<PAGE>
TYPE OF FUND:
-------------------------------------
Municipal bond
INVESTMENT OBJECTIVE:
-------------------------------------
Maximize current income that is exempt from Ohio
state and federal income taxes consistent with the
preservation of capital
[LOGO]
PRUDENTIAL
MUNICIPAL
SERIES FUND
---------------------------------------------------------------
OHIO SERIES
PROSPECTUS: DECEMBER 23, 1999
<TABLE>
<S> <C>
As with all mutual funds, the
Securities and Exchange Commission has
not approved or disapproved the
Series' shares, nor has the SEC
determined that this prospectus is
complete or accurate. It is a criminal
offense to state otherwise. [LOGO]
</TABLE>
<PAGE>
TABLE OF CONTENTS
-------------------------------------
<TABLE>
<S> <C>
1 RISK/RETURN SUMMARY
1 Investment Objective and Principal Strategies
1 Principal Risks
3 Evaluating Performance
4 Fees and Expenses
6 HOW THE SERIES INVESTS
6 Investment Objective and Policies
8 Other Investments and Strategies
10 Investment Risks
15 HOW THE SERIES IS MANAGED
15 Board of Trustees
15 Manager
15 Investment Adviser
17 Distributor
17 Year 2000 Readiness Disclosure
19 SERIES DISTRIBUTIONS AND TAX ISSUES
19 Distributions
20 Tax Issues
21 If You Sell or Exchange Your Shares
23 HOW TO BUY, SELL AND EXCHANGE SHARES OF THE SERIES
23 How to Buy Shares
30 How to Sell Your Shares
33 How to Exchange Your Shares
34 Telephone Redemptions or Exchanges
36 FINANCIAL HIGHLIGHTS
37 Class A Shares
38 Class B Shares
39 Class C Shares
40 THE PRUDENTIAL MUTUAL FUND FAMILY
A-1 APPENDIX A: DESCRIPTION OF SECURITY RATINGS
FOR MORE INFORMATION (Back Cover)
</TABLE>
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OHIO SERIES [ICON] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY
-------------------------------------
This section highlights key information about the OHIO SERIES (the Series) of
the PRUDENTIAL MUNICIPAL SERIES FUND (the Fund). Additional information follows
this summary.
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
Our investment objective is to maximize CURRENT INCOME that is EXEMPT FROM OHIO
STATE AND FEDERAL INCOME TAXES, consistent with the PRESERVATION OF CAPITAL.
This means we invest primarily in Ohio state and municipal bonds, which are debt
obligations or fixed income securities, including notes, commercial paper and
other securities, as well as obligations of other issuers that pay interest
income that is exempt from those taxes (collectively called "Ohio obligations").
In conjunction with our investment objective, we may invest in debt obligations
with the potential for capital gain.
In pursuing our objective, we normally invest so that at least 80% of the
income from the Series' investments will be exempt from Ohio state and federal
income taxes or the Series will invest at least 80% of its total assets in Ohio
obligations. We normally invest at least 70% of the Series' total assets in
"investment grade" debt obligations, which are debt obligations rated at least
BBB by Standard & Poor's Ratings Group (S&P), Baa by Moody's Investors Service
(Moody's), or comparably rated by another major rating service, and unrated debt
obligations that we believe are comparable in quality. Debt obligations rated in
the lowest of the "investment grade" quality grades (BBB/Baa) have certain
speculative characteristics. We may invest up to 30% of the Series' assets in
"non-investment grade" or HIGH YIELD DEBT OBLIGATIONS, commonly known as "JUNK
BONDS." The Series may invest in municipal bonds the interest and/or principal
payments on which are insured by the bond issuers or other parties. The Series
may also invest in certain municipal bonds the interest on which is subject to
the federal alternative minimum tax (AMT). The dollar-weighted average maturity
of the Series will normally be between 10 and 20 years.
While we make every effort to achieve our objective, we can't guarantee
success.
PRINCIPAL RISKS
Although we try to invest wisely, all investments involve risk. The securities
in which the Series invests are generally subject to the risk that the issuer
may be unable to make principal and interest payments when they are due, as well
as the risk that the securities may lose value because interest rates change or
because there is a lack of confidence in the issuer. Bonds with longer maturity
dates typically produce higher yields and are subject to
--------------------------------------------------------------------------------
1
<PAGE>
RISK/RETURN SUMMARY
------------------------------------------------
greater price fluctuations as a result of changes in interest rates than bonds
with shorter maturity dates. The Series invests in non-investment grade
securities--also known as "junk bonds"--which have a higher risk of default and
tend to be less liquid than higher-rated securities. Therefore, an investment in
the Series may not be appropriate for short-term investing.
The Series may purchase insured municipal bonds to reduce credit risks.
Although insurance coverage reduces credit risks by providing that the insurer
will make timely payment of interest and/or principal, it does not provide
protection against the market fluctuations of insured bonds or fluctuations in
the price of the shares of the Series. An insured municipal bond fluctuates in
value largely based on factors relating to the insurer's creditworthiness or
ability to satisfy its obligations.
Bond prices and the Series' net asset value generally move in opposite
directions from interest rates--if interest rates go up, the prices of the bonds
in the Series' portfolio may fall because the bonds the Series holds won't, as a
rule, pay as well as the newer bonds issued. Bonds that are issued when interest
rates are high generally increase in value when interest rates fall.
Municipal bonds may be subject to the risk that the borrower may not set
aside funds to make the bond or lease payments.
Because the Series will concentrate its investments in Ohio obligations, the
Series is more susceptible to economic, political and other developments that
may adversely affect issuers of Ohio obligations than a municipal bond fund that
is not as geographically concentrated. By way of illustration, although the Ohio
economy has diversified into the service and other non-manufacturing areas, it
continues to rely in part on durable goods manufacturing largely concentrated in
motor vehicles and equipment, steel, rubber products and household appliances.
The Series, therefore, may be more susceptible to developments affecting those
industries than a municipal bond fund that invests in obligations of several
states. This example illustrates just one of the risks of investing in Ohio
obligations. For more information on the risks of investing in Ohio obligations,
see "Description of the Fund, Its Investments and Risks" in the Statement of
Additional Information.
Like any mutual fund, an investment in the Series could lose value, and you
could lose money. For more information about the risks associated with the
Series, see "How the Series Invests--Investment Risks."
An investment in the Series is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or by any other
government agency.
-------------------------------------------------------------------
2 OHIO SERIES [ICON] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY
------------------------------------------------
EVALUATING PERFORMANCE
A number of factors--including risk--can affect how the Series performs. The
following bar chart shows the Series' performance for each full calendar year of
operation for the last 10 years. The bar chart and table below demonstrate the
risk of investing in the Series by showing how returns can change from year to
year and by showing how the Series' average annual total returns compare with a
bond index and a group of similar mutual funds. Past performance does not mean
that the Series will achieve similar results in the future.
ANNUAL RETURNS*--(CLASS B SHARES)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1989 8.96%
1990 5.66%
1991 11.28%
1992 8.64%
1993 11.45%
1994 -5.22%
1995 16.11%
1996 1.72%
1997 8.20%
1998 5.49%
BEST QUARTER: 6.05% (1st quarter of 1995)
WORST QUARTER: (5.07)% (1st quarter of 1994)
</TABLE>
* THESE ANNUAL RETURNS DO NOT INCLUDE SALES CHARGES. IF THE SALES CHARGES WERE
INCLUDED, THE ANNUAL RETURNS WOULD BE LOWER THAN THOSE SHOWN. WITHOUT THE
MANAGEMENT FEE WAIVER, THE ANNUAL RETURNS WOULD HAVE BEEN LOWER, TOO. THE
TOTAL RETURN OF THE CLASS B SHARES FROM 1-1-99 TO 9-30-99 WAS (3.28)%.
AVERAGE ANNUAL RETURNS(1) (AS OF 12-31-98)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
1 YR 5 YRS 10 YRS SINCE INCEPTION
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares 2.74% 4.79% N/A 7.06% (since 1-22-90)
Class B shares .49% 4.86% 7.08% 7.83% (since 9-20-84)
Class C shares 3.18% N/A N/A 5.89% (since 8-1-94)
Muni Bond Index(2) 6.48% 6.22% 8.22% **(2)
Lipper Average(3) 5.39% 5.34% 7.47% **(3)
</TABLE>
<TABLE>
<S> <C>
1 THE SERIES' RETURNS ARE AFTER DEDUCTION OF SALES CHARGES AND
EXPENSES.
2 THE LEHMAN BROTHERS MUNICIPAL BOND INDEX (MUNI BOND INDEX)
IS AN UNMANAGED INDEX OF OVER 21,000 MUNICIPAL BONDS WHICH
ARE GENERALLY REPRESENTATIVE OF THE LONG-TERM INVESTMENT
GRADE MUNICIPAL BOND MARKET. THESE RETURNS DO NOT INCLUDE
THE EFFECT OF ANY SALES CHARGES. THESE RETURNS WOULD BE
LOWER IF THEY INCLUDED THE EFFECT OF SALES CHARGES. THE MUNI
BOND INDEX RETURNS SINCE THE INCEPTION OF EACH CLASS ARE
8.07% FOR CLASS A, 9.60% FOR CLASS B AND 7.73% FOR CLASS C
SHARES. SOURCE: LEHMAN BROS.
3 THE LIPPER OHIO MUNICIPAL DEBT FUNDS CATEGORY IS BASED ON
THE AVERAGE RETURN OF ALL MUTUAL FUNDS IN THIS CATEGORY AND
DOES NOT INCLUDE THE EFFECT OF ANY SALES CHARGES. AGAIN,
THESE RETURNS WOULD BE LOWER IF THEY INCLUDED THE EFFECT OF
SALES CHARGES. THE LIPPER RETURNS SINCE THE INCEPTION OF
EACH CLASS ARE 7.49% FOR CLASS A, 8.39% FOR CLASS B AND
6.81% FOR CLASS C SHARES. SOURCE: LIPPER, INC.
</TABLE>
--------------------------------------------------------------------------------
3
<PAGE>
RISK/RETURN SUMMARY
------------------------------------------------
FEES AND EXPENSES
These tables show the sales charges, fees, and expenses that you may pay if you
buy and hold shares of each share class of the Series--Class A, B, and C. Each
share class has different sales charges--known as loads--and expenses, but
represents an investment in the same fund. For more information about which
share class may be right for you, see "How to Buy, Sell and Exchange Shares of
the Series."
