-----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, LBofZsiEVm+skfw8QzM+5eMlS1UyCKEyAYmF5sEdnnMEu8DedXPSawZeJaJFv2gD 9a3ADt1rCFY1blMoA1/SAw== 0001047469-04-009745.txt : 20040329 0001047469-04-009745.hdr.sgml : 20040329 20040329144850 ACCESSION NUMBER: 0001047469-04-009745 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20040329 EFFECTIVENESS DATE: 20040329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRUDENTIAL TAX FREE MONEY FUND INC CENTRAL INDEX KEY: 0000311561 IRS NUMBER: 132993505 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-64625 FILM NUMBER: 04695742 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 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRUDENTIAL TAX FREE MONEY FUND INC CENTRAL INDEX KEY: 0000311561 IRS NUMBER: 132993505 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-02927 FILM NUMBER: 04695743 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 a2130308z485bpos.txt 485BPOS AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 29, 2004 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 / / PRE-EFFECTIVE AMENDMENT NO. / / POST-EFFECTIVE AMENDMENT NO. 29 /X/ AND/OR REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / / AMENDMENT NO. 30 /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 (Address of Principal Executive Offices) (Zip Code) ---------- REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (973) 802-6469 JONATHAN D. SHAIN, ESQ. GATEWAY CENTER THREE, 100 MULBERRY STREET NEWARK, NEW JERSEY 07102-4077 (Name and Address of Agent for Service) ---------- 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. ---------- ================================================================================ DRYDEN TAX-FREE MONEY FUND FORMERLY KNOWN AS PRUDENTIAL TAX-FREE MONEY FUND, INC. MARCH 29, 2004 PROSPECTUS [GRAPHIC] FUND TYPE MONEY MARKET OBJECTIVE THE HIGHEST LEVEL OF CURRENT INCOME THAT IS EXEMPT FROM FEDERAL INCOME TAXES, CONSISTENT WITH LIQUIDITY AND THE PRESERVATION OF CAPITAL. 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 IS COMPLETE OR ACCURATE. IT IS A CRIMINAL OFFENSE TO STATE OTHERWISE. [JENNISONDRYDEN MUTUALFUNDS LOGO] TABLE OF CONTENTS 1 RISK/RETURN SUMMARY 1 Investment Objective and Principal Strategies 2 Principal Risks 3 Evaluating Performance 4 Fees and Expenses 5 HOW THE FUND INVESTS 5 Investment Objective and Policies 7 Other Investments and Strategies 8 Investment Risks 10 HOW THE FUND IS MANAGED 10 Board of Directors 10 Manager 10 Investment Adviser 11 Distributor 12 FUND DISTRIBUTIONS AND TAX ISSUES 12 Distributions 12 Tax Issues 14 HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND 14 How to Buy Shares 18 How to Sell Your Shares 19 How to Exchange Your Shares 20 Telephone Redemptions and Exchanges 21 Expedited Redemption Privilege 22 FINANCIAL HIGHLIGHTS FOR MORE INFORMATION (Back Cover)
RISK/RETURN SUMMARY This section highlights key information about DRYDEN TAX-FREE MONEY FUND which we refer to as "the Fund." The Fund began doing business as Dryden Tax-Free Money Fund effective June 30, 2003. Prior to that, the Fund was known as Prudential Tax-Free Money Fund, Inc. Additional information follows this summary. 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 INVESTABLE ASSETS (net assets plus any borrowings made for investment purposes) 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 investable 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. [SIDENOTE] 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. 1 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 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 (FDIC) or any other government agency. Although the Fund seeks to preserve the net asset value of an investment at $1 per share, it is possible to lose money by investing in the Fund. For more detailed information about the risks associated with the Fund, see "How the Fund Invests -- Investment Risks." 2 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 and by showing how the Fund's average annual returns compare with a group of similar funds. Past performance, before and after taxes, 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. [CHART] ANNUAL RETURNS(1) 1994 2.31% 1995 3.15% 1996 2.84% 1997 3.00% 1998 2.83% 1999 2.56% 2000 3.42% 2001 2.26% 2002 0.94% 2003 0.42%
BEST QUARTER: .91% (2nd quarter of 2000) WORST QUARTER: .07% (3rd quarter of 2003) AVERAGE ANNUAL RETURNS(1) (as of 12/31/03)
ONE YEAR FIVE YEARS TEN YEARS SINCE INCEPTION Fund Shares .42% 1.92% 2.38% 3.80% (since 8-2-79) - -------------------------------------------------------------------------------------------------------- iMoneyNet, Inc. Tax-Free National Retail Average(2) .47% 1.99% 2.49% N/A - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- 7-DAY YIELD(1) (as of 12/31/03) 7-Day Yield of the Fund .43% - -------------------------------------------------------------------------------------------------------- 7-Day Tax Equivalent Yield of the Fund(3) .66% - --------------------------------------------------------------------------------------------------------
(1) The Fund's returns and yield are after deduction of expenses. (2) This is the data for all funds in the iMoneyNet, Inc. Tax-Free National Retail Average (formerly called the iMoneyNet, Inc. Tax-Free Stock Broker & General Purpose Average) category as of December 29, 2003, the closest day to the end of our reporting period. (3) Tax-equivalent yield shows the taxable yield an investor would have to earn from a fully taxable investment in order to equal the Fund's yield after taxes. It is calculated by dividing the Fund's current yield by the result of one minus the maximum marginal federal income tax rate. 3 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(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A SHARES Maximum sales charge (load) imposed on purchases (as a percentage of offering price) None - -------------------------------------------------------------------------------- Maximum deferred sales charge (load) (as a percentage of the lower of original purchase price or sale proceeds) None - -------------------------------------------------------------------------------- Maximum sales charge (load) imposed on reinvested dividends and other distributions None - -------------------------------------------------------------------------------- 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 .219% - -------------------------------------------------------------------------------- = TOTAL ANNUAL FUND OPERATING EXPENSES .844% - --------------------------------------------------------------------------------
(1) Your broker may charge you a separate or additional fee for purchases of shares or an administration fee on fund balances, including income from fund distributions. 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:
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS Class A shares $ 86 $ 269 $ 468 $ 1,042 - --------------------------------------------------------------------------------------
4 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 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 may invest up to 20% of its investable assets in Municipal Bonds that may be a preference item for purposes of the federal alternative minimum tax. The Municipal Bonds that we purchase must be (1) rated in one of the two highest short-term rating categories by at least two nationally recognized statistical rating organizations (NRSROs) such as Moody's Investors Service, Inc. (rated at least MIG 2 or Prime-2) or Standard & Poor's Ratings Services (rated at least SP-2 or A-2) or by one NRSRO if only one NRSRO rates those Municipal Bonds, (2) rated in one of the three highest long-term rating categories by at least two NRSROs or by only one NRSRO if only one NRSRO rates those Municipal Bonds, or (3) 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 and maturity. 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 securities issued by the United States or an instrumentality of the United States and held in escrow for the benefit of holders of the Municipal Bonds. Municipal Bonds are usually pre-refunded when the issuer can refinance debt at a lower interest cost 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 the same as the U.S. Government securities that secure the obligation. 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 revenue bond. 5 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, generally they may be beneficial when interest rates are rising because of the additional return the Fund will receive, and they may be less attractive 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) in the form of municipal asset-backed securities or VRDOs in variable rate tax-exempt obligations. 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 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 at a specified time. There is a possibility, because of default or insolvency, that the demand features of certain VRDOs or municipal asset-backed VRDOs may not be honored. 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 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 securities. 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. 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, 6 only if their characteristics and features follow the rules governing money market mutual funds. 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. Such proposals, if adopted, may adversely affect our investments and strategies. Our investment objective is a fundamental policy that cannot be changed without shareholder approval. The Board of Directors (the Board) of the Fund can change investment policies that are not fundamental. For more information, see "Investment Risks" below and the Statement of Additional Information (SAI), "Description of the Fund, Its Investments and Risks." The SAI contains additional information about the Fund. To obtain a copy, see the back cover page of this prospectus. OTHER INVESTMENTS AND STRATEGIES While the Fund invests principally in the securities described above, it may invest in other securities or use other investment strategies to increase its 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 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. 7 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 may pledge up to 10% of its assets to secure such borrowings) 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 that they cannot be changed without shareholder approval. For more information about these restrictions, see the SAI, "Investment Restrictions". INVESTMENT RISKS As noted previously, 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 strategies the Fund may make. Unless otherwise noted, the Fund's ability to engage in a particular type of investment is expressed as a percentage of total assets. For more information, see "Description of the Fund, Its Investments and Risks" in the SAI. 8 INVESTMENT TYPE
% OF FUND'S ASSETS RISKS POTENTIAL REWARDS HIGH-QUALITY MONEY MARKET - Credit risk -- the risk that the default of - A source of regular interest income OBLIGATIONS OF MUNICIPAL an issuer would leave the Fund with unpaid ISSUERS interest or principal (lower credit risk - May be more secure than stock and other Up to 100% for insured and higher rated bonds) or, in equity securities because of identified the case of VRDOs and municipal sources from which to pay interest and asset-backed VRDOs, that the issuer of a principal put may not be able to meet its obligation to purchase the security. The lower a - Most bonds rise in value when interest bond's quality, the higher its volatility. rates fall - 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 than obligations - May be more secure than other obligations Up to 25% backed only by a municipality's taxing or of municipal issuers because of the escrow borrowing authority of U.S. Government obligations SHARES OF OTHER INVESTMENT - Could result in duplicate management or - May provide additional diversification COMPANIES advisory fees Up to 10% ILLIQUID SECURITIES - May be difficult to value precisely - May offer a more attractive yield or Up to 10% of net assets potential for growth than more widely - May be difficult to sell at the time or traded securities price desired
9 HOW THE FUND IS MANAGED BOARD OF DIRECTORS The Board oversees the actions of the Manager, Investment Adviser and Distributor and decides on general policies for the Fund. The Board also oversees the Fund's officers, who conduct and supervise the daily business operations of the Fund. MANAGER PRUDENTIAL INVESTMENTS LLC (PI) 100 MULBERRY STREET, GATEWAY CENTER THREE NEWARK, NJ 07102 Under a management agreement with the Fund, PI manages the Fund's investment operations, administers its business affairs and is responsible for supervising the Fund's investment adviser. For the fiscal year ended December 31, 2003, the Fund paid PI management fees of .50% of the Fund's average daily net assets. PI and its predecessors have served as manager or administrator to investment companies since 1987. As of December 31, 2003, PI, a wholly-owned subsidiary of Prudential Financial, Inc. (Prudential), served as the investment manager to all of the Prudential U.S. and offshore open-end investment companies, and as the administrator to closed-end investment companies, with aggregate assets of approximately $108.6 billion. INVESTMENT ADVISER Prudential Investment Management, Inc. (PIM) is the Fund's investment adviser and has served as an investment adviser to investment companies since 1984. Its address is 100 Mulberry Street, Gateway Center Three, Newark, NJ 07102. PI has responsibility for all investment advisory services, supervises PIM and pays PIM for its services. For the fiscal year ended December 31, 2003, PI paid PIM advisory fees of .25% of the Fund's average daily net assets. The PIM Fixed Income Group is organized into teams specializing in different sectors of the fixed income market: U.S. and non-U.S. government bonds and mortgages, U.S. and non-U.S. investment grade corporate bonds, high yield bonds, emerging markets bonds, municipal bonds, and money market securities. The Money Markets Team, headed by Joseph Tully, is primarily responsible for overseeing the day-to-day management of the Fund. The Team develops and coordinates the Fund's investment strategy. "Bottom-up" security selection is done by the Money Markets Sector Team. The Market Outlook is developed quarterly by the Chief Investment Officer and the Heads of each of the Sector Teams. The Market 10 Outlook assesses the likely ranges of economic and interest rate scenarios to provide a Prudential Fixed Income-wide view on the economy, interest rates, yield curve, and risk levels in each major bond market, both U.S. and globally. DISTRIBUTOR Prudential Investment Management Services LLC (PIMS or the Distributor) distributes the Fund's shares under a Distribution Agreement with the Fund. The Fund has a Distribution and Service Plan (the Plan) pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (the 1940 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. 11 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 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) to the extent of the Fund's tax-exempt interest income 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 investable 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 net 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. 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 annually, but instead, you will receive a Form 1099 when you take any distributions from your qualified or tax-deferred plan or account. 12 Fund distributions are generally taxable in the calendar 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 a portion (currently 28%) of your distributions and sales proceeds. Dividends of net investment income and net 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. 13 HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND HOW TO BUY SHARES In order to buy shares of the Fund, the following steps need to be taken: STEP 1: Open an Account; STEP 2: Understanding the Price You'll Pay; STEP 3: Additional Shareholder Services. 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 or Transfer Agent) at (800) 225-1852 or contact: PRUDENTIAL MUTUAL FUND SERVICES LLC ATTN: INVESTMENT SERVICES P.O. BOX 8179 PHILADELPHIA, PA 19101 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 THE PRUDENTIAL INVESTOR ACCOUNT PROGRAM The Prudential Investor Account Program is a financial services program available to clients of Pruco Securities, LLC (Pruco) and provides for an automatic investment procedure. The Investor 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, 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 14 your Pruco representative or the Client Service Center. The following discussion assumes that you have selected the Fund as your primary money sweep fund. With the Investor 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. Wachovia Securities, LLC (Wachovia 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. Wachovia 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, Wachovia 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 $1,000 or more, 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 Investor Account Program on the first business day after the order is placed. Wachovia Securities will purchase shares of the Fund at the price determined at 4:00 p.m. New York time, on the business day following the availability of the credit balance. Wachovia 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 Investor Account statement. The charges and expenses of the Investor Account Program are not reflected in the Fees and Expenses tables. For information about participating in the Investor 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 Investor Account Program), or - You participate in a money market sweep program, but the Fund is not designated as your primary money market sweep fund. 15 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 Wachovia Securities, Wachovia 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 Wachovia Securities. Wachovia Securities may use and retain the benefit of credit balances in a client's brokerage account until monies are delivered to the Fund (Wachovia 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 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. Unless trading on the New York Stock Exchange (NYSE) closes before 4:00 p.m. New York time, when your payment is received by 4:00 p.m. New York time, shares will be purchased that day and you will begin to earn dividends on the following business day. In the event that regular trading on NYSE closes before 4:00 p.m. New York time, shares will be purchased on the next day that the NYSE is open if your payment is received after the close of regular trading on the NYSE. 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. PAYMENTS TO THIRD PARTIES FOR ACCOUNT MAINTENANCE The Distributor or one of its affiliates may make ongoing payments, from its own resources, to brokers, financial advisers and other persons for providing recordkeeping or otherwise facilitating the maintenance of shareholder accounts. 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 16 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 the close of regular trading on the NYSE, usually at 4:00 p.m. New York time, on days that the NYSE is open for trading. Your purchase order or redemption request must be received by PMFS by the close of regular trading on the NYSE, usually 4:00 p.m. New York time, in order to receive the NAV for that day. In the event that regular trading on the NYSE closes before 4:00 p.m. New York time, you will receive the following day's NAV if your order to purchase or sell is received after the close of regular trading on the NYSE. The NYSE is closed on most national holidays and Good Friday. We do not determine NAV on days when we have not received any orders to purchase, sell, or exchange Fund shares or when changes in the value of the Fund's portfolio do not materially 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 net 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 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 and one annual prospectus per household, unless you instruct us or your broker otherwise. If each Fund shareholder in your household would like to receive a copy of the Fund's prospectus, shareholder report and proxy statement, please call us toll free at (800) 225-1852. We will begin sending additional copies of these documents within 30 days of receipt of your request. 17 HOW TO SELL YOUR SHARES You can sell your shares of the Fund for cash (in the form of a check, by wire or by electronic deposit to your bank account) at any time, subject to certain restrictions. For more information about these restrictions, see "Restrictions on Sales" below. 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 4:00 p.m. New York time, to process the sale on that day. In the event that regular trading on the NYSE closes before 4:00 p.m. New York time, you will receive the following day's NAV if your order to sell is received after the close of regular trading on the NYSE. If your broker does not hold your shares, contact: PRUDENTIAL MUTUAL FUND SERVICES LLC ATTENTION: REDEMPTION SERVICES P.O. BOX 8149 PHILADELPHIA, PA 19101 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. To the extent permitted by the Securities and Exchange Commission (the Commission), 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, Redemption and Pricing of Fund Shares -- Restrictions on Sales." If you are selling more than $100,000 of shares, you want the redemption proceeds 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 guaranteed by an "eligible guarantor 18 institution". An "eligible guarantor institution" includes any bank, broker-dealer, savings institution or credit union. For more information, see the SAI, "Purchase, Redemption and Pricing of Fund Shares." In addition, we may withhold wiring redemption proceeds if the Fund's investment adviser determines that the Fund could be adversely affected by making immediate payment, and we may take up to seven days to wire redemption proceeds. 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 INVESTOR ACCOUNT If you participate in the Investor 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 Investor Account may result from activity arising under the program. 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 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 Wachovia Securities, which has advanced monies to satisfy deficits in your account. Redemptions are automatically made by Wachovia 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 JennisonDryden or Strategic Partners mutual funds -- including certain money market funds -- if you satisfy the minimum investment requirements of such other JennisonDryden or Strategic Partners 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 JennisonDryden or Strategic Partners 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. 19 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 When you exchange shares of the Fund for Class A shares of any other JennisonDryden or Strategic Partners mutual fund, you will be subject to any sales charge that may be imposed by such other JennisonDryden or Strategic Partners 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 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 decision will be based upon dollar amount, volume and frequency of trading. The Fund will notify a market timer of rejection of an exchange or purchase order subsequent to the day the order is placed. There can be no assurance that the Fund's procedures will be effective in limiting the practice of market timing in all cases. TELEPHONE REDEMPTIONS AND EXCHANGES You may redeem your shares if the proceeds of the redemption do not exceed $100,000 or exchange your shares in any amount by calling the Fund at (800) 225-1852 before 4:00 p.m. New York time. You will receive a redemption or exchange amount based on that day's NAV. Certain restrictions apply; please see "How to Sell Your Shares -- Restrictions on Sales" above for additional information. In the event that regular trading on the NYSE closes before 4:00 p.m. New York time, you will receive the following day's NAV if your order to sell or exchange is received after the close of regular trading on the NYSE. 20 The Fund's Transfer Agent will record your telephone instructions and request specific account information before redeeming or exchanging shares. The Fund will not be liable for losses due to unauthorized or fraudulent telephone instructions 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 or through your broker. The telephone redemption and exchange procedures 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 and must be received by the Fund prior to 4:00 p.m. New York time, to receive a redemption amount based on that day's NAV. In the event that regular trading on the NYSE closes before 4:00 p.m. New York time, you will receive the following day's NAV if your order to sell is received after the close of regular trading on the NYSE. For more information, see "Purchase, Redemption and Pricing of Fund Shares -- Expedited Redemption Privilege" in the SAI. The Expedited Redemption Privilege may be modified or terminated at any time without notice. 21 FINANCIAL HIGHLIGHTS The financial highlights below are intended to help you evaluate the Fund's financial performance for the past 5 years. The TOTAL RETURN in the chart represents the rate that a shareholder would have earned on an investment in the Fund, assuming investment at the start of the period, reinvestment of all dividends and other distributions and sale at the end of the period. The information is for shares of the Fund for the periods indicated. A copy of the Fund's annual report, along with the Fund's audited financial statements and report of independent auditors, is available upon request, at no charge as described on the back cover of this prospectus. The financial highlights for the five fiscal years ended December 31, 2003 were part of the financial statements audited by PricewaterhouseCoopers LLP, independent auditors, whose report on those financial statements was unqualified. FUND SHARES (fiscal years ended 12-31)
PER SHARE OPERATING PERFORMANCE 2003 2002 2001 2000 1999 NET ASSET VALUE, BEGINNING OF YEAR $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Net investment income and net realized gains .004 .009 .023 .034 .025 Dividends and distributions to shareholders (.004) (.009) (.023) (.034) (.025) Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 TOTAL RETURN(a): .42% .94% 2.26% 3.42% 2.56% RATIOS/SUPPLEMENTAL DATA 2003 2002 2001 2000 1999 Net assets, end of year (000) $ 188,805 $ 176,480 $ 167,929 $ 166,526 $ 179,887 Average net assets (000) $ 207,138 $ 200,609 $ 182,953 $ 176,759 $ 202,718 Ratios to average net assets: Expenses, including distribution and service (12b-1) fees .84% .86% .87% .80% .81% Expenses, excluding distribution and service (12b-1) fees .72% .73% .74% .68% .69% Net investment income .39% .86% 2.18% 3.38% 2.51%
