PRUDENTIAL TAX MANAGED EQUITY FUND, 485BPOS, 1999-12-29

PRUDENTIAL TAX MANAGED EQUITY FUND
485BPOS, 1999-12-29

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 28, 1999

REGISTRATION NO. 333-66895
811-09101
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM N-1A

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 / /

PRE-EFFECTIVE AMENDMENT NO. / /

POST-EFFECTIVE AMENDMENT NO. 1 /X/

AND/OR

REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /

AMENDMENT NO. 2 /X/

(Check appropriate box or boxes)

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PRUDENTIAL TAX-MANAGED EQUITY FUND
(Exact name of registrant as specified in charter)

GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(Address of Principal Executive Offices)(Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (973) 367-7525

MARGUERITE E.H. MORRISON, ESQ.
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(Name and Address of Agent for Service)
Approximate date of proposed public offering:
As soon as practicable after the effective
date of the Registration Statement.

IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE
(CHECK APPROPRIATE BOX):

/ / immediately upon filing pursuant to paragraph (b)

/X/ on December 30,1999 pursuant to paragraph (b)

/ / 60 days after filing pursuant to paragraph (a)(1)

/ / on (date) pursuant to paragraph (a)(1)

/ / 75 days after filing pursuant to paragraph (a)(2)

/ / on (date) pursuant to paragraph (a)(2) of rule 485.

IF APPROPRIATE, CHECK THE FOLLOWING BOX:

/ / this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.

Title of Securities Being Registered...Shares of Beneficial Interest, $.001
par value per share.

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FUND TYPE:
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Stock

INVESTMENT OBJECTIVE:
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Long-term after-tax growth of capital

PRUDENTIAL
TAX-MANAGED
EQUITY FUND

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PROSPECTUS: DECEMBER 30, 1999

[ICON]

<TABLE>
<S> <C>
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. [LOGO]
</TABLE>

<PAGE>
TABLE OF CONTENTS
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<TABLE>
<S> <C>
1 RISK/RETURN SUMMARY
1 Investment Objective and Principal Strategies
1 Principal Risks
2 Evaluating Performance
3 Fees and Expenses

5 HOW THE FUND INVESTS
5 Investment Objective and Policies
6 Other Investments and Strategies
9 Investment Risks

12 HOW THE FUND IS MANAGED
12 Board of Trustees
12 Manager
12 Investment Adviser
12 Portfolio Managers
13 Distributor
14 Year 2000 Readiness Disclosure

15 FUND DISTRIBUTIONS AND TAX ISSUES
15 Distributions
16 Tax Issues
17 If You Sell or Exchange Your Shares

19 HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND
19 How to Buy Shares
27 How to Sell Your Shares
31 How to Exchange Your Shares

33 FINANCIAL HIGHLIGHTS
33 Class A and Class B Shares
34 Class C and Class Z Shares

36 THE PRUDENTIAL MUTUAL FUND FAMILY

FOR MORE INFORMATION (Back Cover)
</TABLE>

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PRUDENTIAL TAX-MANAGED EQUITY FUND [LOGO] (800) 225-1852
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RISK/RETURN SUMMARY
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This section highlights key information about the PRUDENTIAL TAX-MANAGED EQUITY
FUND, which we refer to as "the Fund." The Fund is a series of Prudential
Tax-Managed Funds ("the Company"). Additional information follows this summary.

INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES

Our investment objective is LONG-TERM AFTER-TAX GROWTH OF CAPITAL. We seek
investments that will appreciate over time. We also try to reduce the taxes
shareholders pay on the Fund's investment income and capital gains. We normally
invest at least 65% of the Fund's total assets in common stock and convertible
securities of large and medium-sized U.S. companies. We try to limit taxes by
attempting to avoid short-term capital gains and by selling securities that have
fallen in value in order to generate losses that can be used to offset realized
capital gains on other securities. We also try to limit taxes on investment
income by investing in lower-yielding equity securities. We may use hedging
techniques to help limit taxable income and capital gains. We also may use
derivatives to improve the Fund's returns.

The Fund tries to outperform the returns of Standard & Poor's 500 Composite
Stock Price Index (S&P 500 Index) on an after-tax basis. While we make every
effort to achieve our objective, we can't guarantee success.

PRINCIPAL RISKS
Although we try to invest wisely, all investments involve risk. Since the
Fund invests primarily in common stock and convertible securities, there is the
risk that the price of a particular stock we own could go down, or the value of
the equity markets or a sector of them could go down. Stock markets are
volatile. Generally, the stock prices of

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A DIVERSIFIED CORE HOLDING

A team of Prudential Investments' quantitative portfolio managers manages the
Fund using their judgment and a quantitative stock selection model to evaluate
growth potential, valuation, liquidity and investment risk. They try to select
common stocks and convertible securities that will provide strong capital
appreciation, while trying to limit both the effects of taxation and the
differences in portfolio characteristics from those of the overall stock market.
The portfolio will normally consist of at least 200 securities selected from a
universe that presently consists of about 1,000 well-followed large and mid-
capitalization stocks.

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1
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RISK/RETURN SUMMARY

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large and medium-sized companies are more stable than the stock prices of small
companies. The Fund's holdings can vary significantly from broad market indexes,
and performance of the Fund can deviate from the performance of such indexes.

Some of our investment strategies--such as using derivatives--involve
above-average risks. The Fund may use hedging techniques to help limit taxes,
preserve assets and enhance return, including using options and financial
futures or stock index futures contracts. Derivatives may not fully offset the
underlying positions and this could result in losses to the Fund that would not
otherwise have occurred.

Like any mutual fund, an investment in the Fund could lose value, and you
could lose money. For more detailed information about the risks associated with
the Fund, see "How the Fund Invests--Investment Risks."

An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.

THE FUND IS DESIGNED FOR LONG-TERM TAXABLE INVESTORS.

If you are investing for the short term (less than one year), you may suffer
negative tax consequences. Market conditions may limit the Fund's ability to
generate tax losses or to avoid dividend income. Excessive shareholder
redemptions may require the Fund to sell securities and realize gains. While the
Fund tries to limit the extent to which shareholders incur taxes on Fund
distributions of income and net realized gains, the Fund expects to distribute
taxable income or capital gains from time to time.

EVALUATING PERFORMANCE

Because the Fund has not had annual returns for at least one calendar year, no
performance history is included in this prospectus.

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2 PRUDENTIAL TAX-MANAGED EQUITY FUND [LOGO] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY
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FEES AND EXPENSES

This table shows the sales charges, fees and expenses that you may pay if you
buy and hold shares of each class of the Fund--Class A, B, C and Z. Each share
class has different sales charges--known as loads--and expenses, but represents
an investment in the same fund. Class Z shares are available only to a limited
group of investors. For more information about which share class may be right
for you, see "How to Buy, Sell and Exchange Shares of the Fund."

SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)

<TABLE>
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CLASS A CLASS B CLASS C CLASS Z
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<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on
purchases (as a percentage of offering
price) 5% None 1% None
Maximum deferred sales charge (load) (as a
percentage of the lower of original purchase
price or sale proceeds) None 5%(2) 1%(3) None
Maximum sales charge (load) imposed on
reinvested dividends and other distributions None None None None
Redemption fees None None None None
Exchange fee None None None None
</TABLE>

ANNUAL FUND OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS)

<TABLE>
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CLASS A CLASS B CLASS C CLASS Z
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<S> <C> <C> <C> <C>
Management fees .65% .65% .65% .65%
+ Distribution and service (12b-1) fees .30%(4) 1.00% 1.00% None
+ Other expenses .33% .33% .33% .33%
= Total annual Fund operating expenses 1.28% 1.98% 1.98% .98%
- Fee waiver or expense reimbursement .05% None None None
= NET ANNUAL FUND OPERATING EXPENSES 1.23%(4) 1.98% 1.98% .98%
</TABLE>

<TABLE>
<S> <C>
1 YOUR BROKER MAY CHARGE YOU A SEPARATE OR ADDITIONAL FEE FOR
PURCHASES AND SALES OF SHARES.
2 THE CONTINGENT DEFERRED SALES CHARGE (CDSC) FOR CLASS B
SHARES DECREASES BY 1% ANNUALLY TO 1% IN THE FIFTH AND SIXTH
YEARS AND 0% IN THE SEVENTH YEAR. CLASS B SHARES CONVERT TO
CLASS A SHARES APPROXIMATELY SEVEN YEARS AFTER PURCHASE.
3 THE CDSC FOR CLASS C SHARES IS 1% FOR SHARES REDEEMED WITHIN
18 MONTHS OF PURCHASE.
4 FOR THE FISCAL YEAR ENDING 10-31-00, THE DISTRIBUTOR OF THE
FUND HAS CONTRACTUALLY AGREED TO REDUCE ITS DISTRIBUTION AND
SERVICE (12b-1) FEES FOR CLASS A SHARES TO .25 OF 1% OF THE
AVERAGE DAILY NET ASSETS OF THE CLASS A SHARES.
</TABLE>

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3
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RISK/RETURN SUMMARY
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EXAMPLE
This example will help you compare the fees and expenses of the Fund's different
share classes and 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, except for the Distributor's
reduction of distribution and service (12b-1) fees for Class A shares during the
first year. Although your actual costs may be higher or lower, based on these
assumptions, your costs would be:

<TABLE>
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1 YR 3 YRS 5 YRS 10 YRS
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<S> <C> <C> <C> <C>
Class A shares $619 $880 $1,161 $1,960
Class B shares $701 $920 $1,166 $2,037
Class C shares $399 $714 $1,155 $2,380
Class Z shares $100 $311 $540 $1,197
</TABLE>

You would pay the following expenses on the same investment if you did not sell
your shares:

<TABLE>
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1 YR 3 YRS 5 YRS 10 YRS
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<S> <C> <C> <C> <C>
Class A shares $619 $880 $1,161 $1,960
Class B shares $201 $620 $1,066 $2,037
Class C shares $299 $714 $1,155 $2,380
Class Z shares $100 $311 $540 $1,197
</TABLE>

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4 PRUDENTIAL TAX-MANAGED EQUITY FUND [LOGO] (800) 225-1852
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HOW THE FUND INVESTS
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INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is LONG-TERM AFTER-TAX GROWTH OF CAPITAL. This
means we seek investments that will appreciate over time. We also try to limit
current and future taxes shareholders pay on the Fund's investment income and
capital gains. Our goal is to outperform the returns of the S&P 500 Index on an
after-tax basis. While we make every effort to achieve our objective, we can't
guarantee success.

In pursuing our objective, we normally invest at least 65% of the Fund's
total assets in COMMON STOCK and CONVERTIBLE SECURITIES of large and medium-
sized U.S. companies. We consider large and medium-sized companies to be those
with market capitalizations above $1.2 billion. Market capitalization is
measured at the time of initial purchase so that companies whose capitalization
no longer meets this definition after purchase continue to be considered large
and medium-sized for purposes of achieving our investment objective. We may
change the kind of companies we consider large and medium-sized to reflect
industry norms.

We use a quantitative stock selection model to help us decide which common
stocks to buy. The model evaluates growth potential, valuation, liquidity and
investment risk.

Convertible securities are securities--like bonds, corporate notes and
preferred stock--that we can convert into the company's common stock or some
other equity security. The Fund also invests in other equity-related securities,
including American Depositary Receipts (ADRs); nonconvertible preferred stock;
warrants and rights that can be exercised to obtain stock; investments in
various types of business ventures, including partnerships and joint ventures
and similar securities.

Our strategy is long-term capital appreciation while limiting the taxes you
incur from investment income and realized capital gains. Distributions of net
investment income and net realized short-term gains (on stocks held one year or
less) are taxed as ordinary income, at rates as high as 39.6%. Distributions of
realized long-term gains (on stocks held more than one year) are taxed at rates
up to 20%. Price appreciation (an unrealized gain) is not subject to current
federal tax. We try to limit taxes by attempting to

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OUR TAX-MANAGED APPROACH

Taxes are a major influence on the net returns that you receive on your taxable
investments. We try to achieve long-term after-tax returns for you by managing
our investments so as to limit and defer the taxes you incur as a result of your
investment in the Fund.

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5
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HOW THE FUND INVESTS

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avoid short-term capital gains. We also try to limit taxes on investment income
by investing in lower-yielding equity securities. However, a portion of the
Fund's securities may offer high potential capital appreciation and a yield
component.

When deciding whether to sell securities, we will consider the negative tax
impact of realizing capital gains and the positive tax impact of realizing
capital losses. We sometimes may defer the sale of a security until the realized
capital gain would qualify as a long-term capital gain. We also may sell a
security to realize a capital loss that can be used to offset realized capital
gains. When selling a portion of a holding, we may sell those securities with a
higher cost basis first. The portfolio managers may employ tax-advantaged
hedging techniques such as using options to protect the value of a holding
without selling the security.

For more information, see "Investment Risks" below and the Statement of
Additional Information, "Description of the Funds, Their Investments and Risks."
The Statement of Additional Information--which we refer to as the SAI--contains
additional information about the Fund. To obtain a copy, see the back cover
page of this prospectus.

The Fund's investment objective is a fundamental policy that cannot be
changed without shareholder approval. The Board can change investment policies
that are not fundamental.

OTHER INVESTMENTS AND STRATEGIES

In addition to the principal strategies, we also may use the following
investment strategies to try to increase the Fund's returns or protect its
assets if market conditions warrant.

FOREIGN SECURITIES

We may invest up to 35% of the Fund's total assets in FOREIGN SECURITIES,
including money market instruments and other fixed-income securities, common
stock and other equity-related securities. For purposes of the 35% limit, we do
not consider ADRs and other similar receipts or shares to be foreign securities.

MONEY MARKET INSTRUMENTS

In response to adverse market, economic or political conditions, we may
temporarily invest up to 100% of the Fund's assets in MONEY MARKET INSTRUMENTS.
We also may temporarily hold cash or high quality foreign or domestic money
market instruments until we invest the proceeds of new
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6 PRUDENTIAL TAX-MANAGED EQUITY FUND [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
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Fund sales or to meet ordinary daily cash needs. Investing heavily in these
securities limits our ability to achieve capital appreciation, but can help to
preserve the Fund's assets when the equity markets are unstable.

REPURCHASE AGREEMENTS

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. This creates a fixed return for the Fund and is, in effect, a loan by the
Fund.

DERIVATIVE STRATEGIES

TAX-ADVANTAGED HEDGING
To protect against price declines in our holdings that have developed large
accumulated capital gains, we may use hedging techniques to help reduce taxes,
including the purchase of put options on securities held, and financial and
stock index futures contracts. Using these techniques rather than selling these
securities may reduce exposure to price declines in certain securities without
realizing substantial capital gains under current tax law. Our ability to use
these strategies as a tax management technique for holdings of appreciated
securities is limited--certain hedging transactions must be closed out within 30
days after the end of the taxable year. Our ability to use different
tax-management strategies may be limited in the future by market volatility,
excessive shareholder redemptions or changes in tax law.
We expect that by using various tax management strategies, we can reduce the
extent to which you incur taxes on Fund distributions of income and net realized
gains. Even so, we expect to distribute taxable income or capital gains from
time to time.

OTHER DERIVATIVE STRATEGIES

We may use various derivative strategies to try to improve the Fund's returns or
protect its assets. We cannot guarantee that these strategies will work, that
the instruments necessary to implement these strategies will be available or
that the Fund will not lose money. Derivatives--such as futures, options,
foreign currency forward contracts and options on futures--involve costs and can
be volatile. With derivatives, the investment adviser tries to

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7
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HOW THE FUND INVESTS
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predict whether the underlying investment--a security, market index, currency,
interest rate or some other benchmark--will go up or down at some future date.
We may use derivatives to try to reduce risk or to increase return consistent
with the Fund's overall investment objective. The investment adviser will
consider other factors (such as cost) in deciding whether to employ any
particular strategy or use any particular instrument. Any derivatives we use may
not match the Fund's underlying holdings.

OPTIONS. The Fund may purchase and sell put and call options on equity
securities and financial indexes traded on U.S. or foreign securities exchanges
or in the over-the-counter market. An OPTION is the right to buy or sell
securities in exchange for a premium. The Fund will sell only covered options.

FUTURES CONTRACTS AND RELATED OPTIONS

FOREIGN CURRENCY FORWARD CONTRACTS. The Fund may purchase and sell financial
futures contracts and related options on financial futures. A FUTURES CONTRACT
is an agreement to buy or sell a set quantity of an underlying product at a
future date, or to make or receive a cash payment based on the value of a
securities index. The Fund also may enter into foreign currency forward
contracts to protect the value of its assets against future changes in the level
of foreign exchange rates. A FOREIGN CURRENCY FORWARD CONTRACT is an obligation
to buy or sell a given currency on a future date at a set price.

For more information about these strategies, see the SAI, "Description of
the Funds, Their Investments and Risks--Risk Management and Return Enhancement
Strategies."

ADDITIONAL STRATEGIES

The Fund also follows certain policies when it BORROWS MONEY (the Fund can
borrow up to 33 1/3% of the value of its total assets); LENDS ITS SECURITIES to
others (the Fund can lend up to 33 1/3% of the value of its total assets,
including collateral received in the transaction); and HOLDS ILLIQUID SECURITIES
(the Fund may hold up to 15% of its net assets in illiquid securities, including
securities with legal or contractual restrictions on resale, those without a
readily available market and repurchase agreements with maturities longer than
seven days). The Fund is subject to certain investment restrictions that are
fundamental policies, which means they cannot be changed without shareholder
approval. For more information about these restrictions, see the SAI.

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8 PRUDENTIAL TAX-MANAGED EQUITY FUND [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
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INVESTMENT RISKS

As noted, all investments involve risk, and investing in the Fund is no
exception. Since the Fund's holdings can vary significantly from broad market
indexes, performance of the Fund can deviate from performance of the indexes.
This chart outlines the key risks and potential rewards of the Fund's principal
investments and certain other non-principal investments the Fund may make. See,
too, "Description of the Funds, Their Investments and Risks" in the SAI.

INVESTMENT TYPE

<TABLE>
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% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
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<S> <C> <C>
- ----------------------------------------------------------------------------------
TAX-RELATED INVESTING -- Sharply rising market -- Lower current taxes
AT LEAST 65% may limit the ability and future tax
to generate tax liability
losses -- Higher after-tax
-- Sharply falling market returns
may create
unavoidable increases
in dividend yield
-- Tax law changes may
limit the
effectiveness of some
strategies
-- Excessive shareholder
redemptions may
require realizing
unintended capital
gains
-- Lower pre-tax returns
- ----------------------------------------------------------------------------------
COMMON STOCKS AND -- Individual stocks -- Historically, stocks
CONVERTIBLE SECURITIES could lose value have outperformed
OF U.S. COMPANIES -- The equity markets other investments
AT LEAST 65% could go down, over the long term
resulting in a -- Generally, economic
decline in value of growth means higher
the Fund's corporate profits,
investments which leads to an
-- Changes in economic or increase in stock
political conditions, prices, known as
both domestic and capital appreciation
international, may
result in a decline
in value of the
Fund's investments
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</TABLE>

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9
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HOW THE FUND INVESTS
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INVESTMENT TYPE (CONT'D)

<TABLE>
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% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
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<S> <C> <C>
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FOREIGN SECURITIES -- Foreign markets, -- Investors can
UP TO 35% economies and participate in the
political systems may growth of foreign
not be as stable as markets and companies
in the U.S. operating in those
-- Currency risk-- markets
changing values of -- Changing value of
foreign currencies foreign currencies
can cause losses -- Opportunities for
-- May be less liquid diversification
than U.S. stocks and
bonds
-- Differences in foreign
laws, accounting
standards, public
information, custody
and settlement
practices provide
less reliable
information on
foreign investments
and involve more risk
-- Year 2000 conversion
may be more of a
problem for some
foreign issuers
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DERIVATIVES -- Derivatives such as -- Hedges that correlate
PERCENTAGE VARIES futures, options and well with the
foreign currency underlying positions
forward contracts can reduce or
that are used for eliminate investment
hedging purposes to income or capital
avoid taxes may not gains at low cost
fully offset the -- The Fund could make
underlying positions money and protect
and this could result against losses if the
in losses to the Fund investment analysis
that would not have proves correct
otherwise occurred -- Derivatives that
-- Derivatives used for involve leverage
risk management may could generate
not have the intended substantial gains at
effects and may low cost
result in losses or -- One way to manage the
missed opportunities Fund's risk/return
-- The other party to a balance is to lock in
derivatives contract the value of an
could default investment ahead of
-- Derivatives that time
involve leverage
could magnify losses
-- Certain types of
derivatives involve
costs to the Fund
that can reduce
returns
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</TABLE>

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10 PRUDENTIAL TAX-MANAGED EQUITY FUND [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
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INVESTMENT TYPE (CONT'D)

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11
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HOW THE FUND IS MANAGED
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BOARD OF TRUSTEES

The Board of Trustees oversees the actions of the Manager, Investment Adviser
and Distributor and decides on general policies. The Board also oversees the
Company's officers, who conduct and supervise the daily business operations of
the Fund.

MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM)
GATEWAY CENTER THREE, 100 MULBERRY STREET
NEWARK, NJ 07102-4077

Under a management agreement with the Fund, PIFM manages the Fund's
investment operations and administers its business affairs. PIFM also is
responsible for supervising the Fund's investment adviser. Effective January 1,
2000, the Fund pays PIFM annual management fees of .65% of the Fund's average
net assets up to $500 million and .60% of the Fund's average daily net assets
over $500 million.

PIFM and its predecessors have served as manager or administrator to
investment companies since 1987. As of November 30, 1999, PIFM served as the
manager to all 46 of the Prudential mutual funds, and as manager or
administrator to 22 closed-end investment companies, with aggregate assets of
approximately $73.5 billion.

INVESTMENT ADVISER

The Prudential Investment Corporation, called Prudential Investments, is the
Fund's investment adviser and has served as an investment adviser to investment
companies since 1984. Its address is Prudential Plaza, 751 Broad Street, Newark,
NJ 07102. PIFM has responsibility for all investment advisory services,
supervises Prudential Investments and pays Prudential Investments for its
services at the annual rate of .325% of the Fund's average net assets up to
$500 million and .285% of the Fund's average net assets over $500 million,
effective January 1, 2000.

PORTFOLIO MANAGERS
The Fund is co-managed by JAMES SCOTT, Ph.D., MARK STUMPP, Ph.D., and TED
LOCKWOOD.
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12 PRUDENTIAL TAX-MANAGED EQUITY FUND [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND IS MANAGED

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James Scott, Ph.D., is a Senior Managing Director of Prudential Investments
Quantitative Management, a unit of Prudential Investments. He has managed
balanced and equity portfolios for Prudential's pension plans and several
institutional clients since 1987. Mr. Scott has 24 years of investment
experience. He received a B.A. from Rice University and an M.S. and a Ph.D. from
Carnegie Mellon University.

Mark Stumpp, Ph.D., is a Senior Managing Director of Prudential Investments.
He chairs the Quantitative Management group's Investment Policy Committee and is
responsible for its model portfolio. Mr. Stumpp developed the group's tactical
asset allocation algorithm. He also developed and oversees the methodology
underlying the group's actively managed equity portfolios. He has managed mutual
fund portfolios since 1995 and has managed investment portfolios for over
11 years. Mr. Stumpp has 19 years of investment experience. He received a B.A.
from Boston University and an M.A. and a Ph.D. from Brown University.

Ted Lockwood is Managing Director of Equity Management of Prudential
Investments, which includes quantitative equity, derivative and index funds. He
joined Prudential in 1988 and has over 13 years of investment experience.
Mr. Lockwood is also responsible for investment research, new product
development and managing balanced portfolios on behalf of institutional clients.
He received a B.S. from the State University of New York at Stony Brook and an
M.B.A. and an M.S. from Columbia University.

Messrs. Scott, Stumpp and Lockwood lead a team of 17 investment
professionals, 7 of whom hold Ph.D.s, with over 200 years of combined
experience. The team is currently responsible for the management of over $17
billion in assets.

DISTRIBUTOR

Prudential Investment Management Services LLC (PIMS) distributes the Fund's
shares under a Distribution Agreement with the Fund. The Fund has Distribution
and Service Plans under Rule 12b-1 of the Investment Company Act. Under the
Plans and the Distribution Agreement, PIMS pays the expenses of distributing the
Fund's Class A, B, C and Z shares and provides certain shareholder support
services. The Fund pays distribution and other fees to PIMS as compensation for
its services for each class of shares other than Class Z. These fees--known as
12b-1 fees--are shown in the "Fees and Expenses" tables.

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13
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HOW THE FUND IS MANAGED
- ------------------------------------------------

YEAR 2000 READINESS DISCLOSURE

The services provided to the Fund and the shareholders by the Manager, the
Distributor, the Transfer Agent and the Custodian depend on the smooth
functioning of their computer systems and those of outside service providers.
Many computer software systems in use today cannot distinguish the year 2000
from the year 1900 because of the way dates are encoded and calculated. Such an
event could have a negative impact on handling securities trades, payments of
interest and dividends, pricing and account services. Although, at this time,
there can be no assurance that there will be no adverse impact on the Fund, the
Manager, the Distributor, the Transfer Agent and the Custodian have advised the
Fund that they have been actively working on necessary changes to their computer
systems to prepare for the year 2000. The Company and its Board receive, and
have received since early 1998, satisfactory quarterly reports from the
principal service providers as to their preparations for year 2000 readiness,
although there can be no assurance that the service providers (or other
securities market participants) will successfully complete the necessary changes
in a timely manner. Moreover, the Fund at this time has not considered retaining
alternative service providers or directly undertaken efforts to achieve year
2000 readiness, the latter of which would involve substantial expenses without
an assurance of success.

Additionally, issuers of securities generally, as well as those purchased by
the Fund, may confront year 2000 compliance issues which, if material and not
resolved, could have an adverse impact on securities markets and/or a specific
issuer's performance and could result in a decline in the value of the
securities held by the Fund.

- -------------------------------------------------------------------
14 PRUDENTIAL TAX-MANAGED EQUITY FUND [LOGO] (800) 225-1852
<PAGE>
FUND DISTRIBUTIONS
AND TAX ISSUES
- -------------------------------------

Investors who buy shares of the Fund should be aware of some important tax
issues. For example, although the Fund tries to limit the amount of its taxable
distributions, the Fund distributes DIVIDENDS of ordinary income and any
realized net CAPITAL GAINS to shareholders. These distributions are subject to
taxes, unless you hold your shares in a 401(k) plan, an Individual Retirement
Account (IRA) or some other qualified tax-deferred plan or account. Dividends
and distributions from the Fund also may be subject to state and local income
tax in the state where you live. THE FUND IS DESIGNED FOR LONG-TERM TAXABLE
INVESTORS.

Also, if you sell shares of the Fund for a profit, you may have to pay
capital gains taxes on the amount of your profit, again unless you hold your
shares in a qualified tax-deferred plan or account.
The following briefly discusses some of the important federal 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 may realize taxable gains even though it tries to limit them. The Fund
also tries to limit taxable dividend distributions, but believes it will
distribute some taxable income.

The Fund distributes DIVIDENDS of any net investment income to
shareholders--typically every year. For example, if the Fund owns ACME Corp.
stock and the stock pays a dividend, the Fund will pay out a portion of this
dividend to its shareholders, assuming the Fund's income is more than its costs
and expenses. The dividends you receive from the Fund will be taxed as ordinary
income, whether or not they are reinvested in the Fund.

The Fund also distributes realized net CAPITAL GAINS to shareholders--
typically once a year. Capital gains are generated when the Fund sells its
assets for a profit. For example, if the Fund bought 100 shares of ACME Corp.
stock for a total of $1,000 and more than one year later sold the shares for a
total of $1,500, the Fund has net long-term capital gains of $500, which it will
pass on to shareholders (assuming the Fund's total gains are greater than any
losses it may have). Capital gains are taxed differently depending on how long
the Fund holds the security--if a security is held more than one year before it
is sold, LONG-TERM capital gains are taxed at the rate of 20%, but if the
security is held one year or less, SHORT-TERM

- --------------------------------------------------------------------------------
15
<PAGE>
FUND DISTRIBUTIONS
AND TAX ISSUES
- ------------------------------------------------
capital gains are taxed at ordinary income rates of up to 39.6%. Different rates
apply to corporate shareholders.

For your convenience, Fund distributions of dividends and capital gains are
AUTOMATICALLY REINVESTED in the Fund without any sales charge. If you ask us to
pay the distributions in cash, we will send you a check if your account is with
the Transfer Agent. Otherwise, if your account is with a broker, you will
receive a credit to your account. Either way, the distributions may be subject
to taxes, unless your shares are held in a qualified tax-deferred plan or
account. For more information about automatic reinvestment and other shareholder
services, see "Step 4: Additional Shareholder Services" in the next section.

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 tax-deferred plan or account, your taxes are
deferred, so you will not receive a Form 1099. However, you will receive a Form
1099 when you take any distributions from your qualified tax-deferred plan or
account.
Fund distributions are generally taxable to you in the calendar year they
are received, except when we declare certain dividends in the fourth quarter and
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. Corporate
shareholders are eligible for the 70% dividends-received deduction for certain
dividends.

WITHHOLDING TAXES

If federal tax law requires you to provide the Fund with your taxpayer
identification number and certifications as to your tax status, and you fail to
do this, or if you are otherwise subject to backup withholding, we will withhold
and pay to the U.S. Treasury 31% of your distributions and sale proceeds.
Dividends of net investment income and short-term capital gains paid to a
nonresident foreign shareholder generally will be subject to a U.S. withholding
tax of 30%. This rate may be lower, depending on any tax treaty the U.S. may
have with the shareholder's country.

- -------------------------------------------------------------------
16 PRUDENTIAL TAX-MANAGED EQUITY FUND [LOGO] (800) 225-1852
<PAGE>
FUND DISTRIBUTIONS
AND TAX ISSUES
- ------------------------------------------------

IF YOU PURCHASE JUST BEFORE RECORD DATE

If you buy shares of the Fund just before the record date (the date that
determines who receives the distribution), that distribution will be paid to
you. As explained above, the distribution may be subject to income or capital
gains taxes. You may think you've done well since you bought shares one day and
soon thereafter received a distribution. That is not so because when dividends
are paid out, the value of each share of the Fund decreases by the amount of the
dividend to reflect the payout although this may not be apparent because the
value of each share of the Fund also will be affected by the market changes, if
any. The distribution you receive makes up for the decrease in share value.
However, the timing of your purchase does mean that part of your investment came
back to you as taxable income.

QUALIFIED OR TAX-DEFERRED RETIREMENT PLANS

Retirement plans and accounts allow you to defer paying taxes on investment
income and capital gains. Contributions to these plans may also be tax
deductible, although distributions from these plans generally are taxable. In
the case of Roth IRA accounts, contributions are not tax deductible, but
distributions from the plan may be tax-free. Please contact your financial
adviser for information on a variety of Prudential mutual funds that are
suitable for retirement plans offered by Prudential.

IF YOU SELL OR EXCHANGE YOUR SHARES
If you sell any shares of the Fund for a profit, you have REALIZED A CAPITAL
GAIN, which is subject to tax unless you hold shares in a qualified tax-
deferred plan or account. The amount of tax you pay depends on how long you
owned your shares. If you sell shares of the Fund for a loss, you may have a
capital loss, which you may use to offset certain capital gains you have.

--> +$ CAPITAL GAINS
(taxes owed)

RECEIPTS FROM SALE $ OR

--> +$ CAPITAL LOSS
(offset against gain)

If you sell shares and realize a loss, you will not be permitted to use the
loss to the extent you replace the shares (including pursuant to the
reinvestment of a dividend) within a 61-day period (beginning 30 days

- --------------------------------------------------------------------------------
17
<PAGE>

FUND DISTRIBUTIONS
AND TAX ISSUES
- ------------------------------------------------

before the sale of the shares). If you acquire shares of the Fund and sell your
shares within 90 days, you may not be allowed to include certain charges
incurred in acquiring the shares for purposes of calculating gain or loss
realized upon the sale of the shares.

Exchanging your shares of the Fund for the shares of another Prudential
mutual fund is considered a sale for tax purposes. In other words, it's a
"taxable event." Therefore, if the shares you exchanged have increased in value
since you purchased them, you have capital gains, which are subject to the taxes
described above.

Any gain or loss you may have from selling or exchanging Fund shares will
not be reported on Form 1099; however, proceeds from the sale or exchange will
be reported on Form 1099-B. Therefore, unless you hold your shares in a
qualified tax-deferred plan or account, you or your financial adviser should
keep track of the dates on which you buy and sell--or exchange--Fund shares, as
well as the amount of any gain or loss on each transaction. For tax advice,
please see your tax adviser.

AUTOMATIC CONVERSION OF CLASS B SHARES

We have obtained a legal opinion that the conversion of Class B shares into
Class A shares--which happens automatically approximately seven years after
purchase--is not a "taxable event" because it does not involve an actual sale of
your Class B shares. This opinion, however, is not binding on the Internal
Revenue Service. For more information about the automatic conversion of Class B
shares, see "Class B Shares Convert to Class A Shares After Approximately Seven
Years" in the next section.

- -------------------------------------------------------------------
18 PRUDENTIAL TAX-MANAGED EQUITY FUND [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND EXCHANGE
SHARES OF THE FUND
- -------------------------------------

HOW TO BUY SHARES

STEP 1: OPEN AN ACCOUNT
If you don't have an account with us or a securities firm that is permitted to
buy or sell shares of the Fund for you, call Prudential Mutual Fund
Services LLC (PMFS) at (800) 225-1852 or contact:

PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: INVESTMENT SERVICES
P.O. BOX 15020
NEW BRUNSWICK, NJ 08906-5020

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.

STEP 2: CHOOSE A SHARE CLASS
Individual investors can choose among Class A, Class B, Class C and Class Z
shares of the Fund, although Class Z shares are available only to a limited
group of investors.

Multiple share classes let you choose a cost structure that better meets
your needs. With Class A shares, you pay the sales charge at the time of
purchase, but the operating expenses each year are lower than the expenses of
Class B and Class C shares. With Class B shares, you only pay a sales charge if
you sell your shares within six years (that is why it is called a Contingent
Deferred Sales Charge, or CDSC), but the operating expenses each year are higher
than Class A share expenses. With Class C shares, you pay a 1% front-end sales
charge and a 1% CDSC if you sell within 18 months of purchase, but the operating
expenses are also higher than the expenses for Class A shares.

When choosing a share class, you should consider the following:

-- The amount of your investment

-- The length of time you expect to hold the shares and the impact of
the varying distribution fees

-- The different sales charges that apply to each share class--
Class A's front-end sales charge vs. Class B's CDSC vs. Class C's low
front-end sales charge and low CDSC
- --------------------------------------------------------------------------------
19
<PAGE>
HOW TO BUY, SELL AND EXCHANGE
SHARES OF THE FUND
- ------------------------------------------------

-- Whether you qualify for any reduction or waiver of sales charges

-- The fact that Class B shares automatically convert to Class A shares
approximately seven years after purchase

-- Whether you qualify to purchase Class Z shares.

See "How to Sell Your Shares" for a description of the impact of CDSCs.

SHARE CLASS COMPARISON. Use this chart to help you compare the Fund's different
share classes. The discussion following this chart will tell you whether you are
entitled to a reduction or waiver of any sales charges.

<TABLE>
- ---------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Z
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Minimum purchase amount(1) $1,000 $1,000 $2,500 None
Minimum amount for $100 $100 $100 None
subsequent purchases(1)
Maximum initial sales 5% of the None 1% of the None
charge public public
offering offering
price price
Contingent Deferred Sales None If sold 1% on sales None
Charge (CDSC)(2) during: made within
Year 1 5% 18 months of
Year 2 4% purchase(2)
Year 3 3%
Year 4 2%
Year 5/6 1%
Year 7 0%
Annual distribution and .30 of 1% 1% 1% None
service (12b-1) fees (.25 of 1%
shown as a percentage of currently)
average net assets(3)
</TABLE>

<TABLE>
<S> <C>
1 THE MINIMUM INVESTMENT REQUIREMENTS DO NOT APPLY TO CERTAIN
RETIREMENT AND EMPLOYEE SAVINGS PLANS AND CUSTODIAL ACCOUNTS
FOR MINORS. THE MINIMUM INITIAL AND SUBSEQUENT INVESTMENT
FOR PURCHASES MADE THROUGH THE AUTOMATIC INVESTMENT PLAN IS
$50. FOR MORE INFORMATION, SEE "ADDITIONAL SHAREHOLDER
SERVICES--AUTOMATIC INVESTMENT PLAN."
2 FOR MORE INFORMATION ABOUT THE CDSC AND HOW IT IS
CALCULATED, SEE "HOW TO SELL YOUR SHARES--
CONTINGENT DEFERRED SALES CHARGE (CDSC)."
3 THESE DISTRIBUTION FEES ARE PAID FROM THE FUND'S ASSETS ON A
CONTINUOUS BASIS. OVER TIME, THE FEES WILL INCREASE THE COST
OF YOUR INVESTMENT AND MAY COST YOU MORE THAN PAYING OTHER
TYPES OF SALES CHARGES. THE SERVICE FEE FOR CLASS A,
CLASS B AND CLASS C SHARES IS .25 OF 1%. THE DISTRIBUTION
FEE FOR CLASS A SHARES IS LIMITED TO .30 OF 1% (INCLUDING
THE .25 OF 1% SERVICE FEE) AND IS .75 OF 1% FOR CLASS B AND
CLASS C SHARES. FOR THE FISCAL YEAR ENDING 10-31-00, THE
DISTRIBUTOR OF THE FUND HAS CONTRACTUALLY AGREED TO REDUCE
ITS DISTRIBUTION AND SERVICE (12b-1) FEES FOR CLASS A SHARES
TO .25 OF 1% OF THE AVERAGE DAILY NET ASSETS OF THE CLASS A
SHARES.
</TABLE>

- -------------------------------------------------------------------
20 PRUDENTIAL TAX-MANAGED EQUITY FUND [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND EXCHANGE
SHARES OF THE FUND
- ------------------------------------------------

REDUCING OR WAIVING CLASS A'S INITIAL SALES CHARGE
The following describes the different ways investors can reduce or avoid
paying Class A's initial sales charge.

INCREASE THE AMOUNT OF YOUR INVESTMENT. You can reduce Class A's sales
charge by increasing the amount of your investment. This table shows how
the sales charge decreases as the amount of your investment increases.

<TABLE>
- -------------------------------------------------------------------------------------
SALES CHARGE AS % OF SALES CHARGE AS % OF DEALER
OFFERING PRICE AMOUNT INVESTED REALLOWANCE
AMOUNT OF PURCHASE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $25,000 5.00% 5.26% 4.75%
$25,000 to $49,999 4.50% 4.71% 4.25%
$50,000 to $99,999 4.00% 4.17% 3.75%
$100,000 to $249,999 3.25% 3.36% 3.00%
$250,000 to $499,999 2.50% 2.56% 2.40%
$500,000 to $999,999 2.00% 2.04% 1.90%
$1 million and above* None None None
</TABLE>

<TABLE>
<S> <C>
* IF YOU INVEST $1 MILLION OR MORE, YOU CAN BUY ONLY CLASS A
SHARES, UNLESS YOU QUALIFY TO BUY CLASS Z SHARES.
</TABLE>

To satisfy the purchase amounts above, you can:

-- Invest with an eligible group of related investors

-- Buy Class A shares of two or more Prudential mutual funds at the same
time

-- Use your RIGHTS OF ACCUMULATION, which allow you to combine the
current value of Prudential mutual fund shares you already own with
the value of the shares you are purchasing for purposes of
determining the applicable sales charge (note: you must notify the
Transfer Agent if you qualify for Rights of Accumulation)

-- Sign a LETTER OF INTENT, stating in writing that you or an eligible
group of related investors will purchase a certain amount of shares
in the Fund and other Prudential mutual funds within 13 months.

The Distributor may reallow Class A's sales charge to dealers.

- --------------------------------------------------------------------------------
21
<PAGE>

HOW TO BUY, SELL AND EXCHANGE
SHARES OF THE FUND
- ------------------------------------------------

BENEFIT PLANS. Certain group retirement and savings plans may purchase Class A
shares without the initial sales charge if they meet the required minimum for
amount of assets, average account balance or number of eligible employees. For
more information about these requirements, call Prudential at (800) 353-2847.

MUTUAL FUND PROGRAMS. The initial sales charge will be waived for investors in
certain programs sponsored by broker-dealers, investment advisers and financial
planners who have agreements with Prudential Investments Advisory Group relating
to:

-- Mutual fund "wrap" or asset allocation programs where the sponsor
places Fund trades and charges its clients a management, consulting
or other fee for its services, or

-- Mutual fund "supermarket" programs where the sponsor links its
clients' accounts to a master account in the sponsor's name and the
sponsor charges a fee for its services.

Broker-dealers, investment advisers or financial planners sponsoring these
mutual fund programs may offer their clients more than one class of shares in
the Fund in connection with different pricing options for their programs.
Investors should consider carefully any separate transaction and other fees
charged by these programs in connection with investing in each available share
class before selecting a share class.

OTHER TYPES OF INVESTORS. Other investors pay no sales charge, including certain
officers, employees or agents of Prudential and its affiliates, the Prudential
mutual funds, the subadvisers of the Prudential mutual funds and registered
representatives and employees of brokers that have entered into a selected
dealer agreement with the Distributor. To qualify for a reduction or waiver of
the sales charge, you must notify the Transfer Agent or your broker at the time
of purchase. For more information, see the SAI, "Purchase, Redemption and
Pricing of Fund Shares--Reduction and Waiver of Initial Sales Charge--Class A
Shares."

WAIVING CLASS C'S INITIAL SALES CHARGE

BENEFIT PLANS. Certain group retirement plans may purchase Class C shares
without the initial sales charge. For more information, call Prudential at (800)
353-2847.

- -------------------------------------------------------------------
22 PRUDENTIAL TAX-MANAGED EQUITY FUND [LOGO] (800) 225-1852
<PAGE>

HOW TO BUY, SELL AND EXCHANGE
SHARES OF THE FUND
- ------------------------------------------------

INVESTMENT OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES. The initial
sales charge will be waived for purchases of Class C shares if the purchase is
made with money from the redemption of shares of any unaffiliated investment
company, as long as the shares were not held in an account at Prudential
Securities Incorporated (Prudential Securities) or one of its affiliates. These
purchases must be made within 60 days of the redemption. To qualify for this
waiver, you must do one of the following:

-- purchase your shares through an account at Prudential Securities,

-- purchase your shares through an ADVANTAGE Account or an Investor
Account with Pruco Securities Corporation, or

-- purchase your shares through another broker.

This waiver is not available to investors who purchase shares directly from
the Transfer Agent. If you are entitled to the waiver, you must notify either
the Transfer Agent or your broker. The Transfer Agent may require any supporting
documents it considers appropriate.

QUALIFYING FOR CLASS Z SHARES

BENEFIT PLANS. Certain group retirement plans may purchase Class Z shares if
they meet the required minimum for amount of assets, average account balance or
number of eligible employees. For more information about these requirements,
call Prudential at (800) 353-2847.

MUTUAL FUND PROGRAMS. Class Z shares can be purchased by participants in any
fee-based program or trust program sponsored by Prudential or an affiliate that
includes the Fund as an available option. Class Z shares also can be purchased
by investors in certain programs sponsored by broker-dealers, investment
advisers and financial planners who have agreements with Prudential Investments
Advisory Group relating to:

-- Mutual fund "wrap" or asset allocation programs where the sponsor
places Fund trades, links its clients' accounts to a master account
in the sponsor's name and charges its clients a management,

- --------------------------------------------------------------------------------
23
<PAGE>

HOW TO BUY, SELL AND EXCHANGE
SHARES OF THE FUND
- ------------------------------------------------

consulting or other fee for its services, or

-- Mutual fund "supermarket" programs, where the sponsor links its
clients' accounts to a master account in the sponsor's name and the
sponsor charges a fee for its services.

OTHER TYPES OF INVESTORS. Class Z shares also can be purchased by any of the
following:

-- Certain participants in the MEDLEY Program (group variable annuity
contracts) sponsored by Prudential for whom Class Z shares of the
Prudential mutual funds are an available option,

-- Current and former Directors/Trustees of the Prudential mutual funds
(including the Company), and

-- Prudential, with an investment of $10 million or more.

In connection with the sale of shares, the Manager, the Distributor or one
of their affiliates may pay brokers, financial advisers and other persons a
commission of up to 4% of the purchase price for Class B shares, up to 2% of the
purchase price for Class C shares and a finder's fee for Class A or Class Z
shares from their own resources based on a percentage of the net asset value of
shares sold or otherwise.

CLASS B SHARES CONVERT TO CLASS A SHARES AFTER APPROXIMATELY SEVEN YEARS
If you buy Class B shares and hold them for approximately seven years, we will
automatically convert them into Class A shares without charge. At that time, we
will also convert any Class B shares that you received with reinvested dividends
and other distributions. Since the 12b-1 fees for Class A shares are lower than
for Class B shares, converting to Class A shares lowers your Fund expenses.
When we do the conversion, you will get fewer Class A shares than the number
of Class B shares converted if the price of the Class A shares is
- -------------------------------------------------------------------
24 PRUDENTIAL TAX-MANAGED EQUITY FUND [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND EXCHANGE
SHARES OF THE FUND
- ------------------------------------------------

higher than the price of Class B shares. The total dollar value will be the
same, so you will not have lost any money by getting fewer Class A shares. We do
the conversions quarterly, not on the anniversary date of your purchase. For
more information, see the SAI, "Purchase, Redemption and Pricing of Fund
Shares--Conversion Feature--Class B Shares."

STEP 3: UNDERSTANDING THE PRICE YOU'LL PAY

The price you pay for each share of the Fund is based on the share value. The
share value of a mutual fund--known as the NET ASSET VALUE or NAV--is determined
by a simple calculation--it's the total value of the Fund (assets minus
liabilities) divided by the total number of shares outstanding. For example, if
the value of the investments held by Fund XYZ (minus its liabilities) is $1,000
and there are 100 shares of Fund XYZ owned by shareholders, the price of one
share of the fund--or the NAV--is $10 ($1,000 divided by 100). Portfolio
securities are valued based upon market quotations or, if not readily available,
at fair value as determined in good faith under procedures established by the
Company's Board. Most national newspapers report the NAVs of most mutual funds,
which allows investors to check the price of mutual funds daily.

We determine the NAV of our shares once each business day at 4:15 p.m. New
York Time on days that the New York Stock Exchange (NYSE) is open for trading.
The NYSE is closed on national holidays and Good Friday. We do not determine the
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.

WHAT PRICE WILL YOU PAY FOR SHARES OF THE FUND?
For Class A and Class C shares, you'll pay the public offering price, which is
NAV next determined after we receive your order to purchase, plus an initial

- -------------------------------------------------------------------
MUTUAL FUND SHARES
The NAV of mutual fund shares changes every day because the value of a fund's
portfolio changes constantly. For example, if Fund XYZ holds ACME Corp. stock in
its portfolio and the price of ACME stock goes up, while the value of the fund's
other holdings remains the same and expenses don't change, the NAV of Fund XYZ
will increase.
- -------------------------------------------------------------------
- --------------------------------------------------------------------------------
25
<PAGE>
HOW TO BUY, SELL AND EXCHANGE
SHARES OF THE FUND
- ------------------------------------------------

sales charge (unless you're entitled to a waiver). For Class B and Class Z
shares, you will pay the NAV next determined after we receive your order to
purchase (remember, there are no up-front sales charges for these share
classes). Your broker may charge you a separate or additional fee for purchases
of shares.

STEP 4: ADDITIONAL SHAREHOLDER SERVICES
As a Fund shareholder, you can take advantage of the following services and
privileges:

AUTOMATIC REINVESTMENT. As we explained in the "Fund Distributions and Tax
Issues" section, the Fund pays out--or distributes--its net investment income
and capital gains to all shareholders. For your convenience, we will
automatically reinvest your distributions in the Fund at NAV without any sales
charge. 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
ATTN: ACCOUNT MAINTENANCE
P.O. BOX 15015
NEW BRUNSWICK, NJ 08906-5015

AUTOMATIC INVESTMENT PLAN. You can make regular purchases of the Fund for as
little as $50 by having the funds automatically withdrawn from your bank or
brokerage account at specified intervals.

RETIREMENT PLAN SERVICES. Prudential offers a wide variety of retirement plans
for individuals and institutions, including large and small businesses. For
information on IRAs, including Roth IRAs or SEP-IRAs for a one-person business,
please contact your financial adviser. If you are interested in opening a 401(k)
or other company-sponsored retirement plan (SIMPLES, SEP plans, Keoghs,
403(b) plans, pension and profit-sharing plans), your financial adviser will
help you determine which retirement plan best meets your needs. Complete
instructions about how to establish and maintain your plan and how to open
accounts for you and your employees will be

- -------------------------------------------------------------------
26 PRUDENTIAL TAX-MANAGED EQUITY FUND [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND EXCHANGE
SHARES OF THE FUND
- ------------------------------------------------

included in the retirement plan kit you receive in the mail.

THE PRUTECTOR PROGRAM. Optional group term life insurance--which protects the
value of your Prudential mutual fund investment for your beneficiaries against
market declines--is available to investors who purchase their shares through
Prudential. Eligible investors who apply for PruTector coverage after the
initial 6-month enrollment period will need to provide satisfactory evidence of
insurability. This insurance is subject to other restrictions and is not
available in all states.

SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available that will
provide you with monthly, quarterly, semi-annual or annual redemption checks.
Remember, the sale of Class B and Class C shares may be subject to a CDSC.

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 will send one
annual shareholder report, one semi-annual shareholder report and one annual
prospectus per household, unless you instruct us or your broker otherwise.

HOW TO SELL YOUR SHARES
You can sell your shares of the Fund for cash (in the form of a check) at any
time, subject to certain restrictions.

When you sell shares of the Fund--also known as redeeming your 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 4:15 p.m. New York
Time to process the sale on that day. Otherwise, contact:

PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: REDEMPTION SERVICES
P.O. BOX 15010
NEW BRUNSWICK, NJ 08906-5010
- --------------------------------------------------------------------------------
27
<PAGE>

HOW TO BUY, SELL AND EXCHANGE
SHARES OF THE FUND
- ------------------------------------------------

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 delays if you purchase shares by
wire, certified check or cashier's check. Your broker may charge you a separate
or additional fee for sales of shares.

RESTRICTIONS ON SALES
There are certain times when you may not be able to sell shares of the Fund, or
when we may delay paying you the proceeds from a sale. This may happen during
unusual market conditions or emergencies when the Fund can't determine the value
of its assets or sell its holdings. For more information, see the SAI,
"Purchase, Redemption and Pricing of Fund Shares--Sale of Shares."

If you are selling more than $100,000 of shares, you want the check sent to
someone or some place that is not in our records or you are a business or a
trust and you hold your shares directly with the Transfer Agent, you will need
to have the signature on your sell order signature guaranteed by an "eligible
guarantor institution." An "eligible guarantor institution" includes any bank,
broker-dealer or credit union. For more information, see the SAI, "Purchase,
Redemption and Pricing of Fund Shares--Sale of Shares--Signature Guarantee."

CONTINGENT DEFERRED SALES CHARGE (CDSC)
If you sell Class B shares within six years of purchase or Class C shares within
18 months of purchase, you will have to pay a CDSC. To keep the CDSC as low as
possible, we will sell amounts representing shares in the following order:
-- Amounts representing shares you purchased with reinvested dividends
and distributions
-- Amounts representing the increase in NAV above the total amount of
payments for shares made during the past six years for Class B shares
and 18 months for Class C shares

-- Amounts representing the cost of shares held beyond the CDSC period
(six years for Class B shares and 18 months for Class C shares).

