<PAGE> PAGE 1
000 B000000 04/30/94
000 C000000 0000807394
000 D000000 N
000 E000000 NF
000 F000000 Y
000 G000000 N
000 H000000 N
000 I000000 3.0.a
000 J000000 A
001 A000000 PRUDENTIAL MUNICIPAL BOND FUND
001 B000000 811-4930
001 C000000 2122141250
002 A000000 199 WATER STREET
002 B000000 NEW YORK
002 C000000 NY
002 D010000 10292
003 000000 N
004 000000 N
005 000000 N
006 000000 N
007 A000000 Y
007 B000000 3
007 C010100 1
007 C020100 HIGH YIELD SERIES
007 C030100 N
007 C010200 2
007 C020200 INSURED SERIES
007 C030200 N
007 C010300 3
007 C020300 MODIFIED TERM SERIES
007 C030300 N
007 C010400 4
007 C010500 5
007 C010600 6
007 C010700 7
007 C010800 8
007 C010900 9
007 C011000 10
008 A00AA01 THE PRUDENTIAL INVESTMENT CORP.
008 B00AA01 S
008 C00AA01 801-12484
008 D01AA01 NEWARK
008 D02AA01 NJ
008 D03AA01 07101
008 A00AA02 PRUDENTIAL MUTUAL FUND MANAGEMENT, INC.
008 B00AA02 A
008 C00AA02 801-31104
008 D01AA02 NEW YORK
008 D02AA02 NY
008 D03AA02 10292
011 A00AA01 PRUDENTIAL SECURITIES INCORPORATED
<PAGE> PAGE 2
011 B00AA01 8-27154
011 C01AA01 NEW YORK
011 C02AA01 NY
011 C03AA01 10292
011 A00AA02 PRUDENTIAL MUTUAL FUND DISTRIBUTORS, INC.
011 B00AA02 8-38739
011 C01AA02 NEW YORK
011 C02AA02 NY
011 C03AA02 10292
012 A00AA01 PRUDENTIAL MUTUAL FUND SERVICES, INC.
012 B00AA01 84-10019
012 C01AA01 NEW BRUNSWICK
012 C02AA01 NJ
012 C03AA01 08906
013 A00AA01 DELOITTE & TOUCHE
013 B01AA01 NEW YORK
013 B02AA01 NY
013 B03AA01 10019
014 A00AA01 PRUDENTIAL SECURITIES INCORPORATED
014 B00AA01 8-27154
015 A00AA01 STATE STREET BANK & TRUST COMPANY
015 B00AA01 C
015 C01AA01 NORTH QUINCY
015 C02AA01 MA
015 C03AA01 02171
015 E01AA01 X
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019 A00AA00 Y
019 B00AA00 67
019 C00AA00 PRUDENTIAL
020 A000001 MERRILL LYNCH, PIERCE, FENNER & SMITH, INC.
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022 B000001 13-5108880
022 C000001 541639
022 D000001 409389
022 A000002 MERRILL LYNCH, PIERCE, FENNER & SMITH INC.
022 B000002 13-5674085
022 C000002 287534
022 D000002 182856
<PAGE> PAGE 3
022 A000003 SMITH BARNEY SHEARSON, INC.
022 B000003 13-1912900
022 C000003 138396
022 D000003 134647
022 A000004 FIRST BOSTON CORP.
022 B000004 13-5659485
022 C000004 163753
022 D000004 98498
022 A000005 WILLIAM E. SIMON
022 B000005 -
022 C000005 121465
022 D000005 85745
022 A000006 HAMBRO AMERICA SECURITIES INC.
022 B000006 -
022 C000006 98300
022 D000006 94115
022 A000007 DONALDSON,LUFKIN & JENRETTE SECURITIES CORP.
022 B000007 13-2741729
022 C000007 64462
022 D000007 113452
022 A000008 LEHMAN BROTHERS INC.
022 B000008 13-2518466
022 C000008 95570
022 D000008 39993
022 A000009 MORGAN (J.P.) SECURITIES INC.
022 B000009 13-3224016
022 C000009 67543
022 D000009 64542
022 A000010 KIRSCHNER SECURITIES, INC.
022 B000010 44-0522232
022 C000010 61345
022 D000010 49312
023 C000000 2118606
023 D000000 1896338
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<PAGE> PAGE 4
026 H000000 N
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049 00AA00 N
050 00AA00 N
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<PAGE> PAGE 5
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<PAGE> PAGE 6
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<PAGE> PAGE 7
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<PAGE> PAGE 8
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<PAGE> PAGE 9
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<PAGE> PAGE 10
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<PAGE> PAGE 11
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<PAGE> PAGE 12
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<PAGE> PAGE 13
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<PAGE> PAGE 14
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<PAGE> PAGE 15
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<PAGE> PAGE 16
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<PAGE> PAGE 17
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<PAGE> PAGE 18
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SIGNATURE SUSAN C. COTE'
TITLE TREASURER
For fiscal year ended (a) April 30, 1994
File number (c) 811-4930
SUB-ITEM 77J
Reclassification of Capital Accounts:
Effective May 1, 1993, the Prudential Municipal Bond Fund
began accounting and reporting for distributions to shareholder in
accordance with Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital
Gain, and Return of Capital Distributions by Investment Companies.
