<PAGE>
PRUDENTIAL MUTUAL FUNDS
Prudential Municipal Series Fund
The section entitled "TABLE OF CONTENTS" in the Statement of Additional
Information dated November 3, 2000, is amended in its entirety to reflect the
following:
TABLE OF CONTENTS
Page
----
Fund History B-1
Description of the Fund, Its Investments and Risks B-1
Investment Restrictions B-33
Management of the Fund B-35
Control Persons and Principal Holders of Securities B-38
Investment Advisory and Other Services B-39
Brokerage Allocation and Other Practices B-47
Capital Shares, Other Securities and Organization B-49
Purchase, Redemption and Pricing of Fund Shares B-50
Shareholder Investment Account B-59
Net Asset Value B-64
Performance Information B-65
Taxes, Dividends and Distributions B-70
Distributions B-70
Federal Taxation B-71
State Taxation B-74
Description of Tax-Exempt Security Ratings B-79
Financial Statements and Reports of Independent Accountants B-83
Appendix I I-1
Appendix II II-1
Appendix III III-1
Pages B-42, B-43, B-45 and B-49 in the Statement of Additional Information
are amended in their entirety to reflect the following:
<PAGE>
MONEY MARKETS
ASSETS UNDER MANAGEMENT: $33.9 billion.
TEAM LEADER: Joseph Tully. GENERAL INVESTMENT EXPERIENCE: 16 years.
PORTFOLIO MANAGERS: 9. AVERAGE GENERAL INVESTMENT EXPERIENCE: 10 years, which
includes team members with significant mutual fund experience.
SECTOR: High-quality, short-term securities, including both taxable and
tax-exempt instruments.
INVESTMENT STRATEGY: Focus is on safety of principal, liquidity and controlled
risk.
CODE OF ETHICS
The Board of Trustees of the Fund has adopted a Code of Ethics. In
addition, the Manager, Subadviser and Distributor have each adopted a Code of
Ethics (the "Codes"). The Codes permit personnel subject to the Codes to
invest in securities, including securities that may be purchased or held by
the Fund. However, the protective provisions of the Codes prohibit certain
investments and limit such personnel from making investments during periods
when the Fund is making such investments. The Codes are on public file with,
and are available from, the Commission.
(b) PRINCIPAL UNDERWRITER, DISTRIBUTOR AND RULE 12b-1 PLANS
Prudential Investment Management Services LLC (PIMS or the Distributor),
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077,
acts as the distributor of the shares of the Fund. The Distributor is a
subsidiary of Prudential.
Pursuant to separate Distribution and Service Plans (the Class A Plan,
the Class B Plan and the Class C Plan, collectively, the Plans) adopted by
the Fund under Rule 12b[cad 220]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 these expenses of
distribution are reimbursed by or paid for by the Fund. See "How the Series
is Managed[cad 228]Distributor" in each series' Prospectus.
The expenses incurred under the Plans include commissions and account
servicing fees paid to or on account of brokers or financial institutions
that have entered into agreements with the Distributor, advertising expenses,
the cost of printing and mailing prospectuses to potential investors and
indirect and overhead costs of the Distributor associated with the sale of
Fund shares including lease, utility, communications and sales promotion
expenses.
Under the Plans, the Fund is obligated to pay distribution and/or
service fees to the Distributor as compensation for its distribution and
service activities, not as reimbursement for specific expenses incurred. If
the Distributor's expenses exceed its distribution and service fees, the Fund
will not be obligated to pay any additional expenses. If the Distributor's
expenses are less than such distribution and service fees, it will retain its
full fees and realize a profit.
The distribution and/or service fees may also be used by the Distributor
to compensate on a continuing basis brokers in consideration for the
distribution, marketing, administrative and other services and activities
provided by brokers with respect to the promotion of the sale of the Fund's
shares and the maintenance of related shareholder accounts.