- -------------------------------------------------------------------
28 PRUDENTIAL TAX-MANAGED EQUITY FUND [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND EXCHANGE
SHARES OF THE FUND
- ------------------------------------------------

Since shares that fall into any of the categories listed above are not
subject to the CDSC, selling them first helps you to avoid--or at least
minimize--the CDSC.
Having sold the exempt shares first, if there are any remaining shares that
are subject to the CDSC, we will apply the CDSC to amounts representing the cost
of shares held for the longest period of time within the applicable CDSC period.

As we noted before in the "Share Class Comparison" chart, the CDSC for
Class B shares is 5% in the first year, 4% in the second, 3% in the third, 2% in
the fourth and 1% in the fifth and sixth years. The rate decreases on the first
day of the month following the anniversary date of your purchase, not on the
anniversary date itself. The CDSC is 1% for Class C shares--which is applied to
shares sold within 18 months of purchase. For both Class B and Class C shares,
the CDSC is calculated based on the lesser of the original purchase price or the
redemption proceeds. For purposes of determining how long you've held your
shares, all purchases during the month are grouped together and considered to
have been made on the last day of the month.

The holding period for purposes of determining the applicable CDSC will be
calculated from the first day of the month after initial purchase, excluding any
time shares were held in a money market fund.

WAIVER OF THE CDSC--CLASS B SHARES
The CDSC will be waived if the Class B shares are sold:

-- After a shareholder is deceased or disabled (or, in the case of a
trust account, the death or disability of the grantor). This waiver
applies to individual shareholders, as well as shares owned in joint
tenancy, provided the shares were purchased before the death or
disability

-- To provide for certain distributions--made without IRS penalty--from
a tax-deferred retirement plan, IRA or Section 403(b) custodial
account

-- On certain sales from a Systematic Withdrawal Plan.

For more information on the above and other waivers, see the SAI, "Purchase,
Redemption and Pricing of Fund Shares--Waiver of Contingent Deferred Sales
Charge--Class B Shares."
- --------------------------------------------------------------------------------
29
<PAGE>
HOW TO BUY, SELL AND EXCHANGE
SHARES OF THE FUND
- ------------------------------------------------

WAIVER OF THE CDSC--CLASS C SHARES

BENEFIT PLANS. The CDSC will be waived for purchases by certain group retirement
plans for which Prudential or brokers not affiliated with Prudential provide
administrative or recordkeeping services. The CDSC also will be waived for
certain redemptions by benefit plans sponsored by Prudential and its affiliates.
For more information, call Prudential at (800) 353-2847.

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.

SMALL ACCOUNTS

If you make a sale that reduces your account value to less than $500, we may
sell the rest of your shares (without charging any CDSC) and close your account.
We would do this to minimize the Fund's expenses paid by other shareholders. We
will give you 60 days' notice, during which time you can purchase additional
shares to avoid this action. This involuntary sale does not apply to
shareholders who own their shares as part of a 401(k) plan, an IRA or some other
qualified tax-deferred plan or account.

90-DAY REPURCHASE PRIVILEGE
After you redeem your shares, you have a 90-day period during which you may
reinvest any of the redemption proceeds in shares of the same Fund without
paying an initial sales charge. Also, if you paid a CDSC when you redeemed your
shares, we will credit your new account with the appropriate numbers of shares
to reflect the amount of the CDSC you paid. In order to take advantage of this
one-time privilege, you must notify the Transfer Agent or your broker at the
time of the repurchase. See the SAI, "Purchase, Redemption and Pricing of Fund
Shares--Sale of Shares."

RETIREMENT PLANS

To sell shares and receive a distribution from a retirement account, call your
broker or the Transfer Agent for a distribution request form. There are

- -------------------------------------------------------------------
30 PRUDENTIAL TAX-MANAGED EQUITY FUND [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND EXCHANGE
SHARES OF THE FUND
- ------------------------------------------------

special distribution and income tax withholding requirements for distributions
from retirement plans and you must submit a withholding form with your request
to avoid delay. If your retirement plan account is held for you by your employer
or plan trustee, you must arrange for the distribution request to be signed and
sent by the plan administrator or trustee. For additional information, see the
SAI.

HOW TO EXCHANGE YOUR SHARES

You can exchange your shares of the Fund for shares of the same class in certain
other Prudential mutual funds--including certain money market funds--if you
satisfy the minimum investment requirements. For example, you can exchange Class
A shares of the Fund for Class A shares of another Prudential mutual fund, but
you can't exchange Class A shares for Class B, Class C or Class Z shares. Class
B and Class C shares may not be exchanged into money market funds other than
Prudential Special Money Market Fund, Inc. After an exchange, at redemption the
CDSC will be calculated from the first day of the month after initial purchase,
excluding any time shares were held in a money market fund. We may change the
terms of the exchange privilege after giving you 60 days' notice.

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: 15010
NEW BRUNSWICK, NJ 08906-5010

There is no sales charge for such exchanges. However, if you exchange--and
then sell--Class B shares within approximately six years of your original
purchase or Class C shares within 18 months of your original purchase, you must
still pay the applicable CDSC. If you have exchanged Class B or Class C shares
into a money market fund, the time you hold the shares in the money market
account will not be counted in calculating the required holding periods for CDSC
liability.
Remember, as we explained in the section entitled "Fund Distributions and
Tax Issues--If You Sell or Exchange Your Shares," exchanging shares is
considered a sale for tax purposes. Therefore, if the shares you exchange
- --------------------------------------------------------------------------------
31
<PAGE>
HOW TO BUY, SELL AND EXCHANGE
SHARES OF THE FUND
- ------------------------------------------------

are worth more than you paid for them, you may have to pay capital gains tax.
For additional information about exchanging shares, see the SAI, "Shareholder
Investment Account--Exchange Privilege."
If you own Class B or Class C shares and qualify to purchase Class A shares
without paying an initial sales charge, we will automatically exchange your
Class B or Class C shares which are not subject to a CDSC for Class A shares. We
make such exchanges on a quarterly basis if you qualify for this exchange
privilege. We have obtained a legal opinion that this exchange is not a "taxable
event" for federal income tax purposes. This opinion is not binding on the IRS.

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 account. The decision
may be based upon dollar amount, volume and frequency of trading. The Fund may
notify a market timer of rejection of an exchange or purchase order after the
day the order is placed. If the Fund allows a market timer to trade Fund shares,
it may require the market timer to enter into a written agreement to follow
certain procedures and limitations.

- -------------------------------------------------------------------
32 PRUDENTIAL TAX-MANAGED EQUITY FUND [LOGO] (800) 225-1852
<PAGE>

FINANCIAL HIGHLIGHTS

- -------------------------------------

The financial highlights will help you evaluate the Fund's financial
performance. The TOTAL RETURN in each chart represents the rate that a
shareholder earned on an investment in that share class of the Fund, assuming
reinvestment of all dividends and other distributions. The information is for
each share class for the period indicated.

Review each chart with the financial statements and reports of independent
accountants which appear in the annual report and the SAI and are available upon
request. Additional performance information for each share class is contained in
the annual report, which you can receive at no charge.

CLASS A AND CLASS B SHARES

The financial highlights were audited by PricewaterhouseCoopers LLP, independent
accountants, whose report was unqualified.

CLASS A AND CLASS B SHARES (FISCAL PERIODS ENDED 10-31)

<TABLE>
- --------------------------------------------------------------------------------------------------
CLASS A
PER SHARE OPERATING PERFORMANCE 1999(1),(2)
- --------------------------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .01
Net realized and unrealized gain on investment and foreign
currency transactions 1.26
TOTAL FROM INVESTMENT OPERATIONS 1.27
- --------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $11.27
TOTAL RETURN(3) 12.70%
- --------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1999(1)
- --------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000) $78,169
Average net assets (000) $66,701
RATIOS TO AVERAGE NET ASSETS:(4)
Expenses, including distribution fees 1.23%
Expenses, excluding distribution fees .98%
Net investment income (loss) .09%
Portfolio turnover 67%

<S> <C>
CLASS B
PER SHARE OPERATING PERFORMANCE 1999(1),(2)
- --------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (.05)
Net realized and unrealized gain on investment and foreign
currency transactions 1.27
TOTAL FROM INVESTMENT OPERATIONS 1.22
- ------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $11.22
TOTAL RETURN(3) 12.20%
- ------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1999(1)
- ------------------------------------------------------------
NET ASSETS, END OF PERIOD (000) $175,129
Average net assets (000) $144,221
RATIOS TO AVERAGE NET ASSETS:(4)
Expenses, including distribution fees 1.98%
Expenses, excluding distribution fees .98%
Net investment income (loss) (.67)%
Portfolio turnover 67%
</TABLE>

<TABLE>
<S> <C>
1 INFORMATION SHOWN IS FOR THE PERIOD 3-3-99 (WHEN SHARES WERE
FIRST OFFERED) THROUGH 10-31-99.
2 BASED ON WEIGHTED AVERAGE SHARES OUTSTANDING DURING THE
PERIOD.
3 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER
DISTRIBUTIONS, BUT DOES NOT INCLUDE THE EFFECT OF SALES
CHARGES. IT IS CALCULATED ASSUMING SHARES ARE PURCHASED ON
THE FIRST DAY AND SOLD ON THE LAST DAY OF EACH PERIOD
REPORTED. TOTAL RETURNS FOR PERIODS OF LESS THAN A FULL YEAR
ARE NOT ANNUALIZED.
4 ANNUALIZED.
</TABLE>

- --------------------------------------------------------------------------------
33
<PAGE>

FINANCIAL HIGHLIGHTS

- ------------------------------------------------

CLASS C AND CLASS Z SHARES

The financial highlights were audited by PricewaterhouseCoopers LLP, independent
accountants, whose report was unqualified.

CLASS C AND CLASS Z SHARES (FISCAL PERIODS ENDED 10-31)

<TABLE>
- --------------------------------------------------------------------------------------------------
CLASS C
PER SHARE OPERATING PERFORMANCE 1999(1),(2)
- --------------------------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (.05)
Net realized and unrealized gain on investment and foreign
currency transactions 1.27
TOTAL FROM INVESTMENT OPERATIONS 1.22
- --------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $11.22
TOTAL RETURN(3) 12.20%
- --------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1999(1)
- --------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000) $110,895
Average net assets (000) $91,235
RATIOS TO AVERAGE NET ASSETS:(4)
Expenses, including distribution fees 1.98%
Expenses, excluding distribution fees .98%
Net investment income (loss) (.67)%
Portfolio turnover 67%

<S> <C>
- --------------------------------------------------------------------------------------------------
CLASS Z
PER SHARE OPERATING PERFORMANCE 1999(1),(2)
- --------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .02
Net realized and unrealized gain on investment and foreign
currency transactions 1.28
TOTAL FROM INVESTMENT OPERATIONS 1.30
- ------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $11.30
TOTAL RETURN(3) 13.00%
- ------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1999(1)
- ------------------------------------------------------------
NET ASSETS, END OF PERIOD (000) $13,653
Average net assets (000) $12,627
RATIOS TO AVERAGE NET ASSETS:(4)
Expenses, including distribution fees .98%
Expenses, excluding distribution fees .98%
Net investment income (loss) .35%
Portfolio turnover 67%
</TABLE>

<TABLE>
<S> <C>
1 INFORMATION SHOWN IS FOR THE PERIOD 3-3-99 (WHEN SHARES WERE
FIRST OFFERED) THROUGH 10-31-99.
2 BASED ON WEIGHTED SHARES OUTSTANDING DURING THE PERIOD.
3 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER
DISTRIBUTIONS, BUT DOES NOT INCLUDE THE EFFECT OF SALES
CHARGES. IT IS CALCULATED ASSUMING SHARES ARE PURCHASED ON
THE FIRST DAY AND SOLD ON THE LAST DAY OF EACH PERIOD
REPORTED. TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR
ARE NOT ANNUALIZED.
4 ANNUALIZED.
</TABLE>

- -------------------------------------------------------------------
34 PRUDENTIAL TAX-MANAGED EQUITY FUND [LOGO] (800) 225-1852
<PAGE>
[This page has been left blank intentionally.]
- --------------------------------------------------------------------------------
35
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
- -------------------------------------

Prudential offers a broad range of mutual funds designed to meet your individual
needs. For information about these funds, contact your financial adviser or call
us at (800) 225-1852. Read the prospectus carefully before you invest or send
money.

STOCK FUNDS

PRUDENTIAL EMERGING GROWTH FUND, INC.

PRUDENTIAL EQUITY FUND, INC.
PRUDENTIAL EQUITY INCOME FUND
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL SMALL-CAP INDEX FUND
PRUDENTIAL STOCK INDEX FUND
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH FUND
PRUDENTIAL JENNISON GROWTH & INCOME FUND
PRUDENTIAL MID-CAP VALUE FUND
PRUDENTIAL REAL ESTATE SECURITIES FUND

PRUDENTIAL SECTOR FUNDS, INC.

PRUDENTIAL FINANCIAL SERVICES FUND

PRUDENTIAL HEALTH SCIENCES FUND

PRUDENTIAL TECHNOLOGY FUND

PRUDENTIAL UTILITY FUND

PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
PRUDENTIAL SMALL COMPANY VALUE FUND, INC.

PRUDENTIAL TAX-MANAGED FUNDS

PRUDENTIAL TAX-MANAGED EQUITY FUND
PRUDENTIAL 20/20 FOCUS FUND

NICHOLAS-APPLEGATE FUND, INC.

NICHOLAS-APPLEGATE GROWTH EQUITY FUND

TARGET FUNDS

LARGE CAPITALIZATION GROWTH FUND

LARGE CAPITALIZATION VALUE FUND

SMALL CAPITALIZATION GROWTH FUND

SMALL CAPITALIZATION VALUE FUND

ASSET ALLOCATION/BALANCED FUNDS
PRUDENTIAL BALANCED FUND
PRUDENTIAL DIVERSIFIED FUNDS
CONSERVATIVE GROWTH FUND
MODERATE GROWTH FUND
HIGH GROWTH FUND
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL ACTIVE BALANCED FUND
GLOBAL FUNDS
GLOBAL STOCK FUNDS
PRUDENTIAL DEVELOPING MARKETS FUND
PRUDENTIAL DEVELOPING MARKETS EQUITY FUND
PRUDENTIAL LATIN AMERICA EQUITY FUND
PRUDENTIAL EUROPE GROWTH FUND, INC.
PRUDENTIAL GLOBAL GENESIS FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL EUROPE INDEX FUND
PRUDENTIAL PACIFIC INDEX FUND
PRUDENTIAL NATURAL RESOURCES FUND, INC.
PRUDENTIAL PACIFIC GROWTH FUND, INC.
PRUDENTIAL WORLD FUND, INC.
GLOBAL SERIES
INTERNATIONAL STOCK SERIES
GLOBAL UTILITY FUND, INC.

TARGET FUNDS

INTERNATIONAL EQUITY FUND

GLOBAL BOND FUNDS

PRUDENTIAL GLOBAL TOTAL RETURN FUND, INC.

PRUDENTIAL INTERNATIONAL BOND FUND, INC.

- -------------------------------------------------------------------
36 PRUDENTIAL TAX-MANAGED EQUITY FUND [LOGO] (800) 225-1852
<PAGE>
- -------------------------------------

BOND FUNDS
TAXABLE BOND FUNDS
PRUDENTIAL DIVERSIFIED BOND FUND, INC.
PRUDENTIAL GOVERNMENT INCOME FUND, INC.
PRUDENTIAL GOVERNMENT SECURITIES TRUST
SHORT-INTERMEDIATE TERM SERIES
PRUDENTIAL HIGH YIELD FUND, INC.
PRUDENTIAL HIGH YIELD TOTAL RETURN FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL BOND MARKET INDEX FUND
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
INCOME PORTFOLIO

TARGET FUNDS

TOTAL RETURN BOND FUND

TAX-EXEMPT BOND FUNDS
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA SERIES
CALIFORNIA INCOME SERIES
PRUDENTIAL MUNICIPAL BOND FUND
HIGH INCOME SERIES
INSURED SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
MASSACHUSETTS SERIES
NEW JERSEY SERIES
NEW YORK SERIES
NORTH CAROLINA SERIES
OHIO SERIES
PENNSYLVANIA SERIES
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.

MONEY MARKET FUNDS
TAXABLE MONEY MARKET FUNDS
CASH ACCUMULATION TRUST
LIQUID ASSETS FUND
NATIONAL MONEY MARKET FUND
PRUDENTIAL GOVERNMENT SECURITIES TRUST
MONEY MARKET SERIES
U.S. TREASURY MONEY MARKET SERIES
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
MONEY MARKET SERIES
PRUDENTIAL MONEYMART ASSETS, INC.

TAX-FREE MONEY MARKET FUNDS
PRUDENTIAL TAX-FREE MONEY FUND, INC.
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA MONEY MARKET SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
CONNECTICUT MONEY MARKET SERIES
MASSACHUSETTS MONEY MARKET SERIES
NEW JERSEY MONEY MARKET SERIES
NEW YORK MONEY MARKET SERIES

COMMAND FUNDS

COMMAND MONEY FUND

COMMAND GOVERNMENT FUND

COMMAND TAX-FREE FUND

INSTITUTIONAL MONEY MARKET FUNDS
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES

- --------------------------------------------------------------------------------
37
<PAGE>
FOR MORE INFORMATION:
- --------------------------------------------------------------------------------

Please read this prospectus before you invest in the Fund and keep it for future
reference. For information or shareholder questions contact:

PRUDENTIAL MUTUAL FUND SERVICES LLC
P.O. BOX 15005
NEW BRUNSWICK, NJ 08906-5005
(800) 225-1852
(732) 417-7555
(if calling from outside the U.S.)

- --------------------------------
Outside Brokers should contact:
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
P.O. BOX 15035
NEW BRUNSWICK, NJ 08906-5035
(800) 778-8769

- ------------------------------------

Visit Prudential's Web Site at:
http://www.prudential.com

- --------------------------------
Additional information about the Fund can be obtained without charge and can be
found in the following documents:

STATEMENT OF ADDITIONAL INFORMATION (SAI)
(incorporated by reference into this prospectus)

ANNUAL REPORT
(contains a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance)

SEMI-ANNUAL REPORT

You can also obtain copies of Fund documents from the Securities and Exchange
Commission as follows:

By Mail:
Securities and Exchange Commission
Public Reference Section
Washington, DC 20549-0102
By Electronic Request:
[email protected]

(The SEC charges a fee to copy documents.)

In Person:
Public Reference Room in
Washington, DC
(For hours of operation, call 1-202-942-8090.)

Via the Internet:
On the EDGAR Database at
http://www.sec.gov

- --------------------------------

CUSIP Nos.: Quotron Symbols:

Class A: 74437B103 PTMAX
Class B: 74437B202 PTMBX
Class C: 74437B301 PTMCX
Class Z: 74437B400 --
Investment Company Act File No.:

811-09101

<TABLE>
<S> <C>
MF187A [LOGO] Printed on Recycled Paper
</TABLE>
<PAGE>

PRUDENTIAL TAX-MANAGED EQUITY FUND
STATEMENT OF ADDITIONAL INFORMATION
DATED DECEMBER 30, 1999

Prudential Tax-Managed Equity Fund (the Fund) is a diversified series of an
open-end, management investment company (the Company) consisting of two series:
the Fund and Prudential Tax-Managed Growth Fund. The investment objective of the
Fund is long-term after-tax growth of capital. It seeks to achieve this
objective by investing primarily in common stock and convertible securities of
large and medium-sized U.S. companies. The Fund seeks to maximize long-term
capital appreciation and to limit taxable distributions to its shareholders.
There can be no assurance that the Fund's investment objective will be achieved.
See "Description of the Funds, Their Investments and Risks."

The Fund's address is Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102-4077, and its telephone number is (800) 225-1852.

This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus of the Fund dated December 30, 1999, a
copy of which may be obtained from the Fund upon request.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Company History............................................. B-2
Description of the Funds, Their Investments and Risks....... B-2
Investment Restrictions..................................... B-18
Management of the Company................................... B-19
Control Persons and Principal Holders of Securities......... B-22
Investment Advisory and Other Services...................... B-23
Brokerage Allocation and Other Practices.................... B-26
Capital Shares, Other Securities and Organization........... B-28
Purchase, Redemption and Pricing of Fund Shares............. B-29
Shareholder Investment Account.............................. B-37
Net Asset Value............................................. B-41
Taxes, Dividends and Distributions.......................... B-42
Performance Information..................................... B-45
Financial Statements........................................ B-49
Report of Independent Accountants........................... B-61
Appendix I--General Investment Information.................. I-1
Appendix II--Historical Performance Data.................... II-1
Appendix III--Information Relating to Prudential............ III-1
</TABLE>

- --------------------------------------------------------------------------------

MF187B
<PAGE>

COMPANY HISTORY

The Company was organized as a Delaware business trust on September 21,
1998. On December 21, 1999, the Board of Trustees authorized the creation of a
second series, Prudential Tax-Managed Growth Fund, and, in conjuction therewith,
approved a change in the Company's name from Prudential Tax-Managed Equity Fund
(the Fund) to Prudential Tax-Managed Funds, effective December 30, 1999.

DESCRIPTION OF THE FUNDS, THEIR INVESTMENTS AND RISKS

(a) CLASSIFICATION. The Company is an open-end, management investment company.
The Fund is a diversified series of the Company.

(b) AND (c) INVESTMENT STRATEGIES, POLICIES AND RISKS. The investment objective
of the Fund is long-term after-tax growth of capital. While the principal
investment policies and strategies for seeking to achieve this objective are
described in the Fund's Prospectus, the Fund may from time to time also use the
securities, instruments, policies and principal and non-principal strategies
described below in seeking to achieve its objective. The Fund may not be
successful in achieving its objective and you could lose money.

EQUITY-RELATED SECURITIES

Under normal market conditions, the Fund intends to invest primarily in
common stock and convertible securities of large and medium-sized U.S.
companies. The Fund also invests in other equity-related securities, including
non-convertible preferred stocks, equity investments in partnerships, joint
ventures and other forms of non-corporate investment, American Depositary
Receipts (ADRs), American Depositary Shares (ADSs) and warrants and rights
exercisable for equity securities. Purchased options are not considered equity
securities for these purposes. ADRs and ADSs are U.S. dollar-denominated
certificates or shares issued by a United States bank or trust company and
represent the right to receive securities of a foreign issuer deposited in a
domestic bank or foreign branch of a United States bank and traded on a United
States exchange or in the over-the-counter market. A convertible security is
typically a bond, debenture, corporate note or preferred stock or other similar
security that may be converted at a stated price within a specified period of
time into a specified number of shares of common stock or other equity
securities of the same or a different issuer. A warrant or right entitles the
holder to purchase equity securities at a specific price for a specific period
of time.

AMERICAN DEPOSITARY RECEIPTS AND AMERICAN DEPOSITARY SHARES. Generally, ADRs
and ADSs are in registered form. There are no fees imposed on the purchase or
sale of ADRs and ADSs when purchased from the issuing bank or trust company in
the initial underwriting, although the issuing bank or trust company may impose
charges for the collection of dividends and the conversion of ADRs and ADSs into
the underlying securities. Investment in ADRs and ADSs has certain advantages
over direct investment in the underlying foreign securities since: (1) ADRs and
ADSs are U.S. dollar-denominated investments that are registered domestically,
easily transferable, and for which market quotations are readily available, and
(2) issuers whose securities are represented by ADRs and ADSs are usually
subject to auditing, accounting and financial reporting standards comparable to
those of domestic issuers.

WARRANTS AND RIGHTS. A warrant gives the holder thereof the right to
subscribe by a specified date to a stated number of shares of stock of the
issuer at a fixed price. Warrants tend to be more volatile than the underlying
stock, and if, at a warrant's expiration date, the stock is trading at a price
below the price set in the warrant, the warrant will expire worthless.
Conversely, if, at the expiration date, the underlying stock is trading at a
price higher than the price set in the warrant, the Fund can acquire the stock
at a price below its market value. Rights are similar to warrants but normally
have a shorter duration and are distributed directly by the issuer to
shareholders. Rights and warrants have no voting rights, receive no dividends
and have no rights with respect to the corporation issuing them.

U.S. GOVERNMENT SECURITIES

U.S. TREASURY SECURITIES. The Fund is permitted to invest in U.S. Treasury
securities, including bills, notes, bonds and other debt securities issued by
the U.S. Treasury. These instruments are direct obligations of the U.S.
Government and, as such, are backed by the "full faith and credit" of the United
States. They differ primarily in their interest rates, the lengths of their
maturities and the dates of their issuances.

SECURITIES ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES. The Fund may invest in securities issued by agencies of the
U.S. Government or instrumentalities of the U.S. Government. These obligations,
including those which are guaranteed by Federal agencies or instrumentalities,
may or may not be backed by the full faith and credit of the United States.
Obligations of the Government National Mortgage Association (GNMA), the Farmers
Home Administration and the Small Business

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Administration are backed by the full faith and credit of the United States. In
the case of securities not backed by the full faith and credit of the United
States, the Fund must look principally to the agency issuing or guaranteeing the
obligation for ultimate repayment and may not be able to assert a claim against
the United States if the agency or instrumentality does not meet its
commitments. Securities in which the Fund may invest which are not backed by the
full faith and credit of the United States include obligations such as those
issued by the Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation
(FHLMC), the Federal National Mortgage Association, the Student Loan Marketing
Association, Resolution Funding Corporation and the Tennessee Valley Authority,
each of which has the right to borrow from the U.S. Treasury to meet its
obligations, and obligations of the Farm Credit System, the obligations of which
may be satisfied only by the individual credit of the issuing agency. FHLMC
investments may include collateralized mortgage obligations.

Obligations issued or guaranteed as to principal and interest by the U.S.
Government may be acquired by the Fund in the form of custodial receipts that
evidence ownership of future interest payments, principal payments or both on
certain U.S. Treasury notes or bonds. Such notes and bonds are held in custody
by a bank on behalf of the owners. These custodial receipts are commonly
referred to as Treasury strips.

The values of U.S. Government securities (like those of other fixed-income
securities generally) will change as interest rates fluctuate. During periods of
falling U.S. interest rates, the values of U.S. Government securities generally
rise and, conversely, during periods of rising interest rates, the values of
such securities generally decline. The magnitude of these fluctuations will
generally be greater for securities with longer-term maturities.

REAL ESTATE INVESTMENT TRUSTS

The Fund may invest in securities of real estate investment trusts or REITs.
Unlike corporations, REITs do not have to pay income taxes if they meet certain
requirements of the Internal Revenue Code of 1986, as amended (Internal Revenue
Code). To qualify, a REIT must distribute at least 95% of its taxable income to
its shareholders and receive at least 75% of that income from rents, mortgages
and sales of property. REITs offer investors greater liquidity and
diversification than direct ownership of a handful of properties, as well as
greater income potential than an investment in common stock. Like any investment
in real estate, though, a REIT's performance depends on several factors, such as
its ability to find tenants for its properties, to renew leases and to finance
property purchases and renovations.

FIXED-INCOME INVESTMENTS

The Fund may invest up to 5% of its total assets in any type or quality of
debt obligations.

FOREIGN SECURITIES

The Fund may invest up to 35% of its total assets in foreign securities.

If the security is denominated in a foreign currency, it will be affected by
changes in currency exchange rates and in exchange control regulations, and
costs will be incurred in connection with conversions between currencies. A
change in the value of any such currency against the U.S. dollar will result in
a corresponding change in the U.S. dollar value of the Fund's securities
denominated in that currency. Such changes also will affect the Fund's income
and distributions to shareholders. In addition, although the Fund will receive
income in such currencies, the Fund will be required to compute and distribute
its income in U.S. dollars. Therefore, if the exchange rate for any such
currency declines after the Fund's income has been accrued and translated into
U.S. dollars, the Fund could be required to liquidate portfolio securities to
make such distributions, particularly in instances in which the amount of income
the Fund is required to distribute is not immediately reduced by the decline in
such currency. Similarly, if an exchange rate declines between the time the Fund
incurs expenses in U.S. dollars and the time such expenses are paid, the amount
of such currency required to be converted into U.S. dollars in order to pay such
expenses in U.S. dollars will be greater than the equivalent amount in any such
currency of such expenses at the time they were incurred. The Fund may, but need
not, enter into foreign currency forward contracts, options on foreign
currencies and futures contracts on foreign currencies and related options, for
hedging purposes, including: locking-in the U.S. dollar price of the purchase or
sale of securities denominated in a foreign currency; locking-in the U.S. dollar
equivalent of dividends to be paid on such securities which are held by the
Fund; and protecting the U.S. dollar value of such securities which are held by
the Fund.

Under the Internal Revenue Code, changes in an exchange rate which occur
between the time the Fund accrues interest or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time the
Fund actually collects such receivables or pays such liabilities will result in
foreign currency gains or losses that increase or decrease an investment
company's taxable income. The exchange rates between the U.S. dollar and other
currencies can be volatile and are determined by such factors as supply and
demand in the currency exchange markets, international balances of payments,
government intervention, speculation and other economic and political
conditions.

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Foreign securities include securities of any foreign country the investment
adviser considers appropriate for investment by the Fund. Foreign securities may
also include securities of foreign issuers that are traded in U.S. dollars in
the United States although the underlying security is usually denominated in a
foreign currency.

The costs attributable to foreign investing are higher than the costs of
domestic investing. For example, the cost of maintaining custody of foreign
securities generally exceeds custodian costs for domestic securities, and
transaction and settlement costs of foreign investing are frequently higher than
those attributable to domestic investing. Foreign investment income may be
subject to foreign withholding or other government taxes that could reduce the
return to the Fund on those securities. Tax treaties between the United States
and certain foreign countries may, however, reduce or eliminate the amount of
foreign tax to which the Fund would be subject.

RISK FACTORS AND SPECIAL CONSIDERATIONS OF INVESTING IN FOREIGN SECURITIES.
Investing in securities of foreign issuers and countries involves certain
considerations and risks which are not typically associated with investing in
securities of domestic companies. Foreign issuers are not generally subject to
uniform accounting, auditing and financial standards or other requirements
comparable to those applicable to U.S. companies. There may also be less
government supervision and regulation of foreign securities exchanges, brokers
and public companies than exist in the United States. Dividends and interest
paid by foreign issuers may be subject to withholding and other foreign taxes
which may decrease the net return on such investments as compared to dividends
and interest paid to the Fund by domestic companies. There may be the
possibility of expropriations, confiscatory taxation, political, economic or
social instability or diplomatic developments which could affect assets of the
Fund held in foreign countries. In addition, a portfolio containing foreign
securities may be adversely affected by fluctuations in the relative rates of
exchange between the currencies of different nations and by exchange control
regulations.

There may be less publicly available information about foreign issuers and
governments compared to reports and ratings published about U.S. companies.
Foreign securities markets have substantially less volume than, for example, the
New York Stock Exchange. Securities of some foreign issuers are less liquid and
more volatile than securities of comparable U.S. companies. Brokerage
commissions and other transaction costs of foreign securities exchanges are
generally higher than in the United States.

RISK FACTORS AND SPECIAL CONSIDERATIONS OF INVESTING IN EURO-DENOMINATED
SECURITIES. On January 1, 1999, 11 of the 15 member states of the European
Monetary Union introduced the "euro" as a common currency. During a three-year
transitional period, the euro will coexist with each participating state's
currency and, on July 1, 2002, the euro is expected to become the sole currency
of the participating states. During the transition period, the Fund will treat
the euro as a separate currency from that of any participating state.

The conversion may adversely affect the Fund if the euro does not take
effect as planned; if a participating state withdraws from the European Monetary
Union; or if the computing, accounting and trading systems used by the Fund's
service providers, or by entities with which the Fund or its service providers
do business, are not capable of recognizing the euro as a distinct currency at
the time of, and following, euro conversion. In addition, the conversion could
cause markets to become more volatile.

The overall effect of the transition of member states' currencies to the
euro is not known at this time. It is likely that more general short- and
long-term ramifications can be expected, such as changes in the economic
environment and change in the behavior of investors, which would affect the
Fund's investments and its net asset value. In addition, although U.S. Treasury
regulations generally provide that the euro conversion will not, in itself,
cause a U.S. taxpayer to realize gain or loss, other changes that may occur at
the time of the conversion, such as accrual periods, holiday conventions,
indexes, and other features may require the realization of a gain or loss by the
Fund as determined under existing tax law.

The Fund's Manager has taken steps: (1) that it believes will reasonably
address euro-related changes to enable the Fund and its service providers to
process transactions accurately and completely with minimal disruption to
business activities and (2) to obtain reasonable assurances that appropriate
steps have been taken by the Fund's other service providers to address the
conversion. The Fund has not borne any expense relating to these actions.

RISK MANAGEMENT AND RETURN ENHANCEMENT STRATEGIES

The Fund may also engage in various portfolio strategies, including using
derivatives, to seek to reduce certain risks of its investments, as a
tax-management strategy, for cash management purposes and to enhance return. The
Fund, and thus its investors, may lose money through any unsuccessful use of
these strategies. These strategies currently include the use of options on
equity securities and stock indexes, futures contracts and options thereon,
foreign currency forward contracts and currency futures. The Fund's ability to
use these strategies may be limited by market conditions, regulatory limits and
tax considerations and there can be no assurance that any of these strategies
will succeed. If new financial products and risk management techniques are
developed, the Fund may use them to the extent consistent with its investment
objective and policies.

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Transactions in derivative instruments may be used as a substitute for the
purchase and sale of securities. Derivative transactions may be more
advantageous in a given circumstance than transactions involving securities due
to more favorable current tax treatment, lower transaction costs or greater
liquidity.

OPTIONS TRANSACTIONS

The Fund may purchase and write (that is, sell) put and call options on
equity securities and financial indexes that are traded on U.S. or foreign
securities exchanges or in the over-the-counter market to seek to enhance return
or to protect against adverse price fluctuations in securities in the Fund's
portfolio. The Fund may write covered put and call options to generate
additional income through the receipt of premiums, purchase put options in an
effort to protect the value of a security that it owns against a decline in
market value and purchase call options in an effort to protect against an
increase in the price of securities it intends to purchase. The Fund also may
purchase put and call options to offset previously written put and call options
of the same series, including combining the purchase of a put option with the
sale of a call option (an equity collar).

A call option gives the purchaser, in exchange for a premium paid, the
right, for a specified period of time, to purchase the securities subject to the
option at a specified price (the exercise price or strike price). The writer of
a call option, in return for the premium, has the obligation, upon exercise of
the option, to deliver the underlying securities of a specified amount of cash
to the purchaser upon receipt of the exercise price. When the Fund writes a call
option, the Fund gives up the potential for gain on the underlying securities in
excess of the exercise price of the option during the period that the option is
open.

A put option gives the purchaser, in return for a premium, the right, for a
specified period of time, to sell the securities subject to the option to the
writer of the put at the specified exercise price. The writer of the put option,
in return for the premium, has the obligation, upon exercise of the option, to
acquire the securities underlying the option at the exercise price. The Fund, as
the writer of a put option, might, therefore, be obligated to purchase the
underlying securities for more than their current market price. The Fund may
purchase put options on securities it holds that have developed large capital
gains, to protect against price declines. This alternative to selling the
securities may reduce exposure to price declines without realizing substantial
capital gains.

The Fund will write only "covered" options. An option is covered if, as long
as the Fund is obligated under the option, it (1) owns an offsetting position in
the underlying securities or securities that comprise the index or
(2) segregates cash or other liquid assets in an amount equal to or greater than
its obligation under the option. Under the first circumstance, the Fund's losses
are limited because it owns the underlying securities; under the second
circumstance, in the case of a written call option, the Fund's losses are
potentially unlimited.

OPTIONS ON SECURITIES INDEXES. The Fund may also purchase and sell put and
call options on securities indexes traded on U.S. or foreign securities
exchanges or traded in the over-the-counter markets. Options on securities
indexes are similar to options on securities except that, rather than the right
to take or make delivery of a security at a specified price, an option on a
securities index gives the holder the right to receive, upon exercise of the
option, an amount of cash if the closing level of the securities index upon
which the option is based is greater than, in the case of a call, or less than,
in the case of a put, the exercise price of the option. This amount of cash is
equal to such difference between the closing price of the index and the exercise
price of the option expressed in dollars times a specified multiple (the
multiplier). The writer of the option is obligated, in return for the premium
received, to make delivery of this amount. Unlike for equity securities options,
all settlements are in cash, and gain or loss depends on price movements in the
securities market generally (or in a particular industry or segment of the
market) rather than price movements in individual securities.

The multiplier for an index option performs a function similar to the unit
of trading for a stock option. It determines the total dollar value per contract
of each point in the difference between the exercise price of an option and the
current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indexes may have
different multipliers. Because exercises of index options are settled in cash, a
call writer cannot determine the amount of its settlement obligations in advance
and, unlike call writing on specific stocks, cannot provide in advance for, or
cover, its potential settlement obligations by acquiring and holding the
underlying securities. In addition, unless the Fund has other liquid assets
which are sufficient to satisfy the exercise of a call, the Fund would be
required to liquidate portfolio securities or borrow in order to satisfy the
exercise.

Because the value of an index option depends upon movements in the level of
the index rather than the price of a particular security, whether the Fund will
realize a gain or loss on the purchase or sale of an option on an index depends
upon movements in the level of securities prices in the market generally or in
an industry or market segment rather than movements in the price of a particular
security. Accordingly, successful use by the Fund of options on indexes would be
subject to the investment adviser's ability to predict correctly movements in
the direction of the securities market generally or of a particular industry.
This requires different skills and techniques than predicting changes in the
price of individual stocks. The investment adviser currently uses such
techniques in conjunction with the management of other mutual funds.

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RISKS OF TRANSACTIONS IN STOCK OPTIONS

An option position may be closed out only on an exchange, board of trade or
other trading facility which provides a secondary market for an option of the
same series. Although the Fund will generally purchase or write only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option, or at any particular time, and for some options no secondary
market on an exchange or otherwise may exist. In such event it might not be
possible to effect closing transactions in particular options, with the result
that the Fund would have to exercise its options in order to realize any profit
and would incur brokerage commissions upon the exercise of call options and upon
the subsequent disposition of underlying securities acquired through the
exercise of call options or upon the purchase of underlying securities for the
exercise of put options. If the Fund as a covered call option writer is unable
to effect a closing purchase transaction in a secondary market, it will not be
able to sell the underlying security until the option expires or it delivers the
underlying security upon exercise.

Reasons for the absence of a liquid secondary market on an exchange include
the following: (1) there may be insufficient trading interest in certain
options; (2) restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (3) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (4) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (5) the facilities of an exchange or
a clearing corporation may not at all times be adequate to handle current
trading volume; or (6) one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that exchange (or in the class or series of options) would
cease to exist, although outstanding options on that exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms. There is no assurance
that higher than anticipated trading activity or other unforeseen events might
not, at times, render certain of the facilities of any of the clearing
corporations inadequate, and thereby result in the institution by an exchange of
special procedures which may interfere with the timely execution of customers'
orders. The Fund intends to purchase and sell only those options which are
cleared by clearinghouses whose facilities are considered to be adequate to
handle the volume of options transactions.

RISKS OF OPTIONS ON INDEXES

The Fund's purchase and sale of options on indexes will be subject to risks
described above under "Risks of Transactions in Stock Options." In addition, the
distinctive characteristics of options on indexes create certain risks that are
not present with stock options.

Index prices may be distorted if trading of certain stocks included in the
index is interrupted. Trading in the index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number of
stocks included in the index. If this occurred, the Fund would not be able to
close out options which it had purchased or written and, if restrictions on
exercise were imposed, may be unable to exercise an option it holds, which could
result in substantial losses to the Fund. It is the Fund's policy to purchase or
write options only on indexes which include a number of stocks sufficient to
minimize the likelihood of a trading halt in the index.

The ability to establish and close out positions on such options will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop in all index option contracts. The
Fund will not purchase or sell any index option contract unless and until, in
the investment adviser's opinion, the market for such options has developed
sufficiently that the risk in connection with such transactions is not
substantially greater than the risk in connection with options on stocks or
securities in the index.

SPECIAL RISKS OF WRITING CALLS ON INDEXES

Because exercises of index options are settled in cash, a call writer such
as the Fund cannot determine the amount of its settlement obligations in advance
and, unlike call writing on specific stocks, cannot provide in advance for, or
cover, its potential settlement obligations by acquiring and holding the
underlying securities. However, the Fund will write call options on indexes only
under the circumstances described below under "Limitations on the Purchase and
Sale of Options on Stock Indexes and Futures Contracts and Options on Futures
Contracts."

Price movements in the Fund's portfolio probably will not correlate
precisely with movements in the level of the index and, therefore, the Fund
bears the risk that the price of the securities held by the Fund may not
increase as much as the index. In such event, the Fund would bear a loss on the
call which is not completely offset by movements in the price of the Fund's
portfolio. It is also possible that the index may rise when the Fund's portfolio
of stocks does not rise. If this occurred, the Fund would experience

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a loss on the call which is not offset by an increase in the value of its
portfolio and might also experience a loss in its portfolio. However, because
the value of a diversified portfolio will, over time, tend to move in the same
direction as the market, movements in the value of the Fund in the opposite
direction as the market would be likely to occur for only a short period or to a
small degree.

Unless the Fund has other liquid assets which are sufficient to satisfy the
exercise of a call, the Fund would be required to liquidate portfolio securities
in order to satisfy the exercise. Because an exercise must be settled within
hours after receiving the notice of exercise, if the Fund fails to anticipate an
exercise, it may have to borrow from a bank (in amounts not exceeding 20% of the
Fund's total assets) pending settlement of the sale of securities in its
portfolio and would incur interest charges thereon.

When the Fund has written a call, there is also a risk that the market may
decline between the time the Fund has a call exercised against it, at a price
which is fixed as of the closing level of the index on the date of exercise, and
the time the Fund is able to sell stocks in its portfolio. As with stock
options, the Fund will not learn that an index option has been exercised until
the day following the exercise date but, unlike a call on stock where the Fund
would be able to deliver the underlying securities in settlement, the Fund may
have to sell part of its investment portfolio in order to make settlement in
cash, and the price of such investments might decline before they can be sold.
This timing risk makes certain strategies involving more than one option
substantially more risky with index options than with stock options. For
example, even if an index call which the Fund has written is "covered" by an
index call held by the Fund with the same strike price, the Fund will bear the
risk that the level of the index may decline between the close of trading on the
date the exercise notice is filed with the clearing corporation and the close of
trading on the date the Fund exercises the call it holds or the time the Fund
sells the call which, in either case, would occur no earlier than the day
following the day the exercise notice was filed.

If the Fund holds an index option and exercises it before final
determination of the closing index value for that day, it runs the risk that the
level of the underlying index may change before closing. If such a change causes
the exercised option to fall out-of-the-money, the Fund will be required to pay
the difference between the closing index value and the exercise price of the
option (times the applicable multiplier) to the assigned writer. Although the
Fund may be able to minimize this risk by withholding exercise instructions
until just before the daily cutoff time or by selling rather than exercising an
option when the index level is close to the exercise price, it may not be
possible to eliminate this risk entirely because the cutoff times for index
options may be earlier than those fixed for other types of options and may occur
before definitive closing index values are announced.

FUTURES CONTRACTS AND OPTIONS THEREON

The Fund may purchase and sell stock index and interest rate futures
contracts and options thereon which are traded on a commodities exchange or
board of trade to reduce certain risks of its investments and to attempt to
enhance return in accordance with regulations of the Commodity Futures Trading
Commission (CFTC). The Fund, and thus its investors, may lose money if the Fund
is unsuccessful in its use of these strategies. These futures contracts and
related options will be on stock indexes and foreign currencies. A futures
contract is an agreement to purchase or sell an agreed amount of securities or
currencies at a set price for delivery in the future.

STOCK INDEX AND INTEREST RATE FUTURES. The Fund may use stock index and
interest rate futures traded on a commodities exchange or board of trade for
certain hedging and risk management purposes and to attempt to enhance return in
accordance with regulations of the CFTC. The Fund primarily intends to use stock
index and interest rate futures to facilitate new investments or funding
redemptions. The Fund may sell stock index futures contracts (rather than
securities) in an effort to protect against price declines in securities
holdings that have developed large accumulated capital gains.

A stock index futures contract is an agreement in which the writer (or
seller) of the contract agrees to deliver to the buyer an amount of cash equal
to a specific dollar amount times the difference between the value of a specific
stock index at the close of the last trading day of the contract and the price
at which the agreement is made. No physical delivery of the underlying stocks in
the index is made. When the futures contract is entered into, each party
deposits with a broker or in a segregated custodial account approximately 5% of
the contract amount, called the "initial margin." Subsequent payments to and
from the broker, called "variation margin," will be made on a daily basis as the
price of the underlying stock index fluctuates, making the long and short
positions in the futures contracts more or less valuable, a process known as
"marked-to-market."

OPTIONS ON STOCK INDEX AND INTEREST RATE FUTURES. The Fund may also purchase
and write options on stock index and interest rate futures for certain hedging,
return enhancement and risk management purposes. In the case of options on stock
index futures, the holder of the option pays a premium and receives the right,
upon exercise of the option at a specified price during the option period, to
assume a position in a stock index futures contract (a long position if the
option is a call and a short position if the option is a put). If the option is
exercised by the holder before the last trading day during the option period,
the option writer delivers the futures position, as well as any balance in the
writer's futures margin account, which represents the amount by which the market
price of the stock index futures contract at exercise exceeds, in the case of a
call, or is less than, in the case of a put, the

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exercise price of the option on the stock index future. If it is exercised on
the last trading day, the option writer delivers to the option holder cash in an
amount equal to the difference between the option exercise price and the closing
level of the relevant index on the date the option expires.

FUTURES CONTRACTS ON FOREIGN CURRENCIES. The Fund may buy and sell futures
contracts on foreign currencies such as the euro, and purchase and write options
thereon for hedging and risk management purposes. The Fund will engage in
transactions in only those futures contracts and options thereon that are traded
on a commodities exchange or a board of trade. A "sale" of a futures contract on
foreign currency means the assumption of a contractual obligation to deliver the
specified amount of foreign currency at a specified price in a specified future
month. A "purchase" of a futures contract means the assumption of a contractual
obligation to acquire the currency called for by the contract at a specified
price in a specified future month. At the time a futures contract is purchased
or sold, the Fund must allocate cash or securities as initial margin.
Thereafter, the futures contract is valued daily and the payment of "variation
margin" may be required, resulting in the Fund's paying or receiving cash that
reflects any decline or increase, respectively, in the contract's value, that
is, "marked-to-market."

LIMITATIONS ON PURCHASES AND SALES OF FUTURES CONTRACTS AND OPTIONS
THEREON. Under the regulations of the Commodity Exchange Act, an investment
company registered under the Investment Company Act is exempt from the
definition of "commodity pool operator," subject to compliance with certain
conditions. The exemption is conditioned upon the Fund's purchasing and selling
futures contracts and options thereon for BONA FIDE hedging transactions, except
that the Fund may purchase and sell futures contracts and options thereon for
any other purpose to the extent that the aggregate initial margin and option
premiums do not exceed 5% of the market value of the Fund's total assets.

Futures contracts and related options are generally subject to the coverage
requirements of the CFTC and the segregation requirements of the Securities and
Exchange Commission (Commission). If the Fund does not hold the security or
currency underlying the futures contract, the Fund will be required to segregate
on an ongoing basis cash or other liquid assets in an amount at least equal to
the Fund's obligations with respect to such futures contracts. The Fund may
place and maintain cash, securities and similar investments with a futures
commission merchant in amounts necessary to effect the Fund's transactions in
exchange-traded futures contracts and options thereon, provided certain
conditions are satisfied.

The Fund's successful use of futures contracts and related options depends
upon the investment adviser's ability to predict the direction of the market and
is subject to various additional risks. The correlation between movements in the
price of a futures contract and the movements in the index or price of the
currencies underlying the futures contract is imperfect and there is a risk that
the value of the indexes or currencies underlying the futures contract may
increase or decrease at a greater rate than the related futures contracts,
resulting in losses to the Fund. The use of these instruments will hedge only
the currency risks associated with investments in foreign securities, not market
risks. Certain futures exchanges or boards of trade have established daily
limits on the amount that the price of futures contracts or related options may
vary, either up or down, from the previous day's settlement price. These daily
limits may restrict the Fund's ability to purchase or sell certain futures
contracts or related options on any particular day. In addition, if the Fund
purchases futures to hedge against market advances before it can invest in
common stock in an advantageous manner and the market declines, the Fund might
experience a loss on the futures contract. In addition, the ability of the Fund
to close out a futures position or an option depends on a liquid secondary
market. There is no assurance that at any particular time liquid secondary
markets will exist for any particular futures contract or option thereon.

FUTURES CONTRACTS. As a purchaser of a futures contract, the Fund incurs an
obligation to take delivery of a specified amount of the obligation underlying
the futures contract at a specified time in the future for a specified price. As
a seller of a futures contract, the Fund incurs an obligation to deliver the
specified amount of the underlying obligation at a specified time in return for
an agreed upon price. The Fund may purchase futures contracts on stock indexes
and foreign currencies. The Fund may purchase futures contracts on debt
securities, including U.S. Government securities, aggregates of debt securities,
stock indexes and foreign currencies.

A "sale" of a futures contract (or a "short" futures position) means the
assumption of a contractual obligation to deliver the securities or currency
underlying the contract at a specified price at a specified future time. A
"purchase" of a futures contract (or a "long" futures position) means the
assumption of a contractual obligation to acquire the securities or currency
underlying the contract at a specified price at a specified future time. Certain
futures contracts are settled on a net cash payment basis rather than by the
sale and delivery of the securities or currency underlying the futures contract.
U.S. futures contracts have been designed by exchanges that have been designated
as "contract markets" by the CFTC and must be executed through a futures
commission merchant (that is, a brokerage firm) which is a member of the
relevant contract market. Futures contracts trade on these contract markets and
the exchange's affiliated clearing organization guarantees payment of margin as
between the clearing members of the exchange.

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<PAGE>
At the time a futures contract is purchased or sold, the Fund must allocate
cash or other liquid assets as a deposit payment (initial margin). It is
expected that the initial margin on U.S. exchanges will vary from one-half of 1%
to 4% of the total value of the contract. Under certain circumstances, however,
such as during periods of high volatility, the Fund may be required by an
exchange to increase the level of its initial margin payment. Thereafter, the
futures contract is valued daily and the payment in cash of "variation margin"
may be required, a process known as "mark-to-market." Each day the Fund is
required to provide or is entitled to receive variation margin in an amount
equal to any change in the value of the contract since the preceding day.
Initial margin requirements are established by the exchanges on which futures
contracts trade and may, from time to time, change. In addition, brokers may
establish margin deposit requirements in excess of those required by the
exchanges.

Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing of
funds by a brokers' client but is, rather, a good faith deposit on a futures
contract which will be returned to the Fund upon the proper termination of the
futures contract. The margin deposits made are marked-to-market daily and the
Fund may be required to make subsequent deposits into the segregated account,
maintained at its Custodian for that purpose, of cash or other liquid assets,
called "variation margin," in the name of the broker, which are reflective of
price fluctuations in the futures contract.

Although most futures contracts call for actual delivery or acceptance of
securities or cash, the contracts usually are closed out before the settlement
date without the making or taking of delivery. A futures contract sale is closed
out by effecting a futures contract purchase for the same aggregate amount of
the specific type of security and the same delivery date. If the sale price
exceeds the offsetting purchase price, the seller would be paid the difference
and would realize a gain. If the offsetting purchase price exceeds the sale
price, the seller would pay the difference and would realize a loss. Similarly,
a futures contract purchase is closed out by effecting a futures contract sale
for the same aggregate amount of the specific type of security (or currency) and
the same delivery date. If the offsetting sale price exceeds the purchase price,
the purchaser would realize a gain, whereas if the purchase price exceeds the
offsetting sale price, the purchaser would realize a loss. There is no assurance
that the Fund will be able to enter into a closing transaction.