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge (load) imposed on purchases (as
a percentage of offering price)
3% None 1%
Maximum deferred sales charge (load) (as a percentage
of the lower of original purchase price or sale
proceeds) None 5%(2) 1%(3)
Maximum sales charge (load) imposed on reinvested
dividends and other distributions None None None
Redemption fees None None None
Exchange fee None None None
</TABLE>
ANNUAL SERIES OPERATING EXPENSES (DEDUCTED FROM SERIES ASSETS)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management fees .50% .50% .50%
+ Distribution (12b-1) and service fees(4) .30%(4) .50% 1.00%(4)
+ Other expenses .27% .27% .27%
= Total annual Series operating expenses(4) 1.07% 1.27% 1.77%
- Fee waiver or expense reimbursement(4) .05% None .25%
= NET ANNUAL SERIES OPERATING EXPENSES 1.02% 1.27% 1.52%
</TABLE>
<TABLE>
<S> <C>
1 YOUR BROKER MAY CHARGE YOU A SEPARATE OR ADDITIONAL FEE FOR
PURCHASES AND SALES OF SHARES.
2 THE CONTINGENT DEFERRED SALES CHARGE (CDSC) FOR CLASS B
SHARES DECREASES BY 1% ANNUALLY TO 1% IN THE FIFTH AND SIXTH
YEARS AND 0% IN THE SEVENTH YEAR. CLASS B SHARES CONVERT TO
CLASS A SHARES APPROXIMATELY SEVEN YEARS AFTER PURCHASE.
3 THE CDSC FOR CLASS C SHARES IS 1% FOR SHARES REDEEMED WITHIN
18 MONTHS OF PURCHASE.
4 FOR THE FISCAL YEAR ENDING AUGUST 31, 2000, THE DISTRIBUTOR
OF THE SERIES HAS CONTRACTUALLY AGREED TO REDUCE ITS
DISTRIBUTION AND SERVICE FEES FOR CLASS A AND CLASS C SHARES
TO .25 OF 1% AND .75 OF 1% OF THE AVERAGE DAILY NET ASSETS
OF THE CLASS A AND CLASS C SHARES, RESPECTIVELY.
</TABLE>
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4 OHIO SERIES [ICON] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY
------------------------------------------------
EXAMPLE
This example will help you compare the fees and expenses of the Series'
different share classes and the cost of investing in the Series with the cost of
investing in other mutual funds.
The example assumes that you invest $10,000 in the Series for the time
periods indicated and then sell all of your shares at the end of those periods.
The example also assumes that your investment has a 5% return each year and that
the Series' operating expenses remain the same, except for the Distributor's
reduction of distribution and service (12b-1) fees for Class A and Class C
shares during the first year. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
1 YR 3 YRS 5 YRS 10 YRS
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $401 $625 $868 $1,562
Class B shares $629 $703 $797 $1,453
Class C shares $353 $628 $1,027 $2,143
</TABLE>
You would pay the following expenses on the same investment if you did not sell
your shares:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
1 YR 3 YRS 5 YRS 10 YRS
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $401 $625 $868 $1,562
Class B shares $129 $403 $697 $1,453
Class C shares $253 $628 $1,027 $2,143
</TABLE>
--------------------------------------------------------------------------------
5
<PAGE>
HOW THE SERIES INVESTS
-------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
The Series' investment objective is to maximize CURRENT INCOME that is EXEMPT
FROM OHIO STATE AND FEDERAL INCOME TAXES consistent with the PRESERVATION OF
CAPITAL. In conjunction with its investment objective, the Series may invest in
debt securities with the potential for capital gain. While we make every effort
to achieve our objective, we can't guarantee success.
In pursuing the Series' objective, we invest primarily in OHIO OBLIGATIONS,
including Ohio state and municipal bonds as well as obligations of other issuers
(such as issuers located in Puerto Rico, the Virgin Islands and Guam) that pay
interest income that is exempt from Ohio state and federal income taxes. We
normally invest so that at least 80% of the income from the Series' investments
will be exempt from those taxes or the Series will have at least 80% of its
total assets invested in Ohio obligations. The Series, however, may hold private
activity bonds, which are municipal bonds the interest on which is subject to
the federal alternative minimum tax (AMT).
Municipal bonds include GENERAL OBLIGATION BONDS and REVENUE BONDS. General
obligation bonds are obligations supported by the credit of an issuer that has
the power to tax and are payable from that issuer's general revenues and not
from any specific source. Revenue bonds, on the other hand, are payable from
revenues from a particular source.
We normally invest at least 70% of the Series' assets in "investment grade"
obligations, which are obligations rated at least BBB by S&P, Baa by Moody's, or
comparably rated by another major rating service, and unrated debt obligations
that we believe are comparable in quality. Debt obligations rated in the lowest
of the "investment grade" quality grades (BBB/Baa) has certain speculative
characteristics. We may also invest in insured municipal bonds. However, we may
invest up to 30% of the Series' assets in HIGH YIELD OBLIGATIONS ("JUNK BONDS").
A rating is an assessment of the likelihood of timely repayment of interest and
principal (with respect to a municipal bond) or claims (with respect to an
insurer of a municipal bond) and can be useful when comparing different
municipal bonds. These ratings are not a guarantee of quality. The opinions of
the rating agencies do not reflect market risk and they may at times lag behind
the current financial
-------------------------------------------------------------------
States and municipalities issue bonds in order to borrow money to finance a
project. You can think of bonds as loans that investors make to the state, local
government or other issuer. The issuer gets the cash needed to complete the
project and investors earn income on their investment.
-------------------------------------------------------------------
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6 OHIO SERIES [ICON] (800) 225-1852
<PAGE>
HOW THE SERIES INVESTS
------------------------------------------------
conditions of the issuer or insurer. An investor can evaluate the expected
likelihood of debt repayment by an issuer by looking at its ratings as compared
to another similar issuer.
During the year ended August 31, 1999, the monthly dollar-weighted average
ratings of the debt obligations held by the Series, expressed as a percentage of
the Series' total assets, were as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
PERCENTAGES OF
RATINGS TOTAL INVESTMENTS
---------------------------------------------------------------------------------
<S> <C>
AAA/Aaa 55.74%
AA/Aa 12.00%
A/A 3.40%
BBB/Baa 12.21%
BB/Ba 3.91%
Unrated
AAA/Aaa 3.31%
A/A .89%
BBB/Baa 7.46%
B/B .70%
</TABLE>
In determining which securities to buy and sell, the investment adviser will
consider, among other things, yield, maturity, issue, quality characteristics
and expectations regarding economic and political developments, including
movements in interest rates and demand for municipal bonds. The investment
adviser will seek to anticipate interest rate movements and will purchase and
sell municipal bonds accordingly. The investment adviser will also consider the
claims-paying ability with respect to insurers of municipal bonds. The
investment adviser will also seek to take advantage of differentials in yields
with respect to securities with similar credit ratings and maturities, but which
vary according to the purpose for which they were issued. The investment adviser
will also seek to take advantage of differentials in yields with respect to
securities issued for similar purposes with similar maturities, but which vary
according to ratings.
The dollar-weighted average maturity of the obligations held by the Series
generally ranges between 10 and 20 years.
For more information, see "Investment Risks" and the Statement of Additional
Information, "Description of the Fund, Its Investment and Risks." The Statement
of Additional Information--which we refer to as the "SAI"--contains additional
information about the Series. To obtain a copy, see the back cover page of this
prospectus.
--------------------------------------------------------------------------------
7
<PAGE>
HOW THE SERIES INVESTS
------------------------------------------------
The Series' investment objective is a fundamental policy that cannot be
changed without shareholder approval. The Board of the Prudential Municipal
Series Fund can change investment policies that are not fundamental.
OTHER INVESTMENTS AND STRATEGIES
In addition to the principal strategies, we may also make the following
investments to try to increase the Series' returns or protect its assets if
market conditions warrant.
MUNICIPAL LEASE OBLIGATIONS
The Series may invest in MUNICIPAL LEASE OBLIGATIONS. The interest and principal
on municipal lease obligations are paid out of lease payments made by the party
leasing the equipment or facilities that were acquired or built with the bonds.
Typically, municipal lease obligations are issued by states or financing
authorities to provide money for construction projects such as schools, offices
or stadiums. The entity that leases the building or facility would be
responsible for paying the interest and principal on the obligation.
MUNICIPAL ASSET-BACKED SECURITIES
The Series may invest in MUNICIPAL ASSET-BACKED SECURITIES. A municipal
asset-backed security is a type of pass-through instrument that pays interest
which is eligible for exclusion from federal income taxation based upon the
income from an underlying pool of municipal bonds.
FLOATING RATE BONDS, VARIABLE RATE BONDS, INVERSE FLOATERS AND
SECONDARY INVERSE FLOATERS
The Series may invest in floating rate bonds, variable rate bonds, inverse
floaters and secondary inverse floaters. FLOATING RATE BONDS are municipal bonds
that have an interest rate that is set as a specific percentage of a designated
rate, such as the rate on Treasury bonds or the prime rate at major commercial
banks. The interest rate on floating rate bonds changes when there is a change
in the designated rate. VARIABLE RATE BONDS are municipal bonds that have an
interest rate that is adjusted, based on the market rate at a specified period.
They generally allow the Series to demand payment of the bond on short notice
for an amount that may be more or less than the amount paid. INVERSE FLOATERS
are municipal bonds with a floating or variable interest rate that moves in the
opposite direction
-------------------------------------------------------------------
8 OHIO SERIES [ICON] (800) 225-1852
<PAGE>
HOW THE SERIES INVESTS
------------------------------------------------
of the interest rate on another security or the value of an index. SECONDARY
INVERSE FLOATERS are municipal asset-backed securities with a floating or
variable interest rate that moves in the opposite direction of the interest rate
or another security or the value of an index.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
The Series may purchase municipal bonds on a "WHEN-ISSUED" or "DELAYED-DELIVERY"
basis, without limit. When the Series makes this type of purchase, the price and
rate are fixed at the time of purchase, but delivery and payment for the bonds
take place at a later time. The Series does not earn interest income until the
date the bonds are delivered.
REPURCHASE AGREEMENTS
The Series may use REPURCHASE AGREEMENTS where a party agrees to sell a security
to the Series and then repurchase it at an agreed-upon price at a stated time. A
repurchase agreement is like a loan by the Series to the other party which
creates a fixed return for the Series.
LIQUIDITY PUTS
The Series may purchase and exercise PUTS on municipal bonds without limit. Puts
give the Series the right to sell securities at a specified price and date. Puts
may be acquired to reduce the risk of the securities subject to the puts, but
puts may involve additional costs to the Series, which could reduce the Series'
return.