CLASS A PLAN. Under the Class A Plan, the Fund may pay the Distributor
for its distribution-related activities with respect to Class A shares at an
annual rate of up to .30 of 1% of the average daily net assets of the Class A
shares of each series. The Class A Plan provides that (1) up to .25 of 1% of
the average daily net assets of the Class A shares of each series may be used
to pay for personal service and/or the maintenance of shareholder accounts
(service fee) and (2) total distribution fees (including the service fee of
.25 of 1%) may not exceed .30 of 1% of each series. The Distributor has
contractually agreed to limit its distribution-related fees payable under the
Class A Plan to .25 of 1% of the average daily net assets of the Class A
shares of the series for the fiscal year ending August 31, 2001. Fee waivers
will increase the Series' total return.
B-42
<PAGE>
CLASS A PLAN. For the fiscal year ended August 31, 2000, the Distributor
received the following payments from the Fund on behalf of the applicable
series under the Class A Plan:]
<TABLE>
<CAPTION>
Series
------
<S> <C>
Florida $177,706
Massachusetts 66,378
New Jersey 306,432
New York 445,757
North Carolina 71,587
Ohio 114,178
Pennsylvania 265,453
</TABLE>
These amounts were primarily expended for payments of account servicing
fees to financial advisers and other persons who sell Class A shares. For the
fiscal year ended August 31, 2000, the Distributor spent the following
approximate amounts in distributing the respective series' Class A shares:
<TABLE>
<CAPTION>
Series
------
<S> <C>
Florida $169,200
Massachusetts 64,500
New Jersey 297,200
New York 419,096
North Carolina 69,700
Ohio 111,800
Pennsylvania 257,300
</TABLE>
For the fiscal year ended August 31, 2000, the Distributor also received
approximate initial sales charges attributable to Class A shares as follows:
<TABLE>
<CAPTION>
Series
------
<S> <C>
Florida $16,200
Massachusetts 1,100
New Jersey 9,000
New York 9,800
North Carolina 1,800
Ohio 5,100
Pennsylvania 10,800
</TABLE>
CLASS B AND CLASS C PLANS. Under the Class B and Class C Plans, the Fund
may pay the Distributor for its distribution-related activities with respect
to Class B and Class C shares at an annual rate of up to .50 of 1% and up to
1% of the average daily net asset of the Class B and Class C shares,
respectively, of each series. The Class B Plan provides for the payment to
the Distributor of (1) an asset-based sales charge of up to .50 of 1% of the
average daily net assets of the Class B shares of each series, and (2) a
service fee of up to .25 of 1% of the average daily net assets of the Class B
shares of each series, provided that the total distribution-related fee does
not exceed .50 of 1% of each series. The Class C Plan provides for the
payment to the Distributor of (1) an asset-based sales charge of up to .75 of
1% of the average daily net assets of the Class C shares of each series, and
(2) a service fee of up to .25 of 1% of the average daily net assets of the
Class C shares of each series. The service fee is used to pay for personal
service and/or the maintenance of shareholder accounts. The Distributor also
receives contingent deferred sales charges from certain redeeming
shareholders and, with respect to Class C shares, initial sales charges. The
Distributor has contractually agreed to limit its distribution-related fees
payable under the Class C Plan to .75 of 1% of the average daily net assets
of the series for the fiscal year ending August 31, 2001. Fees waivers will
increase the series' total return.
B-43
<PAGE>
CLASS C PLAN. For the fiscal year ended August 31, 2000, the Distributor
received the distribution fees paid by the following series of the Fund under
the Class C Plan and the proceeds of initial sales charges attributable to
Class C shares and the proceeds of contingent deferred sales charges paid by
investors of Class C Shares on the redemption of Class C shares as set forth
below:
<TABLE>
<CAPTION>
Approximate
Approximate Contingent
Amount Initial Sales Deferred
Series of Fee Charges Sales Charges
------ ------ ------------- -------------
<S> <C> <C> <C>
Florida $44,140 $ 100 $ 300
Massachusetts 1,610 1,100 0
New Jersey 15,579 7,600 400
New York 13,590 5,000 2,000
North Carolina 213 0 0
Ohio 1,463 0 500
Pennsylvania 4,915 700 2,800
</TABLE>
Distribution fees were expended primarily for payment of account
servicing fees.
