PRUDENTIAL CALIFORNIA MUNICIPAL FUND, 485BPOS, 1998-11-03

PRUDENTIAL CALIFORNIA MUNICIPAL FUND
485BPOS, 1998-11-03

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON NOVEMBER 3, 1998

SECURITIES ACT REGISTRATION NO. 2-91215

INVESTMENT COMPANY ACT REGISTRATION NO. 811-4024
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /

PRE-EFFECTIVE AMENDMENT NO. / /

POST-EFFECTIVE AMENDMENT NO. 25 /X/

AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /

AMENDMENT NO. 26 /X/

(Check appropriate box or boxes)

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

PRUDENTIAL CALIFORNIA MUNICIPAL FUND
(Exact name of registrant as specified in charter)

GATEWAY CENTER THREE,
NEWARK, NEW JERSEY 07102
(Address of Principal Executive Offices) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 214-1250

S. JANE ROSE, ESQ.
GATEWAY CENTER THREE
NEWARK, NEW JERSEY 07102
(Name and Address of Agent for Service)

APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the effective
date of the Registration Statement.

It is proposed that this filing will become effective
(check appropriate box):

/X/ immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)

/ / on (date) pursuant to paragraph (a)(2) of rule
485.
If appropriate, check the following box:
/ / this post-effective amendment designates a new
effective date for a previously filed
post-effective amendment.

Title of Securities Being Registered......Shares of Beneficial Interest,
$.01 Per Value.

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- ----------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)

<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- ------------------------------------------------------------------------------ ---------------------------------------------
<S> <C> <C>
PART A
Item 1. Cover Page......................................................... Cover Page
Item 2. Synopsis........................................................... Fund Expenses; Fund Highlights
Item 3. Condensed Financial Information.................................... Fund Expenses; Financial Highlights; How the
Fund Calculates Performance
Item 4. General Description of Registrant.................................. Cover Page; Fund Highlights; How the Fund
Invests; General Information
Item 5. Management of the Fund............................................. Financial Highlights; How the Fund is Managed
Item 5A. Management's Discussion of Fund Performance........................ Financial Highlights
Item 6. Capital Stock and Other Securities................................. Taxes, Dividends and Distributions; General
Information
Item 7. Purchase of Securities Being Offered............................... Shareholder Guide; How the Fund Values its
Shares
Item 8. Redemption or Repurchase........................................... Shareholder Guide; How the Fund Values its
Shares; General Information
Item 9. Pending Legal Proceedings.......................................... Not Applicable
PART B
Item 10. Cover Page......................................................... Cover Page
Item 11. Table of Contents.................................................. Table of Contents
Item 12. General Information and History.................................... Investment Objectives and Policies;
Organization and Capitalization
Item 13. Investment Objectives and Policies................................. Investment Objectives and Policies;
Investment Restrictions
Item 14. Management of the Fund............................................. Trustees and Officers; Manager; Distributor
Item 15. Control Persons and Principal Holders of Securities................ Trustees and Officers
Item 16. Investment Advisory and Other Services............................. Manager; Distributor; Custodian, Transfer and
Dividend Disbursing Agent and Independent
Accountants
Item 17. Brokerage Allocation and Other Practices........................... Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other Securities................................. Not Applicable
Item 19. Purchase, Redemption and Pricing of Securities Purchase and Redemption of Fund Shares;
Being Offered...................................................... Shareholder Investment Account; Net Asset
Value
Item 20. Tax Status......................................................... Distributions and Tax Information
Item 21. Underwriters....................................................... Distributor
Item 22. Calculation of Performance Data.................................... Performance Information
Item 23. Financial Statements............................................... Financial Statements
PART C
Information required to be included in Part C is set forth under the appropriate Item, so numbered, in Part C to this
Post-Effective Amendment to this Registration Statement.
</TABLE>
<PAGE>
Prudential California
Municipal Fund
(California Series)

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

PROSPECTUS DATED NOVEMBER 2, 1998

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

Prudential California Municipal Fund (the Fund) (California Series) (the Series)
is one of three series of an open-end, management investment company, or mutual
fund. This Series is diversified and seeks to provide the maximum amount of
income that is exempt from California 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 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. 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
California 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.

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 CALIFORNIA MUNICIPAL FUND?

Prudential California Municipal Fund is a mutual fund whose shares are
offered in three 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 California 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 California State and federal income taxes consistent with the
preservation of capital. It seeks to achieve this objective by investing
primarily in California 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 California State and federal income taxes
(California 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?

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, 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 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. 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 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. 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 17 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 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 23.

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 26.

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 18.

3
<PAGE>
FUND EXPENSES
(CALIFORNIA 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...................... .18% .18% .18% .18%
--
----- ----- -----
Total Fund Operating Expenses (After
Reduction)......................... .93% 1.18% 1.43% .68%
--
--
----- ----- -----
----- ----- -----
</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 $80 $141
Class B............................. $62 $67 $75 $127
Class C............................. $34 $55 $87 $180
Class Z............................. $ 7 $22 $38 $ 85
You would pay the following expenses on
the same investment, assuming no
redemption:
Class A............................. $39 $59 $80 $141
Class B............................. $12 $37 $65 $127
Class C............................. $24 $55 $87 $180
Class Z............................. $ 7 $22 $38 $ 85
</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 California 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 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 .98% and 1.68%, 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............ $ 11.80 $ 11.44 $ 11.49 $ 11.30 $ 12.16 $ 11.48 $ 11.01 $ 10.57 $10.77
------- ------- ------- ------- ------- ------- ------- ------- ------
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income............ .62 .65(d) .65(d) .66(d) .65 .69 .70 .69 .41
Net realized and
unrealized gain
(loss) on
investment
transactions...... .43 .36 (.05) .19 (.74) .68 .47 .44 (.20)
------- ------- ------- ------- ------- ------- ------- ------- ------
Total from
investment
operations........ 1.05 1.01 .60 .85 (.09) 1.37 1.17 1.13 .21
------- ------- ------- ------- ------- ------- ------- ------- ------
LESS DISTRIBUTIONS
Dividends from net
investment
income............ (.62) (.65) (.65) (.66) (.65) (.69) (.70) (.69) (.41)
Distributions in
excess of net
investment
income............ (.01) --(e) -- -- -- -- -- -- --
Distributions from
net realized
gains............. -- -- -- -- (.12) -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------
Total
distributions..... (.63) (.65) (.65) (.66) (.77) (.69) (.70) (.69) (.41)
------- ------- ------- ------- ------- ------- ------- ------- ------
Net asset value, end
of period......... $ 12.22 $ 11.80 $ 11.44 $ 11.49 $ 11.30 $ 12.16 $ 11.48 $ 11.01 $10.57
------- ------- ------- ------- ------- ------- ------- ------- ------
------- ------- ------- ------- ------- ------- ------- ------- ------

TOTAL RETURN (c):... 9.13% 9.01% 5.23% 7.90% (0.80)% 12.30% 10.95% 10.98% 1.85%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000)...... $91,356 $81,535 $72,876 $68,403 $12,082 $11,116 $ 5,388 $ 4,188 $1,774
Average net assets
(000)............. $85,624 $78,347 $71,119 $42,617 $11,812 $ 7,728 $ 4,322 $ 2,748 $1,214
Ratios to average
net assets:
Expenses,
including
distribution
fee.............. .78% .76%(d) .81%(d) .73%(d) .73% .77% .82% .88% .90%(b)
Expenses,
excluding
distribution
fee.............. .68% .66%(d) .71%(d) .63%(d) .63% .67% .72% .78% .80%(b)
Net investment
income........... 5.18% 5.53%(d) 5.58%(d) 5.90%(d) 5.57% 5.82% 6.25% 6.37% 6.28%(b)
Portfolio turnover
rate.............. 11% 14% 26% 44% 69% 43% 53% 53% 119%
</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 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.......... $ 11.80 $ 11.43 $ 11.49 $ 11.29 $ 12.15 $ 11.48 $ 11.01 $ 10.57 $ 10.76 $ 10.52
------- ------- ------- -------- -------- -------- -------- -------- -------- --------

INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income........ .58 .60(a) .60(a) .62(a) .60 .64 .66 .64 .64 .66
Net realized and
unrealized
gain (loss) on
investment
transactions... .43 .37 (.06) .20 (.74) .67 .47 .44 (.19) .24
------- ------- ------- -------- -------- -------- -------- -------- -------- --------
Total from
investment
operations.... 1.01 .97 .54 .82 (.14) 1.31 1.13 1.08 .45 .90
------- ------- ------- -------- -------- -------- -------- -------- -------- --------

LESS
DISTRIBUTIONS
Dividends from
net investment
income........ (.58) (.60) (.60) (.62) (.60) (.64) (.66) (.64) (.64) (.66)
Distributions in
excess of net
investment
income........ (.01) --(d) -- -- -- -- -- -- -- --
Distributions
from net
realized
gains......... -- -- -- -- (.12) -- -- -- -- --
------- ------- ------- -------- -------- -------- -------- -------- -------- --------
Total
distributions... (.59) (.60) (.60) (.62) (.72) (.64) (.66) (.64) (.64) (.66)
------- ------- ------- -------- -------- -------- -------- -------- -------- --------
Net asset value,
end of year... $ 12.22 $ 11.80 $ 11.43 $ 11.49 $ 11.29 $ 12.15 $ 11.48 $ 11.01 $ 10.57 $ 10.76
------- ------- ------- -------- -------- -------- -------- -------- -------- --------
------- ------- ------- -------- -------- -------- -------- -------- -------- --------

TOTAL RETURN
(c):.......... 8.70% 8.67% 4.73% 7.56% (1.20)% 11.74% 10.52% 10.54% 4.21% 8.79%

RATIOS/SUPPLEMENTAL
DATA:
Net assets, end
of year
(000)......... $62,043 $70,093 $85,190 $103,891 $184,985 $207,634 $177,861 $169,190 $174,005 $178,287
Average net
assets
(000)......... $66,086 $75,935 $96,525 $136,275 $201,558 $190,944 $172,495 $169,220 $175,990 $166,305
Ratios to
average net
assets:
Expenses,
including
distribution
fee.......... 1.18% 1.16%(a) 1.21%(a) 1.13%(a) 1.13% 1.17% 1.22% 1.28% 1.24% 1.23%
Expenses,
excluding
distribution
fee.......... .68% .66%(a) .71%(a) .63%(a) .63% .67% .72% .78% .76% .75%
Net investment
income....... 4.78% 5.13%(a) 5.18%(a) 5.50%(a) 5.17% 5.44% 5.85% 5.98% 5.95% 6.12%
Portfolio
turnover
rate.......... 11% 14% 26% 44% 69% 43% 53% 53% 119% 145%
</TABLE>

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

(a) Net of expense subsidy/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.

(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 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 1995
------- --------- -------- -------- --------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period...................... $ 11.80 $ 11.43 $ 11.49 $ 11.29 $ 11.32
------- --------- -------- -------- ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income......... .55 .57(d) .57(d) .59(d) .04
Net realized and unrealized
gain (loss) on investment
transactions................ .43 .37 (.06) .20 (.03)
------- --------- -------- -------- ------
Total from investment
operations.................. .98 .94 .51 .79 .01
------- --------- -------- -------- ------
LESS DISTRIBUTIONS
Dividends from net investment
income...................... (.55) (.57) (.57) (.59) (.04)
Distributions in excess of net
investment income........... (.01) (--f)
------- --------- -------- -------- ------
Total Distributions........... (.56) (.57) (.57) (.59) (.04)
------- --------- -------- -------- ------
Net asset value, end of
period...................... $ 12.22 $ 11.80 $ 11.43 $ 11.49 $ 11.29
------- --------- -------- -------- ------
------- --------- -------- -------- ------

TOTAL RETURN (c):............. 8.43% 8.40% 4.47% 7.29% .05%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)....................... $ 1,257 $ 334 $ 543 $ 129 $ 200(e)
Average net assets (000)...... $ 689 $ 480 $ 286 $ 76 $ 199(e)
Ratios to average net assets:
Expenses, including
distribution fee........... 1.43% 1.41%(d) 1.46%(d) 1.38%(d) 1.71%(b)
Expenses, excluding
distribution fee........... .68% .66%(d) .71%(d) .63%(d) .96%(b)
Net investment income....... 4.53% 4.88%(d) 4.93%(d) 5.25%(d) 4.87%(b)
Portfolio turnover rate....... 11% %14 %26 %44 69%
</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) Figures are actual and not rounded to the nearest thousand.

(f) Less than $.005 per share.

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 September 18, 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
-----------------------------------------------
SEPTEMBER 18,
1996(a)
YEAR ENDED THROUGH
AUGUST 31, 1998 AUGUST 31, 1997
---------------------- ----------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period... $ 11.81 $ 11.50
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. .63 .64(d)
Net realized and unrealized gain on
investment transactions................ .43 .31
------ ------
Total from investment operations....... 1.06 .95
------ ------
LESS DISTRIBUTIONS
Dividends from net investment income... (.63) (.64)
Distributions in excess of net
investment income.................... (.01) --(e)
------ ------
Total Distributions.................... (.64) (.64)
------ ------
Net asset value, end of period......... $ 12.23 $ 11.81
------ ------
------ ------
TOTAL RETURN (b):...................... 9.24% 8.35%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........ $ 1,037 $ 710
Average net assets (000)............... $ 847 $ 458
Ratios to average net assets
Expenses............................. .68% .66%(c)(d)
Net investment income................ 5.28% 5.35%(c)(d)
Portfolio turnover rate................ 11% 14%
</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%).

(e) Less than $.005 per share.

8
<PAGE>
HOW THE FUND INVESTS

INVESTMENT OBJECTIVE AND POLICIES

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 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." California law provides that dividends paid by the Series are
exempt from California State personal income tax for individuals who reside in
California to the extent such dividends are derived from interest payments on
California Obligations. California Obligations may 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 California Obligations, and the dollar-weighted average
maturity of the Series' portfolio will generally range between 10-20 years. The
Series may also 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.

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

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 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.

ALL CALIFORNIA OBLIGATIONS PURCHASED BY THE SERIES WILL BE INVESTMENT GRADE
SECURITIES. In other words, all of the California Obligations will, at the time
of purchase, be 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 securities in which the
Series may invest. Securities rated Baa may have speculative characteristics,
and changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments than is the
case with higher grade securities. 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. The Series may
purchase California 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 California
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. As a general matter, bond prices and the
Series' NAV will vary inversely with interest rate fluctuations.

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

UNDER NORMAL MARKET CONDITIONS, THE SERIES WILL ATTEMPT TO INVEST
SUBSTANTIALLY ALL OF THE VALUE OF ITS ASSETS IN CALIFORNIA 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
California State and federal income taxes or the Series will have at least 80%
of its total assets invested in California 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 California Obligations or may invest
its assets so that more than 20% of the income is subject to California 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.

10
<PAGE>

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
net assets 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 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 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 CALIFORNIA 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 California 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 fluctuations 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.

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

11
<PAGE>

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.

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.

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 ON 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.

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.

12
<PAGE>
SPECIAL CONSIDERATIONS

BECAUSE THE SERIES WILL INVEST AT LEAST 80% OF THE VALUE OF ITS TOTAL ASSETS
IN CALIFORNIA 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 CALIFORNIA OBLIGATIONS TO THIS DEGREE. The recent
national recession severely affected several key sectors of California's economy
although the State's economy outperformed expectations in 1995 and strong growth
continued into 1997. The 1998-99 budget anticipates General Fund revenues of
$57.0 billion, expenditures of $57.3 billion and a fiscal year end budget
reserve of $1.255 billion. California law could restrict the ability of the
State and its local governmental entities to raise revenues sufficient to pay
certain obligations. If the issuers of any of the California Obligations are
unable to meet their financial obligations because of budgetary pressures 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.

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

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.

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

13
<PAGE>
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

The Series is subject to certain investment restrictions which, like its
investment objectives, 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 average net assets were .78%, 1.18%, 1.43% and .68% for the
Series' Class A, Class B, Class C and Class Z shares, respectively. See
"Financial Highlights" above.

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 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. He has managed the portfolio since 1991
and has been employed by PIC in various capacities since 1988.

14
<PAGE>
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.

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

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 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 BY 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 Fund 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 not 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.

15
<PAGE>

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."

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 receive 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.

16
<PAGE>

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 that 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' 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.

HOW THE FUND CALCULATES PERFORMANCE

17
<PAGE>
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 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

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."

18
<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 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.

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 California law, the taxation of regulated investment companies and their
shareholders was generally conformed to the federal tax law that was in effect
on January 1, 1997. Dividends paid by the Series and derived from interest on
obligations which (when held by an individual) pay interest excludable from
California personal income under California law will be exempt from the
California personal income tax (although not from the California franchise tax).
To the extent a portion of the dividends are derived from interest on debt
obligations other than those described directly above, such portion will be
subject to the California personal income tax even though it may be excludable
from gross income for federal income tax purposes. In addition, distributions of
short-term capital gains realized by the Fund will be taxable to the
shareholders as ordinary income. Distributions of long-term capital gains will
be taxable as such to the shareholders regardless of how long they held their
shares. Under California law, ordinary income and capital gains currently are
taxed at the same rate. With respect to non-corporate shareholders, California
does not treat tax-exempt interest as a tax preference item for purposes of its
alternative minimum tax. To the extent a corporate shareholder receives
dividends which are exempt from California taxation, a portion of such dividends
may be subject to the alternative minimum tax.

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

19
<PAGE>

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 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. For federal income tax purposes, the
Series had a capital loss carryforward as of August 31, 1998, of approximately
$2,948,700, of which $2,945,800 expires in 2003 and $2,900 expires in 2006.
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, 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>
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 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.

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. 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 by the Distributor, your Dealer or the
Transfer Agent. 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 California Municipal Fund (California 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) and the name of the Series.

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.

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<PAGE>

In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential California
Municipal Fund (California 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).

<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 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>

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.

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 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 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.

24
<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 DEALER CONCESSION
PERCENTAGE OF PERCENTAGE OF AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
------------------------ --------------- --------------- -----------------
<S> <C> <C> <C>
Less than $99,999 3.00% 3.09% 3.00%
$100,000 to $249,999 2.50 2.56 2.50
$250,000 to $499,999 1.50 1.52 1.50
$500,000 to $999,999 1.00 1.01 1.00
$1,000,000 and above None None None
</TABLE>

The Distributor may reallow the entire initial sales charge to Dealers.
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 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 at 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.

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.

25
<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" below.

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.

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 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

26
<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 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.

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.

27
<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 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 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 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.

28
<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.

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

CONVERSION FEATURE--CLASS B SHARES

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

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

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>

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."

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.

30
<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.

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.

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.

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, as a shareholder in the Series, you can
take advantage of the following services and privileges:

31
<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 your Dealer.

- 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.

- 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 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.

- 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.

32
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY

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

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

Prudential Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential 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 Total Return Fund, Inc.
Global Utility Fund, Inc.

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

Prudential Balanced Fund
Prudential Distressed Securities Fund, Inc.
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Index Series Fund
Prudential Bond Market Index Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
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 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............................................ 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...................... 16
Year 2000................................................................. 17
HOW THE FUND VALUES ITS SHARES.............................................. 17
HOW THE FUND CALCULATES PERFORMANCE......................................... 17
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
THE PRUDENTIAL MUTUAL FUND FAMILY........................................... A-1
</TABLE>

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

MF116A

Class A: 744313-10-7
Class B: 744313-20-6
CUSIP Nos.: Class C: 744313-70-1
Class Z: 744313-88-3

PRUDENTIAL
CALIFORNIA
MUNICIPAL
FUND

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

CALIFORNIA SERIES

PROSPECTUS
November 2, 1998
www.prudential.com

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

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

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

PROSPECTUS DATED NOVEMBER 2, 1998

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

Prudential California Municipal Fund (the Fund) (California Income Series) (the
Series) is one of three series of an open-end, management investment company, or
mutual fund. This Series is diversified and seeks to provide the maximum amount
of income that is exempt from California State and federal income taxes
consistent with the preservation of capital. The Series will invest primarily in
investment grade municipal obligations but may 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 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
California Income 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 CALIFORNIA MUNICIPAL FUND?

WHAT IS THE SERIES' INVESTMENT OBJECTIVE?

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 California Obligations. This
degree of investment concentration makes the Series particularly susceptible
to factors adversely affecting issuers of California 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 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?

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-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
(CALIFORNIA INCOME 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 (Before Waiver)..... .50% .50% .50% .50%
12b-1 Fees (After Reduction)........ .25%++ .50% .75%++ None
Other Expenses...................... .13% .13% .13% .13%
------ ----- ------ ------
Total Fund Operating Expenses
(Before Waiver and 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 $124
Class C............................. $34 $43 $75 $164
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 $124
Class C............................. $24 $43 $75 $164
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.

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."

** Based on expenses incurred during the fiscal year ended August 31, 1998,
without taking into account the management fee waiver. At the current level
of management fee waiver (.05 of 1%), Management Fees would be .45% of Class
A, Class B, Class C and Class Z shares and Total Fund Operating Expenses
would be .83% of the average net assets of the Series' Class A shares, 1.08%
of the average net assets of the Series' Class B shares, 1.33% of the
average net assets of the Series' Class C shares, and .58% of net assets of
the Series' Class Z shares. See "How the Fund is Managed--Manager--Fee
Waivers and Subsidy."

+ 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 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 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............ $ 10.71 $ 10.33 $ 10.28 $ 10.19 $ 10.68 $ 10.08 $ 9.76 $ 9.55
-------- -------- -------- -------- -------- -------- -------- -----------
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income............ .59 .60(c) .63(c) .65(c) .65(c) .67(c) .69(c) .51(c)
Net realized and
unrealized gain
(loss) on
investment
transactions...... .49 .38 .05 .09 (.39) .65 .35 .21
-------- -------- -------- -------- -------- -------- -------- -----------
Total from
investment
operations........ 1.08 .98 .68 .74 .26 1.32 1.04 .72
-------- -------- -------- -------- -------- -------- -------- -----------
LESS DISTRIBUTIONS
Dividends from net
investment
income............ (.59) (.60) (.63) (.65) (.65) (.67) (.69) (.51)
Distributions in
excess of net
investment income... (.01) --(e)
Distributions from
net realized
gains............. -- -- -- -- (.10) (.05) (.03) --
-------- -------- -------- -------- -------- -------- -------- -----------
Total
distributions..... (.59) (.60) (.63) (.65) (.75) (.72) (.72) (.51)
-------- -------- -------- -------- -------- -------- -------- -----------
Net asset value, end
of period......... $ 11.19 $ 10.71 $ 10.33 $ 10.28 $ 10.19 $ 10.68 $ 10.08 $ 9.76
-------- -------- -------- -------- -------- -------- -------- -----------
-------- -------- -------- -------- -------- -------- -------- -----------
TOTAL RETURN (d):... 10.31% 9.72% 6.67% 7.67% 2.55% 13.67% 11.08% 7.97%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000)...... $181,512 $156,684 $153,236 $163,538 $183,742 $200,899 $141,101 $72,241
Average net assets
(000)............. $165,771 $153,019 $161,420 $165,500 $195,610 $165,895 $102,227 $47,540
Ratios to average
net assets:
Expenses,
including
distribution
fee.............. .68% .73%(c) .50%(c) .40%(c) .35%(c) .20%(c) .10%(c) 0%(b)(c)
Expenses,
excluding
distribution
fee.............. .58% .63%(c) .40%(c) .30%(c) .25%(c) .10%(c) .04%(c) 0%(b)(c)
Net investment
income........... 5.39% 5.66%(c) 6.01%(c) 6.49%(c) 6.25%(c) 6.52%(c) 6.91%(c) 7.04%(b)(c)
Portfolio turnover
rate.............. 10% 16% 22% 39% 46% 34% 69% 35%
</TABLE>

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

(a) Commencement of offering of Class A 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.

(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 two years ended August 31, 1996 and the period December 7, 1993 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 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, DECEMBER 7,
----------------------------------------------- 1993 (a) THROUGH
1998 1997 1996 1995 AUGUST 31, 1994
-------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C>

PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period........................... $ 10.71 $ 10.33 $ 10.28 $ 10.19 $ 10.61
-------- -------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.............. .55 .55(c) .59(c) .61(c) .44(c)
Net realized and unrealized gain on
investment transactions.......... .49 .38 .05 .09 (.42)
-------- -------- -------- -------- -------
Total from investment operations... 1.04 .93 .64 .70 .02
-------- -------- -------- -------- -------
LESS DISTRIBUTIONS
Dividends from net investment
income........................... (.55) (.55) (.59) (.61) (.44)
Distributions in excess of net
investment income................ (.01) --(e) -- -- --
-------- -------- -------- -------- -------
Total distributions.............. (.56) (.55) (.59) (.61) (.44)
-------- -------- -------- -------- -------
Net asset value, end of period..... $ 11.19 $ 10.71 $ 10.33 $ 10.28 $ 10.19
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
TOTAL RETURN (d):.................. 9.87% 9.28% 6.25% 7.24% (.14)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).... $ 70,535 $ 47,436 $ 35,983 $ 28,609 $18,931
Average net assets (000)........... $ 56,011 $ 40,983 $ 32,555 $ 23,722 $ 6,814
Ratios to average net assets:
Expenses, including distribution
fee............................. 1.08% 1.13%(c) .90%(c) .80%(c) 1.11%(b)(c)
Expenses, excluding distribution
fee............................. .58% .63%(c) .40%(c) .30%(c) .43%(b)(c)
Net investment income............ 4.99% 5.26%(c) 5.61%(c) 6.09%(c) 8.15%(b)(c)
Portfolio turnover rate............ 10% 16% 22% 39% 46%
</TABLE>

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

(a) Commencement of offering of Class B shares.

(b) Annualized.

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

PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period... $ 10.71 $ 10.33 $ 10.28 $ 10.19 $ 10.18
-------- -------- -------- -------- ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. .52 .53(c) .56(c) .58(c) .05(c)
Net realized and unrealized gain (loss)
on investment transactions........... .49 .38 .05 .09 .01
-------- -------- -------- -------- ------
Total from investment operations....... 1.01 .91 .61 .67 .06
-------- -------- -------- -------- ------
LESS DISTRIBUTIONS
Dividends from net investment income... (.52) (.53) (.56) (.58) (.05)
Distributions in excess of net
investment income.................... (.01) --(e) -- -- --
-------- -------- -------- -------- ------
Total distributions.................. (.53) (.53) (.56) (.58) (.05)
-------- -------- -------- -------- ------
Net asset value, end of period......... $ 11.19 $ 10.71 $ 10.33 $ 10.28 $ 10.19
-------- -------- -------- -------- ------
-------- -------- -------- -------- ------
TOTAL RETURN (d):...................... 9.60% 9.01% 5.99% 6.98% .47%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........ $ 5,960 $ 3,611 $ 3,269 $ 2,762 $ 1,054
Average net assets (000)............... $ 4,491 $ 3,135 $ 3,300 $ 1,751 $ 353
Ratios to average net assets:
Expenses, including distribution
fee................................. 1.33% 1.38%(c) 1.15%(c) 1.05%(c) 1.12%(b)(c)
Expenses, excluding distribution
fee................................. .58% .63%(c) .40%(c) .30%(c) .37%(b)(c)
Net investment income................ 4.74% 5.01%(c) 5.36%(c) 5.84%(c) 6.25%(b)(c)
Portfolio turnover rate................ 10% 16% 22% 39% 46%
</TABLE>

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

(a) Commencement of offering of Class C shares.

(b) 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
-------------------------------
SEPTEMBER 18,
YEAR ENDED 1996(a)
AUGUST 31, THROUGH
1998 AUGUST 31, 1997
------------- ---------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $10.71 $10.38
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income................... .61(d) .57(d)
Net realized and unrealized gain (loss)
on investment transactions.............. .49 .33
------ ------
Total from investment operations........ 1.10 .90
------ ------
LESS DISTRIBUTIONS
Dividends from net investment income.... (.61) (.57)
Distributions in excess of net
investment income..................... (.01) --(e)
------ ------
Total distributions................... (.62) (.57)
------ ------
Net asset value, end of period.......... $11.19 $10.71
------ ------
------ ------
TOTAL RETURN (b):....................... 10.42% 8.86%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $4,507 $1,963
Average net assets (000)................ $3,312 $ 970
Ratios to average net assets:
Expenses.............................. .58%(d) .63%(c)(d)
Net investment income................. 5.49%(d) 5.76%(c)(d)
Portfolio turnover rate................. 10% 16%
</TABLE>

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

(a) Commencement of offering of Class Z shares.

(d) Net of management fee waiver.

(e) Less than $.005 per share.

8
<PAGE>
HOW THE FUND INVESTS

INVESTMENT OBJECTIVE AND POLICIES

THE SERIES WILL INVEST PRIMARILY IN CALIFORNIA 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 CALIFORNIA STATE AND FEDERAL INCOME
TAXES (CALIFORNIA 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 the 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." California law provides that dividends paid by the Series are
exempt from California State personal income tax for individuals who reside in
California to the extent such dividends are derived from interest payments on
California Obligations. California Obligations may 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 California Obligations, and the dollar-weighted average
maturity of the Series' portfolio will generally range between 10-20 years. The
Series may also 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. Currently,
interest rates are much lower than in recent years. As a general matter, bond
prices and the Series' NAV vary inversely with interest rate fluctuations. If
rates were to rise sharply, the prices of bonds in the Series' portfolio may be
adversely affected.

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.

9
<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 CALIFORNIA
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 CALIFORNIA
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 portfolios. 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 43.77%
AA/Aa 3.31%
A/A 7.81%
BBB/Baa 7.57%
Unrated
AAA/Aaa 10.42%
A/A 1.01%
BBB/Baa 7.09%
BB/Ba 13.87%
B/B 5.15%
</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>
UNDER NORMAL MARKET CONDITIONS, THE SERIES WILL ATTEMPT TO INVEST
SUBSTANTIALLY ALL OF THE VALUE OF ITS ASSETS IN CALIFORNIA 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
California State and federal income taxes or the Series will have at least 80%
of its total assets invested in California 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 California Obligations or may invest
its assets so that more than 20% of the income is subject to California 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 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.

11
<PAGE>
THE SERIES MAY PURCHASE SECONDARY MARKET INSURANCE ON CALIFORNIA 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 California 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.

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

12
<PAGE>

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>
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 CALIFORNIA 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 CALIFORNIA OBLIGATIONS TO THIS DEGREE. The recent
national recession severely affected several key sectors of California's economy
although the State's economy outperformed expectations in 1995 and strong growth
continued into 1997. The 1998-99 budget anticipates General Fund revenues of
$57.0 billion, expenditures of $57.3 billion, and a fiscal year end budget
reserve of $1.255 billion. California law, or the State's economically sensitive
tax structure, could restrict the ability of the State and its local
governmental entities to raise revenues sufficient to pay certain obligations.
If the issuers of any of the California Obligations are unable to meet their
financial obligations because of budgetary pressures 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.

OTHER INVESTMENTS AND POLICIES

REPURCHASE AGREEMENTS

BORROWING

PORTFOLIO TURNOVER

14
<PAGE>
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

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

For the fiscal year ended August 31, 1998, total expenses of the Series as a
percentage of average daily net assets, net of management fee waivers, were
.68%, 1.08%, 1.33% and .58% 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 .45 of 1% of the Series' average net
assets, after taking into account a management fee waiver. See "Fee Waivers and
Subsidy" below and "Manager" in the Statement of Additional Information.

15
<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, and are part of Prudential Investments, a business
group of Prudential.

FEE WAIVERS AND SUBSIDY

Effective July 1, 1996, PIFM agreed to waive 10% of its management fee. The
Series is not required to reimburse PIFM for such management fee waiver.
Thereafter, PIFM may from time to time agree to waive 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. See
"Performance Information" in the Statement of Additional Information and "Fund
Expenses."

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.

16
<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."

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.

PORTFOLIO TRANSACTIONS

17
<PAGE>
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT

YEAR 2000

HOW THE FUND VALUES ITS SHARES

HOW THE FUND CALCULATES PERFORMANCE

18
<PAGE>
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 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 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.

19
<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 recognized upon the
sale of assets by the Series, the maximum long-term capital gains 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.

20
<PAGE>
does not treat tax-exempt interest as a tax preference item for purposes of its
alternative minimum tax. To the extent a corporate shareholder receives
dividends which are exempt from California taxation, a portion of such dividends
may be subject to the alternative minimum tax.

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

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. For federal income tax purposes, the
Series had a capital loss carryforward at August 31, 1998 of approximately
$2,756,900, of which $1,781,200 expires in 2003 and $975,700 expires in 2004.
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, Attention: Account
Maintenance, P.O. Box 15015, New Brunswick, New Jersey 08906-5015. The Fund will
notify each shareholder after the close of the Fund's taxable year both of the
dollar amount and the taxable status of that year's dividends and distributions
on a per share basis.