(a) Total return is calculated assuming a purchase of shares on the first day and a sale on the last day of each year reported and includes reinvestment of dividends and distributions. 22 NOTES 23 NOTES 24 NOTES 25 NOTES 26 NOTES 27 NOTES 28 NOTES 29 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: - - MAIL Prudential Mutual Fund Services LLC PO Box 8098 Philadelphia, PA 19101 - - TELEPHONE (800) 225-1852 (732) 482-7555 (from outside the U.S.) - - WEBSITE www.jennisondryden.com - - Outside Brokers should contact: Prudential Investment Management Services LLC PO Box 8310 Philadelphia, PA 19101 - - TELEPHONE (800) 778-8769 You can also obtain copies of Fund documents from the Securities and Exchange Commission as follows: - - MAIL Securities and Exchange Commission Public Reference Section Washington, DC 20549-0102 - - ELECTRONIC REQUEST publicinfo@sec.gov Note: The SEC charges a fee to copy documents - - IN PERSON Public Reference Room in Washington, DC For hours of operation, call (202) 942-8090 - - VIA THE INTERNET on the EDGAR database at http://www.sec.gov 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 affected the Fund's performance during the last fiscal year) - - SEMIANNUAL REPORT Dryden Tax-Free Money Fund, Inc. SHARE CLASS A NASDAQ PBFXX CUSIP 26248T301 MF103A Investment Company Act File No. 811-2927 DRYDEN TAX-FREE MONEY FUND Statement of Additional Information March 29, 2004 Prudential Tax-Free Money Fund, Inc., known as Dryden Tax-Free Money Fund (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 (Prospectus) dated March 29, 2004 and "Description of the Fund, Its Investments and Risks" below. Effective June 30, 2003, the Fund began doing business as Dryden Tax-Free Money Fund. The Fund's address is Gateway Center Three, 100 Mulberry Street, Newark, NJ 07102, and its telephone number is (800) 225-1852. This Statement of Additional Information (SAI) is not a prospectus and should be read in conjunction with the Prospectus. A copy of the Prospectus 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, 2003 are incorporated into this SAI by reference to the Fund's 2003 annual report to shareholders (File No. 811-2927). 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-6 Management of the Fund B-7 Control Persons and Principal Holders of Securities B-12 Investment Advisory and Other Services B-12 Brokerage Allocation and Other Practices B-16 Securities and Organization B-17 Purchase, Redemption and Pricing of Fund Shares B-17 Net Asset Value B-19 Taxes, Dividends and Distributions B-20 Calculation of Yield B-22 Financial Statements B-23 Appendix I--Description of Ratings I-1 Appendix II--Proxy Voting Policies of the Subadviser II-1
MF103B FUND HISTORY The Fund was organized as a corporation under the laws of Maryland on March 22, 1979. Effective June 30, 2003 the Fund began doing business as Dryden Tax-Free Money Fund. 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 in Municipal Bonds. Additional information relating to the Fund's principal investment policies and strategies discussed in the 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 short-term debt obligations of state and local governments, municipal commercial paper, variable rate demand obligations and municipal asset-backed securities, which are collectively referred to as Municipal Bonds in the Prospectus and this SAI. 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, but are not limited to tax anticipation notes, bond anticipation notes, revenue anticipation notes, grant anticipation notes and tax 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 under the Investment Company Act of 1940, as amended (the 1940 Act). PRE-REFUNDED SECURITIES The Fund will treat an investment in a municipal security pre-refunded with escrowed U.S. Government securities as U.S. Government securities for purposes of the diversification requirements of the the 1940 Act provided: (1) the escrowed securities are "government securities" as defined in the 1940 Act; (2) the escrowed securities are irrevocably pledged only to payment of debt service on the pre-refunded securities, except to the extent there are amounts in excess of funds necessary for such debt service; (3) principal and interest on the escrowed securities will be sufficient to satisfy all scheduled principal, interest and any premiums on the pre-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 pre-refunded securities, so verifies; (4) the escrow agreement provides that the issuer of the pre-refunded securities grants and assigns to the escrow agent, for B-2 the equal and ratable benefit of the holders of the pre-refunded securities, an express first lien on, pledge of and perfected security interest in the escrowed securities and the interest income thereon and (5) the escrow agent had 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 (2) 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 (NAV) per share (see "Net Asset Value" below) 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. 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 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 B-3 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 NAV. 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 NAV or net investment income will be adversely affected by 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 1940 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 the lower of cost or current value for temporary purposes. The Fund may pledge up to and including 10% of its assets to secure such borrowings. REPURCHASE AGREEMENTS The Fund may invest up to 5% of its total 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 Prudential Investments LLC (PI or the Manager) pursuant to an order of the Securities and Exchange Commission (Commission). On a daily basis, any uninvested cash balances of the Fund may be aggregated with those of such other investment companies and invested in one or more repurchase agreements. The Fund participates in the income earned or accrued in the joint account based on the percentage of its investment. In connection with transactions in repurchase agreements with U.S. financial institutions, it is the Fund's policy that its custodian or designated subcustodians, as the case may be, under triparty repurchase agreements, take possession of the underlying collateral securities, the value of which equals or exceeds the resale price of the agreement. If the seller defaults and the value of the collateral declines or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Fund may be delayed or limited. REVERSE REPURCHASE AGREEMENTS Reverse repurchase agreements have the characteristics of borrowing and involve the sale of securities held by the Fund with an agreement to repurchase the securities at a specified price, date and interest payment. The Fund intends only to use the reverse repurchase technique when it will be to its advantage to do so. These transactions are only advantageous if the Fund has an opportunity to earn a greater rate of interest on the cash derived from the transaction than the interest cost of obtaining that cash. The Fund may be unable to realize earnings from the use of the proceeds equal to or greater than the interest required to be paid. The use of reverse repurchase agreements may exaggerate any increase or decrease in the value of the Fund's portfolio. The Fund's Custodian will maintain in a segregated account cash or other liquid assets maturing not later than the expiration of the reverse repurchase agreements having a value equal to or greater than such commitments. 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 B-4 net assets, as required by applicable law. Illiquid securities include repurchase agreements which have a maturity of longer than seven days, certain securities with legal or contractual restrictions on resale (restricted securities) and securities that are not readily marketable (either within or outside of the United States). 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. 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 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 (a) whether the lease can be cancelled; (b) if applicable, what assurance there is that the assets represented by the lease can be sold; (c) the strength of the lessee's general credit (e.g., its debt, administrative, economic and financial characteristics); (d) 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 (e) 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 (a) rated in one of the two highest short-term rating categories by at least two NRSROs or by one NRSRO if only one NRSRO rates those Municipal Bonds, such as Moody's Investors Service, Inc. (rated at least MIG 2 or Prime-2) or Standard & Poor's Ratings Services (rated at least SP-2 or A-2), (b) rated in one of the three highest long-term rating categories by at least two NRSROs or by only one NRSRO if only one NRSRO rates those Municipal Bonds, or (c) 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. SEGREGATED ASSETS The Fund segregates with its Custodian, State Street Bank and Trust Company, cash, U.S. Government securities, equity securities (including foreign securities), debt securities or other liquid, unencumbered assets equal in value to its obligations in respect of potentially leveraged transactions. These include when-issued and delayed delivery securities, futures contracts, written options and options in futures contracts (unless otherwise covered). If collateralized or otherwise covered, in accordance with Commission guidelines, these will not be deemed to be senior securities. The assets segregated will be marked-to-market bi-weekly. B-5 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 SAI, means the lesser of (1) 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 (2) 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. (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. (12) The Fund will, under normal circumstances, invest at least 80% of its investable assets in money market instruments that pay income exempt from federal income taxes. 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. B-6 MANAGEMENT OF THE FUND Information pertaining to the Directors of the Fund is set forth below. Directors who are not deemed to be "interested persons" of the Fund as defined in the 1940 Act, are referred to as "Independent Directors". Directors who are deemed to be "interested persons" of the Fund are referred to as "Interested Directors". "Fund Complex"+ consists of the Fund and any other investment companies managed by Prudential Investments LLC (PI or the Manager). INDEPENDENT DIRECTORS
NUMBER OF TERMS OF PORTFOLIOS OFFICE*** IN FUND AND LENGTH COMPLEX POSITION WITH OF TIME PRINCIPAL OCCUPATIONS OVERSEEN OTHER DIRECTORSHIPS NAME, ADDRESS** AND AGE THE FUND SERVED DURING PAST FIVE YEARS BY DIRECTOR HELD BY THE DIRECTOR**** - ----------------------- ------------- ---------- ------------------------ ----------- ------------------------ Delayne Dedrick Gold (65) Director Since 1983 Marketing Consultant 85 -- (1982- present); formerly Senior Vice President and Member of the Board of Directors, Prudential Bache Securities, Inc. Robert E. La Blanc (69) Director Since 1996 President (since 1981) 98 Director of Storage of Robert E. La Blanc Technology Corporation Associates, Inc. (since 1979); (telecommunications); (technology), Chartered formerly General Semiconductor Partner at Salomon Manufacturing, Ltd. Brothers and Vice- (since 1998.); Titan Chairman of Continental Corporation Telecom; Trustee of (electronics, since Manhattan College. 1995); Computer Associates International, Inc. (since 2002) (software company), FiberNet Telecom Group, Inc. (since 2003) (telecom company); Director (since April 1999) of The High Yield Plus Fund, Inc. Robin B. Smith (64) Director Since 1996 Chairman of the Board 97 Director of BellSouth (since January 2003) of Corporation (since Publishers Clearing 1992). House (direct marketing), formerly Chairman and Chief Executive Officer (August 1996- January 2003) of Publishers Clearing House.
B-7
NUMBER OF TERMS OF PORTFOLIOS OFFICE*** IN FUND AND LENGTH COMPLEX POSITION WITH OF TIME PRINCIPAL OCCUPATIONS OVERSEEN OTHER DIRECTORSHIPS NAME, ADDRESS** AND AGE THE FUND SERVED DURING PAST FIVE YEARS BY DIRECTOR HELD BY THE DIRECTOR**** - ----------------------- ------------- ---------- ------------------------ ----------- ------------------------ Stephen Stoneburn (60) Director Since 1996 President and Chief 95 -- 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 and Senior Vice President of Fairchild Publications, Inc (1975-1989). Clay T. Whitehead (65) Director Since 1999 President (since 1983) 96 Director (since 2000) of of National Exchange The High Yield Plus Inc. (new business Fund, Inc. development firm). INTERESTED DIRECTORS Robert F. Gunia (57)* Director Since 1996 Chief Administrative 179 Vice President and and Vice Officer (since June Director (since May President 1999) of PI; Executive 1989) and Treasurer Vice President and (since 1999) of The Treasurer (since Asia Pacific Fund, Inc. January 1996) of PI; President (since April 1999) of Prudential Investment Management Services LLC (PIMS); Corporate Vice President (since September 1997) of The Prudential Insurance Company of America; Director, Executive Vice President and Chief Administrative Officer (since May 2003) of American Skandia Investment Services, Inc., American Skandia Advisory Services, Inc., and American Skandia Fund Services, Inc.; Executive Vice President (since March 1999) and Treasurer (since May 2000) of Prudential Mutual Fund Services LLC; formerly Senior Vice President (March 1987- May 1999) of Prudential Securities.
B-8 Information pertaining to the Officers of the Fund who are not also Directors is set forth below. OFFICERS
TERM OF OFFICE*** AND LENGTH POSITION WITH OF TIME PRINCIPAL OCCUPATIONS NAME, ADDRESS** AND AGE FUND SERVED DURING PAST FIVE YEARS - ----------------------- ------------- ---------- ----------------------------------------------------------- Judy A. Rice (56) President Since 2003 President, Chief Executive Officer, Chief Operating Officer and Officer-in-Charge (since 2003) of PI; Director, Officer-in-Charge, President, Chief Executive Officer and Chief Operating Officer (since May 2003) of American Skandia Advisory Services, Inc. and American Skandia Investment Services, Inc.; Director, Officer-in-Charge, President, Chief Executive Officer (since May 2003) of American Skandia Fund Services, Inc.; Vice President (since February 1999) of Prudential Investment Management Services LLC; President, Chief Executive Officer and Officer-In-Charge (since April 2003) of Prudential Mutual Fund Services LLC; formerly various positions to Senior Vice President (1992-1999) of Prudential Securities; and various positions to Managing Director (1975-1992) of Salomon Smith Barney; Member of Board of Governors of the Money Management Institute. Marguerite E. H. Morrison (47) Chief Legal Since 2003 Vice President and Chief Legal Officer--Mutual Funds and Officer Unit Investment Trusts (since August 2000) of Prudential; and Senior Vice President and Secretary (since April 2003) of Assistant Since PI; Senior Vice President and Secretary (since May 2003) Secretary 2002 of American Skandia Investment Services, Inc., American Skandia Advisory Services, Inc. and American Skandia Fund Services, Inc.; Vice President and Assistant Secretary of PIMS (since October 2001), previously Senior Vice President and Assistant Secretary (February 2001- April 2003) of PI and Vice President and Associate General Counsel (December 1996-February 2001) of PI. Grace C. Torres (44) Treasurer Since 1995 Senior Vice President (since January 2000) of PI; Senior and Vice President and Assistant Treasurer (since May 2003) of Principal American Skandia Investment Services, Inc. and American Financial Skandia Advisory Services Inc.; formerly First Vice and President (December 1996-January 2000) of PI and First Accounting Vice President (March 1993-1999) of Prudential Securities. Officer Jonathan D. Shain (45) Secretary Since 2001 Vice President and Corporate Counsel (since August 1998) of Prudential; Vice President and Assistant Secretary (since May 2003) of American Skandia Investment Services, Inc. and American Skandia Fund Services, Inc.; formerly Attorney with Fleet Bank, N.A. (January 1997-July 1998). Maryanne Ryan (39) Anti-Money Since 2002 Vice President, Prudential (since November 1998), First Laundering Vice President, Prudential Securities (March 1997- May Compliance 1998); Anti-Money Laundering Officer (since May 2003) of Officer American Skandia Investment Services, Inc., American Skandia Advisory Services, Inc. and American Skandia Marketing, Inc.
- -------------- + The Fund Complex consists of all investment companies managed by PI. The funds for which PI serves as manager include JennisonDryden Mutual Funds, Strategic Partners Funds, American Skandia Advisor Funds, Inc., The Prudential Variable Contract Accounts 2, 10 and 11, The Target Portfolio Trust, The Prudential Series Fund, Inc., American Skandia Trust, and Prudential's Gibraltar Fund. * "Interested" Director, as defined in the 1940 Act, by reason of employment with the Manager (Prudential Investments LLC or PI), the Subadviser (Prudential Investment Management, Inc. or PIM) or the Distributor (Prudential Investment Management Services LLC or PIMS). ** Unless otherwise noted, the address of the Directors and Officers is c/o: Prudential Investments LLC, Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102. *** There is no set term of office for Directors and Officers. The Independent Directors have 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. The table shows the individual's length of service as Director and/or Officer. **** This column includes only directorships of companies required to register, or file reports with the Commission under the Securities Exchange Act of 1934 (i.e., "public companies") or other investment companies registered under the 1940 Act. B-9 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. In addition to their functions set forth under "Investment Advisory and Other Services--Manager and Investment Adviser" and "Principal Underwriter, Distributor and Rule 12b-1 Plan", the Directors also review the actions of the Fund's Officers, who conduct and supervise the daily business operations of the Fund. Directors and Officers of the Fund are also directors, trustees and officers of some or all of the other investment companies advised by the Fund's Manager and distributed by PIMS. 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 Interested Directors of the Fund. STANDING BOARD COMMITTEES The Board of Directors has established three standing committees in connection with the governance of the Fund--Audit, Nominating and Valuation. The Audit Committee consists of Ms. Gold, Mr. La Blanc, Ms. Smith, Mr. Stoneburn and Mr. Whitehead. The responsibilities of the Audit Committee are to assist the Board of Directors in overseeing the Fund's independent auditors, accounting policies and procedures, and other areas relating to the Fund's auditing processes. The Audit Committee is responsible for pre-approving all audit services and any permitted non-audit services to be provided by the auditors directly to the Fund. The Audit Committee is also responsible for pre-approving permitted non-audit services to be provided by the auditors to (1) the Manager and (2) any entity in a control relationship with the Manager that provides ongoing services to the Fund, provided that the engagement of the auditors relates directly to the operation and financial reporting of the Fund. The scope of the Audit Committee's responsibility is oversight. It is management's responsibility to maintain appropriate systems for accounting and internal control and the independent auditors' responsibility to plan and carry an audit in accordance with audit standards generally accepted in the United States of America. The Audit Committee met 7 times during the fiscal year ended December 31, 2003. The Nominating Committee consists of Ms. Gold, Mr. La Blanc, Ms. Smith, and Mr. Whitehead. This committee interviews and recommends to the Board persons to be nominated for election as Directors by the Fund's shareholders and selects and proposes nominees for election by the Board between annual meetings. This Committee does not normally consider candidates proposed by shareholders for election as Directors. The Nominating Committee also reviews the independence of Directors serving on the Board and recommends to the Board Independent Directors to be selected for membership on Board Committees. The Nominating Committee reviews each Director's investment in the Fund, matters relating to Director compensation and expenses and compliance with the Fund's retirement policy. The Nominating Committee met three times during the fiscal year ended December 31, 2003. The Valuation Committee consists of at least two Board members or an officer of the Fund and one Board member (in both instances the Valuation Committee may include employees of the Manager who may constitute a majority of the Valuation Committee). The Valuation Committee supervises the valuation of the Fund's portolio securities and other assets and meets on an as needed basis. The Valuation Committee did not meet during the fiscal year ended December 31, 2003. For more information about the Valuation Committee, see "Net Asset Value" below. In addition to the three standing committees of the Fund, the Board of Directors has also approved Director participation in an Executive Committee designed to coordinate the governance of all of the mutual funds in the JennisonDryden Mutual Funds and Strategic Partners Funds complex. The role of the Executive Committee is solely advisory and consultative, without derogation of any of the duties or responsibilities of the Board. The following Independent Directors serve on the Executive Committee: Robert E. La Blanc and Robin Smith. Independent directors/trustees from other funds in the JennisonDryden Mutual Funds and Strategic Partners Funds complex also serve on the Executive Committee. The responsibilities of the Executive Committee include: facilitating communication and coordination between the Independent Directors and fund management on issues that affect more than one fund; serving as a liaison between the boards of directors/trustees of funds and fund management; developing, in consultation with outside counsel and management, draft agendas for Board meetings; reviewing and recommending changes to Board practices generally and monitoring and supervising the performance of legal counsel to the funds generally and the Independent Directors. The Fund pays each of its Independent Directors annual compensation in addition to certain out-of-pocket expenses. Directors who serve on the Committees may receive additional compensation. The amount of compensation paid to each Independent Director may change as result of the introduction of additional funds upon whose boards the Directors may be asked to serve. Independent Directors may defer receipt of their Directors' fees pursuant to a deferred fee agreement with the Fund. Under the terms of such agreement, the Fund accrues deferred Directors' fees daily, which, in turn, accrues interest at a rate equivalent to the prevailing rate of 90-day U.S. Treasury bills at the beginning of each calendar quarter or, at the daily rate of return of any JennisonDryden Mutual Fund or Strategic Partners Fund chosen by the Director. The Fund's obligation to make payments of deferred Directors' fees, together with interest thereon, is a general obligation of the Fund. B-10 The Fund has no retirement or pension plan for its Directors. The following table sets forth the aggregate compensation paid by the Fund for the fiscal year ended December 31, 2003 to the Independent Directors. The table also shows aggregate compensation paid to those Directors for service on the Fund's Board and the Board of any other investment company in the Fund Complex, for the calendar year ended December 31, 2003. COMPENSATION TABLE
AGGREGATE FISCAL YEAR TOTAL 2003 COMPENSATION FROM FUNDS AND NAME AND POSITION COMPENSATION FROM FUND FUND COMPLEX PAID TO INDEPENDENT DIRECTORS - ----------------- ---------------------- ------------------------------------------ Delayne Dedrick Gold $ 2,706 $ 216,300 (8/85)* Robert E. La Blanc $ 2,720 $ 195,800 (42/98)* Stephen P. Munn(1) $ 2,000 $ 166,300 (42/98)* Robin B. Smith(3) $ 2,700 $ 173,500 (41/97)* Stephen Stoneburn $ 2,706 $ 181,300 (40/95)* Nancy H. Teeters(2) $ 1,550 $ 140,000 (37/90)* Clay T. Whitehead $ 2,700 $ 223,300 (41/96)*
- ---------- * Indicates number of funds/portfolios in Fund Complex (including the Fund) to which aggregate compensation relates. (1) Mr. Munn was elected as Director at a meeting on July 2, 2003. Mr. Munn resigned as Director effective November 30, 2003. (2) Effective April 23, 2003, Ms. Teeters became a Director Emeritus. (3) Although the last column shows the total amount paid to Directors from the Fund Complex during the calendar year ended December 31, 2003, such compensation was deferred at the election of this Director, in total or in part, under the Fund's deferred fee agreement. Including accrued interest on amounts deferred through December 31, 2003, the total amount of deferred compensation for the year amounted to $388,622 for Ms. Smith. Directors who are interested and Officers do not receive compensation from the Fund or any fund in the Fund Complex and therefore are not shown in the Compensation Table. The following table sets forth the dollar range of equity securities in the Fund beneficially owned by a Director, and, on an aggregate basis, in all registered investment companies overseen by a Director in the Fund Complex as of December 31, 2003. DIRECTOR SHARE OWNERSHIP TABLE INDEPENDENT DIRECTORS
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES IN ALL REGISTERED INVESTMENT COMPANIES DOLLAR RANGE OF EQUITY OVERSEEN BY DIRECTOR IN NAME OF DIRECTOR SECURITIES IN THE FUND FUND COMPLEX - ---------------- ---------------------- ------------------------ Delayne Dedrick Gold -- $1-$10,000 Robert E. La Blanc $1-$10,000 Over $100,000 Robin B. Smith -- Over $100,000 Stephen Stoneburn -- Over $100,000 Clay T. Whitehead -- $50,001-$100,000
INTERESTED DIRECTORS
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES IN ALL REGISTERED INVESTMENT COMPANIES DOLLAR RANGE OF EQUITY OVERSEEN BY DIRECTOR IN NAME OF DIRECTOR SECURITIES IN THE FUND FUND COMPLEX - ---------------- ---------------------- ------------------------ Robert F. Gunia -- Over $100,000
B-11 The following table sets forth information regarding each class of securities owned beneficially or of record by each Independent Director, and his/her immediate family members, in an investment adviser or principal underwriter of the Fund or a person (other than a registered investment company) directly or indirectly "controlling", "controlled by", or "under common control with" (within the meaning of the 1940 Act) an investment adviser or principal underwriter of the Fund as of December 31, 2003.
