PRUDENTIAL NATIONAL MUNICIPALS FUND INC, 485BPOS, 1998-11-19

PRUDENTIAL NATIONAL MUNICIPALS FUND INC
485BPOS, 1998-11-19

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<PAGE>

As filed with the Securities and Exchange Commission on November 19, 1998
Securities Act Registration No. 2-66407
Investment Company Act Registration No. 811-2992
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

-----------

FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_]
PRE-EFFECTIVE AMENDMENT NO. [_]
[X]
POST-EFFECTIVE AMENDMENT NO. 27
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [_]
[X]
AMENDMENT NO. 26
(Check appropriate box or boxes)

-----------

PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
(Exact name of registrant as specified in charter)
(formerly Prudential-Bache National Municipals Fund, Inc.)

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) 367-7521

DEBORAH A. DOCS, ESQ.
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(NAME AND ADDRESS OF AGENT FOR SERVICE OF PROCESS)
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 November 23, 1998 pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a), of Rule 485.
[_] on (date) pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] on (date) pursuant to paragraph (a)(2), of Rule
485.
If appropriate, check the following box:
[_] this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.

Title of Securities Being Registered .. Shares of Common Stock, par value $.01
per share.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- ------------- --------
<S> <C>
PART A
Item 1. Cover Page............................. Cover Page
Item 2. Synopsis............................... Fund Highlights; Fund Expenses
Item 3. Condensed Financial Information........ Fund Expenses; Financial
Highlights; How the Fund
Calculates Performance
Item 4. General Description of Registrant...... Cover Page; Fund Highlights;
How the Fund Invests; General
Information
Item 5. Management of the Fund................. Fund Highlights; Financial
Highlights; How the Fund is
Managed; General Information;
Shareholder Guide
Item 5a. Management's Discussion of Fund
Performance.................................... Financial Highlights
Item 6. Capital Stock and Other Securities..... Taxes, Dividends and
Distributions; General
Information
Item 7. Purchase of Securities Being Offered... Fund Highlights; How the Fund
is Managed; How the Fund
Values its Shares; Shareholder
Guide
Item 8. Redemption or Repurchase............... Fund Highlights; General
Information; How the Fund
Values its Shares; Shareholder
Guide
Item 9. Pending Legal Proceedings.............. Not Applicable
PART B
Item 10. Cover Page............................. Cover Page
Item 11. Table of Contents...................... Table of Contents
Item 12. General Information and History........ General Information
Item 13. Investment Objectives and Policies..... Investment Objective and
Policies; Investment
Restrictions
Item 14. Management of the Fund................. Directors and Officers;
Manager; Distributor
Item 15. Control Persons and Principal Holders
of Securities.................................. Not Applicable
Item 16. Investment Advisory and Other Services. Manager; Distributor;
Custodian, Transfer and
Dividend Disbursing Agent and
Independent Accountants
Item 17. Brokerage Allocation and Other Portfolio Transactions and
Practices...................................... Brokerage
Item 18. Capital Stock and Other Securities..... Not Applicable
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered....................... Purchase and Redemption of
Fund Shares; Shareholder
Investment Account; Net Asset
Value
Item 20. Tax Status............................. Taxes, Dividends and
Distributions
Item 21. Underwriters........................... Distributor
Item 22. Calculation of Performance Data........ Performance Information
Item 23. Financial Statements................... Financial Statements
PART C
</TABLE>

Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Post-Effective Amendment
to the Registration Statement.

1
<PAGE>

PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.

(CLASS Z SHARES)

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PROSPECTUS DATED NOVEMBER 23, 1998

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Prudential National Municipals Fund, Inc. (the Fund), is an open-end, diversi-
fied management investment company whose investment objective is to seek a
high level of current income exempt from federal income taxes. In attempting
to achieve this objective, the Fund intends to invest substantially all of its
total assets in carefully selected long-term Municipal Bonds of medium quali-
ty, i.e., obligations of issuers possessing adequate but not outstanding ca-
pacities to service their debt. Subject to the limits described herein, the
Fund may also buy and sell financial futures for the purpose of hedging its
securities portfolio. There can be no assurance that the Fund's investment ob-
jective will be achieved. See "How the Fund is Managed--Investment Objective
and Policies." The Fund's address is Gateway Center Three, 100 Mulberry
Street, Newark, New Jersey 07102-4077 and its telephone number is (800) 225-
1852.

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

Class Z shares are offered exclusively for sale to a limited group of invest-
ors. Only Class Z shares are offered through this Prospectus. The Fund also
offers Class A, Class B and Class C shares at NAV without any sales charge
through the attached Prospectus (the Retail Class Prospectus) which is a part
hereof.

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

This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing and is available at the Web
site of The Prudential Insurance Company of America (http://www.Prudential.com).
Additional information about the Fund has been filed with the Securities and
Exchange Commission (the Commission) in a Statement of Additional Information,
dated November 23, 1998, which information is incorporated herein by reference
(is legally considered a part of this Prospectus) and is available without
charge upon request to the Fund at the address or telephone number noted
above. The Commission maintains a Web site (http://www.sec.gov) that contains
the Statement of Additional Information, material incorporated by reference,
and other information regarding the Fund.

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

Investors are advised to read this Prospectus and retain it for future
reference.

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

AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OF ANY BANK AND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>

FUND EXPENSES

<TABLE>
<CAPTION>
CLASS Z
SHARES
-------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price)................................................................ None
Maximum Sales Load or Deferred Sales Load Imposed on Reinvested
Dividends............................................................. None
Maximum Deferred Sales Load (as a percentage of original purchase price
or redemption proceeds, whichever is lower)........................... None
Redemption Fees........................................................ None
Exchange Fees.......................................................... None
ANNUAL FUND OPERATING EXPENSES
<CAPTION>
(as a percentage of average net assets) CLASS Z
SHARES*
-------
<S> <C>
Management Fees...................................................... .48%
12b-1 Fees........................................................... None
Other Expenses....................................................... .15%
---
Total Fund Operating Expenses........................................ .63%
---
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE* 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual
return, and (2) redemption at the end of
each time period:
Class Z................................... $6 $20 $35 $79
</TABLE>

The example should not be considered a representation of past or future ex-
penses. Actual expenses may be greater or less than those shown.

The purpose of this table is to assist investors in understanding the vari-
ous costs and expenses that an investor in Class Z shares will bear,
whether directly or indirectly. For more complete descriptions of the vari-
ous costs and expenses, see "How the Fund Is Managed." "Other Expenses" in-
clude operating expenses of the Fund, such as directors' and professional
fees, registration fees, reports to shareholders, transfer agency and cus-
todian fees.
--------

* Estimated based on expenses expected to have been incurred if Class Z
shares had been in existence throughout the fiscal year ended December
31, 1997.

2
<PAGE>

THE FOLLOWING INFORMATION SUPPLEMENTS "HOW THE FUND IS MANAGED--DISTRIBUTOR"
IN THE RETAIL CLASS PROSPECTUS:

Prudential Investment Management Services LLC serves as the Distributor of
Class Z shares and incurs the expenses of distributing the Fund's Class Z
shares under a Distribution Agreement with the Fund, none of which is paid for
or reimbursed by the Fund.

THE FOLLOWING INFORMATION SUPPLEMENTS "HOW THE FUND VALUES ITS SHARES" IN
THE RETAIL CLASS PROSPECTUS:

Although the legal rights of each class of shares are substantially
identical, the different expenses borne by each class will result in different
dividends. As long as the Fund declares dividends daily, the NAV of the
Class A, Class B, Class C and Class Z shares will generally be the same. It is
expected, however, that the Fund's dividends will differ by approximately the
amount of any distribution and/or service fee expense accrual differential
among the classes.

THE FOLLOWING INFORMATION SUPPLEMENTS "TAXES, DIVIDENDS AND DISTRIBUTIONS--
DIVIDENDS AND DISTRIBUTIONS" IN THE RETAIL CLASS PROSPECTUS:

The per share dividends on Class Z shares will generally be higher than the
per share dividends on Class A, Class B or Class C shares as a result of the
fact that Class Z shares are not subject to any distribution or service fee.

THE FOLLOWING INFORMATION SUPPLEMENTS "SHAREHOLDER GUIDE--HOW TO BUY SHARES
OF THE FUND" AND "SHAREHOLDER GUIDE--HOW TO SELL YOUR SHARES" IN THE RETAIL
CLASS PROSPECTUS:

Class Z shares of the Fund are currently available for purchase by the
following categories of investors:

(i) participants in any fee-based program or trust program sponsored by any
affiliate of the Distributor which includes mutual funds as investment options
and for which the Fund is an available option; (ii) current and former
Directors/Trustees of the Prudential Mutual Funds (including the Fund); and
(iii) employees of Prudential or Prudential Securities who participate in an
employer-sponsored employee saving plan.

In connection with the sale of Class Z shares, the Manager, the Distributor
or one of their affiliates may pay brokers or dealers that have entered into
agreements to act as participating or introducing brokers for the Distributor
(Dealers), financial advisers and other persons which distribute shares a
finders' fee, based on a percentage of the NAV of shares sold by such persons.

THE FOLLOWING INFORMATION SUPPLEMENTS "SHAREHOLDER GUIDE--HOW TO EXCHANGE
YOUR SHARES" IN THE RETAIL CLASS PROSPECTUS:

Class Z shareholders of the Fund may exchange their Class Z shares for Class
Z shares of other Prudential Mutual Funds on the basis of relative net asset
value. Shareholders who qualify to purchase Class Z shares (other than
participants in any fee-based program) will have their Class B and Class C
shares which are not subject to contingent deferred sales charges and their
Class A shares exchanged for Class Z shares on a quarterly basis. 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 voluntary 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 the net asset value. See
"Shareholder Guide--How to Exchange Your Shares--Special Exchange Privileges."

THE INFORMATION ABOVE ALSO SUPPLEMENTS THE INFORMATION UNDER "FUND
HIGHLIGHTS" IN THE RETAIL CLASS PROSPECTUS AS APPROPRIATE.

3
<PAGE>

No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained herein, and, if given
or made, such other information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. This Prospectus does not
constitute an offer by the Fund or by the Distributor to sell or a solicitation
of any offer to buy any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer in such jurisdiction.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FUND HIGHLIGHTS............................................................ 2
What are the Fund's Risk Factors and Special Characteristics?............. 2
FUND EXPENSES.............................................................. 4
FINANCIAL HIGHLIGHTS....................................................... 5
HOW THE FUND INVESTS....................................................... 8
Investment Objective and Policies......................................... 8
Hedging and Return Enhancement Strategies................................. 10
Other Investments and Policies............................................ 16
Portfolio Management Techniques........................................... 17
Investment Restrictions................................................... 18
HOW THE FUND IS MANAGED.................................................... 18
Manager................................................................... 18
Distributor............................................................... 19
Fee Waivers............................................................... 21
Portfolio Transactions.................................................... 21
Custodian and Transfer and
Dividend Disbursing Agent................................................ 21
Year 2000................................................................. 21
HOW THE FUND VALUES ITS SHARES............................................. 22
HOW THE FUND CALCULATES PERFORMANCE........................................ 22
TAXES, DIVIDENDS AND DISTRIBUTIONS......................................... 23
GENERAL INFORMATION........................................................ 25
Description of Common Stock............................................... 25
Additional Information.................................................... 26
SHAREHOLDER GUIDE.......................................................... 26
How to Buy Shares of the Fund............................................. 26
Alternative Purchase Plan................................................. 27
How to Sell Your Shares................................................... 30
Conversion Feature--Class B Shares........................................ 33
How to Exchange Your Shares............................................... 34
Shareholder Services...................................................... 36
THE PRUDENTIAL MUTUAL FUND FAMILY.......................................... A-1
</TABLE>

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

MF104A

CUSIP No.:

Class Z:

PRUDENTIAL
NATIONAL
MUNICIPALS
FUND, INC.
(CLASS Z SHARES)

PROSPECTUS
November 23, 1998

www.prudential.com

[LOGO] PRUDENTIAL
INVESTMENTS

<PAGE>

PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.

SUPPLEMENT DATED NOVEMBER 23, 1998 TO

RETAIL CLASS PROSPECTUS DATED MARCH 4, 1998

THE FOLLOWING INFORMATION SHOULD BE ADDED TO THE COVER PAGE OF THE
PROSPECTUS:

The date of the Prospectus is hereby changed to November 23, 1998.

AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OF ANY BANK AND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY.

THE FOLLOWING INFORMATION SUPPLEMENTS "FINANCIAL HIGHLIGHTS" IN THE
PROSPECTUS:

FINANCIAL HIGHLIGHTS

(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED)

(CLASS A, CLASS B AND CLASS C SHARES)

The following financial highlights for Class A, Class B and Class C shares
are unaudited. This information should be read in conjunction with the
financial statements and the notes thereto, which appear in the Statement of
Additional Information. The financial highlights contain selected data for a
Class A, Class B and Class C share of common stock, respectively, outstanding,
total return, ratios to average net assets and other supplemental data for the
period indicated. The information has been determined based on data contained
in the financial statements.

<TABLE>
<CAPTION>
SIX-MONTHS ENDED
JUNE 30, 1998 (UNAUDITED) (C)
---------------------------------
CLASS A CLASS B CLASS C
---------- ---------- ---------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....... $ 16.12 $ 16.16 $ 16.16
---------- ---------- ---------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net investment income...................... .40 .36 .34
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions.............................. (.05) (.05) (.05)
---------- ---------- ---------
Total from investment operations.......... .35 .31 .29
---------- ---------- ---------
LESS DISTRIBUTIONS
- ------------------
Dividends from net investment income....... (.40) (.36) (.34)
Distributions in excess of net investment
income.................................... -- -- --
Tax return of capital distributions........ -- -- --
---------- ---------- ---------
Total distributions....................... (.40) (.36) (.34)
---------- ---------- ---------
Net asset Value, end of period............. $ 16.07 $ 16.11 $ 16.11
========== ========== =========
TOTAL RETURN(A):........................... 2.21% 2.00% 1.88%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............ $ 480,443 $ 128,212 $ 1,659
Average net assets (000)................... $ 485,960 $ 138,886 $ 1,168
Ratios to average net assets (b):
Expenses, including distribution fees..... .73% 1.13% 1.38%
Expenses, excluding distribution fees..... .63% .63% .63%
Net investment income..................... 4.96% 4.56% 4.31%
Portfolio turnover rate.................... 14% 14% 14%
</TABLE>
- --------

(a) Total return does not consider the effects 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.

(b)Annualized.

(c)Class Z shares did not exist at June 30, 1998.
<PAGE>

THE FOLLOWING INFORMATION SUPPLEMENTS "FUND EXPENSES" AND "SHAREHOLDER
GUIDE":

NEW PRICING STRUCTURE FOR CLASS C SHARES

Effective on November 2, 1998, Class C shares of the Prudential Mutual Funds
will be sold with a 1% initial sales charge and will be subject to a
contingent deferred sales charge of 1% of the lesser of the amount invested or
the redemption proceeds if redeemed within 18 months of purchase. In
connection with the sale of Class C shares, the Distributor will pay dealers,
financial advisers and other persons who sell Class C shares a sales
commission of up to 2% of the purchase price at the time of sale.

Class C shares issued before November 2, 1998 will not be affected by the
new pricing structure described above and will continue to be subject to a
contingent deferred sales charge of 1% on redemptions within one year of
purchase.

WAIVER OF INITIAL SALES CHARGE--CLASS A SHARES

The paragraph under "Alternative Purchase Plan--Class A Shares--Reduction
and Waiver of Initial Sales Charges--Benefit Plans" is amended to read in its
entirety as follows:

Benefit Plans. Class A shares may be purchased at NAV, without payment of an
initial sales charge, by pension, profit-sharing or other employee benefit
plans qualified under Section 401 of the Internal Revenue Code, deferred
compensation and annuity plans under Sections 457 and 403 (b)(7) of the
Internal Revenue Code and non-qualified deferred compensation plans that are
sponsored by any employer that has a tax qualified benefit plan with
Prudential (collectively, Benefit Plans), provided that the Benefit Plan has
existing assets of at least $1 million invested in shares of Prudential Mutual
Funds (excluding money market funds other than those acquired pursuant to the
exchange privilege) or 250 eligible employees or participants. In the case of
Benefit Plans whose accounts are held directly with the Transfer Agent or
Prudential Securities and for which the Transfer Agent or Prudential
Securities does individual account recordkeeping (Direct Account Benefit
Plans) and Benefit Plans sponsored by Prudential, Prudential Securities or its
subsidiaries (Prudential Securities or Subsidiary Prototype Benefit Plans),
Class A shares may be purchased at NAV by participants who are repaying loans
made from such plans to the participant.

WAIVER OF INITIAL SALES CHARGE--CLASS C SHARES

Benefit Plans. Class C shares may be purchased at NAV, without payment of an
initial sales charge, by Benefit Plans (as defined above). In the case of
Benefit Plans whose accounts are held directly with the Transfer Agent or
Prudential Securities and for which the Transfer Agent or Prudential
Securities does individual account recordkeeping (Direct Account Benefit
Plans) and Benefit Plans sponsored by Prudential, Prudential Securities or its
subsidiaries (Prudential Securities or Subsidiary Prototype Benefit Plans),
Class C shares may be purchased at NAV by participants who are repaying the
loans made from such plans to the participant.

Prudential Retirement Plans. The initial sales charge will be waived with
respect to purchases of Class C shares by qualified and non-qualified
retirement and deferred compensation plans participating in the PruArray Plan
and other plans for which Prudential provides administrative or recordkeeping
services.

Investments 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.

2
<PAGE>

Such purchases must be made within 60 days of the redemption. Investors
eligible for this waiver include: (i) investors purchasing shares through an
account at Prudential Securities Incorporated; (ii) investors purchasing
shares through an ADVANTAGE Account or an Investor Account with Pruco
Securities Corporation; and (iii) investors purchasing shares through other
Dealers. 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 Dealer if you are entitled to this waiver and provide the
Transfer Agent with such supporting documents as it may deem appropriate.

WAIVER OF CLASS C CONTINGENT DEFERRED SALES CHARGES

Prudential Retirement Plans. The CDSC will be waived on redemptions from
qualified and non-qualified retirement and deferred compensation plans that
participate in the PruArray Program and other plans for which Prudential
provides administrative or recordkeeping services. The CDSC will also be
waived on redemptions from Benefit Plans sponsored by Prudential and its
affiliates to the extent that the redemption proceeds are invested in The
Guaranteed Investment Account, a group annuity insurance product issued by
Prudential, the Guaranteed Insulated Separate Account, a separate account
offered by Prudential, and units of The Stable Value Fund, an unaffiliated
bank collective fund.

Other Benefit Plans. The CDSC will be waived on redemptions from Benefit
Plans holding shares through a Dealer not affiliated with Prudential and for
whom the Dealer provides administrative or recordkeeping services.

MINIMUM INITIAL INVESTMENT FOR CLASS C SHARES

The minimum initial investment for Class C shares has been lowered to
$2,500. The minimum initial investment for purchases made through the
Automatic Investment Plan is $50.

EXPENSE TABLE -- EXAMPLE

The following replaces the information on Class C shares under "Fund
Expenses -- Example."

EXAMPLE

You would pay the following expenses on a $1,000 investment to Class C
shares, assuming (1) 5% annual return and (2) redemption at the end of each
time period:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class C...................................... $34 $53 $85 $174
</TABLE>

You would pay the following expenses on the same investment assuming no
redemption:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class C...................................... $24 $53 $85 $174
</TABLE>

SHAREHOLDER GUIDE

The following replaces information under "Shareholder Guide -- Alternative
Purchase Plan".

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 Funds.

3
<PAGE>

If you intend to hold your investment in a Fund for less than 3 years and do
not qualify for a reduced sales charge on Class A shares, since Class A shares
are subject to a maximum initial sales charge of 3% 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 more than 3 years, but less than 4
years, or for more than 5 years, but less than 6 years, you should consider
purchasing Class A shares because the maximum 3% initial sales charge plus the
cumulative annual distribution-related fee on Class A shares would be lower
than: (i) the contingent deferred sales charge plus the cumulative annual
distribution-related fee on Class B shares; and (ii) the 1% initial sales
charge plus the cumulative annual distribution-related fee on Class C shares.

If you intend to hold your investment for more than 4 years, but less than 5
years, you may consider purchasing Class A or Class B shares because: (i) the
maximum 3% initial sales charge plus the cumulative annual distribution-
related fee on Class A shares and (ii) the contingent deferred sales charge
plus the cumulative annual distribution-related fee on Class B shares would be
lower than the 1% initial sales charge plus the cumulative annual
distribution-related fee on Class C shares.

If you intend to hold your investment for more than 6 years and do not
qualify for a reduced sales charge on Class A shares, since Class B shares
convert to Class A shares approximately 7 years after purchase and because all
of your money would be invested initially in the case of Class B shares, you
should consider purchasing Class B shares over either Class A or 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 C shares, you would have to hold your investment for more than
3 years for the 1% initial sales charge plus the higher cumulative annual
distribution-related fee on the Class C shares to exceed the initial sales
charge plus 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 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.

THE FOLLOWING INFORMATION SUPPLEMENTS "HOW THE FUND IS MANAGED--DISTRIBUTOR"
IN THE PROSPECTUS:

Effective July 1, 1998, Prudential Investment Management Services LLC
(PIMS), Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-
4077, was appointed the exclusive Distributor of Fund shares. Shares continue
to be offered through Prudential Securities Incorporated, Pruco Securities
Corporation and other brokers and dealers. PIMS is a wholly owned subsidiary
of The Prudential Insurance Company of America and an affiliate of Prudential
Securities Incorporated and Pruco Securities Corporation. All other
arrangements with respect to the distribution of Fund shares described in the
Prospectus remain unchanged.

4
<PAGE>

THE FOLLOWING INFORMATION SUPPLEMENTS "GENERAL INFORMATION--DESCRIPTION OF
COMMON STOCK" IN THE PROSPECTUS:

The Fund is authorized to offer 1 billion shares of common stock, $.01 par
value per share, divided into four classes of shares, designated Class A,
Class B, Class C and Class Z shares, each of which consists of 250 million
authorized shares. Each class of common stock represents an interest in the
same assets of the Fund and is identical in all respects except that (i) 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 or
distribution and/or service fees), which may affect performance, (ii) 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, (iii) each class has a different exchange
privilege, (iv) only Class B shares have a conversion feature and (v) Class Z
shares are offered exclusively for sale to a limited group of investors. 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 fee. In
accordance with the Fund's Articles of Incorporation, the Board of Directors
may authorize the creation of additional series and classes within such
series, with such preferences, privileges, limitations and voting and dividend
rights as the Directors may determine. Currently, the Fund is offering four
classes, designated Class A, Class B, Class C and Class Z shares.

THE FOLLOWING INFORMATION SUPPLEMENTS "SHAREHOLDER GUIDE--SHAREHOLDER
SERVICES" IN THE PROSPECTUS:

THE PRUTECTOR PROGRAM-OPTIONAL GROUP TERM LIFE INSURANCE. Prudential makes
available optional group term life insurance coverage to purchasers of shares
of certain Prudential Mutual Funds which are held in an eligible brokerage
account. This insurance protects the value of your mutual fund investment for
your beneficiaries against market downturns. The insurance benefit is based on
the difference at the time of the insured's death between the "protected
value" and the then current market value of the shares. This coverage is not
available in all states and is subject to various restrictions and
limitations. For more complete information about this program, including
charges and expenses, please contact your Prudential Representative.

THE INFORMATION ABOVE ALSO SUPPLEMENTS THE INFORMATION UNDER "FUND
HIGHLIGHTS" IN THE PROSPECTUS AS APPROPRIATE.

5
<PAGE>

PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.

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

PROSPECTUS DATED MARCH 4, 1998

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

- -------------------------------------------------------------------------------
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing and is available at the Web
site of The Prudential Insurance Company of America
(http://www.Prudential.com). Additional information about the Fund has been
filed with the Securities and Exchange Commission (the Commission) in a State-
ment of Additional Information, dated March 4, 1998, which information is in-
corporated herein by reference (is legally considered a part of this Prospec-
tus) and is available without charge upon request to the Fund at the address
or telephone number noted above. The Commission maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference, and other information regarding the Fund.

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

Investors are advised to read this Prospectus and retain it for future
reference.

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

FUND HIGHLIGHTS

The following summary is intended to highlight certain information
contained in this Prospectus and is qualified in its entirety by the more
detailed information appearing elsewhere herein.

WHAT IS PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.?

Prudential National Municipals Fund, Inc. is a mutual fund. A mutual fund
pools the resources of investors by selling its shares to the public and
investing the proceeds of such sale in a portfolio of securities designed
to achieve its investment objective. Technically, the Fund is an open-end,
diversified management investment company.

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The investment objective of the Fund is to seek a high level of current
income exempt from federal income taxes. In attempting to achieve this
objective, under normal circumstances, the Fund intends to invest
substantially all, and in any event at least 80%, of its total assets in
Municipal Bonds and Municipal Notes. There can be no assurance that the
Fund's objective will be achieved. See "How the Fund Invests--Investment
Objective and Policies" at page 8.

WHAT ARE THE FUND'S RISK FACTORS AND SPECIAL CHARACTERISTICS?

The Fund's portfolio will consist primarily of carefully selected long-
term Municipal Bonds of medium quality. While the Fund's investment adviser
will not be limited by the ratings assigned by the rating services, the
Municipal Bonds in which the Fund's portfolio will be principally invested
will be rated A and Baa by Moody's Investors Service (Moody's) and A and
BBB by Standard & Poor's Ratings Group (S&P) or comparably rated by any
other Nationally Recognized Statistical Rating Organization (NRSRO) or, if
not rated, will be, in the judgment of the investment adviser, of
substantially comparable quality. See "How the Fund Invests--Investment
Objective and Policies" at page 8. The Fund may also engage in various
hedging and return enhancement strategies, including using derivatives,
which may be considered speculative and may result in higher risks and
costs to the Fund. See "How the Fund Invests--Hedging and Return
Enhancement Strategies" at page 10. As with an investment in any Mutual
Fund, an investment in this Fund can decrease in value and you can lose
money.

