PRUDENTIAL MUNICIPAL SERIES FUND, 497, 1998-11-05

PRUDENTIAL MUNICIPAL SERIES FUND
497, 1998-11-05

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<PAGE>
Prudential Municipal Series Fund
(Connecticut Money Market Series)

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PROSPECTUS DATED NOVEMBER 2, 1998

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Prudential Municipal Series Fund (the Fund) (Connecticut Money Market Series)
(the Series) is one of thirteen series of an open-end, management investment
company, or mutual fund. This Series is non-diversified and is designed to
provide the highest level of current income that is exempt from Connecticut
State and federal income taxes consistent with liquidity and the preservation of
capital. The net assets of the Series are invested primarily in short-term, tax-
exempt Connecticut State, municipal and local debt obligations and obligations
of other qualifying issuers. There can be no assurance that the Series'
investment objective will be achieved. See "How the Fund Invests--Investment
Objective and Policies." The Fund's address is Gateway Center Three, 100
Mulberry Street, Newark, New Jersey, 07102-4077, and its telephone number is
(800) 225-1852.

Shares of the Series are sold without a sales charge. The Series is subject to
an annual charge of .125% of its average daily net assets pursuant to the
Distribution and Service Plan. See "How the Fund is Managed--Distributor."

THE SERIES MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN THE OBLIGATIONS OF
A SINGLE ISSUER, AND THEREFORE AN INVESTMENT IN THE SERIES MAY BE MORE RISKY
THAN AN INVESTMENT IN OTHER TYPES OF MONEY MARKET FUNDS.

AN INVESTMENT IN THE SERIES IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE SERIES WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE. SEE "HOW THE FUND VALUES
ITS SHARES."

This Prospectus sets forth concisely the information about the Fund and the
Connecticut Money Market Series that a prospective investor should know before
investing and is available at the Web site of The Prudential Insurance Company
of America (http://www.prudential.com). Additional information about the Fund
has been filed with the Securities and Exchange Commission (Commission) in a
Statement of Additional Information, dated November 2, 1998, which information
is incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to Prudential Municipal
Series Fund at the address or telephone number noted above. The Commission
maintains a Web site (http://www.sec.gov) that contains the Statement of
Additional Information, material incorporated by reference and other information
regarding the Fund and the Series.

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INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.

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

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

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

WHAT IS PRUDENTIAL MUNICIPAL SERIES FUND?

Prudential Municipal Series Fund is a mutual fund whose shares are offered
in thirteen series, each of which operates as a separate fund. A mutual fund
pools the resources of investors by selling its shares to the public and
investing the proceeds of such sale in a portfolio of securities designed to
achieve its investment objective. Technically, the Fund is an open-end,
management investment company. Only the Connecticut Money Market Series is
offered through this Prospectus.

WHAT IS THE SERIES' INVESTMENT OBJECTIVE?

The Series' investment objective is to provide the highest level of
current income that is exempt from Connecticut State and federal income
taxes consistent with liquidity and the preservation of capital. It seeks to
achieve this objective by investing primarily in short-term Connecticut
State, municipal and local government obligations and obligations of other
qualifying issuers, such as issuers located in Puerto Rico, the Virgin
Islands and Guam, which pay income exempt, in the opinion of counsel, from
Connecticut State and federal income taxes (Connecticut Obligations). There
can be no assurance that the Series will achieve its investment objective.
See "How the Fund Invests--Investment Objective and Policies" at page 6.

WHAT ARE THE SERIES' RISK FACTORS AND SPECIAL CHARACTERISTICS?

It is anticipated that the net asset value per share (NAV) of the Series
will remain constant at $1.00 per share, although this cannot be assured. In
order to maintain such constant NAV, the Series will value its portfolio
securities at amortized cost. While this method provides certainty in
valuation, it may result in periods during which the value of a security in
the Series' portfolio, as determined by amortized cost, is higher or lower
than the price the Series would receive if it sold such security. See "How
the Fund Values its Shares" at page 12.

In seeking to achieve its investment objective, the Series will invest
primarily in Connecticut Obligations. This degree of investment
concentration makes the Series particularly susceptible to factors adversely
affecting issuers of Connecticut Obligations, and makes an investment in the
Series more risky than an investment in other types of money market funds.
The Series is non-diversified so that more than 5% of its total assets may
be invested in the securities of one or more issuers. Investment in a
non-diversified portfolio involves more risk than investment in a
diversified portfolio. See "How the Fund Invests--Investment Objective and
Policies--Special Considerations" at page 9. As with an investment in any
mutual fund, an investment in this Series can decrease in value and you can
lose money.

WHO MANAGES THE FUND?

Prudential Investments Fund Management LLC (PIFM or the Manager) is the
Manager of the Fund and is compensated for its services at an annual rate of
.50 of 1% of the Series' average daily net assets. As of September 30, 1998,
PIFM served as manager or administrator to 66 investment companies,
including 44 mutual funds, with aggregate assets of approximately $67
billion. The Prudential Investment Corporation (PIC, the Subadviser or the
investment adviser), furnishes investment advisory services in connection
with the management of the Fund under a Subadvisory Agreement with PIFM. See
"How the Fund is Managed--Manager" at page 10.

2
<PAGE>
WHO DISTRIBUTES THE SERIES' SHARES?

Prudential Investment Management Services LLC (the Distributor) acts as
the Distributor of the Series' shares. The Fund reimburses the Distributor
for expenses related to the distribution of the Series' shares at an annual
rate of up to .125 of 1% of the average daily net assets of the Series. See
"How the Fund is Managed--Distributor" at page 11.

WHAT IS THE MINIMUM INVESTMENT?

The minimum initial investment is $1,000. The minimum subsequent
investment is $100. There is no minimum investment requirement for certain
employee savings plans. For purchases made through the Automatic Investment
Plan, the minimum initial and subsequent investment is $50. See "Shareholder
Guide--How to Buy Shares of the Fund" at page 16 and "Shareholder
Guide--Shareholder Services" at page 24.

HOW DO I PURCHASE SHARES?

HOW DO I SELL MY SHARES?

You may redeem shares of the Series at any time at the NAV next determined
after your Dealer, the Distributor or the Transfer Agent receives your sell
order. Dealers may charge their customers a separate fee for handling sale
transactions. See "Shareholder Guide--How to Sell Your Shares" at page 21.

HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?

The Series expects to declare daily and pay monthly dividends of net
investment income and short-term capital gains. Dividends and distributions
will be automatically reinvested in additional shares of the Series at NAV
unless you request that they be paid to you in cash. See "Taxes, Dividends
and Distributions" at page 13.

3
<PAGE>
FUND EXPENSES
(CONNECTICUT MONEY MARKET SERIES)

<TABLE>
<CAPTION>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases................. None
Maximum Deferred Sales Load............................. None
Maximum Sales Load Imposed on Reinvested Dividends...... None
Redemption Fees......................................... None
Exchange Fee............................................ None
</TABLE>

<TABLE>
<CAPTION>
<S> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees......................................... .500%
12b-1 Fees.............................................. .125%
Other Expenses.......................................... .235%
-------
Total Fund Operating Expenses .860%
-------
-------
</TABLE>

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- -------- -------- --------
<S> <C> <C> <C> <C>
EXAMPLE
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the
end of each time period:.................................. $ 9 $ 27 $ 48 $ 106
</TABLE>

THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that an investor in the Series will bear, whether
directly or indirectly. For more complete descriptions of the various costs
and expenses, see "How the Fund is Managed." The above example is based on
data for the Series' fiscal year ended August 31, 1998. "Other Expenses"
includes Trustees' and professional fees, registration fees, reports to
shareholders and transfer agency and custodian fees.

4
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH OF THE INDICATED
PERIODS)

The following financial highlights, for the two years ended August 31, 1998,
have been audited by PricewaterhouseCoopers LLP, independent accountants, and
for the three years ended August 31, 1996 have been audited by other independent
auditors. All such audit reports were unqualified. This information should be
read in conjunction with the financial statements and notes thereto, which
appear in the Statement of Additional Information. The following financial
highlights contain selected data for a share of beneficial interest outstanding,
total return, ratios to average net assets and other supplemental data for the
periods indicated. This information is based on data contained in the financial
statements. Further performance information is contained in the annual report,
which may be obtained without charge. See "Shareholder Guide--Shareholder
Services--Reports to Shareholders."

<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, AUGUST 5, 1991(a)
---------------------------------------------------------------------------- THROUGH
1998 1997 1996 1995 1994 1993 1992 AUGUST 31, 1991
------- ------- ------- ------- ------- ------- ------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income
and net realized
gains................. .03 .03(c) .03(c) .032(c) .020(c) .022(c) .034(c) .003(c)
Dividends and
distributions to
shareholders.......... (.03) (.03) (.03) (.032) (.020) (.022) (.034) (.003)
------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of
period................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------

TOTAL RETURN (d):....... 2.72% 3.10% 3.17% 3.16% 2.02% 2.20% 3.42% 0.30%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000).......... $95,117 $75,927 $77,683 $62,867 $54,302 $57,794 $40,480 $10,904
Average net assets
(000)................. $84,800 $77,500 $74,576 $57,103 $60,594 $53,152 $33,964 $ 6,730
Ratios to average net
assets:
Expenses, including
distribution fee..... .86% .46%(c) .47%(c) .581%(c) .542%(c) .387%(c) .125%(c) .125%(b)(c)
Expenses, excluding
distribution fee..... .74% .34%(c) .35%(c) .456%(c) .417%(c) .262%(c) .00%(c) .00%(b)(c)
Net investment
income............... 2.68% 3.06%(c) 3.12%(c) 3.17%(c) 1.99%(c) 2.17%(c) 3.20%(c) 4.42%(b)(c)
</TABLE>

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(a) Commencement of investment operations.

(b) Annualized.

(c) Net of expense subsidy and/or management fee waiver. Effective
September 1, 1997, PIFM eliminated its management fee waiver (.05 of
1%).

(d) Total return includes reinvestment of dividends and distributions.
Total returns for periods of less than a full year are not annualized.

5
<PAGE>
CALCULATION OF YIELD

THE SERIES CALCULATES ITS CURRENT YIELD based on the net change, exclusive of
realized and unrealized gains or losses, in the value of a hypothetical account
over a seven calendar day base period. THE SERIES CALCULATES ITS EFFECTIVE
ANNUAL YIELD ASSUMING DAILY COMPOUNDING. Tax-equivalent yield shows the taxable
yield an investor would have to earn from a fully taxable investment in order to
equal the Series' tax-free yield after taxes and is calculated by dividing the
Series' current or effective yield by the result of one minus the State tax rate
times one minus the federal tax rate. The following is an example of the yield
calculations as of August 31, 1998:

<TABLE>
<S> <C>
Value of hypothetical account at end of period................. $ 1.000472825
Value of hypothetical account at beginning of period........... 1.000000000
-------------
Base period return............................................. $ 0.000472825
-------------
-------------
CURRENT YIELD (0.000472825 X (365/7)).......................... 2.46%
EFFECTIVE ANNUAL YIELD, assuming daily compounding............. 2.50%
TAX-EQUIVALENT CURRENT YIELD
2.46 DIVIDED BY [(1-.045)(1-.396)]............................ 4.26%
</TABLE>

THE YIELD WILL FLUCTUATE FROM TIME TO TIME AND DOES NOT INDICATE FUTURE
PERFORMANCE.

The weighted average life to maturity of the portfolio of the Series on August
31, 1998 was 53 days.

Yield is computed in accordance with a standardized formula described in the
Statement of Additional Information. Comparative performance information may be
used from time to time in advertising or marketing the Series' shares, including
data from Lipper Analytical Services, Inc., Morningstar Publications, Inc.,
IBC/Donoghue's Money Fund Report, The Bank Rate Monitor, other industry
publications, business periodicals and market indices.

HOW THE FUND INVESTS

INVESTMENT OBJECTIVE AND POLICIES

PRUDENTIAL MUNICIPAL SERIES FUND (THE FUND) IS AN OPEN-END, MANAGEMENT
INVESTMENT COMPANY, OR MUTUAL FUND, CONSISTING OF THIRTEEN SEPARATE SERIES. EACH
OF THESE SERIES IS MANAGED INDEPENDENTLY. THE CONNECTICUT MONEY MARKET SERIES
(THE SERIES) IS NON-DIVERSIFIED AND ITS INVESTMENT OBJECTIVE IS TO PROVIDE THE
HIGHEST LEVEL OF CURRENT INCOME THAT IS EXEMPT FROM CONNECTICUT STATE AND
FEDERAL INCOME TAXES CONSISTENT WITH LIQUIDITY AND THE PRESERVATION OF CAPITAL.
THE SERIES SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING PRIMARILY IN
SHORT-TERM CONNECTICUT STATE, MUNICIPAL AND LOCAL GOVERNMENT OBLIGATIONS AND
OBLIGATIONS OF OTHER QUALIFYING ISSUERS, SUCH AS ISSUERS LOCATED IN PUERTO RICO,
THE VIRGIN ISLANDS AND GUAM, WHICH PAY INCOME EXEMPT, IN THE OPINION OF COUNSEL,
FROM CONNECTICUT STATE AND FEDERAL INCOME TAXES (CONNECTICUT OBLIGATIONS). SEE
"INVESTMENT OBJECTIVES AND POLICIES" IN THE STATEMENT OF ADDITIONAL INFORMATION.
THERE CAN BE NO ASSURANCE THAT THE SERIES WILL BE ABLE TO ACHIEVE ITS INVESTMENT
OBJECTIVE.

As with an investment in any mutual fund, an investment in this Series can
decrease in value and you can lose money.

6
<PAGE>
THE SERIES' INVESTMENT OBJECTIVE IS A FUNDAMENTAL POLICY AND, THEREFORE, MAY
NOT BE CHANGED WITHOUT THE APPROVAL OF THE HOLDERS OF A MAJORITY OF THE SERIES'
OUTSTANDING VOTING SECURITIES AS DEFINED IN THE INVESTMENT COMPANY ACT OF 1940,
AS AMENDED (THE INVESTMENT COMPANY ACT). THE SERIES' POLICIES THAT ARE NOT
FUNDAMENTAL MAY BE MODIFIED BY THE TRUSTEES.

As with an investment in any mutual fund, an investment in this Series can
decrease in value and you can lose money.

Interest on certain municipal obligations may be a preference item for
purposes of the federal alternative minimum tax. The Series may invest without
limit in municipal obligations that are private activity bonds (as defined in
the Internal Revenue Code), the interest on which would be a preference item for
purposes of the federal alternative minimum tax. See "Taxes, Dividends and
Distributions." Under Connecticut law, distributions from the Series to
individual shareholders of the Series resident in Connecticut and Connecticut
resident trusts and estates are not subject to taxation pursuant to the
Connecticut Personal Income Tax to the extent that such distributions are
excluded from gross income for federal income tax purposes as exempt-interest
dividends and are derived from interest payments on Connecticut Obligations. It
is likely that capital gain dividends derived from the sale of Connecticut
Obligations also are not subject to taxation pursuant to the Connecticut
Personal Income Tax. Other types of distributions received from the Series,
including distributions of interest on, and capital gain dividends derived from
sales of, obligations issued by other issuers, are subject to the Connecticut
Personal Income Tax. Certain shareholders may also be subject to Connecticut
alternative minimum tax with respect to distributions from the Series. See
"Taxes, Dividends and Distributions." The Connecticut Obligations in which the
Series may invest include certain short-term, tax-exempt notes such as Tax
Anticipation Notes, Revenue Anticipation Notes, Bond Anticipation Notes,
Construction Loan Notes and certain variable and floating rate demand notes. See
"Investment Objectives and Policies--Tax-Exempt Securities--Tax-Exempt Notes" in
the Statement of Additional Information. The Series will maintain a
dollar-weighted average maturity of its portfolio of 90 days or less.

THE SERIES MAY INVEST ITS ASSETS IN FLOATING RATE AND VARIABLE RATE
SECURITIES, INCLUDING PARTICIPATION INTERESTS THEREIN, WHICH CONFORM TO THE
REQUIREMENTS OF THE AMORTIZED COST VALUATION RULE AND OTHER REQUIREMENTS OF THE
COMMISSION. There is no limit on the amount of such securities that the Series
may purchase. Floating rate securities normally have a rate of interest which is
set as a specific percentage of a designated base rate, such as the rate on
Treasury Bonds or Bills or the prime rate at a major commercial bank. The
interest rate on floating rate securities changes periodically when there is a
change in the designated base interest rate. Variable rate securities provide
for a specified periodic adjustment in the interest rate based on prevailing
market rates and generally would allow the Series to demand payment of the
obligation on short notice at par plus accrued interest, which amount may be
more or less than the amount the Series paid for them.

ALL CONNECTICUT OBLIGATIONS PURCHASED BY THE SERIES WILL, AT THE TIME OF
PURCHASE, HAVE A REMAINING MATURITY OF THIRTEEN MONTHS OR LESS AND BE (I) RATED
IN ONE OF THE TWO HIGHEST RATING CATEGORIES BY AT LEAST TWO NATIONALLY
RECOGNIZED STATISTICAL RATING ORGANIZATIONS (NRSRO'S) ASSIGNING A RATING TO THE
SECURITY OR ISSUER (OR, IF ONLY ONE NRSRO ASSIGNED A RATING, BY THAT NRSRO) OR
(II) IF UNRATED, OF COMPARABLE QUALITY AS DETERMINED BY THE INVESTMENT ADVISER
UNDER THE SUPERVISION OF THE TRUSTEES. See "Description of Tax-Exempt Security
Ratings" in the Statement of Additional Information. The investment adviser will
monitor the credit quality of securities purchased for the Series' portfolio and
will limit its investments to those which present minimal credit risks.

In selecting Connecticut Obligations for investment by the Series, the
investment adviser considers ratings assigned by NRSRO's, information concerning
the financial history and condition of the issuer and its revenue and expense
prospects and, in the case of revenue bonds, the financial history and condition
of the source of revenue to service the bonds. If a Connecticut Obligation held
by the Series is assigned a lower rating or ceases to be rated, the investment
adviser under the supervision of the Trustees will promptly reassess whether
that security presents minimal credit risks and whether the Series should
continue to hold the security in its portfolio. If a portfolio security no
longer presents minimal credit risks or is in default, the Series will dispose
of the security as soon as reasonably practicable unless the Trustees determine
that to do so is not in the best interests of the Series and its shareholders.

7
<PAGE>
The Series utilizes the amortized cost method of valuation in accordance with
regulations issued by the Commission. See "How the Fund Values its Shares."

The Series intends to hold portfolio securities to maturity; however, it may
sell any security at any time in order to meet redemption requests or if the
investment adviser believes it advisable, based on an evaluation of the issuer
or of market conditions.

UNDER NORMAL MARKET CONDITIONS, THE SERIES WILL ATTEMPT TO INVEST
SUBSTANTIALLY ALL OF THE VALUE OF ITS ASSETS IN MUNICIPAL OBLIGATIONS WHICH PAY
INCOME EXEMPT FROM FEDERAL INCOME TAXES. As a matter of fundamental policy,
during normal market conditions the Series' assets will be invested so that at
least 80% of its total assets will be invested in municipal securities which pay
income exempt from federal income taxes. These primarily will be Connecticut
Obligations, unless the investment adviser is unable, due to the unavailability
of sufficient or reasonably priced Connecticut Obligations that also meet the
Series' credit quality and average weighted maturity requirements, to purchase
Connecticut Obligations. To the extent the Series invests in obligations other
than Connecticut Obligations, dividends derived therefrom likely will not be
exempt from Connecticut taxes. During abnormal market conditions or to provide
liquidity, the Series may hold cash or taxable cash equivalents such as
certificates of deposit, bankers' acceptances and time deposits or other
short-term taxable investments such as repurchase agreements, or high grade
taxable obligations. When, in the opinion of the investment adviser, abnormal
market conditions require a temporary defensive position, the Series may invest
its assets so that more than 20% of the income is subject to federal income
taxes.

THE SERIES MAY ACQUIRE PUT OPTIONS (PUTS) GIVING THE SERIES THE RIGHT TO SELL
SECURITIES HELD IN THE SERIES' PORTFOLIO AT A SPECIFIED EXERCISE PRICE ON A
SPECIFIED DATE. Such puts may be acquired for the purpose of protecting the
Series from a possible decline in the market value of the security to which the
put applies in the event of interest rate fluctuations or, in the case of
liquidity puts, for the purpose of shortening the effective maturity of the
underlying security. The aggregate value of premiums paid to acquire puts held
in the Series' portfolio (other than liquidity puts) may not exceed 10% of the
NAV of the Series. The acquisition of a put may involve an additional cost to
the Series by payment of a premium for the put, by payment of a higher purchase
price for securities to which the put is attached or through a lower effective
interest rate.

In addition, there is a credit risk associated with the purchase of puts in
that the issuer of the put may be unable to meet its obligation to purchase the
underlying security. Accordingly, the Series will acquire puts only under the
following circumstances: (1) the put is written by the issuer of the underlying
security and such security is rated (a) in one of the two highest rating
categories by at least two NRSRO's assigning a rating to the security or issuer,
or (b) if only one such rating organization assigned a rating, by that rating
organization; or (2) the put is written by a person other than the issuer of the
underlying security and such person has securities outstanding which are rated
within such two highest quality grades; or (3) the put is backed by a letter of
credit or similar financial guarantee issued by a person having securities
outstanding which are rated within the two highest quality grades of such rating
services. The issuer of the put, or another institution, must undertake to
notify promptly the holder of the put if the put feature is substituted with a
put from another issuer.

THE SERIES MAY PURCHASE MUNICIPAL OBLIGATIONS ON A WHEN-ISSUED OR DELAYED
DELIVERY BASIS, IN EACH CASE WITHOUT LIMIT. When municipal obligations are
offered on a when-issued or delayed delivery basis, the price and coupon rate
are fixed at the time the commitment to purchase is made, but delivery and
payment of the securities take place at a later date. The purchase price for
such securities includes interest accrued during the period between purchase and
settlement, and therefore, no interest accrues to the economic benefit of the
purchaser during such period. In the case of purchases by the Series, the price
that the Series is required to pay on the settlement date may be in excess of
the market value of the municipal obligations on that date. While securities may
be sold prior to the settlement date, the Series intends to purchase these
securities with the purpose of actually acquiring them unless a sale would be
desirable for investment reasons. At the time the Series makes the commitment to
purchase a municipal obligation on a when-issued or delayed delivery basis, it
will record the transaction and reflect the value of the obligation each day in
determining its NAV. This value may fluctuate from day to day in the same manner
as values of

8
<PAGE>
municipal obligations otherwise held by the Series. If the seller defaults in
the sale, the Series could fail to realize the appreciation, if any, that had
occurred. The Series will establish a segregated account in which it will
maintain cash or other liquid assets, equal or greater in value to its
commitment for when-issued or delayed delivery securities.

THE SERIES MAY PURCHASE SECONDARY MARKET INSURANCE ON CONNECTICUT OBLIGATIONS
WHICH IT HOLDS OR ACQUIRES. Secondary market insurance would be reflected in the
market value of the municipal obligation purchased and may enable the Series to
dispose of a defaulted obligation at a price similar to that of comparable
municipal obligations which are not in default.

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

SPECIAL CONSIDERATIONS

BECAUSE THE SERIES WILL INVEST PRIMARILY IN CONNECTICUT OBLIGATIONS AND
BECAUSE IT SEEKS TO MAXIMIZE INCOME DERIVED FROM CONNECTICUT OBLIGATIONS, IT IS
MORE SUSCEPTIBLE TO FACTORS ADVERSELY AFFECTING ISSUERS OF CONNECTICUT
OBLIGATIONS THAN IS A COMPARABLE TAX-EXEMPT MONEY MARKET FUND THAT IS NOT
CONCENTRATED IN SUCH OBLIGATIONS TO THIS DEGREE. An investment in the Series
therefore may involve more risk than an investment in other types of money
market funds. Connecticut's debt ratios are among the highest of the United
States. In fiscal year 1992, Connecticut took a number of actions to raise
revenues, reduce expenditures, and establish a broader revenue base aimed at
reducing the volatility of its budgetary operations. Chief among these were the
implementation of a 4.5% personal income tax and the broadening of the sales tax
base, which was coupled with a decrease in the sales tax rate from 8% to 6% and
a decrease in the Corporation Business Tax from 13.8% in 1991 to 9.5% in 1998
and further decreasing annually to 7.5% in 2000. These actions, along with
conservative revenue projections, allowed the State to achieve modest surpluses
for fiscal years 1992 through 1997. The State Comptroller's General Fund
financial statements released July 15, 1998 estimate an operating surplus for
fiscal years 1997-1998 of $22.8 million. However, defense spending cuts,
problems in the insurance industry and slow employment growth continue to strain
the State's fiscal operations. Although Connecticut still ranks first among the
United States in personal income per capita, the State's more recent rate of
economic growth still lags behind the national average. If either Connecticut or
any of its local governmental entities is unable to meet its financial
obligations, the income derived by the Series, the ability to preserve the
Series' capital and the Series' liquidity could be adversely affected. See
"Investment Objectives and Policies--Special Considerations Regarding
Investments in Tax-Exempt Securities" in the Statement of Additional
Information.

The Series is non-diversified so that more than 5% of its total assets may be
invested in the securities of one or more issuers. Investment in a
non-diversified portfolio involves greater risk than investment in a diversified
portfolio because a loss resulting from the default of a single issuer may
represent a greater portion of the total assets of a non-diversified portfolio.
The Series will treat an investment in a municipal bond refunded with escrowed
U.S. Government securities as U.S. Government securities for purposes of the
Investment Company Act's diversification requirements provided certain
conditions are met. See "Investment Objectives and Policies--In General" in the
Statement of Additional Information.

OTHER INVESTMENTS AND POLICIES

REPURCHASE AGREEMENTS

9
<PAGE>
agreements will at all times be fully collateralized in an amount at least equal
to the resale price. The instruments held as collateral are valued daily and if
the value of the instruments declines, the Series will require additional
collateral. If the seller defaults and the value of the collateral securing the
repurchase agreement declines, the Series may incur a loss. The Series
participates in a joint repurchase account with other investment companies
managed by PIFM pursuant to an order of the Commission. See "Investment
Objectives and Policies--Repurchase Agreements" in the Statement of Additional
Information.

BORROWING

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

ILLIQUID SECURITIES

The Series may hold up to 10% of its net assets in illiquid securities,
including repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable. Securities that have
a readily available market are not considered illiquid for purposes of this
limitation. See "Investment Restrictions" in the Statement of Additional
Information. The investment adviser will monitor the liquidity of such
restricted securities under the supervision of the Trustees. See "Investment
Objectives and Policies--Illiquid Securities" in the Statement of Additional
Information. Repurchase agreements subject to demand are deemed to have a
maturity equal to the notice period.

INVESTMENT RESTRICTIONS

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

HOW THE FUND IS MANAGED

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

For the fiscal year ended August 31, 1998, total expenses of the Series as a
percentage of its average net assets were .86%. See "Financial Highlights."

MANAGER

PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM OR THE MANAGER), GATEWAY
CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077, IS THE MANAGER
OF THE FUND AND IS COMPENSATED FOR ITS SERVICES AT AN ANNUAL RATE OF .50 OF 1%
OF THE AVERAGE DAILY NET ASSETS OF THE SERIES. PIFM is organized in New York as
a limited liability company. For the fiscal year ended August 31, 1998, the
Series paid a management fee of .50 of 1% of the Series' average net assets. See
"Fee Waivers" below and "Manager" in the Statement of Additional Information.

10
<PAGE>
As of September 30, 1998, PIFM served as the manager to 44 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 22 closed-end investment companies with aggregate assets of
approximately $67 billion.

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

UNDER A SUBADVISORY AGREEMENT BETWEEN PIFM AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC, THE SUBADVISER OR THE INVESTMENT ADVISER), THE SUBADVISER
FURNISHES INVESTMENT ADVISORY SERVICES IN CONNECTION WITH THE MANAGEMENT OF THE
FUND AND IS REIMBURSED BY PIFM FOR ITS REASONABLE COSTS AND EXPENSES INCURRED IN
PROVIDING SUCH SERVICES. PIC'S ADDRESS IS PRUDENTIAL PLAZA, NEWARK, NEW JERSEY
07102-3777. Under the Management Agreement, PIFM continues to have
responsibility for all investment advisory services and supervises the
Subadviser's performance of such services.

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

FEE WAIVERS

PIFM may from time to time agree to waive all or a portion of its management
fee and subsidize certain operating expenses of the Series. Fee waivers and
expense subsidies will increase the Series' yield. The Series is not required to
reimburse PIFM for such management fee waiver. See "Fund Expenses" and
"Calculation of Yield."

DISTRIBUTOR

PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC (THE DISTRIBUTOR), GATEWAY
CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077, IS A LIMITED
LIABILITY COMPANY ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE AND SERVES
AS THE DISTRIBUTOR OF THE SHARES OF THE SERIES. IT IS A WHOLLY-OWNED SUBSIDIARY
OF PRUDENTIAL. Prudential Securities Incorporated (Prudential Securities), One
Seaport Plaza, New York, New York 10292, previously served as distributor of the
Series' shares. It is an indirect, wholly-owned subsidiary of Prudential.

UNDER A DISTRIBUTION AND SERVICE PLAN (THE PLAN) ADOPTED BY THE SERIES UNDER
RULE 12b-1 UNDER THE INVESTMENT COMPANY ACT AND A DISTRIBUTION AGREEMENT (THE
DISTRIBUTION AGREEMENT), THE DISTRIBUTOR INCURS THE EXPENSES OF DISTRIBUTING THE
SHARES OF THE SERIES. These expenses include account servicing fees paid to, or
on account of, Dealers or financial institutions which have entered into
agreements with the Distributor, advertising expenses, the cost of printing and
mailing prospectuses to potential investors and indirect and overhead costs of
the Distributor associated with the sale of Series shares, including lease,
utility, communications and sales promotion expenses.

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

UNDER THE PLAN, THE SERIES REIMBURSES THE DISTRIBUTOR FOR ITS
DISTRIBUTION-RELATED EXPENSES AT AN ANNUAL RATE OF UP TO .125 OF 1% OF THE
AVERAGE DAILY NET ASSETS OF THE SERIES. Account servicing fees are paid based on
the average balance of the Series' shares held in the accounts of the customers
of financial advisers. The entire distribution fee may be used to pay account
servicing fees.

For the fiscal year ended August 31, 1998, the Series paid a distribution fee
equal on an annual basis to .125% of the average net assets of the Series.
Amounts paid to the Distributor by the Series will not be used to pay
distribution expenses incurred by any other series of the Fund.

11
<PAGE>
In addition to distribution and service fees paid by the Series under the
Plan, the Manager (or one of its affiliates) may make payments out of its own
resources to Dealers and other persons which distribute shares of the Series.
Such payments may be calculated by reference to the NAV of shares sold by such
persons or otherwise. The Fund records all payments made under the Plan as
expenses in the calculation of its net investment income.

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

PORTFOLIO TRANSACTIONS

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

CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT

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

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

YEAR 2000

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

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

HOW THE FUND VALUES ITS SHARES

THE SERIES' NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING ITS
LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. THE TRUSTEES HAVE FIXED THE SPECIFIC TIME OF DAY
FOR THE COMPUTATION OF THE NAV OF THE SERIES TO BE AS OF 4:30 P.M., NEW YORK
TIME, IMMEDIATELY AFTER THE DECLARATION OF DIVIDENDS.

12
<PAGE>
The Series will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days in which no orders to purchase, sell
or redeem shares have been received by the Series or days on which changes in
the value of the Series' portfolio securities do not materially affect the NAV.

The Series determines the value of its portfolio securities by the amortized
cost method. This method involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Series would receive if it sold the
instrument. During these periods, the yield to a shareholder may differ somewhat
from that which could be obtained from a similar fund which marks its portfolio
securities to the market each day. For example, during periods of declining
interest rates, if the use of the amortized cost method resulted in a lower
value of the Series' portfolio on a given day, a prospective investor in the
Series would be able to obtain a somewhat higher yield and existing shareholders
would receive correspondingly less income. The converse would apply during
periods of rising interest rates. The Trustees have established procedures
designed to stabilize, to the extent reasonably possible, the NAV of the shares
of the Series at $1.00 per share. See "Net Asset Value" in the Statement of
Additional Information.

TAXES, DIVIDENDS AND DISTRIBUTIONS

TAXATION OF THE FUND

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

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

TAXATION OF SHAREHOLDERS

In general, the character of tax-exempt interest distributed by the Series
will flow through as tax-exempt interest to its shareholders provided that 50%
or more of the value of its assets at the end of each quarter of its taxable
year is invested in state, municipal and other obligations, the interest on
which is excluded from gross income for federal income tax purposes. During
normal market conditions, at least 80% of the Series' total assets will be
invested in such obligations. See "How the Fund Invests--Investment Objective
and Policies."

13
<PAGE>
assets by the Series after December 31, 1997, the maximum long-term capital
gains tax rate for individuals is 20%. The maximum capital gains tax rate for
corporate shareholders currently is the same as the maximum tax rate for
ordinary income. The Series does not expect to have capital gains from the sale
of assets held for more than 12 months.

CERTAIN INVESTORS MAY INCUR FEDERAL ALTERNATIVE MINIMUM TAX LIABILITY AS A
RESULT OF THEIR INVESTMENT IN THE FUND. Tax-exempt interest from certain
municipal obligations (I.E., certain private activity bonds issued after August
7, 1986) will be treated as an item of tax preference for purposes of the
alternative minimum tax. The Fund anticipates that, under regulations to be
promulgated, items of tax preference incurred by the Series will be attributed
to the Series' shareholders, although some portion of such items could be
allocated to the Series itself. Depending upon each shareholder's individual
circumstances, the attribution of items of tax preference incurred by the Series
could result in liability for the shareholder for the alternative minimum tax.
Similarly, the Series could be liable for the alternative minimum tax for items
of tax preference attributed to it. The Series is permitted to invest in
municipal obligations of the type that will produce items of tax preference.

Distributions relating to interest on all municipal obligations will be
included in a corporate shareholder's current earnings for purposes of the
adjustment for current earnings for alternative minimum tax purposes. Corporate
shareholders should consult with their tax advisers with respect to this
potential adjustment.

Under Connecticut law, distributions from the Series to individual
shareholders of the Series resident in Connecticut and Connecticut resident
trusts and estates are not subject to taxation pursuant to the Connecticut
Personal Income Tax to the extent that such distributions are excluded from
gross income for federal income tax purposes as exempt-interest dividends and
are derived from interest payments on Connecticut Obligations. It is likely that
capital gain dividends derived from the sale of Connecticut Obligations also are
not subject to taxation pursuant to the Connecticut Personal Income Tax. Other
types of distributions received from the Series, including distributions of
interest on, and capital gain dividends derived from sales of, obligations
issued by other issuers, are subject to the Connecticut Personal Income Tax.
Individual shareholders and estates and trusts also may be subject to
alternative minimum tax for Connecticut tax purposes with respect to certain
distributions (other than exempt-interest dividends derived from Connecticut
Obligations) from the Series.

Distributions from the Series to corporate shareholders (other than S
Corporations) that are exempt-interest dividends, whether or not derived from
interest payments on Connecticut Obligations, are subject to the Connecticut
Corporation Business Tax. Thirty percent of distributions to corporate
shareholders (other than S Corporations) that are treated as dividends for
federal income tax purposes (not including exempt-interest dividends) is
generally subject to taxation pursuant to the Connecticut Corporation Business
Tax; the remaining 70% less related expenses is excluded.

Distributions from the Series to shareholders that are S Corporations are not
subject to the Connecticut Corporation Business Tax to the extent such
distributions are exempt-interest dividends and separately stated items for
federal income tax purposes.

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

WITHHOLDING TAXES

Under the Internal Revenue Code, the Series is required to withhold and remit
to the U.S. Treasury 31% of redemption proceeds on the accounts of certain
shareholders who fail to furnish their tax identification numbers on IRS Form
W-9 (or IRS Form W-8 in the case of certain foreign shareholders) with the
required certifications regarding the shareholder's status under the federal
income tax law. Such withholding is also required on taxable dividends and
capital gain distributions made by the Series unless it is reasonably expected
that at least 95% of the distributions of the Series are comprised of tax-exempt
dividends.

DIVIDENDS AND DISTRIBUTIONS

THE SERIES EXPECTS TO DECLARE DAILY AND PAY MONTHLY DIVIDENDS OF NET
INVESTMENT INCOME AND SHORT-TERM CAPITAL GAINS.

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<PAGE>
A shareholder generally begins to earn dividends on the first business day
after his or her order is placed with the Series, as described above, and
continues to earn dividends through the day on which his or her shares are
redeemed. In the case of certain redemptions, however, Prudential Securities
clients will not be entitled to dividends declared on the date of redemption.
See "Shareholders Guide--How to Sell Your Shares--Redemption of Shares Purchased
through Prudential Securities."

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

GENERAL INFORMATION

DESCRIPTION OF SHARES

THE FUND WAS ESTABLISHED AS A MASSACHUSETTS BUSINESS TRUST ON MAY 18, 1984, BY
A DECLARATION OF TRUST. The Fund's activities are supervised by its Trustees.
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares in separate series, currently designated as the
Connecticut Money Market Series, Florida Series, Maryland Series, Massachusetts
Money Market Series, Massachusetts Series, Michigan Series, New Jersey Money
Market Series, New Jersey Series, New York Money Market Series, New York Series,
North Carolina Series, Ohio Series and Pennsylvania Series. Currently, all
series of the Fund, except for the Connecticut Money Market Series, the Florida
Series, the Massachusetts Series, the Massachusetts Money Market Series, the New
Jersey Money Market Series, the New Jersey Series, the New York Money Market
Series and the New York Series offer three classes, designated Class A, Class B
and Class C shares. The Florida Series, the Massachusetts Series, the New Jersey
Series and the New York Series offer four classes, designated Class A, Class B,
Class C and Class Z shares. The Connecticut Money Market Series, the
Massachusetts Money Market Series, the New Jersey Money Market Series and the
New York Money Market Series offer only one class of shares. In accordance with
the Fund's Declaration of Trust, the Trustees may authorize the creation of
additional series and classes within such series, with such preferences,
privileges, limitations and voting and dividend rights as the Trustees may
determine.

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

15
<PAGE>
Declaration of Trust of the Fund provides that shareholders shall not be subject
to any personal liability for the acts or obligations of the Fund and that every
written obligation, contract, instrument or undertaking made by the Fund shall
contain a provision to the effect that the shareholders are not individually
bound thereunder.

ADDITIONAL INFORMATION

This Prospectus, including the Statement of Additional Information which has
been incorporated by reference herein, does not contain all the information set
forth in the Registration Statement filed by the Fund with the Commission under
the Securities Act of 1933, as amended. Copies of the Registration Statement may
be obtained at a reasonable charge from the Commission or may be examined,
without charge, at the office of the Commission in Washington, D.C.

SHAREHOLDER GUIDE

HOW TO BUY SHARES OF THE FUND

YOU MAY PURCHASE SHARES OF THE SERIES THROUGH THE DISTRIBUTOR, THROUGH DEALERS
OR DIRECTLY FROM THE FUND, THROUGH ITS TRANSFER AGENT, PRUDENTIAL MUTUAL FUND
SERVICES LLC (PMFS OR THE TRANSFER AGENT), ATTENTION: INVESTMENT SERVICES, P.O.
BOX 15020, NEW BRUNSWISK, NEW JERSEY 08906-5020. The minimum initial investment
is $1,000. The minimum subsequent investment is $100. All minimum investment
requirements are waived for the COMMAND Account program (if the Series is
designated as your primary fund) and certain employee savings and retirement
plans. For purchases made through the Automatic Investment Plan, the minimum
initial and subsequent investment is $50. See "Shareholder Services" below.

For automatic purchases made through Prudential Securities, the minimum
investment requirement is $1,000 and there is no minimum subsequent investment
requirement.

An investment in the Series may not be appropriate for tax-exempt or
tax-deferred investors. Such investors should consult with their own tax
advisers.

SHARES OF THE SERIES ARE SOLD THROUGH THE TRANSFER AGENT, WITHOUT A SALES
CHARGE, AT THE NAV NEXT DETERMINED FOLLOWING RECEIPT AND ACCEPTANCE BY THE
DISTRIBUTOR, YOUR DEALER OR THE TRANSFER AGENT OF AN ORDER IN PROPER FORM (IN
ACCORDANCE WITH PROCEDURES ESTABLISHED BY THE TRANSFER AGENT IN CONNECTION WITH
THE INVESTORS' ACCOUNT). See "How the Fund Values its Shares." When payment is
received by PMFS prior to 4:30 P.M., New York time, in proper form, a share
purchase order will be entered at the price determined as of 4:30 P.M., New York
time, on that day, and dividends on the shares purchased will begin on the
business day following such investment. See "Taxes, Dividends and
Distributions." If your purchase is made through an account at Prudential
Securities or through Prusec or another Dealer, your Dealer will forward a
purchase order and payment to the Fund.

Investors who purchase their shares through a Dealer other than Prudential
Securities or Prusec, which Dealer has a clearinghouse arrangement with respect
to shares of the Series, may be able to participate in the automatic sweep
feature described below under "Purchases through Prudential
Securities--Automatic Investment (Autosweep)" and "How to Sell Your Shares--
Redemptions of Shares Purchased through Prudential Securities." For further
information, contact your Dealer.

Application forms can be obtained from the Transfer Agent, your Dealer or the
Distributor. If a share certificate is desired, it must be requested in writing
for each transaction. Certificates are issued only for full shares. Shareholders
who hold their shares through Prudential Securities will not receive share
certificates. Shareholders cannot utilize Expedited Redemption or Check
Redemption or have a Systematic Withdrawal Plan if they have been issued
certificates.

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

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

Transactions in shares of the Series may be subject to postage and other
charges imposed by the Dealer. Any such charge is retained by the Dealer and is
not remitted to the Series.

PURCHASES THROUGH PRUDENTIAL SECURITIES

If you have an account with Prudential Securities (or open such an account),
you may ask Prudential Securities to purchase shares of the Series on your
behalf. On the business day following confirmation that a free credit balance
(I.E., immediately available funds) exists in your account, Prudential
Securities will effect a purchase order for shares of the Series in an amount up
to the balance of the NAV determined on that day. Funds held by Prudential
Securities on behalf of its clients in the form of free credit balances are
delivered to the Fund by Prudential Securities and begin earning dividends the
second business day after receipt of the order by Prudential Securities.
Accordingly, Prudential Securities will have the use of such free credit
balances during this period.

Shares of the Series purchased by Prudential Securities on behalf of its
clients will be held by Prudential Securities as record holder. Prudential
Securities will therefore receive statements and dividends directly from the
Fund and will in turn provide investors with Prudential Securities account
statements reflecting purchases, redemptions and dividend payments. Although
Prudential Securities clients who purchase shares of the Series through
Prudential Securities may not redeem shares of the Series by check, Prudential
Securities provides its clients with alternative forms of immediate access to
monies invested in shares of the Series.

Prudential Securities clients wishing additional information concerning
investment in shares of the Series made through Prudential Securities should
call their Prudential Securities financial adviser.

AUTOMATIC INVESTMENT (AUTOSWEEP) (FOR NON-COMMAND ACCOUNTS) Prudential
Securities has advised the Fund that it has automatic investment procedures
(Autosweep) pursuant to which it will make automatic investments of free credit
cash balances (Eligible Credit Balances) held in a client's brokerage account in
shares of the Series, if the Series is your Primary Money Sweep Fund. You may
designate the Series (or certain other Prudential money market funds) as your
Primary Money Sweep Fund. If the Series is your Primary Money Sweep Fund you can
purchase shares of the Series only through the automatic investment procedures
described below; no manual purchase orders will be accepted. You may change your
Primary Money Sweep Fund at any time by notifying your Prudential Securities
financial adviser. Under certain circumstances, you may elect not to have a
money market sweep feature for your account when you open your account.

For accounts other than IRA's and Benefit Plans, as defined below, shares of
the Series will be purchased by Prudential Securities as follows: in the case of
Eligible Credit Balances of $1,000 or more resulting from the proceeds of a
securities sale, maturity of a bond or call and Eligible Credit Balances of
$10,000 or more resulting from a non-trade related credit (E.G., receipt of a
dividend or interest payment or a cash payment into the securities account),
orders to purchase shares will be placed on the business day after such Eligible
Credit Balances become available in your account. For Eligible Credit Balances
of $1.00 or more not otherwise described above, orders to purchase shares will
be placed monthly on the last business day of the month. For IRA's and Benefit
Plans, having Eligible Credit Balances of $1.00 or more, orders to purchase
shares of the Series will be placed by Prudential Securities (i) on the
settlement date of the securities sale, in the case of Eligible Credit Balances
resulting from the proceeds of a securities sale, and (ii) on the business day
after receipt by Prudential Securities of the non-trade related credit
(including the maturity of a bond or a call), in the case of Eligible Credit
Balances resulting from a non-trade related credit. Each time an order resulting
from the settlement of a securities sale is placed, any non-trade related credit
in the client's account will also be invested.

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<PAGE>
The following chart shows the frequency and amount of the sweep for accounts
other than IRA's and Benefit Plans.

<TABLE>
<CAPTION>
DAILY MONTHLY
<S> <C> <C>
Eligible Credit Balances resulting from the proceeds of
a securities sale, maturity of a bond or call $1,000 or more
Eligible Credit Balances resulting from a non-trade
related credit $10,000 or more
Remaining Eligible Credit Balances $1.00 or more
</TABLE>

All shares purchased pursuant to these automatic investment procedures will be
issued at the NAV computed on the business day the order is entered and will
begin earning dividends on the following business day. Purchases through
Autosweep are subject to the Series' minimum initial investment requirement of
$1,000, which is waived for certain retirement and employee savings plans and
custodial accounts for the benefit of minors. Prudential Securities will have
the use of, and will retain the benefits of, Eligible Credit Balances in the
client's brokerage account until monies are delivered to the Fund. (Prudential
Securities delivers Federal Funds on the business day after settlement).
Eligible Credit Balances for purposes of Autosweep are measured as of the close
of business on the previous business day.

For the purposes of Autosweep, Benefit Plans include (i) employee benefit
plans as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974 (ERISA) other than governmental plans as defined in Section 3(32) of
ERISA and church plans as defined in Section 3(33) of ERISA, (ii) pension,
profit-sharing or other employee benefit plans qualified under Section 401 of
the Internal Revenue Code and (iii) deferred compensation and annuity plans
under Section 457 or 403(b)(7) of the Internal Revenue Code. IRA's are
Individual Retirement Accounts as defined in Section 408(a) of the Internal
Revenue Code.

SELF-DIRECTED INVESTMENT. Prudential Securities clients not electing Autosweep
may continue to place orders for the purchase of shares of the Series through
Prudential Securities, subject to the minimum initial and subsequent investment
requirements described above.

A Prudential Securities client who has not elected Autosweep (Automatic
Investment) and who does not place a purchase order promptly after funds are
credited to his or her Prudential Securities account will have a free credit
balance with Prudential Securities and will not begin earning dividends on
shares of the Series until the second business day after receipt of the order by
Prudential Securities from the client. Accordingly, Prudential Securities will
have the use of such free credit balances during this period.

MANUAL INVESTMENT. Prudential Securities will accept manual purchase orders
for shares of the Series only for those clients (i) who are purchasing shares of
a Prudential money market fund which is not their Primary Money Sweep Fund or
(ii) who do not have a money market sweep feature in their account, as described
above under "Automatic Investment."

Prudential Securities clients eligible to make manual purchases, as described
above, are subject to the minimum initial investment of $1,000 the minimum
subsequent investment of $100, except that all minimum investment requirements
are waived for certain retirement and employee savings plans and custodial
accounts for the benefit of minors. On the business day after the purchase order
is received, Prudential Securities will place the order for shares of the Series
for settlement that day. Shares will be issued at the NAV determined on that day
and will begin earning dividends the next business day, which is the second
business day after receipt of the purchase order by Prudential Securities.
Prudential Securities will have the use of, and will retain the benefits of,
Eligible Credit Balances in the client's brokerage account until monies are
delivered to the Fund. (Prudential Securities delivers Federal Funds on the
business day after settlement).

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<PAGE>
PURCHASES THROUGH PRUSEC

You may purchase shares of the Series by placing an order with your Prusec
representative accompanied by payment for the purchase price of such shares and,
in the case of a new account, a completed application form. You should also
submit an IRS Form W-9. The Prusec representative will then forward these items
to the Transfer Agent. See "Purchase by Mail" below.

PURCHASE BY WIRE

For an initial purchase of shares of the Series by wire, you must first
telephone PMFS at (800) 225-1852 (toll-free) to receive an account number. The
following information will be requested: your name, address, tax identification
number, dividend distribution election, amount being wired and wiring bank.
Instructions should then be given by you to your bank to transfer funds by wire
to State Street Bank and Trust Company (State Street), Boston, Massachusetts,
Custody and Shareholder Services Division, Attention: Prudential Municipal
Series Fund, Connecticut Money Market Series, specifying on the wire the account
number assigned by PMFS and your name.

If you arrange for receipt by State Street of Federal Funds prior to the
calculation of NAV (4:30 P.M., New York time), on a business day, you may
purchase shares of the Series as of that day and receive dividends commencing on
the next business day. See "Net Asset Value" in the Statement of Additional
Information.

In making a subsequent purchase order by wire, you should wire State Street
directly, and should be sure that the wire specifies Prudential Municipal Series
Fund (Connecticut Money Market Series) and your name and individual account
number. It is not necessary to call PMFS to make subsequent purchase orders
utilizing Federal Funds. The minimum amount which may be invested by wire is
$1,000.

PURCHASE BY MAIL

Purchase orders for which remittance is to be made by check or money order may
be submitted directly by mail to Prudential Mutual Fund Services LLC, Attention:
Investment Services, P.O. Box 15020, New Brunswick, New Jersey 08906-5020,
together with payment for the purchase price of such shares and, in the case of
a new account, a completed application form. You should also submit an IRS Form
W-9. If PMFS receives an order to purchase shares of the Series and payment in
proper form prior to 4:30 P.M., New York time, the purchase order will be
effective that day and the investor will be entitled to dividends the following
business day. See "Taxes, Dividends and Distributions." Checks should be made
payable to Prudential Municipal Series Fund, Connecticut Money Market Series.
Certified checks are not necessary, but checks must be drawn on a bank located
in the United States. There are restrictions on the redemption of shares
purchased by check while the funds are being collected. See "How to Sell Your
Shares" below. The minimum initial investment by check is $1,000 and the minimum
subsequent investment by check is $100.

THE PRUDENTIAL ADVANTAGE ACCOUNT PROGRAM

Shares of the Series are offered to participants in the Prudential Advantage
Account Program (the Advantage Account Program), a financial services program
available to clients of Pruco Securities Corporation. Investors participating in
the Advantage Account Program may select the Series as their primary investment
vehicle. Such investors will have free credit cash balances of $1.00 or more in
their Securities Account (Available Cash) (a component of the Advantage Account
Program carried through Prudential Securities) automatically invested in shares
of the Series. Specifically, an order to purchase shares of the Series is placed
(i) in the case of Available Cash resulting from the proceeds of securities
sales, on the settlement date of the securities sale, and (ii) in the case of
Available Cash resulting from non-trade related credits (I.E., receipt of
dividends and interest payments, or a cash payment by the participant into his
or her Securities Account), on the business day after receipt by Prudential
Securities of the non-trade related credit.

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<PAGE>
All shares purchased pursuant to these automatic purchase procedures will
begin earning dividends on the business day after the order is placed.
Prudential Securities will arrange for investment in shares of the Series at
4:30 P.M. on the day the order is placed and cause payment to be made in Federal
Funds for the shares prior to 4:30 P.M. on the next business day. Prudential
Securities will have the use of free credit cash balances until delivery to the
Fund.

Redemptions will be automatically effected by Prudential Securities to satisfy
debit balances in a Securities Account created by activity therein or existing
under the Advantage Account Program, such as those incurred by use of the
Visa-Registered Trademark- Account, including Visa purchases, cash advances and
Visa Account checks. Each Advantage Account Program Securities Account will be
automatically scanned for debits each business day as of the close of business
on that day and after application of any free credit cash balances in the
account to such debits, a sufficient number of shares of the Series (if selected
as the primary fund) and, if necessary, shares of other Advantage Account funds
owned by the Advantage Account Program participant which have not been selected
as his or her primary fund or shares of a participant's money market funds
managed by PIFM which are not primary Advantage Account funds will be redeemed
as of that business day to satisfy any remaining debits in the Securities
Account. Shares may not be purchased until all debits, overdrafts and other
requirements in the Securities Account are satisfied.

Advantage Account Program charges and expenses are not reflected in the table
of Fund expenses. See "Fund Expenses."

For information on participation in the Advantage Account Program, you should
telephone (800) 235-7637 (toll-free).

COMMAND-SM- ACCOUNT AND PRUDENTIAL BUSINESSEDGE-SM- ACCOUNT PROGRAMS

Shares of the Series are offered to participants in the Prudential Securities
COMMAND Account program, an integrated financial services program of Prudential
Securities, and in the Prudential BusinessEdge-SM- account program, an
integrated financial services program of Prudential Securities and Prusec.
Investors having a COMMAND Account or a BusinessEdge Account may select the
Series as their primary fund. Such investors will have free credit cash balances
of $1.00 or more in their Securities Account (Available Cash) (a component of
the COMMAND Account and BusinessEdge Account programs) automatically invested in
shares of the Series as described below. Specifically, an order to purchase
shares of the Series is placed (i) in the case of Available Cash resulting from
the proceeds of securities sales, on the settlement date of the securities sale,
and (ii) in the case of Available Cash resulting from non-trade related credits
(I.E., receipt of dividends and interest payments, maturity of a bond or a cash
payment by the participant into his or her Securities Account), on the business
day after receipt by Prudential Securities or Prusec of the non-trade related
credit. These automatic purchase procedures are also applicable for Corporate
COMMAND Accounts.

All shares purchased pursuant to these automatic purchase procedures will
begin earning dividends on the business day after the order is placed.
Prudential Securities or Prusec will arrange for investment in shares of the
Series at 4:30 P.M., New York time, on the business day the order is placed and
cause payment to be made in Federal Funds for the shares prior to 4:30 P.M., New
York time, on the next business day. Prudential Securities or Prusec will have
the use of free credit cash balances until delivery to the Fund. There are no
minimum investment requirements for participants in the COMMAND Account and
BusinessEdge Account programs.

Redemptions will be automatically effected by Prudential Securities or Prusec
to satisfy debit balances in a Securities Account created by activity therein or
existing under the COMMAND or BusinessEdge programs, such as those incurred by
use of the Visa-Registered Trademark- Gold Account, in the case of the COMMAND
program, and the Visa-Registered Trademark- Account, in the case of the
BusinessEdge program, including Visa purchases, cash advances and Visa Account
checks. Each COMMAND program Securities Account will be automatically scanned
for debits monthly for all Visa purchases incurred during that month, and each
COMMAND and BusinessEdge Account will automatically be scanned for debits each
business day as of the close of business on that day for all cash advances and
check charges as incurred and, in the case of BusinessEdge Accounts, for all
Visa purchases. After application of any free credit cash balances in the
account to such debits, a sufficient number of shares of the Series and, if
necessary, shares of other COMMAND funds owned by the COMMAND or BusinessEdge
program participant which have not been selected as his or her primary fund or
shares of a participant's money market funds managed by PIFM which are not
primary COMMAND funds will

20
<PAGE>
be redeemed as of that business day to satisfy any remaining debits in the
Securities Account. With respect to COMMAND Accounts, the single monthly debit
for Visa purchases will be made on the twenty-fifth day of each month, or the
prior business day if the twenty-fifth falls on a weekend or holiday. Margin
loans will be utilized to satisfy debits remaining after the liquidation of all
shares of the Series in a Securities Account, and shares may not be purchased
until all debits, margin loans and other requirements in the Securities Account
are satisfied. COMMAND Account and BusinessEdge Account participants will not be
entitled to dividends declared on the date of redemption.

For information on participation in the COMMAND Account program, you should
telephone (800) 222-4321 (toll-free). For information on the BusinessEdge
Account Program, you should telephone (888) 802-5864 (toll-free).

HOW TO SELL YOUR SHARES

Shares for which a redemption request is received by PMFS prior to 4:30 P.M.,
New York time, are entitled to a dividend on the day on which the request is
received. By pre-authorizing Expedited Redemption, you may arrange to have
payment for redeemed shares made in Federal Funds wired to your bank, normally
on the next bank business day following the date of receipt of the redemption
instructions. Should you redeem all of your shares, you will receive the amount
of all dividends declared for the month-to-date on those shares. See "Taxes,
Dividends and Distributions."

If redemption is requested by a corporation, partnership, trust or fiduciary,
written evidence of authority acceptable to the Transfer Agent must be submitted
before such request will be accepted. All correspondence and documents
concerning redemptions should be sent to the Fund in care of its Transfer Agent,
Prudential Mutual Fund Services LLC, Attention: Redemption Services, P.O. Box
15010, New Brunswick, New Jersey 08906-5010.

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

NORMALLY, THE FUND MAKES PAYMENT ON THE NEXT BUSINESS DAY FOR ALL SHARES OF
THE SERIES REDEEMED, BUT IN ANY EVENT, PAYMENT IS MADE WITHIN SEVEN DAYS AFTER
RECEIPT BY THE TRANSFER AGENT, THE DISTRIBUTOR OR YOUR DEALER OF SHARE
CERTIFICATES AND/OR OF A REDEMPTION REQUEST IN PROPER FORM. However, the Fund
may suspend the right of redemption or postpone the date of payment (a) for any
periods during which the New York Stock Exchange is closed (other than for
customary weekend or holiday closings), (b) for any periods when trading in the
markets which the Fund normally utilizes is closed or restricted or an emergency
exists as determined by the Commission so that disposal of the Series'
investments or determination of its NAV is not reasonably practicable or (c) for
such other periods as the Commission may permit for protection of the Series'
shareholders.

PAYMENT FOR REDEMPTION OF RECENTLY PURCHASED SHARES WILL BE DELAYED UNTIL THE
FUND OR ITS TRANSFER AGENT HAS BEEN ADVISED THAT THE PURCHASE CHECK HAS BEEN
HONORED, UP TO 10 CALENDAR DAYS FROM THE TIME OF RECEIPT OF THE PURCHASE CHECK
BY THE FUND OR THE TRANSFER AGENT. SUCH DELAY MAY BE AVOIDED BY PURCHASING
SHARES BY WIRE OR BY CERTIFIED OR CASHIER'S CHECK. THE FUND MAKES NO CHARGE FOR
REDEMPTION.

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<PAGE>
REDEMPTION OF SHARES PURCHASED THROUGH PRUDENTIAL SECURITIES

Prudential Securities clients for whom Prudential Securities has purchased
shares of the Series may have these shares redeemed only by instructing their
Prudential Securities financial adviser orally or in writing.

Prudential Securities has advised the Fund that it has established procedures
pursuant to which shares of the Series held by a Prudential Securities client
having a deficiency in his or her Prudential Securities account will be redeemed
automatically to the extent of that deficiency to the nearest highest dollar
unless the client notifies Prudential Securities to the contrary. The amount of
the redemption will be the lesser of (a) the total NAV of the Series' shares
held in the client's Prudential Securities account or (b) the deficiency in the
client's Prudential Securities account at the close of business on the date such
deficiency is due. Accordingly, a Prudential Securities client who wishes to pay
for a securities transaction or satisfy any other debit balance in his or her
account other than through this automatic redemption procedure must do so prior
to the day of settlement for such securities transaction or the date the debit
balance is incurred. In the case of certain automatic redemptions, where
Prudential Securities cannot anticipate debits in the brokerage account (E.G.,
checks written against the account), Prudential Securities clients will not be
entitled to dividends declared on the date of redemption; such dividends will
not be retained by Prudential Securities.

REDEMPTION OF SHARES PURCHASED THROUGH PMFS

If you purchase shares of the Series through PMFS, you may use Regular
Redemption, Expedited Redemption or Check Redemption. Prudential Securities
clients for whom Prudential Securities has purchased shares may not use such
services.

REGULAR REDEMPTION. You may redeem your shares by sending a written request,
accompanied by duly endorsed share certificates, if issued, to PMFS, Attention:
Redemption Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010. In
this case, all share certificates and certain written requests for redemption
must be endorsed by you with signature guaranteed, as described above. Regular
redemption is made by check sent to your address.

EXPEDITED REDEMPTION. By pre-authorizing Expedited Redemption, you may arrange
to have payment for redeemed shares made in Federal Funds wired to your bank,
normally on the next business day following redemption. In order to use
Expedited Redemption, you may so designate at the time the initial application
form is made or at a later date. Once the Expedited Redemption authorization
form has been completed, the signature on the authorization form guaranteed as
set forth above and the form returned to Prudential Mutual Fund Services LLC,
Attention: Account Maintenance, P.O. Box 15015, New Brunswick, New Jersey
08906-5015, requests for redemption may be made by telegraph, letter or
telephone. To request Expedited Redemption by telephone, you should call PMFS at
(800) 225-1852. Calls must be received by PMFS before 4:30 P.M., New York time,
to permit redemption as of such date. Requests by letter should be addressed to
Prudential Mutual Fund Services LLC, at the address set forth above.

A signature guarantee is not required under Expedited Redemption once the
authorization form is properly completed and returned. The Expedited Redemption
privilege may be used only to redeem shares in an amount of $200 or more, except
that, if an account for which Expedited Redemption is requested has a NAV of
less than $200, the entire account must be redeemed. The proceeds of redeemed
shares in the amount of $1,000 or more are transmitted by wire to your account
at a domestic commercial bank which is a member of the Federal Reserve System.
Proceeds of less than $1,000 are forwarded by check to your designated bank
account.

DURING PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS, EXPEDITED REDEMPTION
MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD REDEEM SHARES BY MAIL AS DESCRIBED
AS ABOVE.

22
<PAGE>
by check within 10 calendar days, the check will be returned marked
"insufficient funds." Checks in an amount less than $500 will not be honored.
Shares for which certificates have been issued cannot be redeemed by check.
There is a service charge of $5.00 payable to PMFS to establish a checking
account and order checks.

INVOLUNTARY REDEMPTION. Because of the relatively high cost of maintaining an
account, the Fund reserves the right to redeem, upon 60 days' written notice, an
account which is reduced by a shareholder to a NAV of $500 or less due to
redemption. You may avoid such redemption by increasing the NAV of your account
to an amount in excess of $500.

REDEMPTION IN KIND. If the Trustees determine that it would be detrimental to
the best interests of the remaining shareholders of the Series to make payment
wholly or partly in cash, the Fund may pay the redemption price in whole or in
part by a distribution in kind of securities from the portfolio of the Series,
in lieu of cash, in conformity with the applicable rules of the Commission.
Securities will be readily marketable and will be valued in the same manner as
in a regular redemption. See "How the Fund Values its Shares." If your shares
are redeemed in kind, you will incur brokerage costs in converting the assets
into cash. The Fund has elected to be governed by Rule 18f-1 under the
Investment Company Act under which the Fund is obligated to redeem shares solely
in cash up to the lesser of $250,000 or one percent of the NAV of the Fund
during any 90-day period for any one shareholder.

CLASS B AND CLASS C PURCHASE PRIVILEGE. You may direct that the proceeds of a
redemption of Series shares be invested in Class B or Class C shares of any
Prudential Mutual Fund by calling your Prudential Securities financial adviser
or the Transfer
Agent at (800) 225-1852.

HOW TO EXCHANGE YOUR SHARES

AS A SHAREHOLDER OF THE SERIES, YOU HAVE AN EXCHANGE PRIVILEGE WITH OTHER
SERIES OF THE FUND AND CERTAIN OTHER PRUDENTIAL MUTUAL FUNDS, INCLUDING ONE OR
MORE SPECIFIED MONEY MARKET FUNDS AND FUNDS SOLD WITH AN INITIAL SALES CHARGE,
SUBJECT TO THE MINIMUM INVESTMENT REQUIREMENTS OF SUCH FUNDS. You may exchange
your shares for Class A shares of the other series of the Fund or Class A shares
of the Prudential Mutual Funds on the basis of the relative NAV plus the
applicable sales charge. No additional sales charge is imposed in connection
with subsequent exchanges. You may not exchange your shares for Class B shares
of the Prudential Mutual Funds, except that shares acquired prior to January 22,
1990 subject to a CDSC can be exchanged for Class B shares. See "Class B and
Class C Purchase Privilege" above and "Shareholder Investment Account--Exchange
Privilege" in the Statement of Additional Information. An exchange will be
treated as a redemption and purchase for tax purposes. You may not exchange your
shares for Class C or Class Z shares of other series of the Fund or Class C or
Class Z shares of the Prudential Mutual Funds.

IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE THE TELEPHONE
EXCHANGE PRIVILEGE ON YOUR INITIAL APPLICATION FORM OR BY WRITTEN NOTICE TO THE
TRANSFER AGENT AND HOLD SHARES IN NON-CERTIFICATE FORM. Thereafter, you may call
the Fund at (800) 225-1852 to execute a telephone exchange of shares, weekdays,
except holidays, between the hours of 8:00 A.M. and 6:00 P.M., New York time.
For your protection and to prevent fraudulent exchanges, your telephone call
will be recorded and you will be asked to provide your personal indentification
number. A written confirmation of the exchange transaction will be sent to you.
NEITHER THE FUND NOR ITS AGENTS WILL BE LIABLE FOR ANY LOSS, LIABILITY OR COST
WHICH RESULTS FROM ACTING UPON INSTRUCTIONS REASONABLY BELIEVED TO BE GENUINE
UNDER THE FOREGOING PROCEDURES. All exchanges will be made on the basis of the
relative NAV of the two funds (or series) next determined after the request is
received in good order. The exchange privilege is available only in states where
the exchange may legally be made.

IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.

IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE
FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.

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

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<PAGE>
IN PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS, THE TELEPHONE EXCHANGE OF
SHARES MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD MAKE EXCHANGES BY MAIL BY
WRITING TO PRUDENTIAL MUTUAL FUND SERVICES LLC, AT THE ADDRESS NOTED ABOVE.

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

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

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

SHAREHOLDER SERVICES

In addition to the exchange privilege, you can take advantage of the following
services and privileges:

- AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS. For your
convenience, all dividends and distributions are automatically reinvested in
full and fractional shares of the Series at NAV. You may direct the Transfer
Agent in writing not less than 5 full business days prior to the record date to
have subsequent dividends and/or distributions sent in cash rather than
reinvested. If you hold shares through Prudential Securities, you should contact
your financial adviser.

- AUTOMATIC INVESTMENT PLAN (AIP). Under AIP you may make regular purchases of
the Series' shares in amounts as little as $50 via an automatic charge to a bank
account or Prudential Securities account (including a COMMAND Account). For
additional information about this service, you may contact your Prudential
Securities financial adviser, Prusec representative or the Transfer Agent
directly.

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

- SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available for
shareholders which provides for monthly or quarterly checks. See "How to Sell
Your Shares."

- MULTIPLE ACCOUNTS. Special procedures have been designed for banks and other
institutions that wish to open multiple accounts. An institution may open a
single master account by filing an application form with the Transfer Agent,
Attention: Customer Service, P.O. Box 15005, New Brunswick, New Jersey 08906,
signed by personnel authorized to act for the institution. Individual
sub-accounts may be opened at the time the master account is opened by listing
them, or they may be added at a later date by written advice or by filing forms
supplied by the Fund. Procedures are available to identify sub-accounts by name
and number within the master account name. The investment minimums set forth
above are applicable to the aggregate amounts invested by a group and not to the
amount credited to each sub-account.

24
<PAGE>
provide one annual and semi-annual shareholder report and annual prospectus per
household. You may request additional copies of such reports by calling (800)
225-1852 or by writing to the Fund at Gateway Center Three, 100 Mulberry Street,
Newark, New Jersey 07102-4077. In addition, monthly unaudited financial data is
available upon request from the Fund.

- SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Fund at Gateway
Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, or by
telephone, at (800) 225-1852 (toll-free) or, from outside the U.S.A., at (732)
417-7555 (collect).

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

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<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY

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

TAXABLE BOND FUNDS
--------------------------

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

TAX-EXEMPT BOND FUNDS
-----------------------------

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

GLOBAL FUNDS
--------------------

Prudential Developing Markets Fund
Prudential Developing Markets Equity Fund
Prudential Latin America Equity Fund
Prudential Europe Growth Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential International Bond Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series
The Global Government Plus Fund, Inc.
Global Utility Fund, Inc.
The Global Total Return Fund, Inc.

EQUITY FUNDS
--------------------

Prudential Balanced Fund
Prudential Distressed Securities Fund, Inc.
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Index Series Fund
Prudential Bond Market Index Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced Fund
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Mid-Cap Value Fund
Prudential Real Estate Securities Fund
Prudential Small Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Utility Fund, Inc.
Prudential 20/20 Focus Fund
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund

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

A-1
<PAGE>
No Dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained in this Prospectus, and,
if given or made, such other information or representations must not be relied
upon as having been authorized by the Fund or the Distributor. This Prospectus
does not constitute an offer by the Fund or by the Distributor to sell or a
solicitation of any offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer in such
jurisdiction.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FUND HIGHLIGHTS............................................................. 2
What are the Series' Risk Factors and Special Characteristics?............ 2
FUND EXPENSES............................................................... 4
FINANCIAL HIGHLIGHTS........................................................ 5
CALCULATION OF YIELD........................................................ 6
HOW THE FUND INVESTS........................................................ 6
Investment Objective and Policies......................................... 6
Other Investments and Policies............................................ 9
Investment Restrictions................................................... 10
HOW THE FUND IS MANAGED..................................................... 10
Manager................................................................... 10
Distributor............................................................... 11
Portfolio Transactions.................................................... 12
Custodian and Transfer and Dividend Disbursing Agent...................... 12
Year 2000................................................................. 12
HOW THE FUND VALUES ITS SHARES.............................................. 12
TAXES, DIVIDENDS AND DISTRIBUTIONS.......................................... 13
GENERAL INFORMATION......................................................... 15
Description of Shares..................................................... 15
Additional Information.................................................... 16
SHAREHOLDER GUIDE........................................................... 16
How to Buy Shares of the Fund............................................. 16
How to Sell Your Shares................................................... 21
How to Exchange Your Shares............................................... 23
Shareholder Services...................................................... 24
THE PRUDENTIAL MUTUAL FUND FAMILY........................................... A-1
</TABLE>

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

MF154A
CUSIP No: 74435M-64-8

PRUDENTIAL
MUNICIPAL
SERIES FUND
- -----------

CONNECTICUT
MONEY MARKET
SERIES

PROSPECTUS
November 2, 1998
www.prudential.com

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

[LOGO]
<PAGE>
Prudential Municipal Series Fund
(Florida Series)

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

PROSPECTUS DATED NOVEMBER 2, 1998

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

Prudential Municipal Series Fund (the Fund) (Florida Series) (the Series) is one
of thirteen series of an open-end, management investment company, or mutual
fund. This Series is non-diversified and seeks to provide the maximum amount of
income that is exempt from federal income taxes consistent with the preservation
of capital and to invest in securities which will enable its shares to be exempt
from the Florida intangibles tax and, in conjunction therewith, the Series may
invest in debt securities with the potential for capital gain. The net assets of
the Series will be invested primarily in obligations within the four highest
ratings of Moody's Investors Service, Standard & Poor's Ratings Group or another
nationally recognized statistical rating organization or in unrated securities
which, in the opinion of the Fund's investment adviser, are of comparable
quality. The Series may, however, also invest a portion of its assets in
lower-quality municipal obligations or in non-rated securities which, in the
opinion of the Fund's investment adviser, are of comparable quality. Subject to
the limitations described herein, the Series may utilize derivatives, including
buying and selling futures contracts and options thereon for the purpose of
hedging its portfolio securities. There can be no assurance that the Series'
investment objective will be achieved. See "How the Fund Invests--Investment
Objective and Policies." The Fund's address is Gateway Center Three, 100
Mulberry Street, Newark, New Jersey 07102-4077, and its telephone number is
(800) 225-1852.

This Prospectus sets forth concisely the information about the Fund and the
Florida Series that a prospective investor should know before investing and is
available at the Web site of the Prudential Insurance Company of America
(http://www.prudential.com). Additional information about the Fund has been
filed with the Securities and Exchange Commission (Commission) in a Statement of
Additional Information dated November 2, 1998, which information is incorporated
herein by reference (is legally considered a part of this Prospectus) and is
available without charge upon request to the Fund at the address or telephone
number noted above. The Commission maintains a Web site (http://www.sec.gov)
that contains the Statement of Additional Information, material incorporated by
reference and other information regarding the Fund.

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

INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.

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

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

<PAGE>
FUND HIGHLIGHTS

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

WHAT IS PRUDENTIAL MUNICIPAL SERIES FUND?

WHAT IS THE SERIES' INVESTMENT OBJECTIVE?

The Series' investment objective is to maximize current income that is
exempt from federal income taxes consistent with the preservation of capital
and to invest in securities which will enable its shares to be exempt from
the Florida intangibles tax. It seeks to achieve this objective by investing
primarily in Florida State, municipal and local government obligations and
obligations of other qualifying issuers, such as issuers located in Puerto
Rico, the Virgin Islands and Guam, which, in the opinion of counsel, are
exempt from the Florida intangibles tax and which pay income exempt from
federal income tax (Florida Obligations). There can be no assurance that the
Series' investment objective will be achieved. See "How the Fund
Invests--Investment Objective and Policies" at page 9.

WHAT ARE THE SERIES' RISK FACTORS AND SPECIAL CHARACTERISTICS?

In seeking to achieve its investment objective, the Series will invest at
least 80% of the value of its total assets in Florida Obligations. This
degree of investment concentration makes the Series particularly susceptible
to factors adversely affecting issuers of Florida Obligations. The Series
may invest up to 30% of its total assets in high yield securities, commonly
known as junk bonds, which are considered speculative and are subject to the
risk of an issuer's inability to meet principal and interest payments on the
obligations as well as price volatility. See "How the Fund
Invests--Investment Objective and Policies--Risk Factors Relating to
Investing in High Yield Municipal Obligations" at page 12. To hedge against
changes in interest rates, the Series may also purchase put options and
engage in transactions involving derivatives, including financial futures
contracts and options thereon. See "How the Fund Invests--Investment
Objective and Policies--Futures Contracts and Options Thereon" at page 13.
As with an investment in any mutual fund, an investment in this Series can
decrease and you can lose money.

The Series is non-diversified so that more than 5% of its total assets may
be invested in the securities of one or more issuers. Investment in a
non-diversified portfolio involves more risk than investment in a
diversified portfolio. See "How the Fund Invests--Investment Objective and
Policies--Special Considerations" at page 14.

WHO MANAGES THE FUND?

Prudential Investments Fund Management LLC (PIFM or the Manager) is the
Manager of the Fund and is compensated for its services at an annual rate of
.50 of 1% of the Series' average daily net assets. As of September 30, 1998,
PIFM served as manager or administrator to 66 investment companies,
including 44 mutual funds, with aggregate assets of approximately $67
billion. The Prudential Investment Corporation, (PIC, the Subadviser or the
investment adviser) furnishes investment advisory services in connection
with the management of the Fund under a Subadvisory Agreement with PIFM. See
"How the Fund is Managed--Manager" at page 16.

WHO DISTRIBUTES THE SERIES' SHARES?

Prudential Investment Management Services LLC (the Distributor) acts as
the Distributor of the Series' ClassA, Class B, Class C and Class Z shares
and is paid a distribution and service fee with respect to Class A shares at
the annual rate of .25 of 1% of the average daily net assets of the Class A
shares and is paid a distribution and service fee with respect to Class B
shares at the annual rate of .50 of 1% of the average daily net assets of
the Class B shares and is paid an annual distribution and service fee with
respect to Class C shares at the rate of .75 of 1% of the average daily net
assets of the Class C shares. The Distributor incurs the expense of
distributing the Series' Class Z shares under a Distribution Agreement with
the Fund, none of which is reimbursed or paid for by the Fund. See "How the
Fund is Managed--Distributor" at page 17.

2
<PAGE>
WHAT IS THE MINIMUM INVESTMENT?

The minimum initial investment is $1,000 for Class A and Class B shares
and $2,500 for Class C shares. The minimum subsequent investment is $100 for
Class A, Class B and Class C shares. Class Z shares are not subject to any
minimum investment requirements. There is no minimum investment requirement
for certain employee savings plans. For purchases made through the Automatic
Investment Plan, the minimum initial and subsequent investment is $50. See
"Shareholder Guide--How to Buy Shares of the Fund" at page 24 and
"Shareholder Guide--Shareholder Services" at page 33.

HOW DO I PURCHASE SHARES?

You may purchase shares of the Series through the Distributor or brokers
or dealers that have entered into agreements to act as participating or
introducing brokers for the Distributor (Dealers) or directly from the Fund
through its transfer agent, Prudential Mutual Fund Services LLC (PMFS or the
Transfer Agent). In each case, sales are made at the net asset value per
share (NAV) next determined after receipt of your purchase order by the
Transfer Agent, a Dealer or the Distributor plus a sales charge, which may
be imposed at the time of purchase, on a deferred basis, or both. Class A
shares are sold with a front-end sales charge. Class B shares are subject to
a contingent deferred sales charge (CDSC). Class C shares are sold with a
low front-end sales charge, but are also subject to a CDSC. Class Z shares
are offered to a limited group of investors at NAV without any sales charge.
Dealers may charge their customers a separate fee for handling purchase
transactions. Participants in programs sponsored by Prudential Retirement
Services should contact their client representative for more information
about Class Z shares. See "How the Fund Values its Shares" at page 19 and
"Shareholder Guide--How to Buy Shares of the Fund" at page 24.

WHAT ARE MY PURCHASE ALTERNATIVES?

The Series offers four classes of shares:

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

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

- Class C Shares: Sold with an initial sales charge of 1% of the
offering price and are also subject to a CDSC of 1%
on redemptions for a period of 18 months after
purchase. Class C shares are subject to higher
ongoing distribution-related expenses than Class A
shares but, unlike Class B shares, do not convert
to another class.

- Class Z Shares: Sold without either an initial sales charge or CDSC
to a limited group of investors. Class Z shares are
not subject to any ongoing service or distribution
expenses.

See "Shareholder Guide--Alternative Purchase Plan" at page 25.

HOW DO I SELL MY SHARES?

You may redeem your shares at any time at the NAV next determined after
your Dealer, the Distributor or the Transfer Agent receives your sell order.
The proceeds of redemptions of Class B and Class C shares may be subject to
a CDSC. Dealers may charge their customers a separate fee for handling sale
transactions. See "Shareholder Guide--How to Sell Your Shares" at page 28.

HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?

The Series expects to declare daily and pay monthly dividends of net
investment income, if any, and make distributions of any net capital gains
at least annually. Dividends and distributions will be automatically
reinvested in additional shares of the Series at NAV without a sales charge
unless you request that they be paid to you in cash. See "Taxes, Dividends
and Distributions" at page 20.

3
<PAGE>
FUND EXPENSES
(FLORIDA SERIES)

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
-------------- ------------------------------ --------------------------- --------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES+
Maximum Sales Load Imposed
on Purchases
(as a percentage of
offering price)............ 3% None 1% None
Maximum Deferred Sales Load
(as a percentage of
original purchase price or
redemption proceeds,
whichever is lower)........ None 5% during the first year, 1% on redemptions made None
decreasing by 1% annually to within 18 months of
1% in the fifth and sixth purchase
years and 0% the seventh year*
Maximum Sales Load Imposed
on Reinvested
Dividends.................. None None None None
Redemption Fees............. None None None None
Exchange Fee................ None None None None
</TABLE>

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees..................... .50% .50% .50% .50%
12b-1 Fees (After Reduction)........ .25++ .50 .75 None
Other Expenses...................... .20 .20 .20 .20
--
--- --- ---
Total Fund Operating Expenses (After
Reduction)......................... .95% 1.20% 1.45% .70%
--
--
--- --- ---
--- --- ---
</TABLE>

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE
You would pay the following expenses on
a $1,000 investment, assuming
(1) 5% annual return and (2)
redemption at the end of each time
period:
Class A............................. $39 $59 $81 $143
Class B............................. $62 $68 $76 $135
Class C............................. $35 $55 $88 $182
Class Z............................. $ 7 $22 $39 $ 87
You would pay the following expenses on
the same investment, assuming
no redemption:
Class A............................. $39 $59 $81 $143
Class B............................. $12 $38 $66 $135
Class C............................. $25 $55 $88 $182
Class Z............................. $ 7 $22 $39 $ 87
</TABLE>

THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

The purpose of this table is to assist investors in understanding the
various costs and expenses that an investor in the Series will bear,
whether directly or indirectly. For more complete descriptions of the
various costs and expenses, see "How the Fund is Managed." The above
examples are based on restated data for the Series' fiscal year ended
August 31, 1998. "Other Expenses" includes Trustees' and professional
fees, registration fees, reports to shareholders and transfer agency and
custodian fees.

- ---------------
* Class B shares will automatically convert to Class A shares approximately
seven years after purchase. See "Shareholder Guide--Conversion Feature--
Class B Shares."

+ Dealers independently may charge additional fees for shareholder transactions
or advisory services. Pursuant to rules of the National Association of
Securities Dealers, Inc., the aggregate initial sales charges, deferred
sales charges and asset-based sales charges on shares of the Series may
not exceed 6.25% of total gross sales, subject to certain exclusions.
This 6.25% limitation is imposed on each class of the Series rather than
on a per shareholder basis. Therefore, long-term shareholders of the
Series may pay more in total sales charges than the economic equivalent
of 6.25% of such shareholders' investment in such shares. See "How the
Fund is Managed--Distributor."

++ Although the Class A Distribution and Service Plan provides that the Fund
may pay a distribution fee of up to .30 of 1% per annum of the average
daily net assets of the Class A shares of the Series, the Distributor may
voluntarily limit its distribution fees. Presently the Distributor limits
its distribution fees with respect to the Class A shares of the Series to
no more than .10 of 1% of the average daily net asset value of such
shares. This voluntary limitation may be modified or terminated at any
time without notice. The Distributor anticipates modifying its present
limitation for Class A shares so that, in the future, the Fund will pay
distribution fees of .25% with respect to such shares. Total Fund
Operating Expenses of the Class A shares without any limitations would be
1.00%. See "How the Fund is Managed--Distributor".

4
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH OF THE INDICATED
PERIODS)
(CLASS A SHARES)

The following financial highlights, for the two years ended August 31, 1998,
have been audited by PricewaterhouseCoopers LLP, independent accountants, and
for the five years ended August 31, 1996 and the period December 28, 1990
through August 31, 1991, have been audited by other independent auditors. All
such audit reports were unqualified. This information should be read in
conjunction with the financial statements and notes thereto, which appear in the
Statement of Additional Information. The following financial highlights contain
selected data for a Class A share of beneficial interest outstanding, total
return, ratios to average net assets and other supplemental data for the periods
indicated. This information is based on data contained in the financial
statements. Further performance information is contained in the annual report,
which may be obtained without charge. See "Shareholder Guide-- Shareholder
Services--Reports to Shareholders."

<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------------ DECEMBER 28,
1990 (a)
YEAR ENDED AUGUST 31, THROUGH
------------------------------------------------------------------------ AUGUST 31,
1998 1997 1996 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------ ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>

PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period.... $10.41 $10.11 $10.06 $ 9.91 $10.87 $10.27 $ 9.76 $ 9.55
------ ------ ------ ------ ------ ------ ------ -------------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income.... .52 .54(c) .57(c) .59(c) .59(c) .57(c) .65(c) .44(c)
Net realized and
unrealized gain (loss)
on investment
transactions........... .33 .31 .05 .15 (.76) .73 .51 .21
------ ------ ------ ------ ------ ------ ------ -------------
Total from investment
operations............. .85 .85 .62 .74 (.17) 1.30 1.16 .65
------ ------ ------ ------ ------ ------ ------ -------------
LESS DISTRIBUTIONS
Dividends from net
investment income...... (.52) (.54) (.57) (.59) (.59) (.57) (.65) (.44)
Distribution in excess of
net investment
income................. -- (.01) -- -- -- -- -- --
Distributions from net
realized gains......... -- -- -- -- (.20) (.13) -- --
------ ------ ------ ------ ------ ------ ------ -------------
Total distributions...... (.52) (.55) (.57) (.59) (.79) (.70) (.65) (.44)
------ ------ ------ ------ ------ ------ ------ -------------
Net asset value, end of
period................. $10.74 $10.41 $10.11 $10.06 $ 9.91 $10.87 $10.27 $ 9.76
------ ------ ------ ------ ------ ------ ------ -------------
------ ------ ------ ------ ------ ------ ------ -------------
TOTAL RETURN (d):........ 8.34% 8.65% 6.20% 7.85% (1.69)% 13.78% 12.26% 6.90%

RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).................. $88,045 $92,579 $101,999 $120,963 $134,849 $148,900 $104,335 $63,929
Average net assets
(000).................. $90,437 $97,700 $112,266 $124,259 $146,489 $123,820 $82,893 $41,528
Ratios to average net
assets:
Expenses, including
distribution fees..... .80% .57%(c) .37%(c) .24%(c) .20%(c) .20%(c) .09%(c) 0(c)
Expenses, excluding
distribution fees..... .70% .47%(c) .27%(c) .17%(c) .20%(c) .20%(c) .09%(c) 0(c)
Net investment
income................ 4.89% 5.32%(c) 5.56%(c) 6.04%(c) 5.67%(c) 5.94%(c) 6.41%(c) 6.68%(b)(c)
Portfolio turnover
rate................... 35% 22% 68% 65% 75% 68% 56% 39%
</TABLE>

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

(a) Commencement of offering of Class A shares.

(b) Annualized.

(c) Net of expense subsidy and management fee waiver. Effective September
1, 1997, PIFM eliminated its management fee waiver (.05 of 1%).

(d) Total return does not consider the effects of sales loads. Total
return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total returns for
periods of less than a full year are not annualized.

5
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH OF THE INDICATED
PERIODS)
(CLASS B SHARES)

The following financial highlights, for the two years ended August 31, 1998,
have been audited by PricewaterhouseCoopers LLP, independent accountants, and
for the two years ended August 31, 1996 and the period August 1, 1994 through
August 31, 1994, have been audited by other independent auditors. All such audit
reports were unqualified. This information should be read in conjunction with
the financial statements and the notes thereto, which appear in the Statement of
Additional Information. The following financial highlights contain selected data
for a Class B share of beneficial interest outstanding, total return, ratios to
average net assets and other supplemental data for the periods indicated. This
information is based on data contained in the financial statements. Further
performance information is contained in the annual report, which may be obtained
without charge. See "Shareholder Guide--Shareholder Services--Reports to
Shareholders."

<TABLE>
<CAPTION>
CLASS B
----------------------------------------------- AUGUST 1,
1994 (a)
YEAR ENDED AUGUST 31, THROUGH
----------------------------------------------- AUGUST 31,
1998 1997 1996 1995 1994
-------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>

PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period...................... $ 10.41 $ 10.11 $ 10.06 $ 9.91 $ 9.95
-------- -------- -------- -------- -----

INCOME FROM INVESTMENT
OPERATIONS
Net investment income......... .48 .50(c) .53(c) .55(c) .04(c)
Net realized and unrealized
gain (loss) on investment
transactions................ .33 .31 .05 .15 (.04)
-------- -------- -------- -------- -----
Total from investment
operations.................. .81 .81 .58 .70 --
-------- -------- -------- -------- -----

LESS DISTRIBUTIONS
Dividends from net investment
income...................... (.48) (.50) (.53) (.55) (.04)
Distributions in excess of net
investment income........... -- (.01) -- -- --
-------- -------- -------- -------- -----
Total distributions........... (.48) (.51) (.53) (.55) (.04)
-------- -------- -------- -------- -----
Net asset value, end of
period...................... $ 10.74 $ 10.41 $ 10.11 $ 10.06 $ 9.91
-------- -------- -------- -------- -----
-------- -------- -------- -------- -----

TOTAL RETURN (d):............. 7.91% 8.22% 5.79% 7.39% (0.05)%

RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)....................... $ 22,755 $ 18,820 $ 14,699 $ 8,326 $ 582
Average net assets (000)...... $ 21,154 $ 17,565 $ 12,570 $ 4,699 $ 118
Ratios to average net assets:
Expenses, including
distribution fee........... 1.20% .97%(c) .77%(c) .67%(c) .70%(b)(c)
Expenses, excluding
distribution fee........... .70% .47%(c) .27%(c) .17%(c) .20%(b)(c)
Net investment income....... 4.49% 4.92%(c) 5.16%(c) 5.56%(c) 6.21%(b)(c)
Portfolio turnover rate....... 35% 22% 68% 65% 75%
</TABLE>

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

(a) Commencement of offering of Class B shares.

(b) Annualized.

(c) Net of expense subsidy and management fee waiver. Effective September
1, 1997, PIFM eliminated its management fee waiver (.05 of 1%).

6
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH OF THE INDICATED
PERIODS)
(CLASS C SHARES)

The following financial highlights, for the two years ended August 31, 1998,
have been audited by PricewaterhouseCoopers LLP, independent accountants, and
for the three years ended August 31, 1996 and the period July 26, 1993 through
August 31, 1993, have been audited by other independent auditors. All such audit
reports were unqualified. This information should be read in conjunction with
the financial statements and the notes thereto, which appear in the Statement of
Additional Information. The following financial highlights contain selected data
for a Class C share of beneficial interest outstanding, total return, ratios to
average net assets and other supplemental data for the periods indicated. This
information is based on data contained in the financial statements. Further
performance information is contained in the annual report, which may be obtained
without charge. See "Shareholder Guide--Shareholder Services--Reports to
Shareholders."

<TABLE>
<CAPTION>
CLASS C
------------------------------------------------------------ JULY 26,
1993 (a)
YEAR ENDED AUGUST 31, THROUGH
------------------------------------------------------------ AUGUST 31,
1998 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>

PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period...................... $ 10.41 $ 10.11 $ 10.06 $ 9.91 $ 10.87 $ 10.58
-------- -------- -------- -------- -------- ------

INCOME FROM INVESTMENT
OPERATIONS
Net investment income......... .45 .48(c) .50(c) .53(c) .48(c) .03(c)
Net realized and unrealized
gain (loss) on investment
transactions................ .33 .31 .05 .15 (.76) .29
-------- -------- -------- -------- -------- ------
Total from investment
operations.................. .78 .79 .55 .68 (.28) .32
-------- -------- -------- -------- -------- ------

LESS DISTRIBUTIONS
Dividends from net investment
income...................... (.45) (.48) (.50) (.53) (.48) (.03)
Distribution in excess of net
investment income........... -- (.01) -- -- -- --
Distributions from net
realized gains.............. -- -- -- -- (.20) --
-------- -------- -------- -------- -------- ------
Total distributions........... (.45) (.49) (.50) (.53) (.68) (.03)
-------- -------- -------- -------- -------- ------
Net asset value, end of
period...................... $ 10.74 $ 10.41 $ 10.11 $ 10.06 $ 9.91 $ 10.87
-------- -------- -------- -------- -------- ------
-------- -------- -------- -------- -------- ------

TOTAL RETURN (d):............. 7.64% 7.95% 5.52% 7.12% (2.40)% 3.14%

RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)....................... $ 7,520 $ 7,336 $ 7,792 $ 9,028 $ 11,185 $ 3,132
Average net assets (000)...... $ 7,325 $ 7,575 $ 8,293 $ 10,265 $ 9,280 $ 1,038
Ratios to average net assets:
Expenses, including
distribution fee........... 1.45% 1.22%(c) 1.02%(c) .92%(c) .95%(c) .95%(b)(c)
Expenses, excluding
distribution fee........... .70% .47%(c) .27%(c) .17%(c) .20%(c) .20%(b)(c)
Net investment income....... 4.24% 4.67%(c) 4.91%(c) 5.35%(c) 4.99%(c) 5.19%(b)(c)
Portfolio turnover rate....... 35% 22% 68% 65% 75% 68%
</TABLE>

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

(a) Commencement of offering of Class C shares. Prior to August 1, 1994,
Class C Shares were called Class D Shares.

(b) Annualized.

(c) Net of expense subsidy and management fee waiver. Effective September
1, 1997, PIFM eliminated its management fee waiver (.05 of 1%).

7
<PAGE>

FINANCIAL HIGHLIGHTS
(FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE PERIOD INDICATED)
(CLASS Z SHARES)

The following financial highlights for the Class Z shares for the fiscal year
ended August 31, 1998 and for the period from December 6, 1996 through August
31, 1997 have been audited by PricewaterhouseCoopers LLP, independent
accountants, whose reports thereon were unqualified. This information should be
read in conjunction with the financial statements and the notes thereto, which
appear in the Statement of Additional Information. The financial highlights
contain selected data for a Class Z share of beneficial interest outstanding,
total return, ratios to average net assets and other supplemental data for the
period indicated. This information has been determined based on data contained
in the financial statements. Further performance information is contained in the
annual report, which may be obtained without charge. See "Shareholder
Guide--Shareholder Services--Reports to Shareholders."

<TABLE>
<CAPTION>
CLASS Z
---------------
DECEMBER 6,
1996(a)
YEAR ENDED THROUGH
AUGUST 31, 1998 AUGUST 31, 1997
--------------- ---------------
<S> <C> <C>

PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $ 10.41 $ 10.36
------ ------

INCOME FROM INVESTMENT OPERATIONS
Net investment income................... .53 .41(d)
Net realized and unrealized gain on
investment transactions................. .32 .06
------ ------
Total from investment operations........ .85 .47
------ ------

LESS DISTRIBUTIONS
Dividends from net investment income.... (.53) (.41)
Distributions in excess of net
investment income..................... -- (.01)
------ ------
Total distributions..................... (.53) (.42)
------ ------
Net asset value, end of period.......... $ 10.73 $ 10.41
------ ------
------ ------

TOTAL RETURN (b):....................... 8.34% 4.57%

RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $ 383 $ 94
Average net assets (000)................ $ 373 $ 36
Ratios to average net assets
Expenses.............................. .70% .47%(c)(d)
Net investment income................. 4.99% 5.48%(c)(d)
Portfolio turnover rate................. 35% 22%
</TABLE>

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

(a) Commencement of offering of Class Z shares.

(b) Total return is calculated assuming a purchase of shares on the first
day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total returns for
periods of less than a full year are not annualized.

(d) Net of expense subsidy and fee waiver. Effective September 1, 1997,
PIFM eliminated its management fee waiver (.05 of 1%).

8
<PAGE>
HOW THE FUND INVESTS

INVESTMENT OBJECTIVE AND POLICIES

PRUDENTIAL MUNICIPAL SERIES FUND (THE FUND) IS AN OPEN-END, MANAGEMENT
INVESTMENT COMPANY, OR MUTUAL FUND, CONSISTING OF THIRTEEN SEPARATE SERIES. EACH
SERIES OF THE FUND IS MANAGED INDEPENDENTLY. THE FLORIDA SERIES (THE SERIES) IS
NON-DIVERSIFIED AND ITS INVESTMENT OBJECTIVE IS TO MAXIMIZE CURRENT INCOME THAT
IS EXEMPT FROM FEDERAL INCOME TAXES CONSISTENT WITH THE PRESERVATION OF CAPITAL
AND TO INVEST IN SECURITIES WHICH WILL ENABLE ITS SHARES TO BE EXEMPT FROM THE
FLORIDA INTANGIBLES TAX AND, IN CONJUNCTION THEREWITH, THE SERIES MAY ALSO
INVEST IN DEBT SECURITIES WITH THE POTENTIAL FOR CAPITAL GAIN. See "Investment
Objectives and Policies" in the Statement of Additional Information.

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

THE SERIES WILL INVEST PRIMARILY IN FLORIDA STATE, MUNICIPAL AND LOCAL
GOVERNMENT OBLIGATIONS AND OBLIGATIONS OF OTHER QUALIFYING ISSUERS, SUCH AS
ISSUERS LOCATED IN PUERTO RICO, THE VIRGIN ISLANDS AND GUAM, WHICH, IN THE
OPINION OF COUNSEL, ARE EXEMPT FROM THE FLORIDA INTANGIBLES TAX AND WHICH PAY
INCOME EXEMPT FROM FEDERAL INCOME TAX (FLORIDA OBLIGATIONS). THERE CAN BE NO
ASSURANCE THAT THE SERIES WILL BE ABLE TO ACHIEVE ITS INVESTMENT OBJECTIVE.

As with an investment in any mutual fund, an investment in this Series can
decrease and you can lose money.

Florida Obligations and certain types of U.S. Government securities and other
assets are exempt from the Florida intangibles tax. The Fund has obtained a
ruling from Florida authorities that, if on January 1 of any year the Series'
portfolio of assets consists solely of such exempt investments, then the Series'
shares will be exempt from the Florida intangibles tax payable in that year.

Generally, municipal obligations with longer maturities produce higher yields
and are subject to greater price fluctuations as a result of changes in interest
rates (market risk) than municipal obligations with shorter maturities. The
prices of municipal obligations vary inversely with interest rates. Interest
rates are currently much lower than in recent years. As a general matter, bond
prices and the Series' NAV will vary inversely with interest rate fluctuations.
If rates were to rise sharply, the prices of bonds in the Series' portfolio
might be adversely affected.

9
<PAGE>
adjustment in the interest rate based on prevailing market rates and generally
would allow the Series to demand payment of the obligation on short notice at
par plus accrued interest, which amount may be more or less than the amount the
Series paid for them. An inverse floater is a debt instrument with a floating or
variable interest rate that moves in the opposite direction of the interest rate
on another security or the value of an index. Changes in the interest rate on
the other security or index inversely affect the residual interest rate paid on
the inverse floater, with the result that the inverse floater's price will be
considerably more volatile than that of a fixed rate bond. The market for
inverse floaters is relatively new.

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

THE SERIES WILL INVEST AT LEAST 70% OF ITS TOTAL ASSETS IN FLORIDA OBLIGATIONS
WHICH, AT THE TIME OF PURCHASE, ARE RATED WITHIN THE FOUR HIGHEST QUALITY GRADES
AS DETERMINED BY MOODY'S INVESTORS SERVICE (MOODY'S) (CURRENTLY Aaa, Aa, A, Baa
FOR BONDS, MIG 1, MIG 2, MIG 3, MIG 4 FOR NOTES AND PRIME-1 FOR COMMERCIAL
PAPER), STANDARD & POOR'S RATINGS GROUP (S&P) (CURRENTLY AAA, AA, A, BBB FOR
BONDS, SP-1, SP-2 FOR NOTES AND A-1 FOR COMMERCIAL PAPER) OR ANOTHER NATIONALLY
RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO) OR, IF UNRATED, WILL POSSESS
CREDITWORTHINESS, IN THE OPINION OF THE INVESTMENT ADVISER, COMPARABLE TO SUCH
INVESTMENT GRADE RATED SECURITIES.

THE SERIES MAY ALSO INVEST UP TO 30% OF ITS TOTAL ASSETS IN FLORIDA
OBLIGATIONS RATED BELOW Baa BY MOODY'S OR BELOW BBB BY S&P OR A COMPARABLE
RATING OF ANOTHER NRSRO OR, IF NON-RATED, OF COMPARABLE QUALITY, IN THE OPINION
OF THE FUND'S INVESTMENT ADVISER, BASED ON ITS CREDIT ANALYSIS. Securities rated
Baa by Moody's and BBB by S&P are described as being investment grade but are
also characterized as having speculative characteristics. Securities rated below
Baa by Moody's and below BBB by S&P are considered speculative. See "Description
of Security Ratings" in the Appendix. Such lower-rated high yield securities are
commonly referred to as junk bonds. Such securities generally offer a higher
current yield than those in the higher rating categories but may also involve
greater price volatility and risk of loss of principal and income. The
investment adviser will attempt to manage risk and enhance yield through credit
analysis and careful security selection. See "Risk Factors Relating to Investing
in High Yield Municipal Obligations" below. Subsequent to its purchase by the
Series, a municipal obligation may be assigned a lower rating or cease to be
rated. Such an event would not require the elimination of the issue from the
portfolio, but the investment adviser will consider such an event in determining
whether the Series should continue to hold the security in its portfolio. Many
issuers of lower-quality bonds choose not to have their obligations rated and
the Series may invest in such unrated securities. Investors should carefully
consider the relative risks associated with investments in securities which
carry lower ratings and in comparable non-rated securities.

10
<PAGE>

During the year ended August 31, 1998, 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>
PERCENTAGE OF
RATINGS TOTAL INVESTMENTS
------------------------------ -------------------------
<S> <C>
AAA/Aaa....................... 44.65 %
AA/Aa......................... 15.97 %
A/A........................... 7.12 %
BBB/Baa....................... 17.63 %
BB/Ba......................... 1.74 %
Unrated
AAA/Aaa..................... 1.42 %
A/A......................... 2.63 %
BBB/Baa..................... 2.69 %
BB/Ba....................... 1.12 %
B/B......................... 5.03 %
</TABLE>

From time to time, the Series may own the majority of a municipal issue. Such
majority-owned holdings may present market and credit risks.

The Series may purchase Florida Obligations which, in the opinion of the
investment adviser, offer the opportunity for capital appreciation. This may
occur, for example, when the investment adviser believes that the issuer of a
particular Florida Obligation might receive an upgraded credit standing, thereby
increasing the market value of the bonds it has issued or when the investment
adviser believes that interest rates might decline.

UNDER NORMAL MARKET CONDITIONS, THE SERIES WILL ATTEMPT TO INVEST
SUBSTANTIALLY ALL OF THE VALUE OF ITS ASSETS IN FLORIDA OBLIGATIONS. As a matter
of fundamental policy, during normal market conditions the Series' assets will
be invested so that the Series will have at least 80% of its total assets
invested in Florida Obligations. During abnormal market conditions or to provide
liquidity, the Series may hold cash or cash equivalents or investment grade
taxable obligations, including obligations that are exempt from federal, but not
state, taxation. The Series may invest in tax-free cash equivalents, such as
floating rate demand notes, tax-exempt commercial paper and general obligation
and revenue notes or in taxable cash equivalents, such as certificates of
deposit, bankers acceptances and time deposits or other short-term taxable
investments such as repurchase agreements. When, in the opinion of the
investment adviser, abnormal market conditions require a temporary defensive
position, the Series may invest more than 20% of the value of its assets in debt
securities other than Florida Obligations or may invest its assets so that more
than 20% of the income is subject to federal income taxes.

11
<PAGE>
securities outstanding which are rated within such four highest quality grades;
or (3) the put is backed by a letter of credit or similar financial guarantee
issued by a person having securities outstanding which are rated within the two
highest quality grades of an NRSRO.

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

THE SERIES MAY ALSO PURCHASE MUNICIPAL FORWARD CONTRACTS. A municipal forward
contract is a municipal security which is purchased on a when-issued basis with
delivery taking place up to five years from the date of purchase. No interest
will accrue on the security prior to the delivery date. The investment adviser
will monitor the liquidity, value, credit quality and delivery of the security
under the supervision of the Trustees. The Fund has obtained a ruling from
Florida authorities that such municipal forward contracts qualify as assets
exempt from the Florida intangibles tax.

THE SERIES MAY PURCHASE SECONDARY MARKET INSURANCE ON FLORIDA OBLIGATIONS
WHICH IT HOLDS OR ACQUIRES. Secondary market insurance would be reflected in the
market value of the municipal obligation purchased and may enable the Series to
dispose of a defaulted obligation at a price similar to that of comparable
municipal obligations which are not in default.

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

RISK FACTORS RELATING TO INVESTING IN HIGH YIELD MUNICIPAL
OBLIGATIONS. FIXED-INCOME SECURITIES ARE SUBJECT TO THE RISK OF AN ISSUER'S
INABILITY TO MEET PRINCIPAL AND INTEREST PAYMENTS ON THE OBLIGATIONS (CREDIT
RISK) AND MAY ALSO BE SUBJECT TO PRICE VOLATILITY DUE TO SUCH FACTORS AS
INTEREST RATE SENSITIVITY, MARKET PERCEPTIONS OF THE CREDITWORTHINESS OF THE
ISSUER AND GENERAL MARKET LIQUIDITY (MARKET RISK). Lower-rated or unrated (I.E.,
high yield) securities, commonly known as junk bonds, are more likely to react
to developments affecting market and credit risk than are more highly rated
securities, which react primarily to movements in the general level of interest
rates. The investment adviser will perform its own investment analysis and will
not rely principally on the ratings assigned by the rating services, although
such ratings will be considered by the investment adviser. The investment
adviser will consider, among other things, credit risk and market risk, as well
as the financial history and condition, the prospects and the management of an
issuer in selecting securities for the Series' portfolio. The achievement of the
Series' investment objective may be more dependent on the investment adviser's
credit analysis than is the case when investing in only higher quality bonds.
Investors should carefully consider the relative risks of investing in high
yield municipal obligations and understand that such securities are not
generally meant for short-term investing and that yields on junk bonds will
fluctuate over time.

12
<PAGE>

The amount of high yield securities outstanding has proliferated recently in
conjunction with the decline in creditworthiness of many obligors on municipal
debt, particularly health care providers and certain governmental bodies. An
economic downturn could severely affect the ability of highly leveraged issuers
to service their debt obligations or to repay their obligations upon maturity.
In addition, the secondary market for high yield securities, which is
concentrated in relatively few market makers, may not be as liquid as the
secondary market for more highly rated securities and, from time to time, it may
be more difficult to value high yield securities than more highly rated
securities, and the judgment of the Board of Trustees and investment adviser may
play a greater role in valuation because there is less reliable objective data
available. Under adverse market or economic conditions, the secondary market for
high yield securities could contract further, independent of any specific
adverse changes in the condition of a particular issuer. As a result, the
investment adviser could find it more difficult to sell these securities or may
be able to sell the securities only at prices lower than if such securities were
widely traded. Prices realized upon the sale of such lower rated or unrated
securities, under these circumstances, may be less than the prices used in
calculating the Series' NAV. If the investment adviser becomes involved in
activities such as reorganizations of obligors of troubled investments held by
the Series, this may prevent the Series from disposing of the securities, due to
its possession of material, non-public information concerning the obligor.

LOWER-RATED OR UNRATED DEBT OBLIGATIONS ALSO PRESENT RISKS BASED ON PAYMENT
EXPECTATIONS. If an issuer calls the obligation for redemption, the Series may
have to replace the security with a lower-yielding security, resulting in a
decreased return for investors. If the Series experiences unexpected net
redemptions, it may be forced to sell its higher rated securities, resulting in
a decline in the overall credit quality of the portfolio and increasing the
exposure of the Series to the risks of high yield securities.

FUTURES CONTRACTS AND OPTIONS THEREON

THE SERIES IS AUTHORIZED TO PURCHASE AND SELL CERTAIN DERIVATIVES, INCLUDING
FINANCIAL FUTURES CONTRACTS (FUTURES CONTRACTS) AND OPTIONS THEREON FOR THE
PURPOSE OF HEDGING ITS PORTFOLIO SECURITIES AGAINST FLUCTUATIONS IN VALUE CAUSED
BY CHANGES IN PREVAILING MARKET INTEREST RATES AND HEDGING AGAINST INCREASES IN
THE COST OF SECURITIES THE SERIES INTENDS TO PURCHASE. THE SUCCESSFUL USE OF
FUTURES CONTRACTS AND OPTIONS THEREON BY THE SERIES INVOLVES ADDITIONAL
TRANSACTION COSTS, SUBJECT TO VARIOUS RISKS AND DEPENDS UPON THE INVESTMENT
ADVISER'S ABILITY TO PREDICT THE DIRECTION OF THE MARKET (INCLUDING INTEREST
RATES). THE SERIES, AND THUS INVESTORS, MAY LOSE MONEY THROUGH ANY UNSUCCESSFUL
USE OF THESE STRATEGIES.

A FUTURES CONTRACT OBLIGATES THE SELLER OF THE CONTRACT TO DELIVER TO THE
PURCHASER OF THE CONTRACT CASH EQUAL TO A SPECIFIC DOLLAR AMOUNT TIMES THE
DIFFERENCE BETWEEN THE VALUE OF A SPECIFIC FIXED-INCOME SECURITY OR INDEX AT THE
CLOSE OF THE LAST TRADING DAY OF THE CONTRACT AND THE PRICE AT WHICH THE
AGREEMENT IS MADE. No physical delivery of the underlying securities is made.
The Series will engage in transactions in only those futures contracts and
options thereon that are traded on a commodities exchange or a board of trade.

THE SERIES INTENDS TO ENGAGE IN FUTURES CONTRACTS AND OPTIONS THEREON AS A
HEDGE AGAINST CHANGES, RESULTING FROM MARKET CONDITIONS, IN THE VALUE OF
SECURITIES WHICH ARE HELD IN THE SERIES' PORTFOLIO OR WHICH THE SERIES INTENDS
TO PURCHASE, IN ACCORDANCE WITH THE RULES AND REGULATIONS OF THE COMMODITY
FUTURES TRADING COMMISSION (CFTC). The Series also intends to engage in such
transactions when they are economically appropriate for the reduction of risks
inherent in the ongoing management of the Series.

13
<PAGE>

WOULD EXCEED 5% OF THE LIQUIDATION VALUE OF THE SERIES' TOTAL ASSETS. There are
no limitations on the percentage of the portfolio which may be hedged and no
limitations on the use of the Series' assets to cover futures contracts and
options thereon, except that the aggregate value of the obligations underlying
put options will not exceed 50% of the Series' assets.

Currently, futures contracts are available on several types of fixed-income
securities, including U.S. Treasury bonds and notes, three-month U.S. Treasury
bills and Eurodollars. Futures contracts are also available on a municipal bond
index, based on THE BOND BUYER Municipal Bond Index, an index of 40 actively
traded municipal bonds. The Series may also engage in transactions in other
futures contracts that become available, from time to time, in other
fixed-income securities or municipal bond indices and in other options on such
contracts if the investment adviser believes such contracts and options would be
appropriate for hedging the Series' portfolio.

THERE CAN BE NO ASSURANCE THAT VIABLE MARKETS WILL CONTINUE OR THAT A LIQUID
SECONDARY MARKET WILL EXIST TO TERMINATE ANY PARTICULAR FUTURES CONTRACT AT ANY
SPECIFIC TIME. If it is not possible to close a futures position entered into by
the Series, the Series will continue to be required to make daily cash payments
of variation margin in the event of adverse price movements. In such a
situation, if the Series had insufficient cash, it might have to sell portfolio
securities to meet daily variation margin requirements at a time when it might
be disadvantageous to do so. The inability to close futures positions also could
have an adverse impact on the ability of the Series to hedge effectively. There
is also a risk of loss by the Series of margin deposits in the event of
bankruptcy of a broker with whom the Series has an open position in a futures
contract.

THE SUCCESSFUL USE OF FUTURES CONTRACTS AND OPTIONS THEREON BY THE SERIES IS
SUBJECT TO VARIOUS ADDITIONAL RISKS. Any use of futures transactions involves
the risk of imperfect correlation in movements in the price of futures contracts
and movements in interest rates and, in turn, the prices of the securities that
are the subject of the hedge. If the price of the futures contract moves more or
less than the price of the security that is the subject of the hedge, the Series
will experience a gain or loss that will not be completely offset by movements
in the price of the security. The risk of imperfect correlation is greater where
the securities underlying futures contracts are taxable securities (rather than
municipal securities), are issued by companies in different market sectors or
have different maturities, ratings or geographic mixes than the security being
hedged. In addition, the correlation may be affected by additions to or
deletions from the index which serves as the basis for a futures contract.
Finally, if the price of the security that is subject to the hedge were to move
in a favorable direction, the advantage to the Series would be partially offset
by the loss incurred on the futures contract.

SPECIAL CONSIDERATIONS

BECAUSE THE SERIES WILL INVEST AT LEAST 80% OF THE VALUE OF ITS TOTAL ASSETS
IN FLORIDA OBLIGATIONS, IT IS MORE SUSCEPTIBLE TO FACTORS ADVERSELY AFFECTING
ISSUERS OF SUCH OBLIGATIONS THAN IS A COMPARABLE MUNICIPAL BOND MUTUAL FUND THAT
IS NOT CONCENTRATED IN SUCH OBLIGATIONS TO THIS DEGREE. Under the State
Constitution and applicable statutes, the State budget as a whole, and each
separate fund within the State budget, must be kept in balance from currently
available revenues during each State fiscal year. Estimated General Revenue plus
Working Capital and Budget Stabilization funds available total $18,469.8 million
for 1997-1998, an increase of 10.3% over revenues for 1996-1997. Estimated
Revenue of $16,877.6 million for fiscal 1997-1998 represents an increase of 7.2%
over 1996-1997. If the issuers of any of the Florida Obligations are unable to
meet their financial obligations because of natural disasters or for other
reasons, the income derived by the Series, the ability to preserve or realize
appreciation of the Series' capital and the Series' liquidity could be adversely
affected. See "Investment Objectives and Policies--Special Considerations
Regarding Investments in Tax-Exempt Securities" in the Statement of Additional
Information.

The Series is "non-diversified" so that more than 5% of its total assets may
be invested in the securities of one or more issuers. Investment in a
non-diversified portfolio involves greater risk than investment in a diversified
portfolio because a loss resulting from the default of a single issuer may
represent a greater portion of the total assets of a non-diversified portfolio.
The

14
<PAGE>
Series will treat an investment in a municipal bond refunded with escrowed U.S.
Government securities as U.S. Government securities for purposes of the
Investment Company Act's diversification requirements provided certain
conditions are met. See "Investment Objectives and Policies--In General" in the
Statement of Additional Information.

OTHER INVESTMENTS AND POLICIES

REPURCHASE AGREEMENTS

The Series may on occasion enter into repurchase agreements whereby the seller
of a security agrees to repurchase that security from the Series at a mutually
agreed-upon time and price. The period of maturity is usually quite short,
possibly overnight or a few days, although it may extend over a number of
months. The resale price is in excess of the purchase price, reflecting an
agreed-upon rate of return effective for the period of time the Series' money is
invested in the repurchase agreement. The Series' repurchase agreements will at
all times be fully collateralized in an amount at least equal to the resale
price. The instruments held as collateral are valued daily and if the value of
the instruments declines, the Series will require additional collateral. If the
seller defaults and the value of the collateral securing the repurchase
agreement declines, the Series may incur a loss. The Series participates in a
joint repurchase account with other investment companies managed by PIFM
pursuant to an order of the Commission.

BORROWING

PORTFOLIO TURNOVER

The Series does not expect to trade in securities for short-term gain. It is
anticipated that the annual portfolio turnover rate will not exceed 150%. The
portfolio turnover rate is calculated by dividing the lesser of sales or
purchases of portfolio securities by the average monthly value of the portfolio
securities, excluding securities having a maturity at the date of purchase of
one year or less. High portfolio turnover of a Series may involve
correspondingly greater brokerage commissions and other transaction costs, which
will be borne directly by that Series. In addition, high portfolio turnover may
result in increased short-term capital gains, which, when distributed to
shareholders, are treated as ordinary income. See "Taxes, Dividends and
Distributions."

ILLIQUID SECURITIES

The Series may hold up to 15% of its net assets in illiquid securities
including repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable. Securities,
including restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933, as amended (the Securities Act), privately placed
commercial paper and municipal lease obligations, that have a readily available
market are not considered illiquid for purposes of this limitation. The
investment adviser will monitor the liquidity of such restricted securities
under the supervision of the Trustees. The Series' investment in Rule 144A
securities could have the effect of increasing illiquidity to the extent that
qualified institutional buyers become, for a limited time, uninterested in
purchasing Rule 144A securities. See "Investment Objectives and
Policies--Illiquid Securities" and "Investment Restrictions" in the Statement of
Additional Information. Repurchase agreements subject to demand are deemed to
have a maturity equal to the notice period.

15
<PAGE>
INVESTMENT RESTRICTIONS

HOW THE FUND IS MANAGED

For the fiscal year ended August 31, 1998, total expenses of the Series as a
percentage of average net assets were .80%, 1.20%, 1.45% and .70% for the
Series' Class A, Class B, Class C and Class Z shares, respectively. See
"Financial Highlights."

MANAGER

PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM OR THE MANAGER), GATEWAY
CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077, IS THE MANAGER
OF THE FUND AND IS COMPENSATED FOR ITS SERVICES AT AN ANNUAL RATE OF .50 OF 1%
OF THE AVERAGE DAILY NET ASSETS OF THE SERIES. PIFM is organized in New York as
a limited liability company. For the fiscal year ended August 31, 1998, the
Series paid PIFM a management fee of .50 of 1% of the Series' average net
assets. See "Fee Waivers and Subsidy" below and "Manager" in the Statement of
Additional Information.

As of September 30, 1998, PIFM served as the manager to 44 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 22 closed-end investment companies with aggregate assets of
approximately $67 billion.

UNDER A SUBADVISORY AGREEMENT BETWEEN PIFM AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC, THE SUBADVISER OR THE INVESTMENT ADVISER), THE SUBADVISER
FURNISHES INVESTMENT ADVISORY SERVICES IN CONNECTION WITH THE MANAGEMENT OF THE
FUND AND IS REIMBURSED BY PIFM FOR ITS REASONABLE COSTS AND EXPENSES INCURRED IN
PROVIDING SUCH SERVICES. PIC's address is Prudential Plaza, Newark, New Jersey
07102-3777. Under the Management Agreement, PIFM continues to have
responsibility for all investment advisory services and supervises the
Subadviser's performance of such services.

The current portfolio managers of the Series are Peter Allegrini and Scott
Diamond, who share responsibility for the day-to-day management of each Series'
portfolio. They have managed the portfolios since October 1997. From 1982 to
1986, Mr. Allegrini was employed by Fidelity Investments as a senior bond
analyst and, from 1986 to 1994, he was portfolio manager, most recently of
Fidelity Advisor High Income Municipal Fund and has been employed by PIC in
various capacities since 1993. Scott Diamond has been employed by PIC in various
capacities since 1993.

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

16
<PAGE>

FEE WAIVERS AND SUBSIDY

PIFM may from time to time waive its management fee or a portion thereof and
subsidize all or a portion of the operating expenses of the Series. Fee waivers
and expense subsidies will increase the Series' yield and total return. The
Series is not required to reimburse PIFM for such fee waivers and expense
subsidy. See "Performance Information" in the Statement of Additional
Information and "Fund Expenses."

DISTRIBUTOR

UNDER SEPARATE DISTRIBUTION AND SERVICE PLANS (THE CLASS A PLAN, THE CLASS B
PLAN AND THE CLASS C PLAN, COLLECTIVELY, THE PLANS) ADOPTED BY THE FUND UNDER
RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT AND A DISTRIBUTION AGREEMENT (THE
DISTRIBUTION AGREEMENT), THE DISTRIBUTOR INCURS THE EXPENSES OF DISTRIBUTING THE
CLASS A, CLASS B AND CLASS C SHARES OF THE SERIES. THE DISTRIBUTOR ALSO INCURS
THE EXPENSE OF DISTRIBUTING THE SERIES' CLASS Z SHARES UNDER THE DISTRIBUTION
AGREEMENT WITH THE FUND, NONE OF WHICH IS REIMBURSED OR PAID FOR BY THE FUND.
These expenses include commissions and account servicing fees paid to, or on
account of, Dealers or financial institutions which have entered into agreements
with the Distributor, advertising expenses, the cost of printing and mailing
prospectuses to potential investors and indirect and overhead costs of the
Distributor associated with the sale of Series shares, including lease, utility,
communications and sales promotion expenses. Certain Dealers are paid higher
fees than others with respect to Class A shares pursuant to separate agreements
with the Distributor.

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

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

UNDER THE CLASS A PLAN, THE SERIES MAY PAY THE DISTRIBUTOR FOR ITS
DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS A SHARES AT AN ANNUAL RATE
OF UP TO .30 OF 1% OF THE AVERAGE DAILY NET ASSETS OF THE CLASS A SHARES OF THE
SERIES. The Class A Plan provides that (i) up to .25 of 1% of the average daily
net assets of the Class A shares may be used to pay for personal service and/or
the maintenance of shareholder accounts (service fee) and (ii) total
distribution fees (including the service fee of .25 of 1%) may not exceed .30 of
1% of the average daily net assets of the Class A shares. The Distributor has
voluntarily limited its distribution-related fees payable under the Class A Plan
to .10 of 1% of the average daily net assets of the Class A shares. This
voluntary waiver may be modified or terminated at any time without notice.

17
<PAGE>

the average daily net assets of the Class C shares, and (ii) a service fee of
.25 of 1% of the average daily net assets of the Class C shares. The Distributor
also receives CDSC's from certain redeeming shareholders. See "Shareholder
Guide--How to Sell Your Shares--Contingent Deferred Sales Charges."

For the fiscal year ended August 31, 1998, the Series paid distribution
expenses of .10 of 1%, .50 of 1% and .75 of 1% of the average daily net assets
of the Class A, Class B and Class C shares, respectively. The Series records all
payments made under the Plans as expenses in the calculation of net investment
income. See "Distributor" in the Statement of Additional Information.

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

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

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

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

PORTFOLIO TRANSACTIONS

Affiliates of the Distributor may act as brokers or futures commission
merchants for the Fund, provided that the commissions, fees or other
remuneration they receives are fair and reasonable. See "Portfolio Transactions
and Brokerage" in the Statement of Additional Information.

CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT

18
<PAGE>

YEAR 2000

HOW THE FUND VALUES ITS SHARES

THE SERIES' NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING ITS
LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. NAV IS CALCULATED SEPARATELY FOR EACH CLASS. THE
TRUSTEES HAVE FIXED THE SPECIFIC TIME OF DAY FOR THE COMPUTATION OF THE NAV OF
THE SERIES TO BE AS OF 4:15 P.M., NEW YORK TIME.

Portfolio securities are valued based on market quotations or, if not readily
available, at fair value as determined in good faith under procedures
established by the Trustees. Securities may also be valued based on values
provided by a pricing service. See "Net Asset Value" in the Statement of
Additional Information.

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

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

HOW THE FUND CALCULATES PERFORMANCE

19
<PAGE>

in the Series would have increased (decreased) over a specified period of time
(I.E., one, five or ten years or since inception of the Series) assuming that
all distributions and dividends by the Series were reinvested on the
reinvestment dates during the period and less all recurring fees. The aggregate
total return reflects actual performance over a stated period of time. Average
annual total return is a hypothetical rate of return that, if achieved annually,
would have produced the same aggregate total return if performance had been
constant over the entire period. Average annual total return smooths out
variations in performance and takes into account any applicable initial or
contingent deferred sales charges. Neither average annual total return nor
aggregate total return takes into account any federal or state income taxes
which may be payable upon redemption. The Fund also may include comparative
performance information in advertising or marketing the shares of the Series.
Such performance information may include data from Lipper Analytical Services,
Inc., Morningstar Publications, Inc., other industry publications, business
periodicals and market indices. See "Performance Information" in the Statement
of Additional Information. Further performance information is contained in the
Series' annual and semi-annual reports to shareholders, which may be obtained
without charge. See "Shareholder Guide--Shareholder Services--Reports to
Shareholders."

TAXES, DIVIDENDS AND DISTRIBUTIONS

TAXATION OF THE FUND

THE SERIES HAS QUALIFIED AND INTENDS TO REMAIN QUALIFIED AS A REGULATED
INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE. ACCORDINGLY, THE SERIES WILL
NOT BE SUBJECT TO FEDERAL INCOME TAXES ON ITS NET INVESTMENT INCOME AND NET
CAPITAL GAINS, IF ANY, THAT IT DISTRIBUTES TO ITS SHAREHOLDERS. TO THE EXTENT
NOT DISTRIBUTED BY THE SERIES, NET TAXABLE INVESTMENT INCOME AND CAPITAL GAINS
AND LOSSES ARE TAXABLE TO THE SERIES. See "Taxes, Dividends and Distributions"
in the Statement of Additional Information.

To the extent the Series invests in taxable obligations, it will earn taxable
investment income. Also, to the extent the Series sells securities or engages in
hedging transactions in futures contracts and options thereon, it may earn both
capital gain or loss. Capital gain or loss may also arise upon the sale of
municipal securities, as well as taxable obligations. Under the Internal Revenue
Code, special rules apply to the treatment of certain options and futures
contracts (Section 1256 contracts). At the end of each year, such investments
held by the Series will be required to be marked to market for federal income
tax purposes, that is, treated as having been sold at market value. Sixty
percent of any gain or loss recognized on these deemed sales and on actual
dispositions will be treated as long-term capital gain or loss, and the
remainder will be treated as short-term capital gain or loss. See "Taxes,
Dividends and Distributions" in the Statement of Additional Information.

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

TAXATION OF SHAREHOLDERS

20
<PAGE>

Any dividends out of net taxable investment income, together with
distributions of net short-term gains (I.E., the excess of net short-term
capital gains over net long-term capital losses) distributed to shareholders,
will be taxable as ordinary income to the shareholder whether or not reinvested.
Any net capital gains (I.E., the excess of net capital gains from the sale of
assets held for more than 12 months over net short-term capital losses)
distributed to shareholders will be taxable as capital gains to the
shareholders, whether or not reinvested and regardless of the length of time a
shareholder has owned his or her shares. For capital gains recognized upon the
sale of assets by the Series, the maximum long-term capital gains tax rate for
individuals is 20%. The maximum capital gains tax rate for corporate
shareholders currently is the same as the maximum tax rate for ordinary income.

Any gain or loss realized upon a sale or redemption of Series shares by a
shareholder who is not a dealer in securities will be treated as capital gain or
loss. Any such capital gain or loss will be treated as long-term capital gain or
loss if the shares were held for more than 12 months. In the case of an
individual, any such long-term capital gain will be taxable at the maximum rate
of 20%. The maximum capital gain tax rate for a corporation is the same as that
for ordinary income. Any loss with respect to shares that are held for six
months or less, however, will be treated as long-term capital loss to the extent
of any capital gain distributions received by the shareholder. In addition, any
short-term capital loss will be disallowed to the extent of any tax-exempt
dividends received by the shareholder on shares that are held for six months or
less.

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

Florida does not currently impose an income tax on individuals. Thus,
individual shareholders of the Series will not be subject to any Florida state
income tax on distributions received from the Series. However, distributions are
likely to be taxable in whole or in part to corporate shareholders (which
include limited liability companies that are taxed as corporations for federal
income tax purposes) which are subject to Florida corporate income tax.

Florida currently imposes an intangibles tax on certain securities and other
intangible assets owned by Florida residents. Florida Obligations and certain
types of U.S. Government securities and other assets are exempt from this
intangibles tax. The Fund has obtained a ruling from Florida authorities that,
if on January 1 of any year the Series' portfolio of assets consists solely of
such exempt investments, then the Series' shares will be exempt from the Florida
intangibles tax payable in that year. If the Series holds any other type of
assets on that date, then the entire value of the Series shares (except for that
portion of the value of the shares attributable to U.S. Government obligations)
will be subject to the Florida intangibles tax.

Interest on indebtedness incurred or continued to purchase or carry shares of
the Series will not be deductible for federal or Florida purposes.

21
<PAGE>

WITHHOLDING TAXES

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

DIVIDENDS AND DISTRIBUTIONS

THE SERIES EXPECTS TO DECLARE DAILY AND PAY MONTHLY DIVIDENDS OF NET
INVESTMENT INCOME, IF ANY, AND MAKE DISTRIBUTIONS AT LEAST ANNUALLY OF ANY
CAPITAL GAINS IN EXCESS OF CAPITAL LOSSES. As of August 31, 1998, the Series has
a capital loss carryforward of $536,600, of which $404,000 expires in 2003 and
$132,600 in 2005. Accordingly, no capital gains distributions are expected to be
paid to shareholders until net gains have been realized in excess of such
amount. Dividends paid by the Series with respect to each class of shares, to
the extent any dividends are paid, will be calculated in the same manner, at the
same time, on the same day and will be in the same amount except that each such
class (other than Class Z) will bear its own distribution charges, generally
resulting in lower dividends for Class B and Class C shares in relation to Class
A and Class Z shares and lower dividends for Class A shares in relation to Class
Z shares. Distributions of net capital gains, if any, will be paid in the same
amount for each class of shares. See "How the Fund Values its Shares."

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

GENERAL INFORMATION

DESCRIPTION OF SHARES

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<PAGE>
Market Series, New York Series, New York Money Market Series, North Carolina
Series, Ohio Series and Pennsylvania Series. The Series is authorized to issue
an unlimited number of shares, divided into four classes, designated Class A,
Class B, Class C and Class Z. Each class of shares represents an interest in the
same assets of the Series and is identical in all respects except that (i) each
class is subject to different sales charges and distribution and/or service fees
(except for Class Z shares which are not subject to any sales charges and
distribution and/or service fees), which may affect performance, (ii) each class
has exclusive voting rights on any matter submitted to shareholders that relates
solely to its arrangement and has separate voting rights on any matter submitted
to shareholders in which the interests of one class differ from the interests of
any other class, (iii) each class has a different exchange privilege, (iv) only
Class B shares have a conversion feature and (v) Class Z shares are offered
exclusively for sale to a limited group of investors. See "How the Fund is
Managed--Distributor." In accordance with the Fund's Declaration of Trust, the
Trustees may authorize the creation of additional series and classes within such
series, with such preferences, privileges, limitations and voting and dividend
rights as the Trustees may determine.

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

The Declaration of Trust and the By-Laws of the Fund are designed to make the
Fund similar in certain respects to a Massachusetts business corporation. The
principal distinction between a Massachusetts business corporation and a
Massachusetts business trust relates to shareholder liability. Under
Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
fund, which is not the case with a corporation. The Declaration of Trust of the
Fund provides that shareholders shall not be subject to any personal liability
for the acts or obligations of the Fund and that every written obligation,
contract, instrument or undertaking made by the Fund shall contain a provision
to the effect that the shareholders are not individually bound thereunder.

ADDITIONAL INFORMATION

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

23
<PAGE>
SHAREHOLDER GUIDE

HOW TO BUY SHARES OF THE FUND

YOU MAY PURCHASE SHARES OF THE SERIES THROUGH THE DISTRIBUTOR, THROUGH
DEALERS, INCLUDING PRUDENTIAL SECURITIES OR PRUSEC, OR DIRECTLY FROM THE FUND
THROUGH ITS TRANSFER AGENT, PRUDENTIAL MUTUAL FUND SERVICES LLC (PMFS OR THE
TRANSFER AGENT), ATTENTION: INVESTMENT SERVICES, P.O. BOX 15020, NEW BRUNSWICK,
NEW JERSEY 08906-5020. Participants in programs sponsored by Prudential
Retirement Services should contact their client representative for more
information about Class Z shares. The purchase price is the NAV next determined
following receipt of an order in proper form (in accordance with procedures
established by the Transfer Agent in connection with investors' accounts) by the
Distributor, your Dealer or the Transfer Agent plus a sales charge which, at
your option, may be imposed either at the time of purchase, on a deferred basis,
or both. Class A shares are sold with a front-end sales charge. Class B shares
are subject to a CDSC. Class C shares are sold with a low front-end sales
charge, but are also subject to a CDSC. Class Z shares are offered to a limited
group of investors at NAV without any sales charge. Payments may be made by
wire, check or through your brokerage account. See "Alternative Purchase Plan"
below and "How the Fund Values its Shares."

An investment in the Series may not be appropriate for tax-exempt or
tax-deferred investors. Such investors should consult their own tax advisers.

The minimum initial investment is $1,000 for Class A and Class B shares and
$2,500 for Class C shares, except that the minimum initial investment for Class
C shares may be waived from time to time. The minimum subsequent investment is
$100 for Class A, Class B and Class C shares. Class Z shares are not subject to
any minimum investment requirements. All minimum investment requirements are
waived for certain employee savings plans. For purchases made through the
Automatic Investment Plan, the minimum initial and subsequent investment is $50.
See "Shareholder Services" below.

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

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

Dealers may charge their customers a separate fee for processing purchases and
redemptions. In addition, transactions in shares of the Series may be subject to
postage and handling charges imposed by your Dealer. Any such charge is retained
by the Dealer and is not remitted to the Fund.

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

24
<PAGE>

If you arrange for receipt by State Street of federal funds prior to the
calculation of NAV (4:15 P.M., New York time), on a business day, you may
purchase shares of the Series as of that day. See "Net Asset Value" in the
Statement of Additional Information.

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

ALTERNATIVE PURCHASE PLAN

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

<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE
SALES CHARGE DAILY NET ASSETS) OTHER INFORMATION
----------------------------------- ----------------------------------- -----------------------------------
<S> <C> <C> <C>
CLASS A Maximum initial sales charge of 3% .30 of 1% Initial sales charge waived or
of the public offering price reduced for certain purchases

CLASS B Maximum contingent deferred sales .50 of 1% Shares convert to Class A shares
charge or CDSC of 5% of the lesser approximately seven years after
of the amount invested or the purchase
redemption proceeds; declines to
zero after six years

CLASS C Initial sales charge of 1% of the .75 of 1% Shares do not convert to another
public offering price and maximum
CDSC of 1% of the lesser of the
amount invested or the redemption
proceeds on redemptions made within
18 months of purchase

CLASS Z None None Sold to a limited group of
investors
</TABLE>

The four classes of shares represent an interest in the same portfolio of
investments of the Series and have the same rights, except that (i) each class
(with the exception of Class Z shares, which are not subject to any distribution
or service fees) is subject to different sales charges and distribution and/or
service fees which may affect performance, (ii) each class has exclusive voting
rights on any matter submitted to shareholders that relates solely to its
arrangement and has separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the interests of
any other class, (iii) each class has a different exchange privilege, (iv) only
Class B shares have a conversion feature and (v) Class Z shares are offered
exclusively for sale to a limited group of investors. See "How to Exchange Your
Shares" below. The income attributable to each class and the dividends payable
on the shares of each class will be reduced by the amount of the distribution
fee (if any) of each class. Class B and Class C shares bear the expenses of a
higher distribution fee which will generally cause them to have higher expense
ratios and to pay lower dividends than the Class A and Class Z shares.

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

25
<PAGE>
IN SELECTING A PURCHASE ALTERNATIVE, YOU SHOULD CONSIDER, AMONG OTHER THINGS,
(1) the length of time you expect to hold your investment, (2) the amount of any
applicable sales charge (whether imposed at the time of purchase or redemption)
and distribution-related fees, as noted above, (3) whether you qualify for any
reduction or waiver of any applicable sales charge, (4) the various exchange
privileges among the different classes of shares (see "How to Exchange Your
Shares" below) and (5) the fact that Class B shares automatically convert to
Class A shares approximately seven years after purchase (see "Conversion
Feature--Class B Shares" below).

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

If you intend to hold your investment in a Fund for less than 3 years and do
not qualify for a reduced sales charge on Class A shares, since Class A shares
are subject to a maximum initial sales charge of 3% and Class B shares are
subject to a CDSC of 5% which declines to zero over a 6 year period, you should
consider purchasing Class C shares over either Class A or Class B shares.

If you intend to hold your investment for more than 3 years, but less than 4
years, or for more than 5 years, but less than 6 years, you should consider
purchasing Class A shares, because the maximum 3% initial sales charge plus the
cumulative annual distribution-related fee on Class A shares would be lower
than: (i) the CDSC plus the cumulative annual distribution-related fee on Class
B shares; and (ii) the 1% initial sales charge plus the cumulative annual
distribution-related fee on Class C shares.

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

If you intend to hold your investment for more than 6 years and do not qualify
for a reduced sales charge on Class A shares, since Class B shares convert to
Class A approximately 7 years after purchase and because all of your money would
be invested initially in the case of Class B shares, you should consider
purchasing Class B shares over either Class A or Class C shares.

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

If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class C shares, you would have to hold your investment for more than 3
years for the 1% initial sales charge plus the higher cumulative annual
distribution-related fee on the Class C shares to exceed the initial sales
charge plus cumulative annual distribution-related fees on Class A shares. This
does not take into account the time value of money, which further reduces the
impact of the higher Class C distribution-related fee on the investment,
fluctuations in NAV, the effect of the return on the investment over this period
of time or redemptions when the CDSC is applicable.

ALL PURCHASES OF $1 MILLION OR MORE, EITHER AS PART OF A SINGLE INVESTMENT OR
UNDER RIGHTS OF ACCUMULATION OR LETTERS OF INTENT, MUST BE FOR CLASS A SHARES
UNLESS THE PURCHASER IS ELIGIBLE TO PURCHASE CLASS Z SHARES. See "Reduction and
Waiver of Initial Sales Charges" and "Class Z Shares" below.

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<PAGE>
CLASS A SHARES

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

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

The Distributor may reallow the entire initial sales charge to Dealers.
Dealers may be deemed to be underwriters, as that term is defined under federal
securities laws. The Distributor reserves the right, without prior notice to any
Dealer, to suspend or eliminate Dealer concessions or commissions.

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

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

OTHER WAIVERS. Class A shares may be purchased at NAV, through the Distributor
or the Transfer Agent, by the following persons: (a) officers of the Prudential
Mutual Funds (including the Fund), (b) employees of the Distributor, Prudential
Securities, PIFM and their subsidiaries and members of the families of such
persons who maintain an employee related account at Prudential Securities or the
Transfer Agent, (c) employees of subadvisers of the Prudential Mutual Funds
provided that the purchases at NAV are permitted by such person's employer, (d)
Prudential, employees and special agents of Prudential and its subsidiaries and
all persons who have retired directly from active service with Prudential or one
of its subsidiaries, (e) registered representatives and employees of Dealers who
have entered into a selected dealer agreement with the Distributor, provided
that purchases at NAV are permitted by such person's employer and (f) investors
who have a business relationship with a financial adviser who joined Prudential
Securities from another investment firm, provided that (i) the purchase is made
within 180 days of the commencement of the financial adviser's employment at
Prudential Securities or within one year in the case of benefit plans, (ii) the
purchase is made with proceeds of a redemption of shares of any open-end
non-money market fund sponsored by the financial adviser's previous employer
(other than a fund or other no-load fund which imposes a distribution or service
fee of .25 of 1% or less) and (iii) the financial adviser served as the client's
broker on the previous purchase.

For an investor to obtain any reduction or waiver of the initial sales
charges, at the time of the sale either the Transfer Agent must be notified
directly by the investor or the Distributor must be notified by the Dealer
facilitating the transaction that the sale qualifies for the reduced or waived
sales charge. The reduction or waiver will be granted subject to confirmation of
your entitlement. No initial sales charges are imposed upon Class A shares
acquired upon the reinvestment of dividends and distributions. See "Purchase and
Redemption of Fund Shares--Reduction and Waiver of Initial Sales Charges--Class
A Shares" in the Statement of Additional Information.

27
<PAGE>

CLASS B AND CLASS C SHARES

The offering price of Class B shares is the NAV next determined following
receipt of an order in proper form by the Transfer Agent, your Dealer or the
Distributor. The offering price of Class C shares is the NAV next determined
following receipt of an order in proper form by the Transfer Agent, your Dealer
or the Distributor plus a sales charge equal to 1% of the public offering price.
Redemption of Class B and Class C shares may be subject to a CDSC. See "How to
Sell Your Shares--Contingent Deferred Sales Charges."

The Distributor will pay, from its own resources, sales commissions of up to
4% of the purchase price of Class B shares to Dealers, financial advisers and
other persons who sell Class B shares at the time of sale. This facilitates the
ability of the Trust to sell the Class B shares of the Funds without an initial
sales charge being deducted at the time of purchase. The Distributor anticipates
that it will recoup its advancement of sales commissions from the combination of
the CDSC and the distribution fee. In connection with the sale of Class C
shares, the Distributor will pay, partially from its own resources, Dealers,
financial advisers and other persons which distribute Class C shares a sales
commission of up to 2% of the purchase price at the time of the sale. The
Distributor anticipates that it would recoup its advancement of sales
commissions from the combination of the CDSC and the distribution fee. See "How
the Fund is Managed--Distributor."

WAIVER OF INITIAL SALES CHARGE--CLASS C SHARES

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

CLASS Z SHARES

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

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

In connection with the sale of Class Z shares, the Manager, the Distributor or
one of their affiliates may pay Dealers, financial advisers and other persons
which distribute shares a finders' fee, based on a percentage of the NAV of
shares sold by such persons.

HOW TO SELL YOUR SHARES

28
<PAGE>

receive your sell order before the Fund computes its NAV for that day (I.E.,
4:15 p.m., New York time) in order to receive that day's NAV. Your Dealer will
be responsible for furnishing all necessary documentation to the Distributor and
may charge you for its services in connection with redeeming shares of the Fund.

IF YOU HOLD SHARES IN NON-CERTIFICATE FORM, A WRITTEN REQUEST FOR REDEMPTION
SIGNED BY YOU EXACTLY AS THE ACCOUNT IS REGISTERED IS REQUIRED. IF YOU HOLD
CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE FACE OF THE
CERTIFICATES, MUST BE RECEIVED BY THE TRANSFER AGENT, THE DISTRIBUTOR OR YOUR
DEALER ORDER FOR THE REDEMPTION REQUEST TO BE PROCESSED. IF REDEMPTION IS
REQUESTED BY A CORPORATION, PARTNERSHIP, TRUST OR FIDUCIARY, WRITTEN EVIDENCE OF
AUTHORITY ACCEPTABLE TO THE TRANSFER AGENT MUST BE SUBMITTED BEFORE SUCH REQUEST
WILL BE ACCEPTED. All correspondence and documents concerning redemptions should
be sent to the Fund in care of its Transfer Agent, Prudential Mutual Fund
Services LLC, Attention: Redemption Services, P.O. Box 15010, New Brunswick, New
Jersey 08906-5010, the Distributor or your Dealer.

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

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

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

REDEMPTION IN KIND. If the Trustees determine that it would be detrimental to
the best interests of the remaining shareholders of the Fund to make payment
wholly or partly in cash, the Fund may pay the redemption price in whole or in
part by a distribution in kind of securities from the investment portfolio of
the Series of the Fund, in lieu of cash, in conformity with applicable rules of
the Commission. Securities will be readily marketable and will be valued in the
same manner as in a regular redemption. See "How the Fund Values its Shares." If
your shares are redeemed in kind, you will incur transaction costs in converting
the assets into cash. The Fund, however, has elected to be governed by Rule
18f-1 under the Investment Company Act, under which the Fund is obligated to
redeem shares solely in cash up to the lesser of $250,000 or 1% of the NAV of
the Fund during any 90-day period for any one shareholder.

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

29
<PAGE>

order is received, which must be within 90 days after the date of the
redemption. Any CDSC paid in connection with such redemption will be credited
(in shares) to your account. (If less than a full repurchase is made, the credit
will be on a PRO RATA basis.) You must notify the Transfer Agent, either
directly or through the Distributor or your Dealer, at the time the repurchase
privilege is exercised to adjust your account for the CDSC you previously paid.
Thereafter, any redemptions will be subject to the CDSC applicable at the time
of the redemption. See "Contingent Deferred Sales Charges" below. Exercise of
the repurchase privilege may affect the federal tax treatment of any gain
realized upon redemption.

CONTINGENT DEFERRED SALES CHARGES

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

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

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

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

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

30
<PAGE>
shares would be $1,260 (105 shares at $12 per share). The CDSC would not be
applied to the value of the reinvested dividend shares and the amount which
represents appreciation ($260). Therefore, $240 of the $500 redemption proceeds
($500 minus $260) would be charged at a rate of 4% (the applicable rate in the
second year after purchase) for a total CDSC of $9.60.

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

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

SYSTEMATIC WITHDRAWAL PLAN. The CDSC will be waived (or reduced) on certain
redemptions from a Systematic Withdrawal Plan. On an annual basis, up to 12% of
the total dollar amount subject to the CDSC may be redeemed without charge. The
Transfer Agent will calculate the total amount available for this waiver
annually on the anniversary date of your purchase or, for shares purchased prior
to March 1, 1997, on March 1 of the current year. The CDSC will be waived (or
reduced) on redemptions until this threshold 12% amount is reached.

You must notify the Transfer Agent either directly or through your Dealer, at
the time of redemption, that you are entitled to waiver of the CDSC and provide
the Transfer Agent with such supporting documentation as it may deem
appropriate. The waiver will be granted subject to confirmation of your
entitlement. See "Purchase and Redemption of Fund Shares--Waiver of the
Contingent Deferred Sales Charge--Class B Shares" in the Statement of Additional
Information.

CONVERSION FEATURE--CLASS B SHARES

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

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

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

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

31
<PAGE>
For purposes of calculating the applicable holding period for conversions, all
payments for Class B shares during a month will be deemed to have been made on
the last day of the month, or for Class B shares acquired through exchange, or a
series of exchanges, on the last day of the month in which the original payment
for purchases of such Class B shares was made. For Class B shares previously
exchanged for shares of a money market fund, the time period during which such
shares were held in the money market fund will be excluded. For example, Class B
shares held in a money market fund for one year will not convert to Class A
shares until approximately eight years from purchase. For purposes of measuring
the time period during which shares are held in a money market fund, exchanges
will be deemed to have been made on the last day of the month. Class B shares
acquired through exchange will convert to Class A shares after expiration of the
conversion period applicable to the original purchase of such shares.

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

HOW TO EXCHANGE YOUR SHARES

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

IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE TELEPHONE
EXCHANGES ON YOUR INITIAL APPLICATION FORM OR BY WRITTEN NOTICE TO THE TRANSFER
AGENT AND HOLD SHARES IN NON-CERTIFICATE FORM. Thereafter, you may call the Fund
at (800) 225-1852 to execute a telephone exchange of shares, weekdays, except
holidays, between the hours of 8:00 A.M. and 6:00 P.M., New York time. For your
protection and to prevent fraudulent exchanges, your telephone call will be
recorded and you will be asked to provide your personal identification number. A
written confirmation of the exchange transaction will be sent to you. NEITHER
THE FUND NOR ITS AGENTS WILL BE LIABLE FOR ANY LOSS, LIABILITY OR COST WHICH
RESULTS FROM ACTING UPON INSTRUCTIONS REASONABLY BELIEVED TO BE GENUINE UNDER
THE FOREGOING PROCEDURES. All exchanges will be made on the basis of the
relative NAV of the two funds (or series) next determined after the request is
received in good order.

IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.

IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE
FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.

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

32
<PAGE>

IN PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS, THE TELEPHONE EXCHANGE OF
SHARES MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD MAKE EXCHANGES BY MAIL BY
WRITING TO PRUDENTIAL MUTUAL FUND SERVICES LLC AT THE ADDRESS NOTED ABOVE.

SPECIAL EXCHANGE PRIVILEGES. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV (see "Alternative
Purchase Plan--Class A Shares--Reduction and Waiver of Initial Sales Charges"
above) and for shareholders who qualify to purchase Class Z shares (see
"Alternative Purchase Plan--Class Z Shares" above). Under this exchange
privilege, amounts representing any Class B and Class C shares (which are not
subject to a CDSC) held in such a shareholder's account will be automatically
exchanged for Class A shares for shareholders who qualify to purchase Class A
shares at NAV on a quarterly basis, unless the shareholder elects otherwise.
Similarly, shareholders who qualify to purchase Class Z shares will have their
Class B and Class C shares which are not subject to a CDSC and their Class A
shares exchanged for Class Z shares on a quarterly basis. Eligibility for this
exchange privilege will be calculated on the business day prior to the date of
the exchange. Amounts representing Class B or Class C shares which are not
subject to a CDSC include the following: (1) amounts representing Class B or
Class C shares acquired pursuant to the automatic reinvestment of dividends and
distributions, (2) amounts representing the increase in the NAV above the total
amount of payments for the purchase of Class B or Class C shares and (3) amounts
representing Class B or Class C shares held beyond the applicable CDSC period.
Class B and Class C shareholders must notify the Transfer Agent either directly
or through their Dealer or the Distributor that they are eligible for this
special exchange privilege.

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

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

SHAREHOLDER SERVICES

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

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

33
<PAGE>

- AUTOMATIC INVESTMENT PLAN (AIP). Under AIP you may make regular purchases of
the Series' shares in amounts as little as $50 via an automatic debit to a bank
account or brokerage account (including a COMMAND Account). For additional
information about this service, you may contact the Distributor, your Dealer or
the Transfer Agent directly.

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

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

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

34
<PAGE>
DESCRIPTION OF SECURITY RATINGS

MOODY'S INVESTORS SERVICE

BOND RATINGS

Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may 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 which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.

Baa: Bonds which 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 which 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 which 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.

Caa: Bonds which 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 which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C: Bonds which 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 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, enjoying
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, with margins
of protection ample although not so large as in the preceding group.

A-1
<PAGE>
MIG 3: Loans bearing the designation MIG 3 are of favorable quality, with all
security elements accounted for but lacking the strength of the preceding
grades.

MIG 4: Loans bearing the designation MIG 4 are of adequate quality.
Protection commonly regarded and required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.

SG: This designation denotes speculative quality. Debt instruments in this
category lack margins of protection.

SHORT-TERM DEBT RATINGS

Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted.

PRIME-1: Issuers rated "Prime-1" (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:

- Leading market positions in well-established industries.

- High rates of return on funds employed.

- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.

- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

- Well-established access to a range of financial markets and assured
sources of alternate liquidity.

PRIME-2: Issuers rated "Prime-2" (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This normally will
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

PRIME-3: Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations.

NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime rating
categories.

STANDARD & POOR'S RATINGS GROUP

DEBT RATINGS

AAA: An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.

AA: An obligation rated AA differs from the highest rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.

A: An obligation rated A is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.

BBB: An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.

BB, B, CCC, CC AND C: Obligations rated BB, B, CCC, CC and C are regarded as
having significant speculative characteristics. BB indicates the least degree of
speculation and C the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.

A-2
<PAGE>
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

An S&P Commercial Paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.

A-1: This 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 this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.

A-3: Issues carrying this 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 concerns and market access
risks unique to municipal notes. Municipal notes due in three years or less will
likely receive a municipal note rating, while notes maturing beyond three years
will most likely receive a long-term debt rating. Municipal notes are rated
SP-1, SP-2 or SP-3. The designation SP-1 indicates a very strong capacity to pay
principal and interest. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation. An SP-2
designation indicates a satisfactory capacity to pay principal and interest. An
SP-3 designation indicates speculative capacity to pay principal and interest.

A-3
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY

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

TAXABLE BOND FUNDS
--------------------------

TAX-EXEMPT BOND FUNDS
-----------------------------

GLOBAL 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 Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential International Bond Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series
Global Utility Fund, Inc.
The Global Total Return Fund, Inc.

EQUITY FUNDS
--------------------

Prudential Balanced Fund
Prudential Distressed Securities Fund, Inc.
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Index Series Fund
Prudential Bond Market Index Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced Fund
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Mid-Cap Value Fund
Prudential Real Estate Securities Fund
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Utility Fund, Inc.
Prudential 20/20 Fixed Fund
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund

MONEY MARKET FUNDS
--------------------------

- - 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

B-1
<PAGE>

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

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FUND HIGHLIGHTS............................................................. 2
What are the Series' Risk Factors and Special Characteristics?............ 2
FUND EXPENSES............................................................... 4
FINANCIAL HIGHLIGHTS........................................................ 5
HOW THE FUND INVESTS........................................................ 9
Investment Objective and Policies......................................... 9
Other Investments and Policies............................................ 15
Investment Restrictions................................................... 16
HOW THE FUND IS MANAGED..................................................... 16
Manager................................................................... 16
Fee Waivers and Subsidy................................................... 17
Distributor............................................................... 17
Portfolio Transactions.................................................... 18
Custodian and Transfer and Dividend Disbursing Agent...................... 18
Year 2000................................................................. 19
HOW THE FUND VALUES ITS SHARES.............................................. 19
HOW THE FUND CALCULATES PERFORMANCE......................................... 19
TAXES, DIVIDENDS AND DISTRIBUTIONS.......................................... 20
GENERAL INFORMATION......................................................... 22
Description of Shares..................................................... 22
Additional Information.................................................... 23
SHAREHOLDER GUIDE........................................................... 24
How to Buy Shares of the Fund............................................. 24
Alternative Purchase Plan................................................. 25
How to Sell Your Shares................................................... 28
Conversion Feature--Class B Shares........................................ 31
How to Exchange Your Shares............................................... 32
Shareholder Services...................................................... 33
DESCRIPTION OF SECURITY RATINGS............................................. A-1
THE PRUDENTIAL MUTUAL FUND FAMILY........................................... B-1
</TABLE>

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

MF148A

CUSIP Nos.: Class A: 74435M-50-7
Class B: 74435M-60-6
Class C: 74435M-61-4
Class Z: 74435M-42-4

PRUDENTIAL
MUNICIPAL
SERIES FUND
- -----------

FLORIDA SERIES

PROSPECTUS
November 2, 1998
www.prudential.com

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

[LOGO]
<PAGE>
Prudential Municipal Series Fund
(Maryland Series)

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

PROSPECTUS DATED NOVEMBER 2, 1998

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

Prudential Municipal Series Fund (the Fund) (Maryland Series) (the Series) is
one of thirteen series of an open-end, management investment company, or mutual
fund. This Series is diversified and is designed to provide the maximum amount
of income that is exempt from Maryland State and federal income taxes consistent
with the preservation of capital and, in conjunction therewith, the Series may
invest in debt securities with the potential for capital gain. The net assets of
the Series are invested primarily in obligations within the four highest ratings
of Moody's Investors Service, Standard & Poor's Ratings Group or another
nationally recognized statistical rating organization or in unrated obligations
which, in the opinion of the Fund's investment adviser, are of comparable
quality. The Series may, however, also invest a portion of its assets in lower-
quality municipal obligations or in non-rated securities which, in the opinion
of the Fund's investment adviser, are of comparable quality. Subject to the
limitations described herein, the Series may utilize derivatives, including
buying and selling futures contracts and options thereon for the purpose of
hedging its portfolio securities. There can be no assurance that the Series'
investment objective will be achieved. See "How the Fund Invests--Investment
Objective and Policies." The Fund's address is Gateway Center Three, 100
Mulberry Street, Newark, New Jersey 07102-4077, and its telephone number is
(800) 225-1852.

The Trustees of the Fund have recently approved a proposal to exchange the
assets and liabilities of the Series of the Fund for shares of Prudential
National Municipals Fund, Inc. (National Municipals Fund). Class A, Class B and
Class C shares of the Series would be exchanged at relative net asset value for
Class A shares of National Municipals Fund. The transfer has been approved by
the Trustees of the Fund and by the Board of Directors of National Municipals
Fund and is subject to approval by the shareholders of the Series. It is
anticipated that a proxy statement/prospectus relating to the transaction will
have been mailed to the Series' shareholders in late October 1998. EFFECTIVE
IMMEDIATELY, THE FUND WILL NO LONGER ACCEPT ORDERS TO PURCHASE OR EXCHANGE FOR
SHARES OF THE SERIES, EXCEPT FOR PURCHASES BY CERTAIN RETIREMENT AND EMPLOYEE
PLANS (EXCLUDING IRA ACCOUNTS). Existing shareholders may continue to acquire
shares through dividend reinvestment. The current redemption privilege and the
current exchange privilege of obtaining shares of other Prudential Mutual Funds
will remain in effect until the transaction is consummated. If the transaction
is not consummated, the Fund will resume accepting orders to purchase or
exchange for shares of the Series. See "Shareholder Guide--How to Buy Shares of
the Fund."

This Prospectus sets forth concisely the information about the Fund and the
Maryland Series that a prospective investor should know before investing and is
available at the Web site of the Prudential Insurance Company of America
(http://www.prudential.com). Additional information about the Fund has been
filed with the Securities and Exchange Commission (the Commission) in a
Statement of Additional Information dated November 2, 1998, which information is
incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Fund at the
address or telephone number noted above. The Commission maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference and other information regarding the Fund.

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

INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.

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

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

The following summary is intended to highlight certain information contained
in this Prospectus and is qualified in its entirety by the more detailed
information appearing elsewhere herein.
WHAT IS THE SERIES' INVESTMENT OBJECTIVE?

The Series' investment objective is to maximize current income that is
exempt from Maryland State and federal income taxes consistent with the
preservation of capital. It seeks to achieve this objective by investing
primarily in Maryland State, municipal and local government obligations and
obligations of other qualifying issuers, such as issuers located in Puerto
Rico, the Virgin Islands and Guam, which pay income exempt, in the opinion
of counsel, from Maryland State and federal income taxes (Maryland
Obligations). There can be no assurance that the Series' investment
objective will be achieved. See "How the Fund Invests--Investment Objective
and Policies" at page 8.

WHAT ARE THE SERIES' RISK FACTORS AND SPECIAL CHARACTERISTICS?

In seeking to achieve its investment objective, the Series will invest at
least 80% of the value of its total assets in Maryland Obligations. This
degree of investment concentration makes the Series particularly susceptible
to factors adversely affecting issuers of Maryland Obligations. See "How the
Fund Invests--Investment Objective and Policies--Special Considerations" at
page 13. The Series may invest up to 30% of its total assets in high yield
securities, commonly known as junk bonds, which may be considered
speculative and are subject to the risk of an issuer's inability to meet
principal and interest payments on the obligations as well as price
volatility. See "How the Fund Invests--Investment Objective and
Policies--Risk Factors Relating to Investing in High Yield Municipal
Obligations" at page 11. To hedge against changes in interest rates, the
Series may also purchase put options and engage in transactions involving
derivatives, including financial futures contracts and options thereon. See
"How the Fund Invests--Investment Objective and Policies--Futures Contracts
and Options Thereon" at page 12. As with an investment in any mutual fund,
an investment in this Series can decrease in value and you can lose money.

WHO MANAGES THE FUND?

Prudential Investments Fund Management LLC (PIFM or the Manager) is the
Manager of the Fund and is compensated for its services at an annual rate of
.50 of 1% of the Series' average daily net assets. As of September 30, 1998,
PIFM served as manager or administrator to 66 investment companies,
including 44 mutual funds, with aggregate assets of approximately $67
billion. The Prudential Investment Corporation (PIC, the Subadviser or the
investment adviser) furnishes investment advisory services in connection
with the management of the Fund under a Subadvisory Agreement with PIFM. See
"How the Fund is Managed--Manager" at page 15.

WHO DISTRIBUTES THE SERIES' SHARES?

Prudential Investment Management Services LLC (the Distributor) acts as
the Distributor of the Series' Class A, Class B and Class C shares and is
paid a distribution and service fee with respect to Class A shares at the
rate of .25 of 1% of the average daily net assets of the Class A shares and
is paid a distribution and service fee with respect to Class B shares at the
annual rate of .50 of 1% of the average daily net assets of the Class B
shares and is paid an annual distribution and service fee with respect to
Class C shares which is currently being charged at the rate of .75 of 1% of
the average daily net assets of the Class C shares. See "How the Fund is
Managed--Distributor" at page 15.

2
<PAGE>
WHAT IS THE MINIMUM INVESTMENT?

The minimum initial investment is $1,000 for Class A and Class B shares
and $2,500 for Class C shares. The minimum subsequent investment is $100 for
Class A, Class B and Class C shares. There is no minimum investment
requirement for certain employee savings plans. For purchases made through
the Automatic Investment Plan, the minimum initial and subsequent investment
is $50. See "Shareholder Guide--How to Buy Shares of the Fund" at page 22
and "Shareholder Guide--Shareholder Services" at page 32.

HOW DO I PURCHASE SHARES?

You may purchase shares of the Series through the Distributor or brokers
or dealers that have entered into agreements to act as participating or
introducing brokers for the Distributor (Dealers) or directly from the Fund
through its transfer agent, Prudential Mutual Fund Services LLC (PMFS or the
Transfer Agent). In each case, sales are made at the net asset value per
share (NAV) next determined after receipt of your purchase order by the
Transfer Agent, a Dealer or the Distributor plus a sales charge, which may
be imposed at the time of purchase, on a deferred basis, or both. Class A
shares are sold with a front-end sales charge. Class B shares are subject to
a contingent-deferred sales charge (CDSC). Class C shares are sold with a
low front-end sales charge, but are also subject to a CDSC. Dealers may
charge their customers a separate fee for handling purchase transactions.
See "How the Fund Values its Shares" at page 18 and "Shareholder Guide--How
to Buy Shares of the Fund" at page 22.

WHAT ARE MY PURCHASE ALTERNATIVES?

The Series offers three classes of shares:

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

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

See "Shareholder Guide--Alternative Purchase Plan" at page 24.

HOW DO I SELL MY SHARES?

HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?

3
<PAGE>
FUND EXPENSES
(MARYLAND SERIES)

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
----------------- ---------------------- -----------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES+
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price)......................... 3% None 1%
Maximum Deferred Sales Load (as a percentage of
original purchase price or redemption proceeds,
whichever is lower)................................... None 5% during the first 1% on redemptions
year, decreasing by 1% made within 18
annually to 1% in the months of
fifth and sixth years purchase
and 0% the seventh
year*
Maximum Sales Load Imposed on Reinvested Dividends..... None None None
Redemption Fees........................................ None None None
Exchange Fee........................................... None None None
</TABLE>

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- -------------- --------------
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees........................................ .50% .50% .50%
12b-1 Fees (After Reduction)........................... .25%++ .50%++ .75%++
Other Expenses......................................... .59% .58% .58%
--- --- ---
Total Fund Operating Expenses (After Reduction)........ 1.34% 1.58% 1.83%
--- --- ---
--- --- ---
</TABLE>

<TABLE>
<CAPTION>
1 3 5 10
YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
EXAMPLE
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period:
Class A................................................ $43 $ 71 $101 $186
Class B................................................ $66 $ 80 $ 96 $178
Class C................................................ $38 $ 67 $108 $223
You would pay the following expenses on the same
investment, assuming no redemption:
Class A................................................ $43 $ 71 $101 $186
Class B................................................ $16 $ 50 $ 86 $178
Class C................................................ $28 $ 67 $108 $223
</TABLE>

THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

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

* Class B shares will automatically convert to Class A shares approximately
seven years after purchase. See "Shareholder Guide--Conversion Feature--
Class B Shares."

+ Dealers independently may charge additional fees for shareholder
transactions or advisory services. Pursuant to rules of the National
Association of Securities Dealers, Inc., the aggregate initial sales
charges, deferred sales charges and asset-based sales charges on shares
of the Series may not exceed 6.25% of total gross sales, subject to
certain exclusions. This 6.25% limitation is on each class of the Series
rather than on a per shareholder basis. Therefore, long-term shareholders
of the Series may pay more in total sales charges than the economic
equivalent of 6.25% of such shareholders' investment in such shares. See
"How the Fund is Managed--Distributor."

++ Although the Class A, Class B and Class C Distribution and Service Plans
provide that the Fund may pay a distribution fee of up to .30 of 1%, .50
of 1% and 1% per annum of the average daily net assets of the Class A,
Class B and Class C shares, respectively, the Distributor may voluntarily
limit its distribution fees. Presently the Distributor limits its
distribution fees with respect to the Class A, Class B and Class C shares
of the Series to no more than .10 of 1%, .10 of 1% and .25 of 1% of the
average daily net asset value of the Class A, Class B and Class C shares,
respectively. This voluntary limitation may be modified or terminated at
any time without notice. The Distributor anticipates modifying its
present limitation for Class A and Class C shares so that, in the future,
the Fund will pay distribution fees of .25% and .75%, respectively, and
eliminating its present limitation for Class B shares so that, in the
future, the Fund will pay distribution fees of .50%. Total Fund Operating
Expenses of the Class A and Class C shares without any limitations would
be 1.39% and 2.08%, respectively. See "How the Fund is
Managed--Distributor."

4
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH OF THE INDICATED
PERIODS)
(CLASS A SHARES)

The following financial highlights, for the two years ended August 31, 1998,
have been audited by PricewaterhouseCoopers LLP, independent accountants and for
the three years ended August 31, 1996 have been audited by other independent
auditors. All such audit reports were unqualified. This information should be
read in conjunction with the financial statements and the notes thereto, which
appear in the Statement of Additional Information. The following financial
highlights contain selected data for a Class A share of beneficial interest
outstanding, total return, ratios to average net assets and other supplemental
data for the periods indicated. This information is based on data contained in
the financial statements. Further performance information is contained in the
annual report, which may be obtained without charge. See "Shareholder
Guide--Shareholder Services--Reports to Shareholders."

<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------------------------------
JANUARY 22,
1990 (a)
YEAR ENDED AUGUST 31, THROUGH
----------------------------------------------------------------------------------- AUGUST 31,
1998 1997 1996 1995 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>

PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period.... $10.99 $10.74 $10.66 $10.66 $11.64 $11.11 $10.67 $10.23 $10.44
------ ------ ------ ------ ------ ------ ------ ------ -----------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income.... .48 .49(d) .51(d) .53(d) .57 .62 .63 .67 .40
Net realized and
unrealized gain (loss)
on investment
transactions........... .39 .39 .08 .10 (.77) .65 .44 .44 (.21)
------ ------ ------ ------ ------ ------ ------ ------ -----------
Total from investment
operations............. .87 .88 .59 .63 (.20) 1.27 1.07 1.11 .19
------ ------ ------ ------ ------ ------ ------ ------ -----------
LESS DISTRIBUTIONS
Dividends from net
investment income...... (.48) (.49) (.51) (.53) (.57) (.62) (.63) (.67) (.40)
Distributions paid in
excess of net
investment income...... --(e) (.01) -- -- -- -- -- -- --
Distributions from net
realized gains......... (.04) (.13) -- (.10) (.21) (.12) -- -- --
------ ------ ------ ------ ------ ------ ------ ------ -----------
Total distributions...... (.52) (.63) (.51) (.63) (.78) (.74) (.63) (.67) (.40)
------ ------ ------ ------ ------ ------ ------ ------ -----------
Net asset value, end of
period................. $11.34 $10.99 $10.74 $10.66 $10.66 $11.64 $11.11 $10.67 $10.23
------ ------ ------ ------ ------ ------ ------ ------ -----------
------ ------ ------ ------ ------ ------ ------ ------ -----------
TOTAL RETURN (c):........ 8.01% 8.38% 5.58% 6.32% (1.75)% 11.89% 10.35% 10.84% 1.71%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).................. $18,920 $18,558 $18,339 $17,726 $2,709 $2,930 $1,335 $ 804 $ 349
Average net assets
(000).................. $18,857 $18,970 $18,484 $11,341 $2,877 $2,068 $1,080 $ 518 $ 141
Ratios to average net
assets:
Expenses, including
distribution fees..... 1.19% 1.12%(d) 1.10%(d) 1.30%(d) .95% .96% .96% 1.10% 1.01%(b)
Expenses, excluding
distribution fees..... 1.09% 1.02%(d) 1.00%(d) 1.20%(d) .85% .86% .86% 1.00% .91%(b)
Net investment
income................ 4.27% 4.52%(d) 4.69%(d) 4.96%(d) 5.18% 5.51% 5.80% 6.07% 6.31%(b)
Portfolio turnover
rate................... 34% 30% 42% 49% 40% 41% 34% 18% 46%
</TABLE>

- ---------------
(a) Commencement of offering of Class A shares.

(b) Annualized.

(c) Total return does not consider the effects of sales loads. Total
return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total returns for
periods of less than a full year are not annualized.

(d) Net of management fee waiver. Effective September 1, 1997, PIFM
eliminated its management fee waiver (.05 of 1%).

(e) Less than $.005 per share.

5
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH OF THE INDICATED
PERIODS)
(CLASS B SHARES)

The following financial highlights, for the two years ended August 31, 1998,
have been audited by PricewaterhouseCoopers LLP, independent accountants and for
the three years ended August 31, 1996 have been audited by other independent
auditors. All such audit reports were unqualified. This information should be
read in conjunction with the financial statements and notes thereto, which
appear in the Statement of Additional Information. The following financial
highlights contain selected data for a Class B share of beneficial interest
outstanding, total return, ratios to average net assets and other supplemental
data for the periods indicated. The information is based on data contained in
the financial statements. Further performance information is contained in the
annual report, which may be obtained without charge. See "Shareholder
Guide--Shareholder Services--Reports to Shareholders."

