-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UFJOTOP+gtLMyIabK0aEviIbs7PjXaBNYmXxn9js8bibY+fyR4f/SVOO4NKDlvoi NMz/EyGVy+WqGdNIOk4BSA== 0000950110-01-000226.txt : 20010315 0000950110-01-000226.hdr.sgml : 20010315 ACCESSION NUMBER: 0000950110-01-000226 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 20010314 EFFECTIVENESS DATE: 20010314 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRUDENTIAL TAX FREE MONEY FUND INC CENTRAL INDEX KEY: 0000311561 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 132993505 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 002-64625 FILM NUMBER: 1567803 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 811-02927 FILM NUMBER: 1567804 BUSINESS ADDRESS: STREET 1: 199 WATER ST CITY: NEW YORK STATE: NY ZIP: 10292 BUSINESS PHONE: 2122142189 MAIL ADDRESS: STREET 1: ONE SEAPORT PLZ STREET 2: ONE SEAPORT PLZ CITY: NEW YORK STATE: NY ZIP: 10292 FORMER COMPANY: FORMER CONFORMED NAME: PRUDENTIAL BACHE TAX FREE MONEY FUND INC DATE OF NAME CHANGE: 19920603 FORMER COMPANY: FORMER CONFORMED NAME: CHANCELLOR TAX FREE MONEY FUND INC DATE OF NAME CHANGE: 19830516 FORMER COMPANY: FORMER CONFORMED NAME: CHANCELLOR TAX EXEMPT DAILY INCOME FUND INC DATE OF NAME CHANGE: 19810811 485BPOS 1 0001.txt REGISTRATION STATEMENT As filed with the Securities and Exchange Commission on March 13, 2001 Securities Act Registration No. 2-64625 Investment Company Act Registration No. 811-2927 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] PRE-EFFECTIVE AMENDMENT NO. [ ] POST-EFFECTIVE AMENDMENT NO. 26 [X] AND/OR REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X] AMENDMENT NO. 27 [X] (Check appropriate box or boxes) -------------- PRUDENTIAL TAX-FREE MONEY FUND, INC. (Exact name of registrant as specified in charter) GATEWAY CENTER THREE, 100 MULBERRY STREET NEWARK, NEW JERSEY 07102-4077 (Address of Principal Executive Offices) (Zip Code) -------------- REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (973) 367-7525 MARGUERITE E.H. MORRISON, ESQ. GATEWAY CENTER THREE, 100 MULBERRY STREET NEWARK, NEW JERSEY 07102-4077 (Name and Address of Agent for Service) APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX): [X] immediately upon filing pursuant to paragraph (b) [ ] on (date) pursuant to paragraph (b) [ ] 60 days after filing pursuant to paragraph (a)(1) [ ] on (date) pursuant to paragraph (a)(1) [ ] 75 days after filing pursuant to paragraph (a)(2) [ ] on (date) pursuant to paragraph (a)(2) of Rule 485. If appropriate, check the following box: [ ] this post-effective amendment designates a new effective date for a previously filed post-effective amendment. -------------- Title of Securities Being Registered....................Shares of Common Stock, Par Value $.01 per Share ================================================================================ PROSPECTUS AND FINANCIAL PRIVACY NOTICE MARCH 15, 2001 Prudential Tax-Free Money Fund, Inc. FUND TYPE Money Market OBJECTIVE The highest level of current income that is exempt from federal taxes, consistant with liquidity and the preservation of capital. [BUILD ON THE ROCK GRAPHIC] As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved the Fund's shares nor has the SEC determined that this prospectus [LOGO] Prudential is complete or accurate. It is a criminal offense to state otherwise. Table of Contents 1 Risk/Return Summary 1 Investment Objective and Principal Strategies 1 Principal Risks 2 Evaluating Performance 4 Fees and Expenses 5 How the Fund Invests 5 Investment Objective and Policies 7 Other Investments and Strategies 9 Investment Risks 11 How the Fund is Managed 11 Board of Directors 11 Manager 11 Investment Adviser 12 Distributor 13 Fund Distributions and Tax Issues 13 Distributions 14 Tax Issues 15 How to Buy, Sell and Exchange Shares of the Fund 15 How to Buy Shares 20 How to Sell Your Shares 22 How to Exchange Your Shares 23 Telephone Redemptions and Exchanges 24 Financial Highlights 26 The Prudential Mutual Fund Family For More Information (Back Cover) - -------------------------------------------------------------------------------- Prudential Tax-Free Money Fund, Inc. [PHONE GRAPHIC] (800 225-1852 - -------------------------------------------------------------------------------- RISK/RETURN SUMMARY - -------------------------------------------------------------------------------- This section highlights key information about Prudential Tax-Free Money Fund, Inc., which we refer to as "the Fund." Additional information follows this summary. - -------------------------------------------------------------------------------- Did You Know... Money market funds--which hold high-quality short-term debt obligations--provide investors with a lower risk, highly liquid investment option. These funds attempt to maintain a net asset value of $1 per share, although there can be no guarantee that they will always be able to do so. - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES Our investment objective is to seek the highest level of current income that is exempt from federal income taxes, consistent with liquidity and the preservation of capital. To achieve this objective we invest primarily in short-term debt obligations of state and local governments, municipal commercial paper, variable rate demand obligations and municipal asset-backed securities, which we refer to collectively as "Municipal Bonds." The Fund invests in Municipal Bonds which are high-quality money market instruments with remaining maturities of 13 months or less. This may include obligations the interest and/or principal payments on which are insured by the bond issuers or other parties. The Fund may also invest in longer-term securities that are accompanied by demand features, which will shorten the effective maturity of the securities to thirteen months or less. Under normal circumstances, at least 80% of the Fund's net assets are invested in money market instruments that pay income exempt from federal income taxes and which are not preference items for purposes of the federal alternative minimum tax. The Fund may invest up to 20% of its net assets in Municipal Bonds that may be a preference item for purposes of the federal alternative minimum tax. While we make every effort to achieve our investment objective and maintain a net asset value of $1 per share, we can't guarantee success. To date, the Fund's net asset value has never deviated from $1 per share. PRINCIPAL RISKS Although we try to invest wisely, all investments involve risk. Since the Fund invests in debt obligations, there is the risk that the value of a particular obligation could go down. Debt obligations are generally subject to credit risk--the risk that the issuer of a particular security may be unable to make - -------------------------------------------------------------------------------- 1 - -------------------------------------------------------------------------------- RISK/RETURN SUMMARY - -------------------------------------------------------------------------------- principal and interest payments when they are due, and market risk--the risk that the securities could lose value because interest rates rise or investors lose confidence in the ability of issuers in general to pay back their debt. The Fund's many securities, including municipal asset-backed securities, are also subject to prepayment risk--the risk that the underlying obligations may be prepaid, partially or completely, generally during times of falling interest rates, which could adversely affect yield and could require the Fund to reinvest in lower yielding obligations. The Fund may purchase insured Municipal Bonds to reduce credit risks. Although insurance coverage reduces credit risks by providing that the insurer will make timely payment of interest and/or principal, it does not provide protection against market fluctuations of insured bonds or fluctuations in the price of the shares of the Fund. An insured Municipal Bond fluctuates in value largely based on factors relating to the insurer's creditworthiness or ability to satisfy its obligations. There is also a risk that we will sell a security for a price that is higher or lower than the value attributed to the security through the amortized cost valuation procedures we follow. Such an event could affect our ability to maintain a net asset value of $1 per share. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of an investment at $1 per share, it is possible to lose money by investing in the Fund. EVALUATING PERFORMANCE A number of factors--including risk--can affect how the Fund performs. The following bar chart shows the Fund's performance for each full calendar year of operation for the last 10 years. The tables below compare the Fund's average annual returns and yield for the periods indicated with those of a group of similar Funds. The bar chart and tables demonstrate the risk of investing in the Fund by showing how returns can change from year to year. Past performance is not an indication that the Fund will achieve similar results in the future. For current yield information, you can call us at (800) 225-1852. - -------------------------------------------------------------------------------- 2 Prudential Tax-Free Money Fund, Inc. [PHONE GRAPHIC] (800 225-1852 - -------------------------------------------------------------------------------- RISK/RETURN SUMMARY - -------------------------------------------------------------------------------- [The following represents a graphical representation of the bar chart]
- --------------------------------------------------- Annual Returns(1) - ---------------------------------------------------------------------------------------------------------------------------- 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 - ---------------------------------------------------------------------------------------------------------------------------- 4.22% 2.63% 1.86% 2.31% 3.15% 2.84% 3.00% 2.83% 2.56% 3.42% - ----------------------------------------------------------------------------------------------------------------------------
BEST QUARTER: 1.14% (1st quarter of 1991) WORST QUARTER: .45% (2nd quarter of 1993)
- ------------------------------------------------ Average Annual Returns(1) (as of 12/31/00) - ----------------------------------------------------------------------------------- 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION Fund shares 3.42% 2.94% 2.89% 4.17% (since 8-2-79) iMoneyNet Average(2) 3.55% 3.07% 2.98% N/A - -----------------------------------------------------------------------------------
- ------------------------------------------------ Yield(1) (as of 12/31/00) - -------------------------------------------------------------------------------- 7-Day yield of the 3.83% Fund 7-Day tax equivalent 6.34% yield of the Fund - -------------------------------------------------------------------------------- (1) The Fund's returns and yield are after deduction of expenses. (2) The iMoneyNet, Inc. Average is based upon the average return of all mutual funds in the iMoneyNet, Inc. Tax-Free Stock Broker & General Purpose (SB&GP) Average category. - -------------------------------------------------------------------------------- 3 - -------------------------------------------------------------------------------- RISK/RETURN SUMMARY - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables show the fees and expenses that you may pay if you buy and hold shares of the Fund. - ------------------------------------------------ Shareholder Fees (paid directly from your investment) - -------------------------------------------------------------------------------- CLASS A SHARES Maximum sales charge (load) None imposed on purchases (as a percentage of offering price) Maximum deferred sales charge (load) (as a percentage None of the lower of original purchase price or sale proceeds) Maximum sales charge (load) None imposed on reinvested dividends and other distributions Redemption fees None Exchange fee None - -------------------------------------------------------------------------------- - ------------------------------------------------------------ Annual Fund Operating Expenses (deducted from Fund assets) - -------------------------------------------------------------------------------- CLASS A SHARES Management fees .500% + Distribution and service (12b-1) fees .125% + Other expenses .177% = Total annual Fund operating expenses .802% - -------------------------------------------------------------------------------- Example This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then sell all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be: - -------------------------------------------------------------------------------- 1 YR 3 YRS 5 YRS 10YRS Fund shares $82 $255 $444 $990 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 4 Prudential Tax-Free Money Fund, Inc. [PHONE GRAPHIC] (800 225-1852 - -------------------------------------------------------------------------------- HOW THE FUND INVESTS - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE AND POLICIES The Fund's investment objective is to seek the highest level of current income that is exempt from federal income taxes, consistent with liquidity and the preservation of capital. While we make every effort to achieve our objective, we can't guarantee success. The Fund invests in high-quality money market instruments to try to provide investors with current tax-free income while maintaining a stable net asset value of $1 per share. We manage the Fund to comply with specific rules designed for money market mutual funds. We will purchase short-term debt obligations issued by states, territories and possessions of the United States and by the District of Columbia, which we refer to as "Municipal Bonds." The Fund may invest up to 20% of its net assets in Municipal Bonds that pay interest that is a preference item for purposes of the federal alternative minimum tax. The Municipal Bonds that we purchase must be (i) rated in one of the two highest short-term rating categories by at least two nationally recognized statistical rating organizations (NRSROs) or by one NRSRO if only one NRSRO rates those Municipal Bonds, such as Moody's Investors Service, Inc. (rated at least Aa, MIG-2 or Prime-2) or Standard & Poor's Rating Group (rated at least AA, SP-2 or A-2), (ii) rated in one of the three highest long-term rating categories by at least two NSROs or by only one NSRO if only one NSRO rates those Municipal Bonds, or (iii) if unrated, of comparable quality as determined by the Fund's investment adviser. We may also invest in insured municipal bonds. Generally, the yields on insured bonds are lower than the yields on uninsured bonds of comparable quality. Insurance reduces the insured bond's credit risk and may increase the bond's value. The Municipal Bonds that we purchase may be "general obligation bonds" or "revenue bonds." General obligation bonds are Municipal Bonds backed by the full faith and credit of the issuer, including its taxing authority and ability to borrow additional funds. In contrast, revenue bonds are Municipal Bonds backed by the revenues from a specific municipal project such as bridges, hospitals and public works or proceeds from a special excise tax. The Fund can also purchase or hold up to 25% of the Fund's total assets in Municipal Bonds that are "pre-refunded" bonds. These obligations are fully secured by the U.S. Government securities held in escrow for the benefit of holders of the Municipal Bonds. Municipal Bonds are usually pre-refunded when the issuer can borrow money more cheaply from another source and, therefore, pay off its original, more costly obligation. Under the rules that govern tax-free money market funds, like the Fund, we treat pre-refunded bonds as U.S. Government securities. This means that we can invest more of the Fund's assets in Municipal Bonds that are pre-refunded than we could if the security were a general obligation bond or a - -------------------------------------------------------------------------------- 5 - -------------------------------------------------------------------------------- HOW THE FUND INVESTS - -------------------------------------------------------------------------------- revenue bond. The Fund will not invest more than 25% of its total assets in pre-refunded bonds of a single issuer. The Fund may invest in Municipal Bonds that are "variable rate" or "floating rate" obligations. These securities pay interest at rates that change periodically to reflect changes in market interest rates. Because these securities adjust the interest they pay, they may be beneficial when interest rates are rising because of the additional return the Fund will receive, and they may be detrimental when interest rates are falling because of the reduction in interest payments to the Fund. Debt obligations in general, including those listed above and any others that we may purchase, are basically written promises to repay a debt. Among the various types of debt securities we may purchase, the terms of repayment may vary, as may the commitment of other parties to honor the obligations of the issuer of the security. We may purchase securities that include demand features, which allow us to demand repayment of a debt obligation before the obligation is due or "matures." This means that we can purchase longer-term securities because we can demand repayment of the obligation at an agreed-upon price within an agreed-upon or specified period of time. This procedure follows the rules applicable to money market funds. The Fund's investments also include variable rate demand obligations (VRDOs) and VRDOs in the form of municipal asset backed securities or VRDOs in variable rate tax-exempt obligations held by financial institutions. The VRDOs in which the Fund may invest are tax-exempt obligations that contain a floating or variable interest rate adjustment formula and include an unconditional right of demand on the part of the holder to receive payment of the unpaid principal plus accrued interest at a specified time. Municipal asset backed VRDOs provide the Fund with a specified undivided interest (up to 100%) of the underlying obligations and the right to demand payment of the unpaid principal plus accrued interest on the asset backed securities from the financial institution at a specified time. There is a possibility, because of default or insolvency, that the demand features of VRDOs or municipal asset backed VRDOs may not be honored. The securities that we may purchase may change over time as new types of money market instruments are developed. We will purchase these new instruments, however, only if their characteristics and features follow the rules governing money market mutual funds. Any of the money market instruments that the Fund may purchase may be accompanied with the right to resell the instrument prior to the instrument's - -------------------------------------------------------------------------------- 6 Prudential Tax-Free Money Fund, Inc. [PHONE GRAPHIC] (800 225-1852 - -------------------------------------------------------------------------------- HOW THE FUND INVESTS - -------------------------------------------------------------------------------- maturity. These rights are referred to as "puts" and are acquired by the Fund to protect against a possible decline in the market value of the securities to which the puts relate in the event of interest rate fluctuations and to shorten the effective maturity of the security. One form of liquidity put consists of an underlying fixed rate municipal bond that is subject to a third party demand feature or "tender option." Tender option bonds are the functional equivalent of ordinary variable or floating rate obligations. From time to time, proposals have been introduced before Congress for the purpose of restricting or eliminating the federal income tax exemption for interest on Municipal Bonds and for providing state and local governments with federal credit assistance. For more information, see "Investment Risks" and the Statement of Additional Information, "Description of the Fund, Its Investments and Risks." The Statement of Additional Information -- which we refer to as the SAI -- contains additional information about the Fund. To obtain a copy, see the back cover page of this prospectus. Our investment objective is a fundamental policy that cannot be changed without shareholder approval. The Board of Directors of the Fund can change investment policies that are not fundamental. OTHER INVESTMENTS AND STRATEGIES In addition to the principal strategies discussed above, we may also use the following strategies to increase the Fund's returns or protect its assets if market conditions warrant. The Fund may invest up to 10% of its total assets in shares of other investment companies. Such investment can result in the duplication of management and advisory fees. The Fund may also use repurchase agreements, where a party agrees to sell a security to the Fund and then repurchase it at an agreed-upon price at a stated time. These transactions constitute short-term cash loans by the Fund. This creates a fixed return for the Fund. The Fund will not invest more than 5% of its total assets in repurchase agreements. The Fund may use reverse repurchase agreements, where we borrow money on a temporary basis by selling a security with an obligation to repurchase it at an agreed-upon price and time. The Fund's use of reverse repurchase agreements is limited to 5% of the value of its total assets. The Fund may also purchase money market obligations on a "when-issued" or "delayed-delivery" basis. When the Fund makes this type of - -------------------------------------------------------------------------------- 7 - -------------------------------------------------------------------------------- HOW THE FUND INVESTS - -------------------------------------------------------------------------------- purchase, the price and interest rate are fixed at the time of purchase, but delivery and payment for the obligations take place at a later time. The Fund does not earn interest income until the settlement date. The Fund intends to purchase investment securities jointly with certain other mutual funds. Our ability to engage in joint investment is subject to conditions imposed by an order of the Securities and Exchange Commission. Joint investment can allow the Fund to achieve better investment performance because of reduced transaction costs and greater investment leverage. The Fund also follows certain policies when it: borrows money (the Fund may borrow up to 5% of the value of its total assets) and holds illiquid securities (the Fund may hold up to 10% of its net assets in illiquid securities, including securities with legal or contractual restrictions, those without a readily available market, and repurchase agreements with maturities longer than seven days). The Fund is subject to certain investment restrictions that are fundamental policies, which means they cannot be changed without shareholder approval. For more information about these restrictions, see the SAI. - -------------------------------------------------------------------------------- 8 Prudential Tax-Free Money Fund, Inc. [PHONE GRAPHIC] (800 225-1852 - -------------------------------------------------------------------------------- HOW THE FUND INVESTS - -------------------------------------------------------------------------------- INVESTMENT RISKS As noted, all investments involve risks, and investing in the Fund is no exception. To limit these risks, we invest only in high-quality securities with remaining maturities of no more than 13 months. This chart outlines the key risks and potential rewards of the principal strategies and certain other non-principal investments the Fund may make. See, too, "Description of the Fund, Its Investments and Risks" in the SAI. - ----------------------------- Investment Type - -------------------------------------------------------------------------------- % of Fund's Total Assets Risks Potential Rewards - -------------------------------------------------------------------------------- High-quality money > Credit risk--the risk > A source of regular market obligations of that the default of an interest income municipal issuers issuer would leave the Fund with unpaid interest > May be more secure Up to 100% or principal (lower for than stock and other insured and higher rated equity securities bonds) or, in the case of because of identified VRDOs and municipal asset sources from which to backed VRDOs, that the pay interest and issuer of a put may not principal be able to meet it obligation to purchase the > Most bonds rise in underlying security. The value when interest lower a bond's quality, rates fall the higher its volatility. > Market risk--the risk that the obligations may lose value in the market, sometimes rapidly or unpredictably because interest rates rise or there is a lack of confidence in a group of borrowers or in an industry or there is a lack of confidence in the borrower or the bond's insurer - -------------------------------------------------------------------------------- Pre-refunded bonds > May be more expensive > May be more secure than obligations backed than other obligations Up to 25% only by a municipality's of municipal issuers taxing or borrowing because of the escrow authority of U.S. Government obligations - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 9 - -------------------------------------------------------------------------------- HOW THE FUND INVESTS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Shares of other > Could result in > May provide investment companies duplicate management or additional advisory fees diversification Up to 10% - -------------------------------------------------------------------------------- Illiquid securities > Illiquidity risk--the > May offer a more risk that bonds may be attractive yield than Up to 10% of net assets difficult to value more widely traded precisely and sell at securities time or price desired, in which case valuation would depend more on investment adviser's judgement than is generally the case with other types of Municipal Bonds - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 10 Prudential Tax-Free Money Fund, Inc. [PHONE GRAPHIC] (800 225-1852 - -------------------------------------------------------------------------------- HOW THE FUND IS MANAGED - -------------------------------------------------------------------------------- BOARD OF DIRECTORS The Fund's Board of Directors oversees the actions of the Manager, Investment Adviser and Distributor and decides on general policies. The Board also oversees the Fund's officers, who conduct and supervise the daily business operations of the Fund. MANAGER Prudential Investments Fund Management LLC (PIFM) Gateway Center Three, 100 Mulberry Street Newark, NJ 07102-4077 Under a management agreement with the Fund, PIFM manages the Fund's investment operations and administers its business affairs. PIFM also is responsible for supervising the Fund's investment adviser. For the fiscal year ended December 31, 2000, the Fund paid PIFM management fees of .50% of the Fund's average net assets. PIFM and its predecessors have served as manager or administrator to investment companies since 1987. As of January 31, 2001, PIFM served as the Manager to all 43 of the Prudential mutual funds, and as manager or administrator to 20 closed-end investment companies, with aggregate assets of approximately $109 billion. INVESTMENT ADVISER The Prudential Investment Corporation, called Prudential Investments, is the Fund's investment adviser and has served as an investment adviser to investment companies since 1984. Its address is Prudential Plaza, 751 Broad Street, Newark, NJ 07102. PIFM has responsibility for all investment advisory services, supervises Prudential Investments and pays Prudential Investments for its services. Prudential Investments' fixed income group is organized into teams that specialize by sector. The Fixed Income Investment Policy Committee, which is comprised of senior investment staff from each sector team, provides guidance to the teams regarding duration risk, asset allocations and general risk parameters. Portfolio managers contribute bottom-up security selection within those guidelines. - -------------------------------------------------------------------------------- 11 - -------------------------------------------------------------------------------- HOW THE FUND IS MANAGED - -------------------------------------------------------------------------------- DISTRIBUTOR Prudential Investment Management Services LLC (PIMS) distributes the Fund's shares under a Distribution Agreement with the Fund. The Fund has a Distribution and Service Plan pursuant to Rule 12b-1 under the Investment Company Act. Under the Plan and the Distribution Agreement, PIMS pays the expenses of distributing the Fund's shares and provides certain shareholder support services. The Fund pays distribution and other fees from the assets of the Fund to PIMS as compensation for its services. These fees--known as 12b-1 fees--are shown in the "Fees and Expenses" tables. Because these fees are paid from the Fund's assets on a continuous basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges. - -------------------------------------------------------------------------------- 12 Prudential Tax-Free Money Fund, Inc. [PHONE GRAPHIC] (800 225-1852 - -------------------------------------------------------------------------------- FUND DISTRIBUTIONS AND TAX ISSUES - -------------------------------------------------------------------------------- Investors who buy shares of the Fund should be aware of some important tax issues. For example, the Fund distributes dividends of ordinary income and any realized net capital gains to shareholders. The following briefly discusses some of the important tax issues you should be aware of, but is not meant to be tax advice. For tax advice, please speak with your tax adviser. DISTRIBUTIONS The Fund distributes dividends of any net investment income to shareholders every month. The Fund intends to invest so that dividend distributions to you will generally be exempt from federal taxation. The dividends you receive from the Fund will be exempt from federal income taxes (though not necessarily exempt from state and local taxation) as long as 50% or more of the value of the Fund's assets at the end of each quarter is invested in state, municipal and other bonds that are excluded from gross income for federal income tax purposes and as long as the Fund mails a notice to you that properly designates the dividend as an exempt interest dividend. However, if you are subject to the alternative minimum tax, you will have to pay tax on the portion of dividend distributions from the Fund attributable to the Fund's investments in certain "private activity" bonds. The Fund will not invest more than 20% of its net assets in these bonds. Although the Fund is not likely to realize capital gains because of the types of securities we purchase, any realized net capital gains will be paid to shareholders (typically once a year). Capital gains are generated when the Fund sells assets for a profit. For your convenience, Fund distributions of dividends and capital gains are automatically reinvested in the Fund. If you ask us to pay the distributions in cash, we will send you a check if your account is with the Transfer Agent. For more information about automatic reinvestment and other shareholder services, see "How to Buy, Sell and Exchange Shares of the Fund - How To Buy Shares" at Step 3: Additional Shareholder Services. - -------------------------------------------------------------------------------- 13 - -------------------------------------------------------------------------------- FUND DISTRIBUTIONS AND TAX ISSUES - -------------------------------------------------------------------------------- TAX ISSUES Form 1099 Every year, you will receive a Form 1099, which reports the amount of dividends and capital gains we distributed to you during the prior year. If you own shares of the Fund as part of a qualified or tax-deferred plan or account, your taxes are deferred, so you will not receive a Form 1099. However, you will receive a Form 1099 when you take any distributions from your qualified or tax-deferred plan or account. Fund distributions are generally taxable in the year they are received, except where we declare certain dividends in October, November or December of a calendar year but actually pay them in January of the following year. In such cases, the dividends are treated as if they were paid on December 31 of the prior year. As noted above, however, the Fund intends to pay dividends that are exempt from federal income taxes. Withholding taxes If federal tax law requires you to provide the Fund with your tax identification number and certifications as to your tax status, and you fail to do this, or if you are otherwise subject to back-up withholding, we will withhold and pay to the U.S. Treasury 31% of your distributions and sales proceeds. Dividends of net investment income and short-term capital gains paid to a nonresident foreign shareholder generally will be subject to a U.S. withholding tax of 30%. This rate may be lower, depending on any tax treaty the U.S. may have with the shareholder's country. - -------------------------------------------------------------------------------- 14 Prudential Tax-Free Money Fund, Inc. [PHONE GRAPHIC] (800 225-1852 - -------------------------------------------------------------------------------- HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND - -------------------------------------------------------------------------------- HOW TO BUY SHARES STEP 1: OPEN AN ACCOUNT If you don't have an account with us or a securities firm that is permitted to buy or sell shares of the Fund for you, call Prudential Mutual Fund Services LLC (PMFS) at (800) 225-1852 or contact: PRUDENTIAL MUTUAL FUND SERVICES LLC ATTN: INVESTMENT SERVICES P.O. BOX 8179 PHILADELPHIA, PA 19101-8179 You may purchase shares by check or by wire. We do not accept cash or money orders. To purchase by wire, call the number above to obtain an application. After PMFS receives your completed application, you will receive an account number. For additional information about purchasing shares of the Fund, see the back cover page of this prospectus. We have the right to reject any purchase order (including an exchange into the Fund) or suspend or modify the Fund's sale of its shares. Except as noted below, the minimum initial investment for Fund shares is $1,000 and the minimum subsequent investment is $100. All minimum investment requirements are waived for certain retirement and employee savings plans and custodial accounts for the benefit of minors. PURCHASES THROUGH PRUDENTIAL SECURITIES Purchases of shares of the Fund through Prudential Securities are made through automatic investment procedures (the Autosweep Program). You cannot purchase shares through Prudential Securities other than through the Autosweep Program, except as specifically provided (that is, you cannot make a manual purchase). The Autosweep Program allows you to designate a money market fund as your primary money sweep fund. If you do not designate a primary money sweep fund, Prudential MoneyMart Assets, Inc. will automatically be your primary money sweep fund. You have the option to change your primary money sweep fund at any time by notifying your Prudential Securities Financial Advisor. The following discussion assumes that you have selected the Fund as your primary money sweep fund For Individual Retirement Accounts (IRAs) and Benefit Plans in the Autosweep Program, all credit balances (that is, immediately available funds) of $1 or more will be invested in the Fund on a daily basis. Prudential Securities - -------------------------------------------------------------------------------- 15 - -------------------------------------------------------------------------------- HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND - -------------------------------------------------------------------------------- will arrange for the investment of the credit balance in the Fund and will purchase shares of the Fund equal to that amount. This will occur on the business day following the availability of the credit balance. Prudential Securities may use and retain the benefit of credit balances in your account until Fund shares are purchased. For accounts