<PAGE>
As filed with the Securities and Exchange Commission on August 31, 1998
Securities Act Registration No. 33-31603
Investment Company Act Registration No. 811-5951
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 11 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 12 /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: (973) 367-7530
S. JANE ROSE, ESQ.
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(NAME AND ADDRESS OF AGENT FOR SERVICE OF PROCESS)
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE
(CHECK APPROPRIATE BOX):
/X/ immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
/ / This post-effective amendment designates a new
effective date for a previously filed post-effective
amendment
<TABLE>
<S> <C>
Title of Securities Being Shares of common stock, $.001 par value per
Registered.................... share
</TABLE>
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<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
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<S> <C> <C> <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 31, 1998
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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 and is available at the Web
site of The Prudential Insurance Company of America (http://www.prudential.com).
Additional information about the Fund has been filed with the Securities and
Exchange Commission (the Commission) in a Statement of Additional Information,
dated August 31, 1998, 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. The
Commission maintains a Web site (http://www.sec.gov) that contains the Statement
of Additional Information, material incorporated by reference and other
information regarding the Fund.
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INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.
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AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OF ANY BANK AND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
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 which is
currently comprised of one series, the Money Market Series. 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 investment objective will be achieved. See "How the Fund
Invests--Investment Objective and Policies" at page 6.
WHAT ARE THE FUND'S RISK FACTORS AND SPECIAL CHARACTERISTICS?
In seeking to achieve its investment 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, 1998, PIFM
served as manager or administrator to 67 investment companies, including 45
mutual funds, with aggregate assets of approximately $66 billion. The
Prudential Investment Corporation, doing business as Prudential Investments
(PI, the Subadviser or the investment adviser), furnishes investment
advisory services in connection with the management of the Fund under a
Subadvisory Agreement with PIFM. See "How the Fund is Managed--Manager" at
page 10.
WHO DISTRIBUTES THE FUND'S SHARES?
Prudential Investment Management Services LLC (the Distributor) 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 the Distributor or brokers or
dealers that have entered into agreements to act as participating or introducing
brokers for the Distributor (Dealers) or directly from the Fund, through its
transfer agent, Prudential Mutual Fund Services LLC (PMFS or the Transfer
Agent). In each case, sales are made at the net asset value per share (NAV) next
determined after receipt of your purchase or exchange order by the Transfer
Agent, a Dealer or the Distributor. 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
your Dealer, the Distributor 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....................................................................... .25%
---
Total Fund Operating Expenses........................................................ .75%
---
---
</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:......................................... $58 $54 $52 $93
You would pay the following expenses on the same investment,
assuming no redemption:...................................... $8 $24 $42 $93
</TABLE>
--------------------
THE ABOVE EXAMPLE IS BASED ON DATA FOR THE FISCAL YEAR ENDED JUNE 30, 1998.
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 fiscal years ended June 30,
1998, and June 30, 1997, have been audited by PricewaterhouseCoopers LLP,
independent accountants. The following information for the six years ended
June 30, 1996 and the period from January 22, 1990 through June 30, 1990
have been audited by other independent auditors, whose reports thereon were
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.
Further performance information is contained in the annual report, which may
be obtained without charge. See "Shareholder Guide--Shareholder
Services--Reports to Shareholders."
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991
--------- --------- -------- -------- -------- -------- -------- --------
<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............. 0.050 0.049 0.051 0.049 0.030 0.027 0.044 0.071(c)
Dividends from net investment
income.......................... (0.050) (0.049) (0.051) (0.049) (0.030) (0.027) (0.044) (0.071)
--------- --------- -------- -------- -------- -------- -------- --------
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):.................. 5.11% 4.96% 5.19% 5.05% 3.09% 2.77% 4.49% 7.36%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)... $214,480 $261,856 $263,168 $359,197 $473,057 $176,258 $183,093 $284,849
Average net assets (000).......... $239,047 $298,821 $326,849 $416,899 $271,869 $213,948 $249,223 $328,899
Ratios to average net assets:
Expenses........................ .75% 0.71% 0.73% 0.70% 0.72% 0.81% 0.83% 0.61%(c)
Net investment income........... 5.05% 4.86% 5.07% 4.93% 2.96% 2.73% 4.36% 6.98%(c)
<CAPTION>
JANUARY 22, 1990(a)
THROUGH
JUNE 30, 1990
-------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period.......................... $ 1.00
Net investment income............. 0.036(c)
Dividends from net investment
income.......................... (0.036)
Net asset value, end of
period......................... $ 1.00
TOTAL RETURN(d):.................. 3.65%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)... $181,690
Average net assets (000).......... $177,412
Ratios to average net assets:
Expenses........................ 0.19%(b)(c)
Net investment income........... 8.12%(b)(c)
</TABLE>
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(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, 1998.
<TABLE>
<S> <C>
Value of hypothetical account at end of period............................ $1.000954877
Value of hypothetical account at beginning of period...................... 1.000000000
------------
Base period return........................................................ $ .000954877
------------
------------
CURRENT YIELD ((.000954877 X (365/7))..................................... 4.98%
EFFECTIVE ANNUAL YIELD, assuming weekly compounding....................... 5.10%
</TABLE>
The weighted average life to maturity of the Fund's portfolio on June 30, 1998
was 75 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
6
<PAGE>
quality," for this purpose, means (i) a security (or issuer) rated in one of the
two highest rating categories by at least two nationally recognized statistical
rating organizations assigning a rating to the security or issuer (or, if only
one such rating organization assigned a rating, that rating organization) or
(ii) an unrated 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.
U.S. GOVERNMENT OBLIGATIONS
The Fund may invest without limit in obligations issued or guaranteed as to
principal and interest by the U.S. Government or its agencies or
instrumentalities. Except for U.S. Treasury securities, these obligations, even
those which are guaranteed by Federal agencies or instrumentalities, may not be
backed by the "full faith and credit" of the United States. In the case of
securities 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 itself in the event the agency or instrumentality does not meet its
commitments.
BANK OBLIGATIONS
The Fund may invest in 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
7
<PAGE>
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.
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.
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.
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.
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
8
<PAGE>
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 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 segregate cash or other liquid assets having a value equal to or
greater than the Fund's purchase commitments. The securities so purchased are
subject to market fluctuations and no interest accrues to the purchaser until
delivery and payment take place.
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
segregated 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
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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.
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, 1998, total expenses as a percentage of
average net assets of the Fund were .75%. 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.
For the fiscal year ended June 30, 1998, the Fund paid management fees to PIFM
of .50% of the Fund's average daily net assets. See "Manager" in the Statement
of Additional Information.
As of July 31, 1998, PIFM served as the manager to 45 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 $66 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
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INCURRED IN PROVIDING SUCH SERVICES. PIC's address is Prudential Plaza, Newark,
New Jersey 07102-3777. Under the Management Agreement, PIFM continues to have
responsibility for all investment advisory services and supervises PI's
performance of such services.
PIFM and PIC are indirect wholly-owned subsidiaries of The Prudential
Insurance Company of America (Prudential), a major diversified insurance and
financial services company.
DISTRIBUTOR
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC (THE DISTRIBUTOR), GATEWAY
CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077, ACTS AS
DISTRIBUTOR OF THE FUND PURSUANT TO A DISTRIBUTION AGREEMENT WITH THE FUND AND
SERVES WITHOUT COMPENSATION. It is a limited liability company organized under
the laws of the State of Delaware and a wholly-owned subsidiary of Prudential.
Prudential Securities Incorporated (Prudential Securities, also referred to as
the Distributor), One Seaport Plaza, New York, New York 10292, served as the
distributor of Fund shares prior to July 1, 1998. It is an indirect,
wholly-owned subsidiary of Prudential.
FEE WAIVERS AND SUBSIDY
PIFM may from time to time waive all or a portion of its management fee and
subsidize all or a portion of the operating expenses of the Fund. Fee waivers
and expense subsidies will increase the Fund's total return. The voluntary
waivers or subsidies may be terminated at any time without notice.
PORTFOLIO TRANSACTIONS
Affiliates of the Distributor may also act as brokers or futures commission
merchants for the Fund, provided that the commissions, fees or other
remuneration they receive are reasonable and fair. See "Portfolio Transactions
and Brokerage" in the Statement of Additional Information.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities and
cash and, in that capacity, maintains certain financial and accounting books and
records pursuant to an agreement with the Fund. Its mailing address is P.O. Box
1713, Boston, Massachusetts 02105.
Prudential Mutual Fund Services LLC (the Transfer Agent), 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. The
Transfer Agent is a wholly-owned subsidiary of PIFM. Its mailing address is P.O.
Box 15005, New Brunswick, New Jersey 08906-5005.
YEAR 2000
The services provided to the Fund and the shareholders by the Manager, the
Distributor, the Transfer Agent and the Custodian depend on the smooth
functioning of their computer systems and those of outside service providers.
Many computer software systems in use today cannot distinguish the year 2000
from the year 1900 because of the way dates are encoded and calculated. Such
event could have a negative impact on handling securities trades, payments of
interest and dividends, pricing and account services. Although, at this time,
there can be no assurance that there will be no adverse impact on the Fund, the
Manager, the Distributor, the Transfer Agent and the Custodian have advised the
Fund that they have been actively working on necessary changes to their computer
systems to prepare for the year 2000 and expect that their systems, and those of
outside service providers, will be adapted in time for that event.
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<PAGE>
HOW THE FUND VALUES ITS SHARES
THE FUND'S NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING ITS
LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. THE BOARD OF DIRECTORS HAS FIXED THE SPECIFIC TIME
OF DAY FOR THE COMPUTATION OF 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.
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) distributed to shareholders and properly designated by
the Fund, will
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<PAGE>
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, of which 1 billion
shares are authorized for the Series. 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 Commission under
the Securities Act of 1933. 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 THE DISTRIBUTOR, THROUGH DEALERS,
INCLUDING PRUDENTIAL SECURITIES OR PRUSEC, 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 on subsequent investments. Shares of the Fund may also be
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<PAGE>
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, THE DISTRIBUTOR OR YOUR DEALER OF AN ORDER IN PROPER
FORM (IN ACCORDANCE WITH PROCEDURES ESTABLISHED BY THE TRANSFER AGENT IN
CONNECTION WITH INVESTORS' ACCOUNTS). 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.
Application forms can be obtained from the Transfer Agent or the Distributor.
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 placement of the
order.
Dealers may charge their customers a separate fee for processing purchases and
redemptions. In addition, transactions in Fund shares may be subject to postage
and handling charges imposed by your Dealer. Any such charges are retained by
the Dealer and are not remitted to the Fund.
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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<PAGE>
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 (IN ACCORDANCE WITH
PROCEDURES ESTABLISHED BY THE TRANSFER AGENT IN CONNECTION WITH INVESTORS'
ACCOUNTS) BY THE TRANSFER AGENT, THE DISTRIBUTOR OR YOUR DEALER. See "How the
Fund Values its Shares." In certain cases, however, redemption proceeds will be
reduced by the amount of any applicable CDSC imposed by the original fund. See
"Contingent Deferred Sales Charge" below. If you are redeeming your shares
through a Dealer, your Dealer must receive your sell order before the Fund
computes its NAV for that day (i.e., 4:30 p.m., New York time) in order to
receive that day's NAV. Your Dealer will be responsible for furnishing all
necessary documentation to the Distributor and may charge you for its services
in connection with redeeming shares of the Fund.
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, THE DISTRIBUTOR OR YOUR DEALER 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 the 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, THE DISTRIBUTOR, OR YOUR DEALER OF THE
CERTIFICATE AND/OR WRITTEN REQUEST EXCEPT AS INDICATED BELOW. IF YOU HOLD SHARES
THROUGH A DEALER, PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE CREDITED
TO YOUR 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
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<PAGE>
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 Commission,
by order, so permits; provided that applicable rules and regulations of the
Commission shall govern as to whether the conditions prescribed in (b), (c) or
(d) exist.
PAYMENT OF REDEMPTION PROCEEDS OF RECENTLY PURCHASED SHARES WILL BE DELAYED
UNTIL THE FUND OR ITS TRANSFER AGENT HAS BEEN ADVISED THAT THE PURCHASE CHECK
HAS BEEN HONORED, WHICH MAY TAKE 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.
17
<PAGE>
REDEMPTION IN KIND
If the Board of Directors determines that it would be detrimental to the best
interests of the remaining shareholders of the Fund to make payment wholly or
partly in cash, the Fund may pay the redemption price in whole or in part by a
distribution in kind of securities from the investment portfolio of the Fund, in
lieu of cash, in conformity with applicable rules of the SEC. Securities will be
readily marketable and will be valued in the same manner as in a regular
redemption. See "How the Fund Values its Shares." If your shares are redeemed in
kind, you would incur transaction costs in converting the assets into cash. The
Fund, however, has elected to be governed by Rule 18f-1 under the Investment
Company Act, pursuant to which the Fund is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of the net asset value of the Fund
during any 90-day period for any one shareholder.
INVOLUNTARY REDEMPTION
In order to reduce expenses of the Fund, the Board of Directors may redeem all
of the shares of any shareholder, other than a shareholder which is an IRA or
other tax-deferred retirement plan, whose account has a NAV 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 CDSC 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 Transfer Agent, either directly or through the Distributor or your
Dealer, 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
18
<PAGE>
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.
FREQUENT TRADING. The Fund and the other Prudential Mutual Funds are not
intended to serve as vehicles for frequent trading in response to short-term
fluctuations in the market. Due to the disruptive effect that market timing
investment strategies and excessive trading can have on efficient portfolio
management, the Fund reserves the right to refuse purchase orders and exchanges
by any person, group or commonly controlled accounts, if, in the Manager's sole
judgment, such person, group or accounts were following a market timing strategy
or were otherwise engaging in excessive trading (Market Timers).