As a result of this statement, the Fund changed the classification
of distributions of shareholders to better disclose the differences
between financial statement amounts and distributions determined in
accordance with income tax regulations. The effect of adopting
this statement was to decrease paid-in capital and increase
accumulated net realized gain/loss by $17,345, $19,792 and $870 for
the High Yield Series, Insured Series and the Modified Term Series,
respectively, compared to amounts previously reported through April
30, 1993. The undistributed net investment income in the High
Yield Series results from the treatment of legal workout
expenditures for tax purposes which is different from book
purposes. Net investment income, net realized gains and net assets
were not affected by this change.
For the fiscal year ended April 30, 1994
File number (c) 811-4930
SUB-ITEM 77 D
Policies With Respect to Security Investments
At a meeting of the Trustees held on November 9, 1993, the
Fund adopted new procedures pursuant to Rules 10f-3, 17a-7 and 17e-
1 of the Investment Company Act of 1940. The revised procedures
eliminate the need for the Trustees to review annually the Fund's
Rules 10f-3, 17a-7 and 17e-1 procedures.
For the fiscal year ended (a) April 30, 1994
File number (c) 811-4930
SUB-ITEM 77 D
Policies With Respect to Security Investments
At a meeting of the Trustees held on May 4, 1993, the Trustees
approved a Distribution Agreement and a Distribution and Service
Plan for an additional class of shares (Class D shares) and,
subject to shareholder approval, conforming amendments to Class A
and Class B Distribution Agreements and Distribution and Service
Plans which will modify the Class A and Class B plans to provide
that the distribution and service fees, as under the Class D plan
of distribution, will be paid as compensation for, and not as
reimbursement of expenses incurred in, performing distribution
activities, personal service and maintenance to shareholder
accounts.
At a meeting of the Trustees held on May 4, 1993, the Trustees
approved changes in the Fund's investment policies and restrictions
relating to (i) deletion of investment restrictions regarding
restricted and illiquid securities and replacement of such
restrictions with a non-fundamental policy which can be changed by
the Trustees; and (ii) deletion of an investment restriction which
limits investment in securities where officers and Trustees of the
Funds or the Manager or Subadviser own in the aggregate more than
5% of the outstanding securities of an issuer (an Ohio blue sky
limitation) and replacement of such restriction with a non-
fundamental policy which can be changed by the Trustees.
For the fiscal year ended (a) 4/30/94
File number (c) 811-4930
SUB-ITEM 77 D
Policies With Respect to Security Investments
At a meeting of the Trustees held on February 8,
1994, the Fund approved (i) the use of tri-party repurchase
agreements and (ii) the use of Bank of New York, Chemical Bank,
Morgan Guaranty Trust Company and Bankers Trust Company as
subcustodians in connection with effecting tri-party repurchase
transactions.
MBF494.77D
For the fiscal year (a) 4/30/94
File number (c) 811-4930
SUB-ITEM 77 0
EXHIBITS
Transactions Effected Pursuant to Rule 10f-3
1. Name of Issuer
District of Columbia General Obligation Refunding Bonds
2. Date of Purchase
12/17/93
3. Number of Securities Purchased
120,000
4. Dollar Amount of Purchase
$13,425,960
5. Price Per Unit
$111.883
6. Name(s) of Underwriter(s) or Dealer(s)
From whom Purchased
WR Lazard, Laidlaw & Mead
7. Other Members of the Underwriting Syndicate
JP Morgan Securities Inc.
Berean Capital, Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
PaineWebber Incorporated
Prudential Securities
Pryor, McClendon, Counts & Co., Inc.
R.W. Corby & Company
Ferris, Baker Watts, Inc.
The Hamilton Securities Group, Inc.
INNOVA Securities
Lafayette Square Partners, Inc.
For the fiscal year ended (a) 4/30/94
File number (c) 811-4930
SUB-ITEM 77 0
EXHIBITS
Transactions Effected Pursuant to Rule 10f-3
1. Name of Issuer
NYS Dormitory Authority Court Facilities
2. Date of Purchase
12/16/93
3. Number of Securities Purchased
70,000
4. Dollar Amount of Purchase
$6,580,000
5. Price Per Unit
$94.00
6. Name(s) of Underwriter(s) or Dealer(s)
From whom Purchased
PaineWebber Incorporated
7. Other Members of the Underwriting Syndicate
Artemis Capital Group, Inc.
M.R. Beal & Company
Bear, Stearns & Co. Inc.