The ordinary spreads between values in the cash and futures markets, due to
differences in the character of those markets, are subject to distortions. In
addition, futures contracts entail risks. First, all participants in the futures
market are subject to initial and variation margin requirements. Rather than
meeting additional variation margin requirements, investors may close futures
contracts through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the liquidity of the
futures market depends on participants entering into offsetting transactions
rather than making or taking delivery. To the extent participants decide to make
or take delivery, liquidity in the futures market could be reduced, thus
producing price distortions. Third, from the point of view of speculators, the
margin deposit requirements in the futures market are less onerous than margin
requirements in the securities market. Increased participation by speculators in
the futures market may cause temporary price distortions. Due to the possibility
of distortion, a correct forecast of general interest rate trends by the
investment adviser may still not result in a successful transaction.

OPTIONS ON FUTURES CONTRACTS

The Fund will also enter into options on futures contracts for certain BONA
FIDE hedging, return enhancement and risk management purposes. The Fund may
purchase put and call options and write (that is, sell) "covered" put and call
options on futures contracts that are traded on U.S. and foreign exchanges. An
option on a futures contract gives the purchaser the right, but not the
obligation, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option exercise period. The writer of the
option is required upon exercise to assume an offsetting futures position (a
short position if the option is a call and a long position if the option is a
put). Upon exercise of the option, the assumption of offsetting futures
positions by the writer and holder of the option will be accompanied by delivery
of the accumulated cash balance in the writer's futures margin account which
represents the amount by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract. Currently options can
be purchased or written with respect to futures contracts on various foreign
currencies, including the Australian Dollar, Canadian Dollar, Japanese Yen and
Swiss Franc. With respect to stock indexes, options are traded on futures
contracts for various U.S. and foreign stock indexes including the Standard &
Poor's (S&P) 500 Composite Stock Price Index and the New York Stock Exchange
(NYSE) Composite Index.

The holder or writer of an option may terminate its position by selling or
purchasing an option of the same series. There is no guarantee that such closing
transactions can be effected.

The Fund may write (that is, sell) put and call options on futures contracts
only if they are covered. The Fund will be considered "covered" with respect to
a call option it writes on a futures contract if the Fund owns the securities or
currency which is deliverable under the futures contract or an option to
purchase that futures contract having a strike price equal to or less than the

B-9
<PAGE>
strike price of the "covered" option and having an expiration date not earlier
than the expiration date of the "covered" option, or if it segregates and
maintains with its Custodian for the term of the option cash or other liquid
assets, equal to the fluctuating value of the optioned futures. The Fund will be
considered "covered" with respect to a put option it writes on a futures
contract if it owns an option to sell that futures contract having a strike
price equal to or greater than the strike price of the "covered" option and
having an expiration date not earlier than the expiration date of the "covered"
option, or if it segregates with its Custodian for the term of the option cash
or other liquid assets at all times equal in value to the exercise price of the
put (less any initial margin deposited by the Fund with its Custodian with
respect to such put option). There is no limitation on the amount of the Fund's
assets which can be segregated.

Writing a put option on a futures contract serves as a partial hedge against
an increase in the value of securities the Fund intends to acquire. If the
futures price at expiration of the option is above the exercise price, the Fund
will retain the full amount of the option premium which provides a partial hedge
against any increase that may have occurred in the price of the securities the
Fund intends to acquire. If the market price of the underlying futures contract
is below the exercise price when the option is exercised, the Fund will incur a
loss, which may be wholly or partially offset by the decrease in the value of
the securities the Fund intends to acquire.

Writing a call option on a futures contract serves as a partial hedge
against a decrease in the value of the Fund's portfolio securities. If the
market price of the underlying futures contract at expiration of a written call
option is below the exercise price, the Fund will retain the full amount of the
option premium, thereby partially hedging against any decline that may have
occurred in the Fund's holdings of securities. If the futures price when the
option is exercised is above the exercise price, however, the Fund will incur a
loss, which may be wholly or partially offset by the increase in the value of
the securities in the Fund's portfolio which were being hedged.

The Fund will purchase put options on futures contracts to hedge its
portfolio against the risk of a decline in the value of the securities it owns
as a result of market activity or fluctuating currency exchange rates. The Fund
will also purchase call options on futures contracts as a hedge against an
increase in the value of securities the Fund intends to acquire as a result of
market activity or fluctuating currency exchange rates.

FOREIGN CURRENCY FUTURES CONTRACTS AND OPTIONS THEREON

Generally, foreign currency futures contracts and options thereon are
similar to the futures contracts and options thereon discussed previously. By
entering into currency futures and options thereon on U.S. and foreign
exchanges, the Fund will seek to establish the rate at which it will be entitled
to exchange U.S. dollars for another currency at a future time. By selling
currency futures, the Fund will seek to establish the number of dollars it will
receive at delivery for a certain amount of a foreign currency. In this way,
whenever the Fund anticipates a decline in the value of a foreign currency
against the U.S. dollar, the Fund can attempt to "lock in" the U.S. dollar value
of some or all of the securities held in its portfolio that are denominated in
that currency. By purchasing currency futures, the Fund can establish the number
of dollars it will be required to pay for a specified amount of a foreign
currency in a future month. Thus if the Fund intends to buy securities in the
future and expects the U.S. dollar to decline against the relevant foreign
currency during the period before the purchase is effected, the Fund can attempt
to "lock in" the price in U.S. dollars of the securities it intends to acquire.

The purchase of options on currency futures will allow the Fund, for the
price of the premium and related transaction costs it must pay for the option,
to decide whether or not to buy (in the case of a call option) or to sell (in
the case of a put option) a futures contract at a specified price at any time
during the period before the option expires. If the investment adviser, in
purchasing an option, has been correct in its judgment concerning the direction
in which the market or the price of a foreign currency would move as against the
U.S. dollar, the Fund may exercise the option and thereby take a futures
position to hedge against the risk it had correctly anticipated or close out the
option position at a gain that will offset, to some extent, market or currency
exchange losses otherwise suffered by the Fund. If exchange rates move in a way
the investment adviser did not anticipate, however, the Fund will have incurred
the expense of the option without obtaining the expected benefit; any such
movement in exchange rates may also thereby reduce rather than enhance the
Fund's profits on its underlying securities transactions.

The Fund may also use European-style options. This means that the option is
only exercisable immediately prior to its expiration. This is in contrast to
American-style options, which are exercisable at any time prior to the
expiration date of the option.

ADDITIONAL RISKS OF OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES
CONTRACTS

Options, futures contracts and options on futures contracts on securities
and currencies may be traded on foreign exchanges. Such transactions may not be
regulated as effectively as similar transactions in the U.S., may not involve a
clearing mechanism and related guarantees, and are subject to the risk of
governmental actions affecting trading in, or the prices of, foreign securities.
The value of such positions also could be adversely affected by (1) other
complex foreign political, legal and economic

B-10
<PAGE>
factors, (2) lesser availability than in the U.S. of data on which to make
trading decisions, (3) delays in the Fund's ability to act upon economic events
occurring in the foreign markets during non-business hours in the U.S., (4) the
imposition of different exercise and settlement terms and procedures and margin
requirements than in the U.S. and (5) lesser trading volume.

Exchanges on which options, futures and options on futures are traded may
impose limits on the positions that the Fund may take in certain circumstances.

SPECIAL RISK CONSIDERATIONS RELATING TO FUTURES AND OPTIONS THEREON

There are several risks in connection with the use of futures contracts as a
hedging device. Due to the imperfect correlation between the price of futures
contracts and movements in the currency or group of currencies, the price of a
futures contract may move more or less than the price of the currencies being
hedged. In the case of futures contracts on securities indexes, the correlation
between the price of the futures contract and the movements in the index may not
be perfect. Therefore, a correct forecast of currency rates, market trends or
international political trends by the investment adviser may still not result in
a successful hedging transaction.

The Fund's ability to establish and close out positions in futures contracts
and options on futures contracts will be subject to the development and
maintenance of liquid markets. Although the Fund generally will purchase or sell
only those futures contracts and options thereon for which there appears to be a
liquid market, there is no assurance that a liquid market on an exchange will
exist for any particular futures contract or option thereon at any particular
time. In the event no liquid market exists for a particular futures contract or
option thereon in which the Fund maintains a position, it will not be possible
to effect a closing transaction in that contract or to do so at a satisfactory
price and the Fund would have to either make or take delivery under the futures
contract or, in the case of a written option, wait to sell the underlying
securities until the option expires or is exercised or, in the case of a
purchased option, exercise the option. In the case of a futures contract or an
option on a futures contract which the Fund has written and which the Fund is
unable to close, the Fund would be required to maintain margin deposits on the
futures contract or option and to make variation margin payments until the
contract is closed.

Successful use of futures contracts and options thereon by the Fund is
subject to the ability of the investment adviser to predict correctly movements
in the direction of interest and foreign currency rates and the market
generally. If the investment adviser's expectations are not met, the Fund would
be in a worse position than if a hedging strategy had not been pursued. For
example, if the Fund has hedged against the possibility of an increase in
interest rates which would adversely affect the price of securities in its
portfolio and the price of such securities increases instead, the Fund will lose
part or all of the benefit of the increased value of its securities because it
will have offsetting losses in its futures positions. In addition, in such
situations, if the Fund has insufficient cash to meet daily variation margin
requirements, it may have to sell securities to meet the requirements. These
sales may, but will not necessarily, be at increased prices which reflect the
rising market. The Fund may have to sell securities at a time when it is
disadvantageous to do so.

The hours of trading of futures contracts may not conform to the hours
during which the Fund may trade the underlying securities. To the extent that
the futures markets close before the securities markets, significant price and
rate movements can take place in the securities markets that cannot be reflected
in the futures markets.

RISKS OF RISK MANAGEMENT AND RETURN ENHANCEMENT STRATEGIES

Participation in the options or futures markets and in currency exchange
transactions involves investment risks and transaction costs to which the Fund
would not be subject absent the use of these strategies. The Fund, and thus its
investors, may lose money through any unsuccessful use of these strategies. If
the investment adviser's predictions of movements in the direction of the
securities, foreign currency or interest rate markets are inaccurate, the
adverse consequences to the Fund may leave the Fund in a worse position than if
such strategies were not used. Risks inherent in the use of options, foreign
currency and futures contracts and options on futures contracts include
(1) dependence on the investment adviser's ability to predict correctly
movements in the direction of securities prices, interest rates and currency
markets; (2) imperfect correlation between the price of options and futures
contracts and options thereon and movements in the prices of the securities or
currencies being hedged; (3) the fact that skills needed to use these strategies
are different from those needed to select portfolio securities; (4) the possible
absence of a liquid secondary market for any particular instrument at any time;
(5) the risk that the counterparty may be unable to complete the transaction and
(6) the possible inability of the Fund to purchase or sell a portfolio security
at a time that otherwise would be favorable for it to do so, or the possible
need for the Fund to sell a portfolio security at a disadvantageous time, due to
the need for the Fund to maintain "cover" or to segregate assets in connection
with hedging transactions.

B-11
<PAGE>

LIMITATIONS ON THE PURCHASE AND SALE OF OPTIONS ON STOCK INDEXES AND FUTURES
CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

The Fund will engage in transactions in futures contracts and options
thereon only for BONA FIDE hedging, return enhancement and risk management
purposes, in each case in accordance with the rules and regulations of the CFTC,
and not for speculation.

The Fund will write put options on stock indexes and futures contracts on
foreign currencies only if they are covered by segregating with the Fund's
Custodian an amount of cash or other liquid assets equal to the aggregate
exercise price of the puts. In accordance with CFTC regulations, the Fund may
not purchase or sell futures contracts or options thereon if the initial margin
and premiums for options on futures would exceed 5% of the market value of the
Fund's total assets after taking into account unrealized profits and unrealized
losses on such contracts; provided, however, that in the case of an option that
is in-the-money at the time of the purchase, the in-the-money amount may be
excluded in calculating the 5% limitation. The above restriction does not apply
to the purchase and sale of futures contracts and options thereon for BONA FIDE
hedging purposes within the meaning of the CFTC regulations. In instances
involving the purchase of futures contracts or call options thereon or the
writing of put options thereon by the Fund, an amount of cash and other liquid
assets equal to the market value of the futures contracts and options thereon
(less any related margin deposits), will be segregated with the Fund's Custodian
to cover the position, or alternative cover will be employed, thereby insuring
that the use of such instruments is unleveraged. The Fund does not intend to
purchase options on securities indexes if the aggregate premiums paid for such
outstanding options would exceed 10% of the Fund's total assets.

Except as described below, the Fund will write call options on indexes only
if on such date it holds a portfolio of stocks at least equal to the value of
the index times the multiplier times the number of contracts. When the Fund
writes a call option on a broadly-based stock market index, the Fund will
segregate with its Custodian, or pledge to a broker as collateral for the
option, cash or other liquid assets substantially replicating the movement of
the index, in the judgment of the Fund's investment adviser, with a market value
at the time the option is written of not less than 100% of the current index
value times the multiplier times the number of contracts.

If the Fund has written an option on an industry or market segment index, it
will segregate with its Custodian, or pledge to a broker as collateral for the
option, at least ten "qualified securities," all of which are stocks of issuers
in such industry or market segment, with a market value at the time the option
is written of not less than 100% of the current index value times the multiplier
times the number of contracts. Such stocks will include stocks which represent
at least 50% of the weighting of the industry or market segment index and will
represent at least 50% of the Fund's holdings in that industry or market
segment. No individual security will represent more than 15% of the amount so
segregated or pledged in the case of broadly-based stock market index options or
25% of such amount in the case of industry or market segment index options. If
at the close of business on any day the market value of such qualified
securities so segregated or pledged falls below 100% of the current index value
times the multiplier times the number of contracts, the Fund will so segregate
or pledge an amount in cash or other liquid assets equal in value to the
difference. In addition, when the Fund writes a call on an index which is
in-the-money at the time the call is written, the Fund will segregate with its
Custodian or pledge to the broker as collateral cash or other liquid assets
equal in value to the amount by which the call is in-the-money times the
multiplier times the number of contracts. Any amount segregated pursuant to the
foregoing sentence may be applied to the Fund's obligation to segregate
additional amounts in the event that the market value of the qualified
securities falls below 100% of the current index value times the multiplier
times the number of contracts. A "qualified security" is an equity security
which is listed on a national securities exchange or listed on NASDAQ against
which the Fund has not written a stock call option and which has not been hedged
by the Fund by the sale of stock index futures. However, if the Fund holds a
call on the same index as the call written where the exercise price of the call
held is equal to or less than the exercise price of the call written or greater
than the exercise price of the call written if the difference is segregated by
the Fund in cash or other liquid assets with its Custodian, it will not be
subject to the requirements described in this paragraph.

The Fund may engage in futures contracts and options on futures transactions
as a hedge against changes, resulting from market or political conditions, in
the value of the currencies to which the Fund is subject or to which the Fund
expects to be subject in connection with future purchases. The Fund may engage
in such transactions when they are economically appropriate for the reduction of
risks inherent in the ongoing management of the Fund. The Fund may write options
on futures contracts to realize through the receipt of premium income a greater
return than would be realized in the Fund's portfolio securities alone.

The Fund's purchase and sale of futures contracts and purchase and writing
of options on futures contracts will be for the purpose of protecting its
portfolio against anticipated future changes in foreign currency exchange rates
which might otherwise either adversely affect the value of the Fund's portfolio
securities or adversely affect the prices of securities that the Fund intends to
purchase at a later date, and to enhance the Fund's return. As an alternative to
BONA FIDE hedging as defined by the CFTC, the Fund may comply with a different
standard established by CFTC rules with respect to futures contracts and options
thereon purchased

B-12
<PAGE>
by the Fund incidental to the Fund's activities in the securities markets, under
which the value of the assets underlying such positions will not exceed the sum
of (1) cash or other liquid assets segregated for this purpose, (2) cash
proceeds on existing investments due within thirty days and (3) accrued profits
on the particular futures contract or option thereon.

In addition, CFTC regulations may impose limitations on the Fund's ability
to engage in certain return enhancement and risk management strategies. There
are no limitations on the Fund's use of futures contracts and options on futures
contracts beyond the restrictions set forth above.

Although the Fund intends to purchase or sell futures and options on futures
only on exchanges where there appears to be an active market, there is no
guarantee that an active market will exist for any particular contract or at any
particular time. If there is not a liquid market at a particular time, it may
not be possible to close a futures position at such time, and, in the event of
adverse price movements, the Fund would continue to be required to make daily
cash payments of variation margin. However, if a futures contract has been used
to hedge portfolio securities, such securities will not be sold until the
futures contract can be terminated. In such circumstances, an increase in the
price of securities, if any, may partially or completely offset losses on the
futures contracts. However, there is no guarantee that the price movements of
the securities will, in fact, correlate with the price movements in the futures
contracts and thus provide an offset to losses on a futures contract.

POSITION LIMITS. Transactions by the Fund in futures contracts and options
will be subject to limitations, if any, established by each of the exchanges,
boards of trade or other trading facilities (including NASDAQ) governing the
maximum number of options in each class which may be written or purchased by a
single investor or group of investors acting in concert, regardless of whether
the options are written on the same or different exchanges, boards of trade or
other trading facilities or are held or written in one or more accounts or
through one or more brokers. Thus, the number of futures contracts and options
which the Fund may write or purchase may be affected by the futures contracts
and options written or purchased by other investment advisory clients of the
investment adviser. An exchange, board of trade or other trading facility may
order the liquidations of positions found to be in excess of these limits, and
it may impose certain other sanctions.

FOREIGN CURRENCY FORWARD CONTRACTS

The Fund may enter into foreign currency forward contracts to protect the
value of its assets against future changes in the level of currency exchange
rates. The Fund also may purchase and sell foreign currency forward contracts,
futures contracts on foreign currency, and options on futures contracts on
foreign currency to protect against the effect of adverse changes in foreign
currencies. The Fund may enter into such contracts on a spot, that is, cash,
basis at the rate then prevailing in the currency exchange market or on a
forward basis, by entering into a forward contract to purchase or sell currency.
A forward contract on foreign currency is an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days agreed
upon by the parties from the date of the contract at a price set on the date of
the contract.

The Fund's dealings in forward contracts will be limited to hedging
involving either specific transactions or portfolio positions. The Fund may not
use forward contracts, options on foreign currencies, futures contracts on
foreign currencies and options on such contracts in order to generate income,
although the use of such contracts may incidentally generate income. Transaction
hedging is the purchase or sale of a forward contract with respect to specific
receivables or payables of the Fund generally arising in connection with the
purchase or sale of its portfolio securities and accruals of interest or
dividends receivable and Fund expenses. Position hedging is the sale of a
foreign currency with respect to portfolio security positions denominated or
quoted in that currency or in a different currency (cross hedge). Although there
are no limits on the number of forward contracts which the Fund may enter into,
the Fund may not position hedge (including cross hedges) with respect to a
particular currency for an amount greater than the aggregate market value
(determined at the time of making any sale of foreign currency) of the
securities being hedged.

RISKS RELATED TO FOREIGN CURRENCY FORWARD CONTRACTS

The Fund may enter into foreign currency forward contracts in several
circumstances. When the Fund enters into a contract for the purchase or sale of
a security denominated in a foreign currency, or when the Fund anticipates the
receipt in a foreign currency of dividends or interest payments on a security
which it holds, the Fund may desire to "lock-in" the U.S. dollar price of the
security or the U.S. dollar equivalent of such dividend or interest payment, as
the case may be. By entering into a forward contract for a fixed amount of
dollars, for the purchase or sale of the amount of foreign currency involved in
the underlying transactions, the Fund may be able to protect itself against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the foreign currency during the period between the date on which
the security is purchased or sold, or on which the dividend or interest payment
is declared, and the date on which such payments are made or received.

Additionally, when the investment adviser believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, the Fund may enter into a forward contract for a fixed amount of
dollars, to sell the amount of

B-13
<PAGE>
foreign currency approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency. The precise matching of the
forward contract amounts and the value of the securities involved will not
generally be possible since the future value of securities in foreign currencies
will change as a consequence of market movements in the value of those
securities between the date on which the forward contract is entered into and
the date it matures. The projection of short-term currency market movement is
extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. If the Fund enters into a hedging transaction as
described above, the transaction will be "covered" by the position being hedged,
or the Fund's Custodian will segregate assets in an amount equal to the value of
the Fund's total assets committed to the consummation of foreign currency
forward contracts (less the value of the covering positions, if any). If the
value of the securities placed in the segregated account declines, additional
cash or securities will be placed in the account so that the value of the
account will, at all times, equal the amount of the Fund's net commitments with
respect to such contracts.

The Fund generally will not enter into a forward contract with a term of
greater than one year. At the maturity of a forward contract, the Fund may
either sell the portfolio security and make delivery of the foreign currency, or
it may retain the security and terminate its contractual obligation to deliver
the foreign currency by purchasing an "offsetting" contract with the same
currency trader obligating it to purchase, on the same maturity date, the same
amount of the foreign currency.

It is impossible to forecast with absolute precision the market value of a
particular portfolio security at the expiration of the forward contract.
Accordingly, if a decision is made to sell the security and make delivery of the
foreign currency and if the market value of the security is less than the amount
of foreign currency that the Fund is obligated to deliver, then it would be
necessary for the Fund to purchase additional foreign currency on the spot
market (and bear the expense of such purchase).

If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. Should forward contract prices decline
during the period between the Fund's entering into a forward contract for the
sale of a foreign currency and the date it enters into an offsetting contract
for the purchase of the foreign currency, the Fund will realize a gain to the
extent that the price of the currency it has agreed to sell exceeds the price of
the currency it has agreed to purchase. Should forward contract prices increase,
the Fund will suffer a loss to the extent that the price of the currency it has
agreed to purchase exceeds the price of the currency it has agreed to sell.

The Fund's dealing in foreign currency forward contracts will generally be
limited to the transactions described above. Of course, the Fund is not required
to enter into such transactions with regard to its foreign currency-denominated
securities. It also should be recognized that this method of protecting the
value of the Fund's portfolio securities against a decline in the value of a
currency does not eliminate fluctuations in the underlying prices of the
securities which are unrelated to exchange rates. Additionally, although such
contracts tend to minimize the risk of loss due to decline in the value of the
hedged currency, at the same time they tend to limit any potential gain which
might result should the value of such currency increase.

Although the Fund values its assets daily in terms of U.S. dollars, it does
not intend physically to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. It will do so from time to time, and investors should
be aware of the costs of currency conversion. Although foreign exchange dealers
do not charge a fee for conversion, they do realize a profit based on the
difference (the spread) between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.

FOREIGN CURRENCY STRATEGIES--SPECIAL CONSIDERATIONS

The Fund may use options on foreign currencies, futures on foreign
currencies, options on futures contracts on foreign currencies and foreign
currency forward contracts, to hedge against movements in the values of the
foreign currencies in which the Fund's securities are denominated. Such currency
hedges can protect against price movements in a security that the Fund owns or
intends to acquire that are attributable to changes in the value of the currency
in which it is denominated. Such hedges do not, however, protect against price
movements in the securities that are attributable to other causes.

The Fund might seek to hedge against changes in the value of a particular
currency when no futures contract, forward contract or option involving that
currency is available or one of such contracts is more expensive than certain
other contracts. In such cases, the Fund may hedge against price movements in
that currency by entering into a contract on another currency or basket of
currencies, the values of which the Fund's investment adviser believes will have
a positive correlation to the value of the currency being hedged. The risk that
movements in the price of the contract will not correlate perfectly with
movements in the price of the currency being hedged is magnified when this
strategy is used.

The value of futures contracts, options on futures contracts, forward
contracts and options on foreign currencies depends on the value of the
underlying currency relative to the U.S. dollar. Because foreign currency
transactions occurring in the interbank

B-14
<PAGE>

market might involve substantially larger amounts than those involved in the use
of futures contracts, forward contracts or options, the Fund could be
disadvantaged by dealing in the odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.

There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirements that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or futures markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements might take place in the underlying markets that cannot
be reflected in the markets for the futures contracts or options until they
reopen.

Settlement of futures contracts, forward contracts and options involving
foreign currencies might be required to take place within the country issuing
the underlying currency. Thus, the Fund might be required to accept or make
delivery of the underlying foreign currency in accordance with any U.S. or
foreign regulations regarding the maintenance of foreign banking arrangements by
U.S. residents and might be required to pay any fees, taxes and charges
associated with such delivery assessed in the issuing country.

REPURCHASE AGREEMENTS

The Fund may enter into repurchase agreements whereby the seller of the
security agrees to repurchase that security from the Fund at a mutually
agreed-upon time and price. The repurchase date 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
repurchase agreement. The Fund's repurchase agreements will at all times be
fully collateralized in an amount at least equal to the resale price. The
instruments held as collateral are valued daily, and if the value of the
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 will enter into repurchase transactions only with parties meeting
creditworthiness standards approved by the investment adviser. In the event of a
default or bankruptcy by a seller, the Fund may liquidate the collateral.

The Fund participates in a joint repurchase account with other investment
companies managed by Prudential Investments Fund Management LLC (PIFM) pursuant
to an order of the Commission. On a daily basis, any uninvested cash balances of
the Fund may be aggregated with those of such investment companies and invested
in one or more repurchase agreements. Each fund participates in the income
earned or accrued in the joint account based on the percentage of its
investment.

SHORT SALES AGAINST-THE-BOX

The Fund may make short sales of securities (sales of securities the Fund
does not own made in anticipation of a decline in market value) or maintain a
short position, provided that at all times when a short position is open, the
Fund owns an equal amount of such securities or securities convertible into or
exchangeable for such securities; provided that if further consideration is
required in connection with the conversion or exchange, cash or other liquid
assets in an amount equal to such consideration must be segregated, for an equal
amount of the securities of the same issuer as the securities sold short (a
short sale against-the-box). Not more than 25% of the Fund's net assets
(determined at the time of the short sale) may be subject to such sales.

LENDING OF SECURITIES

Consistent with applicable regulatory requirements, the Fund may lend its
portfolio securities to brokers, dealers and financial institutions, provided
that outstanding loans do not exceed in the aggregate 33 1/3% of the value of
the Fund's total assets and provided that such loans are callable at any time by
the Fund and are at all times secured by cash or equivalent collateral
(including a secured letter of credit) that is equal to at least the market
value, determined daily, of the loaned securities. The collateral is segregated
pursuant to applicable regulations. During the time portfolio securities are on
loan, the borrower will pay the Fund an amount equivalent to any dividend or
interest paid on such securities and the Fund may invest the cash collateral and
earn additional income, or it may receive an agreed-upon amount of interest
income from the borrower. The advantage of such loans is that the Fund continues
to receive payments in lieu of the interest and dividends on the loaned
securities, while at the same time earning interest either directly from the
borrower or on the collateral, which will be invested in short-term obligations.

A loan may be terminated by the borrower or by the Fund at any time. If the
borrower fails to maintain the requisite amount of collateral, the loan
automatically terminates, and the Fund could use the collateral to replace the
securities while holding the borrower liable for any excess of replacement cost
over collateral. As with any extensions of credit, there are risks of delay in

B-15
<PAGE>

recovery and in some cases loss of rights in the collateral should the borrower
of the securities fail financially. However, these loans of portfolio securities
will only be made to firms determined to be creditworthy pursuant to procedures
approved by the Board of Trustees of the Company. On termination of the loan,
the borrower is required to return the securities to the Fund, and any gain or
loss in the market price during the loan would inure to the Fund.

Since voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loan, in whole or in
part as may be appropriate, to permit the exercise of such rights if the matters
involved would have a material effect on the Fund's investment in the securities
which are the subject of the loan. The Fund will pay reasonable finders',
administrative and custodial fees in connection with a loan of its securities or
may share the interest earned on collateral with the borrower.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

The Fund may purchase or sell securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased or sold by the Fund with payment and delivery taking
place in the future in order to secure what is considered to be an advantageous
price and yield to the Fund at the time of entering into the transaction. The
Fund's Custodian will segregate cash or other liquid assets having a value equal
to or greater than the Fund's purchase commitments. The securities so purchased
are subject to market fluctuation and no interest accrues to the purchaser
during the period between purchase and settlement. At the time of delivery of
the securities the value may be more or less than the purchase price and an
increase in the percentage of the Fund's assets committed to the purchase of
securities on a when-issued or delayed delivery basis may increase the
volatility of the Fund's net asset value.

BORROWING

The Fund may borrow up to 33 1/3% of the value of its total assets
(calculated at the time of the borrowing) from banks for temporary,
extraordinary or emergency purposes or for the clearance of transactions. The
Fund may pledge up to 33 1/3% of its total assets to secure these borrowings. If
the Fund borrows to invest in securities, any investment gains made on the
securities in excess of interest paid on the borrowing will cause the net asset
value of the shares to rise faster than would otherwise be the case. On the
other hand, if the investment performance of the additional securities purchased
fails to cover their costs (including any interest paid on the money borrowed)
to the Fund, the net asset value of the Fund's shares will decrease faster than
would otherwise be the case. This is the speculative factor known as "leverage."
If the Fund's asset coverage for borrowings falls below 300%, the Fund will take
prompt action (within 3 days) to reduce its borrowings. If the 300% asset
coverage should decline as a result of market fluctuations or other reasons, the
Fund may be required to sell portfolio securities to reduce the debt and restore
the 300% asset coverage, even though it may be disadvantageous from an
investment standpoint to sell securities at that time. The Fund will not
purchase portfolio securities when borrowings exceed 5% of the value of its
total assets.

ILLIQUID SECURITIES

The Fund may hold up to 15% 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 15% of its
net assets, as required by applicable law. Illiquid securities include
repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable in securities markets
either within or outside of the United States. Repurchase agreements subject to
demand are deemed to have a maturity equal to the applicable notice period.

Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (Securities Act),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.

In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities, convertible securities and corporate bonds and notes. Institutional
investors depend on an efficient institutional market in which the unregistered
security can be readily resold or on an issuer's ability to honor a demand for
repayment. The fact that there are contractual or legal restrictions on resale
to the general public or to certain institutions may not be indicative of the
liquidity of such investments.

B-16
<PAGE>
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. The investment adviser anticipates that the
market for certain restricted securities such as institutional commercial paper
and foreign securities will expand further as a result of this regulation and
the development of automated systems for the trading, clearance and settlement
of unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc.

Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and privately-placed commercial paper for which there is a
readily available market are treated as liquid only when deemed liquid under
procedures established by the Board of Trustees. The Fund's investment in
Rule 144A securities could have the effect of increasing illiquidity to the
extent that qualified institutional buyers become, for a limited time,
uninterested in purchasing Rule 144A securities. The investment adviser will
monitor the liquidity of such restricted securities subject to the supervision
of the Board of Trustees. In reaching liquidity decisions, the investment
adviser will consider, among others, 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 (for example, the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer). In addition, in order for commercial paper that is
issued in reliance on Section 4(2) of the Securities Act to be considered
liquid, (i) it must be rated in one of the two highest rating categories by at
least two nationally recognized statistical rating organizations (NRSRO), or if
only one NRSRO rates the securities, by that NRSRO, or, if unrated, be of
comparable quality in the view of the investment adviser; and (ii) it must not
be "traded flat" (that is, without accrued interest) or in default as to
principal or interest.

SECURITIES OF OTHER INVESTMENT COMPANIES

The Fund is permitted to invest up to 10% of its total assets in securities
of other investment companies and may purchase affiliated investment company
shares as permitted by the Commission. The Fund does not intend to invest in
such securities during the coming year. If the Fund does invest in securities of
other investment companies, shareholders of the Fund may be subject to duplicate
management and advisory fees. See "Investment Restrictions."

SEGREGATED ASSETS

The Fund will segregate with its Custodian, State Street Bank and Trust
Company (State Street), 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 forward contracts, when-issued and delayed delivery
securities, futures contracts, written options and options on 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 daily.

(d) DEFENSIVE STRATEGY AND SHORT-TERM INVESTMENTS

When conditions dictate a temporary defensive strategy or pending investment
of proceeds from sales of the Fund's shares, the Fund may invest without limit
in money market instruments, including commercial paper of corporations,
certificates of deposit, bankers' acceptances and other obligations of domestic
and foreign banks, non-convertible debt securities (corporate and government),
obligations issued or guaranteed by the U.S. Government, its agencies or its
instrumentalities, repurchase agreements and cash (foreign currencies or United
States dollars). Such investments may be subject to certain risks, including
future political and economic developments, the possible imposition of
withholding taxes on interest income, the seizure or nationalization of foreign
deposits and foreign exchange controls or other restrictions.

(e) PORTFOLIO TURNOVER

As a result of the investment policies described above, the Fund may engage
in a substantial number of portfolio transactions, but the Fund's portfolio
turnover rate is not expected to exceed 100%. The Fund's portfolio turnover rate
for the fiscal period ended October 31, 1999 was 67%. The portfolio turnover
rate is generally the percentage computed by dividing the lesser of portfolio
purchases or sales (excluding all securities, including options, whose
maturities or expiration date at acquisition were one year or less) by the
monthly average value of the portfolio. High portfolio turnover (100% or more)
involves correspondingly greater brokerage commissions and other transaction
costs, which are borne directly by the Fund. In addition, high portfolio
turnover may also mean that a proportionately greater amount of distributions to
shareholders will be taxed as ordinary income rather than long-term capital
gains compared to investment companies with lower portfolio turnover. See
"Brokerage Allocation and Other Practices" and "Taxes, Dividends and
Distributions."

B-17
<PAGE>
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 Fund's outstanding voting securities. A "majority of the Fund's
outstanding voting securities," when used in this Statement of Additional
Information, means with respect to the Fund, the lesser of (1) 67% of the 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.

The Fund may not:

1. Issue senior securities, borrow money or pledge its assets, except that
the Fund may borrow from banks up to 33 1/3% of the value of its total assets
(calculated when the loan is made) for temporary, extraordinary or emergency
purposes or for the clearance of transactions. The Fund may pledge up to 33 1/3%
of the value of its total assets to secure such borrowings. For purposes of this
restriction, the purchase or sale of securities on a when-issued or delayed
delivery basis, forward foreign currency exchange contracts and collateral
arrangements relating thereto, and collateral arrangements with respect to
futures contracts and options thereon and with respect to the writing of options
and obligations of the Fund to Trustees pursuant to deferred compensation
arrangements are not deemed to be a pledge of assets subject to this
restriction.

2. Purchase any security (other than obligations of the U.S. Government, its
agencies or instrumentalities) if as a result, with respect to 75% of the Fund's
total assets, more than 5% of the Fund's total assets (determined at the time of
investment) would then be invested in securities of a single issuer.

3. Buy or sell real estate or interests in real estate, except that the Fund
may purchase and sell securities which are secured by real estate, securities of
companies which invest or deal in real estate and publicly traded securities of
real estate investment trusts.

4. Buy or sell commodities or commodity contracts, except that the Fund may
purchase and sell financial futures contracts and options thereon, and foreign
currency forward contracts.

5. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter under
certain federal securities laws.

6. Make loans, except through (i) repurchase agreements and (ii) loans of
portfolio securities limited to 33 1/3 of the Fund's total assets.

7. Purchase any security (other than obligations of the U.S. Government, its
agencies or instrumentalities) if as a result 25% or more of the Fund's total
assets (determined at the time of investment) would be invested in a single
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 investment is made, 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 prompt action
to reduce its borrowings, as required by applicable law.

Although not fundamental, the Fund has the following additional investment
restrictions.

The Fund may not:

1. Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of transactions); provided that
the deposit or payment by the Fund of initial or maintenance margin in
connection with futures or options is not considered the purchase of a security
on margin.

2. Make short sales of securities. Short sales "against-the-box" are not
subject to this limitation.

3. Invest for the purpose of exercising control or management.

4. Purchase more than 10% of all outstanding voting securities of any one
issuer.

5. Invest in securities of other investment companies, except: (i) purchases
in the open market involving only customary brokerage commissions and as a
result of which the Fund will not hold more than 3% of the outstanding voting
securities of any one investment company, will not have invested more than 5% of
its total assets in any one investment company and will not have invested more
than 10% of its total assets (determined at the time of investment) in such
securities of one or more investment companies, (ii) as part of a merger,
consolidation or other acquisition, or (iii) purchases of affiliated investment
company shares pursuant to and subject to such limits as the Commission may
impose by rule or order.

B-18
<PAGE>

MANAGEMENT OF THE COMPANY

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME AND ADDRESS** (AGE) POSITION WITH COMPANY DURING PAST 5 YEARS
- ------------------------ --------------------- ---------------------
<S> <C> <C>
Edward D. Beach (75) Trustee President and Director of BMC Fund, Inc., a
closed-end investment company; previously, Vice
Chairman of Broyhill Furniture Industries, Inc.;
Certified Public Accountant; Secretary and
Treasurer of Broyhill Family Foundation, Inc.;
Member of the Board of Trustees of Mars Hill
College; Director or Trustee of 44 funds within
the Prudential Mutual Funds.

Delayne Dedrick Gold (61) Trustee Marketing and Management Consultant; Director of
The High Yield Income Fund, Inc.; and Director or
Trustee of 44 funds within the Prudential Mutual
Funds.

*Robert F. Gunia (53) Vice President and Chief Administrative Officer (since June 1999) of
Trustee Prudential Investments; Vice President (since
September 1997) of The Prudential Insurance
Company of America (Prudential); Executive Vice
President and Treasurer (since December 1996) of
Prudential Investments Fund Management LLC (PIFM);
formerly Senior Vice President (March 1987-May
1999) of Prudential Securities Incorporated
(Prudential Securities) and Chief Administrative
Officer (July 1990-September 1996), Director
(January 1989-September 1996) and Executive Vice
President, Treasurer and Chief Financial Officer
(June 1987-September 1996) of Prudential Mutual
Fund Management, Inc.; Vice President and Director
(since May 1989) of The Asia Pacific Fund, Inc.;
Director of The High Yield Income Fund, Inc.; and
Director or Trustee of 45 funds within the
Prudential Mutual Funds.

Douglas H. McCorkindale (60) Trustee Vice Chairman (since March 1984) and President
(since September 1997) of Gannett Co. Inc.
(publishing and media); Director of Gannett Co.
Inc., Frontier Corporation and Continental
Airlines, Inc.; and Director or Trustee of 24
funds within the Prudential Mutual Funds.

Thomas T. Mooney (58) Trustee President of the Greater Rochester Metro Chamber of
Commerce; former Rochester City Manager; Trustee
of Center for Governmental Research, Inc.;
Director of Blue Cross of Rochester, Monroe County
Water Authority, Rochester Jobs, Inc., Executive
Service Corps of Rochester, Monroe County
Industrial Development Corporation and Northeast-
Midwest Institute; President, Director and
Treasurer of First Financial Fund, Inc. and The
High Yield Plus Fund, Inc.; and Director or
Trustee of 34 other funds within the Prudential
Mutual Funds.

Stephen P. Munn (57) Trustee Chairman (since January 1994), Director and
President (since 1988) and Chief Executive Officer
(1988-December 1993) of Carlisle Companies
Incorporated (manufacturer of industrial products)
and Director or Trustee of 30 funds within the
Prudential Mutual Funds.
</TABLE>

B-19
<PAGE>

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME AND ADDRESS** (AGE) POSITION WITH COMPANY DURING PAST 5 YEARS
- ------------------------ --------------------- ---------------------
<S> <C> <C>
*David R. Odenath, Jr. (42) Trustee Officer in Charge, President, Chief Executive
Officer and Chief Operating Officer (since June
1999), PIFM; Senior Vice President (since June
1999), Prudential; formerly Senior Vice President
(August 1993-May 1999), PaineWebber Group, Inc.;
Director or Trustee of 44 funds within the
Prudential Mutual Funds.

Richard A. Redeker (56) Trustee Formerly President, Chief Executive Officer and
Director (October 1993-September 1996) of
Prudential Mutual Fund Management, Inc., Executive
Vice President, Director and Member of the
Operating Committee
(October 1993-September 1996) of Prudential
Securities, Director
(October 1993-September 1996) of Prudential
Securities Group, Inc., Executive Vice President
(January 1994-September 1996) of The Prudential
Investment Corporation, Director
(January 1994-September 1996) of Prudential Mutual
Fund Distributors, Inc. and Prudential Mutual Fund
Services, Inc. and Senior Executive Vice President
and Director (September 1978-September 1993) of
Kemper Financial Services, Inc.; and Director or
Trustee of 30 funds within the Prudential Mutual
Funds.

Robin B. Smith (60) Trustee Chairman and Chief Executive Officer (since
August 1996), formerly President and Chief
Executive Officer (January 1988-August 1996) and
President and Chief Operating Officer
(September 1981-December 1988) of Publishers
Clearing House; Director of BellSouth Corporation,
Texaco Inc., Springs Industries Inc. and Kmart
Corporation; and Director or Trustee of 32 funds
within the Prudential Mutual Funds.

*John R. Strangfeld, Jr. (45) President and Trustee Chief Executive Officer, Chairman, President and
Director (since January 1990) of The Prudential
Investment Corporation, Executive Vice President
(since February 1998), Prudential Global Asset
Management Group of Prudential, and Chairman
(since August 1989), Pricoa Capital Group;
formerly various positions to Chief Executive
Officer (November 1994-December 1998), Private
Asset Management Group of Prudential and Senior
Vice President (January 1986-August 1989),
Prudential Capital Group, a unit of Prudential;
President and Director or Trustee of 45 funds
within the Prudential Mutual Funds.

Louis A. Weil, III (58) Trustee Chairman (since January 1999), President and Chief
Executive Officer (since January 1996) and
Director (since September 1991) of Central
Newspapers, Inc.; Chairman of the Board (since
January 1996), Publisher and Chief Executive
Officer (August 1991-December 1995) of Phoenix
Newspapers, Inc.; formerly Publisher
(May 1989-March 1991) of Time Magazine, President,
Publisher & Chief Executive Officer
(February 1986-August 1989) of The Detroit News
and member of the Advisory Board, Chase Manhattan
Bank-Westchester; Director or Trustee of 30 funds
within the Prudential Mutual Funds.
</TABLE>

B-20
<PAGE>

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME AND ADDRESS** (AGE) POSITION WITH COMPANY DURING PAST 5 YEARS
- ------------------------ --------------------- ---------------------
<S> <C> <C>
Clay T. Whitehead (61) Trustee President (since May 1983) of National Exchange
Inc. (new business development firm) and Director
or Trustee of 33 funds within the Prudential
Mutual Funds.

Grace C. Torres (40) Treasurer and Principal First Vice President (since December 1996) of PIFM;
Financial and First Vice President (since March 1993) of
Accounting Officer Prudential Securities; formerly First Vice
President (March 1994-September 1996) of
Prudential Mutual Fund Management, Inc.

Marguerite E. H. Morrison (43) Secretary Vice President and Associate General Counsel (since
December 1996) of PIFM; Vice President and
Associate General Counsel of Prudential
Securities; formerly Vice President and Associate
General Counsel (June 1991-September 1996) of
Prudential Mutual Fund Management, Inc.

Stephen M. Ungerman (46) Assistant Treasurer Tax Director (since March 1996) of Prudential
Investments; formerly First Vice President
(February 1993-September 1996) of Prudential
Mutual Fund Management, Inc.
</TABLE>

- ------------------------

* "Interested" Trustee, as defined in the Investment Company Act, by reason of
affiliation with Prudential Securities, Prudential or PIFM.

** The address of the Trustees and officers is c/o Prudential Investments Fund
Management LLC, Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102-4077.

The Company has Trustees who, in addition to overseeing the actions of the
Fund's Manager, investment adviser and Distributor, decide upon matters of
general policy. The Trustees also review the actions of the Fund's officers, who
conduct and supervise the daily business operations of the Fund.

The Trustees have adopted a retirement policy which calls for the retirement
of Trustees on December 31 of the year in which they reach the age of 75.
Mr. Beach is scheduled to retire on December 31, 1999.

Pursuant to the terms of the Management Agreement with the Fund, the Manager
pays all compensation of officers and employees of the Fund as well as the fees
and expenses of all Trustees of the Fund who are affiliated persons of the
Manager. The Company pays each of its Trustees who is not an affiliated person
of PIFM or the investment adviser annual compensation of $2,000, in addition to
certain out-of-pocket expenses. The amount of annual compensation paid to each
Trustee may change as a result of the introduction of additional funds on the
boards of which the Trustee will be asked to serve.

Trustees may receive their Trustees' fees pursuant to a deferred fee
agreement with the Company. Under the terms of the agreement, the Company
accrues daily the amount of Trustees' fees in installments which accrue interest
at a rate equivalent to the prevailing rate applicable to 90-day U.S. Treasury
bills at the beginning of each calendar quarter or, pursuant to a Commission
exemptive order, at the daily rate of return of the Fund. Payment of the
interest so accrued is also deferred and accruals become payable at the option
of the Trustee. The Company's obligation to make payments of deferred Trustees'
fees, together with interest thereon, is a general obligation of the Company.

B-21
<PAGE>

The following table sets forth the aggregate compensation paid by the
Company for the fiscal period ended October 31, 1999 to the Trustees who are not
affiliated with the Manager and the aggregate compensation paid to such Trustees
for service on the Company's Board and the boards of all other investment
companies managed by PIFM (Fund Complex) for the calendar year ended
December 31, 1998.

COMPENSATION TABLE

<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION TOTAL 1998 COMPENSATION
FROM FROM FUND COMPLEX
NAME OF TRUSTEE COMPANY PAID TO TRUSTEES
- --------------- ------------ -----------------------
<S> <C> <C>
Edward D. Beach............................................. $2,000 $135,000(44/71)*
Delayne Dedrick Gold........................................ $2,000 $135,000(44/71)*
Robert F. Gunia+............................................ None None
Douglas H. McCorkindale**................................... $2,000 $ 70,000(23/40)*
Thomas T. Mooney**.......................................... $2,000 $115,000(35/70)*
Stephen P. Munn............................................. $2,000 $ 45,000(18/24)*
David R. Odenath, Jr.+...................................... None None
Richard A. Redeker.......................................... $2,000 None
Robin B. Smith**............................................ $2,000 $ 90,000(32/41)*
John R. Strangfeld, Jr.+.................................... None None
Louis A. Weil, III.......................................... $2,000 $ 90,000(30/54)*
Clay T. Whitehead........................................... $2,000 $ 45,000(18/24)*
</TABLE>

* Indicates number of funds/portfolios in Fund Complex to which aggregate
compensation relates.

** Total compensation from all of the funds in the Fund Complex for the
calendar year ended December 31, 1998, includes amounts deferred at the
election of Trustees under the funds' deferred compensation plans. Including
accrued interest, total compensation amounted to $71,145, $119,740 and
$116,225 for Messrs. McCorkindale and Mooney and Ms. Smith, respectively.

+ Interested Trustees do not receive compensation from the Company or any fund
in the Fund Complex.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

Trustees of the Company are eligible to purchase Class Z shares of the Fund,
which are sold without either an initial sales charge or contingent deferred
sales charge to a limited group of investors.

As of December 3, 1999, the Trustees and officers of the Company, as a
group, owned less than 1% of the outstanding shares of the Fund.

As of December 3, 1999, beneficial owners, directly or indirectly, of more
than 5% of any class of shares of the Fund were:

<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME ADDRESS CLASS (% OF CLASS)
- ---- ------------------------------------------------------------ --------- ----------------
<S> <C> <C> <C>
Mark A. Davis 4305 Churchill Downs Dr. A 476,232 (6.3%)
Austin, TX 78746-1104
Oakbrook Realty & Invmt 1000 Royce Blvd. Z 95,000 (5.7%)
Oakbrook Terrace, IL 60181-4809
Davilman-Lewis Family 1505 Bedford Dr. Z 229,448 (13.9%)
Partnership Oklahoma City, OK 73116-5405
</TABLE>

As of December 3, 1999, Prudential Securities was the record holder for
other beneficial owners of 7,086,593 Class A shares (approximately 94% of such
shares outstanding), 14,992,450 Class B shares (approximately 92% of such shares
outstanding), 9,947,408 Class C shares (approximately 98% of such shares
outstanding) and 1,638,723 Class Z shares (approximately 95% of such shares
outstanding) of the Fund. In the event of any meetings of shareholders,
Prudential Securities will forward, or cause the forwarding of, proxy materials
to beneficial owners for which it is the record holder.

B-22
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES

(a) MANAGER AND INVESTMENT ADVISER

The manager of the Fund is Prudential Investments Fund Management LLC (PIFM
or the Manager), Gateway Center Three, 100 Mulberry Street, Newark, New Jersey
07102-4077. PIFM serves as manager to all of the other investment companies
that, together with the Fund, comprise the Prudential Mutual Funds. See "How the
Fund is Managed--Manager" in the Prospectus. As of November 30, 1999, PIFM
managed and/or administered open-end and closed-end management investment
companies with assets of approximately $73.5 billion. According to the
Investment Company Institute, as of September 30, 1999, the Prudential Mutual
Funds were the 20th largest family of mutual funds in the United States.

PIFM is a subsidiary of Prudential Securities and Prudential. Prudential
Mutual Fund Services LLC (PMFS or the Transfer Agent), a wholly owned subsidiary
of PIFM, serves as the transfer agent and dividend distribution agent for the
Prudential Mutual Funds and, in addition, provides customer service,
recordkeeping and management and administration services to qualified plans.

Pursuant to the Management Agreement with the Fund (the Management
Agreement), PIFM, subject to the supervision of the Company's Board of Trustees
and in conformity with the stated policies of the Fund, manages both the
investment operations of the Fund and the composition of the Fund's portfolio,
including the purchase, retention, disposition and loan of securities and other
assets. In connection therewith, PIFM is obligated to keep certain books and
records of the Fund. PIFM has hired The Prudential Investment Corporation, doing
business as Prudential Investments (PI, the investment adviser or the
Subadviser), to provide subadvisory services to the Fund. PIFM also administers
the Fund's business affairs and, in connection therewith, furnishes the Fund
with office facilities, together with those ordinary clerical and bookkeeping
services which are not being furnished by State Street Bank and Trust Company,
the Fund's custodian (the Custodian), and PMFS, the Fund's transfer and dividend
disbursing agent. The management services of PIFM for the Fund are not exclusive
under the terms of the Management Agreement and PIFM is free to, and does,
render management services to others.

For its services, PIFM receives, pursuant to the Management Agreement, a fee
at an annual rate of .65 of 1% of the Fund's average daily net assets up to
$500 million and .60 of 1% of the Fund's average daily net assets over
$500 million. Prior to January 1, 2000, PIFM received an annual management fee
at the rate of .65 of 1% of the Fund's average daily net assets. The fee is
computed daily and payable monthly.

In connection with its management of the business affairs of the Fund, PIFM
bears the following expenses:

(a) the salaries and expenses of all personnel of the Fund and the Manager,
except the fees and expenses of Trustees who are not affiliated persons of PIFM
or the Fund's investment adviser;

(b) all expenses incurred by PIFM or by the Fund in connection with managing
the ordinary course of the Fund's business, other than those assumed by the Fund
as described below; and

(c) the costs and expenses payable to the investment adviser pursuant to the
subadvisory agreement between PIFM and PI (the Subadvisory Agreement).