To implement this authority to protect the Fund and its shareholders from
excessive trading, the Fund will reject all exchanges and purchases from a
Market Timer unless the Market Timer has entered into a written agreement with
the Fund or its affiliates pursuant to which the Market Timer has agreed to
abide by certain procedures, which include a daily dollar limit on trading. The
Fund may notify the Market Timer of rejection of an exchange or purchase order
subsequent to the day on which the order was placed.
SHAREHOLDER SERVICES
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 your Dealer, you should contact your
Dealer.
-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 the Distributor, your Dealer
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.
-THE PRUTECTOR PROGRAM--OPTIONAL GROUP TERM LIFE INSURANCE. Prudential makes
available optional group term life insurance coverage to purchasers of shares of
certain Prudential Mutual Funds which are held in an eligible brokerage account.
This insurance protects the value of your mutual fund investment for your
beneficiaries against market downturns. The insurance benefit is based on the
difference at the time of death of the insured between the "protected value" and
the then current market value of the shares. This coverage is not available in
all states and is subject to various restrictions and limitations. For more
complete information about this program, including charges and expenses, please
telephone your Prudential representative.
-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.
19
<PAGE>
-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
(732) 417-7555 (collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
20
<PAGE>
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 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 High Yield Total Return Fund, Inc.
Prudential Mortgage Income Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
TAX-EXEMPT BOND FUNDS
----------------------------
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Income 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 Developing Markets Fund
Prudential Developing Markets Equity Fund
Prudential Latin America Equity Fund
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 Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Index Series Fund
Prudential Bond Market Index Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced Fund
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Mid-Cap Value Fund
Prudential Real Estate Securities Fund
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Prudential 20/20 Focus Fund
MONEY MARKET FUNDS
--------------------------
- -TAXABLE MONEY MARKET FUNDS
Cash Accumulation Trust
Liquid Assets Fund
National Money Market Fund
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund, Inc.
Money Market Series
Prudential MoneyMart Assets, Inc.
- -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
Fee Waivers and Subsidy............ 11
Portfolio Transactions............. 11
Custodian and Transfer and
Dividend Disbursing Agent......... 11
Year 2000.......................... 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
CUSIP No: 74436K-10-4
PRUDENTIAL
SPECIAL
MONEY
MARKET
FUND, INC
- -----------
Money Market Series
PROSPECTUS
August 31, 1998
www.prudential.com
-------------------------------
[LOGO]
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED AUGUST 31, 1998
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 31, 1998, a copy of
which may be obtained from the Fund upon request.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CROSS-REFERENCE
TO PAGE IN
PAGE PROSPECTUS
--------- -------------------
<S> <C> <C>
Investment Objective and Policies.................................................................. B-2 6
Investment Restrictions............................................................................ B-4 10
Directors and Officers............................................................................. B-6 10
Manager............................................................................................ B-10 10
Distributor........................................................................................ B-11 11
Portfolio Transactions and Brokerage............................................................... B-11 11
Shareholder Investment Account..................................................................... B-12 19
Net Asset Value.................................................................................... B-13 12
Dividends and Distributions........................................................................ B-14 12
Taxes.............................................................................................. B-14 12
Calculation of Yield............................................................................... B-15 6
Custodian, Transfer and Dividend Disbursing Agent and Independent Accountants...................... B-15 11
Financial Statements............................................................................... B-16 --
Report of Independent Accountants.................................................................. B-23 --
Appendix I -- General Investment Information....................................................... I-1 --
Appendix II -- Information Relating to Prudential.................................................. II-1 --
</TABLE>
MF141B
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is high current income consistent with
the preservation of principal and liquidity.
U.S. GOVERNMENT OBLIGATIONS
The Fund will invest in U.S. Treasury obligations including bills, notes,
bonds and other debt obligations issued by the U.S. Treasury. These instruments
are direct obligations of the U.S. Government and, as such, are backed by the
"full faith and credit" of the United States. They differ primarily in their
interest rates, the lengths of their maturities and the dates of their
issuances. The Fund will also invest in obligations which are guaranteed by
federal agencies or instrumentalities and which may or may not be backed by the
full faith and credit of the United States. Obligations of the Government
National Mortgage Association (GNMA), the Farmers Home Administration and the
Small Business Administration are backed by the full faith and credit of the
United States. In the case of obligations not backed by the full faith and
credit of the United States, the Fund must look principally to the agency
issuing or guaranteeing the obligation for ultimate repayment and may not be
able to assert a claim against the United States if the agency or
instrumentality does not meet its commitments. Instruments in which the Fund may
invest which are not backed by the full faith and credit of the United States
include obligations issued by the Federal Home Loan Banks, the Federal Home Loan
Mortgage Corporation (FHLMC), the Federal National Mortgage Association (FNMA),
the Student Loan Marketing Association, Resolution Funding Corporation and the
Tennessee Valley Authority, each of which under certain conditions has the right
to borrow from the U.S. Treasury to meet its obligations, and obligations of the
Farm Credit System, the obligations of which may be satisfied only by the
individual credit of the issuing agency. The Fund's investment in
mortgage-backed securities (E.G., GNMA, FNMA and FHLMC certificates) will be
made only to the extent such securities are used as collateral for repurchase
agreements entered into by the Fund.
FLOATING RATE AND VARIABLE RATE SECURITIES
The Fund may purchase floating rate and variable rate securities.
Investments in floating or variable rate securities normally will involve
securities which provide that the rate of interest is set as a spread to a
designated base rate, such as rates on Treasury bills, and, in some cases, that
the purchaser can demand payment of the obligation at specified intervals or
after a specified notice period (in each case of less than one year) at par plus
accrued interest, which amount may be more or less than the amount paid for
them. Variable rate securities provide for a specified periodic adjustment in
the interest rate, while floating rate securities have an interest rate which
changes whenever there is a change in the designated base interest rate.
LIQUIDITY PUTS
The Fund may purchase instruments of the types described in the Prospectus
under "How the Fund Invests--Investment Objective and Policies" together with
the right to resell the instruments at an agreed-upon price or yield within a
specified period prior to the maturity date of the instruments. Such a right to
resell is commonly known as a "put," and the aggregate price which the Fund pays
for instruments with a put may be higher than the price which otherwise would be
paid for the instruments. Consistent with the Fund's investment objective and
applicable rules issued by the Securities and Exchange Commission and subject to
the supervision of the Board of Directors, the purpose of this practice is to
permit the Fund to be fully invested while preserving the necessary liquidity to
meet unusually large redemptions and to purchase at a later date securities
other than those subject to the put. The Fund may choose to exercise puts during
periods in which proceeds from sales of its shares and from recent sales of
portfolio securities are insufficient to meet redemption requests or when the
funds available are otherwise allocated for investment. In determining whether
to exercise puts prior to their expiration date and in selecting which puts to
exercise in such circumstances, the investment adviser considers, among other
things, the amount of cash available to the Fund, the expiration dates of the
available puts, any future commitments for securities purchases, the yield,
quality and maturity dates of the underlying securities, alternative investment
opportunities and the desirability of retaining the underlying securities in the
Fund's portfolio.
The Fund values instruments which are subject to puts at amortized cost; no
value is assigned to the put. The cost of the put, if any, is carried as an
unrealized loss from the time of purchase until it is exercised or expires.
REPURCHASE AGREEMENTS
The Fund's repurchase agreements will be collateralized by U.S. Government
obligations. The Fund will enter into repurchase transactions only with parties
meeting creditworthiness standards approved by the Fund's Board of Directors.
The Fund's investment adviser will monitor the creditworthiness of such parties,
under the general supervision of the Board of Directors. In
B-2
<PAGE>
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),
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
B-3
<PAGE>
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."
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies. Fundamental policies
are those which cannot be changed without the approval of the holders of a
majority of the outstanding voting securities of the Fund. A "majority of the
outstanding voting securities of the Fund," when used in this Statement of
Additional Information, means the lesser of (i) 67% of the voting shares
represented at a meeting at which more than 50% of the outstanding voting shares
are present in person or represented by proxy or (ii) more than 50% of the
outstanding voting shares.
The Fund may not:
1. Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of transactions).
2. Make short sales of securities or maintain a short position.
3. Issue senior securities, borrow money or pledge its assets, except
insofar as the Fund may be deemed to have issued a senior security by reason of
entering into a reverse repurchase agreement and except that the Fund may borrow
up to 20% of the value of its total assets (calculated when the loan is made)
from banks for temporary, extraordinary or emergency purposes or for the
clearance of transactions. The Fund may pledge up to 20% of the value of its
total assets to secure such borrowings or reverse
B-4
<PAGE>
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 (73) Director President and Director of BMC Fund, Inc., a closed-end investment
company; formerly, 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 (75) Director Executive Director (May 1985 through December 1997) of the John A.
Hartford Foundation, Inc. (charitable foundation); and Trustee
Emeritus of Pace University.
Delayne Dedrick Gold (59) Director Marketing and Management Consultant; Director of The High Yield
Income Fund, Inc.
*Robert F. Gunia (51) Director Vice President of Prudential Investments (since September 1997);
Executive Vice President and Treasurer (since December 1996)
Prudential Investments Fund Management LLC (PIFM); Senior Vice
President (since March 1987) of Prudential Securities
Incorporated (Prudential Securities); formerly Chief
Administrative Officer (July 1990-September 1996), Director
(January 1989-September 1996) and Executive Vice President,
Treasurer and Chief Financial Officer (June 1987-September 1996)
of Prudential Mutual Fund Management, Inc. (PMF); Vice President
and Director (since May 1989) of The Asia Pacific Fund, Inc.;
Director of The High Yield Income Fund, Inc.
Don G. Hoff (62) Director Chairman and Chief Executive Officer (since 1980) of Intertec,
Inc. (investments); Chairman and Chief Executive Officer of The
Lamaur Corporation, Inc.; Director of Innovative Capital
Management, Inc. and The Greater China Fund, Inc.; and Chairman
and Director of The Asia Pacific Fund, Inc.
Robert E. LaBlanc (63) Director President (since 1981) of Robert E. LaBlanc Associates, Inc.
(telecommunications); formerly General Partner at Salomon
Brothers; and Vice-Chairman of Continental Telecom; Director of
Storage Technology Corporation, Titan Corporation, Salient 3
Communications, Inc. and Tribune Company; and Trustee of
Manhattan College.
*Mendel A. Melzer, CFA (37) 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 of Prudential Preferred Financial Services
(April 1993-November 1995), Managing Director of Prudential
Investment Advisors (April 1991-April 1993) and Senior Vice
President of Prudential Capital Corporation (July 1989-April
1991); Chairman and Director of Prudential Series Fund, Inc.; and
Director of The High Yield Income Fund, Inc.
</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 (55) 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; 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. (PSG); Executive Vice President of the
Prudential Investment Corporation (July 1994-September 1996),
Director (January 1994-September 1996) Prudential Mutual Fund
Distributors, Inc. and Prudential Mutual Fund Services, Inc. and
Senior Executive Vice President and Director of Kemper Financial
Services, Inc. (September 1978-September 1993); and President and
Director of The High Yield Income Fund, Inc.
Robin B. Smith (58) Director Chairman and Chief Executive Officer (since August 1996) of
Publishers Clearing House; formerly President and Chief Executive
Officer (January 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 (54) Director President and Chief Executive Officer (since June 1996) of
Quadrant Media Corp. (a publishing company); formerly President
(June 1995-June 1996) of Argus Integrated Media, Inc., Senior
Vice President and Managing Director (January 1993-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 (67) Director Economist, Director of Inland Steel Industries; formerly, Vice
President and Chief Economist of International Business Machines;
Member of the Board of Governors of the Federal Reserve System
(1984-1990); Assistant Director of the Committee on the Budget of
the US House of Representatives; Senior Fellow at the Library of
Congress; Senior Fellow at the Brookings Institution; staff at
Office of Management and Budget, Council of Economics Advisors
and the Federal Reserve Board.
S. Jane Rose (52) Secretary Senior Vice President (since December 1996) of PIFM; Senior Vice
President and Senior Counsel (since July 1992) of Prudential
Securities; formerly Senior Vice President (January
1991-September 1996) and Senior Counsel (June 1987-December 1990)
of PMF.
Robert C. Rosselot (38) Assistant Secretary Assistant General Counsel (since September 1997) of PIFM;
formerly, partner with the firm of Howard & Howard, Bloomfield
Hills, Michigan (December 1995-September 1997) and Corporate
Counsel, Federated Investors (1990-1995).
</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 (39) 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), Prudential
Mutual Fund Management, Inc. and Vice President (July 1989-March
1994) of Bankers Trust.
Stephen M. Ungerman (44) Assistant Vice President and Tax Director (since March 1996) of Prudential
Treasurer Investments; formerly First Vice President of Prudential Mutual
Fund Management, Inc. (February 1993-September 1996)
</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 (the Fund
rate). Payment of the interest so accrued is also deferred and accruals become
payable at the option of the Director. The Fund's obligation to make payments of
deferred Directors' fees, together with interest thereon, is a general
obligation of the Fund.
B-8
<PAGE>
The following table sets forth the aggregate compensation paid by the Fund
for the fiscal year ended June 30, 1998 to the Directors who are not affiliated
with the Manager and the aggregate compensation paid to such Directors for
service on the Fund's Board and that of all other investment companies managed
by PIFM (Fund Complex) for the calendar year ended December 31, 1997.