Dillon, Read & Co. Inc.
Goldman, Sachs & Co.
Grigsby Brandford & Co., Inc.
WR Lazard, Laidlaw & Mead, Inc.
Lehman Brothers
J.P. Morgan Securities Inc.
For the fiscal year ended (a) 4/30/94
File number (c) 811-4930
SUB-ITEM 77 0
EXHIBITS
Transactions Effected Pursuant to Rule 10f-3
1. Name of Issuer
New York State Medical Care Facilities Finance Agency,
Mental Health Services
2. Date of Purchase
12/17/93
3. Number of Securities Purchased
62,500
4. Dollar Amount of Purchase
$6,073,625
5. Price Per Unit
$97.178
6. Name(s) of Underwriter(s) or Dealer(s)
From whom Purchased
Morgan Stanley & Co.
7. Other Members of the Underwriting Syndicate
Bear, Stearns & Co. Inc.
Lehman Brothers
MR Beal & Company
Chemical Securities Inc.
First Albany Corporation
CS First Boston
Glickenhaus & Co.
Goldman, Sachs & Co.
Lazard Freres & Co.
WR Lazard, Laidlaw & Mead Incorporated
Lebenthal & Co., Inc.
Merrill Lynch & Co.
J.P. Morgan Securities Inc.
PaineWebber Incorporated
Prudential Securities Incorporated
Pryor, McClendon, Counts & Co., Inc.
Roosevelt & Cross, Incorporated
Smith Barney Shearson Inc.
<PAGE>
For the fiscal year ended (a) 4/30/94
File number (c) 811-4930
SUB-ITEM 77 0
EXHIBITS
Transactions Effected Pursuant to Rule 10f-3
1. Name of Issuer
New York State Urban Development Corporation
2. Date of Purchase
12/23/93
3. Number of Securities Purchased
100,000
4. Dollar Amount of Purchase
$9,254,200
5. Price Per Unit
$92.542
6. Name(s) of Underwriter(s) or Dealer(s)
From whom Purchased
Goldman, Sachs & Co.
7. Other Members of the Underwriting Syndicate
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Lazard Freres & Co.
Merrill Lynch & Co.
Morgan Stanley & Co. Incorporated
Pryor, McClendon, Counts & Co., Inc.
Smith Barney Shearson Inc.
Artemis Capital Group, Inc.
MR Beal & Company
Dillon, Read & Co. Inc.
First Albany Corporation
First American Municipals, Inc.
Glickenhaus & Co.
Kidder, Peabody & Co., Inc.
Lehman Brothers
J.P. Morgan Securities Inc.
PaineWebber Incorporated
Prudential Securities Incorporated
<PAGE>
For the fiscal year ended (a) 4/30/94
File number (c) 811-4930
SUB-ITEM 77 0
EXHIBITS
Transactions Effected Pursuant to Rule 10f-3
1. Name of Issuer
Washington Metropolitan Area Transit Authority Gross
Rev Ref
2. Date of Purchase
11/18/93
3. Number of Securities Purchased
24,000 (Due 7/1/09)
15,000 (Due 7/1/10)
4. Dollar Amount of Purchase
2,603,208 (Due 7/1/09)
1,623,480 (Due 7/1/10)
5. Price Per Unit
108.467 (Due 7/1/09)
108.232 (Due 7/1/10)
6. Name(s) of Underwriter(s) or Dealer(s)
From whom Purchased
Merrill Lynch & Co.
7. Other Members of the Underwriting Syndicate
Lehman Brothers
J.P. Morgan Securities, Inc.
Prudential Securities Incorporated
Pryor, McClendon, Counts & Co., Inc.
Dean Witter Reynolds Inc.
Artemis Capital Goup, Inc.
Alex. Brown & Sons Incorporated
The Chapman Company
R.W. Corby & Company Incorporated
Ferris, Baker Wassts, Inc.
Hamilton Securities Group, Inc.
Graigie Incorporated
Smith Mitchell Investment Group Inc.
WR Lazard, Laidlaw & Mead, Inc.
Wheat, First Securities, Inc.<PAGE>
For the fiscal year ended (a) 4/30/94
File number (c) 811-4930
SUB-ITEM 77 0
EXHIBITS
Transactions Effected Pursuant to Rule 10f-3
1. Name of Issuer
City of Chicago, Chicago-O'Hare International Airport
2. Date of Purchase
10/18/93
3. Number of Securities Purchased
87,500
4. Dollar Amount of Purchase
$9,390,850
5. Price Per Unit
$107.324
6. Name(s) of Underwriter(s) or Dealer(s)
From whom Purchased
Goldman, Sachs & Co.
7. Other Members of the Underwriting Syndicate
Morgan Stanley & Co. Incorporated
Apex Securities, Inc.
Artemis Capital Group, Inc.
M.R. Beal Company
William Blair & Company
Carmona, Motley & Company, Inc.