DERIVATIVE STRATEGIES
We may use various derivative strategies to try to improve the Series' returns
or protect its assets, although we cannot guarantee that these strategies will
work, that the instruments necessary to implement these strategies will be
available or that the Series will not lose money. Derivatives--such as FUTURES
CONTRACTS, OPTIONS, OPTIONS ON FUTURES AND INTEREST RATE SWAPS--involve costs
and can be volatile. A futures contract is an agreement to buy or sell a set
quantity of an underlying product at a future date, or to make or receive a cash
payment based on the value of a securities index. An option is the right to buy
or sell securities or, in the case of an option on a futures contract, the right
to buy or sell a futures contract in exchange for a premium. An interest rate
swap is a transaction in which the Series and another party "trade" income
streams. The swap is done to preserve a return or spread on a particular
investment or portion of the Series or to
--------------------------------------------------------------------------------
9
<PAGE>
HOW THE SERIES INVESTS
------------------------------------------------
protect against any increase in the price of securities the Series anticipates
purchasing at a later date.
With derivatives, the investment adviser tries to predict if the underlying
investment, whether a security, market index, currency, interest rate or some
other benchmark, will go up or down at some future date. We may use derivatives
to try to reduce risk or to increase return consistent with the Series' overall
investment objective. Any derivatives we may use may not match the Series'
underlying holdings. For more information about these strategies, see the SAI,
"Description of the Fund, Its Investments and Risks--Hedging Strategies."
TEMPORARY DEFENSIVE STRATEGY
For temporary defensive purposes, the Series may hold up to 100% of its assets
in cash or investment-grade bonds, including bonds that are not exempt from
state, local and federal income taxation. Investing heavily in these securities
can limit our ability to achieve the Series' objective, but can help to preserve
the Series' assets.
ADDITIONAL STRATEGIES
The Series also follows certain policies when it: BORROWS MONEY (the Series can
borrow up to 33 1/3% of the value of its total assets); and HOLDS ILLIQUID
SECURITIES (the Series may hold up to 15% of its net assets in illiquid
securities, including certain securities with legal or contractual restrictions
on resale, those without a readily available market and repurchase agreements
with maturities longer than 7 days). The Series is subject to certain investment
restrictions that are fundamental policies and cannot be changed without
shareholder approval. For more information about these restrictions, see the
SAI.
INVESTMENT RISKS
As noted, all investments involve risk, and investing in the Series is no
exception. Since the Series' holdings can vary significantly from broad market
indexes, performance of the Series can deviate from performance of the indexes.
This chart outlines the key risks and potential rewards of the Series' principal
investments and certain of the Series' non-principal investments and strategies.
See, too, "Description of the Fund, Its Investments and Risks" in the SAI.
-------------------------------------------------------------------
10 OHIO SERIES [ICON] (800) 225-1852
<PAGE>
HOW THE SERIES INVESTS
------------------------------------------------
INVESTMENT TYPE
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
% OF SERIES' TOTAL ASSETS RISKS POTENTIAL REWARDS
------------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS -- Concentration -- Tax-exempt interest
risk--the risk that income, except with
PROVIDE AT LEAST 80% OF bonds may lose value respect to certain
SERIES' INCOME OR because of political, bonds, such as
COMPRISE AT LEAST 80% OF economic or other private activity
ITS TOTAL ASSETS events affecting bonds, which are
issuers of Ohio subject to the
obligations federal alternative
-- Credit risk--the risk minimum tax (AMT)
that the borrower -- If interest rates
can't pay back the decline, long-term
money borrowed or yields should be
make interest higher than money
payments (lower for market yields
insured and
higher-rated bonds)
-- Market risk--the risk
that bonds will lose
value in the market
because interest
rates change or there
is a lack of
confidence in the
borrower
-- Illiquidity risk--the
risk that it may be
difficult to value
precisely and sell at
time or price desired
-- Nonappropriation
risk--the risk that
the municipality may
not include the bond
obligations in future
budgets
-- Tax risk--the risk
that federal, state
or local income tax
rates may decrease,
which could decrease
demand for municipal
bonds, or that a
change in law may
limit or eliminate
exemption of interest
on municipal bonds
from such taxes
------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
11
<PAGE>
HOW THE SERIES INVESTS
------------------------------------------------
INVESTMENT TYPE (CONT'D)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
% OF SERIES' TOTAL ASSETS RISKS POTENTIAL REWARDS
------------------------------------------------------------------------------------
<S> <C> <C>
HIGH-YIELD DEBT -- Higher market risk -- May offer higher
OBLIGATIONS than higher-grade interest income than
(JUNK BONDS) municipal bonds higher-grade bonds
-- Higher credit risk
UP TO 30% than higher-grade
municipal bonds (more
sensitive to economic
downturns)
-- Certain high-yield
bonds may be more
illiquid (harder to
value and sell), in
which case valuation
would depend more on
investment adviser's
judgment than is
generally the case
with higher-grade
bonds
-- Tax risk
------------------------------------------------------------------------------------
MUNICIPAL LEASE -- Concentration risk -- Tax-exempt interest
OBLIGATIONS -- Credit risk income, except with
-- Market risk respect to certain
PERCENTAGE VARIES -- Illiquidity risk bonds, such as
-- Nonappropriation risk private activity
-- Tax risk bonds, which are
subject to the AMT
-- If interest rates
decline, long-term
yields should be
higher than money
market yields
------------------------------------------------------------------------------------
</TABLE>
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12 OHIO SERIES [ICON] (800) 225-1852
<PAGE>
HOW THE SERIES INVESTS
------------------------------------------------
INVESTMENT TYPE (CONT'D)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
% OF SERIES' TOTAL ASSETS RISKS POTENTIAL REWARDS
------------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL ASSET-BACKED -- Prepayment risk--the -- Regular interest
SECURITIES risk that the income
underlying bonds may -- Pass-through
PERCENTAGE VARIES be prepaid, partially instruments provide
or completely, greater
generally during diversification than
periods of falling direct ownership of
interest rates, which municipal bonds
could adversely
affect yield to
maturity and could
require the Series to
reinvest in lower
yielding bonds
-- Credit risk--the risk
that the underlying
municipal bonds will
not be paid by
issuers or by credit
insurers or
guarantors of such
instruments. Some
municipal
asset-backed
securities are
unsecured or secured
by lower-rated
insurers or
guarantors and thus
may involve greater
risk
-- Market risk
-- Tax risk
------------------------------------------------------------------------------------
VARIABLE/FLOATING RATE -- Value lags value of -- May offer protection
SECURITIES fixed-rate securities against interest rate
when interest rates changes
PERCENTAGE VARIES change
------------------------------------------------------------------------------------
INVERSE FLOATERS/ -- High market risk--risk -- Income generally will
SECONDARY INVERSE that inverse floaters increase when
FLOATERS will fluctuate in interest rates
value more decrease
PERCENTAGE VARIES dramatically than
other debt securities
when interest rates
change
-- Credit risk
-- Illiquidity risk
-- Secondary inverse
floaters are subject
to additional risks
of municipal
asset-backed
securities
------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
13
<PAGE>
HOW THE SERIES INVESTS
------------------------------------------------
INVESTMENT TYPE (CONT'D)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
% OF SERIES' TOTAL ASSETS RISKS POTENTIAL REWARDS
------------------------------------------------------------------------------------
<S> <C> <C>
DERIVATIVES -- Derivatives such as -- The Series could make
futures and options money and protect
PERCENTAGE VARIES may not fully offset against losses if the
the underlying investment analysis
positions and this proves correct
could result in -- One way to manage the
losses to the Series Series' risk/return
that would not have balance is to lock in
otherwise occurred the value of an
-- Derivatives used for investment ahead of
risk management may time
not have the intended -- Derivatives that
effects and may involve leverage
result in losses or could generate
missed opportunities substantial gains or
-- The other party to a low costs
derivatives contract
could default
-- Derivatives that
involve leverage
(borrowing for
investment) could
magnify losses
-- Certain types of
derivatives involve
costs to the Series
which can reduce
returns
------------------------------------------------------------------------------------
WHEN-ISSUED AND -- May magnify underlying -- May magnify underlying
DELAYED-DELIVERY investment losses investment gains
SECURITIES -- Investment costs may
exceed potential
PERCENTAGE VARIES underlying investment
gains
------------------------------------------------------------------------------------
ILLIQUID SECURITIES -- May be difficult to -- May offer more
value precisely attractive yield or
UP TO 15% OF NET ASSETS -- May be difficult to potential for growth
sell at the time or than more widely
price desired traded securities
------------------------------------------------------------------------------------
</TABLE>
-------------------------------------------------------------------
14 OHIO SERIES [ICON] (800) 225-1852
<PAGE>
HOW THE SERIES IS MANAGED
-------------------------------------
BOARD OF TRUSTEES
The Fund's Board of Trustees oversees the actions of the Manager, Investment
Adviser and Distributor and decides on general policies. The Board also oversees
the Fund's officers who conduct and supervise the daily business operations of
the Fund.
MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM)
GATEWAY CENTER THREE, 100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
Under a management agreement with the Fund, PIFM manages the Series'
investment operations and administers its business affairs. For the fiscal year
ended August 31, 1999, the Series paid PIFM management fees of .50 of 1% of the
Series' average net assets.
PIFM and its predecessors have served as manager or administrator to
investment companies since 1987. As of October 31, 1999, PIFM served as the
manager to all 46 of the Prudential Mutual Funds, and as manager or
administrator to 22 closed-end investment companies, with aggregate assets of
approximately $72 billion.
INVESTMENT ADVISER
The Prudential Investment Corporation, called Prudential Investments, is the
Series' investment adviser and has served as an investment adviser to investment
companies since 1984. Its address is Prudential Plaza, 751 Broad Street, Newark,
NJ 07102. PIFM has responsibility for all investment advisory services,
supervises Prudential Investments and reimburses Prudential Investments for its
reasonable costs and expenses.
Prudential Investments' Fixed Income Group manages more than $135 billion
for Prudential's retail investors, institutional investors, and policyholders.
Senior Managing Directors James J. Sullivan and Jack W. Gaston head the Group,
which is organized into teams specializing in different market sectors.
Top-down, broad investment decisions are made by the Fixed Income Policy
Committee, whereas bottom-up security selection is made by the sector teams.
