<PAGE>
TYPE OF FUND:
- -------------------------------------
Muncipal bond
INVESTMENT OBJECTIVE:
- -------------------------------------
Maximize current income that is exempt from
California state and federal income taxes
consistent with the preservation of capital
[LOGO]
PRUDENTIAL
CALIFORNIA
MUNICIPAL
FUND
- ---------------------------------------------------------------
CALIFORNIA SERIES
PROSPECTUS: DECEMBER 23, 1999
<TABLE>
<S> <C>
As with all mutual funds, the
Securities and Exchange Commission has
not approved or disapproved the
Series' shares, nor has the SEC
determined that this prospectus is
complete or accurate. It is a criminal
offense to state otherwise. [LOGO]
</TABLE>
<PAGE>
TABLE OF CONTENTS
- -------------------------------------
<TABLE>
<S> <C>
1 RISK/RETURN SUMMARY
1 Investment Objective and Principal Strategies
1 Principal Risks
3 Evaluating Performance
5 Fees and Expenses
7 HOW THE SERIES INVESTS
7 Investment Objective and Policies
8 Other Investments and Strategies
11 Investment Risks
16 HOW THE SERIES IS MANAGED
16 Board of Trustees
16 Manager
16 Investment Adviser
18 Distributor
18 Year 2000 Readiness Disclosure
20 SERIES DISTRIBUTIONS AND TAX ISSUES
20 Distributions
21 Tax Issues
22 If You Sell or Exchange Your Shares
23 HOW TO BUY, SELL AND EXCHANGE SHARES OF THE SERIES
23 How to Buy Shares
31 How to Sell Your Shares
34 How to Exchange Your Shares
35 Telephone Redemptions or Exchanges
37 FINANCIAL HIGHLIGHTS
38 Class A Shares
39 Class B Shares
40 Class C Shares
41 Class Z Shares
42 THE PRUDENTIAL MUTUAL FUND FAMILY
A-1 APPENDIX A: DESCRIPTION OF SECURITY RATINGS
FOR MORE INFORMATION (Back Cover)
</TABLE>
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CALIFORNIA SERIES [ICON] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY
- -------------------------------------
This section highlights key information about the CALIFORNIA SERIES (the Series)
of the PRUDENTIAL CALIFORNIA MUNICIPAL FUND (the Fund). Additional information
follows this summary.
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
Our investment objective is to maximize CURRENT INCOME that is EXEMPT FROM
CALIFORNIA STATE AND FEDERAL INCOME TAXES, consistent with the PRESERVATION OF
CAPITAL. This means we invest primarily in California state and municipal bonds,
which are debt obligations or fixed income securities, including notes,
commercial paper and other securities, as well as obligations of other issuers
that pay interest income that is exempt from those taxes (collectively called
"California obligations"). In conjunction with our investment objective, we may
invest in debt obligations with the potential for capital gain.
In pursuing our objective, we normally invest so that at least 80% of the
income from the Series' investments will be exempt from California state and
federal income taxes or the Series will invest at least 80% of the Series' total
assets in California obligations. We normally invest the Series' assets in
"investment grade" debt obligations, which are debt obligations rated at least
BBB by Standard & Poor's Ratings Group (S&P), Baa by Moody's Investors Service
(Moody's), or comparably rated by another major rating service, and unrated debt
obligations that we believe are comparable in quality. Debt obligations rated in
the lowest of the "investment grade" quality grades (BBB/Baa) have certain
speculative characteristics. The Series may invest in municipal bonds the
interest and/or principal payments on which are insured by the bond issuers or
other parties. The Series may also invest in certain municipal bonds the
interest on which is subject to the federal alternative minimum tax (AMT). The
dollar-weighted average maturity of the Series will normally be between 10 and
20 years.
While we make every effort to achieve our objective, we can't guarantee
success.
PRINCIPAL RISKS
Although we try to invest wisely, all investments involve risk. The securities
in which the Series invests are generally subject to the risk that the issuer
may be unable to make principal and interest payments when they are due, as well
as the risk that the securities may lose value because interest rates
- --------------------------------------------------------------------------------
1
<PAGE>
RISK/RETURN SUMMARY
- ------------------------------------------------
change or because there is a lack of confidence in the issuer. Bonds with longer
maturity dates typically produce higher yields and are subject to greater price
fluctuations as a result of changes in interest rates than bonds with shorter
maturity dates.
The Series may purchase insured municipal bonds to reduce credit risks.
Although insurance coverage reduces credit risks by providing that the insurer
will make timely payment of interest and/or principal, it does not provide
protection against the market fluctuations of insured bonds or fluctuations in
the price of the shares of the Series. An insured municipal bond fluctuates in
value largely based on factors relating to the insurer's creditworthiness or
ability to satisfy its obligations.
Bond prices and the Series' net asset value generally move in opposite
directions from interest rates--if interest rates go up, the prices of the bonds
in the Series' portfolio may fall because the bonds the Series holds won't, as a
rule, pay as well as the newer bonds issued. Bonds that are issued when interest
rates are high generally increase in value when interest rates fall.
Municipal bonds may be subject to the risk that the borrower may not set
aside funds to make the bond or lease payments.
Because the Series will concentrate its investments in California
obligations, the Series is more susceptible to economic, political and other
developments that may adversely affect issuers of California obligations than a
municipal bond fund that is not as geographically concentrated. By way of
illustration, although California has a relatively diversified economy,
California has concentrations in the computer services, software design, motion
pictures and high technology manufacturing industries. The Series, therefore,
may be more susceptible to developments affecting those industries than a
municipal bond fund that invests in obligations of several states. In addition,
some local California governments have experienced notable financial
difficulties. These examples illustrate just some of the risks of investing in
California obligations. For more information on the risks of investing in
California obligations, see "Description of the Fund, Its Investments and Risks"
in the Statement of Additional Information.
Like any mutual fund, an investment in the Series could lose value, and you
could lose money. For more information about the risks associated with the
Series, see "How the Series Invests--Investment Risks."
- -------------------------------------------------------------------
2 CALIFORNIA SERIES [ICON] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY
- ------------------------------------------------
An investment in the Series is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or by any other
government agency.
EVALUATING PERFORMANCE
A number of factors--including risk--can affect how the Series performs. The
following bar chart shows the Series' performance for each full calendar year of
operation for the last 10 years. The bar chart and table below demonstrate the
risk of investing in the Series by showing how returns can change from year to
year and by showing how the Series' average annual total returns compare with a
bond index and a group of similar mutual funds. Past performance does not mean
that the Series will achieve similar results in the future.
- --------------------------------------------------------------------------------
3
<PAGE>
RISK/RETURN SUMMARY
- ------------------------------------------------
ANNUAL RETURNS*--(CLASS B SHARES)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1989 8.60%
1990 5.33%
1991 10.71%
1992 8.37%
1993 11.63%
1994 -6.18%
1995 17.51%
1996 2.69%
1997 8.84%
1998 5.36%
BEST QUARTER: 6.77% (1st quarter of 1995)
WORST QUARTER: (5.74)% (1st quarter of 1994)
</TABLE>
* THESE ANNUAL RETURNS DO NOT INCLUDE SALES CHARGES. IF THE SALES CHARGES WERE
INCLUDED, THE ANNUAL RETURNS WOULD BE LOWER THAN THOSE SHOWN. WITHOUT THE
MANAGEMENT FEE WAIVER, THE ANNUAL RETURNS WOULD HAVE BEEN LOWER, TOO. THE
TOTAL RETURN OF THE CLASS B SHARES FROM 1-1-99 TO 9-30-99 WAS (2.83)%.
AVERAGE ANNUAL RETURNS(1) (AS OF 12-31-98)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
1 YR 5 YRS 10 YRS SINCE INCEPTION
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares 2.61% 5.12% N/A 7.13% (since 1-22-90)
Class B shares .36% 5.20% 7.12% 7.92% (since 9-13-84)
Class C shares 3.06% N/A N/A 6.43% (since 8-1-94)
Class Z shares 5.89% N/A N/A 8.21% (since 9-18-96)
Muni Bond Index(2) 6.48% 6.22% 8.22% **(2)
Lipper Average(3) 5.77% 5.67% 7.62% **(3)
</TABLE>
<TABLE>
<S> <C>
1 THE SERIES' RETURNS ARE AFTER DEDUCTION OF SALES CHARGES AND
EXPENSES.
2 THE LEHMAN BROTHERS MUNICIPAL BOND INDEX (MUNI BOND INDEX)
IS AN UNMANAGED INDEX OF OVER 21,000 MUNICIPAL BONDS WHICH
ARE GENERALLY REPRESENTATIVE OF THE LONG-TERM INVESTMENT
GRADE MUNICIPAL BOND MARKET. THESE RETURNS DO NOT INCLUDE
THE EFFECT OF ANY SALES CHARGES. THESE RETURNS WOULD BE
LOWER IF THEY INCLUDED THE EFFECT OF SALES CHARGES. THE MUNI
BOND INDEX RETURNS SINCE THE INCEPTION OF EACH CLASS ARE
8.07% FOR CLASS A, 9.49% FOR CLASS B, 7.73% FOR CLASS C AND
7.30% FOR CLASS Z SHARES. SOURCE: LEHMAN BROS.
3 THE LIPPER CALIFORNIA MUNICIPAL DEBT FUNDS CATEGORY IS BASED
ON THE AVERAGE RETURN OF ALL MUTUAL FUNDS IN THIS CATEGORY
AND DOES NOT INCLUDE THE EFFECT OF ANY SALES CHARGES. AGAIN,
THESE RETURNS WOULD BE LOWER IF THEY INCLUDED THE EFFECT OF
SALES CHARGES. THE LIPPER RETURNS SINCE THE INCEPTION OF
EACH CLASS ARE 7.62% FOR CLASS A, 8.77% FOR CLASS B, 7.25%
FOR CLASS C AND 7.77% FOR CLASS Z SHARES. SOURCE: LIPPER,
INC.
</TABLE>
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4 CALIFORNIA SERIES [ICON] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY
- ------------------------------------------------
FEES AND EXPENSES
These tables show the sales charges, fees, and expenses that you may pay if you
buy and hold shares of each share class of the Series--Class A, B, C, and Z.
Each share class has different sales charges--known as loads--and expenses, but
represents an investment in the same fund. Class Z shares are available only to
a limited group of investors. For more information about which share class may
be right for you, see "How to Buy, Sell and Exchange Shares of the Series."
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Z
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on
purchases (as a percentage of offering
price) 3% None 1% None
Maximum deferred sales charge (load) (as a
percentage of the lower of original purchase
price or sale proceeds) None 5%(2) 1%(3) None
Maximum sales charge (load) imposed on
reinvested dividends and other distributions None None None None
Redemption fees None None None None
Exchange fee None None None None
</TABLE>
ANNUAL SERIES OPERATING EXPENSES (DEDUCTED FROM SERIES ASSETS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Z
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fees .50% .50% .50% .50%
+ Distribution (12b-1) and service fees(4) .30%(4) .50% 1.00%(4) None
+ Other expenses .19% .19% .19% .19%
= Total annual Series operating expenses(4) .99% 1.19% 1.69% .69%
- Fee waiver or expense reimbursement(4) .05% None .25% None
= NET ANNUAL SERIES OPERATING EXPENSES .94% 1.19% 1.44% .69%
</TABLE>
<TABLE>
<S> <C>
1 YOUR BROKER MAY CHARGE YOU A SEPARATE OR ADDITIONAL FEE FOR
PURCHASES AND SALES OF SHARES.
2 THE CONTINGENT DEFERRED SALES CHARGE (CDSC) FOR CLASS B
SHARES DECREASES BY 1% ANNUALLY TO 1% IN THE FIFTH AND SIXTH
YEARS AND 0% IN THE SEVENTH YEAR. CLASS B SHARES CONVERT TO
CLASS A SHARES APPROXIMATELY SEVEN YEARS AFTER PURCHASE.
3 THE CDSC FOR CLASS C SHARES IS 1% FOR SHARES REDEEMED WITHIN
18 MONTHS OF PURCHASE.
4 FOR THE FISCAL YEAR ENDING AUGUST 31, 2000, THE DISTRIBUTOR
OF THE SERIES HAS CONTRACTUALLY AGREED TO REDUCE ITS
DISTRIBUTION AND SERVICE FEES FOR CLASS A AND CLASS C SHARES
TO .25 OF 1% AND .75 OF 1% OF THE AVERAGE DAILY NET ASSETS
OF THE CLASS A AND CLASS C SHARES, RESPECTIVELY.
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE>
RISK/RETURN SUMMARY
- ------------------------------------------------
EXAMPLE
This example will help you compare the fees and expenses of the Series'
different share classes and the cost of investing in the Series with the cost of
investing in other mutual funds.
The example assumes that you invest $10,000 in the Series for the time
periods indicated and then sell all of your shares at the end of those periods.
The example also assumes that your investment has a 5% return each year and that
the Series' operating expenses remain the same, except for the Distributor's
reduction of distribution and service (12b-1) fees for Class A and Class C
shares during the first year. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
1 YR 3 YRS 5 YRS 10 YRS
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $388 $586 $800 $1,416
Class B shares $621 $678 $754 $1,341
Class C shares $345 $603 $985 $2,057
Class Z shares $70 $221 $384 $859
</TABLE>
You would pay the following expenses on the same investment if you did not sell
your shares:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
1 YR 3 YRS 5 YRS 10 YRS
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $388 $586 $800 $1,416
Class B shares $121 $378 $654 $1,341
Class C shares $245 $603 $985 $2,057
Class Z shares $70 $221 $384 $859
</TABLE>
- -------------------------------------------------------------------
6 CALIFORNIA SERIES [ICON] (800) 225-1852
<PAGE>
HOW THE SERIES INVESTS
- -------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
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. In conjunction with its investment objective, the Series may invest
in debt securities with the potential for capital gain. While we make every
effort to achieve our objective, we can't guarantee success.
In pursuing the Series' objective, we invest primarily in CALIFORNIA
OBLIGATIONS, including California state and municipal bonds as well as
obligations of other issuers (such as issuers located in Puerto Rico, the Virgin
Islands and Guam) that pay interest income that is exempt from California and
federal income taxes. We normally invest so that at least 80% of the income from
the Series' investments will be exempt from those taxes or the Series will have
at least 80% of its total assets invested in California obligations. The Series,
however, may hold private activity bonds, which are municipal bonds the interest
on which is subject to the federal alternative minimum tax (AMT).
Municipal bonds include GENERAL OBLIGATION BONDS and REVENUE BONDS. General
obligation bonds are obligations supported by the credit of an issuer that has
the power to tax and are payable from that issuer's general revenues and not
from any specific source. Revenue bonds, on the other hand, are payable from
revenues from a particular source.
We normally invest the Series' assets in "investment grade" obligations,
which are obligations rated at least BBB by S&P, Baa by Moody's, or comparably
rated by another major rating service, and unrated debt obligations that we
believe are comparable in quality. Debt obligations rated in the lowest of the
"investment grade" quality grades have certain speculative characteristics. We
may also invest in insured municipal bonds. A rating is an assessment of the
likelihood of timely repayment of interest and principal (with respect to a
municipal bond) or claims (with respect to an insurer of a municipal bond) and
can be useful when comparing different municipal bonds. These ratings are not a
guarantee of quality. The
- -------------------------------------------------------------------
States and municipalities issue bonds in order to borrow money to finance a
project. You can think of bonds as loans that investors make to the state, local
government or other issuer. The issuer gets the cash needed to complete the
project and investors earn income on their investment.
- -------------------------------------------------------------------
- --------------------------------------------------------------------------------
7
<PAGE>
HOW THE SERIES INVESTS
- ------------------------------------------------
opinions of the rating agencies do not reflect market risk and they may at times
lag behind the current financial conditions of the issuer or insurer. An
investor can evaluate the expected likelihood of debt repayment by an issuer by
looking at its ratings as compared to another similar issuer.
In determining which securities to buy and sell, the investment adviser will
consider, among other things, yield, maturity, issue, quality characteristics
and expectations regarding economic and political developments, including
movements in interest rates and demand for municipal bonds. The investment
adviser will seek to anticipate interest rate movements and will purchase and
sell municipal bonds accordingly. The investment adviser will also consider the
claims-paying ability with respect to insurers of municipal bonds. The
investment adviser will also seek to take advantage of differentials in yields
with respect to securities with similar credit ratings and maturities, but which
vary according to the purpose for which they were issued. The investment adviser
will also seek to take advantage of differentials in yields with respect to
securities issued for similar purposes with similar maturities, but which vary
according to ratings.
The dollar-weighted average maturity of the obligations held by the Series
generally ranges between 10 and 20 years.
For more information, see "Investment Risks" and the Statement of Additional
Information, "Description of the Fund, Its Investment and Risks." The Statement
of Additional Information--which we refer to as the "SAI"--contains additional
information about the Series. To obtain a copy, see the back cover page of this
prospectus.
The Series' investment objective is a fundamental policy that cannot be
changed without shareholder approval. The Board of the Prudential California
Municipal Fund can change investment policies that are not fundamental.
OTHER INVESTMENTS AND STRATEGIES
In addition to the principal strategies, we may also make the following
investments to try to increase the Series' returns or protect its assets if
market conditions warrant.
MUNICIPAL LEASE OBLIGATIONS
The Series may invest in MUNICIPAL LEASE OBLIGATIONS. The interest and principal
on municipal lease obligations are paid out of lease payments
- -------------------------------------------------------------------
8 CALIFORNIA SERIES [ICON] (800) 225-1852
<PAGE>
HOW THE SERIES INVESTS
- ------------------------------------------------
made by the party leasing the equipment or facilities that were acquired or
built with the bonds. Typically, municipal lease obligations are issued by
states or financing authorities to provide money for construction projects such
as schools, offices or stadiums. The entity that leases the building or facility
would be responsible for paying the interest and principal on the obligation.
MUNICIPAL ASSET-BACKED SECURITIES
The Series may invest in MUNICIPAL ASSET-BACKED SECURITIES. A municipal
asset-backed security is a type of pass-through instrument that pays interest
which is eligible for exclusion from federal income taxation based upon the
income from an underlying pool of municipal bonds.
FLOATING RATE BONDS, VARIABLE RATE BONDS, INVERSE FLOATERS AND
SECONDARY INVERSE FLOATERS
The Series may invest in floating rate bonds, variable rate bonds, inverse
floaters and secondary inverse floaters. FLOATING RATE BONDS are municipal bonds
that have an interest rate that is set as a specific percentage of a designated
rate, such as the rate on Treasury bonds or the prime rate at major commercial
banks. The interest rate on floating rate bonds changes when there is a change
in the designated rate. VARIABLE RATE BONDS are municipal bonds that have an
interest rate that is adjusted, based on the market rate at a specified period.
They generally allow the Series to demand payment of the bond on short notice
for an amount that may be more or less than the amount paid. INVERSE FLOATERS
are municipal bonds with a floating or variable interest rate that moves in the
opposite direction of the interest rate on another security or the value of an
index. SECONDARY INVERSE FLOATERS are municipal asset-backed securities with a
floating or variable interest rate that moves in the opposite direction of the
interest rate or another security or the value of an index.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
The Series may purchase municipal bonds on a "WHEN-ISSUED" or "DELAYED-DELIVERY"
basis, without limit. When the Series makes this type of purchase, the price and
rate are fixed at the time of purchase, but delivery and payment for the bonds
take place at a later time. The Series does not earn interest income until the
date the bonds are delivered.
- --------------------------------------------------------------------------------
9
<PAGE>
HOW THE SERIES INVESTS
- ------------------------------------------------
REPURCHASE AGREEMENTS
The Series may use REPURCHASE AGREEMENTS where a party agrees to sell a security
to the Series and then repurchase it at an agreed-upon price at a stated time. A
repurchase agreement is like a loan by the Series to the other party which
creates a fixed return for the Series.
LIQUIDITY PUTS
The Series may purchase and exercise PUTS on municipal bonds without limit. Puts
give the Series the right to sell securities at a specified price and date. Puts
may be acquired to reduce the risk of the securities subject to the puts, but
puts may involve additional costs to the Series, which could reduce the Series'
return.
DERIVATIVE STRATEGIES
We may use various derivative strategies to try to improve the Series' returns
or protect its assets, although we cannot guarantee that these strategies will
work, that the instruments necessary to implement these strategies will be
available or that the Series will not lose money. Derivatives--such as FUTURES
CONTRACTS, OPTIONS, OPTIONS ON FUTURES AND INTEREST RATE SWAPS--involve costs
and can be volatile. A futures contract is an agreement to buy or sell a set
quantity of an underlying product at a future date, or to make or receive a cash
payment based on the value of a securities index. An option is the right to buy
or sell securities or, in the case of an option on a futures contract, the right
to buy or sell a futures contract in exchange for a premium. An interest rate
swap is a transaction in which the Series and another party "trade" income
streams. The swap is done to preserve a return or spread on a particular
investment or portion of the Series or to protect against any increase in the
price of securities the Series anticipates purchasing at a later date.
With derivatives, the investment adviser tries to predict if the underlying
investment, whether a security, market index, currency, interest rate or some
other benchmark, will go up or down at some future date. We may use derivatives
to try to reduce risk or to increase return consistent with the Series' overall
investment objective. Any derivatives we may use may not match the Series'
underlying holdings. For more information about these strategies, see the SAI,
"Description of the Fund, Its Investments and Risks--Hedging Strategies."
- -------------------------------------------------------------------
10 CALIFORNIA SERIES [ICON] (800) 225-1852
<PAGE>
HOW THE SERIES INVESTS
- ------------------------------------------------
TEMPORARY DEFENSIVE STRATEGY
For temporary defensive purposes, the Series may hold up to 100% of its assets
in cash or investment-grade bonds, including bonds that are not exempt from
state, local and federal income taxation. Investing heavily in these securities
can limit our ability to achieve the Series' objective, but can help to preserve
the Series' assets.
ADDITIONAL STRATEGIES
The Series also follows certain policies when it: BORROWS MONEY (the Series can
borrow up to 33 1/3% of the value of its total assets); and HOLDS ILLIQUID
SECURITIES (the Series may hold up to 15% of its net assets in illiquid
securities, including certain securities with legal or contractual restrictions
on resale, those without a readily available market and repurchase agreements
with maturities longer than 7 days). The Series is subject to certain investment
restrictions that are fundamental policies and cannot be changed without
shareholder approval. For more information about these restrictions, see the
SAI.
INVESTMENT RISKS
As noted, all investments involve risk, and investing in the Series is no
exception. Since the Series' holdings can vary significantly from broad market
indexes, performance of the Series can deviate from performance of the indexes.
This chart outlines the key risks and potential rewards of the Series' principal
investments and certain of the Series' non-principal investments and strategies.
See, too, "Description of the Fund, Its Investments and Risks" in the SAI.
- --------------------------------------------------------------------------------
11
<PAGE>
HOW THE SERIES INVESTS
- ------------------------------------------------
INVESTMENT TYPE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
% OF SERIES' TOTAL ASSETS RISKS POTENTIAL REWARDS
- ------------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS -- Concentration -- Tax-exempt interest
risk--the risk that income, except with
PROVIDE AT LEAST 80% OF bonds may lose value respect to certain
SERIES' INCOME OR because of political, bonds, such as
COMPRISE AT LEAST 80% OF economic or other private activity
ITS TOTAL ASSETS events affecting bonds, which are
issuers of California subject to the
obligations federal alternative
-- Credit risk--the risk minimum tax (AMT)
that the borrower -- If interest rates
can't pay back the decline, long-term
money borrowed or yields should be
make interest higher than money
payments (lower for market yields
insured and
higher-rated bonds)
-- Market risk--the risk
that bonds will lose
value in the market
because interest
rates change or there
is a lack of
confidence in the
borrower
-- Illiquidity risk--the
risk that it may be
difficult to value
precisely and sell at
time or price desired
-- Nonappropriation
risk--the risk that
the municipality may
not include the bond
obligations in future
budgets
-- Tax risk--the risk
that federal, state
or local income tax
rates may decrease,
which could decrease
demand for municipal
bonds, or that a
change in law may
limit or eliminate
exemption of interest
on municipal bonds
from such taxes
- ------------------------------------------------------------------------------------
</TABLE>
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12 CALIFORNIA SERIES [ICON] (800) 225-1852
<PAGE>
HOW THE SERIES INVESTS
- ------------------------------------------------
INVESTMENT TYPE (CONT'D)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
% OF SERIES' TOTAL ASSETS RISKS POTENTIAL REWARDS
- ------------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL LEASE -- Concentration risk -- Tax-exempt interest
OBLIGATIONS -- Credit risk income, except with
-- Market risk respect to certain
PERCENTAGE VARIES -- Illiquidity risk bonds, such as
-- Nonappropriation risk private activity
-- Tax risk bonds, which are
subject to the AMT
-- If interest rates
decline, long-term
yields should be
higher than money
market yields
- ------------------------------------------------------------------------------------
MUNICIPAL ASSET-BACKED -- Prepayment risk--the -- Regular interest
SECURITIES risk that the income
underlying bonds may -- Pass-through
PERCENTAGE VARIES be prepaid, partially instruments provide
or completely, greater
generally during diversification than
periods of falling direct ownership of
interest rates, which municipal bonds
could adversely
affect yield to
maturity and could
require the Series to
reinvest in lower
yielding bonds
-- Credit risk--the risk
that the underlying
municipal bonds will
not be paid by
issuers or by credit
insurers or
guarantors of such
instruments. Some
municipal
asset-backed
securities are
unsecured or secured
by lower-rated
insurers or
guarantors and thus
may involve greater
risk
-- Market risk
-- Tax risk
- ------------------------------------------------------------------------------------
VARIABLE/FLOATING RATE -- Value lags value of -- May offer protection
SECURITIES fixed-rate securities against interest rate
when interest rates changes
PERCENTAGE VARIES change
- ------------------------------------------------------------------------------------
</TABLE>
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13
<PAGE>
HOW THE SERIES INVESTS
- ------------------------------------------------
INVESTMENT TYPE (CONT'D)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
% OF SERIES' TOTAL ASSETS RISKS POTENTIAL REWARDS
- ------------------------------------------------------------------------------------
<S> <C> <C>
INVERSE FLOATERS/ -- High market risk--risk -- Income generally will
SECONDARY INVERSE that inverse floaters increase when
FLOATERS will fluctuate in interest rates
value more decrease
PERCENTAGE VARIES dramatically than
other debt securities
when interest rates
change
-- Credit risk
-- Illiquidity risk
-- Secondary inverse
floaters are subject
to additional risks
of municipal
asset-backed
securities
- ------------------------------------------------------------------------------------
DERIVATIVES -- Derivatives such as -- The Series could make
futures and options money and protect
PERCENTAGE VARIES may not fully offset against losses if the
the underlying investment analysis
positions and this proves correct
could result in -- One way to manage the
losses to the Series Series' risk/return
that would not have balance is to lock in
otherwise occurred the value of an
-- Derivatives used for investment ahead of
risk management may time
not have the intended -- Derivatives that
effects and may involve leverage
result in losses or could generate
missed opportunities substantial gains or
-- The other party to a low costs
derivatives contract
could default
-- Derivatives that
involve leverage
(borrowing for
investment) could
magnify losses
-- Certain types of
derivatives involve
costs to the Series
which can reduce
returns
- ------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------
14 CALIFORNIA SERIES [ICON] (800) 225-1852
<PAGE>
HOW THE SERIES INVESTS
- ------------------------------------------------
INVESTMENT TYPE (CONT'D)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
% OF SERIES' TOTAL ASSETS RISKS POTENTIAL REWARDS
- ------------------------------------------------------------------------------------
<S> <C> <C>
WHEN-ISSUED AND -- May magnify underlying -- May magnify underlying
DELAYED-DELIVERY investment losses investment gains
SECURITIES -- Investment costs may
exceed potential
PERCENTAGE VARIES underlying investment
gains
- ------------------------------------------------------------------------------------
ILLIQUID SECURITIES -- May be difficult to -- May offer more
value precisely attractive yield or
UP TO 15% OF NET ASSETS -- May be difficult to potential for growth
sell at the time or than more widely
price desired traded securities
- ------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
15
<PAGE>
HOW THE SERIES IS MANAGED
- -------------------------------------
BOARD OF TRUSTEES
The Fund's Board of Trustees oversees the actions of the Manager, Investment
Adviser and Distributor and decides on general policies. The Board also oversees
the Fund's officers who conduct and supervise the daily business operations of
the Fund.
MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM)
GATEWAY CENTER THREE, 100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
Under a management agreement with the Fund, PIFM manages the Series'
investment operations and administers its business affairs. For the fiscal year
ended August 31, 1999, the Series paid PIFM management fees of .50 of 1% of the
Series' average net assets.
PIFM and its predecessors have served as manager or administrator to
investment companies since 1987. As of October 31, 1999, PIFM served as the
manager to all 46 of the Prudential Mutual Funds, and as manager or
administrator to 22 closed-end investment companies, with aggregate assets of
approximately $72 billion.
