, facsimile transmission
equipment or hand delivery.
6. This Agreement may be amended by mutual consent, but the consent of
the Fund must be obtained in conformity with the requirements of the
1940 Act.
9. This Agreement shall be governed by the laws of the State of New York.
IN WITNESS WHEREOF, the Parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first
above written.
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC.
By /s/ Robert F. Gunia
-------------------------------------
THE PRUDENTIAL INVESTMENT CORPORATION
By /s/ [Illegible]
-------------------------------------
7
<PAGE>
CUSTODIAN CONTRACT
Between
PRUDENTIAL-BACHE SPECIAL MONEY
MARKET FUND, INC.
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
----
1. Employment of Custodian and Property to be
Held By It. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Duties of the Custodian with Respect to Property of
the Fund Held by the Custodian in the United States . . . . . . . . . . . 2
2.1 Holding Securities . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Delivery of Securities . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Registration of Securities . . . . . . . . . . . . . . . . . . . . 7
2.4 Bank Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.5 Availability of Federal Funds. . . . . . . . . . . . . . . . . . . 9
2.6 Collection of Income . . . . . . . . . . . . . . . . . . . . . . . 9
2.7 Payment of Fund Monies . . . . . . . . . . . . . . . . . . . . . .10
2.8 Liability for Payment in Advance of
Receipt of Securities Purchased. . . . . . . . . . . . . . . . . .13
2.9 Appointment of Agents. . . . . . . . . . . . . . . . . . . . . . .13
2.10 Deposit of Securities in Securities System . . . . . . . . . . . .14
2.10A Fund Assets Held in the Custodian's Direct
Paper System . . . . . . . . . . . . . . . . . . . . . . . . . . .17
2.11 Segregated Account . . . . . . . . . . . . . . . . . . . . . . . .18
2.12 Ownership Certificates for Tax Purposes. . . . . . . . . . . . . .20
2.13 Proxies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
2.14 Communications Relating to Fund
Portfolio Securities . . . . . . . . . . . . . . . . . . . . . . .20
2.15 Reports to Fund by Independent Public
Accountants. . . . . . . . . . . . . . . . . . . . . . . . . . . .21
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States. . . . . . . . . . . . . . . .22
3.1 Appointment of Foreign Sub-Custodians. . . . . . . . . . . . . . .22
3.2 Assets to be Held. . . . . . . . . . . . . . . . . . . . . . . . .22
3.3 Foreign Securities Depositories. . . . . . . . . . . . . . . . . .23
3.4 Segregation of Securities. . . . . . . . . . . . . . . . . . . . .23
3.5 Agreements with Foreign Banking Institutions . . . . . . . . . . .23
3.6 Access of Independent Accountants of the Fund. . . . . . . . . . .24
3.7 Reports by Custodian . . . . . . . . . . . . . . . . . . . . . . .24
3.8 Transactions in Foreign Custody Account. . . . . . . . . . . . . .25
3.9 Liability of Foreign Sub-Custodians. . . . . . . . . . . . . . . .26
3.10 Liability of Custodian . . . . . . . . . . . . . . . . . . . . . .26
3.11 Reimbursement for Advances . . . . . . . . . . . . . . . . . . . .27
3.12 Monitoring Responsibilities. . . . . . . . . . . . . . . . . . . .28
3.13 Branches of U.S. Banks . . . . . . . . . . . . . . . . . . . . . .29
4. Payments for Repurchases or Redemptions and Sales
of Shares of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . .29
5. Proper Instructions . . . . . . . . . . . . . . . . . . . . . . . . . . .30
6. Actions Permitted Without Express Authority . . . . . . . . . . . . . . .31
7. Evidence of Authority . . . . . . . . . . . . . . . . . . . . . . . . . .32
<PAGE>
8. Duties of Custodian with Respect to the Books of
Account and Calculations of Net Asset Value and
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
9. Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
10. Opinion of Fund's Independent Accountant. . . . . . . . . . . . . . . . .33
11. Compensation of Custodian . . . . . . . . . . . . . . . . . . . . . . . .34
12. Responsibility of Custodian . . . . . . . . . . . . . . . . . . . . . . .34
13. Effective Period, Termination and Amendment . . . . . . . . . . . . . . .36
14. Successor Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . .37
15. Interpretive and Additional Provisions. . . . . . . . . . . . . . . . . .39
16. Massachusetts Law to Apply. . . . . . . . . . . . . . . . . . . . . . . .39
17. Prior Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
<PAGE>
CUSTODIAN CONTRACT
This Contract between Prudential-Bache Special Money Market Fund,
Inc., a corporation organized and existing under the laws of Maryland, having
its principal place of business at One Seaport Plaza, New York, New York 10292,
hereinafter called the "Fund", and State Street Bank and Trust Company, a
Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian",
WITNESSETH: That in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT
The Fund hereby employs the Custodian as the custodian of its assets,
including securities it desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Articles of
Incorporation. The Fund agrees to deliver to the Custodian all securities and
cash owned by it, and all payments of income, payments of principal or capital
distributions received by it with respect to all securities owned by the Fund
from time to time, and the cash consideration received by it for such new or
treasury shares of capital stock, $ par value, ("Shares") of the Fund as may
be issued or sold from time to time. The Custodian shall not be responsible for
any property of the Fund held or received by the Fund and not delivered to the
Custodian.
<PAGE>
Upon receipt of "Proper Instructions" (within the meaning of
Article 5), the Custodian shall from time to time employ one or more
sub-custodians located in the United States, but only in accordance with an
applicable vote by the Board of Directors of the Fund, and provided that the
Custodian shall have no more or less responsibility or liability to the Fund
on account of any actions or omissions of any sub-custodian so employed than
any such sub-custodian has to the Custodian. The Custodian may employ as
sub-custodians for the Fund's securities and other assets the foreign banking
institutions and foreign securities depositories designated in Schedule "A"
hereto but only in accordance with the provisions of Article 3.
2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD BY
THE CUSTODIAN IN THE UNITED STATES
2.1 HOLDING SECURITIES. The Custodian shall hold and physically segregate
for the account of the Fund all non-cash property, to be held by it in
the United States, including all domestic securities owned by the
Fund, other than (a) securities which are maintained pursuant to
Section 2.10 in a clearing agency which acts as a securities
depository or in a book-entry system authorized by the U.S. Department
of the Treasury, collectively referred to herein as "Securities
System" and (b) commercial paper of an issuer for which State Street
Bank and Trust Company acts as issuing and paying agent ("Direct
Paper") which is deposited and/or maintained in the Direct Paper
System of the Custodian pursuant to Section 2.10A.
-2-
<PAGE>
2.2 DELIVERY OF SECURITIES. The Custodian shall release and deliver
domestic securities owned by the Fund held by the Custodian or in a
Securities System account of the Custodian or in the Custodian's
Direct Paper book-entry system account ("Direct Paper System Account")
only upon receipt of Proper Instructions, which may be continuing
instructions when deemed appropriate by the parties, and only in the
following cases:
1) Upon sale of such securities for the account of the Fund and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any
repurchase agreement related to such securities entered into
by the Fund;
3) In the case of a sale effected through a Securities System,
in accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other
similar offers for portfolio securities of the Fund;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Fund or into
-3-
<PAGE>
the name of any nominee or nominees of the Custodian or into
the name or nominee name of any agent appointed pursuant to
Section 2.9 or into the name or nominee name of any
sub-custodian appointed pursuant to Article 1; or for exchange
for a different number of bonds, certificates or other
evidence representing the same aggregate face amount or
number of units; PROVIDED that, in any such case, the new
securities are to be delivered to the Custodian;
7) Upon the sale of such securities for the account of the Fund,
to the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery" custom;
provided that in any such case, the Custodian shall have no
responsibility or liability for any loss arising from the
delivery of such securities prior to receiving payment for
such securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer
-4-
<PAGE>
of such securities, or pursuant to provisions for conversion
contained in such securities, or pursuant to any deposit
agreement; provided that, in any such case, the new securities
and cash, if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Fund, BUT ONLY against receipt of adequate collateral
as agreed upon from time to time by the Custodian and the
Fund, which may be in the form of cash or obligations issued
by the United States government, its agencies or
instrumentalities, except that in connection with any loans
for which collateral is to be credited to the Custodian's
account in the book-entry system authorized by the U.S.