other than IRAs and Benefit Plans, shares of the Fund will be purchased as follows: > When your account has a credit balance of $10,000 or more, Prudential Securities will arrange for the automatic purchase of shares of the Fund. This will occur on the business day following the availability of the credit balance > When your account has a credit balance that results from a securities sale totaling $1,000 or more, the available cash will be invested in the Fund on the settlement date > For all other credit balances of $1 or more, shares will be purchased automatically at least once a month on the last business day of each month Purchases through the Autosweep Program are subject to a minimum initial investment of $1,000, which is waived for certain retirement and employee savings plans and custodial accounts for the benefit of minors. You will begin earning dividends on your shares purchased through the Autosweep Program on the first business day after the order is placed. Prudential Securities will purchase shares of the Fund at the price determined at 4:30 p.m., New York time, on the business day following the existence of the credit balance, which is the second business day after the availability of the credit balance. Prudential Securities will use and retain the benefit of credit balances in your account until Fund shares are purchased. Your investment in the Fund will be held in the name of Prudential Securities. Prudential Securities will receive all statements and dividends from the Fund and will, in turn, send you account statements showing your purchases, sales and dividends. The charges and expenses of the Autosweep program are not reflected in the Fees and Expenses tables. For information about participating in the Autosweep Program, you should contact your Prudential Securities Financial Advisor. - -------------------------------------------------------------------------------- 16 Prudential Tax-Free Money Fund, Inc. [PHONE GRAPHIC] (800 225-1852 - -------------------------------------------------------------------------------- HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND - -------------------------------------------------------------------------------- PURCHASES THROUGH THE PRUDENTIAL ADVANTAGE ACCOUNT PROGRAM The Prudential Advantage Account Program (the Advantage Account Program) is a financial services program available to clients of Pruco Securities Corporation (Pruco) and provides for an automatic investment procedure similar to the Autosweep Program. The Advantage Account Program consists of two types of accounts: the Investor Account and the Advantage Account, which offer additional services, such as a debit card and check writing. The Advantage Account Program allows you to designate a money market fund as your primary money sweep fund. If you do not designate a primary money sweep fund, Prudential MoneyMart Assets, Inc. will automatically be your primary money sweep fund. You have the option to change your primary money sweep fund at any time by notifying your Pruco representative or the Advantage Service Center. The following discussion assumes that you have selected the Fund as your primary money sweep fund. With the Advantage Account as well as the Investor Account for Benefit Plans and IRAs, all credit balances (that is, immediately available funds) of $1 or more will be invested in the Fund on a daily basis. Prudential Securities (Pruco's clearing broker) arranges for the investment of the credit balance in the Fund and will purchase shares of the Fund equal to that amount. This will occur on the business day following the availability of the credit balance. Prudential Securities may use and retain the benefit of credit balances in your account until Fund shares are purchased. If you have an Investor Account (non-IRAs), shares of the Fund will be purchased as follows: > When your account has a credit balance of $10,000 or more, Prudential Securities will arrange for the automatic purchase of shares of the Fund with all cash balances of $1 or more. This will occur on the business day following the availability of the credit balance > When your account has a credit balance that results from a securities sale totaling more than $1,000, all cash balances of $1 or more will be invested in the Fund on the business day following the settlement date > For all other credit balances of $1 or more, shares will be purchased automatically at least once a month on the last business day of each month You will begin earning dividends on your shares purchased through the Advantage Account Program on the first business day after the order is placed. Prudential Securities will purchase shares of the Fund at the price determined at 4:30 p.m., New York time, on the business day following the availability of - -------------------------------------------------------------------------------- 17 - -------------------------------------------------------------------------------- HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND - -------------------------------------------------------------------------------- the credit balance. Prudential Securities will use and retain the benefit of credit balances in your account until Fund shares are purchased. Purchases of, withdrawals from and dividends from the Fund will be shown on your Advantage Account or Investor Account statement. The charges and expenses of the Advantage Account Program are not reflected in the Fees and Expenses tables. For information about participating in the Advantage Account Program, you should call (800) 235-7637. MANUAL PURCHASES You may make a manual purchase (that is, a non-money market sweep purchase) of Fund shares in either of the following situations: > You do not participate in a money market sweep program (the Autosweep Program or the Advantage Account Program), or > You participate in a money market sweep program, but the Fund is not designated as your primary money market sweep fund. The minimum initial investment for a manual purchase of shares of the Fund is $1,000 and the minimum subsequent investment is $100, except that all minimum investment requirements are waived for certain retirement and employee savings plans and custodial accounts for the benefit of minors. If you make a manual purchase through Prudential Securities, Prudential Securities will place your order for shares of the Fund on the business day after the purchase order is received for settlement that day, which is the second business day after receipt of the purchase order by Prudential Securities. Prudential Securities may use and retain the benefit of credit balances in a client's brokerage account until monies are delivered to the Fund (Prudential Securities delivers Federal Funds on the business day after settlement). If you make a manual purchase through the Fund's Distributor, through your broker or dealer (other than Prudential Securities) or directly from the Fund, shares will be purchased at the net asset value next determined after receipt of your order and payment in proper form. When your payment is received by 4:30 p.m., New York time, shares will be purchased that day and you will begin to earn dividends on the following business day. If you purchase shares through a broker or dealer, your broker or dealer will forward your order and payment to the Fund. You should contact your broker or dealer for information about services that they may provide, including an automatic sweep feature. Transactions in Fund shares may be subject to postage and other charges imposed by your broker or dealer. Any such charge is retained by your broker or dealer and is not sent to the Fund. - -------------------------------------------------------------------------------- 18 Prudential Tax-Free Money Fund, Inc. [PHONE GRAPHIC] (800 225-1852 - -------------------------------------------------------------------------------- HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND - -------------------------------------------------------------------------------- STEP 2: UNDERSTANDING THE PRICE YOU'LL PAY When you invest in a mutual fund, you buy shares of the Fund. Shares of a money market mutual fund, like the Fund, are priced differently than shares of common stock and other securities. The price you pay for each share of the Fund is based on the share value. The share value of a mutual fund--known as the NET ASSET VALUE or NAV--is determined by a simple calculation: it's the total value of the Fund (assets minus liabilities) divided by the total number of shares outstanding. In determining NAV, the Fund values its securities using the amortized cost method. The Fund seeks to maintain an NAV of $1 per share at all times. Your broker may charge you a separate or additional fee for purchases of shares. We determine the NAV of our shares once each business day at 4:30 p.m., New York time, on days that the New York Stock Exchange is open for trading. We do not determine NAV on days when we have not received any orders to purchase, sell, or exchange or when changes in the value of the Fund's portfolio do not affect the NAV. STEP 3: ADDITIONAL SHAREHOLDER SERVICES As a Fund shareholder, you can take advantage of the following services and privileges: AUTOMATIC REINVESTMENT. As we explained in the "Fund Distributions and Tax Issues" section, the Fund pays out--or distributes--its net investment income and capital gains, if any, to shareholders. For your convenience, we will automatically reinvest your distributions in the Fund at NAV. If you want your distributions paid in cash, you can indicate this preference on your application, notify your broker or notify the Transfer Agent in writing (at the address below) at least five business days before the date we determine who receives dividends. PRUDENTIAL MUTUAL FUND SERVICES LLC ATTENTION: ACCOUNT MAINTENANCE P.O. BOX 8159 PHILADELPHIA, PA 19101-8179 REPORTS TO SHAREHOLDERS. Every year we will send you an annual report (along with an updated prospectus) and a semi-annual report, which contain important financial information about the Fund. To reduce Fund expenses, we may send one annual shareholder report, one semi-annual shareholder report - -------------------------------------------------------------------------------- 19 - -------------------------------------------------------------------------------- HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND - -------------------------------------------------------------------------------- and one annual prospectus per household, unless you instruct us or your broker otherwise. HOW TO SELL YOUR SHARES You can sell your shares of the Fund at any time, subject to certain restrictions. When you sell shares of the Fund--also known as redeeming shares--the price you will receive will be the NAV next determined after the Transfer Agent, the Distributor or your broker receives your order to sell. If your broker holds your shares, your broker must receive your order to sell by 4:30 p.m., New York time, to process the sale on that day. Otherwise contact: PRUDENTIAL MUTUAL FUND SERVICES LLC ATTENTION: REDEMPTION SERVICES P.O. BOX 8149 PHILADELPHIA, PA 19101-8179 Generally, we will pay you for the shares that you sell within seven days after the Transfer Agent, the Distributor or your broker receives your sell order. If you hold shares through a broker, payment will be credited to your account. If you are selling shares you recently purchased with a check, we may delay sending you the proceeds until your check clears, which can take up to 10 days from the purchase date. You can avoid delay if you purchase shares by wire, certified check or cashier's check. Your broker may charge you a separate or additional fee for sales of shares. RESTRICTIONS ON SALES. There are certain times when you may not be able to sell shares of the Fund or when we may delay paying you the proceeds from a sale. This may happen during unusual market conditions or emergencies when the Fund can't determine the value of its assets or sell its holdings. For more information, see the SAI, "Purchase and Redemption of Fund Shares--Restrictions on Sales." If you are selling more than $100,000 of shares, if you want the check payable to or sent to someone or some place that is not in our records, or you are a business or trust, and if you hold your shares directly with the Transfer Agent, you will need to have the signature on your sell order signature guaranteed by an "eligible guarantor institution". An "eligible guarantor institution" includes any bank, broker-dealer or credit union. For more information, see the SAI, "Purchase and Redemption of Fund Shares." - -------------------------------------------------------------------------------- 20 Prudential Tax-Free Money Fund, Inc. [PHONE GRAPHIC] (800 225-1852 - -------------------------------------------------------------------------------- HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND - -------------------------------------------------------------------------------- REDEMPTION IN KIND. If the sales of Fund shares you make during any 90-day period reach the lesser of $250,000 or 1% of the value of the Fund's net assets, we can then give you securities from the Fund's portfolio instead of cash. If you want to sell the securities for cash, you would have to pay the costs charged by a broker. AUTOMATIC REDEMPTION FOR THE AUTOSWEEP PROGRAM. If you participate in the Autosweep Program, your Fund shares may be automatically redeemed to cover any deficit in your Prudential Securities account. The amount redeemed will be the nearest dollar amount necessary to cover the deficit. The amount of the redemption will be the lesser of the total value of Fund shares held in your Prudential Securities account or the deficit in your Prudential Securities account. If you use this automatic redemption procedure and want to pay for a securities transaction in your account other than through this procedure, you must deposit cash in your securities account before the settlement date. If you use this automatic redemption procedure and want to pay any other deficit in your securities account other than through this procedure, you must deposit cash in your securities account before you incur the deficit. Redemptions are automatically made by Prudential Securities, to the nearest dollar, on each day to satisfy deficits from securities transactions or to honor your redemption requests. Your account will be automatically scanned for deficits each day and, if there is insufficient cash in your account, we will redeem an appropriate number of shares of the Fund at the next determined NAV to satisfy any remaining deficit. You are entitled to any dividends declared on the redeemed shares through the day before the redemption is made. Dividends declared on the redemption date will be retained by Prudential Securities, which has advanced monies to satisfy deficits in your account. AUTOMATIC REDEMPTION FOR THE ADVANTAGE ACCOUNT. If you participate in the Advantage Account Program, your Fund shares may be automatically redeemed to cover any deficit in your securities account. The amount redeemed will be the nearest dollar amount necessary to cover the deficit. The amount of the redemption will be the lesser of the total value of Fund shares held in your securities account or the deficit in your securities account. A deficit in your Advantage Account may result from activity arising under the program, such as debit balances incurred by the use of the Visa(R) Account, including Visa purchases, cash advances and Visa Account checks. Your account will be automatically scanned for deficits each day and, if there is insufficient cash in your account, we will redeem an appropriate number of - -------------------------------------------------------------------------------- 21 - -------------------------------------------------------------------------------- HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND - -------------------------------------------------------------------------------- shares of the Fund to satisfy any remaining deficit. You are entitled to any dividends declared on the redeemed shares through the day before the redemption is made. Dividends declared on the redemption date will be retained by Prudential Securities, which has advanced monies to satisfy deficits in your account. Redemptions are automatically made by Prudential Securities, to the nearest dollar, on each day to satisfy deficits from securities transactions or to honor your redemption requests. HOW TO EXCHANGE YOUR SHARES You can exchange your shares of the Fund for shares in certain other Prudential mutual funds--including certain money market funds--if you satisfy the minimum investment requirements of such other Prudential mutual fund. You can exchange shares of the Fund for Class A shares of another Prudential mutual fund, but you can't exchange Fund shares for Class B, Class C or Class Z shares of another Prudential mutual fund, except that shares purchased prior to January 22, 1990, that are subject to a contingent deferred sales charge can be exchanged for Class B shares. If you hold shares through a broker, you must exchange shares through your broker. Otherwise, contact: PRUDENTIAL MUTUAL FUND SERVICES LLC ATTN: EXCHANGE PROCESSING P.O. BOX 8157 PHILADELPHIA, PA 19101-8179 When you exchange shares of the Fund for Class A shares of any other Prudential mutual fund, you will be subject to any sales charge that may be imposed by such other Prudential mutual fund. The sales charge is imposed at the time of your exchange. FREQUENT TRADING Frequent trading of Fund shares in response to short-term fluctuations in the market--also known as "market timing"--may make it very difficult to manage the Fund's investments. When market timing occurs, the Fund may have to sell portfolio securities to have the cash necessary to redeem the market timer's shares. This can happen at a time when it is not advantageous to sell any - -------------------------------------------------------------------------------- 22 Prudential Tax-Free Money Fund, Inc. [PHONE GRAPHIC] (800 225-1852 - -------------------------------------------------------------------------------- HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND - -------------------------------------------------------------------------------- securities, so the Fund's performance may be hurt. When large dollar amounts are involved, market timing can also make it difficult to use long-term investment strategies because we cannot predict how much cash the Fund will have to invest. When, in our opinion, such activity would have a disruptive effect on portfolio management, the Fund reserves the right to refuse purchase orders and exchanges into the Fund by any person, group or commonly controlled accounts. The Fund will notify a market timer of rejection of an exchange purchase order. If the Fund allows a market timer to trade Fund shares, it may require the market timer to enter into a written agreement to follow certain procedures and limitations. TELEPHONE REDEMPTIONS AND EXCHANGES You may redeem or exchange your shares in any amount by calling the Fund at (800) 225-1852 before 4:30 p.m., New York time. You will receive a redemption amount based on that day's NAV. The Fund's Transfer Agent will record your telephone instructions and request specific account information before redeeming or exchanging shares. The Fund and its agents will not be liable if it follows instructions that it reasonably believes are made by the shareholder. If the Fund does not follow reasonable procedures, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, you may have difficulty in redeeming or exchanging your shares by telephone. If this occurs, you should consider redeeming or exchanging your shares by mail. The telephone redemption and exchange privileges may be modified or terminated at any time. If this occurs, you will receive a written notice from the Fund. EXPEDITED REDEMPTION PRIVILEGE. If you have selected the Expedited Redemption Privilege, you may have your redemption proceeds sent directly to your bank account. Expedited redemption requests may be made by telephone or letter, must be received by the Fund prior to 4:30 p.m., New York time, to receive a redemption amount based on that day's NAV and are subject to the terms and conditions regarding the redemption of shares. For more information, see "Purchase and Redemption of Fund Shares--Expedited Redemption Privilege" in the Statement of Additional Information. The Expedited Redemption Privilege may be modified or terminated at any time without notice. - -------------------------------------------------------------------------------- 23 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The financial highlights are intended to help you evaluate the Fund's financial performance. The TOTAL RETURN in the chart represents the rate that a shareholder earned on an investment in the Fund, assuming reinvestment of all dividends and other distributions. The information is for shares of the Fund for the periods indicated. Additional performance information is contained in the annual report, which you can receive at no charge. The financial highlights for the five fiscal years ended December 31, 2000 were audited by PricewaterhouseCoopers LLP, independent accountants, whose reports were unqualified.
============================================================================================== FUND SHARES (FISCAL YEAR ENDED 12-31) PER SHARE OPERATING PERFORMANCE 2000 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00 Net investment income and net realized gains 0.34 .025 .028 .030 .028 Dividends and distributions to shareholders (0.34) (.025) (.028) (.030) (.028) Net asset value, end of year $1.00 $1.00 $1.00 $1.00 $1.00 TOTAL RETURN(1) 3.42% 2.56% 2.83% 3.00% 2.84% - ----------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA 2000 1999 1998 1997 1996 - ----------------------------------------------------------------------------------------------- NET ASSETS, END OF YEAR (000) $166,526 $179,887 $199,165 $329,812 $333,808 Average net assets (000) $176,759 $202,718 $277,839 $339,825 $403,230 RATIOS TO AVERAGE NET ASSETS: Expenses, including distribution and service (12b-1) fees .80% .81% .80% .78% .80% Expenses, excluding distribution and service (12b-1) fees .68 .69 .68 .66 .67 Net investment income 3.38% 2.51% 2.80% 2.97% 2.83% ================================================================================================
(1) 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. - -------------------------------------------------------------------------------- 24 Prudential Tax-Free Money Fund, Inc. [PHONE GRAPHIC] (800) 225-1852 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [This page has been left blank intentionally.] - -------------------------------------------------------------------------------- 25 - -------------------------------------------------------------------------------- THE PRUDENTIAL MUTUAL FUND FAMILY - -------------------------------------------------------------------------------- Prudential offers a broad range of mutual funds designed to meet your individual needs. For information about these funds, contact your financial adviser or call us at (800) 225-1852. Read the prospectus carefully before you invest or send money.
STOCK FUNDS | ASSET ALLOCATION/BALANCED FUNDS | PRUDENTIAL EQUITY FUND, INC. | PRUDENTIAL DIVERSIFIED FUNDS | CONSERVATIVE GROWTH FUND PRUDENTIAL INDEX SERIES FUND | MODERATE GROWTH FUND PRUDENTIAL STOCK INDEX FUND | HIGH GROWTH FUND | THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC. | THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC. PRUDENTIAL JENNISON GROWTH FUND | PRUDENTIAL ACTIVE BALANCED FUND PRUDENTIAL JENNISON EQUITY OPPORTUNITY FUND | | PRUDENTIAL REAL ESTATE SECURITIES FUND | GLOBAL FUNDS | PRUDENTIAL SECTOR FUNDS, INC. | GLOBAL STOCK FUNDS PRUDENTIAL FINANCIAL SERVICES FUND | PRUDENTIAL HEALTH SERVICES FUND | PRUDENTIAL EUROPE GROWTH FUND, INC. PRUDENTIAL TECHNOLOGY FUND | PRUDENTIAL UTILITY FUND | PRUDENTIAL NATURAL RESOURCES FUND, INC. | PRUDENTIAL SMALL COMPANY FUND, INC. | PRUDENTIAL PACIFIC GROWTH FUND, INC. | PRUDENTIAL WORLD FUND, INC. PRUDENTIAL TAX-MANAGED FUNDS | PRUDENTIAL GLOBAL GROWTH FUND PRUDENTIAL TAX-MANAGED EQUITY FUND | PRUDENTIAL INTERNATIONAL VALUE FUND | PRUDENTIAL JENNISON INTERNATIONAL GROWTH FUND PRUDENTIAL TAX-MANAGED SMALL-CAP FUND, INC. | | GLOBAL UTILITY FUND, INC. PRUDENTIAL VALUE FUND, INC. | | TARGET FUNDS PRUDENTIAL 20/20 FOCUS FUND | INTERNATIONAL EQUITY FUND | NICHOLAS-APPLEGATE FUND, INC. | GLOBAL BOND FUNDS NICHOLAS-APPLEGATE GROWTH EQUITY FUND | | PRUDENTIAL GLOBAL TOTAL RETURN FUND, INC. TARGET FUNDS | LARGE CAPITALIZATION GROWTH FUND | LARGE CAPITALIZATION VALUE FUND | SMALL CAPITALIZATION GROWTH FUND | SMALL CAPITALIZATION VALUE FUND |
| | - -------------------------------------------------------------------------------- 26 Prudential Tax-Free Money Fund, Inc. [PHONE GRAPHIC] (800 225-1852 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
BOND FUNDS | MONEY MARKET FUNDS | TAXABLE BOND FUNDS | TAXABLE MONEY MARKET FUNDS | PRUDENTIAL GOVERNMENT INCOME FUND, INC. | CASH ACCUMULATION TRUST | LIQUID ASSETS FUND PRUDENTIAL HIGH YIELD FUND, INC. | NATIONAL MONEY MARKET FUND | PRUDENTIAL HIGH YIELD TOTAL RETURN FUND, INC. | PRUDENTIAL GOVERNMENT SECURITIES TRUST | MONEY MARKET SERIES PRUDENTIAL SHORT-TERM CORPORATE BOND FUND, INC. | U.S. TREASURY MONEY MARKET SERIES INCOME PORTFOLIO | | SPECIAL MONEY MARKET FUND, INC. PRUDENTIAL TOTAL RETURN BOND FUND, INC. | MONEY MARKET SERIES | TARGET FUNDS | PRUDENTIAL MONEYMART ASSETS, INC. TOTAL RETURN BOND FUND | | TAX-FREE MONEY MARKET FUNDS TAX-EXEMPT BOND FUNDS | | PRUDENTIAL TAX-FREE MONEY FUND, INC. PRUDENTIAL CALIFORNIA MUNICIPAL FUND | CALIFORNIA SERIES | PRUDENTIAL CALIFORNIA MUNICIPAL FUND CALIFORNIA INCOME SERIES | CALIFORNIA MONEY MARKET SERIES | PRUDENTIAL MUNICIPAL BOND FUND | PRUDENTIAL MUNICIPAL SERIES FUND HIGH INCOME SERIES | NEW JERSEY MONEY MARKET SERIES INSURED SERIES | NEW YORK MONEY MARKET SERIES | PRUDENTIAL MUNICIPAL SERIES FUND | COMMAND FUNDS FLORIDA SERIES | NEW JERSEY SERIES | COMMAND MONEY FUND NEW YORK SERIES | PENNSYLVANIA SERIES | COMMAND GOVERNMENT FUND | PRUDENTIAL NATIONAL MUNICIPALS FUND, INC. | COMMAND TAX-FREE FUND | | INSTITUTIONAL MONEY MARKET FUNDS | | PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC. | INSTITUTIONAL MONEY MARKET SERIES |
| - -------------------------------------------------------------------------------- 27 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NOTES ----- - -------------------------------------------------------------------------------- 28 Prudential Tax-Free Money Fund, Inc. [PHONE GRAPHIC] (800 225-1852 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NOTES ----- - -------------------------------------------------------------------------------- 29 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NOTES ----- - -------------------------------------------------------------------------------- 30 Prudential Tax-Free Money Fund, Inc. [PHONE GRAPHIC] (800 225-1852 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NOTES ----- - -------------------------------------------------------------------------------- 31 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NOTES ----- - -------------------------------------------------------------------------------- 32 Prudential Tax-Free Money Fund, Inc. [PHONE GRAPHIC] (800 225-1852 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NOTES ----- - -------------------------------------------------------------------------------- 33 FOR MORE INFORMATION - -------------------------------------------------------------------------------- Please read this prospectus before you invest in the Fund and keep it for future reference. For information or shareholder questions contact PRUDENTIAL MUTUAL FUND SERVICES LLC P.O. BOX 8098 PHILADELPHIA, PA 19101 (800) 225-1852 (732) 482-7555 (Calling from outside the U.S.) - -------------------------------------------------------------------------------- Outside Brokers should contact PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC P.O. BOX 8310 PHILADELPHIA, PA 19101 (800) 778-8769 - -------------------------------------------------------------------------------- Visit Prudential's website at HTTP://WWW.PRUDENTIAL.COM - -------------------------------------------------------------------------------- Additional information about the Fund can be obtained without charge and can be found in the following documents STATEMENT OF ADDITIONAL INFORMATION (SAI) (incorporated by reference into this prospectus) ANNUAL REPORT (contains a discussion of the market conditions and investment strategies that significantly affect the Fund's performance during the last fiscal year) SEMI-ANNUAL REPORT - -------------------------------------------------------------------------------- You can also obtain copies of Fund documents from the Securities and Exchange Commission as follows BY MAIL Securities and Exchange Commission Public Reference Section Washington, DC 20549-0102 BY ELECTRONIC REQUEST publicinfo@sec.gov (The SEC charges a fee to copy documents.) IN PERSON Public Reference Room in Washington, DC (For hours of operation, call 1-202-942-8090) VIA THE INTERNET on the EDGAR Database at http://www.sec.gov - -------------------------------------------------------------------------------- NASDAQ CUSIP Numbers Symbol 74436P-10-3 PBFXX Investment Company Act File No. 811-2927 MF103A [LOGO] Printed on Recycled Paper - -------------------------------------------------------------------------------- YOUR FINANCIAL SECURITY, YOUR SATISFACTION & YOUR PRIVACY ACCESSING INFORMATION Access to customer information is authorized for Prudential business purposes only. Employees who have access to customer information are required to protect it and keep it confidential. COLLECTING INFORMATION TO CONDUCT BUSINESS Prudential collects information about you to help us serve your financial needs, provide customer service, offer new products or services, and fulfill legal and regulatory requirements. The type of information that Prudential collects varies according to the products or services you request, and may include: o information included on your application and related forms (such as name, address, Social Security number, assets and income); o information about your relationships with us (such as products or services purchased, account balances and payment history); o information from your employer, benefit plan sponsor, or association for any Prudential group product you may have (such as name, address, Social Security number, age and marital status); o information from consumer reporting agencies (such as credit relationships and history); o information from other non-Prudential sources (such as motor vehicle reports, medical information, and demographic information); and o information from visitors to Prudential websites (such as that provided through online forms, site visitorship data and online information collecting devices known as "cookies"). SECURITY STANDARDS We continue to assess new technology to provide additional protection of your personal information. We safeguard customer information in accordance with federal standards and established security procedures. Measures we take include implementation of physical, electronic and procedural safeguards. SHARING INFORMATION WITHIN PRUDENTIAL We may disclose the previously described information about our customers and former customers to other Prudential businesses, such as our securities broker-dealers, our insurance companies and agencies, our banks and our real estate brokerage franchise company. We may share information to: o provide customer service or account maintenance; or o tell you about other products or services offered by Prudential. SHARING INFORMATION IN OTHER CIRCUMSTANCES In compliance with federal and state laws, we may disclose some or all of the information we collect about our customers and former customers, as described above, to non-Prudential businesses, such as: o companies that perform services for us or on our behalf (such as responding to customer requests, providing you with information about our products, or maintaining or developing software); or o financial services companies (such as banks, insurance companies, securities brokers or dealers) and non-financial companies (such as real estate brokers or financial publications) with whom we have marketing agreements. We will not share medical information or motor vehicle reports for marketing purposes. Many employers or other plan sponsors restrict the information that can be shared about their employees or members. In our business with institutions, we always honor these restrictions. If you have a relationship with Prudential as a result of products or services provided through an employer or other plan sponsor, we will abide by the specific privacy rules imposed by that organization. We may also disclose information to non-affiliated parties as allowed by law, such as in responding to a subpoena, preventing fraud, or complying with an inquiry by a government agency or regulator. IT'S YOUR CHOICE Our customers periodically receive information about products and services available from the Prudential family of companies, as well as from select business partners, including financial services and non-financial services companies with whom we have marketing agreements. Many of our customers appreciate receiving this information. However, if you do not want us to share your information for these purposes or communicate offers to you -- either by phone or mail -- please complete the attached form and return it to us. If there are multiple owners of an account, any one of them may request on behalf of any or all of the others that their information not be disclosed and their names be removed from our phone or mailing lists. While you may receive more than one copy of this notice, if you choose to limit the sharing of your information, you only need to inform us of your choice once. Unless you modify this decision, we will continue to honor it. NOT PART OF PROSPECTUS i THIS NOTICE IS BEING PROVIDED ON BEHALF OF THE FOLLOWING PRUDENTIAL AFFILIATES: Prudential Insurance Company of America, The Prudential Property and Casualty Insurance Company Prudential Securities Incorporated Prudential Investment Corporation, The Prudential Bank and Trust Company, The Prudential 20/20 Focus Fund Prudential California Municipal Fund Prudential Commercial Insurance Company Prudential Commercial Insurance Company of New Jersey, The Prudential Direct Insurance Agency of Texas, Inc. Prudential Direct Insurance Agency of Alabama, Inc. Prudential Direct Insurance Agency of Massachusetts, Inc. Prudential Direct Insurance Agency of New Mexico, Inc. Prudential Direct Insurance Agency of Ohio, Inc. Prudential Direct Insurance Agency of Wyoming, Inc. Prudential Direct, Inc. Prudential Diversified Funds Prudential Equity Fund, Inc. Prudential Equity Investors, Inc. Prudential Europe Growth Fund, Inc. Prudential General Agency of Ohio, Inc. Prudential General Insurance Agency of Florida, Inc. Prudential General Insurance Agency of Kentucky, Inc. Prudential General Insurance Agency of Massachusetts, Inc. Prudential General Insurance Agency of Mississippi, Inc. Prudential General Insurance Agency of Nevada, Inc. Prudential General Insurance Agency of New Mexico, Inc. Prudential General Insurance Agency of Texas, Inc. Prudential General Insurance Agency of Wyoming, Inc. Prudential General Insurance Company Prudential General Insurance Company of New Jersey, The Prudential Global Total Return Fund, Inc. Prudential Government Income Fund, Inc. Prudential Government Securities Trust Prudential High Yield Fund, Inc. Prudential High Yield Total Return Fund, Inc. Prudential Index Series Fund Prudential Institutional Liquidity Portfolio, Inc. Prudential Insurance Brokerage, Inc. Prudential International Bond Fund, Inc. Prudential Investment Management Services LLC Prudential Investment Portfolios, Inc., The Prudential Investments Fund Management LLC Prudential MoneyMart Assets, Inc. Prudential Municipal Bond Fund Prudential Municipal Series Fund Prudential National Municipal Funds, Inc. Prudential Natural Resources Fund, Inc. Prudential Pacific Growth Fund, Inc. Prudential Property and Casualty Insurance Company of New Jersey, The Prudential Property and Casualty New Jersey Insurance Brokerage, Inc., The Prudential Real Estate Securities Fund Prudential Savings Bank, F.S.B., The Prudential Sector Funds, Inc. Prudential Select Life Insurance Company of America Prudential Series Fund, Inc., The Prudential Short-Term Corporate Bond Fund, Inc. Prudential Small Company Fund, Inc. Prudential Special Money Market Fund, Inc. Prudential Tax-Free Money Fund, Inc. Prudential Tax-Managed Funds Prudential Tax-Managed Small-Cap Fund, Inc. Prudential Total Return Bond Fund, Inc. Prudential Trust Company Prudential U.S. Emerging Growth Fund, Inc. Prudential Value Fund Prudential World Fund, Inc. Pruco Life Insurance Company Pruco Life Insurance Company of New Jersey Pruco Securities Corporation Asia Pacific Fund, Inc., The Bache Insurance Agency Incorporated Bache Insurance Agency of Alabama, Inc. Bache Insurance Agency of Oklahoma, Inc. Bache Insurance Agency of Texas, Inc. Cash Accumulation Trust COMMAND Government Fund COMMAND Money Fund COMMAND Tax-Free Fund Duff & Phelps Utilities Tax-Free Income Fund, Inc. First Financial Fund, Inc. Global Utility Fund, Inc. High Yield Income Fund, Inc., The High Yield Plus Fund, Inc., The Hochman & Baker Investment Advisory Services Hochman & Baker Securities Hochman & Baker, Inc. Jennison Associates LLC Merastar Insurance Company Nicholas-Applegate Fund, Inc. Quick Sure Auto Agency Strategic Partners Series Target Funds Target Portfolio Trust, The Titan Auto Agency, Inc. Titan Auto Insurance Titan Auto Insurance of Arizona, Inc. Titan Auto Insurance of New Mexico Titan Auto Insurance of Pennsylvania Titan Auto Insurance, Inc. Titan Indemnity Company Titan Insurance Company Titan Insurance Services, Inc. Titan National Auto Call Center, Inc. Victoria Automobile Insurance Company Victoria Fire & Casualty Company Victoria Insurance Agency, Inc. Victoria National Insurance Company Victoria Select Insurance Company Victoria Specialty Insurance Company W.I. of Florida, Inc. WHI of New York, Inc. Whitehall Insurance Agency of Texas, Inc. Whitehall of Indiana, Inc. In this notice, the phrase "third party" refers to any organization that is not a Prudential affiliate. The words "you" and "customer," as used in this notice, mean any individual who obtains or has obtained a financial product or service from a Prudential affiliate that is to be used primarily for personal, family, or household purposes. We will process your request as quickly as possible. In some cases, 6 to 8 weeks may be required for your request(s) to become effective. Prudential will continue to provide you with important information about your existing accounts, including inserts enclosed with your account statements and other notices regarding the Prudential products that you own. You may also receive communications from your Prudential Professional or from independently owned and operated franchisees of The Prudential Real Estate Affiliates, Inc. If any of your information changes, please let us know so that we can update your records and continue to serve you as you have requested. NOT PART OF PROSPECTUS ii WE WANT TO KNOW YOUR PREFERENCE If you do not want us to share the previously described information with Prudential businesses or non-Prudential businesses, to inform you of other products or services we believe may be of interest to you, complete item #1. In addition, if you do not want to receive communications regarding other products or services by mail or phone, complete item #2. 