Under the terms of the Management Agreement, the Fund is responsible for the
payment of the following expenses: (a) the fees payable to the Manager, (b) the
fees and expenses of Trustees who are not affiliated persons of the Manager or
the Fund's investment adviser, (c) the fees and certain expenses of the
Custodian and Transfer Agent, including the cost of providing records to the
Manager in connection with its obligation of maintaining required records of the
Fund and of pricing the Fund's shares, (d) the charges and expenses of legal
counsel and independent accountants for the Fund, (e) brokerage commissions and
any issue or transfer taxes chargeable to the Fund in connection with its
securities transactions, (f) all taxes and corporate fees payable by the Fund to
governmental agencies, (g) the fees of any trade associations of which the Fund
may be a member, (h) the cost of share certificates representing shares of the
Fund, (i) the cost of fidelity and liability insurance, (j) the fees and
expenses involved in registering and maintaining registration of the Fund and of
its shares with the Commission, including the preparation and printing of the
Company's registration statements and prospectuses for such purposes, and paying
the fees and expenses of notice filings made in accordance with state securities
laws, (k) allocable communications expenses with respect to investor services
and all expenses of shareholders' and Trustees' meetings and of preparing,
printing and mailing reports, proxy statements and prospectuses to shareholders
in the amount necessary for distribution to the shareholders, (l) litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of the Fund's business and (m) distribution fees.

The Management Agreement provides that PIFM will not be liable for any error
of judgment or for any loss suffered by the Fund in connection with the matters
to which the Management Agreement relates, except a loss resulting from willful
misfeasance, bad faith, gross negligence or reckless disregard of duty. The
Management Agreement provides that it will terminate automatically

B-23
<PAGE>
if assigned, and that it may be terminated without penalty by either party upon
not more than 60 days' nor less than 30 days' written notice. The Management
Agreement 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 conformity with the Investment Company Act.

For the fiscal period ended October 31, 1999, PIFM received management fees
of $1,356,586 from the Fund.

PIFM has entered into a Subadvisory Agreement with PI. The Subadvisory
Agreement provides that PI will furnish investment advisory services in
connection with the management of the Fund. In connection therewith, PI is
obligated to keep certain books and records of the Fund. Under the Subadvisory
Agreement, PI, subject to the supervision of PIFM, is responsible for managing
the assets of the Fund in accordance with its investment objective, investment
program and policies. PI determines what securities and other instruments are
purchased and sold for the Fund and is responsible for obtaining and evaluating
financial data relevant to the Fund. PIFM continues to have responsibility for
all investment advisory services pursuant to the Management Agreement. Under the
Subadvisory Agreement, PI has been reimbursed by PIFM for the reasonable costs
and expenses incurred by PI in furnishing those services. Effective January 1,
2000, PI will be paid by PIFM at an annual rate of .325 of 1% of the Fund's
average daily net assets up to $500 million and .285 of 1% of the Fund's average
daily net assets over $500 million (representing approximately half of the
compensation received from the Fund by PIFM).

The Subadvisory Agreement provides that it will terminate in the event of
its assignment (as defined in the Investment Company Act) or upon the
termination of the Management Agreement. The Subadvisory Agreement may be
terminated by the Fund, PIFM or the Subadviser 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 at least annually in
accordance with the requirements of the Investment Company Act.

(b) PRINCIPAL UNDERWRITER, DISTRIBUTOR AND RULE 12b-1 PLANS

Prudential Investment Management Services LLC (PIMS or the Distributor),
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, acts
as the distributor of the shares of the Fund. The Distributor is a subsidiary of
Prudential.

Pursuant to separate Distribution and Service Plans (the Class A Plan, the
Class B Plan and the Class C Plan, collectively, the Plans) adopted by the Fund
under Rule 12b-1 under the Investment Company Act and a distribution agreement
(the Distribution Agreement), the Distributor incurs the expenses of
distributing the Fund's Class A, Class B and Class C shares, respectively. The
Distributor also incurs the expenses of distributing the Class Z shares under
the Distribution Agreement with the Fund, none of which are reimbursed by or
paid for by the Fund.

The expenses incurred under the Plans include commissions and account
servicing fees paid to, or on account of, brokers or financial institutions
which have entered into agreements with the Distributor, advertising expenses,
the cost of printing and mailing prospectuses to potential investors and
indirect and overhead costs of the Distributor associated with the sale of Fund
shares, including lease, utility, communications and sales promotion expenses.

Under the Plans, the Fund is obligated to pay distribution and/or service
fees to the Distributor as compensation for its distribution and service
activities, not as reimbursement for specific expenses incurred. If the
Distributor's expenses exceed its distribution and service fees, the Fund will
not be obligated to pay any additional expenses. If the Distributor's expenses
are less than such distribution and service fees, it will retain its full fees
and realize a profit.

The distribution and/or service fees may also be used by the Distributor to
compensate on a continuing basis brokers in consideration for the distribution,
marketing, administrative and other services and activities provided by brokers
with respect to the promotion of the Fund's shares and the maintenance of
related shareholder accounts.

CLASS A PLAN. Under the Class A Plan, the Fund may pay the Distributor for
its distribution-related activities with respect to Class A shares at an annual
rate of up to .30 of 1% of the average net assets of the Class A shares. The
Class A Plan provides that (1) .25 of 1% of the average daily net assets of the
Class A shares may be used to pay for personal service and the maintenance of
shareholder accounts (service fee) and (2) total distribution fees (including
the service fee of .25 of 1%) may not exceed .30 of 1%. The Distributor has
contractually agreed to limit its distribution-related fees payable under the
Class A Plan to .25 of 1% of the average daily net assets of the Class A shares
for the fiscal year ending October 31, 2000 and voluntarily limited its
distribution-related fees for the fiscal period ended October 31, 1999 to .25 of
1% of the average daily net assets of the Class A shares.

For the fiscal period ended October 31, 1999, the Distributor received
payments of $110,559 under the Class A Plan and spent approximately $76,000 in
distributing the Class A shares. This amount was primarily expended for payment
of account servicing fees to financial advisers and other persons who sell Class
A shares. For the fiscal period ended October 31, 1999, the Distributor also
received approximately $1,898,400 in initial sales charges.

B-24
<PAGE>
CLASS B AND CLASS C PLANS. Under the Class B and Class C Plans, the Fund
pays the Distributor for its distribution-related activities with respect to
Class B and Class C shares at an annual rate of up to 1% of the average daily
net assets of each of the Class B and Class C shares. The Class B and Class C
Plans provide that (1) up to .25 of 1% of the average daily net assets of the
Class B and Class C shares, respectively, may be paid as a service fee and
(2) up to .75 of 1% (not including the service fee) may be paid for
distribution-related expenses with respect to the Class B and Class C shares,
respectively (asset-based sales charge). The service fee (.25 of 1% of average
daily net assets) is used to pay for personal service and/or the maintenance of
shareholder accounts. The Distributor also receives contingent deferred sales
charges from certain redeeming shareholders.

CLASS B PLAN. For the fiscal period ended October 31, 1999, the Distributor
received $956,204 from the Fund under the Class B Plan and spent approximately
$6,781,800 in distributing the Fund's Class B shares. It is estimated that of
the latter amount, approximately 3.5% ($238,400) was spent on compensation to
broker-dealers for commissions to representatives and other expenses, including
an allocation on account of overhead and other branch office
distribution-related expenses, incurred for distribution of Fund shares; and
96.5% ($6,543,400) on the aggregate of (1) payments of commissions and account
servicing fees to financial advisers (20.4% or $1,384,700) and (2) an allocation
on account of overhead and other branch office distribution-related expenses
(76.1% or $5,158,700). The term "overhead and other branch office
distribution-related expenses" represents (a) the expenses of operating
Prudential Securities' and Pruco Securities Corporation's (Prusec's) branch
offices in connection with the sale of Fund shares, including lease costs, the
salaries and employee benefits of operations and sales support personnel,
utility costs, communications costs and the costs of stationery and supplies,
(b) the costs of client sales seminars, (c) expenses of mutual fund sales
coordinators to promote the sale of Fund shares and (d) other incidental
expenses relating to branch promotion of Fund sales.

The Distributor also receives the proceeds of contingent deferred sales
charges paid by investors upon certain redemptions of Class B shares. For the
fiscal period ended October 31, 1999, the Distributor received approximately
$327,400 in contingent deferred sales charges attributable to Class B shares.

CLASS C PLAN. For the fiscal period ended October 31, 1999, the Distributor
received $604,899 under the Class C Plan and spent approximately $1,210,300 in
distributing Class C shares. It is estimated that of the latter amount,
approximately .7% ($8,700) was spent on compensation to broker-dealers for
commissions to representatives and other expenses, including an allocation of
overhead and other branch office distribution-related expenses incurred for
distribution of Fund shares; and 99.3% ($1,201,600) on the aggregate of
(1) payments of commissions and account servicing fees to financial advisers
(32.9% or $398,600) and (2) an allocation on account of overhead and other
branch office distribution-related expenses (66.4% or $803,000).

The Distributor also receives initial sales charges and the proceeds of
contingent deferred sales charges paid by investors upon certain redemptions of
Class C shares. For the fiscal period ended October 31, 1999, the Distributor
received approximately $76,000 in contingent deferred sales charges attributable
to Class C shares. For the fiscal period ended October 31, 1999, the Distributor
also received approximately $1,057,400 in initial sales charges.

Distribution expenses attributable to the sale of Class A, Class B and
Class C shares of the Fund are allocated to each such class based upon the ratio
of sales of each such class to the sales of Class A, Class B and Class C shares
of the Fund other than expenses allocable to a particular class. The
distribution fee and sales charge of one class will not be used to subsidize the
sale of another class.

The Class A, Class B and Class C Plans will continue in effect from year to
year, provided that each such continuance is approved at least annually by a
vote of the Board of Trustees, including a majority vote of the Trustees who are
not interested persons of the Company and who have no direct or indirect
financial interest in the operation of the Plans or in any agreement related to
the Plans (the Rule 12b-1 Trustees), at a meeting called for the purpose of
voting on such continuance. A Plan may be terminated at any time, without
penalty, by the vote of a majority of the Rule 12b-1 Trustees or by the vote of
the holders of a majority of the outstanding shares of the applicable class of
the Fund on not more than 60 days', nor less than 30 days', written notice to
any other party to the Plan. The Plans may not be amended to increase materially
the amounts to be spent for the services described therein without approval by
the shareholders of the applicable class, and all material amendments are
required to be approved by the Board of Trustees in the manner described above.
Each Plan will automatically terminate in the event of its assignment. The Fund
will not be obligated to pay expenses incurred under any Plan if it is
terminated or not continued.

Pursuant to each Plan, the Board of Trustees will review at least quarterly
a written report of the distribution expenses incurred on behalf of each class
of shares of the Fund by the Distributor. The report will include an itemization
of the distribution expenses and the purposes of such expenditures. In addition,
as long as the Plans remain in effect, the selection and nomination of
Rule 12b-1 Trustees shall be committed to the Rule 12b-1 Trustees.

B-25
<PAGE>
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.

In addition to distribution and service fees paid by the Fund under the
Plans, the Manager (or one of its affiliates) may make payments to dealers
(including Prudential Securities) and other persons which distribute shares of
the Fund (including Class Z shares). Such payments may be calculated by
reference to the net asset value of shares sold by such persons or otherwise.

FEE WAIVERS/SUBSIDIES

PIFM may from time to time waive all or a portion of its management fee and
subsidize all or a portion of the operating expenses of the Fund. In addition,
the Distributor has contractually agreed to waive a portion of its distribution
fees for the Class A shares as described above. Fee waivers and subsidies will
increase the Fund's total return.

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 each class of shares. In the case of
Class B shares, interest charges 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 required to be included in the calculation
of the 6.25% limitation. The annual asset-based sales charge with respect to
Class B and Class C shares of the Fund may not exceed .75 of 1%. The 6.25%
limitation applies to the Fund rather than on a per shareholder basis. If
aggregate sales charges were to exceed 6.25% of total gross sales of any class,
all sales charges on shares of that class would be suspended.

State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities and
cash and, in that capacity, maintains certain financial and accounting books and
records pursuant to an agreement with the Company. Subcustodians provide
custodial services for the Fund's foreign assets held outside the United States.

PMFS, Raritan Plaza One, Edison, New Jersey 08837, serves as the transfer
and dividend disbursing agent of the Fund. PMFS is a wholly-owned subsidiary of
PIFM. PMFS provides customary transfer agency services to the Fund, including
the handling of shareholder communications, the processing of shareholder
transactions, the maintenance of shareholder account records, the payment of
dividends and distributions and related functions. For these services, PMFS
receives an annual fee per shareholder account of $9.00, a new account set-up
fee of $2.00 for each manually established account and a monthly inactive zero
balance account fee of $0.20 per shareholder account. PMFS is also reimbursed
for its out-of-pocket expenses, including but not limited to postage,
stationery, printing, allocable communication expenses and other costs.

PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, serves as the Fund's independent accountants and in that capacity audits
the Fund's annual financial statements.

BROKERAGE ALLOCATION AND OTHER PRACTICES

The Manager is responsible for decisions to buy and sell securities, futures
and options on securities and futures for the Fund, the selection of brokers,
dealers and futures commission merchants to effect the transactions and the
negotiation of brokerage commissions, if any. The term "Manager" as used in this
section includes the Subadviser. Broker-dealers may receive negotiated brokerage
commissions on Fund portfolio transactions, including options and the purchase
and sale of underlying securities upon the exercise of options. On foreign
securities exchanges, commissions may be fixed. Orders may be directed to any
broker or futures commission merchant including, to the extent and in the manner
permitted by applicable law, Prudential Securities and its affiliates.

Equity securities traded in the over-the-counter market and bonds, including
convertible bonds, 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 and U.S.
Government agency securities may be purchased directly from the issuer, in which
case no commissions or discounts are paid. The Fund will not deal with
Prudential Securities or any affiliate in any transaction in which

B-26
<PAGE>
Prudential Securities or any affiliate acts as principal, except in accordance
with rules of the Commission. Thus, it will not deal in the over-the-counter
market with Prudential Securities acting as market maker, and it will not
execute a negotiated trade with Prudential Securities if execution involves
Prudential Securities' acting as principal with respect to any part of the
Fund's order.

In placing orders for portfolio securities of the Fund, the Manager's
overriding objective is to obtain the best possible combination of favorable
price and efficient execution. The Manager seeks to effect each transaction at a
price and commission that provides the most favorable total cost or proceeds
reasonably attainable in the circumstances. The factors that the Manager may
consider in selecting a particular broker, dealer or futures commission merchant
(firms) are the Manager's knowledge of negotiated commission rates currently
available and other current transaction costs; the nature of the portfolio
transaction; the size of the transaction; the desired timing of the trade; the
activity existing and expected in the market for the particular transaction;
confidentiality; the execution, clearance and settlement capabilities of the
firms; the availability of research and research related services provided
through such firms; the Manager's knowledge of the financial stability of the
firms; the Manager's knowledge of actual or apparent operational problems of
firms; and the amount of capital, if any, that would be contributed by firms
executing the transaction. Given these factors, the Fund may pay transaction
costs in excess of that which another firm might have charged for effecting the
same transaction.

When the Manager selects a firm that executes orders or is a party to
portfolio transactions, relevant factors taken into consideration are whether
that firm has furnished research and research related products and/or services,
such as research reports, research compilations, statistical and economic data,
computer data bases, quotation equipment and services, research oriented
computer software, hardware and services, reports concerning the performance of
accounts, valuations of securities, investment related periodicals, investment
seminars and other economic services and consultants. Such services are used in
connection with some or all of the Manager's investment activities; some of such
services, obtained in connection with the execution of transactions for one
investment account, may be used in managing other accounts, and not all of these
services may be used in connection with the Fund.

The Manager maintains an internal allocation procedure to identify those
firms who have provided it with research and research related products and/or
services, and the amount that was provided, and to endeavor to direct sufficient
commissions to them to ensure the continued receipt of those services that the
Manager believes provides a benefit to the Fund and its other clients. The
Manager makes a good faith determination that the research and/or service is
reasonable in light of the type of service provided and the price and execution
of the related portfolio transactions.

When the Manager deems the purchase or sale of equities to be in the best
interests of the Fund or its other clients, including Prudential, the Manager
may, but is under no obligation to, aggregate the transactions in order to
obtain the most favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the transactions, as well as the
expenses incurred in the transaction, will be made by the Manager in the manner
it considers to be most equitable and consistent with its fiduciary obligations
to its clients. The allocation of orders among firms and the commission rates
paid are renewed periodically by the Company's Trustees. Portfolio securities
may not be purchased from any underwriting or selling syndicate of which
Prudential Securities, or an affiliate during the existence of the syndicate, is
a principal underwriter (as defined in the Investment Company Act), except in
accordance with rules of the Commission. This limitation, in the opinion of the
Fund, will not significantly affect the Fund's ability to pursue its present
investment objective. However, in the future in other circumstances, the Fund
may be at a disadvantage because of this limitation in comparison to other funds
with similar objectives but not subject to such limitations.

Subject to the above considerations, Prudential Securities (or any
affiliate) may act as a securities broker or futures commission merchant for the
Fund. In order for Prudential Securities (or any affiliate) to effect any
portfolio transactions for the Fund, the commissions, fees or other remuneration
received by Prudential Securities (or any affiliate) must be reasonable and fair
compared to the commissions, fees or other remuneration paid to other firms in
connection with comparable transactions involving similar securities or futures
being purchased or sold on an exchange during a comparable period of time. This
standard would allow Prudential Securities (or any affiliate) to receive no more
than the remuneration which would be expected to be received by an unaffiliated
firm in a commensurate arm's-length transaction. Furthermore, the Board of
Trustees of the Company, including a majority of the Trustees who are not
"interested" persons, has adopted procedures which are reasonably designed to
provide that any commissions, fees or other remuneration paid to Prudential
Securities (or any affiliate) are consistent with the foregoing standard. In
accordance with Section 11(a) of the Securities Exchange Act of 1934, as
amended, Prudential Securities may not retain compensation for effecting
transactions on a national securities exchange for the Fund unless the Fund has
expressly authorized the retention of such compensation. Prudential Securities
must furnish to the Fund at least annually a statement setting forth the total
amount of all compensation retained by Prudential Securities from transactions
effected for the Fund during the applicable period. Brokerage and futures
transactions with Prudential Securities are also subject to such fiduciary
standards as may be imposed by applicable law.

B-27
<PAGE>

Transactions in options by the Fund will be subject to limitations
established by each of the exchanges governing the maximum number of options
which may be written or held by a single investor or group of investors acting
in concert, regardless of whether the options are written or held on the same or
different exchanges or are written or held in one or more accounts or through
one or more brokers. Thus, the number of options which the Fund may write or
hold may be affected by options written or held by the Manager and other
investment advisory clients of the Manager. An exchange may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.

The table below sets forth information concerning the payment of commissions
by the Fund, including the amount of such commissions paid to Prudential
Securities for the fiscal period ended October 31, 1999.

<TABLE>
<CAPTION>
FISCAL PERIOD
ENDED
OCTOBER 31, 1999
----------------
<S> <C>
Total brokerage commissions paid by the Fund................ $436,786
Total brokerage commissions paid to Prudential Securities
and its foreign affiliates................................. none
Percentage of total brokerage commissions paid to Prudential
Securities and its foreign affiliates...................... 0%
</TABLE>

The Fund did not effect transactions involving the payment of commissions
through Prudential Securities during the period ended October 31, 1999. Of the
total brokerage commissions paid during that period, none were paid to firms
which provide research, statistical or other services to PIFM. PIFM has not
separately identified a portion of such brokerage commissions as applicable to
the provision of such research, statistical or other services.

The Fund is required to disclose its holdings of securities of its regular
brokers and dealers (as defined under Rule 10b-1 of the Investment Company Act)
and their parents at October 31, 1999. As of October 31, 1999, the Fund held
equity securities of the following: Morgan Stanley Dean Witter & Co.,
$3,298,344; Morgan (J.P.) Securities Inc., $2,224,875; Bear, Stearns & Co. Inc.,
$2,118,463; Lehman Brothers, Inc., $2,313,787; PaineWebber Incorporated,
$1,735,950 and Merrill Lynch, Pierce, Fenner & Smith, Inc., $290,450. The Fund
also held debt securities of the following: Bear, Stearns & Co. Inc., $332,000;
Morgan (J.P.) Securities Inc., $332,000; Salomon Smith Barney Inc., $332,000 and
Goldman, Sachs & Co., $259,000.

CAPITAL SHARES, OTHER SECURITIES AND ORGANIZATION

The Company is authorized to issue an unlimited number of shares of
beneficial interest, $.001 par value per share, of two series, each of which are
divided into four classes, designated Class A, Class B, Class C and Class Z.
Shares of Prudential Tax-Managed Growth Fund are not currently being offered.
Each class of shares of the Fund represents an interest in the same assets of
the Fund and is identical in all respects except that (1) each class is subject
to different sales charges and distribution and/or service fees (except for
Class Z shares, which are not subject to any sales charges and distribution
and/or service fees), which may affect performance, (2) each class has exclusive
voting rights on any matter submitted to shareholders that relates solely to its
arrangement and has separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the interests of
any other class, (3) each class has a different exchange privilege, (4) only
Class B shares have a conversion feature and (5) Class Z shares are offered
exclusively for sale to a limited group of investors. In accordance with the
Company's Declaration of Trust, the Board of Trustees may authorize the creation
of additional series of shares and classes within such series, with such
preferences, privileges, limitations and voting and dividend rights as the
Trustees may determine.

Shares of the Fund, when issued, are fully paid, nonassessable, fully
transferable and redeemable at the option of the holder. Shares are also
redeemable at the option of the Fund under certain circumstances. Each share of
each class is equal as to earnings, assets and voting privileges, except as
noted above, and each class (with the exception of Class Z shares, which are not
subject to any distribution or service fees) bears the expenses related to the
distribution of its shares. Except for the conversion feature applicable to the
Class B shares, there are no conversion, preemptive or other subscription
rights. In the event of liquidation, each share of the Fund is entitled to its
portion of all of the Fund's assets after all debts and expenses of the Fund
have been paid. Since Class B and Class C shares generally bear higher
distribution expenses than Class A shares, the liquidation proceeds to
shareholders of those classes are likely to be lower than to Class A
shareholders and to Class Z shareholders, whose shares are not subject to any
distribution and/or service fees. The Company's shares do not have cumulative
voting rights for the election of Trustees.

The Company does not intend to hold annual meetings of shareholders unless
otherwise required by law. The Company will not be required to hold meetings of
shareholders unless, for example, the election of Trustees is required to be
acted on by shareholders under the Investment Company Act. Shareholders have
certain rights, including the right to call a meeting upon a vote of 10% or more
of the Company's outstanding shares for the purpose of voting on the removal of
one or more Trustees or to transact any other business.

B-28
<PAGE>
PURCHASE, REDEMPTION AND PRICING OF FUND SHARES

Shares of the Fund may be purchased at a price equal to the next determined
net asset value (NAV) per share plus a sales charge which, at the election of
the investor, may be imposed either (1) at the time of purchase (Class A or
Class C shares) or (2) on a deferred basis (Class B or Class C shares). Class Z
shares of the Fund are offered to a limited group of investors at NAV without
any sales charges.

PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire, you
must complete an application and telephone PMFS at (800) 225-1852 (toll-free) to
receive an account number. The following information will be requested: your
name, address, tax identification number, fund and class election, dividend
distribution election, amount being wired and wiring bank. Instructions should
then be given by you to your bank to transfer funds by wire to State Street Bank
and Trust Company (State Street), Boston, Massachusetts, Custody and Shareholder
Services Division, Attention: Prudential Tax-Managed Equity Fund, specifying on
the wire the account number assigned by PMFS and your name and identifying the
class in which you are eligible to invest (Class A, Class B, Class C or Class Z
shares).

If you arrange for receipt by State Street of Federal Funds prior to the
calculation of NAV (4:15 P.M., New York time), on a business day, you may
purchase shares of the Fund as of that day.

In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Tax-Managed
Equity Fund, Class A, Class B, Class C or Class Z shares and your name and
individual account number. It is not necessary to call PMFS to make subsequent
purchase orders using Federal Funds. The minimum amount which may be invested by
wire is $1,000.

ISSUANCE OF FUND SHARES FOR SECURITIES

Transactions involving the issuance of Fund shares for securities (rather
than cash) will be limited to (1) reorganizations, (2) statutory mergers, or
(3) other acquisitions of portfolio securities that (a) meet the investment
objective and policies of the Fund, (b) are liquid and not subject to
restrictions on resale, (c) have a value that is readily ascertainable via
listing on or trading in a recognized United States or international exchange or
market, and (d) are approved by the Fund's investment adviser.

SPECIMEN PRICE MAKE-UP

Under the current distribution arrangements between the Fund and the
Distributor, Class A shares are sold with a maximum sales charge of 5%, Class C*
shares are sold with a 1% sales charge and Class B* and Class Z shares are sold
at NAV. Using the NAV of the Fund at October 31, 1999, the maximum offering
price of the Fund's shares is as follows:

<TABLE>
<S> <C>
CLASS A
Net asset value and redemption price per Class A share...... $11.27
Maximum sales charge (5% of offering price)................. .59
------
Maximum offering price to public............................ $11.86
======
CLASS B
Net asset value, offering price and redemption price per
Class B share*............................................. $11.22
======
CLASS C
Net asset value and redemption price per Class C share*..... $11.22
Sales charge (1% of offering price)......................... .11
------
Offering price to public.................................... $11.33
======
CLASS Z
Net asset value, offering price and redemption price per
Class Z share.............................................. $11.30
======
</TABLE>

- ------------

* Class B and Class C shares are subject to a contingent
deferred sales charge on certain redemptions.

SELECTING A PURCHASE ALTERNATIVE

The following is provided to assist you in determining which method of
purchase best suits your individual circumstances and is based on current fees
and expenses being charged to the Fund:

B-29
<PAGE>
If you intend to hold your investment in the Fund for less than 4 years and
do not qualify for a reduced sales charge on Class A shares, since Class A
shares are subject to an initial sales charge of 5% and Class B shares are
subject to a CDSC of 5% which declines to zero over a 6 year period, you should
consider purchasing Class C shares over either Class A or Class B shares.

If you intend to hold your investment for longer than 4 years, but less than
5 years, and do not qualify for a reduced sales charge on Class A shares, you
should consider purchasing Class B or Class C shares over Class A shares. This
is because the initial sales charge plus the cumulative annual
distribution-related fee on Class A shares would exceed those of the Class B and
Class C shares if you redeem your investment during this time period. In
addition, more of your money would be invested initially in the case of Class C
shares, because of the relatively low initial sales charge, and all of your
money would be invested initially in the case of Class B shares, which are sold
at NAV.

If you intend to hold your investment for longer than 5 years, you should
consider purchasing Class A shares over either Class B or Class C shares. This
is because the maximum sales charge plus the cumulative annual
distribution-related fee on Class A shares would be less than those of the
Class B and Class C shares.

If you qualify for a reduced sales charge on Class A shares, it may be more
advantageous for you to purchase Class A shares over either Class B or Class C
shares regardless of how long you intend to hold your investment. However,
unlike Class B shares, you would not have all of your money invested initially
because the sales charge on Class A shares is deducted at the time of purchase.

If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class B or Class C shares, you would have to hold your investment for
more than 6 years in the case of Class B shares and for more than 5 years in the
case of Class C shares for the higher cumulative annual distribution-related fee
on those shares plus, in the case of Class C shares, the 1% initial sales charge
to exceed the initial sales charge plus the cumulative annual
distribution-related fees on Class A shares. This does not take into account the
time value of money, which further reduces the impact of the higher Class B or
Class C distribution-related fee on the investment, fluctuations in NAV, the
effect of the return on the investment over this period of time or redemptions
when the CDSC is applicable.

REDUCTION AND WAIVER OF INITIAL SALES CHARGE--CLASS A SHARES

BENEFIT PLANS. Certain group retirement and savings plans may purchase Class
A shares without the initial sales charge if they meet the required minimum for
amount of assets, average account balance or number of eligible employees. For
more information about these requirements, call Prudential at (800) 353-2847.

OTHER WAIVERS. In addition, Class A shares may be purchased at NAV, through
the Distributor or the Transfer Agent, by:

- officers of the Prudential Mutual Funds (including the Company),

- employees of the Distributor, Prudential Securities, PIFM and their
subsidiaries and members of the families of such persons who maintain an
"employee related" account at Prudential Securities or the Transfer Agent,

- employees of subadvisers of the Prudential Mutual Funds provided that
purchases at NAV are permitted by such person's employer,

- Prudential, employees and special agents of Prudential and its
subsidiaries and all persons who have retired directly from active service
with Prudential or one of its subsidiaries,

- members of the Board of Directors of Prudential,

- real estate brokers, agents and employees of real estate brokerage
companies affiliated with The Prudential Real Estate Affiliates who
maintain an account at Prudential Securities, Prusec or with the Transfer
Agent,

- registered representatives and employees of brokers who have entered into
a selected dealer agreement with the Distributor provided that purchases
at NAV are permitted by such person's employer,

- investors who have a business relationship with a financial adviser who
joined Prudential Securities from another investment firm, provided that
(1) the purchase is made within 180 days of the commencement of the
financial adviser's employment at Prudential Securities, or within one
year in the case of Benefit Plans, (2) the purchase is made with proceeds
of a redemption of shares of any open-end non-money market fund sponsored
by the financial adviser's previous employer (other than a fund which
imposes a distribution or service fee of .25 or 1% or less) and (3) the
financial adviser served as the client's broker on the previous purchase,

B-30
<PAGE>
- investors in Individual Retirement Accounts, provided the purchase is made
in a directed rollover to such Individual Retirement Account or with the
proceeds of a tax-free rollover of assets from a Benefit Plan for which
Prudential provides administrative or recordkeeping services and further
provided that such purchase is made within 60 days of receipt of the
Benefit Plan distribution,

- orders placed by broker-dealers, investment advisers or financial planners
who have entered into an agreement with the Distributor, who place trades
for their own accounts or the accounts of their clients and who charge a
management, consulting or other fee for their services (for example,
mutual fund "wrap" or asset allocation programs), and

- orders placed by clients of broker-dealers, investment advisers or
financial planners who place trades for customer accounts if the accounts
are linked to the master account of such broker-dealer, investment adviser
or financial planner and the broker-dealer, investment adviser or
financial planner charges its clients a separate fee for its services (for
example, mutual fund "supermarket" programs).

Broker-dealers, investment advisers or financial planners sponsoring
fee-based programs (such as mutual fund "wrap" or asset allocation programs and
mutual fund "supermarket" programs) may offer their clients more than one class
of shares in the Fund in connection with different pricing options for their
programs. Investors should consider carefully any separate transaction and other
fees charged by these programs in connection with investing in each available
share class before selecting a share class.

For an investor to obtain any reduction or waiver of the initial sales
charges, at the time of the sale either the Transfer Agent must be notified
directly by the investor or the Distributor must be notified by the broker
facilitating the transaction that the sale qualifies for the reduced or waived
sales charge. The reduction or waiver will be granted subject to confirmation of
your entitlement. No initial sales charges are imposed upon Class A shares
acquired upon the reinvestment of dividends and distributions.

COMBINED PURCHASE AND CUMULATIVE PURCHASE PRIVILEGE. If an investor or
eligible group of related investors purchases Class A shares of the Fund
concurrently with Class A shares of other Prudential Mutual Funds, the purchases
may be combined to take advantage of the reduced sales charges applicable to
larger purchases. See "How to Buy, Sell and Exchange Shares of the
Fund--Reducing or Waiving Class A's Initial Sales Charge" in the Prospectus.

An eligible group of related Fund investors includes any combination of the
following:

- an individual

- the individual's spouse, their children and their parents

- the individual's and spouse's Individual Retirement Account (IRA)

- any company controlled by the individual (a person, entity or group that
holds 25% or more of the outstanding voting securities of a company will
be deemed to control the company, and a partnership will be deemed to be
controlled by each of its general partners)

- a trust created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children

- a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account
created by the individual or the individual's spouse

- one or more employee benefit plans of a company controlled by an
individual.

In addition, an eligible group of related Fund investors may include an
employer (or group of related employers) and one or more qualified retirement
plans of such employer or employers (an employer controlling, controlled by or
under common control with another employer is deemed related to that employer).

The Transfer Agent, the Distributor or your broker must be notified at the
time of purchase that the investor is entitled to a reduced sales charge. The
reduced sales charge will be granted subject to confirmation of the investor's
holdings. The Combined Purchase and Cumulative Purchase Privilege does not apply
to individual participants in any retirement or group plans.

LETTERS OF INTENT. Reduced sales charges are available to investors (or an
eligible group of related investors) who enter into a written Letter of Intent
providing for the purchase, within a thirteen-month period, of shares of the
Fund and shares of other Prudential Mutual Funds (Investment Letter of Intent).
Retirement and group plans no longer qualify to purchase Class A shares at NAV
by entering into a Letter of Intent.

B-31
<PAGE>

For purposes of the Investment Letter of Intent, all shares of the Fund and
shares of other Prudential Mutual Funds (excluding money market funds other than
those acquired pursuant to the exchange privilege) which were previously
purchased and are still owned are also included in determining the applicable
reduction. However, the value of shares held directly with the Transfer Agent or
its affiliates and through your broker will not be aggregated to determine the
reduced sales charge.

An Investment Letter of Intent permits a purchaser to establish a total
investment goal to be achieved by any number of investments over a
thirteen-month period. Each investment made during the period will receive the
reduced sales charge applicable to the amount represented by the goal, as if it
were a single investment. Escrowed Class A shares totaling 5% of the dollar
amount of the Letter of Intent will be held by the Transfer Agent in the name of
the purchaser. The effective date of an Investment Letter of Intent may be
back-dated up to 90 days, in order that any investments made during this 90-day
period, valued at the purchaser's cost, can be applied to the fulfillment of the
Letter of Intent goal.

The Investment Letter of Intent does not obligate the investor to purchase,
nor the Fund to sell, the indicated amount. In the event the Letter of Intent
goal is not achieved within the thirteen-month period, the purchaser is required
to pay the difference between the sales charge otherwise applicable to the
purchases made during this period and sales charge actually paid. Such payment
may be made directly to the Distributor or, if not paid, the Distributor will
liquidate sufficient escrowed shares to obtain such difference. If the goal is
exceeded in an amount which qualifies for a lower sales charge, a price
adjustment is made by refunding to the purchaser the amount of excess sales
charge, if any, paid during the thirteen-month period. Investors electing to
purchase Class A shares of the Fund pursuant to a Letter of Intent should
carefully read such Letter of Intent.

The Distributor must be notified at the time of purchase that the investor
is entitled to a reduced sales charge. The reduced sales charge will be granted
subject to confirmation of the investor's holdings. Letters of Intent are not
available to individual participants in any retirement or group plans.

CLASS B SHARES

The offering price of Class B shares for investors choosing one of the
deferred sales charge alternatives is the NAV next determined following receipt
of an order in proper form by the Transfer Agent, your broker or the
Distributor. Although there is no sales charge imposed at the time of purchase,
redemptions of Class B shares may be subject to a CDSC. See "Sale of Shares--
Contingent Deferred Sales Charge" below.

The Distributor will pay, from its own resources, sales commissions of up to
4% of the purchase price of Class B shares to brokers, financial advisers and
other persons which sell Class B shares at the time of sale. This facilitates
the ability of the Fund to sell the Class B shares without an initial sales
charge being deducted at the time of purchase. The Distributor anticipates that
it will recoup its advancement of sales commissions from the combination of the
CDSC and the distribution fee.

CLASS C SHARES

The offering price of Class C shares is the next determined NAV plus a 1%
sales charge. In connection with the sale of Class C shares, the Distributor
will pay, from its own resources, brokers, financial advisers and other persons
which distribute Class C shares a sales commission of up to 2% of the purchase
price at the time of the sale.

WAIVER OF INITIAL SALES CHARGE--CLASS C SHARES

BENEFIT PLANS. Certain group retirement plans may purchase Class C shares
without the initial sales charge. For more information, call Prudential at
(800) 353-2847.

INVESTMENT OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES. Investors
may purchase Class C shares at NAV, without the initial sales charge, with the
proceeds from the redemption of shares of any unaffiliated registered investment
company which were not held through an account with any Prudential affiliate.
Such purchases must be made within 60 days of the redemption. Investors eligible
for this waiver include: (1) investors purchasing shares through an account at
Prudential Securities; (2) investors purchasing shares through an ADVANTAGE
Account or an Investor Account with Prusec; and (3) investors purchasing shares
through other brokers. This waiver is not available to investors who purchase
shares directly from the Transfer Agent. You must notify the Transfer Agent
directly or through your broker if you are entitled to this waiver and provide
the Transfer Agent with such supporting documents as it may deem appropriate.

B-32
<PAGE>

CLASS Z SHARES

MUTUAL FUND PROGRAMS. Class Z shares also can be purchased by participants
in any fee-based program or trust program sponsored by Prudential or an
affiliate that includes mutual funds as investment options and the Fund as an
available option. Class Z shares also can be purchased by investors in certain
programs sponsored by broker-dealers, investment advisers and financial planners
who have agreements with Prudential Investments Advisory Group relating to:

- Mutual fund "wrap" or asset allocation programs where the sponsor places
Fund trades, links its clients' accounts to a master account in the
sponsor's name and charges its clients a management, consulting or other
fee for its services

- Mutual fund "supermarket" programs where the sponsor links its clients'
accounts to a master account in the sponsor's name and the sponsor charges
a fee for its services.

OTHER TYPES OF INVESTORS. Class Z shares also are available for purchase by
the following categories of investors:

- certain participants in the MEDLEY Program (group variable annuity
contracts) sponsored by Prudential for whom Class Z shares of the
Prudential Mutual Funds are an available investment option,

- current and former Director/Trustees of the Prudential Mutual Funds
(including the Company), or

- Prudential, with an investment of $10 million or more.

In connection with the sale of Class Z shares, the Manager, the Distributor
or one of their affiliates may pay brokers, financial advisers and other persons
which distribute shares a finder's fee, from its own resources, based on a
percentage of the net asset value of shares sold by such persons.

RIGHTS OF ACCUMULATION

Reduced sales charges are also available through rights of accumulation,
under which an investor or an eligible group of related investors, as described
above under "Combined Purchase and Cumulative Purchase Privilege," may aggregate
the value of their existing holdings of shares of the Fund and shares of other
Prudential Mutual Funds (excluding money market funds other than those acquired
pursuant to the exchange privilege) to determine the reduced sales charge.
Rights of accumulation may be applied across the classes of the Prudential
Mutual Funds. However, the value of shares held directly with the Transfer Agent
and through your broker will not be aggregated to determine the reduced sales
charge. The value of existing holdings for purposes of determining the reduced
sales charge is calculated using the maximum offering or price (NAV plus maximum
sales charge) as of the previous business day. The Distributor or the Transfer
Agent must be notified at the time of purchase that the investor is entitled to
a reduced sales charge.

The Distributor or the Transfer Agent must be notified at the time of
purchase that the shareholder is entitled to a reduced sales charge. The reduced
sales charge will be granted subject to confirmation of the investor's holdings.
Rights of accumulation are not available to individual participants in any
retirement or group plans.

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. In certain
cases, however, redemption proceeds will be reduced by the amount of any
applicable CDSC, as described below. See "Contingent Deferred Sales Charge"
below. If you are redeeming your shares through a broker, your broker must
receive your sell order before the Fund computes its NAV for that day (that is,
4:15 P.M., New York time) in order to receive that day's NAV. Your broker 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.

B-33
<PAGE>
If you hold shares of the Fund through Prudential Securities, you must
redeem your shares through Prudential Securities. Please contact your Prudential
Securities financial adviser.

If you hold shares in non-certificate form, a written request for redemption
signed by you exactly as the account is registered is required. If you hold
certificates, the certificates 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
15010, New Brunswick, New Jersey 08906-5010, 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 and on the certificates, if any, or stock power must be
guaranteed by an "eligible guarantor institution." An "eligible guarantor
institution" includes any bank, broker, dealer or credit union. The Transfer
Agent reserves the right to request additional information from, and make
reasonable inquiries of, any eligible guarantor institution. For clients of
Prusec, a signature guarantee may be obtained from the agency or office manager
of most Prudential Insurance and Financial Services or Preferred Services
offices. 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 certificate and/or written request, except as indicated below. If you
hold shares through a broker, payment for shares presented for redemption will
be credited to your account at your broker, unless you indicate otherwise. Such
payment may be postponed or the right of redemption suspended at times (1) when
the New York Stock Exchange is closed for other than customary weekends and
holidays, (2) when trading on such Exchange is restricted, (3) when an emergency
exists as a result of which disposal by the Fund of securities owned by it is
not reasonably practicable or it is not reasonably practicable for the Fund
fairly to determine the value of its net assets, or (4) during any other period
when the 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.

REDEMPTION IN KIND. If the Trustees determine 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. Securities will be readily marketable and will be valued in the same
manner as in a regular redemption. If your shares are redeemed in kind, you
would incur transaction costs in converting the assets into cash. The Fund,
however, has elected to be governed by Rule 18f-1 under the Investment Company
Act, under which the Fund is obligated to redeem shares solely in cash up to the
lesser of $250,000 or 1% of the NAV of the Fund during any 90-day period for any
one shareholder.

INVOLUNTARY REDEMPTION. In order to reduce expenses of the Fund, the
Trustees may redeem all of the shares of any shareholder, other than a
shareholder which is an IRA or other tax-deferred retirement plan, whose account
has a net asset value of less than $500 due to a redemption. The Fund will give
such shareholders 60 days' prior written notice in which to purchase sufficient
additional shares to avoid such redemption. No CDSC will be imposed on any such
involuntary redemption.

90-DAY REPURCHASE PRIVILEGE. If you redeem your shares and have not
previously exercised the repurchase privilege, you may reinvest any portion or
all of the proceeds of such redemption in shares of the same Fund at the NAV
next determined after the order is received, which must be within 90 days after
the date of the redemption. Any CDSC paid in connection with such redemption
will be credited (in shares) to your account. (If less than a full repurchase is
made, the credit will be on a PRO RATA basis.) You must notify the Transfer
Agent, either directly or through the Distributor or your broker, at the time
the repurchase privilege is exercised to adjust your account for the CDSC you
previously paid. Thereafter, any redemptions will be subject to the CDSC
applicable at the time of the redemption. See "Contingent Deferred Sales Charge"
below. Exercise of the repurchase privilege will generally not affect federal
tax treatment of any gain realized upon redemption. However, if the redemption
was made within a 30 day period of the repurchase and if the redemption resulted
in a loss, some or all of the loss, depending on the amount reinvested, may not
be allowed for federal income tax purposes.

B-34
<PAGE>
CONTINGENT DEFERRED SALES CHARGE

Redemptions of Class B shares will be subject to a contingent deferred sales
charge or CDSC declining from 5% to zero over a six-year period. Class C shares
redeemed within 18 months of purchase will be subject to a 1% CDSC. The CDSC
will be deducted from the redemption proceeds and reduce the amount paid to you.
The CDSC will be imposed on any redemption by you which reduces the current
value of your Class B or Class C shares to an amount which is lower than the
amount of all payments by you for shares during the preceding six years, in the
case of Class B shares, and 18 months, in the case of Class C shares. A CDSC
will be applied on the lesser of the original purchase price or the current
value of the shares being redeemed. Increases in the value of your shares
acquired through reinvestment of dividends or distributions are not subject to a
CDSC. The amount of any CDSC will be paid to and retained by the Distributor.

The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of shares until the time of redemption
of such shares. Solely for purposes of determining the number of years from the
time of any payment for the purchase of shares, all payments during a month will
be aggregated and deemed to have been made on the last day of the month. The
CDSC will be calculated from the first day of the month after the initial
purchase, excluding the time shares were held in a money market fund.

The following table sets forth the rates of the CDSC applicable to
redemptions of Class B shares:

<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE
YEAR SINCE PURCHASE OF DOLLARS INVESTED OR
PAYMENT MADE REDEMPTION PROCEEDS
------------ -------------------
<S> <C>
First....................................................... 5.0%
Second...................................................... 4.0%
Third....................................................... 3.0%
Fourth...................................................... 2.0%
Fifth....................................................... 1.0%
Sixth....................................................... 1.0%
Seventh..................................................... None
</TABLE>

In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results in the lowest possible rate. It will be
assumed that the redemption is made first of amounts representing shares
acquired pursuant to the reinvestment of dividends and distributions; then of
amounts representing the increase in NAV above the total amount of payments for
the purchase of Class B shares made during the preceding six years or Class C
shares made during the preceding 18 months; then of amounts representing the
cost of shares held beyond the applicable CDSC period; and finally, of amounts
representing the cost of shares held for the longest period of time within the
applicable CDSC period.

For example, assume you purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase you decided to
redeem $500 of your investment. Assuming at the time of the redemption the NAV
had appreciated to $12 per share, the value of your Class B shares would be
$1,260 (105 shares at $12 per share). The CDSC would not be applied to the value
of the reinvested dividend shares and the amount which represents appreciation
($260). Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would
be charged at a rate of 4% (the applicable rate in the second year after
purchase) for a total CDSC of $9.60.

For federal income tax purposes, the amount of the CDSC will reduce the gain
or increase the loss, as the case may be, on the amount recognized on the
redemption of shares.

WAIVER OF CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES. The CDSC will be
waived in the case of a redemption following the death or disability of a
shareholder or, in the case of a trust account, following the death or
disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint
tenancy, at the time of death or initial determination of disability, provided
that the shares were purchased prior to death or disability.

The CDSC will also be waived in the case of a total or partial redemption in
connection with certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or Section 403(b)
custodial account. For more information, call Prudential at (800) 353-2847.

Finally, the CDSC will be waived to the extent that the proceeds from shares
redeemed are invested in Prudential Mutual Funds, The Guaranteed Investment
Account, the Guaranteed Insulated Separate Account or units of The Stable Value
Fund.

B-35
<PAGE>

SYSTEMATIC WITHDRAWAL PLAN. The CDSC will be waived (or reduced) on certain
redemptions from a Systematic Withdrawal Plan. On an annual basis, up to 12% of
the total dollar amount subject to the CDSC may be redeemed without charge. The
Transfer Agent will calculate the total amount available for this waiver
annually on the anniversary date of your purchase. The CDSC will be waived (or
reduced) on redemptions until this threshold 12% is reached.

In addition, the CDSC will be waived on redemptions of shares held by
Trustees of the Company.

You must notify the Transfer Agent either directly or through your broker,
at the time of redemption, that you are entitled to waiver of the CDSC and
provide the Transfer Agent with such supporting documentation as it may deem
appropriate. The waiver will be granted subject to confirmation of your
entitlement.

In connection with these waivers, the Transfer Agent will require you to
submit the supporting documentation set forth below.

<TABLE>
<CAPTION>
CATEGORY OF WAIVER REQUIRED DOCUMENTATION
<S> <C>
Death A copy of the shareholder's death certificate or, in
the case of a trust, a copy of the grantor's death
certificate, plus a copy of the trust agreement
identifying the grantor.

Disability--An individual will be A copy of the Social Security Administration award
considered disabled if he or she is letter or a letter from a physician on the
unable to engage in any substantial physician's letterhead stating that the shareholder
gainful activity by reason of any (or, in the case of a trust, the grantor (a copy of
medically determinable physical or the trust agreement identifying the grantor will be
mental impairment which can be expected required as well)) is permanently disabled. The
to result in death or to be of letter must also indicate the date of disability.
long-continued and indefinite duration.

Distribution from an IRA or A copy of the distribution form from the custodial
403(b) Custodial Account firm indicating (1) the date of birth of the
shareholder and (2) that the shareholder is over age
59 and is taking a normal distribution--signed by
the shareholder.

Distribution from Retirement Plan A letter signed by the plan administrator/trustee
indicating the reason for the distribution.

Excess Contributions A letter from the shareholder (for an IRA) or the
plan administrator/ trustee on company letterhead
indicating the amount of the excess and whether or
not taxes have been paid.
</TABLE>

The Transfer Agent reserves the right to request such additional documents as it
may deem appropriate.

WAIVER OF CONTINGENT DEFERRED SALES CHARGE--CLASS C SHARES

BENEFIT PLANS. The CDSC will be waived for redemptions by certain group
retirement plans for which Prudential or brokers not affiliated with Prudential
provide administrative or recordkeeping services. The CDSC also will be waived
for certain redemptions by benefit plans sponsored by Prudential and its
affiliates. For more information, call Prudential at (800) 353-2847.

CONVERSION FEATURE--CLASS B SHARES

Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. Conversions will be effected at
relative net asset value without the imposition of any additional sales charge.

Since the Fund tracks amounts paid rather than the number of shares bought
on each purchase of Class B shares, the number of Class B shares eligible to
convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will be
determined on each conversion date in accordance with the following formula:
(1) the ratio of (a) the amounts paid for Class B shares purchased at least
seven years prior to the conversion date to (b) the total amount paid for all
Class B shares purchased and then held in your account (2) multiplied by the
total number of Class B shares purchased and then held in your account. Each
time any Eligible Shares in your account convert to Class A shares, all shares
or amounts representing Class B shares then in your account that were acquired
through the automatic reinvestment of dividends and other distributions will
convert to Class A shares.

For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible Shares
calculated as described

B-36
<PAGE>

above will generally be either more or less than the number of shares actually
purchased approximately seven years before such conversion date. For example, if
100 shares were initially purchased at $10 per share (for a total of $1,000) and
a second purchase of 100 shares was subsequently made at $11 per share (for a
total of $1,100), 95.24 shares would convert approximately seven years from the
initial purchase (that is, $1,000 divided by $2,100 (47.62%), multiplied by 200
shares equals 95.24 shares). The Manager reserves the right to modify the
formula for determining the number of Eligible Shares in the future as it deems
appropriate on notice to shareholders.

Since annual distribution-related fees are lower for Class A shares than
Class B shares, the per share NAV of the Class A shares may be higher than that
of the Class B shares at the time of conversion. Thus, although the aggregate
dollar value will be the same, you may receive fewer Class A shares than
Class B shares converted.

For purposes of calculating the applicable holding period for conversions,
all payments for Class B shares during a month will be deemed to have been made
on the last day of the month, or for Class B shares acquired through exchange,
or a series of exchanges, on the last day of the month in which the original
payment for purchases of such Class B shares was made. For Class B shares
previously exchanged for shares of a money market fund, the time period during
which such shares were held in the money market fund will be excluded. For
example, Class B shares held in a money market fund for one year would not
convert to Class A shares until approximately eight years from purchase. For
purposes of measuring the time period during which shares are held in a money
market fund, exchanges will be deemed to have been made on the last day of the
month. Class B shares acquired through exchange will convert to Class A shares
after expiration of the conversion period applicable to the original purchase of
such shares.

The conversion feature may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service (1) that the
dividends and other distributions paid on Class A, Class B, Class C and Class Z
shares will not constitute "preferential dividends" under the Internal Revenue
Code and (2) that the conversion of shares does not constitute a taxable event.
The conversion of Class B shares into Class A shares may be suspended if such
opinions or rulings are no longer available. If conversions are suspended,
Class B shares of the Fund will continue to be subject, possibly indefinitely,
to their higher annual distribution and service fee.

SHAREHOLDER INVESTMENT ACCOUNT

Upon the initial purchase of Fund shares, a Shareholder Investment Account
is established for each investor under which a record of the shares held is
maintained by the Transfer Agent. If a share certificate is desired, it must be
requested in writing for each transaction. Certificates are issued only for full
shares and may be redeposited in the Account at any time. There is no charge to
the investor for issuance of a certificate. The Fund makes available to its
shareholders the following privileges and plans.

AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS

For the convenience of investors, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund at net asset
value per share. An investor may direct the Transfer Agent in writing not less
than five full business days prior to the record date to have subsequent
dividends or distributions sent in cash rather than reinvested. In the case of
recently purchased shares for which registration instructions have not been
received on the record date, cash payment will be made directly to the broker.
Any shareholder who receives dividends or distributions in cash may subsequently
reinvest any such dividend or distribution at NAV by returning the check or the
proceeds to the Transfer Agent within 30 days after the payment date. Such
reinvestment will be made at the NAV per share next determined after receipt of
the check by the Transfer Agent. Shares purchased with reinvested dividends
and/or distributions will not be subject to any CDSC upon redemption.