Department of the Treasury, the Custodian will not be held
liable or responsible for
-5-
<PAGE>
the delivery of securities owned by the Fund prior to the
receipt of such collateral;
11) For delivery as security in connection with any borrowings by
the Fund requiring a pledge of assets by the Fund, BUT ONLY
against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934 (the
"Exchange Act") and a member of The National Association of
Securities Dealers, Inc. ("NASD"), relating to compliance with
the rules of The Options Clearing Corporation and of any
registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian, and a Futures
Commission Merchant registered under the Commodity Exchange
Act, relating to compliance with the rules of the Commodity
Futures Trading Commission and/or any Contract Market, or any
similar organization or organizations,
-6-
<PAGE>
regarding account deposits in connection with transactions by
the Fund;
14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such Transfer
Agent or to the holders of shares in connection with
distributions in kind, as may be described from time to time
in the Fund's currently effective prospectus and statement of
additional information ("prospectus"), in satisfaction of
requests by holders of Shares for repurchase or redemption;
and
15) For any other proper corporate purpose, BUT ONLY upon receipt
of, in addition to Proper Instructions, a certified copy of a
resolution of the Board of Directors or of the Executive
Committee signed by an officer of the Fund and certified by
the Secretary or an Assistant Secretary, specifying the
securities to be delivered, setting forth the purpose for
which such delivery is to be made, declaring such purpose to
be a proper corporate purpose, and naming the person or
persons to whom delivery of such securities shall be made.
2.3 REGISTRATION OF SECURITIES. Domestic securities held by the Custodian
(other than bearer securities) shall be
-7-
<PAGE>
registered in the name of the Fund or in the name of any nominee of the
Fund or of any nominee of the Custodian which nominee shall be assigned
exclusively to the Fund, UNLESS the Fund has authorized in writing the
appointment of a nominee to be used in common with other registered
investment companies having the same investment adviser as the Fund, or in
the name or nominee name of any agent appointed pursuant to Section 2.9 or
in the name or nominee name of any sub-custodian appointed pursuant to
Article 1. All securities accepted by the Custodian on behalf of the Fund
under the terms of this Contract shall be in "street name" or other good
delivery form.
2.4 BANK ACCOUNTS. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of the Fund, subject
only to draft or order by the Custodian acting pursuant to the terms of
this Contract, and shall hold in such account or accounts, subject to the
provisions hereof, all cash received by it from or for the account of the
Fund, other than cash maintained by the Fund in a bank account established
and used in accordance with Rule 17f-3 under the Investment Company Act of
1940. Funds held by the Custodian for the Fund may be deposited by it to
its credit as Custodian in the Banking Department of the Custodian or in
such other banks or trust companies as it may in its discretion deem
necessary or desirable; PROVIDED, however, that every such bank or trust
company shall be qualified to act as a
-8-
<PAGE>
custodian under the Investment Company Act of 1940 and that each such bank
or trust company and the funds to be deposited with each such bank or trust
company shall be approved by vote of a majority of the Board of Directors
of the Fund. Such funds shall be deposited by the Custodian in its
capacity as Custodian and shall be withdrawable by the Custodian only in
that capacity.
2.5 AVAILABILITY OF FEDERAL FUNDS. Upon mutual agreement between the Fund and
the Custodian, the Custodian shall, upon the receipt of Proper
Instructions, make federal funds available to the Fund as of specified
times agreed upon from time to time by the Fund and the Custodian in the
amount of checks received in payment for Shares of the Fund which are
deposited into the Fund's account.
2.6 COLLECTION OF INCOME. The Custodian shall collect on a timely basis all
income and other payments with respect to United States registered
securities held hereunder to which the Fund shall be entitled either by law
or pursuant to custom in the securities business, and shall collect on a
timely basis all income and other payments with respect to United States
bearer securities if, on the date of payment by the issuer, such securities
are held by the Custodian or its agent thereof and shall credit such
income, as collected, to the Fund's custodian account. Without limiting
the generality of the foregoing, the Custodian shall detach and present for
-9-
<PAGE>
payment all coupons and other income items requiring presentation as and
when they become due and shall collect interest when due on securities held
hereunder. Income due the Fund on United States securities loaned pursuant
to the provisions of Section 2.2 (10) shall be the responsibility of the
Fund. The Custodian will have no duty or responsibility in connection
therewith, other than to provide the Fund with such information or data as
may be necessary to assist the Fund in arranging for the timely delivery to
the Custodian of the income to which the Fund is properly entitled.
2.7 PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions, which may be
continuing instructions when deemed appropriate by the parties, the
Custodian shall pay out monies of the Fund in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts, or options on futures contracts for the account of
the Fund but only (a) against the delivery of such securities,
or evidence of title to such options, futures contracts or
options on futures contracts, to the Custodian (or any bank,
banking firm or trust company doing business in the United
States or abroad which is qualified under the Investment
Company Act of 1940, as amended, to act as a custodian and has
been designated by the Custodian as
-10-
<PAGE>
its agent for this purpose) registered in the name of the Fund or
in the name of a nominee of the Custodian referred to in Section
2.3 hereof or in proper form for transfer; (b) in the case of a
purchase effected through a Securities System, in accordance with
the conditions set forth in Section 2.10 hereof or (c) in the
case of a purchase involving the Direct Paper System, in
accordance with the conditions set forth in Section 2.10A; or (d)
in the case of repurchase agreements entered into between the
Fund and the Custodian, or another bank, or a broker-dealer which
is a member of NASD, (i) against delivery of the securities
either in certificate form or through an entry crediting the
Custodian's account at the Federal Reserve Bank with such
securities or (ii) against delivery of the receipt evidencing
purchase by the Fund of securities owned by the Custodian along
with written evidence of the agreement by the Custodian to
repurchase such securities from the Fund;
2) In connection with conversion, exchange or surrender of
securities owned by the Fund as set forth in Section 2.2 hereof;
-11-
<PAGE>
3) For the redemption or repurchase of Shares issued by the Fund as
set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Fund, including but not limited to the following payments for
the account of the Fund: interest, taxes, management,
accounting, transfer agent and legal fees, and operating
expenses of the Fund whether or not such expenses are to be in
whole or part capitalized or treated as deferred expenses;
5) For the payment of any dividends declared pursuant to the
governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, BUT ONLY upon receipt of, in
addition to Proper Instructions, a certified copy of a resolution
of the Board of Directors or of the Executive Committee of the
Fund signed by an officer of the Fund and certified by its
Secretary or an Assistant Secretary, specifying the amount of
such payment, setting forth the purpose for which such payment is
to be made, declaring such purpose
-12-
<PAGE>
to be a proper purpose, and naming the person or persons to whom
such payment is to be made.
2.8 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES PURCHASED. In
any and every case where payment for purchase of domestic securities for
the account of the Fund is made by the Custodian in advance of receipt of
the securities purchased in the absence of specific written instructions
from the Fund to so pay in advance, the Custodian shall be absolutely
liable to the Fund for such securities to the same extent as if the
securities had been received by the Custodian.
2.9 APPOINTMENT OF AGENTS. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such
of the provisions of this Article 2 as the Custodian may from time to
time direct; PROVIDED, however, that the appointment of any agent shall
not relieve the Custodian of its responsibilities or liabilities
hereunder.