NAME OF OWNERS AND RELATIONSHIPS TITLE OF VALUE OF PERCENT OF NAME OF DIRECTOR TO DIRECTOR COMPANY CLASS SECURITIES CLASS - ---------------- ------------- ------- -------- ---------- ---------- Delayne Dedrick Gold -- -- -- -- -- Robert E. La Blanc -- -- -- -- -- Robin B. Smith -- -- -- -- -- Stephen Stoneburn -- -- -- -- -- Clay T. Whitehead -- -- -- -- --
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES As of March 12, 2004, the Directors and officers of the Fund, as a group, beneficially owned less than 1% of the outstanding shares of the Fund. As of March 12, 2004, there were no beneficial owners, directly or indirectly, of more than 5% of the outstanding shares of any class of the Fund. As of March 12, 2004, Wachovia Securities, LLC (Wachovia Securities) was the record holder for other beneficial owners of the following:
CLASS NO. SHARES/% OF CLASS ----- --------------------- A 46,182,745/23.6%
INVESTMENT ADVISORY AND OTHER SERVICES (a) MANAGER AND INVESTMENT ADVISER The Manager of the Fund is Prudential Investments LLC (PI or the Manager), Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102. The Manager serves as manager to all of the other investment companies that, together with the Fund, comprise the JennisonDryden or Strategic Partners mutual funds. See "How the Fund is Managed--Manager" in the Prospectus. As of December 31, 2003, PI served as the investment manager to all of the Prudential U.S. and offshore open-end investment companies, and as administrator to closed-end investment companies, with aggregate assets of approximately 108.6 billion. PI is a wholly owned subsidiary of PIFM Holdco, Inc., which is a wholly-owned subsidiary of Prudential Asset Management Holding Company, which is a wholly-owned subsidiary of Prudential Financial, Inc. (Prudential). Prudential Mutual Fund Services LLC (the Transfer Agent or PMFS), an affiliate of the Manager serves as the transfer agent and dividend-disbursing agent for the JennisonDryden or Strategic Partners 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), the Manager, 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, the Manager is obligated to keep certain books and records of the Fund. PI is authorized to enter into subadvisory agreements for investment advisory services in connection with the management of the Fund. PI will continue to have responsibility for all investment advisory services performed pursuant to any such subadvisory agreements. B-12 PI will review the performance of any subadvisers and make recommendations to the Board of Directors with respect to the retention of the subadvisers, and the renewal of any subadvisory agreements. PI 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, the Fund's custodian (the Custodian), and PMFS. The management services of PI for the Fund are not exclusive under the terms of the Management Agreement and PI is free to, and does, render management services to others. For its services, PI 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. In connection with its management of the corporate affairs of the Fund, PI bears the following expenses: (1) the salaries and expenses of all personnel of the Fund and the Manager, except the fees and expenses of Independent Directors; (2) all expenses incurred by the Manager or by the Fund in connection with managing the ordinary course of the Fund's business, other than those assumed by the Fund, as described below; and (3) the costs and expenses payable to any Subadviser pursuant to any subadvisory agreement between the Manager and a Subadviser. Under the terms of the Management Agreement, the Fund is responsible for the payment of the following expenses; (1) the fee payable to the Manager, (2) the fees and expenses of Independent Directors, (3) 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, (4) the charges and expenses of the Fund's legal counsel and independent accountants, (5) brokerage commissions, if any, and any issue or transfer taxes chargeable to the Fund in connection with its securities transactions, (6) all taxes and corporate fees payable by the Fund to governmental agencies, (7) the fees of any trade association of which the Fund is a member, (8) the cost of stock certificates representing shares of the Fund, (9) the cost of fidelity and liability insurance, (10) the fees and expenses involved in registering and maintaining registration of the Fund and of its shares with the Commission, including the preparation and printing of the Fund's registration statements and prospectuses for such purposes, and the fees and expenses of registration and notice filings made in accordance with state securities laws, (11) allocable communications expenses with respect to investor services and all expenses of shareholders' and Directors' meetings and of preparing, printing and mailing report, proxy statements and prospectuses to shareholders, (12) litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Fund's business, and (13) distribution and service fees. The Management Agreement also provides that the Manager 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 1940 Act), and that it may be terminated without penalty by either party upon not more than 60 days' or 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 1940 Act. For the fiscal years ended December 31, 2003, 2002 and 2001, PI received management fees of $1,035,688, $1,003,046 and $914,763, respectively. PI has entered into a Subadvisory Agreement with Prudential Investment Management, Inc. (PIM), a wholly owned subsidiary of Prudential. The Subadvisory Agreement provides that PIM furnish investment advisory services in connection with the management of the Fund. In connection therewith, PIM is obligated to keep certain books and records of the Fund. PI continues to have responsibility for all investment advisory services pursuant to the Management Agreement and supervises PIM's performance of such services. PIM is paid by PI at an annual rate of .250 of 1% of the Fund's average daily net assets to $750 million, .191 of 1% of the Fund's average daily net assets between $750 million and $1.5 billion and .150 of 1% of the Fund's average daily net assets over $1.5 billion. The Subadvisory Agreement provides that it will terminate in the event of its assignment (as defined in the 1940 Act) or upon the termination of the Management Agreement. The Subadvisory Agreement may be terminated by the Fund, PI or PIM B-13 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 1940 Act. (b) MATTERS CONSIDERED BY THE BOARD The Management and Subadvisory Agreements were last approved by the Board of Directors, including all of the Independent Directors on May 29, 2003 at a meeting called for that purpose. In approving the Management and Subadvisory Agreements, the Board primarily considered, with respect to the Fund, the nature and quality of the services provided under the Agreements and the overall fairness of the Agreements to the Fund. The Board requested and evaluated reports from the Manager and the Subadviser that addressed specific factors designed to inform the Board's consideration of these and other issues. With respect to the nature and quality of the services provided by the Manager and the Subadviser, respectively, the Board considered the performance of the Fund in comparison to relevant market indices and the performance of a peer group of investment companies pursuing broadly similar strategies, and reviewed reports prepared by an unaffiliated organization applying various statistical and financial measures of fund performance compared to such indices and peer groups of funds, over the past one, five and ten years. The Board also evaluated the division of responsibilities among the Manager and its affiliates, and the capabilities of the personnel providing services. The Board also considered the quality of brokerage execution provided by the Manager and Subadviser. The Board reviewed the Manager's and the Subadviser's use of brokers or dealers in fund transactions that provided research and other services to them, and the benefits derived by the Fund from such services. The Board also considered the Manager's and Subadviser's stated intentions with respect to their respective investment management capabilities in the management of the Fund. With respect to the overall fairness of the Management and Subadvisory Agreements, the Board primarily considered the fee structure of the Agreements and the profitability of the Manager and the Subadviser and their affiliates from their association with the Fund. The Board reviewed information from an independent data service about the rates of compensation paid to investment advisers, and overall expense ratios, for funds comparable in size, character and investment strategy to the Fund. The Board also considered that the Fund's fee structure provides for a reduction of payments resulting from economies of scale. The Board also evaluated the aggregate amount and structure of fees paid by the Manager to the Subadviser. In concluding that the direct and indirect benefits accruing to the Manager, the Subadviser and their affiliates, by virtue of their relationship to the Fund, were reasonable in comparison with the costs of the provision of investment advisory services and the benefits accruing to the Fund, the Board reviewed specific data as to the Manager's and the Subadviser's profit or loss on the Fund for the recent period and carefully examined their cost allocation methodology. With respect to profitability, the Manager and the Subadviser discussed with the Board the allocation methodologies for intercompany revenues and expenses (not including the costs of distributing shares or providing shareholder services) in order to approximate their respective profits from the Management or Subadvisory fees. The Board understood that neither the Manager nor the Subadviser use these profitability analyses in the management of their businesses other than in connection with the approval or continuation of management or advisory agreements,at least in part because they exclude significant costs and include certain revenues that judicial interpretations have required in the context of Board approval of mutual fund advisory agreements. These matters were also considered at the meeting of the Independent Directors. 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, acts as the distributor of the shares of the Fund. See "How the Fund is Managed--Distributor" in the Prospectus. PIMS is a subsidiary of Prudential. 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 federal securities laws. 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% per annum 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. B-14 For the fiscal year ended December 31, 2003, PIMS received payments of $258,922, under the Plan. It is estimated that all this amount was spent on commission credits to Wachovia Securities and Pruco Securities, LLC (Pruco) 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 (1) the expenses of operating branch offices of Wachovia Securities and Pruco, 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, (2) the costs of client sales seminars, (3) travel expenses of mutual fund sales coordinators to promote the sale of Fund shares and (4) 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. 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 08830, serves as the transfer agent and dividend disbursing agent of the Fund. PMFS is an affiliate of PI. 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 ($12.00) 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, served as the Fund's independent auditors and in that capacity audited the Fund's annual financial statements for the fiscal year ended December 31, 2003. On November 18, 2003, he Audit Committee and the full Board approved the selection of KPMG LLP as the Fund's independent auditors for the fiscal year ending December 31, 2004. CODE OF ETHICS The Board of Directors has adopted a Code of Ethics. In addition, the Manager, Subadviser and Distributor have each adopted a Code of Ethics (collectively, the Codes). The Codes apply to access persons (generally persons who have access to information about the Fund's investment program) and permit personnel subject to the Codes to invest in securities including B-15 securities that may be purchased or held by the Fund. However, the protective provisions of the Codes prohibit certain investments and limit such personnel from making investments during periods when the Fund is making such investments. The Codes are on public file with, and are available from, the Commission. DESCRIPTION OF PROXY VOTING POLICIES AND RECORDKEEPING PROCEDURES The Board of Directors of the Fund has delegated to the Fund's investment manager, PI the responsibility for voting any proxies and maintaining proxy recordkeeping with respect to the Fund. The Fund authorizes the Manager to delegate, in whole or in part, its proxy voting authority to its investment advisers (Subadvisers) or third party vendors, consistent with the policies set forth below. The proxy voting process shall remain subject to the supervision of the Board of the Fund, including any Committee thereof established for that purpose. The Manager and the Board of Directors of the Fund view the proxy voting process as a component of the investment process and, as such, seek to ensure that all proxy proposals are voted with the primary goal of seeking the optimal benefit for the Fund. Consistent with this goal, the Board of Directors of the Fund views the proxy voting process as a means to encourage strong corporate governance practices and ethical conduct by corporate management. The Manager and the Board of Directors of the Fund maintain a policy of seeking to protect the best interests of the Fund should a proxy issue potentially implicate a conflict of interest between the Fund and the Manager or its affiliates. The Manager delegates to the Fund's Subadviser the responsibility for voting the Fund's proxies. The Subadviser is expected to identify and seek to obtain the optimal benefit for the Fund and to adopt written policies that meet certain minimum standards, including that the policies be reasonably designed to protect the best interests of the Fund and delineate procedures to be followed when a proxy vote presents a conflict between the interests of the Fund and the interests of the Subadviser or its affiliates. The Manager expects that the Subadviser will notify the Manager at least annually of any such conflicts identified and confirm how the issue was resolved. In addition, the Manager expects that the Subadviser will deliver to the Manager, or its appointed vendor, information required for filing the Form N-PX with the Securities and Exchange Commission. A copy of the proxy voting policies of the Fund's Subadviser is set forth in Appendix II of this SAI. 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 PSI as broker or dealer. B-16 During the fiscal years ended December 31, 2003, 2002 and 2001, the Fund paid no brokerage commissions. The Fund is required to disclose its holdings of securities of its regular brokers and dealers (as defined under Rule 10b-1 of the 1940 Act) and their parents during their most recent fiscal year. As of December 31, 2003, the Fund held no such securities. SECURITIES AND ORGANIZATION The Fund is authorized to issue three billion shares of capital 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 1940 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, REDEMPTION AND PRICING 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 PMFS. Shares may also be purchased through Wachovia Securities or Pruco. Wachovia Securities clients who hold Fund shares through Wachovia Securities may benefit through administrative conveniences afforded them as Wachovia Securities clients, but may be subject to certain additional restrictions imposed by Wachovia Securities. 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 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. Participants in certain retirement plans may not be eligible for check redemption. Please contact PMFS for further details. 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 B-17 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, or telephone (800) 225-1852 (toll-free). Check Redemption is not available to investors for whom PSI 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 (at the close of regular trading on the New York Stock Exchange (NYSE), usually 4:00 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 Wachovia Securities, you must redeem your shares through Wachovia Securities. Please contact your Wachovia 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, savings institution or credit union. The Transfer Agent reserves the right to request additional 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 NYSE is closed for other than customary weekends and holidays, (2) when trading on the NYSE 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 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 ifan 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 B-18 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. Expedited redemption requests may be made by telephone or letter, must be received by the Fund prior to 4:00 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. In the event that the NYSE closes before 4:00 p.m. New York time, you will receive the following day's NAV if your order to sell is received after the NYSE closes. 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 Commission. 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 1940 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 NYSE is closed, other than for customary weekend and holiday closings or (b) during which trading on the NYSE 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 Commission may by order permit for the protection of shareholders of the Fund. The Commission by rules and regulations determines the conditions under which (1) trading shall be deemed to be restricted and (2) an emergency is deemed to exist within the meaning of clause (2) above. NET ASSET VALUE The Fund's NAV 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 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 Commission. 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 NAV 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 NAV per share by using available market quotations. The Fund computes its NAV at the close of regular trading on the NYSE, (usually 4:00 PM New York time), on each day the NYSE is open for trading. In the event the NYSE closes before 4:00 p.m., you will receive the following day's NAV if your order to sell is received after the NYSE closes. The NYSE is closed on most national holidays and on Good Friday. The Fund does not determine its NAV on days when no orders to purchase, sell or exchange Fund shares have been received or days on which changes in the value of the Fund's securities do not materially affect the NAV. B-19 TAXES, DIVIDENDS AND DISTRIBUTIONS The following is a summary of certain tax considerations generally affecting the Fund and its shareholders. This section is based on the Internal Revenue Code of 1986, as amended (the "Code"), published rulings and court decisions, all as currently in effect. These laws are subject to change, possibly on a retroactive basis. Please consult your own tax advisor concerning the consequences of investing in the Fund in your particular circumstances under the Code and the laws of any other taxing jurisdiction. QUALIFICATION AS A REGULATED INVESTMENT COMPANY The Fund has elected to be taxed as a regulated investment company under Subchapter M of the Code and intends to meet all other requirements that are necessary for it to be relieved of federal taxes on income and gains it distributes to shareholders. As a regulated investment company, the Fund is not subject to federal income tax on the portion of its net investment income (I.E., its investment company taxable income, as that term is defined in the Code, without regard to the deduction for dividends paid) and net capital gain (I.E., the excess of net long-term capital gain over net short-term capital loss) that it distributes to shareholders, provided that it distributes at least 90% of the sum of its net investment income for the year (the "Distribution Requirement"), and satisfies certain other requirements of the Code that are described below. In addition to satisfying the Distribution Requirement, the Fund must derive at least 90% of its gross income from dividends, interest, certain payments with respect to loans of stock and securities, gains from the sale or disposition of stock, securities or foreign currencies and other income (including but not limited to gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies. The Fund must also satisfy an asset diversification test in order to qualify as a regulated investment company. Under this test, at the close of each quarter of the Fund's taxable year, (1) 50% or more of the value of the Fund's assets must be represented by cash, United States government securities, securities of other regulated investment companies, and other securities, with such other securities limited, in respect of any one issuer, to an amount not greater than 5% of the value of the Fund's assets and 10% of the outstanding voting securities of such issuer and (2) not more than 25% of the value of the Fund's assets may be invested in securities of any one issuer (other than U.S. government securities or securities of other regulated investment companies), or of two or more issuers which the Fund controls and which are engaged in the same, similar or related trades or businesses. If for any year the Fund does not qualify as a regulated investment company, all of its taxable income (including its net capital gain) will be subject to tax at regular corporate rates without any deduction for distributions to shareholders. Such distributions will generally be taxable to the shareholders as qualified dividend income, as discussed below, and generally will be eligible for the dividends received deduction in the case of corporate shareholders. FUND INVESTMENTS The Fund may make investments or engage in transactions that affect the character, amount and timing of gains or losses realized by the Fund. The Fund may make investments that produce income that is not matched by a corresponding cash receipt by the Fund. Any such income would be treated as income earned by the Fund and therefore would be subject to the distribution requirements of the Code. Such investments may require the Fund to borrow money or dispose of other securities in order to comply with those requirements. The Fund may also make investments that prevent or defer the recognition of losses or the deduction of expenses. These investments may likewise require the Fund to borrow money or dispose of other securities in order to comply with the distribution requirements of the Code. Additionally, the Fund may make investments that result in the recognition of ordinary income rather than capital gain, or that prevent the Fund from accruing a long-term holding period. These investments may prevent the Fund from making capital gain distributions as described below. The Fund intends to monitor its transactions, will make the appropriate tax elections and will make the appropriate entries in its books and records when it makes any such investments in order to mitigate the effect of these rules. TAX EXEMPT DIVIDENDS The Fund intends to qualify to pay exempt-interest dividends to its respective shareholders by having, at the close of each quarter of its taxable year, at least 50% of the value of its total assets consist of tax-exempt securities. An exempt-interest dividend is that part of dividend distributions made by the Fund that consists of interest received by the Fund on tax-exempt securities. Shareholders will not incur any federal income tax on the amount of exempt-interest dividends received by them from the Fund. In view of the Fund's policies, it is expected that substantially all dividends will be exempt-interest dividends, although the Fund may from time to time recognize and distribute net short-term capital gains and other minor amounts of taxable income. B-20 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 to the extent it relates to exempt-interest dividends received by the shareholder. Any loss incurred on the sale or redemption of the Fund's shares held six months of less will be disallowed to the extent of exempt-interest dividends received with respect to such shares. Interest on certain tax-exempt bonds that are private activity bonds within the meaning of the Code is treated as a tax preference item for purposes of the alternative minimum tax, and any such interest received by the Fund and distributed to shareholders will be so treated for purposes of any alternative minimum tax liability of shareholders to the extent of the dividend's proportionate share of the Fund's income consisting of such interest. FUND DISTRIBUTIONS The Fund anticipates distributing substantially all of its net investment income for each taxable year. Dividends of net investment income that are not designated exempt-interest dividends and dividends of net short-term capital gains will be taxable to shareholders at ordinary income rates. Because none of the Fund's net income is anticipated to arise from dividends on common or preferred stock, none of its distributions to corporate 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 advised annually as to the U.S. federal income tax consequences of distributions made (or deemed made) during the year. Ordinarily, shareholders are required to take taxable distributions by the Fund into account in the year in which the distributions are made. However, for federal income tax purposes, dividends that are declared by a Fund in October, November or December as of a record date in such month and actually paid in January of the following year will be treated as if they were paid on December 31 of the year declared. Therefore, such dividends will generally be taxable to a shareholder in the year declared rather than the year paid. The Fund may either retain or distribute to shareholders its net capital gain for each taxable year. The Fund currently intends to distribute any such amounts. If net capital gain is distributed and designated as a "capital gain dividend", it will be taxable to shareholders as long-term capital gain, regardless of the length of time the shareholder has held his shares or whether such gain was recognized by the Fund prior to the date on which the shareholder acquired its shares. Capital gain of a noncorporate U.S. shareholder that is recognized before January 1, 2009 is generally taxed at a maximum rate of 15% where the property is held by the Fund for more than one year. Capital gain of a corporate shareholder is taxed at the same rate as ordinary income. Conversely, if the Fund elects to retain its net capital gain, the Fund will be taxed thereon (except to the extent of any available capital loss carryovers) at the 35% corporate tax rate. In such a case, it is expected that the Fund also will elect to have shareholders of record on the last day of its taxable year treated as if each received a distribution of its pro rata share of such gain, with the result that each shareholder will be required to report its pro rata share of such gain on its tax return as long-term capital gain, will receive a refundable tax credit for its pro rata share of tax paid by the Fund on the gain, and will increase the tax basis for its shares by an amount equal to the deemed distribution less the tax credit. Distributions by the Fund that do not constitute qualified dividend income, ordinary income dividends, exempt-interest dividends or capital gain dividends will be treated as a return of capital to the extent of (and in reduction of) the shareholder's tax basis in its shares; any excess will be treated as gain from the sale of its shares, as discussed below. Distributions by the Fund will be treated in the manner described above regardless of whether such distributions are paid in cash or reinvested in additional shares of the Fund (or of another fund). Shareholders receiving a distribution in the form of additional shares will be treated as receiving a distribution in an amount equal to