The Chicago Corporation
First Chicago Capital Markets, Inc.
Gaean Capital, Inc.
Hamilton Investments
Kidder, Peabody & Co. Incorporated
Lazard Freres & Co.
Llama Company
Mesirow Financial, Inc.
PaineWebber Incorporated
Pryor, McClendon, Counts & Co.
Reinoso & Company Inc.
Muriel Siebert & Co., Inc.
Smith Mitchell Investment Group
Dean Witter Reynolds Inc.<PAGE>
For the fiscal year ended (a) 4/30/94
File number (c) 811-4930
SUB-ITEM 77 0
EXHIBITS
Transactions Effected Pursuant to Rule 10f-3
1. Name of Issuer
City of Chicago Water Revenue Bonds
2. Date of Purchase
10/7/93
3. Number of Securities Purchased
17,500
4. Dollar Amount of Purchase
$2,021,023
5. Price Per Unit
$115.487
6. Name(s) of Underwriter(s) or Dealer(s)
From whom Purchased
Hutchinson, Shockey, Erley & Co.
7. Other Members of the Underwriting Syndicate
Prudential Securities Incorporated
Hayes-Rogers, Inc.
Robert A. Podesta & Co.
United Daniels Securities Inc<PAGE>
For the fiscal year ended (a) 4/30/94
File number (c) 811-4930
SUB-ITEM 77 0
EXHIBITS
Transactions Effected Pursuant to Rule 10f-3
1. Name of Issuer
Chicago School Finance Authority IL GO UH MBIA
2. Date of Purchase
2/17/94
3. Number of Securities Purchased
50,000
4. Dollar Amount of Purchase
$4,875,150
5. Price Per Unit
$97.503
6. Name(s) of Underwriter(s) or Dealer(s)
From whom Purchased
Lehman Brothers
7. Other Members of the Underwriting Syndicate
Goldman, Sachs & Co.
Prudential Securities Incorporated
CS First Boston
Chemical Securities Inc.
Kemper Securities Inc.
Raymond, James & Associates
Rodman & Renshaw Inc.
Aach-Dwyer Municipal Securities
Cowen & Company
Fitzgerald, Davis & Associates
Northern Trust Securities, Inc.
Stephens Inc.
Tucker Anthony Incorporated
Barr Brothers & Co. Inc.
Carmona, Motley & Company, Inc.
R.W. Corby & Co. Inc.
Coughlin and Company Inc.
Firstar Bank of Milwaukee
Glickerhaus & Co.
GSC Securities, Inc.
Interstate/Johnson Lane Corporation
E.A. Nees & Co.
Nike Securities
Oppenheimer & Co., Inc.
Prager McCarthy & Sealy
Pryor, McClendon, Counts & Co., Inc.
Muriel Siebert & Co., Inc.
Sterne, Agee & Leach, Inc.
Narris Trust and Savings Bank
Clayton Brown & Associates, Inc.
<PAGE>
For the fiscal year ended (a) April 30, 1994
File number (c) 811-4930
SUB-ITEM 77 0
EXHIBITS
Transactions Effected Pursuant to Rule 10f-3
1. Name of Issuer
City of Charlotte, North Carolina COP Convention Ctr
2. Date of Purchase
8/05/93
3. Number of Securities Purchased
20,000
4. Dollar Amount of Purchase
$1,876,020
5. Price Per Unit
$93.801
6. Name(s) of Underwriter(s) or Dealer(s)
From whom Purchased
PaineWebber Incorporated
7. Other Members of the Underwriting Syndicate
First Union Securities, Inc.
NationsBanc Capital Markets, Inc.
First Charlotte Company
Interstate/Johnson Lane Corp.
Donaldson, Lufkin & Jenrette
Grigsby Brandford & Co., Inc.
Prudential Securities Incorporated
Smith Barney, Harris Upham & Company, Inc.
Wheat, First Securities, Inc.
For the fiscal year ended (a) April 30, 1994
File number (c) 811-4930
SUB-ITEM 77 0
EXHIBITS
Transactions Effected Pursuant to Rule 10f-3
1. Name of Issuer
Dormitory Authority of the State of NY State University 93A
2. Date of Purchase
5/06/93
3. Number of Securities Purchased
20,000
4. Dollar Amount of Purchase
$1,934,560
5. Price Per Unit
$96.728
6. Name(s) of Underwriter(s) or Dealer(s)
From whom Purchased
Merrill Lynch & Co.
7. Other Members of the Underwriting Syndicate
Dillon, Read & Co. Inc.
First Albany Corporation
The First Boston Corporation
Goldman, Sachs & Co.
Lazard Freres & Co.
J.P. Morgan Securities
PaineWebber Incorporated
Smith Barney, Harris Upham & Company, Inc.
Artemis Capital Group, Inc.
Bear, Stearns & Co. Inc.
Kidder, Peabody & Co., Inc.