2.10 DEPOSIT OF SECURITIES IN SECURITIES SYSTEMS. The Custodian may deposit
and/or maintain domestic securities owned by the Fund in a clearing agency
registered with the Securities and Exchange Commission under Section 17A of
the Securities Exchange Act of 1934, which acts as a securities depository,
or in the book-entry system authorized by the U.S. Department of the
Treasury and
-13-
<PAGE>
certain federal agencies, collectively referred to herein as "Securities
System" in accordance with applicable Federal Reserve Board and Securities
and Exchange Commission rules and regulations, if any, and subject to the
following provisions:
1) The Custodian may keep domestic securities of the Fund in a
Securities System provided that such securities are represented
in an account ("Account") of the Custodian in the Securities
System which shall not include any assets of the Custodian other
than assets held as a fiduciary, custodian or otherwise for
customers;
2) The records of the Custodian with respect to domestic securities
of the Fund which are maintained in a Securities System shall
identify by book-entry those securities belonging to the Fund;
3) The Custodian shall pay for domestic securities purchased for the
account of the Fund upon (i) receipt of advice from the
Securities System that such securities have been transferred to
the Account, and (ii) the making of an entry on the records of
the Custodian to reflect such payment and transfer for the
account of the Fund. The Custodian shall transfer domestic
securities
-14-
<PAGE>
sold for the account of the Fund upon (i) receipt of advice from
the Securities System that payment for such securities has been
transferred to the Account, and (ii) the making of an entry on
the records of the Custodian to reflect such transfer and payment
for the account of the Fund. Copies of all advices from the
Securities System of transfers of domestic securities for the
account of the Fund shall identify the Fund, be maintained for
the Fund by the Custodian and be provided to the Fund at its
request. Upon request, the Custodian shall furnish the Fund
confirmation of each transfer to or from the account of the Fund
in the form of a written advice or notice and shall furnish
promptly to the Fund copies of daily transaction sheets
reflecting each day's transactions in the Securities System for
the account of the Fund.
4) The Custodian shall provide the Fund with any report obtained by
the Custodian on the Securities System's accounting system,
internal accounting control and procedures for safeguarding
domestic securities deposited in the Securities System;
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<PAGE>
5) The Custodian shall have received the initial or annual
certificate, as the case may be, required by Article 13
hereof;
6)
Anything to the contrary in this Contract
notwithstanding, the Custodian shall be liable to the
Fund for any loss or damage to the Fund resulting from
use of the Securities System by reason of any negligence,
misfeasance or misconduct of the Custodian or any of its
agents or of any of its or their employees or from
failure of the Custodian or any such agent to enforce
effectively such rights as it may have against the
Securities System; at the election of the Fund, it shall
be entitled to be subrogated to the rights of the
Custodian with respect to any claim against the
Securities System or any other person which the Custodian
may have as a consequence of any such loss or damage if
and to the extent that the Fund has not been made whole
for any such loss or damage.
2.10A FUND ASSETS HELD IN THE CUSTODIAN'S DIRECT PAPER SYSTEM.
The Custodian may deposit and/or maintain securities owned by the
Fund in the Direct Paper System of the Custodian subject to the
following provisions:
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper
Instructions;
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<PAGE>
2) The Custodian may keep securities of the Fund in the
Direct Paper System only if such securities are
represented in an account ("Account") of the Custodian in
the Direct Paper System which shall not include any
assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities
of the Fund which are maintained in the Direct Paper
System shall identify by book-entry those securities
belonging to the Fund;
4) The Custodian shall pay for securities purchased for the
account of the Fund upon the making of an entry on the
records of the Custodian to reflect such payment and
transfer of securities to the account of the Fund. The
Custodian shall transfer securities sold for the account
of the Fund upon the making of an entry on the records of
the Custodian to reflect such transfer and receipt of
payment for the account of the Fund;
-17-
<PAGE>
5) The Custodian shall furnish the Fund confirmation of each
transfer to or from the account of the Fund, in the form
of a written advice or notice, of Direct Paper on the
next business day following such transfer and shall
furnish to the Fund copies of daily transaction sheets
reflecting each day's transaction in the Securities
System for the account of the Fund;
6) The Custodian shall provide the Fund with any report on
its system of internal accounting control as the Fund may
reasonably request from time to time;
2.11 SEGREGATED ACCOUNT. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or accounts for
and on behalf of the Fund, into which account or accounts may be
transferred cash and/or securities, including securities maintained in an
account by the Custodian pursuant to Section 2.10 hereof, (i) in
accordance with the provisions of any agreement among the Fund, the
Custodian and a broker-dealer registered under the Exchange Act and a
member of the NASD (or any futures commission merchant registered under
the Commodity Exchange Act), relating to compliance with the rules of The
Options Clearing Corporation and of any registered national securities
exchange (or the Commodity Futures Trading Commission or any registered
contract market), or
-18-
<PAGE>
of any similar organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Fund, (ii) for
purposes of segregating cash, government securities or liquid high-grade
debt obligations in connection with options purchased, sold or written by
the Fund or commodity futures contracts or options thereon purchased or
sold by the Fund, (iii) for the purposes of compliance by the Fund with
the procedures required by Investment Company Act Release No. 10666, or
any subsequent release or releases of the Securities and Exchange
Commission relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper corporate
purposes, BUT ONLY, in the case of clause (iv), upon receipt of, in
addition to Proper Instructions, a certified copy of a resolution of the
Board of Directors or of the Executive Committee signed by an officer of
the Fund and certified by the Secretary or an Assistant Secretary,
setting forth the purpose or purposes of such segregated account and
declaring such purposes to be proper corporate purposes.
2.12 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall execute
ownership and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other payments with
respect to domestic securities of the Fund held by it and in connection
with transfers of such securities.
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<PAGE>
2.13 PROXIES. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder of
such securities, if the securities are registered otherwise than in the
name of the Fund or a nominee of the Fund, all proxies, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Fund such proxies, all proxy soliciting materials
and all notices relating to such securities.
2.14 COMMUNICATIONS RELATING TO FUND PORTFOLIO SECURITIES. The Custodian shall
transmit promptly to the Fund all written information (including, without
limitation, pendency of calls and securities of domestic securities and
expirations of rights in connection therewith and notices of exercise of
call and put options written by the Fund and the maturity of futures
contracts purchased or sold by the Fund) received by the Custodian from
issuers of the domestic securities being held for the Fund. With respect
to tender or exchange offers, the Custodian shall transmit promptly to
the Fund all written information received by the Custodian from issuers
of the domestic securities whose tender or exchange is sought and from
the party (or his agents) making the tender or exchange offer. If the
Fund desires to take action with respect to any tender offer, exchange
offer or any other similar transaction, the Fund shall notify the
Custodian at least three business days prior to the date on which the
Custodian is to take such action.
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2.15 REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS. The Custodian shall
provide the Fund, at such times as the Fund may reasonably require, with
reports by independent public accountants on the accounting system,
internal accounting control and procedures for safeguarding securities,
futures contracts and options on futures contracts, including domestic
securities deposited and/or maintained in a Securities System, relating
to the services provided by the Custodian under this Contract; such
reports shall be of sufficient scope and in sufficient detail, as may
reasonably be required by the Fund to provide reasonable assurance that
any material inadequacies would be disclosed by such examination, and,
if there are no such inadequacies, the reports shall so state.
3. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD OUTSIDE
OF THE UNITED STATES.
3.1 APPOINTMENT OF FOREIGN SUB-CUSTODIANS.
The Custodian is authorized and instructed to employ as sub-custodians
for the Fund's securities and other assets maintained outside of the
United States the foreign banking institutions and foreign securities
depositories designated on Schedule A hereto ("foreign sub-custodians").
Upon receipt of "Proper Instructions", together with a certified
resolution of the Fund's Board of Directors, the Custodian and the Fund
may agree to amend Schedule A hereto from time to time to designate
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<PAGE>
additional foreign banking institutions and foreign securities
depositories to act as sub-custodians. Upon receipt of Proper
Instructions from the Fund the Custodian shall cease the employment of
any one or more of such sub-custodians for maintaining custody of the
Fund's assets.
3.2 ASSETS TO BE HELD. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5 under
the Investment Company Act of 1940, and (b) cash and cash equivalents in
such amounts as the Custodian or the Fund may determine to be reasonably
necessary to effect the Fund's foreign securities transactions.
3.3 FOREIGN SECURITIES DEPOSITORIES. Except as may otherwise be agreed upon
in writing by the Custodian and the Fund, assets of the Fund shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as sub-custodians
pursuant to the terms hereof.
3.4 SEGREGATION OF SECURITIES. The Custodian shall identify on its books as
belonging to the Fund, the foreign securities of the Fund held by each
foreign sub-custodians. Each agreement pursuant to which the Custodian
employs a foreign banking institution shall require that such institution
establish a custody account for the Custodian on behalf of the Fund and
physically
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segregate in that account securities and other assets of the Fund, and,
in the event that such institution deposits the Fund's securities in a
foreign securities depository, that it shall identify on its books as
belonging to the Custodian, as agent for the Fund, the securities so
deposited (all collectively referred to as the "Account").