<TABLE>
<CAPTION>
CLASS B
-----------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
-----------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989(a)
------ ------ ------ ------ ------ ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of year... $11.00 $10.75 $10.67 $10.67 $11.65 $11.12 $10.68 $10.23 $10.48 $ 10.23
------ ------ ------ ------ ------ ------ ------ ------ ------ --------

INCOME FROM INVESTMENT
OPERATIONS
Net investment
income.............. .43 .45(c) .47(c) .49(c) .53 .58 .59 .63 .62 .65
Net realized and
unrealized gain
(loss) on investment
transactions........ .40 .39 .08 .10 (.77) .65 .44 .45 (.25) .25
------ ------ ------ ------ ------ ------ ------ ------ ------ --------
Total from investment
operations.......... .83 .84 .55 .59 (.24) 1.23 1.03 1.08 .37 .90
------ ------ ------ ------ ------ ------ ------ ------ ------ --------

LESS DISTRIBUTIONS
Dividends from net
investment income... (.43) (.45) (.47) (.49) (.53) (.58) (.59) (.63) (.62) (.65)
Distributions paid in
excess of net
investment.......... --(d) (.01) -- -- -- -- -- -- -- --
Distributions from net
realized gains...... (.04) (.13) -- (.10) (.21) (.12) -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ --------
Total distributions... (.47) (.59) (.47) (.59) (.74) (.70) (.59) (.63) (.62) (.65)
------ ------ ------ ------ ------ ------ ------ ------ ------ --------
Net asset value, end
of year............. $11.36 $11.00 $10.75 $10.67 $10.67 $11.65 $11.12 $10.68 $10.23 $ 10.48
------ ------ ------ ------ ------ ------ ------ ------ ------ --------
------ ------ ------ ------ ------ ------ ------ ------ ------ --------

TOTAL RETURN (b):..... 7.68% 7.94% 5.16% 5.88% (2.13)% 11.43% 9.90% 10.49% 3.58% 9.17%

RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
year (000).......... $12,174 $14,412 $18,512 $21,414 $51,198 $57,598 $51,313 $51,110 $48,226 $47,409
Average net assets
(000)............... $13,092 $16,113 $19,898 $33,497 $55,223 $53,780 $50,970 $48,422 $48,573 $44,243
Ratios to average net
assets:
Expenses, including
distribution
fees............... 1.58% 1.52%(c) 1.50%(c) 1.55%(c) 1.35% 1.36% 1.37% 1.49% 1.40% 1.37%
Expenses, excluding
distribution
fees............... 1.09% 1.02%(c) 1.00%(c) 1.05%(c) .85% .86% .87% .99% .92% .90%
Net investment
income............. 3.87% 4.12%(c) 4.30%(c) 4.84%(c) 4.77% 5.11% 5.42% 5.70% 5.95% 6.26%
Portfolio turnover
rate................ 34% 30% 42% 49% 40% 41% 34% 18% 46% 47%
</TABLE>

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

(a) On December 31, 1988, Prudential Mutual Fund Management, Inc.
succeeded The Prudential Insurance Company of America as manager of
the Fund.

(b) Total return does not consider the effects of sales loads. Total
return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions.

(d) Less than $.005 per share.

6
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH OF THE INDICATED
PERIODS)
(CLASS C SHARES)

The following financial highlights, for the two years ended August 31, 1998,
have been audited by PricewaterhouseCoopers LLP, independent accountants and for
the two years ended August 31, 1996 and the period August 1, 1994 through August
31, 1994 have been audited by other independent auditors. All such audit reports
were unqualified. This information should be read in conjunction with the
financial statements and notes thereto, which appear in the Statement of
Additional Information. The following financial highlights contain selected data
for a Class C share of beneficial interest outstanding, total return, ratios to
average net assets and other supplemental data for the periods indicated. This
information is based on data contained in the financial statements. Further
performance information is contained in the annual report, which may be obtained
without charge. See "Shareholder Guide--Shareholder Services--Reports to
Shareholders."

<TABLE>
<CAPTION>
CLASS C
----------------------------------------------------------------
AUGUST 1,
1994 (a)
YEAR ENDED AUGUST 31, THROUGH
----------------------------------------------- AUGUST 31,
1998 1997 1996 1995 1994
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period...................... $ 11.00 $ 10.75 $ 10.67 $ 10.67 $10.70
-------- -------- -------- -------- ----------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income......... .41 .42(d) .44(d) .47(d) .05
Net realized and unrealized
gain (loss) on investment
transactions................ .40 .39 .08 .10 (.03)
-------- -------- -------- -------- ----------
Total from investment
operations.................. .81 .81 .52 .57 .02
-------- -------- -------- -------- ----------
LESS DISTRIBUTIONS
Dividends from net investment
income...................... (.41) (.42) (.44) (.47) (.05)
Distributions paid in excess
of net investment income.... --(e) (.01) -- -- --
Distributions from net
realized gains.............. (.04) (.13) -- (.10) --
-------- -------- -------- -------- ----------
Total distributions........... (.45) (.56) (.44) (.57) (.05)
-------- -------- -------- -------- ----------
Net asset value, end of
period...................... $ 11.36 $ 11.00 $ 10.75 $ 10.67 $10.67
-------- -------- -------- -------- ----------
-------- -------- -------- -------- ----------
TOTAL RETURN (c):............. 7.41% 7.68% 4.90% 5.62% .07%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)....................... $ 123 $ 68 $ 47 $ 52 $ 102
Average net assets (000)...... $ 91 $ 49 $ 43 $ 58 $ 31
Ratios to average net assets:
Expenses, including
distribution fees.......... 1.83% 1.77%(d) 1.75%(d) 1.82%(d) 2.21%(b)
Expenses, excluding
distribution fees.......... 1.09% 1.02%(d) 1.00%(d) 1.07%(d) 1.47%(b)
Net investment income....... 3.65% 3.72%(d) 4.05%(d) 4.55%(d) 4.75%(b)
Portfolio turnover rate....... 34% 30% 42% 49% 40%
</TABLE>

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

(a) Commencement of offering of Class C shares.

(b) Annualized.

(c) Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment of
dividends and distributions. Total returns for periods of less than a
full year are not annualized.

(d) Net of management fee waiver. Effective September 1, 1997, PIFM
eliminated its management fee waiver (.05 of 1%).

(e) Less than $.005 per share.

7
<PAGE>
HOW THE FUND INVESTS

INVESTMENT OBJECTIVE AND POLICIES

THE SERIES WILL INVEST PRIMARILY IN MARYLAND STATE, MUNICIPAL AND LOCAL
GOVERNMENT OBLIGATIONS AND OBLIGATIONS OF OTHER QUALIFYING ISSUERS, SUCH AS
ISSUERS LOCATED IN PUERTO RICO, THE VIRGIN ISLANDS AND GUAM, WHICH PAY INCOME
EXEMPT, IN THE OPINION OF COUNSEL, FROM MARYLAND STATE AND FEDERAL INCOME TAXES
(MARYLAND OBLIGATIONS). THERE CAN BE NO ASSURANCE THAT THE SERIES WILL BE ABLE
TO ACHIEVE ITS INVESTMENT OBJECTIVE.

As with an investment in any mutual fund, an investment in this Series can
decrease and you can lose money.

Interest on certain municipal obligations may be a preference item for
purposes of the federal alternative minimum tax. The Series may invest without
limit in municipal obligations that are private activity bonds (as defined in
the Internal Revenue Code) the interest on which would be a preference item for
purposes of the federal alternative minimum tax (AMT bonds). See "Taxes,
Dividends and Distributions." Under Maryland law, dividends paid by the Series
are exempt from Maryland personal income tax for resident individuals to the
extent they are derived from interest payments on and, in some cases, gain from
the sale of Maryland Obligations, provided, however, that up to 50% of dividends
attributable to interest received by the Series on AMT bonds could be subject to
Maryland individual income tax. Maryland Obligations could include general
obligation bonds of the State, counties, cities, towns, etc., revenue bonds of
utility systems, highways, bridges, port and airport facilities, colleges,
hospitals, etc., and industrial development and pollution control bonds. The
Series will invest in long-term obligations, and the dollar-weighted average
maturity of the Series' portfolio will generally range between 10-20 years. The
Series also may invest in certain short-term, tax-exempt notes such as Tax
Anticipation Notes, Revenue Anticipation Notes, Bond Anticipation Notes,
Construction Loan Notes and variable and floating rate demand notes.

8
<PAGE>
them. An inverse floater is a debt instrument with a floating or variable
interest rate that moves in the opposite direction of the interest rate on
another security or the value of an index. Changes in the interest rate on the
other security or index inversely affect the residual interest rate paid on the
inverse floater, with the result that the inverse floater's price will be
considerably more volatile than that of a fixed rate bond. The market for
inverse floaters is relatively new.

THE SERIES WILL INVEST AT LEAST 70% OF ITS TOTAL ASSETS IN MARYLAND
OBLIGATIONS WHICH, AT THE TIME OF PURCHASE, ARE RATED WITHIN THE FOUR HIGHEST
QUALITY GRADES AS DETERMINED BY MOODY'S INVESTORS SERVICE (MOODY'S) (CURRENTLY
Aaa, Aa, A, Baa FOR BONDS, MIG 1, MIG 2, MIG 3, MIG 4 FOR NOTES AND PRIME-1 FOR
COMMERCIAL PAPER), STANDARD & POOR'S RATINGS GROUP (S&P) (CURRENTLY AAA, AA, A,
BBB FOR BONDS, SP-1, SP-2 FOR NOTES AND A-1 FOR COMMERCIAL PAPER) OR ANOTHER
NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO) OR, IF UNRATED,
WILL POSSESS CREDITWORTHINESS, IN THE OPINION OF THE INVESTMENT ADVISER,
COMPARABLE TO SUCH INVESTMENT GRADE RATED SECURITIES.

THE SERIES MAY ALSO INVEST UP TO 30% OF ITS TOTAL ASSETS IN MARYLAND
OBLIGATIONS RATED BELOW Baa BY MOODY'S OR BELOW BBB BY S&P, OR A COMPARABLE
RATING OF ANOTHER NRSRO OR, IF NON-RATED, OF COMPARABLE QUALITY, IN THE OPINION
OF THE FUND'S INVESTMENT ADVISER, BASED ON ITS CREDIT ANALYSIS. Securities rated
Baa by Moody's and BBB by S&P are described as being investment grade but are
also characterized as having speculative characteristics. Securities rated below
Baa by Moody's and below BBB by S&P are considered speculative. See "Description
of Security Ratings" in the Appendix. Such lower-rated high yield securities are
commonly referred to as junk bonds. Such securities generally offer a higher
current yield than those in the higher rating categories but may also involve
greater price volatility and risk of loss of principal and income. The
investment adviser will attempt to manage risk and enhance yield through credit
analysis and careful security selection. See "Risk Factors Relating to Investing
in High Yield Municipal Obligations" below. Subsequent to its purchase by the
Series, a municipal obligation may be assigned a lower rating or cease to be
rated. Such an event would not require the elimination of the issue from the
portfolio, but the investment adviser will consider such an event in determining
whether the Series should continue to hold the security in its portfolio. Many
issuers of lower-quality bonds choose not to have their obligations rated and
the Series may invest in such unrated securities. Investors should carefully
consider the relative risks associated with investments in securities which
carry lower ratings and in comparable non-rated securities.

During the year ended August 31, 1998, 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>
PERCENTAGE OF
RATINGS TOTAL INVESTMENTS
- ----------------------------------------------------------------------------- -----------------
<S> <C>
AAA/Aaa...................................................................... 42.49%
AA/Aa........................................................................ 13.29%
A/A.......................................................................... 14.50%
BBB/Baa...................................................................... 24.40%
Unrated
BBB/Baa.................................................................... 4.47%
B/B........................................................................ .84%
</TABLE>

9
<PAGE>
From time to time, the Series may own the majority of a municipal issue. Such
majority-owned holdings may present market and credit risks.

The Series may purchase Maryland Obligations which, in the opinion of the
investment adviser, offer the opportunity for capital appreciation. This may
occur, for example, when the investment adviser believes that the issuer of a
particular Maryland Obligation might receive an upgraded credit standing,
thereby increasing the market value of the bonds it has issued or when the
investment adviser believes that interest rates might decline.

UNDER NORMAL MARKET CONDITIONS, THE SERIES WILL ATTEMPT TO INVEST
SUBSTANTIALLY ALL OF THE VALUE OF ITS ASSETS IN MARYLAND OBLIGATIONS. As a
matter of fundamental policy, during normal market conditions the Series' assets
will be invested so that at least 80% of the income will be exempt from Maryland
State and federal income taxes or the Series will have at least 80% of its total
assets invested in Maryland Obligations. During abnormal market conditions or to
provide liquidity, the Series may hold cash or cash equivalents or investment
grade taxable obligations, including obligations that are exempt from federal,
but not state, taxation and the Series may invest in tax-free cash equivalents,
such as floating rate demand notes, tax-exempt commercial paper and general
obligation and revenue notes or in taxable cash equivalents, such as
certificates of deposit, bankers acceptances and time deposits or other
short-term taxable investments such as repurchase agreements. When, in the
opinion of the investment adviser, abnormal market conditions require a
temporary defensive position, the Series may invest more than 20% of the value
of its assets in debt securities other than Maryland Obligations or may invest
its assets so that more than 20% of the income is subject to Maryland State or
federal income taxes. The Series will treat an investment in a municipal bond
refunded with escrowed U.S. Government securities as U.S. Government securities
for purposes of the Investment Company Act's diversification requirements
provided certain conditions are met. See "Investment Objectives and Policies--In
General" in the Statement of Additional Information.

THE SERIES MAY PURCHASE MUNICIPAL OBLIGATIONS ON A WHEN-ISSUED OR DELAYED
DELIVERY BASIS, IN EACH CASE WITHOUT LIMIT. When municipal obligations are
offered on a when-issued or delayed delivery basis, the price and coupon rate
are fixed at the time the commitment to purchase is made, but delivery and
payment for the securities take place at a later date. During the period between
purchase and settlement, no interest accrues to the economic benefit of the
purchaser. In the case of purchases by the Series, the price that the Series is
required to pay on the settlement date may be in excess of the market value of
the municipal obligations on that date. While securities may be sold prior to
the settlement date, the Series intends to purchase these securities with the
purpose of actually acquiring them unless a sale would be desirable for
investment reasons. At the time the Series makes the commitment to purchase a
municipal obligation on a when-issued or delayed delivery basis, it will record
the transaction and reflect the value of the obligation each day in determining
its NAV. This value may fluctuate from day to day in the same manner as

10
<PAGE>

values of municipal obligations otherwise held by the Series. If the seller
defaults in the sale, the Series could fail to realize the appreciation, if any,
that had occurred. The Series will establish a segregated account in which it
will maintain cash or other liquid assets, equal or greater in value to its
commitments for when-issued or delayed delivery securities.

THE SERIES MAY PURCHASE SECONDARY MARKET INSURANCE ON MARYLAND OBLIGATIONS
WHICH IT HOLDS OR ACQUIRES. Secondary market insurance would be reflected in the
market value of the municipal obligation purchased and may enable the Series to
dispose of a defaulted obligation at a price similar to that of comparable
municipal obligations which are not in default.

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

RISK FACTORS RELATING TO INVESTING IN HIGH YIELD MUNICIPAL
OBLIGATIONS. FIXED-INCOME SECURITIES ARE SUBJECT TO THE RISK OF AN ISSUER'S
INABILITY TO MEET PRINCIPAL AND INTEREST PAYMENTS ON THE OBLIGATIONS (CREDIT
RISK) AND MAY ALSO BE SUBJECT TO PRICE VOLATILITY DUE TO SUCH FACTORS AS
INTEREST RATE SENSITIVITY, MARKET PERCEPTION OF THE CREDITWORTHINESS OF THE
ISSUER AND GENERAL MARKET LIQUIDITY (MARKET RISK). Lower-rated or unrated (I.E.,
high yield) securities, commonly known as junk bonds, are more likely to react
to developments affecting market and credit risk than are more highly rated
securities, which react primarily to movements in the general level of interest
rates. The investment adviser will perform its own investment analysis and will
not rely principally on the ratings assigned by the rating services, although
such ratings will be considered by the investment adviser. The investment
adviser will consider, among other things, credit risk and market risk, as well
as the financial history and condition, the prospects and the management of an
issuer in selecting securities for the Series' portfolio. The achievement of the
Series' investment objective may be more dependent on the investment adviser's
credit analysis than is the case when investing in only higher quality bonds.
Investors should carefully consider the relative risks of investing in high
yield municipal obligations and understand that such securities are not
generally meant for short-term investing and that yields on junk bonds will
fluctuate over time.

The amount of high yield securities outstanding has proliferated recently in
conjunction with the decline in creditworthiness of many obligors on municipal
debt, particularly health care providers and certain governmental bodies. An
economic downturn could severely affect the ability of highly leveraged issuers
to service their debt obligations or to repay their obligations upon maturity.
Furthermore, changes in economic conditions and other circumstances are more
likely to lead to a weakened capacity to make principal and interest payments
than in the case of higher grade bonds. In addition, the secondary market for
high yield securities, which is concentrated in relatively few market makers,
may not be as liquid as the secondary market for more highly rated securities
and, from time to time, it may be more difficult to value high yield securities
than more highly rated securities, and the judgment of the Board of Trustees and
investment adviser may play a greater role in valuation because there is less
reliable objective data available. Under adverse market or economic conditions,
the secondary market for high yield securities could contract further,
independent of any specific adverse changes in the condition of a particular
issuer. As a result, the investment adviser could find it more difficult to sell
these securities or may be able to sell the securities only at prices lower than
if such securities were widely traded. Prices realized upon the sale of such
lower rated or unrated securities, under these circumstances, may be less than
the prices used in calculating the Series' NAV. If the investment adviser
becomes involved in activities such as reorganizations of obligors of troubled
investments held by the Series, this may prevent the Series from disposing of
the securities, due to its possession of material, non-public information
concerning the obligor.

11
<PAGE>

FUTURES CONTRACTS AND OPTIONS THEREON

THE SERIES IS AUTHORIZED TO PURCHASE AND SELL CERTAIN DERIVATIVES, INCLUDING
FINANCIAL FUTURES CONTRACTS (FUTURES CONTRACTS) AND OPTIONS THEREON FOR THE
PURPOSE OF HEDGING ITS PORTFOLIO SECURITIES AGAINST FLUCTUATIONS IN VALUE CAUSED
BY CHANGES IN PREVAILING MARKET INTEREST RATES AND HEDGING AGAINST INCREASES IN
THE COST OF SECURITIES THE SERIES INTENDS TO PURCHASE. THE SUCCESSFUL USE OF
FUTURES CONTRACTS AND OPTIONS THEREON BY THE SERIES INVOLVES ADDITIONAL
TRANSACTION COSTS, IS SUBJECT TO VARIOUS RISKS AND DEPENDS UPON THE INVESTMENT
ADVISER'S ABILITY TO PREDICT THE DIRECTION OF THE MARKET (INCLUDING INTEREST
RATES). THE SERIES, AND THUS INVESTORS, MAY LOSE MONEY THROUGH ANY UNSUCCESSFUL
USE OF THESE STRATEGIES.

THE SERIES MAY NOT PURCHASE OR SELL FUTURES CONTRACTS OR OPTIONS THEREON IF,
IMMEDIATELY THEREAFTER, (I) THE SUM OF INITIAL AND NET CUMULATIVE VARIATION
MARGIN ON OUTSTANDING FUTURES CONTRACTS, TOGETHER WITH PREMIUMS PAID FOR OPTIONS
THEREON, WOULD EXCEED 20% OF THE TOTAL ASSETS OF THE SERIES, OR (II) IN THE CASE
OF RISK MANAGEMENT TRANSACTIONS, THE SUM OF THE AMOUNT OF INITIAL MARGIN
DEPOSITS ON THE SERIES' FUTURES POSITIONS AND PREMIUMS PAID FOR OPTIONS THEREON
WOULD EXCEED 5% OF THE LIQUIDATION VALUE OF THE SERIES' TOTAL ASSETS. There are
no limitations on the percentage of the portfolio which may be hedged and no
limitations on the use of the Series' assets to cover futures contracts and
options thereon, except that the aggregate value of the obligations underlying
put options will not exceed 50% of the Series' assets.

12
<PAGE>
THE SUCCESSFUL USE OF FUTURES CONTRACTS AND OPTIONS THEREON BY THE SERIES IS
SUBJECT TO VARIOUS ADDITIONAL RISKS. Any use of futures transactions involves
the risk of imperfect correlation in movements in the price of futures contracts
and movements in interest rates and, in turn, the prices of the securities that
are the subject of the hedge. If the price of the futures contract moves more or
less than the price of the security that is the subject of the hedge, the Series
will experience a gain or loss that will not be completely offset by movements
in the price of the security. The risk of imperfect correlation is greater where
the securities underlying futures contracts are taxable securities (rather than
municipal securities), are issued by companies in different market sectors or
have different maturities, ratings or geographic mixes than the security being
hedged. In addition, the correlation may be affected by additions to or
deletions from the index which serves as the basis for a futures contract.
Finally, if the price of the security that is subject to the hedge were to move
in a favorable direction, the advantage to the Series would be partially offset
by the loss incurred on the futures contract.

SPECIAL CONSIDERATIONS

BECAUSE THE SERIES WILL INVEST AT LEAST 80% OF THE VALUE OF ITS TOTAL ASSETS
IN MARYLAND OBLIGATIONS AND BECAUSE IT SEEKS TO MAXIMIZE INCOME DERIVED FROM
MARYLAND OBLIGATIONS, IT IS MORE SUSCEPTIBLE TO FACTORS ADVERSELY AFFECTING
ISSUERS OF MARYLAND OBLIGATIONS THAN IS A COMPARABLE MUNICIPAL BOND MUTUAL FUND
THAT IS NOT CONCENTRATED IN SUCH OBLIGATIONS TO THIS DEGREE. During the three
fiscal years from 1991 through 1993, the State's finances were severely affected
by the national recession. Nevertheless, the State closed fiscal year 1993 with
a $10.5 million operating surplus on a budgetary basis and closed fiscal year
1994 with a $60 million operating surplus on a budgetary basis. On a GAAP basis,
the State's General Fund moved from a deficit of $121.7 million as of June 30,
1993 to a positive balance of $113.9 million on June 30, 1994. Financial
operations continued to improve in fiscal year 1995, with revenues exceeding
estimates by $217 million and expenditures at $184 million above budget.
Estimates for 1996 General Fund revenues were revised downward by $148 million,
compared to projections made in the enacted budget; nevertheless, the State
closed fiscal year 1996 with a General Fund balance on a budgetary basis of
$13.1 million and $461.2 million in the Revenue Stabilization Account of the
State Reserve Fund. The State had a General Fund balance for fiscal 1997 on a
budgetary basis of $144.5 million and $490.4 million in the Revenue
Stabilization Account of the State Reserve Fund. The enacted 1997 budget held
overall appropriations to slightly over 1996 levels, reflecting slowed revenue
growth and the absence of an appropriation to the now fully funded Revenue
Stabilization Account of the State Reserve Fund.

In April 1997 the General Assembly approved a $15.4 billion 1998 fiscal year
budget. This budget (i) includes funds sufficient to meet all specific statutory
funding requirements; (ii) incorporates the first year of a five-year phase-in
of a 10% reduction in personal income taxes (estimated to reduce revenues by
$38.5 million in fiscal year 1998 and $450 million when fully phased in) and
certain reductions in sales taxes on certain manufacturing equipment (estimated
to reduce revenues by $38.6 million when the reductions are fully phased in
fiscal year 2001); and (iii) includes the first year's $30 million funding under
an agreement to provide additional funds totaling $230 million over a five-year
period to schools in the City of Baltimore and related grants to other
subdivisions totaling $32 million. As of July, 1998, the State projected ending
fiscal year 1998 with a General Fund balance on a budgetary basis of $317.2
million and $617 million in the Revenue Stabilization Account of the State
Reserve Fund.

Other issuers of Maryland Obligations are subject to various risks and
uncertainties, and the credit quality of the securities issued by them may vary
considerably from the credit quality of obligations issued by the State. If
either the State or any of its local governmental entities is unable to meet its
financial obligations, the income derived by the Series, the ability to preserve
or realize appreciation of the Series' capital and the Series' liquidity could
be adversely affected. See "Investment Objectives and Policies--Special
Considerations Regarding Investments in Tax-Exempt Securities" in the Statement
of Additional Information.

13
<PAGE>
OTHER INVESTMENTS AND POLICIES

REPURCHASE AGREEMENTS

BORROWING

PORTFOLIO TURNOVER

ILLIQUID SECURITIES

The Series may hold up to 15% of its net assets in illiquid securities
including repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable. Securities,
including restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933, as amended (the Securities Act), privately placed
commercial paper and municipal lease obligations, that have a readily available
market are not considered illiquid for the purposes of this limitation. The
investment adviser will monitor the liquidity of such restricted securities
under the supervision of the Trustees. The Series' investment in Rule 144A
securities could have the effect of increasing illiquidity to the extent that
qualified institutional buyers become, for a limited time, uninterested in
purchasing Rule 144A securities. See "Investment Objectives and
Policies--Illiquid Securities" and "Investment Restrictions" in the Statement of
Additional Information. Repurchase agreements subject to demand are deemed to
have a maturity equal to the notice period.

INVESTMENT RESTRICTIONS

14
<PAGE>
HOW THE FUND IS MANAGED

For the fiscal year ended August 31, 1998, total expenses of the Series as a
percentage of average net assets were 1.19%, 1.58% and 1.83% for the Series'
Class A, Class B and Class C shares, respectively. See "Financial Highlights."

MANAGER

PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM OR THE MANAGER), GATEWAY
CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077, IS THE MANAGER
OF THE FUND AND IS COMPENSATED FOR ITS SERVICES AT AN ANNUAL RATE OF .50 OF 1%
OF THE AVERAGE DAILY NET ASSETS OF THE SERIES. PIFM is organized in New York as
a limited liability company. For the fiscal year ended August 31, 1998, the
Series paid PIFM a management fee of .50 of 1% of the Series' average net
assets. See "Fee Waivers and Subsidy" below and "Manager" in Statement of
Additional Information.

UNDER A SUBADVISORY AGREEMENT BETWEEN PIFM AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC, THE SUBADVISER OR THE INVESTMENT ADVISER), THE SUBADVISER
FURNISHES INVESTMENT ADVISORY SERVICES IN CONNECTION WITH THE MANAGEMENT OF THE
FUND AND IS REIMBURSED BY PIFM FOR ITS REASONABLE COSTS AND EXPENSES INCURRED IN
PROVIDING SUCH SERVICE. PIC's address is Prudential Plaza, Newark, New Jersey
07102-3777. Under the Management Agreement, PIFM continues to have
responsibility for all investment advisory services and supervises the
Subadviser's performance of such services.

The current portfolio manager of the Series is James M. Murphy. Mr. Murphy has
responsibility for the day-to-day management of the portfolio. He has managed
the portfolio since January 1997 and has been employed by PIC in various
capacities since 1989.

FEE WAIVERS AND SUBSIDY

PIFM may from time to time agree to waive all or a portion of its management
fee and subsidize all or a portion of the operating expenses of the Series. Fee
waivers and expense subsidies will increase the Series' yield and total return.
The Series is not required to reimburse PIFM for such management fee waiver. See
"Performance Information" in the Statement of Additional Information and "Fund
Expenses."

DISTRIBUTOR

15
<PAGE>

AND SERVES AS THE DISTRIBUTOR OF THE SHARES OF THE SERIES. IT IS A WHOLLY-OWNED
SUBSIDIARY OF PRUDENTIAL. Prudential Securities Incorporated (Prudential
Securities), One Seaport Plaza, New York, New York 10292, previously served as
distributor of the Series' shares. It is an indirect, wholly-owned subsidiary of
Prudential.

UNDER SEPARATE DISTRIBUTION AND SERVICE PLANS (THE CLASS A PLAN, THE CLASS B
PLAN AND THE CLASS C PLAN, COLLECTIVELY, THE PLANS) ADOPTED BY THE FUND UNDER
RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT AND A DISTRIBUTION AGREEMENT (THE
DISTRIBUTION AGREEMENT), THE DISTRIBUTOR INCURS THE EXPENSES OF DISTRIBUTING THE
CLASS A, CLASS B AND CLASS C SHARES OF THE SERIES. These expenses include
commissions and account servicing fees paid to, or on account of, Dealers or
financial institutions which have entered into agreements with the Distributor,
advertising expenses, the cost of printing and mailing prospectuses to potential
investors and indirect and overhead costs of the Distributor associated with the
sale of Series shares, including lease, utility, communications and sales
promotion expenses. Certain Dealers are paid higher fees than others with
respect to Class A shares pursuant to separate agreements with the Distributor.

UNDER THE CLASS A PLAN, THE SERIES MAY PAY THE DISTRIBUTOR FOR ITS
DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS A SHARES AT AN ANNUAL RATE
OF UP TO .30 OF 1% OF THE AVERAGE DAILY NET ASSETS OF THE CLASS A SHARES OF THE
SERIES. The Class A Plan provides that (i) up to .25 of 1% of the average daily
net assets of the Class A shares may be used to pay for personal service and/or
the maintenance of shareholder accounts (service fee) and (ii) total
distribution fees (including the service fee of .25 of 1%) may not exceed .30 of
1% of the average daily net assets of the Class A shares. The Distributor has
voluntarily limited its distribution-related fees payable under the Class A Plan
to .10 of 1% of the average daily net assets of the Class A shares. This
voluntary limitation may be modified or terminated at any time without notice.

UNDER THE CLASS B AND CLASS C PLANS, THE SERIES MAY PAY THE DISTRIBUTOR FOR
ITS DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS B AND CLASS C SHARES
AT AN ANNUAL RATE OF UP TO .50 OF 1% AND UP TO 1% OF THE AVERAGE DAILY NET
ASSETS OF THE CLASS B AND CLASS C SHARES, RESPECTIVELY. The Class B Plan
provides for the payment to the Distributor of (i) an asset-based sales charge
of up to .50 of 1% of the average daily net assets of the Class B shares, and
(ii) a service fee of up to .25 of 1% of the average daily net assets of the
Class B shares; provided that the total distribution-related fee does not exceed
.50 of 1%. The Class C Plan provides for the payment to Prudential Securities of
(i) an asset-based sales charge of up to .75 of 1% of the average daily net
assets of the Class B and Class C shares, respectively, and (ii) a service fee
of up to .25 of 1% of the average daily net assets of the Class C shares. The
service fee is used to pay for personal service and/or the maintenance of
shareholder accounts. The Distributor has voluntarily limited its
distribution-related fees payable under the Class B and Class C Plans to .10 of
1% and .25 of 1% of the average daily net assets of the Class B and Class C
shares, respectively. These voluntary limitations may be modified or terminated
at any time without notice. The Distributor also receives CDSC's from certain
redeeming shareholders. See "Shareholder Guide--How to Sell Your
Shares--Contingent Deferred Sales Charges."

16
<PAGE>

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

PORTFOLIO TRANSACTIONS

Affiliates of the Distributor may act as brokers or futures commission
merchants for the Fund, provided that the commissions, fees or other
remuneration they receive are fair and reasonable. See "Portfolio Transactions
and Brokerage" in the Statement of Additional Information.

CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT

YEAR 2000

17
<PAGE>
HOW THE FUND VALUES ITS SHARES

THE SERIES' NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING ITS
LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. NAV IS CALCULATED SEPARATELY FOR EACH CLASS. THE
TRUSTEES HAVE FIXED THE SPECIFIC TIME OF DAY FOR THE COMPUTATION OF THE NAV OF
THE SERIES TO BE AS OF 4:15 P.M., NEW YORK TIME.

Although the legal rights of each class of shares are substantially identical,
the different expenses borne by each class will result in different NAV's and
dividends. The NAV of Class B and Class C shares will generally be lower than
the NAV of Class A shares as a result of the larger distribution-related fee to
which Class B and Class C shares are subject. It is expected, however, that the
NAV of the three classes will tend to converge immediately after the recording
of dividends, if any, which will differ by approximately the amount of the
distribution and/or service fee expense accrual differential among the classes.

HOW THE FUND CALCULATES PERFORMANCE

FROM TIME TO TIME THE FUND MAY ADVERTISE THE YIELD, TAX EQUIVALENT YIELD AND
AVERAGE ANNUAL TOTAL RETURN AND AGGREGATE TOTAL RETURN OF THE SERIES IN
ADVERTISEMENTS OR SALES LITERATURE. YIELD, TAX EQUIVALENT YIELD AND TOTAL RETURN
ARE CALCULATED SEPARATELY FOR CLASS A, CLASS B AND CLASS C SHARES. THESE FIGURES
ARE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE
PERFORMANCE. The yield refers to the income generated by an investment in the
Series over a one-month or 30-day period. This income is then annualized; that
is, the amount of income generated by the investment during that 30-day period
is assumed to be generated each 30-day period for twelve periods and is shown as
a percentage of the investment. The income earned on the investment is also
assumed to be reinvested at the end of the sixth 30-day period. The tax
equivalent yield is calculated similarly to the yield, except that the yield is
increased using a stated income tax rate to demonstrate the taxable yield
necessary to produce an after-tax yield equivalent to the Series. The total
return shows how much an investment in the Series would have increased
(decreased) over a specified period of time (I.E., one, five or ten years or
since inception of the Series) assuming that all distributions and dividends by
the Series were reinvested on the reinvestment dates during the period and less
all recurring fees. The aggregate total return reflects actual performance over
a stated period of time. Average annual total return is a hypothetical rate of
return that, if achieved annually, would have produced the same aggregate total
return if performance had been constant over the entire period. Average annual
total return smooths out variations in performance and takes into account any
applicable initial or contingent deferred sales charges. Neither average annual
total return nor aggregate total return takes into account any federal or state
income taxes which may be payable upon redemption. The Fund also may include
comparative performance information in advertising or marketing the shares of
the Series. Such performance information may include data from Lipper Analytical
Services, Inc., Morningstar Publications, Inc., other industry publications,
business periodicals and market indices. See "Performance Information" in the
Statement of Additional Information. Further performance information is
contained in the Series' annual and semi-annual reports to shareholders, which
may be obtained without charge. See "Shareholder Guide--Shareholder
Services--Reports to Shareholders."

18
<PAGE>
TAXES, DIVIDENDS AND DISTRIBUTIONS

TAXATION OF THE FUND

THE SERIES HAS QUALIFIED AND INTENDS TO REMAIN QUALIFIED AS A REGULATED
INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE. ACCORDINGLY, THE SERIES WILL
NOT BE SUBJECT TO FEDERAL INCOME TAXES ON ITS NET INVESTMENT INCOME AND NET
CAPITAL GAINS, IF ANY, THAT IT DISTRIBUTES TO ITS SHAREHOLDERS. TO THE EXTENT
NOT DISTRIBUTED BY THE SERIES, NET TAXABLE INVESTMENT INCOME AND CAPITAL GAINS
AND LOSSES ARE TAXABLE TO THE SERIES. See "Taxes, Dividends and Distributions"
in the Statement of Additional Information.

To the extent the Series invests in taxable obligations, it will earn taxable
investment income. Also, to the extent the Series sells securities or engages in
hedging transactions in futures contracts and options thereon, it may earn both
capital gain or loss. Capital gain or loss may also arise upon the sale of
municipal securities, as well as taxable obligations. Under the Internal Revenue
Code, special rules apply to the treatment of certain options and futures
contracts (Section 1256 contracts). At the end of each year, such investments
held by the Series will be required to be marked to market for federal income
tax purposes; that is, treated as having been sold at market value. Sixty
percent of any gain or loss recognized on these deemed sales and on actual
dispositions will be treated as long-term capital gain or loss, and the
remainder will be treated as short-term capital gain or loss. See "Taxes,
Dividends and Distributions" in the Statement of Additional Information.

TAXATION OF SHAREHOLDERS

Any dividends out of net investment income, together with distributions of net
short-term gains (I.E., the excess of net short-term capital gains over net
long-term capital losses) distributed to shareholders, will be taxable as
ordinary income to the shareholder whether or not reinvested. Any net capital
gains (I.E., the excess of net capital gains from the sale of assets held for
more than 12 months over net short-term capital losses) distributed to
shareholders will be taxable as capital gains to the shareholders, whether or
not reinvested and regardless of the length of time a shareholder has owned his
or her shares. Recent legislation created various categories of capital gains
applicable to individuals. For capital gains recognized upon the sale of assets
by the Series after December 31, 1997. The maximum long-term capital gains tax
rate for individuals is 20%. The maximum capital gains tax rate for corporate
shareholders currently is the same as the maximum tax rate for ordinary income.

19
<PAGE>
are held for six months or less, however, will be treated as long-term capital
loss to the extent of any capital gain distributions received by the
shareholder. In addition, any short-term capital loss will be disallowed to the
extent of any tax-exempt dividends received by the shareholder on shares that
are held for six months or less.

Under Maryland law, dividends paid by the Series are exempt from Maryland
personal income tax for individuals who reside in Maryland to the extent such
dividends are exempt from federal income tax and are derived from interest
payments on Maryland Obligations, provided, however, that up to 50% of dividends
attributable to interest received by the Series on certain private activity
bonds which are not issued by the State of Maryland or its political
subdivisions could be subject to Maryland individual income tax. In addition,
distributions attributable (i) to gain realized by the Series on the disposition
of those Maryland Obligations issued by the State of Maryland or its political
subdivisions and (ii) to interest received by the Series on U.S. Government
obligations are exempt from Maryland personal income tax.

Distributions other than those described as exempt in the preceding paragraph
will be subject to Maryland personal income tax.

WITHHOLDING TAXES

Under the Internal Revenue Code, the Series is required to withhold and remit
to the U.S. Treasury 31% of redemption proceeds on the accounts of certain
shareholders who fail to furnish their tax identification numbers on IRS Form
W-9 (or IRS Form W-8 in the case of certain foreign shareholders) with the
required certifications regarding the shareholder's status under the federal
income tax law. Such withholding also is required on taxable dividends and
capital gain distributions made by the Series unless it is reasonably expected
that at least 95% of the distributions of the Series are comprised of tax-exempt
dividends.

20
<PAGE>
DIVIDENDS AND DISTRIBUTIONS

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

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

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

GENERAL INFORMATION

DESCRIPTION OF SHARES

THE FUND WAS ESTABLISHED AS A MASSACHUSETTS BUSINESS TRUST ON MAY 18, 1984, BY
A DECLARATION OF TRUST. The Fund's activities are supervised by its Trustees.
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares in separate series, currently designated as the
Connecticut Money Market Series, Florida Series, Maryland Series, Massachusetts
Series, Massachusetts Money Market Series, Michigan Series, New Jersey Series,
New Jersey Money Market Series, New York Series, New York Money Market Series,
North Carolina Series, Ohio Series and Pennsylvania Series. The Series is
authorized to issue an unlimited number of shares, divided into three classes,
designated Class A, Class B and Class C. Each class of shares represents an
interest in the same assets of the Series and are identical in all respects
except that (i) each class is subject to different sales charges and
distribution and/or service fees, which may affect performance, (ii) each class
has exclusive voting rights on any matter submitted to shareholders that relates
solely to its arrangement and has separate voting rights on any matter submitted
to shareholders in which the interests of one class differ from the interests of
any other class, (iii) each class has a different exchange privilege and (iv)
only Class B shares have a conversion feature. See "How the Fund is
Managed--Distributor." In accordance with the Fund's Declaration of Trust, the
Trustees may authorize the creation of additional series and classes within such
series, with such preferences, privileges, limitations and voting and dividend
rights as the Trustees may determine.

21
<PAGE>
been paid. Since Class B and Class C shares generally bear higher distribution
expenses than Class A shares, the liquidation proceeds to shareholders of those
classes are likely to be lower than to Class A shareholders. The Fund's shares
do not have cumulative voting rights for the election of Trustees.

ADDITIONAL INFORMATION

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

SHAREHOLDER GUIDE

HOW TO BUY SHARES OF THE FUND

Under the terms of the proposal, shareholders of the Series would become
shareholders of National Municipals Fund. No sales charge would be imposed on
the proposed transfer. The Fund anticipates obtaining an opinion of its counsel
that the transaction would be a tax-free reorganization under the Internal
Revenue Code and therefore no gain or loss for Federal income tax purposes would
be recognized by shareholders of the Series.

EFFECTIVE IMMEDIATELY, THE FUND WILL NO LONGER ACCEPT ORDERS TO PURCHASE OR
EXCHANGE FOR SHARES OF THE SERIES, EXCEPT FOR PURCHASES BY CERTAIN RETIREMENT
AND EMPLOYEE PLANS (EXCLUDING IRA ACCOUNTS). Existing shareholders may continue
to acquire shares through dividend reinvestment. The current redemption
privilege and the current exchange privilege of obtaining shares of other
Prudential Mutual Funds will remain in effect until the transaction is
consummated. If the transaction is not consummated, the Fund will resume
accepting orders to purchase or exchange for shares of the Series. See "How to
Sell Your Shares" and "How to Exchange Your Shares" below.

22
<PAGE>

IF THE FUND RESUMES ACCEPTING ORDERS TO PURCHASE SHARES OF THE SERIES, YOU MAY
PURCHASE SHARES OF THE SERIES THROUGH THE DISTRIBUTOR, THROUGH DEALERS INCLUDING
PRUDENTIAL SECURITIES OR PRUSEC, OR DIRECTLY FROM THE FUND THROUGH ITS TRANSFER
AGENT, PRUDENTIAL MUTUAL FUND SERVICES LLC (PMFS OR THE TRANSFER AGENT),
ATTENTION: INVESTMENT SERVICES, P.O. BOX 15020, NEW BRUNSWICK, NEW JERSEY
08906-5020. The purchase price is the NAV next determined following receipt of
an order in proper form (in accordance with procedures established by the
Transfer Agent in connection with investors' accounts) by the Distributor, your
Dealer or the Transfer Agent plus a sales charge which, at your option, may be
imposed either at the time of purchase, on a deferred basis, or both. Class A
shares are sold with a front-end sales charge. Class B shares are subject to a
CDSC. Class C shares are sold with a low front-end sales charge, but are also
subject to a CDSC. Payments may be made by wire, check or through your brokerage
account. See also "Alternative Purchase Plan" below and "How the Fund Values its
Shares."

An investment in the Series may not be appropriate for tax-exempt or
tax-deferred investors. Such investors should consult their own tax advisers.

The minimum initial investment is $1,000 for Class A and Class B shares and
$2,500 for Class C shares. The minimum subsequent investment is $100 for all
classes. All minimum investment requirements are waived for certain employee
savings plans. For purchases made through the Automatic Investment Plan, the
minimum initial and subsequent investment is $50. See "Shareholder Services"
below.

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

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

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

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<PAGE>
ALTERNATIVE PURCHASE PLAN

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

<TABLE>
<CAPTION>
ANNUAL 12b-1 FEES
(AS A % OF AVERAGE
SALES CHARGE DAILY NET ASSETS) OTHER INFORMATION
----------------------------------- ----------------------------------- -----------------------------------
<S> <C> <C> <C>
CLASS A Maximum initial sales charge of 3% .30 of 1% Initial sales charge waived or
of the public offering price reduced for certain purchases

CLASS C Maximum initial sales charge of 1% 1% Shares do not convert to another
of the public offering price and class
maximum CDSC of 1% of the lesser of
the amount invested or the
redemption proceeds on redemptions
made within 18 months of purchase
</TABLE>

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

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

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

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

24
<PAGE>

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

If you intend to hold your investment for more than 6 years and do not qualify
for a reduced sales charge on Class A shares, since Class B shares convert to
Class A shares approximately 7 years after purchase and because all of your
money would be invested initially in the case of Class B shares, you should
consider purchasing Class B shares over either Class A or Class C shares.

ALL PURCHASES OF $1 MILLION OR MORE, EITHER AS PART OF A SINGLE INVESTMENT OR
UNDER RIGHTS OF ACCUMULATION OR LETTERS OF INTENT, MUST BE FOR CLASS A SHARES.
See "Reduction and Waiver of Initial Sales Charges" below.

CLASS A SHARES

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

25
<PAGE>

OTHER WAIVERS. Class A shares may be purchased at NAV, through the Distributor
or the Transfer Agent, by the following persons: (a) officers of Prudential
Mutual Funds (including the Fund), (b) employees of the Distributor, Prudential
Securities, PIFM and their subsidiaries and members of the families of such
persons who maintain an employee related account at Prudential Securities or the
Transfer Agent, (c) employees of subadvisers of the Prudential Mutual Funds
provided that the purchases at NAV are permitted by such person's employer, (d)
Prudential, employees and special agents of Prudential and its subsidiaries and
all persons who have retired directly from active service with Prudential or one
of its subsidiaries, (e) registered representatives and employees of Dealers who
have entered into a selected dealer agreement with the Distributor, provided
that purchases at NAV are permitted by such person's employer and (f) investors
who have a business relationship with a financial adviser who joined Prudential
Securities from another investment firm, provided that (i) the purchase is made
within 180 days of the commencement of the financial adviser's employment at
Prudential Securities or within one year in the case of benefit plans, (ii) the
purchase is made with proceeds of a redemption of shares of any open-end
non-money market fund sponsored by the financial adviser's previous employer
(other than a fund which imposes a distribution or service fee of .25 of 1% or
less) and (iii) the financial adviser served as the client's broker on the
previous purchases.

CLASS B AND CLASS C SHARES

26
<PAGE>

and other persons which distribute Class C shares a sales commission of up to 2%
of the purchase price at the time of the sale. The Distributor anticipates that
it would recoup its advancement of sales commissions from the combination of the
CDSC and the distribution fee. See "How the Fund is Managed--Distributor."

WAIVER OF INITIAL SALES CHARGE--CLASS C SHARES

HOW TO SELL YOUR SHARES

YOU CAN REDEEM YOUR SHARES OF THE SERIES AT ANY TIME FOR CASH AT THE NAV NEXT
DETERMINED AFTER THE REDEMPTION REQUEST IS RECEIVED IN PROPER FORM (IN
ACCORDANCE WITH PROCEDURES ESTABLISHED BY THE TRANSFER AGENT IN CONNECTION WITH
INVESTORS' ACCOUNTS) BY THE DISTRIBUTOR, YOUR DEALER OR THE TRANSFER AGENT. SEE
"HOW THE FUND VALUES ITS SHARES." In certain cases, however, redemption proceeds
will be reduced by the amount of any applicable CDSC, as described below. See
"Contingent Deferred Sales Charges" below. If you are redeeming your shares
through a Dealer, your Dealer must receive your sell order before the Fund
computes its NAV for that day (I.E., 4:15 p.m., New York time) in order to
receive that day's NAV. Your Dealer will be responsible for furnishing all
necessary documentation to the Distributor and may charge you for its services
in connection with redeeming shares of the Fund.

IF YOU HOLD SHARES IN NON-CERTIFICATE FORM, A WRITTEN REQUEST FOR REDEMPTION
SIGNED BY YOU EXACTLY AS THE ACCOUNT IS REGISTERED IS REQUIRED. IF YOU HOLD
CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE FACE OF THE
CERTIFICATES, MUST BE RECEIVED BY THE TRANSFER AGENT, THE DISTRIBUTOR OR YOUR
DEALER IN ORDER FOR THE REDEMPTION REQUEST TO BE PROCESSED. IF REDEMPTION IS
REQUESTED BY A CORPORATION, PARTNERSHIP, TRUST OR FIDUCIARY, WRITTEN EVIDENCE OF
AUTHORITY ACCEPTABLE TO THE TRANSFER AGENT MUST BE SUBMITTED BEFORE SUCH REQUEST
WILL BE ACCEPTED. All correspondence and documents concerning redemptions should
be sent to the Fund in care of its Transfer Agent, Prudential Mutual Fund
Services LLC, Attention: Redemption Services, P.O. Box 15010, New Brunswick, New
Jersey 08906-5010, the Distributor or your Dealer.

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

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

27
<PAGE>

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

CONTINGENT DEFERRED SALES CHARGES

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

28
<PAGE>
The following table sets forth the rates of the CDSC applicable to redemptions
of Class B shares:

In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results in the lowest possible rate. It will be
assumed that the redemption is made first of amounts representing shares
acquired pursuant to the reinvestment of dividends and distributions; then of
amounts representing the increase in NAV above the total amount of payments for
the purchase of Series shares made during the preceding six years (five years
for Class B shares purchased prior to January 22, 1990); then of amounts
representing the cost of shares held beyond the applicable CDSC period; and
finally, of amounts representing the cost of shares held for the longest period
of time within the applicable CDSC period.

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

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

SYSTEMATIC WITHDRAWAL PLAN. The CDSC will be waived (or reduced) on certain
redemptions from a Systematic Withdrawal Plan. On an annual basis, up to 12% of
the total dollar amount subject to the CDSC may be redeemed without charge. The
Transfer Agent will calculate the total amount available for this waiver
annually on the anniversary of your purchase or, for shares purchased prior to
March 1, 1997, on March 1 of the current year. The CDSC will be waived (or
reduced) on redemptions until this threshold 12% amount is reached.

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

29
<PAGE>
CONVERSION FEATURE--CLASS B SHARES

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

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

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

HOW TO EXCHANGE YOUR SHARES

30
<PAGE>

sales charge will be imposed at the time of the exchange. Any applicable CDSC
payable upon the redemption of shares exchanged will be calculated from the
first day of the month after the initial purchase, excluding the time shares
were held in a money market fund. Class B and Class C shares may not be
exchanged into money market funds other than Prudential Special Money Market
Fund, Inc. For purposes of calculating the holding period applicable to the
Class B conversion feature, the time period during which Class B shares were
held in a money market fund will be excluded. See "Conversion Feature--Class B
Shares" above. An exchange will be treated as a redemption and purchase for tax
purposes. See "Shareholder Investment Account--Exchange Privilege" in the
Statement of Additional Information.

IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.

IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE
FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.

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

SPECIAL EXCHANGE PRIVILEGE. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV (see "Alternative
Purchase Plan--Class A Shares--Reduction and Waiver of Initial Sales Charges"
above). Under this exchange privilege, amounts representing any Class B and
Class C shares (which are not subject to a CDSC) held in such a shareholder's
account will be automatically exchanged for Class A shares on a quarterly basis,
unless the shareholder elects otherwise. Eligibility for this exchange privilege
will be calculated on the business day prior to the date of the exchange.
Amounts representing Class B or Class C shares which are not subject to a CDSC
include the following: (1) amounts representing Class B or Class C shares
acquired pursuant to the automatic reinvestment of dividends and distributions,
(2) amounts representing the increase in the NAV above the total amount of
payments for the purchase of Class B or Class C shares and (3) amounts
representing Class B or Class C shares held beyond the applicable CDSC period.
Class B and Class C shareholders must notify the Transfer Agent either directly
or through their Dealer or the Distributor that they are eligible for this
special exchange privilege.

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

31
<PAGE>
To implement this authority to protect the Fund and its shareholders from
excessive trading, the Fund will reject all exchanges and purchases from a
Market Timer unless the Market Timer has entered into a written agreement with
the Fund or its affiliates pursuant to which the Market Timer has agreed to
abide by certain procedures, which include a daily dollar limit on trading. The
Fund may notify the Market Timer of rejection of an exchange or purchase order
subsequent to the day on which the order was placed.

SHAREHOLDER SERVICES

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

- AUTOMATIC INVESTMENT PLAN (AIP). Under AIP you may make regular purchases of
the Series' shares in amounts as little as $50 via an automatic charge to a bank
account or brokerage account (including a Command Account). For additional
information about this service, you may contact the Distributor, your Dealer or
the Transfer Agent directly.

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

32
<PAGE>
DESCRIPTION OF SECURITY RATINGS

MOODY'S INVESTORS SERVICE

BOND RATINGS

Baa: Bonds which 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.

Caa: Bonds which 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 which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C: Bonds which 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 RATINGS

MIG 2: Loans bearing the designation MIG 2 are of high quality, with margins
of protection ample although not so large as in the preceding group.

A-1
<PAGE>
MIG 3: Loans bearing the designation MIG 3 are of favorable quality, with all
security elements accounted for but lacking the strength of the preceding
grades.

MIG 4: Loans bearing the designation MIG 4 are of adequate quality. Protection
commonly regarded and required of an investment security is present and although
not distinctly or predominantly speculative, there is specific risk.

SG: This designation denotes speculative quality. Debt instruments in this
category lack margins of protection.

SHORT-TERM DEBT RATINGS

- Leading market positions in well-established industries.

- High rates of return on funds employed.

- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.

- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

- Well-established access to a range of financial markets and assured
sources of alternate liquidity.

PRIME-3: Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term debt obligations.

NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime rating
categories.

STANDARD & POOR'S RATINGS GROUP

DEBT RATINGS

AAA: An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.

AA: An obligation rated AA differs from the highest rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.

BBB: An obligation rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.

COMMERCIAL PAPER RATINGS

An S&P Commercial Paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.

A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.

MUNICIPAL NOTES

A-3
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY

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

TAXABLE BOND FUNDS
--------------------------

TAX-EXEMPT BOND FUNDS
-----------------------------

GLOBAL 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 Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential International Bond Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series
Global Utility Fund, Inc.
The Global Total Return Fund, Inc.

EQUITY FUNDS
--------------------

Prudential Balanced Fund
Prudential Distressed Securities Fund, Inc.
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Index Series Fund
Prudential Bond Market Index Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced Fund
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Mid-Cap Value Fund
Prudential Real Estate Securities Fund, Inc.
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Utility Fund, Inc.
Prudential 20/20 Focus Fund
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund

MONEY MARKET FUNDS
--------------------------

- - 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

B-1
<PAGE>

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FUND HIGHLIGHTS............................................................. 2
What are the Series' Risk Factors and Special Characteristics?............ 2
FUND EXPENSES............................................................... 4
FINANCIAL HIGHLIGHTS........................................................ 5
HOW THE FUND INVESTS........................................................ 8
Investment Objective and Policies......................................... 8
Other Investments and Policies............................................ 14
Investment Restrictions................................................... 14
HOW THE FUND IS MANAGED..................................................... 15
Manager................................................................... 15
Fee Waivers and Subsidy................................................... 15
Distributor............................................................... 15
Portfolio Transactions.................................................... 17
Custodian and Transfer and Dividend Disbursing Agent...................... 17
Year 2000................................................................. 17
HOW THE FUND VALUES ITS SHARES.............................................. 18
HOW THE FUND CALCULATES PERFORMANCE......................................... 18
TAXES, DIVIDENDS AND DISTRIBUTIONS.......................................... 19
GENERAL INFORMATION......................................................... 21
Description of Shares..................................................... 21
Additional Information.................................................... 22
SHAREHOLDER GUIDE........................................................... 22
How to Buy Shares of the Fund............................................. 22
Alternative Purchase Plan................................................. 24
How to Sell Your Shares................................................... 27
Conversion Feature--Class B Shares........................................ 30
How to Exchange Your Shares............................................... 30
Shareholder Services...................................................... 32
DESCRIPTION OF SECURITY RATINGS............................................. A-1
THE PRUDENTIAL MUTUAL FUND FAMILY........................................... B-1
</TABLE>

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

MF125A

Class A: 74435M-70-5
CUSIP Nos.: Class B: 74435M-80-4
Class C: 74435M-57-2

PRUDENTIAL
MUNICIPAL
SERIES FUND
- -----------

MARYLAND SERIES

PROSPECTUS
November 2, 1998
www.prudential.com

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

[LOGO]
<PAGE>
Prudential Municipal Series Fund
(Massachusetts Series)

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

PROSPECTUS DATED NOVEMBER 2, 1998

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

Prudential Municipal Series Fund (the Fund) (Massachusetts Series) (the Series)
is one of thirteen series of an open-end, management investment company, or
mutual fund. This Series is diversified and is designed to provide the maximum
amount of income that is exempt from Massachusetts state and federal income
taxes consistent with the preservation of capital and, in conjunction therewith,
the Series may invest in debt securities with the potential for capital gain.
The net assets of the Series are invested primarily in obligations within the
four highest ratings of Moody's Investors Service, Standard & Poor's Ratings
Group or another nationally recognized statistical rating organization or in
unrated obligations which, in the opinion of the Fund's investment adviser, are
of comparable quality. The Series may, however, also invest a portion of its
assets in lower-quality municipal obligations or in non-rated securities which,
in the opinion of the Fund's investment adviser, are of comparable quality.
Subject to the limitations described herein, the Series may utilize derivatives,
including buying and selling futures contracts and options thereon for the
purpose of hedging its portfolio securities. There can be no assurance that the
Series' investment objective will be achieved. See "How the Fund
Invests--Investment Objective and Policies." The Fund's address is Gateway
Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, and its
telephone number is (800) 225-1852.

This Prospectus sets forth concisely the information about the Fund and the
Massachusetts Series that a prospective investor should know before investing
and is available at the Web site of the Prudential Insurance Company of America
(http://www.prudential.com). Additional information about the Fund has been
filed with the Securities and Exchange Commission (the Commission) in a
Statement of Additional Information dated November 2, 1998, which information is
incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Fund at the
address or telephone number noted above. The Commission maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference and other information regarding the Fund.

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

INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.

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

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

Prudential Municipal Series Fund is a mutual fund whose shares are offered
in thirteen series, each of which operates as a separate fund. A mutual fund
pools the resources of investors by selling its shares to the public and
investing the proceeds of such sale in a portfolio of securities designed to
achieve its investment objective. Technically, the Fund is an open-end,
management investment company. Only the Massachusetts Series is offered
through this Prospectus.

WHAT IS THE SERIES' INVESTMENT OBJECTIVE?

The Series' investment objective is to maximize current income that is
exempt from Massachusetts state and federal income taxes consistent with the
preservation of capital. It seeks to achieve this objective by investing
primarily in Massachusetts state, municipal and local government obligations
and obligations of other qualifying issuers, such as issuers located in
Puerto Rico, the Virgin Islands and Guam, which pay income exempt, in the
opinion of counsel, from Massachusetts state and federal income taxes
(Massachusetts Obligations). There can be no assurance that the Series'
investment objective will be achieved. See "How the Fund Invests--Investment
Objective and Policies" at page 9.

WHAT ARE THE SERIES' RISK FACTORS AND SPECIAL CHARACTERISTICS?

In seeking to achieve its investment objective, the Series will invest at
least 80% of the value of its total assets in Massachusetts Obligations.
This degree of investment concentration makes the Series particularly
susceptible to factors adversely affecting issuers of Massachusetts
Obligations. See "How the Fund Invests--Investment Objective and
Policies--Special Considerations" at page 14. The Series may invest up to
30% of its total assets in high yield securities, commonly known as junk
bonds, which are considered speculative and are subject to the risk of an
issuer's inability to meet principal and interest payments on the
obligations as well as price volatility. See "How the Fund
Invests--Investment Objective and Policies--Risk Factors Relating to
Investing in High Yield Municipal Obligations" at page 12. To hedge against
changes in interest rates, the Series may also purchase put options and
engage in transactions involving derivatives, including financial futures
contracts and options thereon. See "How the Fund Invests--Investment
Objective and Policies--Futures Contracts and Options Thereon" at page 13.
As with an investment in any mutual fund, an investment in this Series can
decrease in value and you can lose money.

WHO MANAGES THE FUND?

Prudential Investments Fund Management LLC (PIFM or the Manager) is the
Manager of the Fund and is compensated for its services at an annual rate of
.50 of 1% of the Series' average daily net assets. As of September 30, 1998,
PIFM served as manager or administrator to 66 investment companies,
including 44 mutual funds, with aggregate assets of approximately $67
billion. The Prudential Investment Corporation, (PIC, the Subadviser or the
investment adviser) furnishes investment advisory services in connection
with the management of the Fund under a Subadvisory Agreement with PIFM. See
"How the Fund is Managed--Manager" at page 15.

WHO DISTRIBUTES THE SERIES' SHARES?

Prudential Investment Management Services LLC (the Distributor) acts as
the Distributor of the Series' Class A, Class B, Class C and Class Z shares
and is paid a distribution and service fee with respect to Class A shares at
the annual rate of .25 of 1% of the average daily net assets of the Class A
shares and is paid a distribution and service fee with respect to Class B
shares at the annual rate of .50 of 1% of the average daily net assets of
the Class B shares and is paid an annual distribution and service fee with
respect to Class C shares which is currently being charged at the rate of
.75 of 1% of the average daily net assets of the Class C shares. The
Distributor incurs the expense of distributing the Series' Class Z shares
under a Distribution Agreement with the Fund, none of which is reimbursed or
paid for by the Fund. See "How the Fund is Managed--Distributor" at page 16.

2
<PAGE>
WHAT IS THE MINIMUM INVESTMENT?

The minimum initial investment is $1,000 for Class A and Class B shares
and $2,500 for Class C shares. The minimum subsequent investment is $100 for
Class A, Class B and Class C shares. Class Z shares are not subject to any
minimum investment requirements. There is no minimum investment requirement
for certain employee savings plans. For purchases made through the Automatic
Investment Plan, the minimum initial and subsequent investment is $50. See
"Shareholder Guide--How to Buy Shares of the Fund" at page 22 and
"Shareholder Guide--Shareholder Services" at page 32.

HOW DO I PURCHASE SHARES?

You may purchase shares of the Series through the Distributor or brokers
or dealers that have entered into agreements to act as participating or
introducing brokers for the Distributor (Dealers) or directly from the Fund
through its transfer agent, Prudential Mutual Fund Services LLC (PMFS or the
Transfer Agent). In each case, sales are made at the net asset value per
share (NAV) next determined after receipt of your purchase order by the
Transfer Agent, a Dealer or the Distributor plus a sales charge, which may
be imposed at the time of purchase, on a deferred basis, or both. Class A
shares are sold with a front-end sales charge. Class B shares are subject to
a contingent deferred sales charge (CDSC). Class C shares are sold with a
low front-end sales charge, but are also subject to a CDSC. Class Z shares
are offered to a limited group of investors at NAV without any sales charge.
Dealers may charge their customers a separate fee for handling purchase
transactions. Participants in programs sponsored by Prudential Retirement
Services should contact their client representative for more information
about Class Z shares. See "How the Fund Values its Shares" at page 18 and
"Shareholder Guide--How to Buy Shares of the Fund" at page 22.

WHAT ARE MY PURCHASE ALTERNATIVES?

The Series offers four classes of shares:

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

- Class C Shares: Sold with an initial sales charge of 1% of the
offering price and are also subject to a CDSC of 1%
on redemptions for a period 18 months after
purchase. Class C shares are subject to higher
ongoing distribution expenses than Class A shares
but, unlike Class B shares, do not convert to
another class.

- Class Z Shares: Sold without either an initial sales charge or CDSC
to a limited group of investors. Class Z shares are
not subject to any ongoing service or
distribution-related expenses.

See "Shareholder Guide--Alternative Purchase Plan" at page 24.

HOW DO I SELL MY SHARES?

HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?

3
<PAGE>
FUND EXPENSES
(MASSACHUSETTS SERIES)

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
---------------- --------------------- --------------------- ----------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed
on Purchases (as a
percentage of offering
price)..................... 3% None 1% None
Maximum Deferred Sales Load
(as a percentage of
original purchase price or
redemption proceeds,
whichever is lower)........ None 5% during the first 1% on redemptions None
year, decreasing by made within 18 months
1% annually to 1% in of purchase
the fifth and sixth
years and 0% the
seventh year*
Maximum Sales Load Imposed
on Reinvested Dividends.... None None None None
Redemption Fees............. None None None None
Exchange Fee................ None None None None
</TABLE>

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
---------------- --------------------- --------------------- ----------------
<S> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees............. .50% .50% .50% .50%
12b-1 Fees (After
Reduction)................. .25%++ .50% .75%++ None
Other Expenses.............. .44% .44% .44% .44%
----- ----- ----- -----
Total Fund Operating
Expenses (After
Reduction)................. 1.19% 1.44% 1.69% .94%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>

<TABLE>
<CAPTION>
1 3 5 10
YEAR YEARS YEARS YEARS
------- ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE
You would pay the following expenses on
a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at
the end of each time period:
Class A............................ $ 42 $ 67 $ 93 $ 170
Class B............................ $ 65 $ 76 $ 89 $ 162
Class C............................ $ 37 $ 63 $ 101 $ 208
Class Z............................ $ 10 $ 30 $ 52 $ 115
You would pay the following expenses on
the same investment, assuming no
redemption:
Class A............................ $ 42 $ 67 $ 93 $ 170
Class B............................ $ 15 $ 46 $ 79 $ 162
Class C............................ $ 27 $ 63 $ 101 $ 208
Class Z............................ $ 10 $ 30 $ 52 $ 115
</TABLE>

THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

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

* Class B shares will automatically convert to Class A shares approximately
seven years after purchase. See "Shareholder Guide--Conversion Feature--
Class B Shares."

++ Although the Class A and Class C Distribution and Service Plans provide that
the Fund may pay a distribution fee of up to .30 of 1% and 1% per annum
of the average daily net assets of the Class A and Class C shares,
respectively, the Distributor may voluntarily limit its distribution
fees. Presently the Distributor limits its distribution fees with respect
to the Class A and Class C shares of the Series to no more than .10 of 1%
and .75 of 1% of the average daily net asset value of the Class A and
Class C shares, respectively. This voluntary limitation may be modified
or terminated at any time without notice. The Distributor anticipates
modifying its present limitation for Class A shares so that, in the
future, the Fund will pay distribution fees of .25% with respect to such
shares. Total Fund Operating Expenses of the Class A and Class C shares
without any limitations would be 1.24% and 1.94%, respectively. See "How
the Fund is Managed--Distributor."

4
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH OF THE INDICATED
PERIODS)
(CLASS A SHARES)

The following financial highlights, for the two years ended August 31, 1998,
have been audited by PricewaterhouseCoopers LLP, independent accountants, and
for the three years ended August 31, 1996 have been audited by other independent
auditors. All such audit reports were unqualified. This information should be
read in conjunction with the financial statements and the notes thereto, which
appear in the Statement of Additional Information. The following financial
highlights contain selected data for a Class A share of beneficial interest
outstanding, total return, ratios to average net assets and other supplemental
data for the periods indicated. This information is based on data contained in
the financial statements. Further performance information is contained in the
annual report, which may be obtained without charge. See "Shareholder
Guide--Shareholder Services--Reports to Shareholders."

<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------------------------
JANUARY
22,
1990 (a)
THROUGH
YEAR ENDED AUGUST 31, AUGUST
----------------------------------------------------------------------------------- 31,
1998 1997 1996 1995 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value,
beginning of period.... $11.69 $11.54 $11.63 $11.37 $12.17 $11.50 $10.94 $10.44 $10.70
------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income.... .55 .58(d) .59(d) .65(d) .67 .68 .69 .70 .41
Net realized and
unrealized gain (loss)
on investment
transactions........... .37 .33 (.02) .26 (.73) .67 .56 .50 (.26)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations............. .92 .91 .57 .91 (.06) 1.35 1.25 1.20 .15
------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Dividends from net
investment income...... (.55) (.58) (.59) (.65) (.67) (.68) (.69) (.70) (.41)
Distribution in excess of
net investment
income................. (.01) -- -- -- -- -- -- -- --
Distributions from net
realized gains......... (.15) (.18) (.07) -- (.07) -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions...... (.71) (.76) (.66) (.65) (.74) (.68) (.69) (.70) (.41)
------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of
period................. $11.90 $11.69 $11.54 $11.63 $11.37 $12.17 $11.50 $10.94 $10.44
------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL RETURN (C):........ 8.10% 8.10% 4.93% 8.33% (.58)% 12.10% 11.76% 11.81% 1.41%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).................. $29,024 $28,890 $28,058 $27,525 $2,293 $2,325 $ 903 $ 665 $ 257
Average net assets
(000).................. $29,031 $29,096 $28,091 $15,837 $2,578 $1,336 $ 770 $ 344 $ 127
Ratios to average net
assets:
Expenses, including
distribution fee...... 1.04% 1.00%(d) 1.06%(d) .97%(d) .87% .95% .99% 1.05% 1.04%(b)
Expenses, excluding
distribution fee...... .94% .90%(d) .96%(d) .87%(d) .77% .85% .89% .95% .95%(b)
Net investment
income................ 4.75% 5.00%(d) 5.06%(d) 5.59%(d) 5.60% 5.79% 6.14% 6.53% 6.60%(b)
Portfolio turnover
rate................... 33% 22% 18% 36% 33% 56% 32% 34% 33%
</TABLE>

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

(a) Commencement of offering of Class A shares.

(b) Annualized.

(d) Net of management fee waiver. Effective September 1, 1997, PIFM
eliminated its management fee waiver (.05 of 1%).

5
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH OF THE INDICATED
PERIODS)
(CLASS B SHARES)

The following financial highlights, for the two years ended August 31, 1998,
have been audited by PricewaterhouseCoopers LLP, independent accountants, and
for the three years ended August 31, 1996 have been audited by other independent
auditors. All such audit reports were unqualified. This information should be
read in conjunction with the financial statements and the notes thereto, which
appear in the Statement of Additional Information. The following financial
highlights contain selected data for a Class B share of beneficial interest
outstanding, total return, ratios to average net assets and other supplemental
data for the periods indicated. This information is based on data contained in
the financial statements. Further performance information is contained in the
annual report, which may be obtained without charge. See "Shareholder
Guide--Shareholder Services--Reports to Shareholders."

<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
--------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 (a)
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of
year.............. $ 11.68 $ 11.53 $ 11.62 $ 11.36 $ 12.17 $ 11.49 $ 10.94 $ 10.44 $ 10.74 $ 10.53
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income............ .51 .53(c) .54(c) .60(c) .61 .63 .64 .65 .65 .68
Net realized and
unrealized gain
(loss) on
investment
transactions...... .37 .33 (.02) .26 (.74) .68 .55 .50 (.30) .21
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
Total from
investment
operations........ .88 .86 .52 .86 (.13) 1.31 1.19 1.15 .35 .89
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
LESS DISTRIBUTIONS
Dividends from net
investment
income............ (.51) (.53) (.54) (.60) (.61) (.63) (.64) (.65) (.65) (.68)
Distribution in
excess of net
investment
income............ (.01) -- -- -- -- -- -- -- -- --
Distributions from
net realized
gains............. (.15) (.18) (.07) -- (.07) -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
Total
distributions..... (.67) (.71) (.61) (.60) (.68) (.63) (.64) (.65) (.65) (.68)
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
Net asset value, end
of year........... $ 11.89 $ 11.68 $ 11.53 $ 11.62 $ 11.36 $ 12.17 $ 11.49 $ 10.94 $ 10.44 $ 10.74
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
TOTAL RETURN (B):... 7.67% 7.67% 4.51% 7.90% (1.15)% 11.77% 11.23% 11.38% 3.40% 8.67%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
year (000)........ $16,256 $18,247 $22,758 $28,367 $55,420 $61,121 $53,449 $49,641 $50,575 $52,754
Average net assets
(000)............. $17,253 $20,301 $25,751 $39,455 $59,544 $55,965 $50,607 $49,083 $52,974 $49,841
Ratios to average
net assets:
Expenses,
including
distribution
fee.............. 1.44% 1.40%(c) 1.46%(c) 1.34%(c) 1.27% 1.35% 1.39% 1.45% 1.37% 1.34%
Expenses,
excluding
distribution
fee.............. .94% .90%(c) .96%(c) .84%(c) .77% .85% .89% .95% .90% .87%
Net investment
income........... 4.35% 4.60%(c) 4.66%(c) 5.37%(c) 5.20% 5.39% 5.74% 6.13% 6.21% 6.24%
Portfolio turnover
rate.............. 33% 22% 18% 36% 33% 56% 32% 34% 33% 23%
</TABLE>

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

(a) On December 31, 1988, Prudential Mutual Fund Management, Inc.
succeeded The Prudential Insurance Company of America as manager of
the Fund.

6
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH OF THE INDICATED
PERIODS)
(CLASS C SHARES)

The following financial highlights, for the two years ended August 31, 1998,
have been audited by PricewaterhouseCoopers LLP, independent accountants, and
for the two years ended August 31, 1996 and the period August 1, 1994 through
August 31, 1994, have been audited by other independent auditors. All such audit
reports were unqualified. This information should be read in conjunction with
the financial statements and the notes thereto, which appear in the Statement of
Additional Information. The following financial highlights contain selected data
for a Class C share of beneficial interest outstanding, total return, ratios to
average net assets and other supplemental data for the periods indicated. This
information is based on data contained in the financial statements. Further
performance information is contained in the annual report, which may be obtained
without charge. See "Shareholder Guide--Shareholder Services--Reports to
Shareholders."

<TABLE>
<CAPTION>
CLASS C
------------------------------------------------------------------
AUGUST 1,
1994 (a)
YEAR ENDED AUGUST 31, THROUGH
--------------------------------------------- AUGUST 31,
1998 1997 1996 1995 1994
-------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C>

PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.............. $ 11.68 $ 11.53 $ 11.62 $ 11.36 $ 11.41
-------- -------- -------- -------- ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income............................. .48 .50(d) .51(d) .57(d) .04
Net realized and unrealized gain (loss) on
investment transactions......................... .37 .33 (.02) .26 (.05)
-------- -------- -------- -------- ------
Total from investment operations.................. .85 .83 .49 .83 (.01)
-------- -------- -------- -------- ------
LESS DISTRIBUTIONS
Dividends from net investment income.............. (.48) (.50) (.51) (.57) (.04)
Distribution in excess of net investment income... (.01) -- -- -- --
Distributions from net realized gains............. (.15) (.18) (.07) -- --
-------- -------- -------- -------- ------
Total distributions............................... (.64) (.68) (.58) (.57) (.04)
-------- -------- -------- -------- ------
Net asset value, end of period.................... $ 11.89 $ 11.68 $ 11.53 $ 11.62 $ 11.36
-------- -------- -------- -------- ------
-------- -------- -------- -------- ------
TOTAL RETURN (C):................................. 7.41% 7.41% 4.26% 7.60% (.27)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)................... $ 116 $ 78 $ 45 $ 14 $ 216(e)
Average net assets (000).......................... $ 101 $ 48 $ 41 $ 14 $ 15(e)
Ratios to average net assets:
Expenses, including distribution fee............ 1.69% 1.65%(d) 1.72%(d) 1.60%(d) 1.57%(b)
Expenses, excluding distribution fee............ .94% .90%(d) .97%(d) .85%(d) .82%(b)
Net investment income........................... 4.08% 4.36%(d) 4.39%(d) 5.07%(d) 5.06%(b)
Portfolio turnover rate........................... 33% 22% 18% 36% 33%
</TABLE>

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

(a) Commencement of offering of Class C shares.

(b) Annualized.

(d) Net of management fee waiver. Effective September 1, 1997, PIFM
eliminated its management fee waiver (.05 of 1%).

(e) Amounts are actual and not rounded to the nearest thousand.

7
<PAGE>

FINANCIAL HIGHLIGHTS
(FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE PERIOD INDICATED)
(CLASS Z SHARES)

The following financial highlights for the Class Z shares for the year ended
August 31, 1998 and for the period from December 6, 1996 through August 31, 1997
have been audited by PricewaterhouseCoopers LLP, independent accountants, whose
reports thereon were unqualified. This information should be read in conjunction
with the financial statements and the notes thereto, which appear in the
Statement of Additional Information. The financial highlights contain selected
data for a Class Z share of beneficial interest outstanding, total return,
ratios to average net assets and other supplemental data for the period
indicated. This information has been determined based on data contained in the
financial statements. Further performance information is contained in the annual
report, which may be obtained without charge. See "Shareholder
Guide--Shareholder Services--Reports to Shareholders."

<TABLE>
<CAPTION>
CLASS Z
-------------------------------------
DECEMBER 6,
1996(a)
YEAR ENDED THROUGH
AUGUST 31, 1998 AUGUST 31, 1997
----------------- -----------------

<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $ 11.68 $ 11.80
-------- --------

INCOME FROM INVESTMENT OPERATIONS
Net investment income....................................... .58 .47(d)
Net realized and unrealized gain (loss) on investment
transactions............................................... .37 .06
-------- --------
Total from investment operations............................ .95 .53
-------- --------

LESS DISTRIBUTIONS
Dividends from net investment income........................ (.58) (.47)
Distribution in excess of net investment income............. (.01) --
Distributions from net realized gains....................... (.15) (.18)
-------- --------
Total Distributions......................................... (.74) (.65)
-------- --------
Net asset value, end of period.............................. $ 11.89 $ 11.68
-------- --------
-------- --------

TOTAL RETURN(b):............................................ 8.31% 4.54%

RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............................. $ 9 $ 204(e)
Average net assets (000).................................... $ 7 $ 200(e)
Ratios to average net assets:
Expenses................................................ .94% .90%(c)(d)
Net investment income................................... 4.91% 5.55%(c)(d)
Portfolio turnover rate..................................... 33% 22%
- ---------------
(a) Commencement of offering of Class Z shares.
(b) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of the period reported and includes reinvestment
of dividends and distributions. Total returns for periods of less than a
full year are not annualized.
(c) Annualized.
(d) Net of management fee waiver. Effective September 1, 1997, PIFM eliminated
its management fee waiver (.05 of 1%).
(e) Amounts are actual and are not rounded to the nearest thousand.
</TABLE>

8
<PAGE>
HOW THE FUND INVESTS

INVESTMENT OBJECTIVE AND POLICIES

PRUDENTIAL MUNICIPAL SERIES FUND (THE FUND) IS AN OPEN-END, MANAGEMENT
INVESTMENT COMPANY, OR MUTUAL FUND, CONSISTING OF THIRTEEN SEPARATE SERIES. EACH
OF THESE SERIES IS MANAGED INDEPENDENTLY. THE MASSACHUSETTS SERIES (THE SERIES)
IS DIVERSIFIED AND ITS INVESTMENT OBJECTIVE IS TO MAXIMIZE CURRENT INCOME THAT
IS EXEMPT FROM MASSACHUSETTS STATE AND FEDERAL INCOME TAXES CONSISTENT WITH THE
PRESERVATION OF CAPITAL AND, IN CONJUNCTION THEREWITH, THE SERIES MAY INVEST IN
DEBT SECURITIES WITH THE POTENTIAL FOR CAPITAL GAIN. The investment adviser will
attempt to manage risk and enhance yield through credit analysis and careful
security selection. See "Investment Objectives and Policies" in the Statement of
Additional Information.

THE SERIES WILL INVEST PRIMARILY IN MASSACHUSETTS STATE, MUNICIPAL AND LOCAL
GOVERNMENT OBLIGATIONS AND OBLIGATIONS OF OTHER QUALIFYING ISSUERS, SUCH AS
ISSUERS LOCATED IN PUERTO RICO, THE VIRGIN ISLANDS AND GUAM, WHICH PAY INCOME
EXEMPT, IN THE OPINION OF COUNSEL, FROM MASSACHUSETTS STATE AND FEDERAL INCOME
TAXES (MASSACHUSETTS OBLIGATIONS). THERE CAN BE NO ASSURANCE THAT THE SERIES
WILL BE ABLE TO ACHIEVE ITS INVESTMENT OBJECTIVE.

As with an investment in any mutual fund, an investment in this Series can
decrease and you can lose money.

Interest on certain municipal obligations may be a preference item for
purposes of the federal alternative minimum tax. The Series may invest without
limit in municipal obligations that are private activity bonds (as defined in
the Internal Revenue Code) the interest on which would be a preference item for
purposes of the federal alternative minimum tax. See "Taxes, Dividends and
Distributions." Under Massachusetts law, dividends paid by the Series are exempt
from Massachusetts personal income tax for resident individuals and other
resident noncorporate shareholders to the extent they are derived from interest
payments on Massachusetts Obligations or from long-term capital gains on certain
Massachusetts Obligations. Massachusetts Obligations could include general
obligation bonds of the Commonwealth, counties, cities, towns, etc., revenue
bonds of utility systems, highways, bridges, port and airport facilities,
colleges, hospitals, etc., and industrial development and pollution control
bonds. The Series will invest in long-term obligations, and the dollar-weighted
average maturity of the Series' portfolio will generally range between 10-20
years. The Series also may invest in certain short-term, tax-exempt notes such
as Tax Anticipation Notes, Revenue Anticipation Notes, Bond Anticipation Notes,
Construction Loan Notes and variable and floating rate demand notes.

9
<PAGE>
them. An inverse floater is a debt instrument with a floating or variable
interest rate that moves in the opposite direction of the interest rate on
another security or the value of an index. Changes in the interest rate on the
other security or index inversely affect the residual interest rate paid on the
inverse floater, with the result that the inverse floater's price will be
considerably more volatile than that of a fixed rate bond. The market for
inverse floaters is relatively new.

THE SERIES WILL INVEST AT LEAST 70% OF ITS TOTAL ASSETS IN MASSACHUSETTS
OBLIGATIONS WHICH, AT THE TIME OF PURCHASE, ARE RATED WITHIN THE FOUR HIGHEST
QUALITY GRADES AS DETERMINED BY MOODY'S INVESTORS SERVICE (MOODY'S) (CURRENTLY
Aaa, Aa, A, Baa FOR BONDS, MIG 1, MIG 2, MIG 3, MIG 4 FOR NOTES AND PRIME-1 FOR
COMMERCIAL PAPER), STANDARD & POOR'S RATINGS GROUP (S&P) (CURRENTLY AAA, AA, A,
BBB FOR BONDS, SP-1, SP-2 FOR NOTES AND A-1 FOR COMMERCIAL PAPER) OR ANOTHER
NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO) OR, IF UNRATED,
WILL POSSESS CREDITWORTHINESS, IN THE OPINION OF THE INVESTMENT ADVISER,
COMPARABLE TO SUCH INVESTMENT GRADE RATED SECURITIES.

THE SERIES MAY ALSO INVEST UP TO 30% OF ITS TOTAL ASSETS IN MASSACHUSETTS
OBLIGATIONS RATED BELOW Baa BY MOODY'S OR BELOW BBB BY S&P OR A COMPARABLE
RATING OF ANOTHER NRSRO OR, IF NON-RATED, OF COMPARABLE QUALITY, IN THE OPINION
OF THE FUND'S INVESTMENT ADVISER, BASED ON ITS CREDIT ANALYSIS. Securities rated
Baa by Moody's and BBB by S&P are described as being investment grade but are
also characterized as having speculative characteristics. Securities rated below
Baa by Moody's and below BBB by S&P are considered speculative. See "Description
of Security Ratings" in the Appendix. Such lower-rated high yield securities by
S&P are commonly referred to as junk bonds. Such securities generally offer a
higher current yield than those in the higher rating categories but also involve
greater price volatility and risk of loss of principal and income. The
investment adviser will attempt to manage risk and enhance yield through credit
analysis and careful security selection. See "Risk Factors Relating to Investing
in High Yield Municipal Obligations" below. Subsequent to its purchase by the
Series, a municipal obligation may be assigned a lower rating or cease to be
rated. Such an event would not require the elimination of the issue from the
portfolio, but the investment adviser will consider such an event in determining
whether the Series should continue to hold the security in its portfolio. Many
issuers of lower-quality bonds choose not to have their obligations rated and
the Series may invest in such unrated securities. Investors should carefully
consider the relative risks associated with investments in securities which
carry lower ratings and in comparable non-rated securities.

During the year ended August 31, 1998, 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>
PERCENTAGE OF
RATINGS TOTAL INVESTMENTS
------------------------------ -------------------------
<S> <C>
AAA/Aaa 55.43 %
AA/Aa 9.67 %
A/A 8.66 %
BBB/Baa 22.03 %
Unrated
B/B 4.21 %
</TABLE>

10
<PAGE>
From time to time, the Series may own the majority of a municipal issue. Such
majority-owned holdings may present market and credit risks.

The Series may purchase Massachusetts Obligations which, in the opinion of the
investment adviser, offer the opportunity for capital appreciation. This may
occur, for example, when the investment adviser believes that the issuer of a
particular Massachusetts Obligation might receive an upgraded credit standing,
thereby increasing the market value of the bonds it has issued or when the
investment adviser believes that interest rates might decline.

UNDER NORMAL MARKET CONDITIONS, THE SERIES WILL ATTEMPT TO INVEST
SUBSTANTIALLY ALL OF THE VALUE OF ITS ASSETS IN MASSACHUSETTS OBLIGATIONS. As a
matter of fundamental policy, during normal market conditions the Series' assets
will be invested so that at least 80% of the income will be exempt from
Massachusetts and federal income taxes or the Series will have at least 80% of
its total assets invested in Massachusetts Obligations. During abnormal market
conditions or to provide liquidity, the Series may hold cash or cash equivalents
or investment grade taxable obligations, including obligations that are exempt
from federal, but not state, taxation and the Series may invest in tax-free cash
equivalents, such as floating rate demand notes, tax-exempt commercial paper and
general obligation and revenue notes or in taxable cash equivalents, such as
certificates of deposit, bankers acceptances and time deposits or other
short-term taxable investments such as repurchase agreements. When, in the
opinion of the investment adviser, abnormal market conditions require a
temporary defensive position, the Series may invest more than 20% of the value
of its assets in debt securities other than Massachusetts Obligations or may
invest its assets so that more than 20% of the income is subject to
Massachusetts state or federal income taxes. The Series will treat an investment
in a municipal bond refunded with escrowed U.S. Government securities as U.S.
Government securities for purposes of the Investment Company Act's
diversification requirements provided certain conditions are met. See
"Investment Objectives and Policies--In General" in the Statement of Additional
Information.

THE SERIES MAY PURCHASE MUNICIPAL OBLIGATIONS ON A WHEN-ISSUED OR DELAYED
DELIVERY BASIS, IN EACH CASE WITHOUT LIMIT. When municipal obligations are
offered on a when-issued or delayed delivery basis, the price and coupon rate
are fixed at the time the commitment to purchase is made, but delivery and
payment for the securities take place at a later date. During the period between
purchase and settlement, no interest accrues to the economic benefit of the
purchaser. In the case of purchases by the Series, the price that the Series is
required to pay on the settlement date may be in excess of the market value of
the municipal obligations on that date. While securities may be sold prior to
the settlement date, the Series intends to purchase these securities with the
purpose of actually acquiring them unless a sale would be desirable for
investment reasons. At the time the Series makes the commitment to purchase a
municipal obligation on a when-issued or delayed delivery basis, it will record
the transaction and reflect the value of the obligation each day in determining
its NAV. This value may fluctuate from day to day in the same manner as

11
<PAGE>

THE SERIES MAY PURCHASE SECONDARY MARKET INSURANCE ON MASSACHUSETTS
OBLIGATIONS WHICH IT HOLDS OR ACQUIRES. Secondary market insurance would be
reflected in the market value of the municipal obligation purchased and may
enable the Series to dispose of a defaulted obligation at a price similar to
that of comparable municipal obligations which are not in default.

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

RISK FACTORS RELATING TO INVESTING IN HIGH YIELD MUNICIPAL OBLIGATIONS. FIXED
INCOME SECURITIES ARE SUBJECT TO THE RISK OF AN ISSUER'S INABILITY TO MEET
PRINCIPAL AND INTEREST PAYMENTS ON THE OBLIGATIONS (CREDIT RISK) AND MAY ALSO BE
SUBJECT TO PRICE VOLATILITY DUE TO SUCH FACTORS AS INTEREST RATE SENSITIVITY,
MARKET PERCEPTION OF THE CREDITWORTHINESS OF THE ISSUER AND GENERAL MARKET
LIQUIDITY (MARKET RISK). Lower-rated or unrated (I.E., high yield) securities,
commonly known as junk bonds, are more likely to react to developments affecting
market and credit risk than are more highly rated securities, which react
primarily to movements in the general level of interest rates. The investment
adviser will perform its own investment analysis and will not rely principally
on the ratings assigned by the rating services, although such ratings will be
considered by the investment adviser. The investment adviser will consider,
among other things, credit risk and market risk, as well as the financial
history and condition, the prospects and the management of an issuer in
selecting securities for the Series' portfolio. The achievement of the Series'
investment objective may be more dependent on the investment adviser's credit
analysis than is the case when investing in only higher quality bonds. Investors
should carefully consider the relative risks of investing in high yield
municipal obligations and understand that such securities are not generally
meant for short-term investing and that yields on junk bonds will fluctuate over
time.

The amount of high yield securities outstanding has proliferated recently in
conjunction with the decline in creditworthiness of many obligors on municipal
debt, particularly health care providers and certain government bodies. An
economic downturn could severely affect the ability of highly leveraged issuers
to service their debt obligations or to repay their obligations upon maturity.
In addition, the secondary market for high yield securities, which is
concentrated in relatively few market makers, may not be as liquid as the
secondary market for more highly rated securities and, from time to time, it may
be more difficult to value high yield securities than more highly rated
securities, and the judgment of the Board of Trustees and investment adviser may
play a greater role in valuation because there is less reliable objective data
available. Under adverse market or economic conditions, the secondary market for
high yield securities could contract further, independent of any specific
adverse changes in the condition of a particular issuer. As a result, the
investment adviser could find it more difficult to sell these securities or may
be able to sell the securities only at prices lower than if such securities were
widely traded. Prices realized upon the sale of such lower rated or unrated
securities, under these circumstances, may be less than the prices used in
calculating the Series' NAV. If the investment adviser becomes involved in
activities such as reorganizations of obligors of troubled investments held by
the Series, this may prevent the Series from disposing of the securities, due to
its possession of material, non-public information concerning the obligor.

12
<PAGE>

return for investors. If the Series experiences unexpected net redemptions, it
may be forced to sell its higher rated securities, resulting in a decline in the
overall credit quality of the portfolio and increasing the exposure of the
Series to the risks of high yield securities.

FUTURES CONTRACTS AND OPTIONS THEREON

THE SERIES IS AUTHORIZED TO PURCHASE AND SELL CERTAIN DERIVATIVES, INCLUDING
FINANCIAL FUTURES CONTRACTS (FUTURES CONTRACTS) AND OPTIONS THEREON FOR THE
PURPOSE OF HEDGING ITS PORTFOLIO SECURITIES AGAINST FLUCTUATIONS IN VALUE CAUSED
BY CHANGES IN PREVAILING MARKET INTEREST RATES AND HEDGING AGAINST INCREASES IN
THE COST OF SECURITIES THE SERIES INTENDS TO PURCHASE. THE SUCCESSFUL USE OF
FUTURES CONTRACTS AND OPTIONS THEREON BY THE SERIES INVOLVES ADDITIONAL
TRANSACTION COSTS, IS SUBJECT TO VARIOUS RISKS AND DEPENDS UPON THE INVESTMENT
ADVISER'S ABILITY TO PREDICT THE DIRECTION OF THE MARKET (INCLUDING INTEREST
RATES). THE SERIES, AND THUS INVESTORS, MAY LOSE MONEY THROUGH THE UNSUCCESSFUL
USE OF THESE STRATEGIES.

13
<PAGE>
in interest rates and, in turn, the prices of the securities that are the
subject of the hedge. If the price of the futures contract moves more or less
than the price of the security that is the subject of the hedge, the Series will
experience a gain or loss that will not be completely offset by movements in the
price of the security. The risk of imperfect correlation is greater where the
securities underlying futures contracts are taxable securities (rather than
municipal securities), are issued by companies in different market sectors or
have different maturities, ratings or geographic mixes than the security being
hedged. In addition, the correlation may be affected by additions to or
deletions from the index which serves as the basis for a futures contract.
Finally, if the price of the security that is subject to the hedge were to move
in a favorable direction, the advantage to the Series would be partially offset
by the loss incurred on the futures contract.

SPECIAL CONSIDERATIONS

BECAUSE THE SERIES WILL INVEST AT LEAST 80% OF THE VALUE OF ITS TOTAL ASSETS
IN MASSACHUSETTS OBLIGATIONS AND BECAUSE IT SEEKS TO MAXIMIZE INCOME DERIVED
FROM MASSACHUSETTS OBLIGATIONS, IT IS MORE SUSCEPTIBLE TO FACTORS ADVERSELY
AFFECTING ISSUERS OF MASSACHUSETTS OBLIGATIONS THAN IS A COMPARABLE MUNICIPAL
BOND MUTUAL FUND THAT IS NOT CONCENTRATED IN SUCH OBLIGATIONS TO THIS DEGREE.
Since Massachusetts has moderated spending growth resulting in the achievement
of budget surpluses each year from 1992 through 1997. Massachusetts is currently
rated A-1 by Moody's Investors Service. Fiscal year 1998 tax revenue collections
totaled $14.026 billion, which exceeded fiscal 1997 tax revenues by $1.161
billion. The Governor's proposed budget for fiscal 1999 sets total spending in
fiscal 1999 to be approximately $19.06 billion. Fiscal 1999 total revenues are
estimated to be approximately $19.514 billion, including approximately $13.870
billion in tax revenues. The tax revenue estimate amounts to an increase of
approximately 4.9% over same period last year. Inflexibility dictated by a heavy
debt load and other substantial fixed costs, particularly pension contributions
and transit subsidies, pose significant obstacles to continued progress. If
either Massachusetts or any of its local government entities is unable to meet
its financial obligations, the income derived by the Series, the ability to
preserve or realize appreciation of the Series' capital and the Series'
liquidity could be adversely affected. See "Investment Objectives and
Policies--Special Considerations Regarding Investments in Tax-Exempt Securities"
in the Statement of Additional Information.

OTHER INVESTMENTS AND POLICIES

REPURCHASE AGREEMENTS

BORROWING

14
<PAGE>
PORTFOLIO TURNOVER

ILLIQUID SECURITIES

The Series may hold up to 15% of its net assets in illiquid securities
including repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable. Securities,
including restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933, as amended (the Securities Act), privately placed
commercial paper and municipal lease obligations, that have a readily available
market are not considered illiquid for the purposes of this limitation. The
investment adviser will monitor the liquidity of such restricted securities
under the supervision of the Trustees. The Series' investment in Rule 144A
securities could have the effect of increasing illiquidity to the extent that
qualified institutional buyers become, for a limited time, uninterested in
purchasing Rule 144A securities. See "Investment Objectives and
Policies--Illiquid Securities" and "Investment Restrictions" in the Statement of
Additional Information. Repurchase agreements subject to demand are deemed to
have a maturity equal to the notice period.

INVESTMENT RESTRICTIONS

HOW THE FUND IS MANAGED

For the fiscal year ended August 31, 1998, total expenses of the Series as a
percentage of average net assets were 1.04%, 1.44%, 1.69% and .94% for the
Series' Class A, Class B, Class C and Class Z shares, respectively. See
"Financial Highlights."

MANAGER

PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM OR THE MANAGER), GATEWAY
CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077, IS THE MANAGER
OF THE FUND AND IS COMPENSATED FOR ITS SERVICES AT AN ANNUAL RATE OF .50 OF 1%
OF THE AVERAGE NET ASSETS OF THE SERIES. PIFM is organized in New York as a
limited liability company. For the fiscal year ended August 31, 1998, the Series
paid PIFM a management fee of .50 of 1% of the Series' average net assets. See
"Fee Waivers and Subsidy" below and "Manager" in the Statement of Additional
Information.

As of September 30, 1998, PIFM served as the manager to 44 open-end investment
companies, constituting all of the
Prudential Mutual Funds, and as manager or administrator to 22 closed-end
investment companies with aggregate assets of approximately $67 billion.

15
<PAGE>
UNDER THE MANAGEMENT AGREEMENT WITH THE FUND, PIFM MANAGES THE INVESTMENT
OPERATIONS OF EACH SERIES OF THE FUND AND ALSO ADMINISTERS THE FUND'S BUSINESS
AFFAIRS. See "Manager" in the Statement of Additional Information.

UNDER A SUBADVISORY AGREEMENT BETWEEN PIFM AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC, THE SUBADVISER OR THE INVESTMENT ADVISER), THE SUBADVISER
FURNISHES INVESTMENT ADVISORY SERVICES IN CONNECTION WITH THE MANAGEMENT OF THE
FUND AND IS REIMBURSED BY PIFM FOR ITS REASONABLE COSTS AND EXPENSES INCURRED IN
PROVIDING SUCH SERVICES. PIC's address is Prudential Plaza, Newark, New Jersey
07102-3777. Under the Management Agreement, PIFM continues to have
responsibility for all investment advisory services and supervises the
Subadviser's performance of such services.

FEE WAIVERS AND SUBSIDY

PIFM may from time to time agree to waive all or a portion of its management
fee and subsidize all or a portion of operating expenses of the Series. Fee
waivers and expense subsidies will increase the Series' yield and total return.
The Series is not required to reimburse PIFM for such management fee waiver. See
"Performance Information" in the Statement of Additional Information and "Fund
Expenses."

DISTRIBUTOR

UNDER SEPARATE DISTRIBUTION AND SERVICE PLANS (THE CLASS A PLAN, THE CLASS B
PLAN AND THE CLASS C PLAN, COLLECTIVELY, THE PLANS) ADOPTED BY THE FUND UNDER
RULE 12b-1 UNDER THE INVESTMENT COMPANY ACT AND A DISTRIBUTION AGREEMENT (THE
DISTRIBUTION AGREEMENT), THE DISTRIBUTOR INCURS THE EXPENSES OF DISTRIBUTING THE
CLASS A, CLASS B AND CLASS C SHARES OF THE SERIES. THE DISTRIBUTOR ALSO INCURS
THE EXPENSE OF DISTRIBUTING THE SERIES' CLASS Z SHARES UNDER THE DISTRIBUTION
AGREEMENT WITH THE FUND, NONE OF WHICH IS REIMBURSED OR PAID FOR BY THE FUND.
These expenses include commissions and account servicing fees paid to, or on
account of, Dealers or financial institutions which have entered into agreements
with the Distributor, advertising expenses, the cost of printing and mailing
prospectuses to potential investors and indirect and overhead costs of the
Distributor associated with the sale of Series shares, including lease, utility,
communications and sales promotion expenses. Certain Dealers are paid higher
fees than others with respect to Class A shares pursuant to separate agreements
with the Distributor.

16
<PAGE>

UNDER THE CLASS B AND CLASS C PLANS, THE SERIES MAY PAY THE DISTRIBUTOR FOR
ITS DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS B AND CLASS C SHARES
AT AN ANNUAL RATE OF UP TO .50 OF 1% AND UP TO 1% OF THE AVERAGE DAILY NET
ASSETS OF THE CLASS B AND CLASS C SHARES, RESPECTIVELY. The Class B Plan
provides for the payment to the Distributor of (i) an asset-based sales charge
of up to .50 of 1% of the average daily net assets of the Class B shares, and
(ii) a service fee of up to .25 of 1% of the average daily net assets of the
Class B shares; provided that the total distribution-related fee does not exceed
.50 of 1%. The Class C Plan provides for the payment to the Distributor of (i)
an asset-based sales charge of up to .75 of 1% of the average daily net assets
of the Class C shares, and (ii) a service fee of up to .25 of 1% of the average
daily net assets of the Class C shares. The service fee is used to pay for
personal service and/or the maintenance of shareholder accounts. The Distributor
has voluntarily limited its distribution-related fees payable under the Class C
Plan to .75 of 1% of the average daily net assets of the Class C shares. This
voluntary waiver may be modified or terminated at any time without notice.The
Distributor also receives CDSC's from certain redeeming shareholders. See
"Shareholder Guide--How to Sell Your Shares--Contingent Deferred Sales Charges."

17
<PAGE>
PORTFOLIO TRANSACTIONS

CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT

YEAR 2000

HOW THE FUND VALUES ITS SHARES

THE SERIES' NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING ITS
LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. NAV IS CALCULATED SEPARATELY FOR EACH CLASS. THE
TRUSTEES HAVE FIXED THE SPECIFIC TIME OF DAY FOR THE COMPUTATION OF THE NAV OF
THE SERIES TO BE AS OF 4:15 P.M., NEW YORK TIME.

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

18
<PAGE>
HOW THE FUND CALCULATES PERFORMANCE

FROM TIME TO TIME THE FUND MAY ADVERTISE THE YIELD, TAX EQUIVALENT YIELD AND
AVERAGE ANNUAL TOTAL RETURN AND AGGREGATE TOTAL RETURN OF THE SERIES IN
ADVERTISEMENTS OR SALES LITERATURE. YIELD, TAX EQUIVALENT YIELD AND TOTAL RETURN
ARE CALCULATED SEPARATELY FOR CLASS A, CLASS B, CLASS C AND CLASS Z SHARES.
THESE FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE
FUTURE PERFORMANCE. The yield refers to the income generated by an investment in
the Series over a one-month or 30-day period. This income is then annualized;
that is, the amount of income generated by the investment during that 30-day
period is assumed to be generated each 30-day period for twelve periods and is
shown as a percentage of the investment. The income earned on the investment is
also assumed to be reinvested at the end of the sixth 30-day period. The tax
equivalent yield is calculated similarly to the yield, except that the yield is
increased using a stated income tax rate to demonstrate the taxable yield
necessary to produce an after-tax yield equivalent to the Series. The total
return shows how much an investment in the Series would have increased
(decreased) over a specified period of time (I.E., one, five or ten years or
since inception of the Series) assuming that all distributions and dividends by
the Series were reinvested on the reinvestment dates during the period and less
all recurring fees. The aggregate total return reflects actual performance over
a stated period of time. Average annual total return is a hypothetical rate of
return that, if achieved annually, would have produced the same aggregate total
return if performance had been constant over the entire period. Average annual
total return smooths out variations in performance and takes into account any
applicable initial or contingent deferred sales charges. Neither average annual
total return nor aggregate total return takes into account any federal or state
income taxes which may be payable upon redemption. The Fund also may include
comparative performance information in advertising or marketing the shares of
the Series. Such performance information may include data from Lipper Analytical
Services, Inc., Morningstar Publications, Inc., other industry publications,
business periodicals and market indices. See "Performance Information" in the
Statement of Additional Information. Further performance information is
contained in the Series' annual and semi-annual reports to shareholders, which
may be obtained without charge. See "Shareholder Guide--Shareholder
Services--Reports to Shareholders."

TAXES, DIVIDENDS AND DISTRIBUTIONS

TAXATION OF THE FUND

THE SERIES HAS QUALIFIED AND INTENDS TO REMAIN QUALIFIED AS A REGULATED
INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE. ACCORDINGLY, THE SERIES WILL
NOT BE SUBJECT TO FEDERAL INCOME TAXES ON ITS NET INVESTMENT INCOME AND NET
CAPITAL GAINS, IF ANY, THAT IT DISTRIBUTES TO ITS SHAREHOLDERS. TO THE EXTENT
NOT DISTRIBUTED BY THE SERIES, NET TAXABLE INVESTMENT INCOME AND CAPITAL GAINS
AND LOSSES ARE TAXABLE TO THE SERIES. See "Taxes, Dividends and Distributions"
in the Statement of Additional Information.

To the extent the Series invests in taxable obligations, it will earn taxable
investment income. Also, to the extent the Series sells securities or engages in
hedging transactions in futures contracts and options thereon, it may earn both
capital gain or loss. Capital gain or loss may also arise upon the sale of
municipal securities, as well as taxable obligations. Under the Internal Revenue
Code, special rules apply to the treatment of certain options and futures
contracts (Section 1256 contracts). At the end of each year, such investments
held by the Series will be required to be marked to market for federal income
tax purposes; that is, treated as having been sold at market value. Sixty
percent of any gain or loss recognized on these deemed sales and on actual
dispositions will be treated as long-term capital gain or loss, and the
remainder will be treated as short-term capital gain or loss. See "Taxes,
Dividends and Distributions" in the Statement of Additional Information.

19
<PAGE>

market discount. Market discount generally is the difference, if any, between
the price paid by the Series for the security and the principal amount of the
security (or, in the case of a security issued at an original issue discount,
the revised issue price of the security). The market discount rule does not
apply to any security that was acquired by the Series at its original issue.

TAXATION OF SHAREHOLDERS

Any dividends out of net taxable investment income, together with
distributions of net short-term gains (I.E., the excess of net short-term
capital gains over net long-term capital losses) distributed to shareholders,
will be taxable as ordinary income to the shareholder whether or not reinvested.
Any net capital gains (I.E., the excess of net capital gains from the sale of
assets held for more than 12 months over net short-term capital losses)
distributed to shareholders will be taxable as capital gains to the
shareholders, whether or not reinvested and regardless of the length of time a
shareholder has owned his or her shares. Recent legislation created various
categories of capital gains applicable to individuals. For capital gains
recognized upon the sale of assets by the Series after December 31, 1997, the
maximum long-term capital gains tax rate for individuals is 20%. The maximum
capital gains tax rate for corporate shareholders currently is the same as the
maximum tax rate for ordinary income.

Under Massachusetts law, dividends paid by the Series are exempt from
Massachusetts personal income tax for individuals and other noncorporate
shareholders resident in Massachusetts to the extent such dividends are excluded
from gross income for federal income tax purposes and are derived from interest
payments on Massachusetts Obligations or are capital gain dividends for federal
income tax purposes and are derived from long-term capital gains on certain
Massachusetts Obligations.

20
<PAGE>

WITHHOLDING TAXES

DIVIDENDS AND DISTRIBUTIONS

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

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

GENERAL INFORMATION

DESCRIPTION OF SHARES

21
<PAGE>
each class is subject to different sales charges and distribution and/or service
fees (except for Class Z shares which are not subject to any sales charges and
distribution and/or service fees) which may affect performance, (ii) each class
has exclusive voting rights on any matter submitted to shareholders that relates
solely to its arrangement and has separate voting rights on any matter submitted
to shareholders in which the interests of one class differ from the interests of
any other class, (iii) each class has a different exchange privilege, (iv) only
Class B shares have a conversion feature and (v) Class Z shares are offered
exclusively for sale to a limited group of investors. See "How the Fund is
Managed--Distributor." In accordance with the Fund's Declaration of Trust, the
Trustees may authorize the creation of additional series and classes within such
series, with such preferences, privileges, limitations and voting and dividend
rights as the Trustees may determine.

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

ADDITIONAL INFORMATION

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

SHAREHOLDER GUIDE

HOW TO BUY SHARES OF THE FUND

22
<PAGE>

TRANSFER AGENT), ATTENTION: INVESTMENT SERVICES, P.O. BOX 15020, NEW BRUNSWICK,
NEW JERSEY 08906-5020. Participants in programs sponsored by Prudential
Retirement Services should contact their client representative for more
information about Class Z shares. The purchase price is the NAV next determined
following receipt of an order in proper form (in accordance with procedures
established by the Transfer Agent in connection with investors' accounts) by the
Distributor, your Dealer or the Transfer Agent plus a sales charge which, at
your option, may be imposed either at the time of purchase, on a deferred basis,
or both. Class A shares are sold with a front-end sales charge. Class B shares
are subject to a CDSC. Class C shares are sold with a low front-end sales
charge, but are also subject to a CDSC. Class Z shares are offered to a limited
group of investors at NAV without any sales charge. Payments may be made by
wire, check or through your brokerage account. See "Alternative Purchase Plan"
below and "How the Fund Values its Shares."

An investment in the Series may not be appropriate for tax-exempt or
tax-deferred investors. Such investors should consult their own tax advisers.

The minimum initial investment is $1,000 for Class A and Class B shares and
$2,500 for Class C shares except that the minimum investment for Class C shares
may be waived from time to time. The minimum subsequent investment is $100 for
Class A, Class B and Class C shares. Class Z shares are not subject to any
minimum investment requirements. All minimum investment requirements are waived
for certain employee savings plans. For purchases made through the Automatic
Investment Plan, the minimum initial and subsequent investment is $50. See
"Shareholder Services" below.

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

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

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

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<PAGE>
ALTERNATIVE PURCHASE PLAN

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

CLASS C Maximum initial sales charge of 1% 1% (currently being charged at a Shares do not convert to another
of the public offering price and rate of .75 of 1%) class
maximum CDSC of 1% of the lesser of
the amount invested or the
redemption proceeds on redemptions
made within 18 months of purchase

CLASS Z None None Sold to a limited group of
investors
</TABLE>

24
<PAGE>

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

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

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

If you intend to hold your investment in a Fund for less than 3 years and do
not qualify for a reduced sales charge on class A shares, since Class A shares
are subject to maximum initial sales charge of 3% and Class B shares are subject
to a CDSC of 5% which declines to zero over a 6 year period, you should consider
purchasing Class C shares over either Class A or Class B shares.

25
<PAGE>
CLASS A SHARES

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

OTHER WAIVERS. Class A shares may be purchased at NAV, through the Distributor
or the Transfer Agent, by the following persons: (a) officers of the Prudential
Mutual Funds (including the Fund), (b) employees of the Distributor, Prudential
Securities, PIFM and their subsidiaries and members of the families of such
persons who maintain an employee related account at Prudential Securities or the
Transfer Agent, (c) employees of subadvisers of the Prudential Mutual Funds
provided that the purchases at NAV are permitted by such person's employer, (d)
Prudential, employees and special agents of Prudential and its subsidiaries and
all persons who have retired directly from active service with Prudential or one
of its subsidiaries, (e) registered representatives and employees of Dealers who
have entered into a selected dealer agreement with the Distributor, provided
that purchases at NAV are permitted by such person's employer and (f) investors
who have a business relationship with a financial adviser who joined Prudential
Securities from another investment firm, provided that (i) the purchase is made
within 180 days of the commencement of the financial adviser's employment at
Prudential Securities or within one year in the case of benefit plans, (ii) the
purchase is made with proceeds of a redemption of shares of any open-end
non-money market fund sponsored by the financial adviser's previous employer
(other than a fund which imposes a distribution or service fee of .25 of 1% or
less) and (iii) the financial adviser served as the client's broker on the
previous purchases.

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<PAGE>
CLASS B AND CLASS C SHARES

WAIVER OF INITIAL SALES CHARGE -- CLASS C SHARES

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

CLASS Z SHARES

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

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

HOW TO SELL YOUR SHARES

27
<PAGE>

If you hold shares in non-certificate form, a written request for redemption
signed by you exactly as the account is registered is required. If you hold
certificates, the certificates, signed in the name(s) shown on the face of the
certificates, must be received by the Transfer Agent, the Distributor or your
Dealer in order for the redemption request to be processed. If redemption is
requested by a corporation, partnership, trust or fiduciary, written evidence of
authority acceptable to the Transfer Agent must be submitted before such request
will be accepted. All correspondence and documents concerning redemptions should
be sent to the Fund in care of its Transfer Agent, Prudential Mutual Fund
Services LLC, Attention: Redemption Services, P.O. Box 15010, New Brunswick, New
Jersey 08906-5010, the Distributor or your Dealer.

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

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

28
<PAGE>

redemption will be credited (in shares) to your account. (If less than a full
repurchase is made, the credit will be on a PRO RATA basis.) You must notify the
Transfer Agent, either directly or through the Distributor or your Dealer, at
the time the repurchase privilege is exercised to adjust your account for the
CDSC you previously paid. Thereafter, any redemptions will be subject to the
CDSC applicable at the time of the redemption. See "Contingent Deferred Sales
Charges" below. Exercise of the repurchase privilege may affect the federal tax
treatment of any gain realized upon redemption.

CONTINGENT DEFERRED SALES CHARGES

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

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

In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results in the lowest possible rate. It will be
assumed that the redemption is made first of amounts representing shares
acquired pursuant to the reinvestment of dividends and distributions; then of
amounts representing the increase in NAV above the total amount of payments for
the purchase of Series shares made during the preceding six years (five years
for Class B shares purchased prior to January 22, 1990); then of amounts
representing the cost of shares held beyond the applicable CDSC period; and
finally, of amounts representing the cost of shares held for the longest period
of time within the applicable CDSC period.

29
<PAGE>
shares would be $1,260 (105 shares at $12 per share). The CDSC would not be
applied to the value of the reinvested dividend shares and the amount which
represents appreciation ($260). Therefore, $240 of the $500 redemption proceeds
($500 minus $260) would be charged at a rate of 4% (the applicable rate in the
second year after purchase) for a total CDSC of $9.60.

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

CONVERSION FEATURE--CLASS B SHARES

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

30
<PAGE>

HOW TO EXCHANGE YOUR SHARES

IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.

IF YOU HOLD THE CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON
THE FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.

31
<PAGE>
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services LLC, Attention: Exchange Processing, P.O. Box 15010, New Brunswick, New
Jersey 08906-5010.

SPECIAL EXCHANGE PRIVILEGE. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV (see "Alternative
Purchase Plan--Class A Shares--Reduction and Waiver of Initial Sales Charges"
above) and for shareholders who qualify to purchase Class Z shares (see
"Alternative Purchase Plan--Class Z Shares" above). Under this exchange
privilege, amounts representing any Class B and Class C shares (which are not
subject to a CDSC) held in such a shareholder's account will be automatically
exchanged for Class A shares for shareholders who qualify to purchase Class A
Shares at NAV on a quarterly basis, unless the shareholder elects otherwise.
Similarly, shareholders who qualify to purchase Class Z shares will have their
Class B and Class C shares which are not subject to a CDSC and their Class A
shares exchanged for Class Z shares on a quarterly basis. Eligibility for this
exchange privilege will be calculated on the business day prior to the date of
the exchange. Amounts representing Class B or Class C shares which are not
subject to a CDSC include the following: (1) amounts representing Class B or
Class C shares acquired pursuant to the automatic reinvestment of dividends and
distributions, (2) amounts representing the increase in the NAV above the total
amount of payments for the purchase of Class B or Class C shares and (3) amounts
representing Class B or Class C shares held beyond the applicable CDSC period.
Class B and Class C shareholders must notify the Transfer Agent either directly
or through their Dealer or the Distributor that they are eligible for this
special exchange privilege.

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

SHAREHOLDER SERVICES

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

32
<PAGE>

You may direct the Transfer Agent in writing not less than 5 full business days
prior to the record date to have subsequent dividends and/or distributions sent
in cash rather than reinvested. If you hold shares through your Dealer, you
should contact your Dealer.

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

33
<PAGE>
DESCRIPTION OF SECURITY RATINGS

MOODY'S INVESTORS SERVICE

BOND RATINGS

Caa: Bonds which 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 which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C: Bonds which 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 RATINGS

MIG 2: Loans bearing the designation MIG 2 are of high quality, with margins
of protection ample although not so large as in the preceding group.

A-1
<PAGE>
MIG 3: Loans bearing the designation MIG 3 are of favorable quality, with all
security elements accounted for but lacking the strength of the preceding
grades.

SG: This designation denotes speculative quality. Debt instruments in this
category lack margins of protection.

SHORT-TERM DEBT RATINGS

- Leading market positions in well-established industries.

- High rates of return on funds employed.

- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.

- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

- Well-established access to a range of financial markets and assured
sources of alternate liquidity.

PRIME-3: Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations.

NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime rating
categories.

STANDARD & POOR'S RATINGS GROUP

DEBT RATINGS

AAA: An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.

AA: An obligation rated AA differs from the highest rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.

COMMERCIAL PAPER RATINGS

An S&P Commercial Paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.

A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.

MUNICIPAL NOTES

A-3
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY

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

TAXABLE BOND FUNDS
-----------------------------

TAX-EXEMPT BOND FUNDS
--------------------------------

GLOBAL FUNDS
-----------------------

The Global Total Return Fund, Inc.

EQUITY FUNDS
-----------------------

Prudential Balanced Fund
Prudential Distressed Securities Fund, Inc.
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Index Series Fund
Prudential Bond Market Index Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced Fund
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Mid-Cap Value Fund
Prudential Real Estate Securities Fund
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Utility Fund, Inc.
Prudential 20/20 Focus Fund
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund

MONEY MARKET FUNDS
------------------------------

B-1
<PAGE>

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FUND HIGHLIGHTS............................................................. 2
What are the Series' Risk Factors and Special Characteristics?............ 2
FUND EXPENSES............................................................... 4
FINANCIAL HIGHLIGHTS........................................................ 5
HOW THE FUND INVESTS........................................................ 9
Investment Objective and Policies......................................... 9
Other Investments and Policies............................................ 14
Investment Restrictions................................................... 15
HOW THE FUND IS MANAGED..................................................... 15
Manager................................................................... 15
Fee Waivers and Subsidy................................................... 16
Distributor............................................................... 16
Portfolio Transactions.................................................... 18
Custodian and Transfer and Dividend Disbursing Agent...................... 18
Year 2000................................................................. 18
HOW THE FUND VALUES ITS SHARES.............................................. 18
HOW THE FUND CALCULATES PERFORMANCE......................................... 19
TAXES, DIVIDENDS AND DISTRIBUTIONS.......................................... 19
GENERAL INFORMATION......................................................... 21
Description of Shares..................................................... 21
Additional Information.................................................... 22
SHAREHOLDER GUIDE........................................................... 22
How to Buy Shares of the Fund............................................. 22
Alternative Purchase Plan................................................. 24
How to Sell Your Shares................................................... 27
Conversion Feature--Class B Shares........................................ 30
How to Exchange Your Shares............................................... 31
Shareholder Services...................................................... 32
DESCRIPTION OF SECURITY RATINGS............................................. A-1
THE PRUDENTIAL MUTUAL FUND FAMILY........................................... B-1
</TABLE>

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

MF119A

Class A: 74435M-65-5
Class B: 74435M-66-3
CUSIP Nos.: Class C: 74435M-56-4
Class Z: 74435M-41-6

PRUDENTIAL
MUNICIPAL
SERIES FUND
- -----------

MASSACHUSETTS SERIES

PROSPECTUS
November 2, 1998
www.prudential.com

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

[LOGO]
<PAGE>
Prudential Municipal Series Fund
(Massachusetts Money Market Series)

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

PROSPECTUS DATED NOVEMBER 2, 1998

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

Prudential Municipal Series Fund (the Fund) (Massachusetts Money Market Series)
(the Series) is one of thirteen series of an open-end, management investment
company, or mutual fund. This Series is non-diversified and is designed to
provide the highest level of current income that is exempt from Massachusetts
state and federal income taxes consistent with liquidity and the preservation of
capital. The net assets of the Series are invested primarily in short-term,
tax-exempt Massachusetts state, municipal and local debt obligations and
obligations of other qualifying issuers. There can be no assurance that the
Series' investment objective will be achieved. See "How the Fund
Invests--Investment Objective and Policies." The Fund's address is Gateway
Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, and its
telephone number is (800) 225-1852.

This Prospectus sets forth concisely the information about the Fund and the
Massachusetts Money Market Series that a prospective investor should know before
investing and is available at the Web site of the Prudential Insurance Company
of America (http://www.prudential.com). Additional information about the Fund
has been filed with the Securities and Exchange Commission (Commission) in a
Statement of Additional Information, dated November 2, 1998, which information
is incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to Prudential Municipal
Series Fund at the address or telephone number noted above. The Commission
maintains a Web site (http://www.sec.gov) that contains the Statement of
Additional Information, material incorporated by reference and other information
regarding the Fund and the Series.

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

INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.

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

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

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

WHAT IS PRUDENTIAL MUNICIPAL SERIES FUND?

Prudential Municipal Series Fund is a mutual fund whose shares are offered
in thirteen series, each of which operates as a separate fund. A mutual fund
pools the resources of investors by selling its shares to the public and
investing the proceeds of such sale in a portfolio of securities designed to
achieve its investment objective. Technically, the Fund is an open-end,
management investment company. Only the Massachusetts Money Market Series is
offered through this Prospectus.

WHAT IS THE SERIES' INVESTMENT OBJECTIVE?

The Series' investment objective is to provide the highest level of
current income that is exempt from Massachusetts state and federal income
taxes consistent with liquidity and the preservation of capital. It seeks to
achieve this objective by investing primarily in short-term Massachusetts
state, municipal and local government obligations and obligations of other
qualifying issuers, such as issuers located in Puerto Rico, the Virgin
Islands and Guam, which pay income exempt, in the opinion of counsel, from
Massachusetts state and federal income taxes (Massachusetts Obligations).
There can be no assurance that the Series will achieve its investment
objective. See "How the Fund Invests--Investment Objective and Policies" at
page 6.

WHAT ARE THE SERIES' RISK FACTORS AND SPECIAL CHARACTERISTICS?

In seeking to achieve its investment objective, the Series will invest
primarily in Massachusetts Obligations. This degree of investment
concentration makes the Series particularly susceptible to factors adversely
affecting issuers of Massachusetts Obligations, and makes an investment in
the Series more risky than an investment in other types of money market
funds. The Series is non-diversified so that more than 5% of its total
assets may be invested in the securities of one or more issuers. Investment
in a non-diversified portfolio involves more risk than investment in a
diversified portfolio. See "How the Fund Invests--Investment Objective and
Policies--Special Considerations" at page 9. As with an investment in any
mutual fund, an investment in this Series can decrease in value and you can
lose money.

WHO MANAGES THE FUND?

2
<PAGE>
WHO DISTRIBUTES THE SERIES' SHARES?

Prudential Investment Management Services LLC (the Distributor) acts as
the Distributor of the Series' shares. The Series reimburses the Distributor
for expenses related to the distribution of the Series' shares at an annual
rate of up to .125 of 1% of the average daily net assets of the Series. See
"How the Fund is Managed--Distributor" at page 11.

WHAT IS THE MINIMUM INVESTMENT?

The minimum initial investment is $1,000. The minimum subsequent
investment is $100. There is no minimum investment requirement for certain
employee savings plans. For purchases made through the Automatic Investment
Plan, the minimum initial and subsequent investment is $50. See "Shareholder
Guide--How to Buy Shares of the Fund" at page 15 and "Shareholder
Guide--Shareholder Services" at page 23.

HOW DO I PURCHASE SHARES?

HOW DO I SELL MY SHARES?

HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?

3
<PAGE>
FUND EXPENSES
(MASSACHUSETTS MONEY MARKET SERIES)

ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees......................................... .50%
12b-1 Fees.............................................. .125%
Other Expenses.......................................... .215%
-------
Total Fund Operating Expenses........................... .84%
-------
-------
</TABLE>

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- ------- ------- ---------
<S> <C> <C> <C> <C>
EXAMPLE
You would pay the following expenses on a $1,000 investment,
assuming
(1) 5% annual return and (2) redemption at the end of each
time period: $ 9 $ 27 $ 47 $ 104
</TABLE>

THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

4
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH OF THE INDICATED
PERIODS)

The following financial highlights, for the two years ended August 31, 1998,
have been audited by PricewaterhouseCoopers LLP, independent accountants, and
for the three years ended August 31, 1996 have been audited by other independent
auditors. All such audit reports were unqualified. This information should be
read in conjunction with the financial statements and the notes thereto, which
appear in the Statement of Additional Information. The following financial
highlights contain selected data for a share of beneficial interest outstanding,
total return, ratios to average net assets and other supplemental data for the
periods indicated. This information is based on data contained in the financial
statements. Further performance information is contained in the annual report,
which may be obtained without charge. See "Shareholder Guide--Shareholder
Services--Reports to Shareholders."

<TABLE>
<CAPTION>
AUGUST 5,
1991 (a)
YEAR ENDED AUGUST 31, THROUGH
------------------------------------------------------------------------ AUGUST 31,
1998 1997 1996 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>

PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $1.00
Net investment income and
net realized gains..... .03 .03(c) .03(c) .03(c) .02(c) .02(c) .03(c) .003(c)
Dividends and
distributions to
shareholders........... (.03) (.03) (.03) (.03) (.02) (.02) (.03) (.003)
------ ------ ------ ------ ------ ------ ------ -----------
Net asset value, end of
period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $1.00
------ ------ ------ ------ ------ ------ ------ -----------
------ ------ ------ ------ ------ ------ ------ -----------

TOTAL RETURN (d):........ 2.77% 3.08% 3.12% 3.10% 1.89% 2.17% 3.44% 0.29%

RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).................. $62,460 $53,441 $50,511 $56,822 $37,278 $36,608 $18,019 $6,365
Average net assets
(000).................. $55,540 $53,078 $54,689 $42,919 $42,427 $32,246 $15,477 $3,200
Ratios to average net
assets:
Expenses, including
distribution fee...... .840% .540%(c) .554%(c) .627%(c) .620%(c) .365%(c) .125%(c) .125%(b)(c)
Expenses, excluding
distribution fee...... .715% .415%(c) .429%(c) .502%(c) .495%(c) .240%(c) .00%(c) .00%(b)(c)
Net investment
income................ 2.73% 3.04%(c) 3.08%(c) 3.14%(c) 1.86%(c) 2.11%(c) 3.20%(c) 4.46%(b)(c)
</TABLE>

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

(a) Commencement of investment operations.

(b) Annualized.

(d) Total return includes reinvestment of dividends and distributions.
Total returns for periods of less than a full year are not
annualized.

5
<PAGE>
CALCULATION OF YIELD

<TABLE>
<S> <C>
Value of hypothetical account at end of period................. $1.000499585
Value of hypothetical account at beginning of period........... 1.000000000
------------
Base period return............................................. $ .000499585
------------
------------
CURRENT YIELD (.000499585 X (365/7))........................... 2.60%
EFFECTIVE ANNUAL YIELD, assuming daily compounding............. 2.64%
TAX-EQUIVALENT CURRENT YIELD
(2.60% DIVIDED BY [(1-.396)(1-.12)]........................... 4.89%
</TABLE>

THE YIELD WILL FLUCTUATE FROM TIME TO TIME AND DOES NOT INDICATE FUTURE
PERFORMANCE.

The weighted average life to maturity of the portfolio of the Series on August
31, 1998 was 45 days.

HOW THE FUND INVESTS

INVESTMENT OBJECTIVE AND POLICIES

PRUDENTIAL MUNICIPAL SERIES FUND (THE FUND) IS AN OPEN-END, MANAGEMENT
INVESTMENT COMPANY, OR MUTUAL FUND, CONSISTING OF THIRTEEN SEPARATE SERIES. EACH
OF THESE SERIES IS MANAGED INDEPENDENTLY. THE MASSACHUSETTS MONEY MARKET SERIES
(THE SERIES) IS NON-DIVERSIFIED AND ITS INVESTMENT OBJECTIVE IS TO PROVIDE THE
HIGHEST LEVEL OF CURRENT INCOME THAT IS EXEMPT FROM MASSACHUSETTS STATE AND
FEDERAL INCOME TAXES CONSISTENT WITH LIQUIDITY AND THE PRESERVATION OF CAPITAL.
THE SERIES SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING PRIMARILY IN
SHORT-TERM MASSACHUSETTS STATE, MUNICIPAL AND LOCAL GOVERNMENT OBLIGATIONS AND
OBLIGATIONS OF OTHER QUALIFYING ISSUERS, SUCH AS ISSUERS LOCATED IN PUERTO RICO,
THE VIRGIN ISLANDS AND GUAM, WHICH PAY INCOME EXEMPT, IN THE OPINION OF COUNSEL,
FROM MASSACHUSETTS STATE AND FEDERAL INCOME TAXES (MASSACHUSETTS OBLIGATIONS).
SEE "INVESTMENT OBJECTIVES AND POLICIES" IN THE STATEMENT OF ADDITIONAL
INFORMATION. THERE CAN BE NO ASSURANCE THAT THE SERIES WILL BE ABLE TO ACHIEVE
ITS INVESTMENT OBJECTIVE.

As with an investment in any mutual fund, an investment in this Series can
decrease in value and you can lose money.

6
<PAGE>

Interest on certain municipal obligations may be a preference item for
purposes of the federal alternative minimum tax. The Series may invest without
limit in municipal obligations that are private activity bonds (as defined in
the Internal Revenue Code), the interest on which would be a preference item for
purposes of the federal alternative minimum tax. See "Taxes, Dividends and
Distributions." Under Massachusetts law, dividends paid by the Series are exempt
from Massachusetts personal income tax for resident individuals and other
resident noncorporate shareholders to the extent they are excluded from gross
income for federal income tax purposes and are derived from interest payments on
Massachusetts Obligations or are capital gain dividends for federal income tax
purposes and are derived from long-term capital gains on certain Massachusetts
Obligations. The Massachusetts Obligations in which the Series may invest
include certain short-term, tax-exempt notes such as Tax Anticipation Notes,
Revenue Anticipation Notes, Bond Anticipation Notes, Construction Loan Notes and
certain variable and floating rate demand notes. See "Investment Objectives and
Policies--Tax-Exempt Securities--Tax-Exempt Notes" in the Statement of
Additional Information. The Series will maintain a dollar-weighted average
maturity of its portfolio of 90 days or less.

ALL MASSACHUSETTS OBLIGATIONS PURCHASED BY THE SERIES WILL, AT THE TIME OF
PURCHASE, HAVE A REMAINING MATURITY OF THIRTEEN MONTHS OR LESS AND BE (i) RATED
IN ONE OF THE TWO HIGHEST RATING CATEGORIES BY AT LEAST TWO NATIONALLY
RECOGNIZED STATISTICAL RATING ORGANIZATIONS (NRSRO'S) ASSIGNING A RATING TO THE
SECURITY OR ISSUER (OR, IF ONLY ONE NRSRO ASSIGNED A RATING, BY THAT NRSRO) OR
(ii) IF UNRATED, OF COMPARABLE QUALITY AS DETERMINED BY THE INVESTMENT ADVISER
UNDER THE SUPERVISION OF THE TRUSTEES. See "Description of Tax-Exempt Security
Ratings" in the Statement of Additional Information. The investment adviser will
monitor the credit quality of securities purchased for the Series' portfolio and
will limit its investments to those which present minimal credit risks.

In selecting Massachusetts Obligations for investment by the Series, the
investment adviser considers ratings assigned by NRSRO's, information concerning
the financial history and condition of the issuer and its revenue and expense
prospects and, in the case of revenue bonds, the financial history and condition
of the source of revenue to service the bonds. If a Massachusetts Obligation
held by the Series is assigned a lower rating or ceases to be rated, the
investment adviser under the supervision of the Trustees will promptly reassess
whether that security presents minimal credit risks and whether the Series
should continue to hold the security in its portfolio. If a portfolio security
no longer presents minimal credit risks or is in default, the Series will
dispose of the security as soon as reasonably practicable unless the Trustees
determine that to do so is not in the best interests of the Series and its
shareholders.

The Series utilizes the amortized cost method of valuation in accordance with
regulations issued by the Commission. See "How the Fund Values its Shares."

7
<PAGE>
the Series' credit quality and average weighted maturity requirements, to
purchase Massachusetts Obligations. To the extent the Series invests in
obligations other than Massachusetts Obligations, dividends derived therefrom
likely will not be exempt from Massachusetts income taxes. During abnormal
market conditions or to provide liquidity, the Series may hold cash or taxable
cash equivalents such as certificates of deposit, bankers' acceptances and time
deposits or other short-term taxable investments such as repurchase agreements,
or high grade taxable obligations, including obligations that are exempt from
federal, but not state, taxation. When, in the opinion of the investment
adviser, abnormal market conditions require a temporary defensive position, the
Series may invest its assets so that more than 20% of the income is subject to
federal income taxes.

THE SERIES ALSO MAY ACQUIRE PUT OPTIONS (PUTS) GIVING THE SERIES THE RIGHT TO
SELL SECURITIES HELD IN THE SERIES' PORTFOLIO AT A SPECIFIED EXERCISE PRICE ON A
SPECIFIED DATE. Such puts may be acquired for the purpose of protecting the
Series from a possible decline in the market value of the security to which the
put applies in the event of interest rate fluctuations or, in the case of
liquidity puts, for the purpose of shortening the effective maturity of the
underlying security. The aggregate value of premiums paid to acquire puts held
in the Series' portfolio (other than liquidity puts) may not exceed 10% of the
NAV of the Series. The acquisition of a put may involve an additional cost to
the Series by payment of a premium for the put, by payment of a higher purchase
price for securities to which the put is attached or through a lower effective
interest rate.

THE SERIES MAY PURCHASE MUNICIPAL OBLIGATIONS ON A WHEN-ISSUED OR DELAYED
DELIVERY BASIS, IN EACH CASE WITHOUT LIMIT. When municipal obligations are
offered on a when-issued or delayed delivery basis, the price and coupon rate
are fixed at the time the commitment to purchase is made, but delivery and
payment for the securities take place at a later date. The purchase price for
such securities includes interest accrued during the period between purchase and
settlement, and, therefore, no interest accrues to the economic benefit of the
purchaser during such period. In the case of purchases by the Series, the price
that the Series is required to pay on the settlement date may be in excess of
the market value of the municipal obligations on that date. While securities may
be sold prior to the settlement date, the Series intends to purchase these
securities with the purpose of actually acquiring them unless a sale would be
desirable for investment reasons. At the time the Series makes the commitment to
purchase a municipal obligation on a when-issued or delayed delivery basis, it
will record the transaction and reflect the value of the obligation each day in
determining its NAV. This value may fluctuate from day to day in the same manner
as values of municipal obligations otherwise held by the Series. If the seller
defaults in the sale, the Series could fail to realize the appreciation, if any,
that had occurred. The Series will establish a segregated account in which it
will maintain cash or other liquid assets equal or greater in value to its
commitments for when-issued or delayed delivery securities.

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

8
<PAGE>
SPECIAL CONSIDERATIONS

BECAUSE THE SERIES WILL INVEST PRIMARILY IN MASSACHUSETTS OBLIGATIONS AND
BECAUSE IT SEEKS TO MAXIMIZE INCOME DERIVED FROM MASSACHUSETTS OBLIGATIONS, IT
IS MORE SUSCEPTIBLE TO FACTORS ADVERSELY AFFECTING ISSUERS OF MASSACHUSETTS
OBLIGATIONS THAN IS A COMPARABLE TAX-EXEMPT MONEY MARKET FUND THAT IS NOT
CONCENTRATED IN SUCH OBLIGATIONS TO THIS DEGREE. An investment in the Series
therefore may involve more risk than an investment in other types of money
market funds. The most recent recession had serious adverse effects on
Massachusetts' financial operations and led to a massive accumulated deficit of
$1.45 billion at the close of fiscal 1990. However, since that time,
Massachusetts has adopted more conservative revenue forecasting procedures and
has moderated spending growth resulting in the achievement of budget surpluses
each year from 1992 through 1997. Massachusetts is currently rated A-1 by
Moody's Investors Service. Fiscal year 1998 tax revenue collections totaled
$14.026 billion, which exceeded fiscal 1997 tax revenues by $1.161 billion. The
Governor's proposed budget for fiscal year 1999 sets Commonwealth estimates
total spending in fiscal 1999 to be approximately $19.06 billion. Fiscal year
1999 total revenues are estimated to be approximately $19.514 billion, including
approximately $13.870 billion in tax revenues. The tax revenue estimate amounts
to an increase of approximately 4.9%, over the same period last year.
Inflexibility dictated by a heavy debt load and other substantial fixed costs,
particularly pension contributions and transit subsidies, pose significant
obstacles to continued progress. If either Massachusetts or any of its local
government entities is unable to meet its financial obligations, the income
derived by the Series, the ability to preserve or realize appreciation of the
Series' capital and the Series' liquidity could be adversely affected. See
"Investment Objectives and Policies--Special Considerations Regarding
Investments in Tax-Exempt Securities" in the Statement of Additional
Information.

OTHER INVESTMENTS AND POLICIES

REPURCHASE AGREEMENTS

The Series may enter into repurchase agreements whereby the seller of a
security agrees to repurchase that security from the Series at a mutually
agreed-upon time and price. The period of maturity is usually quite short,
possibly overnight or a few days, although it may extend over a number of
months. The resale price is in excess of the purchase price, reflecting an
agreed-upon rate of return effective for the period of time the Series' money is
invested in the repurchase agreement. The Series' repurchase agreements will at
all times be fully collateralized in an amount at least equal to the resale
price. The instruments held as collateral are valued daily and if the value of
the instruments declines, the Series will require additional collateral. If the
seller defaults and the value of the collateral securing the repurchase
agreement declines, the Series may incur a loss. The Series participates in a
joint repurchase account with other investment companies managed by PIFM
pursuant to an order of the Commission. See "Investment Objectives and
Policies--Repurchase Agreements" in the Statement of Additional Information.

BORROWING

9
<PAGE>
ILLIQUID SECURITIES

INVESTMENT RESTRICTIONS

HOW THE FUND IS MANAGED

For the fiscal year ended August 31, 1998, total expenses of the Series as a
percentage of its average net assets, were .84%. See "Financial Highlights."

MANAGER

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

10
<PAGE>
FEE WAIVERS

DISTRIBUTOR

In addition to distribution and service fees paid by the Series under the
Plan, the Manager (or one of its affiliates) may make payments out of its own
resources to Dealers and other persons which distribute shares of the Series.
Such payments may be calculated by reference to the NAV of shares sold by such
persons or otherwise. The Fund records all payments made under the Plan as
expenses in the calculation of its net investment income.

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

PORTFOLIO TRANSACTIONS

11
<PAGE>
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT

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

YEAR 2000

HOW THE FUND VALUES ITS SHARES

12
<PAGE>
TAXES, DIVIDENDS AND DISTRIBUTIONS

TAXATION OF THE FUND

TAXATION OF SHAREHOLDERS

Any dividends out of net taxable investment income, together with
distributions of net short-term gains (I.E., the excess of net short-term
capital gains over net long-term capital losses) distributed to shareholders,
will be taxable as ordinary income to the shareholder whether or not reinvested.
Any net capital gains (I.E., the excess of net capital gains from the sale of
assets held for more than 12 months over net short-term capital losses)
distributed to shareholders will be taxable as long-term capital gains to the
shareholders, whether or not reinvested and regardless of the length of time a
shareholder has owned his or her shares. Recent legislation created various
categories of capital gains applicable to individuals. For capital gains
recognized upon the sale of assets by the Series after December 31, 1997, the
maximum long-term capital gains tax rate for individuals is 20%. The maximum
capital gains tax rate for corporate shareholders currently is the same as the
maximum tax rate for ordinary income. The Series does not expect to have capital
gains from the sale of assets held for more than 12 months.

13
<PAGE>
Under Massachusetts law, dividends paid by the Series are exempt from
Massachusetts personal income tax for individuals and other noncorporate
shareholders resident in Massachusetts to the extent such dividends are excluded
from gross income for federal income tax purposes and are derived from interest
payments on Massachusetts Obligations or are capital gain dividends for federal
income tax purposes and are derived from long-term capital gains on certain
Massachusetts Obligations.

WITHHOLDING TAXES

DIVIDENDS AND DISTRIBUTIONS

THE SERIES EXPECTS TO DECLARE DAILY AND PAY MONTHLY DIVIDENDS OF NET
INVESTMENT INCOME AND SHORT-TERM CAPITAL GAINS.

A shareholder generally begins to earn dividends on the first business day
after his or her order is placed with the Series, as described above, and
continues to earn dividends through the day on which his or her shares are
redeemed. In the case of certain redemptions, however, Prudential Securities
clients will not be entitled to dividends declared on the date of redemption.
See "Shareholder Guide--How to Sell Your Shares--Redemption of Shares Purchased
through Prudential Securities."

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

GENERAL INFORMATION

DESCRIPTION OF SHARES

14
<PAGE>
Money Market Series and the New York Money Market Series offer only one class of
shares. In accordance with the Fund's Declaration of Trust, the Trustees may
authorize the creation of additional series and classes within such series, with
such preferences, privileges, limitations and voting and dividend rights as the
Trustees may determine.

ADDITIONAL INFORMATION

SHAREHOLDER GUIDE

HOW TO BUY SHARES OF THE FUND

YOU MAY PURCHASE SHARES OF THE SERIES THROUGH THE DISTRIBUTOR, THROUGH DEALERS
OR DIRECTLY FROM THE FUND, THROUGH ITS TRANSFER AGENT, PRUDENTIAL MUTUAL FUND
SERVICES LLC (PMFS OR THE TRANSFER AGENT), ATTENTION: INVESTMENT SERVICES, P.O.
BOX 15020, NEW BRUNSWICK, NEW JERSEY 08906-5020. The minimum initial investment
is $1,000. The minimum subsequent investment is $100. All minimum investment
requirements are waived for the COMMAND Account program (if the Series is
designated as your primary fund) and certain retirement and employee savings
plans. For purchases made through the Automatic Investment Plan, the minimum
initial and subsequent investment is $50. See "Shareholder Services" below. For
automatic purchases made through Prudential Securities, the minimum investment
requirement is $1,000 and there is no minimum subsequent investment requirement.

An investment in the Series may not be appropriate for tax-exempt or
tax-deferred investors. Such investors should consult with their own tax
advisers.

15
<PAGE>

Investors who purchase their shares through a Dealer other than Prudential
Securities or Prusec, which Dealer has a clearing arrangement with respect to
shares of the Series, may be able to participate in the automatic sweep feature
described below under "Purchases through Prudential Securities--Automatic
Investment (Autosweep)" and "How to Sell Your Shares--Redemptions of Shares
Purchased through Prudential Securities." For further information, contact your
Dealer.

Transactions in shares of the Series may be subject to postage and other
charges imposed by the Dealer. Any such charge is retained by the Dealer and is
not remitted to the Series.

PURCHASES THROUGH PRUDENTIAL SECURITIES

AUTOMATIC INVESTMENT (AUTOSWEEP) (FOR NON-COMMAND ACCOUNTS). Prudential
Securities has advised the Fund that it has automatic investment procedures
(Autosweep) pursuant to which it will make automatic investments of free credit
cash balances (Eligible Credit Balances) held in a client's brokerage account in
shares of the Series, if the Series is your Primary

16
<PAGE>
Money Sweep Fund. You may designate the Series (or certain other Prudential
money market funds) as your Primary Money Sweep Fund. If the Series is your
Primary Money Sweep Fund you can purchase shares of the Series only through the
automatic investment procedures described below; no manual purchase orders will
be accepted. You may change your Primary Money Sweep Fund at any time by
notifying your Prudential Securities financial adviser. Under certain
circumstances, you may elect not to have a money market sweep feature for your
account when you open your account.

The following chart shows the frequency and amount of the sweep for accounts
other than IRA's and Benefit Plans.

All shares purchased pursuant to these automatic investment procedures will be
issued at the NAV computed on the business day the order is entered and will
begin earning dividends on the following business day. Purchases through
Autosweep are subject to the Series' minimum initial investment requirement of
$1,000, which is waived for certain retirement and employee savings plans and
custodial accounts for the benefit of minors. Prudential Securities will have
the use of, and will retain the benefits of, Eligible Credit Balances in a
client's brokerage account until monies are delivered to the Fund. (Prudential
Securities delivers Federal Funds on the business day after settlement).
Eligible Credit Balances for the purposes of Autosweep are measured as of the
close of business on the previous business day.

17
<PAGE>
MANUAL INVESTMENT. Prudential Securities will accept manual purchase orders
for shares of the Series only for those clients (i) who are purchasing shares of
a Prudential money market fund which is not their Primary Money Sweep Fund or
(ii) who do not have a money market sweep feature in their account, as described
above under "Automatic Investment."

Prudential Securities clients eligible to make manual purchases, as described
above, are subject to the minimum initial investment of $1,000 and the minimum
subsequent investment of $100, except that all minimum investment requirements
are waived for certain retirement and employee savings plans and custodial
accounts for the benefit of minors. On the business day after the purchase order
is received, Prudential Securities will place the order for shares of the Series
for settlement that day. Shares will be issued at the NAV determined on that day
and will begin earning dividends the next business day, which is the second
business day after receipt of the purchase order by Prudential Securities.
Prudential Securities will have the use of, and will retain the benefits of,
Eligible Credit Balances in the client's brokerage account until monies are
delivered to the Fund. (Prudential Securities delivers Federal Funds on the
business day after settlement.)

PURCHASES THROUGH PRUSEC

PURCHASE BY WIRE

For an initial purchase of shares of the Series by wire, you must first
telephone PMFS at (800) 225-1852 (toll-free) to receive an account number. The
following information will be requested: your name, address, tax identification
number, dividend distribution election, amount being wired and wiring bank.
Instructions should then be given by you to your bank to transfer funds by wire
to State Street Bank and Trust Company (State Street), Boston, Massachusetts,
Custody and Shareholder Services Division, Attention: Prudential Municipal
Series Fund, Massachusetts Money Market Series, specifying on the wire the
account number assigned by PMFS and your name.

If you arrange for receipt by State Street of Federal Funds prior to the
calculation of NAV (4:30 P. M., New York time), on a business day, you may
purchase shares of the Series as of that day and receive dividends commencing on
the next business day. See "Net Asset Value" in the Statement of Additional
Information.

In making a subsequent purchase order by wire, you should wire State Street
directly, and should be sure that the wire specifies Prudential Municipal Series
Fund (Massachusetts Money Market Series) and your name and individual account
number. It is not necessary to call PMFS to make subsequent purchase orders
utilizing Federal Funds. The minimum amount which may be invested by wire is
$1,000.

PURCHASE BY MAIL

Purchase orders for which remittance is to be made by check or money order may
be submitted directly by mail to Prudential Mutual Fund Services LLC, Attention:
Investment Services, P.O. Box 15020, New Brunswick, New Jersey 08906-5020,
together with payment for the purchase price of such shares and, in the case of
a new account, a completed application form. You should also submit an IRS Form
W-9. If PMFS receives an order to purchase shares of the Series and payment in
proper form prior to 4:30 P.M., New York time, the purchase order will be
effective that day and you will begin earning dividends the following business
day. See "Taxes, Dividends and Distributions." Checks should be made payable to
Prudential Municipal Series Fund, Massachusetts Money Market Series. Certified
checks are not necessary, but checks must be drawn on a bank located in the
United States. There are restrictions on the redemption of shares purchased by
check while the funds are being collected. See "How to Sell Your Shares" below.
The minimum initial investment by check is $1,000 and the minimum subsequent
investment by check is $100.

18
<PAGE>
THE PRUDENTIAL ADVANTAGE ACCOUNT PROGRAM

All shares purchased pursuant to these automatic purchase procedures will
begin earning dividends on the business day after the order is placed.
Prudential Securities will arrange for investment in shares of the Series at
4:30 P.M. on the day the order is placed and cause payment to be made in Federal
Funds for the shares prior to 4:30 P.M. on the next business day. Prudential
Securities will have the use of free credit cash balances until delivery to the
Fund.

Redemptions will be automatically effected by Prudential Securities to satisfy
debit balances in a Securities Account created by activity therein or arising
under the Advantage Account Program, such as those incurred by use of the
Visa-Registered Trademark- Account, including Visa purchases, cash advances and
Visa Account checks. Each Advantage Account Program Securities Account will be
automatically scanned for debits each business day as of the close of business
on that day and after application of any free credit cash balances in the
account to such debits, a sufficient number of shares of the Series (if selected
as the primary fund) and, if necessary, shares of other Advantage Account funds
owned by the Advantage Account Program participant which have not been selected
as his or her primary fund or shares of a participant's money market funds
managed by PIFM which are not primary Advantage Account funds will be redeemed
as of that business day to satisfy any remaining debits in the Securities
Account. Shares may not be purchased until all debits, overdrafts and other
requirements in the Securities Account are satisfied.

Advantage Account Program charges and expenses are not reflected in the table
of Fund expenses. See "Fund Expenses."

For information on participation in the Advantage Account Program, you should
telephone (800) 235-7637 (toll-free).

COMMAND-SM- ACCOUNT AND PRUDENTIAL BUSINESSEDGE-SM- ACCOUNT PROGRAMS

Shares of the Series are offered to participants in the Prudential Securities
COMMAND Account program, an integrated financial services program of Prudential
Securities, and in the Prudential BusinessEdgeSM Account program, an integrated
financial services program of Prudential Securities and Prusec. Investors having
a COMMAND Account or a BusinessEdge Account may select the Series as their
primary fund. Such investors will have the free credit cash balances of $1.00 or
more in their Securities Account (Available Cash) (a component of the COMMAND
Account and BusinessEdge Account programs) automatically invested in shares of
the Series as described below. Specifically, an order to purchase shares of the
Series is placed (i) in the case of Available Cash resulting from the proceeds
of securities sales, on the settlement date of the securities sale, and (ii) in
the case of Available Cash resulting from non-trade related credits (I.E.,
receipt of dividends and interest payments, maturity of a bond or a cash payment
by the participant into his or her Securities Account), on the business day
after receipt by Prudential Securities or Prusec of the non-trade related
credit. These automatic purchase procedures are also applicable for Corporate
COMMAND Accounts.

19
<PAGE>

Redemptions will be automatically effected by Prudential Securities or Prusec
to satisfy debit balances in a Securities Account created by activity therein or
arising under the COMMAND or BusinessEdge programs, such as those incurred by
use of the Visa-Registered Trademark- Gold Account in the case of the COMMAND
program, and the Visa-Registered Trademark- Account, in the case of the
BusinessEdge program, including Visa purchases, cash advances and Visa Account
checks. Each COMMAND program Securities Account will be automatically scanned
for debits monthly for all Visa purchases incurred during that month, and each
COMMAND and BusinessEdge Account will automatically be scanned for debits and
each business day as of the close of business on that day for all cash advances
and check charges as incurred and, in the case of BusinessEdge Accounts, for all
Visa purchases. After application of any free credit cash balances in the
account to such debits; a sufficient number of shares of the Series and, if
necessary, shares of other COMMAND funds owned by the COMMAND or BusinessEdge
program participant which have not been selected as his or her primary fund or
shares of a participant's money market funds managed by PIFM which are not
primary COMMAND funds will be redeemed as of that business day to satisfy any
remaining debits in the Securities Account. With respect to COMMAND Accounts,
the single monthly debit for Visa purchases will be made on the twenty-fifth day
of each month, or the prior business day if the twenty-fifth falls on a weekend
or holiday. Margin loans will be utilized to satisfy debits remaining after the
liquidation of all shares of the Series in a Securities Account, and shares may
not be purchased until all debits, margin loans and other requirements in the
Securities Account are satisfied. COMMAND Account or BusinessEdge Account
participants will not be entitled to dividends declared on the date of
redemption.

HOW TO SELL YOUR SHARES

20
<PAGE>

restricted or an emergency exists as determined by the Commission so that
disposal of the Series' investments or determination of its NAV is not
reasonably practicable or (c) for such other periods as the Commission may
permit for protection of the Series' shareholders.

PAYMENT FOR REDEMPTION OF RECENTLY PURCHASED SHARES WILL BE DELAYED UNTIL THE
FUND OR ITS TRANSFER AGENT HAS BEEN ADVISED THAT THE PURCHASE CHECK HAS BEEN
HONORED, UP TO 10 CALENDAR DAYS FROM THE TIME OF RECEIPT OF THE PURCHASE CHECK
BY THE FUND THE TRANSFER AGENT. SUCH DELAY MAY BE AVOIDED BY PURCHASING SHARES
BY WIRE OR BY CERTIFIED OR CASHIER'S CHECK. THE FUND MAKES NO CHARGE FOR
REDEMPTION.

REDEMPTION OF SHARES PURCHASED THROUGH PRUDENTIAL SECURITIES

Prudential Securities has advised the Fund that it has established procedures
pursuant to which shares of the Series held by a Prudential Securities client
having a deficiency in his or her Prudential Securities account will be redeemed
automatically to the extent of that deficiency to the nearest highest dollar.
The amount of the redemption will be the lesser of (a) the total NAV of the
Series' shares held in the client's Prudential Securities account or (b) the
deficiency in the client's Prudential Securities account at the close of
business on the date such deficiency is due. Accordingly, a Prudential
Securities client who wishes to pay for a securities transaction or satisfy any
other debit balance in his or her account other than through this automatic
redemption procedure must do so prior to the day of settlement for such
securities transaction or the date the debit balance is incurred. In the case of
certain automatic redemptions, where Prudential Securities cannot anticipate
debits in the brokerage account (E.G., checks written against the account),
Prudential Securities clients will not be entitled to dividends declared on the
date of redemption; such redemptions will be retained by Prudential Securities.

REDEMPTION OF SHARES PURCHASED THROUGH PMFS

21
<PAGE>
DURING PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS, EXPEDITED REDEMPTION
MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD REDEEM SHARES BY MAIL AS DESCRIBED
ABOVE.

CHECK REDEMPTION. At your request, State Street will establish a personal
checking account for you. Checks drawn on this account can be made payable to
the order of any person in any amount greater than $500. When such check is
presented to State Street for payment, State Street presents the check to the
Fund as authority to redeem a sufficient number of shares of the Series in the
shareholder's account to cover the amount of the check. If insufficient shares
are in the account, or if the purchase was made by check within 10 calendar
days, the check will be returned marked "insufficient funds." Checks in an
amount less than $500 will not be honored. Shares for which certificates have
been issued cannot be redeemed by check. There is a service charge of $5.00
payable to PMFS to establish a checking account and order checks.

HOW TO EXCHANGE YOUR SHARES

IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE THE TELEPHONE
EXCHANGE PRIVILEGE ON YOUR INITIAL APPLICATION FORM OR BY WRITTEN NOTICE TO THE
TRANSFER AGENT AND HOLD SHARES IN NON-CERTIFICATE FORM. Thereafter, you may call
the Fund at (800) 225-1852 to execute a telephone exchange of shares, weekdays,
except holidays, between the hours of 8:00 A.M. and 6:00 P.M., New York time.
For your protection and to prevent fraudulent exchanges, your telephone call
will be recorded and you will be asked to provide your personal identification
number. A written confirmation of the exchange transaction will be sent to you.
NEITHER THE FUND NOR ITS AGENTS WILL BE LIABLE FOR ANY LOSS, LIABILITY OR COST
WHICH RESULTS FROM ACTING UPON INSTRUCTIONS REASONABLY BELIEVED TO BE GENUINE
UNDER THE FOREGOING PROCEDURES. All exchanges will be made on the basis of the
relative NAV of the two funds (or series) next determined after the request is
received in good order. The exchange privilege is available only in states where
the exchange may legally be made.

22
<PAGE>
IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.

IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE
FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.

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

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

FREQUENT TRADING

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

SHAREHOLDER SERVICES

In addition to the exchange privilege, you can take advantage of the following
services and privileges:

- SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available for
shareholders which provides for monthly or quarterly checks. See "How to Sell
Your Shares."

23
<PAGE>
- MULTIPLE ACCOUNTS. Special procedures have been designed for banks and other
institutions that wish to open multiple accounts. An institution may open a
single master account by filing an application form with the Transfer Agent.
Attention: Customer Service, P.O. Box 15005, New Brunswick, New Jersey 08906,
signed by personnel authorized to act for the institution. Individual
sub-accounts may be opened at the time the master account is opened by listing
them, or they may be added at a later date by written advice or by filing forms
supplied by the Fund. Procedures are available to identify sub-accounts by name
and number within the master account name. The investment minimums set forth
above are applicable to the aggregate amounts invested by a group and not to the
amount credited to each sub-account.

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

24
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY

TAXABLE BOND FUNDS
--------------------------

TAX-EXEMPT BOND FUNDS
-----------------------------

GLOBAL FUNDS
--------------------

The Global Total Return Fund, Inc.

EQUITY FUNDS
--------------------

Prudential Balanced Fund
Prudential Distressed Securities Fund, Inc.
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Index Series Fund
Prudential Bond Market Index Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced Fund
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Mid-Cap Value Fund
Prudential Real Estate Securities Fund
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Utility Fund, Inc.
Prudential 20/20 Focus Fund
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund

MONEY MARKET FUNDS
--------------------------

A-1
<PAGE>

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

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----

<S> <C>
FUND HIGHLIGHTS............................................................. 2
What are the Series' Risk Factors and Special Characteristics?............ 2
FUND EXPENSES............................................................... 4
FINANCIAL HIGHLIGHTS........................................................ 5
CALCULATION OF YIELD........................................................ 6
HOW THE FUND INVESTS........................................................ 6
Investment Objective and Policies......................................... 6
Other Investments and Policies............................................ 9
Investment Restrictions................................................... 10
HOW THE FUND IS MANAGED..................................................... 10
Manager................................................................... 10
Distributor............................................................... 11
Portfolio Transactions.................................................... 11
Custodian and Transfer and Dividend Disbursing Agent...................... 12
Year 2000................................................................. 12
HOW THE FUND VALUES ITS SHARES.............................................. 12
TAXES, DIVIDENDS AND DISTRIBUTIONS.......................................... 13
GENERAL INFORMATION......................................................... 14
Description of Shares..................................................... 14
Additional Information.................................................... 15
SHAREHOLDER GUIDE........................................................... 15
How to Buy Shares of the Fund............................................. 15
How to Sell Your Shares................................................... 20
How to Exchange Your Shares............................................... 22
Shareholder Services...................................................... 23
THE PRUDENTIAL MUTUAL FUND FAMILY........................................... A-1
</TABLE>

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

MF153A

CUSIP No: 74435M-63-0

PRUDENTIAL
MUNICIPAL
SERIES FUND
-----------

MASSACHUSETTS
MONEY MARKET
SERIES

PROSPECTUS
November 2, 1998
www.prudential.com

-----------

[LOGO]
<PAGE>
Prudential Municipal Series Fund
(Michigan Series)

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

PROSPECTUS DATED NOVEMBER 2, 1998

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

Prudential Municipal Series Fund (the Fund) (Michigan Series) (the Series) is
one of thirteen series of an open-end, management investment company, or mutual
fund. This Series is diversified and is designed to provide the maximum amount
of income that is exempt from Michigan State and federal income taxes consistent
with the preservation of capital and, in conjunction therewith, the Series may
invest in debt securities with the potential for capital gain. The net assets of
the Series are invested primarily in obligations within the four highest ratings
of Moody's Investors Service, Standard & Poor's Ratings Group or another
nationally recognized statistical rating organization or in unrated obligations
which, in the opinion of the Fund's investment adviser, are of comparable
quality. The Series may, however, also invest a portion of its assets in
lower-quality municipal obligations or in non-rated securities which, in the
opinion of the Fund's investment adviser, are of comparable quality. Subject to
the limitations described herein, the Series may utilize derivatives, including
buying and selling futures contracts and options thereon for the purpose of
hedging its portfolio securities. There can be no assurance that the Series'
investment objective will be achieved. See "How the Fund Invests--Investment
Objective and Policies." The Fund's address is Gateway Center Three, 100
Mulberry Street, Newark, New Jersey 07102-4077, and its telephone number is
(800) 225-1852.

This Prospectus sets forth concisely the information about the Fund and the
Michigan Series that a prospective investor should know before investing and is
available at the Web site of the Prudential Insurance Company of America
(http://www.prudential.com). Additional information about the Fund has been
filed with the Securities and Exchange Commission (the Commission) in a
Statement of Additional Information dated November 2, 1998, which information is
incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Fund at the
address or telephone number noted above. The Commission maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference and other information regarding the Fund.

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

INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.
- --------------------------------------------------------------------------------

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

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

WHAT IS PRUDENTIAL MUNICIPAL SERIES FUND?

Prudential Municipal Series Fund is a mutual fund whose shares are offered
in thirteen series, each of which operates as a separate fund. A mutual fund
pools the resources of investors by selling its shares to the public and
investing the proceeds of such sale in a portfolio of securities designed to
achieve its investment objective. Technically, the Fund is an open-end,
management investment company. Only the Michigan Series is offered through
this Prospectus.

WHAT IS THE SERIES' INVESTMENT OBJECTIVE?

The Series' investment objective is to maximize current income that is
exempt from Michigan State and federal income taxes consistent with the
preservation of capital. It seeks to achieve this objective by investing
primarily in Michigan State, municipal and local government obligations and
obligations of other qualifying issuers, such as issuers located in Puerto
Rico, the Virgin Islands and Guam, which pay income exempt, in the opinion
of counsel, from Michigan State and federal income taxes (Michigan
Obligations). There can be no assurance that the Series' investment
objective will be achieved. See "How the Fund Invests--Investment Objective
and Policies" at page 8.

WHAT ARE THE SERIES' RISK FACTORS AND SPECIAL CHARACTERISTICS?

In seeking to achieve its investment objective, the Series will invest at
least 80% of the value of its total assets in Michigan Obligations. This
degree of investment concentration makes the Series particularly susceptible
to factors adversely affecting issuers of Michigan Obligations. See "How the
Fund Invests--Investment Objective and Policies-- Special Considerations" at
page 13. The Series may invest up to 30% of its total assets in high yield
securities, commonly known as junk bonds, which may be considered
speculative and are subject to the risk of an issuer's inability to meet
principal and interest payments on the obligations as well as price
volatility. See "How the Fund Invests--Investment Objective and
Policies--Risk Factors Relating to Investing in High Yield Municipal
Obligations" at page 11. To hedge against changes in interest rates, the
Series may also purchase put options and engage in transactions involving
derivatives, including financial futures contracts and options thereon. See
"How the Fund Invests--Investment Objective and Policies--Futures Contracts
and Options Thereon" at page 12. As with an investment in any mutual fund,
an investment in this Series can decrease in value and you can lose money.

WHO MANAGES THE FUND?

WHO DISTRIBUTES THE SERIES' SHARES?

Prudential Investment Management Services LLC (the Distributor) acts as
the Distributor of the Series' Class A, Class B and Class C shares and is
paid a distribution and service fee with respect to Class A shares at the
annual rate of .25 of 1% of the average daily net assets of the Class A
shares and is paid a distribution and service fee with respect to Class B
shares at the annual rate of .50 of 1% of the average daily net assets of
the Class B shares and is paid an annual distribution and service fee with
respect to Class C shares which is currently being charged at the rate of
.75 of 1% of the average daily net assets of the Class C shares. See "How
the Fund is Managed--Distributor" at page 15.

2
<PAGE>
WHAT IS THE MINIMUM INVESTMENT?

The minimum initial investment is $1,000 for Class A and Class B shares
and $2,500 for Class C shares. The minimum subsequent investment is $100 for
Class A, Class B and Class C shares. There is no minimum investment
requirement for certain employee savings plans. For purchases made through
the Automatic Investment Plan, the minimum initial and subsequent investment
is $50. See "Shareholder Guide--How to Buy Shares of the Fund" at page 22
and "Shareholder Guide--Shareholder Services" at page 31.

HOW DO I PURCHASE SHARES?

You may purchase shares of the Series through the Distributor or brokers
or dealers that have entered into agreements to act as participating or
introducing brokers for the Distributor (Dealers) or directly from the Fund
through its transfer agent, Prudential Mutual Fund Services LLC. (PMFS or
the Transfer Agent). In each case, sales are made at the net asset value per
share (NAV) next determined after receipt of your purchase order by the
Transfer Agent, a Dealer or the Distributor plus a sales charge, which may
be imposed at the time of purchase, on a deferred basis, or both. Class A
shares are sold with a front-end sales charge. Class B shares are subject to
a contingent-deferred sales charge (CDSC). Class C shares are sold with a
low front-end sales charge, but are also subject to a CDSC. Dealers may
charge their customers a separate fee for handling purchase transactions.
See "How the Fund Values its Shares" at page 17 and "Shareholder Guide--How
to Buy Shares of the Fund" at page 22.

WHAT ARE MY PURCHASE ALTERNATIVES?

The Series offers three classes of shares:

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

See "Shareholder Guide--Alternative Purchase Plan" at page 23.

HOW DO I SELL MY SHARES?

HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?

3
<PAGE>
FUND EXPENSES
(MICHIGAN SERIES)

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- -------------- --------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES+
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price)................... 3% None 1%
Maximum Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds,
whichever is lower)............... None 5% during the 1% on
first year, redemptions
decreasing by made within 18
1% annually to months of
1% in the purchase
fifth and
sixth years
and 0% the
seventh year*
Maximum Sales Load Imposed on
Reinvested Dividends.............. None None None
Redemption Fees.................... None None None
Exchange Fee....................... None None None
</TABLE>

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
--------------- --------------- ---------------
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees.................... .50% .50% .50%
12b-1 Fees (After Reduction)....... .25%++ .50%++ .75%++
Other Expenses..................... .32% .32% .32%
------- ------- -------
Total Fund Operating Expenses
(After Reduction)................. 1.07% 1.32% 1.57%
------- ------- -------
------- ------- -------
</TABLE>

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE
You would pay the following expenses on
a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at
the end of each time period:
Class A............................ $ 41 $ 63 $ 87 $ 157
Class B............................ $ 63 $ 72 $ 82 $ 149
Class C............................ $ 36 $ 59 $ 95 $ 195
You would pay the following expenses on
the same investment, assuming no
redemption:
Class A............................ $ 41 $ 63 $ 87 $ 157
Class B............................ $ 13 $ 42 $ 72 $ 149
Class C............................ $ 26 $ 59 $ 95 $ 195
</TABLE>

THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

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

* Class B shares will automatically convert to Class A shares approximately
seven years after purchase. See "Shareholder Guide--Conversion Feature--
Class B Shares."

++ Although the Class A, Class B and Class C Distribution and Service Plans
provide that the Fund may pay a distribution fee of up to .30 of 1%, .50
of 1% and 1% per annum of the average daily net assets of the Class A,
Class B and Class C shares, respectively, the Distributor may voluntarily
limit its distribution fees. Presently the Distributor limits its
distribution fees with respect to the Class A, Class B and Class C shares
of the Series to no more than .10 of 1%, .10 of 1% and .25 of 1% of the
average daily net asset value of the Class A, Class B and Class C shares,
respectively. This voluntary limitation may be modified or terminated at
any time without notice. The Distributor anticipates modifying its
present limitation for Class A and Class C shares so that, in the future,
the Fund will pay distribution fees of .25% and .75%, respectively, and
eliminating its present limitation for Class B shares so that, in the
future, the Fund will pay distribution fees of .50%. Total Fund Operating
Expenses of the Class A and Class C shares without any limitations would
be 1.12% and 1.82%, respectively. See "How the Fund is
Managed--Distributor."

4
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH OF THE INDICATED
PERIODS)
(CLASS A SHARES)

The following financial highlights, for the two years ended August 31, 1998,
have been audited by PricewaterhouseCoopers LLP, independent accountants, and
for the three years ended August 31, 1996 have been audited by other independent
auditors. All such audit reports were unqualified. This information should be
read in conjunction with the financial statements and the notes thereto, which
appear in the Statement of Additional Information. The following financial
highlights contain selected data for a Class A share of beneficial interest
outstanding, total return, ratios to average net assets and other supplemental
data for the periods indicated. This information is based on data contained in
the financial statements. Further performance information is contained in the
annual report, which may be obtained without charge. See "Shareholder
Guide--Shareholder Services--Reports to Shareholders."

<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------------------------------------
JANUARY 22,
1990 (a)
YEAR ENDED AUGUST 31, THROUGH
----------------------------------------------------------------------------------- AUGUST 31,
1998 1997 1996 1995 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>

PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period.... $12.01 $11.72 $11.89 $11.75 $12.51 $11.90 $11.30 $10.81 $11.02
------ ------ ------ ------ ------ ------ ------ ------ -----------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income.... .60 .61(e) .62(e) .64(e) .64 .67 .68 .67 .41
Net realized and
unrealized gain (loss)
on investment
transactions........... .43 .33 (.02) .17 (.69) .71 .60 .49 (.21)
------ ------ ------ ------ ------ ------ ------ ------ -----------
Total from investment
operations............. 1.03 .94 .60 .81 (.05) 1.38 1.28 1.16 .20
------ ------ ------ ------ ------ ------ ------ ------ -----------
LESS DISTRIBUTIONS
Dividends from net
investment income...... (.60) (.61) (.62) (.64) (.64) (.67) (.68) (.67) (.41)
Distributions in excess
of net
investment income...... --(f) --(f) -- -- -- -- -- -- --
Distributions from net
realized gains......... (.07) (.04) (.15) (.03) (.07) (.10) -- -- --
------ ------ ------ ------ ------ ------ ------ ------ -----------
Total distributions...... (.67) (.65) (.77) (.67) (.71) (.77) (.68) (.67) (.41)
------ ------ ------ ------ ------ ------ ------ ------ -----------
Net asset value, end of
period................. $12.37 $12.01 $11.72 $11.89 $11.75 $12.51 $11.90 $11.30 $10.81
------ ------ ------ ------ ------ ------ ------ ------ -----------
------ ------ ------ ------ ------ ------ ------ ------ -----------
TOTAL RETURN (c):........ 8.81% 8.18% 5.07% 7.13% (0.38)% 11.95% 11.63% 11.04% 1.82%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).................. $30,248 $29,772 $28,730 $27,024 $4,706 $3,814 $1,618 $ 835 $ 501
Average net assets
(000).................. $30,330 $29,737 $27,978 $16,932 $4,505 $2,285 $1,235 $ 694 $ 365
Ratios to average net
assets:
Expenses, including
distribution fee...... .92% .91%(e) .91%(e) 1.02%(e) .91% .96%(d) .98% 1.09% 1.09%(b)
Expenses, excluding
distribution fee...... .82% .81%(e) .81%(e) .92%(e) .81% .86%(d) .88% .99% .99%(b)
Net investment
income................ 4.90% 5.08%(e) 5.18%(e) 5.31%(e) 5.27% 5.51%(d) 5.82% 6.09% 6.25%(b)
Portfolio turnover
rate................... 29% 20% 36% 33% 12% 14% 30% 62% 55%
</TABLE>

- ---------------
(a) Commencement of offering of Class A shares.