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
California Series, the California Income Series and the California Money Market
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.

22
<PAGE>
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

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 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 your Dealer, 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.

23
<PAGE>

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 California Municipal Fund (California Income
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).

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 California
Municipal Fund (California Income 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 AND THE
LENGTH OF TIME YOU EXPECT TO HOLD THE SHARES AND OTHER RELEVANT CIRCUMSTANCES
(ALTERNATIVE PURCHASE PLAN).

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
redemption purchase proceeds;
declines to zero after six years

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

24
<PAGE>

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.

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 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.

25
<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 such 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

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:

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, from its own resources, based on a
percentage of the NAV of shares sold by such persons.

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.

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.

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 PRUDENTIAL SECURITIES 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>

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 purchased 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; 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.

29
<PAGE>
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>
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.

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.

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:

- 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 Dealer.

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

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 Fund 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
- ---------------------------------------------------

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

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........................................................ 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.................................................... 17
Custodian and Transfer and Dividend Disbursing Agent...................... 18
Year 2000................................................................. 18
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>

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

MF146A

Class A: 744313-30-5
CUSIP Nos.: Class B: 744313-40-4
Class C: 744313-80-0
Class Z: 744313-87-5

PRUDENTIAL
CALIFORNIA
MUNICIPAL
FUND

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

CALIFORNIA
INCOME SERIES

PROSPECTUS
November 2, 1998
www.prudential.com

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

[LOGO]
<PAGE>
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
(CALIFORNIA INCOME SERIES)

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

PROSPECTUS DATED NOVEMBER 2, 1998

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

This Prospectus sets forth concisely the information about the Fund and the
California Income 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 CALIFORNIA MUNICIPAL FUND?

WHAT IS THE SERIES' INVESTMENT OBJECTIVE?

WHAT ARE THE SERIES' RISK FACTORS AND SPECIAL CHARACTERISTICS?

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?

2
<PAGE>
WHAT IS THE MINIMUM INVESTMENT?

The minimum initial investment is $1,000 for Class A and Class B shares
and $5,000 for Class C shares. The minimum subsequent investment is $100 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 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. 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 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 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
(CALIFORNIA INCOME 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 (Before Waiver)..... .50% .50% .50% .50%
12b-1 Fees (After Reduction)........ .25%++ .50% .75%++ None
Other Expenses...................... 13% 13% 13% 13%
------ ----- ------ ------
Total Fund Operating Expenses
(Before Waiver and 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 $124
Class C............................. $34 $43 $75 $164
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 $124
Class C............................. $24 $43 $75 $164
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.

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 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 may independently 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 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 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............ $ 10.71 $ 10.33 $ 10.28 $ 10.19 $ 10.68 $ 10.08 $ 9.76 $ 9.55
-------- -------- -------- -------- -------- -------- -------- ------------
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income............ .59(c) .60(c) .63(c) .65(c) .65(c) .67(c) .69(c) .51(c)
Net realized and
unrealized gain
(loss) on
investment
transactions...... .49 .38 .05 .09 (.39) .65 .35 .21
-------- -------- -------- -------- -------- -------- -------- ------------
Total from
investment
operations........ 1.08 .98 .68 .74 .26 1.32 1.04 .72
-------- -------- -------- -------- -------- -------- -------- ------------
LESS DISTRIBUTIONS
Dividends from net
investment
income............ (.59) (.60) (.63) (.65) (.65) (.67) (.69) (.51)
Distributions in
excess of net
investment income... (.01) --(e)
Distributions from
net realized
gains............. -- -- -- -- (.10) (.05) (.03) --
-------- -------- -------- -------- -------- -------- -------- ------------
Total
distributions..... (.59) (.60) (.63) (.65) (.75) (.72) (.72) (.51)
-------- -------- -------- -------- -------- -------- -------- ------------
Net asset value, end
of period......... $ 11.19 $ 10.71 $ 10.33 $ 10.28 $ 10.19 $ 10.68 $ 10.08 $ 9.76
-------- -------- -------- -------- -------- -------- -------- ------------
-------- -------- -------- -------- -------- -------- -------- ------------
TOTAL RETURN (d):... 10.31% 9.72% 6.67% 7.67% 2.55% 13.67% 11.08% 7.97%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000)...... $181,512 $156,684 $153,236 $163,538 $183,742 $200,899 $141,101 $72,241
Average net assets
(000)............. $165,771 $153,019 $161,420 $165,500 $195,610 $165,895 $102,227 $47,540
Ratios to average
net assets:
Expenses,
including
distribution
fee.............. .68%(c) .73%(c) .50%(c) .40%(c) .35%(c) .20%(c) .10%(c) 0%(b)(c)
Expenses,
excluding
distribution
fee.............. .58%(c) .63%(c) .40%(c) .30%(c) .25%(c) .10%(c) .04%(c) 0%(b)(c)
Net investment
income........... 5.39%(c) 5.66%(c) 6.01%(c) 6.49%(c) 6.25%(c) 6.52%(c) 6.91%(c) 7.04%(b)(c)
Portfolio turnover
rate.............. 10% 16% 22% 39% 46% 34% 69% 35%
</TABLE>

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

(a) Commencement of offering of Class A shares.

(b) 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 two years ended August 31, 1996, and the period from December 7, 1993
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 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
-------------------------------------------------------
DECEMBER 7,
1993 (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... $ 10.71 $ 10.33 $ 10.28 $ 10.19 $ 10.61
-------- -------- -------- -------- -----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. .55(c) .55(c) .59(c) .61(c) .44(c)
Net realized and unrealized gain on
investment transactions.............. .49 .38 .05 .09 (.42)
-------- -------- -------- -------- -----------
Total from investment operations....... 1.04 .93 .64 .70 .02
-------- -------- -------- -------- -----------
LESS DISTRIBUTIONS
Dividends from net investment income... (.55) (.55) (.59) (.61) (.44)
Distributions in excess of net
investment income.................... (.01) --(e) -- -- --
-------- -------- -------- -------- -----------
Total distributions.................... (.56) (.55) (.59) (.61) (.44)
-------- -------- -------- -------- -----------
Net asset value, end of period......... $ 11.19 $ 10.71 $ 10.33 $ 10.28 $ 10.19
-------- -------- -------- -------- -----------
-------- -------- -------- -------- -----------
TOTAL RETURN (d):...................... 9.87% 9.28% 6.25% 7.24% (.14)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........ $ 70,535 $ 47,436 $ 35,983 $ 28,609 $18,931
Average net assets (000)............... $ 56,011 $ 40,983 $ 32,555 $ 23,722 $ 6,814
Ratios to average net assets:
Expenses, including distribution
fee................................. 1.08%(c) 1.13%(c) .90%(c) .80%(c) 1.11%(b)(c)
Expenses, excluding distribution
fee................................. .58%(c) .63%(c) .40%(c) .30%(c) .43%(b)(c)
Net investment income................ 4.99%(c) 5.26%(c) 5.61%(c) 6.09%(c) 8.15%(b)(c)
Portfolio turnover rate................ 10% 16% 22% 39% 46%
</TABLE>

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

(a) Commencement of offering of Class B 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.

(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,
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... $ 10.71 $ 10.33 $ 10.28 $ 10.19 $ 10.18
-------- -------- -------- -------- -----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. .52(c) .53(c) .56(c) .58(c) .05(c)
Net realized and unrealized gain (loss)
on investment transactions........... .99 .38 .05 .09 .01
-------- -------- -------- -------- -----------
Total from investment operations....... 1.01 .91 .61 .67 .06
-------- -------- -------- -------- -----------
LESS DISTRIBUTIONS
Dividends from net investment income... (.52) (.53) (.56) (.58) (.05)
Distributions in excess of net
investment income.................... (.01) --(e) -- -- --
-------- -------- -------- -------- -----------
Total distributions.................... (.53) (.53) (.56) (.58) (.05)
-------- -------- -------- -------- -----------
Net asset value, end of period......... $ 11.19 $ 10.71 $ 10.33 $ 10.28 $ 10.19
-------- -------- -------- -------- -----------
-------- -------- -------- -------- -----------
TOTAL RETURN (d):...................... 9.60% 9.01% 5.99% 6.98% .47%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........ $ 5,960 $ 3,611 $ 3,269 $ 2,762 $ 1,054
Average net assets (000)............... $ 4,491 $ 3,135 $ 3,300 $ 1,751 $ 353
Ratios to average net assets:
Expenses, including distribution
fee................................. 1.33%(c) 1.38%(c) 1.15%(c) 1.05%(c) 1.12%(b)(c)
Expenses, excluding distribution
fee................................. .58%(c) .63%(c) .40%(c) .30%(c) .37%(b)(c)
Net investment income................ 4.74%(c) 5.01%(c) 5.36%(c) 5.84%(c) 6.25%(b)(c)
Portfolio turnover rate................ 10% 16% 22% 39% 46%
</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.

(e) Less than $.005 per share.

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 September 18, 1996 through August 31,
1997 have been audited by PricewaterhouseCoopers LLP, independent accountants.
All of these 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
-----------------------------------
SEPTEMBER 18,
1996(a)
YEAR ENDED THROUGH
AUGUST 31, AUGUST 31,
1998 1997
---------------- ----------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.............. $10.71 $10.38
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income............................. .61(d) .57(d)
Net realized and unrealized gain (loss) on
investment transactions........................... .49 .33
------ ------
Total from investment operations.................. 1.10 .90
------ ------
LESS DISTRIBUTIONS
Dividends from net investment income.............. (.61) (.57)
Distributions in excess of net investment
income.......................................... (.01) --(e)
------ ------
Total distributions............................... (.62) (.57)
------ ------
Net asset value, end of period.................... $11.19 $10.71
------ ------
------ ------
TOTAL RETURN (b):................................. 10.42% 8.86%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)................... $4,507 $1,963
Average net assets (000).......................... $5,312 $ 970
Ratios to average net assets:
Expenses........................................ .58%(d) .63%(c)(d)
Net investment income........................... 5.49%(d) 5.76%(c)(d)
Portfolio turnover rate........................... 10% 16%
</TABLE>

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

(a) Commencement of offering of Class Z shares.

(d) Net of management fee waiver.

(e) Less than $.005 per share.

8
<PAGE>
HOW THE FUND INVESTS

INVESTMENT OBJECTIVE AND POLICIES

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. Currently,
interest rates are much lower than in recent years. As a general matter, bond
prices and the Series' NAV vary inversely with interest rate fluctuations. If
rates were to rise sharply, the prices of bonds in the Series' portfolio may be
adversely affected.

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.

THE SERIES MAY ALSO INVEST UP TO 30% OF ITS TOTAL ASSETS IN CALIFORNIA
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 portfolios. 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 43.77%
AA/Aa 3.31%
A/A 7.81%
BBB/Baa 7.57%

Unrated
AAA/Aaa 10.42%
A/A 1.01%
BBB/Baa 7.09%
BB/Ba 13.87%
B/B 5.15%
</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 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. 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.

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 California 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.

FUTURES CONTRACTS AND OPTIONS THEREON

12
<PAGE>

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>
SPECIAL CONSIDERATIONS

BECAUSE THE SERIES WILL INVEST AT LEAST 80% OF THE VALUE OF ITS TOTAL ASSETS
IN CALIFORNIA 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 CALIFORNIA OBLIGATIONS TO THIS DEGREE. The recent
national recession severely affected several key sectors of California's economy
although the State's economy outperformed expectations in 1995 and strong growth
continued into 1997. The budget 1998-99 anticipates General Fund revenues of
$57.0 billion, expenditures of $57.3 billion, and a fiscal year end budget
reserve of $1.255 billion. California law, or the State's economically sensitive
tax structure, could restrict the ability of the State and its local
governmental entities to raise revenues sufficient to pay certain obligations.
If the issuers of any of the California Obligations are unable to meet their
financial obligations because of budgetary pressures 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.

OTHER INVESTMENTS AND POLICIES

REPURCHASE AGREEMENTS

BORROWING

PORTFOLIO TURNOVER

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

14
<PAGE>
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 daily net assets were .68%, 1.08%, 1.33% and .58% 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 .45 of 1% of the Series' average net
assets, after taking into account a management fee waiver. 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 ADVISOR), 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.

15
<PAGE>
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.

FEE WAIVERS AND SUBSIDY

Effective July 1, 1996, PIFM agreed to waive 10% of its management fee. The
Series is not required to reimburse PIFM for such management fee waiver.
Thereafter, 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. See "Fund Expenses."

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 CLASS A, CLASS B, CLASS C AND CLASS Z SHARES OF THE
FUND. 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 Fund 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. 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 BY OR PAID FOR BY THE FUND.
These expenses include commissions and account servicing fees paid to, or on
account of, Dealers or financial institutions (other than national banks) which
have entered into agreements with the Distributor, advertising expenses, the
cost of printing and mailing prospectuses to potential investors and indirect
and overhead costs of the Distributor associated with the sale of the Fund's
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.

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 Fund's shares and the
maintenance of related shareholder accounts.

16
<PAGE>

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."

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

PORTFOLIO TRANSACTIONS

CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT

YEAR 2000

17
<PAGE>

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 that 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,
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.
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

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 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 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

18
<PAGE>
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

TAXATION OF SHAREHOLDERS

19
<PAGE>

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 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 gains 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.

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

WITHHOLDING TAXES

20
<PAGE>
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. For federal income tax purposes, the
Series had a capital loss carryforward at August 31, 1998 of approximately
$2,756,900, of which $1,781,200 expires in 2003 and $975,700 expires in 2004.
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, Attention: Account
Maintenance, P.O. Box 15035, New Brunswick, New Jersey 08906-5015. The Fund will
notify each shareholder after the close of the Fund's taxable year both of the
dollar amount and the taxable status of that year's dividends and distributions
on a per share basis.

GENERAL INFORMATION

DESCRIPTION OF SHARES

21
<PAGE>
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 trust and a Massachusetts
business corporation 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

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 15035, 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

22
<PAGE>

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. Dealers may charge their customers a separate fee
for handling purchase transactions. See "Alternative Purchase Plan" below.
Payments may be made by wire, check or through your brokerage account. See also
"How the Fund Values its Shares."

In order to receive that day's NAV, your order must be received before the
Fund's NAV is computed (currently 4:15 P.M., New York time). If you purchase
shares through your Dealer, the Dealer must receive your order before the Fund's
NAV is computed that day and must transmit the order to the Distributor that
same day for you to receive that day's NAV.

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.

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 in street name with their Dealer will not receive share
certificates.

PURCHASE BY WIRE. For an initial purchase of shares of the Series by wire, you
must complete an application and telephone the Transfer Agent 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 California Municipal Fund
(California Income Series), specifying on the wire the account number assigned
by the Transfer Agent and your name and identifying the class in which you are
eligible to invest (Class A, Class B, Class C or Class Z shares).

If you arrange for receipt by State Street of Federal Funds prior to the
calculation of NAV (4:15 P.M.), New York time, on a business day, you may
purchase shares of the 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 California
Municipal Fund (California Income Series), Class A, Class B, Class C or Class Z
shares and your name and individual account number. It is not necessary to call
the Transfer Agent to make subsequent purchase orders utilizing federal funds.
The minimum amount which may be invested by wire is $1,000.

23
<PAGE>
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 AND 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
and maximum CDSC of 1% of the rate of .75 of 1%) class
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>
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
fees 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.

CLASS A SHARES

25
<PAGE>

The Distributor may reallow the entire 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.

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. You must notify the Transfer Agent either
directly or through your Dealer that you are entitled to the waiver of the sales
charge. The reduction or waiver will be granted subject to confirmation of your
entitlement.

OTHER WAIVERS. Class A shares may be purchased at NAV, through the Transfer
Agent, by the following persons: (a) officers of the Prudential Mutual Funds
(including the Fund), (b) employees of the Distributor and PIFM and their
subsidiaries and members of the families of such persons who maintain an
employee related account at the Transfer Agent, (c) employees of subadvisers of
the Prudential Mutual Funds provided that such 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, and (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, (f) investors previously eligible to purchase Class A
shares at NAV because of their participation in programs sponsored by an
affiliate of the Distributor for certain retirement plan or deferred
compensation plan participants, (g) orders placed by broker-dealers, investment
advisers or financial planners who have entered into an agreement with the
Distributor, who place trades for their own accounts or the accounts of their
clients and who charge a management, consulting or other fee for their services
(E.G., mutual fund wrap or asset allocation programs), and (h) orders placed by
clients of broker-dealers, investment advisers or financial planners who place
trades for their own accounts if the accounts are linked to the master account
of such broker-dealer, investment adviser or financial planner on the books and
records of the broker-dealer, investment adviser or financial planner (E.G.,
mutual fund supermarket programs).

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.

CLASS B AND CLASS C SHARES

26
<PAGE>

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

CLASS Z SHARES

Class Z shares of the Fund are currently available for purchase:

(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 an affiliate of the Distributor who participate in an
employer-sponsored employee saving plan.

In connection with the sale of Class Z shares, the Manager, the Distributor or
one of their affiliates may pay 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.

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 TRANSFER AGENT, THE DISTRIBUTOR OR YOUR DEALER. See
"How the Fund Values its Shares." In certain cases, however, redemption proceeds
will be reduced by the amount of any applicable contingent deferred sales
charge, 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 15035, New Brunswick, New
Jersey 08906-5010, the Distributor or to your Dealer.

27
<PAGE>

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 REDEMPTION OF RECENTLY PURCHASED SHARES WILL BE DELAYED UNTIL THE
FUND OR THE 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 FUND OR THE TRANSFER AGENT. SUCH DELAY MAY BE AVOIDED BY
PURCHASING SHARES BY WIRE OR BY CERTIFIED OR CASHIER'S CHECK.

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 your Dealer or the Distributor, at the time the repurchase
privilege is exercised to adjust your account for the CDSC you previously paid.
Thereafter, any redemptions will be subject to the CDSC applicable at the time
of the redemption. See "Contingent Deferred Sales Charges" below. Exercise of
the repurchase privilege may affect the federal tax treatment of any gain
realized upon redemption.

CONTINGENT DEFERRED SALES CHARGES

28
<PAGE>

purchased 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; 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>

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.

CONVERSION FEATURE--CLASS B SHARES

30
<PAGE>

HOW TO EXCHANGE YOUR SHARES

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 15035, New Brunswick,
New Jersey 08906-5035.

31
<PAGE>

(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 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. For additional information about this service, you
may contact the Distributor, your Dealer or Transfer Agent directly.

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

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.

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>

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

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.................................................. 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............................................. 31
Shareholder Services.................................................... 32
DESCRIPTION OF SECURITY RATINGS........................................... A-1
</TABLE>

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

MF146P

Class A: 744313-30-5
CUSIP Nos.: Class B: 744313-40-4
Class C: 744313-80-0
Class Z: 744313-87-5

Prudential California
Municipal Fund
PROSPECTUS

[GRAPHIC]

NOVEMBER 2, 1998
CALIFORNIA INCOME SERIES

[LOGO]
<PAGE>

Prudential California Municipal Fund
(California Money Market Series)

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

PROSPECTUS DATED NOVEMBER 2, 1998

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

Prudential California Municipal Fund (the Fund) (California Money Market Series)
(the Series) is one of three 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 California 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
California 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
California 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
California Municipal 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 CALIFORNIA MUNICIPAL FUND?

WHAT IS THE SERIES' INVESTMENT OBJECTIVE?

The Series' investment objective is to provide the highest level of
current income that is exempt from California 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 California
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
California state and federal income taxes (California 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
more than 80% of the value of its total assets in California Obligations.
This degree of investment concentration makes the Series particularly
susceptible to factors adversely affecting issuers of California
Obligations, and makes an investment in the Series more risky than an
investment in other types of money market funds. 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 10.

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?

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 20.

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 12.

3
<PAGE>
FUND EXPENSES
(CALIFORNIA 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..................... .095%
-----
Total Fund Operating Expenses...... .720%
-----
-----
</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 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>
MARCH 3,
1989 (a)
YEAR ENDED AUGUST 31, THROUGH
------------------------------------------------------------------------------------------- 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
period...... $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/losses... .03 .03 .03 (.02e) .02 .02 .03 (.04c) (.05c) .03(c)
Dividends and
distributions... (.03) (.03) (.03) (.03) (.02) (.02) (.03) (.04) (.05) (.03)
Capital
contribution
by
affiliate... -- -- -- .01 -- -- -- -- -- --
---- -------- -------- ------------ -------- -------- -------- ------------ ----- ---------------
Net asset
value, end
of period... $1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $1.00 $ 1.00
---- -------- -------- ------------ -------- -------- -------- ------------ ----- ---------------
---- -------- -------- ------------ -------- -------- -------- ------------ ----- ---------------

TOTAL
RETURN (d):... 2.81% 2.85% 2.88% 3.01%(e) 1.94% 1.86% 2.91% 4.48% 5.59% 3.21%

RATIOS/SUPPLEMENTAL
DATA:
Net assets,
end of
period
(000)....... $301,278 $285,280 $249,833 $ 229,380 $300,676 $314,925 $315,890 $ 341,625 $388,739 $244,180
Average net
assets
(000)....... $287,250 $277,720 $256,175 $ 243,130 $326,429 $319,464 $339,941 $ 375,655 $330,581 $174,500
Ratios to
average net
assets:
Expenses,
including
distribution
fee......... .72% .73% .74% %.78 .73% .76% .76% %.63(c) %.38(c) .19%(b)(c)
Expenses,
excluding
distribution
fee........ .60% .61% .62% %.65 .61% .63% .63% %.51(c) %.25(c) .08%(b)(c)
Net
investment
income..... 2.77% 2.80% 2.83% 2.93% 1.91% 1.83% 2.89% 4.37%(c) 5.40%(c) 5.57%(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 one year are not annualized.

(e) Includes $.01 of net realized loss on investment transactions that
were offset by a capital contribution by an affiliate. Without the
effect of the capital contribution, the Series' total return would
have been 1.88%.

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 ALSO 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.................... $1.000455237
Value of hypothetical account at beginning of period.............. 1.000000000
------------
Base period return................................................ $ .000455237
------------
------------
CURRENT YIELD (.000455237 X (365/7)).............................. 2.37%
EFFECTIVE ANNUAL YIELD, assuming daily compounding................ 2.40%
TAX-EQUIVALENT CURRENT YIELD (2.37% DIVIDED BY
[(1-.093)(1-.396)]).............................................. 4.33%
</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 47 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 CALIFORNIA MUNICIPAL FUND (THE FUND) IS AN OPEN-END, MANAGEMENT
INVESTMENT COMPANY, OR MUTUAL FUND, CONSISTING OF THREE SEPARATE SERIES. EACH
SERIES OF THE FUND IS MANAGED INDEPENDENTLY. THE CALIFORNIA MONEY MARKET SERIES
(THE SERIES) IS DIVERSIFIED AND ITS INVESTMENT OBJECTIVE IS TO PROVIDE THE
HIGHEST LEVEL OF CURRENT INCOME THAT IS EXEMPT FROM CALIFORNIA 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 CALIFORNIA 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 CALIFORNIA STATE AND FEDERAL INCOME TAXES (CALIFORNIA 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." California law provides that dividends paid by the Series are
exempt from California state personal income tax for individuals who reside in
California to the extent they are derived from interest payments on California
Obligations. The California 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 CALIFORNIA 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 SUCH 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 California 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 California 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."

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.

7
<PAGE>
a temporary defensive position, the Series may invest more than 20% of the value
of its assets in short-term debt securities other than California Obligations or
may invest its assets so that more than 20% of the income is subject to
California 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 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 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 California 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 AT LEAST 80% OF THE VALUE OF ITS TOTAL ASSETS
IN CALIFORNIA 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 CALIFORNIA OBLIGATIONS TO THIS DEGREE. The state's
economy outperformed expectations in 1995 and strong growth continued into 1997.
The 1998-99 budget anticipates General Fund revenues of $57.0 billion,
expenditures of $57.3 billion and a fiscal year end budget reserve of $1.255
billion. California law could restrict the ability of the state and its local
governmental entities to raise revenues sufficient to pay certain obligations.
If the issuers of any of the California Obligations are unable to meet their
financial obligations because of budgetary pressures 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.

OTHER INVESTMENTS AND POLICIES

REPURCHASE AGREEMENTS

BORROWING

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

9
<PAGE>
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 .72%. 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.

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

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

10
<PAGE>

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.

UNDER THE PLAN, THE SERIES REIMBURSES THE DISTRIBUTOR FOR ITS
DISTRIBUTION-RELATED EXPENSES AT THE 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.

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

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.

11
<PAGE>

YEAR 2000

HOW THE FUND VALUES ITS SHARES

THE SERIES' 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.

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

12
<PAGE>

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
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.

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

13
<PAGE>
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.

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>
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 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 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 Prudental Securities, the minimum investment
requirement is $1,000 and there is no mimimum 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 AND PAYMENT 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 share
certificates.

15
<PAGE>
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.

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

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<PAGE>
(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.

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

<TABLE>
<S> <C> <C>
DAILY MONTHLY
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 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.

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 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).

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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 California
Municipal Fund, California 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 California
Municipal Fund (California 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 California Municipal Fund, California 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 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, investors
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
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

19
<PAGE>

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.

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.

20
<PAGE>

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 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 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.

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 the shareholder's
designated bank account.

DURING PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS, EXPEDITED REDEMPTION
MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD REDEEM YOUR 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.

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.

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<PAGE>

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, 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 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 (THE EXCHANGE
PRIVILEGE), INCLUDING 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 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.

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.

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<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).

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. 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.

- 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.

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

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

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................................................... 9
HOW THE FUND IS MANAGED..................................................... 10
Manager................................................................... 10
Distributor............................................................... 10
Portfolio Transactions.................................................... 11
Custodian and Transfer and Dividend Disbursing Agent...................... 11
Year 2000................................................................. 12
HOW THE FUND VALUES ITS SHARES.............................................. 12
TAXES, DIVIDENDS AND DISTRIBUTIONS.......................................... 12
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>

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

MF139A

CUSIP No.: 744313-50-3

PRUDENTIAL
CALIFORNIA
MUNICIPAL
FUND

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

CALIFORNIA
MONEY MARKET
SERIES

PROSPECTUS
November 2, 1998
www.prudential.com

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

[LOGO]
<PAGE>
Prudential California Municipal Fund

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

STATEMENT OF ADDITIONAL INFORMATION
DATED NOVEMBER 2, 1998

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

Prudential California Municipal Fund (the Fund) is an open-end, management
investment company, or mutual fund, consisting of three series -- the California
Series, the California Income Series and the California Money Market Series. The
objective of the California Series is to seek to provide the maximum amount of
income that is exempt from California State and federal income taxes consistent
with the preservation of capital, and in conjunction therewith, the California
Series may invest in debt securities with the potential for capital gain. The
objective of the California Income Series is to seek to provide the maximum
amount of income that is exempt from California State and federal income taxes
consistent with the preservation of capital. The objective of the California
Money Market Series is to seek to provide the highest level of current income
that is exempt from California State and federal income taxes consistent with
liquidity and the preservation of capital. All of the series are diversified.
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.

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

MF116B
<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Cross-Reference Cross-Reference Cross-Reference
to Pages in to Pages to Pages in
California in California California Money
Series Income Series Market Series
Page Prospectus Prospectus Prospectus
----------- ---------------- ---------------- -----------------------
<S> <C> <C> <C> <C>
Investment Objectives and Policies............. B-3 9 9 6
In General................................... B-3 -- -- --
Tax-Exempt Securities........................ B-5 9 9 6
Special Considerations Regarding Investments
in Tax-Exempt Securities.................... B-7 13 14 9
Put Options.................................. B-13 11 11 8
Financial Futures Contracts and Options
Thereon..................................... B-13 11 13 --
When-Issued and Delayed Delivery
Securities.................................. B-15 11 11 8
Segregated Accounts.......................... B-16 -- -- --
Portfolio Turnover of the California Series
and the California Income Series............ B-16 13 14 --
Illiquid Securities.......................... B-16 13 15 9
Repurchase Agreements........................ B-17 13 14 9
Investment Restrictions........................ B-17 14 15 9
Trustees and Officers.......................... B-18 14 15 10
Manager........................................ B-23 14 15 10
Distributor.................................... B-26 15 16 10
Portfolio Transactions and Brokerage........... B-28 16 17 11
Purchase and Redemption of Fund Shares......... B-30 22 23 16
Issuance of Fund Shares for Securities....... B-30
Specimen Price Make-Up....................... B-31 -- -- --
Reduction and Waiver of Initial Sales Charges
-- Class A Shares........................... B-31 25 26 --
Waiver of the Contingent Deferred Sales
Charge -- Class B Shares.................... B-33 28 29 --
Quantity Discount -- Class B Shares Pur-
chased Prior to August 1, 1994.............. B-33 29 30 --
Shareholder Investment Account................. B-33 31 32 23
Automatic Reinvestment of Dividends and/or
Distributions............................... B-33 31 32 23
Exchange Privilege........................... B-34 30 31 22
Dollar Cost Averaging........................ B-35 -- -- --
Automatic Investment Plan (AIP).............. B-36 32 33 23
Systematic Withdrawal Plan................... B-36 32 33 23
How to Redeem Shares of the California Money
Market Series............................... B-36 -- -- 20
Mutual Fund Programs......................... B-37 -- -- --
Net Asset Value................................ B-38 17 18 12
Performance Information........................ B-39 17 18 6
California Series and California Income
Series...................................... B-39 17 18 --
California Money Market Series............... B-40 -- -- 6
Taxes, Dividends and Distributions............. B-42 18 19 12
Distributions................................ B-42 20 21 14
Federal Taxation............................. B-42 18 19 13
California Taxation.......................... B-45 19 20 13
Organization and Capitalization................ B-46 20 22 14
Custodian, Transfer and Dividend Disbursing
Agent and Independent Accountants............. B-48 16 18 11
Description of Tax-Exempt Security Ratings..... B-49 -- A-1 --
Financial Statements........................... B-51 5 5 5
Report of Independent Accountants.............. B-63 -- -- --
Appendix I..................................... I-1 -- -- --
Appendix II.................................... II-1 -- -- --
Appendix III................................... III-1 -- -- --
</TABLE>

B-2
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES

IN GENERAL

Prudential California Municipal Fund (the Fund), organized on May 18, 1984,
is an open-end, management investment company consisting of three series -- the
California Series, the California Income Series and the California Money Market
Series. A separate Prospectus has been prepared for each series. This Statement
of Additional Information is applicable to all series. The investment objective
of the California Series is to seek to provide to shareholders who are residents
of California the maximum amount of income that is exempt from California State
and federal income taxes consistent with the preservation of capital, and in
conjunction therewith, the California 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 the California Income Series
is to seek to provide the maximum amount of income that is exempt from
California State and federal income taxes consistent with the preservation of
capital. The investment objective of the California Money Market Series is to
seek to provide the highest level of current income that is exempt from
California State and federal income taxes consistent with liquidity and the
preservation of capital. There can be no assurance that any series will achieve
its objective or that all income will be exempt from all federal, state or local
income taxes.

The investment objective of each 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.

The California Series and the California Income Series will invest in
California Obligations that are "investment grade" tax-exempt securities and
which on the date of investment are 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 California Income Series
also may invest up to 30% of its total assets in California 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 California 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 NRSROs 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 the
California Income Series prospectus and "Description of Tax-Exempt Security
Ratings" in this Statement of Additional Information. The ratings of Moody's and
S&P and other NRSROs 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.

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 total assets in securities the interest on which is
exempt from California State and federal income taxes or the series' assets will
be invested so that at least 80%

B-3
<PAGE>
of the income will be exempt from California State and federal income taxes.
Each series will continuously monitor both 80% tests to ensure that either the
asset investment test or the income test is met at all times except for
temporary defensive positions 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 of the California
Series and the California Income 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 California Money Market Series may also invest
in the taxable securities listed above, except that its debt securities, if
rated, will be rated within the two highest rating categories by at least two
NRSROs 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 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 its assets, (1) it may not invest more than 5% of its
total assets in the securities of any one issuer (except U.S. Government
obligations and obligations issued or guaranteed by its agencies or
instrumentalities) and (2) it may not own more than 10% of the outstanding
voting securities of any one issuer. For purposes of calculating this 5% or 10%
ownership limitation, 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.

Because 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 that a series may own so long as, with respect to 75% of its assets,
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 invested in a
minimum number of issuers, so that all of such assets may be invested in the
securities of any one issuer. Because of the relatively small number of issuers
of investment-grade tax-exempt securities (or, in the case of the California
Money Market Series, high-quality tax-exempt securities) in any one state, 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
should the issuer be unable to make interest or principal payments or should the
market value of such securities decline.