3.5 AGREEMENTS WITH FOREIGN BANKING INSTITUTIONS. Each agreement with a
foreign banking institution shall be substantially in the form set forth
in Exhibit 1 hereto and shall provide that: (a) the Fund's assets will
not be subject to any right, charge, security interest, lieu or claim of
any kind in favor of the foreign banking institution of its creditors,
except a claim of payment for their safe custody or administration; (b)
beneficial ownership for the Fund's assets will be freely transferable
without the payment of money or value other than for custody or
administration; (c) adequate records will be maintained identifying the
assets as belonging to the Fund; (d) officers of or auditors employed by,
or other representatives of the Custodian, including to the extent
permitted under applicable law the independent public accountants for the
Fund, will be given access to the books and records of the foreign
banking institution relating to its actions under its agreement with the
Custodian; and (e) assets of the Fund held by the foreign sub-custodian
will be subject only to the instructions of the Custodian or its agents.
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3.6 ACCESS OF INDEPENDENT ACCOUNTANTS OF THE FUND. Upon request of the Fund,
the Custodian will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of
any foreign banking institution employed as a foreign sub-custodian
insofar as such books and records relate to the performance of such
foreign banking institutions under its agreement with the Custodian.
3.7 REPORTS BY CUSTODIAN. The Custodian will supply to the Fund from time to
time, as mutually agreed upon, statements in respect of the securities
and other assets of the Fund held by foreign sub-custodians, including
but not limited to an identification of entities having possession of the
Fund's securities and other assets and advices or notifications of any
transfers of securities to or from each custodial account maintained by a
foreign banking institution for the Custodian on behalf of the Fund
indicating, as to securities acquired for the Fund, the identity of the
entity having physical possession of such securities.
3.8 TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT. (a) Upon receipt of Proper
Instructions, which may be continuing instructions when deemed
appropriate by the parties, the Custodian shall make or cause its foreign
sub-custodian to transfer, exchange or deliver foreign securities owned
by the Fund, but except to the extent explicitly provided herein only in
any of the cases specified in Section 2.2
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(b) Upon receipt of Proper Instructions, which may be continuing
instructions when deemed appropriate by the parties the Custodian shall
pay out or cause its foreign sub-custodians to pay out monies of the Fund,
but except to the extent explicitly provided herein only in any of the
cases specified in Section 2.7.
(c) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of the
Fund and delivery of securities maintained for the account of the Fund
may be effected in accordance with the customary or established
securities trading of securities processing practices and procedures in
the jurisdiction or market in which the transaction occurs, including,
without limitation, delivering securities to the purchaser thereof or to
a dealer therefor (or an agent for such purchaser or dealer) against a
receipt with the expectation of receiving later payment for such
securities from such purchaser or dealer. (d) Securities maintained in
the custody of a foreign sub-custodian may be maintained in the name of
such entity's nominee to the same extent as set forth in Section 2.3 of
this Contract and the Fund agrees to hold any such nominee harmless from
any liability as a holder of record of such securities.
3.9 LIABILITY OF FOREIGN SUB-CUSTODIANS. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the
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institution to exercise reasonable care in the performance of its duties
and to indemnify, and hold harmless, the Custodian and Fund from and
against any loss, damage, cost, expense, liability or claim arising out
of or in connection with the institution's performance of such
obligations. At the election of the Fund, it shall be entitled to be
subrogated to the rights of the Custodian with respect to any claims
against a foreign banking institution as a consequence of any such loss,
damage, cost, expense, liability or claim if and to the extent that the
Fund has not been made whole for any such loss, damage, cost, expense,
liability or claim.
3.10 MONITORING RESPONSIBILITIES. The Custodian shall furnish annually to the
Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns of a
material adverse change in the financial condition of a foreign
sub-custodian or is notified by a foreign banking institution employed as
a foreign sub-custodian that there appears to be a substantial likelihood
that its shareholders' equity will decline below $200 million (U.S.
dollars or the equivalent thereof) or that its shareholders' equity has
declined below $200 million (in each case computed in accordance with
generally accepted U.S. accounting principles).
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<PAGE>
3.11 BRANCHES OF U.S. BANKS. Except as otherwise set forth in this Contract,
the provisions hereof shall not apply where the custody or the Fund
assets maintained in a foreign branch of a banking institution which is a
"bank" as defined by Section 2(a)(5) of the Investment Company Act of
1940 which meets the qualification set forth in Section 26(a) of said
Act. The appointment of any such branch as a sub-custodian shall be
governed by Article 1 of this Contract.
4. PAYMENTS FOR REPURCHASES OR REDEMPTIONS AND SALES OF SHARES OF THE FUND
From such funds as may be available for the purpose but subject to the
limitations of the Articles of Incorporation and any applicable votes of the
Board of Directors of the Fund pursuant thereto, the Custodian shall, upon
receipt of instructions from the Transfer Agent, make funds available for
payment to holders of Shares who have delivered to the Transfer Agent a
request for redemption or repurchase of their Shares. In connection with the
redemption or repurchase of Shares of the Fund, the Custodian is authorized
upon receipt of instructions from the Transfer Agent to wire funds to or
through a commercial bank designated by the redeeming shareholders. In
connection with the redemption or repurchase of Shares of the Fund, the
Custodian shall honor checks drawn on the Custodian by a holder of Shares,
which checks have been furnished by the Fund to the holder of Shares, when
presented to the Custodian in accordance with such procedures and controls as
are mutually agreed upon from time to time between the Fund and the Custodian.
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<PAGE>
The Custodian shall receive from the distributor for the Fund's Shares or
from the Transfer Agent of the Fund and deposit into the Fund's account such
payments as are received for Shares of the Fund issued or sold from time to time
by the Fund. The Custodian will provide timely notification to the Fund and the
Transfer Agent of any receipt by it of payments for Shares of the Fund.
5. PROPER INSTRUCTIONS
Proper Instructions as used herein means a writing signed or initialled
by one or more person or persons as the Board of Directors shall have from time
to time authorized. Each such writing shall set forth the specific transaction
or type of transaction involved, including a specific statement of the purpose
for which such action is requested. Oral instructions will be considered Proper
Instructions if the Custodian reasonably believes them to have been given by a
person authorized to give such instructions with respect to the transaction
involved. The Fund shall cause all oral instructions to be confirmed in
writing. It is understood and agreed that the Board of Directors has authorized
(i) The Prudential Insurance Company of America ("Prudential"), as investment
adviser of the Fund pursuant to an Investment Advisory Agreement dated ,
1987, between Prudential and the Fund, to deliver proper instructions with
respect to all matters for which proper instructions are required by Article 2
or Article 3 except Section 2.2(13), Section 2.2(14), Section 2.7(3), Section
2.7(4), Section 2.7(5), and Section 2.7(7) hereof and (ii) Prudential
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<PAGE>
Mutual Fund Management, Inc. ("PMF"), as administrator of the Fund pursuant
to an Administration Agreement dated October 21, 1987, between PMF and the
Fund, to deliver proper instructions with respect to matters set forth in
Section 2.2(13), Section 2.7(3), Section 2.7(4) and Section 2.7(5). The
Custodian may rely upon the certificate of an officer of Prudential or PMF as
the case may be, with respect to the person or persons authorized on behalf
of Prudential and PMF, respectively, to sign, initial or give proper
instructions for the purposes of Article 2 or Article 3. Upon receipt of a
certificate of the Secretary or an Assistant Secretary as to the
authorization by the Board of Directors of the Fund accompanied by a detailed
description of procedures approved by the Board of Directors, Proper
Instructions may include communications effected directly between
electro-mechanical or electronic devices provided that the Board of Directors
and the Custodian are satisfied that such procedures afford adequate
safeguards for the Fund's assets.
6. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY
The Custodian may in its discretion, without express authority from the
Fund:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this Contract,
PROVIDED that all such payments shall be accounted for to the Fund;
2) surrender securities in temporary form for securities in definitive
form;
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3) endorse for collection, in the name of the Fund, checks, drafts and
other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection with
the sale, exchange, substitution, purchase, transfer and other dealings with the
securities and property of the Fund except as otherwise directed by the Board of
Directors of the Fund.