the fair market value of the shares received, determined as of the reinvestment date. In addition, prospective investors in the Fund should be aware that distributions from the Fund will, all other things being equal, have the effect of reducing the net asset value of the Fund's shares by the amount of the distribution. If the net asset value is reduced below a shareholder's cost, the distribution will nonetheless be taxable as described above, even if the distribution effectively represents a return of invested capital. Investors should consider the tax implications of buying shares just prior to a distribution, when the price of shares may reflect the amount of the forthcoming distribution. SALE OR REDEMPTION OF SHARES 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 recognize gain or loss on the sale or redemption of shares in the Fund in an amount equal to the difference between the proceeds of the sale or redemption and the shareholder's adjusted tax basis in the shares. All or a portion of any loss so recognized may be disallowed if the shareholder acquires other shares of the Fund within a period of 61 days beginning 30 days before such disposition, such as pursuant to reinvestment of a dividend in shares of the Fund. B-21 Additionally, if a shareholder disposes of shares of the Fund within 90 days following their acquisition, and the shareholder subsequently re-acquires Fund shares pursuant to a reinvestment right received upon the purchase of the original shares, any load charge (I.E., sales or additional charge) incurred upon the acquisition of the original shares will not be taken into account as part of the shareholder's basis for computing profit or loss upon the sale of the shares. In general, any gain or loss arising from (or treated as arising from) the sale or redemption of shares of the Fund will be considered capital gain or loss and will be long-term capital gain or loss if the shares were held for more than one year. However, any capital loss arising from the sale or redemption of shares held for six months or less will be treated as a long-term capital loss to the extent of the amount of capital gain dividends received on (or undistributed capital gains credited with respect to) such shares. Capital gain of a noncorporate U.S. shareholder that is recognized before January 1, 2009 is generally taxed at a maximum rate of 15% where the property is held by the shareholder for more than one year. Capital gain of a corporate shareholder is taxed at the same rate as ordinary income. FOREIGN SHAREHOLDERS Taxation of a shareholder who, as to the United States, is a nonresident alien individual, foreign trust or estate, foreign corporation, or foreign partnership ("foreign shareholder") depends on whether the income from the Fund is "effectively connected" with a U.S. trade or business carried on by such shareholder. If the income from the Fund is not effectively connected with a U.S. trade or business carried on by a foreign shareholder, dividends paid to such foreign shareholder from net investment income will be subject to U.S. withholding tax at the rate of 30% (or lower treaty rate) on the gross amount of the dividend. Such a foreign shareholder would generally be exempt from U.S. federal income tax, including withholding tax, on gains realized on the sale of shares of the Fund, capital gain dividends and amounts retained by the Fund that are designated as undistributed capital gains. If the income from the Fund is effectively connected with a U.S. trade or business carried on by a foreign shareholder, then ordinary income dividends, capital gain dividends, undistributed capital gains credited to such shareholder and any gains realized upon the sale of shares of the Fund will be subject to U.S. federal income tax at the graduated rates applicable to U.S. citizens or domestic corporations. In the case of foreign non-corporate shareholders, the Fund may be required to backup withhold U.S. federal income tax on distributions that are otherwise exempt from withholding tax (or taxable at a reduced treaty rate) unless such shareholders furnish the Fund with proper notification of their foreign status. The tax consequences to a foreign shareholder entitled to claim the benefits of an applicable tax treaty may be different from those described herein. Foreign shareholders are urged to consult their own tax advisers with respect to the particular tax consequences to them of an investment in the Fund, the procedure for claiming the benefit of a lower treaty rate and the applicability of foreign taxes. Transfers by gift of shares of a Fund by an individual foreign shareholder will not be subject to U.S. federal gift tax, but the value of shares of a Fund held by such a shareholder at his death will generally be includible in his gross estate for U.S. federal estate tax purposes, subject to any applicable estate tax treaty. STATE AND LOCAL TAX MATTERS Depending on the residence of the shareholders for tax purposes, distributions may also be subject to state and local taxes. Rules of state and local taxation regarding qualified dividend income, ordinary income dividends and capital gain dividends from regulated investment companies may differ from the U.S. federal income tax rules in other respects. Shareholders are urged to consult their tax advisers as to the consequences of these and other state and local tax rules affecting investment in the Fund. 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 B-22 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 35% (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 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 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. FINANCIAL STATEMENTS The Fund's financial statements for the fiscal year ended December 31, 2003, incorporated into this SAI by reference to the Fund's 2003 annual report to shareholders (File No. 811-2927), have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, independent auditors, 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. B-23 APPENDIX I DESCRIPTION OF RATINGS MOODY'S INVESTORS SERVICE, INC. (MOODY'S) DEBT RATINGS Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa: Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may notbe as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than Aaa securities. A: Bonds which are rated A possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment some time in the future. Baa: Bonds which are rated Baa are considered as medium-grade obligations (that is, 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 Baa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of its generic rating category. SHORT-TERM DEBT RATINGS Moody's short-term debt ratings are opinions of the ability of issuers to honor senior financial obligations and contracts. These obligations have an original maturity not exceeding one year, unless explicitly noted. PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics: - Leading market positions in well-established industries. - High rates of return on funds employed. - Conservative capitalization structure with moderate reliance on debt and ample protection. - Broad margins in earnings coverage of fixed financial charges and high internal cash generation. - Well-established access to a range of financial markets and assured sources of alternative liquidity. PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This normally will be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liability is maintained. MIG 1: This designation denotes best quality. There is strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing. MIG 2: This designation denotes high quality. Margins of protection are ample although not so large as in the proceeding group. I-1 STANDARD & POOR'S RATINGS SERVICES (S&P) LONG-TERM ISSUE CREDIT RATINGS AAA: An obligation rated AAA has the highest rating assigned by S&P. The obligator's capacity to meet its financial commitment on the obligation is extremely strong. AA: An obligation rated AA differs from the highest-rated obligations only in small degrees. The obligator's capacity to meet its financial commitment on the obligation is extremely strong. A: An obligation rated A is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligator's capacity to meet its financial commitment on the obligation is still strong. BBB: An obligation rated BBB exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet the financial commitment on the obligation. PLUS (+) OR MINUS (-): The ratings from AA to BBB may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. COMMERCIAL PAPER RATINGS A-1: The designation indicated that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2: Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1. NOTES RATINGS An S&P notes rating reflects the liquidity factors and market risks unique to notes. Notes due in three years or less will likely receive a notes rating. Notes maturing beyond three years will most likely receive a long-term debt rating. Thefollowing criteria will be used in making that assessment. - Amortization schedule--the longer the final maturity relative to other maturities the more likely it will be treated as a note. - Source of payment--the more dependent the issue is on the market for its refinancing, the more likely it will be treated as a note. Note rating symbols are as follows: SP-1: Strong capacity to pay principal and interest. An issue determined to posses a very strong capacity to pay debt service is given a plus (+) designation. SP-2: Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes. FITCH RATINGS INTERNATIONAL LONG-TERM CREDIT RATINGS AAA: Highest credit quality. AAA ratings denote the lowest expectation of credit risk. They are assigned only in case of exceptionally strong capacity for timely payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events. AA: Very high credit quality. AA ratings denote a very low expectation of credit risk. They indicate very strong capacity for timely payments of financial commitments. This capacity is not significantly vulnerable to foreseeable events. A: High credit quality. A ratings denote a low expectation of credit risk. The capacity for timely payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to changes in circumstances or in economic conditions than is the case for higher ratings. BBB: Good credit quality. BBB ratings indicate that there is currently a low expectation of credit risk. The capacity for timely payment of financial commitments is considered adequate, but adverse changes in circumstances and in economic conditions are more likely to impair this capacity. This is the lowest investment-grade category. I-2 SHORT-TERM DEBT RATINGS F1: Highest credit quality. Indicates the best capacity for timely payment of financial commitments; may have an added "+" to denote any exceptionally strong credit feature. F2: Good credit quality. A satisfactory capacity for timely payment of financial commitments, but the margin of safety is not as great as in the case of the higher ratings. PLUS (+) OR MINUS (-): Plus and minus signs may be appended to a rating to denote relative status within major rating categories. Such suffixes are not added to the AAA long-term rating category or to short-term ratings other than F-1. I-3 APPENDIX II--PROXY VOTING POLICIES OF THE SUBADVISER A copy of the proxy voting policies of the Fund's Subadviser follows: PIM PROXY VOTING POLICY The overarching goal of each of the asset management units within Prudential Investment Management, Inc. ("PIM") is to vote proxies in the best interests of their respective clients based on the clients' priorities. Material conflicts of interests arising from other firm relationships WILL NOT influence voting. Because the various asset management units within PIM operate differently, some units will consider each proxy on its individual merits while other units may adopt a pre-determined set of voting guidelines. The specific voting approach of each unit is noted below. A committee comprised of senior business representatives from each of the asset management units together with relevant regulatory personnel oversees the proxy voting process and monitors potential conflicts of interests. The committee is responsible for interpretation of the proxy voting policy and periodically assess the policy's effectiveness. In addition, should the need arise, the committee is authorized to handle any proxy matter involving an actual or apparent conflict of interest that cannot be resolved at the level of an individual asset management business unit. In all cases, specific voting information is available to each client with respect to the voting of proxies relating to securities held by the client. Moreover, clients may obtain the proxy voting policies and procedures of the various PIM asset management units, and information is available to each client concerning the voting of proxies with respect to the client's securities, simply by contacting the client service representative of the respective unit. VOTING APPROACH OF PIM ASSET MANAGEMENT UNITS The PIM Asset Management Units listed below are divisions within PIM and, therefore, the proxy policies of PIM detailed above, including with respect to conflicts, apply to each of the PIM Asset Management Units. PRUDENTIAL PUBLIC FIXED INCOME As this asset management unit invests almost exclusively in public debt, there are few traditional proxies voted in this unit. Generally, when a proxy is received, this unit will vote with management on routine matters such as the appointment of accountants or the election of directors. With respect to non-routine matters such as proposed anti-takeover provisions or mergers the financial impact will be analyzed and the proxy will be voted on a case-by-case basis. Specifically, if a proxy involves: - a proposal regarding a merger, acquisition or reorganization, - a proposal that is not addressed in the unit's detailed policy statement, or - circumstances that suggest a vote not in accordance with the detailed policy, the proxy will be referred to the applicable portfolio manager(s) for individual consideration. PRUDENTIAL QUANTITATIVE MANAGEMENT This asset management unit invests with the expectation of replicating the performance of broad based equity indexes. As a result, there is little direct consideration of individual proxies. Generally, when a proxy is received, this unit will vote in accordance with a pre-determined set of votes, in most cases based on the recommendations of a proxy voting service such as IRRC. On the rare occasion that a proxy proposal falls outside the pre-determined voting policy, the financial impact of the proposal will be evaluated on a case-by-case basis. II-1 PRUDENTIAL REAL ESTATE INVESTORS As this asset management unit invests primarily in real estate and real estate related interests, there are few traditional proxies voted in this unit. Generally, when a proxy is received, this unit will vote with management on routine matters such as the appointment of accountants or the election of directors. With respect to non-routine matters such as proposed anti-takeover provisions or mergers the financial impact will be analyzed and the proxy will be voted on a case-by-case basis. Specifically, if a proxy involves: - a proposal regarding a merger, acquisition or reorganization, - a proposal that is not addressed in the unit's detailed policy statement, or - circumstances that suggest a vote not in accordance with the detailed policy, the proxy will be referred to the relevant portfolio for individual consideration. PRUDENTIAL CAPITAL GROUP As this asset management unit invests almost exclusively in privately placed debt, there are few, if any, traditional proxies voted in this unit. As a result, this unit evaluates each proxy it receives and votes on a case-by-case basis. Considerations will include the detailed knowledge of the issuer's financial condition, long- and short-term economic outlook for the issuer, its capital structure and debt-service obligations, the issuer's management team and capabilities, as well as other pertinent factors. In short, this unit attempts to vote all proxies in the best economic interest of its clients based on the clients' expressed priorities. II-2 PART C OTHER INFORMATION ITEM 23. EXHIBITS. (a) (1) 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). (2) Trade Name Application for Dryden Tax-Free Money Fund.* (b) By-Laws of the Registrant as Amended and Restated November 18, 1999, incorporated by reference to Exhibit (b) to Post-Effective Amendment No. 26 to the Registration Statement on Form N-1A filed via EDGAR on March 13, 2001 (File No. 2-64625). (c) Instruments defining rights of holders of the securities being offered, incorporated by reference to Exhibits(a) and (b) above. (d) (1) 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). (2) 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). (3) 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) (1) 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). (2) 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) (1) 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). (2) Amendment to Custodian Contract dated February 22, 1999, incorporated by reference to Exhibit (g)(2) to Post-Effective Amendment No. 26 to the Registration Statement on Form N-1A filed via EDGAR on March 13, 2001 (File No. 2-64625). (3) Amendment to Custodian Contract dated July 17, 2001, incorporated by reference to Exhibit No. (g)(3) to Post-Effective Amendment No. 27 to the Registration Statement on Form N-1A filed via EDGAR on February 22, 2002 (File No. 2-64625). (4) Amendment to Custodian Contract dated January 17, 2002, incorporated by reference to Exhibit No. (g)(4) to Post-Effective Amendment No. 27 to the Registration Statement on Form N-1A filed via EDGAR on February 22, 2002 (File No. 2-64625). (h) (1) 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). (2) Amendment to Transfer Agency and Service Agreement dated August 24, 1999, incorporated by reference to Exhibit (h)(2) to Post-Effective Amendment No. 26 to the Registration Statement on Form N-1A filed via EDGAR on March 13, 2001 (File No. 2-64625). C-1 (3) Amendment to Transfer Agency and Service Agreement dated September 4, 2002, incorporated by reference to corresponding Exhibit to Post-Effective Amendment No. 28 to the Registration Statement on Form N-1A filed via EDGAR on February 27, 2003 (File No. 2-64625). (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 Auditors.* (k) Not applicable. (l) Not applicable. (m) 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) (1) Code of Ethics of the Registrant dated February 24, 2004.* (2) Code of Ethics of Prudential Investment Management, Inc., Prudential Investments LLC and Prudential Investment Management Services LLC dated February 24, 2004.* (q) Powers of Attorney dated May 23, 2001, incorporated by reference to Exhibit No. (q) to Post-Effective Amendment No. 27 to the Registration Statement on Form N-1A filed via EDGAR on February 22, 2002 (File No. 2-64625). - ---------- * Filed herewith. ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT. None. ITEM 25. INDEMNIFICATION. As permitted by Sections 17(h) and (i) of the Investment Company Act of 1940, as amended (the 1940 Act), and pursuant to Article VI of the Fund's Amended By-Laws (Exhibit (b) to the Registration Statement), the Registrant shall indemnify present and former officers, directors, employees and agents of the Registrant against judgments, fines, settlements and expenses and may advance expenses to such parties to the fullest extent authorized, and in the manner permitted, by applicable federal and state law. Section 2-418 of Maryland General Corporation Law permits indemnification of directors unless it is established that (1) the act or omission of the director was material to the matter and (a) was committed in bad faith or (b) was the result of active and deliberate dishonesty; or (2) the director actually received an improper personal benefit in money, property or services; or (3) in the case of a criminal proceeding, the director has reasonable cause to believe that the act or omission was unlawful. As permitted by Section 17(i) of the 1940 Act, pursuant to Section 10 of the Distribution Agreement (Exhibit (e)(1) to the Registration Statement), Prudential Investment Management Services LLC (PIMS) or 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 (the 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. C-2 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)(1) to the Registration Statement) and Section 4 of the Subadvisory Agreement (Exhibit (d)(2) to the Registration Statement) limit the liability of Prudential Investments LLC (PI) and Prudential Investment Management, Inc.) PIM, 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 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 THE INVESTMENT ADVISER (a) Prudential Investments LLC. (PI). 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--Manager and Investment Adviser" in the Statement of Additional Information (SAI) constituting Part B of this Post-Effective Amendment to the Registration Statement. The business and other connections of the officers of PI are listed in Schedules A and D of Form ADV of PI as currently on file with the Commission, the text of which is hereby incorporated by reference (File No. 801-31104, filed on March 30,1995). The business and other connections of PI'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 PI PRINCIPAL OCCUPATIONS - ---------------- ---------------- --------------------- Robert F. Gunia Executive Vice President Executive Vice President and Chief Administrative and Chief Officer, Pl; Vice President, Prudential; Administrative Officer President, PIMS; Executive Vice President, Chief Administrative Officer and Director of American Skandia Investment Services, Inc.; Executive Vice President and Director of American Skandia Fund Services, Inc.; Executive Vice President, Chief Administrative Officer and Director of American Skandia Advisory Services, Inc. William V. Healey Executive Vice President Executive Vice President, and Chief Legal and Chief Legal Officer Officer, PI; Vice President and Associate General Counsel, Prudential; Senior Vice President, Chief Legal Officer and Secretary, PIMS; Executive Vice President and Chief Legal Officer of American Skandia Investment Services, Inc., Executive Vice President and Chief Legal Officer of American Skandia Fund Services, Inc.; Executive Vice President and Chief Legal Officer of American Skandia Advisory Services, Inc. Keithe L. Kinne Executive Vice President Executive Vice President, PI; Executive Vice President and Director of American Skandia Investment Services, Inc. and Executive Vice President and Director of American Skandia Advisory Services, Inc. Kevin B. Osborn Executive Vice President Executive Vice President, PI; Executive Vice President and Director of American Skandia Investment Services, Inc. and Executive Vice President and Director of American Skandia Advisory Services, Inc. Stephen Pelletier Executive Vice President Executive Vice President, PI Judy A. Rice Officer in Charge, Officer-in-Charge, President, Chief Executive President, Chief Officer and Chief Operating Officer, PI; Executive Officer and Officer-in-Charge, Director, President, Chief Chief Operating Officer Executive Officer and Chief Operating Officer of American Skandia Investment Services, Inc., Officer-in-Charge, Director, President and Chief Executive Officer of American Skandia Fund Services, Inc.; Officer-in-Charge, Director, President, Chief Executive Officer and Chief Operating Officer of American Skandia Advisory Services, Inc.
C-3
NAME AND ADDRESS POSITION WITH PI PRINCIPAL OCCUPATIONS - ---------------- ---------------- --------------------- Philip N. Russo Executive Vice President, Executive Vice President, Chief Financial Chief Financial Officer Officer and Treasurer, PI; Director of and Treasurer Jennison Associates, LLC; Executive Vice President and Director of American Skandia Investment Services, Inc. and Executive Vice President and Director of American Skandia Advisory Services, Inc. Lynn M. Waldvogel Executive Vice President Executive Vice President, PI; Chief Financial Officer and Director of American Skandia Fund Services, Inc.; Executive Vice President, Chief Financial Officer and Director of American Skandia Advisory Services, Inc.
(b) Prudential Investment Management, Inc. (PIM) 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--Manager and Investment Adviser" in the SAI constituting Part B of this Post-Effective Amendment to the Registration Statement. The business and other connections of PIM's directors and executive officers are as set forth below. Except as otherwise indicated, the address of each person is Gateway Center Two, 100 Mulberry Street, Newark, NJ 07102.
NAME AND ADDRESS POSITION WITH PIM PRINCIPAL OCCUPATIONS - ---------------- ---------------- --------------------- Matthew J. Chanin Director and Senior Vice Director and President of Prudential Equity Gateway Center Four President Investors, Inc.; Chairman, Director and Newark, NJ 07102 President of Prudential Private Placement Investors, Inc. Dennis M. Kass Director and Vice Chairman, CEO and Director of Jennison 466 Lexington Avenue, President Associates LLC; Director of Prudential Trust 18th Floor Company New York, NY 10017 Philip N. Russo Director Director of Jennison Associates, LLC; Executive Vice President, Chief Financial Officer and Treasurer, PI John R. Strangfeld, Jr. Chairman of the Board, Vice President of Prudential Financial, Inc. President and Chief (Prudential); Chairman, Director and CEO of Executive Officer and Prudential Securities Group; Director and Director President of Prudential Asset Management Holding Company; Director of Jennison Associates LLC; Executive Vice President of The Prudential Insurance Company of America James J. Sullivan Director, Vice President Chairman, Director, President and CEO of and Managing Director Prudential Trust Company; Director and President of the Prudential Asset Management Company, Inc. Bernard B. Winograd Director, President and Senior Vice President of Prudential; Director CEO of Jennison Associates LLC; Director and Vice President of the Prudential Asset Management Holding Company
ITEM 27. PRINCIPAL UNDERWRITERS (a) Prudential Investment Management Services LLC (PIMS) PIMS is distributor for Cash Accumulation Trust, COMMAND Money Fund, COMMAND Government Fund, COMMAND Tax-Free Fund, Nicholas-Applegate Fund, Inc (Nicholas-Applegate Growth Equity Fund), Dryden California Municipal Fund, Jennison Equity Fund, Inc., Prudential's Gibraltar Fund, Inc., Dryden Global Total Return Fund, Inc., Dryden Government Income Fund, Inc., Dryden Government Securities Trust, Dryden High Yield Fund, Inc., Dryden Index Series Fund, Prudential Institutional Liquidity Portfolio, Inc., MoneyMart Assets, Inc., Dryden Municipal Bond Fund, Dryden Municipal Series Fund, Jennison Natural Resources Fund, Inc., Strategic Partners Real Estate Securities Fund, Jennison Sector Funds, Inc., Dryden Short-Term Bond Fund, Inc., Jennison Small Company Fund, Inc., Dryden Tax-Free Money Fund, Dryden Tax-Managed Funds, Dryden Tax-Managed Small Cap Fund, Inc., Dryden Total Return Bond Fund, Inc., Jennison 20/20 Focus Fund, Jennison U.S. Emerging Growth Fund, Inc., Jennison Value Fund, Prudential World Fund, Inc., Special Money Market Fund, Inc., Strategic Partners Asset Allocation Funds, Strategic Partners Opportunity Funds, Strategic Partners Style Specific Funds, The Prudential Investment Portfolios, Inc., The Prudential Series Fund, Inc. and The Target Portfolio Trust. C-4 PIMS is also distributor of the following unit investment trusts: Separate Accounts: The Prudential Variable Contract Account-2, The Prudential Variable Contract Account-10, The Prudential Variable Contract Account-11, The Prudential Variable Contract Account-24, The Prudential Variable Contract GI-2, The Prudential Discovery Select Group Variable Contract Account, The Pruco Life Flexible Premium Variable Annuity Account, The Pruco Life of New Jersey Flexible Premium Variable Annuity Account, The Prudential Individual Variable Contract Account and The Prudential Qualified Individual Variable Contract Account. (b) Information concerning the officers and directors of PIMS is set forth below.