A series other than California Income 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
local authorities; lease rental obligations of states and local authorities;
obligations of state and local housing 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. The California Income Series may not purchase securities (other
than municipal obligations and obligations guaranteed as to principal and
interest by the U.S. Government or its agencies or instrumentalities) if, as a
result of such purchase, 25% or more of the total assets of the Series (taken at
current market value) would be invested in any one industry. 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.

B-4
<PAGE>
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 has 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) 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.

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
manufacturing, housing, sewage, solid waste disposal, airport, mass transit and
port facilities. The Internal Revenue Code restricts the types of industrial
development bonds (IDBs) which qualify to pay interest exempt from federal
income tax, and interest on certain IDBs issued after August 7, 1986 is subject
to the alternative minimum tax. Although IDBs 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 IDBs 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.

B-5
<PAGE>
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.

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 the California 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 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 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.

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
are frequently 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 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.

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

B-6
<PAGE>
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

In August 1996, legislation reforming the welfare system was passed by
Congress. In essence, it eliminated the federal guarantee of welfare benefits
and left 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.

CALIFORNIA CONCENTRATION. The following information regarding certain
California considerations is provided to investors in view of each series'
policy of concentrating its investments in California issuers. Such information
constitutes only a brief summary, does not purport to be a complete description,
and is based on information from official statements relating to securities
offerings of California issuers and other sources deemed reliable.

California is the most populous state in the nation with a total population
at the 1990 census of 29,976,000 (currently estimated to be over 32.9 million).
California's economy is broad and diversified.

After experiencing strong growth throughout much of the 1980s, the State was
adversely affected by both the recent national recession and the cutbacks in
aerospace and defense spending, which have had a severe impact on the economy in
Southern California. California's economic recovery from the recession is
continuing at a strong pace, and recent economic reports indicate that
California is on a stronger economic upturn than the rest of the country. The
rate of economic growth in California in 1997, in terms of job gains, exceeded
that of the rest of the United States. The State added nearly 430,000 non-farm
jobs during 1997. In 1996 California surpassed its pre-recession employment peak
of 12.7 million jobs. The unemployment rate, while still higher than the
national average, fell to 5.8% in June 1998, compared to over 10 percent during
the recession. Many of the new jobs were created in such industries as computer
services, software design, motion pictures and high technology manufacturing.
Business services, export trade and other manufacturing also experienced growth.
All major economic regions of the State grew. The rate of employment growth for
the Los Angeles region indicates that growth has almost caught up with that in
the San Francisco bay region on a population share basis. As California enters
its fourth year of economic recovery, its finances continue to show improvement.
The unsettled financial situation occurring in certain Asian economies, and its
spillover effect elsewhere, may adversely the State's export-related industries
and, therefore, the State's rate of economic growth.

The Governor signed the 1998-99 Budget Act on August 21, 1998. The 1998-99
Budget Act is based on projected General Fund revenues and transfers of $57.0
billion (after giving effect to various tax reductions enacted in 1997 and
1998), a 4.2% increase from the revised 1997-98 figures. Special Fund revenues
were estimated at $14.3 billion. The revenue projections were based on the
Governor's May Revision to the 1998-99 Budget and may be overstated in light of
the possible effect on California's economic growth of worsening economic
problems in various international markets.

The Budget Act provides authority for expenditures of $57.3 billion from the
General Fund (a 7.3% increase from 1997-98), $14.7 billion from Special Funds,
and $3.4 billion from bond funds. The Budget Act projects a balance in the SFEU
at June 30, 1999 of $1.255 billion, a little more than 2% of General Fund
revenues. The Budget Act assumes the State will carry out its normal intra-year
cash flow borrowing in the amount of $1.7 billion of revenue anticipation notes
issued in October 1998.

The most significant feature of the 1998-99 budget was agreement on a total
of $1.4 billion of tax cuts. The central element is a bill which provides for a
phased-in reduction of the Vehicle License Fee (VLF). Since the VLF is currently
transferred to cities and counties, the bill provides for the General Fund to
replace the lost revenues. Starting on January 1, 1999, the VLF will be reduced
by 25%, at a cost to the General Fund of approximately $500 million in the
1998-99 Fiscal Year and about $1 billion annually thereafter.

B-7
<PAGE>

In addition to the cut in the VLF, the 1998-99 budget includes both
temporary and permanent increases in the personal income tax dependent credit
($612 million General Fund cost in 1998-99, but less in future years), a
nonrefundable renters tax credit ($133 million), and various targeted business
tax credits ($106 million). About half of the business tax credits will only
become effective if Proposition 7, an initiative measure which includes various
tax credits, is rejected by the voters on the November 3, 1998 ballot.

The 1998-99 Budget Act includes increased funding for schools, higher
education, health, welfare and social service programs, and trial courts and
prisons. The Budget also includes new funding for natural resources projects,
dedication of $376 million of General Fund moneys for capital outlay projects,
funding of a 3% State employee salary increase, funding of 2,000 new Department
of Transportation positions to accelerate transportation construction projects,
and funding of the California Infrastructure and Economic Development Bank ($50
million).

Because of the State's continuing budget problems, the State's General
Obligation bonds were downgraded in July 1994 to A1 from Aa by Moody's, to A
from A+ by Standard & Poor's, and to A from AA by Fitch. All three rating
agencies expressed uncertainty in the State's ability to balance the budget by
1996. However, in 1996, citing California's improving economy and budget
situation, both Fitch and Standard & Poor's raised their ratings from A to A+.
In October 1997, Fitch raised its rating from A+ to AA- referring to
California's fundamental strengths, the extent of economic recovery and the
return of financial stability. In October 1998, Moody's raised its rating from
A1 to Aa3 citing the State's continuing economic recovery and a number of
actions taken to improve the State's credit condition, including the rebuilding
of cash and budget reserves.

On December 6, 1994, Orange County (California) became the largest
municipality in the United States to file for protection under the federal
bankruptcy laws. The filing stemmed from approximately $1.7 billion in losses
suffered by the County's investment pool due to a high risk investment strategy
utilizing excessive leverage and "derivative" securities. In June 1996, the
County completed an $880 million bond offering secured by real property owned by
the County. On June 12, 1996, the County emerged from bankruptcy. On January 7,
1997, Orange County returned to the municipal bond market with a $136 million
bond issue maturing in 13 years at an insured yield of 7.23 percent. In December
1997, Moody's raised its ratings on $325 million of Orange County pension
obligation bonds to Baa3 from Ba. In February 1998 Fitch assigned outstanding
Orange County pension obligation bonds a BBB rating.

Los Angeles County, the nation's largest county, has also experienced
financial difficulty. In August 1995, the credit rating of the County's
long-term bonds was downgraded for the third time since 1992 as a result of,
among other things, severe operating deficits for the County's health care
system. In addition, the County was affected by an ongoing loss of revenue
caused by State property tax shift initiatives in 1993 through 1995. In April
1998 the Los Angeles County Chief Administrative Officer proposed an
approximately $13.2 billion 1998-99 budget, which would be 5.3% larger than the
1997-98 budget, and which would not require cuts in services and jobs to close a
projected deficit. In June 1998 the Los Angeles County Board of Supervisors
approved an approximately $13.6 billion 1998-99 budget, reserving the right to
make further changes to reflect revenue allocation decisions in the final State
budget.

Certain municipal securities may be obligations of issuers which rely in
whole or in part on State revenues for payment of such obligations. In 1978,
State voters approved an amendment to the State Constitution known as
Proposition 13. The amendment limits ad valorem taxes on real property and
restricts the ability of taxing entities to increase real property tax revenues.
State legislation was adopted which provided for the reallocation of property
taxes and other revenues to local public agencies, increased State aid to such
agencies, and the assumption by the State of certain obligations previously paid
out of local funds. More recent legislation has, however, reduced State
assistance payments to local governments. There can be no assurance that any
particular level of State aid to local governments will be maintained in future
years.

The State Constitution imposes an "appropriations limit" on the spending
authority to the State and local government entities. If a government entity
raises revenues beyond its "appropriations limit" in any year, a portion of the
excess which cannot be appropriated within the following year's limit must be
returned to the entity's taxpayers within two subsequent fiscal years, generally
by a tax credit, refund or temporary suspension of tax rates or fee schedules.

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In 1986, State voters approved an initiative measure known as Proposition
62, which among other things requires that any tax for general governmental
purposes imposed by local governments be approved by a two-thirds vote of the
governmental entity's legislative body and by a majority of its electorate,
requires that any special tax (levied for other than general governmental
purposes) imposed by a local government be approved by a two-thirds vote of its
electorate, and restricts the use of revenues from a special tax to the purposes
or for the service for which the special tax was imposed. In September 1995, the
California Supreme Court upheld the constitutionality of Proposition 62,
creating uncertainty as to the legality of certain local taxes enacted by
non-charter cities in California without voter approval. It is not possible to
predict the impact of the decision. In 1988, State voters approved Proposition
87, which amended the State Constitution to authorize the State Legislature to
prohibit redevelopment agencies from receiving any property tax revenues raised
by increased property taxes to repay bonded indebtedness of local government
which is not approved by voters on or after January 1, 1989. It is not possible
to predict whether the State Legislature will enact such a prohibition, nor is
it possible to predict the impact of Proposition 87 on redevelopment agencies
and their ability to make payments on outstanding debt obligations.

In November 1988, California voters approved Proposition 98. The initiative
requires that revenues in excess of amounts permitted to be spent and which
would otherwise be returned by revision of tax rates or fee schedules, be
transferred and allocated (up to a maximum of 40%) to the State School Fund and
be expended solely for purposes of instructional improvement and accountability.
Proposition 98 also requires the State of California to provide a minimum level
of funding for public schools and community colleges. The initiative permits the
enactment of legislation, by a two-thirds vote, to suspend the minimum funding
requirement for one year.

In November 1996, California voters approved Proposition 218. The initiative
applied the provisions of Proposition 62 to all entities, including charter
cities. It requires that all taxes for general purposes obtain a simple majority
popular vote and that taxes for special purposes obtain a two-third majority
vote. Prior to the effectiveness of Proposition 218, charter cities could levy
certain taxes such as transient occupancy taxes and utility user's taxes without
a popular vote. Proposition 218 will also limit the authority of local
governments to impose property-related assessments, fees and charges, requiring
that such assessments be limited to the special benefit conferred and
prohibiting their use for general governmental services. Proposition 218 also
allows voters to use their initiative power to reduce or repeal
previously-authorized taxes, assessments, fees and charges.

Proposition 9 on the November 3, 1998, State ballot would overturn certain
aspects of legislation enacted in 1996 and 1997 to deregulate the electric
industry in California. As part of this deregulation, the three investor owned
utilities in California issued about $6 billion in aggregate of "rate reduction
bonds" to finance the "stranded costs" (outstanding obligations) incurred in
connection with of certain uneconomic facilities. These bonds are repaid through
a surcharge placed on residential and small business customers' bills. The
legislation authorizing issuance of these bonds included a pledge that the State
would not interfere with the levying of these surcharges without providing other
means to repay the bonds. One part of Proposition 9 would be the cancellation of
the utilities' authority to collect these surcharges. If Proposition 9 is
approved by the voters, it is anticipated that litigation will be filed to
declare the initiative unconstitutional. Because of the uncertainty of
litigation, it is not possible to predict whether any State General Fund moneys
eventually might be required to repay the rate reduction bonds. It is also not
possible to predict what effect, if any, passage of Proposition 9 will have on
the marketability of outstanding California State and local obligations or on
the availability of capital for, or cost of, future State and local borrowing.

In addition, certain tax-exempt securities in which the series may invest
may be obligations payable solely from the revenues of specific institutions, or
may be secured by specific properties, which are subject to provisions of
California law that could adversely affect the holders of such obligations. For
example, the revenues of California health care institutions may be subject to
state laws, and California law limits the remedies of a creditor secured by a
mortgage or deed of trust on real property.

In July 1991, California increased taxes by adding two new marginal tax
rates, at 10% and 11%, effective for tax years 1991 through 1995. For years
beginning after January 1, 1996, the maximum personal income tax rate returned
to 9.3%, and the alternative minimum tax rate dropped from 8.5% to 7%. In
addition, legislation

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in July 1991 raised the sales tax by 1.25%. A 0.5% raise was a permanent
addition to counties, but with the money earmarked to trust funds to pay for
health and welfare programs whose administration was transferred to counties.
This tax increase will be cancelled if a court rules that such transfer and tax
increase violate any constitutional requirements. 0.5% of the State tax rate was
scheduled to expire on June 30, 1993, but was extended for six months for the
benefit of counties and cities. On November 2, 1993, voters made this half-
percent levy a permanent source of funding for local government.

The effect of these various constitutional and statutory amendments, cases
and budgetary developments upon the ability of California issuers to pay
interest and principal on their obligations remains unclear. Furthermore, other
measures affecting the taxing or spending authority of California or its
political subdivisions may be approved or enacted in the future.

From time to time, the State is a party to numerous legal proceedings, many
of which normally occur in governmental operations. In addition, the State is
involved in certain other legal proceedings that, if decided against the State,
might require the State to make significant future expenditures or impair future
revenue sources.

The State's reliance on information technology in every aspect of its
operations has made Year 2000-related ("Y2K") information technology issues a
high priority for the State. The Department of Information Technology ("DOIT"),
an independent office reporting directly to the Governor, is responsible for
ensuring the State's information technology processes are fully functional
before the year 2000. The DOIT has created a Year 2000 Task Force and a
California 2000 Office to establish statewide policy requirements, to gather,
coordinate, and share information, and to monitor statewide progress. In
December 1996, the DOIT began requiring departments to report on Y2K activities
and currently requires departmental monthly reporting of Y2K status. The DOIT
has emphasized to departments that efforts should be focused on applications
that support mission-critical business practices.

Although the DOIT reports that State departments are making substantial
progress overall toward the goal of Y2K compliance, the task is very large and
will likely encounter unexpected difficulties. The State has not predicted
whether all mission critical systems will be ready and tested by late 1999 or
what impact failure of any particular system(s) or of outside interfaces with
State systems might have. There can be no assurance that steps being taken by
California state or local government agencies with respect to the Year 2000
problem will be sufficient to avoid any adverse impact upon the budgets or
operations of those agencies or upon the Fund.

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, vol. 20,
no. 1, (January-March 1998) ("Economic Review"). The Services, Retail and
Transportation sectors, which are heavily

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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.

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 Economic
Review. 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 Economic Review.

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
Economic Review. 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 a budget deficit of $75 million at October, 1997.

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 fiscal year ending 1999, according to a September 2, 1998 report of
the Economist Intelligene 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

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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 Government has begun privatisation 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 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

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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.

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 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 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 California 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 California Money Market Series) highest quality
grade of such rating services; 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.

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 (SEC).

FINANCIAL FUTURES CONTRACTS AND OPTIONS THEREON

FUTURES CONTRACTS. The California Series and the California Income Series
(but not the California 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 California Series or the California Income 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 custodial account approximately 5% of the contract amount,
called the initial margin. Subsequent payments to and from the broker, called
variation margin, will be made on a daily basis as the price of the underlying
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 the California Series or the California Income Series purchases a
futures contract, it will maintain an amount of cash or other liquid assets,
marked-to-market daily, in a segregated account with the Fund's Custodian, 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.
Should the California Series or the California Income Series sell a futures
contract it may cover that position by owning the instruments underlying the
futures contract or by holding a call option on such futures contract. The
California Series or the California Income Series will not sell futures
contracts if

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the value of such futures contracts exceeds the total market value of the
securities of the California Series or the California Income Series. It is not
anticipated that transactions in futures contracts will have the effect of
increasing portfolio turnover.

OPTIONS ON FINANCIAL FUTURES. The California Series and the California
Income Series (but not the California 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. The California Series and the California Income 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 the California Series or the California Income 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 the California Series or the
California Income 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 the
Series' purchasing and selling financial futures contracts and options thereon
for BONA FIDE hedging transactions, except that the 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. The California Series and the
California Income Series will use financial futures and options thereon in a
manner consistent with these requirements. With respect to long positions
assumed by the California Series or the California Income Series, the series
will segregate with the Fund's Custodian 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 its use of
futures contracts is unleveraged. Each of the California Series and the
California Income Series will continue to invest at least 80% of its total
assets in California municipal obligations except in certain circumstances, as
described in the Prospectuses under "How the Fund Invests -- Investment
Objective and Policies." The California Series and the California Income 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 the Prospectuses of the California Series and the California
Income Series, there are a number of other risks associated with the use of
financial futures for hedging purposes.

The California Series and the California Income Series intend 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

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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 contracts 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 the California Series and the
California Income 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 the 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 the 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 the 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.

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

B-15
<PAGE>
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 or 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, each series will meet its
obligations from then available cash flow, sale of securities held in the
separate account, sale of other securities or, although it would not normally
expect to do so, from the sale of the securities themselves (which may have a
value greater or lesser 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 California 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.

SEGREGATED ACCOUNTS

When each series is required to segregate assets in connection with certain
hedging transactions, it will mark cash or other liquid assets as segregated
with the Fund's Custodian. "Liquid Assets" means cash, U.S. Government
securities, equity securities, debt obligations or other liquid, unencumbered
assets, marked-to-market daily.

PORTFOLIO TURNOVER OF THE CALIFORNIA SERIES AND THE CALIFORNIA INCOME SERIES

Portfolio transactions will be undertaken principally to accomplish the
objective of the California Series and the California Income Series in relation
to anticipated movements in the general level of interest rates but each such
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 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 series' investment policies may lead to frequent changes in investments,
particularly in periods of rapidly fluctuating interest rates. A change in
securities held by the California Series and the California Income 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. The series' portfolio turnover rate will not
be a limiting factor when the series deem it desirable to sell or purchase
securities. For the fiscal years ended August 31, 1998 and August 31, 1997, the
portfolio turnover rate of the California Series was 11% and 14%, respectively.
For the fiscal years ended August 31, 1998 and August 31, 1997, the portfolio
turnover rate of the California Income Series was 10% and 16%, respectively.

ILLIQUID SECURITIES

A series may hold up to 15% (10% in the case of the California 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

B-16
<PAGE>
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 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 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 univested 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.

B-17
<PAGE>
A series may not:

1. Purchase securities on margin (but the series 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 California Series or the
California Income 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 series may 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 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 its 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 and the writing of related options by the California
Series or the California Income 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.

4. Purchase any security if as a result, with respect to 75% of its total
assets, more than 5% of its total assets 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 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, securities which are secured by real estate and
securities of companies which invest or deal in real estate. The California
Money Market Series may not purchase and sell financial futures contracts and
related options.

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.

The California Income Series may not purchase securities (other than
municipal obligations and obligations guaranteed as to principal and interest by
the U.S. Government or its agencies or instrumentalities) if, as a result of
such purchase, 25% or more of the total assets of the Series (taken at current
market value) would be invested in any one industry.

For purposes of investment limitation number 4, the California 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 a series' 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 series'
asset coverage for borrowings falls below 300%, the series will take prompt
action to reduce its borrowings, as required by applicable law.

TRUSTEES AND OFFICERS

<TABLE>
<CAPTION>
NAME AND ADDRESS** (AGE) POSITION WITH FUND PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
-------------------------------------------------- ------------------ --------------------------------------------------
<C> <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.
</TABLE>

B-18
<PAGE>

<TABLE>
<CAPTION>
NAME AND ADDRESS** (AGE) POSITION WITH FUND PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
-------------------------------------------------- ------------------ --------------------------------------------------
<C> <S> <C> <C>
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 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.

* 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 Prudential
One New York Plaza Securities; formerly Interim Chairman and Chief
New York, NY 10292 Executive Officer of Prudential Mutual Fund
Management, Inc. (June 1993-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) of
751 Broad Street Prudential Mutual Funds; formerly Chief Financial
Newark, NJ 07102 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.
</TABLE>

B-19
<PAGE>

<TABLE>
<CAPTION>
NAME AND ADDRESS** (AGE) POSITION WITH FUND PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
-------------------------------------------------- ------------------ --------------------------------------------------
<C> <S> <C> <C>
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.

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 In-
come 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 Director
Newark, NJ 07102 (October 1993-September 1996) of Prudential
Mutual Fund Management, Inc.; Executive Vice
President, Director and Member of Operating
Committee (October 1993-September 1996),
Prudential Securities; Director (October
1993-September 1996) of 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.
</TABLE>

B-20
<PAGE>

<TABLE>
<CAPTION>
NAME AND ADDRESS** (AGE) POSITION WITH FUND PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
-------------------------------------------------- ------------------ --------------------------------------------------
<C> <S> <C> <C>
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.

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 C. Torres (39).............................. Treasurer and First Vice President (since December 1996) of
Principal PIFM; First Vice President (since March 1994) of
Financial and Prudential Securities; formerly First Vice
Accounting President (March 1994-September 1996) of
Officer 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 1996)
Treasurer 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; Vice
Secretary President and Associate General Counsel of Pru-
dential Securities; formerly Vice President and
Associate General Counsel (June 1991-September
1996) of PMF.
</TABLE>

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

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

B-21
<PAGE>

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 $3,000, 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 an SEC
exemptive order, at the daily rate of return of the Fund. Payment of the
interest so accrued is also deferred and accruals become payable at the option
of the Trustee. The 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 $ 3,000 None N/A $ 135,000(38/63)*
Eugene C. Dorsey, Trustee** $ 3,000 None N/A $ 70,000(16/43)*
Delayne Dedrick Gold, Trustee $ 3,000 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 $ 3,000 None N/A $ 90,000(26/50)*
Mendel A. Melzer, Trustee+ -- None N/A --
Thomas T. Mooney, Trustee** $ 3,000 None N/A $ 115,000(31/64)*
Thomas H. O'Brien, Trustee $ 3,000 None N/A $ 45,000(11/29)*
Richard A. Redeker, Trustee+ -- None N/A --
Nancy H. Teeters, Trustee $ 3,000 None N/A $ 90,000(23/42)*
Louis A. Weil, III, Trustee $ 3,000 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, 1997, 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: Mrs. Joyce Williams, TTEE, Williams Family Trust, Trust B UA DTD
10/12/90, 6873 Cartwright St., San Diego, CA 92120-1024, who held 6,213 Class C
shares of The California Series (6.3%); Mr. Harold A. Seppala, Mrs. Elma H.
Seppala CO-TTEES, Harold & Elma Seppala Trust, UA DTD 10/31/89, 5474 Marengo
Ave. Apt W382, La Mesa, CA 91942-4706, who held 7,432 Class C shares of The
California Series (7.5%); Mrs. Joyce Williams TTEE, Williams Family Trust, UA
DTD 10/12/90,

B-22
<PAGE>

6873 Cartwright St., San Diego, CA 92120-1024, who held 8,285 Class C shares of
The California Series (8.4%); Mrs. Natalie M. Di Mercurio, 1009 Belson St.,
Torrance, CA 90502-2919, who held 5,083 Class C shares of The California Series
(5.1%); Bobby Y. Matsuura, Janice Matsuura JT TEN, 1491 Almaden Valley Dr., San
Jose, CA 95120-3, who held 10,208 Class C shares of The California Series
(10.3%); David L. Stark &, Joyce A. Stark JT TEN, 6609 Via Canada, Rancho Palos
Verdes, CA 90274, who held 13,221 Class C shares of The California Series
(13.4%); Robert J. Cassietto & Terry A. Cassietto JT TEN, 2901 Poinsettia Ave.,
Manhattan Beach, CA 90266-2404, who held 6,493 Class C shares of The California
Series (6.6%); Mrs. Muriel V. Trapp TTEE, Of The Muriel Trapp Trust, UA DTD
07/22/98, 7294 Pomelo Dr., West Hills, CA 91307-1221, who held 9,334 Class Z
shares of The California Series (10.7%); Lloyd M. Ives, M. Constance Ives
CO-TTEES, The Ives Family Trust, UA DTD 08/09/89, PO Box 701, Diablo, CA
94528-0701, who held 20,769 Class Z shares of The California Series (23.9%);
August G. Bako, Evelyn M. Bako, CO-TTEES, August G. Bako & Evelyn Bako, LIV TR
UA DTD 09/11/87, 4905 Elrod Dr., Castro Valley. CA 94546-2415, who held 12,924
Class Z shares of The California Series (14.9%); Roy H. Bostic, Rita M. Bostic
CO-TTEES The Bostic Family REV FAM TR, UA DTD 04/18/90, 6117 Oakgreen Cir.,
Carmichael, CA 95608-1010, who held 5,465 Class Z shares of The California
Series (6.3%); Mr. Duncan Lent Howard , Mrs. Pamele Lent Howard CO-TTEES,
Elizabeth Lent Howard Trust UA DTD 08/10/76, 3741 Waterford Ln., Walnut Creek,
CA 94598-4678, who held 6,524 Class Z shares of The California Series (7.5%);
Julia M. McLaughlin, Alton & Julie McLaughlin Trust , UA DTD 12/12/77, 1840 Tice
Creek Dr. Apt 2115, Walnut Creek, CA 94595-2458, who held 10,462 Class Z shares
of The California Series (12%); Richard C. Elliott, Beverley S. Elliott
CO-TTEES, The Elliott Family Trust, UA DTD 12/20/76, 23 Harbor Island, Newport
Beach, CA 92660-7201, who held 857,079 Class A shares of The California Income
Series (5.2%); Bobby Y. Matsuura, 4428 Thistle Dr., San Jose, CA 95136-2, who
held 30,686 Class C shares of The California Income Series (5.4%); Zoe Ann Orr,
Mary Marcus CO-TTEES, Zoe Ann Orr 1994 Trust, UA DTD 12/01/94, 740 Brewington
Ave., Watsonville, CA 95076-3260, who held 35,927 Class C shares of The
California Income Series (6.4%); Mary Marcus TTEE, The Marcus 1984 REV Trust, UA
DTD 03/05/84, 834 McKenzie Ave., Watsonville, CA 95076-3526, who held 28,316
Class C shares of The California Income Series (5%); Julia M. McLaughlin TTEE,
FBO The Alton and Julia McLaughlin Trust, UA DTD 12/12/77, 1840 Tice Creek Dr.
Apt 2115, Walnut Creek, CA 94595-2458, who held 33,050 Class Z shares of The
California Income Series (7.6%); Ms. Mary Malkason TTEE, Of The Mary Malkason
1998, Revocable Trust UA DTD 04/21/98, 16161 Jasmine Way, Los Gatos, CA
95032-3630, who held 84,884 Class Z shares of The California Income Series
(19.4%).

As of October 9, 1998, Prudential Securities was the record holder for other
beneficial owners of 4,465,498 Class A shares (or 58% of the outstanding Class A
shares), 2,863,811 Class B shares (or 59% of the outstanding Class B shares),
67,959 Class C shares (or 69% of the outstanding Class C shares) and 86,867
Class Z shares of the California Series (or 99.9% of the outstanding Class Z
shares); 12,996,137 Class A shares (or 79% of the outstanding Class A shares),
5,445,903 Class B shares (or 83% of the outstanding Class B shares), 465,593
Class C shares (or 82% of the outstanding Class C shares) and 437,138 Class Z
shares or 99.9% of the outstanding Class Z shares of the California Income
Series; and 304,594,423 shares of the California Money Market Series (or 99.9%
of the outstanding shares). 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 the 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 $64
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.

B-23
<PAGE>

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 to PIFM 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. No
jurisdiction currently limits the Fund's expenses.

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

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

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

(c) the costs and expenses payable to The Prudential Investment
Corporation, doing business as Prudential Investments (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 Fund's
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 the Fund's legal counsel and independent
accountants, (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 association of which the Fund is 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 communications expenses with respect
to investor services and all expenses of shareholders' and Trustees' meetings
and of preparing, printing and mailing reports, proxy statements and
prospectuses to shareholders, (l) litigation and indemnification expenses and
other extraordinary expenses not incurred in the ordinary course of the Fund's
business and (m) distribution fees.

B-24
<PAGE>

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
a breach of fiduciary duty with respect to the receipt of compensation for
services or 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 provides that it 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
accordance with the requirements of the Investment Company Act applicable to
continuance of investment advisory contracts. 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
the California Series on December 8, 1988, by shareholders of the California
Money Market Series on December 18, 1989 and by the shareholders of the
California Income Series on December 30, 1991.

For the fiscal years ended August 31, 1996, 1997 and 1998, PIFM received
management fees of $755,684, $698,397 and $766,228, respectively, from the
California Series. Effective January 1, 1995 through August 31, 1997, PIFM
agreed to waive 10% of its management fee from the California Series. The amount
of fees waived for the fiscal years ended August 31, 1996 and 1997 amounted to
$83,965 and $77,598, respectively. With respect to the California Money Market
Series, PIFM received $1,280,877, $1,388,598 and $1,436,251 in management fees
for the fiscal years ended August 31, 1996, 1997 and 1998, respectively. With
respect to the California Income Series, PIFM waived its entire management fee
for the fiscal year ended August 31, 1993. Effective December 1, 1993, PIFM
reduced its voluntary waiver to 75% of its management fee. Effective January 1,
1995, PIFM increased its voluntary waiver to 85% of its management fee. PIFM
reduced its voluntary waiver during fiscal year 1997 and currently is waiving
10% of its management fee. For the fiscal years ended August 31, 1996, 1997 and
1998, PIFM received $455,115, $891,272 and $1,147,925, respectively, in
management fees from the California Income Series. The amount of the fees waived
for the years ended August 31, 1996, 1997 and 1998 amounted to $533,497, $99,030
and $114,792 respectively.

PIFM has entered into the Subadvisory Agreement with the Subadviser. The
Subadvisory Agreement provides that PIC will furnish investment advisory
services in connection with the management of the Fund. In connection therewith,
PIC is obligated to keep certain books and records of the Fund. Under the
Subadvisory Agreement, PIC, subject to the supervision of PIFM, is responsible
for managing the assets of the Fund in accordance with its investment objectives
and policies. PIC determines what securities and other instruments are purchased
and sold for the Fund and is responsible for obtaining and evaluating financial
data relevant to the Fund. PIFM continues to have responsibility for all
investment advisory services pursuant to the Management Agreement and supervises
PIC's performance of such services. PIC is reimbursed by PIFM for the reasonable
costs and expenses incurred by PIC 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 the California Series on December 8, 1988, by
shareholders of the California Money Market Series on December 18, 1989 and by
the shareholders of the California Income Series on December 30, 1991.

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 PIC upon not more than 60 days', nor less than
30 days', written notice. The Subadvisory Agreement provides that it will
continue in effect for a period of more than two years from its execution only
so long as such continuance is specifically approved at least annually in
accordance with the requirements of the Investment Company Act.

B-25
<PAGE>
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 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 07102-04077, acts
as the distributor of the shares of the Fund. Prior to July 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
California Income Series and the California Series under Rule 12b-1 under the
Investment Company Act and separate distribution agreements for the California
Money Market Series and the other series (the Distribution Agreements), the
Distributor incurs the expenses of distributing shares of the California Money
Market Series and the Class A, Class B and Class C shares of the California
Income Series and the California Series. The Distributor also incurs the
expenses of distributing the Fund's Class Z shares under the Distribution
Agreement for the California Series and the California Income Series, none of
which is reimbursed by or paid for by the Fund. See "How the Fund is Managed --
Distributor" in each Prospectus.

Prior to January 22, 1990, the California Series 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 either Plan (the Rule
12b-1 Trustees), at a meeting called for the purpose of voting on each Plan,
adopted a new plan of distribution for the Class A shares of the California
Series (the Class A Plan) and approved an amended and restated plan of
distribution with respect to the Class B shares of the California Series (the
Class B Plan). The Class A Plan became applicable to the California Income
Series effective with the commencement of offering its Class A shares on
December 3, 1990 and the Class B Plan became applicable to the California Income
Series effective with the commencement of offering its Class B shares on
December 6, 1993. 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 each Plan, 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. The

B-26
<PAGE>

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 of the California Series and the California
Income Series, and the Class B Plan, as previously amended, was approved by
Class B shareholders of the California Series and the California Income Series
on July 19, 1994. The Class C Plan was approved by the sole shareholder of 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.

CLASS A PLAN. For the fiscal year ended August 31, 1998, Prudential
Securities, as the predecessor distributor, and the Distributor received
payments of $85,624 and $165,772 for the California Series and the California
Income Series, respectively, under the Class A Plan. These amounts were
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 approximately $50,200 and $445,200 in initial sales charges with
respect to the sale of Class A shares of the California Series and the
California Income Series, respectively.

CLASS B PLAN. For the fiscal year ended August 31, 1998, Prudential
Securities, as the predecessor distributor, and the Distributor received
$330,431 from the California Series under the Fund's Class B Plan and spent
approximately $330,800 in distributing the Class B shares of the California
Series during such period. For the fiscal year ended August 31, 1998, Prudential
Securities, as the predecessor distributor, and the Distributor received
$280,056 from the California Income Series under the Fund's Class B Plan and
spent approximately $1,075,300 in distributing the Class B shares of the
California Income Series during such period.