7. EVIDENCE OF AUTHORITY
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Fund. The
Custodian may receive and accept a certified copy of a vote of the Board of
Directors of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any action
by the Board of Directors pursuant to the Articles of Incorporation as described
in such vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
8. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND CALCULATION OF
NET ASSET VALUE AND NET INCOME
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Directors of the Fund to keep the
books of account of the Fund and/or compute the net asset value per share of the
outstanding shares of the Fund or, if directed in writing to do so by the Fund,
shall itself keep such books of account and/or compute such
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<PAGE>
net asset value per share. If so directed, the Custodian shall also calculate
daily the net income of the Fund as described in the Fund's currently effective
prospectus and shall advise the Fund and the Transfer Agent daily of the total
amounts of such net income and, if instructed in writing by an officer of the
Fund to do so, shall advise the Transfer Agent periodically of the division of
such net income among its various components. The calculations of the net asset
value per share and the daily income of the Fund shall be made at the time or
times described from time to time in the Fund's currently effective prospectus.
9. RECORDS
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet
the obligations of the Fund under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2
thereunder, applicable federal and state tax laws and any other law or
administrative rules or procedures which may be applicable to the Fund. All
such records shall be the property of the Fund and shall at all times during
the regular business hours of the Custodian be open for inspection by duly
authorized officers, employees or agents of the Fund and employees and agents
of the Securities and Exchange Commission. The Custodian shall, at the
Fund's request, supply the Fund with a tabulation of securities owned by the
Fund and held by the Custodian and shall, when requested to do so by the Fund
and for such compensation as shall be agreed upon between the Fund and the
Custodian, include certificate numbers in such tabulations.
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<PAGE>
10. OPINION OF FUND'S INDEPENDENT ACCOUNTANT
The Custodian shall take all reasonable action, as the Fund may from time
to time request, to obtain from year to year favorable opinions from the Fund's
independent accountants with respect to its activities hereunder in connection
with the preparation of the Fund's Form N-1A, and Form N-SAR or other annual
reports to the Securities and Exchange Commission and with respect to any other
requirements of such Commission.
11. COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable compensation for its services
and expenses as Custodian, as agreed upon from time to time between the Fund and
the Custodian.
12. RESPONSIBILITY OF CUSTODIAN
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Contract and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties. The Custodian shall
be held to the exercise of reasonable care in carrying out the provisions of
this Contract, but shall be kept indemnified by and shall be without liability
to the Fund for any action taken or omitted by it in good faith without
negligence. It shall be entitled to rely on and may act upon advice of counsel
(who may be counsel for the Fund) on all matters, and shall be without liability
for any action reasonably
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<PAGE>
taken or omitted pursuant to such advice. Notwithstanding the foregoing, the
responsibility of the Custodian with respect to redemptions effected by check
shall be in accordance with a separate Agreement entered into between the
Custodian and the Fund.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States and, regardless of whether assets are maintained
in the custody of a foreign banking institution, a foreign securities
depository or a branch of a U.S. bank as contemplated by paragraph 3.11
hereof, the Custodian shall not be liable for any loss, damage, cost,
expense, liability or claim resulting from, or caused by, the direction of or
authorization by the Fund to maintain custody or any securities or cash of
the Fund in a foreign country including, but not limited to, losses resulting
from nationalization, expropriation, currency restrictions, or acts of war or
terrorism.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned
to the Fund being liable for the payment of money or incurring liability of some
other form, the Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
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If the Fund requires the Custodian to advance cash or securities for any
purpose or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the Fund shall be
security therefor and should the Fund fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of the Fund
assets to the extent necessary to obtain reimbursement.
13. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT
This Contract shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not
sooner than thirty (30) days after the date of such delivery or mailing;
PROVIDED, however that the Custodian shall not act under Section 2.10 hereof
in the absence of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Directors of the Fund has approved the
initial use of a particular Securities System and the receipt of an annual
certificate of the Secretary or an Assistant Secretary that the Board of
Directors has reviewed the use by the Fund of such Securities System, as
required in each case by Rule 17f-4 under
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the Investment Company Act of 1940, as amended and that the Custodian shall not
act under Section 2.10A hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary that the Board of
Directors has approved the initial use of the Direct Paper System and the
receipt of an annual certificate of the Secretary or an Assistant Secretary that
the Board of Directors has reviewed the use by the Fund of the Direct Paper
System; PROVIDED FURTHER, however, that the Fund shall not amend or terminate
this Contract in contravention of any applicable federal or state regulations,
or any provision of the Articles of Incorporation, and further provided, that
the Fund may at any time by action of its Board of Directors (i) substitute
another bank or trust company for the Custodian by giving notice as described
above to the Custodian, or (ii) immediately terminate this Contract in the event
of the appointment of a conservator or receiver for the Custodian by the
Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund shall pay to the Custodian such
compensation as may be due as of the date of such termination and shall likewise
reimburse the Custodian for its costs, expenses and disbursements.
14. SUCCESSOR CUSTODIAN
If a successor custodian shall be appointed by the Board of Directors of
the Fund, the Custodian shall, upon termination, deliver to such successor
custodian at the office of the
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Custodian, duly endorsed and in the form for transfer, all securities then held
by it hereunder and shall transfer to an account of the successor custodian all
of the Fund's securities held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of
Directors of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian and all instruments held by the Custodian
relative thereto and all other property held by it under this Contract and to
transfer to an account of such successor custodian all of the Fund's securities
held in any Securities System. Thereafter, such bank or trust company shall be
the successor of the Custodian under this Contract.
In the event that securities, fund and other properties remain in the
possession of the Custodian after the date of
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termination hereof owing to failure of the Fund to procure the certified copy of
the vote referred to or of the Board of Directors to appoint a successor
custodian, the Custodian shall be entitled to fair compensation for its services
during such period as the Custodian retains possession of such securities, funds
and other properties and the provisions of this Contract relating to the duties
and obligations of the Custodian shall remain in full force and effect.
15. INTERPRETIVE AND ADDITIONAL PROVISIONS
In connection with the operation of this Contract, the Custodian and the
Fund may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, PROVIDED that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision of
the Articles of Incorporation of the Fund. No interpretive or additional
provisions made as provided in the preceding sentence shall be deemed to be an
amendment of this Contract.
16. MASSACHUSETTS LAW TO APPLY
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
17. PRIOR CONTRACTS
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund and Custodian relating to the custody of the Fund's
assets.
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IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 22nd day of January, 1990.
ATTEST PRUDENTIAL-BACHE SPECIAL MONEY
MARKET FUND, INC.
/s/ Anita L. Whelan By /s/ Laurence C. McQuade
- ------------------------------ -------------------------------
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/ D. Cardillo By /s/ Illegible
- ------------------------------ -------------------------------
Assistant Secretary Vice President
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SCHEDULE A
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Directors of Prudential-Bache
Special Money Market Fund, Inc., for use as sub-custodians for the Fund's
securities and other assets:
(Insert banks and securities depositories)
STATE STREET LONDON LTD.
Certified:
/s/ Laurence C. McQuade
- -----------------------------
Fund's Authorized Officer
Date: 1/22/90
---------------------
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TRANSFER AGENCY AND SERVICE AGREEMENT
between
PRUDENTIAL-BACHE SPECIAL MONEY MARKET FUND, INC.
and
PRUDENTIAL MUTUAL FUND SERVICES, INC.