Lebenthal & Co., Inc.
Lehman Brothers
Morgan Stanley & Co. Inc.
Prudential Securities Incorporated
Samuel A. Ramirez & Co., Inc.
Muriel Siebert & Co., Inc.
For the fiscal year ended (a) April 30, 1994
File number (c) 811-4930
SUB-ITEM 77 0
EXHIBITS
Transactions Effected Pursuant to Rule 10f-3
1. Name of Issuer
The Philadelphia Municipal Authority, Philadelphia PA
2. Date of Purchase
6/17/93
3. Number of Securities Purchased
25,000
4. Dollar Amount of Purchase
$2,500,000
5. Price Per Unit
$100
6. Name(s) of Underwriter(s) or Dealer(s)
From whom Purchased
Kidder, Peabody & Co., Inc.
7. Other Members of the Underwriting Syndicate
Bear, Stearns & Co. Inc.
Goldman, Sachs & Co.
RRZ Public Markets, Inc.
Butcher & Singer
Innova Securities, Inc.
WR Lazard, Laidlaw & Mead, Inc.
Merrill Lynch & Co.
Prudential Securities Incorporated
For the fiscal year ended (a) April 30, 1994
File number (c) 811-4930
SUB-ITEM 77 0
EXHIBITS
Transactions Effected Pursuant to Rule 10f-3
1. Name of Issuer
Dormitory Authority of the State of NY City University 93A
2. Date of Purchase
6/07/93
3. Number of Securities Purchased
70,000
4. Dollar Amount of Purchase
$6,797,490
5. Price Per Unit
$97.107
6. Name(s) of Underwriter(s) or Dealer(s)
From whom Purchased
Goldman, Sachs & Co.
7. Other Members of the Underwriting Syndicate
Bear, Stearns & Co. Inc.
M.R. Beal & Company
The First Boston Corporation
Kidder, Peabody & Co., Inc.
WR Lazard, Laidlaw & Mead, Inc.
Lehman Brothers
J.P. Morgan Securities
Prudential Securities Incorporated
The Bank of New York
Alex. Brown & Sons, Incorporated
First American Municipals, Inc.
Glickenhaus & Co.
Grigsby Brandford & Co., Inc.
Morgan Stanley & Co. Inc.
PaineWebber Incorporated
Pryor, McClendon, Counts & Co.
Reinoso & Company, Inc.
Muriel Siebert & Co. Inc.
Wm. E. Simon & Sons Municipal Securities, Inc.
Smith Barney, Harris Upham & Company, Inc.
United Daniels Securities, Inc.
Dean Witter Reynolds & Co. Inc.
Board of Directors or Trustees of:
Prudential Adjustable Rate Securities Fund
The BlackRock Government Income Trust
Prudential California Municipal Fund
Prudential Equity Fund
Prudential Equity Income Fund
Prudential FlexiFund (2 Portfolios)
Prudential GNMA Fund
Prudential Global Fund
Prudential Global Genesis Fund
Prudential Global Natural Resources Fund
Prudential Government Plus Fund
Prudential Growth Fund
Prudential Growth Opportunity
Prudential High Yield Fund
Prudential IncomeVertible Fund
Prudential Intermediate Global Income Fund
Prudential Multi-Sector Fund
Prudential Municipal Bond Fund (3 Portfolios)
Prudential Municipal Series Fund (11 Portfolios)
Prudential National Municipals Fund
Prudential Pacific Growth Fund
Prudential Short-Term Global Income Fund (2 Portfolios)
Prudential Strategic Income Fund
Prudential Structured Maturity Fund
Prudential U.S. Government Fund
Prudential Utility Fund
Global Utility Fund, Inc.
Nicholas-Appelgate Fund, Inc.
We have examined the accompanying description of the Prudential Dual Pricing
Worksheet (the "Worksheet") application of State Street Bank and Trust Company
("State Street"), custodian and recordkeeper for the Prudential Mutual Funds
(the "Funds"). Our examination included procedures to obtain reasonable
assurance about whether (1) the accompanying description presents fairly, in
all material respects, the aspects of State Street's policies and procedures
that may be relevant to a Fund's internal control structure relating to the
Worksheet, (2) the control structure policies and procedures included in the
description were suitably designed to achieve the control objectives specified
in the description, if those policies and procedures were complied with
satisfactorily, and (3) such policies and procedures had been placed in
operation as of June 30, 1993. The control objectives were specified by
Prudential Mutual Fund Management. Our examination was performed in accordance
with standards established by the American Institute of Certified Public
Accountants and included those procedures we considered necessary in the
circumstances to obtain a reasonable basis for rendering our opinion.
In our opinion, the accompanying description of the aforementioned application
presents fairly, in all material respects, the relevant aspects of State
Street's policies and procedures that had been placed in operation as of June
30, 1993. Also, in our opinion, the policies and procedures, as described, are
suitably designed to provide reasonable assurance that the specified control
objectives would be achieved if the described policies and procedures were
complied with satisfactorily.