Mr. Sullivan has overall responsibility for overseeing portfolio management
and credit research. Prior to joining Prudential Investments in 1998,
--------------------------------------------------------------------------------
15
<PAGE>
HOW THE SERIES IS MANAGED
------------------------------------------------
he was a managing director in Prudential's Capital Management Group, where he
oversaw portfolio management and credit research for Prudential's General
Account and subsidiary fixed-income portfolios. He has more than 16 years of
experience in risk management, arbitrage trading, and corporate bond investing.
Mr. Gaston has overall responsibility for overseeing quantitative research
and risk management. Prior to this appointment in 1999, he was senior managing
director of the Capital Management Group where he was responsible for the
investment performance and risk management for Prudential's General Account and
subsidiary fixed-income portfolios. He has more than 20 years of experience in
investment management, including extensive experience applying quantitative
techniques to portfolio management.
The Fixed Income Investment Policy Committee is comprised of key senior
investment managers. Members include seven sector team leaders, the chief
investment strategist, and the head of risk management. The Committee uses a
top-down approach to investment strategy, asset allocation, and general risk
management, identifying sectors in which to invest.
The Municipal Bond Team, headed by Evan Lamp, is primarily responsible for
overseeing the day-to-day management of the Series. This Team uses a bottom-up
approach, which focuses on individual securities, while staying within the
guidelines of the Investment Policy Committee and the Series' investment
restrictions and policies. In addition, the Credit Research team of analysts
supports the sector teams using bottom-up fundamentals, as well as economic and
industry trends. Other sector teams may contribute to securities selection when
appropriate.
The following are the fixed income sector teams and the corresponding team
leaders: (Assets under management are as of October 31, 1999.)
MUNICIPAL BONDS
ASSETS UNDER MANAGEMENT: $5.6 billion.
TEAM LEADER: Evan Lamp. GENERAL INVESTMENT EXPERIENCE: 7 years.
PORTFOLIO MANAGERS: 5. AVERAGE GENERAL INVESTMENT EXPERIENCE: 10 years, which
includes team members with significant mutual fund experience.
-------------------------------------------------------------------
16 OHIO SERIES [ICON] (800) 225-1852
<PAGE>
HOW THE SERIES IS MANAGED
------------------------------------------------
SECTOR: City, state and local government securities.
INVESTMENT APPROACH: Focus is on identifying spread, credit quality and
liquidity trends to capitalize on changing opportunities in the municipal
market. Ultimately, they seek the highest expected return with the least risk.
MONEY MARKETS
ASSETS UNDER MANAGEMENT: $41.1 billion.
TEAM LEADER: Joseph Tully. GENERAL INVESTMENT EXPERIENCE: 16 years
PORTFOLIO MANAGERS: 8. AVERAGE GENERAL INVESTMENT EXPERIENCE: 12 years, which
includes team members with significant mutual fund experience.
SECTOR: High-quality short-term securities, including both taxable and tax-
exempt instruments.
INVESTMENT APPROACH: Focus is on safety of principal, liquidity and controlled
risk.
DISTRIBUTOR
Prudential Investment Management Service LLC (PIMS) distributes the Series'
shares under a Distribution Agreement with the Fund. The Fund has Distribution
and Service Plans under Rule 12b-1 of the Investment Company Act. Under the
Plans and the Distribution Agreement, PIMS pays the expenses of distributing the
Series' Class A, B, and C shares and provides certain shareholder support
services. The Fund pays distribution and other fees to PIMS as compensation for
its services for each class of shares. These fees--known as 12b-1 fees--are
shown in the "Fees and Expenses" tables.
YEAR 2000 READINESS DISCLOSURE
The services provided to the Fund and the shareholders by the Manager, the
Distributor, the Transfer Agent and the Custodian depend on the smooth
functioning of their computer systems and those of outside service providers.
Many computer software systems in use today cannot distinguish the year 2000
from the year 1900 because of the way dates are encoded and calculated. Such an
event could have a negative impact on handling securities trades, payments of
interest and dividends, pricing and account
--------------------------------------------------------------------------------
17
<PAGE>
HOW THE SERIES IS MANAGED
------------------------------------------------
services. Although, at this time, there can be no assurance that there will be
no adverse impact on the Fund, the Manager, the Distributor, the Transfer Agent
and the Custodian have advised the Fund that they have been actively working on
necessary changes to their computer systems to prepare for the year 2000. The
Fund and its Board receive, and have received since early 1998, satisfactory
quarterly reports from the principal service providers as to their preparations
for year 2000 readiness, although there can be no assurance that the service
providers (or other securities market participants) will successfully complete
the necessary changes in a timely manner. Moreover, the Fund at this time has
not considered retaining alternative service providers or directly undertaken
efforts to achieve year 2000 readiness, the latter of which would involve
substantial expenses without an assurance of success.
Additionally, issuers of securities generally, as well as those purchased by
the Series, may confront year 2000 compliance issues which, if material and not
resolved, could have an adverse impact on securities markets and/ or a specific
issuer's performance and could result in a decline in the value of the
securities held by the Series.
-------------------------------------------------------------------
18 OHIO SERIES [ICON] (800) 225-1852
<PAGE>
SERIES DISTRIBUTIONS AND TAX ISSUES
-------------------------------------
Investors who buy shares of the Series should be aware of some important tax
issues. For example, the Series pays DIVIDENDS of net investment income monthly,
and distributes LONG-TERM CAPITAL GAINS, if any, at least annually. Dividends
generally will be exempt from federal and Ohio state income taxes. If, however,
the Series invests in taxable obligations, it will pay dividends that are not
exempt from these income taxes. Also, if you sell shares of the Series for a
profit, you may have to pay capital gains taxes on the amount of your profit.
The following briefly discusses some of the important state and federal tax
issues you should be aware of, but is not meant to be tax advice. For tax
advice, please speak with your tax adviser.
DISTRIBUTIONS
The Series distributes DIVIDENDS of any net investment income to shareholders,
typically every month. For example, if the Series owns a City XYZ bond and the
bond pays interest, the Series will pay out a portion of this interest as a
dividend to its shareholders, assuming the Series' income is more than its costs
and expenses. These dividends generally will be EXEMPT FROM FEDERAL INCOME
TAXES, as long as 50% or more of the value of the Series' assets at the end of
each quarter is invested in state, municipal and other obligations, the interest
on which is excluded from gross income for federal income tax purposes.
As we mentioned before, the Series will concentrate its investments in Ohio
obligations. In addition to being exempt from federal taxes, Series' dividends
attributable to interest on, or capital gains from the disposition of, Ohio
obligations are EXEMPT FROM OHIO PERSONAL INCOME TAXES AND MUNICIPAL AND SCHOOL
DISTRICT INCOME TAXES FOR OHIO RESIDENTS if the Series continues to qualify as a
regulated investment company for federal income tax purposes and at all times at
least 50% of the value of the Series' total assets consists of Ohio obligations.
Subject to the same regulated investment company and 50% requirements, Series'
dividends are also excluded from the net income base of the Ohio corporation
franchise tax to the extent such dividends are either excluded from gross income
for federal income tax purposes or are properly attributable to interest
payments on, or capital gains from the disposition of, Ohio obligations.
Dividends attributable to the interest on taxable bonds held by the Series,
market discount on taxable and tax-exempt obligations and, except as described
above,
--------------------------------------------------------------------------------
19
<PAGE>
SERIES DISTRIBUTIONS AND TAX ISSUES
------------------------------------------------
short-term capital gains, however, will be subject to federal, state and local
income tax at ordinary income tax rates.
Some shareholders may be subject to federal alternative minimum tax (AMT)
liability. Tax-exempt interest from certain bonds is treated as an item of tax
preference, and may be attributed to shareholders. A portion of all tax-exempt
interest is includable as an upward adjustment in determining a corporation's
alternative minimum taxable income. These rules could make you liable for the
AMT.
The Series also distributes LONG-TERM CAPITAL GAINS to shareholders
(typically once a year). Long-term capital gains are generated when the Series
sells assets that it held for more than 12 months, for a profit. For an
individual, the maximum long-term capital gains rate is 20% for federal income
tax purposes.
For your convenience, distributions of dividends and capital gains are
AUTOMATICALLY REINVESTED in the Series without any sales charge. If you ask us
to pay the distributions in cash, we will send you a check if your account is
with the Transfer Agent. Otherwise, if your account is with a broker you will
receive a credit to your account. Either way, the distributions may be subject
to taxes. For more information about Automatic Reinvestment and other
shareholder services, see "Step 4: Additional Shareholder Services" in the next
section.
TAX ISSUES
FORM 1099
Every year, you will receive a Form 1099, which reports the amount of dividends
and capital gains we distributed to you during the prior year.
Series distributions are generally taxable to you in the year they are
received, except when we declare certain dividends in the fourth quarter and
actually pay them in January of the following year. In such cases, the dividends
are treated as if they were paid to you on December 31 of the prior year.
Corporate shareholders are not eligible for the 70% dividends-received deduction
on dividends paid by the Series.
WITHHOLDING TAXES
If federal law requires you to provide the Series with your tax identification
number and certifications as to your tax status, and you fail to do so, or are
otherwise subject to backup withholding, we generally withhold and pay to
-------------------------------------------------------------------
20 OHIO SERIES [ICON] (800) 225-1852
<PAGE>
SERIES DISTRIBUTIONS AND TAX ISSUES
------------------------------------------------
the U.S. Treasury 31% of your taxable distributions and gross sale proceeds. If
you are subject to backup withholding, we will withhold and pay to the Treasury
31% of your distributions.
IF YOU PURCHASE JUST BEFORE RECORD DATE
If you buy shares of the Series just before the record date (the date that
determines who receives the dividend), that distribution will be paid to you. As
explained above, the distribution may be subject to income or capital gains
taxes. You may think you've done well since you bought shares one day and soon
thereafter received a distribution. That is not so because when dividends are
paid out, the value of each share of the Series decreases by the amount of the
dividend to reflect the payout although this may not be apparent because the
value of each share of the Series will also be affected by the market changes,
if any. The distribution you receive makes up for the decrease in share value.
However, if the distribution is taxable, the timing of your purchase does mean
that part of your investment came back to you as taxable income.
IF YOU SELL OR EXCHANGE YOUR SHARES
If you sell any shares of the Series for a profit, you have REALIZED A CAPITAL
GAIN, which is subject to tax. The amount of tax you pay depends on whether you
hold your shares for more than one year. If you sell shares of the Series for a
loss, you may have a capital loss, which you may use to offset certain capital
gains you have.
Exchanging your shares of the Series for the shares of another Prudential
mutual fund is considered a sale for tax purposes. In other words, it's a
"taxable event." Therefore, if the shares you exchanged have increased in value
since you purchased them, you have capital gains, which are subject to the taxes
described above.