EXCHANGE PRIVILEGE

The Fund makes available to its shareholders the privilege of exchanging
their shares of the Fund for shares of certain other Prudential Mutual Funds,
including one or more specified money market funds, subject in each case to the
minimum investment requirements of such funds. Shares of such other Prudential
Mutual Funds may also be exchanged for shares of the Fund. All exchanges are
made on the basis of the relative NAV next determined after receipt of an order
in proper form. An exchange will be treated as a redemption and purchase for tax
purposes. For retirement and group plans having a limited menu of Prudential
Mutual Funds, the exchange privilege is available for those funds eligible for
investment in the particular program.

It is contemplated that the exchange privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.

B-37
<PAGE>
In order to exchange shares by telephone, you must authorize telephone
exchanges on your initial application form or by written notice to the Transfer
Agent and hold shares in non-certificate form. Thereafter, you may call the Fund
at (800) 225-1852 to execute a telephone exchange of shares, on weekdays, except
holidays, between the hours of 8:00 A.M. and 6:00 P.M., New York time. For your
protection and to prevent fraudulent exchanges, your telephone call will be
recorded and you will be asked to provide your personal identification number. A
written confirmation of the exchange transaction will be sent to you. Neither
the Fund nor its agents will be liable for any loss, liability or cost which
results from acting upon instructions reasonably believed to be genuine under
the foregoing procedures. All exchanges will be made on the basis of the
relative NAV of the two funds next determined after the request is received in
good order.

If you hold shares through Prudential Securities, you must exchange your
shares by contacting your Prudential Securities financial adviser.

If you hold certificates, the certificates must be returned in order for the
shares to be exchanged.

You may also exchange shares by mail by writing to Prudential Mutual Fund
Services LLC, Attention: Exchange Processing, P.O. Box 15010, New Brunswick, New
Jersey 08906-5010.

In periods of severe market or economic conditions the telephone exchange of
shares may be difficult to implement and you should make exchanges by mail by
writing to Prudential Mutual Fund Services LLC, at the address noted above.

CLASS A. Shareholders of the Fund may exchange their Class A shares for
shares of certain other Prudential Mutual Funds, shares of Prudential Government
Securities Trust (Short-Intermediate Term Series) and shares of the money market
funds specified below. No fee or sales load will be imposed upon the exchange.
Shareholders of money market funds who acquired such shares upon exchange of
Class A shares may use the exchange privilege only to acquire Class A shares of
the Prudential Mutual Funds participating in the exchange privilege.

The following money market funds participate in the Class A exchange
privilege:

Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury Money Market Series)
Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachusetts Money Market Series)
(New York Money Market Series)
(New Jersey Money Market Series)
Prudential MoneyMart Assets, Inc. (Class A shares)
Prudential Tax-Free Money Fund, Inc.

CLASS B AND CLASS C. Shareholders of the Fund may exchange their Class B and
Class C shares for Class B and Class C shares, respectively, of certain other
Prudential Mutual Funds and shares of Prudential Special Money Market Fund, Inc.
No CDSC will be payable upon such exchange, but a CDSC may be payable upon the
redemption of the Class B and Class C shares acquired as a result of the
exchange. The applicable sales charge will be that imposed by the fund in which
shares were initially purchased and the purchase date will be deemed to be the
first day of the month after the initial purchase, rather than the date of the
exchange.

Class B and Class C shares of the Fund may also be exchanged for shares of
an eligible money market fund without imposition of any CDSC at the time of
exchange. Upon subsequent redemption from such money market fund or after
re-exchange into the Fund, such shares will be subject to the CDSC calculated
without regard to the time such shares were held in the money market fund. In
order to minimize the period of time in which shares are subject to a CDSC,
shares exchanged out of the money market fund will be exchanged on the basis of
their remaining holding periods, with the longest remaining holding periods
being transferred first. In measuring the time period shares are held in a money
market fund and "tolled" for purposes of calculating the CDSC holding period,
exchanges are deemed to have been made on the last day of the month. Thus, if
shares are exchanged into the Fund from a money market fund during the month
(and are held in the Fund at the end of the month), the entire month will be
included in the CDSC holding period. Conversely, if shares are exchanged into a
money market fund prior to the last day of the

B-38
<PAGE>

month (and are held in the money market fund on the last day of the month), the
entire month will be excluded from the CDSC holding period. For purposes of
calculating the seven year holding period applicable to the Class B conversion
feature, the time period during which Class B shares were held in a money market
fund will be excluded.

At any time after acquiring shares of other funds participating in the
Class B or Class C exchange privilege, a shareholder may again exchange those
shares (and any reinvested dividends and distributions) for Class B or Class C
shares of the Fund, respectively, without subjecting such shares to any CDSC.
Shares of any fund participating in the Class B or Class C exchange privilege
that were acquired through reinvestment of dividends or distributions may be
exchanged for Class B or Class C shares of other funds, respectively, without
being subject to any CDSC.

CLASS Z. Class Z shares may be exchanged for Class Z shares of other
Prudential Mutual Funds.

SPECIAL EXCHANGE PRIVILEGES. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV and for shareholders
who qualify to purchase Class Z shares. Under this exchange privilege, amounts
representing any Class B and Class C shares which are not subject to a CDSC held
in such a shareholder's account will be automatically exchanged for Class A
shares for shareholders who qualify to purchase Class A shares at NAV on a
quarterly basis, unless the shareholder elects otherwise.

Shareholders who qualify to purchase Class Z shares will have their Class B
and Class C shares which are not subject to a CDSC and their Class A shares
exchanged for Class Z shares on a quarterly basis. Eligibility for this exchange
privilege will be calculated on the business day prior to the date of the
exchange. Amounts representing Class B or Class C shares which are not subject
to a CDSC include the following: (1) amounts representing Class B or Class C
shares acquired pursuant to the automatic reinvestment of dividends and
distributions, (2) amounts representing the increase in the NAV above the total
amount of payments for the purchase of Class B or Class C shares and
(3) amounts representing Class B or Class C shares held beyond the applicable
CDSC period. Class B and Class C shareholders must notify the Transfer Agent
either directly or through Prudential Securities, Prusec or another broker that
they are eligible for this special exchange privilege.

Participants in any fee-based program for which the Fund is an available
option will have their Class A shares, if any, exchanged for Class Z shares when
they elect to have those assets become a part of the fee-based program. Upon
leaving the program (whether voluntarily or not), such Class Z shares (and, to
the extent provided for in the program, Class Z shares acquired through
participation in the program) will be exchanged for Class A shares at NAV.

Additional details about the exchange privilege and prospectuses for each of
the Prudential Mutual Funds are available from the Transfer Agent, the
Distributor or your broker. The exchange privilege may be modified, terminated
or suspended on 60 days' notice, and any fund, including the Fund, or the
Distributor, has the right to reject any exchange application relating to such
fund's shares.

DOLLAR COST AVERAGING

Dollar cost averaging is a method of accumulating shares by investing a
fixed amount of dollars in shares at set intervals. An investor buys more shares
when the price is low and fewer shares when the price is high. The average cost
per share is lower than it would be if a constant number of shares were bought
at set intervals.

Dollar cost averaging may be used, for example, to plan for retirement, to
save for a major expenditure, such as the purchase of a home, or to finance a
college education. The cost of a year's education at a four-year college today
averages around $14,000 at a private college and around $6,000 at a public
university. Assuming these costs increase at a rate of 7% a year, as has been
projected, for the freshman class of 2011, the cost of four years at a private
college could reach $210,000 and over $90,000 at a public university.(1)

B-39
<PAGE>
The following chart shows how much you would need in monthly investments to
achieve specified lump sums to finance your investment goals.(2)

<TABLE>
<CAPTION>
PERIOD OF
MONTHLY INVESTMENTS: $100,000 $150,000 $200,000 $250,000
- -------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
25 Years.............................................. $ 110 $ 165 $ 220 $ 275
20 Years.............................................. 176 264 352 440
15 Years.............................................. 296 444 592 740
10 Years.............................................. 555 833 1,110 1,388
5 Years.............................................. 1,371 2,057 2,742 3,428
See "Automatic Investment Plan."
</TABLE>

- --------------------------
(1)Source information concerning the costs of education at public and
private universities is available from The College Board Annual Survey of
Colleges, 1993. Average costs for private institutions include tuition, fees,
room and board for the 1993-1994 academic year.

(2)The chart assumes an effective rate of return of 8% (assuming monthly
compounding). This example is for illustrative purposes only and is not intended
to reflect the performance of an investment in shares of the Fund. The
investment return and principal value of an investment will fluctuate so that an
investor's shares when redeemed may be worth more or less than their original
cost.

AUTOMATIC INVESTMENT PLAN (AIP)

Under AIP, an investor may arrange to have a fixed amount automatically
invested in shares of the Fund monthly by authorizing his or her bank account or
brokerage account (including a Prudential Securities Command Account) to be
debited to invest specified dollar amounts in shares of the Fund. The investor's
bank must be a member of the Automatic Clearing House System. Share certificates
are not issued to AIP participants.

Further information about this program and an application form can be
obtained from the Transfer Agent, the Distributor or your broker.

SYSTEMATIC WITHDRAWAL PLAN

A systematic withdrawal plan is available to shareholders through the
Transfer Agent, the Distributor or your broker. Such withdrawal plan provides
for monthly, quarterly, semi-annual or annual redemption checks in any amount,
except as provided below, up to the value of the shares in the shareholder's
account. Withdrawals of Class B or Class C shares may be subject to a CDSC.

In the case of shares held through the Transfer Agent (1) a $10,000 minimum
account value applies, (2) withdrawals may not be for less than $100 and
(3) the shareholder must elect to have all dividends and/or distributions
automatically reinvested in additional full and fractional shares at NAV on
shares held under this plan.

The Transfer Agent, the Distributor or your broker acts as agent for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the systematic withdrawal payment. The systematic withdrawal plan may
be terminated at any time, and the Distributor reserves the right to initiate a
fee of up to $5 per withdrawal, upon 30 days' written notice to the shareholder.

Withdrawal payments should not be considered as dividends, yield or income.
If systematic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.

Furthermore, each withdrawal constitutes a redemption of shares, and any
gain or loss realized must be recognized for federal income tax purposes. In
addition, withdrawals made concurrently with purchases of additional shares are
inadvisable because of the sales charges applicable to (1) the purchase of Class
A and Class C shares and (2) the redemption of Class B and Class C shares. Each
shareholder should consult his or her own tax adviser with regard to the tax
consequences of the plan, particularly if used in connection with a retirement
plan.

TAX-DEFERRED RETIREMENT PLANS

Various tax-deferred retirement plans, including a 401(k) plan,
self-directed individual retirement accounts and "tax-deferred accounts" under
Section 403(b)(7)of the Internal Revenue Code are available through the
Distributor. These plans are for use by both self-employed individuals and
corporate employers. These plans permit either self-direction of accounts by
participants, or a pooled account arrangement. Information regarding the
establishment of these plans, and the administration, custodial fees and other
details are available from the Distributor or the Transfer Agent.

B-40
<PAGE>
Investors who are considering the adoption of such a plan should consult
with their own legal counsel or tax adviser with respect to the establishment
and maintenance of any such plan.

TAX-DEFERRED RETIREMENT ACCOUNTS

INDIVIDUAL RETIREMENT ACCOUNTS. An individual retirement account (IRA)
permits the deferral of federal income tax on income earned in the account until
the earnings are withdrawn. The following chart represents a comparison of the
earnings in a personal savings account with those in an IRA, assuming a $2,000
annual contribution, an 8% rate of return and a 39.6% federal income tax bracket
and shows how much more retirement income can accumulate within an IRA as
opposed to a taxable individual savings account.

<TABLE>
TAX-DEFERRED COMPOUNDING(1)

CONTRIBUTIONS PERSONAL
MADE OVER: SAVINGS IRA
- --------------------- -------- --------
<S> <C> <C>
10 years $ 26,165 $ 31,291
15 years 44,675 58,649
20 years 68,109 98,846
25 years 97,780 157,909
30 years 135,346 244,692
</TABLE>

- ------------------------

(1) The chart is for illustrative purposes only and does not represent the
performance of the Fund or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated.
Earnings in a traditional IRA account will be subject to tax when withdrawn
from the account. Distributions from a Roth IRA which meet the conditions
required under the Internal Revenue Code will not be subject to tax upon
withdrawal from the account.

MUTUAL FUND PROGRAMS

From time to time, the Fund may be included in a mutual fund program with
other Prudential Mutual Funds. Under such a program, a group of portfolios will
be selected and thereafter marketed collectively. Typically, these programs are
created with an investment theme, such as, to seek greater diversification,
protection from interest rate movements or access to different management
styles. In the event such a program is instituted, there may be a minimum
investment requirement for the program as a whole. The Fund may waive or reduce
the minimum initial investment requirements in connection with such a program.

The mutual funds in the program may be purchased individually or as part of
a program. Since the allocation of portfolios included in the program may not be
appropriate for all investors, investors should consult their financial adviser
concerning the appropriate blend of portfolios for them. If investors elect to
purchase the individual mutual funds that constitute the program in an
investment ratio different from that offered by the program, the standard
minimum investment requirements for the individual mutual funds will apply.

NET ASSET VALUE

The Fund's net asset value per share or NAV is determined by subtracting its
liabilities from the value of its assets and dividing the remainder by the
number of outstanding shares. NAV is calculated separately for each class. The
Fund will compute its NAV at 4:15 P.M., New York time, on each day the New York
Stock Exchange is open for trading except on days on which no orders to
purchase, sell or redeem Fund shares have been received or days on which changes
in the value of the Fund's portfolio securities do not affect NAV. In the event
the New York Stock Exchange closes early on any business day, the NAV of the
Fund's shares shall be determined at a time between such closing and 4:15 P.M.,
New York time. The New York Stock Exchange is closed on the following holidays:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.

Under the Investment Company Act, the Board of Trustees is responsible for
determining in good faith the fair value of securities of the Fund. In
accordance with procedures adopted by the Board of Trustees, the value of
investments listed on a securities exchange and NASDAQ National Market System
securities (other than options on stock and stock indexes) are valued at the
last sales price on such exchange system on the day of valuation, or, if there
was no sale on such day, the mean between the last bid and asked prices on such
day as provided by a pricing service or at the bid price on such day in the
absence of an asked price. Corporate bonds (other than convertible debt
securities) and U.S. Government securities that are actively traded in the over-
the-counter market, including listed securities for which the primary market is
believed by the Manager in consultation with the

B-41
<PAGE>

Subadviser to be over-the-counter, are valued on the basis of valuations
provided by a pricing service or principal market maker which uses information
with respect to transactions in bonds, quotations from bond dealers, agency
ratings, market transactions in comparable securities and various relationships
between securities in determining value. Convertible debt securities that are
actively traded in the over-the-counter market, including listed securities for
which the primary market is believed by the Manager in consultation with the
Subadviser to be over-the-counter, are valued at the mean between the last
reported bid and asked prices provided by principal market makers or independent
pricing agents. Options on stock and stock indexes traded on an exchange are
valued at the mean between the most recently quoted bid and asked prices on the
respective exchange and futures contracts and options thereon are valued at
their last sale prices as of the close of trading on the applicable commodities
exchange or board of trade or, if there was no sale on the applicable
commodities exchange or board of trade on such day, at the mean between the most
recently quoted bid and asked prices on such exchange or board of trade.
Quotations of foreign securities in a foreign currency are converted to U.S.
dollar equivalents at the current rate obtained from a recognized bank or dealer
and foreign currency forward contracts are valued at the current cost of
covering or offsetting such contracts. Should an extraordinary event, which is
likely to affect the value of the security, occur after the close of an exchange
on which a portfolio security is traded, such security will be valued at fair
value considering factors determined in good faith by an investment adviser
under procedures established by and under the general supervision of the
Company's Board of Trustees.

Securities or other assets for which reliable market quotations are not
readily available or for which the pricing agent or principal market maker does
not provide a valuation or methodology or provides a valuation or methodology
that, in the judgment of the Manager or Subadviser (or Valuation Committee or
Board of Trustees), does not represent fair value, are valued by the Valuation
Committee or Board of Trustees in consultation with the Manager and Subadviser,
including its portfolio manager, traders, and its research and credit analysts,
on the basis of the following factors: cost of the security, transactions in
comparable securities, relationships among various securities and such other
factors as may be determined by the Manager, Subadviser, Board of Trustees or
Valuation Committee to materially affect the value of the security. Short-term
investments are valued at cost, with interest accrued or discount amortized to
the date of maturity, if their original maturity was 60 days or less, unless
this is determined by the Board of Trustees not to represent fair value.
Short-term securities with remaining maturities of more than 60 days, for which
market quotations are readily available, are valued at their current market
quotations as supplied by an independent pricing agent or principal market
maker.

Although the legal rights of each class of shares are substantially
identical, the different expenses borne by each class will result in different
NAVs and dividends. The NAV of Class B and Class C shares will generally be
lower than the NAV of Class A shares as a result of the larger
distribution-related fee to which Class B and Class C shares are subject. The
NAV of Class Z shares will generally be higher than the NAV of Class A, Class B
or Class C shares because Class Z shares are not subject to any distribution or
service fee. It is expected, however, that the NAV per share of each class will
tend to converge immediately after the recording of dividends, if any, which
will differ by approximately the amount of the distribution and/or service fee
expense accrual differential among the classes.

TAXES, DIVIDENDS AND DISTRIBUTIONS

The Fund intends to qualify and to remain qualified as a regulated
investment company under Subchapter M of the Internal Revenue Code. This
relieves the Fund (but not its shareholders) from paying federal income tax on
income and capital gains which are distributed to shareholders and permits net
capital gains of the Fund (that is, the excess of net long-term capital gains
over net short-term capital losses) to be treated as long-term capital gains of
the shareholders, regardless of how long shareholders have held their shares in
the Fund. Net capital gains of the Fund which are available for distribution to
shareholders will be computed by taking into account any capital loss
carryforward of the Fund.

Qualification of the Fund as a regulated investment company requires, among
other things, that (a) at least 90% of the Fund's annual gross income (without
reduction for losses from the sale or other disposition of securities or foreign
currency) be derived from interest, dividends, payments with respect to
securities loans and gains from the sale or other disposition of securities or
options thereon or foreign currencies, or other income (including but not
limited to gains from options, futures or forward contracts) derived with
respect to its business of investing in such securities or currencies; (b) the
Fund diversify its holdings so that, at the end of each fiscal quarter (1) at
least 50% of the value of the Fund's assets is represented by cash, U.S.
Government securities and other securities limited in respect of any one issuer
to an amount not greater than 5% of the value of the Fund's assets and 10% of
the outstanding voting securities of such issuer, and (2) not more than 25% of
the value of its assets is invested in the securities of any one issuer (other
than U.S. Government securities); and (c) the Fund distribute to its
shareholders at least 90% of its net investment income and net short-term
capital gains (that is, the excess of net short-term capital gains over net
long-term capital losses) in each year.

B-42
<PAGE>

In addition, the Fund is required to distribute 98% of its ordinary income
in the same calendar year in which it is earned. The Fund is also required to
distribute during the calendar year 98% of the capital gain net income it earned
during the 12 months ending on October 31 of such calendar year. In addition,
the Fund must distribute during the calendar year all undistributed ordinary
income and undistributed capital gain net income from the prior calendar year or
the twelve-month period ending on October 31 of such prior calendar year,
respectively. To the extent it does not meet these distribution requirements,
the Fund will be subject to a nondeductible 4% excise tax on the undistributed
amount. For purposes of this excise tax, income on which the Fund pays income
tax is treated as distributed. The Fund intends to distribute amounts sufficient
to avoid imposition of the excise tax.

Gains or losses on sales of securities by the Fund generally will be treated
as long-term capital gains or losses if the securities have been held by it for
more than one year except in certain cases where the Fund acquires a put or
writes a call thereon or otherwise holds an offsetting position with respect to
the securities. Other gains or losses on the sale of securities will be
short-term capital gains or losses. Gains and losses on the sale, lapse or other
termination of options on securities will be treated as gains and losses from
the sale of securities. If an option written by the Fund on securities lapses or
is terminated through a closing transaction, such as a repurchase by the Fund of
the option from its holder, the Fund will generally realize short-term capital
gain or loss. If securities are sold by the Fund pursuant to the exercise of a
call option written by it, the Fund will include the premium received in the
sale proceeds of the securities delivered in determining the amount of gain or
loss on the sale. Certain of the Fund's transactions may be subject to wash
sale, short sale, constructive sale, anti-conversion and straddle provisions of
the Internal Revenue Code which may, among other things, require the Fund to
defer recognition of losses.

Special rules apply to most options on stock indexes, futures contracts and
options thereon, and foreign currency forward contracts in which the Fund may
invest. These investments will generally constitute Section 1256 contracts and
will be required to be "marked-to-market" for federal income tax purposes at the
end of the Fund's taxable year; that is, treated as having been sold at market
value. Except with respect to certain foreign currency forward contracts, 60% of
any gain or loss recognized on such deemed sales and on actual dispositions will
be treated as long-term capital gain or loss.

Gain or loss on the sale, lapse or other termination of options on stock and
on narrowly-based stock indexes will be capital gain or loss and will be
long-term or short-term depending upon the holding period of the option. In
addition, positions which are part of a straddle will be subject to certain wash
sale, short sale and constructive sale provisions of the Internal Revenue Code.
In the case of a straddle, the Fund may be required to defer the recognition of
losses on positions it holds to the extent of any unrecognized gain on
offsetting positions held by the Fund. The conversion transaction rules may
apply to certain transactions to treat all or a portion of the gain thereon as
ordinary income rather than as capital gain.

Under the Internal Revenue Code, gains or losses attributable to
fluctuations in exchange rates which occur between the time the Fund accrues
interest or other receivables or accrues expenses or other liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities are treated as ordinary income or ordinary
loss. Similarly, gains or losses on forward foreign currency exchange contracts
or dispositions of debt securities denominated in a foreign currency
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of the security and the date of disposition also may be
treated as ordinary gain or loss. These gains, referred to under the Internal
Revenue Code as "Section 988" gains or losses, increase or decrease the amount
of the Fund's investment company taxable income available to be distributed to
its shareholders as ordinary income, rather than increasing or decreasing the
amount of the Fund's net capital gain. If Section 988 losses exceed other
investment company taxable income during a taxable year, the Fund would not be
able to make any ordinary dividend distributions, or distributions made before
the losses were realized would be recharacterized as a return of capital to
shareholders, rather than as an ordinary dividend, reducing each shareholder's
basis in his or her Fund shares.

The Fund may, from time to time, invest in "passive foreign investment
companies" (PFICs). A PFIC is a foreign corporation that, in general, meets
either of the following tests: (a) at least 75% of its gross income is passive
or (b) an average of at least 50% of its assets produce, or are held for the
production of, passive income. If the Fund acquires and holds stock in a PFIC
beyond the end of the year of its acquisition, the Fund will be subject to
federal income tax on a portion of any "excess distribution" received on the
stock or on any gain from disposition of the stock (collectively, PFIC income),
plus interest thereon, even if the Fund distributes the PFIC income as a taxable
dividend to its shareholders. The balance of the PFIC income will be included in
the Fund's investment company taxable income and, accordingly, will not be
taxable to the extent that income is distributed to its shareholders. The Fund
may make a "mark-to-market" election with respect to any marketable stock it
holds of a PFIC. If the election is in effect, at the end of the Fund's taxable
year, the Fund will recognize the amount of gains, if any, as ordinary income
with respect to PFIC stock. No loss will be recognized on PFIC stock, except to
the extent of gains recognized in prior years. Alternatively, the Fund, if it
meets certain requirements, may elect to treat any PFIC in which it invests as a
"qualified electing

B-43
<PAGE>

fund," in which case, in lieu of the foregoing tax and interest obligation, the
Fund will be required to include in income each year its pro rata share of the
qualified electing fund's annual ordinary earnings and net capital gain, even if
they are not distributed to the Fund; those amounts would be subject to the
distribution requirements applicable to the Fund described above.

Shareholders electing to receive dividends and distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the NAV of a share of the Fund on the reinvestment
date.

Any dividends or distributions paid shortly after a purchase by an investor
may have the effect of reducing the per share NAV of the investor's shares by
the per share amount of the dividends or distributions. Furthermore, such
dividends, although in effect a return of capital, are subject to federal income
taxes. Dividends and distributions may also be subject to state and local income
taxes. Therefore, prior to purchasing shares of the Fund, the investor should
carefully consider the impact of dividends, including capital gains
distributions, which are expected to be or have been announced.

Any loss realized on a sale, redemption or exchange of shares of the Fund by
a shareholder will be disallowed to the extent the shares are replaced within a
61-day period beginning 30 days before the disposition of shares. Shares
purchased pursuant to the reinvestment of a dividend will constitute a
replacement of shares.

A shareholder who acquires shares of the Fund and sells or otherwise
disposes of such shares within 90 days of acquisition may not be allowed to
include certain sales charges incurred in acquiring such shares for purposes of
calculating gain or loss realized upon a sale or exchange of shares of the Fund.

Dividends of net investment income and distributions of net short-term
capital gains paid to a shareholder (including a shareholder acting as a nominee
or fiduciary) who is a nonresident alien individual, a foreign corporation or a
foreign partnership (foreign shareholder) are subject to a 30% (or lower treaty
rate) withholding tax upon the gross amount of the dividends unless the
dividends are effectively connected with a U.S. trade or business conducted by
the foreign shareholder. Net capital gain dividends paid to a foreign
shareholder are generally not subject to withholding tax. A foreign shareholder
will, however, be required to pay U.S. income tax on any dividends and capital
gain distributions which are effectively connected with a U.S. trade or business
of the foreign shareholder.

The per share dividends on Class B and Class C shares will be lower than the
per share dividends on Class A and Class Z shares as a result of the higher
distribution-related fee applicable to the Class B and Class C shares. The per
share distributions of net capital gains, if any, will be in the same amount for
Class A, Class B, Class C and Class Z shares. See "Net Asset Value."

Dividends received by corporate shareholders are eligible for a
dividends-received deduction of 70% to the extent the Fund's income is derived
from qualified dividends received by the Fund from domestic corporations.
Interest income, capital gain net income, gain or loss from Section 1256
contracts (described above), dividend income from foreign corporations and
income from other sources will not constitute qualified dividends. Individual
shareholders are not eligible for the dividends-received deduction.

Income received by the Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Income tax
treaties between certain countries and the United States may reduce or eliminate
such taxes. It is impossible to determine in advance the effective rate of
foreign tax to which the Fund will be subject, since the amount of the Fund's
assets to be invested in various countries will vary. The Fund does not expect
to meet the requirements of the Internal Revenue Code for "passing-through" to
its shareholders any foreign income taxes paid.

Shareholders are advised to consult their own tax advisers with respect to
the particular tax consequences to them of an investment in the Fund.

B-44
<PAGE>
PERFORMANCE INFORMATION

AVERAGE ANNUAL TOTAL RETURN. The Fund may from time to time advertise its
average annual total return. Average annual total return is determined
separately for Class A, Class B, Class C and Class Z shares.

Average annual total return is computed according to the following formula:

P(1+T)to the power of n = ERV

<TABLE>
<S> <C> <C>
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment
made at the beginning of the 1, 5 or 10 year periods
</TABLE>

Average annual total return takes into account any applicable initial or
deferred sales charges but does not take into account any federal or state
income taxes that may be payable upon redemption.

Below are the average annual total returns for the Fund's share classes for
the period ended October 31, 1999.

<TABLE>
<CAPTION>
SINCE
INCEPTION
----------------
<S> <C>
Class A..................................................... 12.70% (3-3-99)
Class B..................................................... 12.20% (3-3-99)
Class C..................................................... 12.20% (3-3-99)
Class Z..................................................... 13.00% (3-3-99)
</TABLE>

AGGREGATE TOTAL RETURN. The Fund may also advertise its aggregate total
return. Aggregate total return is determined separately for Class A, Class B,
Class C and Class Z shares.

Aggregate total return represents the cumulative change in the value of an
investment in the Fund and is computed according to the following formula:

ERV - P
-------
P

Where: P = a hypothetical initial payment of $1,000.

ERV = ending redeemable value of a hypothetical $1,000 investment made at
the beginning of the 1, 5 or 10 year periods at the end of the 1, 5
or 10 year periods (or fractional portion thereof).

Aggregate total return does not take into account any federal or state
income taxes that may be payable upon redemption or any applicable initial or
contingent deferred sales charges.

Below are the aggregate total returns for the Fund's share classes for the
period ended October 31, 1999.

The Fund may use total return figures showing after-tax returns, including
comparisons to tax-deferred vehicles such as Individual Retirement Accounts
(IRAs) and variable annuities. In calculating after-tax returns, the Fund will,
in general, assume that its shareholders are U.S. individual taxpayers subject
to federal income taxes at the highest marginal rate then applicable to ordinary
income and long-term capital gains. After-tax returns may also be calculated
using different tax rate assumptions and taking into account state and local
income taxes as well as federal taxes. In calculating after-tax returns,
distributions made by the Fund are assumed to be reduced by the amount of taxes
payable on the distribution, and the after-tax proceeds of the distribution are
reinvested in the Fund at NAV on the reinvestment date.

B-45
<PAGE>

The Fund also may include comparative performance information in advertising
or marketing the Fund's shares. Such performance information may include data
from Lipper Inc., Morningstar Publications, Inc., other industry publications,
business periodicals and market indexes. Set forth below is a chart which
compares the performance of different types of investments over the long-term
and the rate of inflation.(1)

[CHART]

PERFORMANCE COMPARISON OF
DIFFERENT TYPES OF INVESTMENTS
OVER THE LONG TERM
(12/31/25-12/31/98)

Common Stocks--11.2%
Long-Term Govt. Bonds--5.3%
Inflation--3.1%

- ------------------------

(1)Source: Ibbotson Associates. All rights reserved. Used with permission.
Common stock returns are based on the Standard & Poor's 500 Composite Stock
Price Index, a market-weighted, unmanaged index of 500 common stocks in a
variety of industry sectors. It is a commonly used indicator of broad stock
price movements. This chart is for illustrative purposes only and is not
intended to represent the performance of any particular investment or fund.
Investors cannot invest directly in an index. Past performance is not a
guarantee of future results.

Advertising for the Fund also may describe the performance of the stock
market which has shown dynamic growth based on the performance of the Standard &
Poor's 500 Composite Stock Price Index, according to Standard & Poor's Ratings
Group.

B-46
<PAGE>
THE AFTER-TAX "AFTER-MATH" REALITY HYPOTHETICAL EXAMPLE

<TABLE>
<CAPTION>
VALUE OF INVESTMENT
-------------------------------------------
5 YEARS 10 YEARS 20 YEARS 30 YEARS
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
PORTFOLIO A: Fund Distributes All Gains--Taxed at
Short-Term Rate......................................... $137,937 $190,267 $362,017 $ 688,799
PORTFOLIO B: Fund Distributes All Gains--Taxed at
Long-Term Rate.......................................... $152,456 $232,428 $540,229 $1,255,645
PORTFOLIO C: Fund Distributes No Gains--Taxed at
Long-Term Rate upon Redemption.......................... $154,804 $247,154 $664,985 $1,851,384
</TABLE>

The above chart represents hypothetical portfolios only. It is only to be used
for illustrative purposes and is not intended to imply the actual performance of
any Prudential product, including the Prudential Tax-Managed Equity Fund. The
hypothetical average annual return for all portfolios is 11% before taxes and is
based on an initial investment of $100,000. Portfolio A assumes that all gains
are distributed and taxed at the maximum short-term capital gains tax rate of
39.6%. Portfolio B assumes that all gains are distributed and taxed at the
maximum long-term capital gains tax rate of 20%. Portfolio C assumes that gains
are not distributed, but accumulate unrealized until being taxed at the maximum
long-term tax rate of 20% when the investor redeems after 30 years. This
hypothetical example excludes the impact of state taxes or taxes due upon
redemption. This hypothetical example should not imply that a 11% return should
be expected. Past performance does not guarantee future results.

TAX-MANAGED MUTUAL FUNDS HAVE PRODUCED ATTRACTIVE RETURNS BEFORE AND AFTER TAXES

<TABLE>
TAX-MANAGED GROWTH FUNDS AVERAGE GROWTH FUNDS AVERAGE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
AVG. 3-YEAR PRE-TAX RETURN 14.67% 14.00%
- --------------------------------------------------------------------------------------------------------------
AVG. 3-YEAR AFTER-TAX RETURN 13.48% 10.99%
</TABLE>

Source: Morningstar data through 9/30/98. The "tax-managed" group is defined by
Strategic Insight's Simfund and Morningstar. This group includes funds that are
managed with a sensitivity to tax ramifications. They try to minimize taxable
distributions through various methods. The group includes 52 funds, 10 of which
have at least a three year history. The "growth fund" group is defined by
Morningstar and includes 1,586 funds of which 820 have at least a three year
history. Tax-managed investing is designed for long-term taxable investors. If
you are investing for the short term (one year or less), tax-managed funds may
not be suitable for you. An investment cannot be made directly into this "tax-
managed" grouping of funds. Past performance is no guarantee of future results.

TAX LAWS MAKE LONG-TERM NEARLY TWICE AS GOOD AS SHORT-TERM

<TABLE>
TOP TAX RATE FOR INDIVIDUALS
-------------------------------------------------------
CLASSIFICATION HOLDING PERIOD OLD LAWS NEW LAW
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
SHORT-TERM GAINS 12 MONTHS OR LESS 39.6% 39.6%
- ----------------------------------------------------------------------------------------------------------------
LONG-TERM GAINS MORE THAN 12 MONTHS 28% 20%
</TABLE>

B-47
<PAGE>
TAX-MANAGED: THE DIFFERENCE IN DOLLARS AND CENTS AFTER 30 YEARS*

[Chart]

<TABLE>
<S> <C>
Portfolio A $1,482,500
Portfolio B $1,128,030
</TABLE>

- ------------------------

(*)Hypothetical Portfolios A and B each begin with a $100,000 initial
investment and a hypothetical annual return of 10%. The composition of these
hypothetical annual returns is as follows:

Portfolio A is more tax efficient. It distributes 10% of its annual return as
dividend income (which includes short-term capital gains and is taxed at a
maximum marginal income tax rate of 39.6%) and distributes 10% as long-term
capital gains (taxed at the long-term capital gains rate of 20%). The remaining
80% of its hypothetical annual return is untaxed appreciation.

Portfolio B is not tax efficient. It distributes 30% of its annual return as
dividend income (which includes short-term capital gains and is taxed at a
maximum marginal income tax rate of 39.6%) and distributes 20% as long-term
capital gains (taxed at the long-term capital gains rate of 20%). The remaining
50% of its hypothetical annual return is untaxed appreciation.

Example assumes investor does not liquidate the portfolios. This hypothetical
example is not meant to represent actual performance of any fund and excludes
the impact of state taxes or taxes due upon redemption. This chart is for
illustrative purposes only, and is intended to show the degree to which taxes
can affect after-tax performance. This comparison is not meant to demonstrate
that tax-efficient funds will produce superior returns, imply that these savings
will necessarily be achieved or imply that a 10% return should be expected.

B-48
<PAGE>

PORTFOLIO OF INVESTMENTS AS OF
OCTOBER 31, 1999 PRUDENTIAL TAX-MANAGED EQUITY FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE (NOTE 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--99.4%
COMMON STOCKS
- ------------------------------------------------------------
AEROSPACE/DEFENSE--1.5%
20,700 AlliedSignal Inc. $ 1,178,606
43,200 Boeing Co. 1,989,900
9,300 Cordant Technologies Inc. 290,044
15,400 Gencorp Inc. 175,175
13,200 General Dynamics Corp. 731,775
8,200 Lockheed Martin Corp. 164,000
10,600 Northrop Grumman Corp. 581,675
9,300 Raytheon Co. 270,862
1,600 Rockwell Int'l. Corp. 77,500
400 United Technologies Corp. 24,200
------------
5,483,737
- ---------------------------------------------------------------
AIRLINES--0.4%
15,100 Alaska Air Group, Inc.(a) 600,225
17,700 Delta Air Lines, Inc. 963,544
------------
1,563,769
- ---------------------------------------------------------------
ALUMINUM--0.3%
9,500 Alcan Aluminum Ltd. 312,906
12,200 Alcoa Inc. 741,150
------------
1,054,056
- ---------------------------------------------------------------
APPAREL
4,000 Jones Apparel Group, Inc.(a) 126,500
- ---------------------------------------------------------------
AUTO & TRUCK--2.7%
8,700 Arvin Industries, Inc. 247,950
4,700 Borg-Warner Automotive, Inc. 185,650
17,500 Delphi Automotive Systems Corp. 287,656
72,900 Ford Motor Co. 4,000,387
34,000 General Motors Corp. 2,388,500
9,900 Genuine Parts Co. 258,019
3,000 Johnson Controls, Inc. 182,250
30,900 PACCAR Inc. 1,456,162
2,500 Superior Industries Int'l., Inc. 66,719
26,500 TRW Inc. 1,136,188
------------
10,209,481
BANKING--5.3%
4,800 Astoria Financial Corp. $ 172,800
44,900 Bank of America Corp. 2,890,437
13,000 Bank of New York Co., Inc. 544,375
30,200 Chase Manhattan Corp. 2,638,725
1,800 Comerica Inc. 106,988
59,300 Dime Bancorp, Inc. 1,059,987
3,500 Fifth Third Bancorp 258,344
18,100 First Union Corp. 772,644
10,664 Firstar Corp. 313,255
64,130 Fleet Boston Corp. 2,797,671
11,910 Huntington Bancshares Inc. 352,834
80,500 KeyCorp 2,248,969
7,800 Mellon Financial Corp. 288,112
400 Northern Trust Corp. 38,625
9,400 Pacific Century Financial Corp. 214,438
18,900 PNC Bank Corp. 1,126,912
3,400 Provident Financial Group, Inc. 145,988
7,300 Republic New York Corp. 461,269
29,000 Sovereign Bancorp, Inc. 255,562
8,900 SunTrust Banks, Inc. 651,369
7,300 U.S. Bancorp 270,556
52,900 Wells Fargo Co. 2,532,587
------------
20,142,447
- ---------------------------------------------------------------
BEVERAGES--1.4%
18,500 Anheuser-Busch Cos., Inc. 1,328,531
47,000 Coca-Cola Co. 2,773,000
37,700 PepsiCo Inc. 1,307,719
------------
5,409,250
- ---------------------------------------------------------------
BUSINESS SERVICES--0.2%
12,200 Convergys Corp.(a) 238,663
2,000 IMS Health Inc. 58,000
5,300 Navigant Consulting, Inc.(a) 151,381
8,800 Paychex, Inc. 346,500
------------
794,544
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-49

<PAGE>

PORTFOLIO OF INVESTMENTS AS OF
OCTOBER 31, 1999 PRUDENTIAL TAX-MANAGED EQUITY FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE (NOTE 1)
<C> <S> <C>
- ---------------------------------------------------------------
CHEMICALS--0.8%
8,400 Air Products & Chemicals, Inc. $ 231,000
3,400 Dow Chemical Co. 402,050
21,085 E.I. du Pont de Nemours & Co. 1,358,664
6,800 Praxair, Inc. 317,900
17,500 Schulman (A.), Inc. 272,344
3,800 Union Carbide Corp. 231,800
------------
2,813,758
- ---------------------------------------------------------------
COMPUTERS--3.9%
14,600 Apple Computer, Inc.(a) 1,169,825
39,100 Dell Computer Corp.(a) 1,568,888
30,600 Hewlett-Packard Co. 2,266,312
62,900 International Business Machines
Corp. 6,187,787
6,600 Lexmark Int'l. Group, Inc.(a) 515,213
29,500 Sun Microsystems, Inc.(a) 3,121,469
------------
14,829,494
- ---------------------------------------------------------------
COMPUTER NETWORKS--2.3%
14,600 Adaptec, Inc.(a) 657,000
105,900 Cisco Systems, Inc.(a) 7,836,600
3,800 Network Appliance, Inc.(a) 281,200
------------
8,774,800
- ---------------------------------------------------------------
COMPUTER SOFTWARE & SERVICES--10.1%
30,000 Adobe Systems Inc. 2,098,125
24,900 America Online, Inc. 3,229,219
11,200 Automatic Data Processing, Inc. 539,700
7,900 BMC Software Inc.(a) 507,081
21,700 Citrix Systems Inc.(a) 1,391,513
19,700 Computer Associates Int'l., Inc. 1,113,050
55,400 Compuware Corp.(a) 1,540,812
14,650 Comverse Technology, Inc.(a) 1,662,775
23,900 Electronic Arts, Inc.(a) 1,931,419
14,300 Electronic Data Systems Corp. 836,550
41,300 EMC Corp.(a) 3,014,900
11,200 First Data Corp. 511,700
9,200 Legato Systems, Inc.(a) 494,500
162,900 Microsoft Corp.(a) 15,078,431
49,800 Oracle Systems Corp.(a) 2,368,612
14,300 Siebel Systems, Inc.(a) 1,570,319
1,600 Synopsys, Inc.(a) $ 99,700
10,600 Unisys Corp.(a) 257,050
------------
38,245,456
- ---------------------------------------------------------------
CONSUMER PRODUCTS--0.7%
17,100 American Greetings Corp. 442,462
38,100 NIKE, Inc. 2,150,269
------------
2,592,731
- ---------------------------------------------------------------
COSMETICS & SOAPS--1.5%
18,800 Colgate-Palmolive Co. 1,137,400
42,600 Procter & Gamble Co. 4,467,675
------------
5,605,075
- ---------------------------------------------------------------
DISTRIBUTION/WHOLESALERS
1,800 Costco Wholesale Corp.(a) 144,563
- ---------------------------------------------------------------
DIVERSIFIED MANUFACTURING--6.3%
8,200 Cooper Industries, Inc. 353,113
6,700 Corning Inc. 526,787
5,000 Danaher Corp. 241,563
19,300 Eaton Corp. 1,452,325
110,600 General Electric Co. 14,993,212
6,900 Harsco Corp. 203,119
3,900 Honeywell, Inc. 411,206
7,700 Illinois Tool Works Inc. 564,025
6,400 Lancaster Colony Corp. 223,600
4,200 Liz Claiborne, Inc. 168,000
17,600 Minnesota Mining & Manufacturing
Co. 1,673,100
3,300 Parker-Hannifin Corp. 151,181
5,100 PPG Industries, Inc. 309,188
19,000 Trinity Industrial, Inc. 566,437
26,100 Unilever NV (Netherlands) 1,740,544
------------
23,577,400
- ---------------------------------------------------------------
DRUGS & MEDICAL SUPPLIES--4.7%
41,400 Abbott Laboratories 1,671,525
25,500 Amgen Inc.(a) 2,033,625
6,600 Baxter Int'l. Inc. 428,175
1,500 Biogen, Inc.(a) 111,188
72,700 Bristol-Myers Squibb Co. 5,584,269
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-50

<PAGE>

PORTFOLIO OF INVESTMENTS AS OF
OCTOBER 31, 1999 PRUDENTIAL TAX-MANAGED EQUITY FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE (NOTE 1)
<C> <S> <C>
- ---------------------------------------------------------------
DRUGS & MEDICAL SUPPLIES (CONT'D.)
4,000 Forest Laboratories, Inc.(a) $ 183,500
28,600 Hillenbrand Industries, Inc. 947,375
46,300 Johnson & Johnson 4,849,925
14,400 Mallinckrodt Inc. 488,700
13,100 Pharmacia & Upjohn, Inc. 706,581
14,400 VISX, Inc.(a) 900,900
------------
17,905,763
- ---------------------------------------------------------------
ELECTRONICS--0.3%
2,700 Avnet, Inc. 146,644
11,800 Emerson Electric Co. 708,737
3,300 Linear Technology Corp. 230,794
------------
1,086,175
- ---------------------------------------------------------------
ELECTRICAL COMPONENTS--2.3%
3,400 Altera Corp.(a) 165,325
4,700 American Power Conversion Corp.(a) 105,456
21,600 Jabil Circuit, Inc.(a) 1,128,600
17,900 KLA-Tencor Corp.(a) 1,417,456
25,000 Motorola, Inc. 2,435,937
1,100 Sanmina Corp.(a) 99,069
24,600 Solectron Corp.(a) 1,851,150
39,400 Teradyne, Inc.(a) 1,516,900
------------
8,719,893
- ---------------------------------------------------------------
ENTERTAINMENT--0.2%
18,700 Carnival Corp. 832,150
- ---------------------------------------------------------------
FINANCIAL SERVICES--8.1%
1,500 Ambac Financial Group, Inc. 89,625
16,800 American Express Co. 2,587,200
49,700 Bear Stearns Cos., Inc. 2,118,463
107,050 Citigroup Inc. 5,794,081
21,500 Countrywide Credit Industries, Inc. 729,656
21,300 Federal Home Loan Mortgage Corp. 1,151,531
37,100 Federal National Mortgage
Association 2,624,825
18,800 Golden West Financial Corp. 2,100,900
5,000 Household Int'l., Inc. 223,125
31,400 Lehman Brothers Holdings Inc. 2,313,787
3,700 Merrill Lynch & Co., Inc. 290,450
5,000 MGIC Investment Corp. 298,750
17,000 Morgan (J.P.) & Co., Inc. $ 2,224,875
29,900 Morgan Stanley Dean Witter & Co. 3,298,344
42,600 PaineWebber Group Inc. 1,735,950
20,500 Providian Financial Corp. 2,234,500
18,600 SLM Holding Corp. 910,238
------------
30,726,300
- ---------------------------------------------------------------
FOODS--0.8%
23,100 Archer-Daniels-Midland Co. 284,419
15,100 ConAgra, Inc. 393,544
2,800 General Mills, Inc. 244,125
9,500 Ralston-Ralston Purina Group 298,656
17,000 Sara Lee Corp. 460,062
21,500 Suiza Foods Corp.(a) 775,344
9,000 SUPERVALU INC. 189,000
11,500 SYSCO Corp. 442,031
------------
3,087,181
- ---------------------------------------------------------------
GAS PIPELINES--0.2%
3,100 El Paso Energy Corp. 127,100
18,200 Enron Corp. 726,863
------------
853,963
- ---------------------------------------------------------------
HEALTH CARE--0.5%
34,300 Columbia/HCA Healthcare Corp. 827,487
9,400 Trigon Healthcare, Inc.(a) 266,725
16,000 United HealthCare Corp. 827,000
------------
1,921,212
- ---------------------------------------------------------------
HOUSING CONSTRUCTION--0.3%
20,700 Fleetwood Enterprises, Inc. 451,519
9,700 Masco Corp. 295,850
8,600 Pulte Corp. 173,075
------------
920,444
- ---------------------------------------------------------------
INSURANCE--3.9%
3,300 Aetna Inc. 165,825
5,100 AFLAC INC. 260,738
11,300 Allmerica Financial Corp. 646,219
95,200 Allstate Corp. 2,737,000
51,400 American Int'l. Group, Inc. 5,290,987
8,600 Chubb Corp. 471,925
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-51

<PAGE>

PORTFOLIO OF INVESTMENTS AS OF
OCTOBER 31, 1999 PRUDENTIAL TAX-MANAGED EQUITY FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE (NOTE 1)
<C> <S> <C>
- ---------------------------------------------------------------
INSURANCE (CONT'D.)
5,700 CIGNA Corp. $ 426,075
20,000 Cincinnati Financial Corp. 716,250
68,500 Conseco, Inc. 1,665,406
2,500 Jefferson-Pilot Corp. 187,656
18,800 Lincoln National Corp. 867,150
5,000 Marsh & McLennan Co., Inc. 395,313
35,900 Old Republic Int'l. Corp. 491,381
8,600 PMI Group, Inc. (The) 446,125
------------
14,768,050
- ---------------------------------------------------------------
LODGING--0.1%
7,600 Marriott Int'l., Inc. 256,025
- ---------------------------------------------------------------
MACHINERY--0.4%
1,400 Black & Decker Corp. 60,200
800 Cummins Engine Co., Inc. 40,550
6,100 Deere & Co. 221,125
6,900 Dover Corp. 293,681
4,200 Ingersoll-Rand Co. 219,450
26,200 McDermott Int'l., Inc. 474,875
10,800 Milacron Inc. 177,525
900 Tecumseh Products Co. 43,144
------------
1,530,550
- ---------------------------------------------------------------
MEDIA--2.3%
55,300 Disney (Walt) Co. 1,458,537
6,800 Dow Jones & Co., Inc. 418,200
11,100 Gannett Co., Inc. 856,088
11,800 Hispanic Broadcasting Corp.(a) 955,800
5,400 Interpublic Group of Companies,
Inc. 219,375
3,500 Knight-Ridder, Inc. 222,250
5,900 McGraw-Hill Cos., Inc. 351,788
6,800 New York Times Co. 273,700
10,500 Omnicom Group Inc. 924,000
32,300 Time Warner, Inc. 2,250,906
11,900 Tribune Co. 714,000
100 Washington Post Co. 53,206
------------
8,697,850
- ---------------------------------------------------------------
MINING
3,500 Barrick Gold Corp. 64,094
- ---------------------------------------------------------------
MISCELLANEOUS BASIC INDUSTRY--1.1%
5,200 Kelly Services, Inc. $ 152,425
12,200 Precision Castparts Corp. 359,900
1,700 Textron, Inc. 131,219
85,710 Tyco Int'l. Ltd. 3,423,043
------------
4,066,587
- ---------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES--0.1%
20,100 Office Depot, Inc.(a) 249,994
1,500 Pitney Bowes Inc. 68,344
------------
318,338
- ---------------------------------------------------------------
OIL & GAS--0.6%
4,600 Amerada Hess Corp. 263,925
10,100 Atlantic Richfield Co. 941,194
17,000 Coastal Corp. 716,125
2,800 Schlumberger Ltd. 169,575
7,100 USX - Marathon Group 206,787
------------
2,297,606
- ---------------------------------------------------------------
OIL & GAS EXPLORATION/PRODUCTION--0.6%
48,000 Apache Corp. 1,872,000
13,100 Conoco Inc. 355,338
800 Noble Affiliates, Inc. 20,250
------------
2,247,588
- ---------------------------------------------------------------
PAPER & PACKAGING--0.6%
3,500 Champion Int'l. Corp. 202,344
11,500 Georgia-Pacific Group 456,406
9,900 International Paper Co. 520,988
22,000 Willamette Industries, Inc. 914,375
------------
2,094,113
- ---------------------------------------------------------------
PETROLEUM & COAL--3.9%
23,600 Chevron Corp. 2,154,975
56,500 Exxon Corp. 4,184,531
20,000 Mobil Corp. 1,930,000
3,100 Phillips Petroleum Co. 144,150
77,900 Royal Dutch Petroleum Co. 4,669,131
25,200 Texaco Inc. 1,546,650
------------
14,629,437
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-52