INVESTMENT ADVISER
The Prudential Investment Corporation, called Prudential Investments, is the
Series' investment adviser and has served as an investment adviser to investment
companies since 1984. Its address is Prudential Plaza, 751 Broad Street, Newark,
NJ 07102. PIFM has responsibility for all investment advisory services,
supervises Prudential Investments and reimburses Prudential Investments for its
reasonable costs and expenses.
Prudential Investments' Fixed Income Group manages more than $135 billion
for Prudential's retail investors, institutional investors, and policyholders.
Senior Managing Directors James J. Sullivan and Jack W. Gaston head the Group,
which is organized into teams specializing in different market sectors.
Top-down, broad investment decisions are made by the Fixed Income Policy
Committee, whereas bottom-up security selection is made by the sector teams.
Mr. Sullivan has overall responsibility for overseeing portfolio management
and credit research. Prior to joining Prudential Investments in 1998,
- -------------------------------------------------------------------
16 CALIFORNIA SERIES [ICON] (800) 225-1852
<PAGE>
HOW THE SERIES IS MANAGED
- ------------------------------------------------
he was a managing director in Prudential's Capital Management Group, where he
oversaw portfolio management and credit research for Prudential's General
Account and subsidiary fixed-income portfolios. He has more than 16 years of
experience in risk management, arbitrage trading, and corporate bond investing.
Mr. Gaston has overall responsibility for overseeing quantitative research
and risk management. Prior to this appointment in 1999, he was senior managing
director of the Capital Management Group where he was responsible for the
investment performance and risk management for Prudential's General Account and
subsidiary fixed-income portfolios. He has more than 20 years of experience in
investment management, including extensive experience applying quantitative
techniques to portfolio management.
The Fixed Income Investment Policy Committee is comprised of key senior
investment managers. Members include seven sector team leaders, the chief
investment strategist, and the head of risk management. The Committee uses a
top-down approach to investment strategy, asset allocation, and general risk
management, identifying sectors in which to invest.
The Municipal Bond Team, headed by Evan Lamp, is primarily responsible for
overseeing the day-to-day management of the Series. This Team uses a bottom-up
approach, which focuses on individual securities, while staying within the
guidelines of the Investment Policy Committee and the Series' investment
restrictions and policies. In addition, the Credit Research team of analysts
supports the sector teams using bottom-up fundamentals, as well as economic and
industry trends. Other sector teams may contribute to securities selection when
appropriate.
The following are the fixed income sector teams and the corresponding team
leaders: (Assets under management are as of October 31, 1999.)
MUNICIPAL BONDS
ASSETS UNDER MANAGEMENT: $5.6 billion.
TEAM LEADER: Evan Lamp. GENERAL INVESTMENT EXPERIENCE: 7 years.
PORTFOLIO MANAGERS: 5. AVERAGE GENERAL INVESTMENT EXPERIENCE: 10 years, which
includes team members with significant mutual fund experience.
- --------------------------------------------------------------------------------
17
<PAGE>
HOW THE SERIES IS MANAGED
- ------------------------------------------------
SECTOR: City, state and local government securities.
INVESTMENT APPROACH: Focus is on identifying spread, credit quality and
liquidity trends to capitalize on changing opportunities in the municipal
market. Ultimately, they seek the highest expected return with the least risk.
MONEY MARKETS
ASSETS UNDER MANAGEMENT: $41.1 billion.
TEAM LEADER: Joseph Tully. GENERAL INVESTMENT EXPERIENCE: 16 years
PORTFOLIO MANAGERS: 8. AVERAGE GENERAL INVESTMENT EXPERIENCE: 12 years, which
includes team members with significant mutual fund experience.
SECTOR: High-quality short-term securities, including both taxable and tax-
exempt instruments.
INVESTMENT APPROACH: Focus is on safety of principal, liquidity and controlled
risk.
DISTRIBUTOR
Prudential Investment Management Service LLC (PIMS) distributes the Series'
shares under a Distribution Agreement with the Fund. The Fund has Distribution
and Service Plans under Rule 12b-1 of the Investment Company Act. Under the
Plans and the Distribution Agreement, PIMS pays the expenses of distributing the
Series' Class A, B, C, and Z shares and provides certain shareholder support
services. The Fund pays distribution and other fees to PIMS as compensation for
its services for each class of shares other than Class Z. These fees--known as
12b-1 fees--are shown in the "Fees and Expenses" tables.
YEAR 2000 READINESS DISCLOSURE
The services provided to the Fund and the shareholders by the Manager, the
Distributor, the Transfer Agent and the Custodian depend on the smooth
functioning of their computer systems and those of outside service providers.
Many computer software systems in use today cannot distinguish the year 2000
from the year 1900 because of the way dates are encoded and calculated. Such an
event could have a negative impact on handling securities trades, payments of
interest and dividends, pricing and account
- -------------------------------------------------------------------
18 CALIFORNIA SERIES [ICON] (800) 225-1852
<PAGE>
HOW THE SERIES IS MANAGED
- ------------------------------------------------
services. Although, at this time, there can be no assurance that there will be
no adverse impact on the Fund, the Manager, the Distributor, the Transfer Agent
and the Custodian have advised the Fund that they have been actively working on
necessary changes to their computer systems to prepare for the year 2000. The
Fund and its Board receive, and have received since early 1998, satisfactory
quarterly reports from the principal service providers as to their preparations
for year 2000 readiness, although there can be no assurance that the service
providers (or other securities market participants) will successfully complete
the necessary changes in a timely manner. Moreover, the Fund at this time has
not considered retaining alternative service providers or directly undertaken
efforts to achieve year 2000 readiness, the latter of which would involve
substantial expenses without an assurance of success.
Additionally, issuers of securities generally, as well as those purchased by
the Series, may confront year 2000 compliance issues which, if material and not
resolved, could have an adverse impact on securities markets and/ or a specific
issuer's performance and could result in a decline in the value of the
securities held by the Series.
- --------------------------------------------------------------------------------
19
<PAGE>
SERIES DISTRIBUTIONS AND TAX ISSUES
- -------------------------------------
Investors who buy shares of the Series should be aware of some important tax
issues. For example, the Series pays DIVIDENDS of net investment income monthly,
and distributes LONG-TERM CAPITAL GAINS, if any, at least annually. Dividends
generally will be exempt from federal and California state income taxes. If,
however, the Series invests in taxable obligations, it will pay dividends that
are not exempt from these income taxes. Also, if you sell shares of the Series
for a profit, you may have to pay capital gains taxes on the amount of your
profit.
The following briefly discusses some of the important state and federal tax
issues you should be aware of, but is not meant to be tax advice. For tax
advice, please speak with your tax adviser.
DISTRIBUTIONS
The Series distributes DIVIDENDS of any net investment income to shareholders,
typically every month. For example, if the Series owns a City XYZ bond and the
bond pays interest, the Series will pay out a portion of this interest as a
dividend to its shareholders, assuming the Series' income is more than its costs
and expenses. These dividends generally will be EXEMPT FROM FEDERAL INCOME
TAXES, as long as 50% or more of the value of the Series' assets at the end of
each quarter is invested in state, municipal and other obligations, the interest
on which is excluded from gross income for federal income tax purposes.
As we mentioned before, the Series will concentrate its investments in
California obligations. In addition to being exempt from federal taxes, Series'
dividends are EXEMPT FROM CALIFORNIA STATE INCOME TAXES (but not from California
franchise taxes) FOR CALIFORNIA RESIDENTS if the dividends are excluded from
federal income taxes, are derived from interest payments on California
obligations and as long as 50% or more of the value of its total assets are
obligations which when held by an individual is exempt from taxation under
California law. Dividends attributable to the interest on taxable bonds held by
the Series, market discount on taxable and tax-exempt obligations and short-term
capital gains, however, will be subject to federal, state and local income tax
at ordinary income tax rates. 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.
Some shareholders may be subject to federal alternative minimum tax (AMT)
liability. Tax-exempt interest from certain bonds is treated as an item
- -------------------------------------------------------------------
20 CALIFORNIA SERIES [ICON] (800) 225-1852
<PAGE>
SERIES DISTRIBUTIONS AND TAX ISSUES
- ------------------------------------------------
of tax preference, and may be attributed to shareholders. A portion of all
tax-exempt interest is includable as an upward adjustment in determining a
corporation's alternative minimum taxable income. These rules could make you
liable for the AMT.
The Series also distributes LONG-TERM CAPITAL GAINS to shareholders
(typically once a year). Long-term capital gains are generated when the Series
sells assets that it held for more than 12 months, for a profit. For an
individual, the maximum long-term capital gains rate is 20% for federal income
tax purposes.
For your convenience, distributions of dividends and capital gains are
AUTOMATICALLY REINVESTED in the Series without any sales charge. If you ask us
to pay the distributions in cash, we will send you a check if your account is
with the Transfer Agent. Otherwise, if your account is with a broker you will
receive a credit to your account. Either way, the distributions may be subject
to taxes. For more information about Automatic Reinvestment and other
shareholder services, see "Step 4: Additional Shareholder Services" in the next
section.
TAX ISSUES
FORM 1099
Every year, you will receive a Form 1099, which reports the amount of dividends
and capital gains we distributed to you during the prior year.
Series distributions are generally taxable to you in the year they are
received, except when we declare certain dividends in the fourth quarter and
actually pay them in January of the following year. In such cases, the dividends
are treated as if they were paid to you on December 31 of the prior year.
Corporate shareholders are not eligible for the 70% dividends-received deduction
on dividends paid by the Series.
WITHHOLDING TAXES
If federal law requires you to provide the Series with your tax identification
number and certifications as to your tax status, and you fail to do so, or are
otherwise subject to backup withholding, we generally withhold and pay to the
U.S. Treasury 31% of your taxable distributions and gross sale proceeds. If you
are subject to backup withholding, we will withhold and pay to the Treasury 31%
of your distributions.
IF YOU PURCHASE JUST BEFORE RECORD DATE
If you buy shares of the Series just before the record date (the date that
determines who receives the dividend), that distribution will be paid to you.
- --------------------------------------------------------------------------------
21
<PAGE>
SERIES DISTRIBUTIONS AND TAX ISSUES
- ------------------------------------------------
As explained above, the distribution may be subject to income or capital gains
taxes. You may think you've done well since you bought shares one day and soon
thereafter received a distribution. That is not so because when dividends are
paid out, the value of each share of the Series decreases by the amount of the
dividend to reflect the payout although this may not be apparent because the
value of each share of the Series will also be affected by the market changes,
if any. The distribution you receive makes up for the decrease in share value.
However, if the distribution is taxable, the timing of your purchase does mean
that part of your investment came back to you as taxable income.
IF YOU SELL OR EXCHANGE YOUR SHARES
If you sell any shares of the Series for a profit, you have REALIZED A CAPITAL
GAIN, which is subject to tax. The amount of tax you pay depends on whether you
hold your shares for more than one year. If you sell shares of the Series for a
loss, you may have a capital loss, which you may use to offset certain capital
gains you have.
Exchanging your shares of the Series for the shares of another Prudential
mutual fund is considered a sale for tax purposes. In other words, it's a
"taxable event." Therefore, if the shares you exchanged have increased in value
since you purchased them, you have capital gains, which are subject to the taxes
described above.
RECEIPTS FROM SALE $ --> +$ CAPITAL GAIN
(taxes owed)
OR
RECEIPTS FROM SALE $ --> -$ CAPITAL LOSS
(offset against gain)
[GRAPH]
Any gain or loss you may have from selling or exchanging Series shares will
not be reported on the Form 1099; however, proceeds from the sale or exchange
will be reported on Form 1099-B. Therefore, you or your financial adviser should
keep track of the dates on which you buy and sell--or exchange--Series shares,
as well as the amount of any gain or loss on each transaction. For tax advice,
please see your tax adviser.
AUTOMATIC CONVERSION OF CLASS B SHARES
We have obtained a legal opinion that the conversion of Class B shares into
Class A shares--which happens automatically approximately seven years after
purchase--is not a "taxable event." This opinion, however, is not binding on the
Internal Revenue Service (IRS). For more information about the automatic
conversion of Class B shares, see "Class B Shares Convert to Class A Shares
After Approximately Seven Years," in the next section.
- -------------------------------------------------------------------
22 CALIFORNIA SERIES [ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- -------------------------------------
HOW TO BUY SHARES
STEP 1: OPEN AN ACCOUNT
If you don't have an account with us or a securities firm that is permitted to
buy or sell shares of the Series for you, call Prudential Mutual Fund Services
LLC (PMFS) at (800) 225-1852 or contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: INVESTMENT SERVICES
P.O. BOX 15020
NEW BRUNSWICK, NJ 08906-5020
To purchase by wire, call the number above to obtain an application. After
PMFS receives your completed application, you will receive an account number.
For additional information about purchasing shares of the Series, see the back
cover page of this prospectus. We have the right to reject any purchase order
(including an exchange into the Series) or suspend or modify the Series' sale of
its shares.
STEP 2: CHOOSE A SHARE CLASS
Individual investors can choose among Class A, Class B, Class C and Class Z
shares of the Series, although Class Z shares are available to a limited group
of investors.
Multiple share classes let you choose a cost structure that meets your
needs. With Class A shares, you pay the sales charge at the time of purchase,
but the operating expenses each year are lower than the expenses of Class B and
Class C shares. With Class B shares, you only pay a sales charge if you sell
your shares within six years (that is why they call it a Contingent Deferred
Sales Charge or CDSC), but the operating expenses each year are higher than the
Class A share expenses. With Class C shares, you pay a 1% front end sales charge
and a 1% CDSC if you sell within 18 months of purchase, but the operating
expenses are also higher than the expenses for Class A shares.
When choosing a share class, you should consider the following:
-- The amount of your investment
-- The length of time you expect to hold the shares and the impact of
varying distribution fees
- --------------------------------------------------------------------------------
23
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- ------------------------------------------------
-- The different sales charges that apply to each share class--
Class A's front-end sales charge vs. Class B's CDSC vs. Class C's low
front-end sales charge and low CDSC
-- Whether you qualify for any reduction or waiver of sales charges
-- The fact that Class B shares automatically convert to Class A shares
approximately seven years after purchase
-- Whether you qualify to purchase Class Z shares.
See "How to Sell Your Shares" for a description of the impact of CDSCs.
SHARE CLASS COMPARISON. Use this chart to help you compare the Series' different
share classes. The discussion following this chart will tell you whether you are
entitled to a reduction or waiver of any sales charges.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Z
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Minimum purchase $1,000 $1,000 $2,500 None
amount(1)
Minimum amount for $100 $100 $100 None
subsequent
purchases(1)
Maximum initial 3% of the None 1% of the None
sales charge public public
offering offering
price price
Contingent Deferred None If sold during: 1% on sales None
Sales Charge (CDSC)(2) Year 1 5% made within
Year 2 4% 18 months of
Year 3 3% purchase(2)
Year 4 2%
Years 5/6 1%
Year 7 0%
Annual distribution .30 of 1% .50 of 1% 1% (.75 of None
and service (12b-1) (.25 of 1% 1%
fees (shown as currently) currently)
a percentage of
average net
assets)(3)
</TABLE>
<TABLE>
<S> <C>
1 THE MINIMUM INVESTMENT REQUIREMENTS DO NOT APPLY TO CERTAIN
RETIREMENT AND EMPLOYEE SAVINGS PLANS AND CUSTODIAL ACCOUNTS
FOR MINORS. THE MINIMUM INITIAL AND SUBSEQUENT INVESTMENT
FOR PURCHASES MADE THROUGH THE AUTOMATIC INVESTMENT PLAN IS
$50. FOR MORE INFORMATION, SEE "STEP 4: ADDITIONAL
SHAREHOLDER SERVICES--AUTOMATIC INVESTMENT PLAN."
2 FOR MORE INFORMATION ABOUT THE CDSC AND HOW IT IS
CALCULATED, SEE "HOW TO SELL YOUR SHARES--CONTINGENT
DEFERRED SALES CHARGES (CDSC)." CLASS C SHARES BOUGHT BEFORE
NOVEMBER 2, 1998 HAVE A 1% CDSC IF SOLD WITHIN ONE YEAR.
3 THESE DISTRIBUTION FEES ARE PAID FROM THE SERIES' ASSETS ON
A CONTINUOUS BASIS. OVER TIME, THE FEES WILL INCREASE THE
COST OF YOUR INVESTMENT AND MAY COST YOU MORE THAN PAYING
OTHER TYPES OF SALES CHARGES. THE SERVICE FEE FOR CLASS A,
CLASS B AND CLASS C SHARES IS .25 OF 1%. THE DISTRIBUTION
FEE FOR CLASS A SHARES IS LIMITED TO .30 OF 1% (INCLUDING
THE .25 OF 1% SERVICE FEE), FOR CLASS B SHARES IS LIMITED TO
.50 OF 1% (INCLUDING THE .25 OF 1% SERVICE FEE), AND IS .75
OF 1% FOR CLASS C SHARES. FOR THE FISCAL YEAR ENDING AUGUST
31, 2000, THE DISTRIBUTOR OF THE FUND HAS CONTRACTUALLY
AGREED TO REDUCE ITS DISTRIBUTION AND SERVICE (12b-1) FEES
FOR CLASS A AND CLASS C SHARES TO .25 OF 1% AND .75 OF 1% OF
THE AVERAGE DAILY NET ASSETS OF CLASS A SHARES AND CLASS C
SHARES, RESPECTIVELY.
</TABLE>
- -------------------------------------------------------------------
24 CALIFORNIA SERIES [ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- ------------------------------------------------
REDUCING OR WAIVING CLASS A'S INITIAL SALES CHARGE
The following describes the different ways investors can reduce or avoid
paying Class A's initial sales charge.
INCREASE THE AMOUNT OF YOUR INVESTMENT. You can reduce Class A's initial
sales charge by increasing the amount of your investment. This table shows
you how the sales charge decreases as the amount of your investment
increases.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
SALES CHARGE AS % OF SALES CHARGE AS % OF DEALER
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED REALLOWANCE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $99,999 3.00% 3.09% 3.00%
$100,000 to $249,999 2.50% 2.56% 2.50%
$250,000 to $499,999 1.50% 1.52% 1.50%
$500,000 to $999,999 1.00% 1.01% 1.00%
$1 million and
above(1) None None None
</TABLE>
<TABLE>
<S> <C>
1 IF YOU INVEST $1 MILLION OR MORE, YOU CAN BUY ONLY CLASS A
SHARES, UNLESS YOU QUALIFY TO BUY CLASS Z SHARES.
</TABLE>
To satisfy the purchase amounts above, you can:
-- Invest with an eligible group of related investors
-- Buy the Class A shares of two or more Prudential mutual funds at the
same time
-- Use your RIGHTS OF ACCUMULATION, which allow you to combine the value
of Prudential mutual fund shares you already own with the value of
the shares you are purchasing for purposes of determining the
applicable sales charge (note: you must notify the Transfer Agent if
you qualify for Rights of Accumulation)
-- Sign a LETTER OF INTENT, stating in writing that you or an eligible
group of related investors will purchase a certain amount of shares
in the Series and other Prudential mutual funds within 13 months.
The Distributor may reallow Class A's sales charge to dealers.
MUTUAL FUND PROGRAMS. The initial sales charge will be waived for investors in
certain programs sponsored by broker-dealers, investment advisers and financial
planners who have agreements with Prudential Investments
- --------------------------------------------------------------------------------
25
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- ------------------------------------------------
Advisory Group relating to:
-- Mutual Fund "wrap" or asset allocation programs where the sponsor
places Series trades and charges its clients a management, consulting
or other fee for its services, or
-- Mutual fund "supermarket" programs where the sponsor links its
clients' accounts to a master account in the sponsor's name and the
sponsor charges a fee for its services.
Broker-dealers, investment advisers or financial planners sponsoring these
mutual fund programs may offer their clients more than one class of shares in
the Series in connection with different pricing options for their programs.
Investors should consider carefully any separate transaction and other fees
charged by these programs in connection with investing in each available share
class before selecting a share class.
OTHER TYPES OF INVESTORS. Other investors pay no sales charges, including
certain officers, employees or agents of Prudential and its affiliates, the
Prudential mutual funds, the subadvisers of the Prudential mutual funds and
registered representatives and employees of brokers that have entered into a
selected dealer agreement with the Distributor. To qualify for a reduction or
waiver of the sales charge, you must notify the Transfer Agent or your broker at
the time of purchase. For more information, see the SAI, "Purchase, Redemption
and Pricing of Fund Shares--Reduction and Waiver of Initial Sales
Charges--Class A Shares."
WAIVING CLASS C'S INITIAL SALES CHARGE
INVESTMENT OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES. The initial
sales charge will be waived for purchases of Class C shares if the purchase is
made with money from the redemption of shares of any unaffiliated investment
company, as long as the shares were not held in an account at Prudential
Securities Incorporated or one of its affiliates. These purchases must be made
within 60 days of the redemption. To qualify for this waiver, you must do one of
the following:
-- Purchase your shares through an account at Prudential Securities
-- Purchase your shares through an ADVANTAGE Account or an Investor
Account with Pruco Securities Corporation, or
-- Purchase your shares through another broker.
- -------------------------------------------------------------------
26 CALIFORNIA SERIES [ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- ------------------------------------------------
The waiver is not available to investors who purchase shares directly from
the Transfer Agent. If you are entitled to the waiver, you must notify either
the Transfer Agent or your broker. The Transfer Agent may require any supporting
documents it considers appropriate.
QUALIFYING FOR CLASS Z SHARES
MUTUAL FUND PROGRAMS. Class Z shares can be purchased by participants in any
fee-based program or trust program sponsored by Prudential or an affiliate that
includes the Series as an available option. Class Z shares also can be purchased
by investors in certain programs sponsored by broker-dealers, investment
advisers and financial planners who have agreements with Prudential Investments
Advisory Group relating to:
-- Mutual fund "wrap" or asset allocation programs where the sponsor
places Series trades, links its clients' accounts to a master account
in the sponsor's name and charges its clients a management,
consulting or other fee for its services, or
-- Mutual fund "supermarket" programs, where the sponsor links its
clients' accounts to a master account in the sponsor's name and the
sponsor charges a fee for its services.
Broker-dealers, investment advisers or financial planners sponsoring these
mutual fund programs may offer their clients more than one class of
shares in the Series in connection with different pricing options for their
programs. Investors should consider carefully any separate transaction and other
fees charged by these programs in connection with investing in each available
share class before selecting a share class.
OTHER TYPES OF INVESTORS. Class Z shares also can be purchased by any of the
following:
-- Certain participants in the MEDLEY Program (group variable annuity
contracts) sponsored by Prudential for whom Class Z shares of the
Prudential mutual funds are an available option,
-- Current and former Directors/Trustees of the Prudential mutual funds
(including the Fund), and
-- Prudential, with an investment of $10 million or more.
- --------------------------------------------------------------------------------
27
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- ------------------------------------------------
In connection with the sale of shares, the Manager, the Distributor or one
of their affiliates may pay brokers, financial advisers and other persons a
commission of up to 4% of the purchase price for Class B shares, up to 2% of the
purchase price for Class C shares and a finder's fee for Class A or Class Z
shares from their own resources based on a percentage of the net asset value of
shares sold or otherwise.
CLASS B SHARES CONVERT TO CLASS A SHARES AFTER APPROXIMATELY SEVEN YEARS
If you buy Class B shares and hold them for approximately seven years, we will
automatically convert them into Class A shares without charge. At that time, we
will also convert any Class B shares that you purchased with reinvested
dividends and other distributions. Since the 12b-1 fees for Class A shares are
lower than for Class B shares, switching to Class A shares lowers your Series
expenses.
When we do the conversion, you will get fewer Class A shares than the number
of converted Class B shares converted if the price of the Class A shares is
higher than the price of Class B shares. The total dollar value will be the
same, so you will not have lost any money by getting fewer Class A shares. We do
the conversions quarterly, not on the anniversary date of your purchase. For
more information, see the SAI, "Purchase, Redemption and Pricing of Fund
Shares--Conversion Feature--Class B Shares."
- -------------------------------------------------------------------
28 CALIFORNIA SERIES [ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- ------------------------------------------------
STEP 3: UNDERSTANDING THE PRICE YOU'LL PAY
The price you pay for each share of the Series is based on the share value. The
share value of a mutual fund--known as the NET ASSET VALUE or NAV--is determined
by a simple calculation: it's the total value of the fund (assets minus
liabilities) divided by the total number of shares outstanding. For example, if
the value of the investments held by Fund XYZ (minus its liabilities) is $1,000
and there are 100 shares of Fund XYZ owned by shareholders, the price of one
share of the fund--or the NAV--is $10 ($1,000 divided by 100). Portfolio
securities are valued based upon market quotations or, if not readily available,
at fair value as determined in good faith under procedures established by the
Fund's Board. Most national newspapers report the NAVs of most mutual funds,
which allows investors to check the price of mutual funds daily.
We determine the NAV of our shares once each business day at 4:15 p.m. New
York time on days that the New York Stock Exchange (NYSE) is open for trading.
The NYSE is closed on national holidays and Good Friday. We do not determine NAV
with respect to the Series on days when we have not received any orders to
purchase, sell, or exchange the Series' shares, or when changes in the value of
the Series' portfolio do not materially affect the NAV.
WHAT PRICE WILL YOU PAY FOR SHARES OF THE SERIES?
For Class A and Class C shares, you'll pay the public offering price, which is
the NAV next determined after we receive your order to purchase, plus an initial
sales charge (unless you're entitled to a waiver). For Class B and Class Z
shares, you will pay the NAV next determined after we receive your order to
purchase (remember, there are no up-front sales charges for these share
classes). Your broker may charge you a separate or additional fee for purchases
of shares.
- -------------------------------------------------------------------
MUTUAL FUND SHARES
The NAV of mutual fund shares changes every day because the value of a fund's
portfolio changes constantly. For example, if Fund XYZ holds City ABC bonds in
its portfolio and the price of City ABC bonds goes up while the value of the
fund's other holdings remains the same and expenses don't change, the NAV of
Fund XYZ will increase.
- -------------------------------------------------------------------
- --------------------------------------------------------------------------------
29
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- ------------------------------------------------
STEP 4: ADDITIONAL SHAREHOLDER SERVICES
As a Series shareholder, you can take advantage of the following services and
privileges:
AUTOMATIC REINVESTMENT. As we explained in the "Series Distributions and Tax
Issues" section, the Series pays out--or distributes--its net investment income
and capital gains to all shareholders. For your convenience, we will
automatically reinvest your distributions in the Series at NAV without any sales
charge. If you want your distributions paid in cash, you can indicate this
preference on your application, notify your broker or notify the Transfer Agent
in writing (at the address below) at least five business days before the date we
determine who receives dividends.
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: ACCOUNT MAINTENANCE
P.O. BOX 15015
NEW BRUNSWICK, NJ 08906-5015
AUTOMATIC INVESTMENT PLAN. You can make regular purchases of the Series for as
little as $50 by having the funds automatically withdrawn from your bank or
brokerage account at specified intervals.
THE PRUTECTOR PROGRAM. Optional group term life insurance--which protects the
value of your Prudential mutual fund investment for your beneficiaries against
market declines--is available to investors who purchase their shares through
Prudential. This insurance is subject to various restrictions and charges and is
not available in all states.
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available that will
provide you with monthly, quarterly, semi-annual or annual checks. Remember, the
sale of Class B and Class C shares may be subject to a CDSC.
REPORTS TO SHAREHOLDERS. Every year we will send you an annual report (along
with an updated prospectus) and a semi-annual report, which contain important
financial information about your Series. To reduce the Series' expenses, we will
send one annual shareholder report, one semi-annual shareholder report and one
annual prospectus per household, unless
- -------------------------------------------------------------------
30 CALIFORNIA SERIES [ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- ------------------------------------------------
you instruct us or your broker otherwise.
HOW TO SELL YOUR SHARES
You can sell your shares of the Series for cash (in the form of a check) at any
time, subject to certain restrictions.
When you sell shares of the Series--also known as redeeming your shares--the
price you will receive will be the NAV next determined after the Transfer Agent,
the Distributor or your broker receives your order to sell. If your broker holds
your shares, he must receive your order to sell by 4:15 p.m. New York time to
process the sale on that day. Otherwise, contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: REDEMPTION SERVICES
P.O. BOX 15010
NEW BRUNSWICK, NJ 08906-5010
Generally, we will pay you for the shares that you sell within seven days
after the Transfer Agent, the Distributor or your broker receives your sell
order. If you hold shares through a broker, payment will be credited to your
account. If you are selling shares you recently purchased with a check, we may
delay sending you the proceeds until your check clears, which can take up to
10 days from the purchase date. You can avoid delay if you purchase shares by
wire, certified check or cashier's check. Your broker may charge a separate or
additional fee for sales of shares.