1. [ ] Do not share my information to inform me of other products or services. 2. Please remove my name from Prudential's corporate marketing lists for receiving information: [ ] by U.S. mail [ ] by telephone TO ENABLE US TO PROCESS YOUR REQUEST, PLEASE PROVIDE YOUR ACCOUNT/POLICY NUMBER EXACTLY AS IT APPEARS ON YOUR STATEMENT: - ------------------------------------------------- Account/Policy Number (required for processing) PLEASE PRINT YOUR NAME AND ADDRESS EXACTLY AS IT APPEARS ON YOUR STATEMENT: - ---------------------------------- NAMES OF JOINT OWNERS Last Name - ---------------------------------- ---------------------------------------- First Name Last Name - ---------------------------------- ---------------------------------------- Address (Line 1) First Name - ---------------------------------- ---------------------------------------- Address (Line 2) Address (Line 1) - ---------------------------------- ---------------------------------------- City Address (Line 2) - ---------------------------------- ---------------------------------------- State ZIP Code City - ---------------------------------- ---------------------------------------- (Area Code) Phone Number State ZIP Code MAIL TO: PRUDENTIAL -- CUSTOMER PRIVACY ---------------------------------------- P.O. BOX 4600 Last Name TRENTON, NEW JERSEY 08650 ---------------------------------------- First Name ---------------------------------------- Address (Line 1) ---------------------------------------- Address (Line 2) ---------------------------------------- City ---------------------------------------- State ZIP Code IF THERE ARE JOINT OWNERS TO WHICH THIS REQUEST WILL APPLY PLEASE PROVIDE THEIR INFORMATION ON THE BACK OF THIS FORM. 0019 NOT PART OF PROSPECTUS iii MF103A Cusip Number NASDAQ Symbol 74436P-10-3 PBFXX PRUDENTIAL TAX FREE MONEY FUND, INC. Statement of Additional Information Dated March 15, 2001 Prudential Tax-Free Money Fund, Inc. (the Fund) is an open-end, diversified management investment company whose investment objective is to seek the highest level of current income that is exempt from federal income taxes, consistent with liquidity and the preservation of capital. The Fund pursues this objective by investing primarily in a portfolio of short-term debt obligations issued by states, territories and possessions of the United States, the District of Columbia, and their political subdivisions, duly constituted authorities and corporations, the interest from which is wholly-exempt from federal income tax in the opinion of bond counsel to the issuer. There can be no assurance that the Fund's investment objective will be achieved. See "How the Fund Invests" in the Fund's Prospectus and "Description of the Fund, its Investments and Risks" below. 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 sets forth information about the Fund. This Statement of Additional Information is not a prospectus and should be read in conjunction with the Fund's Prospectus, dated March 15, 2001, a copy of which may be obtained at no charge from the Fund upon request at the address or telephone number noted above. The Fund's financial statements for the fiscal year ended December 31, 2000 are incorporated into this Statement of Additional Information by reference to the Fund's 2000 annual report to shareholders (File No. 811-02927). You may obtain a copy of the Fund's annual report at no charge by request to the Fund at the address or telephone number noted above. TABLE OF CONTENTS PAGE ---- Fund History ..................................................... B-2 Description of the Fund, its Investments and Risks ............... B-2 Investment Restrictions .......................................... B-5 Management of the Fund ........................................... B-6 Control Persons and Principal Holders of Securities .............. B-9 Investment Advisory and Other Services ........................... B-9 Brokerage Allocation and Other Practices ......................... B-12 Securities and Organization ...................................... B-12 Purchase and Redemption of Fund Shares ........................... B-12 Net Asset Value .................................................. B-14 Taxes, Dividends and Distributions ............................... B-15 Calculation of Yield ............................................. B-16 Financial Statements ............................................. B-17 Appendix--Description of Ratings ................................. I-1 MF103B FUND HISTORY The Fund was organized as a corporation under the laws of Maryland on March 22, 1979. DESCRIPTION OF THE FUND, ITS INVESTMENTS AND RISKS (a) CLASSIFICATION. The Fund is a diversified open-end management investment company. (b) INVESTMENT STRATEGIES AND RISKS. The Fund's investment objective is to seek the highest level of current income that is exempt from federal income taxes, consistent with liquidity and the preservation of capital. To achieve this objective we invest primarily in short-term debt obligations of state and local governments, municipal commercial paper, variable rate demand obligations and municipal asset-backed securities, which we refer to collectively as "Municipal Bonds." Additional information relating to the Fund's principal investment policies and strategies discussed in the Fund's Prospectus, and information about other securities, instruments, policies and strategies which the Fund may use from time to time in seeking to achieve its investment objective, are described below. The Fund may not be successful in achieving its investment objective and you can lose money. MUNICIPAL BONDS The Fund may invest in municipal bonds and municipal notes, which are collectively referred to as Municipal Bonds in the Fund's Prospectus and this Statement of Additional Information. Municipal bonds are generally issued to obtain funds for various public purposes, including construction of public facilities such as airports, bridges, highways, housing, hospitals, mass transportation, schools, streets and water and sewer works. They may also be issued to refund outstanding obligations, to meet general operating expenses or to obtain funds to lend to other public institutions and facilities. Municipal bonds also include bonds issued by or on behalf of public authorities in order to obtain funds with which to provide privately operated housing facilities, sports facilities, pollution control facilities, convention or trade show facilities, industrial, port or parking facilities and facilities for water supply, gas, electricity or waste disposal. These bonds are typically revenue bonds and generally do not carry the pledge of the issuer's credit. Municipal bonds may be insured. Municipal bonds may be general obligation or revenue bonds. General obligation bonds are secured by the issuer's pledge of its faith, credit and taxing power for the payment of principal and interest. Revenue bonds are payable from the revenues derived from a particular facility or class of facilities or from the proceeds of a special excise tax or other specific revenue source but not from the general taxing power. Municipal notes are short-term obligations generally with a maturity, at the time of issuance, ranging from six months to three years. The principal types of municipal notes include tax anticipation notes, bond anticipation notes and revenue anticipation notes. Municipal notes sold in anticipation of collection of taxes, a bond sale, or receipt of other revenues, are usually general obligations of the issuing municipality or agency. Municipal notes also include tax-exempt or municipal commercial paper, which is likely to be issued to meet seasonal working capital needs of a municipality or interim construction financing and to be paid from general revenues of the municipality or refinanced with long-term debt. In most cases, municipal commercial paper is backed by letters of credit, lending agreements, note repurchase agreements or other credit facility agreements offered by banks or other institutions. MUNICIPAL ASSET BACKED SECURITIES. The Fund may purchase municipal asset backed securities. These securities are debt obligations, often issued through a trust or other investment vehicles that are backed by municipal debt obligations and accompanied by a liquidity facility to comply with Rule 2a-7. These trusts or other investment vehicles represent investment companies. The Fund's investment in securities of such issuers are subject to limitations imposed by the Investment Company Act. The Fund will treat an investment in a municipal security refunded with escrowed U.S. Government securities as U.S. Government securities for purposes of the diversification requirements of the Investment Company Act of 1940, as amended (the Investment Company Act) provided: (i) the escrowed securities are "government securities" as defined in the Investment Company Act; (ii) the escrowed securities are irrevocably pledged only to payment of debt service on the refunded securities, except to the extent there are amounts in excess of funds necessary for such debt service; (iii) principal and interest on the escrowed securities will be sufficient to satisfy all scheduled principal, interest and any premiums on the refunded securities and a verification report prepared by a party acceptable to a nationally recognized statistical rating organization, or counsel to the holders of the refunded securities, so verifies; (iv) the escrow agreement provides that the issuer of the refunded securities grants and assigns to the escrow agent, for the equal and ratable benefit of the holders of the refunded securities, an express first lien on, pledge of and perfected security interest in the escrowed securities and the interest income thereon and (v) the escrow agent had B-2 no lien of any type with respect to the escrowed securities for payment of its fees or expenses except to the extent there are excess securities, as described in (ii) above. The Fund will not, however, invest more than 25% of its total assets in pre-refunded bonds of the same municipal issuer. VARIABLE RATE AND FLOATING RATE SECURITIES. The interest rates payable on certain Municipal Bonds are not fixed and may fluctuate based upon changes in market rates. Municipal Bonds of this type are called "variable rate" or "floating rate" obligations. The interest rate payable on a variable rate obligation is adjusted at predesignated intervals and the interest rate payable on a floating rate obligation is adjusted whenever there is a change in the market rate of interest on which the interest rate payable is based. Other features of these obligations typically include the right of the Fund to demand, in some cases, at specified intervals of less than one year or, in other cases, upon not less than seven days' notice, prepayment of the principal amount of the obligation prior to its stated maturity (a demand feature). In addition, the issuer may have the right, at similar intervals or upon similar notice, to prepay the principal amount prior to maturity. The principal benefit of variable and floating rate obligations is that the interest rate adjustment minimizes changes in the market value of the obligations. As a result, the purchase of such obligations should enhance the ability of the Fund to maintain a stable net asset value per share (see Net Asset Value) and to sell an obligation prior to maturity at a price approximating the full principal amount of the obligation. The payment of principal and interest by issuers of certain Municipal Bonds purchased by the Fund may be guaranteed by letters of credit or other credit facilities offered by banks or other financial institutions. Such guarantees will be considered in determining whether a Municipal Bond meets the Fund's investment quality requirements. PUTS. The Fund may purchase Municipal Bonds together with the right to resell the Municipal Bonds to the seller at an agreed-upon price or yield within a specified period prior to the maturity date of the bonds. Such a right to resell is commonly known as a "put" or "tender option," and the aggregate price which the Fund pays for Municipal Bonds with puts or tender options is higher than the price which otherwise would be paid for the Bonds. Consistent with the Fund's investment objective and subject to the supervision of the Board of Directors, the primary purpose of this practice is to permit the Fund to be fully invested in securities the interest on which is exempt from federal income taxes while preserving the necessary liquidity to purchase securities on a when-issued basis, to meet unusually large redemptions and to purchase, at a later date, securities other than those subject to the put. The Fund's policy is generally to exercise the puts or tender options on their expiration date when the exercise price is higher than the current market price for related Municipal Bonds. Puts or tender options may be exercised prior to the expiration date in order to fund obligations to purchase other securities or to meet redemption requests. These obligations may arise during periods in which proceeds from sales of Fund shares and from recent sales of portfolio securities are insufficient to meet such obligations or when the funds available are otherwise allocated for investment. In addition, puts may be exercised prior to the expiration date in the event the Fund's investment adviser revises its evaluation of the credit worthiness of the issuer of the underlying security. In determining whether to exercise puts or tender options prior to their expiration date and in selecting which puts or tender options to exercise in such circumstances, the investment adviser considers, among other things, the amount of cash available to the Fund, the expiration dates of the available puts or tender options, any future commitments for securities purchases, the yield, quality and maturity dates of the underlying securities, alternative investment opportunities and the desirability of retaining the underlying securities in the Fund's portfolio. The Fund values Municipal Bonds which are subject to puts or tender options at amortized cost; no value is assigned to the put or tender option. The cost of the put or tender option is carried as an unrealized loss from the time of purchase until it is exercised or expires. The value of the put or tender option is dependent on the ability of the put writer to meet its obligation of repurchase, and it is the Fund's general policy to enter into put or tender option transactions only with such brokers, dealers or other financial institutions which present minimal credit risks. There is a credit risk associated with the purchase of puts or tender options in that the broker, dealer or financial institution might default on its obligation to repurchase an underlying security. The Fund has received a ruling of the Internal Revenue Service to the effect that the Fund will be considered the owner of the Municipal Bonds subject to the puts or tender options so that the interest on the bonds will be tax-exempt income to the Fund. WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Municipal Bonds are frequently offered on a when-issued or delayed delivery basis. When so offered, the price and coupon rate are fixed at the time the commitment to purchase is made, but delivery and payment for the when-issued securities take place at a later date. The purchase price and the interest rate payable on the securities are fixed on the transaction date. The securities so purchased are subject to market fluctuation and, during the period between purchase and settlement, no interest accrues to the purchaser. While securities may be sold prior to the settlement date, the Fund intends to purchase such securities with the purpose of actually acquiring them unless a sale would be desirable for investment reasons. At the time the Fund makes the commitment to purchase a Municipal Bond on a when-issued or delayed delivery basis, it will record the transaction and reflect the value of the bond in determining its net asset value. The Fund will also establish a segregated account with its custodian bank in which it will maintain cash or other liquid assets equal in value to commitments for when-issued or delayed delivery securities. If the Fund chooses to dispose of the when-issued or delayed delivery security prior to the settlement date, it could, as with the disposition of any other portfolio obligation, incur a gain or loss due to market fluctuation. The Fund does not believe that its net asset value or net investment income will be adversely affected by B-3 its purchase of Municipal Bonds on a when-issued or delayed delivery basis. The Fund may invest in when-issued or delayed delivery securities without other limitation. OTHER MATTERS. For purposes of diversification under the Investment Company Act, the identification of the issuer of Municipal Bonds depends on the terms and conditions of the obligation. If the assets and revenues of an agency, authority, instrumentality or other political subdivision are separate from those of the government creating the subdivision, and the obligation is backed only by the assets and revenues of the subdivision, such subdivision would be regarded as the sole issuer. Similarly, in the case of a private activity revenue bond or pollution control revenue bond, if the bond is backed only by the assets and revenues of the nongovernmental user, the nongovernmental user would be regarded as the sole issuer. If in either case the creating government or another entity guarantees an obligation, the guarantee would be regarded as a separate security and treated as an issue of such government or entity. BORROWING The Fund may borrow from banks (including through entering into reverse repurchase agreements) up to and including 5% of the value of its total assets taken at cost for temporary or emergency purposes. The Fund may pledge up to and including 10% of its net assets to secure such borrowings. REPURCHASE AGREEMENTS The Fund may invest up to 5% of its assets in repurchase agreements whereby the seller of a security agrees to repurchase that security from the Fund at a mutually agreed-upon time and price. The period of maturity is usually quite short, possibly overnight or a few days, although it may extend over a number of months. The resale price is in excess of the purchase price, reflecting an agreed-upon rate of return effective for the period of time the Fund's money is invested in the security. The Fund's repurchase agreements will at all times be fully collateralized in an amount at least equal to the resale price. The instruments held as collateral are valued daily, and if the value of instruments declines, the Fund will require additional collateral. If the seller defaults and the value of the collateral securing the repurchase agreement declines, the Fund may incur a loss. The Fund participates in a joint repurchase account with other investment companies managed by PIFM pursuant to an order of the Securities and Exchange Commission (SEC). ILLIQUID SECURITIES The Fund may not hold more than 10% of its net assets in illiquid securities. If the Fund were to exceed this limit, the investment adviser would take prompt action to reduce the Fund's holdings in illiquid securities to no more than 10% of its net assets, as required by applicable law. Historically, illiquid securities have included securities subject to contractual or legal restrictions on resale because they have not been registered under the Securities Act of 1933, as amended (Securities Act), securities which are otherwise not readily marketable and repurchase agreements having a maturity of longer than seven days. Securities which have not been registered under the Securities Act are referred to as private placements or restricted securities and are purchased directly from the issuer or in the secondary market. Mutual funds do not typically hold a significant amount of these restricted or other illiquid securities because of the potential for delays on resale and uncertainty in valuation. Limitations on resale may have an adverse effect on the marketability of portfolio securities and a mutual fund might be unable to dispose of restricted or other illiquid securities promptly or at reasonable prices and might thereby experience difficulty satisfying redemptions within seven days. A mutual fund might also have to register such restricted securities in order to dispose of them, resulting in additional expense and delay. Adverse market conditions could impede such a public offering of securities. In recent years, however, a large institutional market has developed for certain securities that are not registered under the Securities Act including repurchase agreements, commercial paper, foreign securities, municipal securities, convertible and corporate bonds and notes. Institutional investors depend on an efficient institutional market in which the unregistered security can be readily resold or an issuer's ability to honor a demand for repayment. The fact that there are contractual or legal restrictions on resale to the general public or to certain institutions may not be indicative of the liquidity of such investments. Rule 144A under the Securities Act allows for a broader institutional trading market for securities otherwise subject to restriction on resale to the general public. Rule 144A establishes a "safe harbor" from the registration requirements of the Securities Act for resales of certain securities to qualified institutional buyers. Restricted securities eligible for resale pursuant to Rule 144A under the Securities Act, commercial paper and municipal lease obligations for which there is a readily available market will not be deemed to be illiquid under procedures established by the Board of Directors. 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 B-4 of other potential purchasers; (3) dealer undertakings to make a market in the security; and (4) the nature of the security and the nature of the marketplace trades (E.G., the time needed to dispose of the security, the method of soliciting offers and the mechanics of the transfer). With respect to municipal lease obligations, the investment adviser will also consider: (1) the willingness of the municipality to continue, annually or biannually, to appropriate funds for payment of the lease; (2) the general credit quality of the municipality and the essentiality to the municipality of the property covered by the lease; (3) in the case of unrated municipal lease obligations, an analysis of factors similar to that performed by nationally recognized statistical rating organizations (NRSROs) in evaluating the credit quality of a municipal lease obligation, including (i) whether the lease can be cancelled; (ii) if applicable, what assurance there is that the assets represented by the lease can be sold; (iii) the strength of the lessee's general credit (E.G., its debt, administrative, economic and financial characteristics); (iv) the likelihood that the municipality will discontinue appropriating funding for the leased property because the property is no longer deemed essential to the operations of the municipality (E.G., the potential for an event of nonappropriation); and (v) the legal recourse in the event of failure to appropriate; and (4) any other factors unique to municipal lease obligations as determined by the investment adviser. With respect to commercial paper that is issued in reliance on Section 4(2) of the Securities Act: (1) it must be (i) rated in one of the two highest short-term rating categories by at least two nationally recognized statistical rating organizations (NRSROs) or by one NRSRO if only one NRSRO rates those Municipal Bonds, such as Moody's Investors Service, Inc. (rated at least Aa, MIG-2 or Prime-2) or Standard & Poor's Rating Group (rated at least AA, SP-2 or A-2), (ii) rated in one of the three highest long-term rating categories by at least two NSROs or by only one NSRO if only one NSRO rates those Municipal Bonds, or (iii) if unrated, of comparable quality as determined by the Fund's investment adviser; and (2) it must not be "traded flat" (I.E., without accrued interest) or in default as to principal or interest. Repurchase agreements subject to demand are deemed to have a maturity equal to the notice period. 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," 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. With respect to the submission of a change in fundamental policy or investment objective of the Fund, such matters shall be deemed to have been effectively acted upon with respect to the Fund if a majority of the outstanding voting securities of the Fund votes for the approval of such matters as provided above. The following investment restrictions are fundamental policies of the Fund and may not be changed except as described above. The Fund may not: (1) Invest more than 5% of the market or other fair value of its total assets in the securities of any one issuer (other than obligations of, or guaranteed by, the United States Government, its agencies or instrumentalities or secured by such obligations). See "Municipal Bonds--Other Matters" under "Description of the Fund, its Investments and Risks" for the definition of an issuer. (2) Make short sales of securities. (3) Purchase securities on margin, except for such short-term credits as are necessary for the clearance of purchases and sales of portfolio securities. (4) Borrow money, except that the Fund may borrow for temporary purposes in amounts not exceeding 5% of the market or other fair value (taken at the lower of cost or current value) of its total assets (not including the amount borrowed). Any such borrowings will be made only from banks. Secured temporary borrowings may take the form of reverse repurchase agreements, pursuant to which the Fund would sell portfolio securities for cash and simultaneously agree to repurchase them at a specified date for the same amount of cash plus an interest component. The Fund would maintain, in a segregated account with its custodian, liquid assets equal in value to the amount owed. (5) Pledge its assets or assign or otherwise encumber them in excess of 10% of its assets (taken at market or other fair value at the time of pledging) and then only to secure borrowings effected within the limitations set forth in restriction (4). (6) Engage in the underwriting of securities. (7) Purchase or sell real estate mortgage loans, although it may purchase Municipal Bonds secured by interests in real estate. (8) Make loans of money or securities, except through the purchase of debt obligations or repurchase agreements. (9) Purchase securities of other investment companies, except in the open market involving only customary brokerage commissions and as a result of which not more than 10% of its total assets (determined at the time of investment) would be invested in such securities or except in connection with a merger, consolidation, reorganization or acquisition of assets. (10) Invest for the purpose of exercising control or management of another company. B-5 (11) Purchase industrial revenue bonds if, as a result of such purchase, more than 5% of total Fund assets would be invested in industrial revenue bonds where payment of principal and interest are the responsibility of companies with less than three years of operating history. In addition, the Fund may not purchase any security (other than obligations of the U.S. Government, its agencies and 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. Whenever any fundamental investment policy or investment restriction states a maximum percentage of the Fund's assets, it is intended that if the percentage limitation is met at the time the action is taken, a later change in percentage resulting from changing total or net asset values will not be considered a violation of such policy. However, in the event that the Fund's asset coverage for borrowings falls below 300%, the Fund will take action within three days to reduce its borrowings, as required by applicable law. MANAGEMENT OF THE FUND (A) DIRECTORS The Fund has Directors who, in addition to overseeing the actions of the Fund's Manager, Subadviser, and Distributor, decide upon matters of general policy. The Directors also review the actions of the officers of the Fund, who conduct and supervise the daily business operations of the Fund. (B) MANAGEMENT INFORMATION--DIRECTORS AND OFFICERS
POSITION WITH PRINCIPAL OCCUPATIONS AND NAME, ADDRESS AND AGE (1) THE FUND OTHER AFFILIATIONS FOR THE LAST FIVE YEARS - ------------------------- ------------- ----------------------------------------------------------------- Delayne Dedrick Gold (62) Director Marketing and Management Consultant. * Robert F. Gunia (54) Vice President Executive Vice President and Chief Administrative Officer (since and Director June 1999) of Prudential Investments; Corporate Vice President (since September 1997) of The Prudential Insurance Company of America (Prudential); Executive Vice President and Treasurer (since December 1996) of Prudential Investments Fund Management LLC (PIFM); President (since April 1999) Prudential Investment Management Services LLC (PIMS); formerly Senior Vice President (March 1987-May 1999) of Prudential Securities Incorporated (Prudential Securities); formerly Chief Administrative Officer (July 1989-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). Robert E. LaBlanc (66) 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 (since 1979), Titan Corporation (electronics, since 1995), Salient 3 Communications Inc. (since 1995), Tribune Company (since 1981) and Chartered Semiconductor Ltd. (Singapore), (since 1998); and Trustee of Manhattan College. *David R. Odenath, Jr. (44) Director and Officer in Charge, President, Chief Executive Officer and Chief Operating President Officer (since June 1999) of PIFM; Senior Vice President (since June 1999) of Prudential; Senior Vice President (August 1993-May 1999) of PaineWebber Group, Inc.
B-6
POSITION WITH PRINCIPAL OCCUPATIONS AND NAME, ADDRESS AND AGE (1) THE FUND OTHER AFFILIATIONS FOR THE LAST FIVE YEARS - ------------------------- ------------- ----------------------------------------------------------------- *Judy A. Rice (53) Vice President Executive Vice President (since 1999) of Prudential Investments; and Director Executive Vice President (since 1999) of PIFM; formerly, various positions to Senior Vice President (1992-1999), Prudential Securities, Inc.; and various positions to Managing Director (1975-1999), Shearson Lehman Advisors; Governor of the Money Management Institute; Member of the Prudential Securities Operating Council, Board Member of the National Association for Variable Annuities. Robin B. Smith (61) Director Chairman and Chief Executive Officer (since August 1996) of Publishers Clearing House; formerly President and Chief Executive Officer (January 1989-August 1996) and President and Chief Operating Officer (September 1981-December 1988) of Publishers Clearing House; Director of BellSouth Corporation (since 1994), Texaco Inc. (since 1992), Springs Industries Inc. (home furnishings/specialty fabrics, since 1993), and Kmart Corporation (since 1996). Stephen Stoneburn (57) Director President and Chief Executive Officer (since June 1996) of Quadrant Media Corp. (a publishing company); formerly President (June 1995-June 1996) of Argus Integrated Media, Inc.; Senior Vice President and Managing Director (January 1993-1995) of 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 (70) Director Economist; formerly Director of Inland Steel Industries (July 1991-1999); formerly, Vice President and Chief Economist (March 1986-June 1990) of International Business Machines Corporation; formerly, Governor of Federal Reserve System (1978-1984). Clay T. Whitehead (62) Director President (since May 1983) of National Exchange Inc. (new business development firm). Marguerite E. H. Morrison (44) Secretary Vice President and Corporate Counsel and Chief Legal Officer (since August 2000) of the Mutual Funds Division of Prudential; Vice President and Associate General Counsel (since December 1996) of PIFM; formerly Vice President and Associate General Counsel (September 1987-September 1996) of Prudential Securities; Vice President and Associate General Counsel (June 1991-September 1996) of Prudential Mutual Fund Management, Inc. Grace C. Torres (41) Treasurer and First Vice President (since December 1996) of PIFM; First Vice President Principal (since March 1994) of Prudential Securities; formerly First Vice Financial President (March 1994- September 1996) of Prudential Mutual Fund and Management, Inc. and Vice President (July 1989-March 1994) of Accounting Bankers Trust Corporation. Officer William V. Healey (47) Assistant Vice President and Associate General Counsel of Prudential and Chief Secretary Legal Officer of Prudential Investments, a business unit of Prudential (since August 1998); Director, ICI Mutual Insurance Company (since June 1999); formerly Associate General Counsel of The Dreyfus Corporation (Dreyfus), a subsidiary of Mellon Bank, N.A. (Mellon Bank), and an officer and/or director of various affiliates of Mellon Bank and Dreyfus.