In addition to the procedures we considered necessary to render our opinion as
expressed in the previous paragraph, we applied tests to specific policies and
procedures, listed in Section I, to obtain evidence about their effectiveness
in meeting the control objectives, described in Section I during the period
from July 1, 1992 to June 30, 1993. The nature, timing, extent, and results of
the tests are listed in Section II. In our opinion the policies and procedures
that were tested, as described in Section II, were operating with sufficient
effectiveness to provide reasonable, but not absolute, assurance that the
control objectives specified in Section I were achieved during the period from
July 1, 1992 to June 30, 1993.
The relative effectiveness and significance of specific policies and procedures
at State Street, and their effect on assessments of control risk on the Funds
are dependent on their interaction with the policies, procedures, and other
factors present at individual Funds. We have performed no procedures to
evaluate the effectiveness of policies and procedures at individual Funds in
connection with this report.
The description of policies and procedures at State Street is as of June 30,
1993, and information about tests of the operating effectiveness of specified
policies and procedures covers the period from July 1, 1992 to June 30, 1993.
Any projection of such information to the future is subject to the risk that,
because of change, the description may no longer portray the system in
existence. The potential effectiveness of specified policies and procedures at
State Street is subject to inherent limitations and, accordingly, errors or
irregularities may occur and not be detected. Furthermore, the projection of
any conclusions, based on our findings, to future periods is subject to the
risk that changes may alter the validity of such conclusions.
This report is intended solely for use by the management and Boards of
Directors/Trustees of the Funds, the independent auditors of the Funds and the
Securities and Exchange Commission.
DELOITTE & TOUCHE
August 13, 1993
SECTION I
Policies and Procedures Placed in Operation
Prudential Dual Pricing Worksheet
Effective January 22, 1990, the Funds, offered by Prudential Securities
Incorporated (formerly Prudential-Bache Securities, Inc.) and Prudential Mutual
Fund Distributors, Inc., adopted a dual pricing system. The dual pricing
system consists of two classes of shares (Class A and Class B) for the Funds.
The Class A shares are subject to a front-end sales load and the Class B shares
are subject to a contingent deferred sales charge. The two classes of shares
represent interests in the same portfolio of investments of the respective Fund
and are identical in all respects, except that each class is subject to
different distribution expenses and has exclusive voting rights with respect to
the Rule 12b-1 distribution plan pursuant to which such distribution expenses
are paid.
In order to allocate income and expenses between the two classes of shares,
State Street Bank and Trust Company (the Funds' custodian and recordkeeper)
utilizes the Prudential Dual Pricing Worksheet (the "Worksheet") (see Exhibit
I). The Worksheet is a manual supplementary application that extracts relevant
data from the Funds' primary accounting system, allocates income and expenses
between the two classes of shares and computes the daily net asset value and,
if applicable, the dividend/distribution for each class of shares. Internal
accounting controls that are relevant to the Fund can be divided into two
components - controls related to the mutual fund accounting system resident at
State Street Bank and Trust Company (the "primary accounting system") and
controls related to the Worksheet.
The specific control objectives and policies and procedures relating to the
Worksheet are described on pages 4 and 5. A description of the tests of the
policies and procedures designed to obtain evidence about the operating
effectiveness of those policies and procedures in achieving the specific
control objectives is included in Section II.
Control Objectives and Policies and Procedures
Prudential Dual Pricing Worksheet
The Worksheet is a supplementary manual application to the Funds' primary
accounting system. Certain data is extracted from the primary accounting
system to allocate income and expenses and to calculate the daily net asset
value and, if applicable, dividends/distributions for each class of shares.
The primary accounting system includes the details of transactions in
accordance with the Investment Company Act of 1940, as amended.
The following represents the internal accounting control objectives and
policies and procedures for the allocation of income and expenses and the
computation of the net asset value and, if applicable, the
dividend/distribution for each class of shares utilizing the Worksheet. It
does not cover the internal accounting control policies and procedures
surrounding the processing of information into the Funds' primary accounting
system.
CONTROL OBJECTIVES CONTROL POLICIES AND PROCEDURES
A. Capital share activity 1. Daily, the transfer agent forwards
as reported by the Fund's reports of capital share capital share
transfer agent is recorded activity for each class which includes
for each class in an accurate a summary of subscriptions,
and timely manner by the fund. redemptions, exchanges and other
information (the "Supersheet"). The
opening day's balance for shares
outstanding and for shares eligible for
dividends are recorded on the
Worksheet. shares eligible for
dividends are recorded on
2. Estimated interim share activity
for the current day not recorded in the
Supersheet is received via telefax from
the transfer agent and is recorded for
each class on the Worksheet.