<TABLE>
<CAPTION>
COMPENSATION TABLE
PENSION OR
RETIREMENT TOTAL COMPENSATION
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL FROM FUND AND FUND
COMPENSATION AS PART OF FUND BENEFITS UPON COMPLEX PAID TO
NAME AND POSITION FROM FUND EXPENSES RETIREMENT DIRECTORS(2)
- ---------------------------------------- ------------ ---------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Edward D. Beach, Director $ 1,500 None N/A $ 135,000(38/63)*
Stephen C. Eyre, Director $ 1,500 None N/A $ 45,000(12/13)*
Delayne Dedrick Gold, Director $ 1,500 None N/A $ 135,000(38/63)*
Robert F. Gunia(1), Director -- None N/A
Don G. Hoff, Director $ 1,500 None N/A $ 45,000(12/13)*
Robert F. LaBlanc, Director $ 1,500 None N/A $ 45,000(12/13)*
Mendel A. Melzer(1), Director -- None N/A
Richard A. Redeker(1), Director -- None N/A
Robin B. Smith, Director $ 1,500 None N/A $ 90,000(27/34)*
Stephen Stoneburn, Director $ 1,500 None N/A $ 45,000(12/13)*
Nancy H. Teeters, Director $ 1,500 None N/A $ 90,000(23/42)*
</TABLE>
- ------------------------
* Indicates number of funds/portfolios in Fund Complex (including the Fund) to
which aggregate compensation relates.
(1) Robert F. Gunia, Mendel A. Melzer and Richard A. Redeker, who are Interested
Directors, do not receive compensation from the Fund or any fund in the Fund
Complex.
(2) Total compensation from all the funds in the Fund Complex for the calendar
year ended December 31, 1997, including amounts deferred at the election of
Directors under the funds' deferred compensation plans. Including accrued
interest, total deferred compensation amounted to $139,081 for Robin B.
Smith. 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 7, 1998, 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.
As of August 7, 1998, Prudential Securities was the record holder for other
beneficial owners of 240,004,996 shares (or approximately 66%) of the
outstanding common stock of the Fund. In the event of any meetings of
shareholders, Prudential Securities will forward, or cause the forwarding of,
proxy materials to the beneficial owners for which it is the record holder.
B-9
<PAGE>
MANAGER
The manager of the Fund is Prudential Investments Fund Management LLC (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, 1998,
PIFM managed and/or administered open-end and closed-end management investment
companies with assets of approximately $66 billion. According to the Investment
Company Institute, as of December 31, 1997, the Prudential Mutual Funds were the
18th largest family of mutual funds in the United States.
PIFM is a subsidiary of Prudential Securities. Prudential Mutual Fund
Services LLC (PMFS or the Transfer Agent), a wholly-owned subsidiary of PIFM,
serves as the transfer agent for the Prudential Mutual Funds and, in addition,
provides customer service, recordkeeping and management and administration
services to qualified plans.
Pursuant to 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, 1998. 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 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 13, 1998, and by the Fund's shareholders on October 30, 1990.
For the fiscal years ended June 30, 1998, 1997 and 1996, the Fund paid
management fees of $1,195,235, $1,494,105 and $1,634,243, 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 13, 1998, 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 Investment Management Services LLC (the Distributor), Gateway
Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, acts as the
distributor of the shares of the Fund. Prior to July 1, 1998, Prudential
Securities (also referred to as the Distributor) served as distributor of the
Fund's shares.
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 13, 1998.
Pursuant to the Distribution Agreement, the Fund has agreed to indemnify the
Distributor to the extent permitted by applicable law against certain
liabilities under the Securities Act.
PORTFOLIO TRANSACTIONS AND BROKERAGE
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
B-11
<PAGE>
money market instruments, securities are generally traded on a "net" basis, with
dealers acting as principal for their own accounts without a stated commission,
although the price of the security usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price which includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. On occasion, certain money market
instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid. Portfolio securities may not be purchased
from any underwriting or selling syndicate of which Prudential Securities or any
affiliate thereof, during the existence of the syndicate, is a principal
underwriter (as defined in the Investment Company Act), except in accordance
with rules of the Securities and Exchange Commission. The Fund will not deal
with Prudential Securities or its affiliates on a principal basis.
In placing orders for portfolio securities of the Fund, the Manager is
required to give primary consideration to obtaining the most favorable price and
efficient execution. This means that the Manager will seek to execute each
transaction at a price and commission, if any, which provides the most favorable
total cost or proceeds reasonably attainable under the circumstances. While the
Manager generally seeks reasonably competitive spreads or commissions, the Fund
will not necessarily be paying the lowest spread or commissions available.
Within the framework of this policy the Manager may consider research and
investment services provided by brokers or dealers who effect or are parties to
portfolio transactions of the Fund, the Manager or the Manager's other clients.
Such research and investment services are those which brokerage houses
customarily provide to institutional investors and include statistical and
economic data and research reports on particular companies and industries. Such
services are used by the Manager in connection with all of its investment
activities, and some of such services obtained in connection with the execution
of transactions for the Fund may be used in managing other investment accounts.
Conversely, brokers furnishing such services may be selected for the execution
of transactions for such other accounts, whose aggregate assets are far larger
than the Fund's, and the services furnished by such brokers may be used by the
Manager in providing investment management for the Fund. While such services are
useful and important in supplementing its own research and facilities, the
Manager believes that the value of such services is not determinable and does
not significantly reduce expenses. The Fund does not reduce the advisory fee it
pays to the Manager by any amount that may be attributed to the value of such
services.
Subject to the above considerations, Prudential Securities may act as a
securities broker for the Fund. In order for Prudential Securities (or any
affiliate) to effect any portfolio transactions for the Fund, the commissions,
fees or other remuneration received by Prudential Securities (or any affiliate)
must be reasonable and fair compared to the commissions, fees or other
remuneration paid to other brokers in connection with comparable transactions
involving similar securities being purchased or sold during a comparable period
of time. This standard would allow Prudential Securities (or any affiliate) to
receive no more than the remuneration which would be expected to be received by
an unaffiliated broker in a commensurate arm's-length transaction. Furthermore,
the Board of Directors of the Fund, including a majority of the Directors who
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,
1998, 1997 and 1996.
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of shares of the Fund, a Shareholder Investment
Account is established for each investor under which a record of the 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 the Transfer Agent, the Distributor or your Dealer. 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 NAV on
shares held under this plan. See "Automatic Reinvestment of Dividends and/or
Distributions" above.
B-12
<PAGE>
The Distributor 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 your Dealer or the Transfer
Agent.
Investors who are considering the adoption of such a plan should consult
with their own legal counsel or tax adviser with respect to the establishment
and maintenance of any such plan.
INDIVIDUAL RETIREMENT ACCOUNTS. An individual retirement account (IRA)
permits the deferral of federal income tax on income earned in the account until
the earnings are withdrawn (or, in the case of a Roth IRA, the avoidance of
federal income tax on such income). 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 a traditional IRA account will be subject to tax
when withdrawn from the account. Distributions from a Roth IRA which meet
the conditions required under the Internal Revenue Code will not be
subject to tax upon withdrawal from the account.
NET ASSET VALUE
The 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
B-13
<PAGE>
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 NAV 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.
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) 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 (c) 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.
B-14
<PAGE>
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.
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.
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, 1998, the Fund incurred fees of $226,000 for such services.
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, serves as the Fund's independent accountants and in that capacity have
audited the Fund's financial statements for the fiscal year ended June 30, 1998.
B-15
<PAGE>
Portfolio of Investments as of PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
June 30, 1998 MONEY MARKET SERIES
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ----------------------------------------------------------------
Bank Notes--6.1%
American Express Centurion Bank
$7,000(a) 5.7063%, 7/21/98 $ 7,000,967
Key Bank N.A.
2,000 5.52%, 9/18/98 1,999,174
1,000(a) 5.6540%, 7/13/98 1,000,301
U.S. Bank, N.A.
3,000(a) 5.5523%, 7/15/98 2,999,369
------------
12,999,811
- ----------------------------------------------------------------
Certificates Of Deposit - Domestic--0.9%
Morgan Guaranty Trust Co.
2,000 5.87%, 8/6/98 1,999,943
------------
- ----------------------------------------------------------------
Certificates Of Deposit - Eurodollar--3.3%
Abbey National Treasury Services, PLC
5,000 5.58%, 9/18/98 4,999,882
Westdeutsche Landesbank Girozentrale
2,000 5.82%, 8/3/98 1,999,860
------------
6,999,742
- ----------------------------------------------------------------
Certificates Of Deposit - Yankee--23.8%
Barclays Bank, PLC
6,000(a) 5.5213%, 7/2/98 5,995,635
Bayerische Landesbank
Girozentrale
5,000(a) 5.5525%, 7/30/98 4,996,011
Bayerishe Hypotheken Und
Wechsel Bank
5,000 5.94%, 10/22/98 4,999,112
Canadian Imperial Bank of
Commerce
4,000 5.55%, 2/10/99 3,998,823
Credit Agricole Indosuez
3,000 5.87%, 8/10/98 2,999,843
4,000 5.66%, 3/23/99 3,998,608
2,000 5.75%, 4/16/99 2,000,538
Deutsche Bank
5,000 5.57%, 2/26/99 4,998,423
5,000 5.63%, 2/26/99 4,997,668
Dresdner Bank, A.G.
$3,000 5.76%, 7/31/98 $ 2,999,659
Societe Generale
1,000(a) 5.775%, 9/11/98 999,915
Svenska Handelsbanken, Inc.
2,000 5.60%, 9/24/98 2,000,023
Swiss Bank Corp.
6,000 5.74%, 6/11/99 5,996,742
------------
50,981,000
- ----------------------------------------------------------------
Commercial Paper--39.6%
Associates Corp. of North
America,
600 5.49%, 1/28/99 599,537
American General Finance Corp.
2,000 5.53%, 9/18/98 1,975,730
Barton Capital Corp.
607 5.60%, 7/20/98 605,206
BBL North America, Inc.
3,000 5.52%, 8/19/98 2,979,760
4,700 5.53%, 8/25/98 4,660,292
Bradford & Bingley Building
Society
5,000 5.52%, 9/24/98 4,934,833
CIT Group Holdings, Inc.
2,000 5.57%, 8/27/98 1,982,362
Coca-Cola Enterprises, Inc.
5,000 5.53%, 9/24/98 4,934,715
Colonial Pipeline Co.
2,000 5.57%, 8/27/98 1,982,362
Commercial Credit Co.
1,010 5.52%, 8/19/98 1,002,412
Commonwealth Bank of Australia
Series A
584 6.35%, 7/1/98 584,000
Countrywide Home Loan, Inc.
1,000 5.60%, 7/28/98 995,800
1,000 5.60%, 7/31/98 995,333
du Pont (E. I.) De Nemours
& Co., Inc.
2,000 5.60%, 8/13/98 1,986,622
Eastman Kodak Co.
5,993 5.80%, 7/16/98 5,978,517
2,093 5.60%, 8/27/98 2,074,442
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-16
<PAGE>
Portfolio of Investments as of PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
June 30, 1998 MONEY MARKET SERIES
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ----------------------------------------------------------------
Commercial Paper (cont'd.)
First Data Corp.
$3,000 5.52%, 9/15/98 $ 2,965,040
General Electric Capital Corp.
5,000 5.52%, 8/19/98 4,962,433
2,000 5.53%, 9/11/98 1,977,880
1,400 8.125%, 2/1/99 1,420,058
Household Finance Corp.
1,000 6.00%, 7/7/98 998,833
ING America Insurance
Holdings, Inc.
5,000 5.54%, 8/12/98 4,967,684
Monte Rosa Capital Corp.
3,000 5.60%, 8/25/98 2,974,333
Nordbanken North America, Inc.
2,000 5.52%, 8/4/98 1,989,573
Norwest Corp.
3,000 5.57%, 7/23/98 2,989,788
Salomon Smith Barney Holdings,
Inc.
5,000 5.55%, 8/24/98 4,958,375
Svenska Handelsbanken, Inc.
2,000 5.53%, 8/10/98 1,987,711
Thunder Bay Funding, Inc.
2,000 5.70%, 7/9/98 1,997,467
Windmill Funding Corp.
6,700 5.59%, 8/7/98 6,661,507
Wood Street Funding Corp.
6,000 6.00%, 7/7/98 5,994,000
------------
85,116,605
- ----------------------------------------------------------------
Other Corporate Obligations--27.8%
Asset Backed Securities Trust
2,851(a) 5.6563%, 7/22/98 2,850,639
CoreStates Capital Corp.
1,000(a) 5.6123%, 7/1/98 1,000,000
General Motors Acceptance Corp.
2,000(a) 5.6988%, 8/3/98 1,999,656
6,000(a) 5.5675%, 9/21/98 5,998,475
Goldman, Sachs Group L.P.
13,000(a) 5.8125%, 9/17/98
(cost $13,000,000; date
purchased 6/25/97)(c) 13,000,000
International Lease Finance Corp.
100 7.30%, 9/21/98 $ 100,257
Liquid Asset Backed Securities
Trust
1,706(a) 5.6563%, 7/27/98 1,705,875
Merrill Lynch & Co., Inc.
1,000(a) 5.6163%, 7/8/98 999,973
Morgan Stanley, Dean Witter,
Discover & Co.