RECEIPTS FROM SALE $ --> +$ CAPITAL GAIN
(taxes owed)
OR
RECEIPTS FROM SALE $ --> -$ CAPITAL LOSS
(offset against gain)
[GRAPH]
Any gain or loss you may have from selling or exchanging Series shares will
not be reported on the Form 1099; however, proceeds from the sale or exchange
will be reported on Form 1099-B. Therefore, you or your financial adviser should
keep track of the dates on which you buy and sell--or
--------------------------------------------------------------------------------
21
<PAGE>
SERIES DISTRIBUTIONS AND TAX ISSUES
------------------------------------------------
exchange--Series shares, as well as the amount of any gain or loss on each
transaction. For tax advice, please see your tax adviser.
AUTOMATIC CONVERSION OF CLASS B SHARES
We have obtained a legal opinion that the conversion of Class B shares into
Class A shares--which happens automatically approximately seven years after
purchase--is not a "taxable event." This opinion, however, is not binding on the
Internal Revenue Service (IRS). For more information about the automatic
conversion of Class B shares, see "Class B Shares Convert to Class A Shares
After Approximately Seven Years," in the next section.
-------------------------------------------------------------------
22 OHIO SERIES [ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
-------------------------------------
HOW TO BUY SHARES
STEP 1: OPEN AN ACCOUNT
If you don't have an account with us or a securities firm that is permitted to
buy or sell shares of the Series for you, call Prudential Mutual Fund Services
LLC (PMFS) at (800) 225-1852 or contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: INVESTMENT SERVICES
P.O. BOX 15020
NEW BRUNSWICK, NJ 08906-5020
To purchase by wire, call the number above to obtain an application. After
PMFS receives your completed application, you will receive an account number.
For additional information about purchasing shares of the Series, see the back
cover page of this prospectus. We have the right to reject any purchase order
(including an exchange into the Series) or suspend or modify the Series' sale of
its shares.
STEP 2: CHOOSE A SHARE CLASS
Individual investors can choose among Class A, Class B, and Class C shares of
the Series.
Multiple share classes let you choose a cost structure that meets your
needs. With Class A shares, you pay the sales charge at the time of purchase,
but the operating expenses each year are lower than the expenses of Class B and
Class C shares. With Class B shares, you only pay a sales charge if you sell
your shares within six years (that is why they call it a Contingent Deferred
Sales Charge or CDSC), but the operating expenses each year are higher than the
Class A share expenses. With Class C shares, you pay a 1% front end sales charge
and a 1% CDSC if you sell within 18 months of purchase, but the operating
expenses are also higher than the expenses for Class A shares.
When choosing a share class, you should consider the following:
-- The amount of your investment
-- The length of time you expect to hold the shares and the impact of
varying distribution fees
--------------------------------------------------------------------------------
23
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
------------------------------------------------
-- The different sales charges that apply to each share class--
Class A's front-end sales charge vs. Class B's CDSC vs. Class C's low
front-end sales charge and low CDSC
-- Whether you qualify for any reduction or waiver of sales charges
-- The fact that Class B shares automatically convert to Class A shares
approximately seven years after purchase.
See "How to Sell Your Shares" for a description of the impact of CDSCs.
SHARE CLASS COMPARISON. Use this chart to help you compare the Series' different
share classes. The discussion following this chart will tell you whether you are
entitled to a reduction or waiver of any sales charges.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum purchase $1,000 $1,000 $2,500
amount(1)
Minimum amount for $100 $100 $100
subsequent purchases(1)
Maximum initial 3% of the None 1% of the
sales charge public public
offering offering
price price
Contingent Deferred None If sold during: 1% on sales
Sales Charge (CDSC)(2) Year 1 5% made within
Year 2 4% 18 months of
Year 3 3% purchase(2)
Year 4 2%
Years 5/6 1%
Year 7 0%
Annual distribution .30 of 1% .50 of 1% 1% (.75 of
and service (12b-1) (.25 of 1% 1%
fees (shown as currently) currently)
a percentage of
average net
assets)(3)
</TABLE>
<TABLE>
<S> <C>
1 THE MINIMUM INVESTMENT REQUIREMENTS DO NOT APPLY TO CERTAIN
RETIREMENT AND EMPLOYEE SAVINGS PLANS AND CUSTODIAL ACCOUNTS
FOR MINORS. THE MINIMUM INITIAL AND SUBSEQUENT INVESTMENT
FOR PURCHASES MADE THROUGH THE AUTOMATIC INVESTMENT PLAN IS
$50. FOR MORE INFORMATION, SEE "STEP 4: ADDITIONAL
SHAREHOLDER SERVICES--AUTOMATIC INVESTMENT PLAN."
2 FOR MORE INFORMATION ABOUT THE CDSC AND HOW IT IS
CALCULATED, SEE "HOW TO SELL YOUR SHARES--CONTINGENT
DEFERRED SALES CHARGES (CDSC)." CLASS C SHARES BOUGHT BEFORE
NOVEMBER 2, 1998 HAVE A 1% CDSC IF SOLD WITHIN ONE YEAR.
3 THESE DISTRIBUTION FEES ARE PAID FROM THE SERIES' ASSETS ON
A CONTINUOUS BASIS. OVER TIME, THE FEES WILL INCREASE THE
COST OF YOUR INVESTMENT AND MAY COST YOU MORE THAN PAYING
OTHER TYPES OF SALES CHARGES. THE SERVICE FEE FOR CLASS A,
CLASS B AND CLASS C SHARES IS .25 OF 1%. THE DISTRIBUTION
FEE FOR CLASS A SHARES IS LIMITED TO .30 OF 1% (INCLUDING
THE .25 OF 1% SERVICE FEE), FOR CLASS B SHARES IS LIMITED TO
.50 OF 1% (INCLUDING THE .25 OF 1% SERVICE FEE), AND IS .75
OF 1% FOR CLASS C SHARES. FOR THE FISCAL YEAR ENDING AUGUST
31, 2000, THE DISTRIBUTOR OF THE FUND HAS CONTRACTUALLY
AGREED TO REDUCE ITS DISTRIBUTION AND SERVICE (12b-1) FEES
FOR CLASS A AND CLASS C SHARES TO .25 OF 1% AND .75 OF 1% OF
THE AVERAGE DAILY NET ASSETS OF CLASS A SHARES AND CLASS C
SHARES, RESPECTIVELY.
</TABLE>
-------------------------------------------------------------------
24 OHIO SERIES [ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
------------------------------------------------
REDUCING OR WAIVING CLASS A'S INITIAL SALES CHARGE
The following describes the different ways investors can reduce or avoid
paying Class A's initial sales charge.
INCREASE THE AMOUNT OF YOUR INVESTMENT. You can reduce Class A's initial
sales charge by increasing the amount of your investment. This table shows
you how the sales charge decreases as the amount of your investment
increases.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
SALES CHARGE AS % OF SALES CHARGE AS % OF DEALER
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED REALLOWANCE
-------------------------------------------------------------------------------------
<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 million and
above(1) None None None
</TABLE>
<TABLE>
<S> <C>
1 IF YOU INVEST $1 MILLION OR MORE, YOU CAN BUY ONLY CLASS A
SHARES.
</TABLE>
To satisfy the purchase amounts above, you can:
-- Invest with an eligible group of related investors
-- Buy the Class A shares of two or more Prudential mutual funds at the
same time
-- Use your RIGHTS OF ACCUMULATION, which allow you to combine the value
of Prudential mutual fund shares you already own with the value of
the shares you are purchasing for purposes of determining the
applicable sales charge (note: you must notify the Transfer Agent if
you qualify for Rights of Accumulation)
-- Sign a LETTER OF INTENT, stating in writing that you or an eligible
group of related investors will purchase a certain amount of shares
in the Series and other Prudential mutual funds within 13 months.
The Distributor may reallow Class A's sales charge to dealers.
MUTUAL FUND PROGRAMS. The initial sales charge will be waived for investors in
certain programs sponsored by broker-dealers, investment advisers and financial
planners who have agreements with Prudential Investments
--------------------------------------------------------------------------------
25
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
------------------------------------------------
Advisory Group relating to:
-- Mutual Fund "wrap" or asset allocation programs where the sponsor
places Series trades and charges its clients a management, consulting
or other fee for its services, or
-- Mutual fund "supermarket" programs where the sponsor links its
clients' accounts to a master account in the sponsor's name and the
sponsor charges a fee for its services.
Broker-dealers, investment advisers or financial planners sponsoring these
mutual fund programs may offer their clients more than one class of shares in
the Series in connection with different pricing options for their programs.
Investors should consider carefully any separate transaction and other fees
charged by these programs in connection with investing in each available share
class before selecting a share class.
OTHER TYPES OF INVESTORS. Other investors pay no sales charges, including
certain officers, employees or agents of Prudential and its affiliates, the
Prudential mutual funds, the subadvisers of the Prudential mutual funds and
registered representatives and employees of brokers that have entered into a
selected dealer agreement with the Distributor. To qualify for a reduction or
waiver of the sales charge, you must notify the Transfer Agent or your broker at
the time of purchase. For more information, see the SAI, "Purchase, Redemption
and Pricing of Fund Shares--Reduction and Waiver of Initial Sales
Charges--Class A Shares."
WAIVING CLASS C'S INITIAL SALES CHARGE
INVESTMENT OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES. The initial
sales charge will be waived for purchases of Class C shares if the purchase is
made with money from the redemption of shares of any unaffiliated investment
company, as long as the shares were not held in an account at Prudential
Securities Incorporated or one of its affiliates. These purchases must be made
within 60 days of the redemption. To qualify for this waiver, you must do one of
the following:
-- Purchase your shares through an account at Prudential Securities
-- Purchase your shares through an ADVANTAGE Account or an Investor
Account with Pruco Securities Corporation, or
-- Purchase your shares through another broker.
-------------------------------------------------------------------
26 OHIO SERIES [ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
------------------------------------------------
The waiver is not available to investors who purchase shares directly from
the Transfer Agent. If you are entitled to the waiver, you must notify either
the Transfer Agent or your broker. The Transfer Agent may require any supporting
documents it considers appropriate.
In connection with the sale of shares, the Manager, the Distributor or one
of their affiliates may pay brokers, financial advisers and other persons a
commission of up to 4% of the purchase price for Class B shares, up to 2% of the
purchase price for Class C shares and a finder's fee for Class A shares from
their own resources based on a percentage of the net asset value of shares sold
or otherwise.