POSITIONS AND POSITIONS AND OFFICES WITH OFFICES WITH NAME(1) UNDERWRITER REGISTRANT - ------- ------------- ------------- Edward P. Baird Executive Vice President None 213 Washington St. Newark, NJ 07102 C. Edward Chaplin Vice President and None 751 Broad Street Treasurer Newark, NJ 07102 Kenneth J. Schindler Senior Vice President and None Chief Compliance Officer Robert F. Gunia President Vice President and Director William V. Healey Senior Vice President, None Secretary and Chief Legal Officer Michael J. McQuade Senior Vice President and None Chief Financial Officer David R. Odenath Executive Vice President None Stephen Pelletier Executive Vice President None Scott G. Sleyster Executive Vice President None 71 Hanover Road Florham Park, NJ 07932 Bernard B. Winograd Executive Vice President None
- ---------- (1) The address of each person named is Gateway Center Three, 100 Mulberry 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, Prudential Investment Management, Inc., Gateway Center Three, 100 Mulberry Street, Newark, NJ 07102, the Registrant, Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102, and Prudential Mutual Fund Services LLC, 194 Wood Avenue South, Iselin, New Jersey 08830. 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, 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 SAI, 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-5 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) of the Securities Act 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 29th day of March, 2004. PRUDENTIAL TAX-FREE MONEY FUND, INC. * -------------------------------------- Judy A. Rice, 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 date indicated.
SIGNATURE TITLE DATE --------- ----- ---- * - --------------------------------------- Director Delayne Dedrick Gold * - --------------------------------------- Director and Vice President Robert F. Gunia * - --------------------------------------- Director Robert E. La Blanc * - --------------------------------------- President Judy A. Rice * - --------------------------------------- Director Robin B. Smith * - --------------------------------------- Director Stephen Stoneburn * - --------------------------------------- Director Clay T. Whitehead * Treasurer, Principal Financial and - --------------------------------------- Accounting Officer Grace C. Torres * By: /s/ JONATHAN D. SHAIN - --------------------------------------- March 29, 2004 Jonathan D. Shain Attorney-in-Fact
C-6 EXHIBIT INDEX (a) (2) Trade Name Application for Dryden Tax-Free Money Fund.* (j) Consent of Independent Auditors.* (p) (1) Code of Ethics of the Registrant dated February 24, 2004.* (2) Code of Ethics of Prudential Investment Management, Inc., Prudential Investments LLC and Prudential Investment Management Services LLC dated February 24, 2004.* - ---------- *Filed herewith. C-7 EX-99.(A)(2) 3 a2130308zex-99_a2.txt EX 99.(A)(2) EXHIBIT 99.(a)(2) TRADE NAME APPLICATON TRADE NAME: Dryden Tax-Free Money Fund -------------------------------------------------------------------- ADDRESS(ES) WHERE NAME IS USED: ------------------------------------------------ 300 East Lombard Street, Baltimore, MD 21202 (principal office in Maryland) - -------------------------------------------------------------------------------- FULL LEGAL NAME OF OWNER OF BUSINESS USING THE TRADE NAME: --------- Prudential Tax-Free Money Fund, Inc. - -------------------------------------------------------------------------------- If the owner is an individual or general partnership, does it have a personal property account (an "L" number)? YES NO If YES, what is that number? L _ _ _ _ _ _ __ If NO, see instruction 7. ADDRESS OF OWNER: Gateway Center Three, 100 Mulberry Street, Newark, NJ -------------------------------------------------------------- ZIP: 07102-4077 - -------------------------------------------------------------------------------- DESCRIPTON OF BUSINESS: Operating as an open-end, management investment -------------------------------------------------------- company registered as such under the Investment Company Act of 1940, as amended. - -------------------------------------------------------------------------------- I AFFIRM AND ACKNOWLEDGE UNDER PENALTIES OF PERJURY THAT THE FOREGOING IS TRUE AND CORRECT TO THE BEST OF MY KNOWLEDGE. PRUDENTIAL TAX-FREE MONEY FUND, INC. /s/ Judy A. Rice - ---------------- By: Judy A. Rice Its: President EX-99.(J) 4 a2130308zex-99_j.txt EX 99.(J) Exhibit 99.(j) [Letterhead of PricewaterhouseCoopers LLP] 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 20, 2004, relating to the financial statements and financial highlights which appear in the December 31, 2003 Annual Report to Shareholders of Prudential Tax-Free Money Fund, Inc., doing business as Dryden Tax Free Money Fund, 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. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP New York, New York March 24, 2004 EX-99.(P)(1) 5 a2130308zex-99_p1.txt EX 99.(P)(1) Exhibit 99.(p)(1) JENNISONDRYDEN STRATEGIC PARTNERS MUTUAL FUNDS (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/Trustees 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 INVESTMENT COMPANY 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. (b) "Adviser/Subadviser" means the Adviser or a Subadviser, if any, 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 2 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 LLC serves as Manager; provided, however, that with respect to Access Persons of the Manager or Subadviser (including any unit or subdivision thereof), "Complex" means the group of registered investment companies in the Complex advised by such Subadviser or unit or subdivision thereof or to which an Access Person is deemed to have access. A list of such registered investment companies will be maintained by the Compliance Officer. (f) "Compliance Officer" means the person or persons (including his or her designees) designated by the Manager, the Adviser/Subadviser, or Principal Underwriter, respectively, 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 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 LLC. (l) "Mutual Fund Code of Ethics/Personal Securities Trading Committee" or "Committee" means a specified group of 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 3 violations in consultation with legal counsel. A list of such Committee members shall be maintained by the Compliance Officer. (m) "Non-proprietary Registered Open-end Investment Company" or "Non-proprietary Fund" means any registered open-end investment company whose registered investment adviser is an entity other than Prudential Investments LLC. (n) "Portfolio Manager" means any Advisory Person who has the direct responsibility and authority to make investment decisions for the Fund. (o) "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. (p) "Profits" means any total or partial gain realized from a securities transaction or group of transactions as defined by the Mutual Fund Code of Ethics/Personal Securities Trading Committee ("Committee"). (q) "Proprietary Registered Open-End Investment Company" or "Proprietary Fund" means a registered open-end investment company for which Prudential Investments LLC acts as the registered investment adviser, with the exception of proprietary money market open-end registered investment companies. (r) "Security" will have the meaning set forth in Section 2(a)(36) of the Act, except that it will not include shares of Non-proprietary Registered Open-end Investment Companies, money market 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. (s) "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, except that Access Persons covered by more than one Code of Ethics meeting the requirements of Rule 17j-1 may be governed by the provisions of such other Code of Ethics and report all transactions pursuant to the terms of such other Code of Ethics provided 4 that such Code was reviewed and approved by the Board of Directors/Trustees of the Fund. The Compliance Officer shall ensure that each Access Person subject to this Code receives a copy of the Code. 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 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. A. MUTUAL FUNDS Except as provided in Section 5 below, Investment Personnel and certain other individuals identified by the Compliance Officer are required to hold Proprietary Funds purchased for a period of 90-days. Profits realized on such transactions that do not adhere to the requirements of this Section may be promptly required to be disgorged to the Fund or as otherwise deemed appropriate by the Committee. B. 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. C. 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 5 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. D. 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. This prohibition shall also not apply to Access Persons of the Manager, Principal Underwriter, and Adviser/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. 6 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. E. 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. For purposes of this prohibition, Security shall exclude Proprietary Funds. 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. 7 F. SHORT SALES No Access Person may sell any security short that 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. This prohibition does not apply to Disinterested Directors/Trustees. G. 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. This prohibition does not apply to Disinterested Directors/Trustees. H. INVESTMENT CLUBS No Access Person may participate in an investment club. This prohibition does not apply to Disinterested Directors/Trustees. 5. EXEMPTED TRANSACTIONS The requirements of Section 4.A. above will not apply to subparagraphs (a), (c), (d), (i), and (k) hereof. In addition, subject to preclearance in accordance with Section 6 below with respect to subparagraphs (b), (e), (f), (g) and (i) hereof, the prohibitions of Sections 4.D. and 4.E., 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. 8 (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. With respect to the requirements of Section 4.A. above, the Compliance Officer may approve certain hardship or other exceptions. (j) Purchases or sales of Unit Investment Trusts. (k) Purchases or sales of Securities that are part of an automatic investment/withdrawal program or that result from automatic rebalancing. 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 and Section 4.A. above. - ---------- (2) A list of such indices will be maintained by the Compliance Officer. 9 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 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 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 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: 10 (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/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. 11 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. 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 include information that is current within the previous 30 days, 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 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 material 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 have 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 (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 13 regulations. The Board will review such report and determine if any further action is required. 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. 14 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)(2) 6 a2130308zex-99_p2.txt EX 99.(P)(2) Exhibit 99.(p)(2) Personal Securities Trading Policy INTRODUCTION As a leader in the financial services industry, Prudential Financial, Inc. ("Prudential" or "Company") aspires to the highest standards of business conduct. Consistent with this standard, Prudential has developed a Personal Securities Trading Policy ("Policy") incorporating policies and procedures followed by leading financial service firms. This Policy is designed to ensure Prudential and its associates comply with various securities laws and regulations including the Insider Trading and Securities Fraud Enforcement Act of 1988 ("ITSFEA") and the National Association of Securities Dealers ("NASD") Conduct Rules, and to ensure that its associates conduct their personal trading in a manner consistent with Prudential's policy of placing its shareholders' and customers' interests first. This Policy sets forth insider trading standards and requirements, trade monitoring procedures, and personal trading restrictions for Prudential associates. SECTION I sets forth Prudential's Policy Statement On Insider Trading that applies to all Prudential associates. It is important that all Prudential associates read and understand this policy, which sets forth their responsibilities in connection with the use and disclosure of material nonpublic information. SECTION II sets forth Prudential's trade monitoring procedures and trade reporting obligations for Covered and Access Persons, including the authorized broker-dealer requirement introduced in 2002. SECTION III sets forth Prudential's policy and restrictions relating to personal trading in securities issued by Prudential for Designated Persons and all other Prudential associates. Responsibilities for Section 16 Insiders are covered under a separate policy. SECTION IV sets forth the additional trading policies and procedures applicable to associates of a Prudential broker-dealer. SECTION V sets forth the additional trading policies and procedures applicable to associates of a Prudential portfolio management unit or trading unit. SECTION VI sets forth the additional trading policies and procedures applicable to associates of the private asset management units of Prudential Investment Management ("PIM"). SECTION VII sets forth the additional trading policies and procedures applicable to associates of Prudential Equity Group, Inc. ("PEG"). If you are unclear as to your personal trading and reporting responsibilities, or have any questions concerning any aspect of this Policy, please contact the Securities Monitoring Unit, Compliance Department. The personal trading policy and trade monitoring procedures described in this Policy reflect the practices followed by leading financial service firms. No business unit or group may adopt policies or procedures that are inconsistent with this Policy. However, i business units may, with the prior approval of the Securities Monitoring Unit, adopt policies and procedures that are more stringent than those contained in this Policy. ii TABLE OF CONTENTS INTRODUCTION I TABLE OF CONTENTS III I. PRUDENTIAL'S POLICY STATEMENT ON INSIDER TRADING 6 A. USE OF MATERIAL NONPUBLIC INFORMATION 6 B. PRUDENTIAL INSIDER TRADING RULES 6 C. WHAT IS NONPUBLIC INFORMATION? 7 D. WHAT IS MATERIAL INFORMATION? 8 E. "FRONT-RUNNING" AND "SCALPING" 9 F. PRIVATE SECURITIES TRANSACTIONS 9 G. CHARITABLE GIFTS 9 H. PENALTIES FOR INSIDER TRADING 9 1. Penalties for Individuals 10 2. Penalties for Supervisors 10 3. Penalties for Prudential 10 II. SECURITIES TRADE MONITORING FOR COVERED AND ACCESS PERSONS 10 A. THE "SMARTS" SYSTEM 10 B. COVERED AND ACCESS PERSONS 11 C. TRADE REPORTING REQUIREMENTS 11 1. Authorized Broker-Dealer Requirements 11 2. Authorized Broker-Dealer Exceptions 11 3. Trade Reporting Requirements for Exception Accounts 12 4. Personal and Family Member Accounts 12 5. Reportable Securities Transactions 13 6. Confidentiality of Trading Information 13 7. Additional Requirements 13 III. POLICY AND RESTRICTIONS FOR PERSONAL TRADING IN SECURITIES ISSUED BY PRUDENTIAL BY DESIGNATED PERSONS 14 A. DESIGNATED PERSONS 14 B. SPECIFIC TRADING REQUIREMENTS 14 1. Brokerage Account Requirements for Designated Persons 15 2. Trade Reporting Requirements for Accounts with Non-Authorized Broker-Dealers 15 3. Trading Windows/Blackout Periods 15 4. Preclearance of Trading in Securities Issued by Prudential 16 5. Prohibited Transactions 16 6. PESP 16 C. SUPERVISORY RESPONSIBILITIES 17 D. VIOLATIONS TO THE POLICY 17 IV. TRADING RESTRICTIONS FOR ASSOCIATES OF BROKER-DEALERS 17 A. TRADE MONITORING FOR ASSOCIATES OF PRUCO SECURITIES CORPORATION AND PRUDENTIAL INVESTMENT MANAGEMENT SERVICES, LLC. 17 1. Notification Requirements for Personal Securities Accounts 18 2. Annual Compliance Training and Sign-off 18 B. RESTRICTIONS ON THE PURCHASE AND SALE OF INITIAL EQUITY PUBLIC OFFERINGS 18 C. PRIVATE SECURITIES TRANSACTIONS 19
iii D. ADDITIONAL RESTRICTIONS FOR PEG ASSOCIATES 20 V. TRADING RESTRICTIONS FOR PORTFOLIO MANAGEMENT AND TRADING UNITS 20 A. DEFINITIONS 20 B. MUTUAL FUND REPORTING AND TRADING RESTRICTIONS 21 1. Mutual Fund Holding Period 21 2. Policies Relating to Reporting and Trading Mutual Funds 22 C. ADDITIONAL TRADING RESTRICTIONS 22 1. Initial Public Offerings 22 2. Private Placements 23 3. Blackout Periods -- "7 Day Rule" 23 4. Short-Term Trading Profits 23 5. Short Sales 24 6. Options 24 7. Investment Clubs 24 D. PRECLEARANCE 24 E. EXEMPTIONS 25 1. Ineligible securities. 25 2. Exercise of rights issued by issuer. 25 3. De minimis trades. 25 4. Discretionary accounts. 25 5. Index options. 25 6. Unit investment trusts and open-end mutual funds. 25 7. Non-volitional transactions and dividend reinvestment plans. 26 8. Exceptions by prior written approval. 26 9. Automatic Investment/Withdrawal Programs and Automatic Rebalancing. 26 F. PERSONAL TRADE REPORTING 26 G. PERSONAL SECURITIES HOLDINGS 26 H. SERVICE AS A DIRECTOR 26 I. GIFTS 27 J. CODE VIOLATIONS AND SANCTIONS 27 K. REPORTS TO CLIENTS 27 L. CONFLICTS OF INTEREST 28 VI. TRADING RESTRICTIONS OF PRIVATE ASSET MANAGEMENT UNITS 28 A. PRIVATE SIDE MONITORED LIST 29 B. INVESTMENT CLUBS 29 C. ADDITIONAL RESTRICTIONS FOR CERTAIN UNITS 30 1. Real Estate Units 30 2. Prudential Capital Group 30 VII. POLICY FOR PRUDENTIAL EQUITY GROUP, INC. 30 A. ASSOCIATED PERSONS' SECURITIES ACCOUNTS 30 1. Trade Monitoring at PEG 30 B. DEFINITION OF "EMPLOYEE ACCOUNT" AND "EMPLOYEE RELATED ACCOUNT" 31 C. INVESTMENT CLUBS 31 D. PERSONAL TRADING RESTRICTIONS 31 1. Purchases of Public Equity Offerings 31 2. Private Securities Transactions 32 3. Annual Compliance Training 32
iv 4. 24 - Hour Research Report Restriction 32 E. RESTRICTED LIST 32 F. ADDITIONAL TRADING RESTRICTIONS FOR CERTAIN PEG DEPARTMENTS 33 1. Trading Restrictions 33 2. Preclearance Procedures 33 EXHIBITS 34 EXHIBIT 1 - SAMPLE LETTER TO BROKERAGE FIRM 34 EXHIBIT 3 - COMPLIANCE AND REPORTING OF PERSONAL TRANSACTIONS 35 EXHIBIT 4 - INDEX OPTIONS ON A BROAD-BASED INDEX 37 EXHIBIT 5 - PERSONAL SECURITIES HOLDINGS REPORT 38 EXHIBIT 6 -- SECTION 16 INSIDERS AND DESIGNATED PERSONS PRECLEARANCE REQUEST FORM 39 COMMENTS: _______________________________________________________________________EXHIBIT 7 -- NON PROPRIETARY SUBADVISED MUTUAL FUNDS 40 EXHIBIT 7 -- NON PROPRIETARY SUBADVISED MUTUAL FUNDS 41
v I. PRUDENTIAL'S POLICY STATEMENT ON INSIDER TRADING Prudential aspires to the highest standard of business ethics. Accordingly, Prudential has developed the following standards and requirements to ensure the proper protection of material nonpublic information and to comply with laws and regulations governing insider trading. A. USE OF MATERIAL NONPUBLIC INFORMATION In the course of your work at Prudential, you may receive or have access to material nonpublic information about Prudential or other public companies. Company policy, industry practice and federal and state laws establish strict guidelines regarding the use of material nonpublic information. - - You may not use material nonpublic information, obtained in the course of your employment, for your personal gain or share such information with others for their personal benefit; - - You must treat as confidential all information that is not publicly disclosed concerning Prudential's financial information and key performance drivers, investment activity or plans, or the financial condition and business activity of Prudential or any company with which Prudential is doing business; and - - If you possess material nonpublic information, you must preserve its confidentiality and disclose it only to other associates who have a legitimate business need for the information. Under federal securities law, it is illegal to buy or sell a security while in possession of material nonpublic information relating to the security.(1) It is also illegal to "tip" others about inside information. In other words, you may not pass material nonpublic information about an issuer on to others or recommend that they trade the issuer's securities. Insider trading is an extremely complex area of the law principally regulated by the Securities and Exchange Commission ("SEC"). If you have any questions concerning the law or a particular situation, you should consult with the Securities Monitoring Unit, Compliance Department or the Law Department. If you believe that you may have material nonpublic information about a public company obtained in the course of your position, or if you are in a portfolio or asset management unit and you believe you may have material nonpublic information regardless of the source, you should notify your Chief Compliance Officer or the Securities Monitoring Unit so that the securities can be monitored and/or placed on a restricted list as appropriate. B. PRUDENTIAL INSIDER TRADING RULES - ---------- (1) In some circumstances, additional elements may be required for there to be a violation of law, including scienter and breach of a duty. 6 Below are three rules concerning insider trading. Failure to comply with these rules could result in violations of the federal securities laws and subject you to severe penalties described in SECTION H. Violations of these rules also may result in discipline by Prudential up to and including termination of employment. (1) You may not buy or sell securities issued by Prudential or any other public company if you are in possession of material nonpublic information relating to those companies. This restriction applies to transactions for you, members of your family, Prudential or any other person for whom you may buy or sell securities. In addition, you may not recommend to others that they buy or sell that security. (2) If you are aware that Prudential is considering or actually trading any security for any account it manages, you must regard that as material nonpublic information. Accordingly, you may not make any trade or recommendation involving that security, until seven calendar days after you know that such trading is no longer being considered or until seven calendar days after Prudential ceases trading in that security.(2) (3) You may not communicate material nonpublic information to anyone except individuals who are entitled to receive it in connection with the performance of their responsibilities for Prudential (i.e., individuals with a "need to know"). C. WHAT IS NONPUBLIC INFORMATION? Nonpublic information is information that is not generally available to the investing public. Information is public if it is generally available through the media or disclosed in public documents such as corporate filings with the SEC. If it is disclosed in a national business or financial wire service (such as Dow Jones or Bloomberg), in a national news service (such as AP or Reuters), in a newspaper, on the television, on the radio, or in a publicly disseminated disclosure document (such as a proxy statement or prospectus), you may consider the information to be public. If the information is not available in the general media or in a public filing, you should consider it to be nonpublic. Neither partial disclosure (disclosure of part of the information), nor the existence of rumors, is sufficient to consider the information to be public. If you are uncertain as to whether information is nonpublic, you should consult your Chief Compliance Officer, the Securities Monitoring Unit or the Law Department. While you must be especially alert to sensitive information, you may consider information received directly from a designated company spokesperson to be public information unless you know or have reason to believe that such information is not generally available to the investing public. An associate working on a private securities transaction who receives information from a company representative regarding the transaction should presume that the information is nonpublic. EXAMPLE: When telling a Prudential analyst certain information about the company, a company representative gives indication that the information may be nonpublic by saying "This is - ---------- (2) For restrictions applicable to PEG trading department associates, see Section VII. 7 not generally known but . . ." In such a situation, the analyst should assume that the information is nonpublic. D. WHAT IS MATERIAL INFORMATION? There is no statutory definition of material information. You should assume that information is material if an investor, considering all the surrounding facts and circumstances, would find such information important in deciding whether or when to buy or sell a security. In general, any nonpublic information that, if announced, could affect the price of the security should be considered to be material information. If you are not sure whether nonpublic information is material, you should consult the Law Department, the Securities Monitoring Unit or your Chief Compliance Officer. Material information may be about Prudential or another public company. EXAMPLES: - - Information about a company's earnings or dividends (e.g., whether earnings will increase or decrease); - - Information about a company's physical assets (e.g., an oil discovery, a fire that destroyed a factory, or an environmental problem); - - Information about a company's personnel (e.g., a valuable employee leaving or becoming seriously ill); - - Information about a company's pension plans (e.g., the removal of assets from an over-funded plan or an increase or decrease in future contributions); - - Information about a company's financial status (e.g., financial restructuring plans or changes to planned payments of debt securities); or - - Information about a merger, acquisition, tender offer, joint venture or similar transaction involving the Company generally should be considered material. Information may be material even though it may not be directly about a company (e.g., if the information is relevant to that company or its products, business, or assets). EXAMPLES: - - Information that a company's primary supplier is going to increase dramatically the prices it charges; or - - Information that a competitor has just developed a product that will cause sales of a company's products to plummet. Material information may also include information about Prudential's activities or plans relating to a company unaffiliated with Prudential. EXAMPLE: Information that Prudential is going to enter into a transaction with a company, such as, for example, awarding a large service contract to a particular company. 