1,000(a) 5.8516%, 7/15/98 1,000,000
10,000(a) 5.85938%, 8/14/98 10,000,000
Restructured Asset Securities
Enhanced Return
7,000(a) 5.6463%, 7/28/98 7,000,000
1,000(a) 5.6875%, 7/31/98
(cost $1,000,000; date
purchased 4/2/98)(c) 1,000,000
Short Term Repackaged Asset Trust
3,000(a) 5.6783%, 7/15/98
(cost $3,000,000; date
purchased 12/11/97)(c) 3,000,000
Strategic Money Market Trust
9,000(a) 1997-A 5.6875%, 9/23/98 9,000,000
1,000(a) 1997-X 5.6563%, 7/13/98 1,000,000
------------
59,654,875
- ----------------------------------------------------------------
Total Investments--101.5%
(amortized cost $217,751,976(b)) 217,751,976
Liabilities in excess of other
assets--(1.5%) (3,272,082)
------------
Net Assets--100% $214,479,894
------------
------------
</TABLE>
- ---------------
(a) Variable rate instrument. 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 cost basis for federal income tax purposes is the same as that used for
financial statement purposes.
(c) Private placement restricted as to resale and does not have a readily
available market; the aggregate cost of such securities is $17,000,000. The
aggregate value ($17,000,000) is approximately 7.9% of net assets.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-17
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
MONEY MARKET SERIES
Portfolio of Investments as of June 30, 1998
- ------------------------------------------------------------
The industry classification of portfolio holdings shown as a percentage of net
assets as of June 30, 1998 was as follows:
<TABLE>
<S> <C>
Banks 54.7%
Security Brokers & Dealers 15.9
Asset-Backed Securities 9.3
Finance Lessors 4.7
Business Credit Institutions 4.1
Personal Credit Institutions 3.7
Photographic Equipment 3.1
Beverages 2.3
Electric, Industrial 1.9
Mortgage Bankers 0.9
Federal Credit Agencies 0.9
-----
101.5
Liabilities in excess of other assets (1.5)
-----
100%
-----
-----
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-18
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
Statement of Assets and Liabilities MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets June 30, 1998
-------------
<S> <C>
Investments, at amortized cost which approximates market value.............................................. $217,751,976
Cash........................................................................................................ 13,503
Receivable for Series shares sold........................................................................... 3,162,583
Interest receivable......................................................................................... 1,429,383
Prepaid expenses............................................................................................ 4,547
-------------
Total assets............................................................................................. 222,361,992
-------------
Liabilities
Payable for Series shares reacquired........................................................................ 7,382,551
Dividends payable........................................................................................... 220,520
Accrued expenses............................................................................................ 178,052
Management fee payable...................................................................................... 100,975
-------------
Total liabilities........................................................................................ 7,882,098
-------------
Net Assets.................................................................................................. $214,479,894
-------------
-------------
Net assets were comprised of:
Common stock, $0.001 par value per share................................................................. $ 214,480
Paid-in capital in excess of par......................................................................... 214,265,414
-------------
Net assets, June 30, 1998................................................................................... $214,479,894
-------------
-------------
Net asset value, offering price and redemption price per share
($214,479,894 / 214,479,894 shares of common stock issued and outstanding; two billion shares
authorized).............................................................................................. $1.00
-------------
-------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-19
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
MONEY MARKET SERIES
Statement of Operations
- --------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income June 30, 1998
<S> <C>
Income
Interest and discount earned............... $13,871,028
-------------
Expenses
Management fee............................. 1,195,235
Transfer agent's fees and expenses......... 294,000
Reports to shareholders.................... 94,000
Custodian's fees and expenses.............. 80,000
Registration fees.......................... 65,000
Audit fee.................................. 25,000
Legal fees................................. 20,000
Directors' fees............................ 12,000
Insurance expense.......................... 6,000
Miscellaneous.............................. 5,090
-------------
Total expenses.......................... 1,796,325
-------------
Net investment income......................... 12,074,703
Realized Gain on Investments
Net realized gain on investment
transactions............................... 2,146
-------------
Net Increase in Net Assets
Resulting from Operations..................... $12,076,849
-------------
-------------
</TABLE>
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
MONEY MARKET SERIES
Statement of Changes in Net Assets
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended June 30,
in Net Assets 1998 1997
<S> <C> <C>
Operations
Net investment income..... $ 12,074,703 $ 14,513,369
Net realized gain on
investment
transactions........... 2,146 11,538
--------------- ---------------
Net increase in net assets
resulting from
operations............. 12,076,849 14,524,907
--------------- ---------------
Dividends and distributions
to shareholders........... (12,076,849) (14,524,907)
--------------- ---------------
Fund share transactions
(at $1 per share)
Proceeds from shares
subscribed............. 1,699,631,087 2,755,575,802
Net asset value of shares
issued to shareholders
in reinvestment of
dividends and
distributions.......... 9,918,808 11,898,218
Cost of shares
reacquired............. (1,756,926,128) (2,768,786,005)
--------------- ---------------
Net decrease in net assets
from Series share
transactions........... (47,376,233) (1,311,985)
--------------- ---------------
Total decrease............... (47,376,233) (1,311,985)
Net Assets
Beginning of year............ 261,856,127 263,168,112
--------------- ---------------
End of year.................. $ 214,479,894 $ 261,856,127
--------------- ---------------
--------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-20
<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.
The Fund may hold up to 10% of its net assets in illiquid securities, including
those which are restricted as to disposition under securities law ("restricted
securities"). None of the issues of restricted securities held by the Fund at
June 30, 1998 including registration rights under which the Fund may demand
registration by the issuer.
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 had a distribution agreement with Prudential Securities Incorporated
("PSI"), where PSI served the Fund without compensation. Effective July 1, 1998,
Prudential Investment Management Securities LLC ("PIMS") became the distributor
of the Fund and serves the Fund under the same terms and conditions as under the
arrangement with PSI.
PIFM, PIC, PSI and PIMS 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, 1998,
the Series incurred fees of approximately $226,000 for the services of PMFS. As
of June 30, 1998, approximately $18,700 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 nonaffiliates.
- --------------------------------------------------------------------------------
B-21
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
Financial Highlights MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------------------------------
1998 1997 1996 1995 1994
<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........... .050 .049 .051 .049 .030
Dividends and distributions............................ (.050) (.049) (.051) (.049) (.030)
-------- -------- -------- -------- --------
Net asset value, end of year........................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN(a):....................................... 5.11% 4.96% 5.19% 5.05% 3.09%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000).......................... $214,480 $261,856 $263,168 $359,197 $473,057
Average net assets (000)............................... $239,047 $298,821 $326,849 $416,899 $271,869
Ratios to average net assets:
Expenses............................................. .75% .71% .73% .70% .72%
Net investment income................................ 5.05% 4.86% 5.07% 4.93% 2.96%
</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-22
<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, 1998, and the results
of its operations for the year then ended, and the changes in its net assets and
the financial highlights for each of the two years in the period then ended, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at June 30, 1998 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above. The accompanying financial highlights for each of the three
years in the period ended June 30, 1996 were audited by other independent
accountants, whose opinion dated August 15, 1996 was unqualified.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
August 18, 1998
- --------------------------------------------------------------------------------
B-23
<PAGE>
APPENDIX I--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.
STANDARD DEVIATION
Standard deviation is an absolute (non-relative) measure of volatility
which, for a mutual fund, depicts how widely the returns varied over a certain
period of time. When a fund has a high standard of deviation, its range of
performance has been very wide, implying greater volatility potential. Standard
deviation is only one of several measures of a fund's volatility.
I-1
<PAGE>
APPENDIX II--INFORMATION RELATING TO PRUDENTIAL
Set forth below is information relating to The Prudential Insurance Company
of America (Prudential) and its subsidiaries as well as information relating to
the Prudential Mutual Funds. See "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,
1997 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.
INFORMATION ABOUT PRUDENTIAL
The Manager and PIC(1) 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 79,000 persons
worldwide, and maintains a sales force of approximately 10,100 agents and 6,500
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 40 million people worldwide.
Long one of the largest issuers of individual life insurance, the Prudential has
25 million life insurance policies and group certificates in force today with a
face value of almost $1 trillion. Prudential has the largest capital base ($12.3
billion) of any life insurance company in the United States. Prudential provides
auto insurance for more than 1.5 million cars and insures more than 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, 1997, Prudential had more than $370 billion in assets under
management. Prudential Investments, a business group of Prudential (of which
Prudential Mutual Funds is a key part), manages over $211 billion in assets of
institutions and individuals. In PENSIONS & 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 4.9
million Americans receive healthcare from a Prudential managed care membership.
FINANCIAL SERVICES. The Prudential Bank, a wholly-owned subsidiary of
Prudential, has nearly $4 billion in assets and serves nearly 1.5 million
customers across 50 states.
INFORMATION ABOUT THE PRUDENTIAL MUTUAL FUNDS
As of June 30, 1998, Prudential Investments Fund Management LLC is the
eighteenth largest mutual fund company in the country, with over 2.5 million
shareholders invested in more than 50 mutual fund portfolios and variable
annuities with more than 3.7 million shareholder accounts.
The Prudential Mutual Funds have over 30 portfolio managers who manage over
$55 billion in mutual fund and variable annuity assets. Some of Prudential's
portfolio managers have over 20 years of experience managing investment
portfolios.
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.
- ------------------------
(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. LLC as one
of the subadvisers to The Prudential Investment Portfolio, Inc. and Mercator
Asset Management LP as the subadviser to International Stock Series, a
portfolio of Prudential World Fund, Inc. There are multiple subadvisers for
The Target Portfolio Trust.
(2) As of December 31, 1997.
II-1
<PAGE>
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.
HIGH YIELD FUNDS. Investing in high yield bonds is a complex and research
intensive pursuit. A separate team of high yield bond analysts monitor
approximately 200 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 conduct 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.
- ------------------------
(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.
II-2
<PAGE>
INFORMATION ABOUT PRUDENTIAL SECURITIES
Prudential Securities is the fifth largest retail brokerage firm in the
United States with approximately 6,000 financial advisors. It offers to its
clients a wide range of products, including Prudential Mutual Funds and
Annuities. As of December 31, 1997, assets held by Prudential Securities for its
clients approximated $235 billion.
During 1997, approximately 29,000 new customer accounts were opened each
month at Prudential Securities.
Prudential Securities has a two-year Financial Advisor training program plus
advanced education programs, including Prudential Securities "university," which
provides advanced education in a wide array of investment areas. Prudential
Securities is the only Wall Street firm to have its own in-house Certified
Financial Planner (CFP) program.
In 1995, Prudential Securities equity research team ranked 8th in
INSTITUTIONAL INVESTOR magazine's 1995 "All America Research Team" survey. Five
Prudential Securities' analysts were ranked as first-team finishers.(7)
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.
Standard & Poor's rates Prudential Securities Incorporated BBB+, with a
"stable outlook."
For more complete information about any of the Prudential Mutual Funds,
including charges and expenses, call your Prudential Securities financial
adviser or Pruco/Prudential representative for a free prospectus. Read it
carefully before you invest or send money.
- ------------------------
(7)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.
II-3
<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, 1998.
Statement of Assets and Liabilities at June 30, 1998.
Statement of Operations for the fiscal year ended June 30, 1998.
Statement of Changes in Net Assets for the fiscal years ended June
30, 1998 and June 30, 1997.
Notes to Financial Statements.
Financial Highlights for the five years ended June 30, 1998.
Report of Independent Accountants.
(b) EXHIBITS:
1. Articles of Amendment and Restatement. Incorporated by reference to
Exhibit No. 1 to Post-Effective Amendment No. 10 to the Registration
Statement on Form N-1A filed via EDGAR on August 26, 1997 (File No.
33-31603).
2. By-Laws of the Registrant. Incorporated by reference to Exhibit No. 2
to Post-Effective Amendment No. 10 to the Registration Statement on
Form N-1A filed via EDGAR on August 26, 1997 (File No. 33-31603).
4. Specimen stock certificate of the Registrant, $.001 par value per
share. Incorporated by reference to Exhibit No. 4 to Post-Effective
Amendment No. 10 to the Registration Statement on Form N-1A filed via
EDGAR on August 26, 1997 (File No. 33-31603).
5. (a) Management Agreement between the Registrant (Money Market Series)
and Prudential Mutual Fund Management, Inc. Incorporated by reference
to Exhibit No. 5(a) to Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A filed via EDGAR on August 26,
1997 (File No. 33-31603).
(b) Subadvisory Agreement between Prudential Mutual Fund Management,
Inc. and The Prudential Investment Corporation with respect to the
Money Market Series. Incorporated by reference to Exhibit No. 5(b) to
Post-Effective Amendment No. 10 to the Registration Statement on Form
N-1A filed via EDGAR on August 26, 1997 (File No. 33-31603).
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).
(c) Distribution Agreement between the Registrant and Prudential
Investment Management Services LLC.*
(d) Form of Dealer Agreement.*
8. Custodian Agreement dated January 12, 1990, between the Registrant
and State Street Bank and Trust Company. Incorporated by reference to
Exhibit No. 8 to Post-Effective Amendment No. 10 to the Registration
Statement on Form N-1A filed via EDGAR on August 26, 1997 (File No.
33-31603).
9. Transfer Agency and Service Agreement dated January 12, 1990 between
the Registrant and Prudential Mutual Fund Services, Inc. Incorporated
by reference to Exhibit No. 9 to Post-Effective Amendment No. 10 to
the Registration Statement on Form N-1A filed via EDGAR on August 26,
1997 (File No. 33-31603).
C-1
<PAGE>
10. Opinion of counsel. Incorporated by reference to Exhibit No. 10 to
Post-Effective Amendment No. 10 to the Registration Statement on Form
N-1A filed via EDGAR on August 26, 1997 (File No. 33-31603).