<PAGE>
TABLE OF CONTENTS
Article 1 Terms of Appointment; Duties of the Agent. . . . . . . . . . 1
Article 2 Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . 4
Article 3 Representations and Warranties of the Agent. . . . . . . . . 5
Article 4 Representations of Warranties of the Fund. . . . . . . . . . 5
Article 5 Duty of Care and Indemnification . . . . . . . . . . . . . . 6
Article 6 Documents and Covenants of the Fund and the Agent. . . . . . 9
Article 7 Termination of Agreement . . . . . . . . . . . . . . . . . . 10
Article 8 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . 11
Article 9 Affiliations . . . . . . . . . . . . . . . . . . . . . . . . 11
Article 10 Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . 12
Article 11 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . 12
Article 12 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . 12
Article 13 Merger of Agreement. . . . . . . . . . . . . . . . . . . . . 13
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT, made as of the 12th day of January 1990 by and between
Prudential-Bache Special Money Market Fund, Inc., a Maryland corporation, having
its principal office and place of business at One Seaport Plaza, New York, New
York 10292 (the "Fund"), and PRUDENTIAL MUTUAL FUND SERVICES, INC., a New Jersey
corporation, having its principal office and place of business at Raritan Plaza
I, Edison, New Jersey 08818 (the "Agent" or "PMFS").
WHEREAS, the Fund desires to appoint PMFS as its transfer agent, dividend
disbursing agent and shareholder servicing agent in connection with certain
other activities, and PMFS desires to accept such appointment;
NOW THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
Article 1 TERMS OF APPOINTMENT; DUTIES OF PMFS
1.01 Subject to the terms and conditions set forth in this Agreement,
the Fund hereby employs and appoints PMFS to act as, and PMFS agrees to act as,
the transfer agent for the authorized and issued shares of the common stock of
each series of the Fund, $.01 par value ("Shares"), dividend disbursing agent
and shareholder servicing agent in connection with any accumulation,
open-account or similar plans provided to the shareholders of the Fund or any
series thereof ("Shareholders") and set out in the currently effective
prospectus and statement of additional information ("prospectus") of the Fund,
including without limitation any periodic investment plan or periodic withdrawal
program.
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<PAGE>
1.02 PMFS agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund and PMFS, PMFS shall:
(i) Receive for acceptance, orders for the purchase of Shares, and
promptly deliver payment and appropriate documentation therefor to the Custodian
of the Fund authorized pursuant to the Articles of Incorporation of the Fund
(the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation therefor to the Custodian;
(iv) At the appropriate time as and when it receives monies paid to it
by the Custodian with respect to any redemption, pay over or cause to be paid
over in the appropriate manner such monies as instructed by the redeeming
Shareholders;
(v) Effect transfers of Shares by the registered owners thereof upon
receipt of appropriate instructions;
(vi) Prepare and transmit payments for dividends and distributions
declared by the Fund;
(vii) Calculate any sales charges payable by a Shareholder on purchases
and/or redemptions of Shares of the Fund as such charges may be reflected in the
prospectus;
(viii) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
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<PAGE>
(ix) Record the issuance of Shares of the Fund and maintain pursuant to
Rule 17Ad-10(e) under the Securities Exchange Act of 1934 ("1934 Act") a
record of the total number of Shares of the Fund which are authorized, based
upon data provided to it by the Fund, and issued and outstanding. PMFS shall
also provide to the Fund on a regular basis the total number of Shares which
are authorized, issued and outstanding and shall notify the Fund in case any
proposed issue of Shares by the Fund would result in an overissue. In case
any issue of Shares would result in an overissue, PMFS shall refuse to issue
such Shares and shall not countersign and issue any certificates requested
for such Shares. When recording the issuance of Shares, PMFS shall have no
obligation to take cognizance of any Blue Sky laws relating to the issue or
sale of such Shares, which functions shall be the sole responsibility of the
Fund.
(b) In addition to and not in lieu of the services set forth in the
above paragraph (a), PMFS shall: (i) perform all of the customary services of
a transfer agent, dividend disbursing agent and, as relevant, shareholder
servicing agent in connection with accumulation, open-account or similar
plans (including without limitation any periodic investment plan or periodic
withdrawal program), including but not limited to, maintaining all
Shareholder accounts, preparing Shareholder meeting lists, mailing proxies,
receiving and tabulating proxies, mailing Shareholder reports and
prospectuses to current Shareholders, withholding taxes on non-resident alien
accounts, preparing and filing appropriate forms required with respect to
dividends and distributions by federal tax authorities for all Shareholders,
preparing and mailing confirmation forms and statements of account to
Shareholders for all purchases and redemptions of Shares and other
confirmable transactions in Shareholder accounts, preparing and mailing
activity statements for Shareholders and providing Shareholder account
information and (ii) provide a system which will
-3-
<PAGE>
enable the Fund to monitor the total number of Shares sold in each State or
other jurisdiction.
(c) In addition, the Fund shall (i) identify to PMFS in writing those
transactions and assets to be treated as exempt from Blue Sky reporting for each
State and (ii) verify the establishment of transactions for each State on the
system prior to activation and thereafter monitor the daily activity for each
State. The responsibility of PMFS for the Fund's registration status under the
Blue Sky or securities laws of any State or other jurisdiction is solely limited
to the initial establishment of transactions subject to Blue Sky compliance by
the Fund and the reporting of such transactions to the Fund as provided above
and as agreed from time to time by the Fund and PMFS.
PMFS may also provide such additional services and functions not
specifically described herein as may be mutually agreed between PMFS and the
Fund and set forth in Schedule B hereto.
Procedures applicable to certain of these services may be established from
time to time by agreement between the Fund and PMFS.
Article 2 FEES AND EXPENSES
2.01 For performance by PMFS pursuant to this Agreement, the Fund
agrees to pay PMFS an annual maintenance fee for each Shareholder account and
certain transactional fees as set out in the fee schedule attached hereto as
Schedule A. Such fees and out-of-pocket expenses and advances identified under
Section 2.02 below may be changed from time to time subject to mutual written
agreement between the Fund and PMFS.
2.02 In addition to the fees paid under Section 2.01 above, the Fund
agrees to reimburse PMFS for out-of-pocket expenses or advances incurred by PMFS
for the items set out in Schedule A attached hereto. In addition, any other
expenses incurred by PMFS at the request or with the consent of the Fund will be
reimbursed by the Fund.
-4-
<PAGE>
2.03 The Fund agrees to pay all fees and reimbursable expenses
within a reasonable period of time following the mailing of the respective
billing notice. Postage for mailing of dividends, proxies, Fund reports and
other mailings to all Shareholder accounts shall be advanced to PMFS by the
Fund upon request prior to the mailing date of such materials.
Article 3 REPRESENTATIONS AND WARRANTIES OF PMFS
PMFS represents and warrants to the Fund that:
3.01 It is a corporation duly organized and existing and in good
standing under the laws of New Jersey and it is duly qualified to carry on
its business in New Jersey.
3.02 It is and will remain registered with the U.S. Securities and
Exchange Commission ("SEC") as a Transfer Agent pursuant to the requirements of
Section 17A of the 1934 Act.
3.03 It is empowered under applicable laws and by its charter and
By-Laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to authorize
it to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
Article 4 REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to PMFS that:
4.01 It is a corporation duly organized and existing and in good
standing under the laws of Maryland.
4.02 It is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement.
-5-
<PAGE>
4.03 All corporate proceedings required by said Articles of
Incorporation and By-Laws have been taken to authorize it to enter into and
perform this Agreement.
4.04 It is an investment company registered with the SEC under the
Investment Company Act of 1940, as amended (the "1940 Act").
4.05 A registration statement under the Securities Act of 1933 (the
"1933 Act") is currently effective and will remain effective, and appropriate
state securities law filings have been made and will continue to be made, with
respect to all Shares of the Fund being offered for sale.
Article 5 DUTY OF CARE AND INDEMNIFICATION
5.01 PMFS shall not be responsible for, and the Fund shall indemnify
and hold PMFS harmless from and against, any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liability arising out of or
attributable to:
(a) All actions of PMFS or its agents or subcontractors required to be
taken pursuant to this Agreement, provided that such actions are taken in good
faith and without negligence or willful misconduct.
(b) The Fund's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Fund's lack of good faith, negligence or
willful misconduct or which arise out of the breach of any representation or
warranty of the Fund hereunder.
(c) The reliance on or use by PMFS or its agents or subcontractors of
information, records and documents which (i) are received by PMFS or its agents
or subcontractors and furnished to it by or on behalf of the Fund, and (ii) have
been prepared and/or maintained by the Fund or any other person or firm on
behalf of the Fund.