WHO MANAGES THE FUND?

Prudential Investments Fund Management LLC (PIFM or the Manager) is the
Manager of the Fund and is compensated for its services at an annual rate
of .50 of 1% of the Fund's average daily net assets up to and including
$250 million, .475 of 1% of the next $250 million, .45 of 1% of the next
$500 million, .425 of 1% of the next $250 million, .40 of 1% of the next
$250 million and .375 of 1% of the Fund's average daily net assets in
excess of $1.5 billion. As of January 31, 1998, PIFM served as manager or
administrator to 64 investment companies, including 42 mutual funds, with
aggregate assets of approximately $63 billion. The Prudential Investment
Corporation (PIC), which does business under the name of Prudential
Investments (PI, the Subadviser or the investment adviser), furnishes
investment advisory services in connection with the management of the Fund
under a Subadvisory Agreement with PIFM. See "How the Fund is Managed--
Manager" at page 18.

WHO DISTRIBUTES THE FUND'S SHARES?

Prudential Securities Incorporated (Prudential Securities or the
Distributor), a major securities underwriter and securities and commodities
broker, acts as the Distributor of the Fund's shares. The Distributor is
paid an annual distribution and service fee which is currently being
charged at the rate of .10 of 1% of the average daily net assets of the
Class A shares, at the rate of .50 of 1% of the average daily net assets of
the Class B shares and which is currently being charged at the rate of .75
of 1% of the average daily net assets of the Class C shares. See "How the
Fund is Managed--Distributor" at page 19.

2
<PAGE>

WHAT IS THE MINIMUM INVESTMENT?

The minimum initial investment is $1,000 for Class A and Class B shares and
$5,000 for Class C shares. The minimum subsequent investment is $100. There is
no minimum investment requirement for certain employee savings plans or
custodial accounts for the benefit of minors. For purchases made through the
Automatic Savings Accumulation Plan, the minimum initial and subsequent
investment is $50. See "Shareholder Guide--How to Buy Shares of the Fund" at
page 26 and "Shareholder Guide--Shareholder Services" at page 36.

HOW DO I PURCHASE SHARES?

You may purchase shares of the Fund through Prudential Securities, Pruco
Securities Corporation (Prusec) or directly from the Fund, through its transfer
agent, Prudential Mutual Fund Services LLC (PMFS or the Transfer Agent), at the
net asset value per share (NAV) next determined after receipt of your purchase
order by the Transfer Agent or Prudential Securities plus a sales charge which
may be imposed either (i) at the time of purchase (Class A shares) or (ii) on a
deferred basis (Class B or Class C shares). See "How the Fund Values its
Shares" at page 22 and "Shareholder Guide--How to Buy Shares of the Fund" at
page 26.

WHAT ARE MY PURCHASE ALTERNATIVES?

The Fund offers three classes of shares:

. Class A Shares: Sold with an initial sales charge of up to 3% of the offering
price.

. Class B Shares: Sold without an initial sales charge but are subject to a
contingent deferred sales charge or CDSC (declining from 5%
to zero of the lower of the amount invested or the redemption
proceeds) which will be imposed on certain redemptions made
within six years of purchase. Although Class B shares are
subject to higher ongoing distribution-related expenses than
Class A shares, Class B shares will automatically convert to
Class A shares (which are subject to lower ongoing
distribution-related expenses) approximately seven years
after purchase.

. Class C Shares: Sold without an initial sales charge and, for one year after
purchase, are subject to a 1% CDSC on redemptions. Like Class
B shares, Class C shares are subject to higher ongoing
distribution-related expenses than Class A shares but, unlike
Class B Shares, Class C Shares do not convert to another
class.

See "Shareholder Guide--Alternative Purchase Plan" at page 27.

HOW DO I SELL MY SHARES?

You may redeem shares of the Fund at any time at the NAV next determined
after Prudential Securities or the Transfer Agent receives your sell order.
However, the proceeds of redemptions of Class B and Class C shares may be
subject to a CDSC. See "Shareholder Guide--How to Sell Your Shares" at page 30.

HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?

The Fund expects to declare daily and pay monthly dividends of net investment
income and make distributions of net capital gains, if any, at least annually.
Dividends and distributions will be automatically reinvested in additional
shares of the Fund at NAV without a sales charge unless you request that they
be paid to you in cash. See "Taxes, Dividends and Distributions" at page 23.

3
<PAGE>

FUND EXPENSES

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES+
Maximum Sales Load Imposed on
Purchases
(as a percentage of offering
price)......................... 3% None None
Maximum Sales Load or Deferred
Sales Load Imposed on
Reinvested Dividends........... None None None
Maximum Deferred Sales Load (as
a percentage of original
purchase price or redemption None 5% during the first 1% on redemptions
proceeds, whichever is lower).. year, made within one
decreasing by 1% year of purchase
annually to 1% in
the fifth and sixth
years and 0% the
seventh year*
Redemption Fees................. None None None
Exchange Fees................... None None None
ANNUAL FUND OPERATING EXPENSES**
<CAPTION>
(as a percentage of average net assets) CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Management Fees............... .48% .48% .48%
12b-1 Fees (After Reduction).. .10%++ .50% .75++
Other Expenses................ .15% .15% .15%
--- ---- ----
Total Fund Operating Expenses
(After Reduction)............ .73% 1.13% 1.38%
=== ==== ====
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual
return, and (2) redemption at the end of
each time period:
Class A................................... $37 $53 $69 $118
Class B................................... $62 $66 $72 $121
Class C................................... $24 $44 $76 $166
You would pay the following expenses on the
same investment assuming no redemption:
Class A................................... $37 $53 $69 $118
Class B................................... $12 $36 $62 $121
Class C................................... $14 $44 $76 $166
</TABLE>

The above example is based on data for the Fund's fiscal year ended Decem-
ber 31, 1997. The example should not be considered a representation of past
or future expenses. Actual expenses may be greater or less than those
shown.
The purpose of this table is to assist investors in understanding the vari-
ous costs and expenses that an investor in the Fund will bear, whether di-
rectly or indirectly. For more complete descriptions of the various costs
and expenses, see "How the Fund Is Managed." "Other Expenses" include oper-
ating expenses of the Fund, such as directors' and professional fees, reg-
istration fees, reports to shareholders, transfer agency and custodian
fees.
--------
* Class B shares will automatically convert to Class A shares
approximately seven years after purchase. See "Shareholder Guide--
Conversion Feature--Class B Shares."
** The expense information in the table has been restated to reflect
current fees. Effective September 1, 1997, PIFM eliminated its
management fee waiver (.05 of 1%). See "How the Fund is Managed--
Manager--Fee Waivers."
+ Pursuant to rules of the National Association of Securities Dealers,
Inc., the aggregate initial sales charges, deferred sales charges and
asset-based sales charges on shares of the Fund may not exceed 6.25% of
the total gross sales, subject to certain exclusions. This 6.25%
limitation is imposed on each class of the Fund rather than on a per
shareholder basis. Therefore, long-term shareholders of the Fund may pay
more in total sales charges than the economic equivalent of 6.25% of
such shareholders' investment in such shares. See "How the Fund is
Managed--Distributor."
++ Although the Class A and Class C Distribution and Service Plans provide
that the Fund may pay a distribution fee of up to .30 of 1% per annum
and 1% per annum of the average daily net assets of the Class A and
Class C shares, respectively, the Distributor has agreed to limit its
distribution fees with respect to Class A and Class C shares of the Fund
to no more than .10 of 1% and .75 of 1% of the average daily net asset
value of the Class A and Class C shares, respectively, for the year
ending December 31, 1998. Total operating expenses (before management
fee waiver) and without such limitations would be .93% and 1.63% for
Class A and Class C shares, respectively. See "How the Fund is Managed--
Distributor."

4
<PAGE>

FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE PERIODS INDICATED)
(CLASS A SHARES)

The following financial highlights with respect to each of the five years in
the period ended December 31, 1997 have been audited by Price Waterhouse LLP,
independent accountants, whose report thereon was unqualified. This information
should be read in conjunction with the financial statements and notes thereto,
which appear in the Statement of Additional Information. The following
financial highlights contain selected data for a Class A share of common stock
outstanding, total return, ratios to average net assets and other supplemental
data for each of the periods indicated. The information is based on data
contained in the financial statements. Further performance information is
contained in the annual report, which may be obtained without charge. See
"Shareholder Guide--Shareholder Services--Reports to Shareholders."
<TABLE>
<CAPTION>
JANUARY 22,
YEAR ENDED 1990(B)
DECEMBER 31, THROUGH
------------------------------------------------------------------------ DECEMBER
1997 1996 1995 1994 1993 1992 1991 31, 1990
-------- -------- -------- ------- ------- ------ ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value,
beginning of period..... $ 15.56 $ 15.98 $ 14.42 $ 16.30 $ 15.94 $16.00 $15.09 $14.98
-------- -------- -------- ------- ------- ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.... .81(d) .82(d) .81(d) .81 .90 .94 .97 .90
Net realized and
unrealized gain (loss)
on investment
transactions............ .67 (.42) 1.57 (1.78) 1.05 .43 .91 .11
-------- -------- -------- ------- ------- ------ ------ ------
Total from investment
operations............. 1.48 .40 2.38 (.97) 1.95 1.37 1.88 1.01
-------- -------- -------- ------- ------- ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment income....... (.81) (.82) (.81) (.81) (.90) (.94) (.97) (.90)
Distributions in excess
of net investment
income.................. (.01) --(e) (.01) -- -- -- -- --
Distributions from net
realized gains.......... (.10) -- -- (.10) (.69) (.49) -- --
-------- -------- -------- ------- ------- ------ ------ ------
Total distributions..... (.92) (.82) (.82) (.91) (1.59) (1.43) (.97) (.90)
-------- -------- -------- ------- ------- ------ ------ ------
Net asset value, end of
period.................. $ 16.12 $ 15.56 $ 15.98 $ 14.42 $ 16.30 $15.94 $16.00 $15.09
======== ======== ======== ======= ======= ====== ====== ======
TOTAL RETURN(A).......... 9.80% 2.66% 16.91% (6.04)% 12.60% 8.88% 12.94% 6.88%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)................... $493,178 $502,739 $538,145 $12,721 $14,167 $7,700 $3,819 $1,846
Average net assets (000). $491,279 $508,159 $446,350 $14,116 $11,786 $5,401 $2,697 $1,161
Ratios to average net
assets:
Expenses, including dis-
tribution fees......... .70%(d) .68%(d) .75%(d) .77% .69% .72% .75% .75%(c)
Expenses, excluding dis-
tribution fees......... .60%(d) .58%(d) .65%(d) .67% .59% .62% .65% .65%(c)
Net investment income... 5.15%(d) 5.31%(d) 5.34%(d) 5.38% 5.49% 5.79% 6.27% 6.43%(c)
Portfolio turnover rate.. 38% 46% 98% 120% 82% 114% 59% 110%
</TABLE>
- --------
(a) Total return does not consider the effects 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.
(b) Commencement of offering of Class A shares.
(c) Annualized.
(d) Net of management fee waiver.
(e) Less than $.005 per share.

5
<PAGE>

FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE YEARS INDICATED)
(CLASS B SHARES)

The following financial highlights with respect to each of the five years in
the period ended December 31, 1997 have been audited by Price Waterhouse LLP,
independent accountants, whose report thereon was unqualified. This
information should be read in conjunction with the financial statements and
notes thereto, which appear in the Statement of Additional Information. The
following financial highlights contain selected data for a Class B share of
common stock outstanding, total return, ratios to average net assets and other
supplemental data for each of the years indicated. The information is based on
data contained in the financial statements. Further performance information is
contained in the annual report, which may be obtained without charge. See
"Shareholder Guide--Shareholder Services--Reports to Shareholders."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, begin-
ning of year........... $ 15.60 $ 16.02 $ 14.45 $ 16.33 $ 15.97 $ 16.02 $ 15.11 $ 15.15 $ 15.04
-------- -------- -------- -------- -------- -------- -------- -------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .. .75(c) .76(c) .76(c) .75 .84 .88 .91 .90 .96
Net realized and
unrealized gain (loss)
on investment transac-
tions.................. .67 (.42) 1.58 (1.78) 1.05 .44 .91 (.04) .11
-------- -------- -------- -------- -------- -------- -------- -------- ----------
Total from investment
operations............ 1.42 .34 2.34 (1.03) 1.89 1.32 1.82 .86 1.07
-------- -------- -------- -------- -------- -------- -------- -------- ----------
LESS DISTRIBUTIONS:
Dividends from net
investment income...... (.75) (.76) (.76) (.75) (.84) (.88) (.91) (.90) (.96)
Distributions in excess
of net investment
income................. (.01) --(d) (.01) -- -- -- -- -- --
Distributions from net
realized gains......... (.10) -- -- (.10) (.69) (.49) -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- ----------
Total distributions.... (.86) (.76) (.77) (.85) (1.53) (1.37) (.91) (.90) (.96)
-------- -------- -------- -------- -------- -------- -------- -------- ----------
Net asset value, end of
year................... $ 16.16 $ 15.60 $ 16.02 $ 14.45 $ 16.33 $ 15.97 $ 16.02 $ 15.11 $ 15.15
======== ======== ======== ======== ======== ======== ======== ======== ==========
TOTAL RETURN(A)......... 9.35% 2.26% 16.49% (6.39)% 12.15% 8.50% 12.42% 5.96% 7.43%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of year
(000) ................. $141,528 $168,185 $222,865 $672,272 $848,299 $828,702 $874,338 $882,212 $1,033,173
Average net assets
(000).................. $151,938 $193,312 $252,313 $751,623 $854,919 $829,830 $862,249 $940,215 $1,027,726
Ratios to average net
assets:
Expenses, including
distribution fees..... 1.10%(c) 1.08%(c) 1.15%(c) 1.17% 1.09% 1.12% 1.15% 1.13% 1.01%
Expenses, excluding
distribution fees..... .60%(c) .58%(c) .65%(c) .67% .59% .62% .65% .64% .66%
Net investment income.. 4.75%(c) 4.91%(c) 4.96%(c) 4.96% 5.09% 5.39% 5.87% 6.03% 6.45%
Portfolio turnover rate. 38% 46% 98% 120% 82% 114% 59% 110% 198%
<CAPTION>
1988(B)
-----------
<S> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, begin-
ning of year........... $ 14.57
-----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .. 1.03
Net realized and
unrealized gain (loss)
on investment transac-
tions.................. .47
-----------
Total from investment
operations............ 1.50
-----------
LESS DISTRIBUTIONS:
Dividends from net
investment income...... (1.03)
Distributions in excess
of net investment
income................. --
Distributions from net
realized gains......... --
-----------
Total distributions.... (1.03)
-----------
Net asset value, end of
year................... $ 15.04
===========
TOTAL RETURN(A)......... 10.49%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of year
(000) ................. $1,066,159
Average net assets
(000).................. $1,081,122
Ratios to average net
assets:
Expenses, including
distribution fees..... 1.02%
Expenses, excluding
distribution fees..... .66%
Net investment income.. 6.86%
Portfolio turnover rate. 152%
</TABLE>
-------
(a) Total return does not consider the effects 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 year reported and includes reinvestment of
dividends and distributions.
(b) On May 2, 1988, Prudential Mutual Fund Management, Inc. succeeded The
Prudential Insurance Company of America as investment adviser and since
then has acted as Manager of the Fund. See "Manager" in the Statement of
Additional Information.
(c) Net of management fee waiver.
(d) Less than $.005 per share.

6
<PAGE>

FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE PERIODS INDICATED)
(CLASS C SHARES)

The following financial highlights have been audited by Price Waterhouse LLP,
independent accountants, whose report thereon was unqualified. This information
should be read in conjunction with the financial statements and notes thereto,
which appear in the Statement of Additional Information. The following
financial highlights contain selected data for a Class C share of common stock
outstanding, total return, ratios to average net assets and other supplemental
data for the period indicated. The information is based on data contained in
the financial statements. Further performance information is contained in the
annual report, which may be obtained without charge. See "Shareholder Guide--
Shareholder Services--Reports to Shareholders."
<TABLE>
<CAPTION>
AUGUST 1,
YEAR ENDED 1994(B)
DECEMBER 31, THROUGH
---------------------------- DECEMBER 31,
1997 1996 1995 1994
------ ------ ------ ------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................... $15.60 $16.02 $14.44 $15.13
------ ------ ------ ------
INCOME FROM INVESTMENT OPERA-
TIONS:
Net investment income........... .71(d) .72(d) .72(d) .29
Net realized and unrealized gain
(loss) on
investment transactions........ .67 (.42) 1.59 (.69)
------ ------ ------ ------
Total from investment opera-
tions......................... 1.38 .30 2.31 (.40)
------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment
income......................... (.71) (.72) (.72) (.29)
Distributions in excess of net
investment income.............. (.01) -- (e) (.01) --
Distributions from net realized
gains.......................... (.10) -- -- --
------ ------ ------ ------
Total distributions............ (.82) (.72) (.73) (.29)
------ ------ ------ ------
Net asset value, end of period.. $16.16 $15.60 $16.02 $14.44
====== ====== ====== ======
TOTAL RETURN(A)................. 9.08% 2.01% 16.22% (2.63)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000). $ 825 $ 772 $ 403 $ 141
Average net assets (000)........ $ 758 $ 674 $ 247 $ 103
Ratios to average net assets:
Expenses, including distribu-
tion fees..................... 1.35%(d) 1.33%(d) 1.40%(d) 1.51%(c)
Expenses, excluding distribu-
tion fees..................... .60%(d) .58%(d) .65%(d) .76%(c)
Net investment income.......... 4.50%(d) 4.67%(d) 4.66%(d) 4.84%(c)
Portfolio turnover rate......... 38% 46% 98% 120%
</TABLE>
- --------
(a) Total return does not consider the effects 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.
(b) Commencement of offering of Class C shares.
(c) Annualized.
(d) Net of management fee waiver.
(e) Less than $.005 per share.

7
<PAGE>

HOW THE FUND INVESTS

INVESTMENT OBJECTIVE AND POLICIES

THE INVESTMENT OBJECTIVE OF THE FUND IS TO SEEK A HIGH LEVEL OF CURRENT
INCOME EXEMPT FROM FEDERAL INCOME TAXES. IN ATTEMPTING TO ACHIEVE THIS
OBJECTIVE, UNDER NORMAL CIRCUMSTANCES THE FUND INTENDS TO INVEST SUBSTANTIALLY
ALL, AND IN ANY EVENT AT LEAST 80%, OF ITS TOTAL ASSETS IN MUNICIPAL BONDS AND
MUNICIPAL NOTES. THERE CAN BE NO ASSURANCE THAT SUCH OBJECTIVE WILL BE
ACHIEVED. See "Investment Objective and Policies" in the Statement of
Additional Information.

THE FUND'S INVESTMENT OBJECTIVE IS A FUNDAMENTAL POLICY AND, THEREFORE, MAY
NOT BE CHANGED WITHOUT THE APPROVAL OF THE HOLDERS OF A MAJORITY OF THE FUND'S
OUTSTANDING VOTING SECURITIES AS DEFINED IN THE INVESTMENT COMPANY ACT OF
1940, AS AMENDED (THE INVESTMENT COMPANY ACT). FUND POLICIES THAT ARE NOT
FUNDAMENTAL MAY BE MODIFIED BY THE BOARD OF DIRECTORS.

THE MUNICIPAL BONDS IN WHICH THE FUND MAY INVEST INCLUDE GENERAL OBLIGATION
AND LIMITED OBLIGATION OR REVENUE BONDS. GENERAL OBLIGATION BONDS ARE SECURED
BY THE ISSUER'S PLEDGE OF ITS FAITH, CREDIT AND TAXING POWER FOR THE PAYMENT
OF PRINCIPAL AND INTEREST, WHEREAS REVENUE BONDS ARE PAYABLE ONLY FROM THE
REVENUES DERIVED FROM A PARTICULAR FACILITY OR CLASS OF FACILITIES OR IN SOME
CASES, FROM THE PROCEEDS OF A SPECIAL EXCISE OR OTHER SPECIFIC REVENUE SOURCE.
THE MUNICIPAL NOTES IN WHICH THE FUND MAY INVEST INCLUDE TAX, REVENUE AND BOND
ANTICIPATION NOTES WHICH ARE ISSUED TO OBTAIN FUNDS FOR VARIOUS PUBLIC
PURPOSES.

Interest on certain Municipal Bonds and Municipal Notes may be subject to
the federal alternative minimum tax. From time to time the Fund may purchase
Municipal Bonds and Municipal Notes that are private activity bonds (as
defined in the Internal Revenue Code of 1986, as amended (Internal Revenue
Code)), the interest on which is a tax preference subject to the alternative
minimum tax. See "Taxes, Dividends and Distributions".

THE FUND'S PORTFOLIO WILL CONSIST PRIMARILY OF CAREFULLY SELECTED LONG-TERM
MUNICIPAL BONDS OF MEDIUM QUALITY. WHILE THE FUND'S INVESTMENT ADVISER WILL
NOT BE LIMITED BY THE RATINGS ASSIGNED BY THE RATING SERVICES, THE MUNICIPAL
BONDS IN WHICH THE FUND'S PORTFOLIO WILL BE PRINCIPALLY INVESTED WILL BE RATED
A AND BAA BY MOODY'S INVESTORS SERVICE (MOODY'S) AND A AND BBB BY STANDARD &
POOR'S RATINGS GROUP (S&P) OR COMPARABLY RATED BY ANY OTHER NATIONALLY
RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO) OR, IF NOT RATED, WILL BE,
IN THE JUDGMENT OF THE INVESTMENT ADVISER, OF SUBSTANTIALLY COMPARABLE
QUALITY. Bonds rated BBB by S&P normally exhibit adequate payment protection
parameters, but in the event of adverse market conditions are more likely to
lead to a weakened capacity to pay principal and interest than bonds in the A
category. Bonds rated Baa by Moody's are considered medium grade obligations.
They are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. A more complete description of
these and other Municipal Bond and Note ratings is contained in Appendix A to
the Statement of Additional Information.

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BECAUSE ISSUERS OF MEDIUM QUALITY MUNICIPAL BONDS MAY CHOOSE NOT TO HAVE
THEIR OBLIGATIONS RATED, IT IS POSSIBLE THAT A SUBSTANTIAL PORTION OF THE
FUND'S PORTFOLIO MAY CONSIST OF OBLIGATIONS WHICH ARE NOT RATED. The market
for rated bonds is usually broader than that for non-rated bonds, which may
result in less flexibility in disposal of such non-rated bonds.

THE FUND MAY ALSO ACQUIRE MUNICIPAL BONDS WHICH HAVE BEEN RATED BELOW MEDIUM
QUALITY BY THE RATING SERVICES IF, IN THE JUDGMENT OF THE FUND'S INVESTMENT
ADVISER, THE BONDS HAVE THE CHARACTERISTICS OF MEDIUM QUALITY OBLIGATIONS. In
determining whether Municipal Bonds which are not rated or which have been
rated below medium quality by the rating services have the characteristics of
rated Municipal Bonds of medium quality, the investment adviser will rely upon
information from various sources, including, if available, reports by the
rating services, research, analysis and appraisals of brokers and dealers and
the views of the Fund's directors and others regarding economic developments
and the creditworthiness of particular issuers.

MUNICIPAL BONDS OF MEDIUM QUALITY ARE SUBJECT TO FLUCTUATION IN VALUE AS A
RESULT OF CHANGING ECONOMIC CIRCUMSTANCES AS WELL AS CHANGES IN INTEREST
RATES. THUS, WHILE MEDIUM QUALITY OBLIGATIONS WILL GENERALLY PROVIDE A HIGHER
YIELD THAN DO HIGH QUALITY MUNICIPAL BONDS OF SIMILAR MATURITIES, THEY ARE
SUBJECT TO A GREATER DEGREE OF MARKET FLUCTUATION WITH LESS CERTAINTY OF THE
ISSUER'S CONTINUING ABILITY TO MEET THE PAYMENTS OF PRINCIPAL AND INTEREST
WHEN DUE AND MAY HAVE SPECULATIVE CHARACTERISTICS NOT PRESENT IN BONDS OF
HIGHER QUALITY. IN ADDITION, OBLIGATIONS WITH LONGER MATURITIES (E.G., 20
YEARS OR MORE) GENERALLY OFFER BOTH HIGHER YIELDS AND GREATER EXPOSURE TO
MARKET FLUCTUATION FROM CHANGES IN INTEREST RATES THAN DO THOSE WITH SHORTER
MATURITIES. CONSEQUENTLY, SHARES OF THE FUND MAY NOT BE SUITABLE FOR PERSONS
WHO CANNOT ASSUME THE SOMEWHAT GREATER RISKS OF CAPITAL DEPRECIATION INVOLVED
IN SEEKING HIGHER TAX-EXEMPT YIELDS.

In recent years, there has been a narrowing of the yield spreads between
higher and lower quality Municipal Bonds and a reduction in the supply of
medium grade Municipal Bonds. As a result of these changing conditions in the
municipal securities markets, the investment adviser has invested a
substantial portion of the Fund's assets in higher quality Municipal Bonds.
The investment adviser intends to invest in medium grade Municipal Bonds to
the extent market conditions warrant.

THE INTEREST RATES PAYABLE ON CERTAIN MUNICIPAL BONDS AND NOTES ARE NOT
FIXED AND MAY FLUCTUATE BASED UPON CHANGES IN MARKET RATES. MUNICIPAL BONDS
AND NOTES OF THIS TYPE ARE CALLED VARIABLE RATE OBLIGATIONS. The interest rate
payable on a variable rate obligation is adjusted either at predesignated
intervals or whenever there is a change in the market rate of interest on
which the interest rate payable is based. Other features may include the right
whereby the Fund may demand prepayment of the principal amount of the
obligation prior to its stated maturity (a demand feature) and the right of
the issuer to prepay the principal amount prior to maturity. The principal
benefit of a variable rate obligation is that the interest rate adjustment
minimizes changes in the market value of the obligation. As a result, the
purchase of variable rate obligations should enhance the ability of the Fund
to maintain a stable NAV and to sell an obligation prior to maturity at a
price approximating the full principal amount of the obligation. The payment
of principal and interest by issuers of certain Municipal Bonds and Notes
purchased by the Fund may be guaranteed by letters of credit or other credit
facilities offered by banks or other financial institutions. Such guarantees
will be considered in determining whether a Municipal Bond or Note meets the
Fund's investment quality requirements.