CLASS B SHARES CONVERT TO CLASS A SHARES AFTER APPROXIMATELY SEVEN YEARS
If you buy Class B shares and hold them for approximately seven years, we will
automatically convert them into Class A shares without charge. At that time, we
will also convert any Class B shares that you purchased with reinvested
dividends and other distributions. Since the 12b-1 fees for Class A shares are
lower than for Class B shares, switching to Class A shares lowers your Series
expenses.
When we do the conversion, you will get fewer Class A shares than the number
of converted Class B shares converted if the price of the Class A shares is
higher than the price of Class B shares. The total dollar value will be the
same, so you will not have lost any money by getting fewer Class A shares. We do
the conversions quarterly, not on the anniversary date of your purchase. For
more information, see the SAI, "Purchase, Redemption and Pricing of Fund
Shares--Conversion Feature--Class B Shares."
--------------------------------------------------------------------------------
27
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
------------------------------------------------
STEP 3: UNDERSTANDING THE PRICE YOU'LL PAY
The price you pay for each share of the Series is based on the share value. The
share value of a mutual fund--known as the NET ASSET VALUE or NAV--is determined
by a simple calculation: it's the total value of the fund (assets minus
liabilities) divided by the total number of shares outstanding. For example, if
the value of the investments held by Fund XYZ (minus its liabilities) is $1,000
and there are 100 shares of Fund XYZ owned by shareholders, the price of one
share of the fund--or the NAV--is $10 ($1,000 divided by 100). Portfolio
securities are valued based upon market quotations or, if not readily available,
at fair value as determined in good faith under procedures established by the
Fund's Board. Most national newspapers report the NAVs of most mutual funds,
which allows investors to check the price of mutual funds daily.
We determine the NAV of our shares once each business day at 4:15 p.m. New
York time on days that the New York Stock Exchange (NYSE) is open for trading.
The NYSE is closed on national holidays and Good Friday. We do not determine NAV
with respect to the Series on days when we have not received any orders to
purchase, sell, or exchange the Series' shares, or when changes in the value of
the Series' portfolio do not materially affect the NAV.
WHAT PRICE WILL YOU PAY FOR SHARES OF THE SERIES?
For Class A and Class C shares, you'll pay the public offering price, which is
the NAV next determined after we receive your order to purchase, plus an initial
sales charge (unless you're entitled to a waiver). For Class B shares, you will
pay the NAV next determined after we receive your order to purchase (remember,
there are no up-front sales charges for these share classes). Your broker may
charge you a separate or additional fee for purchases of shares.
-------------------------------------------------------------------
MUTUAL FUND SHARES
The NAV of mutual fund shares changes every day because the value of a fund's
portfolio changes constantly. For example, if Fund XYZ holds City ABC bonds in
its portfolio and the price of City ABC bonds goes up while the value of the
fund's other holdings remains the same and expenses don't change, the NAV of
Fund XYZ will increase.
-------------------------------------------------------------------
-------------------------------------------------------------------
28 OHIO SERIES [ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
------------------------------------------------
STEP 4: ADDITIONAL SHAREHOLDER SERVICES
As a Series shareholder, you can take advantage of the following services and
privileges:
AUTOMATIC REINVESTMENT. As we explained in the "Series Distributions and Tax
Issues" section, the Series pays out--or distributes--its net investment income
and capital gains to all shareholders. For your convenience, we will
automatically reinvest your distributions in the Series at NAV without any sales
charge. If you want your distributions paid in cash, you can indicate this
preference on your application, notify your broker or notify the Transfer Agent
in writing (at the address below) at least five business days before the date we
determine who receives dividends.
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: ACCOUNT MAINTENANCE
P.O. BOX 15015
NEW BRUNSWICK, NJ 08906-5015
AUTOMATIC INVESTMENT PLAN. You can make regular purchases of the Series for as
little as $50 by having the funds automatically withdrawn from your bank or
brokerage account at specified intervals.
THE PRUTECTOR PROGRAM. Optional group term life insurance--which protects the
value of your Prudential mutual fund investment for your beneficiaries against
market declines--is available to investors who purchase their shares through
Prudential. This insurance is subject to various restrictions and charges and is
not available in all states.
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available that will
provide you with monthly, quarterly, semi-annual or annual checks. Remember, the
sale of Class B and Class C shares may be subject to a CDSC.
REPORTS TO SHAREHOLDERS. Every year we will send you an annual report (along
with an updated prospectus) and a semi-annual report, which contain important
financial information about your Series. To reduce the Series' expenses, we will
send one annual shareholder report, one semi-annual shareholder report and one
annual prospectus per household, unless
--------------------------------------------------------------------------------
29
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
------------------------------------------------
you instruct us or your broker otherwise.
HOW TO SELL YOUR SHARES
You can sell your shares of the Series for cash (in the form of a check) at any
time, subject to certain restrictions.
When you sell shares of the Series--also known as redeeming your shares--the
price you will receive will be the NAV next determined after the Transfer Agent,
the Distributor or your broker receives your order to sell. If your broker holds
your shares, he must receive your order to sell by 4:15 p.m. New York time to
process the sale on that day. Otherwise, contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: REDEMPTION SERVICES
P.O. BOX 15010
NEW BRUNSWICK, NJ 08906-5010
Generally, we will pay you for the shares that you sell within seven days
after the Transfer Agent, the Distributor or your broker receives your sell
order. If you hold shares through a broker, payment will be credited to your
account. If you are selling shares you recently purchased with a check, we may
delay sending you the proceeds until your check clears, which can take up to
10 days from the purchase date. You can avoid delay if you purchase shares by
wire, certified check or cashier's check. Your broker may charge a separate or
additional fee for sales of shares.
RESTRICTIONS ON SALES
There are certain times when you may not be able to sell shares of the Series,
or when we may delay paying you the proceeds from a sale. This may happen during
unusual market conditions or emergencies when the Series can't determine the
value of its assets or sell its holdings. For more information, see the SAI,
"Purchase, Redemption and Pricing of Fund Shares--Sale of Shares."
If you are selling more than $100,000 of shares, you want the check sent to
someone or some place that is not in our records or you are a business or a
trust and you hold shares directly with the Transfer Agent, you will need to
have the signature on your sell order signature guaranteed by
-------------------------------------------------------------------
30 OHIO SERIES [ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
------------------------------------------------
an "eligible guarantor institution." An "eligible guarantor institution"
includes any bank, broker-dealer or credit union. For more information, see the
SAI, "Purchase, Redemption and Pricing of Fund Shares--Sale of Shares--Signature
Guarantee."
CONTINGENT DEFERRED SALES CHARGE (CDSC)
If you sell Class B shares within six years of purchase or Class C shares within
18 months of purchase, you will have to pay a CDSC. To keep the CDSC as low as
possible, we will sell your shares in the following order:
-- Amounts representing shares you purchased with reinvested dividends
and distributions
-- Amounts representing the increase in NAV above the total amount of
payments for shares made during the past six years for Class B shares
and 18 months for Class C shares (one year for Class C shares
purchased before November 2, 1998)
-- Amounts representing the cost of shares held beyond the CDSC period
(six years for Class B shares and 18 months for Class C shares)
Since shares that fall into any of the categories listed above are not
subject to the CDSC, selling them first helps you to avoid--or at least
minimize--the CDSC.
Having sold the exempt shares first, if there are any remaining shares that
are subject to the CDSC, we will apply the CDSC to amounts representing the cost
of shares held for the longest period of time within the applicable CDSC period.
As we noted in the "Share Class Comparison" chart, the CDSC for Class B
shares is 5% in the first year, 4% in the second, 3% in the third, 2% in the
fourth, and 1% in the fifth and sixth years. The rate decreases on the first day
of the month following the anniversary date of your purchase, not on the
anniversary date itself. The CDSC is 1% for Class C shares--which is applied to
shares sold within 18 months of purchase. For both Class B and Class C shares,
the CDSC is calculated based on the lesser of the original purchase price or the
redemption proceeds. For purposes of determining how long you've held your
shares, all purchases during the month are grouped together and considered to
have been made on the last day of the month.
--------------------------------------------------------------------------------
31
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
------------------------------------------------
The holding period for purposes of determining the applicable CDSC will be
calculated from the first day of the month after initial purchase, excluding any
time shares were held in a money market fund.
WAIVER OF THE CDSC--CLASS B SHARES
The CDSC will be waived if the Class B shares are sold:
-- After a shareholder is deceased or disabled (or, in the case of a
trust account, the death or disability of the grantor). This waiver
applies to individual shareholders, as well as shares owned in joint
tenancy, provided the shares were purchased before the death or
disability
-- On certain sales from a Systematic Withdrawal Plan.
For more information on the above and other waivers, see the SAI, "Purchase,
Redemption and Pricing of Fund Shares--Waiver of Contingent Deferred Sales
Charges--Class B Shares."
REDEMPTION IN KIND
If the sales of Series shares you make during any 90-day period reach the lesser
of $250,000 or 1% of the value of the Series' net assets, we can then give you
securities from the Series' portfolio instead of cash. If you want to sell the
securities for cash, you would have to pay the costs charged by a broker.
SMALL ACCOUNTS
If you make a sale that reduces your account value to less than $500, we may
sell the rest of your shares (without charging any CDSC) and close your account.
We would do this to minimize the Series' expenses paid by other shareholders. We
will give you 60 days' notice, during which time you can purchase additional
shares to avoid this action.
90-DAY REPURCHASE PRIVILEGE
After you redeem your shares, you have a 90-day period during which you may
reinvest any of the redemption proceeds in shares of the Series without paying
an initial sales charge. Also, if you paid a CDSC when you redeemed your shares,
we will credit your new account with the appropriate
-------------------------------------------------------------------
32 OHIO SERIES [ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
------------------------------------------------
number of shares to reflect the amount of the CDSC you paid. In order to take
advantage of this one-time privilege, you must notify the Transfer Agent or your
broker at the time of the repurchase. See the SAI, "Purchase, Redemption and
Pricing of Fund Shares--Sale of Shares."
HOW TO EXCHANGE YOUR SHARES
You can exchange your shares of the Series for shares of the same class in
certain other Prudential mutual funds--including certain money market funds--if
you satisfy the minimum investment requirements. For example, you can exchange
Class A shares of the Series for Class A shares of another Prudential mutual
fund, but you can't exchange Class A shares for Class B or Class C shares.