For the fiscal year ended August 31, 1998, it is estimated that Prudential
Securities, as the predecessor distributor, and the Distributor spent
approximately the following amounts on behalf of the series of the Fund:

<TABLE>
<CAPTION>
COMPENSATION APPROXIMATE
PRINTING AND COMMISSION TO PRUSEC* FOR TOTAL
MAILING PAYMENTS TO OVERHEAD COMMISSION AMOUNT
PROSPECTUSES FINANCIAL COSTS PAYMENTS TO SPENT BY
TO OTHER ADVISERS OF OF REPRESENTATIVES DISTRIBUTOR
THAN CURRENT PRUDENTIAL PRUDENTIAL AND OTHER ON BEHALF OF
SERIES SHAREHOLDERS SECURITIES SECURITIES** EXPENSES** SERIES
- ------------ --------------- ----------- ------------ --------------- -------------
<S> <C> <C> <C> <C> <C>
California
Series..... $ 4,600 $ 181,200 $ 94,200 $ 50,800 $ 330,800
California
Income
Series..... $ 1,600 $ 432,500 $ 554,100 $ 87,100 $ 1,075,300
</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 Distributor also receives the proceeds of contingent deferred sales
charges paid by investors upon certain redemptions of Class B shares. See
"Shareholder Guide -- How to Sell Your Shares -- Contingent Deferred Sales
Charges" in the Prospectuses of the California Income Series and the California
Series. For the fiscal year ended August 31, 1998, Prudential Securities, as the
predecessor distributor, and the Distributor received approximately $76,400 and
$121,500 in contingent deferred sales charges for the Class B shares of the
California Series and California Income Series, respectively.

CLASS C PLAN. For the fiscal year ended August 31, 1998, Prudential
Securities, as the predecessor distributor, and the Distributor received $33,686
and $5,164 from the California Income Series and the California Series,
respectively, under the Fund's Class C Plan. For the fiscal year ended August
31, 1998,

B-27
<PAGE>

Prudential Securities, as the predecessor distributor, and the Distributor spent
approximately $42,500 and $12,400 in distributing the Class C shares of the
California Income Series and the California Series, respectively. These amounts
were expended primarily for the payment of account servicing fees. The
Distributor also receives the proceeds of contingent deferred sales charges paid
by investors upon certain redemptions of Class C shares. See "Shareholder Guide
- -- How to Sell Your Shares -- Contingent Deferred Sales Charges" in the
Prospectuses of the California Income Series and the California Series. For the
fiscal year ended August 31, 1998, Prudential Securities, as the predecessor
distributor, and the Distributor received approximately $3,300 and $2,400 on
behalf of the California Income Series and the California Series, respectively
in contingent deferred sales charges attributable to Class C shares.

The Class A, Class B and Class C Plans continue in effect from year to year,
provided that each 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. The
Plans may each be terminated at any time, without penalty, by the vote of a
majority of the Rule 12b-1 Trustees or by the vote of the holders of a majority
of the outstanding shares of the applicable class on not more than 30 days'
written notice to any other party to the Plans. The Plans may not be amended to
increase materially the amounts to be spent for the services described therein
without approval by the shareholders of the applicable class (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 California Income Series and the California Series by the Distributor.
The report includes an itemization of the distribution expenses and the purposes
of such expenditures. In addition, as long as the Plans remain in effect, the
selection and nomination of Rule 12b-1 Trustees shall be committed to the Rule
12b-1 Trustees.

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.

CALIFORNIA MONEY MARKET SERIES PLAN OF DISTRIBUTION. The California Money
Market Series' Plan of Distribution (the CMMS Plan) was last approved by the
Trustees of the Fund, 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 CMMS Plan or in any agreements related to the
CMMS Plan, at a meeting called for the purpose of voting on the CMMS Plan, on
May 12, 1998, and by shareholders of the California Money Market Series on
December 18, 1989. For the fiscal year ended August 31, 1998, Prudential
Securities, as the predecessor distributor, and the Distributor incurred
distribution expenses of $359,063 with respect to the California Money Market
Series, all of which were recovered by Prudential Securities or the Distributor
through the distribution fee paid by the California Money Market Series.

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, 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 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.

B-28
<PAGE>
Purchases and sales of securities on a securities exchange, which are not
expected to be a significant portion of the portfolio securities of the Fund,
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.

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

Portfolio securities may not be purchased from any underwriting or selling
group of which Prudential Securities (or any affiliate), during the existence of
the group, 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 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.

In placing orders for portfolio securities for 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, dealer or futures
commission merchant based on the quality and quantity of execution services
provided by the broker in the light of generally prevailing rates. The Manager's
policy is to pay higher commissions to brokers, dealers or futures commission
merchants 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.

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 a securities exchange or board of trade
during a comparable period

B-29
<PAGE>

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
arms-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) under the Securities
Exchange Act of 1934, as amended, Prudential Securities may not retain
compensation for effecting transactions on a national securities exchange for
the Fund unless the Fund has expressly authorized the retention of such
compensation. Prudential Securities must furnish to the Fund at least annually a
statement setting forth the total amount of all compensation retained by
Prudential Securities from transactions effected for the Fund during the
applicable period. Brokerage and futures transactions with Prudential Securities
(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, 1996, 1997 and 1998, the California
Series paid brokerage commissions of $19,688, $9,450 and $10,448 respectively,
on certain futures transactions. The California Series paid no brokerage
commissions to Prudential Securities during those periods. During the fiscal
years ended August 31, 1996, 1997 and 1998, the California Money Market Series
paid no brokerage commissions. During the fiscal years ended August 31, 1996,
1997 and 1998, the California Income Series paid brokerage commissions of
$15,942, $13,633 and $10,448 respectively. None of the brokerage commissions
paid by the California Income Series were paid to Prudential Securities.

PURCHASE AND REDEMPTION OF FUND SHARES

Shares of the California Series and the California Income Series of the Fund
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 (i) at the time of purchase (Class A shares), (ii) on a deferred
basis (Class B shares), (iii) or both (Class C shares). Class Z shares of the
California Series and the California Income Series are offered to a limited
group of investors at NAV without a sales charge. See "Shareholder Guide -- How
to Buy Shares of the Fund" in the Prospectuses of the California Series and the
California Income Series.

Each class of shares represents an interest in the same portfolio of
investments of each such 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 California
Money Market Series, see the Prospectus of the California Money Market Series.

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 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.

B-30
<PAGE>
SPECIMEN PRICE MAKE-UP

Under the current distribution arrangements between the California Income
Series and the California Series and the Distributor, Class A shares are sold at
a maximum sales charge of 3% and Class B*, Class C* and Class Z shares are sold
at NAV. Using the NAV of these Series at August 31, 1998, the maximum offering
price of the Series' shares would have been as follows:

<TABLE>
<CAPTION>
CALIFORNIA
CALIFORNIA INCOME
SERIES SERIES
----------- -----------
<S> <C> <C>
CLASS A
- -----------------------------------------------------------------------------------------
Net asset value and redemption price per Class A share................................... $ 12.22 $ 11.19
Maximum initial sales charge (3% of offering price)...................................... .38 .35
----------- -----------
Offering price to public................................................................. $ 12.60 $ 11.54
----------- -----------
----------- -----------
CLASS B
- -----------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per Class B share*.................. $ 12.22 $ 11.19
----------- -----------
----------- -----------
CLASS C
- -----------------------------------------------------------------------------------------
Net asset value and redemption price per Class C share................................... $ 12.22 $ 11.19
Maximum initial sales charge (1% of offering price)**.................................... .12 .11
----------- -----------
Offering price to public................................................................. $ 12.34 $ 11.30
----------- -----------
----------- -----------
CLASS Z
- -----------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per Class Z share................... $ 12.23 $ 11.19
----------- -----------
----------- -----------
</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 company will
be deemed to control the company, 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;

(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

B-31
<PAGE>

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 charges 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 shareholder is entitled to a reduced sales charge. The reduced
sales charges 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 and through your Dealer 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
California Series or the California Income Series to sell, the indicated amount.
In the event the Letter of Intent goal is not achieved within the thirteen-month
period, the purchaser is required to pay the difference between the sales charge
otherwise applicable to the purchases made during this period and sales charges
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 California
Series or the California Income Series pursuant to a Letter of Intent should
carefully read such Letter of Intent.

B-32
<PAGE>

WAIVER OF 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 shares of the Fund, 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.

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 of the Fund.
An investor may direct the Transfer Agent in writing not less than five full
business days prior to the record date to have subsequent dividends 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

B-33
<PAGE>

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 shareholders will receive credit for any CDSC paid in connection
with the amount of proceeds being reinvested.

EXCHANGE PRIVILEGE

The California Income Series and the California Series make available to
their shareholders the privilege of exchanging their shares of the Series for
shares of certain other Prudential Mutual Funds, including one or more specified
money market funds, subject in each case to the minimum investment requirements
of such funds. Shares of such other Prudential Mutual Funds may also be
exchanged for shares of the California Income Series and the California Series.
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 California Income Series and the California
Series may exchange their Class A shares for Class A shares of certain other
Prudential Mutual Funds, shares of Prudential Government Securities Trust
(Short-Intermediate Term Series) and shares of the money market funds specified
below. No fee or sales load will be imposed upon the exchange. Shareholders of
money market funds who acquired such shares upon exchange of Class A shares may
use the exchange privilege only to acquire Class A shares of the Prudential
Mutual Funds participating in the exchange privilege.

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

Prudential California Municipal Fund
(California Money Market Series)

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

Class B and Class C shares of the California Income Series and the
California Series 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
Series, 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

B-34
<PAGE>
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,
respectively, of the California Income Series and the California Series 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,
respectively, of other funds 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 sixty 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 CALIFORNIA 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 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)
- ------------------------

(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 1993-94 academic year.

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

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

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

(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.

B-35
<PAGE>

AUTOMATIC INVESTMENT PLAN (AIP)

Under AIP, an investor may arrange to have a fixed amount automatically
invested in shares of the California Income Series or the California 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 Fund. The investor's bank must be a member of the Automatic
Clearing House System. Share certificates are not issued to AIP participants.

Further information about this program and an application form can be
obtained from the Transfer Agent, the Distributor or your 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 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 distributions automatically
reinvested in additional full and fractional shares at NAV on shares held under
the 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 shareholders.

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 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 CALIFORNIA 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 California 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.

B-36
<PAGE>
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, Attention: Redemption Services, P.O. Box
15010, New Brunswick, New Jersey 08906-5015.

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: Redemption Services, P.O. Box 15010, 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
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, 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.

B-37
<PAGE>
NET ASSET VALUE

The 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 its NAV daily at 4:15 P.M., New York time, for the California Series and
the California Income Series and at 4:30 P.M., New York time, for the California
Money Market Series 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
applicable series have been received or on days on which changes in the value of
the portfolio securities of that series 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 California Series and the California
Income Series) and between such closing and 4:30 P.M., New York time (with
respect to shares of the California Money Market Series). 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. When market quotations are not readily
available, such securities and other assets 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 instruments which mature in less than
60 days 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 California Money Market Series uses the amortized cost method to
determine the value of its 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 California 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 SEC. The Trustees have
adopted procedures designed to stabilize, to the extent reasonably possible, the
California 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
California Money Market Series' portfolio holdings by the Trustees, at such
intervals as they may deem appropriate, to determine whether the California
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-38
<PAGE>
PERFORMANCE INFORMATION

CALIFORNIA SERIES AND CALIFORNIA INCOME SERIES

YIELD. Each of the California Series and California Income 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. This
yield will be computed by dividing the Series' net investment income per share
earned during this 30-day period by the maximum offering price per share on the
last day of this period.

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>

The California Series' yield for Class A, Class B, Class C and Class Z shares
for the 30 days ended August 31, 1998 was 4.04%, 3.77%, 3.52% and 4.26%,
respectively. The California Income Series' yield for its Class A, Class B,
Class C and Class Z shares for the 30 days ended August 31, 1998 was 4.15%,
3.89%, 3.64% and 4.38%, respectively (4.10%, 3.84%, 3.59% and 4.33%,
respectively, without management fee waivers).

Yield fluctuates and an annualized yield quotation is not a representation
by the Fund as to what an investment in the Fund will actually yield for any
given period.

The California Series and California Income 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 California
Series and California Income 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. For the 30 days
ended August 31, 1998, the California Series' tax equivalent yield (assuming a
federal tax rate of 36%) for Class A, Class B, Class C and Class Z shares was
6.96%, 6.49%, 6.06% and 7.34%, respectively. The California Income Series' tax
equivalent yield (assuming a federal tax rate of 36%) for its Class A, Class B,
Class C, and Class Z shares for the 30 days ended August 31, 1998 was 7.15%,
6.70%, 6.27% and 7.55%, respectively (7.06%, 6.62%, 6.18% and 7.46%,
respectively, without management fee waivers).

AVERAGE ANNUAL TOTAL RETURN. Each of the California Series and California
Income Series 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.

B-39
<PAGE>

The California Series' average annual total returns for the periods ended
August 31, 1998 are as follows:

<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------------------- -------------------------------------------
ONE FIVE FROM INCEPTION ONE FIVE TEN FROM INCEPTION
YEAR YEARS INCEPTION DATE YEAR YEARS YEARS INCEPTION DATE
----- ----- -------- -------- ----- ----- ----- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average Annual Total Return........ 5.86% 5.39% 7.28% 1/22/90 3.70% 5.46% 7.36% 8.04% 9/19/84
Average Annual Total Return without
Subsidy/Waiver.................... 5.86% 5.35% 7.26% 1/22/90 3.70% 5.43% 7.35% 7.96% 9/19/84

<CAPTION>
CLASS C CLASS Z
------------------------------ ------------------------------
ONE FROM INCEPTION ONE FROM INCEPTION
YEAR INCEPTION DATE YEAR INCEPTION DATE
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Average Annual Total Return........ 7.43% 7.00% 8/1/94 9.24% 9.03% 9/18/96
Average Annual Total Return without
Subsidy/Waiver.................... 7.43% 6.96% 8/1/94 9.24% 8.99% 9/18/96
</TABLE>

The California Income Series' average annual total returns for the periods
ended August 31, 1998 are as follows:

<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------ -----------------------------
ONE FIVE FROM INCEPTION ONE FROM INCEPTION
YEAR YEARS INCEPTION DATE YEAR INCEPTION DATE
----- ----- --------- --------- ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Average Annual Total Return................................. 7.00% 6.70 % 8.49% 12/3/90 4.87% 6.74% 12/7/93
Average Annual Total Return without Subsidy/Waiver.......... 7.00% 6.49 % 8.19% 12/3/90 4.87% 6.56% 12/7/93

<CAPTION>
CLASS C CLASS Z
----------------------------- -----------------------------

ONE FROM INCEPTION ONE FROM INCEPTION
YEAR INCEPTION DATE YEAR INCEPTION DATE
----- --------- --------- ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Average Annual Total Return................................. 8.60% 7.84% 8/1/94 10.42% 9.90% 9/18/96
Average Annual Total Return without Subsidy/Waiver.......... 8.60% 7.68% 8/1/94 10.37% 9.85% 9/18/96
</TABLE>

AGGREGATE TOTAL RETURN. Each of the California Series and California Income
Series 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 one of the Series 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 (or fractional portion thereof) of a hypothetical
$1000 payment made at the beginning of the 1, 5 or 10 year
periods.

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 California Series' aggregate total returns for the periods ended August
31, 1998 are as follows:

<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------------------- --------------------------------
ONE FIVE FROM INCEPTION ONE FIVE TEN INCEPTION
YEAR YEARS INCEPTION DATE YEAR YEARS YEARS DATE
----- ----- -------- -------- ----- ----- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aggregate Total Return........ 9.13% 34.01% 88.70% 1/22/90 8.70% 31.47% 103.48% 9/19/84
Aggregate Total Return without
Subsidy/Waiver............... 9.13% 33.79% 88.39% 1/22/90 8.70% 31.25% 103.15% 9/19/84

<CAPTION>
CLASS C CLASS Z
------------------------------ ------------------------------
ONE FROM INCEPTION ONE FROM INCEPTION
YEAR INCEPTION DATE YEAR INCEPTION DATE
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Aggregate Total Return........ 8.43% 31.81% 8/1/94 9.24% 18.36% 9/18/96
Aggregate Total Return without
Subsidy/Waiver............... 8.43% 31.59% 8/1/94 9.24% 18.26% 9/18/96
</TABLE>

The California Income Series' aggregate total returns for the periods ended
August 31, 1997 are as follows:

<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------- -----------------------------
ONE FIVE FROM INCEPTION ONE FROM INCEPTION
YEAR YEARS INCEPTION DATE YEAR INCEPTION DATE
----- ------ --------- --------- ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Aggregate Total Return............................ 10.31% 42.55% 93.75% 12/3/90 9.87% 37.15% 12/7/93
Aggregate Total Return without Subsidy/Waiver..... 10.26% 41.15% 89.59% 12/3/90 9.82% 36.04% 12/7/93

<CAPTION>
CLASS C CLASS Z
----------------------------- -----------------------------
ONE FROM INCEPTION ONE FROM INCEPTION
YEAR INCEPTION DATE YEAR INCEPTION DATE
----- --------- --------- ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Aggregate Total Return............................ 9.60% 36.10% 8/1/94 10.42% 20.20% 9/18/96
Aggregate Total Return without Subsidy/Waiver..... 9.55% 35.25% 8/1/94 10.37% 20.09% 9/18/96
</TABLE>

CALIFORNIA MONEY MARKET SERIES

The California 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

B-40
<PAGE>

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 California Money Market
Series' portfolio and its operating expenses. The California 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 California Money Market Series'
annualized seven-day current yield and effective annual yield as of August 31,
1998 was 2.37% and 2.40%, respectively.

The California Money Market Series may also calculate its 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 California Money Market Series' 7-day tax equivalent yield (assuming a
federal tax rate of 39.6%) as of August 31, 1998 was 4.08%.

Comparative performance information may be used from time to time in
advertising or marketing the California Money Market Series' shares, including
data from Lipper Analytical Services, Inc., IBC/Donoghue's Money Fund Report or
other industry publications.

The California Money Market Series' yield fluctuates, and an annualized
yield quotation is not a representation by the California Money Market Series as
to what an investment in the California Money Market Series will actually yield
for any given period. Yield for the California Money Market Series will vary
based on a number of factors including changes in market conditions, and level
of interest rates and the level of California Money Market Series income and
expenses.

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 Govt. 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). Used with permission. 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.

B-41
<PAGE>

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 Fund 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 previous business day on which the
Fund is open for business. Accordingly, a shareholder of the California Series
and the California Income Series who redeems his or her shares effective as of
4:15 P.M. (4:30 P.M. for the California 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 in the California
Series and the California Income Series whose purchase order is effective as of
4:15 P.M. (4:30 P.M. for the California Money Market Series), New York time, on
a Friday does not begin earning dividends until the following business day. For
series other than California Money Market Series, net investment income consists
of interest income accrued on portfolio securities less all expenses, calculated
daily. For the California Money Market Series, net investment income consists of
interest income accrued on portfolio securities less all expenses, calculated
daily plus/minus any capital gains/losses.

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 the series.

The per share dividends on Class B and Class C shares of the California
Series and the California Income Series will be lower than the per share
dividends on Class A shares of the California Series and the California Income
Series, respectively, 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."

Annually, the Fund will mail to shareholders information regarding the tax
status of 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 its net
investment income and capital gains, if any, realized during the taxable year
which it distributes to its 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)
with respect to tax years beginning on or before August 5, 1997, derive less
than 30% of its annual gross income (without offset for losses) from the sale or
other disposition of stock, securities or futures contracts or options thereon
held for less than three months; (c) 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.

B-42
<PAGE>
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 (d)
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.

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, 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 gain over the net long-term capital loss 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.

Since each series is treated as a separate entity for federal income tax
purposes, the determination of the amount of net capital gains, the
identification of those gains as short-term, mid-term or long-term and the
determination of the amount of income dividends of a particular 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 are computed by taking into account
any capital loss carryforward of the series.

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 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.

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 the series, all outstanding put options or other Section 1256 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

B-43
<PAGE>

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.

Any net capital gains (I.E., the excess of net capital gains from the sale
of assets held for more than 12 months over net short-term capital losses)
distributed to shareholders will be taxable as capital gains to the
shareholders, whether or not reinvested and regardless of the length of time a
shareholder has owned his or her shares. The maximum capital gains rate for
individuals is 28% with respect to assets held for more than 12 months, but not
more than 18 months, and 20% with respect to assets held for more than 18
months. The maximum capital gains rate for corporate shareholders currently is
the same as the maximum tax rate for ordinary income.

If any net capital gains from the sale of securities 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 series shares by the differences between their PRO RATA share of such
gains and their tax credit.

Any short-term capital loss realized upon the redemption of shares within 6
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
exempt-interest dividend. Any loss realized upon the redemption of shares within
6 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. 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).

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 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 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 Fund may be
adversely affected. In such case, each series 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,

B-44
<PAGE>
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 taxable 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.

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.

CALIFORNIA TAXATION

In any year in which each series qualifies as a regulated investment company
under the Internal Revenue Code (as in effect January 1, 1997) and is exempt
from federal income tax under such rules, (i) such series will also be exempt
from the California corporate income and franchise taxes to the extent it
distributes its income and (ii) provided 50% or more of the value of the total
assets of such series at the close of each quarter of its taxable year consists
of obligations the interest on which (when held by an individual) is exempt from
personal income taxation under California law, such series will be qualified
under California law to pay "exempt-interest" dividends which will be exempt
from the California personal income tax.

Individual shareholders of a series who reside in California will not be
subject to California personal income tax on distributions received from the
series to the extent such distributions are attributable to interest received by
the series during its taxable year on obligations which (when held by an
individual) pay interest that is exempt from taxation under California law.
Distributions from such series which are attributable to sources other than
those described in the preceding sentence will generally be taxable to such
shareholders. In addition, distributions other than exempt-interest dividends to
such shareholders are includable in income subject to the California alternative
minimum tax.

The portion of dividends constituting exempt-interest dividends is that
portion derived from interest on obligations which (when held by an individual)
pay interest excludable from California personal income under California law.
The total amount of California exempt-interest dividends paid by a series to all
of its shareholders with respect to any taxable year cannot exceed the amount of
interest received by the series during such year on such obligations less any
expenses and expenditures (including dividends paid to corporate shareholders)
deemed to have been paid from such interest. Any dividends paid to corporate
shareholders subject to the California franchise tax will be taxed as ordinary
dividends to such shareholders.

Distributions of investment income and long-term and short-term capital
gains will not be excluded from taxable income in determining the California
franchise tax for corporate shareholders. In addition, such distributions may be
includable in income subject to the alternative minimum tax.

Interest on indebtedness incurred or continued by shareholders to purchase
or carry shares of a series will not be deductible for California personal
income tax purposes. In addition, as a result of California's incorporation of
certain provisions of the Internal Revenue Code, any loss realized by a
shareholder upon the sale of shares held for six months or less may be
disallowed to the extent of any exempt-interest dividends received with respect
to such shares. Moreover, any loss realized upon the redemption of shares within
6 months from the date of purchase of such shares and following receipt of a
long-term capital gains distribution will be treated as long-term capital loss
to the extent of such long-term capital gains distribution. Finally, any loss
realized upon the redemption of shares within 30 days before or after the
acquisition of other shares of the same series may be disallowed under the "wash
sale" rules.

B-45
<PAGE>
Shares of the Fund will not be subject to the California property tax.

The foregoing is only a summary of some of the important California income
tax considerations generally affecting the Fund and its shareholders. The Fund
has obtained an opinion of its California tax counsel which confirms these state
tax consequences for California resident individuals and corporations. No
attempt is made to present a detailed explanation of the California personal
income tax treatment of a series or its shareholders, and this discussion is not
intended as a substitute for careful planning. Shareholders of the Fund should
consult their tax advisers about other state and local tax consequences of their
investments in the Fund and their own California tax situation.

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 when 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 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 each 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 three 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 of the Fund 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, 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

B-46
<PAGE>
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 that 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 chose, 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 the 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, 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

B-47
<PAGE>

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 of approximately $180,700
($52,900 for the California Series, $81,200 for the California Money Market
Series and $46,600 for the California Income Series) for the services of PMFS.

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

B-48
<PAGE>
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.

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.

B-49
<PAGE>
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-50
<PAGE>

Portfolio of Investments as of PRUDENTIAL CALIFORNIA MUNICIPAL FUND
August 31, 1998 CALIFORNIA 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--98.5%
- ---------------------------------------------------------------------------------------------------------------------------------
Alisal Union Sch. Dist.,
Capital Apprec., Ser C, F.G.I.C. Aaa Zero 8/01/12 $ 1,025 $ 526,840
Capital Apprec., Ser C, F.G.I.C. Aaa Zero 8/01/14 1,030 472,234
Capital Apprec., Ser C, F.G.I.C. Aaa Zero 8/01/16 1,005 415,578
Capital Apprec., Ser C, F.G.I.C. Aaa Zero 8/01/21 1,635 520,093
Arcadia Unified Sch. Dist., Gen. Oblig. 1993, Ser. A,
M.B.I.A. Aaa Zero 9/01/10 1,765 1,017,876
Baldwin Park Pub. Fin. Auth. Rev., Tax Alloc. BBB(d) 7.05% 9/01/14 1,020 1,145,807
Berkeley Hosp. Rev., Alta Bates Hosp. Corp. Aaa 7.65 12/01/15 1,500(c) 1,619,160
Brea Pub. Fin. Auth. Rev., Sub. Tax Alloc. Redev.
Proj., Ser. C NR 8.10 3/01/21 5,000 5,375,000
Buena Park Cmnty. Redev. Agcy., Central Bus. Dist.
Proj. BBB+(d) 7.10 9/01/14 2,500 2,744,550
California Commerce Cmnty. Dev. Tax Alloc. Redev.
Proj., Ser. A NR 5.65 8/01/18 1,175 1,189,170
California Hlth. Facs. Fin. Ins. Scripps, Ser. C Aaa 5.00 10/01/22 500 493,090
California St. Hlth. Facs. Fin. Auth. Rev.,
Eskaton Properties NR 7.50 5/01/20 4,500(c)(e) 4,861,845
Valleycare Hosp. Corp. A+(d) 5.50 5/01/20 2,250 2,347,650
California St. Hsg. Fin. Agcy. Rev., Sngl. Fam. Mtge.,
Ser. A Aa Zero 2/01/15 8,420 1,794,976
Chula Vista Redev. Agcy., Bayfront Tax Alloc. BBB+(d) 7.625 9/01/24 4,500 5,286,375
Contra Costa Cnty., Spec. Tax Cmnty. Facs. Dist.
Pleasant Hill NR 8.125 8/01/16 1,300(c) 1,430,559
Desert Hosp. Dist., Cert. of Part. AAA(d) 8.10 7/01/20 5,000(c)(e) 5,495,600
East Palo Alto Sanit. Dist., Cert. of Part. NR 8.25 10/01/15 1,295 1,389,626
Fairfield Pub. Fin. Auth. Rev., Fairfield Redev.
Projs., Ser. A NR 7.90 8/01/21 4,200(c) 4,754,988
Fontana Cmnty. Facs., Dist. No. 2, Spec. Tax Rev., Ser.
B NR 8.50 9/01/17 3,000 3,060,000
Foothill/Eastern Trans. Corridor Agcy.,
Toll Rd. Rev., 1995-A Baa Zero 1/01/16 5,000 2,053,650
Toll Rd. Rev. Baa Zero 1/01/18 2,950 1,083,181
Kings Cnty. Wst. Mgmt. Auth., Solid Wst. Rev., A.M.T. BBB+(d) 7.20 10/01/14 1,225 1,386,394
La Canada Unified Sch. Dist.,
Capital Apprec., F.G.I.C. Aaa Zero 8/01/12 1,600 822,384
Unltd. Tax Gen. Oblig., F.G.I.C. Aaa Zero 8/01/13 1,680 814,834
Long Beach Harbor Rev., Ser. A, A.M.T., F.G.I.C. Aaa 6.00 5/15/16 5,500 6,245,415
Long Beach Redev. Agcy. Dist. No. 3, Spec. Tax Rev. NR 6.375 9/01/23 3,000 3,232,830
Los Angeles Cnty., Cert. of Part., Correctional Facs.
Proj., M.B.I.A. Aaa Zero 9/01/10 3,770(c) 2,202,396
Los Angeles Cnty., Hsg. Auth., Multi-fam. Mtge. Rev.,
Mayflower Gardens Proj., Ser. K, G.N.M.A. NR 8.875 12/20/10 2,100(c)(e) 2,393,559
Los Angeles Conv. & Exhib. Ctr. Auth., Cert. of Part. Aaa 9.00 12/01/10 1,250(c)(e) 1,644,462
Met. Wtr. Dist. of Southern California,
Reg. Linked S.A.V.R.S. & R.I.B.S. AA 5.75 8/12/18 1,000 1,118,250
Waterworks Rev Rfdg., Ser. A, 1993 AA 5.75 7/01/21 4,000 4,487,520
Midpeninsula Regional Open Space Dist. Fin. Auth. Rev.,
1996, A.M.B.A.C. Aaa Zero 9/01/15 3,000 1,291,440
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-51

<PAGE>

Portfolio of Investments as of PRUDENTIAL CALIFORNIA MUNICIPAL FUND
August 31, 1998 CALIFORNIA 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>
- ---------------------------------------------------------------------------------------------------------------------------------
Mojave Desert Solid Wst. Victor Vally Materials, Recov.
Fac., A.M.T. Baa1 7.875% 6/01/20 $ 1,175 $ 1,358,476
Orange Cnty. Loc. Trans. Auth.,
Linked S.A.V.R.S. & R.I.B.S., A.M.B.A.C. Linked
R.I.B.S. Aaa 6.20 2/14/11 8,000 9,242,960
Linked R.I.B.S. Aa3 6.20 2/14/11 750 976,875
Pasadena California Spec. Tax,
Capital Apprec., Cmnty. Facs., Dist. 1-A, F.S.A. Aaa Zero 12/01/16 1,015 412,872
Capital Apprec., Cmnty. Facs., Dist. 1-A, F.S.A. Aaa Zero 12/01/17 1,080 416,621
Capital Apprec., Cmnty. Facs., Dist. 1-A, F.S.A. Aaa Zero 12/01/18 1,210 442,485
Capital Apprec., Cmnty. Facs., Dist. 1-A, F.S.A. Aaa Zero 12/01/18 1,310 453,941
Capital Apprec., Cmnty. Facs., Dist. 1-A, F.S.A. Aaa Zero 12/01/20 1,405 463,186
Petaluma City Joint Union High Sch. Dist.,
Capital Apprec., M.B.I.A. Aaa Zero 8/01/14 1,170 536,422
Capital Apprec., M.B.I.A. Aaa Zero 8/01/15 1,600 697,344
Capital Apprec., M.B.I.A. Aaa Zero 8/01/16 1,455 601,657
Capital Apprec., M.B.I.A. Aaa Zero 8/01/17 3,015 1,182,392
Redding Elec. Sys. Rev., Cert. of Part., Linked
S.A.V.R.S. & R.I.B.S., M.B.I.A. Aaa 6.368 7/01/22 3,550 4,161,913
Roseville City Sch. Dist., Cap. Apprec., Ser. A,
F.G.I.C. Aaa Zero 8/01/10 1,230 712,059
San Bernardino Cnty.,
Cert. of Part, Med. Ctr. Fin. Proj., M.B.I.A. Aaa 5.50 8/01/22 4,400 4,775,804
Fin. Auth. Ref. Impt., Granada Hills, Ser. A BBB(d) 6.90 5/01/27 1,715 1,912,002
San Francisco City & Cnty.,
Redev. Agcy., Lease Rev., Cap. Apprec. A1 Zero 7/01/09 2,000 1,210,380
Redev. Proj. Cap. Apprec., M.B.I.A. Aaa Zero 8/01/22 2,000 604,900
San Francisco International Airport Rev. Commission
International Airport Rev., Ser. 16B, F.S.A. Aaa 4.75 5/01/29 1,000 958,660
San Jose, Unified Sch. Dist., Santa Clara,
Gen. Oblig., Ser. A, F.G.I.C. Aaa Zero 8/01/17 1,350 529,429
Gen. Oblig., Ser. A, F.G.I.C. Aaa Zero 8/01/21 2,980 947,938
Santa Cruz Cnty. Pub. Fin. Auth. Rev., Tax Alloc. Sub.
Ln., Ser. B AAA(d) 7.625 9/01/21 2,350(c) 2,504,959
Santa Margarita, Dana Point Auth.,
Impvt. Dists. 3, Ser. B, M.B.I.A. Aaa 7.25 8/01/08 2,500 3,098,200
Impvt. Dists. 3, Ser. A, M.B.I.A. Aaa 7.25 8/01/09 1,400 1,752,576
Impvt. Dists. 3, Ser. B, M.B.I A Aaa 7.25 8/01/09 1,000 1,251,840
Impvt. Dists. 3, Ser. B, M.B.I.A. Aaa 7.25 8/01/14 1,000 1,288,750
So. Orange Cnty. Pub. Fin. Auth.,
Foothill Area Proj., F.G.I.C. Aaa 6.50 8/15/10 750 895,965
Spec. Tax Rev., M.B.I.A. Aaa 7.00 9/01/11 3,500(e) 4,358,060
Southern California Pub. Pwr. Auth.,
Proj. Rev. A 6.75 7/01/10 2,265 2,712,292
Proj. Rev. A 6.75 7/01/11 1,195 1,435,398
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-52