THE FUND MAY ALSO INVEST IN INVERSE FLOATERS. An inverse floater is a debt
instrument with a floating or variable interest rate that moves in the
opposite direction of the interest rate on another security or the value of an
index. Changes in the interest rate on the other security or index inversely
affect the residual interest rate paid on the inverse floater, with the result
that the inverse floater's price will be considerably more volatile than that
of a fixed rate bond. The market for inverse floaters is relatively new.

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SOME MUNICIPAL SECURITIES, SUCH AS ZERO COUPON MUNICIPAL SECURITIES, DO NOT
PAY CURRENT INTEREST BUT ARE PURCHASED AT A DISCOUNT FROM THEIR FACE VALUES.
The discount approximates the total amount of interest the security will
accrue and compound over the period until maturity or the particular interest
payment date at a rate of interest reflecting the market rate of the security
at the time of issuance. Zero coupon securities do not require the periodic
payment of interest. These investments benefit the issuer by mitigating its
need for cash to meet debt service, but also require a higher rate of return
to attract investors who are willing to defer receipt of cash. These
investments may experience greater volatility in market value than securities
that make regular payments of interest.

THE FUND MAY BE ABLE TO REDUCE THE RISK OF FLUCTUATIONS IN ASSET VALUE
CAUSED BY CHANGES IN INTEREST RATES BY HEDGING ITS PORTFOLIO THROUGH THE USE
OF FINANCIAL FUTURES. During or in anticipation of a decline in interest
rates, the Fund may purchase futures contracts to hedge against subsequent
purchases of long-term bonds at higher prices. During or in anticipation of an
increase in interest rates, the Fund may hedge its portfolio securities by
selling futures contracts for the purpose of limiting the exposure of its
portfolio to the resulting decrease in value. There are risks associated with
hedging transactions and there can be no assurance that hedges will have the
intended result. See "Hedging and Return Enhancement Strategies" below.

ALSO, THE FUND MAY PURCHASE SECONDARY MARKET INSURANCE ON MUNICIPAL BONDS
AND NOTES WHICH IT HOLDS OR ACQUIRES. Although the fee for secondary market
insurance will reduce the yield of the insured Bonds and Notes, such insurance
would be reflected in the market value of the municipal obligation purchased
and may enable the Fund to dispose of a defaulted obligation at a price
similar to that of comparable municipal obligations which are not in default.

Insurance is not a substitute for the basic credit of an issuer, but
supplements the existing credit and provides additional security therefor.
While insurance coverage for the Municipal Bonds and Notes held by the Fund
reduces credit risk by providing that the insurance company will make timely
payment of principal and interest if the issuer defaults on its obligation to
make such payment, it does not afford protection against fluctuation in the
price, i.e., the market value, of the municipal obligations caused by changes
in interest rates and other factors, nor in turn against fluctuations in the
NAV of the shares of the Fund.

HEDGING AND RETURN ENHANCEMENT STRATEGIES

THE FUND MAY ALSO ENGAGE IN VARIOUS PORTFOLIO STRATEGIES, INCLUDING
DERIVATIVES, TO REDUCE CERTAIN RISKS OF ITS INVESTMENTS AND TO ATTEMPT TO
ENHANCE RETURN, BUT NOT FOR SPECULATION. THE FUND, AND THUS ITS INVESTORS, MAY
LOSE MONEY THROUGH ANY UNSUCCESSFUL USE OF THESE STRATEGIES. These strategies
currently include the purchase of put or tender options on Municipal Bonds and
Notes and the purchase and sale of financial futures contracts and options
thereon and municipal bond index futures contracts. 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. See "Investment Objective and Policies" in the Statement of
Additional Information. New financial products and risk management techniques
continue to be developed and the Fund may use these new investments and
techniques to the extent consistent with its investment objective and
policies. As with an investment in any mutual fund, an investment in the Fund
can decrease in value and you can lose money.

PUTS

THE FUND MAY PURCHASE AND EXERCISE PUTS OR TENDER OPTIONS ON MUNICIPAL BONDS
AND NOTES. PUTS OR TENDER OPTIONS GIVE THE FUND THE RIGHT TO SELL SECURITIES
HELD IN THE FUND'S PORTFOLIO AT A SPECIFIED EXERCISE PRICE ON A SPECIFIED
DATE. Puts or tender options may be acquired to reduce the volatility of the
market value of

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securities subject to puts or tender options compared to the volatility of
similar securities not subject to puts. The acquisition of a put or tender
option may involve an additional cost to the Fund compared to the cost of
securities with similar credit ratings, stated maturities and interest coupons
but without applicable puts. Such increased cost may be paid either by way of
an initial or periodic premium for the put or by way of a higher purchase
price for securities to which the put is attached. In addition, there is a
credit risk associated with the purchase of puts or tender options in that the
issuer of the put or tender option may be unable to meet its obligation to
purchase the underlying security. Accordingly, the Fund will acquire puts or
tender options under the following circumstances: (1) the put or tender option
is written by the issuer of the underlying security and such security is rated
within the 4 highest quality grades as determined by Moody's, S&P or other
NRSRO; (2) the put or tender option is written by a person other than the
issuer of the underlying security and such person has securities outstanding
which are rated within such 4 highest quality grades; or (3) the put or tender
option is backed by a letter of credit or similar financial guarantee issued
by a person having securities outstanding which are rated within the 2 highest
quality grades of such rating services.

THE FUND ANTICIPATES BEING AS FULLY INVESTED AS PRACTICABLE IN MUNICIPAL
BONDS AND NOTES; HOWEVER, BECAUSE THE FUND DOES NOT INTEND TO INVEST IN
TAXABLE OBLIGATIONS, THERE MAY BE OCCASIONS WHEN, AS A RESULT OF MATURITIES OF
PORTFOLIO SECURITIES OR SALES OF FUND SHARES OR IN ORDER TO MEET ANTICIPATED
REDEMPTION REQUESTS, THE FUND MAY HOLD CASH WHICH IS NOT EARNING INCOME. IN
ADDITION, THERE MAY BE OCCASIONS WHEN, IN ORDER TO RAISE CASH TO MEET
REDEMPTIONS, THE FUND MIGHT BE REQUIRED TO SELL SECURITIES AT A LOSS.

Unlike many issues of common and preferred stock and corporate bonds which
are traded between brokers acting as agent for their customers on securities
exchanges, Municipal Bonds and Notes are customarily purchased from or sold to
dealers who are selling or buying for their own account. There are no
requirements that most Municipal Bonds and Notes be registered with or
qualified for sale by federal or state securities regulators. Since there are
large numbers of Municipal Bond and Note issues of many different issuers,
most issues do not trade on any single day. On the other hand, most issues are
generally marketable, since a major dealer will normally, on request, bid for
any issue, other than obscure ones. Regional municipal securities dealers are
frequently more willing to bid on issues of municipalities in their geographic
area.

ALTHOUGH MOST MUNICIPAL BONDS AND NOTES ARE MARKETABLE, THE STRUCTURE OF THE
MARKET INTRODUCES ITS OWN ELEMENT OF RISK; A SELLER MAY FIND, ON OCCASION,
THAT DEALERS ARE UNWILLING TO MAKE BIDS FOR CERTAIN ISSUES THAT THE SELLER
CONSIDERS REASONABLE. IF THE SELLER IS FORCED TO SELL, HE OR SHE MAY REALIZE A
CAPITAL LOSS THAT WOULD NOT HAVE BEEN NECESSARY IN DIFFERENT CIRCUMSTANCES.
BECAUSE THE NAV OF THE FUND'S SHARES REFLECTS THE DEGREE OF WILLINGNESS OF
DEALERS TO BID FOR MUNICIPAL BONDS AND NOTES, THE PRICE OF THE FUND'S SHARES
MAY BE SUBJECT TO GREATER FLUCTUATION THAN SHARES OF OTHER INVESTMENT
COMPANIES WITH DIFFERENT INVESTMENT POLICIES. SEE "NET ASSET VALUE" IN THE
STATEMENT OF ADDITIONAL INFORMATION.

The ratings of Moody's, S&P and other NRSROs represent each service's
opinion as to the quality of the Municipal Bonds or Notes rated. It should be
emphasized that ratings are general and are not absolute standards of quality
or guarantees as to the creditworthiness of an issuer. Subsequent to its
purchase by the Fund, an issue of Municipal Bonds or Notes may cease to be
rated, or its ratings may be reduced. Neither event requires the elimination
of that obligation from the Fund's portfolio, but will be a factor in
determining whether the Fund should continue to hold that issue in its
portfolio.

FROM TIME TO TIME, PROPOSALS HAVE BEEN INTRODUCED BEFORE CONGRESS FOR THE
PURPOSE OF RESTRICTING OR ELIMINATING THE FEDERAL INCOME TAX EXEMPTION FOR
INTEREST ON MUNICIPAL BONDS AND NOTES AND FOR PROVIDING

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<PAGE>

STATE AND LOCAL GOVERNMENTS WITH FEDERAL CREDIT ASSISTANCE. REEVALUATION OF
THE FUND'S INVESTMENT OBJECTIVE AND STRUCTURE MIGHT BE NECESSARY IN THE FUTURE
DUE TO MARKET CONDITIONS WHICH MAY RESULT FROM FUTURE CHANGES IN THE TAX LAWS.

FUTURES CONTRACTS AND OPTIONS THEREON

THE FUND MAY ENGAGE IN TRANSACTIONS IN FUTURES CONTRACTS FOR RETURN
ENHANCEMENT AND RISK MANAGEMENT PURPOSES AS WELL AS TO REDUCE THE RISK OF
FLUCTUATIONS IN THE VALUE OF ITS ASSETS CAUSED BY INTEREST RATE CHANGES BY
HEDGING ITS PORTFOLIO THROUGH THE USE OF FINANCIAL FUTURES AND OPTIONS THEREON
TRADED ON A COMMODITIES EXCHANGE OR BOARD OF TRADE.

FUTURES CONTRACTS

The Fund may enter into futures contracts for the purchase or sale of debt
securities and financial indices (collectively, interest rate futures
contracts) in accordance with the Fund's investment objective. A purchase of a
futures contract (or a long futures position) means the assumption of a
contractual obligation to acquire a specified quantity of the securities
underlying the contract at a specified price at a specified future date. A
sale of a futures contract (or a short futures position) means the assumption
of a contractual obligation to deliver a specified quantity of the securities
underlying the contract at a specified price at a specified future date. At
the time a futures contract is purchased or sold, the Fund is required to
deposit cash, or other liquid assets with a futures commission merchant or in
a segregated account representing between approximately 1 1/2% to 5% of the
contract amount, called initial margin. Thereafter, the futures contract will
be valued daily and the payment in cash of maintenance or variation margin may
be required, resulting in the Fund paying or receiving cash that reflects any
decline or increase in the contract's value, a process known as marking-to-
market.

Some futures contracts by their terms may call for the actual delivery or
acquisition of the underlying assets and other futures contracts must be cash
settled. In most cases the contractual obligation is extinguished before the
expiration of the contract by buying (to offset an earlier sale) or selling
(to offset an earlier purchase) an identical futures contract calling for
delivery or acquisition in the same month. The purchase (or sale) of an
offsetting futures contract is referred to as a closing transaction.

LIMITATIONS ON THE PURCHASE AND SALE OF FUTURES CONTRACTS AND RELATED
OPTIONS

CFTC LIMITS. In accordance with Commodity Futures Trading Commission (CFTC)
regulations, the Fund is not permitted to purchase or sell interest rate
futures contracts or options thereon for return enhancement or risk management
purposes if immediately thereafter the sum of the amounts of initial margin
deposits on a Fund's existing futures and premiums paid for options on futures
exceed 5% of the liquidation value of such Fund's total assets (the 5% CFTC
limit). This restriction does not apply to the purchase and sale of interest
rate futures contracts and options thereon for bona fide hedging purposes.

SEGREGATION REQUIREMENTS. To the extent the Fund enters into futures
contracts, it is required by the Commission to maintain a segregated asset
account sufficient to cover the Fund's obligations with respect to such
futures contracts, which will consist of cash or other liquid assets from
their portfolios in an amount equal to the difference between the fluctuating
market value of such futures contracts and the aggregate value of the initial
margin deposited by the Fund with respect to such futures contracts.
Offsetting the contract by another identical contract eliminates the
segregation requirement. See "Investment Objective and Policies--Segregated
Accounts" in the Statement of Additional Information.

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<PAGE>

With respect to options on futures, there are no segregation requirements
for options that are purchased and owned by the Fund. However, written
options, since they involve potential obligations of the Fund, may require
segregation of Fund assets if the options are not covered as described below
under "Options on Futures Contracts." If the Fund writes a call option that is
not "covered,' it must segregate and maintain for the term of the option cash
or other liquid, unencumbered assets equal to the fluctuating value of the
optioned futures. If a Fund writes a put option that is not covered, the
segregated amount would have to be at all times equal in value to the exercise
price of the put (less any initial margin deposited by the Fund with respect
to such option).

USE OF INTEREST RATE FUTURES CONTRACTS

Interest rate futures contracts will be used for bona fide hedging, risk
management and return enhancement purposes.

POSITION HEDGING. The Fund might sell interest rate futures contracts to
protect the Fund against a rise in interest rates which would be expected to
decrease the value of debt securities which the Fund holds. This would be
considered a bona fide hedge and, therefore, is not subject to the 5% CFTC
limit. For example, if interest rates are expected to increase, the Fund might
sell futures contracts on debt securities, the values of which historically
have closely correlated or are expected to closely correlate to the values of
the Fund's portfolio securities. Such a sale would have an effect similar to
selling an equivalent value of the Fund's portfolio securities. If interest
rates increase, the value of the Fund's portfolio securities will decline, but
the value of the futures contracts to the Fund will increase at approximately
an equivalent rate thereby keeping the NAV of the Fund from declining as much
as it otherwise would have. The Fund could accomplish similar results by
selling debt securities with longer maturities and investing in debt
securities with shorter maturities when interest rates are expected to
increase. However, since the futures market may be more liquid than the cash
market, the use of futures contracts as a hedging technique would allow the
Fund to maintain a defensive position without having to sell portfolio
securities. If in fact interest rates decline rather than rise, the value of
the futures contract will fall but the value of the bonds should rise and
should offset all or part of the loss. If futures contracts are used to hedge
100% of the bond position and correlate precisely with the bond positions,
there should be no loss or gain with a rise (or fall) in interest rates.
However, if only 50% of the bond position is hedged with futures, then the
value of the remaining 50% of the bond position would be subject to change
because of interest rate fluctuations. Whether the bond positions and futures
contracts correlate is a significant risk factor.

ANTICIPATORY POSITION HEDGING. Similarly, when it is expected that interest
rates may decline and the Fund intends to acquire debt securities, the Fund
might purchase interest rate futures contracts. The purchase of futures
contracts for this purpose would constitute an anticipatory hedge against
increases in the price of debt securities (caused by declining interest rates)
which the Fund subsequently acquires and would normally qualify as a bona fide
hedge not subject to the 5% CFTC limit. Since fluctuations in the value of
appropriately selected futures contracts should approximate that of the debt
securities that would be purchased, the Fund could take advantage of the
anticipated rise in the cost of the debt securities without actually buying
them. Subsequently, the Fund could make the intended purchases of the debt
securities in the cash market and concurrently liquidate the futures
positions.

RISK MANAGEMENT AND RETURN ENHANCEMENT. The Fund might sell interest rate
futures contracts covering bonds. This has the same effect as selling bonds in
the portfolio and holding cash and reduces the duration of the portfolio.
(Duration measures the price sensitivity of the portfolio to interest rates.
The longer the duration, the greater the impact of interest rate changes on
the portfolio's price.) This should lessen the risks associated with a rise in
interest rates. In some circumstances, this may serve as a hedge against a
loss of principal, but is usually referred to as an aspect of risk management.

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<PAGE>

The Fund might buy interest rate futures contracts covering bonds with a
longer maturity than its portfolio average. This would tend to increase the
duration and should increase the gain in the overall portfolio if interest
rates fall. This is often referred to as risk management rather than hedging
but, if it works as intended, has the effect of increasing principal value. It
if does not work as intended because interest rates rise instead of fall, the
loss will be greater than would otherwise have been the case. Futures
contracts used for these purposes are not considered bona fide hedges and,
therefore, are subject to the 5% CFTC limit.

OPTIONS ON FUTURES CONTRACTS

The Fund may enter into options on futures contracts for certain bona fide
hedging, risk management and return enhancement purposes. This includes the
ability to purchase put and call options and write (i.e., sell) covered put
and call options on futures contracts that are traded on commodity and futures
exchanges.

If the Fund purchased an option on a futures contract, it has the right but
not the obligation, in return for the premium paid, to assume a position in a
futures contract (a long position if the option is a call or a short position
if the option is a put) at a specified exercise price at any time during the
option exercise period.

Unlike purchasing an option, which is similar to purchasing insurance to
protect against a possible rise or fall of security prices or currency values,
the writer or seller of an option undertakes an obligation upon exercise of
the option to either buy or sell the underlying futures contract at the
exercise price. A writer of a call option has the obligation upon exercise to
assume a short futures position and a writer of a put option has the
obligation to assume a long futures position. 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. If there is no balance in the writer's margin
account, the option is "out of the money" and will not be exercised. The Fund,
as the writer, has income in the amount it was paid for the option. If there
is a margin balance, the Fund will have a loss in the amount of the amount of
the balance less the premium it was paid for writing the option.

When the Fund writes a put or call option on futures contracts, the option
must either be covered or, to the extent not covered, will be subject to
segregation requirements. 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
strike price of the covered option. A 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.

To the extent the Fund is not covered as described above with respect to
written options, it will segregate and maintain for the term of the option
cash or liquid assets.

USE OF OPTIONS ON FUTURES CONTRACTS

Options on interest rate futures contracts would be used for bona fide
hedging, risk management and return enhancement purposes.

POSITION HEDGING. The Fund may purchase put options on interest rate or
currency futures contracts to hedge its portfolio against the risk of a
decline in the value of the debt securities it owns as a result of rising
interest rates.

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<PAGE>

ANTICIPATORY HEDGING. The Fund may also purchase call options on futures
contracts as a hedge against an increase in the value of securities the Fund
might intend to acquire as a result of declining interest rates.

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

Whether options on interest rate futures contracts are subject to or exempt
from the 5% CFTC limit depends on whether the purpose of the options
constitutes a bona fide hedge.

RISK MANAGEMENT AND RETURN ENHANCEMENT. Writing a put option that does not
relate to securities the Fund intends to acquire would be a return enhancement
strategy which would result in a loss if interest rates rise.

Similarly, writing a covered call option on a futures contract is also a
return enhancement strategy. If the market price of the underlying futures
contract at expiration of a written call option is below the exercise price,
the Fund would retain the full amount of the option premium increasing the
income of the Fund. If the futures price when the option is exercised is above
the exercise price, however, the Fund would sell the underlying securities
which was the cover for the contract and incur a gain or loss depending on the
cost basis for the underlying assets.

Writing a covered call option as in any return enhancement strategy can also
be considered a partial hedge against a decrease in the value of a Fund's
portfolio securities. The amount of the premium received acts as a partial
hedge against any decline that may have occurred in the Fund's debt
securities.

RISKS RELATING TO TRANSACTIONS IN FUTURES CONTRACTS AND OPTIONS THEREON

The Fund's ability to establish and close out positions in futures contracts
and options on futures contracts would be impacted by the liquidity of these
markets. Although the Fund generally would purchase or sell only those futures
contracts and options thereon for which there appeared 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 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 would 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 call option, wait to sell the underlying
securities until the option expired or was 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 had written and which the Fund was
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.

Risks inherent in the use of these strategies include (1) dependence on the
investment adviser's ability to predict correctly movements in the direction
of interest rates, securities prices and markets; (2) imperfect correlation
between the price of futures contracts and options thereon and movement in the
prices of the securities being hedged; (3) the fact that the skills needed to
use these strategies are different from those

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<PAGE>

needed to select portfolio securities; (4) the possible absence of a liquid
secondary market for any particular instrument at any time; and (5) the
possible inability of the Fund to sell a portfolio security at a time that
otherwise would be favorable for it to do so. In the event it did sell the
security and eliminated its cover, it would have to replace its cover with an
appropriate futures contract or option or segregate securities with the
required value, as described under "Segregation Requirements."

Although futures prices themselves have the potential to be extremely
volatile, in the case of any strategy involving interest rate futures
contracts and options thereon when the Subadviser's expectations are not met,
assuming proper adherence to the segregation requirement, the volatility of
the Fund as a whole should be no greater than if the same strategy had been
pursued in the cash market.

Exchanges on which futures and related options trade may impose limits on
the positions that the Fund may take in certain circumstances. In addition,
the hours of trading of financial futures contracts and options thereon may
not conform to the hours during which the Fund may trade the underlying
securities. To the extent 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.

Pursuant to the requirements of the Commodity Exchange Act, as amended (the
Commodity Exchange Act), all futures contracts and options thereon must be
traded on an exchange. Since a clearing corporation effectively acts as the
counterparty on every futures contract and option thereon, the counterparty
risk depends on the strength of the clearing or settlement corporation
associated with the exchange. Additionally, although the exchanges provide a
means of closing out a position previously established, there can be no
assurance that a liquid market will exist for a particular contract at a
particular time. In the case of options on futures, if such a market does not
exist, the Fund, as the holder of an option on futures contracts, would have
to exercise the option and comply with the margin requirements for the
underlying futures contract to realize any profit, and if the Fund were the
writer of the option, its obligation would not terminate until the option
expired or the Fund was assigned an exercise notice.

There can be no assurance that the Fund's use of futures contracts and
related options will be successful and the Fund may incur losses in connection
with its purchase and sale of future contracts and related options.

OTHER INVESTMENTS AND POLICIES

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

The Fund may purchase municipal obligations on a when-issued or delayed
delivery basis, in each case without limit. When municipal obligations are
offered on a when-issued or delayed delivery basis, the price and coupon rate
are fixed at the time the commitment to purchase is made, but delivery and
payment for such securities take place at a later date. During the period
between purchase and settlement, no interest accrues to the purchaser. In the
case of purchases by the Fund, the price that the Fund is required to pay on
the settlement date may be in excess of the market value of the municipal
obligations on that date. While securities may be sold prior to the settlement
date, the Fund intends to purchase these securities with the purpose of
actually acquiring them unless a sale would be desirable for investment
reasons. At the time the Fund makes the commitment to purchase a municipal
obligation on a when-issued basis, it will record the transaction and reflect
the value of the obligation, each day, in determining its NAV. This value may
fluctuate from day to day in the same manner as values of municipal
obligations otherwise held by the Fund. If the seller defaults in the sale,
the Fund could fail to realize the appreciation, if any, that had occurred.
The Fund will establish a segregated account in which it will maintain cash or
other liquid assets equal in value to its commitments for when-issued or
delayed delivery securities.

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MUNICIPAL LEASE OBLIGATIONS

THE FUND MAY ALSO INVEST IN MUNICIPAL LEASE OBLIGATIONS. A MUNICIPAL LEASE
OBLIGATION IS A MUNICIPAL SECURITY THE INTEREST ON AND PRINCIPAL OF WHICH IS
PAYABLE OUT OF LEASE PAYMENTS MADE BY THE PARTY LEASING THE FACILITIES
FINANCED BY THE ISSUE. Typically, municipal lease obligations are issued by a
state or municipal financing authority to provide funds for the construction
of facilities (e.g., schools, dormitories, office buildings or prisons). The
facilities are typically used by the state or municipality pursuant to a lease
with a financing authority. Certain municipal lease obligations may trade
infrequently. Accordingly, the investment adviser will monitor the liquidity
of municipal lease obligations under the supervision of the Board of
Directors. Municipal lease obligations will not be considered illiquid for
purposes of the Fund's 15% limitation on illiquid securities provided the
investment adviser determines that there is a readily available market for
such securities. See "Illiquid Securities" below and "Investment Objective and
Policies--Illiquid Securities" in the Statement of Additional Information.

ILLIQUID SECURITIES

The Fund may hold up to 15% of its net assets in illiquid securities,
including repurchase agreements which have a maturity of longer than seven
days or contractual restrictions on resale and securities that are not readily
marketable. Securities, including municipal lease obligations, that have a
readily available market are not considered illiquid for the purposes of this
limitation. The investment adviser will monitor the liquidity of such
securities under the supervision of the Directors. See "Investment Objectives
and Policies--Illiquid Securities" in the Statement of Additional Information.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the notice period.

INVESTMENTS IN SECURITIES OF OTHER INVESTMENT COMPANIES

The Fund may invest up to 10% of its total assets in shares of other
investment companies. To the extent that the Fund does invest in securities of
other investment companies, shareholders of the Fund may be subject to
duplicate management and advisory fees.

BORROWING

The Fund may borrow an amount equal to no more than 33 1/3% of the value of
its total assets (calculated when the loan is made) from banks for temporary,
extraordinary or emergency purposes or for the clearance of transactions. The
Fund may pledge up to 33 1/3% of its total assets to secure these borrowings.
However, the Fund will not purchase portfolio securities when borrowings
exceed 5% of the value of the Fund's total assets.

PORTFOLIO MANAGEMENT TECHNIQUES

In seeking to achieve the Fund's investment objective, the Fund's investment
adviser will cause the Fund to purchase securities which it believes represent
the best values then currently available in the marketplace. Such values are a
function of yield, maturity, issue classification and quality characteristics,
coupled with expectations regarding the economy, movements in the general
level and term structure of interest rates, political developments and
variations in the supply of funds available for investment in the tax-exempt
market relative to the demand for funds placed upon it. The following are some
of the more important management techniques which will be utilized by the
Fund's investment adviser.