Class B and C shares may not be exchanged into money market funds other than
Prudential Special Money Market Fund, Inc. After an exchange, at redemption the
CDSC will be calculated from the first day of the month after initial purchase,
excluding any time shares were held in a money market fund. We may change the
terms of the exchange privilege after giving you 60 days' notice.
If you hold shares through a broker, you must exchange shares through your
broker. Otherwise contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: EXCHANGE PROCESSING
P.O. BOX 15010
NEW BRUNSWICK, NJ 08906-5010
There is no sales charge for such exchanges. However, if you exchange--and
then sell--Class B shares within approximately six years of your original
purchase or Class C shares within 18 months of your original purchase, you must
still pay the applicable CDSC. If you have exchanged Class B or Class C shares
into a money market fund, the time you hold the shares in the money market
account will not be counted in calculating the required holding periods for CDSC
liability.
Remember, as we explained in the section entitled "Series Distributions and
Tax Issues--If You Sell or Exchange Your Shares," exchanging shares is
considered a sale for tax purposes. Therefore, if the shares you exchange are
worth more than you paid for them, you may have to pay capital gains tax. For
additional information about exchanging shares, see the SAI,
--------------------------------------------------------------------------------
33
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
------------------------------------------------
"Shareholder Investment Account--Exchange Privilege."
If you own Class B or Class C shares and qualify to purchase Class A shares
without paying an initial sales charge, we will automatically exchange your
Class B or Class C shares which are not subject to a CDSC for Class A shares. We
make such exchanges on a quarterly basis if you qualify for this exchange
privilege. We have obtained a legal opinion that this exchange is not a "taxable
event" for federal income tax purposes. This opinion is not binding on the IRS.
FREQUENT TRADING
Frequent trading of the Series' shares in response to short-term fluctuations in
the market--also known as "market timing"--may make it very difficult to manage
the Series' investments. When market timing occurs, the Series may have to sell
portfolio securities to have the cash necessary to redeem the market timer's
shares. This can happen at a time when it is not advantageous to sell any
securities, so the Series' performance may be hurt. When large dollar amounts
are involved, market timing can also make it difficult to use long-term
investment strategies because we cannot predict how much cash the Series will
have to invest. When, in our opinion, such activity would have a disruptive
effect on portfolio management, the Fund reserves the right to refuse purchase
orders and exchanges into the Series by any person, group or commonly controlled
accounts. The decision is based upon dollar amount, volume and frequency of
trading. The Fund may notify a market timer of rejection of an exchange or
purchase order after the day the order is placed. If the Fund allows a market
timer to trade Series shares, it may require the market timer to enter into a
written agreement to follow certain procedures and limitations.
TELEPHONE REDEMPTIONS OR EXCHANGES
You may redeem or exchange your shares in any amount by calling the Fund at
(800) 225-1852. In order to redeem or exchange your shares by telephone, you
must complete an authorization form for telephone transactions. If you have
elected telephone redemption and exchange privileges and you call the Fund
before 4:15 p.m., New York time, you will receive a redemption amount based on
that day's NAV.
The Fund's Transfer Agent will record your telephone instructions and
request specific account information before redeeming or exchanging
-------------------------------------------------------------------
34 OHIO SERIES [ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
------------------------------------------------
shares. The Fund will not be liable if it follows instructions that it
reasonably believes are made by the shareholder. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, you may have difficulty
in redeeming or exchanging your shares by telephone. If this occurs, you should
consider redeeming or exchanging your shares by mail.
The telephone redemption or exchange privilege may be modified or terminated
at any time. If this occurs, you will receive a written notice from the Fund.
--------------------------------------------------------------------------------
35
<PAGE>
FINANCIAL HIGHLIGHTS
-------------------------------------
The financial highlights will help you evaluate financial performance of the
Series. The TOTAL RETURN in each chart represents the rate that a shareholder
earned on an investment in that share class of the Series, assuming reinvestment
of all dividends and other distributions. The information is for each share
class for the periods indicated.
Review each chart with the financial statements and report of independent
accountants, which appear in the SAI and are available upon request. Additional
performance information for each share class is contained in the annual report,
which you can receive at no charge.
-------------------------------------------------------------------
36 OHIO SERIES [ICON] (800) 225-1852
<PAGE>
FINANCIAL HIGHLIGHTS
------------------------------------------------
CLASS A SHARES
The financial highlights for the three years ended August 31, 1999 were audited
by PricewaterhouseCoopers LLP, independent accountants, and the financial
highlights for the two years ended August 31, 1996 were audited by other
independent auditors, whose reports were unqualified.
CLASS A SHARES (FISCAL YEAR ENDED 8-31)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $12.31 $11.95 $11.70 $11.92 $11.72
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .54 .60 .63(3) .63(3) .65(3)
Net realized and unrealized gain
(loss) on investment transactions (.71) .42 .27 (.15) .20
TOTAL FROM INVESTMENT OPERATIONS (.17) 1.02 .90 .48 .85
--------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment
income (.54) (.60) (.63) (.63) (.65)
Distributions in excess of
investment income (.01) --(1) --(1) -- --
Distributions from net realized
gains (.26) (.06) (.02) (.07) --
TOTAL DISTRIBUTIONS (.81) (.66) (.65) (.70) (.65)
NET ASSET VALUE, END OF YEAR $11.33 $12.31 $11.95 $11.70 $11.92
TOTAL RETURN(2) (1.53)% 8.80% 7.92% 4.02% 7.59%
---------------------------------
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------------------------------
-----------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSETS, END OF YEAR (000) $46,775 $51,546 $50,977 $49,851 $51,132
AVERAGE NET ASSETS (000) $50,833 $51,082 $51,641 $51,205 $29,904
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution
fees .97% .83% .80%(3) .80%(3) .83%(3)
Expenses, excluding distribution
fees .77% .73% .70%(3) .70%(3) .73%(3)
Net investment income 4.53% 4.93% 5.37%(3) 5.27%(3) 5.50%(3)
Portfolio turnover 45% 30% 22% 35% 38%
---------------------------------
</TABLE>
1 LESS THAN $.005 PER SHARE.
2 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER DISTRIBUTIONS,
BUT DOES NOT INCLUDE THE EFFECT OF SALES CHARGES. IT IS CALCULATED ASSUMING
SHARES ARE PURCHASED ON THE FIRST DAY AND ARE SOLD ON THE LAST DAY OF EACH
PERIOD REPORTED.
3 NET OF MANAGEMENT FEE WAIVER.
--------------------------------------------------------------------------------
37
<PAGE>
FINANCIAL HIGHLIGHTS
------------------------------------------------
CLASS B SHARES
The financial highlights for the three years ended August 31, 1999 were audited
by PricewaterhouseCoopers LLP, independent accountants, and the financial
highlights for the two years ended August 31, 1996 were audited by other
independent auditors, whose reports were unqualified.
CLASS B SHARES (FISCAL YEAR ENDED 8-31)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $12.32 $11.96 $11.71 $11.93 $11.73
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .51 .55 .59(3) .58(3) .60(3)
Net realized and unrealized gain
(loss) on investment transactions (.71) .42 .27 (.15) .20
TOTAL FROM INVESTMENT OPERATIONS (.20) .97 .86 .43 .80
--------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment
income (.51) (.55) (.59) (.58) (.60)
Distributions in excess of
investment income (.01) --(1) --(1) -- --
Distributions from net realized
gains (.26) (.06) (.02) (.07) --
TOTAL DISTRIBUTIONS (.78) (.61) (.61) (.65) (.60)
NET ASSET VALUE, END OF YEAR $11.34 $12.32 $11.96 $11.71 $11.93
TOTAL RETURN(2) (1.82)% 8.36% 7.49% 3.61% 7.16%
---------------------------------
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------------------------------
-----------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSETS, END OF YEAR (000) $25,773 $35,064 $40,770 $50,998 $62,805
AVERAGE NET ASSETS (000) $30,456 $37,848 $45,503 $57,909 $85,410
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution
fees 1.27% 1.23% 1.20%(3) 1.20%(3) 1.22%(3)
Expenses, excluding distribution
fees .77% .73% .70%(3) .70%(3) .72%(3)
Net investment income 4.23% 4.54% 4.97%(3) 4.87%(3) 5.27%(3)
Portfolio turnover 45% 30% 22% 35% 38%
---------------------------------
</TABLE>
1 LESS THAN $.005 PER SHARE.
2 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER DISTRIBUTIONS,
BUT DOES NOT INCLUDE THE EFFECT OF SALES CHARGES. IT IS CALCULATED ASSUMING
SHARES ARE PURCHASED ON THE FIRST DAY AND ARE SOLD ON THE LAST DAY OF EACH
PERIOD REPORTED.
3 NET OF MANAGEMENT FEE WAIVER.
-------------------------------------------------------------------
38 OHIO SERIES [ICON] (800) 225-1852
<PAGE>
FINANCIAL HIGHLIGHTS
------------------------------------------------
CLASS C SHARES
The financial highlights for the three years ended August 31, 1999 were audited
by PricewaterhouseCoopers LLP, independent accountants, and the financial
highlights for the two years ended August 31, 1996 were audited by other
independent auditors, whose reports were unqualified.
CLASS C SHARES (FISCAL YEAR ENDED 8-31)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $12.32 $11.96 $11.71 $11.93 $11.73
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .48 .52 .56(3) .55(3) .57(3)
Net realized and unrealized gain
(loss) on investment transactions (.71) .42 .27 (.15) .20
TOTAL FROM INVESTMENT OPERATIONS (.23) .94 .83 .40 .77
--------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment
income (.48) (.52) (.56) (.55) (.57)
Distributions in excess of
investment income (.01) --(1) --(1) -- --
Distributions from net realized
gains (.26) (.06) (.02) (.07) --
TOTAL DISTRIBUTIONS (.75) (.58) (.58) (.62) (.57)
NET ASSET VALUE, END OF YEAR $11.34 $12.32 $11.96 $11.71 $11.93
TOTAL RETURN(2) (2.06)% 8.09% 7.22% 3.36% 6.89%
---------------------------------
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------------------------------
-----------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSETS, END OF YEAR (000) $337 $183 $71 $44 $126
AVERAGE NET ASSETS (000) $289 $149 $57 $97 $61
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution
fees 1.52% 1.48% 1.45%(3) 1.45%(3) 1.49%(3)
Expenses, excluding distribution
fees .77% .73% .70%(3) .70%(3) .74%(3)
Net investment income 4.03% 4.26% 4.72%(3) 4.62%(3) 4.76%(3)
Portfolio turnover 45% 30% 22% 35% 38%
---------------------------------
</TABLE>
1 LESS THAN $.005 PER SHARE.
2 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER DISTRIBUTIONS,
BUT DOES NOT INCLUDE THE EFFECT OF SALES CHARGES. IT IS CALCULATED ASSUMING
SHARES ARE PURCHASED ON THE FIRST DAY AND ARE SOLD ON THE LAST DAY OF EACH
PERIOD REPORTED.