-6-
<PAGE>
(d) The reliance on, or the carrying out by PMFS or its agents or
subcontractors of, any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities or Blue Sky laws of
any State or other jurisdiction that such Shares be registered in such State or
other jurisdiction or in violation of any stop order or other determination or
ruling by any federal agency or any State or other jurisdiction with respect to
the offer or sale of such Shares in such State or other jurisdiction.
5.02 PMFS shall indemnify and hold the Fund harmless from and against any
and all losses, damages, costs, charges, counsel fees, payments, expenses and
liability arising out of or attributable to any action or failure or omission to
act by PMFS as a result of PMFS' lack of good faith, negligence or willful
misconduct.
5.03 At any time PMFS may apply to any officer of the Fund for
instructions, and may consult with legal counsel, with respect to any matter
arising in connection with the services to be performed by PMFS under this
Agreement, and PMFS and its agents or subcontractors shall not be liable and
shall be indemnified by the Fund for any action taken or omitted by it in
reliance upon such instructions or upon the opinion of such counsel. PMFS, its
agents and subcontractors shall be protected and indemnified in acting upon any
paper or document furnished by or on behalf of the Fund, reasonably believed to
be genuine and to have been signed by the proper person or persons, or upon any
instruction, information, data, records or documents provided to PMFS or its
agents or subcontractors by machine readable input, telex, CRT data entry or
other similar means authorized by the Fund, and shall not be held to have notice
of any change of authority of any person, until receipt of written notice
thereof from the Fund. PMFS, its agents and subcontractors shall also
-7-
<PAGE>
be protected and indemnified in recognizing stock certificates which are
reasonably believed to bear the proper manual or facsimile signature of the
officers of the Fund, and the proper countersignature of any former transfer
agent or registrar, or of a co-transfer agent or co-registrar.
5.04 In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes.
5.05 Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement or for any act
or failure to act hereunder.
5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which either party
may be required to indemnify the other, the party seeking indemnification
shall promptly notify the other party of such assertion, and shall keep the
other party advised with respect to all developments concerning such claim.
The party who may be required to indemnify shall have the option to
participate with the party seeking indemnification in the defense of such
claim. The party seeking indemnification shall in no case confess any claim
or make any compromise in any case in which the other party may be required
to indemnify it except with the other party's prior written consent.
-8-
<PAGE>
Article 6 DOCUMENTS AND COVENANTS OF THE FUND AND PMFS
6.01 The Fund shall promptly furnish to PMFS the following:
(a) A certified copy of the resolution of the Board of Directors of the
Fund authorizing the appointment of PMFS and the execution and delivery of this
Agreement;
(b) A certified copy of the Articles of Incorporation and By-Laws of the
Fund and all amendments thereto;
(c) The current registration statements and any amendments and
supplements thereto filed with the SEC pursuant to the requirements of the 1933
Act and the 1940 Act;
(d) A specimen of the certificate for Shares of the Fund in the form
approved by the Board of Directors, with a certificate of the Secretary of the
Fund as to such approval;
(e) All account application forms or other documents relating to
Shareholder accounts and/or relating to any plan program or service offered or
to be offered by the Fund; and
(f) Such other certificates, documents or opinions as the Agent deems to
be appropriate or necessary for the proper performance of its duties.
6.02 PMFS hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
-9-
<PAGE>
6.03 PMFS shall prepare and keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the 1940 Act, and the Rules and Regulations
thereunder, PMFS agrees that all such records prepared or maintained by PMFS
relating to the services to be performed by PMFS hereunder are the property of
the Fund and will be preserved, maintained and made available in accordance with
such Section 31 of the 1940 Act, and the Rules and Regulations thereunder, and
will be surrendered promptly to the Fund on and in accordance with its request.
6.04 PMFS and the Fund agree that all books, records, information and
data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential and shall not be voluntarily disclosed to any other person
except as may be required by law or with the prior consent of PMFS and the Fund.
6.05 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, PMFS will endeavor to notify the Fund and to
secure instructions from an authorized officer of the Fund as to such
inspection. PMFS reserves the right, however, to exhibit the Shareholder records
to any person whenever it is advised by its counsel that it may be held liable
for the failure to exhibit the Shareholder records to such person.
Article 7 TERMINATION OF AGREEMENT
7.01 This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other.
7.02 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and other materials will be
borne by the Fund. Additionally, PMFS reserves the right to charge for any other
reasonable fees and expenses associated with such termination.
-10-
<PAGE>
Article 8 ASSIGNMENT
8.01 Except as provided in Section 8.03 below, neither this
Agreement nor any rights or obligations hereunder may be assigned by either
party without the written consent of the other party.
8.02 This Agreement shall inure to the benefit of and be binding
upon the parties and their respective permitted successors and assigns.
8.03 PMFS may, in its sole discretion and without further consent
by the Fund, subcontract, in whole or in part, for the performance of its
obligations and duties hereunder with any person or entity including but not
limited to: (i) Prudential-Bache Securities Inc. ("Prudential-Bache"), a
registered broker-dealer, (ii) The Prudential Insurance Company of America
("Prudential"), (iii) Pruco Securities Corporation, a registered broker-dealer,
(iv) any Prudential-Bache or Prudential subsidiary or affiliate duly registered
as a broker-dealer and/or a transfer agent pursuant to the 1934 Act or (vi) any
other Prudential-Bache or Prudential affiliate or subsidiary; provided, however,
that PMFS shall be as fully responsible to the Fund for the acts and omissions
of any agent or subcontractor as it is for its own acts and omissions.
Article 9 AFFILIATIONS
9.01 PMFS may now or hereafter, without the consent of or notice
to the Fund, function as Transfer Agent and/or Shareholder Servicing Agent for
any other investment company registered with the SEC under the 1940 Act,
including without limitation any investment company whose adviser,
administrator, sponsor or principal underwriter is or may become affiliated with
Prudential-Bache and/or Prudential or any of its or their direct or indirect
subsidiaries or affiliates.
-11-
<PAGE>
9.02 It is understood and agreed that the directors, officers,
employees, agents and Shareholders of the Fund, and the directors, officers,
employees, agents and shareholders of the Fund's investment adviser and/or
distributor, are or may be interested in the Agent as directors, officers,
employees, agents, shareholders or otherwise, and that the directors,
officers, employees, agents or shareholders of the Agent may be interested in
the Fund as directors, officers, employees, agents, Shareholders or
otherwise, or in the investment adviser and/or distributor as officers,
directors, employees, agents, shareholders or otherwise.
Article 10 AMENDMENT
10.01 This Agreement may be amended or modified by a written
agreement executed by both parties and authorized or approved by a resolution of
the Board of Directors of the Fund.
Article 11 APPLICABLE LAW
11.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the State of New Jersey.
Article 12 MISCELLANEOUS
12.01 In the event of an alleged loss or destruction of any
Share certificate, no new certificate shall be issued in lieu thereof, unless
there shall first be furnished to PMFS an affidavit of loss or non-receipt by
the holder of Shares with respect to which a certificate has been lost or
destroyed, supported by an appropriate bond satisfactory to PMFS and the Fund
issued by a surety company satisfactory to PMFS, except that PMFS may accept
an affidavit of loss and indemnity agreement executed by the registered
holder (or legal representative) without surety in such form as PMFS deems
appropriate indemnifying PMFS and the Fund for the issuance of a replacement
certificate, in cases where the alleged loss is in the amount of $1000 or
less.
-12-
<PAGE>
12.02 In the event that any check or other order for payment of
money on the account of any Shareholder or new investor is returned unpaid for
any reason, PMFS will (a) give prompt notification to the Fund's distributor
("Distributor") of such non-payment; and (b) take such other action, including
imposition of a reasonable processing or handling fee, as PMFS may, in its sole
discretion, deem appropriate or as the Fund and the Distributor may instruct
PMFS.
12.03 Any notice or other instrument authorized or required by
this Agreement to be given in writing to the Fund or to PMFS shall be
sufficiently given if addressed to that party and received by it at its office
set forth below or at such other place as it may from time to time designate in
writing.
To the Fund:
Prudential-Bache Special Money Market Fund, Inc.
One Seaport Plaza
New York, NY 10292
Attention: President
To PMFS:
Prudential Mutual Fund Services, Inc.