RESTRICTIONS ON SALES
There are certain times when you may not be able to sell shares of the Series,
or when we may delay paying you the proceeds from a sale. This may happen during
unusual market conditions or emergencies when the Series can't determine the
value of its assets or sell its holdings. For more information, see the SAI,
"Purchase, Redemption and Pricing of Fund Shares--Sale of Shares."
If you are selling more than $100,000 of shares, you want the check sent to
someone or some place that is not in our records or you are a business or a
trust and you hold shares directly with the Transfer Agent, you will need to
have the signature on your sell order signature guaranteed by
- --------------------------------------------------------------------------------
31
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- ------------------------------------------------
an "eligible guarantor institution." An "eligible guarantor institution"
includes any bank, broker-dealer or credit union. For more information, see the
SAI, "Purchase, Redemption and Pricing of Fund Shares--Sale of Shares--Signature
Guarantee."
CONTINGENT DEFERRED SALES CHARGE (CDSC)
If you sell Class B shares within six years of purchase or Class C shares within
18 months of purchase, you will have to pay a CDSC. To keep the CDSC as low as
possible, we will sell your shares in the following order:
-- Amounts representing shares you purchased with reinvested dividends
and distributions
-- Amounts representing the increase in NAV above the total amount of
payments for shares made during the past six years for Class B shares
and 18 months for Class C shares (one year for Class C shares
purchased before November 2, 1998)
-- Amounts representing the cost of shares held beyond the CDSC period
(six years for Class B shares and 18 months for Class C shares)
Since shares that fall into any of the categories listed above are not
subject to the CDSC, selling them first helps you to avoid--or at least
minimize--the CDSC.
Having sold the exempt shares first, if there are any remaining shares that
are subject to the CDSC, we will apply the CDSC to amounts representing the cost
of shares held for the longest period of time within the applicable CDSC period.
As we noted in the "Share Class Comparison" chart, the CDSC for Class B
shares is 5% in the first year, 4% in the second, 3% in the third, 2% in the
fourth, and 1% in the fifth and sixth years. The rate decreases on the first day
of the month following the anniversary date of your purchase, not on the
anniversary date itself. The CDSC is 1% for Class C shares--which is applied to
shares sold within 18 months of purchase. For both Class B and Class C shares,
the CDSC is calculated based on the lesser of the original purchase price or the
redemption proceeds. For purposes of determining how long you've held your
shares, all purchases during the month are grouped together and considered to
have been made on the last day of the month.
- -------------------------------------------------------------------
32 CALIFORNIA SERIES [ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- ------------------------------------------------
The holding period for purposes of determining the applicable CDSC will be
calculated from the first day of the month after initial purchase, excluding any
time shares were held in a money market fund.
WAIVER OF THE CDSC--CLASS B SHARES
The CDSC will be waived if the Class B shares are sold:
-- After a shareholder is deceased or disabled (or, in the case of a
trust account, the death or disability of the grantor). This waiver
applies to individual shareholders, as well as shares owned in joint
tenancy, provided the shares were purchased before the death or
disability
-- On certain sales from a Systematic Withdrawal Plan.
For more information on the above and other waivers, see the SAI, "Purchase,
Redemption and Pricing of Fund Shares--Waiver of Contingent Deferred Sales
Charges--Class B Shares."
REDEMPTION IN KIND
If the sales of Series shares you make during any 90-day period reach the lesser
of $250,000 or 1% of the value of the Series' net assets, we can then give you
securities from the Series' portfolio instead of cash. If you want to sell the
securities for cash, you would have to pay the costs charged by a broker.
SMALL ACCOUNTS
If you make a sale that reduces your account value to less than $500, we may
sell the rest of your shares (without charging any CDSC) and close your account.
We would do this to minimize the Series' expenses paid by other shareholders. We
will give you 60 days' notice, during which time you can purchase additional
shares to avoid this action.
90-DAY REPURCHASE PRIVILEGE
After you redeem your shares, you have a 90-day period during which you may
reinvest any of the redemption proceeds in shares of the Series without paying
an initial sales charge. Also, if you paid a CDSC when you redeemed your shares,
we will credit your new account with the appropriate
- --------------------------------------------------------------------------------
33
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- ------------------------------------------------
number of shares to reflect the amount of the CDSC you paid. In order to take
advantage of this one-time privilege, you must notify the Transfer Agent or your
broker at the time of the repurchase. See the SAI, "Purchase, Redemption and
Pricing of Fund Shares--Sale of Shares."
HOW TO EXCHANGE YOUR SHARES
You can exchange your shares of the Series for shares of the same class in
certain other Prudential mutual funds--including certain money market funds--if
you satisfy the minimum investment requirements. For example, you can exchange
Class A shares of the Series for Class A shares of another Prudential mutual
fund, but you can't exchange Class A shares for Class B, Class C or Class Z
shares. Class B and C shares may not be exchanged into money market funds other
than Prudential Special Money Market Fund, Inc. After an exchange, at redemption
the CDSC will be calculated from the first day of the month after initial
purchase, excluding any time shares were held in a money market fund. We may
change the terms of the exchange privilege after giving you 60 days' notice.
If you hold shares through a broker, you must exchange shares through your
broker. Otherwise contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: EXCHANGE PROCESSING
P.O. BOX 15010
NEW BRUNSWICK, NJ 08906-5010
There is no sales charge for such exchanges. However, if you exchange--and
then sell--Class B shares within approximately six years of your original
purchase or Class C shares within 18 months of your original purchase, you must
still pay the applicable CDSC. If you have exchanged Class B or Class C shares
into a money market fund, the time you hold the shares in the money market
account will not be counted in calculating the required holding periods for CDSC
liability.
Remember, as we explained in the section entitled "Series Distributions and
Tax Issues--If You Sell or Exchange Your Shares," exchanging shares is
considered a sale for tax purposes. Therefore, if the shares you exchange are
worth more than you paid for them, you may have to pay capital gains tax. For
additional information about exchanging shares, see the SAI,
- -------------------------------------------------------------------
34 CALIFORNIA SERIES [ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- ------------------------------------------------
"Shareholder Investment Account--Exchange Privilege."
If you own Class B or Class C shares and qualify to purchase Class A shares
without paying an initial sales charge, we will automatically exchange your
Class B or Class C shares which are not subject to a CDSC for Class A shares. We
make such exchanges on a quarterly basis if you qualify for this exchange
privilege. We have obtained a legal opinion that this exchange is not a "taxable
event" for federal income tax purposes. This opinion is not binding on the IRS.
FREQUENT TRADING
Frequent trading of the Series' shares in response to short-term fluctuations in
the market--also known as "market timing"--may make it very difficult to manage
the Series' investments. When market timing occurs, the Series may have to sell
portfolio securities to have the cash necessary to redeem the market timer's
shares. This can happen at a time when it is not advantageous to sell any
securities, so the Series' performance may be hurt. When large dollar amounts
are involved, market timing can also make it difficult to use long-term
investment strategies because we cannot predict how much cash the Series will
have to invest. When, in our opinion, such activity would have a disruptive
effect on portfolio management, the Fund reserves the right to refuse purchase
orders and exchanges into the Series by any person, group or commonly controlled
accounts. The decision may be based upon dollar amount, volume and frequency of
trading. The Fund may notify a market timer of rejection of an exchange or
purchase order after the day the order is placed. If the Fund allows a market
timer to trade Series shares, it may require the market timer to enter into a
written agreement to follow certain procedures and limitations.
TELEPHONE REDEMPTIONS OR EXCHANGES
You may redeem or exchange your shares in any amount by calling the Fund at
(800) 225-1852. In order to redeem or exchange your shares by telephone, you
must complete an authorization form for telephone transactions. If you have
elected telephone redemption and exchange privileges and you call the Fund
before 4:15 p.m., New York time, you will receive a redemption amount based on
that day's NAV.
The Fund's Transfer Agent will record your telephone instructions and
request specific account information before redeeming or exchanging
- --------------------------------------------------------------------------------
35
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- ------------------------------------------------
shares. The Fund will not be liable if it follows instructions that it
reasonably believes are made by the shareholder. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, you may have difficulty
in redeeming or exchanging your shares by telephone. If this occurs, you should
consider redeeming or exchanging your shares by mail.
The telephone redemption or exchange privilege may be modified or terminated
at any time. If this occurs, you will receive a written notice from the Fund.
- -------------------------------------------------------------------
36 CALIFORNIA SERIES [ICON] (800) 225-1852
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------
The financial highlights will help you evaluate financial performance of the
Series. The TOTAL RETURN in each chart represents the rate that a shareholder
earned on an investment in that share class of the Series, assuming reinvestment
of all dividends and other distributions. The information is for each share
class for the periods indicated.
Review each chart with the financial statements and report of independent
accountants, which appear in the SAI and are available upon request. Additional
performance information for each share class is contained in the annual report,
which you can receive at no charge.
- --------------------------------------------------------------------------------
37
<PAGE>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------
CLASS A SHARES
The financial highlights for the three years ended August 31, 1999 were audited
by PricewaterhouseCoopers LLP, independent accountants, and the financial
highlights for the two years ended August 31, 1996 were audited by other
independent auditors, whose reports were unqualified.
CLASS A SHARES (FISCAL YEAR ENDED 8-31)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $12.22 $11.80 $11.44 $11.49 $11.30
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .59 .62 .65(3) .65(3) .66
Net realized and unrealized gain
(loss) on investment transactions (.77) .43 .36 (.05) .19
TOTAL FROM INVESTMENT OPERATIONS (.18) 1.05 1.01 .60 .85
- ------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment
income (.59) (.62) (.65) (.65) (.66)
Distributions in excess of
investment income -- (.01) --(1) -- --
Distributions from net realized
gains -- -- -- -- --
TOTAL DISTRIBUTIONS (.59) (.63) (.65) (.65) (.66)
NET ASSET VALUE, END OF YEAR $11.45 $12.22 $11.80 $11.44 $11.49
TOTAL RETURN(2) (1.56)% 9.13% 9.01% 5.23% 7.90%
- ---------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ---------------------------------
NET ASSETS, END OF YEAR (000) $92,868 $91,356 $81,535 $72,876 $68,403
AVERAGE NET ASSETS (000) $94,868 $85,624 $78,347 $71,119 $42,617
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution
fees .89% .78% .76%(3) .81%(3) .73%(3)
Expenses, excluding distribution
fees .69% .68% .66%(3) .71%(3) .63%(3)
Net investment income 4.94% 5.18% 5.53%(3) 5.58%(3) 5.90%(3)
Portfolio turnover 13% 11% 14% 26% 44%
- ---------------------------------
</TABLE>
1 LESS THAN $.005 PER SHARE.
2 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER DISTRIBUTIONS,
BUT DOES NOT INCLUDE THE EFFECT OF SALES CHARGES. IT IS CALCULATED ASSUMING
SHARES ARE PURCHASED ON THE FIRST DAY AND ARE SOLD ON THE LAST DAY OF EACH
PERIOD REPORTED.
3 NET OF MANAGEMENT FEE WAIVER.
- -------------------------------------------------------------------
38 CALIFORNIA SERIES [ICON] (800) 225-1852
<PAGE>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------
CLASS B SHARES
The financial highlights for the three years ended August 31, 1999 were audited
by PricewaterhouseCoopers LLP, independent accountants, and the financial
highlights for the two years ended August 31, 1996 were audited by other
independent auditors, whose reports were unqualified.
CLASS B SHARES (FISCAL YEAR ENDED 8-31)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $12.22 $11.80 $11.43 $11.49 $11.29
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .56 .58 .60(3) .60(3) .62(3)
Net realized and unrealized gain
(loss) on investment transactions (.78) .43 .37 (.06) .20
TOTAL FROM INVESTMENT OPERATIONS (.22) 1.01 .97 .54 .82
- ------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment
income (.56) (.58) (.60) (.60) (.62)
Distributions in excess of
investment income -- (.01) --(1) -- --
Distributions from net realized
gains -- -- -- -- --
TOTAL DISTRIBUTIONS (.56) (.59) (.60) (.60) (.62)
NET ASSET VALUE, END OF YEAR $11.44 $12.22 $11.80 $11.43 $11.49
TOTAL RETURN(2) (1.94)% 8.70% 8.67% 4.73% 7.56%
- ---------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ---------------------------------
NET ASSETS, END OF YEAR (000) $48,196 $62,043 $70,093 $85,190 $103,891
AVERAGE NET ASSETS (000) $56,041 $66,086 $75,935 $96,525 $136,275
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution
fees 1.19% 1.18% 1.16%(3) 1.21%(3) 1.13%(3)
Expenses, excluding distribution
fees .69% .68% .66%(3) .71%(3) .63%(3)
Net investment income 4.62% 4.78% 5.13%(3) 5.18%(3) 5.50%(3)
Portfolio turnover 13% 11% 14% 26% 44%
- ---------------------------------
</TABLE>
1 LESS THAN $.005 PER SHARE.
2 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER DISTRIBUTIONS,
BUT DOES NOT INCLUDE THE EFFECT OF SALES CHARGES. IT IS CALCULATED ASSUMING
SHARES ARE PURCHASED ON THE FIRST DAY AND ARE SOLD ON THE LAST DAY OF EACH
PERIOD REPORTED.
3 NET OF MANAGEMENT FEE WAIVER.
- --------------------------------------------------------------------------------
39
<PAGE>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------
CLASS C SHARES
The financial highlights for the three years ended August 31, 1999 were audited
by PricewaterhouseCoopers LLP, independent accountants, and the financial
highlights for the two years ended August 31, 1996 were audited by other
independent auditors, whose reports were unqualified.
CLASS C SHARES (FISCAL YEAR ENDED 8-31)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $12.22 $11.80 $11.43 $11.49 $11.29
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .53 .55 .57(3) .57(3) .59(3)
Net realized and unrealized gain
(loss) on investment transactions (.78) .43 .37 (.06) .20
TOTAL FROM INVESTMENT OPERATIONS (.25) .98 .94 .51 .79
- ------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment
income (.53) (.55) (.57) (.57) (.59)
Distributions in excess of
investment income -- (.01) --(1) -- --
Distributions from net realized
gains -- -- -- -- --
TOTAL DISTRIBUTIONS (.53) (.56) (.57) (.57) (.59)
NET ASSET VALUE, END OF YEAR $11.44 $12.22 $11.80 $11.43 $11.49
TOTAL RETURN(2) (2.18)% 8.43% 8.40% 4.47% 7.29%
- ---------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ---------------------------------
NET ASSETS, END OF YEAR (000) $1,447 $1,257 $334 $543 $129
AVERAGE NET ASSETS (000) $1,373 $689 $480 $286 $76
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution
fees 1.44% 1.43% 1.41%(3) 1.46%(3) 1.38%(3)
Expenses, excluding distribution
fees .69% .68% .66%(3) .71%(3) .63%(3)
Net investment income 4.40% 4.53% 4.88%(3) 4.93%(3) 5.25%(3)
Portfolio turnover 13% 11% 14% 26% 44%
- ---------------------------------
</TABLE>
1 LESS THAN $.005 PER SHARE.
2 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER DISTRIBUTIONS,
BUT DOES NOT INCLUDE THE EFFECT OF SALES CHARGES. IT IS CALCULATED ASSUMING
SHARES ARE PURCHASED ON THE FIRST DAY AND ARE SOLD ON THE LAST DAY OF EACH
PERIOD REPORTED.
3 NET OF MANAGEMENT FEE WAIVER.
- -------------------------------------------------------------------
40 CALIFORNIA SERIES [ICON] (800) 225-1852
<PAGE>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------
CLASS Z SHARES
The financial highlights for the two years ended August 31, 1999 were audited by
PricewaterhouseCoopers LLP, independent accountants, and the financial
highlights for the period from December 6, 1996 through August 31, 1997 were
audited by other independent auditors, whose reports were unqualified.
CLASS Z SHARES (FISCAL YEAR ENDED 8-31)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1999 1998 1997(1)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $12.23 $11.81 $11.50
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .62 .63 .64(4)
Net realized and unrealized gain
(loss) on investment transactions (.78) .43 .31
TOTAL FROM INVESTMENT OPERATIONS .16 1.06 .95
- -------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment
income (.62) (.63) (.64)
Distributions in excess of
investment income -- (.01) --(5)
Distributions from net investment
income -- -- --
TOTAL DISTRIBUTIONS (.62) (.64) (.64)
NET ASSET VALUE, END OF PERIOD $11.45 $12.23 $11.81
TOTAL RETURN(2) (1.44)% 9.24% 8.35%
- -----------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1999 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -----------------------------------
NET ASSETS, END OF PERIOD (000) $928 $1,037 $710
AVERAGE NET ASSETS (000) $1,427 $847 $458
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution
fees .69% .68% .66%(3),(4)
Expenses, excluding distribution
fees .69% .68% .66%(3),(4)
Net investment income 5.15% 5.28% 5.35%(3),(4)
Portfolio turnover 13% 11% 14%
- -----------------------------------
</TABLE>
1 INFORMATION SHOWN IS FOR THE PERIOD 12-6-96 (WHEN CLASS Z SHARES WERE FIRST
OFFERED) THROUGH 8-31-97.
2 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER DISTRIBUTIONS,
BUT DOES NOT INCLUDE THE EFFECT OF SALES CHARGES. IT IS CALCULATED ASSUMING
SHARES ARE PURCHASED ON THE FIRST DAY AND ARE SOLD ON THE LAST DAY OF EACH
PERIOD REPORTED. TOTAL RETURN FOR PERIODS OF LESS THAN A FULL YEAR IS NOT
ANNUALIZED.
3 ANNUALIZED.
4 NET OF MANAGEMENT FEE WAIVER.
5 LESS THAN $.005 PER SHARE.
- --------------------------------------------------------------------------------
41
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
- -------------------------------------
Prudential offers a broad range of mutual funds designed to meet your individual
needs. For information about these funds, contact your financial adviser or
dealer or call us at (800) 225-1852. Read the prospectus carefully before you
invest or send money.
STOCK FUNDS
PRUDENTIAL DISTRESSED SECURITIES FUND, INC.
PRUDENTIAL EMERGING GROWTH FUND, INC.
PRUDENTIAL EQUITY FUND, INC.
PRUDENTIAL EQUITY INCOME FUND
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL SMALL-CAP INDEX FUND
PRUDENTIAL STOCK INDEX FUND
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH FUND
PRUDENTIAL JENNISON GROWTH & INCOME FUND
PRUDENTIAL MID-CAP VALUE FUND
PRUDENTIAL REAL ESTATE SECURITIES FUND
PRUDENTIAL SECTOR FUNDS, INC.
PRUDENTIAL FINANCIAL SERVICES FUND
PRUDENTIAL HEALTH SCIENCES FUND
PRUDENTIAL TECHNOLOGY FUND
PRUDENTIAL UTILITY FUND
PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
PRUDENTIAL SMALL COMPANY VALUE FUND, INC.
PRUDENTIAL TAX-MANAGED EQUITY FUND
PRUDENTIAL 20/20 FOCUS FUND
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
TARGET FUNDS
LARGE CAPITALIZATION GROWTH FUND
LARGE CAPITALIZATION VALUE FUND
SMALL CAPITALIZATION GROWTH FUND
SMALL CAPITALIZATION VALUE FUND
ASSET ALLOCATION/BALANCED FUNDS
PRUDENTIAL BALANCED FUND
PRUDENTIAL DIVERSIFIED FUNDS
CONSERVATIVE GROWTH FUND
MODERATE GROWTH FUND
HIGH GROWTH FUND
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL ACTIVE BALANCED FUND
GLOBAL FUNDS
GLOBAL STOCK FUNDS
PRUDENTIAL DEVELOPING MARKETS FUND
PRUDENTIAL DEVELOPING MARKETS EQUITY FUND
PRUDENTIAL LATIN AMERICA EQUITY FUND
PRUDENTIAL EUROPE GROWTH FUND, INC.
PRUDENTIAL GLOBAL GENESIS FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL EUROPE INDEX FUND
PRUDENTIAL PACIFIC INDEX FUND
PRUDENTIAL NATURAL RESOURCES FUND, INC.
PRUDENTIAL PACIFIC GROWTH FUND, INC.
PRUDENTIAL WORLD FUND, INC.
GLOBAL SERIES
INTERNATIONAL STOCK SERIES
GLOBAL UTILITY FUND, INC.
TARGET FUNDS
INTERNATIONAL EQUITY FUND
- -------------------------------------------------------------------
42 CALIFORNIA SERIES [ICON] (800) 225-1852
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
- -------------------------------------
GLOBAL BOND FUNDS
PRUDENTIAL GLOBAL TOTAL RETURN FUND, INC.
PRUDENTIAL INTERNATIONAL BOND FUND, INC.
BOND FUNDS
TAXABLE BOND FUNDS
PRUDENTIAL DIVERSIFIED BOND FUND, INC.
PRUDENTIAL GOVERNMENT INCOME FUND, INC.
PRUDENTIAL GOVERNMENT SECURITIES TRUST
SHORT-INTERMEDIATE TERM SERIES
PRUDENTIAL HIGH YIELD FUND, INC.
PRUDENTIAL HIGH YIELD TOTAL RETURN FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL BOND MARKET INDEX FUND
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
INCOME PORTFOLIO
TARGET FUNDS
TOTAL RETURN BOND FUND
TAX-EXEMPT BOND FUNDS
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA SERIES
CALIFORNIA INCOME SERIES
PRUDENTIAL MUNICIPAL BOND FUND
HIGH INCOME SERIES
INSURED SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
MASSACHUSETTS SERIES
NEW JERSEY SERIES
NEW YORK SERIES
NORTH CAROLINA SERIES
OHIO SERIES
PENNSYLVANIA SERIES
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
MONEY MARKET FUNDS
TAXABLE MONEY MARKET FUNDS
CASH ACCUMULATION TRUST
LIQUID ASSETS FUND
NATIONAL MONEY MARKET FUND
PRUDENTIAL GOVERNMENT SECURITIES TRUST
MONEY MARKET SERIES
U.S. TREASURY MONEY MARKET SERIES
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
MONEY MARKET SERIES
PRUDENTIAL MONEYMART ASSETS, INC.
TAX-FREE MONEY MARKET FUNDS
PRUDENTIAL TAX-FREE MONEY FUND, INC.
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA MONEY MARKET SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
CONNECTICUT MONEY MARKET SERIES
MASSACHUSETTS MONEY MARKET SERIES
NEW JERSEY MONEY MARKET SERIES
NEW YORK MONEY MARKET SERIES
COMMAND FUNDS
COMMAND MONEY FUND
COMMAND GOVERNMENT FUND
COMMAND TAX-FREE FUND
INSTITUTIONAL MONEY MARKET FUNDS
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
- --------------------------------------------------------------------------------
43
<PAGE>
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44 CALIFORNIA SERIES [ICON] (800) 225-1852
<PAGE>
APPENDIX A
- -------------------------------------
DESCRIPTION OF SECURITY RATINGS
MOODY'S INVESTORS SERVICE
BOND RATINGS
Aaa: Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than the Aaa securities.
A: Bonds that are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
that suggest a susceptibility to impairment sometime in the future.
Baa: Bonds that are rated Baa are considered as medium grade obligations
I.E., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds that are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds that are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
- --------------------------------------------------------------------------------
A-1
<PAGE>
APPENDIX A
- ------------------------------------------------
Bonds rated within the Aa, A, Baa, Ba and B categories that Moody's believes
possess the strongest credit attributes within those categories are designated
by the symbols Aa1, A1, Baa1, Ba1 and B1.
Caa: Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds that are rated Ca represent obligations that are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds that are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
SHORT-TERM DEBT RATINGS
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations which have an original maturity not exceeding
one year.
P-1: Issuers rated "Prime-1" or "P-1" (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations.
P-2: Issuers rated "Prime-2" or "P-2" (or supporting institutions) have a
strong ability for repayment of senior short-term debt obligations.
P-3: Issuers rated "Prime-3" or "P-3" (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations.
SHORT-TERM RATINGS
Moody's ratings for tax-exempt notes and other short-term loans are designated
Moody's Investment Grade (MIG). This distinction is in recognition of the
differences between short-term and long-term credit risk.
MIG 1: Loans bearing the designation MIG 1 are of the best quality. There
is present strong protection by established cash flows, superior liquidity
support or demonstrated broad-based access to the market for refinancing.
MIG 2: Loans bearing the designation MIG 2 are of high quality. Margins of
protection are ample although not so large as in the preceding group.
MIG 3: Loans bearing the designation MIG 3 are of favorable quality. All
security elements are accounted for but there is lacking the undeniable
- -------------------------------------------------------------------
A-2 CALIFORNIA SERIES [ICON] (800) 225-1852
<PAGE>
APPENDIX A
- ------------------------------------------------
strength of the preceding grades.
MIG 4: Loans bearing the designation MIG 4 are of adequate quality.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
STANDARD & POOR'S RATINGS GROUP
DEBT RATINGS
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated obligations only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
BB, B, CCC, CC AND C: Debt rated BB, B, CCC, CC and C is regarded as having
predominately speculative characteristics with respect to capacity to pay
interest and repay principal. BB indicates the least degree of speculation and C
the highest. While such debt will likely have some quality and protective
characteristics, these are outweighted by large uncertainties or major exposures
to adverse conditions.
D: Debt rated D is in payment default. This rating is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period.
COMMERCIAL PAPER RATINGS
S&P's commercial paper ratings are current assessments of the likelihood of
timely payment of debt considered short-term in the relevant market.
- --------------------------------------------------------------------------------
A-3
<PAGE>
APPENDIX A
- ------------------------------------------------
A-1: The A-1 designation indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with the designation A-2 is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-3: Issues with the A-3 designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
MUNICIPAL NOTES
A municipal note rating reflects the liquidity factors and market access risks
unique to notes. Notes maturing in three years or less will likely receive a
note rating, while notes maturing beyond three years or less will likely receive
a note rating. Notes maturing beyond three years will most likely receive a
long-term debt rating. Municipal notes are SP-1, SP-2 or SP-3. The designation
SP-1 indicates a very strong capacity to pay principal an interest. Those issues
determined to possess extremely strong characteristics are given a plus (+)
designation. An SP-2 designation indicates a satisfactory capacity to pay
principal and interest. An SP-3 designations indicates speculative capacity to
pay principal and interest.
- -------------------------------------------------------------------
A-4 CALIFORNIA SERIES [ICON] (800) 225-1852
<PAGE>
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A-5
<PAGE>
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A-6 CALIFORNIA SERIES [ICON] (800) 225-1852
<PAGE>
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A-7
<PAGE>
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A-8 CALIFORNIA SERIES [ICON] (800) 225-1852
<PAGE>
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- --------------------------------------------------------------------------------
A-9
<PAGE>
FOR MORE INFORMATION:
- --------------------------------------------------------------------------------
Please read this prospectus before you invest in the Series and keep it for
future reference. For information or shareholder questions contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
P.O. BOX 15005
NEW BRUNSWICK, NJ 08906-5005
(800) 225-1852
(732) 417-7555
(if calling from outside the U.S.)
- --------------------------------
Outside Brokers Should Contact:
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
P.O. BOX 15035
NEW BRUNSWICK, NJ 08906-5035
(800) 778-8769
- ------------------------------------
Visit Prudential's Web Site At:
http://www.prudential.com
- --------------------------------
Additional information about the Series can be obtained without charge and can
be found in the following documents:
STATEMENT OF ADDITIONAL
INFORMATION (SAI)
(incorporated by reference into this prospectus)
ANNUAL REPORT
(contains a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance)
SEMI-ANNUAL REPORT
You can also obtain copies of Fund documents from the Securities and Exchange
Commission as follows:
By Mail:
Securities and Exchange Commission
Public Reference Section
Washington, DC 20549-0102
By Electronic Request:
[email protected]
(The SEC charges a fee to copy documents.)
In Person:
Public Reference Room in
Washington, DC
(For hours of operation, call
(202)942-8090.)