<PAGE>

Portfolio of Investments as of PRUDENTIAL CALIFORNIA MUNICIPAL FUND
August 31, 1998 CALIFORNIA 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>
- ------------------------------------------------------------------------------------------------------------------------------
Southern California Pub. Pwr. Auth.,
Proj. Rev. A 6.75% 7/01/12 $ 2,935 $ 3,545,011
Proj. Rev. A 6.75 7/01/13 4,000 4,844,440
Proj. Rev., A.M.B.A.C. Aaa Zero 7/01/16 7,925(c)(e) 3,336,663
Transmission Proj. Rev. Rfdg., Ser. A, F.G.I.C. Aaa Zero 7/01/12 7,080(c) 3,708,291
Stockton Cmnty. Facs. Dist. No. 90-2, Brookside Estates NR 6.20 8/01/15 700 733,628
Sulphur Springs Union Sch. Dist., Ser. A, M.B.I.A. Aaa Zero 9/01/09 2,000 1,220,580
Torrance Redev. Agcy., Rfdg. Tax. Alloc., Downtown
Redev. Baa 7.125 9/01/21 1,580(c) 1,759,915
Vacaville Cmnty. Redev. Agcy., Cmnty. Hsg. Fin.
Multi-family A(d) 7.375 11/01/14 1,110 1,198,811
Victor Valley Union High Sch. Dist.,
Gen. Oblig., M.B.I.A. Aaa Zero 9/01/09 2,075 1,266,352
Gen. Oblig., M.B.I.A. Aaa Zero 9/01/15 5,070 2,200,684
Virgin Islands Terr., Hugo Ins. Claims Fund Proj., Ser.
91 NR 7.75 10/01/06 730(c) 803,139
Walnut Valley Unified Sch. Dist., M.B.I.A. Aaa 6.00 8/01/15 1,870(c) 2,153,810
------------
Total long-term investments (cost $134,280,623) 153,385,012
SHORT-TERM INVESTMENTS--0.1%
California St. Poll. Ctrl. Fin. Auth., Pacific Gas &
Elec Co., Ser. 96-C, F.R.D.D. (cost $200,000) P-1 3.20 9/01/98 200 200,000
------------
Total Investments--98.6%
(cost $134,480,623; Note 4) 153,585,012
Other assets in excess of liabilities--1.4% 2,108,083
------------
Net Assets--100% $155,693,095
------------
------------
</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.
G.N.M.A.--Government National Mortgage Association.
M.B.I.A.--Municipal Bond Insurance Association.
R.I.B.S.--Residual Interest Bearing Securities.
S.A.V.R.S.--Select Auction Variable Rate Securities.
(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) Prerefunded issues are secured by escrowed cash and/or direct U.S.
guaranteed obligations.
(d) Standard & Poor's Rating.
(e) Segregated as collateral for financial futures contracts.
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-53

<PAGE>
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
Statement of Assets and Liabilities CALIFORNIA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets August 31, 1998
<S> <C>
Investments, at value (cost $134,480,623).................................................................. $ 153,585,012
Cash....................................................................................................... 31,891
Interest receivable........................................................................................ 2,026,655
Receivable for Series shares sold.......................................................................... 535,665
Due from broker-variation margin........................................................................... 10,000
Other assets............................................................................................... 3,940
---------------
Total assets............................................................................................ 156,193,163
---------------
Liabilities
Payable for Series shares reacquired....................................................................... 203,138
Dividends payable.......................................................................................... 120,956
Accrued expenses........................................................................................... 68,030
Management fee payable..................................................................................... 65,351
Distribution fee payable................................................................................... 34,588
Deferred trustee's fees.................................................................................... 8,005
---------------
Total liabilities....................................................................................... 500,068
---------------
Net Assets................................................................................................. $ 155,693,095
---------------
---------------
Net assets were comprised of:
Shares of beneficial interest, at par................................................................... $ 127,405
Paid-in capital in excess of par........................................................................ 139,476,338
---------------
139,603,743
Accumulated net realized loss on investments............................................................ (3,162,537)
Net unrealized appreciation on investments.............................................................. 19,251,889
---------------
Net assets, August 31, 1998................................................................................ $ 155,693,095
---------------
---------------
Class A:
Net asset value and redemption price per share
($91,356,692 / 7,474,900 shares of beneficial interest issued and outstanding)....................... $12.22
Maximum sales charge (3% of offering price)............................................................. .38
---------------
Maximum offering price to public........................................................................ $12.60
---------------
---------------
Class B:
Net asset value, offering price and redemption price per share
($62,042,800 / 5,077,985 shares of beneficial interest issued and outstanding)....................... $12.22
---------------
---------------
Class C:
Net asset value, offer price and redemption price per share
($1,256,763 / 102,861 shares of beneficial interest issued and outstanding).......................... $12.22
---------------
---------------
Class Z:
Net asset value, offer price and redemption price per share
($1,036,840 / 84,803 shares of beneficial interest issued and outstanding)........................... $12.23
---------------
---------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-54

<PAGE>

PRUDENTIAL MUNICIPAL SERIES FUND
CALIFORNIA SERIES
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income August 31, 1998
<S> <C>
Income
Interest................................... $ 9,137,678
---------------
Expenses
Management fee............................. 766,228
Distribution fee--Class A.................. 85,624
Distribution fee--Class B.................. 330,431
Distribution fee--Class C.................. 5,164
Custodian's fees and expenses.............. 79,000
Transfer agent's fees and expenses......... 73,000
Registration fees.......................... 43,000
Reports to shareholders.................... 42,000
Audit fee and expenses..................... 13,000
Legal fees and expenses.................... 10,000
Trustees' fees and expenses................ 7,000
Miscellaneous.............................. 5,139
---------------
Total expenses.......................... 1,459,586
---------------
Net investment income......................... 7,678,092
---------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions.................... 356,592
Financial futures transactions............. (631,447)
---------------
(274,855)
---------------
Net change in unrealized appreciation on:
Investments................................ 5,541,801
Financial futures contracts................ 205,625
---------------
5,747,426
---------------
Net gain on investments....................... 5,472,571
---------------
Net Increase in Net Assets
Resulting from Operations..................... $13,150,663
---------------
---------------
</TABLE>

PRUDENTIAL MUNICIPAL SERIES FUND
CALIFORNIA 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.......... $ 7,678,092 $ 8,269,890
Net realized gain (loss) on
investment transactions..... (274,855) 1,514,692
Net change in unrealized
appreciation of
investments................. 5,747,426 3,405,416
--------------- ------------
Net increase in net assets
resulting from operations... 13,150,663 13,189,998
--------------- ------------
Dividends and distributions (Note
1)
Dividends to shareholders from
net investment income
Class A..................... (4,438,300) (4,328,873)
Class B..................... (3,163,906) (3,893,152)
Class C..................... (31,174) (23,434)
Class Z..................... (44,712) (24,431)
--------------- ------------
(7,678,092) (8,269,890)
--------------- ------------
Distributions in excess of net
investment income
Class A..................... (53,531) (14,903)
Class B..................... (42,305) (14,710)
Class C..................... (231) (110)
Class Z..................... (526) (68)
--------------- ------------
(96,593) (29,791)
--------------- ------------
Series share transactions (net of
share conversions) (Note 5)
Net proceeds from shares
sold........................ 13,997,164 8,712,231
Net asset value of shares
issued in reinvestment of
dividends and
distributions............... 4,324,099 4,528,865
Cost of shares reacquired...... (20,676,442) (24,068,018)
--------------- ------------
Net decrease in net assets from
Series share transactions... (2,355,179) (10,826,922)
--------------- ------------
Total increase (decrease)......... 3,020,799 (5,936,605)
Net Assets
Beginning of year................. 152,672,296 158,608,901
--------------- ------------
End of year....................... $ 155,693,095 $152,672,296
--------------- ------------
--------------- ------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-55

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements CALIFORNIA SERIES
- --------------------------------------------------------------------------------

Prudential California Municipal 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
three series. The monies of each series are invested in separate, independently
managed portfolios. The California Series (the "Series") commenced investment
operations on September 19, 1984. The Series is diversified and seeks to achieve
its investment objective of obtaining the maximum amount of income exempt from
federal and California 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.
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.

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 of 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.

Net investment income (other than distribution fees) and realized and unrealized
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.

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 $96,593, increase accumulated net realized loss by $96,898 and
increase paid-in capital by $305, due to the
- --------------------------------------------------------------------------------
B-56

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements CALIFORNIA SERIES
- --------------------------------------------------------------------------------

sale of securities purchased with market discount. 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, 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 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
$50,200 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 $76,400 and $2,400 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 has not borrowed any amounts pursuant to the Agreement
as of 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 year ended August 31, 1998, the
Series incurred fees of approximately $52,900 for the services of PMFS. As of
August 31, 1998, approximately $3,900 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 year ended August 31, 1998 were $16,820,140 and
$22,153,086, respectively.

During the year ended August 31, 1998, the Fund 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 Position: Sept.
80 Muni Bond 1998 $ 10,130,000 $9,927,500 $ (202,500)
Long Position: Sept.
80 30 yr. U.S. T-Bond 1998 10,170,000 9,820,000 350,000
--------------
$ 147,500
--------------
--------------
</TABLE>
- --------------------------------------------------------------------------------
B-57

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements CALIFORNIA SERIES
- --------------------------------------------------------------------------------

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
$19,104,389 (gross unrealized appreciation--$19,257,477; gross unrealized
depreciation--$153,088).

For federal income tax purposes, the Series has a capital loss carryforward as
of August 31, 1998 of approximately $2,948,700, of which, $2,945,800 expires in
2003 and $2,900 expires in 2006. The Fund will elect to treat net realized
capital losses of approximately $66,300 incurred in the ten-month period ended
August 31, 1998 as having been incurred in the following fiscal year.
Accordingly, no capital gains distribution is expected to be paid to
shareholders until net gains have been realized in excess of such carryforward.

- ------------------------------------------------------------
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.

The Fund has authorized an unlimited number of shares of beneficial interest for
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......................... 551,486 $ 6,650,320
Shares issued in reinvestment of
dividends and distributions....... 210,942 2,535,590
Shares reacquired................... (767,076) (9,222,647)
---------- ------------
Net decrease in shares outstanding
before conversion................. (4,648) (36,737)
Shares issued upon conversion from
Class B........................... 571,041 6,863,328
---------- ------------
Net increase in shares
outstanding....................... 566,393 $ 6,826,591
---------- ------------
---------- ------------
<CAPTION>
Class A Shares Amount
- ------------------------------------ ---------- ------------
<S> <C> <C>
Year ended August 31, 1997:
Shares sold......................... 217,828 $ 2,553,793
Shares issued in reinvestment of
dividends and distributions....... 205,336 2,392,394
Shares reacquired................... (867,579) (10,113,668)
---------- ------------
Net decrease in shares outstanding
before conversion................. (444,415) (5,167,481)
Shares issued upon conversion from
Class B........................... 980,623 11,397,357
---------- ------------
Net increase in shares
outstanding....................... 536,208 $ 6,229,876
---------- ------------
---------- ------------
<CAPTION>
Class B
- ------------------------------------
<S> <C> <C>
Year ended August 31, 1998:
Shares sold......................... 493,897 $ 5,944,373
Shares issued in reinvestment of
dividends and distributions....... 143,690 1,726,117
Shares reacquired................... (929,330) (11,183,208)
---------- ------------
Net decrease in shares outstanding
before conversion................. (291,743) (3,512,718)
Shares reacquired upon conversion
into Class A...................... (571,041) (6,863,328)
---------- ------------
Net decrease in shares
outstanding....................... (862,784) $(10,376,046)
---------- ------------
---------- ------------
Year ended August 31, 1997:
Shares sold......................... 458,940 $ 5,365,324
Shares issued in reinvestment of
dividends and distributions....... 179,511 2,089,875
Shares reacquired................... (1,168,280) (13,597,983)
---------- ------------
Net decrease in shares outstanding
before conversion................. (529,829) (6,142,784)
Shares reacquired upon conversion
into Class A...................... (980,623) (11,397,357)
---------- ------------
Net decrease in shares
outstanding....................... (1,510,452) $(17,540,141)
---------- ------------
---------- ------------
<CAPTION>
Class C
- ------------------------------------
<S> <C> <C>
Year ended August 31, 1998:
Shares sold......................... 87,614 $ 1,056,749
Shares issued in reinvestment of
dividends and distributions....... 2,094 25,178
Shares reacquired................... (15,196) (183,128)
---------- ------------
Net increase in shares
outstanding....................... 74,512 $ 898,799
---------- ------------
---------- ------------
Year ended August 31, 1997:
Shares sold......................... 7,546 $ 88,551
Shares issued in reinvestment of
dividends and distributions....... 1,947 22,646
Shares reacquired................... (28,622) (334,140)
---------- ------------
Net decrease in shares
outstanding....................... (19,129) $ (222,943)
---------- ------------
---------- ------------
</TABLE>
- --------------------------------------------------------------------------------
B-58

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements CALIFORNIA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class Z Shares Amount
- ------------------------------------ ---------- ------------
Year ended August 31, 1998:
<S> <C> <C>
Shares sold......................... 28,803 $ 345,722
Shares issued in reinvestment of
dividends and distributions....... 3,094 37,214
Shares reacquired................... (7,224) (87,459)
---------- ------------
Net increase in shares
outstanding....................... 24,673 $ 295,477
---------- ------------
---------- ------------
September 18, 1996(a) through August
31, 1997:
Shares sold......................... 60,003 $ 704,563
Shares issued in reinvestment of
dividends and distributions....... 2,051 23,950
Shares reacquired................... (1,924) (22,227)
---------- ------------
Net increase in shares
outstanding....................... 60,130 $ 706,286
---------- ------------
---------- ------------
</TABLE>
- ---------------
(a) Commencement of offering of Class Z shares.
- --------------------------------------------------------------------------------
B-59

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights CALIFORNIA 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...... $ 11.80 $ 11.44 $ 11.49 $ 11.30 $ 12.16
------- ------- ------- ------- -------
Income from investment operations
Net investment income................... .62 .65(a) .65(a) .66(a) .65
Net realized and unrealized gain (loss)
on investment transactions........... .43 .36 (.05) .19 (.74)
------- ------- ------- ------- -------
Total from investment operations..... 1.05 1.01 .60 .85 (.09)
------- ------- ------- ------- -------
Less distributions
Dividends from net investment income.... (.62) (.65) (.65) (.66) (.65)
Distributions in excess of net
investment income.................... (.01) --(c) -- -- --
Distributions from net realized gains... -- -- -- -- (.12)
------- ------- ------- ------- -------
Total distributions.................. (.63) (.65) (.65) (.66) (.77)
------- ------- ------- ------- -------
Net asset value, end of year............ $ 12.22 $ 11.80 $ 11.44 $ 11.49 $ 11.30
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL RETURN(b):........................ 9.13% 9.01% 5.23% 7.90% (0.80)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)........... $91,356 $81,535 $72,876 $68,403 $12,082
Average net assets (000)................ $85,624 $78,347 $71,119 $42,617 $11,812
Ratios to average net assets:
Expenses, including distribution
fees.............................. .78% .76%(a) .81%(a) .73%(a) .73%
Expenses, excluding distribution
fees.............................. .68% .66%(a) .71%(a) .63%(a) .63%
Net investment income................ 5.18% 5.53%(a) 5.58%(a) 5.90%(a) 5.57%
For Class A, B, C and Z shares:
Portfolio turnover rate.............. 11% 14% 26% 44% 69%
</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-60

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights CALIFORNIA 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...... $ 11.80 $ 11.43 $ 11.49 $ 11.29 $ 12.15
------- ------- ------- -------- --------
Income from investment operations
Net investment income................... .58 .60(a) .60(a) .62(a) .60
Net realized and unrealized gain (loss)
on investment transactions........... .43 .37 (.06) .20 (.74)
------- ------- ------- -------- --------
Total from investment operations..... 1.01 .97 .54 .82 (.14)
------- ------- ------- -------- --------
Less distributions
Dividends from net investment income.... (.58) (.60) (.60) (.62) (.60)
Distributions in excess of net
investment income.................... (.01) --(c) -- -- --
Distributions from net realized gains... -- -- -- -- (.12)
------- ------- ------- -------- --------
Total distributions.................. (.59) (.60) (.60) (.62) (.72)
------- ------- ------- -------- --------
Net asset value, end of year............ $ 12.22 $ 11.80 $ 11.43 $ 11.49 $ 11.29
------- ------- ------- -------- --------
------- ------- ------- -------- --------
TOTAL RETURN(b):........................ 8.70% 8.67% 4.73% 7.56% (1.20)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)........... $62,043 $70,093 $85,190 $103,891 $184,985
Average net assets (000)................ $66,086 $75,935 $96,525 $136,275 $201,558
Ratios to average net assets:
Expenses, including distribution
fees.............................. 1.18% 1.16%(a) 1.21%(a) 1.13%(a) 1.13%
Expenses, excluding distribution
fees.............................. .68% .66%(a) .71%(a) .63%(a) .63%
Net investment income................ 4.78% 5.13%(a) 5.18%(a) 5.50%(a) 5.17%
</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-61

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights CALIFORNIA 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.... $11.80 $11.43 $11.49 $11.29 $11.32
------ ------ ------ ------ -----
Income from investment operations
Net investment income................... .55 .57(a) .57(a) .59(a) .04
Net realized and unrealized gain (loss)
on investment transactions........... .43 .37 (.06) .20 (.03)
------ ------ ------ ------ -----
Total from investment operations..... .98 .94 .51 .79 .01
------ ------ ------ ------ -----
Less distributions
Dividends from net investment income.... (.55) (.57) (.57) (.59) (.04)
Distributions in excess of net
investment income.................... (.01) --(c) -- -- --
------ ------ ------ ------ -----
Total distributions.................. (.56) (.57) (.57) (.59) (.04)
------ ------ ------ ------ -----
Net asset value, end of period.......... $12.22 $11.80 $11.43 $11.49 $11.29
------ ------ ------ ------ -----
------ ------ ------ ------ -----
TOTAL RETURN(b):........................ 8.43% 8.40% 4.47% 7.29% .05%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $1,257 $ 334 $ 543 $ 129 $ 200(e)
Average net assets (000)................ $ 689 $ 480 $ 286 $ 76 $ 199(e)
Ratios to average net assets:
Expenses, including distribution
fees.............................. 1.43% 1.41%(a) 1.46%(a) 1.38%(a) 1.71%(g)
Expenses, excluding distribution
fees.............................. .68% .66%(a) .71%(a) .63%(a) .96%(g)
Net investment income................ 4.53% 4.88%(a) 4.93%(a) 5.25%(a) 4.87%(g)

Class Z
------------------------------
September 18,
1996(f)
through
Year Ended August 31,
August 31,1998 1997
--------------- -------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $111.81 $ 11.50
----- -----
Income from investment operations
Net investment income................... .63 .64(a)
Net realized and unrealized gain (loss)
on investment transactions........... .43 .31
----- -----
Total from investment operations..... 1.06 .95
----- -----
Less distributions
Dividends from net investment income.... (.63) (.64)
Distributions in excess of net
investment income.................... (.01) --(c)
----- -----
Total distributions.................. (.64) (.64)
----- -----
Net asset value, end of period.......... $ 12.23 $ 11.81
----- -----
----- -----
TOTAL RETURN(b):........................ 9.24% 8.35%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $ 1,037 $ 710
Average net assets (000)................ $ 847 $ 458
Ratios to average net assets:
Expenses, including distribution
fees.............................. .68% .66%(a)/(g)
Expenses, excluding distribution
fees.............................. .68% .66%(a)/(g)
Net investment income................ 5.28% 5.35%(a)/(g)
</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) Figures are actual and not rounded to the nearest thousand.
(f) Commencement of offering of Class Z shares.
(g) Annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-62

<PAGE>
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
Report of Independent Accountants CALIFORNIA SERIES
- --------------------------------------------------------------------------------

To the Shareholders and Board of Trustees of
Prudential California Municipal Fund, California 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 California Municipal
Fund, California Series (the "Fund", one of the portfolios constituting
Prudential California Municipal 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-63

<PAGE>
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
Federal Income Tax Information (Unaudited) CALIFORNIA 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 $.62 per Class A share, $.58 per
Class B share, $.55 per Class C share and $.63 per Class Z share were all
federally tax-exempt interest dividends. In addition, the Series paid to Class
A, B, C and Z shares a special taxable income distribution of $.008 per share
which is taxable as ordinary income.

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 the federal tax status of the dividends and distributions received by you
in calendar year 1998.
- --------------------------------------------------------------------------------
B-64

<PAGE>

Portfolio of Investments as of PRUDENTIAL CALIFORNIA MUNICIPAL FUND
August 31, 1998 CALIFORNIA INCOME 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--99.1%
- ---------------------------------------------------------------------------------------------------------------------------------
Alisal Union Sch. Dist.,
Cap. Apprec., Ser. C., F.G.I.C. Aaa Zero 8/01/13 $ 1,090 $ 528,672
Cap. Apprec., Ser. C., F.G.I.C. Aaa Zero 8/01/15 1,075 468,528
Cap. Apprec., Ser. C., F.G.I.C. Aaa Zero 8/01/19 1,615 569,013
Cap. Apprec., Ser. C., F.G.I.C. Aaa Zero 8/01/22 1,175 355,379
Arcadia Unified Sch. Dist.,
Gen. Oblig., Ser. A, M.B.I.A. Aaa Zero 9/01/09 1,200 732,348
Gen. Oblig., Ser. A, M.B.I.A. Aaa Zero 9/01/11 1,875 1,019,794
Gen. Oblig., Ser. A, M.B.I.A. Aaa Zero 9/01/12 2,045 1,046,938
Assoc. of Bay Area Govt's. Fin. Auth.,
Cert. of Part., Channing House, Ser. A A+(c) 7.125% 1/01/21 1,500 1,613,550
Ref. Amer. Baptist Homes., Ser. A BBB(c) 6.20 10/01/27 2,000 2,136,340
Brea Pub. Fin. Auth. Rev., Tax Alloc. Redev. Proj., Ser. C NR 8.10 3/01/21 3,000 3,225,000
Buena Park Cmnty. Redev. Agcy. Cent. Bus. Dist. Proj. NR 7.80 9/01/14 3,325 3,646,029
California Cmty. Dev. Comm., Ref., Ser. A NR 5.70 8/01/28 2,250 2,277,068
California Hsg. Fin. Agcy. Single Fam. Mort., Ser. A., A.M.T.,
M.B.I.A. Aaa 6.00 8/01/20 3,995(f) 4,239,454
California St. Dept. Wtr. Res. Rev., Central Valley Proj.,
Ser. J Aa2 7.00 12/01/12 1,000 1,251,140
California St. Edl. Facs. Auth. Rev., Chapman College Baa2 7.50 1/01/18 600(e) 661,350
California St. Gen. Oblig., A.M.B.A.C. Aaa 6.50 9/01/10 1,250 1,494,000
California St. Hlth. Facs. Fin. Auth. Rev., Valleycare Hosp.
Corp. A+(c) 5.50 5/01/20 1,500 1,565,100
California Statewide Cmnty. Cap. Apprec., Facs. No. 97-1 NR Zero 9/01/22 4,440 1,025,596
California Statewide Cmnty. Dev. Rev., Cert. of Part.,
Villaview Cmnty. Hosp. A+(c) 7.00 9/01/09 855 935,139
Carson City Ltd. Oblig. Impvt. Rev., Assmt. Dist. NR 7.375 9/02/22 2,345 2,570,143
Chula Vista Cmnty. Redev. Agcy.,
Ref. Tax Alloc. Sr. Bayfront, Ser. A BBB+(c) 7.625 9/01/24 2,500 2,936,875
Ref. Tax Alloc. Sub. Bayfront, Ser. C NR 8.25 5/01/24 2,500 2,904,775
Contra Costa Cnty., Spec. Tax Cmnty. Facs. Dist. No. 91-1 NR 8.125 8/01/16 1,520(e) 1,672,654
Corona Cert. of Part., Vista Hosp. Sys. Inc., Ser. C NR 8.375 7/01/11 2,000 2,266,900
Davis Ca. Pub. Facs. Fin. Auth., Mace Ranch, Ser. A. NR 6.60 9/01/25 2,000 2,136,000
Delano Cert. of Part., Regl. Med. Ctr., Ser. 92-A NR 9.25 1/01/22 2,890(e) 3,583,542
Desert Hosp. Dist., Cert. of Part. AAA(c) 8.10 7/01/20 2,000(e) 2,198,240
East Palo Alto San. Dist., Cert. of Part. NR 8.25 10/01/15 500 536,535
El Dorado Cnty., Spec. Tax, Cmnty. Facs. Dist. No. 92-1 NR 8.25 9/01/24 1,975 2,279,012
Fairfield Pub. Fin. Auth. Rev., Fairfield Redev. Proj., Ser. A NR 7.90 8/01/21 2,500(e) 2,830,350
Folsom Spec. Tax Dist. No. 2 NR 7.70 12/01/19 3,130(e) 3,351,041
Fontana Pub. Fin. Auth., N. Fontana Tax Alloc. Rev. NR 7.65 12/01/09 1,575(e) 1,790,129
Fontana Spec. Tax. Cmnty. Facs. Dist. No. 2, Ser. B NR 8.50 9/01/17 1,595 1,626,900
Foothill/Eastern Trans. Corr. Agcy., Toll Rd., Ser. A Baa Zero 1/01/20 10,000 3,289,700
Gateway Impv. Auth. Rev., Marin City Cmnty. Facs. Dist.-A NR 7.75 9/01/25 2,100 2,595,411
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-65

<PAGE>

Portfolio of Investments as of PRUDENTIAL CALIFORNIA MUNICIPAL FUND
August 31, 1998 CALIFORNIA INCOME 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>
- ---------------------------------------------------------------------------------------------------------------------------------
Glendale Unified Sch. Dist., Ser. B Aaa 5.125% 9/01/23 $ 1,250 $ 1,254,700
Kings Cnty. Wst. Mgmt. Auth., Solid Wst. Rev., A.M.T. BBB+(c) 7.20 10/01/14 1,275 1,442,981
La Mesa Improvement Bond Act 1915 Ltd. Oblig. Dist. Number
98-1 NR 5.75 9/02/23 1,000 1,010,040
La Mirada Red. Agcy. Spcl. Tax, Ref. Cmmnty. Facs. Dist. NR 5.70 10/01/20 1,000 1,010,740
La Quinta Redev. Agcy.,
Tax Alloc., M.B.I.A. Aaa 7.30 9/01/10 1,000 1,264,920
Tax Alloc., M.B.I.A. Aaa 7.30 9/01/11 1,000 1,272,180
Long Beach Hbr. Rev.,
Ref. Ser. A., A.M.T., F.G.I.C. Aaa 6.00 5/15/17 5,000(f) 5,668,150
Ref. Ser. A., A.M.T., F.G.I.C. Aaa 6.00 5/15/19 3,000 3,413,310
Long Beach Redev. Agcy. Hsg.,
Multifamily Hsg. Rev., Pacific Court Apts., Ser. B(h)
(cost $991,820; purchased 10/18/93) NR 6.80 9/01/13 1,000(d) 550,010
Multifamily Hsg. Rev., Pacific Court Apts., Ser. B(h)
(cost $1,490,475; purchased 10/18/93) NR 6.95 9/01/23 1,500(d) 825,015
Los Angeles Cmnty. Facs. Dist., No. 5, Spec. Tax NR 7.25 9/01/19 1,500(e) 1,792,095
Los Angeles Dept. of Wtr. & Pwr., Waterworks Rev. Aa 4.50 5/15/23 1,900 1,760,882
Lynwood Pub. Fin. Auth. Rev., Wtr. Sys. Impvt. Proj. BBB(c) 6.50 6/01/21 1,500 1,634,460
Mammoth Unified Sch. Dist., Cap. Apprec., M.B.I.A. Aaa Zero 8/01/23 1,475 434,594
Met. Wtr. Dist. of Southern California, Waterworks Rev.,
Linked S.A.V.R.S. & R.I.B.S. Aa2 5.75 8/10/18 1,000 1,118,250
Mojave Desert & Mtn. Solid Waste Joint Pwrs. Auth. Proj. Rev.
A.M.T. Baa1 7.875 6/01/20 1,175 1,358,476
Montebello Unified Sch. Dist.,
Cap. Apprec., F.G.I.C. Aaa Zero 8/01/18 2,195 816,079
Cap. Apprec., F.G.I.C. Aaa Zero 8/01/19 2,250 792,743
Cap. Apprec., F.G.I.C. Aaa Zero 8/01/20 2,300 770,937
Northern California Power Agcy. Public Power Rev., Ref.
Hydroelectric Project, Series A, M.B.I.A. Aaa 5.20 7/01/32 2,400 2,427,336
Ontario California Impvt. Bond Act of 1915, Assmt. Dist. 100C
- Com., Ctr. III NR 8.00 9/02/11 1,160 1,194,939
Orange Cnty. Cmnty. Facs. Dist., Spec. Tax Rev.,
No. 87-4, Foothill Ranch, Ser. A AAA(c) 7.375 8/15/18 3,500(e) 4,026,225
No. 87-5B, Rancho Santa Margarita NR 7.50 8/15/17 1,750(e) 2,014,442
No. 88-1, Aliso Viejo, Ser. A AAA(c) 7.15 8/15/06 805(e) 919,721
Orange Cnty. Loc. Trans. Auth.,
Sales Tax Rev., Linked S.A.V.R.S. & R.I.B.S., A.M.B.A.C. Aaa 6.20 2/14/11 10,000 11,553,700
Spec. Tax Rev. Linked S.A.V.R.S. & R.I.B.S. NR 8.212(g) 2/14/11 750 976,875
Paramount Unified Sch. Dist., Cap. Apprec., Ser. A, F.S.A. Aaa Zero 9/01/20 3,535 1,179,983
Perris Sch. Dist., Cert. of Part., Cap. Proj. NR 7.75 3/01/21 1,500(e) 1,670,025
Placentia Pub. Fin. Auth., Tax Rev., Ser. B NR 6.60 9/01/15 1,500 1,570,095
Poway Cmmty. Fac. Dist., Ref. NR 6.75 8/15/15 1,000 1,096,350
Puerto Rico Hwy. & Trans. Auth. Rev., Ser. Q AAA(c) 7.75 7/01/10 2,100(e)(f) 2,291,667
Puerto Rico Pub. Bldgs. Auth., Gtd. Pub. Ed. & Hlth. Facs.,
Ser. J Baa1 Zero 7/01/06 1,605 1,147,463
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-66