- ---------- (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. B-7 * "Interested" Director, as defined in the Investment Company Act, by reason of his affiliation with Prudential Investment Management Services LLC (PIMS) or PIFM. Directors and officers of the Fund are also trustees, directors and officers of some or all of the other investment companies distributed by PIMS. The officers conduct and supervise the daily business operations of the Fund, while the Directors, in addition to their functions set forth under "Manager" and "Distributor," review such actions and decide on general policy. The Board of Directors has adopted a retirement policy which calls for the retirement of Directors on December 31 of the year in which they reach the age of 75. Pursuant to the Management Agreement with the Fund, the Manager pays all compensation of officers and employees of the Fund as well as the fees and expenses of all Directors of the Fund who are affiliated persons of the Manager. The Fund pays each of its Directors who is not an affiliated person of PIFM annual compensation of $1,750, in addition to certain out-of-pocket expenses. Directors who serve on Fund Committees receive additional compensation. The amount of compensation paid to each Director may change as a result of the introduction of additional funds upon which the Director will be asked to serve. Directors may receive their Directors' fees pursuant to a deferred fee agreement with the Fund. Under the terms of the agreement, the Fund accrues daily the amount of such Director's fees in installments which accrue interest at a rate equivalent to the prevailing rate applicable to 90-day U.S. Treasury Bills at the beginning of each calendar quarter (the T-Bill rate) or, pursuant to an SEC exemptive order, at the daily rate of return of any Prudential Mutual Fund. The Fund's obligation to make payments of deferred Directors' fees, together with interest thereon, is a general obligation of the Fund. The following table sets forth the aggregate compensation paid by the Fund for the fiscal year ended December 31, 2000 to the Directors who are not affiliated with the Manager and the aggregate compensation paid to such Directors for service on the Fund's Board and that of all other funds managed by PIFM (Fund Complex) for the calendar year ended December 31, 2000. COMPENSATION TABLE TOTAL 2000 COMPENSATION FROM FUND AGGREGATE AND FUND COMPENSATION COMPLEX PAID NAME AND POSITION FROM FUND TO DIRECTORS(2) ----------------- --------- --------------- Delayne D. Gold--Director ................ $1,750 $173,000(38/58)* Robert F. Gunia (1)--Director ............ -- -- Robert F. LaBlanc--Director .............. $1,750 $110,000(22/41)* David R. Odenath, Jr. (1)--Director ...... -- -- Judy A. Rice (1)--Director ............... -- -- Robin B. Smith--Director ................. $1,850 $114,000(27/35)* Stephen Stoneburn--Director .............. $1,750 $110,000(22/41)* Nancy H. Teeters--Director ............... $1,950 $118,000(25/40)* Clay T. Whitehead--Director .............. $1,750 $173,000(35/59)* - ---------- * Indicates number of funds/portfolios in Fund Complex (including the Fund) to which aggregate compensation relates. (1) Directors who are "interested" do not receive compensation from the Fund Complex (including the Fund). (2) Total compensation from all of the funds in the Fund Complex for the calendar year ended December 31, 2000, including amounts deferred at the election of Directors under the funds' Deferred Compensation Plans. Including accrued interest, total deferred compensation amounted to $106,992 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. B-8 CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES As of March 2, 2001, the Directors and officers of the Fund, as a group, beneficially owned less than 1% of the outstanding shares of Common Stock of the Fund. As of March 2, 2001, there were no beneficial owners, directly or indirectly, of more than 5% of the outstanding common stock of the Prudential Tax-Free Money Fund, Inc. As of March 2, 2001, Prudential Securities was the record holder for other beneficial owners of 173,596,074 shares of the Fund, representing approximately 94% of the shares then outstanding. 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. INVESTMENT ADVISORY AND OTHER SERVICES (A) INVESTMENT ADVISER 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 all of the other investment companies that, together with the Fund, comprise the Prudential Mutual Funds. See "How the Fund is Managed--Manager" in the Prospectus. As of January 31, 2001, PIFM managed and/or administered open-end and closed-end management investment companies with assets of approximately $109 billion. According to the Investment Company Institute, as of November 30, 2000 Prudential Mutual Funds were the 23rd largest family of mutual funds in the United States. Prudential Mutual Fund Services LLC (PMFS or the Transfer Agent), an affiliate of PIFM, serves as the transfer agent and dividend disbursing agent for the Prudential Mutual Funds and, in addition, provides customer service, recordkeeping and management and administrative services to qualified plans. Pursuant to the Management Agreement with the Fund (the Management Agreement), PIFM, subject to the supervision of the Fund's Board of Directors and in conformity with the stated policies of the Fund, manages both the investment operations of the Fund and the composition of the Fund's portfolio, including the purchase, retention, disposition and loan of securities and other assets. In connection therewith, PIFM is obligated to keep certain books and records of the Fund. PIFM has hired The Prudential Investment Corporation, doing business as Prudential Investments (PI, the investment adviser or the Subadviser), to provide subadvisory services to 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 (the 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, a fee at an annual rate of .50 of 1% of the Fund's average daily net assets up to $750 million, .425 of 1% of the Fund's average daily net assets between $750 million and $1.5 billion and .375 of 1% of the Fund's average daily net assets in excess of $1.5 billion. The fee is computed daily and payable monthly. The Management Agreement also provides that in the event the expenses of the Fund (including the fees payable to PIFM, but excluding interest, taxes, brokerage commissions, distribution fees and litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Fund's business) for any fiscal year exceed the lowest applicable annual expense limitation established and enforced pursuant to the statutes or regulations of any jurisdiction in which shares of the Fund are then qualified for offer and sale, the compensation due to PIFM will be reduced by the amount of such excess. Reductions in excess of the total compensation payable to PIFM will be paid by PIFM to the Fund. Currently, the Fund believes that there are no such expense limitations. In connection with its management of the corporate affairs of the Fund pursuant to the Management Agreement, PIFM bears the following expenses: (a) the salaries and expenses of all personnel of PIFM and the Fund, 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 investment advisor pursuant to the subadvisory agreement between PIFM and PI (the Subadvisory Agreement). B-9 Under the terms of the Management Agreement, the Fund is responsible for the payment of the following expenses, (a) the fees payable to the Manager, (b) the fees and expenses of Directors who are not affiliated with PIFM or the Fund's Subadvisor, (c) the fees and certain expenses of the Fund's Custodian and Transfer Agent, including the cost of providing records to the Manager in connection with its obligation of maintaining required records of the Fund and of pricing the Fund's shares, (d) the charges and expenses of the Fund's legal counsel and independent accountants, (e) brokerage commissions, if any, 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 is a member, (h) the cost of stock certificates representing shares of the Fund, (i) the cost of fidelity and liability insurance, (j) the fees and expenses involved in registering and maintaining registration of the Fund and of its shares with the SEC, including the preparation and printing of the Fund's registration statements and prospectuses for such purposes, and paying the fees and expenses of notice filings made in accordance with state securities laws, (k) allocable communications expenses with respect to investor services and all expenses of shareholders' and Directors' meetings and of preparing, printing and mailing reports, proxy statements and prospectuses to shareholders, (l) litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Fund's business, and (m) distribution expenses. The Management Agreement also 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 a breach of fiduciary duty with respect to the receipt of compensation for services or 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 (as defined in the Investment Company Act), 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 the date of execution only so long as such continuance is specifically approved at least annually in accordance with the requirements of the Investment Company Act. For the fiscal years ended December 31, 2000, 1999 and 1998, PIFM received management fees of $883,795, $1,013,590 and $1,389,197, respectively. PIFM has entered into the Subadvisory Agreement with PI, a wholly-owned subsidiary of Prudential. The Subadvisory Agreement provides that PI furnish investment advisory services in connection with the management of the Fund. In connection therewith, PI is obligated to keep certain books and records of the Fund. PIFM continues to have responsibility for all investment advisory services pursuant to the Management Agreement and supervises PI's performance of such services. PI was reimbursed by PIFM for the reasonable costs and expenses incurred by PI in furnishing services to PIFM. Effective January 1, 2000, PI is paid by PIFM at an annual rate of .25 of 1% of the Fund's average daily net assets (representing half of the compensation received from the Fund by PIFM). 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, with a staff including 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 provides that it will terminate in the event of its assignment (as defined in the Investment Company Act) or upon the termination of the Management Agreement. The Subadvisory Agreement may be terminated by the Fund, PIFM or PI upon not more than 60 days' nor less than 30 days' written notice. The Subadvisory Agreement provides that it will continue in effect for a period of more than two years from its execution only so long as such continuance is specifically approved by the Board of Directors at least annually in accordance with the requirements of the Investment Company Act. (B) PRINCIPAL UNDERWRITER, DISTRIBUTOR AND RULE 12B-1 PLAN Prudential Investment Management Services LLC (PIMS or the Distributor), Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, acts as the distributor of the shares of the Fund. Pursuant to the Fund's Distribution Agreement, the Fund has agreed to indemnify the Distributor to the extent permitted by applicable law against certain liabilities under the federal securities laws. B-10 DISTRIBUTION AND SERVICE PLAN Under the Fund's Distribution and Service Plan (the Plan) and Distribution Agreement, the Fund pays the Distributor a distribution and service fee of up to 0.125% of the average daily net assets of the Class A shares of the Fund, computed daily and payable monthly. Under the Plan, the Fund is required to pay the distribution and service fee regardless of the expenses incurred by the Distributor. For the fiscal year ended December 31, 2000, PIMS received payments of $220,949, under the Plan. It is estimated that all this amount was spent on commission credits to Prudential Securities and Prusec for payments of account servicing fees to financial advisers and an allocation of overhead and other branch office distribution-related expenses. The term "overhead and other branch office distribution-related expenses" represents (a) the expenses of operating branch offices of Prudential Securities and Pruco Securities Corporation (Prusec), an affiliated broker-dealer, in connection with the sale of Fund shares, including lease costs, the salaries and employee benefits of operations and sales support personnel, utility costs, communications costs and the costs of stationery and supplies, (b) the costs of client sales seminars, (c) travel expenses of mutual fund sales coordinators to promote the sale of Fund shares and (d) other incidental expenses relating to branch promotion of Fund sales. The Plan continues in effect from year to year, provided that each such continuance is approved at least annually by a vote of the Board of Directors, including a majority of the Directors who are not interested persons of the Fund and who have no direct or indirect financial interest in the Plan or in any agreement relating to the Plan (the Rule 12b-1 Directors), cast in person at a meeting called for the purpose of voting on such continuance. The Plan may be terminated at any time, without penalty, by the vote of a majority of the Rule 12b-1 Directors or by the vote of the holders of a majority of the outstanding Class A voting securities of the Fund on not more than 30 days' written notice to any other party to the Plan. The Plan may not be amended to increase materially the amounts to be spent for the services described therein without shareholder approval, and all material amendments must also be approved by the Board of Directors in the manner described above. The Plan will automatically terminate in the event of its assignment. Pursuant to the Plan, the Directors will be provided with, and will review, at least quarterly, a written report of the distribution expenses incurred on behalf of the Fund by the Distributor. The report will include an itemization of the distribution expenses and the purpose of such expenditures. In addition, as long as the Plan remains in effect, the selection and nomination of Directors shall be committed to the Rule 12b-1 Directors. 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. NASD MAXIMUM SALES CHARGE RULE. Pursuant to rules of the NASD, the Distributor is required to limit aggregate initial sales charges, deferred sales charges and asset-based sales charges to 6.25% of total gross sales of the Fund's Class A shares. Interest charges on unreimbursed distribution expenses equal to the prime rate plus one percent per annum may be added to the 6.25% limitation. Sales from the reinvestment of dividends and distributions are not included in the calculation of the 6.25% limitation. The annual asset-based sales charge on Class A shares of the Fund may not exceed .75 of 1% per class. The 6.25% limitation applies to Class A shares rather than on a per shareholder basis. If aggregate sales charges were to exceed 6.25% of the total gross sales of Class A shares, all sales charges on Class A shares would be suspended. (C) OTHER SERVICE PROVIDERS 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), 194 Wood Avenue South, Iselin, New Jersey 08853, serves as the Transfer Agent of the Fund. It is an affiliate 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. In connection with services rendered to the Fund, PMFS receives an annual fee ($9.50) per shareholder account, a new account set up fee ($2.00) for each manually-established account and a monthly inactive zero balance account fee ($0.20) per shareholder account plus its out-of-pocket expenses, including but not limited to postage, stationery, printing, allocable communications and other costs. PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York 10036, serves as the Fund's independent accountants and in that capacity audits the Fund's annual financial statements. B-11 BROKERAGE ALLOCATION AND OTHER PRACTICES 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 does not normally incur any brokerage commission expense on such transactions. In the market for money market instruments, securities are generally traded on a "net" basis, with dealers acting as principal for their own accounts without a stated commission, although the price of the security usually includes a profit to the dealer. In underwritten offerings, securities are purchased at a fixed price which includes an amount of compensation to the underwriter, generally referred to as the underwriter's concession or discount. On occasion, certain money market instruments may be purchased directly from an issuer, in which case no commissions or discounts are paid. 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 provide 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 commission 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 of such other accounts, whose aggregate assets are far larger than those of the Fund, 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 fee it pays to the Manager by any amount that may be attributed to the value of such services. The Fund will not effect any securities transactions with or through Prudential Securities as broker or dealer. During the fiscal years ended December 31, 2000, 1999 and 1998, the Fund paid no brokerage commissions. SECURITIES AND ORGANIZATION The Fund is authorized to issue three billion shares of common stock, $.01 par value per share, divided into two classes, designated Class A and Class Z common stock. Of the authorized shares of common stock of the Fund, 1.5 billion shares consist of Class A shares and 1.5 billion shares consist of Class Z shares. Currently, the Fund offers only Class A shares. Shares of the Fund, when issued, are fully paid, nonassessable, fully transferable and redeemable at the option of the shareholder. All shares are equal as to earnings, assets and voting privileges. There are no conversion, pre-emptive or other subscription rights. In the event of liquidation, each share of common stock of the Fund is entitled to its portion of all the Fund's assets after all debts and expenses have been paid. The shares of the Fund do not have cumulative voting rights for the election of directors. The Fund does not intend to hold annual meetings of shareholders unless otherwise required by law. The Fund will not be required to hold 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% or more 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. PURCHASE AND REDEMPTION OF FUND SHARES PURCHASE OF SHARES The Fund reserves the right to reject any initial or subsequent purchase (including an exchange) and the right to limit investments in the Fund solely to existing or past shareholders of the Fund. Shares of the Fund may be purchased by investors through the Distributor, through brokers that have entered into agreements to sell Fund shares, or directly through Prudential Mutual Fund Services LLC (PMFS). Shares may also be purchased through Prudential Securities or Pruco Securities Corporation (Prusec). Prudential Securities clients who hold Fund shares through Prudential Securities may benefit through administrative conveniences afforded them as Prudential Securities clients, but may be subject to certain additional restrictions imposed by Prudential Securities. B-12 REOPENING AN ACCOUNT Subject to the minimum investment restrictions, an investor may reopen an account, without filing a new application form, at any time during the calendar year the account is closed, provided that the existing account information is still accurate. REDEMPTION OF SHARES Investors who purchase shares directly from PMFS may use the following privileges: CHECK REDEMPTION. At a shareholder's request, State Street Bank will establish a personal checking account for the shareholder. Checks drawn on this account can be made payable to the order of any person in any amount equal to or greater than $500. The payee of the check may cash or deposit it like any other check drawn on a bank. When such a check is presented to State Street for payment, State Street presents the check to the Fund as authority to redeem a sufficient number of shares in a shareholder's account in the Fund to cover the amount of the check. This enables the shareholder to continue earning daily dividends until the check is cleared. Canceled checks are returned to the shareholder by State Street. Shareholders are subject to State Street's rules and regulations governing checking accounts, including the right of State Street not to honor checks in amounts exceeding the value of the shareholder's account at the time the check is presented for payment. Shares for which certificates have been issued are not available for redemption to cover checks. A shareholder should be certain that adequate shares for which certificates have not been issued are in his or her account to cover the amount of the check. Also, shares purchased by check are not available to cover checks until 10 calendar days after receipt of the purchase check by PMFS. If insufficient shares are in the account, or if the purchase was made by check within 10 calendar days, the check will be returned marked "insufficient funds." Since the dollar value of an account is constantly changing, it is not possible for a shareholder to determine in advance the total value of his or her account so as to write a check for the redemption of the entire account. PMFS reserves the right to assess a service charge to establish a checking account and to order checks. State Street, PMFS and the Fund have reserved the right to modify this checking redemption privilege or to place a charge for each check presented for payment for any individual account or for all accounts in the future. The Fund, PMFS or State Street may terminate Check Redemption at any time upon 30 days' notice to participating shareholders. To receive further information, contact Prudential Mutual Fund Services LLC, Attention: Redemption Services, P.O. Box 8149, Philadelphia, PA 19101-8179, or telephone (800) 225-1852 (toll-free). Check Redemption is not available to investors for whom Prudential Securities has purchased shares. SALE OF 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 broker. If you are redeeming your shares through a broker, your broker must receive your sell order before the Fund computes its NAV for that day (that is, 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 through Prudential Securities. Please contact your Prudential Securities financial adviser. In order to redeem shares, a written request for redemption signed by you exactly as the account is registered is required. If you hold certificates, the certificates must be received by the Transfer Agent, the Distributor or your broker in order for the redemption request to be processed. If redemption is requested by a corporation, partnership, trust or fiduciary, written evidence of authority acceptable to the Transfer Agent must be submitted before such request will be accepted. All correspondence and documents concerning redemptions should be sent to the Fund in care of its Transfer Agent, Prudential Mutual Fund Services LLC, Attention: Redemption Services, P.O. Box 8149, Philadelphia, PA 19101, to the Distributor, or to your broker. SIGNATURE GUARANTEE. If the proceeds of the redemption (1) exceed $100,000, (2) are to be paid to a person other than the record owner, (3) are to be sent to an address other than the address on the Transfer Agent's records, or (4) are to be paid to a corporation, partnership, trust or fiduciary, and your shares are held directly with the Transfer Agent, the signature(s) on the redemption request or stock power must be signature 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 B-13 information from, and make reasonable inquiries of, any eligible guarantor institution. In the case of redemptions from a PruArray Plan, if the proceeds of the redemption are invested in another investment option of the plan in the name of the record holder and at the same address as reflected in the Transfer Agent's records, a signature guarantee is not required. Payment for shares presented for redemption will be made by check within seven days after receipt by the Transfer Agent, the Distributor or your broker of the written request, and certificates, if issued, except as indicated below. If you hold shares through a broker, payment for shares presented for redemption will be credited to your account at your broker, unless you indicate otherwise. Such payment may be postponed or the right of redemption suspended at times (1) when the New York Stock Exchange is closed for other than customary weekends and holidays, (2) when trading on such Exchange is restricted, (3) 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 (4) during any other period when the Securities and Exchange Commission (the Commission), by order, so permits; provided that applicable rules and regulations of the Commission shall govern as to whether the conditions prescribed in (2), (3) or (4) exist. Payment for redemption of recently purchased shares will be delayed until the Fund or its Transfer Agent has been advised that the purchase check has been honored, 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 by purchasing shares by wire or by certified or cashier's check. EXPEDITED REDEMPTION PRIVILEGE. By electing the Expedited Redemption Privilege, you may arrange to have redemption proceeds sent to your bank account. The Expedited Redemption Privilege may be used to redeem shares in an amount of $200 or more, except if an account for which an expedited redemption is requested has a net asset value of less than $200, the entire account will be redeemed. Redemption proceeds in the amount of $1,000 or more will be remitted by wire to your bank account at a domestic commercial bank which is a member of the Federal Reserve system. Redemption proceeds of less than $1,000 will be mailed by check to your designated bank account. Any applicable contingent deferred sales charge will be deducted from the redemption proceeds. Expedited redemption requests may be made by telephone or letter, must be received by the Fund prior to 4:30 p.m., New York Time, to receive a redemption amount based on that day's NAV and are subject to the terms and conditions as set forth in the Prospectus regarding redemption of shares. For more information, see "How to Buy, Sell and Exchange Shares of the Fund--Telephone Redemptions and Exchanges" in the Prospectus. The Expedited Redemption Privilege may be modified or terminated at any time without notice. To receive further information, shareholders should contact Prudential Mutual Fund Services LLC at (800) 225-1852. 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. Any such securities will be readily marketable and will be valued in the same manner as in a regular redemption. 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. RESTRICTIONS ON SALES The Fund may suspend the right of redemption or postpone the date of payment for a period of up to seven days. Suspensions or postponements may not exceed seven days except (1) for any period (a) during which the New York Stock Exchange is closed, other than for customary weekend and holiday closings or (b) during which trading on the New York Stock Exchange is restricted; (2) for any period during which an emergency exists as a result of which (a) disposal by the Fund of securities owned by it is not reasonably practicable or (b) it is not reasonably practicable for the Fund fairly to determine the value of its net assets; or (3) for such other periods as the SEC may by order permit for the protection of shareholders of the Fund. The SEC by rules and regulations determines the conditions under which (i) trading shall be deemed to be restricted and (ii) an emergency is deemed to exist within the meaning of clause (2) above. NET ASSET VALUE The Fund's net asset value per share is determined by subtracting its liabilities from the value of its assets and dividing the remainder by the number of outstanding shares. 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 B-14 only instruments having remaining maturities of thirteen months or less, and to invest only in securities determined by the investment adviser under the supervision of the Board of Directors to be of minimal credit risk and to be of "eligible quality" in accordance with regulations of the SEC. 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 a Fund's portfolio holdings by the Board, at such intervals as deemed appropriate, to determine whether the Fund's net asset value calculated by using available market quotations deviates from $1.00 per share based on amortized cost. The extent of any deviation will be examined by the Board, and if such deviation exceeds 1/2 of 1%, the Board will promptly consider what action, if any, will be initiated. In the event the Board of Directors determines that a deviation exists which may result in material dilution or other unfair results to investors or existing shareholders, the Board will take such corrective action as it regards necessary and appropriate, including the sale of portfolio instruments prior to maturity to realize gains or losses, the shortening of average portfolio maturity, the withholding of dividends or the establishment of net asset value per share by using available market quotations. The Fund computes its net asset value at 4:30 PM New York time, on each day the New York Stock Exchange (the Exchange) is open for trading. In the event the Exchange closes early on any business day, the net asset value of the Fund's shares shall be determined at a time between such closing and 4:30 PM New York time. The 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. TAXES, DIVIDENDS AND DISTRIBUTIONS The Fund has elected to qualify, and the Fund intends to remain qualified, as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. This relieves a fund (but not its shareholders) from paying federal income tax on income which is distributed to shareholders, and, if a fund did realize long-term capital gains, 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 that fund. Qualification as a regulated investment company requires, among other things, that (a) at least 90% of a fund's annual gross income (without reduction for losses from the sale or other disposition of securities or foreign currencies) 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 other income (including, but not limited to, gains from options) derived with respect to its business of investing in such securities; (b) a fund must diversify its holdings so that, at the end of each quarter of the taxable year, (i) at least 50% of the market value of a 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 market 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 must 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. The Fund does not anticipate realizing long-term capital gains or losses. Other gains or losses on the sale of securities will be short-term capital gains or losses. In addition, debt securities acquired by the Fund may be subject to original issue discount and market discount rules. The Fund is required to distribute 98% of its ordinary income in the same calendar year in which it is earned. The Fund is also required to distribute during the calendar year 98% of the capital gain net income it earned during the twelve months ending on October 31 of such calendar year, as well as all undistributed ordinary income and undistributed capital gain net income from the prior year or the twelve-month period ending on October 31 of such prior year, respectively. To the extent it does not meet these distribution requirements, the Fund will be subject to a non-deductible 4% excise tax on the undistributed amount. For purposes of this excise tax, income on which the Fund pays income tax is treated as distributed. The Fund intends to make timely distributions in order to avoid this excise tax. 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 received by shareholders on December 31 of the calendar year in which declared. Under this rule, therefore, a shareholder may be taxed in the prior year on dividends or distributions actually received in January of the following year. It is anticipated that the net asset value per share of the Fund will remain constant. However, if the net asset value per share fluctuates, a shareholder may realize gain or loss upon the disposition of a share. Distributions of net investment income and net short-term gains will be taxable to the shareholder at ordinary income rates regardless of whether the shareholder receives such B-15 distributions in additional shares or cash. Any gain or loss realized upon a sale or redemption of shares by a shareholder who is not a dealer in securities will generally be treated as long-term capital gain or loss if the shares have been held for more than one year and otherwise as short-term capital gain or loss. Any such loss, however, although otherwise treated as short-term capital loss, will be long-term capital loss to the extent of any capital gain distributions received by the shareholder, if the shares have been held for six months or less. Furthermore, certain rules may apply which would limit the ability of the shareholder to recognize any loss if, for example, the shareholder replaced the shares (including shares purchased pursuant to dividend reinvestment) within 30 days of the disposition of the shares. In such a case the basis of the shares acquired will be readjusted to reflect the disallowed loss. Shareholders who have held their shares for six months or less may be subject to a disallowance of losses from the sale or exchange of those shares to the extent of any exempt-interest dividends received by the shareholder with respect to the shares and if such losses are not disallowed, they will be treated as long-term capital losses to the extent of any distribution of long-term capital gains received by the shareholder with respect to such shares. Because none of the Fund's net income is anticipated to arise from dividends on common or preferred stock, none of its distributions to shareholders will be eligible for the dividends received deduction generally allowed to U.S. corporations with respect to dividends received from other U.S. corporations under the Internal Revenue Code. Shareholders will be notified annually by the Fund as to the federal tax status of distributions made by the Fund. Interest on indebtedness incurred or continued by a shareholder, whether a corporation or an individual, to purchase or carry shares of the Fund is not deductible. Exempt-interest dividends attributable to interest on certain "private activity" tax-exempt obligations are a preference item for computing the alternative minimum tax for both individuals and corporations. Moreover, exempt-interest dividends attributable to interest on tax-exempt obligations, whether or not private activity bonds, that are received by corporations will be taken into account (i) in determining the alternative minimum tax imposed on 75% of the excess of adjusted current earnings over alternative minimum taxable income and (ii) in determining the foreign branch profits tax imposed on the effectively connected earnings and profits (with adjustments) of United States branches of foreign corporations. Entities or persons who are "substantial users" (or related persons) of facilities financed by private activity bonds should consult their tax advisers before purchasing shares of the Fund. The Fund may be subject to state or local tax in certain other states where it is deemed to be doing business. Further, in those states which have income tax laws, the tax treatment of the Fund may differ from the federal tax treatment. The exemption of interest income for federal income tax purposes may not result in similar exemption under the laws of a particular state or local taxing authority. The Fund will report annually to its shareholders the percentage and source on a state-by-state basis, of interest income on Municipal Bonds received by the Fund during the preceding year. Under the laws of certain states, distributions of net income may be taxable to shareholders 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. Shareholders are advised to consult their tax advisers concerning the application of 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, divided by the value of the account at the beginning of the base period. The yield will vary as interest rates and other conditions affecting money market instruments change. Yield also depends on the quality, length of maturity and type of instruments in the Fund's portfolio, and its operating expenses. The Fund 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. Effective yield [(base period return + 1)365/7]-1 The Fund may also calculate the tax equivalent yield over a 7-day period. The tax equivalent yield will be determined by first computing the current yield as discussed above. The Fund will then determine what portion of the yield is attributable to securities, the income of which is exempt for federal income tax purposes. This portion of the yield will then be divided by one minus 39.6% (the assumed maximum tax rate for individual taxpayers not subject to Alternative Minimum Tax) and then added to the portion of the yield that is attributable to other securities. The yield and effective yield for the Fund based on the 7 days ended December 31, 2000 was 3.83% and 3.90%, respectively. The tax equivalent yield for the Fund based on the 7 days ended December 31, 2000 was 6.34%. 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. Actual yields will depend upon not only changes in interest rates generally during B-16 the period in which the investment in a Fund is held, but also in changes in the Fund's expenses. Yield does not take into account any federal or state income taxes. ADVERTISING. Advertising materials for the Fund may include biographical information relating to its portfolio manager(s), and may include or refer to commentary by the Fund's manager(s) concerning investment style, investment discipline, asset growth, current or past business experience, business capabilities, political, economic or financial conditions and other matters of general interest to investors. Advertising materials for the Fund also may include mention of The Prudential Insurance Company of America, its affiliates and subsidiaries, and reference the assets, products and services of those entities. From time to time, advertising materials for the Fund may include information concerning retirement and investing for retirement, may refer to the appropriate number of Fund shareholders and Lipper rankings or Morningstar ratings, other related analysis supporting those ratings, other industry publications, business periodicals and market indices. In addition, advertising materials may reference studies or analyses performed by the Manager or its affiliates. Advertising materials for sector funds, funds that focus on market capitalizations, index funds and international/global funds may discuss the potential benefits and risks of that investment style. Advertising materials for fixed income funds may discuss the benefits and risks of investing in the bond markets, including discussions of credit quality, duration and maturity. FINANCIAL STATEMENTS The Fund's financial statements for the fiscal year ended December 31, 2000, incorporated into this SAI by reference to the Fund's 2000 annual report to shareholders (File No. 811-02927), have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on authority of said firm as experts in auditing and accounting. You may obtain a copy of the Fund's annual report at no charge by request to the Fund by calling (800) 225-1852, or by writing to the Fund at Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077. B-17 APPENDIX DESCRIPTION OF RATINGS CORPORATE AND TAX-EXEMPT BOND RATINGS The four highest ratings of Moody's Investors Service, Inc. ("Moody's") for tax-exempt and corporate bonds are Aaa, Aa, A and Baa. Bonds rated Aaa are judged to be of the "best quality." The rating of Aa is assigned to bonds which are of "high quality by all standards," but as to which margins of protection or other elements make long-term risks appear somewhat larger than Aaa rated bonds. The Aaa and Aa rated bonds comprise what are generally known as "high grade bonds." Bonds which are rated A by Moody's possess many favorable investment attributes and are considered "upper medium grade obligations." Factors giving security to principal and interest of A rated bonds are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. Bonds rated Baa are considered as "medium grade" obligations. They are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Moody's applies numerical modifiers "1", "2", and "3" in each generic rating classification from Aa through B in its corporate bond rating system. The modifier "1" indicates that the security ranks in the higher end of its generic rating category; the modifier "2" indicates a mid-range ranking; and the modifier "3" indicates that the issue ranks in the lower end of its generic rating category. The foregoing ratings for tax-exempt bonds are sometimes presented in parentheses preceded with a "con" indicating the bonds are rated conditionally. Bonds for which the security depends upon the completion of some act or the fulfillment of some condition are rated conditionally. These are bonds secured by (a) earnings of projects under construction, (b) earnings of projects unseasoned in operation experience, (c) rentals which begin when facilities are completed or (d) payments to which some other limiting condition attaches. Such parenthetical rating denotes the probable credit stature upon completion of construction or elimination of the basis of the condition. The four highest ratings of Standard & Poor's Ratings Group ("Standard & Poor's") for tax-exempt and corporate bonds are AAA, AA, A and BBB. Bonds rated AAA bear the highest rating assigned by Standard & Poor's to a debt obligation and indicate an extremely strong capacity to pay principal and interest. Bonds rated AA also qualify as high-quality debt obligations. Capacity to pay principal and interest is very strong, and in the majority of instances they differ from AAA issues only in small degree. Bonds rated A have a strong capacity to pay principal and interest, although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions. The BBB rating, which is the lowest "investment grade" security rating by Standard & Poor's, indicates an adequate capacity to pay principal and interest. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay principal and interest for bonds in this category than for bonds in the A category. The foregoing ratings are sometimes followed by a "p" indicating that the rating is provisional. A provisional rating assumes the successful completion of the project being financed by the bonds being rated and indicates that payment of debt service requirements is largely and entirely dependent upon the successful and timely completion of the project. This rating, however, while addressing credit quality subsequent to completion of the project, makes no comment on the likelihood of, or the risk of default upon failure of, such completion. TAX-EXEMPT NOTE RATINGS The ratings of Moody's for tax-exempt notes are MIG 1, MIG 2, MIG 3 and MIG 4. Notes bearing the designation MIG 1 are judged to be of the best quality, enjoying strong protection from established cash flows of funds for their servicing or from established and broad-based access to the market for refinancing, or both. Notes bearing the designation MIG 2 are judged to be of high quality, with margins of protection ample although not so large as in the preceding group. Notes bearing the designation MIG 3 are judged to be of favorable quality, with all security elements accounted for but lacking the undeniable strength of the preceding grades. Market access for refinancing, in particular, is likely to be less well established. Notes bearing the designation MIG 4 are judged to be of adequate quality, carrying specific risk but having protection commonly regarded as required of an investment security and not distinctly or predominantly speculative. The ratings of Standard & Poor's for municipal notes issued on or after July 29, 1984 are "SP-1", "SP-2" and "SP-3." Prior to July 29, 1984, municipal notes carried the same symbols as municipal bonds. The designation "SP-1" indicates a very strong capacity to pay principal and interest. A "+" is added for those issues determined to possess overwhelming safety characteristics. An "SP-2" designation indicates a satisfactory capacity to pay principal and interest while an "SP-3" designation indicates speculative capacity to pay principal and interest. I-1 CORPORATE AND TAX-EXEMPT COMMERCIAL PAPER RATINGS Moody's and Standard & Poor's rating grades for commercial paper, set forth below, are applied to Municipal Commercial Paper as well as taxable commercial paper. Moody's Commercial Paper ratings are opinions of the ability of issuers to repay punctually promissory obligations not having an original maturity in excess of nine months. Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment capacity of rated issuers: Prime-1, superior capacity; Prime-2, strong capacity; and Prime-3, acceptable capacity. Standard & Poor's commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. Ratings are graded into four categories, ranging from "A" for the highest quality obligations to "D" for the lowest. Issues assigned A ratings are regarded as having the greatest capacity for timely payment. Issues in this category are further refined with the designation 1, 2 or 3 to indicate the relative degree of safety. The "A-1" designation indicates the degree of safety regarding timely payment is very strong. A "+" designation is applied to those issues rated "A-1" which possess an overwhelming degree of safety. The "A-2" designation indicates that capacity for timely payment is strong. However, the relative degree of safety is not as overwhelming as for issues designated "A-1." The "A-3" designation indicates that the capacity for timely payment is satisfactory. Such issues, however, are somewhat more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations. Issues rated "B" are regarded as having only an adequate capacity for timely payment and such capacity may be impaired by changing conditions or short-term adversities. I-2 PART C OTHER INFORMATION ITEM 23. EXHIBITS. (a) Restated Articles of Incorporation, incorporated by reference to Exhibit 1 to Post-Effective Amendment No. 21 to the Registration Statement on Form N-1A filed via EDGAR on February 26, 1997 (File No. 2-64625). (b) By-Laws of the Registrant as Amended and Restated November 18, 1999*. (c) Instruments defining rights of holders of the securities being offered, incorporated by reference to Exhibits(a) and (b) above. (d) (i) Management Agreement between the Registrant and Prudential Mutual Fund Management, Inc., as amended on November 19, 1993, incorporated by reference to Exhibit 5(a) to Post-Effective Amendment No. 17 to Registration Statement filed on Form N-1A via EDGAR on March 2, 1994 (File No. 2-64625). (ii) Subadvisory Agreement between Prudential Mutual Fund Management and The Prudential Investment Corporation, incorporated by reference to Exhibit 5(b) to Post-Effective Amendment No. 21 to the Registration Statement on Form N-1A filed via EDGAR on February 26, 1997 (File No. 2-64625). (iii) Amendment to Subadvisory Agreement between Prudential Investments Fund Management LLC and The Prudential Investment Corporation incorporated by reference to Exhibit (d)(iii) to Post-Effective Amendment No. 25 to the Registration Statement on Form N-1A filed via EDGAR on February 29, 2000 (File No. 2-64625). (e) (i) Amended Distribution and Service Agreement between the Registrant and Prudential Mutual Fund Distributors, Inc., incorporated by reference to Exhibit 6(b) to Post-Effective Amendment No. 19 to Registration Statement on Form N-1A filed via EDGAR on May 31, 1995 (File No. 2-64625). (ii) Amended Distribution Agreement dated January 1, 1996, incorporated by reference to Exhibit 6(c) to Post-Effective Amendment No. 20 to the Registration Statement on Form N-1A filed via EDGAR on February 28, 1996 (File No. 2-64625). (iii) Distribution Agreement between the Registrant and Prudential Investment Management Services LLC, incorporated by reference to Exhibit (e)(iii) to Post-Effective Amendment No. 24 to the Registration Statement on Form N-1A filed via EDGAR on April 27, 1999 (File No. 2-64625). (iv) Form of Dealer Agreement, incorporated by reference to Exhibit (e)(iv) to Post-Effective Amendment No. 24 to the Registration Statement on Form N-1A filed via EDGAR on April 27, 1999 (File No. 2-64625). (f) Not applicable. (g) (i) Custodian Agreement between the Registrant and State Street Bank and Trust Company, incorporated by reference to Exhibit 8 to Post-Effective Amendment No. 21 to the Registration Statement on Form N-1A filed via EDGAR on February 26, 1997 (File No. 2-64625). (ii) Amendment to Custodian Contract dated February 22, 1999.* (h) (i) Transfer Agency and Service Agreement, dated January 1, 1988, between the Registrant and Prudential Mutual Fund Services, incorporated by reference to Exhibit 9 to Post-Effective Amendment No. 21 to the Registration Statement on Form N-1A filed via EDGAR on February 26, 1997 (File No. 2-64625). (ii) Amendment to Transfer Agency and Service Agreement dated August 24, 1999.* (i) Opinion of Counsel to Pre-Effective Amendment No. 1 to Registration Statement on Form N-1, incorporated by reference to Exhibit 10 to Post-Effective Amendment No. 21 to the Registration Statement on Form N-1A filed via EDGAR on February 26, 1997 (File No. 2-64625). (j) Consent of Independent Accountants.* (k) Not applicable. (l) Not applicable. (m) (i) Distribution and Service Plan of Registrant, incorporated by reference to Exhibit 15 to Post-Effective Amendment No. 21 to the Registration Statement on Form N-1A filed via EDGAR on February 26, 1997 (File No. 2-64625). (ii) Amended and Restated Distribution and Service Plan, incorporated by reference to Exhibit (m)(ii) to Post-Effective Amendment No. 24 to the Registration Statement on Form N-1A filed via EDGAR on April 27, 1999 (File No. 2-64625). (n) Not applicable. (o) Reserved. (p) (i) Code of Ethics of the Registrant.* (p) (ii) Code of Ethics of Prudential Investment Corporation, Prudential Investments Fund Management LLC and Prudential Investment Management Services LLC.* - ---------- * Filed herewith. C-1 ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT. None. ITEM 25. INDEMNIFICATION. As permitted by Section 17(h) and (i) of the Investment Company Act of 1940, as amended (the 1940 Act) and pursuant to Article VII of the Fund's Articles of Incorporation (Exhibit (a) to the Registration Statement), officers, directors, employees and agents of the Registrant will not be liable to the Registrant, any stockholder, officer, director, employee, agent or other person for any action or failure to act, except for bad faith, willful misfeasance, gross negligence or reckless disregard of duties, and those individuals may be indemnified against liabilities in connection with the Registrant, subject to the same exceptions, as provided by Article VII of the By-Laws (Exhibit (b) to the Registration Statement). Section 2-418 of Maryland General Corporation Law permits indemnification of directors who acted in good faith and reasonably believed that the conduct was in the best interests of the Registrant. As permitted by Section 17(i) of the 1940 Act, pursuant to Section 10 of the Distribution Agreement (Exhibit (e)(iii) to the Registration Statement), each Distributor of the Registrant may be indemnified against liabilities which it may incur, except liabilities arising from bad faith, gross negligence, willful misfeasance or reckless disregard of duties. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (Securities Act) may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the 1940 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in connection with the successful defense of any action, suit or proceeding) is asserted against the Registrant by such director, officer or controlling person in connection with the shares being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1940 Act and will be governed by the final adjudication of such issue. The Registrant maintains an insurance policy insuring its officers and directors against liabilities, and certain costs of defending claims against such officers and directors, to the extent such officers and directors are not found to have committed conduct constituting willful misfeasance, bad faith, gross negligence or reckless disregard in the performance of their duties. The insurance policy also insures the Registrant against the cost of indemnification payments to officers and directors under certain circumstances. Section 9 of the Management Agreement (Exhibit (d)(i) to the Registration Statement) and Section 4 of the Subadvisory Agreement (Exhibit 5(d)(ii) to the Registration Statement) limit the liability of Prudential Investments Fund Management LLC (PIFM) and The Prudential Investment Corporation (PIC), respectively, to liabilities arising from willful misfeasance, bad faith or gross negligence in the performance of their respective duties or from reckless disregard by them of their respective obligations and duties under the agreements. The Registrant hereby undertakes that it will apply the indemnification provisions of its By-Laws and each Distribution Agreement in a manner consistent with Release No. 11330 of the Securities and Exchange Commission under the 1940 Act so long as the interpretation of Section 17(h) and 17(i) of such Act remains in effect and is consistently applied. ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER (i) Prudential Investments Fund Management LLC. See "How the Fund is Managed--Manager" in the Prospectus constituting Part A of this Post-Effective Amendment to the Registration Statement and "Investment Advisory and Other Services--Investment Adviser" 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 ascurrently on file with the Securities and Exchange Commission, the text of which is hereby incorporated by reference (File No. 801-31104, filed on March 30, 1995). C-2 The business and other connections of PIFM's directors and principal executive officers are set forth below. Except as otherwise indicated, the address of each person is Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102.