Via the Internet:
on the EDGAR Database at
http://www.sec.gov
- --------------------------------
<TABLE>
<S> <C> <C>
CUSIP Quotron
Numbers: Symbols:
Class A: 744313-10-7 PRMCX
Class B: 744313-20-6 PBCMX
Class C: 744313-70-1 --
Class Z: 744313-88-3 --
</TABLE>
Investment Company Act File No:
811-4024
<TABLE>
<S> <C>
MF116A [LOGO] Printed on Recycled Paper
</TABLE>
<PAGE>
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44
<PAGE>
TYPE OF FUND:
- -------------------------------------
Municipal bond
INVESTMENT OBJECTIVE:
- -------------------------------------
Maximize current income that is exempt from
California state and federal income taxes
consistent with the preservation of capital
[LOGO]
PRUDENTIAL
CALIFORNIA
MUNICIPAL
FUND
- ---------------------------------------------------------------
CALIFORNIA INCOME SERIES
PROSPECTUS: DECEMBER 23, 1999
<TABLE>
<S> <C>
As with all mutual funds, the
Securities and Exchange Commission has
not approved or disapproved the
Series' shares, nor has the SEC
determined that this prospectus is
complete or accurate. It is a criminal
offense to state otherwise. [LOGO]
</TABLE>
<PAGE>
TABLE OF CONTENTS
- -------------------------------------
<TABLE>
<S> <C>
1 RISK/RETURN SUMMARY
1 Investment Objective and Principal Strategies
2 Principal Risks
3 Evaluating Performance
5 Fees and Expenses
7 HOW THE SERIES INVESTS
7 Investment Objective and Policies
9 Other Investments and Strategies
11 Investment Risks
16 HOW THE SERIES IS MANAGED
16 Board of Trustees
16 Manager
16 Investment Adviser
18 Distributor
18 Year 2000 Readiness Disclosure
20 SERIES DISTRIBUTIONS AND TAX ISSUES
20 Distributions
21 Tax Issues
22 If You Sell or Exchange Your Shares
23 HOW TO BUY, SELL AND EXCHANGE SHARES OF THE SERIES
23 How to Buy Shares
31 How to Sell Your Shares
34 How to Exchange Your Shares
35 Telephone Redemptions or Exchanges
37 FINANCIAL HIGHLIGHTS
38 Class A Shares
39 Class B Shares
40 Class C Shares
41 Class Z Shares
42 THE PRUDENTIAL MUTUAL FUND FAMILY
A-1 APPENDIX A: DESCRIPTION OF SECURITY RATINGS
FOR MORE INFORMATION (Back Cover)
</TABLE>
- -------------------------------------------------------------------
CALIFORNIA INCOME SERIES [ICON] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY
- -------------------------------------
This section highlights key information about the CALIFORNIA INCOME SERIES (the
Series) of the PRUDENTIAL CALIFORNIA MUNICIPAL FUND (the Fund). Additional
information follows this summary.
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
Our investment objective is to maximize CURRENT INCOME that is EXEMPT FROM
CALIFORNIA STATE AND FEDERAL INCOME TAXES, consistent with the PRESERVATION OF
CAPITAL. This means we invest primarily in California state and municipal bonds,
which are debt obligations or fixed income securities, including notes,
commercial paper and other securities, as well as obligations of other issuers
that pay interest income that is exempt from those taxes (collectively called
"California obligations"). In conjunction with our investment objective, we may
invest in debt obligations with the potential for capital gain.
In pursuing our objective, we normally invest so that at least 80% of the
income from the Series' investments will be exempt from California state and
federal income taxes or the Series will invest at least 80% of its total assets
in California obligations. We normally invest at least 70% of the Series' total
assets in "investment grade" debt obligations, which are debt obligations rated
at least BBB by Standard & Poor's Ratings Group (S&P), Baa by Moody's Investors
Service (Moody's), or comparably rated by another major rating service, and
unrated debt obligations that we believe are comparable in quality. Debt
obligations rated in the lowest of the "investment grade" quality grades
(BBB/Baa) have certain speculative characteristics. We may invest up to 30% of
the Series' assets in "non-investment grade" or HIGH YIELD DEBT OBLIGATIONS,
commonly known as "JUNK BONDS." The Series may invest in municipal bonds the
interest and/or principal payments on which are insured by the bond issuers or
other parties. The Series may also invest in certain municipal bonds the
interest on which is subject to the federal alternative minimum tax (AMT). The
dollar-weighted average maturity of the Series will normally be between 10 and
20 years.
While we make every effort to achieve our objective, we can't guarantee
success.
- --------------------------------------------------------------------------------
1
<PAGE>
RISK/RETURN SUMMARY
- ------------------------------------------------
PRINCIPAL RISKS
Although we try to invest wisely, all investments involve risk. The securities
in which the Series invests are generally subject to the risk that the issuer
may be unable to make principal and interest payments when they are due, as well
as the risk that the securities may lose value because interest rates change or
because there is a lack of confidence in the issuer. Bonds with longer maturity
dates typically produce higher yields and are subject to greater price
fluctuations as a result of changes in interest rates than bonds with shorter
maturity dates. The Series invests in non-investment grade securities--also
known as "junk bonds"--which have a higher risk of default and tend to be less
liquid than higher-rated securities. Therefore, an investment in the Series may
not be appropriate for short-term investing.
The Series may purchase insured municipal bonds to reduce credit risks.
Although insurance coverage reduces credit risks by providing that the insurer
will make timely payment of interest and/or principal, it does not provide
protection against the market fluctuations of insured bonds or fluctuations in
the price of the shares of the Series. An insured municipal bond fluctuates in
value largely based on factors relating to the insurer's creditworthiness or
ability to satisfy its obligations.
Bond prices and the Series' net asset value generally move in opposite
directions from interest rates--if interest rates go up, the prices of the bonds
in the Series' portfolio may fall because the bonds the Series holds won't, as a
rule, pay as well as the newer bonds issued. Bonds that are issued when interest
rates are high generally increase in value when interest rates fall.
Municipal bonds may be subject to the risk that the borrower may not set
aside funds to make the bond or lease payments.
Because the Series will concentrate its investments in California
obligations, the Series is more susceptible to economic, political and other
developments that may adversely affect issuers of California obligations than a
municipal bond fund that is not as geographically concentrated. By way of
illustration, although California has a relatively diversified economy,
California has concentrations in the computer services, software design, motion
pictures and high technology manufacturing industries. The Series, therefore,
may be more susceptible to developments affecting those industries than a
municipal bond fund that invests in obligations of several states. In addition,
some local California governments have experienced
- -------------------------------------------------------------------
2 CALIFORNIA INCOME SERIES [ICON] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY
- ------------------------------------------------
notable financial difficulties. These examples illustrate just some of the risks
of investing in California obligations. For more information on the risks of
investing in California obligations, see "Description of the Fund, Its
Investments and Risks" in the Statement of Additional Information.
Like any mutual fund, an investment in the Series could lose value, and you
could lose money. For more information about the risks associated with the
Series, see "How the Series Invests--Investment Risks."
An investment in the Series is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or by any other
government agency.
EVALUATING PERFORMANCE
A number of factors--including risk--can affect how the Series performs. The
following bar chart shows the Series' performance for each full calendar year of
operation. The bar chart and table below demonstrate the risk of investing in
the Series by showing how returns can change from year to year and by showing
how the Series' average annual total returns compare with a bond index and a
group of similar mutual funds. Past performance does not mean that the Series
will achieve similar results in the future.
ANNUAL RETURNS*--(CLASS A SHARES)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1991 11.02%
1992 10.09%
1993 14.21%
1994 -3.70%
1995 18.53%
1996 4.36%
1997 10.28%
1998 6.45%
BEST QUARTER: 6.72% (1st quarter of 1995)
WORST QUARTER: (4.34)% (1st quarter of 1994)
</TABLE>
* THESE ANNUAL RETURNS DO NOT INCLUDE SALES CHARGES. IF THE SALES CHARGES WERE
INCLUDED, THE ANNUAL RETURNS WOULD BE LOWER THAN THOSE SHOWN. WITHOUT THE
DISTRIBUTION AND SERVICE (12b-1) FEE AND MANAGEMENT FEE WAIVERS, THE ANNUAL
RETURNS WOULD HAVE BEEN LOWER, TOO. THE TOTAL RETURN OF THE CLASS A SHARES
FROM 1-1-99 TO 9-30-99 WAS (2.22)%.
- --------------------------------------------------------------------------------
3
<PAGE>
RISK/RETURN SUMMARY
- ------------------------------------------------
AVERAGE ANNUAL RETURNS(1) (AS OF 12-31-98)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
1 YR 5 YRS 10 YRS SINCE INCEPTION
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares 3.25% 6.29% N/A 8.28% (since 12-3-90)
Class B shares 1.12% 6.38% N/A 6.51% (since 12-7-93)
Class C shares 3.80% N/A N/A 7.23% (since 8-1-94)
Class Z shares 6.55% N/A N/A 8.95% (since 9-18-96)
Muni Bond Index(2) 6.48% 6.22% 8.22% **(2)
Lipper Average(3) 5.77% 5.67% 7.62% **(3)
</TABLE>
<TABLE>
<S> <C>
1 THE SERIES' RETURNS ARE AFTER DEDUCTION OF SALES CHARGES AND
EXPENSES.
2 THE LEHMAN BROTHERS MUNICIPAL BOND INDEX (MUNI BOND INDEX)
IS AN UNMANAGED INDEX OF OVER 21,000 MUNICIPAL BONDS WHICH
ARE GENERALLY REPRESENTATIVE OF THE LONG-TERM INVESTMENT
GRADE MUNICIPAL BOND MARKET. THESE RETURNS DO NOT INCLUDE
THE EFFECT OF ANY SALES CHARGES. THESE RETURNS WOULD BE
LOWER IF THEY INCLUDED THE EFFECT OF SALES CHARGES. THE MUNI
BOND INDEX RETURNS SINCE THE INCEPTION OF EACH CLASS ARE
7.99% FOR CLASS A, 6.56% FOR CLASS B, 7.73% FOR CLASS C AND
8.13% FOR CLASS Z SHARES. SOURCE: LEHMAN BROS.
3 THE LIPPER CALIFORNIA MUNICIPAL DEBT FUNDS CATEGORY IS BASED
ON THE AVERAGE RETURN OF ALL MUTUAL FUNDS IN THIS CATEGORY
AND DOES NOT INCLUDE THE EFFECT OF ANY SALES CHARGES. AGAIN,
THESE RETURNS WOULD BE LOWER IF THEY INCLUDED THE EFFECT OF
SALES CHARGES. THE LIPPER RETURNS SINCE THE INCEPTION OF
EACH CLASS ARE 7.54% FOR CLASS A, 5.98% FOR CLASS B, 7.25%
FOR CLASS C AND 7.77% FOR CLASS Z SHARES. SOURCE: LIPPER,
INC.
</TABLE>
- -------------------------------------------------------------------
4 CALIFORNIA INCOME SERIES [ICON] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY
- ------------------------------------------------
FEES AND EXPENSES
These tables show the sales charges, fees, and expenses that you may pay if you
buy and hold shares of each share class of the Series--Class A, B, C, and Z.
Each share class has different sales charges--known as loads--and expenses, but
represents an investment in the same fund. Class Z shares are available only to
a limited group of investors. For more information about which share class may
be right for you, see "How to Buy, Sell and Exchange Shares of the Series."
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Z
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on
purchases (as a percentage of offering
price) 3% None 1% None
Maximum deferred sales charge (load) (as a
percentage of the lower of original purchase
price or sale proceeds) None 5%(2) 1%(3) None
Maximum sales charge (load) imposed on
reinvested dividends and other distributions None None None None
Redemption fees None None None None
Exchange fee None None None None
</TABLE>
ANNUAL SERIES OPERATING EXPENSES (DEDUCTED FROM SERIES ASSETS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Z
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fees .50% .50% .50% .50%
+ Distribution (12b-1) and service fees(4) .30%(4) .50% 1.00%(4) None
+ Other expenses .06% .06% .06% .06%
= Total annual Series operating expenses(4) .86% 1.06% 1.56% .56%
- Fee waiver or expense reimbursement(4) .05% None .25% None
= NET ANNUAL SERIES OPERATING EXPENSES .81% 1.06% 1.31% .56%
</TABLE>
<TABLE>
<S> <C>
1 YOUR BROKER MAY CHARGE YOU A SEPARATE OR ADDITIONAL FEE FOR
PURCHASES AND SALES OF SHARES.
2 THE CONTINGENT DEFERRED SALES CHARGE (CDSC) FOR CLASS B
SHARES DECREASES BY 1% ANNUALLY TO 1% IN THE FIFTH AND SIXTH
YEARS AND 0% IN THE SEVENTH YEAR. CLASS B SHARES CONVERT TO
CLASS A SHARES APPROXIMATELY SEVEN YEARS AFTER PURCHASE.
3 THE CDSC FOR CLASS C SHARES IS 1% FOR SHARES REDEEMED WITHIN
18 MONTHS OF PURCHASE.
4 FOR THE FISCAL YEAR ENDING AUGUST 31, 2000, THE DISTRIBUTOR
OF THE SERIES HAS CONTRACTUALLY AGREED TO REDUCE ITS
DISTRIBUTION AND SERVICE FEES FOR CLASS A AND CLASS C SHARES
TO .25 OF 1% AND .75 OF 1% OF THE AVERAGE DAILY NET ASSETS
OF THE CLASS A AND CLASS C SHARES, RESPECTIVELY.
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE>
RISK/RETURN SUMMARY
- ------------------------------------------------
EXAMPLE
This example will help you compare the fees and expenses of the Series'
different share classes and the cost of investing in the Series with the cost of
investing in other mutual funds.
The example assumes that you invest $10,000 in the Series for the time
periods indicated and then sell all of your shares at the end of those periods.
The example also assumes that your investment has a 5% return each year and that
the Series' operating expenses remain the same, except for the Distributor's
reduction of distribution and service (12b-1) fees for Class A and Class C
shares during the first year. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
1 YR 3 YRS 5 YRS 10 YRS
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $380 $561 $758 $1,324
Class B shares $608 $637 $685 $1,212
Class C shares $332 $563 $918 $1,917
Class Z shares $57 $179 $313 $701
</TABLE>
You would pay the following expenses on the same investment if you did not sell
your shares:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
1 YR 3 YRS 5 YRS 10 YRS
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $380 $561 $758 $1,324
Class B shares $108 $337 $585 $1,212
Class C shares $232 $563 $918 $1,917
Class Z shares $57 $179 $313 $701
</TABLE>
- -------------------------------------------------------------------
6 CALIFORNIA INCOME SERIES [ICON] (800) 225-1852
<PAGE>
HOW THE SERIES INVESTS
- -------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
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. In conjunction with its investment objective, the Series may invest
in debt securities with the potential for capital gain. While we make every
effort to achieve our objective, we can't guarantee success.
In pursuing the Series' objective, we invest primarily in CALIFORNIA
OBLIGATIONS, including California state and municipal bonds as well as
obligations of other issuers (such as issuers located in Puerto Rico, the Virgin
Islands and Guam) that pay interest income that is exempt from California state
and federal income taxes. We normally invest so that at least 80% of the income
from the Series' investments will be exempt from those taxes or the Series will
have at least 80% of its total assets invested in California obligations. The
Series, however, may hold private activity bonds, which are municipal bonds the
interest on which is subject to the federal alternative minimum tax (AMT).
Municipal bonds include GENERAL OBLIGATION BONDS and REVENUE BONDS. General
obligation bonds are obligations supported by the credit of an issuer that has
the power to tax and are payable from that issuer's general revenues and not
from any specific source. Revenue bonds, on the other hand, are payable from
revenues from a particular source.
We normally invest at least 70% of the Series' assets in "investment grade"
obligations, which are obligations rated at least BBB by S&P, Baa by Moody's, or
comparably rated by another major rating service, and unrated debt obligations
that we believe are comparable in quality. Debt obligations rated in the lowest
of the "investment grade" quality grades (BBB/Baa) have certain speculative
characteristics. We may also invest in insured municipal bonds. However, we may
invest up to 30% of the Series' assets in HIGH YIELD OBLIGATIONS ("JUNK BONDS").
A rating is an assessment of the likelihood of timely repayment of interest and
principal (with respect to a municipal bond) or claims (with respect to an
insurer of a municipal bond)
- -------------------------------------------------------------------
States and municipalities issue bonds in order to borrow money to finance a
project. You can think of bonds as loans that investors make to the state, local
government or other issuer. The issuer gets the cash needed to complete the
project and investors earn income on their investment.
- -------------------------------------------------------------------
- --------------------------------------------------------------------------------
7
<PAGE>
HOW THE SERIES INVESTS
- ------------------------------------------------
and can be useful when comparing different municipal bonds. These ratings are
not a guarantee of quality. The opinions of the rating agencies do not reflect
market risk and they may at times lag behind the current financial conditions of
the issuer or insurer. An investor can evaluate the expected likelihood of debt
repayment by an issuer by looking at its ratings as compared to another similar
issuer.
During the year ended August 31, 1999, the monthly dollar-weighted average
ratings of the debt obligations held by the Series, expressed as a percentage of
the Series' total assets, were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
PERCENTAGES OF
RATINGS TOTAL INVESTMENTS
- ---------------------------------------------------------------------------------
<S> <C>
AAA/Aaa 35.33%
AA/Aa 2.78%
A/A 7.85%
BBB/Baa 10.12%
B/B 0.29%
Unrated
AAA/Aaa 12.93%
A/A 1.29%
BBB/Baa 4.46%
BB/Ba 9.18%
B/B 13.76%
Less than CCC/Caa 1.61%
</TABLE>
In determining which securities to buy and sell, the investment adviser will
consider, among other things, yield, maturity, issue, quality characteristics
and expectations regarding economic and political developments, including
movements in interest rates and demand for municipal bonds. The investment
adviser will seek to anticipate interest rate movements and will purchase and
sell municipal bonds accordingly. The investment adviser will also consider the
claims-paying ability with respect to insurers of municipal bonds. The
investment adviser will also seek to take advantage of differentials in yields
with respect to securities with similar credit ratings and maturities, but which
vary according to the purpose for which they were issued. The investment adviser
will also seek to take advantage of differentials in yields with respect to
securities issued for similar purposes with similar maturities, but which vary
according to ratings.
The dollar-weighted average maturity of the obligations held by the Series
generally ranges between 10 and 20 years.
For more information, see "Investment Risks" and the Statement of Additional
Information, "Description of the Fund, Its Investment and Risks." The Statement
of Additional Information--which we refer to as the "SAI"--contains additional
information about the Series. To obtain a copy,
- -------------------------------------------------------------------
8 CALIFORNIA INCOME SERIES [ICON] (800) 225-1852
<PAGE>
HOW THE SERIES INVESTS
- ------------------------------------------------
see the back cover page of this prospectus.
The Series' investment objective is a fundamental policy that cannot be
changed without shareholder approval. The Board of the Prudential California
Municipal Fund can change investment policies that are not fundamental.
OTHER INVESTMENTS AND STRATEGIES
In addition to the principal strategies, we may also make the following
investments to try to increase the Series' returns or protect its assets if
market conditions warrant.
MUNICIPAL LEASE OBLIGATIONS
The Series may invest in MUNICIPAL LEASE OBLIGATIONS. The interest and principal
on municipal lease obligations are paid out of lease payments made by the party
leasing the equipment or facilities that were acquired or built with the bonds.
Typically, municipal lease obligations are issued by states or financing
authorities to provide money for construction projects such as schools, offices
or stadiums. The entity that leases the building or facility would be
responsible for paying the interest and principal on the obligation.
MUNICIPAL ASSET-BACKED SECURITIES
The Series may invest in MUNICIPAL ASSET-BACKED SECURITIES. A municipal
asset-backed security is a type of pass-through instrument that pays interest
which is eligible for exclusion from federal income taxation based upon the
income from an underlying pool of municipal bonds.
FLOATING RATE BONDS, VARIABLE RATE BONDS, INVERSE FLOATERS AND
SECONDARY INVERSE FLOATERS
The Series may invest in floating rate bonds, variable rate bonds, inverse
floaters and secondary inverse floaters. FLOATING RATE BONDS are municipal bonds
that have an interest rate that is set as a specific percentage of a designated
rate, such as the rate on Treasury bonds or the prime rate at major commercial
banks. The interest rate on floating rate bonds changes when there is a change
in the designated rate. VARIABLE RATE BONDS are municipal bonds that have an
interest rate that is adjusted, based on the market rate at a specified period.
They generally allow the Series to demand payment of the bond on short notice
for an amount that may be more or less than the amount paid. INVERSE FLOATERS
are municipal bonds with a floating or variable interest rate that moves in the
opposite direction of the interest rate on another security or the value of an
index. SECONDARY
- --------------------------------------------------------------------------------
9
<PAGE>
HOW THE SERIES INVESTS
- ------------------------------------------------
INVERSE FLOATERS are municipal asset-backed securities with a floating or
variable interest rate that moves in the opposite direction of the interest rate
or another security or the value of an index.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
The Series may purchase municipal bonds on a "WHEN-ISSUED" or "DELAYED-DELIVERY"
basis, without limit. When the Series makes this type of purchase, the price and
rate are fixed at the time of purchase, but delivery and payment for the bonds
take place at a later time. The Series does not earn interest income until the
date the bonds are delivered.
REPURCHASE AGREEMENTS
The Series may use REPURCHASE AGREEMENTS where a party agrees to sell a security
to the Series and then repurchase it at an agreed-upon price at a stated time. A
repurchase agreement is like a loan by the Series to the other party which
creates a fixed return for the Series.
LIQUIDITY PUTS
The Series may purchase and exercise PUTS on municipal bonds without limit. Puts
give the Series the right to sell securities at a specified price and date. Puts
may be acquired to reduce the risk of the securities subject to the puts, but
puts may involve additional costs to the Series, which could reduce the Series'
return.
DERIVATIVE STRATEGIES
We may use various derivative strategies to try to improve the Series' returns
or protect its assets, although we cannot guarantee that these strategies will
work, that the instruments necessary to implement these strategies will be
available or that the Series will not lose money. Derivatives--such as FUTURES
CONTRACTS, OPTIONS, OPTIONS ON FUTURES AND INTEREST RATE SWAPS--involve costs
and can be volatile. A futures contract is an agreement to buy or sell a set
quantity of an underlying product at a future date, or to make or receive a cash
payment based on the value of a securities index. An option is the right to buy
or sell securities or, in the case of an option on a futures contract, the right
to buy or sell a futures contract in exchange for a premium. An interest rate
swap is a transaction in which the Series and another party "trade" income
streams. The swap is done to preserve a return or spread on a particular
investment or portion of the Series or to protect against any increase in the
price of securities the Series anticipates purchasing at a later date.
- -------------------------------------------------------------------
10 CALIFORNIA INCOME SERIES [ICON] (800) 225-1852
<PAGE>
HOW THE SERIES INVESTS
- ------------------------------------------------
With derivatives, the investment adviser tries to predict if the underlying
investment, whether a security, market index, currency, interest rate or some
other benchmark, will go up or down at some future date. We may use derivatives
to try to reduce risk or to increase return consistent with the Series' overall
investment objective. Any derivatives we may use may not match the Series'
underlying holdings. For more information about these strategies, see the SAI,
"Description of the Fund, Its Investments and Risks--Hedging Strategies."
TEMPORARY DEFENSIVE STRATEGY
For temporary defensive purposes, the Series may hold up to 100% of its assets
in cash or investment-grade bonds, including bonds that are not exempt from
state, local and federal income taxation. Investing heavily in these securities
can limit our ability to achieve the Series' objective, but can help to preserve
the Series' assets.
ADDITIONAL STRATEGIES
The Series also follows certain policies when it: BORROWS MONEY (the Series can
borrow up to 33 1/3% of the value of its total assets); and HOLDS ILLIQUID
SECURITIES (the Series may hold up to 15% of its net assets in illiquid
securities, including certain securities with legal or contractual restrictions
on resale, those without a readily available market and repurchase agreements
with maturities longer than 7 days). The Series is subject to certain investment
restrictions that are fundamental policies and cannot be changed without
shareholder approval. For more information about these restrictions, see the
SAI.
INVESTMENT RISKS
As noted, all investments involve risk, and investing in the Series is no
exception. Since the Series' holdings can vary significantly from broad market
indexes, performance of the Series can deviate from performance of the indexes.
This chart outlines the key risks and potential rewards of the Series' principal
investments and certain of the Series' non-principal investments and strategies.
See, too, "Description of the Fund, Its Investments and Risks" in the SAI.
- --------------------------------------------------------------------------------
11
<PAGE>
HOW THE SERIES INVESTS
- ------------------------------------------------
INVESTMENT TYPE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
% OF SERIES' TOTAL ASSETS RISKS POTENTIAL REWARDS
- ------------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS -- Concentration -- Tax-exempt interest
risk--the risk that income, except with
PROVIDE AT LEAST 80% OF bonds may lose value respect to certain
SERIES' INCOME OR because of political, bonds, such as
COMPRISE AT LEAST 80% OF economic or other private activity
ITS TOTAL ASSETS events affecting bonds, which are
issuers of California subject to the
obligations federal alternative
-- Credit risk--the risk minimum tax (AMT)
that the borrower -- If interest rates
can't pay back the decline, long-term
money borrowed or yields should be
make interest higher than money
payments (lower for market yields
insured and
higher-rated bonds)
-- Market risk--the risk
that bonds will lose
value in the market
because interest
rates change or there
is a lack of
confidence in the
borrower
-- Illiquidity risk--the
risk that it may be
difficult to value
precisely and sell at
time or price desired
-- Nonappropriation
risk--the risk that
the municipality may
not include the bond
obligations in future
budgets
-- Tax risk--the risk
that federal, state
or local income tax
rates may decrease,
which could decrease
demand for municipal
bonds, or that a
change in law may
limit or eliminate
exemption of interest
on municipal bonds
from such taxes
- ------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------
12 CALIFORNIA INCOME SERIES [ICON] (800) 225-1852
<PAGE>
HOW THE SERIES INVESTS
- ------------------------------------------------
INVESTMENT TYPE (CONT'D)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
% OF SERIES' TOTAL ASSETS RISKS POTENTIAL REWARDS
- ------------------------------------------------------------------------------------
<S> <C> <C>
HIGH-YIELD DEBT -- Higher market risk -- May offer higher
OBLIGATIONS than higher-grade interest income than
(JUNK BONDS) municipal bonds higher-grade bonds
-- Higher credit risk
UP TO 30% than higher-grade
municipal bonds (more
sensitive to economic
downturns)
-- Certain high-yield
bonds may be more
illiquid (harder to
value and sell), in
which case valuation
would depend more on
investment adviser's
judgment than is
generally the case
with higher-grade
bonds
-- Tax risk
- ------------------------------------------------------------------------------------
MUNICIPAL LEASE -- Concentration risk -- Tax-exempt interest
OBLIGATIONS -- Credit risk income, except with
-- Market risk respect to certain
PERCENTAGE VARIES -- Illiquidity risk bonds, such as
-- Nonappropriation risk private activity
-- Tax risk bonds, which are
subject to the AMT
-- If interest rates
decline, long-term
yields should be
higher than money
market yields
- ------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
13
<PAGE>
HOW THE SERIES INVESTS
- ------------------------------------------------
INVESTMENT TYPE (CONT'D)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
% OF SERIES' TOTAL ASSETS RISKS POTENTIAL REWARDS
- ------------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL ASSET-BACKED -- Prepayment risk--the -- Regular interest
SECURITIES risk that the income
underlying bonds may -- Pass-through
PERCENTAGE VARIES be prepaid, partially instruments provide
or completely, greater
generally during diversification than
periods of falling direct ownership of
interest rates, which municipal bonds
could adversely
affect yield to
maturity and could
require the Series to
reinvest in lower
yielding bonds
-- Credit risk--the risk
that the underlying
municipal bonds will
not be paid by
issuers or by credit
insurers or
guarantors of such
instruments. Some
municipal
asset-backed
securities are
unsecured or secured
by lower-rated
insurers or
guarantors and thus
may involve greater
risk
-- Market risk
-- Tax risk
- ------------------------------------------------------------------------------------
VARIABLE/FLOATING RATE -- Value lags value of -- May offer protection
SECURITIES fixed-rate securities against interest rate
when interest rates changes
PERCENTAGE VARIES change
- ------------------------------------------------------------------------------------
INVERSE FLOATERS/ -- High market risk--risk -- Income generally will
SECONDARY INVERSE that inverse floaters increase when
FLOATERS will fluctuate in interest rates
value more decrease
PERCENTAGE VARIES dramatically than
other debt securities
when interest rates
change
-- Credit risk
-- Illiquidity risk
-- Secondary inverse
floaters are subject
to additional risks
of municipal
asset-backed
securities
- ------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------
14 CALIFORNIA INCOME SERIES [ICON] (800) 225-1852
<PAGE>
HOW THE SERIES INVESTS
- ------------------------------------------------
INVESTMENT TYPE (CONT'D)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
% OF SERIES' TOTAL ASSETS RISKS POTENTIAL REWARDS
- ------------------------------------------------------------------------------------
<S> <C> <C>
DERIVATIVES -- Derivatives such as -- The Series could make
futures and options money and protect
PERCENTAGE VARIES may not fully offset against losses if the
the underlying investment analysis
positions and this proves correct
could result in -- One way to manage the
losses to the Series Series' risk/return
that would not have balance is to lock in
otherwise occurred the value of an
-- Derivatives used for investment ahead of
risk management may time
not have the intended -- Derivatives that
effects and may involve leverage
result in losses or could generate
missed opportunities substantial gains or
-- The other party to a low costs
derivatives contract
could default
-- Derivatives that
involve leverage
(borrowing for
investment) could
magnify losses
-- Certain types of
derivatives involve
costs to the Series
which can reduce
returns
- ------------------------------------------------------------------------------------
WHEN-ISSUED AND -- May magnify underlying -- May magnify underlying
DELAYED-DELIVERY investment losses investment gains
SECURITIES -- Investment costs may
exceed potential
PERCENTAGE VARIES underlying investment
gains
- ------------------------------------------------------------------------------------
ILLIQUID SECURITIES -- May be difficult to -- May offer more
value precisely attractive yield or
UP TO 15% OF NET ASSETS -- May be difficult to potential for growth
sell at the time or than more widely
price desired traded securities
- ------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
15
<PAGE>
HOW THE SERIES IS MANAGED
- -------------------------------------
BOARD OF TRUSTEES
The Fund's Board of Trustees oversees the actions of the Manager, Investment
Adviser and Distributor and decides on general policies. The Board also oversees
the Fund's officers who conduct and supervise the daily business operations of
the Fund.
MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM)
GATEWAY CENTER THREE, 100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
Under a management agreement with the Fund, PIFM manages the Series'
investment operations and administers its business affairs. For the fiscal year
ended August 31, 1999, the Series paid PIFM management fees of .50 of 1% of the
Series' average net assets.
PIFM and its predecessors have served as manager or administrator to
investment companies since 1987. As of October 31, 1999, PIFM served as the
manager to all 46 of the Prudential Mutual Funds, and as manager or
administrator to 22 closed-end investment companies, with aggregate assets of
approximately $72 billion.
INVESTMENT ADVISER
The Prudential Investment Corporation, called Prudential Investments, is the
Series' investment adviser and has served as an investment adviser to investment
companies since 1984. Its address is Prudential Plaza, 751 Broad Street, Newark,
NJ 07102. PIFM has responsibility for all investment advisory services,
supervises Prudential Investments and reimburses Prudential Investments for its
reasonable costs and expenses.
Prudential Investments' Fixed Income Group manages more than $135 billion
for Prudential's retail investors, institutional investors, and policyholders.
Senior Managing Directors James J. Sullivan and Jack W. Gaston head the Group,
which is organized into teams specializing in different market sectors.
Top-down, broad investment decisions are made by the Fixed Income Policy
Committee, whereas bottom-up security selection is made by the sector teams.
Mr. Sullivan has overall responsibility for overseeing portfolio management
and credit research. Prior to joining Prudential Investments in 1998,
- -------------------------------------------------------------------
16 CALIFORNIA INCOME SERIES [ICON] (800) 225-1852
<PAGE>
HOW THE SERIES IS MANAGED
- ------------------------------------------------
he was a managing director in Prudential's Capital Management Group, where he
oversaw portfolio management and credit research for Prudential's General
Account and subsidiary fixed-income portfolios. He has more than 16 years of
experience in risk management, arbitrage trading, and corporate bond investing.
Mr. Gaston has overall responsibility for overseeing quantitative research
and risk management. Prior to this appointment in 1999, he was senior managing
director of the Capital Management Group where he was responsible for the
investment performance and risk management for Prudential's General Account and
subsidiary fixed-income portfolios. He has more than 20 years of experience in
investment management, including extensive experience applying quantitative
techniques to portfolio management.
The Fixed Income Investment Policy Committee is comprised of key senior
investment managers. Members include seven sector team leaders, the chief
investment strategist, and the head of risk management. The Committee uses a
top-down approach to investment strategy, asset allocation, and general risk
management, identifying sectors in which to invest.
The Municipal Bond Team, headed by Evan Lamp, is primarily responsible for
overseeing the day-to-day management of the Series. This Team uses a bottom-up
approach, which focuses on individual securities, while staying within the
guidelines of the Investment Policy Committee and the Series' investment
restrictions and policies. In addition, the Credit Research team of analysts
supports the sector teams using bottom-up fundamentals, as well as economic and
industry trends. Other sector teams may contribute to securities selection when
appropriate.
The following are the fixed income sector teams and the corresponding team
leaders: (Assets under management are as of October 31, 1999.)
MUNICIPAL BONDS
ASSETS UNDER MANAGEMENT: $5.6 billion.
TEAM LEADER: Evan Lamp. GENERAL INVESTMENT EXPERIENCE: 7 years.
PORTFOLIO MANAGERS: 5. AVERAGE GENERAL INVESTMENT EXPERIENCE: 10 years, which
includes team members with significant mutual fund experience.
- --------------------------------------------------------------------------------
17
<PAGE>
HOW THE SERIES IS MANAGED
- ------------------------------------------------
SECTOR: City, state and local government securities.
INVESTMENT APPROACH: Focus is on identifying spread, credit quality and
liquidity trends to capitalize on changing opportunities in the municipal
market. Ultimately, they seek the highest expected return with the least risk.
MONEY MARKETS
ASSETS UNDER MANAGEMENT: $41.1 billion.
TEAM LEADER: Joseph Tully. GENERAL INVESTMENT EXPERIENCE: 16 years
PORTFOLIO MANAGERS: 8. AVERAGE GENERAL INVESTMENT EXPERIENCE: 12 years, which
includes team members with significant mutual fund experience.
SECTOR: High-quality short-term securities, including both taxable and tax-
exempt instruments.
INVESTMENT APPROACH: Focus is on safety of principal, liquidity and controlled
risk.
DISTRIBUTOR
Prudential Investment Management Service LLC (PIMS) distributes the Series'
shares under a Distribution Agreement with the Fund. The Fund has Distribution
and Service Plans under Rule 12b-1 of the Investment Company Act. Under the
Plans and the Distribution Agreement, PIMS pays the expenses of distributing the
Series' Class A, B, C, and Z shares and provides certain shareholder support
services. The Fund pays distribution and other fees to PIMS as compensation for
its services for each class of shares other than Class Z. These fees--known as
12b-1 fees--are shown in the "Fees and Expenses" tables.
YEAR 2000 READINESS DISCLOSURE
The services provided to the Fund and the shareholders by the Manager, the
Distributor, the Transfer Agent and the Custodian depend on the smooth
functioning of their computer systems and those of outside service providers.
Many computer software systems in use today cannot distinguish the year 2000
from the year 1900 because of the way dates are encoded and calculated. Such an
event could have a negative impact on handling securities trades, payments of
interest and dividends, pricing and account
- -------------------------------------------------------------------
18 CALIFORNIA INCOME SERIES [ICON] (800) 225-1852
<PAGE>
HOW THE SERIES IS MANAGED
- ------------------------------------------------
services. Although, at this time, there can be no assurance that there will be
no adverse impact on the Fund, the Manager, the Distributor, the Transfer Agent
and the Custodian have advised the Fund that they have been actively working on
necessary changes to their computer systems to prepare for the year 2000. The
Fund and its Board receive, and have received since early 1998, satisfactory
quarterly reports from the principal service providers as to their preparations
for year 2000 readiness, although there can be no assurance that the service
providers (or other securities market participants) will successfully complete
the necessary changes in a timely manner. Moreover, the Fund at this time has
not considered retaining alternative service providers or directly undertaken
efforts to achieve year 2000 readiness, the latter of which would involve
substantial expenses without an assurance of success.
Additionally, issuers of securities generally, as well as those purchased by
the Series, may confront year 2000 compliance issues which, if material and not
resolved, could have an adverse impact on securities markets and/ or a specific
issuer's performance and could result in a decline in the value of the
securities held by the Series.
- --------------------------------------------------------------------------------
19
<PAGE>
SERIES DISTRIBUTIONS AND TAX ISSUES
- -------------------------------------
Investors who buy shares of the Series should be aware of some important tax
issues. For example, the Series pays DIVIDENDS of net investment income monthly,
and distributes LONG-TERM CAPITAL GAINS, if any, at least annually. Dividends
generally will be exempt from federal and California state income taxes. If,
however, the Series invests in taxable obligations, it will pay dividends that
are not exempt from these income taxes. Also, if you sell shares of the Series
for a profit, you may have to pay capital gains taxes on the amount of your
profit.
The following briefly discusses some of the important state and federal tax
issues you should be aware of, but is not meant to be tax advice. For tax
advice, please speak with your tax adviser.
DISTRIBUTIONS
The Series distributes DIVIDENDS of any net investment income to shareholders,
typically every month. For example, if the Series owns a City XYZ bond and the
bond pays interest, the Series will pay out a portion of this interest as a
dividend to its shareholders, assuming the Series' income is more than its costs
and expenses. These dividends generally will be EXEMPT FROM FEDERAL INCOME
TAXES, as long as 50% or more of the value of the Series' assets at the end of
each quarter is invested in state, municipal and other obligations, the interest
on which is excluded from gross income for federal income tax purposes.
As we mentioned before, the Series will concentrate its investments in
California obligations. In addition to being exempt from federal taxes, Series'
dividends are EXEMPT FROM CALIFORNIA STATE INCOME TAXES (but not from California
franchise taxes) FOR CALIFORNIA RESIDENTS if the dividends are excluded from
federal income taxes, are derived from interest payments on California
obligations and as long as 50% or more of the value of its total assets are
obligations which when held by an individual is exempt from taxation under
California law. Dividends attributable to the interest on taxable bonds held by
the Series, market discount on taxable and tax-exempt obligations and short-term
capital gains, however, will be subject to federal, state and local income tax
at ordinary income tax rates. 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.
Some shareholders may be subject to federal alternative minimum tax (AMT)
liability. Tax-exempt interest from certain bonds is treated as an item
- -------------------------------------------------------------------
20 CALIFORNIA INCOME SERIES [ICON] (800) 225-1852
<PAGE>
SERIES DISTRIBUTIONS AND TAX ISSUES
- ------------------------------------------------
of tax preference, and may be attributed to shareholders. A portion of all
tax-exempt interest is includable as an upward adjustment in determining a
corporation's alternative minimum taxable income. These rules could make you
liable for the AMT.
The Series also distributes LONG-TERM CAPITAL GAINS to shareholders
(typically once a year). Long-term capital gains are generated when the Series
sells assets that it held for more than 12 months, for a profit. For an
individual, the maximum long-term capital gains rate is 20% for federal income
tax purposes.
For your convenience, distributions of dividends and capital gains are
AUTOMATICALLY REINVESTED in the Series without any sales charge. If you ask us
to pay the distributions in cash, we will send you a check if your account is
with the Transfer Agent. Otherwise, if your account is with a broker you will
receive a credit to your account. Either way, the distributions may be subject
to taxes. For more information about Automatic Reinvestment and other
shareholder services, see "Step 4: Additional Shareholder Services" in the next
section.
TAX ISSUES
FORM 1099
Every year, you will receive a Form 1099, which reports the amount of dividends
and capital gains we distributed to you during the prior year.
Series distributions are generally taxable to you in the year they are
received, except when we declare certain dividends in the fourth quarter and
actually pay them in January of the following year. In such cases, the dividends
are treated as if they were paid to you on December 31 of the prior year.
Corporate shareholders are not eligible for the 70% dividends-received deduction
on dividends paid by the Series.
WITHHOLDING TAXES
If federal law requires you to provide the Series with your tax identification
number and certifications as to your tax status, and you fail to do so, or are
otherwise subject to backup withholding, we generally withhold and pay to the
U.S. Treasury 31% of your taxable distributions and gross sale proceeds. If you
are subject to backup withholding, we will withhold and pay to the Treasury 31%
of your distributions.
IF YOU PURCHASE JUST BEFORE RECORD DATE
If you buy shares of the Series just before the record date (the date that
determines who receives the dividend), that distribution will be paid to you.
- --------------------------------------------------------------------------------
21
<PAGE>
SERIES DISTRIBUTIONS AND TAX ISSUES
- ------------------------------------------------
As explained above, the distribution may be subject to income or capital gains
taxes. You may think you've done well since you bought shares one day and soon
thereafter received a distribution. That is not so because when dividends are
paid out, the value of each share of the Series decreases by the amount of the
dividend to reflect the payout although this may not be apparent because the
value of each share of the Series will also be affected by the market changes,
if any. The distribution you receive makes up for the decrease in share value.
However, if the distribution is taxable, the timing of your purchase does mean
that part of your investment came back to you as taxable income.
IF YOU SELL OR EXCHANGE YOUR SHARES
If you sell any shares of the Series for a profit, you have REALIZED A CAPITAL
GAIN, which is subject to tax. The amount of tax you pay depends on whether you
hold your shares for more than one year. If you sell shares of the Series for a
loss, you may have a capital loss, which you may use to offset certain capital
gains you have.
Exchanging your shares of the Series for the shares of another Prudential
mutual fund is considered a sale for tax purposes. In other words, it's a
"taxable event." Therefore, if the shares you exchanged have increased in value
since you purchased them, you have capital gains, which are subject to the taxes
described above.
RECEIPTS FROM SALE $ --> +$ CAPITAL GAIN
(taxes owed)
OR
RECEIPTS FROM SALE $ --> -$ CAPITAL LOSS
(offset against gain)
[GRAPH]
Any gain or loss you may have from selling or exchanging Series shares will
not be reported on the Form 1099; however, proceeds from the sale or exchange
will be reported on Form 1099-B. Therefore, you or your financial adviser should
keep track of the dates on which you buy and sell--or exchange--Series shares,
as well as the amount of any gain or loss on each transaction. For tax advice,
please see your tax adviser.
AUTOMATIC CONVERSION OF CLASS B SHARES
We have obtained a legal opinion that the conversion of Class B shares into
Class A shares--which happens automatically approximately seven years after
purchase--is not a "taxable event." This opinion, however, is not binding on the
Internal Revenue Service (IRS). For more information about the automatic
conversion of Class B shares, see "Class B Shares Convert to Class A Shares
After Approximately Seven Years," in the next section.
- -------------------------------------------------------------------
22 CALIFORNIA INCOME SERIES [ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- -------------------------------------
HOW TO BUY SHARES
STEP 1: OPEN AN ACCOUNT
If you don't have an account with us or a securities firm that is permitted to
buy or sell shares of the Series for you, call Prudential Mutual Fund Services
LLC (PMFS) at (800) 225-1852 or contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: INVESTMENT SERVICES
P.O. BOX 15020
NEW BRUNSWICK, NJ 08906-5020
To purchase by wire, call the number above to obtain an application. After
PMFS receives your completed application, you will receive an account number.
For additional information about purchasing shares of the Series, see the back
cover page of this prospectus. We have the right to reject any purchase order
(including an exchange into the Series) or suspend or modify the Series' sale of
its shares.
STEP 2: CHOOSE A SHARE CLASS
Individual investors can choose among Class A, Class B, Class C and Class Z
shares of the Series, although Class Z shares are available to a limited group
of investors.
Multiple share classes let you choose a cost structure that meets your
needs. With Class A shares, you pay the sales charge at the time of purchase,
but the operating expenses each year are lower than the expenses of Class B and
Class C shares. With Class B shares, you only pay a sales charge if you sell
your shares within six years (that is why they call it a Contingent Deferred
Sales Charge or CDSC), but the operating expenses each year are higher than the
Class A share expenses. With Class C shares, you pay a 1% front end sales charge
and a 1% CDSC if you sell within 18 months of purchase, but the operating
expenses are also higher than the expenses for Class A shares.
When choosing a share class, you should consider the following:
-- The amount of your investment
-- The length of time you expect to hold the shares and the impact of
varying distribution fees
- --------------------------------------------------------------------------------
23
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- ------------------------------------------------
-- The different sales charges that apply to each share class--
Class A's front-end sales charge vs. Class B's CDSC vs. Class C's low
front-end sales charge and low CDSC
-- Whether you qualify for any reduction or waiver of sales charges
-- The fact that Class B shares automatically convert to Class A shares
approximately seven years after purchase
-- Whether you qualify to purchase Class Z shares.
See "How to Sell Your Shares" for a description of the impact of CDSCs.
SHARE CLASS COMPARISON. Use this chart to help you compare the Series' different
share classes. The discussion following this chart will tell you whether you are
entitled to a reduction or waiver of any sales charges.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Z
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Minimum purchase $1,000 $1,000 $2,500 None
amount(1)
Minimum amount for $100 $100 $100 None
subsequent
purchases(1)
Maximum initial 3% of the None 1% of the None
sales charge public public
offering offering
price price
Contingent Deferred None If sold during: 1% on sales None
Sales Charge (CDSC)(2) Year 1 5% made within
Year 2 4% 18 months of
Year 3 3% purchase(2)
Year 4 2%
Years 5/6 1%
Year 7 0%
Annual distribution .30 of 1% .50 of 1% 1% (.75 of None
and service (12b-1) (.25 of 1% 1%
fees (shown as currently) currently)
a percentage of
average net
assets)(3)
</TABLE>
<TABLE>
<S> <C>
1 THE MINIMUM INVESTMENT REQUIREMENTS DO NOT APPLY TO CERTAIN
RETIREMENT AND EMPLOYEE SAVINGS PLANS AND CUSTODIAL ACCOUNTS
FOR MINORS. THE MINIMUM INITIAL AND SUBSEQUENT INVESTMENT
FOR PURCHASES MADE THROUGH THE AUTOMATIC INVESTMENT PLAN IS
$50. FOR MORE INFORMATION, SEE "STEP 4: ADDITIONAL
SHAREHOLDER SERVICES--AUTOMATIC INVESTMENT PLAN."
2 FOR MORE INFORMATION ABOUT THE CDSC AND HOW IT IS
CALCULATED, SEE "HOW TO SELL YOUR SHARES--CONTINGENT
DEFERRED SALES CHARGES (CDSC)." CLASS C SHARES BOUGHT BEFORE
NOVEMBER 2, 1998 HAVE A 1% CDSC IF SOLD WITHIN ONE YEAR.
3 THESE DISTRIBUTION FEES ARE PAID FROM THE SERIES' ASSETS ON
A CONTINUOUS BASIS. OVER TIME, THE FEES WILL INCREASE THE
COST OF YOUR INVESTMENT AND MAY COST YOU MORE THAN PAYING
OTHER TYPES OF SALES CHARGES. THE SERVICE FEE FOR CLASS A,
CLASS B AND CLASS C SHARES IS .25 OF 1%. THE DISTRIBUTION
FEE FOR CLASS A SHARES IS LIMITED TO .30 OF 1% (INCLUDING
THE .25 OF 1% SERVICE FEE), FOR CLASS B SHARES IS LIMITED TO
.50 OF 1% (INCLUDING THE .25 OF 1% SERVICE FEE), AND IS .75
OF 1% FOR CLASS C SHARES. FOR THE FISCAL YEAR ENDING AUGUST
31, 2000, THE DISTRIBUTOR OF THE FUND HAS CONTRACTUALLY
AGREED TO REDUCE ITS DISTRIBUTION AND SERVICE (12b-1) FEES
FOR CLASS A AND CLASS C SHARES TO .25 OF 1% AND .75 OF 1% OF
THE AVERAGE DAILY NET ASSETS OF CLASS A SHARES AND CLASS C
SHARES, RESPECTIVELY.
</TABLE>
- -------------------------------------------------------------------
24 CALIFORNIA INCOME SERIES [ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- ------------------------------------------------
REDUCING OR WAIVING CLASS A'S INITIAL SALES CHARGE
The following describes the different ways investors can reduce or avoid
paying Class A's initial sales charge.
INCREASE THE AMOUNT OF YOUR INVESTMENT. You can reduce Class A's initial
sales charge by increasing the amount of your investment. This table shows
you how the sales charge decreases as the amount of your investment
increases.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
SALES CHARGE AS % OF SALES CHARGE AS % OF DEALER
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED REALLOWANCE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $99,999 3.00% 3.09% 3.00%
$100,000 to $249,999 2.50% 2.56% 2.50%
$250,000 to $499,999 1.50% 1.52% 1.50%
$500,000 to $999,999 1.00% 1.01% 1.00%
$1 million and
above(1) None None None
</TABLE>
<TABLE>
<S> <C>
1 IF YOU INVEST $1 MILLION OR MORE, YOU CAN BUY ONLY CLASS A
SHARES, UNLESS YOU QUALIFY TO BUY CLASS Z SHARES.
</TABLE>
To satisfy the purchase amounts above, you can:
-- Invest with an eligible group of related investors
-- Buy the Class A shares of two or more Prudential mutual funds at the
same time
-- Use your RIGHTS OF ACCUMULATION, which allow you to combine the value
of Prudential mutual fund shares you already own with the value of
the shares you are purchasing for purposes of determining the
applicable sales charge (note: you must notify the Transfer Agent if
you qualify for Rights of Accumulation)
-- Sign a LETTER OF INTENT, stating in writing that you or an eligible
group of related investors will purchase a certain amount of shares
in the Series and other Prudential mutual funds within 13 months.
The Distributor may reallow Class A's sales charge to dealers.
MUTUAL FUND PROGRAMS. The initial sales charge will be waived for investors in
certain programs sponsored by broker-dealers, investment advisers and financial
planners who have agreements with Prudential Investments
- --------------------------------------------------------------------------------
25
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- ------------------------------------------------
Advisory Group relating to:
-- Mutual Fund "wrap" or asset allocation programs where the sponsor
places Series trades and charges its clients a management, consulting
or other fee for its services, or
-- Mutual fund "supermarket" programs where the sponsor links its
clients' accounts to a master account in the sponsor's name and the
sponsor charges a fee for its services.
Broker-dealers, investment advisers or financial planners sponsoring these
mutual fund programs may offer their clients more than one class of shares in
the Series in connection with different pricing options for their programs.
Investors should consider carefully any separate transaction and other fees
charged by these programs in connection with investing in each available share
class before selecting a share class.
OTHER TYPES OF INVESTORS. Other investors pay no sales charges, including
certain officers, employees or agents of Prudential and its affiliates, the
Prudential mutual funds, the subadvisers of the Prudential mutual funds and
registered representatives and employees of brokers that have entered into a
selected dealer agreement with the Distributor. To qualify for a reduction or
waiver of the sales charge, you must notify the Transfer Agent or your broker at
the time of purchase. For more information, see the SAI, "Purchase, Redemption
and Pricing of Fund Shares--Reduction and Waiver of Initial Sales
Charges--Class A Shares."
WAIVING CLASS C'S INITIAL SALES CHARGE
INVESTMENT OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES. The initial
sales charge will be waived for purchases of Class C shares if the purchase is
made with money from the redemption of shares of any unaffiliated investment
company, as long as the shares were not held in an account at Prudential
Securities Incorporated or one of its affiliates. These purchases must be made
within 60 days of the redemption. To qualify for this waiver, you must do one of
the following:
-- Purchase your shares through an account at Prudential Securities
-- Purchase your shares through an ADVANTAGE Account or an Investor
Account with Pruco Securities Corporation, or
-- Purchase your shares through another broker.
- -------------------------------------------------------------------
26 CALIFORNIA INCOME SERIES [ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- ------------------------------------------------
The waiver is not available to investors who purchase shares directly from
the Transfer Agent. If you are entitled to the waiver, you must notify either
the Transfer Agent or your broker. The Transfer Agent may require any supporting
documents it considers appropriate.
QUALIFYING FOR CLASS Z SHARES
MUTUAL FUND PROGRAMS. Class Z shares can be purchased by participants in any
fee-based program or trust program sponsored by Prudential or an affiliate that
includes the Series as an available option. Class Z shares also can be purchased
by investors in certain programs sponsored by broker-dealers, investment
advisers and financial planners who have agreements with Prudential Investments
Advisory Group relating to:
-- Mutual fund "wrap" or asset allocation programs where the sponsor
places Series trades, links its clients' accounts to a master account
in the sponsor's name and charges its clients a management,
consulting or other fee for its services, or
-- Mutual fund "supermarket" programs, where the sponsor links its
clients' accounts to a master account in the sponsor's name and the
sponsor charges a fee for its services.
Broker-dealers, investment advisers or financial planners sponsoring these
mutual fund programs may offer their clients more than one class of
shares in the Series in connection with different pricing options for their
programs. Investors should consider carefully any separate transaction and other
fees charged by these programs in connection with investing in each available
share class before selecting a share class.
OTHER TYPES OF INVESTORS. Class Z shares also can be purchased by any of the
following:
-- Certain participants in the MEDLEY Program (group variable annuity
contracts) sponsored by Prudential for whom Class Z shares of the
Prudential mutual funds are an available option,
-- Current and former Directors/Trustees of the Prudential mutual funds
(including the Fund), and
-- Prudential, with an investment of $10 million or more.
- --------------------------------------------------------------------------------
27
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- ------------------------------------------------
In connection with the sale of shares, the Manager, the Distributor or one
of their affiliates may pay brokers, financial advisers and other persons a
commission of up to 4% of the purchase price for Class B shares, up to 2% of the
purchase price for Class C shares and a finder's fee for Class A or Class Z
shares from their own resources based on a percentage of the net asset value of
shares sold or otherwise.
CLASS B SHARES CONVERT TO CLASS A SHARES AFTER APPROXIMATELY SEVEN YEARS
If you buy Class B shares and hold them for approximately seven years, we will
automatically convert them into Class A shares without charge. At that time, we
will also convert any Class B shares that you purchased with reinvested
dividends and other distributions. Since the 12b-1 fees for Class A shares are
lower than for Class B shares, switching to Class A shares lowers your Series
expenses.
When we do the conversion, you will get fewer Class A shares than the number
of converted Class B shares converted if the price of the Class A shares is
higher than the price of Class B shares. The total dollar value will be the
same, so you will not have lost any money by getting fewer Class A shares. We do
the conversions quarterly, not on the anniversary date of your purchase. For
more information, see the SAI, "Purchase, Redemption and Pricing of Fund
Shares--Conversion Feature--Class B Shares."
- -------------------------------------------------------------------
28 CALIFORNIA INCOME SERIES [ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- ------------------------------------------------
STEP 3: UNDERSTANDING THE PRICE YOU'LL PAY
The price you pay for each share of the Series is based on the share value. The
share value of a mutual fund--known as the NET ASSET VALUE or NAV--is determined
by a simple calculation: it's the total value of the fund (assets minus
liabilities) divided by the total number of shares outstanding. For example, if
the value of the investments held by Fund XYZ (minus its liabilities) is $1,000
and there are 100 shares of Fund XYZ owned by shareholders, the price of one
share of the fund--or the NAV--is $10 ($1,000 divided by 100). Portfolio
securities are valued based upon market quotations or, if not readily available,
at fair value as determined in good faith under procedures established by the
Fund's Board. Most national newspapers report the NAVs of most mutual funds,
which allows investors to check the price of mutual funds daily.
We determine the NAV of our shares once each business day at 4:15 p.m. New
York time on days that the New York Stock Exchange (NYSE) is open for trading.
The NYSE is closed on national holidays and Good Friday. We do not determine NAV
with respect to the Series on days when we have not received any orders to
purchase, sell, or exchange the Series' shares, or when changes in the value of
the Series' portfolio do not materially affect the NAV.
WHAT PRICE WILL YOU PAY FOR SHARES OF THE SERIES?
For Class A and Class C shares, you'll pay the public offering price, which is
the NAV next determined after we receive your order to purchase, plus an initial
sales charge (unless you're entitled to a waiver). For Class B and Class Z
shares, you will pay the NAV next determined after we receive your order to
purchase (remember, there are no up-front sales charges for these share
classes). Your broker may charge you a separate or additional fee for purchases
of shares.
- -------------------------------------------------------------------
MUTUAL FUND SHARES
The NAV of mutual fund shares changes every day because the value of a fund's
portfolio changes constantly. For example, if Fund XYZ holds City ABC bonds in
its portfolio and the price of City ABC bonds goes up while the value of the
fund's other holdings remains the same and expenses don't change, the NAV of
Fund XYZ will increase.
- -------------------------------------------------------------------
- --------------------------------------------------------------------------------
29
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- ------------------------------------------------
STEP 4: ADDITIONAL SHAREHOLDER SERVICES
As a Series shareholder, you can take advantage of the following services and
privileges:
AUTOMATIC REINVESTMENT. As we explained in the "Series Distributions and Tax
Issues" section, the Series pays out--or distributes--its net investment income
and capital gains to all shareholders. For your convenience, we will
automatically reinvest your distributions in the Series at NAV without any sales
charge. If you want your distributions paid in cash, you can indicate this
preference on your application, notify your broker or notify the Transfer Agent
in writing (at the address below) at least five business days before the date we
determine who receives dividends.
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: ACCOUNT MAINTENANCE
P.O. BOX 15015
NEW BRUNSWICK, NJ 08906-5015
AUTOMATIC INVESTMENT PLAN. You can make regular purchases of the Series for as
little as $50 by having the funds automatically withdrawn from your bank or
brokerage account at specified intervals.
THE PRUTECTOR PROGRAM. Optional group term life insurance--which protects the
value of your Prudential mutual fund investment for your beneficiaries against
market declines--is available to investors who purchase their shares through
Prudential. This insurance is subject to various restrictions and charges and is
not available in all states.
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available that will
provide you with monthly, quarterly, semi-annual or annual checks. Remember, the
sale of Class B and Class C shares may be subject to a CDSC.
REPORTS TO SHAREHOLDERS. Every year we will send you an annual report (along
with an updated prospectus) and a semi-annual report, which contain important
financial information about your Series. To reduce the Series' expenses, we will
send one annual shareholder report, one semi-annual shareholder report and one
annual prospectus per household, unless
- -------------------------------------------------------------------
30 CALIFORNIA INCOME SERIES [ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- ------------------------------------------------
you instruct us or your broker otherwise.