<PAGE>

Portfolio of Investments as of PRUDENTIAL CALIFORNIA MUNICIPAL FUND
August 31, 1998 CALIFORNIA INCOME 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>
- ---------------------------------------------------------------------------------------------------------------------------------
Redding Elec. Sys. Rev., Cert. of Part., Linked S.A.V.R.S. &
R.I.B.S., M.B.I.A. Aaa 6.368% 7/01/22 $ 3,750 $ 4,396,387
Richmond Redev. Agcy. Tax Alloc.,
Cap. Apprec. Ref. Harbor, Ser. B., M.B.I.A. Aaa Zero 7/01/20 1,150 382,973
Cap. Apprec. Ref. Harbor, Ser. B., M.B.I.A. Aaa Zero 7/01/21 1,150 360,134
Multifamily Bridge Affordable Hsg. NR 7.50 9/01/23 2,500 2,552,625
Rio Vista Impvt. Bond Act of 1915, Assmt. Dist. No. 96-1 NR 7.50 9/02/22 1,970 2,074,233
Riverside Cnty. Cert. of Part., Air Force Village West NR 8.125 6/15/20 3,000(f) 3,326,490
Riverside Cnty. Impvt. Bond Act 1915, Assmt. Dist. 159, Ser. A NR 7.625 9/02/14 2,500 2,598,075
Rocklin Stanford Ranch Cmnty. No.3, Facs. Dist., Spec. Tax NR 8.10 11/01/15 1,000(e) 1,110,530
Rocklin Unified Sch. Dist., Gen. Oblig.,
Cap. Apprec., Ser. C, M.B.I.A. Aaa Zero 8/01/12 1,110 570,529
Cap. Apprec., Ser. C, M.B.I.A. Aaa Zero 8/01/13 1,165 565,048
Cap. Apprec., Ser. C, M.B.I.A. Aaa Zero 8/01/14 1,220 559,346
Cap. Apprec., Ser. C, M.B.I.A. Aaa Zero 8/01/15 1,285 560,054
Cap. Apprec., Ser. C, M.B.I.A. Aaa Zero 8/01/16 1,400 578,914
Sacramento City. Fin. Auth.,
Cap. Apprec., Tax Alloc. Comb. Proj., Ser. B, M.B.I.A. Aaa Zero 11/01/16 5,700 2,328,165
Cap. Apprec., Tax Alloc. Comb. Proj., Ser. B, M.B.I.A. Aaa Zero 11/01/17 5,695 2,205,958
Sacramento Cnty. Spec. Tax Rev.,
Dist. No. 1, Laguna Creek Ranch NR 5.70 12/01/20 2,000 2,020,320
Dist. No. 1, Laguna Creek Ranch NR 8.25 12/01/20 1,000(e) 1,116,040
Sacramento Impvt. Bond Act of 1915, Willowcreek II Assmt.
Dist. No. 96-1 NR 6.70 9/02/22 2,500 2,585,000
Sacramento Spec. Purpose Fac., Y.M.C.A. of Sacramento NR 7.25 12/01/18 2,155 2,342,765
San Bernardino Cnty.,
Cert. of Part, Med. Ctr. Fin. Proj., M.B.I.A. Aaa 5.50 8/01/22 4,540 4,927,761
Fin. Auth. Ref. Impt., Granada Hills BBB(c) 6.90 5/01/27 2,285 2,547,478
San Bruno Park Sch. Dist.,
Cap. Apprec., F.S.A. Aaa Zero 8/01/20 1,275 427,367
Cap. Apprec., F.S.A. Aaa Zero 8/01/21 1,220 388,082
Cap. Apprec., F.S.A. Aaa Zero 8/01/22 1,080 326,646
San Diego Spec. Tax, Cmnty. Facs. Dist. No. 1, Ser. B NR 7.10 9/01/20 2,000(e) 2,395,540
San Francisco City & Cnty. Arpt. Comm. Int'l. Arpt. Rev., Ser.
2, F.S.A. Aaa 4.75 5/01/29 5,000 4,793,300
San Francisco City & Cnty.,
Redev. Agcy., Lease Rev. A1 Zero 7/01/06 1,500 1,062,585
Redev. Agcy., Lease Rev. A1 Zero 7/01/07 2,250 1,519,335
San Joaquin Hills Trans. Corridor Agcy.,
Toll Road Rev. Aaa Zero 1/01/11 2,000 1,126,340
Toll Road Rev. Aaa Zero 1/01/22 15,000 4,760,100
San Jose Redev. Proj., M.B.I.A. Aaa 6.00 8/01/15 3,000 3,449,220
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-67

<PAGE>

Portfolio of Investments as of PRUDENTIAL CALIFORNIA MUNICIPAL FUND
August 31, 1998 CALIFORNIA INCOME 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>
- ---------------------------------------------------------------------------------------------------------------------------------
San Jose Unif. Sch. Dist., Santa Clara,
Gen. Oblig., Ser. A., F.G.I.C. Aaa Zero 8/01/16 $ 2,630 $ 1,087,531
Gen. Oblig., Ser. A., F.G.I.C. Aaa Zero 8/01/18 2,765 1,027,999
Gen. Oblig., Ser. A., F.G.I.C. Aaa Zero 8/01/19 2,835 998,856
San Luis Obispo, Certs. of Part., Vista Hosp. Sys. NR 8.375% 7/01/29 1,000 1,113,880
San Marcos Public Fac. Auth. Rev., Ref. Ser. 1998 NR 5.80 9/01/18 1,000 1,008,610
San Marino Unified Sch. Dist.,
General Oblig., Ser. A AA(c) 5.25 7/01/19 1,840 1,943,169
General Oblig., Ser. A AA(c) 5.00 6/01/23 1,500 1,523,415
Santa Margarita, Dana Point Auth.,
Impvt. Dists. Ser. A, M.B.I.A. Aaa 7.25 8/01/09 905 1,132,915
Impvt. Dists. Ser. B, M.B.I.A. Aaa 7.25 8/01/14 1,000 1,288,750
South Orange Cnty., Pub. Fin. Auth.,
Foothill Area Proj., Ser. C, F.G.I.C. Aaa 6.50 8/15/10 750 895,965
Spec. Tax Rev., M.B.I.A. Aaa 7.00 9/01/10 2,535 3,141,727
South San Francisco Redev. Agcy., Tax Alloc., Gateway Redev.
Proj. NR 7.60 9/01/18 2,375 2,592,835
South Tahoe Joint Pwrs. Fin. Ser. A, B.A.N. NR 8.00 10/01/01 2,500 2,507,925
South Whittier Elementary Sch., Ser. A Aaa 5.00 8/01/23 5,235 5,183,278
Southern California Pub. Pwr. Auth.,
Proj. Rev. A 6.75 7/01/10 6,250 7,484,250
Proj. Rev. A 6.75 7/01/13 3,000 3,633,330
Proj. Rev., A.M.B.A.C. Aaa Zero 7/01/16 8,400 3,536,652
Stockton Cmnty. Facs. Dist. No. 90-2, Brookside Estates NR 6.20 8/01/15 1,050 1,100,442
Sulphur Springs Unif. Sch. Dist., Ser. A, M.B.I.A. Aaa Zero 9/01/11 3,000 1,631,670
Temecula Valley Unif. Sch. Dist., Cmnty. Facs., Spec. Tax
Dist. No. 89-1, NR 8.60 9/01/17 2,600 2,783,222
Torrance Redev. Agcy.,
Refunding Tax Allocation Subordinated Lien NR 5.625 9/01/28 1,000 1,004,590
Tax Alloc. Downtown Redev. Baa 7.125 9/01/22 2,105 2,344,696
Tax Alloc. Ind. Redev. Proj. NR 7.75 9/01/13 2,500(e) 2,654,450
Vacaville Cmnty. Redev. Agcy., Multifamily Hsg. Rev. A(c) 7.375 11/01/14 1,110 1,198,811
Ventura California Port District Certificates Participating NR 6.375 8/01/28 4,000 4,037,960
Victor Valley,
Union H.S. Dist., M.B.I.A Aaa Zero 9/01/17 4,500 1,757,520
Union H.S. Dist., M.B.I.A. Aaa Zero 9/01/19 5,450 1,912,241
Union H.S. Dist., M.B.I.A. Aaa Zero 9/01/20 5,850 1,952,730
Virgin Islands Pub. Fin. Auth. Rev.,
Hwy. Trans. Trust Fund AAA(c) 7.70 10/01/04 1,000(e) 1,063,760
Sub. Lien Notes, Ser. E, NR 5.875 10/01/18 1,000 1,035,410
Virgin Islands Territory, Hugo Ins. Claims Fund Proj., Ser. 91 NR 7.75 10/01/06 945(e) 1,039,680
West Contra Costa Unified Sch. Dist., Cert. of Part. Baa3 6.875 1/01/09 1,140 1,270,131
West Sacramento Impvt. Bond Act of 1915, Lighthouse Marina
Assmt. Dist. 90-1 NR 8.50 9/02/17 2,245 2,340,390
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-68

<PAGE>

California Poll. Ctrl. Fin. Auth. Ref., Pacific Gas & Elec.
Co., Ser. 96, F.R.D.D. A1+(c) 3.20 9/01/98 2,000 2,000,000
California Poll. Ctrl. Fin. Auth. Rev.,
So. Cal. Ed., Ser. 86C, F.R.D.D. P-1 3.80 9/01/98 1,900 1,900,000
So. Cal. Ed., Ser. 86D, F.R.D.D. VMIG1 3.80 9/01/98 300 300,000
So. Cal. Ed., Ser. 86B, F.R.D.D. VMIG1 3.80 9/01/98 400 400,000
California Poll. Ctrl. Fin. Ref. Pacific Gas & Elec. Co.,
F.R.D.D. NR 3.25 9/01/98 1,500 1,500,000
California Poll. Ctrl. Fin. Auth. Poll. Ctrl. Rev., F.R.D.D. A1+(c) 3.25 9/01/98 1,300 1,300,000
------------
Total short-term investments (cost $7,400,000) 7,400,000
------------
Total Investments--101.9%
(cost $240,156,655; Note 4) 267,559,988
Liabilities in excess of other assets--(1.9)% (5,046,961)
------------
Net Assets--100% $262,513,027
------------
------------
</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.
B.A.N.--Bond Anticipation Note.
F.G.I.C.--Financial Guaranty Insurance Company.
F.R.D.D.--Floating Rate (Daily) Demand Notes (b).
F.S.A.--Financial Security Assurance.
M.B.I.A.--Municipal Bond Insurance Association.
R.I.B.S.--Residual Interest Bearing Securities.
S.A.V.R.S.--Select Auction Variable Rate Securities.
Y.M.C.A.--Young Mens Christian 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) Issue in default on interest payment.
(e) Prerefunded issues are secured by escrowed cash and/or direct U.S.
guaranteed obligations.
(f) All or a portion of the securities are segregated as collateral for
financial futures contracts.
(g) Rate shown reflects current rate of variable rate instruments.
(h) Indicates a restricted security; the aggregate cost of such securities is
$2,482,295. The aggregate value ($1,375,025) is approximately 0.5% of net
assets.
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-69

<PAGE>
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
Statement of Assets and Liabilities CALIFORNIA INCOME SERIES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets August 31, 1998
<S> <C>
Investments, at value (cost $240,156,655)................................................................. $ 267,559,988
Cash...................................................................................................... 2,416
Interest receivable....................................................................................... 3,888,618
Receivable for Series shares sold......................................................................... 1,545,920
Receivable for investments sold........................................................................... 341,600
Due from broker-variation margin.......................................................................... 16,094
Other assets.............................................................................................. 5,427
---------------
Total assets........................................................................................... 273,360,063
---------------
Liabilities
Payable for investments purchased......................................................................... 10,011,648
Payable for Series shares reacquired...................................................................... 335,087
Dividends payable......................................................................................... 215,548
Accrued expenses.......................................................................................... 133,692
Management fee payable.................................................................................... 96,706
Distribution fee payable.................................................................................. 46,350
Deferred trustee's fees................................................................................... 8,005
---------------
Total liabilities...................................................................................... 10,847,036
---------------
Net Assets................................................................................................ $ 262,513,027
---------------
---------------
Net assets were comprised of:
Shares of beneficial interest, at par.................................................................. $ 234,566
Paid-in capital in excess of par....................................................................... 237,775,683
---------------
238,010,249
Accumulated net realized loss on investments........................................................... (3,043,461)
Net unrealized appreciation on investments............................................................. 27,546,239
---------------
Net assets, August 31, 1998............................................................................... $ 262,513,027
---------------
---------------
Class A:
Net asset value and redemption price per share
($181,511,576 / 16,218,964 shares of beneficial interest issued and outstanding).................... $11.19
Maximum sales charge (3% of offering price)............................................................ .35
---------------
Maximum offering price to public....................................................................... $11.54
---------------
---------------
Class B:
Net asset value, offering price and redemption price per share
($70,534,576 / 6,302,253 shares of beneficial interest issued and outstanding)...................... $11.19
---------------
---------------
Class C:
Net asset value, offering price and redemption price per share
($5,959,584 / 532,488 shares of beneficial interest issued and outstanding)......................... $11.19
---------------
---------------
Class Z:
Net asset value, offering price and redemption price per share
($4,507,291 / 402,916 shares of beneficial interest issued and outstanding)......................... $11.19
---------------
---------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-70

<PAGE>

PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA INCOME SERIES
Statement of Operations
- ----------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income August 31, 1998
<S> <C>
Income
Interest and discount earned............... $13,940,396
---------------
Expenses
Management fee............................. 1,147,925
Distribution fee--Class A.................. 165,772
Distribution fee--Class B.................. 280,056
Distribution fee--Class C.................. 33,686
Custodian's fees and expenses.............. 95,000
Transfer agent's fees and expenses......... 60,000
Registration fees.......................... 56,000
Reports to shareholders.................... 48,000
Audit fees and expenses.................... 13,000
Legal fees and expenses.................... 10,000
Trustees' fees and expenses................ 7,000
Miscellaneous.............................. 9,124
---------------
Total expenses.......................... 1,925,563
Less: Management fee waiver (Note 2)....... (114,792)
Custodian fee credit (Note 1)......... (3,281)
---------------
Net expenses............................ 1,807,490
---------------
Net investment income......................... 12,132,906
---------------
Realized and Unrealized Gain
(Loss) on Investments
Net realized gain (loss) on:
Investment transactions.................... 407,913
Financial futures transactions............. (495,936)
---------------
(88,023)
---------------
Net change in unrealized appreciation on:
Investments................................ 10,019,833
Financial futures contracts................ 180,406
---------------
10,200,239
---------------
Net gain on investments....................... 10,112,216
---------------
Net Increase in Net Assets
Resulting from Operations..................... $22,245,122
---------------
---------------
</TABLE>

PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA INCOME 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........ $ 12,132,906 $ 11,028,514
Net realized gain (loss) on
investment transactions... (88,023) 1,204,690
Net change in unrealized
appreciation of
investments............... 10,200,239 6,078,772
------------ ------------
Net increase in net assets
resulting from
operations................ 22,245,122 18,311,976
------------ ------------
Dividends and distribution (Note
1):
Dividends from net investment
income
Class A................... (8,943,420) (8,663,215)
Class B................... (2,795,615) (2,155,430)
Class C................... (211,960) (157,025)
Class Z................... (181,911) (52,844)
------------ ------------
(12,132,906) (11,028,514)
------------ ------------
Distributions in excess of
net investment income
Class A................... (77,784) (14,563)
Class B................... (24,826) (3,730)
Class C................... (1,879) (308)
Class Z................... (1,255) (19)
------------ ------------
(105,744) (18,620)
------------ ------------
Series share transactions (net
of share conversions) (Note
5):
Net proceeds from shares
sold...................... 72,607,907 39,086,871
Net asset value of shares
issued to shareholders in
reinvestment of dividends
and distributions......... 6,072,757 5,324,369
Cost of shares reacquired.... (35,867,889) (34,470,755)
------------ ------------
Net increase in net assets
from Series share
transactions.............. 42,812,775 9,940,485
------------ ------------
Total increase.................. 52,819,247 17,205,327
Net Assets
Beginning of year............... 209,693,780 192,488,453
------------ ------------
End of year..................... $262,513,027 $209,693,780
------------ ------------
------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-71

<PAGE>
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
Notes to Financial Statements CALIFORNIA INCOME SERIES
- --------------------------------------------------------------------------------

Prudential California Municipal 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
three series. The monies of each series are invested in separate, independently
managed portfolios. The California Income Series (the "Series") commenced
investment operations on December 3, 1990. The Series is diversified and seeks
to achieve its investment objective of obtaining the maximum amount of income
exempt from federal and California state income taxes with the minimum of risk.
The Series will invest primarily in investment grade municipal obligations but
may also invest a portion of its assets in lower-quality municipal obligations
or in nonrated securities which 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 preparation of its financial statements.
Security 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.

The Series held illiquid securities, including those which are restricted as to
disposition under securities law ("restricted securities"). None of the issues
of restricted securities held by the Series at August 31, 1998 include
registration rights under which the Series may demand registration by the
issuer. Restricted securities, sometimes referred to as private placements, are
valued pursuant to the valuation procedures noted above.
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.

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.

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-72

<PAGE>
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
Notes to Financial Statements CALIFORNIA INCOME SERIES
- --------------------------------------------------------------------------------

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 $105,744, increase accumulated net realized loss by $103,672 and
decrease paid-in capital by $2,072 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.

- ------------------------------------------------------------
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. PIFM has agreed
to voluntarily waive a portion (.05 of 1% of the Series' average daily net
assets) of its management fee, which amounted to $114,792 ($.005 per share) for
the year ended August 31, 1998. The Series is not required to reimburse PIFM for
such waiver.

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 $445,200
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 sales
persons and incurred other distribution costs.

PSI and PIMS have advised the Series that for the year ended August 31, 1998,
they received approximately $121,500 and $3,300 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"), 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 year ended August 31, 1998, the
Series incurred fees of approximately $46,600 for the services of PMFS. As of
August 31, 1998 approximately $3,900 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 year ended August 31, 1998 were $61,424,803 and
$22,338,463, respectively.

The federal income tax cost basis of the Fund's investments at August 31, 1998
was $240,157,320 and, accordingly, net unrealized appreciation on
- --------------------------------------------------------------------------------
B-73

<PAGE>
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
Notes to Financial Statements CALIFORNIA INCOME SERIES
- --------------------------------------------------------------------------------
investments for federal income tax purposes was $27,403,333 (gross unrealized
appreciation--$28,510,603; gross unrealized depreciation--$1,107,270).
During the year ended August 31, 1998, the Fund 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 Position:
67 Muni Bond Sept. 1998 $ 8,483,875 $8,314,281 $ (169,594)
Long Position:
80 30 yr. U.S. T-Bond Sept. 1998 $10,170,000 $9,857,500 312,500
--------------
$ 142,906
--------------
--------------
</TABLE>

For federal income tax purposes, the Series has a capital loss carryforward at
August 31, 1998 of approximately $2,756,900 of which $1,781,200 expires in 2003
and $975,700 expires in 2004. Accordingly, no capital gains distributions are
expected to be paid to shareholders until net gains have been realized in excess
of such amount.

For federal income tax purposes, the Series will elect to treat net capital
losses of $32,200 incurred in the ten month period ending August 31, 1998 as
having been incurred in the following fiscal year.

- ------------------------------------------------------------
Note 5. Capital

Transactions in shares of beneficial interest for the year ended August 31, 1998
and fiscal year ended August 31, 1997 were as follows:

<TABLE>
<CAPTION>
Class A Shares Amount
- ----------------------------------- ---------- ------------
<S> <C> <C>
Year ended August 31, 1998:
Shares sold........................ 3,414,327 $ 37,583,169
Shares issued in reinvestment of
dividends and distributions...... 412,571 4,525,799
Shares reacquired.................. (2,333,125) (25,610,559)
---------- ------------
Net increase in shares outstanding
before conversion................ 1,493,773 16,498,409
Shares issued upon conversion from
Class B.......................... 101,309 1,102,989
---------- ------------
Net increase in shares
outstanding...................... 1,595,082 $ 17,601,398
---------- ------------
---------- ------------
<CAPTION>
Class A Shares Amount
- ----------------------------------- ---------- ------------
<S> <C> <C>
Year ended August 31, 1997:
Shares sold........................ 1,937,503 $ 20,445,041
Shares issued in reinvestment of
dividends........................ 399,645 4,210,389
Shares reacquired.................. (2,590,226) (27,275,477)
---------- ------------
Net decrease in shares outstanding
before conversion................ (253,078) (2,620,047)
Shares issued upon conversion from
Class B.......................... 42,570 446,739
---------- ------------
Net decrease in shares
outstanding...................... (210,508) $ (2,173,308)
---------- ------------
---------- ------------
<CAPTION>
Class B
- -----------------------------------
<S> <C> <C>
Year ended August 31, 1998:
Shares sold........................ 2,527,906 $ 27,786,255
Shares issued in reinvestment of
dividends and distributions...... 111,980 1,228,995
Shares reacquired.................. (663,467) (7,259,153)
---------- ------------
Net increase in shares outstanding
before conversion................ 1,976,419 21,756,097
Shares reacquired upon conversion
into Class A..................... (101,309) (1,102,989)
---------- ------------
Net increase in shares
outstanding...................... 1,875,110 $ 20,653,108
---------- ------------
---------- ------------
Year ended August 31, 1997:
Shares sold........................ 1,426,212 $ 15,041,198
Shares issued in reinvestment of
dividends........................ 91,835 967,638
Shares reacquired.................. (531,588) (5,601,556)
---------- ------------
Net increase in shares outstanding
before conversion................ 986,459 10,407,280
Shares reacquired upon conversion
into Class A..................... (42,570) (446,739)
---------- ------------
Net increase in shares
outstanding...................... 943,889 $ 9,960,541
---------- ------------
---------- ------------
<CAPTION>
Class C
- -----------------------------------
<S> <C> <C>
Year ended August 31, 1998:
Shares sold........................ 384,457 $ 4,221,764
Shares issued in reinvestment of
dividends and distributions...... 13,751 150,931
Shares reacquired.................. (202,715) (2,225,783)
---------- ------------
Net increase in shares
outstanding...................... 195,493 $ 2,146,912
---------- ------------
---------- ------------
Year ended August 31, 1997:
Shares sold........................ 139,593 $ 1,480,063
Shares issued in reinvestment of
dividends........................ 9,040 95,296
Shares reacquired.................. (128,116) (1,354,688)
---------- ------------
Net increase in shares
outstanding...................... 20,517 $ 220,671
---------- ------------
---------- ------------
</TABLE>
- --------------------------------------------------------------------------------
B-74

<PAGE>
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
Notes to Financial Statements CALIFORNIA INCOME SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class Z Shares Amount
- ----------------------------------- ---------- ------------
<S> <C> <C>
Year ended August 31, 1998:
Shares sold........................ 274,705 $ 3,016,719
Shares issued in reinvestment of
dividends and distributions...... 15,212 167,032
Shares reacquired.................. (70,320) (772,394)
---------- ------------
Net increase in shares
outstanding...................... 219,597 $ 2,411,357
---------- ------------
---------- ------------
September 18, 1996(a) through
August 31, 1997:
Shares sold........................ 201,074 $ 2,120,569
Shares issued in reinvestment of
dividends and distributions...... 4,829 51,046
Shares reacquired.................. (22,584) (239,034)
---------- ------------
Net increase in shares
outstanding...................... 183,319 $ 1,932,581
---------- ------------
---------- ------------
</TABLE>
- ---------------
(a) Commencement of offering of Class Z shares.
- --------------------------------------------------------------------------------
B-75

<PAGE>
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
Financial Highlights CALIFORNIA INCOME 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............ $ 10.71 $ 10.33 $ 10.28 $ 10.19 $ 10.68
-------- -------- -------- -------- --------
Income from investment operations
Net investment income(a)...................... .59 .60 .63 .65 .65
Net realized and unrealized gain (loss) on
investment transactions.................... .49 .38 .05 .09 (.39)
-------- -------- -------- -------- --------
Total from investment operations........... 1.08 .98 .68 .74 .26
-------- -------- -------- -------- --------
Less distributions
Dividends from net investment income.......... (.59) (.60) (.63) (.65) (.65)
Distributions in excess of net investment
income..................................... (.01) --(c) -- -- --
Distributions from net realized gains......... -- -- -- -- (.10)
-------- -------- -------- -------- --------
Total distributions........................ (.60) (.60) (.63) (.65) (.75)
-------- -------- -------- -------- --------
Net asset value, end of year.................. $ 11.19 $ 10.71 $ 10.33 $ 10.28 $ 10.19
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN(b):.............................. 10.31% 9.72% 6.67% 7.67% 2.55%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................. $181,512 $156,684 $153,236 $163,538 $183,742
Average net assets (000)...................... $165,771 $153,019 $161,420 $165,500 $195,610
Ratios to average net assets(a):
Expenses, including distribution fees...... .68% .73% .50% .40% .35%
Expenses, excluding distribution fees...... .58% .63% .40% .30% .25%
Net investment income...................... 5.39% 5.66% 6.01% 6.49% 6.25%
For Class A, B, C and Z shares:
Portfolio turnover rate.................... 10% 16% 22% 39% 46%
</TABLE>
- ---------------
(a) Net of expense subsidy and/or 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-76

<PAGE>
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
Financial Highlights CALIFORNIA INCOME SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
-----------------------------------------------------------
December 7,
1993(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.......... $ 10.71 $ 10.33 $ 10.28 $ 10.19 $ 10.61
------- ------- ------- ------- -----------
Income from investment operations
Net investment income(a)...................... .55 .55 .59 .61 .44
Net realized and unrealized gain (loss) on
investment transactions.................... .49 .38 .05 .09 (.42)
------- ------- ------- ------- -----------
Total from investment operations........... 1.04 .93 .64 .70 .02
------- ------- ------- ------- -----------
Less distributions
Dividends from net investment income.......... (.55) (.55) (.59) (.61) (.44)
Distributions in excess of net investment
income..................................... (.01) --(e) -- -- --
------- ------- ------- ------- -----------
Total distributions........................ (.56) (.55) (.59) (.61) (.44)
------- ------- ------- ------- -----------
Net asset value, end of period................ $ 11.19 $ 10.71 $ 10.33 $ 10.28 $ 10.19
------- ------- ------- ------- -----------
------- ------- ------- ------- -----------
TOTAL RETURN(b):.............................. 9.87% 9.28% 6.25% 7.24% (.14)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $70,535 $47,436 $35,983 $28,609 $18,931
Average net assets (000)...................... $56,011 $40,983 $32,555 $23,722 $ 6,814
Ratios to average net assets(a):
Expenses, including distribution fees...... 1.08% 1.13% .90% .80% 1.11%(c)
Expenses, excluding distribution fees...... .58% .63% .40% .30% .43%(c)
Net investment income...................... 4.99% 5.26% 5.61% 6.09% 8.15%(c)
</TABLE>
- ---------------
(a) Net of expense subsidy and 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 B shares.
(e) Less than $.005 per share.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-77

<PAGE>
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
Financial Highlights CALIFORNIA INCOME 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.......... $10.71 $ 10.33 $ 10.28 $ 10.19 $10.18
------ ------- ------- ------- -----
Income from investment operations
Net investment income(a)...................... .52 .53 .56 .58 .05
Net realized and unrealized gain (loss) on
investment transactions.................... .49 .38 .05 .09 .01
------ ------- ------- ------- -----
Total from investment operations........... 1.01 .91 .61 .67 .06
------ ------- ------- ------- -----
Less distributions
Dividends from net investment income.......... (.52) (.53) (.56) (.58) (.05)
Distributions in excess of net investment
income..................................... (.01) --(f) -- -- --
------ ------- ------- ------- -----
Total distributions........................ (.53) (.53) (.56) (.58) (.05)
------ ------- ------- ------- -----
Net asset value, end of period................ $11.19 $ 10.71 $ 10.33 $ 10.28 $10.19
------ ------- ------- ------- -----
------ ------- ------- ------- -----
TOTAL RETURN(b):.............................. 9.60% 9.01% 5.99% 6.98% .47%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $5,960 $ 3,611 $ 3,269 $ 2,762 $1,054
Average net assets (000)...................... $4,491 $ 3,135 $ 3,300 $ 1,751 $ 353
Ratios to average net assets(a):
Expenses, including distribution fees...... 1.33% 1.38% 1.15% 1.05% 1.12%(c)
Expenses, excluding distribution fees...... .58% .63% .40% .30% .37%(c)
Net investment income...................... 4.74% 5.01% 5.36% 5.84% 6.25%(c)
<CAPTION>

Class Z
---------------------------
September 18,
1996(e)
Year Ended Through
August 31, August 31,
1998 1997
---------- -------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $10.71 $ 10.38
----- -----
Income from investment operations
Net investment income(a)...................... .61 .57
Net realized and unrealized gain (loss) on
investment transactions.................... .49 .33
----- -----
Total from investment operations........... 1.10 .90
----- -----
Less distributions
Dividends from net investment income.......... (.61) (.57)
Distributions in excess of net investment
income..................................... (.01) --(f)
----- -----
Total distributions........................ (.62) (.57)
----- -----
Net asset value, end of period................ $11.19 $ 10.71
----- -----
----- -----
TOTAL RETURN(b):.............................. 10.42% 8.86%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $4,507 $ 1,963
Average net assets (000)...................... $3,312 $ 970
Ratios to average net assets(a):
Expenses, including distribution fees...... .58% .63%(c)
Expenses, excluding distribution fees...... .58% .63%(c)
Net investment income...................... 5.49% 5.76%(c)
</TABLE>
- ---------------
(a) Net of expense subsidy and/or 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) Less than $.005 per share.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-78

<PAGE>
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
Report of Independent Accountants CALIFORNIA INCOME SERIES
- --------------------------------------------------------------------------------

To the Shareholders and Board of Trustees of
Prudential California Municipal Fund, California Income 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 California Municipal
Fund, California Income Series (the "Fund", one of the portfolios constituting
Prudential California Municipal 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-79

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Federal Income Tax Information (Unaudited) CALIFORNIA INCOME 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 $.59 per share for Class A shares, $.55 per Class B
share, $.52 per Class C share and $.61 per Class Z share were all federally
tax-exempt interest dividends. In addition, the Series paid to Class A, B, C and
Z shares a special taxable income of $.01 which is taxable as ordinary income.