B. Net Asset Value ("NAV") 1. The prior days ending NAV per
and, if applicable, the share (unrounded) for each class is
dividend/distribution for agreed to the prior day's Worksheet.
each class are accurately
computed on a daily basis. 2. The daily net capital stock
activity for each class for the current
day is agreed to the Supersheet as
described in Control Procedures A.1 and
2., above.
3. Percentage Assets by Class and
Percentage Dividend Assets by Class are
calculated for each class based upon
information from the prior day
Worksheet and information recorded on
the Supersheet.
CONTROL OBJECTIVES CONTROL POLICIES AND PROCEDURES
4. Allocate investment income between
classes based on the appropriate asset
allocation percentage for each class.
5. Agree composite dividend income,
interest income, income amortization,
income equalization, management fees,
other expenses, realized gains and
losses, and unrealized
appreciation/depreciation to the
primary accounting system of the Fund.
6. Allocate expenses between classes
as follows:
a. Expenses directly
attributable to each class (12b-1
distribution expenses) are calculated
and recorded to that class.
b. Expenses attributable to both
classes are allocated in accordance
with the appropriate asset allocation
percentage for each class.
7. Allocate realized and
unrealized gains and losses between the
classes in accordance with the
appropriate asset allocation percentage
of each class.
8. Record dividends/distributions to
shareholders of each class in the
primary accounting system.
9. Aggregate the net assets for each
class and agree to the total net assets
per the primary accounting system.
10. For each class, reconcile the
current day's NAV and, if applicable,
the dividend/distribution to the
previous day's NAV and
dividend/distribution for each class.
11. The above procedures are reviewed
by the Fund supervisor or manager.
SECTION II
Tests of Operating Effectiveness
Prudential Dual Pricing Worksheet
July 1, 1992 to June 30, 1993
We reviewed the methodology and procedures for calculating the daily net asset
value and, if applicable, the dividends/distributions of the two classes of
shares and the allocation of income and expenses between the two classes of
shares.
The following are the detailed procedures which we performed with respect to
the Worksheet. These procedures were performed for selected days encompassing
all Funds subject to dual pricing during the year ended June 30, 1993, which we
believe is a representative sample, to test compliance with the control
policies and procedures as described in Section I.
Prudential Mutual Fund Management, Inc. is the manager of the Funds and has
represented to us that adequate facilities are in place to ensure
implementation of the methodology and procedures for calculating the net asset
value and dividends/distributions of the two classes of shares and the
allocation of income and expenses between the two classes of shares. Based on
our review of the description of the policies and procedures of the Worksheet,
as described in Section I, and performance of tests of operating effectiveness
as described in Section II, we concur with such representation.
Agreed "Prior Day NAV Per Share" to the previous day's Worksheet and
to the rounded NAV included on the Supersheet for each class.
Agreed "Shares Outstanding Beginning of the Day" to the Supersheet
for each class.
Agreed "Activity/Estimate" to the estimated interim share activity
reported via fax from the transfer agent for each class.
Recalculated "Current Shares Outstanding" by adding "Shares
Outstanding Beginning of the Day" and "Activity/Estimate" for each
class.
Recalculated for each class "Adjusted Total Assets" by multiplying
"Prior Day NAV Per Share" by "Current Shares Outstanding."
Recalculated "Percentage Assets-Class A/Front End" by dividing
"Adjusted Total Assets-Class A/Front End" by "Adjusted Total Assets
Composite."
Recalculated "Percentage Assets-Class B/Back End" by dividing
"Adjusted Total Assets-Class B/Back End" by "Adjusted Total Assets
Composite."
Agreed "Dividend Shares Beginning of Day" to the Supersheet for each
class.
Agreed "Activity/Estimate" to the estimated interim share activity
reported via fax from the transfer agent for each class.
Recalculated "Current Dividend Shares" by adding "Dividend Shares
Beginning of Day" and "Activity/Estimate" for each class.
Recalculated for each class "Adjusted Dividend Assets" by multiplying
"Prior Day NAV Per Share" by "Current Dividend Shares."
Recalculated "Percentage Dividend Assets-Class A/Front End" by
dividing "Adjusted Dividend Assets-Class A/Front End" by "Adjusted
Dividend Assets Composite."
Recalculated "Percentage Dividend Assets-Class B/Back End" by
dividing "Adjusted Dividend Assets-Class B/Back End" by "Adjusted
Dividend Assets Composite."
Agreed composite total "Dividend Income", "Interest Income",
"Amortization" and "Income Equalization" to the primary accounting
system.
Recalculated the allocation for each class of "Dividend Income",
"Interest Income" and "Amortization" for daily dividend funds by
multiplying the composite total by "Percentage Dividend Assets-Class
A/Front End" and "Percentage Dividend Assets-Class B/Back End," and
for non-daily dividend funds by multiplying the composite total by
"Percentage Assets-Class A/Front End" and "Percentage Assets-Class
B/Back End."