NAME AND ADDRESS POSITION WITH PIFM PRINCIPAL OCCUPATIONS - --------------------- ---------------------------- ---------------------------------------------------- Robert F. Gunia Executive Vice President and Executive Vice President and Chief Administrative Chief Administrative Officer Officer, PIFM; Vice President, Prudential; President Prudential Investment Management Services LLC (PIMS) William V. Healey Executive Vice President, Chief Executive Vice President, Chief Legal Officer and Legal Officer and Secretary Secretary, PIFM; Vice President and Associate General Counsel, Prudential; Senior Vice President, Chief Legal Officer and Secretary, PIMS David R. Odenath, Jr. Officer in Charge, President, Officer in Charge, President, Chief Executive Officer Chief Executive Officer and and Chief Operating Officer, PIFM; Senior Vice Chief Operating Officer President, The Prudential Insurance Company of America (Prudential) Stephen Pelletier Executive Vice President Executive Vice President, PIFM Judy A. Rice Executive Vice President Executive Vice President, PIFM Lynn M. Waldvogel Executive Vice President Executive Vice President, PIFM
(ii) The Prudential Investment Corporation (PIC) See "How the Fund is Managed--Investment Adviser" in the Prospectus constituting Part A of this Post-Effective Amendment to the Registration Statement and "Investment Advisory and Other Services--Investment Advisers" 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. Except as otherwise indicated, the address of each person in Prudential Plaza, Newark, NJ 097102.
NAME AND ADDRESS POSITION WITH PIFM PRINCIPAL OCCUPATIONS - --------------------- ---------------------------- ---------------------------------------------------- John R. Strangfeld, Jr. Chairman of the Board, President, President of Prudential Global Asset Management Chief Executive Officer and Group of Prudential; Senior Vice President, Director Prudential; Chairman of the Board, President, Chief Executive Officer and Director, PIC; Chairman and Chief Executive Officer of PSI Bernard Winograd Senior Vice President and Director Chief Executive Officer, Prudential Real Estate Investors; Senior Vice President and Director, PIC
ITEM 27. PRINCIPAL UNDERWRITERS (A) PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC (PIMS) PIMS is distributor for the following open-end management companies: Cash Accumulation Trust, COMMAND Money Fund, COMMAND Government Fund, COMMAND Tax-Free Fund, Global Utility Fund, Inc., Nicholas-Applegate Fund, Inc. (Nicholas-Applegate Growth Equity Fund), Prudential California Municipal Fund, Prudential Diversified Funds. Prudential Equity Fund, Inc., Prudential Europe Growth Fund, Inc., Prudential Global Total Return Fund, Inc., Prudential Government Income Fund, Inc., Prudential Government Securities Trust, Prudential High Yield Fund, Inc., Prudential High Yield Total Return Fund, Inc., Prudential Index Series Fund, Prudential Institutional Liquidity Portfolio, Inc., Prudential Money Mart Assets, Inc., Prudential Municipal Bond Fund, Prudential Municipal Series Fund, Prudential National Municipals Fund, Inc., Prudential Natural Resources Fund, Inc., Prudential Pacific Growth Fund, Inc., Prudential Real Estate Securities Fund, Prudential Sector Funds, Inc., Prudential Short-Term Corporate Bond Fund, Inc., Prudential Small Company Fund, Inc., Special Money Market Fund, Inc., Prudential 20/20 Focus Fund, Prudential Tax-Free Money Fund, Inc., Prudential Tax-Managed Funds, Prudential Tax-Managed Small-Cap Fund, Inc., Prudential Total Return Bond Fund, Prudential U.S. Emerging Growth Fund, Inc., Prudential Value Fund, Prudential World Fund, Inc., The Prudential Investment Portfolios, Inc., Strategic Partners Series, Target Funds and The Target Portfolio Trust. C-3 (b) Information concerning the officers and directors of Prudential Investment Management Services LLC is set forth below. POSITIONS AND POSITIONS AND OFFICES WITH OFFICES WITH NAME(1) UNDERWRITER REGISTRANT - ------- ------------- ------------- Margaret Deverell ..... Vice President and Chief None Financial Officer Kevin Frawley ......... Senior Vice President and None Chief Compliance Officer Robert F. Gunia ....... President Vice President and Director William V. Healey ..... Senior Vice President, Secretary Assistant Secretary and Chief Legal Officer John R. Strangfeld, Jr. Executive Vice President None - ---------- (1) The address of each person named is Prudential Plaza, 751 Broad Street, Newark, New Jersey 07102, unless otherwise indicated. (c) Registrant has no principal underwriter who is not an affiliated person of the Registrant. ITEM 28. LOCATION OF ACCOUNTS AND RECORDS All accounts, books and other documents required to be maintained by Section 31(a) of the 1940 Act and the Rules thereunder are maintained at the offices of State Street Bank and Trust Company, One Heritage Drive, North Quincy, Massachusetts 02171, the Registrant, Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, and Prudential Mutual Fund Services LLC, 194 Wood Avenue South, Iselin, New Jersey 08853. 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, 100 Mulberry Street, Newark, New Jersey 07102-4077, and the remaining accounts, books and other documents required by such other pertinent provisions of Section 31(a) and the Rules promulgated thereunder will be kept by State Street Bank and Trust Company and Prudential Mutual Fund Services LLC. ITEM 29. 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 caption "Investment Advisory and Other Services" 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 30. UNDERTAKINGS Not applicable. C-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Post-Effective Amendment to the Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-Effective Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Newark, and State of New Jersey, on the 13th day of March, 2001. PRUDENTIAL TAX-FREE MONEY FUND, INC. /s/ David R. Odenath, Jr. ------------------------------------ (DAVID R. ODENATH, JR., 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. SIGNATURE TITLE DATE - --------- ----- ---- /s/ Delayne D. Gold Director March 13, 2001 - ---------------------------- DELAYNE D. GOLD /s/ Robert F. Gunia Vice President and Director March 13, 2001 - ---------------------------- ROBERT F. GUNIA /s/ Robert E. LaBlanc Director March 13, 2001 - ---------------------------- ROBERT E. LABLANC /s/ David R. Odenath, Jr. President and Director March 13, 2001 - ---------------------------- DAVID R. ODENATH, JR. /s/ Judy A. Rice Vice President and Director March 13, 2001 - ---------------------------- JUDY A. RICE /s/ Robin B. Smith Director March 13, 2001 - ---------------------------- ROBIN B. SMITH /s/ Stephen Stoneburn Director March 13, 2001 - ---------------------------- STEPHEN STONEBURN /s/ Nancy H. Teeters Director March 13, 2001 - ---------------------------- NANCY H. TEETERS /s/ Clay T. Whitehead Director March 13, 2001 - ---------------------------- CLAY T. WHITEHEAD /s/ Grace C. Torres Treasurer, Principal Financial March 13, 2001 - ---------------------------- and Accounting Officer GRACE C. TORRES EXHIBIT INDEX (a) Restated Articles of Incorporation, incorporated by reference to Exhibit 1 to Post-Effective Amendment No. 21 to the Registration Statement on Form N-1A filed via EDGAR on February 26, 1997 (File No. 2-64625). (b) By-Laws of the Registrant as Amended and Restated November 18, 1999*. (c) Instruments defining rights of holders of the securities being offered, incorporated by reference to Exhibits(a) and (b) above. (d) (i) Management Agreement between the Registrant and Prudential Mutual Fund Management, Inc., as amended on November 19, 1993, incorporated by reference to Exhibit 5(a) to Post-Effective Amendment No. 17 to Registration Statement filed on Form N-1A via EDGAR on March 2, 1994 (File No. 2-64625). (ii) Subadvisory Agreement between Prudential Mutual Fund Management and The Prudential Investment Corporation, incorporated by reference to Exhibit 5(b) to Post-Effective Amendment No. 21 to the Registration Statement on Form N-1A filed via EDGAR on February 26, 1997 (File No. 2-64625). (iii) Amendment to Subadvisory Agreement between Prudential Investments Fund Management LLC and The Prudential Investment Corporation incorporated by reference to Exhibit (d)(iii) to Post-Effective Amendment No. 25 to the Registration Statement on Form N-1A filed via EDGAR on February 29, 2000 (File No. 2-64625). (e) (i) Amended Distribution and Service Agreement between the Registrant and Prudential Mutual Fund Distributors, Inc., incorporated by reference to Exhibit 6(b) to Post-Effective Amendment No. 19 to Registration Statement on Form N-1A filed via EDGAR on May 31, 1995 (File No. 2-64625). (ii) Amended Distribution Agreement dated January 1, 1996, incorporated by reference to Exhibit 6(c) to Post-Effective Amendment No. 20 to the Registration Statement on Form N-1A filed via EDGAR on February 28, 1996 (File No. 2-64625). (iii) Distribution Agreement between the Registrant and Prudential Investment Management Services LLC, incorporated by reference to Exhibit (e)(iiii) to Post-Effective Amendment No. 24 to the Registration Statement on Form N-1A filed via EDGAR on April 27, 1999 (File No. 2-64625). (iv) Form of Dealer Agreement, incorporated by reference to Exhibit (e)(iv) to Post-Effective Amendment No. 24 to the Registration Statement on Form N-1A filed via EDGAR on April 27, 1999 (File No. 2-64625). (f) Not applicable. (g) (i) Custodian Agreement between the Registrant and State Street Bank and Trust Company, incorporated by reference to Exhibit 8 to Post-Effective Amendment No. 21 to the Registration Statement on Form N-1A filed via EDGAR on February 26, 1997 (File No. 2-64625). (ii) Amendment to Custodian Contract dated February 22, 1999.* (h) (i) Transfer Agency and Service Agreement, dated January 1, 1988, between the Registrant and Prudential Mutual Fund Services, incorporated by reference to Exhibit 9 to Post-Effective Amendment No. 21 to the Registration Statement on Form N-1A filed via EDGAR on February 26, 1997 (File No. 2-64625). (ii) Amendment to Transfer Agency and Service Agreement dated August 24, 1999.* (i) Opinion of Counsel to Pre-Effective Amendment No. 1 to Registration Statement on Form N-1, incorporated by reference to Exhibit 10 to Post-Effective Amendment No. 21 to the Registration Statement on Form N-1A filed via EDGAR on February 26, 1997 (File No. 2-64625). (j) Consent of Independent Accountants.* (k) Not applicable. (l) Not applicable. (m) (i) Distribution and Service Plan of Registrant, incorporated by reference to Exhibit 15 to Post-Effective Amendment No. 21 to the Registration Statement on Form N-1A filed via EDGAR on February 26, 1997 (File No. 2-64625). (ii) Amended and Restated Distribution and Service Plan, incorporated by reference to Exhibit (m)(ii) to Post-Effective Amendment No. 24 to the Registration Statement on Form N-1A filed via EDGAR on April 27, 1999 (File No. 2-64625). (n) Not applicable. (o) Reserved. (p) (i) Code of Ethics of the Registrant.* (p) (ii) Code of Ethics of Prudential Investment Corporation, Prudential Investments Fund Management LLC and Prudential Investment Management Services LLC.* - ---------- * Filed herewith. EX-99.(B) 2 0002.txt BY-LAWS Exhibit (b) AMENDED AND RESTATED 11/18/99 PRUDENTIAL TAX-FREE MONEY FUND, INC. By-Laws ARTICLE I. STOCKHOLDERS Section 1. PLACE OF MEETING. All meetings of the stockholders shall be held at the principal office of the Corporation in the State of Maryland or at such other place within the United States as may from time to time be designated by the Board of Directors and stated in the notice of such meeting. Section 2. ANNUAL MEETINGS. The annual meeting of the stockholders of the Corporation shall be held on a date and at such hour as may from time to time be designated by the Board of Directors and stated in the notice of such meeting, within the month ending four months after the end of the Corporation's fiscal year, for the transaction of such business as may properly be brought before the meeting; PROVIDED, however, that an annual meeting shall not be required to be held in any year in which the election of directors is not required to be acted on by stockholders under the Investment Company Act of 1940. Section 3. MEETINGS. Meetings of the stockholders for any purpose or purposes, including for purposes of voting on the removal of one or more Directors, may be called by the Chairman of the Board, the President or a majority of the Board of Directors, and shall be called by the Secretary upon receipt of the request in writing signed by stockholders holding not less than 10% of the common stock issued and outstanding and entitled to vote thereat. Such request shall state the purpose or purposes of the proposed meeting. The Secretary shall inform such stockholders of the reasonably estimated costs of preparing and mailing such notice of meeting and upon payment to the Corporation of such costs, the Secretary shall give notice stating the purpose or purposes of the meeting as required in this Article and by-law to all stockholders entitled to notice of such meeting. No meeting need be called upon the request of the holders of shares entitled to cast less than a majority of all votes entitled to be cast at such meeting to consider any matter which is substantially the same as a matter voted upon at any meeting of stockholders held during the preceding twelve months. Section 4. NOTICE OF MEETINGS OF STOCKHOLDERS. Not less than ten days' and not more than ninety days' written or printed notice of every meeting of stockholders, stating the time and place thereof and the general nature of the business proposed to be transacted thereat, shall be given to each stockholder entitled to vote thereat by leaving the same with such stockholder or at such stockholder's residence or usual place of business or by mailing it, postage prepaid, and addressed to such stockholder at such stockholder's address as it appears upon the books of the Corporation. If mailed, notice shall be deemed to be given when deposited in the United States mail addressed to the stockholder as aforesaid. No notice of the time, place or purpose of any meeting of stockholders need be given to any stockholder who attends in person 2 or by proxy or to any stockholder who, in writing executed and filed with the records of the meeting, either before or after the holding thereof, waives such notice. Section 5. RECORD DATES. The Board of Directors may fix, in advance, a date not exceeding ninety days preceding the date of any meeting of stockholders, any dividend payment date or any date for the allotment of rights, as a record date for the determination of the stockholders entitled to notice of and to vote at such meeting or entitled to receive such dividends or rights, as the case may be; and only stockholders of record on such date shall be entitled to notice of and to vote at such meeting or to receive such dividends or rights, as the case may be. In the case of a meeting of stockholders, such date shall not be less than ten days prior to the date fixed for such meeting. Section 6. QUORUM, ADJOURNMENT OF MEETINGS. The presence in person or by proxy of the holders of record of a majority of the shares of the common stock of the Corporation issued and outstanding and entitled to vote thereat shall constitute a quorum at all meetings of the stockholders except as otherwise provided in the Articles of Incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the holders of a majority of the stock present in person or by proxy shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until stockholders owning the requisite amount of stock entitled to vote at such meeting shall be present, provided that, if the date on which the 3 meeting held is more than 120 days after the original record date, notice of the time and date of such adjourned meeting shall be given. At such adjourned meeting at which stockholders owning the requisite amount of stock entitled to vote thereat shall be represented, any business may be transacted which might have been transacted at the meeting as originally notified. Section 7. VOTING AND INSPECTORS. At all meetings, stockholders of record entitled to vote thereat shall have one vote for each share of common stock standing in his/her name on the books of the Corporation (and such stockholders of record holding fractional shares, if any, shall have proportionate voting rights) on the date for the determination of stockholders entitled to vote at such meeting, either in person or by proxy. A stockholder may sign a writing authorizing another person to act as proxy. Signing may be accomplished by the stockholder or the stockholder's authorized agent signing the writing or causing the stockholder's signature to be affixed to the writing by any reasonable means, including facsimile signature. A stockholder may authorize another person to act as proxy by transmitting, or authorizing the transmission of, a telegram, cablegram, datagram, or other means of electronic transmission to the person authorized to act as proxy or to a proxy solicitation firm, proxy support service organization, or other person authorized by the person who will act as proxy to receive the transmission. All elections shall be had and all questions decided by a majority of the votes cast at a duly constituted meeting, except as otherwise provided by statute or by the Articles of Incorporation or by these By-Laws. At any election of directors, the Chairman of the meeting may, and upon the request of the holders of ten percent (10%) of the stock entitled to vote at such election shall, appoint two inspectors of election who shall first subscribe an oath or affirmation to execute faithfully the duties or inspectors at such election with strict impartiality and according to the best of their ability, and shall after the election make a certificate of 4 the result of the vote taken. No candidate for the office of director shall be appointed such inspector. Section 8. CONDUCT OF STOCKHOLDERS' MEETINGS. The meetings of the stockholders shall be presided over by the Chairman of the Board, or if he or she is not present, by the President, or if he or she is not present, by a Vice-President, or if none of them is present, by a Chairman to be elected at the meeting. The Secretary of the Corporation, if present, shall act as a Secretary of such meetings, or if he or she is not present, an Assistant Secretary shall so act; if neither the Secretary nor the Assistant Secretary is present, then the meeting shall elect its Secretary. Section 9. CONCERNING VALIDITY OF PROXIES, BALLOTS, ETC. At every meeting of the stockholders, all proxies shall be received and taken in charge of and all ballots shall be received and canvassed by the Secretary of the meeting, who shall decide all questions concerning the qualification of voters, the validity of the proxies and the acceptance or rejection of votes, unless inspectors of election shall have been appointed by the Chairman of the meeting, in which event such inspectors of election shall decide all such questions. ARTICLE II. BOARD OF DIRECTORS Section 1. NUMBER AND TENURE OF OFFICE. The business and affairs of the Corporation shall be conducted and managed by a Board of Directors of not less than three nor more than twelve directors, as may be determined from time to time by vote of a 5 majority of the directors then in office, provided that if there is no stock outstanding the number of directors may be less than three but not less than one. Directors need not be stockholders. Section 2. VACANCIES. In case of any vacancy in the Board of Directors through death, resignation or other cause, other than an increase in the number of directors, a majority of the remaining directors, although a majority is less than a quorum, by an affirmative vote, may elect a successor to hold office until the next meeting of stockholders or until his successor is chosen and qualifies. Section 3. INCREASE OR DECREASE IN NUMBER OF DIRECTORS. The Board of Directors, by the vote of a majority of the entire Board, may increase the number of directors and may elect directors to fill the vacancies created by any such increase in the number of directors until the next meeting of stockholders or until their successors are duly chosen and qualified. The Board of Directors, by the vote of a majority of the entire Board, may likewise decrease the number of directors to a number not less than three. Section 4. PLACE OF MEETING. The directors may hold their meetings, have one or more offices, and keep the books of the Corporation, outside the State of Maryland, at any office or offices of the Corporation or at any other place as they may from time to time by resolution determine, or in the case of meetings, as they may from time to time by resolution determine or as shall be specified or fixed in the respective notices or waivers of notice thereof. 6 Section 5. REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held at such time and on such notice as the directors may from time to time determine. Section 6. SPECIAL MEETINGS. Special meetings of the Board of Directors may be held from time to time upon call of the Chairman of the Board, the President, the Secretary or two or more of the directors, by oral or telegraphic or written notice duly served on or sent or mailed to each director not less than one day before such meeting. No notice need be given to any director who attends in person or to any director who, in writing executed and filed with the records of the meeting either before or after the holding thereof, waives such notice. Such notice or waiver of notice need not state the purpose or purposes of such meeting. Section 7. QUORUM. One-third of the directors then in office shall constitute a quorum for the transaction of business, provided that a quorum shall in no case be less than two directors. If at any meeting of the Board there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time until a quorum shall have been obtained. The act of the majority of the directors present at any meeting at which there is a quorum shall be the act of the directors, except as may be otherwise specifically provided by statute or by the Articles of Incorporation or by these By-Laws. Section 8. EXECUTIVE COMMITTEE. The Board of Directors may, by the affirmative vote of a majority of the whole Board, appoint from the directors an Executive Committee to consist of such number 7 of directors (not less than three) as the Board may from time to time determine. The Chairman of the Committee shall be elected by the Board of Directors. The Board of Directors by such affirmative vote shall have power at any time to change the members of such Committee and may fill vacancies in the Committee by election from the directors. When the Board of Directors is not in session, to the extent permitted by law, the Executive Committee shall have and may exercise any or all of the powers of the Board of Directors in the management of the business and affairs of the Corporation. The Executive Committee may fix its own rules of procedure, and may meet when and as provided by such rules or by resolution of the Board of Directors, but in every case the presence of a majority shall be necessary to constitute a quorum. During the absence of a member of the Executive Committee, the remaining members may appoint a member of the Board of Directors to act in his place. Section 9. OTHER COMMITTEES. The Board of Directors, by the affirmative vote of a majority of the whole Board, may appoint from the directors other committees which shall in each case consist of such number of directors (not less than two) and shall have and may exercise such powers as the Board may determine in the resolution appointing them. A majority of all the members of any such committee may determine its action and fix the time and place of its meetings, unless the Board of Directors shall otherwise provide. The Board of Directors shall have power at any time to change the members and powers of any such committee, to fill vacancies and to discharge any such committee. 8 Section 10. TELEPHONE MEETINGS. Members of the Board of Directors or a committee of the Board of Directors may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means constitutes presence in person at the meeting unless otherwise provided by the Investment Company Act of 1940. Section 11. ACTION WITHOUT A MEETING. Any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting, if a written consent to such action is signed by all members of the Board or of such committee, as the case may be, and such written consent is filed with the minutes of the proceedings of the Board or such committee, unless otherwise provided by the Investment Company Act of 1940. Section 12. COMPENSATION OF DIRECTORS. No director shall receive any stated salary or fees from the Corporation for his services as such if such director is, other than by reason of being such director, an interested person (as such term is defined by the Investment Company Act of 1940) of the Corporation or of its investment adviser, administrator or principal underwriter. Except as provided in the preceding sentence, directors shall be entitled to receive such compensation from the Corporation for their services as may from time to time be voted by the Board of Directors. 9 Section 13. REMOVAL OF DIRECTORS. No director shall continue to hold office after the holders of record of not less than two-thirds of the Corporation's outstanding common stock of all series have declared that that director be removed from office either by declaration in writing filed with the Corporation's secretary or by votes cast in person or by proxy at a meeting called for the purpose. The directors shall promptly call a meeting of stockholders for the purpose of voting upon the question of removal of any director or directors when requested in writing to do so by the record holders of not less than 10 percent of the Corporation's outstanding common stock of all series. ARTICLE III. OFFICERS Section 1. EXECUTIVE OFFICERS. The executive officers of the Corporation shall be chosen by the Board of Directors. These may include a Chairman of the Board of Directors (who shall be a director) and shall include a President, one or more Vice-Presidents (the number thereof to be determined by the Board of Directors), a Secretary and a Treasurer. The Board of Directors or the Executive Committee may also in its discretion appoint Assistant Secretaries, Assistant Treasurers and other officers, agents and employees, who shall have such authority and perform such duties as the Board or the Executive Committee may determine. The Board of Directors may fill any vacancy which may occur in any office. Any two offices, except those of President and Vice-President, may be held by the same person, but no officer 10 shall execute, acknowledge or verify any instrument in more than one capacity, if such instrument is required by law or these By-Laws to be executed, acknowledged or verified by two or more officers. Section 2. TERM OF OFFICE. The term of office of all officers shall be one year and until their respective successors are chosen and qualified. Any officer may be removed from office at any time with or without cause by the vote of a majority of the whole Board of Directors. Section 3. POWERS AND DUTIES. The officers of the Corporation shall have such powers and duties as generally pertain to their respective offices, as well as such powers and duties as may from time to time be conferred by the Board of Directors or the Executive Committee. ARTICLE IV. CAPITAL STOCK Section 1. CERTIFICATES FOR SHARES. Stockholders of the Corporation shall not be entitled to a certificate or certificates for the shares of stock of the Corporation owned by him and the Corporation shall provide, or cause to be provided, the information set forth in Section 2-211 of the General Corporation Law. Section 2. TRANSFER OF SHARES. Shares of the Corporation shall be transferable on the books of the Corporation by the holder thereof in person or by his duly authorized attorney or legal representative, upon surrender and cancellation of certificates, if any, for the same number of shares, duly endorsed or accompanied by 11 proper instruments of assignment and transfer, with such proof of the authenticity of the signature as the Corporation or its agents may reasonably require; in the case of shares not represented by certificates, the same or similar requirements may be imposed by the Board of Directors. Section 3. STOCK LEDGERS. The stock ledgers of the Corporation, containing the names and addresses of the stockholders and the number of shares held by them respectively, shall be kept at the principal office of the Corporation or, if the Corporation employs a Transfer Agent, at the office of the Transfer Agent of the Corporation. Section 4. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of Directors or the Executive Committee may determine the conditions upon which a new certificate of stock of the Corporation of any class may be issued in place of a certificate which is alleged to have been lost, stolen or destroyed; and may, in its discretion, require the owner of such certificate or such owner's legal representative to give bond, with sufficient surety, to the Corporation and each Transfer Agent, if any, to indemnify it and each such Transfer Agent against any and all loss or claims which may arise by reason of the issue of a new certificate in the place of the one so lost, stolen or destroyed. 12 ARTICLE V. CORPORATE SEAL The Board of Directors may provide for a suitable corporate seal, in such form and bearing such inscriptions as it may determine. ARTICLE VI. FISCAL YEAR The fiscal year of the Corporation shall be fixed by the Board of Directors. ARTICLE VII. INDEMNIFICATION Directors, officers, employees and agents of the Corporation shall not be liable to the Corporation, any stockholder, officer, director, employee or other person for any action or failure to act except for willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of their office. The Corporation shall indemnify directors, officers, employees and agents of the Corporation against judgments, fines, settlements and expenses to the fullest extent authorized and in the manner permitted by applicable federal and state law. The Corporation may purchase insurance to protect itself and its directors, officers, employees and agents against judgments, fines, settlements and expenses to the fullest extent authorized and in the manner permitted by applicable federal and state law. Nothing contained in this Article VII shall be construed to indemnify directors, officers, employees and agents of the Corporation 13 against, nor to permit the Corporation to purchase insurance that purports to protect against, any liability to the Corporation or any stockholder, officer, director, employee, agent or other person to whom he or she would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office. Article VIII. AMENDMENT OF BY-LAWS The By-Laws of the Corporation may be altered, amended, added to or repealed by majority vote of the entire Board of Directors. 14 EX-99.G(II) 3 0003.txt AMENDMENT TO CUSTODIAN CONTRACT/AGREEMENT Exhibit (g)(ii) AMENDMENT TO CUSTODIAN CONTRACT/AGREEMENT This Amendment to the respective Custodian Contract/Agreement is made as of February 22, 1999 by and between each of the funds listed on Schedule D (including any series thereof, each, a "Fund") and State Street Bank and Trust Company (the "Custodian"). Capitalized terms used in this Amendment without definition shall have the respective meanings given to such terms in the Custodian Contract/Agreement referred to below. WHEREAS, each Fund and the Custodian have entered into a Custodian Contract/Agreement dated as of the dates set forth on Schedule D (each contract, as amended, a "Contract"); and WHEREAS, each Fund and the Custodian desire to amend certain provisions of the Contract to reflect revisions to Rule l7f-5 ("Rule 17f-5") promulgated under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, each Fund and the Custodian desire to amend and restate certain other provisions of the Contract relating to the custody of assets of each of the Funds held outside of the United States. NOW THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter contained, the parties hereby agree to amend the Contract, to add the following new provisions which supersede the provisions in the existing contracts relating to the custody of assets of the Funds outside the United States. 3. THE CUSTODIAN AS FOREIGN CUSTODY MANAGER. 3.1. DEFINITIONS. Capitalized terms in this Article 3 shall have the following meanings: "Country Risk" means all factors reasonably related to the systemic risk of holding Foreign Assets in a particular country including, but not limited to, such country's political environment; economic and financial infrastructure; systemic custody and securities settlement practices; and laws and regulations applicable to the safekeeping and recovery of Foreign Assets held in custody in that country. "Eligible Foreign Custodian" has the meaning set forth in section (a)(1) of Rule 17f-5, including a majority-owned or indirect subsidiary of a U.S. Bank (as defined in Rule 17f-5), a bank holding company meeting the requirements of an Eligible Foreign Custodian (as set forth in Rule 17f-5 or by other appropriate action of the U.S. Securities and Exchange Commission (the "SEC") or a foreign branch of a Bank (as defined in Section 2(a)(5) of the 1940 Act) meeting the requirements of a custodian under Section 17(f) of the 1940 Act, except that the term does not include Mandatory Securities Depositories. "Foreign Assets" means any of the Funds' investments (including foreign currencies) for which the primary market is outside the United States and such cash and cash equivalents as are reasonably necessary to effect the Funds' transactions in such investments. "Foreign Custody Manager" has the meaning set forth in section (a)(2) of Rule 17f-5. "Mandatory Securities Depository" means a foreign securities depository or clearing agency that, either as a legal or practical matter, must be used if the Fund determines to place Foreign Assets in a country outside the United States (i) because required by law or regulation; (ii) because securities cannot be withdrawn from such foreign securities depository or clearing agency; or (iii) because maintaining or effecting trades in securities outside the foreign securities depository or clearing agency is not consistent with systemic custodial or market practices. 