For the fiscal year ended August 31, 2000, the Distributor spent
approximately the following amounts on behalf of the series:
<TABLE>
<CAPTION>
Compensation Approximate
Printing and to Prusec* Total
Mailing Commission for Commission Amount
Prospectuses Payments to Payments to Spent By
to Other Financial Representatives Distributor
Than Current Advisers of Overhead Costs and Other on Behalf of
Series Shareholders Distributor of Distributor** Expenses** Series
------ ------------ ---------------- ---------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Florida $200 (.51%) $38,700 (99.23%) $ 100 (.26%) $ -- (--%) $39,000 (100%)
Massachusetts -- (--%) 4,800 (87.27%) 600 (10.91%) 100 (1.82%) 5,500 (100%)
New Jersey 100 (.57%) 12,200 (70.12%) 5,100 (29.31%) 0 (0%) 17,400 (100%)
New York 0 (0%) 10,300 (73.5%) 3,600 (25.8%) 100 (0.7%) 14,000 (--%)
North Carolina 0 (0%) 200 (100%) 0 (0%) 0 (0%) 200 (100%)
Ohio (--%) (--%) 900 (100%) (--%) 900 (100%)
Pennsylvania 0 (--%) 3,500 (85.17%) 600 (14.58%) 0 (--)% 4,100 (--)%
</TABLE>
* Pruco Securities Corporation, an affiliated broker-dealer.
** Including lease, utility and sales promotional expenses.
Distribution expenses attributable to the sale of Class A, Class B and
Class C shares of each series are allocated to each such class based upon the
ratio of each such class to the sales of Class A, Class B and 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.
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 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
B-45
<PAGE>
During the fiscal years ended August 31, 2000, 1999 and 1998, 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 any of the Fund's affiliates, including Prudential Securities.
<TABLE>
<CAPTION>
Brokerage Commissions
-------------------------------
Series 2000 1999 1998
------ -------- -------- --------
<S> <C> <C> <C>
Connecticut Money Market $ 0 $ 0 $ 0
Florida $ 0 1,400 7,000
Massachusetts $ 0 0 2,625
Massachusetts Money Market $ 0 0 0
New Jersey $ 4,051 2,975 3,675
New Jersey Money Market $ 0 0 0
New York $10,596 7,315 19,968
New York Money Market $ 0 0 0
North Carolina $ 1,628 560 2,599
Ohio $ 5,329 5,767 7,333
Pennsylvania $ 2,450 10,990 18,445
</TABLE>
The Fund is required to disclose its holdings of securities of its
regular brokers and dealers (as defined under Rule 10b-1 of the Investment
Company Act) and their parents at August 31, 2000. As of August 31, 2000, no
series held any securities of its regular brokers and dealers.
CAPITAL SHARES, OTHER SECURITIES AND ORGANIZATION
The Fund is permitted to issue an unlimited number of full and
fractional shares in separate series, currently designated as the Connecticut
Money Market Series, Florida Series, Massachusetts Series, Massachusetts
Money Market 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 Florida Series, Massachussetts Series, New
Jersey Series and New York Series each is authorized to issue an unlimited
number of shares, divided into four classes, designated Class A, Class B,
Class C and Class Z. The North Carolina Series, Ohio Series and Pennsylvania
Series each 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 such series and is
identical in all respects except that (1) each class is subject to different
sales charges and distribution and/or service fees (except for Class Z
shares, which are not subject to any sales charges and distribution and/or
service fees), which may affect performance, (2) each class has exclusive
voting rights on any matter submitted to shareholders that relates solely to
its arrangement and has separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the interests of
any other class, (3) each class has a different exchange privilege, and (4)
only Class B shares have a conversion feature. Class Z shares are offered
exclusively for sale to a limited group of investors. 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 a series, with
such preferences, privileges, limitations and voting and dividend rights as
the Trustees may determine.
Shares of the Fund, when issued, are fully paid, nonassessable, fully
transferable and redeemable at the option of the holder. Shares are also
redeemable at the option of the Fund under certain circumstances. Each share
of each class of a 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 Class B shares with respect to the non-money
market series, 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
B-49