<PAGE>

PORTFOLIO OF INVESTMENTS AS OF
OCTOBER 31, 1999 PRUDENTIAL TAX-MANAGED EQUITY FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE (NOTE 1)
<C> <S> <C>
- ---------------------------------------------------------------
PHARMACEUTICALS--4.9%
3,200 Allergan, Inc. $ 343,600
25,100 Eli Lilly & Co. 1,728,763
82,100 Merck & Co., Inc. 6,532,081
108,600 Pfizer Inc. 4,289,700
60,900 Schering-Plough Corp. 3,014,550
33,600 Warner-Lambert Co. 2,681,700
------------
18,590,394
- ---------------------------------------------------------------
RAILROADS--0.7%
54,200 Burlington Northern, Inc. 1,727,625
6,800 CSX Corp. 278,800
12,600 Union Pacific Corp. 702,450
------------
2,708,875
- ---------------------------------------------------------------
RESTAURANTS--0.7%
800 Bob Evans Farms, Inc. 11,000
55,900 McDonald's Corp. 2,305,875
9,700 Tricon Global Restaurants, Inc.(a) 389,819
------------
2,706,694
- ---------------------------------------------------------------
RETAIL--6.4%
28,600 Abercrombie & Fitch Co.(a) 779,350
2,100 Albertson's, Inc. 76,256
8,900 Best Buy Co., Inc.(a) 494,506
43,000 Circuit City Stores-Circuit City
Group 1,835,562
10,000 CVS Corp. 434,375
4,300 Dayton Hudson Corp. 277,888
35,500 Federated Department Stores,
Inc.(a) 1,515,406
60,700 Home Depot, Inc. 4,582,850
6,300 J.C. Penney Co., Inc. 159,863
146,200 Kmart Corp.(a) 1,471,137
9,400 Kohl's Corp.(a) 703,238
5,489 Limited, Inc. 225,735
11,700 Lowe's Companies, Inc. 643,500
8,100 May Department Stores Co. 280,969
17,600 Ross Stores, Inc. $ 363,000
2,300 Ruddick Corp. 39,244
400 Safeway Inc.(a) 14,125
8,000 Tiffany & Co. 476,000
155,400 Wal-Mart Stores, Inc. 8,809,237
36,200 Walgreen Co. 911,788
------------
24,094,029
- ---------------------------------------------------------------
SEMICONDUCTORS--3.2%
28,500 Applied Materials, Inc.(a) 2,559,656
90,000 Intel Corp. 6,969,375
26,300 LSI Logic Corp.(a) 1,398,831
14,700 Micron Technology, Inc. 1,048,294
1,000 QLogic Corp.(a) 104,125
------------
12,080,281
- ---------------------------------------------------------------
STEEL - PRODUCERS--0.3%
14,700 Nucor Corp. 762,562
8,200 USX-U.S. Steel Group 209,613
------------
972,175
- ---------------------------------------------------------------
TELECOMMUNICATIONS--10.9%
37,700 ADC Telecommunications, Inc.(a) 1,797,819
1,000 ALLTEL Corp. 83,250
104,500 AT&T Corp. 4,885,375
49,000 Bell Atlantic Corp. 3,181,937
101,800 BellSouth Corp. 4,581,000
1,100 General Instrument Corp.(a) 59,194
4,305 Global Crossing Ltd.(a) 149,061
38,400 GTE Corp. 2,880,000
76,100 Lucent Technologies, Inc. 4,889,425
36,300 MCI WorldCom, Inc.(a) 3,114,994
32,400 Nortel Networks Corp 2,006,775
13,100 QUALCOMM, Inc.(a) 2,918,025
134,978 SBC Communications Inc. 6,875,442
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-53

<PAGE>

PORTFOLIO OF INVESTMENTS AS OF
OCTOBER 31, 1999 PRUDENTIAL TAX-MANAGED EQUITY FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE (NOTE 1)
<C> <S> <C>
- ---------------------------------------------------------------
TELECOMMUNICATIONS (CONT'D.)
21,200 Sprint Corp. $ 1,575,425
34,600 Tellabs, Inc.(a) 2,188,450
1,000 Vodafone AirTouch PLC, ADR
(United Kingdom) 47,937
------------
41,234,109
- ---------------------------------------------------------------
TEXTILES--0.2%
12,100 Springs Industries, Inc. 481,731
16,600 Unifi, Inc. 199,200
------------
680,931
- ---------------------------------------------------------------
TOBACCO--0.7%
79,000 Philip Morris Companies Inc. 1,989,813
10,400 R.J. Reynolds Tobacco Holdings,
Inc. 225,550
5,400 Universal Corp. 126,900
11,600 UST Inc. 321,175
------------
2,663,438
- ---------------------------------------------------------------
TRANSPORTATION/SHIPPING--0.1%
13,000 Airborne Freight Corp. 279,500
3,600 Alexander & Baldwin, Inc. 86,400
3,500 Arnold Industies, Inc. 35,109
------------
401,009
- ---------------------------------------------------------------
UTILITIES--2.9%
5,200 Ameren Corp. 196,625
34,000 Central & South West Corp. 754,375
4,200 Conectiv, Inc. 81,900
2,700 Consolidated Edison, Inc. 103,106
3,900 Constellation Energy Group 119,681
5,100 Dominion Resources, Inc. 245,438
11,000 DTE Energy Co. 365,063
3,700 Duke Energy Co. 209,050
36,900 Edison Int'l. 1,093,162
69,700 Entergy Corp. 2,086,644
17,100 FirstEnergy Corp. 445,669
17,400 Florida Progress Corp. $ 797,137
6,800 FPL Group, Inc. 342,125
24,500 GPU, Inc. 831,469
11,900 KeySpan Corp. 334,688
10,300 PG&E Corp. 236,256
26,200 PP & L Resources, Inc. 709,037
22,800 Public Service Company of New
Mexico(a) 407,550
7,100 Public Service Enterprise Group
Inc. 280,894
6,000 Puget Sound Energy, Inc. 132,750
16,200 Southern Co. 430,312
8,300 Texas Utilities Co. 321,625
6,600 Unicom Corp. 252,863
------------
10,777,419
------------
Total long-term investments
(cost $331,404,775) 375,299,734
------------
PRINCIPAL
AMOUNT
(000)
SHORT-TERM INVESTMENT--0.3%
- ---------------------------------------------------------------
REPURCHASE AGREEMENT
$ 1,255 Joint Repurchase Agreement Account,
5.21%, 11/1/99
(cost $1,255,000; Note 5) 1,255,000
------------
- ---------------------------------------------------------------
TOTAL INVESTMENTS--99.7%
(cost $332,659,775; Note 4) 376,554,734
Other assets in excess of
liabilities--0.3% 1,290,877
------------
Net Assets--100% $377,845,611
------------
------------
</TABLE>
- ---------------
(a) Non-income producing security.
ADR--American Depository Receipt.
NV--Naamloze Vennootschap (Dutch Corporation).
PLC--Public Limited Company (British Corporation).
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-54

<PAGE>

STATEMENT OF ASSETS AND LIABILITIES PRUDENTIAL TAX-MANAGED EQUITY FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS OCTOBER 31, 1999
----------------
<S> <C>
Investments, at value (cost $332,659,775)................................................................. $376,554,734
Receivable for Fund shares sold........................................................................... 4,184,392
Receivable for investments sold........................................................................... 1,443,314
Dividends and interest receivable......................................................................... 304,301
Deferred expenses and other assets........................................................................ 114,878
----------------
Total assets........................................................................................... 382,601,619
----------------
LIABILITIES
Payable for investments purchased......................................................................... 2,454,464
Payable for Fund shares reacquired........................................................................ 1,556,174
Accrued expenses and other liabilities.................................................................... 305,533
Distribution fee payable.................................................................................. 244,173
Management fee payable.................................................................................... 195,664
----------------
Total liabilities...................................................................................... 4,756,008
----------------
NET ASSETS................................................................................................ $377,845,611
----------------
----------------
Net assets were comprised of:
Shares of beneficial interest, at par.................................................................. $ 33,633
Paid-in capital in excess of par....................................................................... 346,202,189
----------------
346,235,822
Accumulated net realized loss on investments........................................................... (12,285,170)
Net unrealized appreciation on investments............................................................. 43,894,959
----------------
Net assets, October 31, 1999.............................................................................. $377,845,611
----------------
----------------
Class A:
Net asset value and redemption price per share
($78,169,385 / 6,937,032 shares of beneficial interest issued and outstanding)...................... $11.27
Maximum sales charge (5% of offering price)............................................................ .59
----------------
Maximum offering price to public....................................................................... $11.86
----------------
----------------
Class B:
Net asset value, offering price and redemption price per share
($175,128,619 / 15,605,715 shares of beneficial interest issued and outstanding).................... $11.22
----------------
----------------
Class C:
Net asset value and redemption price per share
($110,894,779 / 9,881,831 shares of beneficial interest issued and outstanding)..................... $11.22
Sales charge (1% of offering price).................................................................... .11
----------------
Offering price to public............................................................................... $11.33
----------------
----------------
Class Z:
Net asset value, offering price and redemption price per share
($13,652,828 / 1,208,564 shares of beneficial interest issued and outstanding)...................... $11.30
----------------
----------------
</TABLE>

- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-55

<PAGE>

PRUDENTIAL TAX-MANAGED EQUITY FUND
STATEMENT OF OPERATIONS
- ------------------------------------------------------------
<TABLE>
<CAPTION>
March 3, 1999(a)
Through
NET INVESTMENT LOSS October 31, 1999
----------------
<S> <C>
Income
Dividends (net of foreign withholding
taxes of $26,545)................. $ 2,577,327
Interest............................. 150,723
-------------------
Total income...................... 2,728,050
-------------------
Expenses
Management fee....................... 1,356,586
Distribution fee--Class A............ 110,559
Distribution fee--Class B............ 956,204
Distribution fee--Class C............ 604,899
Amortization of offering costs....... 217,006
Transfer agent's fees and expenses... 130,000
Registration fees.................... 120,600
Custodian's fees and expenses........ 100,000
Reports to shareholders.............. 55,000
Audit fee and expenses............... 26,000
Legal fees and expenses.............. 20,000
Trustees' fees and expenses.......... 9,000
Miscellaneous........................ 4,039
-------------------
Total expenses.................... 3,709,893
-------------------
Net investment loss..................... (981,843)
-------------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized loss on investment
transactions......................... (12,285,170)
Net unrealized appreciation on
investments.......................... 43,894,959
-------------------
Net gain on investments................. 31,609,789
-------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $30,627,946
-------------------
-------------------
</TABLE>
- ---------------
(a) Commencement of investment operations.

PRUDENTIAL TAX-MANAGED EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------
<TABLE>
<CAPTION>
March 3, 1999(a)
INCREASE (DECREASE) IN Through
NET ASSETS October 31, 1999
----------------
<S> <C>
Operations
Net investment loss....................... $ (981,843)
Net realized loss on investments.......... (12,285,170)
Net unrealized appreciation of
investments............................ 43,894,959
-------------------
Net increase in net assets resulting from
operations............................. 30,627,946
-------------------
Fund share transactions (net of share
conversions) (Note 5)
Net proceeds from shares subscribed....... 391,486,386
Cost of shares reacquired................. (44,368,721)
-------------------
Net increase in net assets from Fund share
transactions........................... 347,117,665
-------------------
Total increase............................... 377,745,611

NET ASSETS

Beginning of period.......................... 100,000
-------------------
End of period................................ $ 377,845,611
-------------------
-------------------
- ---------------

(a) Commencement of investment operations.
</TABLE>

- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-56

<PAGE>

NOTES TO FINANCIAL STATEMENTS PRUDENTIAL TAX-MANAGED EQUITY FUND
- -------------------------------------------------------------------------------
Prudential Tax-Managed Equity Fund (the 'Fund') is registered under the
Investment Company Act of 1940 as an open-end, diversified, management
investment company. The Fund was organized as a business trust in Delaware on
September 18, 1998. The Fund had no significant operations other than the
issuance of 2,500 shares each of Class A, Class B, Class C and Class Z for
$100,000 on December 8, 1998 to Prudential Investments Fund Management LLC
('PIFM'). The Fund commenced investment operations on March 3, 1999.

The investment objective of the Fund is to seek long-term after-tax growth of
capital. The Fund pursues its objective by investing a majority of the total
assets in equity-related securities, such as common stock and convertible
securities of U.S. companies.
- --------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES

The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.

SECURITIES VALUATION: Securities listed on a securities exchange are valued at
the last sale price on such exchange on the day of valuation, or, if there was
no sale on such day, at the mean between the last bid and asked prices on such
day or at the bid price on such day in the absence of an asked price. Securities
that are actively traded in the over-the-counter market, including listed
securities for which the primary market is believed to be over-the-counter, are
valued by an independent pricing agent or principal market maker. Securities for
which market quotations are not readily available or for which the pricing agent
or principal market maker does not provide a valuation methodology or provides a
valuation or methodology that does not represent fair value are valued in
accordance with procedures adopted by the Fund's Board of Trustees.

Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost.

In connection with transactions in repurchase agreements with U.S. financial
institutions, it is the Fund's policy that its custodian or designated
subcustodians under triparty repurchase agreements, as the case may be, take
possession of the underlying securities, the value of which exceeds the
principal amount of the repurchase transaction including accrued interest. 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.

All securities are valued as of 4:15 p.m., New York time.

SECURITIES TRANSACTIONS AND NET INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Realized gains and losses from investment and
currency transactions are calculated on the identified cost basis. Dividend
income is recorded on the ex-dividend date; interest income is recorded on the
accrual basis. Expenses are recorded on the accrual basis which may require the
use of certain estimates by management.

Net investment income (loss), other than distribution fees, and unrealized and
realized gains or losses are allocated daily to each class of shares based upon
the relative proportion of net assets of each class at the beginning of the day.

DIVIDENDS AND DISTRIBUTIONS: The Fund expects to pay dividends of net investment
income and distributions of net realized capital and currency gains, if any,
annually. Dividends and distributions are recorded on the ex-dividend date.

Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.

RECLASSIFICATION OF CAPITAL ACCOUNTS: The Fund accounts for and reports
distributions to shareholders in accordance with American Institute of Certified
Public Accountants' Statement of Position 93-2: Determination, Disclosure, and
Financial Statement Presentation of Income, Capital Gains, and Return of Capital
Distributions by Investment Companies. The effect of applying this statement was
to decrease undistributed net investment loss and decrease paid-in capital by
$981,843 for the period ended October 31, 1999, due to the Fund experiencing net
operating losses and certain organizational expenses not deductible for tax
purposes. Net investment income, net realized gains and net assets were not
affected by this change.

TAXES: It is the intent of the Fund to meet the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its taxable income to shareholders. Therefore, no federal income tax
provision is required.

Withholding taxes on foreign dividends have been provided for in accordance with
the Fund's understanding of the applicable country's tax rules and rates.

DEFERRED OFFERING COST: The Fund incurred approximately $327,000 in connection
with the initial offering of the Fund. Offering costs are being amortized over a
period of 12 months ending in March 2000.
- --------------------------------------------------------------------------------
B-57

<PAGE>

NOTES TO FINANCIAL STATEMENTS PRUDENTIAL TAX-MANAGED EQUITY FUND
- -------------------------------------------------------------------------------

NOTE 2. AGREEMENTS

The Fund has a management agreement with PIFM. Pursuant to this agreement, PIFM
manages the investment operations of the Fund, administers the Fund's affairs
and supervises the subadviser's performance of all investment advisory services.
Pursuant to a subadvisory agreement between PIFM and The Prudential Investment
Corporation ('PIC'), PIC furnishes investment advisory services in connection
with the Management of the Fund. PIFM pays for the costs of the Subadviser's
services, the compensation of officers of the Fund, occupancy and certain
clerical and accounting costs of the Fund. The Fund bears all other costs and
expenses. The management fee paid PIFM is computed daily and payable monthly at
an annual rate of .65% of the average daily net assets of the Fund.

The Fund has a distribution agreement with Prudential Investment Management
Services LLC ('PIMS'), which acts as the distributor of the Class A, Class B,
Class C and Class Z shares of the Fund. The Fund compensates PIMS for
distributing and servicing the Fund's Class A, Class B and Class C shares,
pursuant to plans of distribution (the 'Class A, B and C Plans'), regardless of
expenses actually incurred by PIMS. The distribution fees are accrued daily and
payable monthly. No distribution or service fees are paid to PIMS as distributor
for Class Z shares of the Fund.

Pursuant to the Class A, B and C Plans, the Fund compensates PIMS for
distribution-related activities at an annual rate of up to .30 of 1%, 1% and 1%
of the average daily net assets of the Class A, B and C shares, respectively.
Such annualized expenses under the Plans were .25 of 1%, 1% and 1% of the
average daily net assets of the Class A, B and C shares, respectively, for the
period ended October 31, 1999.

PIMS has advised the Fund that it has received approximately $1,898,400 and
$1,057,400 in front-end sales charges resulting from sales of Class A and Class
C shares, respectively, during the period ended October 31, 1999.

PIMS has advised the Fund that for the period ended October 31, 1999, it has
received approximately $327,400 and $76,000 in contingent deferred sales charges
imposed upon certain redemptions by Class B and Class C shareholders,
respectively.

PIMS, PIC and PIFM are wholly owned subsidiaries of The Prudential Insurance
Company of America ('Prudential').

Prior to March 11, 1999, the Fund, along with other affiliated registered
investment companies (the 'Funds'), had a credit agreement with a maximum
commitment of $200,000,000. The commitment fee was .055 of 1% on the unused
portion of the credit facility. The Fund did not borrow any amounts pursuant to
the agreement during the period ended October 31, 1999. The purpose of the
agreement is to serve as an alternative source of funding for capital share
redemptions.

- --------------------------------------------------------------------------------
NOTE 3. OTHER TRANSACTIONS WITH AFFILIATES

Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the period ended October 31, 1999,
the Fund incurred fees of approximately $120,400 for the services of PMFS. As of
October 31, 1999, approximately $17,700 of such fees were due to PMFS. Transfer
agent fees and expenses in the Statement of Operations include certain
out-of-pocket expenses paid to nonaffiliates.

- --------------------------------------------------------------------------------
NOTE 4. PORTFOLIO SECURITIES

Purchases and sales of portfolio securities, excluding short-term investments,
for the period ended October 31, 1999 were $561,279,199 and $217,589,254,
respectively.

The United States federal income tax basis of the Fund's investments as of
October 31, 1999 was $333,490,360 and accordingly, net unrealized appreciation
on investments for federal income tax purposes was $43,064,374 (gross unrealized
appreciation--$51,253,054, gross unrealized depreciation--$8,188,680).

For federal income tax purposes, the Fund had a capital loss carryforward as of
October 31, 1999, of $11,454,800 which expires in 2007. Accordingly, no capital
gains distributions are expected to be paid to shareholders until future net
gains have been realized in excess of such carryforward.

- --------------------------------------------------------------------------------
NOTE 5. JOINT REPURCHASE AGREEMENT ACCOUNT

The Fund, along with other affiliated registered investment companies, transfers
uninvested cash balances into a single joint account, the daily aggregate
balance of which is invested in one or more repurchase agreements collateralized
by U.S. Treasury or federal agency obligations. As of October 31, 1999, the Fund
had a .13% undivided interest in the repurchase agreements in the joint account.
The undivided interest for the Fund represents $1,255,000 in principal amount.
As of such date, each repurchase agreement in the joint account and the
collateral therefore were as follows:

Bear, Stearns & Co. Inc., 5.23%, in the principal amount of $250,000,000,
repurchase price $250,108,958, due 11/1/99. The value of the collateral
including accrued interest was $255,352,721.
- --------------------------------------------------------------------------------
B-58

<PAGE>

NOTES TO FINANCIAL STATEMENTS PRUDENTIAL TAX-MANAGED EQUITY FUND
- -------------------------------------------------------------------------------

Goldman, Sachs & Co., 5.18%, in the principal amount of $194,830,000, repurchase
price $194,914,102, due 11/1/99. The value of the collateral including accrued
interest was $198,727,175.

Morgan (J.P.) Securities Inc., 5.22%, in the principal amount of $250,000,000,
repurchase price of $250,108,750, due 11/1/99. The value of the collateral
including accrued interest was $255,000,115.

Salomon Smith Barney, Inc., 5.22%, in the principal amount of $250,000,000,
repurchase price $250,108,750, due 11/1/99. The value of the collateral
including accrued interest was $255,452,608.

- -------------------------------------------------------------------------------
NOTE 6. CAPITAL

The Fund offers Class A, Class B, Class C and Class Z shares. Class A shares are
sold with a front-end sales charge of up to 5%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class C shares are sold with a front-end
sales charge of 1% and a contingent deferred sales charge of 1% during the first
18 months. Class B shares automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. A special exchange privilege is
also available for shareholders who qualify to purchase Class A shares at net
asset value. Class Z shares are not subject to any sales or redemption charge
and are offered exclusively for sale to a limited group of investors.

The Fund has authorized an unlimited number of shares of beneficial interest at
$.001 par value.

Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
Class A SHARES AMOUNT
- ------------------------------------ ---------- ------------
<S> <C> <C>
March 3, 1999(a) through
October 31, 1999:
Shares sold......................... 8,370,870 $ 86,651,084
Shares reacquired................... (1,531,309) (16,474,883)
---------- ------------
Net increase in shares outstanding
before conversion................. 6,839,561 70,176,201
Shares issued upon conversion from
Class B........................... 94,971 1,036,253
---------- ------------
Net increase in shares
outstanding....................... 6,934,532 $ 71,212,454
---------- ------------
---------- ------------
<CAPTION>
Class B
- ----------------------------------------------------------------
<S> <C> <C>
March 3, 1999(a) through
October 31, 1999:
Shares sold......................... 16,918,477 $175,697,109
Shares reacquired................... (1,220,109) (13,250,878)
---------- ------------
Net increase in shares outstanding
before conversion................. 15,698,368 162,446,231
Shares reacquired upon conversion
into Class A...................... (95,153) (1,036,253)
---------- ------------
Net increase in shares
outstanding....................... 15,603,215 $161,409,978
---------- ------------
---------- ------------
<CAPTION>
Class C
- ----------------------------------------------------------------
<S> <C> <C>
March 3, 1999(a) through
October 31, 1999:
Shares sold......................... 10,842,964 $112,692,373
Shares reacquired................... (963,633) (10,448,107)
---------- ------------
Net increase in shares
outstanding....................... 9,879,331 $102,244,266
---------- ------------
---------- ------------
<CAPTION>
Class Z
- ----------------------------------------------------------------
<S> <C> <C>
March 3, 1999(a) through
October 31, 1999:
Shares sold......................... 1,592,714 $ 16,445,820
Shares reacquired................... (386,650) (4,194,853)
---------- ------------
Net increase in shares
outstanding....................... 1,206,064 $ 12,250,967
---------- ------------
---------- ------------
</TABLE>
- ---------------
(a) Commencement of investment operations.

- --------------------------------------------------------------------------------
B-59

<PAGE>

FINANCIAL HIGHLIGHTS PRUDENTIAL TAX-MANAGED EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B Class C
----------- ----------- -----------
March 3, March 3, March 3,
1999(a) 1999(a) 1999(a)
Through Through Through
October 31, October 31, October 31,
1999(d) 1999(d) 1999(d)
----------- ----------- -----------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................................ $ 10.00 $ 10.00 $ 10.00
----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)................................................ 0.01 (0.05) (0.05)
Net realized and unrealized gain on investment and foreign currency
transactions............................................................. 1.26 1.27 1.27
----------- ----------- -----------
Total from investment operations......................................... 1.27 1.22 1.22
----------- ----------- -----------
Net asset value, end of period.............................................. $ 11.27 $ 11.22 $ 11.22
----------- ----------- -----------
----------- ----------- -----------
TOTAL RETURN(b)............................................................. 12.70% 12.20% 12.20%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............................................. $78,169 $ 175,129 $ 110,895
Average net assets (000).................................................... $66,701 $ 144,221 $ 91,235
Ratios to average net assets:(c)
Expenses, including distribution fees.................................... 1.23% 1.98% 1.98%
Expenses, excluding distribution fees.................................... 0.98% 0.98% 0.98%
Net investment income (loss)............................................. 0.09% (0.67)% (0.67)%
Portfolio turnover rate..................................................... 67% 67% 67%
<CAPTION>
Class Z
-----------
<S> <C>
March 3,
1999(a)
Through
October 31,
1999(d)
-----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................................ $ 10.00
-----------
Income from investment operations:
Net investment income (loss)................................................ 0.02
Net realized and unrealized gain on investment and foreign currency
transactions............................................................. 1.28
-----------
Total from investment operations......................................... 1.30
-----------
Net asset value, end of period.............................................. $ 11.30
-----------
-----------
TOTAL RETURN(b)............................................................. 13.00%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............................................. $13,653
Average net assets (000).................................................... $12,627
Ratios to average net assets:(c)
Expenses, including distribution fees.................................... 0.98%
Expenses, excluding distribution fees.................................... 0.98%
Net investment income (loss)............................................. 0.35%
Portfolio turnover rate..................................................... 67%
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) Total return does not consider the effect of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(c) Annualized.
(d) Based on weighted average shares outstanding during the period.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-60

<PAGE>

REPORT OF INDEPENDANT ACCOUNTANTS PRUDENTIAL TAX-MANAGED EQUITY FUND
- -------------------------------------------------------------------------------

To the Shareholders and Board of Trustees of
Prudential Tax-Managed Equity Fund

In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Tax-Managed Equity Fund
(the 'Fund') at October 31, 1999, and the results of its operations, the changes
in its net assets and the financial highlights for the period March 3, 1999
(commencement of operations) through October 31, 1999, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as 'financial statements') are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at October 31, 1999 by
correspondence with the custodian and brokers, provides a reasonable basis for
the opinion expressed above.

PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
December 20, 1999

- --------------------------------------------------------------------------------
B-61
<PAGE>
APPENDIX I--GENERAL INVESTMENT INFORMATION

The following terms are used in mutual fund investing.

ASSET ALLOCATION

Asset allocation is a technique for reducing risk, providing balance. Asset
allocation among different types of securities within an overall investment
portfolio helps to reduce risk and to potentially provide stable returns, while
enabling investors to work toward their financial goal(s). Asset allocation is
also a strategy to gain exposure to better performing asset classes while
maintaining investment in other asset classes.

DIVERSIFICATION

Diversification is a time-honored technique for reducing risk, providing
"balance" to an overall portfolio and potentially achieving more stable returns.
Owning a portfolio of securities mitigates the individual risks (and returns) of
any one security. Additionally, diversification among types of securities
reduces the risks (and general returns) of any one type of security.

DURATION

Debt securities have varying levels of sensitivity to interest rates. As
interest rates fluctuate, the value of a bond (or a bond portfolio) will
increase or decrease. Longer term bonds are generally more sensitive to changes
in interest rates. When interest rates fall, bond prices generally rise.
Conversely, when interest rates rise, bond prices generally fall.

Duration is an approximation of the price sensitivity of a bond (or a bond
portfolio) to interest rate changes. It measures the weighted average maturity
of a bond's (or a bond portfolio's) cash flows, that is, principal and interest
rate payments. Duration is expressed as a measure of time in years--the longer
the duration of a bond (or a bond portfolio), the greater the impact of interest
rate changes on the bond's (or the bond portfolio's) price. Duration differs
from effective maturity in that duration takes into account call provisions,
coupon rates and other factors. Duration measures interest rate risk only and
not other risks, such as credit risk and, in the case of non-U.S. dollar
denominated securities, currency risk. Effective maturity measures the final
maturity dates of a bond (or a bond portfolio).

MARKET TIMING

Market timing--buying securities when prices are low and selling them when
prices are relatively higher--may not work for many investors because it is
impossible to predict with certainty how the price of a security will fluctuate.
However, owning a security for a long period of time may help investors offset
short-term price volatility and realize positive returns.

POWER OF COMPOUNDING

Over time, the compounding of returns can significantly impact investment
returns. Compounding is the effect of continuous investment on long-term
investment results, by which the proceeds of capital appreciation (and income
distributions, if elected) are reinvested to contribute to the overall growth of
assets. The long-term investment results of compounding may be greater than that
of an equivalent initial investment in which the proceeds of capital
appreciation and income distributions are taken in cash.

STANDARD DEVIATION

Standard deviation is an absolute (non-relative) measure of volatility
which, for a mutual fund, depicts how widely the returns varied over a certain
period of time. When a fund has a high standard deviation, its range of
performance has been very wide, implying greater volatility potential. Standard
deviation is only one of several measures of a fund's volatility.

I-1
<PAGE>
APPENDIX II--HISTORICAL PERFORMANCE DATA

The historical performance data contained in this Appendix relies on data
obtained from statistical services, reports and other services believed by the
Manager to be reliable. The information has not been independently verified by
the Manager.

This chart shows the long-term performance of various asset classes and the
rate of inflation.

EACH INVESTMENT PROVIDES A DIFFERENT OPPORTUNITY

[CHART]
HISTORICAL PERFORMANCE DATA
VALUE OF $1.00 INVESTED
SMALL STOCKS--$5,116.95 ON 1/1/26 THROUGH 12/31/98
COMMON STOCKS--$2,350.89
LONG-TERM BONDS--$44.18
TREASURY BILLS--$14.94
INFLATION--$9.16

Source: Ibbotson Associates. Used with permission. All rights reserved. This
chart is for illustrative purposes only and is not indicative of the past,
present, or future performance of any asset class or any Prudential Mutual Fund.

Generally, stock returns are due to capital appreciation and the reinvestment of
gains. Bond returns are due mainly to reinvesting interest. Also, stock prices
usually are more volatile than bond prices over the long-term. Small stock
returns for 1926-1980 are those of stocks comprising the 5th quintile of the New
York Stock Exchange. Thereafter, returns are those of the Dimensional Fund
Advisors (DFA) Small Company Fund. Common stock returns are based on the
S&P 500 Composite Stock Price Index, a market-weighted, unmanaged index of 500
stocks (currently) in a variety of industries. It is often used as a broad
measure of stock market performance.

Long-term government bond returns are measured using a constant one-bond
portfolio with a maturity of roughly 20 years. Treasury bill returns are for a
one-month bill. Treasuries are guaranteed by the government as to the timely
payment of principal and interest; equities are not. Inflation is measured by
the consumer price index (CPI).

II-1
<PAGE>
Set forth below is historical performance data relating to various sectors
of the fixed-income securities markets. The chart shows the historical total
returns of U.S. Treasury bonds, U.S. mortgage securities, U.S. corporate bonds,
U.S. high yield bonds and world government bonds on an annual basis from 1988
through 1998. The total returns of the indices include accrued interest, plus
the price changes (gains or losses) of the underlying securities during the
period mentioned. The data is provided to illustrate the varying historical
total returns and investors should not consider this performance data as an
indication of the future performance of the Fund or of any sector in which the
Fund invests.

All information relies on data obtained from statistical services, reports
and other services believed by the Manager to be reliable. Such information has
not been verified. The figures do not reflect the operating expenses and fees of
a mutual fund. See "Risk/Return Summary--Fees and Expenses" in the prospectus.
The net effect of the deduction of the operating expenses of a mutual fund on
these historical total returns, including the compounded effect over time, could
be substantial.
HISTORICAL TOTAL RETURNS OF DIFFERENT BOND MARKET SECTORS

<TABLE>
'88 '89 '90 '91 '92 '93 '94 '95 '96 '97
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT
TREASURY
BONDS(1) 7.0% 14.4% 8.5% 15.3% 7.2% 10.7% (3.4)% 18.4% 2.7% 9.6%
- -----------------------------------------------------------------------------------------------------------------------------------
U. S. GOVERNMENT
MORTGAGE
SECURITIES(2) 8.7% 15.4% 10.7% 15.7% 7.0% 6.8% (1.6)% 16.8% 5.4% 9.5%
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. INVESTMENT GRADE
CORPORATE
BONDS(3) 9.2% 14.1% 7.1% 18.5% 8.7% 12.2% (3.9)% 22.3% 3.3% 10.2%
- -----------------------------------------------------------------------------------------------------------------------------------
U.S.
HIGH YIELD
CORPORATE
BONDS(4) 12.5% 0.8% (9.6)% 46.2% 15.8% 17.1% (1.0)% 19.2% 11.4% 12.8%
- -----------------------------------------------------------------------------------------------------------------------------------
WORLD
GOVERNMENT
BONDS(5) 2.3% (3.4)% 15.3% 16.2% 4.8% 15.1% 6.0% 19.6% 4.1% (4.3)%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
DIFFERENCE BETWEEN
HIGHEST
AND LOWEST RETURN
PERCENT 10.2 18.8 24.9 30.9 11.0 10.3 9.9 5.5 8.7 17.1

<S> <C>
'98
- ----------------------
U.S. GOVERNMENT
TREASURY
BONDS(1) 10.0%
- ----------------------
U. S. GOVERNMENT
MORTGAGE
SECURITIES(2) 7.0%
- ----------------------
U.S. INVESTMENT GRADE
CORPORATE
BONDS(3) 8.6%
- ----------------------
U.S.
HIGH YIELD
CORPORATE
BONDS(4) 1.6%
- ----------------------
WORLD
GOVERNMENT
BONDS(5) 5.3%
- ----------------------
- ----------------------
DIFFERENCE BETWEEN
HIGHEST
AND LOWEST RETURN
PERCENT 8.4
</TABLE>

(1)LEHMAN BROTHERS TREASURY BOND INDEX is an unmanaged index made up of over 150
public issues of the U.S. Treasury having maturities of at least one year.

(2)LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX is an unmanaged index that
includes over 600 15- and 30-year fixed-rate mortgage-backed securities of the
Government National Mortgage Association (GNMA), Federal National Mortgage
Association (FNMA), and the Federal Home Loan Mortgage Corporation (FHLMC).

(3)LEHMAN BROTHERS CORPORATE BOND INDEX includes over 3,000 public fixed-rate,
nonconvertible investment-grade bonds. All bonds are U.S. dollar-denominated
issues and include debt issued or guaranteed by foreign sovereign governments,
municipalities, governmental agencies or international agencies. All bonds in
the index have maturities of at least one year. Source: Lipper Inc.

(4)LEHMAN BROTHERS HIGH YIELD BOND INDEX is an unmanaged index comprising over
750 public, fixed-rate, nonconvertible bonds that are rated Ba1 or lower by
Moody's Investors Service (or rated BB+ or lower by Standard & Poor's or Fitch
Investors Service). All bonds in the index have maturities of at least one year.

(5)SALOMON SMITH BARNEY WORLD GOVERNMENT INDEX (NON U.S.) includes over 800
bonds issued by various foreign governments or agencies, excluding those in the
U.S., but including those in Japan, Germany, France, the U.K., Canada, Italy,
Australia, Belgium, Denmark, the Netherlands, Spain, Sweden, and Austria. All
bonds in the index have maturities of at least one year.

II-2
<PAGE>
This chart illustrates the performance of major world stock markets for the
period from December 31, 1985 through December 31, 1998. It does not represent
the performance of any Prudential Mutual Fund.

AVERAGE ANNUAL TOTAL RETURNS OF MAJOR WORLD STOCK MARKETS (12/31/85 - 12/31/98)
IN U.S. DOLLARS

[CHART]
Belgium--22.7%
Spain--22.5%
The Netherlands--20.8%
Sweden--19.9%
Switzerland--18.3%
USA--18.1%
Hong Kong--17.8%
France--17.4%
UK--16.7%
Germany--13.4%
Austria--8.9%
Japan--6.5%

Source: Morgan Stanley Capital International (MSCI) and Lipper Inc. Used with
permission. Morgan Stanley Country indexes are unmanaged indices which include
those stocks making up the largest two-thirds of each country's total stock
market capitalization. Returns reflect the reinvestment of all distributions.
This chart is for illustrative purposes only and is not indicative of the past,
present or future performance of any specific investment. Investors cannot
invest directly in stock indexes.

This chart shows the growth of a hypothetical $10,000 investment made in the
stocks representing the S&P 500 Composite Stock Price Index with and without
reinvested dividends.

[CHART]
Capital Appreciation and Reinvesting Dividends--$391,707
Capital Appreciation only--$133,525

Source: Lipper Inc. Used with permission. All rights reserved. This chart is
used for illustrative purposes only and is not intended to represent the past,
present or future performance of any Prudential Mutual Fund. Common stock total
return is based on the Standard & Poor's 500 Composite Stock Price Index, a
market-value-weighted index made up of 500 of the largest stocks in the U.S.
based upon their stock market value. Investors cannot invest directly in
indexes.

WORLD STOCK MARKET CAPITALIZATION BY REGION
World Total: $15.8 Trillion

[CHART]
Canada--1.8%
Pacific Basin--12.5%
Europe--34.7%
U.S.--51.0%
Source: Morgan Stanley Capital International, December 31, 1998. Used with
permission. This chart represents the capitalization of major world stock
markets as measured by the Morgan Stanley Capital International (MSCI) World
Index. The total market capitalization is based on the value of approximately
1577 companies in 22 countries (representing approximately 60% of the aggregate
market value of the stock exchanges). This chart is for illustrative purposes
only and does not represent the allocation of any Prudential Mutual Fund.

II-3
<PAGE>
This chart below shows the historical volatility of general interest rates
as measured by the long U.S. Treasury Bond.

LONG U.S. TREASURY BOND YIELD IN PERCENT (1926-1998)

[CHART]

Source: Ibbotson Associates. Used with permission. All rights reserved. The
chart illustrates the historical yield of the long-term U.S. Treasury Bond from
1926-1998. Yields represent that of an annually renewed one-bond portfolio with
a remaining maturity of approximately 20 years. This chart is for illustrative
purposes and should not be construed to represent the yields of any Prudential
Mutual Fund.

II-4
<PAGE>
APPENDIX III--INFORMATION RELATING TO PRUDENTIAL

Set forth below is information relating to The Prudential Insurance Company
of America (Prudential) and its subsidiaries as well as information relating to
the Prudential Mutual Funds. See "How the Fund is Managed--Manager" in the
Prospectus. The data will be used in sales materials relating to the Prudential
Mutual Funds. Unless otherwise indicated, the information is as of December 31,
1997 and is subject to change thereafter. All information relies on data
provided by The Prudential Investment Corporation (PIC) or other sources
believed by the Manager to be reliable. Such information has not been verified
by the Fund.

INFORMATION ABOUT PRUDENTIAL

The Manager and PIC(1) are subsidiaries of Prudential, which is one of the
largest diversified financial services institutions in the world and, based on
total assets, the largest insurance company in North America as of December 31,
1997. Principal products and services include life and health insurance, other
healthcare products, property and casualty insurance, securities brokerage,
asset management, investment advisory services and real estate brokerage.
Prudential (together with its subsidiaries) employs almost 81,000 persons
worldwide, and maintains a sales force of approximately 11,500 agents and 6,500
domestic and international financial advisors. Prudential is a major issuer of
annuities, including variable annuities. Prudential seeks to develop innovative
products and services to meet consumer needs in each of its business areas.
Prudential uses the Rock of Gibraltar as its symbol. The Prudential rock is a
recognized brand name throughout the world.

INSURANCE. Prudential has been engaged in the insurance business since 1875.
It insures or provides financial services to nearly 40 million people worldwide.
Long one of the largest issuers of individual life insurance, Prudential has 25
million life insurance policies in force today with a face value of almost $1
trillion. Prudential has the largest capital base ($12.1 billion) of any life
insurance company in the United States. Prudential provides auto insurance for
approximately 1.5 million cars and insures approximately 1.2 million homes.

MONEY MANAGEMENT. Prudential is one of the largest pension fund managers in
the country, providing pension services to 1 in 3 Fortune 500 firms. It manages
$36 billion of individual retirement plan assets, such as 401(k) plans. As of
December 31, 1997, Prudential had more than $370 billion in assets under
management. Prudential Investments, a business group of Prudential (of which
Prudential Mutual Funds is a key part), manages over $211 billion in assets of
institutions and individuals. In INSTITUTIONAL INVESTOR, July 1998, Prudential
was ranked eighth in terms of total assets under management as of December 31,
1997.

REAL ESTATE. The Prudential Real Estate Affiliates is one of the leading
real estate residential and commercial brokerage networks in North America and
has more than 37,000 real estate brokers with over 1,400 offices around the
United States.(2)

FINANCIAL SERVICES. The Prudential Savings Bank FSB, a wholly-owned
subsidiary of Prudential, has over $1 billion in assets and serves nearly 1.5
million customers across 50 states.

INFORMATION ABOUT THE PRUDENTIAL MUTUAL FUNDS

As of November 30, 1998, Prudential Investments Fund Management was the
eighteenth largest mutual fund company in the country, with over 2.5 million
shareholders invested in more than 50 mutual fund portfolios and variable
annuities with more than 3.7 million shareholder accounts.

The Prudential Mutual Funds have over 30 portfolio managers who manage over
$55 billion in mutual fund and variable annuity assets. Some of Prudential's
portfolio managers have over 20 years of experience managing investment
portfolios.

From time to time, there may be media coverage of portfolio managers and
other investment professionals associated with the Manager and the Subadviser in
national and regional publications, on television and in other media.
Additionally, individual mutual fund portfolios are frequently cited in surveys
conducted by national and regional publications and media organizations such as
THE WALL STREET JOURNAL, THE NEW YORK TIMES, BARRON'S and USA TODAY.

EQUITY FUNDS. Prudential Equity Fund is managed with a "value" investment
style by PIC. In 1995, Prudential Securities introduced Prudential Jennison
Growth Fund, a growth-style equity fund managed by Jennison Associates LLC, a
premier institutional equity manager and a subsidiary of Prudential.

- ------------------------

(1) PIC serves as the subadviser to substantially all of the Prudential Mutual
Funds. Wellington Management Company serves as the subadviser to Global
Utility Fund, Inc., Nicholas-Applegate Capital Management as the subadviser
to Nicholas-Applegate Fund, Inc., Jennison Associates LLC as one of the
subadvisers to Prudential Diversified Funds, Prudential 20/20 Focus Fund,
Prudential Sector Funds, Inc., The Prudential Series Funds, Inc. and The
Prudential Investment Portfolios, Inc. and Mercator Asset Management LP as
the subadviser to International Stock Series, a portfolio of Prudential
World Fund, Inc. There are multiple subadvisers for The Target Portfolio
Trust and Target Funds.

(2) As of December 31, 1996.

III-1
<PAGE>

HIGH YIELD FUNDS. Investing in high yield bonds is a complex and research
intensive pursuit. A separate team of high yield bond analysts monitor the
approximately 200 issues held in the Prudential High Yield Fund (currently the
largest fund of its kind in the country) along with 100 or so other high yield
bonds, which may be considered for purchase.(3) Non-investment grade bonds, also
known as junk bonds or high yield bonds, are subject to a greater risk of loss
of principal and interest including default risk than higher-rated bonds.
Prudential high yield portfolio managers and analysts meet face-to-face with
almost every bond issuer in the High Yield Fund's portfolio annually, and have
additional telephone contact throughout the year.

Prudential's portfolio managers are supported by a large and sophisticated
research organization. Investment grade bond analysts monitor the financial
viability of different bond issuers in the investment grade corporate and
municipal bond markets--from IBM to small municipalities, such as Rockaway
Township, New Jersey. These analysts consider among other things sinking fund
provisions and interest coverage ratios.

Prudential's portfolio managers and analysts receive research services from
almost 200 brokers and market service vendors. They also receive nearly 100
trade publications and newspapers--from PULP AND PAPER FORECASTER to WOMEN'S
WEAR DAILY--to keep them informed of the industries they follow.

Prudential Mutual Funds' traders scan over 100 computer monitors to collect
detailed information on which to trade. From natural gas prices in the Rocky
Mountains to the results of local municipal elections, a Prudential portfolio
manager or trader is able to monitor it if it's important to a Prudential Mutual
Fund.

Prudential Mutual Funds trades billions in U.S. and foreign government
securities a year. PIC seeks information from government policy makers.
Prudential's portfolio managers met with several senior U.S. and foreign
government officials, on issues ranging from economic conditions in foreign
countries to the viability of index-linked securities in the United States.

INFORMATION ABOUT PRUDENTIAL SECURITIES

Prudential Securities is the fifth largest retail brokerage firm in the
United States with approximately 6,000 financial advisors. It offers to its
clients a wide range of products, including Prudential Mutual Funds and
annuities. As of December 31, 1998, assets held by Prudential Securities for its
clients approximated $268 billion. During 1998, over 31,000 new customer
accounts were opened each month at Prudential Securities.(4)

Prudential Securities has a two-year Financial Advisor training program plus
advanced education programs, including Prudential Securities "university," which
provides advanced education in a wide array of investment and financial planning
areas.

In addition to training, Prudential Securities provides its financial
advisors with access to firm economists and market analysts. It has also
developed proprietary tools for use by financial advisors, including the
Financial Architect-SM-, a state-of-the-art asset allocation software program
which helps Financial Advisors to evaluate a client's objectives and overall
financial plan, and a comprehensive mutual fund information and analysis system
that compares different mutual funds.

For more complete information about any of the Prudential Mutual Funds,
including charges and expenses, call your Prudential Securities financial
adviser or Pruco/Prudential representative for a free prospectus. Read it
carefully before you invest or send money.

- ------------------------

(3) As of December 31, 1997. The number of bonds and the size of the Fund are
subject to change.

(4) As of December 31, 1998.

III-2
<PAGE>

PART C
OTHER INFORMATION

ITEM 23. EXHIBITS.

<TABLE>
<S> <C> <C>
(a) (1) Agreement and Declaration of Trust. Incorporated by
reference to Exhibit (a)(1) to the Registration Statement on
Form N-1A (File No. 333-66895) filed on November 6, 1998.
(2) Certificate of Trust. Incorporated by reference to
Exhibit (a)(2) to the Registration Statement on Form N-1A
(File No. 333-66895) filed on November 6, 1998.
(b) Amended By-Laws.*
(c) Instruments defining rights of shareholders. Incorporated by
reference to Exhibit (c) to the Registration Statement on
Form N-1A (File No. 333-66895) filed on November 6, 1998.
(d) (1) Management Agreement between the Registrant and Prudential
Investments Fund Management LLC.*
(2) Amended and Restated Subadvisory Agreement between
Prudential Investments Fund Management LLC and The
Prudential Investment Corporation.*
(e) (1) Distribution Agreement between the Registrant and Prudential
Investment Management Services LLC.*
(2) Form of Selected Dealer Agreement. Incorporated by reference
to Exhibit (e)(2) to the Registration Statement on
Form N-1A (File No. 333-66895) filed on November 6, 1998.
(g) (1) Custodian Contract between the Registrant and State Street
Bank and Trust Company. Incorporated by reference to
Exhibit (g) to the Registration Statement on Form N-1A (File
No. 333-66895) filed on November 6, 1998.
(2) Amendment to Custodian Contract.*
(h) (1) Transfer Agency and Service Agreement between the Registrant
and Prudential Mutual Fund Services LLC. Incorporated by
reference to Exhibit (h) to the Registration Statement on
Form N-1A (File No. 333-66895) filed on November 6, 1998.
(2) Amendment to Transfer Agency Agreement.*
(i) Opinion and Consent of Counsel. Incorporated by reference to
Exhibit (i) to Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A (File No. 333-66895)
filed on December 24, 1998.
(j) Consent of Independent Accountants.*
(m) (1) Distribution and Service Plan for Class A Shares.
Incorporated by reference to Exhibit (m)(1) to the
Registration Statement on Form N-1A (File No. 333-66895)
filed on November 6, 1998.
(2) Distribution and Service Plan for Class B Shares.
Incorporated by reference to Exhibit (m)(2) to the
Registration Statement on Form N-1A (File No. 333-66895)
filed on November 6, 1998.
(3) Distribution and Service Plan for Class C Shares.
Incorporated by reference to Exhibit (m)(3) to the
Registration Statement on Form N-1A (File No. 333-66895)
filed on November 6, 1998.
(o) Rule 18f-3 Plan. Incorporated by reference to Exhibit (o) to
the Registration Statement on Form N-1A (File
No. 333-66895) filed on November 6, 1998.
</TABLE>

- ------------

* Filed herewith.

ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

None.

ITEM 25. INDEMNIFICATION.

As permitted by Section 17(h) and (i) of the Investment Company Act of 1940,
as amended (the 1940 Act) and pursuant to Del. Code Ann. title 12 sec. 3817, a
Delaware business trust may provide in its governing instrument for the
indemnification of its officers and trustees from and against any and all claims
and demands whatsoever. Article VII, Section 2 of the Agreement and

C-1
<PAGE>
Declaration of Trust (Exhibit (a)(1) to Registration Statement) states that (1)
the Registrant shall indemnify any present trustee or officer to the fullest
extent permitted by law against liability, and all expenses reasonably incurred
by him or her in connection with any claim, action, suit or proceeding in which
he or she is involved by virtue of his or her service as a trustee, officer or
both, and against any amount incurred in settlement thereof and (2) all persons
extending credit to, contracting with or having any claim against the Registrant
shall look only to the assets of the appropriate Series (or if no Series has yet
been established, only to the assets of the Registrant). Indemnification will
not be provided to a person adjudged by a court or other adjudicatory body to be
liable to the Registrant or its shareholders by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of his or her duties
(collectively "disabling conduct"). In the event of a settlement, no
indemnification may be provided unless there has been a determination, as
specified in the Declaration of Trust, that the officer or trustee did not
engage in disabling conduct. In addition, Article XI of Registrant's By-Laws
(Exhibit (b) to the Registration Statement) provides that any trustee, officer,
employee or other agent of Registrant shall be indemnified by the Registrant
against all liabilities and expenses subject to certain limitations and
exceptions contained in Article XI of the By-Laws. 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), the Distributor of the
Registrant may be indemnified against liabilities which it may incur, except
liabilities arising from bad faith, gross negligence, willful misfeasance or
reckless disregard of duties.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (Securities Act) may be permitted to trustees, officers and
controlling persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the 1940 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a trustee, 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
trustee, 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 has purchased an insurance policy insuring its officers and
trustees against liabilities, and certain costs of defending claims against such
officers and trustees, to the extent such officers and trustees are not found to
have committed conduct constituting willful misfeasance, bad faith, gross
negligence or reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of indemnification
payments to officers and directors under certain circumstances.

Section 9 of the Management Agreement (Exhibit (d)(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 Fund
Management LLC (PIFM) and The Prudential Investment Corporation (PIC),
respectively, to liabilities arising from willful misfeasance, bad faith or
gross negligence in the performance of their respective duties or from reckless
disregard by them of their respective obligations and duties under the
agreements.

The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws, Declaration of Trust and the Distribution Agreement
in a manner consistent with Release No. 11330 of the Securities and Exchange
Commission under the 1940 Act so long as the interpretation of Section 17(h) and
17(i) of such Act remain in effect and are consistently applied.

Under Section 17(h) of the 1940 Act, it is the position of the staff of the
Securities and Exchange Commission that if there is neither a court
determination on the merits that the defendant is not liable nor a court
determination that the defendant was not guilty of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of one's office, no indemnification will be permitted unless an
independent legal counsel (not including a counsel who does work for either the
Registrant, its investment adviser, its principal underwriter or persons
affiliated with these persons) determines, based upon a review of the facts,
that the person in question was not guilty of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his or her office.

C-2
<PAGE>
Under its Declaration of Trust, the Registrant may advance funds to provide
for indemnification. Pursuant to the Securities and Exchange Commission staff's
position on Section 17(h) advances will be limited in the following respect:

(1) Any advances must be limited to amounts used, or to be used, for the
preparation and/or presentation of a defense to the action (including
cost connected with preparation of a settlement);

(2) Any advances must be accompanied by a written promise by, or on behalf
of, the recipient to repay that amount of the advance which exceeds the
amount to which it is ultimately determined that he is entitled to
receive from the Registrant by reason of indemnification;

(3) Such promise must be secured by a surety bond or other suitable
insurance; and

(4) Such surety bond or other insurance must be paid for by the recipient of
such advance.

ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.

(a) Prudential Investments Fund Management LLC (PIFM)

See "How the Fund is Managed--Manager" in the Prospectus constituting Part A
of this Registration Statement and "Investment Advisory and Other Services" in
the Statement of Additional Information constituting Part B of this Registration
Statement.

The business and other connections of the officers of PIFM are listed in
Schedules A and D of Form ADV of PIFM as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-31104).