3.2. DELEGATION TO THE CUSTODIAN AS FOREIGN CUSTODY MANAGER. Each Fund, by resolution adopted by its Board of Trustees/Directors (the "Board"), hereby delegates to the Custodian subject to Section (b) of Rule 17f-5, the responsibilities set forth in this Article 3 with respect to Foreign Assets of the Fund held outside the United States, and the Custodian hereby accepts such delegation, as Foreign Custody Manager with respect to the Funds. 3.3. COUNTRIES COVERED. The Foreign Custody Manager shall be responsible for performing the delegated responsibilities defined below only with respect to the countries and custody arrangements for each such country listed on Schedule A to this Contract, which list of countries may be amended from time to time by the Fund with the agreement of the Foreign Custody Manager. The Foreign Custody Manager shall list on Schedule A the Eligible Foreign Custodians selected by the Foreign Custody Manager to maintain the assets of the Funds which list of Eligible Foreign Custodians may be amended from time to time in the sole discretion of the Foreign Custody Manager. Mandatory Securities Depositories are listed on Schedule B to this Contract, which Schedule B may be amended from time to time by the Foreign Custody Manager upon reasonable notice to the Fund. The Foreign Custody Manager will provide amended versions of Schedules A and B in accordance with Section 3.7 of this Article 3. Upon the receipt by the Foreign Custody Manager of Proper Instructions to open an account or to place or maintain Foreign Assets in a country listed on Schedule A, and the fulfillment by a Fund of the applicable account opening requirements for such country, the Foreign Custody Manager shall be deemed to have been delegated by that Fund's Board responsibility as Foreign Custody Manager with respect to that country and to have accepted such delegation. Execution of this Amendment by the Fund shall be deemed to be a Proper Instruction to open an account, or to place or maintain Foreign Assets, in each country listed on Schedule A in which the Custodian has previously placed or currently maintains Foreign Assets pursuant to the terms of the Contract. Following the receipt of Proper Instructions directing the Foreign Custody Manager to close the account of a Fund with the Eligible Foreign Custodian selected by the Foreign Custody Manager in a designated country, the delegation by that Fund's Board to the Custodian as Foreign Custody Manager for that country shall be deemed to have been withdrawn and the Custodian shall immediately cease to be the Foreign Custody Manager of the Fund with respect to that country. The Foreign Custody Manager may withdraw its acceptance of delegated responsibilities with respect to a designated country upon written notice to the Fund. Thirty days (or such longer period as to which the parties agree in writing) after receipt of any such notice by the Fund, the Custodian shall have no further responsibility as Foreign Custody Manager to the Fund with respect to the country as to which the Custodian's acceptance of delegation is withdrawn. 3.4. SCOPE OF DELEGATED RESPONSIBILITIES. 3.4.1. SELECTION OF ELIGIBLE FOREIGN CUSTODIANS. Subject to the provisions of this Article 3, the Fund's Foreign Custody Manager may place and maintain the Foreign Assets in the care of the Eligible Foreign Custodian selected by the Foreign Custody Manager in each country listed on Schedule A, as amended from time to time. In performing its delegated responsibilities as Foreign Custody Manager to place or maintain Foreign Assets with an Eligible Foreign Custodian, the Foreign Custody Manager shall determine that the Foreign Assets will be subject to reasonable care, based on the standards applicable to custodians in the country in which the Foreign Assets will be held by that Eligible Foreign Custodian, after considering all factors relevant to the safekeeping of such assets, including, without limitation the factors specified in Rule 17f-5(c)(1). 3.4.2. CONTRACTS WITH ELIGIBLE FOREIGN CUSTODIANS. The Foreign Custody Manager shall determine that the contract (or the rules or established practices or procedures in the case of an Eligible Foreign Custodian that is a foreign securities depository or clearing agency) governing the foreign custody arrangements with each Eligible Foreign Custodian selected by the Foreign Custody Manager will satisfy the requirements of Rule 17f-5(c)(2). 3.4.3. MONITORING. In each case in which the Foreign Custody Manager maintains Foreign Assets with an Eligible Foreign Custodian selected by the Foreign Custody Manager, the Foreign Custody Manager shall establish a system to monitor (i) the appropriateness of maintaining the Foreign Assets with such Eligible Foreign Custodian and (ii) the contract governing the custody arrangements established by the Foreign Custody Manager with the Eligible Foreign Custodian (or the rules or established practices and procedures in the case of an Eligible Foreign Custodian selected by the Foreign Custody Manager which is a foreign securities depository or clearing agency that is not a Mandatory Securities Depository). The Foreign Custody Manager shall provide the Board at least annually with information as to the factors used in such monitoring system. If the Foreign Custody Manager determines that the custody arrangements with an Eligible Foreign Custodian it has selected are no longer appropriate, the Foreign Custody Manager shall notify the Board in accordance with Section 3.7 hereunder and withdraw the Foreign Assets from such Eligible Foreign Custodian as soon as reasonably practicable. 3.5. GUIDELINES FOR THE EXERCISE OF DELEGATED AUTHORITY. For purposes of this Article 3, the Foreign Custody Manager shall have no responsibility for Country Risk as is incurred by placing and maintaining the Foreign Assets in each country for which the Custodian is serving as Foreign Custody Manager of the Portfolios. The Fund and the Custodian each expressly acknowledge that the Foreign Custody Manager shall not be delegated any responsibilities under this Article 3 with respect to Mandatory Securities Depositories. 3.6. STANDARD OF CARE AS FOREIGN CUSTODY MANAGER OF A PORTFOLIO. In performing the responsibilities delegated to it, the Foreign Custody Manager agrees to exercise reasonable care, prudence and diligence such as a person having responsibility for the safekeeping of assets of management investment companies registered under the 1940 Act would exercise. 3.7. REPORTING REQUIREMENTS. The Foreign Custody Manager shall report the placement of Foreign Assets with an Eligible Foreign Custodian, the withdrawal of the Foreign Assets from an Eligible Foreign Custodian and the placement of such Foreign Assets with another Eligible Foreign Custodian by providing to the Board amended Schedules A or B at the end of the calendar quarter in which an amendment to either Schedule has occurred. The Foreign Custody Manager shall make written reports notifying the Board of any other material change in the foreign custody arrangements of the Funds described in this Article 3 promptly after the occurrence of the material change. 3.8. REPRESENTATIONS WITH RESPECT TO RULE 17F-5. The Foreign Custody Manager represents to the Fund that it is a U.S. Bank as defined in section (a)(7) of Rule 17f-5. 3.9. EFFECTIVE DATE AND TERMINATION OF THE CUSTODIAN AS FOREIGN CUSTODY MANAGER. The Board's delegation to the Custodian as Foreign Custody Manager of the Funds shall be effective as of the date hereof and shall remain in effect until terminated at any time, without penalty, by written notice from the terminating party to the non-terminating party. Termination will become effective sixty (60) days after receipt by the non-terminating party of such notice. The provisions of Section 3.3 hereof shall govern the delegation to and termination of the Custodian as Foreign Custody Manager of the Funds with respect to designated countries. 3.10. MOST FAVORED CLIENT. If at any time prior to termination of this Amendment, the Custodian, as a matter of standard business practice, accepts delegation as Foreign Custody Manager for its U.S. mutual fund clients on terms of materially greater benefit to the Funds than set forth in this Amendment, the Custodian hereby agrees to negotiate with the Funds in good faith with respect thereto. 4. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUNDS HELD OUTSIDE THE UNITED STATES. 4.1 DEFINITIONS. Capitalized terms in this Article 4 shall have the following meanings: "Foreign Securities System" means either a clearing agency or a securities depository listed on Schedule A hereto or a Mandatory Securities Depository listed on Schedule B hereto. "Foreign Sub-Custodian" means a foreign banking institution (including a foreign branch of the Custodian or another Bank (as defined in Section 2(a)(5) of the 1940 Act)) serving as an Eligible Foreign Custodian. 4.2. HOLDING SECURITIES. The Custodian shall identify on its books as belonging to the Funds the foreign securities held by each Foreign Sub-Custodian or Foreign Securities System. The Custodian may hold foreign securities for all of its customers, including the Funds, with any Foreign Sub-Custodian in an account that is identified as belonging to the Custodian for the benefit of its customers, provided however, that (i) the records of the Custodian with respect to foreign securities of the Funds which are maintained in such account shall identify those securities as belonging to the Funds and (ii), to the extent permitted and customary in the market in which the account is maintained, the Custodian shall require that securities so held by the Foreign Sub-Custodian be held separately from any assets of such Foreign Sub-Custodian or of other customers of such Foreign Sub-Custodian. 4.3. FOREIGN SECURITIES SYSTEMS. Foreign securities shall be maintained in a Foreign Securities System in a designated country only through arrangements implemented by the Foreign Sub-Custodian in such country pursuant to the terms of this Contract. 4.4. TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT. 4.4.1. DELIVERY OF FOREIGN ASSETS. The Custodian or a Foreign Sub-Custodian shall release and deliver foreign securities of the Funds held by such Foreign Sub-Custodian, or in a Foreign Securities System account, only upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases: (i) upon the sale of such foreign securities for the Fund in accordance with customary market practice in the country where such foreign securities are held or traded, including, without limitation: (A) delivery against expectation of receiving later payment; or (B) in the case of a sale effected through a Foreign Securities System, in accordance with the rules governing the operation of the Foreign Securities System; (ii) in connection with any repurchase agreement related to foreign securities; (iii) to the depository agent in connection with tender or other similar offers for foreign securities of the Portfolios; (iv) to the issuer thereof or its agent when such foreign securities are called, redeemed, retired or otherwise become payable; (v) to the issuer thereof, or its agent, for transfer into the name of the Custodian (or the name of the respective Foreign Sub-Custodian or of any nominee of the Custodian or such Foreign Sub-Custodian) or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units; (vi) to brokers, clearing banks or other clearing agents for examination or trade execution in accordance with reasonable market custom; provided that in any such case the Foreign Sub-Custodian shall have no responsibility or liability for any loss arising from the delivery of such securities prior to receiving payment for such securities except as may arise from the Foreign Sub-Custodian's own negligence or willful misconduct; (vii) for exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement; (viii) in the case of warrants, rights or similar foreign securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for definitive securities; (ix) for delivery as security in connection with any borrowing by the Funds requiring a pledge of assets by the Funds; (x) in connection with trading in options and futures contracts, including delivery as original margin and variation margin; (xi) in connection with the lending of foreign securities; and (xii) for any other proper purpose, but only upon receipt of Proper Instructions specifying the foreign securities to be delivered, setting forth the purpose for which such delivery is to be made, declaring such purpose to be a proper trust/corporate purpose, and naming the person or persons to whom delivery of such securities shall be made. 4.4.2. PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, the Custodian shall pay out, or direct the respective Foreign Sub-Custodian or the respective Foreign Securities System to pay out, monies of a Fund in the following cases only: (i) upon the purchase of foreign securities for the Fund, unless otherwise directed by Proper Instructions, in accordance with reasonable market settlement practice in the country where such foreign securities are held or traded, including, without limitation, (A) delivering money to the seller thereof or to a dealer therefor (or an agent for such seller or dealer) against expectation of receiving later delivery of such foreign securities; or (B) in the case of a purchase effected through a Foreign Securities System, in accordance with the rules governing the operation of such Foreign Securities System; (ii) in connection with the conversion, exchange or surrender of foreign securities of the Fund; (iii) for the payment of any expense or liability of the Fund, including but not limited to the following payments: interest, taxes, investment advisory fees, transfer agency fees, fees under this Contract, legal fees, accounting fees, and other operating expenses; (iv) for the purchase or sale of foreign exchange or foreign exchange contracts for the Fund, including transactions executed with or through the Custodian or its Foreign Sub-Custodians; (v) in connection with trading in options and futures contracts, including delivery as original margin and variation margin; (vi) for payment of part or all of the dividends received in respect of securities sold short; (vii) in connection with the borrowing or lending of foreign securities; and (viii) for any other proper purpose, but only upon receipt of Proper Instructions specifying the amount of such payment, setting forth the purpose for which such payment is to be made, declaring such purpose to be a proper trust/corporate purpose, and naming the person or persons to whom such payment is to be made. 4.4.3. MARKET CONDITIONS; MARKET INFORMATION. Notwithstanding any provision of this Contract to the contrary, settlement and payment for Foreign Assets received for the account of the Funds and delivery of Foreign Assets maintained for the account of the Funds may be effected in accordance with the customary established securities trading or processing practices and procedures in the country or market in which the transaction occurs generally accepted by Institutional Clients, including, without limitation, delivering Foreign Assets to the purchaser thereof or to a dealer therefor (or an agent for such purchaser or dealer) with the expectation of receiving later payment for such Foreign Assets from such purchaser or dealer. For purposes of this Agreement, the term "Institutional Clients" means U.S. registered investment companies or major U.S. commercial banks, insurance companies, pension funds or substantially similar institutions which, as a part of their ordinary business operations, purchase or sell securities and make use of global custody services. The Custodian shall provide to the Board information with respect to material changes in the custody and settlement practices in countries in which the Custodian employs a Foreign Sub-Custodian. The Custodian shall provide, without limitation, information relating to Foreign Securities Systems and other information described in Schedule C. The Custodian may revise Schedule C from time to time, provided that no such revision shall result in the Board being provided with substantively less information than had previously been provided hereunder and provided further that the Custodian shall in any event provide to the Board at least annually the following information and opinions with respect to the Board approved countries listed on Schedule A: (i) legal opinions relating to whether local law restricts with respect to U.S. registered mutual fund's (a) access of a fund's independent public accountants to books and records of a Foreign Sub-Custodian or Foreign Securities System, (b) a fund's ability to recover in the event of bankruptcy or insolvency of a Foreign Sub-Custodian or Foreign Securities System, (c) a fund's ability to recover in the event of a loss by a Foreign Sub-Custodian or Foreign Securities System, and (d) the ability of a foreign investor to convert cash and cash equivalents to U.S. dollars; (ii) summary of information regarding Foreign Securities Systems; and (iii) country profile information containing market practice for (a) delivery versus payment, (b) settlement method, (c) currency restrictions, (d) buy-in practices, (e) foreign ownership limits, and (f) unique market arrangements. 4.5. REGISTRATION OF FOREIGN SECURITIES. The foreign securities maintained in the custody of a Foreign Sub-Custodian (other than bearer securities) shall be registered in the name of the applicable series or in the name of the Custodian or in the name of any Foreign Sub-Custodian or in the name of any nominee of the foregoing, and the Fund agrees to hold any such nominee harmless from any liability as a holder of record of such foreign securities, except to the extent that the Fund incurs loss or damage due to failure of such nominee to meet its standard of care set forth in the Contract. The Custodian or a Foreign Sub-Custodian shall not be obligated to accept securities on behalf of a Fund under the terms of this Contract unless the form of such securities and the manner in which they are delivered are in accordance with reasonable market practice. 4.6. BANK ACCOUNTS. The Custodian shall identify on its books as belonging to the Fund cash (including cash denominated in foreign currencies) deposited with the Custodian. Where the Custodian is unable to maintain, or market practice does not facilitate the maintenance of, cash on the books of the Custodian, a bank account or bank accounts opened and maintained outside the United States on behalf of a Fund with a Foreign Sub-Custodian shall be subject only to draft or order by the Custodian or such Foreign Sub-Custodian, acting pursuant to the terms of this Contract to hold cash received by or from or for the account of the Portfolio. 4.7. COLLECTION OF INCOME. The Custodian shall use reasonable commercial efforts to collect all income and other payments with respect to the Foreign Assets held hereunder to which the Funds shall be entitled and shall credit such income, as collected, to the applicable Fund. In the event that extraordinary measures are required to collect such income, the Fund and the Custodian shall consult as to such measures and as to the compensation and expenses of the Custodian relating to such measures. 4.8. SHAREHOLDER RIGHTS. With respect to the foreign securities held pursuant to this Article 4, the Custodian will use reasonable commercial efforts to facilitate the exercise of voting and other shareholder rights, subject always to the laws, regulations and practical constraints that may exist in the country where such securities are issued. The Fund acknowledges that local conditions, including lack of regulation, onerous procedural obligations, lack of notice and other factors may have the effect of severely limiting the ability of the Fund to exercise shareholder rights. 4.9. COMMUNICATIONS RELATING TO FOREIGN SECURITIES. The Custodian shall transmit promptly to the Fund written information (including, without limitation, pendency of calls and maturities of foreign securities and expirations of rights in connection therewith) received by the Custodian via the Foreign Sub-Custodians from issuers of the foreign securities being held for the account of the Funds. With respect to tender or exchange offers, the Custodian shall transmit promptly to the Fund written information so received by the Custodian from issuers of the foreign securities whose tender or exchange is sought or from the party (or its agents) making the tender or exchange offer. Subject to the standard of care to which the Custodian is held under this Agreement, the Custodian shall not be liable for any untimely exercise of any tender, exchange or other right or power in connection with foreign securities or other property of the Funds at any time held by it unless (i) the Custodian or the respective Foreign Sub-Custodian is in actual possession of such foreign securities or property and (ii) the Custodian receives Proper Instructions with regard to the exercise of any such right or power, and both (i) and (ii) occur at least three business days prior to the date on which the Custodian is to take action to exercise such right or power. 4.10. LIABILITY OF FOREIGN SUB-CUSTODIANS AND FOREIGN SECURITIES SYSTEMS. Each agreement pursuant to which the Custodian employs a Foreign Sub-Custodian shall, to the extent possible, require the Foreign Sub-Custodian to exercise reasonable care in the performance of its duties and, to the extent possible, to indemnify, and hold harmless, the Custodian from and against any loss, damage, cost, expense, liability or claim arising out of or in connection with the Foreign Sub-Custodian's performance of such obligations. At each Fund's election, a Fund shall be entitled to be subrogated to the rights of the Custodian with respect to any claims against a Foreign Sub-Custodian as a consequence of any such loss, damage, cost, expense, liability or claim if and to the extent that a Fund and any applicable series have not been made whole for any such loss, damage, cost, expense, liability or claim. 4.11. TAX LAW. Except to the extent that imposition of any tax liability arises from the Custodian's failure to perform in accordance with the terms of this Section 4.11 or from the failure of any Foreign Sub-Custodian to perform in accordance with the terms of the applicable subcustody agreement, the Custodian shall have no responsibility or liability for any obligations now or hereafter imposed on a Fund, a series thereof or the Custodian as custodian of the Fund by the tax law of the United States or of any state or political subdivision thereof. It shall be the responsibility of each Fund to notify the Custodian of the obligations imposed on the Fund or the Custodian as custodian of the Fund by the tax law of countries other than those mentioned in the above sentence, including responsibility for withholding and other taxes, assessments or other governmental charges, certifications and governmental reporting. The sole responsibility of the Custodian with regard to such tax law shall be to use reasonable efforts to assist the Fund with respect to any claim for exemption or refund under the tax law of countries for which the Fund has provided such information. 4.12. LIABILITY OF CUSTODIAN. Except as may arise from the Custodian's own negligence or willful misconduct or the negligence or willful misconduct of a Sub-Custodian, the Custodian shall be without liability to a Fund for any loss, liability, claim or expense resulting from or caused by anything which is (A) part of Country Risk or (B) part of the "prevailing country risk" of the Fund, as such term is used in SEC Release Nos. IC-22658; IS-1080 (May 12,1997) or as such term or other similar terms are now or in the future interpreted by the SEC or by the staff of the Division of Investment Management of the SEC. The Custodian shall be liable for the acts or omissions of a Foreign Sub-Custodian to the same extent as set forth with respect to sub-custodians generally in the Contract and, regardless of whether assets are maintained in the custody of a Foreign Sub-Custodian or a Foreign Securities System, the Custodian shall not be liable for any loss, damage, cost, expense, liability or claim resulting from nationalization, expropriation, currency restrictions, or acts of war or terrorism, or any other loss where the Sub-Custodian has otherwise acted with reasonable care. III. Except as specifically superseded or modified herein, the terms and provisions of the Contract shall continue to apply with full force and effect. In the event of any conflict between the terms of the Contract prior to this Amendment and this Amendment, the terms of this Amendment shall prevail. If the Custodian is delegated the responsibilities of Foreign Custody Manager pursuant to the terms of Article 3 hereof, in the event of any conflict between the provisions of Articles 3 and 4 hereof, the provisions of Article 3 shall prevail. IN WITNESS WHEREOF, each of the parties has caused this Amendment to be executed in its name and behalf by its duly authorized representative as of the date first above written. WITNESSED BY STATE STREET BANK AND TRUST COMPANY /S/ MARC L. PARSONS By: /S/ RONALD E. LOGUE - ------------------- ------------------- Marc L. Parsons Ronald E. Logue Associate Counsel Executive Vice President Cash Accumulation Trust Command Government Fund Command Money Fund Command Tax-Free Fund Global Utility Fund, Inc. Nicholas-Applegate Fund, Inc. Prudential 20 20 Focus Fund Prudential Balanced Fund Prudential California Municipal Fund Prudential Developing Markets Fund Prudential Distressed Securities Fund, Inc. Prudential Diversified Bond Fund, Inc. Prudential Diversified Funds 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 Mid-Cap Value Fund Prudential MoneyMart Assets, Inc. Prudential Mortgage Income Fund, Inc. Prudential Multi-Sector Fund, Inc. Prudential Municipal Bond Fund Prudential Municipal Series Fund Prudential National Municipals Fund, Inc. Prudential Natural Resources Fund, Inc. Prudential Pacific Growth Fund, Inc. Prudential 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 Tax-Managed Equity Fund Prudential Utility Fund, Inc. Prudential World Fund, Inc. The Global Total Return Fund, Inc. The Target Portfolio Trust The Asia Pacific Fund, Inc. The High Yield Income Fund, Inc. WITNESSED BY: By: /S/ S. JANE ROSE BY: /S/ GRACE TORRES ----------------------- -------------------- S. Jane Rose Grace Torres Treasurer First Financial Fund, Inc. The High Yield Plus Fund, Inc. WITNESSED BY: By: /S/ STEPHANIE L. BOURQUE By: /S/ ARTHUR BROWN ------------------------ ---------------- Stephanie L. Bourque Arthur J. Brown Secretary
SCHEDULE A STATE STREET GLOBAL CUSTODY NETWORK SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES Country Subcustodian Non-Mandatory Depositories Argentina Citibank, N.A. - Australia Westpac Banking Corporation - Austria Erste Bank der Oesterreichischen - Sparkassen AG Bahrain British Bank of the Middle East - (as delegate of The Hongkong and Shanghai Banking Corporation Limited) Bangladesh Standard Chartered Bank Belgium Generale de Banque - Bermuda The Bank of Bermuda Limited - Bolivia Banco Boliviano Americano S.A. - Botswana Barclays Bank of Botswana Limited - Brazil Citibank, N.A. - Bulgaria ING Bank N.V. - Canada Canada Trustco Mortgage Company - Chile Citibank, N.A. Deposito Central de Valores S.A. People's Republic The Hongkong and Shanghai Banking of China Corporation Limited, Shanghai and Shenzhen branches Colombia Cititrust Colombia S.A. Sociedad Fiduciaria
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SCHEDULE A STATE STREET GLOBAL CUSTODY NETWORK SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES Country Subcustodian Non-Mandatory Depositories Costa Rica Banco BCT S.A. - Croatia Privredna Banka Zagreb d.d - Cyprus Barclays Bank Plc. - Cyprus Offshore Banking Unit Czech Republic Ceskoslovenska Obchodni Banka, A.S. - Denmark Den Danske Bank - Ecuador Citibank, N.A. - Egypt National Bank of Egypt - Estonia Hansabank - Finland Merita Bank Limited - France Banque Paribas - Germany Dresdner Bank AG - Ghana Barclays Bank of Ghana Limited - Greece National Bank of Greece S.A. The Bank of Greece, System for Monitoring Transactions in Securities in Book-Entry Form Hong Kong Standard Chartered Bank - Hungary Citibank Budapest Rt. - 2/10/99
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SCHEDULE A STATE STREET GLOBAL CUSTODY NETWORK SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES Country Subcustodian Non-Mandatory Depositories Iceland Icebank Ltd. - India Deutsche Bank AG - The Hongkong and Shanghai - Banking Corporation Limited Indonesia Standard Chartered Bank Ireland Bank of Ireland - Israel Bank Hapoalim B.M. - Italy Banque Paribas - Ivory Coast Societe Generale de Banques - en Cote d'Ivoire Jamaica Scotiabank Jamaica Trust and Merchant Bank - Ltd. Japan The Daiwa Bank, Limited Japan Securities Depository Center The Fuji Bank, Limited Jordan British Bank of the Middle East - (as delegate of The Hongkong and Shanghai Banking Corporation Limited) Kenya Barclays Bank of Kenya Limited - Republic of Korea The Hongkong and Shanghai Banking - Corporation Limited Latvia JSC Hansabank-Latvija -
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SCHEDULE A STATE STREET GLOBAL CUSTODY NETWORK SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES Country Subcustodian Non-Mandatory Depositories Lebanon British Bank of the Middle East - (as delegate of The Hongkong and Shanghai Banking Corporation Limited) Lithuania Vilniaus Bankas AB - Malaysia Standard Chartered Bank - Malaysia Berhad Mauritius The Hongkong and Shanghai - Banking Corporation Limited Mexico Citibank Mexico, S.A. - Morocco Banque Commerciale du Maroc - Namibia (via) Standard Bank of South Africa - The Netherlands MeesPierson N.V. - New Zealand ANZ Banking Group - (New Zealand) Limited Norway Christiania Bank og - Kreditkasse Oman British Bank of the Middle East - (as delegate of The Hongkong and Shanghai Banking Corporation Limited) Pakistan Deutsche Bank AG - Peru Citibank, N.A. - Philippines Standard Chartered Bank -
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SCHEDULE A STATE STREET GLOBAL CUSTODY NETWORK SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES Country Subcustodian Non-Mandatory Depositories Poland Citibank (Poland) S.A. - Bank Polska Kasa Opieki S.A. Portugal Banco Comercial Portugues - Romania ING Bank N.V. - Russia Credit Suisse First Boston AO, Moscow - (as delegate of Credit Suisse First Boston, Zurich) Singapore The Development Bank - of Singapore Limited Slovak Republic Ceskoslovenska Obchodni Banka, A.S. - Slovenia Bank Austria d.d. Ljubljana - South Africa Standard Bank of South Africa Limited - Spain Banco Santander, S.A. - Sri Lanka The Hongkong and Shanghai - Banking Corporation Limited Swaziland Standard Bank Swaziland Limited - Sweden Skandinaviska Enskilda Banken - Switzerland UBS AG - Taiwan - R.O.C. Central Trust of China - Thailand Standard Chartered Bank -
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SCHEDULE A STATE STREET GLOBAL CUSTODY NETWORK SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES Country Subcustodian Non-Mandatory Depositories Trinidad & Tobago Republic Bank Limited - Tunisia Banque Internationale Arabe de Tunisie - Turkey Citibank, N.A. - Ottoman Bank Ukraine ING Bank, Ukraine - United Kingdom State Street Bank and Trust Company, - London Branch Uruguay Citibank, N.A. - Venezuela Citibank, N.A. - Zambia Barclays Bank of Zambia Limited - Zimbabwe Barclays Bank of Zimbabwe Limited - Euroclear (Me Euroclear System)/State Street London Limited Cedel, S.A. (Cedel Bank, societe anonyme)/State Street London Limited INTERSETTLE (for EASDAQ Securities) * The global custody network approved by each fund is set forth below on Schedules A-1 and A-2. 2/10/99
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SCHEDULE A-1 PRUDENTIAL MUTUAL FUNDS STATE STREET GLOBAL CUSTODY NETWORK COUNTRY FUNDS - --------------------------------------------------------------------------------------------------------- Argentina Mexico Global Utility Fund, Inc. Australia Morocco Prudential 20/20 Focus Fund Austria Netherlands Prudential Balanced Fund Bangladesh* New Zealand Prudential Equity Fund, Inc. Belgium Norway Prudential Equity Income Fund, Inc. Brazil Pakistan Prudential Developing Markets Fund Canada Peru Prudential Diversified Bond Fund, Inc. Chile Philippines Prudential Distressed Securities Fund, Inc. China Poland Prudential Diversified Funds Colombia Portugal Prudential Emerging Growth Fund, Inc. Cyprus Russia Prudential Global Genesis Fund, Inc. Czech Republic Singapore Prudential Global Limited Maturity Fund, Inc. Denmark Slovak Republic Prudential Index Series Fund Ecuador South Africa Prudential Intermediate Global Income Fund, Inc. Egypt Spain Prudential International Bond Fund, Inc. Finland Sri Lanka Prudential Mid-Cap Value Fund France Sweden Prudential Natural Resources Fund, Inc. Germany Switzerland Prudential Pacific Growth Fund, Inc. Ghana Taiwan Prudential Real Estate Securities Fund Greece Thailand Prudential Small-Cap Quantum Fund, Inc. Hong Kong Turkey Prudential Small Company Value Fund, Inc. Hungary Transnational Prudential Tax-Managed Equity Fund India United Kingdom Prudential Utility Fund, Inc. Indonesia Uruguay Prudential World Fund, Inc. Ireland Venezuela The Prudential Investment Portfolios, Inc. Israel The Target Portfolio Trust Italy The Global Total Return Fund, Inc. Ivory Coast Japan Jordan Kenya Korea Lebanon Malaysia * Approved only for The Target Portfolio Trust.