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ADJUSTMENT OF MATURITIES

The investment adviser will seek to anticipate movements in interest rates
and will adjust the maturity distribution of the portfolio accordingly. Longer
term securities have ordinarily yielded more than shorter term securities.
From time to time, however, the normal yield relationships between longer and
shorter term securities have been reversed. In addition, longer term
securities have historically been subject to greater and more rapid price
fluctuation. The investment adviser will be free to take advantage of price
volatility in order to attempt to increase the Fund's NAV by making
appropriate sales and purchases of portfolio securities.

ISSUE AND QUALITY CLASSIFICATION

Securities with the same general quality rating and maturity
characteristics, but which vary according to the purpose for which they were
issued, often tend to trade at different yields. Similarly, securities issued
for similar purposes and with the same general maturity characteristics, but
which vary according to the creditworthiness of their respective issuers, tend
to trade at different yields. These yield differentials tend to fluctuate in
response to political and economic developments as well as temporary
imbalances in normal supply and demand relationships. The investment adviser
monitors these fluctuations closely, and will adjust portfolio positions in
various issue and quality classifications according to the value disparities
brought about by these yield relationship fluctuations.

INVESTMENT RESTRICTIONS

The Fund is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company Act
of 1940, as amended (the Investment Company Act). See "Investment
Restrictions" in the Statement of Additional Information.

HOW THE FUND IS MANAGED

THE FUND HAS A BOARD OF DIRECTORS WHICH, IN ADDITION TO OVERSEEING THE
ACTIONS OF THE FUND'S MANAGER, SUBADVISER AND DISTRIBUTOR, AS SET FORTH BELOW,
DECIDES UPON MATTERS OF GENERAL POLICY. THE FUND'S MANAGER CONDUCTS AND
SUPERVISES THE DAILY BUSINESS OPERATIONS OF THE FUND. THE FUND'S SUBADVISER
FURNISHES DAILY INVESTMENT ADVISORY SERVICES.

For the year ended December 31, 1997, the Fund's total expenses as a
percentage of average net assets for the Fund's Class A, Class B and Class C
shares were .70%, 1.10%, and 1.35%, respectively. See "Financial Highlights."

MANAGER

PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM OR THE MANAGER), GATEWAY
CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077 IS THE
MANAGER OF THE FUND AND IS COMPENSATED FOR ITS SERVICES AT AN ANNUAL RATE OF
.50 OF 1% OF THE FUND'S AVERAGE DAILY NET ASSETS UP TO AND INCLUDING $250
MILLION, .475 OF 1% OF THE NEXT $250 MILLION, .45 OF 1% OF THE NEXT $500
MILLION, .425 OF 1% OF THE NEXT $250 MILLION, .40 OF 1% OF THE NEXT $250
MILLION AND .375 OF 1% OF THE FUND'S AVERAGE DAILY NET ASSETS IN EXCESS OF
$1.5 BILLION. PIFM is organized in New York as a limited liability company. It
is the successor to Prudential Mutual Fund Management, Inc., which transferred
its assets to PIFM in September 1996. For the fiscal year ended December 31,
1997, the Fund paid management fees to PIFM of .48% of the Fund's average
daily net assets. See "Fee Waivers" below and "Manager" in the Statement of
Additional Information.

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As of January 31, 1998, PIFM served as the manager to 42 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 22 closed-end investment companies, with aggregate assets of
approximately $63 billion.

UNDER THE MANAGEMENT AGREEMENT WITH THE FUND, PIFM MANAGES THE INVESTMENT
OPERATIONS OF THE FUND AND ALSO ADMINISTERS THE FUND'S CORPORATE AFFAIRS. See
"Manager" in the Statement of Additional Information.

UNDER A SUBADVISORY AGREEMENT BETWEEN PIFM AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC), DOING BUSINESS AS PRUDENTIAL INVESTMENTS (PI, THE
SUBADVISER OR THE INVESTMENT ADVISER), THE SUBADVISER FURNISHES INVESTMENT
ADVISORY SERVICES IN CONNECTION WITH THE MANAGEMENT OF THE FUND AND IS
REIMBURSED BY PIFM FOR ITS REASONABLE COSTS AND EXPENSES INCURRED IN PROVIDING
SUCH SERVICES. PIFM continues to have responsibility pursuant to the
Management Agreement for all investment advisory services and supervises the
Subadviser's performance of such services.

The current portfolio manager of the Fund is Peter J. Allegrini, a Managing
Director of Prudential Investments. Mr. Allegrini is responsible for the day-
to-day management of the Fund's portfolio. Mr. Allegrini has managed the
Fund's portfolio since April 1996. Mr. Allegrini has been employed by PI as a
portfolio manager since July 1994 and serves as the portfolio manager of a
number of other portfolios managed by PI. He was employed by Fidelity
Investments from 1982 to 1985 as a senior bond analyst and from 1985 to 1994
as a portfolio manager, most recently of Fidelity Adviser High Income
Municipal Fund.

PIFM and PIC are wholly-owned subsidiaries of The Prudential Insurance
Company of America (Prudential), a major diversified insurance and financial
services company.

DISTRIBUTOR

PRUDENTIAL SECURITIES INCORPORATED (PRUDENTIAL SECURITIES OR THE
DISTRIBUTOR), ONE SEAPORT PLAZA, NEW YORK, NEW YORK 10292, IS A CORPORATION
ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE AND SERVES AS THE
DISTRIBUTOR OF THE SHARES OF THE FUND. IT IS AN INDIRECT, WHOLLY-OWNED
SUBSIDIARY OF PRUDENTIAL.

UNDER SEPARATE DISTRIBUTION AND SERVICE PLANS (THE CLASS A PLAN, THE CLASS B
PLAN AND THE CLASS C PLAN, EACH A PLAN, AND 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.
These expenses include commissions and account servicing fees paid to, or on
account of, financial advisers of the Distributor and representatives of Pruco
Securities Corporation (Prusec), an affiliated broker-dealer, commissions and
account servicing fees paid to, or on account of, other broker-dealers or
financial institutions (other than national banks) 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 and Prusec 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.

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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 DAILY NAV OF THE CLASS A SHARES. The
Class A Plan provides that (i) up to .25 of 1% of the average daily net assets
of the Class A shares may be used to pay for personal service and/or the
maintenance of shareholder accounts (service fee) and (ii) total distribution
fees (including the service fee of .25 of 1%) may not exceed .30 of 1% of the
average daily net assets of the Class A shares. It is expected that in the
case of Class A shares, proceeds from the distribution fee will be used
primarily to pay account servicing fees to financial advisers. The Distributor
has agreed to limit its distribution-related fees payable under the Class A
Plan to .10 of 1% of the average daily net assets of the Class A shares for
the fiscal year ending December 31, 1998.

UNDER THE CLASS B AND CLASS C PLANS, THE FUND MAY PAY THE DISTRIBUTOR FOR
ITS DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS B AND CLASS C SHARES
AT AN ANNUAL RATE OF UP TO .50 OF 1% AND UP TO 1% OF THE AVERAGE DAILY NET
ASSETS OF THE CLASS B AND CLASS C SHARES, RESPECTIVELY. The Class B Plan
provides for the payment to the Distributor of (i) an asset-based sales charge
of up to .50 of 1% of the average daily net assets of the Class B shares, and
(ii) a service fee of up to .25 of 1% of the average daily net assets of the
Class B shares; provided that the total distribution-related fee does not
exceed .50 of 1%. The Class C Plan provides for the payment to the Distributor
of (i) an asset-based sales charge of up to .75 of 1% of the average daily net
assets of the Class C shares, and (ii) a service fee of up to .25 of 1% of the
average daily net assets of the Class C shares. The service fee is used to pay
for personal service and/or the maintenance of shareholder accounts. The
Distributor has agreed to limit its distribution-related fees payable under
the Class C Plan to .75 of 1% of the average daily net assets of the Class C
shares for the fiscal year ending December 31, 1998. The Distributor also
receives contingent deferred sales charges from certain redeeming
shareholders. See "Shareholder Guide--How to Sell Your Shares--Contingent
Deferred Sales Charge."

For the fiscal year ended December 31, 1997, the Fund paid distribution
expenses of .10 of 1%, .50 of 1% and .75 of 1% of the average net assets of
the Class A, Class B and Class C shares, respectively. The Fund records all
payments made under the Plans as expenses in the calculation of net investment
income. See "Distributor" in the Statement of Additional Information.

Distribution expenses attributable to the sale of shares of the Fund will be
allocated to each such class based upon the ratio of sales of each such class
to the sales of all shares of the Fund other than expenses allowable to a
particular class. The distribution fee and sales charge of one class will not
be used to subsidize the sale of another class.

Each Plan provides that it shall continue in effect from year to year
provided that a majority of the Board of Directors of the Fund, including a
majority of the Directors who are not interested persons of the Fund (as
defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Plan or any agreement related to
the Plan (the Rule 12b-1 Directors), vote annually to continue the Plan. Each
Plan may be terminated at any time by vote of a majority of the Rule 12b-1
Directors or of a majority of the outstanding shares of the applicable class
of the Fund. The Fund will not be obligated to pay expenses incurred under any
plan if it is terminated or not continued.

In addition to distribution and service fees paid by the Fund under the
Class A, Class B and Class C Plans, the Manager (or one of its affiliates) may
make payments out of its own resources to dealers (including Prudential
Securities) and other persons who distribute shares of the Fund. Such payments
may be calculated by reference to the NAV of shares sold by such persons or
otherwise.

The Distributor is subject to the rules of the National Association of
Securities Dealers, Inc. (NASD) governing maximum sales charges. See
"Distributor" in the Statement of Additional Information.

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<PAGE>

FEE WAIVERS

PIFM may from time to time waive its management fee or a portion thereof and
subsidize certain operating expenses of the Fund. The Fund is not required to
reimburse PIFM for such management fee waivers. Effective September 1, 1997,
PIFM discontinued its waiver of its management fee of .05% of 1% of the Funds
average daily net assets. See "Fund Expenses."

The Distributor has agreed to limit its distribution fee for the Class A and
Class C shares as described above under "Distributor." Fee waivers will
increase the Fund's yield and total return. See "Performance Information" in
the Statement of Additional Information and "Fund Expenses" above.

PORTFOLIO TRANSACTIONS

The Distributor may also act as a broker or futures commission merchant for
the Fund, provided that the commissions, fees or other remuneration it
receives are fair and reasonable. See "Portfolio Transactions and Brokerage"
in the Statement of Additional Information.

CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT

State Street Bank and Trust Company (State Street or the Custodian), One
Heritage Drive, North Quincy, Massachusetts 02171, serves as Custodian for the
Fund's portfolio securities and cash and, in that capacity, maintains certain
financial and accounting books and records pursuant to an agreement with the
Fund. Its mailing address is P.O. Box 1713, Boston, Massachusetts 02105.

Prudential Mutual Fund Services LLC (PMFS or the Transfer Agent), Raritan
Plaza One, Edison, New Jersey 08837, serves as Transfer Agent and Dividend
Disbursing Agent and in those capacities maintains certain books and records
for the Fund. Its mailing address is P.O. Box 15005, New Brunswick, New Jersey
08906-5005. PMFS is a wholly-owned subsidiary of PIFM.

YEAR 2000

The services provided to the Fund and the shareholders by the Manager, the
Distributor, the Transfer Agent and the Custodian depend on the smooth
functioning of their computer systems and those of their outside service
providers. Many computer software systems in use today cannot distinguish the
year 2000 from the year 1900 because of the way dates are encoded and
calculated. Such event could have a negative impact on handling securities
income, payments of interest and dividends, pricing and account services.
Although, at this time, there can be no assurance that there will be no
adverse impact on the Fund. The Manager, the Distributor, the Transfer Agent
and the Custodian have advised the Fund that they have been actively working
on necessary changes to their computer systems to prepare for the year 2000
and expect that their systems, and those of their outside services, will be
adapted in time for that event.

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HOW THE FUND VALUES ITS SHARES

THE FUND'S NAV IS DETERMINED BY SUBTRACTING ITS LIABILITIES FROM ITS ASSETS
AND DIVIDING THE REMAINDER BY THE NUMBER OF OUTSTANDING SHARES. NAV IS
CALCULATED SEPARATELY FOR EACH CLASS. THE BOARD OF DIRECTORS HAS FIXED THE
SPECIFIC TIME OF DAY FOR THE COMPUTATION OF THE FUND'S NAV TO BE AS OF 4:15
P.M., NEW YORK TIME.

Portfolio securities are valued based on market quotations or, if not
readily available, at fair value as determined in good faith under procedures
established by the Fund's Board of Directors. See "Net Asset Value" in the
Statement of Additional Information.

The Fund will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase,
sell or redeem shares have been received by the Fund or days on which changes
in the value of the Fund's portfolio securities do not materially affect the
NAV.

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. It is expected,
however, that the NAV per share of the three classes 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.

HOW THE FUND CALCULATES PERFORMANCE

FROM TIME TO TIME THE FUND MAY ADVERTISE ITS YIELD, TAX EQUIVALENT YIELD,
AND TOTAL RETURN (INCLUDING AVERAGE ANNUAL TOTAL RETURN AND AGGREGATE TOTAL
RETURN) IN ADVERTISEMENTS OR SALES LITERATURE. YIELD, TAX EQUIVALENT YIELD,
AND TOTAL RETURN ARE CALCULATED SEPARATELY FOR CLASS A, CLASS B AND CLASS C
SHARES. These figures are based on historical earnings and are not intended to
indicate future performance. The yield refers to the income generated by an
investment in the Fund over a 30-day period. This income is then annualized;
that is, the amount of income generated by the investment during that 30-day
period is assumed to be generated each 30-day period for twelve periods and is
shown as a percentage of the investment. The income earned on the investment
is also assumed to be reinvested at the end of the sixth 30-day period. The
tax equivalent yield is calculated similarly to the yield, except that the
yield is increased using a stated income tax rate to demonstrate the taxable
yield necessary to produce an after-tax yield equivalent to the Fund. The
total return shows what an investment in the Fund would have earned over a
specified period of time (i.e., one, five or ten years or since inception of
the Fund) assuming that all distributions and dividends by the Fund were
reinvested on the reinvestment dates during the period and less all recurring
fees. The aggregate total return reflects actual performance over a stated
period of time. Average annual total return is a hypothetical rate of return
that, if achieved annually, would have produced the same aggregate total
return if performance had been constant over the entire period. Average annual
total return smooths out variations in performance and takes into account any
applicable initial or contingent deferred sales charges. Neither average
annual total return nor aggregate total return takes into account any federal
or state income taxes which may be payable upon redemption. The Fund also may
include comparative performance information in advertising or marketing the
Fund's shares. Such performance information may include data from Lipper
Analytical Services, Inc., Morningstar Publications, Inc.,

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<PAGE>

other industry publications, business periodicals, and market indices. See
"Performance Information" in the Statement of Additional Information. Further
performance information is contained in the Fund's annual and semi-annual
reports to shareholders, which may be obtained without charge. See
"Shareholder Guide--Shareholder Services--Reports to Shareholders."

TAXES, DIVIDENDS AND DISTRIBUTIONS

TAXATION OF THE FUND

THE FUND HAS ELECTED TO QUALIFY AND INTENDS TO REMAIN QUALIFIED AS A
REGULATED INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE. ACCORDINGLY, THE
FUND WILL NOT BE SUBJECT TO FEDERAL INCOME TAXES ON ITS NET INVESTMENT INCOME
AND NET CAPITAL AND CURRENCY GAINS, IF ANY, THAT IT DISTRIBUTES TO ITS
SHAREHOLDERS. SEE "TAXES, DIVIDENDS AND DISTRIBUTIONS" IN THE STATEMENT OF
ADDITIONAL INFORMATION.

Gain or loss realized by the Fund from the sale of securities generally will
be treated as capital gain or loss; however, gain from the sale of certain
securities (including municipal obligations) will be treated as ordinary
income to the extent of any market discount. Market discount generally is the
difference, if any, between the price paid by the Fund for the security and
the principal amount of the security (or, in the case of a security issued at
an original issue discount, the revised issued price of the security). The
market discount rule does not apply to any security that was acquired by the
Fund at its original issue price.

TAXATION OF SHAREHOLDERS

Distributions out of net investment income, to the extent attributable to
interest received on tax-exempt securities, are exempt from federal income tax
when paid to shareholders. Distributions of other net investment income and
net short-term capital gains in excess of net long-term capital losses will be
taxable as ordinary income to the shareholder whether or not reinvested. Any
net capital gains (i.e., the excess of net capital gains from the sale of
assets held for more than 12 months over net short-term capital losses)
distributed to shareholders will be taxable as capital gains to the
shareholders, whether or not reinvested and regardless of the length of time a
shareholder has owned his or her shares. The maximum capital gains rate for
individuals is 28% with respect to assets held for more than 12 months, but
not more than 18 months, and 20% with respect to assets held for more than 18
months. The maximum capital gains rate for corporate shareholders currently is
the same as the maximum tax rate for ordinary income.

It is not anticipated that corporate shareholders will be entitled to any
dividends received deduction with respect to distributions from the Fund.

Interest on certain private activity tax-exempt obligations issued on or
after August 8, 1986, is a preference item for purposes of the alternative
minimum tax for both individual and corporate shareholders. In the event that
the Fund invests in such obligations, the portion of an exempt-interest
dividend of the Fund that is allocable to such municipal obligations will be
treated as a preference item to shareholders for purposes of the alternative
minimum tax. In addition, a portion of the exempt-interest dividends received
by corporate shareholders with respect to interest on tax-exempt obligations,
whether or not private activity bonds, will be taken into account in computing
the alternative minimum tax. See "Taxes, Dividends and Distributions" in the
Statement of Additional Information.

Any gain or loss realized upon a sale of shares of the Fund by a shareholder
who is not a dealer in securities will be treated as capital gain or loss. In
the case of an individual, any such capital gain will be treated as short-

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<PAGE>

term capital loss if the shares were held for not more than 12 months, capital
gain taxable at the maximum rate of 28% if such shares were held for more than
12, but not more than 18 months, and capital gain, taxable at the maximum rate
of 20% if such shares were held for more than 18 months. In the case of a
corporation, any such capital gain will be treated as long-term capital gain,
taxable at the same rates as ordinary income, if such shares were held for
more than 12 months. Any such capital loss will be treated as long-term
capital loss if the shares have been held for more than one year and otherwise
as a short-term capital loss. Any such loss with respect to shares that are
held for six months or less however, will be disallowed to the extent of any
exempt interest dividends received with respect to such shares, or treated as
long-term capital loss to the extent of any capital gain distributions
received by the shareholder with respect to such shares.

The Fund has obtained opinions of counsel to the effect that neither (i) the
conversion of Class B shares into Class A shares nor (ii) the exchange of any
Class of the Fund's shares for any other Class of its shares constitutes a
taxable event for federal income tax purposes. However, such opinions are not
binding on the Internal Revenue Service.

Net tax-exempt interest distributed by the Fund to shareholders may not be
exempt from state or local taxation. Shareholders are advised to consult their
own tax advisers regarding specific questions as to federal, state or local
taxes. See "Taxes, Dividends and Distributions" in the Statement of Additional
Information.

WITHHOLDING TAXES

Under the Internal Revenue Code, the Fund is generally required to withhold
and remit to the U.S. Treasury 31% of taxable dividends, capital gain
distributions and redemption proceeds payable to individuals and certain
noncorporate shareholders who fail to furnish correct tax identification
numbers on IRS Form W-9 (or IRS Form W-8 in the case of certain foreign
shareholders) or, generally, who are otherwise subject to backup withholding.
Dividends from taxable net investment income and net short-term capital gains
paid to a foreign shareholder will generally be subject to U.S. withholding
tax at the rate of 30% (or lower treaty rate).

Shareholders are advised to consult their own tax advisers regarding
specific questions as to federal, state or local taxes. See "Taxes, Dividends
and Distributions" in the Statement of Additional Information.

DIVIDENDS AND DISTRIBUTIONS

THE FUND EXPECTS TO DECLARE DAILY AND PAY MONTHLY DIVIDENDS OF NET
INVESTMENT INCOME AND MAKE DISTRIBUTIONS OF NET CAPITAL GAINS, IF ANY, AT
LEAST ANNUALLY. Dividends paid by the Fund with respect to each class of
shares, to the extent any dividends are paid, will be calculated in the same
manner, at the same time, on the same day and will be in the same amount
except that each class will bear its own distribution expenses, generally
resulting in lower dividends for Class B and Class C shares in relation to
Class A shares. Distributions of net capital gains, if any, will be paid in
the same amount for each class of shares. See "How the Fund Values its
Shares."

DIVIDENDS AND DISTRIBUTIONS WILL BE PAID IN ADDITIONAL FUND SHARES BASED ON
THE NAV OF EACH CLASS OF FUND SHARES ON THE PAYMENT DATE OR SUCH OTHER DATE AS
THE BOARD OF DIRECTORS MAY DETERMINE, UNLESS THE SHAREHOLDER ELECTS IN WRITING
NOT LESS THAN FIVE BUSINESS DAYS PRIOR TO THE RECORD DATE TO RECEIVE SUCH
DIVIDENDS AND DISTRIBUTIONS IN CASH. Such election should be submitted to
Prudential Mutual Fund Services LLC, Attention: Account Maintenance, P.O. Box
15015, New Brunswick, New Jersey 08906-5015. The Fund will notify each
shareholder after the close of the Fund's taxable year both of the dollar
amount and the taxable status of that year's dividends and distributions on a
per share basis. If you hold shares through the Distributor, you should
contact your financial adviser to elect to receive dividends and distributions
in cash.

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<PAGE>

In determining the amount of capital gains to be distributed, any capital
loss carryovers from prior years will be offset against capital gains. The
Fund intends to invest its assets so that dividends paid from net tax-exempt
interest earned from Municipal Bonds and Notes will qualify as exempt-interest
dividends and be excluded from the shareholder's gross income under the
Internal Revenue Code.

Any dividends or distributions of net capital gains paid shortly after a
purchase by an investor will have the effect of reducing the NAV of the
investor's shares by the per share amount of the distributions. Although in
effect a return of invested principal, capital gain distribution and
dividends, to the extent such distributions are out of taxable net income, are
subject to federal income taxes. Accordingly, prior to purchasing shares of
the Fund, an investor should carefully consider the impact of dividends and
distributions which are expected to be or have been announced.

IF YOU BUY SHARES ON OR IMMEDIATELY BEFORE THE RECORD DATE (THE DATE THAT
DETERMINED WHO RECEIVES THE DIVIDEND), YOU WILL RECEIVE A PORTION OF THE MONEY
YOU INVESTED AS A TAXABLE DIVIDEND. THEREFORE, YOU SHOULD CONSIDER THE TIMING
OF DIVIDENDS WHEN BUYING SHARES OF THE FUND.

GENERAL INFORMATION

DESCRIPTION OF COMMON STOCK

THE FUND WAS INCORPORATED IN MARYLAND ON JANUARY 9, 1980. THE FUND IS
AUTHORIZED TO ISSUE 750 MILLION SHARES OF COMMON STOCK, $.01 PAR VALUE PER
SHARE, DIVIDED INTO THREE CLASSES, DESIGNATED CLASS A, CLASS B AND CLASS C
COMMON STOCK, EACH OF WHICH CONSISTS OF 250 MILLION AUTHORIZED SHARES. Each
class of common stock represents an interest in the same assets of the Fund
and is identical in all respects except that (i) each class is subject to
different sales charges and distribution and/or service fees, (ii) 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 (except that the Fund has agreed with the
Commission in connection with the offering of a conversion feature on Class B
shares to submit any amendment of the Class A Plan to both Class A and Class B
shareholders), (iii) each class has a different exchange privilege and (iv)
only Class B shares have a conversion feature. See "How the Fund is Managed--
Distributor." The Fund has received an order from the Commission permitting
the issuance and sale of multiple classes of common stock. Currently, the Fund
is offering only three classes designated Class A, Class B, and Class C
shares. In accordance with the Fund's Articles of Incorporation, the Board of
Directors may authorize the creation of additional series of common stock and
classes within such series, with such preferences, privileges, limitations and
voting and dividend rights as the Board may determine.

The Board of Directors may increase or decrease the number of authorized
shares without approval by the shareholders. Shares of the Fund, when issued,
are fully paid, nonassessable, fully transferable and redeemable at the option
of the holder. Shares are also redeemable at the option of the Fund under
certain circumstances as described under "Shareholder Guide--How to Sell Your
Shares." Each share of each class of common stock is equal as to earnings,
assets and voting privileges, except as noted above, and each class of shares
bears the expenses related to the distribution of its shares. Except for the
conversion feature applicable to the Class B

25
<PAGE>

shares, there are no conversion, preemptive or other subscription rights. In
the event of liquidation, each share of common stock of the Fund is entitled
to its portion of all of the Fund's assets after all debt 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. The Fund's shares do not have cumulative voting rights for the
election of Directors, so that holders of more than 50 percent of the shares
voting can, if they choose, elect all Directors being selected, while the
holders of the remaining Shares would be unable to elect any Directors.

THE FUND DOES NOT INTEND TO HOLD ANNUAL MEETINGS OF SHAREHOLDERS UNLESS
OTHERWISE REQUIRED BY LAW. THE FUND WILL NOT BE REQUIRED TO HOLD MEETINGS OF
SHAREHOLDERS UNLESS, FOR EXAMPLE, THE ELECTION OF DIRECTORS IS REQUIRED TO BE
ACTED ON BY SHAREHOLDERS UNDER THE INVESTMENT COMPANY ACT. SHAREHOLDERS HAVE
CERTAIN RIGHTS, INCLUDING THE RIGHT TO CALL A MEETING UPON A VOTE OF 10% OF
THE FUND'S OUTSTANDING SHARES FOR THE PURPOSE OF VOTING ON THE REMOVAL OF ONE
OR MORE DIRECTORS OR TO TRANSACT ANY OTHER BUSINESS.

ADDITIONAL INFORMATION

This Prospectus, including the Statement of Additional Information which has
been incorporated by reference herein, does not contain all the information
set forth in the Registration Statement filed by the Fund with the Commission
under the Securities Act. Copies of the Registration Statement may be obtained
at a reasonable charge from the Commission or may be examined, without charge,
at the office of the Commission in Washington, D.C.