11. (a) Consent of Independent Accountants.*
16. Schedule of computation of yield for the Money Market Series.
Incorporated by reference to Exhibit No. 16 to Post-Effective
Amendment No. 10 to the Registration Statement on Form N-1A filed via
EDGAR on August 26, 1997 (File No. 33-31603).
27. Financial Data Schedule.*
- ------------------------
*Filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of August 7, 1998, there were 14,212 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 10 of the Distribution Agreement (Exhibit 6(c) 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.
C-2
<PAGE>
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.
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 Post-Effective Amendment to the Registration Statement and "Manager" in
the Statement of Additional Information constituting Part B of this
Post-Effective Amendment to the 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>
Frank W. Giordano Executive Vice President, Executive Vice President, Secretary and General Counsel PIFM;
Secretary and General Counsel Senior Vice President, Prudential Securities Incorporated
(Prudential Securities)
Robert F. Gunia Executive Vice President and Vice President, Prudential Investments; Executive Vice President
Treasurer and Treasurer, PIFM; Senior Vice President, Prudential
Securities
Neil A. McGuinness Executive Vice President Executive Vice President and Director of Marketing, Prudential
Mutual Fund and Annuities (PMF&A); Executive Vice President,
PIFM
Brian Storms Officer-in-Charge, President, President, PMF&A; Officer-in-Charge, President, Chief Executive
Chief Executive Officer and Officer and Chief Operating Officer, PIFM
Chief Operating Officer
Robert J. Sullivan Executive Vice President Executive Vice President, PMF&A; Executive Vice President, PIFM
</TABLE>
C-3
<PAGE>
(ii) The Prudential Investment Corporation (PIC)
See "How the Fund is Managed--Manager" in the Prospectus constituting Part A
of this Post-Effective Amendment to the Registration Statement and "Manager" in
the Statement of Additional Information constituting Part B of this
Post-Effective Amendment to the Registration Statement.
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 07102-4077.
<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; Senior Vice
Director President of Prudential
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITER.
(a) Prudential Investment Management Services LLC is distributor for Cash
Accumulation Trust, Command Government Fund, Command Money Fund, Command
Tax-Free Fund, The Target Portfolio Trust, Prudential Balanced Fund, Prudential
California Municipal Fund, Prudential Developing Markets Fund, Prudential
Distressed Securities Fund, Inc., Prudential Diversified Bond Fund, Inc.,
Prudential Index Series Fund, Prudential Emerging Growth Fund, Inc., Prudential
Equity Fund, Inc., Prudential Equity Income Fund, Prudential Europe Growth Fund,
Inc., Prudential 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 High Yield Total
Return Fund, Inc., Prudential Institutional Liquidity Portfolio, Inc.,
Prudential Intermediate Global Income Fund, Inc., Prudential International Bond
Fund, Inc., The Prudential Investment Portfolios, Inc., Prudential MoneyMart
Assets, Inc., Prudential Mortgage Income Fund, Inc., Prudential Mid-Cap Value
Fund, Prudential Municipal Bond Fund, Prudential Municipal Series Fund,
Prudential National Municipals Fund, Inc., Prudential Natural Resources Fund,
Inc., Prudential Pacific Growth Fund, Inc., Prudential Real Estate Securities
Fund, Prudential Small-Cap Quantum Fund, Inc., Prudential Small Company Value
Fund, Inc., Prudential Special Money Market Fund, Inc., Prudential Structured
Maturity Fund, Inc., Prudential Tax-Free Money Fund, Inc., 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 Prudential 20/20 Focus Fund. Prudential Investment
Management Services LLC 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
Investment Management Services LLC is set forth below:
<TABLE>
<CAPTION>
POSITIONS AND
POSITIONS AND OFFICES OFFICES
NAME WITH UNDERWRITER WITH REGISTRANT
- ---------------------- ----------------------------------------- ------------------
<S> <C> <C>
E. Michael President None
Caulfield.............
Mark R. Fetting....... Executive Vice President None
Jonathan M. Greene.... Executive Vice President None
Jean D. Hamilton...... Executive Vice President None
Ronald P. Joelson..... Executive Vice President None
Brian M. Storms....... Executive Vice President None
John R. Strangfeld.... Executive Vice President None
Mario A. Mosse........ Senior Vice President and Chief Operating None
Officer
Scott S. Wallner...... Vice President, Secretary and Chief Legal None
Officer
Michael G. Vice President, Comptroller and Chief None
Williamson............ Financial Officer
C. Edward Chaplin..... Treasurer None
</TABLE>
(c) Registrant has no principal underwriter who is not an affiliated person
of the Registrant.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the Rules thereunder are maintained at the offices of
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts, The Prudential Investment Corporation, Prudential Plaza, 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)(4), (5), (6), (7), (9), (10) and (11) and 31a-1(d) and (f) will be kept
at Gateway Center Three, 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 Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Newark, and State of New Jersey, on the 31st day of August, 1998.
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 31, 1998
- ------------------------------------
EDWARD D. BEACH
/s/ Stephen C. Eyre Director August 31, 1998
- ------------------------------------
STEPHEN C. EYRE
/s/ Delayne D. Gold Director August 31, 1998
- ------------------------------------
DELAYNE D. GOLD
/s/ Robert F. Gunia Director August 31, 1998
- ------------------------------------
ROBERT F. GUNIA
/s/ Don G. Hoff Director August 31, 1998
- ------------------------------------
DON G. HOFF
/s/ Robert E. LaBlanc Director August 31, 1998
- ------------------------------------
ROBERT E. LABLANC
/s/ Mendel A. Melzer Director August 31, 1998
- ------------------------------------
MENDEL A. MELZER
/s/ Richard A. Redeker Director and President August 31, 1998
- ------------------------------------
RICHARD A. REDEKER
/s/ Robin B. Smith Director August 31, 1998
- ------------------------------------
ROBIN B. SMITH
/s/ Stephen D. Stoneburn Director August 31, 1998
- ------------------------------------
STEPHEN D. STONEBURN
/s/ Nancy Hays Teeters Director August 31, 1998
- ------------------------------------
NANCY HAYS TEETERS
/s/ Grace C. Torres Treasurer and Principal Financial August 31, 1998
- ------------------------------------ and Accounting Officer
GRACE C. TORRES
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- --------- -------------------------------------------------------------------------------------------------------- -----
<S> <C> <C>
1. Articles of Amendment and Restatement. Incorporated by reference to Exhibit No. 1 to Post-Effective
Amendment No. 10 to the Registration Statement on Form N-1A filed via EDGAR on August 26, 1997 (File No.
33-31603).
2. By-Laws of the Registrant. Incorporated by reference to Exhibit No. 2 to Post-Effective Amendment No. 10
to the Registration Statement on Form N-1A filed via EDGAR on August 26, 1997 (File No. 33-31603).
4. Specimen stock certificate of the Registrant, $.001 par value per share. Incorporated by reference to
Exhibit No. 4 to Post-Effective Amendment No. 10 to the Registration Statement on Form N-1A filed via
EDGAR on August 26, 1997 (File No. 33-31603).
5. (a) Management Agreement between the Registrant (Money Market Series) and Prudential Mutual Fund
Management, Inc. Incorporated by reference to Exhibit No. 5(a) to Post-Effective Amendment No. 10 to
the Registration Statement on Form N-1A filed via EDGAR on August 26, 1997 (File No. 33-31603).
(b) Subadvisory Agreement between Prudential Mutual Fund Management, Inc. and The Prudential Investment
Corporation with respect to the Money Market Series. Incorporated by reference to Exhibit No. 5(b)
to Post-Effective Amendment No. 10 to the Registration Statement on Form N-1A filed via EDGAR on
August 26, 1997 (File No. 33-31603).
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).
(c) Distribution Agreement between the Registrant and Prudential Investment Management Services LLC.*
(d) Form of Dealer Agreement.*
8. Custodian Agreement dated January 12, 1990, between the Registrant and State Street Bank and Trust
Company. Incorporated by reference to Exhibit No. 8 to Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A filed via EDGAR on August 26, 1997 (File No. 33-31603).
9. Transfer Agency and Service Agreement dated January 12, 1990 between the Registrant and Prudential
Mutual Fund Services, Inc. Incorporated by reference to Exhibit No. 9 to Post-Effective Amendment No. 10
to the Registration Statement on Form N-1A filed via EDGAR on August 26, 1997 (File No. 33-31603).
10. Opinion of counsel. Incorporated by reference to Exhibit No. 10 to Post-Effective Amendment No. 10 to
the Registration Statement on Form N-1A filed via EDGAR on August 26, 1997 (File No. 33-31603).
11. (a) Consent of Independent Accountants.*
16. Schedule of computation of yield for the Money Market Series. Incorporated by reference to Exhibit No.
16 to Post-Effective Amendment No. 10 to the Registration Statement on Form N-1A filed via EDGAR on
August 26, 1997 (File No. 33-31603).
17. Financial Data Schedule.*
</TABLE>
- ------------------------
*Filed herewith.
<PAGE>
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
DISTRIBUTION AGREEMENT
Agreement made as of June 1, 1998, between Prudential Special Money
Market Fund, Inc. (the Fund), and Prudential Investment Management Services LLC,
a Delaware limited liability company (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the Investment Company Act), as a diversified, open-end,
management investment company and it is in the interest of the Fund to offer its
shares for sale continuously;
WHEREAS, the shares of the Fund may be divided into classes and/or
series (all such shares being referred to herein as Shares) and the Fund
currently is authorized to offer Shares without class designation;
WHEREAS, the Distributor is a broker-dealer registered under the
Securities Exchange Act of 1934, as amended, and is engaged in the business of
selling shares of registered investment companies either directly or through
other broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other, with respect to the continuous offering of the Fund's Shares
from and after the date hereof in order to promote the growth of the Fund and
facilitate the distribution of its Shares; and
WHEREAS, the Fund has adopted a plan (or plans) of distribution
pursuant to Rule 12b-1 under the Investment Company Act with respect to certain
of its classes and/or series of Shares (the Plans) authorizing payments by the
Fund to the Distributor with respect to the distribution of such classes and/or
series of Shares and the maintenance of related shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. APPOINTMENT OF THE DISTRIBUTOR
The Fund hereby appoints the Distributor as the principal underwriter
and distributor of the Shares of the Fund to sell Shares to the public on behalf
of the Fund and the Distributor hereby accepts such appointment and agrees to
act hereunder. The Fund hereby agrees during the term of this Agreement to sell
Shares of the Fund through the Distributor on the terms and conditions set forth
below.
<PAGE>
Section 2. EXCLUSIVE NATURE OF DUTIES
The Distributor shall be the exclusive representative of the Fund to
act as principal underwriter and distributor of the Fund's Shares, except that:
2.1 The exclusive rights granted to the Distributor to sell Shares of
the Fund shall not apply to Shares of the Fund issued in connection with the
merger or consolidation of any other investment company or personal holding
company with the Fund or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding shares of any such company by
the Fund.
2.2 Such exclusive rights shall not apply to Shares issued by the
Fund pursuant to reinvestment of dividends or capital gains distributions or
through the exercise of any conversion feature or exchange privilege.
2.3 Such exclusive rights shall not apply to Shares issued by the
Fund pursuant to the reinstatement privilege afforded redeeming shareholders.
2.4 Such exclusive rights shall not apply to purchases made through
the Fund's transfer and dividend disbursing agent in the manner set forth in the
currently effective Prospectus of the Fund. The term "Prospectus" shall mean
the Prospectus and Statement of Additional Information included as part of the
Fund's Registration Statement, as such Prospectus and Statement of Additional
Information may be amended or supplemented from time to time, and the term
"Registration Statement" shall mean the Registration Statement filed by the Fund
with the Securities and Exchange Commission and effective under the Securities
Act of 1933, as amended (Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. PURCHASE OF SHARES FROM THE FUND
3.1 The Distributor shall have the right to buy from the Fund on
behalf of investors the Shares needed, but not more than the Shares needed
(except for clerical errors in transmission) to fill unconditional orders for
Shares placed with the Distributor by investors or registered and qualified
securities dealers and other financial institutions (selected dealers).
3.2 The Shares shall be sold by the Distributor on behalf of the Fund
and delivered by the Distributor or selected dealers, as described in Section
6.4 hereof, to investors at the offering price as set forth in the Prospectus.
3.3 The Fund shall have the right to suspend the sale of any or all
classes and/or series of its Shares at times when redemption is suspended
pursuant to the conditions in Section 4.3 hereof or at such other times as may
be determined by the Board. The Fund shall also have the right to suspend the
sale of any or all classes
2
<PAGE>
and/or series of its Shares if a banking moratorium shall have been declared by
federal or New Jersey authorities.
3.4 The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Shares received by
the Distributor. Any order may be rejected by the Fund; provided, however, that
the Fund will not arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of Shares. The Fund (or its agent) will confirm
orders upon their receipt, will make appropriate book entries and upon receipt
by the Fund (or its agent) of payment therefor, will deliver deposit receipts
for such Shares pursuant to the instructions of the Distributor. Payment shall
be made to the Fund in New York Clearing House funds or federal funds. The
Distributor agrees to cause such payment and such instructions to be delivered
promptly to the Fund (or its agent).
Section 4. REPURCHASE OR REDEMPTION OF SHARES BY THE FUND
4.1 Any of the outstanding Shares may be tendered for redemption at
any time, and the Fund agrees to repurchase or redeem the Shares so tendered in
accordance with its Declaration of Trust as amended from time to time, and in
accordance with the applicable provisions of the Prospectus. The price to be
paid to redeem or repurchase the Shares shall be equal to the net asset value
determined as set forth in the Prospectus. All payments by the Fund hereunder
shall be made in the manner set forth in Section 4.2 below.