(b) Annualized.

(d) Restated.

(e) Net of management fee waiver. Effective September 1, 1997, PIFM
eliminated its management fee waiver (.05 of 1%).

(f) Less than $.005 per share.

5
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH OF THE INDICATED
PERIODS)
(CLASS B SHARES)

The following financial highlights, for the two years ended August 31, 1998,
have been audited by PricewaterhouseCoopers LLP, independent accountants, and
for the three years ended August 31, 1996 have been audited by other independent
auditors. All such audit reports were unqualified. This information should be
read in conjunction with the financial statements and the notes thereto, which
appear in the Statement of Additional Information. The following financial
highlights contain selected data for a Class B share of beneficial interest
outstanding, total return, ratios to average net assets and other supplemental
data for the periods indicated. This information is based on data contained in
the financial statements. Further performance information is contained in the
annual report, which may be obtained without charge. See "Shareholder
Guide--Shareholder Services--Reports to Shareholders."

PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of
year............. $ 12.00 $ 11.71 $ 11.88 $ 11.75 $ 12.51 $ 11.90 $ 11.30 $ 10.81 $ 11.03 $10.57
------------ ------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income........... .55 .56(d) .57(d) .59(d) .59 .62 .63 .63 .65 .68
Net realized and
unrealized gain
(loss) on
investment
transactions..... .43 .33 (.02) .16 (.69) .71 .60 .49 (.22) .46
------------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from
investment
operations....... .98 .89 .55 .75 (.10) 1.33 1.23 1.12 .43 1.14
------------ ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends from net
investment
income........... (.55) (.56) (.57) (.59) (.59) (.62) (.63) (.63) (.65) (.68)
Distributions in
excess of net
investment
income........... --(e) --(e) -- -- -- -- -- -- -- --
Distributions from
net realized
gains............ (.07) (.04) (.15) (.03) (.07) (.10) -- -- -- --
------------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Total
distributions.... (.62) (.60) (.72) (.62) (.66) (.72) (.63) (.63) (.65) (.68)
------------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value,
end of year...... $ 12.36 $ 12.00 $ 11.71 $ 11.88 $ 11.75 $ 12.51 $ 11.90 $ 11.30 $ 10.81 $11.03
------------ ------- ------- ------- ------- ------- ------- ------- ------- -------
------------ ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL RETURN
(b):............. 8.38% 7.76% 4.66% 6.60% (0.78)% 11.51% 11.18% 10.60% 4.02% 11.08%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
year (000)....... $ 23,085 $27,796 $34,971 $41,459 $70,112 $70,302 $56,095 $59,400 $49,923 $47,025
Average net assets
(000)............ $ 25,412 $31,302 $39,052 $52,216 $72,095 $61,548 $52,137 $50,809 $48,694 $43,957
Ratios to average
net assets:
Expenses,
including
distribution
fee............. 1.32% 1.31%(d) 1.31%(d) 1.37%(d) 1.31% 1.36%(c) 1.38% 1.49% 1.44% 1.35%
Expenses,
excluding
distribution
fee............. .82% .81%(d) .81%(d) .87%(d) .81% .86%(c) .88% .99% .97% .96%
Net investment
income.......... 4.50% 4.68%(d) 4.77%(d) 5.04%(d) 4.87% 5.11%(c) 5.42% 5.66% 5.95% 6.20%
Portfolio turnover
rate............. 29% 20% 36% 33% 12% 14% 30% 62% 55% 36%
</TABLE>

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

(a) On December 31, 1988, Prudential Mutual Fund Management, Inc.
succeeded The Prudential Insurance Company of America as manager of
the Fund.

(b) Total return does not consider the effects of sales loads. Total
return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each year reported and includes
reinvestment of dividends and distributions.

(d) Net of management fee waiver. Effective September 1, 1997, PIFM
eliminated its management fee waiver (.05 of 1%).

(e) Less than $.005 per share.

6
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH OF THE INDICATED
PERIODS)
(CLASS C SHARES)

The following financial highlights, for the two years ended August 31, 1998,
have been audited by PricewaterhouseCoopers LLP, independent accountants, and
for the two years ended August 31, 1996 and for the period from August 1, 1994
through August 31, 1994 have been audited by other independent auditors. All
such audit reports were unqualified. This information should be read in
conjunction with the financial statements and the notes thereto, which appear in
the Statement of Additional Information. The following financial highlights
contain selected data for a Class C share of beneficial interest outstanding,
total return, ratios to average net assets and other supplemental data for the
periods indicated. This information is based on data contained in the financial
statements. Further performance information is contained in the annual report,
which may be obtained without charge. See "Shareholder Guide--Shareholder
Services--Reports to Shareholders."

<TABLE>
<CAPTION>
CLASS C
----------------------------------------------------------
AUGUST 1,
YEAR ENDED 1994 (a)
AUGUST 31, THROUGH
------------------------------------------ AUGUST 31,
1998 1997 1996 1995 1994
------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C>

PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $12.00 $11.71 $11.88 $11.75 $11.78
------ ------ ------ ------ ----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income................... .52 .53(d) .54(d) .56(d) .04
Net realized and unrealized gain (loss)
on investment transactions............ .43 .33 (.02) .16 (.03)
------ ------ ------ ------ ----------
Total from investment operations........ .95 .86 .52 .72 .01
------ ------ ------ ------ ----------
LESS DISTRIBUTIONS
Dividends from net investment income.... (.52) (.53) (.54) (.56) (.04)
Distributions in excess of net
investment income..................... --(f) --(f) -- -- --
Distributions from net realized gains... (.07) (.04) (.15) (.03) --
------ ------ ------ ------ ----------
Total distributions..................... (.59) (.57) (.69) (.59) (.04)
------ ------ ------ ------ ----------
Net asset value, end of period.......... $12.36 $12.00 $11.71 $11.88 $11.75
------ ------ ------ ------ ----------
------ ------ ------ ------ ----------
TOTAL RETURN (c):....................... 8.11% 7.49% 4.39% 6.29% 0.06%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $ 536 $ 315 $ 112 $ 100 $ 200(e)
Average net assets (000)................ $ 424 $ 161 $ 95 $ 61 $ 199(e)
Ratios to average net assets:
Expenses, including distribution
fee.................................. 1.57% 1.56%(d) 1.56%(d) 1.68%(d) 2.15%(b)
Expenses, excluding distribution
fee.................................. .82% .81%(d) .81%(d) .93%(d) 1.39%(b)
Net investment income................. 4.25% 4.43%(d) 4.53%(d) 4.66%(d) 4.56%(b)
Portfolio turnover rate................. 29% 20% 36% 33% 12%
</TABLE>

- ---------------
(a) Commencement of offering of Class C shares.

(b) Annualized.

(d) Net of management fee waiver. Effective September 1, 1997, PIFM
eliminated its management fee waiver (.05 of 1%).

(e) Figures are actual and not rounded to the nearest thousand.

(f) Less than $.005 per share.

7
<PAGE>
HOW THE FUND INVESTS

INVESTMENT OBJECTIVE AND POLICIES

THE SERIES WILL INVEST PRIMARILY IN MICHIGAN STATE, MUNICIPAL AND LOCAL
GOVERNMENT OBLIGATIONS AND OBLIGATIONS OF OTHER QUALIFYING ISSUERS, SUCH AS
ISSUERS LOCATED IN PUERTO RICO, THE VIRGIN ISLANDS AND GUAM, WHICH PAY INCOME
EXEMPT, IN THE OPINION OF COUNSEL, FROM MICHIGAN STATE AND FEDERAL INCOME TAXES
(MICHIGAN OBLIGATIONS). THERE CAN BE NO ASSURANCE THAT THE SERIES WILL BE ABLE
TO ACHIEVE ITS INVESTMENT OBJECTIVE.

As with an investment in any mutual fund, an investment in this Series can
decrease and you can lose money.

THE SERIES MAY INVEST ITS ASSETS IN FLOATING RATE AND VARIABLE RATE
SECURITIES, INCLUDING PARTICIPATION INTERESTS THEREIN AND INVERSE FLOATERS.
There is no limit on the amount of such securities that the Series may purchase.
Floating rate securities normally have a rate of interest which is set as a
specific percentage of a designated base rate, such as the rate on Treasury
bonds or bills or the prime rate at a major commercial bank. The interest rate
on floating rate securities changes periodically when there is a change in the
designated base interest rate. Variable rate securities provide for a specified
periodic adjustment in the interest rate based on prevailing market rates and
generally would allow the Series to demand payment of the obligation on short
notice at par plus accrued interest, which amount may be more or less than the
amount the Series paid for them. An inverse floater is a debt instrument with a
floating or variable interest rate that moves in the opposite direction of the

8
<PAGE>
interest rate on another security or the value of an index. Changes in the
interest rate on the other security or index inversely affect the residual
interest rate paid on the inverse floater, with the result that the inverse
floater's price will be considerably more volatile than that of a fixed rate
bond. The market for the inverse floaters is relatively new.

THE SERIES WILL INVEST AT LEAST 70% OF ITS TOTAL ASSETS IN MICHIGAN
OBLIGATIONS WHICH, AT THE TIME OF PURCHASE, ARE RATED WITHIN THE FOUR HIGHEST
QUALITY GRADES AS DETERMINED BY MOODY'S INVESTORS SERVICE (MOODY'S) (CURRENTLY
Aaa, Aa, A, Baa FOR BONDS, MIG 1, MIG 2, MIG 3, MIG 4 FOR NOTES AND PRIME-1 FOR
COMMERCIAL PAPER), STANDARD & POOR'S RATINGS GROUP (S&P) (CURRENTLY AAA, AA, A,
BBB FOR BONDS, SP-1, SP-2 FOR NOTES AND A-1 FOR COMMERCIAL PAPER) OR ANOTHER
NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO) OR, IF UNRATED,
WILL POSSESS CREDITWORTHINESS, IN THE OPINION OF THE INVESTMENT ADVISER,
COMPARABLE TO SUCH INVESTMENT GRADE RATED SECURITIES.

THE SERIES MAY ALSO INVEST UP TO 30% OF ITS TOTAL ASSETS IN MICHIGAN
OBLIGATIONS RATED BELOW Baa BY MOODY'S OR BELOW BBB BY S&P, OR A COMPARABLE
RATING OF ANOTHER NRSRO OR, IF NON-RATED, OF COMPARABLE QUALITY, IN THE OPINION
OF THE FUND'S INVESTMENT ADVISER, BASED ON ITS CREDIT ANALYSIS. Securities rated
Baa by Moody's and BBB by S&P are described as being investment grade but are
also characterized as having speculative characteristics. Securities rated below
Baa by Moody's and below BBB by S&P are considered speculative. See "Description
of Security Ratings" in the Appendix. Such lower-rated high yield securities are
commonly referred to as junk bonds. Such securities generally offer a higher
current yield than those in the higher rating categories but may also involve
greater price volatility and risk of loss of principal and income. The
investment adviser will attempt to manage risk and enhance yield through credit
analysis and careful security selection. See "Risk Factors Relating to Investing
in High Yield Municipal Obligations" below. Subsequent to its purchase by the
Series, a municipal obligation may be assigned a lower rating or cease to be
rated. Such an event would not require the elimination of the issue from the
portfolio, but the investment adviser will consider such an event in determining
whether the Series should continue to hold the security in its portfolio. Many
issuers of lower-quality bonds choose not to have their obligations rated and
the Series may invest in such unrated securities. Investors should carefully
consider the relative risks associated with investments in securities which
carry lower ratings and in comparable non-rated securities.

During the year ended August 31, 1998, 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>
PERCENTAGE OF
RATINGS TOTAL INVESTMENTS
------------------------------ -------------------------
<S> <C>
AAA/Aaa....................... 63.73 %
AA/Aa......................... 4.43 %
A/A........................... 8.18 %
BBB/Baa....................... 18.15 %

UNRATED
------------------------------
<S> <C>
BBB/Baa..................... 0.96 %
BB/Ba....................... 3.56 %
B/B......................... 0.99 %
</TABLE>

9
<PAGE>
From time to time, the Series may own the majority of a municipal issue. Such
majority-owned holdings may present market and credit risks.

The Series may purchase Michigan Obligations which, in the opinion of the
investment adviser, offer the opportunity for capital appreciation. This may
occur, for example, when the investment adviser believes that the issuer of a
particular Michigan Obligation might receive an upgraded credit standing,
thereby increasing the market value of the bonds it has issued or when the
investment adviser believes that interest rates might decline.

UNDER NORMAL MARKET CONDITIONS, THE SERIES WILL ATTEMPT TO INVEST
SUBSTANTIALLY ALL OF THE VALUE OF ITS ASSETS IN MICHIGAN OBLIGATIONS. As a
matter of fundamental policy, during normal market conditions the Series' assets
will be invested so that at least 80% of the income will be exempt from Michigan
State and federal income taxes or the Series will have at least 80% of its total
assets invested in Michigan Obligations. During abnormal market conditions or to
provide liquidity, the Series may hold cash or cash equivalents or investment
grade taxable obligations, including obligations that are exempt from federal,
but not state, taxation and the Series may invest in tax-free cash equivalents,
such as floating rate demand notes, tax-exempt commercial paper and general
obligation and revenue notes or in taxable cash equivalents, such as
certificates of deposit, bankers acceptances, time deposits or other short-term
taxable investments such as repurchase agreements. When, in the opinion of the
investment adviser, abnormal market conditions require a temporary defensive
position, the Series may invest more than 20% of the value of its assets in debt
securities other than Michigan Obligations or may invest its assets so that more
than 20% of the income is subject to Michigan State or federal income taxes. The
Series will treat an investment in a municipal bond refunded with escrowed U.S.
Government securities as U.S. Government securities for purposes of the
Investment Company Act's diversification requirements provided certain
conditions are met. See "Investment Objectives and Policies--In General" in the
Statement of Additional Information.

THE SERIES MAY PURCHASE MUNICIPAL OBLIGATIONS ON A WHEN-ISSUED OR DELAYED
DELIVERY BASIS, IN EACH CASE WITHOUT LIMIT. When municipal obligations are
offered on a when-issued or delayed delivery basis, the price and coupon rate
are fixed at the time the commitment to purchase is made, but delivery and
payment for the securities take place at a later date. During the period between
purchase and settlement, no interest accrues to the economic benefit of the
purchaser. In the case of purchases by the Series, the price that the Series is
required to pay on the settlement date may be in excess of the market value of
the municipal obligations on that date. While securities may be sold prior to
the settlement date, the Series intends to purchase these securities with the
purpose of actually acquiring them unless a sale would be desirable for
investment reasons. At the time the Series makes the commitment to purchase a
municipal obligation on a when-issued or delayed delivery basis, it will record
the transaction and reflect the value of the obligation each day in determining
its NAV. This value may fluctuate from day to day in the same manner as

10
<PAGE>

THE SERIES MAY PURCHASE SECONDARY MARKET INSURANCE ON MICHIGAN OBLIGATIONS
WHICH IT HOLDS OR ACQUIRES. Secondary market insurance would be reflected in the
market value of the municipal obligation purchased and may enable the Series to
dispose of a defaulted obligation at a price similar to that of comparable
municipal obligations which are not in default.

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

RISK FACTORS RELATING TO INVESTING IN HIGH YIELD MUNICIPAL OBLIGATIONS.
FIXED-INCOME SECURITIES ARE SUBJECT TO THE RISK OF AN ISSUER'S INABILITY TO MEET
PRINCIPAL AND INTEREST PAYMENTS ON THE OBLIGATIONS (CREDIT RISK) AND MAY ALSO BE
SUBJECT TO PRICE VOLATILITY DUE TO SUCH FACTORS AS INTEREST RATE SENSITIVITY,
MARKET PERCEPTION OF THE CREDITWORTHINESS OF THE ISSUER AND GENERAL MARKET
LIQUIDITY (MARKET RISK). Lower-rated or unrated (I.E., high yield) securities,
commonly known as junk bonds, are more likely to react to developments affecting
market and credit risk than are more highly rated securities, which react
primarily to movements in the general level of interest rates. The investment
adviser will perform its own investment analysis and will not rely principally
on the ratings assigned by the rating services, although such ratings will be
considered by the investment adviser. The investment adviser will consider,
among other things, credit risk and market risk, as well as the financial
history and condition, the prospects and the management of an issuer in
selecting securities for the Series' portfolio. The achievement of the Series'
investment objective may be more dependent on the investment adviser's credit
analysis than is the case when investing in only higher quality bonds. Investors
should carefully consider the relative risks of investing in high yield
municipal obligations and understand that such securities are not generally
meant for short-term investing and that yields on junk bonds will fluctuate over
time.

The amount of high yield securities outstanding has proliferated recently in
conjunction with the decline in creditworthiness of many obligors on municipal
debt, particularly health care providers and certain governmental bodies. An
economic downturn could severely affect the ability of highly leveraged issuers
to service their debt obligations or to repay their obligations upon maturity.
Furthermore, changes in economic conditions and other circumstances are more
likely to lead to a weakened capacity to make principal and interest payments
than in the case of higher grade bonds. In addition, the secondary market for
high yield securities, which is concentrated in relatively few market makers,
may not be as liquid as the secondary market for more highly rated securities
and, from time to time, it may be more difficult to value high yield securities
than more highly rated securities, and the judgment of the Board of Trustees and
the investment adviser may play a greater role in valuation because there is
less reliable objective data available. Under adverse market or economic
conditions, the secondary market for high yield securities could contract
further, independent of any specific adverse changes in the condition of a
particular issuer. As a result, the investment adviser could find it more
difficult to sell these securities or may be able to sell the securities only at
prices lower than if such securities were widely traded. Prices realized upon
the sale of such lower rated or unrated securities, under these circumstances,
may be less than the prices used in calculating the Series' NAV. If the
investment adviser becomes involved in activities such as reorganizations of
obligors of troubled investments held by the Series, this may prevent the Series
from disposing of the securities, due to its possession of material, non-public
information concerning the obligor.

11
<PAGE>

FUTURES CONTRACTS AND OPTIONS THEREON

THE SERIES IS AUTHORIZED TO PURCHASE AND SELL CERTAIN DERIVATIVES, INCLUDING
FINANCIAL FUTURES CONTRACTS (FUTURES CONTRACTS) AND OPTIONS THEREON FOR THE
PURPOSE OF HEDGING ITS PORTFOLIO SECURITIES AGAINST FLUCTUATIONS IN VALUE CAUSED
BY CHANGES IN PREVAILING MARKET INTEREST RATES AND HEDGING AGAINST INCREASES IN
THE COST OF SECURITIES THE SERIES INTENDS TO PURCHASE. THE SUCCESSFUL USE OF
FUTURES CONTRACTS AND OPTIONS THEREON BY THE SERIES INVOLVES ADDITIONAL
TRANSACTION COSTS, IS SUBJECT TO VARIOUS RISKS AND DEPENDS UPON THE INVESTMENT
ADVISER'S ABILITY TO PREDICT THE DIRECTION OF THE MARKET (INCLUDING INTEREST
RATES). THE SERIES, AND THUS INVESTORS, MAY LOSE MONEY THROUGH ANY UNSUCCESSFUL
USE OF THESE STRATEGIES.

SPECIAL CONSIDERATIONS

BECAUSE THE SERIES WILL INVEST AT LEAST 80% OF THE VALUE OF ITS TOTAL ASSETS
IN MICHIGAN OBLIGATIONS AND BECAUSE IT SEEKS TO MAXIMIZE INCOME DERIVED FROM
MICHIGAN OBLIGATIONS, IT IS MORE SUSCEPTIBLE TO FACTORS ADVERSELY AFFECTING
ISSUERS OF MICHIGAN OBLIGATIONS THAN IS A COMPARABLE MUNICIPAL BOND MUTUAL FUND
THAT IS NOT CONCENTRATED IN SUCH OBLIGATIONS TO THIS DEGREE. Michigan is a
highly industrialized state with an economy principally dependent upon three
sectors: manufacturing (particularly durable goods, automotive products and
office equipment), tourism and agriculture. Michigan's recovery from the effects
of a downturn in the automotive industry in the late 1980's has proved to be
robust. At the end of calendar 1997, the employment levels had reached an
all-time high, and total wage and salary employment is projected to grow 1.7% in
1998 and 0.8% in 1999. This growth reflects the ongoing diversification of the
Michigan economy. At the end of calendar 1997, the unemployment rate in Michigan
had fallen to 4.2%, and it is projected to average 4.1% in 1998 and 4.4% in
1999, continuing the recent trend of being below the national average.
Michigan's economy is among the most cyclical of all the states and remains
dependent on domestic vehicle production and durable goods consumption. For
fiscal 1995, 1996 and 1997, the State achieved budget surpluses of $82 million,
$197 million and $13 million, respectively. Fiscal 1998 General Fund revenues
and expenditures are expected to be $8,590 million and $8,602 million,
respectively. Current projections are that the unreserved balance of the State's
Budget Stabilization Fund was $646 million at the end of fiscal year 1997.

The market value and the marketability of Michigan Obligations may be affected
adversely by the same factors that affect Michigan's economy generally. If
either Michigan or any of its local governmental entities is unable to meet its
financial obligations, the income derived by the Series, the ability to preserve
or realize appreciation of the Series' capital and the Series' liquidity could
be adversely affected. See "Investment Objectives and Policies--Special
Considerations Regarding Investments in Tax-Exempt Securities" in the Statement
of Additional Information.

OTHER INVESTMENTS AND POLICIES

REPURCHASE AGREEMENTS

13
<PAGE>
BORROWING

PORTFOLIO TURNOVER

ILLIQUID SECURITIES

The Series may hold up to 15% of its net assets in illiquid securities
including repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable. Securities,
including restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933, as amended (the Securities Act), privately placed
commercial paper and municipal lease obligations, that have a readily available
market are not considered illiquid for the purposes of this limitation. The
investment adviser will monitor the liquidity of such restricted securities
under the supervision of the Trustees. The Series' investment in Rule 144A
securities could have the effect of increasing illiquidity to the extent that
qualified institutional buyers become, for a limited time, uninterested in
purchasing Rule 144A securities. See "Investment Objectives and
Policies--Illiquid Securities" and "Investment Restrictions" in the Statement of
Additional Information. Repurchase agreements subject to demand are deemed to
have a maturity equal to the notice period.

INVESTMENT RESTRICTIONS

HOW THE FUND IS MANAGED

For the fiscal year ended August 31, 1998, total expenses of the Series as a
percentage of average net assets were .92%, 1.32% and 1.57% for the Series'
Class A, Class B and Class C shares, respectively. See "Financial Highlights."

MANAGER

14
<PAGE>

ANNUAL RATE OF .50 OF 1% OF THE AVERAGE DAILY NET ASSETS OF THE SERIES. PIFM is
organized in New York as a limited liability company. For the fiscal year ended
August 31, 1998, the Series paid PIFM a management fee of .50 of 1% of the
Series' average net assets. See "Fee Waivers and Subsidy" below and "Manager" in
the Statement of Additional Information.

UNDER A SUBADVISORY AGREEMENT BETWEEN PIFM AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC, THE SUBADVISER OR THE INVESTMENT ADVISER), THE SUBADVISER
FURNISHES INVESTMENT ADVISORY SERVICES IN CONNECTION WITH THE MANAGEMENT OF THE
FUND AND IS REIMBURSED BY PIFM FOR ITS REASONABLE COSTS AND EXPENSES INCURRED IN
PROVIDING SUCH SERVICES. PIC's address is Prudential Plaza, Newark, New Jersey
07102-3777. Under the Management Agreement, PIFM continues to have
responsibility for all investment advisory services and supervises the
Subadviser's performance of such services.

The current portfolio manager of the Series is James M. Murphy, Mr. Murphy has
responsibility for the day-to-day management of the portfolio. He has managed
the portfolio since January 1997 and has been employed by PIC in various
capacities since 1989.

FEE WAIVERS AND SUBSIDY

DISTRIBUTOR

UNDER SEPARATE DISTRIBUTION AND SERVICE PLANS (THE CLASS A PLAN, THE CLASS B
PLAN AND THE CLASS C PLAN, COLLECTIVELY, THE PLANS) ADOPTED BY THE FUND UNDER
RULE 12b-1 UNDER THE INVESTMENT COMPANY ACT AND A DISTRIBUTION AGREEMENT (THE
DISTRIBUTION AGREEMENT), THE DISTRIBUTOR INCURS THE EXPENSES OF DISTRIBUTING THE
CLASS A, CLASS B AND CLASS C SHARES OF THE SERIES. These expenses include
commissions and account servicing fees paid to, or on account of Dealers or
financial institutions which have entered into agreements with the Distributor,
advertising expenses, the cost of printing and mailing prospectuses to potential
investors and indirect and overhead costs of the Distributor associated with the
sale of Series shares, including lease, utility, communications and sales
promotion expenses. Certain Dealers are paid higher fees than others with
respect to Class A shares pursuant to separate agreements with the Distributor.

15
<PAGE>
Under the Plans, the Series is obligated to pay distribution and/or service
fees to the Distributor as compensation for its distribution and service
activities, not as reimbursement for specific expenses incurred. If the
Distributor's expenses exceed its distribution and service fees, the Series will
not be obligated to pay any additional expenses. If the Distributor's expenses
are less than such distribution and service fees, it will retain its full fees
and realize a profit.

UNDER THE CLASS A PLAN, THE SERIES MAY PAY THE DISTRIBUTOR FOR ITS
DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS A SHARES AT AN ANNUAL RATE
OF UP TO .30 OF 1% OF THE AVERAGE DAILY NET ASSETS OF THE CLASS A SHARES OF THE
SERIES. The Class A Plan provides that (i) up to .25 of 1% of the average daily
net assets of the Class A shares may be used to pay for personal service and/or
the maintenance of shareholder accounts (service fee) and (ii) total
distribution fees (including the service fee of .25 of 1%) may not exceed .30 of
1% of the average daily net assets of the Class A shares. The Distributor has
voluntarily limited its distribution-related fees payable under the Class A Plan
to .10 of 1% of the average daily net assets of the Class A shares. This
voluntary limitation may be modified or terminated at any time without notice.

UNDER THE CLASS B AND CLASS C PLANS, THE SERIES MAY PAY THE DISTRIBUTOR FOR
ITS DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS B AND CLASS C SHARES
AT AN ANNUAL RATE OF UP TO .50 OF 1% AND UP TO 1% OF THE AVERAGE DAILY NET
ASSETS OF THE CLASS B AND CLASS C SHARES, RESPECTIVELY. The Class B Plan
provides for the payment to the Distributor of (i) an asset-based sales charge
of up to .50 of 1% of the average daily net assets of the Class B shares, and
(ii) a service fee of up to .25 of 1% of the average daily net assets of the
Class B shares; provided that the total distribution-related fee does not exceed
.50 of 1%. The Class C Plan provides for the payment to the Distributor of (i)
an asset-based sales charge of up to .75 of 1% of the average daily net assets
of the Class C shares, and (ii) a service fee of up to .25 of 1% of the average
daily net assets of the Class C shares. The service fee is used to pay for
personal service and/or the maintenance of shareholder accounts. The Distributor
has voluntarily limited its distribution-related fees payable under the Class B
and Class C Plans to .10 of 1% and .25 of 1% of the average daily net assets of
the Class B and Class C shares, respectively. These voluntary limitations may be
modified or terminated at any time without notice. The Distributor also receives
CDSC's from certain redeeming shareholders. See "Shareholder Guide--How to Sell
Your Shares--Contingent Deferred Sales Charges."

For the fiscal year ended August 31, 1998, the Series paid distribution
expenses of .10 of 1%, .50 of 1% and .74 of 1% of the average daily net assets
of the Class A, Class B and Class C shares, respectively. The Series records all
payments made under the Plans as expenses in the calculation of net investment
income. See "Distributor" in the Statement of Additional Information.

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

16
<PAGE>

PORTFOLIO TRANSACTIONS

CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT

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

YEAR 2000

HOW THE FUND VALUES ITS SHARES

THE SERIES' NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING ITS
LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. NAV IS CALCULATED SEPARATELY FOR EACH CLASS. THE
TRUSTEES HAVE FIXED THE SPECIFIC TIME OF DAY FOR THE COMPUTATION OF THE NAV OF
THE SERIES TO BE AS OF 4:15 P.M., NEW YORK TIME.

17
<PAGE>

HOW THE FUND CALCULATES PERFORMANCE

TAXES, DIVIDENDS AND DISTRIBUTIONS

TAXATION OF THE FUND

THE SERIES HAS QUALIFIED AND INTENDS TO REMAIN QUALIFIED AS A REGULATED
INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE. ACCORDINGLY, THE SERIES WILL
NOT BE SUBJECT TO FEDERAL INCOME TAXES ON ITS NET INVESTMENT INCOME AND NET
CAPITAL GAINS, IF ANY, THAT IT DISTRIBUTES TO ITS SHAREHOLDERS. TO THE EXTENT
NOT DISTRIBUTED BY THE SERIES, NET TAXABLE INVESTMENT INCOME AND CAPITAL GAINS
AND LOSSES ARE TAXABLE TO THE SERIES. See "Taxes, Dividends and Distributions"
in the Statement of Additional Information.

18
<PAGE>

treated as having been sold at market value. Sixty percent of any gain or loss
recognized on these deemed sales and on actual dispositions will be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss. See "Taxes, Dividends and Distributions" in the Statement
of Additional Information.

TAXATION OF SHAREHOLDERS

Any dividends out of net taxable investment income, together with
distributions of net short-term gains (I.E., the excess of net short-term
capital gains over net long-term capital losses) distributed to shareholders,
will be taxable as ordinary income to the shareholder whether or not reinvested.
Any net capital gains (I.E., the excess of net capital gains from the sale of
assets held for more than 12 months over net short-term capital losses)
distributed to shareholders will be taxable as capital gains to the
shareholders, whether or not reinvested and regardless of the length of time a
shareholder has owned his or her shares. Recent legislation created various
categories of capital gains applicable to individuals. For capital gains
recognized upon the sale of assets by this series after December 31, 1997, the
maximum long-term capital gains tax rate for individuals is 20%. The maximum
capital gains tax rate for corporate shareholders currently is the same as the
maximum tax rate for ordinary income.

19
<PAGE>

Distributions relating to interest on all municipal obligations will be
included in a corporate shareholder's current earnings for purposes of the
adjustment for current earnings for alternative minimum tax purposes. Corporate
shareholders should consult with
their tax advisers with respect to this potential adjustment.

Under Michigan law, dividends paid by the Series that are derived from
interest payments attributable to Michigan Obligations are exempt from Michigan
income tax and any income taxes imposed by cities in Michigan for individuals
who reside in Michigan and from the Michigan single business tax for
corporations that are subject to such tax to the extent such dividends are
exempt from federal income tax (except for possible application of the
alternative minimum tax). An investment in the Series, to the extent
attributable to interest on Michigan Obligations, will also be excluded from the
Michigan intangibles tax.

WITHHOLDING TAXES

DIVIDENDS AND DISTRIBUTIONS

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

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

20
<PAGE>
GENERAL INFORMATION

DESCRIPTION OF SHARES

THE FUND WAS ESTABLISHED AS A MASSACHUSETTS BUSINESS TRUST ON MAY 18, 1984, BY
A DECLARATION OF TRUST. The Fund's activities are supervised by its Trustees.
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares in separate series, currently designated as the
Connecticut Money Market Series, Florida Series, Maryland Series, Massachusetts
Series, Massachusetts Money Market Series, Michigan Series, New Jersey Series,
New Jersey Money Market Series, New York Series, New York Money Market Series,
North Carolina Series, Ohio Series and Pennsylvania Series. The Series is
authorized to issue an unlimited number of shares, divided into three classes,
designated Class A, Class B and Class C. Each class of shares represents an
interest in the same assets of the Series and are identical in all respects
except that (i) each class is subject to different sales charges and
distribution and/or service fees, which may affect performance, (ii) each class
has exclusive voting rights on any matter submitted to shareholders that relates
solely to its arrangement and has separate voting rights on any matter submitted
to shareholders in which the interests of one class differ from the interests of
any other class, (iii) each class has a different exchange privilege and (iv)
only Class B shares have a conversion feature. See "How the Fund is
Managed--Distributor." In accordance with the Fund's Declaration of Trust, the
Trustees may authorize the creation of additional series and classes within such
series, with such preferences, privileges, limitations and voting and dividend
rights as the Trustees may determine.

Shares of the Fund, when issued, are fully paid, nonassessable, fully
transferable and redeemable at the option of the holder. Shares are also
redeemable at the option of the Fund under certain circumstances as described
under "Shareholder Guide--How to Sell Your Shares." Each share of each class of
the Series is equal as to earnings, assets and voting privileges, except as
noted above, and each class bears the expenses related to the distribution of
its shares. Except for the conversion feature applicable to the Class B shares,
there are no conversion, preemptive or other subscription rights. In the event
of liquidation, each share of beneficial interest of each series is entitled to
its portion of all of the Fund's assets after all debt and expenses of the Fund
have been paid. Since Class B and Class C shares generally bear higher
distribution expenses than Class A shares, the liquidation proceeds to
shareholders of those classes are likely to be lower than to Class A
shareholders. The Fund's shares do not have cumulative voting rights for the
election of Trustees.

ADDITIONAL INFORMATION

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

21
<PAGE>
SHAREHOLDER GUIDE

HOW TO BUY SHARES OF THE FUND

IF THE FUND RESUMES ACCEPTING ORDERS TO PURCHASE SHARES OF THE SERIES, YOU MAY
PURCHASE SHARES OF THE SERIES THROUGH THE DISTRIBUTOR, THROUGH DEALERS,
INCLUDING PRUDENTIAL SECURITIES OR PRUSEC, OR DIRECTLY FROM THE FUND THROUGH ITS
TRANSFER AGENT, PRUDENTIAL MUTUAL FUND SERVICES LLC (PMFS OR THE TRANSFER
AGENT), ATTENTION: INVESTMENT SERVICES, P.O. BOX 15020, NEW BRUNSWICK, NEW
JERSEY 08906-5020. The purchase price is the NAV next determined following
receipt of an order in proper form (in accordance with procedures established by
the Transfer Agent in connection with investors' accounts) by the Distributor,
your Dealer or the Transfer Agent plus a sales charge which, at your option, may
be imposed either at the time of purchase, on a deferred basis, or both. Class A
shares are sold with a front-end sales charge. Class B shares are subject to a
CDSC. Class C shares are sold with a low front-end sales charge, but are also
subject to a CDSC. Payments may be made by wire, check or through your brokerage
account. See "Alternative Purchase Plan" below and "How the Fund Values its
Shares."

An investment in the Series may not be appropriate for tax-exempt or
tax-deferred investors. Such investors should consult their own tax advisers.

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

22
<PAGE>

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

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

ALTERNATIVE PURCHASE PLAN

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

23
<PAGE>

other class, (iii) each class has a different exchange privilege, and (iv) only
Class B shares have a conversion feature. See "How to Exchange Your Shares"
below. The income attributable to each class and the dividends payable on the
shares of each class will be reduced by the amount of the distribution fee (if
any) of each class. Class B and Class C shares bear the expenses of a higher
distribution fee which will generally cause them to have higher expense ratios
and to pay lower dividends than the Class A shares.

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

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

If you intend to hold your investment for more than 3 years, but less than 4
years, or for more than 5 years, but less than 6 years, you should consider
purchasing Class A shares, because the maximum 3% initial sales charge plus the
cumulative annual distribution-related fee on Class A would be lower than: (i)
the CDSC plus the cumulative annual distribution-related fee on Class B shares;
and (ii) the 1% initial sales charge plus the cumulative annual
distribution-related fee on Class C shares.

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

24
<PAGE>

CLASS A SHARES

OTHER WAIVERS. Class A shares may be purchased at NAV, through the Distributor
or the Transfer Agent, by the following persons: (a) officers of the Prudential
Mutual Funds (including the Fund), (b) employees of the Distributor, Prudential
Securities, PIFM and their subsidiaries and members of the families of such
persons who maintain an employee related account at Prudential Securities or the
Transfer Agent, (c) employees of subadvisers of the Prudential Mutual Funds
provided that the purchases at NAV are permitted by such person's employer, (d)
Prudential, employees and special agents of Prudential and its subsidiaries and
all persons who have retired directly from active service with Prudential or one
of its subsidiaries, (e) registered representatives and employees of Dealers who
have entered into a selected dealer agreement with the Distributor, provided
that purchases at NAV are permitted by such person's employer and (f) investors
who have a business relationship with a financial adviser who joined Prudential
Securities from another investment firm, provided that (i) the purchase is made
within 180 days of the commencement of the financial adviser's employment at
Prudential Securities or within one year in the case of benefit plans, (ii) the
purchase is made with proceeds of a redemption of shares of any open-end
non-money market fund sponsored by the financial adviser's previous employer
(other than a fund which imposes a distribution or service fee of .25 of 1% or
less) and (iii) the financial adviser served as the client's broker on the
previous purchases.

25
<PAGE>
entitlement. No initial sales charges are imposed upon Class A shares acquired
upon the reinvestment of dividends and distributions. See "Purchase and
Redemption of Fund Shares--Reduction and Waiver of Initial Sales Charges--Class
A Shares" in the Statement of Additional Information.

CLASS B AND CLASS C SHARES

WAIVER OF INITIAL SALES CHARGE--CLASS C SHARES

HOW TO SELL YOUR SHARES

26
<PAGE>

OF AUTHORITY ACCEPTABLE TO THE TRANSFER AGENT MUST BE SUBMITTED BEFORE SUCH
REQUEST WILL BE ACCEPTED. All correspondence and documents concerning
redemptions should be sent to the Fund in care of its Transfer Agent, Prudential
Mutual Fund Services LLC, Attention: Redemption Services, P.O. Box 15010, New
Brunswick, New Jersey 08906-5010, the Distributor or your Dealer.

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

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

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

27
<PAGE>
CONTINGENT DEFERRED SALES CHARGES

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

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

In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results in the lowest possible rate. It will be
assumed that the redemption is made first of amounts representing shares
acquired pursuant to the reinvestment of dividends and distributions; then of
amounts representing the increase in NAV above the total amount of payments for
the purchase of Series shares made during the preceding six years (five years
for Class B shares purchased prior to January 22, 1990); then of amounts
representing the cost of shares held beyond the applicable CDSC period; and
finally, of amounts representing the cost of shares held for the longest period
of time within the applicable CDSC period.

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

28
<PAGE>
The waiver is available for total or partial redemptions of shares owned by a
person, either individually or in joint tenancy (with rights of survivorship),
at the time of death or initial determination of disability, provided that the
shares were purchased prior to death or disability. In addition, the CDSC will
be waived on redemptions of shares held by a Trustee of the Fund.

CONVERSION FEATURE--CLASS B SHARES

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

29
<PAGE>
Class A shares until approximately eight years from purchase. For purposes of
measuring the time period during which shares are held in a money market fund,
exchanges will be deemed to have been made on the last day of the month. Class B
shares acquired through exchange will convert to Class A shares after expiration
of the conversion period applicable to the original purchase of such shares.

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

HOW TO EXCHANGE YOUR SHARES

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

IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.

IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE
FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.

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

SPECIAL EXCHANGE PRIVILEGE. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV (see "Alternative
Purchase Plan--Class A Shares--Reduction and Waiver of Initial Sales Charges"
above). Under this exchange privilege, amounts representing any Class B and
Class C shares (which are not subject to a CDSC) held in such a

30
<PAGE>

shareholder's account will be automatically exchanged for Class A shares on a
quarterly basis, unless the shareholder elects otherwise. Eligibility for this
exchange privilege will be calculated on the business day prior to the date of
the exchange. Amounts representing Class B or Class C shares which are not
subject to a CDSC include the following: (1) amounts representing Class B or
Class C shares acquired pursuant to the automatic reinvestment of dividends and
distributions, (2) amounts representing the increase in the NAV above the total
amount of payments for the purchase of Class B or Class C shares and (3) amounts
representing Class B or Class C shares held beyond the applicable CDSC period.
Class B and Class C shareholders must notify the Transfer Agent either directly
or through their Dealer or the Distributor that they are eligible for this
special exchange privilege.

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

SHAREHOLDER SERVICES

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

- AUTOMATIC INVESTMENT PLAN (AIP). Under AIP you may make regular purchases of
the Series' shares in amounts as little as $50 via an automatic debit to a bank
account or brokerage account (including a Command Account). For additional
information about this service, you may contact the Distributor, your Dealer or
the Transfer Agent directly.

31
<PAGE>
provide one annual and semi-annual shareholder report and annual prospectus per
household. You may request additional copies of such reports by calling (800)
225-1852 or by writing to the Fund at Gateway Center Three, 100 Mulberry Street,
Newark, New Jersey 07102-4077. In addition, monthly unaudited financial data is
available upon request from the Fund.

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

32
<PAGE>
DESCRIPTION OF SECURITY RATINGS

MOODY'S INVESTORS SERVICE

BOND RATINGS

Caa: Bonds which 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 which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C: Bonds which 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 RATINGS

MIG 2: Loans bearing the designation MIG 2 are of high quality, with margins
of protection ample although not so large as in the preceding group.

A-1
<PAGE>
MIG 3: Loans bearing the designation MIG 3 are of favorable quality, with all
security elements accounted for but lacking the strength of the preceding
grades.

SG: This designation denotes speculative quality. Debt instruments in this
category lack margins of protection.

SHORT-TERM DEBT RATINGS

- Leading market positions in well-established industries.

- High rates of return on funds employed.

- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.

- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

- Well-established access to a range of financial markets and assured
sources of alternate liquidity.

PRIME-3: Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations.

NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime rating
categories.

STANDARD & POOR'S RATINGS GROUP

DEBT RATINGS

AAA: An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.

AA: An obligation rated AA differs from the highest rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.

BBB: An obligation rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.

COMMERCIAL PAPER RATINGS

An S&P Commercial Paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.

A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.

MUNICIPAL NOTES

A-3
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY

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

TAXABLE BOND FUNDS
--------------------------

TAX-EXEMPT BOND FUNDS
-----------------------------

GLOBAL 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 Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential International Bond Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series
Global Utility Fund, Inc.
The Global Total Return Fund, Inc.

EQUITY FUNDS
--------------------

Prudential Balanced Fund
Prudential Distressed Securities Fund, Inc.
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Index Series Fund
Prudential Bond Market Index Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced Fund
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Mid-Cap Value Fund
Prudential Real Estate Securities Fund
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Utility Fund, Inc.
Prudential 20/20 Focus Fund
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund

MONEY MARKET FUNDS
--------------------------

B-1
<PAGE>

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FUND HIGHLIGHTS............................................................. 2
What are the Series' Risk Factors and Special Characteristics?............ 2
FUND EXPENSES............................................................... 4
FINANCIAL HIGHLIGHTS........................................................ 5
HOW THE FUND INVESTS........................................................ 8
Investment Objective and Policies......................................... 8
Other Investments and Policies............................................ 13
Investment Restrictions................................................... 14
HOW THE FUND IS MANAGED..................................................... 14
Manager................................................................... 14
Fee Waivers and Subsidy................................................... 15
Distributor............................................................... 15
Portfolio Transactions.................................................... 17
Custodian and Transfer and Dividend Disbursing Agent...................... 17
Year 2000................................................................. 17
HOW THE FUND VALUES ITS SHARES.............................................. 17
HOW THE FUND CALCULATES PERFORMANCE......................................... 18
TAXES, DIVIDENDS AND DISTRIBUTIONS.......................................... 18
GENERAL INFORMATION......................................................... 21
Description of Shares..................................................... 21
Additional Information.................................................... 21
SHAREHOLDER GUIDE........................................................... 22
How to Buy Shares of the Fund............................................. 22
Alternative Purchase Plan................................................. 23
How to Sell Your Shares................................................... 26
Conversion Feature--Class B Shares........................................ 29
How to Exchange Your Shares............................................... 30
Shareholder Services...................................................... 31
DESCRIPTION OF SECURITY RATINGS............................................. A-1
THE PRUDENTIAL MUTUAL FUND FAMILY........................................... B-1
</TABLE>

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

MF120A

Class A: 74435M-67-1
CUSIP Nos.: Class B: 74435M-68-9
Class C: 74435M-55-6

PRUDENTIAL
MUNICIPAL
SERIES FUND
- -----------

MICHIGAN SERIES

PROSPECTUS
November 2, 1998
www.prudential.com

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

[LOGO]
<PAGE>
Prudential Municipal Series Fund
(New Jersey Series)

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

PROSPECTUS DATED NOVEMBER 2, 1998

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

Prudential Municipal Series Fund (the Fund) (New Jersey Series) (the Series) is
one of thirteen series of an open-end, management investment company, or mutual
fund. This Series is diversified and is designed to provide the maximum amount
of income that is exempt from New Jersey State income tax and federal income tax
consistent with the preservation of capital and, in conjunction therewith, the
Series may invest in debt securities with the potential for capital gain. The
net assets of the Series are invested primarily in obligations within the four
highest ratings of Moody's Investors Service, Standard & Poor's Ratings Group or
another nationally recognized statistical rating organization or in unrated
obligations which, in the opinion of the Fund's investment adviser, are of
comparable quality. The Series may, however, also invest a portion of its assets
in lower-quality municipal obligations or in non-rated securities which, in the
opinion of the Fund's investment adviser, are of comparable quality. Subject to
the limitations described herein, the Series may utilize derivatives, including
buying and selling futures contracts and options thereon for the purpose of
hedging its portfolio securities. There can be no assurance that the Series'
investment objective will be achieved. See "How the Fund Invests--Investment
Objective and Policies." The Fund's address is Gateway Center Three, 100
Mulberry Street, Newark, New Jersey 07102-4077, and its telephone number is
(800) 225-1852.

This Prospectus sets forth concisely the information about the Fund and the New
Jersey Series that a prospective investor should know before investing and is
available at the Web site of the Prudential Insurance Company of America
(http://www.prudential.com). Additional information about the Fund has been
filed with the Securities and Exchange Commission (the Commission) in a
Statement of Additional Information dated November 2, 1998, which information is
incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Fund at the
address or telephone number noted above. The Commission maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference and other information regarding the Fund.

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

INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.

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

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

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

WHAT IS PRUDENTIAL MUNICIPAL SERIES FUND?

Prudential Municipal Series Fund is a mutual fund whose shares are offered
in thirteen series, each of which operates as a separate fund. A mutual fund
pools the resources of investors by selling its shares to the public and
investing the proceeds of such sale in a portfolio of securities designed to
achieve its investment objective. Technically, the Fund is an open-end,
management investment company. Only the New Jersey Series is offered through
this Prospectus.

WHAT IS THE SERIES' INVESTMENT OBJECTIVE?

The Series' investment objective is to maximize current income that is
exempt from New Jersey State and federal income taxes consistent with the
preservation of capital. It seeks to achieve this objective by investing
primarily in New Jersey State, municipal and local government obligations
and obligations of other qualifying issuers, such as issuers located in
Puerto Rico, the Virgin Islands and Guam, which pay income exempt, in the
opinion of counsel, from New Jersey State and federal income taxes (New
Jersey Obligations). There can be no assurance that the Series' investment
objective will be achieved. See "How the Fund Invests--Investment Objective
and Policies" at page 9.

WHAT ARE THE SERIES' RISK FACTORS AND SPECIAL CHARACTERISTICS?

In seeking to achieve its investment objective, the Series will invest at
least 80% of the value of its total assets in New Jersey Obligations. This
degree of investment concentration makes the Series particularly susceptible
to factors adversely affecting issuers of New Jersey Obligations. See "How
the Fund Invests--Investment Objective and Policies--Special Considerations"
at page 14. The Series may invest up to 30% of its total assets in high
yield securities, commonly known as junk bonds, which are considered
speculative and are subject to the risk of an issuer's inability to meet
principal and interest payments on the obligations as well as price
volatility. See "How the Fund Invests--Investment Objective and
Policies--Risk Factors Relating to Investing in High Yield Municipal
Obligations" at page 12. To hedge against changes in interest rates, the
Series may also purchase put options and engage in transactions involving
derivatives, including financial futures contracts and options thereon. See
"How the Fund Invests--Investment Objective and Policies--Futures Contracts
and Options Thereon" at page 13. As with an investment in any mutual fund,
an investment in this Series can decrease in value and you can lose money.

WHO MANAGES THE FUND?

Prudential Investments Fund Management LLC (PIFM or the Manager) is the
Manager of the Fund and is compensated for its services at an annual rate of
.50 of 1% of the Series' average daily net assets. As of September 30, 1998,
PIFM served as manager or administrator to 66 investment companies,
including 44 mutual funds, with aggregate assets of approximately $67
billion. The Prudential Investment Corporation (PIC, the Subadviser or the
investment adviser) furnishes investment advisory services in connection
with the management of the Fund under a Subadvisory Agreement with PIFM. See
"How the Fund is Managed--Manager" at page 16.

WHO DISTRIBUTES THE SERIES' SHARES?

Prudential Investment Management Services LLC (the Distributor) acts as
the Distributor of the Series' Class A, Class B, Class C and Class Z shares
and is paid a distribution and service fee with respect to Class A shares at
the annual rate of .25 of 1% of the average daily net assets of the Class A
shares and is paid a distribution and service fee with respect to Class B
shares at the annual rate of .50 of 1% of the average daily net assets of
the Class B shares and is paid an annual distribution and service fee with
respect to Class C shares which is currently being charged at the rate of
.75 of 1% of the average daily net assets of the Class C shares. The
Distributor incurs the expense of distributing the Series' Class Z shares
under a Distribution Agreement with the Fund, none of which is reimbursed or
paid for by the Fund. See "How the Fund is Managed--Distributor" at page 17.

2
<PAGE>
WHAT IS THE MINIMUM INVESTMENT?

HOW DO I PURCHASE SHARES?

WHAT ARE MY PURCHASE ALTERNATIVES?

The Series offers four classes of shares:

- Class A Shares: Sold with an initial sales charge of up to 3% of the
offering price.
- Class B Shares: Sold without an initial sales charge but are subject
to a CDSC (declining from 5% to zero of the lower of
the amount invested or the redemption proceeds)
which will be imposed on certain redemptions made
within six years of purchase. Although Class B
shares are subject to higher ongoing
distribution-related expenses than Class A shares,
Class B shares will automatically convert to Class A
shares (which are subject to lower ongoing
distribution-related expenses) approximately seven
years after purchase.
- Class C Shares: Sold with an initial sales charge of 1% of the
offering price and are also subject to a CDSC of 1%
on redemptions for a period of 18 months after
purchase. Class C shares are subject to higher
ongoing distribution-related expenses than Class A
shares but, unlike Class B shares, do not convert to
another class.
- Class Z Shares: Sold without either an initial sales charge or CDSC
to a limited group of investors. Class Z shares are
not subject to any ongoing service or
distribution-related expenses.

See "Shareholder Guide--Alternative Purchase Plan" at page 25.

HOW DO I SELL MY SHARES?

HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?

3
<PAGE>
FUND EXPENSES
(NEW JERSEY SERIES)

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES+
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price)................ 3% None 1% None
Maximum Deferred Sales Load (as a percentage
of original purchase price or redemption
proceeds, whichever is lower)................ None 5% during the 1% on None
first year, redemptions
decreasing by made within 18
1% annually to months of
1% in the purchase
fifth and
sixth years
and 0% the
seventh year*
Maximum Sales Load Imposed on Reinvested
Dividends.................................... None None None None
Redemption Fees............................... None None None None
Exchange Fee.................................. None None None None
</TABLE>

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
-------------- -------------- -------------- -----------------
<S> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees............................... .50% .50% .50% .50%
12b-1 Fees (After Reduction).................. .25++ .50 .75++ None
Other Expenses................................ .11 .11 .11 .11
--
--- --- ---
Total Fund Operating Expenses (After
Reduction)................................... .86% 1.11% 1.36% .61%
--
--
--- --- ---
--- --- ---
</TABLE>

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
EXAMPLE
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period:
Class A....................................... $ 39 $ 57 $ 76 $ 133
Class B....................................... $ 61 $ 65 $ 71 $ 125
Class C....................................... $ 34 $ 43 $ 74 $ 162
Class Z....................................... $ 6 $ 20 $ 34 $ 76
You would pay the following expenses on the same
investment, assuming no redemption:
Class A....................................... $ 39 $ 57 $ 76 $ 133
Class B....................................... $ 11 $ 35 $ 61 $ 125
Class C....................................... $ 24 $ 43 $ 74 $ 162
Class Z....................................... $ 6 $ 20 $ 34 $ 76
</TABLE>

THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

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

* Class B shares will automatically convert to Class A shares approximately
seven years after purchase. See "Shareholder Guide--Conversion Feature--
Class B Shares."

++ Although the Class A and Class C Distribution and Service Plans provide that
the Fund may pay a distribution fee of up to .30 of 1% and 1% per annum
of the average daily net assets of the Class A and Class C shares,
respectively, the Distribution may voluntarily limit its distribution
fees. Presently the Distributor limits its distribution fees with respect
to the Class A and Class C shares of the Series to no more than .10 of 1%
and .75 of 1% of the average daily net asset value of the Class A and
Class C shares, respectively. This voluntary limitation may be modified
or terminated at any time without notice. The Distributor anticipates
modifying its present limitation for Class A shares so that, in the
future, the Fund will pay distribution fees of .25% with respect to such
shares. Total Fund Operating Expenses of the Class A and Class C shares
without any limitations would be .91% and 1.61%, respectively. See "How
the Fund is Managed--Distributor."

4
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH OF THE INDICATED
PERIODS)
(CLASS A SHARES)

The following financial highlights, for the two years ended August 31, 1998,
have been audited by PricewaterhouseCoopers LLP, independent accountants, and
for the three years ended August 31, 1996 have been audited by other independent
auditors. All such audit reports were unqualified. This information should be
read in conjunction with the financial statements and the notes thereto, which
appear in the Statement of Additional Information. The following financial
highlights contain selected data for a Class A share of beneficial interest
outstanding, total return, ratios to average net assets and other supplemental
data for the periods indicated. This information is based on data contained in
the financial statements. Further performance information is contained in the
annual report, which may be obtained without charge. See "Shareholder
Guide--Shareholder Services--Reports to Shareholders."

<TABLE>
<CAPTION>
CLASS A JANUARY
-------------------------------------------------------------------------- 22,
1990 (a)
YEAR ENDED AUGUST 31, THROUGH
-------------------------------------------------------------------------- AUGUST
1998 1997 1996 1995 1994 1993 1992 1991 31, 1990
----- ----- ----- ----- ----- ----- ------ ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>

PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of
period............ $10.97 $10.87 $10.98 $10.81 $11.74 $11.15 $10.73 $10.16 $10.30
----- ----- ----- ----- ----- ----- ------ ----- ---------

INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income............ .53 .55(c) .57(c) .61(c) .61(c) .64(c) .67(c) .69(c) .41(c)
Net realized and
unrealized gain
(loss) on
investment
transactions...... .36 .29 (.07) .17 (.75) .71 .51 .59 (.14)
----- ----- ----- ----- ----- ----- ------ ----- ---------
Total from
investment
operations........ .89 .84 .50 .78 (.14) 1.35 1.18 1.28 .27
----- ----- ----- ----- ----- ----- ------ ----- ---------

LESS DISTRIBUTIONS
Dividends from net
investment
income............ (.53) (.55) (.57) (.61) (.61) (.64) (.67) (.69) (.41)
Distributions from
net realized
gains............. (.02) (.19) (.04) -- (.18) (.12) (.09) (.02) --
----- ----- ----- ----- ----- ----- ------ ----- ---------
Total
distributions..... (.55) (.74) (.61) (.61) (.79) (.76) (.76) (.71) (.41)
----- ----- ----- ----- ----- ----- ------ ----- ---------
Net asset value, end
of period......... $11.31 $10.97 $10.87 $10.98 $10.81 $11.74 $11.15 $10.73 $10.16
----- ----- ----- ----- ----- ----- ------ ----- ---------
----- ----- ----- ----- ----- ----- ------ ----- ---------

TOTAL RETURN (d):... 8.40% 7.97% 4.63% 7.55% (1.27)% 12.57% 11.35% 12.96% 2.70%

RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000)...... $114,090 $95,729 $74,492 $49,666 $14,774 $15,501 $11,941 $8,041 $3,616
Average net assets
(000)............. $107,206 $89,280 $61,837 $30,290 $15,334 $13,444 $9,759 $5,637 $1,902
Ratios to average
net assets:
Expenses,
including
distribution
fees............. .71% .70%(c) .67%(c) .55%(c) .58%(c) .61%(c) .48%(c) .29%(c) .20%(b)(c)
Expenses,
excluding
distribution
fees............. .61% .60%(c) .57%(c) .45%(c) .48%(c) .51%(c) .38%(c) .19%(c) .10%(b)(c)
Net investment
income........... 4.85% 5.03%(c) 5.19%(c) 5.65%(c) 5.42%(c) 5.63%(c) 6.14%(c) 6.58%(c) 6.79%(b)(c)
Portfolio turnover
rate.............. 18% 25% 62% 37% 34% 32% 38% 116% 87%
</TABLE>

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

(a) Commencement of offering of Class A shares.

(b) Annualized.

(c) Net of management and/or distribution fee waiver. Effective September
1, 1997, PIFM eliminated its management fee waiver (.05 of 1%).

5
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH OF THE INDICATED
PERIODS)
(CLASS B SHARES)

The following financial highlights, for the two years ended August 31, 1998,
have been audited by PricewaterhouseCoopers LLP, independent accountants, and
for the three years ended August 31, 1996 have been audited by other independent
auditors. All such audit reports were unqualified. This information should be
read in conjunction with the financial statements and the notes thereto, which
appear in the Statement of Additional Information. The following financial
highlights contain selected data for a Class B share of beneficial interest
outstanding, total return, ratios to average net assets and other supplemental
data for the periods indicated. This information is based on data contained in
the financial statements. Further performance information is contained in the
annual report, which may be obtained without charge. See "Shareholder
Guide--Shareholder Services--Reports to Shareholders."

<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 (b)
------- ------- ------- ------- ------- ------- ------- ------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

PER SHARE
OPERATING
PERFORMANCE:
Net asset
value,
beginning of
year......... $ 10.97 $ 10.87 $ 10.98 $ 10.81 $ 11.74 $ 11.15 $ 10.73 $ 10.16 $10.33 $9.95
------- ------- ------- ------- ------- ------- ------- ------- ------ -----
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income....... .50 .50(a) .53(a) .57(a) .56(a) .59(a) .63(a) .65(a) .67(a) .73(a)
Net realized
and
unrealized
gain (loss)
on investment
transactions... .36 .29 (.07) .17 (.75) .71 .51 .59 (.14) .38
------- ------- ------- ------- ------- ------- ------- ------- ------ -----
Total from
investment
operations... .86 .79 .46 .74 (.19) 1.30 1.14 1.24 .53 1.11
------- ------- ------- ------- ------- ------- ------- ------- ------ -----
LESS
DISTRIBUTIONS
Dividends from
net
investment
income....... (.50) (.50) (.53) (.57) (.56) (.59) (.63) (.65) (.67) (.73)
Distributions
from net
realized
gains........ (.02) (.19) (.04) -- (.18) (.12) (.09) (.02) (.03) --
------- ------- ------- ------- ------- ------- ------- ------- ------ -----
Total
distributions... (.52) (.69) (.57) (.57) (.74) (.71) (.72) (.67) (.70) (.73)
------- ------- ------- ------- ------- ------- ------- ------- ------ -----
Net asset
value, end of
year......... $ 11.31 $ 10.97 $ 10.87 $ 10.98 $ 10.81 $ 11.74 $ 11.15 $ 10.73 $10.16 $10.33
------- ------- ------- ------- ------- ------- ------- ------- ------ -----
------- ------- ------- ------- ------- ------- ------- ------- ------ -----
TOTAL RETURN
(c):......... 7.97% 7.54% 4.22% 7.12% (1.67)% 12.12% 10.93% 12.52% 5.28% 11.48%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end
of year
(000)........ $117,099 $144,992 $188,315 $246,202 $323,077 $351,878 $295,781 $244,322 $180,636 $125,650
Average net
assets
(000)........ $128,382 $162,330 $222,235 $274,995 $343,941 $316,372 $269,318 $208,893 $155,162 $79,269
Ratios to
average net
assets:
Expenses,
including
distribution
fees........ 1.11% 1.10%(a) 1.07%(a) .95%(a) .98%(a) 1.01%(a) .88%(a) .69%(a) .50%(a) .20%(a)
Expenses,
excluding
distribution
fees........ .61% .60%(a) .57%(a) .45%(a) .48%(a) .51%(a) .38%(a) .19%(a) .10%(a) .14%(a)
Net
investment
income...... 4.46% 4.64%(a) 4.80%(a) 5.30%(a) 5.02%(a) 5.23%(a) 5.74%(a) 6.18%(a) 6.50%(a) 6.55%(a)
Portfolio
turnover
rate......... 18% 25% 62% 37% 34% 32% 38% 116% 87% 20%
</TABLE>

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

(a) Net of expense subsidy and management and/or distribution fee waiver.
Effective September 1, 1997, PIFM eliminated its management fee
waiver (.05 of 1%).

(b) On December 31, 1988, Prudential Mutual Fund Management, Inc.
succeeded The Prudential Insurance Company of America as manager of
the Fund.

6
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH OF THE INDICATED
PERIODS)
(CLASS C SHARES)

The following financial highlights, for the two years ended August 31, 1998,
have been audited by PricewaterhouseCoopers LLP, independent accountants, and
for the two years ended August 31, 1996 and the period August 1, 1994 through
August 31, 1994 have been audited by other independent auditors. All such audit
reports were unqualified. This information should be read in conjunction with
the financial statements and the notes thereto, which appear in the Statement of
Additional Information. The following financial highlights contain selected data
for a Class C share of beneficial interest outstanding, total return, ratios to
average net assets and other supplemental data for the periods indicated. This
information is based on data contained in the financial statements. Further
performance information is contained in the annual report, which may be obtained
without charge. See "Shareholder Guide--Shareholder Services--Reports to
Shareholders."

<TABLE>
<CAPTION>
CLASS C
----------------------------------------------- AUGUST 1,
1994 (a)
YEAR ENDED AUGUST 31, THROUGH
----------------------------------------------- AUGUST 31,
1998 1997 1996 1995 1994
-------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...... $ 10.97 $ 10.87 $ 10.98 $ 10.81 $ 10.83
-------- -------- -------- -------- ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income..................... .47 .48(c) .50(c) .54(c) .04(c)
Net realized and unrealized gain (loss) on
investment transactions................. .36 .29 (.07) .17 (.02)
-------- -------- -------- -------- ------
Total from investment operations.......... .83 .77 .43 .71 .02
-------- -------- -------- -------- ------
LESS DISTRIBUTIONS
Dividends from net investment income...... (.47) (.48) (.50) (.54) (.04)
Distributions from net realized gains..... (.02) (.19) (.04) -- --
-------- -------- -------- -------- ------
Total distributions....................... (.49) (.67) (.54) (.54) (.04)
-------- -------- -------- -------- ------
Net asset value, end of period............ $ 11.31 $ 10.97 $ 10.87 $ 10.98 $ 10.81
-------- -------- -------- -------- ------
-------- -------- -------- -------- ------
TOTAL RETURN (d):......................... 7.70% 7.27% 3.96% 6.86% 0.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........... $ 1,354 $ 1,637 $ 1,961 $ 1,502 $ 240
Average net assets (000).................. $ 1,274 $ 1,894 $ 1,735 $ 790 $ 11
Ratios to average net assets:
Expenses, including distribution fee.... 1.36% 1.35%(c) 1.32%(c) 1.20%(c) 1.29%(b)(c)
Expenses, excluding distribution fee.... .61% .60%(c) .57%(c) .45%(c) .54%(b)(c)
Net investment income................... 4.21% 4.39%(c) 4.54%(c) 4.99%(c) 5.06%(b)(c)
Portfolio turnover rate................... 18% 25% 62% 37% 34%
</TABLE>

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

(a) Commencement of offering of Class C shares.

(b) Annualized.

(d) Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment of
dividends and distributions. Total returns for periods of less than a
full year are not annualized.

7
<PAGE>

FINANCIAL HIGHLIGHTS
(FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE PERIOD INDICATED)
(CLASS Z SHARES)

<TABLE>
<CAPTION>
CLASS Z
-------------------------------
DECEMBER 6,
1996 (a)
YEAR ENDED THROUGH
AUGUST 31, AUGUST 31,
1998 1997
-------------- --------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period... $ 10.98 $ 11.10
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. .55 .41(d)
Net realized and unrealized gain (loss)
on investment transactions............. .36 .07
------ ------
Total from investment operations....... .91 .48
------ ------
LESS DISTRIBUTIONS
Dividends from net investment income... (.55) (.41)
Distributions from net realized gains
on investment transactions........... (.02) (.19)
------ ------
Total distributions.................... (.57) (.60)
------ ------
Net asset value, end of period......... $ 11.32 $ 10.98
------ ------
------ ------
TOTAL RETURN (B):...................... 8.51% 4.49%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........ $ 92 $ 15
Average net assets (000)............... $ 30 $ 10
Ratios to average net assets:
Expenses............................. .61% .60%(c)(d)
Net investment income................ 4.96% 5.13%(c)(d)
Portfolio turnover rate................ 18% 25%
</TABLE>

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

(a) Commencement of offering of Class Z shares.

(b) Total return is calculated assuming a purchase of shares on the first
day and a sale on the last day of the period reported and includes
reinvestment of dividends and distributions. Total returns for periods
of less than a full year are not annualized.

(d) Net of management fee waiver. Effective September 1, 1997, PIFM
eliminated its management fee waiver (.05 of 1%).

8
<PAGE>
HOW THE FUND INVESTS

INVESTMENT OBJECTIVE AND POLICIES

THE SERIES WILL INVEST PRIMARILY IN NEW JERSEY STATE, MUNICIPAL AND LOCAL
GOVERNMENT OBLIGATIONS AND OBLIGATIONS OF OTHER QUALIFYING ISSUERS, SUCH AS
ISSUERS LOCATED IN PUERTO RICO, THE VIRGIN ISLANDS AND GUAM, WHICH PAY INCOME
EXEMPT, IN THE OPINION OF COUNSEL, FROM NEW JERSEY STATE INCOME TAX AND FEDERAL
INCOME TAX (NEW JERSEY OBLIGATIONS). THERE CAN BE NO ASSURANCE THAT THE SERIES
WILL BE ABLE TO ACHIEVE ITS INVESTMENT OBJECTIVE.

As with an investment in any mutual fund, an investment in this Series can
decrease and you can lose money.

Interest on certain municipal obligations may be a preference item for
purposes of the federal alternative minimum tax. The Series may invest without
limit in municipal obligations that are private activity bonds (as defined in
the Internal Revenue Code) the interest on which would be a preference item for
purposes of the federal alternative minimum tax. See "Taxes, Dividends and
Distributions." Under New Jersey law, as long as the Series qualifies as a
qualified investment fund, dividends paid by the Series are exempt from New
Jersey income tax for resident individuals and New Jersey trusts and estates to
the extent such dividends are derived from interest payments on and gain
realized from the sale or exchange of New Jersey Obligations and other
obligations exempt from State and local taxation by the laws of New Jersey or
the United States. New Jersey Obligations could include general obligation bonds
of the State, counties, cities, towns, etc., revenue bonds of utility systems,
highways, bridges, port and airport facilities, colleges, hospitals, etc., and
industrial development and pollution control bonds. The Series will invest in
long-term obligations, and the dollar-weighted average maturity of the Series'
portfolio will generally range between 10-20 years. The Series also may invest
in certain short-term, tax-exempt notes such as Tax Anticipation Notes, Revenue
Anticipation Notes, Bond Anticipation Notes, Construction Loan Notes and
variable and floating rate demand notes.

9
<PAGE>
obligation on short notice at par plus accrued interest, which amount may be
more or less than the amount the Series paid for them. An inverse floater is a
debt instrument with a floating or variable interest rate that moves in the
opposite direction of the interest rate on another security or the value of an
index. Changes in the interest rate on the other security or index inversely
affect the residual interest rate paid on the inverse floater, with the result
that the inverse floater's price will be considerably more volatile than that of
a fixed rate bond. The market for inverse floaters is relatively new.

THE SERIES WILL INVEST AT LEAST 70% OF ITS TOTAL ASSETS IN NEW JERSEY
OBLIGATIONS WHICH, AT THE TIME OF PURCHASE, ARE RATED WITHIN THE FOUR HIGHEST
QUALITY GRADES AS DETERMINED BY MOODY'S INVESTORS SERVICE (MOODY'S) (CURRENTLY
Aaa, Aa, A, Baa FOR BONDS, MIG 1, MIG 2, MIG 3, MIG 4 FOR NOTES AND PRIME-1 FOR
COMMERCIAL PAPER), STANDARD & POOR'S RATINGS GROUP (S&P) (CURRENTLY AAA, AA, A,
BBB FOR BONDS, SP-1, SP-2 FOR NOTES AND A-1 FOR COMMERCIAL PAPER) OR ANOTHER
NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO) OR, IF UNRATED,
WILL POSSESS CREDITWORTHINESS, IN THE OPINION OF THE INVESTMENT ADVISER,
COMPARABLE TO SUCH INVESTMENT GRADE RATED SECURITIES.

THE SERIES MAY ALSO INVEST UP TO 30% OF ITS TOTAL ASSETS IN NEW JERSEY
OBLIGATIONS RATED BELOW Baa BY MOODY'S OR BELOW BBB BY S&P OR A COMPARABLE
RATING OF ANOTHER NRSRO OR, IF NON-RATED, OF COMPARABLE QUALITY, IN THE OPINION
OF THE FUND'S INVESTMENT ADVISER, BASED ON ITS CREDIT ANALYSIS. Securities rated
Baa by Moody's and BBB by S&P are described as being investment grade but are
also characterized as having speculative characteristics. Securities rated below
Baa by Moody's and below BBB by S&P are considered speculative. See "Description
of Security Ratings" in the Appendix. Such lower-rated high yield securities are
commonly referred to as junk bonds. Such securities generally offer a higher
current yield than those in the higher rating categories but may also involve
greater price volatility and risk of loss of principal and income. The
investment advisor will attempt to manage risk and enhance yield through credit
analysis and careful security selection. See "Risk Factors Relating to Investing
in High Yield Municipal Obligations" below. Subsequent to its purchase by the
Series, a municipal obligation may be assigned a lower rating or cease to be
rated. Such an event would not require the elimination of the issue from the
portfolio, but the investment adviser will consider such an event in determining
whether the Series should continue to hold the security in its portfolio. Many
issuers of lower-quality bonds choose not to have their obligations rated and
the Series may invest in such unrated securities. Investors should carefully
consider the relative risks associated with investments in securities which
carry lower ratings and in comparable non-rated securities.

10
<PAGE>

During the year ended August 31, 1998, 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>
PERCENTAGE OF
RATINGS TOTAL INVESTMENTS
------------------------------ -------------------------
<S> <C>
AAA/Aaa 67.80 %
AA/Aa 13.02 %
A/A 5.12 %
BBB/Baa 4.00 %
Unrated
AAA/Aaa 2.51 %
BBB/Baa .75 %
BB 5.14 %
B 1.66 %
</TABLE>

From time to time, the Series may own the majority of a municipal issue. Such
majority-owned holdings may present market and credit risks.

The Series may purchase New Jersey Obligations which, in the opinion of the
investment adviser, offer the opportunity for capital appreciation. This may
occur, for example, when the investment adviser believes that the issuer of a
particular New Jersey Obligation might receive an upgraded credit standing,
thereby increasing the market value of the bonds it has issued or when the
investment adviser believes that interest rates might decline.

UNDER NORMAL MARKET CONDITIONS, THE SERIES WILL ATTEMPT TO INVEST
SUBSTANTIALLY ALL OF THE VALUE OF ITS ASSETS IN NEW JERSEY OBLIGATIONS. As a
matter of fundamental policy, during normal market conditions the Series' assets
will be invested so that at least 80% of its total assets will be invested in
New Jersey Obligations. During abnormal market conditions or to provide
liquidity, the Series may hold cash or cash equivalents or investment grade
taxable obligations, including obligations that are exempt from federal, but not
state, taxation and the Series may invest in tax-free cash equivalents, such as
floating rate demand notes, tax-exempt commercial paper and general obligation
and revenue notes, or in taxable cash equivalents, such as certificates of
deposit, bankers acceptances and time deposits or other short-term taxable
investments such as repurchase agreements. When, in the opinion of the
investment adviser, abnormal market conditions require a temporary defensive
position, the Series may invest more than 20% of the value of its assets in debt
securities other than New Jersey Obligations or may invest its assets so that
more than 20% of the income is subject to New Jersey or federal income taxes.
However, the Series must invest at least 80% of the aggregate principal amount
of all its investments (excluding cash, cash items and receivables, and
financial options, futures, forward contracts, or other similar financial
instruments related to interest-bearing obligations, obligations issued at a
discount or bond indices related thereto that are related to the Series'
business of investing in securities (Related Financial Instruments)) in
obligations exempt from New Jersey personal income tax in order for its
distributions to remain exempt from such tax. The Series will treat an
investment in a municipal bond refunded with escrowed U.S. Government securities
as U.S. Government securities for purposes of the Investment Company Act's
diversification requirements provided certain conditions are met. See
"Investment Objectives and Policies--In General" in the Statement of Additional
Information.

If the Series fails to qualify as a qualified investment fund under New Jersey
law, distributions to its shareholders will be subject to New Jersey income tax.
To meet the requirements for a qualified investment fund, the Series must have
100% of its investments in interest bearing obligations, obligations issued at a
discount, cash and cash items, including receivables, and Related Financial
Instruments.

11
<PAGE>

interest rate fluctuations or, in the case of liquidity puts, for the purpose of
shortening the effective maturity of the underlying security. The aggregate
value of premiums paid to acquire puts held in the Series' portfolio (other than
liquidity puts) may not exceed 10% of the NAV of the Series. The acquisition of
a put may involve an additional cost to the Series by payment of a premium for
the put, by payment of a higher purchase price for securities to which the put
is attached or through a lower effective interest rate.

In addition, there is a credit risk associated with the purchase of puts in
that the issuer of the put may be unable to meet its obligation to purchase the
underlying securities. Accordingly, the Series will acquire puts only under the
following circumstances: (1) the put is written by the issuer of the underlying
security and such security is rated within the four highest quality grades as
determined by an NRSRO; or (2) the put is written by a person other than the
issuer of the underlying security and such person has securities outstanding
which are rated within such four highest quality grades; or (3) the put is
backed by a letter of credit or similar financial guarantee issued by a person
having securities outstanding which are rated within the two highest quality
grades of an NRSRO.

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

THE SERIES MAY PURCHASE SECONDARY MARKET INSURANCE ON NEW JERSEY OBLIGATIONS
WHICH IT HOLDS OR ACQUIRES. Secondary market insurance would be reflected in the
market value of the municipal obligation purchased and may enable the Series to
dispose of a defaulted obligation at a price similar to that of comparable
municipal obligations which are not in default.

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

12
<PAGE>
investment adviser. The investment adviser will consider, among other things,
credit risk and market risk, as well as the financial history and condition, the
prospects and the management of an issuer in selecting securities for the
Series' portfolio. The achievement of the Series' investment objective may be
more dependent on the investment adviser's credit analysis than is the case when
investing in only higher quality bonds. Investors should carefully consider the
relative risks of investing in high yield municipal obligations and understand
that such securities are not generally meant for short-term investing and that
yields on junk bonds will fluctuate over time.

The amount of high yield securities outstanding has proliferated recently in
conjunction with the decline in creditworthiness of many obligors on municipal
debt, particularly health care providers and certain governmental bodies. An
economic downturn could severely affect the ability of highly leveraged issuers
to service their debt obligations or to repay their obligations upon maturity.
In addition, the secondary market for high yield securities, which is
concentrated in relatively few market makers, may not be as liquid as the
secondary market for more highly rated securities and, from time to time, it may
be more difficult to value high yield securities than more highly rated
securities, and the judgment of the Board of Trustees and the investment adviser
may play a greater role in valuation because there is less reliable objective
data available. Under adverse market or economic conditions, the secondary
market for high yield securities could contract further, independent of any
specific adverse changes in the condition of a particular issuer. As a result,
the investment adviser could find it more difficult to sell these securities or
may be able to sell the securities only at prices lower than if such securities
were widely traded. Prices realized upon the sale of such lower rated or unrated
securities, under these circumstances, may be less than the prices used in
calculating the Series' NAV. If the investment adviser becomes involved in
activities such as reorganizations of obligors of troubled investments held by
the Series, this may prevent the Series from disposing of the securities, due to
its possession of material, non-public information concerning the obligor.

FUTURES CONTRACTS AND OPTIONS THEREON

THE SERIES IS AUTHORIZED TO PURCHASE AND SELL CERTAIN DERIVATIVES, INCLUDING
FINANCIAL FUTURES CONTRACTS (FUTURES CONTRACTS) AND OPTIONS THEREON. THE SERIES
MAY PURCHASE AND SELL FUTURES CONTRACTS AND OPTIONS THEREON TO THE EXTENT THEY
ARE RELATED FINANCIAL INSTRUMENTS FOR THE PURPOSE OF HEDGING ITS PORTFOLIO
SECURITIES AGAINST FLUCTUATIONS IN VALUE CAUSED BY CHANGES IN PREVAILING MARKET
INTEREST RATES AND HEDGING AGAINST INCREASES IN THE COST OF SECURITIES THE
SERIES INTENDS TO PURCHASE. THE SUCCESSFUL USE OF FUTURES CONTRACTS AND OPTIONS
THEREON BY THE SERIES INVOLVES ADDITIONAL TRANSACTION COSTS, IS SUBJECT TO
VARIOUS RISKS AND DEPENDS UPON THE INVESTMENT ADVISER'S ABILITY TO PREDICT THE
DIRECTION OF THE MARKET (INCLUDING INTEREST RATES). THE SERIES, AND THUS
INVESTORS, MAY LOSE MONEY THROUGH ANY UNSUCCESSFUL USE OF THESE STRATEGIES.

13
<PAGE>

PURCHASE, IN ACCORDANCE WITH THE RULES AND REGULATIONS OF THE COMMODITY FUTURES
TRADING COMMISSION (CFTC). The Series also intends to engage in such
transactions when they are economically appropriate for the reduction of risks
inherent in the ongoing management of the Series.

SPECIAL CONSIDERATIONS

BECAUSE THE SERIES WILL INVEST AT LEAST 80% OF THE VALUE OF ITS TOTAL ASSETS
IN NEW JERSEY OBLIGATIONS AND BECAUSE IT SEEKS TO MAXIMIZE INCOME DERIVED FROM
NEW JERSEY OBLIGATIONS, IT IS MORE SUSCEPTIBLE TO FACTORS ADVERSELY AFFECTING
ISSUERS OF NEW JERSEY OBLIGATIONS THAN IS A COMPARABLE MUNICIPAL BOND MUTUAL
FUND THAT IS NOT CONCENTRATED IN SUCH OBLIGATIONS TO THIS DEGREE. The favorable
economy in New Jersey has been producing strong revenue growth. New Jersey
estimates finishing fiscal year 1998 with total revenue of $16.9 billion, $610
million more than anticipated when revenues were certified by the Governor in
June 1997. The three largest taxes, gross income, sales and use, and corporate
business, account for

14
<PAGE>

67 percent of total revenue and are forecast to yield $11.4 billion, an increase
of $507 million from that estimated in June 1997. Revenues for fiscal year 1999
are expected to increase more modestly as the national economy slows to more
sustainable long-run growth levels.

For the last six fiscal years, the State has used non-recurring revenues and
expenditure deferrals to balance its budget. The estimated undesignated balances
was $1.1 billion for the end of fiscal year 1998 budget. The 1999 budget
includes appropriations totalling $18.1 billion, up $1.1 billion or 6 percent
from fiscal year 1998. The State anticipates revenues of $17.7 billion in fiscal
year 1999 and a structural deficit of less than $400 million. The structural
deficit has been decreasing since fiscal year 1994, when it was $1.586 billion.

As of August 1998, two major bond rating services, Moody's and Fitch, each had
rated New Jersey general obligation bonds Aa1 and AA+, respectively. In
September 1998, Moody's upgraded from "negative" to "stable" its outlook of New
Jersey's general creditworthiness, in part because the State Supreme Court did
not order a massive increase in school funding earlier in 1998.

OTHER INVESTMENTS AND POLICIES

REPURCHASE AGREEMENTS

BORROWING

PORTFOLIO TURNOVER

ILLIQUID SECURITIES

15
<PAGE>

1933, as amended (the Securities Act), privately placed commercial paper and
municipal lease obligations, that have a readily available market are not
considered illiquid for purposes of this limitation. The investment adviser will
monitor the liquidity of such restricted securities under the supervision of the
Trustees. The Series' investment in Rule 144A securities could have the effect
of increasing illiquidity to the extent that qualified institutional buyers
become, for a limited time, uninterested in purchasing Rule 144A securities. See
"Investment Objectives and Policies--Illiquid Securities" and "Investment
Restrictions" in the Statement of Additional Information. Repurchase agreements
subject to demand are deemed to have a maturity equal to the notice period.

INVESTMENT RESTRICTIONS

HOW THE FUND IS MANAGED

For the year ended August 31, 1998, total expenses of the Series as a
percentage of average net assets, net of management fee waivers, were .71%,
1.11%, 1.36% and .61% for the Series' Class A, Class B, Class C and Class Z
shares, respectively. See "Financial Highlights" above and "Fee Waivers and
Subsidy" below.

MANAGER

PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM OR THE MANAGER), GATEWAY
CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077, IS THE MANAGER
OF THE FUND AND IS COMPENSATED FOR ITS SERVICES AT AN ANNUAL RATE OF .50 OF 1%
OF THE AVERAGE DAILY NET ASSETS OF THE SERIES. PIFM is organized in New York as
a limited liability company. For the fiscal year ended August 31, 1998, the
Series paid PIFM a management fee of .50 of 1% of the Series' average net
assets. See "Fee Waivers and Subsidy" below and "Manager" in the Statement of
Additional Information.

UNDER A SUBADVISORY AGREEMENT BETWEEN PIFM AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC, THE SUBADVISER OR THE INVESTMENT ADVISER), THE SUBADVISER
FURNISHES INVESTMENT ADVISORY SERVICES IN CONNECTION WITH THE MANAGEMENT OF THE
FUND AND IS REIMBURSED BY PIFM FOR ITS REASONABLE COSTS AND EXPENSES INCURRED IN
PROVIDING SUCH SERVICES. PIC's address is Prudential Plaza, Newark, New Jersey
07102-3777. Under the Management Agreement, PIFM continues to have
responsibility for all investment advisory services and supervises the
Subadviser's performance of such services.

16
<PAGE>

The current portfolio managers of the Series are Peter Allegrini and Scott
Diamond, who share responsibility for the day-to-day management of the Series'
portfolio. They have managed the portfolio since October 1997. From 1982 to
1986, Mr. Allegrini was employed by Fidelity Investments as a senior bond
analyst and, from 1986 to 1994, he was a portfolio manager, most recently of
Fidelity Advisor High Income Municipal Fund and has been employed by PIC in
various capacities since 1993. Scott Diamond has been employed by PIC in various
capacities since 1993.

FEE WAIVERS AND SUBSIDY

PIFM may from time to time waive its management fee or a portion thereof and
subsidize all or a portion of the operating expenses of the Series. Fee waivers
and expense subsidies will increase the Series' yield and total return. The
Series is not required to reimburse PIFM for such management fee waiver or
expense subsidy. See "Performance Information" in the Statement of Additional
Information and "Fund Expenses."

DISTRIBUTOR

17
<PAGE>

service fee of .25 of 1%) may not exceed .30 of 1% of the average daily net
assets of the Class A shares. The Distributor has voluntarily limited its
distribution-related fees payable under the Class A Plan to .10 of 1% of the
average daily net assets of the Class A shares. This voluntary waiver may be
modified or terminated at any time without notice.

UNDER THE CLASS B AND CLASS C PLANS, THE SERIES MAY PAY THE DISTRIBUTOR FOR
ITS DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS B AND CLASS C SHARES
AT AN ANNUAL RATE OF UP TO .50 OF 1% AND UP TO 1% OF THE AVERAGE DAILY NET
ASSETS OF THE CLASS B AND CLASS C SHARES, RESPECTIVELY. The Class B Plan
provides for the payment to the Distributor of (i) an asset-based sales charge
of up to .50 of 1% of the average daily net assets of the Class B shares, and
(ii) a service fee of up to .25 of 1% of the average daily net assets of the
Class B shares; provided that the total distribution-related fee does not exceed
.50 of 1%. The Class C Plan provides for the payment to the Distributor of (i)
an asset-based sales charge of up to .75 of 1% of the average daily net assets
of the Class C shares, and (ii) a service fee of up to .25 of 1% of the average
daily net assets of the Class C shares. The service fee is used to pay for
personal service and/or the maintenance of shareholder accounts. The Distributor
has voluntarily limited its distribution-related fees payable under the Class C
Plan to .75 of 1% of the average daily net assets of the Class C shares. This
voluntary waiver may be modified or terminated at any time without notice. The
Distributor also receives CDSC's from certain redeeming shareholders. See
"Shareholder Guide--How to Sell Your Shares--Contingent Deferred Sales Charges."

PORTFOLIO TRANSACTIONS

18
<PAGE>
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT

YEAR 2000

HOW THE FUND VALUES ITS SHARES

THE SERIES' NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING ITS
LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. NAV IS CALCULATED SEPARATELY FOR EACH CLASS. THE
TRUSTEES HAVE FIXED THE SPECIFIC TIME OF DAY FOR THE COMPUTATION OF THE NAV OF
THE SERIES TO BE AS OF 4:15 P.M., NEW YORK TIME.

19
<PAGE>
HOW THE FUND CALCULATES PERFORMANCE

FROM TIME TO TIME THE FUND MAY ADVERTISE THE YIELD, TAX EQUIVALENT YIELD AND
AVERAGE ANNUAL TOTAL RETURN AND AGGREGATE TOTAL RETURN) OF THE SERIES IN
ADVERTISEMENTS OR SALES LITERATURE. YIELD, TAX EQUIVALENT YIELD AND TOTAL RETURN
ARE CALCULATED SEPARATELY FOR CLASS A, CLASS B, CLASS C AND CLASS Z SHARES.
THESE FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE
FUTURE PERFORMANCE. The yield refers to the income generated by an investment in
the Series over a one-month or 30-day period. This income is then annualized;
that is, the amount of income generated by the investment during that 30-day
period is assumed to be generated each 30-day period for twelve periods and is
shown as a percentage of the investment. The income earned on the investment is
also assumed to be reinvested at the end of the sixth 30-day period. The tax
equivalent yield is calculated similarly to the yield, except that the yield is
increased using a stated income tax rate to demonstrate the taxable yield
necessary to produce an after-tax yield equivalent to the Series. The total
return shows how much an investment in the Series would have increased
(decreased) over a specified period of time (I.E., one, five or ten years or
since inception of the Series) assuming that all distributions and dividends by
the Series were reinvested on the reinvestment dates during the period and less
all recurring fees. The aggregate total return reflects actual performance over
a stated period of time. Average annual total return is a hypothetical rate of
return that, if achieved annually, would have produced the same aggregate total
return if performance had been constant over the entire period. Average annual
total return smooths out variations in performance and takes into account any
applicable initial or contingent deferred sales charges. Neither average annual
total return nor aggregate total return takes into account any federal or state
income taxes which may be payable upon redemption. The Fund also may include
comparative performance information in advertising or marketing the shares of
the Series. Such performance information may include data from Lipper Analytical
Services, Inc., Morningstar Publications, Inc., other industry publications,
business periodicals and market indices. See "Performance Information" in the
Statement of Additional Information. Further performance information is
contained in the Series' annual and semi-annual reports to shareholders, which
may be obtained without charge. See "Shareholder Guide--Shareholder
Services--Reports to Shareholders."

TAXES, DIVIDENDS AND DISTRIBUTIONS

TAXATION OF THE FUND

THE SERIES HAS QUALIFIED AND INTENDS TO REMAIN QUALIFIED AS A REGULATED
INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE. ACCORDINGLY, THE SERIES WILL
NOT BE SUBJECT TO FEDERAL INCOME TAXES ON ITS NET INVESTMENT INCOME AND NET
CAPITAL GAINS, IF ANY, THAT IT DISTRIBUTES TO ITS SHAREHOLDERS. TO THE EXTENT
NOT DISTRIBUTED BY THE SERIES, NET TAXABLE INVESTMENT INCOME AND CAPITAL GAINS
AND LOSSES ARE TAXABLE TO THE SERIES. See "Taxes, Dividends and Distributions"
in the Statement of Additional Information.

To the extent the Series invests in taxable obligations, it will earn taxable
investment income. Also, to the extent the Series sells securities or engages in
hedging transactions in futures contracts and options thereon, it may earn both
capital gain or loss. Capital gain or loss may also arise upon the sale of
municipal securities, as well as taxable obligations. Under the Internal Revenue
Code, special rules apply to the treatment of certain options and futures
contracts (Section 1256 contracts). At the end of each year, such investments
held by the Series will be required to be marked to market for federal income
tax purposes; that is, treated as having been sold at market value. Sixty
percent of any gain or loss recognized on these deemed sales and on actual
dispositions will be treated as long-term capital gain or loss, and the
remainder will be treated as short-term capital gain or loss. See "Taxes,
Dividends and Distributions" in the Statement of Additional Information.

20
<PAGE>

TAXATION OF SHAREHOLDERS

Any dividends out of net taxable investment income, together with
distributions of net short-term gains (I.E., the excess of net short-term
capital gains over net long-term capital losses) distributed to shareholders,
will be taxable as ordinary income to the shareholder whether or not reinvested.
Any net capital gains (I.E., the excess of net capital gains from the sale of
assets held for more than 12 months over net short-term capital losses)
distributed to shareholders will be taxable as capital gains to the
shareholders, whether or not reinvested and regardless of the length of time a
shareholder has owned his or her shares. For capital gains realized upon the
sale of assets by the Series, the maximum long-term capital gains tax rate for
individuals is 20%. The maximum capital gains tax rate for corporate
shareholders currently is the same as the maximum tax rate for ordinary income.

21
<PAGE>

from state and local taxation by the laws of New Jersey and the United States.
Dividends paid to corporate shareholders will be subject to the New Jersey
corporation business tax or corporation income tax and may increase liability
under the federal alternative minimum tax.

The shareholders of a corporation may elect to treat the corporation as an S
corporation for New Jersey tax purposes. Dividends paid by the Series to an S
corporation shareholder will be subject to the New Jersey corporation business
tax at a rate of 2 percent. Although shareholders of an S corporation generally
are subject to the New Jersey gross income tax to the extent of the
shareholder's pro rata share of the S corporation's income, dividends and gain,
as long as the Series qualifies as a qualified investment fund, the
shareholder's pro rata share of dividends paid by the Series to the S
corporation will be exempt from the New Jersey gross income tax.

WITHHOLDING TAXES

DIVIDENDS AND DISTRIBUTIONS

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

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

22
<PAGE>
GENERAL INFORMATION

DESCRIPTION OF SHARES

THE FUND WAS ESTABLISHED AS A MASSACHUSETTS BUSINESS TRUST ON MAY 18, 1984, BY
A DECLARATION OF TRUST. The Fund's activities are supervised by its Trustees.
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares in separate series, currently designated as the
Connecticut Money Market Series, Florida Series, Maryland Series, Massachusetts
Series, Massachusetts Money Market Series, Michigan Series, New Jersey Series,
New Jersey Money Market Series, New York Series, New York Money Market Series,
North Carolina Series, Ohio Series and Pennsylvania Series. The Series is
authorized to issue an unlimited number of shares, divided into four classes,
designated Class A, Class B, Class C and Class Z. Each class of shares
represents an interest in the same assets of the Series and is identical in all
respects except that (i) each class is subject to different sales charges and
distribution and/or service fees (except for Class Z shares which are not
subject to any sales charges and distribution and/or service fees), which may
affect performance, (ii) each class has exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement and has
separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class, (iii) each
class has a different exchange privilege, (iv) only Class B shares have a
conversion feature and (v) Class Z shares are offered exclusively for sale to a
limited group of investors. See "How the Fund is Managed--Distributor." In
accordance with the Fund's Declaration of Trust, the Trustees may authorize the
creation of additional series and classes within such series, with such
preferences, privileges, limitations and voting and dividend rights as the
Trustees may determine.

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

23
<PAGE>
ADDITIONAL INFORMATION

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

SHAREHOLDER GUIDE

HOW TO BUY SHARES OF THE FUND

An investment in the Series may not be appropriate for tax-exempt or
tax-deferred investors. Such investors should consult their own tax advisers.

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

24
<PAGE>
Massachusetts, Custody and Shareholder Services Division, Attention: Prudential
Municipal Series Fund (New Jersey Series), specifying on the wire the account
number assigned by PMFS and your name and identifying the class in which you are
eligible to invest (Class A, Class B, Class C or Class Z shares).

In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Municipal Series
Fund (New Jersey Series), Class A, Class B, Class C or Class Z shares and your
name and individual account number. It is not necessary to call PMFS to make
subsequent purchase orders utilizing federal funds. The minimum amount which may
be invested by wire is $1,000.

ALTERNATIVE PURCHASE PLAN

<TABLE>
<CAPTION>
ANNUAL 12b-1 FEES
(AS A % OF AVERAGE
SALES CHARGE DAILY NET ASSETS) OTHER INFORMATION
--------------------------------------- --------------------- ---------------------------------------
<S> <C> <C> <C>
CLASS A Maximum initial sales charge of 3% of .30 of 1% Initial sales charge waived or reduced
the public offering price for certain purchases

CLASS B Maximum contingent deferred sales .50 of 1% Shares convert to Class A shares
charge or CDSC of 5% of the lesser of approximately seven years after
the amount invested or the redemption purchase
proceeds; declines to zero after six
years

CLASS C Maximum initial sales charge of 1% of 1% (currently being Shares do not convert to another class
the public offering price and maximum charged at a rate of
CDSC of 1% of the lesser of the amount .75 of 1%)
invested or the redemption proceeds on
redemptions made within 18 months of
purchase

CLASS Z None None Sold to a limited group of investors
</TABLE>

The four classes of shares represent an interest in the same portfolio of
investments of the Series and have the same rights, except that (i) each class
(with the exception of Class Z shares, which are not subject to any distribution
or service fees) is subject to different sales charges and distribution and/or
service fees which may affect performance, (ii) each class has exclusive voting
rights on any matter submitted to shareholders that relates solely to its
arrangement and has separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the interests of
any other class and (iii) each class has a different exchange privilege, (iv)
only Class B shares have a conversion feature and (v) Class Z shares are offered
exclusively for sale to a limited group of investors. See "How to Exchange Your
Shares" below. The income attributable to each class and the dividends payable
on the shares of each class will be reduced by the amount of the distribution
fee (if any) of each class. Class B and Class C shares bear the expenses of a
higher distribution fee which will generally cause them to have higher expense
ratios and to pay lower dividends than the Class A and Class Z shares.

25
<PAGE>

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

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

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

If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class C shares, you would have to hold your investment for more than 3
years for the 1% initial sales charge plus the higher cumulative annual
distribution-related fee on the Class C shares to exceed the initial sales
charge plus cumulative annual distribution-related fees on Class A shares. This
does not take into account the time value of money, which further reduces the
impact of the higher Class C distribution-related fee on the investment,
fluctuations in NAV, the effect of the return on the investment over this peirod
of time or redemptions when the CDSC is applicable.

26
<PAGE>
CLASS A SHARES

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

OTHER WAIVERS. Class A shares may be purchased at NAV, through the Distributor
or the Transfer Agent, by the following persons: (a) officers of the Prudential
Mutual Funds (including the Fund), (b) employees of the Distributor, Prudential
Securities, PIFM and their subsidiaries and members of the families of such
persons who maintain an employee related account at Prudential Securities or the
Transfer Agent, (c) employees of subadvisers of the Prudential Mutual Funds
provided that the purchases at NAV are permitted by such person's employer, (d)
Prudential, employees and special agents of Prudential and its subsidiaries and
all persons who have retired directly from active service with Prudential or one
of its subsidiaries, (e) registered representatives and employees of Dealers who
have entered into a selected dealer agreement with the Distributor, provided
that purchases at NAV are permitted by such person's employer and (f) investors
who have a business relationship with a financial adviser who joined Prudential
Securities from another investment firm, provided that (i) the purchase is made
within 180 days of the commencement of the financial adviser's employment at
Prudential Securities or within one year in the case of benefit plans, (ii) the
purchase is made with proceeds of a redemption of shares of any open-end
non-money market fund sponsored by the financial adviser's previous employer
(other than a fund which imposes a distribution or service fee of .25 of 1% or
less) and (iii) the financial adviser served as the client's broker on the
previous purchases.

27
<PAGE>
CLASS B AND CLASS C SHARES

WAIVER OF INITIAL SALES CHARGE -- CLASS C SHARES

CLASS Z SHARES

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

HOW TO SELL YOUR SHARES

28
<PAGE>

IF YOU HOLD SHARES IN NON-CERTIFICATE FORM, A WRITTEN REQUEST FOR REDEMPTION
SIGNED BY YOU EXACTLY AS THE ACCOUNT IS REGISTERED IS REQUIRED. IF YOU HOLD
CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE FACE OF THE
CERTIFICATES, MUST BE RECEIVED BY THE TRANSFER AGENT, THE DISTRIBUTOR OR YOUR
DEALER, IN ORDER FOR THE REDEMPTION REQUEST TO BE PROCESSED. IF REDEMPTION IS
REQUESTED BY A CORPORATION, PARTNERSHIP, TRUST OR FIDUCIARY, WRITTEN EVIDENCE OF
AUTHORITY ACCEPTABLE TO THE TRANSFER AGENT MUST BE SUBMITTED BEFORE SUCH REQUEST
WILL BE ACCEPTED. All correspondence and documents concerning redemptions should
be sent to the Fund in care of its Transfer Agent, Prudential Mutual Fund
Services LLC, Attention: Redemption Services, P.O. Box 15010, New Brunswick, New
Jersey 08906-5010, the Distributor or your Dealer.

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

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

29
<PAGE>

CONTINGENT DEFERRED SALES CHARGES

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

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

In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results in the lowest possible rate. It will be
assumed that the redemption is made first of amounts representing shares
acquired pursuant to the reinvestment of dividends and distributions; then of
amounts representing the increase in NAV above the total amount of payments for
the purchase of Series shares made during the preceding six years (five years
for Class B shares purchased prior to January 22, 1990); then of amounts
representing the cost of shares held beyond the applicable CDSC period; and
finally, of amounts representing the cost of shares held for the longest period
of time within the applicable CDSC period.

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

CONVERSION FEATURE--CLASS B SHARES

31
<PAGE>

HOW TO EXCHANGE YOUR SHARES

IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.

IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE
FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.

32
<PAGE>
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services LLC, Attention: Exchange Processing, P.O. Box 15010, New Brunswick, New
Jersey 08906-5010.

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

SHAREHOLDER SERVICES

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

33
<PAGE>

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

34
<PAGE>
DESCRIPTION OF SECURITY RATINGS

MOODY'S INVESTORS SERVICE

BOND RATINGS

Caa: Bonds which 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 which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C: Bonds which 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 RATINGS

MIG 2: Loans bearing the designation MIG 2 are of high quality, with margins
of protection ample although not so large as in the preceding group.

A-1
<PAGE>
MIG 3: Loans bearing the designation MIG 3 are of favorable quality, with all
security elements accounted for but lacking the strength of the preceding
grades.

SG: This designation denotes speculative quality. Debt instruments in this
category lack margins of protection.

SHORT-TERM DEBT RATINGS

- Leading market positions in well-established industries.

- High rates of return on funds employed.

- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.

- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

- Well-established access to a range of financial markets and assured
sources of alternate liquidity.

Prime-2: Issuers rated "Prime-2" (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This normally will
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

PRIME-3: Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations.

NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime rating
categories.

STANDARD & POOR'S RATINGS GROUP

DEBT RATINGS

AAA: An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.

AA: An obligation rated AA differs from the highest rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.

BBB: An obligation rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.

COMMERCIAL PAPER RATINGS

An S&P Commercial Paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.

A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.

MUNICIPAL NOTES

A-3
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY

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

TAXABLE BOND FUNDS
-----------------------------

TAX-EXEMPT BOND FUNDS
---------------------------------

GLOBAL 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 Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential International Bond Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series
Global Utility Fund, Inc.
The Global Total Return Fund, Inc.

EQUITY FUNDS
-----------------------

Prudential Balanced Fund
Prudential Distressed Securities Fund, Inc.
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Index Series Fund, Inc.
Prudential Bond Market Index Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced Fund
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Mid-Cap Value Fund
Prudential Real Estate Securities Fund
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Utility Fund, Inc.
Prudential 20/20 Focus Fund
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund

MONEY MARKET FUNDS
------------------------------

B-1
<PAGE>

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FUND HIGHLIGHTS............................................................. 2
What are the Series' Risk Factors
and Special Characteristics?............................................. 2
FUND EXPENSES............................................................... 4
FINANCIAL HIGHLIGHTS........................................................ 5
HOW THE FUND INVESTS........................................................ 9
Investment Objective and Policies......................................... 9
Other Investments and Policies............................................ 15
Investment Restrictions................................................... 16
HOW THE FUND IS MANAGED..................................................... 16
Manager................................................................... 16
Fee Waivers and Subsidy................................................... 17
Distributor............................................................... 17
Portfolio Transactions.................................................... 18
Custodian and Transfer and Dividend
Disbursing Agent......................................................... 19
Year 2000................................................................. 19
HOW THE FUND VALUES ITS SHARES.............................................. 19
HOW THE FUND CALCULATES PERFORMANCE......................................... 20
TAXES, DIVIDENDS AND DISTRIBUTIONS.......................................... 20
GENERAL INFORMATION......................................................... 23
Description of Shares..................................................... 23
Additional Information.................................................... 24
SHAREHOLDER GUIDE........................................................... 24
How to Buy Shares of the Fund............................................. 24
Alternative Purchase Plan................................................. 25
How to Sell Your Shares................................................... 28
Conversion Feature--Class B Shares........................................ 31
How to Exchange Your Shares............................................... 32
Shareholder Services...................................................... 33
DESCRIPTION OF SECURITY RATINGS............................................. A-1
THE PRUDENTIAL MUTUAL FUND FAMILY........................................... B-1
</TABLE>

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

MF138A

Class A: 74435M-78-8
Class B: 74435M-79-6
CUSIP Nos.: Class C: 74435M-53-1
Class Z: 74435M-43-2

PRUDENTIAL
MUNICIPAL
SERIES FUND
- -----------

NEW JERSEY SERIES

PROSPECTUS
November 2, 1998
www.prudential.com

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

[LOGO]
<PAGE>
Prudential Municipal Series Fund
(New Jersey Money Market Series)

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

PROSPECTUS DATED NOVEMBER 2, 1998

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

Prudential Municipal Series Fund (the Fund) (New Jersey Money Market Series)
(the Series) is one of thirteen series of an open-end, management investment
company, or mutual fund. This Series is non-diversified and is designed to
provide the highest level of current income that is exempt from New Jersey State
and federal income taxes consistent with liquidity and the preservation of
capital. The net assets of the Series are invested primarily in short-term, tax-
exempt New Jersey State, municipal and local debt obligations and obligations of
other qualifying issuers. There can be no assurance that the Series' investment
objective will be achieved. See "How the Fund Invests--Investment Objective and
Policies." The Fund's address is Gateway Center Three, 100 Mulberry Street,
Newark, New Jersey 07102-4077, and its telephone number is (800) 225-1852.

This Prospectus sets forth concisely the information about the Fund and the New
Jersey Money Market Series that a prospective investor should know before
investing and is available at the Web site of the Prudential Insurance Company
of America (http://www.prudential.com). Additional information about the Fund
has been filed with the Securities and Exchange Commission (Commission) in a
Statement of Additional Information, dated November 2, 1998, which information
is incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to Prudential Municipal
Series Fund at the address or telephone number noted above. The Commission
maintains a Web site (http://www.sec.gov) that contains the Statement of
Additional Information, material incorporated by reference and other information
regarding the Fund and the Series.

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

INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.

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

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

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

WHAT IS PRUDENTIAL MUNICIPAL SERIES FUND?

Prudential Municipal Series Fund is a mutual fund whose shares are offered
in thirteen series, each of which operates as a separate fund. A mutual fund
pools the resources of investors by selling its shares to the public and
investing the proceeds of such sale in a portfolio of securities designed to
achieve its investment objective. Technically, the Fund is an open-end,
management investment company. Only the New Jersey Money Market Series is
offered through this Prospectus.

WHAT IS THE SERIES' INVESTMENT OBJECTIVE?

The Series' investment objective is to provide the highest level of
current income that is exempt from New Jersey State and federal income taxes
consistent with liquidity and the preservation of capital. It seeks to
achieve this objective by investing primarily in short-term New Jersey
State, municipal and local government obligations and obligations of other
qualifying issuers, such as issuers located in Puerto Rico, the Virgin
Islands and Guam, which pay income exempt, in the opinion of counsel, from
New Jersey State and federal income taxes (New Jersey Obligations). There
can be no assurance that the Series will achieve its investment objective.
See "How the Fund Invests--Investment Objective and Policies" at page 6.

WHAT ARE THE SERIES' RISK FACTORS AND SPECIAL CHARACTERISTICS?

In seeking to achieve its investment objective, the Series will invest
more than 80% of the value of its total assets in New Jersey Obligations.
This degree of investment concentration makes the Series particularly
susceptible to factors adversely affecting issuers of New Jersey
Obligations, and makes an investment in the Series more risky than an
investment in other types of money market funds. The Series is
non-diversified so that more than 5% of its total assets may be invested in
the securities of one or more issuers. Investment in a non-diversified
portfolio involves more risk than investment in a diversified portfolio. See
"How the Fund Invests--Investment Objective and Policies--Special
Considerations" at page 9. As with an investment in any mutual fund, an
investment in this Series can decrease in value and you can lose money.

WHO MANAGES THE FUND?

2
<PAGE>
WHO DISTRIBUTES THE SERIES' SHARES?

WHAT IS THE MINIMUM INVESTMENT?

The minimum initial investment is $1,000. The minimum subsequent
investment is $100. There is no minimum investment requirement for certain
employee savings plans. For purchases made through the Automatic Investment
Plan, the minimum initial and subsequent investment is $50. See "Shareholder
Guide--How to Buy Shares of the Fund" at page 15 and "Shareholder
Guide--Shareholder Services" at page 23.

HOW DO I PURCHASE SHARES?

HOW DO I SELL MY SHARES?

HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?

3
<PAGE>
FUND EXPENSES
(NEW JERSEY MONEY MARKET SERIES)

ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees......................................... .500%
12b-1 Fees.............................................. .125%
Other Expenses.......................................... .105%
------
Total Fund Operating Expenses........................... .730%
------
------
</TABLE>

THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

4
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH OF THE INDICATED
PERIODS)

The following financial highlights, for the two years ended August 31, 1998,
have been audited by PricewaterhouseCoopers LLP, independent accountants, and
for the three years ended August 31, 1996 have been audited by other independent
auditors. All such audit reports were unqualified. This information should be
read in conjunction with the financial statements and the notes thereto, which
appear in the Statement of Additional Information. The following financial
highlights contain selected data for a share of beneficial interest outstanding,
total return, ratios to average net assets and other supplemental data for the
periods indicated. This information is based on data contained in the financial
statements. Further performance information is contained in the annual report,
which may be obtained without charge. See "Shareholder Guide--Shareholder
Services--Reports to Shareholders."

<TABLE>
<CAPTION>
DECEMBER 3,
1990 (a)
YEAR ENDED AUGUST 31, THROUGH
-------------------------------------------------------------------------------------- AUGUST 31,
1998 1997 1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>

PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of
period............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income
and net realized
gains................ .03 .03(c) .03(c) .03(c) .02(c) .02(c) .04(c) .03(c)
Dividends and
distributions to
shareholders......... (.03) (.03) (.03) (.03) (.02) (.02) (.04) (.03)
-------- -------- -------- -------- -------- -------- -------- -----------
Net asset value, end of
period............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- -------- -----------
-------- -------- -------- -------- -------- -------- -------- -----------

TOTAL RETURN (D):...... 2.87% 2.82% 2.92% 3.15% 1.90% 2.31% 3.48% 3.55%

RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000)......... $200,915 $199,472 $181,396 $182,453 $158,280 $163,087 $164,092 $117,460
Average net assets
(000)................ $198,647 $196,223 $192,617 $171,223 $169,123 $170,103 $155,915 $ 89,273
Ratios to average net
assets:
Expenses, including
distribution fee.... .73% .73%(c) .70%(c) .64%(c) .68%(c) .64%(c) .32%(c) .13%(b)(c)
Expenses, excluding
distribution fee.... .60% .60%(c) .57%(c) .51%(c) .55%(c) .51%(c) .19%(c) .00%(b)(c)
Net investment
income.............. 2.82% 2.78%(c) 2.89%(c) 3.11%(c) 1.87%(c) 2.02%(c) 3.33%(c) 4.48%(b)(c)
</TABLE>

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

(a) Commencement of investment operations.

(b) Annualized.

(d) Total return includes reinvestment of dividends and distributions.
Total returns for periods of less than a full year are not
annualized.

5
<PAGE>
CALCULATION OF YIELD

<TABLE>
<CAPTION>
<S> <C>
Value of hypothetical account at end of period.............. $ 1.000516732
Value of hypothetical account at beginning of period........ 1.000000000
-------------
Base period return.......................................... $ .000516732
-------------
-------------
CURRENT YIELD (.000516732 x (365/7))........................ 2.69%
EFFECTIVE ANNUAL YIELD, assuming weekly compounding......... 2.73%
TAX-EQUIVALENT CURRENT YIELD 2.69% DIVIDED BY
[(1-.0637)(1-.396)]....................................... 4.76%
</TABLE>

THE YIELD WILL FLUCTUATE FROM TIME TO TIME AND DOES NOT INDICATE FUTURE
PERFORMANCE.

The weighted average maturity of the Series' portfolio on August 31, 1998 was
64 days.

HOW THE FUND INVESTS

INVESTMENT OBJECTIVE AND POLICIES

PRUDENTIAL MUNICIPAL SERIES FUND (THE FUND) IS AN OPEN-END, MANAGEMENT
INVESTMENT COMPANY, OR MUTUAL FUND, CONSISTING OF THIRTEEN SEPARATE SERIES. EACH
OF THESE SERIES IS MANAGED INDEPENDENTLY. THE NEW JERSEY MONEY MARKET SERIES
(THE SERIES) IS NON-DIVERSIFIED AND ITS INVESTMENT OBJECTIVE IS TO PROVIDE THE
HIGHEST LEVEL OF CURRENT INCOME THAT IS EXEMPT FROM NEW JERSEY STATE AND FEDERAL
INCOME TAXES CONSISTENT WITH LIQUIDITY AND THE PRESERVATION OF CAPITAL. THE
SERIES SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING PRIMARILY IN
SHORT-TERM NEW JERSEY STATE, MUNICIPAL AND LOCAL GOVERNMENT OBLIGATIONS AND
OBLIGATIONS OF OTHER QUALIFYING ISSUERS, SUCH AS ISSUERS LOCATED IN PUERTO RICO,
THE VIRGIN ISLANDS AND GUAM, WHICH PAY INCOME EXEMPT, IN THE OPINION OF COUNSEL,
FROM NEW JERSEY STATE AND FEDERAL INCOME TAXES (NEW JERSEY OBLIGATIONS). SEE
"INVESTMENT OBJECTIVES AND POLICIES" IN THE STATEMENT OF ADDITIONAL INFORMATION.
THERE CAN BE NO ASSURANCE THAT THE SERIES WILL BE ABLE TO ACHIEVE ITS INVESTMENT
OBJECTIVE.

As with an investment in any mutual fund, an investment in this Series can
decrease in value and you can lose money.

6
<PAGE>

Interest on certain municipal obligations may be a preference item for
purposes of the federal alternative minimum tax. The Series may invest without
limit in municipal obligations that are private activity bonds (as defined in
the Internal Revenue Code), the interest on which would be a preference item for
purposes of the federal alternative minimum tax. See "Taxes, Dividends and
Distributions." Under New Jersey law, as long as the Series qualifies as a
qualified investment fund, dividends paid by the Series are exempt from New
Jersey income tax for resident individuals and New Jersey trusts and estates to
the extent such dividends are derived from interest payments on and gain
realized from the sale or exchange of New Jersey Obligations and other
obligations exempt from state and local taxation by the laws of New Jersey or
the United States. The New Jersey Obligations in which the Series may invest
include certain short-term, tax-exempt notes such as Tax Anticipation Notes,
Revenue Anticipation Notes, Bond Anticipation Notes, Construction Loan Notes and
certain variable and floating rate demand notes. See "Investment Objectives and
Policies--Tax-Exempt Securities--Tax-Exempt Notes" in the Statement of
Additional Information. The Series will maintain a dollar-weighted average
maturity of its portfolio of 90 days or less.

ALL NEW JERSEY OBLIGATIONS PURCHASED BY THE SERIES WILL, AT THE TIME OF
PURCHASE, HAVE A REMAINING MATURITY OF THIRTEEN MONTHS OR LESS AND BE (I) RATED
IN ONE OF THE TWO HIGHEST RATING CATEGORIES BY AT LEAST TWO NATIONALLY
RECOGNIZED STATISTICAL RATING ORGANIZATIONS (NRSRO'S) ASSIGNING A RATING TO THE
SECURITY OR ISSUER (OR, IF ONLY ONE NRSRO ASSIGNED A RATING, BY THAT NRSRO) OR
(II) IF UNRATED, OF COMPARABLE QUALITY AS DETERMINED BY THE INVESTMENT ADVISER
UNDER THE SUPERVISION OF THE TRUSTEES. See "Description of Tax-Exempt Security
Ratings" in the Statement of Additional Information. The investment adviser will
monitor the credit quality of securities purchased for the Series' portfolio and
will limit its investments to those which present minimal credit risks.

In selecting New Jersey Obligations for investment by the Series, the
investment adviser considers ratings assigned by NRSRO's, information concerning
the financial history and condition of the issuer and its revenue and expense
prospects and, in the case of revenue bonds, the financial history and condition
of the source of revenue to service the bonds. If a New Jersey Obligation held
by the Series is assigned a lower rating or ceases to be rated, the investment
adviser under the supervision of the Trustees will promptly reassess whether
that security presents minimal credit risks and whether the Series should
continue to hold the security in its portfolio. If a portfolio security no
longer presents minimal credit risks or is in default, the Series will dispose
of the security as soon as reasonably practicable unless the Trustees determine
that to do so is not in the best interests of the Series and its shareholders.

The Series utilizes the amortized cost method of valuation in accordance with
regulations issued by the Commission. See "How the Fund Values its Shares."

7
<PAGE>
obligations that are exempt from federal, but not state, taxation. When, in the
opinion of the investment adviser, abnormal market conditions require a
temporary defensive position, the Series may invest more than 20% of the value
of its assets in short-term debt securities other than New Jersey Obligations or
may invest its assets so that more than 20% of the income is subject to New
Jersey or federal income taxes. However, the Series must invest at least 80% of
the aggregate principal amount of all of its investments (excluding cash, cash
items and receivables, and financial options, futures, forward contracts, or
other similar financial instruments related to interest-bearing obligations,
obligations issued at a discount or bond indexes related thereto that are
related to the Series' business of investing in securities (Related Financial
Instruments)) in obligations exempt from New Jersey personal income tax in order
for its distributions to remain exempt from such tax.

THE SERIES IS AUTHORIZED TO ACQUIRE PUT OPTIONS (PUTS) GIVING THE SERIES THE
RIGHT TO SELL SECURITIES HELD IN THE SERIES' PORTFOLIO AT A SPECIFIED EXERCISE
PRICE ON A SPECIFIED DATE. The Series may acquire puts on securities in its
portfolio for the purpose of protecting the Series from a possible decline in
the market value of the security to which the put applies in the event of
interest rate fluctuations or, in the case of liquidity puts, for the purpose of
shortening the effective maturity of the underlying security. The aggregate
value of premiums paid to acquire puts held in the Series' portfolio (other than
liquidity puts) may not exceed 10% of the NAV of the Series. The acquisition of
a put may involve an additional cost to the Series by payment of a premium for
the put, by payment of a higher purchase price for securities to which the put
is attached or through a lower effective interest rate.

THE SERIES MAY PURCHASE MUNICIPAL OBLIGATIONS ON A WHEN-ISSUED OR DELAYED
DELIVERY BASIS, IN EACH CASE WITHOUT LIMIT. When municipal obligations are
offered on a when-issued or delayed delivery basis, the price and coupon rate
are fixed at the time the commitment to purchase is made, but delivery and
payment for the securities take place at a later date. The purchase price for
such securities includes interest accrued during the period between purchase and
settlement, and, therefore, no interest accrues to the economic benefit of the
purchaser during such period. In the case of purchases by the Series, the price
that the Series is required to pay on the settlement date may be in excess of
the market value of the municipal obligations on that date. While securities may
be sold prior to the settlement date, the Series intends to purchase these
securities with the purpose of actually acquiring them unless a sale would be
desirable for investment reasons. At the time the Series makes the commitment to
purchase a municipal obligation on a when-issued or delayed delivery basis, it
will record the transaction and reflect the value of the obligation each day in
determining its NAV. This value may fluctuate from day to day in the same manner
as values of municipal obligations otherwise held by the Series. If the seller
defaults in the sale, the Series could fail to realize the appreciation, if any,
that had occurred. The Series will establish a segregated account in which it
will maintain cash or other liquid assets equal or greater in value to its
commitments for when-issued or delayed delivery securities.

8
<PAGE>
THE SERIES MAY PURCHASE SECONDARY MARKET INSURANCE ON NEW JERSEY OBLIGATIONS
WHICH IT HOLDS OR ACQUIRES. Secondary market insurance would be reflected in the
market value of the municipal obligation purchased and may enable the Series to
dispose of a defaulted obligation at a price similar to that of comparable
municipal obligations which are not in default.

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

SPECIAL CONSIDERATIONS

BECAUSE THE SERIES WILL INVEST PRIMARILY IN NEW JERSEY OBLIGATIONS AND BECAUSE
IT SEEKS TO MAXIMIZE INCOME DERIVED FROM NEW JERSEY OBLIGATIONS, IT IS MORE
SUSCEPTIBLE TO FACTORS ADVERSELY AFFECTING ISSUERS OF NEW JERSEY OBLIGATIONS
THAN IS A COMPARABLE TAX-EXEMPT MONEY MARKET FUND THAT IS NOT CONCENTRATED IN
SUCH OBLIGATIONS TO THIS DEGREE.

The favorable economy in New Jersey has been producing strong revenue growth.
New Jersey estimates finishing fiscal year 1998 with total revenues of $16.9
billion, $610 million more than anticipated when revenues were certified by the
Governor in June 1997. The three largest taxes, gross income, sales and use, and
corporate business, account for 67 percent of total revenue and are forecasted
to yield $11.4 billion, an increase of $507 million from that estimated in June
1997. Revenues for fiscal year 1999 are expected to increase more modestly as
the national economy slows to more sustainable long-run growth levels.

For the last six fiscal years, the State has used non-recurring revenues and
expenditure deferrals to balance its budget. The estimated undesignated balance
was $1.1 billion for the end of fiscal year 1998 budget. The 1999 budget
includes appropriations totalling $18.1 billion, up $1.1 billion or 6 percent
from fiscal year 1998. The State anticipates revenues of $17.7 billion in fiscal
1999 and a structural deficit of less than $400 million. The structural deficit
has been decreasing since fiscal year 1994, when it was $1.586 billion.

As of August 1998, two major NRSRO's, Moody's and Fitch, each had rated New
Jersey general obligation bonds Aa1 and AA+, respectively. In September 1998,
Moody's upgraded from "negative" to "stable" its outlook of New Jersey's general
creditworthiness, in part because the State Supreme Court did not order a
massive increase in school funding earlier in 1998.

OTHER INVESTMENTS AND POLICIES

REPURCHASE AGREEMENTS

The Series may enter into repurchase agreements whereby the seller of a
security agrees to repurchase that security from the Series at a mutually
agreed-upon time and price. The period of maturity is usually quite short,
possibly overnight or a few days, although it might extend over a number of
months. The resale price is in excess of the purchase price, reflecting an
agreed-upon rate of return effective for the period of time the Series' money is
invested in the repurchase agreement. The Series' repurchase agreements will at
all times be fully collateralized in an amount at least equal to the resale
price. The instruments held as collateral are valued daily and if the value of
the instruments declines, the Series will require additional collateral. If the
seller defaults and the value of the collateral securing the repurchase
agreement declines, the Series may incur a loss. The Series participates in a
joint repurchase account with other investment companies managed by PIFM
pursuant to an order of the Commission. See "Investment Objectives and
Policies--Repurchase Agreements" in the Statement of Additional Information.

9
<PAGE>
BORROWING

ILLIQUID SECURITIES

INVESTMENT RESTRICTIONS

HOW THE FUND IS MANAGED

For the fiscal year ended August 31, 1998, total expenses of the Series as a
percentage of its average net assets were .73%. See "Financial Highlights."

MANAGER

10
<PAGE>

SERVICES. PIC'S ADDRESS IS PRUDENTIAL PLAZA, NEWARK, NEW JERSEY 07102-3777.
Under the Management Agreement, PIFM continues to have responsibility for all
investment advisory services and supervises the Subadviser's performance of such
services.

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

FEE WAIVERS

PIFM may from time to time waive all or a portion of its management fee and
subsidize certain operating expenses of the Series. Fee waivers and expense
subsidies will increase the Series' yield. The Series is not required to
reimburse PIFM for such management fee waiver. See "Calculation of Yield" and
"Fund Expenses."

DISTRIBUTOR

For the year ended August 31, 1998, the Series paid a distribution fee equal
on an annual basis to .125% of the average net assets of the Series. Amounts
paid to the Distributor by the Series will not be used to pay distribution
expenses incurred by any other series of the Fund.

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

11
<PAGE>
PORTFOLIO TRANSACTIONS

CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT

YEAR 2000

HOW THE FUND VALUES ITS SHARES

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

12
<PAGE>
TAXES, DIVIDENDS AND DISTRIBUTIONS

TAXATION OF THE FUND

THE SERIES HAS QUALIFIED AND INTENDS TO REMAIN QUALIFIED AS A REGULATED
INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE. ACCORDINGLY, THE SERIES WILL
NOT BE SUBJECT TO FEDERAL INCOME TAXES ON ITS NET INVESTMENT INCOME AND NET
CAPITAL GAINS, IF ANY, THAT IT DISTRIBUTES TO ITS SHAREHOLDERS. TO THE EXTENT
NOT DISTRIBUTED BY THE SERIES, NET TAXABLE INVESTMENT INCOME AND CAPITAL GAINS
AND LOSSES ARE TAXABLE TO THE SERIES. See "Taxes, Dividends and Distributions"
in the Statement of Additional Information.

TAXATION OF SHAREHOLDERS

Any dividends out of net taxable investment income, together with
distributions of net short-term gains (I.E., the excess of net short-term
capital gains over net long-term capital losses) distributed to shareholders,
will be taxable as ordinary income to the shareholder whether or not reinvested.
Any net capital gains (I.E., the excess of net capital gains from the sale of
assets held for more than 12 months over net short-term capital losses)
distributed to shareholders will be taxable as long-term capital gains to the
shareholders, whether or not reinvested and regardless of the length of time a
shareholder has owned his or her shares. Recent legislation created various
categories of capital gains applicable to individuals. For capital gains
recognized upon the sale of assets by the Series after December 31, 1997, the
maximum long-term capital gains tax rate for individuals is 20%. The maximum
capital gains tax rate for corporate shareholders currently is the same as the
maximum tax rate for ordinary income. The Series does not expect to have capital
gains from the sale of assets held for more than 12 months.

13
<PAGE>

Under New Jersey law, as long as the Series qualifies as a qualified
investment fund, dividends paid by the Series are exempt from New Jersey income
tax for resident individuals and New Jersey trusts and estates to the extent
such dividends are derived from interest payments on, and gain realized from the
sale or exchange of, New Jersey Obligations and other obligations exempt from
state and local taxation by the laws of New Jersey and the United States.
Dividends paid to corporate shareholders will be subject to the New Jersey
corporation business tax or corporation income tax and may increase liability
under the federal alternative minimum tax.

WITHHOLDING TAXES

DIVIDENDS AND DISTRIBUTIONS

THE SERIES EXPECTS TO DECLARE DAILY AND PAY MONTHLY DIVIDENDS OF NET
INVESTMENT INCOME AND SHORT-TERM CAPITAL GAINS.

A shareholder generally begins to earn dividends on the first business day
after his or her order is placed with the Series, as described above, and
continues to earn dividends through the day on which his or her shares are
redeemed. In the case of certain redemptions, however, Prudential Securities
clients will not be entitled to dividends declared on the date of redemption.
See "Shareholder Guide -- How to Sell Your Shares--Redemption of Shares
Purchased through Prudential Securities."

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

GENERAL INFORMATION

DESCRIPTION OF SHARES

14
<PAGE>

and fractional shares in separate series, currently designated as the
Connecticut Money Market Series, Florida Series, Maryland Series, Massachusetts
Series, Massachusetts Money Market Series, Michigan Series, New Jersey Series,
New Jersey Money Market Series, New York Series, New York Money Market Series,
North Carolina Series, Ohio Series and Pennsylvania Series. Currently, all
series of the Fund, except for the Connecticut Money Market Series, the Florida
Series, the Massachusetts Series, the Massachusetts Money Market Series, the New
Jersey Money Market Series, the New Jersey Series, the New York Money Market
Series and the New York Series, offer three classes, designated Class A, Class B
and Class C shares. The Florida Series, the Massachusetts Series, the New Jersey
Series and the New York Series offer four classes, designated Class A, Class B,
Class C and Class Z shares. The Connecticut Money Market Series, the
Massachusetts Money Market Series, the New Jersey Money Market Series and the
New York Money Market Series offer only one class of shares. In accordance with
the Fund's Declaration of Trust, the Trustees may authorize the creation of
additional series and classes within such series, with such preferences,
privileges, limitations and voting and dividend rights as the Trustees may
determine.

ADDITIONAL INFORMATION

SHAREHOLDER GUIDE

HOW TO BUY SHARES OF THE FUND

YOU MAY PURCHASE SHARES OF THE SERIES THROUGH THE DISTRIBUTOR, THROUGH
DEALERS, OR DIRECTLY FROM THE FUND, THROUGH ITS TRANSFER AGENT, PRUDENTIAL
MUTUAL FUND SERVICES LLC (PMFS OR THE TRANSFER AGENT), ATTENTION: INVESTMENT
SERVICES, P.O. BOX 15020, NEW BRUNSWICK, NEW JERSEY 08906-5020. The minimum
initial investment is $1,000. The minimum subsequent investment is $100. All
minimum investment requirements are waived for the COMMAND Account program

15
<PAGE>

(if the Series is designated as your primary fund) and certain employee and
retirement savings plans. For purchases made through the Automatic Investment
Plan, the minimum initial and subsequent investment if $50. See "Shareholder
Services" below. For automatic purchases made through Prudential Securities, the
minimum investment requirement is $1,000 and there is no minimum subsequent
investment requirement.

An investment in the Series may not be appropriate for tax-exempt or
tax-deferred investors. Such investors should consult with their own tax
advisers.

Investors who purchase their shares through a Dealer other than Prudential
Securities or Prusec, which Dealer has a clearinghouse arrangement with respect
to shares of the Series, may be able to participate in the automatic sweep
feature described below under "Purchases through Prudential
Securities--Automatic Investment (Autosweep)" and "How to Sell Your
Shares--Redemptions of Shares Purchased through Prudential Securities." For
further information, contact your Dealer.

Transactions in shares of the Series may be subject to postage and other
charges imposed by the Dealer. Any such charge is retained by the Dealer and is
not remitted to the Series.

PURCHASES THROUGH PRUDENTIAL SECURITIES

16
<PAGE>
Prudential Securities clients who purchase shares of the Series through
Prudential Securities may not redeem shares of the Series by check, Prudential
Securities provides its clients with alternative forms of immediate access to
monies invested in shares of the Series.

AUTOMATIC INVESTMENT (AUTOSWEEP) (FOR NON-COMMAND ACCOUNTS)

Prudential Securities has advised the Fund that it has automatic investment
procedures (Autosweep) pursuant to which it will make automatic investments of
free credit cash balances (Eligible Credit Balances) held in a client's
brokerage account in shares of the Series, if the Series is your Primary Money
Sweep Fund. You may designate the Series (or certain other Prudential money
market funds) as your Primary Money Sweep Fund. If the Series is your Primary
Money Sweep Fund you can purchase shares of the Series only through the
automatic investment procedures described below; no manual purchase orders will
be accepted. You may change your Primary Money Sweep Fund at any time by
notifying your Prudential Securities financial adviser. Under certain
circumstances, you may elect not to have a money market sweep feature for your
account when you open your account.

The following chart shows the frequency and amount of the sweep for accounts
other than IRA's and Benefit Plans.

All shares purchased pursuant to these automatic investment procedures will be
issued at the NAV computed on the business day the order is entered and will
begin earning dividends on the following business day. Purchases through
Autosweep are subject to the Series' minimum initial investment requirement of
$1,000, which is waived for certain retirement and employee savings plans and
custodial accounts for the benefit of minors. Prudential Securities will have
the use of, and will retain the benefits of, Eligible Credit Balances in a
client's brokerage account until monies are delivered to the Fund. (Prudential
Securities delivers Federal Funds on the business day after settlement).
Eligible Credit Balances for purposes of Autosweep are measured as of the close
of business on the previous business day.

17
<PAGE>

plans as defined in Section 3(33) of ERISA, (ii) pension, profit-sharing or
other employee benefit plans qualified under Section 401 of the Internal Revenue
Code and (iii) deferred compensation and annuity plans under Section 457 or
403(b)(7) of the Internal Revenue Code. IRA' s are Individual Retirement
Accounts as defined in Section 408(a) of the Internal Revenue Code.

PURCHASES THROUGH PRUSEC

PURCHASE BY WIRE

For an initial purchase of shares of the Series by wire, you must first
telephone PMFS at (800) 225-1852 (toll-free) to receive an account number. The
following information will be requested: your name, address, tax identification
number, dividend distribution election, amount being wired and wiring bank.
Instructions should then be given by you to your bank to transfer funds by wire
to State Street Bank and Trust Company (State Street), Boston, Massachusetts,
Custody and Shareholder Services Division, Attention: Prudential Municipal
Series Fund, New Jersey Money Market Series, specifying on the wire the account
number assigned by PMFS and your name.

In making a subsequent purchase order by wire, you should wire State Street
directly, and should be sure that the wire specifies Prudential Municipal Series
Fund (New Jersey Money Market Series) and your name and individual account
number. It is not necessary to call PMFS to make subsequent purchase orders
utilizing Federal Funds. The minimum amount which may be invested by wire is
$1,000.

18
<PAGE>
PURCHASE BY MAIL

Purchase orders for which remittance is to be made by check or money order may
be submitted directly by mail to Prudential Mutual Fund Services LLC, Attention:
Investment Services, P.O. Box 15020, New Brunswick, New Jersey 08906-5020,
together with payment for the purchase price of such shares and, in the case of
a new account, a completed application form. You should also submit an IRS Form
W-9. If PMFS receives an order to purchase shares of the Series and payment in
proper form prior to 4:30 P.M., New York time, the purchase order will be
effective that day and the investor will be entitled to dividends the following
business day. See "Taxes, Dividends and Distributions." Checks should be made
payable to Prudential Municipal Series Fund, New Jersey Money Market Series.
Certified checks are not necessary, but checks must be drawn on a bank located
in the United States. There are restrictions on the redemption of shares
purchased by check while the funds are being collected. See "How to Sell Your
Shares" below. The minimum initial investment by check is $1,000 and the minimum
subsequent investment by check is $100.

THE PRUDENTIAL ADVANTAGE ACCOUNT PROGRAM

Advantage Account Program charges and expenses are not reflected in the table
of Fund expenses. See "Fund Expenses."

For information on participation in the Advantage Account Program, you should
telephone (800) 235-7637 (toll-free).

COMMAND-SM- ACCOUNT AND PRUDENTIAL BUSINESSEDGE-SM- ACCOUNT PROGRAMS

19
<PAGE>

(i) in the case of Available Cash resulting from the proceeds of securities
sales, on the settlement date of the securities sale, and (ii) in the case of
Available Cash resulting from non-trade related credits (I.E., receipt of
dividends and interest payments, maturity of a bond or a cash payment by the
participant into his or her Securities Account), on the business day after
receipt by Prudential Securities or Prusec of the non-trade related credit.
These automatic purchase procedures are also applicable for Corporate COMMAND
Accounts.

Redemptions will be automatically effected by Prudential Securities or Prusec
to satisfy debit balances in a Securities Account created by activity therein or
arising under the COMMAND or BusinessEdge programs, such as those incurred by
use of the Visa-Registered Trademark- Gold Account, in the case of the COMMAND
program, and the Visa-Registered Trademark- Account, in the case of the
BusinessEdge program, including Visa purchases, cash advances and Visa Account
checks. Each COMMAND program Securities Account will be automatically scanned
for debits monthly for all Visa purchases incurred during that month, and each
COMMAND and BusinessEdge Account will automatically be scanned for debits each
business day as of the close of business on that day for all cash advances and
check charges as incurred and, in the case of BusinessEdge Accounts, for all
Visa purchases. After application of any free credit cash balances in the
account to such debits, a sufficient number of shares of the Series and, if
necessary, shares of other COMMAND funds owned by the COMMAND or BusinessEdge
program participant which have not been selected as his or her primary fund or
shares of a participant's money market funds managed by PIFM which are not
primary COMMAND funds will be redeemed as of that business day to satisfy any
remaining debits in the Securities Account. With respect to COMMAND Accounts,
the single monthly debit for Visa purchases will be made on the twenty-fifth day
of each month, or the prior business day if the twenty-fifth falls on a weekend
or holiday. Margin loans will be utilized to satisfy debits remaining after the
liquidation of all shares of the Series in a Securities Account, and shares may
not be purchased until all debits, margin loans and other requirements in the
Securities Account are satisfied. COMMAND Account and BusinessEdge Account
participants will not be entitled to dividends declared on the date of
redemption.

For information on participation in the COMMAND Account program, you should
telephone (800) 222-4321 (toll-free). For information on the BusinessEdge
Account program, you should telephone (888) 802-5864 (toll-free).

HOW TO SELL YOUR SHARES

20
<PAGE>

REDEMPTION OF SHARES PURCHASED THROUGH PRUDENTIAL SECURITIES

Prudential Securities has advised the Fund that it has established procedures
pursuant to which shares of the Series held by a Prudential Securities client
having a deficiency in his or her Prudential Securities account will be redeemed
automatically to the extent of that deficiency to the nearest highest dollar.
The amount of the redemption will be the lesser of (a) the total NAV of the
Series' shares held in the client's Prudential Securities account or (b) the
deficiency in the client's Prudential Securities account at the close of
business on the date such deficiency is due. Accordingly, a Prudential
Securities client who wishes to pay for a securities transaction or satisfy any
other debit balance in his or her account other than through this automatic
redemption procedure must do so prior to the day of settlement for such
securities transaction or the date the debit balance is incurred. In the case of
certain automatic redemptions, where Prudential Securities cannot anticipate
debits in the brokerage account (E.G., checks written against the account),
Prudential Securities clients will not be entitled to dividends declared on the
date of redemption; such dividends will be retained by Prudential Securities.

REDEMPTION OF SHARES PURCHASED THROUGH PMFS

21
<PAGE>
form returned to Prudential Mutual Fund Services LLC, Attention: Account
Maintenance, P.O. Box 15015, New Brunswick, New Jersey 08906-5015, requests for
redemption may be made by telegraph, letter or telephone. To request Expedited
Redemption by telephone, you should call PMFS at (800) 225-1852. Calls must be
received by PMFS before 4:30 P.M., New York time, to permit redemption as of
such date. Requests by letter should be addressed to Prudential Mutual Fund
Services LLC at the address set forth above.

DURING PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS, EXPEDITED REDEMPTION
MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD REDEEM SHARES BY MAIL AS DESCRIBED
ABOVE.

CLASS B AND CLASS C PURCHASE PRIVILEGE. You may direct that the proceeds of a
redemption of Series' shares be invested in Class B or Class C shares of any
Prudential Mutual Fund by calling your Prudential Securities financial adviser
or the Transfer Agent at (800) 225-1852.

HOW TO EXCHANGE YOUR SHARES

22
<PAGE>

IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE THE TELEPHONE
EXCHANGE PRIVILEGE ON YOUR INITIAL APPLICATION FORM OR BY WRITTEN NOTICE TO THE
TRANSFER AGENT AND HOLD SHARES IN NON-CERTIFICATE FORM. Thereafter, you may call
the Fund at (800) 225-1852 to execute a telephone exchange of shares, weekdays,
except holidays, between the hours of 8:00 A.M. and 6:00 P.M., New York time.
For your protection and to prevent fraudulent exchanges, your telephone call
will be recorded and you will be asked to provide your personal identification
number. A written confirmation of the exchange transaction will be sent to you.
NEITHER THE FUND NOR ITS AGENTS WILL BE LIABLE FOR ANY LOSS, LIABILITY OR COST
WHICH RESULTS FROM ACTING UPON INSTRUCTIONS REASONABLY BELIEVED TO BE GENUINE
UNDER THE FOREGOING PROCEDURES. All exchanges will be made on the basis of the
relative NAV of the two funds (or series) next determined after the request is
received in good order. The exchange privilege is available only in states where
the exchange may legally be made.

IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.

IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE
FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.

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

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

SHAREHOLDER SERVICES

In addition to the exchange privilege, you can take advantage of the following
services and privileges:

23
<PAGE>

- SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available for
shareholders which provides for monthly or quarterly checks. See "How to Sell
Your Shares."

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

24
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY

TAXABLE BOND FUNDS
-----------------------------

TAX-EXEMPT BOND FUNDS
--------------------------------

GLOBAL 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 Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential International Bond Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series
Global Utility Fund, Inc.
The Global Total Return Fund, Inc.

EQUITY FUNDS
-----------------------

Prudential Balanced Fund
Prudential Distressed Securities Fund, Inc.
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Index Series Fund
Prudential Bond Market Index Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced Fund
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Mid-Cap Value Fund
Prudential Real Estate Securities Fund
Prudential Multi-Sector Fund, Inc.
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Utility Fund, Inc.
Prudential 20/20 Focus Fund
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund

MONEY MARKET FUNDS
------------------------------

A-1
<PAGE>

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

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----

<S> <C>
FUND HIGHLIGHTS............................................................. 2
What are the Series' Risk Factors and Special Characteristics?............ 2
FUND EXPENSES............................................................... 4
FINANCIAL HIGHLIGHTS........................................................ 5
CALCULATION OF YIELD........................................................ 6
HOW THE FUND INVESTS........................................................ 6
Investment Objective and Policies......................................... 6
Other Investments and Policies............................................ 9
Investment Restrictions................................................... 10
HOW THE FUND IS MANAGED..................................................... 10
Manager................................................................... 10
Distributor............................................................... 11
Portfolio Transactions.................................................... 12
Custodian and Transfer and Dividend Disbursing Agent...................... 12
Year 2000................................................................. 12
HOW THE FUND VALUES ITS SHARES.............................................. 12
TAXES, DIVIDENDS AND DISTRIBUTIONS.......................................... 13
GENERAL INFORMATION......................................................... 14
Description of Shares..................................................... 14
Additional Information.................................................... 15
SHAREHOLDER GUIDE........................................................... 15
How to Buy Shares of the Fund............................................. 15
How to Sell Your Shares................................................... 20
How to Exchange Your Shares............................................... 22
Shareholder Services...................................................... 23
THE PRUDENTIAL MUTUAL FUND FAMILY........................................... A-1
</TABLE>

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

MF147A

CUSIP No: 74435M-76-2

PRUDENTIAL
MUNICIPAL
SERIES FUND
- -----------

NEW JERSEY
MONEY MARKET
SERIES

PROSPECTUS
November 2, 1998
www.prudential.com

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

[LOGO]
<PAGE>
Prudential Municipal Series Fund
(New York Series)

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

PROSPECTUS DATED NOVEMBER 2, 1998

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

Prudential Municipal Series Fund (the Fund) (New York Series) (the Series) is
one of thirteen series of an open-end, management investment company, or mutual
fund. This Series is diversified and is designed to provide the maximum amount
of income that is exempt from New York State, New York City and federal income
taxes consistent with the preservation of capital and, in conjunction therewith,
the Series may invest in debt securities with the potential for capital gain.
The net assets of the Series are invested primarily in obligations within the
four highest ratings of Moody's Investors Service, Standard & Poor's Ratings
Group or another nationally recognized statistical rating organization or in
unrated obligations which, in the opinion of the Fund's investment adviser, are
of comparable quality. The Series may, however, also invest a portion of its
assets in lower-quality municipal obligations or in non-rated securities which,
in the opinion of the Fund's investment adviser, are of comparable quality.
Subject to the limitations described herein, the Series may utilize derivatives,
including buying and selling futures contracts and options thereon for the
purpose of hedging its portfolio securities. There can be no assurance that the
Series' investment objective will be achieved. See "How the Fund
Invests--Investment Objective and Policies." The Fund's address is Gateway
Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077 and its
telephone number is (800) 225-1852.

This Prospectus sets forth concisely the information about the Fund and the New
York Series that a prospective investor should know before investing and is
available at the Web site of the Prudential Insurance Company of America
(http://www.prudential.com). Additional information about the Fund has been
filed with the Securities and Exchange Commission (the Commission) in a
Statement of Additional Information dated November 2, 1998, which information is
incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Fund at the
address or telephone number noted above. The Commission maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference and other information regarding the Fund.

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

INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.

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

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

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

WHAT IS PRUDENTIAL MUNICIPAL SERIES FUND?

Prudential Municipal Series Fund is a mutual fund whose shares are offered
in thirteen series, each of which operates as a separate fund. A mutual fund
pools the resources of investors by selling its shares to the public and
investing the proceeds of such sale in a portfolio of securities designed to
achieve its investment objective. Technically, the Fund is an open-end,
management investment company. Only the New York Series is offered through
this Prospectus.

WHAT IS THE SERIES' INVESTMENT OBJECTIVE?

The Series' investment objective is to maximize current income that is
exempt from New York State, New York City and federal income taxes
consistent with the preservation of capital. It seeks to achieve this
objective by investing primarily in New York State, municipal and local
government obligations and obligations of other qualifying issuers, such as
issuers located in Puerto Rico, the Virgin Islands and Guam, which pay
income exempt, in the opinion of counsel, from New York State, New York City
and federal income taxes (New York Obligations). There can be no assurance
that the Series' investment objective will be achieved. See "How the Fund
Invests--Investment Objective and Policies" at page 9.

WHAT ARE THE SERIES' RISK FACTORS AND SPECIAL CHARACTERISTICS?

In seeking to achieve its investment objective, the Series will invest at
least 80% of the value of its total assets in New York Obligations. This
degree of investment concentration makes the Series particularly susceptible
to factors adversely affecting issuers of New York Obligations. See "How the
Fund Invests--Investment Objective and Policies--Special Considerations" at
page 14. The Series may invest up to 30% of its total assets in high yield
securities, commonly known as junk bonds, which are considered speculative
and are subject to the risk of an issuer's inability to meet principal and
interest payments on the obligations as well as price volatility. See "How
the Fund Invests--Investment Objective and Policies--Risk Factors Relating
to Investing in High Yield Municipal Obligations" at page 12. To hedge
against changes in interest rates, the Series may also purchase put options
and engage in transactions involving derivatives, including financial
futures contracts and options thereon. See "How the Fund Invests--Investment
Objective and Policies--Futures Contracts and Options Thereon" at page 13.
As with an investment in any mutual fund, an investment in this Series can
decrease in value and you can lose money.

WHO MANAGES THE FUND?

Prudential Investments Fund Management LLC (PIFM or the Manager) is the
Manager of the Fund and is compensated for its services at an annual rate of
.50 of 1% of the Series' average daily net assets. As of September 30, 1998,
PIFM served as manager or administrator to 66 investment companies,
including 44 mutual funds, with aggregate assets of approximately $67
billion. The Prudential Investment Corporation (PIC, the Subadviser or the
investment adviser) furnishes investment advisory services in connection
with the management of the Fund under a Subadvisory Agreement with PIFM. See
"How the Fund is Managed--Manager" at page 15.

WHO DISTRIBUTES THE SERIES' SHARES?

Prudential Investment Management Services LLC (the Distributor) acts as
the Distributor of the Series' Class A, Class B, Class C and Class Z shares
and is paid a distribution and service fee with respect to Class A shares at
the annual rate of .25 of 1% of the average daily net assets of the Class A
shares and is paid a distribution and service fee with respect to Class B
shares at the annual rate of .50 of 1% of the average daily net assets of
the Class B shares and is paid an annual distribution and service fee with
respect to Class C shares which is currently being charged at the rate of
.75 of 1% of the average daily net assets of the Class C shares. The
Distributor incurs the expense of distributing the Series' Class Z shares
under a Distribution Agreement with the Fund, none of which is reimbursed or
paid for by the Fund. See "How the Fund is Managed--Distributor" at page 16.

2
<PAGE>

WHAT IS THE MINIMUM INVESTMENT?

The minimum initial investment is $1,000 for Class A and Class B shares
and $2,500 for Class C shares. The minimum subsequent investment is $100 for
Class A, Class B and Class C shares. Class Z shares are not subject to any
minimum investment requirements. There is no minimum investment requirement
for certain employee savings plans. For purchases made through the Automatic
Investment Plan, the minimum initial and subsequent investment is $50. See
"Shareholder Guide--How to Buy Shares of the Fund" at page 23 and
"Shareholder Guide--Shareholder Services" at page 32.

HOW DO I PURCHASE SHARES?

You may purchase shares of the Series through the Distributor or brokers
or dealers that have entered into agreements to act as participating or
introducing brokers for the Distributor (Dealers) or directly from the Fund
through its transfer agent, Prudential Mutual Fund Services LLC (PMFS or the
Transfer Agent). In each case, sales are made at the net asset value per
share (NAV) next determined after receipt of your purchase order by the
Transfer Agent, a Dealer or the Distributor plus a sales charge, which may
be imposed at the time of purchase, on a deferred basis, or both. Class A
shares are sold with a front-end sales charge. Class B shares are subject to
a contingent deferred sales charge (CDSC). Class C shares are sold with a
low front-end sales charge, but are also subject to a CDSC. Class Z shares
are offered to a limited group of investors at NAV without any sales charge.
Dealers may charge their customers a separate fee for handling purchase
transactions. Participants in programs sponsored by Prudential Retirement
Services should contact their client representative for more information
about Class Z shares. See "How the Fund Values its Shares" at page 18 and
"Shareholder Guide--How to Buy Shares of the Fund" at page 23.

WHAT ARE MY PURCHASE ALTERNATIVES?

The Series offers four classes of shares:

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

- Class Z Shares: Sold without either an initial sales charge or CDSC
to a limited group of investors. Class Z shares are
not subject to any ongoing service or distribution
expenses.

See "Shareholder Guide--Alternative Purchase Plan" at page 24.

HOW DO I SELL MY SHARES?

HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?

3
<PAGE>
FUND EXPENSES
(NEW YORK SERIES)

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
--------------- ------------------------------- ---------------------------- ---------------
<S> <C> <C> <C> <C>

SHAREHOLDER TRANSACTION EXPENSES+
Maximum Sales Load Imposed
on Purchases (as a
percentage of offering
price)..................... 3% None 1% None
Maximum Deferred Sales Load
(as a percentage of
original purchase price or
redemption proceeds,
whichever is lower)........ None 5% during the first year, 1% on redemptions made None
decreasing by 1% annually to 1% within 18 months of purchase
in the fifth and sixth years
and 0% the seventh year*
Maximum Sales Load Imposed
on Reinvested Dividends.... None None None None
Redemption Fees............. None None None None
Exchange Fee................ None None None None
</TABLE>

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
---------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees............. .50% .50% .50% .50%
12b-1 Fees (After
Reduction)................. .25%++ .50% .75%++ None
Other Expenses.............. .13% .13% .13% .13%
--
--- --- ---
Total Fund Operating
Expenses (After
Reduction)................. .88% 1.13% 1.38% .63%
--
--
--- --- ---
--- --- ---
</TABLE>

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ -------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE
You would pay the following
expenses on a $1,000
investment, assuming (1) 5%
annual return and (2)
redemption at the end of each
time period:
Class A..................... $39 $57 $ 77 $135
Class B..................... $62 $66 $ 72 $127
Class C..................... $34 $52 $ 83 $171
Class Z..................... $ 6 $20 $ 35 $ 79
You would pay the following
expenses on the same
investment, assuming no
redemption:
Class A..................... $39 $57 $ 77 $135
Class B..................... $12 $36 $ 62 $127
Class C..................... $24 $52 $ 83 $171
Class Z..................... $ 6 $20 $ 35 $ 79
</TABLE>

THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

- -----------------
* Class B shares will automatically convert to Class A shares approximately
seven years after purchase. See "Shareholder Guide--Conversion
Feature--Class B Shares."

+ Dealers independently may charge additional fees for shareholder transactions
or advisory services. Pursuant to rules of the National Association of
Securities Dealers, Inc., the aggregate initial sales charges, deferred
sales charges and asset-based sales charges on shares of the Series may not
exceed 6.25% of total gross sales, subject to certain exclusions. This 6.25%
limitation is imposed on each class of the Series rather than on a per
shareholder basis. Therefore, long-term shareholders of the Series may pay
more in total sales charges than the economic equivalent of 6.25% of such
shareholders' investment in such shares. See "How the Fund is
Managed--Distributor."

++ Although the Class A and Class C Distribution and Service Plans provide that
the Fund may pay a distribution fee of up to .30 of 1% and 1% per annum of
the average daily net assets of the Class A and Class C shares,
respectively, the Distributor may voluntarily limit its distribution fees.
Presently the Distributor limits its distribution fees with respect to the
Class A and Class C shares of the Series to no more than .10 of 1% and .75
of 1% of the average daily net asset value of the Class A and Class C
shares, respectively. This voluntary limitation may be modified or
terminated at any time without notice. The Distributor anticipates modifying
its present limitation for Class A shares so that, in the future, the Fund
will pay distribution fees of .25% with respect to such shares. Total Fund
Operating Expenses of the Class A and Class C shares without any limitations
would be .93% and 1.63%, respectively. See "How the Fund is
Managed--Distributor."

4
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH OF THE INDICATED
PERIODS)
(CLASS A SHARES)

The following financial highlights, for the two years ended August 31, 1998,
have been audited by PricewaterhouseCoopers LLP, independent accountants, and
for the three years ended August 31, 1996 have been audited by other independent
auditors. All such audit reports were unqualified. This information should be
read in conjunction with the financial statements and the notes thereto, which
appear in the Statement of Additional Information. The following financial
highlights contain selected data for a Class A share of beneficial interest
outstanding, total return, ratios to average net assets and other supplemental
data for the periods indicated. This information is based on data contained in
the financial statements. Further performance information is contained in the
annual report, which may be obtained without charge. See "Shareholder
Guide--Shareholder Services--Reports to Shareholders."

<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------------------------------------
JANUARY
22,
1990 (a)
YEAR ENDED AUGUST 31, THROUGH
------------------------------------------------------------------------------------------ AUGUST 31,
1998 1997 1996 1995 1994 1993 1992 1991 1990
------- ------- ------- ------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>

PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of
period............ $ 11.94 $ 11.77 $ 11.91 $ 11.71 $ 12.54 $ 11.75 $ 11.08 $ 10.62 $10.81
------- ------- ------- ------- ------- ------- ------- ------- ----------
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income............ .60 .61(d) .63(d) .66(d) .67 .70 .71 .72 .42
Net realized and
unrealized gain
(loss) on
investment
transactions...... .42 .43 (.09) .20 (.83) .79 .67 .46 (.19)
------- ------- ------- ------- ------- ------- ------- ------- ----------
Total from
investment
operations........ 1.02 1.04 .54 .86 (.16) 1.49 1.38 1.18 .23
------- ------- ------- ------- ------- ------- ------- ------- ----------
LESS DISTRIBUTIONS
Dividends from net
investment
income............ (.60) (.61) (.63) (.66) (.67) (.70) (.71) (.72) (.42)
Distributions in
excess of net
investment
income............ (.01) --(e) -- -- -- -- -- -- --
Distributions from
net realized
gains............. (.05) (.26) (.05) -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ----------
Total
distributions..... (.66) (.87) (.68) (.66) (.67) (.70) (.71) (.72) (.42)
------- ------- ------- ------- ------- ------- ------- ------- ----------
Net asset value, end
of period......... $ 12.30 $ 11.94 $ 11.77 $ 11.91 $ 11.71 $ 12.54 $ 11.75 $ 11.08 $10.62
------- ------- ------- ------- ------- ------- ------- ------- ----------
------- ------- ------- ------- ------- ------- ------- ------- ----------
TOTAL RETURN (c):... 8.71% 9.19% 4.53% 7.70% (1.38)% 13.06% 12.73% 11.49% 2.03%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000)...... $176,555 $172,471 $168,037 $163,025 $13,661 $11,821 $ 6,057 $ 2,729 $1,174
Average net assets
(000)............. $174,485 $173,963 $168,291 $95,024 $13,454 $ 8,755 $ 4,024 $ 1,579 $ 588
Ratios to average
net assets:
Expenses,
including
distribution
fee.............. .73% .68%(d) .68%(d) .69%(d) .74% .74% .74% .71% .78%(b)
Expenses,
excluding
distribution
fee.............. .63% .58%(d) .58%(d) .59%(d) .64% .64% .64% .61% .68%(b)
Net investment
income........... 4.93% 5.15%(d) 5.24%(d) 5.65%(d) 5.46% 5.78% 6.19% 6.61% 6.41%(b)
Portfolio turnover
rate.............. 33% 43% 92% 57% 49% 44% 45% 78% 127%
</TABLE>

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

(a) Commencement of offering of Class A shares.

(b) Annualized.

(c) Total return does not consider the effects of sales loads. Total
return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes
reinvestment of dividends. Total returns for periods of less than a
full year are not annualized.

(d) Net of management fee waiver. Effective September 1, 1997, PIFM
eliminated its management fee waiver (.05 of 1%).

(e) Less than $.005 per share.

5
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH OF THE INDICATED
PERIODS)
(CLASS B SHARES)

The following financial highlights, for the two years ended August 31, 1998,
have been audited by PricewaterhouseCoopers LLP, independent accountants, and
for the three years ended August 31, 1996 have been audited by other independent
auditors. All such audit reports were unqualified. This information should be
read in conjunction with the financial statements and the notes thereto, which
appear in the Statement of Additional Information. The following financial
highlights contain selected data for a Class B share of beneficial interest
outstanding, total return, ratios to average net assets and other supplemental
data for the periods indicated. This information is based on data contained in
the financial statements. Further performance information is contained in the
annual report, which may be obtained without charge. See "Shareholder
Guide--Shareholder Services--Reports to Shareholders."

<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
-------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989(A)
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of
year.............. $ 11.94 $ 11.77 $ 11.91 $ 11.71 $ 12.54 $ 11.75 $ 11.08 $ 10.62 $ 10.88 $ 10.59
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income............ .55 .56(b) .58(b) .61(b) .62 .65 .66 .67 .65 .65
Net realized and
unrealized gain
(loss) on
investment
transactions...... .42 .43 (.09) .20 (.83) .79 .67 .46 (.26) .29
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
Total from
investment
operations........ .97 .99 .49 .81 (.21) 1.44 1.33 1.13 .39 .94
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
LESS DISTRIBUTIONS
Dividends from net
investment
income............ (.55) (.56) (.58) (.61) (.62) (.65) (.66) (.67) (.65) (.65)
Distributions in
excess of net
investment
income............ (.01) --(d) -- -- -- -- -- -- -- --
Distributions from
net realized
gains............. (.05) (.26) (.05) -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
Total
distributions..... (.61) (.82) (.63) (.61) (.62) (.65) (.66) (.67) (.65) (.65)
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
Net asset value, end
of year........... $ 12.30 $ 11.94 $ 11.77 $ 11.91 $ 11.71 $ 12.54 $ 11.75 $ 11.08 $ 10.62 $ 10.88
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
TOTAL RETURN (c):... 8.28% 8.76% 4.12% 7.26% (1.77)% 12.61% 12.32% 10.96% 3.73% 9.33%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
year (000)........ $99,823 $112,658 $135,764 $163,013 $331,982 $358,607 $316,472 $293,942 $313,606 $340,728
Average net assets
(000)............. $104,653 $122,744 $152,656 $230,033 $350,564 $330,823 $303,016 $295,285 $332,580 $353,225
Ratios to average
net assets:
Expenses,
including
distribution
fee.............. 1.13% 1.08%(b) 1.08%(b) 1.11%(b) 1.14% 1.14% 1.14% 1.11% 1.17% 1.05%
Expenses,
excluding
distribution
fee.............. .63% .58%(b) .58%(b) .61%(b) .64% .64% .64% .61% .67% .64%
Net investment
income........... 4.53% 4.75%(b) 4.84%(b) 5.30%(b) 5.06% 5.38% 5.79% 6.21% 6.10% 5.77%
Portfolio turnover
rate.............. 33% 43% 92% 57% 49% 44% 45% 78% 127% 96%
</TABLE>

- ---------------
(a) On December 31, 1988, Prudential Mutual Fund Management, Inc.
succeeded The Prudential Insurance Company of America as manager of
the Fund.

(b) Net of management fee waiver. Effective September 1, 1997, PIFM
eliminated its management fee waiver (.05 of 1%).

(c) Total return does not consider the effects of sales loads. Total
return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each year reported and includes
reinvestment of dividends and distributions.

(d) Less than $.005 per share.

6
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH OF THE INDICATED
PERIODS)
(CLASS C SHARES)

The following financial highlights, for the two years ended August 31, 1998,
have been audited by PricewaterhouseCoopers LLP, independent accountants, and
for the two years ended August 31, 1996 and the period from August 1, 1994
through August 31, 1994, have been audited by other independent auditors. All
such audit reports were unqualified. This information should be read in
conjunction with the financial statements and the notes thereto, which appear in
the Statement of Additional Information. The following financial highlights
contain selected data for a Class C share of beneficial interest outstanding,
total return, ratios to average net assets and other supplemental data for the
periods indicated. This information is based on data contained in the financial
statements. Further performance information is contained in the annual report,
which may be obtained without charge. See "Shareholder Guide--Shareholder
Services--Reports to Shareholders."

<TABLE>
<CAPTION>
CLASS C
------------------------------------------------------
AUGUST 1,
1994 (a)
YEAR ENDED AUGUST 31, THROUGH
----------------------------------- AUGUST 31,
1998 1997 1996 1995 1994
---- ---- ------- ------- --------------
<S> <C> <C> <C> <C> <C>

PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......... $11.94 $11.77 $ 11.91 $ 11.71 $ 11.74
---- ---- ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income........................ .52 .53(b) .55(b) .58(b) .04
Net realized and unrealized gain (loss)
investment transactions.................... .42 .43 (.09) .20 (.03)
---- ---- ------- ------- ------
Total from investment operations............. .94 .96 .46 .78 (.01)
---- ---- ------- ------- ------

LESS DISTRIBUTIONS
Dividends from net investment income......... (.52) (.53) (.55) (.58) (.04)
Distributions in excess of net investment
income..................................... (.01) --(e) -- -- --
Distributions from net realized gains........ (.05) (.26) (.05) -- --
---- ---- ------- ------- ------
Total distributions.......................... (.58) (.79) (.60) (.58) (.04)
---- ---- ------- ------- ------
Net asset value, end of period............... $12.30 $11.94 $ 11.77 $ 11.91 $ 11.71
---- ---- ------- ------- ------
---- ---- ------- ------- ------

TOTAL RETURN (d):............................ 8.01% 8.49% 3.86% 7.00% 0.06%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............. $1,279 $780 $ 876 $ 529 $ 142
Average net assets (000)..................... $969 $798 $ 659 $ 325 $ 42
Ratios to average net assets:
Expenses, including distribution fee....... 1.38% 1.33%(b) 1.33%(b) 1.36%(b) 1.62%(c)
Expenses, excluding distribution fee....... .63% .58%(b) .58%(b) .61%(b) .87%(c)
Net investment income...................... 4.28% 4.50%(b) 4.59%(b) 5.05%(b) 5.17%(c)
Portfolio turnover rate...................... 33% 43% 92% 57% 49%
</TABLE>

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

(a) Commencement of offering of Class C shares.

(b) Net of management fee waiver. Effective September 1, 1997, PIFM
eliminated its management fee waiver (.05 of 1%).

(d) Total return does not consider the effects of sales loads. Total
return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes
reinvestment of dividends. Total returns for periods of less than a
full year are not annualized.

(e) Less than $.005 per share.

7
<PAGE>

FINANCIAL HIGHLIGHTS
(FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE PERIOD INDICATED)
(CLASS Z SHARES)

<TABLE>
<CAPTION>
CLASS Z
-------------------------------
DECEMBER 6,
1996 (a)
YEAR ENDED THROUGH
AUGUST 31, AUGUST 31,
1998 1997
-------------- --------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $ 11.95 $ 12.09
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (d)................................... .62 .46(d)
Net realized and unrealized gain (loss) on investment
transactions................................................ .42 .12
------ ------
Total from investment operations............................ 1.04 .58
------ ------
LESS DISTRIBUTIONS
Dividends from net investment income........................ (.62) (.46)
Distributions in excess of net investment income............ (.01) --(e)
Distributions from net realized gains....................... (.05) (.26)
------ ------
Total distributions......................................... (.68) (.72)
------ ------
Net asset value, end of period.............................. $ 12.31 $ 11.95
------ ------
------ ------
TOTAL RETURN (b):........................................... 8.81% 5.02%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............................. $ 497 $ 28
Average net assets (000).................................... $ 116 $ 11
Ratios to average net assets:
Expenses.................................................. .63% .58%(c)(d)
Net investment income..................................... 5.03% 5.25%(c)(d)
Portfolio turnover rate..................................... 33% 43%
</TABLE>

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

(a) Commencement of offering of Class Z shares.

(d) Net of management fee waiver. Effective September 1, 1997, PIFM
eliminated its management fee waiver (.05 of 1%).

(e) Less than $.005 per share.

8
<PAGE>
HOW THE FUND INVESTS

INVESTMENT OBJECTIVE AND POLICIES

THE SERIES WILL INVEST PRIMARILY IN NEW YORK STATE, MUNICIPAL AND LOCAL
GOVERNMENT OBLIGATIONS AND OBLIGATIONS OF OTHER QUALIFYING ISSUERS, SUCH AS
ISSUERS LOCATED IN PUERTO RICO, THE VIRGIN ISLANDS AND GUAM, WHICH PAY INCOME
EXEMPT, IN THE OPINION OF COUNSEL, FROM NEW YORK STATE, NEW YORK CITY AND
FEDERAL INCOME TAXES (NEW YORK OBLIGATIONS). THERE CAN BE NO ASSURANCE THAT THE
SERIES WILL BE ABLE TO ACHIEVE ITS INVESTMENT OBJECTIVE.

As with an investment in any mutual fund, an investment in this Series can
decrease and you can lose money.

9
<PAGE>
interest rate on another security or the value of an index. Changes in the
interest rate on the other security or index inversely affect the residual
interest rate paid on the inverse floater, with the result that the inverse
floater's price will be considerably more volatile than that of a fixed rate
bond. The market for inverse floaters is relatively new.

THE SERIES WILL INVEST AT LEAST 70% OF ITS TOTAL ASSETS IN NEW YORK
OBLIGATIONS WHICH, AT THE TIME OF PURCHASE, ARE RATED WITHIN THE FOUR HIGHEST
QUALITY GRADES AS DETERMINED BY MOODY'S INVESTORS SERVICE (MOODY'S) (CURRENTLY
Aaa, Aa, A, Baa FOR BONDS, MIG 1, MIG 2, MIG 3, MIG 4 FOR NOTES AND PRIME-1 FOR
COMMERCIAL PAPER), STANDARD & POOR'S RATINGS GROUP (S&P) (CURRENTLY AAA, AA, A,
BBB FOR BONDS, SP-1, SP-2 FOR NOTES AND A-1 FOR COMMERCIAL PAPER) OR ANOTHER
NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO) OR, IF UNRATED,
WILL POSSESS CREDITWORTHINESS, IN THE OPINION OF THE INVESTMENT ADVISER,
COMPARABLE TO SUCH INVESTMENT GRADE RATED SECURITIES.

THE SERIES MAY ALSO INVEST UP TO 30% OF ITS TOTAL ASSETS IN NEW YORK
OBLIGATIONS RATED BELOW Baa BY MOODY'S OR BELOW BBB BY S&P OR A COMPARABLE
RATING OF ANOTHER NRSRO OR, IF NON-RATED, OF COMPARABLE QUALITY, IN THE OPINION
OF THE FUND'S INVESTMENT ADVISER, BASED ON ITS CREDIT ANALYSIS. Securities rated
Baa by Moody's and BBB by S&P are described as being investment grade but are
also characterized as having speculative characteristics. Securities rated below
Baa by Moody's and below BBB by S&P are considered speculative. See "Description
of Security Ratings" in the Appendix. Such lower-rated high yield securities are
commonly referred to as junk bonds. Such securities generally offer a higher
current yield than those in the high rating categories but may also involve
greater price volatility and risk of loss of principal and income. The
investment adviser will attempt to manage risk and enhance yield through credit
analysis and careful security selection. See "Risk Factors Relating to Investing
in High Yield Municipal Obligations" below. Subsequent to its purchase by the
Series, a municipal obligation may be assigned a lower rating or cease to be
rated. Such an event would not require the elimination of the issue from the
portfolio, but the investment adviser will consider such an event in determining
whether the Series should continue to hold the security in its portfolio. Many
issuers of lower-quality bonds choose not to have their obligations rated and
the Series may invest in such unrated securities. Investors should carefully
consider the relative risks associated with investments in securities which
carry lower ratings and in comparable non-rated securities.

During the year ended August 31, 1998, 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>
PERCENTAGE OF
RATINGS TOTAL INVESTMENTS
------------------------------ -------------------------
<S> <C>
AAA/Aaa 38.78 %
AA/Aa 7.48 %
A/A 30.02 %
BBB/Baa 18.40 %
BB/Ba 5.32 %
</TABLE>

From time to time, the Series may own the majority of a municipal issue. Such
majority-owned holdings may present market and credit risks.