SHAREHOLDER GUIDE

HOW TO BUY SHARES OF THE FUND

YOU MAY PURCHASE SHARES OF THE FUND THROUGH THE DISTRIBUTOR, PRUSEC OR
DIRECTLY FROM THE FUND THROUGH ITS TRANSFER AGENT, PRUDENTIAL MUTUAL FUND
SERVICES LLC (PMFS OR THE TRANSFER AGENT), ATTENTION: INVESTMENT SERVICES,
P.O. BOX 15020, NEW BRUNSWICK, NEW JERSEY 08906-5020. The purchase price is
the NAV next determined following receipt of an order by the Transfer Agent or
the Distributor plus a sales charge which, at your option, may be imposed
either (i) at the time of purchase (Class A shares) or (ii) on a deferred
basis (Class B or Class C shares). See "Alternative Purchase Plan" below. See
also, "How the Fund Values its Shares." Payments may be made by cash, wire,
check or through your brokerage account.

AN INVESTMENT IN THE FUND MAY NOT BE APPROPRIATE FOR TAX-EXEMPT OR TAX-
DEFERRED INVESTORS. SUCH INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISERS.

The minimum initial investment is $1,000 for Class A and Class B shares and
$5,000 for Class C shares. The minimum subsequent investment is $100 for all
classes. All minimum investment requirements are waived for certain employee
savings plans. For purchases through the Automatic Savings Accumulation Plan,
the minimum initial and subsequent investment is $50. See "Shareholder
Services" below.

Application forms can be obtained from PMFS, the Distributor or Prusec. If a
stock certificate is desired, it must be requested in writing for each
transaction. Certificates are issued only for full shares. Shareholders who
hold their shares through the Distributor will not receive stock certificates.

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<PAGE>

The Fund reserves the right to reject any purchase order (including an
exchange into the Fund) or to suspend or modify the continuous offering of its
shares. See "How to Sell Your Shares" below.

Your dealer is responsible for forwarding payment promptly to the Fund. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the third business day following the investment.

Transactions in Fund shares may be subject to postage and handling charges
imposed by your dealer.

PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire, you
must first telephone PMFS to receive an account number at (800) 225-1852
(toll-free). The following information will be requested: your name, address,
tax identification number, 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 National Municipals Fund, Inc., 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, or Class C
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. See "Net Asset Value in the
Statement of Additional Information.

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

ALTERNATIVE PURCHASE PLAN

THE FUND OFFERS THREE CLASSES OF SHARES (CLASS A, CLASS B AND CLASS C
SHARES) WHICH ALLOWS YOU TO CHOOSE THE MOST BENEFICIAL SALES CHARGE STRUCTURE
FOR YOUR INDIVIDUAL CIRCUMSTANCES GIVEN THE AMOUNT OF THE PURCHASE, THE LENGTH
OF TIME YOU EXPECT TO HOLD THE SHARES AND OTHER RELEVANT CIRCUMSTANCES
(ALTERNATIVE PURCHASE PLAN).

<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE
SALES CHARGE DAILY NET ASSETS) OTHER INFORMATION
------------------------ ------------------------------- ------------------------
<C> <S> <C> <C>
Class A Maximum initial sales .30 of 1% (Currently being Initial sales charge
charge of 3% of the charged at a rate of .10 of 1%) waived or reduced for
public offering price certain purchases
Class B Maximum CDSC of 5% of .50 of 1% Shares convert to Class
the lesser of the amount A shares approximately
invested or the seven years after
redemption proceeds; purchase
declines to zero after
six years
Class C Maximum CDSC of 1% of 1% (Currently being charged Shares do not convert to
the lesser of the amount at a rate of .75 of 1%) another class
invested or the
redemption proceeds on
redemptions made within
one year of purchase
</TABLE>

27
<PAGE>

The three classes of shares represent an interest in the same portfolio of
investments of the Fund and have the same rights, except that (i) each class
is subject to different sales charges and distribution and/or service fees,
which may affect performance, (ii) each class has exclusive voting rights on
any matter submitted to shareholders that relates solely to its arrangements
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
(except as noted under the heading "General Information--Description of Common
Stock"), (iii) each class has a different exchange feature and (iv) only Class
B shares have a conversion feature. See "How to Exchange Your Shares" below.
The income attributable to each class and the dividends payable on the shares
of each class will be reduced by the amount of the distribution fee (if any)
of each class. Class B and Class C shares bear the expenses of a higher
distribution fee which will generally cause them to have higher expense ratios
and to pay lower dividends than Class A shares.

Financial advisers and other sales agents who sell shares of the Fund will
receive different compensation for selling Class A, Class B and Class C shares
and will generally receive more compensation initially for selling Class A and
Class B shares than for selling Class C shares.

IN SELECTING A PURCHASE ALTERNATIVE, YOU SHOULD CONSIDER, AMONG OTHER
THINGS, (1) the length of time you expect to hold your investment, (2) the
amount of any applicable sales charge (whether imposed at the time of purchase
or redemption) and distribution-related fees, as noted above, (3) whether you
qualify for any reduction or waiver of any applicable sales charge, (4) the
various exchange privileges among the different classes of shares (see "How to
Exchange Your Shares" below) and (5) the fact that Class B shares
automatically convert to Class A shares approximately seven years after
purchase (see "Conversion Feature--Class B Shares" below).

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:

If you intend to hold your investment in the Fund for less than 5 years and
do not qualify for a reduced sales charge on Class A shares, since Class A
shares are subject to a maximum initial sales charge of 3% 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 more than 5 years and do not
qualify for a reduced sales charge on Class A shares, since Class B shares
convert to Class A shares approximately 7 years after purchase and because all
of your money would be invested initially in the case of Class B shares, you
should consider purchasing Class B shares over either Class A or 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 and Class C 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 C shares, you would have to hold your investment for more than
4 years for the higher cumulative annual distribution-related fee on Class C
shares to exceed the initial sales charge plus 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 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 during which the
CDSC is applicable.

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<PAGE>

ALL PURCHASES OF $1 MILLION OR MORE, EITHER AS PART OF A SINGLE INVESTMENT
OR UNDER RIGHTS OF ACCUMULATION OR LETTERS OF INTENT, MUST BE FOR CLASS A
SHARES. SEE "REDUCTION AND WAIVER OF INITIAL SALES CHARGES" BELOW.

CLASS A SHARES

The offering price of Class A shares for investors choosing the initial
sales charge alternative is the next determined NAV plus a sales charge
(expressed as a percentage of the offering price and of the amount invested)
as shown in the following table:

<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS DEALER CONCESSION
PERCENTAGE OF PERCENTAGE OF AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
------------------ --------------- --------------- -----------------
<S> <C> <C> <C>
Less than $99,999.......... 3.00% 3.09% 3.00%
$100,000 to $249,999....... 2.50% 2.56% 2.50%
$250,000 to $499,999....... 1.50% 1.52% 1.50%
$500,000 to $999,999....... 1.00% 1.01% 1.00%
$1,000,000 and above....... None None None
</TABLE>

The Distributor may reallow the entire initial sales charge to dealers.
Selling dealers may be deemed to be underwriters, as that term is defined in
the Securities Act.

In connection with the sale of Class A shares of NAV (without payment of an
initial sales charge), the Manager, the Distributor or one of their affiliates
will pay dealers, financial advisors and other persons which distribute shares
a finders' fee from its own resources based on a percentage of the NAV of
shares sold by such person.

REDUCTION AND WAIVER OF INITIAL SALES CHARGES. Reduced sales charges are
available through Rights of Accumulation and Letters of Intent. Shares of the
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) may be
aggregated to determine the applicable reduction. See "Purchase and Redemption
of Fund Shares--Reduction and Waiver of Initial Sales Charges--Class A Shares"
in the Statement of Additional Information.

PruArray Savings Plan. Class A shares are also offered at NAV to employees
of companies that enter into a written agreement with Prudential Retirement
Services to participate in the PruArray Savings Program. Under this Program, a
limited number of Prudential Mutual Funds are available for purchase at NAV by
Savings Accumulation Plans of the company's employees. The Program is
available only to employees who open a Savings Accumulation Plan account with
the Transfer Agent. The program is offered to companies that have at least 250
eligible employees.

Special Rules Applicable to Retirement Plans. After a PruArray Plan
qualifies to purchase Class A shares at NAV, all subsequent purchases will be
made at NAV.

Other Waivers. Class A shares may be purchased at NAV, through Prudential
Securities or the Transfer Agent, by the following persons: (a) officers and
current and former Directors/Trustees of the Prudential Mutual Funds
(including the Fund), (b) employees of Prudential Securities and 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, (c)
employees of subadvisers of the Prudential Mutual Funds provided that
purchases at NAV are permitted by such person's employer, (d) Prudential
employees and special agents of Prudential and its

29
<PAGE>

subsidiaries and all persons who have retired directly from active service
with Prudential or one of its subsidiaries, (e) registered representatives and
employees of dealers who have entered into a selected dealer agreement with
Prudential Securities provided that purchases at NAV are permitted by such
person's employer, (f) investors who have a business relationship with a
financial adviser who joined Prudential Securities from another investment
firm, provided that (i) 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, (ii) 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 of 1% or less) and (iii)
the financial adviser served as the client's broker on the previous purchases.

You must notify the Transfer Agent either directly or through Prudential
Securities or Prusec that you are entitled to the reduction or waiver of the
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
purchased upon the reinvestment of dividends and distributions. See "Purchase
and Redemption of Fund Shares--Reduction and Waiver of Initial Sales Charges--
Class A Shares" in the Statement of Additional Information.

CLASS B AND CLASS C SHARES

The offering price of Class B and Class C shares for investors choosing one
of the deferred sales charge alternatives is the NAV next determined following
receipt of an order by the Transfer Agent or Prudential Securities. Although
there is no sales charge imposed at the time of purchase, redemptions of Class
B and Class C shares may be subject to a CDSC. See "How to Sell Your Shares--
Contingent Deferred Sales Charges." The Distributor will pay, from its own
resources, sales commissions of up to 4% of the purchase price of Class B
shares to dealers, financial advisors and other persons who sell the 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 sale commissions from the combination of the CDSC and the distribution fee.
See "How the Fund is Managed--Distributor." In connection with the sale of
Class C shares, the Distributor will pay, from its own resources, dealers,
financial advisers and other persons which distribute Class C shares a sales
commission of up to 1% of the purchase price at the time of the sale.

HOW TO SELL YOUR SHARES

YOU CAN REDEEM YOUR SHARES AT ANY TIME FOR CASH AT THE NAV NEXT DETERMINED
AFTER THE REDEMPTION REQUEST IS RECEIVED IN PROPER FORM BY THE TRANSFER AGENT
OR PRUDENTIAL SECURITIES. SEE "HOW THE FUND VALUES ITS SHARES." In certain
cases, however, redemption proceeds from the Class B shares will be reduced by
the amount of any applicable contingent deferred sales charge, as described
below. See "Contingent Deferred Sales Charges" below.

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, SIGNED IN THE NAME(S) SHOWN ON THE FACE OF THE
CERTIFICATES, MUST BE RECEIVED BY THE TRANSFER AGENT IN ORDER FOR THE
REDEMPTION REQUEST TO BE PROCESSED. IF REDEMPTION IS REQUESTED BY A
CORPORATION, PARTNERSHIP, TRUST OR FIDUCIARY, WRITTEN EVIDENCE OF AUTHORITY
ACCEPTABLE TO THE TRANSFER AGENT MUST BE SUBMITTED BEFORE SUCH REQUEST WILL BE
ACCEPTED. All correspondence and documents concerning redemptions should be
sent to the Fund in care of

30
<PAGE>

the Transfer Agent, Prudential Mutual Fund Services LLC, Attention: Redemption
Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010.

If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to
a person other than the record owner, (c) are to be sent to an address other
than the address on the Transfer Agent's records, or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the
redemption request and on the certificates, if any, or stock power, must be
guaranteed by an eligible guarantor institution. An eligible guarantor
institution includes any bank, broker, dealer or credit union. The Transfer
Agent reserves the right to request additional information from, and make
reasonable inquiries of, any eligible guarantor institution. For clients of
Prusec, a signature guarantee may be obtained from the agency or office
manager of most Prudential Insurance and Financial Services or Preferred
Services offices.

PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE MADE BY CHECK WITHIN
SEVEN DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE CERTIFICATE AND/OR
WRITTEN REQUEST EXCEPT AS INDICATED BELOW. IF YOU HOLD SHARES THROUGH
PRUDENTIAL SECURITIES, PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE
CREDITED TO YOUR PRUDENTIAL SECURITIES ACCOUNT, UNLESS YOU INDICATE OTHERWISE.
Such payment may be postponed or the right of redemption suspended at times
(a) when the New York Stock Exchange is closed for other than customary
weekends and holidays, (b) when trading on such Exchange is restricted, (c)
when an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, or
(d) during any other period when the Commission, by order, so permits;
provided that applicable rules and regulations of the Commission shall govern
as to whether the conditions prescribed in (b), (c) or (d) exist.

PAYMENT FOR REDEMPTION OF RECENTLY PURCHASED SHARES WILL BE DELAYED UNTIL
THE FUND OR ITS TRANSFER AGENT HAS BEEN ADVISED THAT THE PURCHASE CHECK HAS
BEEN HONORED, UP TO 10 CALENDAR DAYS FROM THE TIME OF RECEIPT OF THE PURCHASE
CHECK BY THE TRANSFER AGENT. SUCH DELAY MAY BE AVOIDED BY PURCHASING SHARES BY
WIRE OR BY CERTIFIED OR CASHIER'S CHECK.

REDEMPTION IN KIND. If the Board of Directors determines that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price
in whole or in part by a distribution in kind of securities from the
investment portfolio of the Fund, in lieu of cash, in conformity with
applicable rules of the Commission. Securities will be readily marketable and
will be valued in the same manner as in regular redemption. See "How the Fund
Values its Shares." If your shares are redeemed in kind, you would incur
transaction costs in converting the assets into cash. The Fund, however, has
elected to be governed by Rule 18f-1 under the Investment Company Act, 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 Board
of Directors may redeem all of the shares of any shareholder, other than a
shareholder which is an IRA or other tax-deferred retirement plan, whose
account has a net asset value of less than $500 due to a redemption. The Fund
will give 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 involuntary redemption.

90-DAY REPURCHASE PRIVILEGE. If you redeem your shares and have not
previously exercised the repurchase privilege, you may reinvest any portion or
all of the proceeds of such redemption in shares of the Fund at the 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

31
<PAGE>

less than a full repurchase is made, the credit will be on a pro rata basis.)
You must notify the Fund's Transfer Agent, either directly or through the
Distributor, 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 Charges" below. Exercise of the repurchase privilege may not
affect federal tax treatment of any gain realized upon redemption.

CONTINGENT DEFERRED SALES CHARGES

Redemptions of Class B shares will be subject to a CDSC declining from 5% to
zero over a six-year period. Class C shares redeemed within one year 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 one year, 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 or 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. See "How the Fund is Managed--Distributor" and "Waiver of the
Contingent Deferred Sales Charges--Class B Shares" below.

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. See "How to Exchange Your Shares" below. The following table sets
forth the rates of the CDSC applicable to redemptions of Class B shares:

<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
YEAR SINCE CHARGE AS A PERCENTAGE
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 Fund shares made during the preceding six years (five
years for shares purchased prior to January 22, 1990); then of amounts
representing the cost of shares held beyond the applicable CDSC period; then
of amounts representing the cost of shares acquired prior to July 1, 1985; and
finally, of amounts representing the cost of shares held for the longest
period of time within the applicable CDSC period.

32
<PAGE>

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
net asset value 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 CHARGES--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, 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 (with rights
of survivorship), at the time of death or initial determination of disability,
provided that the shares were purchased prior to death or disability. In
addition, the CDSC will be waived on redemptions of shares held by a Director
of the Fund.

You must notify the Fund's Transfer Agent either directly or through the
Distributor or Prusec, at the time of redemption, that you are entitled to
waiver of the contingent deferred sales charge 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. See "Purchase and
Redemption of Fund Shares--Waiver of the Contingent Deferred Sales Charge--
Class B Shares" in the Statement of Additional Information.

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 or, for shares purchased
prior to March 1, 1997, on March 1 of the current year. The CDSC will be
waived (or reduced) on redemptions until this threshold 12% is reached.

A quantity discount may apply to redemptions of Class B shares purchased
prior to August 1, 1994. See "Purchase and Redemption of Fund Shares--Quantity
Discount--Class B Shares Purchased Prior to August 1, 1994," in the Statement
of Additional Information.

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 NAV 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: (i) 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 (ii) 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.

33
<PAGE>

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 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 (i.e., $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. See "How the Fund Values its Shares."

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 will 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 (i) that the
dividends and other distributions paid on Class A, Class B and Class C shares
will not constitute "preferential dividends" under the Internal Revenue Code
and (ii) 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.

HOW TO EXCHANGE YOUR SHARES

AS A SHAREHOLDER OF THE FUND, YOU HAVE AN EXCHANGE PRIVILEGE WITH CERTAIN
OTHER PRUDENTIAL MUTUAL FUNDS, INCLUDING ONE OR MORE SPECIFIED MONEY MARKET
FUNDS, SUBJECT TO THE MINIMUM INVESTMENT REQUIREMENTS OF SUCH FUNDS. CLASS A,
CLASS B AND CLASS C SHARES MAY BE EXCHANGED FOR CLASS A, CLASS B, AND CLASS C
SHARES, RESPECTIVELY, OF ANOTHER FUND ON THE BASIS OF THE RELATIVE NAV. No
sales charge will be imposed at the time of the exchange. Any applicable CDSC
payable upon the redemption of shares exchanged 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. Class B and Class C shares may not be
exchanged into money market funds other than Prudential Special Money Market
Fund, Inc. For purposes of calculating the 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. See "Conversion Feature--Class B
Shares" above. An exchange will be treated as a redemption and purchase for
tax purposes. See "Shareholder Investment Account--Exchange Privilege" in the
Statement of Additional Information.

34
<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. The exchange privilege is available
only in states where the exchange may legally be made.

IF YOU HOLD SHARES THROUGH THE DISTRIBUTOR, YOU MUST EXCHANGE YOUR SHARES BY
CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER. IF YOU HOLD
CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE FACE OF THE
CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE EXCHANGED. SEE
"HOW TO SELL YOUR SHARES" ABOVE.

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.

SPECIAL EXCHANGE PRIVILEGES. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV. See "Alternative
Purchase Plan--Class A Shares--Reduction and Waiver of Initial Sales
Charges". 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. 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 the Distributor or Prusec that they are eligible for this
special exchange privilege.

The exchange privilege is not a right and may be suspended, modified or
terminated on 60 days' notice to shareholders.

FREQUENT TRADING. The Fund and other Prudential Mutual Funds are not
intended to serve as vehicles for frequent trading in response to short-term
fluctuations in the market. Due to the disruptive effect that market timing
investment strategies and excessive trading can have on efficient portfolio
management, each Prudential Mutual Fund and the Fund reserves the right to
refuse purchase orders and exchanges by any person, group or commonly
controlled accounts, if, in the Manager's sole judgment, such person, group or
accounts were following a market timing strategy or were otherwise engaging in
excessive trading (Market Timers).

35
<PAGE>

To implement this authority to protect the Fund and its shareholders from
excessive trading, the Fund will reject all exchanges and purchases from a
Market Timer unless the Market Timer has entered into a written agreement with
the Fund or its affiliates pursuant to which the Market Timer has agreed to
abide by certain procedures, which include a daily dollar limit on trading.
The Fund may notify the Market Timer of rejection of an exchange or purchase
order subsequent to the day on which the order was placed.

SHAREHOLDER SERVICES

In addition to the exchange privilege, as a shareholder in the Fund, you can
take advantage of the following additional services and privileges:

. AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS WITHOUT A SALES
CHARGE. For your convenience, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund at NAV
without a sales charge. You may direct the Transfer Agent in writing not less
than 5 full business days prior to the record date to have subsequent
dividends and/or distributions sent in cash rather than reinvested. If you
hold shares through Prudential Securities, you should contact your financial
adviser.

. AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP). Under ASAP you may make
regular purchases of the Fund's shares in amounts as little as $50 via an
automatic debit to a bank account or Prudential Securities account (including
a Command Account). For additional information about this service, you may
contact your Prudential Securities financial adviser, Prusec representative or
the Transfer Agent directly.

. SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders which provides for monthly or quarterly checks. Withdrawals of
Class B and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares--Contingent Deferred Sales Charges."

. REPORTS TO SHAREHOLDERS. The Fund will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses, the Fund will provide one annual and semi-annual shareholder report
and annual prospectus per household. You may request additional copies of such
reports by calling (800) 225-1852 or by writing to the Fund at Gateway Center
Three, 100 Mulberry Street, Newark, New Jersey 07102-4077. In addition,
monthly unaudited financial data are available upon request from the Fund.

. SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Fund at
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, or
by telephone at (800) 225-1852 (toll-free) or, from outside the U.S.A., at
(908) 417-7555 (collect).

For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.

36
<PAGE>

THE PRUDENTIAL MUTUAL FUND FAMILY

Prudential offers a broad range of mutual funds designed to meet your
individual needs. We welcome you to review the investment options available
through our family of funds. For more information on the Prudential Mutual
Funds, including charges and expenses, contact your Prudential Securities
financial adviser or Prusec representative or telephone the Funds at
(800) 225-1852 for a free prospectus. Read the prospectus carefully before you
invest or send money.

TAXABLE BOND FUNDS
Prudential Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Mortgage Income Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio

TAX-EXEMPT BOND FUNDS
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Intermediate Series
Prudential Municipal Series Fund
Florida Series
Maryland Series
Massachusetts Series
Michigan Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.

GLOBAL FUNDS
Prudential Europe Growth Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential International Bond Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series
The Global Total Return Fund, Inc.
Global Utility Fund, Inc.
EQUITY FUNDS
Prudential Balanced Fund
Prudential Distressed Securities Fund, Inc.
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Index Series Fund
Prudential Bond Market Index Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
Prudential Jennison Series Fund, Inc.
Prudential Jennison Active Balanced Fund
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Multi-Sector Fund, Inc.
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
MONEY MARKET FUNDS
.Taxable Money Market Funds
Cash Accumulation Trust
National Money Market Fund
Liquid Assets 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

A-1
<PAGE>

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

TABLE OF CONTENTS

- --------------------------------------------------------------------------------
MF104A

Class A: 743918 20 3
CUSIP Nos.: Class B: 743918 10 4
Class C: 743918 30 2

PRUDENTIAL
NATIONAL
MUNICIPALS
FUND, INC.

PROSPECTUS

MARCH 4, 1998

www.prudential.com
<PAGE>

PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.

SUPPLEMENT DATED NOVEMBER 23, 1998 TO

STATEMENT OF ADDITIONAL INFORMATION DATED MARCH 4, 1998

THE FOLLOWING INFORMATION SHOULD BE ADDED TO THE COVER PAGE OF THE STATEMENT
OF ADDITIONAL INFORMATION:

The date of the Statement of Additional Information is hereby changed to
November 23, 1998.

THE FOLLOWING INFORMATION SUPPLEMENTS "DIRECTORS AND OFFICERS" IN THE
STATEMENT OF ADDITIONAL INFORMATION:

As of November 13, 1998, the Directors and officers of the Fund, as a group,
owned less than 1% of each class of the outstanding common stock of the Fund.

As of November 13, 1998, the beneficial owners, directly or indirectly, of
more than 5% of the outstanding shares of any class of beneficial interest
were: Christine V. Doyle, 58 Remington Road, Ridgefield, CT 06877-4326 who
held 21,396 Class C Shares (15.1%); Huntington Newspapers Inc., Attn: Larry
Hensley, P.O. Box 860, Huntington, IN 46750-0860 which held 8,787 Class C
shares (6.2%); Craig Morrison & Betsy Morrison J TEN, 25716 Summerfield CT,
Wheaton, IL 60187-7924 who held 30,251 Class C shares (or 21.4% of the
outstanding Class C shares); and Worldwide Forwarders Inc., Richard H.
Panadero, 9706 SW 155 CT, Miami, FL 33196 who held 33,742 Class C shares (or
23.9% of the outstanding Class C shares).

As of November 13, 1998, Prudential Securities was the record holder for
other beneficial owners of 10,220,357 Class A shares (or 34% of the
outstanding Class A Shares), 2,940,083 Class B shares (or 38% of the
outstanding Class B shares) and 98,952 Class C shares (or 70% of the
outstanding Class C shares ) of the Fund]. In the event of any meeting of
shareholders, Prudential Securities will forward, or cause the forwarding of,
proxy materials to the beneficial owners for which it is the record holder.

THE FOLLOWING INFORMATION SUPPLEMENTS "DISTRIBUTOR" IN THE STATEMENT OF
ADDITIONAL INFORMATION:

PIMS serves as the Distributor of Class Z shares and incurs the expenses of
distributing the Fund's Class Z shares under a Distribution Agreement with the
Fund, none of which are reimbursed by or paid for by the Fund.

THE FOLLOWING INFORMATION SUPPLEMENTS "PURCHASE AND REDEMPTION OF FUND
SHARES" IN THE STATEMENT OF ADDITIONAL INFORMATION:

Shares of the Fund may be purchased at a price equal to the next determined
net asset value per share plus a sales charge which, at the election of the
investor, may be imposed at the time of purchase, on a deferred basis or both.
Class A shares are sold with a front-end sales charge. Class B shares are
subject to a contingent deferred sales charge. Class C shares are sold with a
low front-end sales charge, but are also subject to a contingent deferred
sales charge. Class Z shares are offered to a limited group of investors at
NAV without any sales charges. See "Shareholder Guide--How to Buy Shares of
the Fund" in the Prospectus.
<PAGE>

Each class represents an interest in the same assets of the Fund and is
identical in all respects except that (i) each class is subject to different
sales charges and distribution and/or service expenses (except for Class Z
shares, which are not subject to any sales charges or distribution and/or
service fees) which may affect performance, (ii) 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 interest of one class differ from the interests of
any other class, (iii) each class has a different exchange privilege, (iv)
only Class B shares have a conversion feature and (v) Class Z shares are
offered exclusively for sale to a limited group of investors. See
"Distributor" and "Shareholder Investment Account--Exchange Privilege."