4.2 The Fund shall pay the total amount of the redemption price as
defined in the above paragraph pursuant to the instructions of the Distributor
on or before the seventh day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of Shares shall be
paid by the Fund as follows: (i) in the case of Shares subject to a contingent
deferred sales charge, any applicable contingent deferred sales charge shall be
paid to the Distributor, and the balance shall be paid to or for the account of
the redeeming shareholder, in each case in accordance with applicable provisions
of the Prospectus; and (ii) in the case of all other Shares, proceeds shall be
paid to or for the account of the redeeming shareholder, in each case in
accordance with applicable provisions of the Prospectus.
4.3 Redemption of any class and/or series of Shares or payment may be
suspended at times when the New York Stock Exchange is closed for other than
customary weekends and holidays, when trading on said Exchange is restricted,
when an emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or during any
other period when the Securities and Exchange Commission, by order, so permits.
3
<PAGE>
Section 5. DUTIES OF THE FUND
5.1 Subject to the possible suspension of the sale of Shares as
provided herein, the Fund agrees to sell its Shares so long as it has Shares of
the respective class and/or series available.
5.2 The Fund shall furnish the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Shares, and this shall
include one certified copy, upon request by the Distributor, of all financial
statements prepared for the Fund by independent public accountants. The Fund
shall make available to the Distributor such number of copies of its Prospectus
and annual and interim reports as the Distributor shall reasonably request.
5.3 The Fund shall take, from time to time, but subject to the
necessary approval of the Board and the shareholders, all necessary action to
fix the number of authorized Shares and such steps as may be necessary to
register the same under the Securities Act, to the end that there will be
available for sale such number of Shares as the Distributor reasonably may
expect to sell. The Fund agrees to file from time to time such amendments,
reports and other documents as may be necessary in order that there will be no
untrue statement of a material fact in the Registration Statement, or necessary
in order that there will be no omission to state a material fact in the
Registration Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to notify such states as the
Distributor and the Fund may approve of its intention to sell any appropriate
number of its Shares; provided that the Fund shall not be required to amend its
Articles of Incorporation or By-Laws to comply with the laws of any state, to
maintain an office in any state, to change the terms of the offering of its
Shares in any state from the terms set forth in its Registration Statement, to
qualify as a foreign corporation in any state or to consent to service of
process in any state other than with respect to claims arising out of the
offering of its Shares. Any such notification may be withheld, terminated or
withdrawn by the Fund at any time in its discretion. As provided in Section 9
hereof, the expense of notification and maintenance of notification shall be
borne by the Fund. The Distributor shall furnish such information and other
material relating to its affairs and activities as may be required by the Fund
in connection with such notifications.
4
<PAGE>
Section 6. DUTIES OF THE DISTRIBUTOR
6.1 The Distributor shall devote reasonable time and effort to effect
sales of Shares, but shall not be obligated to sell any specific number of
Shares. Sales of the Shares shall be on the terms described in the Prospectus.
The Distributor may enter into like arrangements with other investment
companies. The Distributor shall compensate the selected dealers as set forth
in the Prospectus.
6.2 In selling the Shares, the Distributor shall use its best efforts
in all respects duly to conform with the requirements of all federal and state
laws relating to the sale of such securities. Neither the Distributor nor any
selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales literature approved by
appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales and the
cancellation of unsettled transactions, as may be necessary to comply with the
requirements of Securities Exchange Act Rule 10b-10 and the rules of the
National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into selected
dealer agreements with registered and qualified securities dealers and other
financial institutions of its choice for the sale of Shares, provided that the
Fund shall approve the forms of such agreements. Within the United States, the
Distributor shall offer and sell Shares only to such selected dealers as are
members in good standing of the NASD or are institutions exempt from
registration under applicable federal securities laws. Shares sold to selected
dealers shall be for resale by such dealers only at the offering price
determined as set forth in the Prospectus.
Section 7. PAYMENTS TO THE DISTRIBUTOR
7.1 With respect to classes and/or series of Shares which impose a
front-end sales charge, the Distributor shall receive and may retain any portion
of any front-end sales charge which is imposed on such sales and not reallocated
to selected dealers as set forth in the Prospectus, subject to the limitations
of Rule 2830 of the Conduct Rules of the NASD. Payment of these amounts to the
Distributor is not contingent upon the adoption or continuation of any
applicable Plans.
7.2 With respect to classes and/or series of Shares which impose a
contingent deferred sales charge, the Distributor shall receive and may retain
any contingent deferred sales charge which is imposed on such sales as set forth
in the Prospectus, subject to the limitations of Rule 2830 of the Conduct Rules
of the NASD. Payment of these amounts to the Distributor is not contingent upon
the adoption or
5
<PAGE>
continuation of any Plan.
Section 8. PAYMENT OF THE DISTRIBUTOR UNDER THE PLAN
8.1 The Fund shall pay to the Distributor as compensation for
services under any Plans adopted by the Fund and this Agreement a distribution
and service fee with respect to the Fund's classes and/or series of Shares as
described in each of the Fund's respective Plans and this Agreement.
8.2 So long as a Plan or any amendment thereto is in effect, the
Distributor shall inform the Board of the commissions and account servicing fees
with respect to the relevant class and/or series of Shares to be paid by the
Distributor to account executives of the Distributor and to broker-dealers,
financial institutions and investment advisers which have dealer agreements with
the Distributor. So long as a Plan (or any amendment thereto) is in effect, at
the request of the Board or any agent or representative of the Fund, the
Distributor shall provide such additional information as may reasonably be
requested concerning the activities of the Distributor hereunder and the costs
incurred in performing such activities with respect to the relevant class and/or
series of Shares.
Section 9. ALLOCATION OF EXPENSES
The Fund shall bear all costs and expenses of the continuous offering
of its Shares (except for those costs and expenses borne by the Distributor
pursuant to a Plan and subject to the requirements of Rule 12b-1 under the
Investment Company Act), including fees and disbursements of its counsel and
auditors, in connection with the preparation and filing of any required
Registration Statements and/or Prospectuses under the Investment Company Act or
the Securities Act, and all amendments and supplements thereto, and preparing
and mailing annual and periodic reports and proxy materials to shareholders
(including but not limited to the expense of setting in type any such
Registration Statements, Prospectuses, annual or periodic reports or proxy
materials). The Fund shall also bear the cost of expenses of making notice
filings for the Shares for sale, and, if necessary or advisable in connection
therewith, of qualifying the Fund as a broker or dealer, in such states of the
United States or other jurisdictions as shall be selected by the Fund and the
Distributor pursuant to Section 5.4 hereof and the cost and expense payable to
each such state for continuing notification therein until the Fund decides to
discontinue such notification pursuant to Section 5.4 hereof. As set forth in
Section 8 above, the Fund shall also bear the expenses it assumes pursuant to
any Plan, so long as such Plan is in effect.
Section 10. INDEMNIFICATION
10.1 The Fund agrees to indemnify, defend and hold the Distributor,
its
6
<PAGE>
officers and directors and any person who controls the Distributor within the
meaning of Section 15 of the Securities Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any
reasonable counsel fees incurred in connection therewith) which the Distributor,
its officers, members or any such controlling person may incur under the
Securities Act, or under common law or otherwise, arising out of or based upon
any untrue statement of a material fact contained in the Registration Statement
or Prospectus or arising out of or based upon any alleged omission to state a
material fact required to be stated in either thereof or necessary to make the
statements in either thereof not misleading, except insofar as such claims,
demands, liabilities or expenses arise out of or are based upon any such untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with information furnished by the Distributor to the Fund
for use in the Registration Statement or Prospectus; provided, however, that
this indemnity agreement shall not inure to the benefit of any such officer,
member or controlling person unless a court of competent jurisdiction shall
determine in a final decision on the merits, that the person to be indemnified
was not liable by reason of willful misfeasance, bad faith or gross negligence
in the performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement (disabling conduct), or, in the absence of such
a decision, a reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling conduct, by (a) a
vote of a majority of a quorum of directors or directors who are neither
"interested persons" of the Fund as defined in Section 2(a)(19) of the
Investment Company Act nor parties to the proceeding, or (b) an independent
legal counsel in a written opinion. The Fund's agreement to indemnify the
Distributor, its officers and members and any such controlling person as
aforesaid is expressly conditioned upon the Fund's being promptly notified of
any action brought against the Distributor, its officers or members, or any such
controlling person, such notification to be given by letter or telegram
addressed to the Fund at its principal business office. The Fund agrees
promptly to notify the Distributor of the commencement of any litigation or
proceedings against it or any of its officers or directors in connection with
the issue and sale of any Shares.
10.2 The Distributor agrees to indemnify, defend and hold the Fund,
its officers and directors and any person who controls the Fund, if any, within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending against such claims, demands or liabilities
and any reasonable counsel fees incurred in connection therewith) which the
Fund, its officers and directors or any such controlling person may incur under
the Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Fund, its directors or officers or
such controlling person resulting from such claims or demands shall arise out of
or be based upon any alleged untrue statement of a material fact contained in
information furnished by the Distributor to the Fund for use in the Registration
Statement or Prospectus or shall arise out of or be based upon any alleged
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omission to state a material fact in connection with such information required
to be stated in the Registration Statement or Prospectus or necessary to make
such information not misleading. The Distributor's agreement to indemnify the
Fund, its officers and directors and any such controlling person as aforesaid,
is expressly conditioned upon the Distributor's being promptly notified of any
action brought against the Fund, its officers and directors or any such
controlling person, such notification being given to the Distributor at its
principal business office.
Section 11. DURATION AND TERMINATION OF THIS AGREEMENT
11.1 This Agreement shall become effective as of the date first above
written and shall remain in force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of the Fund, or by the vote of a majority of the
outstanding voting securities of the applicable class and/or series of the Fund,
and (b) by the vote of a majority of those directors who are not parties to this
Agreement or interested persons of any such parties and who have no direct or
indirect financial interest in this Agreement or in the operation of any of the
Fund's Plans or in any agreement related thereto (Independent directors), cast
in person at a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time, without the payment
of any penalty, by a majority of the independent directors or by vote of a
majority of the outstanding voting securities of the applicable class and/or
series of the Fund, or by the Distributor, on sixty (60) days' written notice to
the other party. This Agreement shall automatically terminate in the event of
its assignment.
11.3 The terms "affiliated person," "assignment," "interested person"
and "vote of a majority of the outstanding voting securities", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. AMENDMENTS TO THIS AGREEMENT
This Agreement may be amended by the parties only if such amendment is
specifically approved by (a) the Board of the Fund, or by the vote of a majority
of the outstanding voting securities of the applicable class and/or series of
the Fund, and (b) by the vote of a majority of the independent directors cast in
person at a meeting called for the purpose of voting on such amendment.
Section 13. SEPARATE AGREEMENT AS TO CLASSES AND/OR SERIES
The amendment or termination of this Agreement with respect to any
class and/or series shall not result in the amendment or termination of this
Agreement
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with respect to any other class and/or series unless explicitly so provided.
Section 14. GOVERNING LAW
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New Jersey as at the time in effect and
the applicable provisions of the Investment Company Act. To the extent that the
applicable law of the State of New Jersey, or any of the provisions herein,
conflict with the applicable provisions of the Investment Company Act, the
latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year above written.
Prudential Investment Management Services LLC
By: /s/ Jonathan M. Greene
-----------------------------------
Jonathan M. Greene
Executive Vice President
Prudential Special Money Market Fund, Inc.
By: /s/ Richard A. Redeker
-----------------------------------
Richard A. Redeker
President
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<PAGE>
FORM OF
DEALER AGREEMENT
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
Prudential Investment Management Services LLC ("Distributor") and
_________________ ("Dealer") have agreed that Dealer will participate in the
distribution of shares ("Shares") of all the funds and series thereof (as they
may exist from time to time) comprising the Prudential Mutual Fund Family (each
a "Fund" and collectively the "Funds") and any classes thereof for which
Distributor now or in the future serves as principal underwriter and
distributor, subject to the terms of this Dealer Agreement ("Agreement"). Any
such additional Funds will be included in this Agreement upon Distributor's
written notification to Dealer.
1. LICENSING
a. Dealer represents and warrants that it is: (i) a broker-dealer
registered with the Securities and Exchange Commission ("SEC"); (ii) a member in
good standing of the National Association of Securities Dealers, Inc. ("NASD");
and (iii) licensed by the appropriate regulatory agency of each state or other
jurisdiction in which Dealer will offer and sell Shares of the Funds, to the
extent necessary to perform the duties and activities contemplated by this
Agreement.
b. Dealer represents and warrants that each of its partners,
directors, officers, employees, and agents who will be utilized by Dealer with
respect to its duties and activities under this Agreement is either
appropriately licensed or exempt from such licensing requirements by the
appropriate regulatory agency of each state or other jurisdiction in which
Dealer will offer and sell Shares of the Funds.
c. Dealer agrees that: (i) termination or suspension of its
registration with the SEC; (ii) termination or suspension of its membership with
the NASD; or (iii) termination or suspension of its license to do business by
any state or other jurisdiction or federal regulatory agency shall immediately
cause the termination of this Agreement. Dealer further agrees to immediately
notify Distributor in writing of any such action or event.
d. Dealer agrees that this Agreement is in all respects subject to
the Conduct Rules of the NASD and such Conduct Rules shall control any provision
to the contrary in this Agreement.
e. Dealer agrees to be bound by and to comply with all applicable
state and federal laws and all rules and regulations promulgated thereunder
generally affecting the sale or distribution of mutual fund shares.