HOW TO SELL YOUR SHARES
You can sell your shares of the Series for cash (in the form of a check) at any
time, subject to certain restrictions.
When you sell shares of the Series--also known as redeeming your shares--the
price you will receive will be the NAV next determined after the Transfer Agent,
the Distributor or your broker receives your order to sell. If your broker holds
your shares, he must receive your order to sell by 4:15 p.m. New York time to
process the sale on that day. Otherwise, contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: REDEMPTION SERVICES
P.O. BOX 15010
NEW BRUNSWICK, NJ 08906-5010
Generally, we will pay you for the shares that you sell within seven days
after the Transfer Agent, the Distributor or your broker receives your sell
order. If you hold shares through a broker, payment will be credited to your
account. If you are selling shares you recently purchased with a check, we may
delay sending you the proceeds until your check clears, which can take up to
10 days from the purchase date. You can avoid delay if you purchase shares by
wire, certified check or cashier's check. Your broker may charge a separate or
additional fee for sales of shares.
RESTRICTIONS ON SALES
There are certain times when you may not be able to sell shares of the Series,
or when we may delay paying you the proceeds from a sale. This may happen during
unusual market conditions or emergencies when the Series can't determine the
value of its assets or sell its holdings. For more information, see the SAI,
"Purchase, Redemption and Pricing of Fund Shares--Sale of Shares."
If you are selling more than $100,000 of shares, you want the check sent to
someone or some place that is not in our records or you are a business or a
trust and you hold shares directly with the Transfer Agent, you will need to
have the signature on your sell order signature guaranteed by
- --------------------------------------------------------------------------------
31
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- ------------------------------------------------
an "eligible guarantor institution." An "eligible guarantor institution"
includes any bank, broker-dealer or credit union. For more information, see the
SAI, "Purchase, Redemption and Pricing of Fund Shares--Sale of Shares--Signature
Guarantee."
CONTINGENT DEFERRED SALES CHARGE (CDSC)
If you sell Class B shares within six years of purchase or Class C shares within
18 months of purchase, you will have to pay a CDSC. To keep the CDSC as low as
possible, we will sell your shares in the following order:
-- Amounts representing shares you purchased with reinvested dividends
and distributions
-- Amounts representing the increase in NAV above the total amount of
payments for shares made during the past six years for Class B shares
and 18 months for Class C shares (one year for Class C shares
purchased before November 2, 1998)
-- Amounts representing the cost of shares held beyond the CDSC period
(six years for Class B shares and 18 months for Class C shares)
Since shares that fall into any of the categories listed above are not
subject to the CDSC, selling them first helps you to avoid--or at least
minimize--the CDSC.
Having sold the exempt shares first, if there are any remaining shares that
are subject to the CDSC, we will apply the CDSC to amounts representing the cost
of shares held for the longest period of time within the applicable CDSC period.
As we noted in the "Share Class Comparison" chart, the CDSC for Class B
shares is 5% in the first year, 4% in the second, 3% in the third, 2% in the
fourth, and 1% in the fifth and sixth years. The rate decreases on the first day
of the month following the anniversary date of your purchase, not on the
anniversary date itself. The CDSC is 1% for Class C shares--which is applied to
shares sold within 18 months of purchase. For both Class B and Class C shares,
the CDSC is calculated based on the lesser of the original purchase price or the
redemption proceeds. For purposes of determining how long you've held your
shares, all purchases during the month are grouped together and considered to
have been made on the last day of the month.
- -------------------------------------------------------------------
32 CALIFORNIA INCOME SERIES [ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- ------------------------------------------------
The holding period for purposes of determining the applicable CDSC will be
calculated from the first day of the month after initial purchase, excluding any
time shares were held in a money market fund.
WAIVER OF THE CDSC--CLASS B SHARES
The CDSC will be waived if the Class B shares are sold:
-- After a shareholder is deceased or disabled (or, in the case of a
trust account, the death or disability of the grantor). This waiver
applies to individual shareholders, as well as shares owned in joint
tenancy, provided the shares were purchased before the death or
disability
-- On certain sales from a Systematic Withdrawal Plan.
For more information on the above and other waivers, see the SAI, "Purchase,
Redemption and Pricing of Fund Shares--Waiver of Contingent Deferred Sales
Charges--Class B Shares."
REDEMPTION IN KIND
If the sales of Series shares you make during any 90-day period reach the lesser
of $250,000 or 1% of the value of the Series' net assets, we can then give you
securities from the Series' portfolio instead of cash. If you want to sell the
securities for cash, you would have to pay the costs charged by a broker.
SMALL ACCOUNTS
If you make a sale that reduces your account value to less than $500, we may
sell the rest of your shares (without charging any CDSC) and close your account.
We would do this to minimize the Series' expenses paid by other shareholders. We
will give you 60 days' notice, during which time you can purchase additional
shares to avoid this action.
90-DAY REPURCHASE PRIVILEGE
After you redeem your shares, you have a 90-day period during which you may
reinvest any of the redemption proceeds in shares of the Series without paying
an initial sales charge. Also, if you paid a CDSC when you redeemed your shares,
we will credit your new account with the appropriate
- --------------------------------------------------------------------------------
33
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- ------------------------------------------------
number of shares to reflect the amount of the CDSC you paid. In order to take
advantage of this one-time privilege, you must notify the Transfer Agent or your
broker at the time of the repurchase. See the SAI, "Purchase, Redemption and
Pricing of Fund Shares--Sale of Shares."
HOW TO EXCHANGE YOUR SHARES
You can exchange your shares of the Series for shares of the same class in
certain other Prudential mutual funds--including certain money market funds--if
you satisfy the minimum investment requirements. For example, you can exchange
Class A shares of the Series for Class A shares of another Prudential mutual
fund, but you can't exchange Class A shares for Class B, Class C or Class Z
shares. Class B and C shares may not be exchanged into money market funds other
than Prudential Special Money Market Fund, Inc. After an exchange, at redemption
the CDSC will be calculated from the first day of the month after initial
purchase, excluding any time shares were held in a money market fund. We may
change the terms of the exchange privilege after giving you 60 days' notice.
If you hold shares through a broker, you must exchange shares through your
broker. Otherwise contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: EXCHANGE PROCESSING
P.O. BOX 15010
NEW BRUNSWICK, NJ 08906-5010
There is no sales charge for such exchanges. However, if you exchange--and
then sell--Class B shares within approximately six years of your original
purchase or Class C shares within 18 months of your original purchase, you must
still pay the applicable CDSC. If you have exchanged Class B or Class C shares
into a money market fund, the time you hold the shares in the money market
account will not be counted in calculating the required holding periods for CDSC
liability.
Remember, as we explained in the section entitled "Series Distributions and
Tax Issues--If You Sell or Exchange Your Shares," exchanging shares is
considered a sale for tax purposes. Therefore, if the shares you exchange are
worth more than you paid for them, you may have to pay capital gains tax. For
additional information about exchanging shares, see the SAI,
- -------------------------------------------------------------------
34 CALIFORNIA INCOME SERIES [ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- ------------------------------------------------
"Shareholder Investment Account--Exchange Privilege."
If you own Class B or Class C shares and qualify to purchase Class A shares
without paying an initial sales charge, we will automatically exchange your
Class B or Class C shares which are not subject to a CDSC for Class A shares. We
make such exchanges on a quarterly basis if you qualify for this exchange
privilege. We have obtained a legal opinion that this exchange is not a "taxable
event" for federal income tax purposes. This opinion is not binding on the IRS.
FREQUENT TRADING
Frequent trading of the Series' shares in response to short-term fluctuations in
the market--also known as "market timing"--may make it very difficult to manage
the Series' investments. When market timing occurs, the Series may have to sell
portfolio securities to have the cash necessary to redeem the market timer's
shares. This can happen at a time when it is not advantageous to sell any
securities, so the Series' performance may be hurt. When large dollar amounts
are involved, market timing can also make it difficult to use long-term
investment strategies because we cannot predict how much cash the Series will
have to invest. When, in our opinion, such activity would have a disruptive
effect on portfolio management, the Fund reserves the right to refuse purchase
orders and exchanges into the Series by any person, group or commonly controlled
accounts. The decision may be based upon dollar amount, volume and frequency of
trading. The Fund may notify a market timer of rejection of an exchange or
purchase order after the day the order is placed. If the Fund allows a market
timer to trade Series shares, it may require the market timer to enter into a
written agreement to follow certain procedures and limitations.
TELEPHONE REDEMPTIONS OR EXCHANGES
You may redeem or exchange your shares in any amount by calling the Fund at
(800) 225-1852. In order to redeem or exchange your shares by telephone, you
must complete an authorization form for telephone transactions. If you have
elected telephone redemption and exchange privileges and you call the Fund
before 4:15 p.m., New York time, you will receive a redemption amount based on
that day's NAV.
The Fund's Transfer Agent will record your telephone instructions and
request specific account information before redeeming or exchanging
- --------------------------------------------------------------------------------
35
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- ------------------------------------------------
shares. The Fund will not be liable if it follows instructions that it
reasonably believes are made by the shareholder. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, you may have difficulty
in redeeming or exchanging your shares by telephone. If this occurs, you should
consider redeeming or exchanging your shares by mail.
The telephone redemption or exchange privilege may be modified or terminated
at any time. If this occurs, you will receive a written notice from the Fund.
- -------------------------------------------------------------------
36 CALIFORNIA INCOME SERIES [ICON] (800) 225-1852
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------
The financial highlights will help you evaluate financial performance of the
Series. The TOTAL RETURN in each chart represents the rate that a shareholder
earned on an investment in that share class of the Series, assuming reinvestment
of all dividends and other distributions. The information is for each share
class for the periods indicated.
Review each chart with the financial statements and report of independent
accountants, which appear in the SAI and are available upon request. Additional
performance information for each share class is contained in the annual report,
which you can receive at no charge.
- --------------------------------------------------------------------------------
37
<PAGE>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------
CLASS A SHARES
The financial highlights for the three years ended August 31, 1999 were audited
by PricewaterhouseCoopers LLP, independent accountants, and the financial
highlights for the two years ended August 31, 1996 were audited by other
independent auditors, whose reports were unqualified.
CLASS A SHARES (FISCAL YEAR ENDED 8-31)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Per Share Operating
PERFORMANCE 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF YEAR $11.19 $10.71 $10.33 $10.28 $10.19
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .56 .59 .60(3) .63(3) .65(3)
Net realized and
unrealized gain (loss) on
investment transactions (.70) .49 .38 .05 .09
TOTAL FROM INVESTMENT
OPERATIONS (.14) 1.08 .98 .68 .74
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net
investment income (.56) (.59) (.60) (.63) (.65)
Distributions in excess of
investment income -- (.01) --(1) -- --
Distributions from net
realized gains -- -- -- -- --
TOTAL DISTRIBUTIONS (.56) (.60) (.60) (.63) (.65)
NET ASSET VALUE, END OF
YEAR $10.49 $11.19 $10.71 $10.33 $10.28
TOTAL RETURN(2) (1.37)% 10.31% 9.72% 6.67% 7.67%
- --------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Ratios/Supplemental
DATA 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- --------------------------
NET ASSETS, END OF YEAR
(000) $183,593 $181,512 $156,684 $153,236 $163,538
AVERAGE NET ASSETS (000) $187,106 $165,771 $153,019 $161,420 $165,500
RATIOS TO AVERAGE NET
ASSETS:
Expenses, including
distribution fees .76% .68% .73%(3) .50%(3) .40%(3)
Expenses, excluding
distribution fees .56% .58% .63%(3) .40%(3) .30%(3)
Net investment income 5.03% 5.39% 5.66%(3) 6.01%(3) 6.49%(3)
Portfolio turnover 23% 10% 16% 22% 39%
- --------------------------
</TABLE>
<TABLE>
<S> <C>
1 LESS THAN $.005 PER SHARE.
2 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER
DISTRIBUTIONS, BUT DOES NOT INCLUDE THE EFFECT OF SALES
CHARGES. IT IS CALCULATED ASSUMING SHARES ARE PURCHASED ON
THE FIRST DAY AND ARE SOLD ON THE LAST DAY OF EACH PERIOD
REPORTED.
3 NET OF MANAGEMENT FEE WAIVER.
</TABLE>
- -------------------------------------------------------------------
38 CALIFORNIA INCOME SERIES [ICON] (800) 225-1852
<PAGE>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------
CLASS B SHARES
The financial highlights for the three years ended August 31, 1999 were audited
by PricewaterhouseCoopers LLP, independent accountants, and the financial
highlights for the two years ended August 31, 1996 were audited by other
independent auditors, whose reports were unqualified.
CLASS B SHARES (FISCAL YEAR ENDED 8-31)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Per Share Operating
PERFORMANCE 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF YEAR $11.19 $10.71 $10.33 $10.28 $10.19
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .53 .55 .55(3) .59(3) .61(3)
Net realized and
unrealized gain (loss) on
investment transactions (.70) .49 .38 .05 .09
TOTAL FROM INVESTMENT
OPERATIONS (.17) 1.04 .93 .64 .70
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net
investment income (.53) (.55) (.55) (.59) (.61)
Distributions in excess of
investment income -- (.01) --(1) -- --
Distributions from net
realized gains -- -- -- -- --
TOTAL DISTRIBUTIONS (.53) (.56) (.55) (.59) (.61)
NET ASSET VALUE, END OF
YEAR $10.49 $11.19 $10.71 $10.33 $10.28
TOTAL RETURN(2) (1.67)% 9.87% 9.28% 6.25% 7.24%
- --------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Ratios/Supplemental
DATA 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- --------------------------
NET ASSETS, END OF YEAR
(000) $84,546 $70,535 $47,436 $35,983 $28,609
AVERAGE NET ASSETS (000) $81,163 $56,011 $40,983 $32,555 $23,722
RATIOS TO AVERAGE NET
ASSETS:
Expenses, including
distribution fees 1.06% 1.08% 1.13%(3) .90%(3) .80%(3)
Expenses, excluding
distribution fees .56% .58% .63%(3) .40%(3) .30%(3)
Net investment income 4.78% 4.99% 5.26%(3) 5.61%(3) 6.09%(3)
Portfolio turnover 23% 10% 16% 22% 39%
- --------------------------
</TABLE>
<TABLE>
<S> <C>
1 LESS THAN $.005 PER SHARE.
2 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER
DISTRIBUTIONS, BUT DOES NOT INCLUDE THE EFFECT OF SALES
CHARGES. IT IS CALCULATED ASSUMING SHARES ARE PURCHASED ON
THE FIRST DAY AND ARE SOLD ON THE LAST DAY OF EACH PERIOD
REPORTED.
3 NET OF MANAGEMENT FEE WAIVER.
</TABLE>
- --------------------------------------------------------------------------------
39
<PAGE>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------
CLASS C SHARES
The financial highlights for the three years ended August 31, 1999 were audited
by PricewaterhouseCoopers LLP, independent accountants, and the financial
highlights for the two years ended August 31, 1996 were audited by other
independent auditors, whose reports were unqualified.
CLASS C SHARES (FISCAL YEAR ENDED 8-31)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Per Share Operating
PERFORMANCE 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF YEAR $11.19 $10.71 $10.33 $10.28 $10.19
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .50 .52 .53(3) .56(3) .58(3)
Net realized and
unrealized gain (loss) on
investment transactions (.70) .49 .38 .05 .09
TOTAL FROM INVESTMENT
OPERATIONS (.20) 1.01 .91 .61 .67
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net
investment income (.50) (.52) (.53) (.56) (.58)
Distributions in excess of
investment income -- (.01) --(1) -- --
Distributions from net
realized gains -- -- -- -- --
TOTAL DISTRIBUTIONS (.50) (.53) (.53) (.56) (.58)
NET ASSET VALUE, END OF
YEAR $10.49 $11.19 $10.71 $10.33 $10.28
TOTAL RETURN(2) (1.91)% 9.60% 9.01% 5.99% 6.98%
- --------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Ratios/Supplemental
DATA 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
- ---------------------------
<S> <C> <C> <C> <C> <C>
NET ASSETS, END OF YEAR
(000) $10,847 $5,960 $3,611 $3,269 $2,762
AVERAGE NET ASSETS (000) $9,088 $4,491 $3,135 $3,300 $1,751
RATIOS TO AVERAGE NET
ASSETS:
Expenses, including
distribution fees 1.31% 1.33% 1.38%(3) 1.15%(3) 1.05%(3)
Expenses, excluding
distribution fees .56% .58% .63%(3) .40%(3) .30%(3)
Net investment income 4.53% 4.74% 5.01%(3) 5.36%(3) 5.84%(3)
Portfolio turnover 23% 10% 16% 22% 39%
- --------------------------
</TABLE>
<TABLE>
<S> <C>
1 LESS THAN $.005 PER SHARE.
2 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER
DISTRIBUTIONS, BUT DOES NOT INCLUDE THE EFFECT OF SALES
CHARGES. IT IS CALCULATED ASSUMING SHARES ARE PURCHASED ON
THE FIRST DAY AND ARE SOLD ON THE LAST DAY OF EACH PERIOD
REPORTED.
3 NET OF MANAGEMENT FEE WAIVER.
</TABLE>
- -------------------------------------------------------------------
40 CALIFORNIA INCOME SERIES [ICON] (800) 225-1852
<PAGE>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------
CLASS Z SHARES
The financial highlights for the two years ended August 31, 1999 were audited by
PricewaterhouseCoopers LLP, independent accountants, and the financial
highlights for the period from December 6, 1996 through August 31, 1997 were
audited by other independent auditors, whose reports were unqualified.
CLASS Z SHARES (FISCAL YEAR ENDED 8-31)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1999 1998 1997(1)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.19 $10.71 $10.38
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .58 .61(4) .57(4)
Net realized and unrealized gain on
investment transactions (.70) .49 .33
TOTAL FROM INVESTMENT OPERATIONS (.12) 1.10 .90
- ----------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.58) (.61) (.57)
Distributions in excess of investment income -- (.01) --(5)
Distributions from net investment income -- -- --
TOTAL DISTRIBUTIONS (.58) (.62) (.57)
NET ASSET VALUE, END OF PERIOD $10.49 $11.19 $10.71
TOTAL RETURN(2) (1.18)% 10.42% 8.86%
- ---------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1999 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ---------------------------------------------
NET ASSETS, END OF PERIOD (000) $5,449 $4,507 $1,963
AVERAGE NET ASSETS (000) $4,725 $3,312 $970
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution fees .56% .58%(4) .63%(3),(4)
Expenses, excluding distribution fees .56% .58%(4) .63%(3),(4)
Net investment income 5.28% 5.49%(4) 5.76%(3),(4)
Portfolio turnover 23% 10% 16%
- ---------------------------------------------
</TABLE>
<TABLE>
<S> <C>
1 INFORMATION SHOWN IS FOR THE PERIOD 12-6-96 (WHEN CLASS Z
SHARES WERE FIRST OFFERED) THROUGH 8-31-97.
2 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER
DISTRIBUTIONS, BUT DOES NOT INCLUDE THE EFFECT OF SALES
CHARGES. IT IS CALCULATED ASSUMING SHARES ARE PURCHASED ON
THE FIRST DAY AND ARE SOLD ON THE LAST DAY OF EACH PERIOD
REPORTED. TOTAL RETURN FOR PERIODS OF LESS THAN A FULL YEAR
IS NOT ANNUALIZED.
3 ANNUALIZED.
4 NET OF MANAGEMENT FEE WAIVER.
5 LESS THAN $.005 PER SHARE.
</TABLE>
- --------------------------------------------------------------------------------
41
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
- -------------------------------------
Prudential offers a broad range of mutual funds designed to meet your individual
needs. For information about these funds, contact your financial adviser or
dealer or call us at (800) 225-1852. Read the prospectus carefully before you
invest or send money.
STOCK FUNDS
PRUDENTIAL DISTRESSED SECURITIES FUND, INC.
PRUDENTIAL EMERGING GROWTH FUND, INC.
PRUDENTIAL EQUITY FUND, INC.
PRUDENTIAL EQUITY INCOME FUND
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL SMALL-CAP INDEX FUND
PRUDENTIAL STOCK INDEX FUND
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH FUND
PRUDENTIAL JENNISON GROWTH & INCOME FUND
PRUDENTIAL MID-CAP VALUE FUND
PRUDENTIAL REAL ESTATE SECURITIES FUND
PRUDENTIAL SECTOR FUNDS, INC.
PRUDENTIAL FINANCIAL SERVICES FUND
PRUDENTIAL HEALTH SCIENCES FUND
PRUDENTIAL TECHNOLOGY FUND
PRUDENTIAL UTILITY FUND
PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
PRUDENTIAL SMALL COMPANY VALUE FUND, INC.
PRUDENTIAL TAX-MANAGED EQUITY FUND
PRUDENTIAL 20/20 FOCUS FUND
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
TARGET FUNDS
LARGE CAPITALIZATION GROWTH FUND
LARGE CAPITALIZATION VALUE FUND
SMALL CAPITALIZATION GROWTH FUND
SMALL CAPITALIZATION VALUE FUND
ASSET ALLOCATION/BALANCED FUNDS
PRUDENTIAL BALANCED FUND
PRUDENTIAL DIVERSIFIED FUNDS
CONSERVATIVE GROWTH FUND
MODERATE GROWTH FUND
HIGH GROWTH FUND
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL ACTIVE BALANCED FUND
GLOBAL FUNDS
GLOBAL STOCK FUNDS
PRUDENTIAL DEVELOPING MARKETS FUND
PRUDENTIAL DEVELOPING MARKETS EQUITY FUND
PRUDENTIAL LATIN AMERICA EQUITY FUND
PRUDENTIAL EUROPE GROWTH FUND, INC.
PRUDENTIAL GLOBAL GENESIS FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL EUROPE INDEX FUND
PRUDENTIAL PACIFIC INDEX FUND
PRUDENTIAL NATURAL RESOURCES FUND, INC.
PRUDENTIAL PACIFIC GROWTH FUND, INC.
PRUDENTIAL WORLD FUND, INC.
GLOBAL SERIES
INTERNATIONAL STOCK SERIES
GLOBAL UTILITY FUND, INC.
TARGET FUNDS
INTERNATIONAL EQUITY FUND
- -------------------------------------------------------------------
42 CALIFORNIA INCOME SERIES [ICON] (800) 225-1852
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
- -------------------------------------
GLOBAL BOND FUNDS
PRUDENTIAL GLOBAL TOTAL RETURN FUND, INC.
PRUDENTIAL INTERNATIONAL BOND FUND, INC.
BOND FUNDS
TAXABLE BOND FUNDS
PRUDENTIAL DIVERSIFIED BOND FUND, INC.
PRUDENTIAL GOVERNMENT INCOME FUND, INC.
PRUDENTIAL GOVERNMENT SECURITIES TRUST
SHORT-INTERMEDIATE TERM SERIES
PRUDENTIAL HIGH YIELD FUND, INC.
PRUDENTIAL HIGH YIELD TOTAL RETURN FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL BOND MARKET INDEX FUND
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
INCOME PORTFOLIO
TARGET FUNDS
TOTAL RETURN BOND FUND
TAX-EXEMPT BOND FUNDS
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA SERIES
CALIFORNIA INCOME SERIES
PRUDENTIAL MUNICIPAL BOND FUND
HIGH INCOME SERIES
INSURED SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
MASSACHUSETTS SERIES
NEW JERSEY SERIES
NEW YORK SERIES
NORTH CAROLINA SERIES
OHIO SERIES
PENNSYLVANIA SERIES
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
MONEY MARKET FUNDS
TAXABLE MONEY MARKET FUNDS
CASH ACCUMULATION TRUST
LIQUID ASSETS FUND
NATIONAL MONEY MARKET FUND
PRUDENTIAL GOVERNMENT SECURITIES TRUST
MONEY MARKET SERIES
U.S. TREASURY MONEY MARKET SERIES
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
MONEY MARKET SERIES
PRUDENTIAL MONEYMART ASSETS, INC.
TAX-FREE MONEY MARKET FUNDS
PRUDENTIAL TAX-FREE MONEY FUND, INC.
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA MONEY MARKET SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
CONNECTICUT MONEY MARKET SERIES
MASSACHUSETTS MONEY MARKET SERIES
NEW JERSEY MONEY MARKET SERIES
NEW YORK MONEY MARKET SERIES
COMMAND FUNDS
COMMAND MONEY FUND
COMMAND GOVERNMENT FUND
COMMAND TAX-FREE FUND
INSTITUTIONAL MONEY MARKET FUNDS
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
- --------------------------------------------------------------------------------
43
<PAGE>
[This page has been left blank intentionally.]
- -------------------------------------------------------------------
44 CALIFORNIA INCOME SERIES [ICON] (800) 225-1852
<PAGE>
APPENDIX A
- -------------------------------------
DESCRIPTION OF SECURITY RATINGS
MOODY'S INVESTORS SERVICE
BOND RATINGS
Aaa: Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than the Aaa securities.
A: Bonds that are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
that suggest a susceptibility to impairment sometime in the future.
Baa: Bonds that are rated Baa are considered as medium grade obligations
I.E., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds that are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds that are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
- --------------------------------------------------------------------------------
A-1
<PAGE>
APPENDIX A
- ------------------------------------------------
Bonds rated within the Aa, A, Baa, Ba and B categories that Moody's believes
possess the strongest credit attributes within those categories are designated
by the symbols Aa1, A1, Baa1, Ba1 and B1.
Caa: Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds that are rated Ca represent obligations that are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds that are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
SHORT-TERM DEBT RATINGS
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations which have an original maturity not exceeding
one year.
P-1: Issuers rated "Prime-1" or "P-1" (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations.
P-2: Issuers rated "Prime-2" or "P-2" (or supporting institutions) have a
strong ability for repayment of senior short-term debt obligations.
P-3: Issuers rated "Prime-3" or "P-3" (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations.
SHORT-TERM RATINGS
Moody's ratings for tax-exempt notes and other short-term loans are designated
Moody's Investment Grade (MIG). This distinction is in recognition of the
differences between short-term and long-term credit risk.
MIG 1: Loans bearing the designation MIG 1 are of the best quality. There
is present strong protection by established cash flows, superior liquidity
support or demonstrated broad-based access to the market for refinancing.
MIG 2: Loans bearing the designation MIG 2 are of high quality. Margins of
protection are ample although not so large as in the preceding group.
MIG 3: Loans bearing the designation MIG 3 are of favorable quality. All
security elements are accounted for but there is lacking the undeniable
- -------------------------------------------------------------------
A-2 CALIFORNIA INCOME SERIES [ICON] (800) 225-1852
<PAGE>
APPENDIX A
- ------------------------------------------------
strength of the preceding grades.
MIG 4: Loans bearing the designation MIG 4 are of adequate quality.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
STANDARD & POOR'S RATINGS GROUP
DEBT RATINGS
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated obligations only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
BB, B, CCC, CC AND C: Debt rated BB, B, CCC, CC and C is regarded as having
predominately speculative characteristics with respect to capacity to pay
interest and repay principal. BB indicates the least degree of speculation and C
the highest. While such debt will likely have some quality and protective
characteristics, these are outweighted by large uncertainties or major exposures
to adverse conditions.
D: Debt rated D is in payment default. This rating is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period.
COMMERCIAL PAPER RATINGS
S&P's commercial paper ratings are current assessments of the likelihood of
timely payment of debt considered short-term in the relevant market.
- --------------------------------------------------------------------------------
A-3
<PAGE>
APPENDIX A
- ------------------------------------------------
A-1: The A-1 designation indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with the designation A-2 is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-3: Issues with the A-3 designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
MUNICIPAL NOTES
A municipal note rating reflects the liquidity factors and market access risks
unique to notes. Notes maturing in three years or less will likely receive a
note rating, while notes maturing beyond three years or less will likely receive
a note rating. Notes maturing beyond three years will most likely receive a
long-term debt rating. Municipal notes are SP-1, SP-2 or SP-3. The designation
SP-1 indicates a very strong capacity to pay principal and interest. Those
issues determined to possess extremely strong characteristics are given a plus
(+) designation. An SP-2 designation indicates a satisfactory capacity to pay
principal and interest. An SP-3 designations indicates speculative capacity to
pay principal and interest.
- -------------------------------------------------------------------
A-4 CALIFORNIA INCOME SERIES [ICON] (800) 225-1852
<PAGE>
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- --------------------------------------------------------------------------------
A-5
<PAGE>
[This page has been left blank intentionally.]
- -------------------------------------------------------------------
A-6 CALIFORNIA INCOME SERIES [ICON] (800) 225-1852
<PAGE>
[This page has been left blank intentionally.]
- --------------------------------------------------------------------------------
A-7
<PAGE>
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- -------------------------------------------------------------------
A-8 CALIFORNIA INCOME SERIES [ICON] (800) 225-1852
<PAGE>
[This page has been left blank intentionally.]