10
<PAGE>
The Series may purchase New York Obligations which, in the opinion of the
investment adviser, offer the opportunity for capital appreciation. This may
occur, for example, when the investment adviser believes that the issuer of a
particular New York Obligation might receive an upgraded credit standing,
thereby increasing the market value of the bonds it has issued or when the
investment adviser believes that interest rates might decline.

UNDER NORMAL MARKET CONDITIONS, THE SERIES WILL ATTEMPT TO INVEST
SUBSTANTIALLY ALL OF THE VALUE OF ITS ASSETS IN NEW YORK OBLIGATIONS. As a
matter of fundamental policy, during normal market conditions the Series' assets
will be invested so that at least 80% of the income will be exempt from New York
State, New York City and federal income taxes or the Series will have at least
80% of its total assets invested in New York Obligations. During abnormal market
conditions or to provide liquidity, the Series may hold cash or cash equivalents
or investment grade taxable obligations, including obligations that are exempt
from federal, but not New York City or New York State, taxation and the Series
may invest in tax-free cash equivalents, such as floating rate demand notes,
tax-exempt commercial paper and general obligation and revenue notes, or in
taxable cash equivalents, such as certificates of deposit, bankers acceptances
and time deposits or other short-term taxable investments such as repurchase
agreements. When, in the opinion of the investment adviser, abnormal market
conditions require a temporary defensive position, the Series may invest more
than 20% of the value of its assets in debt securities other than New York
Obligations or may invest its assets so that more than 20% of the income is
subject to New York State, New York City or federal income taxes. The Series
will treat an investment in a municipal bond refunded with escrowed U.S.
Government securities as U.S. Government securities for purposes of the
Investment Company Act's diversification requirements provided certain
conditions are met. See "Investment Objectives and Policies--In General" in the
Statement of Additional Information.

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

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THE SERIES MAY ALSO PURCHASE MUNICIPAL FORWARD CONTRACTS. A municipal forward
contract is a municipal security which is purchased on a when-issued basis with
delivery taking place up to five years from the date of purchase. No interest
will accrue on the security prior to the delivery date. The investment adviser
will monitor the liquidity, value, credit quality and delivery of the security
under the supervision of the Trustees.

THE SERIES MAY PURCHASE SECONDARY MARKET INSURANCE ON NEW YORK OBLIGATIONS
WHICH IT HOLDS OR ACQUIRES. Secondary market insurance would be reflected in the
market value of the municipal obligation purchased and may enable the Series to
dispose of a defaulted obligation at a price similar to that of comparable
municipal obligations which are not in default.

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

RISK FACTORS RELATING TO INVESTING IN HIGH YIELD MUNICIPAL
OBLIGATIONS. FIXED-INCOME SECURITIES ARE SUBJECT TO THE RISK OF AN ISSUER'S
INABILITY TO MEET PRINCIPAL AND INTEREST PAYMENTS ON THE OBLIGATIONS (CREDIT
RISK) AND MAY ALSO BE SUBJECT TO PRICE VOLATILITY DUE TO SUCH FACTORS AS
INTEREST RATE SENSITIVITY, MARKET PERCEPTIONS OF THE CREDITWORTHINESS OF THE
ISSUER AND GENERAL MARKET LIQUIDITY (MARKET RISK). Lower-rated or unrated (I.E.,
high yield) securities, commonly known as junk bonds, are more likely to react
to developments affecting market and credit risk than are more highly rated
securities, which react primarily to movements in the general level of interest
rates. The investment adviser will perform its own investment analysis and will
not rely principally on the ratings assigned by the rating services, although
such ratings will be considered by the investment adivser. The investment
adviser will consider, among other things, credit risk and market risk, as well
as the financial history and condition, the prospects and the management of an
issuer in selecting securities for the Series' portfolio. The achievement of the
Series' investment objective may be more dependent on the investment adviser's
credit analysis than is the case when investing in only higher quality bonds.
Investors should carefully consider the relative risks of investing in high
yield municipal obligations and understand that such securities are not
generally meant for short-term investing and that yields on junk bonds will
fluctuate over time.

The amount of high yield securities outstanding has proliferated recently in
conjunction with the decline in creditworthiness of many obligors of municipal
debt, particularly health care providers and certain governmental bodies. An
economic downturn could severely affect the ability of highly leveraged issuers
to service their debt obligations or to repay their obligations upon maturity.
In addition, the secondary market for high yield securities, which is
concentrated in relatively few market makers, may not be as liquid as the
secondary market for more highly rated securities and, from time to time, it may
be more difficult to value high yield securities than more highly rated
securities, and the judgment of the Board of Trustees and investment adviser may
play a greater role in valuation because there is less reliable objective data
available. Under adverse market or economic conditions, the secondary market for
high yield securities could contract further, independent of any specific
adverse changes in the condition of a particular issuer. As a result, the
investment adviser could find it more difficult to sell these securities or may
be able to sell the securities only at prices lower than if such securities were
widely traded. Prices realized upon the sale of such lower rated or unrated
securities, under these circumstances, may be less than the prices used in
calculating the Series' NAV. If the investment adviser becomes involved in
activities such as reorganizations of obligors of troubled investments held by
the Series, this may prevent the Series from disposing of the securities, due to
its possession of material, non-public information concerning the obligor.

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<PAGE>

FUTURES CONTRACTS AND OPTIONS THEREON

THE SERIES IS AUTHORIZED TO PURCHASE AND SELL CERTAIN DERIVATIVES, INCLUDING
FINANCIAL FUTURES CONTRACTS (FUTURES CONTRACTS) AND OPTIONS THEREON FOR THE
PURPOSE OF HEDGING ITS PORTFOLIO SECURITIES AGAINST FLUCTUATIONS IN VALUE CAUSED
BY CHANGES IN PREVAILING MARKET INTEREST RATES AND HEDGING AGAINST INCREASES IN
THE COST OF SECURITIES THE SERIES INTENDS TO PURCHASE. THE SUCCESSFUL USE OF
FUTURES CONTRACTS AND OPTIONS THEREON BY THE SERIES INVOLVES ADDITIONAL
TRANSACTION COSTS, IS SUBJECT TO VARIOUS RISKS AND DEPENDS UPON THE INVESTMENT
ADVISER'S ABILITY TO PREDICT THE DIRECTION OF THE MARKET (INCLUDING INTEREST
RATES). THE SERIES, AND THUS INVESTORS, MAY LOSE MONEY THROUGH ANY UNSUCCESSFUL
USE OF THESE STRATEGIES.

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THE SUCCESSFUL USE OF FUTURES CONTRACTS AND OPTIONS THEREON BY THE SERIES IS
SUBJECT TO VARIOUS ADDITIONAL RISKS. Any use of futures transactions involves
the risk of imperfect correlation in movements in the price of futures contracts
and movements in interest rates and, in turn, the prices of the securities that
are the subject of the hedge. If the price of the futures contract moves more or
less than the price of the security that is the subject of the hedge, the Series
will experience a gain or loss that will not be completely offset by movements
in the price of the security. The risk of imperfect correlation is greater where
the securities underlying futures contracts are taxable securities (rather than
municipal securities), are issued by companies in different market sectors or
have different maturities, ratings or geographic mixes than the security being
hedged. In addition, the correlation may be affected by additions to or
deletions from the index which serves as the basis for a futures contract.
Finally, if the price of the security that is subject to the hedge were to move
in a favorable direction, the advantage to the Series would be partially offset
by the loss incurred on the futures contract.

SPECIAL CONSIDERATIONS

BECAUSE THE SERIES WILL INVEST AT LEAST 80% OF THE VALUE OF ITS TOTAL ASSETS
IN NEW YORK OBLIGATIONS AND BECAUSE IT SEEKS TO MAXIMIZE INCOME DERIVED FROM NEW
YORK OBLIGATIONS, IT IS MORE SUSCEPTIBLE TO FACTORS ADVERSELY AFFECTING ISSUERS
OF NEW YORK OBLIGATIONS THAN IS A COMPARABLE MUNICIPAL BOND MUTUAL FUND THAT IS
NOT CONCENTRATED IN SUCH OBLIGATIONS TO THIS DEGREE. According to the Update to
the Annual Information Statement of the State of New York, dated August 3, 1998,
the State General Fund reported a $1.56 billion GAAP basis operating surplus for
the fiscal year ended March 31, 1998, resulting in the first accumulated surplus
(of $567 million) in the General Fund since it began reporting its operations on
a GAAP basis. The General Fund accumulated deficit for the fiscal years ended
March 31, 1993, 1994, 1995 and 1996 was $2.6 billion, $1.8 billion, $3.3 billion
and $2.9 billion, respectively. For the fiscal years ended 1997 and 1998, the
General Fund reported a surplus of $1.9 billion and $1.8 billion, respectively.
The Comptroller anticipates an operating surplus for the fiscal year 1998-1999
as well. The enacted 1998-1999 budget increases spending more than the past
three years, mostly for education and the School Tax Relief (STAR) program
fiscal year 1997-1998. The enacted budget included a significantly expanded
program of tax reductions, most of which will take effect in the fiscal year
1999-2000. There can be no assurances that the State will not face substantial
potential budget gaps in this and future years resulting from a significant
disparity between tax revenues projected from a lower recurring receipts base
and the spending required to maintain State programs at current levels. To
address any potential budgetary imbalance, the State may need to take
significant actions to align recurring receipts and disbursements in future
fiscal years. If either New York State or any of its local governmental entities
is unable to meet its financial obligations, the income derived by the Series,
the ability to preserve or realize appreciation of the Series' capital and the
Series' liquidity could be adversely affected. See "Investment Objectives and
Policies--Special Considerations Regarding Investments in Tax-Exempt Securities"
in the Statement of Additional Information.

OTHER INVESTMENTS AND POLICIES

REPURCHASE AGREEMENTS

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BORROWING

PORTFOLIO TURNOVER

ILLIQUID SECURITIES

INVESTMENT RESTRICTIONS

HOW THE FUND IS MANAGED

For the fiscal year ended August 31, 1998, total expenses of the Series as a
percentage of average net assets, were .73%, 1.13%, 1.38% and .63% for the
Series' Class A, Class B, Class C and Class Z shares, respectively. See
"Financial Highlights."

MANAGER

PRUDENTIAL INVESTMENTS MUTUAL FUND MANAGEMENT LLC (PIFM OR THE MANAGER),
GATEWAY CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077, IS THE
MANAGER OF THE FUND AND IS COMPENSATED FOR ITS SERVICES AT

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<PAGE>

AN ANNUAL RATE OF .50 OF 1% OF THE AVERAGE DAILY NET ASSETS OF THE SERIES. PIFM
is organized in New York as a limited liability company. For the fiscal year
ended August 31, 1998, the Series paid PIFM a management fee of .50 of 1% of the
Series' average net assets. See "Fee Waivers and Subsidy" below and "Manager" in
the Statement of Additional Information.

UNDER A SUBADVISORY AGREEMENT BETWEEN PIFM AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC, THE SUBADVISER OR THE INVESTMENT ADVISER), THE SUBADVISER
FURNISHES INVESTMENT ADVISORY SERVICES IN CONNECTION WITH THE MANAGEMENT OF THE
FUND AND IS REIMBURSED BY PIFM FOR ITS REASONABLE COSTS AND EXPENSES INCURRED IN
PROVIDING SUCH SERVICES. PIC's address is Prudential Plaza, Newark, New Jersey
07102-3777. Under the Management Agreement, PIFM continues to have
responsibility for all investment advisory services and supervises the
Subadviser's performance of such services.

The current portfolio manager of the Series is Christian Smith, a Vice
President of Prudential Investments. Mr. Smith has responsibility for the
day-to-day management of the portfolio. He has managed the portfolio since April
1996 and has been employed by PIC in various capacities since 1988.

FEE WAIVERS AND SUBSIDY

PIFM may from time to time waive all or a portion of its management fee and
subsidize all or a portion of the operating expenses of the Series. Fee waivers
and expense subsidies will increase the Series' yield and total return. The
Series is not required to reimburse PIFM for such management fee waiver. See
"Performance Information" in the Statement of Additional Information and "Fund
Expenses."

DISTRIBUTOR

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

UNDER THE CLASS B AND CLASS C PLANS, THE SERIES MAY PAY THE DISTRIBUTOR FOR
ITS DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS B AND CLASS C SHARES
AT AN ANNUAL RATE OF UP TO .50 OF 1% AND UP TO 1% OF THE AVERAGE DAILY NET
ASSETS OF THE CLASS B AND CLASS C SHARES, RESPECTIVELY. The Class B Plan
provides for the payment to the Distributor of (i) an asset-based sales charge
of up to .50 of 1% of the average daily net assets of the Class B shares, and
(ii) a service fee of up to .25 of 1% of the average daily net assets of the
Class B shares; provided that the total distribution-related fee does not exceed
.50 of 1%. The Class C Plan provides for the payment to the Distributor of (i)
an asset-based sales charge of up to .75 of 1% of the average daily net assets
of the Class C shares, and (ii) a service fee of up to .25 of 1% of the average
daily net assets of the Class C shares. The service fee is used to pay for
personal service and/or the maintenance of shareholder accounts. The Distributor
has voluntarily limited its distribution-related fees payable under the Class C
Plan to .75 of 1% of the average daily net assets of the Class C shares. This
voluntary waiver may be modified or terminated at any time without notice. The
Distributor also receives CDSC's from certain redeeming shareholders. See
"Shareholder Guide--How to Sell Your Shares--Contingent Deferred Sales Charges."

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<PAGE>

PORTFOLIO TRANSACTIONS

CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT

YEAR 2000

HOW THE FUND VALUES ITS SHARES

THE SERIES' NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING ITS
LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. NAV IS CALCULATED SEPARATELY FOR EACH CLASS. THE
TRUSTEES HAVE FIXED THE SPECIFIC TIME OF DAY FOR THE COMPUTATION OF THE NAV OF
THE SERIES TO BE AS OF 4:15 P.M., NEW YORK TIME.

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<PAGE>
HOW THE FUND CALCULATES PERFORMANCE

FROM TIME TO TIME THE FUND MAY ADVERTISE THE YIELD, TAX EQUIVALENT YIELD AND
AVERAGE ANNUAL TOTAL RETURN AND AGGREGATE TOTAL RETURN OF THE SERIES IN
ADVERTISEMENTS OR SALES LITERATURE. YIELD, TAX EQUIVALENT YIELD AND TOTAL RETURN
ARE CALCULATED SEPARATELY FOR CLASS A, CLASS B, CLASS C AND CLASS Z SHARES.
THESE FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE
FUTURE PERFORMANCE. The yield refers to the income generated by an investment in
the Series over a one-month or 30-day period. This income is then annualized;
that is, the amount of income generated by the investment during that 30-day
period is assumed to be generated each 30-day period for twelve periods and is
shown as a percentage of the investment. The income earned on the investment is
also assumed to be reinvested at the end of the sixth 30-day period. The tax
equivalent yield is calculated similarly to the yield, except that the yield is
increased using a stated income tax rate to demonstrate the taxable yield
necessary to produce an after-tax yield equivalent to the Series. The total
return shows how much an investment in the Series would have increased
(decreased) over a specified period of time (I.E., one, five or ten years or
since inception of the Series) assuming that all distributions and dividends by
the Series were reinvested on the reinvestment dates during the period and less
all recurring fees. The aggregate total return reflects actual performance over
a stated period of time. Average annual total return is a hypothetical rate of
return that, if achieved annually, would have produced the same aggregate total
return if performance had been constant over the entire period. Average annual
total return smooths out variations in performance and takes into account any
applicable initial or contingent deferred sales charges. Neither average annual
total return nor aggregate total return takes into account any federal or state
income taxes which may be payable upon redemption. The Fund also may include
comparative performance information in advertising or marketing the shares of
the Series. Such performance information may include data from Lipper Analytical
Services, Inc., Morningstar Publications, Inc., other industry publications,
business periodicals, and market indices. See "Performance Information" in the
Statement of Additional Information. Further performance information is
contained in the Series' annual and semi-annual reports to shareholders, which
may be obtained without charge. See "Shareholder Guide--Shareholder
Services--Reports to Shareholders."

TAXES, DIVIDENDS AND DISTRIBUTIONS

TAXATION OF THE FUND

THE SERIES HAS QUALIFIED AND INTENDS TO REMAIN QUALIFIED AS A REGULATED
INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE. ACCORDINGLY, THE SERIES WILL
NOT BE SUBJECT TO FEDERAL INCOME TAXES ON ITS NET INVESTMENT INCOME AND NET
CAPITAL GAINS, IF ANY, THAT IT DISTRIBUTES TO ITS SHAREHOLDERS. TO THE EXTENT
NOT DISTRIBUTED BY THE SERIES, NET TAXABLE INVESTMENT INCOME AND CAPITAL GAINS
AND LOSSES ARE TAXABLE TO THE SERIES. See "Taxes, Dividends and Distributions"
in the Statement of Additional Information.

To the extent the Series invests in taxable obligations, it will earn taxable
investment income. Also, to the extent the Series sells securities or engages in
hedging transactions in futures contracts and options thereon, it may earn both
capital gain or loss. Capital gain or loss may also arise upon the sale of
municipal securities, as well as taxable obligations. Under the Internal Revenue
Code, special rules apply to the treatment of certain options and futures
contracts (Section 1256 contracts). At the end of each year, such investments
held by the Series will be required to be marked to market for federal income
tax purposes; that is, treated as having been sold at market value. Sixty
percent of any gain or loss recognized on these deemed sales and on actual
dispositions will be treated as long-term capital gain or loss, and the
remainder will be treated as short-term capital gain or loss. See "Taxes,
Dividends and Distributions" in the Statement of Additional Information.

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<PAGE>

TAXATION OF SHAREHOLDERS

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

Under New York law, dividends paid by the Series are exempt from New York
State and New York City income taxes for resident individuals to the extent such
dividends are excluded from gross income for federal income tax purposes and are
derived from interest payments on New York Obligations.

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<PAGE>

WITHHOLDING TAXES

DIVIDENDS AND DISTRIBUTIONS

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

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

GENERAL INFORMATION

DESCRIPTION OF SHARES

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<PAGE>
subject to any sales charges and distribution and/or service fees), which may
affect performance, (ii) each class has exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement and has
separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class, (iii) each
class has a different exchange privilege, (iv) only Class B shares have a
conversion feature and (v) Class Z shares are offered exclusively for sale to a
limited group of investors. See "How the Fund is Managed--Distributor." In
accordance with the Fund's Declaration of Trust, the Trustees may authorize the
creation of additional series and classes within such series, with such
preferences, privileges, limitations and voting and dividend rights as the
Trustees may determine.

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

The Declaration of Trust and the By-Laws of the Fund are designed to make the
Fund similar in certain respects to a Massachusetts business corporation. The
principal distinction between a Massachusetts business corporation and a
Massachusetts business trust relates to shareholder liability. Under
Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
fund, which is not the case with a corporation. The Declaration of Trust of the
Fund provides that shareholders shall be subject to any personal liability for
the acts or obligations of the Fund and that every written obligation, contract,
instrument or undertaking made by the Fund shall contain a provision to the
effect that the shareholders are not individually bound thereunder.

ADDITIONAL INFORMATION

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

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<PAGE>
SHAREHOLDER GUIDE

HOW TO BUY SHARES OF THE FUND

An investment in the Series may not be appropriate for tax-exempt or
tax-deferred investors. Such investors should consult their own tax advisers.

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

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

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<PAGE>

If you arrange for receipt by State Street of federal funds prior to the
caculation of NAV (4:30 P.M., New York time), on a business day, you may
purchase shares of the Series as of that day. See "Net Asset Value" in the
Statement of Additional Information.

In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Municipal Series
Fund (New York Series), the name of the Series, Class A, Class B, Class C or
Class Z shares and your name and individual account number. It is not necessary
to call PMFS to make subsequent purchase orders utilizing federal funds. The
minimum amount which may be invested by wire is $1,000.

ALTERNATIVE PURCHASE PLAN

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

CLASS Z None None Sold to a limited group of
investors
</TABLE>

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

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

If you intend to hold your investment in a Fund for less than 3 years and do
not qualify for a reduced sales charge on Class A shares, since Class A shares
are subject to maximum initial sales charge of 3% and Class B shares are subject
to a CDSC of 5% which declines to zero over a 6 year period, you should consider
purchasing Class C shares over either Class A or Class B shares.

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

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<PAGE>
CLASS A SHARES

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

OTHER WAIVERS. Class A shares may be purchased at NAV, through the Distributor
or the Transfer Agent, by the following persons: (a) officers of the Prudential
Mutual Funds (including the Fund), (b) employees of the Distributor, Prudential
Securities, PIFM and their subsidiaries and members of the families of such
persons who maintain an employee related account at Prudential Securities or the
Transfer Agent, (c) employees of subadvisers of the Prudential Mutual Funds
provided that the purchases at NAV are permitted by such person's employer, (d)
Prudential, employees and special agents of Prudential and its subsidiaries and
all persons who have retired directly from active service with Prudential or one
of its subsidiaries, (e) registered representatives and employees of Dealers who
have entered into a selected dealer agreement with the Distributor, provided
that purchases at NAV are permitted by such person's employer and (f) investors
who have a business relationship with a financial adviser who joined Prudential
Securities from another investment firm, provided that (i) the purchase is made
within 180 days of the commencement of the financial adviser's employment at
Prudential Securities or within one year in the case of benefit plans, (ii) the
purchase is made with proceeds of a redemption of shares of any open-end
non-money market fund sponsored by the financial adviser's previous employer
(other than a fund which imposes a distribution or service fee of .25 of 1% or
less) and (iii) the financial adviser served as the client's broker on the
previous purchases.

26
<PAGE>
CLASS B AND CLASS C SHARES

The Distributor will pay, from its own resources, sales commissions of up to
4% of the purchase price of Class B shares to Dealers, financial advisers and
other persons who sell Class B shares at the time of sale. This facilitates the
ability of the Trust to sell the Class B shares of the Funds without an initial
sales charge being deducted at the time of purchase. The Distributor anticipates
that it will recoup its advancement of sales commissions from the combination of
the CDSC and the distribution fee. In connection with the sale of Class C
shares, the Distributor will pay, partially from its own resources, Dealers,
financial advisers and other persons which distribute Class C shares a sales
commission of up to 2% of the purchase price at the time of the sale. The
Distributor anticipates that it would recoup its advancement of sales
commissions from the combination of the CDSC, and the distribution fee. See "How
the Fund is Managed--Distributor."

WAIVER OF INITAL SALES CHARGE--CLASS C SHARES

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

CLASS Z SHARES

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

HOW TO SELL YOUR SHARES

27
<PAGE>

IF YOU HOLD SHARES IN NON-CERTIFICATE FORM, A WRITTEN REQUEST FOR REDEMPTION
SIGNED BY YOU EXACTLY AS THE ACCOUNT IS REGISTERED IS REQUIRED. IF YOU HOLD
CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE FACE OF THE
CERTIFICATES, MUST BE RECEIVED BY THE TRANSFER AGENT, THE DISTRIBUTOR OR YOUR
DEALER IN ORDER FOR THE REDEMPTION REQUEST TO BE PROCESSED. IF REDEMPTION IS
REQUESTED BY A CORPORATION, PARTNERSHIP, TRUST OR FIDUCIARY, WRITTEN EVIDENCE OF
AUTHORITY ACCEPTABLE TO THE TRANSFER AGENT MUST BE SUBMITTED BEFORE SUCH REQUEST
WILL BE ACCEPTED. All correspondence and documents concerning redemptions should
be sent to the Fund in care of its Transfer Agent, Prudential Mutual Fund
Services LLC, Attention: Redemption Services, P .O. Box 15010, New Brunswick,
New Jersey 08906-5010, the Distributor or your Dealer.

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

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

28
<PAGE>

CONTINGENT DEFERRED SALES CHARGES

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

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

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

In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results in the lowest possible rate. It will be
assumed that the redemption is made first of amounts representing shares
acquired pursuant to the reinvestment of dividends and distributions; then of
amounts representing the increase in NAV above the total amount of payments for
the purchase of Series shares made during the preceding six years (five years
for Class B shares purchased prior to January 22, 1990); then of amounts
representing the cost of shares held beyond the applicable CDSC period; and
finally, of amounts representing the cost of shares held for the longest period
of time within the applicable CDSC period.

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

CONVERSION FEATURE--CLASS B SHARES

30
<PAGE>

HOW TO EXCHANGE YOUR SHARES

IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.

IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE
FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.

31
<PAGE>
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services LLC, Attention: Exchange Processing, P.O. Box 15010, New Brunswick, New
Jersey 08906-5010.

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

SHAREHOLDER SERVICES

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

32
<PAGE>

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

33
<PAGE>
DESCRIPTION OF SECURITY RATINGS

MOODY'S INVESTORS SERVICE

BOND RATINGS

Caa: Bonds which 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 which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C: Bonds which 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 RATINGS

MIG 2: Loans bearing the designation MIG 2 are of high quality, with margins
of protection ample although not so large as in the preceding group.

A-1
<PAGE>
MIG 3: Loans bearing the designation MIG 3 are of favorable quality, with all
security elements accounted for but lacking the strength of the preceding
grades.

SG: This designation denotes speculative quality. Debt instruments in this
category lack margins of protection.

SHORT-TERM DEBT RATINGS

- Leading market positions in well-established industries.

- High rates of return on funds employed.

- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.

- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

- Well-established access to a range of financial markets and assured
sources of alternate liquidity.

PRIME-3: Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations.

NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime rating
categories.

STANDARD & POOR'S RATINGS GROUP

DEBT RATINGS

AAA: An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.

AA: An obligation rated AA differs from the highest rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.

COMMERCIAL PAPER RATINGS

An S&P Commercial Paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.

A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.

MUNICIPAL NOTES

A-3
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY

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

TAXABLE BOND FUNDS
--------------------------

TAX-EXEMPT BOND FUNDS
-----------------------------

GLOBAL 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 Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential International Bond Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Purdential World Fund, Inc.
Global Series
International Stock Series
Global Utility Fund, Inc.
The Global Total Return Fund, Inc.

EQUITY FUNDS
--------------------

Prudential Balanced Fund
Prudential Distressed Securities Fund, Inc.

Prudential Emerging Growth Fund Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Index Series Fund
Prudential Bond Market Index Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced Fund
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Mid-Cap Value Fund
Prudential Real Estate Securities Fund
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Utility Fund, Inc.
Prudential 20/20 Focus Fund
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund

MONEY MARKET FUNDS
--------------------------

B-1
<PAGE>

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FUND HIGHLIGHTS............................................................. 2
What are the Series' Risk Factors and Special Characteristics?............ 2
FUND EXPENSES............................................................... 4
FINANCIAL HIGHLIGHTS........................................................ 5
HOW THE FUND INVESTS........................................................ 9
Investment Objective and Policies......................................... 9
Other Investments and Policies............................................ 14
Investment Restrictions................................................... 15
HOW THE FUND IS MANAGED..................................................... 15
Manager................................................................... 15
Fee Waivers and Subsidy................................................... 16
Distributor............................................................... 16
Portfolio Transactions.................................................... 18
Custodian and Transfer and Dividend Disbursing Agent...................... 18
Year 2000................................................................. 18
HOW THE FUND VALUES ITS SHARES.............................................. 18
HOW THE FUND CALCULATES PERFORMANCE......................................... 19
TAXES, DIVIDENDS AND DISTRIBUTIONS.......................................... 19
GENERAL INFORMATION......................................................... 21
Description of Shares..................................................... 21
Additional Information.................................................... 22
SHAREHOLDER GUIDE........................................................... 23
How to Buy Shares of the Fund............................................. 23
Alternative Purchase Plan................................................. 24
How to Sell Your Shares................................................... 27
Conversion Feature--Class B Shares........................................ 30
How to Exchange Your Shares............................................... 31
Shareholder Services...................................................... 32
DESCRIPTION OF SECURITY RATINGS............................................. A-1
THE PRUDENTIAL MUTUAL FUND FAMILY........................................... B-1
</TABLE>

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

MF122A

Class A: 74435M-74-7
CUSIP Nos.: Class B: 74435M-75-4
Class C: 74435M-52-3
Class Z: 74435M-44-0

PRUDENTIAL
MUNICIPAL
SERIES FUND
- -----------

NEW YORK SERIES

PROSPECTUS
November 2, 1998
www.prudential.com

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

[LOGO]
<PAGE>
Prudential Municipal Series Fund
(New York Money Market Series)

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

PROSPECTUS DATED NOVEMBER 2, 1998

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

Prudential Municipal Series Fund (the Fund) (New York Money Market Series) (the
Series) is one of thirteen series of an open-end, management investment company,
or mutual fund. This Series is diversified and is designed to provide the
highest level of current income that is exempt from New York State, New York
City and federal income taxes consistent with liquidity and the preservation of
capital. The net assets of the Series are invested primarily in short-term, tax-
exempt New York State, municipal and local debt obligations and obligations of
other qualifying issuers. There can be no assurance that the Series' investment
objective will be achieved. See "How the Fund Invests--Investment Objective and
Policies." The Fund's address is Gateway Center Three, 100 Mulberry Street,
Newark, New Jersey 07102-4077, and its telephone number is (800) 225-1852.

This Prospectus sets forth concisely the information about the Fund and the New
York Money Market Series that a prospective investor should know before
investing and is available at the Web site of The Prudential Insurance Company
of America (http://www.prudential.com). Additional information about the Fund
has been filed with the Securities and Exchange Commission (Commission) in a
Statement of Additional Information dated November 2, 1998, which information is
incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to Prudential Municipal
Series Fund at the address or telephone number noted above. The Commission
maintains a Web site (http://www.sec.gov) that contains the Statement of
Additional Information, material incorporated by reference and other information
regarding the Fund and the Series.

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

INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.

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

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

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

WHAT IS PRUDENTIAL MUNICIPAL SERIES FUND?

Prudential Municipal Series Fund is a mutual fund whose shares are offered
in thirteen series, each of which operates as a separate fund. A mutual fund
pools the resources of investors by selling its shares to the public and
investing the proceeds of such sale in a portfolio of securities designed to
achieve its investment objective. Technically, the Fund is an open-end,
management investment company. Only the New York Money Market Series is
offered through this Prospectus.

WHAT IS THE SERIES' INVESTMENT OBJECTIVE?

The Series' investment objective is to provide the highest level of
current income that is exempt from New York State, New York City and federal
income taxes consistent with liquidity and the preservation of capital. It
seeks to achieve this objective by investing primarily in short-term New
York State, municipal and local government obligations and obligations of
other qualifying issuers, such as issuers located in Puerto Rico, the Virgin
Islands and Guam, which pay income exempt, in the opinion of counsel, from
New York State, New York City and federal income taxes (New York
Obligations). There can be no assurance that the Series will achieve its
investment objective. See "How the Fund Invests--Investment Objective and
Policies" at page 6.

WHAT ARE THE SERIES' RISK FACTORS AND SPECIAL CHARACTERISTICS?

WHO MANAGES THE FUND?

2
<PAGE>
WHO DISTRIBUTES THE SERIES' SHARES?

WHAT IS THE MINIMUM INVESTMENT?

HOW DO I PURCHASE SHARES?

HOW DO I SELL MY SHARES?

HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?

3
<PAGE>
FUND EXPENSES
(NEW YORK MONEY MARKET SERIES)

<TABLE>
<CAPTION>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases................. None
Maximum Deferred Sales Loads............................ None
Maximum Sales Load Imposed on Reinvested Dividends...... None
Redemption Fees......................................... None
Exchange Fee............................................ None
</TABLE>

<TABLE>
<CAPTION>
<S> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees......................................... .500%
12b-1 Fees.............................................. .125%
Other Expenses.......................................... .065%
------
Total Fund Operating Expenses........................... .690%
------
------
</TABLE>

THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

4
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH OF THE INDICATED
PERIODS)

The following financial highlights, for the two years ended August 31, 1998,
have been audited by PricewaterhouseCoopers LLP, independent accountants, and
for the three years ended August 31, 1996 have been audited by other independent
auditors. All such audit reports were unqualified. This information should be
read in conjunction with the financial statements and the notes thereto, which
appear in the Statement of Additional Information. The following financial
highlights contain selected data for a share of beneficial interest outstanding,
total return, ratios to average net assets and other supplemental data for the
periods indicated. This information is based on data contained in the financial
statements. Further performance information is contained in the annual report,
which may be obtained without charge. See "Shareholder Guide--Shareholder
Services--Reports to Shareholders."

<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of year...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income and
net realized gains..... .03 .03 .03 .03 .02 .02 .03 .04 .05 .05

Dividends and
distributions to
shareholders........... (.03) (.03) (.03) (.03) (.02) (.02) (.03) (.04) (.05) (.05)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of
year................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- ------- -------

TOTAL RETURN (A):........ 2.94% 2.91% 2.97% 3.06% 1.80% 1.80% 2.93% 4.37% 5.14% 5.14%

RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000).................. $412,352 $358,291 $349,470 $324,698 $269,073 $286,304 $249,785 $236,361 $226,758 $184,615
Average net assets
(000).................. $373,494 $326,092 $336,427 $292,763 $280,492 $275,640 $248,557 $245,494 $218,423 $173,661
Ratios to average net
assets:
Expenses, including
distribution fee...... .69% .71% .72% .73% .77% .75% .76% .79% .75% .79%
Expenses, excluding
distribution fee...... .57% .58% .60% .61% .64% .63% .63% .66% .62% .67%
Net investment
income................ 2.90% 2.87% 2.91% 3.02% 1.78% 1.75% 2.83% 4.23% 4.99% 5.01%
</TABLE>

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

(a) Total return includes reinvestment of dividends and distributions.

5
<PAGE>
CALCULATION OF YIELD

<TABLE>
<S> <C>
Value of hypothetical account at end of period......... $1.000511545
Value of hypothetical account at beginning of period... 1.000000000
------------
Base period return..................................... $0.000511545
------------
------------
CURRENT YIELD (.000536323 X (365/7))................... 2.67%
EFFECTIVE ANNUAL YIELD, assuming daily compounding..... 2.70%
TAX-EQUIVALENT CURRENT YIELD (2.67% DIVIDED BY
[(1-.0685)(1-.396)]................................... 4.75%
</TABLE>

THE YIELD WILL FLUCTUATE FROM TIME TO TIME AND DOES NOT INDICATE FUTURE
PERFORMANCE.

The weighted average life to maturity of the portfolio of the Series on August
31, 1998 was 45 days.

HOW THE FUND INVESTS

INVESTMENT OBJECTIVE AND POLICIES

PRUDENTIAL MUNICIPAL SERIES FUND (THE FUND) IS AN OPEN-END, MANAGEMENT
INVESTMENT COMPANY, OR MUTUAL FUND, CONSISTING OF THIRTEEN SEPARATE SERIES. EACH
OF THESE SERIES IS MANAGED INDEPENDENTLY. THE NEW YORK MONEY MARKET SERIES (THE
SERIES) IS DIVERSIFIED AND ITS INVESTMENT OBJECTIVE IS TO PROVIDE THE HIGHEST
LEVEL OF CURRENT INCOME THAT IS EXEMPT FROM NEW YORK STATE, NEW YORK CITY AND
FEDERAL INCOME TAXES CONSISTENT WITH LIQUIDITY AND THE PRESERVATION OF CAPITAL.
THE SERIES SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING PRIMARILY IN
SHORT-TERM NEW YORK STATE, MUNICIPAL AND LOCAL GOVERNMENT OBLIGATIONS AND
OBLIGATIONS OF OTHER QUALIFYING ISSUERS, SUCH AS ISSUERS LOCATED IN PUERTO RICO,
THE VIRGIN ISLANDS AND GUAM, WHICH PAY INCOME EXEMPT, IN THE OPINION OF COUNSEL,
FROM NEW YORK STATE, NEW YORK CITY AND FEDERAL INCOME TAXES (NEW YORK
OBLIGATIONS). SEE "INVESTMENT OBJECTIVES AND POLICIES" IN THE STATEMENT OF
ADDITIONAL INFORMATION. THERE CAN BE NO ASSURANCE THAT THE SERIES WILL BE ABLE
TO ACHIEVE ITS INVESTMENT OBJECTIVE.

As with an investment in any mutual fund, an investment in this Series can
decrease in value and you can lose money.

6
<PAGE>

ALL NEW YORK OBLIGATIONS PURCHASED BY THE SERIES WILL, AT THE TIME OF
PURCHASE, HAVE A REMAINING MATURITY OF THIRTEEN MONTHS OR LESS AND BE (I) RATED
IN ONE OF THE TWO HIGHEST RATING CATEGORIES BY AT LEAST TWO NATIONALLY
RECOGNIZED STATISTICAL RATING ORGANIZATIONS (NRSRO'S) ASSIGNING A RATING TO THE
SECURITY OR ISSUER (OR, IF ONLY ONE NRSRO ASSIGNED A RATING, BY THAT NRSRO) OR
(II), IF UNRATED, OF COMPARABLE QUALITY AS DETERMINED BY THE INVESTMENT ADVISER
UNDER THE SUPERVISION OF THE TRUSTEES. See "Description of Tax-Exempt Security
Ratings" in the Statement of Additional Information. The investment adviser will
monitor the credit quality of securities purchased for the Series' portfolio and
will limit its investments to those which present minimal credit risks.

In selecting New York Obligations for investment by the Series, the investment
adviser considers ratings assigned by NRSRO's, information concerning the
financial history and condition of the issuer and its revenue and expense
prospects and, in the case of revenue bonds, the financial history and condition
of the source of revenue to service the bonds. If a New York Obligation held by
the Series is assigned a lower rating or ceases to be rated, the investment
adviser under the supervision of the Trustees will promptly reassess whether
that security presents minimal credit risks and whether the Series should
continue to hold the security in its portfolio. If a portfolio security no
longer presents minimal credit risks or is in default, the Series will dispose
of the security as soon as reasonably practicable unless the Trustees determine
that to do so is not in the best interests of the Series and its shareholders.

The Series utilizes the amortized cost method of valuation in accordance with
regulations issued by the Commission. See "How the Fund Values its Shares."

7
<PAGE>
exempt from federal, but not New York City or New York State, taxation. When, in
the opinion of the investment adviser, abnormal market conditions require a
temporary defensive position, the Series may invest more than 20% of the value
of its assets in short-term debt securities other than New York Obligations or
may invest its assets so that more than 20% of the income is subject to New York
State, New York City or federal income taxes. The Series will treat an
investment in a municipal bond refunded with escrowed U.S. Government securities
as U.S. Government securities for purposes of the Investment Company Act's
diversification requirements provided certain conditions are met. See
"Investment Objectives and Policies--In General" in the Statement of Additional
Information.

THE SERIES MAY PURCHASE MUNICIPAL OBLIGATIONS ON A WHEN-ISSUED OR DELAYED
DELIVERY BASIS, IN EACH CASE WITHOUT LIMIT. When municipal obligations are
offered on a when-issued or delayed delivery basis, the price and coupon rate
are fixed at the time the commitment to purchase is made, but delivery and
payment for the securities take place at a later date. The purchase price for
such securities includes interest accrued during the period between purchase and
settlement and, therefore, no interest accrues to the economic benefit of the
purchaser during such period. In the case of purchases by the Series, the price
that the Series is required to pay on the settlement date may be in excess of
the market value of the municipal obligations on that date. While securities may
be sold prior to the settlement date, the Series intends to purchase these
securities with the purpose of actually acquiring them unless a sale would be
desirable for investment reasons. At the time the Series makes the commitment to
purchase a municipal obligation on a when-issued or delayed delivery basis, it
will record the transaction and reflect the value of the obligation each day in
determining its NAV. This value may fluctuate from day to day in the same manner
as values of municipal obligations otherwise held by the Series. If the seller
defaults in the sale, the Series could fail to realize the appreciation, if any,
that had occurred. The Series will establish a segregated account in which it
will maintain cash or other liquid assets equal or greater in value to its
commitments for when-issued or delayed delivery securities.

8
<PAGE>

the insurance company will make timely payment of principal and interest if the
issuer defaults on its obligation to make such payment, it does not afford
protection against fluctuation in the price, I.E., the market value, of the
municipal obligations caused by changes in interest rates and other factors, nor
in turn against fluctuations in the NAV of the shares of the Series.

SPECIAL CONSIDERATIONS

BECAUSE THE SERIES WILL INVEST PRIMARILY IN NEW YORK OBLIGATIONS AND BECAUSE
IT SEEKS TO MAXIMIZE INCOME DERIVED FROM NEW YORK OBLIGATIONS, IT IS MORE
SUSCEPTIBLE TO FACTORS ADVERSELY AFFECTING ISSUERS OF NEW YORK OBLIGATIONS THAN
IS A COMPARABLE TAX-EXEMPT MONEY MARKET FUND THAT IS NOT CONCENTRATED IN SUCH
OBLIGATIONS TO THIS DEGREE. An investment in the Series therefore may involve
more risk than an investment in other types of money market funds. According to
the Annual Information Statement of the State of New York, dated June 26, 1998
("Annual Information Statement"), the General Fund accumulated deficit for the
fiscal years ended March 31, 1995 and 1996 was $3.3 billion and $2.9 billion,
respectively. For the fiscal years ended 1997 and 1998, the General Fund
reported a surplus of $1.9 billion and $1.56 billion, respectively. According to
the Update to the Annual Information Statement, dated August 3, 1998, the State
General Fund reported a $1.56 billion GAAP basis operating surplus for the
fiscal year ended March 31, 1998, resulting in the first accumulated surplus (of
$567 million) in the General Fund since it began reporting its operations on a
GAAP basis. The Comptroller anticipates an operating surplus for the fiscal year
1998-1999 as well. The enacted 1998-1999 budget increases spending more than the
past three years, mostly for education and the School Tax Relief (STAR) program.
The fiscal year 1997-1998 enacted budget included a significantly expanded
program of tax reductions, most of which will take effect in the fiscal year
1999-2000. There can be no assurances that the State will not face substantial
potential budget gaps this and in future years resulting from a significant
disparity between tax revenues projected from a lower recurring receipts base
and the spending required to maintain State programs at current levels. To
address any potential budgetary imbalance, the State may need to take
significant actions to align recurring receipts and disbursements in future
fiscal years. If either New York State or any of its local governmental entities
is unable to meet its financial obligations, the income derived by the Series,
the ability to preserve or realize appreciation of the Series' capital and the
Series' liquidity could be adversely affected. See "Investment Objectives and
Policies--Special Considerations Regarding Investments in Tax-Exempt Securities"
in the Statement of Additional Information.

OTHER INVESTMENTS AND POLICIES

REPURCHASE AGREEMENTS

BORROWING

9
<PAGE>
ILLIQUID SECURITIES

INVESTMENT RESTRICTIONS

HOW THE FUND IS MANAGED

For the fiscal year ended August 31, 1998, total expenses of the Series as a
percentage of its average net assets were .69%. See "Financial Highlights."

MANAGER

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

10
<PAGE>

FEE WAIVERS

DISTRIBUTOR

UNDER THE PLAN, THE SERIES REIMBURSES THE DISTRIBUTOR FOR ITS
DISTRIBUTION-RELATED EXPENSES AT AN ANNUAL RATE OF .125 OF 1% OF THE AVERAGE
DAILY NET ASSETS OF THE SERIES. Account servicing fees are paid based on the
average balance of the Series' shares held in the accounts of the customers of
financial advisers. The entire distribution fee may be used to pay account
servicing fees.

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

PORTFOLIO TRANSACTIONS

11
<PAGE>
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT

YEAR 2000

HOW THE FUND VALUES ITS SHARES

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

12
<PAGE>
TAXES, DIVIDENDS AND DISTRIBUTIONS

TAXATION OF THE FUND

TAXATION OF SHAREHOLDERS

Any dividends out of net taxable investment income, together with
distributions of net short-term gains (I.E., the excess of net short-term
capital gains over net long-term capital losses) distributed to shareholders,
will be taxable as ordinary income to the shareholder whether or not reinvested.
Any net capital gains (I.E., the excess of net capital gains from the sale of
assets held for more than 12 months over net short-term capital losses)
distributed to shareholders will be taxable as long-term capital gains to the
shareholders, whether or not reinvested and regardless of the length of time a
shareholder has owned his or her shares. Recent legislation created various
categories of capital gains applicable to individuals. For capital gains
recognized upon the sale of assets by the Series after December 31, 1997, the
maximum long-term capital gains tax rate for individuals is 20%. The maximum
capital gains tax rate for corporate shareholders currently is the same as the
maximum tax rate for ordinary income. The Series does not expect to have capital
gains from the sale of assets held for more than 12 months.

13
<PAGE>

Distributions relating to interest on all municipal obligations will be
included in a corporate shareholder's current earnings for purposes of the
adjustment for current earnings for alternative minimum tax purposes. Corporate
shareholders should consult with
their tax advisers with respect to this potential adjustment.

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

WITHHOLDING TAXES

DIVIDENDS AND DISTRIBUTIONS

THE SERIES EXPECTS TO DECLARE DAILY AND PAY MONTHLY DIVIDENDS OF NET
INVESTMENT INCOME AND SHORT-TERM CAPITAL GAINS.

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

14
<PAGE>
GENERAL INFORMATION

DESCRIPTION OF SHARES

THE FUND WAS ESTABLISHED AS A MASSACHUSETTS BUSINESS TRUST ON MAY 18, 1984 BY
A DECLARATION OF TRUST. The Fund's activities are supervised by its Trustees.
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares in separate series, currently designated as the
Connecticut Money Market Series, Florida Series, Maryland Series, Massachusetts
Series, Massachusetts Money Market Series, Michigan Series, New Jersey Series,
New Jersey Money Market Series, New York Series, New York Money Market Series,
North Carolina Series, Ohio Series and Pennsylvania Series. Currently, all
series of the Fund, except for the Connecticut Money Market Series, the Florida
Series, the Massachusetts Series, the Massachusetts Money Market Series, the New
Jersey Money Market Series, the New Jersey Series, the New York Money Market
Series and the New York Series, offer three classes, designated Class A, Class B
and Class C shares. The Florida Series, the Massachusetts Series, the New Jersey
Series and the New York Series offer four classes, designated Class A, Class B,
Class C and Class Z shares. The Connecticut Money Market Series, the
Massachusetts Money Market Series, the New Jersey Money Market Series and the
New York Money Market Series offer only one class of shares. Pursuant to the
Fund's Declaration of Trust, the Trustees may authorize the creation of
additional series and classes within such series, with such preferences,
privileges, limitations and voting and dividend rights as the Trustees may
determine.

ADDITIONAL INFORMATION

15
<PAGE>
SHAREHOLDER GUIDE

HOW TO BUY SHARES OF THE FUND

YOU MAY PURCHASE SHARES OF THE SERIES THROUGH THE DISTRIBUTOR, THROUGH DEALERS
OR DIRECTLY FROM THE FUND, THROUGH ITS TRANSFER AGENT, PRUDENTIAL MUTUAL FUND
SERVICES LLC (PMFS OR THE TRANSFER AGENT), ATTENTION: INVESTMENT SERVICES, P.O.
BOX 15020, NEW BRUNSWICK, NEW JERSEY 08906-5020. The minimum initial investment
is $1,000. The minimum subsequent investment is $100. All minimum investment
requirements are waived for the COMMAND Account program (if the Series is
designated as your primary fund) and certain employee savings and retirement
plans. For purchases made through the Automatic Investment Plan, the minimum
initial and subsequent investment is $50. See "Shareholder Services" below. For
automatic purchases made through Prudential Securities, the minimum investment
requirement is $1,000 and there is no minimum subsequent investment requirement.

An investment in the Series may not be appropriate for tax-exempt or
tax-deferred investors. Such investors should consult with their own tax
advisers.

Investors who purchase their shares through a Dealer other than Prudential
Securities or Prusec, which Dealer has a clearinghouse arrangement with respect
to Shares of the Series, may be able to participate in the automatic sweep
feature described below under "Purchase through Prudential Securities--Automatic
Investment (Autosweep)" and "How to Sell Your Shares--Redemption of Shares
Purchased through Prudential Securities." For further information, contact your
Dealer.

Transactions in shares of the Series may be subject to postage and other
charges imposed by the Dealer. Any such charge is retained by the Dealer and is
not remitted to the Series.

PURCHASES THROUGH PRUDENTIAL SECURITIES

16
<PAGE>
to the balance of the NAV determined on that day. Funds held by Prudential
Securities on behalf of its clients in the form of free credit balances are
delivered to the Fund by Prudential Securities and begin earning dividends the
second business day after receipt of the order by Prudential Securities.
Accordingly, Prudential Securities will have the use of such free credit
balances during this period.

AUTOMATIC INVESTMENT (AUTOSWEEP) (FOR NON-COMMAND ACCOUNTS)

The following chart shows the frequency and amount of the sweep for accounts
other than IRA's and Benefit Plans.

17
<PAGE>
All shares purchased pursuant to these automatic investment procedures will be
issued at the NAV computed on the business day the order is entered and will
begin earning dividends on the following business day. Purchases through
Autosweep are subject to the Series' minimum initial investment requirement of
$1,000, which is waived for certain retirement and employee savings plans and
custodial accounts for the benefit of minors. Prudential Securities will have
the use of, and will retain the benefits of, Eligible Credit Balances in a
client's brokerage account until the monies are delivered to the Fund.
(Prudential Securities delivers Federal Funds on the business day after
settlement). Eligible Credit Balances for purposes of Autosweep are measured as
of the close of business on the previous business day.

PURCHASES THROUGH PRUSEC

PURCHASE BY WIRE

18
<PAGE>
by wire to State Street Bank and Trust Company (State Street), Boston,
Massachusetts, Custody and Shareholder Services Division, Attention: Prudential
Municipal Series Fund, New York Money Market Series, specifying on the wire the
account number assigned by PMFS and your name.

In making a subsequent purchase order by wire, you should wire State Street
directly, and should be sure that the wire specifies Prudential Municipal Series
Fund (New York Money Market Series) and your name and individual account number.
It is not necessary to call PMFS to make subsequent purchase orders utilizing
Federal Funds. The minimum amount which may be invested by wire is $1,000.

PURCHASE BY MAIL

Purchase orders for which remittance is to be made by check or money order may
be submitted directly by mail to Prudential Mutual Fund Services LLC, Attention:
Investment Services, P.O. Box 15020, New Brunswick, New Jersey 08906-5020,
together with payment for the purchase price of such shares and, in the case of
a new account, a completed application form. You should also submit an IRS Form
W-9. If PMFS receives an order to purchase shares of the Series and payment in
proper form prior to 4:30 P.M., New York time, the purchase order will be
effective that day and you will begin earning dividends the following business
day. See "Taxes, Dividends and Distributions." Checks should be made payable to
Prudential Municipal Series Fund, New York Money Market Series. Certified checks
are not necessary, but checks must be drawn on a bank located in the United
States. There are restrictions on the redemption of shares purchased by check
while the funds are being collected. See "How to Sell Your Shares" below. The
minimum initial investment by check is $1,000 and the minimum subsequent
investment by check is $100.

THE PRUDENTIAL ADVANTAGE ACCOUNT PROGRAM

19
<PAGE>

selected as his or her primary fund or shares of a participant's money market
funds managed by PIFM which are not primary Advantage Account funds will be
redeemed as of that business day to satisfy any remaining debits in the
Securities Account. Shares may not be purchased until all debits, overdrafts and
other requirements in the Securities Account are satisfied.

Advantage Account Program charges and expenses are not reflected in the table
of Fund expenses. See "Fund Expenses."

For information on participation in the Advantage Account Program, you should
telephone (800) 235-7637 (toll-free).

COMMAND-SM- ACCOUNT AND PRUDENTIAL BUSINESSEDGE-SM- ACCOUNT PROGRAMS

Shares of the Series are offered to participants in the Prudential Securities
COMMAND Account program, an integrated financial services program of Prudential
Securities, and in the Prudential BusinessEdge-SM- Account program, an
integrated financial services program of Prudential Securities and Prusec.
Investors having a COMMAND Account may select the Series as their primary fund.
Such investors will have free credit cash balances of $1.00 or more in their
Securities Account (Available Cash) (a component of the COMMAND Account and
BusinessEdge programs) automatically invested in shares of the Series as
described below. Specifically, an order to purchase shares of the Series is
placed (i) in the case of Available Cash resulting from the proceeds of
securities sales, on the settlement date of the securities sale, and (ii) in the
case of Available Cash resulting from non-trade related credits (I.E., receipt
of dividends and interest payments, maturity of a bond or a cash payment by the
participant into his or her Securities Account), on the business day after
receipt by Prudential Securities or Prusec of the non-trade related credit.
These automatic purchase procedures are also applicable for Corporate COMMAND
Accounts.

Redemptions will be automatically effected by Prudential Securities or Prusec
to satisfy debit balances in a Securities Account created by activity therein or
arising under the COMMAND or BusinessEdge programs, such as those incurred by
use of the Visa-Registered Trademark- Gold Account, in the case of the COMMAND
program, and the Visa-Registered Trademark- Account, in the case of the
BusinessEdge program, including Visa purchases, cash advances and Visa Account
checks. Each COMMAND program Securities Account will be automatically scanned
for debits monthly for all Visa purchases incurred during that month, and each
COMMAND and BusinessEdge Account will automatically be scanned for debits each
business day as of the close of business on that day for all cash advances and
check charges as incurred and, in the case of BusinessEdge Account, for all Visa
purchases. After application of any free credit cash balances in the account to
such debits, a sufficient number of shares of the Series and, if necessary,
shares of other COMMAND funds owned by the COMMAND or BusinessEdge program
participant which have not been selected as his or her primary fund or shares of
a participant's money market funds managed by PIFM which are not primary COMMAND
funds will be redeemed as of that business day to satisfy any remaining debits
in the Securities Account. With respect to COMMAND Accounts, the single monthly
debit for Visa purchases will be made on the twenty-fifth day of each month, or
the prior business day if the twenty-fifth falls on a weekend or holiday. Margin
loans will be utilized to satisfy debits remaining after the liquidation of all
shares of the Series in a Securities Account, and shares may not be purchased
until all debits, margin loans and other requirements in the Securities Account
are satisfied. COMMAND Account and BusinessEdge Account participants will not be
entitled to dividends declared on the date of redemption.

20
<PAGE>
HOW TO SELL YOUR SHARES

Shares for which a redemption request is received by PMFS prior to 4:30 P.M.,
New York time, are entitled to a dividend on the day on which the request is
received. By pre-authorizing Expedited Redemption, you may arrange to have
payment for redeemed shares made in Federal Funds wired to your bank, normally
on the next business day following the date of receipt of the redemption
instructions. Should you redeem all of your shares, you will receive the amount
of all dividends declared for the month-to-date on those shares. See "Taxes,
Dividends and Distributions."

NORMALLY, THE FUND MAKES PAYMENT ON THE NEXT BUSINESS DAY FOR ALL SHARES OF
THE SERIES REDEEMED, BUT IN ANY EVENT, PAYMENT IS MADE WITHIN SEVEN DAYS AFTER
RECEIPT BY THE TRANSFER AGENT, THE DISTRIBUTOR OR YOUR DEALER OF SHARE
CERTIFICATES AND/OR OF A REDEMPTION REQUEST IN PROPER FORM. However, the Fund
may suspend the right of redemption or postpone the date of payment (a) for any
periods during which the New York Stock Exchange is closed (other than for
customary weekends or holiday closings), (b) for any periods when trading in the
markets which the Fund normally utilizes is closed or restricted or an emergency
exists as determined by the Commission so that disposal of the Series'
investments or determination of its NAV is not reasonably practicable or (c) for
such other periods as the Commission may permit for protection of the Series'
shareholders.

REDEMPTION OF SHARES PURCHASED THROUGH PRUDENTIAL SECURITIES

21
<PAGE>
procedure must do so prior to the day of settlement for such securities
transaction or the date the debit balance is incurred. In the case of certain
automatic redemptions, where Prudential Securities cannot anticipate debits in
the brokerage account (E.G., checks written against the account), Prudential
Securities clients will not be entitled to dividends declared on the date of
redemption; such dividends will be retained by Prudential Securities.

REDEMPTION OF SHARES PURCHASED THROUGH PMFS

EXPEDITED REDEMPTION. By pre-authorizing Expedited Redemption, you may arrange
to have payment for redeemed shares made in Federal Funds wired to your bank,
normally on the next business day following redemption. In order to use
Expedited Redemption, you may so designate at the time the initial application
form is made or at a later date. Once the Expedited Redemption authorization
form has been completed, the signature on the authorization form guaranteed as
set forth below and the form returned to Prudential Mutual Fund Services LLC,
Attention: Account Maintenance, P.O. Box 15015, New Brunswick, New Jersey
08906-5015, requests for redemption may be made by telegraph, letter or
telephone. To request Expedited Redemption by telephone, you should call PMFS at
(800) 225-1852. Calls must be received by PMFS before 4:30 P.M., New York time
to permit redemption as of such date. Requests by letter should be addressed to
Prudential Mutual Fund Services LLC at the address set forth above.

DURING PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS, EXPEDITED REDEMPTION
MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD REDEEM SHARES BY MAIL AS DESCRIBED
ABOVE.

22
<PAGE>

its Shares." If your shares are redeemed in kind, you will incur brokerage costs
in converting the assets into cash. The Fund has elected to be governed by Rule
18f-1 under the Investment Company Act under which the Fund is obligated to
redeem shares solely in cash up to the lesser of $250,000 or one percent of the
NAV of the Fund during any 90-day period for any one shareholder.

HOW TO EXCHANGE YOUR SHARES

IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.

IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE
FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.

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

IN PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS, THE TELEPHONE EXCHANGE OF
SHARES MAY BE DIFFICULT TO IMPLEMENT AND SHAREHOLDERS SHOULD MAKE EXCHANGES BY
MAIL BY WRITING TO PRUDENTIAL MUTUAL FUND SERVICES LLC, AT THE ADDRESS NOTED
ABOVE.

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

23
<PAGE>
to refuse purchase orders and exchanges by any person, group or commonly
controlled accounts, if, in the Manager's sole judgment, such person, group or
accounts were following a market timing strategy or were otherwise engaging in
excessive trading (Market Timers).

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

SHAREHOLDER SERVICES

In addition to the exchange privilege, you can take advantage of the following
services and privileges:

- AUTOMATIC INVESTMENT PLAN (AIP). Under AIP, you may make regular purchases
of the Series' shares in amounts as little as $50 via an automatic charge to a
bank account or Prudential Securities account (including a COMMAND Account). For
additional information about this service, you may contact your Prudential
Securities financial adviser, Prusec representative or the Transfer Agent
directly.

- SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available for
shareholders which provides for monthly or quarterly checks. See "How to Sell
Your Shares."

- MULTIPLE ACCOUNTS. Special procedures have been designed for banks and other
institutions that wish to open multiple accounts. An institution may open a
single master account by filing an application form with the Transfer Agent.
Attention: Customer Service, P.O. Box 15005, New Brunswick, New Jersey 08906,
signed by personnel authorized to act for the institution. Individual
sub-accounts may be opened at the time the master account is opened by listing
them, or they may be added at a later date by written advice or by filing forms
supplied by the Fund. Procedures are available to identify sub-accounts by name
and number within the master account name. The investment minimums set forth
above are applicable to the aggregate amounts invested by a group and not to the
amount credited to each sub-account.

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

24
<PAGE>
- --------------------------------------------------------------------------------

THE PRUDENTIAL MUTUAL FUND FAMILY
- --------------------------------------------------------------------------------

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

TAXABLE BOND FUNDS
- ---------------------------------------------------

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

TAX-EXEMPT BOND FUNDS
- ---------------------------------------------------

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

GLOBAL 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 Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential International Bond Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series
Global Utility Fund, Inc.
The Global Total Return Fund, Inc.

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

EQUITY FUNDS
- ---------------------------------------------------

Prudential Balanced Fund
Prudential Distressed Securities Fund, Inc.
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Index Series Fund
Prudential Bond Market Index Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced Fund
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Mid-Cap Value Fund
Prudential Real Estate Securities Fund
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Utility Fund, Inc.
Prudential 20/20 Focus Fund
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund

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

MONEY MARKET FUNDS
- ---------------------------------------------------

- - COMMAND FUNDS
Command Money Fund
Command Government Fund
Command Tax-Free Fund
- - INSTITUTIONAL MONEY MARKET FUNDS
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series

A-1
<PAGE>

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

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FUND HIGHLIGHTS............................................................. 2
What are the Series' Risk Factors and Special Characteristics............. 2
FUND EXPENSES............................................................... 4
FINANCIAL HIGHLIGHTS........................................................ 5
CALCULATION OF YIELD........................................................ 6
HOW THE FUND INVESTS........................................................ 6
Investment Objective and Policies......................................... 6
Other Investments and Policies............................................ 9
Investment Restrictions................................................... 10
HOW THE FUND IS MANAGED..................................................... 10
Manager................................................................... 10
Distributor............................................................... 11
Portfolio Transactions.................................................... 11
Custodian and Transfer and Dividend Disbursing Agent...................... 12
Year 2000................................................................. 12
HOW THE FUND VALUES ITS SHARES.............................................. 12
TAXES, DIVIDENDS AND DISTRIBUTIONS.......................................... 13
GENERAL INFORMATION......................................................... 15
Description of Shares..................................................... 15
Additional Information.................................................... 15
SHAREHOLDER GUIDE........................................................... 16
How to Buy Shares of the Fund............................................. 16
How to Sell Your Shares................................................... 21
How to Exchange Your Shares............................................... 23
Shareholder Services...................................................... 24
THE PRUDENTIAL MUTUAL FUND FAMILY........................................... A-1
</TABLE>

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

MF127A

CUSIP No: 74435M-72-1

PRUDENTIAL
MUNICIPAL
SERIES FUND
- -----------

NEW YORK
MONEY MARKET
SERIES

PROSPECTUS
November 2, 1998
www.prudential.com

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

[LOGO]
<PAGE>
Prudential Municipal Series Fund
(North Carolina Series)

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

PROSPECTUS DATED NOVEMBER 2, 1998

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

Prudential Municipal Series Fund (the Fund) (North Carolina Series) (the Series)
is one of thirteen series of an open-end, management investment company, or
mutual fund. This Series is diversified and is designed to provide the maximum
amount of income that is exempt from North Carolina State and federal income
taxes consistent with the preservation of capital and, in conjunction therewith,
the Series may invest in debt securities with the potential for capital gain.
The net assets of the Series are invested primarily in obligations within the
four highest ratings of Moody's Investors Service, Standard & Poor's Ratings
Group or another nationally recognized statistical rating organization or in
unrated obligations which, in the opinion of the Fund's investment adviser, are
of comparable quality. The Series may, however, also invest a portion of its
assets in lower-quality municipal obligations or in non-rated securities which,
in the opinion of the Fund's investment adviser, are of comparable quality.
Subject to the limitations described herein, the Series may utilize derivatives,
including buying and selling futures contracts and options thereon for the
purpose of hedging its portfolio securities. There can be no assurance that the
Series' investment objective will be achieved. See "How the Fund
Invests--Investment Objective and Policies." The Fund's address is Gateway
Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, and its
telephone number is (800) 225-1852.

This Prospectus sets forth concisely the information about the Fund and the
North Carolina Series that a prospective investor should know before investing
and is available at the Web site of the Prudential Insurance Company of America
(http://www.prudential.com). Additional information about the Fund has been
filed with the Securities and Exchange Commission (the Commission) in a
Statement of Additional Information dated November 2, 1998, which information is
incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Fund at the
address or telephone number noted above. The Commission maintains a Web site
(http:// www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference and other information regarding the Fund.

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

INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.

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

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

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

WHAT IS PRUDENTIAL MUNICIPAL SERIES FUND?

Prudential Municipal Series Fund is a mutual fund whose shares are offered
in thirteen series, each of which operates as a separate fund. A mutual fund
pools the resources of investors by selling its shares to the public and
investing the proceeds of such sale in a portfolio of securities designed to
achieve its investment objective. Technically, the Fund is an open-end,
management investment company. Only the North Carolina Series is offered
through this Prospectus.

WHAT IS THE SERIES' INVESTMENT OBJECTIVE?

The Series' investment objective is to maximize current income that is
exempt from North Carolina State and federal income taxes consistent with
the preservation of capital. It seeks to achieve this objective by investing
primarily in North Carolina State, municipal and local government
obligations and obligations of other qualifying issuers, such as issuers
located in Puerto Rico, the Virgin Islands and Guam, which pay income
exempt, in the opinion of counsel, from North Carolina State and federal
income taxes (North Carolina Obligations). There can be no assurance that
the Series' investment objective will be achieved. See "How the Fund
Invests--Investment Objective and Policies" at page 8.

WHAT ARE THE SERIES' RISK FACTORS AND SPECIAL CHARACTERISTICS?

In seeking to achieve its investment objective, the Series will invest at
least 80% of the value of its total assets in North Carolina Obligations.
This degree of investment concentration makes the Series particularly
susceptible to factors adversely affecting issuers of North Carolina
Obligations. See "How the Fund Invests--Investment Objective and
Policies--Special Considerations" at page 13. The Series may invest up to
30% of its total assets in high yield securities, commonly known as junk
bonds, which are considered speculative and are subject to the risk of an
issuer's inability to meet principal and interest payments on the
obligations as well as price volatility. See "How the Fund
Invests--Investment Objectives and Policies--Risk Factors Relating to
Investing in High Yield Municipal Obligations" at page 11. To hedge against
changes in interest rates, the Series may also purchase put options and
engage in transactions involving derivatives, including financial futures
contracts and options thereon. See "How the Fund Invests--Investment
Objective and Policies--Futures Contracts and Options Thereon" at page 12.
As with an investment in any mutual fund, an investment in this Series can
decrease in value and you can lose money.

WHO MANAGES THE FUND?

Prudential Investments Fund Management LLC (PIFM or the Manager) is the
Manager of the Fund and is compensated for its services at an annual rate of
.50 of 1% of the Series' average daily net assets. As of September 30, 1998,
PIFM served as manager or administrator to 66 investment companies,
including 44 mutual funds, with aggregate assets of approximately $67
billion. The Prudential Investment Corporation, (PIC, the Subadviser or the
investment adviser), furnishes investment advisory services in connection
with the management of the Fund under a Subadvisory Agreement with PIFM. See
"How the Fund is Managed--Manager" at page 14.

WHO DISTRIBUTES THE SERIES' SHARES?

Prudential Investment Management Services LLC (the Distributor) acts as
the Distributor of the Series' Class A, Class B and Class C shares and is
paid a distribution and service fee with respect to Class A shares at the
annual rate of .25 of 1% of the average daily net assets of the Class A
shares and is paid a distribution and service fee with respect to Class B
shares at the annual rate of .50 of 1% of the average daily net assets of
the Class B shares and is paid an annual distribution and service fee with
respect to Class C shares at the rate of .25 of 1% of the average daily net
assets of the Class C shares. See "How the Fund is Managed--Distributor" at
page 15.

2
<PAGE>
WHAT IS THE MINIMUM INVESTMENT?

The minimum initial investment is $1,000 for Class A and Class B shares
and $2,500 for Class C shares. The minimum subsequent investment is $100 for
Class A, Class B and Class C shares. There is no minimum investment
requirement for certain employee savings plans. For purchases made through
the Automatic Investment Plan, the minimum initial and subsequent investment
is $50. See "Shareholder Guide--How to Buy Shares of the Fund" at page 22
and "Shareholder Guide--Shareholder Services" at page 31.

HOW DO I PURCHASE SHARES?

You may purchase shares of the Series through the Distributor or brokers
or dealers that have entered into agreements to act as participating or
introducing brokers for the Distributor (Dealers) or directly from the Fund
through its transfer agent, Prudential Mutual Fund Services LLC (PMFS or the
Transfer Agent). In each case, sales are made at the net asset value per
share (NAV) next determined after receipt of your purchase order by the
Transfer Agent, a Dealer or the Distributor plus a sales charge, which may
be imposed at the time of purchase, on a deferred basis, or both. Class A
shares are sold with a front-end sales charge. Class B shares are subject to
a contingent deferred sales charge (CDSC). Class C shares are sold with a
low front-end sales charge, but are also subject to a CDSC. Dealers may
charge their customers a separate fee for handling purchase transactions.
See "How the Fund Values its Shares" at page 17 and "Shareholder Guide--How
to Buy Shares of the Fund" at page 22.

WHAT ARE MY PURCHASE ALTERNATIVES?

The Series offers three classes of shares:

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

See "Shareholder Guide--Alternative Purchase Plan" at page 23.

HOW DO I SELL MY SHARES?

HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?

3
<PAGE>
FUND EXPENSES
(NORTH CAROLINA SERIES)

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
--------------- ------------------------------- ----------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES+
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price).................... 3% None 1%
Maximum Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds,
whichever is lower)................ None 5% during the first year, 1% on redemptions made
decreasing by 1% annually to 1% within 18 months of purchase
in the fifth and sixth years
and 0% the seventh year*
Maximum Sales Load Imposed on
Reinvested Dividends............... None None None
Redemption Fees..................... None None None
Exchange Fee........................ None None None
</TABLE>

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- -------------- --------------
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees..................... .50% .50% .50%
12b-1 Fees (After Reduction)........ .25%++ .50% .75%++
Other Expenses...................... .24% .24% .24%
--- --- ---
Total Fund Operating Expenses (After
Reduction)......................... .99% 1.24% 1.49%
--- --- ---
--- --- ---
</TABLE>

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
EXAMPLE
You would pay the following expenses on
a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at
the end of each time period:
Class A............................. $ 40 $ 61 $ 83 $ 148
Class B............................. $ 63 $ 69 $ 78 $ 140
Class C............................. $ 35 $ 57 $ 91 $ 186
You would pay the following expenses on
the same investment, assuming no
redemption:
Class A............................. $ 40 $ 61 $ 83 $ 148
Class B............................. $ 13 $ 39 $ 68 $ 140
Class C............................. $ 25 $ 57 $ 91 $ 186
</TABLE>

THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

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

* Class B shares will automatically convert to Class A shares approximately
seven years after purchase. See "Shareholder Guide--Conversion Feature--
Class B Shares."

++ Although the Class A and Class C Distribution and Service Plans provide that
the Fund may pay a distribution fee of up to .30 of 1% and 1% per annum
of the average daily net assets of the Class A and Class C shares,
respectively, the Distributor may voluntarily limit its distribution
fees. Presently the Distributor limits its distribution fees with respect
to the Class A and Class C shares of the Series to no more than .10 of 1%
and .75 of 1% of the average daily net asset value of the Class A and
Class C shares, respectively. This voluntary limitation may be modified
or terminated at any time without notice. The Distributor anticipates
modifying its present limitation for Class A shares so that, in the
future, the Fund will pay distribution fees of .25% with respect to such
shares. Total Fund Operating Expenses of the Class A and Class C shares
without any limitations would be 1.04% and 1.74%, respectively. See "How
the Fund is Managed--Distributor."

4
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH OF THE INDICATED
PERIODS)
(CLASS A SHARES)

The following financial highlights, for the two years ended August 31, 1998,
have been audited by PricewaterhouseCoopers LLP, independent accountants, and
for the three years ended August 31, 1996 have been audited by other independent
auditors. All such audit reports were unqualified. This information should be
read in conjunction with the financial statements and the notes thereto, which
appear in the Statement of Additional Information. The following financial
highlights contain selected data for a Class A share of beneficial interest
outstanding, total return, ratios to average net assets and other supplemental
data for the periods indicated. This information is based on data contained in
the financial statements. Further performance information is contained in the
annual report, which may be obtained without charge. See "Shareholder Guide--
Shareholder Services--Reports to Shareholders."

<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------------------------------------------
JANUARY 22,
1990 (a)
YEAR ENDED AUGUST 31, THROUGH
------------------------------------------------------------------------------------- AUGUST 31,
1998 1997 1996 1995 1994 1993 1992 1991 1990
------- ------- ------- ------- ------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>

PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of
period............ $ 11.28 $ 11.06 $ 11.19 $ 11.06 $12.04 $11.37 $10.86 $10.45 $ 10.63
------- ------- ------- ------- ------ ------ ------ ------ -----------
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income............ .55 .54(d) .53(d) .60(d) .61 .65 .67 .67 .41
Net realized and
unrealized gain
(loss) on
investment
transactions...... .41 .38 (.01) .13 (.76) .67 .51 .41 (.18)
------- ------- ------- ------- ------ ------ ------ ------ -----------
Total from
investment
operations........ .96 .92 .52 .73 (.15) 1.32 1.18 1.08 .23
------- ------- ------- ------- ------ ------ ------ ------ -----------
LESS DISTRIBUTIONS
Dividends from net
investment
income............ (.55) (.54) (.53) (.60) (.61) (.65) (.67) (.67) (.41)
Distributions from
net realized
gains............. -- (.16) (.12) -- (.22) -- -- -- --
Distributions in
excess of net
investment
income............ --(e) -- -- -- -- -- -- -- --
------- ------- ------- ------- ------ ------ ------ ------ -----------
Total
distributions..... (.55) (.70) (.65) (.60) (.83) (.65) (.67) (.67) (.41)
------- ------- ------- ------- ------ ------ ------ ------ -----------
Net asset value, end
of period......... $ 11.69 $ 11.28 $ 11.06 $ 11.19 $11.06 $12.04 $11.37 $10.86 $ 10.45
------- ------- ------- ------- ------ ------ ------ ------ -----------
------- ------- ------- ------- ------ ------ ------ ------ -----------

TOTAL RETURN (c):... 8.72% 8.58% 4.70% 6.86% (1.35)% 11.99% 11.12% 10.63% 2.09%
RATIOS/SUPPLEMENTAL
DATA:
Net asset, end of
period (000)...... $30,149 $29,350 $28,089 $26,519 $2,256 $1,777 $ 917 $ 362 $ 58
Average net assets
(000)............. $29,617 $29,055 $27,628 $15,244 $2,067 $1,316 $ 612 $ 246 $ 32
Ratios to average
net assets:
Expenses,
including
distribution
fee.............. .84% .93%(d) 1.03%(d) .98%(d) .88% .87% .91% .99% 1.00%(b)
Expenses,
excluding
distribution
fee.............. .74% .83%(d) .93%(d) .88%(d) .78% .77% .81% .89% .90%(b)
Net investment
income........... 4.79% 4.87%(d) 4.78%(d) 5.25%(d) 5.31% 5.55% 5.90% 6.24% 6.24%(b)
Portfolio turnover
rate.............. 27% 35% 23% 28% 17% 38% 36% 27% 24%
</TABLE>

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

(a) Commencement of offering of Class A shares.

(b) Annualized.

(d) Net of management fee waiver. Effective September 1, 1997, PIFM
eliminated its management fee waiver (.05 of 1%).

(e) Ordinary income distribution of $.0013 per share.

5
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH OF THE INDICATED
PERIODS)
(CLASS B SHARES)

The following financial highlights, for the two years ended August 31, 1998,
have been audited by PricewaterhouseCoopers LLP, independent accountants and for
the three years ended August 31, 1996 have been audited by other independent
auditors. All such audit reports were unqualified. This information should be
read in conjunction with the financial statements and the notes thereto, which
appear in the Statement of Additional Information. The following financial
highlights contain selected data for a Class B share of beneficial interest
outstanding, total return, ratios to average net assets and other supplemental
data for the periods indicated. This information is based on data contained in
the financial statements. Further performance information is contained in the
annual report, which may be obtained without charge. See "Shareholder
Guide--Shareholder Services--Reports to Shareholders."

<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
----------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 (a)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of
year............ $11.29 $11.06 $11.19 $11.06 $12.05 $11.37 $10.86 $10.45 $10.65 $10.35
------ ------ ------ ------ ------ ------ ------ ------ ------ ------

INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income.......... .51 .50(c) .49(c) .55(c) .56 .60 .62 .63 .64 .65
Net realized and
unrealized gain
(loss) on
investment
transactions.... .40 .39 (.01) .13 (.77) .68 .51 .41 (.20) .30
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from
investment
operations...... .91 .89 .48 .68 (.21) 1.28 1.13 1.04 .44 .95
------ ------ ------ ------ ------ ------ ------ ------ ------ ------

LESS DISTRIBUTIONS
Dividends from net
investment
income.......... (.51) (.50) (.49) (.55) (.56) (.60) (.62) (.63) (.64) (.65)
Distributions from
net realized
gains........... -- (.16) (.12) -- (.22) -- -- -- -- --
Distributions in
excess of net
investment
income.......... --(d) -- -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total
distributions... (.51) (.66) (.61) (.55) (.78) (.60) (.62) (.63) (.64) (.65)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of year..... $11.69 $11.29 $11.06 $11.19 $11.06 $12.05 $11.37 $10.86 $10.45 $10.65
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------

TOTAL RETURN
(b):............ 8.19% 8.25% 4.28% 6.44% (1.82)% 11.62% 10.64% 10.17% 4.28% 9.39%

RATIOS/SUPPLEMENTAL
DATA:
Net asset, end of
year (000)...... $21,726 $24,952 $31,029 $40,119 $69,448 $75,515 $63,573 $59,875 $57,429 $34,222
Average net assets
(000)........... $23,460 $27,703 $35,605 $51,963 $73,606 $67,997 $60,751 $59,071 $56,745 $49,868
Ratios to average
net assets:
Expenses,
including
distribution
fee............ 1.24% 1.33%(c) 1.43%(c) 1.34%(c) 1.28% 1.27% 1.31% 1.39% 1.38% 1.39%
Expenses,
excluding
distribution
fee............ .74% .83%(c) .93%(c) .84%(c) .78% .77% .81% .89% .89% .89%
Net investment
income......... 4.39% 4.47%(c) 4.37%(c) 5.10%(c) 4.89% 5.18% 5.58% 5.88% 5.96% 6.06%
Portfolio turnover
rate............ 27% 35% 23% 28% 17% 38% 36% 27% 24% 47%
</TABLE>

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

(a) On December 31, 1988, Prudential Mutual Fund Management, Inc.
succeeded The Prudential Insurance Company of America as manager of
the Fund.

(d) Ordinary income distribution of $.0013 per share.

6
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH OF THE INDICATED
PERIODS)
(CLASS C SHARES)

The following financial highlights, for the two years ended August 31, 1998,
have been audited by PricewaterhouseCoopers LLP, independent accountants, and
for the two years ended August 31, 1996 and for the period from August 1, 1994
through August 31, 1994 have been audited by other independent auditors. All
such audit reports were unqualified. This information should be read in
conjunction with the financial statements and the notes thereto, which appear in
the Statement of Additional Information. The following financial highlights
contain selected data for a Class C share of beneficial interest outstanding,
total return, ratios to average net assets and other supplemental data for the
periods indicated. This information is based on data contained in the financial
statements. Further performance information is contained in the annual report,
which may be obtained without charge. See "Shareholder Guide--Shareholder
Services--Reports to Shareholders."

<TABLE>
<CAPTION>
CLASS C
-----------------------------------------------------------------
AUGUST 1,
1994 (a)
YEAR ENDED AUGUST 31, THROUGH
------------------------------------------------ AUGUST 31,
1998 1997 1996 1995 1994
-------- -------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>

PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period...................... $ 11.29 $ 11.06 $ 11.19 $ 11.06 $11.09
-------- -------- -------- ----------- ------------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income......... .48 .47(d) .46(d) .52(d) .04
Net realized and unrealized
gain (loss) on investment
transactions................ .40 .39 (.01) .13 (.03)
-------- -------- -------- ----------- ------------
Total from investment
operations.................. .88 .86 .45 .65 .01
-------- -------- -------- ----------- ------------
LESS DISTRIBUTIONS
Dividends from net investment
income...................... (.48) (.47) (.46) (.52) (.04)
Distributions from net
realized gains.............. -- (.16) (.12) -- --
Distributions in excess of net
investment income........... --(e) -- -- -- --
-------- -------- -------- ----------- ------------
Total distributions........... (.48) (.63) (.58) (.52) (.04)
-------- -------- -------- ----------- ------------
Net asset value, end of
period...................... $ 11.69 $ 11.29 $ 11.06 $ 11.19 $11.06
-------- -------- -------- ----------- ------------
-------- -------- -------- ----------- ------------
TOTAL RETURN (c):............. 7.92% 7.98% 4.03% 6.17% .02%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)....................... $ 30 $ 62 $ 72 $ 53 $10
Average net assets (000)...... $ 31 $ 68 $ 69 $ 32 $5
Ratios to average net assets:
Expenses, including
distribution fee........... 1.49% 1.58%(d) 1.68%(d) 1.63%(d) 1.67%(b)
Expenses, excluding
distribution fee........... .74% .83%(d) .93%(d) .88%(d) .92%(b)
Net investment income....... 4.14% 4.22%(d) 4.14%(d) 4.59%(d) 5.06%(b)
Portfolio turnover rate....... 27% 35% 23% 28% 17%
</TABLE>

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

(a) Commencement of offering of Class C shares.

(b) Annualized.

(d) Net of management fee waiver. Effective September 1, 1997, PIFM
eliminated its management fee waiver (.05 of 1%).

(e) Ordinary income distribution of $.0013 per share.

7
<PAGE>
HOW THE FUND INVESTS

INVESTMENT OBJECTIVE AND POLICIES

THE SERIES WILL INVEST PRIMARILY IN NORTH CAROLINA STATE, MUNICIPAL AND LOCAL
GOVERNMENTAL OBLIGATIONS AND OBLIGATIONS OF OTHER QUALIFYING ISSUERS, SUCH AS
ISSUERS LOCATED IN PUERTO RICO, THE VIRGIN ISLANDS AND GUAM, WHICH PAY INCOME
EXEMPT, IN THE OPINION OF COUNSEL, FROM NORTH CAROLINA STATE AND FEDERAL INCOME
TAXES (NORTH CAROLINA OBLIGATIONS). THERE CAN BE NO ASSURANCE THAT THE SERIES
WILL BE ABLE TO ACHIEVE ITS INVESTMENT OBJECTIVE.

As with an investment in any mutual fund, an investment in this Series can
decrease and you can lose money.

Interest on certain municipal obligations may be a preference item for
purposes of the federal alternative minimum tax. The Series may invest without
limit in municipal obligations that are private activity bonds (as defined in
the Internal Revenue Code) the interest on which would be a preference item for
purposes of the federal alternative minimum tax. See "Taxes, Dividends and
Distributions." Under North Carolina law, dividends distributed by the Series
and attributable to interest on obligations issued by North Carolina and its
political subdivisions are exempt from North Carolina individual, trust and
estate income taxes. See "Taxes, Dividends and Distributions." North Carolina
Obligations could include general obligation bonds of the State, counties,
cities, towns, etc., revenue bonds of utility systems, highways, bridges, port
and airport facilities, colleges, hospitals, etc., and industrial development
and pollution control bonds. The Series will invest in long-term obligations,
and the dollar-weighted average maturity of the Series' portfolio will generally
range between 10-20 years. The Series also may invest in certain short-term,
tax-exempt notes such as Tax Anticipation Notes, Revenue Anticipation Notes,
Bond Anticipation Notes, Construction Loan Notes and variable and floating rate
demand notes.

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

THE SERIES WILL INVEST AT LEAST 70% OF ITS TOTAL ASSETS IN NORTH CAROLINA
OBLIGATIONS WHICH, AT THE TIME OF PURCHASE, ARE RATED WITHIN THE FOUR HIGHEST
QUALITY GRADES AS DETERMINED BY MOODY'S INVESTORS SERVICE (MOODY'S)(CURRENTLY
Aaa, Aa, A, Baa FOR BONDS, MIG 1, MIG 2, MIG 3, MIG 4 FOR SALES AND PRIME-1 FOR
COMMERCIAL PAPER), STANDARD & POOR'S RATINGS GROUP (S&P) (CURRENTLY AAA, AA, A,
BBB FOR BONDS, SP-1, SP-2 FOR NOTES AND A-1 FOR COMMERCIAL PAPER) OR ANOTHER
NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO) OR, IF UNRATED,
WILL POSSESS CREDITWORTHINESS, IN THE OPINION OF THE INVESTMENT ADVISER,
COMPARABLE IN SUCH INVESTMENT GRADE RATED SECURITIES.

THE SERIES MAY ALSO INVEST UP TO 30% OF ITS TOTAL ASSETS IN NORTH CAROLINA
OBLIGATIONS RATED BELOW Baa BY MOODY'S OR BELOW BBB BY S&P, OR A COMPARABLE
RATING OF ANOTHER NRSRO OR, IF NON-RATED, OF COMPARABLE QUALITY, IN THE OPINION
OF THE FUND'S INVESTMENT ADVISER, BASED ON ITS CREDIT ANALYSIS. Securities rated
Baa by Moody's and BBB by S&P are described as being investment grade but are
also characterized as having speculative characteristics. Securities rated below
Baa by Moody's and below BBB by S&P are considered speculative. See "Description
of Security Ratings" in the Appendix. Such lower-rated high yield securities are
commonly referred to as junk bonds. Such securities generally offer a higher
current yield than those in the high rating categories but also involve greater
price volatility and risk of loss of principal and income. The investment
adviser will attempt to manage risk and enhance yield through credit analysis
and careful security selection. See "Risk Factors Relating to Investing in High
Yield Municipal Obligations" below. Subsequent to its purchase by the Series, a
municipal obligation may be assigned a lower rating or cease to be rated. Such
an event would not require the elimination of the issue from the portfolio, but
the investment adviser will consider such an event in determining whether the
Series should continue to hold the security in its portfolio. Many issuers of
lower-quality bonds choose not to have their obligations rated and the Series
may invest in such unrated securities. Investors should carefully consider the
relative risks associated with investments in securities which carry lower
ratings and in comparable non-rated securities.

During the year ended August 31, 1998, 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>
PERCENTAGE OF
RATINGS TOTAL INVESTMENTS
------------------------------ -----------------
<S> <C>
AAA/Aaa 53.85%
AA/Aa 15.67%
A/A 10.65%
BBB/Baa 14.29%
Unrated
AAA/Aaa 0.78%
B/B 3.65%
</TABLE>

9
<PAGE>
From time to time, the Series may own the majority of a municipal issue. Such
majority-owned holdings may present market and credit risks.

The Series may purchase North Carolina Obligations which, in the opinion of
the investment adviser, offer the opportunity for capital appreciation. This may
occur, for example, when the investment adviser believes that the issuer of a
particular North Carolina Obligation might receive an upgraded credit standing,
thereby increasing the market value of the bonds it has issued or when the
investment adviser believes that interest rates might decline.

UNDER NORMAL MARKET CONDITIONS, THE SERIES WILL ATTEMPT TO INVEST
SUBSTANTIALLY ALL OF THE VALUE OF ITS ASSETS IN NORTH CAROLINA OBLIGATIONS. As a
matter of fundamental policy, during normal market conditions the Series' assets
will be invested so that at least 80% of the income will be exempt from North
Carolina and federal income taxes or the Series will have at least 80% of its
total assets invested in North Carolina Obligations. During abnormal market
conditions or to provide liquidity, the Series may hold cash or cash equivalents
or investment grade taxable obligations, including obligations that are exempt
from federal, but not state, taxation and the Series may invest in tax-free cash
equivalents, such as floating rate demand notes, tax-exempt commercial paper and
general obligation and revenue notes, or in taxable cash equivalents, such as
certificates of deposit, bankers acceptances and time deposits or other
short-term taxable investments such as repurchase agreements. When, in the
opinion of the investment adviser, abnormal market conditions require a
temporary defensive position, the Series may invest more than 20% of the value
of its assets in debt securities other than North Carolina Obligations or may
invest its assets so that more than 20% of the income is subject to North
Carolina State or federal income taxes. The Series will treat an investment in a
municipal bond refunded with escrowed U.S. Government securities as U.S.
Government securities for purposes of the Investment Company Act's
diversification requirements provided certain conditions are met. See
"Investment Objectives and Policies--In General" in the Statement of Additional
Information.

THE SERIES MAY PURCHASE MUNICIPAL OBLIGATIONS ON A WHEN-ISSUED OR DELAYED
DELIVERY BASIS, IN EACH CASE WITHOUT LIMIT. When municipal obligations are
offered on a when-issued or delayed delivery basis, the price and coupon rate
are fixed at the time the commitment to purchase is made, but delivery and
payment for the securities take place at a later date. During the period between
purchase and settlement, no interest accrues to the economic benefit of the
purchaser. In the case of purchases by the Series, the price that the Series is
required to pay on the settlement date may be in excess of the market value of
the municipal obligations on that date. While securities may be sold prior to
the settlement date, the Series intends to purchase these securities with the
purpose of actually acquiring them unless a sale would be desirable for
investment reasons. At the time the Series makes the commitment to purchase a
municipal obligation on a when-issued or delayed delivery basis, it will record
the transaction and reflect the value of the obligation each day in determining
its NAV. This value may fluctuate from day to day in the same manner as

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THE SERIES MAY PURCHASE SECONDARY MARKET INSURANCE ON NORTH CAROLINA
OBLIGATIONS WHICH IT HOLDS OR ACQUIRES. Secondary market insurance would be
reflected in the market value of the municipal obligation purchased and may
enable the Series to dispose of a defaulted obligation at a price similar to
that of comparable municipal obligations which are not in default.

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

RISK FACTORS RELATING TO INVESTING IN HIGH YIELD MUNICIPAL OBLIGATIONS.
FIXED-INCOME SECURITIES ARE SUBJECT TO THE RISK OF AN ISSUER'S INABILITY TO MEET
PRINCIPAL AND INTEREST PAYMENTS ON THE OBLIGATION (CREDIT RISK) AND MAY ALSO BE
SUBJECT TO PRICE VOLATILITY DUE TO SUCH FACTORS AS INTEREST RATE SENSITIVITY,
MARKET PERCEPTION OF THE CREDITWORTHINESS OF THE ISSUER AND GENERAL MARKET
LIQUIDITY (MARKET RISK). Lower-rated or unrated (I.E., high yield) securities,
commonly known as junk bonds are more likely to react to developments affecting
market and credit risk than are more highly rated securities, which react
primarily to movements in the general level of interest rates. The investment
adviser will perform its own investment analysis and will not rely principally
on the ratings assigned by the rating services, although such ratings will be
considered by the investment adviser. The investment adviser will consider,
among other things, credit risk and market risk, as well as the financial
history and condition, the prospects and the management of an issuer in
selecting securities for the Series' portfolio. The achievement of the Series'
investment objective may be more dependent on the investment adviser's credit
analysis than is the case when investing in only higher quality bonds. Investors
should carefully consider the relative risks of investing in high yield
municipal obligations and understand that such securities are not generally
meant for short term investing and that yields on junk bonds will fluctuate over
time.

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LOWER-RATED OR UNRATED OBLIGATIONS ALSO PRESENT RISKS BASED ON PAYMENT
EXPECTATIONS. If an issuer calls the obligation for redemption, the Series may
have to replace the security with a lower-yielding security, resulting in a
decreased return for investors. If the Series experiences unexpected net
redemptions, it may be forced to sell its higher rated securities, resulting in
a decline in the overall credit quality of the portfolio and increasing the
exposure of the Series to the risks of high yield securities.

FUTURES CONTRACTS AND OPTIONS THEREON

THE SERIES IS AUTHORIZED TO PURCHASE AND SELL CERTAIN DERIVATIVES, INCLUDING
FINANCIAL FUTURES CONTRACTS (FUTURES CONTRACTS) AND OPTIONS THEREON FOR THE
PURPOSE OF HEDGING ITS PORTFOLIO SECURITIES AGAINST FLUCTUATIONS IN VALUE CAUSED
BY CHANGES IN PREVAILING MARKET INTEREST RATES AND HEDGING AGAINST INCREASES IN
THE COST OF SECURITIES THE SERIES INTENDS TO PURCHASE. THE SUCCESSFUL USE OF
FUTURES CONTRACTS AND OPTIONS THEREON BY THE SERIES INVOLVES ADDITIONAL
TRANSACTION COSTS, IS SUBJECT TO VARIOUS RISKS AND DEPENDS UPON THE INVESTMENT
ADVISER'S ABILITY TO PREDICT THE DIRECTION OF THE MARKET (INCLUDING INTEREST
RATES). THE SERIES, AND THUS INVESTORS, MAY LOSE MONEY THROUGH ANY UNSUCCESSFUL
USE OF THESE STRATEGIES.

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margin requirements at a time when it might be disadvantageous to do so. The
inability to close futures positions also could have an adverse impact on the
ability of the Series to hedge effectively. There is also a risk of loss by the
Series of margin deposits in the event of bankruptcy of a broker with whom the
Series has an open position in a futures contract.

SPECIAL CONSIDERATIONS

BECAUSE THE SERIES WILL INVEST AT LEAST 80% OF THE VALUE OF ITS TOTAL ASSETS
IN NORTH CAROLINA OBLIGATIONS AND BECAUSE IT SEEKS TO MAXIMIZE INCOME DERIVED
FROM NORTH CAROLINA OBLIGATIONS, IT IS MORE SUSCEPTIBLE TO FACTORS ADVERSELY
AFFECTING ISSUERS OF NORTH CAROLINA OBLIGATIONS THAN IS A COMPARABLE MUNICIPAL
BOND MUTUAL FUND THAT IS NOT CONCENTRATED IN SUCH OBLIGATIONS TO THIS DEGREE.
Despite stressful periods during the latest recession that depleted fund
reserves and ended with General Fund deficits, since 1994, the State has had a
budget surplus, in part as a result of new taxes and fees and spending
reductions put in place in the early 1990's. In addition, the State, like the
nation, has experienced economic recovery during the 1990's. In the 1996-97
Budget prepared by the Office of the State Budget and Management, it was
projected that General Fund Net Revenues, adjusted for all revenue law changes,
would increase 3% over 1995-96. In fact, actual General Fund net revenues for
1996-97 increased 8.3% over 1995-96. This increase resulted primarily from
growth in the North Carolina economy which resulted in increased personal and
corporate income tax receipts. The General Fund balance was approximately $292.2
million and the reserved balance of the General Fund was approximately $880.8
million. However, if either North Carolina or any of its local governmental
entities is unable to meet its financial obligations, the income derived by the
Series, the ability to preserve or realize appreciation of the Series' capital
and the Series' liquidity could be adversely affected. See "Investment
Objectives and Policies--Special Considerations Regarding Investments in
Tax-Exempt Securities" in the Statement of Additional Information.

OTHER INVESTMENTS AND POLICIES

REPURCHASE AGREEMENTS

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BORROWING

PORTFOLIO TURNOVER

ILLIQUID SECURITIES

The Series may hold up to 15% of its net assets in illiquid securities
including repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable. Securities,
including restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933, as amended (the Securities Act), privately placed
commercial paper and municipal lease obligations, that have a readily available
market are not considered illiquid for the purposes of this limitation. The
investment adviser will monitor the liquidity of such restricted securities
under the supervision of the Trustees. The Series' investment in Rule 144A
securities could have the effect of increasing illiquidity to the extent that
qualified institutional buyers become, for a limited time, uninterested in
purchasing Rule 144A securities. See "Investment Objectives and
Policies--Illiquid Securities" and "Investment Restrictions" in the Statement of
Additional Information. Repurchase agreements subject to demand are deemed to
have a maturity equal to the notice period.

INVESTMENT RESTRICTIONS

HOW THE FUND IS MANAGED

For the fiscal year ended August 31, 1998, total expenses of the Series as a
percentage of average net assets were .84%, 1.24% and 1.49% for the Series'
Class A, Class B, Class C shares, respectively. See "Financial Highlights."

MANAGER

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UNDER A SUBADVISORY AGREEMENT BETWEEN PIFM AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC, THE SUBADVISER OR THE INVESTMENT ADVISER), THE SUBADVISER
FURNISHES INVESTMENT ADVISORY SERVICES IN CONNECTION WITH THE MANAGEMENT OF THE
FUND AND IS REIMBURSED BY PIFM FOR ITS REASONABLE COSTS AND EXPENSES INCURRED IN
PROVIDING SUCH SERVICES. PIC's address is Prudential Plaza, Newark, New Jersey
07102-3777. Under the Management Agreement, PIFM continues to have
responsibility for all investment advisory services and supervises the
Subadviser's performance of such services.

FEE WAIVERS AND SUBSIDY

DISTRIBUTOR

UNDER SEPARATE DISTRIBUTION AND SERVICE PLANS (THE CLASS A PLAN, THE CLASS B
PLAN AND THE CLASS C PLAN, COLLECTIVELY, THE PLANS) ADOPTED BY THE FUND UNDER
RULE 12b-1 UNDER THE INVESTMENT COMPANY ACT AND A DISTRIBUTION AGREEMENT (THE
DISTRIBUTION AGREEMENT), THE DISTRIBUTOR INCURS THE EXPENSES OF DISTRIBUTING THE
CLASS A, CLASS B AND CLASS C SHARES OF THE SERIES. These expenses include
commissions and account servicing fees paid to, or on account of Dealers or
financial institutions which have entered into agreements with the Distributor,
advertising expenses, the cost of printing and mailing prospectuses to potential
investors and indirect and overhead costs of the Distributor associated with the
sale of Series shares, including lease, utility, communications and sales
promotion expenses. Certain Dealers are paid higher fees than others with
respect to Class A shares pursuant to separate agreements with the Distributor.

UNDER THE CLASS B AND CLASS C PLANS, THE SERIES MAY PAY THE DISTRIBUTOR FOR
ITS DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS B AND CLASS C SHARES
AT AN ANNUAL RATE OF UP TO .50 OF 1% AND UP TO 1% OF THE AVERAGE DAILY NET
ASSETS OF THE CLASS B AND CLASS C SHARES, RESPECTIVELY. The Class B Plan
provides for the payment to the Distributor of (i) an asset-based sales charge
of up to .50 of 1% of the average daily net assets of the Class B shares, and
(ii) a service fee of up to .25 of 1% of the average daily net assets of the
Class B shares; provided that the total distribution-related fee does not exceed
.50 of 1%. The Class C Plan provides for the payment to the Distributor of (i)
an asset-based sales charge of up to .75 of 1% of the average daily net assets
of the Class C shares, and (ii) a service fee of up to .25 of 1% of the average
daily net assets of the Class C shares. The service fee is used to pay for
personal service and/or the maintenance of shareholder accounts. The Distributor
has voluntarily limited its distribution-related fees payable under the Class C
Plan to .75 of 1% of the average daily net assets of the Class C shares. This
voluntary waiver may be modified or terminated at any time without notice. The
Distributor also receives CDSC's from certain redeeming shareholders. See
"Shareholder Guide--How to Sell Your Shares--Contingent Deferred Sales Charges."

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

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PORTFOLIO TRANSACTIONS

CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT

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

YEAR 2000

HOW THE FUND VALUES ITS SHARES

THE SERIES' NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING ITS
LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. NAV IS CALCULATED SEPARATELY FOR EACH CLASS. THE
TRUSTEES HAVE FIXED THE SPECIFIC TIME OF DAY FOR THE COMPUTATION OF THE NAV OF
THE SERIES TO BE AS OF 4:15 P.M., NEW YORK TIME.

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

HOW THE FUND CALCULATES PERFORMANCE

TAXES, DIVIDENDS AND DISTRIBUTIONS

TAXATION OF THE FUND

THE SERIES HAS QUALIFIED AND INTENDS TO REMAIN QUALIFIED AS A REGULATED
INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE. ACCORDINGLY, THE SERIES WILL
NOT BE SUBJECT TO FEDERAL INCOME TAXES ON ITS NET INVESTMENT INCOME AND NET
CAPITAL GAINS, IF ANY, THAT IT DISTRIBUTES TO ITS SHAREHOLDERS. TO THE EXTENT
NOT DISTRIBUTED BY THE SERIES, NET TAXABLE INVESTMENT INCOME AND CAPITAL GAINS
AND LOSSES ARE TAXABLE TO THE SERIES. See "Taxes, Dividends and Distributions"
in the Statement of Additional Information.

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<PAGE>

having been sold at market value. Sixty percent of any gain or loss recognized
on these deemed sales and on actual dispositions will be treated as long-term
capital gain or loss, and the remainder will be treated as short-term capital
gain or loss. See "Taxes, Dividends and Distributions" in the Statement of
Additional Information.

TAXATION OF SHAREHOLDERS

Any dividends out of net taxable investment income, together with
distributions of net short-term gains (I.E., the excess of net short-term
capital gains over net long-term capital losses) distributed to shareholders,
will be taxable as ordinary income to the shareholder whether or not reinvested.
Any net capital gains (I.E., the excess of capital gains from the sale of assets
held for more than 12 months over net short-term capital losses) distributed to
shareholders will be taxable as capital gains to the shareholders, whether or
not reinvested and regardless of the length of time a shareholder has owned his
or her shares. For capital gains recognized upon the sale of assets by the
Series, the maximum long-term capital gains tax rate for individuals is 20%. The
maximum capital gains tax rate for corporate shareholders currently is the same
as the maximum tax rate for ordinary income.

Any gain or loss realized upon a sale or redemption of Series shares by a
shareholder who is not a dealer in securities will be treated as capital
long-term gain or loss. Any such capital gain or loss will be treated as
long-term capital gain or loss if the shares were held for more than 12 months.
In the case of an individual, any such long-term capital gain will be taxable at
the maximum rate of 20%. The maximum capital gain tax rate for a corporation is
the same as that for ordinary income. Any capital loss will be treated as
long-term capital loss if the shares have been held more than one year and
otherwise as short-term capital loss. Any such loss with respect to shares that
are held for six months or less, however, will be treated as long-term capital
loss to the extent of any capital gain distributions received by the
shareholder. In addition, any short-term capital loss will be disallowed to the
extent of any tax-exempt dividends received by the shareholder on shares that
are held for six months or less.

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In the opinion of North Carolina tax counsel, distributions will not be
subject to North Carolina income tax if made to individual shareholders resident
in North Carolina or to trusts or estates subject to North Carolina income tax
to the extent such distributions are either (i) exempt from federal income tax
and attributable to interest on obligations of North Carolina or its political
subdivisions; nonprofit educational institutions organized or chartered under
the laws of North Carolina; or Guam, Puerto Rico or the United States Virgin
Islands including the governments thereof and their agencies, instrumentalities,
and authorities or (ii) attributable to interest on direct obligations of the
United States.

WITHHOLDING TAXES

DIVIDENDS AND DISTRIBUTIONS

THE SERIES EXPECTS TO DECLARE DAILY AND PAY MONTHLY DIVIDENDS OF NET
INVESTMENT INCOME, IF ANY, AND MAKE DISTRIBUTIONS AT LEAST ANNUALLY OF ANY
CAPITAL GAINS IN EXCESS OF CAPITAL LOSSES. For federal income tax purposes, the
Series had a capital loss carryforward as of August 31, 1998 of approximately
$174,500, which expires in 2005. Accordingly, no capital gains distribution is
expected to be paid to shareholders until net gains have been realized in excess
of such carryforward. Dividends paid by the Series with respect to each class of
shares, to the extent any distributions are paid, will be calculated in the same
manner, at the same time, on the same day and will be in the same amount except
that each class will bear its own distribution charges, generally resulting in
lower dividends for Class B and Class C shares. Distributions of net capital
gains, if any, will be paid in the same amount for each class of shares. See
"How the Fund Values its Shares."

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

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GENERAL INFORMATION

DESCRIPTION OF SHARES

THE FUND WAS ESTABLISHED AS A MASSACHUSETTS BUSINESS TRUST ON MAY 18, 1984, BY
A DECLARATION OF TRUST. The Fund's activities are supervised by its Trustees.
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares in separate series, currently designated as the
Connecticut Money Market Series, Florida Series, Maryland Series, Massachusetts
Series, Massachusetts Money Market Series, Michigan Series, New Jersey Series,
New Jersey Money Market Series, New York Series, New York Money Market Series,
North Carolina Series, Ohio Series and Pennsylvania Series. The Series is
authorized to issue an unlimited number of shares, divided into three classes,
designated Class A, Class B and Class C. Each class of shares represents an
interest in the same assets of the Series and is identical in all respects
except that (i) each class is subject to different sales charges and
distribution and/or service fees, which may affect performance, (ii) each class
has exclusive voting rights on any matter submitted to shareholders that relates
solely to its arrangement and has separate voting rights on any matter submitted
to shareholders in which the interests of one class differ from the interests of
any other class, (iii) each class has a different exchange privilege and (iv)
only Class B shares have a conversion feature. See "How the Fund is
Managed--Distributor." In accordance with the Fund's Declaration of Trust, the
Trustees may authorize the creation of additional series and classes within such
series, with such preferences, privileges, limitations and voting and dividend
rights as the Trustees may determine.

Shares of the Fund, when issued, are fully paid, nonassessable, fully
transferable and redeemable at the option of the holder. Shares are also
redeemable at the option of the Fund under certain circumstances as described
under "Shareholder Guide--How to Sell Your Shares." Each share of each class of
the Series is equal as to earnings, assets and voting privileges, except as
noted above, and each class bears the expenses related to the distribution of
its shares. Except for the conversion feature applicable to Class B shares,
there are no conversion, preemptive or other subscription rights. In the event
of liquidation, each share of beneficial interest of each series is entitled to
its portion of all of the Fund's assets after all debt and expenses of the Fund
have been paid. Since Class B and Class C shares generally bear higher
distribution expenses than Class A shares, the liquidation proceeds to
shareholders of those classes are likely to be lower than to Class A
shareholders. The Fund's shares do not have cumulative voting rights for the
election of Trustees.

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ADDITIONAL INFORMATION

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

SHAREHOLDER GUIDE

HOW TO BUY SHARES OF THE FUND

YOU MAY PURCHASE SHARES OF THE SERIES THROUGH THE DISTRIBUTOR, THROUGH
DEALERS, INCLUDING PRUDENTIAL SECURITIES OR PRUSEC, OR DIRECTLY FROM THE FUND
THROUGH ITS TRANSFER AGENT, PRUDENTIAL MUTUAL FUND SERVICES LLC (PMFS OR THE
TRANSFER AGENT), ATTENTION: INVESTMENT SERVICES, P.O. BOX 15020, NEW BRUNSWICK,
NEW JERSEY 08906-5020. The purchase price is the NAV next determined following
receipt of an order in proper form (in accordance with procedures established by
the Transfer Agent in connection with investors' accounts) by the Distributor,
your Dealer or the Transfer Agent plus a sales charge which, at your option, may
be imposed either at the time of purchase, on a deferred basis, or both. Class A
shares are sold with a front-end sales charge. Class B shares are subject to a
CDSC. Class C shares are sold with a low front-end sales charge, but are also
subject to a CDSC. Payments may be made by wire, check or through your brokerage
account. See "Alternative Purchase Plan" below and also "How the Fund Values its
Shares."

An investment in the Series may not be appropriate for tax-exempt or
tax-deferred investors. Such investors should consult their own tax advisers.

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

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

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<PAGE>
and Shareholder Services Division, Attention: Prudential Municipal Series Fund
(North Carolina Series), specifying on the wire the account number assigned by
PMFS and your name and identifying the class in which you are eligible to invest
(Class A, Class B or Class C shares).

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

ALTERNATIVE PURCHASE PLAN

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

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

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

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CLASS A SHARES

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

OTHER WAIVERS. Class A shares may be purchased at NAV, through the Distributor
or the Transfer Agent, by the following persons: (a) officers of the Prudential
Mutual Funds (including the Fund), (b) employees of the Distributor, Prudential
Securities, PIFM and their subsidiaries and members of the families of such
persons who maintain an employee related account at Prudential Securities or the
Transfer Agent, (c) employees of subadvisers of the Prudential Mutual Funds
provided that the purchases at NAV are permitted by such person's employer, (d)
Prudential, employees and special agents of Prudential and its subsidiaries and
all persons who have retired directly from active service with Prudential or one
of its subsidiaries, (e) registered representatives and employees of Dealers who
have entered into a selected dealer agreement with the Distributor, provided
that purchases at NAV are permitted by such person's employer and (f) investors
who have a business relationship with a financial adviser who joined Prudential
Securities from another investment firm, provided that (i) the purchase is made
within 180 days of the commencement of the financial adviser's employment at
Prudential Securities or within one year in the case of benefit plans, (ii) the
purchase is made with proceeds of a redemption of shares of any open-end
non-money market fund sponsored by the financial adviser's previous employer
(other than a fund which imposes a distribution or service fee of .25 of 1% or
less) and (iii) the financial adviser served as the client's broker on the
previous purchases.

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CLASS B AND CLASS C SHARES

WAIVER OF INITIAL CHARGE--CLASS C SHARES

HOW TO SELL YOUR SHARES

YOU CAN REDEEM YOUR SHARES OF THE SERIES AT ANY TIME FOR CASH AT THE NAV NEXT
DETERMINED AFTER THE REDEMPTION REQUEST IS RECEIVED IN PROPER FORM (IN
ACCORDANCE WITH PROCEDURES ESTABLISHED BY THE TRANSFER AGENT IN CONNECTION WITH
INVESTORS' ACCOUNTS) BY THE DISTRIBUTOR, YOUR DEALER OR THE TRANSFER AGENT. See
"How the Fund Values its Shares." In certain cases, however, redemption proceeds
will be reduced by the amount of any applicable CDSC, as described below. See
"Contingent Deferred Sales Charges" below. If you are redeeming your shares
through a Dealer, your Dealer must receive your sell order before the Fund
computes its NAV for that day (I.E., 4:15 p.m., New York time) in order to
receive that day's NAV. Your Dealer will be responsible for furnishing all
necessary documentation to the Distributor and may charge you for its services
in connection with redeeming shares of the Fund.

IF YOU HOLD SHARES IN NON-CERTIFICATE FORM, A WRITTEN REQUEST FOR REDEMPTION
SIGNED BY YOU EXACTLY AS THE ACCOUNT IS REGISTERED IS REQUIRED. IF YOU HOLD
CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE FACE OF THE
CERTIFICATES, MUST BE RECEIVED BY THE TRANSFER AGENT, THE DISTRIBUTOR OR YOUR
DEALER IN ORDER FOR THE REDEMPTION REQUEST TO BE PROCESSED. IF REDEMPTION IS
REQUESTED BY A CORPORATION, PARTNERSHIP, TRUST OR FIDUCIARY, WRITTEN EVIDENCE OF
AUTHORITY ACCEPTABLE TO THE TRANSFER AGENT MUST BE SUBMITTED BEFORE SUCH REQUEST
WILL BE ACCEPTED. All correspondence and documents concerning redemptions should
be sent to the Fund in care of its Transfer Agent, Prudential Mutual Fund
Services LLC, Attention: Redemption Services, P.O. Box 15010, New Brunswick, New
Jersey 08906-5010, the Distributor or your Dealer.

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<PAGE>

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

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

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

27
<PAGE>
CONTINGENT DEFERRED SALES CHARGES

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

In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results in the lowest possible rate. It will be
assumed that the redemption is made first of amounts representing shares
acquired pursuant to the reinvestment of dividends and distributions; then of
amounts representing the increase in NAV above the total amount of payments for
the purchase of Series shares made during the preceding six years (five years
for Class B shares purchased prior to January 22, 1990); then of amounts
representing the cost of shares held beyond the applicable CDSC period; and
finally, of amounts representing the cost of shares held for the longest period
of time within the applicable CDSC period.

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

28
<PAGE>

CONVERSION FEATURE--CLASS B SHARES

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

29
<PAGE>
exchanges, on the last day of the month in which the original payment for
purchases of such Class B shares was made. For Class B shares previously
exchanged for shares of a money market fund, the time period during which such
shares were held in the money market fund will be excluded. For example, Class B
shares held in a money market fund for one year will not convert to Class A
shares until approximately eight years from purchase. For purposes of measuring
the time period during which shares are held in a money market fund, exchanges
will be deemed to have been made on the last day of the month. Class B shares
acquired through exchange will convert to Class A shares after expiration of the
conversion period applicable to the original purchase of such shares.

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

HOW TO EXCHANGE YOUR SHARES

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

IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.

IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE
FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.

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

30
<PAGE>

SPECIAL EXCHANGE PRIVILEGE. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV (see "Alternative
Purchase Plan--Class A Shares--Reduction and Waiver of Initial Sales Charges"
above). Under this exchange privilege, amounts representing any Class B and
Class C shares (which are not subject to a CDSC) held in such a shareholder's
account will be automatically exchanged for Class A shares on a quarterly basis,
unless the shareholder elects otherwise. Eligibility for this exchange privilege
will be calculated on the business day prior to the date of the exchange.
Amounts representing Class B or Class C shares which are not subject to a CDSC
include the following: (1) amounts representing Class B or Class C shares
acquired pursuant to the automatic reinvestment of dividends and distributions,
(2) amounts representing the increase in the NAV above the total amount of
payments for the purchase of Class B or Class C shares and (3) amounts
representing Class B and Class C shares held beyond the applicable CDSC period.
Class B and Class C shareholders must notify the Transfer Agent either directly
or through their Dealer or the Distributor that they are eligible for this
special exchange privilege.

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

SHAREHOLDER SERVICES

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

31
<PAGE>

benefit is based on the difference at the time of the insured's death between
the protected value and the then current market value of the shares. This
coverage is not available in all states and is subject to various restrictions
and limitations. For more complete information about this program, including
charges and expenses, please contact your Prudential representative.

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

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

32
<PAGE>
DESCRIPTION OF SECURITY RATINGS

MOODY'S INVESTORS SERVICE

BOND RATINGS

Caa: Bonds which 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 which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C: Bonds which 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 RATINGS

MIG 2: Loans bearing the designation MIG 2 are of high quality, with margins
of protection ample although not so large as in the preceding group.

A-1
<PAGE>
MIG 3: Loans bearing the designation MIG 3 are of favorable quality, with all
security elements accounted for but lacking the strength of the preceding
grades.

SG: This designation denotes speculative quality. Debt instruments in this
category lack margins of protection.

SHORT-TERM DEBT RATINGS

- Leading market positions in well-established industries.

- High rates of return on funds employed.

- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.

- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

- Well-established access to a range of financial markets and assured
sources of alternate liquidity.

PRIME-3: Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations.

NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime rating
categories.

STANDARD & POOR'S RATINGS GROUP

DEBT RATINGS

AAA: An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.

AA: An obligation rated AA differs from the highest rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.

COMMERCIAL PAPER RATINGS

An S&P Commercial Paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.

A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.

MUNICIPAL NOTES

A-3
<PAGE>
- --------------------------------------------------------------------------------

THE PRUDENTIAL MUTUAL FUND FAMILY
- --------------------------------------------------------------------------------

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

TAXABLE BOND FUNDS
- ---------------------------------------------------

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

TAX-EXEMPT BOND FUNDS
- ---------------------------------------------------

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

GLOBAL 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 Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential International Bond Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series
Global Utility Fund, Inc.
The Global Total Return Fund, Inc.

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

EQUITY FUNDS
- ---------------------------------------------------

Prudential Balanced Fund
Prudential Distressed Securities Fund, Inc.
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Index Series Fund
Prudential Bond Market Index Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced Fund
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Mid-Cap Value Fund
Prudential Real Estate Securities Fund
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Utility Fund, Inc.
Prudential 20/20 Focus Fund
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund

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

MONEY MARKET FUNDS
- ---------------------------------------------------

B-1

<PAGE>

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FUND HIGHLIGHTS............................................................. 2
What are the Series' Risk Factors and Special Characteristics?............ 2
FUND EXPENSES............................................................... 4
FINANCIAL HIGHLIGHTS........................................................ 5
HOW THE FUND INVESTS........................................................ 8
Investment Objective and Policies......................................... 8
Other Investments and Policies............................................ 13
Investment Restrictions................................................... 14
HOW THE FUND IS MANAGED..................................................... 14
Manager................................................................... 14
Fee Waivers and Subsidy................................................... 15
Distributor............................................................... 15
Portfolio Transactions.................................................... 17
Custodian and Transfer and Dividend Disbursing Agent...................... 17
Year 2000................................................................. 17
HOW THE FUND VALUES ITS SHARES.............................................. 17
HOW THE FUND CALCULATES PERFORMANCE......................................... 18
TAXES, DIVIDENDS AND DISTRIBUTIONS.......................................... 18
GENERAL INFORMATION......................................................... 21
Description of Shares..................................................... 21
Additional Information.................................................... 22
SHAREHOLDER GUIDE........................................................... 22
How to Buy Shares of the Fund............................................. 22
Alternative Purchase Plan................................................. 23
How to Sell Your Shares................................................... 26
Conversion Feature--Class B Shares........................................ 29
How to Exchange Your Shares............................................... 30
Shareholder Services...................................................... 31
DESCRIPTION OF SECURITY RATINGS............................................. A-1
THE PRUDENTIAL MUTUAL FUND FAMILY........................................... B-1
</TABLE>

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

MF126A

Class A: 74435M-81-2
Class B: 74435M-82-0
CUSIP Nos.: Class C: 74435M-51-5

PRUDENTIAL
MUNICIPAL
SERIES FUND
- -----------

NORTH CAROLINA
SERIES

PROSPECTUS
November 2, 1998
www.prudential.com

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

[LOGO]
<PAGE>
Prudential Municipal Series Fund
(Ohio Series)

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

PROSPECTUS DATED NOVEMBER 2, 1998

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

Prudential Municipal Series Fund (the Fund) (Ohio Series) (the Series) is one of
thirteen series of an open-end, management investment company, or mutual fund.
This Series is diversified and is designed to provide the maximum amount of
income that is exempt from Ohio State and federal income taxes consistent with
the preservation of capital and, in conjunction therewith, the Series may invest
in debt securities with the potential for capital gain. The net assets of the
Series are invested primarily in obligations within the four highest ratings of
Moody's Investors Service, Standard & Poor's Ratings Group or another nationally
recognized statistical rating organization or in unrated obligations which, in
the opinion of the Fund's investment adviser, are of comparable quality. The
Series may, however, also invest a portion of its assets in lower-quality
municipal obligations or in non-rated securities which, in the opinion of the
Fund's investment adviser, are of comparable quality. Subject to the limitations
described herein, the Series may utilize derivatives, including buying and
selling futures contracts and options thereon for the purpose of hedging its
portfolio securities. There can be no assurance that the Series' investment
objective will be achieved. See "How the Fund Invests--Investment Objective and
Policies." The Fund's address is Gateway Center Three, 100 Mulberry Street,
Newark, New Jersey 07102-4077, and its telephone number is (800) 225-1852.

This Prospectus sets forth concisely the information about the Fund and the Ohio
Series that a prospective investor should know before investing and is available
at the Web site of the Prudential Insurance Company of America
(http://www.prudential.com). Additional information about the Fund has been
filed with the Securities and Exchange Commission (the Commission) in a
Statement of Additional Information dated November 2, 1998, which information is
incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Fund at the
address or telephone number noted above. The Commission maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference and other information regarding the Fund.

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

INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.

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

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

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

WHAT IS PRUDENTIAL MUNICIPAL SERIES FUND?

WHAT IS THE SERIES' INVESTMENT OBJECTIVE?

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. It seeks to achieve this objective by investing
primarily in Ohio State, municipal and local government obligations and
obligations of other qualifying issuers, such as issuers located in Puerto
Rico, the Virgin Islands and Guam, which pay income exempt, in the opinion
of counsel, from Ohio State and federal income taxes (Ohio Obligations).
There can be no assurance that the Series' investment objective will be
achieved. See "How the Fund Invests--Investment Objective and Policies" at
page 8.

WHAT ARE THE SERIES' RISK FACTORS AND SPECIAL CHARACTERISTICS?

In seeking to achieve its investment objective, the Series will invest at
least 80% of the value of its total assets in Ohio Obligations. This degree
of investment concentration makes the Series particularly susceptible to
factors adversely affecting issuers of Ohio Obligations. See "How the Fund
Invests--Investment Objective and Policies--Special Considerations" at page
13. The Series may invest up to 30% of its total assets in high yield
securities, commonly known as junk bonds, which are considered speculative
and are subject to the risk of an issuer's inability to meet principal and
interest payments on the obligations as well as price volatility. See "How
the Fund Invests--Investment Objective and Policies-- Risk Factors Relating
to Investing in High Yield Municipal Obligations" at page 11. To hedge
against changes in interest rates, the Series may also purchase put options
and engage in transactions involving derivatives, including financial
futures contracts and options thereon. See "How the Fund Invests--Investment
Objective and Policies--Futures Contracts and Options Thereon" at page 12.
As with an investment in any mutual fund, an investment in this series can
decrease in value and you can lose money.

WHO MANAGES THE FUND?

Prudential Investments Fund Management LLC (PIFM or the Manager) is the
Manager of the Fund and is compensated for its services at an annual rate of
.50 of 1% of the Series' average daily net assets. As of September 30, 1998,
PIFM served as manager or administrator to 66 investment companies,
including 44 mutual funds, with aggregate assets of approximately $67
billion. The Prudential Investment Corporation (PIC, the Subadviser or the
investment adviser) furnishes investment advisory services in connection
with the management of the Fund under a Subadvisory Agreement with PIFM. See
"How the Fund is Managed--Manager" at page 14.

WHO DISTRIBUTES THE SERIES' SHARES?

Prudential Investment Management Services LLC (the Distributor) acts as
the Distributor of the Series' Class A, Class B and Class C shares and is
paid a distribution and service fee with respect to Class A shares at the
annual rate of .25 of 1% of the average daily net assets of the Class A
shares and is paid a distribution and service fee with respect to Class B
shares at the annual rate of .50 of 1% of the average daily net assets of
the Class B shares and is paid an annual distribution and service fee with
respect to Class C shares which is currently being charged at the rate of
.75 of 1% of the average daily net assets of the Class C shares. See "How
the Fund is Managed--Distributor" at page 15.

2
<PAGE>
WHAT IS THE MINIMUM INVESTMENT?

The minimum initial investment is $1,000 for Class A and Class B shares
and $2,500 for Class C shares. The minimum subsequent investment is $100 for
Class A, Class B and Class C shares. There is no minimum investment
requirement for certain employee savings plans. For purchases made through
the Automatic Investment Plan, the minimum initial and subsequent investment
is $50. See "Shareholder Guide--How to Buy Shares of the Fund" at page 22
and "Shareholder Guide--Shareholder Services" at page 31.

HOW DO I PURCHASE SHARES?

You may purchase shares of the Series through the Distributor or brokers
or dealers that have entered into agreements to act as participating or
introducing brokers for the Distributor (Dealers) or directly from the Fund
through its transfer agent, Prudential Mutual Fund Services LLC. (PMFS or
the Transfer Agent). In each case, sales are made at the net asset value per
share (NAV) next determined after receipt of your purchase order by the
Transfer Agent, a Dealer or the Distributor plus a sales charge, which may
be imposed at the time of purchase, on a deferred basis, or both. Class A
shares are sold with a front-end sales charge. Class B shares are subject to
a contingent deferred sales charge (CDSC). Class C shares are sold with a
low front-end sales charge, but are also subject to a CDSC. Dealers may
charge their customers a separate fee for handling purchase transactions.
See "How the Fund Values its Shares" at page 17 and "Shareholder Guide--How
to Buy Shares of the Fund" at page 22.

WHAT ARE MY PURCHASE ALTERNATIVES?

The Series offers three classes of shares:

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

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

See "Shareholder Guide--Alternative Purchase Plan" at page 23.

HOW DO I SELL MY SHARES?

HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?

3
<PAGE>
FUND EXPENSES
(OHIO SERIES)

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
---------------- ------------------- -------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES+
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price).................... 3% None 1%
Maximum Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds,
whichever is lower)................ None 5% during the first 1% on redemptions
year, decreasing by made within 18
1% annually to 1% months of purchase
in the fifth and
sixth years and 0%
the seventh year*
Maximum Sales Load Imposed on
Reinvested Dividends............... None None None
Redemption Fees..................... None None None
Exchange Fee........................ None None None
</TABLE>

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
---------------- ------------------- -------------------
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees....................... .50% .50% .50%
12b-1 Fees (After Reduction).......... .25%++ .50% .75%++
Other Expenses........................ .23% .23% .23%
--- --- ---
Total Fund Operating Expenses (After
Reduction)........................... .98% 1.23% 1.48%
--- --- ---
--- --- ---
</TABLE>

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each time period:
Class A............................................................... $ 40 $ 60 $ 83 $147
Class B............................................................... $ 63 $ 69 $ 78 $139
Class C............................................................... $ 35 $ 56 $ 90 $185
You would pay the following expenses on the same investment, assuming no
redemption:
Class A............................................................... $ 40 $ 60 $ 83 $147
Class B............................................................... $ 13 $ 39 $ 68 $139
Class C............................................................... $ 25 $ 56 $ 90 $185
</TABLE>

THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

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

* Class B shares will automatically convert to Class A shares approximately
seven years after purchase. See "Shareholder Guide--Conversion
Feature--Class B Shares."

+ Dealers independently may charge additional fees for shareholder
transactions or advisory services. Pursuant to rules of the National
Association of Securities Dealers, Inc., the aggregate initial sales
charges, deferred sales charges and asset-based sales charges on shares of
the Series may not exceed 6.25% of total gross sales, subject to certain
exclusions. This 6.25% limitation is imposed on each class of the Series
rather than on a per shareholder basis. Therefore, long-term shareholders
of the Series may pay more in total sales charges than the economic
equivalent of 6.25% of such shareholders' investment in such shares. See
"How the Fund is Managed--Distributor."

++ Although the Class A and Class C Distribution and Service Plans provide that
the Fund may pay a distribution fee of up to .30 of 1% and 1% per annum of
the average daily net assets of the Class A and Class C shares,
respectively, the Distributor may voluntarily limit its distribution fees.
Presently the Distributor limits its distribution fees with respect to the
Class A and Class C shares of the Series to no more than .10 of 1% and .75
of 1% of the average daily net asset value of the Class A and Class C
shares, respectively. This voluntary limitation may be modified or
terminated at any time without notice. The Distributor anticipates
modifying its present limitation for Class A shares so that, in the future,
the Fund will pay distribution fees of .25% with respect to such shares.
Total Fund Operating Expenses of the Class A and Class C shares without any
limitations would be 1.03% and 1.73%, respectively. See "How the Fund is
Managed--Distributor."

4
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH OF THE INDICATED
PERIODS)
(CLASS A SHARES)

The following financial highlights, for the two years ended August 31, 1998,
have been audited by PricewaterhouseCoopers LLP, independent accountants, and
for the three years ended August 31, 1996 have been audited by other independent
auditors. All such audit reports were unqualified. This information should be
read in conjunction with the financial statements and the notes thereto, which
appear in the Statement of Additional Information. The following financial
highlights contain selected data for a Class A share of beneficial interest
outstanding, total return, ratios to average net assets and other supplemental
data for the periods indicated. This information is based on data contained in
the financial statements. Further performance information is contained in the
annual report, which may be obtained without charge. See "Shareholder
Guide--Shareholder Services--Reports to Shareholders."

<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------------------------------------
JANUARY
22,
1990 (a)
YEAR ENDED AUGUST 31, THROUGH
------------------------------------------------------------------------------------------- AUGUST 31,
1998 1997 1996 1995 1994 1993 1992 1991 1990
------- ------- ------- ------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>

PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of
period............ $ 11.95 $ 11.70 $ 11.92 $ 11.72 $ 12.38 $ 11.69 $ 11.17 $ 10.71 $10.85
------- ------- ------- ------- ------- ------- ------- ------- ----------
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income............ .60 .63(b) .63(b) .65(b) .66 .69 .70 .70 .47
Net realized and
unrealized gain
(loss) on
investment
transactions...... .42 .27 (.15) .20 (.66) .69 .52 .46 (.14)
------- ------- ------- ------- ------- ------- ------- ------- ----------
Total from
investment
operations........ 1.02 .90 .48 .85 -- 1.38 1.22 1.16 .33
------- ------- ------- ------- ------- ------- ------- ------- ----------
LESS DISTRIBUTIONS
Dividends from net
investment
income............ (.60) (.63) (.63) (.65) (.66) (.69) (.70) (.70) (.47)
Distributions in
excess of net
investment
income............ --(e) --(e) -- -- -- -- -- -- --
Distributions from
net realized
gains............. (.06) (.02) (.07) -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ----------
Total
distributions..... (.66) (.65) (.70) (.65) (.66) (.69) (.70) (.70) (.47)
------- ------- ------- ------- ------- ------- ------- ------- ----------
Net asset value, end
of period......... $ 12.31 $ 11.95 $ 11.70 $ 11.92 $ 11.72 $ 12.38 $ 11.69 $ 11.17 $10.71
------- ------- ------- ------- ------- ------- ------- ------- ----------
------- ------- ------- ------- ------- ------- ------- ------- ----------
TOTAL RETURN(d):.... 8.80% 7.92% 4.02% 7.59% (0.01)% 12.12% 11.26% 11.06% 2.58%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000)...... $51,546 $50,977 $49,851 $51,132 $ 4,749 $ 4,647 $ 2,095 $ 923 $ 462
Average net assets
(000)............. $51,082 $51,641 $51,205 $29,904 $ 4,733 $ 2,904 $ 1,289 $ 615 $ 289
Ratios to average
net assets:
Expenses,
including
distribution
fee.............. .83% .80%(b) .80%(b) .83%(b) .84% .84% .81% .93% .96%(c)
Expenses,
excluding
distribution
fee.............. .73% .70%(b) .70%(b) .73%(b) .74% .74% .71% .83% .86%(c)
Net investment
income........... 4.93% 5.37%(b) 5.27%(b) 5.50%(b) 5.45% 5.73% 6.34% 6.34% 6.51%(c)
Portfolio turnover
rate.............. 30% 22% 35% 38% 20% 28% 37% 37% 24%
</TABLE>

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

(a) Commencement of offering of Class A shares.

(b) Net of management fee waiver. Effective September 1, 1997, PIFM
eliminated its management fee waiver (.05 of 1%).

(d) Total return does not consider the effects of sales loads. Total
return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes
reinvestment of dividends. Total returns for periods of less than a
full year are not annualized.

(e) Less than $.005 per share.

5
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH OF THE INDICATED
PERIODS)
(CLASS B SHARES)

The following financial highlights, for the two years ended August 31, 1998,
have been audited by PricewaterhouseCoopers LLP, independent accountants, and
for the three years ended August 31, 1996 have been audited by other independent
auditors. All such audit reports were unqualified. This information should be
read in conjunction with the financial statements and the notes thereto, which
appear in the Statement of Additional Information. The following financial
highlights contain selected data for a Class B share of beneficial interest
outstanding, total return, ratios to average net assets and other supplemental
data for the periods indicated. This information is based on data contained in
the financial statements. Further performance information is contained in the
annual report, which may be obtained without charge. See "Shareholder
Guide--Shareholder Services--Reports to Shareholders."

<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
--------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 (b)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of
year.............. $11.96 $11.71 $11.93 $11.73 $12.38 $11.70 $11.18 $10.71 $10.85 $10.53
------ ------ ------ ------ ------ ------ ------ ------ ------ ------

INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income............ .55 .59(a) .58(a) .60(a) .61 .65 .65 .65 .66 .67
Net realized and
unrealized gain
(loss) on
investment
transactions...... .42 .27 (.15) .20 (.65) .68 .52 .47 (.14) .32
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from
investment
operations........ .97 .86 .43 .80 (.04) 1.33 1.17 1.12 .52 .99
------ ------ ------ ------ ------ ------ ------ ------ ------ ------

LESS DISTRIBUTIONS
Dividends from net
investment
income............ (.55) (.59) (.58) (.60) (.61) (.65) (.65) (.65) (.66) (.67)
Distributions in
excess of net
investment
income............ --(d) --(d) -- -- -- -- -- -- -- --
Distributions from
net realized
gains............. (.06) (.02) (.07) -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total
distributions..... (.61) (.61) (.65) (.60) (.61) (.65) (.65) (.65) (.66) (.67)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end
of year........... $12.32 $11.96 $11.71 $11.93 $11.73 $12.38 $11.70 $11.18 $10.71 $10.85
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------

TOTAL RETURN(c):.... 8.36% 7.49% 3.61% 7.16% (0.33)% 11.58% 10.79% 10.74% 4.87% 9.68%

RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
year (000)........ $35,064 $40,770 $50,998 $62,805 $118,270 $121,937 $102,199 $92,572 $89,183 $87,426
Average net assets
(000)............. $37,848 $45,503 $57,909 $85,410 $121,365 $110,053 $96,178 $90,437 $89,302 $81,613
Ratios to average
net assets:
Expenses,
including
distribution
fee.............. 1.23% 1.20%(a) 1.20%(a) 1.22%(a) 1.24% 1.24% 1.21% 1.33% 1.32% 1.32%
Expenses,
excluding
distribution
fee.............. .73% .70%(a) .70%(a) .72%(a) .74% .74% .71% .83% .84% .84%
Net investment
income........... 4.54% 4.97%(a) 4.87%(a) 5.27%(a) 5.05% 5.33% 5.73% 5.94% 6.08% 6.17%
Portfolio turnover
rate.............. 30% 22% 35% 38% 20% 28% 37% 37% 24% 41%
</TABLE>

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

(a) Net of management fee waiver. Effective September 1, 1997, PIFM
eliminated its management fee waiver (.05 of 1%).

(b) On December 31, 1988, Prudential Mutual Fund Management, Inc.
succeeded The Prudential Insurance Company of America as manager of
the Fund.

(d) Less than $.005 per share.

6
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH OF THE INDICATED
PERIODS)
(CLASS C SHARES)

The following financial highlights, for the two years ended August 31, 1998,
have been audited by PricewaterhouseCoopers LLP, independent accountants, and
for the three years ended August 31, 1996 have been audited by other independent
auditors. All such audit reports were unqualified. This information should be
read in conjunction with the financial statements and the notes thereto, which
appear in the Statement of Additional Information. The following financial
highlights contain selected data for a Class C share of beneficial interest
outstanding, total return, ratios to average net assets and other supplemental
data for the periods indicated. This information is based on data contained in
the financial statements. Further performance information is contained in the
annual report, which may be obtained without charge. See "Shareholder
Guide--Shareholder Services--Reports to Shareholders."

<TABLE>
<CAPTION>
CLASS C
--------------------------------------------------------------------
AUGUST 1,
YEAR ENDED 1994 (a)
AUGUST 31, THROUGH
----------------------------------------------- AUGUST 31,
1998 1997 1996 1995 1994
------- ------- ------- ------- --------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $ 11.96 $ 11.71 $ 11.93 $ 11.73 $ 11.75
------- ------- ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income................... .52 .56(b) .55(b) .57(b) .05
Net realized and unrealized gain (loss)
on investment transactions............ .42 .27 (.15) .20 (.02)
------- ------- ------- ------- ------
Total from investment operations........ .94 .83 .40 .77 .03
------- ------- ------- ------- ------
LESS DISTRIBUTIONS
Dividends from net investment income.... (.52) (.56) (.55) (.57) (.05)
Distributions in excess of net
investment income..................... --(e) --(e) -- -- --
Distributions from net realized gains... (.06) (.02) (.07) -- --
------- ------- ------- ------- ------
Total distributions..................... (.58) (.58) (.62) (.57) (.05)
------- ------- ------- ------- ------
Net asset value, end of period.......... $ 12.32 $ 11.96 $ 11.71 $ 11.93 $ 11.73
------- ------- ------- ------- ------
------- ------- ------- ------- ------
TOTAL RETURN(d):........................ 8.09% 7.22% 3.36% 6.89% 0.18%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $ 183 $ 71 $ 44 $ 126 $ 5
Average net assets (000)................ $ 149 $ 57 $ 97 $ 61 $ 2
Ratios to average net assets:
Expenses, including distribution
fee.................................. 1.48% 1.45%(b) 1.45%(b) 1.49%(b) 2.28%(c)
Expenses, excluding distribution
fee.................................. .73% .70%(b) .70%(b) .74%(b) 1.53%(c)
Net investment income................. 4.26% 4.72%(b) 4.62%(b) 4.76%(b) 4.73%(c)
Portfolio turnover rate................. 30% 22% 35% 38% 20%
</TABLE>

- ------------
(a) Commencement of offering of Class C shares.

(b) Net of management fee waiver. Effective September 1, 1997, PIFM
eliminated its management fee waiver (.05 of 1%).

(d) Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment of
dividends. Total returns for periods of less than a full year are not
annualized.

(e) Less than $.005 per share.

7
<PAGE>
HOW THE FUND INVESTS

INVESTMENT OBJECTIVE AND POLICIES

THE SERIES WILL INVEST PRIMARILY IN OHIO STATE, MUNICIPAL AND LOCAL GOVERNMENT
OBLIGATIONS AND OBLIGATIONS OF OTHER QUALIFYING ISSUERS, SUCH AS ISSUERS LOCATED
IN PUERTO RICO, THE VIRGIN ISLANDS AND GUAM, WHICH PAY INCOME EXEMPT, IN THE
OPINION OF COUNSEL, FROM OHIO STATE AND FEDERAL INCOME TAXES (OHIO OBLIGATIONS).
THERE CAN BE NO ASSURANCE THAT THE SERIES WILL BE ABLE TO ACHIEVE ITS INVESTMENT
OBJECTIVE.

As with an investment in any mutual fund, an investment in this Series can
decrease and you can lose money.

THE SERIES MAY INVEST ITS ASSETS IN FLOATING RATE AND VARIABLE RATE
SECURITIES, INCLUDING PARTICIPATION INTERESTS THEREIN AND INVERSE FLOATERS.
There is no limit on the amount of such securities that the Series may purchase.
Floating rate securities normally have a rate of interest which is set as a
specific percentage of a designated base rate, such as the rate on Treasury
bonds or bills or the prime rate at a major commercial bank. The interest rate
on floating rate securities changes periodically when there is a change in the
designated base interest rate. Variable rate securities provide for a specified
periodic adjustment in the interest rate based on prevailing market rates and
generally allow the Series to demand payment of the obligation on short notice
at par plus accrued interest, which amount may be more or less than the amount
the Series paid for them. An inverse floater is a debt instrument with a
floating or variable interest rate that moves in the opposite direction of the
interest rate on another security or the value of an index. Changes in the
interest rate on the other security or index inversely affect the residual
interest rate paid on the inverse floater, with the result that the inverse
floater's price will be considerably more volatile than that of a fixed rate
bond. The market for inverse floaters is relatively new.

8
<PAGE>
THE SERIES MAY ALSO INVEST IN MUNICIPAL LEASE OBLIGATIONS. A MUNICIPAL LEASE
OBLIGATION IS A MUNICIPAL SECURITY THE INTEREST ON AND PRINCIPAL OF WHICH IS
PAYABLE OUT OF LEASE PAYMENTS MADE BY THE PARTY LEASING THE FACILITIES FINANCED
BY THE ISSUE. Typically, municipal lease obligations are issued by a state or
municipal financing authority to provide funds for the construction of
facilities (E.G., schools, dormitories, office buildings or prisons) or the
acquisition of equipment. The facilities are typically used by the state or
municipality pursuant to a lease with a financing authority. Certain municipal
lease obligations may trade infrequently. Accordingly, the investment adviser
will monitor the liquidity of municipal lease obligations under the supervision
of the Trustees. Municipal lease obligations will not be considered illiquid for
purposes of the Series' 15% limitation on illiquid securities provided the
investment adviser determines that there is a readily available market for such
securities. See "Other Investments and Policies--Illiquid Securities" below.

THE SERIES WILL INVEST AT LEAST 70% OF ITS TOTAL ASSETS IN OHIO OBLIGATIONS
WHICH, AT THE TIME OF PURCHASE, ARE RATED WITHIN THE FOUR HIGHEST QUALITY GRADES
AS DETERMINED BY MOODY'S INVESTORS SERVICE (MOODY'S) (CURRENTLY Aaa, Aa, A, Baa
FOR BONDS, MIG 1, MIG 2, MIG 3, MIG 4 FOR NOTES AND PRIME-1 FOR COMMERCIAL
PAPER), STANDARD & POOR'S RATINGS GROUP (S&P) (CURRENTLY AAA, AA, A, BBB FOR
BONDS, SP-1, SP-2 FOR NOTES AND A-1 FOR COMMERCIAL PAPER) OR ANOTHER NATIONALLY
RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO) OR, IF UNRATED, WILL POSSESS
CREDITWORTHINESS, IN THE OPINION OF THE INVESTMENT ADVISER, COMPARABLE TO SUCH
INVESTMENT GRADE RATED SECURITIES.

THE SERIES MAY ALSO INVEST UP TO 30% OF ITS TOTAL ASSETS IN OHIO OBLIGATIONS
RATED BELOW Baa BY MOODY'S OR BELOW BBB BY S&P OR A COMPARABLE RATING OF ANOTHER
NRSRO OR, IF NON-RATED, OF COMPARABLE QUALITY, IN THE OPINION OF THE FUND'S
INVESTMENT ADVISER, BASED ON ITS CREDIT ANALYSIS. Securities rated Baa by
Moody's and BBB by S&P are described as being investment grade but are also
characterized as having speculative characteristics. Securities rated below Baa
by Moody's and below BBB by S&P are considered speculative. See "Description of
Security Ratings" in the Appendix. Such lower-rated high yield securities are
commonly referred to as junk bonds. Such securities generally offer a higher
current yield than those in the higher rating categories but also involve
greater price volatility and risk of loss of principal and income. The
investment adviser will attempt to manage risk and enhance yield through credit
analysis and careful security selection. See "Risk Factors Relating to Investing
in High Yield Municipal Obligations" below. Subsequent to its purchase by the
Series, a municipal obligation may be assigned a lower rating or cease to be
rated. Such an event would not require the elimination of the issue from the
portfolio, but the investment adviser will consider such an event in determining
whether the Series should continue to hold the security in its portfolio. Many
issuers of lower-quality bonds choose not to have their obligations rated and
the Series may invest in such unrated securities. Investors should carefully
consider the relative risks associated with investments in securities which
carry lower ratings and in comparable non-rated securities.

During the year ended August 31, 1998, 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>
PERCENTAGE OF
RATINGS TOTAL INVESTMENTS
- --------------- -----------------
<S> <C>
AAA/Aaa 59.11%
AA/Aa 5.02%
A/A 7.79%
BBB/Baa 13.20%
BB/Ba 2.01%
Unrated
AAA/Aaa 1.80%
A/A 0.82%
BBB/Baa 7.80%
B/B 2.45%
</TABLE>

From time to time, the Series may own the majority of a municipal issue. Such
majority-owned holdings may present market and credit risks.

9
<PAGE>
The Series may purchase Ohio Obligations which, in the opinion of the
investment adviser, offer the opportunity for capital appreciation. This may
occur, for example, when the investment adviser believes that the issuer of a
particular Ohio Obligation might receive an upgraded credit standing, thereby
increasing the market value of the bonds it has issued or when the investment
adviser believes that interest rates might decline.

UNDER NORMAL MARKET CONDITIONS, THE SERIES WILL ATTEMPT TO INVEST
SUBSTANTIALLY ALL OF THE VALUE OF ITS ASSETS IN OHIO OBLIGATIONS. As a matter of
fundamental policy, during normal market conditions the Series' assets will be
invested so that at least 80% of the income will be exempt from Ohio State and
federal income taxes or the Series will have at least 80% of its total assets
invested in Ohio Obligations. During abnormal market conditions or to provide
liquidity, the Series may hold cash or cash equivalents or investment grade
taxable obligations, including obligations that are exempt from federal, but not
state, taxation and the Series may invest in tax-free cash equivalents, such as
floating rate demand notes, tax-exempt commercial paper and general obligation
and revenue notes or in taxable cash equivalents, such as certificates of
deposit, bankers acceptances and time deposits or other short-term taxable
investments such as repurchase agreements. When, in the opinion of the
investment adviser, abnormal market conditions require a temporary defensive
position, the Series may invest more than 20% of the value of its assets in debt
securities other than Ohio Obligations or may invest its assets so that more
than 20% of the income is subject to Ohio State or federal income taxes. The
Series will treat an investment in a municipal bond refunded with escrowed U.S.
Government securities as U.S. Government securities for purposes of the
Investment Company Act's diversification requirements provided certain
conditions are met. See "Investment Objectives and Policies--In General" in the
Statement of Additional Information.

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

10
<PAGE>
THE SERIES MAY ALSO PURCHASE MUNICIPAL FORWARD CONTRACTS. A municipal forward
contract is a municipal security which is purchased on a when-issued basis with
delivery taking place up to five years from the date of purchase. No interest
will accrue on the security prior to the delivery date. The investment adviser
will monitor the liquidity, value, credit quality and delivery of the security
under the supervision of the Trustees.

THE SERIES MAY PURCHASE SECONDARY MARKET INSURANCE ON OHIO OBLIGATIONS WHICH
IT HOLDS OR ACQUIRES. Secondary market insurance would be reflected in the
market value of the municipal obligation purchased and may enable the Series to
dispose of a defaulted obligation at a price similar to that of comparable
municipal obligations which are not in default.

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

RISK FACTORS RELATING TO INVESTING IN HIGH YIELD MUNICIPAL OBLIGATIONS.
FIXED-INCOME SECURITIES ARE SUBJECT TO THE RISK OF AN ISSUER'S INABILITY TO MEET
PRINCIPAL AND INTEREST PAYMENTS ON THE OBLIGATIONS (CREDIT RISK) AND MAY ALSO BE
SUBJECT TO PRICE VOLATILITY DUE TO SUCH FACTORS AS INTEREST RATE SENSITIVITY,
MARKET PERCEPTION OF THE CREDITWORTHINESS OF THE ISSUER AND GENERAL MARKET
LIQUIDITY (MARKET RISK). Lower-rated or unrated (I.E., high yield) securities,
commonly known as junk bonds, are more likely to react to developments affecting
market and credit risk than are more highly rated securities, which react
primarily to movements in the general level of interest rates. The investment
adviser will perform its own investment analysis and will not rely principally
on the ratings assigned by the rating services, although such ratings will be
considered by the investment adviser. The investment adviser will consider,
among other things, credit risk and market risk, as well as the financial
history and condition, the prospects and the management of an issuer in
selecting securities for the Series' portfolio. The achievement of the Series'
investment objective may be more dependent on the investment adviser's credit
analysis than is the case when investing in only higher quality bonds. Investors
should carefully consider the relative risks of investing in high yield
municipal obligations and understand that such securities are not generally
meant for short-term investing and that yields on junk bonds will fluctuate over
time.

The amount of high yield securities outstanding has proliferated recently in
conjunction with the decline in creditworthiness of many obligors on municipal
debt, particularly health care providers and certain governmental bodies. An
economic downturn could severely affect the ability of highly leveraged issuers
to service their debt obligations or to repay their obligations upon maturity.
In addition, the secondary market for high yield securities, which is
concentrated in relatively few market makers, may not be as liquid as the
secondary market for more highly rated securities and, from time to time, it may
be more difficult to value high yield securities than more highly rated
securities, and the judgment of the Board of Trustees and the investment adviser
may play a greater role in valuation because there is less reliable objective
data available. Under adverse market or economic conditions, the secondary
market for high yield securities could contract further, independent of any
specific adverse changes in the condition of a particular issuer. As a result,
the investment adviser could find it more difficult to sell these securities or
may be able to sell the securities only at prices lower than if such securities
were widely traded. Prices realized upon the sale of such lower rated or unrated
securities, under these circumstances, may be less than the prices used in
calculating the Series' NAV. If the investment adviser becomes involved in
activities such as reorganizations of obligors of troubled investments held by
the Series, this may prevent the Series from disposing of the securities, due to
its possession of material, non-public information concerning the obligor.

11
<PAGE>
FUTURES CONTRACTS AND OPTIONS THEREON

THE SERIES IS AUTHORIZED TO PURCHASE AND SELL CERTAIN DERIVATIVES, INCLUDING
FINANCIAL FUTURES CONTRACTS (FUTURES CONTRACTS) AND OPTIONS THEREON FOR THE
PURPOSE OF HEDGING ITS PORTFOLIO SECURITIES AGAINST FLUCTUATIONS IN VALUE CAUSED
BY CHANGES IN PREVAILING MARKET INTEREST RATES AND HEDGING AGAINST INCREASES IN
THE COST OF SECURITIES THE SERIES INTENDS TO PURCHASE. THE SUCCESSFUL USE OF
FUTURES CONTRACTS AND OPTIONS THEREON BY THE SERIES INVOLVES ADDITIONAL
TRANSACTION COSTS, IS SUBJECT TO VARIOUS RISKS AND DEPENDS UPON THE INVESTMENT
ADVISER'S ABILITY TO PREDICT THE DIRECTION OF THE MARKET (INCLUDING INTEREST
RATES). THE SERIES, AND THUS INVESTORS, MAY LOSE MONEY THROUGH ANY UNSUCCESSFUL
USE OF THESE STRATEGIES.

THE SERIES MAY NOT PURCHASE OR SELL FUTURES CONTRACTS OR OPTIONS THEREON IF,
IMMEDIATELY THEREAFTER, (i) THE SUM OF INITIAL AND NET CUMULATIVE VARIATION
MARGIN ON OUTSTANDING FUTURES CONTRACTS, TOGETHER WITH PREMIUMS PAID FOR OPTIONS
THEREON, WOULD EXCEED 20% OF THE TOTAL ASSETS OF THE SERIES, OR (ii) IN THE CASE
OF RISK MANAGEMENT TRANSACTIONS, THE SUM OF THE AMOUNT OF INITIAL MARGIN
DEPOSITS ON THE SERIES' FUTURES POSITIONS AND PREMIUMS PAID FOR OPTIONS THEREON
WOULD EXCEED 5% OF THE LIQUIDATION VALUE OF THE SERIES' TOTAL ASSETS. There are
no limitations on the percentage of the portfolio which may be hedged and no
limitations on the use of the Series' assets to cover futures contracts and
options thereon, except that the aggregate value of the obligations underlying
put options will not exceed 50% of the Series' assets.

12
<PAGE>
underlying futures contracts are taxable securities (rather than municipal
securities), are issued by companies in different market sectors or have
different maturities, ratings or geographic mixes than the security being
hedged. In addition, the correlation may be affected by additions to or
deletions from the index which serves as the basis for a futures contract.
Finally, if the price of the security that is subject to the hedge were to move
in a favorable direction, the advantage to the Series would be partially offset
by the loss incurred on the futures contract.

SPECIAL CONSIDERATIONS

BECAUSE THE SERIES WILL INVEST AT LEAST 80% OF THE VALUE OF ITS TOTAL ASSETS
IN OHIO OBLIGATIONS AND BECAUSE IT SEEKS TO MAXIMIZE INCOME DERIVED FROM OHIO
OBLIGATIONS, IT IS MORE SUSCEPTIBLE TO FACTORS ADVERSELY AFFECTING ISSUERS OF
OHIO OBLIGATIONS THAN IS A COMPARABLE MUNICIPAL BOND MUTUAL FUND THAT IS NOT
CONCENTRATED IN SUCH OBLIGATIONS TO THIS DEGREE. Ohio has encountered financial
difficulties over some prior years. While Ohio has faced revenue shortfalls, the
State has acted promptly in addressing budgetary shortfalls with spending
reductions and by tax adjustments. The State's 1994-95 biennium ended June 30,
1995 with a General Revenue Fund (GRF) ending balance of $928 million, of which
$535.2 million was transferred into the State's Budget Stabilization Fund (BSF),
a cash and budgetary management fund (which had a September 17, 1998 balance of
over $906 million). In accordance with the GRF Appropriations Act for the
1996-97 biennium, the significant June 30, 1995 GRF balance, after leaving in
the GRF an unreserved and undesignated balance of $70 million, was transferred
to other funds, including the BSF, school assistance funds and, in anticipation
of possible federal program changes, a human services stabilization fund. Fiscal
years 1996 and 1997 proved to be another biennium of positive results for the
GRF, with a biennium-end fund balance of $835 million. The GRF appropriations
act for the 1998-99 biennium was passed on June 25, 1997 and promptly signed
(after selective vetoes) by the Governor. All necessary GRF appropriations for
State debt service and lease rental payments then projected for the 1998-99
biennium were included in that appropriations act. If either Ohio or any of its
local governmental entities is unable to meet its financial obligations, the
income derived by the Series, the ability to preserve or realize appreciation of
the Series' capital and the Series' liquidity could be adversely affected. See
"Investment Objectives and Policies--Special Considerations Regarding
Investments in Tax-Exempt Securities" in the Statement of Additional
Information.

OTHER INVESTMENTS AND POLICIES

REPURCHASE AGREEMENTS

BORROWING

13
<PAGE>
PORTFOLIO TURNOVER

ILLIQUID SECURITIES

The Series may hold up to 15% of its net assets in illiquid securities
including repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable. Securities,
including restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933, as amended (the Securities Act), privately placed
commercial paper and municipal lease obligations, that have a readily available
market are not considered illiquid for the purposes of this limitation. The
investment adviser will monitor the liquidity of such restricted securities
under the supervision of the Trustees. The Series' investment in Rule 144A
securities could have the effect of increasing illiquidity to the extent that
qualified institutional buyers become, for a limited time, uninterested in
purchasing Rule 144A securities. See "Investment Objectives and
Policies--Illiquid Securities" and "Investment Restrictions" in the Statement of
Additional Information. Repurchase agreements subject to demand are deemed to
have a maturity equal to the notice period.

INVESTMENT RESTRICTIONS

HOW THE FUND IS MANAGED

For the fiscal year ended August 31, 1998, total expenses of the Series as a
percentage of average net assets were .83 %, 1.23% and 1.48% for the Series'
Class A, Class B and Class C shares, respectively. See "Financial Highlights."

MANAGER

PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM OR THE MANAGER), GATEWAY
CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077, IS THE MANAGER
OF THE FUND AND IS COMPENSATED FOR ITS SERVICES AT AN ANNUAL RATE OF .50 OF 1%
OF THE AVERAGE DAILY NET ASSETS OF THE SERIES. PIFM is organized in New York as
a limited liability company. For the fiscal year ended August 31, 1998, the
Series paid PIFM a management fee of .50 of 1% of the Series' average net
assets. See "Fee Waivers and Subsidy" below and "Manager" in the Statement of
Additional Information.

14
<PAGE>
UNDER THE MANAGEMENT AGREEMENT WITH THE FUND, PIFM MANAGES THE INVESTMENT
OPERATIONS OF EACH SERIES OF THE FUND AND ALSO ADMINISTERS THE FUND'S BUSINESS
AFFAIRS. See "Manager" in the Statement of Additional Information.

UNDER A SUBADVISORY AGREEMENT BETWEEN PIFM AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC, THE SUBADVISER OR THE INVESTMENT ADVISER), THE SUBADVISER
FURNISHES INVESTMENT ADVISORY SERVICES IN CONNECTION WITH THE MANAGEMENT OF THE
FUND AND IS REIMBURSED BY PIFM FOR ITS REASONABLE COSTS AND EXPENSES INCURRED IN
PROVIDING SUCH SERVICES. PIC's address is Prudential Plaza, Newark, New Jersey
07102-3777. Under the Management Agreement, PIFM continues to have
responsibility for all investment advisory services and supervises the
Subadviser's performance of such services.

The current portfolio manager of the Series is Christian Smith, a Vice
President of Prudential Investments. Mr. Smith has responsibility for the
day-to-day management of the portfolio. Mr. Smith has managed the portfolio
since 1991 and has been employed by PIC in various capacities since 1988.

FEE WAIVERS AND SUBSIDY

DISTRIBUTOR

UNDER SEPARATE DISTRIBUTION AND SERVICE PLANS (THE CLASS A PLAN, THE CLASS B
PLAN AND THE CLASS C PLAN, COLLECTIVELY, THE PLANS) ADOPTED BY THE FUND UNDER
RULE 12b-1 UNDER THE INVESTMENT COMPANY ACT AND A DISTRIBUTION AGREEMENT (THE
DISTRIBUTION AGREEMENT), THE DISTRIBUTOR INCURS THE EXPENSES OF DISTRIBUTING THE
CLASS A, CLASS B AND CLASS C SHARES OF THE SERIES. These expenses include
commissions and account servicing fees paid to, or on account of, Dealers or
financial institutions which have entered into agreements with the Distributor,
advertising expenses, the cost of printing and mailing prospectuses to potential
investors and indirect and overhead costs of the Distributor associated with the
sale of Series shares, including lease, utility, communications and sales
promotion expenses. Certain Dealers are paid higher fees than others with
respect to Class A shares pursuant to separate agreements with the Distributor.

15
<PAGE>

The Class A Plan provides that (i) up to .25 of 1% of the average daily net
assets of the Class A shares may be used to pay for personal service and/or the
maintenance of shareholder accounts (service fee) and (ii) total distribution
fees (including the service fee of .25 of 1%) may not exceed .30 of 1% of the
average daily net assets of the Class A shares. The Distributor has voluntarily
limited its distribution-related fees payable under the Class A Plan to .10 of
1% of the average daily net assets of the Class A shares. This voluntary waiver
may be modified or terminated at any time without notice.

UNDER THE CLASS B AND CLASS C PLANS, THE SERIES MAY PAY THE DISTRIBUTOR FOR
ITS DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS B AND CLASS C SHARES
AT AN ANNUAL RATE OF UP TO .50 OF 1% AND UP TO 1% OF THE AVERAGE DAILY NET
ASSETS OF THE CLASS B AND CLASS C SHARES, RESPECTIVELY. The Class B Plan
provides for the payment to the Distributor of (i) an asset-based sales charge
of up to .50 of 1% of the average daily net assets of the Class B shares, and
(ii) a service fee of up to .25 of 1% of the average daily net assets of the
Class B shares; provided that the total distribution-related fee does not exceed
.50 of 1%. The Class C Plan provides for the payment to the Distributor of (i)
an asset-based sales charge of up to .75 of 1% of the average daily net assets
of the Class C shares, and (ii) a service fee of up to .25 of 1% of the average
daily net assets of the Class C shares. The service fee is used to pay for
personal service and/or the maintenance of shareholder accounts. The Distributor
has voluntarily limited its distribution-related fees payable under the Class C
Plan to .75 of 1% of the average daily net assets of the Class C shares. This
voluntary waiver may be modified or terminated at any time without notice. The
Distributor also receives CDSC's from certain redeeming shareholders. See
"Shareholder Guide--How to Sell Your Shares--Contingent Deferred Sales Charges."

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

PORTFOLIO TRANSACTIONS

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<PAGE>
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT

YEAR 2000

HOW THE FUND VALUES ITS SHARES

THE SERIES' NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING ITS
LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. NAV IS CALCULATED SEPARATELY FOR EACH CLASS. THE
TRUSTEES HAVE FIXED THE SPECIFIC TIME OF DAY FOR THE COMPUTATION OF THE NAV OF
THE SERIES TO BE AS OF 4:15 P.M., NEW YORK TIME.

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

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<PAGE>
HOW THE FUND CALCULATES PERFORMANCE

TAXES, DIVIDENDS AND DISTRIBUTIONS

TAXATION OF THE FUND

THE SERIES HAS QUALIFIED AND INTENDS TO REMAIN QUALIFIED AS A REGULATED
INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE. ACCORDINGLY, THE SERIES WILL
NOT BE SUBJECT TO FEDERAL INCOME TAXES ON ITS NET INVESTMENT INCOME AND NET
CAPITAL GAINS, IF ANY, THAT IT DISTRIBUTES TO ITS SHAREHOLDERS. TO THE EXTENT
NOT DISTRIBUTED BY THE SERIES, NET TAXABLE INVESTMENT INCOME AND CAPITAL GAINS
AND LOSSES ARE TAXABLE TO THE SERIES. See "Taxes, Dividends and Distributions"
in the Statement of Additional Information.

To the extent the Series invests in taxable obligations, it will earn taxable
investment income. Also, to the extent the Series sells securities or engages in
hedging transactions in futures contracts and options thereon, it may earn both
capital gain or loss. Capital gain or loss may also arise upon the sale of
municipal securities, as well as taxable obligations. Under the Internal Revenue
Code, special rules apply to the treatment of certain options and futures
contracts (Section 1256 contracts). At the end of each year, such investments
held by the Series will be required to be marked to market for federal income
tax purposes; that is, treated as having been sold at market value. Sixty
percent of any gain or loss recognized on these deemed sales and on actual
dispositions will be treated as long-term capital gain or loss, and the
remainder will be treated as short-term capital gain or loss.

18
<PAGE>

TAXATION OF SHAREHOLDERS

Any dividends of net taxable investment income, together with distributions of
net short-term gains (I.E., the excess of net short-term capital gains over net
long-term capital losses) distributed to shareholders, will be taxable as
ordinary income to the shareholder whether or not reinvested. Any net capital
gains (I.E., the excess of net capital gains from the sale of assets held for
more than 12 months over net short-term capital losses) distributed to
shareholders will be taxable as capital gains to the shareholders, whether or
not reinvested and regardless of the length of time a shareholder has owned his
or her shares. For capital gains recognized upon the sale of assets by the
Series, the maximum long-term capital gains tax rate for individuals is 20%. The
maximum capital gains tax rate for corporate shareholders currently is the same
as the maximum tax rate for ordinary income.

OHIO TAXES

Under Ohio law, dividends paid by the Series are exempt from the Ohio personal
income tax and municipal and school district income taxes in Ohio to the extent
such dividends are properly attributable to interest payments on Ohio
Obligations, provided that the Series continues to qualify as a regulated
investment company for federal income tax purposes and that at all times at
least 50% of the value of the total assets of the Series consists of Ohio
Obligations or similar obligations of other states or their subdivisions.
Subject to the same regulated investment company and 50% requirements, dividends
paid by the Series are also

19
<PAGE>

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 Ohio
Obligations. For purposes of this discussion of Ohio taxes, "Ohio Obligations"
means only obligations issued by or on behalf of the State of Ohio, political
subdivisions thereof and agencies and instrumentalities of the State or or its
political subdivisions.

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

WITHHOLDING TAXES

DIVIDENDS AND DISTRIBUTIONS

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

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

GENERAL INFORMATION

DESCRIPTION OF SHARES

20
<PAGE>
Series is authorized to issue an unlimited number of shares, divided into three
classes, designated Class A, Class B and Class C. Each class of shares
represents an interest in the same assets of the Series and is identical in all
respects except that (i) each class is subject to different sales charges and
distribution and/or service fees, which may affect performance, (ii) each class
has exclusive voting rights on any matter submitted to shareholders that relates
solely to its arrangement and has separate voting rights on any matter submitted
to shareholders in which the interests of one class differ from the interests of
any other class, (iii) each class has a different exchange privilege and (iv)
only Class B shares have a conversion feature. See "How the Fund is
Managed--Distributor." In accordance with the Fund's Declaration of Trust, the
Trustees may authorize the creation of additional series and classes within such
series, with such preferences, privileges, limitations and voting and dividend
rights as the Trustees may determine.

Shares of the Fund, when issued, are fully paid, nonassessable, fully
transferable and redeemable at the option of the holder. Shares are also
redeemable at the option of the Fund under certain circumstances as described
under "Shareholder Guide--How to Sell Your Shares." Each share of each class of
the Series is equal as to earnings, assets and voting privileges, except as
noted above, and each class bears the expenses related to the distribution of
its shares. Except for the conversion feature applicable to the Class B shares,
there are no conversion, preemptive or other subscription rights. In the event
of liquidation, each share of beneficial interest in each series is entitled to
its portion of all of the Fund's assets after all debt and expenses of the Fund
have been paid. Since Class B and Class C shares generally bear higher
distribution expenses than Class A shares, the liquidation proceeds to
shareholders of those classes are likely to be lower than to Class A
shareholders. The Fund's shares do not have cumulative voting rights for the
election of Trustees.

The Declaration of Trust and the By-Laws of the Fund are designed to make the
Fund similar in certain respects to a Massachusetts business corporation. The
principal distinction between a Massachusetts business corporation and a
Massachusetts business trust relates to shareholder liability. Under
Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
Fund, which is not the case with a corporation. The Declaration of Trust of the
Fund provides that shareholders shall not be subject to any personal liability
for the acts or obligations of the Fund and that every written obligation,
contract, instrument or undertaking made by the Fund shall contain a provision
to the effect that the shareholders are not individually bound thereunder.

ADDITIONAL INFORMATION

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

21
<PAGE>
SHAREHOLDER GUIDE

HOW TO BUY SHARES OF THE FUND

YOU MAY PURCHASE SHARES OF THE SERIES THROUGH THE DISTRIBUTOR, THROUGH
DEALERS, INCLUDING PRUDENTIAL SECURITIES OR PRUSEC, OR DIRECTLY FROM THE FUND
THROUGH ITS TRANSFER AGENT, PRUDENTIAL MUTUAL FUND SERVICES LLC (PMFS OR THE
TRANSFER AGENT), ATTENTION: INVESTMENT SERVICES, P.O. BOX 15020, NEW BRUNSWICK,
NEW JERSEY 08906-5020. The purchase price is the NAV next determined following
receipt of an order in proper form (in accordance with procedures established by
the Transfer Agent in connection with investors' accounts) by the Distributor,
your Dealer or the Transfer Agent plus a sales charge which, at your option, may
be imposed either at the time of purchase, on a deferred basis, or both. Class A
shares are sold with a front-end sales charge. Class B shares are subject to a
CDSC. Class C shares are sold with a low front-end sales charge, but are also
subject to a CDSC. Payments may be made by wire, check or through your brokerage
account. See also "Alternative Purchase Plan" and "How the Fund Values its
Shares."

An investment in the Series may not be appropriate for tax-exempt or
tax-deferred investors. Such investors should consult their own tax advisers.

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

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

22
<PAGE>

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

ALTERNATIVE PURCHASE PLAN

<TABLE>
<CAPTION>
ANNUAL 12b-1 FEES
(AS A % OF AVERAGE
SALES CHARGE DAILY NET ASSETS) OTHER INFORMATION
--------------------------------------- --------------------- ---------------------------------------
<S> <C> <C> <C>
CLASS A.. Maximum initial sales charge of 3% of .30 of 1% Initial sales charge waived or reduced
the public offering price for certain purchases

CLASS B.. Maximum contingent deferred sales .50 of 1% Shares convert to Class A shares
charge or CDSC of 5% of the lesser of approximately seven years after
the amount invested or the redemption purchase
proceeds; declines to zero after six
years

The three classes of shares represent an interest in the same portfolio of
investments of the Series and have the same rights, except that (i) is subject
to different sales charges and distribution and/or service fees which may affect
performance, (ii) each class has exclusive voting rights on any matter submitted
to shareholders that relates solely to its arrangement and has separate voting
rights on any matter submitted to shareholders in which the interests of one
class differ from the interests of any other class, (iii) each class has a
different exchange privilege, and (iv) only Class B shares have a conversion
feature. The three classes also have separate exchange privileges. See "How to
Exchange Your Shares" below. The income attributable to each class and the
dividends payable on the shares of each class will be reduced by the amount of
the distribution fee of each class. Class B and Class C shares bear the expenses
of a higher distribution fee which will generally cause them to have higher
expense ratios and to pay lower dividends than the Class A shares.

23
<PAGE>
(4) the various exchange privileges among the different classes of shares (see
"How to Exchange Your Shares" below) and (5) the fact that Class B shares
automatically convert to Class A shares approximately seven years after purchase
(see "Conversion Feature--Class B Shares" below).

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

If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class C shares, you would have to hold your investment for more than 3
years for the 1% initial sales charge plus the higher cumulative annual
distribution-related fee on the Class C shares to exceed the initial sales
charge plus cumulative annual distribution-related fees on Class A shares. This
does not take into account the time value of money, which further reduces the
impact of the higher Class C distribution-related fee on the investment
fluctuations in NAV, the effect of the return on the investment over this period
of time or redemptions when the CDSC is applicable.