SPECIMEN PRICE MAKE-UP

Under the current distribution arrangements between the Fund and the
Distributor, Class A shares of the Fund are sold at a maximum sales charge of
3%, Class C* shares are sold with a front-end sales charge of 1%, and Class B*
and Class Z** shares of the Fund are sold at NAV. Using the Fund's NAV at
December 31, 1997, the maximum offering price of the Fund's shares would be as
follows:

<TABLE>
<CAPTION>
CLASS A
-------
<S> <C>
NAV and redemption price per Class A share........................ $16.12
Maximum sales charge (3% of offering price)....................... .50
------
Offering price to public.......................................... $16.62
======
CLASS B
-------
NAV, offering price and redemption price per Class B share*....... $16.16
======
CLASS C
-------
NAV, offering price and redemption price per Class C share*....... $16.16
Maximum sales charge (1% of offering price)***.................... .16
------
Offering price to public.......................................... $16.32
======
CLASS Z
-------
NAV, offering price and redemption price per Class Z share........ $16.12
======
</TABLE>
- --------

* Class B and Class C shares are subject to a contingent deferred sales charge
on certain redemptions. See "Shareholder Guide--How to Sell Your Shares--
Contingent Deferred Sales Charges" in the Prospectus.

**Class Z shares did not exist at December 31, 1997.

***Prior to November 2, 1998, Class C shares were sold without an initial
sales charge.

THE FOLLOWING INFORMATION SUPPLEMENTS "SHAREHOLDER INVESTMENT ACCOUNT--
EXCHANGE PRIVILEGE" IN THE STATEMENT OF ADDITIONAL INFORMATION:

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

THE FOLLOWING INFORMATION SUPPLEMENTS "FINANCIAL STATEMENTS" IN THE
STATEMENT OF ADDITIONAL INFORMATION:

The unaudited financial statements of the Fund for the six-month period
ended June 30, 1998 are incorporated by reference from the Fund's semi-annual
report to shareholders for the period then ended. The Fund will furnish a copy
of such report upon written request to the Fund at Gateway Center Three, 100
Mulberry Street, Newark, New Jersey 07102-4077, or by calling the Fund at
(800) 225-1852. The unaudited financial statements reflect any adjustments
which are, in the opinion of management, necessary to a fair statement of the
results for the period presented.

2
<PAGE>

The Statement of Additional Information of Prudential National Municipals
Fund, Inc. is incorporated by reference in its entirety from the filing on
March 6, 1998 pursuant to Rule 497 under the Securities Act of 1933, as
amended (File No. 2-66407).

This registration statement is not intended to amend the Statement of
Additional Information dated March 4, 1998 referred to above, except to the
extent indicated.
<PAGE>

PART C

OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.

(A) FINANCIAL STATEMENTS:

(1) Financial statements included in the Prospectus constituting Part A
of this Registration Statement:

Financial Highlights for each of the ten years in the period ended
December 31, 1997.

Financial HIghlights (unaudited) for the six-month period ended June
30, 1998.

(2) Financial statements included in the Statement of Additional
Information constituting Part B of this Registration Statement:

Portfolio of Investments at December 31, 1997.

Statement of Assets and Liabilities at December 31, 1997.

Statement of Operations for the year ended December 31, 1997.

Statement of Changes in Net Assets for the years ended December 31,
1996 and December 31, 1997.

Notes to Financial Statements.

Financial Highlights with respect to each of the five years in the
period ended December 31, 1997.

Report of Independent Accountants.

The following financial statements were incorporated by reference from the
Fund's semi-annual report to shareholders for the six months ended June 30,
1998 filed on September 9, 1998:

Portfolio of Investments at June 30, 1998 (unaudited).

Statement of Assets and Liabilities at June 30, 1998 (unaudited).

Statement of Operations for the six months ended June 30, 1998
(unaudited).

Statement of Changes in Net Assets for the six months ended June 30, 1998
(unaudited).

Notes to Financial Statements (unaudited).

Financial Highlights with respect to the six months ended June 30, 1998
(unaudited).

(B) EXHIBITS:

1.(a) Restated Articles of Incorporation. Incorporated by reference to
Exhibit 1 to Post-Effective Amendment No. 23 to Registration
Statement on Form N-1A filed via EDGAR on February 28, 1995 (File No.
2-66407).

(b) Articles Supplementary.*

2.Amended and restated By-Laws. Incorporated by reference to Exhibit 2
to Post-Effective Amendment No. 20 to the Registration Statement
filed on Form N-1A via EDGAR filed on March 1, 1994 (File No. 2-
66407).

4.Instruments defining rights of holders of the securities being
offered. Incorporated by reference to Exhibits Nos. 1 and 2 above.

5.(a) Management Agreement between the Registrant and Prudential Mutual
Fund Management, Inc. Incorporated by reference to Exhibit 5(a) to
Post-Effective Amendment No. 25 to the Registration Statement filed
on Form N-1A via EDGAR on March 5, 1997 (File No. 2-66407).

(b) Subadvisory Agreement between Prudential Mutual Fund Management,
Inc. and the Prudential Investment Corporation. Incorporated by
reference to Exhibit 5(b) to Post-Effective Amendment No. 25 to the
Registration Statement filed on Form N-1A via EDGAR on March 5, 1997
(File No. 2-66407).

6.(a) Selected Dealer Agreement.*

(b) Distribution Agreement.*

C-1
<PAGE>

8.Custodian Agreement between the Registrant and State Street Bank and
Trust Company. Incorporated by reference to Exhibit 8 to Post-
Effective Amendment No. 25 to the Registration Statement filed on
Form N-1A via EDGAR on March 5, 1997 (File No. 2-66407).

9.Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services, Inc. Incorporated by reference to
Exhibit 9(a) to Post-Effective Amendment No. 25 to Registration
Statement filed on Form N-1A via EDGAR on March 5, 1997 (File No. 2-
66407).

10.Opinion of Shereff, Friedman, Hoffman & Goodman, LLP. Incorporated by
reference to Exhibit 10 to Post-Effective Amendment No. 26 to
Registration Statement filed on Form N-1A via EDGAR on March 4, 1998
(File No. 2-66407).

11.Consent of Independent Accountants.*

15.(a) Distribution and Service Plan for Class A shares.*

(b) Distribution and Service Plan for Class B shares.*

16.(a) Schedule of Calculation of Average Annual Total Return (Class B
Shares). Incorporated by reference to Exhibit 16(a) to Post-Effective
Amendment No. 26 to Registration Statement on Form N-1A filed via
EDGAR on March 4, 1998 (File No. 2-66407).

(b) Schedule of Calculation of Average Annual Total Return (Class A
Shares). Incorporated by reference to Exhibit 16(b) to Post-Effective
Amendment No. 26 to Registration Statement on Form N-1A filed via
EDGAR on March 4, 1998 (File No. 2-66407).

18.Rule 18f-3 Plan.*

27. Financial Data Schedules.*
- ---------
*Filed herewith.

C-2
<PAGE>

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

None.

ITEM 26. NUMBER OF HOLDERS OF SECURITIES.

As of November 13, 1998 there were 18,355, 6,722, 50 and 0 record holders of
Class A, Class B, Class C and Class Z shares of common stock, respectively,
$.01 par value per share, of the Registrant.

ITEM 27. INDEMNIFICATION.

As permitted by Sections 17(h) and (i) of the Investment Company Act of
1940, as amended (the 1940 Act) and pursuant to Article VI of the Fund's By-
Laws (Exhibit 2 to the Registration Statement), officers, directors, employees
and agents of the Registrant will not be liable to the Registrant, any
stockholder, officer, director, employee, agent or other person for any action
or failure to act, except for bad faith, willful misfeasance, gross negligence
or reckless disregard of duties, and those individuals may be indemnified
against liabilities in connection with the Registrant, subject to the same
exceptions. Section 2-418 of Maryland General Corporation Law permits
indemnification of directors who acted in good faith and reasonably believed
that the conduct was in the best interests of the Registrant. As permitted by
Section 17(i) of the 1940 Act, pursuant to Section 10 of each Distribution
Agreement (Exhibits 6(b), 6(c) and 6(d) to the Registration Statement), each
Distributor of the Registrant may be indemnified against liabilities which it
may incur, except liabilities arising from bad faith, gross negligence,
willful misfeasance or reckless disregard of duties.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (Securities Act) may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing provisions
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission (Commission) such indemnification is
against public policy as expressed in the 1940 Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in
connection with the successful defense of any action, suit or proceeding) is
asserted against the Registrant by such director, officer or controlling
person in connection with the shares being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the 1940 Act and will be governed by the final adjudication of
such issue.

The Registrant intends to purchase an insurance policy insuring its officers
and directors against liabilities, and certain costs of defending claims
against such officers and directors, to the extent such officers and directors
are not found to have committed conduct constituting willful misfeasance, bad
faith, gross negligence or reckless disregard in the performance of their
duties. The insurance policy also insures the Registrant against the cost of
indemnification payments to officers and directors under certain
circumstances.

Section 9 of the Management Agreement (Exhibit 5(a) to the Registration
Statement) and Section 4 of the Subadvisory Agreement (Exhibit 5(b) to the
Registration Statement) limit the liability of Prudential Investments Fund
Management LLC (PIFM) and The Prudential Investment Corporation (PIC),
respectively, to liabilities arising from willful misfeasance, bad faith or
gross negligence in the performance of their respective duties or from
reckless disregard by them of their respective obligations and duties under
the agreements.

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

ITEM 28. 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 "Manager" in the Statement of Additional
Information constituting Part B of this Registration Statement.

The business and other connections of the officers of PIFM are listed in
Schedules A and D of Form ADV of PIFM as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by
reference.

The business and other connections of PIFM's directors and principal
executive officers are set forth below. Except as otherwise indicated, the
address of each person is Gateway Center Three, 100 Mulberry Street, Newark,
New Jersey 07102-4077.

C-3
<PAGE>

<TABLE>
<CAPTION>
NAME AND
ADDRESS POSITION WITH PIFM PRINCIPAL OCCUPATIONS
- -------- ------------------ ---------------------
<S> <C> <C>
Frank W. Executive Vice Executive Vice President, Secretary and
Giordano President, General Counsel, PIFM; Senior Vice
Secretary and President, Prudential Securities
General Counsel Incorporated (Prudential Securities)
Robert F. Executive Vice Vice President, Prudential Investments;
Gunia President Executive Vice President and Treasurer,
and Treasurer PIFM; Senior Vice President, Prudential
Securities
Neil A. Mc- Executive Vice Executive Vice President and Director of
Guinness President Marketing, Prudential Mutual Funds and
Annuities (PMF&A); Executive Vice President,
PIFM
Brian M. Officer-in-Charge, President, Prudential Investments; Officer-
Storms President, Chief in-Charge, President, Chief Executive
Executive Officer Officer and Chief Operating Officer, PIFM
and Chief Operating
Officer
Robert J. Executive Vice Executive Vice President, PMF&A; Executive
Sullivan President Vice President, PIFM
</TABLE>

(b) Prudential Investment Corporation (PIC)

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

The business and other connections of PIC's directors and executive officers
are as set forth below. Except as otherwise indicated, the address of each
person is Prudential Plaza, Newark, NJ 07102.

<TABLE>
<CAPTION>
NAME AND
ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATIONS
- -------- ----------------- ---------------------
<S> <C> <C>
E. Michael Chairman of the Chief Executive Officer of Prudential
Caulfield Board, President, Investments of the Prudential Insurance
Chief Executive Company of America (Prudential)
Officer and
Director
John R. Vice President and President of Private Asset Management Group
Strangfeld Director of Prudential; Senior Vice President,
Prudential; Vice President and Director, PIC
</TABLE>

C-4
<PAGE>

ITEM 29. PRINCIPAL UNDERWRITERS

(a) Prudential Investment Management Services LLC (PIMS)

PIMS is distributor for Cash Accumulation Trust, Command Government Fund,
Command Money Fund, Command Tax-Free Fund, The Global Total Return Fund Inc.,
Global Utility Fund, Inc., Liquid Assets Fund, National Money Market Fund,
Nicholas-Applegate Fund, Inc. (Nicholas-Applegate Growth Equity Fund),
Prudential Allocation Fund, Prudential Bond Market Index Fund, Prudential
California Municipal Fund, Prudential Distressed Securities Fund, Inc.,
Prudential Diversified Bond Fund, Inc., Prudential Emerging Growth Fund, Inc.,
Prudential Equity Fund, Inc., Prudential Equity Income Fund, Prudential Europe
Growth Fund, Inc., Prudential Europe Index 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 Index Series Fund, Prudential Intermediate Global Income
Fund, Inc., Prudential International Bond Fund, Inc., The Prudential
Investment Portfolios, Prudential Mid-Cap Value Fund, Prudential Institutional
Liquidity Portfolio, Inc., Prudential MoneyMart Assets, Inc., Prudential
Mortgage Income 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
Pacific Index Fund, Prudential Real Estate Securities Fund, Prudential Small
Cap Index Fund, Prudential Small Company Value Fund, Inc., Prudential Small-
Cap Quantum Fund, Inc., Prudential Special Money Market Fund, Inc., Prudential
Stock Index Fund, Prudential Structured Maturity Fund, Inc., Prudential Tax-
Free Money Fund, Inc., Prudential 20/20 Focus Fund, Prudential Utility Fund,
Inc., Prudential World Fund, Inc. and The Target Portfolio Trust.

(b) Information concerning the officers and directors of PIMS is set forth
below.

<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME(/1/) UNDERWRITER REGISTRANT
- --------- ------------- -------------
<S> <C> <C>
E. Michael Caulfield..... President None

Mark R. Fetting.......... Executive Vice President None
Gateway Center Three
100 Mulberry Street
Newark, New Jersey 07102

Jean D. Hamilton......... Executive Vice President None

Ronald P. Joelson........ Executive Vice President None

Brian M. Storms.......... Executive Vice President None
Gateway Center Three
100 Mulberry Street
Newark, New Jersey 07102

John R. Strangfeld....... Executive Vice President None

Mario A. Mosse........... Senior Vice President and Chief None
Operating Officer

Scott S. Wallner......... Vice President, Secretary and Chief None
Legal Officer

Michael G. Williamson.... Vice President, Comptroller and Chief None
Financial Officer

C. Edward Chaplin........ Treasurer None
</TABLE>
- ---------

(1) The address of each person named is Prudential Plaza, Newark, New Jersey
07102 unless otherwise indicated.

C-5
<PAGE>

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS

All accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the Rules thereunder are maintained at the offices
of State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 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) and 31a-1 (f) will be kept at Three
Gateway Center, documents required by Rules 31a-1 (b) (4) and (11) and 31a-1
(d) at Three Gateway Center 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. Inc.

ITEM 31. MANAGEMENT SERVICES

Other than as set forth under the captions "How the Fund is Managed--
Manager" and "How the Fund is Managed--Distributor" in the Prospectus and the
captions "Manager" and "Distributor" in the Statement of Additional
Information, constituting Parts A and B, respectively, of this Registration
Statement, Registrant is not a party to any management-related service
contract.

ITEM 32. UNDERTAKINGS

The Registrant hereby undertakes to furnish each person to whom a Prospectus
is delivered with a copy of Registrant's latest annual report to shareholders
upon request and without charge.

C-6
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933 and has duly caused this Post-Effective Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Newark, and State of New Jersey, on the 19th day of
November, 1998.

PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.

/s/ Brian M. Storms
---------------------------------

(BRIAN M. STORMS, PRESIDENT)

Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ Edward D. Beach Director November 19, 1998
-------------------------------------------
EDWARD D. BEACH
/s/ Eugene C. Dorsey Director November 19, 1998
-------------------------------------------
EUGENE C. DORSEY
/s/ Delayne Dedrick Gold Director November 19, 1998
-------------------------------------------
DELAYNE DEDRICK GOLD
/s/ Robert F. Gunia Vice President and
------------------------------------------- Director November 19, 1998
ROBERT F. GUNIA
/s/ Mendel A. Melzer Director November 19, 1998
-------------------------------------------
MENDEL A. MELZER
/s/ Thomas T. Mooney Director November 19, 1998
-------------------------------------------
THOMAS T. MOONEY
/s/ Thomas H. O'Brien Director November 19, 1998
-------------------------------------------
THOMAS H. O'BRIEN
/s/ Richard A. Redeker Director November 19, 1998
-------------------------------------------
RICHARD A. REDEKER
/s/ Brian M. Storms President and Director November 19, 1998
-------------------------------------------
BRIAN M. STORMS
/s/ Nancy Hays Teeters Director November 19, 1998
-------------------------------------------
NANCY HAYS TEETERS
/s/ Louis A. Weil, III Director November 19, 1998
-------------------------------------------
LOUIS A. WEIL, III
/s/ Grace C. Torres Principal Financial and
------------------------------------------- Accounting Officer November 19, 1998
GRACE C. TORRES
</TABLE>

C-7
<PAGE>

EXHIBIT INDEX

(b) Articles Supplementary.*

4.Instruments defining rights of holders of the securities being
offered. Incorporated by reference to Exhibits Nos. 1 and 2 above.

6.(a) Selected Dealer Agreement.*

(b) Distribution Agreement.*

11.Consent of Independent Accountants.*

15.(a) Distribution and Service Plan for Class A shares.*

(b) Distribution and Service Plan for Class B shares.*

16.(a) Schedule of Calculation of Average Annual Total Return (Class B
Shares.) Incorporated by reference to Exhibit 16(a) to Post-Effective
Amendment No. 26 to Registration Statement on Form N-1A filed via
EDGAR on March 4, 1998 (File No. 2-66407).

(b) Schedule of Calculation of Average Annual Total Return (Class A
Shares.) Incorporated by reference to Exhibit 16(b) to Post-Effective
Amendment No. 26 to Registration Statement on Form N-1A filed via
EDGAR on March 4, 1998 (File No. 2-66407).

18.Rule 18f-3 Plan.*

27. Financial Data Schedules.*
- ---------
*Filed herewith.

<PAGE>

EXHIBIT 99.(1)(b)

ARTICLES SUPPLEMENTARY
OF
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.

* * * * * * *
Pursuant to Section 2-208.1
of the Maryland General Corporation Law
* * * * * * *

Prudential National Municipals Fund, Inc., a Maryland corporation having
its principal offices in Baltimore, Maryland (the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of Maryland,
that:

FIRST: The Corporation is registered as an open-end company under the
Investment Company Act of 1940.

SECOND: The total number of shares of all classes of stock which the
Corporation has authority to issue is 750,000,000 shares of common stock, par
value of $.01 each, having an aggregate par value of $7,500,000.

THIRD: Heretofore, the number of authorized shares of which the
Corporation has authority to issue was divided into three classes of shares,
consisting of 250,000,000 Class A shares, 250,000,000 Class B shares and
250,000,000 Class C shares.

FOURTH: In accordance with Section 2-105(c) of the Maryland General
Corporation Law and pursuant to a resolution duly adopted by the Board of
Directors of the Corporation at a meeting held on November 6, 1998, the number
of authorized shares of which the Corporation has authority to issue is hereby
increased to 1,000,000,000 shares, par value of $.01 per share having an
aggregate par value of $10,000,000 to be divided into four classes of shares,
consisting of 250 million Class A shares, 250 million Class B shares,
250 million Class C shares and 250 million Class Z shares.

FIFTH: The Class Z shares shall represent the same interest in the
Corporation and have indentical voting, dividend, liquidation and other rights
as the Class A, Class B and Class C shares except that (i) Expenses related to
the distribution of each class of shares shall be borne solely by such class;
(ii) The bearing of such expenses solely by shares of each class shall be
appropriately reflected (in the manner determined by the Board of Directors) in
the net asset value, dividends, distribution and liquidation rights of the
shares of such class; (iii) The Class A Common Stock shall be subject to a
front-end sales load and a Rule 12b-1 distribution fee as determined by the
Board of Directors from time to time; (iv) The Class B Common Stock shall be
subject to a contingent deferred sales charge and a Rule 12b-1 distribution fee

<PAGE>

as determined by the Board of Directors from time to time; (v) The Class C
Common Stock shall be subject to a front-end sales load, a contingent deferred
sales charge and a Rule 12b-1 distribution fee as determined by the Board of
Directors from time to time and (vi) The Class Z Common Stock shall not be
subject to a front-end sales load, a contingent deferred sales charge nor a
Rule 12b-1 distribution fee. All shares of each particular class shall
represent an equal proportionate interest in that class, and each share of any
particular class shall be equal to each other share of that class.

IN WITNESS WHEREOF, PRUDENTIAL NATIONAL MUNICIPALS FUND, INC., has
caused these presents to be signed in its name and on its behalf by its Vice
President and attested by its Secretary on November 16, 1998.

PRUDENTIAL NATIONAL
MUNICIPALS FUND, INC.

By /s/ Robert F. Gunia
-----------------------
Robert F. Gunia
Vice President

Attest: /s/ Deborah A. Docs
--------------------
Deborah A. Docs
Secretary

THE UNDERSINGED, Vice President of Prudential National Municipals Fund,
Inc., who executed on behalf of the Corporation the foregoing Articles
Supplementary of which this certificate is made a part, hereby acknowledges
in the name and on behalf of said Corporation the foregoing Articles
Supplementary to be the corporate act of said Corporation and hereby certifies
that to the best of his knowledge, information and belief the matters and
facts set forth therein with respect to the authorization and approval thereof
are true in all material respects under the penalties of perjury.

By /s/ Robert F. Gunia
-----------------------
Robert F. Gunia
Vice President

<PAGE>

EXHIBIT 6(a)

DEALER AGREEMENT

PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC

Prudential Investment Management Services LLC ("Distributor") and
("Dealer") have agreed that Dealer will participate in the distribution
of shares ("Shares") of all the funds and series thereof (as they may exist from
time to time) comprising the Prudential Mutual Fund Family (each a "Fund" and
collectively the "Funds") and any classes thereof for which Distributor now or
in the future serves as principal underwriter and distributor, subject to the
terms of this Dealer Agreement ("Agreement"). Any such additional Funds will be
included in this Agreement upon Distributor's written notification to Dealer.

1. LICENSING
---------

a. Dealer represents and warrants that it is: (i) a broker-dealer
registered with the Securities and Exchange Commission ("SEC"); (ii) a member in
good standing of the National Association of Securities Dealers, Inc. ("NASD");
and (iii) licensed by the appropriate regulatory agency of each state or other
jurisdiction in which Dealer will offer and sell Shares of the Funds, to the
extent necessary to perform the duties and activities contemplated by this
Agreement.

b. Dealer represents and warrants that each of its partners,
directors, officers, employees, and agents who will be utilized by Dealer with
respect to its duties and activities under this Agreement is either
appropriately licensed or exempt from such licensing requirements by the
appropriate regulatory agency of each state or other jurisdiction in which
Dealer will offer and sell Shares of the Funds.

c. Dealer agrees that: (i) termination or suspension of its
registration with the SEC (ii) termination or suspension of its membership with
the NASD; or (iii) termination or suspension of its license to do business by
any state or other jurisdiction or federal regulatory agency shall immediately
cause the termination of this Agreement. Dealer further agrees to immediately
notify Distributor in writing of any such action or event.

d. Dealer agrees that this Agreement is in all respects subject to
the Conduct Rules of the NASD and such Conduct Rules shall control any provision
to the contrary in this Agreement.

e. Dealer agrees to be bound by and to comply with all applicable
state and federal laws and all rules and regulations promulgated thereunder
generally affecting the sale or distribution of mutual fund shares.

2. ORDERS
------

a. Dealer agrees to offer and sell Shares of the Funds (including
those of each of its classes) only at the regular public offering price
applicable to such Shares and in effect at the time of each transaction. The
procedures relating to all orders and the handling of each order (including the
manner of computing the net asset value of Shares and the effective time of
orders received from Dealer) are subject to: (i) the terms of the then current
prospectus and statement of

A-1
<PAGE>

additional information (including any supplements, stickers or amendments
thereto) relating to each Fund, as filed with the SEC ("Prospectus"); (ii) the
new account application for each Fund, as supplemented or amended from time to
time; and (iii) Distributor's written instructions and multiple class pricing
procedures and guidelines, as provided to Dealer from time to time. To the
extent that the Prospectus contains provisions that are inconsistent with this
Agreement or any other document, the terms of the Prospectus shall be
controlling.

b. Distributor reserves the right at any time, and without notice to
Dealer, to suspend the sale of Shares or to withdraw or limit the offering of
Shares. Distributor reserves the unqualified right not to accept any specific
order for the purchase or sale of Shares.

c. In all offers and sales of the Shares to the public, Dealer is not
authorized to act as broker or agent for, or employee of, Distributor, any Fund
or any other dealer, and Dealer shall not in any manner represent to any third
party that Dealer has such authority or is acting in such capacity. Rather,
Dealer agrees that it is acting as principal for Dealer's own account or as
agent on behalf of Dealer's customers in all transactions in Shares, except as
provided in Section 3.i. hereof. Dealer acknowledges that it is solely
responsible for all suitability determinations with respect to sales of Shares
of the Funds to Dealer's customers and that Distributor has no responsibility
for the manner of Dealer's performance of, or for Dealer's acts or omissions in
connection with, the duties and activities Dealer provides under this Agreement.

d. All orders are subject to acceptance by Distributor in its sole
discretion and become effective only upon confirmation by Distributor.

e. Distributor agrees that it will accept from Dealer orders placed
through a remote terminal or otherwise electronically transmitted via the
National Securities Clearing Corporation ("NSCC") Fund/Serv Networking program,
provided, however, that appropriate documentation thereof and agreements
relating thereto are executed by both parties to this Agreement, including in
particular the standard NSCC Networking Agreement and any other related
agreements between Distributor and Dealer deemed appropriate by Distributor, and
that all accounts opened or maintained pursuant to that program will be governed
by applicable NSCC rules and procedures. Both parties further agree that, if the
NSCC Fund/Serv Networking program is used to place orders, the standard NSCC
Networking Agreement will control insofar as there is any conflict between any
provision of the Dealer Agreement and the standard NSCC Networking Agreement.