Raritan Plaza I
Edison, NJ 08818
Attention: President
Article 13 MERGER OF AGREEMENT
13.01 This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
-13-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed in their names and on their behalf under their seals by and
through their duly authorized officers, as of the day and year first above
written.
PRUDENTIAL-BACHE SPECIAL MONEY MARKET
FUND, INC.
BY: /s/ Laurence C. McQuade
-------------------------
President
ATTEST:
/s/ Anita L. Whelan
- -------------------------
PRUDENTIAL MUTUAL FUND
SERVICES, INC.
BY: /s/ [Illegible]
-------------------------
Executive Vice President
ATTEST:
/s/ Anita L. Whelan
- -------------------------
-14-
<PAGE>
SCHEDULE A
Prudential Mutual Fund Services, Inc.
Fee Schedule
Fee Information for Services as
Transfer Agent, Dividend Disbursing Agent
and Shareholder Servicing Agent
PRUDENTIAL-BACHE SPECIAL MONEY MARKET FUND, INC.
GENERAL - Fees are based on an annual per shareholder account charge for
account maintenance plus out-of-pocket expenses. The effective period of
this fee schedule is January 12, 1990 through December 31, 1990 and shall
continue thereafter from year to year, unless otherwise amended.
ANNUAL MAINTENANCE CHARGES - The annual maintenance charge includes the
processing of all transactions and correspondence. The fee is billable on a
monthly basis at the rate of 1/12 of the annual fee. A charge is made for an
account in the month that an account opens or closes.
Basic Annual Per Account Fee $ 12.00
INACTIVE ACCOUNT FEE - $.20 per month. A monthly fee is charged for inactive
accounts with a zero balance.
OUT-0F-POCKET EXPENSES - Out-of-pocket expenses include but are not limited
to: postage, stationery and printing (including forms), allocable
communication costs, microfilm, microfiche, and expenses incurred at the
specific direction of the Fund.
PAYMENT - An invoice will be presented to the Fund on a monthly basis
assessing the Fund the appropriate fee and out-of-pocket expenses.
PRUDENTIAL-BACHE SPECIAL MONEY PRUDENTIAL MUTUAL FUND
MARKET FUND, INC. SERVICES, INC.
NAME: /s/ Eugene S. Stark NAME: /s/ [Illegible]
----------------------- ------------------------
TITLE: Treasurer TITLE: Executive Vice President
----------------------- ------------------------
DATE: 1/22/90 DATE: January 22, 1990
----------------------- ------------------------
<PAGE>
Exhibit 10
SULLIVAN & CROMWELL
NEW YORK TELEPHONE: (212) 558-4000
TELEX: 62694 (INTERNATIONAL) 127816 (DOMESTIC)
CABLE ADDRESS: LADYCOURT, NEW YORK
FACSIMILE: (212) 558-3588 (125 Broad Street)
125 BROAD STREET, NEW YORK 10004-2498
__________
1701 PENNSYLVANIA AVE, N.W. WASHINGTON, D.C. 20006-5805
444 SOUTH FLOWER STREET, LOS ANGELES 90071-2901
8, PLACE VENDOME, 75001 PARIS
ST. OLAVE'S HOUSE, 9a IRONMONGER LANE, LONDON EC2V 8EY
101 COLLINS STREET, MELBOURNE 3000
2-1, MARUNOUCHI I-CHOME, CHIYODA-KU, TOKYO 100
GLOUCESTER TOWER, 11 PEDDER STREET, HONG KONG
August 26, 1997
Prudential Special Money Market Fund, Inc.,
Gateway Center Three,
100 Mulberry Street,
Newark, New Jersey 07102-4077.
Dear Sirs:
You have requested our opinion in connection with your filing of
Post-Effective Amendment No. 10 to the Registration Statement on Form N-1A (the
"Post-Effective Amendment") under the Securities Act of 1933 (the "Act") and
your registration in connection therewith of 60,296,599 shares of your Common
Stock, $.01 par value (the "Shares") pursuant to Rule 24e-2 under the Investment
Company Act of 1940.
As your counsel, we are familiar with your organization and corporate
status and the validity of your Common Stock.
We advise you that, in our opinion, when the Post-Effective Amendment
relating to the Shares has become effective under the Act, the Shares, when duly
issued and sold, for not less than the par value thereof and in
<PAGE>
Prudential Special Money Market Fund, Inc. Exhibit 10
conformity with your charter, will be duly authorized and validly issued, fully
paid and nonassessable.
The foregoing opinion is limited to the Federal laws of the United
States and the General Corporation Laws of the State of Maryland, and we are
expressing no opinion as to the effect by the laws of any other jurisdiction.
We have relied as to certain matters on information obtained from
public officials, your officers and other sources believed by us to be
responsible.
We consent to the filing of this opinion with the Securities and
Exchange Commission in connection with the notice referred to above. In giving
such consent, we do not thereby admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933.
Very truly yours,
/s/ Sullivan & Cromwell
`<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 10 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated August
20, 1997, relating to the financial statements and financial highlights of
Prudential Special Money Market Fund, Inc. - Money Market Series, which appears
in such Statement of Additional Information, and to the incorporation by
reference of our report into the Prospectus which constitutes part of this
Registration Statement. We also consent to the reference to us under the
heading "Custodian, Transfer and Dividend Disbursing Agent and Independent
Accountants" in such Statement of Additional Information and to the reference to
us under the heading "Financial Highlights" in such Prospectus.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
August 25, 1997
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in Post-Effective Amendment No. 10 to Registration
Statement No. 33-31603 of Prudential Special Money Market Fund, Inc. of our
report dated August 15, 1996 and to the reference to us under the heading
"Change of Independent Accountants", appearing in the Statement of Additional
Information, which is included in such Registration Statement, and to the
reference to us under the heading "Financial Highlights" in the Prospectus,
which is also included in such Registration Statement.
Deloitte & Touche LLP
New York, New York
August 22, 1997
<PAGE>
PRUDENTIAL-BACHE SPECIAL MONEY MARKET FUND, INC.
FOR THE PERIOD JANUARY 22, 1990* TO JUNE 30, 1990
ANNUALIZED YIELD CALCULATION
----------------------------
DATE SHARES DIVIDEND RATE DIVIDEND
---- ------ ------------- --------
24-Jun-90 1.0000000000 X 0.000218338 = 0.000218
25-Jun-90 1.0002183380 X 0.000218211 = 0.000218
26-Jun-90 1.0004365966 X 0.000217363 = 0.000217
27-Jun-90 1.0006540545 X 0.000217514 = 0.000217
28-Jun-90 1.0008717108 X 0.000217396 = 0.000217
29-Jun-90 1.0010892963 X 0.000216892 = 0.000217
30-Jun-90 1.0013064246 X 0.000216892 = 0.000217
- -----------------------------------------------------------------
1.001523600
-----------
-----------
CURRENT YIELD
-------------
0.0015235999 X 365 / 7 = 0.079444
---------
---------
~ 7.94%
---------
---------
ANNUALIZED YIELD
FORMULA
--------------------------
((1+0.0015235999/7)^365)-1 = 0.0826764905 ~ 8.27%
------------ --------
------------ --------
* COMMENCEMENT OF INVESTMENT OPERATIONS.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000856715
<NAME> PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
<SERIES>
<NUMBER> 001
<NAME> PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 244,490,587
<RECEIVABLES> 19,056,776
<ASSETS-OTHER> 179,160
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,870,396
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 261,856,127
<SHARES-COMMON-STOCK> 261,856,127
<SHARES-COMMON-PRIOR> 263,168,112
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> (525,024,239)
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 16,640,429
<OTHER-INCOME> 0
<EXPENSES-NET> 2,127,060
<NET-INVESTMENT-INCOME> 14,513,369
<REALIZED-GAINS-CURRENT> 11,538
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 14,524,907
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (14,524,907)
<NUMBER-OF-SHARES-SOLD> 2,755,575,802
<NUMBER-OF-SHARES-REDEEMED> (2,768,786,005)
<SHARES-REINVESTED> 11,898,218
<NET-CHANGE-IN-ASSETS> (1,311,985)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,494,105
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,127,060
<AVERAGE-NET-ASSETS> 298,821,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.05)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