24
<PAGE>
CLASS A SHARES

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

OTHER WAIVERS. Class A shares may be purchased at NAV, through the Distributor
or the Transfer Agent, by the following persons: (a) officers of the Prudential
Mutual Funds (including the Fund), (b) employees of the Distributor, Prudential
Securities, PIFM and their subsidiaries and members of the families of such
persons who maintain an employee related account at Prudential Securities or the
Transfer Agent, (c) employees of subadvisers of the Prudential Mutual Funds
provided that the purchases at NAV are permitted by such person's employer, (d)
Prudential, employees and special agents of Prudential and its subsidiaries and
all persons who have retired directly from active service with Prudential or one
of its subsidiaries, (e) registered representatives and employees of Dealers who
have entered into a selected dealer agreement with the Distributor, provided
that purchases at NAV are permitted by such person's employer and (f) investors
who have a business relationship with a financial adviser who joined Prudential
Securities from another investment firm, provided that (i) the purchase is made
within 180 days of the commencement of the financial adviser's employment at
Prudential Securities or within one year in the case of benefit plans, (ii) the
purchase is made with proceeds of a redemption of shares of any open-end
non-money market fund sponsored by the financial adviser's previous employer
(other than a fund which imposes a distribution or service fee of .25 of 1% or
less) and (iii) the financial adviser served as the client's broker on the
previous purchases.

25
<PAGE>

CLASS B AND CLASS C SHARES

WAIVER OF CONTINGENT DEFERRED SALES CHARGE--CLASS C SHARES

HOW TO SELL YOUR SHARES

YOU CAN REDEEM YOUR SHARES OF THE SERIES ANY TIME FOR CASH AT THE NAV NEXT
DETERMINED AFTER THE REDEMPTION REQUEST IS RECEIVED IN PROPER FORM (IN
ACCORDANCE WITH PROCEDURES ESTABLISHED BY THE TRANSFER AGENT IN CONNECTION WITH
INVESTORS' ACCOUNTS) BY THE DISTRIBUTOR, YOUR DEALER OR THE TRANSFER AGENT. SEE
"HOW THE FUND VALUES ITS SHARES." In certain cases, however, redemption proceeds
will be reduced by the amount of any applicable CDSC, as described below. See
"Contingent Deferred Sales Charges" below. If you are redeeming your shares
through a Dealer, your Dealer must receive your sell order before the Fund
computes its NAV for that day (I.E., 4:15 p.m., New York time) in order to
receive that day's NAV. Your Dealer will be responsible for furnishing all
necessary documentation to the Distributor and may charge you for its services
in connection with redeeming shares of the Fund.

IF YOU HOLD SHARES IN NON-CERTIFICATE FORM, A WRITTEN REQUEST FOR REDEMPTION
SIGNED BY YOU EXACTLY AS THE ACCOUNT IS REGISTERED IS REQUIRED. IF YOU HOLD
CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE FACE OF THE
CERTIFICATES, MUST BE RECEIVED BY THE TRANSFER AGENT, THE DISTRIBUTOR OR YOUR
DEALER, IN ORDER FOR THE REDEMPTION REQUEST TO BE PROCESSED. IF REDEMPTION IS
REQUESTED BY A CORPORATION, PARTNERSHIP, TRUST OR FIDUCIARY, WRITTEN EVIDENCE OF
AUTHORITY ACCEPTABLE TO THE TRANSFER AGENT MUST BE SUBMITTED BEFORE SUCH REQUEST
WILL BE ACCEPTED. All correspondence and documents concerning redemptions should
be sent to the Fund in care of its Transfer Agent, Prudential Mutual Fund
Services LLC, Attention: Redemption Services, P.O. Box 15010, New Brunswick, New
Jersey 08906-5010, the Distributor or your Dealer.

26
<PAGE>

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

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

REDEMPTION IN KIND. If the Trustees determine that it would be detrimental to
the best interests of the remaining shareholders of the Fund to make payment
wholly or partly in cash, the Fund may pay the redemption price in whole or in
part by a distribution in kind of securities from the investment portfolio of
the Series of the Fund, in lieu of cash, in conformity with applicable rules of
the Commission. Securities will be readily marketable and will be valued in the
same manner as in a regular redemption. See "How the Fund Values its Shares" If
your shares are redeemed in kind, you will incur transaction costs in converting
the assets into cash. The Fund, however, has elected to be governed by Rule
18f-1 under the Investment Company Act, under which the Fund is obligated to
redeem shares solely in cash up to the lesser of $250,000 or 1% of the NAV of
the Fund during any 90-day period for any one shareholder.

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

CONTINGENT DEFERRED SALES CHARGES

27
<PAGE>

Class B or Class C shares to an amount which is lower than the amount of all
payments by you for shares during the preceding six years, in the case of Class
B shares, and 18 months, in the case of Class C shares. A CDSC will be applied
on the lesser of the original purchase price or the current value of the shares
being redeemed. Increases in the value of your shares or shares acquired through
reinvestment of dividends or distributions are not subject to a CDSC. The amount
of any contingent deferred sales charge will be paid to and retained by the
Distributor. See "How the Fund is Managed--Distributor" and "Waiver of
Contingent Deferred Sales Charges--Class B Shares" below.

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

In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results in the lowest possible rate. It will be
assumed that the redemption is made first of amounts representing shares
acquired pursuant to the reinvestment of dividends and distributions; then of
amounts representing the increase in NAV above the total amount of payments for
the purchase of Series shares made during the preceding six years (five years
for Class B shares purchased prior to January 22, 1990); then of amounts
representing the cost of shares held beyond the applicable CDSC period; and
finally, of amounts representing the cost of shares held for the longest period
of time within the applicable CDSC period.

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

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

28
<PAGE>

CONVERSION FEATURE--CLASS B SHARES

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

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

29
<PAGE>
held in a money market fund, exchanges will be deemed to have been made on the
last day of the month. Class B shares acquired through exchange will convert to
Class A shares after expiration of the conversion period applicable to the
original purchase of such shares.

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

HOW TO EXCHANGE YOUR SHARES

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

IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.

IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE
FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.

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

SPECIAL EXCHANGE PRIVILEGE. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV (see "Alternative
Purchase Plan--Class A Shares--Reduction and Waiver of Initial Sales Charges"
above). Under this exchange privilege, amounts representing any Class B and
Class C shares (which are not subject to a CDSC) held in such a

30
<PAGE>

shareholder's account will be automatically exchanged for Class A shares on a
quarterly basis, unless the shareholder elects otherwise. Eligibility for this
exchange privilege will be calculated on the business day prior to the date of
the exchange. Amounts representing Class B or Class C shares which are not
subject to a CDSC include the following: (1) amounts representing Class B or
Class C shares acquired pursuant to the automatic reinvestment of dividends and
distribtutions, (2) amounts representing the increase in the NAV above the total
amount of payments for the purchase of Class B or Class C shares and (3) amounts
representing Class B or Class C shares held beyond the applicable CDSC period.
Class B and Class C shareholders must notify the Transfer Agent either directly
or through their Dealer or the Distributor that they are eligible for this
special exchange privilege.

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

SHAREHOLDER SERVICES

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

31
<PAGE>
- REPORTS TO SHAREHOLDERS. The Fund will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses, the Fund will provide one annual and semi-annual shareholder report
and annual prospectus per household. You may request additional copies of such
reports by calling (800) 225-1852 or by writing to the Fund at Gateway Center
Three, 100 Mulberry Street, Newark, New Jersey 07102-4077. In addition, monthly
unaudited financial data is available upon request from the Fund.

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

32
<PAGE>
DESCRIPTION OF SECURITY RATINGS

MOODY'S INVESTORS SERVICE

BOND RATINGS

Caa: Bonds which 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 which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C: Bonds which 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 RATINGS

MIG 2: Loans bearing the designation MIG 2 are of high quality, with margins
of protection ample although not so large as in the preceding group.

A-1
<PAGE>
MIG 3: Loans bearing the designation MIG 3 are of favorable quality, with all
security elements accounted for but lacking the strength of the preceding
grades.

SG: This designation denotes speculative quality. Debt instruments in this
category lack margins of protection.

SHORT-TERM DEBT RATINGS

- Leading market positions in well-established industries.

- High rates of return on funds employed.

- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.

- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

- Well-established access to a range of financial markets and assured
sources of alternate liquidity.

PRIME-3: Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations.

NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime rating
categories.

STANDARD & POOR'S RATINGS GROUP

DEBT RATINGS

AAA: An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.

AA: An obligation rated AA differs from the highest rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.

COMMERCIAL PAPER RATINGS

An S&P Commercial Paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.

A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.

MUNICIPAL NOTES

A-3
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY

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

TAXABLE BOND FUNDS
-----------------------------

TAX-EXEMPT BOND FUNDS
---------------------------------

GLOBAL 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 Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential International Bond Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series
Global Utility Fund, Inc.
The Global Total Return Fund, Inc.

EQUITY FUNDS
-----------------------

Prudential Balanced Fund
Prudential Distressed Securities Fund, Inc.
Prudential Dryden Fund
Prudential Active Balanced Fund
Prudential Stock Index Fund
Prudential Small-Cap Index Fund
Prudential Bond Market Index Fund
Prudential Pacific Index Fund
Prudential Europe Index Fund
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Index Series Fund
Prudential Bond Market Index Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced Fund
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Multi-Sector Fund, Inc.
Prudential Mid-Cap Value Fund
Prudential Real Estate Securities Fund
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Utility Fund, Inc.
Prudential 20/20 Focus Fund
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund

MONEY MARKET FUNDS
------------------------------

- - INSTITUTIONAL MONEY MARKET FUNDS
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series

B-1
<PAGE>

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
FUND HIGHLIGHTS......................... 2
What are the Series' Risk Factors and
Special Characteristics?............. 2
FUND EXPENSES........................... 4
FINANCIAL HIGHLIGHTS.................... 5
HOW THE FUND INVESTS.................... 8
Investment Objective and Policies..... 8
Other Investments and Policies........ 13
Investment Restrictions............... 14
HOW THE FUND IS MANAGED................. 14
Manager............................... 14
Fee Waivers and Subsidy............... 15
Distributor........................... 15
Portfolio Transactions................ 16
Custodian and Transfer and Dividend
Disbursing Agent..................... 17
Year 2000............................. 17
HOW THE FUND VALUES ITS SHARES.......... 17
HOW THE FUND CALCULATES PERFORMANCE..... 18
TAXES, DIVIDENDS AND DISTRIBUTIONS...... 18
GENERAL INFORMATION..................... 20
Description of Shares................. 20
Additional Information................ 21
SHAREHOLDER GUIDE....................... 22
How to Buy Shares of the Fund......... 22
Alternative Purchase Plan............. 23
How to Sell Your Shares............... 26
Conversion Feature--Class B Shares.... 29
How to Exchange Your Shares........... 30
Shareholder Services.................. 31
DESCRIPTION OF SECURITY RATINGS......... A-1
THE PRUDENTIAL MUTUAL FUND FAMILY....... B-1
</TABLE>

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

MF123A

Class A: 74435M-83-8
CUSIP Nos.: Class B: 74435M-84-6
Class C: 74435M-49-9

PRUDENTIAL
MUNICIPAL
SERIES FUND
- -----------

OHIO SERIES

PROSPECTUS
November 2, 1998
www.prudential.com

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

[LOGO]
<PAGE>
Prudential Municipal Series Fund
(Pennsylvania Series)

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

PROSPECTUS DATED NOVEMBER 2, 1998

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

Prudential Municipal Series Fund (the Fund) (Pennsylvania Series) (the Series)
is one of thirteen series of an open-end, management investment company, or
mutual fund. This Series is diversified and is designed to provide the maximum
amount of income that is exempt from Pennsylvania personal income tax and
federal income tax consistent with the preservation of capital and, in
conjunction therewith, the Series may invest in debt securities with the
potential for capital gain. The net assets of the Series are invested primarily
in obligations within the four highest ratings of Moody's Investors Service,
Standard & Poor's Ratings Group or another nationally recognized statistical
rating organization or in unrated obligations which, in the opinion of the
Fund's investment adviser, are of comparable quality. The Series, may, however,
also invest a portion of its assets in lower-quality municipal obligations or in
non-rated securities which, in the opinion of the Fund's investment adviser, are
of comparable quality. Subject to the limitations described herein, the Series
may utilize derivatives, including buying and selling futures contracts and
options thereon for the purpose of hedging its portfolio securities. There can
be no assurance that the Series' investment objective will be achieved. See "How
the Fund Invests--Investment Objective and Policies." The Fund's address is
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, and
its telephone number is (800) 225-1852.

This Prospectus sets forth concisely the information about the Fund and the
Pennsylvania Series that a prospective investor should know before investing and
is available at the Web site of the Prudential Insurance Company of America
(http://www.prudential.com). Additional information about the Fund has been
filed with the Securities and Exchange Commission (the Commission) in a
Statement of Additional Information dated November 2, 1998, which information is
incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Fund at the
address or telephone number noted above. The Commission maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference and other information regarding the Fund.

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

INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.

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

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

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

WHAT IS PRUDENTIAL MUNICIPAL SERIES FUND?

Prudential Municipal Series Fund is a mutual fund whose shares are offered
in thirteen series, each of which operates as a separate fund. A mutual fund
pools the resources of investors by selling its shares to the public and
investing the proceeds of such sale in a portfolio of securities designed to
achieve its investment objective. Technically, the Fund is an open-end,
management investment company. Only the Pennsylvania Series is offered
through this Prospectus.

WHAT IS THE SERIES' INVESTMENT OBJECTIVE?

The Series' investment objective is to maximize current income that is
exempt from Commonwealth of Pennsylvania personal income tax and federal
income tax consistent with the preservation of capital. It seeks to achieve
this objective by investing primarily in Pennsylvania municipal and local
government obligations and obligations of other qualifying issuers, such as
issuers located in Puerto Rico, the Virgin Islands and Guam, which pay
income exempt, in the opinion of counsel, from Commonwealth of Pennsylvania
personal income tax and federal income tax (Pennsylvania Obligations). There
can be no assurance that the Series' investment objective will be achieved.
See "How the Fund Invests--Investment Objective and Policies" at page 8.

WHAT ARE THE SERIES' RISK FACTORS AND SPECIAL CHARACTERISTICS?

In seeking to achieve its investment objective, the Series will invest at
least 80% of the value of its total assets in Pennsylvania Obligations. This
degree of investment concentration makes the Series particularly susceptible
to factors adversely affecting issuers of Pennsylvania Obligations. See "How
the Fund Invests--Investment Objective and Policies-- Special
Considerations" at page 13. The Series may invest up to 30% of its total
assets in high yield securities, commonly known as junk bonds, which are
considered speculative and are subject to the risk of an issuer's inability
to meet principal and interest payments on the obligations as well as price
volatility. See "How the Fund Invests--Investment Objective and
Policies--Risk Factors Relating to Investing in High Yield Municipal
Obligations" at Page 11. To hedge against changes in interest rates, the
Series may also purchase put options and engage in transactions involving
derivatives, including financial futures contracts and options thereon. See
"How the Fund Invests--Investment Objective and Policies--Futures Contracts
and Options Thereon" at page 12. As with an investment in any mutual fund,
an investment in this Series can decrease in value and you can lose money.

WHO MANAGES THE FUND?

WHO DISTRIBUTES THE SERIES' SHARES?

2
<PAGE>

the annual rate of .50 of 1% of the average daily net assets of the Class B
shares and is paid an annual distribution and service fee with respect to
Class C shares which is currently being charged at the rate of .75 of 1% of
the average daily net assets of the Class C shares. See "How the Fund is
Managed--Distributor" at page 16.

WHAT IS THE MINIMUM INVESTMENT?

The minimum initial investment is $1,000 for Class A and Class B shares
and $2,500 for Class C shares. The minimum subsequent investment is $100 for
Class A, Class B and Class C shares. There is no minimum investment
requirement for certain employee savings plans. For purchases made through
the Automatic Investment Plan, the minimum initial and subsequent investment
is $50. See "Shareholder Guide--How to Buy Shares of the Fund" at page 23
and "Shareholder Guide--Shareholder Services" at page 32.

HOW DO I PURCHASE SHARES?

You may purchase shares of the Series through the Distributor or brokers
or dealers that have entered into agreements to act as participating or
introducing brokers for the Distributor (Dealers) or directly from the Fund
through its transfer agent, Prudential Mutual Fund Services LLC (PMFS or the
Transfer Agent). In each case, sales are made at the net asset value per
share (NAV) next determined after receipt of your purchase order by the
Transfer Agent, a Dealer or the Distributor plus a sales charge, which may
be imposed at the time of purchase, on a deferred basis, or both. Class A
shares are sold with a front-end sales charge. Class B shares are subject to
a contingent deferred sales charge (CDSC). Class C shares are sold with a
low front-end sales charge, but are also subject to a CDSC. Dealers may
charge their customers a separate fee for handling purchase transactions.
See "How the Fund Values its Shares" at page 18 and "Shareholder Guide--How
to Buy Shares of the Fund" at page 23.

WHAT ARE MY PURCHASE ALTERNATIVES?

The Series offers three classes of shares:

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

- Class C Shares: Sold with an initial sales charge of 1% of the
offering price and are also subject to a CDSC of 1%
on redemptions for a period of 18 months after
purchase. Class C shares are subject to higher
ongoing distribution-related expenses than Class A
shares, unlike Class B shares, but do not convert
to another class.

See "Shareholder Guide--Alternative Purchase Plan" at page 24.

HOW DO I SELL MY SHARES?

HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?

3
<PAGE>
FUND EXPENSES
(PENNSYLVANIA SERIES)

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
----------------- ----------------- -----------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES+
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price)................... 3% None 1%
Maximum Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds,
whichever is lower)............... None 5% during the 1% on redemptions
first year, made within 18
decreasing by 1% months of
annually to 1% in purchase
the fifth and
sixth years and
0% the seventh
year*
Maximum Sales Load Imposed on
Reinvested Dividends.............. None None None
Redemption Fees.................... None None None
Exchange Fee....................... None None None
</TABLE>

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
----------------- ----------------- -----------------
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees.................... .50% .50% .50%
12b-1 Fees (After Reduction)....... .25++ .50 .75++
Other Expenses..................... .17 .17 .17
----- ------ ------
Total Fund Operating Expenses (and
After Reduction).................. .92% 1.17% 1.42%
----- ------ ------
----- ------ ------
</TABLE>

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period:
Class A................................................ $ 39 $ 58 $ 79 $ 140
Class B................................................ 62 67 74 132
Class C................................................ 34 54 87 178
You would pay the following expenses on the same
investment, assuming no redemption:
Class A................................................ $ 39 $ 58 $ 79 $ 140
Class B................................................ 12 37 64 132
Class C................................................ 24 54 87 178
</TABLE>

THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

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

* Class B shares will automatically convert to Class A shares approximately
seven years after purchase. See "Shareholder Guide--Conversion Feature--
Class B Shares."

++ Although the Class A and Class C Distribution and Service Plans provide that
the Fund may pay a distribution fee of up to .30 of 1% and 1% per annum
of the average daily net assets of the Class A and Class C shares,
respectively, the Distributor may voluntarily limit its distribution
fees. Presently the Distributor limits its distribution fees with respect
to the Class A and Class C shares of the Series to no more than .10 of 1%
and .75% of 1% of the average daily net asset value of the Class A and
Class C shares, respectively. This voluntary limitation may be modified
or terminated at any time without notice. The Distributor anticipates
modifying its present limitation for Class A shares so that, in the
future, the Fund will pay distribution fees of .25% with respect to such
shares. Total Fund Operating Expenses of the Class A and Class C shares
without any limitations would be .97% and 1.67%, respectively. See "How
the Fund is Managed--Distributor."

4
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH OF THE INDICATED
PERIODS)
(CLASS A SHARES)

The following financial highlights, for the two years ended August 31, 1998,
have been audited by PricewaterhouseCoopers LLP, independent accountants, and
for the three years ended August 31, 1996 have been audited by other independent
auditors. All such audit reports were unqualified. This information should be
read in conjunction with the financial statements and the notes thereto, which
appear in the Statement of Additional Information. The following financial
highlights contain selected data for a Class A share of beneficial interest
outstanding, total return, ratios to average net assets and other supplemental
data for the periods indicated. This information is based on data contained in
the financial statements. Further performance information is contained in the
annual report, which may be obtained without charge. See "Shareholder
Guide--Shareholder Services--Reports to Shareholders."

<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------------------------------
JANUARY 22,
1990 (a)
YEAR ENDED AUGUST 31, THROUGH
------------------------------------------------------------------------------------ AUGUST 31,
1998 1997 1996 1995 1994 1993 1992 1991 1990
------- ------- ------- ------- ------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>

PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of
period............ $ 10.73 $ 10.49 $ 10.55 $ 10.42 $ 11.21 $ 10.55 $ 9.96 $ 9.60 $ 9.83
------- ------- ------- ------- ------- ------- ------- ------- ------
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income............ .57 .59(c) .59(c) .60(c) .59 .62 .62 .62(c) .38(c)
Net realized and
unrealized gain
(loss) on
investment
transactions...... .21 .33 (.06) .13 (.68) .70 .59 .39 (.23)
------- ------- ------- ------- ------- ------- ------- ------- ------
Total from
investment
operations........ .78 .92 .53 .73 (.09) 1.32 1.21 1.01 .15
------- ------- ------- ------- ------- ------- ------- ------- ------
LESS DISTRIBUTIONS
Dividends from net
investment
income............ (.57) (.59) (.59) (.60) (.59) (.62) (.62) (.62) (.38)
Distribution in
excess of net
investment
income............ --(e) --(e) -- -- -- -- -- -- --
Distributions from
net realized
gains............. (.02) (.09) -- -- (.11) (.04) -- (.03) --
------- ------- ------- ------- ------- ------- ------- ------- ------
Total
distributions..... (.59) (.68) (.59) (.60) (.70) (.66) (.62) (.65) (.38)
------- ------- ------- ------- ------- ------- ------- ------- ------
Net asset value, end
of period......... $ 10.92 $ 10.73 $ 10.49 $ 10.55 $ 10.42 $ 11.21 $ 10.55 $ 9.96 $ 9.60
------- ------- ------- ------- ------- ------- ------- ------- ------
------- ------- ------- ------- ------- ------- ------- ------- ------
TOTAL RETURN (d):... 7.55% 9.01% 5.08% 7.35% (.82)% 12.86% 12.44% 10.82% 1.43%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000)...... $97,794 $89,604 $69,659 $50,696 $10,651 $ 9,342 $ 5,908 $ 3,521 $1,823
Average net assets
(000)............. $96,053 $83,552 $59,995 $30,092 $10,315 $ 7,354 $ 4,439 $ 2,366 $ 977
Ratios to average
net assets:
Expenses,
including
distribution
fee.............. .77% .72%(c) .75%(c) .80%(c) .75% .78% .81% .83%(c) .78%(b)(c)
Expenses,
excluding
distribution
fee.............. .67% .62%(c) .65%(c) .70%(c) .65% .68% .71% .74%(c) .68%(b)(c)
Net investment
income........... 5.26% 5.60%(c) 5.56%(c) 5.76%(c) 5.52% 5.69% 5.99% 6.32%(c) 6.51%(b)(c)
Portfolio turnover
rate.............. 13% 21% 26% 19% 22% 13% 25% 62% 37%
</TABLE>

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

(a) Commencement of offering of Class A shares.

(b) Annualized.

(c) Net of expense subsidy/management fee waiver. Effective September 1,
1997, PIFM eliminated its management fee waiver (.05 of 1%).

(e) Less than $.005 per share.

5
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH OF THE INDICATED
PERIODS)
(CLASS B SHARES)

The following financial highlights, for the two years ended August 31, 1998,
have been audited by PricewaterhouseCoopers LLP, independent accountants, and
for the three years ended August 31, 1996 have been audited by other independent
auditors. All such audit reports were unqualified. This information should be
read in conjunction with the financial statements and the notes thereto, which
appear in the Statement of Additional Information. The following financial
highlights contain selected data for a Class B share of beneficial interest
outstanding, total return, ratios to average net assets and other supplemental
data for the periods indicated. This information is based on data contained in
the financial statements. Further performance information is contained in the
annual report, which may be obtained without charge. See "Shareholder
Guide--Shareholder Services--Reports to Shareholders."

<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
----------------------------------------------------------------------------------------------------------
1989
1998 1997 1996 1995 1994 1993 1992 1991 1990 (b)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE
OPERATING
PERFORMANCE:
Net asset
value,
beginning of
period....... $ 10.72 $ 10.49 $ 10.55 $ 10.42 $ 11.21 $ 10.54 $ 9.96 $ 9.60 $ 9.81 $ 9.47
------- ------- ------- ------- ------- ------- ------- ------- ------- -------

INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income....... .53 .55(a) .55(a) .56(a) .55 .57 .58 .58(a) .61(a) .65(a)
Net realized
and
unrealized
gain (loss)
on investment
transactions... .22 .32 (.06) .13 (.68) .71 .58 .39 (.21) .34
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from
investment
operations... .75 .87 .49 .69 (.13) 1.28 1.16 .97 .40 .99
------- ------- ------- ------- ------- ------- ------- ------- ------- -------

LESS
DISTRIBUTIONS
Dividends from
net
investment
income....... (.53) (.55) (.55) (.56) (.55) (.57) (.58) (.58) (.61) (.65)
Distributions
in excess of
net
investment
income....... --(d) --(d) -- -- -- -- -- -- -- --
Distributions
from net
realized
gains........ (.02) (.09) -- -- (.11) (.04) -- (.03) -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total
distributions... (.55) (.64) (.55) (.56) (.66) (.61) (.58) (.61) (.61) (.65)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset
value, end of
period....... $ 10.92 $ 10.72 $ 10.49 $ 10.55 $ 10.42 $ 11.21 $ 10.54 $ 9.96 $ 9.60 $ 9.81
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- ------- -------

TOTAL RETURN
(c):......... 7.13% 8.58% 4.66% 6.92% (1.22)% 12.54% 11.92% 10.39% 4.08% 10.75%

RATIOS/SUPPLEMENTAL
DATA:
Net assets, end
of period
(000)........ $117,678 $135,275 $167,809 $202,633 $257,732 $263,752 $206,028 $170,162 $150,824 $118,280
Average net
assets
(000)........ $125,306 $148,394 $189,902 $223,082 $266,594 $229,955 $186,113 $146,591 $141,183 $86,496
Ratios to
average net
assets:
Expenses,
including
distribution
fee......... 1.17% 1.12%(a) 1.15%(a) 1.17%(a) 1.15% 1.18% 1.21% 1.23%(a) 1.02%(a) .77%(a)
Expenses,
excluding
distribution
fee......... .67% .62%(a) .65%(a) .67%(a) .65% .68% .71% .74%(a) .53%(a) .29%(a)
Net
investment
income...... 4.87% 5.20%(a) 5.16%(a) 5.44%(a) 5.11% 5.29% 5.59% 5.94%(a) 6.05%(a) 6.27%(a)
Portfolio
turnover
rate......... 13% 21% 26% 19% 22% 13% 25% 62% 37% 11%
</TABLE>

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

(a) Net of expense subsidy/management fee waiver. Effective September
1, 1997, PIFM eliminated its management fee waiver (.05 of 1%).

(b) On December 31, 1988, Prudential Mutual Fund Management, Inc.
succeeded The Prudential Insurance Company of America as manager of
the Fund.

(d) Less than $.005 per share.

6
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH OF THE INDICATED
PERIODS)
(CLASS C SHARES)

The following financial highlights, for the two years ended August 31, 1998,
have been audited by PricewaterhouseCoopers LLP, independent accountants, and
for the three years ended August 31, 1996 have been audited by other independent
auditors. All such audit reports were unqualified. This information should be
read in conjunction with the financial statements and the notes thereto, which
appear in the Statement of Additional Information. The following financial
highlights contain selected data for a Class C share of beneficial interest
outstanding, total return, ratios to average net assets and other supplemental
data for the periods indicated. This information is based on data contained in
the financial statements. Further performance information is contained in the
annual report, which may be obtained without charge. See "Shareholder
Guide--Shareholder Services--Reports to Shareholders."

<TABLE>
<CAPTION>
CLASS C
-------------------------------------------------------------
AUGUST 1,
1994 (a)
YEAR ENDED AUGUST 31, THROUGH
--------------------------------------------- AUGUST 31,
1998 1997 1996 1995 1994
------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>

PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......... $ 10.72 $ 10.49 $ 10.55 $ 10.42 $10.44
------- ------- ------- ------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income........................ .50 .52(d) .52(d) .53(d) .04
Net realized and unrealized gain (loss) on
investment transactions.................... .22 .32 (.06) .13 (.02)
------- ------- ------- ------- ----------
Total from investment operations............. .72 .84 .46 .66 .02
------- ------- ------- ------- ----------
LESS DISTRIBUTIONS
Dividends from net investment income......... (.50) (.52) (.52) (.53) (.04)
Distributions in excess of net investment
income..................................... --(e) --(e) -- -- --
Distributions from net realized gains........ (.02) (.09) -- -- --
------- ------- ------- ------- ----------
Total distributions...................... (.52) (.61) (.52) (.53) (.04)
------- ------- ------- ------- ----------
Net asset value, end of period............... $ 10.92 $ 10.72 $ 10.49 $ 10.55 $10.42
------- ------- ------- ------- ----------
------- ------- ------- ------- ----------
TOTAL RETURN (c):............................ 6.86% 8.31% 4.41% 6.65% .14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............. $ 1,113 $ 471 $ 829 $ 336 $ 90
Average net assets (000)..................... $ 661 $ 678 $ 704 $ 223 $ 1
Ratios to average net assets:
Expenses, including distribution fee....... 1.42% 1.37%(d) 1.40%(d) 1.44%(d) 2.00%(b)
Expenses, excluding distribution fee....... .67% .62%(d) .65%(d) .69%(d) 1.25%(b)
Net investment income...................... 4.60% 4.95%(d) 4.91%(d) 5.14%(d) 8.51%(b)
Portfolio turnover rate...................... 13% 21% 26% 19% 22%
</TABLE>

- ---------------
(a) Commencement of offering of Class C shares.
(b) Annualized.
(c) Total return does not consider the effects of sales loads. Total
return is calculated assuming a purchase of shares on the first
day and a sale on the last day of each period reported and
includes reinvestment of dividends and distributions. Total
returns for periods less than a full year are not annualized.

(d) Net of management fee waiver. Effective September 1, 1997, PIFM
eliminated its management fee waiver (.05 of 1%).

(e) Less than $.005 per share.

7
<PAGE>
HOW THE FUND INVESTS

INVESTMENT OBJECTIVE AND POLICIES

THE SERIES WILL INVEST PRIMARILY IN PENNSYLVANIA, MUNICIPAL AND LOCAL
GOVERNMENT OBLIGATIONS AND OBLIGATIONS OF OTHER QUALIFYING ISSUERS, SUCH AS
ISSUERS LOCATED IN PUERTO RICO, THE VIRGIN ISLANDS OR GUAM, WHICH PAY INCOME
EXEMPT, IN THE OPINION OF COUNSEL, FROM COMMONWEALTH OF PENNSYLVANIA PERSONAL
INCOME TAX AND FEDERAL INCOME TAX (PENNSYLVANIA OBLIGATIONS). THERE CAN BE NO
ASSURANCE THAT THE SERIES WILL BE ABLE TO ACHIEVE ITS INVESTMENT OBJECTIVE.

As with an investment in any mutual fund, an investment in this Series can
decrease and you can lose money.

Interest on certain municipal obligations may be a preference item for
purposes of the federal alternative minimum tax. The Series may invest without
limit in municipal obligations that are private activity bonds (as defined in
the Internal Revenue Code) the interest on which would be a preference item for
purposes of the federal alternative minimum tax. See "Taxes, Dividends and
Distributions." Under Pennsylvania law, dividends paid by the Series are exempt
from Pennsylvania personal income tax for resident individuals to the extent
they are derived from interest payments on Pennsylvania Obligations.
Pennsylvania Obligations could include general obligation bonds of the
Commonwealth, counties, cities, towns, etc., revenue bonds of utility systems,
highways, bridges, port and airport facilities, colleges, hospitals, etc., and
industrial development and pollution control bonds, the interest on which is
exempt, in the opinion of bond counsel to the issuer, from Pennsylvania personal
income taxes. The Series will invest in long-term obligations, and the
dollar-weighted average maturity of the Series' portfolio will generally range
between 10-20 years. The Series also may invest in certain short-term,
tax-exempt notes such as Tax Anticipation Notes, Revenue Anticipation Notes,
Bond Anticipation Notes, Construction Loan Notes and variable and floating rate
demand notes.

Generally, municipal obligations with longer maturities produce higher yields
and are subject to greater price fluctuations as a result of changes in interest
rates (market risk) than municipal obligations with shorter maturities. The
prices of municipal obligations vary inversely with interest rates. Interest
rates are currently much lower than in recent years. As a general matter bond
prices and the Series' NAV will vary inversely with interest rate fluctuations.
If rates were to rise sharply, the prices of bonds in the Series' portfolio
might be adversely affected.

8
<PAGE>
obligation on short notice at par plus accrued interest, which amount may be
more or less than the amount the Series paid for them. An inverse floater is a
debt instrument with a floating or variable interest rate that moves in the
opposite direction of the interest rate on another security or the value of an
index. Changes in the interest rate on the other security or index inversely
affect the residual interest rate paid on the inverse floater, with the result
that the inverse floater's price will be considerably more volatile than that of
a fixed rate bond. The market for inverse floaters is relatively new.

THE SERIES WILL INVEST AT LEAST 70% OF ITS TOTAL ASSETS IN PENNSYLVANIA
OBLIGATIONS WHICH, AT THE TIME OF PURCHASE, ARE RATED WITHIN THE FOUR HIGHEST
QUALITY GRADES AS DETERMINED BY MOODY'S INVESTORS SERVICE (MOODY'S) (CURRENTLY
Aaa, Aa, A, Baa FOR BONDS, MIG 1, MIG 2, MIG 3, MIG 4 FOR NOTES AND PRIME-1 FOR
COMMERCIAL PAPER), STANDARD & POOR'S RATINGS GROUP (S&P) (CURRENTLY AAA, AA, A,
BBB FOR BONDS, SP-1, SP-2 FOR NOTES AND A-1 FOR COMMERCIAL PAPER) OR ANOTHER
NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO) OR, IF UNRATED,
WILL POSSESS CREDITWORTHINESS, IN THE OPINION OF THE INVESTMENT ADVISER,
COMPARABLE TO SUCH INVESTMENT GRADE RATED SECURITIES.

THE SERIES MAY ALSO INVEST UP TO 30% OF ITS TOTAL ASSETS IN PENNSYLVANIA
OBLIGATIONS RATED BELOW Baa BY MOODY'S OR BELOW BBB BY S&P OR A COMPARABLE
RATING OF ANOTHER NRSRO OR, IF NON-RATED, OF COMPARABLE QUALITY, IN THE OPINION
OF THE FUND'S INVESTMENT ADVISER, BASED ON ITS CREDIT ANALYSIS. Securities rated
Baa by Moody's and BBB by S&P are described as being investment grade but are
also characterized as having speculative characteristics. Securities rated below
Baa by Moody's and below BBB by S&P are considered speculative. See "Description
of Security Ratings" in the Appendix. Such lower-rated high yield securities are
commonly referred to as junk bonds. Such securities generally offer a higher
current yield than those in the high rating categories but also involve greater
price volatility and risk of loss of principal and income. The investment
adviser will attempt to manage risk and enhance yield through credit analysis
and careful security selection. See "Risk Factors Relating to Investing in High
Yield Municipal Obligations" below. Subsequent to its purchase by the Series, a
municipal obligation may be assigned a lower rating or cease to be rated. Such
an event would not require the elimination of the issue from the portfolio, but
the investment adviser will consider such an event in determining whether the
Series should continue to hold the security in its portfolio. Many issuers of
lower-quality bonds choose not to have their obligations rated and the Series
may invest in such unrated securities. Investors should carefully consider the
relative risks associated with investments in securities which carry lower
ratings and in comparable non-rated securities.

9
<PAGE>

During the year ended August 31, 1998, 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>
PERCENTAGE OF
RATINGS TOTAL INVESTMENTS
- --------------- -----------------
<S> <C>
AAA/Aaa 46.57%
AA/Aa 2.24%
A/A 18.95%
BBB/Baa 17.72%
BB/Ba 0.50%
B/B 0.64%
Unrated
AAA/Aaa 6.40%
A/A 1.00%
BBB/Baa 3.02%
BB/Ba 2.96%
</TABLE>

From time to time, the Series may own the majority of a municipal issue. Such
majority-owned holdings may present market and credit risks.

The Series may purchase Pennsylvania Obligations which, in the opinion of the
investment adviser, offer the opportunity for capital appreciation. This may
occur, for example, when the investment adviser believes that the issuer of a
particular Pennsylvania Obligation might receive an upgraded credit standing,
thereby increasing the market value of the bonds it has issued or when the
investment adviser believes that interest rates might decline.

UNDER NORMAL MARKET CONDITIONS, THE SERIES WILL ATTEMPT TO INVEST
SUBSTANTIALLY ALL OF THE VALUE OF ITS ASSETS IN PENNSYLVANIA OBLIGATIONS. As a
matter of fundamental policy, during normal market conditions the Series' assets
will be invested so that at least 80% of the income will be exempt from
Pennsylvania personal income taxes and federal income taxes or the Series will
have at least 80% of its total assets invested in Pennsylvania Obligations.
During abnormal market conditions or to provide liquidity, the Series may hold
cash or cash equivalents or investment grade taxable obligations, including
obligations that are exempt from federal, but not state, taxation and the Series
may invest in tax-free cash equivalents, such as floating rate demand notes,
tax-exempt commercial paper and general obligation and revenue notes, or in
taxable cash equivalents, such as certificates of deposit, bankers acceptances
and time deposits or other short-term taxable investments such as repurchase
agreements. When, in the opinion of the investment adviser, abnormal market
conditions require a temporary defensive position or when there is a scarcity of
bonds exempt from Pennsylvania tax, the Series may invest more than 20% of the
value of its assets in debt securities other than Pennsylvania Obligations or
may invest its assets so that more than 20% of the income is subject to
Pennsylvania or federal income taxes. The Series will treat an investment in a
municipal bond refunded with escrowed U.S. Government securities as U.S.
Government securities for purposes of the Investment Company Act's
diversification requirements provided certain conditions are met. See
"Investment Objectives and Policies--In General" in the Statement of Additional
Information.

10
<PAGE>
In addition, there is a credit risk associated with the purchase of puts in
that the issuer of the put may be unable to meet its obligation to purchase the
underlying security. Accordingly, the Series will acquire puts only under the
following circumstances: (1) the put is written by the issuer of the underlying
security and such security is rated within the four highest quality grades as
determined by an NRSRO; or (2) the put is written by a person other than the
issuer of the underlying security and such person has securities outstanding
which are rated within such four highest quality grades; or (3) the put is
backed by a letter of credit or similar financial guarantee issued by a person
having securities outstanding which are rated within the two highest quality
grades of an NRSRO.

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

THE SERIES MAY PURCHASE SECONDARY MARKET INSURANCE ON PENNSYLVANIA OBLIGATIONS
WHICH IT HOLDS OR ACQUIRES. Secondary market insurance would be reflected in the
market value of the municipal obligation purchased and may enable the Series to
dispose of a defaulted obligation at a price similar to that of comparable
municipal obligations which are not in default.

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

RISK FACTORS RELATING TO INVESTING IN HIGH YIELD MUNICIPAL OBLIGATIONS.
FIXED-INCOME SECURITIES ARE SUBJECT TO THE RISK OF AN ISSUER'S INABILITY TO MEET
PRINCIPAL AND INTEREST PAYMENTS ON THE OBLIGATIONS (CREDIT RISK) AND MAY ALSO BE
SUBJECT TO PRICE VOLATILITY DUE TO SUCH FACTORS AS INTEREST RATE SENSITIVITY,
MARKET PERCEPTION OF THE CREDITWORTHINESS OF THE ISSUER AND GENERAL MARKET
LIQUIDITY (MARKET RISK). Lower-rated or unrated (I.E., high yield) securities,
commonly known as junk bonds, are more likely to react to developments affecting
market and credit risk than are more highly rated securities, which react
primarily to movements in the general level of interest rates. The investment
adviser will perform its own analysis and will not rely principally on the
ratings assigned by the rating services, although such ratings will be
considered by the investment adviser. The investment adviser will consider,
among other things, credit risk and market risk, as well as the financial
history and condition, the prospects and the management of an issuer in
selecting securities for the Series' portfolio. The achievement of the Series'
investment objective may be more dependent on the investment adviser's credit
analysis than is the case when investing

11
<PAGE>
in only higher quality bonds. Investors should carefully consider the relative
risks of investing in high yield municipal obligations and understand that such
securities are not generally meant for short-term investing and that yields on
junk bonds will fluctuate over time.

The amount of high yield securities outstanding has proliferated recently in
conjunction with the decline in creditworthiness of many obligors on municipal
debt, particularly health care providers and certain governmental bodies. An
economic downturn could severely affect the ability of highly leveraged issuers
to service their debt obligations or to repay their obligations upon maturity.
In addition, the secondary market for high yield securities, which is
concentrated in relatively few market makers, may not be as liquid as the
secondary market for more highly rated securities and, from time to time, it may
be more difficult to value high yield securities than more highly rated
securities, and the judgment of the Board of Trustees and the investment adviser
may play a greater role in valuation because there is less reliable objective
data available. Under adverse market or economic conditions, the secondary
market for high yield securities could contract further, independent of any
specific adverse changes in the condition of a particular issuer. As a result,
the investment adviser could find it more difficult to sell these securities or
may be able to sell the securities only at prices lower than if such securities
were widely traded. Prices realized upon the sale of such lower rated or unrated
securities, under these circumstances, may be less than the prices used in
calculating the Series' NAV. If the investment adviser becomes involved in
activities such as reorganizations of obligors of troubled investments held by
the Series, this may prevent the Series from disposing of the securities, due to
its possession of material, non-public information concerning the obligor.

FUTURES CONTRACTS AND OPTIONS THEREON

THE SERIES IS AUTHORIZED TO PURCHASE AND SELL CERTAIN DERIVATIVES, INCLUDING
FINANCIAL FUTURES CONTRACTS (FUTURES CONTRACTS) AND OPTIONS THEREON FOR THE
PURPOSE OF HEDGING ITS PORTFOLIO SECURITIES AGAINST FLUCTUATIONS IN VALUE CAUSED
BY CHANGES IN PREVAILING MARKET INTEREST RATES AND HEDGING AGAINST INCREASES IN
THE COST OF SECURITIES THE SERIES INTENDS TO PURCHASE. THE SUCCESSFUL USE OF
FUTURES CONTRACTS AND OPTIONS THEREON BY THE SERIES INVOLVES ADDITIONAL
TRANSACTION COSTS, IS SUBJECT TO VARIOUS RISKS AND DEPENDS UPON THE INVESTMENT
ADVISER'S ABILITY TO PREDICT THE DIRECTION OF THE MARKET (INCLUDING INTEREST
RATES). THE SERIES, AND THUS INVESTORS, MAY LOSE MONEY THROUGH ANY UNSUCCESSFUL
USE OF THESE STRATEGIES.

12
<PAGE>

THEREON, WOULD EXCEED 20% OF THE TOTAL ASSETS OF THE SERIES, OR (II) IN THE CASE
OF RISK MANAGEMENT TRANSACTIONS, THE SUM OF THE AMOUNT OF INITIAL MARGIN
DEPOSITS ON THE SERIES' FUTURES POSITIONS AND PREMIUMS PAID FOR OPTIONS THEREON
WOULD EXCEED 5% OF THE LIQUIDATION VALUE OF THE SERIES' TOTAL ASSETS. There are
no limitations on the percentage of the portfolio which may be hedged and no
limitations on the use of the Series' assets to cover futures contracts and
options thereon, except that the aggregate value of the obligations underlying
put options will not exceed 50% of the Series' assets.

SPECIAL CONSIDERATIONS

BECAUSE THE SERIES WILL INVEST AT LEAST 80% OF THE VALUE OF ITS TOTAL ASSETS
IN PENNSYLVANIA OBLIGATIONS AND BECAUSE IT SEEKS TO MAXIMIZE INCOME DERIVED FROM
PENNSYLVANIA OBLIGATIONS, IT IS MORE SUSCEPTIBLE TO FACTORS ADVERSELY AFFECTING
ISSUERS OF PENNSYLVANIA OBLIGATIONS THAN IS A COMPARABLE MUNICIPAL BOND MUTUAL
FUND THAT IS NOT CONCENTRATED IN THESE ISSUERS TO THIS DEGREE. Many different
social, environmental and economic factors may affect the financial condition of
Pennsylvania and its political subdivisions. The Commonwealth of Pennsylvania
was not immune to the problems of the Northeast as the national recession of the
early 1990's reduced tax revenue growth contributing to budget shortfalls and
reduced cash balances. In addition, Pennsylvania and certain of its political
subdivisions have from time to time encountered financial difficulties which
have adversely affected their respective credit standings. Other factors which
may negatively affect economic conditions in Pennsylvania include adverse
changes in employment rates, federal revenue sharing or laws with respect to
tax-exempt financing.

During the five year period from fiscal 1993 through fiscal 1997, revenues and
other sources, (determined on a GAAP basis) increased by an average annual rate
of 4.7%. Expenditures and other uses during the fiscal 1993 through fiscal 1997
period rose at an average annual rate of 4.9%. Efforts to control costs for
various social welfare programs and the presence of favorable

13
<PAGE>

economic conditions have helped restrain these costs. Operations during the
Pennsylvania General Fund's 1998 fiscal year increased the unappropriated
balance of Commonwealth revenues for that period by $86.4 million to $488.7
million at June 30, 1998 (prior to transfers to the Tax Stabilization Reserve
Fund).

As of August 1, 1998, Pennsylvania's general obligation bonds were rated Aa3
by Moody's Investors Services. If either Pennsylvania or any of its local
government entities is unable to meet its financial obligations, the income
derived by the Series, the ability to preserve or realize appreciation of the
Series' capital and the Series' liquidity could be adversely affected. See
"Investment Objectives and Policies--Special Considerations Regarding
Investments in Tax-Exempt Securities" in the Statement of Additional
Information.

OTHER INVESTMENTS AND POLICIES

REPURCHASE AGREEMENTS

BORROWING

PORTFOLIO TURNOVER

ILLIQUID SECURITIES

The Series may hold up to 15% of its net assets in illiquid securities
including repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable. Securities,
including restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933, as amended (the Securities Act), privately placed
commercial paper and municipal lease obligations, that have a readily available
market are not considered illiquid for the purposes of this limitation. The
investment adviser will monitor the liquidity of such restricted securities
under the supervision of the Trustees. The Series' investment in Rule 144A
securities could have the effect of increasing illiquidity to the extent that
qualified institutional buyers become, for a limited time, uninterested in
purchasing

14
<PAGE>
Rule 144A securities. See "Investment Objectives and Policies--Illiquid
Securities" and "Investment Restrictions" in the Statement of Additional
Information. Repurchase agreements subject to demand are deemed to have a
maturity equal to the notice period.

INVESTMENT RESTRICTIONS

HOW THE FUND IS MANAGED

For the fiscal year ended August 31, 1998, total expenses of the Series as a
percentage of average net assets were .77%, 1.17% and 1.42% for the Series'
Class A, Class B and Class C shares, respectively. See "Financial Highlights."

MANAGER

PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM OR THE MANAGER), GATEWAY
CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077, IS THE MANAGER
OF THE FUND AND IS COMPENSATED FOR ITS SERVICES AT AN ANNUAL RATE OF .50 OF 1%
OF THE AVERAGE DAILY NET ASSETS OF THE SERIES. PIFM is organized in New York as
limited liability company. For the fiscal year ended August 31, 1998, the Series
paid PIFM a management fee of .50 of 1% of the Series' average net assets. See
"Fee Waivers and Subsidy" below and "Manager" in the Statement of Additional
Information.

The current portfolio manager of the Series is Christian Smith, a Vice
President of Prudential Investments. Mr. Smith has responsibility for the
day-to-day management of the portfolio. He has managed the portfolio since
January 1997 and has been employed by PIC in various capacities since 1988.

15
<PAGE>

FEE WAIVERS AND SUBSIDY

DISTRIBUTOR

UNDER SEPARATE DISTRIBUTION AND SERVICE PLANS (THE CLASS A PLAN, THE CLASS B
PLAN AND THE CLASS C PLAN, COLLECTIVELY, THE PLANS) ADOPTED BY THE FUND UNDER
RULE 12b-1 UNDER THE INVESTMENT COMPANY ACT AND A DISTRIBUTION AGREEMENT (THE
DISTRIBUTION AGREEMENT), THE DISTRIBUTOR INCURS THE EXPENSES OF DISTRIBUTING THE
CLASS A, CLASS B AND CLASS C SHARES OF THE SERIES. These expenses include
commissions and account servicing fees paid to, or on account of, Dealers or
financial institutions which have entered into agreements with the Distributor,
advertising expenses, the cost of printing and mailing prospectuses to potential
investors and indirect and overhead costs of the Distributor associated with the
sale of Series shares, including lease, utility, communications and sales
promotion expenses. Certain Dealers are paid higher fees than others with
respect to Class A shares pursuant to separate agreements with the Distributor.

UNDER THE CLASS A PLAN, THE SERIES MAY PAY THE DISTRIBUTOR FOR ITS
DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS A SHARES AT AN ANNUAL RATE
OF UP TO .30 OF 1% OF THE AVERAGE DAILY NET ASSETS OF THE CLASS A SHARES OF THE
SERIES. The Class A Plan provides that (i) up to .25 of 1% of the average daily
net assets of the Class A shares may be used to pay for personal service and/or
the maintenance of shareholder accounts (service fee) and (ii) total
distribution fees (including the service fee of .25 of 1%) may not exceed .30 of
1% of the average daily net assets of the Class A shares. The Distributor has
voluntarily limited its distribution-related fees payable under the Class A Plan
to .10 of 1% of the average daily net asset value of the Class A shares. This
voluntary waiver may be modified or terminated at any time without notice.

16
<PAGE>

Distributor has voluntarily limited its distribution-related fees payable under
the Class C Plan to .75 of 1% of the average daily net assets of the Class C
shares. This voluntary waiver may be modified or terminated at any time without
notice. The Distributor also receives CDSC's from certain redeeming
shareholders. See "Shareholder Guide--How to Sell Your Shares--Contingent
Deferred Sales Charges."

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

PORTFOLIO TRANSACTIONS

CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT

YEAR 2000

17
<PAGE>

Distributor, the Transfer Agent and the Custodian have advised the Fund that
they have been actively working on necessary changes to their computer systems
to prepare for the year 2000 and expect that their systems, and those of outside
service providers, will be adapted in time for the event.

HOW THE FUND VALUES ITS SHARES

THE SERIES' NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING ITS
LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. NAV IS CALCULATED SEPARATELY FOR EACH CLASS. THE
TRUSTEES HAVE FIXED THE SPECIFIC TIME OF DAY FOR THE COMPUTATION OF THE NAV OF
THE SERIES TO BE AS OF 4:15 P.M., NEW YORK TIME.

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

HOW THE FUND CALCULATES PERFORMANCE

18
<PAGE>
include comparative performance information in advertising or marketing the
shares of the Series. Such performance information may include data from Lipper
Analytical Services, Inc., Morningstar Publications, Inc., other industry
publications, business periodicals and market indices. See "Performance
Information" in the Statement of Additional Information. Further performance
information is contained in the Series' annual and semi-annual reports to
shareholders, which may be obtained without charge. See "Shareholder
Guide--Shareholder Services--Reports to Shareholders."

TAXES, DIVIDENDS AND DISTRIBUTIONS

TAXATION OF THE FUND

THE SERIES HAS QUALIFIED AND INTENDS TO REMAIN QUALIFIED AS A REGULATED
INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE. ACCORDINGLY, THE SERIES WILL
NOT BE SUBJECT TO FEDERAL INCOME TAXES ON ITS NET INVESTMENT INCOME AND NET
CAPITAL GAINS, IF ANY, THAT IT DISTRIBUTES TO ITS SHAREHOLDERS. TO THE EXTENT
NOT DISTRIBUTED BY THE SERIES, NET TAXABLE INVESTMENT INCOME AND CAPITAL GAINS
AND LOSSES ARE TAXABLE TO THE SERIES. See "Taxes, Dividends and Distributions"
in the Statement of Additional Information.

To the extent the Series invests in taxable obligations, it will earn taxable
investment income. Also, to the extent the Series sells securities or engages in
hedging transactions in futures contracts and options thereon, it may earn both
capital gain or loss. Capital gain or loss may also arise upon the sale of
municipal securities, as well as taxable obligations. Under the Internal Revenue
Code, special rules apply to the treatment of certain options and futures
contracts (Section 1256 contracts). At the end of each year, such investments
held by the Series will be required to be marked to market for federal income
tax purposes; that is, treated as having been sold at market value. Sixty
percent of any gain or loss recognized on these deemed sales and on actual
dispositions will be treated as long-term capital gain or loss, and the
remainder will be treated as short-term capital gain or loss. See "Taxes,
Dividends and Distributions" in the Statement of Additional Information.

TAXATION OF SHAREHOLDERS

In general, the character of tax-exempt interest distributed by the Series
will flow through as tax-exempt interest to its shareholders for federal income
tax purposes provided that 50% or more of the value of its assets at the end of
each quarter of its taxable year is invested in state, municipal and other
obligations, the interest on which is excluded from gross income for federal
income tax purposes. During normal market conditions, at least 80% of the
Series' total assets will be invested in such obligations. See "How the Fund
Invests--Investment Objective and Policies."

19
<PAGE>

The Fund has obtained opinions of counsel to the effect that neither (i) the
conversion of Class B shares into Class A shares nor (ii) the exchange of Class
B or Class C shares for Class A shares constitutes a taxable event for federal
income tax purposes. However, such opinions are not binding on the Internal
Revenue Service. Shareholders should consult their own tax advisers regarding
the taxability of such conversions and exchanges for state and local tax
purposes (including Pennsylvania State and local tax purposes).

Under Pennsylvania law, dividends paid by the Series are exempt from
Pennsylvania income tax for individuals who are subject to Pennsylvania personal
income tax to the extent such dividends are derived from interest payments on
Pennsylvania Obligations.

Dividends paid by the Series are also exempt from the Philadelphia School
District investment net income tax for individuals who are residents of the City
of Philadelphia to the extent such dividends are derived from interest payments
on Pennsylvania Obligations or to the extent such dividends are designated as
capital gain dividends for federal income tax purposes.

Shares of the Series will be exempt from Pennsylvania county personal property
taxes to the extent the Series' portfolio securities consist of Pennsylvania
Obligations on the annual assessment date.

Corporations that are subject to the Pennsylvania corporate net income tax
will not be subject to tax on distributions received from the Pennsylvania
Series provided that such distributions are not included in federal taxable
income determined before net operating loss deductions and special deductions.
As a result of a pronouncement by the Pennsylvania Department of Revenue, an
investment in the Pennsylvania Series by a corporate shareholder will apparently
qualify as an exempt asset for purpose of the single asset apportionment
fraction available in computing the Pennsylvania capital stock/foreign franchise
tax to the extent that the portfolio securities of the Pennsylvania Series
comprise investments in Pennsylvania and/or United States Government Securities
that would be exempt assets if owned directly by the corporation.

20
<PAGE>
WITHHOLDING TAXES

DIVIDENDS AND DISTRIBUTIONS

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

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

21
<PAGE>
GENERAL INFORMATION

DESCRIPTION OF SHARES

THE FUND WAS ESTABLISHED AS A MASSACHUSETTS BUSINESS TRUST ON MAY 18, 1984, BY
A DECLARATION OF TRUST. The Fund's activities are supervised by its Trustees.
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares in separate series, currently designated as the
Connecticut Money Market Series, Florida Series, Maryland Series, Massachusetts
Series, Massachusetts Money Market Series, Michigan Series, New Jersey Series,
New Jersey Money Market Series, New York Series, New York Money Market Series,
North Carolina Series, Ohio Series and Pennsylvania Series. The Series is
authorized to issue an unlimited number of shares, divided into three classes,
designated Class A, Class B and Class C. Each class of shares represents an
interest in the same assets of the Series and is identical in all respects
except that (i) each class is subject to different sales charges and
distribution and/or service fees, which may affect performance, (ii) each class
has exclusive voting rights on any matter submitted to shareholders that relates
solely to its arrangement and has separate voting rights on any matter submitted
to shareholders in which the interests of one class differ from the interests of
any other class, (iii) each class has a different exchange privilege and (iv)
only Class B shares have a conversion feature. See "How the Fund is
Managed--Distributor." In accordance with the Fund's Declaration of Trust, the
Trustees may authorize the creation of additional series and classes within such
series, with such preferences, privileges, limitations and voting and dividend
rights as the Trustees may determine.

Shares of the Fund, when issued, are fully paid, nonassessable, fully
transferable and redeemable at the option of the holder. Shares are also
redeemable at the option of the Fund under certain circumstances as described
under "Shareholder Guide--How to Sell Your Shares." Each share of each class of
the Series is equal as to earnings, assets and voting privileges, except as
noted above, and each class bears the expenses related to the distribution of
its shares. Except for the conversion feature applicable to the Class B shares,
there are no conversion, preemptive or other subscription rights. In the event
of liquidation, each share of beneficial interest in each series is entitled to
its portion of all of the Fund's assets after all debt and expenses of the Fund
have been paid. Since Class B and Class C shares generally bear higher
distribution expenses than Class A shares, the liquidation proceeds to
shareholders of those classes are likely to be lower than to Class A
shareholders. The Fund's shares do not have cumulative voting rights for the
election of Trustees.

22
<PAGE>
ADDITIONAL INFORMATION

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

SHAREHOLDER GUIDE

HOW TO BUY SHARES OF THE FUND

YOU MAY PURCHASE SHARES OF THE SERIES THROUGH THE DISTRIBUTOR, THROUGH
DEALERS, INCLUDING PRUDENTIAL SECURITIES OR PRUSEC, OR DIRECTLY FROM THE FUND
THROUGH ITS TRANSFER AGENT, PRUDENTIAL MUTUAL FUND SERVICES LLC (PMFS OR THE
TRANSFER AGENT), ATTENTION: INVESTMENT SERVICES, P.O. BOX 15020, NEW BRUNSWICK,
NEW JERSEY 08906-5020. The purchase price is the NAV next determined following
receipt of an order in proper form (in accordance with procedures established by
the Transfer Agent in connection with investors' accounts) by the Distributor,
your Dealer or the Transfer Agent plus a sales charge which, at your option, may
be imposed either at the time of purchase, on a deferred basis, or both. Class A
shares are sold with a front-end sales charge. Class B shares are subject to a
CDSC. Class C shares are sold with a low front-end sales charge, but are also
subject to a CDSC. Payments may be made by wire, check or through your brokerage
account. See "Alternative Purchase Plan" and "How the Fund Values its Shares."

An investment in the Series may not be appropriate for tax-exempt or
tax-deferred investors. Such investors should consult their own tax advisers.

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

23
<PAGE>
and Shareholder Services Division, Attention: Prudential Municipal Series Fund
(Pennsylvania Series), specifying on the wire the account number assigned by
PMFS and your name and identifying the class in which you are eligible to invest
(Class A, Class B or Class C shares).

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

ALTERNATIVE PURCHASE PLAN

<TABLE>
<CAPTION>
ANNUAL 12b-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
----------------------------------- ----------------------------------- -----------------------------------
<S> <C> <C> <C>
CLASS A Maximum initial sales charge of 3% .30 of 1% Initial sales charge waived or
of the public offering price reduced for certain purchases
CLASS B Maximum contingent deferred sales .50% of 1% Shares convert to Class A shares
charge or CDSC of 5% of the lesser approximately seven years after
of the amount invested or the purchase
redemption proceeds; declines to
zero after six years
CLASS C Maximum initial sales charge of 1% 1% (currently being charged at a Shares do not convert to another
of the public offering price and rate of .75 of 1%) class
maximum CDSC of 1% the lesser of
the amount invested or the
redemption proceeds on redemptions
made within 18 months of purchase
</TABLE>

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

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

25
<PAGE>
CLASS A SHARES

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

OTHER WAIVERS. Class A shares may be purchased at NAV, through the Distributor
or the Transfer Agent, by the following persons: (a) officers of the Prudential
Mutual Funds (including the Fund), (b) employees of the Distributor, Prudential
Securities, PIFM and their subsidiaries and members of the families of such
persons who maintain an employee related account at Prudential Securities or the
Transfer Agent, (c) employees of subadvisers of the Prudential Mutual Funds
provided that the purchases at NAV are permitted by such person's employer, (d)
Prudential, employees and special agents of Prudential and its subsidiaries and
all persons who have retired directly from active service with Prudential or one
of its subsidiaries, (e) registered representatives and employees of Dealers who
have entered into a selected dealer agreement with the Distributor, provided
that purchases at NAV are permitted by such person's employer and (f) investors
who have a business relationship with a financial adviser who joined Prudential
Securities from another investment firm, provided that (i) the purchase is made
within 180 days of the commencement of the financial adviser's employment at
Prudential Securities or within one year in the case of benefit plans, (ii) the
purchase is made with proceeds of a redemption of shares of any open-end
non-money market fund sponsored by the financial adviser's previous employer
(other than a fund which imposes a distribution or service fee of .25 of 1% or
less) and (iii) the financial adviser served as the client's broker on the
previous purchases.

26
<PAGE>
CLASS B AND CLASS C SHARES

The Distributor will pay, from its own resources, sales commissions of up to
4% of the purchase price of Class B shares to Dealers, financial advisers and
other persons who sell Class B shares at the time of sale. This facilitates the
ability of the Trust to sell the Class B shares of the Funds without an initial
sales charge being deducted at the time of purchase. The Distributor anticipates
that it will recoup its advancement of sales commissions from the combination of
the CDSC and the distribution fee. In connection with the sale of Class C
shares, the Distributor will pay, partially from its own resources, Dealers,
financial advisers and other persons which distribute Class C shares a sales
commission of up to 2% of the purchase price at the time of the sale. The
Distributor anticipates that it would recoup its advancement of sales
commissions from the combination of the CDSC, and the distribution fee. See "How
the Fund is Managed--Distributor."

WAIVER OF INITIAL SALES CHARGE--CLASS C SHARES

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

HOW TO SELL YOUR SHARES

IF YOU HOLD SHARES IN NON-CERTIFICATE FORM, A WRITTEN REQUEST FOR REDEMPTION
SIGNED BY YOU EXACTLY AS THE ACCOUNT IS REGISTERED IS REQUIRED. IF YOU HOLD
CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE FACE OF THE
CERTIFICATES, MUST BE RECEIVED BY THE TRANSFER AGENT, THE DISTRIBUTOR OR YOUR
DEALER IN ORDER FOR THE REDEMPTION REQUEST TO BE PROCESSED. IF REDEMPTION IS
REQUESTED BY A CORPORATION, PARTNERSHIP, TRUST OR FIDUCIARY, WRITTEN EVIDENCE OF
AUTHORITY ACCEPTABLE TO THE TRANSFER AGENT MUST BE SUBMITTED BEFORE SUCH REQUEST
WILL BE ACCEPTED. All correspondence and documents concerning redemptions should
be sent to the Fund in care of its Transfer Agent, Prudential Mutual Fund
Services LLC, Attention: Redemption Services, P.O. Box 15010, New Brunswick, New
Jersey 08906-5010, the Distributor or your Dealer.

27
<PAGE>

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

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

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

CONTINGENT DEFERRED SALES CHARGES

28
<PAGE>

Class B or Class C shares to an amount which is lower than the amount of all
payments by you for shares during the preceding six years, in the case of Class
B shares, and 18 months, in the case of Class C shares. A CDSC will be applied
on the lesser of the original purchase price or the current value of the shares
being redeemed. Increases in the value of your shares or shares acquired through
reinvestment of dividends or distributions are not subject to a CDSC. The amount
of any CDSC will be paid to and retained by the Distributor. See "How the Fund
is Managed--Distributor" and "Waiver of Contingent Deferred Sales Charges--Class
B Shares" below.

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

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

In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results in the lowest possible rate. It will be
assumed that the redemption is made first of amounts representing shares
acquired pursuant to the reinvestment of dividends and distributions; then of
amounts representing the increase in NAV above the total amount of payments for
the purchase of Series shares made during the preceding six years (five years
for Class B shares purchased prior to January 22, 1990); then of amounts
representing the cost of shares held beyond the applicable CDSC period; and
finally, of amounts representing the cost of shares held for the longest period
of time within the applicable CDSC period.

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

29
<PAGE>

CONVERSION FEATURE--CLASS B SHARES

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

30
<PAGE>
held in a money market fund, exchanges will be deemed to have been made on the
last day of the month. Class B shares acquired through exchange will convert to
Class A shares after expiration of the conversion period applicable to the
original purchase of such shares.

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

HOW TO EXCHANGE YOUR SHARES

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

IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.

IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE
FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.

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

SPECIAL EXCHANGE PRIVILEGE. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV (see "Alternative
Purchase Plan--Class A Shares--Reduction and Waiver of Initial Sales Charges"
above). Under this exchange privilege, amounts representing any Class B and
Class C shares (which are not subject to a CDSC) held in such a

31
<PAGE>

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

SHAREHOLDER SERVICES

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

32
<PAGE>
- REPORTS TO SHAREHOLDERS. The Fund will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses, the Fund will provide one annual and semi-annual shareholder report
and annual prospectus per household. You may request additional copies of such
reports by calling (800) 225-1852 or by writing to the Fund at Gateway Center
Three, 100 Mulberry Street, Newark, New Jersey 07102-4077. In addition, monthly
unaudited financial data is available upon request from the Fund.

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

33
<PAGE>
DESCRIPTION OF SECURITY RATINGS

MOODY'S INVESTORS SERVICE

BOND RATINGS

Caa: Bonds which 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 which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C: Bonds which 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 RATINGS

MIG 2: Loans bearing the designation MIG 2 are of high quality, with margins
of protection ample although not so large as in the preceding group.

A-1
<PAGE>
MIG 3: Loans bearing the designation MIG 3 are of favorable quality, with all
security elements accounted for but lacking the strength of the preceding
grades.

SG: This designation denotes speculative quality. Debt instruments in this
category lack margins of protection.

SHORT-TERM DEBT RATINGS

- Leading market positions in well-established industries.

- High rates of return on funds employed.

- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.

- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

- Well-established access to a range of financial markets and assured
sources of alternate liquidity.

PRIME-3: Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations.

NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime rating
categories.

STANDARD & POOR'S RATINGS GROUP

DEBT RATINGS

AAA: An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.

AA: An obligation rated AA differs from the highest rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.

COMMERCIAL PAPER RATINGS

An S&P Commercial Paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.

A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.

MUNICIPAL NOTES

A-3
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY

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

TAXABLE BOND FUNDS
--------------------------

TAX-EXEMPT BOND FUNDS
-----------------------------

GLOBAL 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 Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential International Bond Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series
Global Utility Fund, Inc.
The Global Total Return Fund, Inc.

EQUITY FUNDS
--------------------

Prudential Balanced Fund
Prudential Distressed Securities Fund, Inc.
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Index Series Fund
Prudential Bond Market Index Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced Fund
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Mid-Cap Value Fund
Prudential Real Estate Securities Fund
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Utility Fund, Inc.
Prudential 20/20 Focus Fund
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund

MONEY MARKET FUNDS
--------------------------

B-1
<PAGE>

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FUND HIGHLIGHTS............................................................. 2
What are the Series' Risk Factors and Special Characteristics?............ 2
FUND EXPENSES............................................................... 4
FINANCIAL HIGHLIGHTS........................................................ 5
HOW THE FUND INVESTS........................................................ 8
Investment Objective and Policies......................................... 8
Other Investments and Policies............................................ 14
Investment Restrictions................................................... 15
HOW THE FUND IS MANAGED..................................................... 15
Manager................................................................... 15
Fee Waivers and Subsidy................................................... 16
Distributor............................................................... 16
Portfolio Transactions.................................................... 17
Custodian and Transfer and Dividend Disbursing Agent...................... 17
Year 2000................................................................. 17
HOW THE FUND VALUES ITS SHARES.............................................. 18
HOW THE FUND CALCULATES PERFORMANCE......................................... 18
TAXES, DIVIDENDS AND DISTRIBUTIONS.......................................... 19
GENERAL INFORMATION......................................................... 22
Description of Shares..................................................... 22
Additional Information.................................................... 23
SHAREHOLDER GUIDE........................................................... 23
How to Buy Shares of the Fund............................................. 23
Alternative Purchase Plan................................................. 24
How to Sell Your Shares................................................... 27
Conversion Feature--Class B Shares........................................ 30
How to Exchange Your Shares............................................... 31
Shareholder Services...................................................... 32
DESCRIPTION OF SECURITY RATINGS............................................. A-1
THE PRUDENTIAL MUTUAL FUND FAMILY........................................... B-1
</TABLE>

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

MF132A

Class A: 74435M-87-9
CUSIP Nos.: Class B: 74435M-88-7
Class C: 74435M-48-1

PRUDENTIAL
MUNICIPAL
SERIES FUND
- -----------

PENNSYLVANIA SERIES

PROSPECTUS
November 2, 1998
www.prudential.com

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

[LOGO]
<PAGE>
Prudential Municipal Series Fund
- --------------------------------

STATEMENT OF ADDITIONAL INFORMATION
DATED NOVEMBER 2, 1998

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

Prudential Municipal Series Fund (the Fund) is an open-end, management
investment company, or mutual fund, consisting of thirteen series--the
Connecticut Money Market Series, the Florida Series, the Maryland Series, the
Massachusetts Series, the Massachusetts Money Market Series, the Michigan
Series, the New Jersey Series, the New Jersey Money Market Series, the New York
Series, the New York Money Market Series, the North Carolina Series, the Ohio
Series and the Pennsylvania Series (collectively, the Series). The objective of
each series, other than the Connecticut Money Market Series, the Massachusetts
Money Market Series, the New Jersey Money Market Series and the New York Money
Market Series (collectively, the money market series), is to seek to provide to
shareholders who are residents of the respective state the maximum amount of
income that is exempt from federal and applicable state income taxes and, in the
case of the New York Series, also New York City income taxes, consistent with
the preservation of capital, and, in conjunction therewith, the series may
invest in debt securities with the potential for capital gain. The objective of
the money market series is to seek to provide the highest level of current
income that is exempt from federal and applicable state income taxes and, in the
case of the New York Money Market Series, also New York City income taxes,
consistent with liquidity and the preservation of capital. All of the series are
diversified except the Florida Series and the money market series, other than
the New York Money Market Series. There can be no assurance that any series'
investment objective will be achieved. See "Investment Objectives and Policies."

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

This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Prospectuses of each series of the Fund dated November
2, 1998, copies of which may be obtained from the Fund upon request.

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

MF117B
<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
CROSS-REFERENCES TO PAGES IN SERIES PROSPECTUSES
-----------------------------------------------------------------
CONNECTICUT MASSACHUSETTS
MONEY MONEY
PAGE MARKET FLORIDA MARYLAND MASSACHUSETTS MARKET MICHIGAN
---- ----------- ------- -------- ------------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Objectives and
Policies..................... B-1 6 9 8 9 6 8
In General.................. B-1 -- -- -- -- -- --
Tax-Exempt Securities....... B-3 6 9 8 9 6 8
Special Considerations
Regarding Investments in
Tax-Exempt Securities...... B-4 9 14 13 14 9 13
Additional Issuers.......... B-15 -- -- -- -- -- --
Floating Rate and Variable
Rate Securities............ B-17 7 9 8 9 7 8
Put Options................. B-18 8 11 10 11 8 10
Financial Futures Contracts
and Options Thereon........ B-18 -- 13 12 13 -- 12
When-Issued and Delayed
Delivery Securities........ B-21 8 12 10 11 8 10
Segregated Accounts......... B-21 -- -- -- -- -- --
Portfolio Turnover.......... B-21 -- 15 14 15 -- 14
Illiquid Securities......... B-22 10 15 14 15 10 14
Repurchase Agreements....... B-23 9 15 14 14 9 13
Investment Restrictions....... B-23 10 16 14 15 10 14
Trustees and Officers......... B-24 10 16 15 15 10 14
Manager....................... B-29 10 16 15 15 10 14
Distributor................... B-32 11 17 15 16 11 15
Portfolio Transactions and
Brokerage.................... B-35 12 18 17 18 11 17
Purchase and Redemption of
Fund Shares.................. B-37 16 24 22 22 15 22
Specimen Price Make-Up...... B-38 -- -- -- -- -- --
Reduction and Waiver of
Initial Sales
Charges--Class A Shares.... B-38 -- 27 25 26 -- 25
Waiver of the Contingent
Deferred Sales
Charge--Class B Shares..... B-40 -- 31 29 30 -- 28
Quantity Discount--Class B
Shares Purchased Prior to
August 1, 1994............. B-40 -- -- 29 30 -- 29
Shareholder Investment
Account...................... B-40 24 33 32 32 23 31
Automatic Reinvestment of
Dividends and/or
Distributions.............. B-41 24 33 32 32 23 31
Exchange Privilege.......... B-41 23 32 31 31 22 30
Dollar Cost Averaging....... B-42 -- -- -- -- -- --
Automatic Investment Plan
(AIP)...................... B-43 24 34 32 33 23 31
Systematic Withdrawal
Plan....................... B-43 24 34 32 33 23 31
How to Redeem Shares of the
Money Market Series........ B-44 21 -- -- -- 20 --
Mutual Fund Programs........ B-45 -- -- -- -- -- --
Net Asset Value............... B-45 12 19 18 18 12 17
Performance Information....... B-47 6 19 18 19 6 18
Taxes, Dividends and
Distributions................ B-51 13 20 19 19 13 18
Distributions............... B-51 14 22 21 21 14 20
Federal Taxation............ B-52 13 20 19 19 13 18
State Taxation.............. B-54 14 21 20 20 14 20
Organization and
Capitalization............... B-60 15 22 21 21 14 21
Custodian, Transfer and
Dividend Disbursing Agent and
Independent Accountants...... B-61 12 18 17 18 12 17
Description of Tax-Exempt
Security Ratings............. B-62 -- A-1 A-1 A-1 -- A-1
Financial Statements.......... B-64 5 5 5 5 5 5
Report of Independent
Accountants.................. B-75 -- -- -- -- -- --
Appendix I.................... I-1 -- -- -- -- -- --
Appendix II................... II-1 -- -- -- -- -- --
Appendix III.................. III-1 -- -- -- -- -- --
Appendix IV................... IV-1 -- -- -- -- -- --
</TABLE>

<PAGE>
TABLE OF CONTENTS (CONTINUED)

<TABLE>
<CAPTION>
CROSS-REFERENCES TO PAGES IN SERIES PROSPECTUSES
--------------------------------------------------------------
NEW JERSEY NEW YORK
NEW MONEY MONEY NORTH
PAGE JERSEY MARKET NEW YORK MARKET CAROLINA OHIO PENNSYLVANIA
---- ------ ---------- -------- -------- -------- ---- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Objectives and Policies...... B-1 9 6 9 6 8 8 8
In General............................ B-1 -- -- -- -- -- -- --
Tax-Exempt Securities................. B-3 9 7 9 6 8 8 8
Special Considerations Regarding
Investments in Tax-Exempt
Securities........................... B-4 14 9 14 9 13 13 13
Additional Issuers.................... B-15 -- -- -- -- -- -- --
Floating Rate and Variable Rate
Securities........................... B-17 9 7 9 7 8 8 8
Put Options........................... B-18 11 8 11 8 10 10 10
Financial Futures Contracts and
Options Thereon...................... B-18 13 -- 13 -- 12 12 12
When-Issued and Delayed Delivery
Securities........................... B-21 12 8 11 8 10 10 11
Segregated Accounts................... B-21 -- -- -- -- -- --
Portfolio Turnover.................... B-21 15 -- 15 -- 14 14 14
Illiquid Securities................... B-22 15 10 15 10 14 14 14
Repurchase Agreements................. B-23 15 9 14 9 13 13 14
Investment Restrictions................. B-23 16 10 15 10 14 14 15
Trustees and Officers................... B-24 16 10 15 10 14 14 15
Manager................................. B-29 16 10 15 10 14 14 15
Distributor............................. B-32 17 11 16 11 15 15 16
Portfolio Transactions and Brokerage.... B-35 18 12 18 11 17 16 17
Purchase and Redemption of Fund
Shares................................. B-37 24 15 23 16 22 22 23
Specimen Price Make-Up................ B-38 -- -- -- -- -- -- --
Reduction and Waiver of Initial Sales
Charges--Class A Shares.............. B-38 27 -- 26 -- 25 24 26
Waiver of the Contingent Deferred
Sales Charge--Class B Shares......... B-40 28 -- 29 -- 28 28 29
Quantity Discount--Class B Shares
Purchased Prior to August 1, 1994.... B-40 31 -- 30 -- 29 29 30
Shareholder Investment Account.......... B-40 33 23 32 24 31 31 32
Automatic Reinvestment of Dividends
and/or Distributions................. B-41 33 23 32 24 31 31 32
Exchange Privilege.................... B-41 32 22 31 23 30 30 31
Dollar Cost Averaging................. B-42 -- -- -- -- -- -- --
Automatic Investment Plan (AIP)....... B-43 34 23 33 24 31 31 32
Systematic Withdrawal Plan............ B-43 34 24 33 24 32 31 32
How to Redeem Shares of the Money
Market Series........................ B-44 -- 20 -- 21 -- -- --
Mutual Fund Programs.................. B-45 -- -- -- -- -- -- --
Net Asset Value......................... B-45 19 12 18 12 17 17 18
Performance Information................. B-47 20 6 19 6 18 18 18
Taxes, Dividends and Distributions...... B-51 20 13 20 13 18 19 19
Distributions......................... B-51 22 14 21 14 20 20 21
Federal Taxation...................... B-52 20 13 20 13 19 18 19
State Taxation........................ B-54 21 14 20 14 20 19 20
Organization and Capitalization......... B-60 23 14 21 15 21 20 22
Custodian, Transfer and Dividend
Disbursing Agent and Independent
Accountants............................ B-61 19 12 18 12 17 17 17
Description of Tax-Exempt Security
Ratings................................ B-62 A-1 -- A-1 -- A-1 A-1 A-1
Financial Statements.................... B-64 5 5 5 5 5 5 5
Report of Independent Accountants....... B-75 -- -- -- -- -- -- --
Appendix I.............................. I-1 -- -- -- -- -- -- --
Appendix II............................. II-1 -- -- -- -- -- -- --
Appendix III............................ III-1 -- -- -- -- -- -- --
Appendix IV............................. IV-1 -- -- -- -- -- -- --
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES

IN GENERAL

Prudential Municipal Series Fund (the Fund), organized on May 18, 1984, is
an open-end, management investment company consisting of thirteen separate
series: the Connecticut Money Market Series, the Florida Series, the Maryland
Series, the Massachusetts Series, the Massachusetts Money Market Series, the
Michigan Series, the New Jersey Series, the New Jersey Money Market Series, the
New York Series, the New York Money Market Series, the North Carolina Series,
the Ohio Series and the Pennsylvania Series. A separate Prospectus has been
prepared for each series. This Statement of Additional Information is applicable
to all series. The investment objective of each series, other than the money
market series, is to seek to provide to shareholders who are residents of the
respective state the maximum amount of income that is exempt from federal and
applicable state income taxes and, in the case of the New York Series, also New
York City income taxes, consistent with the preservation of capital, and, in
conjunction therewith, the series may invest in debt securities with the
potential for capital gain. Opportunities for capital gain may exist, for
example, when securities are believed to be undervalued or when the likelihood
of redemption by the issuer at a price above the purchase price indicates
capital gain potential. The investment objective of each money market series is
to provide the highest level of current income that is exempt from federal and
applicable state income taxes and, in the case of the New York Money Market
Series, also New York City income taxes, consistent with liquidity and the
preservation of capital. All of the series are diversified except the Florida
Series and the money market series, other than the New York Money Market Series.
There can be no assurance that any series will achieve its objective or that all
income from any series will be exempt from all federal, state or local income
taxes.

The investment objective of a series may not be changed without the approval
of the holders of a majority of the outstanding voting securities of such
series. A "majority of the outstanding voting securities" of a series when used
in this Statement of Additional Information means the lesser of (i) 67% of the
voting shares of a series represented at a meeting at which more than 50% of the
outstanding voting shares of a series are present in person or represented by
proxy or (ii) more than 50% of the outstanding voting shares of a series.

Each series of the Fund, other than the money market series, will invest at
least 70% of its total assets in "investment grade" tax-exempt securities which
on the date of investment are rated within the four highest ratings of Moody's
Investors Service (Moody's), currently Aaa, Aa, A, Baa for bonds, MIG 1, MIG 2,
MIG 3, MIG 4 for notes, and Prime-1 for commercial paper, of Standard & Poor's
Ratings Group (S&P), currently AAA, AA, A, BBB for bonds, SP-1, SP-2 for notes
and A-1 for commercial paper or comparable ratings of another nationally
recognized statistical rating organization (NRSRO). The Florida Series, Maryland
Series, Massachusetts Series, Michigan Series, New Jersey Series, New York
Series, North Carolina Series, Ohio Series and Pennsylvania Series each may
invest up to 30% of its total assets in municipal obligations rated below Baa by
Moody's or below BBB by S&P or comparable ratings of another NRSRO or, if
non-rated, of comparable quality, in the opinion of the Fund's investment
adviser, based on its credit analysis. The money market series will invest in
securities which, at the time of purchase, have a remaining maturity of thirteen
months or less and are rated (or issued by an issuer that is rated with respect
to a class of short-term debt obligations, or any security within that class,
that is comparable in priority and security with the security) in one of the two
highest rating categories by at least two NRSRO's assigning a rating to the
security or issuer (or, if only one such rating organization assigned a rating,
by that rating organization). Each series may invest in tax-exempt securities
which are not rated if, based upon a credit analysis by the investment adviser
under the supervision of the Trustees, the investment adviser believes that such
securities are of comparable quality to other municipal securities that the
series may purchase. A description of the ratings is set forth under the
headings "Description of Security Ratings" in each series' prospectus (other
than the money market series) and "Description of Tax-Exempt Security Ratings"
in this Statement of Additional Information. The ratings of Moody's and S&P and
other NRSRO's represent the respective opinions of such firms of the qualities
of the securities each undertakes to rate and such ratings are general and are
not absolute standards of quality. In determining suitability of investment in a
particular unrated security, the investment adviser will take into consideration
asset and debt service coverage, the purpose of the financing, history of the
issuer, existence of other rated securities of the issuer, credit enhancement by
virtue of letter of credit or other financial guaranty deemed suitable by the
investment adviser and other general conditions as may be relevant, including
comparability to other issuers.

B-1
<PAGE>
Under normal market conditions, each series will attempt to invest
substantially all and, as a matter of fundamental policy, will invest at least
80% of the value of its assets in securities the interest on which is exempt
from state and federal income taxes or the series' assets will be invested so
that at least 80% of the income will be exempt from state and federal income
taxes, except that, as a matter of fundamental policy, during normal market
conditions the Florida Series', the New Jersey Series' and the New Jersey Money
Market Series' assets will be invested so that at least 80% of their total
assets will be invested in Florida Obligations (as defined in the Florida
Series' Prospectus) and New Jersey Obligations (as defined in the New Jersey
Series' and the New Jersey Money Market Series' Prospectuses), respectively, and
except that, as a matter of fundamental policy, during normal market conditions
the Connecticut Money Market Series' and the Massachusetts Money Market Series'
assets will be invested so that at least 80% of their total assets will be
invested in municipal securities which pay income exempt from federal income
taxes. These latter securities primarily will be Connecticut Obligations (as
defined in the Connecticut Money Market Series' Prospectus) and Massachusetts
Obligations (as defined in the Massachusetts Money Market Series' Prospectus),
respectively, unless the investment adviser is unable, due to the unavailability
of sufficient or reasonably priced Connecticut Obligations and Massachusetts
Obligations, respectively, that also meet the Series' credit quality and average
weighted maturity requirements, to purchase Connecticut Obligations and
Massachusetts Obligations, respectively. Each series will continuously monitor
the 80% tests to ensure that either the asset investment or the income test is
met at all times, except for temporary defensive measures during abnormal market
conditions.

A series may invest its assets from time to time on a temporary basis in
debt securities, the interest on which is subject to federal, state or local
income tax, pending the investment or reinvestment in tax-exempt securities of
proceeds of sales of shares or sales of portfolio securities or in order to
avoid the necessity of liquidating portfolio investments to meet redemptions of
shares by investors or where market conditions due to rising interest rates or
other adverse factors warrant temporary investing. Investments (other than those
of the money market series) in taxable securities may include: obligations of
the U.S. Government, its agencies or instrumentalities; other debt securities
rated within the four highest grades by either Moody's or S&P or another NRSRO
or, if unrated, judged by the investment adviser to possess comparable
creditworthiness; commercial paper rated in the highest grade by either of such
rating services (Prime-1 or A-1, respectively); certificates of deposit and
bankers' acceptances; and repurchase agreements with respect to any of the
foregoing investments. The money market series may also invest in the taxable
securities listed above, except that their debt securities, if rated, will be
rated within the two highest rating categories by at least two NRSRO's assigning
a rating to the security or issuer (or if only one such rating organization
assigned a rating, by that rating organization). No series intends to invest
more than 5% of its assets in any one of the foregoing taxable securities. A
series may also hold its assets in other cash equivalents or in cash.

Each series except for the Florida Series and the money market series, other
than the New York Money Market Series, is classified as a "diversified"
investment company under the Investment Company Act of 1940 (the Investment
Company Act). This means that with respect to 75% of these series' assets, (1)
no series may invest more than 5% of its total assets in the securities of any
one issuer (except U.S. Government obligations) and (2) no series may own more
than 10% of the outstanding voting securities of any one issuer. For purposes of
calculating these 5% or 10% ownership limitations, the series will consider the
ultimate source of revenues supporting each obligation to be a separate issuer.
For example, even though a state hospital authority or a state economic
development authority might issue obligations on behalf of many different
entities, each of the underlying health facilities or economic development
projects will be considered as a separate issuer. These investments are also
subject to the limitations described in the remainder of this section. See "How
the Fund Invests--Investment Objective and Policies--Special Considerations" in
the Prospectuses of the Florida Series and the money market series, other than
the New York Money Market Series.

Since securities issued or guaranteed by states or municipalities are not
voting securities, there is no limitation on the percentage of a single issuer's
securities which a series may own so long as, with respect to 75% of the assets
of each series other than the Florida Series and the money market series (except
for the New York Money Market Series), it does not invest more than 5% of its
total assets in the securities of such issuer (except obligations issued or
guaranteed by the U.S. Government). As for the other 25% of a series' assets not
subject to the limitation described above, there is no limitation on the amount
of these assets that may be

B-2
<PAGE>
invested in a minimum number of issuers. Because of the relatively smaller
number of issuers of investment-grade tax-exempt securities (or, in the case of
the New York Money Market Series, high quality tax-exempt securities) in any one
of these states, a series is more likely to use this ability to invest its
assets in the securities of a single issuer than is an investment company which
invests in a broad range of tax-exempt securities. Such concentration involves
an increased risk of loss to a series should the issuer be unable to make
interest or principal payments thereon or should the market value of such
securities decline.

A series may invest more than 25% of its total assets in municipal
obligations of one or more of the following types: obligations of public housing
authorities; general obligations of states and localities; lease rental
obligations of states and local authorities; obligations of state and local
housing finance authorities; obligations of municipal utilities systems; bonds
that are secured or backed by the Treasury or other U.S. Government guaranteed
securities; or industrial development and pollution control bonds. Each of the
foregoing types of investments might be subject to particular risks which, to
the extent that a series is concentrated in such investments, could affect the
value or liquidity of the series.

Each series will treat an investment in a municipal bond refunded with
escrowed U.S. Government securities as U.S. Government securities for purposes
of the Investment Company Act's diversification requirements provided: (i) the
escrowed securities are "government securities" as defined in the Investment
Company Act, (ii) the escrowed securities are irrevocably pledged only to
payment of debt service on the refunded bonds, except to the extent there are
amounts in excess of funds necessary for such debt service, (iii) principal and
interest on the escrowed securities will be sufficient to satisfy all scheduled
principal, interest and any premiums on the refunded bonds and a verification
report prepared by a party acceptable to a nationally recognized statistical
rating agency, or counsel to the holders of the refunded bonds, so verifies,
(iv) the escrow agreement provides that the issuer of the refunded bonds grants
and assigns to the escrow agent, for the equal and ratable benefit of the
holders of the refunded bonds, an express first lien on, pledge of and perfected
security interest in the escrowed securities and the interest income thereon,
(v) the escrow agent had no lien of any type with respect to the escrowed
securities for payment of its fees or expenses except to the extent there are
excess securities, as described in (ii) above, and (vi) except with respect to
the Florida Series and the money market series, other than the New York Money
Market Series, the series will not invest more than 25% of its total assets in
pre-refunded bonds of the same municipal issuer.

TAX-EXEMPT SECURITIES

Tax-exempt securities include notes and bonds issued by or on behalf of
states, territories and possessions of the United States and their political
subdivisions, agencies and instrumentalities and the District of Columbia, the
interest on which is exempt from federal income tax (except for possible
application of the alternative minimum tax) and, in certain instances,
applicable state or local income and personal property taxes. Such securities
are traded primarily in the over-the-counter market.

For purposes of diversification and concentration under the Investment
Company Act, the identification of the issuer of tax-exempt bonds or notes
depends on the terms and conditions of the obligation. If the assets and
revenues of an agency, authority, instrumentality or other political subdivision
are separate from those of the government creating the subdivision and the
obligation is backed only by the assets and revenues of the subdivision, such
subdivision is regarded as the sole issuer. Similarly, in the case of an
industrial development revenue bond or pollution control revenue bond, if the
bond is backed only by the assets and revenues of the nongovernmental user, the
nongovernmental user is regarded as the sole issuer. If in either case the
creating government or another entity guarantees an obligation, the guaranty may
be regarded as a separate security and treated as an issue of such guarantor.

TAX-EXEMPT BONDS. Tax-exempt bonds are issued to obtain funds for various
public purposes, including the construction of a wide range of public facilities
such as airports, bridges, highways, housing, hospitals, mass transportation,
schools, streets, water and sewer works, and gas and electric utilities.
Tax-exempt bonds also may be issued in connection with the refunding of
outstanding obligations, to obtain funds to lend to other public institutions,
or for general operating expenses.

B-3
<PAGE>
The two principal classifications of tax-exempt bonds are "general
obligation" and "revenue." General obligation bonds are secured by the issuer's
pledge of its full faith, credit and taxing power for the payment of principal
and interest. Revenue bonds are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise tax or other specific revenue source.

Industrial development bonds are issued by or on behalf of public
authorities to obtain funds to provide various privately-operated facilities for
business and manufacturing, housing, sports, pollution control, and for airport,
mass transit, port and parking facilities. The Internal Revenue Code restricts
the types of industrial development bonds (IDB's) which qualify to pay interest
exempt from federal income tax, and interest on certain IDB's issued after
August 7, 1986 is subject to the alternative minimum tax. Although IDB's are
issued by municipal authorities, they are generally secured by the revenues
derived from payments of the industrial user. The payment of the principal and
interest on IDB's is dependent solely on the ability of the user of the
facilities financed by the bonds to meet its financial obligations and the
pledge, if any, of real and personal property so financed as security for such
payment.

TAX-EXEMPT NOTES. Tax-exempt notes generally are used to provide for
short-term capital needs and generally have maturities of one year or less.
Tax-exempt notes include:

1. TAX ANTICIPATION NOTES. Tax Anticipation Notes are issued to finance
working capital needs of municipalities. Generally, they are issued in
anticipation of various seasonal tax revenues, such as income, sales, use
and business taxes, and are payable from these specific future taxes.

2. REVENUE ANTICIPATION NOTES. Revenue Anticipation Notes are issued in
expectation of receipt of other kinds of revenue, such as federal revenues
available under the Federal Revenue Sharing Programs.

3. BOND ANTICIPATION NOTES. Bond Anticipation Notes are issued to
provide interim financing until long-term financing can be arranged. In most
cases, the long-term bonds then provide the money for the repayment of the
Notes.

4. CONSTRUCTION LOAN NOTES. Construction Loan Notes are sold to provide
construction financing. Permanent financing, the proceeds of which are
applied to the payment of Construction Loan Notes, is sometimes provided by
a commitment by the Government National Mortgage Association (GNMA) to
purchase the loan, accompanied by a commitment by the Federal Housing
Administration to insure mortgage advances thereunder. In other instances,
permanent financing is provided by commitments of banks to purchase the
loan.

TAX-EXEMPT COMMERCIAL PAPER. Issues of tax-exempt commercial paper
typically represent short-term, unsecured, negotiable promissory notes. These
obligations are issued by agencies of state and local governments to finance
seasonal working capital needs of municipalities or to provide interim
construction financing and are paid from general revenues of municipalities or
are refinanced with long-term debt. In most cases, tax-exempt commercial paper
is backed by letters of credit, lending agreements, note repurchase agreements
or other credit facility agreements offered by banks or other institutions and
is actively traded.

SPECIAL CONSIDERATIONS REGARDING INVESTMENTS IN TAX-EXEMPT SECURITIES

The following is a discussion of the general factors that might influence
the ability of the issuers in the various states to repay principal and interest
when due on the obligations contained in the portfolio of each series. Such
information is derived from sources that are generally available to investors
and is believed to be accurate, but has not been independently verified and may
not be complete.

In August 1996, legislation reforming the welfare system was passed by
Congress. In essence, it eliminated the federal guarantee of welfare benefits
and leaves the determination of eligibility to the states. The federal
government will provide block grants to the states for their use in the funding
of benefits. Although states are not obligated to absorb any of the reductions,
they may choose to do so. The consequences of such generosity may be adverse in
the event of an economic downturn or a swelling in the ranks of beneficiaries.
If a state feels compelled to offset lost benefits, the net effect is merely a
shifting of the burden to the state and may affect its rating over time.

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CONNECTICUT

Connecticut is a highly developed state with one of the highest per capita
income levels in the country. Economic difficulties in the late 1980's and early
1990's resulted in severe fiscal stress, culminating in a General Fund deficit
of $965 million at the close of fiscal year 1991, and the subsequent issuance of
a like amount of Economic Recovery Notes, which were fully repaid prior to the
end of 1997. In fiscal year 1992, the State acted to reduce the volatility of
its budgetary operations by raising revenues, reducing expenditures and
establishing a broader revenue base. Chief among these actions were (i) the
implementation of a 4.5% personal income tax and (ii) the broadening of the
sales tax base, which was coupled with a decrease in the sales tax rate from 8%
to 6%. These actions, along with conservative revenue projections, permitted the
State to achieve modest surpluses for fiscal years 1992 through 1997. A portion
of such surplus was used to retire some of the outstanding Economic Recovery
Notes issued to fund the cumulative deficit of fiscal year 1990-1991. In 1998, a
portion of the surplus was used to provide cash rebates of up to $150 to
Connecticut property owners.

The adopted budget for fiscal 1998-99 anticipates unrestricted General Fund
revenues of $9,496.0 million and General Fund expenditures of $9,495.9 million,
resulting in a projected surplus of $0.1 million. The State Comptroller's
General Fund financial statements released July 15, 1998, however, estimate an
operating surplus for fiscal year 1997-98 of $22.8 million.

The adopted budget reflects the implementation of significant tax changes in
1997 aimed at increasing overall disposable income and encouraging economic
expansion in the State. An additional phase down in the personal income tax rate
was enacted in 1997, pursuant to which the tax rate on the first $15,000 of
taxable income for joint filers is dropped 33% from 4.5% to 3% for the income
year commencing January 1, 1998. To improve the business climate in the State
and stimulate long-term job growth, legislation was also enacted to reduce
Connecticut's corporate tax rate from the rate of 11.25% in 1995 to 7.5% by
January 1, 2000 and to phase out corporate level tax on S corporations by the
year 2001.

FLORIDA

In 1980, Florida ranked seventh in population among the fifty states, having
a population of 9.7 million people. The State has grown dramatically since 1980
and, as of April 1, 1997, Florida ranked fourth in the nation, with an estimated
population of 14.7 million. The service and trade sectors constitute Florida's
largest employment sectors, with services currently accounting for 34.9% and
trade accounting for 25.6% of the State's total non-farm employment. Florida's
manufacturing jobs exist in the high-tech and high value-added sectors, such as
electrical and electronic equipment, as well as printing and publishing. The
non-form job creation rate for the State is almost twice that of the nation's as
a whole. Florida's unemployment rate tracked below that of the nation's
throughout the 1980's. Beginning with the recession in the early 1990's, the
trend reversed. Since 1995, Florida's unemployment rate has again been below or
about the same as the nation's average. In 1997, Florida's unemployment rate was
4.8%, while the nation's was 4.9%.

South Florida, because of its location and involvement with foreign trade,
tourism and investment capital, is particularly susceptible to international
trade and currency imbalances and economic dislocations in Central and South
America. The central and northern portions of the State are affected by problems
in the agricultural sector, particularly in the citrus and sugar industries.
Short-term adverse economic conditions may be experienced by the central and
northern section of Florida, and in the State as a whole, due to crop failures,
severe weather conditions such as hurricanes or other agriculture-related
problems. In addition, the State economy has historically been somewhat
dependent on the tourism and construction industries and is therefore sensitive
to trends in those sectors.

Under the State Constitution and applicable statutes, the State budget as a
whole, and each separate fund within the State budget, must be kept in balance
from currently available revenues during each State fiscal year. Estimated
General Revenue plus Working Capital and Budget Stabilization funds available
total $18,469.8 million for 1997-1998, an increase of 10.3% over revenues for
1996-1997. Estimated Revenue of $16,877.6 million for fiscal 1997-1998
represents an increase of 7.2% over 1996-1997.

Pursuant to a constitutional amendment which was ratified by the voters on
November 8, 1994, the rate of growth in state revenues in a given fiscal year is
limited to no more than the average annual growth rate in

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Florida personal income over the previous five years. Revenues collected in
excess of the limitation are to be deposited into the Budget Stabilization Fund
unless 2/3 of the members of both houses of the Legislature vote to raise the
limit. The revenue limit is determined by multiplying the average annual growth
rate in Florida personal income over the previous five years by the maximum
amount of revenue permitted under the cap for the previous year. State revenues
are defined as taxes, licenses, fees and charges for services imposed by the
Legislature as well as revenue from the sale of lottery tickets. Included among
the categories of revenues which are exempt from the proposed revenue limitation
are revenues pledged to State Bonds.

Many factors, including national, economic, social and environmental
policies and conditions, most of which are not within the control of the State
or local government, could affect or adversely impact on the State's financial
condition.

MARYLAND

Maryland, one of the wealthiest states in the nation, experienced rapid
growth during the 1980s. Maryland's total personal income and per capita income
outperformed the national averages until 1990. The economy is well diversified,
with services, trade, and government, accounting for a large percentage of total
employment. Due to Maryland's proximity to Washington, D.C., government
employment plays an important role in the economy. Government employment has
served to insulate the regional economy from more volatile economic swings,
making the Maryland unemployment rate historically below the national average.
For the same reason, Maryland employment may be more affected by federal layoffs
or budget reductions than employment in other states.

Maryland has generally been among the most heavily indebted of the states,
although its position was more moderate with the inclusion of local debt,
reflecting in part the State's assumption of school construction costs several
years ago. The State, concerned over its debt levels, followed the
recommendation of a debt affordability committee and restrained its borrowing.
Resources have also expanded and ratios have stabilized. Capital borrowing plans
are reasonable and designed not to increase debt levels substantially.

During the three fiscal years from 1991 through 1993, the State's finances
were severely affected by the national recession. Nevertheless, the State closed
fiscal year 1993 with $10.5 million operating surplus on a budgetary basis and
closed fiscal year 1994 with a $60 million operating surplus on a budgetary
basis. On a GAAP basis, the State's General Fund moved from a deficit of $121.7
million as of June 30, 1993 to a positive balance of $113.9 million on June 30,
1994. Financial operations continued to improve in fiscal year 1995, with
revenues exceeding estimate by $217 million and expenditures at $184 million
above budget. Estimates for 1996 General Fund revenues were revised downward by
$148 million, compared to projections made in the enacted budget; nevertheless,
the State closed fiscal year 1996 with a General Fund balance on a budgetary
basis of $13.1 million and $461.2 million in the Revenue Stabilization Account
of the State Reserve Fund. The enacted 1997 budget held overall appropriations
to slightly over 1996 levels, reflecting slowed revenue growth and absence of an
appropriation to the now fully funded Revenue Stabilization Account of the State
Reserve Fund. The State ended its fiscal year 1997 with a General Fund balance
on a budgetary basis of $144.5 million and $490 million in the Revenue
Stabilization Account of the State Reserve Fund.

In April 1997 the General Assembly approved a $15.4 billion 1998 fiscal year
budget. This budget (i) includes funds sufficient to meet all specific statutory
funding requirements; (ii) incorporates the first year of a five-year phase-in
of a 10% reduction in personal income taxes (estimated to reduce revenues by
$38.5 million in fiscal year 1998 and $450 million when fully phased in) and
certain reductions in sales taxes on certain manufacturing equipment (estimated
to reduce revenues by $38.6 million when the reductions are fully phased in
fiscal year 2001); and (iii) includes the first year's $30 million funding under
an agreement to provide additional funds totaling $230 million over a five-year
period to schools in the City of Baltimore and related grants to other
subdivisions totaling $32 million. As of July, 1998 the State projected ending
fiscal year 1998 with a General Fund balance on a budgetary basis of $317.2
million and $617.6 million in the Revenue Stabilization Account of the State
Revenue Fund.

The State and its various political subdivisions issue a number of different
kinds of municipal obligations, including general obligation bonds supported by
tax collections, revenue bonds payable from certain identified

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tax levies or revenue streams, conduit revenue bonds payable from the repayment
of certain loans to authorized entities such as hospitals, universities and
other private entities, and certificates of participation in tax-exempt
municipal leases. These obligations are subject to various economic risks and
uncertainties, and the credit quality of the securities issued by them varies
with the financial strengths of the respective borrowers.

There can be no assurance that future statewide or regional economic
difficulties, and the resulting impact on the financial condition of Maryland
issuers generally, will not adversely affect the market value of Maryland
Obligations held by the Maryland Series or the ability of particular obligors to
make timely payments of debt service on (or relating to) those obligations.

MASSACHUSETTS

Massachusetts is an urban, densely populated, and wealthy state with a fully
developed industrial economy. Massachusetts' industrial economy has experienced
a significant evolution, shifting from textiles, leather products and heavy
manufacturing into high technology and defense-related sectors, with concomitant
growth in services, trade, mutual funds and communications related industries.
In September 1998, the unemployment rate was 3.3%, well and below the national
rate of 4.6%.

The most recent recession had serious adverse effects on Massachusetts'
financial operations and led to a massive accumulated deficit of $1.45 billion
at the close of fiscal 1990. In order to regain fiscal solvency, the
Commonwealth sold a total of $1.4 billion in dedicated tax bonds secured by a
portion of the Commonwealth's income tax proceeds as well as the full faith and
credit general obligation pledge of the Commonwealth. In addition, since 1990,
Massachusetts has adopted more conservative revenue forecasting procedures and
has moderated spending growth, resulting in the achievement of budget surpluses
each year from 1992-1997. Through June, fiscal 1998 tax collections totaled
approximately $14.026 billion, an increase of approximately $1.161 billion, or
9.0%, over fiscal 1997. The fiscal 1999 budget provides for total appropriations
of approximately $19.06 billion.

Proposition 2 1/2 is a property tax limitation initiative passed by
Massachusetts voters in 1980. In general, Proposition 2 1/2 constrains the
ability of cities and towns to raise property tax revenues. As property taxes
are the only local source of revenue available, such tax limitation may lead to
adverse financial consequences for some municipalities. Under Proposition 2 1/2,
many cities and towns were required to reduce their property tax levies to a
stated percentage of the full and fair cash value of their taxable real estate
and personal property. The Proposition limited the amount by which the total
property taxes assessed by all cities and towns may increase from year to year.
Many communities have responded to the limitations of Proposition 2 1/2 through
statutorily permitted overrides and exclusions. Although Proposition 2 1/2 will
continue to constrain local property tax revenues, significant capacity exists
for overrides in nearly all cities and towns.

MICHIGAN

Michigan is a highly industrialized state with an economy principally
dependent upon three sectors: manufacturing (particularly durable goods,
automotive products and office equipment), tourism and agriculture. According to
the State Department of Management and Budget, the U.S. Bureau of Economic
Analysis and the U.S. Bureau of Census, Michigan's population has grown since
the 1990 Census by 5.2%, to approximately 9,774,000 people, while its civilian
labor force over 16 years of age has grown by 8.3% and personal income of its
residents has grown by over 43% during that time. Legislation in Michigan
requires that the administration prepare two economic forecasts each year, which
are presented each January and May of a given year. The State's economic
forecast for calendar years 1998 and 1999 projects healthy growth in the
national economy, and it assumes moderate inflation accompanied by steady
interest rates. Real gross domestic product is projected to grow 3.1% in
calendar 1998 and 2.0% in calendar 1999. Nationally, car and light truck sales
are expected to total 14.9 million units in both calendar 1998 and 1999.

The State's forecast for the Michigan economy reflects the national outlook.
Total wage and salary employment is projected to grow 1.7% in 1998 and 0.8% in
1999. This growth reflects the ongoing diversification of the Michigan economy.
The unemployment rate is projected to average 4.1% in 1998 and 4.4% in 1999,
continuing the recent trend of Michigan's unemployment rate being below the
national average for six consecutive years.

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The principal revenue sources for the State's General Fund are state taxes
from sales, personal income, single business, and excise taxes (approximately
56% of total General Fund revenues) and federal and non-tax revenues
(approximately 44% of total revenues). Under the State Constitution,
expenditures from the General Fund are not permitted to exceed available
revenues. The principal expenditures from the General Fund are directed towards
education, public protection, mental and public health, and social services.
Improvements in the Michigan economy have resulted in increased revenue
collections, which, together with restraint on the expenditure side of the
budget, have produced General Funds surpluses of $81.9 million in fiscal 1995,
$196.5 million in fiscal 1996 and $12.7 million in fiscal 1997. Fiscal year 1998
General Fund revenues are expected to be $8,590.0 million, an increase of 3.2%
over the previous year. Fiscal year 1998 expenditures are projected at $8,601.7
million, an increase over fiscal 1997 of 3.5%, principally due to projected
increases in expenditures for education and public protection.

The State Constitution limits the amount of total State revenues that can be
raised from taxes and certain other sources. State revenues (excluding federal
aid and revenues for payment of principal and interest on general obligation
bonds) in any fiscal year are limited to a fixed percentage of State personal
income in the prior calendar year or average of the prior three calendar years,
whichever is greater, and this fixed percentage equals the ratio of the 1978-79
fiscal year revenues to total calendar 1977 State personal income. If any fiscal
years' revenues exceed the revenue limitation of one percent or more, the entire
amount of the excess must be related in the following fiscal year's personal
income tax or single business tax. Any excess of less than one percent may be
transferred to the State's Budget Stabilization Fund. The unreserved balance of
this Budget Stabilization Fund on September 30, 1997, was estimated to be $646.3
million.

Since 1994, Michigan has financed the principal portion of the costs of
local public school operations as a State budget item, and has shifted the
responsibility for financing such costs away from local school units. To provide
funding for these additional State budget obligations, the Legislature has
enacted a series of taxes and tax increases, and has exempted all property in
the State from millages levied for local and intermediate school district
operating purposes, other than millages levied for community colleges. These
additional State revenues are included within the State's constitutional revenue
limitations and may impact the State's ability to raise additional revenues in
the future.

Although revenue obligations of the State or its political subdivisions may
be payable from a specific project or source, including lease rentals, there can
be no assurance that further economic difficulties will not adversely affect the
market value of municipal obligations held in the portfolio of the Michigan
Series or the ability of the respective obligors to make required payments on
such obligations.

YEAR 2000 MATTERS. In 1997, the State created a Year 2000 Project Office to
provide guidance, coordinate oversight for applications software, manage Year
2000 monies, provide monitoring support and quality assurance and other matters.
The State has undertaken an inventory and assessment of all applications and has
classified its software. For fiscal 1997, the Year 2000 Project Office was
appropriated $55.6 million, and any unexpended portion will be carried over to
the next fiscal year. The State's Department of Management and Budget currently
believes that this appropriation will be sufficient to complete the project of
making the State "Year 2000 Compliant." Although the State is currently on
schedule to meet its objectives for Year 2000 compliance, the State is not, as
of October 1, 1998, Year 2000 Compliant. The State currently believes that it
will continue to meet the objectives and time frames set forth above for the
Year 2000 Project. There can, however, be no assurance that such completion will
be done in a timely manner. Further, if the State successfully addresses its
Year 2000 compliance there can be no assurance that any other organization or
governmental agency with which the State electronically interacts, including
State vendors and the federal government, will be Year 2000 Compliant. In the
event of any such occurrences, the State may face material adverse consequences
with respect to its revenues and operations.

NEW JERSEY

New Jersey has a highly diversified economy. While once heavily dependent
upon manufacturing, New Jersey's economy is now increasingly based on trade and
services. The State fully participated in the national economic recovery and did
not experience the brunt of the Northeast recession until much later than many
other states. Although the early 1990's recession affected the New Jersey
economy, the State's per capita income

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remains the second highest in the United States. The State's unemployment rate
as of August 1998 was 4.8 percent, down from 5.4 percent during the same period
last year, but still higher than the 4.5 percent national rate.

The principal sources of State revenue are sales, corporate and personal
income taxes. The Constitution of the State prohibits the expenditure of funds
in excess of the State's revenues and reserves. Since the Constitution was
adopted in 1947, New Jersey has always had a positive undesignated fund balance
in its general fund at the end of the year.

The favorable economy in New Jersey has been producing strong revenue
growth. New Jersey estimates finishing fiscal year 1998 with total revenue of
$16.9 billion, $610 million more than anticipated when revenues were certified
by the Governor in June 1997. The three largest taxes, gross income, sales and
use, and corporate business, account for 67 percent of total revenue and are
forecasted to yield $11.4 billion, an increase of $507 million from that
estimated in June 1997. Revenues for fiscal 1999 are expected to increase more
modestly as the national economy slows to more sustainable long-run growth
levels.

For the last six fiscal years, the State has used non-recurring revenues and
expenditure deferrals to balance its budget. The estimated undesignated balances
was $1.1 billion for the end of fiscal year 1998 budget. The 1999 budget
includes appropriations totalling $18.1 billion, up $1.1 billion or 6 percent
from fiscal year 1998. The State anticipates revenues of $17.7 billion in fiscal
1999 and a structural deficit of less than $400 million. The structural deficit
has been decreasing since fiscal 1994, when it was $1.586 billion.

As of August 1998, two major bond rating services, Moody's and Fitch, each
had rated New Jersey general obligation bonds Aa1 and AA+, respectively. In
September 1998, Moody's upgraded from "negative" to "stable" its outlook of New
Jersey's general creditworthiness, in part because the State Supreme Court did
not order a massive increase in school funding earlier in 1998.

NEW YORK

New York State is the third most populous state in the nation (behind
California and Texas) and has a relatively high level of personal wealth and a
diverse economy. A declining proportion of the State's work force is engaged in
manufacturing and an increasing proportion of its work force is engaged in
service industries. This transition reflects a national trend.

A nation-wide recession affected the State's 1990-1991 fiscal year and was
followed by a period of weak economic growth during the 1991 and 1992 calendar
years. In 1993, the economy grew faster than in 1992, but at a very modest rate
as compared to other recoveries. Personal income in 1994, 1995, 1996 and 1997
showed percentage changes of 4%, 4.8%, 4.6% and 5.7%, respectively, and the
unemployment rate during those years showed percentage changes of 6.9%, 6.3%,
6.2% and 6.4%, respectively, according to the Update to the Annual Information
Statement of the State of New York, dated August 3, 1998 (AIS Update). Although
personal income and wages continue to exceed national averages, the State's rate
of job growth from 1992 to 1997 ranked 48th in the United States and the State's
unemployment rate was above the national average for each of the years during
the same period, according to the September 1997 Comptroller's Report on the
financial condition of New York State. The growth in personal income is
projected to decline from 5.7% in 1997 to 4.8% in 1998 and 4.2% in 1999, in part
because the growth in bonus payments is expected to slow down, according to the
State Division of the Budget. The AIS Update states that overall employment
growth is expected to be 1.9% in 1998, the strongest in the decade, but will
probably drop to 1% in 1999. The unemployment rate is projected to drop from
6.4% in 1997 to 5.8% in 1998 and 5.7% in 1999.

The State General Fund accumulated deficit for the fiscal years ended March
31, 1995 and 1996 was $3.3 billion and $2.9 billion, respectively, (The State's
General Fund includes most tax receipts and supports most major categories of
spending.) According to a report by the State Comptroller, the General Fund
reported a $1.9 billion GAAP basis operating surplus for the 1997 fiscal year
end. The 1998 fiscal year ended with a combined Governmental Funds operating
surplus of $1.8 billion, which included an operating surplus in the General Fund
of $1.56 billion, according to the AIS Update. As a result, the State has an
accumulated surplus (of $567 million) in the General Fund for the first time
since it began reporting its operations on a GAAP basis. The 1998 fiscal year
end operating surplus is due in part to higher personal income tax receipts
which reflect strong

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employment and wage growth and strong performance by the financial markets
during 1997. In addition, for the fiscal year ended 1998, the AIS Update states
that the Special Revenue Funds reported an operating surplus of $49 million, the
Debt Service Funds reported an operating deficit of $43 million and the Capital
Projects Funds reported an operating surplus of $232 million. In 1998,
expenditures increased $137 million (0.4%) from the 1997 fiscal year end, with
the largest increases occurring in State aid for education and social services
spending.

According to the Comptroller, the 1988-1999 budget projections show a $761
million surplus and in fact will likely exceed $1 billion by fiscal year end
1999, due to strong personal income tax collections. Much of the 1998 fiscal
year end cash surplus is reserved for future requirements, but a portion is
being used to meet spending needs in 1998-1999. Thus, according to the AIS
Update, the State expects some deterioration in its GAAP position, but expects
to maintain a positive GAAP balance through the end of the current fiscal year.

NORTH CAROLINA

The following discussion regarding the financial condition of the North
Carolina State government may not be relevant to general obligation or revenue
bonds issued by political subdivisions of the State. Such information, and the
following discussion regarding the economy of the State, are included for the
purpose of providing information about general economic conditions that may or
may not affect issuers of North Carolina obligations.

The population, labor force, per capita income and North Carolina economy
have experienced general growth over the past 25 years. During the period from
1970 to 1980 the State increased from the twelfth to the tenth most populous
state in the nation. The population grew by approximately 13% from 1980 to 1990
(to 6,656,810 persons), with the State maintaining its ranking as tenth most
populous state. According to State figures, the population as of July 1998 was
7,544,360, an increase of 13% from the 1990 census figure. Notwithstanding its
rank in population size, North Carolina is primarily a rural state, having only
six municipalities with populations in excess of 100,000. During the period 1980
to 1996, the State labor force grew about 33% (from 2,855,200 to 3,796,200).
Unemployment in the past several years has been below the national average. Per
capita income during the period 1985 to 1996 grew from $11,870 to $22,010, an
increase of 85.4%.

The current economic profile of the State consists of a combination of
industry, agriculture and tourism. As of July 1997 the State ranked tenth
nationally in non-agricultural employment and eighth in manufacturing
employment. In 1995, the State's gross agricultural income of nearly $8.0
billion placed it eighth in the nation in gross agricultural income. In 1997,
more than $10.1 billion was spent on tourism in the State, an amount that
exceeded gross agricultural income.

The labor force has undergone significant change during recent years as the
State has moved from an agricultural to a service and goods producing economy.
Those persons displaced by farm mechanization and farm consolidations have, in
large measure, sought and found employment in other pursuits. Due to the wide
dispersion of non-agricultural employment, the people have been able to
maintain, to a large extent, their rural habitation practices.

The diversity of agriculture in North Carolina and a continuing push in
marketing efforts have protected farm income from some of the wide variations
that have been experienced in other states where most of the agricultural
economy is dependent on a small number of agricultural commodities. North
Carolina is the third most diversified agricultural state in the nation. The
poultry industry is now the leading source of gross agricultural income at 29%,
and the pork industry provides over 22% of the total agricultural income.
Although the number of farms has been decreasing (about 20% in ten years), a
strong agribusiness sector supports farmers with farm inputs (fertilizer,
insecticide, pesticide and farm machinery) and processing of commodities
produced by farmers (vegetable canning and cigarette manufacturing).

The State constitution requires a balanced state budget. The general
economic recession of the late 1980's and early 1990's, and particularly the
reduced level of state tax revenue that resulted, caused the State to expend
nearly all of its retained surplus and to impose new taxes and expenditure
reductions in order to avoid a budget deficit. The State's actions helped
maintain a favorable rating for the State's debt obligations, although rating
agencies expressed concern about the effect, in the long term, of reductions in
infrastructure, evaluation

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and social development project spending that were effected by the budget
measures. North Carolina, like the nation generally, has experienced economic
recovery during the 1990's. In the 1996-97 Budget prepared by the Office of the
State Budget and Management, it was projected that General Fund Net Revenues,
adjusted for all revenue law changes, would increase 3% over 1995-96. In fact,
actual General Fund net revenues for 1996-97 increased 8.3% over 1995-96. This
increase resulted primarily from growth in the North Carolina economy which
resulted in increased personal and corporate income tax receipts. The General
Fund balance was approximately $292.2 million and the reserved balance of the
General Fund was approximately $880.8 million.

In 1995 the General Assembly reviewed several tax measures and repealed the
state tax on intangibles. In addition, in the 1996 session the legislature
reduced the corporate income tax rate from 7.75% to 6.9% (phased in over four
years) and reduced the food tax from 4% to 3%. It is unclear what effect these
developments at the State level might have on the value of the obligations in
the North Carolina Trust.

The State is involved in certain litigation; however, none of the cases, in
the reported opinion of the Department of the Treasurer, would have a material
adverse effect on the State's ability to meet its obligations.

OHIO

Generally, the creditworthiness of Ohio Obligations of local issuers is
unrelated to that of obligations of the State itself, and the State has no
responsibility to make payments on those local obligations.

There may be specific factors that at particular times apply in connection
with investment in particular Ohio Obligations or in those obligations of
particular Ohio issuers. It is possible that the investment may be in particular
Ohio Obligations, or in those of particular issuers, as to which those factors
apply. However, the information below is intended only as a general summary, and
is not intended as a discussion of any specific factors that may affect any
particular obligation or issuer.

While diversifying more into the service and other non-manufacturing areas,
the Ohio economy continues to rely in part on durable goods manufacturing
largely concentrated in motor vehicles and equipment, steel, rubber products and
household appliances. As a result, general economic activity, as in many other
industrially-developed states, tends to be more cyclical than in some other
states and in the nation as a whole. Agriculture is an important segment of the
economy, with over half the State's area devoted to farming and approximately
16% of total employment in agribusiness.

In prior years, the State's overall unemployment rate was commonly somewhat
higher than the national figure. However, for the last seven years the State
rates were below the national rates (4.6% versus 4.9% in 1997). The unemployment
rate and its effects vary among geographic areas of the State.

The State operates on the basis of a fiscal biennium for its appropriations
and expenditures, and is precluded by law from ending its July 1 to June 30
fiscal year (FY) or fiscal biennium in a deficit position. Most State operations
are financed through the General Revenue Fund (GRF), for which the personal
income and sales-use taxes are the major sources. Growth and depletion of GRF
ending fund balances show a consistent pattern related to national economic
conditions, with the ending FY balance reduced during less favorable and
increased during more favorable economic periods. The State has well-established
procedures for, and has timely taken, necessary actions to ensure
resource/expenditure balances during less favorable economic periods. Those
procedures included general and selected reductions in appropriations spending.

The GRF appropriations act for the 1998-99 biennium was passed on June 25,
1997 and promptly signed (after selective vetoes) by the Governor. All necessary
GRF appropriations for State debt service and lease rental payments then
projected for the biennium were included in that act.

The State's incurrence or assumption of debt without a vote of the people
is, with limited exceptions, prohibited by current State constitutional
provisions. The State may incur debt, limited in amount to $750,000, to cover
casual deficits or failures in revenues or to meet expenses not otherwise
provided for. The Constitution expressly precludes the State from assuming the
debts of any local government or corporation. ( An exception is made in both
cases for any debt incurred to repel invasion, suppress insurrection or defend
the State in war.)

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By fourteen constitutional amendments approved from 1921 to date (the latest
adopted in 1995) Ohio voters authorized the incurrence of State debt and the
pledge of taxes or excises to its payment. At September 17, 1998, $1.12 billion
(excluding certain highway bonds payable primarily from highway use receipts) of
this debt was outstanding. The only such State debt at that date still
authorized to be incurred were portions of the highway bonds, and the following:
(a) up to $100 million of obligations for coal research and development may be
outstanding at any one time ($26.7 million outstanding); (b) $240 million of
obligations previously authorized for local infrastructure improvements, no more
than $120 million of which may be issued in any calendar year (over $1 billion
outstanding or awaiting delivery); and (c) up to $200 million in general
obligation bonds for parks, recreation and natural resource purposes which may
be outstanding at any one time ($88.6 million outstanding, with no more than $50
million to be issued in any one year).

State and local agencies issue obligations that are payable from revenues
from or relating to certain facilities (but not from taxes). By judicial
interpretation, these obligations are not "debt" within constitutional
provisions. In general, payment obligations under lease-purchase agreements of
Ohio public agencies (in which certificates of participation may be issued) are
limited in duration to the agency's fiscal period, and are renewable only upon
appropriations being made available for the subsequent fiscal period.

Local school districts in Ohio receive a major portion (state-wide aggregate
approximately 44% in recent years) of their operating moneys from State
subsidies, but are dependent on local property taxes, and in 119 districts (as
of September 17, 1998) from voter-authorized income taxes, for significant
portions of their budgets. Litigation, similar to that in other states, has been
pending questioning the constitutionality of Ohio's system of school funding.
The Ohio Supreme Court has concluded that aspects of the system (including basic
operating assistance and the loan program referred to below) are
unconstitutional, and ordered the State to provide for and fund a system
complying with the Ohio Constitution, staying its order to permit time for
responsive corrective actions. The parties await eventual trail court decision
on the adequacy of steps taken to date by the State to enhance school funding
consistent with the Supreme Court decision. A small number of the State's 612
local school districts have in any year required special assistance to avoid
year-end deficits. A program has provided for school district cash need
borrowing directly from commercial lenders, with diversion of State subsidy
distributions to repayment if needed. Recent borrowings under this program
totalled $71.1 million for 29 districts in FY 1995 (including $29.5 million for
one), $87.2 million for 20 districts in FY 1996 (including $42.1 million for
one), and $113.2 million for 12 districts in FY 1997 (including $90 million to
one for restructuring its prior loans), and $23.4 million for 10 districts in FY
1998.

For those few municipalities and school districts that on occasion have
faced significant financial problems, there are statutory procedures for a joint
State/local commission to monitor the fiscal affairs and for development of a
financial plan to eliminate deficits and cure any defaults. (Similar procedures
have recently been extended to counties and townships.) Since inception for
municipalities in 1979, these "fiscal emergency" procedures have been applied to
25 cities and villages; for 18 of them the fiscal situation was resolved and the
procedures terminated (one village and three cities are in preliminary "fiscal
watch" status). As of September 17, 1998, the 1996 school district "fiscal
emergency" provision was applied to six districts, and ten were on preliminary
"fiscal watch" status.

At present the State itself does not levy ad valorem taxes on real or
tangible personal property. Those taxes are levied by political subdivisions and
other local taxing districts. The Constitution has since 1934 limited to 1% of
true value in money the amount of the aggregate levy (including a levy for
unvoted general obligations) of property taxes by all overlapping subdivisions,
without a vote of the electors or a municipal charter provision, and statutes
limit the amount of that aggregate levy to 10 mills per $1 of assessed valuation
(commonly referred to as the "ten-mill limitation"). Voted general obligations
of subdivisions are payable from property taxes that are unlimited as to amount
or rate.

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The incurrence or assumption of debt by the State without a popular vote is,
with limited exceptions, prohibited by current provisions of the State
Constitution. The State may incur debt to cover casual deficits, failures in
revenues or to meet expenses not otherwise provided for, but limited in amount
to $750,000 plus debt incurred to repel invasion, suppress insurrection, or
defend the State in war. The State is expressly precluded from assuming any
local government debt or corporation debt, except for debt incurred to repel
invasion, suppress insurrection, or defend the State in war.

Although the State's revenue obligations or its political subdivisions may
be payable from a specific project or source, including lease rentals, there can
be no assurance that economic difficulties and the resulting impact on State and
local governmental finances will not adversely affect the market value of
municipal obligations held in the portfolio of the Ohio Series or the ability of
the respective obligors to make required payments on or leases relating to such
obligations.

PENNSYLVANIA

The Commonwealth of Pennsylvania is one of the most populous states, ranking
fifth behind California, New York, Texas and Florida. Pennsylvania has been
historically identified as a heavy industry state, although, due to the decline
of the steel, coal and railroad industries over the last thirty years, the
Commonwealth's business environment has readjusted to reflect a more diversified
industrial base. Currently, the major sources of growth in Pennsylvania are in
the service sector, which includes trade, medical, and health services,
education and financial institutions. Pennsylvania's 5.9 million work force
ranks as the sixth largest labor pool in the nation.

Many different social, environmental and economic factors may affect the
financial condition of Pennsylvania and its political subdivisions. From time to
time Pennsylvania and certain of its political subdivisions have encountered
financial difficulties which have adversely affected their respective credit
standings. Other factors which may negatively effect economic conditions in
Pennsylvania include adverse changes in employment rates, federal revenue
sharing or laws with respect to tax-exempt financing.

The Commonwealth uses the fund method of accounting. The General Fund, the
Commonwealth's largest fund, receives all tax revenues, non-tax revenues and
federal grants and entitlements that are not specified by law to be deposited
elsewhere. The majority of the Commonwealth's operating and administrative
expenses are payable from the General Fund. Debt service on all bonded
indebtedness of the Commonwealth, except that issued for highway purposes or for
the benefit of other special revenue funds, is payable from the General Fund.

The period from fiscal year 1993 through fiscal 1997 was a time of steady,
modest economic growth and low rates of inflation. These economic conditions,
together with tax reductions in the several years following the tax rate
increases and tax base expansions enacted in fiscal 1991 for the General Fund,
produced tax revenue gains averaging 4.1% per year during the period. Total
revenues during this same period increased at a 4.7% average rate. Expenditures
and other uses during the fiscal 1993 through fiscal 1997 period rose at a 3.8%
rate, led by an average 13.8% annual increase for protection of persons and
property program costs. The fund balance at June 30, 1997 totaled $1,364.9
million, a $729.7 million increase over the $635.2 million balance at June 30,
1996.

Operations during the 1998 fiscal year increased the unappropriated balance
of Commonwealth revenues during that period by $86.4 million to $488.7 million
at June 30, 1998 (prior to reserves for transfer to the Tax Stabilization
Reserve Fund). Higher than estimated revenues, offset in part by increased
reserves for tax refunds, and slightly lower expenditures than budgeted were
responsible for the increase. Commonwealth revenues (prior to tax refunds)
during the fiscal year totaled $18,123.2 million, $676.1 million (3.9%) above
the estimate made at the time the budget was enacted. Expenditures from all
fiscal 1998 appropriations of Commonwealth revenues totaled $17,229.8 million
(excluding pooled financing expenditures and net of current year lapses). This
amount represents an increase of 4.5% over fiscal 1997 appropriation
expenditures.

The budget for fiscal 1999 was enacted in April 1998 at which time the
official revenue estimate for the 1999 fiscal year was established at $18,456.6
million. Only Commonwealth funds are included in the official revenue estimate.
The official revenue estimate is based on an economic forecast for national
gross domestic product, on a year-over-year basis, to slow from an estimated
annualized 3.9% rate in the fourth quarter of 1997

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to a projected 1.8% annualized growth rate by the second quarter of 1999. The
forecast of slowing economic activity is based on the expectation that consumers
will reduce their pace of spending, particularly on motor vehicles, housing and
other durable goods. Business is also expected to trim its spending on fixed
investments. Foreign demand for domestic goods is expected to decline in
reaction to economic difficulties in Asia and Latin America, while an economic
recovery in Europe is expected to proceed slowly. The underlying growth rate,
excluding any effect of scheduled or proposed tax changes, for the General Fund
fiscal 1999 official revenue estimate is 3.0% over actual fiscal 1998 revenues.
When adjusted to include the estimated effect of enacted tax changes, fiscal
1999 Commonwealth revenues are projected to increase by 1.66% over actual
Commonwealth revenues for fiscal 1998. Tax reductions anticipated to be included
in the enacted 1999 fiscal year budget totaled an estimated $241.0 million for
fiscal 1999.

The Commonwealth's government funds receive over 57% of their revenues from
taxes levied by the Commonwealth. Interest earnings, licenses and fees, lottery
tickets, liquor store profits, miscellaneous revenues, augmentations, and
federal government grants supply the balance of the receipts to these funds. The
major sources for the General Fund of the Commonwealth are the sales tax, the
personal income tax and the corporate net income tax.

The current constitutional provisions relating to Commonwealth debt permit
the issuance of the following types of debt: (i) debt to suppress insurrection
or rehabilitate areas affected by disaster, (ii) electorate approved debt, (iii)
debt for capital projects subject to an aggregate debt limit of 1.75 times the
annual average tax revenue of the preceding five fiscal years, and (iv) tax
anticipation notes payable in the fiscal year of issuance. All debt except tax
anticipation notes must be amortized in substantial and regular amounts.
Outstanding general obligation debt totaled $4,724.5 million at June 30, 1998, a
decrease of $70.6 million from June 30, 1997.

Other state-related obligations include "moral obligations." Moral
obligation indebtedness may be issued by the Pennsylvania housing financing
agency, a state-created agency which provides financing for housing for lower
and moderate income families, and the Hospitals and Higher Education Facilities
Authority of Philadelphia, a municipal authority organized by the City of
Philadelphia to, among other things, acquire and prepare various sites for use
as intermediate care facilities for the mentally retarded.

The Commonwealth, through several of its departments and agencies, has
entered into various agreements to lease, as lessee, certain real property and
equipment, and to make lease payments for the use of such property and
equipment. Some of these leases and their respective lease payments are, with
the Commonwealth's approval, pledged as security for debt obligations issued by
certain public authorities or other entities within the state.

In addition, certain Commonwealth-created organizations are authorized by
statute to issue debt for which Commonwealth appropriations to pay debt service
thereon are not required. The debt of these agencies is funded by the assets of,
or revenues derived from, the various projects financed and is not a statutory
or moral obligation of the Commonwealth. Some of these agencies, however, are
indirectly dependent on Commonwealth operating appropriations. The Commonwealth
also maintains pension plans covering state employees, public school employees
and employees of certain state-related organizations.

Pennsylvania's annual average unemployment rate was below the national
average from 1986 until 1990. Slower economic growth caused the unemployment
rate to rise in 1991 and 1992. However, the resumption of faster economic growth
resulted in a decrease in the Commonwealth's unemployment rate in 1993. In 1994
and 1995, Pennsylvania's annual average unemployment rate was below the middle
Atlantic region's average, but slightly higher than that of the United States.
In June 1998, the Pennsylvania unemployment rate was slightly below that of the
United States. For 1997, per capita income in Pennsylvania was slightly above
the per capita income in the United States.

Pennsylvania municipalities and school districts are, with certain
limitations, authorized to impose a variety of taxes. The real estate tax is the
only tax authorized by law to be levied by all classes of local government in
the state. Thus, property owners pay real estate taxes to three independent
authorities--the county, the municipality and the school district. It is the
leading local revenue producer in Pennsylvania.

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The Local Tax Enabling Act applicable to almost all political subdivisions
in Pennsylvania, gives local governments (other than counties) and school
districts in Pennsylvania a broad range of non-real estate tax sources. The
taxes commonly in use include the earned income or wage tax, per capita taxes,
occupation taxes, occupational privilege taxes, real estate transfer taxes,
amusement and admission taxes and business gross receipts taxes (although the
authority of political subdivisions to impose new business gross receipts taxes
is limited). Counties are also permitted to impose intangible personal property
taxes (although the constitutional validity of such taxes is presently the
subject of litigation and no counties presently impose such taxes).

In addition, the City and School District of Philadelphia have separate
taxing authority to impose a variety of business taxes, wage taxes, income and
other various taxes.

There is various litigation pending against the Commonwealth, its officers
and employees. An adverse decision in one or more of these cases could
materially affect the Commonwealth's governmental operations.

ADDITIONAL ISSUERS

GUAM

Guam is governed by the Organic Act of 1950, which granted the island
statutory local power of self-government and made the inhabitants of Guam
citizens of the United States. As of the 1990 Census, the Territory's population
was 133,152. As of 1998, the population is estimated to be 163,517, according to
the Guam Annual Economic Review (1996-1997) published by the Guam Department of
Commerce ("Annual Review"). Guam has recently increased its efforts to have the
U.S. Congress reevaluate its status as a territory and anticipates holding a
vote on the issue of whether Guamenians desire statehood, independence or free
association.

The economy of Guam is heavily influenced by the significant U.S. military
presence on the island. Military downsizing has been in effect since 1993 and
was most dramatic during the implementation of the 1995 Base Realignment and
Closure (BRAC). Between 1993 and 1997, Guam faced reductions of approximately
40% of its military's active duty and civilian employment, according to the
Annual Review. Guam has also struggled to recuperate from the devastation of
Super Typhoon Paka, which cost Guam approximately $600,000,000, as stated in a
December 17, 1997 report by the Office of the Governor of Guam. Finally, Asia's
economic crisis has negatively affected Guam's tourism industry, although there
are some signs of revival. Visitor arrivals totaled 312,787 in the first quarter
of 1998, a 13.8% decrease from the same time period in 1997 and a 2.3% increase
over the fourth quarter of 1997, according to the Guam Economic Review Quarterly
Report, vol. 20, no. 1, (January--March 1998) published by the Guam Department
of Commerce ("Quarterly Report"). The Services, Retail and Transportation
sectors, which are heavily affected by the tourism trends, together account for
more than 34,000 jobs or 70% of the private sector workforce as of 1997,
according to the Annual Review. Employment in these three sectors has increased
by over 13% since 1994, according to the Annual Review, and tourist arrivals has
increased over 265% between 1985 and 1997, according to the Quarterly Report.

As of April 1998, Guam's overall unemployment rate was at 6%, a temporary
drop from the 1997 year end unemployment rate of 8.2%. The drop was due in large
part to the temporary disaster unemployment program, according to the Quarterly
Report. Guam's inflation rate for 1997 was calculated at one-tenth of one
percent, as compared to the national rate of 1.7% during that same period,
according to the Quarterly Report.

To bolster its economy, Guam hopes to establish itself as an insurance and
financial services hub in the Pacific. To this end, Guam passed a law in October
1997 that provides tax breaks for the insurance industry. In addition, Guam has
been successful in promoting its telecommunications industry, according to the
Quarterly Report. Guam has been included in the North American Numbering Plan,
under which calls between Guam and the U.S. have domestic rates; privatized the
Guam Telephone Authority; and developed modern communications infrastructure.

Guam anticipates a slower than expected reduction in the General Fund
deficit, in part due to two local laws and the federal Taxpayer Relief Act of
1997, which are estimated will reduce the amount of money available for General
Fund appropriations by approximately one-third, according to the Annual Review.
The Annual Review reports an estimated budget deficit of $75 million at October,
1997.

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PUERTO RICO

Puerto Rico enjoys a commonwealth status with the U.S. as a result of Public
Law 600, enacted by the U.S. Congress in 1950 and affirmed by a referendum in
1952. Residents of Puerto Rico are U.S. citizens. It is anticipated that in the
next year, Puerto Ricans will vote on whether they wish to remain a
commonwealth, be independent, become a state or chose Free Association. The
ultimate outcome will depend on the U.S. Congress and will shape the future of
the Puerto Rican economy.

Since World War II, Puerto Rico has transitioned from a poor, agrarian
economy to a more urbanized manufacturing and service based economy. Personal
income has increased both aggregate and per capita each year from 1985 through
1996, according to a report by the Puerto Rican Department of Treasury. Gross
product has increased each year from fiscal year 1992 through 1996, with a 3.2%
increase ($32 billion) as of 1997. Real GNP growth slowed to approximately 2.5%
as of the fiscal year ended June 30, 1998 and is projected to rise to around
2.6-2.8% in the fiscal year ending 1999, according to a September 2, 1998 report
of the Economist Intelligence Unit ("EIU Report"). The rate of unemployment
decreased from 16.5% for the fiscal year 1992 to 13.1% for the fiscal year ended
June 30, 1997, according to the Puerto Rico Department of Labor and Human
Resources Household Survey ("PR DOL Survey"). As of September 1997, 13.5% of the
Puerto Rican labor force was unemployed, according to the PR DOL Survey, and
that figure is expected to rise to around 14% by the end of 1999, according to
the EIU Report. This figure can be compared to the 5% unemployment rate for the
United States during 1997, as reported by the US Department of Labor, Bureau of
Labor Statistics. In the past year, the competition from cheaper labor in other
countries resulted in the closing of various companies, particularly in the
textile sector. In addition, the recent Hurricane Georges may harm Puerto Rico's
economy in the upcoming fiscal year.

The Puerto Rico Planning Board's Economic Activity Index, a composite index
of thirteen economic indicators, increased 1.4% for fiscal year 1996, compared
to fiscal year 1995, and 2.5% for the fiscal year 1995, compared to fiscal year
1994. During the first three months of fiscal year 1997, the Index decreased
0.9% compared to the same period in fiscal year 1996, for which period it had
registered an increase of 1.7% over the same period of fiscal year 1995. The
Banco Popular Index of the Puerto Rico economy showed slow growth with
intermittent drops during the period between September, 1997 and March, 1998.
Banco Popular analysts attribute this to downturns in the manufacturing sector,
which were offset by some growth in the construction and tourism sectors.

Amendments incorporated in the Small Business Job Protection Act of 1996
enacted by the United States Congress and signed into law by President Clinton
on August 20, 1996 are now phasing out a special tax credit that was available
under Section 936 of the Code for United States companies operating in the
Puerto Rico. According to Banco Popular Reports, many companies have expressed
interest in a new industrial incentives law (Law 135), which is aimed at
counteracting problems associated with the Section 936 phase-out. To meet the
phase-out challenges, the Puerto Rico Government is also focusing on improving
both tourism and capital markets and creating an agro-industry. The hope is to
fortify San Juan as a financial hub which could place Puerto Rico as a gateway
to the North American Free Trade Association. To these ends, Puerto Rico has
embarked on a large scale infrastructure program to encourage local business,
including roadwork improvements, new highways, upgrading the island's transport
facilities, a $1.8 billion project to overhaul the aqueduct and sewer system and
a $1.6 billion metropolitan train. In 1997, the Gross Domestic Product grew by
3.2%, a total of $32 billion. In addition, the Puerto Rico Government has begun
privatization of industries, such as the sale of the Puerto Rico telephone
company in July 1998, and anticipates similar sales of healthcare facilities.

Financial operations of recent years have reflected general economic trends,
with fiscal improvements registered during good economic times and deterioration
during slowdown. As of June 30, 1993, Puerto Rico's General Fund (the primary
operating fund of the Commonwealth) experienced a deficit of approximately $47
million. As of June 30, 1994, 1995 and 1996, the General Fund had a positive
balance of $514 million, $608 million and $397 million, respectively.

UNITED STATES VIRGIN ISLANDS

The Virgin Islands, comprised of St. Thomas, St. Croix and St. John, form an
unincorporated territory of the United States. The residents were granted a
measure of self-government by the Organic Act, as revised in

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1954. The Virgin Islands are heavily dependent on links with the U.S. mainland
and more than 90% of the trade is conducted with Puerto Rico and the United
States. The Territorial Government plays a vital role in the economy of the
Virgin Islands. Since governmental services must be provided on three separate
islands, the duplication of effort results in an unusually large public sector.
Total government employment fell slightly in 1997 to 13,680 from 14,060 in 1996.
Federal and local government employment is expected to remain stable through the
end of 1998, according to an August 7, 1998 report by the Bureau of Economic
Research of the Government Development Bank for the Virgin Islands ("BER").

Recent hurricanes have been serious setbacks, although there are some signs
that the Virgin Islands is recovering and returning to a more normal growth
phase. Between January 1994 and June 1996, there was a 15.5% drop in private
sector jobs and a 9% drop overall. The 1997 Virgin Islands Department of Labor's
Current Employment Statistics Report shows that there was a total of 43,380 jobs
in the territory, compared to 43,370 jobs in 1996. Of the 43,380 jobs, 29,700
were in the private sector and 13,689 were in the public sector. The Virgin
Island's overall unemployment rate increased from 5.2% in 1996 to 5.9% in 1997.
St. Croix's unemployment rate increased from 4.8% in 1996 to 6.7% in 1997. St.
Thomas and St. John, on the other hand, registered a decline in the unemployment
rate from 5.5% in 1996 to 5.3% in 1997. The overall increase in unemployment has
been attributed to an increase in labor force participation as workers seek to
reenter the workforce rather than to extensive job losses. Early 1998 showed a
steady expansion in employment and employment is forecast to grow during fiscal
year 1999 by 3%, according to the BER.

Tourism is the predominant source of employment and income for the Islands.
In 1997, the Virgin Islands recorded over 2.1 million visitors, an increase of
17% over the 1996 total of 1.8 million visitors. The rate of air arrivals is
expected to grow by 10% by the end of fiscal year 1998 and the BER forecasts 10%
rate of growth in air arrivals, with a 23% increase over 1996. The BER
anticipates cruise passenger arrivals to increase by up to 11% in fiscal year
1999. Nonetheless, total visitor expenditures dropped from $688 million in 1996
to $601 million in 1997.

Manufacturing employment has shown limited growth in 1998 and is expected to
show an overall annual increase of 3% by fiscal year end. HOVIC, the largest
manufacturer in the Virgin Islands, has entered into a joint venture with
Petroleus de Venezuela, S.A. ("PDVSA") in an effort to overcome a seven year
history of losses and as a result will invest $500 million to design and
construct a coker. Approximately 2,000 new jobs are expected to be created at
the peak of the three-year construction period, which will begin in early 1999.
The BER foresees employment growth in the manufacturing sector to reach 15%
during the fiscal year 1999.

Construction growth in 1996 rose 84% as the Virgin Islands faced the task of
rebuilding after hurricane MARILYN in 1996. As this construction decreased, the
construction industry lost approximately 600 jobs, which resulted in a decline
of 24% by 1997. The BER predicts that the construction sector will resume growth
in fiscal year 1999, and may result in up to a 34% increase in the sector as a
result of new hotel and tourist facility development and the HOVIC/PDVSA
construction projects.

FLOATING RATE AND VARIABLE RATE SECURITIES

Each series may invest more than 5% of its assets in floating rate and
variable rate securities, including participation interests therein and (for
series other than money market series) inverse floaters. Floating rate
securities normally have a rate of interest which is set as a specific
percentage of a designated base rate, such as the rate on Treasury Bonds or
Bills or the prime rate at a major commercial bank. The interest rate on
floating rate securities changes whenever there is a change in the designated
base interest rate. Variable rate securities provide for a specific periodic
adjustment in the interest rate based on prevailing market rates and generally
would allow the series to demand payment of the obligation on short notice at
par plus accrued interest, which amount may be more or less than the amount the
series paid for them. An inverse floater is a debt instrument with a floating or
variable interest rate that moves in the opposite direction of the interest rate
on another security or the value of an index. Changes in the interest rate on
the other security or interest inversely affect the residual interest rate paid
on the inverse floater, with the result that the inverse floater's price will be
considerably more volatile than that of a fixed rate bond. The market for
inverse floaters is relatively new.

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Each series may invest in participation interests in variable rate
tax-exempt securities (such as certain IDB's) owned by banks. A participation
interest gives the series an undivided interest in the tax-exempt security in
the proportion that the series' participation interest bears to the total
principal amount of the tax-exempt security and generally provides that the
holder may demand repurchase within one to seven days. Participation interests
frequently are backed by an irrevocable letter of credit or guarantee of a bank
that the investment adviser under the supervision of the Trustees has determined
meets the prescribed quality standards for the series. A series generally has
the right to sell the instrument back to the bank and draw on the letter of
credit on demand, on seven days' notice, for all or any part of the series'
participation interest in the par value of the tax-exempt security, plus accrued
interest. Each series intends to exercise the demand under the letter of credit
only (1) upon a default under the terms of the documents of the tax-exempt
security, (2) as needed to provide liquidity in order to meet redemptions or (3)
to maintain a high quality investment portfolio. Banks will retain a service and
letter of credit fee and a fee for issuing repurchase commitments in an amount
equal to the excess of the interest paid by the issuer on the tax-exempt
securities over the negotiated yield at which the instruments were purchased
from the bank by a series. The investment adviser will monitor the pricing,
quality and liquidity of the variable rate demand instruments held by each
series, including the IDB's supported by bank letters of credit or guarantees,
on the basis of published financial information, reports of rating agencies and
other bank analytical services to which the investment adviser may subscribe.
Participation interests will be purchased only if, in the opinion of counsel,
interest income on such interests will be tax-exempt when distributed as
dividends to shareholders.

PUT OPTIONS

Each series may acquire put options (puts) giving the series the right to
sell securities held in the series' portfolio at a specified exercise price on a
specified date. Such puts may be acquired for the purpose of protecting the
series from a possible decline in the market value of the securities to which
the put applies in the event of interest rate fluctuations and, in the case of
liquidity puts, to shorten the effective maturity of the underlying security.
The aggregate value of the premiums paid to acquire puts held in a series'
portfolio (other than liquidity puts) may not exceed 10% of the net asset value
of such series. The acquisition of a put may involve an additional cost to the
series by payment of a premium for the put, by payment of a higher purchase
price for securities to which the put is attached or through a lower effective
interest rate.

In addition, there is a credit risk associated with the purchase of puts in
that the issuer of the put may be unable to meet its obligation to purchase the
underlying security. Accordingly, the series will acquire puts only under the
following circumstances: (1) the put is written by the issuer of the underlying
security and such security is rated within the four highest quality grades (two
highest grades for the money market series) as determined by an NRSRO; or (2)
the put is written by a person other than the issuer of the underlying security
and such person has securities outstanding which are rated within such four (or
two for the money market series) highest quality grade of such rating services;
(3) the put is backed by a letter of credit or similar financial guarantee
issued by a person having securities outstanding which are rated within the two
highest quality grades of an NRSRO or (4) for the money market series, the put
is unrated, but (i) the put is written by a person that, directly or indirectly,
controls, is controlled by or is under common control with the issuer of the
underlying security (other than a sponsor of a special purpose entity with
respect to an asset backed security), (ii) the put relates to a fully
collateralized repurchase agreement, (iii) the put is backed by the U.S.
Government or (iv) the put is not relied upon for quality, maturity or liquidity
purposes.

One form of transaction involving liquidity puts consists of an underlying
fixed rate municipal bond that is subject to a third party demand feature or
"tender option." The holder of the bond would pay a "tender fee" to the third
party tender option provider, the amount of which would be periodically adjusted
so that the bond/ tender option combination would reasonably be expected to have
a market value that approximates the par value of the bond. This bond/tender
option combination would therefore be functionally equivalent to ordinary
variable or floating rate obligations and the Fund may purchase such obligations
subject to certain conditions specified by the Securities and Exchange
Commission (Commission).

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FINANCIAL FUTURES CONTRACTS AND OPTIONS THEREON

FUTURES CONTRACTS. Each series (except for the money market series) may
engage in transactions in financial futures contracts as a hedge against
interest rate related fluctuations in the value of securities which are held in
the investment portfolio or which the series intends to purchase. A clearing
corporation associated with the commodities exchange on which a futures contract
trades assumes responsibility for the completion of transactions and guarantees
that open futures contracts will be closed. Although interest rate futures
contracts call for actual delivery or acceptance of debt securities, in most
cases the contracts are closed out before the settlement date without the making
or taking of delivery.

When the futures contract is entered into, each party deposits with a broker
or in a segregated account approximately 5% of the contract amount, called the
initial margin. Subsequent payments to and from the broker, called variation
margin, will be made on a daily basis as the price of the underlying security or
index fluctuates, making the long and short positions in the futures contracts
more or less valuable, a process known as marking to the market.

When a series purchases a futures contract, it will maintain an amount of
cash or other liquid assets, marked-to-market daily, in a segregated account, so
that the amount so segregated plus the amount of initial and variation margin
held in the account of its broker equals the market value of the futures
contract, thereby ensuring that the use of such futures contract is unleveraged.
A series that has sold a futures contract may cover that position by owning the
instruments underlying the futures contract or by holding a call option on such
futures contract. A series will not sell futures contracts if the value of such
futures contracts exceeds the total market value of the securities of the
series. It is not anticipated that transactions in futures contracts will have
the effect of increasing portfolio turnover.

OPTIONS ON FINANCIAL FUTURES. Each series (other than the money market
series) may purchase call
options and write put and call options on futures contracts and enter into
closing transactions with respect to such options to terminate an existing
position. Each series will use options on futures in connection with hedging
strategies.

An option on a futures contract gives the purchaser the right, in return for
the premium paid, to assume a position in a futures contract (a long position if
the option is a call and a short position if the option is a put) at a specified
exercise price at any time during the period of the option. Upon exercise of the
option, the delivery of the futures position by the writer of the option to the
holder of the option will be accompanied by delivery of the accumulated balance
in the writer's futures margin account which represents the amount by which the
market price of the futures contract, at exercise, exceeds, in the case of a
call, or is less than, in the case of a put, the exercise price of the option on
the futures contract. If an option is exercised on the last trading day prior to
the expiration date of the option, the settlement will be made entirely in cash
equal to the difference between the exercise price of the option and the closing
price of the futures contract on the expiration date. Currently, options can be
purchased or written with respect to futures contracts on U.S. Treasury Bonds,
among other fixed-income securities, and on municipal bond indices on the
Chicago Board of Trade. As with options on debt securities, the holder or writer
of an option may terminate his or her position by selling or purchasing an
option of the same series. There is no guaranty that such closing transactions
can be effected.

When a series hedges its portfolio by purchasing a put option, or writing a
call option, on a futures contract, it will own a long futures position or an
amount of debt securities corresponding to the open option position. When a
series writes a put option on a futures contract, it may, rather than establish
a segregated account, sell the futures contract underlying the put option or
purchase a similar put option.

LIMITATIONS ON PURCHASE AND SALE. Under regulations of the Commodity
Exchange Act, investment companies registered under the Investment Company Act
are exempted from the definition of commodity pool operator, subject to
compliance with certain conditions. The exemption is conditioned upon a series'
purchasing and selling financial futures contracts and options thereon for BONA
FIDE hedging transactions, except that a series may purchase and sell futures
contracts and options thereon for any other purpose to the extent that the
aggregate initial margin and option premiums do not exceed 5% of the liquidation
value of the series' total assets. Each series will use financial futures in a
manner consistent with these requirements. With respect to

B-19
<PAGE>
long positions assumed by a series, the series will segregate an amount of cash
or other liquid assets, marked-to-market daily so that the amount so segregated
plus the amount of initial and variation margin held in the account of its
broker equals the market value of the futures contracts and thereby insures that
the use of futures contracts is unleveraged. Each series will continue to invest
at least 80% of its total assets in municipal obligations except in certain
circumstances, as described in its Prospectus under "How the Fund Invests--
Investment Objective and Policies." A series may not enter into futures
contracts if, immediately thereafter, the sum of the amount of initial and net
cumulative variation margin on outstanding futures contracts together with
premiums paid on options thereon, would exceed 20% of the total assets of the
series.

RISKS OF FINANCIAL FUTURES TRANSACTIONS. In addition to the risk associated
with predicting movements in the direction of interest rates, discussed in "How
the Fund Invests--Investment Objective and Policies-- Futures Contracts and
Options Thereon" in each series' Prospectus, there are a number of other risks
associated with the use of financial futures for hedging purposes.

Each series intends to purchase and sell futures contracts only on exchanges
where there appears to be a market in the futures sufficiently active to
accommodate the volume of its trading activity. There can be no assurance that a
liquid market will always exist for any particular contract at any particular
time. Accordingly, there can be no assurance that it will always be possible to
close a futures position when such closing is desired; and, in the event of
adverse price movements, the series would continue to be required to make daily
cash payments of variation margin. However, if futures contracts have been sold
to hedge portfolio securities, these securities will not be sold until the
offsetting futures contracts can be purchased. Similarly, if futures have been
bought to hedge anticipated securities purchases, the purchases will not be
executed until the offsetting futures contracts can be sold.

The hours of trading of interest rate futures may not conform to the hours
during which the series may trade municipal securities. To the extent that the
futures markets close before the municipal securities market, significant price
and rate movements can take place that cannot be reflected in the futures
markets on a day-to-day basis.

RISKS OF TRANSACTIONS IN OPTIONS ON FINANCIAL FUTURES. In addition to the
risks which apply to all options transactions, there are several special risks
relating to options on futures. The ability to establish and close out positions
on such options will be subject to the maintenance of a liquid secondary market.
Compared to the sale of financial futures, the purchase of put options on
financial futures involves less potential risk to a series because the maximum
amount at risk is the premium paid for the options (plus transaction costs).
However, there may be circumstances when the purchase of a put option on a
financial future would result in a loss to a series when the sale of a financial
future would not, such as when there is no movement in the price of debt
securities.

An option position may be closed out only on an exchange which provides a
secondary market for an option of the same series. Although a series generally
will purchase only those options for which there appears to be an active
secondary market, there is no assurance that a liquid secondary market on an
exchange will exist for any particular option, or at any particular time, and
for some options, no secondary market on an exchange may exist. In such event,
it might not be possible to effect closing transactions in particular options,
with the result that a series would have to exercise its options in order to
realize any profit and would incur transaction costs upon the sale of underlying
securities pursuant to the exercise of put options.

Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options, (ii) restrictions may be imposed by an exchange on opening transactions
or closing transactions or both, (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities, (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange, (v) the facilities of an exchange
may not at all times be adequate to handle current trading volume or (vi) one or
more exchanges could, for economic or other reasons, decide or be compelled at
some future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that exchange (or in
that class or series of options) would cease to exist, although outstanding
options on that exchange could continue to be exercisable in accordance with
their terms.

B-20
<PAGE>
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain clearing facilities
inadequate, and thereby result in the institution by an exchange of special
procedures which may interfere with the timely execution of customers' orders.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

Each series may purchase tax-exempt securities on a when-issued or delayed
delivery basis. The payment obligation and the interest rate that will be
received on the tax-exempt securities are each fixed at the time the buyer
enters into the commitment. The purchase price for the security includes
interest accrued during the period between purchase and settlement and,
therefore, no interest accrues to the economic benefit of the series until
delivery and payment take place. Although a series will only purchase a
tax-exempt security on a when-issued or delayed delivery basis with the
intention of actually acquiring the securities, the series may sell these
securities before the settlement date if it is deemed advisable.

Tax-exempt securities purchased on a when-issued or delayed delivery basis
are subject to changes in market value based upon the public's perception of the
creditworthiness of the issuer and changes, real or anticipated, in the level of
interest rates (which will generally result in similar changes in value, I.E.,
experiencing both appreciation when interest rates decline and depreciation when
interest rates rise). Therefore, to the extent that a series remains
substantially fully invested at the same time that it has purchased securities
on a when-issued or delayed delivery basis, the market value of the series'
assets will vary to a greater extent than otherwise. Purchasing a tax-exempt
security on a when-issued or delayed delivery basis can involve a risk that the
yields available in the market when the delivery takes place may be higher than
those obtained on the security so purchased.

A segregated account of each series consisting of cash or other liquid
assets equal to the amount of the when-issued and delayed delivery commitments
will be established with the Fund's Custodian and marked to market daily, with
additional cash or other assets added when necessary. When the time comes to pay
for when-issued or delayed delivery securities, the series will meet their
respective obligations from then available cash flow, sale of securities held in
a separate account, sale of other securities or, although they would not
normally expect to do so, from the sale of the when-issued securities themselves
(which may have a value greater or less than the series' payment obligations).
The sale of securities to meet such obligations carries with it a greater
potential for the realization of capital gain, which is not exempt from state or
federal income taxes. See "Taxes, Dividends and Distributions."

Each series (other than the money market series) may also purchase municipal
forward contracts. A municipal forward contract is a municipal security which is
purchased on a when-issued basis with delivery taking place up to five years
from the date of purchase. No interest will accrue on the security prior to the
delivery date. The investment adviser will monitor the liquidity, value, credit
quality and delivery of the security under the supervision of the Trustees. The
Fund has obtained a ruling from Florida authorities that such municipal forward
contracts qualify as assets exempt from the Florida intangibles tax.

SEGREGATED ACCOUNTS

When a series is required to segregate assets in connection with certain
hedging transactions, it will maintain cash or other liquid assets in a
segregated account. "Liquid assets" means cash, U.S. Government securities,
equity securities (including foreign securities), debt obligations or other
liquid, unencumbered assets, marked-to-market daily.

PORTFOLIO TURNOVER

Portfolio transactions will be undertaken principally to accomplish a
series' objective in relation to anticipated movements in the general level of
interest rates but a series may also engage in short-term trading consistent
with its objective. Securities may be sold in anticipation of a market decline
(a rise in interest rates) or purchased in anticipation of a market rise (a
decline in interest rates) and later sold. In addition, a security may be sold
and another purchased at approximately the same time to take advantage of what
the investment adviser believes to be a temporary disparity in the normal yield
relationship between the two securities. Yield

B-21
<PAGE>
disparities may occur for reasons not directly related to the investment quality
of particular issues or the general movement of interest rates, due to such
factors as changes in the overall demand for or supply of various types of
tax-exempt securities or changes in the investment objectives of investors.

The Fund's investment policies may lead to frequent changes in investments,
particularly in periods of rapidly fluctuating interest rates. A change in
securities held by a series is known as portfolio turnover and may involve the
payment by the series of dealer mark-ups or underwriting commissions, and other
transaction costs on the sale of securities, as well as on the reinvestment of
the proceeds in other securities. Portfolio turnover rate for a fiscal year is
the ratio of the lesser of purchases or sales of portfolio securities to the
monthly average of the value of portfolio securities--excluding securities whose
maturities at acquisition were one year or less. A series' portfolio turnover
rate will not be a limiting factor when the Fund deems it desirable to sell or
purchase securities. For the fiscal year ended August 31, 1998, the portfolio
turnover rate of each series, other than the money market series, was as
follows:

<TABLE>
<CAPTION>
PORTFOLIO
SERIES TURNOVER RATE
- ----------------------------------------------------------------------------- --------------
<S> <C>
Florida...................................................................... 35%
Maryland..................................................................... 34%
Massachusetts................................................................ 33%
Michigan..................................................................... 29%
New Jersey................................................................... 18%
New York..................................................................... 33%
North Carolina............................................................... 27%
Ohio......................................................................... 30%
Pennsylvania................................................................. 13%
</TABLE>

ILLIQUID SECURITIES

A series may hold up to 15% (10% in the case of the money market series) of
its net assets in illiquid securities, including repurchase agreements which
have a maturity of longer than seven days, securities with legal or contractual
restrictions on resale (restricted securities) and securities that are not
readily marketable. Repurchase agreements subject to demand are deemed to have a
maturity equal to the notice period. Mutual funds do not typically hold a
significant amount of illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and a mutual fund might be
unable to dispose of illiquid securities promptly or at reasonable prices and
might thereby experience difficulty satisfying redemptions within seven days.

Securities of financially and operationally troubled obligors (distressed
securities) are less liquid and are more volatile than securities of companies
not experiencing financial difficulties. A series might have to sell portfolio
securities at a disadvantageous time or at a disadvantageous price in order to
maintain no more than 15% (or 10%) of its net assets in illiquid securities.

Municipal lease obligations will not be considered illiquid for purposes of
the series' limitation on illiquid securities provided the investment adviser
determines that there is a readily available market for such securities. In
reaching liquidity decisions, the investment adviser will consider, INTER ALIA,
the following factors: (1) the frequency of trades and quotes for the security,
(2) the number of dealers wishing to purchase or sell the security and the
number of other potential purchasers, (3) dealer undertakings to make a market
in the security, and (4) the nature of the security and the nature of the
marketplace trades (E.G., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of the transfer). With respect to
municipal lease obligations, the investment adviser also considers: (1) the
willingness of the municipality to continue, annually or biannually, to
appropriate funds for payment of the lease, (2) the general credit quality of
the municipality and the essentiality to the municipality of the property
covered by the lease, (3) in the case of unrated municipal lease obligations, an
analysis of factors similar to that performed by nationally recognized
statistical rating organizations in evaluating the credit quality of a municipal
lease obligation, including (i) whether the lease can be cancelled, (ii) if
applicable, what assurance there is that the assets represented by the lease can
be sold, (iii) the strength of the lessee's general credit (E.G., its debt,
administrative, economic and financial

B-22
<PAGE>
characteristics), (iv) the likelihood that the municipality will discontinue
appropriating funding for the leased property because the property is no longer
deemed essential to the operations of the municipality (E.G., the potential for
an event of non-appropriation) and (v) the legal recourse in the event of
failure to appropriate and (4) any other factors unique to municipal lease
obligations as determined by the investment adviser.

REPURCHASE AGREEMENTS

The series' repurchase agreements will be collateralized by U.S. Government
obligations. The series will enter into repurchase transactions only with
parties meeting creditworthiness standards approved by the Fund's Trustees. The
Fund's investment adviser will monitor the creditworthiness of such parties
under the general supervision of the Trustees. In the event of a default or
bankruptcy by a seller, the series will promptly seek to liquidate the
collateral. To the extent that the proceeds from any sale of such collateral
upon a default in the obligation to repurchase are less than the repurchase
price, the series will suffer a loss.

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

Except as described above and under "Investment Restrictions," the foregoing
investment policies are not fundamental and may be changed by the Trustees of
the Fund without the vote of a majority of its outstanding voting securities.

INVESTMENT RESTRICTIONS

The following restrictions are fundamental policies. Fundamental policies
are those which cannot be changed without the approval of the holders of a
majority of the outstanding voting securities of a series. A "majority of the
outstanding voting securities" of a series, when used in this Statement of
Additional Information, means the lesser of (i) 67% of the voting shares
represented at a meeting at which more than 50% of the outstanding voting shares
are present in person or represented by proxy or (ii) more than 50% of the
outstanding voting shares.

The Fund may not:

1. Purchase securities on margin, but the Fund may obtain such
short-term credits as may be necessary for the clearance of transactions.
For the purpose of this restriction, the deposit or payment by the Fund
(except with respect to the Connecticut Money Market Series, the
Massachusetts Money Market Series, the New York Money Market Series and the
New Jersey Money Market Series) of initial or maintenance margin in
connection with futures contracts or related options transactions is not
considered the purchase of a security on margin.

2. Make short sales of securities or maintain a short position.

3. Issue senior securities, borrow money or pledge its assets, except
that the Fund may on behalf of a series borrow up to 33 1/3% of the value of
its total assets (calculated when the loan is made) for temporary,
extraordinary or emergency purposes or for the clearance of transactions.
The Fund on behalf of a series may pledge up to 33 1/3% of the value of its
total assets to secure such borrowings. A series will not purchase portfolio
securities if its borrowings exceed 5% of the assets. For purposes of this
restriction, the preference as to shares of a series in liquidation and as
to dividends over all other series of the Fund with respect to assets
specifically allocated to that series, the purchase and sale of futures
contracts and related options, collateral arrangements with respect to
margin for futures contracts, the writing of related options (except with
respect to the Connecticut Money Market Series, the Massachusetts Money
Market Series, the New York Money Market Series and the New Jersey Money
Market Series) and obligations of the Fund to Trustees pursuant to deferred
compensation arrangements, are not deemed to be a pledge of assets or the
issuance of a senior security.

B-23
<PAGE>
4. Purchase any security if as a result, with respect to 75% of a
series' total assets (except with respect to the Connecticut Money Market
Series, the Florida Series, the Massachusetts Money Market Series and the
New Jersey Money Market Series), more than 5% of the total assets of any
series would be invested in the securities of any one issuer (provided that
this restriction shall not apply to obligations issued or guaranteed as to
principal and interest either by the U.S. Government or its agencies or
instrumentalities).

5. Buy or sell commodities or commodity contracts, or real estate or
interests in real estate, although it may purchase and sell financial
futures contracts and related options (except with respect to the
Connecticut Money Market Series, the Massachusetts Money Market Series, the
New York Money Market Series and the New Jersey Money Market Series),
securities which are secured by real estate and securities of companies
which invest or deal in real estate.

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

7. Invest in interests in oil, gas or other mineral exploration or
development programs.

8. Make loans, except through repurchase agreements.

For purposes of investment limitation number 4, the New York Money Market
Series' compliance with Investment Company Act Rule 2a-7's diversification
requirements is deemed to constitute compliance with the stated diversification
restriction, which reflects the requirements of Section 5(b)(1) of the
Investment Company Act.

Whenever any fundamental investment policy or investment restriction states
a maximum percentage of the Fund's assets, it is intended that if the percentage
limitation is met at the time the investment is made, a later change in
percentage resulting from changing total or net asset values will not be
considered a violation of such policy. However, in the event that the Fund's
asset coverage for borrowings falls below 300%, the Fund will take prompt action
to reduce its borrowings, as required by applicable law.