- --------------------------------------------------------------------------------
A-9
<PAGE>
FOR MORE INFORMATION:
- --------------------------------------------------------------------------------
Please read this prospectus before you invest in the Series and keep it for
future reference. For information or shareholder questions contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
P.O. BOX 15005
NEW BRUNSWICK, NJ 08906-5005
(800) 225-1852
(732) 417-7555
(if calling from outside the U.S.)
- --------------------------------
Outside Brokers Should Contact:
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
P.O. BOX 15035
NEW BRUNSWICK, NJ 08906-5035
(800) 778-8769
- ------------------------------------
Visit Prudential's Web Site At:
http://www.prudential.com
- --------------------------------
Additional information about the Series can be obtained without charge and can
be found in the following documents:
STATEMENT OF ADDITIONAL
INFORMATION (SAI)
(incorporated by reference into this prospectus)
ANNUAL REPORT
(contains a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance)
SEMI-ANNUAL REPORT
You can also obtain copies of Fund documents from the Securities and Exchange
Commission as follows:
By Mail:
Securities and Exchange Commission
Public Reference Section
Washington, DC 20549-0102
By Electronic Request:
[email protected]
(The SEC charges a fee to copy documents.)
In Person:
Public Reference Room in
Washington, DC
(For hours of operation, call
(202)942-8090.)
Via the Internet:
on the EDGAR Database at
http://www.sec.gov
- --------------------------------
<TABLE>
<S> <C> <C>
CUSIP
Numbers: Quotron
Symbols:
Class 744313-30-5 PBCAX
A:
Class 744313-40-4 PCAIX
B:
Class 744313-80-0 --
C:
Class 744313-87-5 --
Z:
</TABLE>
Investment Company Act File No:
811-4024
<TABLE>
<S> <C>
MF146A [LOGO] Printed on Recycled Paper
</TABLE>
<PAGE>
FUND TYPE:
- -------------------------------------
Money market
INVESTMENT OBJECTIVE:
- -------------------------------------
The highest level of current income that is exempt
from California state and federal income taxes,
consistent with liquidity and the preservation of
capital
[LOGO]
PRUDENTIAL
CALIFORNIA
MUNICIPAL
FUND
- ---------------------------------------------------------------
CALIFORNIA MONEY MARKET SERIES
PROSPECTUS: DECEMBER 23, 1999
<TABLE>
<S> <C>
As with all mutual funds, the
Securities and Exchange Commission has
not approved or disapproved the
Series' shares nor has the SEC
determined that this prospectus is
complete or accurate. It is a criminal
offense to state otherwise. [LOGO]
</TABLE>
<PAGE>
TABLE OF CONTENTS
- -------------------------------------
<TABLE>
<S> <C>
1 RISK/RETURN SUMMARY
1 Investment Objective and Principal Strategies
1 Principal Risks
2 Evaluating Performance
4 Fees and Expenses
5 HOW THE SERIES INVESTS
5 Investment Objective and Policies
7 Other Investments and Strategies
8 Investment Risks
12 HOW THE SERIES IS MANAGED
12 Board of Trustees
12 Manager
12 Investment Adviser
13 Distributor
13 Year 2000 Readiness Disclosure
14 SERIES DISTRIBUTIONS AND TAX ISSUES
14 Distributions
15 Tax Issues
16 HOW TO BUY, SELL AND EXCHANGE SHARES OF THE SERIES
16 How to Buy Shares
21 How to Sell Your Shares
25 How to Exchange Your Shares
26 Telephone Redemptions or Exchanges
27 FINANCIAL HIGHLIGHTS
28 THE PRUDENTIAL MUTUAL FUND FAMILY
FOR MORE INFORMATION (Back Cover)
</TABLE>
- -------------------------------------------------------------------
CALIFORNIA MONEY MARKET SERIES [ICON] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY
- -------------------------------------
This section highlights key information about the CALIFORNIA MONEY MARKET SERIES
(the Series) of the PRUDENTIAL CALIFORNIA MUNICIPAL FUND (the Fund). Additional
information follows this summary.
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
Our 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. This means we invest primarily in
short-term California state and municipal bonds, which are debt obligations or
fixed income securities, including notes, commercial paper and other securities,
as well as short-term obligations of other issuers that pay interest income that
is exempt from those taxes (collectively called "California obligations"). The
Series invests in California obligations which are high-quality money market
instruments with remaining maturities of 13 months or less. In pursuing our
objective, we normally invest so that at least 80% of the income from the
Series' investments will be exempt from California state and federal income
taxes or the Series will invest at least 80% of its total assets in California
obligations. The Series may invest in municipal bonds the interest and/or
principal payments on which are insured by the bond issuers or other parties.
The Series may also invest in certain municipal bonds the interest on which is
subject to the federal alternative minimum tax (AMT).
While we make every effort to achieve our investment objective and maintain
a net asset value of $1 per share, we can't guarantee success.
PRINCIPAL RISKS
Although we try to invest wisely, all investments involve risk. The securities
in which the Series invests are generally subject to the risk that the issuer
may be unable to make principal and interest payments when they are due, as well
as the risk that the securities may lose value because interest rates change or
because there is a lack of confidence in the issuer.
The Series may purchase insured municipal bonds to reduce credit risks.
Although insurance coverage reduces credit risks by providing that the insurer
will make timely payment of interest and/or principal, it does not
- -------------------------------------------------------------------
MONEY MARKET FUNDS
Money market funds--which hold high-quality short-term debt obligations--
provide investors with a lower risk, highly liquid investment option. These
funds attempt to maintain a net asset value of $1 per share, although there can
be no guarantee that they will always be able to do so.
- -------------------------------------------------------------------
- --------------------------------------------------------------------------------
1
<PAGE>
RISK/RETURN SUMMARY
- ------------------------------------------------
provide protection against the market fluctuations of insured bonds or
fluctuations in the price of the shares of the Series. An insured municipal bond
fluctuates in value largely based on factors relating to the insurer's
creditworthiness or ability to satisfy its obligations.
Municipal bonds may also be subject to the risk that the borrower may not
set aside funds to make the bond payments.
Because the Series will concentrate its investments in California
obligations, the Series is more susceptible to economic, political and other
developments that may adversely affect issuers of California obligations than a
municipal money market fund that is not as geographically concentrated. By way
of illustration, although California has a relatively diversified economy,
California has concentrations in the computer services, software design, motion
pictures and high technology manufacturing industries. The Series, therefore,
may be more susceptible to developments affecting those industries than a
municipal bond fund that invests in obligations of several states. In addition,
some local California governments have experienced notable financial
difficulties. These examples illustrate just some of the risks of investing in
California obligations. For more information on the risks of investing in
California obligations, see "Description of the Fund, Its Investments and Risks"
in the Statement of Additional Information.
Although investments in mutual funds involve risk, investing in money market
portfolios like the Series is generally less risky than investments in other
types of funds. This is because the Series invests only in high-quality
securities with remaining maturities of 13 months or less and limits the average
maturity of the portfolio to 90 days or less. To satisfy the average maturity
and maximum maturity requirements, securities with demand features are treated
as maturing on the date that the Series can demand repayment of the security.
For more information about the risks associated with the Series, see "How
the Series Invests--Investment Risks."
An investment in the Series is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although we seek to preserve the value of your investment at $1 per
share, it is possible to lose money by investing in the Series.
EVALUATING PERFORMANCE
A number of factors--including risk--can affect how the Series performs. The
following bar chart shows the Series' performance for each full calendar year of
operation. The tables provide additional performance information for the periods
indicated. The bar chart and tables below
- -------------------------------------------------------------------
2 CALIFORNIA MONEY MARKET SERIES [ICON] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY
- ------------------------------------------------
demonstrate the risk of investing in the Series and how returns can change from
year to year. The Average Annual Returns table also compares the Series'
performance to the performance of a tax-free money market index. Past
performance does not mean that the Series will achieve similar results in the
future. For current yield information, you can call us at (800) 225-1852.
ANNUAL RETURNS(1)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 5.38%
1991 3.98%
1992 2.37%
1993 1.80%
1994 2.22%
1995 3.10%
1996 2.70%
1997 2.89%
1998 2.65%
BEST QUARTER: 1.49% (4th quarter of 1989)
WORST QUARTER: .42% (1st quarter of 1994)
</TABLE>
AVERAGE ANNUAL RETURNS(1) (AS OF 12-31-98)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
1 YR 5 YRS SINCE INCEPTION
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Series shares 2.64% 2.77% 3.28% (since 3-3-89)
IBC Average(2) 2.73% 2.72% 3.36% (since 3-3-89)
</TABLE>
YIELD(1) (AS OF 12-31-98)
<TABLE>
<S> <C>
7-Day yield of the Series 2.86%
7-Day tax-equivalent yield of the Series 5.22%
</TABLE>
<TABLE>
<S> <C>
1 THE SERIES' RETURNS AND YIELD ARE AFTER DEDUCTION OF
EXPENSES. TAX-EQUIVALENT YIELD IS CALCULATED BASED ON A
FEDERAL TAX RATE OF 39.6% AND THE APPLICABLE STATE INCOME
TAX RATE.
2 THE IBC AVERAGE IS BASED UPON THE AVERAGE RETURN OF ALL
MUTUAL FUNDS IN THE INTERNATIONAL BUSINESS COMMUNICATIONS
FINANCIAL DATA TAX-FREE STATE-SPECIFIC MONEY FUND
(CALIFORNIA) CATEGORY.
</TABLE>
- --------------------------------------------------------------------------------
3
<PAGE>
RISK/RETURN SUMMARY
- ------------------------------------------------
FEES AND EXPENSES
These tables show the fees and expenses that you may pay if you buy and hold
shares of the Series.
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<S> <C>
Maximum sales charge (load) imposed on purchases (as a
percentage of offering price) None
Maximum deferred sales charge (load) (as a percentage of
the lower of original purchase price or sale proceeds) None
Maximum sales charge (load) imposed on reinvested
dividends and other distributions None
Redemption fees None
Exchange fee None
</TABLE>
ANNUAL SERIES OPERATING EXPENSES (DEDUCTED FROM SERIES ASSETS)
<TABLE>
<S> <C>
Management fees .500%
+ Distribution (12b-1) and service fees .125%
+ Other expenses .087%
= TOTAL ANNUAL SERIES OPERATING EXPENSES .712%
</TABLE>
<TABLE>
<S> <C>
(1) YOUR BROKER MAY CHARGE YOU A SEPARATE OR ADDITIONAL FEE FOR
PURCHASES AND SALES OF SHARES.
</TABLE>
EXAMPLE
This example will help you compare the cost of investing in the Series with the
cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Series for the time
periods indicated and then sell all of your shares at the end of those periods.
The example also assumes that your investment has a 5% return each year and that
the Series' operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
1 YR 3 YRS 5 YRS 10 YRS
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Series shares $73 $227 $395 $883
</TABLE>
- -------------------------------------------------------------------
4 CALIFORNIA MONEY MARKET SERIES [ICON] (800) 225-1852
<PAGE>
HOW THE SERIES INVESTS
- -------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
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. While we make every effort to
achieve our objective, we can't guarantee success.
The Series invests in high-quality money market instruments to try to
provide investors with current tax-free income while maintaining a stable net
asset value of $1 per share. We manage the Series to comply with specific rules
designed for money market mutual funds. To date, the Series' net asset value has
never deviated from $1 per share.
In pursuing the Series' objective, we invest primarily in short-term CALIFORNIA
OBLIGATIONS, including California state and municipal bonds as well as
obligations of other issuers (such as issuers located in Puerto Rico, the Virgin
Islands and Guam) that pay interest income that is exempt from California state
and federal income taxes. We normally invest so that at least 80% of the income
from the Series' investments will be exempt from California state and federal
income taxes or the Series will invest at least 80% of its total assets in
California obligations. The Series, however, may hold private activity bonds,
which are municipal bonds the interest on which is subject to the federal
alternative minimum tax (AMT).
Municipal bonds include GENERAL OBLIGATION BONDS and REVENUE BONDS. General
obligation bonds are obligations supported by the credit of an issuer that has
the power to tax and are payable from that issuer's general revenues and not
from any specific source. Revenue bonds, on the other hand, are payable from
revenues from a particular source.
The obligations that we purchase must be rated in one of the two highest
rating categories by at least two nationally recognized statistical rating
organizations (NRSROs), such as Moody's Investors Service, Inc. (rated at least
Aa, MIG-2 or Prime-2) or Standard & Poor's Rating Group (rated at least AA, SP-2
or A-2) or, if unrated, of comparable quality. We may also invest in insured
municipal bonds. A rating is an assessment of
- -------------------------------------------------------------------
States and municipalities issue bonds in order to borrow money to finance a
project. You can think of bonds as loans that investors make to the state, local
government or other issuer. The issuer gets the cash needed to complete the
project and investors earn income on their investment.
- -------------------------------------------------------------------
- --------------------------------------------------------------------------------
5
<PAGE>
HOW THE SERIES INVESTS
- ------------------------------------------------
the likelihood of timely repayment of interest and principal (with respect to a
municipal bond) or payment of claims (with respect to an insurer of a municipal
bond) and can be useful when comparing different municipal bonds. These ratings
are not a guarantee of quality. The opinions of the rating agencies do not
reflect market risk and they may at times lag behind the current financial
conditions of the issuer or insurer. An investor can evaluate the expected
likelihood of debt repayment by an issuer by looking at its ratings as compared
to another similar issuer.
In determining which securities to buy and sell, the investment adviser will
consider, among other things, yield, maturity, issue, quality characteristics
and expectations regarding economic and political developments, including
movements in interest rates and demand for municipal bonds. The investment
adviser will seek to anticipate interest rate movements and will purchase and
sell municipal bonds accordingly. The investment adviser will also consider the
claims-paying ability with respect to insurers of municipal bonds. The
investment adviser will also seek to take advantage of differentials in yields
with respect to securities with similar credit ratings and maturities, but which
vary according to the purpose for which they were issued. The investment adviser
will also seek to take advantage of differentials in yields with respect to
securities issued for similar purposes with similar maturities, but which vary
according to ratings.
Debt obligations in general, including those listed above and any others
that we may purchase, are basically written promises to repay a debt. Among the
various types of debt securities we may purchase, the terms of repayment may
vary, as may the commitment of other parties to honor the obligations of the
issuer of the security. We may purchase securities that include demand features,
which allow us to demand repayment of a debt obligation before the obligation is
due or "matures." This means that we can purchase longer-term securities because
of our expectation that we can demand repayment of the obligation at an agreed-
upon price within a relatively short period of time. This procedure follows the
rules applicable to money market funds.
The securities that we may purchase may change over time as new types of
money market instruments are developed. We will purchase these new instruments,
however, only if their characteristics and features follow the rules governing
the operation of money market funds.
- -------------------------------------------------------------------
6 CALIFORNIA MONEY MARKET SERIES [ICON] (800) 225-1852
<PAGE>
HOW THE SERIES INVESTS
- ------------------------------------------------
For more information, see "Investment Risks" and the Statement of Additional
Information, "Description of the Fund, Its Investment and Risks." The Statement
of Additional Information--which we refer to as the "SAI"--contains additional
information about the Series. To obtain a copy, see the back cover page of this
prospectus.
The Series' investment objective is a fundamental policy that cannot be
changed without shareholder approval. The Board of the Prudential California
Municipal Fund can change investment policies that are not fundamental.
OTHER INVESTMENTS AND STRATEGIES
In addition to the principal strategies, we may also make the following
investments to try to increase the Series' returns or protect its assets if
market conditions warrant.
MUNICIPAL ASSET-BACKED SECURITIES
The Series may invest in MUNICIPAL ASSET-BACKED SECURITIES. A municipal
asset-backed security is a type of pass-through instrument that pays interest
which is eligible for exclusion from federal income taxation based upon the
income from an underlying pool of municipal bonds.
FLOATING RATE BONDS AND VARIABLE RATE BONDS
The Series may invest in floating rate bonds and variable rate bonds. FLOATING
RATE BONDS are municipal bonds that have an interest rate that is set as a
specific percentage of a designated rate, such as the rate on Treasury bonds or
the prime rate at major commercial banks. The interest rate on floating rate
bonds changes when there is a change in the designated rate. VARIABLE RATE BONDS
are municipal bonds that have an interest rate that is adjusted, based on the
market rate at a specified period. They generally allow the Series to demand
payment of the bond on short notice for an amount that may be more or less than
the amount paid.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
The Series may purchase municipal bonds on a "WHEN-ISSUED" or "DELAYED-DELIVERY"
basis, without limit. When the Series makes this type of purchase, the price and
rate are fixed at the time of purchase, but delivery and payment for the bonds
take place at a later time. The Series does not earn interest income until the
date the bonds are delivered.
- --------------------------------------------------------------------------------
7
<PAGE>
HOW THE SERIES INVESTS
- ------------------------------------------------
REPURCHASE AGREEMENTS
The Series may use REPURCHASE AGREEMENTS where a party agrees to sell a security
to the Series and then repurchase it at an agreed-upon price at a stated time. A
repurchase agreement is like a loan by the Series to the other party which
creates a fixed return for the Series.
LIQUIDITY PUTS
The Series may purchase and exercise PUTS on municipal bonds without limit. Puts
give the Series the right to sell securities at a specified price and date. Puts
may be acquired to reduce the risk of the securities subject to the puts, but
puts may involve additional costs to the Series, which could reduce the Series'
return.
TEMPORARY DEFENSIVE STRATEGY
For temporary defensive purposes, the Series may hold up to 100% of its assets
in cash or short-term investment-grade bonds, including bonds that are not
exempt from state, local and federal income taxation. Investing heavily in these
securities can limit our ability to achieve the Series' objective, but can help
to preserve the Series' assets.
ADDITIONAL STRATEGIES
The Series also follows certain policies when it: BORROWS MONEY (the Series can
borrow up to 33 1/3% of the value of its total assets); and HOLDS ILLIQUID
SECURITIES (the Series may hold up to 10% of its net assets in illiquid
securities, including certain securities with legal or contractual restrictions
on resale, those without a readily available market and repurchase agreements
with maturities longer than 7 days). The Series is subject to certain investment
restrictions that are fundamental policies and cannot be changed without
shareholder approval. For more information about these restrictions, see the
SAI.
INVESTMENT RISKS
As noted, all investments involve risk, and investing in the Series is no
exception. Since the Series' holdings can vary significantly from broad market
indexes, performance of the Series can deviate from performance of the indexes.
This chart outlines the key risks and potential rewards of the Series' principal
investments and certain of the Series' non-principal investments and strategies.
See, too, "Description of the Fund, Its Investments and Risks" in the SAI.
- -------------------------------------------------------------------
8 CALIFORNIA MONEY MARKET SERIES [ICON] (800) 225-1852
<PAGE>
HOW THE SERIES INVESTS
- ------------------------------------------------
INVESTMENT TYPE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
% OF SERIES' TOTAL ASSETS RISKS POTENTIAL REWARDS
- ------------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS -- Concentration -- Tax-exempt interest
risk--the risk that income, except with
PROVIDE AT LEAST 80% OF bonds may lose value respect to certain
SERIES' INCOME OR because of political, bonds, such as
COMPRISE AT LEAST 80% OF economic or other private activity
ITS TOTAL ASSETS events affecting bonds, which are
issuers of California subject to the
obligations federal alternative
-- Credit risk--the risk minimum tax (AMT)
that the borrower
can't pay back the
money borrowed or
make interest
payments
-- Market risk--the risk
that bonds will lose
value in the market
because interest
rates change or there
is a lack of
confidence in the
borrower
-- Illiquidity risk--the
risk that it may be
difficult to value
precisely and sell at
time or price desired
-- Nonappropriation
risk--the risk that
the municipality may
not include the bond
obligations in future
budgets
-- Tax risk--the risk
that federal, state
or local income tax
rates may decrease,
which could decrease
demand for municipal
bonds, or that a
change in law may
limit or eliminate
exemption of interest
on municipal bonds
from such taxes
- ------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
9
<PAGE>
HOW THE SERIES INVESTS
- ------------------------------------------------
INVESTMENT TYPE (CONT'D)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
% OF SERIES' TOTAL ASSETS RISKS POTENTIAL REWARDS
- ------------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL ASSET-BACKED -- Prepayment risk--the -- Regular interest
SECURITIES risk that the income
underlying bonds may -- Pass-through
PERCENTAGE VARIES be prepaid, partially instruments provide
or completely, greater
generally during diversification than
periods of falling direct ownership of
interest rates, which municipal bonds
could adversely
affect yield to
maturity and could
require the Series to
reinvest in lower
yielding bonds
-- Credit risk--the risk
that the underlying
municipal bonds will
not be paid by
issuers or by credit
insurers or
guarantors of such
instruments. Some
municipal
asset-backed
securities are
unsecured or secured
by lower-rated
insurers or
guarantors and thus
may involve greater
risk
-- Market risk
-- Tax risk
- ------------------------------------------------------------------------------------
VARIABLE/FLOATING RATE -- Value lags value of -- May offer protection
SECURITIES fixed-rate securities against interest rate
when interest rates changes
PERCENTAGE VARIES change
- ------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------
10 CALIFORNIA MONEY MARKET SERIES [ICON] (800) 225-1852
<PAGE>
HOW THE SERIES INVESTS
- ------------------------------------------------
INVESTMENT TYPE (CONT'D)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
% OF SERIES' TOTAL ASSETS RISKS POTENTIAL REWARDS
- ------------------------------------------------------------------------------------
<S> <C> <C>
WHEN-ISSUED AND -- May magnify underlying -- May magnify underlying
DELAYED-DELIVERY investment losses investment gains
SECURITIES -- Investment costs may
exceed potential
PERCENTAGE VARIES underlying investment
gains
- ------------------------------------------------------------------------------------
ILLIQUID SECURITIES -- May be difficult to -- May offer more
value precisely attractive yield or
UP TO 10% OF NET ASSETS -- May be difficult to potential for growth
sell at the time or than more widely
price desired traded securities
- ------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
11
<PAGE>
HOW THE SERIES IS MANAGED
- -------------------------------------
BOARD OF TRUSTEES
The Fund's Board of Trustees oversees the actions of the Manager, Investment
Adviser and Distributor and decides on general policies. The Board also oversees
the Fund's officers who conduct and supervise the daily business operations of
the Fund.
MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM)
GATEWAY CENTER THREE, 100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
Under a management agreement with the Fund, PIFM manages the Series'
investment operations and administers its business affairs. For the fiscal year
ended August 31, 1999, the Series paid PIFM management fees of .50% of the
Series' average net assets.
PIFM and its predecessors have served as manager or administrator to
investment companies since 1987. As of October 31, 1999, PIFM served as the
Manager to all 46 of the Prudential mutual funds, and as manager or
administrator to 22 closed-end investment companies, with aggregate assets of
approximately $72 billion.
INVESTMENT ADVISER
The Prudential Investment Corporation, called Prudential Investments, is the
Series' investment adviser and has served as an investment adviser to investment
companies since 1984. Its address is Prudential Plaza, 751 Broad Street, Newark,
NJ 07102. PIFM has responsibility for all investment advisory services,
supervises Prudential Investments and reimburses Prudential Investments for its
reasonable costs and expenses.
Prudential Investments' Fixed Income Group is organized into teams that
specialize in different market sectors. The Fixed Income Policy Committee, which
is comprised of senior investment staff from each sector team, provides guidance
to the teams regarding duration risk, asset allocations and general risk
parameters. Portfolio managers contribute bottom-up security selection within
those guidelines. The Money Market Sector Team, headed by Joseph Tully, is
responsible for overseeing the day-to-day management of the Series.
- -------------------------------------------------------------------
12 CALIFORNIA MONEY MARKET SERIES [ICON] (800) 225-1852
<PAGE>
HOW THE SERIES IS MANAGED
- ------------------------------------------------
DISTRIBUTOR
Prudential Investment Management Services LLC (PIMS) distributes the Series'
shares under a Distribution Agreement with the Fund. The Fund has a Distribution
and Service Plan under Rule 12b-1 of the Investment Company Act. Under the Plan
and the Distribution Agreement, PIMS pays the expenses of distributing the
Series' shares and provides certain shareholder support services. The Fund pays
distribution and other fees to PIMS as compensation for its services. These
fees--known as 12b-1 fees--are shown in the "Fees and Expenses" tables.
YEAR 2000 READINESS DISCLOSURE
The services provided to the Fund and the shareholders by the Manager, the
Distributor, the Transfer Agent and the Custodian depend on the smooth
functioning of their computer systems and those of outside service providers.
Many computer software systems in use today cannot distinguish the year 2000
from the year 1900 because of the way dates are encoded and calculated. Such
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. The Fund and its Board receive, and have
received since early 1998, satisfactory quarterly reports from the principal
service providers as to their preparations for year 2000 readiness, although
there can be no assurance that the service providers (or other securities market
participants) will successfully complete the necessary changes in a timely
manner. Moreover, the Fund at this time has not considered retaining alternative
service providers or directly undertaken efforts to achieve year 2000 readiness,
the latter of which would involve substantial expenses without an assurance of
success.
Additionally, issuers of securities generally, as well as those purchased by
the Series, may confront year 2000 compliance issues which, if material and not
resolved, could have an adverse impact on securities markets and/ or a specific
issuer's performance and result in a decline in the value of the securities held
by the Series.
- --------------------------------------------------------------------------------
13
<PAGE>
SERIES DISTRIBUTIONS AND TAX ISSUES
- -------------------------------------
Investors who buy shares of the Series should be aware of some important tax
issues. For example, the Series distributes DIVIDENDS of ordinary income and any
REALIZED NET CAPITAL GAINS to shareholders. Dividends generally will be exempt
from federal and California state income taxes. If, however, the Series invests
in taxable obligations, it will pay dividends that are not exempt from these
income taxes.
The following briefly discusses some of the important state and federal tax
issues you should be aware of, but is not meant to be tax advice. For tax
advice, please speak with your tax adviser.
DISTRIBUTIONS
The Series distributes DIVIDENDS of any net investment income to shareholders
every month. For example, if the Series owns a City XYZ bond and the bond pays
interest, the Series will pay out a portion of this interest as a dividend to
its shareholders, assuming the Series' income is more than its costs and
expenses. These dividends generally will be EXEMPT FROM FEDERAL INCOME TAXES, as
long as 50% or more of the value of the Series' assets at the end of each
quarter is invested in state, municipal and other obligations, the interest on
which is excluded from gross income for federal income tax purposes.
As we mentioned before, the Series will concentrate its investments in
California obligations. In addition to being exempt from federal taxes, Series'
dividends are EXEMPT FROM CALIFORNIA STATE INCOME TAXES (but not from California
franchise taxes) FOR CALIFORNIA RESIDENTS if the dividends are excluded from
federal income taxes, are derived from interest payments on California
obligations and as long as 50% or more of the value of its total assets are
obligations which when held by an individual is exempt from taxation under
California law. Dividends attributable to the interest on taxable bonds held by
the Series, market discount on taxable and tax-exempt obligations and short-term
capital gains, however, will be subject to federal, state and local income tax
at ordinary income tax rates. 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.
Some shareholders may be subject to federal alternative minimum tax (AMT)
liability. Tax-exempt interest from certain bonds is treated as an item
- -------------------------------------------------------------------
14 CALIFORNIA MONEY MARKET SERIES [ICON] (800) 225-1852
<PAGE>
SERIES DISTRIBUTIONS AND TAX ISSUES
- ------------------------------------------------
of tax preference, and may be attributed to shareholders. A portion of all
tax-exempt interest is includable as an upward adjustment in determining a
corporation's alternative minimum taxable income. These rules could make you
liable for the AMT.
Although the Series is not likely to realize capital gains because of the
types of securities we purchase, any REALIZED NET CAPITAL GAINS will be paid to
shareholders (typically once a year). Capital gains are generated when the
Series sells assets for a profit.
For your convenience, Series distributions of dividends and capital gains
are AUTOMATICALLY REINVESTED in the Series. If you ask us to pay the
distributions in cash, we will send you a check if your account is with the
Transfer Agent. Otherwise, if your account is with a broker you will receive a
credit to your account. Either way, the distributions may be subject to taxes.
For more information about Automatic Reinvestment and other shareholder
services, see "How to Buy, Sell and Exchange Shares of the Series--How To Buy
Shares" at Step 3: Additional Shareholder Services.
TAX ISSUES
FORM 1099
Every year, you will receive a Form 1099, which reports the amount of dividends
and capital gains we distributed to you during the prior year.
Series distributions are generally taxable in the year they are received,
except where we declare certain dividends in December of a calendar year but
actually pay them in January of the following year. In such cases, the dividends
are treated as if they were paid on December 31 of the prior year. Corporate
shareholders are not eligible for the 70% dividends-received deduction on
dividends paid by the Series.
WITHHOLDING TAXES
If federal law requires you to provide the Series with your tax identification
number and certifications as to your tax status, and you fail to do this, or if
you are otherwise subject to back-up withholding, we generally withhold and pay
to the U.S. Treasury 31% of your distributions and gross sale proceeds.