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-80

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Portfolio of Investments as of August 31, 1998 CALIFORNIA 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>
- ---------------------------------------------------------------------------------------------------------------------------------
Abag Fin. Auth., Harken School Foundation, Ser. 98,
F.R.W.D. F-1+(d) 2.45% 9/02/98 $ 4,000 $ 4,000,000
Anaheim Hsg. Auth., Monterey Apts., Ser. 97B, F.R.W.D.,
A.M.T. A-1+(d) 2.65 9/03/98 4,545 4,545,000
California Dept. Wtr. Res., Wtr. Rev. Cert. Part. Notes,
Ser. I, T.E.C.P. P-1 3.70 9/09/98 3,738 3,738,000
California Econ. Dev. Fin. Auth. Rev.,
Mannesmann Dematic Rapistan Corp., Ser. 98, F.R.W.D.,
A.M.T CPS1 3.35 9/03/98 3,200 3,200,000
Indep. Sys. Oper., Ser.98A, F.R.D.D. VMIG1 3.15 9/01/98 1,000 1,000,000
California Hlth. Fac. Fin. Auth. Rev.,
Insured Hospital Adventist, Ser. 98A, F.R.D.D.,
M.B.I.A. VMIG1 3.15 9/01/98 1,050 1,050,000
Scripps Health, F.R.W.D., M.B.I.A. VMIG1 2.50 9/02/98 6,500 6,500,000
California Hsg. Fin. Agcy. Rev.,
Home Mtg. Rev., Ser. 96R, A.M.T., M.B.I.A. A-1+(d) 3.70 4/08/99 3,670 3,670,000
Home Mtg. Rev., Ser. 98K A.M.T. MIG1 3.65 8/01/99 1,945 1,945,000
Home Mtg. Rev., Ser. 98E, A.O.T., A.M.T. VMIG1 3.55 3/12/99 9,570 9,570,000
California Poll. Ctrl. Fin. Auth. Rev.,
Arco Proj., Ser. 94A, F.R.D.D., A.M.T. VMIG1 3.30 9/01/98 7,600 7,600,000
Arco Proj., Ser. 97A, F.R.W.D., A.M.T. A-1+(d) 2.60 9/02/98 2,900 2,900,000
Browning Ferris Inds., Ser. 97A, F.R.W.D., A.M.T. P-1 2.65 9/02/98 10,000 10,000,000
Delano Proj., Ser. 90, F.R.D.D., A.M.T. P-1 3.30 9/01/98 200 200,000
Delano Proj., Ser. 91, F.R.D.D., A.M.T. P-1 3.30 9/01/98 200 200,000
Pacific Gas & Elec., Ser. 96C, F.R.D.D. A-1+(d) 3.20 9/01/98 3,600 3,600,000
Pacific Gas & Elec., Ser. 97B, A.M.T. A-1+(d) 3.25 9/01/98 2,700 2,700,000
Pacific Gas & Elec., Ser. 97C, A.M.T. A-1+(d) 3.25 9/01/98 10,500 10,500,000
So. Cal. Ed., Ser. 86A, F.R.D.D. VMIG1 3.80 9/01/98 6,300 6,300,000
So. Cal. Ed., Ser 86B, F.R.D.D. VMIG1 3.80 9/01/98 2,100 2,100,000
So. Cal. Ed., Ser. 86C, F.R.D.D. P-1 3.80 9/01/98 1,600 1,600,000
So. Cal. Ed., Ser. 86D, F.R.D.D. VMIG1 3.80 9/01/98 2,100 2,100,000
U.S. Borax Inc. Proj., Ser. 95A, F.R.W.D. CPS1 3.25 9/03/98 5,100 5,100,000
Ultrapower Malaga Fresno Proj., Ser. 88A, F.R.D.D.,
A.M.T. P-1 3.30 9/01/98 100 100,000
Ultrapower Malaga Fresno Proj., Ser. 88B, F.R.D.D.,
A.M.T. P-1 3.30 9/01/98 900 900,000
Ultrapower Rocklin Proj., Ser. 88A, F.R.D.D., A.M.T. P-1 3.30 9/01/98 600 600,000
Ultrapower Rocklin Proj., Ser. 88B, F.R.D.D., A.M.T. P-1 3.30 9/01/98 200 200,000
California Sch. Cash Reserve Prog. Auth., Series A,
A.M.B.A.C. MIG1 4.50 7/02/99 10,000 10,060,967
California St., Gen. Oblig., T.E.C.P. P-1 3.45 9/04/98 11,000 11,000,000
California Statewide Cmntys. Dev. Auth.,
Chevron Proj., Ser. 94, F.R.D.D., A.M.T. P-1 3.25 9/01/98 7,000 7,000,000
Kimberly Woods Apts., Ser. 95B, F.R.W.D., F.N.M.A.,
A.M.T. A-1+(d) 2.40 9/02/98 2,000 2,000,000
Camarillo Multi-family Hsg. Rev., Hacienda De Camarillo
Proj., Ser. 96, F.R.W.D., A.M.T. A-1+(d) 2.65 9/03/98 3,000 3,000,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-81

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Portfolio of Investments as of August 31, 1998 CALIFORNIA 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>
- ---------------------------------------------------------------------------------------------------------------------------------
City of Fowler Ind. Dev. Auth., Bee Sweet Citrus, Ser. 95,
F.R.W.D., A.M.T. CPS1 3.35% 9/03/98 $ 1,800 $ 1,800,000
Elk Grove Unified Sch. Dist., Ser. 98-99, T.R.A.N. SP1+(d) 4.50 6/30/99 3,000 3,021,555
Fresno Multi-family Hsg. Rev.,
Heron Pointe Apt. Proj., F.R.W.D. VMIG1 2.55 9/02/98 4,900 4,900,000
Sunrise of Fresno Proj., Ser. 96A, F.R.W.D., A.M.T. A-1+(d) 3.46 9/03/98 5,500 5,500,000
Kern Cnty. Superintendent of Schs., Ser. 96A, F.R.W.D. A-1+(d) 2.90 9/03/98 15,000 15,000,000
Lassen Muni. Util. Dist. Rev., Refunding Rev., Ser. 96A,
F.R.W.D., F.S.A., A.M.T. VMIG1 2.90 9/03/98 6,200 6,200,000
Los Angeles Comm. Coll. Dist., T.R.A.N. SP-1+(d) 4.25 7/29/99 2,500 2,513,776
Los Angeles Dept. Wtr. & Pwr., T.E.C.P. P-1 3.65 9/11/98 5,700 5,700,000
Los Angeles Hsg. Auth., Multi-family Rev., Lanewood Apts.
Proj., Ser. 85, F.R.W.D. VMIG1 2.70 9/02/98 7,800 7,800,000
Los Angeles Ind. Dev. Auth., Ser. 98, F.R.W.D. A-1+(d) 2.70 9/02/98 1,900 1,900,000
Los Angeles Wastewater Sys. Rev.,
Muni Trust Susquehanna, Ser. SSP-19, F.R.W.D.S.,
F.G.I.C. VMIG1 3.25 9/02/98 5,000 5,000,000
Refunding Rev., Ser. A Aaa 7.10 2/01/99 7,800(c) 8,067,957
Met. Wtr. Dist. So. Cal., Waterworks Rev., F.R.W.D. A-1+(d) 3.21 9/03/98 4,495 4,495,000
Oakland Joint Powers Financing Auth., Lease Rev., Ser. A1,
F.R.W.D., F.S.A. VMIG1 2.70 9/03/98 10,000 10,000,000
Plumas Cnty., Ser. 97-98, T.R.A.N. SP-1+(d) 4.50 12/03/98 2,400 2,404,298
Riverside Cnty. Hsg. Auth., McKinely Hills Apt. Proj.,
Ser. 85R, F.R.W.D. A-1+(d) 2.70 9/03/98 11,000 11,000,000
Riverside CA., Teeters, Ser. B, T.E.C.P. P-1 3.05 10/08/98 3,800 3,800,000
Sacramento Cnty. Financing Auth., Ser. 98A, B.A.N. SP-1+(d) 3.55 12/15/98 11,890 11,890,000
Sacramento Cnty. Hsg. Auth., Multi-family Rev., Chesapeake
Apts., Ser. A, F.R.W.D., A.M.T. A-1+(d) 2.60 9/03/98 5,000 5,000,000
Salinas Multi-family Hsg. Rev., Brentwood Garden Apts.,
Ser. 97A, F.R.W.D. A-1+(d) 2.55 9/03/98 7,480 7,480,000
San Bernardino Cnty. Redev. Agy., Silverwood Apt. Proj.,
Ser. 86, F.R.W.D., A.M.T. A-1+(d) 2.60 9/03/98 7,000 7,000,000
San Francisco Airport, Ser. 97A, T.E.C.P., A.M.T. P-1 3.35 2/09/99 3,130 3,130,000
San Francisco Multi-family Hsg. Rev., City Heights Apts.,
Ser. 97A, F.R.W.D., A.M.T. A-1+(d) 2.40 9/02/98 4,000 4,000,000
San Jose Multi-family Hsg. Rev., Sienna At Rennaissance
Square, Ser. 96A, F.R.W.D., A.M.T. VMIG1 2.50 9/02/98 7,500 7,500,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-82

<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Portfolio of Investments as of August 31, 1998 CALIFORNIA 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>
- ------------------------------------------------------------------------------------------------------------------------------
University of California Regents, Multiple Purpose Proj.,
Ser. C, A.M.B.A.C. Aaa 10.00% 9/01/98 $ 3,000 $ 3,000,000
Ventura Cnty., Ser. 98, T.R.A.N. VMIG1 3.60 12/09/98 15,000 15,000,000
Westminster Redev. Agcy., Westminster Commercial Proj.
#1, Ser. 97, F.R.W.D., A.M.B.A.C. A-1+(d) 2.70 9/03/98 7,755 7,755,000
------------
Total Investments--99.5%
(cost $299,836,553;(e)) 299,836,553
Other assets in excess of liabilities--0.5% 1,441,708
------------
Net Assets--100% $301,278,261
------------
------------
</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.O.T.--Annual Optional Tender.
B.A.N.--Bond Anticipation Note.
F.G.I.C.--Financial Guaranty Insurance Company.
F.N.M.A.--Federal National Mortgage Association.
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 Synthetic Note (b).
F.S.A.--Financial Security Assurance.
M.B.I.A.--Municipal Bond Insurance Association.
T.E.C.P.--Tax-Exempt Commercial Paper.
T.R.A.N.--Tax & Revenue Anticipation Note.
(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) Prerefunded issues are secured by escrowed cash and/or direct U.S.
guaranteed obligations.
(d) Standard & Poor's Rating.
(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-83

<PAGE>
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
Statement of Assets and Liabilities CALIFORNIA MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
Assets August 31, 1998
<S> <C>
Investments, at amortized cost which approximates market value............................................ $ 299,836,553
Cash...................................................................................................... 91,862
Receivable for Series shares sold......................................................................... 10,362,427
Interest receivable....................................................................................... 1,387,212
Receivable for investments sold........................................................................... 430,000
Other assets.............................................................................................. 7,416
---------------
Total assets........................................................................................... 312,115,470
---------------
Liabilities
Payable for Series shares reacquired...................................................................... 10,507,100
Management fee payable.................................................................................... 131,137
Dividends payable......................................................................................... 120,397
Accrued expenses.......................................................................................... 52,803
Distribution fee payable.................................................................................. 17,767
Deferred trustee's fees................................................................................... 8,005
---------------
Total liabilities...................................................................................... 10,837,209
---------------
Net Assets................................................................................................ $ 301,278,261
---------------
---------------
Net assets were comprised of:
Shares of beneficial interest, at $.01 par value....................................................... $ 3,012,783
Paid-in capital in excess of par....................................................................... 298,265,478
---------------
Net assets, August 31, 1998............................................................................... $ 301,278,261
---------------
---------------
Net asset value, offering price and redemption price per share
($301,278,261 / 301,278,261 shares of beneficial interest issued and outstanding; unlimited number of
shares authorized)..................................................................................... $1.00
---------------
---------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-84

<PAGE>
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA MONEY MARKET SERIES
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income August 31, 1998
<S> <C>
Income
Interest................................. $ 9,994,401
---------------
Expenses
Management fee........................... 1,436,251
Distribution fee......................... 359,063
Transfer agent's fees and expenses....... 91,000
Reports to shareholders.................. 50,000
Custodian's fees and expenses............ 49,000
Registration fees........................ 30,000
Audit fee and expenses................... 13,000
Legal fees and expenses.................. 10,000
Trustees' fees and expenses.............. 7,000
Insurance expense........................ 6,000
Miscellaneous............................ 2,863
---------------
Total expenses........................ 2,054,177
Less: Custodian fee credit (Note 1)...... (8,739)
---------------
Net expenses.......................... 2,045,438
---------------
Net investment income....................... 7,948,963
---------------
Net Increase in Net Assets
Resulting from Operations................... $ 7,948,963
---------------
---------------
</TABLE>

PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA 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..... $ 7,948,963 $ 7,780,086
Net realized gain on
investment
transactions........... -- 6,865
--------------- ---------------
Net increase in net assets
resulting from
operations............. 7,948,963 7,786,951
--------------- ---------------
Dividends and distributions
(Note 1).................. (7,948,963) (7,786,951)
--------------- ---------------
Series share transactions (at
$1 per share)
Net proceeds from shares
sold................... 1,442,499,792 1,770,959,716
Net asset value of shares
issued in reinvestment
of dividends and
distributions.......... 7,729,112 7,448,192
Cost of shares
reacquired............. (1,434,231,046) (1,742,960,108)
--------------- ---------------
Net increase in net assets
from Series share
transactions........... 15,997,858 35,447,800
--------------- ---------------
Total increase............... 15,997,858 35,447,800
Net Assets
Beginning of year............ 285,280,403 249,832,603
--------------- ---------------
End of year.................. $ 301,278,261 $ 285,280,403
--------------- ---------------
--------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-85

<PAGE>
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
Notes to Financial Statements CALIFORNIA MONEY MARKET SERIES
- --------------------------------------------------------------------------------

Prudential California Municipal 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
three series. The monies of each series are invested in separate, independently
managed portfolios. The California Money Market Series (the "Series") commenced
investment operations on March 3, 1989. The Series is diversified and seeks to
achieve its investment objective of obtaining the maximum amount of income
exempt from California state and federal income taxes with the minimum risk by
investing in "investment grade" tax-exempt securities having a maturity of 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.
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 continue 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 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, PIC, PIMS and PIFM 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 $81,200 for the services of PMFS. As of
August 31, 1998, approximately $5,800 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-86

<PAGE>
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
Financial Highlights CALIFORNIA 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/losses................ .03 .03 .03 .02(b) .02
Dividends and distributions........................................ (.03) (.03) (.03) (.03) (.02)
Capital contribution by affiliate.................................. -- -- -- .01 --
-------- -------- -------- -------- --------
Net asset value, end of year....................................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN(a):................................................... 2.81% 2.85% 2.88% 3.01%(b) 1.94%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)...................................... $301,278 $285,280 $249,833 $229,380 $300,676
Average net assets (000)........................................... $287,250 $277,720 $256,175 $243,130 $326,429
Ratios to average net assets:
Expenses, including distribution fee............................ .72% .73% .74% .78% .73%
Expenses, excluding distribution fee............................ .60% .61% .62% .65% .61%
Net investment income........................................... 2.77% 2.80% 2.83% 2.93% 1.91%
</TABLE>
- ---------------
(a) Total return includes reinvestment of dividends and distributions.
(b) Includes $.01 of net realized loss on investment transactions that were
offset by a capital contribution by affiliate.
Without the effect of the capital contribution, the Series' total return
would have been 1.88%.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-87

<PAGE>
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
Report of Independent Accountants CALIFORNIA MONEY MARKET SERIES
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
Prudential California Municipal Fund, California 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 California Municipal
Fund, California Money Market Series (the "Fund", one of the portfolios
constituting Prudential California Municipal 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-88

<PAGE>
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
Federal Income Tax Information (Unaudited) CALIFORNIA MONEY MARKET SERIES
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
B-89

<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 stratgegy 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 shows the long-term performance of various asset classes and the
rate of inflation.

EACH INVESTMENT PROVIDES A DIFFERENT OPPORTUNITY
VALUE OF $1.00 INVESTED ON 1/1/26 THROUGH 12/31/97

SMALL STOCKS -- $5,519.97
COMMON STOCKS -- $1,828.33
LONG-TERM BONDS -- $39.07
TREASURY BILLS -- $14.25
INFLATION -- $9.02

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's Money Management Group, 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 AND 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, 1995. 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-US 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>
PART C
OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.

(A) FINANCIAL STATEMENTS:

(1) The following financial statements are included in the Prospectuses
constituting Part A of this Registration Statement:

Financial Highlights.

(2) The following financial statements are included in the Statement of
Additional Information constituting Part B of this Registration Statement:

Portfolio of Investments at August 31, 1998.

Statement of Assets and Liabilities at August 31, 1998.

Statement of Operations for the year ended August 31, 1998.

Statement of Changes in Net Assets for the years ended
August 31, 1998 and 1997.

Notes to Financial Statements.

Financial Highlights.

Independent Auditors' Reports.

(B) EXHIBITS:

1. (a) Amended and Restated Declaration of Trust of the Registrant.
(Incorporated by reference to Exhibit No. 1(a) to Post-Effective
Amendment No. 20 to Registration Statement on Form N-1A filed via
EDGAR December 20, 1994 (File No. 2-91215).)

(b) Amended and Restated Certificate of Designation.*

2. Restated By-Laws. (Incorporated by reference to Exhibit No. 2 to
Registration Statement on Form N-1A filed via EDGAR May 12, 1994 (File
No. 2-91215).)

4. (a) Specimen receipt for shares of beneficial interest, $.01 par
value, of the California Income Series. (Incorporated by reference to
Exhibit 4(a) to Post-Effective Amendment No. 24 to Registration
Statement on Form N-1A filed via EDGAR October 31, 1997 (File No.
2-91215).)

(b) Specimen receipt for shares of beneficial interest, $.01 par
value, of the California Series. (Incorporated by reference to Exhibit
4(b) to Post-Effective Amendment No. 24 to Registration Statement on
Form N-1A filed via EDGAR October 31, 1997 (File No. 2-91215).)

(c) Specimen receipt for shares of beneficial interest, $.01 par
value, of California Money Market Series. (Incorporated by reference
to Exhibit 4(c) to Post-Effective Amendment No. 24 to Registration
Statement on Form N-1A filed via EDGAR October 31, 1997 (File No.
2-91215).)

5. (a) Management Agreement between the Registrant and Prudential
Mutual Fund Management, Inc. (Incorporated by reference to Exhibit
5(a) to Post-Effective Amendment No. 24 to Registration Statement on
Form N-1A filed via EDGAR October 31, 1997 (File No. 2-91215).)

(b) Subadvisory Agreement between Prudential Mutual Fund Management,
Inc. and The Prudential Investment Corporation. (Incorporated by
reference to Exhibit 5(b) to Post-Effective Amendment No. 24 to
Registration Statement on Form N-1A filed via EDGAR October 31, 1997
(File No. 2-91215).)

6. Distribution Agreement between the Registrant and Prudential
Investment Management Services LLP.*

8. Custodian Contract between the Registrant and State Street Bank and
Trust Company. (Incorporated by reference to Exhibit 8 to
Post-Effective Amendment No. 24 to Registration Statement on Form N-1A
filed via EDGAR October 31, 1997 (File No. 2-91215).)

C-1
<PAGE>

9. Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services, Inc. (Incorporated by reference to
Exhibit 9 to Post-Effective Amendment No. 24 to Registration Statement
on Form N-1A filed via EDGAR October 31, 1997 (File No. 2-91215).)

10. Opinion of Counsel.*

11. Consent of PriceWaterhouseCoopers LLP.*

13. Purchase Agreement. (Incorporated by reference to Exhibit No. 13 to
Pre-Effective Amendment No. 1 to Registration Statement on Form N-1A
filed August 29, 1984 (File No. 2-91215).)

15. (a) Distribution and Service Plan with respect to California Money
Market Series.*

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

(d) Distribution and Service Plan for Class C shares.*

16. (a) Schedule of Computation of Performance Information for Class A,
Class B, Class C and Class Z shares. (Incorporated by reference to
Exhibit 16(a) to Post-Effective Amendment No. 24 to Registration
Statement on Form N-1A filed via EDGAR October 31, 1997 (File No.
2-91215).)

(b) Schedule of Computation of Performance Information for shares of
California Money Market Series. (Incorporated by reference to Exhibit
16(b) to Post-Effective Amendment No. 24 to Registration Statement on
Form N-1A filed via EDGAR October 31, 1997 (File No. 2-91215).)

18. Amended and Restated Rule 18f-3 Plan.*

27. Financial Data Schedules.*

- ------------------------
*Filed herewith.

Powers of Attorney. Executed copies filed under "Other Exhibits" to
Post-Effective Amendment No. 11 to Registration Statement on Form N-1A filed
October 10, 1990 (File No. 2-91215).

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

None.

ITEM 26. NUMBER OF HOLDERS OF SECURITIES.

As of October 9, 1998, each series of the Fund had the following number of
record holders of shares of beneficial interest, $.01 par value per share:
California Series, 2,499 record holders of Class A shares, 1,896 record holders
of Class B shares, 45 record holders of Class C shares and 23 record holders of
Class Z shares; California Income Series, 2,704 record holders of Class A
shares, 1,445 record holders of Class B shares, 138 record holders of Class C
shares and 82 record holders of Class Z shares; California Money Market Series,
5,083 record holders.

ITEM 27. INDEMNIFICATION.

Article V, Section 5.1 of the Registrant's Declaration of Trust provides
that neither shareholders nor Trustees, officers, employees or agents shall be
subject to personal liability to any other person, except (with respect to
Trustees, officers, employees or agents) liability arising from bad faith,
willful misfeasance, gross negligence or reckless disregard of his of her
duties. Section 5.1 also provides that the Registrant will indemnify and hold
harmless each shareholder against all claims and all expenses reasonably related
thereto.

As permitted by Sections 17(h) and (i) of the Investment Company Act of
1940, as amended (the 1940 Act) and pursuant to Article VI of the Fund's By-Laws
(Exhibit 2 to the Registration Statement), officers, Trustees, employees and
agents of the Registrant will not be liable to the Registrant, any shareholder,
officer, Trustee, employee, agent or other person for any action or failure to
act, except for bad faith, willful misfeasance, gross negligence or reckless
disregard of duties, and those individuals may be indemnified against
liabilities in connection with the Registrant, subject to the same exceptions.
As permitted by Section 17(i) of the 1940 Act, pursuant to Section 9 of the
Distribution Agreements (Exhibit 6 to the Registration Statement), the
Distributor of the Registrant may be indemnified against liabilities which it
may incur, except liabilities arising from bad faith, gross negligence, willful
misfeasance or reckless disregard of duties.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (Securities Act) may be permitted to Trustees, officers and
controlling persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the 1940 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other

C-2
<PAGE>
than the payment by the Registrant of expenses incurred or paid by a Trustee,
officer or controlling person of the Registrant in connection with the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such Trustee, officer or controlling person in connection with the
shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the 1940 Act and will be governed by the
final adjudication of such issue.

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

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

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

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

(a) Prudential Investments Fund Management LLC (PIFM)

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

The business and other connections of the officers of PIFM are listed in
Schedules A and D of Form ADV of PMF as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-31104).

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

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

(b) The Prudential Investment Corporation (PIC)

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

C-3
<PAGE>
The business and other connections of PIC's directors and executive officers
are as set forth below. Except as otherwise indicated, the address of each
person is Prudential Plaza, Newark, NJ 07102.

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

ITEM 29. PRINCIPAL UNDERWRITERS

(a) Prudential Investment Management Services LLC (PIMS)

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

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

<TABLE>
<CAPTION>
POSITIONS
AND
POSITIONS AND OFFICES
OFFICES WITH WITH
NAME(1) UNDERWRITER REGISTRANT
- ----------------------------------- --------------------------------------------- -----------
<S> <C> <C>
E. Michael Caulfield............... President None
Mark R. Fetting
Gateway Center Three
100 Mulberry Street
Newark, New Jersey 07102......... Executive Vice President None
Jean D. Hamilton................... Executive Vice President None
Ronald P. Joelson.................. Executive Vice President None
Brian M. Storms
Gateway Center Three
100 Mulberry Street
Newark, New Jersey 07102......... Executive Vice President None
John R. Strangfeld................. Executive Vice President None
Mario A. Mosse..................... Senior Vice President and Chief Operating None
Officer
Scott S. Wallner................... Vice President, Secretary and Chief Legal None
Officer
Michael G. Williamson.............. Vice President, Comptroller and Chief None
Financial Officer
C. Edward Chaplin.................. Treasurer None
</TABLE>

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

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS

All accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the Rules thereunder are maintained at the offices of
State Street Bank and Trust Company, 1776 Heritage Drive, North Quincy,
Massachusetts 02171, The Prudential Investment Corporation, Prudential Plaza,
751 Broad Street, Newark, New Jersey 07102, the Registrant, Gateway Center
Three, Newark, New Jersey 07102, and Prudential Mutual Fund Services LLC,
Raritan Plaza One, Edison, New Jersey 08837. Documents required by Rules
31a-1(b)(5), (6), (7), (9), (10) and (11) and 31a-1(f) will be kept at Gateway
Center Three,

C-4
<PAGE>
documents required by Rules 31a-1(b)(4) and (11) and 31a-1(d) at Gateway Center
Three, and the remaining accounts, books and other documents required by such
other pertinent provisions of Section 31(a) and the Rules promulgated thereunder
will be kept by State Street Bank and Trust Company and Prudential Mutual Fund
Services LLC.

ITEM 31. MANAGEMENT SERVICES

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

ITEM 32. UNDERTAKINGS

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

C-5
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to the Registration Statement
to be signed on its behalf by the undersigned thereunto duly authorized, in the
City of Newark, and State of New Jersey, on the 3rd day of November, 1998.

PRUDENTIAL CALIFORNIA MUNICIPAL
FUND

By: /s/ RICHARD A. REDEKER
-------------------------------
Richard A. Redeker, President

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

<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------------------ --------------------------------------------- -------------------
<C> <S> <C>
/s/ EDWARD D. BEACH
------------------------------------------- Trustee November 3, 1998
Edward D. Beach
/s/ EUGENE C. DORSEY
------------------------------------------- Trustee November 3, 1998
Eugene C. Dorsey
/s/ DELAYNE D. GOLD
------------------------------------------- Trustee November 3, 1998
Delayne D. Gold
/s/ ROBERT F. GUNIA
------------------------------------------- Vice President and Trustee November 3, 1998
Robert F. Gunia
/s/ HARRY A. JACOBS, JR.
------------------------------------------- Trustee November 3, 1998
Harry A. Jacobs, Jr.
/s/ MENDEL A. MELZER
------------------------------------------- Trustee November 3, 1998
Mendel A. Melzer
/s/ THOMAS T. MOONEY
------------------------------------------- Trustee November 3, 1998
Thomas T. Mooney
/s/ THOMAS H. O'BRIEN
------------------------------------------- Trustee November 3, 1998
Thomas H. O'Brien
/s/ RICHARD A. REDEKER
------------------------------------------- President and Trustee November 3, 1998
Richard A. Redeker
/s/ NANCY HAYS TEETERS
------------------------------------------- Trustee November 3, 1998
Nancy Hays Teeters
/s/ LOUIS A. WEIL, III
------------------------------------------- Trustee November 3, 1998
Louis A. Weil, III
/s/ GRACE TORRES
------------------------------------------- Principal Financial and Accounting Officer November 3, 1998
Grace Torres
</TABLE>

C-6
<PAGE>
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
EXHIBIT INDEX

1. (b) Amended and Restated Certificate of Designation.*

6. Distribution Agreement between the Registrant and Prudential
Investment Management Services LLP.*

10. Opinion of Counsel.*

11. Consent of PricewaterhouseCoopers LLP.*

15. (a) Distribution and Service Plan with respect to California Money
Market Series.*

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

(d) Distribution and Service Plan for Class C shares.*

18. Amended and Restated Rule 18f-3 Plan.*

27. Financial Data Schedules.*

- ------------------------
*Filed herewith.

<PAGE>

PRUDENTIAL CALIFORNIA MUNICIPAL FUND

AMENDED AND RESTATED CERTIFICATE OF DESIGNATION

The undersigned, being the duly elected and acting Assistant Secretary of
Prudential California Municipal Fund, a trust with transferable shares
established under Massachusetts law of the type commonly called a Massachusetts
business trust (the "TRUST"), DOES HEREBY CERTIFY that, pursuant to the
authority conferred upon the Trustees of the Trust by Section 6.9 and Section
9.3 of the Amended and Restated Declaration of Trust dated August 17, 1994 and
filed with the Secretary of The Commonwealth of Massachusetts on September 23,
1994 (the "DECLARATION OF TRUST"), and pursuant to the affirmative vote of a
majority of the Trustees at a meeting duly called and held on August 25, 1998,
the Amended and Restated Certificate of Designation dated July 28, 1994 and
filed with the Secretary of State of The Commonwealth of Massachusetts on August
1, 1994, as amended by an Amended Certificate of Designation dated September 11,
1996 and filed with the Secretary of State of such Commonwealth on September 13,
1996, is hereby further amended and restated to read in its entirety as follows:

The shares of beneficial interest of the Trust (the "SHARES") shall be
divided into three (3) separate series (each, a "SERIES"), each Series to have
the following special and relative rights:

(1) The Series shall be designated as follows:

California Series
California Income Series
California Money Market Series

Each Series shall constitute a separate portfolio of the Trust, and shall be
authorized to invest in cash, securities, instruments and other property as from
time to time described in the Trust's then current registration statement under
the Securities Act of 1933 (the "SECURITIES ACT"). The Shares of each Series
shall represent an interest only in the assets, subject to the liabilities, of
such Series.

(2) The Shares of the California Series and the California Income Series
shall be classified into four classes (each, a "CLASS"), designated "Class A
Shares," "Class B Shares," "Class C Shares" and "Class Z Shares," respectively,
of which an unlimited number may be issued. Class A Shares, Class B Shares,
Class C Shares and Class Z Shares of the California Series and the California
Income Series outstanding on the date on which the amendments provided for
herein become effective shall be and shall continue to be Class A Shares, Class
B Shares, Class C Shares and Class Z Shares of the respective Series.

(3) The holders of Class A Shares, Class B Shares, Class C Shares and
Class Z Shares of the California Series and the California Income Series shall
be considered Shareholders of such Series, and shall have the relative rights
and preferences set forth herein and in the Declaration of Trust with respect to
Shares of such Series, and shall also be considered Shareholders of the Trust
for all purposes (including, without limitation, for purposes of receiving
reports and notices and the right to vote) and, for matters reserved to the
Shareholders of one or more other Classes or

<PAGE>

-2-

Series by the Declaration of Trust or by any instrument establishing and
designating a particular Class or Series, or as required by the Investment
Company Act of 1940 and/or the rules and regulations of the Securities and
Exchange Commission thereunder (collectively, as from time to time in effect,
the "1940 ACT") or other applicable laws. The holders of Shares of each Class
and Series shall be entitled to one vote per Share, and to a fraction of a vote
proportional to each fractional Share held, on all matters on which Shares of
that Class or Series shall be entitled to vote, all as provided in the
Declaration of Trust.

(4) The Shares of each Class of a Series having Classes shall represent an
equal proportionate interest in the share of such Class in the Trust Property
belonging to that Series, adjusted for any liabilities specifically allocable to
the Shares of that Class, and each Share of any such Class shall have identical
voting, dividend, liquidation and other rights, and the same terms and
conditions, as the Shares of each other Class of such Series, except that the
expenses related directly or indirectly to the distribution of the Shares of a
Class, and any service fees to which such Class is subject (as determined by the
Trustees), shall be borne solely by such Class, and such expenses shall be
appropriately reflected in the determination of the net asset value and the
dividend, distribution and liquidation rights of such Class.

(5) Each Class of each Series having Classes shall be subject to such
asset-based charges as may be imposed pursuant to a plan under Rule 12b-1 of the
1940 Act (a "PLAN") in effect for such Class, and/or to such service fees for
the maintenance of shareholder accounts and personal services for such Class in
such amounts as shall be determined by the Trustees from time to time, and the
Shares of each such Class may be issued and sold subject to such sales charges
and/or contingent deferred sales charges, and upon such other terms, as may from
time to time be determined by the Trustees and described in the Trust's then
current registration statement under the Securities Act.

(6) Subject to compliance with the requirements of the 1940 Act, the
Trustees shall have the authority to provide (a) that holders of Shares of any
Series shall have the right to convert such Shares into shares of such one or
more other registered investment companies as shall have agreed with the Trust
to accord such shareholders such right, (b) that holders of any Class of Shares
of a Series having Classes shall have the right to convert such Shares into
Shares of one or more other Classes of such Series, and (c) that Shares of any
Class of a Series having Classes shall be automatically converted into Shares of
another Class of such Series, in each case in accordance with such requirements
and procedures as the Trustees may from time to time establish, all as may be
specified for the purpose in the Trust's then current registration statement
under the Securities Act applicable to the Shares accorded such right or rights.

(7) Shareholders of each Class and Series shall vote as a separate Class
or Series, as the case may be, on any matter to the extent required by, and any
matter shall be deemed to have been effectively acted upon with respect to any
Class or Series as provided in, Rule 18f-2 under the 1940 Act, as from time to
time in effect, or any successor rule, and by the Declaration of Trust. Except
as otherwise required by the 1940 Act, the Shareholders of each Class of any
Series having more than one Class of Shares, voting as a separate Class, shall
have sole and exclusive voting rights with respect to matters relating to
expenses being borne solely by such Class.

(8) The Trustees from time to time in office shall have the authority at
any time and from

<PAGE>

-3-

time to time to reallocate assets and expenses or to change the designation of
any Class or Series now or hereafter created, or otherwise to change the special
and relative rights of any such Class or Series, PROVIDED, that no such change
shall adversely affect the rights of holders of outstanding Shares of any Class
or Series.

IN WITNESS WHEREOF, I have hereunto set my hand and the seal of the Trust,
this 27th day of October, 1998

/s/ Deborah A. Docs
-------------------------

--------------, Assistant Secretary

ACKNOWLEDGMENT

STATE OF NEW JERSEY)
: October 27, 1998
COUNTY OF ESSEX ) ss ----------------

Then personally appeared before me the above named Deborah A. Docs,
Assistant Secretary, and acknowledged the foregoing instrument to be her free
act and deed.

/s/ Alberta Mulvihill
----------------------
Notary Public

[NOTARIAL SEAL]

<PAGE>
PRUDENTIAL CALIFORNIA MUNICIPAL FUND

DISTRIBUTION AGREEMENT

Agreement made as of June 1, 1998, between Prudential California
Municipal Fund (the Fund), and Prudential Investment Management Services LLC,
a Delaware limited liability company (the Distributor).

WITNESSETH

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

WHEREAS, the shares of the Fund may be divided into classes
and/or series (all such shares being referred to herein as Shares) and the
Fund currently is authorized to offer Class A, Class B, Class C and Class Z
Shares;

WHEREAS, the Distributor is a broker-dealer registered under the
Securities Exchange Act of 1934, as amended, and is engaged in the business
of selling shares of registered investment companies either directly or
through other broker-dealers;

WHEREAS, the Fund and the Distributor wish to enter into an
agreement with each other, with respect to the continuous offering of the
Fund's Shares from and after the date hereof in order to promote the growth
of the Fund and facilitate the distribution of its Shares; and

WHEREAS, the Fund has adopted a plan (or plans) of distribution
pursuant to Rule 12b-1 under the Investment Company Act with respect to
certain of its classes and/or series of Shares (the Plans) authorizing
payments by the Fund to the Distributor with respect to the distribution of
such classes and/or series of Shares and the maintenance of related
shareholder accounts.

NOW, THEREFORE, the parties agree as follows:

Section 1. APPOINTMENT OF THE DISTRIBUTOR

The Fund hereby appoints the Distributor as the principal
underwriter and distributor of the Shares of the Fund to sell Shares to the
public on behalf of the Fund and the Distributor hereby accepts such
appointment and agrees to act hereunder. The Fund hereby agrees during the
term of this Agreement to sell Shares of the Fund through the Distributor on
the terms and conditions set forth below.