2. ORDERS
a. Dealer agrees to offer and sell Shares of the Funds (including
those of each of its classes) only at the regular public offering price
applicable to such Shares and in effect at the time of each transaction. The
procedures relating to all orders and the handling of each order (including the
manner of computing the net asset value of Shares and the effective time of
orders
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received from Dealer) are subject to: (i) the terms of the then current
prospectus and statement of additional information (including any supplements,
stickers or amendments thereto) relating to each Fund, as filed with the SEC
("Prospectus"); (ii) the new account application for each Fund, as supplemented
or amended from time to time; and (iii) Distributor's written instructions and
multiple class pricing procedures and guidelines, as provided to Dealer from
time to time. To the extent that the Prospectus contains provisions that are
inconsistent with this Agreement or any other document, the terms of the
Prospectus shall be controlling.
b. Distributor reserves the right at any time, and without notice to
Dealer, to suspend the sale of Shares or to withdraw or limit the offering of
Shares. Distributor reserves the unqualified right not to accept any specific
order for the purchase or sale of Shares.
c. In all offers and sales of the Shares to the public, Dealer is
not authorized to act as broker or agent for, or employee of, Distributor, any
Fund or any other dealer, and Dealer shall not in any manner represent to any
third party that Dealer has such authority or is acting in such capacity.
Rather, Dealer agrees that it is acting as principal for Dealer's own account or
as agent on behalf of Dealer's customers in all transactions in Shares, except
as provided in Section 3.i. hereof. Dealer acknowledges that it is solely
responsible for all suitability determinations with respect to sales of Shares
of the Funds to Dealer's customers and that Distributor has no responsibility
for the manner of Dealer's performance of, or for Dealer's acts or omissions in
connection with, the duties and activities Dealer provides under this Agreement.
d. All orders are subject to acceptance by Distributor in its sole
discretion and become effective only upon confirmation by Distributor.
e. Distributor agrees that it will accept from Dealer orders placed
through a remote terminal or otherwise electronically transmitted via the
National Securities Clearing Corporation ("NSCC") Fund/Serv Networking program,
provided, however, that appropriate documentation thereof and agreements
relating thereto are executed by both parties to this Agreement, including in
particular the standard NSCC Networking Agreement and any other related
agreements between Distributor and Dealer deemed appropriate by Distributor, and
that all accounts opened or maintained pursuant to that program will be governed
by applicable NSCC rules and procedures. Both parties further agree that, if
the NSCC Fund/Serv Networking program is used to place orders, the standard NSCC
Networking Agreement will control insofar as there is any conflict between any
provision of the Dealer Agreement and the standard NSCC Networking Agreement.
3. DUTIES OF DEALER
a. Dealer agrees to purchase Shares only from Distributor or from
Dealer's customers.
b. Dealer agrees to enter orders for the purchase of Shares only
from Distributor and only for the purpose of covering purchase orders Dealer has
already received from its customers or for Dealer's own bona fide investment.
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c. Dealer agrees to date and time stamp all orders received by
Dealer and promptly, upon receipt of any and all orders, to transmit to
Distributor all orders received prior to the time described in the Prospectus
for the calculation of each Fund's net asset value so as to permit Distributor
to process all orders at the price next determined after receipt by Dealer, in
accordance with the Prospectus. Dealer agrees not to withhold placing orders for
Shares with Distributor so as to profit itself as a result of such inaction.
d. Dealer agrees to maintain records of all purchases and sales of
Shares made through Dealer and to furnish Distributor or regulatory authorities
with copies of such records upon request. In that regard, Dealer agrees that,
unless Dealer holds Shares as nominee for its customers or participates in the
NSCC Fund/Serv Networking program, at certain matrix levels, it will provide
Distributor with all necessary information to comply properly with all federal,
state and local reporting requirements and backup and nonresident alien
withholding requirements for its customer accounts including, without
limitation, those requirements that apply by treating Shares issued by the Funds
as readily tradable instruments. Dealer represents and agrees that all Taxpayer
Identification Numbers ("TINs") provided are certified, and that no account that
requires a certified TIN will be established without such certified TIN. With
respect to all other accounts, including Shares held by Dealer in omnibus
accounts and Shares purchased or sold through the NSCC Fund/Serv Networking
program, at certain matrix levels, Dealer agrees to perform all federal, state
and local tax reporting with respect to such accounts, including without
limitation redemptions and exchanges.
e. Dealer agrees to distribute or cause to be delivered to its
customers Prospectuses, proxy solicitation materials and related information and
proxy cards, semi-annual and annual shareholder reports and any other materials
in compliance with applicable legal requirements, except to the extent that
Distributor expressly undertakes to do so in writing.
f. Dealer agrees that if any Share is repurchased by any Fund or is
tendered for redemption within seven (7) business days after confirmation by
Distributor of the original purchase order from Dealer, Dealer shall forfeit its
right to any concession or commission received by Dealer with respect to such
Share and shall forthwith refund to Distributor the full concession allowed to
Dealer or commission paid to Dealer on the original sale. Distributor agrees to
notify Dealer of such repurchase or redemption within a reasonable time after
settlement. Termination or cancellation of this Agreement shall not relieve
Dealer from its obligation under this provision.
g. Dealer agrees that payment for Shares ordered from Distributor
shall be in Fed Funds, New York clearinghouse or other immediately available
funds and that such funds shall be received by Distributor by the earlier of:
(i) the end of the third (3rd) business day following Dealer's receipt of the
customer's order to purchase such Shares; or (ii) the settlement date
established in accordance with Rule 15c6-1 under the Securities Exchange Act of
1934, as amended. If such payment is not received by Distributor by such date,
Dealer shall forfeit its right to any concession or commission with respect to
such order, and Distributor reserves the right, without notice, forthwith to
cancel the sale, or, at its option, to sell the Shares ordered back to the Fund,
in which case Distributor may hold Dealer responsible for any loss, including
loss of profit, suffered by Distributor resulting from Dealer's failure to make
payment as aforesaid. If a purchase is made by check, the purchase is deemed
made upon conversion of the purchase instrument into Fed Funds, New York
clearinghouse or other immediately available funds.
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h. Dealer agrees that it: (i) shall assume responsibility for any
loss to the Fund caused by a correction to any order placed by Dealer that is
made subsequent to the trade date for the order, provided such order correction
was not based on any negligence on Distributor's part; and (ii) will immediately
pay such loss to the Fund upon notification.
i. Dealer agrees that in connection with orders for the purchase of
Shares on behalf of any IRAs, 401(k) plans or other retirement plan accounts, by
mail, telephone, or wire, Dealer shall act as agent for the custodian or trustee
of such plans (solely with respect to the time of receipt of the application and
payments), and Dealer shall not place such an order with Distributor until it
has received from its customer payment for such purchase and, if such purchase
represents the first contribution to such a retirement plan account, the
completed documents necessary to establish the retirement plan. Dealer agrees
to indemnify Distributor and its affiliates for any claim, loss, or liability
resulting from incorrect investment instructions received by Distributor from
Dealer.
j. Dealer agrees that it will not make any conditional orders for
the purchase or redemption of Shares and acknowledges that Distributor will not
accept conditional orders for Shares.
k. Dealer agrees that all out-of-pocket expenses incurred by it in
connection with its activities under this Agreement will be borne by Dealer.
l. Dealer agrees that it will keep in force appropriate broker's
blanket bond insurance policies covering any and all acts of Dealer's partners,
directors, officers, employees, and agents adequate to reasonably protect and
indemnify the Distributor and the Funds against any loss which any party may
suffer or incur, directly or indirectly, as a result of any action by Dealer or
Dealer's partners, directors, officers, employees, and agents.
m. Dealer agrees that it will maintain the required net capital as
specified by the rules and regulations of the SEC, NASD and other regulatory
authorities.
4. DEALER COMPENSATION
a. On each purchase of Shares by Dealer from Distributor, the total
sales charges and dealer concessions or commissions, if any, payable to Dealer
shall be as stated on Schedule A to this Agreement, which may be amended by
Distributor from time to time. Distributor reserves the right, without prior
notice, to suspend or eliminate such dealer concession or commissions by
amendment, sticker or supplement to the then current Prospectus for each Fund.
Such sales charges and dealer concessions or commissions, are subject to
reduction under a variety of circumstances as described in each Fund's then
current Prospectus. For an investor to obtain any reduction, Distributor must
be notified at the time of the sale that the sale qualifies for the reduced
sales charge. If Dealer fails to notify Distributor of the applicability of a
reduction in the sales charge at the time the trade is placed, neither
Distributor nor any Fund will be liable for amounts necessary to reimburse any
investor for the reduction that should have been effected. Dealer acknowledges
that no sales charge or concession or commission will be paid to Dealer on the
reinvestment of dividends or capital gains reinvestment or on Shares acquired in
exchange for Shares of another Fund, or class thereof, having the same
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sales charge structure as the Fund, or class thereof, from which the exchange
was made, in accordance with the Prospectus.
b. In accordance with the Funds' Prospectuses, Distributor or any
affiliate may, but is not obligated to, make payments to dealers from
Distributor's own resources as compensation for certain sales that are made at
net asset value ("Qualifying Sales"). If Dealer notifies Distributor of a
Qualifying Sale, Distributor may make a contingent advance payment up to the
maximum amount available for payment on the sale. If any of the Shares
purchased in a Qualifying Sale are redeemed within twelve (12) months of the end
of the month of purchase, Distributor shall be entitled to recover any advance
payment attributable to the redeemed Shares by reducing any account payable or
other monetary obligation Distributor may owe to Dealer or by making demand upon
Dealer for repayment in cash. Distributor reserves the right to withhold
advances to Dealer, if for any reason Distributor believes that it may not be
able to recover unearned advances from Dealer.
c. With respect to any Fund that offers Shares for which
distribution plans have been adopted under Rule 12b-1 under the Investment
Company Act of 1940, as amended ("Rule 12b-1 Plans"), Distributor also is
authorized to pay the Dealer continuing distribution and/or service fees, as
specified in Schedule A and the relevant Fund Prospectus, with respect to Shares
of any such Fund, to the extent that Dealer provides distribution, marketing,
administrative and other services and activities regarding the promotion of such
Shares and the maintenance of related shareholder accounts.
d. In connection with the receipt of distribution fees and/or
service fees under Rule 12b-1 Plans applicable to Shares purchased by Dealer's
customers, Distributor directs Dealer to provide enhanced shareholder services
such as: processing purchase and redemption transactions; establishing
shareholder accounts; and providing certain information and assistance with
respect to the Funds. (Redemption levels of shareholder accounts assigned to
Dealer will be considered in evaluating Dealer's continued ability to receive
payments of distribution and/or service fees.) In addition, Dealer agrees to
support Distributor's marketing efforts by, among other things, granting
reasonable requests for visits to Dealer's office by Distributor's wholesalers
and marketing representatives, including all Funds covered by a Rule 12b-1 Plan
on Dealer's "approved," "preferred" or other similar product lists, if
applicable, and otherwise providing satisfactory product, marketing and sales
support. Further, Dealer agrees to provide Distributor with supporting
documentation concerning the shareholder services provided, as Distributor may
reasonably request from time to time.
e. All Rule 12b-1 Plan distribution and/or servicing fees shall be
based on the value of Shares attributable to Dealer's customers and eligible for
such payment, and shall be calculated on the basis of and at the rates set forth
in the compensation schedule then in effect. Without prior approval by a
majority of the outstanding shares of a Fund, the aggregate annual fees paid to
Dealer pursuant to any Rule 12b-1 Plan shall not exceed the amounts stated as
the "annual maximums" in each Fund's Prospectus, which amount shall be a
specified percent of the value of the Fund's net assets held in Dealer's
customers' accounts that are eligible for payment pursuant to the Rule 12b-1
Plans (determined in the same manner as each Fund uses to compute its net assets
as set forth in its then current Prospectus).
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f. The provisions of any Rule 12b-1 Plan between the Funds and the
Distributor shall control over this Agreement in the event of any inconsistency.
Each Rule 12b-1 Plan in effect on the date of this Agreement is described in the
relevant Fund's Prospectus. Dealer hereby acknowledges that all payments under
Rule 12b-1 Plans are subject to limitations contained in such Rule 12b-1 Plans
and may be varied or discontinued at any time.
5. REDEMPTIONS, REPURCHASES AND EXCHANGES
a. The Prospectus for each Fund describes the provisions whereby the
Fund, under all ordinary circumstances, will redeem Shares held by shareholders
on demand. Dealer agrees that it will not make any representations to
shareholders relating to the redemption of their Shares other than the
statements contained in the Prospectus and the underlying organizational
documents of the Fund, to which it refers, and that Dealer will pay as
redemption proceeds to shareholders the net asset value, minus any applicable
deferred sales charge or redemption fee, determined after receipt of the order
as discussed in the Prospectus.
b. Dealer agrees not to repurchase any Shares from its customers at
a price below that next quoted by the Fund for redemption or repurchase, I.E.,
at the net asset value of such Shares, less any applicable deferred sales
charge, or redemption fee, in accordance with the Fund's Prospectus. Dealer
shall, however, be permitted to sell Shares for the account of the customer or
record owner to the Funds at the repurchase price then currently in effect for
such Shares and may charge the customer or record owner a fair service fee or
commission for handling the transaction, provided Dealer discloses the fee or
commission to the customer or record owner. Nevertheless, Dealer agrees that it
shall not under any circumstances maintain a secondary market in such
repurchased Shares.
c. Dealer agrees that, with respect to a redemption order it has
made, if instructions in proper form, including any outstanding certificates,
are not received by Distributor within the time customary or the time required
by law, the redemption may be canceled forthwith without any responsibility or
liability on Distributor's part or on the part of any Fund, or Distributor, at
its option, may buy the shares redeemed on behalf of the Fund, in which latter
case Distributor may hold Dealer responsible for any loss, including loss of
profit, suffered by Distributor resulting from Distributor's failure to settle
the redemption.
d. Dealer agrees that it will comply with any restrictions and
limitations on exchanges described in each Fund's Prospectus, including any
restrictions or prohibitions relating to frequent purchases and redemptions
(i.e., market timing).