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SCHEDULE A-2 PRUDENTIAL MUTUAL FUNDS STATE STREET GLOBAL CUSTODY NETWORK COUNTRY FUNDS - --------------------------------------------------------------------------------------------------------- United Kingdom Cash Accumulation Trust COMMAND Government Fund COMMAND Money Fund Prudential Government Income Fund, Inc. Prudential High Yield Fund, Inc. Prudential High Yield Income Fund, Inc. Prudential Institutional Liquidity Portfolio, Inc. Prudential MoneyMart Assets, Inc. Prudential Special Money Market Fund, Inc. Prudential Structured Maturity Fund, Inc.
8 SCHEDULE B STATE STREET GLOBAL CUSTODY NETWORK MANDATORY* DEPOSITORIES Country Mandatory Depositories Argentina Caja de Valores S.A. Australia Austraclear Limited Reserve Bank Information and Transfer System Austria Oesterreichische Kontrollbank AG (Wertpapiersammelbank Division) Belgium Caisse Interprofessionnelle de Depot et de Virement de Titres S.A. Banque Nationale de Belgique Brazil Companhia Brasileira de Liquidacao e Custodia (CBLC) Bolsa de Valores de Rio de Janeiro All SSB clients presently use CBLC Central de Custodia, e de Liquidacao Financeira de Titulos Canada The Canadian Depository for Securities Limited People's Republic Shanghai Securities Central Clearing and of China Registration Corporation Shenzhen Securities Central Clearing Co., Ltd. * Mandatory depositories include entities for which use is mandatory as a matter of law or effectively mandatory as a matter of market practice. 11/20/98 1 SCHEDULE B STATE STREET GLOBAL CUSTODY NETWORK MANDATORY* DEPOSITORIES Country Mandatory Depositories Croatia Stredisko cennych papiru Czech Republic Czech National Bank Denmark Vaerdipapircentralen (the Danish Securities Center) Egypt Misr Company for Clearing, Settlement, and Central Depository Finland The Finnish Central Securities Depository France Societe Interprofessionnelle pour la Compensation des Valeurs Mobilieres (SICOVAM) Germany Deutsche Borse Clearing AG Greece The Central Securities Depository (Apothetirion Titlon AE) Hong Kong The Central Clearing and Settlement System Central Money Markets Unit Hungary The Central Depository and Clearing House (Budapest) Ltd. (KELER) [Mandatory for Gov't Bonds only, SSB does not use for other securities] India The National Securities Depository Limited * Mandatory depositories include entities for which use is mandatory as a matter of law or effectively mandatory as a matter of market practice. 11/20/98 2 SCHEDULE B STATE STREET GLOBAL CUSTODY NETWORK MANDATORY* DEPOSITORIES Country Mandatory Depositories Indonesia Bank Indonesia Ireland Central Bank of Ireland Securities Settlement Office Israel The Tel Aviv Stock Exchange Clearing House Ltd. Bank of Israel Italy Monte Titoli S.p.A. Banca d'Italia Japan Bank of Japan Net System Kenya Central Bank of Kenya Republic of Korea Korea Securities Depository Corporation Lebanon The Custodian and Clearing Center of Financial Instruments for Lebanon and the Middle East (MIDCLEAR) S.A.L. The Central Bank of Lebanon * Mandatory depositories include entities for which use is mandatory as a matter of law or effectively mandatory as a matter of market practice. 11/20/98 3 SCHEDULE B STATE STREET GLOBAL CUSTODY NETWORK MANDATORY* DEPOSITORIES Country Mandatory Depositories Malaysia The Malaysian Central Depository Sdn. Bhd. Bank Negara Malaysia, Scripless Securities Trading and Safekeeping System Mexico S.D. INDEVAL, S.A. de C.V. (Instituto para el Deposito de Valores) Morocco Maroclear The Netherlands Nederlands Centraal Instituut voor Giraal Effectenverkeer B.V. (NECIGEF) De Nederlandsche Bank N.V. New Zealand New Zealand Central Securities Depository Limited Norway Verdipapirsentralen (the Norwegian Registry of Securities) Pakistan Central Depository Company of Pakistan Limited Peru Caja de Valores y Liquidaciones S.A. (CAVALI) * Mandatory depositories include entities for which use is mandatory as a matter of law or effectively mandatory as a matter of market practice. 11/20/98 4 SCHEDULE B STATE STREET GLOBAL CUSTODY NETWORK MANDATORY* DEPOSITORIES Country Mandatory Depositories Philippines The Philippines Central Depository, Inc. The Registry of Scripless Securities (ROSS) of the Bureau of the Treasury Poland The National Depository of Securities (Krajowy Depozyt Papierow Wartosciowych) Central Treasury Bills Registrar Portugal Central de Valores Mobiliarios (Central) Romania National Securities Clearing, Settlement and Depository Co. Bucharest Stock Exchange Registry Division Singapore The Central Depository (Pte) Limited Monetary Authority of Singapore Slovak Republic Stredisko Cennych Papierov National Bank of Slovakia South Africa The Central Depository Limited Spain Servicio de Compensacion y Liquidacion de Valores, S.A. Banco de Espana, Central de Anotaciones en Cuenta *Mandatory depositories include entities for which use is mandatory as a matter of law or effectively mandatory as a matter of market practice. 11/20/98 5 SCHEDULE B STATE STREET GLOBAL CUSTODY NETWORK MANDATORY* DEPOSITORIES Country Mandatory Depositories Sri Lanka Central Depository System (Pvt) Limited Sweden Vardepapperscentralen AB (the Swedish Central Securities Depository) Switzerland Schweizerische Effekten - Giro AG Taiwan - R.O.C. The Taiwan Securities Central Depository Co., Ltd. Thailand Thailand Securities Depository Company Limited Turkey Takas ve Saklama Bankasi A.S. (TAKASBANK) Central Bank of Turkey United Kingdom The Bank of England, The Central Gilts Office and The Central Moneymarkets Office Uruguay Central Bank of Uruguay * Mandatory depositories include entities for which use is mandatory as a matter of law or effectively mandatory as a matter of market practice. 11/20/98 6 SCHEDULE B STATE STREET GLOBAL CUSTODY NETWORK MANDATORY* DEPOSITORIES Country Mandatory Depositories Venezuela Central Bank of Venezuela Lusaka Central Depository Limited *Mandatory depositories include entities for which use is mandatory as a matter of law or effectively mandatory as a matter of market practice. 11/20/98 7 SCHEDULE C MARKET INFORMATION PUBLICATION/TYPE OF INFORMATION BRIEF DESCRIPTION - ------------------------------- ----------------- (FREQUENCY) THE GUIDE TO CUSTODY IN WORLD MARKETS An overview of safekeeping and (annually) settlement practices and procedures in each market in which State Street (annually) Bank and Trust Company offers custodial services. GLOBAL CUSTODY NETWORK REVIEW Information relating to the (annually) operating history and structure of depositories and subcustodians located (annually) in the markets in which State Street Bank and Trust Company offers custodial services, including transnational depositories. GLOBAL LEGAL SURVEY With respect to each market in (annually) which State Street Bank and Trust Company offers custodial services, (annually) opinions relating to whether local law restricts (i) access of a fund's independent public accountants to books and records of a Foreign Sub-Custodian or Foreign Securities System, (ii) the Fund's ability to recover in the event of bankruptcy or insolvency of a Foreign Sub-Custodian or Foreign Securities System, (iii) the Fund's ability to recover in the event of a loss by a Foreign Sub-Custodian or Foreign Securities System, and (iv) the ability of a foreign investor to convert cash and cash equivalents to U.S. dollars. SUBCUSTODIAN AGREEMENTS Copies of the subcustodian (annually) contracts State Street Bank and Trust Company has entered into with each (annually) subcustodian in the markets in which State Street Bank and Trust Company offers subcustody services to its US mutual fund clients. Network Bulletins (weekly): Developments of interest to investors in the markets in which State Street Bank and Trust Company offers custodial services. Foreign Custody Advisories With respect to markets in which (as necessary): State Street Bank and Trust Company offers custodial services which exhibit special custody risks, developments which may impact State Street's ability to deliver expected levels of service. SCHEDULE D LIST OF FUNDS, CONTRACTS AND AGREEMENTS FUND NAME EXECUTION DATE - --------- -------------- Cash Accumulation Trust December 12, 1997 Liquid Assets Fund National Money Market Fund COMMAND Government Fund July 1, 1990 COMMAND Money Fund July 1, 1990 COMMAND Tax-Free Fund July 1, 1990 Duff & Phelps Utilities Tax-Free Income Fund, Inc. November 21, 1991 First Financial Fund, Inc. May 1, 1986 Global Utility Fund, Inc. December 21, 1989 Nicholas-Applegate Fund, Inc. April 10, 1987 Nicholas-Applegate Growth Equity Fund Prudential Balanced Fund September 4, 1987 Prudential California Municipal Fund August 1, 1990 California Series California Income Series California Money Market Series Prudential Core Investment Fund April 23, 1999 Short-Term Bond Series Short-Term Municipal Bond Series National Municipal Money Market Series Taxable Money Market Series Government Money Market Series Treasury Money Market Series Prudential Developing Markets Fund June 1, 1998 Prudential Developing Markets Equity Fund Prudential Latin America Equity Fund Prudential Diversified Funds September 2, 1998 Prudential Diversified Conservative Growth Fund Prudential Diversified Moderate Growth Fund Prudential Diversified High Growth Fund Prudential Emerging Growth Fund, Inc. October 21, 1996 Prudential Equity Fund, Inc. August 1, 1990 Prudential Equity Income Fund January 6, 1987 Prudential Europe Growth Fund, Inc. May 31, 1999 Prudential Global Genesis Fund, Inc. October 21, 1987 Prudential Global Total Return Fund, Inc. September 5, 1990 (formerly The Global Total Fund, Inc.) FUND NAME EXECUTION DATE - --------- -------------- Prudential Government Income Fund, Inc. July 31, 1990 (formerly Prudential Government Plus Fund) Prudential Government Securities Trust July 26, 1990 Money Market Series Short-Intermediate Term Series U.S. Treasury Money Market Series Prudential High Yield Fund, Inc. July 26, 1990 Prudential High Yield Total Return Fund, Inc. May 30, 1997 Prudential Index Series Fund August 26, 1997 (formerly Prudential Institutional Fund) Prudential Bond Market Index Fund Prudential Europe Index Fund Prudential Pacific Index Fund Prudential Small-Cap Index Fund Prudential Stock Index Fund Prudential Institutional Liquidity Portfolio, Inc. November 20, 1987 Prudential International Bond Fund, Inc. January 16, 1996 (formerly The Global Government Plus Fund, Inc.) Prudential Mid-Cap Value Fund April 14, 1998 Prudential MoneyMart Assets, Inc. July 25, 1990 Prudential Municipal Bond Fund August 25, 1987 High Income Series Insured Series Prudential Municipal Series Fund August 1, 1990 Florida Series Massachusetts Series New Jersey Series New York Series North Carolina Series Ohio Series Pennsylvania Series Connecticut Money Market Series Massachusetts Money Market Series New Jersey Money Market Series New York Money Market Series Prudential National Municipal Funds, Inc. July 26, 1990 Prudential Natural Resources Fund, Inc. September 18, 1987 Prudential Pacific Growth Fund, Inc. July 16, 1992 Prudential Real Estate Securities Fund February 18, 1998 FUND NAME EXECUTION DATE - --------- -------------- Prudential Sector Funds, Inc. June 6, 1990 (formerly Prudential Utility Fund, Inc.) Prudential Financial Services Fund Prudential Health Sciences Fund Prudential Technology Fund Prudential Utility Fund Prudential Short-Term Corporate Bond Fund, Inc. July 25, 1989 (formerly Prudential Structured Maturity Fund, Inc.) Prudential Small Cap Quantum Fund, Inc. August 1, 1997 Prudential Small Company Value Fund, Inc. July 26, 1990 (formerly Prudential Growth Opportunity Fund, Inc.) Prudential Special Money Market Fund, Inc. January 12, 1990 Prudential Tax-Free Money Fund, Inc. July 26, 1990 Prudential Tax-Managed Funds December 8, 1998 (formerly Prudential Tax-Managed Equity Fund) Prudential Tax-Managed Equity Fund Prudential Total Return Bond Fund, Inc. January 3, 1995 (formerly Prudential Diversified Bond Fund, Inc.) Prudential 20/20 Focus Fund April 14, 1998 Prudential World Fund, Inc. June 7, 1990 (formerly Prudential Global Fund, Inc.) Prudential Global Growth Fund (formerly Global Series) Prudential International Value Fund (formerly International Stock Series) Prudential Jennison International Growth Fund Strategic Partners Series March 1, 2000 Strategic Partners Focused Growth Fund Target Funds August 25, 1999 International Equity Fund Large Capitalization Growth Fund Large Capitalization Value Fund Small Capitalization Growth Fund Small Capitalization Value Fund Total Return Bond Fund The Asia Pacific Fund, Inc. April 24, 1987 The High Yield Income Fund, Inc. November 6, 1987 The High Yield Plus Fund, Inc. March 15, 1988 The Prudential Investment Portfolios Fund, Inc. October 27, 1995 (formerly Prudential Jennison Series Fund, Inc.) Prudential Active Balanced Fund Prudential Jennison Growth & Income Fund Prudential Jennison Growth Fund FUND NAME EXECUTION DATE - --------- -------------- The Target Portfolio Trust November 9, 1992 Large Capitalization Growth Portfolio Large Capitalization Value Portfolio Small Capitalization Growth Portfolio Small Capitalization Value Portfolio International Equity Portfolio International Bond Portfolio Total Return Bond Portfolio Intermediate-Term Bond Portfolio Mortgage Backed Securities Portfolio U.S. Government Money Market Portfolio EX-99.H(II) 4 0004.txt AMENDMENT TO TRANSFER AGENCY AND SERVICE AGREEMENT EXHIBIT (h)(ii) AMENDMENT TO TRANSFER AGENCY AND SERVICE AGREEMENT THIS AMENDMENT to the Transfer Agency and Service Agreement by and between PRUDENTIAL TAX-FREE MONEY FUND, INC. (the "Fund") and Prudential Mutual Fund Services LLC (successor to Prudential Mutual Fund Services, Inc.)("PMFS") is entered into as of August 24, 1999. WHEREAS, the Fund and PMFS have entered into a Transfer Agency and Service Agreement (the "Agreement") pursuant to which PMFS serves as transfer agent, dividend disbursing agent and shareholder servicing agent for the Fund; and WHEREAS, the Fund and PMFS desire to amend the Agreement to confirm the Fund's agreement to pay transfer agency account fees and expenses for beneficial owners holding shares through omnibus accounts maintained by The Prudential Insurance Company of America, its subsidiaries or affiliates. NOW, THEREFORE, for and in consideration of the continuation of the Agreement, and other good and valuable consideration, Article 8 of the Agreement is amended by adding the following Section: 8.04 PMFS may enter into agreements with Prudential or any subsidiary or affiliate of Prudential whereby PMFS will maintain an omnibus account and the Fund will reimburse PMFS for amounts paid by PMFS to Prudential, or such subsidiary or affiliate, in an amount not in excess of the annual maintenance fee for each active beneficial shareholder account as if each beneficial shareholder account were maintained by PMFS on the Fund's records, subject to the fee schedule attached hereto as Schedule A. Prudential, its subsidiary or affiliate, as the case may be, shall maintain records relating to each beneficial shareholder account that underlies the omnibus account maintained by PMFS. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed in their names and on their behalf by and through their duly authorized officers, as of the day and year first above written. PRUDENTIAL TAX-FREE MONEY FUND, INC. ATTEST: By: /S/ JOHN R. STRANGFELD, JR. By:/S/ ROBERT C. ROSSELOT -------------------------- ---------------------- President Secretary PRUDENTIAL MUTUAL FUND SERVICES LLC ATTEST: By: /S/ BRIAN HENDERSON By: /S/ WILLIAM V. HEALEY ------------------------ --------------------- President Secretary EX-99.(J) 5 0005.txt CONSENT OF INDEPENDENT ACCOUNTANTS CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in this Registration Statement on Form N-1A of our report dated February 14, 2001 relating to the financial statements and financial highlights, which appears in the December 31, 2000 Annual Report to Shareholders of Prudential Tax-Free Money Fund, Inc., which is also incorporated by reference into the Registration Statement. We also consent to the references to us under the headings "Financial Highlights", "Other Service Providers" and "Financial Statements" in such Registration Statement. PricewaterhouseCoopers LLP New York, New York March 12, 2001 EX-99.P(I) 6 0006.txt PRUDENTIAL TAX-FREE MONEY FUND, INC. Exhibit (p)(i) PRUDENTIAL TAX-FREE MONEY FUND, INC. (THE FUND) CODE OF ETHICS ADOPTED PURSUANT TO RULE 17J-1 UNDER THE INVESTMENT COMPANY ACT OF 1940 (THE CODE) 1. PURPOSES The Code has been adopted by the Board of Directors of the Fund, in accordance with Rule 17j-1(c) under the Investment Company Act of 1940 (the Act) and in accordance with the following general principles: (1) THE DUTY AT ALL TIMES TO PLACE THE INTERESTS OF SHAREHOLDERS FIRST. Investment company personnel should scrupulously avoid serving their own personal interests ahead of shareholders' interests in any decision relating to their personal investments. (2) THE REQUIREMENT THAT ALL PERSONAL SECURITIES TRANSACTIONS BE CONDUCTED CONSISTENT WITH THE CODE AND IN SUCH A MANNER AS TO AVOID ANY ACTUAL OR POTENTIAL CONFLICT OF INTEREST OR ANY ABUSE OF AN INDIVIDUAL'S POSITION OF TRUST AND RESPONSIBILITY. Investment company personnel must not only seek to achieve technical compliance with the Code but should strive to abide by its spirit and the principles articulated herein. (3) THE FUNDAMENTAL STANDARD THAT INVESTMENT COMPANY PERSONNEL SHOULD NOT TAKE INAPPROPRIATE ADVANTAGE OF THEIR POSITIONS. Investment company personnel must avoid any situation that might compromise, or call into question, their exercise of fully independent judgment in the interest of shareholders, including, but not limited to the receipt of unusual investment opportunities, perquisites, or gifts of more than a DE MINIMIS value from persons doing or seeking business with the Fund. Rule 17j-1 under the Act generally proscribes fraudulent or manipulative practices with respect to a purchase or sale of a security held or to be acquired (as such term is defined in Section 2) by an investment company, if effected by an associated person of such company. The purpose of the Code is to establish procedures consistent with the Act and Rule 17j-1 to give effect to the following general prohibitions as set forth in Rule 17j-1(b) as follows: (a) It shall be unlawful for any affiliated person of or Principal Underwriter for a registered investment company, or any affiliated person of an investment adviser of or principal underwriter for a registered investment company in connection with the purchase or sale, directly or indirectly, by such person of a security held or to be acquired, by such registered investment company: (1) To employ any device, scheme or artifice to defraud such registered investment company; (2) To make to such registered investment company any untrue statement of a material fact or omit to state to such registered investment company a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading; (3) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any such registered investment company; or (4) To engage in any manipulative practice with respect to such registered investment company. 2. DEFINITIONS (a) "Access Person" means any director/trustee, officer, general partner or Advisory Person (including any Investment Personnel, as that term is defined herein) of the Fund, the Manager, the Adviser/Subadviser, or the Principal Underwriter. 2 (b) "Adviser/Subadviser" means the Adviser or Subadviser of the Fund or both as the context may require. (c) "Advisory Person" means (i) any employee of the Fund, Manager or Adviser/Subadviser (or of any company in a control relationship to the Fund, Manager or Adviser/Subadviser) who, in connection with his or her regular functions or duties, makes, participates in, or obtains current or pending information regarding the purchase or sale of a security by the Fund, or whose functions relate to the making of any recommendations with respect to such purchases or sales; and (ii) any natural person in a control relationship to the Fund who obtains information concerning recommendations made to the Fund with regard to the purchase or sale of a security. (d) "Beneficial Ownership" will be interpreted in the same manner as it would be under Securities Exchange Act Rule 16a-1(a)(2) in determining which security holdings of a person are subject to the reporting and short-swing profit provisions of Section 16 of the Securities Exchange Act of 1934 and the rules and regulations thereunder, except that the determination of direct or indirect beneficial ownership will apply to all securities which an Access Person has or acquires (EXHIBIT A). (e) "Complex" means the group of registered investment companies for which Prudential Investments Fund Management LLC serves as Manager; provided, however, that with respect to Access Persons of the Subadviser (including any unit or subdivision thereof), "Complex" means the group of registered investment companies in the Complex advised by the Subadviser or unit or subdivision thereof. A list of such registered investment companies will be maintained by the Compliance Officer. (f) "Compliance Officer" means the person designated by the Manager, the Adviser/Subadviser, or Principal Underwriter (including his or her designee) as having responsibility for compliance with the requirements of the Code. (g) "Control" will have the same meaning as that set forth in Section 2(a)(9) of the Act. (h) "Disinterested Director/Trustee" means a Director/ Trustee of the Fund who is not an "interested person" of the Fund within the meaning of Section 2(a)(19) of the Act. An interested Director/Trustee who would not otherwise be deemed to be an Access Person, shall be treated as a Disinterested 3 Director/Trustee for purposes of compliance with the provisions of the Code. (i) "Initial Public Offering" means an offering of securities registered under the Securities Act of 1933, the issuer of which, immediately before the registration, was not subject to the reporting requirements of sections 13 or 15(d) of the Securities Exchange Act of 1934. (j) "Investment Personnel" means: (a) Portfolio Managers and other Advisory Persons who provide investment information and/or advice to the Portfolio Manager(s) and/or help execute the Portfolio Manager's(s') investment decisions, including securities analysts and traders; (b) any natural person in a control relationship to the Fund who obtains information concerning recommendations made to the Fund with regard to the purchase or sale of a security; and (c) certain other individuals as designated by the Compliance Officer. (k) "Manager" means Prudential Investments Fund Management, LLC. (l) "Mutual Fund Code of Ethics and Personal Securities Trading Committee" or "Committee" means Business Unit, Compliance, and Human Resources executives responsible for interpreting and administering the Code, including but not limited to, reviewing violations of the Code and determining any sanctions or other disciplinary actions that may be deemed appropriate. In addition, the Committee may waive and or modify violations and sanctions or other disciplinary actions at its discretion when deemed appropriate by the Committee. The Committee will review such violations in consultation with legal counsel. A list of such Committee members shall be maintained by the Compliance Officer. (m) "Portfolio Manager" means any Advisory Person who has the direct responsibility and authority to make investment decisions for the Fund. (n) "Private placement" means a limited offering that is exempt from registration under the Securities Act of 1933 pursuant to section 4(2) or section 4(6) or pursuant to rule 504, rule 505 or rule 506 under such Securities Act. (o) "Profits" means any total or partial Profit realized from a securities transaction or group of transactions as defined by the Mutual Fund Code of Ethics and Personal Securities Trading Committee ("Committee"). 4 (p) "Security" will have the meaning set forth in Section 2(a)(36) of the Act, except that it will not include shares of registered open-end investment companies, direct obligations of the Government of the United States, short-term debt securities which are "government securities" within the meaning of Section 2(a)(16) of the Act, bankers' acceptances, bank certificates of deposit, commercial paper and such other money market instruments as are designated by the Compliance Officer. For purposes of the Code, an "equivalent Security" is one that has a substantial economic relationship to another Security. This would include, among other things, (1) a Security that is exchangeable for or convertible into another Security, (2) with respect to an equity Security, a Security having the same issuer (including a private issue by the same issuer) and any derivative, option or warrant relating to that Security and (3) with respect to a fixed-income Security, a Security having the same issuer, maturity, coupon and rating. (q) "Security held or to be acquired" means any Security or any equivalent Security which, within the most recent 15 days: (1) is or has been held by the Fund; or (2) is being considered by the Fund or its investment adviser for purchase by the Fund. 3. APPLICABILITY The Code applies to all Access Persons and the Compliance Officer shall provide each Access Person with a copy of the Code. The prohibitions described below will only apply to a transaction in a Security in which the designated Access Person has, or by reason of such transaction acquires, any direct or indirect Beneficial Ownership. The Compliance Officer will maintain a list of all Access Persons who are currently, and within the past five years, subject to the Code. 4. PROHIBITED PURCHASES AND SALES A. INITIAL PUBLIC OFFERINGS 5 No Investment Personnel may acquire any Securities in an initial public offering. For purposes of this restriction, "Initial Public Offerings" shall not include offerings of government and municipal securities. B. PRIVATE PLACEMENTS No Investment Personnel may acquire any Securities in a private placement without prior approval. (i) Prior approval must be obtained in accordance with the preclearance procedure described in Section 6 below. Such approval will take into account, among other factors, whether the investment opportunity should be reserved for the Fund and its shareholders and whether the opportunity is being offered to the Investment Personnel by virtue of his or her position with the Fund. The Adviser/Subadviser shall maintain a record of such prior approval and reason for same, for at least 5 years after the end of the fiscal year in which the approval is granted. (ii) Investment Personnel who have been authorized to acquire Securities in a private placement must disclose that investment to the chief investment officer (including his or her designee) of the Adviser/Subadviser (or of any unit or subdivision thereof) or the Compliance Officer when they play a part in any subsequent consideration of an investment by the Fund in the issuer. In such circumstances, the Fund's decision to purchase Securities of the issuer will be subject to an independent review by appropriate personnel with no personal interest in the issuer. 6 C. BLACKOUT PERIODS (i) Except as provided in Section 5 below, Access Persons are prohibited from executing a Securities transaction on a day during which any investment company in the Complex has a pending "buy" or "sell" order in the same or an equivalent Security and until such time as that order is executed or withdrawn; provided, however, that this prohibition shall not apply to Disinterested Directors except if they have actual knowledge of trading by any fund in the Complex and, in any event, only with respect to those funds on whose boards they sit. This prohibition shall also not apply to Access Persons of the Subadviser who do not, in the ordinary course of fulfilling his or her official duties, have access to current or pending information regarding the purchase and sale of Securities for the Fund and are not engaged in the day-to-day trading operations of the Fund; provided that Securities investments effected by such Access Persons during the proscribed period are not effected with knowledge of the purchase or sale of the same or equivalent Securities by any fund in the Complex. A "pending 'buy' or 'sell' order" exists when a decision to purchase or sell a Security has been made and communicated. However, this prohibition shall not apply to a "pending `buy `or `sell' order" in the same or an equivalent security in a broad based index fund.(1) (ii) Portfolio Managers are prohibited from buying or selling a Security within seven calendar days before or after a Fund in the same Complex trades in 7 the same or an equivalent Security. Nevertheless, a personal trade by any Investment Personnel shall not prevent a Fund in the same Complex from trading in the same or an equivalent security. However, such a transaction shall be subject to independent review by the Compliance Officer. This prohibition shall not apply to purchases and sales executed in a broad based index fund. (iii) If trades are effected during the periods proscribed in (i) or (ii) above, except as provided in (iv) below with respect to (i) above, Profits realized on such trades will be promptly required to be disgorged to the Fund or a charitable organization approved by the Committee. (iv) A transaction by Access Persons (other than Investment Personnel) inadvertently effected during the period proscribed in (i) above will not be considered a violation of the Code and disgorgement will not be required so long as the transaction was effected in accordance with the preclearance procedures described in Section 6 below and without prior knowledge of trading by any fund in the Complex in the same or an equivalent Security. D. SHORT-TERM TRADING PROFITS Except as provided in Section 5 below, Investment Personnel are prohibited from profiting from a purchase and sale, or sale and purchase, of the same or an equivalent Security within any 60 calendar day period. If trades are effected during the proscribed period, Profits realized on such trades will be promptly required to be disgorged to the Fund or a charitable organization approved by the Committee. - -------------------------------------------------------------------------------- (1) A list of such Funds shall be maintained by the Compliance Officer. 8 E. SHORT SALES No Access Person may sell any security short which is owned by any Fund in the Complex. Access Persons may, however make short sales when he/she owns an equivalent amount of the same security. F. OPTIONS No Access Person may write a naked call option or buy a naked put option on a security owned by any Fund in the Complex. Access Persons may purchase options on securities not held by any Fund in the Complex, or purchase call options or write put options on securities owned by any Fund in the Complex, subject to preclearance and the same restrictions applicable to other Securities. Access Persons may write covered call options or buy covered put options on a Security owned by any Fund in the Complex at the discretion of the Compliance Officer. G. INVESTMENT CLUBS No Access Person may participate in an investment club. 5. EXEMPTED TRANSACTIONS Subject to preclearance in accordance with Section 6 below with respect to subitems (b), (e), (f), (g) and (i) hereof, the prohibitions of Sections 4(C) and 4(D) will not apply to the following: (a) Purchases or sales of Securities effected in any account over which the Access Person has no direct or indirect influence or control or in any account of the Access Person which is managed on a discretionary basis by a person other than such Access Person and with respect to which such Access Person does not in fact influence or control such transactions. (b) Purchases or sales of Securities (or their equivalents) which are not eligible for purchase or sale by any fund in the Complex. 9 (c) Purchases or sales of Securities which are non-volitional on the part of either the Access Person or any fund in the Complex. (d) Purchases of Securities which are part of an automatic dividend reinvestment plan. (e) Purchases effected upon the exercise of rights issued by an issuer PRO RATA to all holders of a class of its Securities, to the extent such rights were acquired from such issuer, and sales of such rights so acquired. (f) Any equity Securities transaction, or series of related transactions effected over a 30 calendar day period, involving 500 shares or less in the aggregate, if (i) the Access Person has no prior knowledge of activity in such security by any fund in the Complex and (ii) the issuer is listed on The New York Stock Exchange or has a market capitalization (outstanding shares multiplied by the current price per share) greater than $1 billion (or a corresponding market capitalization in foreign markets). (g) Any fixed-income Securities transaction, or series of related transactions effected over a 30 calendar day period, involving 100 units ($100,000 principal amount) or less in the aggregate, if the Access Person has no prior knowledge of transactions in such Securities by any fund in the Complex. (h) Any transaction in index options effected on a broad-based index.(2) (i) Purchases or sales of Securities which receive the prior approval of the Compliance Officer (such person having no personal interest in such purchases or sales), based on a determination that no abuse is involved and that such purchases and sales are not likely to have any economic impact on any fund in the Complex or on its ability to purchase or sell Securities of the same class or other Securities of the same issuer. (j) Purchases or sales of Unit Investment Trusts. 6. PRECLEARANCE - -------------------------------------------------------------------------------- (2) A list of such indices will be maintained by the Compliance Officer. 10 Access Persons (other than Disinterested Directors) must preclear all personal Securities investments with the exception of those identified in subparts (a), (c), (d), (h) and (j) of Section 5 above. All requests for preclearance must be submitted to the Compliance Officer for approval. All approved orders must be executed by the close of business on the day in which preclearance is granted; provided, however that approved orders for Securities traded in foreign markets may be executed within two (2) business days from the date preclearance is granted. If any order is not timely executed, a request for preclearance must be resubmitted. 7. REPORTING (a) Disinterested Directors shall report to the Secretary of the Fund or the Compliance Officer the information described in Section 7(b) hereof with respect to transactions in any Security in which such Disinterested Director/Trustee has, or by reason of such transaction acquires, any direct or indirect Beneficial Ownership in the Security ONLY if such Disinterested Director/Trustee, at the time of that transaction knew or, in the ordinary course of fulfilling his or her official duties as a Director/Trustee of the Fund, should have known that, during the 15-day period immediately preceding or subsequent to the date of the transaction in a Security by such Director/Trustee, such Security is or was purchased or sold by the Fund or was being considered for purchase or sale by the Fund, the Manager or Adviser/Subadviser; provided, however, that a Disinterested Director/Trustee is not required to make a report with respect to transactions effected in any account over which such Director/Trustee does not have any direct or indirect influence or control or in any account of the Disinterested 11 Director/Trustee which is managed on a discretionary basis by a person other than such Director/Trustee and with respect to which such Director/Trustee does not in fact influence or control such transactions. The Secretary of the Fund or the Compliance Officer shall maintain such reports and such other records to the extent required by Rule 17j-1 under the Act. (b) Every report required by Section 7(a) hereof shall be made not later than ten days after the end of the calendar quarter in which the transaction to which the report relates was effected, and shall contain the following information: (i) The date of the transaction, the title and the number of shares, and the principal amount of each Security involved; (ii) The nature of the transaction (I.E., purchase, sale or any other type of acquisition or disposition); (iii) The price at which the transaction was effected; (iv) The name of the broker, dealer or bank with or through whom the transaction was effected; and (v) The date that the report is submitted. (c) Any such report may contain a statement that the report shall not be construed as an admission by the person making such report that he or she has any direct or indirect Beneficial Ownership in the Security to which the report relates. 