The business and other connections of PIFM's directors and principal
executive officers are set forth below. Except as otherwise indicated, the
address of each person is Gateway Center Three, 100 Mulberry Street, Newark, NJ
07102-4077.

<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIFM PRINCIPAL OCCUPATION
- ---------------- ------------------ --------------------
<S> <C> <C>
David R. Odenath, Jr. Officer in Charge, President, Chief Officer in Charge, President, Chief
Executive Officer and Chief Executive Officer and Chief
Operating Officer Operating Officer, PIFM; Senior
Vice President, The Prudential
Insurance Company of America
(Prudential)
Robert F. Gunia Executive Vice President and Chief Executive Vice President and Chief
Administrative Officer Administrative Officer, PIFM; Vice
President, Prudential; President,
Prudential Investment Management
Services LLC (PIMS)
William V. Healey Executive Vice President, Chief Executive Vice President, Chief
Legal Officer and Secretary Legal Officer and Secretary, PIFM;
Vice President and Associate
General Counsel, Prudential;
Senior Vice President, Chief Legal
Officer and Secretary, PIMS
Brian W. Henderson Executive Vice President Executive Vice President, PIFM;
Senior Vice President and Chief
Operating Officer, PIMS
Stephen Pelletier Executive Vice President Executive Vice President, PIFM
Judy A. Rice Executive Vice President Executive Vice President, PIFM
Lynn M. Waldvogel Executive Vice President Executive Vice President, PIFM
</TABLE>

C-3
<PAGE>
(b) The Prudential Investment Corporation (PIC)

See "How the Fund is Managed--Manager" in the Prospectus constituting
Part A of this Registration Statement and "Investment Advisory and Other
Services" in the Statement of Additional Information constituting Part B of this
Registration Statement.

The business and other connections of PIC's directors and executive officers
are as set forth below. The address of each person is Prudential Plaza, Newark,
NJ 07102.

<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATION
- ---------------- ----------------- --------------------
<S> <C> <C>
Jeffrey Hiller Chief Compliance Officer Chief Compliance Officer, Prudential
Global Asset Management
John R. Strangfeld, Jr. Chairman of the Board, President, President of Prudential Global Asset
Chief Executive Officer and Management Group of Prudential;
Director Senior Vice President, Prudential;
Chairman of the Board, President,
Chief Executive Officer and
Director, PIC
Bernard Winograd Senior Vice President and Director Chief Executive Officer, Prudential
Real Estate Investors; Senior Vice
President and Director, PIC
</TABLE>

ITEM 27. PRINCIPAL UNDERWRITERS.

(a) Prudential Investment Management Services LLC (PIMS)

PIMS is distributor for the Cash Accumulation Trust, Command Money Fund,
Command Government Fund, Command Tax-Free Fund, Global Utility Fund, Inc.,
Nicholas-Applegate Fund, Inc. (Nicholas-Applegate Growth Equity Fund),
Prudential Balanced Fund, Prudential California Municipal Fund, Prudential
Distressed Securities Fund, Inc., Prudential Diversified Bond Fund, Inc.,
Prudential Diversified Funds, Prudential Emerging Growth Fund, Inc., Prudential
Equity Fund, Inc., Prudential Equity Income Fund, Prudential Europe Growth Fund,
Inc., Prudential Global Genesis Fund, Inc., Prudential Global Total Return Fund,
Inc., Prudential Government Income Fund, Inc., Prudential Government Securities
Trust, Prudential High Yield Fund, Inc., Prudential High Yield Total Return
Fund, Inc., Prudential Index Series Fund, Prudential Institutional Liquidity
Portfolio, Inc., Prudential International Bond Fund, Inc., Prudential Mid-Cap
Value Fund, Prudential MoneyMart Assets, Inc., Prudential Municipal Bond Fund,
Prudential Municipal Series Fund, Prudential National Municipals Fund, Inc.,
Prudential Natural Resources Fund, Inc., Prudential Pacific Growth Fund, Inc.,
Prudential Real Estate Securities Fund, Prudential Sector Funds, Inc.,
Prudential Small-Cap Quantum Fund, Inc., Prudential Small Company Value Fund,
Inc., Prudential Special Money Market Fund, Inc., Prudential Structured Maturity
Fund, Inc., Prudential Tax-Free Money Fund, Inc., Prudential Tax-Managed Equity
Fund, Prudential 20/20 Focus Fund, Prudential World Fund, Inc., The Prudential
Investment Portfolios, Inc., Target Funds and The Target Portfolio Trust.

(b) Information concerning the directors and officers of PIMS is set forth
below:

<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME (1) UNDERWRITER REGISTRANT
- -------- ------------- -------------
<S> <C> <C>
Margaret Deverell................. Vice President and Chief Financial Officer None
Robert F. Gunia................... President Vice President and Trustee
Kevin Frawley..................... Senior Vice President and Compliance None
Officer
213 Washington Street
Newark, NJ 07102
</TABLE>

C-4
<PAGE>

<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME (1) UNDERWRITER REGISTRANT
- -------- ------------- -------------
<S> <C> <C>
William V. Healey................. Senior Vice President, Secretary and Chief None
Legal Officer
Brian W. Henderson................ Senior Vice President and Officer None
John R. Strangfeld, Jr............ Advisory Board Member President and Trustee
</TABLE>

- ------------
(1) The address of each person named is Prudential Plaza, Newark, New Jersey
07102 unless otherwise indicated.

ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.

All accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the Rules thereunder are maintained at the offices of
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts, 02171, The Prudential Investment Corporation, Prudential Plaza,
751 Broad Street, Newark, New Jersey 07102, the Registrant, Gateway Center
Three, Newark, New Jersey 07102-4077, and Prudential Mutual Fund Services LLC,
Raritan Plaza One, Edison, New Jersey 08837. Documents required by Rules
31a-1(b)(5), (6), (7), (9), (10) and (11), 31a-1(f), 31a-1(b)(4) and (11) and
31a-1(d) will be kept at Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102-4077 and the remaining accounts, books and other documents required
by such other pertinent provisions of Section 31(a) and the Rules promulgated
thereunder will be kept by State Street Bank and Trust Company and Prudential
Mutual Fund Services LLC.

ITEM 29. MANAGEMENT SERVICES.

Other than as set forth under the captions "How the Fund is
Managed--Manager" and "How the Fund is Managed--Distributor" in the Prospectus
and the caption "Investment Advisory and Other Services" in the Statement of
Additional Information, constituting Parts A and B, respectively, of this
Registration Statement, Registrant is not a party to any management-related
service contract.

ITEM 30. UNDERTAKING.

Not applicable.

C-5
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act and the Investment
Company Act, the Fund certifies that it meets all of the requirements for
effectiveness of this Registration Statement under Rule 485(b) under the
Securities Act and has duly caused this Registration Statement to be signed on
its behalf by the undersigned, duly authorized, in the City of Newark, and State
of New Jersey, on the 28th day of December, 1999.

<TABLE>
<S> <C> <C>
PRUDENTIAL TAX-MANAGED EQUITY FUND

By /s/ JOHN R. STRANGFELD, JR.
----------------------------------------------
John R. Strangfeld, Jr.,
PRESIDENT
</TABLE>

Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GRACE C. TORRES
------------------------------------------------ Treasurer and Principal Financial December 28, 1999
Grace C. Torres and Accounting Officer

/s/ EDWARD D. BEACH
------------------------------------------------ Trustee December 28, 1999
Edward D. Beach

/s/ DELAYNE D. GOLD
------------------------------------------------ Trustee December 28, 1999
Delayne D. Gold

/s/ ROBERT F. GUNIA
------------------------------------------------ Trustee December 28, 1999
Robert F. Gunia

/s/ DOUGLAS H. MCCORKINDALE
------------------------------------------------ Trustee December 28, 1999
Douglas H. McCorkindale

/s/ THOMAS T. MOONEY
------------------------------------------------ Trustee December 28, 1999
Thomas T. Mooney

/s/ STEPHEN P. MUNN
------------------------------------------------ Trustee December 28, 1999
Stephen P. Munn

/s/ DAVID R. ODENATH, JR.
------------------------------------------------ Trustee December 28, 1999
David R. Odenath, Jr.

/s/ RICHARD A. REDEKER
------------------------------------------------ Trustee December 28, 1999
Richard A. Redeker

/s/ ROBIN B. SMITH
------------------------------------------------ Trustee December 28, 1999
Robin B. Smith

/s/ JOHN R. STRANGFELD, JR.
------------------------------------------------ President and Trustee December 28, 1999
John R. Strangfeld, Jr.

/s/ LOUIS A. WEIL, III
------------------------------------------------ Trustee December 28, 1999
Louis A. Weil, III

/s/ CLAY T. WHITEHEAD
------------------------------------------------ Trustee December 28, 1999
Clay T. Whitehead
</TABLE>

C-6
<PAGE>
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
<C> <S>
(a) (1) Agreement and Declaration of Trust. Incorporated by
reference to Exhibit (a)(1) to the Registration Statement on
Form N-1A (File No. 333-66895) filed on November 6, 1998.
(2) Certificate of Trust. Incorporated by reference to
Exhibit (a)(2) to the Registration Statement on Form N-1A
(File No. 333-66895) filed on November 6, 1998.
(b) Amended By-Laws.*
(c) Instruments defining rights of shareholders. Incorporated by
reference to Exhibit (c) to the Registration Statement on
Form N-1A (File No. 333-66895) filed on November 6, 1998.
(d) (1) Management Agreement between the Registrant and
Prudential Investments Fund Management LLC.*
(2) Amended and Restated Subadvisory Agreement between
Prudential Investments Fund Management LLC and The
Prudential Investment Corporation.*
(e) (1) Distribution Agreement between the Registrant and
Prudential Investment Management Services LLC.*
(2) Form of Selected Dealer Agreement. Incorporated by
reference to Exhibit (e)(2) to the Registration Statement on
Form N-1A (File No. 333-66895) filed on November 6, 1998.
(g) (1) Custodian Contract between the Registrant and State
Street Bank and Trust Company. Incorporated by reference to
Exhibit (g) to the Registration Statement on Form N-1A (File
No. 333-66895) filed on November 6, 1998.
(2) Amendment to Custodian Contract.*
(h) (1) Transfer Agency and Service Agreement between the
Registrant and Prudential Mutual Fund Services LLC.
Incorporated by reference to Exhibit (h) to the Registration
Statement on Form N-1A (File No. 333-66895) filed on
November 6, 1998.
(2) Amendment to Transfer Agency Agreement.*
(i) Opinion and Consent of Counsel. Incorporated by reference to
Exhibit (i) to Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A (File No. 333-66895)
filed on December 24, 1998.
(j) Consent of Independent Accountants.*
(m) (1) Distribution and Service Plan for Class A Shares.
Incorporated by reference to Exhibit (m)(1) to the
Registration Statement on Form N-1A (File No. 333-66895)
filed on November 6, 1998.
(2) Distribution and Service Plan for Class B Shares.
Incorporated by reference to Exhibit (m)(2) to the
Registration Statement on Form N-1A (File No. 333-66895)
filed on November 6, 1998.
(3) Distribution and Service Plan for Class C Shares.
Incorporated by reference to Exhibit (m)(3) to the
Registration Statement on Form N-1A (File No. 333-66895)
filed on November 6, 1998.
(o) Rule 18f-3 Plan. Incorporated by reference to Exhibit (o) to
the Registration Statement on Form N-1A (File
No. 333-66895) filed on November 6, 1998.
</TABLE>

- ------------
* Filed herewith.

<PAGE>

BY-LAWS

PRUDENTIAL TAX-MANAGED EQUITY FUND

ARTICLE I

Agreement and Declaration of Trust

Section 1. Agreement and Declaration of Trust. These By-Laws shall be
subject to the Agreement and Declaration of Trust, as from time to time amended,
supplemented or restated (the "Declaration of Trust") of Prudential Tax-Managed
Equity Fund (the "Trust").

Section 2. Definitions. Unless otherwise defined herein, the terms used
herein have the respective meanings given them in the Declaration of Trust.

ARTICLE II

Offices

Section 1. Principal Office. The principal office of the Trust shall be
located in the City of Newark, State of New Jersey, or such other location as
the Trustees may from time to time determine.

Section 2. Registered Office and Other Offices. The registered office of
the Trust shall be located in the City of Wilmington, State of Delaware or such
other location within the State of Delaware as the Trustees may from time to
time determine. The Trust may establish and maintain such other offices and
places of business as the Trustees may from time to time determine.

ARTICLE III

Shareholders

Section 1. Meetings. Meetings of the Shareholders shall be held at the
principal executive offices of the Trust or at such other place within the
United States of America as the Trustees shall designate. Meetings of the
Shareholders shall be called by the Secretary whenever (i) ordered by the
Trustees or (ii) for the purpose of voting on the removal of any Trustee,
requested in writing by Shareholders holding at least ten percent (10%) of the
outstanding Shares entitled to vote. If the Secretary, when so ordered or
requested, refuses or neglects for more than 10 days to call such meetings, the
Trustees or the Shareholders

<PAGE>

so requesting, may, in the name of the Secretary, call the meeting by giving
notice thereof in the manner required when notice is given by the Secretary.

Section 2. Notice of Meetings. Notice of all meetings of the Shareholders,
stating the time, place and purposes of the meeting, shall be given by the
Secretary by delivering or mailing, postage prepaid, to each Shareholder at his
or her address as recorded on the register of the Trust at least ten (10) days
and not more than ninety (90) days before the meeting. Only the business stated
in the notice of the meeting shall be considered at such meeting. Any adjourned
meeting may be held as adjourned without further notice. No notice need be given
to any Shareholder who shall have failed to inform the Trust of his or her
current address or if a written waiver of notice, executed before or after the
meeting by the Shareholder or his or her attorney thereunto authorized, is filed
with the records of the meeting.

Section 3. Record Date for Meetings. For the purpose of determining the
Shareholders who are entitled to notice of and to vote at any meeting, the
Trustees may from time to time close the transfer books for such period, not
exceeding thirty (30) days, as the Trustees may determine; or without closing
the transfer books the Trustees may fix a date not more than ninety (90) days
prior to the date of any meeting of Shareholders as a record date for the
determination of the persons to be treated as Shareholders of record for such
purpose.

Section 4. Proxies. At any meeting of Shareholders, any holder of Shares
entitled to vote thereat may vote by proxy, provided that no proxy shall be
voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which such vote shall be taken;
provided, however, that notwithstanding any other provision of this Section 4 to
the contrary, the Trustees may at any time adopt one or more electronic,
telecommunication or other alternatives to execution of a written instrument
that will enable holders of Shares entitled to vote at any meeting to appoint a
proxy to vote such holders' Shares at such meeting. Proxies may be solicited in
the name of one or more Trustees or one or more of the officers of the Trust.
Only Shareholders of record shall be entitled to vote. Each whole Share shall be
entitled to one vote as to any matter on which it is entitled by the Declaration
of Trust to vote, and each fractional Share shall be entitled to a proportionate
fractional vote. When any Share is held jointly by several persons, any one of

2
<PAGE>

them may vote at any meeting in person or by proxy in respect of such Share, but
if more than one of them shall be present at such meeting in person or by proxy,
and such joint owners or their proxies so present disagree as to any vote to be
cast, such vote shall not be received in respect of such Share. A proxy
purporting to be executed by or on behalf of a Shareholder shall be deemed valid
unless challenged at or prior to its exercise, and the burden of proving
invalidity shall rest on the challenger. If the holder of any such Share is a
minor or a person of unsound mind, and subject to guardianship or the legal
control of any other person as regards the charge or management of such Share,
he or she may vote by his or her guardian or such other person appointed or
having such control, and such vote may be given in person or by proxy. At all
meetings of the Shareholders, unless the voting is conducted by inspectors, all
questions relating to the qualifications of voters, the validity of proxies, and
the acceptance or rejection of votes shall be decided by the chairman of the
meeting. Except as otherwise provided herein or in the Declaration of Trust, all
matters relating to the giving, voting or validity of proxies shall be governed
by the General Corporation Law of the State of Delaware relating to proxies, and
judicial interpretations thereunder, as if the Trust were a Delaware corporation
and the Shareholders were shareholders of a Delaware corporation.

Section 5. Inspection of Books. The Trustees shall from time to time
determine whether and to what extent, and at what times and places, and under
what conditions and regulations the accounts and books of the Trust or any of
them shall be open to the inspection of the Shareholders; and no Shareholder
shall have any right to inspect any account or book or document of the Trust
except as conferred by law or otherwise by the Trustees or by resolution of the
Shareholders.

Section 6. Action without Meeting. Any action that may be taken at any
meeting of Shareholders may be taken without a meeting and without prior notice
if a consent in writing setting forth the action so taken is signed by the
holders of outstanding Shares having not less than the minimum number of votes
that would be necessary to authorize or take that action at a meeting at which
all Shares entitled to vote on that action were present and voted. All such
consents shall be filed with the records of Shareholder meetings. Such consents
shall be treated for all purposes as a vote taken at a meeting of Shareholders.

3
<PAGE>

Section 7. Application of this Article. Meetings of Shareholders shall
consist of Shareholders of any Series (or Class thereof) or of all Shareholders,
as determined pursuant to the Declaration of Trust, and this Article shall be
construed accordingly.

ARTICLE IV

Trustees

Section 1. Meetings of the Trustees. The Trustees may in their discretion
provide for regular or stated meetings of the Trustees. Notice of regular or
stated meetings need not be given. Meetings of the Trustees other than regular
or stated meetings shall be held whenever called by the Chairman, the President,
or by any two of the Trustees, at the time being in office. Notice of the time
and place of each meeting other than regular or stated meetings shall be given
by the Secretary or an Assistant Secretary or by the officer or Trustees calling
the meeting and shall be delivered or mailed, postage prepaid, to each Trustee
at least two days before the meeting, or shall be telegraphed, cabled, or wired
to each Trustee at his or her business address, or personally delivered to him
or her, at least one day before the meeting. Such notice may, however, be waived
by any Trustees. Notice of a meeting need not be given to any Trustee if a
written waiver of notice, executed by him or her before or after the meeting, is
filed with the records of the meeting, or to any Trustee who attends the meeting
without protesting prior thereto or at its commencement the lack of notice to
him or her. A notice or waiver of notice need not specify the purpose of any
meeting. The Trustees may meet by means of a telephone conference circuit or
similar communications equipment by means of which all persons participating in
the meeting are connected, which meeting shall be deemed to have been held at a
place designated by the Trustees at the meeting. Participation in a telephone
conference meeting shall constitute presence in person at such meeting. Any
action required or permitted to be taken at any meeting of the Trustees may be
taken by the Trustees without a meeting if a majority of the Trustees then in
office (or such higher number of Trustees as would be required to act on the
matter under the Declaration of Trust, these By-Laws or applicable law if a
meeting were held) consent to the action in writing and the written consents are
filed with the records of the Trustees' meetings. Such consents shall be treated
for all purposes as a vote taken at a meeting of the

4
<PAGE>

Trustees. Notwithstanding the foregoing, all actions of the Trustees shall be
taken in compliance with the provisions of the Investment Company Act of 1940,
as amended.

Section 2. Quorum and Manner of Acting. A majority of the Trustees then in
office shall constitute a quorum for the transaction of business. If at any
meeting of the Trustees there shall be less than a quorum present, a majority of
those present may adjourn the meeting from time to time until a quorum shall be
obtained. Notice of an adjourned meeting need not be given. The act of the
majority of the Trustees present at any meeting at which there is a quorum shall
be the act of the Trustees, except as may be otherwise specifically provided by
law or by the Declaration of Trust or by these By-Laws.

ARTICLE V

Committees

Section 1. Operating and Other Committees. The Trustees by vote of a
majority of all the Trustees may elect from their own number an Operating
Committee to consist of not less than three (3) Trustees to hold office at the
pleasure of the Trustees, which shall have the power to conduct the current and
ordinary business of the Trust while the Trustees are not in session, including
the purchase and sale of securities and the designation of securities to be
delivered upon redemption of Shares of the Trust, and such other powers of the
Trustees as the Trustees may, from time to time, delegate to them except those
powers by law, the Declaration of Trust or these By-laws they are prohibited
from delegating. The Trustees may also elect from their own number or otherwise
other Committees from time to time, the number composing such Committees, the
powers conferred upon the same (subject to the same limitations as with respect
to the Operating Committee) and the terms of membership on such Committees to be
determined by the Trustees. The Trustees may designate a chairman of any such
Committee. In the absence of such designation the Committee may elect its own
chairman.

Section 2. Meetings, Quorum and Manner of Acting. The Trustees may (1)
provide for stated meetings of any Committees, (2) specify the manner of calling
and notice required for special meeting of any Committee, (3) specify the number
of members of a Committee required to constitute a quorum and the numbers of
members of a Committee required to exercise specified powers delegated to such
Committee, (4) authorize the making of decisions to exercise specified powers by
written assent of the

5
<PAGE>

requisite number of members of a Committee without a meeting, and (5) authorize
the members of a Committee to meet by means of a telephone conference circuit.
The Operating Committee shall keep regular minutes of its meetings and records
of decisions taken without a meeting and cause them to be recorded in a book
designated for that purpose and kept at the principal executive offices of the
Trust.

ARTICLE VI

Officers

Section 1. General Provisions. The officers of the Trust shall be a
President, a Treasurer and a Secretary, who shall be elected by the Trustees.
The Trustees may elect or appoint such other officers or agents as the business
of the Trust may require, including a Chairman of the Board ("Chairman"), one or
more Vice Presidents, one or more Assistant Secretaries, and one or more
Assistant Treasurers. The Trustees may delegate to any officer or Committee the
power to appoint any subordinate officers or agents.

Section 2. Term of Office and Qualifications. Except as otherwise provided
by law, the Declaration of Trust or these By-Laws, the President, the Treasurer
and the Secretary, and all other officers shall hold office at the pleasure of
the Trustees. The Secretary and Treasurer may be the same person. A Vice
President and the Treasurer or a Vice President and the Secretary may be the
same person, but the offices of Vice President, Secretary and Treasurer shall
not be held by the same person. The President shall hold no other office, but
may be a Trustee of the Trust. Except as above provided, any two offices may be
held by the same person. The Chairman, if there be one, shall be a Trustee and
may but need not be a Shareholder. Any other officer may be but none need be a
Trustee or Shareholder.

Section 3. Removal. The Trustees, at any regular or special meeting of the
Trustees, may remove any officer with or without cause, by a vote of a majority
of the Trustees then in office. Any officer or agent appointed by an officer or
committee may be removed with or without cause by such appointing officer or
committee.

Section 4. Powers and Duties of the Chairman. The Chairman, if such an
officer is elected, shall if present preside at meetings of the Shareholders and
the Trustees, shall be the chief executive officer of the Trust and shall,
subject to the control of the Trustees, have general supervision, direction and
control of the business and the officers of the Trust and exercise and perform
such other powers and duties as may be

6
<PAGE>

from time to time assigned to him by the Trustees or prescribed by the
Declaration of Trust or these By-Laws.

Section 5. Powers and Duties of the President. Subject to the powers of the
Chairman, if there be such an officer, the President shall be the principal
executive officer of the Trust. He or she may call meetings of the Trustees and
of any Committee thereof when he or she deems it necessary and, in the absence
of the Chairman, shall preside at all meetings of the Shareholders and the
Trustees. Subject to the control of the Trustees, the Chairman and any
Committees of the Trustees, within their respective spheres, as provided by the
Trustees, the President shall at all times exercise a general supervision and
direction over the affairs of the Trust. The President shall have the power to
employ attorneys and counsel for the Trust and to employ such subordinate
officers, agents, clerks and employees as he or she may find necessary to
transact the business of the Trust. He or she shall also have the power to
grant, issue, execute or sign such powers of attorney, proxies or other
documents as may be deemed advisable or necessary in furtherance of the
interests of the Trust. The President shall have such other powers and duties as
from time to time may be conferred upon or assigned to him or her by the
Trustees.

Section 6. Powers and Duties of the Vice President. In the absence or
disability of the President, the Vice President or, if there be more than one
Vice President, any Vice President designated by the Trustees shall perform all
the duties and may exercise any of the powers of the President, subject to the
control of the Trustees. Each Vice President shall perform such other duties as
may be assigned to him or her from time to time by the Trustees or the
President.

Section 7. Powers and Duties of the Treasurer. The Treasurer shall be the
principal financial and accounting officer of the Trust. The Treasurer shall
deliver all funds of the Trust which may come into his or her hands to such
Custodian as the Trustees may employ pursuant to Article X of these By-Laws. He
or she shall render a statement of condition of the finances of the Trust to the
Trustee as often as they shall require the same and he or she shall in general
perform all the duties incident to the office of Treasurer and such other duties
as from time to time may be assigned to him or her by the Trustees. The
Treasurer shall give a bond for the faithful discharge of his or her duties, if
required so to do by the Trustees, in such sum and with such surety or sureties
as the Trustees shall require.

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<PAGE>

Section 8. Powers and Duties of the Secretary. The Secretary shall keep the
minutes of all meetings of the Trustees and of the Shareholders in proper books
provided for that purpose; he or she shall have custody of the seal of the
Trust; he or she shall have charge of the Share transfer books, lists and
records unless the same are in the charge of the Transfer Agent. The Secretary
shall attend to the giving and serving of all notices by the Trust in accordance
with the provisions of these By-laws and as required by law; and subject to
these By-Laws, he or she shall in general perform all duties incident to the
office of the Secretary and such other duties as from time to time may be
assigned to him or her by the Trustees.

Section 9. Powers and Duties of Assistant Treasurers. In the absence or
disability of the Treasurer, any Assistant Treasurer designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Treasurer. Each Assistant Treasurer shall give a bond for the faithful discharge
of his or her duties, if required so to do by the Trustees, in such sum and with
such surety or sureties as the Trustees shall require.

Section 10. Powers and Duties of Assistant Secretaries. In the absence or
disability of the Secretary, any Assistant Secretary designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Secretary. Each Assistant Secretary shall perform such other duties as from time
to time may be assigned to him or her by the Trustees.

Section 11. Compensation of Officers and Trustees. Subject to any
applicable provisions of the Declaration of Trust, the compensation of the
officers and Trustees shall be fixed from time to time by the Trustees or, in
the case of officers, by any Committee or officer upon whom such power may be
conferred by the Trustees. No officer shall be prevented from receiving such
compensation as such officer by reason of the fact that he or she is also a
Trustee.

ARTICLE VII

Fiscal Year

The fiscal year of the Trust shall end on such date as the Trustees shall
from time to time determine.

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<PAGE>

ARTICLE VIII

Seal

The Trustees may adopt a seal which shall be in such form and shall have
such inscription thereon as the Trustees may from time to time prescribe.

ARTICLE IX

Waivers of Notice

Whenever any notice whatever is required to be given by law, the
Declaration of Trust or these By-laws, a waiver thereof in writing, signed by
the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. A notice shall be deemed to
have been telegraphed, cabled or wired for the purposes of these By-Laws when it
has been delivered to a representative of any telegraph, cable or wire company
with instructions that it be telegraphed, cabled or wired.

ARTICLE X

Custody of Securities

Section 1. Employment of a Custodian. The Trust shall place and at all
times maintain in the custody of a Custodian (including any sub-custodian for
the Custodian) all funds, securities and similar investments included in the
Trust Property. The Custodian (and any sub-custodian) shall be a bank having not
less than $20,000,000 aggregate capital, surplus and undivided profits and shall
be appointed from time to time by the Trustees, who shall fix its remuneration.

Section 2. Action upon Termination of Custodian Agreement. Upon termination
of a Custodian Agreement or inability of the Custodian to continue to serve, the
Trustees shall promptly appoint a successor custodian, but in the event that no
successor custodian can be found who has the required qualifications and is
willing to serve, the Trustees shall call as promptly as possible a special
meeting of the Shareholders to determine whether the Trust shall function
without a custodian or shall be liquidated. If so directed by a vote of holders
of the majority of the outstanding Shares entitled to vote, the Custodian shall
deliver and pay over all Trust Property held by it as specified in such vote.

Section 3. Provisions of Custodian Contract. The following provisions shall
apply to the employment of a Custodian and to any contract entered into with the
Custodian so employed: The Trustees

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<PAGE>

shall cause to be delivered to the Custodian all securities included in the
Trust Property or to which the Trust may become entitled, and shall order the
same to be delivered by the Custodian only in completion of a sale, exchange,
transfer, pledge, loan of portfolio securities to another person, or other
disposition thereof, all as the Trustees may generally or from time to time
require or approve or to a successor Custodian; and the Trustees shall cause all
funds included in the Trust Property or to which it may become entitled to be
paid to the Custodian, and shall order the same disbursed only for investment
against delivery of the securities acquired (including securities acquired under
a repurchase agreement), or the return of cash held as collateral for loans of
portfolio securities, or in payment of expenses, including management
compensation, and liabilities of the Trust, including distributions to
Shareholders, or to a successor Custodian. Notwithstanding anything to the
contrary to these By-Laws, upon receipt of proper instructions, which may be
standing instructions, the Custodian may deliver funds in the following cases:
In connection with repurchase agreements, the Custodian shall transmit prior to
receipt on behalf of the Fund of any securities or other property, funds from
the Fund's custodian account to a special custodian approved by the Trustees of
the Fund, which funds shall be used to pay for securities to be purchased by the
Fund subject to the Fund's obligation to sell and the seller's obligation to
repurchase such securities (in such case, the securities shall be held in the
custody of the special custodian); in connection with the Trust's purchase or
sale of financial futures contracts, the Custodian shall transmit, prior to
receipt on behalf of the Fund of any securities or other property, funds from
the Trust's custodian account in order to furnish and to maintain funds with
brokers as margin to guarantee the performance of the Trust's futures
obligations in accordance with the applicable requirements of commodities
exchanges and brokers.

Section 4. Central Certificate System. Subject to applicable rules,
regulations and orders adopted by the Commission, the Trustees may direct the
Custodian to deposit all or any part of the securities owned by the Trust in a
system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other person as
may be permitted by the Commission, or otherwise in accordance with the 1940
Act, pursuant to which system all securities of any particular class or series
of any issuer deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without

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<PAGE>

physical delivery of such securities, provided that all such deposits shall be
subject to withdrawal only upon the order of the Trust.

ARTICLE XI
Indemnification of Trustees, Officers,
Employees and Other Agents

Section 1. Agents, Proceedings, Expenses. For the purpose of this Article,
"agent" means any Person who is or was a Trustee, officer, employee or other
agent of the Trust or is or was serving at the request of the Trust as a
trustee, director, officer, employee or agent of another organization in which
the Trust has any interest as a shareholder, creditor or otherwise; "proceeding"
means any threatened, pending or completed claim, action, suit or proceeding,
whether civil, criminal, administrative or investigative (including appeals);
and "expenses" includes, without limitation, attorneys' fees, costs, judgments,
amounts paid in settlement, fines, penalties and all other liabilities
whatsoever.

Section 2. Indemnification. Subject to the exceptions and limitation
contained in Section 3 below, every agent shall be indemnified by the Trust to
the fullest extent permitted by law against all liabilities and against all
expenses reasonably incurred or paid by him or her in connection with any
proceeding in which he or she becomes involved as a party or otherwise by virtue
of his or her being or having been an agent.

Section 3. Limitations, Settlements. No indemnification shall be provided
hereunder to an agent:

(a) who shall have been adjudicated by the court or other body before which
the proceeding was brought to be liable to the Trust or its Shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office
(collectively, "disabling conduct"); or

(b) with respect to any proceeding disposed of (whether by settlement,
pursuant to a consent decree or otherwise) without an adjudication by the
court or other body before which the proceeding was brought that such agent
was liable to the Trust or its Shareholders by reason of disabling conduct,
unless there has been a determination that such agent did not engage in
disabling conduct:

(i) by the court or other body before which the proceeding was brought;

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<PAGE>

(ii) by at least a majority of those Trustees who are neither Interested
Persons of the Trust nor are parties to the proceeding based upon a review of
readily available facts (as opposed to a full trial-type inquiry); or

(iii) by written opinion of independent legal counsel based upon a review
of readily available facts (as opposed to a full trial-type inquiry); provided,
however, that indemnification shall be provided hereunder to an agent with
respect to any proceeding in the event of (1) a final decision on the merits by
the court or other body before which the proceeding was brought that the agent
was not liable by reason of disabling conduct, or (2) the dismissal of the
proceeding by the court or other body before which it was brought for
insufficiency of evidence of any disabling conduct with which such agent has
been charged.

Section 4. Insurance, Rights Not Exclusive. The rights of indemnification
herein provided may be insured against by policies maintained by the Trust on
behalf of any agent, shall be severable, shall not be exclusive of or affect any
other rights to which any agent may now or hereafter be entitled and shall inure
to the benefit of the heirs, executors and administrators of any agent.

Section 5. Advance of Expenses. Expenses incurred by an agent in connection
with the preparation and presentation of a defense to any proceeding may be paid
by the Trust from time to time prior to final disposition thereof upon receipt
of an undertaking by or on behalf of such agent that such amount will be paid
over by him or her to the Trust if it is ultimately determined that he or she is
not entitled to indemnification under this Article XI; provided, however, that
(a) such agent shall have provided appropriate security for such undertaking,
(b) the Trust is insured against losses arising out of any such advance payments
or (c) either a majority of the Trustees who are neither Interested Persons of
the Trust nor parties to the proceedings, or independent legal counsel in a
written opinion, shall have determined, based upon a review of readily available
facts (as opposed to a trial-type inquiry or full investigation), that there is
reason to believe that such agent will be found entitled to indemnification
under this Article XI.

Section 6. Fiduciaries of Employee Benefit Plan. The Article does not apply
to any proceeding against any Trustee, investment manager or other fiduciary of
an employee benefit plan in that person's capacity as such, even though that
person may also be an agent of this Trust as defined in Section 1 of this

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<PAGE>

Article. Nothing contained in this Article shall limit any right to
indemnification to which such Trustee, investment manager, or other fiduciary
may be entitled by contract or otherwise which shall be enforceable to the
extent permitted by applicable law other than this Article.

ARTICLE XII

Amendments

These By-Laws, or any of them, may be altered, amended or repealed, or new
By-laws may be adopted by (a) a vote of holders of the majority of the
outstanding Shares entitled to vote or (b) by the Trustees, provided, however,
that no By-law may be amended, adopted or repealed by the Trustees if such
amendment, adoption or repeal is required by applicable law, the Declaration of
Trust or these By-Laws, to be submitted to a vote of the Shareholders.

<PAGE>

PRUDENTIAL TAX-MANAGED EQUITY FUND

MANAGEMENT AGREEMENT

Agreement made this 8th day of December, 1998, and amended
and restated as of January 1, 2000, between Prudential Tax-Managed Equity
Fund (the Fund), a series of Prudential Tax-Managed Funds, a Delaware
business trust (the Trust), and Prudential Investments Fund Management LLC, a
New York limited liability company (the Manager).

W I T N E S S E T H

WHEREAS, the Trust is a diversified, open-end management
investment company registered under the Investment Company Act of 1940, as
amended (the 1940 Act); and

WHEREAS, the Fund desires to retain the Manager to render or
contract to obtain as hereinafter provided investment advisory services to the
Fund and the Fund also desires to avail itself of the facilities available to
the Manager with respect to the administration of its day to day business
affairs, and the Manager is willing to render such investment advisory and
administrative services;

NOW, THEREFORE, the parties agree as follows:

1. The Fund hereby appoints the Manager to act as manager of
the Fund and administrator of its business affairs for the period and on the
terms set forth in this Agreement. The Manager accepts such appointment and
agrees to render the services herein described, for the compensation herein
provided. The Manager is authorized to enter into a subadvisory agreement with
The Prudential Investment Corporation (PIC or the Subadviser) pursuant to which
PIC shall furnish to the Fund the investment advisory

<PAGE>

services in connection with the management of the Fund (the Subadvisory
Agreement). The Manager will continue to have responsibility for all investment
advisory services furnished pursuant to the Subadvisory Agreement.

2. Subject to the supervision of the Board of Trustees of the
Trust, the Manager shall administer the Fund's business affairs and, in
connection therewith, shall furnish the Fund with office facilities and with
clerical, bookkeeping and recordkeeping services at such office facilities and,
subject to Section 1 hereof and the Subadvisory Agreement, the Manager shall
manage the investment operations of the Fund and the composition of the Fund's
portfolio, including the purchase, retention and disposition thereof, in
accordance with the Fund's investment objectives, policies and restrictions as
stated in the Prospectus (hereinafter defined) and subject to the following
understandings:

(a) The Manager shall provide supervision of the Fund's
investments and determine from time to time what investments or
securities will be purchased, retained, sold or loaned by the Fund, and
what portion of the assets will be invested or held uninvested as cash.

(b) The Manager, in the performance of its duties and
obligations under this Agreement, shall act in conformity with the
Declaration of Trust and By-Laws of the Trust and the Prospectus
(hereinafter defined) of the Fund and with the instructions and
directions of the Board of Trustees of the Trust and will conform to and
comply with the requirements of the 1940 Act and all other applicable
federal and state laws and regulations.

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<PAGE>

(c) The Manager shall determine the securities and futures
contracts to be purchased or sold by the Trust and will place orders
pursuant to its determinations with or through such persons, brokers,
dealers or futures commission merchants (including but not limited to
Prudential Securities Incorporated) in conformity with the policy with
respect to brokerage as set forth in the Trust's Registration Statement
and the Fund's Prospectus (hereinafter defined) or as the Board of
Trustees may direct from time to time. In providing the Fund with
investment supervision, it is recognized that the Manager will give
primary consideration to securing the most favorable price and efficient
execution. Consistent with this policy, the Manager may consider the
financial responsibility, research and investment information and other
services provided by brokers, dealers or futures commission merchants
who may effect or be a party to any such transaction or other
transactions to which other clients of the Manager may be a party. It is
understood that Prudential Securities Incorporated may be used as
principal broker for securities transactions but that no formula has
been adopted for allocation of the Fund's investment transaction
business. It is also understood that it is desirable for the Fund that
the Manager have access to supplemental investment and market research
and security and economic analysis provided by brokers or futures
commission merchants and that such brokers may execute brokerage
transactions at a higher cost to the Fund than may result when
allocating brokerage to other brokers or futures commission merchants on
the basis of seeking the most favorable price and efficient execution.
Therefore, the

3
<PAGE>

Manager is authorized to pay higher brokerage commissions for the
purchase and sale of securities and futures contracts for the Fund to
brokers or futures commission merchants who provide such research and
analysis, subject to review by the Trust's Board of Trustees from time
to time with respect to the extent and continuation of this practice.
It is understood that the services provided by such broker or futures
commission merchant may be useful to the Manager in connection with its
services to other clients.

On occasions when the Manager deems the purchase or sale of a
security or a futures contract to be in the best interest of the Fund
as well as other clients of the Manager or the Subadviser, the Manager,
to the extent permitted by applicable laws and regulations, may, but
shall be under no obligation to, aggregate the securities or futures
contracts to be so sold or purchased in order to obtain the most
favorable price or lower brokerage commissions and efficient execution.
In such event, allocation of the securities or futures contracts so
purchased or sold, as well as the expenses incurred in the transaction,
will be made by the Manager in the manner it considers to be the most
equitable and consistent with its fiduciary obligations to the Fund and
to such other clients.

(d) The Manager shall maintain all books and records with
respect to the Fund's portfolio transactions and shall render to the
Trust's Board of Trustees such periodic and special reports as the Board
may reasonably request.

(e) The Manager shall be responsible for the financial and
accounting records to be maintained by the Fund (including those being
maintained by the

4
<PAGE>

Fund's Custodian).

(f) The Manager shall provide the Fund's Custodian on each
business day information relating to all transactions concerning the
Fund's assets.

(g) The investment management services of the Manager to the
Fund under this Agreement are not to be deemed exclusive, and the
Manager shall be free to render similar services to others.

3. The Fund has delivered to the Manager copies of each of the
following documents and will deliver to it all future amendments and
supplements, if any:

(a) Agreement and Declaration of Trust, as registered pursuant
to a Certificate of Business Trust filed with the Secretary of State of
Delaware (such a Declaration of Trust, as in effect on the date hereof
and as amended from time to time, is herein called the "Declaration of
Trust");

(b) By-Laws of the Trust (such By-Laws, as in effect on the
date hereof and as amended from time to time, are herein called the
"By-Laws");

(c) Certified resolutions of the Board of Trustees of the Trust
authorizing the appointment of the Manager and approving the form of
this agreement;

(d) Registration Statement under the 1940 Act and the
Securities Act of 1933, as amended, on Form N-1A (the Registration
Statement), as filed with the Securities and Exchange Commission (the
Commission) relating to the Fund and its shares of beneficial interest
and all amendments thereto;

(e) Notification of Registration of the Trust under the 1940
Act on Form N-8A as filed with the Commission and all amendments
thereto; and

5
<PAGE>

(f) Prospectus of the Fund (such Prospectus and Statement of
Additional Information, as currently in effect and as amended or
supplemented from time to time, being herein called the "Prospectus").

4. The Manager shall authorize and permit any of its officers
and employees who may be elected as trustees or officers of the Trust to serve
in the capacities in which they are elected. All services to be furnished by the
Manager under this Agreement may be furnished through the medium of any such
officers or employees of the Manager.

5. The Manager shall keep the Fund's books and records
required to be maintained by it pursuant to paragraph 2 hereof. The Manager
agrees that all records which it maintains for the Fund are the property of the
Fund and it will surrender promptly to the Trust any such records upon the
Fund's request, provided however that the Manager may retain a copy of such
records. The Manager further agrees to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act any such records as are required to be maintained
by the Manager pursuant to Paragraph 2 hereof.

6. During the term of this Agreement, the Manager shall pay the
following expenses:

(i) the salaries and expenses of all personnel of the Fund and
the Manager except the fees and expenses of trustees who are not
affiliated persons of the Manager or the Fund's investment adviser,

(ii) all expenses incurred by the Manager or by the Fund in
connection with managing the ordinary course of the Fund's business
other than those assumed

6
<PAGE>

by the Fund herein, and

(iii) the costs and expenses payable to PIC pursuant to the
Subadvisory Agreement.

The Fund assumes and will pay the expenses described below:

(a) the fees and expenses incurred by the Fund in connection
with the management of the investment and reinvestment of the Fund's
assets,

(b) a portion of the fees and expenses of Trustees who are not
affiliated persons of the Manager or the Fund's Subadviser,

(c) the fees and expenses of the Custodian that relate to (i)
the custodial function and the recordkeeping connected therewith, (ii)
preparing and maintaining the general accounting records of the Trust
and the providing of any such records to the Manager useful to the
Manager in connection with the Manager's responsibility for the
accounting records of the Fund pursuant to Section 31 of the 1940 Act
and the rules promulgated thereunder, (iii) the pricing of the shares of
the Fund, including the cost of any pricing service or services which
may be retained pursuant to the authorization of the Board of Trustees
of the Trust, and (iv) for both mail and wire orders, the cashiering
function in connection with the issuance and redemption of the Fund's
securities,

(d) the fees and expenses of the Fund's Transfer and Dividend
Disbursing Agent, which may be the Custodian, that relate to the
maintenance of each shareholder account,

7
<PAGE>

(e) the charges and expenses of legal counsel and independent
accountants for the Fund,

(f) brokers' commissions and any issue or transfer taxes
chargeable to the Fund in connection with its securities and futures
transactions,

(g) all taxes and corporate fees payable by the Fund to
federal, state or other governmental agencies,

(h) the fees of any trade associations of which the Fund may
be a member,

(i) the cost of share certificates representing, and/or
non-negotiable share deposit receipts evidencing, shares of the Fund,

(j) the cost of fidelity, directors and officers and errors
and omissions insurance,

(k) the fees and expenses involved in registering and
maintaining registration of the Fund and of its shares with the
Securities and Exchange Commission, registering the Fund as a broker or
dealer and paying notice filing fees under state securities laws,
including the preparation and printing of the Fund's registration
statements and the Fund's prospectuses and statements of additional
information for filing under federal and state securities laws for such
purposes,

(l) allocable communications expenses with respect to investor
services and all expenses of shareholders' and Trustees' meetings and of
preparing, printing and mailing reports to shareholders in the amount
necessary for

8
<PAGE>

distribution to the shareholders,

(m) litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of the
Fund's business, and

(n) any expenses assumed by the Fund pursuant to a Plan of
Distribution adopted in conformity with Rule 12b-1 under the 1940 Act.

7. For the services provided and the expenses assumed
pursuant to this Agreement, the Fund will pay to the Manager as full
compensation therefor a fee at an annual rate of .65 of 1% of the Fund's
average daily net assets up to $500 million and .60 of 1% of average daily
net assets in excess of $500 million. This fee will be computed daily and
will be paid to the Manager monthly.

8. The Manager shall not be liable for any error of judgment or
for any loss suffered by the Fund in connection with the matters to which this
Agreement relates, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services (in which case any award of
damages shall be limited to the period and the amount set forth in Section
36(b)(3) of the 1940 Act) or loss resulting from willful misfeasance, bad faith
or gross negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations and duties under this Agreement.

9. This Agreement shall continue in effect for a period of more
than two years from the date hereof only so long as such continuance is
specifically approved at least annually in conformity with the requirements of
the 1940 Act; provided, however, that this Agreement may be terminated by the
Fund at any time, without the payment of any penalty, by the Board of Trustees
of the Trust or by vote of a majority of the

9
<PAGE>

outstanding voting securities (as defined in the 1940 Act) of the Fund, or by
the Manager at any time, without the payment of any penalty, on not more than 60
days' nor less than 30 days' written notice to the other party. This Agreement
shall terminate automatically in the event of its assignment (as defined in the
1940 Act).

10. Nothing in this Agreement shall limit or restrict the right
of any officer or employee of the Manager who may also be a trustee, officer or
employee of the Trust to engage in any other business or to devote his or her
time and attention in part to the management or other aspects of any business,
whether of a similar or dissimilar nature, nor limit or restrict the right of
the Manager to engage in any other business or to render services of any kind to
any other corporation, firm, individual or association.

11. Except as otherwise provided herein or authorized by the
Board of Trustees of the Trust from time to time, the Manager shall for all
purposes herein be deemed to be an independent contractor and shall have no
authority to act for or represent the Fund in any way or otherwise be deemed an
agent of the Trust.

12. During the term of this Agreement, the Fund agrees to
furnish the Manager at its principal office all prospectuses, proxy statements,
reports to shareholders, sales literature, or other material prepared for
distribution to shareholders of the Fund or the public, which refer in any way
to the Manager, prior to use thereof and not to use such material if the Manager
reasonably objects in writing within five business days (or such other time as
may be mutually agreed) after receipt thereof. In the event of termination of
this Agreement, the Fund will continue to furnish to the Manager copies of any
of the above mentioned materials which refer in any way to the

10
<PAGE>

Manager. Sales literature may be furnished to the Manager hereunder by
first-class or overnight mail, facsimile transmission equipment or hand
delivery. The Fund shall furnish or otherwise make available to the Manager
such other information relating to the business affairs of the Fund as the
Manager at any time, or from time to time, reasonably requests in order to
discharge its obligations hereunder.

13. This Agreement may be amended by mutual consent, but the
consent of the Fund must be obtained in conformity with the requirements of the
1940 Act.

14. Any notice or other communication required to be given
pursuant to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, (1) to the Manager at Gateway Center Three,
100 Mulberry Street, Newark, NJ 07102-4077, Attention: Secretary; or (2) to the
Trust at Gateway Center Three, 100 Mulberry Street, Newark, NJ 07102-4077,
Attention: President.

15. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.

16. The Trust may use the name "Prudential Tax-Managed Equity
Fund" or any name including the word "Prudential" only for so long as this
Agreement or any extension, renewal or amendment hereof remains in effect,
including any similar agreement with any organization which shall have succeeded
to the Manager's business as Manager or any extension, renewal or amendment
thereof remain in effect. At such time as such an agreement shall no longer be
in effect, the Fund will (to the extent that it lawfully can) cease to use such
a name or any other name indicating that it is advised by, managed by or
otherwise connected with the Manager, or any

11
<PAGE>

organization which shall have so succeeded to such businesses. In no event shall
the Fund use the name "Prudential Tax-Managed Equity Fund" or any name
including the word "Prudential" if the Manager's function is transferred or
assigned to a company of which The Prudential Insurance Company of America does
not have control.

IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day and
year first above written.

PRUDENTIAL TAX-MANAGED FUNDS

By:/s/John R. Strangfeld
------------------------------
John R. Strangfeld
President

PRUDENTIAL INVESTMENTS FUND
MANAGEMENT LLC

By:/s/Robert F. Gunia
------------------------------
Robert F. Gunia
Executive Vice President

<PAGE>

PRUDENTIAL TAX-MANAGED EQUITY FUND

SUBADVISORY AGREEMENT

Agreement made as of this 8th day of December, 1998 and amended and
restated as of January 1, 2000, between Prudential Investments Fund
Management LLC, a New York limited liability company (PIFM or the Manager),
and The Prudential Investment Corporation, a New Jersey
Corporation (the Subadviser).

WHEREAS, the Manager has entered into a Management Agreement, dated
December 8th, 1998 and amended and restated as of January 1, 2000 (the
Management Agreement), with Prudential Tax-Managed Funds (the Trust), a
Delaware business trust and a diversified open-end management investment
company registered under the Investment Company Act of 1940 (the
1940 Act) on behalf of its Series the Prudential Tax-Managed Equity Fund
(the Series), pursuant to which PIFM will act as Manager of the Series.

WHEREAS, PIFM desires to retain the Subadviser to provide investment
advisory services to the Series in connection with the management the portfolio
of the Series and the Subadviser is willing to render such investment advisory
services.

NOW, THEREFORE, the Parties agree as follows:

1. (a) Subject to the supervision of the Manager and of the Board of
Trustees of the Trust, the Subadviser shall manage the investment
operations of the portfolio of the Series and the composition of the
Series' portfolio, including the purchase, retention and disposition
thereof, in accordance with the Series' investment objectives, policies
and restrictions as stated in the Prospectus (such Prospectus and
Statement of Additional Information as currently in effect and as
amended or supplemented from time to time, being herein called the
"Prospectus"), and subject to the following understandings:

(i) The Subadviser shall provide supervision of the
investments of the Series and determine from time to time
what investments and securities will be purchased, retained,
sold or loaned by the Series, and what portion of the assets
will be invested or held uninvested as cash.

(ii) In the performance of its duties and obligations
under this Agreement, the Subadviser shall act in conformity
with the Declaration of Trust, By-Laws and Prospectus of the
Series and with the instructions and directions of the
Manager and of the Board of Trustees of the Trust and will
conform to and comply with the requirements of the 1940 Act,
the Internal Revenue Code of 1986 and all other applicable
federal and state laws and regulations.

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<PAGE>

(iii) The Subadviser shall determine the securities and
futures contracts to be purchased or sold by the Series and
will place orders with or through such persons, brokers,
dealers or futures commission merchants (including but not
limited to Prudential Securities Incorporated) to carry out
the policy with respect to brokerage as set forth in the
Trust's Registration Statement and the Series' Prospectus or
as the Board of Trustees may direct from time to time. In
providing the Series with investment supervision, it is
recognized that the Subadviser will give primary
consideration to securing the most favorable price and
efficient execution. Within the framework of this policy,
the Subadviser may consider the financial responsibility,
research and investment information and other services
provided by brokers, dealers or futures commission merchants
who may effect or be a party to any such transaction or
other transactions to which the Subadviser's other clients
may be a party. It is understood that Prudential Securities
Incorporated may be used as principal broker for securities
transactions but that no formula has been adopted for
allocation of the Series' investment transaction business.
It is also understood that it is desirable for the Series
that the Subadviser have access to supplemental investment
and market research and security and economic analysis
provided by brokers or futures commission merchants who may
execute brokerage transactions at a higher cost to the
Series than may result when allocating brokerage to other
brokers on the basis of seeking the most favorable price
and efficient execution. Therefore, the Subadviser is
authorized to place orders for the purchase and sale of
securities and futures contracts for the Series with such
brokers or futures commission merchants, subject to
review by the Trust's Board of Trustees from time to
time with respect to the extent and continuation of
this practice. It is understood that the services provided
by such brokers or futures commission merchants may be
useful to the Subadviser in connection with the Subadviser's
services to other clients.