3. DUTIES OF DEALER
----------------

a. Dealer agrees to purchase Shares only from Distributor or from
Dealer's customers.

b. Dealer agrees to enter orders for the purchase of Shares only from
Distributor and only for the purpose of covering purchase orders Dealer has
already received from its customers or for Dealer's own bona fide investment.

c. Dealer agrees to date and time stamp all orders received by Dealer
and promptly, upon receipt of any and all orders, to transmit to Distributor all
orders received prior to

A-2
<PAGE>

the time described in the Prospectus for the calculation of each Fund's net
asset value so as to permit Distributor to process all orders at the price next
determined after receipt by Dealer, in accordance with the Prospectus. Dealer
agrees not to withhold placing orders for Shares with Distributor so as to
profit itself as a result of such inaction.

d. Dealer agrees to maintain records of all purchases and sales of
Shares made through Dealer and to furnish Distributor or regulatory authorities
with copies of such records upon request. In that regard, Dealer agrees that,
unless Dealer holds Shares as nominee for its customers or participates in the
NSCC Fund/Serv Networking program, at certain matrix levels, it will provide
Distributor with all necessary information to comply properly with a federal,
state and local reporting requirements and backup and nonresident alien
withholding requirements for its customer accounts including, without
limitation, those requirements that apply by treating Shares issued by the Funds
as readily tradable instruments. Dealer represents and agrees that all Taxpayer
Identification Numbers ("TINs") provided are certified, and that no account
that requires a certified TIN will be established without such certified TIN.
With respect to all other accounts, including Shares held by Dealer in omnibus
accounts and Shares purchased or sold through the NSCC Fund/Serv Networking
program, at certain matrix levels, Dealer agrees to perform all federal, state
and local tax reporting with respect to such accounts, including without
limitation redemptions and exchanges.

e. Dealer agrees to distribute or cause to be delivered to its
customers Prospectuses, proxy solicitation materials and related information and
proxy cards, semi-annual and annual shareholder reports and any other materials
in compliance with applicable legal requirements, except to the extent that
Distributor expressly undertakes to do so in writing.

f. Dealer agrees that if any Share is repurchased by any Fund or is
tendered for redemption within seven (7) business days after confirmation by
Distributor of the original purchase order from Dealer, Dealer shall forfeit its
right to any concession or commission received by Dealer with respect to such
Share and shall forthwith refund to Distributor the full concession allowed to
Dealer or commission paid to Dealer on the original sale. Distributor agrees to
notify Dealer of such repurchase or redemption within a reasonable time after
settlement. Termination or cancellation of this Agreement shall not relieve
Dealer from its obligation under this provision.

g. Dealer agrees that payment for Shares ordered from Distributor
shall be in Fed Funds, New York clearinghouse or other immediately available
funds and that such funds shall be received by Distributor by the earlier of:
(i) the end of the third (3rd) business day following Dealer's receipt of the
customer's order to purchase such Shares; or (ii) the settlement date
established in accordance with Rule 15c6-1 under the Securities Exchange Act of
1934, as amended. If such payment is not received by Distributor by such date,
Dealer shall forfeit its right to any concession or commission with respect to
such order, and Distributor reserves the right, without notice, forthwith to
cancel the sale, or, at its option, to sell the Shares ordered back to the Fund,
in which case Distributor may hold Dealer responsible for any loss, including
loss of profit, suffered by Distributor resulting from Dealer's failure to make
payment as aforesaid. If a purchase is made by check, the purchase is deemed
made upon conversion of the purchase instrument into Fed Funds, New York
clearinghouse or other immediately available funds.

A-3
<PAGE>

h. Dealer agrees that it: (i) shall assume responsibility for any
loss to the Fund caused by a correction to any order placed by Dealer that is
made subsequent to the trade date for the order, provided such order correction
was not based on any negligence on Distributor's part; and (ii) will immediately
pay such loss to the Fund upon notification.

i. Dealer agrees that in connection with orders for the purchase of
Shares on behalf of any IRAs, 401(k) plans or other retirement plan accounts, by
mail, telephone, or wire, Dealer shall act as agent for the custodian or trustee
of such plans (solely with respect to the time of receipt of the application and
payments), and Dealer shall not place such an order with Distributor until it
has received from its customer payment for such purchase and, if such purchase
represents the first contribution to such a retirement plan account, the
completed documents necessary to establish the retirement plan, Dealer agrees to
indemnify Distributor and its affiliates for any claim, loss, or liability
resulting from incorrect investment instructions received by Distributor from
Dealer.

j. Dealer agrees that it will not make any conditional orders for the
purchase or redemption of Shares and acknowledges that Distributor Will not
accept conditional orders for Shares.

k. Dealer agrees that all out-of-pocket expenses incurred by it in
connection with its activities under this Agreement will be borne by Dealer.

l. Dealer agrees that it will keep in force appropriate broker's
blanket bond insurance policies covering any and all acts of Dealer's partners,
directors, officers, employees, and agents adequate to reasonably protect and
indemnify the Distributor and the Funds against any loss which any party may
suffer or incur, directly or indirectly, as a result of any action by Dealer or
Dealer's partners, directors, officers, employees, and agents.

m. Dealer agrees that it will maintain the required net capital as
specified by the rules and regulations of the SEC, NASD and other regulatory
authorities.

4. DEALER COMPENSATION
-------------------

a. On each purchase of Shares by Dealer from Distributor, the total
sales charges and dealer concessions or commissions, if any, payable to Dealer
shall be as stated on Schedule A to this Agreement, which may be amended by
Distributor from time to time. Distributor reserves the right, without prior
notice, to suspend or eliminate such dealer concession or commissions by
amendment, sticker or supplement to the then current Prospectus for each Fund.
Such sales charges and dealer concessions or commissions, are subject to
reduction under a variety of circumstances as described in each Fund's then
current Prospectus, For an investor to obtain any reduction, Distributor must be
notified at the time of the sale that the sale qualifies for the reduced sales
charge. If Dealer fails to notify Distributor of the applicability of a
reduction in the sales charge at the time the trade is placed, neither
Distributor nor any Fund will be liable for amounts necessary to reimburse any
investor for the reduction that should have been effected. Dealer acknowledges
that no sales charge or concession or commission will be paid to Dealer on the
reinvestment of dividends or capital gains reinvestment or on Shares acquired in
exchange for Shares of another Fund, or class thereof, having the same sales
charge structure as the Fund, or class thereof, from which the exchange was
made, in accordance with the Prospectus.

A-4
<PAGE>

b. In accordance with the Funds' Prospectuses, Distributor or any
affiliate may, but is not obligated to, make payments to dealers from
Distributor's own resources as compensation for certain sales that are made at
net asset value ("Qualifying Sales"). If Dealer notifies Distributor of a
Qualifying Sale, Distributor may make a contingent advance payment up to the
maximum amount available for payment on the sale. If any of the Shares purchased
in a Qualifying Sale are redeemed within twelve (12) months of the end of the
month of purchase, Distributor shall be entitled to recover any advance payment
attributable to the redeemed Shares by reducing any account payable or other
monetary obligation Distributor may owe to Dealer or by making demand upon
Dealer for repayment in cash. Distributor reserves the right to withhold
advances to Dealer, if for any reason Distributor believes that it may not be
able to recover unearned advances from Dealer.

c. With respect to any Fund that offers Shares for which distribution
plans have been adopted under Rule 12b-1 under the Investment Company Act of
1940, as amended ("Rule l2b-1 Plans"), Distributor also is authorized to pay the
Dealer continuing distribution and/or service fees, as specified in Schedule A
and the relevant Fund Prospectus, with respect to Shares of any such Fund, to
the extent that Dealer provides distribution, marketing, administrative and
other services and activities regarding the promotion of such Shares and the
maintenance of related shareholder accounts.

d. In connection with the receipt of distribution fees and/or service
fees under Rule 12b-1 Plans applicable to Shares purchased by Dealer's
customers, Distributor directs Dealer to provide enhanced shareholder services
such as: processing purchase and redemption transactions; establishing
shareholder accounts; and providing certain information and assistance with
respect to the Funds. (Redemption levels of shareholder accounts assigned to
Dealer will be considered in evaluating Dealer's continued ability to receive
payments of distribution and/or service fees.) In addition, Dealer agrees to
support Distributor's marketing efforts by, among other things, granting
reasonable requests for visits to Dealer's office by Distributor's wholesalers
and marketing representatives, including all Funds covered by a Rule 12b-1 Plan
on Dealer's "approved," "preferred" or other similar product lists, if
applicable, and otherwise providing satisfactory product, marketing and sales
support. Further, Dealer agrees to provide Distributor with supporting
documentation concerning the shareholder services provided, as Distributor may
reasonably request from time to time.

e. All Rule 12b-1 Plan distribution and/or servicing fees shall be
based on the value of Shares attributable to Dealer's customers and eligible for
such payment, and shall be calculated on the basis of and at the rates set forth
in the compensation schedule then in effect. Without prior approval by a
majority of the outstanding shares of a Fund, the aggregate annual fees paid to
Dealer pursuant to any Rule 12b-1 Plan shall not exceed the amounts stated as
the "annual maximums" in each Fund's Prospectus, which amount shall be a
specified percent of the value of the Fund's net assets held in Dealer's
customers' accounts that are eligible for payment pursuant to the Rule l2b-1
Plans (determined in the same manner as each Fund uses to compute its net assets
as set forth in its then current Prospectus).

A-5
<PAGE>

fees paid to Dealer pursuant to any Rule 12b-1 Plan shall not exceed the amounts
stated as the "annual maximums" in each Fund's Prospectus, which amount shall be
a specified percent of the value of the Fund's net assets held in Dealer's
customers' accounts that are eligible for payment pursuant to the Rule l2b-1
Plans (determined in the same manner as each Fund uses to compute its net assets
as set forth in its then current Prospectus).

f. The provisions of any Rule 12b-1 Plan between the Funds and the
Distributor shall control over this Agreement in the event of any inconsistency.
Each Rule 12b-1 Plan in effect on the date of this Agreement is described in the
relevant Fund's Prospectus. Dealer hereby acknowledges that all payments under
Rule 12b-1 Plans are subject to limitations contained in such Rule 12b-1 Plans
and may be varied or discontinued at any time.

5. REDEMPTIONS, REPURCHASES AND EXCHANGES
--------------------------------------

a. The Prospectus for each Fund describes the provisions whereby the
Fund, under all ordinary circumstances, will redeem Shares held by shareholders
on demand. Dealer agrees that it will not make any representations to
shareholders relating to the redemption of their Shares other than the
statements contained in the Prospectus and the underlying organizational
documents of the Fund, to which it refers, and that Dealer will pay as
redemption proceeds to shareholders the net asset value, minus any applicable
deferred sales charge or redemption fee, determined after receipt of the order
as discussed in the Prospectus.

b. Dealer agrees not to repurchase any Shares from its customers at a
price below that next quoted by the Fund for redemption or repurchase, i.e., at
the net asset value of such Shares, less any applicable deferred sales charge,
or redemption fee, in accordance with the Fund's Prospectus. Dealer shall,
however, be permitted to sell Shares for the account of the customer or record
owner to the Funds at the repurchase price then currently in effect for such
Shares and may charge the customer or record owner a fair service fee or
commission for handling the transaction, provided Dealer discloses the fee, or
commission to the customer or record owner. Nevertheless, Dealer agrees that it
shall not under any circumstances maintain a secondary market in such
repurchased Shares.

c. Dealer agrees that, with respect to a redemption order it has
made, if instructions in proper form, including any outstanding certificates,
are not received by Distributor within the time customary or the time required
by law, the redemption may be canceled forthwith without any responsibility or
liability on Distributor's Part or on the part of any Fund, or Distributor, at
its option, may buy the shares redeemed on behalf of the Fund, in which latter
case Distributor may hold Dealer responsible for any loss, including loss of
profit, suffered by Distributor resulting from Distributor's failure to settle
the redemption.

d. Dealer agrees that it will comply with any restrictions and
limitations on exchanges described in each Fund's Prospectus, including any
restrictions or prohibitions relating to frequent purchases and redemptions
(i.e., market timing).

6. MULTIPLE CLASSES OF SHARES
--------------------------

A-6
<PAGE>

b. Distributor will supply to Dealer Prospectuses, reasonable
quantities of sales literature, sales bulletins, and additional sales
information as provided by Distributor. Dealer agrees to use only advertising or
sales material relating to the Funds that: (i) is supplied by Distributor, or
(ii) conforms to the requirements of all applicable laws or regulations of any
government or authorized agency having jurisdiction over the offering or sale of
Shares of the Fund and is approved in writing by Distributor in advance of
its use. Such approval may be withdrawn by Distributor in whole or in part upon
written notice to Dealer, and Dealer shall, upon receipt of such notice,
immediately discontinue the use of such sales literature, sales bulletins and
advertising. Dealer is not authorized to modify or translate any such materials
without Distributor's prior written consent.

8. SHARES
------

a. Distributor acts solely as agent for the Fund and Distributor
shall have no obligation or responsibility with respect to Dealer's right to
purchase or sell Shares in any state or jurisdiction.

b. Distributor shall periodically furnish Dealer with information
identifying the states or jurisdictions in which it is believed that all
necessary notice, registration or exemptive filings for Shares have been made
under applicable securities laws such that offers and sales of Shares may be
made in such states or jurisdictions. Distributor shall have no obligation to
make such notice, registration or exemptive filings with respect to Shares in
any state or jurisdiction.

c. Dealer agrees not to transact orders for Shares in states or
jurisdictions in which it has been informed that Shares may not be sold or in
which it and its personnel are not authorized to sell Shares.

d. Distributor shall have no responsibility, under the laws
regulating the sale of securities in the United States or any foreign
jurisdiction, with respect to the qualification or status of Dealer or Dealer's
personnel selling Fund Shares. Distributor shall not, in any event, be liable or
responsible for the issue, form, validity, enforceability and value of such
Shares or for any matter in connection therewith.

e. Dealer agrees that it will make no offers or sales of Shares in
any foreign jurisdiction, except with the express written consent of
Distributor.

9. INDEMNIFICATION
---------------

a. Dealer agrees to indemnify, defend and hold harmless Distributor
and the Funds and their predecessors, successors, and affiliates, each current
or former partner, officer, director, employee, shareholder or agent and each
person who controls or is controlled by Distributor from any and all losses,
claims, liabilities, costs, and expenses, including attorney fees, that may be
assessed against or suffered or incurred by any of them howsoever they arise,
and as they are incurred, which relate in any way to: (i) any alleged violation
of any statute or regulation (including without limitation the securities laws
and regulations of the United States or any state or foreign country) or any
alleged tort or breach of contract, related to the offer or sale by Dealer of
Shares of the Funds pursuant to this Agreement (except to the extent that
Distributor's negligence or failure to follow correct instructions received from
Dealer is the cause of such loss,

A-7
<PAGE>

claim, liability, cost or expense); (ii) any redemption or exchange pursuant to
instructions received from Dealer or its partners, affiliates, officers,
directors, employees or agents; or (iii) the breach by Dealer of any of its
representations and warranties specified herein or the Dealer's failure to
comply with the terms and conditions of this Agreement, whether or not such
action, failure, error, omission, misconduct or breach is committed by Dealer
or its predecessor, successor, or affiliate, each current or former partner,
officer, director, employee or agent and each person who controls or is
controlled by Dealer.

b. Distributor agrees to indemnify, defend and hold harmless Dealer
and its predecessors, successors and affiliates, each current or former partner,
officer, director, employee or agent, and each person who controls or is
controlled by Dealer from any and all losses, claims, liabilities, costs and
expenses, including attorney fees, that may be assessed against or suffered or
incurred by any of them which arise, and which relate to any untrue statement of
or omission to state a material fact contained in the Prospectus or any
written sales literature or other marketing materials provided by the
Distributor to the Dealer, required to be stated therein or necessary to make
the statements therein not misleading.

c. Dealer agrees to notify Distributor, within a reasonable time, of
any claim or complaint or any enforcement action or other proceeding with
respect to Shares offered hereunder against Dealer or its partners, affiliates,
officers, directors, employees or agents, or any person who controls Dealer,
within the meaning of Section 15 of the Securities Act of 1933, as amended.

d. Dealer further agrees promptly to send Distributor copies of (i)
any report filed pursuant to NASD Conduct Rule 3070, including, without
limitation quarterly reports filed pursuant to Rule 3070(c), (ii) reports filed
with any other self-regulatory organization in lieu of Rule 3070 reports
pursuant to Rule 3070(e) and (111) amendments to Dealers Form BD.

e. Each party's obligations under these indemnification provisions
shall survive any termination of this Agreement.

10. TERMINATION; AMENDMENT
----------------------

a. In addition to the automatic termination of this Agreement
specified in Section 1.c. of this Agreement, each party to this Agreement may
unilaterally cancel its participation in this Agreement by giving thirty (30)
days prior written notice to the other party. In addition, each party to this
Agreement may terminate this Agreement immediately by giving written notice to
the other party of that other party's material breach of this Agreement. Such
notice shall be deemed to have been given and to be effective on the date on
which it was either delivered personally to the other party or any officer or
member thereof, or was mailed postpaid or delivered to a telegraph office for
transmission to the other party's designated person at the addresses shown
herein or in the most recent NASD Manual.

b. This Agreement shall terminate immediately upon the appointment of
a Trustee under the Securities Investor Protection Act or any other act of
insolvency by Dealer.

c. The termination of this Agreement by any of the foregoing means
shall have no effect upon transactions entered into prior to the effective date
of termination and shall

A-8
<PAGE>

not relieve Dealer of its obligations, duties and indemnities specified in this
Agreement. A trade placed by Dealer subsequent to its voluntary termination of
this Agreement will not serve To reinstate the Agreement. Reinstatement, except
in the case of a temporary suspension of Dealer, will only be effective upon
written notification by Distributor.

d. This Agreement is not assignable or transferable and will
terminate automatically in the event of its "assignment," as defined in the
Investment Company Act of 1940, as amended and the rules, regulations and
interpretations thereunder. The Distributor may, however, transfer any of its
duties under this Agreement to any entity that controls or is under common
control with Distributor.

e. This Agreement may be amended by Distributor at any time by
written notice to Dealer. Dealer's placing of an order or accepting payment of
any kind after the effective date and receipt of notice of such amendment shall
constitute Dealer's acceptance of such amendment.

11. DISTRIBUTOR'S REPRESENTATIONS AND WARRANTIES
-------------------------------------------

Distributor represents and warrants that:

a. It is a limited liability company duly organized and existing and
in good standing under the laws of the state of Delaware and is duly registered
or exempt from registration as a broker-dealer in all states and jurisdictions
in which it provides services as principal underwriter and distributor for the
Funds.

b. It is a member in good standing of the NASD.

c. It is empowered under applicable laws and by Distributor's charter
and by laws to enter into this Agreement and perform all activities and services
of the Distributor provided for herein and that there are no impediments, prior
or existing, regulatory, self-regulatory, administrative, civil or criminal
matters affecting Distributor's ability to perform under this Agreement.

d. All requisite actions have been taken to authorize Distributor to
enter into and perform this Agreement.

12. ADDITIONAL DEALER REPRESENTATIONS AND WARRANTIES
------------------------------------------------

In addition to the representations and warranties found elsewhere in
this Agreement, Dealer represents and warrants that:

a. It is duly organized and existing and in good standing under the
laws of the state, commonwealth or other jurisdiction in which Dealer is
organized and that Dealer will not offer Shares of any Fund for sale in any
state or jurisdiction where such Shares may not be legally sold or where Dealer
is not qualified to act as a broker-dealer.

A-9
<PAGE>

b. It is empowered under applicable laws and by Dealer's
organizational documents to enter into this Agreement and perform all activities
and services of the Dealer provided for herein and that there are no
impediments, prior or existing, regulatory, self-regulatory, administrative,
civil or criminal matters affecting Dealers ability to perform under this
Agreement.

c. All requisite actions have been taken to authorize Dealer to enter
into and perform this agreement.

d. It is not, at the time of the execution of this Agreement, subject
to any enforcement or other proceeding with respect to its activities under
state or federal securities laws, rules or regulations.

13. SETOFF; DISPUTE RESOLUTION; GOVERNING LAW
-----------------------------------------

a. Should any of Dealer's concession accounts with Distributor have a
debit balance, Distributor shall be permitted to offset and recover the amount
owed from any other account Dealer has with Distributor, without notice or
demand to Dealer.

b. In the event of a dispute concerning any provision of this
Agreement, either party may require the dispute to be submitted to binding
arbitration under the commercial arbitration rules and procedures of the NASD.
The parties agree, that, to the extent permitted under such arbitration rules
and procedures, the arbitrators selected shall be from the securities industry.
Judgment upon any arbitration award may be entered by any state or federal
court having jurisdiction.

c. This Agreement shall be governed and construed in accordance with
the laws of the state of New Jersey, not including any provision which would
require the general application of the law of another jurisdiction.

14. INVESTIGATIONS AND PROCEEDINGS
------------------------------

The parties to this Agreement agree to cooperate fully in any
securities regulatory investigation or proceeding or judicial proceeding with
respect to each's activities under this Agreement and promptly to notify the
other party of any such investigation or proceeding.

15. CAPTIONS
--------

All captions used in this Agreement are for convenience only, are not
a party hereof, and are not to be used in construing or interpreting any aspect
hereof

16. ENTIRE UNDERSTANDING
--------------------

This Agreement contains the entire understanding of the parties hereto
with respect to the subject matter contained herein and supersedes all previous
agreements. This Agreement shall be binding upon the parties hereto when signed
by Dealer and accepted by Distributor.

A-10
<PAGE>

17. SEVERABILITY
------------

Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law.
If, however, any provision of this Agreement is held under applicable law to be
invalid, illegal, or unenforceable in any respect, such provision shall be
ineffective only to the extent of such invalidity, and the validity, legality
and enforceability of the remaining provisions of this Agreement shall not be
affected or impaired in any way.

18. ENTIRE AGREEMENT
----------------

This Agreement contains the entire understanding of the parties hereto
with respect to the subject matter contained herein and supersedes all previous
agreements and/or understandings of the parties. This Agreement shall be binding
upon the parties hereto when signed by Dealer and accepted by Distributor.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year set forth below.

PRUDENTIAL INVESTMENT MANAGEMENT
SERVICES LLC

By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------

Date:
------------------------------------

DEALER:

By:
--------------------------------------
(Signature)

Name:
------------------------------------
Title:
-----------------------------------
Address:
---------------------------------

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

---------------------------------
Telephone:
-------------------------------
NASD CRD #
-------------------------------
Prudential Dealer #
----------------------
(Internal Use Only)

Date:
------------------------------------

A-11

<PAGE>

EXHIBIT 6(b)

PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.

Distribution Agreement
----------------------

Agreement made as of November 9, 1998, between Prudential National
Municipals Fund, Inc. (the Fund), and Prudential Investment Management Services
LLC, a Delaware limited liability company (the Distributor).

WITNESSETH

WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the Investment Company Act), as a diversified, open-end,
management investment company and it is in the interest of the Fund to offer its
shares for sale continuously;

WHEREAS, the shares of the Fund may be divided into classes and/or
series (all such shares being referred to herein as Shares) and the Fund
currently is authorized to offer 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 agrees 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 then the Shares needed
(except for clerical errors in transmission) to fill unconditional orders for
Shares placed with the Distributor by investors or registered and qualified
securities dealers and other financial institutions (selected dealers).

3.2 The Shares shall be sold by the Distributor on behalf of the Fund
and delivered by the Distributor or selected dealers, as described in Section
6.4 hereof, to investors at the offering price as set forth in the Prospectus.

3.3 The Fund shall have the right to suspend the sale of any or all
classes and/or series of its shares at times when redemption is suspended
pursuant to

2
<PAGE>

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 for the Fund fairly to determine the
value of its net assets, or during any other period when the Securities and
Exchange Commission, by order, so permits.

3
<PAGE>

Section 5. Duties of the Fund
------------------

5.1 Subject to the possible suspension of the sale of Shares as
provided herein, the Fund agrees to sell its Shares so long as it has Shares of
the respective class and/or series available.

5.2 The Fund shall furnish the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Shares, and this shall
include one certified copy, upon request by the Distributor, of all financial
statements prepared for the Fund by independent public accountants. The Fund
shall make available to the Distributor such number of copies of its Prospectus
and annual and interim reports as the Distributor shall reasonably request.

5.3 The Fund shall take, from time to time, but subject to the
necessary approval of the Board and the shareholders, all necessary action to
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.

4
<PAGE>

Section 6. Duties of the Distributor
-------------------------

6.1 The Distributor shall devote reasonable time and effort to effect
sales of Shares, but shall not be obligated to sell any specific number of
Shares. Sales of the Shares shall be on the terms described in the Prospectus.
The Distributor may enter into like arrangements with other investment
companies. The Distributor shall compensate the selected dealers as set forth in
the Prospectus.

6.2 In selling the Shares, the Distributor shall use its best efforts
in all respects duly to conform with the requirements of all federal and state
laws relating to the sale of such securities. Neither the Distributor nor any
selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales literature approved by
appropriate officers of the Fund.

6.3 The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales and the
cancellation of unsettled transactions, as may be necessary to comply with the
requirements of Securities Exchange Act Rule 10b-10 and the rules of the
National Association of Securities Dealers, Inc. (NASD).

6.4 The Distributor shall have the right to enter into selected
dealer agreements with registered and qualified securities dealers and other
financial institutions of its choice for the sale of Shares, provided that the
Fund shall approve the forms of such agreements. Within the United States, the
Distributor shall offer and sell Shares only to such selected dealers as are
members in good standing of the NASD or are institutions exempt from
registration under applicable federal securities laws. Shares sold to selected
dealers shall be for resale by such dealers only at the offering price
determined as set forth in the Prospectus.