8. RECORDS OF SECURITIES TRANSACTIONS AND POST-TRADE REVIEW Access Persons (other than Disinterested Directors) are required to direct their brokers to supply, on a timely basis, duplicate copies of confirmations of all personal Securities transactions and copies of periodic statements for all Securities accounts in which such Access Persons have a Beneficial Ownership interest to the Compliance 12 Officer. Such instructions must be made upon becoming an Access Person and promptly as new accounts are established, but no later than ten days after the end of a calendar quarter, with respect to any account established by the Access Person in which any securities were held during the quarter for the direct or indirect beneficial interest of the Access Person. Notification must be made in writing and a copy of the notification must be submitted to Compliance. This notification will include the broker, dealer or bank with which the account was established and the date the account was established. Compliance with this Code requirement will be deemed to satisfy the reporting requirements imposed on Access Persons under Rule 17j-1(d), provided, however, that such confirmations and statements contain all the information required by Section 7. b. hereof and are furnished within the time period required by such section. The Compliance Officer will periodically review the personal investment activity of all Access Persons (including Disinterested Directors with respect to Securities transactions reported pursuant to Section 7 above) and holdings reports of all Access Persons. 9. DISCLOSURE OF PERSONAL HOLDINGS Within ten days after an individual first becomes an Access Person and thereafter on an annual basis, each Access Person (other than Disinterested Directors) must disclose all personal Securities holdings. Such disclosure must be made in writing and be as of the date the individual first became an Access Person with respect to the initial report and by January 30 of each year, including holdings information as of 13 December 31, with respect to the annual report. All such reports shall include the following: title, number of shares and principal amount of each security held, name of broker, dealer or bank with whom these securities are held and the date of submission by the Access Person. 10. GIFTS Access Persons are prohibited from receiving any gift or other thing which would be considered excessive in value from any person or entity that does business with or on behalf of the Fund. Occasional business meals or entertainment (theatrical or sporting events, etc.) are permitted so long as they are not excessive in number or cost. 11. SERVICE AS A DIRECTOR Investment Personnel are prohibited from serving on the boards of directors of publicly traded companies, absent prior authorization based upon a determination that the board service would be consistent with the interests of the Fund and its shareholders. In the limited instances that such board service is authorized, Investment Personnel will be isolated from those making investment decisions affecting transactions in Securities issued by any publicly traded company on whose board such Investment Personnel serves as a director through the use of "Chinese Wall" or other procedures designed to address the potential conflicts of interest. 12. CERTIFICATION OF COMPLIANCE WITH THE CODE Access Persons are required to certify annually as follows: (i) that they have read and understood the Code; 14 (ii) that they recognize that they are subject to the Code; (iii) that they have complied with the requirements of the Code; and (iv) that they have disclosed or reported all personal Securities transactions required to be disclosed or reported pursuant to the requirements of the Code. 13. CODE VIOLATIONS AND SANCTIONS All violations of the Code will be reviewed by the Committee. The Committee will determine any sanctions or other disciplinary actions that may be deemed appropriate. All violations and corresponding sanctions and/or disciplinary action will be reported to the Board of Directors of the Fund on a quarterly basis. The Board of Directors may take action as it deems appropriate, in addition to any action previously taken by the Committee. 14. REVIEW BY THE BOARD OF DIRECTORS The Board of Directors will be provided with an annual report which at a minimum: (i) certifies to the Board that the Fund, Manager, Investment Adviser/Subadviser, and Principal Underwriter has adopted procedures reasonably necessary to prevent its Access persons from violating its Code. (ii) summarizes existing procedures concerning personal investing and any changes in the procedures made during the preceding year; (iii) identifies material Code or procedural violations and sanctions imposed in response to those material violations; and 15 (iv) identifies any recommended changes in existing restrictions or procedures based upon the Fund's experience under the Code, evolving industry practices, or developments in applicable laws and regulations. The Board will review such report and determine if any further action is required. 16 EXPLANATORY NOTES TO CODE 1. No comparable Code requirements have been imposed upon Prudential Mutual Fund Services LLC, the Fund's transfer agent, or those of its directors or officers who are not Directors or Officers of the Fund since they are deemed not to constitute Access Persons or Advisory Persons as defined in paragraphs (e)(1) and (2) of Rule 17j-1. Dated: February 29, 2000 17 EXHIBIT A DEFINITION OF BENEFICIAL OWNERSHIP The term "beneficial ownership" of securities would include not only ownership of securities held by an access person for his or her own benefit, whether in bearer form or registered in his or her own name or otherwise, but also ownership of securities held for his or her benefit by other (regardless of whether or how they are registered) such as custodians, brokers, executors, administrators, or trustees (including trusts in which he or she has only a remainder interest), and securities held for his or her account by pledges, securities owned by a partnership in which he or she should regard as a personal holding corporation. Correspondingly, this term would exclude securities held by an access person for the benefit of someone else. Ordinarily, this term would not include securities held by executors or administrators in estates in which an access person is a legatee or beneficiary unless there is a specific legacy to such person of such securities or such person is the sole legatee or beneficiary and there are other assets in the estate sufficient to pay debts ranking ahead of such legacy, or the securities are held in the estate more than a year after the decedent's death. Securities held in the name of another should be considered as "beneficially" owned by an access person where such person enjoys "benefits substantially equivalent to ownership". The SEC has said that although the final determination of beneficial ownership is a question to be determined in the light of the facts of the particular case, generally a person is regarded as the beneficial owner of securities held in the name of his or her spouse and their minor children. Absent special circumstances such relationship ordinarily results in such person obtaining benefits substantially equivalent to ownership, e.g., application of the income derived from such securities to maintain a common home, to meet expenses which such person otherwise would meet from other sources, or the ability to exercise a controlling influence over the purchase, sale or voting of such securities. An access person also may be regarded as the beneficial owner of securities held in the name of another person, if by reason of any contact, understanding, relationship, agreement or other arrangement, he obtains therefrom benefits substantially equivalent to those of ownership. Moreover, the fact that the holder is a relative or relative of a spouse and sharing the same home as an access person may in itself indicate that the access person would obtain benefits substantially equivalent to those of ownership from securities held in the name of such relative. Thus, absent countervailing facts, it is expected that securities held by relatives who share the same home as an access person will be treated as being beneficially owned by the access person. An access person also is regarded as the beneficial owner of securities held in the name of a spouse, minor children or other person, even though he does not obtain therefrom the aforementioned benefits of ownership, if he can vest or revest title in himself at once or at some future time. EX-99.P(II) 7 0007.txt CODE OF ETHICS Exhibit (p)(ii) PRUDENTIAL INVESTMENT CORPORATION PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC CODE OF ETHICS ADOPTED PURSUANT TO RULE 17J-1 UNDER THE INVESTMENT COMPANY ACT OF 1940 (THE CODE) 1. PURPOSES The Code has been adopted by the Board of Directors/Trustees or the Duly Appointed Officer-In-Charge of the Prudential Mutual Fund (hereinafter, referred to as the "Fund"), the Manager, the Adviser/Subadviser, and the Principal Underwriter in accordance with Rule 17j-1(c) under the Investment Company Act of 1940 (the Act) and in accordance with the following general principles: (1) THE DUTY AT ALL TIMES TO PLACE THE INTERESTS OF SHAREHOLDERS FIRST. Investment company personnel should scrupulously avoid serving their own personal interests ahead of shareholders' interests in any decision relating to their personal investments. (2) THE REQUIREMENT THAT ALL PERSONAL SECURITIES TRANSACTIONS BE CONDUCTED CONSISTENT WITH THE CODE AND IN SUCH A MANNER AS TO AVOID ANY ACTUAL OR POTENTIAL CONFLICT OF INTEREST OR ANY ABUSE OF AN INDIVIDUAL'S POSITION OF TRUST AND RESPONSIBILITY. Investment company personnel must not only seek to achieve technical compliance with the Code but should strive to abide by its spirit and the principles articulated herein. (3) THE FUNDAMENTAL STANDARD THAT INVESTMENT COMPANY PERSONNEL SHOULD NOT TAKE INAPPROPRIATE ADVANTAGE OF THEIR POSITIONS. Investment company personnel must avoid any situation that might compromise, or call into question, their exercise of fully independent judgment in the interest of shareholders, including, but not limited to the receipt of unusual investment opportunities, perquisites, or gifts of more than a DE MINIMIS value from persons doing or seeking business with the Fund. Rule 17j-1 under the Act generally proscribes fraudulent or manipulative practices with respect to a purchase or sale of a security held or to be acquired (as such term is defined in Section 2) by an investment company, if effected by an associated person of such company. The purpose of the Code is to establish procedures consistent with the Act and Rule 17j-1 to give effect to the following general prohibitions as set forth in Rule 17j-1(b) as follows: (a) It shall be unlawful for any affiliated person of or Principal Underwriter for a registered investment company, or any affiliated person of an investment adviser of or principal underwriter for a registered investment company in connection with the purchase or sale, directly or indirectly, by such person of a security held or to be acquired, by such registered investment company: (1) To employ any device, scheme or artifice to defraud such registered investment company; (2) To make to such registered investment company any untrue statement of a material fact or omit to state to such registered investment company a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading; (3) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any such registered investment company; or 2 (4) To engage in any manipulative practice with respect to such registered investment company. 2. DEFINITIONS (a) "Access Person" means any director/trustee, officer, general partner or Advisory Person (including any Investment Personnel, as that term is defined herein) of the Fund, the Manager, the Adviser/Subadviser, or the Principal Underwriter. (b) "Adviser/Subadviser" means the Adviser or Subadviser of the Fund or both as the context may require. (c) "Advisory Person" means (i) any employee of the Fund, Manager or Adviser/Subadviser (or of any company in a control relationship to the Fund, Manager or Adviser/Subadviser) who, in connection with his or her regular functions or duties, makes, participates in, or obtains current or pending information regarding the purchase or sale of a security by the Fund, or whose functions relate to the making of any recommendations with respect to such purchases or sales; and (ii) any natural person in a control relationship to the Fund who obtains information concerning recommendations made to the Fund with regard to the purchase or sale of a security. (d) "Beneficial Ownership" will be interpreted in the same manner as it would be under Securities Exchange Act Rule 16a-1(a)(2) in determining which security holdings of a person are subject to the reporting and short-swing profit provisions of Section 16 of the Securities Exchange Act of 1934 and the rules and regulations thereunder, except that the determination of direct or indirect beneficial ownership will apply to all securities which an Access Person has or acquires (EXHIBIT A). (e) "Complex" means the group of registered investment companies for which Prudential Investments Fund Management LLC serves as Manager; provided, however, that with respect to Access Persons of the Subadviser (including any unit or subdivision thereof), "Complex" means the group of registered investment companies in the Complex advised by the Subadviser or unit or subdivision thereof. A list of such registered investment companies will be maintained by the Compliance Officer. (f) "Compliance Officer" means the person designated by the Manager, the Adviser/Subadviser, or Principal Underwriter (including his or her designee) as having responsibility for compliance with the 3 requirements of the Code. (g) "Control" will have the same meaning as that set forth in Section 2(a)(9) of the Act. (h) "Disinterested Director/Trustee" means a Director/ Trustee of the Fund who is not an "interested person" of the Fund within the meaning of Section 2(a)(19) of the Act. An interested Director/Trustee who would not otherwise be deemed to be an Access Person, shall be treated as a Disinterested Director/Trustee for purposes of compliance with the provisions of the Code. (i) "Initial Public Offering" means an offering of securities registered under the Securities Act of 1933, the issuer of which, immediately before the registration, was not subject to the reporting requirements of sections 13 or 15(d) of the Securities Exchange Act of 1934. (j) "Investment Personnel" means: (a) Portfolio Managers and other Advisory Persons who provide investment information and/or advice to the Portfolio Manager(s) and/or help execute the Portfolio Manager's(s') investment decisions, including securities analysts and traders; (b) any natural person in a control relationship to the Fund who obtains information concerning recommendations made to the Fund with regard to the purchase or sale of a security; and (c) certain other individuals as designated by the Compliance Officer. (k) "Manager" means Prudential Investments Fund Management, LLC. (l) "Mutual Fund Code of Ethics and Personal Securities Trading Committee" or "Committee" means Business Unit, Compliance, and Human Resources executives responsible for interpreting and administering the Code, including but not limited to, reviewing violations of the Code and determining any sanctions or other disciplinary actions that may be deemed appropriate. In addition, the Committee may waive and or modify violations and sanctions or other disciplinary actions at its discretion when deemed appropriate by the Committee. The Committee will review such violations in consultation with legal counsel. A list of such Committee members shall be maintained by the Compliance Officer. 4 (m) "Portfolio Manager" means any Advisory Person who has the direct responsibility and authority to make investment decisions for the Fund. (n) "Private placement" means a limited offering that is exempt from registration under the Securities Act of 1933 pursuant to section 4(2) or section 4(6) or pursuant to rule 504, rule 505 or rule 506 under such Securities Act. (o) "Profits" means any total or partial Profit realized from a securities transaction or group of transactions as defined by the Mutual Fund Code of Ethics and Personal Securities Trading Committee ("Committee"). (p) "Security" will have the meaning set forth in Section 2(a)(36) of the Act, except that it will not include shares of registered open-end investment companies, direct obligations of the Government of the United States, short-term debt securities which are "government securities" within the meaning of Section 2(a)(16) of the Act, bankers' acceptances, bank certificates of deposit, commercial paper and such other money market instruments as are designated by the Compliance Officer. For purposes of the Code, an "equivalent Security" is one that has a substantial economic relationship to another Security. This would include, among other things, (1) a Security that is exchangeable for or convertible into another Security, (2) with respect to an equity Security, a Security having the same issuer (including a private issue by the same issuer) and any derivative, option or warrant relating to that Security and (3) with respect to a fixed-income Security, a Security having the same issuer, maturity, coupon and rating. (q) "Security held or to be acquired" means any Security or any equivalent Security which, within the most recent 15 days: (1) is or has been held by the Fund; or (2) is being considered by the Fund or its investment adviser for purchase by the Fund. 3. APPLICABILITY The Code applies to all Access Persons and the Compliance Officer shall provide each Access Person with a copy of the Code. The prohibitions described below will only apply to a transaction in a Security in which the designated Access Person has, or by reason of such transaction acquires, any direct or indirect Beneficial 5 Ownership. The Compliance Officer will maintain a list of all Access Persons who are currently, and within the past five years, subject to the Code. 4. PROHIBITED PURCHASES AND SALES A. INITIAL PUBLIC OFFERINGS No Investment Personnel may acquire any Securities in an initial public offering. For purposes of this restriction, "Initial Public Offerings" shall not include offerings of government and municipal securities. B. PRIVATE PLACEMENTS No Investment Personnel may acquire any Securities in a private placement without prior approval. (i) Prior approval must be obtained in accordance with the preclearance procedure described in Section 6 below. Such approval will take into account, among other factors, whether the investment opportunity should be reserved for the Fund and its shareholders and whether the opportunity is being offered to the Investment Personnel by virtue of his or her position with the Fund. The Adviser/Subadviser shall maintain a record of such prior approval and reason for same, for at least 5 years after the end of the fiscal year in which the approval is granted. (ii) Investment Personnel who have been authorized to acquire Securities in a private placement must disclose that investment to the chief investment officer (including his or her designee) of the Adviser/Subadviser (or of any unit or subdivision thereof) or the Compliance Officer when they play a part in any subsequent 6 consideration of an investment by the Fund in the issuer. In such circumstances, the Fund's decision to purchase Securities of the issuer will be subject to an independent review by appropriate personnel with no personal interest in the issuer. C. BLACKOUT PERIODS (i) Except as provided in Section 5 below, Access Persons are prohibited from executing a Securities transaction on a day during which any investment company in the Complex has a pending "buy" or "sell" order in the same or an equivalent Security and until such time as that order is executed or withdrawn; provided, however, that this prohibition shall not apply to Disinterested Directors/Trustees except if they have actual knowledge of trading by any fund in the Complex and, in any event, only with respect to those funds on whose boards they sit. This prohibition shall also not apply to Access Persons of the Subadviser who do not, in the ordinary course of fulfilling his or her official duties, have access to current or pending information regarding the purchase and sale of Securities for the Fund and are not engaged in the day-to-day trading operations of the Fund; provided that Securities investments effected by such Access Persons during the proscribed period are not effected with knowledge of the purchase or sale of the same or equivalent Securities by any fund in the Complex. 7 A "pending 'buy' or 'sell' order" exists when a decision to purchase or sell a Security has been made and communicated. However, this prohibition shall not apply to a "pending `buy `or `sell' order" in the same or an equivalent security in a broad based index fund.(1) (ii) Portfolio Managers are prohibited from buying or selling a Security within seven calendar days before or after a Fund in the same Complex trades in the same or an equivalent Security. Nevertheless, a personal trade by any Investment Personnel shall not prevent a Fund in the same Complex from trading in the same or an equivalent security. However, such a transaction shall be subject to independent review by the Compliance Officer. This prohibition shall not apply to purchases and sales executed in a broad based index fund. (iii) If trades are effected during the periods proscribed in (i) or (ii) above, except as provided in (iv) below with respect to (i) above, Profits realized on such trades will be promptly required to be disgorged to the Fund or a charitable organization approved by the Committee. (iv) A transaction by Access Persons (other than Investment Personnel) inadvertently effected during the period proscribed in (i) above will not be considered a violation of the Code and disgorgement will not be required so long as the transaction was effected in accordance with the preclearance procedures described in Section 6 below and without prior knowledge of trading by any fund in the Complex in the same or an equivalent Security. - --------------------- (1) A list of such Funds shall be maintained by the Compliance Officer. 8 D. SHORT-TERM TRADING PROFITS Except as provided in Section 5 below, Investment Personnel are prohibited from profiting from a purchase and sale, or sale and purchase, of the same or an equivalent Security within any 60 calendar day period. If trades are effected during the proscribed period, Profits realized on such trades will be promptly required to be disgorged to the Fund or a charitable organization approved by the Committee. E. SHORT SALES No Access Person may sell any security short which is owned by any Fund in the Complex. Access Persons may, however make short sales when he/she owns an equivalent amount of the same security. F. OPTIONS No Access Person may write a naked call option or buy a naked put option on a security owned by any Fund in the Complex. Access Persons may purchase options on securities not held by any Fund in the Complex, or purchase call options or write put options on securities owned by any Fund in the Complex, subject to preclearance and the same restrictions applicable to other Securities. Access Persons may write covered call options or buy covered put options on a Security owned by any Fund in the Complex at the discretion of the Compliance Officer. G. INVESTMENT CLUBS No Access Person may participate in an investment club. 5. EXEMPTED TRANSACTIONS Subject to preclearance in accordance with Section 6 below with respect to subitems (b), (e), (f), (g) and (i) hereof, the prohibitions of Sections 4(C) and 4(D) will 9 not apply to the following: (a) Purchases or sales of Securities effected in any account over which the Access Person has no direct or indirect influence or control or in any account of the Access Person which is managed on a discretionary basis by a person other than such Access Person and with respect to which such Access Person does not in fact influence or control such transactions. (b) Purchases or sales of Securities (or their equivalents) which are not eligible for purchase or sale by any fund in the Complex. (c) Purchases or sales of Securities which are non-volitional on the part of either the Access Person or any fund in the Complex. (d) Purchases of Securities which are part of an automatic dividend reinvestment plan. (e) Purchases effected upon the exercise of rights issued by an issuer PRO RATA to all holders of a class of its Securities, to the extent such rights were acquired from such issuer, and sales of such rights so acquired. (f) Any equity Securities transaction, or series of related transactions effected over a 30 calendar day period, involving 500 shares or less in the aggregate, if (i) the Access Person has no prior knowledge of activity in such security by any fund in the Complex and (ii) the issuer is listed on The New York Stock Exchange or has a market capitalization (outstanding shares multiplied by the current price per share) greater than $1 billion (or a corresponding market capitalization in foreign markets). (g) Any fixed-income Securities transaction, or series of related transactions effected over a 30 calendar day period, involving 100 units ($100,000 principal amount) or less in the aggregate, if the Access Person has no prior knowledge of transactions in such Securities by any fund in the Complex. (h) Any transaction in index options effected on a broad-based index.(2) (i) Purchases or sales of Securities which receive the prior approval of the Compliance Officer (such person having no personal - ---------------------- (2) A list of such indices will be maintained by the Compliance Officer. 10 interest in such purchases or sales), based on a determination that no abuse is involved and that such purchases and sales are not likely to have any economic impact on any fund in the Complex or on its ability to purchase or sell Securities of the same class or other Securities of the same issuer. (j) Purchases or sales of Unit Investment Trusts. 6. PRECLEARANCE Access Persons (other than Disinterested Directors/Trustees) must preclear all personal Securities investments with the exception of those identified in subparts (a), (c), (d), (h) and (j) of Section 5 above. All requests for preclearance must be submitted to the Compliance Officer for approval. All approved orders must be executed by the close of business on the day in which preclearance is granted; provided, however that approved orders for Securities traded in foreign markets may be executed within two (2) business days from the date preclearance is granted. If any order is not timely executed, a request for preclearance must be resubmitted. 7. REPORTING (a) Disinterested Directors/Trustees shall report to the Secretary of the Fund or the Compliance Officer the information described in Section 7(b) hereof with respect to transactions in any Security in which such Disinterested Director/Trustee has, or by reason of such transaction acquires, any direct or indirect Beneficial Ownership in the Security ONLY if such Disinterested Director/Trustee, at the time of that transaction knew or, in the ordinary course of fulfilling his or her official duties as a Director/Trustee of the Fund, should have known that, during the 15-day period immediately preceding or 11 subsequent to the date of the transaction in a Security by such Director/Trustee, such Security is or was purchased or sold by the Fund or was being considered for purchase or sale by the Fund, the Manager or Adviser/Subadviser; provided, however, that a Disinterested Director/Trustee is not required to make a report with respect to transactions effected in any account over which such Director/Trustee does not have any direct or indirect influence or control or in any account of the Disinterested Director/Trustee which is managed on a discretionary basis by a person other than such Director/Trustee and with respect to which such Director/Trustee does not in fact influence or control such transactions. The Secretary of the Fund or the Compliance Officer shall maintain such reports and such other records to the extent required by Rule 17j-1 under the Act. (b) Every report required by Section 7(a) hereof shall be made not later than ten days after the end of the calendar quarter in which the transaction to which the report relates was effected, and shall contain the following information: (i) The date of the transaction, the title and the number of shares, and the principal amount of each Security involved; (ii) The nature of the transaction (I.E., purchase, sale or any other type of acquisition or disposition); (iii) The price at which the transaction was effected; (iv) The name of the broker, dealer or bank with or through whom the transaction was effected; and (v) The date that the report is submitted. (c) Any such report may contain a statement that the report shall not be construed as an admission by the person making such report that he or she has any 12 direct or indirect Beneficial Ownership in the Security to which the report relates. 8. RECORDS OF SECURITIES TRANSACTIONS AND POST-TRADE REVIEW Access Persons (other than Disinterested Directors/Trustees) are required to direct their brokers to supply, on a timely basis, duplicate copies of confirmations of all personal Securities transactions and copies of periodic statements for all Securities accounts in which such Access Persons have a Beneficial Ownership interest to the Compliance Officer. Such instructions must be made upon becoming an Access Person and promptly as new accounts are established, but no later than ten days after the end of a calendar quarter, with respect to any account established by the Access Person in which any securities were held during the quarter for the direct or indirect beneficial interest of the Access Person. Notification must be made in writing and a copy of the notification must be submitted to Compliance. This notification will include the broker, dealer or bank with which the account was established and the date the account was established. Compliance with this Code requirement will be deemed to satisfy the reporting requirements imposed on Access Persons under Rule 17j-1(d), provided, however, that such confirmations and statements contain all the information required by Section 7. b. hereof and are furnished within the time period required by such section. The Compliance Officer will periodically review the personal investment activity of all Access Persons (including Disinterested Directors/Trustees with respect to Securities transactions reported pursuant to Section 7 above) and holdings reports of all Access Persons. 13 9. DISCLOSURE OF PERSONAL HOLDINGS Within ten days after an individual first becomes an Access Person and thereafter on an annual basis, each Access Person (other than Disinterested Directors/Trustees) must disclose all personal Securities holdings. Such disclosure must be made in writing and be as of the date the individual first became an Access Person with respect to the initial report and by January 30 of each year, including holdings information as of December 31, with respect to the annual report. All such reports shall include the following: title, number of shares and principal amount of each security held, name of broker, dealer or bank with whom these securities are held and the date of submission by the Access Person. 10. GIFTS Access Persons are prohibited from receiving any gift or other thing which would be considered excessive in value from any person or entity that does business with or on behalf of the Fund. Occasional business meals or entertainment (theatrical or sporting events, etc.) are permitted so long as they are not excessive in number or cost. 11. SERVICE AS A DIRECTOR Investment Personnel are prohibited from serving on the boards of directors of publicly traded companies, absent prior authorization based upon a determination that the board service would be consistent with the interests of the Fund and its shareholders. In the limited instances that such board service is authorized, Investment Personnel will be isolated from those making investment decisions affecting transactions in Securities issued by any publicly traded company on whose board such 14 Investment Personnel serves as a director through the use of "Chinese Wall" or other procedures designed to address the potential conflicts of interest. 12. CERTIFICATION OF COMPLIANCE WITH THE CODE Access Persons are required to certify annually as follows: (i) that they have read and understood the Code; (ii) that they recognize that they are subject to the Code; (iii) that they have complied with the requirements of the Code; and (iv) that they have disclosed or reported all personal Securities transactions required to be disclosed or reported pursuant to the requirements of the Code. 13. CODE VIOLATIONS AND SANCTIONS All violations of the Code will be reviewed by the Committee. The Committee will determine any sanctions or other disciplinary actions that may be deemed appropriate. All violations and corresponding sanctions and/or disciplinary action will be reported to the Board of Directors/Trustees of the Fund on a quarterly basis. The Board of Directors/Trustees may take action as it deems appropriate, in addition to any action previously taken by the Committee. 14. REVIEW BY THE BOARD OF DIRECTORS/TRUSTEES The Board of Directors/Trustees will be provided with an annual report which at a minimum: (i) certifies to the Board that the Fund, Manager, Investment Adviser/Subadviser, and Principal Underwriter has adopted procedures reasonably necessary to prevent its 15 Access persons from violating its Code. (ii) summarizes existing procedures concerning personal investing and any changes in the procedures made during the preceding year; (iii) identifies material Code or procedural violations and sanctions imposed in response to those material violations; and (iv) identifies any recommended changes in existing restrictions or procedures based upon the Fund's experience under the Code, evolving industry practices, or developments in applicable laws and regulations. The Board will review such report and determine if any further action is required. 16 EXPLANATORY NOTES TO CODE 1. No comparable Code requirements have been imposed upon Prudential Mutual Fund Services LLC, the Fund's transfer agent, or those of its directors or officers who are not Directors/Trustees or Officers of the Fund since they are deemed not to constitute Access Persons or Advisory Persons as defined in paragraphs (e)(1) and (2) of Rule 17j-1. Dated: February 29, 2000 17 EXHIBIT A DEFINITION OF BENEFICIAL OWNERSHIP The term "beneficial ownership" of securities would include not only ownership of securities held by an access person for his or her own benefit, whether in bearer form or registered in his or her own name or otherwise, but also ownership of securities held for his or her benefit by other (regardless of whether or how they are registered) such as custodians, brokers, executors, administrators, or trustees (including trusts in which he or she has only a remainder interest), and securities held for his or her account by pledges, securities owned by a partnership in which he or she should regard as a personal holding corporation. Correspondingly, this term would exclude securities held by an access person for the benefit of someone else. Ordinarily, this term would not include securities held by executors or administrators in estates in which an access person is a legatee or beneficiary unless there is a specific legacy to such person of such securities or such person is the sole legatee or beneficiary and there are other assets in the estate sufficient to pay debts ranking ahead of such legacy, or the securities are held in the estate more than a year after the decedent's death. Securities held in the name of another should be considered as "beneficially" owned by an access person where such person enjoys "benefits substantially equivalent to ownership". The SEC has said that although the final determination of beneficial ownership is a question to be determined in the light of the facts of the particular case, generally a person is regarded as the beneficial owner of securities held in the name of his or her spouse and their minor children. Absent special circumstances such relationship ordinarily results in such person obtaining benefits substantially equivalent to ownership, e.g., application of the income derived from such securities to maintain a common home, to meet expenses which such person otherwise would meet from other sources, or the ability to exercise a controlling influence over the purchase, sale or voting of such securities. An access person also may be regarded as the beneficial owner of securities held in the name of another person, if by reason of any contact, understanding, relationship, agreement or other arrangement, he obtains therefrom benefits substantially equivalent to those of ownership. Moreover, the fact that the holder is a relative or relative of a spouse and sharing the same home as an access person may in itself indicate that the access person would obtain benefits substantially equivalent to those of ownership from securities held in the name of such relative. Thus, absent countervailing facts, it is expected that securities held by relatives who share the same home as an access person will be treated as being beneficially owned by the access person. An access person also is regarded as the beneficial owner of securities held in the name of a spouse, minor children or other person, even though he does not obtain therefrom the aforementioned benefits of ownership, if he can vest or revest title in himself at once or at some future time. -----END PRIVACY-ENHANCED MESSAGE-----