TRUSTEES AND OFFICERS

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS** (AGE) POSITION WITH FUND DURING PAST FIVE YEARS
- ----------------------------------- ------------------ ---------------------------------------------
<S> <C> <C>
Edward D. Beach (73).............. Trustee President and Director of BMC Fund, Inc., a
closed-end investment company; formerly, Vice
Chairman of Broyhill Furniture Industries,
Inc.; Certified Public Accountant;
Secretary and Treasurer of Broyhill Family
Foundation, Inc.; Member of the Board of
Trustees of Mars Hill College; Director of
The High Yield Income Fund, Inc.
Eugene C. Dorsey (71)............. Trustee Retired President, Chief Executive Officer
and Trustee of the Gannett Foundation (now
Freedom Forum); former Publisher of four
Gannett newspapers and Vice President of
Gannett Company; past Chairman of
Independent Sector (national coalition of
philanthropic organizations); former
Chairman of the American Council for the
Arts; former Director of the Advisory Board
of Chase Manhattan Bank of Rochester;
Director of and The High Yield Income Fund,
Inc. and First Financial Fund, Inc.
Delayne Dedrick Gold (60)......... Trustee Marketing and Management Consultant; Director
of The High Yield Income Fund, Inc.
</TABLE>

B-24
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS** (AGE) POSITION WITH FUND DURING PAST FIVE YEARS
- ----------------------------------- ------------------ ---------------------------------------------
<S> <C> <C>
*Robert F. Gunia (51) Trustee Vice President (since September 1997) of
Prudential Insurance Company of America;
Executive Vice President and Treasurer
(since December 1996) of Prudential
Investments Fund Management LLC (PIFM);
Senior Vice President (since March 1987) of
Prudential Securities Incorporated
(Prudential Securities); formerly Chief
Administrative Officer (July 1990-September
1996), Director (January 1989-September
1996) and Executive Vice President,
Treasurer and Chief Financial Officer (June
1987-September 1996) of Prudential Mutual
Fund Management, Inc.; Vice President and
Director of The Asia Pacific Fund, Inc.
(since May 1989); Director of The High
Yield Income Fund, Inc.
*Harry A. Jacobs, Jr. (77)......... Trustee Senior Director (since January 1986) of
One New York Plaza Prudential Securities; formerly Interim
New York, NY 10292 Chairman and Chief Executive Officer of
Prudential Mutual Fund Management, Inc.
(June-September 1993); formerly Chairman of
the Board of Prudential Securities
(1982-1985) and Chairman of the Board and
Chief Executive Officer of Bache Group Inc.
(1977-1982); Trustee of the Trudeau
Institute; Director of The First Australia
Fund, Inc., The First Australia Prime
Income Fund, Inc. and The High Yield Income
Fund.
*Mendel A. Melzer CFA (37)......... Trustee Chief Investment Officer (since October 1996)
751 Broad Street of Prudential Mutual Funds; formerly Chief
Newark, NJ 07102 Financial Officer of Prudential Investments
(November 1995-September 1996), Senior Vice
President and Chief Financial Officer
(April 1993-November 1995) of Prudential
Preferred Financial Services, Managing
Director (April 1991-April 1993) of
Prudential Investment Advisors and Senior
Vice President (July 1989-April 1991) of
Prudential Capital Corporation; Chairman
and Director of Prudential Series Fund,
Inc.; Director of The High Yield Income
Fund, Inc.
Thomas T. Mooney (56)............. Trustee President of the Greater Rochester Metro
Chamber of Commerce; formerly Rochester City
Manager; Trustee of Center for Governmental
Research, Inc.; Director of Blue Cross of
Rochester, The Business Counsel of New York
State, Executive Service Corps of
Rochester, Monroe County Water Authority,
Rochester Jobs, Inc., Monroe County
Industrial Development Corporation,
Northeast Midwest Institute, and The High
Yield Income Fund, Inc.; President,
Director and Treasurer of First Financial
Fund Inc. and The High Yield Plus Fund,
Inc.
</TABLE>

B-25
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS** (AGE) POSITION WITH FUND DURING PAST FIVE YEARS
- ----------------------------------- ------------------ ---------------------------------------------
<S> <C> <C>
Thomas H. O'Brien (73)............ Trustee President of O'Brien Associates (financial
and management consultants) (since April
1984); formerly President of Jamaica Water
Securities Corp. (holding company)
(February 1989-August 1990); Chairman and
Chief Executive Officer (September
1987-February 1989) and Director (September
1987-August 1990) of Jamaica Water Supply
Company; Director and President of Winthrop
Regional Health System and United
Presbyterian Home at Syoset Inc.; Director
of Ridgewood Savings Bank and The High
Yield Income Fund, Inc.; Trustee of Hofstra
University.
*Richard A. Redeker (55)........... President and Employee of Prudential Investments; formerly
751 Broad Street Trustee President, Chief Executive Officer and
Newark, NJ 07102 Director (October 1993-September 1996) of;
Executive Vice President, Director and
Member of Operating Committee (October
1993-September 1996), Prudential
Securities; Director (October
1993-September 1996), Prudential Securities
Group, Inc.; Executive Vice President
(January 1994-September 1996), The
Prudential Investment Corporation; Director
(January 1994-September 1996) of Prudential
Mutual Fund Distributors, Inc. and
Prudential Mutual Fund Services, Inc.;
prior thereto, Senior Executive Vice
President and Director of Kemper Financial
Services, Inc. (September 1978-September
1993); President and Director of The High
Yield Income Fund, Inc.
Nancy H. Teeters (68)............. Trustee Economist; formerly Vice President and Chief
Economist (March 1986-June 1990) of
International Business Machines
Corporation; Member of the Board of
Governors of the Federal Reserve System
(1984-1990) Director of Inland Steel
Industries (since July 1991) and The High
Yield Income Fund, Inc.
Louis A. Weil, III (57)........... Trustee Publisher and Chief Executive Officer (since
January 1996) and Director (since September
1991) of Central Newspapers, Inc.; Chairman
(since January 1996), Publisher and Chief
Executive Officer (August 1991-December
1995) of Phoenix Newspapers, Inc.; prior
thereto, Publisher of Time Magazine (May
1989-March 1991); President, Publisher and
Chief Executive Officer of The Detroit News
(February 1986-August 1989); formerly
member of the Advisory Board, Chase
Manhattan Bank-Westchester; Director of The
High Yield Income Fund, Inc.
</TABLE>

B-26
<PAGE>

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS** (AGE) POSITION WITH FUND DURING PAST FIVE YEARS
- ----------------------------------- ------------------ ---------------------------------------------
<S> <C> <C>
S. Jane Rose (52)................. Secretary Senior Vice President (since December 1996)
of PIFM; Senior Vice President and Senior
Counsel (since July 1992) of Prudential
Securities; formerly Senior Vice President
(January 1991-September 1996) and Senior
Counsel (June 1987-September 1996) of
Prudential Mutual Fund Management, Inc.
Grace Torres (39)................. Treasurer and First Vice President (since December 1996) of
Principal PIFM; First Vice President (since March 1994)
Financial and of Prudential Securities; formerly First
Accounting Vice President (March 1994-September 1996)
Officer of Prudential Mutual Fund Management, Inc.;
prior thereto Vice President (July
1989-March 1994) of Bankers Trust
Corporation.
Stephen M. Ungerman (45).......... Assistant Vice President and Tax Director (since March
Treasurer 1996) of Prudential Investments; formerly
First Vice President of Prudential Mutual
Fund Management, Inc. (February 1993-March
1996).
Deborah A. Docs (40).............. Assistant Vice President (since December 1996) of PIFM;
Secretary Vice President and Associate General Counsel
of Prudential Securities; formerly Vice
President and Associate General Counsel
(June 1991-September 1996) of Prudential
Mutual Fund Management, Inc.
David F. Connor (34).............. Secretary Assistant General Counsel (since March 1998)
of PIFM; Associate Attorney, Drinker Biddle &
Reath LLP prior thereto.
</TABLE>

- ------------------------
*"Interested" Trustee, as defined in the Investment Company Act, by reason of
his affiliation with Prudential Securities, Prudential or PIFM.
**Unless otherwise noted, the address for each of the above persons is c/o:
Prudential Investments Fund Management LLC, Gateway Center Three, 100 Mulberry
Street, 9th Floor, Newark, New Jersey 07102-4077.

Trustees and officers of the Fund are also Trustees, directors and officers
of some or all of the other investment companies distributed by Prudential
Securities or Prudential Investment Management Services LLC.

The officers conduct and supervise the daily business operations of the
Fund, while the Trustees, in addition to their functions set forth under
"Manager" and "Distributor," review such actions and decide on general policy.

The Trustees have adopted a retirement policy which calls for the retirement
of Trustees on December 31 of the year in which they reach the age of 72 except
that retirement is being phased in for Trustees who were age 68 or older as of
December 31, 1993. Under this phase-in provision, Messrs. Beach, Dorsey, Jacobs
and O'Brien are scheduled to retire on December 31, 1999, 1999, 1998 and 1999,
respectively.

The Fund pays each of its Trustees who is not an affiliated person of the
Manager or the Fund's investment adviser annual compensation of $6,500, in
addition to certain out-of-pocket expenses. Mr. Dorsey receives his Trustees'
fee pursuant to a deferred fee agreement with the Fund. Under the terms of the
agreement, the Fund accrues daily the amount of such Trustees' fees which accrue
interest at a rate equivalent to the prevailing rate applicable to 90-day U.S.
Treasury Bills at the beginning of each calendar quarter or, pursuant to a
Commission

B-27
<PAGE>
Exemptive order, at the daily rate of return of the Fund (the Fund rate).
Payment of the interest so accrued is also deferred and accruals become payable
at the option of the Trustee. The Fund's obligation to make payments of deferred
Trustees' fees, together with interest thereon, is a general obligation of the
Fund.

Pursuant to the terms of the Management Agreement with the Fund, the Manager
pays all compensation of officers and employees of the Fund as well as the fees
and expenses of all Trustees of the Fund who are affiliated persons of the
Manager.

The following table sets forth the aggregate compensation paid by the Fund
to the Trustees who are not affiliated with the Manager for the fiscal year
ended August 31, 1998 and the aggregate compensation paid to such Trustees for
service on the Fund's Board and that of all other funds managed by PIFM (Fund
Complex) for the calendar year ended December 31, 1997.

COMPENSATION TABLE

<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL COMPENSATION
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL FROM FUND AND FUND
COMPENSATION AS PART OF FUND BENEFITS UPON COMPLEX PAID TO
NAME AND POSITION FROM FUND EXPENSES RETIREMENT TRUSTEES
- ----------------------------------------------- -------------- ----------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Edward D. Beach, Trustee $ 6,500 None N/A $ 135,000(38/63)*
Eugene C. Dorsey, Trustee** $ 6,500 None N/A $ 70,000(16/43)*
Delayne Dedrick Gold, Trustee $ 6,500 None N/A $ 135,000(38/63)*
Robert F. Gunia, Trustee+ -- None N/A --
Harry A. Jacobs, Jr., Trustee+ -- None N/A --
Donald D. Lennox, Retired Trustee $ 6,500 None N/A $ 90,000(26/50)*
Mendel A. Melzer, Trustee+ -- None N/A --
Thomas T. Mooney, Trustee** $ 6,500 None N/A $ 115,000(31/64)*
Thomas H. O'Brien, Trustee $ 6,500 None N/A $ 45,000(11/29)*
Richard A. Redeker, Trustee+ -- None N/A --
Nancy H. Teeters, Trustee $ 6,500 None N/A $ 90,000(23/42)*
Louis A. Weil, III, Trustee $ 6,500 None N/A $ 90,000(26/50)*
</TABLE>

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

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

** Total compensation from all of the Funds in the Fund Complex for the calendar
year ended December 31, 1998, includes amounts deferred at the election of
Trustees under the Fund's deferred compensation plans. Including accrued
interest, total compensation amounted to $87,401 and $143,909 for Eugene C.
Dorsey and Thomas T. Mooney, respectively.

+ Robert F. Gunia, Harry A. Jacobs, Jr., Mendel A. Melzer and Richard A.
Redeker, who are each interested Trustees, do not receive compensation from
the Fund or any other fund in the Fund Complex.

As of October 9, 1998, the Trustees and officers of the Fund, as a group,
owned beneficially less than 1% of the outstanding shares of beneficial interest
of each series of the Fund.

As of October 9, 1998, the beneficial owners, directly or indirectly, of
more than 5% of the outstanding shares of any class of beneficial interest of a
Series were those listed in Appendix IV.

B-28
<PAGE>
As of October 9, 1998, Prudential Securities was the record holder for other
beneficial owners of the following shares of the series, representing the
percentage shown of the outstanding shares of each such series:

<TABLE>
<CAPTION>
SERIES CLASS A CLASS B CLASS C CLASS Z
------------------------- ---------------------- ---------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Florida.................. 5,866,381 (72%) 1,821,654 (85%) 606,754 (87%) 30,085 (99.9%)
Maryland................. 747,871 (47%) 531,533 (52%) 9,970 (92%) N/A
Massachusetts............ 1,461,488 (57%) 645,801 (49%) 13,265 (83%) 2,289 (99%)
Michigan................. 1,003,651 (41%) 759,645 (42%) 32,804 (78%) N/A
New Jersey............... 8,384,028 (78%) 7,180,147 (75%) 109,786 (88%) 8,408 (99.7%)
New York................. 8,915,140 (61%) 5,121,277 (67%) 83,908 (81%) 37,894 (93%)
North Carolina........... 1,768,911 (68%) 1,340,476 (73%) 2,421 (95%) N/A
Ohio..................... 2,149,384 (51%) 1,177,664 (43%) 12,202 (80%) N/A
Pennsylvania............. 4,663,116 (50%) 4,079,640 (39%) 72,397 (71%) N/A
</TABLE>

As of October 9, 1998, Prudential Securities was the record holder for other
beneficial owners of 80,722,672 shares (or 99% of those outstanding) of the
Connecticut Money Market Series, 55,955,115 shares (or 99.7% of those
outstanding) of the Massachusetts Money Market Series, 198,475,241 shares (or
99% of those outstanding) of the New Jersey Money Market Series and 398,651,128
shares (or 99.6% of those outstanding) of the New York Money Market Series. In
the event of any meetings of shareholders, Prudential Securities will forward,
or cause the forwarding of, proxy materials to the beneficial owners for which
it is the record holder.

MANAGER

The manager of the Fund is Prudential Investments Fund Management LLC (PIFM
or the Manager), Gateway Center Three, 100 Mulberry Street, Newark, New Jersey
07102-4077. PIFM serves as manager to all of the other open-end management
investment companies that, together with the Fund, comprise the Prudential
Mutual Funds. See "How the Fund is Managed--Manager" in the Prospectus of each
series. As of September 30, 1998, PIFM managed and/or administered open-end and
closed-end management investment companies with assets of approximately $67
billion. According to the Investment Company Institute, as of March 31, 1998,
the Prudential Mutual Funds were the 18th largest family of mutual funds in the
United States.

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

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

For its services, PIFM receives, pursuant to the Management Agreement, a fee
at an annual rate of .50 of 1% of the average daily net assets of each series.
The fee is computed daily and payable monthly. The Management Agreement also
provides that, in the event the expenses of the Fund (including the fees of
PIFM, but excluding interest, taxes, brokerage commissions, distribution fees
and litigation and indemnification expenses and other extraordinary expenses not
incurred in the ordinary course of the Fund's business) for any fiscal year
exceed the lowest applicable annual expense limitation established and enforced
pursuant to the statutes or regulations of any jurisdiction in which the Fund's
shares are qualified for offer and sale, the compensation due PIFM

B-29
<PAGE>
will be reduced by the amount of such excess. Reductions in excess of the total
compensation payable to PIFM will be paid by PIFM to the Fund. No such
reductions were required during the fiscal year ended August 31, 1998.

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

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

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

(c) the costs and expenses payable to The Prudential Investment Corporation
(PIC, the Subadviser or the investment adviser), pursuant to the subadvisory
agreement between PIFM and PIC (the Subadvisory Agreement).

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

The Management Agreement also provides that PIFM will not be liable for any
error of judgment or for any loss suffered by the Fund in connection with the
matters to which the Management Agreement relates, except a loss resulting from
willful misfeasance, bad faith, gross negligence or reckless disregard of duty.
The Management Agreement provides that it will terminate automatically if
assigned, and that it may be terminated without penalty by either party upon not
more than 60 days' nor less than 30 days' written notice. The Management
Agreement will continue in effect for a period of more than two years from the
date of execution only so long as such continuance is specifically approved at
least annually in conformity with the Investment Company Act. The Management
Agreement was last approved by the Trustees of the Fund, including a majority of
the Trustees who are not parties to such contract or interested persons of any
such party as defined in the Investment Company Act, on May 12, 1998 and by
shareholders of each series of the Fund then in existence on December 28, 1988,
by shareholders of the Florida Series and the New Jersey Money Market Series on
December 30, 1991, by the shareholders of the Connecticut Money Market Series
and the Massachusetts Money Market Series on November 10, 1992.

B-30
<PAGE>
The amount of the management fee paid by each series of the Fund to PIFM for
the fiscal years ended August 31, 1996 ,1997 and 1998 was as follows:

<TABLE>
<CAPTION>
1996 1997 1998
--------------------- --------------------- -----------------
MANAGEMENT FEES MANAGEMENT FEES MANAGEMENT FEES
--------------------- --------------------- -----------------
PAID WAIVED PAID WAIVED PAID
---------- --------- ---------- --------- -----------------
<S> <C> <C> <C> <C> <C>
Municipal Series Fund:
Connecticut Money Market Series....................... $ 93,220 $ 279,660 $ 96,876 $ 290,624 $ 423,998
Florida Series........................................ 247,835 417,808 368,602 245,735 596,439
Maryland Series....................................... 172,913 19,213 158,091 17,566 160,201
Massachusetts Series.................................. 242,474 26,941 222,502 24,722 231,959
Massachusetts Money Market Series..................... 68,361 205,083 66,348 199,044 277,698
Michigan Series....................................... 302,058 33,562 275,401 30,600 280,830
New Jersey Series..................................... 1,162,663 266,868 1,140,799 126,755 1,184,566
New Jersey Money Market Series........................ 877,965 85,123 981,113 -- 993,236
New York Series....................................... 1,447,226 160,803 1,338,809 148,756 1,401,539
New York Money Market Series.......................... 1,682,136 -- 1,630,461 -- 1,867,472
North Carolina Series................................. 284,859 31,651 255,716 28,413 265,541
Ohio Series........................................... 491,452 54,606 437,408 46,601 445,394
Pennsylvania Series................................... 1,127,704 125,300 1,046,806 116,312 1,110,102
</TABLE>

PIFM discontinued its management fee waiver with respect to each applicable
Series effective September 1, 1997.

PIFM has entered into the Subadvisory Agreement with the Subadviser. The
Subadvisory Agreement provides that the Subadviser will furnish investment
advisory services in connection with the management of the Fund. In connection
therewith, the Subadviser is obligated to keep certain books and records of the
Fund. PIFM continues to have responsibility for all investment advisory services
pursuant to the Management Agreement and supervises the Subadviser's performance
of such services. The Subadviser is reimbursed by PIFM for the reasonable costs
and expenses incurred by the Subadviser in furnishing those services.

Peter Allegrini oversees the municipal bond team at the Subadviser. He also
serves as the portfolio manager of the High Yield Series of Prudential Municipal
Bond Fund. He has been in the investment business since 1978.

The Subadvisory Agreement was last approved by the Trustees, including a
majority of the Trustees who are not parties to the contract or interested
persons of any such party as defined in the Investment Company Act, on May 12,
1998, by shareholders of each series of the Fund then in existence on December
28, 1988, by shareholders of the Florida Series and the New Jersey Money Market
Series on December 30, 1991, by shareholders of the Connecticut Money Market
Series and the Massachusetts Money Market Series on November 10, 1992.

The Subadvisory Agreement provides that it will terminate in the event of
its assignment (as defined in the Investment Company Act) or upon the
termination of the Management Agreement. The Subadvisory Agreement may be
terminated by the Fund, PIFM or the Subadviser upon not more than 60 days', nor
less than 30 days', written notice. The Subadvisory Agreement provides that it
will continue in effect for a period of more than two years from its execution
only so long as such continuance is specifically approved at least annually in
accordance with the requirements of the Investment Company Act.

The Subadviser maintains a credit unit which provides credit analysis and
research on both tax-exempt and taxable fixed-income securities. The portfolio
managers routinely consult with the credit unit in managing the Fund's
portfolios. The credit unit reviews on an ongoing basis issuers of tax-exempt
and taxable fixed-income obligations, including prospective purchases and
portfolio holdings of the Fund. Credit analysts have broad access to research
and financial reports, data retrieval services and industry analysts.

With respect to tax-exempt issuers, credit analysts review financial and
operating statements supplied by state and local governments and other issuers
of municipal securities to evaluate revenue projections and the financial
soundness of municipal issuers. They study the impact of economic and political
developments on state and local governments, evaluate industry sectors and meet
periodically with public officials and other

B-31
<PAGE>
representatives of state and local governments and other tax-exempt issuers to
discuss such matters as budget projections, debt policy, the strength of the
regional economy and, in the case of revenue bonds, the demand for facilities.
They also make site inspections to review specified projects and to evaluate the
progress of construction or the operation of a facility.

DISTRIBUTOR

Prudential Investment Management Services LLC (PIMS or the Distributor),
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, acts
as the distributor of the shares of the Fund. Prior to June 1, 1998, Prudential
Securities Incorporated (Prudential Securities), was the Fund's distributor.

Pursuant to separate Distribution and Service Plans (the Class A Plan, the
Class B Plan and the Class C Plan, collectively, the Plans) adopted by the Fund
under Rule 12b-1 under the Investment Company Act and separate distribution
agreements for the money market series and the other series (the Distribution
Agreements), the Distributor incurs the expenses of distributing shares of the
money market series and the Fund's Class A, Class B and Class C shares. The
Distributor also incurs the expenses of distributing the Fund's Class Z shares
under the Distribution Agreement, none of which is reimbursed by or paid for by
the Fund. See "How the Fund is Managed--Distributor" in each series' Prospectus.

Prior to January 22, 1990, the non-money market series of the Fund offered
only one class of shares (the then existing Class B shares). On October 19,
1989, the Trustees, including a majority of the Trustees who are not interested
persons of the Fund and who have no direct or indirect financial interest in the
operation of the Class A or Class B Plan or in any agreement related to any one
of the Plans (the Rule 12b-1 Trustees), at a meeting called for the purpose of
voting on the Class A and Class B Plans, adopted a new plan of distribution for
the Class A shares of the Fund (the Class A Plan) and approved an amended and
restated plan of distribution with respect to the Class B shares of the Fund
(the Class B Plan). On May 6, 1993, the Trustees, including a majority of the
Rule 12b-1 Trustees, at a meeting called for the purpose of voting on each Plan,
approved the continuance of the Plans and Distribution Agreements and approved
modifications of the Fund's Class A and Class B Plans and Distribution
Agreements to conform them with recent amendments to the National Association of
Securities Dealers, Inc. (NASD) maximum sales charge rule described below. As so
modified, the Class A Plan provides that (i) up to .25 of 1% of the average
daily net assets of the Class A shares may be used to pay for personal service
and/or the maintenance of shareholder accounts (service fee) and (ii) total
distribution fees (including the service fee of .25 of 1%) may not exceed .30 of
1%. As so modified, the Class B Plan provides that (i) up to .25 of 1% of the
average daily net assets of the Class B shares may be paid as a service fee and
(ii) up to .50 of 1% (including the service fee) of the average daily net assets
of the Class B shares (asset-based sales charge) may be used as reimbursement
for distribution-related expenses with respect to the Class B shares. Total
distribution fees (including the service fee of .25 of 1%) may not exceed .50 of
1%. On May 6, 1993, the Trustees, including a majority of the Rule 12b-1
Trustees, at a meeting called for the purpose of voting on the Plans, adopted a
plan of distribution for the Class C shares and approved further amendments to
the plans of distribution for the Fund's Class A and Class B shares changing
them from reimbursement type plans to compensation type plans. Also on May 6,
1993, the Trustees, including a majority of the Rule 12b-1 Trustees, approved a
plan of distribution (the Florida Series' Class C Plan) for the Florida Series'
Class C shares. The Plans were last approved by the Trustees, including a
majority of the Rule 12b-1 Trustees, on May 12, 1998. The Class A Plan, as
previously amended, was approved by Class A and Class B shareholders, the Class
B Plan was approved by Class B shareholders and the Class C Plan was approved by
the Class C shareholders on July 19, 1994. The Florida Series' Class C Plan was
approved by the sole shareholder of the Class C shares of the Florida Series on
June 30, 1993. The Class B Plan was approved by the sole shareholder of the
Florida Series' Class B shares on August 1, 1994 and of the other series having
Class C shares on August 1, 1994.

Prior to June 1, 1998, Prudential Securities Incorporated (Prudential
Securities) acted as the distributor of the shares of the Fund. On May 12, 1998,
the Trustees, including a majority of the Rule 12b-1 Trustees, at a meeting
called for the purpose of voting on each Plan and the Distribution Agreement,
adopted a new distribution agreement and an amendment to the Class A, Class B
and Class C Plans, effective June 1, 1998, under which the responsibility for
distribution was transferred from Prudential Securities to the Distributor.

B-32
<PAGE>
CLASS A PLAN. For the fiscal year ended August 31, 1998, Prudential
Securities, as the predecessor distributor, and the Distributor received the
following payments under the Class A Plan:

<TABLE>
<CAPTION>
SERIES
- ----------------------------------------------------------------------------
<S> <C>
Florida..................................................................... $ 90,437
Maryland.................................................................... 18,857
Massachusetts............................................................... 29,031
Michigan.................................................................... 30,330
New Jersey.................................................................. 107,206
New York.................................................................... 174,485
North Carolina.............................................................. 29,617
Ohio........................................................................ 51,082
Pennsylvania................................................................ 96,053
</TABLE>

This amount was primarily expended for payment of account servicing fees to
financial advisers and other persons who sell Class A shares. For the fiscal
year ended August 31, 1998, Prudential Securities, as the predecessor
distributor, and the Distributor received approximate initial sales charges with
respect to the sale of Class A shares as follows:

<TABLE>
<CAPTION>
SERIES
- ----------------------------------------------------------------------------
<S> <C>
Florida..................................................................... $ 55,400
Maryland.................................................................... 10,600
Massachusetts............................................................... 9,000
Michigan.................................................................... 12,700
New Jersey.................................................................. 116,700
New York.................................................................... 24,600
North Carolina.............................................................. 7,000
Ohio........................................................................ 7,300
Pennsylvania................................................................ 33,300
</TABLE>

CLASS B PLAN. For the fiscal year ended August 31, 1998, Prudential
Securities, as the predecessor distributor, and the Distributor received the
distribution fees paid by the following series of the Fund and the proceeds of
contingent deferred sales charges paid by investors on the redemption of Class B
shares as set forth below:

<TABLE>
<CAPTION>
APPROXIMATE
CONTINGENT
AMOUNT OF DEFERRED
SERIES FEE SALES CHARGES
- ---------------------------------------------------------------- ----------- -------------
<S> <C> <C>
Florida......................................................... $ 105,768 $ 47,200
Maryland........................................................ 64,796 18,700
Massachusetts................................................... 86,264 37,000
Michigan........................................................ 125,802 29,500
New Jersey...................................................... 641,910 111,500
New York........................................................ 523,267 143,000
North Carolina.................................................. 117,300 24,500
Ohio............................................................ 189,240 72,300
Pennsylvania.................................................... 626,532 116,600
</TABLE>

B-33
<PAGE>
For fiscal year ended August 31, 1998, it is estimated that Prudential
Securities, as the predecessor distributor, and the Distributor spent
approximately the following amounts:

<TABLE>
<CAPTION>
COMPENSATION APPROXIMATE
PRINTING AND COMMISSION TO PRUSEC* FOR TOTAL
MAILING PAYMENTS TO COMMISSION AMOUNT
PROSPECTUSES FINANCIAL PAYMENTS TO SPENT BY
TO OTHER ADVISERS OF OVERHEAD COSTS REPRESENTATIVES DISTRIBUTOR
THAN CURRENT PRUDENTIAL OF PRUDENTIAL AND OTHER ON BEHALF OF
SERIES SHAREHOLDERS SECURITIES SECURITIES** EXPENSES** SERIES
- -------------------- ------------ ----------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Florida............. $ 1,300 $ 119,000 $ 118,700 $ 3,800 $ 292,800
Maryland............ 500 41,000 24,700 2,000 68,200
Massachusetts....... 700 36,800 12,500 6,500 56,500
Michigan............ 900 52,200 19,800 22,800 95,700
New Jersey.......... 6,800 47,000 183,400 393,900 631,100
New York............ 7,134 105,180 391,493 55,064 558,871
North Carolina...... 3,100 51,700 27,000 9,500 91,300
Ohio................ 1,853 98,455 23,902 39,036 163,246
Pennsylvania........ 7,500 120,600 143,300 268,600 540,000
</TABLE>

- ------------------------------
*Pruco Securities Corporation, an affiliated broker-dealer.

**Including lease, utility and sales promotional expenses.

The term "overhead costs" represents (a) the expenses of operating the
branch offices of Prudential Securities and Prusec in connection with the sale
of Fund shares, including lease costs, the salaries and employee benefits of
operations and sales support personnel, utility costs, communication costs and
the costs of stationery and supplies, (b) the cost of client sales seminars, (c)
expenses of mutual fund sales coordinators to promote the sale of Fund shares
and (d) other incidental expenses relating to branch promotion of Fund sales.

The amount of distribution expenses reimbursable by the Fund with respect to
Class B shares is reduced by the amount of such contingent deferred sales
charges with respect to redemptions of such shares.

CLASS C PLAN. For the fiscal year ended August 31, 1998, Prudential
Securities, as the predecessor distributor, and the Distributor received the
distribution fees paid by the following series of the Fund under the Class C
Plan and the proceeds of contingent deferred sales charges paid by investors on
the redemption of shares as set forth below:

<TABLE>
<CAPTION>
APPROXIMATE
CONTINGENT
AMOUNT OF DEFERRED
SERIES FEE SALES CHARGES
- ------------------------------------------------------------------ --------- -------------
<S> <C> <C>
Florida........................................................... $ 54,935 $ 0
Maryland.......................................................... 671 0
Massachusetts..................................................... 757 500
Michigan.......................................................... 3,140 0
New Jersey........................................................ 9,552 300
New York.......................................................... 7,268 2,000
North Carolina.................................................... 234 0
Ohio.............................................................. 1,116 100
Pennsylvania...................................................... 4,956 100
</TABLE>

Distribution fees were expended primarily for payment of account servicing
fees.

Pursuant to Rule 12b-1, the Plans and the money market series' Plan of
Distribution (collectively, the Plans) were last approved by the Trustees of the
Fund, including the Rule 12b-1 Trustees, at a meeting called for the purpose of
voting on the Plans on May 12, 1998.

The Plans provide that they shall continue in effect from year to year with
respect to each series, provided such continuance is approved at least annually
by a vote of the Trustees, including a majority vote of the Rule 12b-1 Trustees,
cast in person at a meeting called for the purpose of voting on such
continuance. Each Plan may be terminated at any time, without penalty, by vote
of a majority of the Rule 12b-1 Trustees or by a vote of the holders of a
majority of the outstanding shares of the applicable class on not more than 60
days' nor less

B-34
<PAGE>
than 30 days' written notice to any other party to the Plans. The Plans may not
be amended to increase materially the amount to be spent for the services
described therein without approval of the shareholders of the applicable class
(by both Class A and Class B shareholders, voting separately, in the case of
material amendments to the Class A Plan), and all material amendments are
required to be approved by the Trustees in the manner described above. Each Plan
will automatically terminate in the event of its assignment. The Fund will not
be contractually obligated to pay expenses incurred under any Plan if it is
terminated or not continued.

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

Pursuant to each Distribution Agreement, the Fund has agreed to indemnify
the Distributor to the extent permitted by applicable law against certain
liabilities under federal securities laws. The Distribution Agreements were last
approved by the Trustees, including a majority of the Rule 12b-1 Trustees, on
May 12, 1998.

The Connecticut Money Market, Massachusetts Money Market, New Jersey Money
Market, and the New York Money Market Series' Plan of Distribution (the Money
Market Plan) was last approved by the Trustees of the Fund, including a majority
of the Rule 12b-1 Trustees, at a meeting called for the purpose of voting on the
Money Market Plan, on May 12, 1998. The Money Market Plan was approved by
shareholders of the New York Money Market Series on December 28, 1988, by
shareholders of the New Jersey Money Market Series on December 30, 1991 and by
shareholders of the Connecticut Money Market Series and Massachusetts Money
Market Series on November 10, 1992. For the fiscal year ended August 31, 1998,
Prudential Securities, as the predecessor distributor, and the Distributor
incurred distribution expenses with respect to the money market series, all of
which were recovered by Prudential Securities and the Distributor through the
distribution fee paid by the series, as follows:

<TABLE>
<CAPTION>
SERIES
- -------------------------------------------------------------------------
<S> <C>
Connecticut Money Market................................................. $ 105,999
Massachusetts Money Market............................................... 69,425
New Jersey Money Market.................................................. 248,309
New York Money Market.................................................... 466,868
</TABLE>

NASD MAXIMUM SALES CHARGE RULE. Pursuant to rules of the NASD, the
Distributor is required to limit aggregate initial sales charges, deferred sales
charges and asset-based sales charges to 6.25% of total gross sales of each
class of shares. Interest charges on unreimbursed distribution expenses equal to
the prime rate plus one percent per annum may be added to the 6.25% limitation.
Sales from the reinvestment of dividends and distributions are not included in
the calculation of the 6.25% limitation. The annual asset-based sales charge on
shares of a series may not exceed .75 of 1% per class. The 6.25% limitation
applies to each class of a series of the Fund rather than on a per shareholder
basis. If aggregate sales charges were to exceed 6.25% of total gross sales of
any class of any series, all sales charges on shares of that class would be
suspended.

PORTFOLIO TRANSACTIONS AND BROKERAGE

The Manager is responsible for decisions to buy and sell securities and
futures and options thereon for each series of the Fund, the selection of
brokers, dealers and futures commission merchants to effect the transactions and
the negotiation of brokerage commissions. The term "Manager" as used in this
section includes the Subadviser. Purchases and sales of securities on a
securities exchange, which are not expected to be a significant portion of the
portfolio securities of any series, are effected through brokers who charge a
commission for their services. Broker-dealers may also receive commissions in
connection with options and futures transactions, including the purchase and
sale of underlying securities upon the exercise of options. Orders may be
directed to any broker or futures commission merchant including, to the extent
and in the manner permitted by applicable law, Prudential Securities and its
affiliates. Brokerage commissions on United States securities, options and
futures exchanges or boards of trade are subject to negotiation between the
Manager and the broker or futures commission merchant.

B-35
<PAGE>
In the over-the-counter market, securities are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission, although the price of the security usually includes a profit to the
dealer. In underwritten offerings, securities are purchased at a fixed price
which includes an amount of compensation to the underwriter, generally referred
to as the underwriter's concession or discount. On occasion, certain money
market instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid. The Fund will not deal with Prudential
Securities in any transaction in which Prudential Securities (or any affiliates)
acts as principal except in accordance with rules of the Commission. Thus it
will not deal in the over-the-counter market with Prudential Securities acting
as a market-maker, and it will not execute a negotiated trade with Prudential
Securities if execution involves Prudential Securities' acting as principal with
respect to any part of the Fund's order.

In placing orders for portfolio securities for each series of the Fund, the
Manager is required to give primary consideration to obtaining the most
favorable price and efficient execution. The Manager seeks to effect each
transaction at a price and commission, if any, that provides the most favorable
total cost or proceeds reasonably attainable in the circumstances. Within the
framework of this policy, the Manager will consider the research and investment
services provided by brokers, dealers or futures commission merchants who effect
or are parties to portfolio transactions of the Fund, the Manager or the
Manager's other clients. Such research and investment services are those which
brokerage houses customarily provide to institutional investors and include
statistical and economic data and research reports on particular companies and
industries. Such services are used by the Manager in connection with all of its
investment activities, and some of such services obtained in connection with the
execution of transactions for the Fund may be used in managing other investment
accounts. Conversely, brokers, dealers or futures commission merchants
furnishing such services may be selected for the execution of transactions of
such other accounts, whose aggregate assets are far larger than the Fund, and
the services furnished by such brokers, dealers or futures commission merchants
may be used by the Manager in providing investment management for the Fund.
Commission rates are established pursuant to negotiations with the broker based
on the quality and quantity of execution services provided by the broker, dealer
or futures commission merchant in the light of generally prevailing rates. The
Manager's policy is to pay higher commissions to brokers, other than Prudential
Securities, for particular transactions than might be charged if a different
broker had been selected, on occasions when, in the Manager's opinion, this
policy furthers the objective of obtaining best price and execution. The Manager
is authorized to pay higher commissions on brokerage transactions for the Fund
to brokers other than Prudential Securities in order to secure the research and
investment services described above, subject to review by the Fund's Trustees
from time to time as to the extent and continuation of this practice. The
allocation of orders among brokers and the commission rates paid are reviewed
periodically by the Fund's Trustees. Portfolio securities may not be purchased
from any underwriting or selling syndicate of which Prudential Securities (or
any affiliate), during the existence of the syndicate, is a principal
underwriter (as defined in the Investment Company Act), except in accordance
with rules of the Commission. This limitation, in the opinion of the Fund, will
not significantly affect the series' ability to pursue their present investment
objectives. However, in the future in other circumstances, the series may be at
a disadvantage because of this limitation in comparison to other funds with
similar objectives but not subject to such limitations.

Subject to the above considerations, Prudential Securities may act as a
broker or futures commission merchant for the Fund. In order for Prudential
Securities (or any affiliate) to effect any portfolio transactions for the Fund,
the commissions, fees or other remuneration received by Prudential Securities
(or any affiliate) must be reasonable and fair compared to the commissions, fees
or other remuneration paid to other brokers or futures commission merchants in
connection with comparable transactions involving similar securities or futures
contracts being purchased or sold on an exchange or board of trade during a
comparable period of time. This standard would allow Prudential Securities (or
any affiliate) to receive no more than the remuneration which would be expected
to be received by an unaffiliated broker or futures commission merchant in a
commensurate arm's-length transaction. Furthermore, the Trustees of the Fund,
including a majority of the non-interested Trustees, have adopted procedures
which are reasonably designed to provide that any commissions, fees or other
remuneration paid to Prudential Securities (or any affiliate) are consistent
with the foregoing standard. In accordance with Section 11(a) of the Securities
Exchange Act of 1934, as amended, Prudential Securities may not retain
compensation for effecting transactions on a national securities exchange

B-36
<PAGE>
for the Fund unless the Fund has expressly authorized the retention of such
compensation. Prudential Securities must furnish to the Fund at least annually a
statement setting forth the total amount of all compensation retained by
Prudential Securities from transactions effected for the Fund during the
applicable period. Brokerage and futures transactions with Prudential Securities
(or any affiliate) are also subject to such fiduciary standards as may be
imposed upon Prudential Securities (or such affiliate) by applicable law.

During the fiscal years ended August 31, 1998, 1997 and 1996, the Series
paid brokerage commissions on certain options and futures transactions as set
forth below. During these periods, the Series paid no brokerage commissions to
Prudential Securities.

<TABLE>
<CAPTION>
BROKERAGE COMMISSIONS
-------------------------------
SERIES 1998 1997 1996
- ---------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Connecticut Money Market.................................................... $ 0 $ 0 $ 0
Florida..................................................................... 7,000 8,890 7,438
Maryland.................................................................... 1,540 2,678 3,413
Massachusetts............................................................... 2,625 2,205 3,413
Massachusetts Money Market.................................................. 0 0 0
Michigan.................................................................... 2,888 3,167 4,498
New Jersey.................................................................. 3,675 23,539 15,839
New Jersey Money Market..................................................... 0 0 0
New York.................................................................... 19,968 23,240 22,540
New York Money Market....................................................... 0 0 0
North Carolina.............................................................. 2,599 5,058 6,651
Ohio........................................................................ 7,333 4,620 9,468
Pennsylvania................................................................ 18,445 20,991 20,685
</TABLE>

PURCHASE AND REDEMPTION OF FUND SHARES

Shares of each series of the Fund, other than the money market series, may
be purchased at a price equal to the next determined net asset value per share
(NAV) plus a sales charge which, at the election of the investor, may be imposed
either at the time of purchase, on a deferred basis or both. Class A shares are
sold with a front-end sales charge. Class B shares are subject to a contingent
deferred sales charge. Class C shares are sold with a low front-end sales
charge, but are also subject to a contingent deferred sales charge. Class Z
shares of the Florida Series, the Massachusetts Series, the New Jersey Series
and the New York Series are offered to a limited group of investors at NAV
without any sales charges. See "Shareholder Guide--How to Buy Shares of the
Fund" in each series' Prospectus.

Each class of shares represents an interest in the same portfolio of
investments of the series and has the same rights, except that (i) each class is
subject to different sales charges and distribution and/or service fees (except
for Class Z shares, which are not subject to any sales charges and distribution
and/or service fees), which may affect performance, (ii) each class has
exclusive voting rights on any matter submitted to shareholders that relates
solely to its arrangement and has separate voting rights on any matter submitted
to shareholders in which the interests of one class differ from the interests of
any other class, (iii) each class has a different exchange privilege, (iv) only
Class B shares have a conversion feature and (v) Class Z shares are offered
exclusively for sale to a limited group of investors. See "Distributor" and
"Shareholder Investment Account-- Exchange Privilege."

For a description of the methods of purchasing shares of the Connecticut
Money Market Series, the Massachusetts Money Market Series, the New Jersey Money
Market Series or the New York Money Market Series, see "Shareholder Guide--How
to Buy Shares of the Fund" in the money market series' Prospectuses.

ISSUANCE OF FUND SHARES FOR SECURITIES

Transactions involving the issuance of Fund shares for securities (rather
than cash) will be limited to (i) reorganizations, (ii) statutory mergers, or
(iii) other acquisitions of portfolio securities that: (a) meet the

B-37
<PAGE>
investment objectives and policies of the Fund, (b) are liquid and not subject
to restrictions on resale, (c) have a value that is readily ascertainable via
listing on or trading in a recognized United States or international exchange or
market, and (d) are approved by the Fund's investment adviser.

SPECIMEN PRICE MAKE-UP

Under the current distribution arrangements between the Fund and the
Distributor, Class A shares are sold at a maximum sales charge of 3%, Class C
shares* are sold with a front-end sales charge of 1%, and Class B* and Class Z
shares are sold at NAV. Using the NAV at August 31, 1998 of each series
currently in existence (other than the Connecticut Money Market Series, the
Massachusetts Money Market Series, the New Jersey Money Market Series and the
New York Money Market Series), the maximum offering price of the series' shares
was as follows:

<TABLE>
<CAPTION>
CLASS A FL MD MA MI NJ NY NC OH PA
- ---------------------------------------- ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value and redemption price per
Class A share.......................... $10.74 $11.34 $11.90 $12.37 $11.31 $12.30 $11.69 $12.31 $10.92
Maximum initial sales charge (3% of
offering price)........................ .33 .35 .37 .38 .35 .38 .36 .38 .34
------ ------ ------ ------ ------ ------ ------ ------ ------
Offering price to public................ $11.07 $11.69 $12.27 $12.75 $11.66 $12.68 $12.05 $12.69 $11.26
------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------

CLASS B FL MD MA MI NJ NY NC OH PA
- ---------------------------------------- ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, redemption price and
offering price to public per Class B
share*................................. $10.74 $11.36 $11.89 $12.36 $11.31 $12.30 $11.69 $12.32 $10.92
------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------
<CAPTION>

CLASS C FL MD MA MI NJ NY NC OH PA
- ---------------------------------------- ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value and redemption price per
Class C share*......................... $10.74 $11.36 $11.89 $12.36 $11.31 $12.30 $11.69 $12.32 $10.92
Maximum initial sales charge (1% of
offering price)**...................... .11 .11 .12 .12 .11 .12 .12 .12 .11
------ ------ ------ ------ ------ ------ ------ ------ ------
Offering price to public................ $10.85 $11.47 $12.01 $12.48 $11.42 $12.42 $11.81 $12.44 $11.03
------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------
<CAPTION>

CLASS Z FL MA NJ NY
- ---------------------------------------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, redemption price and
offering price to public per Class Z
share.................................. $10.73 $11.89 $11.32 $12.31
------ ------ ------ ------
------ ------ ------ ------
</TABLE>

- ------------------------
*Class B and Class C shares are subject to a contingent deferred sales charge
on certain redemptions. See "Shareholder Guide--How to Sell Your
Shares--Contingent Deferred Sales Charges" in the Prospectus of each
applicable series.
**Prior to November 2, 1998, Class C shares were sold without an initial sales
charge.

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

COMBINED PURCHASE AND CUMULATIVE PURCHASE PRIVILEGE. If an investor or
eligible group of related investors purchases Class A shares of the Fund
concurrently with Class A shares of other series of the Fund or other Prudential
Mutual Funds, the purchases may be combined to take advantage of the reduced
sales charges applicable to larger purchases. See the table of breakpoints under
"Shareholder Guide--Alternative Purchase Plan" in the applicable Prospectus.

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

(a) an individual;

(b) the individual's spouse, their children and their parents;

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

(e) a trust created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children;

B-38
<PAGE>
(f) a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account
created by the individual or the individual's spouse;

(g) one or more employee benefit plans of a company controlled by an
individual; and

(h) (i) a client of a Prudential Securities financial adviser who gives such
financial adviser discretion to purchase the Prudential Mutual Funds for his or
her account only in connection with participation in a market timing program and
for which program Prudential Securities receives a separate advisory fee or (ii)
a client of an unaffiliated registered investment adviser which is a client of a
Prudential Securities financial adviser, if such unaffiliated adviser has
discretion to purchase the Prudential Mutual Funds for the accounts of his or
her customers but only if the client of such unaffiliated adviser participates
in a market timing program conducted by such unaffiliated adviser; provided such
accounts in the aggregate have assets of at least $15 million invested in the
Prudential Mutual Funds.

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

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

RIGHTS OF ACCUMULATION. Reduced sales charges are also available through
Rights of Accumulation, under which an investor or an eligible group of related
investors, as described above under "Combined Purchase and Cumulative Purchase
Privilege," may aggregate the value of their existing holdings of shares of the
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) to determine the
reduced sales charge. However, the value of shares held directly with the
Transfer Agent and through your Dealer will not be aggregated to determine the
reduced sales charge. The value of existing holdings for purposes of determining
the reduced sales charge is calculated using the maximum offering price (NAV
plus maximum sales charge) as of the previous business day. See "How the Fund
Values its Shares" in the Prospectuses.

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

LETTERS OF INTENT. Reduced sales charges are also available to investors
(or an eligible group of related investors) who enter into a written Letter of
Intent providing for the purchase, within a thirteen-month period, of shares of
the Fund and shares of other Prudential Mutual Funds. All shares of the Fund and
shares of other Prudential Mutual Funds (excluding money market funds other than
those acquired pursuant to the exchange privilege) which were previously
purchased and are still owned are also included in determining the applicable
reduction. However, the value of shares held directly with the Transfer Agent
and through the Distributor through your will not be aggregated to determine the
reduced sales charge.

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

The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the purchaser is required to pay
the difference between the sales charge otherwise applicable to the purchases
made during this period

B-39
<PAGE>
and the sales charge actually paid. Such payment may be made directly to the
Distributor or, if not paid, the Distributor will liquidate sufficient escrowed
shares to obtain such difference. Investors electing to purchase Class A shares
of the Fund pursuant to a Letter of Intent should carefully read such Letter of
Intent.

WAIVER OF THE CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES

The contingent deferred sales charge (CDSC) is waived under circumstances
described in the applicable Prospectuses. See "Shareholder Guide--How to Sell
Your Shares--Waiver of Contingent Deferred Sales Charges-- Class B Shares" in
the Prospectus of each applicable series. In connection with these waivers, the
Transfer Agent will require you to submit the supporting documentation set forth
below.

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

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

QUANTITY DISCOUNT--CLASS B SHARES PURCHASED PRIOR TO AUGUST 1, 1994

The CDSC is reduced on redemptions of Class B shares of a series of the Fund
purchased prior to August 1, 1994 if immediately after a purchase of such
shares, the aggregate cost of all Class B shares of a series of the Fund owned
by you in a single account exceeded $500,000. For example, if you purchased
$100,000 of Class B shares of a series of the Fund and the following year
purchased an additional $450,000 of Class B shares with the result that the
aggregate cost of your Class B shares of a series of the Fund following the
second purchase was $550,000, the quantity discount would be available for the
second purchase of $450,000 but not for the first purchase of $100,000. The
quantity discount will be imposed at the following rates depending on whether
the aggregate value exceeded $500,000 or $1 million:

<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
AS A PERCENTAGE OF DOLLARS INVESTED
OR REDEMPTION PROCEEDS
YEAR SINCE PURCHASE -----------------------------------------
PAYMENT MADE $500,001 TO $1 MILLION OVER $1 MILLION
- ------------------------- ----------------------- ---------------
<S> <C> <C>
First.................... 3.0% 2.0%
Second................... 2.0% 1.0%
Third.................... 1.0% 0%
Fourth and thereafter.... 0% 0%
</TABLE>

You must notify the Transfer Agent, the Distributor or your Dealer, at the
time of redemption, that you are entitled to the reduced CDSC. The reduced CDSC
will be granted subject to confirmation of your holdings.

SHAREHOLDER INVESTMENT ACCOUNT

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

B-40
<PAGE>
AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS

For the convenience of investors, all dividends and distributions are
automatically reinvested in full and fractional shares of a series. An investor
may direct the Transfer Agent in writing by the first business day of the month
to have subsequent dividends and/or distributions sent in cash rather than
reinvested. In the case of recently purchased shares for which registration
instructions have not been received on the record date, cash payment will be
made directly to the Dealer. Any shareholder who receives a cash payment
representing a dividend or distribution may reinvest such dividend or
distribution at NAV by returning the check or the proceeds to the Transfer Agent
within 30 days after the payment date. Such investment will be made at the NAV
next determined after receipt of the check or proceeds by the Transfer Agent.
Such shareholder will receive credit for any CDSC paid in connection with the
amount of proceeds being reinvested.

EXCHANGE PRIVILEGE

Each series makes available to its shareholders the privilege of exchanging
their shares of a series for shares of other series of the Fund and certain
other Prudential Mutual Funds, including one or more specified money market
funds, subject in each case to the minimum investment requirements of such
funds. Shares of such other Prudential Mutual Funds may also be exchanged for
shares of the Fund. All exchanges are made on the basis of the relative NAV next
determined after receipt of an order in proper form. An exchange will be treated
as a redemption and purchase for tax purposes. Shares may be exchanged for
shares of another fund only if shares of such fund may legally be sold under
applicable state laws.

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

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

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

Prudential California Municipal Fund
(California Money Market Series)

Prudential Government Securities Trust
(Money Market Series) (Class A shares)
(U.S. Treasury Money Market Series) (Class A shares)

Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachusetts Money Market Series)
(New Jersey Money Market Series)
(New York Money Market Series)

Prudential MoneyMart Assets, Inc. (Class A shares)

Prudential Tax-Free Money Fund, Inc.

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

B-41
<PAGE>
Class B and Class C shares of the Fund may also be exchanged for shares of
Prudential Special Money Market Fund, Inc. without imposition of any CDSC at the
time of exchange. Upon subsequent redemption from such money market fund or
after re-exchange into the Fund, such shares will be subject to the CDSC
calculated by excluding the time such shares were held in the money market fund.
In order to minimize the period of time in which shares are subject to a CDSC,
shares exchanged out of the money market fund will be exchanged on the basis of
their remaining holding periods, with the longest remaining holding periods
being transferred first. In measuring the time period shares are held in a money
market fund and "tolled" for purposes of calculating the CDSC holding period,
exchanges are deemed to have been made on the last day of the month.Thus, if
shares are exchanged into the Fund from a money market fund during the month
(and are held in the Fund at the end of the month), the entire month will be
included in the CDSC holding period. Conversely, if shares are exchanged into a
money market fund prior to the last day of the month (and are held in the money
market fund on the last day of the month), the entire month will be excluded
from the CDSC holding period. For purposes of calculating the seven year holding
period applicable to the Class B conversion feature, the time period during
which Class B shares were held in a money market fund will be excluded.

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

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

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

DOLLAR COST AVERAGING (NOT APPLICABLE TO THE MONEY MARKET SERIES)

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

Dollar cost averaging may be used, for example, to plan for retirement, to
save for a major expenditure, such as the purchase of a home, or to finance a
college education. The cost of a year's education at a four-year

B-42
<PAGE>
college today averages around $14,000 at a private college and around $6,000 at
a public university. Assuming these costs increase at a rate of 7% a year, as
has been projected, for the freshman class beginning in 2011, the cost of four
years at a private college could reach $210,000 and over $90,000 at a public
university.(1)

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

<TABLE>
<CAPTION>
PERIOD OF
MONTHLY INVESTMENTS: $100,000 $150,000 $200,000 $250,000
- ----------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
25 Years................................................... $ 110 $ 165 $ 220 $ 275
20 Years................................................... 176 264 352 440
15 Years................................................... 296 444 592 740
10 Years................................................... 555 833 1,110 1,338
5 Years................................................... 1,371 2,057 2,742 3,428
</TABLE>

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

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

AUTOMATIC INVESTMENT PLAN (AIP)

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

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

SYSTEMATIC WITHDRAWAL PLAN

A systematic withdrawal plan is available to shareholders through the
Transfer Agent, the Distributor or your Dealer. Such withdrawal plan provides
for monthly or quarterly checks in any amount, except as provided below, up to
the value of the shares in the shareholder's account. Withdrawals of Class B or
Class C shares may be subject to a CDSC. See "Shareholder Guide--How to Sell
Your Shares--Contingent Deferred Sales Charges" in the Prospectus of each
applicable series.

In the case of shares held through the Transfer Agent (i) a $10,000 minimum
account value applies, (ii) withdrawals may not be for less than $100 and (iii)
the shareholder must elect to have all dividends and/or distributions
automatically reinvested in additional full and fractional shares at NAV on
shares held under this plan. See "Shareholder Investment Account--Automatic
Reinvestment of Dividends and/or Distributions."

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

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

Furthermore, each withdrawal constitutes a redemption of shares, and any
gain or loss realized must be recognized for federal income tax purposes. In
addition, withdrawals made concurrently with purchases of

B-43
<PAGE>
additional shares are inadvisable because of the sales charge applicable to (i)
the purchase of Class A shares and (ii) the withdrawal of Class B and Class C
shares. Each shareholder should consult his or her own tax adviser with regard
to the tax consequences of the systematic withdrawal plan.

HOW TO REDEEM SHARES OF THE MONEY MARKET SERIES

Redemption orders submitted to and received by Prudential Mutual Fund
Services LLC (PMFS) will be effected at the net asset value next determined
after receipt of the order. Shareholders of the Connecticut Money Market Series,
the Massachusetts Money Market Series, the New Jersey Money Market Series and
the New York Money Market Series (other than Prudential Securities clients for
whom Prudential Securities has purchased shares of such Series) may use Check
Redemption, Expedited Redemption or Regular Redemption.

CHECK REDEMPTION

Shareholders are subject to the Custodian's rules and regulations governing
checking accounts, including the right of the Custodian not to honor checks in
amounts exceeding the value of the shareholder's account at the time the check
is presented for payment.

Shares for which certificates have been issued are not available for
redemption to cover checks. A shareholder should be certain that adequate shares
for which certificates have not been issued are in his or her account to cover
the amount of the check. Also, shares purchased by check are not available to
cover checks until 10 days after receipt of the purchase check by PMFS unless
the Fund or PMFS has been advised that the purchase check has been honored. Such
delay may be avoided by purchasing shares by certified or official bank checks
or by wire. If insufficient shares are in the account, or if the purchase was
made by check within 10 days, the check is returned marked "insufficient funds."
Since the dollar value of an account is constantly changing, it is not possible
for a shareholder to determine in advance the total value of his or her account
so as to write a check for the redemption of the entire account. Checks in an
amount less than $500 will not be honored.

There is a service charge of $5.00 payable to PMFS to establish a checking
account and to order checks. The Custodian and the Fund have reserved the right
to modify this checking account privilege or to impose a charge for each check
presented for payment for any individual account or for all accounts in the
future.

The Fund or PMFS may terminate Check Redemption at any time upon 30 days'
notice to participating shareholders. To receive further information, contact
Prudential Mutual Fund Services LLC, Redemption Services, P.O. Box 15010, New
Brunswick, New Jersey 08906-5010.

EXPEDITED REDEMPTION

To request Expedited Redemption by telephone, a shareholder should call PMFS
at (800) 225-1852. Calls must be received by PMFS before 4:30 P.M., New York
time. Requests by letter should be addressed to Prudential Mutual Fund Services
LLC, Attention: Account Maintenance, P.O. Box 15015, New Brunswick, New Jersey
08906-5015.

In order to change the name of the commercial bank or account designated to
receive redemption proceeds, it is necessary to execute a new Expedited
Redemption Authorization Form and submit it to PMFS at the address set forth
above. Requests to change a bank or account must be signed by each shareholder
and each signature must be guaranteed by: (a) a commercial bank which is a
member of the Federal Deposit Insurance Corporation; (b) a trust company; or (c)
a member firm of a domestic securities exchange. Guarantees must be signed by an
authorized signatory of the bank, trust company or member firm, and "Signature
Guaranteed" should appear with the signature. Signature guarantees by savings
banks, savings and loan associations and notaries will not be accepted. PMFS may
request further documentation from corporations, executors, administrators,
trustees or guardians.

To receive further information, investors should contact PMFS at (800)
225-1852.

REGULAR REDEMPTION

Shareholders may redeem their shares by sending to PMFS, at the address set
forth above, a written request, accompanied by duly endorsed share certificates,
if issued. If the proceeds of the redemption (a) exceed $50,000, (b) are to be
paid to a person other than the record owner, (c) are to be sent to an address

B-44
<PAGE>
other than the address on the Transfer Agent's records or (d) are to be paid to
a corporation, partnership, trust or fiduciary, the signature(s) on the
redemption request and on the certificates, if any, or stock power must be
guaranteed by an "eligible guarantor institution." An "eligible guarantor
institution" includes any bank, broker, dealer or credit union. For clients of
Prusec, a signature guarantee may be obtained from the agency or office manager
of most Prudential District or Ordinary offices. The Fund may change the
signature guarantee requirements from time to time on notice to shareholders,
which may be given by means of a new Prospectus. All correspondence concerning
redemptions should be sent to the Fund in care of its Transfer Agent, Prudential
Mutual Fund Services LLC, Attention: Redemption Services, P.O. Box 15010, New
Brunswick, New Jersey 08906-5010. Regular redemption is made by check sent to
the shareholder's address.

MUTUAL FUND PROGRAMS

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

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

NET ASSET VALUE

The net asset value per share (NAV) of a series is the net worth of such
series (assets, including securities at value, minus liabilities) divided by the
number of shares of such series outstanding. NAV is calculated separately for
each class. The Fund will compute the NAV of each such series (except the money
market series) once daily at 4:15 P.M., New York time, on days the New York
Stock Exchange is open for trading, except on days on which no orders to
purchase, sell or redeem shares of the series have been received or on days on
which changes in the value of the series' portfolio securities do not affect
NAV. The Fund will compute the NAV of the money market series at 4:30 P.M., New
York time, on days the New York Stock Exchange is open for trading, except on
days on which no orders to purchase, sell or redeem shares of the money market
series have been received or on days on which changes in the value of the money
market series' portfolio securities do not affect NAV. In the event the New York
Stock Exchange closes early on any business day, the NAV of the Fund's shares
shall be determined at a time between such closing and 4:15 P.M., New York time
(with respect to shares of the non-money market series of the Fund) and between
such closing and 4:30 P.M., New York time (with respect to the money market
series of the Fund). The New York Stock Exchange is closed on the following
holidays: New Year's Day, Martin Luther King, Jr. Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.

Portfolio securities for which market quotations are readily available are
valued at their bid quotations. Securities for which market quotations are not
readily available are valued at fair value in accordance with procedures adopted
by the Trustees. Under these procedures the Fund values municipal securities on
the basis of valuations provided by a pricing service which uses information
with respect to transactions in bonds, quotations from bond dealers, market
transactions in comparable securities and various relationships between
securities in determining value. The Trustees believe that reliable market
quotations are generally not readily available for purposes of valuing
tax-exempt securities. As a result, depending on the particular tax-exempt
securities owned by the Fund, it is likely that most of the valuations for such
securities will be based upon fair value determined under the foregoing
procedures. Short-term investments which mature in less than 60 days

B-45
<PAGE>
are valued at amortized cost, if their original term to maturity was less than
60 days, or are valued at amortized cost on the 60th day prior to maturity, if
their original term to maturity when acquired by the Fund was more than 60 days,
unless this is determined not to represent fair value by the Trustees.

The money market series use the amortized cost method to determine the value
of their portfolio securities in accordance with regulations of the Commission.
The amortized cost method involves valuing a security at its cost and amortizing
any discount or premium over the period until maturity. The method does not take
into account unrealized capital gains and losses which may result from the
effect of fluctuating interest rates on the market value of the security.

With respect to the money market series, the Trustees have determined to
maintain a dollar-weighted average portfolio maturity of 90 days or less, to
purchase instruments having remaining maturities of thirteen months or less and
to invest only in securities determined by the investment adviser under the
supervision of the Trustees to present minimal credit risks and to be of
eligible quality in accordance with regulations of the Commission. The Trustees
have adopted procedures designed to stabilize, to the extent reasonably
possible, the money market series' price per share as computed for the purpose
of sales and redemptions at $1.00. Such procedures will include review of the
money market series' portfolio holdings by the Trustees, at such intervals as
they may deem appropriate, to determine whether the money market series' net
asset value calculated by using available market quotations deviates from $1.00
per share based on amortized cost. The extent of any deviation will be examined
by the Trustees. If such deviation exceeds 1/2 of 1%, the Trustees will promptly
consider what action, if any, will be initiated. In the event the Trustees
determine that a deviation exists which may result in material dilution or other
unfair results to prospective investors or existing shareholders, the Trustees
will take such corrective action as they consider necessary and appropriate,
including the sale of portfolio instruments prior to maturity to realize capital
gains or losses or to shorten average portfolio maturity, the withholding of
dividends, redemptions of shares in kind, or the use of available market
quotations to establish a NAV.

B-46
<PAGE>
PERFORMANCE INFORMATION

ALL SERIES (EXCEPT THE MONEY MARKET SERIES)

YIELD. Each series may from time to time advertise its yield as calculated
over a 30-day period. Yield is calculated separately for Class A, Class B, Class
C and Class Z shares. The yield will be computed by dividing the series' net
investment income per share earned during this 30-day period by the NAV on the
last day of this period. The average number of shares used in determining the
net investment income per share will be the average daily number of shares
outstanding during the 30-day period that were eligible to receive dividends. In
accordance with Commission regulations, income will be computed by totaling the
interest earned on all debt obligations during the 30-day period and subtracting
from that amount the total of all recurring expenses incurred during the period,
which includes management and distribution fees. The 30-day yield is then
annualized on a bond-equivalent basis assuming semi-annual reinvestment and
compounding of net investment income, as described in the Prospectus of each
series. The yields for the 30 days ended August 31, 1998 were as follows:

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
SERIES YIELD YIELD YIELD
- -------------------- ------- ------- -------
<S> <C> <C> <C>
Florida............. 4.02% 3.75% 3.50%
Maryland............ 3.69 3.46 3.22
Massachusetts....... 3.85 3.57 3.32
Michigan............ 3.77 3.54 3.31
New Jersey.......... 3.86 3.59 3.34
New York............ 4.09 3.82 3.58
North Carolina...... 4.01 3.74 3.48
Ohio................ 3.79 3.51 3.26
Pennsylvania........ 4.08 3.81 3.56

<CAPTION>
CLASS Z
-------
SERIES YIELD
- -------------------- -------
<S> <C>
Florida............. 4.25%
Maryland............ None
Massachusetts....... 4.05
Michigan............ N/A
New Jersey.......... 4.08
New York............ 4.32
North Carolina...... N/A
Ohio................ N/A
Pennsylvania........ N/A
</TABLE>

The series' yield is computed according to the following formula:

<TABLE>
<S> <C> <C>
a - b
YIELD = 2[( ------- +1)to the power of 6 - 1]
cd
</TABLE>

<TABLE>
<S> <C> <C>
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
</TABLE>

Each series may also calculate the tax equivalent yield over a 30-day
period. The tax equivalent yield will be determined by first computing the yield
as discussed above. The series will then determine what portion of that yield is
attributable to securities, the income on which is exempt for federal income tax
purposes. This

B-47
<PAGE>
portion of the yield will then be divided by one minus the state tax rate times
one minus the federal tax rate and then added to the portion of the yield that
is attributable to other securities. For the 30 days ended August 31, 1998, the
tax equivalent yields (assuming a federal tax rate of 36%) were as follows:

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Z
---------------- ---------------- ---------------- ----------------
TAX EQUIVALENT TAX EQUIVALENT TAX EQUIVALENT TAX EQUIVALENT
SERIES YIELD YIELD YIELD YIELD
- ---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Florida......... 6.28% 5.86% 5.47% 6.64%
Maryland........ 6.07 5.69 5.29 N/A
Massachusetts... 6.84 6.34 5.89 7.19%
Michigan........ 6.16 5.79 5.41 N/A
New Jersey...... 6.44 5.99 5.57 6.81%
New York........ 6.86 6.41 6.01 7.25%
North
Carolina....... 6.79 6.33 5.89 N/A
Ohio............ 6.38 5.91 5.49 N/A
Pennsylvania.... 6.56 6.12 5.72 N/A
</TABLE>

AVERAGE ANNUAL TOTAL RETURN. Each series of the Fund may from time to time
advertise its average annual total return. Average annual total return is
determined separately for Class A, Class B, Class C and Class Z shares. See "How
the Fund Calculates Performance" in the Prospectus of each applicable series.

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

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

Where: P = a hypothetical initial payment of $1000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value at the end of the 1, 5 or 10 year
periods (or fractional portion thereof) of a hypothetical
$1000 payment made at the beginning of the 1, 5 or 10 year
periods.

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

The average annual total return (with and without management subsidies and
waivers) for the series (other than the money market series) for the periods
ended August 31, 1998 were as follows:

<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------
WITHOUT
SUBSIDY/WAIVER
------------------------
ONE FIVE SINCE ONE FIVE SINCE INCEPTION
SERIES YEAR YEARS INCEPTION YEAR YEARS INCEPTION DATE
- --------------- ---- ----- --------- ---- ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Florida........ 5.09% 5.16% 7.61% 5.09% 4.68% 7.01% 12/28/90
Maryland....... 4.77 4.60 6.67 4.77 4.56 6.65 1/22/90
Massachusetts... 4.86 5.08 7.21 4.86 5.04 7.18 1/22/90
Michigan....... 5.54 5.08 7.14 5.54 5.04 7.12 1/22/90
New Jersey..... 5.21 4.77 7.41 5.21 4.66 7.19 1/22/90
New York....... 5.45 5.00 7.42 5.45 5.03 7.44 1/22/90
North
Carolina...... 5.46 4.80 6.90 5.46 4.76 6.88 1/22/90
Ohio........... 5.53 4.97 7.15 5.53 4.94 7.13 1/22/90
Pennsylvania... 4.33 4.90 7.14 4.33 4.94 7.17 1/22/90

<CAPTION>
CLASS B
---------------------------------------------------------------
WITHOUT
SUBSIDY/WAIVER
------------------------
TEN YEARS TEN YEARS
ONE FIVE OR SINCE ONE FIVE OR SINCE INCEPTION
SERIES YEAR YEARS INCEPTION YEAR YEARS INCEPTION DATE
- --------------- ---- ----- --------- ---- ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Florida........ 2.91% N/A 6.96% 2.91% N/A 6.59% 8/1/94
Maryland....... 2.68 4.67% 6.85 2.68 4.63% 6.83
Massachusetts.. 2.67 5.10 7.23 2.67 5.06 7.22
Michigan....... 3.38 5.11 7.43 3.38 5.08 7.42
New Jersey..... 3.03 4.83 7.68 3.03 4.72 7.42
New York....... 3.28 5.06 7.46 3.28 5.09 7.48
North
Carolina...... 3.19 4.84 7.46 3.19 4.80 7.32
Ohio........... 3.36 5.04 7.34 3.36 5.01 7.32
Pennsylvania... 2.13 4.95 7.43 2.13 4.99 7.50
</TABLE>

B-48
<PAGE>

<TABLE>
<CAPTION>
SERIES
- ---------------
Florida........
<S>
Maryland.......
Massachusetts...
Michigan.......
New Jersey.....
New York.......
North
Carolina......
Ohio...........
Pennsylvania...

<CAPTION>
CLASS C
-------------------------------------------------------------
WITHOUT
SUBSIDY/
WAIVER
-----------------------
ONE FIVE SINCE ONE FIVE SINCE INCEPTION
SERIES YEAR YEARS INCEPTION YEAR YEARS INCEPTION DATE
- --------------- ---- ---- --------- ---- ---- --------- ---------
Florida........ 6.64% 5.09% 5.63% 6.64% 4.62% 5.12% 7/26/93
<S>
Maryland....... 6.41 N/A 6.27 6.41 N/A 6.23 8/1/94
Massachusetts.. 6.41 N/A 6.49 6.41 N/A 6.45 8/1/94
Michigan....... 7.11 N/A 6.45 7.11 N/A 6.41 8/1/94
New Jersey..... 6.76 N/A 6.56 6.76 N/A 6.47 8/1/94
New York....... 7.01 N/A 6.70 7.01 N/A 6.66 8/1/94
North
Carolina...... 6.92 N/A 6.39 6.92 N/A 6.34 8/1/94
Ohio........... 7.09 N/A 6.29 7.09 N/A 6.25 8/1/94
Pennsylvania... 5.86 N/A 6.45 5.86 N/A 6.40 8/1/94

<CAPTION>
CLASS Z
-----------------------------------------------
WITHOUT
SUBSIDY/
WAIVER
----------------
ONE SINCE ONE SINCE INCEPTION
SERIES YEAR INCEPTION YEAR INCEPTION DATE
- --------------- ---- --------- ---- --------- ---------
Florida........ 8.34% 7.47% 8.34% 7.35% 12/6/96
Maryland....... N/A N/A N/A N/A N/A
Massachusetts.. 8.31 7.43 8.31 7.43 12/6/96
Michigan....... N/A N/A N/A N/A N/A
New Jersey..... 8.48 7.99 8.48 7.99 12/6/96
New York....... 8.81 8.00 8.81 8.00 12/6/96
North
Carolina...... N/A N/A N/A N/A N/A
Ohio........... N/A N/A N/A N/A N/A
Pennsylvania... N/A N/A N/A N/A N/A
</TABLE>

AGGREGATE TOTAL RETURN. Each series of the Fund may also advertise its
aggregate total return. Aggregate total return is determined separately for
Class A, Class B, Class C and Class Z shares. See "How the Fund Calculates
Performance" in the Prospectus of each applicable series.

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

ERV-P
------
P

Where: P = a hypothetical initial payment of $1000.

ERV = Ending Redeemable Value at the end of the 1, 5 or 10 year
periods of a hypothetical $1,000 payment made at the beginning
of the 1, 5 or 10 year periods (or fractional portion thereof).

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

The aggregate total return for each series for the one year, five year and
ten year (or since inception) periods ended August 31, 1998 for the Class A,
Class B, Class C and Class Z shares were as follows:

<TABLE>
<CAPTION>
CLASS B
------------------------------------------
CLASS A
------------------------------------------
AGGREGATE
AGGREGATE TOTAL
TOTAL RETURN
RETURN ------------------------------------------
------------------------------------------ 10 YR. OR
SINCE SINCE
SERIES 1 YR. 5 YR. INCEPTION INCEPTION DATE 1 YR. 5 YR. INCEPTION INCEPTION DATE
- -------------------- ----- ----- --------- -------------- ----- ----- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Florida............. 8.34% 32.55% 80.97% 12/28/90 7.91% N/A 32.59% 8/1/94
Maryland............ 8.01 29.06 79.70 1/22/90 7.68 26.62% 93.90
Massachusetts....... 8.10 32.06 87.61 1/22/90 7.67 29.23 101.05
Michigan............ 8.81 32.06 86.56 1/22/90 8.38 29.32 104.84
New Jersey.......... 8.40 30.06 89.11 1/22/90 7.97 27.50 109.38
New York............ 8.71 31.79 91.14 1/22/90 8.28 29.19 105.66
North Carolina...... 8.72 30.31 83.10 1/22/90 8.19 27.63 98.00
Ohio................ 8.80 31.38 86.72 1/22/90 8.36 28.89 102.99
Pennsylvania........ 7.55 31.17 87.12 1/22/90 7.13 28.58 106.13

CLASS C CLASS Z
------------------------------------------ ----------------------------------

AGGREGATE AGGREGATE
TOTAL TOTAL
RETURN RETURN
------------------------------------------ ----------------------------------
SINCE SINCE
SERIES 1 YR. 5 YR. INCEPTION INCEPTION DATE 1 YR. INCEPTION INCEPTION DATE
- -------------------- ----- ----- --------- -------------- ----- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Florida............. 7.64% 28.17% 32.20% 7/26/93 8.34% 13.30% 12/6/96
Maryland............ 7.41 N/A 28.20 8/1/94 N/A N/A N/A
Massachusetts....... 7.41 N/A 29.26 8/1/94 8.31 13.23 12/6/96
Michigan............ 8.11 N/A 29.06 8/1/94 N/A N/A N/A
New Jersey.......... 7.70 N/A 28.56 8/1/94 8.51 13.38 12/6/96
New York............ 8.01 N/A 30.30 8/1/94 8.81 14.27 12/6/96
North Carolina...... 7.92 N/A 28.75 8/1/94 N/A N/A N/A
Ohio................ 8.09 N/A 28.28 8/1/94 N/A N/A N/A
Pennsylvania........ 6.86 N/A 29.06 8/1/94 N/A N/A N/A
</TABLE>

B-49
<PAGE>
The aggregate total return for each series for the one year, five year and
ten year (or since inception) periods ended August 31, 1998 for the Class A,
Class B, Class C and Class Z shares, without the management subsidies and
waivers, were as follows:

<TABLE>
<CAPTION>
CLASS C
-------------------------
AGGREGATE TOTAL
RETURN
CLASS B
-------------------------------------
CLASS A WITHOUT
-------------------------------------
AGGREGATE TOTAL
AGGREGATE TOTAL RETURN SUBSIDY/WAIVER
RETURN WITHOUT
WITHOUT SUBSIDY/WAIVER
SUBSIDY/WAIVER ------------------------------------- -------------------------
------------------------------------- 10 YR. OR
SINCE INCEPTION SINCE INCEPTION SINCE
SERIES 1 YR. 5 YR. INCEPTION DATE 1 YR. 5 YR. INCEPTION DATE 1 YR. 5 YR. INCEPTION
- -------------------- ----- ----- --------- --------- ----- ----- --------- --------- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Florida............. 8.34% 29.59% 73.39% 12/28/90 7.91% N/A 30.74% 8/1/94 7.64% 25.31% 29.00%
Maryland............ 8.01 28.83 79.38 1/22/90 7.68 26.40% 93.56 7.41 N/A 27.97
Massachusetts....... 8.10 31.84 87.30 1/22/90 7.67 29.01 100.72 7.41 N/A 29.04
Michigan............ 8.81 31.85 86.26 1/22/90 8.38 29.11 104.51 8.11 N/A 28.85
New Jersey.......... 8.40 29.37 85.77 1/22/90 7.97 26.82 104.20 7.70 N/A 28.10
New York............ 8.71 31.57 90.83 1/22/90 8.28 28.98 105.33 8.01 N/A 30.09
North Carolina...... 8.72 30.08 82.79 1/22/90 8.19 27.41 97.66 7.92 N/A 28.53
Ohio................ 8.80 31.17 86.41 1/22/90 8.36 28.68 102.66 8.09 N/A 28.07
Pennsylvania........ 7.55 30.93 86.61 1/22/90 7.13 28.34 104.81 6.86 N/A 28.83

CLASS Z

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

AGGREGATE TOTAL

RETURN

WITHOUT

SUBSIDY/WAIVER

----------------------------------------------
INCEPTION SINCE
SERIES DATE 1 YR. INCEPTION INCEPTION DATE
- -------------------- --------- ----- --------- --------------
<S> <C> <C> <C> <C>
Florida............. 7/26/93 8.34% 13.09% 12/6/96
Maryland............ 8/1/94 N/A N/A N/A
Massachusetts....... 8/1/94 8.31 13.23 12/6/96
Michigan............ 8/1/94 N/A N/A N/A
New Jersey.......... 8/1/94 8.51 13.38 12/6/96
New York............ 8/1/94 8.81 14.27 12/6/96
North Carolina...... 8/1/94 N/A N/A N/A
Ohio................ 8/1/94 N/A N/A N/A
Pennsylvania........ 8/1/94 N/A N/A N/A
</TABLE>

THE CONNECTICUT MONEY MARKET SERIES, THE MASSACHUSETTS MONEY MARKET SERIES, THE
NEW JERSEY MONEY MARKET SERIES AND THE NEW YORK MONEY MARKET SERIES

The money market series will prepare a current quotation of yield from time
to time. The yield quoted will be the simple annualized yield for an identified
seven calendar day period. The yield calculation will be based on a hypothetical
account having a balance of exactly one share at the beginning of the seven-day
period. The base period return will be the change in the value of the
hypothetical account during the seven-day period, including dividends declared
on any shares purchased with dividends on the shares but excluding any capital
changes. The yield will vary as interest rates and other conditions affecting
money market instruments change. Yield also depends on the quality, length of
maturity and type of instruments in the money market series' portfolio and its
operating expenses. The money market series may also prepare an effective annual
yield computed by compounding the unannualized seven-day period return as
follows: by adding 1 to the unannualized seven-day period return, raising the
sum to a power equal to 365 divided by 7, and subtracting 1 from the result. The
Connecticut Money Market Series, Massachusetts Money Market Series, New Jersey
Money Market Series and New York Money Market Series' annualized seven-day
current yield as of August 31, 1998 was 2.46%, 2.60%, 2.69%, and 2.67%,
respectively. The Connecticut Money Market Series, Massachusetts Money Market
Series, New Jersey Money Market Series and New York Money Market Series'
effective annual yield as of August 31, 1998 was 2.81%, 2.64%, 2.73% and 2.70%,
respectively.

The money market series may also calculate the tax equivalent yield over a
7-day period. The tax equivalent yield will be determined by first computing the
current yield as discussed above. The Series will then determine what portion of
that yield is attributable to securities, the income on which is exempt for
federal income tax purposes. This portion of the yield will then be divided by
one minus the state tax rate times one minus the federal tax rate and then added
to the portion of the yield that is attributable to other securities. The
Connecticut Money Market Series, Massachusetts Money Market Series, New Jersey
Money Market Series and New York Money Market Series' 7-day tax equivalent yield
(assuming a federal tax rate of 39.6%) as of August 31, 1998 was 4.26%, 4.89%,
4.76% and 4.75%, respectively.

Comparative performance information may be used from time to time in
advertising or marketing the money market series' shares, including data from
Lipper Analytical Services, Inc., IBC/Donoghue's Money Fund Report or other
industry publications.

The money market series' yield fluctuates, and an annualized yield quotation
is not a representation by the money market series as to what an investment in
the money market series will actually yield for any given period. Actual yields
will depend upon not only changes in interest rates generally during the period
in which the investment in the money market series is held, but also on any
realized or unrealized gains and losses and changes in the money market series'
expenses.

B-50
<PAGE>
From time to time, the performance of the series may be measured against
various indices. Set forth below is a chart which compares the performance of
different types of investments over the long-term and the rate of inflation.(1)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<S> <C>
A LOOK AT PERFORMANCE OVER THE LONG-TERM
AVERAGE ANNUAL RETURNS
1/1/26-12/31/97
Common Stocks 11.0%
Long-Term Gov't. Bonds 5.2%
Inflation 3.1%
</TABLE>

(1)Source: Ibbotson Associates, "Stocks, Bonds, Bills and Inflation--1998
Yearbook" (annually updates the work of Roger G. Ibbotson and Rex A.
Sinquefield). All rights reserved. Common stock returns are based on the
Standard & Poor's 500 Stock Index, a market-weighted, unmanaged index of 500
common stocks in a variety of industry sectors. It is a commonly used indicator
of broad stock price movements. This chart is for illustrative purposes only,
and is not intended to represent the performance of any particular investment or
fund. Investors cannot invest directly in an index. Past performance is not a
guarantee of future results.

TAXES, DIVIDENDS AND DISTRIBUTIONS

DISTRIBUTIONS

All of the Fund's net investment income is declared as a dividend each
business day. Shares will begin earning dividends on the day following the date
on which the shares are issued, the date of issuance customarily being the
"settlement" date. Shares continue to earn dividends until they are redeemed.
Unless the shareholder elects (by notice to the Dividend Disbursing Agent by the
first business day of the month) to receive monthly cash payments of dividends,
such dividends will be automatically received in additional series shares
monthly at net asset value on the payable date. In the event an investor redeems
all the shares in his or her account at any time during the month, all dividends
declared to the date of redemption will be paid to him or her at the time of the
redemption. The Fund's net investment income on weekends, holidays and other
days on which the Fund is closed for business will be declared as a dividend on
shares outstanding on the close of the last business day on which the Fund was
open for business. Accordingly, a shareholder who redeems his or her shares
effective as of 4:15 P.M. (4:30 P.M. for the money market series), New York
time, on a Friday earns a dividend which reflects the income earned by the Fund
on the following Saturday and Sunday. On the other hand, an investor whose
purchase order is effective as of 4:15 P.M. (4:30 P.M. for the money market
series), New York time, on a Friday does not begin earning dividends until the
following business day. Net investment income consists of interest income
accrued on portfolio securities less all expenses, calculated daily.

Net realized capital gains, if any, will be distributed annually and, unless
the shareholder elects to receive them in cash, will be automatically received
in additional shares of a series.

The per share dividends on Class B shares and Class C shares of a series
will be lower than the per share dividends on Class A shares of the series as a
result of the higher distribution-related fee applicable to the Class B and
Class C shares. The per share dividends on Class A shares will be lower than the
per share dividends on Class Z shares, since Class Z shares bear no
distribution-related fee. The per share distributions of net capital gains, if
any, will be paid in the same amount for Class A, Class B, Class C and Class Z
shares. See "Net Asset Value."

B-51
<PAGE>
Annually, the Fund will mail to shareholders information regarding the tax
status of dividends and distributions made by the Fund in the calendar year. The
Fund intends to report the proportion of all distributions that were tax-exempt
for that calendar year. The percentage of income designated as tax-exempt for
the calendar year may be substantially different from the percentage of the
Fund's income that was tax-exempt for a particular period.

FEDERAL TAXATION

Under the Internal Revenue Code, each series of the Fund is treated as a
separate entity for federal income tax purposes.

Each series of the Fund has elected to qualify and intends to remain
qualified to be treated as a regulated investment company under the requirements
of Subchapter M of the Internal Revenue Code for each taxable year. If so
qualified, each series will not be subject to federal income taxes on any net
investment income and capital gains, if any, realized during the taxable year
which are distributed to shareholders. In addition, each series intends to make
distributions in accordance with the provisions of the Internal Revenue Code so
as to avoid the 4% excise tax on certain amounts remaining undistributed at the
end of each calendar year. In order to qualify as a regulated investment
company, each series of the Fund generally must, among other things, (a) derive
at least 90% of its annual gross income (without offset for losses) from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stock or securities or options thereon; (b)
diversify its holdings so that, at the end of each quarter of the taxable year
(i) at least 50% of the value of the assets of the series is represented by
cash, U.S. Government securities and other securities limited, in respect of any
one issuer, to an amount not greater than 5% of the value of the assets of the
series and 10% of the outstanding voting securities of such issuer, and (ii) not
more than 25% of the value of the assets of the series is invested in the
securities of any one issuer (other than U.S. Government securities); and (c)
distribute to its shareholders at least 90% of its net investment income,
including net short-term gains (I.E., the excess of net short-term capital gains
over net long-term capital losses), and 90% of its net tax-exempt interest
income in each year.

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

The purchase of a put option may be subject to the short sale rules or
straddle rules (including the modified short sale rule) for federal income tax
purposes. Absent a tax election to the contrary, gain or loss attributable to
the lapse, exercise or closing out of any such put option (or any other Section
1256 contract under the Internal Revenue Code) will be treated as 60% long-term
and 40% short-term capital gain or loss. On the last trading day of the fiscal
year of a series, all outstanding put options as well as certain futures
contracts will be treated as if such positions were closed out at their closing
price on such day, with any resulting gain or loss recognized as 60% long-term
and 40% short-term capital gain or loss. In addition, positions held by a series
which consist of at least one debt security and at least one put option which
substantially reduces the risk of loss of the series with respect to that debt
security constitute a "mixed straddle" which is governed by certain provisions
of the Internal Revenue Code that may cause deferral of losses, adjustments in
the holding periods of debt securities and conversion of short-term capital
losses into long-term capital losses. Each series may consider making certain
tax elections applicable to mixed straddles. In addition, the conversion
transaction rules may apply to recharacterize certain capital gains as ordinary
income. Newly-enacted Code Section 1259 will require the recognition of gain
(but not loss) if a Series makes a "constructive sale" of an appreciated
financial position. A Series generally will be considered to make a constructive
sale of an appreciated financial position if it sells the same or substantially
identical property short, enters into a futures or forward contract to deliver
the same or substantially identical property, or enters into certain other
similar transactions.

Since each series is treated as a separate entity for federal income tax
purposes, the determination of the amount and character of capital gains, and
the determination of the amount of income dividends of a particular

B-52
<PAGE>
series will be based on the purchases and sales of securities and the income
received and expenses incurred in that series. Net capital gains of a series
which are available for distribution to shareholders will be computed by taking
into account any capital loss carryforward of the series.

If any net capital gains from the sale of assets held for more than 12
months in excess of net short-term capital losses are retained by a series for
investment, requiring federal income taxes to be paid thereon by the series, the
series will elect to treat such capital gains as having been distributed to
shareholders. As a result, shareholders will be taxed on such amounts as capital
gains, will be able to claim their proportionate share of the federal income
taxes paid by the series on such gains as a credit against their own federal
income tax liabilities, and will be entitled to increase the adjusted tax basis
of their shares in such series by the differences between their PRO RATA share
of such gains and their tax credit.

Subchapter M permits the character of tax-exempt interest distributed by a
regulated investment company to flow through as tax-exempt interest to its
shareholders provided that 50% or more of the value of its assets at the end of
each quarter of its taxable year is invested in state, municipal or other
obligations the interest on which is exempt for federal income tax purposes.
Distributions to shareholders of tax-exempt interest earned by any series of the
Fund for the taxable year are not subject to federal income tax (except for
possible application of the alternative minimum tax). Interest from certain
private activity and other bonds is treated as an item of tax preference for
purposes of the alternative minimum tax on individuals and the alternative
minimum tax on corporations. To the extent interest on such bonds is distributed
to shareholders of any series of the Fund, shareholders will be subject to the
alternative minimum tax on such distributions. Moreover, exempt-interest
dividends, whether or not on private activity bonds, that are held by
corporations will be taken into account (i) in determining the alternative
minimum tax imposed on 75% of the excess of adjusted current earnings over
alternative minimum taxable income, (ii) in calculating the environmental tax
equal to 0.12 percent of a corporation's modified alternative minimum taxable
income in excess of $2 million, and (iii) in determining the foreign branch
profits tax imposed on the effectively connected earnings and profits (with
adjustments) of United States branches of foreign corporations.

Distributions of taxable net investment income and of the excess of net
short-term capital gains over net long-term capital losses are taxable to
shareholders as ordinary income. None of the income distributions of the Fund
will be eligible for the deduction for dividends received by corporations.

Any net capital gains (I.E., the excess of net capital gains from the sale
of assets held for more than 12 months over net short-term capital losses)
distributed to shareholders will be taxable as capital gains to the
shareholders, whether or not reinvested and regardless of the length of time a
shareholder has owned his or her shares. The maximum capital gains rate for
individuals with respect to assets gains recognized by a Series after December
31, 1997 is 20%. The maximum capital gains rate for corporate shareholders
currently is the same as the maximum tax rate for ordinary income.

Any short-term capital loss realized upon redemption of shares within six
months (or such shorter period as may be established by Treasury regulations)
from the date of purchase of such shares and following receipt of an
exempt-interest dividend will be disallowed to the extent of such tax-exempt
dividend. Any loss realized upon the redemption of shares within six months from
the date of purchase of such shares and following receipt of a capital gains
distribution will be treated as long-term capital loss to the extent of such
capital gains distribution.

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

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

Interest on indebtedness incurred or continued by shareholders to purchase
or carry shares of the Fund will not be deductible for federal income tax
purposes. In addition, under rules used by the Internal Revenue

B-53
<PAGE>
Service for determining when borrowed funds are considered to be used for the
purpose of purchasing or carrying particular assets, the purchase of shares may
be considered to have been made with borrowed funds even though the borrowed
funds are not directly traceable to the purchase of shares.

Persons holding certain municipal obligations who also are "substantial
users" (or persons related thereto) of facilities financed by such obligations
may not exclude interest on such obligations from their gross income. No
investigation as to the users of the facilities financed by bonds in the
portfolios of the Fund's series has been made by the Fund. Potential investors
should consult their tax advisers with respect to this matter before purchasing
shares of the Fund.

From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on certain state and municipal obligations. It can be expected that
similar proposals may be introduced in the future. Such proposals, if enacted,
may further limit the availability of state or municipal obligations for
investment by the Fund and the value of portfolio securities held by the series
may be adversely affected. In such case, each series of the Fund would
reevaluate its investment objective and policies.

All distributions of taxable net investment income and net capital gains,
whether received in shares or cash, must be reported by each shareholder on his
or her federal income tax return. Shareholders electing to receive distributions
in the form of additional shares will have a cost basis for federal income tax
purposes in each share so received equal to the net asset value of a share of
the applicable series of the Fund on the reinvestment date. Distributions of
tax-exempt interest must also be reported. Under federal income tax law, each
series of the Fund will be required to report to the Internal Revenue Service
all distributions of taxable income and capital gains as well as gross proceeds
from the redemption or exchange of shares of such series, except in the case of
certain exempt shareholders. Under the backup withholding provisions of the
Internal Revenue Code, all proceeds from the redemption or exchange of shares
are subject to withholding of federal income tax at the rate of 31% in the case
of nonexempt shareholders who fail to furnish the appropriate series of the Fund
with their taxpayer identification numbers on IRS Form W-9 and with required
certifications regarding their status under the federal income tax law. Such
withholding is also required on taxable dividends and capital gains
distributions unless it is reasonably expected that at least 95% of the
distributions of the series are comprised of tax-exempt dividends. If the
withholding provisions are applicable, any such distributions and proceeds,
whether taken in cash or reinvested in shares, will be reduced by the amounts
required to be withheld. Investors may wish to consult their tax advisers about
the applicability of the backup withholding provisions. Distributions of taxable
investment income, including short-term capital gains, to foreign shareholders
generally will be subject to a withholding tax at the rate of 30% (or lower
treaty rate).

STATE TAXATION

The following discussion assumes that each series of the Fund qualified for
each taxable year as a regulated investment company for federal tax purposes.

CONNECTICUT. Distributions from the Connecticut Money Market Series (the
Connecticut Series) to individual shareholders of the Connecticut Series
resident in Connecticut and Connecticut resident trusts and estates are not
subject to taxation pursuant to the Connecticut Personal Income Tax to the
extent that such distributions constitute exempt-interest dividends under
section 852(b)(5) of the Internal Revenue Code and are derived from income
received by the Connecticut Series as interest from obligations of the State of
Connecticut or its political subdivisions (Connecticut Municipal Obligations) or
on obligations the interest on which is exempt from state taxation under the
laws of the United States (including obligations issued by Puerto Rico, the
Virgin Islands and Guam). It is likely that capital gain dividends derived from
the sale of Connecticut Municipal Obligations also are not subject to the
Connecticut Personal Income Tax. Other distributions to individual shareholders
resident in Connecticut and to resident trusts and estates from the Connecticut
Series, including capital gains dividends derived from sales of obligations
other than Connecticut Municipal Obligations, exempt-interest dividends derived
from sources other than Connecticut Obligations, and distributions that are
taxable as dividends for federal income tax purposes are not exempt from the
Connecticut Personal Income Tax. Individual shareholders and estates and trusts
subject to alternative minimum tax for federal tax purposes may also be subject
to alternative minimum tax for Connecticut Tax purposes. Exempt interest-

B-54
<PAGE>
dividends other than those derived from Connecticut Obligations and any loss
from the sale or exchange of Connecticut Obligations will be added to the
alternative minimum tax base, while exempt dividends paid by a regulated
investment company, exempt interest-dividends derived from interest payments on
Connecticut Obligations and capital gain dividends derived from the sale of
Connecticut obligations are subtracted from the alternative minimum tax base for
Connecticut Tax purposes.

Distributions that constitute exempt-interest dividends under section
852(b)(5) of the Internal Revenue Code from the Connecticut Series to corporate
shareholders (other than shareholders that are S Corporations) that are
apportioned to Connecticut are subject to taxation pursuant to the Connecticut
Corporation Business Tax, whether or not derived from Connecticut Municipal
Obligations. Distributions to corporate shareholders (other than shareholders
that are S Corporations) from the Connecticut Series that constitute capital
gains for federal income tax purposes are also subject to taxation pursuant to
the Connecticut Corporation Business Tax. Thirty percent of distributions to
corporate shareholders (other than shareholders that are S Corporations) that
are taxable as dividends for federal income tax purposes generally is subject to
taxation pursuant to the Corporation Business Tax and the remaining seventy
percent less related expenses is not.

Distributions to shareholders of the Connecticut Series that are S
Corporations that constitute either exempt-interest dividends, whether or not
derived from Connecticut Municipal Obligations, capital gain dividends or
taxable dividends for federal income tax purposes which are required to be
separately taken into account by shareholders of S Corporations for federal
income tax purposes are not subject to taxation pursuant to the Connecticut
Corporation Business Tax. For purposes of the Connecticut Personal Income Tax,
Connecticut resident individual, trust and estate shareholders of S Corporations
are taxed on their PRO RATA share of such separately stated items in the same
manner and to the same extent as if received by them directly from the
Connecticut Series.

Shares of the Connecticut Series will not be subject to the personal
property tax in the State of Connecticut.

Shareholders of the Connecticut Series should consult their tax advisers
about other state and local tax consequences of their investment in the
Connecticut Series including the tax consequences of ceasing to be a resident of
Connecticut.

FLORIDA. Florida does not impose an income tax on individuals. Thus,
individual shareholders of the Florida Series will not be subject to any Florida
state or local income taxes on distributions received from the Florida Series.

Florida does impose a State income tax on the income of corporations,
limited liability companies (that are subject to federal income taxation) and
certain trusts (excluding probate and testamentary trusts) that is allocated or
apportioned to Florida. For those shareholders, in determining income subject to
Florida corporate income tax, Florida generally "piggy-backs" federal taxable
income concepts, subject to adjustments that are applicable to all corporations
and some adjustments that are applicable to certain classes of corporations. In
regard to the Florida Series, the most significant adjustment is for interest
income from state and local bonds that is exempt from tax under Section 103 of
the Internal Revenue Code. Provided that the Florida Series qualifies as a
regulated investment company and complies with the requirements of the Internal
Revenue Code necessary to pay exempt-interest dividends, including the
requirement that at least 50% of the value of its assets at the close of each
quarter of its taxable year be invested in state, municipal or other obligations
the interest on which is exempt from tax under Section 103, the corporate
shareholders of the Series may incur Section 103 interest income from Florida
Series distributions. While Section 103 interest income is generally excluded
from taxable income for federal income tax purposes, it is added back to taxable
income for Florida corporate income tax purposes (only 40% of such income is
added back for corporate taxpayers subject to Florida alternative minimum tax).
Consequently, the portion of the Section 103 interest income (or 40% of that
amount for corporate taxpayers subject to the Florida alternative minimum tax)
allocated or apportioned to Florida of a corporate Florida Series shareholder
arising from Florida Series distributions is subject to Florida corporate income
taxes. Other distributions from the Florida Series to corporate shareholders, to
the extent allocated or apportioned to Florida, may also be subject to Florida
income tax.

B-55
<PAGE>
Provided that on and throughout January 1 of a given year the portfolio of
assets of the Florida Series will be comprised exclusively of notes, bonds, and
other obligations issued by the State of Florida or its municipalities, counties
and other taxing districts, the United States Government and its agencies,
Puerto Rico, Guam and the Virgin Islands, and other investments exempt from
Florida intangible personal property tax, in the opinion of Florida counsel
shares of the Florida Series will not be subject to Florida intangible personal
property taxes for that year. The Florida Series has obtained a technical
assistance advisement from the Florida Department of Revenue which confirms this
consequence. If the Florida Series holds any other type of asset on that date,
then the entire value of the Florida Series shares (except for that portion of
the value attributable to U.S. government obligations) will be subject to the
intangible personal property tax.

Shareholders of the Florida Series should consult their tax advisers about
other state and local tax consequences of their investments in the Florida
Series.

MARYLAND. In the opinion of Maryland tax counsel, individual shareholders
of the Maryland Series resident in Maryland, corporate shareholders (other than
financial institutions such as banks) of the Maryland Series and shareholders of
the Maryland Series that are trusts or estates will not be subject to Maryland
State or local income taxes on distributions received from the Maryland Series
to the extent that such distributions are attributable to interest on tax-exempt
obligations of the State of Maryland or its political subdivisions and
authorities, or obligations issued by the Governments of Puerto Rico, the Virgin
Islands and Guam, provided that the Maryland Series qualifies as a regulated
investment company and complies with the requirements of the Internal Revenue
Code necessary to pay exempt-interest dividends including the requirement that
at least 50% of the value of its assets at the close of each quarter of its
taxable year be invested in state, municipal or other obligations, the interest
on which is exempt from federal income tax under Section 103(a) of the Internal
Revenue Code. Up to 50 percent of dividends attributable to exempt-interest
income received by the Maryland Series from obligations that are (i) "specified
private activity bonds" within the meaning of Section 57(a)(5)(C) of the
Internal Revenue Code and (ii) not issued by the State of Maryland or its
political subdivisions and agencies could be subject to Maryland individual
income tax.

In addition, distributions received from the Maryland Series which are
attributable to (i) gains realized on the sale or exchange of bonds issued by
the State of Maryland or its political subdivisions and (ii) interest received
by the Maryland Series on U.S. Government obligations will not be subject to
Maryland State and local income taxes. Other distributions from the Maryland
Series will generally not be exempt from Maryland State and local income taxes.

Entities subject to the Maryland financial institution franchise tax will
generally be subject to tax on all distributions from the Maryland Series.

Shares of the Maryland Series will not be subject to the Maryland personal
property tax.

Shareholders of the Maryland Series should consult their tax advisers about
other state and local tax consequences of their investments in the Maryland
Series.

MASSACHUSETTS. In the opinion of Massachusetts tax counsel, if the
Massachusetts Series and the Massachusetts Money Market Series each qualify as
regulated investment companies, (1) individual and other noncorporate
shareholders of each Series resident in Massachusetts will not be subject to
Massachusetts personal income tax on distributions received from such Series to
the extent such distributions are attributable to interest on tax-exempt
obligations of the Commonwealth of Massachusetts and its political subdivisions
and instrumentalities provided that such Series complies with the requirement
that at least 50% of the value of its assets at the close of each quarter of its
taxable year be invested in state, municipal or other obligations, the interest
on which is excluded from gross income for federal income tax purposes under
Section 103(a) of the Internal Revenue Code; (2) such shareholders will not be
subject to Massachusetts personal income tax on distributions received from
either of such Series to the extent such distributions are attributable to
interest on obligations issued by the Governments of Puerto Rico, the Virgin
Islands or Guam; and (3) such shareholders will not be subject to Massachusetts
personal income tax on capital gain dividends received from either of such
Series to the extent such capital gain dividends are attributable to long-term
capital gains realized on the sale or exchange of Massachusetts obligations
issued pursuant to legislation which specifically exempts capital gains

B-56
<PAGE>
from the disposition of such obligations from Massachusetts personal income tax;
in each case subject to the requirement that such Series notify its shareholders
in writing within sixty days following the close of its taxable year of the
portion of any distribution qualifying for any such exemption.

Other distributions from the Massachusetts Series and the Massachusetts
Money Market Series will generally not be exempt from Massachusetts personal
income tax.

Massachusetts Series and the Massachusetts Money Market Series distributions
will not be excluded from net income of corporations and shares of the
Massachusetts Series and the Massachusetts Money Market Series will not be
excluded from the net worth of intangible property corporations in determining
the Massachusetts excise tax on corporations.

Shares of the Massachusetts Series and the Massachusetts Money Market Series
will not be subject to Massachusetts local property taxes.

Shareholders of the Massachusetts Series and the Massachusetts Money Market
Series should consult their tax advisers about other state and local tax
consequences of their investments in the Massachusetts Series and the
Massachusetts Money Market Series.

MICHIGAN. Individual shareholders of the Michigan Series residing in
Michigan will not be subject to Michigan personal income tax or personal income
taxes imposed by cities in Michigan, and corporate shareholders will not be
subject to the Michigan single business tax, on distributions received from the
Michigan Series to the extent such distributions are attributable to interest on
tax-exempt obligations of the State of Michigan or any municipality, political
subdivision or governmental agency or instrumentality thereof or on obligations
issued by the Governments of Puerto Rico, the Virgin Islands and Guam, provided
that the Michigan Series complies with the requirement of the Internal Revenue
Code that at least 50% of the value of its assets at the close of each quarter
of its taxable year is invested in state, municipal or other obligations the
interest on which is exempt from federal income tax under Section 103(a) of the
Internal Revenue Code.

Other distributions from the Michigan Series, including those related to
long-term and short-term capital gains, will generally not be exempt from the
Michigan personal income tax or single business tax.

Income from the Michigan Series, to the extent attributable to interest on
obligations issued by Michigan or its political subdivisions, will be excluded
for purposes of determining yield under the Michigan intangibles tax.

The Fund has obtained rulings from the Michigan Department of Treasury which
confirm these state tax consequences for Michigan resident individuals and
corporations. Shareholders of the Michigan Series should consult their tax
advisers about other state and local tax consequences of their investments in
the Michigan Series.

NEW JERSEY. In the opinion of New Jersey tax counsel, individual
shareholders of the New Jersey Series and the New Jersey Money Market Series
resident in New Jersey and shareholders of the New Jersey Series and the New
Jersey Money Market Series that are trusts or estates will not be subject to New
Jersey income tax on distributions received from either series to the extent
that such distributions are attributable to interest on tax-exempt obligations
of the State of New Jersey or its political subdivisions and authorities, or
obligations issued by the Governments of Puerto Rico, the Virgin Islands and
Guam, provided that the relevant Series complies with the requirement of the New
Jersey Gross Income Tax Act that (1) 80% of the aggregate principal amount of
all its investments (excluding cash, cash items and receivables, and financial
options, futures, forward contracts, or other similar financial instruments
related to interest-bearing obligations, obligations issued at a discount or
bond indexes related thereto that are related to such series' business of
investing in securities (Related Financial Instruments)) are invested in
obligations issued by the State of New Jersey or any of its agencies or
political subdivisions, or other obligations exempt from state or local taxation
under the laws of New Jersey and the United States and (2) it has no investments
other than interest bearing obligations, obligations issued at a discount, and
cash and cash items, including receivables, and Related Financial Instruments.

B-57
<PAGE>
Distributions received by shareholders who are resident individuals, trusts
or estates from the New Jersey Series and the New Jersey Money Market Series
which are attributable to gains realized on the sale or exchange of bonds issued
by the State of New Jersey or its political subdivisions are exempt from New
Jersey income tax. Other distributions from the New Jersey Series and the New
Jersey Money Market Series, including those related to long-term and short-term
capital gains from other bonds, will generally not be exempt from New Jersey
income tax.

Shareholders of the New Jersey Series and the New Jersey Money Market Series
should consult their tax advisers about other state and local tax consequences
of their investments in these Series.

NEW YORK. Individual shareholders of the New York Series and the New York
Money Market Series resident in New York State will not be subject to State
income tax on distributions received from either Series to the extent such
distributions are attributable to interest on tax-exempt obligations of the
State of New York and its political subdivisions, and obligations of the
Governments of Puerto Rico, the Virgin Islands and Guam (New York Obligations),
provided that such interest is exempt from federal income tax pursuant to
Section 103(a) of the Internal Revenue Code, and that the relevant Series
qualifies as a regulated investment company and satisfies the requirements of
the Internal Revenue Code necessary to pay exempt-interest dividends, including
the requirement that at least 50% of the value of its assets at the close of
each quarter of its taxable year be invested in state, municipal or other
obligations the interest on which is excluded from gross income for federal
income tax purposes under Section 103(a) of the Internal Revenue Code.
Individual shareholders who reside in New York City will be able to exclude such
distributions for City income tax purposes.

Other distributions from the New York Series and the New York Money Market
Series, including those related to market discount and capital gains, will
generally not be exempt from State or City income tax.

Distributions from these Series will not be excluded from net income and
shares of these Series will not be excluded from investment capital in
determining State or City franchise and corporation taxes for corporate
shareholders.

Shares of these Series will not be subject to any State or City property
tax.

The Fund has obtained the opinion of its New York tax counsel to confirm
these State and City tax consequences for New York resident individuals and
corporations who are shareholders of the New York Series and the New York Money
Market Series. Shareholders of the New York Series and the New York Money Market
Series should consult their advisers about other state and local tax
consequences of their investments in these Series.

NORTH CAROLINA. In the opinion of North Carolina tax counsel, individual
shareholders resident in North Carolina and shareholders that are trusts or
estates will not be subject to North Carolina income tax on distributions
received from the North Carolina Series to the extent such distributions are
either (i) exempt from federal income tax and attributable to interest on
obligations of North Carolina or its political subdivisions; nonprofit
educational institutions organized or chartered under the laws of North
Carolina; or Guam, Puerto Rico or the Virgin Islands including the governments
thereof and their agencies, instrumentalities and authorities or (ii)
attributable to interest on direct obligations of the United States. These North
Carolina income tax exemptions will be available only if the North Carolina
Series complies with the requirement of the Internal Revenue Code that at least
50% of the value of its assets at the close of each quarter of its taxable year
is invested in state, municipal or other obligations the interest on which is
exempt from federal income tax under Section 103(a) of the Internal Revenue
Code.

Other distributions from the North Carolina Series (except distributions of
capital gains attributable to the sale by the North Carolina Series of an
obligation the profit from which is exempt by a North Carolina statute) will
generally not be exempt from North Carolina income tax.

Shares of the North Carolina Series will not be subject to an intangibles
tax in North Carolina.

The Series has obtained a ruling signed by the Director of and an
Information Release issued by the Individual Income Tax Division of the North
Carolina Department of Revenue which form the basis of the

B-58
<PAGE>
opinion of North Carolina tax counsel regarding the North Carolina income tax
consequences of investments in the North Carolina Series for individuals, trusts
and estates. The general practice in North Carolina is for taxpayers to rely on
rulings signed by a Division Director and Information Releases issued by a
Division.

Shareholders of the North Carolina Series should consult their tax advisers
about other state and local tax consequences of their investments in the North
Carolina Series.

OHIO. In the opinion of Ohio tax counsel, distributions with respect to
shares of the Ohio Series ("Distributions") that are properly attributable to
interest on, or profit made on the sale, exchange, or other disposition of, Ohio
Obligations are exempt from the Ohio personal income tax and municipal and
school district income taxes in Ohio, provided that the Ohio Series continues to
qualify as a regulated investment company for federal income tax purposes and
that at all times at least 50% of the value of the total assets of the Ohio
Series consists of Ohio Obligations, or similar obligations of other states or
their subdivisions (but not including, for this purpose, obligations of United
States territories or possessions). For purposes of this discussion of Ohio
taxes, (i) "Ohio Obligations" means only obligations issued by or on behalf of
the State of Ohio, political subdivisions thereof and agencies and
instrumentalities of the State or its political subdivisions and (ii) it is
assumed that the regulated investment company and 50% requirements described
above are satisfied.

Distributions are excluded from the net income base of the Ohio corporation
franchise tax to the extent that such Distributions are either excluded from
gross income for federal income tax purposes or are properly attributable to
interest on, or profit made on the sale, exchange or other disposition of, Ohio
Obligations. However, shares of the Ohio Series will be includable in the
computation of net worth for purposes of such tax.

Distributions that are properly attributable to interest on obligations of
the United States or its territories or possessions or of any authority,
commission or instrumentality of the United States the interest on which is
exempt from state income taxes under the laws of the United States (including
the obligations of the Governments of Puerto Rico, the Virgin Islands and Guam
("Territorial Obligations")) are exempt from the Ohio personal income tax and
municipal and school district income taxes in Ohio, and, provided, in the case
of Territorial Obligations, such interest is excluded from gross income for
federal income tax purposes, are excluded from the net income base of the Ohio
corporation franchise tax.

Other Distributions will generally not be exempt from Ohio income tax.

Shareholders of the Ohio Series should consult their tax advisers about
other state and local tax consequences of their investments in the Ohio Series.

PENNSYLVANIA. Under Pennsylvania law, individual shareholders of the
Pennsylvania Series who are residents of Pennsylvania will not be subject to
Pennsylvania personal income tax on distributions received from the Pennsylvania
Series to the extent such distributions are attributable to interest on
tax-exempt obligations of the Commonwealth and its political subdivisions and
authorities or of qualifying issuers in Puerto Rico, the Virgin Islands and
Guam. Other distributions from the Pennsylvania Series will generally not be
exempt from Pennsylvania personal income tax. Distributions paid by the
Pennsylvania Series will also be exempt from the Philadelphia School District
investment net income tax for individuals who are residents of the City of
Philadelphia to the extent such distributions are derived from interest on
tax-exempt obligations of the Commonwealth and its political subdivisions and
authorities or of qualifying issuers in Puerto Rico, the Virgin Islands and
Guam, or to the extent such distributions are designated as capital gain
dividends for federal income tax purposes.

Corporations that are subject to the Pennsylvania corporate net income tax
will not be subject to tax on distributions received from the Pennsylvania
Series provided that such distributions are not included in federal taxable
income determined before net operating loss deductions and special deductions.
As a result of a pronouncement by the Pennsylvania Department of Revenue, an
investment in the Pennsylvania Series by a corporate shareholder will apparently
qualify as an exempt asset for purposes of the single asset apportionment
fraction available in computing the Pennsylvania capital stock/foreign franchise
tax to the extent that the portfolio securities of the Pennsylvania Series
comprise investments in Pennsylvania and/or United States Government Securities
that would be exempt assets if owned directly by the corporation.

B-59
<PAGE>
The Pennsylvania Series will not be treated as a taxable entity and
therefore will not be subject to the Pennsylvania personal income tax or
corporate net income tax.

In addition, shares of the Pennsylvania Series will not be subject to
personal property taxation in Pennsylvania to the extent that the portfolio
securities owned by the Pennsylvania Series on the annual assessment date would
not be subject to such taxation if owned by a resident of Pennsylvania. Because
the Pennsylvania Series will invest predominantly in obligations of the
Commonwealth and its political subdivisions and authorities, which obligations
are not subject to personal property taxation in Pennsylvania, only a small
fraction, if any, of the value of the shares of the Pennsylvania Series would be
subject to such tax.

Shareholders of the Pennsylvania Series should consult their tax advisers
about other state and local tax consequences of their investments in the
Pennsylvania Series.

ORGANIZATION AND CAPITALIZATION

The Fund is a Massachusetts business trust established under a Declaration
of Trust dated May 18, 1984, as amended. The Declaration of Trust and the
By-Laws of the Fund are designed to make the Fund similar in most respects to a
Massachusetts business corporation. The principal distinction between the two
forms relates to shareholder liability; under Massachusetts law, shareholders of
a business trust may, in certain circumstances, be held personally liable as
partners for the obligations of the Fund, which is not the case with a
corporation. The Declaration of Trust of the Fund provides that shareholders
shall not be subject to any personal liability for the acts or obligations of
the Fund and that every written obligation, contract, instrument or undertaking
made by the Fund shall contain a provision to the effect that the shareholders
are not individually bound thereunder.

Massachusetts counsel for the Fund has advised the Fund that no personal
liability will attach to the shareholders under any undertaking containing such
provision when adequate notice of such provision is given, except possibly in a
few jurisdictions. With respect to all types of claims in the latter
jurisdictions and with respect to tort claims, contract claims where the
provision referred to is omitted from the undertaking, claims for taxes and
certain statutory liabilities in other jurisdictions, a shareholder may be held
personally liable to the extent that claims are not satisfied by the Fund.
However, upon payment of any such liability the shareholder will be entitled to
reimbursement from the general assets of the Fund. The Trustees intend to
conduct the operations of the Fund, with the advice of counsel, in such a way so
as to avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Fund.

The Declaration of Trust further provides that no Trustee, officer, employee
or agent of the Fund is liable to the Fund or to a shareholder, nor is any
Trustee, officer, employee or agent liable to any third persons in connection
with the affairs of the Fund, except as such liability may arise from his, her
or its own bad faith, willful misfeasance, gross negligence or reckless
disregard of his, her or its duties. It also provides that all third parties
shall look solely to the Fund property or the property of the appropriate series
of the Fund for satisfaction of claims arising in connection with the affairs of
the Fund or of the particular series of the Fund, respectively. With the
exceptions stated, the Declaration of Trust permits the Trustees to provide for
the indemnification of Trustees, officers, employees or agents of the Fund
against all liability in connection with the affairs of the Fund.

Other distinctions between a corporation and a Massachusetts business trust
include the requirement that corporations hold annual meetings of shareholders,
which business trusts are not required to do.

The Fund and all series thereof shall continue without limitation of time
subject to the provisions in the Declaration of Trust concerning termination by
action of the shareholders or by the Trustees by written notice to the
shareholders.

The authorized capital of the Fund consists of an unlimited number of shares
of beneficial interest, $.01 par value, issued in separate series. Each series
of the Fund, for federal income tax and Massachusetts state law purposes, will
constitute a separate trust which will be governed by the provisions of the
Declaration of Trust. All shares of any series of the Fund issued and
outstanding will be fully paid and non-assessable by the Fund. Each share of
each series represents an equal proportionate interest in that series with each
other share of that series. The assets of the Fund received for the issue or
sale of the shares of each series and all income, earnings,

B-60
<PAGE>
profits and proceeds thereof, subject only to the rights of creditors of such
series, are specially allocated to such series and constitute the underlying
assets of such series. The underlying assets of each series are segregated on
the books of account and are to be charged with the liabilities in respect to
such series and with a share of the general liabilities of the Fund. Under no
circumstances would the assets of a series be used to meet liabilities which are
not otherwise properly chargeable to it. Expenses with respect to any two or
more series are to be allocated in proportion to the asset value of the
respective series except where allocations of direct expenses can otherwise be
fairly made. The officers of the Fund, subject to the general supervision of the
Trustees, have the power to determine which liabilities are allocable to a given
series or which are general or allocable to two or more series. Upon redemption
of shares of a series of the Fund, the shareholder will receive proceeds solely
of the assets of such series. In the event of the dissolution or liquidation of
the Fund, the holders of the shares of any series are entitled to receive as a
class the underlying assets of such series available for distribution to
shareholders.

Shares of the Fund entitle their holders to one vote per share. However, on
any matter submitted to a vote of the shareholders, all shares then entitled to
vote will be voted by individual series, unless otherwise required by the
Investment Company Act (in which case all shares will be voted in the
aggregate). For example, a change in investment policy for a series would be
voted upon only by shareholders of the series involved. Additionally, approval
of the investment advisory agreement is a matter to be determined separately by
each series. Approval by the shareholders of one series is effective as to that
series whether or not enough votes are received from the shareholders of the
other series to approve the proposal as to those series.

The Fund does not intend to hold annual meetings of shareholders.

Pursuant to the Declaration of Trust, the Trustees may authorize the
creation of additional series of shares (the proceeds of which would be invested
in separate, independently managed portfolios with distinct investment
objectives and policies and share purchase, redemption and net asset valuation
procedures) and additional classes of shares within any series (which would be
used to distinguish among the rights of different categories of shareholders, as
might be required by future regulations or other unforeseen circumstances) with
such preferences, privileges, limitations and voting and dividend rights as the
Trustees may determine. All consideration received by the Fund for shares of any
additional series or class, and all assets in which such consideration is
invested, would belong to that series or class (subject only to the rights of
creditors of such series or class) and would be subject to the liabilities
related thereto. Pursuant to the Investment Company Act, shareholders of any
additional series or class of shares would normally have to approve the adoption
of any advisory contract relating to such series or class and of any changes in
the investment policies related thereto.

The Trustees themselves have the power to alter the number and the terms of
office of the Trustees, and they may at any time lengthen their own terms or
make their terms of unlimited duration (subject to removal upon the action of
two-thirds of the outstanding shares of beneficial interest) and appoint their
own successors, provided that always at least a majority of the Trustees have
been elected by the shareholders of the Fund. The voting rights of shareholders
are not cumulative, so that holders of more than 50 percent of the shares voting
can, if they choose, elect all Trustees being selected, while the holders of the
remaining shares would be unable to elect any Trustees.

CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
AND INDEPENDENT ACCOUNTANTS

State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities and
cash and in that capacity maintains cash and certain financial and accounting
books and records pursuant to an agreement with the Fund. See "How the Fund is
Managed-- Custodian and Transfer and Dividend Disbursing Agent" in the
Prospectus of each series.

Prudential Mutual Fund Services LLC (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as Transfer and Dividend Disbursing Agent of the Fund. Its
mailing address is P.O. Box 15005, New Brunswick, New Jersey 08906-5005. PMFS is
a wholly-owned subsidiary of PIFM. PMFS provides customary transfer agency
services to the Fund, including the handling of shareholder communications, the
processing of shareholder transactions, the maintenance of shareholder account
records, payment of dividends and distributions

B-61
<PAGE>
and related functions. For these services, PMFS receives an annual fee of $13.00
per shareholder account, in addition to a new set up fee of $2.00 for each
manually established account and a monthly inactive zero balance account fee of
$20.00 per shareholder account. PMFS is also reimbursed for its out-of-pocket
expenses, including but not limited to postage, stationery, printing, allocable
communication and other costs. For the fiscal year ended August 31, 1998, the
Fund incurred fees for the services of PMFS in the following amounts with
respect to each currently existing series:

<TABLE>
<CAPTION>
TRANSFER AGENCY
SERIES FEES
- ---------------------------------------------------- ----------------
<S> <C>
Connecticut Money Market............................ $ 33,000
Florida............................................. 43,000
Maryland............................................ 30,000
Massachusetts....................................... 32,000
Massachusetts Money Market.......................... 23,000
Michigan............................................ 44,000
New Jersey.......................................... 100,000
New Jersey Money Market............................. 74,000
New York............................................ 140,000
New York Money Market............................... 130,000
North Carolina...................................... 31,000
Ohio................................................ 57,000
Pennsylvania........................................ 160,000
</TABLE>

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

DESCRIPTION OF TAX-EXEMPT 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 edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

Aa: Bonds 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 that
make the long-term risks appear somewhat larger than in 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.

Bonds rated within the Aa, A and Baa categories which Moody's believes
possess the strongest credit attributes within those categories are designated
by the symbols Aa1, A1 and Baa1.

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.

B-62
<PAGE>
MIG 1: Loans bearing the designation MIG 1 are of the best quality,
enjoying 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, with
margins of protection ample although not so large as in the preceding group.

MIG 3: Loans bearing the designation MIG 3 are of favorable quality, with
all security elements accounted for but lacking the 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.

SHORT-TERM DEBT RATINGS

Moody's Short-Term Debt Ratings are opinions of the ability of issuers to
repay punctually senior debt obligations having an original maturity not
exceeding one year.

Prime-1: Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations.

Prime-2: Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations.

STANDARD & POOR'S RATINGS GROUP

BOND 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 issues 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 for debt in higher-rated categories.

COMMERCIAL PAPER RATINGS

An S&P Commercial Paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.

A-1: This highest category 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 this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.

MUNICIPAL NOTES

A municipal note rating reflects the liquidity concerns and market access
risks unique to municipal notes. Municipal notes maturing in three years or less
will likely receive a municipal note rating, while notes maturing beyond three
years will most likely receive a long-term debt rating. The designation SP-1
indicates a strong capacity to pay principal and interest. Those issues
determined to possess very strong safety characteristics are given a plus sign
(+) designation. An SP-2 designation indicates a satisfactory capacity to pay
principal and interest, with some vulnerability to adverse financial and
economic changes over the term of the notes.

B-63
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Portfolio of Investments as
of August 31, 1998 FLORIDA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--98.2%
- ------------------------------------------------------------------------------------------------------------------------------
Alachua Cnty. Ind. Dev. Auth. Rev., H.B. Fuller Co.
Proj., A.M.T. Aaa 7.75% 11/01/16 $ 3,000 $ 3,145,170
Arbor Greene Cmty. Dev. Dist.,
Florida Assmt. Rev. NR 5.75 5/01/06 700 705,152
Florida Assmt. Rev. NR 6.30 5/01/19 350 355,786
Bayside Impvt. Cmty. Dev. Dist., Florida Cap. Impvt.
Rev., Ser. A NR 6.30 5/01/18 1,000 1,011,420
Brevard Cnty. Edl. Facs. Auth. Rev. Ref., Florida Inst.
of Tech. BBB(b) 6.875 11/01/22 1,500 1,616,535
Brevard Cnty. Sch. Brd. Ctfs. of Part., Ser. A,
A.M.B.A.C. Aaa 6.50 7/01/12 3,500 (d) 3,893,190
Broward Cnty. Edl. Facs. Auth. Rev., Nova Univ. Dorm.
Proj., Ser. A NR 7.50 4/01/17 1,500 (d) 1,661,310
Broward Cnty. Hlth. Facs. Auth., North Beach Hosp.,
M.B.I.A. Aaa 6.75 8/15/06 1,000 1,095,770
Broward Cnty. Hsg. Fin. Auth., Multi. Fam. Hsg. Rev.,
Cross Keys Apts. Proj., Ser. A, A.M.T. NR 5.75 10/01/28 1,300 1,327,196
Broward Cnty. Prof. Sports Facs. Rev., Civic Arena
Proj., Ser. A Aaa 5.625 9/01/28 2,185 2,310,572
Clay Cnty. Hsg. Fin. Auth. Rev., Sngl. Fam. Mtge.,
Ser. A, A.M.T., G.N.M.A. Aa1 7.45 9/01/23 375 395,801
Dade Cnty. Aviation Dept. Rev.,
Ser. B, A.M.T., M.B.I.A. Aaa 6.00 10/01/24 1,500 1,621,785
Ser. E, A.M.B.A.C. Aaa 5.50 10/01/10 1,000 1,083,340
Dade Cnty. Edl. Facs. Auth. Rev. Ref., Univ. Miami,
Ser. A, M.B.I.A. Aaa 5.625 4/01/06 2,015 2,205,236
Dade Cnty. Hlth. Facs. Auth. Rev., Baptist Hosp. of
Miami Proj., Ser. A, E.T.M., M.B.I.A. Aaa 6.75 5/01/08 500 572,105
Dade Cnty. Hsg. Fin. Auth. Rev.,
Multi. Fam. Mtge., Golden Lakes Apts. Proj., Ser. A,
A.M.T. NR 6.05 11/01/39 1,000 1,039,420
Sngl. Fam. Mtge., Ser. B, A.M.T., G.N.M.A Aaa 7.25 9/01/23 345 363,375
Sngl. Fam. Mtge., Ser. C, A.M.T., G.N.M.A. Aaa 7.75 9/01/22 655 687,815
Dade Cnty. Prof. Sports Franchise Facs. Tax Rev.,
E.T.M., M.B.I.A. Aaa 5.25 10/01/30 4,200 4,464,642
Duval Cnty. Hsg. Fin. Auth. Rev., Sngl. Fam. Mtge.,
A.M.T., G.N.M.A. AAA(b) 8.375 12/01/14 310 340,510
Escambia Cnty. Hlth. Fac. Rev., Baptist Hosp. & Baptist
Manor A3 5.125 10/01/19 2,000 1,970,760
Escambia Cnty. Poll. Ctrl. Rev., Champion Int'l. Corp.
Proj., A.M.T. Baa1 6.90 8/01/22 3,500 3,897,635
Florida Hsg. Fin. Corp. Rev.,
Cypress Trace Apts., Ser. G, A.M.T. NR 6.60 7/01/38 1,220 1,229,821
Westchase Apts., Ser. B, A.M.T. NR 6.61 7/01/38 1,510 1,523,394
Florida St. Brd. of Ed. Cap. Outlay, Ref. Pub. Ed.,
Ser. D Aa2 4.75 6/01/22 1,000 961,370
Florida St. Mun. Pwr. Agcy. Ref., Stanton II Proj.,
A.M.B.A.C. Aaa 4.50 10/01/27 2,000 1,837,440
Greater Orlando Aviation Rev. Auth. Facs., Orlando
Arpt.,
A.M.T., F.G.I.C. Aaa 5.25 10/01/23 2,000 2,025,060
Hialeah Hsg. Auth. Rev., F.H.A., G.N.M.A. AAA(b) 5.80 6/20/33 2,000 2,119,460
Hillsborough Cnty. Ind. Dev. Auth. Poll. Ctrl. Rev.,
Tampa Elec. Proj., Ser. 92 Aa3 8.00 5/01/22 1,750 2,021,985
Jacksonville Elec. Auth. Rev., St. Johns Rvr. Pwr. Park
Issue 2, Ser. 7 Aa2 Zero 10/01/10 3,000 1,737,810
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-64

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Portfolio of Investments as
of August 31, 1998 FLORIDA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Jacksonville Hlth. Facs. Auth. Hosp. Rev.,
Nat'l. Ben. Assoc. Baa1 7.00% 12/01/22 $ 1,825 $ 2,004,397
St. Lukes Hosp. Assoc. Proj. AA+(b) 7.125 11/15/20 1,000 1,098,270
Jacksonville Swr. & Sld. Wste. Disp. Facs. Rev.,
Anheuser Busch Proj., A.M.T. A1 5.875 2/01/36 1,000 1,063,490
Jacksonville Wtr. & Swr. Dev. Rev.,
Suburban Utils., A.M.T. A3 6.75 6/01/22 1,000 1,087,310
United Wtr. Proj., A.M.T., A.M.B.A.C. Aaa 6.35 8/01/25 1,500 1,683,450
Lake Cnty. Res. Recov. Ind. Dev. Rev., NRG Recov. Grp.,
Ser. A, A.M.T. Baa 5.95 10/01/13 1,035 1,079,205
Lakeland Elec. & Wtr. Rev. A1 5.625 10/01/36 5,000 5,253,000
Largo Cnty. Hosp. Rev., Sun Coast Hlth. Sys. BB+(b) 6.30 3/01/20 2,000 2,032,560
Leon Cnty. Hsg. Fin. Auth. Rev., Sngl. Fam. Mtge., Ser.
A,
A.M.T., G.N.M.A. Aaa 7.30 4/01/21 325 341,884
Martin Cnty. Ind. Dev. Auth. Rev., Indiantown Cogen.
Proj.,
Ser. A, A.M.T. Baa3 7.875 12/15/25 1,200 1,410,720
Miami Spec. Oblig.,
Admn. Bldg. Acquis. Proj., F.G.I.C. Aaa 6.00 2/01/16 1,500 1,652,565
Admn. Bldg. Acquis. Proj., F.G.I.C. Aaa 6.00 2/01/25 500 549,915
Miami-Dade Cnty. Prof. Sports Fac. Tax Cap. Apprec.
Ref., M.B.I.A. Aaa Zero 10/01/16 2,650 1,096,464
Mirimar Wste. Wtr. Impvt. Assmt. Rev., F.G.I.C. Aaa 6.75 10/01/16 2,500 2,846,875
Mount Dora Wtr. & Swr. Rev., F.S.A. Aaa 5.00 10/01/18 1,350 1,353,362
Northern Palm Beach Cnty. Impt. Ref., Wtr. Ctl. & Impt. NR 6.00 8/01/10 1,280 1,301,734
Okaloosa Cnty. Cap. Impvt. Rev., M.B.I.A. Aaa Zero 12/01/06 450 318,078
Orange Cnty. Hsg. Fin. Auth. Mtge. Rev., Ser. A,
A.M.T., G.N.M.A. AAA(b) 7.375 9/01/24 420 445,708
Orange Cnty. Hsg. Fin. Auth. Rev.,
Multi. Fam. Ashley Point Apts., Ser. A, A.M.T. BBB+(b) 6.85 10/01/16 1,200 1,247,148
Multi. Fam. Ashley Point Apts., Ser. A, A.M.T. BBB+(b) 7.10 10/01/24 855 888,431
Orlando Util. Comm., Wtr. & Elec. Rev., Ser. D Aa2 6.75 10/01/17 2,200 2,713,238
Palm Beach Cnty. Hlth. Facs. Auth. Rev.,
Abbey Delray South Proj. BBB(b) 5.50 10/01/11 750 756,900
Good Samaritan Hlth. Sys. Aaa 6.30 10/01/22 1,000 (d) 1,136,650
Palm Beach Cnty. Hsg. Fin. Multi. Fam. Auth. Rev.,
Windsor Pk. Apts., A.M.T. NR 5.80 12/01/28 680 704,568
Palm Beach Cnty. Sld. Wste. Auth. Rev. Ref., Cap.
Apprec. Bds.,
Ser. A, A.M.B.A.C. Aaa Zero 10/01/12 4,000 2,042,440
Palm Beach Cnty., Gen. Oblig. Aa2 5.50 12/01/14 2,000 2,189,820
Pensacola Hlth. Facs. Auth., Daughters of Charity,
M.B.I.A. Aaa 5.25 1/01/11 1,600 1,665,392
Polk Cnty. Ind. Dev. Auth., Sld. Wste. Disp. Fac. Rev.,
Tampa Elec. Co. Proj., A.M.T. Aa2 5.85 12/01/30 1,500 1,603,635
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-65

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Portfolio of Investments as
of August 31, 1998 FLORIDA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Puerto Rico Comnwlth.,
Cap. Apprec. Ref. Pub. Impvt., Gen. Oblig. Baa1 Zero 7/01/15 $ 2,235 $ 979,712
Cap. Apprec. Ref. Pub. Impvt., Gen. Oblig. Baa1 Zero 7/01/16 2,500 1,041,650
Cap. Apprec. Ref. Pub. Impvt., Gen. Oblig. Baa1 Zero 7/01/17 5,300 2,098,641
Gen. Oblig. Aaa 6.45% 7/01/17 1,400 (d) 1,598,968
Gen. Oblig. Aaa 6.50 7/01/23 650 (d) 744,055
Puerto Rico Elec. Pwr. Auth. Rev., Ser. R Baa1 6.25 7/01/17 5,000 (d) 5,486,500
Puerto Rico Tel. Auth. Rev., Ser. I, M.B.I.A. Aaa 7.118 (c) 1/16/15 2,250 2,427,188
St. Petersburg Hlth. Facs. Auth. Rev., Allegheny Hlth.
Proj., M.B.I.A. Aaa 7.00 12/01/15 1,000 (d) 1,116,220
Sunrise Pub. Facs. Rev. Cap. Apprec., Ser. B, M.B.I.A. Aaa Zero 10/01/20 1,120 383,712
Sunrise Util. Sys. Rev. Ref., A.M.B.A.C. Aaa 5.50 10/01/18 2,000 2,170,960
Tampa Gtd. Entitlement Rev., A.M.B.A.C. Aaa 7.05 10/01/07 2,000 2,214,920
Tampa Sports Auth. Rev., Tampa Bay Arena Proj.,
M.B.I.A. Aaa 5.75 10/01/20 1,000 1,122,580
Virgin Islands Pub. Fin. Auth. Rev., Ser. E NR 6.00 10/01/22 1,000 1,043,660
Volusia Cnty. Edl. Fac. Auth. Rev., Embry Riddle Univ. AAA(b) 6.625 10/15/22 1,000 1,103,290
Volusia Cnty. Hlth. Facs. Auth. Rev., Mem. Hlth. Sys.
Proj. NR 8.25 6/01/20 2,000 (d) 2,188,120
------------
Total Investments--98.2%
(cost $108,084,988; Note 4) 116,508,250
Other assets in excess of liabilities--1.8% 2,194,344
------------
Net Assets--100% $118,702,594
------------
------------
</TABLE>
- ---------------
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance Corporation.
A.M.T.--Alternative Minimum Tax.
E.T.M.--Escrowed to Maturity.
F.G.I.C.--Financial Guaranty Insurance Company.
F.H.A.--Federal Housing Administration.
F.S.A.--Financial Security Assurance.
G.N.M.A.--Government National Mortgage Association.
M.B.I.A.--Municipal Bond Insurance Corporation.
(b) Standard & Poor's Rating.
(c) Inverse floating rate bond. The coupon is inversely indexed to a floating
interest rate. The rate shown is the rate at period-end.
(d) Prerefunded issues are secured by escrowed cash and direct U.S. guaranteed
obligations.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a description of
Moody's and Standard & Poor's ratings.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-66

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Statement of Assets and Liabilities FLORIDA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets August 31, 1998
<S> <C>
Investments, at value (cost $108,084,988)................................................................. $ 116,508,250
Cash...................................................................................................... 1,714,638
Interest receivable....................................................................................... 1,911,954
Receivable for investment sold............................................................................ 542,424
Receivable for Series shares sold......................................................................... 303,312
Other assets.............................................................................................. 3,090
---------------
Total assets........................................................................................... 120,983,668
---------------
Liabilities
Payable for investments purchased......................................................................... 1,995,520
Dividends payable......................................................................................... 87,718
Payable for Series shares reacquired...................................................................... 74,686
Management fee payable.................................................................................... 49,956
Accrued expenses.......................................................................................... 47,442
Distribution fee payable.................................................................................. 21,625
Deferred trustees' fees................................................................................... 4,127
---------------
Total liabilities...................................................................................... 2,281,074
---------------
Net Assets................................................................................................ $ 118,702,594
---------------
---------------
Net assets were comprised of:
Shares of beneficial interest, at par.................................................................. $ 110,554
Paid-in capital in excess of par....................................................................... 110,694,269
---------------
110,804,823
Accumulated net realized loss on investments........................................................... (525,491)
Net unrealized appreciation on investments............................................................. 8,423,262
---------------
Net assets, August 31, 1998............................................................................... $ 118,702,594
---------------
---------------
Class A:
Net asset value and redemption price per share
($88,044,850 / 8,200,226 shares of beneficial interest issued and outstanding)...................... $10.74
Maximum sales charge (3% of offering price)............................................................ .33
---------------
Maximum offering price to public....................................................................... $11.07
---------------
---------------
Class B:
Net asset value, offering price and redemption price per share
($22,755,385 / 2,119,189 shares of beneficial interest issued and outstanding)...................... $10.74
---------------
---------------
Class C:
Net asset value, offering price and redemption price per share
($7,519,795 / 700,324 shares of beneficial interest issued and outstanding)......................... $10.74
---------------
---------------
Class Z:
Net asset value, offering price and redemption price per share
($382,564 / 35,645 shares of beneficial interest issued and outstanding)............................ $10.73
---------------
---------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-67

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income August 31, 1998
<S> <C>
Income
Interest................................. $ 6,783,356
---------------
Expenses
Management fee........................... 596,439
Distribution fee--Class A................ 90,437
Distribution fee--Class B................ 105,768
Distribution fee--Class C................ 54,935
Custodian's fees and expenses............ 80,000
Reports to shareholders.................. 46,000
Transfer agent's fees and expenses....... 43,000
Registration fees........................ 37,000
Legal fees and expenses.................. 12,000
Audit fees and expenses.................. 10,000
Trustees' fees........................... 4,000
Miscellaneous............................ 2,530
---------------
Total expenses........................ 1,082,109
Less: Custodian fee credit............... (2,177)
---------------
Net expenses.......................... 1,079,932
---------------
Net investment income....................... 5,703,424
---------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions.................. 1,164,335
Financial futures transactions........... (149,091)
---------------
1,015,244
Net change in unrealized appreciation on:
Investments.............................. 2,637,763
---------------
Net gain on investments..................... 3,653,007
---------------
Net Increase in Net Assets
Resulting from Operations................... $ 9,356,431
---------------
---------------
</TABLE>

PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Decrease in Year Ended August 31,
Net Assets 1998 1997
<S> <C> <C>
Operations
Net investment income.......... $ 5,703,424 $ 6,420,500
Net realized gain (loss) on
investment transactions..... 1,015,244 (79,447)
Net change in unrealized
appreciation of
investments................. 2,637,763 3,713,700
------------ ------------
Net increase in net assets
resulting from operations... 9,356,431 10,054,753
------------ ------------
Dividends and Distributions (Note
1):
Dividends from net investment
income
Class A..................... (4,423,732) (5,200,369)
Class B..................... (950,402) (864,744)
Class C..................... (310,707) (353,934)
Class Z..................... (18,583) (1,453)
------------ ------------
(5,703,424) (6,420,500)
------------ ------------
Distributions in excess of net
investment income
Class A..................... -- (57,916)
Class B..................... -- (4,473)
Class C..................... -- (10,023)
------------ ------------
-- (72,412)
------------ ------------
Series share transactions (net of
share conversions) (Note 5):
Net proceeds from shares
sold........................ 12,853,726 13,962,419
Net asset value of shares
issued in reinvestment of
dividends and
distributions............... 2,414,093 2,752,296
Cost of shares reacquired...... (19,046,916) (25,937,462)
------------ ------------
Net decrease in net assets from
Series share transactions... (3,779,097) (9,222,747)
------------ ------------
Total decrease.................... (126,090) (5,660,906)
Net Assets
Beginning of year................. 118,828,684 124,489,590
------------ ------------
End of year....................... $118,702,594 $118,828,684
------------ ------------
------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-68

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements FLORIDA SERIES
- --------------------------------------------------------------------------------
Prudential Municipal Series Fund, (the "Fund") is registered under the
Investment Company Act of 1940, as an open-end investment company. The Fund was
organized as a Massachusetts business trust on May 18, 1984 and consists of 13
series. The monies of each series are invested in separate, independently
managed portfolios. The Florida Series (the "Series") commenced investment
operations on December 28, 1990. The Series is nondiversified and seeks to
achieve its investment objective of providing the maximum amount of income that
is exempt from federal income taxes with the minimum of risk, and investing in
securities which will enable its shares to be exempt from the Florida
intangibles tax by investing in "investment grade" tax-exempt securities whose
ratings are within the four highest ratings categories by a nationally
recognized statistical rating organization or, if not rated, are of comparable
quality. The ability of the issuers of the securities held by the Series to meet
their obligations may be affected by economic developments in a specific state,
industry or region.

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

Note 1. Accounting Policies

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

Securities Valuations: The Fund values municipal securities (including
commitments to purchase such securities on a "when-issued" basis) on the basis
of prices provided by a pricing service which uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities in
determining values. If market quotations are not readily available from such
pricing service, a security is valued at its fair value as determined under
procedures established by the Trustees.

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

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

Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Series is required to pledge to the broker an amount of cash and/or other
assets equal to a certain percentage of the contract amount. This amount is
known as the "initial margin." Subsequent payments, known as "variation margin,"
are made or received by the Series each day, depending on the daily fluctuations
in the value of the underlying security. Such variation margin is recorded for
financial statement purposes on a daily basis as unrealized gain or loss. When
the contract expires or is closed, the gain or loss is realized and is presented
in the statement of operations as net realized gain (loss) on financial futures
contracts.

The Series invests in financial futures contracts in order to hedge its existing
portfolio securities, or securities the Series intends to purchase, against
fluctuations in value caused by changes in prevailing interest rates. Should
interest rates move unexpectedly, the Series may not achieve the anticipated
benefits of the financial futures contracts and may realize a loss. The use of
futures transactions involves the risk of imperfect correlation in movements in
the price of futures contracts, interest rates and the underlying hedged assets.

Securities Transactions and Net Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis. The Series amortizes premiums and accretes original issue
discount on portfolio securities as adjustments to interest income. Expenses are
recorded on the accrual basis which may require the use of certain estimates by
management.

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

Federal Income Taxes: For federal income tax purposes, each series in the Fund
is treated as a separate taxpaying entity. It is the intent of the Series to
meet the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its net income to shareholders.
For this reason no federal income tax provision is required.

Dividends and Distributions: The Series declares daily dividends from net
investment income. Payment of dividends is made monthly. Distributions of net
capital gains, if any, are made annually.

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

Custody Fee Credits: The Fund has an arrangement with its custodian bank,
whereby uninvested monies earn credits which reduce the fees charged by the
custodian.
- --------------------------------------------------------------------------------
B-69
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements FLORIDA SERIES
- --------------------------------------------------------------------------------
Note 2. Agreements

The Fund has a management agreement with Prudential Investments Fund Management
LLC ("PIFM"). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PIFM has entered into a subadvisory agreement with The Prudential
Investment Corporation ("PIC"). PIC furnishes investment advisory services in
connection with the management of the Fund. PIFM pays for the cost of the
subadviser's services, the compensation of officers and employees of the Fund,
occupancy and certain clerical and bookkeeping costs of the Fund. The Fund bears
all other costs and expenses.

The management fee paid PIFM is computed daily and payable monthly, at an annual
rate of .50 of 1% of the average daily net assets of the Series.

The Fund had a distribution agreement with Prudential Securities Incorporated
("PSI"), which acted as the distributor of the Class A, Class B, Class C and
Class Z shares of the Fund through May 31, 1998. Prudential Investment
Management Services LLC ("PIMS") became the distributor of the Fund effective
June 1, 1998 and is serving the Fund under the same terms and conditions as
under the arrangement with PSI. The Fund compensated PSI and PIMS for
distributing and servicing the Fund's Class A, Class B and Class C shares
pursuant to plans of distribution (the "Class A, B and C Plans"), regardless of
expenses actually incurred by them. The distribution fees are accrued daily and
payable monthly. No distribution or service fees are paid to PSI or PIMS as
distributor of the Class Z shares of the Fund.

Pursuant to the Class A, B and C Plans, the Fund compensates PIMS for
distribution-related activities at an annual rate of up to .30 of 1%, .50 of 1%
and .75 of 1% of the average daily net assets of the Class A, B and C shares,
respectively. Such expenses under the Plans were .10 of 1%, .50 of 1% and .75 of
1% of the average daily net assets of the Class A, B and C shares, respectively,
for the year ended August 31, 1998.

PSI and PIMS have advised the Series that they have received approximately
$55,400 in front-end sales charges resulting from sales of Class A shares during
the year ended August 31, 1998. From these fees, PSI and PIMS paid such sales
charges to affiliated broker-dealers, which in turn paid commissions to
salespersons and incurred other distribution costs.

PSI and PIMS have advised the Series that for the year ended August 31, 1998,
they received approximately $47,200 in contingent deferred sales charges imposed
upon certain redemptions by Class B shareholders.

PIFM, PIMS, PIC and PSI are indirect, wholly owned subsidiaries of The
Prudential Insurance Company of America.

The Series, along with other affiliated registered investment companies (the
"Funds"), has a credit agreement (the "Agreement") with an unaffiliated lender.
The maximum commitment under the Agreement is $200,000,000. Interest on any such
borrowings outstanding will be at market rates. The purpose of the Agreement is
to serve as an alternative source of funding for capital share redemptions. The
Series has not borrowed any amounts pursuant to the Agreement during the year
ended August 31, 1998. The Funds pay a commitment fee at an annual rate of .055
of 1% on the unused portion of the credit facility. The commitment fee is
accrued and paid quarterly on a pro rata basis by the Funds. The Agreement
expired on December 30, 1997 and has been extended through December 29, 1998
under the same terms.

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

Note 3. Other Transactions with Affiliates

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

Note 4. Portfolio Securities

Purchases and sales of portfolio securities of the Series, excluding short-term
investments, for the year ended August 31, 1998 were $40,612,771 and
$43,660,447, respectively.

The cost basis of investments for federal income tax purposes at August 31, 1998
was substantially the same as for financial reporting purposes and accordingly,
gross and net unrealized appreciation of investments for federal income tax
purposes was $8,423,262.

The Series has a capital loss carryforward as of August 31, 1998 of
approximately $536,600 of which $404,000 expires in 2003 and $132,600 expires in
2005. Accordingly, no capital gains distribution is expected to be paid until
net gains have been realized in excess of the carryforward.

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

Note 5. Capital

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements FLORIDA SERIES
- --------------------------------------------------------------------------------
to zero depending on the period of time the shares are held. Class C shares,
which prior to August 1, 1994 were known as D shares, are sold with a contingent
deferred sales charge of 1% during the first year. Class B shares will
automatically convert to Class A shares on a quarterly basis approximately seven
years after purchase. Special exchange privileges are also available for
shareholders who qualify to purchase Class A shares at net asset value. Class Z
shares are not subject to any sales or redemption charge and are offered
exclusively for sale to a limited group of investors. The Fund has authorized an
unlimited number of shares of beneficial interest of each class at $.01 par
value per share.

Transactions in shares of beneficial interest for the fiscal years ended August
31, 1998 and August 31, 1997 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------------ ---------- ------------
<S> <C> <C>
Year ended August 31, 1998:
Shares sold......................... 496,650 $ 5,262,990
Shares issued in reinvestment of
dividends......................... 175,293 1,856,501
Shares reacquired................... (1,398,423) (14,801,047)
---------- ------------
Net decrease in shares outstanding
before conversion................. (726,480) (7,681,556)
Shares issued upon conversion from
Class B........................... 34,627 367,509
---------- ------------
Net decrease in shares
outstanding....................... (691,853) $ (7,314,047)
---------- ------------
---------- ------------
Year ended August 31, 1997:
Shares sold......................... 494,435 $ 5,074,068
Shares issued in reinvestment of
dividends......................... 213,918 2,200,461
Shares reacquired................... (1,988,937) (20,452,223)
---------- ------------
Net decrease in shares outstanding
before conversion................. (1,280,584) (13,177,694)
Shares issued upon conversion from
Class B........................... 87,091 891,335
---------- ------------
Net decrease in shares
outstanding....................... (1,193,493) $(12,286,359)
---------- ------------
---------- ------------
<CAPTION>
Class B
- ------------------------------------
<S> <C> <C>
Year ended August 31, 1998:
Shares sold......................... 603,377 $ 6,389,159
Shares issued in reinvestment of
dividends ........................ 35,597 377,106
Shares reacquired................... (292,610) (3,103,941)
---------- ------------
Net increase in shares outstanding
before conversion................. 346,364 3,662,324
Shares reacquired upon conversion
into Class A...................... (34,615) (367,509)
---------- ------------
Net increase in shares
outstanding....................... 311,749 $ 3,294,815
---------- ------------
---------- ------------
<CAPTION>
Class B Shares Amount
- ------------------------------------ ---------- ------------
<S> <C> <C>
Year ended August 31, 1997:
Shares sold......................... 793,985 $ 8,170,066
Shares issued in reinvestment of
dividends ........................ 34,104 350,919
Shares reacquired................... (386,783) (3,982,887)
---------- ------------
Net increase in shares outstanding
before conversion................. 441,306 4,538,098
Shares reacquired upon conversion
into Class A...................... (87,091) (891,335)
---------- ------------
Net increase in shares
outstanding....................... 354,215 $ 3,646,763
---------- ------------
---------- ------------
<CAPTION>
Class C
- ------------------------------------
<S> <C> <C>
Year ended August 31, 1998:
Shares sold......................... 49,878 $ 532,045
Shares issued in reinvestment of
dividends......................... 15,365 162,725
Shares reacquired................... (69,449) (731,828)
---------- ------------
Net decrease in shares
outstanding....................... (4,206) $ (37,058)
---------- ------------
---------- ------------
Year ended August 31, 1997:
Shares sold......................... 60,503 $ 624,420
Shares issued in reinvestment of
dividends......................... 19,401 199,548
Shares reacquired................... (145,733) (1,501,101)
---------- ------------
Net decrease in shares
outstanding....................... (65,829) $ (677,133)
---------- ------------
---------- ------------
Class Z
- ------------------------------------
Year ended August 31, 1998:
Shares sold......................... 63,422 $ 669,532
Shares issued in reinvestment of
dividends......................... 1,673 17,761
Shares reacquired................... (38,487) (410,100)
---------- ------------
Net increase in shares
outstanding....................... 26,608 $ 277,193
---------- ------------
---------- ------------
December 6, 1996(a) through
August 31, 1997:
Shares sold......................... 9,024 $ 93,865
Shares issued in reinvestment of
dividends......................... 132 1,368
Shares reacquired................... (119) (1,251)
---------- ------------
Net increase in shares
outstanding....................... 9,037 $ 93,982
---------- ------------
---------- ------------
</TABLE>
- ------------------
(a) Commencement of offering of Class Z shares.
- --------------------------------------------------------------------------------
B-71

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights FLORIDA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
------------------------------------------------------
Year Ended August 31,
------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 10.41 $ 10.11 $10.06 $ 9.91 $ 10.87
------- ------- ------ ------- -------
Income from investment operations
Net investment income......................... .45 .48(a) .50(a) .53(a) .48(a)
Net realized and unrealized gain (loss) on
investment transactions.................... .33 .31 .05 .15 (.76)
------- ------- ------ ------- -------
Total from investment operations........... .78 .79 .55 .68 (.28)
------- ------- ------ ------- -------
Less distributions
Dividends from net investment income.......... (.45) (.48) (.50) (.53) (.48)
Distributions in excess of net investment
income..................................... -- (.01) -- -- --
Distributions from net realized gains......... -- -- -- -- (.20)
------- ------- ------ ------- -------
Total distributions........................ (.45) (.49) (.50) (.53) (.68)
------- ------- ------ ------- -------
Net asset value, end of period................ $ 10.74 $ 10.41 $10.11 $ 10.06 $ 9.91
------- ------- ------ ------- -------
------- ------- ------ ------- -------
TOTAL RETURN(b):.............................. 7.64% 7.95% 5.52% 7.12% (2.40)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $7,520 $7,336 $7,792 $9,028 $11,185
Average net assets (000)...................... $7,325 $7,575 $8,293 $10,265 $9,280
Ratios to average net assets:
Expenses, including distribution fees...... 1.45% 1.22%(a) 1.02%(a) .92%(a) .95%(a)
Expenses, excluding distribution fees...... .70% .47%(a) .27%(a) .17%(a) .20%(a)
Net investment income...................... 4.24% 4.67%(a) 4.91%(a) 5.35%(a) 4.99%(a)
<CAPTION>
Class Z
-------------------------
December 6,
1996(d)
Year Ended through
August 31, August 31,
1998 1997
---------- ------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 10.41 $ 10.36
---------- ------
Income from investment operations
Net investment income......................... .53 .41(a)
Net realized and unrealized gain (loss) on
investment transactions.................... .32 .06
---------- ------
Total from investment operations........... .85 .47
---------- ------
Less distributions
Dividends from net investment income.......... (.53) (.41)
Distributions in excess of net investment
income..................................... -- (.01)
Distributions from net realized gains......... -- --
---------- ------
Total distributions........................ (.53) (.42)
---------- ------
Net asset value, end of period................ $ 10.73 $ 10.41
---------- ------
---------- ------
TOTAL RETURN(b):.............................. 8.34% 4.57%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $383 $94
Average net assets (000)...................... $373 $36
Ratios to average net assets:
Expenses, including distribution fees...... .70% .47%(a)(c)
Expenses, excluding distribution fees...... .70% .47%(a)(c)
Net investment income...................... 4.99% 5.48%(a)(c)
</TABLE>
- ---------------
(a) Net of expense subsidy and fee waiver.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(c) Annualized.
(d) Commencement of offering of Class Z shares.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-74

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Report of Independent Accountants FLORIDA SERIES
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
Prudential Municipal Series Fund, Florida Series

In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Municipal Series Fund,
Florida Series (the "Fund", one of the portfolios constituting Prudential
Municipal Series Fund) at August 31, 1998, the results of its operations for the
year then ended and the changes in its net assets and the financial highlights
for each of the two years in the period then ended, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at August 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above. The accompanying financial highlights for each of
the three years in the period ended August 31, 1996 were audited by other
independent accountants, whose opinion dated October 14, 1996 was unqualified.

PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
October 21, 1998
- --------------------------------------------------------------------------------
B-75

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Federal Income Tax Information (Unaudited) FLORIDA SERIES
- --------------------------------------------------------------------------------
We are required by the Internal Revenue Code to advise you within 60 days of the
Series' fiscal year end (August 31, 1998) as to the federal tax status of
dividends paid by the Series during such fiscal year. Accordingly, we are
advising you that in the fiscal year ended August 31, 1998, dividends paid from
net investment income of $.52 per Class A share, $.48 per Class B share, $.45
per Class C share and $.53 per Class Z share were all federally tax-exempt
interest dividends.

We wish to advise you that the corporate dividends received deduction for the
Series is zero. Only funds that invest in U.S. equity securities are entitled to
pass-through a corporate dividends received deduction.

In January 1999 you will be advised on IRS Form 1099 DIV or substitute 1099 DIV
as to federal tax status of the distributions received by you in calendar year
1998.
- --------------------------------------------------------------------------------
B-76
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Portfolio of Investments as
of August 31, 1998 CONNECTICUT MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Ascension Parish Louisiana, Rev. Daily BASF Corp. Proj.,
Ser. 97, F.R.D.D., A.M.T. P-1 3.40% 9/01/98 $ 1,700 $ 1,700,000
Brazos River Texas, Dist. Rev., Dow Chemical, Ser. 98,
F.R.D.D., A.M.T. A-1(c) 3.55 9/01/98 1,100 1,100,000
Carroll Cnty., Kentucky, Solid Waste Disp. Facs. Rev.,
Kentucky Utility Proj., Ser. 94A, F.R.D.D., A.M.T. VMIG1 3.50 9/01/98 600 600,000
Charleston Cnty. South Carolina, Ind. Rev., Zeigler Coal
Hldg. Proj., Ser. 97, F.R.D.D., A.M.T. A-1+(c) 3.50 9/01/98 1,600 1,600,000
Cheshire Connecticut, Gen. Oblig., Ser. A Aa3 4.00 8/01/99 235 235,730
Connecticut St. Dev. Auth.,
Bradley Airport Hotel, Ser. 97A, F.R.W.D. VMIG1 3.10 9/03/98 1,000 1,000,000
Bradley Airport Hotel, Ser. 97B, F.R.W.D. VMIG1 3.10 9/03/98 3,000 3,000,000
Bradley Airport Hotel, Ser. 97C, F.R.W.D. VMIG1 3.10 9/03/98 1,400 1,400,000
Conco Proj., Ser. 85, F.R.W.D. P-1 3.05 9/03/98 1,700 1,700,000
Corp. for Independ. Living Proj., Ser. 90, F.R.W.D. VMIG1 2.95 9/02/98 2,350 2,350,000
Lt. & Pwr. Co. Proj., Ser. 93B, F.R.W.D., A.M.T. VMIG1 3.30 9/02/98 5,400 5,400,000
Poll. Ctrl. Rev., Conn. Lt. & Pwr. Co., Proj. A, Ser.
96A, F.R.W.D., A.M.B.A.C., A.M.T. P-1 3.25 9/03/98 2,200 2,200,000
Poll. Ctrl. Rev., W. Mass. Elec. Co., Ser. 93A, F.R.W.D. VMIG1 3.15 9/02/98 1,300 1,300,000
Rand Whitney Container Bd., Ser. 93, F.R.W.D., A.M.T. P-1 2.95 9/02/98 2,000 2,000,000
SHW Inc. Proj., Ser. 90, F.R.W.D., A.M.T. NR 3.15 9/02/98 4,500 4,500,000
Connecticut St. Gen. Oblig., Ser. B Aa3 5.65 11/15/98 1,500 1,506,473
Connecticut St. Hlth. & Edl. Facs. Auth. Rev.,
Bradley Hlth. Care, Ser. B, F.R.W.D. VMIG1 2.85 9/02/98 2,000 2,000,000
Charlotte Hungerford, Ser. C, F.R.W.D. VMIG1 2.80 9/03/98 1,500 1,500,000
Conn. St. Univ., Ser. B, A.M.B.A.C. Aaa 5.25 11/01/98 720 722,056
Pomfret School Issue, Ser. A, F.R.W.D. VMIG1 3.15 9/02/98 1,000 1,000,000
Sharon Hosp. Issue, Ser. A, F.R.W.D. VMIG1 3.15 9/03/98 1,400 1,400,000
Yale University., Ser. S, T.E.C.P. VMIG1 3.40 10/13/98 1,000 1,000,000
Yale University., Ser. S, T.E.C.P. VMIG1 3.45 1/15/99 3,400 3,400,000
Connecticut St. Spec. Assmt.,
Second Injury Fund, T.E.C.P. P-1 3.55 10/08/98 6,000 6,000,000
Unemployment Comp., Ser. 93C, A.N.N.M.T., F.G.I.C. VMIG1 3.60 7/01/99 5,100 5,100,000
Connecticut St. Spec. Tax Oblig., Trans. Infrastructure
Rev., Ser. 90I, F.R.W.D. VMIG1 3.30 9/02/98 5,035 5,035,000
Connecticut State, Gen. Oblig. Economic Recovery Nts., Ser.
95 Aa3 5.00 12/15/98 2,000 2,007,427
Darien Connecticut, Gen. Oblig. Aaa 4.50 4/15/99 755 759,231
Jackson Cnty. Mississippi, Chevron U.S.A. Inc. Proj., Ser.
94, F.R.D.D., A.M.T. P-1 3.50 9/01/98 1,200 1,200,000
New Fairfield Connecticut, Gen. Oblig., B.A.N. NR 3.75 11/19/98 3,545 3,546,334
Norwich Connecticut, Gen. Oblig., B.A.N. NR 3.60 11/10/98 2,700 2,700,151
Plainfield Connecticut, Gen. Oblig., T.A.N. NR 4.00 5/05/99 2,600 2,606,781
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-77

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Portfolio of Investments as
of August 31, 1998 CONNECTICUT MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Puerto Rico Commwlth., Government Development Bank, Ser.
85, F.R.W.D., M.B.I.A. VMIG1 2.50% 9/02/98 $ 200 $ 200,000
Puerto Rico Hsg. Fin. Corp., Multi-family Mtge. Rev., Port.
A,
Ser. 90I, M.O.T., A.M.B.A.C. Aaa 3.50 9/15/98 2,455 2,455,000
Puerto Rico Ind. Med. & Environ. Poll. Ctrl. Fac. Fin.
Auth. Rev.,
Schering-Plough Corp., Ser. 83A, A.O.T. NR 3.75 12/01/98 3,500 3,499,564
Stamford Connecticut, Gen. Oblig. Aaa 7.00 3/15/99 1,000 1,017,940
Stamford Connecticut, Hsg. Auth. Rev., Morgan Street Proj.,
Ser. 94, F.R.W.D., A.M.T. VMIG1 3.30 9/02/98 1,500 1,500,000
Trinity River Auth. Texas, Poll. Ctl. Rev., Tx. Util.
Elec., Ser. 96A, F.R.D.D., A.M.B.A.C., A.M.T. VMIG1 3.50 9/01/98 500 500,000
University of Connecticut, Student Fee Rev. Bds.,
Susquehana 98A, Ser. SSP 16A, F.R.W.D., M.B.I.A. VMIG1 3.20 9/02/98 3,000 3,000,000
West Baton Rouge Parish Ind. Louisiana Dist. 3 Rev., Dow
Chemical Co. Proj., Ser. 93, F.R.D.D., A.M.T. P-1 3.55 9/01/98 3,300 3,300,000
West Hartford Connecticut, Gen. Oblig., Ser. 97 Aaa 4.00 9/15/98 1,000 1,000,093
West Side Calhoun Cnty. Texas, Nav. Dist., Swr. & Solid
Waste Disp. Rev. Proj. for British Petroleum, Ser. 96,
F.R.D.D., A.M.T. P-1 3.50 9/01/98 4,300 4,300,000
-----------
Total Investments--97.1%
(amortized cost $92,341,780;(d)) 92,341,780
Other assets in excess of liabilities--2.9% 2,775,668
-----------
Net Assets--100% $95,117,448
-----------
-----------
</TABLE>
- ---------------
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance Corporation.
A.M.T.--Alternative Minimum Tax.
A.N.N.M.T.--Annual Mandatory Tender.
A.O.T.--Annual Optional Tender.
B.A.N.--Bond Anticipation Note.
F.G.I.C.--Financial Guaranty Insurance Company.
F.R.D.D.--Floating Rate (Daily) Demand Note (b).
F.R.W.D.--Floating Rate (Weekly) Demand Note (b).
M.B.I.A.--Municipal Bond Insurance Association.
M.O.T.--Monthly Optional Tender.
T.A.N.--Tax Anticipation Notes.
T.E.C.P.--Tax-Exempt Commercial Paper.
(b) For purposes of amortized cost valuation, the maturity date of Floating Rate
Demand Notes is considered to be the later of the next date on which the
security can be redeemed at par, or the next date on which the rate of
interest is adjusted.
(c) Standard & Poor's rating.
(d) The cost of securities for federal income tax purposes is substantially the
same as for financial reporting purposes.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a description of
Moody's and Standard & Poor's ratings.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-78

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Statement of Assets and Liabilities CONNECTICUT MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets August 31, 1998
<S> <C>
Investments, at amortized cost which approximates market value............................................. $ 92,341,780
Cash....................................................................................................... 83,043
Receivable for Series shares sold.......................................................................... 3,085,335
Interest receivable........................................................................................ 499,378
Other assets............................................................................................... 1,971
---------------
Total assets............................................................................................ 96,011,507
---------------
Liabilities
Payable for Series shares reacquired....................................................................... 754,953
Accrued expenses........................................................................................... 51,761
Management fee payable..................................................................................... 40,229
Dividends payable.......................................................................................... 37,896
Distribution fee payable................................................................................... 5,093
Deferred trustee's fees.................................................................................... 4,127
---------------
Total liabilities....................................................................................... 894,059
---------------
Net Assets................................................................................................. $ 95,117,448
---------------
---------------
Net assets were comprised of:
Shares of beneficial interest, at $.01 par value........................................................ $ 951,174
Paid-in capital in excess of par........................................................................ 94,166,274
---------------
Net assets, August 31, 1998................................................................................ $ 95,117,448
---------------
---------------
Net asset value, offering price and redemption price per share ($95,117,448 / 95,117,448 shares of
beneficial interest issued and outstanding; unlimited number of shares authorized)...................... $1.00
---------------
---------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-79

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
CONNECTICUT MONEY MARKET SERIES
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income August 31, 1998
<S> <C>
Income
Interest earned.......................... $ 2,989,205
---------------
Expenses
Management fee........................... 423,998
Distribution fee......................... 105,999
Custodian's fees and expenses............ 77,000
Reports to shareholders.................. 34,000
Transfer agent's fees and expenses....... 33,000
Registration fees........................ 22,000
Legal fees and expenses.................. 12,000
Audit fee and expenses................... 8,000
Trustees' fees and expenses.............. 4,000
Miscellaneous............................ 5,968
---------------
Total expenses........................ 725,965
Less: Custodian fee credit (Note 1)...... (4,843)
---------------
Net expenses.......................... 721,122
---------------
Net investment income....................... 2,268,083
Realized Gain on Investments
Net realized gain on investments............ 1,460
---------------
Net Increase in Net Assets
Resulting from Operations................... $ 2,269,543
---------------
---------------
</TABLE>

PRUDENTIAL MUNICIPAL SERIES FUND
CONNECTICUT MONEY MARKET SERIES
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended August 31,
in Net Assets 1998 1997
<S> <C> <C>
Operations
Net investment income.......... $ 2,268,083 $ 2,373,476
Net realized gain on investment
transactions................ 1,460 52
------------ ------------
Net increase in net assets
resulting from operations... 2,269,543 2,373,528
------------ ------------
Dividends and distributions (Note
1)............................. (2,269,543) (2,373,528)
------------ ------------
Series share transactions
(at $1 per share)
Net proceeds from shares
sold........................ 389,111,500 251,461,796
Net asset value of shares
issued in reinvestment of
dividends and
distributions............... 2,204,564 2,303,863
Cost of shares reacquired...... (372,125,422) (255,521,446)
------------ ------------
Net increase (decrease) in net
assets from Series share
transactions................ 19,190,642 (1,755,787)
------------ ------------
Total increase (decrease)......... 19,190,642 (1,755,787)
Net Assets
Beginning of year................. 75,926,806 77,682,593
------------ ------------
End of year....................... $ 95,117,448 $ 75,926,806
------------ ------------
------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-80

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements CONNECTICUT MONEY MARKET SERIES
- --------------------------------------------------------------------------------
Prudential Municipal Series Fund (the "Fund") is registered under the Investment
Company Act of 1940, as an open-end investment company. The Fund was organized
as a Massachusetts business trust on May 18, 1984 and consists of 13 series. The
monies of each series are invested in separate, independently managed
portfolios. The Connecticut Money Market Series (the "Series") commenced
investment operations on August 5, 1991. The Series is nondiversified and seeks
to provide the highest level of income that is exempt from Connecticut state,
local and federal income taxes with the minimum of risk by investing in
"investment grade" tax-exempt securities having a maturity of thirteen months or
less and whose ratings are within the two highest ratings categories by a
nationally recognized statistical rating organization, or if not rated, are of
comparable quality. The ability of the issuers of the securities held by the
Series to meet their obligations may be affected by economic developments in a
specific state, industry or region.

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

Note 1. Accounting Policies

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

Securities Valuations: Portfolio securities of the Series are valued at
amortized cost, which approximates market value. The amortized cost method of
valuation involves valuing a security at its cost on the date of purchase and
thereafter assuming a constant amortization to maturity of any discount or
premium.

All securities are valued as of 4:30 p.m., New York time.

Securities Transactions and Net Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of investments
are calculated on the identified cost basis. Interest income is recorded on the
accrual basis. Expenses are recorded on the accrual basis which may require the
use of certain estimates by management.

Federal Income Taxes: For federal income tax purposes, each series in the Fund
is treated as a separate taxpaying entity. It is the intent of the Series to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its net income to
shareholders. For this reason, no federal income tax provision is required.

Dividends: The Series declares daily dividends from net investment income.
Payment of dividends is made monthly. Income distributions and capital gain
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles.

Custody Fee Credits: The Series has an arrangement with its custodian bank,
whereby uninvested monies earn credits which reduce the fees charged by the
custodian.

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

Note 2. Agreements

The Fund has a management agreement with Prudential Investments Fund Management
LLC ("PIFM"). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PIFM has entered into a subadvisory agreement with The Prudential
Investment Corporation ("PIC"); PIC furnishes investment advisory services in
connection with the management of the Fund. PIFM pays for the cost of the
subadviser's services, the compensation of officers of the Fund, occupancy and
certain clerical and bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.

The management fee paid PIFM is computed daily and payable monthly, at an annual
rate of .50 of 1% of the average daily net assets of the Series.

The Fund had a distribution agreement with Prudential Securities Incorporated
("PSI"), which acted as the distributor of the Fund through May 31, 1998.
Prudential Investment Management Services LLC ("PIMS") became the distributor of
the Fund effective June 1, 1998 and is serving the Fund under the same terms and
conditions as under the arrangement with PSI. The Series compensated PSI and
PIMS for distributing and servicing the Series' shares pursuant to the plan of
distribution at an annual rate of .125 of 1% of the Series' average daily net
assets. The distribution fee is accrued daily and payable monthly.

PSI, PIFM, PIMS and PIC are indirect, wholly owned subsidiaries of The
Prudential Insurance Company of America.

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

Note 3. Other Transactions with Affiliates

- --------------------------------------------------------------------------------
B-81
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights CONNECTICUT MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended August 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE:
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income and realized gains............ .03 .03(a) .03(a) .03(a) .02(a)
Dividends and distributions to shareholders......... (.03) (.03) (.03) (.03) (.02)
------- ------- ------- ------- -------
Net asset value, end of year........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL RETURN(b):.................................... 2.72% 3.10% 3.17% 3.16% 2.02%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)....................... $95,117 $75,927 $77,683 $62,867 $54,302
Average net assets (000)............................ $84,800 $77,500 $74,576 $57,103 $60,594
Ratios to average net assets:
Expenses, including distribution fee.............. .86% .46%(a) .47%(a) .58%(a) .54%(a)
Expenses, excluding distribution fee.............. .74% .34%(a) .35%(a) .46%(a) .42%(a)
Net investment income............................. 2.68% 3.06%(a) 3.12%(a) 3.17%(a) 1.99%(a)
</TABLE>
- ---------------
(a) Net of management fee waiver.
(b) Total return includes reinvestment of dividends and distributions.

- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-82

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Report of Independent Accountants CONNECTICUT MONEY MARKET SERIES
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
Prudential Municipal Series Fund, Connecticut Money Market Series:

In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Municipal Series Fund,
Connecticut Money Market Series (the "Fund", one of the portfolios constituting
Prudential Municipal Series Fund) at August 31, 1998, the results of its
operations for the year then ended and the changes in its net assets and the
financial highlights for each of the two years in the period then ended, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at August 31, 1998 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above. The accompanying financial highlights for each of the three
years in the period ended August 31, 1996 were audited by other independent
accountants, whose opinion dated October 14, 1996 was unqualified.

PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
October 21, 1998

- --------------------------------------------------------------------------------
B-83

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Federal Income Tax Information
(Unaudited) CONNECTICUT MONEY MARKET SERIES
- --------------------------------------------------------------------------------
We are required by the Internal Revenue Code to advise you within 60 days of the
Series' fiscal year end (August 31, 1998) as to the federal tax status of
dividends and distributions paid by the Fund during such fiscal year.
Accordingly, during its fiscal year ended August 31, 1998, dividends paid from
net investment income of $.03 per share were all federally tax-exempt interest
dividends.