Section 7. Payments to the Distributor
---------------------------

7.1 With respect to classes and/or series of Shares which impose a
front-end sales charge, the Distributor shall receive and may retain any portion
of any front-end sales charge which is imposed on such sales and not reallocated
to selected dealers as set forth in the Prospectus, subject to the limitations
of Rule 2830 of the Conduct Rules of the NASD. Payment of these amounts to the
Distributor is not contingent upon the adoption or continuation of any
applicable Plans.

7.2 With respect to classes and/or series of Shares which impose a
contingent deferred sales charge, the Distributor shall receive and may retain
any contingent deferred sales charge which is imposed on such sales as set forth
in the Prospectus, subject to the limitations of Rule 2830 of the Conduct Rules
of the NASD.

5
<PAGE>

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.

6
<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 directors or directors who are neither
"interested persons" of the Fund as defined in Section 2(a)(19) of the
Investment Company Act nor parties to the proceeding, or (b) an independent
legal counsel in a written opinion. The Fund's agreement to indemnify the
Distributor, its officers and members and any such controlling person as
aforesaid is expressly conditioned upon the Fund's being promptly notified of
any action brought against the Distributor, its officers or members, or any such
controlling person, such notification to be given by letter or telegram
addressed to the Fund at its principal business office. The Fund agrees promptly
to notify the Distributor of the commencement of any litigation or proceedings
against it or any of its officers or directors in connection with the issue and
sale of any Shares.

10.2 The Distributor agrees to indemnify, defend and hold the Fund,
its officers and directors and any person who controls the Fund, if any, within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending against such claims, demands or liabilities
and any reasonable counsel fees incurred in connection therewith) which the
Fund, its officers and directors or any such controlling person may incur under
the Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Fund, its

7
<PAGE>

directors or officers or such controlling person, resulting from such claims or
demands shall arise out of or be based upon any alleged untrue statement of a
material fact contained in information furnished by the Distributor to the Fund
for use in the Registration Statement or Prospectus or shall arise out of or be
based upon any alleged omission to state a material fact in connection with such
information required to be stated in the Registration Statement or Prospectus or
necessary to make such information not misleading. The Distributor's agreement
to indemnify the Fund, its officers and directors and any such controlling
person as aforesaid, is expressly conditioned upon the Distributor's being
promptly notified of any action brought against the Fund, its officers and
directors or any such controlling person, such notification being given to the
Distributor at its principal business office.

Section 11. Duration and Termination of this Agreement
------------------------------------------

11.1 This Agreement shall become effective as of the date first above
written and shall remain in force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of the Fund, or by the vote of a majority of the
outstanding voting securities of the applicable class and/or series of the Fund,
and (b) by the vote of a majority of those directors who are not parties to this
Agreement or interested persons of any such parties and who have no direct or
indirect financial interest in this Agreement or in the operation of any of the
Fund's Plans or in any agreement related thereto (independent directors), cast
in person at a meeting called for the purpose of voting upon such approval.

11.2 This Agreement may be terminated at any time, without the
payment of any penalty, by a majority of the independent directors or by vote of
a majority of the outstanding voting securities of the applicable class and/or
series of the Fund, or by the Distributor, on sixty (60) days' written notice to
the other party. This Agreement shall automatically terminate in the event of
its assignment.

11.3 The terms "affiliated person," "assignment," "interested person"
and "vote of a majority of the outstanding voting securities", when used in
this Agreement, shall have the respective meanings specified in the Investment
Company Act.

Section 12. Amendments to this Agreement
----------------------------

This Agreement may be amended by the parties only if such amendment is
specifically approved by (a) the Board of the Fund, or by the vote of a majority
of the outstanding voting securities of the applicable class and/or series of
the Fund, and (b) by the vote of a majority of the independent directors cast
in person at a meeting called for the purpose of voting on such amendment.

8
<PAGE>

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 National Municipals Fund, Inc.

By: /s/ Brian M. Storms
------------------------------------
Brian M. Storms
President

<PAGE>

EXHIBIT 11

Consent of Independent Accountants

We hereby consent to the use in the Statement of Additional Information
constituting part of the Post-Effective Amendment No. 26 to the registration
statement on Form N-1A of our report dated February 13, 1998, relating to the
financial statements and financial highlights of Prudential National Municipals
Fund, Inc. which appears in such Statement of Additional Information, which is
incorporated by reference as part of this Post-Effective Amendment No. 27 to the
registration statement on Form N-1A (the "Registration Statement") and to the
incorporation by reference of our report into the Prospectus which constitutes
part of the Registration Statement. We also consent to the reference to us under
the heading "Custodian, Transfer and Dividend Disbursing Agent and Independent
Accountants" in such Statement of Additional Information and to the reference to
us under the heading "Financial Highlights" in such Prospectus.

PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
November 19, 1998

<PAGE>

EXHIBIT 15(a)

Prudential National Municipals Fund, Inc.

Amended and Restated
Distribution and Service Plan
(Class A Shares)
----------------

Introduction
------------

The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Rule 2830 of the Conduct
Rules of the National Association of Securities Dealers, Inc. (NASD) has been
adopted by Prudential National Municipals Fund, Inc. (the Fund) and by
Prudential Investment Management Services LLC, the Fund's distributor (the
Distributor).

The Fund has entered into a distribution agreement pursuant to which the
Fund will employ the Distributor to distribute Class A shares issued by the Fund
(Class A shares). Under the Plan, the Fund intends to pay to the Distributor, as
compensation for its services, a distribution and service fee with respect to
Class A shares.

A majority of the Board of Directors/Trustees of the Fund, including a
majority of those Directors/Trustees who are not "interested persons" of the
Fund (as defined in the Investment Company Act) and who have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the Rule 12b-1 Directors/Trustees), have determined by votes cast
in person at a meeting called for the purpose of voting on this Plan that there
is a reasonable likelihood that adoption and continuation of this Plan will
benefit the Fund and its shareholders. Expenditures under this Plan by the Fund
for Distribution Activities (defined below) are primarily

1
<PAGE>

intended to result in the sale of Class A shares of the Fund within the meaning
of paragraph (a)(2) of Rule 12b-1 promulgated under the Investment Company Act.

The purpose of the Plan is to create incentives to the Distributor and/or
other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.

The Plan
--------

The material aspects of the Plan are as follows:

1. Distribution Activities
-----------------------

The Fund shall engage the Distributor to distribute Class A shares of the
Fund and to service shareholder accounts using all of the facilities of the
Distributor's distribution network, including sales personnel and branch office
and central support systems, and also using such other qualified broker-dealers
and financial institutions as the Distributor may select, including Prudential
Securities Incorporated (Prudential Securities) and Pruco Securities Corporation
(Prusec). Services provided and activities undertaken to distribute Class A
shares of the Fund are referred to herein as "Distribution Activities."

2. Payment of Service Fee
----------------------

The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class A shares (service
fee). The Fund shall

2
<PAGE>

calculate and accrue daily amounts payable by the Class A shares of the Fund
hereunder and shall pay such amounts monthly or at such other intervals as the
Board of Directors/Trustees may determine.

3. Payment for Distribution Activities
-----------------------------------

The Fund shall pay to the Distributor as compensation for its services a
distribution fee, together with the service fee (described in Section 2 hereof),
of .30 of 1% per annum of the average daily net assets of the Class A shares of
the Fund for the performance of Distribution Activities. The Fund shall
calculate and accrue daily amounts payable by the Class A shares of the Fund
hereunder and shall pay such amounts monthly or at such other intervals as the
Board of Directors/Trustees may determine. Amounts payable under the Plan shall
be subject to the limitations of Rule 2830 of the NASD Conduct Rules.

Amounts paid to the Distributor by the Class A shares of the Fund will not
be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class A shares according to the
ratio of the sales of Class A shares to the total sales of the Fund's shares
over the Fund's fiscal year or such other allocation method approved by the
Board of Directors/Trustees. The allocation of distribution expenses among
classes will be subject to the review of the Board of Directors/Trustees.

The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:

3
<PAGE>

(a) sales commissions and trailer commissions paid to, or on account of,
account executives of the Distributor;

(b) indirect and overhead costs of the Distributor associated with
Distribution Activities, including central office and branch expenses;

(c) amounts paid to Prudential Securities or Prusec for performing
services under a selected dealer agreement between Prudential
Securities or Prusec and the Distributor for sale of Class A shares of
the Fund, including sales commissions, trailer commissions paid to, or
on account of, agents and indirect and overhead costs associated with
Distribution Activities;

(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund prospectuses,
statements of additional information and periodic financial reports
and sales literature to persons other than current shareholders of the
Fund; and

(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and financial institutions (other than
Prudential Securities or Prusec) which have entered into selected
dealer agreements with the Distributor with respect to Class A shares
of the Fund.

4. Quarterly Reports; Additional Information
-----------------------------------------

An appropriate officer of the Fund will provide to the Board of
Directors/Trustees of the Fund for review, at least quarterly, a written report
specifying in reasonable detail the amounts expended for Distribution Activities
(including payment of the service fee) and the purposes for which such
expenditures were made in compliance with the requirements of Rule 12b-1. The
Distributor will provide to the Board of Directors/Trustees of the Fund such
additional information as the Board shall from time to time reasonably request,
including information about Distribution Activities undertaken or to be
undertaken by the Distributor.

4
<PAGE>

The Distributor will inform the Board of Directors/Trustees of the Fund of
the commissions and account servicing fees to be paid by the Distributor to
account executives of the Distributor and to broker-dealers and financial
institutions which have selected dealer agreements with the Distributor.

5. Effectiveness; Continuation
---------------------------

The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class A shares of the Fund.

If approved by a vote of a majority of the outstanding voting securities of
the Class A shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect thereafter for so
long as such continuance is specifically approved at least annually by a
majority of the Board of Directors/Trustees of the Fund and a majority of the
Rule 12b-1 Directors/Trustees by votes cast in person at a meeting called for
the purpose of voting on the continuation of the Plan.

6. Termination
-----------

This Plan may be terminated at any time by vote of a majority of the Rule
12b-1 Directors/Trustees, or by vote of a majority of the outstanding voting
securities (as defined in the Investment Company Act) of the Class A shares of
the Fund.

7. Amendments
----------

The Plan may not be amended to change the combined service and distribution
fees to be paid as provided for in Sections 2 and 3 hereof so as to increase
materially, the amounts payable under this Plan unless such amendment shall be
approved by the

5
<PAGE>

vote of a majority of the outstanding voting securities (as defined in the
Investment Company Act) of the Class A shares of the Fund. All material
amendments of the Plan shall be approved by a majority of the Board of
Directors/Trustees of the Fund and a majority of the Rule 12b-1
Directors/Trustees by votes cast in person at a meeting called for the purpose
of voting on the Plan.

8. Rule 12b-1 Directors/Trustees
-----------------------------

While the Plan is in effect, the selection and nomination of the
Directors/Trustees shall be committed to the discretion of the Rule 12b-1
Directors/Trustees.

9. Records
-------

The Fund shall preserve copies of the Plan and any related agreements and
all reports made pursuant to Section 4 hereof, for a period of not less than six
years from the date of effectiveness of the Plan, such agreements or reports,
and for at least the first two years in an easily accessible place.

Dated: June 1, 1998

<PAGE>

EXHIBIT 15(b)

Prudential National Municipals Fund, Inc.

Amended and Restated
Distribution and Service Plan
(Class B Shares)
--------------

Introduction
------------

The Fund has entered into a distribution agreement pursuant to which the
Fund will employ the Distributor to distribute Class B shares issued by the Fund
(Class B shares). Under the Plan, the Fund wishes to pay to the Distributor, as
compensation for its services, a distribution and service fee with respect to
Class B shares.

A majority of the Board of Directors/Trustees of the Fund, including a
majority who are not "interested persons" of the Fund (as defined in the
Investment Company Act) and who have no direct or indirect financial interest in
the operation of this Plan or any agreements related to it (the Rule 12b-1
Directors/Trustees), have determined by votes cast in person at a meeting called
for the purpose of voting on this Plan that there is a reasonable likelihood
that adoption and continuation of this Plan will benefit the Fund and its
shareholders. Expenditures under this Plan by the Fund for Distribution
Activities (defined below) are primarily intended to result in the sale of Class
B shares

1
<PAGE>

of the Fund within the meaning of paragraph (a)(2) of Rule 12b-1 promulgated
under the Investment Company Act.

The Plan
--------

The material aspects of the Plan are as follows:

1. Distribution Activities
-----------------------

The Fund shall engage the Distributor to distribute Class B shares of the
Fund and to service shareholder accounts using all of the facilities of the
Distributor's distribution network including sales personnel and branch office
and central support systems, and also using such other qualified broker-dealers
and financial institutions as the Distributor may select, including Prudential
Securities Incorporated (Prudential Securities) and Pruco Securities Corporation
(Prusec). Services provided and activities undertaken to distribute Class B
shares of the Fund are referred to herein as "Distribution Activities."

2. Payment of Service Fee
----------------------

2
<PAGE>

calculate and accrue daily amounts payable by the Class B shares of the Fund
hereunder and shall pay such amounts monthly or at such other intervals as the
Board of Directors/Trustees may determine.

3. Payment for Distribution Activities
-----------------------------------

The Fund shall pay to the Distributor as compensation for its services a
distribution fee of .75 of 1% per annum of the average daily net assets of the
Class B shares of the Fund the performance of Distribution Activities. The Fund
shall calculate and accrue daily amounts payable by the Class B shares of the
Fund hereunder and shall pay such amounts monthly or at such other intervals as
the Board of Directors/Trustees may determine. Amounts payable under the Plan
shall be subject to the limitations of Rule 2830 of the NASD Conduct Rules.

Amounts paid to the Distributor by the Class B shares of the Fund will not
be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class B shares according to the
ratio of the sale of Class B shares to the total sales of the Fund's shares over
the Fund's fiscal year or such other allocation method approved by the Board of
Directors/Trustees. The allocation of distribution expenses among classes will
be subject to the review of the Board of Directors/Trustees. Payments hereunder
will be applied to distribution expenses in the order in which they are
incurred, unless otherwise determined by the Board of Directors/Trustees.

The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:

3
<PAGE>

(a) sales commissions (including trailer commissions) paid to, or on
account of, account executives of the Distributor;

(b) indirect and overhead costs of the Distributor associated with
performance of Distribution Activities including central office and branch
expenses;

(c) amounts paid to Prudential Securities or Prusec for performing
services under a selected dealer agreement between Prudential Securities or
Prusec and the Distributor for sale of Class B shares of the Fund,
including sales commissions and trailer commissions paid to, or on account
of, agents and indirect and overhead costs associated with Distribution
Activities;

(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund prospectuses,
statements of additional information and periodic financial reports and
sales literature to persons other than current shareholders of the Fund;
and

(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and other financial institutions (other than
Prudential Securities or Prusec) which have entered into selected dealer
agreements with the Distributor with respect to Class B shares of the Fund.

4. Quarterly Reports; Additional Information
-----------------------------------------

An appropriate officer of the Fund will provide to the Board of
Directors/Trustees of the Fund for review, at least quarterly, a written report
specifying in reasonable detail the amounts expended for Distribution Activities
(including payment of the service fee) and the purposes for which such
expenditures were made in compliance with the requirements of Rule 12b-1. The
Distributor will provide to the Board of Directors/Trustees of the Fund such
additional information as they shall from time to time reasonably request,
including information about Distribution Activities undertaken or to be
undertaken by the Distributor.

4
<PAGE>

The Distributor will inform the Board of Directors/Trustees of the Fund of
the commissions and account servicing fees to be paid by the Distributor to
account executives of the Distributor and to broker-dealers and other financial
institutions which have selected dealer agreements with the Distributor.

5. Effectiveness; Continuation
---------------------------

The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class B shares of the Fund.

If approved by a vote of a majority of the outstanding voting securities of
the Class B shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect, thereafter for so
long as such continuance is specifically approved at least annually by a
majority of the Board of Directors/Trustees of the Fund and a majority of the
Rule 12b-1 Directors/Trustees by votes cast in person at a meeting called for
the purpose of voting on the continuation of the Plan.

6. Termination
-----------

7. Amendments
----------

The Plan may not be amended to change the combined service and distribution
expenses to be paid as provided for in Sections 2 and 3 hereof so as to increase
materially the amounts payable under this Plan unless such amendment shall be

5
<PAGE>

approved by the vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class B shares of the Fund. All
material amendments of the Plan shall be approved by a majority of the Board of
Directors/Trustees of the Fund and a majority of the Rule 12b-1
Directors/Trustees by votes cast in person at a meeting called for the purpose
of voting on the Plan.

8. Rule 12b-1 Directors/Trustees
-----------------------------

While the Plan is in effect, the selection and nomination of the Rule 12b-1
Directors/Trustees shall be committed to the discretion of the Rule 12b-1
Directors/Trustees.

9. Records
-------

Dated: June 1, 1998

<PAGE>

EXHIBIT 15(c)

Prudential National Municipals Fund, Inc,

Distribution and Service Plan
(Class C Shares)
----------------

Introduction
------------

The Fund has entered into a distribution agreement pursuant to which the
Fund will employ the Distributor to distribute Class C shares issued by the Fund
(Class C shares). Under the Plan, the Fund wishes to pay to the Distributor, as
compensation for its services, a distribution and service fee with respect to
Class C shares.

1
<PAGE>

the Investment Company Act.

The Plan
--------

The material aspects of the Plan are as follows:

1. Distribution Activities
-----------------------

The Fund shall engage the Distributor to distribute Class C shares of the
Fund and to service shareholder accounts using all of the facilities of the
Distributor's distribution network including sales personnel and branch office
and central support systems, and also using such other qualified broker-dealers
and financial institutions as the Distributor may select, including Prudential
Securities Incorporated (Prudential Securities) and Pruco Securities Corporation
(Prusec). Services provided and activities undertaken to distribute Class C
shares of the Fund are referred to herein as "Distribution Activities."

2. Payment of Service Fee
----------------------

2
<PAGE>

hereunder and shall pay such amounts monthly or at such other intervals as the
Board of Directors/Trustees may determine.

3. Payment for Distribution Activities
-----------------------------------

The Fund shall pay to the Distributor as compensation for its services a
distribution fee of .75 of 1 % per annum of the average daily not assets of the
Class C shares of the Fund for the performance of Distribution Activities. The
Fund shall calculate and accrue daily amounts payable by the Class C shares of
the Fund hereunder and shall pay such amounts monthly or at such other intervals
as the Board of Directors/Trustees may determine. Amounts payable under the Plan
shall be subject to the limitations of Rule 2830 of the NASD Conduct Rules.

Amounts paid to the Distributor by the Class C shares of the Fund will not
be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class C shares according to the
ratio of the sale of Class C shares to the total sales of the Fund's shares over
the Fund's fiscal year or such other allocation method approved by the Board of
Directors/Trustees. The allocation of distribution expenses among classes will
be subject to the review of the Board of Directors/Trustees. Payments hereunder
will be applied to distribution expenses in the order in which they are
incurred, unless otherwise determined by the Board of Directors/Trustees.

The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:

(a) sales commissions (including trailer commissions) paid to, or on

3
<PAGE>

account of, account executives of the Distributor;

(b) indirect and overhead costs of the Distributor associated with
performance of Distribution Activities including central office and
branch expenses;

(c) amounts paid to Prudential Securities or Prusec for performing
services under a selected dealer agreement between Prudential
Securities or Prusec and the Distributor for sale of Class C shares
of the Fund, including sales commissions and trailer commissions paid
to, or on account of, agents and indirect and overhead costs
associated with Distribution Activities;

(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and other financial institutions (other
than Prudential Securities or Prusec) which have entered into
selected dealer agreements with the Distributor with respect to Class
C shares of the Fund.

4. Quarterly Reports; Additional Information
-----------------------------------------

An appropriate officer of the Fund will provide to the Board of
Directors/Trustees of the Fund for review, at least quarterly, a written report
specifying in reasonable detail the amounts expended for Distribution Activities
(including payment of the service fee) and the purposes for which such
expenditures were made in compliance with the requirements of Rule 12b-1. The
Distributor will provide to the Board of Directors/Trustees of the Fund such
additional information as they shall from time to time reasonably request,
including information about Distribution Activities undertaken or to be
undertaken by the Distributor.

The Distributor will inform the Board of Directors/Trustees of the Fund of
the

4
<PAGE>

commissions and account servicing fees to be paid by the Distributor to account
executives of the Distributor and to broker-dealers and other financial
institutions which have selected dealer agreements with the Distributor.

5. Effectiveness; Continuation
---------------------------

The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class C shares of the Fund.

If approved by a vote of a majority of the outstanding voting securities of
the Class C shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect thereafter for so
long as such continuance is specifically approved at least annually by a
majority of the Board of Directors/Trustees of the Fund and a majority of the
Rule 12b-1 Directors/Trustees by votes cast in person at a meeting called for
the purpose of voting on the continuation of the Plan.

6. Termination
-----------

7. Amendments
----------

5
<PAGE>

Investment Company Act) of the Class C shares of the Fund. All material
amendments of the Plan shall be approved by a majority of the Board of
Directors/Trustees of the Fund and a majority of the Rule 12b-1
Directors/Trustees by votes cast in person at a meeting called for the purpose
of voting on the Plan.

8. Rule 12b-1 Directors/Trustees
-----------------------------

While the Plan is in effect, the selection and nomination of the Rule 12b-1
Directors/Trustees shall be committed to the discretion of the Rule 12b-1
Directors/Trustees.

9. Records
-------

Dated: June 1, 1998

<PAGE>

EXHIBIT 18

PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
(the Fund)

AMENDED AND RESTATED PLAN PURSUANT TO RULE 18F-3

The Fund hereby adopts this plan pursuant to Rule 18f-3 under the
Investment Company Act of 1940 (the 1940 Act), setting forth the separate
arrangement and expense allocation of each class of shares in the Fund. Any
material amendment to this plan is subject to prior approval of the Board of
Directors, including a majority of the independent Directors.

CLASS CHARACTERISTICS

CLASS A SHARES: Class A shares are subject to a high initial sales charge and a
- --------------
distribution and/or service fee pursuant to Rule 12b-1 under
the 1940 Act (Rule 12b-1 fee) not to exceed .30 of 1% per
annum of the average daily net assets of the class. The
initial sales charge is waived or reduced for certain
eligible investors.

CLASS B SHARES: Class B shares are not subject to an initial sales charge but
- --------------
are subject to a high contingent deferred sales charge
(declining from 5% to zero over a six-year period) which will
be imposed on certain redemptions and a Rule 12b-1 fee not to
exceed 1% per annum of the average daily net assets of the
class. The contingent deferred sales charge is waived for
certain eligible investors. Class B shares automatically
convert to Class A shares approximately seven years after
purchase.

CLASS C SHARES: Class C shares issued before October 28, 1998 are not subject
- --------------
to an initial sales charge but are subject to a 1% contingent
deferred sales charge which will be imposed on certain
redemptions within the first 12 months after purchase and a
Rule 12b-1 fee not to exceed 1% per annum of the average
daily net assets of the class. Class C shares issued on or
after October 28, 1998 are subject to a low initial sales
charge and a 1% contingent deferred sales charge which will
be imposed on certain redemptions within the first 18 months
after purchase and a Rule 12b-1 fee not to exceed 1% per
annum of the average daily net assets of the class.
<PAGE>

Class Z SHARES: Class Z shares are not subject to either an initial or
- --------------
contingent deferred sales charge, nor are they subject to
any Rule 12b-1 fee.

INCOME AND EXPENSE ALLOCATIONS

Income, any realized and unrealized capital gains and losses, and expenses
not allocated to a particular class of the Fund will be allocated to each
class of the Fund on the basis of the net asset value of that class in
relation to the net asset value of the Fund.

DIVIDENDS AND DISTRIBUTIONS

Dividends and other distributions paid by the Fund to each class of shares,
to the extent paid, will be paid on the same day and at the same time, and
will be determined in the same manner and will be in the same amount,
except that the amount of the dividends and other distributions declared
and paid by a particular class of the Fund may be different from that paid
by another class of the Fund because of Rule 12b-1 fees and other expenses
borne exclusively by that class.

EXCHANGE PRIVILEGE

Holders of Class A Shares, Class B Shares, Class C Shares and Class Z
Shares shall have such exchange privileges as set forth in the Fund's
current prospectus. Exchange privileges may vary among classes and among
holders of a Class.

CONVERSION FEATURES

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.

GENERAL

A. Each class of shares shall have exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement and shall
have separate voting rights on any matter submitted to shareholders in
which the interests of one class differ from the interests of any other
class.

B. On an ongoing basis, the Directors, pursuant to their fiduciary
responsibilities under the 1940 Act and otherwise, will monitor the
Fund for the existence of any material conflicts among the interests of its
several classes. The Directors Trustees, including a majority of the
independent Directors, shall take such

2
<PAGE>

action as is reasonably necessary to eliminate any such conflicts that may
develop. Prudential Investments Fund Management LLC, the Fund's Manager,
will be responsible for reporting any potential or existing conflicts to
the Directors.

C. For purposes of expressing an opinion on the financial statements of the
Fund, the methodology and procedures for calculating the net asset value
and dividends/distributions of the Fund's several classes and the proper
allocation of income and expenses among such classes will be examined
annually by the Fund's independent auditors who, in performing such
examination, shall consider the factors set forth in the relevant auditing
standards adopted, from time to time, by the American Institute of
Certified Public Accountants.

Approved: August 26, 1998

Effective: October 28, 1998

<PAGE>

<ARTICLE> 6
<CIK> 0000314612
<NAME> PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
<SERIES>
<NUMBER> 001
<NAME> PRUDENTIAL NATIONAL MUNICIPALS FUND, INC. (CLASS A)

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 579,521,190
<INVESTMENTS-AT-VALUE> 630,728,008
<RECEIVABLES> 11,152,818
<ASSETS-OTHER> 133,122
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 642,013,948
<PAYABLE-FOR-SECURITIES> 4,339,707
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,143,002
<TOTAL-LIABILITIES> 6,482,709
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 583,394,076
<SHARES-COMMON-STOCK> 39,396,545
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,042,845
<OVERDISTRIBUTION-GAINS> 0
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