On occasions when the Subadviser deems the
purchase or sale of a security or futures contract to be in
the best interest of the Series as well as other clients of
the Subadviser, the Subadviser, to the extent permitted by
applicable laws and regulations, may, but shall be under no
obligation to, aggregate the securities or futures contracts
to be sold or purchased in order to obtain the most
favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the securities or
futures contracts so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the
Subadviser in the manner the Subadviser considers to be the
most equitable and

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<PAGE>

consistent with its fiduciary obligations to the Trust and
to such other clients.

(iv) The Subadviser shall maintain all books and
records with respect to the Series' portfolio transactions
required by subparagraphs (b)(5), (6), (7), (9), (10) and
(11) and paragraph (f) of Rule 31a-1 under the 1940 Act and
shall render to the Trust's Board of Trustees such periodic
and special reports as the Trustees may reasonably request.

(v) The Subadviser shall provide the Series' Custodian
on each business day with information relating to all
transactions concerning the Series' assets and shall provide
the Manager with such information upon request of the
Manager.

(vi) The investment management services provided by the
Subadviser hereunder are not to be deemed exclusive, and the
Subadviser shall be free to render similar services to
others.

(b) The Subadviser shall authorize and permit any of its directors,
officers and employees who may be elected as Trustees or officers of
the Trust to serve in the capacities in which they are elected.
Services to be furnished by the Subadviser under this Agreement may
be furnished through the medium of any of such directors, officers or
employees.

(c) The Subadviser shall keep the Series' books and records required
to be maintained by the Subadviser pursuant to paragraph 1(a) hereof
and shall timely furnish to the Manager all information relating to
the Subadviser's services hereunder needed by the Manager to keep the
other books and records of the Series required by Rule 31a-1 under
the 1940 Act. The Subadviser agrees that all records which it
maintains for the Series are the property of the Series and the
Subadviser will surrender promptly to the Series any of such records
upon the Series' request, provided however that the Subadviser may
retain a copy of such records. The Subadviser further agrees to
preserve for the periods prescribed by Rule 31a-2 of the Commission
under the 1940 Act any such records as are required to be maintained
by it pursuant to paragraph 1(a) hereof.

2. The Manager shall continue to have responsibility for all services
to be provided to the Series pursuant to the Management Agreement and
shall oversee and review the Subadviser's performance of its duties
under this Agreement.

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<PAGE>

3. The Manager shall pay the Subadviser at the annual rate of .325
of 1% of the average daily net assets of the Series up to
$500 million and .285 of 1% of the Series' average daily net
assets over $500 million for furnishing the services described in
paragraph 1 hereof.

4. The Subadviser shall not be liable for any error of judgment or
for any loss suffered by the Series or the Manager in connection
with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on
the Subadviser's part in the performance of its duties or from its
reckless disregard of its obligations and duties under this
Agreement.

5. This Agreement shall continue in effect for a period of more than
two years from the date hereof only so long as such continuance is
specifically approved at least annually in conformity with the
requirements of the 1940 Act; provided, however, that this Agreement
may be terminated by the Series at any time, without the payment of
any penalty, by the Board of Trustees of the Trust or by vote of a
majority of the outstanding voting securities (as defined in the 1940
Act) of the Series, or by the Manager or the Subadviser at any time,
without the payment of any penalty, on not more than 60 days' nor
less than 30 days' written notice to the other party. This Agreement
shall terminate automatically in the event of its assignment (as
defined in the 1940 Act) or upon the termination of the Management
Agreement.

6. Nothing in this Agreement shall limit or restrict the right of any
of the Subadviser's directors, officers, or employees who may also be
a Trustee, officer or employee of the Trust to engage in any
other business or to devote his or her time and attention in part to
the management or other aspects of any business, whether of a similar
or a dissimilar nature, nor limit or restrict the Subadviser's right
to engage in any other business or to render services of any kind to
any other corporation, firm, individual or association.

7. During the term of this Agreement, the Manager agrees to furnish
the Subadviser at its principal office all prospectuses, proxy
statements, reports to shareholders, sales literature or other
material prepared for distribution to shareholders of the Trust or
the public, which refer to the Subadviser in any way, prior to use
thereof and not to use material if the Subadviser reasonably objects
in writing five business days (or such other time as may be mutually
agreed) after receipt thereof. Sales literature may be furnished to
the Subadviser hereunder by first-class or overnight mail, facsimile
transmission equipment or hand delivery.

8. This Agreement may be amended by mutual consent, but the consent
of

4
<PAGE>

the Trust must be obtained in conformity with the requirements of the
1940 Act.

9. This Agreement shall be governed by the laws of the State of New
York.

IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.

PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC

BY:/s/Robert F. Gunia
----------------------------------
Robert F. Gunia
Executive Vice President

THE PRUDENTIAL INVESTMENT CORPORATION

BY:/s/John R. Strangfeld
---------------------------------
John R. Strangfeld
President

T:\martin\bible\TXM\Subadviser.PIC.doc

<PAGE>

PRUDENTIAL TAX-MANAGED EQUITY FUND

DISTRIBUTION AGREEMENT

Agreement made as of December 8, 1998, between Prudential
Tax-Managed Equity Fund (the Fund), and Prudential Investment Management
Services LLC, a Delaware limited liability company (the Distributor).

WITNESSETH

WHEREAS, the Fund is registered under the Investment Company
Act of 1940, as amended (the Investment Company Act), as a non-diversified,
open-end, management investment company and it is in the interest of the Fund to
offer its shares for sale continuously;

WHEREAS, the shares of the Fund may be divided into classes
and/or series (all such shares being referred to herein as Shares) and the Fund
currently is authorized to offer Class A, Class B, Class C and Class Z Shares;

WHEREAS, the Distributor is a broker-dealer registered under
the Securities Exchange Act of 1934, as amended, and is engaged in the business
of selling shares of registered investment companies either directly or through
other broker-dealers;

WHEREAS, the Fund and the Distributor wish to enter into an
agreement with each other, with respect to the continuous offering of the Fund's
Shares from and after the date hereof in order to promote the growth of the Fund
and facilitate the distribution of its Shares; and

WHEREAS, the Fund has adopted a plan (or plans) of
distribution pursuant to Rule 12b-1 under the Investment Company Act with
respect to certain of its classes and/or series of Shares (the Plans)
authorizing payments by the Fund to the Distributor with respect to the
distribution of such classes and/or series of Shares and the maintenance of
related shareholder accounts.

NOW, THEREFORE, the parties agree as follows:

Section 1. APPOINTMENT OF THE DISTRIBUTOR

The Fund hereby appoints the Distributor as the principal
underwriter and distributor of the Shares of the Fund to sell Shares to the
public on behalf of the Fund and the Distributor hereby accepts such appointment
and agrees to act hereunder. The Fund hereby agrees during the term of this
Agreement to sell Shares of the Fund through the Distributor on the terms and
conditions set forth below.

<PAGE>

Section 2. EXCLUSIVE NATURE OF DUTIES

The Distributor shall be the exclusive representative of the
Fund to act as principal underwriter and distributor of the Fund's Shares,
except that:

2.1 The exclusive rights granted to the Distributor to sell
Shares of the Fund shall not apply to Shares of the Fund issued in connection
with the merger or consolidation of any other investment company or personal
holding company with the Fund or the acquisition by purchase or otherwise of all
(or substantially all) the assets or the outstanding shares of any such company
by the Fund.

2.2 Such exclusive rights shall not apply to Shares issued by
the Fund pursuant to reinvestment of dividends or capital gains distributions or
through the exercise of any conversion feature or exchange privilege.

2.3 Such exclusive rights shall not apply to Shares issued by
the Fund pursuant to the reinstatement privilege afforded redeeming
shareholders.

2.4 Such exclusive rights shall not apply to purchases made
through the Fund's transfer and dividend disbursing agent in the manner set
forth in the currently effective Prospectus of the Fund. The term "Prospectus"
shall mean the Prospectus and Statement of Additional Information included as
part of the Fund's Registration Statement, as such Prospectus and Statement of
Additional Information may be amended or supplemented from time to time, and the
term "Registration Statement" shall mean the Registration Statement filed by the
Fund with the Securities and Exchange Commission and effective under the
Securities Act of 1933, as amended (Securities Act), and the Investment Company
Act, as such Registration Statement is amended from time to time.

Section 3. PURCHASE OF SHARES FROM THE FUND

3.1 The Distributor shall have the right to buy from the Fund
on behalf of investors the Shares needed, but not more than the Shares needed
(except for clerical errors in transmission) to fill unconditional orders for
Shares placed with the Distributor by investors or registered and qualified
securities dealers and other financial institutions (selected dealers).

3.2 The Shares shall be sold by the Distributor on behalf of
the Fund and delivered by the Distributor or selected dealers, as described in
Section 6.4 hereof, to investors at the offering price as set forth in the
Prospectus.

3.3 The Fund shall have the right to suspend the sale of any
or all

2
<PAGE>

classes and/or series of its Shares at times when redemption is suspended
pursuant to the conditions in Section 4.3 hereof or at such other times as may
be determined by the Board. The Fund shall also have the right to suspend the
sale of any or all classes and/or series of its Shares if a banking moratorium
shall have been declared by federal or New Jersey authorities.

3.4 The Fund, or any agent of the Fund designated in writing
by the Fund, shall be promptly advised of all purchase orders for Shares
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Shares. The Fund (or its agent)
will confirm orders upon their receipt, will make appropriate book entries and
upon receipt by the Fund (or its agent) of payment therefor, will deliver
deposit receipts for such Shares pursuant to the instructions of the
Distributor. Payment shall be made to the Fund in New York Clearing House funds
or federal funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).

Section 4. REPURCHASE OR REDEMPTION OF SHARES BY THE FUND

4.1 Any of the outstanding Shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Shares
so tendered in accordance with its Declaration of Trust as amended from time to
time, and in accordance with the applicable provisions of the Prospectus. The
price to be paid to redeem or repurchase the Shares shall be equal to the net
asset value determined as set forth in the Prospectus. All payments by the Fund
hereunder shall be made in the manner set forth in Section 4.2 below.

4.2 The Fund shall pay the total amount of the redemption
price as defined in the above paragraph pursuant to the instructions of the
Distributor on or before the seventh day subsequent to its having received the
notice of redemption in proper form. The proceeds of any redemption of Shares
shall be paid by the Fund as follows: (i) in the case of Shares subject to a
contingent deferred sales charge, any applicable contingent deferred sales
charge shall be paid to the Distributor, and the balance shall be paid to or for
the account of the redeeming shareholder, in each case in accordance with
applicable provisions of the Prospectus; and (ii) in the case of all other
Shares, proceeds shall be paid to or for the account of the redeeming
shareholder, in each case in accordance with applicable provisions of the
Prospectus.

4.3 Redemption of any class and/or series of Shares or payment
may be suspended at times when the New York Stock Exchange is closed for other
than customary weekends and holidays, when trading on said Exchange is
restricted, when an emergency exists as a result of which disposal by the Fund
of securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to

3
<PAGE>

determine the value of its net assets, or during any other period when the
Securities and Exchange Commission, by order, so permits.

Section 5. DUTIES OF THE FUND

5.1 Subject to the possible suspension of the sale of Shares
as provided herein, the Fund agrees to sell its Shares so long as it has Shares
of the respective class and/or series available.

5.2 The Fund shall furnish the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of Shares, and
this shall include one certified copy, upon request by the Distributor, of all
financial statements prepared for the Fund by independent public accountants.
The Fund shall make available to the Distributor such number of copies of its
Prospectus and annual and interim reports as the Distributor shall reasonably
request.

5.3 The Fund shall take, from time to time, but subject to the
necessary approval of the Board and the shareholders, all necessary action to
register the same under the Securities Act, to the end that there will be
available for sale such number of Shares as the Distributor reasonably may
expect to sell. The Fund agrees to file from time to time such amendments,
reports and other documents as may be necessary in order that there will be no
untrue statement of a material fact in the Registration Statement, or necessary
in order that there will be no omission to state a material fact in the
Registration Statement which omission would make the statements therein
misleading.

5.4 The Fund shall use its best efforts to notify such states
as the Distributor and the Fund may approve of its intention to sell any
appropriate number of its Shares; provided that the Fund shall not be required
to amend its Declaration of Trust or By-Laws to comply with the laws of any
state, to maintain an office in any state, to change the terms of the offering
of its Shares in any state from the terms set forth in its Registration
Statement, to qualify as a foreign corporation in any state or to consent to
service of process in any state other than with respect to claims arising out of
the offering of its Shares. Any such notification may be withheld, terminated or
withdrawn by the Fund at any time in its discretion. As provided in Section 9
hereof, the expense of notification and maintenance of notification shall be
borne by the Fund. The Distributor shall furnish such information and other
material relating to its affairs and activities as may be required by the Fund
in connection with such notifications.

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<PAGE>

Section 6. DUTIES OF THE DISTRIBUTOR

6.1 The Distributor shall devote reasonable time and effort to
effect sales of Shares, but shall not be obligated to sell any specific number
of Shares. Sales of the Shares shall be on the terms described in the
Prospectus. The Distributor may enter into like arrangements with other
investment companies. The Distributor shall compensate the selected dealers as
set forth in the Prospectus.

6.2 In selling the Shares, the Distributor shall use its best
efforts in all respects duly to conform with the requirements of all federal and
state laws relating to the sale of such securities. Neither the Distributor nor
any selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales literature approved by
appropriate officers of the Fund.

6.3 The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales and the
cancellation of unsettled transactions, as may be necessary to comply with the
requirements of Securities Exchange Act Rule 10b-10 and the rules of the
National Association of Securities Dealers, Inc. (NASD).

6.4 The Distributor shall have the right to enter into
selected dealer agreements with registered and qualified securities dealers and
other financial institutions of its choice for the sale of Shares, provided that
the Fund shall approve the forms of such agreements. Within the United States,
the Distributor shall offer and sell Shares only to such selected dealers as are
members in good standing of the NASD or are institutions exempt from
registration under applicable federal securities laws. Shares sold to selected
dealers shall be for resale by such dealers only at the offering price
determined as set forth in the Prospectus.

Section 7. PAYMENTS TO THE DISTRIBUTOR

7.1 With respect to classes and/or series of Shares which
impose a front-end sales charge, the Distributor shall receive and may retain
any portion of any front-end sales charge which is imposed on such sales and not
reallocated to selected dealers as set forth in the Prospectus, subject to the
limitations of Rule 2830 of the Conduct Rules of the NASD. Payment of these
amounts to the Distributor is not contingent upon the adoption or continuation
of any applicable Plans.

7.2 With respect to classes and/or series of Shares which
impose a contingent deferred sales charge, the Distributor shall receive and may
retain any contingent deferred sales charge which is imposed on such sales as
set forth in the

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<PAGE>

Prospectus, subject to the limitations of Rule 2830 of the Conduct Rules of the
NASD. Payment of these amounts to the Distributor is not contingent upon the
adoption or continuation of any Plan.

Section 8. PAYMENT OF THE DISTRIBUTOR UNDER THE PLAN

8.1 The Fund shall pay to the Distributor as compensation for
services under any Plans adopted by the Fund and this Agreement a distribution
and service fee with respect to the Fund's classes and/or series of Shares as
described in each of the Fund's respective Plans and this Agreement.

8.2 So long as a Plan or any amendment thereto is in effect,
the Distributor shall inform the Board of the commissions and account servicing
fees with respect to the relevant class and/or series of Shares to be paid by
the Distributor to account executives of the Distributor and to broker-dealers,
financial institutions and investment advisers which have dealer agreements with
the Distributor. So long as a Plan (or any amendment thereto) is in effect, at
the request of the Board or any agent or representative of the Fund, the
Distributor shall provide such additional information as may reasonably be
requested concerning the activities of the Distributor hereunder and the costs
incurred in performing such activities with respect to the relevant class and/or
series of Shares.

Section 9. ALLOCATION OF EXPENSES

The Fund shall bear all costs and expenses of the continuous
offering of its Shares (except for those costs and expenses borne by the
Distributor pursuant to a Plan and subject to the requirements of Rule 12b-1
under the Investment Company Act), including fees and disbursements of its
counsel and auditors, in connection with the preparation and filing of any
required Registration Statements and/or Prospectuses under the Investment
Company Act or the Securities Act, and all amendments and supplements thereto,
and preparing and mailing annual and periodic reports and proxy materials to
shareholders (including but not limited to the expense of setting in type any
such Registration Statements, Prospectuses, annual or periodic reports or proxy
materials). The Fund shall also bear the cost of expenses of making notice
filings for the Shares for sale, and, if necessary or advisable in connection
therewith, of qualifying the Fund as a broker or dealer, in such states of the
United States or other jurisdictions as shall be selected by the Fund and the
Distributor pursuant to Section 5.4 hereof and the cost and expense payable to
each such state for continuing notification therein until the Fund decides to
discontinue such notification pursuant to Section 5.4 hereof. As set forth in
Section 8 above, the Fund shall also bear the expenses it assumes pursuant to
any Plan, so long as such Plan is in effect.

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<PAGE>

Section 10. INDEMNIFICATION

10.1 The Fund agrees to indemnify, defend and hold the
Distributor, its officers and directors and any person who controls the
Distributor within the meaning of Section 15 of the Securities Act, free and
harmless from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any reasonable counsel fees incurred in connection therewith)
which the Distributor, its officers, members or any such controlling person may
incur under the Securities Act, or under common law or otherwise, arising out of
or based upon any untrue statement of a material fact contained in the
Registration Statement or Prospectus or arising out of or based upon any alleged
omission to state a material fact required to be stated in either thereof or
necessary to make the statements in either thereof not misleading, except
insofar as such claims, demands, liabilities or expenses arise out of or are
based upon any such untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with information furnished by
the Distributor to the Fund for use in the Registration Statement or Prospectus;
provided, however, that this indemnity agreement shall not inure to the benefit
of any such officer, member or controlling person unless a court of competent
jurisdiction shall determine in a final decision on the merits, that the person
to be indemnified was not liable by reason of willful misfeasance, bad faith or
gross negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations under this Agreement (disabling conduct), or, in
the absence of such a decision, a reasonable determination, based upon a review
of the facts, that the indemnified person was not liable by reason of disabling
conduct, by (a) a vote of a majority of a quorum of Trustees or Trustees who are
neither "interested persons" of the Fund as defined in Section 2(a)(19) of the
Investment Company Act nor parties to the proceeding, or (b) an independent
legal counsel in a written opinion. The Fund's agreement to indemnify the
Distributor, its officers and members and any such controlling person as
aforesaid is expressly conditioned upon the Fund's being promptly notified of
any action brought against the Distributor, its officers or members, or any such
controlling person, such notification to be given by letter or telegram
addressed to the Fund at its principal business office. The Fund agrees promptly
to notify the Distributor of the commencement of any litigation or proceedings
against it or any of its officers or directors in connection with the issue and
sale of any Shares.

10.2 The Distributor agrees to indemnify, defend and hold the
Fund, its officers and trustees and any person who controls the Fund, if any,
within the meaning of Section 15 of the Securities Act, free and harmless from
and against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending against such claims, demands or liabilities
and any reasonable counsel fees incurred in connection therewith) which the
Fund, its officers and Trustees or any such

7
<PAGE>

controlling person may incur under the Securities Act or under common law or
otherwise, but only to the extent that such liability or expense incurred by the
Fund, its Trustees or officers or such controlling person resulting from such
claims or demands shall arise out of or be based upon any alleged untrue
statement of a material fact contained in information furnished by the
Distributor to the Fund for use in the Registration Statement or Prospectus or
shall arise out of or be based upon any alleged omission to state a material
fact in connection with such information required to be stated in the
Registration Statement or Prospectus or necessary to make such information not
misleading. The Distributor's agreement to indemnify the Fund, its officers and
Trustees and any such controlling person as aforesaid, is expressly conditioned
upon the Distributor's being promptly notified of any action brought against the
Fund, its officers and Trustees or any such controlling person, such
notification being given to the Distributor at its principal business office.

Section 11. DURATION AND TERMINATION OF THIS AGREEMENT

11.1 This Agreement shall become effective as of the date
first above written and shall remain in force for two years from the date hereof
and thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of the Fund, or by the vote of a majority of the
outstanding voting securities of the applicable class and/or series of the Fund,
and (b) by the vote of a majority of those Trustees who are not parties to this
Agreement or interested persons of any such parties and who have no direct or
indirect financial interest in this Agreement or in the operation of any of the
Fund's Plans or in any agreement related thereto (independent Trustees), cast in
person at a meeting called for the purpose of voting upon such approval.

11.2 This Agreement may be terminated at any time, without the
payment of any penalty, by a majority of the independent Trustees or by vote of
a majority of the outstanding voting securities of the applicable class and/or
series of the Fund, or by the Distributor, on sixty (60) days' written notice to
the other party. This Agreement shall automatically terminate in the event of
its assignment.

11.3 The terms "affiliated person," "assignment," "interested
person" and "vote of a majority of the outstanding voting securities", when used
in this Agreement, shall have the respective meanings specified in the
Investment Company Act.

Section 12. AMENDMENTS TO THIS AGREEMENT

This Agreement may be amended by the parties only if such
amendment is specifically approved by (a) the Board of the Fund, or by the vote
of a majority of the outstanding voting securities of the applicable class
and/or series of the Fund, and (b)

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<PAGE>

by the vote of a majority of the independent Trustees cast in person at a
meeting called for the purpose of voting on such amendment.

Section 13. SEPARATE AGREEMENT AS TO CLASSES AND/OR SERIES

The amendment or termination of this Agreement with respect to
any class and/or series shall not result in the amendment or termination of this
Agreement with respect to any other class and/or series unless explicitly so
provided.

Section 14. GOVERNING LAW

The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of the State of New Jersey as at the
time in effect and the applicable provisions of the Investment Company Act. To
the extent that the applicable law of the State of New Jersey, or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.

IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year above written.

Prudential Investment Management Services LLC

By:/s/Mark R. Fetting
-----------------------------
Mark R. Fetting
Executive Vice President

Prudential Tax-Managed Equity Fund

By:/s/Robert F. Gunia
-----------------------------
Robert F. Gunia
Vice President

<PAGE>

AMENDMENT TO CUSTODIAN CONTRACT/AGREEMENT

This Amendment to the respective Custodian Contract/Agreement is made
as of February 22, 1999 by and between each of the funds listed on Schedule D
(including any series thereof, each, a "Fund") and State Street Bank and Trust
Company (the "Custodian"). Capitalized terms used in this Amendment without
definition shall have the respective meanings given to such terms in the
Custodian Contract/Agreement referred to below.

WHEREAS, each Fund and the Custodian have entered into a Custodian
Contract/Agreement dated as of the dates set forth on Schedule D (each contract,
as amended, a "Contract"); and

WHEREAS, each Fund and the Custodian desire to amend certain provisions
of the Contract to reflect revisions to Rule 17f-5 ("Rule 17f-5") promulgated
under the Investment Company Act of 1940, as amended (the "1940 Act"); and

WHEREAS, each Fund and the Custodian desire to amend and restate
certain other provisions of the Contract relating to the custody of assets of
each of the Funds held outside of the United States.

NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter contained, the parties hereby agree to
amend the Contract, to add the following new provisions which supersede the
provisions in the existing contracts relating to the custody of assets of the
Funds outside the United States.

3. THE CUSTODIAN AS FOREIGN CUSTODY MANAGER.

3.1. DEFINITIONS.

Capitalized terms in this Article 3 shall have the following meanings:

"Country Risk" means all factors reasonably related to the systemic risk of
holding Foreign Assets in a particular country including, but not limited to,
such country's political environment; economic and financial infrastructure;
systemic custody and securities settlement practices; and laws and regulations
applicable to the safekeeping and recovery of Foreign Assets held in custody in
that country.

"Eligible Foreign Custodian" has the meaning set forth in section (a)(1) of Rule
17f-5, including a majority-owned or indirect subsidiary of a U.S. Bank (as
defined in Rule 17f-5), a bank holding company meeting the requirements of an
Eligible Foreign Custodian (as set forth in Rule 17f-5 or by other appropriate
action of the U.S. Securities and Exchange Commission (the "SEC")), or a foreign
branch of a Bank (as defined in Section 2(a)(5) of the 1940 Act) meeting the
requirements of a custodian under Section 17(f) of the 1940 Act, except that the
term does not include Mandatory Securities Depositories.

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<PAGE>

"Foreign Assets" means any of the Funds' investments (including foreign
currencies) for which the primary market is outside the United States and such
cash and cash equivalents as are reasonably necessary to effect the Funds'
transactions in such investments.

"Foreign Custody Manager" has the meaning set forth in section (a)(2) of Rule
17f-5.

"Mandatory Securities Depository" means a foreign securities depository or
clearing agency that, either as a legal or practical matter, must be used if the
Fund determines to place Foreign Assets in a country outside the United States
(i) because required by law or regulation; (ii) because securities cannot be
withdrawn from such foreign securities depository or clearing agency; or (iii)
because maintaining or effecting trades in securities outside the foreign
securities depository or clearing agency is not consistent with systemic
custodial or market practices.

3.2. DELEGATION TO THE CUSTODIAN AS FOREIGN CUSTODY MANAGER.

Each Fund, by resolution adopted by its Board of Trustees/Directors (the
"Board"), hereby delegates to the Custodian subject to Section (b) of Rule
17f-5, the responsibilities set forth in this Article 3 with respect to Foreign
Assets of the Fund held outside the United States, and the Custodian hereby
accepts such delegation, as Foreign Custody Manager with respect to the Funds.

3.3. COUNTRIES COVERED.

The Foreign Custody Manager shall be responsible for performing the delegated
responsibilities defined below only with respect to the countries and custody
arrangements for each such country listed on Schedule A to this Contract, which
list of countries may be amended from time to time by the Fund with the
agreement of the Foreign Custody Manager. The Foreign Custody Manager shall list
on Schedule A the Eligible Foreign Custodians selected by the Foreign Custody
Manager to maintain the assets of the Funds which list of Eligible Foreign
Custodians may be amended from time to time in the sole discretion of the
Foreign Custody Manager. Mandatory Securities Depositories are listed on
Schedule B to this Contract, which Schedule B may be amended from time to time
by the Foreign Custody Manager upon reasonable notice to the Fund. The Foreign
Custody Manager will provide amended versions of Schedules A and B in accordance
with Section 3.7 of this Article 3.

Upon the receipt by the Foreign Custody Manager of Proper Instructions to open
an account or to place or maintain Foreign Assets in a country listed on
Schedule A, and the fulfillment by a Fund of the applicable account opening
requirements for such country, the Foreign Custody Manager shall be deemed to
have been delegated by that Fund's Board responsibility as Foreign Custody
Manager with respect to that country and to have accepted such delegation.
Execution of this Amendment by the Fund shall be deemed to be a Proper
Instruction to open an account, or to place or maintain Foreign Assets, in each
country listed on Schedule A in which the Custodian has previously placed or
currently maintains Foreign Assets pursuant to the terms of the

2
<PAGE>

Contract. Following the receipt of Proper Instructions directing the Foreign
Custody Manager to close the account of a Fund with the Eligible Foreign
Custodian selected by the Foreign Custody Manager in a designated country, the
delegation by that Fund's Board to the Custodian as Foreign Custody Manager for
that country shall be deemed to have been withdrawn and the Custodian shall
immediately cease to be the Foreign Custody Manager of the Fund with respect to
that country.

The Foreign Custody Manager may withdraw its acceptance of delegated
responsibilities with respect to a designated country upon written notice to the
Fund. Thirty days (or such longer period as to which the parties agree in
writing) after receipt of any such notice by the Fund, the Custodian shall have
no further responsibility as Foreign Custody Manager to the Fund with respect to
the country as to which the Custodian's acceptance of delegation is withdrawn.

3.4. SCOPE OF DELEGATED RESPONSIBILITIES.

3.4.1. SELECTION OF ELIGIBLE FOREIGN CUSTODIANS.

Subject to the provisions of this Article 3, the Fund's Foreign Custody Manager
may place and maintain the Foreign Assets in the care of the Eligible Foreign
Custodian selected by the Foreign Custody Manager in each country listed on
Schedule A, as amended from time to time.

In performing its delegated responsibilities as Foreign Custody Manager to place
or maintain Foreign Assets with an Eligible Foreign Custodian, the Foreign
Custody Manager shall determine that the Foreign Assets will be subject to
reasonable care, based on the standards applicable to custodians in the country
in which the Foreign Assets will be held by that Eligible Foreign Custodian,
after considering all factors relevant to the safekeeping of such assets,
including, without limitation the factors specified in Rule 17f-5(c)(1).

3.4.2. CONTRACTS WITH ELIGIBLE FOREIGN CUSTODIANS.

The Foreign Custody Manager shall determine that the contract (or the rules or
established practices or procedures in the case of an Eligible Foreign Custodian
that is a foreign securities depository or clearing agency) governing the
foreign custody arrangements with each Eligible Foreign Custodian selected by
the Foreign Custody Manager will satisfy the requirements of Rule 17f-5(c)(2).

3.4.3. MONITORING.

In each case in which the Foreign Custody Manager maintains Foreign Assets with
an Eligible Foreign Custodian selected by the Foreign Custody Manager, the
Foreign Custody Manager shall establish a system to monitor (i) the
appropriateness of maintaining the Foreign Assets with such Eligible Foreign
Custodian and (ii) the contract governing the custody arrangements established
by the Foreign Custody Manager with the Eligible Foreign Custodian (or the rules
or established practices and procedures in the case of an Eligible Foreign
Custodian selected by the Foreign

3
<PAGE>

Custody Manager which is a foreign securities depository or clearing agency that
is not a Mandatory Securities Depository). The Foreign Custody Manager shall
provide the Board at least annually with information as to the factors used in
such monitoring system. If the Foreign Custody Manager determines that the
custody arrangements with an Eligible Foreign Custodian it has selected are no
longer appropriate, the Foreign Custody Manager shall notify the Board in
accordance with Section 3.7 hereunder and withdraw the Foreign Assets from such
Eligible Foreign Custodian as soon as reasonably practicable.

3.5. GUIDELINES FOR THE EXERCISE OF DELEGATED AUTHORITY.

For purposes of this Article 3, the Foreign Custody Manager shall have no
responsibility for Country Risk as is incurred by placing and maintaining the
Foreign Assets in each country for which the Custodian is serving as Foreign
Custody Manager of the Portfolios. The Fund and the Custodian each expressly
acknowledge that the Foreign Custody Manager shall not be delegated any
responsibilities under this Article 3 with respect to Mandatory Securities
Depositories.

3.6. STANDARD OF CARE AS FOREIGN CUSTODY MANAGER OF A PORTFOLIO.

In performing the responsibilities delegated to it, the Foreign Custody Manager
agrees to exercise reasonable care, prudence and diligence such as a person
having responsibility for the safekeeping of assets of management investment
companies registered under the 1940 Act would exercise.

3.7. REPORTING REQUIREMENTS.

The Foreign Custody Manager shall report the placement of Foreign Assets with an
Eligible Foreign Custodian, the withdrawal of the Foreign Assets from an
Eligible Foreign Custodian and the placement of such Foreign Assets with another
Eligible Foreign Custodian by providing to the Board amended Schedules A or B at
the end of the calendar quarter in which an amendment to either Schedule has
occurred. The Foreign Custody Manager shall make written reports notifying the
Board of any other material change in the foreign custody arrangements of the
Funds described in this Article 3 promptly after the occurrence of the material
change.

3.8. REPRESENTATIONS WITH RESPECT TO RULE 17F-5.

The Foreign Custody Manager represents to the Fund that it is a U.S. Bank as
defined in section (a)(7) of Rule 17f-5.

3.9. EFFECTIVE DATE AND TERMINATION OF THE CUSTODIAN AS FOREIGN CUSTODY
MANAGER.

The Board's delegation to the Custodian as Foreign Custody Manager of the Funds
shall be effective as of the date hereof and shall remain in effect until
terminated at any time, without penalty, by written notice from the terminating
party to the non-terminating party. Termination will become effective sixty (60)
days after receipt by the non-terminating party of such notice.

4
<PAGE>

The provisions of Section 3.3 hereof shall govern the delegation to and
termination of the Custodian as Foreign Custody Manager of the Funds with
respect to designated countries.

3.10. MOST FAVORED CLIENT.

If at any time prior to termination of this Amendment, the Custodian, as a
matter of standard business practice, accepts delegation as Foreign Custody
Manager for its U.S. mutual fund clients on terms of materially greater benefit
to the Funds than set forth in this Amendment, the Custodian hereby agrees to
negotiate with the Funds in good faith with respect thereto.

4. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUNDS HELD
OUTSIDE THE UNITED STATES.

4.1 DEFINITIONS.

Capitalized terms in this Article 4 shall have the following meanings:

"Foreign Securities System" means either a clearing agency or a securities
depository listed on Schedule A hereto or a Mandatory Securities Depository
listed on Schedule B hereto.

"Foreign Sub-Custodian" means a foreign banking institution (including a foreign
branch of the Custodian or another Bank (as defined in Section 2(a)(5) of the
1940 Act)) serving as an Eligible Foreign Custodian.

4.2. HOLDING SECURITIES.

The Custodian shall identify on its books as belonging to the Funds the foreign
securities held by each Foreign Sub-Custodian or Foreign Securities System. The
Custodian may hold foreign securities for all of its customers, including the
Funds, with any Foreign Sub-Custodian in an account that is identified as
belonging to the Custodian for the benefit of its customers, PROVIDED HOWEVER,
that (i) the records of the Custodian with respect to foreign securities of the
Funds which are maintained in such account shall identify those securities as
belonging to the Funds and (ii), to the extent permitted and customary in the
market in which the account is maintained, the Custodian shall require that
securities so held by the Foreign Sub-Custodian be held separately from any
assets of such Foreign Sub-Custodian or of other customers of such Foreign
Sub-Custodian.

4.3. FOREIGN SECURITIES SYSTEMS.

Foreign securities shall be maintained in a Foreign Securities System in a
designated country only through arrangements implemented by the Foreign
Sub-Custodian in such country pursuant to the terms of this Contract.

4.4. TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT.

5
<PAGE>

4.4.1. DELIVERY OF FOREIGN ASSETS.

The Custodian or a Foreign Sub-Custodian shall release and deliver foreign
securities of the Funds held by such Foreign Sub-Custodian, or in a Foreign
Securities System account, only upon receipt of Proper Instructions, which may
be continuing instructions when deemed appropriate by the parties, and only in
the following cases:

(i) upon the sale of such foreign securities for the Fund in
accordance with customary market practice in the country where
such foreign securities are held or traded, including, without
limitation: (A) delivery against expectation of receiving
later payment; or (B) in the case of a sale effected through a
Foreign Securities System, in accordance with the rules
governing the operation of the Foreign Securities System;

(ii) in connection with any repurchase agreement related to foreign
securities;

(iii) to the depository agent in connection with tender or other
similar offers for foreign securities of the Portfolios;

(iv) to the issuer thereof or its agent when such foreign
securities are called, redeemed, retired or otherwise become
payable;

(v) to the issuer thereof, or its agent, for transfer into the
name of the Custodian (or the name of the respective Foreign
Sub-Custodian or of any nominee of the Custodian or such
Foreign Sub-Custodian) or for exchange for a different number
of bonds, certificates or other evidence representing the same
aggregate face amount or number of units;

(vi) to brokers, clearing banks or other clearing agents for
examination or trade execution in accordance with reasonable
market custom; PROVIDED that in any such case the Foreign
Sub-Custodian shall have no responsibility or liability for
any loss arising from the delivery of such securities prior to
receiving payment for such securities except as may arise from
the Foreign Sub-Custodian's own negligence or willful
misconduct;

(vii) for exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;

(viii) in the case of warrants, rights or similar foreign securities,
the surrender thereof in the exercise of such warrants, rights
or similar securities or the surrender of interim receipts or
temporary securities for definitive securities;

6
<PAGE>

(ix) for delivery as security in connection with any borrowing by
the Funds requiring a pledge of assets by the Funds;

(x) in connection with trading in options and futures contracts,
including delivery as original margin and variation margin;

(xi) in connection with the lending of foreign securities; and

(xii) for any other proper purpose, BUT ONLY upon receipt of Proper
Instructions specifying the foreign securities to be
delivered, setting forth the purpose for which such delivery
is to be made, declaring such purpose to be a proper
trust\corporate purpose, and naming the person or persons to
whom delivery of such securities shall be made.

4.4.2. PAYMENT OF FUND MONIES.

Upon receipt of Proper Instructions, which may be continuing instructions when
deemed appropriate by the parties, the Custodian shall pay out, or direct the
respective Foreign Sub-Custodian or the respective Foreign Securities System to
pay out, monies of a Fund in the following cases only:

(i) upon the purchase of foreign securities for the Fund, unless
otherwise directed by Proper Instructions, in accordance with
reasonable market settlement practice in the country where
such foreign securities are held or traded, including, without
limitation, (A) delivering money to the seller thereof or to a
dealer therefor (or an agent for such seller or dealer)
against expectation of receiving later delivery of such
foreign securities; or (B) in the case of a purchase effected
through a Foreign Securities System, in accordance with the
rules governing the operation of such Foreign Securities
System;

(ii) in connection with the conversion, exchange or surrender of
foreign securities of the Fund;

(iii) for the payment of any expense or liability of the Fund,
including but not limited to the following payments: interest,
taxes, investment advisory fees, transfer agency fees, fees
under this Contract, legal fees, accounting fees, and other
operating expenses;

(iv) for the purchase or sale of foreign exchange or foreign
exchange contracts for the Fund, including transactions
executed with or through the Custodian or its Foreign
Sub-Custodians;

(v) in connection with trading in options and futures contracts,
including delivery as

7
<PAGE>

original margin and variation margin;

(vi) for payment of part or all of the dividends received in
respect of securities sold short;

(vii) in connection with the borrowing or lending of foreign
securities; and

(viii) for any other proper purpose, BUT ONLY upon receipt of Proper
Instructions specifying the amount of such payment, setting
forth the purpose for which such payment is to be made,
declaring such purpose to be a proper trust\corporate purpose,
and naming the person or persons to whom such payment is to be
made.

4.4.3. MARKET CONDITIONS; MARKET INFORMATION.

Notwithstanding any provision of this Contract to the contrary, settlement and
payment for Foreign Assets received for the account of the Funds and delivery of
Foreign Assets maintained for the account of the Funds may be effected in
accordance with the customary established securities trading or processing
practices and procedures in the country or market in which the transaction
occurs generally accepted by Institutional Clients, including, without
limitation, delivering Foreign Assets to the purchaser thereof or to a dealer
therefor (or an agent for such purchaser or dealer) with the expectation of
receiving later payment for such Foreign Assets from such purchaser or dealer.

For purposes of this Agreement, the term "Institutional Clients" means U.S.
registered investment companies or major U.S. commercial banks, insurance
companies, pension funds or substantially similar institutions which, as a part
of their ordinary business operations, purchase or sell securities and make use
of global custody services.

The Custodian shall provide to the Board information with respect to material
changes in the custody and settlement practices in countries in which the
Custodian employs a Foreign Sub-Custodian. The Custodian shall provide, without
limitation, information relating to Foreign Securities Systems and other
information described in Schedule C. The Custodian may revise Schedule C from
time to time, provided that no such revision shall result in the Board being
provided with substantively less information than had previously been provided
hereunder and provided further that the Custodian shall in any event provide to
the Board at least annually the following information and opinions with respect
to the Board approved countries listed on Schedule A:

(i) legal opinions relating to whether local law restricts with
respect to U.S. registered mutual funds (a) access of a fund's
independent public accountants to books and records of a
Foreign Sub-Custodian or Foreign Securities System, (b) a
fund's ability to recover in the event of bankruptcy or
insolvency of a Foreign Sub-Custodian or Foreign Securities
System, (c) a fund's ability to recover in the event of a loss
by a Foreign Sub-Custodian or Foreign Securities System, and
(d)

8
<PAGE>

the ability of a foreign investor to convert cash and cash
equivalents to U.S. dollars;

(ii) summary of information regarding Foreign Securities Systems;
and

(iii) country profile information containing market practice for (a)
delivery versus payment, (b) settlement method, (c) currency
restrictions, (d) buy-in practices, (e) foreign ownership
limits, and (f) unique market arrangements.

4.5. REGISTRATION OF FOREIGN SECURITIES.

The foreign securities maintained in the custody of a Foreign Sub-Custodian
(other than bearer securities) shall be registered in the name of the applicable
series or in the name of the Custodian or in the name of any Foreign
Sub-Custodian or in the name of any nominee of the foregoing, and the Fund
agrees to hold any such nominee harmless from any liability as a holder of
record of such foreign securities, except to the extent that the Fund incurs
loss or damage due to failure of such nominee to meet its standard of care set
forth in the Contract. The Custodian or a Foreign Sub-Custodian shall not be
obligated to accept securities on behalf of a Fund under the terms of this
Contract unless the form of such securities and the manner in which they are
delivered are in accordance with reasonable market practice.

4.6. BANK ACCOUNTS.

The Custodian shall identify on its books as belonging to the Fund cash
(including cash denominated in foreign currencies) deposited with the Custodian.
Where the Custodian is unable to maintain, or market practice does not
facilitate the maintenance of, cash on the books of the Custodian, a bank
account or bank accounts opened and maintained outside the United States on
behalf of a Fund with a Foreign Sub-Custodian shall be subject only to draft or
order by the Custodian or such Foreign Sub-Custodian, acting pursuant to the
terms of this Contract to hold cash received by or from or for the account of
the Portfolio.

4.7. COLLECTION OF INCOME.

The Custodian shall use reasonable commercial efforts to collect all income and
other payments with respect to the Foreign Assets held hereunder to which the
Funds shall be entitled and shall credit such income, as collected, to the
applicable Fund. In the event that extraordinary measures are required to
collect such income, the Fund and the Custodian shall consult as to such
measures and as to the compensation and expenses of the Custodian relating to
such measures.

4.8. SHAREHOLDER RIGHTS.

With respect to the foreign securities held pursuant to this Article 4, the
Custodian will use

9
<PAGE>

reasonable commercial efforts to facilitate the exercise of voting and other
shareholder rights, subject always to the laws, regulations and practical
constraints that may exist in the country where such securities are issued. The
Fund acknowledges that local conditions, including lack of regulation, onerous
procedural obligations, lack of notice and other factors may have the effect of
severely limiting the ability of the Fund to exercise shareholder rights.

4.9. COMMUNICATIONS RELATING TO FOREIGN SECURITIES.

The Custodian shall transmit promptly to the Fund written information
(including, without limitation, pendency of calls and maturities of foreign
securities and expirations of rights in connection therewith) received by the
Custodian via the Foreign Sub-Custodians from issuers of the foreign securities
being held for the account of the Funds. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Fund written information so
received by the Custodian from issuers of the foreign securities whose tender or
exchange is sought or from the party (or its agents) making the tender or
exchange offer. Subject to the standard of care to which the Custodian is held
under this Agreement, the Custodian shall not be liable for any untimely
exercise of any tender, exchange or other right or power in connection with
foreign securities or other property of the Funds at any time held by it unless
(i) the Custodian or the respective Foreign Sub-Custodian is in actual
possession of such foreign securities or property and (ii) the Custodian
receives Proper Instructions with regard to the exercise of any such right or
power, and both (i) and (ii) occur at least three business days prior to the
date on which the Custodian is to take action to exercise such right or power.

4.10. LIABILITY OF FOREIGN SUB-CUSTODIANS AND FOREIGN SECURITIES SYSTEMS.

Each agreement pursuant to which the Custodian employs a Foreign Sub-Custodian
shall, to the extent possible, require the Foreign Sub-Custodian to exercise
reasonable care in the performance of its duties and, to the extent possible, to
indemnify, and hold harmless, the Custodian from and against any loss, damage,
cost, expense, liability or claim arising out of or in connection with the
Foreign Sub-Custodian's performance of such obligations. At each Fund's
election, a Fund shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a Foreign Sub-Custodian as a
consequence of any such loss, damage, cost, expense, liability or claim if and
to the extent that a Fund and any applicable series have not been made whole for
any such loss, damage, cost, expense, liability or claim.

4.11. TAX LAW.

Except to the extent that imposition of any tax liability arises from the
Custodian's failure to perform in accordance with the terms of this Section 4.11
or from the failure of any Foreign Sub-Custodian to perform in accordance with
the terms of the applicable subcustody agreement, the Custodian shall have no
responsibility or liability for any obligations now or hereafter imposed on a
Fund, a series thereof or the Custodian as custodian of

10
<PAGE>

the Fund by the tax law of the United States or of any state or political
subdivision thereof. It shall be the responsibility of each Fund to notify the
Custodian of the obligations imposed on the Fund or the Custodian as custodian
of the Fund by the tax law of countries other than those mentioned in the above
sentence, including responsibility for withholding and other taxes, assessments
or other governmental charges, certifications and governmental reporting. The
sole responsibility of the Custodian with regard to such tax law shall be to use
reasonable efforts to assist the Fund with respect to any claim for exemption or
refund under the tax law of countries for which the Fund has provided such
information.

4.12. LIABILITY OF CUSTODIAN.

Except as may arise from the Custodian's own negligence or willful misconduct or
the negligence or willful misconduct of a Sub-Custodian, the Custodian shall be
without liability to a Fund for any loss, liability, claim or expense resulting
from or caused by anything which is (A) part of Country Risk or (B) part of the
"prevailing country risk" of the Fund, as such term is used in SEC Release Nos.
IC-22658; IS-1080 (May 12, 1997) or as such term or other similar terms are now
or in the future interpreted by the SEC or by the staff of the Division of
Investment Management of the SEC.

The Custodian shall be liable for the acts or omissions of a Foreign
Sub-Custodian to the same extent as set forth with respect to sub-custodians
generally in the Contract and, regardless of whether assets are maintained in
the custody of a Foreign Sub-Custodian or a Foreign Securities System, the
Custodian shall not be liable for any loss, damage, cost, expense, liability or
claim resulting from nationalization, expropriation, currency restrictions, or
acts of war or terrorism, or any other loss where the Sub-Custodian has
otherwise acted with reasonable care.

III. Except as specifically superseded or modified herein, the terms and
provisions of the Contract shall continue to apply with full force and
effect. In the event of any conflict between the terms of the Contract
prior to this Amendment and this Amendment, the terms of this Amendment
shall prevail. If the Custodian is delegated the responsibilities of
Foreign Custody Manager pursuant to the terms of Article 3 hereof, in
the event of any conflict between the provisions of Articles 3 and 4
hereof, the provisions of Article 3 shall prevail.

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<PAGE>

IN WITNESS WHEREOF, each of the parties has caused this Amendment to be
executed in its name and behalf by its duly authorized representative as of the
date first above written.

WITNESSED BY: STATE STREET BANK AND TRUST
COMPANY

/s/Marc L. Parsons By: /s/Ronald E. Logue
- --------------------- -----------------------
Marc L. Parsons Ronald E. Logue
Associate Counsel Executive Vice President

Cash Accumulation Trust
Command Government Fund
Command Money Fund
Command Tax-Free Fund
Global Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Prudential 20/20 Focus Fund
Prudential Balanced Fund
Prudential California Municipal Fund
Prudential Developing Markets Fund
Prudential Distressed Securities Fund, Inc.
Prudential Diversified Bond Fund, Inc.
Prudential Diversified Funds
Prudential Index Series Fund
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Europe Growth Fund
Prudential Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Prudential High Yield Fund, Inc.
Prudential High Yield Total Return Fund, Inc.
Prudential Institutional Liquidity Portfolio, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential International Bond Fund, Inc.
The Prudential Investment Portfolios Fund, Inc.
Prudential Mid-Cap Value Fund
Prudential MoneyMart Assets, Inc.

12
<PAGE>

Prudential Mortgage Income Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Municipal Bond Fund
Prudential Municipal Series Fund
Prudential National Municipals Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential Real Estate Securities Fund
Prudential Small Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Special Money Market Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Prudential Tax-Free Money Fund, Inc.
Prudential Tax-Managed Equity Fund
Prudential Utility Fund, Inc.
Prudential World Fund, Inc.
The Global Total Return Fund, Inc.
The Target Portfolio Trust
The Asia Pacific Fund, Inc.
The High Yield Income Fund, Inc.

WITNESSED BY:

By: /s/S. Jane Rose By: /s/Grace Torres
--------------- ---------------
Grace Torres
Treasurer

First Financial Fund, Inc.
The High Yield Plus Fund, Inc.

WITNESSED BY:

By: /s/Stephanie L. Bourque By: /s/Arthur J. Brown
----------------------- ------------------
Arthur J. Brown
Secretary

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AMENDMENT TO TRANSFER AGENCY AND SERVICE AGREEMENT

THIS AMENDMENT to the Transfer Agency and Service Agreement by and between
Prudential Tax-Managed Equity Fund (the "Fund") and Prudential Mutual Fund
Services LLC (successor to Prudential Mutual Fund Services, Inc.)("PMFS")
is entered into as of August 24, 1999.

WHEREAS, the Fund and PMFS have entered into a Transfer Agency
and Service Agreement (the "Agreement") pursuant to which PMFS serves as
transfer agent, dividend disbursing agent and shareholder servicing agent
for the Fund; and

WHEREAS, the Fund and PMFS desire to amend the Agreement to
confirm the Fund's agreement to pay transfer agency account fees and
expenses for beneficial owners holding shares through omnibus accounts
maintained by The Prudential Insurance Company of America, its
subsidiaries or affiliates.

NOW, THEREFORE, for and in consideration of the continuation
of the Agreement, and other good and valuable consideration, Article 8 of
the Agreement is amended by adding the following section to the Agreement:

8.04 PMFS may enter into agreements with Prudential
or any subsidiary or affiliate of Prudential whereby PMFS will
maintain an omnibus account and the Fund will reimburse PMFS for
amounts paid by PMFS to Prudential, or such subsidiary or
affiliate, in an amount not in excess of the annual maintenance
fee for each beneficial shareholder account and transactional
fees and expenses with respect to such beneficial shareholder
account as if each beneficial shareholder account were maintained
by PMFS on the Fund's records, subject to the fee schedule
attached hereto as Schedule A. Prudential, its subsidiary or
affiliate, as the case may be, shall maintain records relating to
each beneficial shareholder account that underlies the omnibus
account maintained by PMFS.

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IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed in their names and on their behalf by and through
their duly authorized officers, as of the day and year first above written.

PRUDENTIAL TAX-MANAGED ATTEST:
EQUITY FUND

By: /s/ Robert F. Gunia By: /s/ Marguerite E.H. Morrison
--------------------- ----------------------------
Robert F. Gunia Marguerite E.H. Morrison
Vice President Secretary

PRUDENTIAL MUTUAL FUND SERVICES LLC

ATTEST:

By: /s/ Brian W. Henderson By: /s/ William V. Healey
----------------------- ------------------------
Brian W. Henderson William V. Healey
President Secretary

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CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in this Registration Statement on Form N-1A of our
report dated December 20, 1999, relating to the financial statements and
financial highlights of Prudential Tax-Managed Equity Fund, which appears in
such Registration Statement. We also consent to the references to us under the
headings "Investment Advisory and Other Services" and "Financial Highlights" in
such Registration Statement.

/s/ PricewaterhouseCoopers LLP

New York, New York
December 27, 1999