- --------------------------------------------------------------------------------
B-84
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Portfolio of Investments as
of August 31, 1998 MARYLAND SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--98.1%
- ------------------------------------------------------------------------------------------------------------------------------
Baltimore, Maryland
Conv. Ctr. Rev., F.G.I.C. Aaa 5.75% 9/01/08 $ 1,075 (e) $ 1,175,674
Econ. Dev. Lease Rev., Armistead Partnership BBB+(c) 7.00 8/01/11 1,000 1,109,030
Gen. Oblig., Cap. Apprec. Ref. Cons. Pub. Impvt.,
Ser. C, F.G.I.C. Aaa Zero 10/15/11 1,000 550,580
Gen. Oblig., Ref. Con. Pub. Impvt., Ser. C, F.G.I.C. Aaa 5.50 10/15/16 1,000 1,092,960
Calvert Cnty. Poll. Cntrl. Rev., Baltimore Gas & Elec Co.
Proj. A2 5.55 7/15/14 1,000 1,053,850
Harford Cnty., Gen. Oblig. Aa 5.50 3/01/06 750 816,705
Kent Cnty. Coll. Rev., Washington Coll. Proj. Baa2 7.70 7/01/18 500 (e) 526,905
Maryland St. Hlth. & Higher Edl. Facs. Auth. Rev.,
Broadmead Retirement Community NR 5.50 7/01/17 500 516,870
Doctor's Comn. Hosp. Baa2 5.50 7/01/24 1,000 1,006,830
Green Acres Schl. BBB(c) 5.30 7/01/28 725 721,716
Howard Cnty. Gen. Hosp., E.T.M. Baa1 5.50 7/01/21 900 939,708
Kennedy Krieger Hosp. Baa1 5.50 7/01/18 1,000 1,018,470
Mercy Medical Center, F.S.A. Aaa 5.75 7/01/26 1,000 1,072,080
Pickersgill Retirement Ctr., Ser. A A(c) 5.85 1/01/10 600 654,270
Maryland St. Hsg. & Cmnty. Dev. Admin., Sngl. Fam. Mtge.
Rev. Prog., Sixth Ser., A.M.T. Aa2 7.125 4/01/14 535 558,551
Maryland St. Ind. Dev. Fin. Auth. Rev., Amer. Ctr. for
Physics BBB(c) 6.625 1/01/17 1,000 1,085,810
Maryland St. Trans. Auth., Baltimore-Washington Int'l.
Arpt., A.M.T., F.G.I.C. Aaa 6.25 7/01/14 1,750 1,920,135
Maryland Wtr. Qual. Fin. Admin., Revolving Loan Fund
Rev., Ser. A Aa2 5.90 9/01/04 565 621,449
Montgomery Cnty.,
Econ. Dev. Rev., 1st Mtge., Bullis Schl. Inc. Facs.,
Ser. A BBB(c) 5.60 11/01/22 400 412,480
Gen. Oblig., Cons. Pub. Impvt. Aaa 9.75 6/01/01 450 519,408
Gen. Oblig., Cons. Pub. Impvt., Ser. A Aaa 5.75 10/01/07 1,300 1,432,496
Sngl. Fam. Mtge. Rev., Ser. B, A.M.T. Aa2 6.05 7/01/27 1,000 1,060,280
Northeast Maryland Waste Disp. Auth., Solid Waste Rev.,
Baltimore City Sludge Proj. NR 7.25 7/01/07 786 873,411
Montgomery Cnty. Res. Rec. Proj. A2 6.00 7/01/07 1,000 1,106,730
Prince Georges Cnty.,
Gen. Oblig., Cons. Pub. Impvt. A1 5.25 10/01/11 1,000 1,074,540
Hosp. Rev., Dimensions Hlth. Corp. A3 5.375 7/01/14 750 763,612
Hsg. Auth. Mtge. Rev., Langley Gardens Apts. Proj.,
A.M.T., G.N.M.A. AAA(c) 5.75 8/20/29 500 522,000
Poll. Cntrl. Rev., Ref., Potomac Elec. Proj., M.B.I.A. Aaa 5.75 3/15/10 1,100 1,231,109
Puerto Rico Commonwealth,
Gen. Oblig., Cap. Apprec. Ref. Pub. Impvt. Baa1 Zero 7/01/14 2,000 927,860
Hwy. & Trans. Auth. Rev., Ser. A, A.M.B.A.C. Aaa Zero 7/01/18 2,500 968,300
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-85

<PAGE>

Portfolio of Investments as PRUDENTIAL MUNICIPAL SERIES FUND
of August 31, 1998 MARYLAND SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Puerto Rico Ind. Tourist Edl., Med. & Env. Ctl. Facs.,
Mennonite Gen. Hosp. Proj., Ser. A BBB(c) 5.625% 7/01/27 $ 500 $ 508,170
Puerto Rico Tel. Auth. Rev., Ser. I, R.I.B.S., M.B.I.A. Aaa 7.118(d) 1/16/15 1,000 1,078,750
Takoma Park Hosp. Facs. Rev., Washington Adventist Hosp.,
F.S.A. Aaa 6.50 9/01/12 1,000 1,196,830
Virgin Islands Pub. Fin. Auth. Rev.,
Matching Fd. Ln., Ser. E NR 6.00 10/01/22 250 260,915
Matching Fd. Ln., Ser. A BBB(c) 5.50 10/01/22 250 255,325
-----------
Total long-term investments (cost $28,135,055) 30,633,809
-----------
SHORT-TERM INVESTMENTS--1.2%
Maryland Natl. Cap. Pk. & Planning Comn. Ser. V-2,
F.R.D.D. A1+(c) 3.30 9/01/98 300 300,000
Puerto Rico Comnwlth., Hwy. & Trans. Auth. Rev., F.R.W.D. A1(c) 2.50 9/02/98 60 60,000
-----------
Total short-term investments (cost $360,000) 360,000
-----------
Total Investments--99.3 %
(cost $28,495,055; Note 4) 30,993,809
Other assets in excess of liabilities--0.7% 222,839
-----------
Net Assets--100% $31,216,648
-----------
-----------
</TABLE>
- ---------------
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance Corporation.
A.M.T.--Alternative Minimum Tax.
E.T.M.--Escrowed To Maturity.
F.G.I.C.--Financial Guaranty Insurance Company.
F.R.D.D.--Floating Rate (Daily) Demand Note (b).
F.R.W.D.--Floating Rate (Weekly) Demand Note (b).
F.S.A.--Financial Security Assurance.
G.N.M.A.--Government National Mortgage Association.
M.B.I.A.--Municipal Bond Insurance Association.
R.I.B.S.--Residual Interest Bonds.
(b) For purposes of amortized cost valuation, the maturity date of Floating Rate
Demand Notes is considered to be the later of the next date on which the
security can be redeemed at par, or the next date on which the rate of
interest is adjusted.
(c) Standard & Poor's Rating.
(d) Inverse floating rate bond. The coupon is inversely indexed to a floating
interest rate. The rate shown is the rate at year-end.
(e) Prerefunded issues are secured by escrowed cash and/or direct U.S.
guaranteed obligations.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a description of
Moody's and Standard & Poor's ratings.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-86

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Statement of Assets and Liabilities MARYLAND SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets August 31, 1998
---------------
<S> <C>
Investments, at value (cost $28,495,055).................................................................. $30,993,809
Cash...................................................................................................... 87,341
Interest receivable....................................................................................... 399,764
Receivable for Series shares sold......................................................................... 1,455
Other assets.............................................................................................. 900
---------------
Total assets........................................................................................... 31,483,269
---------------
Liabilities
Accrued expenses.......................................................................................... 109,490
Payable for Series shares reacquired...................................................................... 105,734
Dividends payable......................................................................................... 27,995
Management fee payable.................................................................................... 13,161
Distribution fee payable.................................................................................. 6,114
Deferred trustee's fees................................................................................... 4,127
---------------
Total liabilities...................................................................................... 266,621
---------------
Net Assets................................................................................................ $31,216,648
---------------
---------------
Net assets were comprised of:
Shares of beneficial interest, at par.................................................................. $ 27,507
Paid-in capital in excess of par....................................................................... 28,479,603
---------------
28,507,110
Accumulated net realized gain on investments........................................................... 210,784
Net unrealized appreciation on investments............................................................. 2,498,754
---------------
Net assets, August 31, 1998............................................................................... $31,216,648
---------------
---------------
Class A:
Net asset value and redemption price per share
($18,919,651 DIVIDED BY 1,667,984 shares of beneficial interest issued and outstanding)............. $11.34
Maximum sales charge (3% of offering price)............................................................ .35
---------------
Maximum offering price to public....................................................................... $11.69
---------------
---------------
Class B:
Net asset value, offering price and redemption price per share
($12,173,934 DIVIDED BY 1,071,905 shares of beneficial interest issued and outstanding)............. $11.36
---------------
---------------
Class C:
Net asset value, offering price and redemption price per share
($123,063 DIVIDED BY 10,836 shares of beneficial interest issued and outstanding)................... $11.36
---------------
---------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-87

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MARYLAND SERIES
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income August 31, 1998
<S> <C>
Income
Interest................................... $ 1,746,455
---------------
Expenses
Management fee............................. 160,201
Distribution fee--Class A.................. 18,857
Distribution fee--Class B.................. 64,796
Distribution fee--Class C.................. 671
Custodian's fees and expenses.............. 63,000
Registration fees.......................... 35,000
Reports to shareholders.................... 31,000
Transfer agent's fees and expenses......... 30,000
Legal fees and expenses.................... 12,000
Audit fee and expenses..................... 10,000
Trustees' fees and expenses................ 4,000
Miscellaneous.............................. 4,099
---------------
Total expenses.......................... 433,624
Less: Custodian fee credit (Note 1)........ (1,320)
---------------
Net expenses............................ 432,304
---------------
Net investment income......................... 1,314,151
---------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions.................... 353,570
Financial futures contract transactions.... (76,353)
---------------
277,217
Net change in unrealized appreciation of:
Investments................................ 855,698
---------------
Net gain on investments....................... 1,132,915
---------------
Net Increase in Net Assets
Resulting from Operations..................... $ 2,447,066
---------------
---------------
</TABLE>

PRUDENTIAL MUNICIPAL SERIES FUND
MARYLAND SERIES
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended August 31,
in Net Assets 1998 1997
--------------- -----------
Operations
<S> <C> <C>
Net investment income........... $ 1,314,151 $ 1,522,422
Net realized gain on investment
transactions................. 277,217 78,313
Net change in unrealized
appreciation of
investments.................. 855,698 1,152,180
--------------- -----------
Net increase in net assets
resulting from operations.... 2,447,066 2,752,915
--------------- -----------
Dividends and distributions (Note
1):
Dividends from net investment
income
Class A...................... (804,152) (856,637)
Class B...................... (506,700) (663,966)
Class C...................... (3,299) (1,819)
--------------- -----------
(1,314,151) (1,522,422)
--------------- -----------
Distributions in excess of
net investment income
Class A...................... (3,054) (10,676)
Class B...................... (2,144) (9,184)
Class C...................... (11) (28)
--------------- -----------
(5,209) (19,888)
--------------- -----------
Distributions from net
realized gains
Class A...................... (61,079) (229,545)
Class B...................... (42,884) (197,458)
Class C...................... (225) (597)
--------------- -----------
(104,188) (427,600)
--------------- -----------
Series share transactions (net of
share conversions) (Note 5):
Net proceeds from shares sold... 1,935,757 767,369
Net asset value of shares issued
in reinvestment of dividends
and distributions............ 933,796 1,326,652
Cost of shares reacquired....... (5,714,418) (6,736,831)
--------------- -----------
Net decrease in net assets from
Series share transactions.... (2,844,865) (4,642,810)
--------------- -----------
Total decrease..................... (1,821,347) (3,859,805)
Net Assets
Beginning of year.................. 33,037,995 36,897,800
--------------- -----------
End of year........................ $31,216,648 $33,037,995
--------------- -----------
--------------- -----------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-88

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements MARYLAND SERIES
- --------------------------------------------------------------------------------
Prudential Municipal Series Fund (the "Fund") is registered under the Investment
Company Act of 1940, as an open-end investment company. The Fund was organized
as a Massachusetts business trust on May 18, 1984 and consists of 13 series. The
monies of each series are invested in separate, independently managed
portfolios. The Maryland Series (the "Series") commenced investment operations
on January 22, 1985. The Series is diversified and seeks to achieve its
investment objective of obtaining the maximum amount of income exempt from
federal and applicable state income taxes with the minimum of risk by investing
in "investment grade" tax-exempt securities whose ratings are within the four
highest ratings categories by a nationally recognized statistical rating
organization or, if not rated, are of comparable quality. The ability of the
issuers of the securities held by the Series to meet their obligations may be
affected by economic or political developments in a specific state, industry or
region.

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

Note 1. Accounting Policies

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

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

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

Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of debt securities at a set
price for delivery on a future date. Upon entering into a financial futures
contract, the Series is required to pledge to the broker an amount of cash
and/or other assets equal to a certain percentage of the contract amount. This
amount is known as the "initial margin." Subsequent payments, known as
"variation margin," are made or received by the Series each day, depending on
the daily fluctuations in the value of the underlying security. Such variation
margin is recorded for financial statement purposes on a daily basis as
unrealized gain or loss. When the contract expires or is closed, the gain or
loss is realized and is presented in the statement of operations as net realized
gain (loss) on financial futures contracts. The Series invests in financial
futures contracts in order to hedge its existing portfolio securities or
securities the Series intends to purchase, against fluctuations in value caused
by changes in prevailing interest rates. Should interest rates move
unexpectedly, the Series may not achieve the anticipated benefits of the
financial futures contracts and may realize a loss. The use of futures
transactions involves the risk of imperfect correlation in movements in the
price of futures contracts, interest rates and the underlying hedged assets.

Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis. The Series amortizes premiums and original issue discount paid on
purchases of portfolio securities as adjustments to interest income. Expenses
are recorded on the accrual basis which may require the use of certain estimates
by management.

Reclassification of Capital Accounts: The Fund accounts and reports for
distributions to shareholders in accordance with Statement of Position 93-2:
Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies. The
effect of applying this statement was to increase undistributed net investment
income by $5,209 and decrease accumulated realized gains by $5,209. The current
year effect of applying the Statement of Position was due to the sale of
securities purchased with market discount. Net investment income, net realized
gains and net assets were not affected by this change.

Federal Income Taxes: For federal income tax purposes, each series in the Fund
is treated as a separate taxpaying entity. It is the intent of the Series to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its net income to
shareholders. For this reason no federal income tax provision is required.

Dividends and Distributions: The Series declares daily dividends from net
investment income. Payment of dividends is made monthly. Distributions of net
capital gains, if any, are made annually. Income distributions and capital gain
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles.
- --------------------------------------------------------------------------------
B-89
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements MARYLAND SERIES
- --------------------------------------------------------------------------------
Custody Fee Credits: The Series has an arrangement with its custodian bank,
whereby uninvested monies earn credits which reduce the fees charged by the
custodian.

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

Note 2. Agreements

The Fund has a management agreement with Prudential Investments Fund Management
LLC ("PIFM"). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PIFM has entered into a subadvisory agreement with The Prudential
Investment Corporation ("PIC"); PIC furnishes investment advisory services in
connection with the management of the Fund. PIFM pays for the cost of the
subadviser's service, the compensation of officers of the Fund, occupancy and
certain clerical and bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.

The management fee paid PIFM is computed daily and payable monthly, at an annual
rate of .50 of 1% of the average daily net assets of the Series.

The Fund had a distribution agreement with Prudential Securities Incorporated
("PSI"), which acted as the distributor of the Class A, Class B and Class C
shares of the Fund through May 31, 1998. Prudential Investment Management
Services LLC ("PIMS") became the distributor of the Fund effective June 1, 1998
and is serving the Fund under the same terms and conditions as under the
arrangement with PSI. The Fund compensated PSI and PIMS for distributing and
servicing the Fund's Class A, Class B and Class C shares pursuant to plans of
distribution (the "Class A, B and C Plans"), regardless of expenses actually
incurred by them. The distribution fees are accrued daily and payable monthly.

Pursuant to the Class A, B and C Plans, the Fund compensates PIMS for
distribution-related activities at an annual rate of up to .30 of 1%, .50 of 1%
and 1% of the average daily net assets of the Class A, B and C shares,
respectively. Such expenses under the Plans were .10 of 1%, .50 of 1% and .75 of
1% of the average daily net assets of the Class A, B and C shares, respectively,
for the period September 1, 1997 through August 26, 1998. Effective August 27,
1998 such expenses under the Plans were .10 of 1%, .10 of 1% and .25 of 1% of
the average daily net assets of the Class A, B and C shares, respectively.

PSI and PIMS have advised the Series that they have received approximately
$10,600 in front-end sales charges resulting from sales of Class A shares during
the year ended August 31, 1998. From these fees, PSI and PIMS paid such sales
charges to affiliated broker-dealers, which in turn paid commissions to
salespersons and incurred other distribution costs.

PSI and PIMS have advised the Series that for the year ended August 31, 1998,
they received approximately $18,700 in contingent deferred sales charges imposed
upon certain redemptions by Class B shareholders.

PIFM, PIC, PIMS and PSI are indirect, wholly owned subsidiaries of The
Prudential Insurance Company of America.

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

Note 3. Other Transactions With Affiliates

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

Note 4. Portfolio Securities

Purchases and sales of portfolio securities of the Series, excluding short-term
investments, for the year ended August 31, 1998 were $10,880,381 and
$13,345,992, respectively.

The cost basis of investments for federal income tax purposes at August 31, 1998
was substantially the same as for financial reporting purposes and, accordingly
net and gross unrealized appreciation of investments for federal income tax
purposes was $2,498,754.

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

Note 5. Capital

The Series offers Class A, Class B and Class C shares. Class A shares are sold
with a front-end sales charge of up to 3%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending
- --------------------------------------------------------------------------------
B-90
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements MARYLAND SERIES
- --------------------------------------------------------------------------------
on the period of time the shares are held. Class C shares are sold with a
contingent deferred sales charge of 1% during the first year. Class B shares
will automatically convert to Class A shares on a quarterly basis approximately
seven years after purchase. A special exchange privilege is also available for
shareholders who qualify to purchase Class A shares at net asset value. The Fund
has authorized an unlimited number of shares of beneficial interest of each
class at $.01 par value per share.

Transactions in shares of beneficial interest for the fiscal years ended August
31, 1998 and August 31, 1997 were as follows:

On August 26, 1998, the Board of Trustees of the Series approved an Agreement
and Plan of Reorganization (the "Plan") which provides for the transfer of all
of the assets of the Series to the Prudential National Municipals Fund, Inc.
(the "National Municipals Fund") in exchange solely for Class A shares of the
National Municipals Fund and the National Municipals Fund assumption of the
liabilities of the Series.

The Plan is subject to approval by the shareholders of the Series at a
shareholder meeting scheduled on or about December 3, 1998. If the Plan is
approved, it is expected that the reorganization will take place on or about
December 4, 1998. The Series and the National Municipals Fund will each bear
their pro rata share of the costs of the reorganization, including cost of proxy
solicitation.
- --------------------------------------------------------------------------------
B-91
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights MARYLAND SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------
Year Ended August 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year.................. $ 10.99 $ 10.74 $ 10.66 $ 10.66 $ 11.64
------- ------- ------- ------- -------
Income from investment operations
Net investment income............................... .48 .49(a) .51(a) .53(a) .57
Net realized and unrealized gain (loss) on
investment transactions.......................... .39 .39 .08 .10 (.77)
------- ------- ------- ------- -------
Total from investment operations................. .87 .88 .59 .63 (.20)
------- ------- ------- ------- -------
Less distributions
Dividends from net investment income................ (.48) (.49) (.51) (.53) (.57)
Distributions in excess of net investment income.... --(c) (.01) -- -- --
Distributions from net realized gains............... (.04) (.13) -- (.10) (.21)
------- ------- ------- ------- -------
Total distributions.............................. (.52) (.63) (.51) (.63) (.78)
------- ------- ------- ------- -------
Net asset value, end of year........................ $ 11.34 $ 10.99 $ 10.74 $ 10.66 $ 10.66
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL RETURN(b):.................................... 8.01% 8.38% 5.58% 6.32% (1.75)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)....................... $18,920 $18,558 $18,339 $17,726 $ 2,709
Average net assets (000)............................ $18,857 $18,970 $18,484 $11,341 $ 2,877
Ratios to average net assets:
Expenses, including distribution fees............ 1.19% 1.12%(a) 1.10%(a) 1.30%(a) .95%
Expenses, excluding distribution fees............ 1.09% 1.02%(a) 1.00%(a) 1.20%(a) .85%
Net investment income............................ 4.27% 4.52%(a) 4.69%(a) 4.96%(a) 5.18%
For Class A, B and C shares:
Portfolio turnover rate.......................... 34% 30% 42% 49% 40%
</TABLE>
- ---------------
(a) Net of management fee waiver.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions.
(c) Less than $.005 per share.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-92
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights MARYLAND SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
--------------------------------------------------------
Year Ended August 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year.................. $ 11.00 $ 10.75 $ 10.67 $ 10.67 $ 11.65
------- -------- ------- ------- -------
Income from investment operations
Net investment income............................... .43 .45(a) .47(a) .49(a) .53
Net realized and unrealized gain (loss) on
investment transactions.......................... .40 .39 .08 .10 (.77)
------- -------- ------- ------- -------
Total from investment operations................. .83 .84 .55 .59 (.24)
------- -------- ------- ------- -------
Less distributions
Dividends from net investment income................ (.43) (.45) (.47) (.49) (.53)
Distributions in excess of net investment income.... --(c) (.01) -- -- --
Distributions from net realized gains............... (.04) (.13) -- (.10) (.21)
------- -------- ------- ------- -------
Total distributions.............................. (.47) (.59) (.47) (.59) (.74)
------- -------- ------- ------- -------
Net asset value, end of year........................ $ 11.36 $ 11.00 $ 10.75 $ 10.67 $ 10.67
------- -------- ------- ------- -------
------- -------- ------- ------- -------
TOTAL RETURN(b):.................................... 7.68% 7.94% 5.16% 5.88% (2.13)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)....................... $12,174 $ 14,412 $18,512 $21,414 $51,198
Average net assets (000)............................ $13,092 $ 16,113 $19,898 $33,497 $55,223
Ratios to average net assets:
Expenses, including distribution fees............ 1.58% 1.52%(a) 1.50%(a) 1.55%(a) 1.35%
Expenses, excluding distribution fees............ 1.09% 1.02%(a) 1.00%(a) 1.05%(a) .85%
Net investment income............................ 3.87% 4.12%(a) 4.30%(a) 4.84%(a) 4.77%
</TABLE>
- ---------------
(a) Net of management fee waiver.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions.
(c) Less than $.005 per share.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-93

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights MARYLAND SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
---------------------------------------------------------------------
August 1,
1994(d)
Year Ended August 31, through
------------------------------------------------------ August 31,
1998 1997 1996 1995 1994
------- -------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................ $ 11.00 $ 10.75 $10.67 $ 10.67 $ 10.70
------- -------- ----- ------ ----------
Income from investment operations
Net investment income............................... .41 .42(a) .44(a) .47(a) .05
Net realized and unrealized gain (loss) on
investment transactions.......................... .40 .39 .08 .10 (.03)
------- -------- ----- ------ ----------
Total from investment operations................. .81 .81 .52 .57 .02
------- -------- ----- ------ ----------
Less distributions
Dividends from net investment income................ (.41) (.42) (.44) (.47) (.05)
Distributions in excess of net investment income.... --(e) (.01) -- -- --
Distributions from net realized gains............... (.04) (.13) -- (.10) --
------- -------- ----- ------ ----------
Total distributions.............................. (.45) (.56) (.44) (.57) (.05)
------- -------- ----- ------ ----------
Net asset value, end of period...................... $ 11.36 $ 11.00 $10.75 $ 10.67 $ 10.67
------- -------- ----- ------ ----------
------- -------- ----- ------ ----------
TOTAL RETURN(c):.................................... 7.41% 7.68% 4.90% 5.62% .07%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..................... $ 123 $ 68 $ 47 $ 52 $ 102
Average net assets (000)............................ $ 91 $ 49 $ 43 $ 58 $ 31
Ratios to average net assets:
Expenses, including distribution fees............ 1.83% 1.77%(a) 1.75%(a) 1.82%(a) 2.21%(b)
Expenses, excluding distribution fees............ 1.09% 1.02%(a) 1.00%(a) 1.07%(a) 1.47%(b)
Net investment income............................ 3.65% 3.72%(a) 4.05%(a) 4.55%(a) 4.75%(b)
</TABLE>
- ---------------
(a) Net of management fee waiver.
(b) Annualized.
(c) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(d) Commencement of offering of Class C shares.
(e) Less than $.005 per share.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-94

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Report of Independent Accountants MARYLAND SERIES
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
Prudential Municipal Series Fund, Maryland Series

In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Municipal Series Fund,
Maryland Series (the "Fund", one of the portfolios constituting Prudential
Municipal Series Fund) at August 31, 1998, the results of its operations for the
year then ended and the changes in its net assets and the financial highlights
for each of the two years in the period then ended, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at August 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above. The accompanying financial highlights for each of
the three years in the period ended August 31, 1996 were audited by other
independent accountants, whose opinion dated October 14, 1996 was unqualified.

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Portfolio of Investments as
of August 31, 1998 MASSACHUSETTS SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--98.4%
- ------------------------------------------------------------------------------------------------------------------------------
Boston Massachusetts Ind. Dev. Fin. Auth., First Mtge.
Rev., Springhouse Proj. NR 5.875% 7/01/18 $ 750 $ 753,420
Boston Massachusetts Ind. Dev. Fin. Auth., Swr. Fac.
Rev., Harbor Elec. Energy Co. Proj., A.M.T. Baa1 7.375 5/15/15 1,500 1,626,930
Brockton Massachusetts, Gen. Oblig. Baa1 6.125 6/15/18 1,030 1,101,812
Holyoke Massachusetts, Gen. Oblig., School Proj.,
M.B.I.A. Aaa 8.10 6/15/05 700(e) 822,066
Lowell Massachusetts, Gen. Oblig. Aaa 7.625 2/15/10 750(e) 837,900
Lynn Mass. Wtr. & Swr. Comn., Gen. Rev., Ser. A,
M.B.I.A. Aaa 7.25 12/01/10 1,350(e) 1,476,535
Mass. Bay Trans. Auth., Gen. Trans. Sys., Ser. A,
M.B.I.A. Aaa 5.50 3/01/15 1,000 1,086,080
Mass. St. Cap. Apprec., Fed. Hwy. Grant, Ser. A Aa3 Zero 6/15/15 1,500 653,580
Mass. St. Gen. Oblig.,
Ser. A, A.M.B.A.C. Aaa 5.00 7/01/12 1,000 1,041,580
Ser. C, F.G.I.C. Aaa 6.00 8/01/09 1,500 1,710,420
Mass. St. Hlth. & Edl. Facs. Auth. Rev.,
Beth Israel Hospital, A.M.B.A.C. Aaa 8.37(d) 7/01/25 1,500 1,736,250
Dana Farber Cancer Proj., Ser. G-1 A1 6.25 12/01/22 625 686,319
Faulkner Hospital, Ser. C Baa1 6.00 7/01/23 1,500 1,564,215
Holyoke Hospital, Ser. B Baa3 6.50 7/01/15 1,250 1,338,175
Jordan Hospital, Ser. C BBB(c) 6.875 10/01/22 1,350(e) 1,519,425
Mass. Inst. of Tech., Ser. I-1 Aaa 5.20 1/01/28 1,500 1,586,460
Med. Academic & Scientific Co., Ser. A A(c) 6.625 1/01/15 1,000 1,112,220
Newton-Wellesley Hospital, Ser. E, M.B.I.A. Aaa 5.875 7/01/15 1,000 1,086,160
Valley Regional Hlth. Sys., Ser. B Aaa 8.00 7/01/18 1,000(e) 1,094,730
Valley Regional Hlth. Sys., Ser. C AAA(c) 7.00 7/01/10 825 1,013,422
Winchester Hospital, Ser. D AAA(c) 5.75 7/01/24 1,000 1,061,350
Mass. St. Hsg. Fin. Agcy. Hsg. Rev., Sngl. Fam. Mtge.,
Ser. 59, A.M.B.A.C., A.M.T. Aaa 5.40 6/01/20 1,000 1,012,070
Mass. St. Ind. Fin. Agcy. Rev.,
Chestnut Knoll Proj., Ser. A NR 5.625 2/15/25 750 752,175
Bradford College BBB(c) 5.625 11/01/28 1,000 1,012,670
Brooks School A3 5.95 7/01/23 640 669,504
Cambridge Friends School BBB(c) 5.80 9/01/28 700 719,509
Cape Cod Hlth. Sys. Aaa 8.50 11/15/20 2,000(e) 2,238,600
Phillips Academy Aa1 5.375 9/01/23 1,000 1,036,280
St. John's High School Baa1 5.35 6/01/28 1,000 995,480
Mass. St. Port Auth. Rev., Ser. B, A.M.T. Aa3 5.00 7/01/18 1,000 993,710
Mass. St. Tpk. Auth., Met. Hwy. Sys. Rev., Ser. C,
M.B.I.A. Aaa Zero 1/01/17 5,500 2,232,065
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-97

<PAGE>

Portfolio of Investments as PRUDENTIAL MUNICIPAL SERIES FUND
of August 31, 1998 MASSACHUSETTS SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Mass. St. Water Poll. Abatement Trust Rev.,
Ser. 3 Aaa 5.625% 2/01/16 $ 1,000 $ 1,069,690
Ser. A Aa3 6.375 2/01/15 1,000 1,111,050
Mass. St. Water Res. Auth. Rev.,
Ser. B, M.B.I.A. Aaa 6.25 12/01/11 1,000 1,172,060
Ser. D, M.B.I.A. Aaa 6.00 8/01/13 500 572,595
Palmer Massachusetts, Gen. Oblig., Ser. F, A.M.B.A.C. Aaa 7.30 3/01/10 500(e) 536,040
Plymouth County Corr. Facs. Proj., Cert. of Part., Ser.
A AA(c) 7.00 4/01/22 500 559,845
Puerto Rico Commonwealth,
Gen. Oblig., A.M.B.A.C. Aaa 7.00 7/01/10 1,000 1,238,810
Gen. Oblig., Cap. Apprec. Pub. Impvt. Baa1 Zero 7/01/15 750 328,762
Puerto Rico Electric Pwr. Auth. Rev., Ser. T Baa1 6.375 7/01/24 1,000(e) 1,140,540
Virgin Islands Pub. Fin. Auth., Matching Fd. Ln., Ser.
E NR 5.875 10/01/18 375 388,279
------------
Total long-term investments (cost $40,204,716) 44,688,783
------------
SHORT-TERM INVESTMENTS--0.7%
Mass. St. Hlth. & Edl. Facs. Auth. Rev., Cap. Asset
Prog., Ser. 85C, F.R.D.D., M.B.I.A. VMIG1 3.20 9/01/98 300 300,000
------------
Total short-term investments (cost $300,000) 300,000
------------
Total Investments--99.1%
(cost $40,504,716; Note 4) 44,988,783
Other assets in excess of liabilities--0.9% 416,188
------------
Net Assets--100% $ 45,404,971
------------
------------
</TABLE>
- ---------------
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance Corporation.
A.M.T.--Alternative Minimum Tax.
F.G.I.C.--Financial Guaranty Insurance Company.
F.R.D.D.--Floating Rate (Daily) Demand Note (b).
M.B.I.A.--Municipal Bond Insurance Corporation.
(b) For purposes of amortized cost valuation, the maturity date of Floating Rate
Demand Notes is considered to be the later of the next date on which the
security can be redeemed at par, or the next date on which the rate of
interest is adjusted.
(c) Standard & Poor's Rating.
(d) Inverse floating rate bond. The coupon is inversely indexed to a floating
interest rate. The rate shown is the rate at year end.
(e) Prerefunded issues are secured by escrowed cash and/or direct U.S.
guaranteed obligations.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a description of
Moody's and Standard & Poor's ratings.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-98

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Statement of Assets and Liabilities MASSACHUSETTS SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets August 28, 1998
<S> <C>
Investments, at value (cost $40,504,716).................................................................. $ 44,988,783
Cash...................................................................................................... 35,355
Interest receivable....................................................................................... 538,106
Receivable for Series shares sold......................................................................... 100
Other assets.............................................................................................. 1,187
---------------
Total assets........................................................................................... 45,563,531
---------------
Liabilities
Accrued expenses.......................................................................................... 82,287
Dividends payable......................................................................................... 33,079
Management fee payable.................................................................................... 19,320
Payable for Series shares reacquired...................................................................... 10,282
Distribution fee payable.................................................................................. 9,465
Deferred trustees' fees................................................................................... 4,127
---------------
Total liabilities...................................................................................... 158,560
---------------
Net Assets................................................................................................ $ 45,404,971
---------------
---------------
Net assets were comprised of:
Shares of beneficial interest, at par.................................................................. $ 38,162
Paid-in capital in excess of par....................................................................... 40,626,867
---------------
40,665,029
Accumulated net realized gain on investments........................................................... 255,875
Net unrealized appreciation on investments............................................................. 4,484,067
---------------
Net assets, August 31, 1998............................................................................... $ 45,404,971
---------------
---------------
Class A:
Net asset value and redemption price per share
($29,024,003 DIVIDED BY 2,438,919 shares of beneficial interest issued and outstanding)............. $11.90
Maximum sales charge (3% of offering price)............................................................ .37
---------------
Maximum offering price to public....................................................................... $12.27
---------------
---------------
Class B:
Net asset value, offering price and redemption price per share
($16,256,226 DIVIDED BY 1,366,825 shares of beneficial interest issued and outstanding)............. $11.89
---------------
---------------
Class C:
Net asset value, offering price and redemption price per share
($116,107 DIVIDED BY 9,762 shares of beneficial interest issued and outstanding).................... $11.89
---------------
---------------
Class Z:
Net asset value, offering price and redemption price per share
($8,635 DIVIDED BY 726 shares of beneficial interest issued and outstanding)........................ $11.89
---------------
---------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-99

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MASSACHUSETTS SERIES
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income August 31, 1998
<S> <C>
Income
Interest................................. $ 2,680,165
---------------
Expenses
Management fee........................... 231,959
Distribution fee--Class A................ 29,031
Distribution fee--Class B................ 86,264
Distribution fee--Class C................ 757
Custodian's fees and expenses............ 70,000
Report to shareholders................... 40,000
Registration fees........................ 34,000
Transfer agent's fees and expenses....... 32,000
Legal fees and expenses.................. 12,000
Audit fees and expenses.................. 10,000
Trustees' fees and expenses.............. 4,000
Miscellaneous............................ 1,097
---------------
Total expenses........................ 551,108
Less: Custodian fee credit............... (1,439)
---------------
Net expenses.......................... 549,669
---------------
Net investment income....................... 2,130,496
---------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions.................. 568,509
Financial futures transactions........... (120,644)
---------------
447,865
Net change in unrealized appreciation of:
Investments.............................. 980,734
---------------
Net gain on investments..................... 1,428,599
---------------
Net Increase in Net Assets
Resulting from Operations................... $ 3,559,095
---------------
---------------
</TABLE>

PRUDENTIAL MUNICIPAL SERIES FUND
MASSACHUSETTS SERIES
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Decrease in Year Ended August 31,
Net Assets 1998 1997
<S> <C> <C>
Operations
Net investment income........... $ 2,130,496 $ 2,389,861
Net realized gain on investment
transactions................. 447,865 616,296
Net change in unrealized
appreciation of
investments.................. 980,734 767,106
------------ -----------
Net increase in net assets
resulting from operations.... 3,559,095 3,773,263
------------ -----------
Dividends and distributions (Note
1):
Dividends from net investment
income
Class A...................... (1,376,660) (1,453,832)
Class B...................... (749,368) (933,942)
Class C...................... (4,123) (2,079)
Class Z...................... (345) (8)
------------ -----------
(2,130,496) (2,389,861)
------------ -----------
Distributions in excess of net
investment income
Class A...................... (14,903) --
Class B...................... (9,075) --
Class C...................... (39) --
Class Z...................... (3) --
------------ -----------
(24,020) --
------------ -----------
Distributions from net realized gains
Class A...................... (354,484) (438,140)
Class B...................... (215,867) (318,452)
Class C...................... (936) (708)
Class Z...................... (72) (3)
------------ -----------
(571,359) (757,303)
------------ -----------
Series share transactions (net of
share conversions) (Note 5):
Net proceeds from shares sold... 2,768,598 1,727,524
Net asset value of shares issued
in reinvestment of
dividends.................... 1,617,702 1,848,518
Cost of shares reacquired....... (7,029,860) (7,848,716)
------------ -----------
Net decrease in net assets from
Series share transactions.... (2,643,560) (4,272,674)
------------ -----------
Total decrease..................... (1,810,340) (3,646,575)
Net Assets
Beginning of year.................. 47,215,311 50,861,886
------------ -----------
End of year........................ $ 45,404,971 $47,215,311
------------ -----------
------------ -----------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-100

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements MASSACHUSETTS SERIES
- --------------------------------------------------------------------------------
Prudential Municipal Series Fund (the "Fund") is registered under the Investment
Company Act of 1940, as an open-end investment company. The Fund was organized
as a Massachusetts business trust on May 18, 1984 and consists of 13 series. The
monies of each series are invested in separate, independently managed
portfolios. The Massachusetts Series (the "Series") commenced investment
operations in September, 1984. The Series is diversified and seeks to achieve
its investment objective of obtaining the maximum amount of income exempt from
federal and applicable state income taxes with the minimum of risk by investing
in "investment grade" tax-exempt securities whose ratings are within the four
highest ratings categories by a nationally recognized statistical rating
organization or, if not rated, are of comparable quality. The ability of the
issuers of the securities held by the Series to meet their obligations may be
affected by economic developments in a specific state, industry or region.

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

Note 1. Accounting Policies

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

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

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

Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of debt securities at a set
price for delivery on a future date. Upon entering into a financial futures
contract, the Series is required to pledge to the broker an amount of cash
and/or other assets equal to a certain percentage of the contract amount. This
amount is known as the "initial margin." Subsequent payments, known as
"variation margin," are made or received by the Series each day, depending on
the daily fluctuations in the value of the underlying security. Such variation
margin is recorded for financial statement purposes on a daily basis as
unrealized gain or loss. The Series invests in financial futures contracts
solely for the purpose of hedging its existing portfolio securities or
securities the Series intends to purchase against fluctuations in value caused
by changes in prevailing market interest rates. Should interest rates move
unexpectedly, the Series may not achieve the anticipated benefits of the
financial futures contracts and may realize a loss. The use of futures
transactions involves the risk of imperfect correlation in movements in the
price of futures contracts, interest rates and the underlying hedged assets.

Securities Transactions and Net Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis. The Series amortizes premiums and original issue discount paid on
purchases of portfolio securities as adjustments to interest income. Expenses
are recorded on the accrual basis which may require the use of certain estimates
by management.

Reclassification of Capital Accounts: The Fund accounts and reports for
distributions to shareholders in accordance with Statement of Position 93-2:
Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies. The
effect of applying this statement was to decrease accumulated realized gains and
increase undistributed net investment income by $24,020. The current year effect
of applying the Statement of Position was due to the sale of securities
purchased with market discount. Net investment income, net realized gains and
net assets were not affected by this change.

Federal Income Taxes: For federal income tax purposes, each series in the Fund
is treated as a separate taxpaying entity. It is the intent of the Series to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its net income to
shareholders. For this reason no federal income tax provision is required.

Dividends and Distributions: The Series declares daily dividends from net
investment income. Payment of dividends is made monthly. Distributions of net
capital gains, if any, are made annually.

Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
- --------------------------------------------------------------------------------
B-101
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements MASSACHUSETTS SERIES
- --------------------------------------------------------------------------------
Custody Fee Credits: The Series has an arrangement with its custodian bank,
whereby uninvested monies earn credits which reduce the fees charged by the
custodian.

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

Note 2. Agreements

The Fund has a management agreement with Prudential Investments Fund Management
LLC ("PIFM"). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PIFM has entered into a subadvisory agreement with The Prudential
Investment Corporation ("PIC"). PIC furnishes investment advisory services in
connection with the management of the Fund. PIFM pays for the cost of the
subadviser's services, the compensation of officers of the Fund, occupancy and
certain clerical and bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.

The management fee paid PIFM is computed daily and payable monthly, at an annual
rate of .50 of 1% of the average daily net assets of the Series.

The Fund had a distribution agreement with Prudential Securities Incorporated
("PSI"), which acted as the distributor of the Class A, Class B, Class C and
Class Z shares of the Fund through May 31, 1998. Prudential Investment
Management Services LLC ("PIMS") became the distributor of the Fund effective
June 1, 1998 and is serving the Fund under the same terms and conditions as
under the arrangement with PSI. The Fund compensated PSI and PIMS for
distributing and servicing the Fund's Class A, Class B and Class C shares
pursuant to plans of distribution, (the "Class A, B and C Plans"), regardless of
expenses actually incurred by them. The distribution fees are accrued daily and
payable monthly. No distribution or service fees are paid to PSI or PIMS as
distributor of the Class Z shares of the Fund.

PSI and PIMS have advised the Series that they have received approximately
$9,700 in front-end sales charges resulting from sales of Class A shares for the
year ended August 31, 1998. From these fees, PSI and PIMS paid such sales
charges to affiliated broker-dealers, which in turn paid commissions to
salespersons and incurred other distribution costs.

PSI and PIMS advised the Series that for the year ended August 31, 1998, they
received approximately $37,000 and $500 in contingent deferred sales charges
imposed upon certain redemptions by Class B and C shareholders, respectively.

PIFM, PIMS, PIC and PSI are indirect, wholly owned subsidiaries of The
Prudential Insurance Company of America.

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

Note 3. Other Transactions With Affiliates

Prudential Mutual Fund Services LLC ("PMFS"), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent and during the year ended August 31, 1998,
the Series incurred fees of approximately $21,000 for the services of PMFS. As
of August 31, 1998, approximately $1,300 of such fees were due to PMFS. Transfer
agent fees and expenses in the Statement of Operations include certain
out-of-pocket expenses paid to nonaffiliates.

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

Note 4. Portfolio Securities

Purchases and sales of portfolio securities of the Series, excluding short-term
investments, for the year ended August 31, 1998, were $15,189,545 and
$18,344,907, respectively.

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

Note 5. Capital

The Series offers Class A, Class B, Class C and Class Z shares. Class A shares
are sold with a front-end sales charge of up to 3%. Class B shares are sold with
a contingent deferred sales charge which declines from 5%
- --------------------------------------------------------------------------------
B-102
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements MASSACHUSETTS SERIES
- --------------------------------------------------------------------------------
to zero depending on the period of time the shares are held. Class C shares are
sold with a contingent deferred sales charge of 1% during the first year. Class
B shares will automatically convert to Class A shares on a quarterly basis
approximately seven years after purchase. A special exchange privilege is also
available for shareholders who qualify to purchase Class A shares at net asset
value. Class Z shares are not subject to any sales or redemption charge and are
offered exclusively for sale to a limited group of investors. The Fund has
authorized an unlimited number of shares of beneficial interest of each class at
$.01 par value per share.

Transactions in shares of beneficial interest for the years ended August 31,
1998 and August 31, 1997 were as follows:

<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------------- ---------- -----------
<S> <C> <C>
Year ended August 31, 1998:
Shares sold.......................... 142,966 $ 1,687,456
Shares issued in reinvestment of
dividends and distributions........ 93,703 1,103,427
Shares reacquired.................... (361,990) (4,261,684)
---------- -----------
Net decrease in shares outstanding
before conversion.................. (125,321) (1,470,801)
Shares issued upon conversion from
Class B............................ 92,146 1,085,201
---------- -----------
Net decrease in shares outstanding... (33,175 $ (385,600)
---------- -----------
---------- -----------
Year ended August 31, 1997:
Shares sold.......................... 29,208 $ 340,810
Shares issued in reinvestment of
dividends and distributions........ 99,365 1,152,062
Shares reacquired.................... (366,281) (4,252,429)
---------- -----------
Net decrease in shares outstanding
before conversion.................. (237,708) (2,759,557)
Shares issued upon conversion from
Class B............................ 277,806 3,225,709
---------- -----------
Net increase in shares outstanding... 40,098 $ 466,152
---------- -----------
---------- -----------
<CAPTION>
Class B
- -------------------------------------
<S> <C> <C>
Year ended August 31, 1998:
Shares sold.......................... 78,841 $ 927,666
Shares issued in reinvestment of
dividends and distributions........ 43,421 510,985
Shares reacquired.................... (225,580) (2,656,058)
---------- -----------
Net decrease in shares outstanding
before conversion.................. (103,318) (1,217,407)
Shares issued upon conversion from
Class B............................ (92,162) (1,085,201)
---------- -----------
Net decrease in shares outstanding... (195,480) $(2,302,608)
---------- -----------
---------- -----------
<CAPTION>
Class B Shares Amount
- ------------------------------------- ---------- -----------
<S> <C> <C>
Year ended August 31, 1997:
Shares sold.......................... 115,658 $ 1,343,826
Shares issued in reinvestment of
dividends and distributions........ 59,887 693,710
Shares reacquired.................... (309,225) (3,583,222)
---------- -----------
Net decrease in shares outstanding
before conversion.................. (133,680) (1,545,686)
Shares issued upon conversion from
Class B............................ (277,895) (3,225,709)
---------- -----------
Net decrease in shares outstanding... (411,575) $(4,771,395)
---------- -----------
---------- -----------
<CAPTION>
Class C
- -------------------------------------
<S> <C> <C>
Year ended August 31, 1998:
Shares sold.......................... 9,344 $ 109,986
Shares issued in reinvestment of
dividends and distributions........ 250 2,944
Shares reacquired.................... (6,524) (76,579)
---------- -----------
Net increase in shares outstanding... 3,070 $ 36,351
---------- -----------
---------- -----------
Year ended August 31, 1997:
Shares sold.......................... 3,642 $ 42,688
Shares issued in reinvestment of
dividends and distributions........ 236 2,740
Shares reacquired.................... (1,127) (13,065)
---------- -----------
Net increase in shares outstanding... 2,751 $ 32,363
---------- -----------
---------- -----------
<CAPTION>
Class Z
- -------------------------------------
<S> <C> <C>
Year ended August 31, 1998:
Shares sold.......................... 3,668 $ 43,490
Shares issued in reinvestment of
dividends and distributions........ 29 346
Shares reacquired.................... (2,989) (35,539)
---------- -----------
Net increase in shares outstanding... 708 $ 8,297
---------- -----------
---------- -----------
December 6, 1996(a) through
year ended August 31, 1997:
Shares sold.......................... 17 $ 200
Shares issued in reinvestment of
distributions...................... 1 6
Shares reacquired.................... -- --
---------- -----------
Net increase in shares outstanding... 18 $ 206
---------- -----------
---------- -----------
</TABLE>
- ------------
(a) Commencement of offering of Class Z shares.
- --------------------------------------------------------------------------------
B-103
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights MASSACHUSETTS SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
------------------------------------------------------
Year Ended August 31,
------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............ $ 11.69 $ 11.54 $ 11.63 $ 11.37 $12.17
------- ------- ------- ------- ------
Income from investment operations
Net investment income......................... .55 .58(a) .59(a) .65(a) .67
Net realized and unrealized gain (loss) on
investment transactions.................... .37 .33 (.02) .26 (.73)
------- ------- ------- ------- ------
Total from investment operations........... .92 .91 .57 .91 (.06)
------- ------- ------- ------- ------
Less distributions
Dividends from net investment income.......... (.55) (.58) (.59) (.65) (.67)
Distributions in excess of net investment
income..................................... (.01) -- -- -- --
Distributions from net realized gains......... (.15) (.18) (.07) -- (.07)
------- ------- ------- ------- ------
Total distributions........................ (.71) (.76) (.66) (.65) (.74)
------- ------- ------- ------- ------
Net asset value, end of year.................. $ 11.90 $ 11.69 $ 11.54 $ 11.63 $11.37
------- ------- ------- ------- ------
------- ------- ------- ------- ------
TOTAL RETURN(b):.............................. 8.10% 8.10% 4.93% 8.33% (.58)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................. $29,024 $28,890 $28,058 $27,525 $2,293
Average net assets (000)...................... $29,031 $29,096 $28,091 $15,837 $2,578
Ratios to average net assets:
Expenses, including distribution fees...... 1.04% 1.00%(a) 1.06%(a) .97%(a) .87%
Expenses, excluding distribution fees...... .94% .90%(a) .96%(a) .87%(a) .77%
Net investment income...................... 4.75% 5.00%(a) 5.06%(a) 5.59%(a) 5.60%
For Class A, B, C and Z shares:
Portfolio turnover rate.................... 33% 22% 18% 36% 33%
</TABLE>
- ---------------
(a) Net of management fee waiver.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-104

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights MASSACHUSETTS SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
--------------------------------------------------------------
August 1,
1994(d)
Year Ended August 31, through
----------------------------------------------- August 31,
1998 1997 1996 1995 1994
------ ------ ----- ----- -----
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $11.68 $11.53 $11.62 $11.36 $11.41
------ ------ ----- ----- -----
Income from investment operations
Net investment income......................... .48 .50(a) .51(a) .57(a) .04
Net realized and unrealized gain (loss) on
investment transactions.................... .37 .33 (.02) .26 (.05)
------ ------ ----- ----- -----
Total from investment operations........... .85 .83 .49 .83 (.01)
------ ------ ----- ----- -----
Less distributions
Dividends from net investment income.......... (.48) (.50) (.51) (.57) (.04)
Distributions in excess of net investment
income..................................... (.01) -- -- -- --
Distributions from net realized gains......... (.15) (.18) (.07) -- --
------ ------ ----- ----- -----
Total distributions........................ (.64) (.68) (.58) (.57) (.04)
------ ------ ----- ----- -----
Net asset value, end of period................ $11.89 $11.68 $11.53 $11.62 $11.36
------ ------ ----- ----- -----
------ ------ ----- ----- -----
TOTAL RETURN(b):.............................. 7.41% 7.41% 4.26% 7.60% (0.27)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $ 116 $ 78 $ 45 $ 14 $ 216(f)
Average net assets (000)...................... $ 101 $ 48 $ 41 $ 14 $ 15(f)
Ratios to average net assets:
Expenses, including distribution fees...... 1.69% 1.65%(a) 1.72%(a) 1.60%(a) 1.57%(c)
Expenses, excluding distribution fees...... .94% .90%(a) .97%(a) .85%(a) .82%(c)
Net investment income...................... 4.08% 4.36%(a) 4.39%(a) 5.07%(a) 5.06%(c)
<CAPTION>
Class Z
------------------------
December 6,
Year 1996(e)
Ended through
August 31, August 31,
1998 1997
----- -----
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $11.68 $ 11.80
----- -----
Income from investment operations
Net investment income......................... .58 .47(a)
Net realized and unrealized gain (loss) on
investment transactions.................... .37 .06
----- -----
Total from investment operations........... .95 .53
----- -----
Less distributions
Dividends from net investment income.......... (.58) (.47)
Distributions in excess of net investment
income..................................... (.01) --
Distributions from net realized gains......... (.15) (.18)
----- -----
Total distributions........................ (.74) (.65)
----- -----
Net asset value, end of period................ $11.89 $ 11.68
----- -----
----- -----
TOTAL RETURN(b):.............................. 8.31% 4.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $ 9 $ 204(f)
Average net assets (000)...................... $ 7 $ 200(f)
Ratios to average net assets:
Expenses, including distribution fees...... .94% .90%(a)(c)
Expenses, excluding distribution fees...... .94% .90%(a)(c)
Net investment income...................... 4.91% 5.55%(a)(c)
</TABLE>
- ---------------
(a) Net of management fee waiver.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(c) Annualized.
(d) Commencement of offering of Class C shares.
(e) Commencement of offering of Class Z shares.
(f) Amounts are actual and not rounded to the nearest thousand.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-106

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Report of Independent Accountants MASSACHUSETTS SERIES
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
Prudential Municipal Series Fund, Massachusetts Series

In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Municipal Series Fund,
Massachusetts Series (the "Fund", one of the portfolios constituting Prudential
Municipal Series Fund) at August 31, 1998, the results of its operations for the
year then ended and the changes in its net assets and the financial highlights
for each of the two years in the period then ended, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at August 31, 1998 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above. The accompanying financial highlights for each of the three
years in the period ended August 31, 1996 were audited by other independent
accountants, whose opinion dated October 14, 1996 was unqualified.

PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
October 21, 1998

Federal Income Tax Information PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) MASSACHUSETTS SERIES
- --------------------------------------------------------------------------------
We are required by the Internal Revenue Code to advise you within 60 days of the
Series' fiscal year end (August 31, 1998) as to the federal tax status of
dividends paid by the Series during such fiscal year. Accordingly, we are
advising you that in the fiscal year ended August 31, 1998, dividends paid from
net investment income of $.71 per Class A share, $.67 per Class B share, $.64
per Class C share and $.74 per Class Z share were all federally tax-exempt
interest dividends. The Series also paid to Class A, B, C and Z shares a special
taxable income dividend of $.0061 which is taxable as ordinary income. In
addition, the Series paid distributions for Class A, B, C and Z shares totaling
$.1451 per share, comprised of short-term capital gains, of which $.0093 was
taxable as oridnary income and long-term capital gains, of which $.0151 was
taxable at 28% rate gain and $.1207 was taxable at 20% rate gain.

Portfolio of Investments as PRUDENTIAL MUNICIPAL SERIES FUND
of August 31, 1998 MASSACHUSETTS MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Boston Wtr. & Swr. Comm., Gen. Rev., Ser. 94A, F.R.W.D. VMIG1 3.05% 9/03/98 $ 2,320 $ 2,320,000
Brazos River, Harbor Nav. Dist., Dow Chemical Co., Ser.
92A, F.R.D.D., A.M.T. P-1 3.55 9/01/98 2,200 2,200,000
Carroll County, Solid Wste. Disp. Facs. Rev., Ser. 94A,
F.R.D.D., A.M.T. VMIG1 3.50 9/01/98 1,700 1,700,000
Dist. of Columbia Rev., Gen. Oblig., Ser. 92A-6, F.R.D.D. VMIG1 3.45 9/01/98 800 800,000
Fall River Mass., Gen. Oblig., B.A.N. Aaa 5.25 6/15/99 500 505,793
Falmouth Mass., Gen. Oblig., B.A.N. NR 4.00 8/13/99 2,000 2,006,388
First Chicago Bank Certificates, Ser. 98B, S.E.M.O.T.S. VMIG1 3.95 12/01/98 3,000 3,000,000
Halifax Cnty. Ind. Facs. & Poll. Ctrl. Fin. Auth., Ser. 91,
F.R.D.D., A.M.T. Aa2 3.55 9/01/98 400 400,000
Mass. Bay Trans. Auth., Gen. Trans. Sys. Bonds, Ser. 84A,
S.E.M.O.T. VMIG1 3.50 3/01/99 1,500 1,500,000
Mass. Ind. Fin. Agcy. Poll, New England Power Co., Ser.
93A, T.E.C.P. VMIG1 3.65 9/24/98 2,700 2,700,000
Mass. Port. Auth., Ser. 96, T.E.C.P. P-1 3.45 9/04/98 2,000 2,000,000
Mass. St. Hlth. & Edl. Facs. Auth. Rev.,
Boston Univ., Ser. 85H, T.E.C.P. VMIG1 3.70 9/15/98 2,000 2,000,000
Cap. Asset Prog., Ser. 85B, F.R.D.D. VMIG1 3.20 9/01/98 400 400,000
Hallmark Hlth. Sys., Ser. B, F.R.W.D. VMIG1 3.10 9/03/98 1,485 1,485,000
Harvard Univ., Ser. 85I, F.R.W.D. VMIG1 3.10 9/03/98 1,500 1,500,000
Harvard Univ., Ser. 89L, T.E.C.P. VMIG1 3.75 9/11/98 1,200 1,200,000
Mass. St. Hsg. Fin. Agcy. Rev.,
Rental Housing, Ser. 94, F.R.W.D.S., A.M.T. A1+(c) 3.48 9/03/98 2,000 2,000,000
Multi-Family Rev., Harbor Port, F.R.W.D. A1+(c) 3.10 9/02/98 1,000 1,000,000
Mass. St. Ind. Fin. Agcy. Ind. Rev.,
Constitution Corp., Ser. 98, F.R.W.D.S., A.M.T. A-1(c) 3.35 9/03/98 1,500 1,500,000
Goddard House, Ser. 95, F.R.W.D. A-1(c) 3.10 9/03/98 2,000 2,000,000
Governor Dummer Academy, Ser. 96, F.R.W.D. A1+(c) 3.15 9/03/98 1,500 1,500,000
Hazen Paper Co., Ser. 95, F.R.W.D.S., A.M.T. A-1(c) 3.35 9/03/98 1,600 1,600,000
Heritage at Hingham, Ser. 97, F.R.W.D. VMIG1 3.20 9/03/98 1,500 1,500,000
Holyoke Wtr. Pwr. Co. Proj., Ser. 92A, F.R.W.D. VMIG1 3.10 9/02/98 447 447,000
Jewish Geriatic Svcs. Inc., Ser. 97A, F.R.W.D. A-1(c) 3.20 9/02/98 2,000 2,000,000
New England College, Ser. 97, A.N.N.M.T. A1+(c) 3.85 10/01/98 1,000 1,000,000
Ocean Spray Cranberry, Ser. 84, A.O.T. A+(c) 3.80 10/15/98 1,100 1,100,000
Riverdale Mills Corp., Ser. 95, F.R.W.D.S., A.M.T. A-1(c) 3.35 9/03/98 1,100 1,100,000
Showa Womens Inst., Ser. 94, F.R.D.D. VMIG1 3.25 9/01/98 1,200 1,200,000
United Med. Corp., Ser. 92, F.R.W.D., A.M.T. P-1 3.15 9/02/98 600 600,000
Mass. St. Municipal Whsl. Elec. Co., Power Supply Sys.
Rev.,
Ser. 94C, F.R.W.D. VMIG1 3.05 9/02/98 2,500 2,500,000
Mass. St. Wtr. Res. Auth.,
T.E.C.P. P-1 3.70 9/02/98 2,000 2,000,000
T.E.C.P. P-1 3.50 10/14/98 1,000 1,000,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-108

<PAGE>

Portfolio of Investments as PRUDENTIAL MUNICIPAL SERIES FUND
of August 31, 1998 MASSACHUSETTS MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Methuen, Gen. Oblig., B.A.N. NR 4.15% 12/18/98 $ 1,000 $ 1,000,811
Parish of Ascension, LA, BASF Corp. Proj., Ser. 97,
F.R.D.D., A.M.T. P-1 3.40 9/01/98 500 500,000
Puerto Rico Comnwlth., Gov't. Dev. Bank, Ser. 85, F.R.W.D.,
A.M.T. VMIG1 2.50 9/02/98 100 100,000
Quincy, Ser. 98, B.A.N. NR 4.10 5/21/99 1,500 1,503,424
So. Carolina Jobs Econ. Dev. Auth., Wellman, Inc. Proj.,
Ser. 90, F.R.D.D. Aa2 3.60 9/01/98 1,600 1,600,000
State of Mass. Construction Loans, Ser. 89A Aaa 7.00 2/01/99 1,300 (d) 1,317,953
Town of Dracut, Gen. Oblig., Ser.97 Aaa 6.50 11/01/98 375 376,581
Town of Holden, Gen. Oblig. Aaa 5.75 10/15/98 1,200 1,202,745
Town of North Andover, Gen. Oblig., Ser. 98 Aaa 5.25 1/15/99 350 352,093
W. Baton Rouge Parish Dist. Pound3, Dow Chemical Co. Proj.,
Ser. 94A, F.R.D.D., A.M.T. P-1 3.55 9/01/98 500 500,000
-----------
Total Investments--93.2%
(amortized cost $58,217,788(e)) 58,217,788
Other assets in excess of liabilities--6.8% 4,242,604
-----------
Net Assets--100% $62,460,392
-----------
-----------
</TABLE>
- ---------------
(a) The following abbreviations are used in portfolio descriptions:
A.M.T.--Alternative Minimum Tax.
A.N.N.M.T.--Annual Mandatory Tender.
A.O.T.--Annual Option Tender.
B.A.N.--Bond Anticipation Note.
F.R.D.D.--Floating Rate (Daily) Demand Note (b).
F.R.W.D.--Floating Rate (Weekly) Demand Note (b).
F.R.W.D.S.--Floating Rate (Weekly) Demand Note Synthetic (b).
S.E.M.O.T.--Semi Annual Optional Tender.
S.E.M.O.T.S.--Semi Annual Optional Tender Synthetic.
T.E.C.P.--Tax-Exempt Commercial Paper.
(b) For purposes of amortized cost valuation, the maturity date of Floating Rate
Demand Notes is considered to be the later of the next date on which the
security can be redeemed at par, or the next date on which the rate of
interest is adjusted.
(c) Standard & Poor's Rating.
(d) Prerefunded issues are secured by escrowed cash and/or direct U.S.
guaranteed obligations.
(e) The cost of securities for federal income tax purposes is substantially the
same as for financial reporting purposes.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a description of
Moody's and Standard & Poor's ratings.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-109

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Statement of Assets and Liabilities MASSACHUSETTS MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets August 31, 1998
<S> <C>
Investments, at amortized cost which approximates market value............................................ $ 58,217,788
Cash...................................................................................................... 82,285
Receivable for investments sold........................................................................... 5,443,295
Receivable for Series shares sold......................................................................... 997,997
Interest receivable....................................................................................... 359,955
Other assets.............................................................................................. 1,354
---------------
Total assets........................................................................................... 65,102,674
---------------
Liabilities
Payable for investments purchased......................................................................... 1,500,000
Payable for Series shares reacquired...................................................................... 1,053,588
Dividends payable......................................................................................... 26,880
Accrued expenses.......................................................................................... 26,835
Management fee payable.................................................................................... 26,825
Deferred trustee's fees................................................................................... 4,127
Distribution fee payable.................................................................................. 4,027
---------------
Total liabilities...................................................................................... 2,642,282
---------------
Net Assets................................................................................................ $ 62,460,392
---------------
---------------
Net assets were comprised of:
Shares of beneficial interest, at $.01 par value....................................................... $ 624,604
Paid-in capital in excess of par....................................................................... 61,835,788
---------------
Net assets, August 31, 1998............................................................................... $ 62,460,392
---------------
---------------
Net asset value, offering price and redemption price per share ($62,460,392 / 62,460,392 shares of
beneficial interest issued and outstanding; unlimited number of shares authorized)..................... $1.00
---------------
---------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-110

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MASSACHUSETTS MONEY MARKET SERIES
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income August 31, 1998
<S> <C>
Income
Interest................................... $ 1,986,501
---------------
Expenses
Management fee............................. 277,698
Distribution fee........................... 69,425
Custodian's fees and expenses.............. 49,000
Transfer agent's fees and expenses......... 23,000
Reports to shareholders.................... 19,000
Legal fees and expenses.................... 12,000
Audit fee and expenses..................... 8,000
Registration fees.......................... 5,000
Trustees' fees and expenses................ 4,000
Miscellaneous.............................. 1,570
---------------
Total expenses.......................... 468,693
Less: Custodian fee credit (Note 1)........ (2,192)
---------------
Net expenses............................ 466,501
---------------
Net investment income......................... 1,520,000
---------------
Net Increase in Net Assets
Resulting from Operations..................... $ 1,520,000
---------------
---------------
</TABLE>

PRUDENTIAL MUNICIPAL SERIES FUND
MASSACHUSETTS MONEY MARKET SERIES
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended August 31,
in Net Assets 1998 1997
<S> <C> <C>
Operations
Net investment income........ $ 1,520,000 $ 1,611,746
---------------- -------------
Dividends and distributions
(Note 1)..................... (1,520,000) (1,611,746)
---------------- -------------
Series share transactions
(at $1 per share)
Net proceeds from shares
sold......................... 193,957,544 204,476,371
Net asset value of shares
issued to shareholders in
reinvestment of
dividends................. 1,483,199 1,572,134
Cost of shares reacquired.... (186,420,872) (203,119,396)
---------------- -------------
Net increase in net assets
from Series share
transactions.............. 9,019,871 2,929,109
---------------- -------------
Total increase.................. 9,019,871 2,929,109
Net Assets
Beginning of year............... 53,440,521 50,511,412
---------------- -------------
End of year..................... $ 62,460,392 $ 53,440,521
---------------- -------------
---------------- -------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-111

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements MASSACHUSETTS MONEY MARKET SERIES
- --------------------------------------------------------------------------------
Prudential Municipal Series Fund (the "Fund") is registered under the Investment
Company Act of 1940, as an open-end investment company. The Fund was organized
as a Massachusetts business trust on May 18, 1984 and consists of 13 series. The
monies of each series are invested in separate, independently managed
portfolios. The Massachusetts Money Market Series (the "Series") commenced
investment operations on August 5, 1991. The Series is nondiversified and seeks
to provide the highest level of income that is exempt from Massachusetts State,
local and federal income taxes with the minimum of risk by investing in
"investment grade" tax-exempt securities having a maturity of 13 months or less
and whose ratings are within the 2 highest ratings categories by a nationally
recognized statistical rating organization, or if not rated, are of comparable
quality. The ability of the issuers of the securities held by the Series to meet
their obligations may be affected by economic developments in a specific state,
industry or region.

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

Note 1. Accounting Policies

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

All securities are valued as of 4:30 p.m., New York time.

Securities Transactions and Net Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of investments
are calculated on the identified cost basis. Interest income is recorded on the
accrual basis. The Fund amortizes premiums and accretes original issue discount
on portfolio securities as adjustments to interest income. Expenses are recorded
on the accrual basis which may require the use of certain estimates by
management.

Federal Income Taxes: For federal income tax purposes, each series in the Fund
is treated as a separate taxpaying entity. It is the intent of the Series to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its net income to
shareholders. For this reason, no federal income tax provision is required.

Custody Fee Credits: The Fund has an arrangement with its custodian bank,
whereby uninvested monies earn credits which reduce the fees charged by the
custodian.

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

Note 2. Agreements

The Fund has a management agreement with Prudential Investments Fund Management
LLC ("PIFM"). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PIFM has entered into a subadvisory agreement with The Prudential
Investment Corporation ("PIC"); PIC furnishes investment advisory services in
connection with the management of the Fund. PIFM pays for the services of PIC,
the compensation of officers of the Fund, occupancy and certain clerical and
bookkeeping costs of the Fund. The Fund bears all other costs and expenses.

The management fee paid PIFM is computed daily and payable monthly, at an annual
rate of .50 of 1% of the average daily net assets of the Series.

The Fund had a distribution agreement with Prudential Securities Incorporated
("PSI"), which acted as the distributor of the Fund through May 31, 1998.
Prudential Investment Management Services LLC ("PIMS") became the distributor of
the Fund effective June 1, 1998 and is serving the Fund under the same terms and
conditions as under the arrangement with PSI. The Fund compensated PSI and PIMS
for distributing and servicing the Fund's shares pursuant to the plans of the
distribution regardless of expenses actually incurred by them. The Fund
reimburses PIMS for distributing and servicing the Fund's shares pursuant to the
plan of distribution at an annual rate of .125 of 1% of the Fund's average daily
net assets. The distribution fees are accrued daily and payable monthly.

PSI, PIFM, PIC and PIMS are indirect wholly owned subsidiaries of The Prudential
Insurance Company of America.

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

Note 3. Other Transactions with Affiliates

Prudential Mutual Fund Services LLC ("PMFS"), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the year ended August 31, 1998, the
Series incurred fees of approximately $20,000 for the services of PMFS. As of
August 31, 1998, approximately $1,200 of such fees were due to PMFS. Transfer
agent fees and expenses in the Statement of Operations include certain
out-of-pocket expenses paid to nonaffiliates.
- --------------------------------------------------------------------------------
B-112
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights MASSACHUSETTS MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended August 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year................................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income and realized gains........................... .03 .03(a) .03(a) .03(a) .02(a)
Dividends and distributions to shareholders........................ (.03) (.03) (.03) (.03) (.02)
------- ------- ------- ------- -------
Net asset value, end of year....................................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL RETURN(b):................................................... 2.77% 3.08% 3.12% 3.10% 1.89%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)...................................... $62,460 $53,441 $50,511 $56,822 $37,278
Average net assets (000)........................................... $55,540 $53,078 $54,689 $42,919 $42,427
Ratios to average net assets:
Expenses, including distribution fees........................... .84% .54%(a) .55%(a) .63%(a) .62%(a)
Expenses, excluding distribution fees........................... .71% .42%(a) .43%(a) .50%(a) .50%(a)
Net investment income........................................... 2.73% 3.04%(a) 3.08%(a) 3.14%(a) 1.86%(a)
</TABLE>
- ---------------
(a) Net of management fee waiver.
(b) Total return includes reinvestment of dividends and distributions.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-113

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Report of Independent Accountants MASSACHUSETTS MONEY MARKET SERIES
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
Prudential Municipal Series Fund, Massachusetts Money Market Series

In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Municipal Series Fund,
Massachusetts Money Market Series (the "Fund", one of the portfolios
constituting Prudential Municipal Series Fund) at August 31, 1998, the results
of its operations for the year then ended and the changes in its net assets and
the financial highlights for each of the two years in the period then ended, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at August 31, 1998 by
correspondence with the custodian and broker, provide a reasonable basis for the
opinion expressed above. The accompanying financial highlights for each of the
three years in the period ended August 31, 1996 were audited by other
independent accountants, whose opinion dated October 14, 1996 was unqualified.

PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
October 21, 1998
- --------------------------------------------------------------------------------
B-114
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Federal Income Tax Information
(Unaudited) MASSACHUSETTS MONEY MARKET SERIES
- --------------------------------------------------------------------------------
We are required by the Internal Revenue Code to advise you within 60 days of the
Series' fiscal year end (August 31, 1998) as to the federal tax status of
dividends paid by the Series during such fiscal year. Accordingly, we are
advising you that in the fiscal year ended August 31, 1998, dividends paid from
net investment income of $.03 per share were all federally tax-exempt interest
dividends.
- --------------------------------------------------------------------------------
B-115
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Portfolio of Investments as
of August 31, 1998 MICHIGAN SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--97.9%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Avondale Sch. Dist.,
Oakland Cnty., Gen. Oblig., A.M.B.A.C. Aaa 5.75% 5/01/14 $ 665 $ 719,603
Oakland Cnty., Gen. Oblig., A.M.B.A.C. Aaa 5.80 5/01/15 525 567,782
Oakland Cnty., Gen. Oblig., A.M.B.A.C. Aaa 5.80 5/01/16 550 592,785
Brandon Sch. Dist. Gen. Oblig., Oakland & Lapeer Cnty.,
F.G.I.C. Aaa 5.875 5/01/26 1,310(d) 1,471,156
Breitung Twnshp. Sch. Dist. Rev., Gen. Oblig., M.B.I.A. Aaa 6.30 5/01/15 250 272,750
Detroit Downtown Dev. Ser. A, A.M.B.A.C. Aaa 5.75 7/15/15 1,000 1,075,240
Detroit Econ. Dev. Corp., Res. Rec. Rev., Ser. 1991-A,
F.S.A., A.M.T. Aaa 6.875 5/01/09 920 994,713
Detroit Swr. Disp. Rev., Ser. 1993-A, F.G.I.C. Aaa 7.618 7/01/23 1,000(e) 1,097,500
Detroit Wtr. Supply Sys. Rev., Ser. B, M.B.I.A. Aaa 5.55 7/01/12 1,000 1,092,070
Dexter Cnty. Sch. Dist. Gen. Oblig., F.G.I.C. Aaa 5.10 5/01/28 2,000 2,068,460
Dickinson Cnty. Mem. Hosp. Sys. Rev. Ba1 8.00 11/01/14 1,000 1,141,190
Grand Rapids San. Swr. Sys. Impt. & Rev. Aa3 7.00 1/01/16 500 531,170
Guam Pwr. Auth. Rev., Ser. 1994 BBB(c) 6.625 10/01/14 1,000 1,113,040
Hillsdale Hosp. Fin. Auth. Rev., Cnty. Hlth. Cntr. BBB-(c) 5.25 5/15/26 1,000 966,640
Holland Sch. Dist., Gen. Oblig., A.M.B.A.C. Aaa Zero 5/01/15 2,400 1,060,656
Huron Valley Sch. Dist., Gen. Oblig., F.G.I.C. Aaa Zero 5/01/10 3,500 2,047,185
Kalamazoo Econ. Dev. Corp. Rev., Friendship Village, Ltd.
Oblig. BBB(c) 6.125 5/15/17 1,000 1,064,130
Kent Hosp. Fac. Fin. Auth. Rev., Blodgette Mem. Med. Ctr.,
Ser. A A2 7.25 7/01/05 500 525,120
Lincoln Park Sch. Dist.,
F.G.I.C. Aaa 7.00 5/01/20 1,500(d) 1,794,570
F.G.I.C. Aaa 5.90 5/01/26 750(d) 843,488
Michigan Higher Ed. Student Loan Auth. Rev., Ser. XIII-A,
M.B.I.A., A.M.T Aaa 7.55 10/01/08 345 368,667
Michigan Municipal Bond Auth. Rev., A.M.B.A.C. Aaa Zero 5/01/19 2,000 722,200
Michigan St. Hosp. Fin. Auth. Rev.,
Bay Med. Ctr., Ser. A A3 8.25 7/01/12 2,000 2,188,840
Hosp. Genesys Hlth. Sys. Baa2 5.50 10/01/27 1,250 1,256,638
Hosp. Genesys Hlth. Sys. Baa2 8.125 10/01/21 1,000(d) 1,259,520
Hosp. Genesys Hlth. Sys. Baa2 7.50 10/01/27 500(d) 603,230
Presbyterian Village NR 6.375 1/01/25 800 860,096
Michigan St. Hsg. Cert. Lease Rev. Aaa Zero 8/15/24 4,000 1,080,440
Michigan St. Hsg. Dev. Auth. Rev.,
Multi-family Mtge. Insured Hsg., Ser. A, A.M.T. AA(c) 7.15 4/01/10 500 538,665
Multi-family Mtge. Insured Hsg., Ser. A, A.M.T. AA(c) 7.70 4/01/23 500 535,440
Sngl. Fam. Mtge., Ser. A AA+(c) 7.70 12/01/16 210 215,531
Michigan St. Strategic Fund Ltd. Oblig. Rev.,
NSF Proj., Ser. A A1 5.75 8/01/19 1,000 1,051,710
Waste Mgmt. Inc. Proj., A.M.T. Baa1 6.625 12/01/12 1,500 1,630,920
Worthington Armstrong Venture, A.M.T. A-(c) 5.75 10/01/22 1,000 1,065,010
Monroe Cnty. Poll. Ctrl. Rev., Detroit Edison Co. Proj. 1,
F.G.I.C., A.M.T. Aaa 7.65 9/01/20 2,000 2,168,260
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-116

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Portfolio of Investments as
of August 31, 1998 MICHIGAN SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mt. Pleasant Wtr. Rev., Wtr. & Swr.,
M.B.I.A Aaa 5.00% 2/01/22 $ 520 $ 513,615
M.B.I.A Aaa 4.00 2/01/23 550 470,844
M.B.I.A Aaa 4.00 2/01/24 585 499,075
Oak Park,
Gen. Oblig., A.M.B.A.C. Aaa 7.00 5/01/11 375(d) 420,585
Gen. Oblig., A.M.B.A.C. Aaa 7.00 5/01/12 400(d) 448,624
Parchment Sch. Dist., M.B.I.A. Aaa 5.00 5/01/25 1,000 1,010,260
Posen Cons. Sch. Dist., No. 9, M.B.I.A. Aaa 6.75 5/01/22 1,000(d) 1,134,820
Puerto Rico Commonwlth., Hwy. Auth. Rev., Ser. Q AAA(c) 7.75 7/01/16 1,000(d) 1,091,270
Puerto Rico Elec. Pwr. Auth. Rev., Ser. N Baa1 7.125 7/01/14 920 960,029
Redford Union Sch. Dist. No.1 Ref, A.M.B.A.C. Aaa 5.50 5/01/14 1,155 1,259,250
Rochester Cmnty. Sch. Dist., Gen. Oblig., M.B.I.A. Aaa 5.00 5/01/19 1,500 1,531,035
St. Clair Cnty., Wtr. Supply Sys. No. VII, IRA Township,
A.M.B.A.C. Aaa 5.25 7/01/15 1,000 1,034,930
Tawas City Hosp. Fin. Auth. Ref., St. Joseph Hlth. Sys.,
Ser. A NR 5.75 2/15/23 1,000 1,012,190
Virgin Islands Pub. Fin. Auth. Rev., Ser. E NR 6.00 10/01/22 500 521,830
Virgin Islands Wtr. & Pwr. Auth., Elec. Sys. Rev., Ser. A NR 7.40 7/01/11 460(d) 506,290
Wayne Cnty. Bldg. Auth., Ser. A Baa2 8.00 3/01/17 1,250(d) 1,435,775
Wyandotte Elec. Rev., M.B.I.A. Aaa 6.25 10/01/08 2,000 2,314,520
-----------
Total long-term investments (cost $47,710,566) 52,749,357
-----------
SHORT-TERM INVESTMENTS--0.7%
Midland Cnty. Econ. Dev. Auth., Dow Chemical Co. Proj.,
Ser. 93A, F.R.D.D. (cost $400,000) P-1 3.40 9/01/98 400 400,000
-----------
Total Investments--98.6%
(cost $48,110,566; Note 4) 53,149,357
Other assets in excess of liabilities--1.4% 719,885
-----------
Net Assets--100% $53,869,242
-----------
-----------
</TABLE>
- ---------------
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance Corporation.
A.M.T.--Alternative Minimum Tax.
F.G.I.C.--Financial Guaranty Insurance Company.
F.R.D.D.--Floating Rate (Daily) Demand Note(b).
F.S.A.--Financial Security Assurance.
M.B.I.A.--Municipal Bond Insurance Corporation.
(b) For purposes of amortized cost valuation, the maturity date of Floating Rate
Damand Notes is considered to be the later of the next date on which the
security can be redeemed at par, or the next date on which the date of
interest is adjusted.
(c) Standard & Poor's Rating.
(d) Prerefunded issues are secured by escrowed cash and/or direct U.S.
guaranteed obligations.
(e) Inverse floating rate bond. The coupon is inversely indexed to a floating
interest rate. The rate shown is the rate at year-end.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a description of
Moody's and Standard & Poor's ratings.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-117

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Statement of Assets and Liabilities MICHIGAN SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets August 31, 1998
<S> <C>
Investments, at value (cost $48,110,566)................................................................... $ 53,149,357
Cash....................................................................................................... 34,681
Interest receivable........................................................................................ 818,849
Receivable for Series shares sold.......................................................................... 7,928
Other assets............................................................................................... 1,492
---------------
Total assets............................................................................................ 54,012,307
---------------
Liabilities
Accrued expenses........................................................................................... 49,410
Dividends payable.......................................................................................... 41,548
Management fee payable..................................................................................... 22,853
Payable for Series shares reacquired....................................................................... 13,735
Distribution fee payable................................................................................... 11,392
Deferred trustee's fees.................................................................................... 4,127
---------------
Total liabilities....................................................................................... 143,065
---------------
Net Assets................................................................................................. $ 53,869,242
---------------
---------------
Net assets were comprised of:
Shares of beneficial interest, at par................................................................... $ 43,558
Paid-in capital in excess of par........................................................................ 47,913,134
---------------
47,956,692
Accumulated net realized gain on investments............................................................ 873,759
Net unrealized appreciation on investments.............................................................. 5,038,791
---------------
Net assets, August 31, 1998................................................................................ $ 53,869,242
---------------
---------------
Class A:
Net asset value and redemption price per share
($30,247,979 divided by 2,445,211 shares of beneficial interest issued and outstanding).............. $12.37
Maximum sales charge (3% of offering price)............................................................. .38
---------------
Maximum offering price to public........................................................................ $12.75
---------------
---------------
Class B:
Net asset value, offering price and redemption price per share
($23,084,856 divided by 1,867,219 shares of beneficial interest issued and outstanding).............. $12.36
---------------
---------------
Class C:
Net asset value, offering price and redemption price per share
($536,407 divided by 43,389 shares of beneficial interest issued and outstanding).................... $12.36
---------------
---------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-118

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MICHIGAN SERIES
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income August 31, 1998
<S> <C>
Income
Interest................................. $ 3,269,122
---------------
Expenses
Management fee........................... 280,830
Distribution fee--Class A................ 30,330
Distribution fee--Class B................ 125,802
Distribution fee--Class C................ 3,140
Custodian's fees and expenses............ 69,000
Transfer agent's fees and expenses....... 44,000
Reports to shareholders.................. 24,000
Registration fees........................ 12,000
Legal fees and expenses.................. 12,000
Audit fee and expenses................... 10,000
Trustees' fees and expenses.............. 4,000
Miscellaneous............................ 5,404
---------------
Total expenses........................ 620,506
Less: Custodian fee credit (Note 1)... (1,109)
---------------
Net expenses.......................... 619,397
---------------
Net investment income....................... 2,649,725
---------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions.................. 1,177,382
Financial futures transactions........... (117,950)
---------------
1,059,432
Net change in unrealized appreciation on
investments.............................. 948,267
---------------
Net gain on investments..................... 2,007,699
---------------
Net Increase in Net Assets
Resulting from Operations................... $ 4,657,424
---------------
---------------
</TABLE>

PRUDENTIAL MUNICIPAL SERIES FUND
MICHIGAN SERIES
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended August 31
in Net Assets 1998 1997
<S> <C> <C>
Operations
Net investment income.......... $ 2,649,725 $ 2,983,196
Net realized gain on investment
transactions................ 1,059,432 345,600
Net change in unrealized
appreciation of
investments................. 948,267 1,386,469
------------ ------------
Net increase in net assets
resulting from operations... 4,657,424 4,715,265
------------ ------------
Dividends and distributions (Note
1):
Dividends from net investment
income
Class A..................... (1,486,482) (1,511,057)
Class B..................... (1,145,167) (1,464,990)
Class C..................... (18,076) (7,149)
------------ ------------
(2,649,725) (2,983,196)
------------ ------------
Distributions in excess of net
investment income
Class A..................... (2,538) (5,093)
Class B..................... (2,130) (5,425)
Class C..................... (33) (19)
------------ ------------
(4,701) (10,537)
------------ ------------
Distributions from net realized
gains
Class A..................... (182,721) (101,868)
Class B..................... (153,367) (108,497)
Class C..................... (2,420) (387)
------------ ------------
(338,508) (210,752)
------------ ------------
Series share transactions (net of
share conversions) (Note 5):
Net proceeds from shares
sold........................ 3,056,030 1,545,990
Net asset value of shares
issued in reinvestment of
dividends and
distributions............... 1,800,347 1,945,329
Cost of shares reacquired...... (10,534,898) (10,932,206)
------------ ------------
Net decrease in net assets from
Series share transactions... (5,678,521) (7,440,887)
------------ ------------
Total decrease.................... (4,014,031) (5,930,107)
Net Assets
Beginning of year................. 57,883,273 63,813,380
------------ ------------
End of year....................... $ 53,869,242 $ 57,883,273
------------ ------------
------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-119

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements MICHIGAN SERIES
- --------------------------------------------------------------------------------
Prudential Municipal Series Fund (the "Fund") is registered under the Investment
Company Act of 1940, as an open-end investment company. The Fund was organized
as a Massachusetts business trust on May 18, 1984 and consists of 13 series. The
monies of each series are invested in separate, independently managed
portfolios. The Michigan Series (the "Series") commenced investment operations
in September, 1984. The Series is diversified and seeks to achieve its
investment objective of obtaining the maximum amount of income exempt from
federal and applicable state income taxes with the minimum of risk by investing
in "investment grade" tax-exempt securities whose ratings are within the four
highest ratings categories by a nationally recognized statistical rating
organization or, if not rated, are of comparable quality. The ability of the
issuers of the securities held by the Series to meet their obligations may be
affected by economic or political developments in a specific state, industry or
region.

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

Note 1. Accounting Policies

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

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

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

Reclassification of Capital Accounts: The Fund accounts and reports for
distributions to shareholders in accordance with Statement of Position 93-2:
Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies. The
effect of applying this statement for the fiscal year ended August 31, 1998 was
to increase undistributed net investment income and decrease accumulated net
realized gain by $4,701 due to the sale of securities purchased with market
discount. Net investment income, net realized gains and net assets were not
affected by this change.

Dividends and Distributions: The Series declares daily dividends from net
investment income. Payment of dividends is made monthly. Distributions of net
capital gains, if any, are made annually.
- --------------------------------------------------------------------------------
B-120
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements MICHIGAN SERIES
- --------------------------------------------------------------------------------
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.

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

Note 2. Agreements

The Fund has a management agreement with Prudential Investments Fund Management
LLC ("PIFM"). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PIFM has entered into a subadvisory agreement with The Prudential
Investment Corporation ("PIC"). PIC furnishes investment advisory services in
connection with the management of the Fund. PIFM pays for the services of PIC,
the cost of compensation of officers of the Fund, occupancy and certain clerical
and bookkeeping costs of the Fund. The Fund bears all other costs and expenses.

The management fee paid PIFM is computed daily and payable monthly, at an annual
rate of .50 of 1% of the average daily net assets of the Series.

The Fund had a distribution agreement with Prudential Securities Incorporated
("PSI"), which acted as the distributor of the Class A, Class B and Class C
shares of the Fund through May 31, 1998. Prudential Investment Management
Services LLC ("PIMS") became the distributor of the Fund effective June 1, 1998
and is serving the Fund under the same terms and conditions as under the
arrangement with PSI. The Fund compensated PSI and PIMS for distributing and
servicing the Fund's Class A, Class B, Class C shares pursuant to the plans of
distribution (the "Class A, B and C Plans"), regardless of expenses actually
incurred by them. The distribution fees are accrued daily and payable monthly.

Pursuant to the Class A, B and C Plans, the Fund compensates PIMS for
distribution-related activities at an annual rate of up to .30 of 1%, .50 of 1%
and 1% of the average daily net assets of the Class A, B and C shares,
respectively. Such expenses under the Plans were .10 of 1%, .50 of 1% and .74 of
1% of the average daily net assets of the Class A, B and C shares, respectively,
for the period September 1, 1997 through August 26, 1998. Effective August 27,
1998 such expenses under the Plans were .10 of 1%, .10 of 1% and .25 of 1% of
the average daily net assets of the Class A, B and C shares, respectively.

PSI and PIMS have advised the Series that they received approximately $12,700 in
front-end sales charges resulting from sales of Class A shares during the fiscal
year ended August 31, 1998. From these fees, PSI paid such sales charges to
affiliated broker-dealers, which in turn paid commissions to salespersons and
incurred other distribution costs.

PSI and PIMS have advised the Series that for the fiscal year ended August 31,
1998, they received approximately $29,500 in contingent deferred sales charges
imposed upon certain redemptions by Class B shareholders.

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

The Series, along with other affiliated registered investment companies (the
"Funds"), has a credit agreement (the "Agreement") with an unaffiliated lender.
The maximum commitment under the Agreement is $200,000,000. Interest on any such
borrowings outstanding will be at market rates. The purpose of the Agreement is
to serve as an alternative source of funding for capital share redemptions. The
Series has not borrowed any amounts pursuant to the Agreement during the year
ended August 31, 1998. The Funds pay a commitment fee at an annual rate of .055
of 1% on the unused portion of the credit facility. The commitment fee is
accrued and paid quarterly on a pro rata basis by the Funds. The agreement
expired on December 30, 1997 and has been extended through December 29, 1998
under the same terms.

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

Note 3. Other Transactions with Affiliates

Prudential Mutual Fund Services LLC ("PMFS"), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the fiscal year ended August 31,
1998, the Series incurred fees of approximately $30,400 for the services of
PMFS. As of August 31, 1998, approximately $2,000 of such fees were due to PMFS.
Transfer agent fees and expenses in the Statement of Operations include certain
out-of-pocket expenses paid to nonaffiliates.

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

Note 4. Portfolio Securities

Purchases and sales of portfolio securities of the Series, excluding short-term
investments, for the fiscal year ended August 31, 1998 were $15,719,905 and
$21,461,391, respectively.

The cost basis of investments for federal income tax purposes at August 31, 1998
was substantially the same as for financial reporting purposes and accordingly,
net and gross unrealized appreciation for federal income tax purposes was
$5,038,791 (gross unrealized appreciation--$5,038,791).

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

Note 5. Capital

The Series offers Class A, Class B and Class C shares. Class A shares are sold
with a front-end sales charge of up to 3%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class C shares are sold with a contingent
deferred sales charge of 1% during the first year. Class B shares will
automatically convert to Class A shares on a quarterly
- --------------------------------------------------------------------------------
B-121
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements MICHIGAN SERIES
- --------------------------------------------------------------------------------
basis approximately seven years after purchase. A special exchange privilege is
also available for shareholders who qualify to purchase Class A shares at net
asset value.

The Fund has authorized an unlimited number of shares of beneficial interest of
each class at $.01 par value per share. Transactions in shares of beneficial
interest for the fiscal years ended August 31, 1998 and August 31, 1997 were as
follows:

On August 26, 1998, the Trustees of the Series approved an Agreement and Plan of
Reorganization (the "Plan") which provides for the transfer of all of the assets
of the Series to Prudential National Municipals Fund, Inc. (the "National
Municipals Fund") in exchange for Class A shares of National Municipals Fund and
the National Municipals Fund assumption of the liabilities of the Series.

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights MICHIGAN SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
--------------------------------------------------------
Year Ended August 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year.................. $ 12.00 $ 11.71 $ 11.88 $ 11.75 $ 12.51
-------- ------- ------- ------- -------
Income from investment operations
Net investment income............................... .55 .56(a) .57(a) .59(a) .59
Net realized and unrealized gain (loss) on
investment transactions.......................... .43 .33 (.02) .16 (.69)
-------- ------- ------- ------- -------
Total from investment operations................. .98 .89 .55 .75 (.10)
-------- ------- ------- ------- -------
Less distributions
Dividends from net investment income................ (.55) (.56) (.57) (.59) (.59)
Distributions in excess of net investment income.... --(c) --(c) -- -- --
Distributions from net realized gains............... (.07) (.04) (.15) (.03) (.07)
-------- ------- ------- ------- -------
Total distributions.............................. (.62) (.60) (.72) (.62) (.66)
-------- ------- ------- ------- -------
Net asset value, end of year........................ $ 12.36 $ 12.00 $ 11.71 $ 11.88 $ 11.75
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
TOTAL RETURN(b):.................................... 8.38% 7.76% 4.66% 6.60% (0.78)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)....................... $23,085 $27,796 $34,971 $41,459 $70,112
Average net assets (000)............................ $25,412 $31,302 $39,052 $52,216 $72,095
Ratios to average net assets:
Expenses, including distribution fees............ 1.32% 1.31%(a) 1.31%(a) 1.37%(a) 1.31%
Expenses, excluding distribution fees............ .82% .81%(a) .81%(a) .87%(a) .81%
Net investment income............................ 4.50% 4.68%(a) 4.77%(a) 5.04%(a) 4.87%
</TABLE>
- ---------------
(a) Net of management fee waiver.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each year reported and includes reinvestment of dividends and
distributions.
(c) Less than $.005 per share.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-124

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights MICHIGAN SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
-------------------------------------------------------
August 1,
1994(e)
Year Ended August 31, Through
---------------------------------------- August 31,
1998 1997 1996 1995 1994
------- ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................ $ 12.00 $11.71 $11.88 $11.75 $11.78
------- ------ ------ ------ -----
Income from investment operations
Net investment income............................... .52 .53(a) .54(a) .56(a) .04
Net realized and unrealized gain (loss) on
investment transactions.......................... .43 .33 (.02) .16 (.03)
------- ------ ------ ------ -----
Total from investment operations................. .95 .86 .52 .72 .01
------- ------ ------ ------ -----
Less distributions
Dividends from net investment income................ (.52) (.53) (.54) (.56) (.04)
Distributions in excess of net investment income.... --(c) --(c) -- -- --
Distributions from net realized gains............... (.07) (.04) (.15) (.03) --
------- ------ ------ ------ -----
Total distributions.............................. (.59) (.57) (.69) (.59) (.04)
------- ------ ------ ------ -----
Net asset value, end of period...................... $ 12.36 $12.00 $11.71 $11.88 $11.75
------- ------ ------ ------ -----
------- ------ ------ ------ -----
TOTAL RETURN(b):.................................... 8.11% 7.49% 4.39% 6.29% 0.06%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..................... $536 $315 $112 $100 $200(f)
Average net assets (000)............................ $424 $161 $95 $61 $199(f)
Ratios to average net assets:
Expenses, including distribution fees............ 1.57% 1.56%(a) 1.56%(a) 1.68%(a) 2.15%(d)
Expenses, excluding distribution fees............ .82% .81%(a) .81%(a) .93%(a) 1.39%(d)
Net investment income............................ 4.25% 4.43%(a) 4.53%(a) 4.66%(a) 4.56%(d)
</TABLE>
- ---------------
(a) Net of management fee waiver.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(c) Less than $.005 per share.
(d) Annualized.
(e) Commencement of offering of Class C shares.
(f) Figures are actual and not rounded to the nearest thousand.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-125

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Report of Independent Accountants MICHIGAN SERIES
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
Prudential Municipal Series Fund, Michigan Series

In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Municipal Series Fund,
Michigan Series (the "Fund", one of the portfolios constituting Prudential
Municipal Series Fund) at August 31, 1998, the results of its operations for the
year then ended and the changes in its net assets and the financial highlights
for each of the two years in the period then ended, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at August 31, 1998 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above. The accompanying financial highlights for each of the three
years in the period ended August 31, 1996 were audited by other independent
accountants, whose opinion dated October 14, 1996 was unqualified.

PricewaterhouseCoopers LLP
1177 Avenue of Americas
New York, New York
October 21, 1998
- --------------------------------------------------------------------------------
B-126
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Federal Income Tax Information (Unaudited) MICHIGAN SERIES
- --------------------------------------------------------------------------------
We are required by the Internal Revenue Code to advise you within 60 days of the
Series' fiscal year end (August 31, 1998) as to the federal tax status of
dividends and distributions paid by the Series during such fiscal year.
Accordingly, we are advising you that in the fiscal year ended August 31, 1998,
dividends paid from net investment income of $.60 per Class A share, $.55 per
Class B share, and $.52 per Class C share were all federally tax-exempt interest
dividends. In addition, the Series paid to Class A, B and C shares a special
taxable income distribution of $0.001 and a short-term capital gain distribution
of $0.014 which is taxable as ordinary income and a long-term capital gain
distribution of $0.058 per share, which is taxable at the rate of 20%.

In January 1999, you will be advised on IRS Form 1099 DIV or substitute 1099 DIV
as to the federal tax status of the distributions received by you in calendar
year 1998.
- --------------------------------------------------------------------------------
B-127
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Portfolio of Investments as
of August 31, 1998 NEW JERSEY SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--97.8%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Atlantic City Mun. Utils. Auth. Rev., Wtr. Sys. A(c) 7.75% 5/01/17 $ 2,000(f) $ 2,166,780
Bayshore Regl. Sewage Auth. Rev., M.B.I.A. Aaa 5.50 4/01/12 3,000 3,236,190
Bergen Cnty., Utils. Auth., Wtr. Poll. Ctrl. Rev.,
Ser. B, F.G.I.C. Aaa 5.75 12/15/05 1,000 1,104,970
Camden Cnty. Mun. Utils. Auth. Ref., F.G.I.C. Aaa 5.25 7/15/17 1,000 1,030,870
Cape May Cnty. Ind. Poll. Ctrl., Fin. Auth. Rev.,
Atlantic Cnty. Elec. Co., M.B.I.A. Aaa 6.80 3/01/21 2,615 3,285,303
East Orange Bd. of Ed. Cert.,
Cap. Apprec., F.S.A. Aaa Zero 8/01/18 1,420 542,511
Cap. Apprec., F.S.A. Aaa Zero 2/01/22 2,845 915,322
Cap. Apprec., F.S.A. Aaa Zero 2/01/24 1,845 538,260
Edison Twnshp., Gen. Oblig., A.M.B.A.C. Aaa 6.00 1/01/08 5,390 6,092,371
Evesham Mun. Utils. Auth. Rev., Ser. B, M.B.I.A. Aaa 7.00 7/01/10 2,000 2,108,900
Hammonton, Gen. Oblig., A.M.B.A.C. Aaa 6.85 8/15/03 500 564,430
Hammonton, Gen. Oblig., A.M.B.A.C. Aaa 6.85 8/15/04 500 573,985
Hammonton, Gen. Oblig., A.M.B.A.C. Aaa 6.85 8/15/05 500 582,140
Hoboken, F.S.A. Aaa 4.90 8/01/08 1,700 1,778,795
Hudson Cnty. Impvt. Auth., Solid Waste Sys. Rev. BBB(c) 7.10 1/01/20 2,050 2,092,025
Hudson Cnty. Impvt. Auth., Solid Waste Sys. Rev. A+(c) 6.10 7/01/20 1,500 1,613,670
Jackson Twnshp. Sch. Dist., F.G.I.C. Aaa 6.60 6/01/04 1,020 1,153,039
Jackson Twnshp. Sch. Dist., F.G.I.C. Aaa 6.60 6/01/05 940 1,078,227
Jackson Twnshp. Sch. Dist., F.G.I.C. Aaa 6.60 6/01/10 1,600 1,914,592
Jackson Twnshp. Sch. Dist., F.G.I.C. Aaa 6.60 6/01/11 1,600 1,922,464
Jersey City,
Gen. Oblig., A.M.B.A.C. Aaa 6.00 10/01/09 2,000 2,276,340
Gen. Oblig., A.M.B.A.C. Aaa 6.00 10/01/10 2,760 3,153,603
Gen. Oblig., Ser. A Aa3 6.25 10/01/12 3,080 3,577,974
Gen. Oblig., Ser. A, F.S.A. Aaa 9.25 5/15/04 4,310 5,416,593
Lakewood Twnshp., Gen. Oblig., F.G.I.C. Aaa 6.60 12/01/04 450 513,302
Lakewood Twnshp., Gen. Oblig., F.G.I.C. Aaa 6.60 12/01/05 445 513,828
Lenape Regl. High Sch. Dist., Gen. Oblig., M.B.I.A. Aaa 7.625 1/01/12 400 519,096
Mercer Cnty. Impvt. Auth. Rev. Aa1 Zero 4/01/06 2,500 1,806,575
Middle Twnshp. Sch. Dist., F.G.I.C. Aaa 7.00 7/15/05 1,200 1,405,728
Middlesex Cnty. Certif. Part. Cap. Apprec., M.B.I.A. Aaa Zero 6/15/25 1,250 327,838
Middlesex Cnty. Utils. Auth. Sewer Rev. Ref., Ser.
A, F.G.I.C. Aaa 5.375 9/15/15 1,500 1,574,955
Millburn Twnshp. Sch. Dist., Brd. of Ed. Aaa 5.35 7/15/13 1,140 1,235,144
Millburn Twnshp. Sch. Dist., Brd. of Ed. Aaa 5.35 7/15/14 1,135 1,227,412
Millburn Twnshp. Sch. Dist., Brd. of Ed. Aaa 5.35 7/15/16 1,150 1,233,858
Millburn Twnshp. Sch. Dist., Brd. of Ed. Aaa 5.35 7/15/17 1,150 1,229,350
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-128

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Portfolio of Investments as
of August 31, 1998 NEW JERSEY SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Monmouth Cnty. Impvt. Auth. Rev.,
Howell Twnshp. Brd. of Ed. AA+(c) 6.55% 7/01/12 $ 4,065(f) $ 4,519,589
Howell Twnshp. Brd. of Ed., A.M.B.A.C. AAA(c) 6.50 7/15/04 765 862,033
Howell Twnshp. Brd. of Ed., A.M.B.A.C. AAA(c) 6.50 7/15/05 820 936,776
Howell Twnshp. Brd. of Ed., A.M.B.A.C. AAA(c) 6.50 7/15/06 875 1,009,295
Howell Twnshp. Brd. of Ed., A.M.B.A.C. AAA(c) 6.50 7/15/07 930 1,084,017
New Jersey Econ. Dev. Auth. Rev., Natural Gas Facs.,
NUI Corp. Proj., M.B.I.A., A.M.T. Aaa 5.70 6/01/32 3,000 3,180,420
New Jersey Econ. Dev. Auth. Rev.,
Ed. Testing Service, Ser. A, M.B.I.A. Aaa 5.90 5/15/15 2,000 2,176,680
First Mtg. - Keswick Pines NR 5.75 1/01/24 2,250 2,278,035
First Mtg. - The Evergreens NR 5.875 10/01/12 1,200 1,229,172
First Mtg. - The Evergreens NR 5.875 12/01/27 2,200 2,226,862
First Mtg. - The Evergreens NR 6.00 10/01/17 1,425 1,500,226
First Mtg. - The Evergreens NR 6.00 10/01/22 1,400 1,468,754
Kaplowski Rd. Landfill NR 6.375 4/01/31 2,000 2,000,020
Nat'l. Assoc. of Accountants NR 7.50 7/01/01 675 710,950
Nat'l. Assoc. of Accountants NR 7.65 7/01/09 950 1,016,671
New Jersey Econ. Dev. Auth. Wtr. Facs. Rev., New
Jersey American Wtr. Co., F.G.I.C., A.M.T. Aaa 5.375 5/01/32 2,000 2,057,340
New Jersey Econ. Dev. Auth. Wtr. Facs., F.G.I.C.,
A.M.T. NR 8.152(d) 11/01/29 5,000 5,774,450
New Jersey Econ. Dist., Heating & Cool., Trigen
Trenton Proj. BBB(c) 6.20 12/01/10 600 640,938
New Jersey Ed. Facs. Auth. Rev.,
Fairleigh Dickinson Univ., Ser. G NR 5.70 7/01/28 1,750(e) 1,744,855
Felician College of Lodi, Ser. D NR 7.375 11/01/22 1,275 1,386,142
Inst. Advanced Study, Ser. G Aaa 5.00 7/01/28 3,000 3,009,060
Princeton Theological, Ser. B Aaa 5.90 7/01/26 4,500 4,918,545
Seton Hall Univ. Proj., Ser. D Baa1 7.00 7/01/21 2,000 2,153,940
New Jersey Hlth. Care Facs. Fin. Auth. Rev.,
Atlantic City Med. Ctr., Ser. C A3 6.80 7/01/11 2,500 2,758,200
Cap. Health Sys. Oblig. Grp. Baa1 5.25 7/01/27 1,060 1,064,526
East Orange Gen. Hosp., Ser. B BBB+(c) 7.75 7/01/20 2,250 2,401,875
Jersey Shore Med. Ctr., A.M.B.A.C. Aaa 6.00 7/01/09 1,465 1,613,448
Jersey Shore Med. Ctr., A.M.B.A.C. Aaa 6.25 7/01/21 1,500 1,663,755
Kensington Cmnty. Med. Ctr., M.B.I.A. Aaa 7.00 7/01/20 3,450 3,690,983
Rahway Hosp. Oblig. Grp. Baa2 5.125 7/01/14 1,000 996,170
St. Joseph's Hosp. & Med. Ctr., Ser. A AAA(c) 5.70 7/01/11 4,375 4,751,906
New Jersey St. Hsg. & Mtge. Fin. Agcy.,
Ser. D, M.B.I.A., A.M.T. Aaa 7.70 10/01/29 2,855(g) 2,969,514
Rental Housing, Ser. B, A.M.T. AA(c) 6.75 11/01/11 2,190(g) 2,334,233
New Jersey St. Hwy. Auth., Garden St. Pkwy. Gen.
Rev. A1 5.20 1/01/08 2,000 2,132,300
New Jersey St. Hwy. Auth., Garden St. Pkwy. Gen.
Rev. A1 6.20 1/01/10 3,035 3,500,599
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-129

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Portfolio of Investments as
of August 31, 1998 NEW JERSEY SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
New Jersey St. Tpke. Auth. Rev., Ser. C, M.B.I.A. Aaa 6.50% 1/01/16 $ 835 $ 1,004,004
New Jersey St. Tpke. Auth. Rev., Ser. C, M.B.I.A. Aaa 6.50 1/01/09 1,000 1,171,880
New Jersey St. Trans. Trust Fund Auth. Trans. Sys. Aaa 5.75 6/15/14 3,500 3,794,245
New Jersey St. Trans. Trust Fund Auth. Trans. Sys.,
Ser. A, M.B.I.A. Aaa 6.00 12/15/06 5,000 5,631,600
New Jersey St. Trans. Trust Fund Auth. Trans. Sys.,
Ser. B, M.B.I.A. Aaa 6.50 6/15/11 5,000 5,963,950
North Brunswick Twnshp.,
Brd. of Ed., Gen. Oblig. AA(c) 6.80 6/15/06 350 410,400
Brd. of Ed., Gen. Oblig. AA(c) 6.80 6/15/07 350 415,649
Gen. Oblig. AA(c) 6.40 5/15/10 545(f) 600,797
Northfield Brd. of Ed., F.S.A. Aaa 5.375 7/15/14 1,390 1,472,371
Northfield Brd. of Ed., F.S.A. Aaa 5.375 7/15/15 1,470 1,548,763
Ocean Cnty. Utils. Auth., Wastewater Rev. Aa2 6.00 1/01/07 5,000 5,619,500
Paterson Cnty., F.S.A. Aaa 6.50 2/15/05 2,000 2,188,120
Perth Amboy Brd. of Ed., M.B.I.A. Aaa 5.25 8/01/19 1,500 1,538,175
Pohatcong Twnshp. Sch. Dist., F.S.A. AAA(c) 5.20 7/15/22 1,960 2,066,840
Port Auth. New York & New Jersey,
Ser. 94 A1 5.80 12/01/13 2,500 2,697,200
Ser. 96, F.G.I.C., A.M.T. Aaa 6.60 10/01/23 2,750 3,065,893
Puerto Rico Commonwealth Hwy. Auth. Rev., Ser. R Aaa 6.75 7/01/05 1,000(f) 1,074,070
Puerto Rico Commonwealth Hwy. Auth. Rev., Ser. S AAA(c) 6.50 7/01/22 750(f) 832,148
Puerto Rico Commonwealth.,
Gen. Oblig. Baa1 Zero 7/01/15 2,250 986,288
Gen. Oblig. Baa1 Zero 7/01/16 2,500 1,041,650
Puerto Rico Elec. Pwr. Auth. Rev.,
Ser. 94S, M.B.I.A. Aaa 6.125 7/01/08 2,300 2,653,510
Ser. 95X, M.B.I.A. Aaa 6.00 7/01/12 3,295 3,664,369
Ser. R Baa1 6.25 7/01/17 2,800(f) 3,072,440
Puerto Rico Tel. Auth. Rev., Ser. I, M.B.I.A.,
R.I.B.S. Aaa 6.819(d) 1/25/07 7,875 8,731,406
Rutgers St. Univ. Rev., Ser. A A1 6.40 5/01/13 2,000 2,373,700
Salem Cnty. Indus. Poll. Ref., PSE & G Co., M.B.I.A. Aaa 6.20 8/01/30 5,000 5,552,500
South River Sch. Dist., F.G.I.C. Aaa 5.00 12/01/13 1,300 1,353,547
South River Sch. Dist., F.G.I.C. Aaa 5.00 12/01/14 1,300 1,349,894
South River Sch. Dist., F.G.I.C. Aaa 5.00 12/01/15 1,230 1,270,393
Sparta Twnshp. Brd. of Ed., M.B.I.A. Aaa 5.75 9/01/14 1,000 1,081,110
Union City Sch. Impvt., F.S.A. Aaa 6.375 11/01/08 1,545 1,808,067
Union Cnty. Impvt. Auth. Rev.,
Plainfield Brd. of Ed., F.G.I.C. Aaa 6.25 8/01/14 1,175 1,326,963
Plainfield Brd. of Ed., F.G.I.C. Aaa 6.25 8/01/15 1,250 1,406,762
Plainfield Brd. of Ed., F.G.I.C. Aaa 6.25 8/01/16 1,330 1,491,608
Plainfield Brd. of Ed., F.G.I.C. Aaa 6.25 8/01/17 1,415 1,583,640
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-130

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Portfolio of Investments as
of August 31, 1998 NEW JERSEY SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Virgin Islands Pub. Fin. Auth. Rev., Ser. E NR 6.00% 10/01/22 $ 1,750 $ 1,826,405
West Windsor Plainsboro Regional Sch. Dist.,
F.G.I.C. Aaa 5.50 12/01/13 2,600 2,786,628
West Windsor Plainsboro Regional Sch. Dist.,
F.G.I.C. Aaa 5.50 12/01/14 2,700 2,885,382
------------
Total long-term investments
(cost $209,810,537) 227,410,586
------------
SHORT-TERM INVESTMENTS--1.7%
Port Auth. New York & New Jersey,
Ser. 3, F.R.D.D. VMIG1 3.35 9/01/98 3,000 3,000,000
Spec. Oblig. Rev., Ser. 2, F.R.D.D. VMIG1 3.20 9/01/98 1,000 1,000,000
------------
Total short-term investments
(cost $4,000,000) 4,000,000
------------
Total Investments--99.5%
(cost $213,810,537; Note 4) 231,410,586
Other assets in excess of liabilities--0.5% 1,225,187
------------
Net Assets--100% $232,635,773
------------
------------
</TABLE>
- ---------------
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance Corporation.
A.M.T.--Alternative Minimum Tax.
F.G.I.C.--Financial Guaranty Insurance Company.
F.R.D.D.--Floating Rate (Daily) Demand Note (b).
F.S.A.--Financial Security Assurance.
M.B.I.A.--Municipal Bond Insurance Association.
R.I.B.S.--Residual Interest Bonds.
(b) For purposes of amortized cost valuation, the maturity date of Floating Rate
Demand Notes is considered to be the later of the next date on which the
security can be redeemed at par, or the next date on which the rate of
interest is adjusted.
(c) Standard & Poor's Rating.
(d) Inverse floating rate bond. The coupon is inversely indexed to a floating
interest rate. The rate shown is the rate at period end.
(e) Represents a when-issued security.
(f) Prerefunded issues are secured by escrowed cash and/or direct U.S.
guaranteed obligations.
(g) All or partial principal amount segregated as collateral for when-issued
security.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a description of
Moody's and Standard & Poor's ratings.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-131

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Statement of Assets and Liabilities NEW JERSEY SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets August 31, 1998
<S> <C>
Investments, at value (cost $213,810,537)................................................................. $ 231,410,586
Cash...................................................................................................... 155,370
Interest receivable....................................................................................... 2,751,492
Receivable for Series shares sold......................................................................... 711,699
Prepaid expenses and other assets......................................................................... 6,444
---------------
Total assets........................................................................................... 235,035,591
---------------
Liabilities
Payable for investments purchased......................................................................... 1,728,738
Payable for Series shares reacquired...................................................................... 295,438
Dividends payable......................................................................................... 157,769
Management fee payable.................................................................................... 97,682
Distribution fee payable.................................................................................. 59,430
Accrued expenses and other liabilities.................................................................... 56,634
Deferred trustees' fees................................................................................... 4,127
---------------
Total liabilities...................................................................................... 2,399,818
---------------
Net Assets................................................................................................ $ 232,635,773
---------------
---------------
Net assets were comprised of:
Shares of beneficial interest, at par.................................................................. $ 205,704
Paid-in capital in excess of par....................................................................... 213,430,179
---------------
213,635,883
Undistributed net realized gain on investments......................................................... 1,399,841
Net unrealized appreciation on investments............................................................. 17,600,049
---------------
Net assets, August 31, 1998............................................................................... $ 232,635,773
---------------
---------------
Class A:
Net asset value and redemption price per share
($114,090,005 DIVIDED BY 10,089,287 shares of beneficial interest issued and outstanding)........... $11.31
Maximum sales charge (3% of offering price)............................................................ .35
---------------
Maximum offering price to public....................................................................... $11.66
---------------
---------------
Class B:
Net asset value, offering price and redemption price per share
($117,099,331 DIVIDED BY 10,353,243 shares of beneficial interest issued and outstanding)........... $11.31
---------------
---------------
Class C:
Net asset value, offering price and redemption price per share
($1,354,320 DIVIDED BY 119,738 shares of beneficial interest issued and outstanding)................ $11.31
---------------
---------------
Class Z:
Net asset value, offering price and redemption price per share
($92,117 DIVIDED BY 8,134 shares of beneficial interest issued and outstanding)..................... $11.32
---------------
---------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-132

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW JERSEY SERIES
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income August 31, 1998
<S> <C>
Income
Interest................................... $13,193,189
---------------
Expenses
Management fee............................. 1,184,566
Distribution fee--Class A.................. 107,206
Distribution fee--Class B.................. 641,910
Distribution fee--Class C.................. 9,552
Transfer agent's fees and expenses......... 100,000
Custodian's fees and expenses.............. 85,000
Reports to shareholders.................... 32,000
Registration fees.......................... 16,000
Legal fees and expenses.................... 12,000
Audit fees and expenses.................... 10,000
Trustees' fees and expenses................ 4,000
Miscellaneous.............................. 10,728
---------------
Total expenses.......................... 2,212,962
Less: Custodian fee credit................. (5,578)
---------------
Net expenses............................ 2,207,384
---------------
Net investment income......................... 10,985,805
---------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions.................... 2,304,440
Financial futures transactions............. (446,310)
---------------
1,858,130
---------------
Net change in unrealized appreciation on:
Investments................................ 5,772,504
---------------
Net gain on investments....................... 7,630,634
---------------
Net Increase in Net Assets
Resulting from Operations..................... $18,616,439
---------------
---------------
</TABLE>

PRUDENTIAL MUNICIPAL SERIES FUND
NEW JERSEY SERIES
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended August 31,
in Net Assets 1998 1997
<S> <C> <C>
Operations
Net investment income.......... $ 10,985,805 $ 12,101,176
Net realized gain (loss) on
investment transactions..... 1,858,130 (16,231)
Net change in unrealized
appreciation on
investments................. 5,772,504 6,768,682
--------------- ------------
Net increase in net assets
resulting from operations... 18,616,439 18,853,627
--------------- ------------
Dividends and distributions (Note 1):
Dividends from net investment
income
Class A..................... (5,204,226) (4,494,423)
Class B..................... (5,725,488) (7,523,352)
Class C..................... (53,562) (83,049)
Class Z..................... (2,529) (352)
--------------- ------------
(10,985,805) (12,101,176)
--------------- ------------
Distributions in excess of net
investment income
Class A..................... -- (16,287)
Class B..................... -- (30,435)
Class C..................... -- (359)
Class Z..................... -- --
--------------- ------------
-- (47,081)
--------------- ------------
Distributions from net realized
gains
Class A..................... (171,535) (1,530,960)
Class B..................... (213,181) (2,860,896)
Class C..................... (1,955) (33,726)
Class Z..................... (25) (3)
--------------- ------------
(386,696) (4,425,585)
--------------- ------------
Series share transactions (net of
share conversions) (Note 5):
Net proceeds from shares
sold........................ 14,827,667 9,836,460
Net asset value of shares
issued in reinvestment of
dividends and
distributions............... 6,612,932 9,926,237
Cost of shares reacquired...... (38,421,537) (44,438,627)
--------------- ------------
Net decrease in net assets from
Series share transactions... (16,980,938) (24,675,930)
--------------- ------------
Total decrease.................... (9,737,000) (22,396,145)
Net Assets
Beginning of year................. 242,372,773 264,768,918
--------------- ------------
End of year....................... $ 232,635,773 $242,372,773
--------------- ------------
--------------- ------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-133

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements NEW JERSEY SERIES
- --------------------------------------------------------------------------------
Prudential Municipal Series Fund (the "Fund") is registered under the Investment
Company Act of 1940, as an open-end management investment company. The Fund was
organized as a Massachusetts business trust on May 18, 1984, and consists of 13
series. The monies of each series are invested in separate, independently
managed portfolios. The New Jersey Series (the "Series") commenced investment
operations in March 1988. The Series is diversified and seeks to achieve its
investment objective of obtaining the maximum amount of income exempt from
federal and applicable state income taxes with the minimum of risk by investing
in "investment grade" tax-exempt securities whose ratings are within the four
highest ratings categories by a nationally recognized statistical rating
organization or, if not rated, are of comparable quality. The ability of the
issuers of the securities held by the Series to meet their obligations may be
affected by economic or political developments in a specific state, industry or
region.

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

Note 1. Accounting Policies

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

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

The Series invests in financial futures contracts in order to hedge its existing
portfolio securities or securities the Series intends to purchase, against
fluctuations in value caused by changes in prevailing interest rates. Should
interest rates move unexpectedly, the Series may not achieve the anticipated
benefits of the financial futures contracts and may realize a loss. The use of
futures transactions involves the risk of imperfect correlation in movements in
the price of futures contracts, interest rates and the underlying hedged assets.

Options: The Series may either purchase or write options in order to hedge
against adverse market movements or fluctuations in value caused by changes in
prevailing interest rates or foreign currency exchange rates with respect to
securities or currencies which the Series currently owns or intends to purchase.
When the Series purchases an option, it pays a premium and an amount equal to
that premium is recorded as an investment. When the Series writes an option, it
receives a premium and an amount equal to that premium is recorded as a
liability. The investment or liability is adjusted daily to reflect the current
market value of the option. If an option expires unexercised, the Series
realizes a gain or loss to the extent of the premium received or paid. If an
option is exercised, the premium received or paid is an adjustment to the
proceeds from the sale or the cost basis of the purchase in determining whether
the Series has realized a gain or loss. The difference between the premium and
the amount received or paid on effecting a closing purchase or sale transaction
is also treated as a realized gain or loss. Gain or loss on purchased options is
included in net realized gain (loss) on investment transactions. Gain or loss on
written options is presented separately as net realized gain (loss) on written
option transactions.

Securities Transactions and Net Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis. The Series amortizes premiums and original issue discount paid on
purchases of portfolio securities as adjustments to interest income. Expenses
are recorded on the accrual basis which may require the use of certain estimates
by management.

Federal Income Taxes: For federal income tax purposes, each series in the Fund
is treated as a separate taxpaying entity. It is the intent of the Series to
continue to meet the requirements of the Internal Revenue Code
- --------------------------------------------------------------------------------
B-134
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements NEW JERSEY SERIES
- --------------------------------------------------------------------------------
applicable to regulated investment companies and to distribute all of its net
income to shareholders. For this reason no federal income tax provision is
required.

Dividends and Distributions: The Series declares daily dividends from net
investment income. Payment of dividends is made monthly. Distributions of net
capital gains, if any, are made annually.

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

Custody Fee Credits: The Series has an arrangement with its custodian bank,
whereby uninvested monies earn credits which reduce the fees charged by the
custodian.

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

Note 2. Agreements

The Fund has a management agreement with Prudential Investments Fund Management
LLC ("PIFM"). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PIFM has entered into a subadvisory agreement with The Prudential
Investment Corporation ("PIC"). PIC furnishes investment advisory services in
connection with the management of the Fund. PIFM pays for the cost of the
subadviser's services, the compensation of officers of the Fund, occupancy and
certain clerical and bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.

The management fee paid PIFM is computed daily and payable monthly, at an annual
rate of .50 of 1% of the average daily net assets of the Series.

The Fund had a distribution agreement with Prudential Securities Incorporated
("PSI"), which acted as the distributor of the Class A, Class B, Class C and
Class Z shares of the Fund through May 31, 1998. Prudential Investment
Management Services LLC ("PIMS") became the distributor of the Fund effective
June 1, 1998 and is serving the Fund under the same terms and conditions as
under the arrangement with PSI. The Fund compensated PSI and PIMS for
distributing and servicing the Fund's Class A, Class B and Class C shares
pursuant to plans of distribution, (the "Class A, B and C Plans"), regardless of
expenses actually incurred by them. The distribution fees are accrued daily and
payable monthly. No distribution or service fees are paid to PSI or PIMS as
distributor of the Class Z shares of the Fund.

Pursuant to the Class A, B and C Plans, the Series compensates PIMS for
distribution-related activities at an annual rate of up to .30 of 1%, .50% of 1%
and 1% of the average daily net assets of the Class A, B and C shares,
respectively. Such expenses under the Plans were .10 of 1%, .50 of 1% and .75 of
1% of the average daily net assets of the Class A, B and C shares, respectively,
for the year ended August 31, 1998.

PSI and PIMS have advised the Series that they have received approximately
$116,700 in front-end sales charges resulting from sales of Class A shares
during the year ended August 31, 1998. From these fees, PSI and PIMS paid such
sales charges to affiliated broker-dealers, which in turn paid commissions to
salespersons and incurred other distribution costs.

PSI and PIMS have advised the Series that during the year ended August 31, 1998,
it received approximately $111,500 and $300 in contingent deferred sales charges
imposed upon certain redemptions by Class B and Class C shareholders,
respectively.

PSI, PIFM, PIMS and PIC are indirect, wholly owned subsidiaries of The
Prudential Insurance Company of America.

The Series, along with other affiliated registered investment companies (the
"Funds"), entered into a credit agreement (the "Agreement") with an unaffiliated
lender. The maximum commitment under the Agreement is $200,000,000. Interest on
any such borrowings outstanding will be at market rates. The purpose of the
Agreement is to serve as an alternative source of funding for capital share
redemptions. The Series did not borrow any amounts pursuant to the Agreement
during the year ended August 31, 1998. The Funds pay a commitment fee at an
annual rate of .055 of 1% on the unused portion of the credit facility. The
commitment fee is accrued and paid quarterly on a pro rata basis by the Funds.
The Agreement expired on December 30, 1997 and has been extended through
December 29, 1998 under the same terms.

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

Note 3. Other Transactions with Affiliates

Note 4. Portfolio Securities

Purchases and sales of portfolio securities of the Series, excluding short-term
investments, for the year ended August 31, 1998, were $41,847,066 and
$60,630,131, respectively.

For federal income tax purposes, the Series utilized its remaining capital loss
carryforward of approximately $144,100.

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

Note 5. Capital

The Series offers Class A, Class B, Class C and Class Z shares. Class A shares
are sold with a front-end sales charge of up to 3%. Class B shares are sold with
a contingent deferred sales charge which declines from 5% to zero depending on
the period of time the shares are held. Class C shares are sold with a
contingent deferred sales charge of 1% during the first year. Class B shares
will automatically convert to Class A shares on a quarterly basis approximately
seven years after purchase. A special exchange privilege is also available for
shareholders who qualify to purchase Class A shares at net asset value.
Effective December 6, 1996 the Series commenced offering Class Z shares. Class Z
shares are not subject to any sales or redemption charge and are offered
exclusively for sale to a limited group of investors.

The Fund has authorized an unlimited number of shares of beneficial interest of
each class at $.01 par value per share.

Transactions in shares of beneficial interest for the fiscal years ended August
31, 1998 and August 31, 1997 were as follows:

<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------------ ---------- ------------
<S> <C> <C>
Year ended August 31, 1998:
Shares sold......................... 461,992 $ 5,164,484
Shares issued in reinvestment
of dividends and distributions.... 281,454 3,136,650
Shares reacquired................... (1,625,503) (18,109,155)
---------- ------------
Net decrease in shares outstanding
before conversion................. (882,057) (9,808,021)
Shares issued upon conversion from
Class B........................... 2,242,757 24,962,597
---------- ------------
Net increase in shares
outstanding....................... 1,360,700 $ 15,154,576
---------- ------------
---------- ------------
Year ended August 31, 1997:
Shares sold......................... 143,690 $ 1,552,731
Shares issued in reinvestment
of dividends and distributions.... 335,467 3,654,167
Shares reacquired................... (1,514,074) (16,497,510)
---------- ------------
Net decrease in shares outstanding
before conversion................. (1,034,917) (11,290,612)
Shares issued upon conversion from
Class B........................... 2,909,349 31,805,116
---------- ------------
Net increase in shares
outstanding....................... 1,874,432 $ 20,514,504
---------- ------------
---------- ------------
<CAPTION>
Class B
- ------------------------------------
<S> <C> <C>
Year ended August 31, 1998:
Shares sold......................... 811,990 $ 9,060,335
Shares issued in reinvestment
of dividends and distributions.... 307,528 3,426,625
Shares reacquired................... (1,741,575) (19,409,695)
---------- ------------
Net decrease in shares outstanding
before conversion................. (622,057) (6,922,735)
Shares reacquired upon conversion
into Class A...................... (2,242,154) (24,962,597)
---------- ------------
Net decrease in shares
outstanding....................... (2,864,211) $(31,885,332)
---------- ------------
---------- ------------
Year ended August 31, 1997:
Shares sold......................... 744,603 $ 8,104,569
Shares issued in reinvestment
of dividends and distributions.... 566,434 6,171,161
Shares reacquired................... (2,507,193) (27,336,208)
---------- ------------
Net decrease in shares outstanding
before conversion................. (1,196,156) (13,060,478)
Shares reacquired upon conversion
into Class A...................... (2,909,887) (31,805,116)
---------- ------------
Net decrease in shares
outstanding....................... (4,106,043) $(44,865,594)
---------- ------------
---------- ------------
</TABLE>
- --------------------------------------------------------------------------------
B-136
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements NEW JERSEY SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C Shares Amount
- ------------------------------------ ---------- ------------
Year ended August 31, 1998:
<S> <C> <C>
Shares sold......................... 41,815 $ 465,922
Shares issued in reinvestment
of dividends and distributions.... 4,236 47,210
Shares reacquired................... (75,506) (838,404)
---------- ------------
Net decrease in shares
outstanding....................... (29,455) $ (325,272)
---------- ------------
---------- ------------
Year ended August 31, 1997:
Shares sold......................... 11,292 $ 123,466
Shares issued in reinvestment
of dividends and distributions.... 9,232 100,567
Shares reacquired................... (51,758) (564,034)
---------- ------------
Net decrease in shares
outstanding....................... (31,234) $ (340,001)
---------- ------------
---------- ------------
<CAPTION>
Class Z
- ------------------------------------
<S> <C> <C>
Year ended August 31, 1998:
Shares sold......................... 12,217 $ 136,926
Shares issued in reinvestment
of dividends...................... 219 2,447
Shares reacquired................... (5,695) (64,283)
---------- ------------
Net increase in shares
outstanding....................... 6,741 $ 75,090
---------- ------------
---------- ------------
December 6, 1996(a) through
August 31, 1997:
Shares sold......................... 5,113 $ 55,694
Shares issued in reinvestment
of dividends...................... 31 342
Shares reacquired................... (3,751) (40,875)
---------- ------------
Net increase in shares
outstanding....................... 1,393 $ 15,161
---------- ------------
---------- ------------
- ---------------
(a) Commencement of offering of Class Z shares.
</TABLE>
- --------------------------------------------------------------------------------
B-137
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights NEW JERSEY SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
--------------------------------------------------------
Year Ended August 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............ $ 10.97 $ 10.87 $ 10.98 $ 10.81 $ 11.74
-------- ------- ------- ------- -------
Income from investment operations
Net investment income......................... .53 .55(a) .57(a) .61(a) .61(a)
Net realized and unrealized gain (loss) on
investment transactions.................... .36 .29 (.07) .17 (.75)
-------- ------- ------- ------- -------
Total from investment operations........... .89 .84 .50 .78 (.14)
-------- ------- ------- ------- -------
Less distributions
Dividends from net investment income.......... (.53) (.55) (.57) (.61) (.61)
Distributions in excess of net investment
income..................................... -- --(c) -- -- --
Distributions from net realized gains on
investment transactions.................... (.02) (.19) (.04) -- (.18)
-------- ------- ------- ------- -------
Total distributions........................ (.55) (.74) (.61) (.61) (.79)
-------- ------- ------- ------- -------
Net asset value, end of year.................. $ 11.31 $ 10.97 $ 10.87 $ 10.98 $ 10.81
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
TOTAL RETURN(b):.............................. 8.40% 7.97% 4.63% 7.55% (1.27)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................. $114,090 $95,729 $74,492 $49,666 $14,774
Average net assets (000)...................... $107,206 $89,280 $61,837 $30,290 $15,334
Ratios to average net assets:
Expenses, including distribution fees...... .71% .70%(a) .67%(a) .55%(a) .58%(a)
Expenses, excluding distribution fees...... .61% .60%(a) .57%(a) .45%(a) .48%(a)
Net investment income...................... 4.85% 5.03%(a) 5.19%(a) 5.65%(a) 5.42%(a)
For Class A, B, C and Z shares:
Portfolio turnover rate.................... 18% 25% 62% 37% 34%
</TABLE>
- ---------------
(a) Net of management fee waiver.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each year reported and includes reinvestment of dividends and
distributions.
(c) Less than $.005 per share.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-138

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights NEW JERSEY SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
------------------------------------------------------
August 1,
1994(d)
Year Ended August 31, Through
--------------------------------------- August 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
------ ------ ------ ------ ----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............ $10.97 $10.87 $10.98 $10.81 $10.83
------ ------ ------ ------ -----
Income from investment operations
Net investment income......................... .47 .48(b) .50(b) .54(b) .04(b)
Net realized and unrealized gain (loss) on
investment transactions.................... .36 .29 (.07) .17 (.02)
------ ------ ------ ------ -----
Total from investment operations........... .83 .77 .43 .71 .02
------ ------ ------ ------ -----
Less distributions
Dividends from net investment income.......... (.47) (.48) (.50) (.54) (.04)
Distributions in excess of net investment
income..................................... --(f) -- -- --
Distributions from net realized gains on
investment transactions.................... (.02) (.19) (.04) -- --
------ ------ ------ ------ -----
Total distributions........................ (.49) (.67) (.54) (.54) (.04)
------ ------ ------ ------ -----
Net asset value, end of year.................. $11.31 $10.97 $10.87 $10.98 $10.81
------ ------ ------ ------ -----
------ ------ ------ ------ -----
TOTAL RETURN(c):.............................. 7.70% 7.27% 3.96% 6.86% 0.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................. $1,354 $1,637 $1,961 $1,502 $ 240
Average net assets (000)...................... $1,274 $1,894 $1,735 $ 790 $ 11
Ratios to average net assets:
Expenses, including distribution fees...... 1.36% 1.35%(b) 1.32%(b) 1.20%(b) 1.29%(a)(b)
Expenses, excluding distribution fees...... .61% .60%(b) .57%(b) .45%(b) .54%(a)(b)
Net investment income...................... 4.21% 4.38%(b) 4.54%(b) 4.99%(b) 5.06%(a)(b)
<CAPTION>
Class Z
--------------------------
December 6,
Year 1996(e)
Ended Through
August 31, August 31,
1998 1997
<S> <C> <C>
------------ ------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............ $10.98 $ 11.10
----- ------
Income from investment operations
Net investment income......................... .55 .41(b)
Net realized and unrealized gain (loss) on
investment transactions.................... .36 .07
----- ------
Total from investment operations........... .91 .48
----- ------
Less distributions
Dividends from net investment income.......... (.55) (.41)
Distributions in excess of net investment
income..................................... --(f)
Distributions from net realized gains on
investment transactions.................... (.02) (.19)
----- ------
Total distributions........................ (.57) (.60)
----- ------
Net asset value, end of year.................. $11.32 $ 10.98
----- ------
----- ------
TOTAL RETURN(c):.............................. 8.51% 4.49%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................. $ 92 $ 15
Average net assets (000)...................... $ 30 $ 10
Ratios to average net assets:
Expenses, including distribution fees...... .61% .60%(a)(b)
Expenses, excluding distribution fees...... .61% .60%(a)(b)
Net investment income...................... 4.96% 5.13%(a)(b)
</TABLE>
- ---------------
(a) Annualized.
(b) Net of management fee waiver.
(c) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(d) Commencement of offering of Class C shares.
(e) Commencement of offering of Class Z shares.
(f) Less than $.005 per share.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-140

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Report of Independent Accountants NEW JERSEY SERIES
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
Prudential Municipal Series Fund, New Jersey Series

In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Municipal Series Fund,
New Jersey Series (the "Fund", one of the portfolios constituting Prudential
Municipal Series Fund) at August 31, 1998, the results of its operations for the
year then ended and the changes in its net assets and the financial highlights
for each of the two years in the period then ended, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at August 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above. The accompanying financial highlights for each of
the three years in the period ended August 31, 1996 were audited by other
independent accountants, whose opinion dated October 14, 1996 was unqualified.

PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
October 21, 1998
- --------------------------------------------------------------------------------
B-141
<PAGE>

Federal Income Tax Information PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) NEW JERSEY SERIES
- --------------------------------------------------------------------------------
We are required by the Internal Revenue Code to advise you within 60 days of the
Series' fiscal year end (August 31, 1998) as to the federal income tax status of
dividends paid during such fiscal year. Accordingly, we are advising you that
during its fiscal year ended August 31, 1998, dividends paid from net investment
income of $.53 per Class A share, $.50 per Class B share, $.47 per Class C share
and $.55 per Class Z shares were all federally tax-exempt interest dividends. In
addition, the Series paid to Class A, B, C and Z shares a long-term capital gain
distribution of $.018 which is taxable as 20% rate gains. Further, we wish to
advise you that 0% of the ordinary income dividend paid in the fiscal year ended
August 31, 1998 qualified for the corporate dividends received deduction
available to corporate taxpayers.

In January 1999, you will be advised on IRS Form 1099 DIV or substitute Form
1099, as to the federal tax status of the distributions received by you in
calendar 1998. The amounts that will be reported on such form 1099 DIV will be
the amounts to use on your federal income tax return and will differ from the
amounts which we must report for the Fund's fiscal year ended August 31, 1998.
- --------------------------------------------------------------------------------
B-142
<PAGE>

Portfolio of Investments as PRUDENTIAL MUNICIPAL SERIES FUND
of August 31, 1998 NEW JERSEY MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ascension Parish Louisiana, Basf Corp. Proj., Ser. 97,
F.R.D.D., A.M.T. P-1 3.40% 9/01/98 $ 1,100 $ 1,100,000
Atlantic Cnty. Impvt. Auth., Pooled Gov't. Loan Aces.,
Ser. 86, F.R.W.D. VMIG1 2.65 9/02/98 2,400 2,400,000
Bergen Cnty. Util. Auth., Wtr. Poll. Ctl., Rev., Ser. 98A Aaa 4.00 12/15/98 520 520,427
Bernards Twnshp., G.O., B.A.N. NR 3.75 5/21/99 2,867 2,870,385
Brazos River, Texas, Harbor Nav. Dist.,
Dow Chemical Co., Ser. 92A, F.R.D.D. P-1 3.55 9/01/98 2,600 2,600,000
Dow Chemical Co., Ser. 93, F.R.D.D. P-1 3.55 9/01/98 300 300,000
Burlington Cnty. G.O.,
Cmnty. Coll. AA(c) 4.85 7/15/99 800 808,102
Gen. Impt. AA(c) 4.85 7/15/99 1,200 1,212,153
Special Svcs. Sch. AA(c) 4.85 7/15/99 290 292,937
Charleston Cnty., South Carolina, Rev., Zeigler Coal
Hldng. Proj.,
Ser. 97, F.R.D.D. A-1+(c) 3.50 9/01/98 800 800,000
Denville Twnshp.,
G.O. AAA(c) 4.25 2/01/99 300 300,731
G.O., B.A.N. Aa3 4.20 6/01/99 1,155 1,158,342
Fairfield Twnshp., B.A.N. NR 4.00 3/23/99 2,700 2,705,496
Fort Lee, G.O., B.A.N. NR 4.00 5/22/99 8,405 8,421,291
Gloucester Cnty. Ind. Poll. Ctrl. Fin. Auth. Rev.,
Monsanto Co. Proj., Ser. 92, F.R.W.D. P-1 3.15 9/02/98 5,670 5,670,000
Hudson Cnty. Impvt. Auth. Rev., Pooled Gov't. Loan Prog.,
Ser. 86, F.R.W.D., A-1+(c) 3.20 9/03/98 2,945 2,945,000
Oper. Sch. Dist., Cert. of Part. Aaa 4.00 6/01/99 1,285 1,288,221
Jersey City, G.O., B.A.N. MIG1 4.25 9/18/98 1,000 1,000,165
Mendham Twnshp., G.O., B.A.N. NR 4.125 12/10/98 905 905,276
Middlesex Cnty. Util. Auth., Solid Waste Sys. Rev., Ser.
91 Aaa 5.70 12/01/98 1,900 1,910,159
Montville Twnshp., Brd. of Ed., B.A.N., T.N. NR 4.00 10/02/98 3,325 3,325,828
New Jersey Hlth. Care Facs. Auth., Atlantic Hlth. Sys.
Hosp. Corp.,
Ser. 97A Aaa 4.00 7/01/99 1,000 1,002,644
New Jersey Hsg. & Mtg. Fin. Agy.,
Eagle Tax Exempt, Trust 92A, Ser. 3001, F.R.W.D.S. A-1+(c) 3.36 9/03/98 3,300 3,300,000
Home Buyer, Ser. 96S, F.R.W.D.S., A.M.T. A-1+(c) 3.41 9/03/98 5,980 5,980,000
New Jersey St. Econ. Dev. Auth.,
865 Centennial Ave. Proj., Ser. 85, F.R.W.D., A.M.T. A-1+(c) 3.41 9/03/98 1,200 1,200,000
Alpha Assoc. & Avallone, Ser. 98, F.R.W.D. A-1(c) 3.30 9/02/98 2,700 2,700,000
Bayshore Hlth. Care, Ser. 98A, F.R.W.D. VMIG1 3.33 9/03/98 3,950 3,950,000
Brach Jersey Ave. Proj., Ser. 86, F.R.W.D. A-1+(c) 2.90 9/02/98 2,000 2,000,000
Catholic Cmnty. Svcs. Proj., Ser. 93, F.R.W.D. VMIG1 3.05 9/03/98 5,685 5,685,000
Catholic Cmnty. Svcs. Proj., Ser. 95, F.R.W.D. VMIG1 3.05 9/03/98 2,420 2,420,000
Chamber Congeration Proj., Ser. 91, T.E.C.P., A.M.T. VMIG1 3.20 9/18/98 4,200 4,200,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-143

<PAGE>

Portfolio of Investments as PRUDENTIAL MUNICIPAL SERIES FUND
of August 31, 1998 NEW JERSEY MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Davidson Ave. Assoc. Ltd., Ser. 84, F.R.W.D., A.M.T. A-1+(c) 3.41% 9/03/98 $ 2,500 $ 2,500,000
Dock Fac. Rev., Bayonne/IMTT Proj., Ser. 93B, F.R.D.D. VMIG1 3.15 9/01/98 3,700 3,700,000
Dock Fac. Rev., Bayonne/IMTT Proj., Ser. 93C, F.R.D.D. VMIG1 3.15 9/01/98 2,150 2,150,000
Econ. Growth Bds., Ser. 94B, F.R.W.D., A.M.T. A-1(c) 2.95 9/03/98 1,350 1,350,000
Elizabeth Twnshp. Wtr. Co., Ser. B, F.R.W.D., A.M.T. A-1+(c) 3.05 9/02/98 5,500 5,500,000
Fin. Assoc. L.P., Ser. 97, F.R.W.D. A-1+(c) 3.36 9/03/98 3,952 3,952,000
GSA Bldg. Assoc. Ltd., Ser. 85, F.R.W.D., A.M.T. A-1+(c) 3.41 9/03/98 4,200 4,200,000
Kent Place, Ser. 92L, F.R.W.D. VMIG1 3.25 9/03/98 1,775 1,775,000
Michael Shalit Proj., Ser. 93, F.R.D.D. NR 3.40 9/01/98 1,405 1,405,000
New Jersey Foreign Trade Zone Venture, Ser. 98,
F.R.D.D. A-1+(c) 3.10 9/01/98 5,000 5,000,000
New Jersey Natural Gas Co. Proj., Ser 98B, F.R.W.D.,
A.M.T. P-1 2.55 9/02/98 1,500 1,500,000
Newark Recycling Fac., Ser. 97, A.M.T. A-1+(c) 3.95 12/15/98 8,000 8,000,000
North Plainfield Hldg., Ser. 92, A.O.T. VMIG1 3.90 9/01/98 3,110 3,110,000
Ocean Spray Cranberry Inc. Proj., Ser. 87, A.O.T. NR 3.80 7/01/99 2,500 2,500,000
Office Court Assoc. Proj., F.R.W.D., A.M.T. A-1+(c) 3.30 9/02/98 1,650 1,650,000
Owens Drive Bldg. Ltd., Ser. 84, F.R.W.D., A.M.T. A-1+(c) 3.41 9/03/98 1,200 1,200,000
Owens Drive Bldg. Ltd., Ser. 90, F.R.W.D., A.M.T. A-1+(c) 3.41 9/03/98 1,450 1,450,000
Peddie Sch. Proj., Ser. 94B, F.R.W.D. A-1(c) 3.20 9/03/98 3,000 3,000,000
Raritan Bldg. Assoc. Ltd., Ser. 85, F.R.W.D. A-1(c) 3.36 9/03/98 3,500 3,500,000
RJB Associates Ltd., F.R.W.D. NR 3.30 9/03/98 1,322 1,322,000
Russ Berrie & Co., Ser. 83, F.R.W.D. A-1+(c) 3.30 9/02/98 5,800 5,800,000
U.S. Golf Assn. Proj., F.R.W.D. A-1 3.20 9/03/98 2,400 2,400,000
Volvo America Corp., Ser. 84, F.R.W.D. NR 3.85 9/02/98 1,500 1,500,000
West Essex Assoc. Ltd., Ser. 84, F.R.W.D. A-1+(c) 3.36 9/03/98 1,300 1,300,000
New Jersey St. Higher Educ. Asst. Auth., Stud. Loan Rev.,
Ser. 97B, A.O.T., A.M.T. A-1+(c) 3.75 6/01/99 1,800 1,800,000
New Jersey St. Tpke. Auth. Rev., Ser. 91D, F.R.W.D. VMIG1 2.90 9/02/98 2,600 2,600,000
Nutley, G.O., B.A.N. NR 3.75 7/30/99 3,500 3,503,671
Port Auth. of New York & New Jersey,
Ser. 3, F.R.D.D. VMIG1 3.35 9/01/98 1,300 1,300,000
Ser. 4, F.R.D.D., A.M.T. VMIG1 3.30 9/01/98 1,100 1,100,000
Ser. 93-2, F.R.W.D. NR 3.338(e) 9/01/98 8,000 8,000,000
Spec. Oblig. Rev., Ser. 2, F.R.D.D. VMIG1 3.20 9/01/98 4,500 4,500,000
Spec. Oblig. Rev., Ser. 6, F.R.D.D., A.M.T. VMIG1 3.30 9/01/98 4,400 4,400,000
Princeton Twnshp., Mercer Co., B.A.N. NR 3.75 3/11/99 1,000 1,001,010
Puerto Rico Comnwlth., Gov't. Dev. Bank, Ser. 95, T.E.C.P. A-1+(c) 3.65 10/07/98 2,500 2,500,000
Puerto Rico Elec. Pwr. Auth., Ser. SGA43, F.R.W.D.S. A-1+(c) 3.18 9/02/98 2,000 2,000,000
Randolph Twnshp., G.O., B.A.N. NR 3.90 6/18/99 3,100 3,105,222
Ringwood Borough, Ser. A, B.A.N. NR 3.62 3/19/99 3,805 3,805,581
Salem Cnty., Ind. Poll. Ctrl. Rev., Philadelphia Elec.
Co.,
Ser. 93A, T.E.C.P., A.M.T. VMIG1 3.40 10/13/98 8,000 8,000,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-144

<PAGE>

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Statement of Assets and Liabilities NEW JERSEY MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets August 31, 1998
---------------
<S> <C>
Investments, at amortized cost which approximates market value............................................ $ 198,469,798
Cash...................................................................................................... 1,724,377
Receivable for Series shares sold......................................................................... 1,582,369
Interest receivable....................................................................................... 1,245,864
Receivable for investments sold........................................................................... 270,000
Deferred expenses and other assets........................................................................ 4,565
---------------
Total assets........................................................................................... 203,296,973
---------------
Liabilities
Payable for Series shares reacquired...................................................................... 2,170,625
Dividends payable......................................................................................... 90,179
Management fee payable.................................................................................... 85,105
Accrued expenses and other liabilities.................................................................... 20,473
Distribution fee payable.................................................................................. 11,596
Deferred trustee's fee.................................................................................... 4,127
---------------
Total liabilities...................................................................................... 2,382,105
---------------
Net Assets................................................................................................ $ 200,914,868
---------------
---------------
Net assets were comprised of:
Shares of beneficial interest, at $.01 par value....................................................... $ 2,009,149
Paid-in capital in excess of par....................................................................... 198,905,719
---------------
Net assets, August 31, 1998............................................................................... $ 200,914,868
---------------
---------------
Net asset value, offering price and redemption price per share ($200,914,868 / 200,914,868 shares of
beneficial interest issued and outstanding; unlimited number of shares authorized)..................... $1.00
---------------
---------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-146

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW JERSEY MONEY MARKET SERIES
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income August 31, 1998
---------------
<S> <C>
Income
Interest and discount earned............... $ 7,049,992
---------------
Expenses
Management fee............................. 993,236
Distribution fee........................... 248,309
Transfer agent's fees and expenses......... 74,000
Custodian's fees and expenses.............. 71,000
Reports to shareholders.................... 23,000
Registration fees.......................... 15,000
Legal fees................................. 12,000
Audit fee and expenses..................... 8,000
Trustees' fees............................. 4,000
Miscellaneous.............................. 5,136
---------------
Total expenses.......................... 1,453,681
Less: Custodian fee credit (Note 1)........ (13,785)
---------------
Net expenses............................ 1,439,896
---------------
Net investment income......................... 5,610,096
---------------
Realized Gain on Investments.................. 6,532
---------------
Net Increase in Net Assets
Resulting from Operations..................... $ 5,616,628
---------------
---------------
</TABLE>

PRUDENTIAL MUNICIPAL SERIES FUND
NEW JERSEY MONEY MARKET SERIES
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended August 31,
in Net Assets 1998 1997
--------------- ------------
<S> <C> <C>
Operations
Net investment income.......... $ 5,610,096 $ 5,459,639
Net realized gain on investment
transactions................ 6,532 --
--------------- ------------
Net increase in net assets
resulting from operations... 5,616,628 5,459,639
--------------- ------------
Dividends and distributions to
shareholders (Note 1).......... (5,616,628) (5,459,639)
--------------- ------------
Series share transactions
(at $1 per share)
Net proceeds from shares
subscribed.................. 698,322,054 640,701,796
Net asset value of shares
issued in reinvestment of
dividends................... 5,490,086 5,343,670
Cost of shares reacquired...... (702,369,007) (627,970,024)
--------------- ------------
Net increase in net assets from
Series share transactions... 1,443,133 18,075,442
--------------- ------------
Total increase.................... 1,443,133 18,075,442
Net Assets
Beginning of year................. 199,471,735 181,396,293
--------------- ------------
End of year....................... $ 200,914,868 $199,471,735
--------------- ------------
--------------- ------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-147

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements NEW JERSEY MONEY MARKET SERIES
- --------------------------------------------------------------------------------
Prudential Municipal Series Fund (the "Fund") is registered under the Investment
Company Act of 1940 as an open-end management investment company. The Fund was
organized as a Massachusetts business trust on May 18, 1984 and consists of 13
series. The monies of each series are invested in separate, independently
managed portfolios. The New Jersey Money Market Series (the "Series") commenced
investment operations on December 3, 1990. The Series is nondiversified and
seeks to achieve its investment objective of providing the highest level of
income that is exempt from New Jersey state and federal income taxes with a
minimum of risk by investing in "investment grade" tax-exempt securities
maturing within 13 months or less and whose ratings are within the two highest
ratings categories by a nationally recognized statistical rating organization,
or if not rated, are of comparable quality. The ability of the issuers of the
securities held by the Series to meet their obligations may be affected by
economic developments in a specific state, industry or region.

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

Note 1. Accounting Policies

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

All securities are valued as of 4:30 p.m., New York time.

Federal Income Taxes: For federal income tax purposes, each series in the Fund
is treated as a separate taxpaying entity. It is the intent of the Series to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its net income to
shareholders. For this reason, no federal income tax provision is required.

Dividends: The Series declares daily dividends from net investment income.
Payment of dividends is made monthly.

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

Custody Fee Credits: The Fund has an arrangement with its custodian bank,
whereby uninvested monies earn credits which reduce the fees charged by the
custodian.

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

Note 2. Agreements

The Fund has a management agreement with Prudential Investments Fund Management
LLC ("PIFM"). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PIFM has entered into a subadvisory agreement with The Prudential
Investment Corporation ("PIC"); PIC furnishes investment advisory services in
connection with the management of the Fund. PIFM pays for the cost of the
subadviser's services, the compensation of officers of the Fund, occupancy and
certain clerical and bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.

The management fee paid to PIFM is computed daily and payable monthly, at an
annual rate of .50 of 1% of the average daily net assets of the Series.

The Series had a distribution agreement with Prudential Securities Incorporated
("PSI"), which acted as the distributor of the Series through May 31, 1998.
Prudential Investment Management Services LLC ("PIMS") became the distributor of
the Fund effective June 1, 1998 and is serving the Fund under the same terms and
conditions as under the arrangement with PSI. The Series compensated PSI and
PIMS for distributing and servicing the Series' shares pursuant to the plan of
distribution at an annual rate of .125 of 1% of the Series' average daily net
assets. The distribution fee is accrued daily and payable monthly.

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

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

Note 3. Other Transactions with Affiliates

Prudential Mutual Fund Services LLC ("PMFS"), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the year ended August 31, 1998, the
Series incurred fees of approximately $67,000 for the services of PMFS. As of
August 31, 1998, approximately $5,000 of such fees were due to PMFS. Transfer
agent fees and expenses in the Statement of Operations include certain
out-of-pocket expenses paid to nonaffiliates.
- --------------------------------------------------------------------------------
B-148
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights NEW JERSEY MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended August 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year................................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income and net realized gains(a).................... .03 .03 .03 .03 .02
Dividends and distributions........................................ (.03) (.03) (.03) (.03) (.02)
-------- -------- -------- -------- --------
Net asset value, end of year....................................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN(b):................................................... 2.87% 2.82% 2.92% 3.15% 1.90%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)...................................... $200,915 $199,472 $181,396 $182,453 $158,280
Average net assets (000)........................................... $198,647 $196,223 $192,617 $171,223 $169,123
Ratios to average net assets(a):
Expenses, including distribution fee............................ .73% .73% .70% .64% .68%
Expenses, excluding distribution fee............................ .60% .60% .57% .51% .55%
Net investment income........................................... 2.82% 2.78% 2.89% 3.11% 1.87%
</TABLE>
- ---------------
(a) Net of custodian fee credit.
(b) Total return includes reinvestment of dividends and distributions.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-149

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Report of Independent Accountants NEW JERSEY MONEY MARKET SERIES
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
Prudential Municipal Series Fund, New Jersey Money Market Series

In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Municipal Series Fund,
New Jersey Money Market Series (the "Fund", one of the portfolios constituting
Prudential Municipal Series Fund) at August 31, 1998, the results of its
operations for the year then ended and the changes in its net assets and the
financial highlights for each of the two years in the period then ended, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at August 31, 1998 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above. The accompanying financial highlights for each of the three
years in the period ended August 31, 1996 were audited by other independent
accountants, whose opinion dated October 14, 1996 was unqualified.

Portfolio of Investments as PRUDENTIAL MUNICIPAL SERIES FUND
of August 31, 1998 NEW YORK SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--99.4%
- ------------------------------------------------------------------------------------------------------------------------------
City of Elmira, Wtr. Impvt., Ser. 96 B, A.M.B.A.C. Aaa 5.95% 3/01/16 $ 5,395(e) $ 5,865,876
City of New Rochelle Ind. Dev. Agcy.,
Coll. of New Rochelle Baa2 6.625 7/01/12 500 540,080
Coll. of New Rochelle Baa2 6.75 7/01/22 2,000 2,164,600
Dutchess Cnty. Res. Rec. Agcy. Rev., Solid Waste Mgmt.,
Ser. A, F.G.I.C. Aaa 7.50 1/01/09 1,150 1,229,569
Islip Res. Rec., Ser. B, A.M.B.A.C., A.M.T. Aaa 7.20 7/01/10 1,745 2,153,522
Jefferson Cnty. Ind. Dev. Agcy., Solid Waste Disp. Rev.,
A.M.T. Baa1 7.20 12/01/20 1,500 1,664,415
Long Island Pwr. Auth., Ser. A Aaa 5.50 12/01/13 3,000 3,289,890
Metro Trans. Auth. Facs. Rev.,
Cap. Apprec., Ser. N, F.G.I.C. Aaa Zero 7/01/13 4,000 1,976,360
Commuter Facs., Ser. A Baa1 5.25 7/01/28 5,000 5,030,300
Commuter Facs., Ser. A, F.G.I.C. Aaa 5.60 7/01/09 500 546,125
Commuter Facs., Ser. A, F.G.I.C. Aaa 5.70 7/01/10 1,000 1,095,660
Trans. Facs. Rev., Ser. A, F.S.A. Aaa 5.60 7/01/09 2,900 3,167,525
Trans. Facs. Rev., Ser. A, F.S.A. Aaa 5.70 7/01/10 4,600 5,040,036
Trans. Facs. Rev., Ser. N, F.G.I.C. Aaa Zero 7/01/12 5,575 2,908,199
Metro Trans. Auth., New York Svc. Contract,
Cap. Apprec., Ser. 7, M.B.I.A. Aaa Zero 7/01/08 7,185 4,683,398
Commuter Facs., Ser. O Baa1 5.50 7/01/17 2,500 2,654,325
Trans. Facs. Rev., Ser. O Baa1 5.75 7/01/13 1,975 2,163,514
New York City Ind. Dev. Agcy.,
Field Hotel Assoc., Ltd. Partnership NR 6.00 11/01/28 1,000(f) 998,380
Laguardia Assoc., Ltd. Partnership Proj. NR 6.00 11/01/28 2,000(f) 1,996,760
New York City Ind. Dev. Agcy., Spec. Fac. Rev.,
Brooklyn Navy Yard Part., A.M.T. Baa3 5.75 10/01/36 4,000 4,110,360
U.S.T.A. National Tennis Center Proj., F.S.A. Aaa 6.375 11/15/14 1,000 1,120,840
Y.M.C.A. Of Greater N.Y. Proj. Aaa 8.00 8/01/16 1,350(b) 1,524,460
New York City Mun. Wtr. Fin. Auth., Wtr. & Swr. Sys. Rev.,
Ser. B A2 5.875 6/15/26 2,000 2,136,260
New York City Trans. Fin. Auth. Rev.,
Future Tax Secd. Aa3 5.00 8/15/13 500 508,430
Future Tax Secd. Aa3 5.00 8/15/17 2,000 2,001,620
Future Tax Secd. Aa3 4.75 5/01/23 3,000 2,881,830
New York City Trust, Cultural Res. Rev., American Museum
of Natl. History, Ser. A, M.B.I.A. Aaa 5.65 4/01/22 2,500 2,657,325
New York City, Gen. Oblig.,
Ser. A Aaa 7.75 3/15/03 3,330(b) 3,581,348
Ser. B A3 8.00 6/01/99 70 72,258
Ser. B A3 7.50 2/01/01 4,000 4,323,760
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-152

<PAGE>

Portfolio of Investments as PRUDENTIAL MUNICIPAL SERIES FUND
of August 31, 1998 NEW YORK SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
New York City, Gen. Oblig., (cont'd.)
Ser. D Aaa 8.00% 8/01/03 $ 2,220(b) $ 2,508,822
Ser. D A3 8.00 8/01/03 280 313,779
Ser. D Aaa 7.70 2/01/09 2,795(b) 3,175,036
Ser. D A3 7.70 2/01/09 245 275,540
Ser. F Aaa 8.20 11/15/03 2,515(b) 2,884,177
Ser. F A3 8.20 11/15/03 485 551,135
Ser. G A3 5.75 10/15/12 7,085 7,628,490
Ser. G A3 5.875 10/15/14 2,500 2,705,000
Ser. H A3 6.00 8/01/17 2,400 2,617,056
Ser. I A3 6.10 4/15/10 2,000 2,219,500
Ser. I A3 6.25 4/15/27 2,835(b) 3,275,871
Ser. I A3 6.25 4/15/27 3,165 3,480,835
New York St. Dorm. Auth. Rev.,
Albany Cnty. Airport Baa1 5.25 4/01/17 3,760 3,798,878
City Univ. Refunding Bonds Baa1 6.00 7/01/14 6,500 7,342,205
City Univ. Sys. Cons., Ser. D Baa1 7.00 7/01/09 1,880 2,198,096
Coll. & Univ. Ed., M.B.I.A., A.M.T. Aaa Zero 7/01/04 2,255 1,777,594
Episcopal Hlth. Svcs., G.N.M.A. AAA(d) 7.55 8/01/29 3,000 3,182,940
Mental Hlth. Svcs. Facs. Impvt., Ser. B A3 6.50 8/15/11 3,000 3,519,480
Mental Hlth. Svcs. Facs. Impvt., Ser. B A3 5.625 2/15/21 2,000 2,092,480
New York St. Dept. Hlth. Baa1 5.00 7/01/24 2,500 2,422,300
Spec. Act. Sch. Districts, F.G.I.C. Aaa 7.00 7/01/13 3,050 3,272,894
St. Univ. Edl. Facs., Ser. A A3 5.25 5/15/15 8,600 9,050,726
St. Univ. Edl. Facs., Ser. A, M.B.I.A. Aaa 4.75 5/15/25 2,500 2,411,825
New York St. Energy Resch. & Dev. Auth. Rev.,
Brooklyn Union Gas Co., Ser. B, M.B.I.A., A.M.T. Aaa 6.75 2/01/24 2,000(e) 2,192,040
Con. Edison Co., Ser. A, A.M.T. A1 7.50 1/01/26 4,775 5,022,679
New York St. Environ. Facs. Corp., Poll. Ctrl. Rev.,
Ser. C Aaa 5.35 7/15/07 2,000 2,162,640
Ser. C Aaa 5.45 7/15/08 3,090 3,357,471
Ser. C Aaa 5.55 7/15/09 1,375 1,495,326
Ser. E Aaa 6.50 6/15/14 965(b) 1,051,985
Ser. E Aaa 6.50 6/15/14 35 37,902
St. Wtr. Revolving Fund, Ser. B Aa2 7.50 3/15/11 1,300 1,350,219
New York St. Hsg. Fin. Agcy. Rev., Ser. A,
Multifamily Hsg. Aa 7.05 8/15/24 1,000 1,074,600
St. Univ. Constr. Aaa 8.00 5/01/11 3,600(e) 4,693,140
New York St. Local Gov't. Assist. Corp.,
Ser. C A3 Zero 4/01/14 11,882 5,579,668
Ser. E A3 6.00 4/01/14 6,135(e) 7,030,956
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-153

<PAGE>

Portfolio of Investments as PRUDENTIAL MUNICIPAL SERIES FUND
of August 31, 1998 NEW YORK SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
New York St. Med. Care Facs. Fin. Agcy. Rev.,
Mental Hlth. Svcs., Ser. A Aaa 7.50% 8/15/07 $ 505 (b) $ 557,984
Mental Hlth. Svcs., Ser. A A3 7.50 8/15/07 310 339,912
New York Hosp., Ser. A, A.M.B.A.C., F.H.A. Aaa 6.50 8/15/29 3,000 (b) 3,458,250
New York St. Mtge. Agcy. Rev.,
Homeowner Mtge., Ser. 55 Aa2 5.95 10/01/17 2,000 2,122,840
Homeowner Mtge., Ser. 60, A.M.T. Aa2 6.00 10/01/22 8,000 (e) 8,512,560
New York St. Mun. Bond Bank Agcy., Spec. Proj. Rev., Ser.
A A+(d) 6.75 3/15/11 3,000 (b) 3,312,510
New York St. Thrwy. Auth.,
Highway & Bridge Trust Fund, Ser. B, F.G.I.C. Aaa 6.00 4/01/14 2,220 (b) 2,479,274
Svc. Contract Rev., Local Highway & Bridge Baa1 6.45 4/01/15 1,000 1,115,200
New York St. Urban Dev. Corp. Rev.,
Correctional Cap. Facs., A.M.B.A.C. Aaa Zero 1/01/08 10,000 6,661,700
St. Facs. Baa1 5.75 4/01/11 5,000 5,469,300
St. Facs. Baa1 5.75 4/01/12 5,750 6,290,270
St. Facs. Baa1 5.60 4/01/15 2,000 2,150,520
Subordinated Lien Corp. A2 5.50 7/01/16 10,000 10,376,100
Subordinated Lien Corp. A2 5.50 7/01/22 5,000 5,168,400
Orange County Ind. Dev. Agcy., The Glen Arden Inc. Proj. NR 5.70 1/01/28 1,250 1,256,838
Port Authority of New York & New Jersey, Ser. 70, A.M.T. A1 7.25 8/01/25 1,000 1,062,510
Puerto Rico Commonwealth,
Cap. Apprec. Ref. Pub. Impvt., Gen. Oblig. Baa1 Zero 7/01/15 1,250 547,938
Gen. Oblig. Baa1 Zero 7/01/14 2,000 927,860
Gen. Oblig., A.M.B.A.C. Aaa 7.00 7/01/10 6,500 (e) 8,052,265
Pub. Impvt. Rfdg., M.B.I.A. Aaa 7.00 7/01/10 1,250 1,548,512
Puerto Rico Ind. Tourist Edl. Med. & Envr. Ctrl. Facs.
Fin. Auth., Hosp. Rev., M.B.I.A. Aaa 5.50 7/01/26 2,500 2,620,450
Puerto Rico Pub. Bldgs. Auth. Rev., Gtd. Gov't. Facs.,
Ser. A, A.M.B.A.C. Aaa 6.25 7/01/15 2,050 2,420,578
Rensselaer Cnty.,
Cap. Apprec., Ser. A, A.M.B.A.C. Aaa Zero 6/01/12 2,442 1,266,910
Cap. Apprec., Ser. A, A.M.B.A.C. Aaa Zero 6/01/13 2,372 1,164,818
Rockland Cnty. Solid Waste Mgmt. Auth., Ser. B,
A.M.B.A.C., A.M.T. Aaa 5.625 12/15/14 1,585 1,698,058
Scotia Hsg. Auth. Rev., Coburg Village Inc. Proj., Ser. A NR 6.20 7/01/38 4,000 4,029,600
Syracuse Ind. Dev. Agcy., Crouse Hlth. Hosp. Inc. Proj.,
Ser. A BBB(d) 5.25 1/01/16 1,500 1,483,905
Triborough Bridge & Tunl. Auth. Rev., Ser. A, M.B.I.A. Aaa 6.00 1/01/10 2,000 2,281,120
Virgin Islands Pub. Fin. Auth. Rev., Matching Fund Loan,
Ser. E NR 5.875 10/01/18 2,250 2,329,672
Watervliet Hsg. Auth., Sen. Res. Beltrone Lvng. Ctr.
Proj., Ser. A NR 6.125 6/01/38 4,000 4,007,160
------------
Total long-term investments (cost $251,620,874) $276,553,324
------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-154

<PAGE>

Portfolio of Investments as PRUDENTIAL MUNICIPAL SERIES FUND
of August 31, 1998 NEW YORK SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS--0.6%
New York St. Energy Resch. & Dev. Auth., F.R.D.D.,
Niagara Mohawk Pwr. Corp., Ser. 85B P1 3.40% 9/01/98 $ 300 $ 300,000
Niagara Mohawk Pwr. Corp., Ser. 85C P1 3.40 9/01/98 100 100,000
Port Auth. of New York & New Jersey, F.R.D.D.
Ser. 2 VMIG1 3.20 9/01/98 200 200,000
Ser. 3 VMIG1 3.35 9/01/98 1,000 1,000,000
------------
Total short-term investments (cost $1,600,000) 1,600,000
------------
Total Investments--100.0%
(cost $253,220,874; Note 4) 278,153,324
Other assets in excess of liabilities--0.0% 994
------------
Net Assets--100% $278,154,318
------------
------------
</TABLE>
- ---------------
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance Corporation.
A.M.T.--Alternative Minimum Tax.
F.G.I.C.--Financial Guaranty Insurance Company.
F.H.A.--Federal Housing Administration.
F.R.D.D.--Floating Rate (Daily) Demand Note (c).
F.S.A.--Financial Security Assurance.
G.N.M.A.--Government National Mortgage Association.
M.B.I.A.--Municipal Bond Insurance Association.
(b) Prerefunded issues are secured by escrowed cash and/or direct U.S.
guaranteed obligations.
(c) For purposes of amortized cost valuation, the maturity date of Floating Rate
Demand Notes is considered to be the later of the next date on which the
security can be redeemed at par, or the next date on which the rate of
interest is adjusted.
(d) Standard & Poor's Rating.
(e) All or partial principal amount pledged as collateral for financial futures
contracts and delayed settlement securities.
(f) Represents delayed settlement securities.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a description of
Moody's and Standard & Poor's ratings.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-155

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Statement of Assets and Liabilities NEW YORK SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets August 31, 1998
<S> <C>
Investments, at value (cost $253,220,874)................................................................. $ 278,153,324
Cash...................................................................................................... 69,833
Interest receivable....................................................................................... 3,525,550
Receivable for Series shares sold......................................................................... 368,189
Due from broker - variation margin........................................................................ 8,750
Prepaid expenses and other assets......................................................................... 7,410
---------------
Total assets........................................................................................... 282,133,056
---------------
Liabilities
Payable for investments purchased......................................................................... 3,033,500
Payable for Series shares reacquired...................................................................... 448,977
Dividends payable......................................................................................... 213,266
Management fee payable.................................................................................... 117,132
Accrued expenses.......................................................................................... 104,241
Distribution fee payable.................................................................................. 57,495
Deferred trustee's fees................................................................................... 4,127
---------------
Total liabilities...................................................................................... 3,978,738
---------------
Net Assets................................................................................................ $ 278,154,318
---------------
---------------
Net assets were comprised of:
Shares of beneficial interest, at par.................................................................. $ 226,137
Paid-in capital in excess of par....................................................................... 250,857,999
---------------
251,084,136
Accumulated net realized gain on investments........................................................... 2,038,357
Net unrealized appreciation on investments............................................................. 25,031,825
---------------
Net assets, August 31, 1998............................................................................... $ 278,154,318
---------------
---------------
Class A:
Net asset value and redemption price per share
($176,555,332 DIVIDED BY 14,355,378 shares of beneficial interest issued and outstanding)........... $12.30
Maximum sales charge (3% of offering price)............................................................ .38
---------------
Maximum offering price to public....................................................................... $12.68
---------------
---------------
Class B:
Net asset value, offering price and redemption price per share
($99,822,784 DIVIDED BY 8,113,950 shares of beneficial interest issued and outstanding)............. $12.30
---------------
---------------
Class C:
Net asset value, offering price and redemption price per share
($1,279,421 DIVIDED BY 103,995 shares of beneficial interest issued and outstanding)................ $12.30
---------------
---------------
Class Z:
Net asset value, offering price and redemption price per share
($496,781 DIVIDED BY 40,350 shares of beneficial interest issued and outstanding)................... $12.31
---------------
---------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-156

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW YORK SERIES
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income August 31, 1998
<S> <C>
Income
Interest................................... $15,870,638
---------------
Expenses
Management fee............................. 1,401,539
Distribution fee--Class A.................. 174,485
Distribution fee--Class B.................. 523,267
Distribution fee--Class C.................. 7,268
Transfer agent's fees and expenses......... 140,000
Custodian's fees and expenses.............. 84,000
Reports to shareholders.................... 74,000
Registration fees.......................... 40,000
Legal fees and expenses.................... 12,000
Audit fees and expenses.................... 10,000
Trustees' fees............................. 4,000
Miscellaneous expense...................... 8,321
---------------
Total expenses.......................... 2,478,880
Less: Custodian fee credit................. (5,347)
---------------
Net expenses............................ 2,473,533
---------------
Net investment income......................... 13,397,105
---------------
Realized and Unrealized Gain (Loss)
on Investments
Net realized gain (loss) on:
Investment transactions.................... 3,109,044
Financial futures transactions............. (784,073)
---------------
2,324,971
---------------
Net change in unrealized appreciation on:
Investments................................ 7,201,384
Financial futures contracts................ 99,375
---------------
7,300,759
---------------
Net gain on investments....................... 9,625,730
---------------
Net Increase in Net Assets Resulting from
Operations.................................... $23,022,835
---------------
---------------
</TABLE>

PRUDENTIAL MUNICIPAL SERIES FUND
NEW YORK SERIES
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended August 31,
in Net Assets 1998 1997
--------------- ------------
<S> <C> <C>
Operations
Net investment income.......... $ 13,397,105 $ 14,824,301
Net realized gain on investment
transactions................ 2,324,971 1,136,405
Net change in unrealized
appreciation of
investments................. 7,300,759 9,791,072
--------------- ------------
Net increase in net assets
resulting from operations... 23,022,835 25,751,778
--------------- ------------
Dividends and distributions (Note 1):
Dividends from net investment income
Class A..................... (8,602,581) (8,959,583)
Class B..................... (4,742,947) (5,828,376)
Class C..................... (41,511) (35,922)
Class Z..................... (10,066) (420)
--------------- ------------
(13,397,105) (14,824,301)
--------------- ------------
Distributions in excess of net
investment income
Class A..................... (87,902) (59,069)
Class B..................... (53,544) (42,280)
Class C..................... (428) (262)
Class Z..................... (33) --
--------------- ------------
(141,907) (101,611)
--------------- ------------
Distributions from net realized
gains
Class A..................... (720,509) (3,839,493)
Class B..................... (438,881) (2,748,185)
Class C..................... (3,511) (17,035)
Class Z..................... (274) (4)
--------------- ------------
(1,163,175) (6,604,717)
--------------- ------------
Series share transactions (net of
share conversions) (Note 5):
Net proceeds from shares
sold........................ 16,534,022 11,515,705
Net asset value of shares
issued in reinvestment of
dividends and
distributions............... 8,971,237 13,270,052
Cost of shares reacquired...... (41,609,077) (47,746,814)
--------------- ------------
Net decrease in net assets from
Series share transactions... (16,103,818) (22,961,057)
--------------- ------------
Total decrease.................... (7,783,170) (18,739,908)
Net Assets
Beginning of year................. 285,937,488 304,677,396
--------------- ------------
End of year....................... $ 278,154,318 $285,937,488
--------------- ------------
--------------- ------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-157

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements NEW YORK SERIES
- --------------------------------------------------------------------------------
Prudential Municipal Series Fund (the "Fund") is registered under the Investment
Company Act of 1940 as an open-end investment company. The Fund was organized as
a Massachusetts business trust on May 18, 1984 and consists of 13 series. The
monies of each series are invested in separate, independently managed
portfolios. The New York Series (the "Series") commenced investment operations
in September 1984. The Series is diversified and its investment objective is to
maximize current income that is exempt from New York State, New York City and
federal income taxes consistent with the preservation of capital, and in
conjunction therewith, the Series may invest in debt securities with the
potential for capital gain. The Series seeks to achieve the objective by
investing primarily in New York State, municipal and local government
obligations and obligations of other qualifying issuers. The ability of the
issuers of the securities held by the Series to meet their obligations may be
affected by economic developments in a specific state, industry or region.