6. MULTIPLE CLASSES OF SHARES
Distributor may, from time to time, provide Dealer with written
guidelines or standards relating to the sale or distribution of Funds offering
multiple classes of Shares with different sales charges and distribution-related
operating expenses.
7. FUND INFORMATION
a. Dealer agrees that neither it nor any of its partners, directors,
officers, employees, and agents is authorized to give any information or make
any representations
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concerning Shares of any Fund except those contained in the Fund's then current
Prospectus or in materials provided by Distributor.
b. Distributor will supply to Dealer Prospectuses, reasonable
quantities of sales literature, sales bulletins, and additional sales
information as provided by Distributor. Dealer agrees to use only advertising
or sales material relating to the Funds that: (i) is supplied by Distributor, or
(ii) conforms to the requirements of all applicable laws or regulations of any
government or authorized agency having jurisdiction over the offering or sale of
Shares of the Funds and is approved in writing by Distributor in advance of its
use. Such approval may be withdrawn by Distributor in whole or in part upon
written notice to Dealer, and Dealer shall, upon receipt of such notice,
immediately discontinue the use of such sales literature, sales bulletins and
advertising. Dealer is not authorized to modify or translate any such materials
without Distributor's prior written consent.
8. SHARES
a. Distributor acts solely as agent for the Fund and Distributor
shall have no obligation or responsibility with respect to Dealer's right to
purchase or sell Shares in any state or jurisdiction.
b. Distributor shall periodically furnish Dealer with information
identifying the states or jurisdictions in which it is believed that all
necessary notice, registration or exemptive filings for Shares have been made
under applicable securities laws such that offers and sales of Shares may be
made in such states or jurisdictions. Distributor shall have no obligation to
make such notice, registration or exemptive filings with respect to Shares in
any state or jurisdiction.
c. Dealer agrees not to transact orders for Shares in states or
jurisdictions in which it has been informed that Shares may not be sold or in
which it and its personnel are not authorized to sell Shares.
d. Distributor shall have no responsibility, under the laws
regulating the sale of securities in the United States or any foreign
jurisdiction, with respect to the qualification or status of Dealer or Dealer's
personnel selling Fund Shares. Distributor shall not, in any event, be liable
or responsible for the issue, form, validity, enforceability and value of such
Shares or for any matter in connection therewith.
e. Dealer agrees that it will make no offers or sales of Shares in
any foreign jurisdiction, except with the express written consent of
Distributor.
9. INDEMNIFICATION
a. Dealer agrees to indemnify, defend and hold harmless Distributor
and the Funds and their predecessors, successors, and affiliates, each current
or former partner, officer, director, employee, shareholder or agent and each
person who controls or is controlled by Distributor from any and all losses,
claims, liabilities, costs, and expenses, including attorney fees, that may be
assessed against or suffered or incurred by any of them howsoever they arise,
and as they are incurred, which relate in any way to: (i) any alleged violation
of any statute or
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regulation (including without limitation the securities laws and regulations of
the United States or any state or foreign country) or any alleged tort or breach
of contract, related to the offer or sale by Dealer of Shares of the Funds
pursuant to this Agreement (except to the extent that Distributor's negligence
or failure to follow correct instructions received from Dealer is the cause of
such loss, claim, liability, cost or expense); (ii) any redemption or exchange
pursuant to instructions received from Dealer or its partners, affiliates,
officers, directors, employees or agents; or (iii) the breach by Dealer of any
of its representations and warranties specified herein or the Dealer's failure
to comply with the terms and conditions of this Agreement, whether or not such
action, failure, error, omission, misconduct or breach is committed by Dealer or
its predecessor, successor, or affiliate, each current or former partner,
officer, director, employee or agent and each person who controls or is
controlled by Dealer.
b. Distributor agrees to indemnify, defend and hold harmless Dealer
and its predecessors, successors and affiliates, each current or former partner,
officer, director, employee or agent, and each person who controls or is
controlled by Dealer from any and all losses, claims, liabilities, costs and
expenses, including attorney fees, that may be assessed against or suffered or
incurred by any of them which arise, and which relate to any untrue statement of
or omission to state a material fact contained in the Prospectus or any written
sales literature or other marketing materials provided by the Distributor to the
Dealer, required to be stated therein or necessary to make the statements
therein not misleading.
c. Dealer agrees to notify Distributor, within a reasonable time, of
any claim or complaint or any enforcement action or other proceeding with
respect to Shares offered hereunder against Dealer or its partners, affiliates,
officers, directors, employees or agents, or any person who controls Dealer,
within the meaning of Section 15 of the Securities Act of 1933, as amended.
d. Dealer further agrees promptly to send Distributor copies of
(i) any report filed pursuant to NASD Conduct Rule 3070, including, without
limitation quarterly reports filed pursuant to Rule 3070(c), (ii) reports filed
with any other self-regulatory organization in lieu of Rule 3070 reports
pursuant to Rule 3070(e) and (iii) amendments to Dealer's Form BD.
e. Each party's obligations under these indemnification provisions
shall survive any termination of this Agreement.
10. TERMINATION; AMENDMENT
a. In addition to the automatic termination of this Agreement
specified in Section 1.c. of this Agreement, each party to this Agreement may
unilaterally cancel its participation in this Agreement by giving thirty (30)
days prior written notice to the other party. In addition, each party to this
Agreement may terminate this Agreement immediately by giving written notice to
the other party of that other party's material breach of this Agreement. Such
notice shall be deemed to have been given and to be effective on the date on
which it was either delivered personally to the other party or any officer or
member thereof, or was mailed postpaid or delivered to a telegraph office for
transmission to the other party's designated person at the addresses shown
herein or in the most recent NASD Manual.
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b. This Agreement shall terminate immediately upon the appointment
of a Trustee under the Securities Investor Protection Act or any other act of
insolvency by Dealer.
c. The termination of this Agreement by any of the foregoing means
shall have no effect upon transactions entered into prior to the effective date
of termination and shall not relieve Dealer of its obligations, duties and
indemnities specified in this Agreement. A trade placed by Dealer subsequent to
its voluntary termination of this Agreement will not serve to reinstate the
Agreement. Reinstatement, except in the case of a temporary suspension of
Dealer, will only be effective upon written notification by Distributor.
d. This Agreement is not assignable or transferable and will
terminate automatically in the event of its "assignment," as defined in the
Investment Company Act of 1940, as amended and the rules, regulations and
interpretations thereunder. The Distributor may, however, transfer any of its
duties under this Agreement to any entity that controls or is under common
control with Distributor.
e. This Agreement may be amended by Distributor at any time by
written notice to Dealer. Dealer's placing of an order or accepting payment of
any kind after the effective date and receipt of notice of such amendment shall
constitute Dealer's acceptance of such amendment.
11. DISTRIBUTOR'S REPRESENTATIONS AND WARRANTIES
Distributor represents and warrants that:
a. It is a limited liability company duly organized and existing and
in good standing under the laws of the state of Delaware and is duly registered
or exempt from registration as a broker-dealer in all states and jurisdictions
in which it provides services as principal underwriter and distributor for the
Funds.
b. It is a member in good standing of the NASD.
c. It is empowered under applicable laws and by Distributor's
charter and by-laws to enter into this Agreement and perform all activities and
services of the Distributor provided for herein and that there are no
impediments, prior or existing, regulatory, self-regulatory, administrative,
civil or criminal matters affecting Distributor's ability to perform under this
Agreement.
d. All requisite actions have been taken to authorize Distributor to
enter into and perform this Agreement.
12. ADDITIONAL DEALER REPRESENTATIONS AND WARRANTIES
In addition to the representations and warranties found elsewhere in
this Agreement, Dealer represents and warrants that:
a. It is duly organized and existing and in good standing under the
laws of the state, commonwealth or other jurisdiction in which Dealer is
organized and that Dealer will
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not offer Shares of any Fund for sale in any state or jurisdiction where such
Shares may not be legally sold or where Dealer is not qualified to act as a
broker-dealer.
b. It is empowered under applicable laws and by Dealer's
organizational documents to enter into this Agreement and perform all activities
and services of the Dealer provided for herein and that there are no
impediments, prior or existing, regulatory, self-regulatory, administrative,
civil or criminal matters affecting Dealer's ability to perform under this
Agreement.
c. All requisite actions have been taken to authorize Dealer to
enter into and perform this Agreement.
d. It is not, at the time of the execution of this Agreement,
subject to any enforcement or other proceeding with respect to its activities
under state or federal securities laws, rules or regulations.
13. SETOFF; DISPUTE RESOLUTION; GOVERNING LAW
a. Should any of Dealer's concession accounts with Distributor have
a debit balance, Distributor shall be permitted to offset and recover the amount
owed from any other account Dealer has with Distributor, without notice or
demand to Dealer.
b. In the event of a dispute concerning any provision of this
Agreement, either party may require the dispute to be submitted to binding
arbitration under the commercial arbitration rules and procedures of the NASD.
The parties agree that, to the extent permitted under such arbitration rules and
procedures, the arbitrators selected shall be from the securities industry.
Judgment upon any arbitration award may be entered by any state or federal court
having jurisdiction.
c. This Agreement shall be governed and construed in accordance with
the laws of the state of New Jersey, not including any provision which would
require the general application of the law of another jurisdiction.
14. INVESTIGATIONS AND PROCEEDINGS
The parties to this Agreement agree to cooperate fully in any
securities regulatory investigation or proceeding or judicial proceeding with
respect to each's activities under this Agreement and promptly to notify the
other party of any such investigation or proceeding.
15. CAPTIONS
All captions used in this Agreement are for convenience only, are not
a party hereof, and are not to be used in construing or interpreting any aspect
hereof.
16. ENTIRE UNDERSTANDING
This Agreement contains the entire understanding of the parties hereto
with respect to the subject matter contained herein and supersedes all previous
agreements. This
A-10
<PAGE>
Agreement shall be binding upon the parties hereto when signed by Dealer and
accepted by Distributor.
A-11
<PAGE>
17. SEVERABILITY
Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law.
If, however, any provision of this Agreement is held under applicable law to be
invalid, illegal, or unenforceable in any respect, such provision shall be
ineffective only to the extent of such invalidity, and the validity, legality
and enforceability of the remaining provisions of this Agreement shall not be
affected or impaired in any way.
18. ENTIRE AGREEMENT
This Agreement contains the entire understanding of the parties hereto
with respect to the subject matter contained herein and supersedes all previous
agreements and/or understandings of the parties. This Agreement shall be
binding upon the parties hereto when signed by Dealer and accepted by
Distributor.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year set forth below.
PRUDENTIAL INVESTMENT MANAGEMENT
SERVICES LLC
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
Date:
---------------------------------
DEALER:
-------------------------------
By:
-----------------------------------
(Signature)
Name:
---------------------------------
Title:
--------------------------------
Address:
------------------------------
------------------------------
------------------------------
Telephone:----------------------------
NASD CRD #
----------------------------
Prudential Dealer #
(Internal Use Only)-------------------
Date:
---------------------------------
A-12
<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. 11 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
August 18, 1998, relating to the financial statements and financial
highlights of Prudential Special Money Market Fund, Inc. which appears in
such Statement of Additional Information, and to the incorporation by
reference of our report into the Prospectus which constitutes part of this
Registration Statement. We also consent to the reference to us under the
heading "Custodian, Transfer and Dividend Disbursing Agent and Independent
Accountants" in such Statement of Additional Information and to the
references to us under the heading "Financial Highlights" in such Prospectus.
PricewaterhouseCooper LLP
1177 Avenue of the Americas
New York, New York 10036
August 28, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000856715
<NAME> PRUDENTIAL SPECIAL MONEY MARKET FUND
<SERIES>
<NUMBER> 001
<NAME> PRUDENTIAL SPECIAL MONEY MARKET FUND (CLASS A)
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 217,751,970
<INVESTMENTS-AT-VALUE> 217,751,976
<RECEIVABLES> 3,162,583
<ASSETS-OTHER> 1,447,433
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 7,382,551
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 499,547
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<PAID-IN-CAPITAL-COMMON> 214,479,894
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<INTEREST-INCOME> 13,871,028
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<EXPENSES-NET> 1,796,325
<NET-INVESTMENT-INCOME> 12,074,703
<REALIZED-GAINS-CURRENT> 2,146
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 12,076,849
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 12,074,703
<DISTRIBUTIONS-OF-GAINS> 2,146
<DISTRIBUTIONS-OTHER> (12,076,849)
<NUMBER-OF-SHARES-SOLD> 1,699,831,087
<NUMBER-OF-SHARES-REDEEMED> (1,758,926,128)
<SHARES-REINVESTED> 9,918,808
<NET-CHANGE-IN-ASSETS> (35,299,384)
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<GROSS-ADVISORY-FEES> 1,195,235
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,796,325
<AVERAGE-NET-ASSETS> 239,047,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
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</TABLE>