3 NET OF MANAGEMENT FEE WAIVER.
--------------------------------------------------------------------------------
39
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
-------------------------------------
Prudential offers a broad range of mutual funds designed to meet your individual
needs. For information about these funds, contact your financial adviser or
dealer or call us at (800) 225-1852. Read the prospectus carefully before you
invest or send money.
STOCK FUNDS
PRUDENTIAL DISTRESSED SECURITIES FUND, INC.
PRUDENTIAL EMERGING GROWTH FUND, INC.
PRUDENTIAL EQUITY FUND, INC.
PRUDENTIAL EQUITY INCOME FUND
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL SMALL-CAP INDEX FUND
PRUDENTIAL STOCK INDEX FUND
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH FUND
PRUDENTIAL JENNISON GROWTH & INCOME FUND
PRUDENTIAL MID-CAP VALUE FUND
PRUDENTIAL REAL ESTATE SECURITIES FUND
PRUDENTIAL SECTOR FUNDS, INC.
PRUDENTIAL FINANCIAL SERVICES FUND
PRUDENTIAL HEALTH SCIENCES FUND
PRUDENTIAL TECHNOLOGY FUND
PRUDENTIAL UTILITY FUND
PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
PRUDENTIAL SMALL COMPANY VALUE FUND, INC.
PRUDENTIAL TAX-MANAGED EQUITY FUND
PRUDENTIAL 20/20 FOCUS FUND
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
TARGET FUNDS
LARGE CAPITALIZATION GROWTH FUND
LARGE CAPITALIZATION VALUE FUND
SMALL CAPITALIZATION GROWTH FUND
SMALL CAPITALIZATION VALUE FUND
ASSET ALLOCATION/BALANCED FUNDS
PRUDENTIAL BALANCED FUND
PRUDENTIAL DIVERSIFIED FUNDS
CONSERVATIVE GROWTH FUND
MODERATE GROWTH FUND
HIGH GROWTH FUND
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL ACTIVE BALANCED FUND
GLOBAL FUNDS
GLOBAL STOCK FUNDS
PRUDENTIAL DEVELOPING MARKETS FUND
PRUDENTIAL DEVELOPING MARKETS EQUITY FUND
PRUDENTIAL LATIN AMERICA EQUITY FUND
PRUDENTIAL EUROPE GROWTH FUND, INC.
PRUDENTIAL GLOBAL GENESIS FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL EUROPE INDEX FUND
PRUDENTIAL PACIFIC INDEX FUND
PRUDENTIAL NATURAL RESOURCES FUND, INC.
PRUDENTIAL PACIFIC GROWTH FUND, INC.
PRUDENTIAL WORLD FUND, INC.
GLOBAL SERIES
INTERNATIONAL STOCK SERIES
GLOBAL UTILITY FUND, INC.
TARGET FUNDS
INTERNATIONAL EQUITY FUND
-------------------------------------------------------------------
40 OHIO SERIES [ICON] (800) 225-1852
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
-------------------------------------
GLOBAL BOND FUNDS
PRUDENTIAL GLOBAL TOTAL RETURN FUND, INC.
PRUDENTIAL INTERNATIONAL BOND FUND, INC.
BOND FUNDS
TAXABLE BOND FUNDS
PRUDENTIAL DIVERSIFIED BOND FUND, INC.
PRUDENTIAL GOVERNMENT INCOME FUND, INC.
PRUDENTIAL GOVERNMENT SECURITIES TRUST
SHORT-INTERMEDIATE TERM SERIES
PRUDENTIAL HIGH YIELD FUND, INC.
PRUDENTIAL HIGH YIELD TOTAL RETURN FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL BOND MARKET INDEX FUND
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
INCOME PORTFOLIO
TARGET FUNDS
TOTAL RETURN BOND FUND
TAX-EXEMPT BOND FUNDS
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA SERIES
CALIFORNIA INCOME SERIES
PRUDENTIAL MUNICIPAL BOND FUND
HIGH INCOME SERIES
INSURED SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
MASSACHUSETTS SERIES
NEW JERSEY SERIES
NEW YORK SERIES
NORTH CAROLINA SERIES
OHIO SERIES
PENNSYLVANIA SERIES
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
MONEY MARKET FUNDS
TAXABLE MONEY MARKET FUNDS
CASH ACCUMULATION TRUST
LIQUID ASSETS FUND
NATIONAL MONEY MARKET FUND
PRUDENTIAL GOVERNMENT SECURITIES TRUST
MONEY MARKET SERIES
U.S. TREASURY MONEY MARKET SERIES
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
MONEY MARKET SERIES
PRUDENTIAL MONEYMART ASSETS, INC.
TAX-FREE MONEY MARKET FUNDS
PRUDENTIAL TAX-FREE MONEY FUND, INC.
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA MONEY MARKET SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
CONNECTICUT MONEY MARKET SERIES
MASSACHUSETTS MONEY MARKET SERIES
NEW JERSEY MONEY MARKET SERIES
NEW YORK MONEY MARKET SERIES
COMMAND FUNDS
COMMAND MONEY FUND
COMMAND GOVERNMENT FUND
COMMAND TAX-FREE FUND
INSTITUTIONAL MONEY MARKET FUNDS
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
--------------------------------------------------------------------------------
41
<PAGE>
[This page has been left blank intentionally.]
-------------------------------------------------------------------
42 OHIO SERIES [ICON] (800) 225-1852
<PAGE>
APPENDIX A
-------------------------------------
DESCRIPTION OF SECURITY RATINGS
MOODY'S INVESTORS SERVICE
BOND RATINGS
Aaa: Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than the Aaa securities.
A: Bonds that are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
that suggest a susceptibility to impairment sometime in the future.
Baa: Bonds that are rated Baa are considered as medium grade obligations
I.E., 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.
Ba: Bonds that are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds that are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
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Bonds rated within the Aa, A, Baa, Ba and B categories that Moody's believes
possess the strongest credit attributes within those categories are designated
by the symbols Aa1, A1, Baa1, Ba1 and B1.
Caa: Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds that are rated Ca represent obligations that are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds that are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
SHORT-TERM DEBT RATINGS
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations which have an original maturity not exceeding
one year.
P-1: Issuers rated "Prime-1" or "P-1" (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations.
P-2: Issuers rated "Prime-2" or "P-2" (or supporting institutions) have a
strong ability for repayment of senior short-term debt obligations.
P-3: Issuers rated "Prime-3" or "P-3" (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations.
SHORT-TERM RATINGS
Moody's ratings for tax-exempt notes and other short-term loans are designated
Moody's Investment Grade (MIG). This distinction is in recognition of the
differences between short-term and long-term credit risk.
MIG 1: Loans bearing the designation MIG 1 are of the best quality. There
is present strong protection by established cash flows, superior liquidity
support or demonstrated broad-based access to the market for refinancing.
MIG 2: Loans bearing the designation MIG 2 are of high quality. Margins of
protection are ample although not so large as in the preceding group.
MIG 3: Loans bearing the designation MIG 3 are of favorable quality. All
security elements are accounted for but there is lacking the undeniable
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strength of the preceding grades.
MIG 4: Loans bearing the designation MIG 4 are of adequate quality.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
STANDARD & POOR'S RATINGS GROUP
DEBT RATINGS
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated obligations only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
BB, B, CCC, CC AND C: Debt rated BB, B, CCC, CC and C is regarded as having
predominately speculative characteristics with respect to capacity to pay
interest and repay principal. BB indicates the least degree of speculation and C
the highest. While such debt will likely have some quality and protective
characteristics, these are outweighted by large uncertainties or major exposures
to adverse conditions.
D: Debt rated D is in payment default. This rating is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period.
COMMERCIAL PAPER RATINGS
S&P's commercial paper ratings are current assessments of the likelihood of
timely payment of debt considered short-term in the relevant market.
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APPENDIX A
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A-1: The A-1 designation indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with the designation A-2 is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-3: Issues with the A-3 designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
MUNICIPAL NOTES
A municipal note rating reflects the liquidity factors and market access risks
unique to notes. Notes maturing in three years or less will likely receive a
note rating, while notes maturing beyond three years or less will likely receive
a note rating. Notes maturing beyond three years will most likely receive a
long-term debt rating. Municipal notes are SP-1, SP-2 or SP-3. The designation
SP-1 indicates a very strong capacity to pay principal an interest. Those issues
determined to possess extremely strong characteristics are given a plus (+)
designation. An SP-2 designation indicates a satisfactory capacity to pay
principal and interest. An SP-3 designations indicates speculative capacity to
pay principal and interest.
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FOR MORE INFORMATION:
--------------------------------------------------------------------------------
Please read this prospectus before you invest in the Series and keep it for
future reference. For information or shareholder questions contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
P.O. BOX 15005
NEW BRUNSWICK, NJ 08906-5005
(800) 225-1852
(732) 417-7555
(if calling from outside the U.S.)
--------------------------------
Outside Brokers Should Contact:
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
P.O. BOX 15035
NEW BRUNSWICK, NJ 08906-5035
(800) 778-8769
------------------------------------
Visit Prudential's Web Site At:
http://www.prudential.com
--------------------------------
Additional information about the Series can be obtained without charge and can
be found in the following documents:
STATEMENT OF ADDITIONAL
INFORMATION (SAI)
(incorporated by reference into this prospectus)
ANNUAL REPORT
(contains a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance)
SEMI-ANNUAL REPORT
You can also obtain copies of Fund documents from the Securities and Exchange
Commission as follows:
By Mail:
Securities and Exchange Commission
Public Reference Section
Washington, DC 20549-0102
By Electronic Request:
[email protected]
(The SEC charges a fee to copy documents.)
In Person:
Public Reference Room in
Washington, DC
(For hours of operation, call
(202)942-8090.)
Via the Internet:
on the EDGAR Database at
http://www.sec.gov
--------------------------------
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CUSIP Quotron
Numbers: Symbols:
Class A: 74435M-83-8 PROHX
Class B: 74435M-84-6 PBOHX
Class C: 74435M-49-9 --
</TABLE>
Investment Company Act File No:
811-4023
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<S> <C>
MF123A [LOGO] Printed on Recycled Paper
</TABLE>