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

Note 1. Accounting Policies

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

Securities Valuations: The Series values municipal securities (including
commitments to purchase such securities on a "when-issued" basis) on the basis
of prices provided by a pricing service which uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities in
determining values. If market quotations are not readily available from such
pricing service, a security is valued at its fair value as determined under
procedures established by the Trustees.

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

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

Securities Transactions and Net Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis. The Series amortizes premiums and accretes original issue
discount paid on purchases of portfolio securities as adjustments to interest
income. Expenses are recorded on the accrual basis which may require the use of
certain estimates by management.

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

Federal Income Taxes: For federal income tax purposes, each series in the Fund
is treated as a separate taxpaying entity. It is the intent of the Series to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its net income to
shareholders. For this reason, no federal income tax provision is required.

Dividends and Distributions: The Series declares daily dividends from net
investment income. Payment of dividends is made monthly. Distributions of net
capital gains, if any, are made annually.

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

Custody Fee Credits: The Fund has an arrangement with its custodian bank,
whereby uninvested monies earn credits which reduce the fees charged by the
custodian.

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements NEW YORK SERIES
- --------------------------------------------------------------------------------
The effect of applying this statement was to increase undistributed net
investment income and decrease accumulated net realized gain by $141,907, due to
the sale of securities purchased with market discount during the year ended
August 31, 1998. Net investment income, net realized gains and net assets were
not affected by this change.

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

Note 2. Agreements

The Fund has a management agreement with Prudential Investments Fund Management
LLC ("PIFM"). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PIFM has entered into a subadvisory agreement with The Prudential
Investment Corporation ("PIC"); PIC furnishes investment advisory services in
connection with the management of the Fund. PIFM pays for the cost of the
subadviser's services, the compensation of officers and employees of the Fund,
occupancy and certain clerical and bookkeeping costs of the Fund. The Fund bears
all other costs and expenses.

The management fee paid PIFM is computed daily and payable monthly, at an annual
rate of .50 of 1% of the average daily net assets of the Series.

The Fund had a distribution agreement with Prudential Securities Incorporated
("PSI"), which acted as the distributor of the Class A, Class B, Class C and
Class Z shares of the Fund through May 31, 1998. Prudential Investment
Management Services LLC ("PIMS") became the distributor of the Fund effective
June 1, 1998 and is serving the Fund under the same terms and conditions as
under the arrangement with PSI. The Fund compensated PSI and PIMS for
distributing and servicing the Fund's Class A, Class B and Class C shares,
pursuant to plans of distribution, (the "Class A, B and C Plans"), regardless of
expenses actually incurred by them. The distribution fees are accrued daily and
payable monthly. No distribution or service fees are paid to PSI or PIMS as
distributor of the Class Z shares of the Fund.

PSI and PIMS have advised the Series that they received approximately $24,600 in
front-end sales charges resulting from sales of Class A shares during the year
ended August 31, 1998. From these fees, PSI and PIMS paid such sales charges to
affiliated broker-dealers, which in turn paid commissions to salespersons and
incurred other distribution costs.

PSI and PIMS have advised the Fund that for the year ended August 31, 1998, they
received approximately $143,000 and $2,000 in contingent deferred sales charges
imposed upon certain redemptions by Class B and C shareholders, respectively.

PSI, PIFM, PIMS and PIC are indirect, wholly owned subsidiaries of The
Prudential Insurance Company of America.

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

Note 3. Other Transactions with Affiliates

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

Note 4. Portfolio Securities

Purchases and sales of portfolio securities of the Series, excluding short-term
investments, for the year ended August 31, 1998 were $89,291,552 and
$104,923,656, respectively.

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements NEW YORK SERIES
- --------------------------------------------------------------------------------
During the year ended August 31, 1998, the Series entered into financial futures
contracts. Details of open contracts at August 31, 1998 are as follows:

<TABLE>
<CAPTION>
Value at Value at Unrealized
Number of Expiration August 31, Trade Appreciation/
Contracts Type Date 1998 Date (Depreciation)
- -------------- ------------ ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Short Positions:
70 U.S. T-Bond Sept. 1998 $8,863,750 $8,686,563 $ (177,187)
Long Positions:
70 U.S. T-Bond Sept. 1998 8,898,750 8,622,188 276,562
--------------
$ 99,375
--------------
--------------
</TABLE>
- ------------------------------------------------------------
Note 5. Capital

The Series offers Class A, Class B, Class C and Class Z shares. Class A shares
are sold with a front-end sales charge of up to 3%. Class B shares are sold with
a contingent deferred sales charge which declines from 5% to zero depending on
the period of time the shares are held. Class C shares are sold with a
contingent deferred sales charge of 1% during the first year. Class B shares
automatically convert to Class A shares on a quarterly basis approximately seven
years after purchase. A special exchange privilege is also available for
shareholders who qualify to purchase Class A shares at net asset value. Class Z
shares are not subject to any sales or redemption charge and are offered
exclusively for sale to a limited group of investors.

The Fund has authorized an unlimited number of shares of beneficial interest of
each class at $.01 par value per share.

Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ----------------------------------- ----------- ------------
<S> <C> <C>
Year ended August 31, 1998:
Shares sold........................ 439,455 $ 5,329,691
Shares issued in reinvestment of
dividends and distributions...... 483,685 5,858,242
Shares reacquired.................. (1,885,411) (22,838,785)
----------- ------------
Net decrease in shares outstanding
before conversion................ (962,271) (11,650,852)
Shares issued upon conversion from
Class B.......................... 874,211 10,587,013
----------- ------------
Net decrease in shares
outstanding...................... (88,060) $ (1,063,839)
----------- ------------
----------- ------------
<CAPTION>
Class A Shares Amount
- ----------------------------------- ----------- ------------
<S> <C> <C>
Year ended August 31, 1997:
Shares sold........................ 176,414 $ 2,082,840
Shares issued in reinvestment of
dividends and distributions...... 679,483 8,017,121
Shares reacquired.................. (2,306,824) (27,255,272)
----------- ------------
Net decrease in shares outstanding
before conversion................ (1,450,927) (17,155,311)
Shares issued upon conversion from
Class B.......................... 1,615,708 19,137,484
----------- ------------
Net increase in shares
outstanding...................... 164,781 $ 1,982,173
----------- ------------
----------- ------------
<CAPTION>
Class B
- -----------------------------------
<S> <C> <C>
Year ended August 31, 1998:
Shares sold........................ 821,187 $ 9,961,080
Shares issued in reinvestment of
dividends and distributions...... 253,115 3,066,564
Shares reacquired.................. (1,518,526) (18,407,575)
----------- ------------
Net decrease in shares outstanding
before conversion................ (444,224) (5,379,931)
Shares reacquired upon conversion
into
Class A.......................... (873,853) (10,587,013)
----------- ------------
Net decrease in shares
outstanding...................... (1,318,077) $(15,966,944)
----------- ------------
----------- ------------
Year ended August 31, 1997:
Shares sold........................ 773,889 $ 9,162,180
Shares issued in reinvestment of
dividends and distributions...... 441,202 5,205,278
Shares reacquired.................. (1,701,083) (20,093,682)
----------- ------------
Net decrease in shares outstanding
before conversion................ (485,992) (5,726,224)
Shares reacquired upon conversion
into
Class A.......................... (1,615,362) (19,137,484)
----------- ------------
Net decrease in shares
outstanding...................... (2,101,354) $(24,863,708)
----------- ------------
----------- ------------
<CAPTION>
Class C
- -----------------------------------
<S> <C> <C>
Year ended August 31, 1998:
Shares sold........................ 63,757 $ 772,337
Shares issued in reinvestment of
dividends and distributions...... 3,337 40,442
Shares reacquired.................. (28,392) (345,599)
----------- ------------
Net increase in shares
outstanding...................... 38,702 $ 467,180
----------- ------------
----------- ------------
Year ended August 31, 1997:
Shares sold........................ 20,539 $ 243,216
Shares issued in reinvestment of
dividends and distributions...... 4,006 47,258
Shares reacquired.................. (33,707) (397,860)
----------- ------------
Net decrease in shares
outstanding...................... (9,162) $ (107,386)
----------- ------------
----------- ------------
</TABLE>
- --------------------------------------------------------------------------------
B-160

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements NEW YORK SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class Z Shares Amount
- ----------------------------------- ----------- ------------
<S> <C> <C>
Year ended August 31, 1998:
Shares sold........................ 38,915 $ 470,914
Shares issued in reinvestment of
dividends and distributions...... 493 5,989
Shares reacquired.................. (1,413) (17,118)
----------- ------------
Net increase in shares
outstanding...................... 37,995 $ 459,785
----------- ------------
----------- ------------
December 6, 1996 (a) through August
31, 1997:
Shares sold........................ 2,322 $ 27,469
Shares issued in reinvestment of
dividends and distributions...... 33 395
----------- ------------
Net increase in shares
outstanding...................... 2,355 $ 27,864
----------- ------------
----------- ------------
</TABLE>
- ---------------
(a) Commencement of offering of Class Z shares.
- --------------------------------------------------------------------------------
B-161
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights NEW YORK SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------------
Year Ended August 31,
-----------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............ $ 11.94 $ 11.77 $ 11.91 $ 11.71 $ 12.54
-------- -------- -------- -------- -------
Income from investment operations
Net investment income......................... .60 .61(a) .63(a) .66(a) .67
Net realized and unrealized gain (loss) on
investment transactions.................... .42 .43 (.09) .20 (.83)
-------- -------- -------- -------- -------
Total from investment operations........... 1.02 1.04 .54 .86 (.16)
-------- -------- -------- -------- -------
Less distributions
Dividends from net investment income.......... (.60) (.61) (.63) (.66) (.67)
Distributions in excess of net investment
income..................................... (.01) --(c) -- -- --
Distributions from net realized gains......... (.05) (.26) (.05) -- --
-------- -------- -------- -------- -------
Total distributions........................ (.66) (.87) (.68) (.66) (.67)
-------- -------- -------- -------- -------
Net asset value, end of year.................. $ 12.30 $ 11.94 $ 11.77 $ 11.91 $ 11.71
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
TOTAL RETURN(b):.............................. 8.71% 9.19% 4.53% 7.70% (1.38)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................. $176,555 $172,471 $168,037 $163,025 $13,661
Average net assets (000)...................... $174,485 $173,963 $168,291 $ 95,024 $13,454
Ratios to average net assets:
Expenses, including distribution fees...... .73% .68%(a) .68%(a) .69%(a) .74%
Expenses, excluding distribution fees...... .63% .58%(a) .58%(a) .59%(a) .64%
Net investment income...................... 4.93% 5.15%(a) 5.24%(a) 5.65%(a) 5.46%
For Class A, B, C and Z shares:
Portfolio turnover rate.................... 33% 43% 92% 57% 49%
</TABLE>
- ---------------
(a) Net of management fee waiver.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each year reported and includes reinvestment of dividends and
distributions.
(c) Less than $.005 per share.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-162

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights NEW YORK SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
---------------------------------------------------------------
August 1,
1994(d)
Year Ended August 31, Through
------------------------------------------------ August 31,
1998 1997 1996 1995 1994
------- ------ ----- ----- -----
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 11.94 $11.77 $11.91 $11.71 $11.74
------- ------ ----- ----- -----
Income from investment operations
Net investment income......................... .52 .53(a) .55(a) .58(a) .04
Net realized and unrealized gain (loss) on
investment transactions.................... .42 .43 (.09) .20 (.03)
------- ------ ----- ----- -----
Total from investment operations........... .94 .96 .46 .78 .01
------- ------ ----- ----- -----
Less distributions
Dividends from net investment income.......... (.52) (.53) (.55) (.58) (.04)
Distributions in excess of net investment
income..................................... (.01) --(c) -- -- --
Distributions from net realized gains......... (.05) (.26) (.05) -- --
------- ------ ----- ----- -----
Total distributions........................ (.58) (.79) (.60) (.58) (.04)
------- ------ ----- ----- -----
Net asset value, end of period................ $ 12.30 $11.94 $11.77 $11.91 $11.71
------- ------ ----- ----- -----
------- ------ ----- ----- -----
TOTAL RETURN(b):.............................. 8.01% 8.49% 3.86% 7.01% 0.06%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $ 1,279 $ 780 $ 876 $ 529 $ 142
Average net assets (000)...................... $ 969 $ 798 $ 659 $ 325 $ 42
Ratios to average net assets:
Expenses, including distribution fees...... 1.38% 1.33%(a) 1.33%(a) 1.36%(a) 1.62%(f)
Expenses, excluding distribution fees...... .63% .58%(a) .58%(a) .61%(a) .87%(f)
Net investment income...................... 4.28% 4.50%(a) 4.59%(a) 5.05%(a) 5.17%(f)
<CAPTION>
Class Z
-----------------------
December 6,
Year 1996(e)
Ended Through
August 31, August 31,
1998 1997
---- ----
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $11.95 $ 12.09
----- ------------
Income from investment operations
Net investment income......................... .62 .46(a)
Net realized and unrealized gain (loss) on
investment transactions.................... .42 .12
----- ------------
Total from investment operations........... 1.04 .58
----- ------------
Less distributions
Dividends from net investment income.......... (.62) (.46)
Distributions in excess of net investment
income..................................... (.01) --(c)
Distributions from net realized gains......... (.05) (.26)
----- ------------
Total distributions........................ (.68) (.72)
----- ------------
Net asset value, end of period................ $12.31 $ 11.95
----- ------------
----- ------------
TOTAL RETURN(b):.............................. 8.81% 5.02%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $ 497 $ 28
Average net assets (000)...................... $ 116 $ 11
Ratios to average net assets:
Expenses, including distribution fees...... .63% .58%(a)/(f)
Expenses, excluding distribution fees...... .63% .58%(a)/(f)
Net investment income...................... 5.03% 5.25%(a)/(f)
</TABLE>
- ---------------
(a) Net of management fee waiver.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(c) Less than $.005 per share.
(d) Commencement of offering of Class C shares.
(e) Commencement of offering of Class Z shares.
(f) Annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-164

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Report of Independent Accountants NEW YORK SERIES
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
Prudential Municipal Series Fund, New York Series

In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Municipal Series Fund,
New York Series (the "Fund", one of the portfolios constituting Prudential
Municipal Series Fund) at August 31, 1998, the results of its operations for the
year then ended and the changes in its net assets and the financial highlights
for each of the two years in the period then ended, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at August 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above. The accompanying financial highlights for each of
the three years in the period ended August 31, 1996 were audited by other
independent accountants, whose opinion dated October 14, 1996 was unqualified.

PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
October 21, 1998

Federal Income Tax Information PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) NEW YORK SERIES
- --------------------------------------------------------------------------------
We are required by the Internal Revenue Code to advise you within 60 days of the
Series' fiscal year end (August 31, 1998) as to the federal tax status of
dividends paid by the Series during such fiscal year. Accordingly, we are
advising you that in the fiscal year ended August 31, 1998, dividends paid from
net investment income of $.60 per share for Class A shares, $.55 per Class B
shares, $.52 per Class C shares and $.62 per Class Z shares were all federally
tax-exempt interest dividends. In addition, the Series paid to Class A, B, C and
Z shares ordinary dividends of $.0181 (special taxable income and short-term
capital gain) which is taxable as such and a long-term capital gain distribution
of $0.038 which is taxable at 28% rate gain.

In January 1999, you will be advised on IRS Form 1099 DIV or substitute 1099 DIV
as to the federal tax status of the dividends and distributions received by you
in calendar year 1998.
- --------------------------------------------------------------------------------
B-165
<PAGE>

Portfolio of Investments as PRUDENTIAL MUNICIPAL SERIES FUND
of August 31, 1998 NEW YORK MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amherst Ind. Dev. Agcy. Rev., Gen. Accident Ins. Co., Ser.
85, S.E.M.O.T. A-1+(d) 3.75% 11/01/98 $ 3,100 $ 3,100,000
Babylon Ind. Dev. Agcy.,
Ser. 89, F.R.D.D., A.M.T. A-1+(d) 3.35 9/01/98 2,000 2,000,000
Ser. 98, F.R.W.D. A-1+(d) 2.80 9/02/98 5,000 5,000,000
Brentwood Union Free Sch. Dist., Ser. 98, T.A.N. MIG1 3.755 6/30/99 4,000 4,003,811
Clinton Cnty. Ind. Dev. Agcy., Champlain Plastics Proj.,
Ser. 98A, F.R.W.D.S., A.M.T. NR 3.60 9/02/98 5,000 5,000,000
Copiague Union Free Sch. Dist., T.A.N. NR 4.00 6/24/99 6,000 6,016,402
Erie Cnty., Ser. 97B, R.A.N. MIG1 4.50 10/29/98 5,000 5,005,203
Hempstead Ind. Dev. Agcy. Rev., Trigen-Nassau Energy, Ser.
98, F.R.W.D., A.M.T. A-1+(d) 3.10 9/02/98 2,000 2,000,000
Hicksville Union Free Sch. Dist., Ser. 98-99, T.A.N. NR 3.75 6/23/99 800 800,873
Long Island Pwr. Auth., Elec. Sys. Rev., Ser. 6, F.R.D.D. A-1+(d) 3.30 9/01/98 14,600 14,600,000
Monroe Cnty. Ind. Dev. Agcy. Rev.,
Gen. Accident Ins. Co., Ser. 84, S.E.M.O.T. A-1+(d) 3.70 3/01/99 7,000 7,000,000
Genesee Valley, Ser. 97, F.R.W.D., A.M.T. VMIG1 3.25 9/03/98 3,000 3,000,000
Monroe Cnty., Gen. Oblig.,
Ser. 97, T.E.C.P. VMIG1 3.70 9/01/98 1,285 1,285,000
Ser. 97, T.E.C.P. VMIG1 3.40 11/25/98 3,500 3,500,000
Nassau Cnty., Ind. Dev. Agcy. Rev.,
Cold Spring Harbor, Ser. 89, F.R.D.D. A-1+(d) 3.25 9/01/98 3,300 3,300,000
Cold Spring Harbor, Ser. 93, F.R.D.D. A-1+(d) 3.25 9/01/98 1,900 1,900,000
J.C. Solution Inc. Proj., Ser. 97, F.R.W.D.S., A.M.T. NR 3.60 9/02/98 3,470 3,470,000
New York City Hlth. and Hosp. Corp. Rev., Health Sys., Ser
97D, F.R.W.D. VMIG1 2.80 9/02/98 3,000 3,000,000
New York City Hsg. Dev. Corp.,
400 West 59th St. Proj., Ser. 95A-1, F.R.W.D., A.M.T. A-1(d) 3.10 9/02/98 11,900 11,900,000
400 West 59th St. Proj., Ser. 95A-2, F.R.W.D., A.M.T. A-1(d) 3.10 9/02/98 5,000 5,000,000
East 17th St. Property, Ser. 93A, F.R.D.D. A-1(d) 3.30 9/01/98 700 700,000
Monterey, Ser. 97A, F.R.W.D. A-1+(d) 2.85 9/02/98 5,000 5,000,000
River Ct. Proj., Ser. 97A, F.R.W.D., A.M.T. A-1(d) 3.10 9/02/98 8,100 8,100,000
New York City Mun. Water Fin. Auth.,
Ser. 4, T.E.C.P. P-1 3.60 11/05/98 3,000 3,000,000
Ser. 5, T.E.C.P. P-1 3.60 10/09/98 8,000 8,000,000
Water & Sewer Auth., Ser. 93C, F.R.D.D. VMIG1 3.30 9/01/98 6,100 6,100,000
Water & Sewer Sys. Rev., Ser. 95A, F.R.D.D. VMIG1 3.75 9/01/98 8,700 8,700,000
Water & Sewer Sys. Rev., Ser. 98-56, M.T.H.O.T.S. A-1(d) 3.60 9/25/98 10,000 10,000,000
New York City Trust Cultural Res. Rev.,
Carnegie Hall, Ser. 85, F.R.W.D. VMIG1 3.40 9/02/98 8,000 8,000,000
Soloman R. Guggenheim Proj., Ser. 90B, F.R.D.D. VMIG1 3.20 9/01/98 1,000 1,000,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-166

<PAGE>

Portfolio of Investments as PRUDENTIAL MUNICIPAL SERIES FUND
of August 31, 1998 NEW YORK MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
New York City, Gen. Oblig., T.E.C.P.,
Ser. 94H-3 VMIG1 3.55% 12/24/98 $ 5,000 $ 5,000,000
Ser. H6 VMIG1 3.45 10/09/98 6,300 6,300,000
Ser. J2 VMIG1 3.55 11/20/98 6,000 6,000,000
Ser. J3 VMIG1 3.45 12/11/98 5,100 5,100,000
New York St. Dorm. Auth. Rev.,
Cornell Univ., Ser. 90B, F.R.D.D. VMIG1 3.20 9/01/98 5,500 5,500,000
Rockefeller Univ., Ser. 97-C3201, F.R.W.D.S. A-1+(d) 3.36 9/03/98 8,850 8,850,000
New York St. Energy Res. & Dev. Auth.,
Central Hudson Gas & Elec., Ser. 85A, F.R.W.D. P-1 3.05 9/03/98 13,000 13,000,000
Con Edison Proj., Ser. PT219, A.N.N.O.T.S., A.M.T. A-1+(d) 3.75 4/15/99 5,000 5,000,000
Long Island Ltg. Co. Proj., Ser. 85A, A.N.N.M.T. VMIG1 3.58 3/01/99 9,500 9,500,000
Long Island Ltg. Co. Proj., Ser. 95A, F.R.W.D., A.M.T. VMIG1 3.15 9/02/98 5,000 5,000,000
New York St. Elec. & Gas, Ser. 94B, F.R.D.D. VMIG1 3.20 9/01/98 9,000 9,000,000
New York St. Elec. & Gas, Ser. 94C, F.R.D.D. VMIG1 3.25 9/01/98 800 800,000
New York St. Elec. & Gas, Ser. D2, F.R.D.D. VMIG1 3.30 9/01/98 6,500 6,500,000
Niagara Mohawk Pwr. Corp., Ser. 85A, F.R.D.D. A-1+(d) 3.75 9/01/98 5,100 5,100,000
Niagara Mohawk Pwr. Corp., Ser. 85C, F.R.D.D. P-1 3.40 9/01/98 5,100 5,100,000
Niagara Mohawk Pwr. Corp., Ser. 86A, F.R.D.D., A.M.T. P-1 3.45 9/01/98 16,300 16,300,000
New York St. Environ. Facs. Corp.,
Ser. 97A, T.E.C.P. VMIG1 3.55 10/16/98 6,800 6,800,000
Ser. 97A, T.E.C.P. VMIG1 3.55 12/18/98 11,100 11,100,000
New York St. Hsg. Fin. Agcy. Rev.,
240 East 39th St., Ser. 97A, F.R.W.D., A.M.T. VMIG1 3.10 9/02/98 8,000 8,000,000
250 West 50th St., Ser. 97A, F.R.W.D., A.M.T. VMIG1 2.95 9/02/98 4,000 4,000,000
State Univ. Construction, Ser. A Aaa 8.00 11/01/98 5,375(e) 5,521,396
Tribeca Landing Hsg., Ser. A, F.R.W.D., A.M.T. VMIG1 2.95 9/02/98 10,000 10,000,000
Union Square So. Hsg., Ser. 96A, F.R.W.D., A.M.T. MIG1 2.95 9/02/98 5,000 5,000,000
New York St. Med. Care Facs. Fin. Agcy. Rev., North Gen.
Hosp. Aaa 7.35 8/15/99 2,745(e) 2,892,216
New York St. Power Auth. Rev.,
S.E.M.M.T. VMIG1 3.45 3/01/99 7,500 7,500,000
Ser. 2, T.E.C.P. P-1 3.50 10/08/98 5,000 5,000,000
New York St. Thruway Auth. Rev., Ser. SGA 66, F.R.W.D.S. A-1+(d) 3.39 9/02/98 3,845 3,845,000
Niagara Cnty. Ind. Dev. Agcy. Rev., F.R.W.D., A.M.T.,
Solid Waste Disp. Rev., American Refuel Co., Ser. 1996D P-1 3.15 9/02/98 7,800 7,800,000
Solid Waste Disp. Rev., American Refuel Co., Ser. 94C P-1 3.15 9/02/98 10,800 10,800,000
North Colonie Central Sch. Dist., Ser. 98, T.A.N. NR 3.65 11/13/98 2,000 2,000,579
Onondaga Cnty. Ind. Dev. Agcy. Rev., Syracuse Research
Corp.,
Ser. 97A, F.R.W.D.S. A-1(d) 3.15 9/03/98 3,200 3,200,000
Oswego Cnty. Ind. Dev. Agcy. Rev., Phillip Morris Co.,
Ser. 92, F.R.W.D. P-1 3.40 9/02/98 10,000 10,000,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-167

<PAGE>

Portfolio of Investments as PRUDENTIAL MUNICIPAL SERIES FUND
of August 31, 1998 NEW YORK MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Port Auth. of New York & New Jersey,
Ser. 2, F.R.D.D. VMIG1 3.20% 9/01/98 $ 1,900 $ 1,900,000
Ser. 3, F.R.D.D. VMIG1 3.35 9/01/98 500 500,000
Ser. 5, F.R.D.D. VMIG1 3.35 9/01/98 700 700,000
Ser. 93-1, F.R.W.D. NR 3.338 9/01/98 12,000 12,000,000
Ramapo Hsg. Auth. Rev., Fountainview Proj., Ser. 98,
F.R.W.D., A.M.T. VMIG1 3.50 9/02/98 11,485 11,485,000
Shenendehowa Central Sch. Dist., Ser. 98, R.A.N. NR 3.70 6/30/99 5,000 5,000,372
Syracuse Ind. Dev. Agcy., Syracuse Univ., Ser. 93,
F.R.D.D. A-1+(d) 3.20 9/01/98 800 800,000
Triborough Bridge & Tunnel Auth. Rev., Ser. 94, F.R.W.D. VMIG1 2.80 9/02/98 2,200 2,200,000
Yates Cnty. Ind. Dev. Agcy. Rev., Clearplass Containers,
Inc.,
Ser. 92A, F.R.W.D. A-1(d) 3.15 9/03/98 1,045 1,045,000
------------
Total Investments--97.2%
(cost $400,620,852;(b)) 400,620,852
Other assets in excess of liabilities--2.8% 11,731,601
------------
Net Assets--100% $412,352,453
------------
------------
</TABLE>
- ---------------
(a) The following abbreviations are used in portfolio descriptions:
A.M.T.--Alternative Minimum Tax.
A.N.N.M.T.--Annual Mandatory Tender.
A.N.N.O.T.S.--Annual Optional Tender Synthetic.
F.R.D.D.--Floating Rate (Daily) Demand Note (c).
F.R.W.D.--Floating Rate (Weekly) Demand Note (c).
F.R.W.D.S.--Floating Rate (Weekly) Demand Note Synthetic (c).
M.T.H.O.T.S.--Monthly Optional Tender Synthetic.
R.A.N.--Revenue Anticipation Note.
S.E.M.M.T.--Semi-Annual Mandatory Tender.
S.E.M.O.T.--Semi-Annual Optional Tender.
T.A.N.--Tax Anticipation Note.
T.E.C.P.--Tax-Exempt Commercial Paper.
(b) The cost of securities for federal income tax purposes is substantially the
same as for financial reporting purposes.
(c) For purposes of amortized cost valuation, the maturity date of Floating Rate
Demand Notes is considered to be the later of the next date on which the
security can be redeemed at par, or the next date on which the rate of
interest is adjusted.
(d) Standard & Poor's Rating.
(e) Prerefunded issues are secured by escrowed cash and direct U.S. guaranteed
obligations.
NR--Not Rated by Moody's or Standard & Poor's.

The Fund's current Statement of Additional Information contains a description of
Moody's and Standard & Poor's ratings.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-168

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Statement of Assets and Liabilities NEW YORK MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets August 31, 1998
<S> <C>
Investments, at amortized cost which approximates market value............................................ $ 400,620,852
Cash...................................................................................................... 152,859
Receivable for investments sold........................................................................... 18,544,051
Receivable for Series shares sold......................................................................... 4,464,636
Interest receivable....................................................................................... 2,094,901
Other assets.............................................................................................. 8,626
---------------
Total assets........................................................................................... 425,885,925
---------------
Liabilities
Payable for investments purchased......................................................................... 7,500,000
Payable for Series shares reacquired...................................................................... 5,575,599
Dividends payable......................................................................................... 189,164
Management fee payable.................................................................................... 174,286
Accrued expenses.......................................................................................... 65,935
Distribution fee payable.................................................................................. 24,361
Deferred trustee's fee.................................................................................... 4,127
---------------
Total liabilities...................................................................................... 13,533,472
---------------
Net Assets................................................................................................ $ 412,352,453
---------------
---------------
Net assets were comprised of:
Shares of beneficial interest, at $.01 par value....................................................... $ 4,123,524
Paid-in capital in excess of par....................................................................... 408,228,929
---------------
Net assets, August 31, 1998............................................................................... $ 412,352,453
---------------
---------------
Net asset value, offering price and redemption price per share ($412,352,453 / 412,352,453 shares
of beneficial interest issued and outstanding; unlimited number of shares authorized).................. $1.00
---------------
---------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-169

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW YORK MONEY MARKET SERIES
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income August 31, 1998
<S> <C>
Income
Interest................................... $13,403,540
---------------
Expenses
Management fee............................. 1,867,472
Distribution fee........................... 466,868
Transfer agent's fees and expenses......... 130,000
Custodian's fees and expenses.............. 45,000
Reports to shareholders.................... 26,000
Registration fees.......................... 22,000
Legal fees and expenses.................... 12,000
Audit fee and expenses..................... 8,000
Trustees' fees and expenses................ 4,000
Miscellaneous.............................. 9,036
---------------
Total expenses.......................... 2,590,376
Less: custodian fee credit............. (11,713)
---------------
Net expenses............................ 2,578,663
---------------
Net investment income......................... 10,824,877
Net realized gain on investments.............. 3,750
---------------
Net Increase in Net Assets
Resulting from Operations..................... $10,828,627
---------------
---------------
</TABLE>

PRUDENTIAL MUNICIPAL SERIES FUND
NEW YORK MONEY MARKET SERIES
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended August 31,
in Net Assets 1998 1997
--------------- ---------------
<S> <C> <C>
Operations
Net investment income..... $ 10,824,877 $ 9,366,586
Net realized gain on
investment
transactions........... 3,750 --
--------------- ---------------
Net increase in net assets
resulting from
operations............. 10,828,627 9,366,586
--------------- ---------------
Dividends and distributions
to shareholders........... (10,828,627) (9,366,586)
--------------- ---------------
Series share transactions
(at $1 per share)
Net proceeds from shares
sold................... 1,298,953,146 1,086,099,180
Net asset value of shares
issued in reinvestment
of dividends and
distributions.......... 10,570,063 9,107,958
Cost of shares
reacquired............. (1,255,462,008) (1,086,385,693)
--------------- ---------------
Net increase in net assets
from Series share
transactions........... 54,061,201 8,821,445
--------------- ---------------
Total increase............... 54,061,201 8,821,445
Net Assets
Beginning of year............ 358,291,252 349,469,807
--------------- ---------------
End of year.................. $ 412,352,453 $ 358,291,252
--------------- ---------------
--------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-170

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements NEW YORK MONEY MARKET SERIES
- --------------------------------------------------------------------------------
Prudential Municipal Series Fund (the "Fund") is registered under the Investment
Company Act of 1940 as an open-end investment company. The Fund was organized as
a Massachusetts business trust on May 18, 1984 and consists of 13 series. The
monies of each series are invested in separate, independently managed
portfolios. The New York Money Market Series (the "Series") commenced investment
operations in April, 1985. The Series is diversified and seeks to achieve its
investment objective of providing the highest level of income that is exempt
from New York State, New York City and federal income taxes with a minimum of
risk by investing in "investment grade" tax-exempt securities having a maturity
of 13 months or less whose ratings are within the two highest ratings categories
by two nationally recognized statistical rating organizations, or if not rated,
are of comparable quality. The ability of the issuers of the securities held by
the Series to meet their obligations may be affected by economic developments in
a specific state, industry or region.

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

Note 1. Accounting Policies

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

All securities are valued as of 4:30 p.m., New York time.

Federal Income Taxes: For federal income tax purposes, each series in the Fund
is treated as a separate taxpaying entity. It is the intent of the Series to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its net income to
shareholders. For this reason, no federal income tax provision is required.

Custody Fee Credits: The Fund has an arrangement with its custodian bank,
whereby uninvested monies earn credits which reduce the fees charged by the
custodian.

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

Note 2. Agreements

The Fund has a management agreement with Prudential Investments Fund Management
LLC. ("PIFM"). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PIFM has entered into a subadvisory agreement with The Prudential
Investment Corporation ("PIC"); PIC furnishes investment advisory services in
connection with the management of the Fund. PIFM pays for the services of PIC,
the compensation of officers of the Fund, occupancy and certain clerical and
bookkeeping costs of the Fund. The Fund bears all other costs and expenses.

The management fee paid to PIFM is computed daily and payable monthly, at an
annual rate of .50 of 1% of the average daily net assets of the Series.

The Fund had a distribution agreement with Prudential Securities Incorporated
("PSI"), which acted as the distributor of the Fund through May 31, 1998.
Prudential Investment Management Services LLC ("PIMS") became the distributor of
the Fund effective June 1, 1998 and is serving the Fund under the same terms and
conditions as under the arrangement with PSI. The Fund compensated PSI and PIMS
for distributing and servicing the Fund's shares pursuant to the plans of
distribution regardless of expenses actually incurred by them. The Series
reimburses PIMS for distributing and servicing the Series' shares pursuant to
the plan of distribution at an annual rate of .125 of 1% of the Series' average
daily net assets. The distribution fees are accrued daily and payable monthly.

PSI, PIFM, PIC and PIMS are indirect wholly owned subsidiaries of The Prudential
Insurance Company of America.

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

Note 3. Other Transactions with Affiliates

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights NEW YORK MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended August 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
------------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income and net realized gains.......... .03 .03 .03 .03 .02
Dividends and distributions to shareholders........... (.03) (.03) (.03) (.03) (.02)
------------ -------- -------- -------- --------
Net asset value, end of year.......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ -------- -------- -------- --------
------------ -------- -------- -------- --------
TOTAL RETURN(a):...................................... 2.94% 2.91% 2.97% 3.06% 1.80%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)......................... $412,352 $358,291 $349,470 $324,698 $269,073
Average net assets (000).............................. $373,494 $326,092 $336,427 $292,763 $280,492
Ratios to average net assets:
Expenses, including distribution fee............... .69% .71% .72% .73% .77%
Expenses, excluding distribution fee............... .57% .58% .60% .61% .64%
Net investment income.............................. 2.90% 2.87% 2.91% 3.02% 1.78%
</TABLE>
- ---------------
(a) Total return includes reinvestment of dividends and distributions.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-172

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Report of Independent Accountants NEW YORK MONEY MARKET SERIES
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
Prudential Municipal Series Fund, New York Money Market Series

In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Municipal Series Fund,
New York Money Market Series (the "Fund", one of the portfolios constituting
Prudential Municipal Series Fund) at August 31, 1998, the results of its
operations for the year then ended and the changes in its net assets and the
financial highlights for each of the two years in the period then ended, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at August 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above. The accompanying financial highlights for each of
the three years in the period ended August 31, 1996 were audited by other
independent accountants, whose opinion dated October 14, 1996 was unqualified.

PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
October 21, 1998
- --------------------------------------------------------------------------------
B-173
<PAGE>

Federal Income Tax Information PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) NEW YORK MONEY MARKET SERIES
- --------------------------------------------------------------------------------
We are required by the Internal Revenue Code to advise you within 60 days of the
Series' fiscal year end (August 31, 1998) as to the federal tax status of
dividends paid by the Series during such fiscal year. Accordingly, we are
advising you that in the fiscal year ended August 31, 1998, dividends paid from
net investment income totaling $.03 per share were federally tax-exempt interest
dividends.
- --------------------------------------------------------------------------------
B-174
<PAGE>

Portfolio of Investments as PRUDENTIAL MUNICIPAL SERIES FUND
of August 31, 1998 NORTH CAROLINA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--97.8%
- ------------------------------------------------------------------------------------------------------------------------------
Asheville Hsg. Auth. Multifam. Rev., Woodridge Apts.,
G.N.M.A., A.M.T. AAA(c) 5.70% 11/20/19 $ 750 $ 778,275
Buncombe Cnty., Pub. Impvt. Bonds AAA(c) 6.90 3/01/09 1,000(e) 1,036,630
Charlotte Mecklenberg Hosp.,
Hlth. Care Sys. Rev. AA(c) 6.25 1/01/20 430(e) 469,543
Hlth. Care Sys. Rev. Aa3 6.25 1/01/20 320 345,757
Hlth. Care Sys. Rev. Aa3 5.875 1/15/26 1,000 1,081,420
Charlotte Spec. Fac. Rev., US Airways, A.M.T. NR 5.60 7/01/27 500 502,535
Charlotte Wtr. & Swr. Aaa 6.20 6/01/17 1,500(e) 1,649,550
Charlotte Wtr. & Swr. Aaa 5.90 2/01/19 1,000(e) 1,108,840
City of Greensboro, Enterprise Sys. Rev., Ser. A A1 5.30 6/01/15 1,000 1,041,690
Columbus Ind. Fac. & Poll. Fin. Auth., Intl. Paper Co.
Proj., A.M.T. A3 6.15 4/01/21 1,000 1,091,770
Concord Util. Sys. Rev., M.B.I.A. Aaa 5.50 12/01/14 1,000 1,069,440
Fayetteville, Cert. of Part., San. Swr. & Pub. Impvt.,
A.M.B.A.C. Aaa 6.875 12/01/08 1,000(e) 1,060,600
Guam Airport Auth. Rev., Ser. B, A.M.T. BBB(c) 6.60 10/01/10 1,000 1,097,910
Guam Pwr. Auth. Rev.,
Ser. A, 1994 BBB(c) 6.625 10/01/14 250 278,260
Ser. A, 1994 BBB(c) 6.75 10/01/24 525 587,780
Haywood Cnty., Ind. Facs. & Poll. Ctrl., Fin. Auth. Env.
Impvt. Rev.,
Champion Intl. Corp. Proj., Ser. A, A.M.T. Baa1 5.75 12/01/25 1,000 1,038,030
Lenoir Hsg. Auth. Mtge. Rev., Caldwell Garden Apt. Proj.,
Ser. A, G.N.M.A. AAA(c) 5.70 8/20/24 1,000 1,039,680
Lincoln Cnty., Gen. Oblig., Ref., F.G.I.C. Aaa 5.10 6/01/09 1,170 1,231,799
Martin Cnty. Ind. Facs. & Poll. Ctrl. Fin. Auth. Rev.,
Weyerhaueser Co. Proj. A2 8.50 6/15/99 200 207,540
New Hanover Cnty. Hosp. Rev., Regl. Med. Ctr. Proj.,
A.M.B.A.C. Aaa 5.75 10/01/26 1,000 1,074,360
No. Carolina Eastn. Mun. Pwr. Agcy.,
Pwr. Sys. Rev., Ser. A, E.T.M. Aaa 6.50 1/01/18 1,995 2,413,292
Pwr. Sys. Rev., Ser. A Baa1 6.40 1/01/21 1,000 1,061,550
Pwr. Sys. Rev., Ser. B Aaa 6.00 1/01/26 650(e) 752,693
Pwr. Sys. Rev., A.M.B.A.C. Aaa 6.00 1/01/18 1,000 1,137,710
Pwr. Sys. Rev., M.B.I.A. Aaa 6.50 1/01/18 1,005 1,204,362
No. Carolina Hsg. Fin. Agcy., Sngl. Fam. Mtge. Rev., Ser.
TT, A.M.T. Aa2 5.70 9/01/26 1,000 1,033,860
No. Carolina Med. Care Comn.
Hlth. Care Facs. Rev. NR 5.625 9/01/24 1,000 984,570
Hlth. Care Facs. Rev., Stanley Mem. Hosp. Proj. Baa1 7.80 10/01/19 650(e) 692,133
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-175

<PAGE>

Portfolio of Investments as PRUDENTIAL MUNICIPAL SERIES FUND
of August 31, 1998 NORTH CAROLINA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
No. Carolina Med. Care Comn., Hosp. Rev.,
Annie Pen Mem. Hosp. Proj. Baa3 7.50% 8/15/21 $ 1,000(e) $ 1,131,760
Rex Hosp. Proj. A1 6.25 6/01/17 1,750(e) 1,954,942
No. Carolina Mun. Pwr. Agcy.,
No. 1 Catawba Elec. Rev., A.M.B.A.C. Aaa 5.25 1/01/09 1,000 1,070,770
No. 1 Catawba Elec. Rev., M.B.I.A. Aaa 6.00 1/01/10 1,250 1,420,912
No. 1 Catawba Elec. Rev., M.B.I.A. Aaa 6.97 1/01/12 2,000(d) 2,187,500
Northern Hosp. Dist., Surry Cnty. Hlth. Care Facs. Rev. Ba1 7.875 10/01/21 1,500 1,638,240
Pitt Cnty, Cert. of Part., Pub. Facs.,
Ser. A, M.B.I.A. Aaa 5.55 4/01/12 1,500 1,626,660
Ser. B, M.B.I.A. Aaa 5.40 4/01/08 700 758,786
Pitt Cnty. Rev., Pitt Cnty. Mem. Hosp. Aa3 5.25 12/01/21 1,500 1,520,730
Puerto Rico Commonwlth., Hwy. & Trans.,
Ser. A, A.M.B.A.C. Aaa Zero 7/01/15 1,000 449,280
Ser. A, A.M.B.A.C. Aaa Zero 7/01/16 1,000 427,680
Puerto Rico Comnwlth.,
Cap. Apprec. Ref. Pub. Impvt., Gen. Oblig. Baa1 Zero 7/01/15 2,150 942,453
Gen. Oblig., Ser. A, M.B.I.A. Aaa 6.25 7/01/10 1,240 1,349,058
Puerto Rico Ind. Med. & Environ. Poll. Ctrl. Facs., Upjohn
Co. Auth. Rev. A1 7.50 12/01/23 500 519,325
Puerto Rico Ind. Tourist Ed., Menn. Gen. Hosp., Ser. A BBB(c) 5.625 7/01/17 500 511,240
Puerto Rico Tel. Auth. Rev., Ser. I, M.B.I.A. Aaa 6.819 1/25/07 1,000(d) 1,108,750
Union Cnty. Wtr. & Swr., Solid Waste Rev. A1 6.50 4/01/07 850(e) 922,233
University of No. Carolina, Chapel Hill Hosp. Rev. Aa2 Zero 8/01/19 2,715 978,296
Virgin Islands Pub. Fin. Auth. Rev., Ser. E NR 5.875 10/01/18 375 388,279
Virgin Islands Terr., Hugo Ins. Claims Fund Proj., Ser. 91 NR 7.75 10/01/06 365(e) 401,569
Wake Cnty. Hosp. Rev., E.T.M., M.B.I.A. Aaa 5.125 10/01/26 1,000 1,022,650
Winston Salem, Sngl. Fam. Mtge. Rev., A.M.T. A1 8.00 9/01/07 295 307,015
Winston Salem, Wtr. & Swr. Sys. Rev., Ser. B Aa2 5.70 6/01/17 1,000 1,063,610
-----------
Total long-term investments (cost $46,506,631) $50,773,317
SHORT-TERM INVESTMENT--1.0%

No. Carolina Med. Care Comm., Hlth. Care Facs. Rev., Ser.
97, F.R.D.D.
(cost $500,000) VMIG1 3.30% 9/01/98 $ 500 $ 500,000
-----------
Total Investments--98.8%
(cost $47,006,631; Note 4) 51,273,317
Other assets in excess of liabilities--1.2% 631,320
-----------
Net Assets--100% $51,904,637
-----------
-----------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-176

<PAGE>

Portfolio of Investments as PRUDENTIAL MUNICIPAL SERIES FUND
of August 31, 1998 NORTH CAROLINA SERIES
- --------------------------------------------------------------------------------
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance Corporation.
A.M.T.--Alternative Minimum Tax.
E.T.M.--Escrowed To Maturity.
F.G.I.C.--Financial Guaranty Insurance Company.
F.R.D.D.--Floating Rate (Daily) Demand Note(b).
G.N.M.A.--Government National Mortgage Association.
M.B.I.A.--Municipal Bond Insurance Association.
(b) For purposes of amortized cost valuation, the maturity date of Floating Rate
Demand Notes is considered to be the later of the next date on which the
security can be redeemed at par, or the next date on which the rate of
interest is adjusted.
(c) Standard & Poor's Rating.
(d) Inverse floating rate bond. The coupon is inversely indexed to a floating
interest rate. The rate shown is the rate at year-end.
(e) Prerefunded issues are secured by escrowed cash and/or direct U.S.
guaranteed obligations.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a description of
Moody's and Standard & Poor's ratings.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-177

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Statement of Assets and Liabilities NORTH CAROLINA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets August 31, 1998
---------------
<S> <C>
Investments, at value (cost $47,006,631).................................................................. $51,273,317
Cash...................................................................................................... 43,713
Interest receivable....................................................................................... 706,753
Receivable for investments sold........................................................................... 45,000
Receivable for Series shares sold......................................................................... 546
Other assets.............................................................................................. 1,463
---------------
Total assets........................................................................................... 52,070,792
---------------
Liabilities
Accrued expenses.......................................................................................... 85,591
Dividends payable......................................................................................... 40,186
Management fee payable.................................................................................... 21,925
Distribution fee payable.................................................................................. 11,758
Deferred trustee's fee.................................................................................... 4,127
Payable for Series shares reaquired....................................................................... 2,568
---------------
Total liabilities...................................................................................... 166,155
---------------
Net Assets................................................................................................ $51,904,637
---------------
---------------
Net assets were comprised of:
Shares of beneficial interest, at par.................................................................. $ 44,403
Paid-in capital in excess of par....................................................................... 47,380,283
---------------
47,424,686
Accumulated net realized gain on investments........................................................... 213,265
Net unrealized appreciation on investments............................................................. 4,266,686
---------------
Net assets, August 31, 1998............................................................................... $51,904,637
---------------
---------------
Class A:
Net asset value and redemption price per share
($30,148,537 DIVIDED BY 2,579,555 shares of beneficial interest issued and outstanding)............. $11.69
Maximum sales charge (3% of offering price)............................................................ .36
---------------
Maximum offering price to public....................................................................... $12.05
---------------
---------------
Class B:
Net asset value, offering price and redemption price per share
($21,726,462 DIVIDED BY 1,858,162 shares of beneficial interest issued and outstanding)............. $11.69
---------------
---------------
Class C:
Net asset value, offering price and redemption price per share
($29,638 DIVIDED BY 2,535 shares of beneficial interest issued and outstanding)..................... $11.69
---------------
---------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-178

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NORTH CAROLINA SERIES
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income August 31, 1998
---------------
<S> <C>
Income
Interest.................................. $ 2,990,650
---------------
Expenses
Management fee............................ 265,541
Distribution fee--Class A................. 29,617
Distribution fee--Class B................. 117,300
Distribution fee--Class C................. 234
Custodian's fees and expenses............. 47,000
Transfer agent's fees and expenses........ 31,000
Registration fees......................... 15,000
Legal fees and expenses................... 12,000
Reports to shareholders................... 10,000
Audit fee and expenses.................... 10,000
Trustee's fees and expenses............... 4,000
Miscellaneous............................. 974
---------------
Total expenses......................... 542,666
Less: Custodian fee credit.................. (512)
---------------
Net expenses.............................. 542,154
---------------
Net investment income....................... 2,448,496
---------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions................... 588,200
Financial futures transactions............ (120,417)
---------------
467,783
Net change in unrealized appreciation on:
Investments............................... 1,410,422
---------------
Net gain on investments..................... 1,878,205
---------------
Net Increase in Net Assets
Resulting from Operations................... $ 4,326,701
---------------
---------------
</TABLE>

PRUDENTIAL MUNICIPAL SERIES FUND
NORTH CAROLINA SERIES
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended August 31,
in Net Assets 1998 1997
------ ------
<S> <C> <C>
Operations
Net investment income............. $ 2,448,496 $ 2,656,775
Net realized gain (loss) on
investment transactions........ 467,783 (242,579)
Net change in unrealized
appreciation of investments.... 1,410,422 2,214,384
----------- -----------
Net increase in net assets
resulting from operations...... 4,326,701 4,628,580
----------- -----------
Dividends and distributions (Note
1):
Dividends from net investment income
Class A........................ (1,417,583) (1,416,471)
Class B........................ (1,029,623) (1,237,447)
Class C........................ (1,290) (2,857)
----------- -----------
(2,448,496) (2,656,775)
----------- -----------
Dividends in excess of net
investment income
Class A........................ (3,350) --
Class B........................ (2,696) --
Class C........................ (2) --
----------- -----------
(6,048) --
----------- -----------
Distributions from net realized
gains
Class A........................ -- (415,499)
Class B........................ -- (402,215)
Class C........................ -- (1,043)
----------- -----------
-- (818,757)
----------- -----------
Series share transactions (net of
share conversions) (Note 5):
Net proceeds from shares sold..... 1,884,417 1,147,633
Net asset value of shares issued
in reinvestment of dividends
and distributions.............. 1,223,860 1,824,425
Cost of shares reacquired......... (7,439,832) (8,951,218)
----------- -----------
Net decrease in net assets from
Series share transactions...... (4,331,555) (5,979,160)
----------- -----------
Total decrease...................... (2,459,398) (4,826,112)
Net Assets
Beginning of year................... 54,364,035 59,190,147
----------- -----------
End of year......................... $51,904,637 $54,364,035
----------- -----------
----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-179

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements NORTH CAROLINA SERIES
- --------------------------------------------------------------------------------
Prudential Municipal Series Fund (the "Fund") is registered under the Investment
Company Act of 1940, as an open-end investment company. The Fund was organized
as a Massachusetts business trust on May 18, 1984 and consists of 13 series. The
monies of each series are invested in separate, independently managed
portfolios. The North Carolina Series (the "Series") commenced investment
operations in February 1985. The Series is diversified and its investment
objective is to maximize current income that is exempt from North Carolina State
and federal taxes consistent with the preservation of capital and, in
conjunction therewith, the Series may invest in debt securities with the
potential for capital gain. The Series seeks to achieve this objective by
investing primarily in North Carolina State, municipal and local government
obligations and obligations of other qualifying issuers. The ability of the
issuers of the securities held by the Series to meet their obligations may be
affected by economic or political developments in a specific state, industry or
region.

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

Note 1. Accounting Policies

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

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

Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Series is required to pledge to the broker an amount of cash and/or other
assets equal to a certain percentage of the contract amount. This amount is
known as the "initial margin." Subsequent payments, known as "variation margin,"
are made or received by the Series each day, depending on the daily fluctuation
in the value of the underlying security. Such variation margin is recorded for
financial statement purposes on a daily basis as unrealized gain or loss. When
the contract expires or is closed, the gain or loss is realized and is presented
in the statement of operations as net realized gain (loss) on financial futures
contracts.

Options: The Series may either purchase or write options in order to hedge
against adverse market movements or fluctuations in value caused by changes in
prevailing interest rates with respect to securities which the Series currently
owns or intends to purchase. When the Series purchases an option, it pays a
premium and an amount equal to that premium is recorded as an investment. When
the Series writes an option, it receives a premium and an amount equal to that
premium is recorded as a liability. The investment or liability is adjusted
daily to reflect the current market value of the option. If an option expires
unexercised, the Series realizes a gain or loss to the extent of the premium
received or paid. If an option is exercised, the premium received or paid is an
adjustment to the proceeds from the sale or the cost basis of the purchase in
determining whether the Series has realized a gain or loss. The difference
between the premium and the amount received or paid on effecting a closing
purchase or sale transaction is also treated as a realized gain or loss. Gain or
loss on purchased options is included in net realized gain (loss) on investment
transactions. Gain or loss on written options is presented separately as net
realized gain (loss) on written option transactions. There were no written
options outstanding at August 31, 1998.

The Series, as writer of an option, has no control over whether the underlying
securities may be sold (called) or purchased (put). As a result, the Series
bears the market risk of an unfavorable change in the price of the security
underlying the written option. The Series, as purchaser of an option, bears the
risk of the potential inability of the counterparties to meet the terms of their
contracts.

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements NORTH CAROLINA SERIES
- --------------------------------------------------------------------------------
Net investment income (other than distribution fees) and unrealized and realized
gains or losses are allocated daily to each class of shares based upon the
relative proportion of net assets of each class at the beginning of the day.

Federal Income Taxes: For federal income tax purposes, each series in the Fund
is treated as a separate taxpaying entity. It is the intent of the Series to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its net income to
shareholders. For this reason no federal income tax provision is required.

Dividends and Distributions: The Series declares daily dividends from net
investment income. Payment of dividends is made monthly. Distributions of net
capital gains, if any, are made annually.

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

Custody Fee Credits: The Series has an arrangement with its custodian bank,
whereby uninvested monies earn credits which reduce the fees charged by the
custodian.

Reclassification of Capital Accounts: The Fund accounts and reports for
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants, Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income; Capital Gain, and
Return of Capital Distributions by Investment Companies. The effect of applying
this statement was to increase undistributed net investment income by $6,048,
decrease accumulated net realized gain on investments by $6,187 and increase
paid in capital by $139, due to the sale of securities purchased with market
discount during the year ended August 31, 1998. Net investment income, net
realized gains and net assets were not affected by this change.

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

Note 2. Agreements

The Fund has a management agreement with Prudential Investments Fund Management
LLC ("PIFM"). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PIFM has entered into a subadvisory agreement with The Prudential
Investment Corporation ("PIC"); PIC furnishes investment advisory services in
connection with the management of the Fund. PIFM pays for the cost of the
subadviser's services, the compensation of officers and employees of the Fund,
occupancy and certain clerical and bookkeeping costs of the Fund. The Fund bears
all other costs and expenses.

The management fee paid PIFM is computed daily and payable monthly, at an annual
rate of .50 of 1% of the average daily net assets of the Series.

The Fund had a distribution agreement with Prudential Securities Incorporated
("PSI"), which acted as the distributor of the Class A, Class B and Class C
shares of the Fund through May 31, 1998. Prudential Investment Management
Services LLC ("PIMS") became the distributor of the Fund effective June 1, 1998
and is serving the Fund under the same terms and conditions as under the
arrangement with PSI. The Fund compensated PSI and PIMS for distributing and
servicing the Fund's Class A, Class B and Class C shares, pursuant to plans of
distribution (the "Class A, B and C Plans"), regardless of expenses actually
incurred by them. The distribution fees are accrued daily and payable monthly.

PSI and PIMS have advised the Series that they received approximately $7,000 in
front-end sales charges resulting from sales of Class A shares during the year
ended August 31, 1998. From these fees, PSI paid such sales charges to
affiliated broker-dealers, which in turn paid commissions to salespersons and
incurred other distribution costs.

PSI and PIMS have advised the Series that during the year ended August 31, 1998,
they received approximately $24,500 in contingent deferred sales charges imposed
upon certain redemptions by Class B shareholders.

PSI, PIFM, PIC and PIMS are indirect, wholly owned subsidiaries of The
Prudential Insurance Company of America.

The Series, along with other affiliated registered investment companies (the
"Funds"), entered into a credit agreement (the "Agreement") with an unaffiliated
lender. The maximum commitment under the Agreement is $200,000,000. Interest on
any such borrowings outstanding will be at market rates. The purpose of the
Agreement is to serve as an alternative source of funding for capital share
redemptions. The Series did not borrow any amounts pursuant to the Agreement
during the year ended August 31, 1998. The Funds pay a commitment fee at an
annual rate of .055 of 1% on the unused portion of the credit facility. The
commitment fee is
- --------------------------------------------------------------------------------
B-181

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements NORTH CAROLINA SERIES
- --------------------------------------------------------------------------------
accrued and paid quarterly on a pro rata basis by the Funds. The Agreement
expired on December 30, 1997 and has been extended through December 29, 1998
under the same terms.

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

Note 3. Other Transactions with Affiliates

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

Note 4. Portfolio Securities

Purchases and sales of portfolio securities of the Series, excluding short-term
investments, for the year ended August 31, 1998 were $13,947,826 and
$18,376,158, respectively.

The cost basis of investments for federal income tax purposes at August 31,
1998, was substantially the same as for financial reporting purposes and
accordingly, net and gross unrealized appreciation of investments for federal
income tax purposes was $4,266,686.

The Series utilized its capital loss carryforward of approximately $174,500 to
offset net taxable gains realized and recognized during the fiscal year ended
August 31, 1998.

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

Note 5. Capital

The Series offers Class A, Class B and Class C shares. Class A shares are sold
with a front-end sales charge of up to 3%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class C shares are sold with a contingent
deferred sales charge of 1% during the first year. Class B shares will
automatically convert to Class A shares on a quarterly basis approximately seven
years after purchase. A special exchange privilege is also available for
shareholders who qualify to purchase Class A shares at net asset value.

The Fund has authorized an unlimited number of shares of beneficial interest of
each class at $.01 par value per share.
Transactions in shares of beneficial interest were as follows:

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements NORTH CAROLINA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Shares Amount
- ------------------------------------ ---------- ------------
<S> <C> <C>
Year ended August 31, 1997:
Shares sold......................... 77,563 $ 866,566
Shares issued in reinvestment of
dividends and distributions....... 77,680 866,195
Shares reacquired................... (399,433) (4,460,630)
---------- ------------
Net decrease in shares outstanding
before conversion................. (244,190) (2,727,869)
Shares reacquired upon conversion
into Class A...................... (350,818) (3,922,799)
---------- ------------
Net decrease in shares
outstanding....................... (595,008) $ (6,650,668)
---------- ------------
---------- ------------
<CAPTION>
Class C
- ------------------------------------
<S> <C> <C>
Year ended August 31, 1998:
Shares sold......................... 1,231 $ 14,241
Shares issued in reinvestment of
dividends and distributions....... 56 637
Shares reacquired................... (4,208) (48,369)
---------- ------------
Net decrease in shares
outstanding....................... (2,921) $ (33,491)
---------- ------------
---------- ------------
Year ended August 31, 1997:
Shares sold......................... 40 $ 450
Shares issued in reinvestment of
dividends and distributions....... 232 2,582
Shares reaquired.................... (1,372) (15,225)
---------- ------------
Net decrease in shares
outstanding....................... (1,100) $ (12,193)
---------- ------------
---------- ------------
</TABLE>
- --------------------------------------------------------------------------------
B-183
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights NORTH CAROLINA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
------------------------------------------------------
Year Ended August 31,
------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year..................... $ 11.28 $ 11.06 $ 11.19 $ 11.06 $12.04
------- ------- ------- ------- ------
Income from investment operations
Net investment income.................................. .55 .54(a) .53(a) .60(a) .61
Net realized and unrealized gain (loss) on investment
transactions........................................ .41 .38 (.01) .13 (.76)
------- ------- ------- ------- ------
Total from investment operations.................... .96 .92 .52 .73 (.15)
------- ------- ------- ------- ------
Less distributions
Dividends from net investment income................... (.55) (.54) (.53) (.60) (.61)
Distributions in excess of net investment income....... --(c) -- -- -- --
Distributions from net realized gains.................. -- (.16) (.12) -- (.22)
------- ------- ------- ------- ------
Total distributions................................. (.55) (.70) (.65) (.60) (.83)
------- ------- ------- ------- ------
Net asset value, end of year........................... $ 11.69 $ 11.28 $ 11.06 $ 11.19 $11.06
------- ------- ------- ------- ------
------- ------- ------- ------- ------
TOTAL RETURN(b):....................................... 8.72% 8.58% 4.70% 6.86% (1.35)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000).......................... $30,149 $29,350 $28,089 $26,519 $2,256
Average net assets (000)............................... $29,617 $29,055 $27,628 $15,244 $2,067
Ratios to average net assets:
Expenses, including distribution fees............... .84% .93%(a) 1.03%(a) .98%(a) .88%
Expenses, excluding distribution fees............... .74% .83%(a) .93%(a) .88%(a) .78%
Net investment income............................... 4.79% 4.87%(a) 4.78%(a) 5.25%(a) 5.31%
For Class A, B and C shares:
Portfolio turnover rate............................. 27% 35% 23% 28% 17%
</TABLE>
- ---------------
(a) Net of management fee waiver.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each year reported and includes reinvestment of dividends and
distributions.
(c) Less than $.005 per share.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-184

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights NORTH CAROLINA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
-------------------------------------------------------
Year Ended August 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year..................... $ 11.29 $ 11.06 $ 11.19 $ 11.06 $ 12.05
------- ------- ------- ------- -------
Income from investment operations
Net investment income.................................. .51 .50(a) .49(a) .55(a) .56
Net realized and unrealized gain (loss) on investment
transactions........................................ .40 .39 (.01) .13 (.77)
------- ------- ------- ------- -------
Total from investment operations.................... .91 .89 .48 .68 (.21)
------- ------- ------- ------- -------
Less distributions
Dividends from net investment income................... (.51) (.50) (.49) (.55) (.56)
Distributions in excess of net investment income....... --(c) -- -- -- --
Distributions from net realized gains.................. -- (.16) (.12) -- (.22)
------- ------- ------- ------- -------
Total distributions................................. (.51) (.66) (.61) (.55) (.78)
------- ------- ------- ------- -------
Net asset value, end of year........................... $ 11.69 $ 11.29 $ 11.06 $ 11.19 $ 11.06
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL RETURN(b):....................................... 8.19% 8.25% 4.28% 6.44% (1.82)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000).......................... $21,726 $524,952 $31,029 $40,119 $69,448
Average net assets (000)............................... $23,460 $27,703 $35,605 $51,963 $73,606
Ratios to average net assets:
Expenses, including distribution fees............... 1.24% 1.33%(a) 1.43%(a) 1.34%(a) 1.28%
Expenses, excluding distribution fees............... .74% .83%(a) .93%(a) .84%(a) .78%
Net investment income............................... 4.39% 4.47%(a) 4.37%(a) 5.10%(a) 4.89%
</TABLE>
- ---------------
(a) Net of management fee waiver.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each year reported and includes reinvestment of dividends and
distributions.
(c) Less than $.005 per share.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-185

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights NORTH CAROLINA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
-------------------------------------------------------
August 1,
1994(d)
Year Ended August 31, through
---------------------------------------- August 31,
1998 1997 1996 1995 1994
------- ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................... $ 11.29 $11.06 $11.19 $11.06 $11.09
------- ------ ------ ------ -----
Income from investment operations
Net investment income.................................. .48 .47(a) .46(a) .52(a) .04
Net realized and unrealized gain (loss) on investment
transactions........................................ .40 .39 (.01) .13 (.03)
------- ------ ------ ------ -----
Total from investment operations.................... .88 .86 .45 .65 .01
------- ------ ------ ------ -----
Less distributions
Dividends from net investment income................... (.48) (.47) (.46) (.52) (.04)
Distributions in excess of net investment income....... --(e) -- -- -- --
Distributions from net realized gains.................. -- (.16) (.12) -- --
------- ------ ------ ------ -----
Total distributions................................. (.48) (.63) (.58) (.52) (.04)
------- ------ ------ ------ -----
Net asset value, end of period......................... $ 11.69 $11.29 $11.06 $11.19 $11.06
------- ------ ------ ------ -----
------- ------ ------ ------ -----
TOTAL RETURN(b):....................................... 7.92% 7.98% 4.03% 6.17% .02%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........................ $ 30 $ 62 $ 72 $ 53 $ 10
Average net assets (000)............................... $ 31 $ 68 $ 69 $ 32 $ 5
Ratios to average net assets:
Expenses, including distribution fees............... 1.49% 1.58%(a) 1.68%(a) 1.63%(a) 1.67%(c)
Expenses, excluding distribution fees............... .74% .83%(a) .93%(a) .88%(a) .92%(c)
Net investment income............................... 4.14% 4.22%(a) 4.14%(a) 4.59%(a) 5.06%(c)
</TABLE>
- ---------------
(a) Net of management fee waiver.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(c) Annualized.
(d) Commencement of offering of Class C shares.
(e) Less than $.005 per share.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-186

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Report of Independent Accountants NORTH CAROLINA SERIES
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
Prudential Municipal Series Fund, North Carolina Series

In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Municipal Series Fund,
North Carolina Series (the "Fund", one of the portfolios constituting Prudential
Municipal Series Fund) at August 31, 1998, the results of its operations for the
year then ended and the changes in its net assets and the financial highlights
for each of the two years in the period then ended, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at August 31, 1998 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above. The accompanying financial highlights for each of the three
years in the period ended August 31, 1996 were audited by other independent
accountants, whose opinion dated October 14, 1996 was unqualified.

PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
October 21, 1998
- --------------------------------------------------------------------------------
B-187
<PAGE>

Federal Income Tax Information PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) NORTH CAROLINA SERIES
- --------------------------------------------------------------------------------
We are required by the Internal Revenue Code to advise you within 60 days of the
Series' fiscal year end (August 31, 1998) as to the federal tax status of
dividends and distributions paid by the Series during such fiscal year.
Accordingly, we are advising you that in the fiscal year ended August 31, 1998,
dividends paid from net investment income of $0.55 per Class A share, $0.51 per
Class B share, and $0.48 per Class C share were all federally tax-exempt
interest dividends. The Series also paid to Class A, B and C shares distribution
of $0.0013 which is taxable as ordinary income.

In January 1999, you will be advised on IRS Form 1099 DIV or Substitute 1099 DIV
as to the federal tax status of the distributions received by you in calendar
year 1998.
- --------------------------------------------------------------------------------
B-188
<PAGE>

Portfolio of Investments as PRUDENTIAL MUNICIPAL SERIES FUND
of August 31, 1998 OHIO SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description(a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--97.2%
- ------------------------------------------------------------------------------------------------------------------------------
Akron Econ. Dev. Rev., M.B.I.A. Aaa 6.00% 12/01/12 $ 1,750 $ 2,001,895
Akron, Bath & Copley Twnshps., Hosp. Dist. Rev., Summa
Health Systems Proj., Ser. A A3 5.75 11/15/08 4,015 4,269,832
Akron, Gen. Oblig. A2 10.50 12/01/04 200 269,668
Brecksville Broadview Heights City Sch. Dist., F.G.I.C. Aaa 6.50 12/01/16 1,000 1,157,100
Canton Water Works Sys., Gen. Oblig., A.M.B.A.C. Aaa 5.85 12/01/15 700 764,708
Carroll Cnty. Econ. Dev. Rev., Great Trail Lake Ctr.,
F.H.A. NR 11.75 8/01/14 625 702,844
Clear Fork Valley Loc. Sch. Dist., Richland Cnty. AA(c) Zero 12/01/24 845 230,660
Cleveland Arpt. Spl. Rev. Ref., Continental Airlines,
Inc., A.M.T. Ba2 5.70 12/01/19 650(e) 652,256
Cleveland City Sch. Dist., Gen. Oblig.,
Sch. Impvt., Ser. B, F.G.I.C. Aaa Zero 6/01/05 490 369,391
Sch. Impvt., Ser. B, F.G.I.C. Aaa Zero 6/01/06 400 286,996
Sch. Impvt., Ser. B, F.G.I.C. Aaa Zero 6/01/07 315 215,608
Sch. Impvt., Ser. B, F.G.I.C. Aaa Zero 12/01/08 550 350,301
Columbus Citation Hsg. Dev. Corp., Mtge. Rev., F.H.A. AA(c) 7.625 1/01/22 1,885(d) 2,399,228
Columbus, Gen. Oblig., Mun. Arpt. No. 32, A.M.T. Aaa 7.15 7/15/06 435 471,679
Cuyahoga Cnty. Hosp. Rev., Meridia Health Sys. A1 6.25 8/15/24 1,500(d) 1,719,000
Dayton, Gen. Oblig., M.B.I.A. Aaa 7.00 12/01/07 480(f) 580,051
Dover Mun. Elec. Sys. Rev., F.G.I.C. Aaa 5.95 12/01/14 1,000 1,095,240
Dublin City Sch. Dist., Cap. Apprec., F.G.I.C., Ref. Aaa Zero 12/01/10 1,120 637,773
Fairfield City Sch. Dist., Cap. Apprec., Ref., Sch.
Impvt. A1 Zero 12/01/09 515 310,452
Franklin Cnty. Hlth. Care Fac. Rev., Ref., Ohio
Presbyterian Svcs. NR 5.50 7/01/21 1,000 998,630
Franklin Cnty. Hosp. Rev., Holy Cross Hlth. Sys., Ser. B,
A.M.B.A.C. Aaa 7.65 6/01/10 2,500(d)(f) 2,713,100
Franklin Cnty. Pub. Impvt., Ser. 93 Aaa 5.375 12/01/20 3,000 3,132,660
Gahanna Jefferson City Sch. Dist., Gen. Oblig.,
A.M.B.A.C. Aaa Zero 12/01/09 445 268,255
Greene Cnty., Cap. Apprec.,
Swr. Sys. Rev., A.M.B.A.C. Aaa Zero 12/01/08 450 286,610
Wtr. Sys. Rev., Ser. A, F.G.I.C. Aaa 6.125 12/01/21 1,000 1,113,230
Guam Pwr. Auth. Rev., Ser. A BBB(c) 6.75 10/01/24 3,110 3,481,894
Hilliard City Sch. Dist., Cap. Apprec. Impvt.,
Ser. A, F.G.I.C. Aaa Zero 12/01/09 2,855 1,721,051
Ser. A, F.G.I.C. Aaa Zero 12/01/10 2,855 1,625,751
Huber Heights Water Sys. Rev., Cap. Apprec., M.B.I.A. Aaa Zero 12/01/23 1,000 286,950
Kent St. Univ. Rev., Ser. 1561, A.M.B.A.C. AAA(c) 5.00 5/01/23 1,000 991,530
Lakota Local Sch. Dist., Cap. Apprec., F.G.I.C. Aaa Zero 12/01/11 1,250 672,813
Logan Hocking Local Sch. Dist., Hocking, Perry & Vinton
Co., Gen. Oblig., A.M.B.A.C. Aaa Zero 12/01/09 650 392,262
Lorain Cnty. Hosp. Rev., Ref. Mtge., Elyria United
Methodist Village NR 6.875 6/01/22 2,500 2,765,500
Lucas Cnty. Hlth. Fac. Rev., Ref., Ohio Presbyterian
Retirement Svcs. NR 6.625 7/01/14 1,750 1,927,240
Lucas Cnty. Hosp. Rev., Promedica Healthcare Oblig., Ser.
96, M.B.I.A. Aaa 5.75 11/15/09 3,000(f) 3,318,180
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-189

<PAGE>

Portfolio of Investments as PRUDENTIAL MUNICIPAL SERIES FUND
of August 31, 1998 OHIO SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Marion Cnty. Hosp. Impvt. Rev., Ref., Comn. Hosp., Ser.
96 BBB+(c) 6.375% 5/15/11 $ 2,000 $ 2,200,560
Marysville Village Sch. Dist., Gen. Oblig., Sch. Impvt.,
M.B.I.A. Aaa Zero 12/01/15 865 379,086
Miami Cnty. Hosp. Fac. Rev., Ref. & Impvt., Upper Valley
Med. Ctr. Baa 6.375 5/15/26 1,000 1,074,370
Montgomery Cnty. Hlth. Sys. Rev., Ref., Franciscan Med.
Ctr., Dayton Baa1 5.50 7/01/18 1,750 1,766,765
Montgomery Cnty. Swr. Sys. Rev.,
Greater Moraine, Beaver Creek, F.G.I.C. Aaa Zero 9/01/05 1,000 746,010
Greater Moraine, Beaver Creek, F.G.I.C. Aaa Zero 9/01/07 500 338,545
Mount Vernon City Sch. Dist., Gen. Oblig., F.G.I.C. Aaa 7.50 12/01/14 500 591,265
Newark, Ltd. Tax Gen. Oblig., Wtr. Impvt.,
Cap. Apprec., A.M.B.A.C. Aaa Zero 12/01/06 805 565,343
Cap. Apprec. Ref., F.G.I.C. Aaa Zero 12/01/14 1,245 566,027
Cap. Apprec. Ref., F.G.I.C. Aaa Zero 12/01/17 1,495 579,970
Cap. Apprec. Ref., F.G.I.C. Aaa Zero 12/01/18 1,495 551,042
North Canton City Sch.,
Cap. Apprec. Ref., F.G.I.C Aaa Zero 12/01/07 1,210 810,458
Cap. Apprec. Ref., F.G.I.C Aaa Zero 12/01/09 1,205 726,398
Ohio Hsg. Fin. Agy., Mtg. Rev., G.N.M.A., A.M.T. AAA(c) 6.05 9/01/17 1,000 1,067,070
Ohio St. Air Quality Dev. Auth. Rev., Poll. Ctrl.,
Cleveland Elec. Co. Proj., Ref., F.G.I.C. Aaa 8.00 12/01/13 2,500(f) 2,884,675
Cleveland Elec. Co. Proj., Ref., A.M.T. Ba1 6.10 8/01/20 1,000 1,046,190
Edison Proj., Ser. A, F.G.I.C Aaa 7.45 3/01/16 3,750(f) 4,004,512
Ohio St. Bldg. Auth., Das Data Ctr. Proj. Aa3 6.00 10/01/08 615 699,249
Ohio St. Higher Edl. Fac. Comn. Rev., Case Western Resv.
Univ., Ser. B Aa3 6.50 10/01/20 750 903,900
Ohio St. Solid Waste Rev., A.M.T. NR 8.50 8/01/22 1,000 1,068,540
Pickerington Local Sch. Dist.,
Gen. Oblig., A.M.B.A.C. Aaa Zero 12/01/08 890 566,850
Gen. Oblig., A.M.B.A.C. Aaa Zero 12/01/09 1,875 1,130,288
Gen. Oblig., A.M.B.A.C. Aaa Zero 12/01/13 525 252,425
Puerto Rico Comm., M.B.I.A. Aaa 4.875 7/01/23 1,000 985,060
Puerto Rico Elec. Pwr. Auth. Rev., Ser. S, M.B.I.A. Aaa 6.125 7/01/09 1,000 1,156,660
Puerto Rico Pub. Bldgs. Auth. Rev., Gtd. Pub. Ed. & Hlth.
Facs., Ser. J Baa1 Zero 7/01/06 3,000 2,144,790
Puerto Rico, Cap. Apprec. Ref., Pub. Impt., Gen. Oblig. Baa1 Zero 7/01/14 1,000 463,930
Reynoldsburg City Sch. Dist., Cap. Apprec. Ref., F.G.I.C. Aaa Zero 12/01/12 1,465 744,191
Sugarcreek Local Sch. Dist., Cap. Apprec., F.G.I.C. Aaa Zero 12/01/08 500 320,055
Toledo, Cap. Apprec. Ref.,
Ser. B, F.G.I.C. Aaa Zero 12/01/09 1,450 874,089
Ser. B, F.G.I.C. Aaa Zero 12/01/10 1,000 569,440
Trumbull Cnty. Cap. Apprec., A.M.B.A.C. Aaa Zero 12/01/10 1,300 740,272
Trumbull Cnty. Correctional Fac.,
Cap. Apprec., A.M.B.A.C. Aaa Zero 12/01/08 1,250 796,137
Cap. Apprec., A.M.B.A.C. Aaa Zero 12/01/09 1,250 753,525
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-190

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Portfolio of Investments as
of August 31, 1998 OHIO SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Univ. of Puerto Rico Rev., Cap. Apprec. Ref., Ser. N,
M.B.I.A. Aaa Zero 6/01/13 $ 4,245 $ 2,136,296
Virgin Islands Pub. Fin. Auth. Rev., Ref.,
Matching Loan Notes, Ser. A NR 7.25% 10/01/18 1,000(d) 1,145,230
Matching Loan Notes, Ser. E NR 5.875 10/01/18 1,000 1,035,410
Virgin Islands Terr., Hugo Ins. Claims Fund Proj., Ser.
91 NR 7.75 10/01/06 365(d) 401,569
Virgin Islands Wtr. & Pwr. Auth., Elec. Sys. Rev., Ser. A NR 7.40 7/01/11 920(d) 1,012,580
Woodmore Indpt. Sch. Dist., Gen. Oblig., A.M.B.A.C. Aaa Zero 12/01/06 480 338,462
-----------
Total long-term investments (cost $76,191,279) $84,317,572
-----------
SHORT-TERM INVESTMENTS--3.9%

Cuyahoga Cnty. Hosp. Rev., F.R.D.D. VMIG1 3.25 9/01/98 2,700 2,700,000
Ohio St. Air Quality Dev. Auth. Rev.,
Ref., Cin. Gas & Elec., Ser. A, F.R.D.D. A-1+ 3.85 9/01/98 300 300,000
Ref., Cin. Gas & Elec., Ser. B, F.R.D.D. VMIG1 3.30 9/01/98 400 400,000
-----------
Total short-term investments (cost $3,400,000) $ 3,400,000
-----------
Total Investments--101.1%
(cost $79,591,279; Note 4) 87,717,572
Liabilities in excess of other assets--(1.1)% (924,284)
-----------
Net Assets--100% $86,793,288
-----------
-----------
</TABLE>
- ---------------
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance Corporation.
A.M.T.--Alternative Minimum Tax.
F.G.I.C.--Financial Guaranty Insurance Company.
F.H.A.--Federal Housing Administration.
F.R.D.D.--Floating Rate (Daily) Demand Note (b).
G.N.M.A.--Government National Mortgage Association.
M.B.I.A.--Municipal Bond Insurance Association.
(b) For purposes of amortized cost valuation, the maturity date of Floating Rate
Demand Notes is considered to be the later of the next date on which the
security can be redeemed at par, or the next date on which the rate of
interest is adjusted.
(c) Standard & Poor's Rating.
(d) Prerefunded issues are secured by escrowed cash and/or direct U.S.
guaranteed obligations.
(e) Represents when-issued security.
(f) All or partial principal amount pledged as collateral for financial futures
contracts or when-issued security.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a description of
Moody's and Standard & Poor's ratings.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-191

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Statement of Assets and Liabilities OHIO SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets August 31, 1998
<S> <C>
Investments, at value (cost $79,591,279).................................................................. $ 87,717,572
Cash...................................................................................................... 99,997
Interest receivable....................................................................................... 964,844
Due from broker - variation margin........................................................................ 10,469
Other assets.............................................................................................. 2,399
---------------
Total assets........................................................................................... 88,795,281
---------------
Liabilities
Payable for investments purchased......................................................................... 1,804,424
Dividends payable......................................................................................... 61,446
Payable for Series shares reacquired...................................................................... 39,360
Accrued expenses.......................................................................................... 37,054
Management fee payable.................................................................................... 36,433
Distribution fee payable.................................................................................. 19,149
Deferred trustee's fees................................................................................... 4,127
---------------
Total liabilities...................................................................................... 2,001,993
---------------
Net Assets................................................................................................ $ 86,793,288
---------------
---------------
Net assets were comprised of:
Shares of beneficial interest, at par.................................................................. $ 70,498
Paid-in capital in excess of par....................................................................... 77,124,027
---------------
77,194,525
Accumulated net realized gain on investments........................................................... 1,384,064
Net unrealized appreciation on investments............................................................. 8,214,699
---------------
Net assets, August 31, 1998............................................................................... $ 86,793,288
---------------
---------------
Class A:
Net asset value and redemption price per share
($51,546,391 DIVIDED BY 4,188,009 shares of beneficial interest issued and outstanding)............. $12.31
Maximum sales charge (3% of offering price)............................................................ .38
---------------
Maximum offering price to public....................................................................... $12.69
---------------
---------------
Class B:
Net asset value, offering price and redemption price per share
($35,063,714 DIVIDED BY 2,846,962 shares of beneficial interest issued and outstanding)............. $12.32
---------------
---------------
Class C:
Net asset value, offering price and redemption price per share
($183,183 DIVIDED BY 14,874 shares of beneficial interest issued and outstanding)................... $12.32
---------------
---------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-192

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
OHIO SERIES
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income August 31, 1998
<S> <C>
Income
Interest................................. $ 5,133,067
---------------
Expenses
Management fee........................... 445,394
Distribution fee--Class A................ 51,082
Distribution fee--Class B................ 189,240
Distribution fee--Class C................ 1,116
Custodian's fees and expenses............ 72,000
Transfer agent's fees and expenses....... 57,000
Registration fees........................ 25,000
Reports to shareholders.................. 25,000
Legal fees and expenses.................. 12,000
Audit fee and expenses................... 10,000
Trustees' fees........................... 4,000
Miscellaneous............................ 2,784
---------------
Total expenses........................ 894,616
Less: Custodian fee credit............... (3,783)
---------------
Net expenses.......................... 890,833
---------------
Net investment income....................... 4,242,234
---------------
Realized and Unrealized Gain
(Loss) on Investments
Net realized gain (loss) on:
Investment transactions.................. 2,022,624
Financial futures transactions........... (564,837)
---------------
1,457,787
---------------
Net change in unrealized appreciation on:
Investments.............................. 1,537,842
Financial futures contracts.............. 88,406
---------------
1,626,248
---------------
Net gain on investments..................... 3,084,035
---------------
Net Increase in Net Assets
Resulting from Operations................... $ 7,326,269
---------------
---------------
</TABLE>

PRUDENTIAL MUNICIPAL SERIES FUND
OHIO SERIES
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended August 31,
in Net Assets 1998 1997
<S> <C> <C>
Operations
Net investment income........... $ 4,242,234 $ 5,035,371
Net realized gain on investment
transactions................. 1,457,787 715,637
Net change in unrealized
appreciation of
investments.................. 1,626,248 1,564,511
----------- ------------
Net increase in net assets
resulting from operations.... 7,326,269 7,315,519
----------- ------------
Dividends and distributions (Note
1):
Dividends from net investment
income
Class A...................... (2,519,282) (2,772,904)
Class B...................... (1,716,610) (2,259,774)
Class C...................... (6,342) (2,693)
----------- ------------
(4,242,234) (5,035,371)
----------- ------------
Distributions in excess of net
investment income
Class A...................... (4,269) (8,880)
Class B...................... (3,222) (7,822)
Class C...................... (14) (16)
----------- ------------
(7,505) (16,718)
----------- ------------
Distributions from net realized
gains
Class A...................... (268,925) (75,480)
Class B...................... (202,959) (66,491)
Class C...................... (850) (134)
----------- ------------
(472,734) (142,105)
----------- ------------
Series share transactions (net of
share conversions) (Note 5):
Net proceeds from shares sold... 3,719,541 3,739,237
Net asset value of shares issued
in reinvestment of dividends
and distributions............ 2,728,980 3,073,341
Cost of shares reacquired....... (14,076,854) (18,009,150)
----------- ------------
Net decrease in net assets from
Series share transactions.... (7,628,333) (11,196,572)
----------- ------------
Total decrease..................... (5,024,537) (9,075,247)
Net Assets
Beginning of year.................. 91,817,825 100,893,072
----------- ------------
End of year........................ $86,793,288 $ 91,817,825
----------- ------------
----------- ------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-193

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements OHIO SERIES
- --------------------------------------------------------------------------------
Prudential Municipal Series Fund (the "Fund") is registered under the Investment
Company Act of 1940, as an open-end investment company. The Fund was organized
as a Massachusetts business trust on May 18, 1984 and consists of thirteen
series. The monies of each series are invested in separate, independently
managed portfolios. The Ohio Series (the "Series") commenced investment
operations in September, 1984. The Series is diversified and its investment
objectives is to maximize current income that is exempt from Ohio state and
federal income taxes consistent with the preservation of capital and, in
conjunction therewith, the Series may invest in debt securities with the
potential for capital gains. The Series seeks to achieve this objective by
investing primarily in Ohio state, municipal and local government obligations
and obligations of other qualifying issuers. The ability of the issuers of the
securities held by the Series to meet their obligations may be affected by
economic developments in a specific state, industry or region.

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

Note 1. Accounting Policies

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

Securities Valuation: The Series values municipal securities (including
commitments to purchase such securities on a "when-issued" basis) on the basis
of prices provided by a pricing service which uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities in
determining values. If market quotations are not readily available from such
pricing services, a security is valued at its fair value as determined under
procedures established by the Trustees.

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

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

Securities Transactions and Net Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis. The Series amortizes premiums and accretes original issue
discount paid on purchases of portfolio securities as adjustments to interest
income. Expenses are recorded on the accrual basis which may require the use of
certain estimates by management.

Federal Income Taxes: For federal income tax purposes, each Series in the Fund
is treated as a separate taxpaying entity. It is the intent of the Series to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its net income to
shareholders. For this reason, no federal income tax provision is required.

Dividends and Distributions: The Series declares daily dividends from net
investment income. Payment of dividends are made monthly. Distributions of net
capital gains, if any, are made annually.

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

Custody Fee Credits: The Fund has an arrangement with its custodian bank,
whereby uninvested monies earn credits which reduce the fees charged by the
custodian.

Reclassification of Capital Accounts: The Fund accounts and reports for
distributions to shareholders in accordance with American Institute of Certified
Public Accountants, Statement of Position 93-2: Determination, Disclosure, and
Financial Statement Presentation of Income, Capital Gain, and Return of Capital
Distributions by Investment Companies.
- --------------------------------------------------------------------------------
B-194
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements OHIO SERIES
- --------------------------------------------------------------------------------
The effect of applying this statement was to increase undistributed net
investment income and decrease accumulated net realized gain on investments by
$7,505, due to the sale of securities purchased with market discount during the
year ended August 31, 1998. Net investment income, net realized gains and net
assets were not affected by this change.

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

Note 2. Agreements

The Fund has a management agreement with Prudential Investments Fund Management
LLC ("PIFM"). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PIFM has entered into a subadvisory agreement with The Prudential
Investment Corporation ("PIC"); PIC furnishes investment advisory services in
connection with the management of the Fund. PIFM pays for the cost of the
subadviser's services, the cost of compensation of officers and employees of the
Fund, occupancy and certain clerical and bookkeeping costs of the Fund. The Fund
bears all other costs and expenses.

The management fee paid PIFM is computed daily and payable monthly, at an annual
rate of .50 of 1% of the average daily net assets of the Series.

The Fund had a distribution agreement with Prudential Securities Incorporated
("PSI"), which acted as the distributor of the Class A, Class B and Class C
shares of the Fund through May 31, 1998. Prudential Investment Management
Services LLC ("PIMS") became the distributor of the Fund effective June 1, 1998
and is serving the Fund under the same terms and conditions as under the
arrangement with PSI. The Fund compensated PSI and PIMS for distributing and
servicing the Fund's Class A, Class B and Class C shares pursuant to plans of
distribution, (the "Class A, B and C Plans"), regardless of expenses actually
incurred by them. The distribution fees are accrued daily and payable monthly.

PSI and PIMS have advised the Series that they received approximately $7,300 in
front-end sales charges resulting from sales of Class A shares during the fiscal
year ended August 31, 1998. From these fees, PSI and PIMS paid such sales
charges to affiliated broker-dealers, which in turn paid commissions to
sales-persons and incurred other distribution costs.

PSI and PIMS have advised the Series that for the fiscal year ended August 31,
1998, they received approximately $72,300 and $100 in contingent deferred sales
charges imposed upon certain redemptions by Class B and Class C shareholders,
respectively.

PSI, PIMS, PIFM, and PIC are indirect, wholly owned subsidiaries of The
Prudential Insurance Company of America.

The Series, along with other affiliated registered investment companies (the
"Funds"), entered into a credit agreement (the "Agreement") with an unaffiliated
lender. The maximum commitment under the Agreement is $200,000,000. Interest on
any such borrowings outstanding will be at market rates. The purpose of the
Agreement is to serve as an alternative source of funding for capital share
redemptions. The Series did not borrow any amounts pursuant to the Agreement
during the fiscal year ended August 31, 1998. The Funds pay a commitment fee at
an annual rate of .055 of 1% on the unused portion of the credit facility. The
commitment fee is accrued and paid quarterly on a pro rata basis by the Funds.
The Agreement expired on December 30, 1997 and has been extended through
December 29, 1998 under the same terms.

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

Note 3. Other Transactions with Affiliates

Prudential Mutual Fund Services LLC ("PMFS"), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the fiscal year ended August 31,
1998, the Series incurred fees of approximately $41,500 for the services of
PMFS. As of August 31, 1998, approximately $2,900 of such fees were due to PMFS.
Transfer agent fees and expenses in the Statement of Operations include certain
out-of-pocket expenses paid to nonaffiliates.

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

Note 4. Portfolio Securities

Purchases and sales of portfolio securities of the Series, excluding short-term
investments, for the fiscal year ended August 31, 1998 were $26,479,243 and
$35,608,608, respectively.

The cost basis of investments for federal income tax purposes at August 31, 1998
was substantially the same as for financial reporting purposes and accordingly,
net unrealized appreciation of investments for federal income tax purposes was
$8,126,293 (gross unrealized appreciation--$8,130,708; gross unrealized
depreciation--$4,415).
- --------------------------------------------------------------------------------
B-195
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements OHIO SERIES
- --------------------------------------------------------------------------------
During the fiscal year ended August 31, 1998, the Series entered into financial
futures contracts. Details of open contracts at August 31, 1998 are as follows:

<TABLE>
<CAPTION>
Value at Value at Unrealized
Number of Expiration August 31, Trade Appreciation/
Contracts Type Date 1998 Date (Depreciation)
- -------------- ------------ ----------- ------------ ---------- --------------
<S> <C> <C> <C> <C> <C>
Short Positions:
41 U.S. T-Bond Sept. 1998 $5,191,625 $5,087,844 $ (103,781)
------------ ---------- --------------
------------ ---------- --------------
Long Positions:
50 U.S. T-Bond Sept. 1998 6,356,250 6,164,063 192,187
------------ ---------- --------------
------------ ---------- --------------
</TABLE>
- ------------------------------------------------------------

Note 5. Capital

The Series offers Class A, Class B and Class C shares. Class A shares are sold
with a front-end sales charge of up to 3%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class C shares are sold with a contingent
deferred sales charge of 1% during the first year. Class B shares automatically
convert to Class A shares on a quarterly basis approximately seven years after
purchase. A special exchange privilege is also available for shareholders who
qualify to purchase Class A shares at net asset value.

The Fund has authorized an unlimited number of shares of beneficial interest of
each class at $.01 par value per share.

Transactions in shares of beneficial interest were as follows:

<TABLE>
<CAPTION>
Class A Shares Amount
- -------------------------------------- -------- ------------
<S> <C> <C>
Year ended August 31, 1998:
Shares sold........................... 119,495 $ 1,453,990
Shares issued in reinvestment of
dividends and distributions......... 135,599 1,646,460
Shares reacquired..................... (575,569) (6,996,342)
-------- ------------
Net decrease in shares outstanding
before conversion................... (320,475) (3,895,892)
Shares issued upon conversion from
Class B............................. 244,351 2,964,239
-------- ------------
Net decrease in shares outstanding.... (76,124) $ (931,653)
-------- ------------
-------- ------------
Year ended August 31, 1997:
Shares sold........................... 49,987 $ 593,763
Shares issued in reinvestment of
dividends and distributions......... 144,889 1,718,951
Shares reacquired..................... (775,729) (9,195,686)
-------- ------------
Net decrease in shares outstanding
before conversion................... (580,853) (6,882,972)
Shares issued upon conversion from
Class B............................. 583,271 6,914,521
-------- ------------
Net increase in shares outstanding.... 2,418 $ 31,549
-------- ------------
-------- ------------
<CAPTION>
Class B Shares Amount
- -------------------------------------- -------- ------------
<S> <C> <C>
Year ended August 31, 1998:
Shares sold........................... 176,720 $ 2,148,713
Shares issued in reinvestment of
dividends and distributions......... 88,790 1,078,882
Shares reacquired..................... (582,208) (7,068,071)
-------- ------------
Net decrease in shares outstanding
before conversion................... (316,698) (3,840,476)
Shares reacquired upon conversion into
Class A............................. (244,213) (2,964,239)
-------- ------------
Net decrease in shares outstanding.... (560,911) $ (6,804,715)
-------- ------------
-------- ------------
Year ended August 31, 1997:
Shares sold........................... 260,769 $ 3,098,896
Shares issued in reinvestment of
dividends and distributions......... 113,885 1,351,814
Shares reacquired..................... (740,541) (8,791,868)
-------- ------------
Net decrease in shares outstanding
before conversion................... (365,887) (4,341,158)
Shares reacquired upon conversion into
Class A............................. (582,780) (6,914,521)
-------- ------------
Net decrease in shares outstanding.... (948,667) $(11,255,679)
-------- ------------
-------- ------------
<CAPTION>
Class C
- --------------------------------------
<S> <C> <C>
Year ended August 31, 1998:
Shares sold........................... 9,671 $ 116,838
Shares issued in reinvestment of
dividends and distributions......... 299 3,638
Shares reacquired..................... (1,028) (12,441)
-------- ------------
Net increase in shares outstanding.... 8,942 $ 108,035
-------- ------------
-------- ------------
Year ended August 31, 1997:
Shares sold........................... 3,802 $ 46,578
Shares issued in reinvestment of
dividends and distributions......... 217 2,576
Shares reacquired..................... (1,828) (21,596)
-------- ------------
Net increase in shares outstanding.... 2,191 $ 27,558
-------- ------------
-------- ------------
</TABLE>
- --------------------------------------------------------------------------------
B-196
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights OHIO SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
------------------------------------------------------
Year Ended August 31,
------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year........................... $ 11.95 $ 11.70 $ 11.92 $ 11.72 $12.38
------- ------- ------- ------- ------
Income from investment operations
Net investment income........................................ .60 .63(a) .63(a) .65(a) .66
Net realized and unrealized gain (loss) on investment
transactions.............................................. .42 .27 (.15) .20 (.66)
------- ------- ------- ------- ------
Total from investment operations.......................... 1.02 .90 .48 .85 --
------- ------- ------- ------- ------
Less distributions
Dividends from net investment income......................... (.60) (.63) (.63) (.65) (.66)
Distributions in excess of net investment income............. --(c) --(c) -- -- --
Distributions from net realized gains........................ (.06) (.02) (.07) -- --
------- ------- ------- ------- ------
Total distributions....................................... (.66) (.65) (.70) (.65) (.66)
------- ------- ------- ------- ------
Net asset value, end of year................................. $ 12.31 $ 11.95 $ 11.70 $ 11.92 $11.72
------- ------- ------- ------- ------
------- ------- ------- ------- ------
TOTAL RETURN(b):............................................. 8.80% 7.92% 4.02% 7.59% (0.01)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................................ $51,546 $50,977 $49,851 $51,132 $4,749
Average net assets (000)..................................... $51,082 $51,641 $51,205 $29,904 $4,733
Ratios to average net assets:
Expenses, including distribution fees..................... .83% .80%(a) .80%(a) .83%(a) .84%
Expenses, excluding distribution fees..................... .73% .70%(a) .70%(a) .73%(a) .74%
Net investment income..................................... 4.93% 5.37%(a) 5.27%(a) 5.50%(a) 5.45%
For Class A, B and C shares:
Portfolio turnover rate................................... 30% 22% 35% 38% 20%
</TABLE>
- ---------------
(a) Net of management fee waiver.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each year reported and includes reinvestment of dividends and
distributions.
(c) Less than $.005 per share.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-197

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights OHIO SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
--------------------------------------------------------
Year Ended August 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year........................... $ 11.96 $ 11.71 $ 11.93 $ 11.73 $ 12.38
------- ------- ------- ------- --------
Income from investment operations
Net investment income........................................ .55 .59(a) .58(a) .60(a) .61
Net realized and unrealized gain (loss) on investment
transactions.............................................. .42 .27 (.15) .20 (.65)
------- ------- ------- ------- --------
Total from investment operations.......................... .97 .86 .43 .80 (.04)
------- ------- ------- ------- --------
Less distributions
Dividends from net investment income......................... (.55) (.59) (.58) (.60) (.61)
Distributions in excess of net investment income............. --(c) --(c) -- -- --
Distributions from net realized gains........................ (.06) (.02) (.07) -- --
------- ------- ------- ------- --------
Total distributions....................................... (.61) (.61) (.65) (.60) (.61)
------- ------- ------- ------- --------
Net asset value, end of year................................. $ 12.32 $ 11.96 $ 11.71 $ 11.93 $ 11.73
------- ------- ------- ------- --------
------- ------- ------- ------- --------
TOTAL RETURN(b):............................................. 8.36% 7.49% 3.61% 7.16% (0.33)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................................ $35,064 $40,770 $50,998 $62,805 $118,270
Average net assets (000)..................................... $37,848 $45,503 $57,909 $85,410 $121,365
Ratios to average net assets:
Expenses, including distribution fees..................... 1.23% 1.20%(a) 1.20%(a) 1.22%(a) 1.24%
Expenses, excluding distribution fees..................... .73% .70%(a) .70%(a) .72%(a) .74%
Net investment income..................................... 4.54% 4.97%(a) 4.87%(a) 5.27%(a) 5.05%
</TABLE>
- ---------------
(a) Net of management fee waiver.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each year reported and includes reinvestment of dividends and
distributions.
(c) Less than $.005 per share.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-198

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights OHIO SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
------------------------------------------------------
August 1,
1994(e)
Year Ended August 31, Through
--------------------------------------- August 31,
1998 1997 1996 1995 1994
------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......................... $11.96 $11.71 $11.93 $11.73 $11.75
------ ------ ------ ------ -----
Income from investment operations
Net investment income........................................ .52 .56(a) .55(a) .57(a) .05
Net realized and unrealized gain (loss) on investment
transactions.............................................. .42 .27 (.15) .20 (.02)
------ ------ ------ ------ -----
Total from investment operations.......................... .94 .83 .40 .77 .03
------ ------ ------ ------ -----
Less distributions
Dividends from net investment income......................... (.52) (.56) (.55) (.57) (.05)
Distributions in excess of net investment income............. --(c) --(c) -- -- --
Distributions from net realized gains........................ (.06) (.02) (.07) -- --
------ ------ ------ ------ -----
Total distributions....................................... (.58) (.58) (.62) (.57) (.05)
------ ------ ------ ------ -----
Net asset value, end of period............................... $12.32 $11.96 $11.71 $11.93 $11.73
------ ------ ------ ------ -----
------ ------ ------ ------ -----
TOTAL RETURN(b):............................................. 8.09% 7.22% 3.36% 6.89% 0.18%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............................. $183 $71 $44 $126 $5
Average net assets (000)..................................... $149 $57 $97 $ 61 $2
Ratios to average net assets:
Expenses, including distribution fees..................... 1.48% 1.45%(a) 1.45%(a) 1.49%(a) 2.28%(d)
Expenses, excluding distribution fees..................... .73% .70%(a) .70%(a) .74%(a) 1.53%(d)
Net investment income..................................... 4.26% 4.72%(a) 4.62%(a) 4.76%(a) 4.73%(d)
</TABLE>
- ---------------
(a) Net of management fee waiver.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than one year are not
annualized.
(c) Less than $.005 per share.
(d) Annualized.
(e) Commencement of offering of Class C shares.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-199

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Report of Independent Accountants OHIO SERIES
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
Prudential Municipal Series Fund, Ohio Series

In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Municipal Series Fund,
Ohio Series (the "Fund", one of the portfolios constituting Prudential Municipal
Series Fund) at August 31, 1998, the results of its operations for the year then
ended and the changes in its net assets and the financial highlights for each of
the two years in the period then ended, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at August 31, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above. The accompanying financial highlights for each of the three years in the
period ended August 31, 1996 were audited by other independent accountants,
whose opinion dated October 14, 1996 was unqualified.

PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
October 21, 1998
- --------------------------------------------------------------------------------
B-200
<PAGE>

Federal Income Tax Information PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) OHIO SERIES
- --------------------------------------------------------------------------------
We are required by the Internal Revenue Code to advise you within 60 days of the
Series' fiscal year end (August 31, 1998) as to the federal tax status of
dividends and distributions paid by the Series during such fiscal year.
Accordingly, we are advising you that in the fiscal year ended August 31, 1998,
dividends paid from net investment income of $.60 per Class A share, $.55 per
Class B share and $.52 per Class C share were all federally tax-exempt interest
dividends. In addition, the Series paid to Class A, B and C shares a special
taxable income distribution of $.001 which is taxable as ordinary income and a
long-term capital gain distribution of which $.002 is taxable at 28% rate gain
and $.061 is taxable at 20% rate gain.

<PAGE>

Portfolio of Investments as PRUDENTIAL MUNICIPAL SERIES FUND
of August 31, 1998 PENNSYLVANIA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--98.1%
- ------------------------------------------------------------------------------------------------------------------------------
Allegheny Cnty. Arpt. Rev.,
Greater Pittsburgh Int'l. Arpt., Ser. A, A.M.T., F.S.A. Aaa 6.60% 1/01/04 $ 1,000 $ 1,091,660
Pittsburgh Int'l. Arpt., A.M.T., M.B.I.A. Aaa 5.75 1/01/14 2,435(e) 2,700,683
Allegheny Cnty. Higher Ed. Bldg. Auth. Rev.,
Robert Morris Coll., M.B.I.A. Aaa 7.00 6/15/08 1,000(d) 1,057,470
Allegheny Cnty. Hosp. Dev. Auth. Rev.,
Allegheny Gen. Hosp. Proj., Ser. A, M.B.I.A. Aaa 6.25 9/01/20 1,750(e) 1,815,537
Magee-Womens Hosp., F.G.I.C. Aaa Zero 10/01/14 2,000 898,160
Magee-Womens Hosp., F.G.I.C. Aaa Zero 10/01/16 2,000 804,500
Magee-Womens Hosp., F.G.I.C. Aaa Zero 10/01/18 2,000 724,560
Magee-Womens Hosp., F.G.I.C. Aaa Zero 10/01/19 4,000 1,377,680
West Penn. Hosp. Hlth. Ctr. NR 8.50 1/01/20 2,000 2,136,680
Allegheny Cnty. Ind. Dev. Auth. Rev., USX Proj., Ser. A Baa3 6.70 12/01/20 4,500 4,969,305
Allegheny Cnty. Residential Fin. Auth., Mtge. Rev.,
G.N.M.A.,
Ser. F Aaa 9.00 6/01/17 310 316,860
Ser. Q, A.M.T. Aaa 7.40 12/01/22 825 872,322
Allegheny Cnty., Ser. C-37, M.B.I.A. Aaa 7.30 12/01/10 1,500(d)(e) 1,615,875
Berks Cnty. Gen. Oblig., Cap. Appreciation F.G.I.C. Aaa Zero 5/15/16 2,900 1,188,913
Berks Cnty. Ind. Dev. Auth. Rev., Lutheran Home Proj. NR 6.875 1/01/23 1,500 1,604,910
Berks Cnty. Mun. Auth. Hosp. Rev., Reading Hosp.
Med. Ctr. Proj., M.B.I.A. Aaa 5.70 10/01/14 1,250 1,391,413
Bethlehem PA Auth. Wtr. Rev., F.S.A.
Cap. Appreciation Aaa Zero 11/15/22 4,080 1,210,291
Cap. Appreciation Aaa Zero 11/15/23 4,000 1,127,920
Bucks Cnty. Wtr. & Swr. Auth. Rev.,
Neshaminy Interceptor Swr. Sys., Ser. A, F.G.I.C. Aaa Zero 12/01/15 2,175 913,913
Butler Cnty. Hosp. Auth. Rev.,
North Hills Passavant Hosp., Ser. A, F.S.A. Aaa 7.00 6/01/22 1,000(d) 1,101,040
Chartiers Valley Ind., Ref.-Friendship Vlg./South Hills NR 6.75 8/15/18 2,225 2,357,143
Chester Upland Sch. Auth., Sch. Rev., A(b) 6.375 9/01/21 1,000(d) 1,089,300
Clarion Cnty. Hosp. Auth., Clarion Hosp. Proj. BBB(b) 5.625 7/01/21 1,000 1,003,130
Cumberland Cnty. Mun. Auth. Rev., Presbyterian Homes Inc.
Proj. BBB+(b) 6.00 12/01/26 3,000 3,143,700
Delaware Cnty.
Ind. Dev. Auth. Rev., Res. Rec. Facs., Ser. A Baa1 6.10 7/01/13 6,500 7,039,175
Ind. Pa. Auth. Rev., Crozer-Chester Med. Ctr., M.B.I.A. Aaa 7.15 12/15/05 2,550(d) 2,787,889
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-202

<PAGE>

Portfolio of Investments as PRUDENTIAL MUNICIPAL SERIES FUND
of August 31, 1998 PENNSYLVANIA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Hlth. Facs. Auth. Rev., Mercy Hlth. Corp. Proj. BBB+(b) 6.00% 12/15/26 $ 3,000(d) $ 3,371,100
Doylestown Hosp. Auth. Rev., Pine Run Retirement, Ser. A NR 7.20 7/01/23 3,180(d) 3,666,667
Greencastle Antrim Sch. Dist., M.B.I.A.,
Cap. Appreciation, Ser. B Aaa Zero 1/01/12 1,000 521,700
Cap. Appreciation, Ser. B Aaa Zero 1/01/13 1,000 493,390
Harrisburg Auth. Rev., Pooled Bond Prog., Ser. I, M.B.I.A. Aaa 5.625 4/01/15 2,000 2,141,340
Harrisburg, Pennsylvania, A.M.B.A.C.,
Cap. Appreciaiton, Ser. D Aaa Zero 9/15/12 1,665 839,227
Cap. Appreciation, Ser. D Aaa Zero 3/15/15 2,380 1,036,442
Cap. Appreciation, Ser. D Aaa Zero 9/15/17 1,795 686,839
Cap. Appreciation, Ser. F Aaa Zero 9/15/21 2,000 622,460
Cap. Appreciation, Ser. F Aaa Zero 9/15/22 2,000 591,440
Hazleton Hlth. Svc. Auth. Hosp. Rev., St. Joseph Med. Ctr. Baa3 6.20 7/01/26 2,355 2,530,801
Hopewell Area School District, F.S.A,
Cap. Appreciation Aaa Zero 9/01/16 2,320(e) 945,400
Cap. Appreciation Aaa Zero 9/01/17 2,175 841,638
Cap. Appreciation Aaa Zero 9/01/18 1,950 716,391
Cap. Appreciation Aaa Zero 9/01/19 2,100 733,824
Cap. Appreciation Aaa Zero 9/01/20 2,425 805,997
Cap. Appreciation Aaa Zero 9/01/23 2,000 569,940
Cap. Appreciation Aaa Zero 9/01/24 2,025 548,532
Cap. Appreciation Aaa Zero 9/01/25 1,825 469,883
Cap. Appreciation Aaa Zero 9/01/26 2,000 489,580
Cap. Appreciation Aaa Zero 9/01/27 1,550 360,716
Langhorne Manor Boro. Higher Ed. & Hlth. Auth Rev.,
Lower Bucks Hosp. Ba3 7.35 7/01/22 1,000 1,066,050
Latrobe Ind. Dev. Auth. Coll. Rev.,
St. Vincent Coll. Proj. Baa1 6.75 5/01/14 1,800 2,066,508
St. Vincent Coll. Proj. Baa1 6.75 5/01/24 1,500 1,722,090
Lehigh Cnty. Gen. Purpose Auth. Revs., Horizon Hlth. Sys.
Inc., Ser. A NR 8.25 7/01/13 500 519,550
Lower Pottsgrove Twnshp. Auth. Swr. Rev.,
Montgomery Cnty., A.M.B.A.C.,
Ser. A Aaa Zero 11/01/13 1,155 546,927
Ser. A Aaa Zero 11/01/15 1,185 500,023
Luzerne Cnty. Ind. Dev. Auth., Rev., Gas & Water, Ser. B,
A.M.T. A3 7.125 12/01/22 6,000 6,635,400
Lycoming Cnty., M.B.I.A., Aaa 5.75 11/15/17 2,500(d) 2,801,250
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-203

<PAGE>

Portfolio of Investments as PRUDENTIAL MUNICIPAL SERIES FUND
of August 31, 1998 PENNSYLVANIA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
McKeesport Area School District, M.B.I.A.,
Cap. Appreciation Aaa Zero 10/01/14 $ 2,040 $ 916,123
Cap. Appreciation Aaa Zero 10/01/15 2,040 864,409
Cap. Appreciation Aaa Zero 10/01/16 4,655 1,872,474
Cap. Appreciation Aaa Zero 10/01/18 4,655 1,686,414
Cap. Appreciation Aaa Zero 10/01/19 3,555 1,224,413
Cap. Appreciation Aaa Zero 10/01/20 3,555 1,164,049
Cap. Appreciation Aaa Zero 10/01/21 2,555 793,404
Montgomery Cnty. Higher Ed. & Hlth. Auth. Hosp. Rev.,
Jeanes Hlth. Sys. Proj. NR 8.625% 7/01/07 4,000(d) 4,413,000
Montgomery Cnty. Ind. Dev. Auth. Rev., Poll Ctrl.,
Philadelphia Elec. Co., Ser. A A.M.T. Baa2 7.60 4/01/21 1,000 1,083,250
Res. Recovery A(b) 7.50 1/01/12 2,000 2,193,020
Montgomery Cnty. Redev. Auth., Multifamily Hsg., Ser. A NR 6.50 7/01/25 1,400 1,461,712
Northampton Cnty. Higher Ed. Auth. Rev.,
Moravian Coll. AAA(b) 8.20 6/01/11 2,095(d) 2,372,315
Moravian Coll., A.M.B.A.C. Aaa 6.25 7/01/11 2,195 2,566,241
Northeastern Hosp. & Ed. Auth. Coll. Rev., Kings Coll.
Proj., Ser. B BBB(b) 6.00 7/15/18 3,235 3,397,947
Northumberland Cnty. Ind. Dev. Auth. Rev., Roaring Creek
Wtr., A.M.T. NR 6.375 10/15/23 1,000 1,039,990
Penn Hills Twnshp., Gen. Oblig., Ser A, A.M.B.A.C. Aaa Zero 6/01/10 1,535 881,167
Penn Hills, Ser. B, A.M.B.A.C. Aaa Zero 12/01/18 1,360 488,566
Pennsylvania Convention Ctr. Auth. Rev., Ser. A, F.G.I.C. Aaa 6.00 9/01/19 5,445 6,234,144
Pennsylvania Econ. Dev. Auth.,
Macmillan Ltd. Partnership Proj., A.M.T. Baa2 7.60 12/01/20 3,000 3,331,410
Wst. Wtr. Treatment Rev., Sun Co. R & M Proj., Ser. A,
A.M.T. Baa3 7.60 12/01/24 4,500 5,275,890
Pennsylvania Hsg. Fin. Agcy.,
Sngl. Fam. Mtge., A.M.T. Aa 7.80 10/01/20 2,375(e) 2,485,794
Sngl. Fam. Mtge., A.M.T., R.I.B.S., S.F.M.R. Aa 8.293(c) 4/01/25 2,100(d) 2,312,625
Pennsylvania St. Cert. of Part., Ser. A, F.S.A. Aaa 6.25 11/01/06 1,900 2,061,747
Pennsylvania St. Higher Edl. Facs. Auth. Rev.,
Allegheny Coll., Ser. B BBB+(b) 6.00 11/01/22 2,000 2,216,820
Ursinus College BBB+(b) 5.90 1/01/27 1,925 2,028,373
Philadelphia Gas Wks. Rev.,
13th Ser. Baa1 7.70 6/15/11 215(d) 240,417
13th Ser. Aaa 7.70 6/15/21 3,430(d) 3,844,241
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-204

<PAGE>

Portfolio of Investments as PRUDENTIAL MUNICIPAL SERIES FUND
of August 31, 1998 PENNSYLVANIA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Philadelphia Hosps. & Higher Ed. Fac. Auth. Rev.,
Childrens' Seashore House, Ser. B A(b) 7.00% 8/15/12 $ 500 $ 550,140
Childrens' Seashore House, Ser. A A(b) 7.00 8/15/12 1,000 1,101,050
Childrens' Seashore House, Ser. A A(b) 7.00 8/15/17 1,000 1,099,140
Grad. Hlth. Sys. Caa3 7.25 7/01/18 2,730 1,365,000
Philadelphia Ind. Dev. Auth. Rev.,
Baptist Home of Phil Ser. A NR 5.60 11/15/28 2,750 2,727,945
Inst. For Cancer Res. Proj., Ser. B A+(b) 7.25 7/01/10 5,770 6,188,440
Nat'l. Brd. of Med. Examiners Proj. A+(b) 6.75 5/01/12 5,000(e) 5,491,800
Pittsburgh Urban Redev. Auth., Mtge. Rev.,
Ser. 87B Aa2 8.30 4/01/17 795 812,307
Ser. A, A.M.T. Aa2 6.25 10/01/28 1,250 1,330,587
Ser. C, A.M.T. Aa2 6.55 4/01/28 1,635 1,752,655
Pittsburgh Wtr. & Swr. Auth., F.G.I.C.
First Lien, Ser. B Aaa Zero 9/01/19 2,300 795,524
First Lien, Ser. B Aaa Zero 9/01/20 2,300 756,309
Wtr. & Swr., Sys. Rev., Ser. A Aaa 6.50 9/01/13 5,000(e) 6,003,050
Puerto Rico Comnwlth.,
Cap. Appreciaiton Pub. Impvt. Baa1 Zero 7/01/16 2,500 1,041,650
Cap. Appreciation Pub. Impvt. Baa1 Zero 7/01/14 1,000 463,930
Gen. Oblig., A.M.B.A.C. Aaa 7.00 7/01/10 4,030(e) 4,992,404
Hwy. & Trans. Auth. Rev., Ser. Y Baa1 6.25 7/01/14 1,000 1,164,320
Pub. Impvt. AAA(b) 7.70 7/01/20 5,250(d)(e) 5,724,600
Pub. Impvt. Rfdg., M.B.I.A. Aaa 7.00 7/01/10 720 891,943
Puerto Rico Port Auth. Rev., Spl. Facs. Amer. Airlines,
Ser. A., A.M.T. Baa3 6.25 6/01/26 1,475 1,603,782
Schuylkill Cnty. Ind. Dev. Auth., Res. Rec. Rev.,
Schuykill Engy., A.M.T. NR 6.50 1/01/10 3,605 3,623,025
Scranton-Lackawanna Hlth. & Welfare Auth. Rev.,
Univ. of Scranton Proj., Ser. C NR 7.50 6/15/06 1,000(d) 1,082,790
Univ. of Scranton Proj., Ser. C NR 6.50 3/01/15 2,250(d) 2,477,430
Unity Twnshp. Mun. Auth., Gtd. Swr. Rev., A.M.B.A.C.,
Cap. Appreciation Aaa Zero 11/01/11 1,035 549,999
Cap. Appreciation Aaa Zero 11/01/12 1,035 518,442
Cap. Appreciation Aaa Zero 11/01/13 1,035 490,103
Virgin Islands Pub. Fin. Auth. Rev.,
Hwy. Trans. Trust Fund AAA(b) 7.70 10/01/04 1,000(d) 1,063,760
Ref. Matching Loan Notes, Ser. A NR 7.25 10/01/18 1,950(d) 2,233,199
Virgin Islands Terr., Hugo Ins. Claims Fund Proj., Ser. 91 NR 7.75 10/01/06 875(d) 962,666
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-205

<PAGE>

Geisinger Auth. Hlth. Sys. Rev., Ser. 98-B, F.R.D.D. VMIG1 3.35 9/01/98 1,900 1,900,000
------------
Total short-term investments (cost $1,900,000) 1,900,000
------------
Total Investments--99.0%
(cost $ 194,718,872; Note 4) 214,342,662
Other assets in excess of liabilities--1.0% 2,242,447
------------
Net Assets--100% $216,585,109
------------
------------
</TABLE>
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance Corporation.
A.M.T.--Alternative Minimum Tax.
F.G.I.C.--Financial Guaranty Insurance Company.
F.R.D.D.--Floating Rate (Daily) Demand Note(f).
F.S.A.--Financial Security Assurance.
G.N.M.A.--Government National Mortgage Association.
M.B.I.A.--Municipal Bond Insurance Association.
R.I.B.S.--Residual Interest Bonds.
S.F.M.R.--Single Family Mortgage Revenue.
(b) Standard & Poor's Rating.
(c) Inverse floating rate bond. The coupon is inversely indexed to a floating
interest rate. The rate shown is the rate at year-end.
(d) Prerefunded issues are secured by escrowed cash and/or direct U.S.
guaranteed obligations.
(e) All or partial principal amount pledged as collateral for futures contracts.
(f) For purposes of amortized cost valuation, the maturity date of Floating Rate
Demand Notes is considered to be the later of the next date on which the
security can be redeemed at par, or the next date on which the rate of
interest is adjusted.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a description of
Moody's and Standard & Poor's ratings.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-206

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Statement of Assets and Liabilities PENNSYLVANIA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets August 31, 1998
<S> <C>
Investments, at value (cost $194,718,872)................................................................. $ 214,342,662
Cash...................................................................................................... 170,499
Interest receivable....................................................................................... 2,786,180
Receivable for Series shares sold......................................................................... 52,336
Due from broker-variation margin.......................................................................... 21,875
Other assets.............................................................................................. 5,763
---------------
Total assets........................................................................................... 217,379,315
---------------
Liabilities
Payable for Series shares reacquired...................................................................... 277,474
Accrued expenses.......................................................................................... 193,187
Dividends payable......................................................................................... 169,508
Management fee payable.................................................................................... 91,361
Distribution fee payable.................................................................................. 58,549
Deferred trustee's fees................................................................................... 4,127
---------------
Total liabilities...................................................................................... 794,206
---------------
Net Assets................................................................................................ $ 216,585,109
---------------
---------------
Net assets were comprised of:
Shares of beneficial interest, at par.................................................................. $ 198,336
Paid-in capital in excess of par....................................................................... 195,694,837
---------------
195,893,173
Accumulated net realized gain on investments........................................................... 873,771
Net unrealized appreciation on investments............................................................. 19,818,165
---------------
Net assets, August 31, 1998............................................................................... $ 216,585,109
---------------
---------------
Class A:
Net asset value and redemption price per share
($97,794,285 DIVIDED BY 8,954,448 shares of beneficial interest issued and outstanding)............. $10.92
Maximum sales charge (3% of offering price)............................................................ .34
---------------
Maximum offering price to public....................................................................... $11.26
---------------
---------------
Class B:
Net asset value, offering price and redemption price per share
($117,677,955 DIVIDED BY 10,777,224 shares of beneficial interest issued and outstanding)........... $10.92
---------------
---------------
Class C:
Net asset value, offering price and redemption price per share
($1,112,869 DIVIDED BY 101,919 shares of beneficial interest issued and outstanding)................ $10.92
---------------
---------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-207

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
PENNSYLVANIA SERIES
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income August 31, 1998
<S> <C>
Income
Interest................................. $13,396,073
---------------
Expenses
Management fee........................... 1,110,102
Distribution fee--Class A................ 96,053
Distribution fee--Class B................ 626,532
Distribution fee--Class C................ 4,956
Transfer agent's fees and expenses....... 160,000
Custodian's fees and expenses............ 108,000
Reports to shareholders.................. 40,000
Registration fees........................ 37,000
Legal fees and expenses.................. 12,000
Audit fee and expenses................... 10,000
Trustees' fees and expenses.............. 4,000
Miscellaneous............................ 4,629
---------------
Total expenses........................ 2,213,272
Less: Custodian fee credit............... (4,338)
---------------
Net expenses.......................... 2,208,934
---------------
Net investment income....................... 11,187,139
---------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions.................. 1,833,030
Financial futures contract............... (716,142)
---------------
1,116,888
---------------
Net change in unrealized appreciation on:
Investments.............................. 2,993,815
Financial futures contracts.............. 338,750
---------------
3,332,565
---------------
Net gain on investments..................... 4,449,453
---------------
Net Increase in Net Assets
Resulting from Operations................... $15,636,592
---------------
---------------
</TABLE>

PRUDENTIAL MUNICIPAL SERIES FUND
PENNSYLVANIA SERIES
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended August 31,
in Net Assets 1998 1997
<S> <C> <C>
Operations
Net investment income.......... $ 11,187,139 $ 12,433,108
Net realized gain on investment
transactions................ 1,116,888 933,160
Net change in unrealized
appreciation (depreciation)
of investments.............. 3,332,565 6,293,940
------------ ------------
Net increase in net assets
resulting from operations... 15,636,592 19,660,208
------------ ------------
Dividends and distributions (Note
1):
Dividends from net investment
income
Class A..................... (5,055,953) (4,680,534)
Class B..................... (6,100,803) (7,719,049)
Class C..................... (30,383) (33,525)
------------ ------------
(11,187,139) (12,433,108)
------------ ------------
Distributions in excess of net
investment income
Class A..................... (8,885) (15,732)
Class B..................... (11,724) (28,644)
Class C..................... (47) (156)
------------ ------------
(20,656) (44,532)
------------ ------------
Distributions from net realized
gains
Class A..................... (158,157) (715,794)
Class B..................... (208,682) (1,303,296)
Class C..................... (838) (7,128)
------------ ------------
(367,677) (2,026,218)
------------ ------------
Series share transactions (net of
share conversions) (Note 5):
Net proceeds from shares
sold........................ 15,088,301 9,187,094
Net asset value of shares
issued in reinvestment of
dividends and
distributions............... 6,380,444 8,124,772
Cost of shares reacquired...... (34,295,335) (35,414,489)
------------ ------------
Net decrease in net assets from
Series share transactions... (12,826,590) (18,102,623)
------------ ------------
Total decrease.................... (8,765,470) (12,946,273)
Net Assets
Beginning of year................. 225,350,579 238,296,852
------------ ------------
End of year....................... $216,585,109 $225,350,579
------------ ------------
------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-208

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements PENNSYLVANIA SERIES
- --------------------------------------------------------------------------------
Prudential Municipal Series Fund (the "Fund") is registered under the Investment
Company Act of 1940 as an open-end investment company. The Fund was organized as
a Massachusetts business trust on May 18, 1984 and consists of 13 series. The
monies of each series are invested in separate, independently managed
portfolios. The Pennsylvania Series (the "Series") commenced investment
operations on April 3, 1987. The Series is diversified and seeks to achieve its
investment objective of obtaining the maximum amount of income exempt from
federal and applicable state income taxes with the minimum of risk by investing
in "investment grade" tax-exempt securities whose ratings are within the four
highest ratings categories by a nationally recognized statistical rating
organization or, if not rated, are of comparable quality. The ability of the
issuers of the securities held by the Series to meet their obligations may be
affected by economic or political developments in a specific state, industry or
region.

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

Note 1. Accounting Policies

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

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

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

Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of debt securities at a set
price for delivery on a future date. Upon entering into a financial futures
contract, the Series is required to pledge to the broker an amount of cash
and/or other assets equal to a certain percentage of the contract amount. This
amount is known as the "initial margin." Subsequent payments, known as
"variation margin," are made or received by the Series each day, depending on
the daily fluctuations in the value of the underlying security. Such variation
margin is recorded for financial statement purposes on a daily basis as
unrealized gain or loss. When the contract expires or is closed, the gain or
loss is realized and is presented in the statement of operations as net realized
gain (loss) on financial futures. The Series invests in financial futures
contracts in order to hedge its existing portfolio securities or securities the
Series intends to purchase against fluctuations in value caused by changes in
prevailing interest rates. Should interest rates move unexpectedly, the Series
may not achieve the anticipated benefits of the financial futures contracts and
may realize a loss. The use of futures transactions involves the risk of
imperfect correlation in movements in the price of futures contracts, interest
rates and the underlying hedged assets.

Securities Transactions and Net Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis. The Series amortizes premiums and original issue discount paid on
purchases of portfolio securities as adjustments to interest income. Expenses
are recorded on the accrual basis which may require the use of certain estimates
by management.

Reclassification of Capital Accounts: The Fund accounts and reports for
distributions to shareholders in accordance with Statement of Position 93-2:
Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies. The
effect of applying this statement was to decrease accumualted realized gains by
$20,656 and increase undistributed net investment income by $20,656. This
current year effect of applying the Statement of Position was due to the sale of
securities purchased with market discount. Net investment income, net realized
gains and net assets were not affected by this change.

Federal Income Taxes: For federal income tax purposes, each series in the Fund
is treated as a separate taxpaying entity. It is the intent of the Series to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its net income to
shareholders. For this reason no federal income tax provision is required.

Dividends and Distributions: The Series declares daily dividends from net
investment income. Payment of dividends are made monthly. Distributions of net
capital gains, if any, are made annually. Income distributions and capital gain
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles.
- --------------------------------------------------------------------------------
B-209

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements PENNSYLVANIA SERIES
- --------------------------------------------------------------------------------
Custody Fee Credits: The Series has an arrangement with its custodian bank,
whereby uninvested monies earn credits which reduce the fees charged by the
custodian.

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

Note 2. Agreements

The Fund has a management agreement with Prudential Investments Fund Management
LLC ("PIFM"). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PIFM has entered into a subadvisory agreement with The Prudential
Investment Corporation ("PIC"); PIC furnishes investment advisory services in
connection with the management of the Fund. PIFM pays for the cost of the
subadviser's services, the compensation of officers of the Fund, occupancy and
certain clerical and bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.

The management fee paid PIFM is computed daily and payable monthly, at an annual
rate of .50 of 1% of the average daily net assets of the Series.

The Fund had a distribution agreement with Prudential Securities Incorporated
("PSI"), which acted as the distributor of the Class A, Class B and Class C
shares of the Fund through May 31, 1998. Prudential Investment Management
Services LLC ("PIMS") became the distributor of the Fund effective June 1, 1998
and is serving the Fund under the same terms and conditions as under the
arrangement with PSI. The Fund compensated PSI and PIMS for distributing and
servicing the Fund's Class A, Class B and Class C shares pursuant to plans of
distribution, (the "Class A, B and C Plans"), regardless of expenses actually
incurred by them. The distribution fees are accrued daily and payable monthly.

Pursuant to the Class A, B and C Plans, the Fund compensates PIMS for
distribution-related activities at an annual rate of up to .30 of 1%, .50 of 1%
and 1%, of the average daily net assets of the Class A, B and C shares,
respectively. Such expenses under the Plans were .10 of 1%, .50 of 1% and .75 of
1% of the average daily net assets of the Class A, B and C shares, respectively,
for the year ended August 31, 1998.

PSI and PIMS have advised the Series that they have received approximately
$33,300 in front-end sales charges resulting from sales of Class A shares during
the year ended August 31, 1998. From these fees, PSI paid such sales charges to
affiliated broker-dealers, which in turn paid commissions to salespersons and
incurred other distribution costs.

PSI and PIMS have advised the Series that for the year ended August 31, 1998,
they received approximately $116,600 and $100 in contingent deferred sales
charges imposed upon certain redemptions by Class B and Class C shareholders,
respectively.

PSI, PIFM, PIC and PIMS are indirect, wholly owned subsidiaries of The
Prudential Insurance Company of America.

The Series, along with other affiliated registered investment companies (the
"Funds"), has a credit agreement (the "Agreement") with an unaffiliated lender.
The maximum commitment under the Agreement is $200,000,000. Interest on any such
borrowings outstanding will be at market rates. The purpose of the Agreement is
to serve as an alternative source of funding for capital share redemptions. The
Series did not borrowed any amounts pursuant to the Agreement during the year
ended August 31, 1998. The Funds pay a commitment fee at an annual rate of .055
of 1% on the unused portion of the credit facility. The commitment fee is
accrued and paid quarterly on a pro rata basis by the Funds. The Agreement
expired on December 30, 1997 and has been extended through December 29, 1998
under the same terms.

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

Note 3. Other Transactions with Affiliates

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

Note 4. Portfolio Securities

Purchases and sales of portfolio securities of the Series, excluding short-term
investments, for the year ended August 31, 1998 were $28,700,987 and
$46,760,538, respectively.

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements PENNSYLVANIA SERIES
- --------------------------------------------------------------------------------
During the year ended August 31, 1998, the Series entered into financial futures
contracts. Details of open contracts at August 31, 1998 are as follows:

<TABLE>
<CAPTION>
Value at Value at Unrealized
Number of Expiration August 31, Trade Appreciation/
Contracts Type Date 1998 Date (Depreciation)
- -------------- ---------- ---------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Short Positions:
Muni Bond
80 Index Sep.-98 $10,130,000 $ 9,927,500 $ (202,500)
Long Positions:
U.S.
100 T-Bond Sep.-98 12,712,500 12,315,625 396,875
--------------
$ 194,375
--------------
--------------
</TABLE>
- ------------------------------------------------------------

Note 5. Capital

The Series offers Class A, Class B and Class C shares. Class A shares are sold
with a front-end sales charge of up to 3%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class C shares are sold with a contingent
deferred sales charge of 1% during the first year. Class B shares will
automatically convert to Class A shares on a quarterly basis approximately seven
years after purchase. A special exchange privilege is also available for
shareholders who qualify to purchase Class A shares at net asset value.

The Fund has authorized an unlimited number of shares of beneficial interest of
each class at $.01 par value per share. Transactions in shares of beneficial
interest for the years ended August 31, 1998 and August 31, 1997 were as
follows:

<TABLE>
<CAPTION>
Class A Shares Amount
- ----------------------------------- ---------- ------------
<S> <C> <C>
Year ended August 31, 1998:
Shares sold........................ 416,559 $ 4,546,500
Shares issued in reinvestment of
dividends and distributions...... 266,840 2,899,562
Shares reacquired.................. (1,230,000) (13,368,779)
---------- ------------
Net decrease in shares outstanding
before conversion................ (546,601) (5,922,717)
Shares issued upon conversion from
Class B.......................... 1,146,331 12,438,073
---------- ------------
Net increase in shares
outstanding...................... 599,730 $ 6,515,356
---------- ------------
---------- ------------
<CAPTION>
Class A Shares Amount
- ----------------------------------- ---------- ------------
<S> <C> <C>
Year ended August 31, 1997:
Shares sold........................ 167,322 $ 1,775,448
Shares issued in reinvestment of
dividends........................ 285,955 3,031,398
Shares reacquired.................. (1,233,370) (13,076,827)
---------- ------------
Net decrease in shares outstanding
before conversion................ (780,093) (8,269,981)
Shares issued upon conversion from
Class B.......................... 2,492,966 26,425,708
---------- ------------
Net increase in shares
outstanding...................... 1,712,873 $ 18,155,727
---------- ------------
---------- ------------
<CAPTION>
Class B
- -----------------------------------
<S> <C> <C>
Year ended August 31, 1998:
Shares sold........................ 902,330 $ 9,804,975
Shares issued in reinvestment of
dividends and distributions...... 318,330 3,458,567
Shares reacquired.................. (1,912,585) (20,801,181)
---------- ------------
Net decrease in shares outstanding
before conversion................ (691,925) (7,537,639)
Shares issued upon conversion from
Class B.......................... (1,146,539) (12,438,073)
---------- ------------
Net decrease in shares
outstanding...................... (1,838,464) $(19,975,712)
---------- ------------
---------- ------------
Year ended August 31, 1997:
Shares sold........................ 681,050 $ 7,225,041
Shares issued in reinvestment of
dividends........................ 479,073 5,075,287
Shares reacquired.................. (2,053,546) (21,766,442)
---------- ------------
Net decrease in shares outstanding
before conversion................ (893,423) (9,466,114)
Shares reacquired upon conversion
into Class A..................... (2,493,991) (26,425,708)
---------- ------------
Net decrease in shares
outstanding...................... (3,387,414) $(35,891,822)
---------- ------------
---------- ------------
<CAPTION>
Class C
- -----------------------------------
<S> <C> <C>
Year ended August 31, 1998:
Shares sold........................ 67,393 $ 736,826
Shares issued in reinvestment of
dividends and distributions...... 2,054 22,315
Shares reacquired.................. (11,448) (125,375)
---------- ------------
Net increase in shares
outstanding...................... 57,999 $ 633,766
---------- ------------
---------- ------------
Year ended August 31, 1997:
Shares sold........................ 17,452 $ 186,605
Shares issued in reinvestment of
dividends........................ 1,707 18,087
Shares reacquired.................. (54,291) (571,220)
---------- ------------
Net decrease in shares
outstanding...................... (35,132) $ (366,528)
---------- ------------
---------- ------------
</TABLE>
- --------------------------------------------------------------------------------
B-211
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights PENNSYLVANIA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
------------------------------------------------------------
Year Ended August 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year................................. $ 10.73 $ 10.49 $ 10.55 $ 10.42 $ 11.21
------ ------- ------- ------- -------
Income from investment operations
Net investment income.............................................. .57 .59(a) .59(a) .60(a) .59
Net realized and unrealized gain (loss) on investment
transactions.................................................... .21 .33 (.06) .13 (.68)
------ ------- ------- ------- -------
Total from investment operations................................ .78 .92 .53 .73 (.09)
------ ------- ------- ------- -------
Less distributions
Dividends from net investment income............................... (.57) (.59) (.59) (.60) (.59)
Distributions in excess of net investment income................... --(c) --(c) -- -- --
Distributions from net realized gains.............................. (.02) (.09) -- -- (.11)
------ ------- ------- ------- -------
Total distributions............................................. (.59) (.68) (.59) (.60) (.70)
------ ------- ------- ------- -------
Net asset value, end of year....................................... $ 10.92 $ 10.73 $ 10.49 $ 10.55 $ 10.42
------ ------- ------- ------- -------
------ ------- ------- ------- -------
TOTAL RETURN(b):................................................... 7.55% 9.01% 5.08% 7.35% (.82)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)...................................... $ 97,794 $89,604 $69,659 $50,696 $10,651
Average net assets (000)........................................... $ 96,053 $83,552 $59,995 $30,092 $10,315
Ratios to average net assets:
Expenses, including distribution fees........................... .77% .72%(a) .75%(a) .80%(a) .75%
Expenses, excluding distribution fees........................... .67% .62%(a) .65%(a) .70%(a) .65%
Net investment income........................................... 5.26% 5.60%(a) 5.56%(a) 5.76%(a) 5.52%
For Class A, B and C shares:
Portfolio turnover rate......................................... 13% 21% 26% 19% 22%
</TABLE>
- ---------------
(a) Net of management fee waiver.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each year reported and includes reinvestment of dividends and
distributions.
(c) Less than $.005 per share.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-212

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights PENNSYLVANIA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
------------------------------------------------------------
Year Ended August 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year................................. $ 10.72 $ 10.49 $ 10.55 $ 10.42 $ 11.21
-------- -------- -------- -------- --------
Income from investment operations
Net investment income.............................................. .53 .55(a) .55(a) .56(a) .55
Net realized and unrealized gain (loss) on investment
transactions.................................................... .22 .32 (.06) .13 (.68)
-------- -------- -------- -------- --------
Total from investment operations................................ .75 .87 .49 .69 (.13)
-------- -------- -------- -------- --------
Less distributions
Dividends from net investment income............................... (.53) (.55) (.55) (.56) (.55)
Distributions in excess of net investment income................... --(c) --(c) -- -- --
Distributions from net realized gains.............................. (.02) (.09) -- -- (.11)
-------- -------- -------- -------- --------
Total distributions............................................. (.55) (.64) (.55) (.56) (.66)
-------- -------- -------- -------- --------
Net asset value, end of year....................................... $ 10.92 $ 10.72 $ 10.49 $ 10.55 $ 10.42
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN(b):................................................... 7.13% 8.58% 4.66% 6.92% (1.22)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)...................................... $117,678 $135,275 $167,809 $202,633 $257,732
Average net assets (000)........................................... $125,306 $148,394 $189,902 $223,082 $266,594
Ratios to average net assets:
Expenses, including distribution fees........................... 1.17% 1.12%(a) 1.15%(a) 1.17%(a) 1.15%
Expenses, excluding distribution fees........................... .67% .62%(a) .65%(a) .67%(a) .65%
Net investment income........................................... 4.87% 5.20%(a) 5.16%(a) 5.44%(a) 5.11%
</TABLE>
- ---------------
(a) Net of management fee waiver.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each year reported and includes reinvestment of dividends and
distributions.
(c) Less than $.005 per share.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-213

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights PENNSYLVANIA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
------------------------------------------------------
August 1,
1994(d)
Year Ended August 31, Through
--------------------------------------- August 31,
1998 1997 1996 1995 1994
------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............................... $10.72 $10.49 $10.55 $10.42 $10.44
------ ------ ------ ------ -----
Income from investment operations
Net investment income.............................................. .50 .52(a) .52(a) .53(a) .04
Net realized and unrealized gain (loss) on investment
transactions.................................................... .22 .32 (.06) .13 (.02)
------ ------ ------ ------ -----
Total from investment operations................................ .72 .84 .46 .66 .02
------ ------ ------ ------ -----
Less distributions
Dividends from net investment income............................... (.50) (.52) (.52) (.53) (.04)
Distributions in excess of net investment income................... --(c) --(c) -- -- --
Distributions from net realized gains.............................. (.02) (.09) -- -- --
------ ------ ------ ------ -----
Total distributions............................................. (.52) (.61) (.52) (.53) (.04)
------ ------ ------ ------ -----
Net asset value, end of period..................................... $10.92 $10.72 $10.49 $10.55 $10.42
------ ------ ------ ------ -----
------ ------ ------ ------ -----
TOTAL RETURN(b):................................................... 6.86% 8.31% 4.41% 6.65% .14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).................................... $1,113 $ 471 $ 829 $ 336 $ 90
Average net assets (000)........................................... $ 661 $ 678 $ 704 $ 223 $ 1
Ratios to average net assets:
Expenses, including distribution fees........................... 1.42% 1.37%(a) 1.40%(a) 1.44%(a) 2.00%(e)
Expenses, excluding distribution fees........................... .67% .62%(a) .65%(a) .69%(a) 1.25%(e)
Net investment income........................................... 4.60% 4.95%(a) 4.91%(a) 5.14%(a) 8.51%(e)
</TABLE>
- ---------------
(a) Net of management fee waiver.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(c) Less than $.005 per share.
(d) Commencement of offering of Class C shares.
(e) Annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-214

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Report of Independent Accountants PENNSYLVANIA SERIES
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
Prudential Municipal Series Fund, Pennsylvania Series

In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Municipal Series Fund,
Pennsylvania Series (the "Fund", one of the portfolios constituting Prudential
Municipal Series Fund) at August 31, 1998, the results of its operations for the
year then ended and the changes in its net assets and the financial highlights
for each of the two years in the period then ended, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at August 31, 1998 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above. The accompanying financial highlights for each of the three
years in the period ended August 31, 1996 were audited by other independent
accountants, whose opinion dated October 14, 1996 was unqualified.

PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
October 21, 1998

Federal Income Tax Information PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) PENNSYLVANIA SERIES
- --------------------------------------------------------------------------------
We are required by the Internal Revenue Code to advise you within 60 days of the
Series' fiscal year end (August 31, 1998) as to the federal tax status of
dividends paid by the Series during such fiscal year. Accordingly, we are
advising you that in the fiscal year ended August 31, 1998, dividends paid from
net investment income of $.57 per share for Class A shares, $.53 per Class B
share and $.50 per Class C share were all federally tax-exempt interest
dividends. In addition, the Series paid to Class A, B, and C shares a special
taxable income distribution of $.001 and a short-term capital gain distribution
of $.0059 which are taxable as ordinary income and a long-term capital gain
distribution of $.0119, of which $.0062 is taxed at 20% and $.0057 is taxed at
28%.

<PAGE>
APPENDIX I--GENERAL INVESTMENT INFORMATION

The following terms are used in mutual fund investing.

ASSET ALLOCATION

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

DIVERSIFICATION

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

DURATION

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

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

MARKET TIMING

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

POWER OF COMPOUNDING

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

STANDARD DEVIATION

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

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

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

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

[CHART]

EACH INVESTMENT PROVIDES A DIFFERENT OPPORTUNITY
(Value of $1 invested on 12/31/25)

SMALL STOCKS -- $3,822
COMMON STOCKS -- $1,114
LONG-TERM BONDS -- $34
TREASURY BILLS -- $13
INFLATION -- $9

Source: Stocks, Bonds, Bills and Inflation 1998 Yearbook, Ibbotson Associates,
Chicago, Illinois (annually updates work by Roger G. Ibbotson and Rex A.
Sinquefield. Used with permission. This chart is for illustrative purposes only
and is not indicative of the past, present, or future performance of any asset
class or any Prudential Mutual Fund.

Generally, stock returns are due to capital appreciation and the reinvestment of
any gains. Bond returns are due mainly to reinvesting interest. Also, stock
prices are usually more volatile than bond prices over the long-term.

Small stock returns for 1926-1989 are those of stocks comprising the 5th
quintile of the New York Stock Exchange. Thereafter, returns are those of the
Dimensional Fund Advisors (DFA) Small Company Fund. Common stock returns are
based on the S&P Composite Index, a market-weighted, unmanaged index of 500
stocks (currently) in a variety of industries. It is often used as a broad
measure of stock market performance.

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

IMPACT OF INFLATION. The "real" rate of investment return is that which exceeds
the rate of inflation, the percentage change in the value of consumer goods and
the general cost of living. A common goal of long-term investors is to outpace
the erosive impact of inflation on investment returns.

II-1
<PAGE>
Set forth below is historical performance data relating to various sectors of
the fixed-income securities markets. The chart shows the historical total
returns of U.S. Treasury bonds, U.S. mortgage securities, U.S. corporate bonds,
U.S. high yield bonds and world government bonds on an annual basis from 1987
through 1995. The total returns of the indices include accrued interest, plus
the price changes (gains or losses) of the underlying securities during the
period mentioned. The data is provided to illustrate the varying historical
total returns and investors should not consider this performance data as an
indication of the future performance of the Fund or of any sector in which the
Fund invests.

All information relies on data obtained from statistical services, reports
and other services believed by the Manager to be reliable. Such information has
not been verified. The figures do not reflect the operating expenses and fees of
a mutual fund. See "Fund Expenses" in each Prospectus. The net effect of the
deduction of the operating expenses of a mutual fund on these historical total
returns, including the compounded effect over time, could be substantial.

HISTORICAL TOTAL RETURNS OF DIFFERENT BOND MARKET SECTORS
<TABLE>
<CAPTION>
'87 '88 '89 '90 '91 '92 '93 '94 '95 '96
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT
TREASURY
BONDS(1) 2.0% 7.0% 14.4% 8.5% 15.3% 7.2% 10.7% (3.4)% 18.4% 2.7%
- ----------------------------------------------------------------------------------------------------------------------------
U. S. GOVERNMENT
MORTGAGE
SECURITIES(2) 4.3% 8.7% 15.4% 10.7% 15.7% 7.0% 6.8% (1.6)% 16.8% 5.4%
- ----------------------------------------------------------------------------------------------------------------------------
U.S. INVESTMENT GRADE
CORPORATE
BONDS(3) 2.6% 9.2% 14.1% 7.1% 18.5% 8.7% 12.2% (3.9)% 22.3% 3.3%
- ----------------------------------------------------------------------------------------------------------------------------
U.S.
HIGH YIELD
CORPORATE
BONDS(4) 5.0% 12.5% 0.8% (9.6)% 46.2% 15.8% 17.1% (1.0)% 19.2% 11.4%
- ----------------------------------------------------------------------------------------------------------------------------
WORLD
GOVERNMENT
BONDS(5) 35.2% 2.3% (3.4)% 15.3% 16.2% 4.8% 15.1% 6.0% 19.6% 4.1%
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
DIFFERENCE BETWEEN HIGHEST AND
LOWEST RETURN PERCENT 33.2 10.2 18.8 24.9 30.9 11.0 10.3 9.9 5.5 8.7

<CAPTION>
'97
- -----------------------------------
<S> <C>
U.S. GOVERNMENT
TREASURY
BONDS(1) 9.6%
- -----------------------------------
U. S. GOVERNMENT
MORTGAGE
SECURITIES(2) 9.5%
- -----------------------------------
U.S. INVESTMENT GRADE
CORPORATE
BONDS(3) 10.2%
- -----------------------------------
U.S.
HIGH YIELD
CORPORATE
BONDS(4) 12.8%
- -----------------------------------
WORLD
GOVERNMENT
BONDS(5) (4.3)%
- -----------------------------------
- -----------------------------------
DIFFERENCE BETWEEN HIGHEST AND
LOWEST RETURN PERCENT 17.1%
</TABLE>

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

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

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

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

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

II-2
<PAGE>
This chart below shows the historical volatility of general interest rates
as measured by the long U.S. Treasury Bond.

[CHART]

- ------------------------
Source: Stocks, Bonds, Bills, and Inflation 1998 Yearbook, Ibbotson Associates,
Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield).
Used with permission. All rights reserved. The chart illustrates the historical
yield of a long-term U.S. Treasury Bond from 1926-1997. Yield represents that of
an annually renewed one-bond portfolio with a remaining maturity of
approximately 20 years. This chart is for illustrative purposes and should not
be construed to represent the yields of any Prudential Mutual Fund.

II-3
<PAGE>
APPENDIX III--INFORMATION RELATING TO PRUDENTIAL

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

INFORMATION ABOUT PRUDENTIAL

The Manager and PIC(1) are subsidiaries of Prudential, which is one of the
largest diversified financial services institutions in the world and, based on
total assets, the largest insurance company in North America as of December 31,
1997. Prudential (together with its subsidiaries) employs almost 79,000 persons
worldwide, and maintains a sales force of approximately 10,100 agents and nearly
6,500 financial advisors. Prudential is a major issuer of annuities, including
variable annuities. Prudential seeks to develop innovative products and services
to meet consumer needs in each of its business areas. Prudential uses the rock
of Gibraltar as its symbol. The Prudential rock is a recognized brand name
throughout the world.

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

MONEY MANAGEMENT. Prudential is one of the largest pension fund managers in
the country, providing pension services to 1 in 3 Fortune 500 firms. It manages
$36 billion of individual retirement plan assets, such as 401(k) plans. As of
December 31, 1997, Prudential had more than $370 billion in assets under
management. Prudential Investments, a business group of Prudential (of which
Prudential Mutual Funds is a key part) manages over $211 billion in assets of
institutions and individuals. In the PENSIONS & INVESTMENTS dated May 12, 1997,
Prudential was ranked third in terms of total assets under management.

REAL ESTATE. The Prudential Real Estate Affiliates, the fourth largest real
estate brokerage network in the United States, has more than 37,000 brokers and
agents and more than 1,100 offices throughout the United States.(2)

HEALTHCARE. Over two decades ago, the Prudential introduced the first
federally-funded, for-profit HMO in the country. Today, approximately 4.9
million Americans receive healthcare from a Prudential managed care membership.

FINANCIAL SERVICES. The Prudential Bank, a wholly-owned subsidiary of
Prudential, has over $4 billion in assets and serves nearly 1.5 million
customers across 50 states.

INFORMATION ABOUT THE PRUDENTIAL MUTUAL FUNDS

As of December 31, 1997 Prudential Investments Fund Management is the
eighteenth largest mutual fund company in the country, with over 2.5 million
shareholders invested in more than 50 mutual fund portfolios and variable
annuities with more than 3.7 million shareholder accounts.

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

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

(2) As of December 31, 1996.

III-1
<PAGE>
From time to time, there may be media coverage of portfolio managers and
other investment professionals associated with the Manager and the Subadviser in
national and regional publications, on television and in other media.
Additionally, individual mutual fund portfolios are frequently cited in surveys
conducted by national and regional publications and media organizations such as
THE WALL STREET JOURNAL, THE NEW YORK TIMES, BARRON'S and USA TODAY.

EQUITY FUNDS. FORBES magazine listed Prudential Equity Fund among twenty
mutual funds on its Honor Roll in its mutual fund issue of August 28, 1995.
Honorees are chosen annually among mutual funds (excluding sector funds) which
are open to new investors and have had the same management for at least five
years. Forbes considers, among other criteria, the total return of a mutual fund
in both bull and bear markets as well as a fund's risk profile. Prudential
Equity Fund is managed with a "value" investment style by PIC. In 1995,
Prudential Securities introduced Prudential Jennison Fund, a growth-style equity
fund managed by Jennison Associates Capital Corp., a premier institutional
equity manager and a subsidiary of Prudential.

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

Prudential's portfolio managers are supported by a large and sophisticated
research organization. Fourteen investment grade bond analysts monitor the
financial viability of approximately 1,750 different bond issuers in the
investment grade corporate and municipal bond markets--from IBM to small
municipalities, such as Rockaway Township, New Jersey. These analysts consider
among other things sinking fund provisions and interest coverage ratios.

Prudential's portfolio managers and analysts receive research services from
almost 200 brokers and market service vendors. They also receive nearly 100
trade publications and newspapers--from Pulp and Paper Forecaster to Women's
Wear Daily--to keep them informed of the industries they follow.

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

Prudential Mutual Funds trade approximately $31 billion in U.S. and foreign
government securities a year. PIC seeks information from government policy
makers. In 1995, Prudential's portfolio managers met with several senior U.S.
and foreign government officials, on issues ranging from economic conditions in
foreign countries to the viability of index-linked securities in the United
States.

Prudential Mutual Funds' portfolio managers and analysts met with over 1,200
companies in 1995, often with the Chief Executive Officer (CEO) or Chief
Financial Officer (CFO). They also attended over 250 industry conferences.

Prudential Mutual Fund global equity managers conducted many of their visits
overseas, often holding private meetings with a company in a foreign language
(our global equity managers speak 7 different languages, including Mandarin
Chinese).

TRADING DATA.(4) On an average day, Prudential Mutual Funds' U.S. and
foreign equity trading desks traded $77 million in securities representing over
3.8 million shares with nearly 200 different firms. Prudential Mutual Funds'
bond trading desks traded $157 million in government and corporate bonds on an
average day.

- ---------------
(3) As of December 31, 1996. The number of bonds and the size of the Fund are
subject to change.

(4) Trading data represents average daily transactions for portfolios of the
Prudential Mutual Funds for which PIC serves as the subadviser, portfolios
of the Prudential Series Fund and institutional and non-U.S. accounts
managed by Prudential Investments, a business group of PIC, for the year
ended December 31, 1995.

III-2
<PAGE>
That represents more in daily trading than most bond funds tracked by Lipper
even have in assets.(5) Prudential Mutual Funds' money market desk traded $3.2
billion in money market securities on an average day, or over $800 billion a
year. They made a trade every 3 minutes of every trading day. In 1994, the
Prudential Mutual Funds effected more than 40,000 trades in money market
securities and held on average $20 billion of money market securities.(6)

Based on complex-wide data, on an average day, over 7,250 shareholders
telephoned Prudential Mutual Fund Services LLC, the Transfer Agent of the
Prudential Mutual Funds, on the Prudential Mutual Funds' toll-free number. On an
annual basis, that represents approximately 1.8 million telephone calls
answered.

INFORMATION ABOUT PRUDENTIAL SECURITIES

Prudential Securities is the fifth largest retail brokerage firm in the
United States with approximately 6,000 financial advisors. It offers to its
clients a wide range of products, including Prudential Mutual Funds and
Annuities. As of December 31, 1997, assets held by Prudential Securities for its
clients approximated $235 billion. During 1997, over 29,000 new customer
accounts were opened each month at Prudential Securities.(7)

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

In 1995, Prudential Securities' equity research team ranked 8th in
INSTITUTIONAL INVESTOR magazine's 1995 "All America Research Team" survey. Three
Prudential Securities' analysts were ranked as first-team finishers.(8)

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

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

- ---------------
(5) Based on 669 funds in Lipper Analytical Services categories of Short U.S.
Treasury, Short U.S. Government, Intermediate U.S. Treasury, Intermediate
U.S. Government, Short Investment Grade Debt, Intermediate Investment Grade
Debt, General U.S. Treasury, General U.S. Government and Mortgage funds.

(6) As of December 31, 1994.

(7) As of December 31, 1997.

(8) On an annual basis, INSTITUTIONAL INVESTOR magazine surveys more than 700
institutional money managers, chief investment officers and research
directors, asking them to evaluate analysts in 76 industry sectors. Scores
are produced by taking the number of votes awarded to an individual analyst
and weighting them based on the size of the voting institution. In total,
the magazine sends its survey to approximately 2,000 institutions and a
group of European and Asian institutions.

III-3
<PAGE>
APPENDIX IV--FIVE PERCENT SHAREHOLDER REPORT

As of October 9, 1998, the beneficial owners, directly or indirectly, of
more than 5% of the outstanding shares of any class of beneficial interest of a
Series were:

<TABLE>
<CAPTION>
SERIES AND CLASS NAME REGISTRATION SHARES % OWNERSHIP
- ----------------------------------- ----------------------------------------------------------- --------- -------------
<S> <C> <C> <C>
Florida Series (Class C) Randell E L Falck TTEE 58,468 (8.4%)
Randell E L Falck
REV TR UA DTD 12/03/91
FBO Randell E L Falck
8049 Whisper Lake Ln. W
Ponte Vedra, FL 32082-3115
Warren D. Fletcher & 35,199 (5.1%)
Star T. Fletcher TEN ENT
3323 S. Elizabeth Ct
Tampa, FL 33629-7028
Mr. Joseph R. Rainwater 45,991 (6.6%)
TTEE Brown V. Rainwater LVG Trust # 1
UA DTD 06/21/86
PO Box 10875
Pensacola, FL 32524-0875
Florida Series (Class Z) Jack L. Botsford TTEE 2,940 (9.8%)
The Jack L. Botsford Trust
UA DTD 04/14/89
6120 Whiskey Creek Dr. #411
Ft. Myers, FL 33919-8726
Mrs. Elaine Shimberg 1,842 (6.1%)
12732 Meadowbreeze Dr.
Wellington, FL 33414-7943
Richard J. Sheridan MD & 1,801 (6%)
Maureen N. Sheridan JT TEN
11804 Willow Point Way
Tampa, FL 33624-4651
Mrs. Eleanor C. Larochelle 3,703 (12.3%)
TTEE, Eleanor C. Larochelle Trust UA
DTD 11/21/96, FBO Eleanor C. Larochelle et. al.
35 Redbay Ct.
Homosassa, FL 34446-5121
Robert Rosenthal MD & 4,409 (14.6%)
Janet M. Rosenthal JT TEN
2480 Whispering Oaks Ln.
Delray Beach, FL 33445-7163
Mrs. Deanne C. Keim TTEE 6,015 (20%)
Deanne C. Keim Trust
Deanne C. Keim AS GRANTOR
UA DTD 03/07/94
11321 Longwater Chase Ct.
Fort Myers, FL 33908-4951
</TABLE>

IV-1
<PAGE>
<TABLE>
<CAPTION>
SERIES AND CLASS NAME REGISTRATION SHARES % OWNERSHIP
- ----------------------------------- ----------------------------------------------------------- --------- -------------
Mr. Randy L. Keim TTEE 5,585 (18.5%)
Randy L. Keim Trust
Randy L. Keim AS GRANTOR
UA DTD 03/07/94
11321 Longwater Chase Ct.
Ft. Myers, FL 33908-4951
<S> <C> <C> <C>
Maryland Series (Class C) Julien J. LaVoie 780 (7.2%)
Marjorie G. LaVoie JT TEN
13405 Beall Creek Ct.
Potomac, MD 20854-1
Henry Nathan II & 1,416 (13%)
Elaine T. Nathan JT TEN
6222 Roblynn Road
Laurel, MD 20707-2635
Mr. Frederick O. Mitchell 1,634 (15%)
1642 Perryman Road
Box #36
Perryman, MD 21130
Betty Greenberg 4,669 (43%)
8200 Wisconsin Ave. #1211
Bethesda, MD 20814-3113
Erma N. Ruble & 1,737 (16%)
Mary D. Grybos JT TEN
539 46th St.
Baltimore, MD 21224-3107
Massachusetts Series (Class C) Mr. Leonard Frydman & 1,299 (8.1%)
Mrs. Nurit Sheinberg JT TEN
22 Fairview Ave.
Watertown, MA 02172-1222
Mr. Robert G. Devaney 3,873 (24.3%)
Mrs. Sarah M. Devaney CO-TTEES
Devaney One Family Trust
UA DTD 01/09/96
2 Charlemont Ct.
N Chelmsford, MA 01863-2305
David P. Touchette 2,100 (13.2%)
83 Rockland St.
So. Dartmouth, MA 02748
Mr. Robert C. Dyer 902 (5.7%)
237 Pond St.
Braintree, MA 02184-5344
Stanley F. Wisniewski 5,416 (34%)
Eleanor A. Wisniewski JT TEN
173 Fales Rd.
No. Attleboro, MA 02760-4461
Massachusetts Series (Class Z) James A. Meagher 585 (25.3%)
85 Westland Rd.
Weston, MA 02193-1327
</TABLE>

IV-2
<PAGE>
<TABLE>
<CAPTION>
SERIES AND CLASS NAME REGISTRATION SHARES % OWNERSHIP
- ----------------------------------- ----------------------------------------------------------- --------- -------------
Mr. Matthew Liste 970 (42%)
195 Binney St. Apt. 4520
Cambridge, MA 02142-1032
<S> <C> <C> <C>
Constantine Arabadjis & 503 (21.8%)
Mary Ann Arabadjis JT TEN
35 Chestnut St. #206
Charlestown, MA 02129-3457
Mr. Jerome S. Narolewski 231 (10%)
448 Oak St.
Shrewsbury, MA 01545-4413
Michigan Series (Class C) Dr. Richard G. Coleman TTE 3,387 (8%)
Richard G. Coleman Family Trust
UA DTD 04/14/98
PO Box 243
Glenn, MI 49416-0243
Lorretta J. Bonsall TTEE 5,228 (12.4%)
Lorretta J. Bonsall Trust
UA DTD 05/19/94
FBO Lorretta J. Bonsall
2280 Seminole Rd
Muskegon, MI 49441-4229
Mr. David K. Bonsall 6,190 (14.6%)
3741 S. 220th Ave
Patterson Rd
Reed City, MI 49677-9619
Lester L . Fall Jr. 2,471 (5.8%)
Cynthia D. Fall JT TEN
12460 Lincoln
Burt, MI 48417-9
Rudolf K. Breiling 6,194 (14.7%)
Sharon A. Breiling JT TEN
45260 Fairchild
Macomb, MI 48042-5
Mrs. Helen L. Jamieson TTEE 8,219 (19.5%)
Mrs. Helen L. Jamieson
Trust UA DTD 02/10/93
315 E. Church Ave.
Reed City, MI 49677-9703
Helen L. Jamieson 6,089 (14.4%)
Karen Akom SUCC CO-TTEES
Bryce B. Jamieson Trust
UA DTD 02/10/93
315 E. Church Street
Reed City, MI 49677-9703
New Jersey Series (Class C) Ms. Isidore H. Stein 6,874 (5.5%)
781 Van Court Ave.
Long Branch, NJ 07740-4887
</TABLE>

IV-3
<PAGE>
<TABLE>
<CAPTION>
SERIES AND CLASS NAME REGISTRATION SHARES % OWNERSHIP
- ----------------------------------- ----------------------------------------------------------- --------- -------------
Richard A. Sperling MD 9,115 (7.3%)
25 Sparrowbush Road
Upper Saddle, NJ 07458-1411
<S> <C> <C> <C>
Mrs. Stella Godleski & 11,842 (9.5%)
Mr. William Godleski JT TEN
277 Midwood Rd
Paramus, NJ 07652-1647
Leena S. Bagle & 6,505 (5.2%)
Shriram B. Bagle JT TEN
15 Cottonwood Lane
Holmdel, NJ 07733-1633
Dolores Truex 10,999 (8.8%)
126 Mayetta Landing Rd
West Creek, NJ 08092-3100
New Jersey Series (Class Z) William A. Nyborg 1,813 (21.5%)
113 Elm Ave.
Haddonfield, NJ 08033-1712
Richard M. Brandys 749 (8.9%)
7 Meadow Ln.
Marlboro, NJ 07746-1688
Mr. Mendel Melzer 4,656 (55.2%)
6 Gelsey Ln
Basking Ridge, NJ 07920-3062
New York Series (Class C) Saul German 5,421 (5.3%)
8 Meadowood Ln
Binghamton, NY 13901-6013
Michael F. Scheitel 5,783 (5.6%)
Dorothy E. Scheitel JT TEN
38 King Ave.
Selden, NY 11784-2
Mr. Jonathan A. Lonner 8,104 (7.9%)
155 W 68th St. Apt. 526
New York, NY 10023-5812
Henry Hocker & 16,823 (16.3%)
Gloria Hocker JT TEN
15 West Suffolk Ave.
Central Islip, NY 11722-2142
Lawrence R. Caponegro 10,352 (10%)
Lawrence R. Caponegro REV TR
UA DTD 03/02/98
100 Patriots Rd RM 308-38
LI ST Veterans Home
Stony Brook, NY 11790-3318
New York Series (Class Z) Municipal New York Series 2,834 (7%)
For The A/C of Thomas T. Mooney
Deferred Compensation
805 Pittsford Victory Rd
Pittsford, NY 14534-3
</TABLE>

IV-4
<PAGE>
<TABLE>
<CAPTION>
SERIES AND CLASS NAME REGISTRATION SHARES % OWNERSHIP
- ----------------------------------- ----------------------------------------------------------- --------- -------------
Mrs. Myra R. Eichner 3,629 (8.9%)
PO Box 1078
Great Neck, NY 11023-0078
<S> <C> <C> <C>
Mr. Neil Presser & 3,362 (8.2%)
Mrs. Rosemarie Presser JT TEN
9 Fieldcrest Dr.
New City, NY 10956-5439
Mrs. Honora Shapiro Ex 16,638 (40.8%)
EST Albert Shapiro
1 Commander Sq.
Oyster Bay, NY 11771-1536
Dr. John W. Miller & 2,702 (6.6%)
Mrs. Linda A. McCormack Miller JT TEN
10 Meadowood Ln
Binghamton, NY 13901-6013
Leonard S. Fishman 3,583 (8.8%)
2625 E. Lake Rd
Skaneateles, NY 13152-9012
Antoinette Maddaloni Ex 3,766 (9.2%)
EST Francis M. Maddaloni
355 Thomas St.
Staten Island, NY 10306-1705
North Carolina Series (Class C) Mr. J. Arthur Jones & 1,191 (46.8%)
Mrs. Melba S Jones JT TEN
200 W. Cornwall Rd #107
Cary, NC 27511-3865
Melvin K. Morgan 199 (7.8%)
1135 Gold Knob Rd
Salisbury, NC 28145-8167
S. J. Black And Son Inc. 1,031 (40.5%)
PO Box 1105
Monroe, NC 28111-1105
Ohio Series (Class C) Bobby G. Gresham 888 (5.8%)
Mildred V. Gresham JT TEN
1309 Fowler Dr.
Columbus, OH 43224-1
Mrs. Ruth Kamin Nizar TTEE ###-##-#### 7,870 (51.7%)
Ruth Kamin Nizar Trust
UA DTD 07/08/96
FBO Ruth Kamin Nizar
27090 Cedar Rd Apt 131
Beachwood, OH 44122-8109
Orvilla J. Wangler 2,177 (14.3%)
Subject To STA TOD RULES -NJ
182 St. Francis Ave.
Room 108
Tiffin, OH 44883-3456
</TABLE>

IV-5
<PAGE>
<TABLE>
<CAPTION>
SERIES AND CLASS NAME REGISTRATION SHARES % OWNERSHIP
- ----------------------------------- ----------------------------------------------------------- --------- -------------
Pauline R. Morgan Levion 938 (6.2%)
1162 Rankin Dr.
Zanesville, OH 43701-1457
<S> <C> <C> <C>
Mr. Michael Berdin & 809 (5.3%)
Mrs. Margaret Berdin JT TEN
228 South Park Dr.
Wadsworth, OH 44281-1317
Pennsylvania Series (Class C) Eleanor A. Kuhn 5,564 (5.4%)
446 Fernwood Avenue
Folsom, PA 19033-2109
Mr. Edward Dress & 9,456 (9.3%)
Mrs. Marion M Dress JT TEN
151 Forest Rd
Mountain Top, PA 18707-1316
Betty J. Falvo 8,647 (8.5%)
1317 Clifton Rd
Washington, PA 15301-6
Michael M. Robinson 25,416 (24.9%)
31 W Lemon St.
Lititz, PA 17543-2307
Dr. Marsha R. Baar Ex 9,166 (9%)
EST Mrs. Sylvia W. Baar
C/O Stuart T. Shmookler Esq.
1621 N. Cedar Crest Blvd.
Allentown, PA 18104-2312
</TABLE>

IV-6