8 E. "FRONT-RUNNING" AND "SCALPING" Trading while in possession of information concerning Prudential's trades is prohibited by Prudential's insider trading rules and may also violate federal law. This type of trading activity is referred to as "front running" and "scalping". Front running occurs when an individual, with knowledge of Prudential's trading intentions, knowingly makes a trade in the same direction as Prudential just before Prudential makes its trade. Examples include buying a security just before Prudential buys that security (in the expectation that the price may rise based on such purchase) or selling a security just before Prudential sells such security (in the expectation that such sale will lead to a drop in price). Scalping is making a trade in the opposite direction just after Prudential's trade, in other words, buying a security just after Prudential stops selling such security or selling just after Prudential stops buying such security. EXAMPLE: Prudential is planning to sell a large position in ABC Co. If you sell ABC Co. securities ahead of Prudential in expectation that the large sale will depress its price, you are engaging in front running. If you purchase ABC Co. securities after Prudential has completed its sale to take advantage of the temporary price decrease, you are engaging in scalping. F. PRIVATE SECURITIES TRANSACTIONS The antifraud provisions of the federal securities laws apply to transactions in both publicly traded securities and private securities. However, the insider trading laws do not prohibit private securities transactions where both parties to the transaction have possession of the same material nonpublic information. G. CHARITABLE GIFTS If you are in possession of material nonpublic information concerning a security you hold, you may not gift the security to a charitable institution and receive a tax deduction on the gift. H. PENALTIES FOR INSIDER TRADING(3) - ---------- (3) In addition to the penalties listed in this section, Prudential and/or Prudential associates could be subject to penalties under the Employee Retirement Income Security Act of 1974 (ERISA) if the insider trading occurs in connection with an ERISA plan's investment. 9 1. PENALTIES FOR INDIVIDUALS Individuals who illegally trade while in possession of material nonpublic information or who illegally tip such information to others may be subject to severe civil and criminal penalties including disgorgement of profits, substantial fines and imprisonment. Employment consequences of such behavior may include the loss or suspension of licenses to work in the securities industry, and disciplinary action by Prudential up to and including termination of employment. 2. PENALTIES FOR SUPERVISORS The law provides for penalties for "controlling persons" of individuals who commit insider trading. Accordingly, under certain circumstances, supervisors of an associate who is found liable for insider trading may be subject to criminal fines up to $1 million per violation, civil penalties and fines, and discipline by Prudential up to and including termination of employment. 3. PENALTIES FOR PRUDENTIAL Prudential could also be subject to penalties in the event an associate is found liable for insider trading. Such penalties include, among others, harsh criminal fines and civil penalties, as well as, restrictions placed on Prudential's ability to conduct certain business activities including broker-dealer, investment adviser, and investment company activities. II. SECURITIES TRADE MONITORING FOR COVERED AND ACCESS PERSONS A. THE "SMARTS" SYSTEM Federal Law requires all broker-dealers and investment advisers to establish procedures to prevent insider trading by their associates. In addition, the Federal Sentencing Guidelines require companies to establish reasonable procedures to prevent and detect violations of the law. To comply with these and other similar laws and rules, Prudential has developed the Personal Securities Trading Policy to prevent the misuse of material nonpublic information about Prudential or other public companies. All employees are held to the general principles of the Policy to ensure the proper use of material nonpublic information. However, certain employees are required to have their personal trading activities monitored and may be subject to additional restrictions. Prudential has established a program to monitor the personal securities trading of associates with routine access to nonpublic corporate information about Prudential or any external public company, portfolio management activities, or other sensitive information. These individuals are required to have their personal securities transactions monitored in the securities trade monitoring system known as "SMARTS" (Securities Monitoring Automated Reporting and Tracking System). 10 B. COVERED AND ACCESS PERSONS Certain employees are classified as "Covered" or "Access" Persons (as defined below). These individuals are categorized based on the information to which they have access. Covered and Access Persons are required to conform to the authorized broker-dealer requirements (discussed below). "Access Persons" - Associates who work in or support portfolio management activities. See SECTION V for specific requirements. "Covered Persons" - Associates, other than Access Persons, who may have access to material nonpublic information about external public companies or those individuals who have a regulatory obligation to be monitored. If you are unsure as to whether you are an Access or Covered Person, contact your Chief Compliance Officer or the Securities Monitoring Unit.(4) C. TRADE REPORTING REQUIREMENTS 1. AUTHORIZED BROKER-DEALER REQUIREMENTS Covered and Access Persons are required to maintain personal brokerage accounts at an authorized broker-dealer. The authorized firms are Wachovia Securities (for accounts that were previously maintained at Prudential Securities), Pruco Securities, Charles Schwab, E*TRADE, Fidelity Investments, and Merrill Lynch. Covered and Access Persons can find information about each firm through the authorized broker-dealer website at http://njplazx51/authorizedbrokerdealers. The account types that are subject to the authorized broker-dealer requirements are listed below in SECTION C. 4. Prudential Financial, Inc. securities held at EquiServe Trust Company, N.A. are not required to be transferred. New Associates who are subject to this requirement will be required to transfer accounts to an authorized broker-dealer within 60 days of becoming a Covered and/or Access Person. Associates must instruct their brokers to send trading activity (written confirmations and statements) to the Securities Monitoring Unit while they are in the process of transferring their accounts. A sample letter to a brokerage firm is provided as EXHIBIT 1 to this Policy. 2. AUTHORIZED BROKER-DEALER EXCEPTIONS Exceptions to the authorized broker-dealer requirement are limited and should be submitted to the Chief Compliance Officer responsible for your business unit who will submit the request to the appropriate Business Unit or Corporate Department Executive at the Senior Vice President level or above for review. Documentation for all exceptions - ---------- (4) PEG monitors the personal trading of its associates in conformity with applicable NYSE and NASD rules, through its own process utilizing SMARTS technology. See Section VII. 11 must be forwarded to your business unit compliance officer for review. Exceptions will be evaluated on a case-by-case basis based on the following criteria: - - Accounts held jointly with or accounts for spouses who are subject to the same type of personal trading requirements that pre-date this policy (June 27, 2002) or that were established prior to being subject to this policy. - - Accounts in which the employee has a formal investment management agreement that provides full discretionary authority to a third party money manager. A copy of the management agreement must be submitted to the business unit compliance officer. - - Blind trusts and family trusts. A copy of the trust agreement must be submitted to the business unit compliance officer. - - Accounts for international employees in locations where there is no local presence or access to one of these firms. - - Accounts holding non-transferable securities that may not, due to their nature, be liquidated without undue hardship to the employee (new purchases generally will not be permitted.) - - Direct stock purchase or dividend reinvestment plans that are established directly with a public company. 3. TRADE REPORTING REQUIREMENTS FOR EXCEPTION ACCOUNTS If you are granted an exception to the authorized broker-dealer requirement, you must direct the brokerage firm(s) that maintains your securities account(s) to send duplicate copies of your trade confirmations and account statements ("trading activity") to the Securities Monitoring Unit. A sample letter to a brokerage firm is provided as EXHIBIT 1 to this Policy. Remember, accounts maintained at Wachovia Securities (for accounts that were previously maintained at Prudential Securities), Pruco Securities, Charles Schwab, E*TRADE, Merrill Lynch, and Fidelity Investments are exempt from this requirement.(5) 4. PERSONAL AND FAMILY MEMBER ACCOUNTS You are required to maintain in the manner described above, all securities accounts in which you have a beneficial interest, including the following: (1) Personal accounts; (2) Accounts in which your spouse has beneficial interest; (3) Accounts in which your minor children or any dependent family member has a beneficial interest; (4) Joint or tenant-in-common accounts in which you are a participant; (5) Accounts for which you act as trustee, executor or custodian; - ---------- (5) Information concerning securities transactions at the authorized broker-dealers is fed by computer link directly to Prudential's trade monitoring system, SMARTS. 12 (6) Accounts over which you exercise control or have any investment discretion; and (7) Accounts of any individual to whose financial support you materially contribute.(6) Accounts restricted solely to the purchase and sale of mutual funds and/or 529 College Savings Plans are not subject to the Policy and do not require disclosure.(7) However, if the account may trade other securities, it is subject to the Policy even if it holds only mutual funds. All monitored associates are required to complete and sign an annual Acknowledgment Form, attached as EXHIBIT 2, identifying and listing the location of all reportable brokerage accounts, including those held at authorized broker-dealers and those held at non-authorized firms. For the latter, your signature on the Acknowledgement Form will confirm that you have instructed all brokers for such accounts to send duplicate copies of account statements and trade confirmations to the Securities Monitoring Unit. Acknowledgment forms, which are supplied to you electronically by the Securities Monitoring Unit, must be completed annually.(8) 5. REPORTABLE SECURITIES TRANSACTIONS In general, all securities transactions are reportable by Access and Covered Persons except for purchases and sales of variable insurance products (including annuities), certificates of deposit and certain United States government securities. In addition, Covered Persons are not required to report purchases and sales of open-end mutual funds. However, Access Persons must report transactions and holdings of certain open-end mutual funds as described in SECTION V. The chart attached as EXHIBIT 3 identifies the personal securities transactions that are reportable. 6. CONFIDENTIALITY OF TRADING INFORMATION The Securities Monitoring Unit is responsible for maintaining SMARTS, and recognizes that your investment records are highly confidential. Accordingly, the Securities Monitoring Unit follows careful procedures for the collection and review of associate trading information to ensure that such records are kept in the strictest confidence. Other than exception reports, which are reviewed by business unit heads and business unit compliance personnel, the only persons who have access to this information are a small group within the Compliance Department. 7. ADDITIONAL REQUIREMENTS Additional information and guidance can be found in the following Sections: Requirements for Designated Person - SECTION III. - ---------- (6) For example, this would include individuals with whom you share living expenses, bank accounts, rent or mortgage payments, ownership of a home, or any other material financial support. (7) Investment Personnel and Access Persons are subject to certain trading restrictions and reporting requirements with respect to mutual funds transactions and holdings. See SECTION V.B. (8) The Securities Monitoring Unit administers the processing of annual acknowledgment forms. If you are a reporting associate, and have not completed an acknowledgment form, please contact the Securities Monitoring Unit. 13 Requirements for Associates of Broker Dealers - SECTION IV. Requirements for Portfolio Management Units - SECTION V. Requirements for Private Asset Management Units - SECTION VI. Requirements for associates of PEG - SECTION VII. III. POLICY AND RESTRICTIONS FOR PERSONAL TRADING IN SECURITIES ISSUED BY PRUDENTIAL BY DESIGNATED PERSONS This Section specifically addresses the requirements for those associates who have routine access to material nonpublic information about Prudential. These requirements are consistent with policies of leading financial service firms. Specific policies and procedures relating to Section 16 Insiders are addressed in a separate policy statement, which is available through the Securities Monitoring Unit. A. DESIGNATED PERSONS A "DESIGNATED PERSON" is an employee who, during the normal course of his or her job, has routine access to material nonpublic information about Prudential, including information about one or more business units or corporate level information. Employees at the corporate rank of Executive Vice President ("EVP") and above are deemed to be Designated Persons. Direct reports to each Vice Chairman and EVP and their direct reports are also deemed to be Designated Persons. The Vice Presidents ("VP's") of Finance for each business unit must identify additional employees in each unit who, regardless of level, have routine access to material nonpublic information about Prudential. It is the responsibility of the VPs of Finance to notify the Securities Monitoring Unit of any changes to this list. Finally, management of all other business groups and corporate departments are required to identify and inform the Securities Monitoring Unit of any additional employees, who through the performance of their jobs, have regular access to material nonpublic information. Employees who have been classified as a Designated Person, but believe that they do not have access to material nonpublic information, may request an exception to this requirement. Requests should be forwarded to the Securities Monitoring Unit, who in consultation with the Law Department, will review and facilitate the request. Certain exceptions must be approved by Prudential's General Counsel. B. SPECIFIC TRADING REQUIREMENTS All employees are prohibited from trading securities issued by Prudential while in possession of material nonpublic information regarding the Company. All employees are also prohibited from selling short including "short sales against the box" and from participating in any options transactions on any securities issued by Prudential. Employees are also discouraged from engaging in speculative transactions in securities issued by Prudential and are encouraged to hold Prudential securities for long-term 14 investment. Designated Persons are required to preclear all transactions in Company securities prior to execution through the Securities Monitoring Unit. This requirement excludes transactions in Prudential mutual funds and annuities. Trades will be approved only during open "trading windows." Designated Persons are also subject to the general prohibition relating to short sales and options transactions. These restrictions apply to all accounts in which a Designated Person has a direct or indirect beneficial interest including, but not limited to, accounts for spouses, family members living in your household, and accounts for which the Designated Person or his/her family member exercises investment discretion. 1. BROKERAGE ACCOUNT REQUIREMENTS FOR DESIGNATED PERSONS Designated Persons are required to hold and trade Prudential Financial, Inc. common stock and related equity derivative securities ("PRU") only at an authorized broker-dealer. The authorized firms are Wachovia Securities (for accounts that were previously maintained at Prudential Securities), Pruco Securities, Charles Schwab, E*TRADE, Fidelity Investments, and Merrill Lynch. Designated Persons can access information about each firm through the authorized broker-dealer website at http://njplazx51/authorizedbrokerdealers. This requirement applies to accounts for you, your family members, or accounts in which you have a beneficial interest or over which you have trading authority. See SECTION II.C.4. for a complete list of applicable accounts. You may still maintain your accounts at non-authorized broker-dealers for your non-PRU positions, however those accounts are still subject to Prudential's monitoring procedures outlined below in SECTION B.2. While PRU stock held by you at EquiServe Trust Company, N.A., ("EquiServe") is subject to the provisions of this Policy (e.g., transactions are subject to preclearance and trading window requirements), Designated Persons are not required to transfer PRU positions held at EquiServe to an authorized broker-dealer. 2. TRADE REPORTING REQUIREMENTS FOR ACCOUNTS WITH NON-AUTHORIZED BROKER-DEALERS Designated Persons who maintain brokerage accounts with brokerage firms (for their non-PRU positions) other than the authorized broker-dealers listed in SECTION B.1. above, must direct the brokerage firm(s) to send duplicate copies of trade confirmations and account statements to the Securities Monitoring Unit.(9) A sample letter to a brokerage firm is provided as EXHIBIT 1 to this Policy. 3. TRADING WINDOWS/BLACKOUT PERIODS Designated Persons are permitted to trade in securities issued by Prudential only during open trading windows. Approximately 24 hours after the Company releases its quarterly earnings to the public, the trading window generally opens and generally will remain - ---------- (9) Information concerning securities transactions at the authorized broker-dealers is fed by computer link directly to SMARTS. For accounts held at unauthorized firms, the Securities Monitoring Unit must receive paper copies of all confirms and monthly statements. 15 open until approximately two weeks before the end of each quarter. In addition, the Company may notify Designated Persons regarding unscheduled blackout periods. For example, in the event the Company decides to make an unscheduled announcement (e.g., a pre quarter-end earnings estimate), Prudential may restrict trading activity during a normally permissible trading window. The Securities Monitoring Unit will notify Designated Persons of the opening of trading windows and the commencement of blackout periods. 4. PRECLEARANCE OF TRADING IN SECURITIES ISSUED BY PRUDENTIAL Designated Persons are required to preclear all transactions in securities issued by Prudential through the Securities Monitoring Unit. Designated Persons should submit requests electronically through the SMARTS Preclearance Intranet site. Designated Persons will be sent a link to the Preclearance site from the Securities Monitoring Unit, and a link is also available from the Compliance Department's Intranet site. All approved transactions are valid until the close of business on the day in which preclearance is granted. Therefore, Designated Persons may not enter into "good until cancelled" or "limit" orders involving Prudential securities that carry over until the next trading day. (See EXHIBIT 6 for sample SMARTS Preclearance Request Form.) Transactions that require preclearance include, but are not limited to, the following: - - Open market transactions through a broker/dealer; - - Prudential securities transactions executed in EquiServe accounts; - - Gifts received or given; - - Stock option, restricted stock and performance share plan exercises; and - - Prudential Employee Savings Plan ("PESP") and Deferred Compensation Plan Company Stock Fund transactions. Purchases through automatic payroll deductions need only be precleared at the time the election is made. Preclearance requests for automatic payroll elections will only be accepted during open trading windows. 5. PROHIBITED TRANSACTIONS All employees are prohibited from selling short including "short sales against the box" and from participating in any options transactions on any securities issued by Prudential. In addition, Designated Persons are prohibited from exercising their employee stock options during a blackout period, regardless of whether the transaction involves the sale of Prudential securities. As a result, controls have been established to prevent option exercises during closed trading windows. 6. PESP Certain controls have been established to prevent trading activity in PESP during closed trading periods. PESP transactions that are blocked include exchanges, deferral rate and allocation changes, loans and distributions. Remember, it is the Designated Person's obligation to comply with this Policy including the preclearance and trading window requirements. If a blocking system fails, the employee will be responsible for the exception to the Policy. 16 C. SUPERVISORY RESPONSIBILITIES The VP's of Finance, in conjunction with the Business Unit and Department Heads or their designees, are responsible for identifying changes to the Designated Persons list in their areas and informing the Securities Monitoring Unit, and, with the Securities Monitoring Unit, facilitating employee understanding of and conformity with this Policy. The trade monitoring process is conducted by the Securities Monitoring Unit with matters brought to the attention of Business Unit/Department Head management as needed. D. VIOLATIONS TO THE POLICY Violations or other exceptions to this policy including the preclearance and trading window requirements are reviewed by the Designated Persons Personal Trading Policy Committee. Policy violations or exceptions that may result in disciplinary action, other than an educational reminder, will be resolved with the employee's supervisor. Individuals who do not comply with the Policy are subject to disciplinary action up to and including termination of employment. IV. TRADING RESTRICTIONS FOR ASSOCIATES OF BROKER-DEALERS A. TRADE MONITORING FOR ASSOCIATES OF PRUCO SECURITIES CORPORATION AND PRUDENTIAL INVESTMENT MANAGEMENT SERVICES, LLC. Pruco Securities Corporation ("Pruco") is a full service broker-dealer whose business is limited to the facilitation of non-solicited customer orders of general securities and the distribution of investment company and variable contract products. Prudential Investment Management Services LLC. ("PIMS") and American Skandia Marketing, Incorporated ("American Skandia") are a full service broker-dealers whose primary business is restricted to the facilitation of customer orders in and distribution of Prudential mutual funds, annuities, and 529 plan interests. Unlike Prudential units that participate in the Personal Trade Monitoring System, the nature and scope of Pruco's, PIMS', and American Skandia's business is such that their associates do not have access to material nonpublic information concerning publicly traded securities through their employment.(10) Accordingly, Pruco, PIMS and American Skandia associates are generally not required to participate in SMARTS. However, pursuant to SEC and NASD regulations, Pruco and PIMS Registered Representatives must comply with the following reporting requirements: (11) - ---------- (10) Certain PIMS personnel employed by portfolio management units may be subject to the personal securities trading restrictions set forth in Section V. due to their association with portfolio management activities in addition to the restrictions set forth in this Section. (11) American Skandia associated persons follow policies and procedures outlined in American Skandia's compliance manual that are generally consistent with the requirements of this Section. 17 1. NOTIFICATION REQUIREMENTS FOR PERSONAL SECURITIES ACCOUNTS In accordance with NASD Rule 3050, Pruco and PIMS Registered Representatives ("Registered Representatives") must notify Pruco/PIMS, in writing, prior to opening an account at another broker-dealer, and must notify Pruco/PIMS of any accounts opened prior to becoming a Pruco/PIMS Registered Representative. Registered Representatives must also notify broker-dealers, prior to opening such accounts, that they are Registered Representatives of Pruco/PIMS. However, if the account was established prior to the association of the person with Pruco/PIMS, the Registered Representative must notify the broker-dealer in writing promptly after becoming so associated. These notification requirements apply to all personal securities accounts of Registered Representatives and any securities accounts over which they have discretionary authority. Registered Representatives are not required to report accounts that are limited to the following types of investments: (1) mutual funds; (2) variable life and variable annuity contracts; (3) unit investment trusts; (4) certificates of deposit; (5) 529 Plans; and (6) money market fund accounts.