<PAGE>

Section 2. EXCLUSIVE NATURE OF DUTIES

The Distributor shall be the exclusive representative of the
Fund to act as principal underwriter and distributor of the Fund's Shares,
except that:

2.1 The exclusive rights granted to the Distributor to sell
Shares of the Fund shall not apply to Shares of the Fund issued in connection
with the merger or consolidation of any other investment company or personal
holding company with the Fund or the acquisition by purchase or otherwise of
all (or substantially all) the assets or the outstanding shares of any such
company by the Fund.

2.2 Such exclusive rights shall not apply to Shares issued by
the Fund pursuant to reinvestment of dividends or capital gains distributions
or through the exercise of any conversion feature or exchange privilege.

2.3 Such exclusive rights shall not apply to Shares issued by
the Fund pursuant to the reinstatement privilege afforded redeeming
shareholders.

2.4 Such exclusive rights shall not apply to purchases made
through the Fund's transfer and dividend disbursing agent in the manner set
forth in the currently effective Prospectus of the Fund. The term
"Prospectus" shall mean the Prospectus and Statement of Additional
Information included as part of the Fund's Registration Statement, as such
Prospectus and Statement of Additional Information may be amended or
supplemented from time to time, and the term "Registration Statement" shall
mean the Registration Statement filed by the Fund with the Securities and
Exchange Commission and effective under the Securities Act of 1933, as
amended (Securities Act), and the Investment Company Act, as such
Registration Statement is amended from time to time.

Section 3. PURCHASE OF SHARES FROM THE FUND

3.1 The Distributor shall have the right to buy from the Fund
on behalf of investors the Shares needed, but not more than the Shares needed
(except for clerical errors in transmission) to fill unconditional orders for
Shares placed with the Distributor by investors or registered and qualified
securities dealers and other financial institutions (selected dealers).

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

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

<PAGE>

the conditions in Section 4.3 hereof or at such other times as
may be determined by the Board. The Fund shall also have the right to
suspend the sale of any or all classes and/or series of its Shares if a
banking moratorium shall have been declared by federal or New Jersey
authorities.

3.4 The Fund, or any agent of the Fund designated in writing by
the Fund, shall be promptly advised of all purchase orders for Shares
received by the Distributor. Any order may be rejected by the Fund;
provided, however, that the Fund will not arbitrarily or without reasonable
cause refuse to accept or confirm orders for the purchase of Shares. The
Fund (or its agent) will confirm orders upon their receipt, will make
appropriate book entries and upon receipt by the Fund (or its agent) of
payment therefor, will deliver deposit receipts for such Shares pursuant to
the instructions of the Distributor. Payment shall be made to the Fund in
New York Clearing House funds or federal funds. The Distributor agrees to
cause such payment and such instructions to be delivered promptly to the Fund
(or its agent).

Section 4. REPURCHASE OR REDEMPTION OF SHARES BY THE FUND

4.1 Any of the outstanding Shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the
Shares so tendered in accordance with its Declaration of Trust as amended
from time to time, and in accordance with the applicable provisions of the
Prospectus. The price to be paid to redeem or repurchase the Shares shall be
equal to the net asset value determined as set forth in the Prospectus. All
payments by the Fund hereunder shall be made in the manner set forth in
Section 4.2 below.

4.2 The Fund shall pay the total amount of the redemption price
as defined in the above paragraph pursuant to the instructions of the
Distributor on or before the seventh day subsequent to its having received
the notice of redemption in proper form. The proceeds of any redemption of
Shares shall be paid by the Fund as follows: (i) in the case of Shares
subject to a contingent deferred sales charge, any applicable contingent
deferred sales charge shall be paid to the Distributor, and the balance shall
be paid to or for the account of the redeeming shareholder, in each case in
accordance with applicable provisions of the Prospectus; and (ii) in the case
of all other Shares, proceeds shall be paid to or for the account of the
redeeming shareholder, in each case in accordance with applicable provisions
of the Prospectus.

4.3 Redemption of any class and/or series of Shares or payment
may be suspended at times when the New York Stock Exchange is closed for
other than customary weekends and holidays, when trading on said Exchange is
restricted, when an emergency exists as a result of which disposal by the
Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, or during any other period when the Securities and Exchange
Commission, by order, so permits.

<PAGE>

Section 5. DUTIES OF THE FUND

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

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

5.3 The Fund shall take, from time to time, but subject to the
necessary approval of the Board and the shareholders, all necessary action to
register the same under the Securities Act, to the end that there will be
available for sale such number of Shares as the Distributor reasonably may
expect to sell. The Fund agrees to file from time to time such amendments,
reports and other documents as may be necessary in order that there will be
no untrue statement of a material fact in the Registration Statement, or
necessary in order that there will be no omission to state a material fact in
the Registration Statement which omission would make the statements therein
misleading.

5.4 The Fund shall use its best efforts to notify such states
as the Distributor and the Fund may approve of its intention to sell any
appropriate number of its Shares; provided that the Fund shall not be
required to amend its Declaration of Trust or By-Laws to comply with the laws
of any state, to maintain an office in any state, to change the terms of the
offering of its Shares in any state from the terms set forth in its
Registration Statement, to qualify as a foreign corporation in any state or
to consent to service of process in any state other than with respect to
claims arising out of the offering of its Shares. Any such notification may
be withheld, terminated or withdrawn by the Fund at any time in its
discretion. As provided in Section 9 hereof, the expense of notification and
maintenance of notification shall be borne by the Fund. The Distributor
shall furnish such information and other material relating to its affairs and
activities as may be required by the Fund in connection with such
notifications.

<PAGE>

Section 6. DUTIES OF THE DISTRIBUTOR

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

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

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

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

Section 7. PAYMENTS TO THE DISTRIBUTOR

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

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

<PAGE>

Payment of these amounts to the Distributor is not contingent upon the
adoption or continuation of any Plan.

Section 8. PAYMENT OF THE DISTRIBUTOR UNDER THE PLAN

8.1 The Fund shall pay to the Distributor as compensation for
services under any Plans adopted by the Fund and this Agreement a
distribution and service fee with respect to the Fund's classes and/or series
of Shares as described in each of the Fund's respective Plans and this
Agreement.

8.2 So long as a Plan or any amendment thereto is in effect,
the Distributor shall inform the Board of the commissions and account
servicing fees with respect to the relevant class and/or series of Shares to
be paid by the Distributor to account executives of the Distributor and to
broker-dealers, financial institutions and investment advisers which have
dealer agreements with the Distributor. So long as a Plan (or any amendment
thereto) is in effect, at the request of the Board or any agent or
representative of the Fund, the Distributor shall provide such additional
information as may reasonably be requested concerning the activities of the
Distributor hereunder and the costs incurred in performing such activities
with respect to the relevant class and/or series of Shares.

Section 9. ALLOCATION OF EXPENSES

The Fund shall bear all costs and expenses of the continuous
offering of its Shares (except for those costs and expenses borne by the
Distributor pursuant to a Plan and subject to the requirements of Rule 12b-1
under the Investment Company Act), including fees and disbursements of its
counsel and auditors, in connection with the preparation and filing of any
required Registration Statements and/or Prospectuses under the Investment
Company Act or the Securities Act, and all amendments and supplements
thereto, and preparing and mailing annual and periodic reports and proxy
materials to shareholders (including but not limited to the expense of
setting in type any such Registration Statements, Prospectuses, annual or
periodic reports or proxy materials). The Fund shall also bear the cost of
expenses of making notice filings for the Shares for sale, and, if necessary
or advisable in connection therewith, of qualifying the Fund as a broker or
dealer, in such states of the United States or other jurisdictions as shall
be selected by the Fund and the Distributor pursuant to Section 5.4 hereof
and the cost and expense payable to each such state for continuing
notification therein until the Fund decides to discontinue such notification
pursuant to Section 5.4 hereof. As set forth in Section 8 above, the Fund
shall also bear the expenses it assumes pursuant to any Plan, so long as such
Plan is in effect.

<PAGE>

Section 10. INDEMNIFICATION

10.1 The Fund agrees to indemnify, defend and hold the
Distributor, its officers and directors and any person who controls the
Distributor within the meaning of Section 15 of the Securities Act, free and
harmless from and against any and all claims, demands, liabilities and
expenses (including the cost of investigating or defending such claims,
demands or liabilities and any reasonable counsel fees incurred in connection
therewith) which the Distributor, its officers, members or any such
controlling person may incur under the Securities Act, or under common law or
otherwise, arising out of or based upon any untrue statement of a material
fact contained in the Registration Statement or Prospectus or arising out of
or based upon any alleged omission to state a material fact required to be
stated in either thereof or necessary to make the statements in either
thereof not misleading, except insofar as such claims, demands, liabilities
or expenses arise out of or are based upon any such untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with information furnished by the Distributor to the Fund for use
in the Registration Statement or Prospectus; provided, however, that this
indemnity agreement shall not inure to the benefit of any such officer,
member or controlling person unless a court of competent jurisdiction shall
determine in a final decision on the merits, that the person to be
indemnified was not liable by reason of willful misfeasance, bad faith or
gross negligence in the performance of its duties, or by reason of its
reckless disregard of its obligations under this Agreement (disabling
conduct), or, in the absence of such a decision, a reasonable determination,
based upon a review of the facts, that the indemnified person was not liable
by reason of disabling conduct, by (a) a vote of a majority of a quorum of
trustees or trustees who are neither "interested persons" of the Fund as
defined in Section 2(a)(19) of the Investment Company Act nor parties to the
proceeding, or (b) an independent legal counsel in a written opinion. The
Fund's agreement to indemnify the Distributor, its officers and members and
any such controlling person as aforesaid is expressly conditioned upon the
Fund's being promptly notified of any action brought against the Distributor,
its officers or members, or any such controlling person, such notification to
be given by letter or telegram addressed to the Fund at its principal
business office. The Fund agrees promptly to notify the Distributor of the
commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issue and sale of any Shares.

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

<PAGE>

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

Section 11. DURATION AND TERMINATION OF THIS AGREEMENT

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

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

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

Section 12. AMENDMENTS TO THIS AGREEMENT

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

<PAGE>

Section 13. SEPARATE AGREEMENT AS TO CLASSES AND/OR SERIES

The amendment or termination of this Agreement with respect to
any class and/or series shall not result in the amendment or termination of
this Agreement with respect to any other class and/or series unless
explicitly so provided.

Section 14. GOVERNING LAW

The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of the State of New Jersey as at the
time in effect and the applicable provisions of the Investment Company Act.
To the extent that the applicable law of the State of New Jersey, or any of
the provisions herein, conflict with the applicable provisions of the
Investment Company Act, the latter shall control.

IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year above written.

Prudential Investment Management Services LLC

By: /s/ Mark R. Fetting
--------------------------------------
Mark R. Fetting
Executive Vice President

Prudential California Municipal Fund

By: /s/ Richard A. Redeker
--------------------------------------
Richard A. Redeker
President

<PAGE>

SWIDLER BERLIN SHEREFF FRIEDMAN, LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022-9998
(212) 758-9500

October 30, 1998

Prudential California Municipal Fund
Gateway Center Three
100 Mulberry Street
Newark, New Jersey 07102-4077

Ladies and Gentlemen:

Prudential California Municipal Fund (the "Fund") proposes to issue
and sell an indefinite number of shares of beneficial interest, par value $.01
per share (the "Shares"), in the manner and on the terms set forth in its
Registration Statement on Form N-1A filed with the Securities and Exchange
Commission (File No. 2-91215) (the "Registration Statement).

We have, as counsel, participated in various corporate and other
proceedings relating to the Fund and to the Shares. We have examined copies,
either certified or otherwise proved to our satisfaction to be genuine, of
the Fund's Declaration of Trust and By-Laws, as amended to date and
currently in effect, a certificate of good standing issued by the Secretary
of the Commonwealth of Massachusetts, dated October 29, 1998, an opinion of
Sullivan and Worcester LLP and other documents relating to its organization
and operation. We have also reviewed the Registration Statement and the
documents filed as exhibits thereto. We are generally familiar with the
business affairs of the Fund.

Based upon the foregoing, it is our opinion that:

1. The Fund is validly existing as a trust with transferable shares
of the type commonly called a Massachusetts business trust.

2. The Fund is authorized to issue an unlimited number of Shares.
The Shares registered pursuant to the Registration Statement have been duly
and validly authorized by all requisite action of the Trustees of the Fund,
and no action of shareholders of the Fund is required in such connection.

<PAGE>

Prudential California Municipal Fund
October 30, 1998
Page 2

3. Subject to the effectiveness of the Registration Statement and
compliance with applicable state securities laws, upon the issuance of the
Shares for a consideration not less than the par value thereof, and not
less than the net asset value thereof as required by the Investment Company
Act of 1940, as amended, and in accordance with the terms of the
Registration Statement, such Shares will be legally issued and outstanding
and fully paid and non-assessable. However, we note that as set forth in
the Registration Statement, the Fund's shareholders may, under certain
circumstances, be subject to assessment at the instance of creditors to
pay the obligations of the Fund in the event its assets are insufficient
for the purpose.

We hereby consent to the filing of this opinion with the Securities
and Exchange Commission as a part of the Registration Statement and with any
state securities commission where such filing is required. We also consent to
the reference to our firm as counsel in the prospectus filed as a part thereof.
In giving this consent we do not admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended.

We are members of the Bar of the State of New York and do not hold
ourselves out as being conversant with the laws of any jurisdiction other than
those of the United States of America and the State of New York. Insofar as any
opinion expressed herein involves the laws of the Commonwealth of Massachusetts,
we have relied on the opinion of Sullivan & Worcester LLP referenced above and
our opinion is subject to the same qualifications and limitations with respect
to such matters as are contained in such opinion of Sullivan & Worcester LLP.

Very truly yours,

/s/ Swidler Berlin Shereff Friedman, LLP

Swidler Berlin Shereff Friedman, LLP

SBSF:MKN:JLS:GNB

<PAGE>

Consent of Independent Accountants

We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 25 to the registration
statement on Form N-1A (the "Registration Statement") of our reports dated
October 21, 1998, relating to the financial statements and financial highlights
of each series of Prudential California Municipal Series Fund (consisting of
California Income Series, California Money Market Series and California Series)
which appear in such Statement of Additional Information, and to the
incorporation by reference of our reports into the Prospectus which constitutes
part of this Registration Statement. We also consent to the reference to us
under the heading "Custodian, Transfer and Dividend Disbursing Agent and
Independent Accountants" in such Statement of Additional Information and to the
reference to us under the heading "Financial Highlights" in such Prospectus.

PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
October 29, 1998

<PAGE>

Prudential California Municipal Fund
(California Money Market Series)

Amended and Restated
Distribution and Service Plan

INTRODUCTION

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

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

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

<PAGE>

Activities (defined below) are primarily intended to result in the sale of
shares of the Series within the meaning of paragraph (a)(2) of Rule 12b-1
promulgated under the Investment Company Act.

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

THE PLAN

The material aspects of the Plan are as follows:

1. DISTRIBUTION ACTIVITIES

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

2. PAYMENT OF SERVICE FEE

The Fund shall reimburse the Distributor for costs incurred by it in
providing personal service and/or maintaining shareholder accounts at a rate
not to exceed .175

<PAGE>

of 1% per annum of the average daily net assets of the shares (service fee).
The Fund shall calculate and accrue daily amounts reimbursable by the shares
of the Fund hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Trustees may determine. Costs of the Distributor
subject to reimbursement hereunder include account servicing fees and
indirect and overhead costs associated with providing personal service and/or
maintaining shareholder accounts.

3. PAYMENT FOR DISTRIBUTION ACTIVITIES

The Fund shall reimburse the Distributor for incurred by it in
performing Distribution Activities at a rate which, together with the service
fee (described in Section 2 hereof), shall not exceed .175 of 1% per annum
of the average daily net assets of the shares of the Fund. The Fund shall
calculate and accrue daily amounts reimbursable by the shares of the Fund
hereunder and shall pay such amounts monthly or at such other intervals as
the Board of Trustees may determine.

4. QUARTERLY REPORTS; ADDITIONAL INFORMATION

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

<PAGE>

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

5. EFFECTIVENESS; CONTINUATION

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

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

6. TERMINATION

This Plan may be terminated at any time, without the payment of any
penalty, by a majority of the Rule 12b-1 Trustees or by vote of a majority of
the outstanding voting securities (as defined in the Investment Company Act)
of the shares of the Fund, or by the Distributor, on sixty (60) days' written
notice to the other party. This Plan shall automatically terminate in the
event of its assignment.

7. AMENDMENTS

The Plan may not be amended to change the combined service and
distribution fees to be paid as provided for in Sections 2 and 3 hereof so as
to increase materially

<PAGE>

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

8. RULE 12B-1 TRUSTEES

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

9. RECORDS

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

Dated: June 1, 1998

<PAGE>

Prudential California Municipal Fund

Amended and Restated
Distribution and Service Plan
(CLASS A SHARES)

INTRODUCTION

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

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

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

<PAGE>

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

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

THE PLAN

The material aspects of the Plan are as follows:

1. DISTRIBUTION ACTIVITIES

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

2. PAYMENT OF SERVICE FEE

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

<PAGE>

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

3. PAYMENT FOR DISTRIBUTION ACTIVITIES

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

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

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

<PAGE>

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

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

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

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

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

4. QUARTERLY REPORTS; ADDITIONAL INFORMATION

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

<PAGE>

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

5. EFFECTIVENESS; CONTINUATION

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

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

6. TERMINATION

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

7. AMENDMENTS

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

<PAGE>

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

8. RULE 12B-1 DIRECTORS/TRUSTEES

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

9. RECORDS

Dated: June 1, 1998

<PAGE>

Prudential California Municipal Fund

Amended and Restated
Distribution and Service Plan
(CLASS B SHARES)

INTRODUCTION

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

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

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

<PAGE>

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

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

THE PLAN

The material aspects of the Plan are as follows:

1. DISTRIBUTION ACTIVITIES

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

2. PAYMENT OF SERVICE FEE

<PAGE>

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

3. PAYMENT FOR DISTRIBUTION ACTIVITIES

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

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

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

<PAGE>

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

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

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

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

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

4. QUARTERLY REPORTS; ADDITIONAL INFORMATION

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

<PAGE>

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

5. EFFECTIVENESS; CONTINUATION

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

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

6. TERMINATION

7. AMENDMENTS

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

<PAGE>

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

8. RULE 12B-1 DIRECTORS/TRUSTEES

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

9. RECORDS

Dated: June 1, 1998

<PAGE>

Prudential California Municipal Fund

Distribution and Service Plan
(CLASS C SHARES)

INTRODUCTION

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

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

<PAGE>

the Investment Company Act.

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

THE PLAN

The material aspects of the Plan are as follows:

1. DISTRIBUTION ACTIVITIES

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

2. PAYMENT OF SERVICE FEE

<PAGE>

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

3. PAYMENT FOR DISTRIBUTION ACTIVITIES

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

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

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

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

3
<PAGE>

account of, account executives of the Distributor;

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

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

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

4. QUARTERLY REPORTS; ADDITIONAL INFORMATION

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

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

<PAGE>

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

5. EFFECTIVENESS; CONTINUATION

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

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

6. TERMINATION

7. AMENDMENTS

<PAGE>

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

8. RULE 12B-1 DIRECTORS/TRUSTEES

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

9. RECORDS

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

Dated: June 1, 1998

<PAGE>

PRUDENTIAL CALIFORNIA MUNICIPAL FUND
(the Fund)

AMENDED AND RESTATED PLAN PURSUANT TO RULE 18F-3

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

CLASS CHARACTERISTICS

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

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

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

<PAGE>

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

INCOME AND EXPENSE ALLOCATIONS

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

DIVIDENDS AND DISTRIBUTIONS

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

EXCHANGE PRIVILEGE

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

CONVERSION FEATURES

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

GENERAL

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

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

<PAGE>

including a majority of the independent Trustees, shall take such action
as is reasonably necessary to eliminate any such conflicts that may
develop. Prudential Investments Fund Management LLC, the Fund's
Manager, will be responsible for reporting any potential or existing
conflicts to the Trustees.

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

Approved: August 26, 1998

Effective: October 28, 1998

<PAGE>
<ARTICLE> 6
<CIK> 0000746518
<NAME> PRUDENTIAL CALIFORNIA MUNICIPAL FUND
<SERIES>
<NUMBER> 001
<NAME> CALIFORNIA SERIES (CLASS A)

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 134,480,623
<INVESTMENTS-AT-VALUE> 153,585,012
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<ASSETS-OTHER> 35,831
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<PAYABLE-FOR-SECURITIES> 203,138
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 296,930
<TOTAL-LIABILITIES> 0
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<PAID-IN-CAPITAL-COMMON> 139,603,743
<SHARES-COMMON-STOCK> 12,740,549
<SHARES-COMMON-PRIOR> 12,657,940
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,162,537)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 19,251,889
<NET-ASSETS> (25,398,489)
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,137,678
<OTHER-INCOME> 0
<EXPENSES-NET> 1,459,586
<NET-INVESTMENT-INCOME> 7,678,092
<REALIZED-GAINS-CURRENT> (274,855)
<APPREC-INCREASE-CURRENT> 5,747,426
<NET-CHANGE-FROM-OPS> 13,150,663
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (7,678,092)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (96,593)
<NUMBER-OF-SHARES-SOLD> 13,997,164
<NUMBER-OF-SHARES-REDEEMED> (20,676,442)
<SHARES-REINVESTED> 4,324,099
<NET-CHANGE-IN-ASSETS> 3,020,799
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2,790,784)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 766,228
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,459,586
<AVERAGE-NET-ASSETS> 585,624,000
<PER-SHARE-NAV-BEGIN> 11.80
<PER-SHARE-NII> 0.62
<PER-SHARE-GAIN-APPREC> 0.43
<PER-SHARE-DIVIDEND> (0.62)
<PER-SHARE-DISTRIBUTIONS> (0.01)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.22
<EXPENSE-RATIO> 0.78
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000746518
<NAME> PRUDENTIAL CALIFORNIA MUNICIPAL FUND
<SERIES>
<NUMBER> 002
<NAME> CALIFORNIA SERIES (CLASS B)

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 134,480,623
<INVESTMENTS-AT-VALUE> 153,585,012
<RECEIVABLES> 2,572,320
<ASSETS-OTHER> 35,831
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 203,138
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 296,930
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 139,603,743
<SHARES-COMMON-STOCK> 12,740,549
<SHARES-COMMON-PRIOR> 12,657,940
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,162,537)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 19,251,889
<NET-ASSETS> (25,398,489)
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,137,678
<OTHER-INCOME> 0
<EXPENSES-NET> 1,459,586
<NET-INVESTMENT-INCOME> 7,678,092
<REALIZED-GAINS-CURRENT> (274,855)
<APPREC-INCREASE-CURRENT> 5,747,426
<NET-CHANGE-FROM-OPS> 13,150,663
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (7,678,092)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (96,593)
<NUMBER-OF-SHARES-SOLD> 13,997,164
<NUMBER-OF-SHARES-REDEEMED> (20,676,442)
<SHARES-REINVESTED> 4,324,099
<NET-CHANGE-IN-ASSETS> 3,020,799
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2,790,784)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 766,228
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,459,586
<AVERAGE-NET-ASSETS> 66,086,000
<PER-SHARE-NAV-BEGIN> 11.80
<PER-SHARE-NII> 0.58
<PER-SHARE-GAIN-APPREC> 0.43
<PER-SHARE-DIVIDEND> (0.58)
<PER-SHARE-DISTRIBUTIONS> (0.01)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.22
<EXPENSE-RATIO> 1.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000746518
<NAME> PRUDENTIAL CALIFORNIA MUNICIPAL FUND
<SERIES>
<NUMBER> 003
<NAME> CALIFORNIA SERIES (CLASS C)

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 134,480,623
<INVESTMENTS-AT-VALUE> 153,585,012
<RECEIVABLES> 2,572,320
<ASSETS-OTHER> 35,831
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 203,138
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 296,930
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 139,603,743
<SHARES-COMMON-STOCK> 12,740,549
<SHARES-COMMON-PRIOR> 12,657,940
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,162,537)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 19,251,889
<NET-ASSETS> (25,398,489)
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,137,678
<OTHER-INCOME> 0
<EXPENSES-NET> 1,459,586
<NET-INVESTMENT-INCOME> 7,678,092
<REALIZED-GAINS-CURRENT> (274,855)
<APPREC-INCREASE-CURRENT> 5,747,426
<NET-CHANGE-FROM-OPS> 13,150,663
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (7,678,092)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (96,593)
<NUMBER-OF-SHARES-SOLD> 13,997,164
<NUMBER-OF-SHARES-REDEEMED> (20,676,442)
<SHARES-REINVESTED> 4,324,099
<NET-CHANGE-IN-ASSETS> 3,020,799
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2,790,784)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 766,228
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,459,586
<AVERAGE-NET-ASSETS> 689,000
<PER-SHARE-NAV-BEGIN> 11.80
<PER-SHARE-NII> 0.55
<PER-SHARE-GAIN-APPREC> 0.43
<PER-SHARE-DIVIDEND> (0.55)
<PER-SHARE-DISTRIBUTIONS> (0.01)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.22
<EXPENSE-RATIO> 1.43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000746518
<NAME> PRUDENTIAL CALIFORNIA MUNICIPAL FUND
<SERIES>
<NUMBER> 004
<NAME> CALIFORNIA SERIES (CLASS Z)

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 134,480,623
<INVESTMENTS-AT-VALUE> 153,585,012
<RECEIVABLES> 2,572,320
<ASSETS-OTHER> 35,831
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 203,138
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 296,930
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 139,603,743
<SHARES-COMMON-STOCK> 12,740,549
<SHARES-COMMON-PRIOR> 12,657,940
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,162,537)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 19,251,889
<NET-ASSETS> (25,398,489)
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,137,678
<OTHER-INCOME> 0
<EXPENSES-NET> 1,459,586
<NET-INVESTMENT-INCOME> 7,678,092
<REALIZED-GAINS-CURRENT> (274,855)
<APPREC-INCREASE-CURRENT> 5,747,426
<NET-CHANGE-FROM-OPS> 13,150,663
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (7,678,092)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (96,593)
<NUMBER-OF-SHARES-SOLD> 13,997,164
<NUMBER-OF-SHARES-REDEEMED> (20,676,442)
<SHARES-REINVESTED> 4,324,099
<NET-CHANGE-IN-ASSETS> 3,020,799
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2,790,784)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 766,228
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,459,586
<AVERAGE-NET-ASSETS> 847,000
<PER-SHARE-NAV-BEGIN> 11.81
<PER-SHARE-NII> 0.63
<PER-SHARE-GAIN-APPREC> 0.43
<PER-SHARE-DIVIDEND> (0.63)
<PER-SHARE-DISTRIBUTIONS> (0.01)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.23
<EXPENSE-RATIO> 0.68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000746518
<NAME> PRUDENTIAL CALIFORNIA MUNICIPAL FUND
<SERIES>
<NUMBER> 005
<NAME> CALIFORNIA INCOME SERIES (CLASS A)

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 240,156,655
<INVESTMENTS-AT-VALUE> 267,559,988
<RECEIVABLES> 5,792,232
<ASSETS-OTHER> 7,843
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 10,011,648
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 835,388
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<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 238,010,249
<SHARES-COMMON-STOCK> 23,456,621
<SHARES-COMMON-PRIOR> 12,657,940
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,043,461)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 27,546,239
<NET-ASSETS> (36,114,561)
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 13,940,396
<OTHER-INCOME> 0
<EXPENSES-NET> 1,807,490
<NET-INVESTMENT-INCOME> 12,132,906
<REALIZED-GAINS-CURRENT> (88,023)
<APPREC-INCREASE-CURRENT> 10,200,239
<NET-CHANGE-FROM-OPS> 22,245,122
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (12,132,906)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (105,744)
<NUMBER-OF-SHARES-SOLD> 72,607,907
<NUMBER-OF-SHARES-REDEEMED> (35,867,889)
<SHARES-REINVESTED> 6,072,757
<NET-CHANGE-IN-ASSETS> 52,819,247
<ACCUMULATED-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 1,147,925
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,689,417
<AVERAGE-NET-ASSETS> 165,771,000
<PER-SHARE-NAV-BEGIN> 10.71
<PER-SHARE-NII> 0.59
<PER-SHARE-GAIN-APPREC> 0.49
<PER-SHARE-DIVIDEND> (0.59)
<PER-SHARE-DISTRIBUTIONS> (0.01)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.19
<EXPENSE-RATIO> 0.68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000746518
<NAME> PRUDENTIAL CALIFORNIA MUNICIPAL FUND
<SERIES>
<NUMBER> 006
<NAME> CALIFORNIA INCOME SERIES (CLASS B)

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 240,156,655
<INVESTMENTS-AT-VALUE> 267,559,988
<RECEIVABLES> 5,792,232
<ASSETS-OTHER> 7,843
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
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<SENIOR-LONG-TERM-DEBT> 0
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<ACCUMULATED-NET-GAINS> (3,043,461)
<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> (36,114,561)
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 13,940,396
<OTHER-INCOME> 0
<EXPENSES-NET> 1,807,490
<NET-INVESTMENT-INCOME> 12,132,906
<REALIZED-GAINS-CURRENT> (88,023)
<APPREC-INCREASE-CURRENT> 10,200,239
<NET-CHANGE-FROM-OPS> 22,245,122
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (12,132,906)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (105,744)
<NUMBER-OF-SHARES-SOLD> 72,607,907
<NUMBER-OF-SHARES-REDEEMED> (35,867,889)
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<NET-CHANGE-IN-ASSETS> 52,819,247
<ACCUMULATED-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 1,147,925
<INTEREST-EXPENSE> 0
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<AVERAGE-NET-ASSETS> 56,011,000
<PER-SHARE-NAV-BEGIN> 10.71
<PER-SHARE-NII> 0.55
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<PER-SHARE-DIVIDEND> (0.55)
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<PER-SHARE-NAV-END> 11.19
<EXPENSE-RATIO> 1.08
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<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000746518
<NAME> PRUDENTIAL CALIFORNIA MUNICIPAL FUND
<SERIES>
<NUMBER> 007
<NAME> CALIFORNIA INCOME SERIES (CLASS C)

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 240,156,655
<INVESTMENTS-AT-VALUE> 267,559,988
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<SENIOR-LONG-TERM-DEBT> 0
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<ACCUMULATED-NET-GAINS> (3,043,461)
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<NET-ASSETS> (36,114,561)
<DIVIDEND-INCOME> 0
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<OTHER-INCOME> 0
<EXPENSES-NET> 1,807,490
<NET-INVESTMENT-INCOME> 12,132,906
<REALIZED-GAINS-CURRENT> (88,023)
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<DISTRIBUTIONS-OF-INCOME> (12,132,906)
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<DISTRIBUTIONS-OTHER> (105,744)
<NUMBER-OF-SHARES-SOLD> 72,607,907
<NUMBER-OF-SHARES-REDEEMED> (35,867,889)
<SHARES-REINVESTED> 6,072,757
<NET-CHANGE-IN-ASSETS> 52,819,247
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2,851,766)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,147,925
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,689,417
<AVERAGE-NET-ASSETS> 4,491,000
<PER-SHARE-NAV-BEGIN> 10.71
<PER-SHARE-NII> 0.52
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<PER-SHARE-DIVIDEND> (0.52)
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<EXPENSE-RATIO> 1.33
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<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000746518
<NAME> PRUDENTIAL CALIFORNIA MUNICIPAL FUND
<SERIES>
<NUMBER> 008
<NAME> CALIFORNIA INCOME SERIES (CLASS Z)

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 240,156,655
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<NET-ASSETS> (36,114,561)
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<OTHER-INCOME> 0
<EXPENSES-NET> 1,807,490
<NET-INVESTMENT-INCOME> 12,132,906
<REALIZED-GAINS-CURRENT> (88,023)
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<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (105,744)
<NUMBER-OF-SHARES-SOLD> 72,607,907
<NUMBER-OF-SHARES-REDEEMED> (35,867,889)
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<NET-CHANGE-IN-ASSETS> 52,819,247
<ACCUMULATED-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 1,147,925
<INTEREST-EXPENSE> 0
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<AVERAGE-NET-ASSETS> 3,312,000
<PER-SHARE-NAV-BEGIN> 10.71
<PER-SHARE-NII> 0.61
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<PER-SHARE-DIVIDEND> (0.61)
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.19
<EXPENSE-RATIO> 0.58
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000746518
<NAME> PRUDENTIAL CALIFORNIA MUNICIPAL FUND
<SERIES>
<NUMBER> 009
<NAME> CALIFORNIA MONEY MARKET SERIES

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 0
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<NET-ASSETS> (573,497,803)
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<ACCUMULATED-NII-PRIOR> 0
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<PER-SHARE-NAV-BEGIN> 1.00
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</TABLE>