Recalculated "Daily Income", composite and for each class, by
totaling "Dividend Income", "Interest Income", "Amortization" and
"Income Equalization."
Agreed composite total "Management Fee" and "Other Fixed Expenses" to
the primary accounting system.
Recalculated the allocation for each class of "Management Fee" and
"Other Fixed Expenses" for daily dividend funds by multiplying the
composite total by "Percentage Dividend Assets-Class A/Front End" and
"Percentage Dividend Assets-Class B/Back End," and non-daily dividend
funds by multiplying the composite total by "Percentage Assets-Class
A/Front End" and "Percentage Assets-Class B/Back End."
Agreed the "12b-1 Fee-Class A/Front End" and "12b-1 Fee-Class B/Back
End" to the respective "PC Expense Worksheet."
Recalculated "Daily Expense", composite and for each class, by
totaling "Management Fee", "12b-1 Fee" and "Other Fixed Expenses."
Recalculated "Daily Net Income" for each class by subtracting "Daily
Expense" from "Daily Income."
Recalculated "Dividend Rate" for each class for daily dividend funds
by dividing "Daily Net Income" by "Dividend Shares Beginning of
Day-Class A/Front End" and "Dividend Shares Beginning of Day-Class
B/Back End."
Agreed "Daily Income" and "Income Distribution" for each class to the
primary accounting system.
Recalculated "Undistributed Net Income" for each Class by subtracting
"Income Distribution" from "Income Available for Distribution."
Agreed "Capital Stock Activity" for each Class to the Supersheet.
Agreed the "Capital Gain Distribution" to the amount recorded in the
primary accounting system.
Agreed composite total "Realized Gain/Loss", "Unrealized
Appreciation/Depreciation", "Unrealized Appreciation/Depreciation -
Options" and "Unrealized Appreciation/Depreciation - Futures" to the
primary accounting system.
Recalculated the allocation for each class of "Realized Gain/Loss",
"Unrealized Appreciation/Depreciation", "Unrealized
Appreciation/Depreciation - Options" and "Unrealized
Appreciation/Depreciation - Futures" by multiplying the composite
amount by the "Percentage Assets-Class A/Front End" and "Percentage
Assets-Class B/Back End."
Agreed "Prior Days Net Assets" to the previous day's Worksheet.
Recalculated "Net Assets", composite and for each class, by totaling
"Undistributed Net Income", "Capital Stock Activity", "Capital Gain
Distribution", "Realized Gain/Loss", "Unrealized
Appreciation/Depreciation", "Unrealized Appreciation/Depreciation -
Options", "Unrealized Appreciation/Depreciation - Futures", and
"Prior Days Net Assets."
Recalculated "NAV Per Share" dividing the "Net Assets-Class A/Front
End" and "Net Assets - Class B/Back End" by "Current Shares
Outstanding - Class A/Front End" and 'Current Shares Outstanding -
Class B/Back End", respectively.
Recalculated "Offering Price" for Class A shares by applying the
"Load" percentage as stated in the fund's prospectus.
Board of Trustees
Prudential Municipal Bond Fund:
In planning and performing our audit of the financial statements of Prudential
Municipal Bond Fund ("Fund") for the year ended April 30, 1994, we considered
its internal control structure, including procedures for safeguarding
securities, in order to determine our auditing procedures for the purpose of
expressing our opinion on the financial statements and to comply with the
requirements of Form N-SAR, not to provide assurance on the internal control
structure.
The management of the Fund is responsible for establishing and maintaining an
internal control structure. In fulfilling this responsibility, estimates and
judgments by management are required to assess the expected benefits and related
costs of internal control structure policies and procedures. Two of the
objectives of an internal control structure are to provide management with
reasonable, but not absolute, assurance that assets are safeguarded against loss
from unauthorized use or disposition and that transactions are executed in
accordance with management's authorization and recorded properly to permit
preparation of financial statements in conformity with generally accepted
accounting principles.
Because of inherent limitations in any internal control structure, errors or
irregularities may occur and not be detected. Also, projection of any
evaluation of the structure to future periods is subject to the risk that it may
become inadequate because of changes in conditions or that the effectiveness of
the design and operation may deteriorate.
Our consideration of the internal control structure would not necessarily
disclose all matters in the internal control structure that might be material
weaknesses under standards established by the American Institute of Certified
Public Accountants. A material weakness is a condition in which the design or
operation of the specific internal control structure elements does not reduce
to a relatively low level the risk that errors or irregularities in amounts that
would be material in relation to the financial statements being audited
may occur and not be detected within a timely period by employees in the normal
course of performing their assigned functions. However, we noted no matters
involving the internal control structure, including procedures for safeguarding
securities, that we consider to be material weaknesses as defined above as of
April 30, 1994.
This report is intended solely for the information and use of management and the
Securities and Exchange Commission.
DELOITTE & TOUCHE
June 16, 1994