(12) 2. ANNUAL COMPLIANCE TRAINING AND SIGN-OFF The NASD/NYSE Joint Memorandum on Chinese Wall Policies and Procedures (NASD Notice to Members 91-45) provides that firms that do not conduct investment banking research or arbitrage activities still must have "reasonable procedures for the education and training of its associates about insider trading" in order to be in compliance with ITSFEA. Consistent with this Notice, Pruco/PIMS includes a statement concerning insider trading in its annual Compliance Overview. Annually, all Registered Representatives are required to sign a statement affirming that they have read and understand Pruco's/PIMS' policy concerning insider trading as described in the Insurance Division or the PIMS Compliance Manual and as set forth in Prudential's Policy Statement On Insider Trading contained in SECTION I of this Policy. B. RESTRICTIONS ON THE PURCHASE AND SALE OF INITIAL EQUITY PUBLIC OFFERINGS NASD Rule 2790 prohibits broker-dealers from purchasing or retaining "new issues" in their own accounts and from selling new issues to a restricted person. Restricted persons are defined as directors, officers, general partners, employees, associated persons and agents engaged in the investment banking or securities business of any broker-dealer. "New Issues" are any initial public offerings of an equity security. These basic prohibitions also cover sales of new issues to accounts in which any restricted person may have a beneficial interest and, with limited exceptions, to members of the immediate family of such persons. A Restricted Person is permitted to have an interest in an account that purchases new issues (i.e., collective investment accounts including hedge funds, investment partnerships, investment corporations, etc.) - ---------- (12) Associated persons who are also Access Persons are required to report certain mutual fund transactions and holdings as described in Section V. 18 provided that the beneficial interests of all restricted persons do not in aggregate exceed 10% of the total account. The overall purpose of this prohibition is to protect the integrity of the public offering process by requiring that NASD members make a bona-fide public distribution of securities by not withholding such securities for their own benefit or using the securities to reward other persons who are in a position to direct future business to the firm. To ensure compliance with this Rule, associated persons of Prudential's broker-dealers are prohibited from purchasing securities in any public offerings of equity securities. This prohibition includes all associates of Prudential's broker-dealers including PIMS, PRUCO, American Skandia and PEG (See SECTION VII for a full discussion of requirements and restrictions applicable to PEG associates.) The policy applies to all public offerings of equity securities, whether or not the above broker-dealers are participating in the offering. There are no prohibitions on purchases of public offerings of, investment grade asset-backed securities, open-end mutual funds, preferred securities, convertible securities or any debt securities, including but not limited to municipal or government securities. WHICH ACCOUNTS ARE RESTRICTED: Accounts of all persons associated with the above broker-dealers and their immediate families are restricted from purchasing equity public offerings of securities. The term "immediate family" includes parents, mother-in-law, father-in-law, spouse, siblings, brother-in-law, sisters-in-law, children and their spouses, or any other person who is supported (directly or indirectly) to a material extent by the associated person. The prohibition does not apply to sales to a member of the associate's immediate family who is not supported directly or indirectly to a material extent by the associate, if the sale is by a broker-dealer other than that employing the restricted person and the restricted person has no ability to control the allocation of the new issue. For information on this exception, please contact your broker-dealer compliance officer. C. PRIVATE SECURITIES TRANSACTIONS In accordance with NASD Rule 3040, all associates of PIMS, Pruco and PEG must notify their broker-dealer, in writing, and obtain written approval from the broker-dealer, prior to engaging in any private securities transaction. Private securities transactions include, but are not limited to, transactions in unregistered offerings of securities, and purchases or sales of limited partnership interests. Such notification should be made to the compliance officer for the broker-dealer or the compliance officer's designee who will be responsible for approving private securities transactions. This notification requirement does not apply to those trades for which duplicate confirmations are provided by the executing broker. For associates who are subject to preclearance, the preclearance form will satisfy the notification requirement. 19 D. ADDITIONAL RESTRICTIONS FOR PEG ASSOCIATES PEG associates are subject to certain additional personal trading restrictions, which are set forth in SECTION VII. V. TRADING RESTRICTIONS FOR PORTFOLIO MANAGEMENT AND TRADING UNITS Rule 17(j) under the Investment Company Act of 1940 requires that every investment company adopt procedures designed to prevent improper personal trading by investment company personnel. Rule 17(j) was created to prevent conflicts of interest between investment company personnel and shareholders, to promote shareholder value, and to prevent investment company personnel from profiting from their access to proprietary information. In light of the adoption of Rule 17(j) and the growing concern that the mutual fund industry needed to police itself, the Investment Company Institute ("ICI"), an industry group, assembled a blue ribbon panel and, in 1994, issued a report setting forth a series of recommendations concerning personal trading by investment personnel. These recommendations, known as the "ICI rules", have been praised by the SEC, and have been adopted by the majority of the asset management industry associated with U.S. registered investment companies. It is the duty of all Access Persons to act in a manner that avoids any conflict of interest or the appearance of a conflict of interest with Prudential's customers or shareholders. In addition, it is the responsibility of each Access Person to comply with all applicable Federal Securities Laws. In keeping with our ethical standards and the practices of the industry leaders, Prudential has adopted the ICI rules for all of its portfolio management units. The ICI rules concerning personal trading are set forth below and are applicable to these portfolio management units and certain associates outside the specific business unit who provide direct support to these units.(13) In addition, the ICI rules, with certain exceptions, have also been adopted for other investment management units within Prudential including, for example, Prudential Investments LLC.(14) A. DEFINITIONS The following terms are defined for purposes of this policy: - ---------- (13) Certain PIMS personnel employed by portfolio management units may be subject to the personal securities trading restrictions set forth in this section due to their association with portfolio management activities in addition to the restrictions set forth in Section IV. (14) Certain individuals of Prudential Investments with access to material nonpublic information, including portfolio trading activity, are subject to this Section. In addition, employees of Prudential Investments who are not deemed Access Persons may still be subject to personal trade monitoring due to their specific job responsibilities and the information to which they have access. In addition, certain international units may also be subject to the requirements of this Section. Individuals should consult the applicable business unit compliance officer for additional information. 20 - - "Access Persons" are employees or officers of a mutual fund or investment adviser, who, in connection with their normal responsibilities, make, participate in, or obtain current or pending information regarding the purchase or sale of a security by the Complex (Complex defined below).(15) - - "Investment personnel" are Access Persons who are portfolio managers, analysts, traders, or certain other individuals as designated by the compliance officer. (For restrictions applicable to PEG Trading Desk personnel, see SECTION VII). - - A "pending buy or sell order" exists when a decision to purchase or sell a security has been made and communicated. - - The "Complex" includes all portfolios managed by the business unit or group of units to which an individual is deemed to have access. B. MUTUAL FUND REPORTING AND TRADING RESTRICTIONS Investment Personnel and Access Persons are prohibited from market timing any proprietary mutual funds, as well as non-proprietary funds subadvised by Prudential, and must comply with any trading restrictions established by Prudential and its clients to prevent market timing of these funds. To deter the market timing in proprietary and non-proprietary funds subadvised by Prudential, Investment Personnel and certain officers of Prudential Investment Management ("PIM") and Prudential Investments LLC ("PI") are required to hold any proprietary or non-proprietary subadvised mutual funds for a period of 90 days. Investment Persons and Access Persons are also required to report mutual fund transactions covered under this policy as described below. 1. MUTUAL FUND HOLDING PERIOD Investment Personnel and certain PIM and PI officers are required to hold proprietary and non-proprietary subadvised mutual funds, excluding money market funds, purchased for a period of 90 days.(16) Proprietary funds include JennisonDryden, Strategic Partners, Target, and American Skandia Advisor Funds ("American Skandia Funds"). Non-proprietary subadvised funds are defined in EXHIBIT 7. Specifically, Investment Personnel and certain PIM and PI officers are prohibited from executing a purchase and a sale of the same proprietary or non-proprietary subadvised mutual fund during any 90-day period.(17) This restriction applies to accounts for which Investment Personnel and certain PIM and PI officers have a direct or indirect beneficial interest, including household members. See SECTION II.C.4. Profits realized on such transactions - ---------- (15) Officers listed on PI's Form ADV and mutual fund officers are also classified as Access Persons. (16) PIM and PI officers will be identified by the President of PIM in consultation with the PIM Chief Compliance Officer. The PIM Chief Compliance Officer will be responsible for maintaining the list and submitting any changes to the Securities Monitoring Unit. (17) For the Prudential Employee Savings Plan and the Jennison Associates Savings and Pension Plans, only exchanges of proprietary and non-proprietary subadvsied funds are subject to the 90-day holding period. Purchases due to automatic payroll deductions and company match and automatic rebalancing transactions are exempt from this requirement. 21 must be disgorged to the applicable mutual fund or client, or as otherwise deemed appropriate by the Committee.(18) 2. POLICIES RELATING TO REPORTING AND TRADING MUTUAL FUNDS Access Persons are required to report all transactions of proprietary and non-proprietary subadvised mutual funds. This requirement applies to accounts for which Access Persons have a direct or indirect beneficial interest, including household members. See SECTION II.C.4. Access Persons may hold and trade proprietary and non-proprietary subadvised mutual funds only through one of the authorized broker/dealers, directly with Prudential Mutual Fund Services, the Prudential Employee Savings Plan ("PESP"), or the Jennison Associates ("Jennison") Savings and Pension Plans. However, non-proprietary subadvised funds may be traded directly with the fund provided that duplicate account statements and trade confirmations are sent directly to the Securities Monitoring Unit, Compliance Department. Investment elections or transactions executed in the executive deferred compensation plans are not subject to this requirement.(19) Investment Personnel and Access Persons must notify the Securities Monitoring Unit of any mutual fund accounts, including accounts of all household members, held directly with the fund for all non-proprietary subadvised mutual funds. In addition, Investment Personnel and Access Persons must contact these funds to request that duplicate statements and confirmations of mutual fund trading activity be sent to the Securities Monitoring Unit. A sample letter to a brokerage firm is provided as EXHIBIT 1 to this Policy. C. ADDITIONAL TRADING RESTRICTIONS The following restrictions and requirements apply to all accounts in which Access Persons and Investment Personnel have a direct or indirect beneficial interest, including accounts of household members as described in SECTION II.C.4. 1. INITIAL PUBLIC OFFERINGS Investment personnel are prohibited from purchasing initial public offerings of securities. For purposes of this policy, "initial public offerings of securities" do not include offerings of government or municipal securities. - ---------- (18) Discipline and sanctions relating to violations occurring in the Prudential Employee Savings Plan or the Jennison Savings or Pension Plans will be determined separately by the Personal Securities Trading/Mutual Fund Code of Ethics Committee. (19) Prudential's deferred compensation plans (including The Prudential Insurance Company of America Deferred Compensation Plan, the Amended and Restated American Skandia Lifestyle Security Plan, and the Trust Agreement Between Jennison Associates LLC and Wachovia Bank, N.A.) are not susceptible to market timing due to the fact that the plans only permit one transaction per month. Therefore, transactions in these plans are exempt from both the 90-day holding period and reporting requirements. 22 2. PRIVATE PLACEMENTS Investment personnel are prohibited from acquiring any securities in a private placement without express prior approval. Such approval must be obtained from the local business unit head in consultation with the business unit compliance officer (such person having no personal interest in such purchases or sales), based on a determination that no conflict of interest is involved. Investment personnel must disclose their private placement holdings to the business unit compliance officer and the business unit's chief investment officer when the investment personnel play a part in the consideration of any investment by the portfolio in the issuer. In such circumstances, the portfolio's decision to purchase securities of the issuer will be subject to independent review by appropriate personnel with no personal interest in the issuer. 3. BLACKOUT PERIODS -- "7 DAY RULE" Access Persons are prohibited from executing a securities transaction on a day during which any portfolio in their 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.(20) This prohibition will not apply to purchases and sales executed in a fund or portfolio that replicates a broad based securities market index. Investment personnel are prohibited from buying or selling a security within seven calendar days before or after a portfolio in their Complex trades in the same or an equivalent security. Nevertheless, a personal trade by any investment personnel shall not prevent a portfolio in the same business unit from trading in the same or an equivalent security. However, such a transaction shall be subject to independent review by their business unit compliance officer.(21) This prohibition will not apply to purchases and sales executed in a fund or portfolio that replicates a broad based securities market index. Profits realized on transactions that are executed during blackout periods may be required to be disgorged to the business unit. Transactions inadvertently executed by an Access Person during a blackout period will not be considered a violation and disgorgement will not be required provided that the transaction was effected in accordance with the preclearance procedures and without prior knowledge of any pending purchase or sale orders in the Complex in the same or equivalent security. All disgorged profits will be donated to a charitable organization in the name of the Company or to an account or client for which the security is held or traded. 4. SHORT-TERM TRADING PROFITS Investment personnel are prohibited from profiting from a purchase and sale, or sale and purchase, of the same or an equivalent security within any sixty calendar day period. Profits realized on such proscribed trades must be disgorged to the business unit. All - ---------- (20) There is no presumption that Access Persons have knowledge of actual trading activity. (21) Properly precleared personal trades executed within seven days prior to a portfolio trading will be presumed not violative of the 7 day rule provided there was no additional evidence to the contrary. 23 disgorged profits will be donated to a charitable organization in the name of the Company or to an account or client for which the security is held or traded. 5. SHORT SALES Access Persons may not sell any security short which is owned by any portfolio managed by the business unit. Access Persons may, however, make short sales "against the box." A short sale "against the box" refers to a short sale when the seller owns an equivalent amount of the same securities. 6. OPTIONS Access Persons may not write naked call options or buy naked put options on a security owned by any portfolio managed by the business unit. Access Persons may purchase options on securities not held by any portfolio managed by the business unit, or purchase call options or write put options on securities owned by any portfolio managed by the business unit, 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 portfolio managed by the business unit at the discretion of the business unit compliance officer. However, investment personnel should keep in mind that the short-term trading profit rule might affect their ability to close out an option position at a profit. 7. INVESTMENT CLUBS Access Persons may not participate in investment clubs. D. PRECLEARANCE Access Persons must preclear all personal securities transactions with the exception of those identified in SECTION V.E. below. Preclearance is also not required for both proprietary and non-proprietary subadvised mutual funds. All requests for preclearance must be submitted to the business unit compliance officer for approval using the automated preclearance website which may be accessed via http://smartspreclearance.prudential.com/smarts_preclearance/.(22), (23) 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 business days from the date preclearance is granted. If any order is not timely executed, a request for preclearance must be resubmitted.(24) - ---------- (22) Paper preclearance forms may be used for international units and in certain hardship cases. Paper Forms are available from the business unit compliance officer. (23) Access Persons should submit their preclearance forms to the business unit compliance officer of the Complex to which they are deemed to have access. (24) Exceptions to the requirement to resubmit preclearance requests may be granted in advance by the business unit compliance officer for unusual circumstances. 24 E. EXEMPTIONS The black out periods and the short-term trading profit rule do not apply to any of the following activities. In addition, the mutual fund 90-day holding period does not apply to items 4,7,8, and 9. Preclearance is not required for items 4, 5, 6, and 7. 1. INELIGIBLE SECURITIES. Purchases or sales of securities (or their equivalents) that are not eligible for purchase or sale by any portfolio in the business unit. 2. EXERCISE OF RIGHTS ISSUED BY ISSUER. 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. 3. DE MINIMIS TRADES. Any trades, or series of trades effected over a 30 day calendar period, involving 500 shares or less in the aggregate of an equity security, provided that the securities are listed on the New York Stock Exchange or have a market capitalization greater than $1 billion, AND the Access Person has no prior knowledge of activity in such security by any portfolio in the business unit. Any fixed-income securities transaction, or series of related transactions effected over a 30 day calendar 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 security by any portfolio in the business unit. 4. DISCRETIONARY ACCOUNTS. 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 exclusively 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.(25) Access Persons must provide written documentation that evidences he/she does not have authority to participate in the management of the account and must receive written permission from the business unit compliance officer. 5. INDEX OPTIONS. Any transactions in index options effected on a broad-based index. (See EXHIBIT 4.) 6. UNIT INVESTMENT TRUSTS AND OPEN-END MUTUAL FUNDS. - ---------- (25) Such accounts must receive written approval in advance from the Securities Monitoring Unit. In such cases, the employee must give exclusive discretion to his/her broker or investment adviser. A copy of such notification should be sent to the Securities Monitoring Unit. Such accounts are required to be reported and monitored as provide under SECTION II.A. 25 7. NON-VOLITIONAL TRANSACTIONS AND DIVIDEND REINVESTMENT PLANS. 8. EXCEPTIONS BY PRIOR WRITTEN APPROVAL. Purchases or sales of securities which receive prior written approval of the business unit compliance officer (such person having no personal interest in such purchases or sales), based on a determination that no conflict of interest is involved and that such purchases or sales are not likely to have any economic impact on any portfolio in the business unit or on its ability to purchase or sell securities of the same class or other securities of the same issuer. With respect to the mutual fund 90-day holding period requirement, only certain limited exceptions will be approved including, but not limited to, hardships and extended disability. Mutual fund 90-day holding period exceptions must be approved by the Business Unit Head and the PIM Chief Compliance Officer prior to execution.(26) 9. AUTOMATIC INVESTMENT/WITHDRAWAL PROGRAMS AND AUTOMATIC REBALANCING. Purchases or sales of securities that are part of an automatic investment/withdrawal program or resulting from an automatic rebalancing. F. PERSONAL TRADE REPORTING All Access Persons must participate in Prudential's Personal Trade Monitoring System as described in Section II of this Policy. In addition, all Access Persons must preclear all private securities transactions immediately and report completion of the transaction promptly, in any event not later than ten days following the close of each quarter in which the trade was executed. Forms to report such private securities transactions are available from your business unit compliance officer or the Securities Monitoring Unit. G. PERSONAL SECURITIES HOLDINGS Within ten days of becoming an Access Person, and thereafter on an annual basis, Access Persons (other than disinterested directors/trustees) must disclose personal securities holdings, including all holdings of private securities (e.g., limited partnership interests, private placements, etc.) and all holdings of proprietary and non-proprietary subadvised mutual funds, excluding money market funds. Holdings must be as of the date of becoming an Access Person for the initial report and on an annual basis. However, Annual Reports must include information that is current within the previous 30 days. (See EXHIBIT 5 for the Holdings Report Form.) H. SERVICE AS A DIRECTOR - ---------- (26) For purposes of this policy, Business Unit Head is defined as the executive in charge of Fixed Income Trading, Jennison, PI or his/her delegate. Delegation of this responsibility must be done in writing and submitted to the PIM Chief Compliance Officer. 26 Consistent with Prudential policy, Investment Personnel are prohibited from serving on the board of directors of publicly traded companies, absent prior authorization from the business unit compliance officer based upon a determination that the board service would not be inconsistent with the interests of the investment company or other clients. In the limited instances that such board service may be 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 a "Chinese Wall" or other procedures designed to address the potential conflicts of interest. I. GIFTS Consistent with Prudential's Gift and Entertainment Policy, Access Persons are prohibited from receiving any gift or other thing that would be considered excessive in value from any person or entity that does business with or on behalf of Prudential. Access Persons must comply with Company limits and reporting guidelines for all gifts and entertainment given and/or received. J. CODE VIOLATIONS AND SANCTIONS Violations and other exceptions to the Policy will be provided to the business unit Chief Compliance Officer or his/her designee and the Personal Securities Trading/Mutual Fund Code of Ethics Committee ("Committee"). The Committee, comprised of business unit executives, compliance and human resource personnel, will review all violations of this Policy. The Committee will determine any sanctions or other disciplinary actions that may be deemed appropriate. K. REPORTS TO CLIENTS The Board of Directors/Trustees of any investment company client will be provided, as requested by client or otherwise required by regulation, with an annual report which at a minimum: - - Certifies that the portfolio management unit has adopted procedures reasonably necessary to prevent its Access Persons from violating this policy; - - Summarizes existing procedures concerning personal investing and any changes in the procedures made during the preceding year; - - Identifies material violations of this policy and sanctions imposed in response to those violations; and - - Identifies any recommended changes in existing restrictions or procedures based upon experience under the policy, evolving industry practices, or developments in applicable laws and regulations. 