Dividends of net investment income and short-term capital gains paid to a
NONRESIDENT FOREIGN SHAREHOLDER generally will be subject to a U.S. withholding
tax of 30%. This rate may be lower, depending on any tax treaty the U.S. may
have with the shareholder's country.
- --------------------------------------------------------------------------------
15
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- -------------------------------------
HOW TO BUY SHARES
STEP 1: OPEN AN ACCOUNT
If you don't have an account with us or a securities firm that is permitted to
buy or sell shares of the Series for you, call PRUDENTIAL MUTUAL FUND SERVICES
LLC (PMFS) at (800) 225-1852 or contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: INVESTMENT SERVICES
P.O. BOX 15020
NEW BRUNSWICK, NJ 08906-5020
To purchase by wire, call the number above to obtain an application. After
PMFS receives your completed application, you will receive an account number.
For additional information about purchasing shares of the Series, see the back
cover page of this prospectus. We have the right to reject any purchase order
(including an exchange into the Series) or suspend or modify the Series' sale of
its shares.
Except as noted below, the minimum initial investment for Series shares is
$1,000 and the minimum subsequent investment is $100. All minimum investment
requirements are waived for certain retirement and employee savings plans and
custodial accounts for the benefit of minors.
PURCHASES THROUGH PRUDENTIAL SECURITIES
Purchases of shares of the Series through Prudential Securities are made through
automatic investment procedures (the Autosweep program). You cannot purchase
shares through Prudential Securities other than through the Autosweep program,
except as specifically provided (that is, you cannot make a manual purchase).
The Autosweep program allows you to designate a money market fund as your
primary money sweep fund. If you do not designate a primary money sweep fund,
Prudential MoneyMart Assets, Inc. will automatically be your primary money sweep
fund. You have the option to change your primary money sweep fund at any time by
notifying your Prudential Securities Financial Advisor. The following discussion
assumes that you have selected the Series as your primary money sweep fund.
For individual retirement accounts (IRAs) and benefit plans in the Autosweep
program, all credit balances (that is, immediately available
- -------------------------------------------------------------------
16 CALIFORNIA MONEY MARKET SERIES [ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- ------------------------------------------------
funds) of $1.00 or more will be invested in the Series on a daily basis.
Prudential Securities will arrange for the investment of the credit balance in
the Series and will purchase shares of the Series equal to that amount. This
will occur on the business day following the availability of the credit balance.
Prudential Securities may use and retain the benefit of credit balances in your
account until Series shares are purchased.
For accounts other than IRAs and benefit plans, shares of the Series will be
purchased as follows:
-- When your account has a credit balance of $10,000 or more, Prudential
Securities will arrange for the automatic purchase of shares of the
Series. This will occur on the business day following the
availability of the credit balance
-- When your account has a credit balance that results from a securities
sale totaling $1,000 or more, the available cash will be invested in
the Series on the settlement date
-- For all other credit balances of $1.00 or more, shares will be
purchased automatically at least once a month on the last business
day of each month
Purchases through the Autosweep program are subject to a minimum initial
investment of $1,000, which is waived for certain retirement and employee
savings plans and custodial accounts for the benefit of minors. You will begin
earning dividends on your shares purchased through the Autosweep program on the
first business day after the order is placed. Prudential Securities will
purchase shares of the Series at the price determined at 4:30 p.m. New York time
on the business day following the existence of the credit balance, which is the
second business day after the availability of the credit balance. Prudential
Securities will use and retain the benefit of credit balances in your account
until Series shares are purchased.
Your investment in the Series will be held in the name of Prudential
Securities. Prudential Securities will receive all statements and dividends from
the Fund and will, in turn, send you account statements showing your purchases,
sales and dividends.
The charges and expenses of the Autosweep program are not reflected in the
Fees and Expenses tables. For information about participating in the Autosweep
program, you should contact your Prudential Securities Financial Advisor.
- --------------------------------------------------------------------------------
17
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- ------------------------------------------------
PURCHASES THROUGH THE PRUDENTIAL ADVANTAGE ACCOUNT PROGRAM
The Prudential Advantage Account Program (the Advantage Account Program) is a
financial services program available to clients of Pruco Securities Corporation
(Pruco) and provides for an automatic investment procedure similar to the
Autosweep program. The Advantage Account Program consists of two types of
accounts: the Investor Account and the Advantage Account, which offers
additional services, such as a debit card and check writing.
The Advantage Account Program allows you to designate a money market fund as
your primary money sweep fund. If you do not designate a primary money sweep
fund, Prudential MoneyMart Assets, Inc. will automatically be your primary money
sweep fund. You have the option to change your primary money sweep fund at any
time by notifying your Pruco representative or the Advantage Service Center. The
following discussion assumes that you have selected the Series as your primary
money sweep fund.
With the Advantage Account as well as the Investor Account for benefit plans
and individual retirement accounts (IRAs), all credit balances (that is,
immediately available funds) of $1.00 or more will be invested in the Series on
a daily basis. Prudential Securities (Pruco's clearing broker) arranges for the
investment of the credit balance in the Series and will purchase shares of the
Series equal to that amount. This will occur on the business day following the
availability of the credit balance. Prudential Securities may use and retain the
benefit of credit balances in your account until Series shares are purchased.
If you have an Investor Account (non-IRAs), shares of the Series will be
purchased as follows:
-- When your account has a credit balance of $10,000 or more, Prudential
Securities will arrange for the automatic purchase of shares of the
Series with all cash balances of $1.00 or more. This will occur on
the business day following the availability of the credit balance
-- When your account has a credit balance that results from a securities
sale totaling more than $1,000, all cash balances of $1.00 or more
will be invested in the Series on the business day following the
settlement date
- -------------------------------------------------------------------
18 CALIFORNIA MONEY MARKET SERIES [ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- ------------------------------------------------
-- For all other credit balances of $1.00 or more, shares will be
purchased automatically at least once a month on the last business
day of each month
You will begin earning dividends on your shares purchased through the
Advantage Account Program on the first business day after the order is placed.
Prudential Securities will purchase shares of the Series at the price determined
at 4:30 p.m. New York time on the business day following the availability of the
credit balance. Prudential Securities will use and retain the benefit of credit
balances in your account until Series shares are purchased.
Purchases of, withdrawals from and dividends from the Series will be shown
on your Advantage Account or Investor Account statement.
The charges and expenses of the Advantage Account Program are not reflected
in the Fees and Expenses tables. For information about participating in the
Advantage Account Program, you should call (800) 235-7637.
PURCHASES THROUGH THE COMMAND PROGRAM OR THE BUSINESSEDGE PROGRAM
Class A shares of the Series are available to shareholders who meet the minimum
investment requirements and participate in either the corporate COMMAND-SM-
Account Program (the COMMAND Program), which is available through Prudential
Securities, or the Prudential BusinessEdge-SM- Account Program (the BusinessEdge
Program), which is available either through Prudential Securities or Pruco.
These programs offer integrated financial services that link together various
product components with the ability to invest in shares of the Series. If you
participate in the COMMAND Program or the BusinessEdge Program, your purchase of
Series shares must be made through your Prudential Securities Financial Advisor
or your Pruco broker, as applicable.
MANUAL PURCHASES
You may make a manual purchase (that is, a non-money market sweep purchase) of
Series shares in either of the following situations:
-- You do not participate in a money market sweep program (E.G., the
Autosweep program or the Advantage Account Program), or
-- You participate in a money market sweep program, but the Series is
not designated as your primary money market sweep fund
- --------------------------------------------------------------------------------
19
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- ------------------------------------------------
The minimum initial investment for a manual purchase for shares of the
Series is $1,000 and the minimum subsequent investment is $100, except that all
minimum investment requirements are waived for certain retirement and employee
savings plans and custodial accounts for the benefit of minors.
If you make a manual purchase through Prudential Securities, Prudential
Securities will place your order for shares of the Series on the business day
after the purchase order is received for settlement that day, which is the
second business day after receipt of the purchase order by Prudential
Securities. Prudential Securities may use and retain the benefit of credit
balances in a client's brokerage account until monies are delivered to the
Series (Prudential Securities delivers federal funds on the business day after
settlement).
If you make a manual purchase through the Fund's Distributor, through your
broker or dealer (other than Prudential Securities) or directly from the Fund,
shares will be purchased at the net asset value next determined after receipt of
your order and payment in proper form. When your payment is received by
4:30 p.m., New York time, shares will be purchased that day and you will begin
to earn dividends on the following business day. If you purchase shares through
a broker or dealer, your broker or dealer will forward your order and payment to
the Fund. You should contact your broker or dealer for information about
services that they may provide, including an automatic sweep feature.
Transactions in Series shares may be subject to postage and other charges
imposed by your broker or dealer. Any such charge is retained by your broker or
dealer and is not sent to the Fund.
STEP 2: UNDERSTANDING THE PRICE YOU'LL PAY
When you invest in a mutual fund, you buy shares of the Series. Shares of a
money market mutual fund, like the Series, are priced differently than shares of
common stock and other securities.
The price you pay for each share of the Series is based on the share value.
The share value of a mutual fund--known as the NET ASSET VALUE or NAV--is
determined by a simple calculation: it's the total value of the Series (assets
minus liabilities) divided by the total number of shares outstanding. In
determining NAV, the Series values its securities using the amortized cost
method. The Series seeks to maintain an NAV of $1 per
- -------------------------------------------------------------------
20 CALIFORNIA MONEY MARKET SERIES [ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- ------------------------------------------------
share at all times. Your broker may charge you a separate or additional fee for
purchases of shares.
We determine the NAV of our shares once each business day at 4:30 p.m. New
York time on days that the New York Stock Exchange (NYSE) is open for trading.
The NYSE is closed on national holidays and Good Friday. We do not determine NAV
on days when we have not received any orders to purchase, sell, or exchange or
when changes in the value of the Series' portfolio do not affect the NAV.
STEP 3: ADDITIONAL SHAREHOLDER SERVICES
As a Series shareholder, you can take advantage of the following services and
privileges:
AUTOMATIC REINVESTMENT. As we explained in the "Series Distributions and Tax
Issues" section, the Series pays out--or distributes--its net investment income
and capital gains to all shareholders. For your convenience, we will
automatically reinvest your distributions in the Series at NAV. If you want your
distributions paid in cash, you can indicate this preference on your
application, notify your broker or notify the Transfer Agent in writing (at the
address below) at least five business days before the date we determine who
receives dividends.
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTENTION: ACCOUNT MAINTENANCE
P.O. BOX 15015
NEW BRUNSWICK, NJ 08906-5015
REPORTS TO SHAREHOLDERS. Every year we will send you an annual report (along
with an updated prospectus) and a semi-annual report, which contain important
financial information about the Series. To reduce Series expenses, we will send
one annual shareholder report, one semi-annual shareholder report and one annual
prospectus per household, unless you instruct us or your broker otherwise.
HOW TO SELL YOUR SHARES
You can sell your shares of the Series at any time, subject to certain
restrictions.
- --------------------------------------------------------------------------------
21
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- ------------------------------------------------
When you sell shares of the Series--also known as REDEEMING shares--the
price you will receive will be the NAV next determined after the Transfer Agent,
the Distributor or your broker receives your order to sell. If your broker holds
your shares, he must receive your order to sell by 4:30 p.m. New York time to
process the sale on that day. Otherwise contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTENTION: REDEMPTION SERVICES
P.O. BOX 15010
NEW BRUNSWICK, NJ 08906-5010
Generally, we will pay you for the shares that you sell within seven days
after the Transfer Agent, the Distributor or your broker receives your sell
order. If you hold shares through a broker, payment will be credited to your
account. If you are selling shares you recently purchased with a check, we may
delay payment of your proceeds until your check clears, which can take up to 10
days from the purchase date. You can avoid delay if you purchase shares by wire,
certified check or cashier's check. Your broker may charge you a separate or
additional fee for sales of shares.
RESTRICTIONS ON SALES. There are certain times when you may not be able to sell
shares of the Series or when we may delay paying you the proceeds from a sale.
This may happen during unusual market conditions or emergencies when the Series
can't determine the value of its assets or sell its holdings. For more
information, see the SAI, "Purchase, Redemption and Pricing of Fund Shares--Sale
of Shares."
If you are selling more than $100,000 of shares, if you want the check sent
to someone or some place that is not in our records, or you are a business or a
trust, and if you hold your shares directly with the Transfer Agent, you may
have to have the signature on your sell order signature guaranteed by an
"eligible guarantor institution." An "eligible guarantor institution" includes
any bank, broker, dealer or credit union. For more information, see the SAI,
"Purchase, Redemption and Pricing of Fund Shares--Sale of Shares--Signature
Guarantee."
REDEMPTION IN KIND. If the sales of Series shares you make during any 90-day
period reach the lesser of $250,000 or 1% of the value of the
- -------------------------------------------------------------------
22 CALIFORNIA MONEY MARKET SERIES [ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- ------------------------------------------------
Series' net assets, we can then give you securities from the Series' portfolio
instead of cash. If you want to sell the securities for cash, you would have to
pay the costs charged by a broker.
AUTOMATIC REDEMPTION FOR AUTOSWEEP. If you participate in the Autosweep program,
your Series shares may be automatically redeemed to cover any deficit in your
Prudential Securities account. The amount redeemed will be the nearest dollar
amount necessary to cover the deficit.
The amount of the redemption will be the lesser of the total value of Series
shares held in your Prudential Securities account or the deficit in your
Prudential Securities account. If you use this automatic redemption procedure
and want to pay for a securities transaction in your account other than through
this procedure, you must deposit cash in your securities account before the
settlement date. If you use this automatic redemption procedure and want to pay
any other deficit in your securities account other than through this procedure,
you must deposit cash in your securities account before you incur the deficit.
Redemptions are automatically made by Prudential Securities, to the nearest
dollar, on each day to satisfy deficits from securities transactions or to honor
your redemption requests. Your account will be automatically scanned for
deficits each day and, if there is insufficient cash in your account, we will
redeem an appropriate number of shares of the Series at the next determined NAV
to satisfy any remaining deficit. You are entitled to any dividends declared on
the redeemed shares through the day before the redemption is made. Dividends
declared on the redemption date will be retained by Prudential Securities, which
has advanced monies to satisfy deficits in your account.
AUTOMATIC REDEMPTION FOR THE ADVANTAGE ACCOUNT. If you participate in the
Advantage Account Program, your Series shares may be automatically redeemed to
cover any deficit in your securities account. The amount redeemed will be the
nearest dollar amount necessary to cover the deficit.
The amount of the redemption will be the lesser of the total value of Series
shares held in your securities account or the deficit in your securities
account. A deficit in your Advantage Account may result from activity arising
under the program, such as debit balances incurred by the use of the
Visa-Registered Trademark- Account, including Visa purchases, cash advances and
Visa
- --------------------------------------------------------------------------------
23
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- ------------------------------------------------
Account checks. Your account will be automatically scanned for deficits each day
and, if there is insufficient cash in your account, we will redeem an
appropriate number of shares of the Series to satisfy any remaining deficit. You
are entitled to any dividends declared on the redeemed shares through the day
before the redemption is made. Dividends declared on the redemption date will be
retained by Prudential Securities, which has advanced monies to satisfy deficits
in your account.
Redemptions are automatically made by Prudential Securities, to the nearest
dollar, on each day to satisfy deficits from securities transactions or to honor
your redemption requests.
AUTOMATIC REDEMPTION FOR THE COMMAND PROGRAM OR THE BUSINESSEDGE PROGRAM. If you
participate in the COMMAND Program or the BusinessEdge Program, your Series
shares will be automatically redeemed to cover any deficit in your account. The
amount of the redemption will be the nearest dollar amount necessary to cover
the deficit.
The amount of the redemption will be the lesser of the total value of Series
shares held in your account or the deficit in your account. A deficit in your
COMMAND Program account or BusinessEdge Program account may result from activity
arising under the Program, such as debit balances incurred by the use of the
Visa-Registered Trademark- Gold Debit Card Account (for the COMMAND Program) or
the BusinessEdge Visa-Registered Trademark- Debit Card Account (for the
BusinessEdge Program), as well as ATM transactions, cash advances and Program
account checks. Your account will be automatically scanned for deficits each day
and, if there is insufficient cash in your account, we will redeem an
appropriate number of shares of the Series to satisfy any remaining deficit. You
are entitled to any dividends declared on the redeemed shares through the day
before the redemption is made. Dividends declared on the redemption date will be
retained by Prudential Securities or Pruco, as applicable, which has advanced
monies to satisfy deficits in your account.
Redemptions are automatically made, to the nearest dollar, on each day to
satisfy account deficits or to honor your redemption requests.
MANUAL REDEMPTION FOR THE COMMAND PROGRAM OR THE BUSINESSEDGE PROGRAM. If you
participate in the COMMAND Program or the BusinessEdge Program, you may redeem
your Series shares by submitting a written
- -------------------------------------------------------------------
24 CALIFORNIA MONEY MARKET SERIES [ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- ------------------------------------------------
request to your Prudential Securities Financial Advisor or Pruco broker, as
applicable. You should not send a manual redemption request to the Fund. If you
do, we will forward the request to Prudential Securities or Pruco, as
appropriate, which could delay your requested redemption.
The proceeds from a manual redemption will immediately become a free cash
balance in your Program account and will be automatically invested in the money
market mutual fund that you selected as the "Primary Fund" for cash sweeps in
your account. Both the COMMAND Program and the BusinessEdge Program require that
your written redemption request be signed by all persons in whose name Series
shares are registered, exactly as they appear on your Program account client
statement. In certain situations, additional documents such as trust
instruments, death certificates, appointments as executor or administrator, or
certificates of corporate authority may be required.
Under the COMMAND Program, Prudential Securities has the right to terminate
your Program account at any time for any reason. Likewise, under the
BusinessEdge Program, Prudential Securities or Pruco, as applicable, has the
right to terminate your Program account at any time for any reason. If a Program
account is terminated, all shares of the Series held in the account will be
redeemed.
HOW TO EXCHANGE YOUR SHARES
You can exchange your shares of the Series for shares in certain other
Prudential mutual funds--including certain money market funds--if you satisfy
the minimum investment requirements of such other Prudential mutual fund. You
can exchange shares of the Series for Class A shares of another Prudential
mutual fund, but you can't exchange Series shares for Class B, Class C or Class
Z shares, except that shares purchased prior to January 22, 1990 that are
subject to a contingent deferred sales charge can be exchanged for Class B
shares.
If you hold shares through a broker, you must exchange shares through your
broker. Otherwise, contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: EXCHANGE PROCESSING
P.O. BOX 15010
NEW BRUNSWICK, NJ 08906-5010
- --------------------------------------------------------------------------------
25
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
- ------------------------------------------------
When you exchange shares of the Series for Class A shares of any other
Prudential mutual fund, you will be subject to any sales charge that may be
imposed by such other Prudential mutual fund. The sales charge is imposed at the
time of your exchange.
FREQUENT TRADING
Frequent trading of Series shares in response to short-term fluctuations in the
market--also known as "market timing"--may make it very difficult to manage the
Series' investments. When market timing occurs, the Series may have to sell
portfolio securities to have the cash necessary to redeem the market timer's
shares. This can happen at a time when it is not advantageous to sell any
securities, so the Series' performance may be hurt. When large dollar amounts
are involved, market timing can also make it difficult to use long-term
investment strategies because we cannot predict how much cash the Series will
have to invest. When in our opinion such activity would have a disruptive effect
on portfolio management, the Fund reserves the right to refuse purchase orders
and exchanges into the Series by any person, group or commonly controlled
accounts. The decision may be based upon dollar amount, volume and frequency of
trading. The Fund may notify a market timer of rejection of an exchange purchase
order after the day the order is placed. If the Fund allows a market timer to
trade Series shares, it may require the market timer to enter into a written
agreement to follow certain procedures and limitations.
TELEPHONE REDEMPTIONS OR EXCHANGES
You may redeem or exchange your shares in any amount by calling the Fund at
(800) 225-1852. In order to redeem or exchange your shares by telephone, you
must complete an authorization form for telephone transactions. If you have
elected telephone redemption and exchange privileges and you call the Fund
before 4:15 p.m., New York time, you will receive a redemption amount based on
that day's NAV.
The Fund's Transfer Agent will record your telephone instructions and
request specific account information before redeeming or exchanging shares. The
Fund will not be liable if it follows instructions that it reasonably believes
are made by the shareholder. If the Fund does not follow reasonable procedures,
it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
In the event of drastic economic or market changes, you may have difficulty
in redeeming or exchanging your shares by telephone. If this occurs, you should
consider redeeming or exchanging your shares by mail.
The telephone redemption or exchange privilege may be modified or terminated
at any time. If this occurs, you will receive a written notice from the Fund.
- -------------------------------------------------------------------
26 CALIFORNIA MONEY MARKET SERIES [ICON] (800) 225-1852
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------
The financial highlights will help you evaluate the Series' financial
performance. The TOTAL RETURN in the chart represents the rate that a
shareholder earned on an investment in the Series, assuming reinvestment of all
dividends and other distributions. The information is for shares of the Series
for the periods indicated.
Review this chart with the financial statements which appear in the SAI.
Additional performance information is contained in the annual report, which you
can receive at no charge.
The financial highlights for the three fiscal years ended August 31, 1999
were audited by PricewaterhouseCoopers LLP, independent accountants, and the
financial highlights for the two years ended August 31, 1996 were audited by
other independent auditors, whose reports were unqualified.
SERIES SHARES (fiscal year ended 8-31)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
YEAR $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income and net
realized gains .02 .03 .03 .03 .02(2)
Dividends and distributions to
shareholders (.02) (.03) (.03) (.03) (.03)
Capital contribution by affiliate -- -- -- -- .01
NET ASSET VALUE, END OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
TOTAL RETURN(1) 2.34% 2.81% 2.85% 2.88% 3.01%(2)
- ---------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
- ----------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSETS, END OF YEAR (000) $265,473 $301,278 $285,280 $249,833 $229,380
AVERAGE NET ASSETS (000) $289,155 $287,250 $277,720 $256,175 $243,130
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution
fee .71% .72% .73% .74% .78%
Expenses, excluding distribution
fee .59% .60% .61% .62% .65%
Net investment income 2.30% 2.77% 2.80% 2.83% 2.93%
- ---------------------------------
</TABLE>
<TABLE>
<S> <C>
1 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER
DISTRIBUTIONS. IT IS CALCULATED ASSUMING SHARES ARE
PURCHASED ON THE FIRST DAY AND SOLD ON THE LAST DAY OF EACH
PERIOD REPORTED.
2 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%.
</TABLE>
- --------------------------------------------------------------------------------
27
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
- -------------------------------------
Prudential offers a broad range of mutual funds designed to meet your individual
needs. For information about these funds, contact your financial adviser or
dealer or call us at (800) 225-1852. Read the prospectus carefully before you
invest or send money.
STOCK FUNDS
PRUDENTIAL DISTRESSED SECURITIES FUND, INC.
PRUDENTIAL EMERGING GROWTH FUND, INC.
PRUDENTIAL EQUITY FUND, INC.
PRUDENTIAL EQUITY INCOME FUND
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL SMALL-CAP INDEX FUND
PRUDENTIAL STOCK INDEX FUND
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH FUND
PRUDENTIAL JENNISON GROWTH & INCOME FUND
PRUDENTIAL MID-CAP VALUE FUND
PRUDENTIAL REAL ESTATE SECURITIES FUND
PRUDENTIAL SECTOR FUNDS, INC.
PRUDENTIAL FINANCIAL SERVICES FUND
PRUDENTIAL HEALTH SCIENCES FUND
PRUDENTIAL TECHNOLOGY FUND
PRUDENTIAL UTILITY FUND
PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
PRUDENTIAL SMALL COMPANY VALUE FUND, INC.
PRUDENTIAL TAX-MANAGED EQUITY FUND
PRUDENTIAL 20/20 FOCUS FUND
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
TARGET FUNDS
LARGE CAPITALIZATION GROWTH FUND
LARGE CAPITALIZATION VALUE FUND
SMALL CAPITALIZATION GROWTH FUND
SMALL CAPITALIZATION VALUE FUND
ASSET ALLOCATION/BALANCED FUNDS
PRUDENTIAL BALANCED FUND
PRUDENTIAL DIVERSIFIED FUNDS
CONSERVATIVE GROWTH FUND
MODERATE GROWTH FUND
HIGH GROWTH FUND
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL ACTIVE BALANCED FUND
GLOBAL FUNDS
GLOBAL STOCK FUNDS
PRUDENTIAL DEVELOPING MARKETS FUND
PRUDENTIAL DEVELOPING MARKETS EQUITY FUND
PRUDENTIAL LATIN AMERICA EQUITY FUND
PRUDENTIAL EUROPE GROWTH FUND, INC.
PRUDENTIAL GLOBAL GENESIS FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL EUROPE INDEX FUND
PRUDENTIAL PACIFIC INDEX FUND
PRUDENTIAL NATURAL RESOURCES FUND, INC.
PRUDENTIAL PACIFIC GROWTH FUND, INC.
PRUDENTIAL WORLD FUND, INC.
GLOBAL SERIES
INTERNATIONAL STOCK SERIES
GLOBAL UTILITY FUND, INC.
TARGET FUNDS
INTERNATIONAL EQUITY FUND
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28 CALIFORNIA MONEY MARKET SERIES [ICON] (800) 225-1852
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
- -------------------------------------
GLOBAL BOND FUNDS
PRUDENTIAL GLOBAL TOTAL RETURN FUND, INC.
PRUDENTIAL INTERNATIONAL BOND FUND, INC.
BOND FUNDS
TAXABLE BOND FUNDS
PRUDENTIAL DIVERSIFIED BOND FUND, INC.
PRUDENTIAL GOVERNMENT INCOME FUND, INC.
PRUDENTIAL GOVERNMENT SECURITIES TRUST
SHORT-INTERMEDIATE TERM SERIES
PRUDENTIAL HIGH YIELD FUND, INC.
PRUDENTIAL HIGH YIELD TOTAL RETURN FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL BOND MARKET INDEX FUND
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
INCOME PORTFOLIO
TARGET FUNDS
TOTAL RETURN BOND FUND
TAX-EXEMPT BOND FUNDS
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA SERIES
CALIFORNIA INCOME SERIES
PRUDENTIAL MUNICIPAL BOND FUND
HIGH INCOME SERIES
INSURED SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
MASSACHUSETTS SERIES
NEW JERSEY SERIES
NEW YORK SERIES
NORTH CAROLINA SERIES
OHIO SERIES
PENNSYLVANIA SERIES
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
MONEY MARKET FUNDS
TAXABLE MONEY MARKET FUNDS
CASH ACCUMULATION TRUST
LIQUID ASSETS FUND
NATIONAL MONEY MARKET FUND
PRUDENTIAL GOVERNMENT SECURITIES TRUST
MONEY MARKET SERIES
U.S. TREASURY MONEY MARKET SERIES
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
MONEY MARKET SERIES
PRUDENTIAL MONEYMART ASSETS, INC.
TAX-FREE MONEY MARKET FUNDS
PRUDENTIAL TAX-FREE MONEY FUND, INC.
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA MONEY MARKET SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
CONNECTICUT MONEY MARKET SERIES
MASSACHUSETTS MONEY MARKET SERIES
NEW JERSEY MONEY MARKET SERIES
NEW YORK MONEY MARKET SERIES
COMMAND FUNDS
COMMAND MONEY FUND
COMMAND GOVERNMENT FUND
COMMAND TAX-FREE FUND
INSTITUTIONAL MONEY MARKET FUNDS
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
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29
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FOR MORE INFORMATION
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Please read this prospectus before you invest in the Series and keep it for
future reference. For information or shareholder questions contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
P.O. BOX 15005
NEW BRUNSWICK, NJ 08906-5005
(800) 225-1852
(732) 417-7555
(if calling from outside the U.S.)
- --------------------------------
Outside Brokers Should Contact:
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
P.O. BOX 15035
NEW BRUNSWICK, NJ 08906-5035
(800) 778-8769
- ------------------------------------
Visit Prudential's Web Site At:
http://www.prudential.com
- --------------------------------
Additional information about the Series can be obtained without charge and can
be found in the following documents:
STATEMENT OF ADDITIONAL INFORMATION (SAI) (incorporated by reference into this
prospectus)
ANNUAL REPORT
SEMI-ANNUAL REPORT
MF139A
You can also obtain copies of Fund documents from the Securities and Exchange
Commission as follows:
By Mail:
Securities and Exchange Commission
Public Reference Section
Washington, DC 20549-6009
By Electronic Request: [email protected]
(The SEC charges a fee to copy documents.)
In Person:
Public Reference Room in
Washington, DC
(For hours of operation, call 1(800) SEC-0330)
Via the Internet:
on the EDGAR Database at
http://www.sec.gov
- --------------------------------
CUSIP Number: 744313-50-3
Quotron Symbol: PCLXX
Investment Company Act File No:
811-4024
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