27 L. CONFLICTS OF INTEREST All Access Persons must act in accordance with the following general principles: - - It is the duty at all times to place the interests of investment company shareholders and other clients first. - - Access Persons should scrupulously avoid serving their own personal interests ahead of clients' interests in any decision relating to their personal investments. - - All personal securities transactions must be conducted 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. - - Access Persons must not only seek to achieve technical compliance with this Policy, but should strive to abide by its spirit and the principles articulated herein. EXAMPLE: An appearance of a conflict of interest may occur if, following a meeting with a representative of an issuer, an analyst buys the issuer's securities for his or her personal account, but does not recommend his or her client purchase such securities. - - Access Persons may not take inappropriate advantage of their positions. - - Access Persons must avoid any situation that might compromise, or call into question, their exercise of fully independent judgment in the interest of shareholders or clients, including, but nor limited to the receipt of unusual investment opportunities, perquisites, or gifts of more than de minimis value from persons doing or seeking business with their portfolios. - - Access Persons may not bunch a personal order with a client order. - - Access Persons may not conduct personal business with brokers who execute trades for their portfolios. VI. TRADING RESTRICTIONS OF PRIVATE ASSET MANAGEMENT UNITS In addition to the personal securities trade reporting requirements set forth in Section II above, all associates of Private Asset Management units of Prudential Investment Management ("PIM") are subject to certain trading restrictions as set forth below. The Private Asset Management units of PIM are as follows: Prudential Capital Group ("PCG"), Prudential Real Estate Investors ("PREI"), Private Equity and Prudential Mortgage Capital Company ("PMCC").(27) - ---------- (27) Only certain individuals within PMCC who have routine access to material nonpublic information are subject to the requirements and restrictions set forth in this Section. The PMCC employees who are subject to this Policy have been identified by the business unit head or his/her designee, in consultation with Compliance. The Chief Compliance Officer of the business group, or his/her designee is responsible for maintaining this list. 28 Such restrictions apply to transactions in any securities accounts for which the associate maintains a beneficial interest, including the following: - - Personal accounts; - - Joint or tenant-in-common accounts in which the associate is a participant; - - Accounts for which the associate acts as trustee, executor or custodian; - - Accounts in which the associate's spouse has a beneficial interest; - - Accounts in which the associate's minor children or any dependent family member has a beneficial interest; - - Accounts over which the associate exercises control or has any investment discretion; and - - Accounts of any individual to whose financial support the associate materially contributes. A. PRIVATE SIDE MONITORED LIST Under Prudential's Chinese Wall Policy, the Private Asset Management units are required to maintain a Private-Side Monitored List ("PSML") containing the names of publicly-traded issuers about which they possess material nonpublic information. Associates of each of these units are restricted from purchasing or selling securities of the issuers on the PSML.(27) This restriction applies to all accounts in which the associate is deemed to have a beneficial interest as listed above. Associates should not, however, provide the PSML to individuals outside of their business unit. The associate should instruct individuals who exercise control or have investment discretion over an account in which the associate has a beneficial interest to check with the associate prior to purchasing or selling any security for such account to ensure that no trade is placed in a security on the PSML. If the security is on the PSML, the associate should instruct the individual exercising control over the account that he or she is prohibited from trading the security because of his or her employment with Prudential. In the case of a discretionary account with a brokerage firm, the preceding rule does not apply and the associate must not disclose any security or issuer with the broker in advance of any trade. In addition, a copy of the signed discretionary account agreement should be sent to the Securities Monitoring Unit. Associates of Private Asset Management units may not advise a person not employed by Prudential, or a Prudential employee on the Public Side of the Chinese Wall that a security is restricted because Prudential is in possession of material nonpublic information. B. INVESTMENT CLUBS All associates of Private Asset Management units are prohibited from participating in 29 investment clubs.(27) C. ADDITIONAL RESTRICTIONS FOR CERTAIN UNITS 1. REAL ESTATE UNITS To ensure compliance with ITSFEA and to prevent actual and apparent conflicts of interest in the Private Asset Management Real Estate units, all associates of PREI and certain associates within PMCC who are located in the U.S. (and functional associates who are co-located with PREI) are prohibited from purchasing interests in publicly-traded real estate investment trusts ("REITs") and real estate-related securities.(27) PIM Compliance maintains a list of real estate security issuers in the PIM Compliance Library, accessible via Lotus Notes. Please note however, that this prohibition applies to all REITs and real estate-related securities, whether they are on the list or not. Associates who hold REIT securities or real estate securities prior to the institution of this policy or joining PREI or PMCC must obtain written approval from PIM Compliance prior to the sale of such securities. Associates of the Private Asset Management Real Estate units will be permitted to purchase shares of open-end mutual funds that invest in REITs or real estate securities. 2. PRUDENTIAL CAPITAL GROUP To insure compliance with ITSFEA and to prevent actual or apparent conflicts of interest in PCG, all associates of PCG (and functional associates who support PCG) are prohibited from purchasing securities of companies listed on PCG's 90 Day Pricing Summary Update for Public Companies (90 Day Pricing List). PIM Compliance maintains this list in the PIM Compliance Library, accessible via Lotus Notes. VII. POLICY FOR PRUDENTIAL EQUITY GROUP, INC. A. ASSOCIATED PERSONS' SECURITIES ACCOUNTS 1. TRADE MONITORING AT PEG In addition to the requirements of ITSFEA and the NASD Conduct Rules, PEG is required by New York Stock Exchange rules to review transactions in all accounts of its associated persons and their family members. To ensure compliance with these requirements, PEG associates are prohibited from opening or maintaining any "employee account or employee-related account," as defined below, at a firm other than the following authorized broker-dealers: Wachovia Securities (for accounts that were previously maintained at Prudential Securities), Charles Schwab, E*Trade and Fidelity Investments. (Note: Monitored employees of other Prudential business groups may also open accounts with Pruco Securities and Merrill Lynch. These options are not available to PEG associates.) Prudential has arranged to obtain electronic feeds of all trading data in accounts with the authorized firms. In addition, paper monthly statements must also be submitted to PEG Compliance. 30 Exceptions to this policy will be granted only in unusual circumstances. Any exception to this policy requires the prior written approval of the associate's supervisor and the PEG Compliance Department. In those cases where accounts are approved to be held at an unauthorized firm, the Compliance Department will make arrangements to have duplicate copies of all confirmations and monthly statements sent to the associate's supervisor and the Compliance Department. Exceptions may be granted for "employee-related accounts" in rare circumstances where the employee can demonstrate that he or she has no financial interest in such account. B. DEFINITION OF "EMPLOYEE ACCOUNT" AND "EMPLOYEE RELATED ACCOUNT" "Employee accounts" include the following securities and/or commodities accounts: - - Any personal account of an employee; - - Any joint or tenant-in-common in which the employee is a participant; - - Any account for which the employee acts as the trustee, executor or custodian; - - Any account over which the employee has investment discretion or otherwise can exercise control (other than non-related client's accounts over which associates have investment discretion - Note: PEG trading personnel are not permitted to exercise discretion over client accounts); and - - Any other account in which an employee is directly or indirectly financially interested. "Employee-related accounts" include the following securities and/or commodities accounts: - - Accounts of the employee's spouse; - - Accounts of the employee's minor and/or any dependent family members; and - - Accounts of any individual to whose financial support the employee materially contributes. C. INVESTMENT CLUBS PEG sales, trading, research and/or investment associates are not permitted to participate in Investment Clubs. Other associates must contact the PEG Compliance Department if they wish to participate in an Investment Club. An Investment Club account will be considered an Employee Account for purposes of this Policy and must be maintained at one of the authorized broker-dealers. D. PERSONAL TRADING RESTRICTIONS 1. PURCHASES OF PUBLIC EQUITY OFFERINGS All PEG associates must comply with NASD Rule 2790 as set forth in SECTION IV.B of this Policy. This includes a prohibition on purchasing new equity offerings directly from a syndicate member. 31 2. PRIVATE SECURITIES TRANSACTIONS In accordance with NASD Rule 3040, all associates of PEG must notify the PEG Compliance Department, in writing, and obtain written approval from the broker-dealer, prior to engaging in any private securities transaction. Private securities transactions include, but are not limited to, transactions in unregistered offerings of securities, and purchases or sales of limited partnership interests. 3. ANNUAL COMPLIANCE TRAINING The NASD/NYSE Joint Memorandum on Chinese Wall Policies and Procedures (NASD Notice to Members 91-45) provides that firms which do not conduct investment banking research or arbitrage activities still must have "reasonable procedures for the education and training of its associates about insider trading" in order to be in compliance with ITSFEA. Consistent with this Notice, PEG covers insider trading issues with applicable associates as part of its annual training program. 4. 24 - HOUR RESEARCH REPORT RESTRICTION PEG associates are prohibited from effecting transactions in a company's securities when PEG initiates coverage of the company, or upgrades or downgrades a research opinion or recommendation. This prohibition generally applies for a 24-hour period after the release of the research. If the investing public has had time to receive and react to the release of the research report, the 24-hour restriction may be shortened by the Compliance Department. The 24-hour rule becomes effective when the research is issued. PEG associates are also prohibited from engaging in transactions in a security when the associate knows that a research report relating to the security is in preparation. Securities subject to the 24-hour rule appear on PEG's Restricted List. Although only the symbol for the common stock may be indicated on the Restricted List, all related securities (including common and preferred stock, convertibles, options, warrants and rights) of the companies listed (and debt securities, if indicated) are subject to restriction. E. RESTRICTED LIST PEG's Restricted List is a confidential list of securities that are subject to certain research, sales and trading restrictions. Securities may be placed on the Restricted List for a variety of reasons designed to ensure compliance with regulatory requirements and Company policy. For example, as stated above, securities that are subject to the 24-hour rule are placed on the Restricted List. Employees may not purchase or sell securities for their personal accounts if such transactions are prohibited by the Restricted List. Although only the symbol for the common stock may be indicated on the Restricted List, all securities from the same issuer (including common and preferred stock, convertibles, options, warrants and rights of the companies listed (and debt securities, if indicated)) are subject to restriction. 32 F. ADDITIONAL TRADING RESTRICTIONS FOR CERTAIN PEG DEPARTMENTS 1. TRADING RESTRICTIONS A. RESEARCH DEPARTMENT Personal trading by Research Analysts is subject to the requirements and restrictions set forth in the EQUITY RESEARCH MANUAL available on the Compliance page of the Capital Markets Intranet site. http://psibranch.cs.prusec.com/complian/capital.htm. All questions should be referred to the PEG Compliance Department. B. TRADING DEPARTMENT Trading Department associates must preclear trades of all equity securities. For securities over which the Trading Department has trading or market-making responsibility, an employee of the Trading Department may not sell any such security that (s)he has purchased within the prior 30 calendar days or purchase any such security that (s)he had sold within the prior 30 calendar days. Under very limited circumstances, exceptions to this 30-day holding period may be granted by obtaining prior written approval from the Compliance Department. 2. PRECLEARANCE PROCEDURES All requests for preclearance must be submitted to the Business Unit head and PEG Compliance for approval. All approved orders must be executed by the close of business on the day preclearance is granted. 33 EXHIBITS EXHIBIT 1 - SAMPLE LETTER TO BROKERAGE FIRM TO: Broker-Dealer RE: Account #: Date of Establishment: Dear Sir/Madam: Please furnish to Prudential Financial, Inc. ("Prudential"), copies of all trade confirmations and account statements with respect to all transactions for the above listed account(s). Please include all transactions in shares of unit investment trusts and all closed-end mutual funds. Copies of these confirmations and statements should be sent to Prudential, as trades are effected, addressed as follows: Prudential Financial, Inc. Compliance Department P.O. Box 919 Newark, NJ 07101-9998 This request is being made pursuant to Rule 3050 of the Conduct Rules of the NASD and/or Rule 204-2(a) of the Investment Advisers Act, as applicable. Very truly yours, cc: Ellen McGlynn Koke, Vice President, Securities Compliance Compliance Department Exhibit 2 -- Acknowledgment of the Personal Securities Trading Policy For employees required to report their transactions in SMARTS as described in Section II of this policy, please complete the following acknowledgment and send it to: Prudential Financial, Inc. Compliance Department P.O. Box 919 Newark, NJ 07101-9998 I have read and understand the Personal Trading Policy and have and will continue to comply in all respects with the rules contained therein. 34 I confirm that I have instructed in writing all brokers for all securities accounts in which I maintain a beneficial interest, as described immediately below, to send duplicate copies of all confirmations covering any transactions AS TRADES ARE EFFECTED and all account statements to the address listed above. I understand that for accounts maintained at Charles Schwab, E*Trade, Merrill Lynch, Fidelity Investments, Pruco Securities, or Wachovia Securities (accounts formerly maintained at Prudential Securities), I do not need to contact these brokers in writing. Beneficial interest includes the following: - personal accounts; - accounts in which my spouse has a beneficial interest; - accounts in which my minor children or any dependent family member has a beneficial interest; - joint or tenant-in-common accounts in which I am a participant; - accounts for which I act as trustee, executor or custodian; - accounts over which I exercise control or have investment discretion; and - accounts of any individual to whose financial support I materially contribute. Set forth below (and on accompanying pages if necessary) is a list of all such accounts (including Charles Schwab, E*Trade, Merrill Lynch, Fidelity Investments, Pruco Securities, and Wachovia Securities (formerly Prudential Securities)) including the individual holding the account, the social security number of that individual, the name of the institution, and the account number. I understand that I must promptly advise the Compliance Department of any change in this information. I understand that if I have been classified as a Covered or Access Person that in the event circumstances change for an account for which I have been granted an exception to maintain at a non-authorized brokerage firm, I must notify the Compliance Department immediately and request that the account be reviewed in light of the changed circumstances. - ----------------------------- ------------------------------ Full Name of Employee Business Unit/Location - ----------------------------- ------------------------------ Signature Date - ---------------------------------- Social Security Number of Employee LIST OF ALL ACCOUNTS
NAME OF INDIVIDUAL SOCIAL SECURITY NUMBER NAME OF INSTITUTION ACCOUNT NUMBER - ----------------------------------------------------------------------------------------------------------
EXHIBIT 3 - COMPLIANCE AND REPORTING OF PERSONAL TRANSACTIONS 35
INVESTMENT CATEGORY/ REPORTABLE METHOD SUB-CATEGORY (YES/NO) COMMENTS - ------------------------------------------------------------------------------------------------------------------------------------ Bonds ABS Yes Agency Yes CMO's Yes Convertibles Yes Corporates Yes MBS Yes Municipals Yes Public Offerings Yes Treasury Bills, Notes, Bonds No Stocks Common Yes (Purchases and sales of Optional Dividend Reinvestments Yes Individual Stocks) Preferred Yes Public Offerings (Initial & Secondary) Yes Rights Yes Warrants Yes Automatic Dividend Reinvestments No Private Placements Yes Limited Partnerships Yes Open End Mutual Proprietary No Transactions of the Prudential Funds Non Proprietary No Financial, Inc. Common Stock Fund Prudential Financial, Inc. Common Yes executed in the PESP plan are fed Stock Fund electronically to SMARTS. Open End Mutual Proprietary Non-Money Market Yes Proprietary Funds include Funds - For Investment Non-proprietary subadvised Non-Money Yes JennisonDryden, Strategic Partners, Personnel and Access Market Target, and American Skandia Advisor Persons Money Market Funds No funds. A list of non -proprietary Non Affiliated No subadvised funds can be found in Exhibit 7. Closed End Mutual Funds & Affiliated Mutual Funds Yes Unit Investments Trusts Affiliated Unit Investment Trusts Yes Non-Affiliated Mutual Funds Yes Non-Affiliated Unit Inv. Trusts Yes Derivatives Any Exchange Traded, NASDAQ, or OTC Option or Future Including But not Limited To: Futures (Including Financial Futures) No Options on Foreign Currency Yes Options on Futures Yes Options on Indexes Yes Options on Securities Yes Foreign Currency No Exchanges made for personal travel are not reportable. Commodities Security Futures Yes Other Commodities No Annuities & Life Affiliated No Insurance Contracts Non Affiliated No w/Investment Components (e.g. Variable Life)
36 Bonuses Prudential Employees Shares or Options received as part of Yes Prudential employee stock or option Compensation bonus awards are electronically reported to the Securities Monitoring Unit. (Non-Pru Employee/ Shares or Options received as part of No For Non-employee stock or option Household Member) Compensation bonus awards, the receipt is not reportable. However, the sale of stock or the exercise of an option is a reportable event. Gifts For non-Prudential securities, a gift given to a charity is reportable, Prudential securities Gifts given and received Yes however, the receipt of a gift is not a reportable transaction under the Personal Securities Transaction All other gifts Given by Employee - Bonds and/or Stock Yes Policy. Please see the Gift and Received by Employee - Bonds and/or Stock Entertainment Policy for additional No reporting requirements for gifts.
EXHIBIT 4 - INDEX OPTIONS ON A BROAD-BASED INDEX
TICKER SYMBOL DESCRIPTION - -------------------------------------------------------------------------------- NIK Nikkei 300 Index CI/Euro OEX S&P 100 Close/Amer Index OEW S&P 100 Close/Amer Index OEY S&P 100 Close/Amer Index SPB S&P 500 Index SPZ S&P 500 Open/Euro Index SPX S&P 500 Open/Euro Index SXZ S&P 500 (Wrap) SXB S&P 500 Open/Euro Index RUZ Russell 2000 Open/Euro Index RUT Russell 2000 Open/Euro Index MID S&P Midcap 400 Open/Euro Index NDX NASDAQ- 100 Open/Euro Index NDU NASDAQ- 100 Open/Euro Index NDZ NASDAQ- 100 Open/Euro Index NDV NASDAQ- 100 Open/Euro Index NCZ NASDAQ- 100 Open/Euro Index QQQ NASDAQ- 100 Index SML S&P Small Cap 600 TPX U.S. Top 100 Sector SPL S&P 500 Long-Term Close ZRU Russell 2000 L-T Open./Euro VRU Russell 2000 Long-Term Index
37 EXHIBIT 5 - PERSONAL SECURITIES HOLDINGS REPORT Reviewed by: Initials: ______ Date:______ PERSONAL SECURITIES HOLDINGS REPORT To: Jennifer Brown, Compliance Department From: ____________________________________ SS#: _____________ Signed: ____________________________________ Date:_____________ Listed below are all securities which I held, including those in which I had a direct or indirect beneficial interest, as of the most recent month end or the date on which I was designated as an Access Person if more recent, as required by the Personal Securities Trading Policy and the Mutual Fund Code of Ethics. PUBLIC SECURITIES
NUMBER PRINCIPLE TITLE OF SECURITY OF SHARES AMOUNT BROKER/DEALER/BANK - ----------------- --------- ------ ------------------ - ------------------------ -------------- ------------- -------------------- - ------------------------ -------------- ------------- -------------------- - ------------------------ -------------- ------------- -------------------- - ------------------------ -------------- ------------- -------------------- - ------------------------ -------------- ------------- --------------------
PRIVATE SECURITIES (e.g., limited partnerships, private placements). - ------------------------ -------------- ------------- -------------------- - ------------------------ -------------- ------------- -------------------- - ------------------------ -------------- ------------- -------------------- - ------------------------ -------------- ------------- --------------------
38 EXHIBIT 6 -- SECTION 16 INSIDERS AND DESIGNATED PERSONS PRECLEARANCE REQUEST FORM This form is for preclearing transactions in Prudential securities. Please include all requested information. The Securities Monitoring Unit, Compliance Department will review and respond to all requests. You will receive a response indicating that your request has either been approved or denied. A request is not considered approved until you receive a confirmation of approval from the Securities Monitoring Unit. Preclearance is only valid until the close of business on the day approval is granted. Preclearance Forms should be faxed to the Securities Monitoring Unit at (973) 802-7454. PART I - INFORMATION ON INDIVIDUAL REQUESTING PRECLEARANCE: Name: ______________________________ Phone #:___________ Fax #: ______________ Department:_______________________________ Division:_______________________ Are you currently aware of any material non-public information regarding Prudential Financial? _____ PART II - TRANSACTION INFORMATION: Date: _______________________ Transaction Type: ______ Buy ______ Sell* ______ Cashless Exercise (Exercise and Sell all Options) ______ Exercise & Sell to Cover (Exercise and Sell only enough shares to cover option cost and taxes) ______ Exercise & Hold (Exercise options and hold shares - no sale involved) ______ Exchange (into or out of Company Stock Fund) ______ Allocation Change (Company Stock Fund) ______ Catch-up Contribution (Company Stock Fund) ______ Deferral Rate Change (Company Stock Fund) ______ Disbursement (from Company Stock Fund) ______ Loans (impacting Company Stock Fund) ______ Deferred Compensation Elections (impacting Company Stock Fund) ______ MasterShare Elections (impacting Company Stock Fund) Number of Shares/Options: ______ Asset Type: ______Common Stock ______Preferred Stock ______Convertible Bond ______Non-convertible Bond ______Employee Stock Option ______Company Stock Fund ______Other * Do you currently hold securities to cover this transaction? ______ (Note that this question applies to all sales due to the fact that short sales are prohibited.) Account in which transaction will take place: Brokerage Firm___________________ Account No. _____________________ Comments: _________________________________________________________________ PART III - INFORMATION TO BE COMPLETED BY SECTION 16 INSIDERS ONLY: Have you traded the same or equivalent security for your personal account, accounts in which you have a beneficial interest, such as accounts of your spouse or family members, or accounts over which you maintain investment discretion within the past six months? If yes, Compliance may contact you for additional information. _______________ Comments: __________________________________________________________________ 39 PART IV - COMPLIANCE RESPONSE : APPROVED : ____ DENIED:_____ REVIEWER :_________________DATE/TIME:________________ COMMENTS: ______________________________________________________________________ 40 EXHIBIT 7 -- NON PROPRIETARY SUBADVISED MUTUAL FUNDS PIM SUBADVISED FUNDS SEI Institutional Investors Trust Fund JENNISON SUBADVISED FUNDS Harbor Fund - Harbor Capital Appreciation Fund The Hirtle Callaghan Trust - The Growth Equity Portfolio IDEX Mutual Funds - IDEX Jennison Equity Opportunity The MainStay Funds - MainStay MAP Fund The Preferred Group of Mutual Funds - Preferred Large Cap Growth Fund Scudder Focus Value Plus Growth Fund - Scudder Focus Value+Growth Fund 41 -----END PRIVACY-ENHANCED MESSAGE-----